1. These pertain to installment sales of Ivory Corp.

 Down payment of 20%

 Installment sales P 136,250 in 2012; P 196,250 in 2013; and P 242,000 in 2014
 Mark up on cost 35%
 Collections after down payment 40% in the year of sale; 35% in the year after sale, and
25% in the third year
Compute the total unrealized gross profit at the end of 2014.
A. P 40,291 B. P 155,410 C. P 116,100 D. P 53,387

A
2012 0
2013 (196,250 x 20%) 39,250
2014 (242,000 x 48%) 116,160
Total 155,410
X 35/135
DGP at 12/31/2014 40,291

2. LL Incorporated which began operating on January 2008 appropriately uses the installment
method of accounting. The following information pertains to LL’s operations in 2008.
Installment sales P600,000
Regular sales 800,000
Cost of Installment sales 270,000
Cost of Regular sales 440,000
Operating expenses 200,000
Collections on installment sales 150,000
Collections on regular sales 200,000
How much is the Realized Gross Profit in 2008?
a. P690,000 b. P242,500 c. P82,500 d. P442,500

3. HH company began operating at 2006 and using the installment method of accounting,
presented the following data for its installment sales:
Down payment is 30%
 Installment sales: P600,000 in 2006; P762,500 in 2007; P981,250 in 2008
Mark up on cost is 25%
Collections after down payment,: 25% in the year of sale, 30% in the year after and 45% in the
third year
Which of the following is true?
a. IAR at the end of 2007 is P400,313
b. DGP for 2007 sales at the end of 2008 is P80,063
c. RGP from 2006 and 2007 sales at 2008 is P85,838
d. Total Unrealized Gross Profit at the end of 2008 is P151,069

4. On October 31, 2008, QRS Co. sold for P468,750 property that had a cost of P375,000. QRS
received a P125,000 down, the balance is payable in monthly installments, with the first
payment due at the end of November. QRS decides to report the profit on the sale on the
installment basis. Assume the monthly payments are sums consisting of P3,750 to apply against
the principal plus interest on the unpaid balance of 12% . How much is the realized gross profit
for 2008?
A. P125,000 C. P132,500
B. P26,500 D. P25,126
Sales 468,750 RGP = Collection x GPR
COS 375,000 25,000 = 125,000 x 20%
GP 93,750 20% 750 = 3,750 x 20%
750 = 3,750 x 20%
26,500 answer B

5. On December 31, 2007, ABC Co. sold construction to XYZ, Inc. for P6,750,000. The equipment
had a carrying amount of P4,387,500. ABC Co.paid P1,125,000 cash on December 31, 2007 and
signed a P5,625,000 note bearing interest at 10% payable in five annual installments of
P1,125,000. ABC Co. appropriately accounts for the sale under the installment method. On
December 31, 2008, XYZ paid P1,125,000 principal and P562,500 interest. For the year ended
December 31, 2008, what total amount of revenue should ABC recognize from the construction
equipment sale and financing?
A. P787,500 C. P956,250
B. P393,750 D. P1,350,000

SP 6,750,000 RGP= Collection x GPR

BV 4,387,500 RGP= 1,125,000 x 35%
GP 2,362,500 35% RGP= 393,750

RGP 393,750
Int Inc. 562,500
Revenue 956,250 answer C

6. The Tommy Store began operations by selling wholesale merchandise on an installment basis
and uses the installment method of accounting. Terms include downpayment of 20% and
balance payable in three years; 50% in the year of sale; 30% in the year after; and 20% in the
third year. Tommy includes a 25% mark-up on cost for its selling price. Installment sales
reported by Tommy are P550,000 in 2007, P770,000 in 2008, and P908,000 in 2009. How much
is the installment accounts receivable at the end of 2009 and unrealized gross profit at the end
of 2009?
A. 486,400 / 97,280 C. 486,400 / 121,600
B. 574,400 / 121600 D. 574,400 / 97,280
 A/R
GPR= 25% = 20% 550,000 80% 0% = -
125% 770,000 80% 20% = 123,200
908,000 80% 50% = 363,200
GPR=DGP / AR 486,400 answer A
20%= DGP /AR
DGP = 20%*A/R
DGP= 97,280 answer A

7. 5. Since there is no reasonable basis for estimating the degree of collectibility. Malou company
uses the installment method of revenue recognition for the following sales:

2010 2009
Installment Sales 900,000 600,000
Collection from
2009 Installment Sales 100,000 200,000
2010 Installment Sales 300,000
Accounts defaulted
2009 Installment Sales 100,000 50,000
2010 Installment Sales 50,000
Value assigned to repossessed items
2009 Installment Sales 50,000 27,500
2010 Installment Sales 25,000
Gross Profit Rate 40% 30%

