Loss on repossessions 6,000

The company auditor disclosed that the inventory taken on December 31, 2008
did not include certain merchandise received as trade-in on December 2, 2008 for which
an allowance was given. The realizable value of the merchandise is P1, 500 which was
also the allowance on the trade-in. No entry was made to record this merchandise on
the books at the time was received. In 2011, a 2010 contract was defaulted and the
merchandise was repossessed. At the time of default, the repossessed merchandise
had a fair value of P2, 500. The repossessed merchandise was neither recorded nor
included in the physical inventory on December 31, 2011.
The total realized gross profit at December 31, 2011 and the adjusted gain (loss)
on repossession are:
Realized gross profit Gain (loss) on repossession

a. P70,000 (PI , 100)

b. P70,000 (PI , 100)

c. P50,400 (PI , 100)

d. P50,400 (PI , 100)

16. Kanlaon Corporation started operation on January 1.2010, selling home appliances
and furniture sets both cash and under installment basis. Data on the installment sales
operations for the two years ended December 31, 2010 and 2011 are as follows:

Installment sales 2010 2011

Cost of installment sales P400,000 P500,000
Cash collections on:
2010 installment contracts 240,000 350,000
2011 installment contracts 210,000 300,000
The balance of the deferred gross profit account on December 31, 2011 is:
 a. P130, 000
b. P160, 000
c. P190,000
d. P 76,000
17. United Trading accounts for sales under the installment method. On January 1,
2011 its ledger accounts included the following balances:
Installment receivable, 2009 P38, 500
Installment receivable, 2010 155,000
Deferred Gross Profit, 2009 11,550
Deferred Gross Profit, 2010 62,000

Installment sales in 2011 were made at a 42% gross profit rate. December 3 1, 2011
account balances before adjustment were as follows:
Installment receivable, 2009 P-0-
Installment receivable, 2010 42,000
Installment receivable, 2011 100,500
Deferred Gross Profit, 2009 11,550
Deferred Gross Profit 2010 62,000
Deferred Gross Profit, 2011 75,810
The total realized gross profit on December 31, 2011 is:
a. P90, 350
b. P97, 510
c. P98, 910
d. P97, 350
18. Presented below is the unadjusted trial balance, as December 31, 2011 of Moslim
Products Corporation:
Cash P 5, 000
Installment Account Receivable 2010 40,000
Installment Account Receivable 2011 140,000
Inventory, December 31, 2011 200,000
Other Assets 497,000
Trade accounts payable P 50,000
Unrealized Gross Profit-2009 10,000
Unrealized Gross Profit-2010 86,000
Unrealized Gross Profit-2011 100,000
Capital Stock 600,000
Retained Earnings 80,000
Repossession Gain 6,000
Operating Expenses 50,000
P 932,000 P 932,000
The cost of goods sold had been uniform over the years at 60% of sales, and the
company adopts perpetual inventory procedures. On installment sales, the company
charges installment accounts receivable and inventory and unrealized gross profit
accounts.
Repossession of merchandise have been made during 2011 due to some
customers failure to pay maturing installments. The analysis of these transaction have
been summarized as follows:
Inventory P75, 000
Unrealized gross profit 2009 800
Unrealized gross profit 2010 400
Installment accounts 2009 2,000
Installment accounts receivable 2010 6,000
Repossession gain 2,700
The repossessed merchandise were unsold at December 31, 2011 and it was
ascertained that these were booked, upon repossession, at their original cost. A fair
valuation would be a sales price of P 10,000 after reconditioning cost of P1, 000 and a
normal gross profit.
The realized gross profit from 2011 sales and the gain (loss) on repossession on
December 31, 2011 are:
a. P44,000 and (P200)
b. P44,000 and P200
c. P56,000 and P300
d. P56,000 and P200
19. The following selected accounts appeared in the trial balance of Union Sales as of
December 31, 2011:
Debit Credit
Installment Accounts Receivable, 2010 Sales P 15,000
Installment Accounts Receivable, 2011 Sales 200,000
Inventory, December 31, 2010 70,000
Purchases 555,000
Repossessions 3,000
Regular Sales P385, 000
Installment Sales 425,000
Unrealized Gross Profit, 2010 54,000
Additional information:
Installment Account receivable, 2010 sales
As of December 31, 2010 P120, 000
Inventory of new and repossessed
Merchandise, December 31, 2011 95,000
Gross profit rate on regular sales during the year 30%
Repossession was made during the year on a 2010 sale and the corresponding
uncollected amount at the time of repossession was P7, 750.
The total realized gross profit on December 31, 2011 and the (loss) on repossession
are:
a. P 85,500.00 and P (1,262.50)
b. P 129,262.50 and P (1,262.50)
c. P 43,762.50 and P 1,262.50
d. P 119,622.50 and P 1,262.50
20. The books of Paiyakan show the following account balances on December 31,
2011:
Accounts Receivable P313, 750
Deferred gross profit (before adjustment) 38,000
Analysis of the accounts receivable reveals the following:
Regular Accounts P207, 500
2010 installment accounts receivable 16, 250
2011 installment accounts receivable 90, 000
Sales on installment basis in 2010 were made at 30% above cost, and in 2011at 33-
1/3% above cost. Expenses paid relating to installment sales were P1 ,500.
How much is the total comprehensive income on installment sales?
a. P 10,000
b. P10,250
c. P11,000
d. P11,500

