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Installment Sales

Chapter # 1

INSTALLMENT SALES

Goods purchase by buyer by paying a small amount of the total amount of goods at the time of purchase of goods and agrees to pay the remaining amount in equal installments in equal interval of time is known as installment. The first time payment is known as “down payment”. In installment sales, the risk and rewards are transferred to the buyer.

COST OF INSTALLMENT SALES

The cost of merchandise sold on installment basis is called cost of installment sales. It is obtained by adding net purchases in the merchandise inventory beginning and subtracting merchandise inventory ending.

UNREALIZED GROSS PROFIT

Unrealized gross profit is referred to the total gross profit from the sale of merchandise on installment basis which has not been collected. It is also known as “Deferred Gross Profit”.

REALIZED GROSS PROFIT

The profit on sale on merchandise on installment basis collected during the period out of total unrealized gross profit is called realized gross profit. In other words, it is the profit which has been collected during the period.

COMPUTATION OF COST OF INSTALLMENT SALES:
Merchandise inventory (beginning) Add: Net purchases during the period Merchandise available for sale Less: Merchandise inventory (ending) Cost of installment sales

XXX XXX XXX (XXX) XXX

COMPUTATION OF UNREALIZED GROSS PROFIT (D.G.P.):
Unrealized gross profit (D.G.P.) =

Installment sales – Cost of installment sales Unrealized gross profit Installment sales X 100

COMPUTATION OF UNREALIZED GROSS PROFIT RATE (D.G.P. %):
Unrealized gross profit Rate (D.G.P. %) =

COMPUTATION OF CASH COLLECTION:
Cash collection (current year) =

Cash collection (previous year) =

Cash collection = Realized gross profit (R.G.P.) =

Installment sales – Installment accounts receivable (ending) OR Installment accounts receivable (beginning) – Installment accounts receivable (ending) – Installment accounts receivable cancelled OR Down payment + Installments received Cash collection x Unrealized gross profit rate

COMPUTATION OF REALIZED GROSS PROFIT (R.G.P.):

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Installment Sales
Chapter # 1

COMPUTATION OF INSTALLMENT SALES / INSTALLMENT ACCOUNTS RECEIVABLE (BEGINNING):
Installment sales/installment accounts receivable (beginning) = Unrealized gross profit (D.G.P.) Unrealized gross profit rate (D.G.P.%)

COMPUTATION OF LOSS ON DEFAULT:

If the buyer is unable to pay the further installments and the seller is unable to repossess his goods from the buyer, it is said to be default. Installment accounts receivable cancelled Less: D.G.P. for go (Installment accounts receivable cancelled x D.G.P. %) Loss on default XXX (XXX) (XXX)

COMPUTATION OF GAIN OR LOSS ON REPOSSESSION:

If the buyer is unable to pay the further installments and the seller repossesses his goods from the buyer, it is said to be repossession of merchandise. Installment accounts receivable cancelled Less: D.G.P. for go (Installment accounts receivable cancelled x D.G.P. %) Book value Less: Merchandise repossessed at fair market value Gain/loss on repossession XXX (XXX) XXX (XXX) XXX/(XXX)

GENERAL ENTRIES UNDER PERPETUAL SYSTEM:

o Purchased Merchandise on Account: Merchandise DR. (with amount of purchases) Accounts payable CR. (with amount of payable) -----------------------------------------------------------------------------------------------------------o Sold Merchandise on Installment Basis: Installment accounts receivable DR. (amount receivable as installment) Installment sales CR. (amount of installment sales) -----------------------------------------------------------------------------------------------------------o Cash Collection on Installment Basis / Down Payment Received: Cash DR. (with amount of cash collection) Installment accounts receivable CR. (amount of cash collection) -----------------------------------------------------------------------------------------------------------o Payment to Suppliers: Accounts payable DR. (with amount of cash paid) Cash CR. (with amount of cash paid) ------------------------------------------------------------------------------------------------------------

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) CR. (amount of cost of installment sales) Merchandise CR. (with amount of loss on repossession) Installment accounts receivable CR.P.G. on default) Loss on default DR. (amount of D.) DR.G.P.): Installment sales DR.P.P. (with repossessed value) Unrealized gross profit (D.) Cost of installment sales CR.P.) -----------------------------------------------------------------------------------------------------------o Recording Loss on Default: Unrealized gross profit (D. (amount of cost of sales) -----------------------------------------------------------------------------------------------------------o Recording Realized Gross Profit (R. (with repossessed value) Unrealized gross profit (D.Installment Sales Chapter # 1 o Expense Paid During the Period: Expenses Cash DR.a4accounting.P. (with amount of expenses paid) CR. (with amount of D.P. (amount of gain) Installment accounts receivable CR. (installment A/R cancelled) -----------------------------------------------------------------------------------------------------------o Recording Loss on Repossession: Merchandise repossessed DR. (installment A/R cancelled) ------------------------------------------------------------------------------------------------------------ Page 5 www. (with amount of D.G.) DR.G.G.P.P.P.G.G.G.G.) DR.G. (amount of cost of goods sold) -----------------------------------------------------------------------------------------------------------o Recording Unrealized Gross Profit (D.G.net . (with amount of D. on default) Gain on default CR.P.P. (with amount of cash paid) ADJUSTING ENTRIES UNDER PERPETUAL SYSTEM: o Recording Cost of Goods Sold: Cost of installment sales DR. (with amount of R.) DR.G. on default) Loss on default DR.G. (with amount of installment sales) Unrealized gross profit (D.P.) CR. (with amount of loss on default) Installment accounts receivable CR. (with amount of realized gross profit) Realized gross profit (R. (installment A/R cancelled) -----------------------------------------------------------------------------------------------------------o Recording Gain on Repossession: Merchandise repossessed DR.): Unrealized gross profit (D.