How much is the realized gross profit in 2009

A. 60,000
B. 180,000
C. 150,000
D. 30,000
Answer: A
Solution:
REALIZED GROSS PROFIT (200,000 X 30%) 60,000.00

8. (6-7) On October 1, 2011, the turbine co. sold for P1,400,000 an equipment which had a cost of
P910,000. A down payment of P400,000 was made with the provision that additional payment
of P100,462.13 be made monthy theteafter for 1 year. Interest was to be paid charge at a
monthly rate of 3% on unpaid principal balance; the monthly installment was apply first to
interest then the balance to the principal.

The total collection applying to the interest after 1 st and 2nd installment was:
A. 83,595
B. 27,886.14
C. 30,000
 D. 57,886.14

Answer: D
6 Solution:
INTEREST ON THE FIRST PAYMENT (1,000,000 X 3%) 30,000.00
INTEREST ON THE SECOND PAYMENT (929,537.86) 27,886.14
TOTAL COLLECTIONS APPLYING TO THE INTEREST 57,886.14

9. (6-7) On October 1, 2011, the turbine co. sold for P1,400,000 an equipment which had a cost of
P910,000. A down payment of P400,000 was made with the provision that additional payment
of P100,462.13 be made monthy theteafter for 1 year. Interest was to be paid charge at a
monthly rate of 3% on unpaid principal balance; the monthly installment was apply first to
interest then the balance to the principal.
A repssesion was made after the 2nd installment, how much was the gain (loss) on repossession
if the net realizable value of the equipment was P500,000

A. P108,435.60 gain
B. P57,025.22 gain
C. P108,435.60 loss
D. P57,025.21 loss

Answer: D
Solution:
BALANCE PRINCIPAL (1,400,000 - 400,000) 1,000,000.00
LESS :PAYMENT APPLIED TO PRINCIPAL {100,462.10 - (1,000,000 X 30%)} 70,462.14
BALANCE PRINCIPAL 929,537.86
LESS :PAYMENT APPLIED TO PRINCIPAL {100,462.10 - (929,537.86 X 3%)} 72,576.00
UNPAID BALANCE 856,961.86
LESS : DEFERRED GROSS PROFIT (35%) 299,936.65
UNRECOVERED COST 557,025.21
LESS : VALUE OF REPOSSESSED MERCHANDISE 500,000.00
LOSS 57,025.21

10. The following selected accounts appeared in the trialbalance of LPDH Sales as of December 31,
2011:
Debit Credit
Installment Accounts Receivable – 2010 P15,000
Installment Accounts Receivable – 2011 200,000
Inventory, December 31, 2010 70,000
Purchases 555,000
Repossessions 3,000
Installment Sales P425,000
Sales 385,000
Deferres Gross Profit – 2010 54,000
Additional Information:
a. Installment Accounts Receivable – 2020, as of December 31, 2010 P135,000
 b. Inventory of new and repossessed merchandise as of December 31, 2011 95,000
c. Gross profit percentage on regular sales during the year 30%
Repossession was made during the year. It was a 2010 sale and the corresponding uncollected
amount at the time of repossession was P7,800
How much is the 2011 total realized gross profit, net of loss on repossession?
A. P201,000
B. P130,380
C. P245,880
D. P244,200
Answer: D
Solution:
REALIZED GROSS PROFIT - REGULAR SALES (385,000 X 30%) 115,500.00
REALIZED GROSS PROFIT - IS - 2010 54/135 = 40%(135,000-15,000-7,800) 49,880.00
REALIZED GROSS PROFIT - IS - 2011-263,500/425,000 = 38% (425,000-200,000) 85,500.00
TOTAL REALIZED GROSS PROFIT 245,880.00
LESS : LOSS ON REALIZATION 1,680.00
TOTAL REALIZED GROSS PROFIT, NET OF LOSS ON REPOSSESSION 244,200.00
11. A refrigerator was sold to Ram Alejandro for P32,000 which included a 40% markup on selling
price. Ram made a down payment of 20% and paid four of the 16 equal installments for the
balance anf defaulted on further payments. The refrigerator was repossessed at which time the
Fair value was determined to be P13,600
How much is the gain or loss on repossession for income statement purposes?
A. P2,080 loss
B. P2,080 gain
C. P5,600 gain
D. P 0

Answer: B
Solution:
Unrecorded cost (P32, 000 – P6, 400) x 60% P11, 520
Less Fair Value of repossessed merchandise 13, 600
Estimated gain is not recognized (is deferred to point of sale) P (2,080)

