Professional Documents
Culture Documents
Members:
Alvarez, Kate Mahalia M.
Antaran, Elisha Coleen A.
Halili, Patricia Anne M.
Ignacio, Francesca Maranela C.
I. Easy
A. Theories
1. (50) FTEK (France, Trisha, Elisha, Kate) Meat Market sells quarters and sides of
beef on the installment basis. Losses on receivables are very difficult to predict, and
meat products cannot be repossessed. The revenue recognition method to be used by
FTEK would be:
a. Point of Sale
b. Installment Sales
c. Cost Recovery
d. Answer B or C is correct
2. (59) Deferred Gross Profit on installment sales is generally treated as a(n)
a. deduction from installment accounts receivable
b. deduction from installment sales
c. unearned revenue and classified as a current liability
d. deduction from gross profit on sales
3. At the time of repossession, repossessed merchandise is debited at its:
a. Original cost
ANSWER: B (8;392 G)
4. Under the instalment method, realized gross profit is computed at the end of each
year by:
a. Multiplying the total collections by the gross profit rate based on cost
b. Multiplying the total collections by the gross profit rate based on sales
c. Multiplying the selling price by the gross profit rate
d. Multiplying the cost of sales by the gross profit rate
ANSWER: B (7;392 D)
ANSWER: D (92;230 D)
6.
7.
8.
9.
B. Solving
10. MM Company began operations on January 1,2015 and appropriately uses the
instalment method of accounting. The following data are available for 2015 and 2016
2015 2016
A: B (1;197 D)
S: Realized gross profit on instalment sales in 2016: Collections x Gross profit rate %
2015 sales: P500,000 x 30%
……………………………………………………P150,000
2016 sales: P600,000 x 40% ……………………………………………………
240,000
P390,000
11. BMW Corporations sels car on a three year instalment sales contract. On December 31,
2018, the last day of BMW’s first year of operations, the results of operations before
adjustment are summarized below:
Sales
P1,000,000
Cost of Instalment Sales
700,000
Operating expenses
80,000
The total collections during the year including interest and financing charges of P100,000 is
P500,000. What is the net income of BMW Corporation for the year ended December
31,2018?
a. P220,000
b. 140,000
c. 150,000
d. 120,000
A: B (4;394 G)
S: Sales
P1,000,000
Cost of installment sales
700,000
Deferred gross profit P 300,000
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000) P 600,000
Gross profit rate (300,000 1,000,000) X 30% 180,000
Realized gross profit P 120,000
Operating expenses 80,000
Operating income P 40,000
Interest and financing charges 100,000
Net income P 140,000
12. Roco Corp., which began business on January 1, 2018, appropriately uses the
installment sales method of accounting for income tax reporting purposes. The following
data are available for 2018:
Installment accounts receivable, 12/31/2018
P200,000
Installment sales for 2018
350,000
Gross profit on sales
40%
Under the installment method, what would be Roco’s deferred gross profit at December
31, 2018?
a. P20,000
b. 90,000
c. 80,000
d. 60,000
A: C (2;4 link)
S: Installment account receivable, 12/31/13 P200,000
Gross profit rate 40%
Deferred gross profit, December 31,2013 P 80,000
13. Gray Co., which began operations on January 1, 2018, appropriately uses the
installment method of accounting. The following information pertains to Gray operations
for the 2018:
P5
00,
00
Installment sales 0
In its December 31, 2018 statement of financial position, what amount should
Gray report as deferred gross profit?
a. P250,000
b. 200,000
c. 160,000
d. 75,000
A: B
S:
Collections 100,000
Or
14. Filstate Co. is a real estate developer that began operations on January 2, 2018.
Filstate appropriately uses the installment method of revenue recognition. Filstate sales
are made on the basis of a 10% downpayment, with the balance payable over 30 years.