95. 1. www. 2. 125. 10. 103. Interest income DR. Expenses CR.000 6) Selling expenses paid Rs.net Page 6 .a4accounting.G. The summary of transactions for the year ended 31 December 1995 is as follows: 1) Purchase on account Rs.000 9) Installment accounts receivable written off by repossession Rs. It sells those sets on installment basis.) DR. 90. -----------------------------------------------------------------------------------------------------------Realized Gross Profit (RGP) Cash Collection Installment A/R (Beg) or Installment sales Installment Accounts Receivable (Ending) X Unrealized Gross Profit Rate (DGP%) Unrealized Gross Profit (DGP) Installment Sales - ÷ Installment Sales - Cost of Installment Sales Merchandise Inventory (Beginning) + Total Net Purchases Merchandise Inventory (Ending) ILLUSTRATION # 1: Ali Company deals in radio and television sets.500 REQUIRED Give journal entries for the year ended 31st December 1995 including adjusting and closing entries.Installment Sales Chapter # 1 CLOSING ENTRIES UNDER PERPETUAL SYSTEM: o Closing Expenses: Expense and revenue summary DR. Gain on repossession DR. -----------------------------------------------------------------------------------------------------------o Closing Income: Realized gross profit (R. 3.000 3) Cost of installment sales Rs. Expense and revenue summary CR.000 5) Payment to accounts payable Rs.000 4) Collection of installment accounts receivable Rs. 100.P.500 2) Installment sales Rs.300 8) Repossessed merchandise at fair market value Rs.200 7) General expenses paid Rs. Loss on repossession/default CR.

400 x 100 x 100 Date 1 P/R Debit 103.000 1.000 90.000 – 100.400 3.000 Unrealized gross profit rate = 20% Computation of Realized Gross Profit (RGP): Realized gross profit = Cash collection X DGP% Realized gross profit = 90.500 x 20%) Book value Less: Merchandise repossessed at fair market value Loss on repossession ALI COMPANY GENERAL JOURNAL Particulars Merchandise Accounts payable (To record the merchandise purchased on account) Installment accounts receivable Installment sales (To record the good sold on installment basis) Cash Installment accounts receivable (To record the cash collected on installment basis) Accounts payable Cash (To record the payment to suppliers) Selling expenses Cash (To record the selling expenses paid) General expenses Cash (To record the general expenses paid) 10.000 Computation of Unrealized Gross Profit Rate (DGP%): Unrealized gross profit rate = Unrealized gross profit Installment sales Unrealized gross profit rate = 25.000 4 5 6 95.300 Page 7 www.000 Computation of Gain or Loss on Repossession: Installment accounts receivable cancelled Less: Unrealized gross profit (10.000 Unrealized gross profit = 25.a4accounting.000 90.300 2.100) 8.200 95.Installment Sales Chapter # 1 SOLUTION # 1: Computation of Unrealized Gross Profit (DGP): Unrealized gross profit = Installment sales – Cost of installment sales Unrealized gross profit = 125.500 Credit 103.200 2.000 125.000 5.000 125.500 2 3 125.000 x 20% Realized gross profit = 18.500 (2.net .000 1.

000 Installment accounts receivable – 2006 285.000 www.000 18.500 Date 1 P/R Debit 8.750 85.500 18.Installment Sales Chapter # 1 Date 1 2 3 4 ALI COMPANY ADJUSTING ENTRIES Particulars Cost of installment sales Merchandise (To record the cost of installment sales) Installment sales Cost of installment sales Unrealized gross profit (To adjust the unrealized gross profit) Unrealized gross profit Realized gross profit (To adjust the realized gross profit) Merchandise repossessed Unrealized gross profit Loss on repossession Installment accounts receivable (To adjust the repossession of merchandise) ALI COMPANY CLOSING ENTRIES Particulars Expense and revenue summary Selling expenses General expenses Loss on repossession (To close the all expense accounts) Realized gross profit Expense and revenue summary (To close the all income accounts) Expense and revenue summary Capital (To close the expense and revenue summary account) P/R Debit 100.000 Credit 100.000 12.400 10.000 9.000 18.000 25. 31 135.100 5.500 450.500 Deferred gross profit – 2006 85. are as follows: 2007 – Jan.500 Installment sales Cost of installment sales Repossessed merchandise Installment accounts receivable – 2005 cancelled on repossession - 2007 – Dec.000 9.400 18.a4accounting.000 2.900 Credit 1.000 3.net Page 8 . 1 Installment accounts receivable .2005 90.200 2.300 5.000 15.000 125.000 100.000 306.100 ILLUSTRATION # 2: The selected balances of ABC Installment Sales Co.000 Installment accounts receivable – 2007 Deferred gross profit – 2005 22.000 337.100 2 3 18.

000 450.net .500 285.Installment Sales Chapter # 1 REQUIRED a) Gross profit realized during 2007.000 x 30% Realized gross profit (2005) = 75.000 – 337.500 x 32% Realized gross profit (2006) = 150.000 Computation of Realized Gross Profit: Realized gross profit = Cash collection X DGP% Realized gross profit (2007) = 112. b) General Journal entries including adjusting entries during 2007.750 Page 9 www.000 – 0 – 15.000 Unrealized gross profit = 144.000 25% x 100 x 100 x 100 x 100 x 100 x 100 Computation of Cash Collection: Cash collection (2007) = Installment sales – Installment accounts receivable (ending) Cash collection (2007) = 450. SOLUTION # 2: Computation of Unrealized Gross Profit (DGP) (2007): Unrealized gross profit = Installment sales – Cost of installment sales Unrealized gross profit = 450.000 – 135.000 Installment A/R (Beg) – Installment A/R (End) – Installment A/R cancelled 90.000 Unrealized gross profit rate (2007)= 32% Unrealized gross profit rate (2006) = Unrealized gross profit rate (2006) = Unrealized gross profit rate (2006)= Unrealized gross profit rate (2005) = Unrealized gross profit rate (2005) = Unrealized gross profit rate (2005)= Unrealized gross profit (Beg) Installment A/R (Beg) 85.000 Computation of Unrealized Gross Profit Rate (DGP%): Unrealized gross profit rate (2007) = Unrealized gross profit Installment sales Unrealized gross profit rate (2007) = 144.750 99.500 Cash collection (2007) = 112.000 x 25% Total realized gross profit = 36.000 150.a4accounting.000 18.000 30% Unrealized gross profit (Beg) Installment A/R (Beg) 22.500 90.000 45.000 75.500 Cash collection (2006) = Cash collection (2006) = Cash collection (2006) = Cash collection (2005) = Cash collection (2005) = Cash collection (2005) = Installment A/R (Beg) – Installment A/R (End) 285.000 – 306.

