Multiple Choice Problems

1. b –
20x4: P500,000 x 30% = P 150,000
20x5: P600,000 x 40% = 240,000 P390,000

2. d
Realized Gross Profit on Installment Sales in 20x6:
20x4 sales: P10,000 x 22%P 2,200
20x5 sales: P50,000 x 25% 12,500
20x6 sales: P45,000 x P28,200 / (P28,200+P91,800) 10,575
P 25,275

Realized Gross Profit on Sales in 20x5 P 10,500

Less: Realized Gross Profit in 20x5 for 20x5 sales: (P20,000 x 25%) 5,000
Realized Gross Profit in 20x5 for 20x4 sales P 5,500
Divided by: Collections in 20x5 for 20x4 sales P 25,000
Gross Profit % for 20x4 sales 22%

3. a
Installment Sales Method:
20x3 Sales: P240,000 x 25/125P 48,000
20x4 Sales: P180,000 x 28/128 39,375
Realized Gross Profit on Installment SalesP 87,375
Cost Recovery Method:
20x3 Cost: P480,000 / 1.25 P384,000
Less: Collections in 20x3 140,000
Collections in 20x4 240,000
Unrecovered Cost, 12/31/20x4 P 4,000
Under the cost recovery method, no income is recognized on a sale until the cost of the item sold is recovered 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 revenue after the cost
recovery represents income (interest and realized gross profit). This method is used only when the circumstances
surrounding a sale are so uncertain that earlier recognition is impossible.

4. a P0.
5. c