Chapter 4

-
Revenue Reco gnilion -
Instollmenf Soles
,. Introduction
Trodilionolly, under lhe Revenue Recognition Principle, revenue should be recognized
when two conditions exists:
,

l. The eorning process is complele or virtuolly complete, ond

2. An exchonge hos fokes pioce.

These conditions wos similorly indicoled under PAS No. I8. wherein Revenue is recognized
when:

l. lt is proboble lhol future economic benefils will flow lo the enlerprise, ond
2. ,These
benefits cqn be meosured reliobly.

Therefore, generolly, lhe reolizotionis deemed to occur on lhe dole of sole. Thus, lhe dole of lhe
sole lronsoction the rnoment lhol the revenue is recognhed in the finonciol slotemenl. However,
is
lhe exceptions lo this ore lnstollmenl Soles, Conslructions Accounting (Chopter 5) ond Fronchise
Accounting (Chqpter 6).

il. lnsfollmenf Soles

,Generolly Accepled Accounling Principles stotes lhot lhe instollment method of occounting for
soles is nol occeploble unless circumslqnces exisi such thot collection of soles price is 'hol
reosonobly ossured." GMP olso permils use of tle inslollment soles method when receivobles ore
collected over on exlended period of time, ond when there is no reosonoble bosis for eslimoting
ihe degree of colleciibility. li requires lhol revenue be recognized ot lhe time of colleclion. the
instollmenl soles method ollows revenue to be defened ond recognized eoch yeor in proporlion
lo lhe receivobles collected during lhot yeor. Receivoble occounts ond defened profit occounh
musl be kepl seporolely for eoch yeor becouse the profil rote will ofien vory from yeor to yeor.

189
t90 Chapter 4

Delermining Gross Profil Rotes:

For Prior Yeor(sf Soles:

Defened Grois Profit, beginning of cunenl yeor

lnslollmenl Accounls Receivoble, beginning of cunenl yeor

For Cunent Yeor;

Gross Profit Profil

lnstollmenl Soles

B. Recogniiion of Gross Profil Under lnstollmenl ,Soles Method

Prior Yeor(s) Cunent Yeor

lnslollmenl Accounls Receivoble, beginning
of lhe cunent yeor (lnstollmenl Soles:
cunenl yeor) .............. Pxxx Pxxx
Less: lnslollment Accounts Receivoble,
end ol the cunenl yeor.....................;........;........... xxx xxx
Decreose in lnslollmenl Accounls Receivoble ........... Pxxx Pxxx
Less: Defoulls, unpoid bolonce
(if ony) ........................ XXX Xxx
.
Colleclions in cunent yeor ....,........................................... Pxxx Pxxx
Mulliply by: Gross profit role (bosed on soles) xx7" xx7"
RGP on inslollmenl soles for ihe cunent yeor............... Pxxx Pxxx

c. Delermining Defened Gross Protit, End of the yeor:

lnslollment Accounls Receivoble, end of the

cuneni yeor............... pxxx
Multiply by: Gross profit rote (bosed onsolesf xx?o
Defened Gross Profil, end of the cunenl yeor............... ;:
Or, olternotively:
' Defened gross prolit before odjuslment for RGp ....................... pxxx
Less: Reolized gross profit on instollment soles ......,......:.............. . xXX
Defened gross profit, end of lhe cunent yeor ...............;............
-p"Il
D. Delermining goin or loss on repossession:

Estimqted Resole Price ofter Recondilioning

Cost Pxxx
Less: Reconditioning Costs Pxxx
Normol profit xxx
Costs lo sell.i XXX XXX
 Foh mprkeJ voluelTrue'worth oJ Repossessed , -i,

' Merchondise Pxxx

Less: Unrecoveied Cosl:
lnslollment Accounls Receivoble,
unpoid bolonce.................. Pxxx
Less: Defened grossProfil xxx xxx

Goin or {loss} on repossession..,.................:.................'.:.:... llg

E; Determining Over or Underollowonce of Trode-in Merchondise:

Trode-in ollowonce Pxxx

Less: Foir morkel volue/True Worth of fioOe-in
Merchondise:
Eslimoted Resole Price ofler
Recondilioning Cosls.....!...........'.'.:... Pxxx
Less: Recondilioningcosls...........'.............. xxx
Normol profit..................................'.....' xxx
Cosl to sell .--..-....... xxx xxx

Over or (Under! ollowonce .'..........:..........: Pxxx

lll. Cosf Recovery Method

.Under excepliOnol circumslonces, however, the cosi lecovery rhoy be used. l

l. The cosl recovery method moy be used where colleclibilily of proceeds is highly
uncerioin, where on inveslmenl is very Speculolive, in nolvre, ond/or where lhe
finol sole price is to be delermined by future events.

