ADVANCE

FINANCIAL
ACCOUNTING
AND REPORTING
Installment Sales

Life is a continuous battle. It doesn’t matter how many

battles you’ve won or lost; what matters is that you
FOUGHT, LEARNED and SURVIVED
 CPAR Adapted
GROWTH Sales Corporation sells on installment basis and accounts for it using the installment method. Some
Installment Sales information related to its operations are summarized below:
2014 2015 2016
Cost of Sales P370,500 P855,360 P568,890
I. Concept Gross Profit on Sales 35% 34% 37%
- Installment sales requires revenue to be recognized at the time of collection
- It requires revenue to be deferred and recognized each year in proportion to the receivables January 1, 2016 December 31, 2016
collected during that year. Installment Receivable - 2014 P72,060
Installment Receivable - 2015 1,033,380 P208,320
Installment Receivable – 2016 327,270
Determining the Gross Profit
During 2016, the company repossessed an inventory which had been sold in 2015. GROWTH values the
A. For prior year’s sales:
repossessed goods at market value. The resale price of the repossessed merchandise amounted to P5,100 after
Deferred Gross Profit, beginning of current year incurring reconditioning cost of P1,000 and the loss on repossession was P256.
1. What is the total realized profit for the year 2016?
Installment Accounts Receivable, beg of current year a. P511,101
b. P516,517
B. For the current year
c. P518,762
d. P513, 254
Gross Profit
Installment Sales
CPAR Adapted
The following data pertain to installment sales of INNOVATE’s store: Down Payment is 30%; Cost of Installment
II. Cost recovery method
sales: 2014, P2,725,000; 2015, P3,925,000; 2016, P4,840,000. Mark up on cost is 40%. Collections after down
- The recovery method may be used where collectability is highly uncertain, where an
payment are: 45% during the year of sale; 35% during the year after sale; 20 % on the third year.
investment is very speculative in nature, and/or where the final sale price is to be determined
2. What is the amount of deferred gross profit at December 31, 2015 to be presented in the Statement of Financial
by future events
Position?
- Under the cost recovery method, all amounts collected are treated as a recoupment of the
a. P757,050
item sold, until the entire cost associated with the transaction has been recovered. Only at his
b. P659,400
point profit is recognized.
c. P431, 759
d. P604,450

CPAR Adapted
Juanita Company uses installment method of accounting and has the following data at year end:
Gross margin at cost 66 2/3 %
Unrealized gross profit P192,000
Cash collections including down payments 360,000

3. What was the amount of sale on installment basis?

a. 648,000
b. 840,000
c. 480,000
d. 552,000
  20% down payment upon signing of the contract of sale on January 1, 2019. Part of the down payment is
CPAR Adapted an item of used equipment with a fair value of P100,000. A trade-in allowance of P120,000 is allowed on
4. Under IFRS 15, an entity shall recognize revenue when (or as) the entity satisfies a performance obligation by the non-cash down payment.
transferring a promised good or service (i.e. an asset) to a customer. In which of the following instances shall  The balance is payable in four equal semi-annual installments starting June 30, 2019. The buyer issued
an entity recognize revenue through satisfaction of performance of obligation at a point in time? 12%-interest-bearing notes to compute the consideration for the acquisition.
a. The customer simultaneously receives and consumes the benefits provided by the entity’s performance as  Present value factors are:
the entity performs. o Ordinary annuity of 6% for 4 periods 3.4651
b. The entity’s performance creates or enhances an asset that the customer controls as the asset is created o Ordinary annuity of 12% for 4 periods 3.0373
or enhanced.
c. The entity’s performance does not create an asset with an alternative use to the entity and the entity has an 8. How much is the cash down payment?
a. P80,000
enforceable right to payment for performance completed to date.
b. P60,000
d. The entity has transferred the legal title, control and physical possession of the asset at a specific date.
c. P180,000
d. P100,000
PAIYAKAN COMPANY began operations on January 1, 2015 and appropriately uses the installment method of
accounting. The following information pertains to the operations of the company for 2016. 9. The entry recorded by Thrift Sales Company on January 1, 2019 shall not include
a. A debit to Equipment – Trade in of P100,000
Cost of installment sales, P656,250; Gross profit rate based on cost, 25%; Collections on installment sales (including b. A debit to over-allowance on Trade in of P20,000
interest of P13,750), P371,875 c. A credit to installment Sales of P1,000,000
5. Determine the realized gross profit for 2016. d. A credit to Discount on Notes receivable of P106,980
a. P46,875 c. P44,678.60
b. P47,437.50 d. P71,625 10. The total realized gross profit during 2019 is:
6. Determine the deferred gross profit at December 31, 2016. a. P286,000
a. P92,437.50 c. P67,187.50 b. P253,171
c. P247,534
b. P47,437.50 d. P117,187.50
d. P319,000
PRTC Adapted
On January 2, 2016, SUSIE FOODS signed an agreement to operate as franchisee of MANUNGGAY BAKERY for 11. The unrealized gross profit at December 11, 2019 is:
an initial franchise fee of P2,812,500 for 10 years. Of this amount, P525,000 was paid when the agreement was a. P295,956
signed and the balance payable in four annual payments beginning on December 31, 2016. SUSIE FOODS issued b. P253,000
a promissory note for the balance, the relevant interest rate being 24%. Assume the substantial services amounting c. P220,000
d. P269,716
to P417,450 had already been rendered by MANUNGGAY BAKERY and that additional indirect franchise cost of
P70,500 was also incurred. The franchisee started operations during 2016 with a total sales of P450,000. The
PRTC Adapted
agreement further provides that the franchisee must pay a continuing franchise fee equal to 3% of its gross sales. The Hulugan Company of Tagum City began operations on January 1, 2019. It uses the installment method in
If needed, the PV factor is 2.40. accounting for all its sales. At December 21, 2019, it had the following information:
7. Assuming the noted is interest-bearing and its collectability is doubtful, determine the realized gross profit on Gross profit rated based on cost 60%
the initial franchise fee for the year ended December 31, 2016. (Use 2 decimal places for the gross profit rate, Deferred gross profit P345,600
for example: 80.16%) Cash collection totaled P648,000
a. P1,920,000 c. P598,630.50
b. P2,835,000 d. P934,098.75 12. What was the amount of total installment sales during 2019?
a. P864,000
PRTC Adapted b. P1,569,600
A special item of band-new equipment costing P441,000 was sold by Thrift Sales Company for P1,000,000. Thrift c. P1,166,400
appropriately uses the installment method of revenue recognition. The terms of the sale follow: d. P1,512,000
PRTC Adapted 2020 2019
A refrigerator was sold to Dona Fernandina de Crisologo y Verdasco for P16,000, which included a 40% mark-up Installment Sales P720,000 P480,000
on selling price. She made a down payment of 20%, paid four of the remaining sixteen equal payments and then Collections from
defaulted on furher payments. The refrigerator was repossessed, at which time the fair value was determined to be 2019 Installment sales 80,000 160,000
P6,800. 2020 Installment sales 240,000
13. The repossession resulted in the following gain or loss Accounts defaulted
a. P56.80 2019 Installment sales 80,000 40,000
b. P1,040.00 2020 Installment sales 40,000
c. P2,960.00 Value assigned to repossessed items
d. P2,056.80 2019 Installment sales 40,000 22,000
2020 Installment sales 20,000
Gross profit rate 40% 30%
PRTC Adapted
Quincy Enterprises uses the installment method of accounting and it has the following data for year-end:
16. How much is the realized gross profit in 2019?
Gross margin on cost 66-2/3%
a. P48,000
Unrealized gross profit P192,000 b. P144,000
c. P120,000
Cash collections including down payments 360,000 d. P24,000

