ACCOUNTING REFRESHER COURSE 1

ADVANCE FINANCIAL ACCOUNTING AND REPORTING

INSTALLMENT SALES

A. Since there is no reasonable basis for estimating the degree of collectability, YY Company, uses the installment

method of revenue recognition for the following sales:

2022 2021____

Sales P 900,000 P 600,000

Collection from

2021 sales 100,000 200,000

2022 sales 300,000 -

Accounts defaulted

2021 sales 150,000 50,000

2022 sales 50,000 -

Value assigned to repossessed items

2021 sales 95,000 27,500

2022 sales 25,000 -

Gross profit rate 40% 30%

1. What amount should YY report as deferred gross profit in its Dec. 31, 2022 B/S for the 2021 & 2022 sales?

a. P15,000 b. P225,000 c. P160,000 d. P250,000

2. What amount should YY report as loss on repossessions in its 2022 I/S for the 2021 & 2022 sales?

a. P15,000 b. P22,500 c. P16,000 d. P25,000

B. Poker Inc., a dealer of Harley motorcycles, sells on installment basis. One of its customers, Mr. Bentot, bought a

motorcycle for P45,375. The cost to Poker is P25,410. After making initial payment of P5,050, Mr. Bentot

stopped paying and defaulted on all subsequent payments. Poker lost no time in repossessing the motorcycle. By

then it had an appraised value of P12,650 and Poker has to incur additional expenses of P1,650 on repairs and

remodeling. Poker was able to sell the motorcycle to Mr. X on installment for P27,500 and initial down
payment of P6,875. How much is the realized gross profit on the sale to Mr. X?

a. P3,850 b. P3,575 c. P3,300 d. P3,025

C. On January 1, 2021, TAKYA Company began operations and uses the installment sales method of accounting

The records of the company showed the following:

Installment Sales Gross Profit on Sales Cash Collections

2021 P 1,200,000 30% P 400,000

2022 1,440,000 40% 560,000

Collections made in 2022 from 2021 accounts, P480,000. How much is the realized gross profit for 2022?
 a. P368,000 b. P576,000 c. P224,000 d. P416,000

D. The following data are taken from the records of QUIBOL Company on December 31, 2022:

Gross profit rate on sales 40%

Installment Contract Receivable, Dec. 31, 2022 280,000

Unrealized gross profit, Dec. 31, 2022 before adjustment 196,000

How much was the realized gross profit on December 31, 2022?

a. P84,000 b. P112,000 c. P96,000 d. P108,000

E. The following information pertains to Tiger Woods Company for the year 2022?

Regular sales P 540,000

Cost of regular sales 270,000

Installment sales 900,000

Cost of installment sales 450,000

Operating expenses 90,000

Collections on installment sales 180,000

How much is the income in 2022?

a. P360,000 b. P180,000 c. P90,000 d. P270,000

F. A DVD player was sold to OBAMA for P22,400 with a 40% mark-up based on selling price. The customer made

a down payment equivalent to 20% of the selling price and promised to pay the balance in 16 equal monthly

payments. OBAMA was able to pay four amortizations and defaulted on further payments. The player repossessed

at which time the fair value was P9,520. How much is the gain or loss on repossession?

a. P4,144 b. (P1,456) c. P1,456 d. (P4,144)