DAYAG 2015

Installment Sales

1. MM Company began operations on January 1, 2015 and appropriately uses the

installment method of accounting. The following data are available for 2015 and
2016.

2015 2016

Installment sales 1,200,000 1,500,000

Cash collections from:

2015 sales 400,000 500,000

2016 sales 600,000

Gross profit on sales 30% 40%

The realized gross profit for 2016 is

A. 240,000
B. 390,000
C. 440,000
D. 600,000

2. TT Company, which began business on January 1, 2015 appropriately uses the

installment sales method of accounting. Tge following data are available for 2015:

Installment receivable, 12/31/15 ………………………………………………… 200,000

Deferred gross profit, 12/31/15 (unadjusted)……………………………………140,000

Gross profit on sales………………………………………………………………..… 40%

The cash collections and the realized gross profit on installment sales for the year
ended December 31, 2015 should be

Cash collections Realized gross profit

A. 100,000 80,000
B. 100,000 60,000
C. 150,000 80,000
D. 150,000 60,000

3. Dudong Electronics makes all of its sales on credit and accounts for them using
the installment sales method. For simplicity, assume that all sales occur on the first
day of the year and that all cash collections are made on the last day of the year.

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 Dudong Electronics charges 18% interest on the unpaid installment balance. Data
for 2015 and 2016 are as follows:

2015 2016

Sales 100,000 120,000

Cost of goods sold 60,000 80,000

Cash collections (principal and interest)

2015 sales 40,000 50,000

2016 sales 90,000

The interest income recognized in 2016 amounted to:

A. 14,040
B. 21,600
C. 35,640
D. 49,700

4. Using the same information in No. 3, compute the realized gross profit in 2016:

A. 14,384
B. 22,800
C. 37,184
D. 39,600

5. The book of Harry Co. show the following balances on December 31, 2016:

Accounts Receivable ………………………………………… 313,750

Deferred Gross Profit (before adjustment) ………… 38,000

Analysis of the accounts receivable reveal the following:

Regular accounts ……………………………………… 207,500

2015 installment accounts ……………………………… 16,250

2016 installment accounts ……………………………… 90,000

Sales on an installment basis in 2011 were made at 30% above cost; in 2016, at 33
1/3 above cost. Expenses paid was 1,500 relating to installment sales. How much is
the net income on installment sales?

A. 11,000
B. 11,500
C. 16,000

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 D. 10,250

6. DJ Co. accounts for installment sales on the installment basis. On January 1, 2016,
the ledger accounts included the following balances:

Installment Receivable - 2014 ………………………… 38,500

Installment Receivable - 2015 ………………………… 155,000

Deferred Gross Profit - 2014 ………………………… 11,550

Deferred Gross Profit - 2015 ………………………… 62,000

On December 31, 2016, account balances before adjustments for realized gross
profit on installment sales were:

Installment Receivable - 2014 ………………………… none

Installment Receivable - 2015 ………………………… 42,000

Installment Receivable - 2016 ………………………… 100,500

Deferred Gross Profit - 2014 ………………………… 11,550

Deferred Gross Profit - 2015 ………………………… 62,000

Deferred Gross Profit - 2016 ………………………… 75,810

Installment sales in 2016 were made at 42% above cost of merchandise.

The total realized gross profit on installment sales in 2016:

A. 132,510
B. 98,910
C. 97,510
D. 102,834

7. Dipolog Company sells appliances on the installment basis. Below are information
for the past three years:

2016 2015 2014

Installment sales 750,000 600,00 400,000

Cost of sales 450,000 375,000 260,000

Collections on:

2016 installment sales 275,000

2015 installment sales 180,000 240,000

2014 installment sales 125,000 120,000 150,000

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 Repossessions are defaulted accounts included one made on a 2016 sale for which
the unpaid balance amounted to 5,000. The depreciated value of the appliances
repossessed was 2,500.