2. Under the cost recovery method, oll omounls collecied ore treoted os o recoupment
of the cost of 'lhe ilem sold, until the entire cost ossociqted with the lronsoclion hos
been recovered. Only ot lhis poinl profit is recognized.
Note to lhe Exominees:
4 new problem.wos presenled {lfems No. 53 lo 58) to illusirale fhe present volue in vatuing
instollment receivob/es/soles. Ihis is octuolly in conformily with PFRS wo. :e por. 45 (o), wherein
"loons ond receivqbles os defined in por. 9, sholl be rneosured ol amoiized cosl using lhe
efiecfive inferesl melhod'.
rhis wos olso supporfe d then by PAS 18 Exompte I of lhe Appendix (os omended by pAs 39J
os follows:
"lnstallment so/es, under which the consideroiion is receivob/e in insfol/ment3.
Reyenug ottributoble to lhe soles price. exclusive of inlerest, is recognized ot the
dote of sole. Ihe soles price rs lhe presenl volue of fhe considerotioi, determined
by discounting lhe instollmenls receivoble al the imputecl rote of interesi. Ihe
interest e/ernenf is recognized os revenue os if ls eorned, using the effeclive
inferesl method."
Using effective inleresl melhod rneons lhof present volue iso musf. Amortized cosl is ossumed
to approximole the originol invoice omount for short-term receivobles with no sfoled inlerest
rote if the impoct of discounling would nof be significont.

l. MM compony,begon operolions-on Jonuory l,20ll ond oppropriotely uses the

inslollment method of occounling. Ihe followin! dolo ore ovoibiib fbr 201 i ond 2012
20n 2012
llslollmenl sgles .............................. p1,200,000 p1,500,000
Cosh collections from:
201I soles 400,000 S0O.0OO
,Gross2jl2.sotes ...,................
profil on soles
e00;000
---'--467"
fiTo
The reolized gross profit tor 2O12is
o. P240,000 c. P440,000
b. 390,000 d. 500,000
{AtcPA}
2. TI compony, which begon busindss on Jonuory l, 2ol l, oppropriolely uses the
inslollrnenl soles melhod of occounting. The following doto ore ovoiloble for2O0g:
lnstollment occounts Ieq.elyobl.e ,tZlSlll I ...................... P2O0,OO0
Defered gfgss profit, t2l3t.lI I (befcir.e iecogniiiori--
of reolized gross profit) .....:............ I4O.OO0
Gross profit on sd|es............:....... .-.................... -'- 4OT"
The cosh collections ond lhe reolized gross profit on instollment soles for
lhe yeor ended December 31, 20i I should be
@hss{esleas Eeo!zsd-@$ppe
o. P100,000 P80,000
b. 100,000 60,000
c. 150,000 80,000
d. r 50,000 60,000
{ArcPA)
Revenue Recogtrition - Installment Sales r93

3. Dudong Electronics mokes oll of its soles on credit ond occounts for lhem
using the instollmenl soles method. For simplicity, ossume ihot oll soles occur
on the first doy of the yeor ond thot oll cosh.collections ore mode on the
lost doy of the yeor, Dudong Electronics choiges l8% interest on the unpoid
instollment bolonce Doto for 201I ond 2Ol2ore os'follows:

20ll 2012 '

So1es.......... t*Pat t"t0aa

Cost of goods so|d............ 60,000 80,000
Cosh collections (principol ond interest)
201I soles 40,000 50,000
2012 soles 90,000
(Adopted)

The interest income recognized in2012 omounted to:

o. P14,040 c. P35,640
b. 21.66 d. 49,7@

4. Using the some informotion in No. 3, compute the rgolized gros'profit in 2012:

o. P14,384 c. P37,184
b. 22,8ffi d. 39,600

5. The book of Horry Co. show the following bolonces on December 31,2Q12:

' Accounts Receivoble

DefenedGrossProfit(beforeodiustment) ....................... 38,000

Anolysis of the occounts receivoble reveolthe following:

