INSTALLMENT SALES & LONG-TERM CONS.docx

Installment sales III

IV – Timing of Recognition of Gross Profit

V Growth Sales Corporation sells on instalment basis and accounts for it using the instalment method. Some information related to its operations are summarized below 2009 P370,500

Cost of Sales Gross Profit on sales

35%

2010 P855,36 0 34%

2011 P568,890 37%

Beginning and Ending Balance of Receivables Installment Receivable – 2009 Installment Receivable – 2010 Installment Receivable – 2011

January 1, 2011 P72,060

December 31, 2011

1,033,380

P208,320 327,270

During 2011, the company repossessed an inventory which had been sold in 2010 for P16,200 and P9,600 had been collected prior to default. GROWTH values the repossessed goods at market value. The resale price of the repossessed merchandise amounted to P5,100 after incurring reconditioning cost of P1,000. Compute for the total realized profit for the year 2011. a. P511,010

b. 516,518

c. 518,762

d. 513,254

VI The following data pertain to instalment sales of INNOVATE’s store: Down payment is 30%: Cost of instalment sales: 2009, P2,725,000; 2010, P3,925,000; 2011, P4,840,000. Mark up on cost is 40%. Collections after down payment are: 45% during the year of sale; 35% during the year after sale; 20% on the third year. What is the amount of gross profit at December 31, 2010 to be presented in the Statement of Financial Position? a. P757,050

b. P659,400

c. P431,750

d. P604,450

VII The following selected accounts appeared in the trial balance of Change’s Company as of December 31, 2011. Installment receivable – 2010 sales Installment receivable – 2011 sales Inventory – December 31, 2010 Purchases Freight-in Additional information:

P360,000

Loss on repossession

480,000

Installment Sales

168,000

Regular sales

1,307,000 25,000

Selling Expenses

&

P

3,960

1,020,000 924,000 Adm.

276,000

Installment receivable – 2010 sales, January 1, 2011 P342,000 Inventory of new and repossessed merchandise as of January 1, 2012-01-12 228,000 Mark-up on regular sales in 2011 is 10% lower than the gross profit percentage on instalment sales in 2010. There was an instalment account written-off amounting to P25,000 in 2011 pertaining to the 2011-sales. The write-off was made during the year and was recorded correctly. Repossession was made during the middle of the year and was recorded correctly. It was a 2010 sale and the corresponding unrecovered cost is P11,160; related gross profit is P7,440. What is the net income for 2011. a. P325,080

b. P317,640

c. P308,140

d. P321,600

VIII Atlantic Company, which began operations on January 1, 2012 appropriately uses the instalment method of accounting. The following data pertain to Atlantic’s operations for year 2012: Installment sales (before adjustment) P 3,150,000 Operating expenses (before write-off and repossessions) 252,000 Regular sales 1,312,500 Cash collections on instalment sales (including interest of P84,000) 1,092,000 Cost of regular sales 752,500 Cost of instalment sales 2,205,000 Installment receivables written-off due to defaults 154,000 FMV of repossessed merchandise 189,000 Repossessed accounts 350,000 Actual value of trade-in Merchandise 280,000 Trade-in allowance 490,000 How much is the deferred gross profit at December 31, 2012? What is the net income for the year ended December 31, 2012? A. P353,500 ; P455,000 C. P287,000 ; P441,000 B. P353,500 ; P640,500 D. P287,000 ; P525,000 IX The following data were taken from the records of Excel Company, before the accounts are closed for the fiscal year ended March 31, 2012. The company sells exclusively on instalment basis and uses instalment method of recognizing revenue. For the year ended For the year ended For the year ended March 31, 2010 March 31, 2011 March 31, 2012 Installment Sales Costs of Goods Sold 682,500 Salaries Expense Rent Expense 10,500 Balances as of March 31, 2012 Installment AR, 2010 52,500 Installment AR, 2011 245.000 Installment AR, 2012 857,500 Deferred Gross Profit, 2010 52,500 Deferred Gross Profit, 2011 263,200 Deferred Gross Profit, 2012 367,500

P700,000 525,000

P875,000 525,000

21,000 10,500

22,750 10,500

March 31, 2010 437,500

March 31, 2011 210,000 665,000

109,375

P1,050,000

52,500 266,000

24,500

On January 2012, a customer defaulted and Excel Company repossessed merchandise appraised at P4,375 after costs of reconditioning of P630. The merchandise had been purchased in 2011 by a customer who still owed the company a certain amount at the date of repossession. How much was the net income for the fiscal year ended March 31, 2012? A. P239,295 C. P236,950 B. P236,495 D. P239,750 X Quest Company is a dealer of motorcycles. The company gives trade discounts of 20% to buyers who will purchase more than 5 motorcycles during its anniversary blow-out in the month of June. On June 1, Emerald purchased 6 units of motorcycles with a list price of P292,500 each. Each motorcycle costs Quest P169,050. Quest Company granted an allowance of P144,000 to Emerald’s used motorcycles as trade-in, the current market value of each of the 6 automobiles traded-in is P31,500. The balance is payable as follows: 40% at the time of purchase, the rest is payable in 6 installment at the end of each quarter after month of sale. After paying 2 installments, Emerald defaulted and all the motorcycles sold to him were repossessed. It would require total reconditioning costs of P27,000 for the items repossessed from Emerald A 16% gross profit rate was usual from the sale of used motorcycle. Quest Company recognized a P1,800 loss as a result of the repossession of motorcycles. What was the estimated resale value per unit of motorcycle repossessed? A. P70,500 C. P75,000 B. P60,381 D. P55,881