Filstate gross profit percentage is 40%. Relevant information for Filstate first year of
operations is as follows:
Sales P16,000,000
The realized gross profit and deferred gross profit at December 31, 2018 are:
a. P808,000 and P5,592,000
b. 5,040,000 and 808,000
c. 5,600,000 and 808,000
d. 808,000 and 6,400,000
A: A
S:
40
Gross profit rate %
15. Long Co., which began operations on January 1, 2018, appropriately uses the
installment method of accounting. The following information pertains to Long’s
operations for the year 2018:
P1,0
00,00
Installment sales 0
a. P400,000
b. 200,000
c. 300,000
d. 100,000
A: C
S:
Collections P200,000
16. Kiko Co. began operations on January 1, 2018 and appropriately uses the
installment method of accounting. The following information pertains to Kiko’s
operations for 2018:
P8
00,
00
Installment sales 0
The balance in the deferred gross profit account at December 31, 2018 should be:
a. P120,000
b. 150,000
c. 200,000
d. 320,000
A: C
S:
17. Tayag Corp., which began operations in 2018, accounts for revenues using the
installment method. Tayag’s sales and collections for the year were P60,000 and
P35,000, respectively. Uncollectible accounts receivable of P5,000 were written off
during 2018. Tayag’s gross profit rate is 30%. On December 31, 2018, what amount
should Tayag report as deferred revenue?
a. P10,500
b. 9,000
c. 7,500
d. 6,000
A: D
S:
Installment sales P60,000
5,00
Accounts written off 0 40,000
3
0
Gross profit rate %
II. Average
Vic Corporation, which began business on January 1,2015, appropriately uses the
instalment sales method of accounting. The following data are available:
12/31/2015
12/31/2016
Balance of deferred gross profit on sales account:
2015……………………………………………………
P300,000 P120,000
2016……………………………………………………
440,000
Gross profit on sales
30% 40%
The instalment accounts receivable balance at December 31, 2016 is
a. P1,000,000
b. 1,100,000
c. 1,400,000
d. 1,500,000
A: D (17;203 D)
S:
Instalment accounts receivable, December 31, 2016:
Deferred gross profit, December 31, 2016/Gross profit rate
2015 sales: P120,000 / 30%............................................................. P
400,000
2016 sales: P440,000 / 40%............................................................ 1,100,000
Instalment accounts receivable, December 31, 2016………………………………
P1,500,000
Gianne Co., sold a computer on instalment basis on October 1, 2015. The unit cost to
the company was P86,400, but the instalment selling price was set at P122,400. Terms
of payment included the acceptance of a used computer with a trade-in allowance of
P43,200. Cash of P7,200 was paid in addition to the traded-in computer with the
balance to be paid in ten monthly instalments due at the end of each month
commencing the month of sale.
It would require P1,800 to recondition the used computer so that it could resold for
P36,000. A 15% gross profit was usual from the sale of used computer. The realized
gross profit from the 2016 collections amounted to:
a. P5,760
b. 14,100
c. 11,520
d. 48,960
A: C (27;208 D)
S:
Trade-in allowance…………………………………………………………………….. P
43,200
Less: market value of trade-in merchandise
Estimated resale price after reconditioning………. P36,000
Less: Reconditioning costs………………………………... 1,800
Normal profit (15% x P36,000)…………………. 5,400
28,800
Over allowance
P 14,400
P 11,520
A refrigerator was sold to Fernandina Castro for P16,000, which included a 40%
markup on selling price. She made a down payment of 20%, payment of four of the
remaining 16 equal payment and defaulted on further payments. The refrigerator was
repossessed, at which time the fair value was determined to be P6,800. The
repossession resulted to the following (loss) gain:
a. P(1,040)
b. P1,040
c. P4,056
d. P2,960
A: B (29;14 link)
S:
Fair value of repossessed merchandise
P6,800
Unrecovered Cost:
Unpaid balance:
Sales 16,000
Collections:
Downpayment 3,200
Installment 3,200 6,400 9,600
Deferred gross profit (9,600 x 40%) 3,840 5,760
Gain on repossession
P1,040
JGG Company began operations on June 1. 2013. The following information extracted
from its records at year-end:
What is the net income for the year ended December 31,2013?
