[INSTALLMENT SALES]

SOLUTIONS TO MULTIPLE CHOICE PROBLEMS

PROBLEM 1

1.1 D.

Installment contracts receivable – 2014, 9/30/14 ………………………………. P 100,000

Less: Installment contracts receivable – 2014, 9/30/15………………………… 12,500
Total credit for the period P 87,500
Less: credit representing repossession…………………………………………... 6,250
Credit representing collections…………………………………………………... P 81,250
Multiply by Gross Profit rate……………………………………………………. 50%
Realized gross profit 40,625

1.2 B.

Sales……………………………………………………………………………. P 312,500
Multiply by Cost rate…………………………………………………………. 70%
Cost of sales P 218,750

Inventory, September 30, 2014 ………………………………………………… P 62,500

Purchases………………………………………………………………………. 435,000
Repossession…………………………………………………………………… 2,500
Less: Inventory of new and repossessed merchandise, 9/30/15……………… 75,000
Cost of Sales (both regular and installment sales)…………………………….. P 425,000
Cost of sales for regular sales…………………………………………………. 218,750
Cost of installment sales P 206,250

Installment sales……………………………………………………………….. P 375,000

Cost of installment sales………………………………………………………. 206,250
Gross profit P 168,750

Gross profit rate = 168,750 / 375,000 = 45%

Installment contracts receivable – 2015, beg…………………………………. P 375,000

Less: Installment contracts receivable – 2015, ending………………………. 150,000
Credit representing collections……………………………………………….. P 225,000
Multiply by Gross profit rate…………………………………………………. 45%
Realized gross profit P 101,250

1.3 A.

Repossessed merchandise……………………………………………………. P 6,250

Multiply by Gross profit rate………………………………………………… 50%
Deferred Gross Profit 3,125

Deferred gross profit, 2014 …………………………………………………. 3,125

Loss on repossession……………………………………………………. 3,125

PROBLEM 2

Purchases, 2014………………………………………………………………. P 100,000

Less: New inventory, 12/31 at cost…………………………………………... 10,000
Cost of installment sales P 90,000

2014: Gross profit rate = (150,000 – 90,000) / 150,000 = 40%

Inventory, 12/31/14………………………………………………………….. P 10,000

Purchases, 2015……………………………………………………………… 120,000
Trade-in merchandise………………………………………………………… 1,500
Repossessed merchandise……………………………………………………. 2,500
Cost of goods available for sale……………………………………………… P 134,000
Less: Inventory, 12/31/15 (26,000 + 1,500 + 2,500)………………………... 30,000
Cost of Installment sales P 104,000

2015: Gross profit rate = (198,500 – 104,000) / 198,500 = 47.6% or 48%

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Installment contracts receivable – 2014, 1/1………………………………. P 80,000

Less: Installment contracts receivable – 2014, 12/31……………………... 25,000
Total credit P 55,000
Less: Credit representing repossession……………………………………. 6,000
Credit representing collections……………………………………………. P 49,000
Multiply by gross profit rate………………………………………………. 40%
Realized gross profit - 2014 P 19,600

Installment contracts receivable – 2015, 1/1…………………………….. P 198,500

Less; Installment contracts receivable – 2015, 12/31…………………… 95,000
Cash collection…………………………………………………………… P 103,500
Trade-in value……………………………………………………………. 1,500
Total collection for the period……………………………………………. P 105,000
Multiply by gross profit rate……………………………………………… 48%
Realized gross profit – 2015 P 50,400

Realized gross profit – 2014……………………………………………… P 19,600

Realized gross profit – 2015……………………………………………... 50,400
Total realized gross profit (C) P 70,000

Estimated appraised value……………………………………………….. P 2,500

Less: Unrecovered cost
Installment receivable……………………………… 6,000
Less: DGP (6,000 x 40%)………………………….. 2,400 3,600
Loss on repossession (C) P 1,100

PROBLEM 3

1. Gain or Loss on Repossession (B)

Regular sales…………………………………………………………….. P 3,850,000

Multiply by Cost Rate…………………………………………………… 70%
Cost of Sales P 2,695,000

Inventory, December 31, 2014…………………………………………. P 700,000

Purchases……………………………………………………………….. 5,550,000
Repossession……………………………………………………………. 30,000
Less: Inventory, December 31, 2015…………………………………… 950,000
Cost of Sales……………………………………………………………. P 5,330,000
Cost of Sales – Regular………………………………………………… 2,695,000
Cost of Installment Sales P 2,635,000