14. What was the amount of sales in installment basis?

a. P480,000 PRTC Adapted
b. P552,000 The following balance sheet was prepared for the A, B, and C Partnership on July 1, 2019.
c. P648,000 Assets Liabilities and Capital
d. P840,000 Cash P 20,000 Accounts payable P 41,600
Non-cash assets 144,000 A, Capital (40%) 32,000
B, Capital (40%) 52,000
PRTC Adapted C, Capital (30%) 38,400
Light Drops Company started operations on January 1, 2019, selling home appliances on the installment basis. For Total Assets P164,000 Total Liab & Capital P164,000
2016 and 2020, the following information are available:
2019 2020
Installment sales P1,200,000 P1,500,000 The partnership is being liquidated on the installment basis. The first sale of non-cash assets with book value of
Cost of installment sales 720,000 1,050,000 P72,000 realizes P40,000.
Collections of 2019 sales 630,000 450,000
Collections of 2020 sales 900,000 17. The amount of cash each partner should receive in the first installment is
A B C D

15. The balance of the unrealized gross profit account as at the end of 2020 was a. P0 P4,000 P14,400
a. P218,400 b. P9,600 P10,400 P17,600
b. P275,000 c. P21,600 P4,000 P14,400
c. P450,000 d. P0 P4,000 P17,600
d. P228,000
PRTC Adapted
PRTC Adapted Stevens Company operations on August 1, 2019. The following information are extracted from its record at
Since there is no reasonable basis for estimating the degree of collectability, ANETEO COMPANY uses the December 31, 2019.
installment method of revenue recognition for the following sales: Cost of installment sales P1,090,750
 Cost of regular sales 1,050,000 Cost of sales P850,000 P686,000 P596,160
Installment accounts receivable 656,250 Gross profit on sales 32% 30% 28%
Accounts receivable 735,000 Collections during the year
Operating expenses (70% of the realized From 2019 sales 425,000
gross profit) ? From 2018 sales 258,000 320,000
Mark-up on regular sales is 33-1/3% of sales, while mark-up on installment sales is 40% of cost. From 2017 sales 185,000 152,000 280,000