Long-Term Construction Contracts On February 1, 2011, YK Construction Company obtained a contract to build an athletic stadium. The stadium was to be built at a total cost of P5,400,000 and was scheduled for completion by September 1, 2009. One clause of the contract stated that YK was to deduct P15,000 from the P6,600,000 billing price for each week that completion was delayed. Completion was delayed six weeks. 2011 2013 Cost Incurred each year 1,650,000 Estimated cost to complete Contract billing each year Cash collections each year 3,710,000 Selling and general expenses 70,000

2012

1,782,000

2,068,000

3,618,000 1,200,000 1,000,000

1,650,000 1,900,000 1,800,000

100,000

90,000

-03,410,000

1.

What is the net income for the year 2012 using the percentage of completion method. 2. What is the balance of the Construction in Progress, net of Contract Billings account at YK’s December 31, 2012 balance sheet? (Using the Percentage of Completion Method) 3. What is the balance of the Construction in Progress, net of Contract Billings account at YK’s December 31, 2012 balance sheet? (Using Zero-Profit Method) 4. What is the amount of gross profit to be recognized for the year ended 2013? (Using Percentage of Completion Method) II The XY Corporation began construction work under a three-year contract. The contract price was P700,000. XY uses the percentage of completion method for financial accounting purposes. The financial statement presentation relating to this contract at December 31, 2011 is presented below: Balance Sheet Accounts Receivable – contract billings Construction in progress P87,500 Less: Contract billings 82,250

P26,250 5,250

Income statement Income (before tax) on the contract recognized in 2011 P17,500

The estimated gross profit on this contract A. P740,000 B. P656,250 C. P691,250 D. P140,000 III Sharp Company entered in a long-term project which begun in 2011 and continued through 2012. Sharp uses the Percentage of Completion Method in recognizing revenue. As of 2012, Sharp billed 40% of the total contract price. Some other information about the project is as follows: Construction cost Construction in progress Contract billings Collection from the contract

2011 P85,000 92,000 100,000 100,000

2012 P155,000 280,000 350,000 250,000

Compute for the profit recognized in 2012 and percentage of completion as of year 2012. A. P33,000; 32% B. P125,000; 80% C. P70,000; 25% D. P0-; 100%

IV On July 1, 2011, BC Construction Corp., contracted to build an office building for FG, Inc. for a total contract price of P2,437,500. 2011 2013 Contract cost incurred to date 2,625,000 Estimated costs to complete the contract Billings to FG, Inc.

2012 187,500

1,500,000

1,687,500 1,000,000 -0375,000 1,375,000 687,500

How much is the Construction in progress account balance at December 31, 2012 using percentage of completion method? How much is the Construction in progress account net of progress billings at December 31, 2012, using the zero-profit method? How much is the realized gross profit/(loss), using the percentage of completion method in 2013? V TMJ Builders, Inc. entered in a construction contract on April 1, 2008 and uses the percentage of completion method of accounting for it. The total contract price is P10,000,000. TMJ received a down payment of P1,000,000 and a 5% interest bearing note for the remaining balance. The client paid 60% of the balance plus interest in December 31, 2008 and the rest in December 31, 2009. Estimated cost at completion are P7,500,000 for 2008 and P8,000,000 for 2009. How much income should TMJ recognize in this contract for the year ended December 31, 2009? VI Complex Builders Construction Company entered into two construction jobs which both commenced in 2011 (in thousands). Project 1 Project 2

Construction Revenue Construction cost incurred Estimated future cost General and administrative exp.

P10,500 6,000 3,000 500

Billing to clients

P7,140 7,000 1,560 250

6,300

Collections

5,600

6,000 5,000

Based on the information given, how much gross profit (loss) would Complex Builders report on its 2011 income statement? With Dependable Estimates Without Dependable Estimates A. (420,000) (1,420,000) B. 1,000,000 (1,420,000) C. (420,000) 1,000,000 D. (1,420,000) (420,000) VII On July 1, 2011, Face-off Company contracted to construct a factory building for Destiny for a total contract price of P2,688,000. The building was completed by December 1, 2013. The company uses the input measures – cost to cost method. 2011

2012

2013 Contract cost incurred P1,024,000 P832,000 P464,000 Estimated costs to complete the contract 1,024,000 464,000 Billings to Destiny

1,024,000

1,120,000

544,000

What is the amount of profit (loss) to be recognized for the year ended December 31, 2012? Excess of Construction in Progress over Progress Billings / Progress Billings over Construction in Progress in 2011. A. P294,000 ; P320,000 due to asset B. P(25,600) ; P320,000 current liability

C. P(25,600) ; P320,000 current D. P25,600 ; P320,000 due from