2014: GP rate = 540,000 / 1,200,000 = 45%

FMV of Repossessed Merchandise…………………………………….. P 30,000

Less: Unrecovered cost
Installment Contracts Receivable – 2014………………..77,500
Less; DGP (77,500 x 45%) 34,875 42,625
Loss on Repossession P 12,625

2. Net Income (D)

Regular Sales…………………………………………………………… P 3,850,000

Cost of Sales……………………………………………………………. 2,695,000
Gross Profit…………………………………………………………….. P 1,155,000
Add: Realized Gross Profit (Schedule 1)………………………………. 1,292,625
Total Realized Gross Profit before loss on repossession……………… P 2,447,625
Less: Loss on repossession……………………………………………... 12,625
Realized Gross Profit, net of Loss on repossession……………………. P 2,435,000
Operating expenses……………………………………………………. 1,250,000
Net Income P 1,185,000

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Schedule 1
2014 2015
IAR, beg…………………………………………..P 1,200,000 P 4,250,000
IAR, end………………………………………….. 150,000 2,000,000
Total credit for the period………………………...P 1,050,000 P 2,250,000
Credit representing repossession……………….. 77,500 -0-
Credit representing collections…………………..P 972,500 P 2,250,000
Multiply by Gross Profit rate…………………… 45% 38%
Realized Gross Profit P 437,625 P 855,000

Regular sales………………………………………………………………… P 3,850,000

Multiply by Cost Rate……………………………………………………….. 70%
Cost of Sales P 2,695,000

Inventory, December 31, 2014…………………………………………….. P 700,000

Purchases…………………………………………………………………... 5,550,000
Repossession………………………………………………………………. 30,000
Less: Inventory, December 31, 2015……………………………………… 950,000
Cost of Sales………………………………………………………………. P 5,330,000
Cost of Sales – Regular……………………………………………………. 2,695,000
Cost of Installment Sales P 2,635,000

2015: GP rate = (4,250,000 – 2,635,000) / 4,250,000 = 38%

PROBLEM 4

FMV of repossessed merchandise (P 6,500 – 600)…………………………… P 5,900

Less: Unrecovered cost
Installment Account Receivable (P 18,000 – 4,000) 14,000
Less: DGP (40% of 14,000) 5,600 8,400
Loss on repossession P (2,500)

Entry:
Repossessed Merchandise…………………….. 5,900
DGP…………………………………………… 5,600
Loss on Repossession…………………………. 2,500
Installment Accounts Receivable………………………………. 14,000

Repossessed Merchandise…………………… 600

Cash…………………………………………………………….. 600

PROBLEM 5

2014 2015
Installment sales……………………… P 4,000,000 P 5,000,000
Total collections:
During 2014: ………………. 1,980,000
During 2015: ………………. 1,440,000 2,820,000
Installment Receivable, 12/31/15…... P 580,000 P 2,180,000
Multiply by GP rate…………………. 40% 30%
Realized Gross Profit P 232,000 P 654,000

PROBLEM 6

Installment sales…………………………………………………………. P 1,050,000

Down payment…………………………………………………………... 150,000
First installment payment (390,000 – 90,000)…………………………. 300,000
Installment Receivable, 12.31.15……………………………………….. P 600,000
Multiply by GP rate……………………………………………………… 30%*
Deferred Gross Profit, 12.31.15 P 180,000

*GP rate = (1,050,000 – 735,000) / 1,050,000 = 30%

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PROBLEM 7

Installment sales……………………………………………………………………….. P 24,000

Down payment………………………………………………………………………… 6,000
Installment payment (1,000 x 9 months)…………………………………………….. 9,000
Installment accounts receivable at the time of default P 9,000

Fair value of the repossessed merchandise……………………………………………. P 4,000

Less: Unrecovered cost
Installment accounts receivable 9,000
Less: DGP (9,000 x 25%*) 2,250 6,750
Loss on repossession P (2,750)

*GP rate = (24,000 – 18,000)/24,000 = 25%

PROBLEM 8

Trade-in value …………………………………………………………………………. P 300.00

Less: Estimated resale price…………………………. P 315.00
Less: Reconditioning cost …………………….. 25.00
Normal gross profit (315 x 10%)……… 31.50 258.50
Difference P 41.50
Multiply by 6 units
Over allowance P 249.00