Items 12 through 14 are based on the following:

Kanlaon Corporation stared operations on January 1, 2010 selling home appliances and furniture sets
both for cash and on installment basis. Data on the installment sales operations of the company
gathered for the years ending December 31, 2010 and 2011 were as follows:
2010 2011
Installment sales P400, 000 P500, 000
Costs of installment basis 240, 000 350, 000
Cash collected on installment
sales: 210, 000 150, 000
2010 installment sales 300, 000
2011 installment sales

Addition information:
On January 5, 2012, an installment sales on 2010 was defaulted and the merchandise with an appraised
value of P5, 000 was repossessed. Related installment receivable on January 5, 2012 was P8, 000.
12. The balance of the Deferred Gross Profit controlling account at December 31, 2011 was:
a. P64, 000
b. P76, 000
c. P160, 000
d. P190, 000

13. The balance of the Deferred Gross Profit controlling account at December 31, 2011 was:
a. P76, 000
b. P130, 000
c. P160, 000
d. P190, 000

14. Recording the repossessed merchandise at its appraised value, the gain or loss on the
repossession should be:
a. No gain or loss
b. P200 gain
c. P1, 800 gain
d. P3, 000 loss

Solution:
12. (B)

2010
Installment sales P400, 000
Less: collection in 2010 210, 000
Inst. Account Receivable, December 31, 2010 P190, 000
Multiplied by : GP rate (400-240) / 400
Deferred Gross profit, December 31. 2010 P76, 000

13. (A)

2010 2011
Installment sales P400, 000 P500, 000
Less: collection in 2010 210, 000
Collection in 2011 150, 000 300, 000
Inst. Accounts Receivable, December 31,2011 P200, 000
Multiplied by : GP Rate (400 – 240) / (500 – 350) / 500
400
Deferred Gross profit, December 31, 2011 P16, 000 P60, 000
 Deferred Gross Profit, December 31, 2011 for:
2010 Sales P16, 000
2011 Sales 60, 000
Total P76, 000

14. (B)
Appraised value P5, 000
Less: Uncovered cost:
Unpaid balance 2010 P8, 000
Less deferred gross profit -2010
(P8, 000 x 160/400) 3, 200 4, 800
Gain on repossession P200

Item 15 and 16 are based on the following information:

Presented below is the adjusted trial balance of Sterling Products Corporation at December 31, 2010:
Debit Credit
Cash P5, 000
Installment accounts receivable, 2009 40, 000
Installment accounts receivable, 2010 140,000
Inventory, 12/31/2010 200, 000
Other assets 497, 000
Accounts payable- trade P50, 000
Unrealized gross profit – 2008 10, 000
Unrealized gross profit – 2009 86, 000
Unrealized gross profit – 2010 100, 000
Capital stock 600, 000
Retained earnings 80, 000
Gain on repossession 6, 000
Operating expenses
Total 50, 000
P932, 000 P932, 000

Cost of goods sold had been uniform over the years at 60% of sales.
Sterling Products Corporation adopts perpetual inventory procedures. On installment sales, the
corporation charges installment accounts receivable and credits inventory gross profit accounts.

Repossession of merchandise have been made during 2010 due to some customer’s failure to pay
maturing installment. Analysis of these transaction were summarized follows:

Inventory 7, 500
 Unrealized gross profit, 2008 800
Unrealized gross profit, 2009 2, 400
Installment Accounts Receivable- 2008 2, 000
Installment Accounts Receivable- 2009 6, 000
Gain on repossession 2, 700
The repossessed merchandise was unsold at December 31, 2010. It was ascertained that they were
booked upon repossession at original costs. A fair valuation of these items would be a sale price of
repossessed merchandise at P10, 000 after incurring costs of reconditioning of P5, 000 and cost to
dispose them in the market at P500.

15. Realized gross profit on 2010 sales was:

a. P44, 000
b. P56, 000
c. P124, 000
d. P136, 000

16. Gain/loss on repossession was:

a. P200 loss
b. P200 gain
c. P300 loss
d. 300 gain

15. (A) use T-accounts if possible.

