2010

2010:
2010 installment sales (P500, 000 x 42 %*) ................................ P 210,000
2011:
2010 installment sales (P216, 250 x 42%) ...................................
2011 installment sales (700, 000 x 38.5 %*) ............................... ________
Deferred gross profit .......................................................................... P 210,000

2011

P 90,825
__269,500
P 360,325

*Computation of Gross profit percentages

2010
Installment sales ................................................................................. P2, 762,500
Less Trade-in allowances (P282, 500 P197, 500) ........................... _______
Adjusted installment sales .................................................................. 2,762,500
Cost of sales:
Inventories, January 1 (new) ........................................................

Purchases (new) ........................................................................... 2,127,250

Repossessed merchandise ............................................................

Cost of goods available for sale ................................................... 2.127,250

Less: Inventories, December 31

New merchandise .................................................................. 525,000
Repossessed merchandise ..................................................... _______
Total ...................................................................................... 525,000
Cost of sales ................................................................................. 1,602,250
Gross profit......................................................................................... P 1,160,250
Gross profit percentages .....................................................................

42%

2011
P3, 875,000
____85,000
_3,790,000
525,000
2,208,750
_103,750*
2,837,500

448,525
____58,125
506,650
_2,330,850
P1, 459,150
38.5%

*2010: P243, 750 x 20%= P48, 750

2011: P137, 500 x 40% =_55,000
P103, 750
Uncollectible installment contracts expense, per books
Correct Uncollectible installment contracts expense:
Fair market value of repossessed merchandise
2010 sales (P243, 750 x 20%) .......................... P 48, 750
2011 sales (P137, 500 x 40%) .......................... __55,000
Unrecovered cost
2010 sales [P131, 250 x (100% 42%)] ..........
76,125
2011 sales [P102, 500 x (100% 38.5%)] ....... __63,038
Adjustment to Uncollectible installment contracts expense

P 123, 750

P 103,750

__139,163

__35,413
P 88,337

Fortune Sales Corporation

Income Statement
Year Ended December 31, 2011
Cash
Installment
Total
Sales
Sales
Sales
Sales
..................................................................... P256, 250 P3, 790, 000 P4, 046, 250
Cost of sales .................................................................. _197, 500 _2, 330, 850 _2, 528, 350
Gross profit.................................................................... P 58, 750 1, 459, 150
1, 517, 900
Less: Unrealized gross profit on 2011 installment
Sales (Schedule 1) ...................................................
__308, 963
__308, 963
Realized gross profit on 2011 sales ...............................
1, 150, 187
1, 208, 937
Add: Realized gross profit on 2010installment
Sales (Schedule 2) ...................................................
___64, 050
___64, 050
Total realized gross profit .............................................
1, 214, 237
1, 272, 574
Less: Uncollectible installment contracts expense ........
___35, 413
___35, 413
Total realized gross profit after adjustment ...................
P 1, 178, 824
1, 237, 574
Operating expenses .......................................................
__741, 200
Net income ....................................................................
P 496, 374

Schedule 1
Installment contracts receivable 2011, December 31 ........ ............
Installment contracts receivable 2011 defaulted ............... ............
Total ... .... ......................................................................... ............
Multiply by: 2011 gross profit percentage ........................ ............
Unrealized gross profit on 2011 installment sales............. ............

P 700, 00
___102, 500
P 802, 500
___38.5%
P 308, 963

Schedule 2
Installment contracts receivable 2010, January 1 ...............................
Less Installment contracts receivable 2010, December 31 ................
Total credits for the period .................................................................
Less: Installment contracts receivable 2010 defaulted .......................
Total collections .................................................................................
Multiply by: 2010 gross profit percentage .........................................
Realized gross profit on 2010 installment sales .................................

P 500, 00
__216, 250
283, 750
__131, 250
P 152, 500
_____42%
P 64, 050