PROBLEM 9

2014 Installment Accounts (32,500 x 30%/130%)………………………………….. P 7,500

2015 Installment Accounts (180,000 x 33 1/3%/133 1/3%)………………………... 45,000
Deferred Gross Profit after adjustment P 52,500

Deferred Gross Profit before adjustment……………………………………………. P 76,000

Less: DGP after adjustment…………………………………………………………. 52,500
Realized Gross Profit P 23,500

PROBLEM 10

Installment sales – 2014……………………………………………………………… P 785,000

Downpayment (785,000 x 20%)……………………………………………………... 157,000
Collections during 2014 (628,000 x 40%)…………………………………………… 251,200
Installment Contracts Receivable, 12.31.14………………………………………… P 376,800
Multiply by GP rate above cost……………………………………………………… 35%/135%
Deferred Gross Profit – 2014 P 97,689

PROBLEM 11

Regular sales…………………………………………………………………………. P 375,000

Cost of regular sales…………………………………………………………………. 215,000
Gross profit on regular sales………………………………………………………… 160,000
Realized gross profit on installment sales:
Collections excluding Interest (312,000 – 24,000) 288,000
Gross profit rate (270,000/900,000) 30% 86,400
Total realized gross profit 246,400
Loss on repossession
Fair value of repossessed merchandise 54,000
Less: Unrecovered cost (100,000 x 70%) 70,000 ( 16,000)
Total realized GP after loss on repossession 230,400
Less: Operating expenses 72,000
Installment accounts written-off (44,000 x .70) 30,800 102,800
Net operating income 127,600
Interest income 24,000
Net income P 151,600

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PROBLEM 12

Regular sales P 1,575,000

Cost of regular sales 1,050,000
Gross profit on regular sales 525,000
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%) 2,625,000
Installment accounts receivable-12/31/08 1,575,000
Collections 1,050,000
Gross profit on rate on sales 140/240 612,500
Total realized gross profit 1,137,500
Operating expenses (1,137,500 x 70%) 796,250
Net income P 341,250

PPROBLEM 13

Date Payment Interest Income Principal Balance

07.10.15 867,500
07.10.15 212,500 637,500
07.10.15 80,000 557,500
08.10.15 30,000 5,575 24,425 533,075
09.10.15 30,000 5,331 24,669 508,406
10.10.15 30,000 5,084 24,916 483,490

Trade-in value…………………………………………………………………………… P 80,000

Less: FMV (120,000 – 22,500)…………………………………………………………. 97,500
Under allowance P 17,500

Adjusted sales price (850,000 + 17,500)……………………………………………….. P 867,500

Less: Cost of installment sales…………………………………………………………. 650,625
Gross Profit P 216,875

Gross Profit rate = 216,875/867,500 = 25%

Fair Value of repossessed Merchandise………………………………………………… P 300,000.00

Less: Unrecovered cost (483,490 x 75%)………………………………………………. 362,617.50
Loss on repossession P (62,617.50)

Downpayment………………………………………………………………………….. P 212,500
FV of repossessed merchandise………………………………………………………… 97,500
Collection for 3 payments……………………………………………………………… 74,010
Total collection…………………………………………………………………………. 384,010
Multiply by Gross Profit rate…………………………………………………………… 25%
Realized Gross Profit P 96,003

PROBLEM 14

List Price……………………………………………………………………………….. P 100,000

Less: Trade discount (100,000 x 10%)………………………………………………… 10,000
Invoice Price…………………………………………………………………………… P 90,000
Add: Under allowance…………………………………………………………………. 2,000
Adjusted selling price………………………………………………………………….. P 92,000
Less: Cost of sales……………………………………………………………………… 59,800
Gross profit P 32,200

GP rate = 32,200 / 92,000 = 35%

Invoice Price………………………………………………………………………….. P 90,000

Less: Trade-in merchandise…………………………………………………………… 10,000
Downpayment (80,000 x 20%)…………………………………………………. 16,000
Payment for 6 months (6,400 x 6)……………………………………………… 38,400
Defaulted accounts P 25,600

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Estimated selling price (6,000 x 5 units)………………………………………….. P 30,000

