Afar 104 Installment Sales

REVENUE RECOGNITION – INSTALLMENT SALES
EXERCISE 1
On August 31, BMW Company, which maintains a perpetual inventory sold new car
to TOYOTA Corporation for P800,000. The car cost the seller, P610,000. Toyota
Corporation paid P200,000 down and received P80,000 allowance on an old car
traded, the balance being payable in twelve equal monthly installments
beginning on Sep 30, 2018 inclusive of 12% interest. The used car trade in
had an estimated value of P110,000 after reconditioning cost of P20,000. After
collecting six monthly installments TOYOTA Corporation defaulted and the car
was repossessed. When reacquire, the car was appraised as being worth P200,000.
To improve its salability, the company expended P50,000 for reconditioning.
Prepare necessary entries on the books of BMW to record above transactions.
EXERCISE 2
Emerald Incorporated which began operating on January 2018 appropriately uses

installment method of accounting. The following information pertains to
Emerald operations in 2018.
Installment Sales P 600,000
Regular Sales 800,000
Cost of Installment Sales 270,000
Cost of Regular Sales 440,000
Operating Expenses 200,000
Collection on Installment Sales 150,000
Collection on Regular Sales 200,000
How much is the Realized Gross Profit in 2018?
EXERCISE 3
Diamond Company began operating in 2017 and using the installment method of
accounting, presenting the following data for its installment sales that are
made at GPR of 20%
Down payment is 30%
Collections after down payment, 25% in the year of sale, 30% in the year
after the sale and 45% in the third year.
Installment Sales
2017 P600,000
2018 P762,500
2019 P981,250
Which of the following is true?

A. IAR at the end of 2017 is P400,313
B. DGP for 2017 sales at the end of 2019 is P80,063
C. RGP from 2017 and 2018 sales at 2019 is P85,838
D. Total Unrealized Gross Profit at the end of 2019 is P151,069.
EXERCISE 4
Silver Corporation started operations on January 1, 2017 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, 2017 and 2018 were as follows:
2017 2018
Installment Sales P400,000 P500,000
Cost of Installment Sales 240,000 350,000
Cash Collected on Installment Sales:
2017 Installment Sales 210,000 150,000
2018 Installment Sales 300,000
Additional information
On January 05, 2019 as installment sales 2017 was defaulted and the
merchandise with appraised value of P5,000 was repossessed. Related
installment receivable balance on January 2019 was P8,000.
ADVANCED FINANCIAL ACCOUNTING 1

A. The balance of deferred gross profit on December 2017.

B. The balance of deferred gross profit on December 2018.
C. Gain or loss on repossession.
EXERCISE 5
The partial trial balance of PLDT Company as of December 31, 2019 is provided
for below:
Accounts Receivable – charge sales P 50,000

Installment Receivable - 2019 180,000
Installment Receivable – 2018 30,000
Installment Receivable – 2017 10,000
Merchandise Inventory 35,000
Purchases 260,000
Freight in 2,000
Repossessed Merchandise 10,000
Repossession Loss 16,000
Bad Debts – charge sales 3,000
Cash Sales 60,000
Charge Sales 122,000
Installment Sales 302,400
Deferred gross profit 2017 14,800
Deferred gross profit 2018 26,240
Additional Data:
1. The unsold merchandise on December 31, 2019 (new and repossessed was
P47,000.
2. The charge sales and installment sales price exceeded cash sales by 22%
and 26% respectively.
3. The rate on gross profit on 2017 installment sales was 40% and 41% for
2018.
4. The entry for repossession was:
Repossessed Merchandise P10,000
Loss on Repossession 16,000
Installment Receivable - 2017 P12,000
Installment Receivable - 2018 14,000
A. Determine the cost of cash and charge sales in 2019.

B. Determine the cash collections on installment sales for 2017, 2018 and
2019.
C. Determine the total gross profit realized after repossession.
EXERCISE 6
Presented below is the unadjusted trial balance of Petron Corporation at

December 31, 2018.
Debit Credit
Cash P 5,000
Installment Receivable, 2017 40,000
Installment Receivable, 2018 140,000
Inventory, December 31, 2018 200,000
Other Assets 497,000
Accounts Payable P 50,000
Unrealized gross profit – 2016 10,000
Capital Stock 600,000
Retained Earnings 80,000
Gain on Repossession 6,000
Operating Expenses 50,000 ________
Total 932,000 932,000
Cost of good sold had been uniform over the years at 60% of sales.

Petron Corporation adopts perpetual inventory procedures. On installment

sales, the corporation charges installment accounts receivable and credits
inventory gross profit accounts.
Repossessions of merchandise have been made during 2018 due to some customers’
failure to pay maturing installments. Analysis of these transactions were
summarized as follows:
Inventory 7,500
Unrealized Gross Profit 2016 800
Unrealized Gross Profit 2017 2,400
Installment Accounts receivable 2016 2,000
Installment Accounts receivable 2017 6,000
Gain on repossession 2,700
The repossessed merchandise was unsold at December 31, 2018. It was ascertained
that they were booked upon repossession at original cost. A fair valuation of
these items would be a sale price of the repossessed merchandise at P10,000
after incurring cost of reconditioning of P5,000 and cost to dispose them in
market at P500.
A. Realized gross profit on 2018 sales is.

B. Gain or loss repossession.
EXERCISE 7
Complete the table
2010 2011 2012

Installment sales 500,000 800,000 P(8)
Cost of Installment sales (1) (5) 800,000
Gross profit (2) (6) (9)
Gross profit rate on sales (3) (7) (10)
Gross profit rate on cost 50%
Collection of:2010 contract (4) 250,000 10,000
2011 200,000 (11)
2012 200,000
Defaulted contract of 2011 50,000
Realized Gross Profit 70,400 140,000 (12)
Merchandise Repossession 30,000

Loss on Repossession 5,000
Contract Balances of: 2010 (13)
2011 (14)
2012 (15)
Deferred Gross profit- 2011 90,000

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REVENUE RECOGNITION – INSTALLMENT SALES

Prepare necessary entries on the books of BMW to record above transactions.

Emerald Incorporated which began operating on January 2018 appropriately uses

How much is the Realized Gross Profit in 2018?

Which of the following is true?

Silver Corporation started operations on January 1, 2017 selling home

ADVANCED FINANCIAL ACCOUNTING 1

A. The balance of deferred gross profit on December 2017.

Accounts Receivable – charge sales P 50,000

A. Determine the cost of cash and charge sales in 2019.

Presented below is the unadjusted trial balance of Petron Corporation at

ADVANCED FINANCIAL ACCOUNTING 2

Petron Corporation adopts perpetual inventory procedures. On installment

A. Realized gross profit on 2018 sales is.

Complete the table

2010 2011 2012

Gross profit (2) (6) (9)

Gross profit rate on sales (3) (7) (10)

Gross profit rate on cost 50%

Collection of:2010 contract (4) 250,000 10,000

2011 200,000 (11)

Defaulted contract of 2011 50,000

Realized Gross Profit 70,400 140,000 (12)

Merchandise Repossession 30,000

Contract Balances of: 2010 (13)

Deferred Gross profit- 2011 90,000

ADVANCED FINANCIAL ACCOUNTING 3

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