Illustrative problem:

On December 31, 2019, the Dee Company sold merchandise to Park Corp. for P400,000. Terms of the
sale called for a down payment of 120,000 and the balance is payable in 2 annual installments of
P140,000 beginning of December 31, 2019. The cost of merchandise on Dee’s books on the date of sale
was P240,000. The company’s fiscal year end is December 31.

As a result of the above transaction, assuming that circumstances are such that:

1A: collectability of Receivable is reasonably assured

1B: collectability of Receivable is cannot be reasonably assured

1) The gross profit recognized using the time of collection – installment sales method of
recognizing revenue:

2019 2020 2021

a) P 0 20,000 140,000

b) 120,000 40,000 0

c) 160,000 0 0

d) 48,000 56,000 56,000

2) In Its December 31 balance sheet, Dee Company would report deferred gross profit using time of
collection – installment sales method of recognizing revenue:

2019 2020

a) P 0 0

b) 112,000 56,000

c) 160,000 140,000

d) 40,000 0

3) The unrecovered cost on December 31 using time of collection – installment sales method of
recognizing revenue:

2019 2020

a) P 0 0

b) 120,000 0

c) 168,000 84,000

d) 240,000 140,000
4) In its year-end balance sheet, Dee company would report installment receivables (net) using time of
collection – installment sales method of recognizing revenue:

2019 2020

a) P 120,000 P0

b) 280,000 140,000

c) 240,000 140,000

d) 168,000 84,000