Reguloroccounts
2O1l instollment occounts 16,2fi
2012 instollment occounts................ 9O,OOO

Soles on on instollment bosis in 201 I were mode of 30% obove cosl; in

2012, ol33 I /3 obove cost. Expenses poid wos P I ,500 reloting to instollment
soles. How much is the nel income on instollment soles?

o. P] 1,000 c. P16,000
b. r r,500 d. 10,250
(PhircPA)
194 Chapter 4

6. DJ Co. occounts for instollment soles on the instollment bosis. On Jonuory

. 1,2}12,lddger obcounts included the following bolonces:
l

lnstollment Receivoble - 2010 P 38,500

lnstollmerif Receivoble - 201 I 155.000
Defened Gross Profit - 2010 r 1,550
Defened Gross Profit - 201I 62,W
On December3l ,2012, occount bolonces before odjustments forreolized"
gross profit on instollment soles were:

lnslollment Receivoble - 20lO P none

lnstollment Receivoble - nl l ................. 42,O@
{nstollmeni Receivoble - 2o12 100,500
Defened Gross Prqfit - 2010 I 1,550
Defened Gross Profit - ?o1l ................. 62,0ffi
Deferred Gross Profit - 2012 75,810

lnslollment soles in 2012 were mode of 42% obove cost of merchondise.

The totol reolized gross profit on instollment soles in 2Ol2:

o. P132,510 c. P 97,5lO
b. 98,910 d. 102,834
(PhitcPAl

7. DipologrCompony sells opplionces on lhe instollment bosis. Below ore

informolion for the posi three yeors:

2912 20n 20t0

lnslollment soles .......... P750,000 P500,000 P400,000
Cost of soles.......... 375.000 260.000
Colleclions on:
20l2instollmentsoles... 275,W
201I instollmentsoles... 180,000 240,000
, 2010 instollment soles .., 125,000 120,000 150,000

Repossessions on defoulted occounts included one mode on o 20l2 sole

forwhich the unpoid bolonce omounted to P5,000. The deprecioled volue
of tl're opplionce repossessed wos P2,500. :

The reolized gross profit in2012on colleclions of 2012 instollmeni soles wos:

o. P108,000 c. P22l,250
b. r r0,000 d. 221,5@
(PhilcPA)
Revenue Recognilion - Ins tallment Sales t95

8. On Jonuory 1, 201 l, Art Compony sold its idle plont focility to Tony, lnc. for
P1,050,000. On lhis doie, the plont hod o deprecioted cost of P735,000.
Tony poid P150,000 cosh on Jonuory l, 201 I ond signed o P900,000 note
beoring interest of l0%. The note wos poyoble in three onnuol instollments
of P3O0,000 beginning Jonuory | ,2O12. Art oppropriotely occounted for the
sole undertheinstollment meihod. Tony rndde o timelypoyment of the first
instollment on Jonuory 1 ,2}12of P390,000 which included interest of P90,000
io dote of poyment. At December3l ,2012, Art hos defened gross profit of
o. P 153,000 c. P225,W
b. 180,000 d. 270,w
(AtcPA)

9. On October 1,2011, Rpdel Corporotion, o reol estote developer, sold lond to

GerryComponyforP5,O00,000. Gerry poid cosh of P6@,000ond signed o ten-
yeorP4,4@,000 note beoring interest ot 1 2%.Ihe corrying omount of the lond
wos P4,000,000 on the dote of sole. The nole wos poyoble in forty quorterly
principol inslollmenls of Pl10,000 beginning Jonuory 2,2012.,Rodel
oppropriotely occounts for the sole under the cost,recovery metfod. On
Jonuory 2, 2012, Gerry poid the first principol instollment of P I 10,000 ond interest
of PI32,000. For lhe yeor ended December 31,2012, whot totol omount of
' income should Rodelrecognize from the lond sole ond the finoncing?

o. PO c. P508,200
b. 208,000 d. ' 3a9,640
(ArcPA)

