lOMoARcPSD|11405248

Advance Accounting Installment Sales Manual Millan

BS Accountancy (Universidad de Manila)

Studocu is not sponsored or endorsed by any college or university

Downloaded by Amalia Mallari ([email protected])
 lOMoARcPSD|11405248

Page | 1

Chapter 10
Installment Sales Method
PROBLEM 1: TRUE OR FALSE
1. TRUE
2. TRUE
3. FALSE (1 x 8/10 = 0.80)
4. TRUE (5 x .80 = 4)
5. TRUE

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. D
2. D
3. D
4. B
5. A

PROBLEM 3: MULTIPLE CHOICE – COMPUTATIONAL

1. B
Solution:
Inst. receivable -
20x1
1/1/x
1 -
Sale 1,000,0
s 00 400,00 Collection
0 s
12/31/x1
600,000

RGP = 400,000 x 20%(a) = 80,000

(a)
Installment sales 1,000,000

Cost of sales (800,000)

Gross profit 200,000

Gross profit rate based on sales
(200K / 1M) 20%
Downloaded by Amalia Mallari ([email protected])
 lOMoARcPSD|11405248

Page | 2

Installment accounts receivable - Dec. 31,

20x1 600,000
Multiply by: Gross profit rate based on
sales 20%

Deferred gross profit – Dec. 31, 20x1 120,000

OR

Deferred gross profit - unadjusted (1M –

800K) 200,000

Realized gross profit - 20x1 (80,000)

Deferred gross profit – Dec. 31, 20x1 120,000

2. C
Solution:
Inst. receivable -
20x1
beg.
-
Sales 1,000,0
(a)
00 Collection
400,000
s

600,00 end.
0

(a)
Deferred gross profit (before year-end
adjustment) 200,000
Divide by: Gross profit rate based on
sales 20%
Installment sales 1,000,000

3. C
Solution:
Inst.
receivable

Downloaded by Amalia Mallari ([email protected])

 lOMoARcPSD|11405248

Page | 3

beg
. -
Sal 1,000,0
es 00 200,00 Collection
0 s
end.(a)
800,000

(200,000 DGP, end. ÷ 25% GPR) = 800,000 receivable,

(a)

end.

4. D
Solution:
1,000,0
Sale 00
(750,00
Cost of sale 0)
DGP, unadjusted 250,000
(200,00
DGP, end. 0)
Realized gross
profit 50,000

5. D
Solution:
1,000,0
Sale 00
(750,00
Cost of sale 0)
DGP, unadjusted 250,000
Realized gross (220,00
profit 0)
DGP, end. 30,000

6. A
Solution:
Sale 1,000,0
Downloaded by Amalia Mallari ([email protected])
 lOMoARcPSD|11405248

Page | 4

00
(750,00
Cost of sale 0)
DGP, unadjusted 250,000
Realized gross (180,00
profit 0)
DGP, end. 70,000

 70,000 DGP, end. ÷ 25% GPR = 280,000 ending

receivable

7. B 160,000 RGP ÷ 25% GPR = 640,000 collections

8. A 200K DGP, beg. – 60K DGP, end. = 140K realized ÷

25% = 560,000

9. B
Solution:
20x1 installment accounts 16,250
Multiply by: 20x1 GPR based on sales 30%*/130%
DGP from 20x1 sales (adjusted balance) 3,750

20x2 installment accounts 90,000

33⅓
Multiply by: 20x2 GPR based on sales %*/133⅓%
DGP from 20x2 sales (adjusted balance) 22,500

* Note: The given GPRs are based on cost (not based on

sales). Thus, they are translated to ‘based on sales’ as
shown above.

38,0
Deferred gross profit (before adjustment)
00
DGP from 20x1 sales (adjusted balance) (3,750)
DGP from 20x2 sales (adjusted balance) (22,500)
Realized gross profit in 20x2 11,750
Expenses relating to installment sales in
20x2 (1,500)
20x2 profit from installment sales 10,250

Downloaded by Amalia Mallari ([email protected])

 lOMoARcPSD|11405248

Page | 5

10. A
Solution:
20x1 20x2 20x3
300,00 375,00 360,00
Installment sales 0 0 0
225,00 285,00 252,00
Cost of sales 0 0 0
108,00
Gross profit 75,000 90,000 0
Gross profit rate based on
sales 25% 24% 30%

20x1 Deferred gross profit, Dec. 31, 20x3 -

Divide by: Gross profit rate 25%
20x1 Installment receivable, Dec. 31,
20x3 -

20x2 Deferred gross profit, Dec. 31, 20x3 9,000

Divide by: Gross profit rate 24%
20x2 Installment receivable, Dec. 31,
20x3 37,500

