CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN/LIM/VALIX/K. DELA CRUZ/MARASIGAN

INSTALLMENT SALES

1. Sarao Motors sells locally manufactured jeepneys on the instalment basis. The information
presented below relates to operations during the past three years:
2022 2021 2020
Cost of Installment sales 8,765,625 7,700,000 4,950,000
Gross profit rate 32% 30% 28%
December 31, Installment receivable
2022 sales 9,728,125
2021 sales 3,025,000 8,387,500
2020 sales - 1,512,500 4,812,500

1. What is the total realized gross profit on December 31, 2022?

a. 3,044,250
b. 6,993,250
c. 3,733,750
d. 1,012,000
2. What is the total deferred gross profit on December 31, 2022?
a. 1,012,000
b. 4,125,000
c. 4,020,500
d. 3,753,750

2. Juan Company accounts for its sales on the installment sales basis. At the beginning of 2022,
the ledger accounts include the following account balances:
Installment accounts receivable, 2020 180,000
Installment accounts receivable, 2021 576,000
Deferred gross profit, 2020 75,600
Deferred gross profit 2021 216,000
At the end of 2022 account balances before adjustment for unrealized gross profit on
installment sale are:
Installment accounts receivable, 2020 P 0
Installment accounts receivable, 2021 144,000
Installment accounts receivable, 2022 780,000
Deferred gross profit, 2020 75,600
Deferred gross profit, 2021 206,100
Deferred gross profit, 2022 360,000
 Installment sales in 2022 are made at 25% above cost of merchandise sold; cash sales
amounting to P1,400,000 were made at mark up of 30% of sales and credit sales of P400,000
at a mark-up of 32%. During 2022 upon default in payment by the customer, the company
repossessed the merchandise with an estimated market value of P12,000. The sale was made
in 2021 for P64,800 and P38,400 had been collected prior to repossession. The company
incurred reconditioning cost of P1,000 for the repossessed merchandise. In 2022 also, Juan
Company was able to sell, on installment basis, the repossessed merchandise for P16,250 at a
down payment of 40%.
1. What is the total realized gross profit in 2022?
a. 204,000
b. 227,700
c. 981,000
d. 979,700
2. What is the gain or loss on repossession?
a. (5,500)
b. (4,500)
c. (28,500)
d. (29,500)

3. On April 1, 2021, JPG Company sold for P84,000 a stereo which paid had a cost of P54,600.
A down payment of P9,000 was made with the provision that additional payments of P7,500
be made monthly thereafter. Interest was to be charged at a monthly rate of 2% on the unpaid
balance of the principal; the monthly installment was to apply first to the interest then to the
balance of the principal. After completing four months installment the customer defaulted
and the stereo was repossessed. At this time, the market value of the stereo was estimated to
be P22,500.

1. What is the gain or loss on repossession?

a. (10,176)
b. (14,315)
c. 6,750
d. (27,771)

2. What is the realized gross profit recognized at the end of the year?
a. 13,650
b. 8,655
c. 11,805
d. 10,500

3. What is the net income / (loss) at the end of the year?

a. 8,754
b. 2,761
c. 1,629
d. 6,900
4. On January 1, 2020, an entity sold a car to a customer at a price of P400,000 with a
production cost of P300,000. It is the entity’s policy to employ installment method to
recognize gross profit from installment sales.
At the time of sale, the entity received cash amounting to 25% of the selling price and old car
with trade-in allowance of P50,000. The said old car has fair value of P150,000. The
customer issued a 5-year note for the balance to be payable in equal annual installments
every December 31 starting 2020. The note payable is interest bearing with 10% rate due on
the remaining balance of the note.
The customer was able to pay the first annual installment and corresponding interest due.
However, after the payment of the second interest due, the customer defaulted on the second
annual installment which resulted to the repossession of the car sold with appraised value of
P110,000. On December 31, 2021, the repossessed car was resold for P140,000 after
reconditioning cost of P10,000.

1. What is the entity’s realized gross profit for the year ended December 31, 2020?
a. 50,000
b. 120,000
c. 108,000
d. 128,000

2. What is the loss on repossession for the year ended December 31, 2021?
a. 30,000
b. 20,000
c. 10,000
d. 40,000

3. What is the realized gross profit from the sale of the repossessed merchandise on
December 31, 2021?
a. 20,000
b. 30,000
c. 40,000
d. 50,000