000 ILLUSTRATION # 3: The following are transactions for 2008 of XYZ Installment Sales Company which follows the perpetual system and FIFO method for inventory valuation had 25 machines @ Rs.000 (3.000 306.750) 11.500 Credit 450.000 18.000 Date 1 2 Debit 306.000 45.000 3 36.750 12.000 75.750 4 750 15.300/.100/.000 Credit 306. (b) Sold 125 machines @ Rs.000 337. (d) Received 497 installments @ Rs.000) 750 Date 1 2 Debit 450. (c) Received down payment @ Rs.a4accounting. www.net Page 10 .per machine.per machine.Installment Sales Chapter # 1 Computation of Gain or Loss on Repossession: Installment accounts receivable cancelled Less: Unrealized gross profit (15.290 per machine in beginning inventory: (a) Purchased 150 machines @ Rs.500/.50/.500 150.per machine.000 144.000 x 25%) Book value Less: Merchandise repossessed at fair market value Gain on repossession ABC INSTALLMENT SALES CO.000 3.000 450.250 (12.000 112.per installment. GENERAL JOURNAL Particulars P/R Installment accounts receivable (2007) Installment sales (To record the good sold on installment basis) Cash Installment accounts receivable (2007) Installment accounts receivable (2006) Installment accounts receivable (2005) (To record the cash collected on installment basis) ABC INSTALLMENT SALES CO.750 99. ADJUSTING ENTRIES Particulars P/R Cost of installment sales Merchandise (To record the cost of installment sales) Installment sales Cost of installment sales Unrealized gross profit (2007) (To adjust the unrealized gross profit) Unrealized gross profit (2007) Unrealized gross profit (2006) Unrealized gross profit (2005) Realized gross profit (To adjust the realized gross profit) Merchandise repossessed Unrealized gross profit (2005) Gain on repossession Installment accounts receivable (2005) (To adjust the repossession of merchandise) 15.

4% Realized gross profit = Rs.a4accounting.62.Installment Sales Chapter # 1 (e) Repossesses one machine from a customer at a fair market value of Rs.250 (15.4% Computation of Cash Collection: Down payment (125 x 100) Add: Installment received (497 x 50) Total cash collection Computation of Realized Gross Profit: Realized gross profit = Cash collection X DGP% Realized gross profit = 37.500 24.15.250 Unrealized gross profit = Rs.000) Rs. who had paid only down payment and one installment.200.089 www.500 Computation of Unrealized Gross Profit: Unrealized gross profit = Installment sales – Cost of installment sales Unrealized gross profit = 62. Also determine ending inventory of merchandise.350 x 40.250 Computation of Unrealized Gross Profit Rate (DGP%): Unrealized gross profit rate = Unrealized gross profit Installment sales Unrealized gross profit rate = 25.net x 100 x 100 12.350 Page 11 .250 62.37.850 Rs. REQUIRED Give General Journal entries including adjusting entry supported by proper computations.15.250 Computation of Installment Sales: Installment sales = Units sold x Selling price per unit Installment sales = 125 x 500 Installment sales = Rs.37.000 Computation of Cost of Installment Sales: Merchandise inventory opening (25 x 290) Add: Purchases (150 x 300) Merchandise available for sale Less: Merchandise inventory ending Cost of installment sales 7. SOLUTION # 3: Computation of Merchandise Inventory Ending: Merchandise inventory opening units 25 Add: Units purchases 150 Merchandise available for sale in units 175 Less: Units sold (125) Merchandise inventory ending in units 50 Merchandise inventory ending = Units at end x Cost per unit Merchandise inventory ending = 50 x 300 Merchandise inventory ending = Rs.000 52.500 – 37.500 Unrealized gross profit rate = 40.250 45.25.

500 Credit 37.850 Date 1 2 Debit 37.250 37.250 15.net Page 12 .4%) Book value Less: Merchandise repossessed at fair market value Loss on repossession XYZ INSTALLMENT SALES COMPANY GENERAL JOURNAL Particulars P/R Merchandise (150 x 300) Accounts payable (To record the goods purchased on account) Installment accounts receivable Installment sales (To record the good sold on installment basis) Cash Installment accounts receivable (To record the down payment received) Cash Installment accounts receivable (To record the cash collected on installment basis) XYZ INSTALLMENT SALES COMPANY ADJUSTING ENTRIES Particulars P/R Cost of installment sales Merchandise (To record the cost of installment sales) Installment sales Cost of installment sales Unrealized gross profit (To adjust the unrealized gross profit) Unrealized gross profit Realized gross profit (To adjust the realized gross profit) Merchandise repossessed Unrealized gross profit Loss on repossession Installment accounts receivable (To adjust the repossession of merchandise) 500 (100) 400 (50) 350 (141) 209 (200) Rs.a4accounting.500 24.500 12.250 25.500 24.250 62.000 62.Installment Sales Chapter # 1 Computation of Gain or Loss on Repossession: Installment sales Less: Down payment Installment accounts receivable Less: Installment received Installment accounts receivable cancelled Less: Unrealized gross profit (350 x 40.089 3 4 15.500 Credit 45.000 62.9 Date 1 2 3 4 Debit 45.089 200 141 9 350 www.850 12.