18. The net income to be reported by Stevens for 2019 is:

a. P267,750 During 2018, write-offs of 2017 unpaid accounts were made amounting to P7,200. During 2019, repossessions
b. P341,250 were made on defaulted accounts from 2018 sales for which the unpaid balance amounted to P4,200. The fair
c. P232,140 market value of the repossessed merchandise is P3,500. Operating expenses for 2019 amounts to P110,800.
d. P339,990
21. How much is the total deferred gross profit to be recognized as of December 31, 2019?
PRTC Adapted a. P404,404
19. The realization of income on installment sales transactions involves b. P404,440
a. Recognition of the difference between the cash collected on installment sales and the cash expenses c. P444,400
incurred d. P440,404
b. Deferring the net income related to installment sales and recognizing the income as cash is collected 22. Calculate the net income to be reported for the year ended December 31, 2019?
c. Deferring gross profit while recognizing operating or financial expenses in the period incurred a. P154,400
d. Deferring gross profit and all additional expenses related to installment sales until cash is collected b. P144,500
c. P145,400
d. P150,440
PRTC Adapted
The following information is obtained from the books of accounts of PURELOVE, INC., which recognizes revenue CPAR Adapted
by the installment method, on December 31, 2019. Number 23 and 24
Deferred Gross Profit (on the year-end balance sheet) P202,000 Psalm is a dealer of motorcycles. The company gives trade discount of 20% to buyers who will purchase more than
5 motorcycles during its anniversary blow-out in the month of June. On June 1, Queennie purchases 6 units of
Total collections from installment sales P440,000 motorcycles with a list price of P585,000 each. Each motorcycle costs Psalm P338,100. Psalm Company granted
an allowance of P288,000 to Queennie’s used motorcycles as trade-in, the current market value of each of the 6
Gross profit rate based on cost 25% motorcycles traded-in is P63,000. The balance is payable as follows; 40% at the time of purchase, the rest in
payable in 6 installments at the end of each quarter after month of sale. After paying 2 installmnents, Queennnie
During the year, a customer account with an original sale of P2,000 and a current uncollected balance of P1,200
defaulted and all the motorcycles sold to him were repossessed. It would require total reconditioning of P54,000 for
was repossessed. The fair value assigned to the repossessed item at time of repossessed was P900.
the items repossessed from Queennie. A 16& gross profit rate was usual from the sale of used motorcycle. Psalm
20. Calculate the gain or loss on repossession recognized by PURELOVE, INC. for the customer account written Company recognized a P3,600 loss as results of the repossessions of the motorcycles.
off.
a. P0 23. What is the unrecovered cost?
b. P1,100 loss a. 705,600
c. P60 loss b. 706,600
d. P300 loss c. 704,600
d. 702,600
24. What is the estimated resale value of the motorcycle repossessed?
a. 700,000
b. 800,000
PRTC Adapted c. 900,000
Hispanics, Inc. sells goods on installments and appropriately uses the installment method in recognizing profit. d. 1,000,000
Below are some of the information from the records of Hispanics over past three years.
2019 2018 2017
CPAR Adapted c. 221,250
THE TRISHA CO. uses the installment method. The following information was taken from the incomplete records d. 205,149
of THE TRISHA CO.:
2016 2017 2018 28. I. Installment contracts receivable qualifies for inclusion under the current assets or noncurrent assets
depending on the length of time required for its collection.
Installment Sales 16,000,000 19,200,000 ? II. Estimated cost to complete includes pre-contract costs and costs incurred after contract acceptance.
a. I is True, II is False
Cost of Sales ? ? ?
b. I is False, II is True
Gross Profit ? ? ? c. I is True, II is True
d. I is False, II is False
GP Rates ? ? 25%
CPAR Adapted
Collections: 29. I. The withheld portion of the billings to ensure the completion of the project satisfactorily is debited to contract
retention account. The contract retention account is presented in the statement of financial position as
2016 sales 8,000,000 4,800,000 3,200,000 noncurrent asset.
2017 sales 9,600,000 5,760,000 II. The amount of contract revenue may decrease as a result of cost de-escalation clause.
a. I is True, II is False
2018 sales 14,400,000 b. I is False, II is True
c. I is True, II is True
Realized gross profit 1,760,000 ? 5,686,400 d. I is False, II is False

