Multiple Choice

9-1

Superman Company started operations January 2, 2013. The following information is

gathered for 2013:

Installment accounts receivable, December 31 P 1,500,000

Deferred gross profit, December 31 (before adjustments) P 1,050,000
Gross profit rate based on sales 25%

What is the realized gross profit on sales?

a. P 1,350,000
b. P 1,125,000
c. P 810,000
d. P 675,000

9-2

Gross profit rates of Batman Company were 35%, 33% and 30% of sales for 2011,
2012 and 2013, respectively. The following account balances are available for the
end of 2013.

Year of sales Installment account receivable Deferred

gross profit
( before adjustment)

2011 P 6,000 P 7,230

2012 61,500 60,750

2013 195,000
120,150

What is the total realized gross profit to be recorded in the Statement of

Comprehensive Income for the year ended December 31, 2013?

a. P 107,235
b. P 102, 105
c. P 61,650
d. P 97,235
 9-3

The following informations are obtained from the books of accounts of Robin, Inc. on June
30, 2013:

Deferred gross profit balance (After adjustment) P 202,000

Total collections on installment sales P 404,000
Gross profit rate based on cost 25%

Robin Inc. uses the installment method of accounting. What is Robin’s total installment
on sales?

a. P 1,560,000
b. P 1,440,000
c. 1,450,000
d. 1,010,000

9-4

BMW Corporations sells car on three year installment sales contract. On December 31,
2013, the last day of BMW’s first year of operations, the results of operations before
adjustments are summarized below:

Sales P 1,000,000
Cost of installment sales 700,000
Operating expenses 80,000

The total collections during the year including interest and financing charges of P
100,000 is P 500,000. What is the net income of BMW Corporations for the year ended
December 31, 2013?

a. P 220,000
b. P 140,000
c. P 150, 000
d. P 120, 000

9-5

In 2013, a merchandise was sold in installment basis by MB Company for P 80,000 at a gross
profit of 25% on cost. During the year, a total of P42,500, including interest of P 12,500 was
collected on this contract. In 2013, no collection was made on this sale, and the
merchandise was repossessed. The fair value of the merchandise is P34,000 after
reconditioning cost of P4,000. What is the gain on sale (loss) on repossession?

a. (P 10,000)
 b. (P 14,000)
c. P 10,000
d. (P 20,000)

9-6
Casablanca, Inc. which began on January 2, 2013 appropriately uses the installment
method of accounting. The following information pertains to Casablanca’s operations
for 2013:

Installment sales P1,000,000

Regular sales 600, 000
Cost of installment sales 500,000
Cost of regular sales 300,000
Operating expenses 100,000
Collection on installment sales 200,000

In its December 31, 2013, what amount should Casablanca, Inc. report as deferred
gross profit?
a. P 400,000
b. P 500,000
c. P 320,000
d. 150,000

9-7
JJ Company sold goods on installment. For the year ended, the following were
reported:

Installment sales P 3,000,000

Cost of installment sales 2,025,000
Collection on installment sales 1,800,000
Repossessed accounts 200,000
Fair value of repossessed merchandise 120,000

The repossession resulted to:

a. Gain of P 5,000
b. Loss of P 80,000
c. No gain, no loss
d. Loss of P 15,000

9-8
In July,2012, Sta. Lucia Company who uses the installment method of accounting sold the
land costing P 90,000
for P 240,000, receiving P 35,000 cash as down payment and a mortgage note for the
balance payable in monthly installments. Installments received in 2012 reduced the principal
of note payable of P 200,000. The buyer defaulted the note at the beginning of 2013 and the
property was repossessed. The property had an appraised value of P 165,000 at the time of
repossession. The realized gross profit in 2012 and the gain (loss) on repossession in 2013
amounted to:
Realized Gross Profit Gain (Loss) on Repossession
 a. P 15,0000
(P 90,000)
b. 25,000
90,000
c. 9,000
(2,500)
d. 2,500
3,500

9-9
On April 1, 2013, GE Company sold for P 7, 000 refrigerator which had a cost of P
4,550. A down payment of P 750 was made with the provision that additional
payments of P625 be made monthly thereafter. Interest was to be charged at a
monthly rate of 2 percent on the unpaid balance of the principal. After completing
four months installment the customer defaulted and the refrigerator was
repossessed. At this time, the fair value of the refrigerator(used) was estimated to be
P1,875. The gain (loss) on the repossession and the realized gross profit to e
recognized in 2013 are:
Gain (Loss) on Repossession Realized Gross Profit
a. (P847.98)
P1,1375.50
b. (P847.98)
P983.78
c. (P562.50)
P875.00
d. P562.5
P983.75