The realized gross profit in 2016 on collections of 2016 installment sales was:

A. 108,000
B. 110,000
C. 221,250
D. 221,500

8. On January 1, 2015, Art Company sold its idle plant facility to Tony, Inc. for
1,050,000. On this date, the plant had a depreciated cost of 735,000. Tony paid
150,000 cash on January 1, 2015 and signed a 900,000 note bearing interest at
10%. The note was payable in three annual installments of 300,000 beginning
January 1, 2016. Art appropriately accounted for the sale under the installment
method. Tony made a timely payment for the first installment on January 1, 2016 of
390,000 which included interest of 90,000 to date if payment. At December 31,
2016, Art has deferred gross profit of

A. 153,000
B. 180,000
C. 225,000
D. 270,000

9. On October 1, 2015, Rodel Corporation, a real estate developer, sold land to

Gerry Company for 5,000,000. Gerry paid cash of 600,000 and signed a ten-year
4,400,000 note bearing interest at 12%. The carrying amount of the land was
4,000,000 on the date of sale. The note is payable in forty quarterly principal
installments of 110,000 beginning January 2, 2016. Rodel appropriately accounts for
the sale under the cost recovery method. On January 2, 2016, Gerry paid the first
principal installment of 110,000 and interest of 132,000. For the year ended
December 31, 2016, what total amount of income should Rodel recognize from the
land sale and the financing?

A. 0
B. 208,000
C. 508,200
D. 309,640

10. Asser computer Co. began operation at the beginning of 2016. During the year,
it had cash sales of P 6,875,000 and sales on installment basis of P 16,500,000.
Asser adds a mark-up on cost of 25% on cash sales and 50% on installment sales.
Installment’s Receivable at the end of 2016 is P 6,600,000. Total realized gross profit
for 2016 is?

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 a. 1,375,000
b. 3,300,000
c. 4,675,000
d. 3,575,000

11. Conrado Motors sells locally manufactured jeepneys on the installment basis.
The information presented below relates to operations during the past three years:

2016 2015 2014

Cost of Installment Sales P P 7,700,000 P 4,950,000
8,765,625
December 31, Balances:
Installment Receivable, 9,728,125 - -
2016
Installment Receivable, 3,025,000 8,387,500 -
2015
Installment Receivable, - 1,512,500 4,812,500
2014
Gross Profit Rate: 32% 30% 28%
Conrado
Motors uses the installment method of accounting, what would the company report
as a total realized gross profit for the year 2016?

a. 1,012,000
b. 3,044,250
c. 3,753,750
d. 6,993,250

12. Various documents and records which were recovered immediately after a fire
gutted its premises, EMC Marketing Co. gathered the following information (used
installment method):

2014 2015 2016

Installment Sales P500,000 P800,000 ?
Cost of inst. Sales ? 600,000 ?
GP on inst. Sales ? ? 282,000
Collection:
2014 sales 50,000 250,000 100,000
2015 sales - 200,000 500,000
2016 sales - - 400,000
Realized GP on
11,000 ? 241,000
inst. Sales
Based on the information given, the cost of installment sales for the year 2016 was?

a. 900,000
b. 918,000
c. 932,000
d. 940,000

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 13. EMC Motors, a dealer of motor vehicle, sales exclusively on installment basis.
One of its customers, Mr. Ambo purchased a motorcycle for P45,375. The cost to
EMC was P25,410. After making an initial payment of P6,050, Mr. Ambo defaulted on
subsequent payments. EMC lost no time in repossessing the motor vehicle which, by
this time, was appraised at a value of P12,650. EMC had incur additional cost of
repairs of P1,650 before the motor vehicle was subsequently resold for P27,500 to
Mr. Joey who made an initial payment of P6,875.

How much profit was realized on the sale to Mr. Joey?

a. 3025
b. 3300
c. 3575
d. 3850

14. Lane company, which began operations on January 1, 2016, appropriately uses
the installment method of accounting. The following information was given:

Installment sales P1,000,000

Regular Sales 600,000
Cost of inst. Sales 500,000
Cost of regular sales 300,000
Gen. and Admin. Expenses 100,000
Collections on inst. Sales 200,000

The deferred gross profit of Lane’s account on December 31, 2016 should be?

a. 150,000
b. 320,000
c. 400,000
d. 500,000

15. The Central Plains Subdivision sells residential subdivision lots on installment
basis. The following information of company on December 31, 2016