CPAR Adapted
25. What is the cost of sales on 2017? 30. I. If collection of initial franchise fee is not assured, the unearned franchise fee would always equal the balance
a. 14,400,000 of the note, regardless if the initial service is with direct franchise cost or not.
b. 14,592,000 II. When the initial franchise fee is not paid in full and the collectability of the note for the balance is reasonably
c. 14,784,000
assured, the method to be used by the franchisors to recognize revenue from the initial franchise fee is
d. 14,976,000
installment method.
CPAR Adapted a. I is True, II is False
Numbers 26 and 27 b. I is False, II is True
On January 2, 2018, GLENDA Motors, which maintains a perpetual inventory records sold a new automobile to JO c. I is True, II is True
for P1,700,000. The car costs the seller P1,301,250, the buyer paid 30% down before deducting the allowance and d. I is False, II is False
received P160,000 allowance on an old car trade, the balance being payable in equal monthly payments. The
monthly amortization amounts to P60,000 inclusive of 12% interest on the unpaid amount of the obligation. The car CPAR Adapted
traded in his wholesale value of P240,000 after expending reconditioning cost of P45,000. After paying the three 31. I. Installment Contracts Receivable is always classified as a current asset.
installments, the buyer suffered major financial seatback incapacitating him to continue paying so the car was II. In a cash distribution program, the partner who has the biggest loss absorption potential has the first priority
subsequently repossessed. When reacquired, the car was appraised to have a fair value of P600,000. to absorb loss.
a. I is True, II is False
26. What is the deferred gross profit at the end of the year? b. I is False, II is True
a. 219,851 c. I is True, II is True
b. 232,526 d. I is False, II is False
c. 245,075
d. 205,149
Adapted CPAR
27. What is the realized gross profit on installment sales during the year?
On July 1, 2018, PM Motor, which maintains a perpetual inventory records sold a new automobile to ANX for
a. 212,500
P1,700,000. The car costs the seller P1.301,250.
b. 213,899
The following were the payment scheme in order:
 30% down payment
 P160,000 allowance on an old car traded
 the balance being payable in equal monthly installments
The monthly amortization amount to P60,000 inclusive of 12% interest on the unpaid amount of the obligation. The
car traded in has a wholesale value of P240,000 after expending reconditioning cost of P45,000. After paying three
installments, the buyer suffered major financial setback incapacitating him to continue paying so the car was
subsequently repossessed. When reacquired, the car was appraised to have a fair value of P600,000.
A. If the collection of the installment receivable is not reasonably assured, gross profit of installment sales
is recognized proportionately on the basis of collection.
B. If the long-term installment receivable is non-interest bearing, interest revenue shall be recognized based
on passage of time using the effective method.
C. The cost of installment sales shall be recognized proportionately throughout the term of the installment
contract based on the proportion of collection.
D. Loss on repossession shall be recognized on the date of default of collection of installments due and
repossession of the item sold computed as the difference between the fair value of repossessed item
and the unrecovered cost of the installment receivable.

32. What is the realized gross profit on installment sales during the year?
A. 212,500 (RESA Adapted)
B. 213,899 Finley Company sells office equipment. On January 1, 20x3, Finley entered into an installment sale contract
C. 221,250
with Miller Company for a six-year period expiring January 1, 20x9. Equal annual payments was made under
D. 205,149
the installment sale are P936,000 and are due on Jan 1. The first payment was made on January 1, 20x3.
Adapted CPAR Additional information is as follows:
Cellphone, Inc. sells cellphones on an installment basis. For the year ended December 31, 2016, the following were  The cash selling price of the equipment, i.e., the amount that would be realized on an outright sale
reported: is, P4,584,000.
 The cost of sales relating to the equipment is P3,825,000
Cost of installment sales P1,050,000  The finance charges relating to the installment period are P1,032,000 based on a stated interest
Loss on repossessions 27,000 rate of 9% which is appropriate. For tax purposes, Finley appropriately uses the accrual basis for
Fair value of repossessed merchandise 225,000 recording the finance charges.
Account defaulted 360,000  Circumstances are such that the collection of the installment sale is reasonably assured.
Deferred gross profit, December 31 adjusted 216,000
 The installment sale qualified for the installment method of reporting for tax puposes.
33. What is the collections during the year?  Assume that the income tax rate is 30%.
A. 780,000 36. What income before income taxes should Finley appropriately record as a result of this transaction for the
B. 420,000 year ended December 31, 20x3?
C. 720,000 a. P154,979
D. 1,429,091 b. P483,299
c. P759,000
Adapted CPAR d. P1,087,230
Nikita, Inc. sells automatic weapons costing P700,000 at a price of P1,200,000. Division Corp. buys a dozen of
automatic weapons on installment and trade in six of its old weapons at a trade-in value of P300,000 each. Nikita Rizzalyn Corporation, a capital goods manufacturing business that started on January 4, 20x3, and operates
spends P25,000 to recondition the old guns and sells them for P315,000. Nikita expects a 10 percent gross profit on a calenday-year basis. The following data were taken from the records of 20x3 and 20x4:
from the sale of used guns.
20x32 20x4
Installment sales P480,000 P620,000
34. What is the over-allowance granted by Nikita on the trade-in transaction?
A. 99,000 Gross profit rate 25% 28%
B. 234,000 Cash collections on sales of 20x3 140,000 240,000
C. 41,500 Cash collections on sales of 20x4 -0- 180,000
D. 249,000
37. Compute the realized gross profit to be reported in the 20x4 income statement:
Adapted CPAR Installment sales method Cost Recovery method
35. Which of the following recognition of income and expense accounts related to installment sales is incorrect? a. P87,375 P-0-
 b. P87,375 P180,000 Installment Contracts Receivable - 2016 344,460 67,440
c. P39,375 P-0-
Installment Contracts Receivable - 2017 0 410,090
d. P48,000 P240,000
During 2004, the company repossessed a refrigerator which had been sold in 2016 for P5,400 and P3,200
The following data pertain to installment sales of INNOVATE’s store: Down payment is 30%; cost of installment
had been collected prior to default. The company sales and cost of sales figures are summarized as
sales: 2017, P2,725,000; 2018, P3,925,000; 2019, P4,840,000. Mark up on cost is 40%. Collection after down
follows:
payment are: 45% during the year of sale; 35% during the year after sale; 20% on the third year.
2015 2016 2017
38. What is the amount of deferred gross profit at December 31, 2018 to be presented in the Statement of Financial Net Sales …...................... P 380,000 P 432,000 P 602,000
Position? Cost of sales….................. 247,000 285,120 379,260
a. P757,050
b. P659,400 41. Compute the deferred gross profit on December 31, 2017.
c. P431,750 a. P 151,733.33 c. P 174,662.90
d. P604,450 b. 173,914.90 d. P 449,856.40
39. The Sta. Rosa Sales company employs the perpetual inventory basis in the accounting for new cars. On August
On January 1, 2019, Janette Company sold 20,000 square meters of farmland for P600,000 to Michelle, taking in
15, 2019, a new car costing P330,000 and with a price of P440,00 was sold to Christine. The company granted
exchange a 10% interest bearing note. Janette Company purchased the farmland in 2019 at a cost of P500,000.
Christine an allowance of P170,000 on the trade-in of her old car, the current value of which was estimated to
be P163,400; the balance of 270,000 was payable as follows: P 70,000 cash at the time of purchase and The note will be paid in three installments of P241,269 including interest each on December 31, 2019, 2020, and
twenty monthly payments of P10,000 starting September 1, 2019. 2021. Shortly, after the sale Janette Company learns distressing news about Michelle’s financial circumstances
and because collection is so uncertain and decides to account for the sale using the cost recovery method.
The amounted of realized gross profit on December 31, 2019 is:
a. 26,246.30
42. Determine the Realized Gross Profit and Interest Income for the year 2020, and Unrecovered cost as of
b. 37,388.62
December 31, 2020, respectively.
c. 65,233.24
d. 74,777.24
a. P 0; P 0; P 0 c. P 0; P60,00; P177,462
b. P 0; P 0; P 17,462 d. P33,233; P 0; P 0
40. Sharon company uses the instalment sales method in accounting for its instalment sales. On January 1, 2019,
Sharon Company had an installment sales. On January 1, Sharon Company had an installment account
Use the following information for 43 to 45:
receivable from Rowena with balance of P18,000. During 2019, P4,000 was collected from Rowena. When no
On January 1, 2019, the fair values of Pink Conrad’s net assets were as follows:
further collection could be made, the merchandise sold to Rowena was repossessed. The merchandise had a
fair market value of P6,500 after the company spent for P600 for reconditioning of the merchandise. The
merchandise. The merchandise was originally sold with a gross profit rate of 40%.
Current Assets ….................................... P 100,000
Determine the gain or loss on repossession and Cost of Repossessed Merchandise, respectively:
Equipment …........................................... 150,000
A. 2,500 loss; 6,500
B. 2,100 loss; 6,500 Land …................................................... 50,000
C. 2,500 gain; 5,900
D. 2,100 gain; 5,900 Buildings …............................................. 300,000