9-10
Lexus Company, which began operations on January 3, 2012, appropriately used the
installment method of revenue recognition. The following information pertains to
Lexus Company’s operations for 2012 and 2013:

2012 2013
Sales P300,000 P450,000
Collections from:
2012 sales 100,000 50,000
2013 sales --- 150,000
Accounts written off:
2012 sales 25,000 75,000
2013 sales --- 150,000
Gross profit rates 30%
40%

What amount should Lexus Company report as deferred gross profit in its December
31, 2013 Statement financial Position for 2012 and 2013?

a. P112,500
b. P125,000
c. P 75,000
 d. P 80,000

9-11

On January 2, 2012, Mustang Company sold a car to Mr. De Jesus for P1,050,000. On
this date, the car coat P735,000. Mr. De Jesus paid P150,000 as a down- payment and
signed a P900,000 interest bearing note at a 10 percent. The note was payable in
three annual installments of P300,000 beginning January 1, 2013. Mr. De Jesus made
a timely payment for the first installment on January 1, 2013 of P390,000 which
included interest of P90,000 to date of payment. Mustang Company uses the
installment method of accounting. In its December 31,2013 statement of Financial
Position, what amount should Mustang Company report as deferred gross profit?

a. P180,000
b. P153,000
c. P270,000
d. P225,000

9-12

SM Corporation started operations in January 2, 2012 selling home appliances and furniture
in installment basis. For 2012 and 2013, the following data represented operational details:

2012 2013

Installment sales P1,200,000

P1,500,000
Cost of installment sales 720,000
1,050,000
Collections on installment sales
2012 sales 630,000
450,000
2013 sales --- 900,000

On January 8, 2013, an installment sales on account in 2012 defaulted and the merchandise
with fair value of P15,000 was repossessed. The related installment receivable as of the date
of default and repossession was P24,000. What is the balance of the Unrealized gross profit
account as of the end 2013?

a.P228,000

b. P218,400

c. P192,000

d. P275,000

P-13
Microstation Inc., sold computer equipment on an installment basis on October 1,2013. The
cost of the computer was P60,000 but the installment sales price was ste at P85,000. Terms
of the payment included the acceptance of a used computer equipment with a trade- in
value of P30,000. Cash of P5,000 was paid in addition to the trade- in equipment with the
balance to be paid in ten (10) monthly installments due at the end of each month
commencing the month of sale. The estimated selling price of the used computer equipment
after reconditioning cost of P1,250 is P25,000. A 16 percent gross profit was usual from the
sale of the used equipment. What is the gross profit to be realized from the 2013
collections?

a. P34,000
b. P10,000
c. P8,000
d. P4,000

P-14

On December 31, 2012, Jacinto Steel Inc., sold construction equipment to Anthony
Company for P3,600,000. The equipment had cost of P2,400,000. Anthony Company paid
P600,000 cash on December 31,2012 and signed P3,000,000 note bearing interest at 10
percent payable in five annual installments of P600,000. Jacinto Steel Inc. appropriately
accounted for the sale under the installment method. On December 31, 2013, Anthony
paid P900,000 including interest of P300,000. For the year ended December 31,2013,
what total amount of revenue should Jacinto Steel Inc., recognized from construction
equipment sale financing?

a. P300,000
b. P200,000
c. P500,000
d. P240,000

P-15

ACA Video Company sells betamax equipment. It maintains its accounting records on a
calendar year basis. On October 1,2012, ACA Video Company sold a television set to Mr.
Santiago. The cost of the set was P18,000, and the set was sold for P24,000. A down-
payment of P6,000 was received along with the contract calling for the subsequent payment
P1,000 on the first cay of each month starting on the following month. No interest was
added on the contract. Mr. Santiango paid the monthly installment promptly on November 1
and December 1 2012. He even made seven installments in 2013 after which he defaulted
the contract. The set was repossessed on November 1, 2013. Assuming the repossessed set
has the fair value of P4,000, what is the gain (loss) on the repossession recognized?

a. P(2,750)
b. P2,750
c. P750
d. P1,500
 P-16

Gothong Inc., sells automatic voltage regulators costing P700 at the price of P1,200.
Cardinal Audio buys a dozen voltage regulators on installment and trade- in six (6) of its
units at a trade- in value of P300 eah. Gothong Inc., spends P25 to recondition the old
units and sells them at P315. Gothong Inc., expects 10 percent gross profit from the sale
of voltage regulators. How much is the over- allowance granted by Gothong Inc., on the
trade- in?

a. P249
b. P150
c. P339
d. P189

P-17

The books of Concepcion, Inc., show the following balances on December 31, 2013:

Accounts Receivable P627,500

Deferred Gross Profit (before adjustments) P76,000

Analysis and aging of the accounts receivable reveal the following:

______________________________________________________________________________________

Regular accounts P415,000

2012 installment accounts P32,500
2013installment accounts P180,000
Sales on an installment basis on 2012 were made at 30 percent above cost, in 2013 at 33
1/3 percent above cost. What is the total realized gross profit for the year ended December
31, 2013?

a. P23,500
b. P52,500
c. P45,000
d. P69,750

P-18

AMG Corporation sell goods on installment basis, at the year end, gross profit is recognized
in proportion to collections. The following data are obtained from the records of AMG
Corporation:
 January 31
December 31
Installment receivable:
2011 sales P120,100 __
2012 sales P1,772,300
P337,200
2013 sales __
P2,505,450
Sales and cost if sales for the three are as follows:

2011 2012 2013

Sales P1,900,000 P2,160,000

P3,010,000
Cost of Sales P1,235,000
P1,425,600 P1,896,300
In 2013, the company repossessed merchandise with an estimated resale value of P10,500
after reconditioning cost of P300. A P1,700 was normal from sale of repossessed
merchandise. The sales were made in 2012 for P27,000 on which P16,00 was collected prior
to default. As collections are made the company debits Inventory of repossessed
merchandise account and credits Installment accounts receivable for the unpaid balance,/
what is the amount of adjustments for the Inventory of repossessed merchandise to the
extent of the unrealized gross profit?

a. A decrease ofP2,500
b. A decrease of P6,240
c. Zero
d. A decrease of P3,740

P- 19

The following information pertains to the sale of real estate by Filstate Corporation on
December 31, 2012:

Sales Price:
Cash down- payment
P600,000
Mortgage Payable
P5,400,000
Cost P4,000,000
The mortgage payable is to be paid in nine annual installment of P600,000 beginning
December 31, 2013 plus interest of 10 percent. The December 31,2013 installment was paid
a scheduled, together with interest of P540,000. Filstate Corporation uses the cost recovery
method of revenue recognition. What amount of income should Filstate Corporation
recognize in 2013 from the sale of real estate?

a. P540,000
 b. None
c. P1,040,00
d. P740,000

P-20

Presented below are the information taken from the books of Four Sisters Company:

2012 2013

Sales:
Regular P125,000 P187,500
Installment P62,500
P100,000
Cost of Goods sold:
Regular P75,000 P112,500
Installment P31,250
P45,000
Operating expenses P25,000
P31,250
Collections on Accountants
Regular sales P100,000 P137,500
Installment sales- 2012 P37,500 P25,000
Installment sales-2013 __
P62,500
What is the net income for the year ended December 31,2013?
a. P78,125
b. P93,750
c. P98,750
d. P90,625

P-21
The following data pertain to installment sales of Heart’s Stone:
Down Payment, 20%
Installment sales:
2011 P545,000
2012 P785,000
2013 P960,000
Mark up in cost, 35%
Collections after down payment are:
40% during year of sale
35% during the year after
25% on the third year
What is the balance of The Deferred Gross Profit -2012 at December 31,2012?
a. P97,689
b. P131,880
c. P141,112
d. P114,063

P-22
JGG Company began operations on June 1, 2013. The following information extracted from
its record for the year- end:
Cost of installment sales P1,093,750
Cost of regular sales P1,050,000
Mark-up on installment sales 140% of cost
Mark-up on regular sales 33 1/3 on sales
Balances at December 31,2013
Installment accounts receivable P1,575,000
Accounts receivable P735,000
Operating expenses 70% of realized
What is the net income for the year ended December 31,2013?
a. P341,250
b. P267,750
c. P90,157
d. P174,000

P-23
TMT Company, which began operations on January 2,2013 appropriately uses the
installment method of accounting. The following pertain to 2013 operations:
Installment sales P900,000 Operating expenses P72,000
Regular sales P375,000 Collections(including
Interest of P24,000) P312,000
Cost of regular sales P215,000 Installment accounts
written- off due to
defaults
P44,000
Cost of installment sales P630,000 Repossessed accounts
P100,000
Fair value of repossessed
Merchandise P54,000 Reconditioning cost
P4,000

What is the net income for the year ended December 31,2013?

a. P151,600
b. P127,600
c. P158,400
d. P165,600

P-24

Sulu Company is a dealer of air conditioner. For the period of May 1, 2013 to May 31, 2013
Sulu Company gives trade discount of 10% to all its buyers. On May 1, 2013, five units of air
conditioners with a total list price of P100,000 and total cost of P59,800 were sold to Mr.
Ramos’. Sulu company granted an allowance of P10,000 for Mr. Ramos used air conditioners
as trade in although the current fair value is P12,000. The balance was payable as follows:
20% of the balance paid at the time of purchased; the rest is payable in 10 months starting
June 1, 2013. A 15% gross profit rate is usual from the sale of second hand air conditioner.
 After six months of paying, Mr. Ramos defaulted in the payment of December I,
3013. The five units were repossessed and it would require P2,000 reconditioning cost for
each unit before it could be resold for P6,000 each.