10. Asser Computer Co. begon operotion ot lhe beginning of 2012. During the
yeor, it hod cosh soles of P6,875,000 ond soles on instollment bosis of
P16,500,000. Asser odds o morkup on cost of 25% on cosh soles ond 50% on
.instollment soles. lnstollments receiVoble of the end of 2012is P6,600,000.
Totolreolized gross profit for 2012is:

o. P1,375,000 c. P4,675,@0
b. 3.300.000 d. 3.575.000
{Adopted)
I I . Conrodo Moiors sells locolly monufoctured jeepne)s on the insiollrnenl bosis. The
informotion presented below relotes to operotions during the post three yeors:

2012 20n 20t0

Cost of inst. so|es........ P8,765,625 P7,700,000 P4,950,000
Dec.3l bolonce:
. lnst. R'ble, 2012.. 9,728,125 I

lnst. R'ble,20l l .. 3,02s,000 8,387,500

lnst. R'b|e,2010.. 1.512,500 4,812,500
Gross profit rote .......... 327" 3070 28%
:..,

r conrodo Motors uses ihe instollment method of occounling, whot would

the compony reporl os totol reolized gross profit for the yei, ZOne

o. . P1,012,000 c. P3,753,750
b. 3,044,250 d. 6,993,250
(Adopted)

12. The vorious documents ond records which were recovered immediolely
ofler o fire gutted iis premises, EMc Morketing co. gothered the following
informotion (the compony uses the instollment method of occounting):

2010 20t t 20t2

lnstollrnents soles P500,000 P800,000 P (?)
Cost of inst. soles GI 500,0m G,t
Gross Profit on inst. soles
Colleclion on:
(?) Gl 282ffo
2010 soles 50,000 250,000 100,000
201I soles 200,000 50q000
400,0m
Reolized gross profit
on instollments soles I 1,000 Gl 241,W
Bosed on the informolion given obove, the cost of instollment soles for lhe
yeor 2012 wos:

o. P 900,000 c. P932,000
b. 918.000 d. 940.000
(Adopted)
l3' EMC Motors, o deoler of motor vehicle, ssles exclusively on instollment
bosis.one of its customers, Mr. Ambo purchosed,o motorcycle for p4s,37s.
The cost to EMC wos P25,410. Afier moking on initiol poyment of p6,0s0, Mr.
Ambo defoulted on subsequent poyments. euc lost no time in repoisesing
the motorvehicle which, by this time, wos opproised of q volue of p12,650-.
EMC hod to incur odditionol cost of repoirs/ remodelling of pl,650 before
the motor vehicle wos subsequenfly resold tor p27,sodto Mr. loev wrro
mode on initiol poyment of p6,87S.

How much profit wos reolized on the sole to Mr. Joey?

o. P3,025 c. P3,575
b. 3,300 d. 3,850
(Adopled)
Revenue Recognition - Installment Sales r97

14. Lone Compony, which begon operotions on Jonuory 1, 201 l, oppropriolely

uses lhe instollment method of occounting. The following informotion
pertoins to Lone's operotions for the yeor 201 l:

lnstollment soles.......... ......'...i...'.....'........'.... PI,009,999

Regulorsoles.......... 600,000
coit of instollment soles """"" 500'000
Cost of reEulor soles ...............'......'.:'.....:......'.................. 300,000
Generolond odministrotive expenses , 100,000
Collections on instollment soles.."....'.'........................,. 200.000

The defened gross profit occount in Lone's December 31, 201 1 bolonce
sheet should be:

o. P I50,OOO c. P40O,O0O
b. 320,000 d. 500,000
{AlcPA)

15. The Centrol Ploins Subdivision sells resideniiol subdivision lots on instollment
bosis. The following informotion wos token from the compony's records os
ot December3l.20l l: I

lnstollment Accounts Receivoble:

Jonuory l,20l I .........
December3'l,20l I ................. 840,000
I
Unreolized Gross Profit, Jonuory l, 201 .-...'.:".................. 339,750
lnstollment Soles ..........