Marissa Sales Corp. accounts for sales on the installment basis. The balances of the control accounts for installment Liabilities ….............................................. 80,000
Contracts Receivable at the beginning and of end of 2017 were:
Jan. 1, 2017 Dec. 31, 2017 On January 1, 2019, Blue George Company purchased the net assets of the Pink Conrad Company by issuing
Installment Contracts Receivable - 2015 P 24,020 P 0 100,000 shares of its P1 par value stock when the fair vale of the stock was P6.20. It was further agreed that Blue
George would pay an additional amount on January 1, 20x9, if the average income during the 2-year period of 2019-
20x8 exceeded P80,000 per year. The expected value of this consideration was calculated as P184,000; the
measurement period is one-year.

43. What amount will be recorded as goodwill on January 1, 2019?

a. Nil or zero c. P180,000
b. P100,000 d. P284,000

44. Assuming that on August 1, 2019 the contingent consideration happens to be P170,000, what amount will then
be recorded as goodwill on the said date?
a. Nil or zero c. P166,000
b. P86,000 d. P284,000

45. Using the same information in No. 28 and No. 29, assuming that on January 1, 2019, the date of settlement of
the contingent consideration clause agreement for P175,000, the entry should be:
a. Estimated liability for contingent consideration 170,000
Loss on estimated contingent consideration 5,000
Cash 175,000
b. Estimated liability for contingent consideration 175,000
Cash 175,000
c. Estimated liability for contingent consideration 184,000
Gain on estimated contingent
consideration 9,000
Cash 175,000
d. No entry required.

46. Gianne Co., sold a computer on installment basis on October 1, 2019. The unit cost to the company was
P86,400, but the installment 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 trade in
computer with the balance to be paid in 10 monthly installments 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 be resold for P36,000. A 15% gross
profit was usual from the sale of used computer. The realized gross profit from the 2019 collections amounted
to:

a. P5,760 c. P11,520
b. P14,100 d. P48,960
Answer Key X 40/140
1. RGP from IAR 2015 as of 2015 965,550
Answer: B
Installment receivable 2014 (1/1/2016) 72,060 DGP on IAR 2014 beginning of 2014 (2,725,000 x 40%) 1,090,000
Installment receivable 2014 (12/31/2016) (0) RGP from IAR 2014 as of 2015 (937,400)
Collections for IAR 72,060 DGP on IAR 2014 12/31/2015 152,600