1. How much is the gain (loss) on repossession to be recognized on December 31,2013?

a. P3,360
b. (P3,360)
c. P1,760
d. (P1,760)
2. What is the total realized gross profit under installment method to be adjusted on
December 31,2013?
a. P23,240
b. P19,040
c. P18,496
d. P22,576

P-25

On July 10,2013, Toyota Motors Inc., sold a new car to Mr. Sy for P850,000. The car
costs Toyota P650,625. Mr. Sy paid 25% cash down- payment and traded his old car.
Toyota granted an allowance of P80,000 on the old car traded, the balance payable in
equal monthly installment payments. The monthly installment amounts to P30,000
inclusive of 12% interest on the unpaid balance of the principal amount of obligation.
The old car traded in has a selling price of P120,000 after spending reconditioning
cost of P22,500.

After paying three annual installments, Mr. Sy suffered major financial setback
incapacitating him to continue paying. The car was subsequently repossessed. When
reacquired, the car was appraised to have a fair value of P300,000.

1. What is the gain (loss) on repossession?

a. (P62,617.50)
b. P62,617.50
c. (P62,716.50)
d. P62,716.50
2. Under the installment method, how much is the realized gross profit to be recognized
at the end of the year?
a. P96,003
b. P75,625
c. P100,000
d. P90,073

P-26

Computers Inc., sells computer on the installment basis. For the year ended December
31,2013, the following were reported:
______________________________________________________

Cost of installment sales P525,000

Loss on repossession P13,500
Fair value of repossessed merchandise P112,500
Account defaulted P180,000
 Deferred gross profit, December 31 P108,000
________________________________________________________
How much was collected during the year?

a. P210,000
b. P264,000
c. P390,000
d. P415,715

P-27

Kia Motors sells car both on installment and cash basis. Om March 30,2013, Kia Motors sold
a car to Mr. Tom for P525,000 costing P414,000. A used car was accepted as a down
payment, P128,00 being allowed on the trade- in. the used car can be resold for P162,200
after reconditioning cost of P7,660. The company expects to make a 20% gross profit on the
sale of used car. The balance of the sale is to be paid on a 10- month basis starting May 31,
3013.

Mr. Tom defaulted the payment starting November 1, 2013 and the car was
immediately repossessed. The repossessed car was appraised at a fair value of P93,750 at
the time of repossession. Kia Motors had to incur additional cost of repairs amounting to
P9,250 before the car was subsequently resold on December 1, 2013 for P128,750 cash to
Mr. Lim.

1. What is the realized gross profit on December 31,2013?

a. P97,450
b. P98,990
c. P71,740
d. P47,640
2. What is the net income for the year ended December 31,2013?
a. P64,200
b. P38,450
c. P49,100
d. P40,100

P-28

My Home Inc., sells appliances on installment basis. Below are some of the
information from the records of the company:

2013 2012 2011

Cost of sales P850,000 P686,000
P596,160
Gross profit on sales 32% 30% 28%
Collections on:
2013 sales P425,000
2012 sales P258,000 P320,000
2011 sales P185,000 P152,000
P280,000
During 2012, write-offs of 2011 unpaid accounts were made amounting to P7,200. During
2013, repossessions were made on defaulted accounts on 2012 sales for which unpaid
balance amounted to P4,200. The fair value of the repossessed merchandise is P3,800.

How much is the deferred gross profit as of December 31,2013?

a. P442,680
b. P440,404
c. P428,080
d. P440,176

P-29

SM Appliance company uses the installment method of accounting. Pertinent data from the
company’s records show the following:

2013 2012 2011

Installment sales P750,000 P937,500
P900,000
Cost of sales P562,500 P712,500
P630,000
Deferred gross profit, December 31
2011 P141,000 P45,000

2012 __ P150,000 P30,000

2013 __ __ P195,000

1. How much is the total collection during 2013?

a. P930,000
b. P750,000
c. P250,000
d. P850,000
2. What is the total balance of the Installment Accounts Receivable account as of
December 31,2013?
a. P775,000
b. P750,000
c. P770,000
d. P800,000