20x3 Deferred gross profit, Dec. 31, 20x3 72,000

Divide by: Gross profit rate 30%
20x3 Installment receivable, Dec. 31,
20x3 240,000

Total installment receivable, Dec. 31,

20x3 277,500

11. C
Solution:
20x1 Deferred gross profit, Dec. 31, 20x2 15,000
Divide by: Gross profit rate 25%
20x1 Installment accounts receivable, Dec.
31, 20x2 60,000
20x1 Installment accounts receivable, Dec.
31, 20x3* -
Collection in 20x3 from 20x1 sales 60,000

Downloaded by Amalia Mallari ([email protected])

 lOMoARcPSD|11405248

Page | 6

20x2 Deferred gross profit, Dec. 31, 20x2 54,000

Divide by: Gross profit rate 24%
20x2 Installment accounts receivable, Dec.
31, 20x2 225,000
20x2 Installment accounts receivable, Dec.
31, 20x3* 37,500
Collection in 20x3 from 20x2 sales 187,500

Installment sales - 20x3 360,000

20x3 Installment accounts receivable, Dec.
31, 20x3* 240,000
Collection in 20x3 from 20x3 sales 120,000

Total collections in 20x3 367,500

* See previous solution

12. D
Solution:

Collection in 20x3 from 20x1 sales 60,000

Multiply by: Gross profit rate - 20x1 sales 25%
Realized gross profit in 20x3 from 20x1
sales 15,000

Collection in 20x3 from 20x2 sales 187,500

Multiply by: Gross profit rate - 20x2 sales 24%
Realized gross profit in 20x3 from 20x2
sales 45,000

Collection in 20x3 from 20x3 sales 120,000

Multiply by: Gross profit rate - 20x3 sales 30%
Realized gross profit in 20x3 from 20x3 36,
sales 000

96
Total realized gross profit in 20x3 ,000

OR
DGP from 20x1 sales, beg. 15,000
DGP from 20x1 sales, end. -

Downloaded by Amalia Mallari ([email protected])

 lOMoARcPSD|11405248

Page | 7

Realized gross profit in 20x3 from 20x1 sales 15,000

DGP from 20x2 sales, beg. 54,000

(9,000
DGP from 20x2 sales, end. )
Realized gross profit in 20x3 from 20x2 sales 45,000

DGP from 20x3 sales, unadjusted (360,000 - 108,00

252,000) 0
(72,00
DGP from 20x3 sales, end. 0)
Realized gross profit in 20x3 from 20x3 sales 36,000

96,00
Total realized gross profit in 20x3 0

13. C
Collecti Interes Amortizat Princip
Date on t ion al
9/30/x1 48,000
9/30/x1 4,800 - 4,800 43,200
10/31/x1 4,800 432 4,368 38,832
11/30/x1 4,800 388 4,412 34,420
12/31/x1 4,800 344 4,456 29,964
Totals 19,200 1,165 18,036

18,036 x 37.5%(1) = 6,764

(1)
(48,000 – 30,000) ÷ 48,000 = 37.50%

14. A
Inventory 16,800
Deferred gross profit (29,964 x 37.5%) 11,237
Loss on repossession 1,927
Receivable 29,964

15. D
Solution:
Inst. receivable -
20x1
1/1/x Write-
3 135,000 22,500 off

Downloaded by Amalia Mallari ([email protected])

 lOMoARcPSD|11405248

Page | 8

Collection
52,500
s
12/31/x3
60,000

Inst. receivable -
20x2
1/1/x
3 300,000

Collection
105,000
s
12/31/x3
195,000

Inst. receivable -
20x3

Sale
Collection
s
495,000 105,000 s
12/31/x3
390,000

Collections in 20x3
from:
- 20x1 sales (52,500 x 15,
30%) 750
- 20x2 sales (105,000 x 42,00
40%) 0
- 20x2 sales (105,000 x
35%) 36,750
Total realized gross 94,5
profit 00

Downloaded by Amalia Mallari ([email protected])

 lOMoARcPSD|11405248

Page | 9

16. C
Solution:
20x Inventory 15,000
3 Deferred gross profit (22.5K x 6,750
30%) 750
Loss on repossession 22,500
(squeeze)
Installment account
receivable

17. C
Solution:
Dat Inventory – traded-in 12,00
e Installment account receivable 0
(squeeze) 24,00 32,000
Installment sale 0 4,000
Under allowance (8K TV <
12K FV)

18. C
Solution:
Fair value of old merchandise traded-in 12,000
Collections 12,000
Total 24,000
Multiply by: Gross profit rate (a) 44.44%
Realized gross profit in year of sale 10,667

(a)
Sale price 32,000
Add: Under allowance 4,000
Adjusted sale price 36,000
(20,00
Cost of sale
0)
Adjusted gross profit 16,000
Adjusted gross profit rate 44.44
(16K ÷ 36K) %

Downloaded by Amalia Mallari ([email protected])

 lOMoARcPSD|11405248

P a g e | 10

19. D
Solution:
Cash down payment
600,000
Collection from installment payment (600K 1,140,
+ 540K) 000
1,740,
Total collections
000
(4,000,
Cost of sale
000)
Excess of collection over cost
-

Since the total collections do not exceed yet the

cost of the inventory sold, Sound Co. does not
recognize any income yet.

