CPA REVIEW SCHOOL OF THE PHILIPPINES

AdV&Des Financial Accounting Guerrero/Ge rn an/DeJesus/Lim/FerrerfLaco/Valix

I•stalment Sales

t I: Th of A o n

1. Under US 18, what is the measurement of sales revenue from instalment sales?
a. Book value of the consideration received or receivable.
b. Fair x’alue of the consideration receix’ed or receivable.
c. Cost of the c‹ nsideration received or receivable.
d. Carrying amount of the cons-ideration received or receivable.

2. Under IAS 18, if the company receives long-term non-interest bearing note receivable as
consideration for the sale of its inventories on an instalment basis, what is the measurement of
sales revenue rrom instalment sales†
a. Face value of the note receivable
b. Maturity value of note receivable
c. Present value of note receivable
d. Undiscounted value of note receivable

3. How shall the difference between the fair value and nominal amount of the long-term note
received as consideration in an instalment sales be accounted for?
a. lt shall be recognized as expense on the date of sale.
b. It shall be recognized as gain on exchange on the date of sale.
c. It shall be recognized as interest revenue over the term of the note using effective interest
method.
d. It shall be recognized as interest revenue over the term of the note using straight line method.

4. In an instalment sales, if the collection of the note receivable is not remote and not reasonably,
how shall the gross profit be recognized?
a. It shall be fully recognized on the date of snle using accrual basis.
b. It shall be recognized in proportion to the amount of collection under instalment method.
c. It shall not be recognized.
d. lt shall be recognized fully only on the year tne receivable is completely collected.

5. Under generally accepted accounting principles. what is the proper presentation of deferred gross
profit from instalmerit sales?
a. It shall be presented as current liability.
b. It shall be presented as equlty.
c. It shall be presented as deferred revenue.
d. It shall be presented as contra-instalment receivable account.

6. If the fair value of the repossessed inventory cannot be estimated reliably at the date of
repossession, what shall be the basis of“ioitial rr:easurenient of repossessed inventory?
a Estimated selling price less reconditioning cost iess cost to sell.
b. Estimated selling price less reeonditiotiing cost.
c. Estimated selling price less cost to sell.
d. Estimated selling price less recondiiioning cost less cost to sell less normal profit.

7. lf the initial measurement of repossessed inven.tory is lower than the net of defaulted instalment
receivable and its corresponding deferred gro.ss profit , the difference shall be recognized as
a. LO9S Oh repoSseSSiOrl to tte ir‹eSent% fls paft Of incorne fTf›m coatinuirig Opefatiofl befOf'e tax.
b. Deferred loss on repossessioo to be prmented as entrent asset.
c. Gain on repossession to tte preneiited as part et‘cther comprehen ive incomc,
d. Deferred gain on repcsscssion to br pro.s<nted os entrent lîability.

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The AnC Corr.pany recognizes profit on credit sales on installment basis. At the end of 2016,
before the accounts are adjusted, the ledger shown the following.
lflSt8llment Accounts receivable 2015 337,500
Installment Accounts receivable 2016 525.000
Deferred gross profit 2ti 15 I 85,000
Deferred gross profi: 2016 272,5D
Regular Sales 1,500,000
Cost of Regular Sales 960,000
Each year the gross pro lit on installment .•a es was 8% lower than the regular sales. In 2016, the
gross profit on installmerit saJes was 4% higher tíian 2015.
How much is the total rep}i2¡ed 8ross profit in 2016?
a. 229,500
b. 769,5G0
c. 181,000
d. 721,600

2. The following account balances appeared on th• boeks ‹af FRC Company on December 31, 2016:

Cash 150,000
Receivables 800,000
Merchandise inventory 75,000
Accounts payable 30,000
Deferred gfOSS ]9TOfit-2014 2ó1,250
Sales i,7so,ooo
Purchases 640,000
Expenses 425,000

The Receivables account is a controlling account for three subsidiary ledgers which showed the
following totals:

2015 installment contracts I5'J,00G

2016 installment contracts 600,000
Charge accounts (terms, 30 days, 50,0f30
net)

The gross profit on sales was 55% on ins'n1l .nt contracts for 2015 and 50% on installment
contracts for 2016.

Collections on installment contracts *or 2015 'ota1ed P3ti0,000 for the year just closed, on
installment contracts for 2016, P400,000 and on *harge accounts, P200,000.

Account balances from installment sales made prior to 2015 were also collected.

Repossession for the year was on installment contracts for 2015 on which the recollected balance
at the time of repossession amounted to P50,000.

Merchandise mposse.ssed was erroneously debited as a newly acquired merchandise equal to the
amount defaulted by the customer.