Installment Accounts Receivable:

January 1, 2016 755,000
December 31, 2016 840,000
Unrealized Gross Profit, January 1, 2016 339,750
Installment Sales 950,000

How much is the balance of Unrealized Gross Profit at December 31, 2016?

a. 378,000
b. 339,750
c. 427,500
d. 389,250

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 16. Gemma Inc. began operations of January 1, 2016 and appropriately uses the
installment method of accounting. The following data are available for 2016:

Installment Accounts Receivable, 12/31/2016 600,000

Installment sales for 2016 1,050,000
Gross profit on sales 40%

Gemma’s deferred gross profit at 12/31/2016 would be?

a. 360,000
b. 270,000
c. 240,000
d. 180,000

17. Vic Corp. which began business on 01/01/2015 appropriately uses installment
sales method of accounting. The following data were available:

Balance of Deferred Gross Profit on sales account:

2015 300,000 120,000
2016 - 440,000
Gross Profit on sales: 30% 40%
The inst. Accounts Receivable balance at 12/31/16 is?

a. 1,000,000
b. 1,100,000
c. 1,400,000
d. 1,500,000

18. Cente, Inc. appropriately uses the installment method of accounting to

recognize income in its financial statement. Some pertinent data relating to
this method of accounting include:

2014 2015 2016

Installment sales…………………………... P300,000 P375,000 P360,000

Cos of Installment sales…………………... 225,000 285,000 252,000

Gross profit…………………………………. P 75,000 P 90,000 P108,000

Rate of gross profit on installment

Sales……………………………………….. 25% 24% 30%

2014 2015 2016

Balance of deferred gross profit

Of year end: From 2014 sales P52,500 P15,000 P -
From 2015 sales 54,000 9,000

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 From 2016 sales 72,000

Total………………………………………. P52,500 P 69,000 P81,000

What amount of installment accounts receivable should be presented in Cente’s

December 31, 2016 balance sheet?

a P270,000 c.P279,000
b 277,500 d. 300,000

19. The following selected accounts appeared in the initial balance of Union Sales
as of December 31, 2016:

Debit Credit

Installment Receivables – 2015 sales…….. P15,000 P

Installment Receivables – 2016 sales…….. 200,000
Inventory, December 31, 2015…………….. 70,000
Purchases…………………………………….. … 555,000
Repossession………………………………… 3,000
Installment sales……………………………… 425,000
Sales (Regular)………………………………. 385,000
Unrealized Gross Profit 2015………………. 54,000

Additional Information:

Installment Receivable – 2015 sales as of

December 31, 2015 120,000
Inventory of new and repossessed merchandise
As of December 31, 2016 95,000
Gross profit percentage of regular sales during the year 30%on sales
Repossession was made during the year. It was a 2015 sale and the
corresponding uncollected account at the time of repossession was P 7,750.

1 The total realized gross profit on installment sales in 2016, and (2) gain (loss)
on repossession in 2016:
a (1) P129,262.50; (2) P(1,262.50)
b (1) 85,500.00; (2) P(1,262.50)
c (1) 129,262.50; (2) P 1,262.50
d (1) 85,000.00; (2) P 1,262.50

20. Gloria Corporation started operations on January 1, 2015 selling home

appliances and furniture sets both for cash and on installment basis. Data on
the installment sales operation of the company gathered for the years ending
December 31, 2015 and 2016 were as follows:

2015 2016
Installment sales……………………….. P 400,000 P 500,000
Cost of installment sales………………. 240,000 350,000

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 Cash collected on installment sales
2015 Installment contracts. 210,000 150,000
2016 Installment contracts. - 300,000

Additional information:

On January 5, 2017 an installment sale in 2015 was defaulted and the

merchandise with an appraised value of P 5,000 was repossessed. Related
installment receivable balance on January 5, 2017 was P 8,000

1 The balance of Deferred Gross Profit on December 31, 2016, and (2) the gain
or (loss) on repossession in 2017.

a (1) P 130,000; (2) P200 c. (1) P 76,000; (2) P1,800

b (1) P 76,000; (2) 200 d. (1) 130,000; (2) (200)

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