COLLEGE OF BUSINESS AND ACCOUNTANCY

MATERIALS AND HANDOUTS ON ADVANCED ACCOUNTING AND REPORTING ONE

WESLEYAN UNIVERSITY – PHILIPPINES

ADVANCED ACCOUNTING AND REPORTING 1 ANGELUS EDWARD R. JOSE, CPA, MBA
INSTALLMENT SALES

PROBLEM I.
The following selected accounts were taken from the trial balance of Survival Company
as of December 31, 2012.

Accounts Receivable P 187 500

Installment Receivable-2010 37 500
Installment Receivable-2011 112 500
Installment Receivable-2012 675 000
Merchandise Inventory 131 250
Purchases 975 000
Freight-in 7 500
Repossessed Merchandise 37 500
Repossession Loss 60 000
Cash Sales 225 000
Charge Sales 450 000
Installment Sales 1 115 000
Deferred Gross Profit-2010 55 500
Deferred Gross Profit-2011 98 400
Operating Expenses 37 500
Shipment on Installment Sales 696 875

Additional Information:

 Gross Profit Rate for 2010 and 2011 installment sales were 30% and 32%,
respectively.

 The entry for repossessed goods was:

Repossessed Merchandise 37 500

Repossession Loss 60 000
Installment Receivable-2010 45 000
Installment Receivable-2011 52 500

 Merchandise on hand at the end of 2012(new and repossessed) was P70 500.

REQUIRED: COMPUTE FOR THE FOLLOWING

1. Total Realized Gross Profit in 2012?
2. Balance of Deferred Gross Profit as of December 31, 2012?
3. Net Income in 2012?

PROPERTY OF MR. ANGELUS EDWARD DELA ROSA JOSE

CERTIFIED PUBLIC ACCOUNTANT (CPA) AND MASTER OF BUSINESS ADMINISTRATION (MBA)
 COLLEGE OF BUSINESS AND ACCOUNTANCY
MATERIALS AND HANDOUTS ON ADVANCED ACCOUNTING AND REPORTING ONE

PROBLEM II.
Achievement Company which began operations on January 1, 2012 appropriately uses
the installment method of accounting. The following data pertain to Achievement’s
operations for year 2012.

Installment Sales (before over/under-allowance) P 3 150 000

Operating expenses 367 500
Regular sales 1 312 500
Total collections for the year
(excluding interest of P84 000) 2 088 000
Cost of regular sales 752 500
Cost of installment sales 2 205 000
Accounts Receivable-12/31/2012 512 500
Installment receivable written-off
(no provision was made) 154 000
Estimated resale value of repossessed merchandise 290 000
Profit usual on the sale of repossessed merchandise 15%
Repossessed accounts 350 000
Actual value of trade-in Merchandise 280 000
Trade-in allowance 490 000
Reconditioning cost of the repossessed merchandise 57 500

How much is the deferred gross profit at December 31, 2012? What is the net income for
the year ended December 31, 2012?

PROBLEM III.
The following data were taken from the records of Challenge Company, before the
accounts are closed for the year ended December 31, 2012. The company sells
exclusively on installment basis and uses installment method of recognizing revenue.
For the year ended For the year ended For the year ended
December 31, 2010 December 31, 2011 December 31, 2012
Installment Sales P2 800 000 P3 500 000 P4 200 000

Cost of Goods Sold 2 100 000 2 100 000 2 730 000

Salaries Expense 84 000 91 000 98 000

Rent Expense 42 000 42 000 42 000

Balances as of: December 31, 2010 December 31, 2011 December 31, 2012

Installment AR, 1 750 000 840 000 210 000

2010

Installment AR, 2 660 000 980 000

2011

Installment AR, 437 500 3 430 000

2012

Deferred Gross 210 000 210 000

Profit, 2010

Deferred Gross 1 064 000 1 052 800

Profit, 2011

PROPERTY OF MR. ANGELUS EDWARD DELA ROSA JOSE

CERTIFIED PUBLIC ACCOUNTANT (CPA) AND MASTER OF BUSINESS ADMINISTRATION (MBA)
 COLLEGE OF BUSINESS AND ACCOUNTANCY
MATERIALS AND HANDOUTS ON ADVANCED ACCOUNTING AND REPORTING ONE

Deferred Gross 1 470 000

Profit, 2012

On January 2012, a customer defaulted and Challenge Company repossessed

merchandise appraised at P17 500 after costs of reconditioning at P2 520. The
merchandise had been purchased in 2011 by a customer who still owed the company a
certain amount at the date of repossession.

How much was the net income for the fiscal year ended December 31, 2012?

PROBLEM IV.
The following account balances appear on the books of Fulfillment Company as of
December 31, 2012:
Cash P 150 000
Receivables 800 000
Merchandise Inventory 75 000
Accounts Payable 30 000
Deferred Gross Profit-2010 261 250
Sales 1 250 000
Purchases 640 000
Expenses 425 000
 The Receivables account is a controlling account for three subsidiary ledgers
which show the following totals:

2011 installment contracts P150 000

2012 installment contracts P600 000
Charge accounts (terms 30 days, net) P 50 000

 The gross profit on sales on installment contract for 2011 was 55%, on
installment contracts for 2012, 50%.

 Collections on installment contracts for 2011 total P300 000 for the year just
closed; on installment contracts for 2012, P400 000; on charge accounts, P200
000.

 Account balances from installment sales made prior to 2011 were also collected.

 Repossession for the year was on installment contracts for 2011 on which the
uncollected balance at the time of repossession amounted to P50 000.

 Merchandise repossessed was erroneously debited as a newly acquired

merchandise equal to the amount defaulted by the customer.

 Appraisal reports show that this repossessed merchandise has a true worth of P20
000 at the time of repossession and remain unsold at year end.

 The final inventory of the merchandise (new) valued at cost amounted to P45 000.

REQUIRED: COMPUTE THE FOLLOWING

1. Total Realized Gross Profit in 2012?

2. Net Income in 2012?

PROPERTY OF MR. ANGELUS EDWARD DELA ROSA JOSE

CERTIFIED PUBLIC ACCOUNTANT (CPA) AND MASTER OF BUSINESS ADMINISTRATION (MBA)