FMV repossessed merchandise (5100-1000) 4,100 DGP on IAR 2014 beginning of 2015 (3,925,000 x 40%) 1,570,000
Loss on repossession 256 RGP from IAR 2015 as of 2015 (965,550)
Unrecovered cost 4,356 DGP on IAR 201512/31/2015 604,450
Cost ratio /66% 3.
Unpaid balance for IAR 2015 6,600
Answer: B
Installment receivable 2015 (1/1/2016) 1,033,380 DGP rate based on sale is 66.67/166.67 or 40%
Unpaid balance for IAR 2015 (6,600)
Installment receivable (12/31/2016) (208,320) DGP year-end 192,000
Collections for IAR 2015 818,460 DGP rate based on sale / 40%
Cost of Sales 2016 568,890 IAR year end 480,000
Cost Ratio /63% Collections 360,000
Installment Sales 2016 903,000 IAR beginning/Installment sales 840,000
4.
Installment receivable 2016 903,000 Answer: D
Installment receivable 2016 (12/31/2016) (327,270)
5.
Collections for IAR 2016 575,730
Answer: D
RGP 2014 (72,060 x 35%) 25,221 RGP = (371,875 – 13,750) x 25/125 = 71, 625
RGP 2015 (818,460 x 34%) 278,276 6.
RGP 2016 (575, 730 x 37%) 213,020 Answer: A
Total RGP 516,517 Sales (656, 250 x 1.25) 820, 312.50
2. Less: Collection 358, 125.00
Answer: A AR, end 462, 187.50
IAR 2014 (2,725,000 x 140%) 3,815,000 Multiply by 25/ 125
X 30% DGP 92, 437.50
Cash Down payment 1,114,500 7.
Collections after cash down payment
Answer: A
as of (12/31/2015) (3,815,000 x 70% x 80%) 2,136,400
GPR: (2, 812, 500 – 417, 450)/ 2, 812, 500 = 85.16%
Total Collections on IAR 2014 as of 12/31/2015 3,280,900
RGP = (525, 000 + 571, 875) X 85.16% = 934, 098.75
X 40/140
8. Answer: A
RGP from IAR 2014 as of 2015 937,400
Allowance 120,000
IAR 2015 (3,925,000 x 140%) 5,495,000 True Value 520,000
X 30% Over Allowance 300,000
Cash Down payment 1,648,500
Collections after cash down payment Adjusted SP 1M-20,000 980,000
as of (12/31/2015) (5,495,000 x 70% x 80%) 1,730,925 Cost 441,000
Total Collections on IAR 2015 as of 12/31/2015 3,379,425 Gross Profit 539,000
 GPR 55% 16. Answer: A
Realized gross profit in 2019 = 160,000 x 30% P48,000
Contract SP 1,000,000 17. Answer: A
Multiply by DP 20% Partner A Partner B Partner C
TOTAL DP 200,000 Capital balances, 7/1 P32,000 P52,000 P38,400
Less: Allowance 120,000 Loss on realization (12,800) (12,800) (6,400)
Cash Downpayment 80,000 Balances 19,200 39,200 32,000
9. Answer: D Restricted interest (P72,000) (28,800) (28,800) (14,400)
Cash P80,000 Balances (9,600) 10,400 17,600
Equipment – Trade in 100,000 Loss absorption 9,600 (6,400) (3,200)
Notes receivable 800,000 Free interest P 0 P4,000 P14,400
Overallowance on TI 20,000 18. Answer: C
Sales 1,000,000 RGP from regular sales: (P1,050,000/.666667)*.3333333 P525,000
10. Answer: D RGP from inst sales:
Cash DP 80,000 Inst sales P1,527,050
TV of the trade-in eqt 100,000 Less: IAR, 12/31 656,250
2 semi-annual payments (800,000/4)*2 400,000 Collection 870,800
Total collection 580,000 Multiply by 40%/140% 248,800
Multiply by GPR 55% Total RGP P773,800
RGP 319,000 Multiply by ratio of net income to gross profit 30%
11. Answer: C Net income P232,140
Adjusted SP 980,000 19. Answer: C
Less: Collection 580,000 20. Answer: C
Balance of NR 400,000 Value assigned to repossessed merchandise P900
Multiply by GPR 55% Less Unrecovered cost (P1,200/125%) 960
DGP 220,000 Loss on repossession (P60)
12. Answer: B 21. Answer: D
AR Balance (345,000/37.5%) 921,600 2019 sales (P1,250,000 – P425,000) =825,000 x 32% =P264,000
Cash Collection 648,000 2018 sales (P980,000-258,000-320,000-4,200) =119,340 x 30% = 119,340
Total Sales 1,569,600 2017 sales (828T-185T-152T-280T-7.2T) =203,800 x 28% = 57,064
13. Answer: B Total deferred gross profit 12/31/19 P440,404
Fair value of repossessed merchandise P 6,800 22. Answer: A