20. C
Solution:
Total collections from 20x1 sales (14,000 + 20,0
6,000) 00
(16,
Cost of 20x1 sales
000)
4,0
Excess collection in 20x2
00
24,0
Total collections from 20x2 sales
00
(18,
Cost of 20x2 sales
000)
6,0
Excess collection in 20x2
00
Gross profit recognized in 20x2
10,000

Downloaded by Amalia Mallari ([email protected])

 lOMoARcPSD|11405248

P a g e | 11

PROBLEM 4: FOR CLASSROOM DISCUSSION

1. Solutions:
Requirement (a):
20x1 20x2
Installment sales 1,000,000 1,300,000
Cost of sales 700,000 845,000
Gross profit 300,000 455,000
GPR based on sales 30% 35%

20x1 20x2
Collections in 20x1 from:
- 20x1 sales (500K x 30%) 150,000

Collections in 20x2 from:

- 20x1 sales (300K x 30%) 90,000

- 20x2 sales (650K x 35%) 227,500

Total realized gross profit 150,000 317,500

Requirement (b):
20x1 20x2
Inst. Receivable on 12/31/x1 from:

- 20x1 sales (1M - 500K) 500,000

Inst. receivable on 12/31/x2 from:

- 20x1 sales (1M - 500K - 300K) 200,000

- 20x2 sales (1.3M - 650K) 650,000

Total installment receivable 500,000 850,000

Requirement (c):
20x1 20x2
DGP on 12/31/x1 from:
- 20x1 sales (500K inst. Rec'ble x
30%) 150,000

Downloaded by Amalia Mallari ([email protected])

 lOMoARcPSD|11405248

P a g e | 12

DGP on 12/31/x2 from:

- 20x1 sales (200K inst. Rec'ble x
30%) 60,000
- 20x2 sales (650K inst. Rec'ble x
35%) 227,500

Total Deferred Gross Profit 150,000 287,500

2. Solution:
Requirement (a):
Dat Inventory (a) 8,500
e Deferred gross profit (13K x 2,600
20%(b)) 1,900
Loss on repossession 13,000
(squeeze)
Installment receivable (25K
– 12K)

(a) 15,0
Estimated resale price
00
(2,0
Reconditioning costs
00)
(4,5
Normal profit margin (15K x 30%)
00)
8,5
“Fair value” of repossessed inventory 00

(b)
(150K sales in 20x1 – 120K COS in 20x1) ÷ 150K sales in 20x1 = 20%
GPR in 20x1

Requirement (b):
Inst. receivable -
20x1 Inst. receivable - 20x2
Be 90,00 13,00 Write-
g. 0 0 off

47,00 Collecti Sa 240,0 60,0

0 on le 00 00 Collection
30,00 180,
0 End. 000 End.

Collections in 20x2 from:

Downloaded by Amalia Mallari ([email protected])

 lOMoARcPSD|11405248

P a g e | 13

20x1 sales: (47,000 x 20%) 9,400

20x2 sales: (60,000 x 30%(c) ) 18,000
Total realized gross profit in 20x2 27,400
(c)
(240K sales in 20x2 – 168K COS in 20x2) ÷ 240K sales in 20x2 = 30%
GPR in 20x2

Requirement (c):
Total realized gross profit in 20x2 – see
requirement (b) 27,400
Loss on repossession – see requirement (a) (1,900)
Profit in 20x2 25,500

3. Solution:
Requirement (a):
Dat Inventory – traded-in 3,000
e Over allowance (4,000 – 1,000
3,000) 12,00
Installment receivable (squeeze) 0 16,00
Installment sale 0

Requirement (b):
Fair value of old merchandise traded-in 3,000
Collections 6,000
Total 9,000
Multiply by: Gross profit rate (b) 33.33%
Realized gross profit in year of sale 3,000

(b)
Sale price 16,000
Less: Over allowance (1,000)
Adjusted sale price 15,000
(10,00
Cost of sale
0)
Adjusted gross profit 5,000
Adjusted gross profit rate 33.33
(5K ÷ 15K) %

Downloaded by Amalia Mallari ([email protected])