Less: Reconditioning cost (2,000 x 5 units)…………………………………………... 10,000
Estimated market value of the repossessed P 20,000
Less: Unrecovered cost (25,600 x 65%)……………………………………………… 16,640
Gain on repossession P 3,360

Current value of the repossessed merchandise………………………………………. P 12,000

Downpayment………………………………………………………………………… 16,000
Installment payment………………………………………………………………….. 38,400
Total collections……………………………………………………………………… P 66,400
Multiply by GP rate 35%
Realized gross profit P 23,240

PROBLEM 15

FMV of repossessed merchandise…………………………………………………… P 112,500

Add: Loss on repossession ………………………………………………………….. 13,500
Unrecovered cost P 126,000

Account defaulted…………………………………………………………………… P 180,000

Less: Unrecovered cost……………………………………………………………… 126,000
Deferred gross profit for account defaulted 54,000

GP rate = 54,000 / 180,000 = 30%

Cost of installment sales…………………………………………………………….. P 525,000

Divided by Cost ratio……………………………………………………………….. 70%
Installment sales…………………………………………………………………….. 750,000
Less: ICR, end (108,000/30%)……………………………………………………… 360,000
Collections P 390,000

PROBLEM 16

Trade-in value allowed for the used car…………………………………………….. P 128,000

Less: Estimated resale price after reconditioning cost…………..160,200
Less: Reconditioning cost………………………………… 7,660
NMP (160,200 x 20%)……………………………… 32,040 120,500
Over allowance P 7,500

Adjusted selling price (525,000 - 7,500)……………………………………………. P 517,500

Less: Cost of installment sales……………………………………………………… 414,000
Gross profit P 103,500

GP rate = 103,500 / 517,500 = 20%

Fair value of the trade-in merchandise……………………………………………… P 120,500

Collection prior to default (397,000/10 months) x 6 months……………………… 238,200
Total collection……………………………………………………………………… P 358,700
Multiply by GP rate 20%
Realized Gross Profit P 71,740

Estimated selling price……………………………………………………………… P 128,750

Less: Reconditioning cost…………………………………………………………... 9,250
FMV of the repossessed merchandise……………………………………………… P 119,500
Less: Unrecovered cost
Installment receivable…………………………… 158,800
Less: DGP (158,800 x 20%)……………………. 31,760 127,040
Loss on repossession P 7,540

Realized Gross Profit before Loss on repossession…………………………………. P 71,740

Less: Loss on repossession………………………………………………………….. 7,540
Net Income P 64,200

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PROBLEM 17

2014: GP rate = (720,000 – 480,000) / 720,000 = 33 1/3%

Collection on 2015 Installment sales = 288,000 x 33 1/3% = 96,000

2015: GP rate = (640,000 – 384,000) / 640,000 = 40%

Installment sales – 2014………………………………………………………………. P 640,000

Less: Total collection in 2014 and 2015 (200,000 + 240,000)……………………….. 440,000
Unpaid balance of receivable defaulted ………………………………………… 12,000
Installment receivable – 2014, 12.31.15……………………………………………… P 188,000
Multiply by GP rate 40%
Deferred Gross Profit – 2014, 12.31.15 P 75,200

PROBLEM 18

2014: GP rate = (2,160,000 – 1,425,600) / 2,160,000 = 34%

Installment receivable related to repossession………………………………………… P 27,000

Collection prior to default……………………………………………………………. 16,000
Unpaid balance P 11,000
Multiply by GP rate 34%
Deferred Gross Profit P 3,740

PROBLEM 19

2014
Installment Sales 130% P 780,000
Cost of Installment Sales 100% 600,000
Gross profit 30% P 180,000

Installment Sales P 780,000

Collection during 2014 (90,000/30% x 130%) 390,000
Collection during 2015 (54,000/30% x 130%) 234,000
Installment Receivable – 2014, 12.31.15 P 156,000

2015
Installment Sales 140% P 1,680,000
Cost of Installment Sales 100% 1,200,000
Gross profit 40% P 480,000

Installment Sales P 1,680,000

Collection during 2015 (120,000/40% x 140%) 420,000
Installment Receivable – 2015, 12.31.15 1,260,000
Installment Receivable – 2014, 12.31.15 156,000
Installment Receivable, 12.31.15 P 1,416,000

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