Less unrecovered cost (P9,600 x 60%) 5,760 RGP during 2019 from
Gain on repossession to be deferred to point of sale P 1,040 2019 sales: P425,000 x 32% P136,000
14. Answer: D 2018 sales: P258,000 x 30% 77,400
Installment accounts receivable, year-end (192T x 1.6667/.6667 P480,000 2017 sales: P185,000 x 28% 51,800
Cash collection including the down payment 360,000 Total realized gross profit P265,200
Total installment sales P840,000 Less expenses 110,800
15. Answer: D Net income 154,400
Note: The indicated gain from repossession is deferred to point of sale.
Unrealized gross profit 12/31/20 from
23. Answer: A
IAR, 19 (P1,200,000 – 630,000 – 450,000) = 120,000 x 40% P 48,000
Trade-in allowance 288,000
IAR, 16 (P1,500,000 – 900,000) = 600,000 x 30% 180,000
FMV trade-in 378,000
Combined balance P228,000
Under allowance 90,000
 26. Answer: A
Inst sale 2,808,000 Trade-in allowance 160,000
Underallowance 90,000 FMV trade-in 195,000
Adj sale 2,898,000 Under allowance 35,000
Inst COS (2,028,600)
Deferred GP 869.400 Inst sale 1,700,000
Under allowance 35,000
DGP rate = 30% Adj sale 1,735,000
Inst AR 2,808,000 Inst sale (1,301,250)
Trade-in allowance (288,0000 DGP 433,750
Down payment 1,008,000) DGP rate = 25%
Inst AR bal 1,512,000
/ 6 IAR 1,700,000
Payment per quarter 252,000 Trade-in allowance (160,000)
Down payment (510,0000
Inst AR ba 1,512,000 IAR balance 1,030,000
Payment (2quarters) (504,000)
Unpaid balance 1,008,000 Date Collection Interest Principal Balance
X 70% 7/1 1,030,000
Unrecovered cost 705,600 7/31 60,000 10,300 49,700 980,300
24. Answer: C 8/31 60,000 9,803 50,197 930,103
Unrecovered cost 705,600 9/30 60,000 9,301 50,699 879,404
Loss on repossession (3,600) DP 510,000
FMV repossessed merchandise 702,000 FMV trad-in 195,000
Principal collections 150,596
Estimated resell = x Total collections 855,596
x -54,000 -.16x = 702,000 X 25%
.84x= 756,000 Total collections 213,899
x = 900,000 27. Answer: B see computation in 26
25. Answer: B 28. Answer: D
RGP 2016 1,760,000 29. Answer: B
Collections from IAR / 8,000,000 30. Answer: A
DGP rate from IAR 22% 31. Answer: A
32. Answer: B
Total RGP 2018 5,686,400 Trade-in allowance 160,000
RGP IAR 2018 (3,600,000) FMV trade-in (240,000 – 45,000) 195,000
RGP IAR 2016 (704,000) Under allowance 35,000
RGP 2017 IAR 1,382,400
Collections from 2017 / 5,760,000 Installment sale 1,700,000
DGP rate from 2017 IAR 24% Under allowance 35,000
Adjusted installment sale 1,735,000
Inst sale 2017 19,200,000 Installment COS (1,301,250)
X 76% DGP 433,750 (25%)
Inst cost 14,592,000
Inst AR 1,700,000
 Cash DP (1,700,000 x 30%) (510,0000 35. Answer: C
Trade-in allowance (160,000) 36. Answer: D.
Inst AR bal 1,030,000 Sales 4,584,000
Cost of Sales 3,825,000
Date Collection Interest (1%) Principal Balance Gross Profit 759,000
7/1 1,030,000 Interest revenue (Schedule 1) 328,320
7/31 60,000 10,300 49,700 980,300 Income before income taxes 1,087,320
8/31 60,000 9,803 50,197 930,103
9/30 60,000 9,301 50,699 879,404 *Schedule 1
Cash selling price (sales) P 4,584,000
Cash DP 510,000 Payment made on January 1, 20x3 936,000
FMV trade-in 195,000 Balance outstanding 3,648,000
Principal collections 150,596 Interest rate 9%_______
Total collections 855,596 Interest revenue 328,320
X 25% 37. Answer: A.
RGP 213,899 Installment sales method:
20X3 SALES: 240,000X 25/125 48,000
33. Answer: B 20X4 SALES: 180,000x 28/128 39,375
FMV Rep Merch 225,000 RGP 87,375
Loss on rep 27,000 Cost Recovery method
Unrecovered cost 252,000 20x3 cos=t: 480,000/1.25 384,000
Unpaid balance / 360,000 Less: Collections in 20x3 140,000
Cost ratio 70% Collections 20x4 240,000
Unrecovered cost 12/31.20x4 4,000
DGP rate is 30%