This repossessed merchandise had a true wort.h of P20,000 at the time of rcposecssion and was
unsold at yeer eod.

The final invontory of the nicrchandise (New) valuod zt coai amomted to P45,0%.
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1. What is the total realized gross profit in 2016?

a. 626.250
b. 756,250
c. 495,000
d. 365,000

2. What is the net inrome for 2016?

a. 331,250
b. 301,250
c 328,750
d. 352,500

3. On November 1, 2016. Speed Motor which rriaintainc› a perpetual inventory• records sold a new
automobile to Rapids for P6,800,000. The cost ‹›f the csr to the seller was . 5,205,000.

The buyer paid 30% doe'n and received P640,000 allowance on an old car traded, the balance being
payable in ecual monthly instalm•nt payments commencing the month of sale.

The monildy amortization was P '40,000 inclusive of 12% interest on the •wpaid amount of the
obligation.

The car tra‹ied-in Seas a wholesale value of P950,00(I after expending reconditioning cost of P180,000.

After paying three instaiments, the buyer ‹lrrâulted and the car was subsequently repossessed. When
reacquired, be car was appraised to have a fair va!ue of P2,400,OOG.

£foo much is the realized gross pi ofit on instalment sales during 2016?
a. 820,596
b. 855,596
c. 885,000
d. 804,697

4. QR Appliances serfs home! theater set both on installment and cash basis. Mr. X purchased a set from
QR Applian•ms on Starch 3f', 2016 for P367,5t)0 which has a cost of 289,800.

A used set is acc=.pt•.d as do›'m payment, Pt9,60O being allowed on the trade in. The used set can be
resold for PI ! 2,14G after re:onditioning cost of P5,362. The company expects to make a 20% gross
profit on the se!e of used set.

The balance o* the sale is !o be pad on a 1 t3-month instailment basis starting May 1, 2016. Mr. X
defaulted payment starting No member 1, 21)16 and the set was irrimediately repossessed.

The reposse.«sed merchandise: wa, appraisal ei a value c f P65.525 at the time of repossession. QR had
to incur additional cost of repairs amouiitint• to Pé›,475 before the car was subsequently resold on
December 1, 2016 ‹or P9(',1.°5 cash to Mr. Y.

What is the net income to br recegeized for 2016?

a. 69,293
b. 44,94t›
c. 51,415
d. 68J43
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5. Tlte Chief acco.mutant of Sony Appliances Inc. provided the following balances from its unadjusted
trial balance for the year ended December‘ 3i. 2023:

Account Januar•y 1 , 2e0ar23 3 0 3

Instalment iecei vable — 20a I i P2,fO0,tO0“
- —
PSOE.000
Instalment contrast _ P3 .' V,000 P l,00fi,000
.
(ece i vable — 2022 contract 5,000.000
Instalmen t vable — 2023 contr .°800.90P
recei profit — 2021
Deferred gross contract
Deferred ¿cross qroft -- 2022
New inxcnto contractt
Net purchases
Freight in QP 1 N,000 !
Cash sa.lessor year 20?3
Instalment sales for yeor 2023

The following additional notes are provided for the 3'ear end•d December 31, 2023:

The gre•• yroR• rate for 2023 lnstalrieEt sales is the axemge of previous years’ gross profit rate
for instaliiient ales.

On July 1. 20i*3. Sony rate off2021 instalment recei•.able with account balance of P3fD,000
b' cause or‘ the bankruptcy of the cm•tomer. Sony records its impnirmen' loss of instalment
receivable usirg direct v›Nt• off method.

H On Cictober i , 2023, a 2022 contract culmer defaulted on the inste1m.ent due w'hich resulted to
repossession of the inventor with fair value of .^l00,008. The defaulted account has a balance of
P600,000.

R On November I, 2023, the repossessorl driver.tory was sold ct a cash price of Pl50.0t I otter
recon‹iiconing it at a cost of P20,0f›0. The sale of repossessed invent•urr is not yet reflected on
the cash sales stated above.

R The total operating, ex;›enses, exclusive of impairment ioss ana loss on repossession, of Sony
for
the year ei«led December 31, 2023 amo•ant to P400,000.

1. What is the net invome to be reported b;' Sony Inc. tor the year ended December 31, 2023?
a. 2,840,0d
b. 3,131d.000
c. 3,520,0 0
d. 2,.380,900

2. What is the total ad in• ed deferred gross prodt ni of December 31, 2623, respecNveiy?
a. 3•,?00,000
b. 3,J00.fW0
c. 3, I 00,000
d. 3,4C0,000

- END-
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