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NATIONAL UNIVERSITY - MANILA Advanced Financial Accounting & Reporting Review

College of Business and Accountancy 1. Installment Sales

3. INSTALLMENT SALES
Matching (Revenue Recognition)
Listed below are the terms and associated definitions for revenue recognition. Match the correct
definition letter with each term number.
___ 1. cash method a. the earnings process in percentage-of-
___ 2. completed- completion
contract accounting based on units produced, contract
method milestones
___ 3. cost recovery reached, or values added
method b. an accounting method for recording service
___ 4. cost-to-cost revenue and
method related expenses prior to completion of a
___ 5. efforts- service contract
expended c. the earnings process in percentage-of-
methods completion
___ 6. input measures accounting based on cost or efforts devoted to
___ 7. installment a contract
sales method d. an accounting method for long-term
___ 8. output construction
measures contracts that recognizes revenue and related
___ 9. percentage-of- expenses
completion prior to delivery of the goods based on either
accounting an input or
___ 10. proportional output measure of the earnings process
performance e. requires recovery of the total investment
method prior to the
___ 11. Recognition recognition of revenue
f. determine the percentage of completion for
long-term
construction contracts using an estimate of
work or
service performed based on labor hours, labor
dollars, or
estimates of experts
g. all costs are charged to expense as incurred
and revenue
is recognized as collections are made
h. the process of formally recording an item in
the
accounting records and eventually reporting it
in the financial statements; includes both the
initial recording of an item and any subsequent
changes related to that item
i. recognizes revenues and expenses on long-
term construction contracts only when finished
NATIONAL UNIVERSITY - MANILA Advanced Financial Accounting & Reporting Review
College of Business and Accountancy 1. Installment Sales

j. determine the percentage of completion for


long-term
construction contracts using a ratio of the
actual cost
incurred to date to the estimated total costs
k. recognizes revenue and related expenses as
cash is
received
Problem 1
Complete the table below using installment sales method.

2016 2017 2018


Installment sales 50000 80000 ?
Cost of Installment Sales ? ? 91800
Gross Profit ? ? 28200
Gross Profit Percentages ? 25% ?
Cash Collections
2016 ? 25000 10000
2017 20000 50000
2018 45000
Realized Gross Profit 1100 10500 ?

Problem 2
Complete the table below using cost recovery method.

2016 2017 2018


Installment sales 92000 103000 ?
Cost of Installment Sales ? 62830 74750
Gross Profit Percentages 36% ? 35%
Cash Collections
2016 27200 48300 12200
2017 36600 ?
2018 43450
Realized Gross Profit ? 10500 19250
NATIONAL UNIVERSITY - MANILA Advanced Financial Accounting & Reporting Review
College of Business and Accountancy 1. Installment Sales

Problem 3

Apple Company sells appliances for cash and on installment plan. Entries to record the cost of sales
are made monthly. The trial balance as of December 31, 2018 is as follows:

Cash 72,600.00
Installment Contracts Receivable 2017 24,000.00
Installment Contracts Receivable 2018 76,000.00
Inventory new 62,000.00
Inventory repossessed 12,000.00
Accounts payable 49,900.00
Deferred gross profit 2017 21,600.00
Share capital 100,000.00
Retained earnings 42,000.00
Cash sales 212,000.00
Installment sales 150,000.00
Cost of sales 165,000.00
Cost of installment sales 97,500.00
Gain or loss on repossession 400.00
Selling and administrative expenses 66,000.00
575,500.00 575,500.00

The following is the analysis of cash receipts for the year:

Cash sales 212,000.00


Installment contracts receivable 2017 52,000.00
Installment contracts receivable 2018 74,000.00
Others 18,000.00
Total 356,000.00

Data pertaining to the repossession during the year:

Uncollected Balance 4,000.00


Loss on repossession 400.00
Repossessed merchandise 2,400.00

Required:
1. Prepare adjusting entries.
2. Prepare statement of comprehensive income.
NATIONAL UNIVERSITY - MANILA Advanced Financial Accounting & Reporting Review
College of Business and Accountancy 1. Installment Sales

MC 1
Trading accounts for its sales under the installment sales method. On January 1, 2018 its ledger
accounts include the following balances:
Installments Receivable, 2016 P 24,640
Installments Receivable, 2017 99,200
Deferred gross profit, 2016 7,392
Deferred gross profit, 2017 39,680
Installment sales in 2018 were made at 42% gross profit rate. At December 31, 2018, account
balances before adjustments were as follows:
Installments Receivable, 2016 P 0
Installments receivable, 2017 26,880
Installments receivable, 2018 64,320
Deferred gross profit, 2016 7,392
Deferred gross profit, 2017 39,680
Deferred gross profit, 2019 48,518.40

The total realized gross profit for the year ended December 31, 2018 was
a. P57,824 b. P63,302.40 c. P62,406.40 d. P62,304

MC2
USJR Company which began operations on January 5, 2017, appropriately uses the installment
method of revenue recognition. The following information pertains to the company’s operations for
2017 and 2018;
2017 2018
Sales P 192,000 P288,000

Collections from

2017 sales 64,000 32,000

2018 sales 0 96,000

Accounts written off from

2017 sales 16,000 48,000

2018 sales 0 96,000

Gross profit rates 30% 40%

What amount should USJR Company report as deferred gross profit in its December 31, 2018
statement of financial position?

a. P 48,000 b. P 71,680 c. P 64,000 d. P 84,000


NATIONAL UNIVERSITY - MANILA Advanced Financial Accounting & Reporting Review
College of Business and Accountancy 1. Installment Sales

MC3
USC Company began operations on June 1, 2018. The following information are extracted from its
records at year-end. Cost of installment sales, P1,090,750; Cost of Regular Sales, P1,050,000. Mark-
up on installment sales is 140% of cost while regular sales is 33-1/3% based on sales. At the end of
2018, the balance of Installment accounts receivable is P1,575,000; Accounts receivable is P735,000.
Operating expense total to 70% of the realized gross profit.
What is the net income for the year
a. P267,750 b. P 339,990 c. P341,250 d. P173,999

MC4
The following selected accounts appeared in the trial balance of Baby Company as of December 31,
2018

Installment Receivable 2017 sales 15,000.00


Installment Receivable 2018 sales 200,000.00
Inventory, December 31, 2017 70,000.00
Purchases 555,000.00
Repossessions 3,000.00
Installment sales 425,000.00
Regular sales 385,000.00
Deferred gross profit 2017 50,760.00

Additional information:

Installment Receivable 2017 sales, Dec 31, 2017 120,000.00


Inventory new and repossessed merchandise as of Dec 31, 2018 95,000.00
Gross profit percentage on regular sales during the year 30% on sales

Repossessions were made during the year. It was a 2017 sale and the corresponding uncollected
account at the time of repossession id P7,200. What is the total realized gross profit?

a. 244,510 b. 245,010 c. 245,610 d. 246,010

MC 5
On October 1, 2018, PXP Company sold Article One costing P270,000 for P400,000. Article Two, a
used merchandise was accepted as down payment and the balance on monthly installments for two
years that include both principal and interest at 15% per year starting October 31, 2018. P120,000 was
allowed on the article traded-in. The company estimates corresponding costs of reconditioning at
P8,000 and a sales price of P110,000 after reconditioning. The company normally expects 20% gross
profit on sale of used articles. How much is the RGP for 2018? (3 decimal places for PV)
a. 37,003 b. 28,464 c. 28,750 d. 28,486

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