How much is the bolqnce of Unreolized Gross Profit os of December 31,

2011?

o. P37B,0OO c. P427,5OO
b. , 339,750 d,"- 389,250
(PhilcPA)

16. Gemo, lnc. begon operotions on Jonuory 1. 201 1 ond opproprioiely uses
the instollmenl method of occounting. The following doto ore ovoiloble
for 201 l:

lnstollment occounts receivoble, 12/91 /201 I .. "............ " P600,000

lnstollmenl soles for 201 I .......... 1,050,000
Gross profit on soles 4U7"
 under the instollment method, Gemo's defened gross profit of December
31.201I would be

o. P360,000 c. P240,000
b. 270,w d. 180,000
tArcPA)
17. vic corporotion, which begon business on Jonuo'ry l,2ol l, oppropriotely uses
the instollment soles method of occounting. The following doto ore ovoiloble:

12/31/2011 t2l3t /2012

Bolonce of defened gross profit on soles occount:
...........
?0ll !\....i...,: p300,000 pl20,oo0
n12........... 440,000
Gross profit rote on soles ..............;.................... Wo 4Wo

The instollment occounti receivqble bolonce of December3l, 2012 is

o. Pl,000,000 c. P1,400,000
b. r,100.000 d. 1.500.000 ,
(AtcPA)

lB. cente, lnc. oppropriotely uses the instollmenl method of occounting to

recognize income in its finonciolstotements. Some pertinenl doto reloting
to this method of occounting include:

20t0 20ll 20t2

P300,000 P375,000 P360,000
225,W) 285,000 252.W
P 7s,000 P 90,000 P108,000
:'
Rote of gross profit on instollment
soles 2s% 24% fiTo

20t0 20t I 2012

Bolonce of defened gross profit
of yeor end: From 2010 soles P 52,s00 P 1s,000 P -
' From 201I soles 54,000 9,000
From 2012 soles 72,M
Totol P 52,500 P 69,000 P 81.000
Revenue Recognition * Installnient Sales 199

Whot omounl of instollment occounts receivoble should be presented in

Cente's December 3l ,2012 bolonce sheet?

o. P270,@O c. P27g,@O
b. 277,5ffi d. 300,000
{AtcPA)

19. The following selected ciccounls oppeored in the iriol bolonce of Union
Soles os of December3l,2Ol2:

Debif Credit
lnstollment Receivoble - 201 I so|es........P 15,000 P
lnstollmentReceivoble-2012so1es........ " 200,000
lnvenlory,December3l.20ll ................. . 70,000
Purchoses 555,000
Repossession ...............,.
lnstollment Soles 425,000
Soles (Regulor).............. 385.000
Unreolized Gross Profit 201 I ........... \ 54,000

Additionol informolion:

lnstollment Receivoble - 201 I soles, os of .

December3l,2ol I I20,OOO
lnventory of new ond repossessed merchondise
os of December3l ,2012 95,000
Gross Profit percentoge of regulor soles during
the yeor 30% on soles
Repossession wos mode during the yeor. lt wos o 201 I
sole ond the conesponding uncollected occount
of the time of repossession wos P7,750.

(l) The totol reolized gross profit on instoflment soles in 2012, ond (2) goin
(loss) on repossession in 2012:

o. lt) P12e.262.50; (2) P(l,262.s0l'

b. (l) 85,500.00; (2) (1,262.s0)
c. {l) 129,262.5o; (21 1,262.s0
d. Itt 85,500.00; (2) 1,262.so
(PhitcPA)
200 Chapter 4

2A. Glorio Corporotion storted operotions on Jonuory 1,2011 selling home

opplionces ond furniture sets bolh forcosh ond on instollment bosis. Doto
on the instollment soles operoiion of the compony gothered for the yeors
ending December 31,2O11 ond 2012were os follows:

2012

lnstollmentsoles......'..'...........,'.'.... P500.000
Cost of instollment soles.......... .. 24O,0OO 350,000
Cosh collected on instollment soles
201Iinstollmentcontrocts.....,............. 210,000 150,000
2012 instollmeni conlrocts 300.000

Additionol informotionl

On Jonuory 5, 2013 on instollment sole in 201 I wos defoulted ond ihe

merchondise with on opproised volue of P5,000 wos repossessed.
Relqted instollment receivoble bolonce on Jonuory5. 201 3wos PB,OOO.

