Installment Sales

INSTALLMENT SALES Problem 1. The following selected accounts were taken from the trial balance of Survival Company as of December 31, 2013:  The entry for repossessed goods was: RM RL

150,000 240,000 IR-2011 IR-2012

180,000 210,000

RM DGP 2011 DGP 2012 RL

150,000 54,000 67,200 118,800 IR-2011 IR-2012

180,000 210,000

1. Total Realized Gross Profit in 2013 2. 2. Balance of Deferred Gross Profit as of December 31, 2013 3. Net income in 2013 P1 Beg Inv.

525,000

Purchases

3,900,000

Freight in

30,000

2011 Beg ISAR

1,230,000

Rep. Accounts

(180,000)

(210,000)

(410,000) 150,000

(570,000) 450,000

(1,760,000) 2,700,000

30%

32%

37.5%

45,000

144,000

1,012,500

150,000 4,605,000

Collections End. ISAR

Less: Shipment on IS

2,787,500

GP rate

TGAS for regular sales

1,817,500

DGP

282,000

Cost of regular sales

1,535,500

Cash sales

1,201,500

900,000

Charge sales Total sales

1,800,000 2,700,000

Less: COS

1,535,500

GP on regular sales RGP 11 (410,000 x 30%) RGP 12 (570,000 x 32%) RGP 13 (1,760,000 x 37.5%) Total RGP OPEX Repossesssion Loss Net Icome

1,164,500 123,000 182,400 660,000 2,129,900 (150,000) (118,800) 1,861,100

B

D

2013

740,000

Repossessed Merchandise TGAS

Less: End. Inventory

2012

4,460,000

Problem 2. Achievement Company which began operations on January 1, 2013 TIM 280,000 Over Allow. 210,000 IS 490,000

RM DGP Loss

189,000 89,500 73,500 ISAR 350,000 (290,000 x 85%) – 57,500 = 189k

Bad Debts Exp. 115,500 DGP 38,500 ISAR 154,000

How much is the deferred gross profit at December 31, 2013? What is the net income for the year ended December 31, 2013? P2 IS net of over allowance

2,940,000

GP on RS (1,312,500 - 752,500) RGP (1,288,000 x 25%)

560,000 322,000

Less: Cost of IS

2,205,000

TRGP

882,000

GP

735,000

GP rate

25%

Interest income

84,000

Opex including bad debts Loss on repossession

(367,500) (73,500)

Net income Total collections Less: RS

525,000

2,088,000 1,312,500

Less: AR end 512,500 Collection on IS IS net of overallowance Collections Write off Rep. Accounts ISAR 12/31/13 GPRate DGP

Answer

D

800,000 1,288,000 2,940,000 (1,288,000) (154,000) (350,000) 1,148,000 25% 287,000

Problem 3. The following account balances appear on the books of Fulfillment Company  Merchandise repossessed was erroneously debited as a newly acquired merchandise equal to the amount defaulted by the customer.  Appraisal reports show that this repossessed merchandise has a true worth of P20,000 at the time of repossession and remain unsold at year end. RM 20,000 DGP 27,500 DGP 27,500 RM 20,000 Loss 2.500 Loss 2,500 ISAR 50,000 Purchases 50,000  The final inventory of the merchandise (new) valued at cost amounted to P45,000.

P3 Beg. Inv Purchases (640 - 50) Rep. Merch. TGAS Ship. On IS (1M x 50%) TGAS on RS Less: End. Inv. Cost of Reg. Sales

75,000 590,000 20,000 685,000 (500,000) 185,000 65,000 120,000

Reg. Sales (1.25M - 1M)

250,000

CORS

120,000

GP RGP 2011

130,000 261,250

RGP 2012 (300k x 55%)

165,000

RGP 2013 (400k x 50%) Total RGP

200,000 756,250

B

Opex Loss on rep.

(425,000) (2,500)

Net Income

328,750

C

Problem 4. Confidence Corporation sells goods on the installment basis. How much was the collections for the year? P4 Rep. Accounts Rep. Merch

2,700,000 (1,687,500)

Loss on Rep.

(202,500)

DGP

810,000

GPR (810/2,700)

30%

DGP or IS

3,600,000

12,000,000

(810,000)

(2,700,000)

RGP / Collections

(1,170,000)

(3,900,000)

DGP / ISAR 12/31

1,620,000

5,400,000

DGP on Rep/ AR

ANSWER

C