000 16.250 418.750 Installment accounts receivable – 2000 27.500 Page 13 www.P (2nd year) Total owner’s equity Total equities (Rupees) XXX XXX XXX XXX XXX XXX XXX XXX XXX ILLUSTRATION # 4: The following trial balance has been prepared from the ledger of Imran & Co: IMRAN & CO.000 Cost of installment sales 540.750 Installment accounts receivable – 2001 123.000 Accounts payable Deferred gross profit – 2000 Share capital Retained earnings Sales Installment sales Purchases 750. 2001 117.) 112.Installment Sales Chapter # 1 INCOME STATEMENT Sales Less: Cost of goods sold Gross profit Add: Realized gross profit (RGP) Total gross profit Less: Operating expenses Net profit XXX (XXX) XXX XXX XXX (XXX) XXX BALANCE SHEET Assets Current Assets: Cash Accounts receivable Installment A/R (1st year) Installment A/R (2nd year) Merchandise inventory Other current assets Total current assets Fixed Assets: Land Other fixed assets Total fixed assets Total assets (Rupees) XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX Equities Liabilities: Accounts payable Other liabilities Total liabilities Owner’s Equity: Capital Add: Net profit Add: D.P (1st year) Add: D.000 540.G.113.000 Land and building 45.500 (FINANCIAL STATEMENTS) Credit (Rs.250 Total 2.750 720.G.000 2.113.) Cash 33. 2001 Debit (Rs.750 Inventory January 1.000 Shipment on installment sales Operating expenses 416. TRIAL BALANCE AS ON DECEMBER 31.500 81.net .000 225.a4accounting.000 Accounts receivable 60.

000 – 27. 2001 was Rs. Installment accounts receivable – 2000 270.250 Cash collection (2000) = Cash collection (2000) = Cash collection (2000) = Installment A/R (Beg) – Installment A/R (End) 270. 2001.000 – 540.750 Cash collection (2001) = Rs.180. (b) Pass the adjusting and closing entries.000 Computation of Realized Gross Profit: Realized gross profit = Cash collection X DGP% Realized gross profit (2001) = 596.750.900 Rs.063 72.000 REQUIRED (a) Prepare Income Statement and Balance Sheet for the year ended on Dec. 2001.243.596.Installment Sales Chapter # 1 Other Information: Inventory of merchandise on December 31.000 Unrealized gross profit = Rs.000 x 30% Total realized gross profit = 149. 31. SOLUTION # 4: Computation of Unrealized Gross Profit: Unrealized gross profit = Installment sales – Cost of installment sales Unrealized gross profit = 720.221.000 720.000 Unrealized gross profit rate (2001)= 25% Unrealized gross profit rate (2000) = Unrealized gross profit rate (2000) = Unrealized gross profit rate (2000)= Unrealized gross profit (Beg) Installment A/R (Beg) 81.000 270.a4accounting.000 Deferred gross profit – 2000 81.963 www. The following account balances were found in the post-closing trial balance prepared on January 1.000 Rs.000 30% x 100 x 100 x 100 x 100 Computation of Cash Collection: Cash collection (2001) = Installment sales – Installment accounts receivable (ending) Cash collection (2001) = 720.000 – 123.net Page 14 .123.000 Computation of Unrealized Gross Profit Rate (DGP%): Unrealized gross profit rate (2001) = Unrealized gross profit Installment sales Unrealized gross profit rate (2001) = 180.250 x 25% Realized gross profit (2000) = 243.

750 (203.a4accounting.750 27.Installment Sales Chapter # 1 Imran & Co.P (2000) 45.750 Accounts payable 60.P) Total gross profit Less: Operating expenses Net profit Computation of Retained Earnings Ending Balance: Retained earnings (unadjusted balance) Add: Net profit for the period Retained earnings adjusted balance (Rupees) 117.net .250 21.213 16.100 301.000 414.250) 21.000) (123.37.P (2001) Add: D.000 Add: Retained earnings Add: D.000 37.000 Owner’s Equity: 123.463 Assets Current Assets: Cash Accounts receivable Installment A/R (2001) Installment A/R (2000) Merchandise inventory Total current assets Fixed Assets: Land and building Total fixed assets Total assets Imran & Co.463 30.000 867.937 8.000 750.750 Share capital 369. Income Statement For the Period Ended 31 December 2001 Sales Less: Cost of Goods Sold: Merchandise inventory (beginning) Add: Net purchases Merchandise available for sale Less: Shipment on installment sales Less: Merchandise inventory (ending) Cost of goods sold Gross profit Add: Realized gross profit (R.750) (Rupees) 418.G.G.500 414.963 437.463 (416. Balance Sheet As on 31 December 2001 (Rupees) Equities Liabilities: 33.500 112.000 Page 15 www.000 (540.500 225.500 221.250) 215.000 Total equities (Rupees) 112.G.213 Rs.750 Total liabilities 123.000 Total owner’s equity 45.

000 180.000 416.a4accounting.000 Credit 540.900 1.213 www.Installment Sales Chapter # 1 Date 1 2 3 4 5 6 Imran & Co.250 418.063 72.000 123.000 750.750 540.000 720.963 21.213 1.net Page 16 . Adjusting & Closing Entries Particulars P/R Cost of installment sales Merchandise (To record the cost of installment sales) Installment sales Cost of installment sales Unrealized gross profit (2001) (To adjust the unrealized gross profit) Unrealized gross profit (2001) Unrealized gross profit (2000) Realized gross profit (To adjust the realized gross profit) Expense and revenue summary Merchandise inventory (beginning) Purchases Operating expenses (To close the various expense accounts) Sales Shipment on installment sales Merchandise inventory (ending) Realized gross profit Expense and revenue summary (To close the various income accounts) Expense and revenue summary Retained earnings (To record the transfer of net profit to retained earnings account) Debit 540.000 540.000 149.283.304.750 221.463 21.963 117.250 221.