a. P341,250
b. 267,750
c. 90,157
d. 174,000
A: A (22;402 G)
S:
Regular sales
P1,575,000
Cost of regular sales
1,050,000
Gross profit on regular sales 525,000
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%) 2,625,000
Installment accounts receivable-12/31/08 1,575,000
Collections 1,050,000
Gross profit on rate on sales 140/240 612,500
Total realized gross profit
1,137,500
Operating expenses (1,137,500 x 70%) 796,250
Net income
Sales price:
Cash P300,000
Purchase money
mortgage 2,700,000 3,000,000
The mortgage is payable in nine annual installments of P300,000 beginning December
31,2018 plus interest of 10%. The December 31,2018 installment was paid as
scheduled, together with interest of P270,000. RR uses the cost recovery method to
account for the sale. What amount of income should RR recognize in 2018 from the
real estate sale and its financing?
a. P570,000
b. P370,000
c. P270,000
d. P0
A: D
S:
Zero, because the total cost of P2,000,000 is not yet fully recovered. The total collections
applying to principal as of December 31, 2018 is only P330,000 (P300,000 + P30,000), so no
income is yet to be recognized.
The Company uses the installment method of accounting to recognize income,
Pertinent data are as follows:
2016 2017 2018
Installment
sales P300,000 P375,000 P360,000
2017 - - 72,000
The total balance of the Installment Accounts Receivable on December 31,2018 is:
a. P270,000
b. P277,500
c. P279,500
d. P300,000
A: B
S:
2
4
Divide by GPR (GP/IS) % 30%
If collections on installment sales during the year amounted to P240,000, how much
was the total gross profit realized at the end of the year?
a. P50,000
b. P60,000
c. P80,000
d. P230,000
A: D
S:
Charge (33-1/3% /
133-1/3%) 25%
Total P230,000
The 680 Appliance Company reports gross profit on the installment basis. The
following data are available:
Cost of goods –
installment sales 180,000 181,250 216,000
Collections:
2016
installment
contracts P45,000 P75,000 P72,500
2017
installment
contracts 47,500 80,000
2018
installment
contracts 62,500
Defaults:
Unpaid balance
of 2016
Installment
contracts P12,500 P15,000
Value assigned
to repossessed
Installment
contracts 16,000
Value assigned
to repossessed
Merchandise 9,000
The total realized gross profit after loss on repossession for 2018 is:
a. P49,775
b. P57,625
c. P48,975
d. P56,625
A: A and A
S:
This is computed by deducting the loss on repossession from the total realized gross
profit: Year of Sales
Tot
2016 2017 2018 al
2017:P68,750/P250
,000 27.5%
Loss on
repossession
Value of P6
repossessed ,00 P9,0
merchandise 0 00
Unrecovered cost:
Unpaid
balance 15,000 16,000
Less: deferred
gross profit
2016:P15,000
x25% 3,750
2017:P16,000
x27% _____ 4,400
Unrecovered
cost 11,250 11,600
Loss on (7,850
repossession (P5,250) (P2,600) )
(43)
1. Kefa Trading accounts for sales under the installment method. On January 1,2017 it's
ledger accounts included the following balances:
Installment sales in 2017 were made at a 42% gross profit rate. December 31,2017 account
balances before adjustments were as follows:
Total 149,360
2015 sales -
Purchases 555,000
Repossessions 3,000
Additional information:
As of December P120,0
31,2017 00
Merchandise,
December 31,2018 95,000
Repossession was made during the year on a 2017 sale and the corresponding
uncollected amount at the time of repossession was P7,750.
a. P85,500
b. P129,262.5
c. P43,762.5
d. P119,622.5
A: B and A
S:
Total realized gross profit is computed below:
Year of sales
2012 2013
Sale
s Sales
4 3
5 8
Gross profit rates % %
Total (P129,562.50)
Installment sales
Purchases 555,000
Repossession 3,000
Total 533,000
How much is the deferred gross profit applicable to uncollected installment accounts?
a. P3,750
b. P22,500
c. P26,520
d. P26,250
a. P10,000
b. P10,250
c. P11,000
d. P11,500
A: D and B
S:
GPR(P161,500/P425,000) 38%