DGP, 12/31 adjusted 216,000 38. Answer: A

/ 30% IAR 2018 (2,725,000 x 140%) 3,815,000
Installment AR 12.31 720,000 X 30%
Cash down payment 1,144,500
Installment AR 1/1 (1,050,000 / 70%) 1,500,000 Collections after down payment as of 12/31/19
Unpaid balance (360,0000 (3,815,000 x 70% x 80%) 2,136,400
Installment AR 12/31 (720,000) Total collections on IAR 2018 as of 12/31/19 3,280,900
Collections 420,000 X 40/140
RGP from IAR 2018 as of 2019 937,400
34. Answer: D
Estimated resell value 315,000 IAR 2019 (3,925,000 x 140%) 5,495,000
Reconditioning cost (25,000) X 30%
Normal profit on the resell (315,000 x 10%) (31,500) Cash down payment 1,648,500
FMV rep merch 258,500 Collections after down payment as of 12/31/19
X6 (5,495,000 x 70% x 45%) 1,730,925
Total FMC rep merch 1,551,000 Total collections on IAR 2019 as of 12/31/19 3,379,425
Total allowance (300,000 x 6) (1,800,000) X 40/140
Over allowance 249,000 RGP from IAR 2019 as of 2019 965,550
 DGP on IAR 2017 beginning of 2017
(2,725,000 x 40%) 1,090,000 Repossessed merchandise (for
RGP from IAR 2018 as of 2019 (937,400) b. reconditioning) 600
DGP on IAR 2018 12/31/19 152,600
cash, AP, etc. 600
DGP on IAR 2019 beginning of 2019 41. Answer: C.
(3,925,000 x 40%) 1,570,000
RGP from IAR 2019 as of 2019 (965,550) Gross profit Rates:
DGP on IAR 2018 12/31/29 604,450 2015: P247,000/P380,000 = 65% cost rate, GP rate would be 100% - 65% = 35%
39. Answer: C 2016: P285,120/P432,000 = 66% cost rate, GP rate would be 100% - 66% = 34%
Trade-in allowance 170,000 2017: P379,260/P602,000 = 63% cost rate, GP rate would be 100% - 63% = 37%
Less: Market value/ true work of trade-in merchandise 163,400 Deferred GP, 12/31/18 = IAR, end of 12/31/2018 x GP%
Over-allowance 6,600 2015: P-0- x 35%.................................... P 0
2016: P67,440 x 34%...............................22,929.60
Installment sales 440,000 2017: P410,090 x 37%.............................155,733.30
Less:Over allowance 6,600 P174,662.90
Adjusted installment sales 433,400
Less: Cost of installment sales 330,000
Gross profit 103,400 42. Answer: B
GP % (P103,400/P433,400) 24% Cost, Jan. 1, 2019 P500,000
Collections: Less: Collections including interest -
Down payment 70,000 2019 241,269
Trade-in at MV 163,400 Collections including interest -
Installment collections (P10,000 x 4 mos.) 40,000 2020 241,269
273,400 Unrecovered cost, Dec. 31, 2020 P 17,642
Recognized Gross Profit: 273,400 x 23.86% 65,233
40. Answer A Under the cost recovery method, no income is recognized on a sale until the cost of the item sold is recovered
FMV after reconditioning cost 6,500 through cash receipts. All cash receipts, both interest and principal portions, are applied first to the cost of the items
sold. Then, all subsequent receipts are reported as revenue. Because all costs have been recovered, the recognized
Less: Reconditioning cost 600
revenue after the cost recovery represents income (interest and realized gross profit). This method is used only
FMV before reconditioning cost 5,900 when the circumstances surrounding a sale are so uncertain that earlier recognition is impossible.
Less: unrecovered cost:
Unpaid balance (18,000-4000) 14,000
Less: Deferred GP (405x14,000) 5,600 8,400 43. Answer: D
Loss on realization 2,500
Consideration transferred:
The cost of repossessed merchandise should amount to P6,500(P5,900+P600) It should be noted that Shares: (100T shares x P6.20) P620,000
reconditioning cost is inventoriable. Incidentally, the entries for repossessed merchandise are as follows: Contingent consideration 184,000
Total P804,000
a. Repossessed merchandise (at FMV) 5,900 Less: FV of net identifiable assets
acquired:
DGP 5600 Current assets P100,000
Loss on repossession 2,500 Equipment 150,000
IAR 14000 Land 50,000
 Buildings 300,000 Trade- in (at MV) 28,800
Liabilities (80,000) 520,000 installment collections:
Goodwill P284,000 (P108,000-28,80-7,200)/ 10 mos. X 3
mos. 21,600
The P284,000 is one classical example of contingencies is where the future income of the acquirer is regarded as total collections in 2008 57,600
uncertain; the agreement contains a clause that requires the acquirer to provide add’l consideration to the acquire GPR 20%
if the income of the acquirer is not equal to or exceeds a specified amount over some specified period. Realized GP 11,520

44. Answer: D
Goodwill, 1/1/2019 P284,000
Less: Adj. on contingent consideration (P184T -
P170T) 14,000
Goodwill, 8/1/2019 P270,000

Changes that are the result of the acquirer obtaining add’l information about facts and circumstances that existed
at the acquisition date, and that occur within the measurement period (which may be a maximum of one year from
the acquisition date) are recognized as adjustments against the original accounting for the acquisition (and so may
impact goodwill) – see Section 11.3 [PFRS 3 (2008) par. 58]

Incidentally, the entry to record the revision of goodwill should be:

Est. liability for contingent consideration 14,000
Goodwill 14,000

45. A – refer to No. 43 and 44 for further discussion

46. Answer: C

Trade- in allowance 43,200

less: MV of trade-in allowance:
Estimated resale price after reconditioning cost 36,000
less: reconditioning cost 1,800
normal profit (15% x P36,000) 5,400 28,800
Overallowance 14,400

installment sales 122,400

less: Over-allowance 14,400
adjusted installment sales 108,000
less: cost of installments sales 86,400
GP 21,600
GPR: (P21,600/P108,000) 20%

Realized GP:
Down payment 7,200