000.16. 7.232.000 3.375.000.200. for recording merchandise.450. Installment sales Rs. Repossession of goods sold on installment basis: Installment account receivable cancelled Rs. Purchased merchandise on account for Rs. Question # 5: Irfan Limited sells merchandise on installment basis. 2. The transactions for the year ended Dec.60. 4. The company records such repossessions at a value that will permit the normal margin on sales.000.000 REQUIRED General Journal entries including adjusting entries.500.000. Its transactions relating to sales for 1995 are as follows: 1.Installment Sales Chapter # 1 PRACTICE QUESTIONS Question # 1: Standard Company sells merchandise on installment basis and uses perpetual system.125. 225. Repossessed units had a total resale value of Rs.675.33. 31.540. 5.000 Purchases of equipment on account 750. 3. 6.81. Question # 4: Rehan Co. REQUIRED Give the entry to summarize the repossessions for 2007.000.000 Inventory of equipment December 31.000 Page 17 www.1. Data relating to the inventory.12. 2010 300. 2007 are as under: 1. Collection of installment accounts receivable Rs. Sales on installment basis Rs. It uses perpetual inventory system. Repossession of goods valued Rs.90. purchases and sales of equipment during the year 2010 are as follows: Inventory of equipment January 1. Collection of installments 750. Payment of accounts payable Rs. reports profits on installment basis.000. Expenses incurred but not paid Rs. Question # 3: Irfan and Company sells refrigerators at 20% above cost and keeps accounts for sales by the installment method.a4accounting. In 2007.000.000 Sales of equipment during the year 1. Cost of installment sales 900. Ltd.000.000 were cancelled on repossession.net . REQUIRED Give journal entries.000 Cash collection from customers 375.000 2.500. Question # 2: Merchandise sold on installment at a gross profit of 30% was repossessed at a market value of Rs.75. REQUIRED Give entries in General Journal to record the above transactions including adjusting and closing entries. Cost of installment sales Rs.000 and installment accounts receivable of Rs. repossessions were made on unpaid installment contract balances of Rs. 2010 Rs.

2005 were as under: 1. (c) Pass journal entries for recording the above transactions including adjusting and closing entries.000 Sales of equipment during the year 1. Question # 8: Umar & Sons Ltd.a4accounting. Installment accounts receivable cancelled 45.000 2. 5. uses perpetual inventory system for recording merchandise and installment method for recognizing profit. 7.500 8.000 Inventory of equipment December 31. Their transactions for the year ended June 30. (b) Find out loss/gain on repossession. Operating expenses paid 48.000 7. Summarized data for the year 2004 are as under: 1.000.000. REQUIRED (a) Calculate gross profit rate. 4. 3.000 4. Cost of installment sales 600. 1996 225. Payment of accounts payable 300.500 3. 2.000. 150.000 Purchases of equipment on account 750.675. Cost of installment sales 472. Question # 6: The Kabir Company sells merchandise on installment basis.000 REQUIRED Give journal entries in the General Journal to record the above transactions including adjusting and closing entries. 6.000.Installment Sales Chapter # 1 REQUIRED Give journal entries in the General Journal to record the above transactions including adjusting and closing entries.000 5. www. Sales made on installment basis 750. Collection of installments 225. Expenses paid 6.000 REQUIRED Record the above transactions in General Journal giving adjusting and closing entries. Operating expense payable 4. purchases and sales of equipment during the year 1996 are as follows: Inventory of equipment January 1.000 6.500. Installment accounts receivable cancelled 37. Repossessed goods valued at 33.000. Data relating to the inventory. 1996 Rs.000 Cash collection from customers 675. Question # 7: Nizam Sons use perpetual inventory system for recording merchandise. Repossessed merchandise was valued 24. Purchased merchandise on account for 750. Collecting from installment A/R 300.000.125.net Page 18 . Sales on installment basis Rs.

000 2. Cost of installment sales 337. 1992. Net profit or loss (b) Record collection of cash and realize gross profit for each year separately in the General Journal of Jadid Homes.000 The firm uses installment method of recognizing revenue. Collection of installments 330. 1993 were as under: 1.000 o Value of repossessed goods 30.000 8.000 120.000 120.000 30.000 300. Cost of merchandise sold on installment 675.000 REQUIRED Record the above transactions in General Journal giving adjusting and closing entries.450.000 2.000 5.500 4. Question # 11: Jadid Homes sells bedroom furniture on installment basis.000 6. Page 19 www.000 Installment sales 2004 --150.000 300.500 REQUIRED (a) Give the journal entries that would be made to record the above transactions along with adjusting and closing entries for the year ended June 30.000 7. 1992: 1.000 375. Office expenses paid 15. Purchased merchandise on account Rs.000 60. General expenses paid 7.000 4. REQUIRED (a) Compute the following for each year: 1. Payment to creditors 375. uses perpetual inventory system for recording merchandise and installment method for recognizing profit.000 Collection from Customers: Installment sales 2003 120. The following transactions were incurred for the year ended June 30.000 225. Question # 10: Ahmad Installment Sales Company uses perpetual inventory system for recording merchandise and installment method for recognizing profit. Following information pertains to the accounting records for three years of operations: 2003 2004 2005 Installment sales 225.Installment Sales Chapter # 1 Question # 9: Mulla & Co.000 5. Installment sales Rs. Rate of deferred gross profit 3. Sales on installment basis 900.000 Selling & administrative expenses 75. (b) Prepare Income Statement and Balance Sheet on June 30. Cash collection during the year 300.000 90. Purchased merchandise for cash 225. Their transactions for the year ended June 30.net . Deferred gross profit 2. Realized gross profit 4. Repossession of merchandise sold on installment basis: o Installment accounts receivable cancelled 60.a4accounting. 1992.750.000 Installment sales 2005 ----225.000 Cost of installment sales 150.000 3.000 3. Paid expenses 21.

REQUIRED Record all above transactions including adjusting & closing entries under perpetual system.000 Installment sales of year 3 ----127.22. Collection of installment accounts receivable of 2001 450. 2009 Rs.net Page 20 . Ending inventory of merchandise was valued Rs.Installment Sales Chapter # 1 Question # 12: Rashid Company sells all merchandise on installment basis. 11. 1.000.000 Collection from Customers: Installment sales of year 1 112.000 208.37. 1.000 7. Purchased merchandise for cash 300. Installment accounts receivable of 1999 in the amount of Rs. 5. 2.500 81. Collection of installment accounts receivable were as under: 2007 Rs. Sold merchandise on installment basis 1. Merchandise inventory Dec.000 60. 4. 2000 – 44%. 31. Total sales on installment basis for the year Rs.975.600.000 of which expenses amounting to Rs. 9. Collection of installment accounts receivable of 2000 150. 6. 31.000 2009 450. Purchased merchandise on account 600.337.000 3.60. 2001 are as under:1. Following information obtained from the accounting records for first three years of operations: Year 1 Year 2 Year 3 Installment sales 270.000 120. The transactions for the year ended December 31.000. Note: Gross profit rate 1999 – 42%.500 90. 8.000 300.000.000 of which Rs. Installment accounts receivable of 2007 were cancelled amounted to Rs.000 82.000 were settled through bank.000 and the repossessed merchandise was assigned a resale value of Rs. 1.000. Accounts payables of Rs. The transactions for the year ended Dec. Collection of installment accounts receivable of 1999 75.000.000.000 360. 5.000 Cost of installment sales 162. 6.000.12.000. (b) Record collection of cash and realize gross profit in each of the three years. 4. Expenses totaled Rs. 3.000 was cancelled because of default but the merchandise could not be repossessed.165. 2009 are as under.500.500 was for cash.000.510. Gross profit rate in 2007 was 30% and in 2008 25%.500 were paid. Merchandise inventory Jan.a4accounting.800 168.000.500 REQUIRED (a) Determine the amount of net profit or net loss that would have been reported in each of the three years if the installment method of recognizing revenue had been employed.30.000. with merchandise inventory on Jan.1.105.000 2008 180. 2. 10.000 Operating expenses 75. Question # 13: Sarwar Associates sell merchandise on installment basis. Expenses paid 37. Question # 14: Umair & Company sells merchandise on installment basis.000 Installment sales of year 2 --150.200.125. Purchase of goods on Rs. 2001 225. 2001 405. Payment made to creditors 375. www.050.

