Page 238.

Continuation……………

1. The gross profit realized on collections for installments sales in fiscal year 2002 is
a. P2,375 c. P43,750
b. P27,500 d. 40,625

2. The gross profit realized for installment sales in fiscal year 2003 is
a. P67,500 c. P191,250
b. 101,250 d. P225,000

3. The correcting entry for repossession made on sale of 2002 is

a. Deferred gross profit 2002 3,125
Loss on repossession 3,125

b. Deferred gross profit – 2002 3,750

Loss on repossession 3,750

c. Loss on repossession 3,125

Installment contracts receivable – 2002 3,125

d. No entry

Multiple Choice 6 – H

The Hightech Sales Co. which began the appliances business on January 1, 2003
reports gross profit on the installments basis. The information relative to the installment
sales are presented below.

2001 2002 2003

Installments sales P360,000 P375,000 P450,000
Cost of goods sold 270,000 271,875 324,000
Gross profit P 90,000 P103,125 P126,000
Collections from customers on:
2001 installment sales P 67,500 P112,500 P108,750
2002 installment sales 71,250 120,000
2003 installment sales 93,750
Defaults:
Unpaid balance of 2001
installment contracts 18,750 22,500
Value assigned to repossessed
merchandise 9,750 9,000
Unpaid balance of 2002
installment contracts 24,000
Value assigned to repossessed
merchandise 13, 500

1. How much is the realized gross profit from the collections during 2003?
a. P80,625.00 c. P88,687.50
b. P86,437.50 d. P90,300.00

2. The loss on repossessions during the year 2003 amounted to

a. P11,775 c. P34,275
b. P12,225 d. P46,500

Multiple Choice 6 – 1
Following data pertain to Valuation Company which sells appliances on the
installment basis:
 2001 2002 2003
Installment sales P390,000 P420,000 P480,000
Cost of Sales 237,900 243,600 288,000

From sales made in

2001 2002 2003
Installment account receivables
balances: January 1, 2003 P 24,000 P300,000
December 31, 2003 60,000 P320,000

Repossessions on defaulted accounts were made during 2003 as follows:

From sales made in

2002 2003
account balance P10,000 P5,000
Net resale value of repossession 4,500 3,500

1. The total realized gross profit in 2003 on the collections of 2001, 2002 and 2003 sales
was
a. P9,360 c. P96,600
b. P62,000 d. P167,960

2. The net gain (loss) on repossession on defaulted sales on 2002 and 2003 was
a. P500 c. P800
b. (P800) d. (P1,300)

Multiple Choice 6 - J

The following date were taken from the books of High Quality Company for
2003:
2002 2003
Installment sales P800,000 P900,000
Cost of installment sales 480,000 600,000
Collections on: 2002 installment contracts 250,000 300,000
2003 installment contracts 360,000

2002 2003
Defaults and repossessions:
Unpaid balance of prior year’s installment
contracts defaulted 12,000 15,000
Value assigned to repossessed merchandised 7,000 8,000

Assume perpetual inventory records were not maintained.

1. The realized gross profit on 2003 installment sales during 2003 is

a. P120,000 c. P180,000
b. P144,000 d. P220,000

2. The gain /loss on repossession on the defaulted 2002 contracts was

a. P1,000 gain c. P180,000
b. P1,000 loss d. no gain loss

3. The unrealized gross profit on the 2002 installment sales as of December 31, 2003
was
a. P160,000 c. P94,000
b. P120,000 d. P64,000
Multiple Choice 6 - K
The lucky Trading accounts for installments sales on the installments basis. On
January 1, 2003, ledger accounts included the following balances:

Installment receivable – 2001 P 35,800

Installment receivable – 2002 155,000
Deferred gross profit – 2001 11,550
Deferred gross profit – 2002 62,000

On December 31, 2003, account balances before adjustments for realized gross
profit on installments sales were:

Installment receivable – 2001 None

Installment receivable – 2002 P 42,000
Installment receivable – 2002 100,500
Deferred gross profit – 2001 11,550
Deferred gross profit – 2002 62,000
Deferred gross profit – 2003 75,810

Installments sales in 2003 were made at 42% above cost of merchandise.

1. Installment sales during 2003 were

a. P256,310 c. P118,020
b. P176,310 d. P180,500

2. Total gross profit realized during 2003 was

a. P132,510 c. P 97,510
b. P 98,910 d. P102,835

Multiple Choice 6 – L

The following selected accounts appeared in the trail balance of Unimall Sales as
of December 31, 2002:
Debit Credit
Installment receivable – 2002 sales P 15,000
Installment receivable – 2003 sales 200,000
Inventory, Dec. 31, 2002 70,000
Purchases 555,000
Repossessions 3,000
Installment sales P425,000
Sales (regular) 385,000
Unrealized gross profit – 2002 54,000

Additional information:
Installment receivable – 2002 sales, Dec. 31, 2002 P120,000
Inventory of new repossessed merchandise as of
December 31, 2003 95,000

Gross profit percentage on regular sales

during the year 30% on sales

Repossession was made during the year. It was a 2002 sale and the corresponding
uncollected account at the time of repossession was P7,750.