21. The Famcor Sales Company employs the perpetual inventory basis in the
accounting for new cars. On August 15, 2010, a new car costing P65, 000 and with a list
price of P220, 000 was sold to Rose Castro. The company granted Ms. Castro an
allowance of P85,000 on the trade-in of her old car, the current value of which was
estimated to be P81,700; the balance of P 135,000 was payable as follows: P35,000
cash at the time of purchase and twenty monthly payments of P5,000 starting
September 1, 2010
On April 1, 2011, Ms. Castro defaulted in the payment of the march 1, 2011, installment.
The new car sold was repossessed, and its value to the seller was P40, 000.
a. P32616.62 and (P13,298.00)
b. P32,616.62 and P13,298.00
c. P37,388.62 and P15,810.62
d. P27,844.62 and (P15,810.62)
22. The Jade Appliance Company started business on January I , 2011. Separate
accounts were established for installment and sales. On installment sales, the price was
106% of the cash sales price. A standard installment contract was used whereby a
down-payment of 1/4 of the installment price was required, with the balance payable in
15 equal monthly installment. (The interest charge per month is 1% of the unpaid cash
sale price equivalent at each installment).
Installment receivable and installment sales were recorded at the contract price. When
contracts were defaulted, the unpaid balances were charged to Bad Debts Expense.
The following data are available:
Sales
Cash sales P126, 000
Installment sales 265,000
Repossessed sales230
Inventory, January 1, 2011:
Merchandise inventory 58.060
Purchases, 2011
New merchandise209, 300
Inventories, physical, December 31, 2011
New merchandise 33,300
Repossessed inventory 180
Cash Collections on installment contract 2011:
Down payments 66,250
Subsequent installments (including interest of P9, 252.34 on
All contracts except on defaulted contracts) 79,341
Five contracts totaling P1, 060 were defaulted, in each case after 3 monthly installment
were paid.
Interest should be recognized in the earned.
a. P99,024.85
b. P99,084.87
c. P99,184.85
d. P95,024.85
23. The following data were taken from the records of Camille Appliance Company
before its accounts were closed for the year 2011. The company sells exclusively on the
installment basis and it uses the installment method of recognizing profit:
2009 2010 2011
Installment sales P400, 000 P440,000 P420,000
Cost of installment sales 240,000 272,800 256,200
Operating expenses 100,000 110,000 96,000
Balances as of December 31:
Inst. Contracts Receivable 2009 220,000
Inst. Contracts Receivable 2010 250,000
Inst. Contracts Receivable 2011 92,000
238,000
During 2011, because some customers can no longer be located, the company wrote
off P9, 000 of the 2009 installment and P2, 800 of the 2010 installment account as
uncollectible.
Also during 2011, a customer defaulted and the company repossessed merchandise
apprised at P2,400 after cost of reconditioning estimated at P400. The merchandise had
been purchased in 2009 by a customer who still owed P5,000 at the date of the
repossession.
The total comprehensive income on December 31, 2011 is:
a. P157,156
b. P61,000
c. P60,156
d. P59,156
24. Jing trading Company, which started operations on January 2, 2010, sells video
equipment on installment terms. Wherever a company default, Jing repossesses the
merchandise and writes this off to a Loss on Defaulted contracts account. Information
regarding the repossession are not recorded in the books but are kept on a memo
basis. Proceeds from the sale of these goods are credited to the Loss on Defaulted
Contracts account. The following information are taken from the books of Jing:
December 31
2011 2010
Installment contracts receivable, 2010 P 2,000 P31, 500
Installment contracts receivable, 2011 40,000
Sales 125,000 75,000
Loss on Defaulted Contracts 4,275 250
Allowance for Defaulted Contracts 2,250 2,250

Additional information:
a.) No repossessed video equipment was sold in 2010 or 2011 for more than the
unpaid balance of the contract. A further analysis of the Loss on Defaulted
Contracts showed the following breakdown:
2010 2011
Contracts Contracts
Contracts written off P3, 750 P 1,500
Less: Sales of repossessed goods 800 175
Loss a Defaulted Contracts P2, 950 P 1, 325

The repossessed goods on hand on December 31, 2011, all of which were repossessed
from 2010 contracts, are valued at P200.
b.) The P 2, 000 balance of the installment Contracts Receivable 2010 accounts is
currently due and collectible.
c.) The gross profit on installment sales were 40% in 2010 and 42% in 2011.
d.) The rate of bad debts loss for 2011 is estimated to be the same as the 2010
experiences rate based on sales:
The required balance of the allowance for Defaulted Contracts account and the realized
gross profit on December 31, 2011 from 2010 sales are:
a. P3, 675 and P10, 300
b. P3, 675 and P 9,300
c. P3, 575 and P10, 300
d. P4, 675 P 9,300