500 Installment accounts receivables – 2000 225.a4accounting. Balances at January 1. 2001: Installment sales made at 25% above cost during the 6 – month period Rs.112.112.500 REQUIRED 1.500 At June 30.675. Give all necessary entries under installment method for recording transactions concerning installment sales including an adjusting entry for recording realized gross profit.750 Installment accounts receivables – 1999 45. 2001: Installment accounts receivables – 1999 Rs.500 Installment A/Receivable – 2003 262. at June 30. Record repossession without recognizing loss or gain. 2. (2) Show collection of installment A/Receivable of 2002 and 2003. (4) Record repossession recognizing loss or gain.000 An installment accounts receivable – 1999 cancelled 7.000 An installment A/Receivable – 2002 cancelled 7. and December 31. Balance at January 1. 31.net . 2003: Installment sales made at 40% gross profit during the 6 months period Rs.500 Deferred gross profit – 2002 Rs. Question # 15: A-One Co.262.500 REQUIRED (1) Compute gross profit rate of the installment sales originated in 2002.000 Installment accounts receivables – 2000 67. follows the perpetual inventory system and closes its books twice in a year at June 30. 2001. 2003: Installment A/Receivable – 2002 Rs.750 Installment A/Receivable – 2002 67. follows the perpetual inventory system and FIFO method for inventory valuation and closes its book twice in a year at June 30. Prepare a statement showing collection of installment accounts receivables of 1999.500 Installment accounts receivables – 2001 262.675. 2000 and 2001 at June 30.500 Repossesses merchandise was assigned a value of 3. 3.Installment Sales Chapter # 1 REQUIRED Record the above transactions in the general journal and also give adjusting and closing entries at December 31. (3) Give all necessary entries under installment method for recording transactions concerning installment sales including an adjusting entry for recording realized gross profit. 2001 assuming the company follows the perpetual inventory system.000 Deferred gross profit – 2000 67. and Dec. Question # 16: Alam Co.500 Repossessed merchandise was assigned a value of 3. 2003. Page 21 www.500 At June 30.500 Deferred gross profit – 1999 37. 4. Compute gross profit rates of the installment sales originated in 1999 and 2000.

31. 2008 a customer defaulted on his payment. Question # 18: The following balances are taken from the pre-closing trial balance of Hassan Co. (d) Cancellation of installment contract 2001 Rs. 1999 (Before Adjustment) Installment accounts receivable 1998 Rs. 2007 adjusting and closing as well.210. Unrealized gross profit – 2006 120. 31.000.135.000 Deferred gross profit 1998 Rs.900 Question # 19: Al-Fazal Manufacturing Co. assuming that rate of gross profit on installment sales of 2006 was 25%. (b) Collection of installment of current year Rs.3. Original sale on installment Rs. as of Dec.630. 10.000 REQUIRED (1) Prepare all entries for the year ended Dec. (c) Collection of installment of 2001 Rs.Installment Sales Chapter # 1 Question # 17: Ideal Sales Company sells goods on installment basis.250 4. In both years the goods have been sold at 40% above cost. sells its finished products for cash. Installment accounts receivable – 2007 180.500.000 Unrealized gross profit Rs.60. 3. Date of sale 12 Aug 2006 3. Give journal entries for repossession with the help of the following information: 1. some water was spread on the accounting records of installment sales and some of the pages were smeared.20.120. 31. (2) On Jan. 1999 Installment accounts receivable 1998 Rs.000 3.000 5. 31.000.000 During 1999. 31.000 Deferred gross profit 1999 Rs. Show how the relevant account will be reported in balance sheet on Dec. REQUIRED 1. 2001 were: Installment accounts receivable Rs.net Page 22 . Collection up to date Rs. only the following portion is readable: January 1. 2007: 1. (e) Repossessed goods valued at Rs. Entries to record the transactions for 2002.120. Accidently. After drying.30.a4accounting. 2002.000 Deferred gross profit 1998 Rs.2.000 Summary of the transactions for the year 2002 is as follows: (a) Installment sales Rs.000 2.129.48.000 4. Estimated market value of repossessed merchandise Rs. Installment accounts receivable – 2006 Rs. Installment sales 300. Cost of installment sales 210.735. www. Adjusting and closing entries for 2002.45. Show all computations. installment sales were made at 45% gross profit rate. on credit and on installment.250.84.000 2.000 Installment accounts receivable 1999 Rs. 2.000. Its balances on Dec.000 December 31.