1. The gross profit realized on collections for installment sales in 2002 was
a. P47,250.00 c. P43,762.50
b. P50,737.50 d. P 7,752.00
 2. The gross profit realized on collections for installments sales in 2003 was
a. P87,075.00 c. P 85,500.00
b. P88,672.50 d. P263.500.00

3. The loss repossession made on a 2002 sale was

a. P1,262.50 c. P1,805.00
b. P487.50 d. P7,750.00

Multiple Choice 6 – M

The following selected accounts were taken from the trial balance on Dec. 31,
2003 of Antigo Company:

Accounts Receivable – charge sales 75,000

Installment Receivable - 2001 15,000
Installment Receivable – 2002 45,000
Installment Receivable – 2003 270,000
Merchandise Inventory 52,500
Purchases 390,000
Freight-in 3,000
Repossessed Merchandise 15,000
Repossessed Loss 24,000
Cash Sales 90,000
Charge Sales 180,000
Installment Sales 446,400
Deferred Gross Profit-2001 22,200
Deferred Gross Profit -2002 39,360

The following additional information were also taken from the records of Antigo
Company:

a. Gross profit rate on 2001installment sales was 30% and for 2002, the rate was
32%

b. Installment sales exceed cash sales price by 24%, while charge sales prices exceed
cash sales prices by 20%.

c. The entry for repossessed goods was

Repossessed Merchandise 15,000

Repossessed loss 24,000
Installment Receivable – 2001 18,000
Installment Receivable – 2002 21,000

d. Merchandise on hand at the end of 2003 (new and repossessed) was P70,500

1. If all sales were on cash basis, how much was the total sales for 2003
a. P516,328 c. P716,400
b. P600,000 d. P800,000

2. How much is the cost of goods sold on installment sales in 2003?

a. P234,000 c. P272,160
b. P267,624 d. P390,000

3. The cash collections on installment sales are

 2001 2002 2003
a. P89,000 P168,000 P176,400
b. P74,000 P123,000 P176,400
c. P41,000 P 57,000 P176,400
d. P33,000 P 66,000 P176,400

Multiple Choice 6 – N

On October 1, 2002, Fastsavers Co. sold article “A” costing P270,000, for
P400,000. Article B, a used article, was accepted as down payment, with the balance
payable in monthly installments of P20,000 starting November 1, 2002. P120,000 was
allowed on the articles traded in. The company estimated the reconditioning cost of this
article at P8,000 and a selling price of P110,000 after such reconditioning cost. The
company normally makes a 20% gross profit on the sale of used articles. The company
employs the perpetual inventory method.

On April 1, 2003, the customer defaulted in the payment of his installments.

Article “A” was repossessed and its value to the seller was estimated at P135,000 after
allowing for the estimated reconditioning cost and the normal profit on resale.

1. The amount of realized gross profit in 2002 was

a. P30,000 c. P35,000
b. P31,500 d. P40,000

2. The amount of loss on the repossession was

a. P30,000 c. P35,000
b. P31,500 d. P40,000

Multiple Choice 6 – O

Screenclear Trading Company which started operation on January 2, 2002 sells

video equipment at retail on installment payment terms. Whenever a contract is in
default, Screenclear Trading repossesses the merchandise and writes this off to Loss on
Defaulted Contracts account. Information regarding repossessed goods is not recorded in
the books but 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 Screenclear Trading:

December 31
2003 2002
Installment contract receivable - 2002 P 2,000 P 31,500
Installment contract receivable - 2003 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 2002 or 2003 for more than the
unpaid balance of the original contract. A further analysis of the loss on
defaulted contracts reveals the following breakdown:

2002 contracts 2003 contracts

Contracts written off P 3,750 P1,500
Less Sale of repossessed goods 800 175
P2,920 P1,325
 The repossessed goods on hand at December 31, 2003 are valued at P20o all
of which were repossessed from 2002 contracts

b. The P2,000 balance of Installment Contracts Receivable from 2002 contracts

is currently due and collectible.

c. The gross profit ratio of 2002 is 40% and 42% for 2003.

1. Assuming that the rate of bad debts losses for 2003 is expected to be the same as the
experience rate for 2002 based on sales, the balance of the Allowance for Defaulted
Contracts at Dec. 31, 2003 should be
a. P6,675 c. P3,000
b. P3,675 d. P2,000

2. The realized gross profit on 2002 sales is

a. P12,600 c. P10,300
b. P11,800 d. P9,500
Page 257………

Step 2 –

Recognized To be
In Prior Recognized
To Date Years In current
2001 Year
Recognized revenue
(P40,000,000 x 25%) P10,000,000 - P10,000,000
Cost of Revenue
(32,000,000 x 25%) 8,000,000 - 8,000,000
Gross profit
(P8,000,000 x 25%) P 2,000,000 - P 2,000,000

2002
Recognized revenue
(P40,000,000 x 60%) P24,000,000 P10,000,000 P14,000,000
Cost of Revenue
(30,000,000 x 60%) 18,000,000 8,000,000 10,000,000
Gross profit
(P10,000,000 x 60%) P 6,000,000 P 2,000,000 P 4,000,000

2003
Recognized revenue
(P40,000,000 x 100%) P40,000,000 P24,000,000 P16,000,000
Cost of Revenue
(31,000,000 x 100%) 31,000,000 18,000,000 13,000,000
Gross profit
(P9,000,000 x 100%) P 9,000,000 P 6,000,000 P 3,000,000
Page 258……..
The journal entries to record the constructions activities and the revenue, cost of
the revenue and gross profit each year follow:

8,000,000 10,000,000 13,000,000

8,000,000 10,000,000 13,000,000