Installment A/R, 12/31/2009: (100, 000 / 40%) P250, 000
Less: installment A/R, 12/31/2010 (given) 140,000
Decrease in installment in A/R P110, 000
Less: Defaults -0-
Collections in 2010 P110, 000
x: GP Rate 40%
realized gross profit on installment sales in 2010 P44, 000

16. (C)
Fair value after reconditioning costs and costs to sell P10, 000
Less: reconditioning costs 5, 000
Cost to sell 500
Fair value before reconditioning costs P4, 500
Less: unrecovered cost: 2008 2009
Unpaid balance P2, 000 P6, 000
Less: DGP - 2008: P2, 000 x 40% 800
DGP -2009: P6, 000 x 40% 2, 400
Uncovered cost P1, 200 P3, 600 4, 800
Net loss P (300)
2008: P800/P2.00 x40%
2009: P2.40/P6, 000 x =40%

17. Following data pertain to Matiisin Company which sells appliances on an installment basis:
 2008 2009 2010
Installment sales P390, 000 P420, 000 P480, 000
Cost of sales 237, 000 243, 000 288, 000
From Sales Made in:
Installment sales
Receivable balances 2008 2009 2010
January 1, 2010 P24, 000 P300, 000
December 31, 2010 - P60, 000 P320,000
Repossession on defaulted accounts was made during 2010, as follows:
From Sales Made in:
2009 2010
Account balance P10, 000 P5, 000
Net resale value of repossessed
merchandise 4, 500 3, 500

The total realized gross profit in 2010 on the collections of 2008, 2009, and 2010 sales was:
a. P9, 360
b. P62, 000
c. P96, 600
d. 167, 960

18. The net gain (loss) on repossession on defaulted sales of 2008 and 2009 was:
a. P500
b. P(800)
c. P800
d. P(1, 300)

17. (D)
2008: P24, 000 –P0 = P24, 000 collections x 39% P9, 360
2009: P300, 000 – P60, 000 – P10, 000 defaults = P230, 000 x 42% 96, 600
2010: P480, 000 – P320, 000 –P5, 000 defaults = P115, 000 x 40% 62, 000
Realized gross profit on installment sales in 2010 P167, 960

18. (B)
2008 2009
Net resale value of repossessed merchandise P4, 500 P3, 500
Less: Uncovered cost:
Unpaid balance P10, 000 P5, 000
Less: DGP - 208: P10, 000 x 42% 4, 200
DGP- 2009: P5, 000 x 40 % 2, 000
Uncovered cost P5, 800 P3, 000
Gain (loss) P (1, 300) P500
Net loss P (800)

19. The following table is available for Charo Company:

2009 2010 2011

 Installment sales P 50,000 P 80,000 P 120,000
Cost of installment 39,000? 60,000 91,800
sales
Gross profit 11,000? 20,000 28,200
Gross profit percentage 22% ? 25% 23.5%
Cash collections:
2009 sales 5000? 25,000 10,000
2010 sales 0? 20,000 50,000
2011 sales 0? 45,000
Realized Gross Profit on 1,100 10,500 25 245 ?
Installment Sales

Using installment method, compute the realized gross profit in 2011:

a. P 10,575
b. 12,500
c. 2,200
d. 25,275
Answer: D
Solution:
Realized Gross Profit on Installment Sales in 2011:
2009 Sales: 10,000 x 22% 2,200
2010 Sales: 50,000 x 25% 12,500
2011 Sales: 45,000 x 28,200/(28,200+91,800) 10,575
25,275

Realized Gross Profit on Sales in 2010 10,500

Less: Realized Gross Profit on Sales in 2010 for 2010 sales: (20,000 x 25%) 5,000
Realized Gross Profit in 2010 for 2009 sales 5,500
Divided by: Collections on 2010 for 2009 sales 25,000
Gross Profit % for 2009 sales 22%

20. Marissa Sales Corp. accountant for sales on the installment basis. The balances of control accounts
for Installment Contracts Receivable at beginning and of end of 2011 were:
Jan. 1, 2011 Dec. 31, 2011
Installment Contracts Receivable -2009 P 24,020 -0-
Installment Contracts Receivable -2010 344,460 67,440
Installment Contracts Receivable -2011 -0- 410,090

During 2011 the company repossessed a refrigerator which had been sold in 2010 for P5,400 and P3,200
had been collected prior to default. The company sales and cost of sales figures are summarized as
follows:
2009 2010 2011
Net Sales P 380,000 P 432,000 P 602,000
Cost of sales 247,000 285,000 379,260

Marissa Sales Corp. values the repossessed goods at market value. The resale price of repossessed
merchandise amounted to P1, 700. Compute the deferred gross profit on December 31, 2011:
 a. P151,733.33
b. P173,914.90
c. P174,662.90
d. P339,856.40

Answer: C
Solution:
Deferred Gross Profit, end (12/31/2011): IAR, end of 2011 x GPR
2009 Sales: _P 0
2010 Sales: _22,929.60
2011 Sales: 151,733.30
174,662.90