000 Installment sales 600.000 Installment accounts receivable – 2007 defaulted of 120.000 Merchandise Inventory 120.500 Deferred gross profit – 1996 171. e) General Journal entries to record the realized gross profit. 2008: Assets Equities Cash 180.000 171. on December 31.000 Deferred Gross Profit – 2007 60.000 Installment accounts receivable – 1997 675.000 270.000 Total Equities 600. 1 1997 – Dec.000 Collection from installment accounts receivable – 2007 150.000 REQUIRED a) Gross profit percentage for each year.000 37. Question # 20: The selected balances of Akbar Installment Sales Co.000 Company uses perpetual inventory system (FIFO basis) for recording merchandise and installment method for recognizing profits. Show necessary supporting computations.net . b) Collection of installment accounts receivable of each year during 1997. Reconstruct in general journal form as many summary entries as possible for 1999 under installment method including adjusting and closing entries. Page 23 www.000 Merchandise repossessed at fair market value 30.000 Accounts Payable 30.000 Installment sales 900. c) Gross profit realized during 1997. Question # 21: The following are the selected assets and equities of Gulbahar Installment Co.000 Operating expenses paid 15.000 Payment of accounts payable 375.000 Installment A/R 2007 300. 31 Installment accounts receivable – 1995 180.000 Collection from installment accounts receivable – 2008 300.000 Transactions During 2008 Are As Under: Merchandise purchased on accounts 480.000 Deferred gross profit – 1995 45. are as follows: 1997 – Jan.000 Total Assets 600.Installment Sales Chapter # 1 REQUIRED 1.000 Cost of installment sales 612. including adjusting and closing entries for the year 2008.000 Capital 510. d) General Journal entries made during 1997 on repossession.a4accounting. REQUIRED: Give entries in General Journal to record the above data.000 Installment accounts receivable – 1996 570. 2.000 Repossessed merchandise 24.000 Merchandise inventory-ending (including repossessed merchandise) 180.000 Installment accounts receivable – 1995 cancelled on repossession 30. Give an entry to record repossession assuming that the repossessed merchandise was recorded at its book value.

500/. 1985 and 1986 including adjusting journal entries.150. www. 1986 are as follows: 1985 1986 Installment sales 750. Question # 23: The following are transactions for 1998 of Lahore Installment Sales Company which follows the perpetual system and FIFO method for inventory valuation had 75 machines @ Rs. REQUIRED (a) General journal entries including adjusting.Installment Sales Chapter # 1 Question # 22: Naseem & Company sells merchandise on installment basis.per installment. The value of repossessed equipment was Rs. REQUIRED General journal entries including adjusting entry supported by proper computations.1.125. (d) Received 1.a4accounting. Also determine ending inventory of merchandise. The company has 150 vacuum cleaners of Rs.000 1. (d) The balance to be collected in 4 equal quarterly installments of Rs.900/.000 Purchase on account 615.300/.500 255.497 installments at the rate of Rs. The company uses perpetual system and first in first out method for inventory valuation.000 Payment of accounts payable 375. The company completed the following transactions during the year: (a) Purchased 450 vacuum cleaners at Rs. (e) Repossesses one machine from a customer.1.000 Collection in respect of 1986 installment sales 675.000 Merchandise inventory ending 150. who had paid only down payment and one installment. (b) Cost of installment sales.870 per machine in beginning inventory: (a) Purchased 450 machines at the rate of Rs.000 REQUIRED: Give journal entries for the years ended December 31. (c) Collected down payment at Rs.000 Collection in respect of 1985 installment sales 450. (c) Received down payment at the rate of Rs.per machine. (b) Sold 375 vacuum cleaners at Rs.000 Selling & general expenses 112.000 750. (e) All installments were collected in full except a customer who failed to pay the last installment. (c) Gain or loss on repossession and gross profit realized.per machine.150/.300 on each vacuum cleaner.000 225. The summary of transactions for the year ended December 31.000 750.000 225. (b) Sold 375 machines at the rate of Rs.500 each. Question # 24: Smart Home Company sells local vacuum cleaners on installment basis. 1985 and December 31. (f) The equipment was repossessed.per machine on 375 machines.975 each.900 each in the beginning inventory.net Page 24 .300 each.

750. for 2006 which follows the perpetual inventory system and FIFO method for valuation of inventory. Rs. REQUIRED Journal entries including adjusting and closing entries. The rate of interest charge on the unpaid balance is 6% per annum. Question # 26: Mifta Installment Company purchased 15 computers from Alam & Bilal Traders @ Rs. The accounting year ends on December 31.1. All installments collected on the first day of each month.840 per machine.900 per machine on account. 1997 the X. Mifta Installment Company closes its accounting year on June 30 each year. Book value of repossessed merchandise. 7. 2. Page 25 www. 2008.496 installments @ Rs. They completed the following transactions: (1) Purchased 525 machines @ Rs.000. REQUIRED Give journal entries including adjusting and closing entries for the year 1997 only. 9.25. 10. Gain or loss on repossession. The terms of installment sales were to pay 25% on each computer as a down payment and the remaining amounts to be collected in 15 monthly installments starting from October 1.150. All payments were duly received. Amount of installment sales. REQUIRED Compute the following: 1. Three of the computer holders defaulted to pay the installments after the payment of 5th installment and company repossessed the computers which have the fair market value of Rs. each year. sold a car for Rs. Unrealized (deferred) gross profit.000 on installment basis. The company sold 7 computers on installment @ Rs. 5.net .675.500 each on installments. Opening inventory consist of 75 machines @ Rs. Co.Y. (2) Sold 375 machines @ Rs. Show all computations. 8.000 was received as down payment and balance amount in five quarterly installment including interest. Monthly installment amount of each computer. The cost of the car was Rs.000 each on September 1. Amount of down payment received. (3) Received down payment @ Rs.63. 6. Rate of Unrealized (deferred) gross profit.50. 2008. Total amount collected during the period. (5) Repossessed one machine from a customer who had paid only down payment having market value of Rs.150 per installment.900. Question # 27: On January 1. Amount of realized gross profit.300 per machine on all the sold machines.Installment Sales Chapter # 1 Question # 25: The following transactions relate to Al-Abid Co.500 each computer. 3. (4) Received 1. Total amount of installment accounts receivable cancelled.a4accounting.400 each on credit. 4.

www.000 per computer as down payment of October 1. The selling price of GL cars is Rs. c) Interest at 8% should be paid on the unpaid balances. 2010). A down payment of 20 percent is collected on each car. 2010 and agreed to pay the balance in 8 equal quarterly installments (The first quarter started from October 1.000 each while the XL cars are sold for Rs.000 received from a customer who bought a GL car was dishonored. REQUIRED Prepare journal entries including adjusting and closing to record the above transactions only for the year ended June 30.600.000. The terms of sale were: a) Rs. The selling price includes a profit margin of 5 percent. The vehicle was fortified and assigned a value of Rs. REQUIRED Make necessary journal entries including adjusting and closing of entries in the books of Shaheen Autos in respect of the above transactions for the year ended December 31. The business completed the following transactions during the year: Purchased 10 units of GL cars and 15 units of XL cars on account from New Age Motors Company. and be paid along with the installment amount.000 REQUIRED (a) General Journal entries in City Cars’ book (adjusting and closing are not required). b) The balance should be paid in 20 quarterly of Rs. every year.52.500 per car should be paid at the time of signing the agreement. (ii) A cheque amounting to Rs. The car was taken by the owner for his personal use.000 Administrative expense 105. 2011. 1993. Sold 10 units of each type of cars. On September 12.net Page 26 . The installments received on the last day of each quarter.500 per car.172. Shaheen Autos follows installment method for recognizing profits.202.a4accounting.54. 1993 assuming that Shaheen Autos closes its books on December 31. The ownership would be transferred on the payment of the final installment.500 per car. On October 1.225. the cost being Rs. The down payment and all installments were collected in full by cheque except the following: (i) A customer failed to pay last three installments due on the XL cars he had purchased.000 each on credit. (c) Gross profit realized on each brand of cars. (d) Net profit of City Cars for the year.675.000. The balance is collected on 10 monthly installments of equal amounts.30. every year. (b) Cost of installment sales for each brand separately. Question # 30: City Cars deals with two brands of fuel economy local cars namely GL and XL.500 each.125 per car. 2010 Hasnain & Brothers sold 25 computers @ Rs.7. City Cars incurred and paid the following expenses during the year: Selling expenses 45.Installment Sales Chapter # 1 Question # 28: On July 1. Shaheen Autos sold 10 Suzuki cars on installment basis at Rs.67. The customers paid Rs.108. 2010 Hasnain & Brothers purchased 30 computers from Tauseef Computers for Rs. Question # 29: Hasnain & Brothers follows installment method for recognizing profits & closes its accounting year on June 30.

080.Installment Sales Chapter # 1 Question # 31: Kamran Electric Company’s deals in the sales of generators on installment basis.000 Profit and loss account balance 326.500 Total 4.000 Deferred gross profit – 1990 162.080.237. 1990 and 1991. TRIAL BALANCE AS ON DECEMBER 31.1.000 Deferred gross profit – 1989 36.000.500 Installment accounts receivable – 1990 54. REHMAN & CO. Sardar Industries will start to pay installments from November. company sold 5 generators to Shahani & Sons for Rs.497.000 Furniture and fixture 30.000 Purchases 1.440.000 Operating expenses 832. (d) Prepare Income Statement and Balance Sheet for the year ended on Dec.000 Accounts payable 225.500 Installment accounts receivable – 1991 247. M/S. separately under each plan for 2009 only. Question # 32: The following trial balance has been prepared from the ledger of M/S.650 4.237.000 Installment accounts receivable – 1989 13. (e) Pass the adjusting and closing entries. 2009. 31.500 generator No.a4accounting. of installments 15 equal monthly 5 equal quarterly installments installments Rate of interest on unpaid Nil 6% per annum balance Installment amount due At the start of the each At the end of each month month Kamran Company had inventory of 30 generators 2500KV costing Rs.net . REQUIRED Prepare dated journal and adjusting entries.270 Share capital 450. Under Plan – A.500 Installment sales 1.67.75. company sold 6 generators to Sardar Industries on October 5.000 Shipment on installment sales 1. 1990 234. traders dealing in installment sales.880 Sales 517. 2009.500 Inventory December 31. 1991.000 each on June 28.650 Page 27 www. Quarter starts from July 1.150 Cost of installment sales 1.000 Land and building 60.10. Rehman & Co.200. 1991 Cash Rs. The company has two plans which are summarized below: Explanation Plan “A” Plan “B” Down payment for each 10% of the sales price Rs.500 Accounts receivable 121. Under Plan – B. 2009 at a profit of 35% on cost. 2009. Taking the facts and figures from the trial balance you are asked to: (c) Find the gross profit percentage on installment sales in 1989.

000.120.000. The following account balances were found in the post-closing trial balance prepared on January 1.000 Rs.247.135.225.500. Installment accounts receivable – 1990 540.450.000 Deferred gross profit – 1989 36. www.400. The company recognizes profit on sales on the basis of cash collected from customers.net Page 28 . 1991.500 Rs.000 REQUIRED Prepare all journal entries for 2010 from the data above.120. Transactions during 2011 are summarized below: a) Cost of installment sales Rs. b) Installment accounts receivable (ending) – 2011 Rs. b) Prepare partial balance sheet as on 31 December 2011 showing installment accounts receivable and unrealized gross profit. 1991 was Rs. e) Unrealized gross profit (beginning) – 2010 Rs.000 Deferred gross profit – 1990 162. 2010 During 2010 December 31. c) Installment accounts receivable cancelled – 2010 Rs.20.000.500 Rs.30.32.000 Rs.000. The following are the data for three years: Years Profit Installment Receivable Collection Installment Receivable on on January 1.112. g) Unrealized gross profit percentage remains constant in both the years. Question # 34: Khan and Company reports profits on installment basis.270 Question # 33: The Daniyal Electric Products Company manufactures table fans.a4accounting. REQUIRED a) Give the necessary General Journal entries including adjusting entries. 2010 2008 44% Rs. Show necessary computations.000.300. It uses perpetual inventory system for recording merchandise and installment method for recognizing profits.000 2010 40% Rs.247.40. including those required for the recognition of gross profit at the end of year.000 --2009 42% Rs. f) Installment accounts receivable (ending) – 2010 Rs.000. It is a practice of the company to sell 30% of its production on installment basis. d) Merchandise repossessed at book value which is Rs.Installment Sales Chapter # 1 Other Information: Inventory of merchandise on December 31.000 Installment accounts receivable – 1989 117.