(l ) The bolonce of Deferred Gross Profit on December 3l , 2012, ond (2) the
goin or (loss) on repossession in 2013.

o. (l) P130,000; (2)P200 c. (l) P 76,0o0; (2) P1,800

b. (l) 76,000; (21 20o d. (r ) r 3o,ooo; (2)

lffitro,
21. Jone Enterprises uses the instollment method of occouniing ond it hos the
following doto of the yeor-end:

Gross morgin on cost 66-2/3%

Unreolized gross profit P192,000
Coshcollectionsincludingdown poyments........;.......... 360,000

Whol wos the totol omount of soles on instollment bosis?

o. P480,000 c. P548,000
b. 552,000 d. 840,000
(PhjrcPA)
Revenue Recognition - Installment Sales 201

The Cindy, lnc. begon operoling ot the beginning of the colendor yeor
201I ond, using lhe instollment method of occounting, presented the
following doto for the firsi yeor:

lnstollment soles .......... P4OO,OO0

Gross morgin bosed on cost.................... 56-213%
lnvenlory, Dec.3l,20l I ......... ......!................... 80,@
Generol ond odministrotive expenses
Accounts receivoble, Dec.3l,20l I .............-...................: 320,000

The bolonce of lhe deferred gross profit occount, end of 201 I should be:

o. P192,000 c. P96,000
b. 128,000 d. 80,000
{PhircPA}

These doto pertoin to instollment soles of Kester Store:

Down poyment:20%
lnstollment soles: P545,0QQin 2010; P785..0@ in 201 l; ond, P968,000
in2Ol2.
Mork-up on cosi:35%
Collections ofter down poyment: 40%in lhe yeor of sole, 35% in
the yeor ofter, ond 25%in the third yeor.

Compule the {l ) instollmeni Accounts Receivoble ot lhe end of 2012, ond

(2) totolunreolized gross profit ol lhe end of 2012.

o. (l) P621,640, .21P217,s47 c. (1l'P464,640;(2l,Pl61,166

b. {l ) 464,640; l2l 217 ,s74 d. (l) 021,640;{21 l6l,l66
(PhircPA)

24. On Jonuory 2,2O11, the following ore some dolo of the Cloire Hills Subdivision,
o fully-developed subdivision which storted soles in 201 l.,All soles ore on o
five-yeor instollment plon. The soles terms provide for o l5% downpoyment,
with the bolonce poyoble in 60 monthly inslollments. An interest of lUoper
onnum on the unpoid qmount is to be poid with the monthly instollments.

Areo of subdivision
200 subdivision lots, vorious sizes ..................... s2,25O Sq.M.
Rood lots.. 23,7sOSq.M.
Porks, reserved for public use ............. 4,000 Sq. M.
Totol 80,000Sq.M.
202 Chapter 4

Cost of subdivlslon
Cosi of row lond, B0,OOO sq.m. P2,325,000
Surveying ond loying monuments 45,000
FiUing ond leveling sub-grode lond .,............... r30,000
Curbs, gutters, ond droinoge .........,.... 310.000
Rood brocing, filling, ond poving ...;............... 2,175,O@
Electric light posis ond lines 190,000
Totol P5,225,@0

The totol selling price of the 2@ subdivision lots, per the price lists, is P9,500,000.

Totolinslollment soles in 20l I ................. ........ P3,450,000

lnslollment receivoble, Dec. 3l; 201 I ................. 1,594"600
lnleresl income in 201 i 520,300
Operoting expenses in 201 I ...............................................:. 682,\n

Compule the ( I ) unreolized gross profit on December 3l , 2011 , ond (2) the
net income for 201 l.

o. {l } P717,570; (2)P1,3s5,230 c. (l)P 877,03o; (2)P 673,100

b. {I ) '7 I 7 ,57o; (21 673,1 00 d. (l) 1,552,s0o;(2) 1,3s5,230 ,
(PhircPA)

25. The Jojo Soles Co. which begon the opplionces business on Jonuory I ,2010
reports gross profit on the inslollment bosis. The following informotion relotive
to the instollment ioles ore ovoiloble:
20t0 20t1 20t2
lnstollment soles .......... P375,000 P450,000
Cost of instollment so|es........,.... 270,W 271 87s 324,000
Gross profit P 90,000 Pl03;125 l?q900
Collections:
2010 instollmenf controcts P 67,50O Pr r2,500 P108,750
201 I instollment controcls - 71,250 120,0m
20 I 2 instollment controcts 93,7fi
Defoults:
Unpoid bolonce of 2010
instollment controcts P 18,750 P 22,504
Volue ossigned to repossessed
merchondise ............... ?,750 9,000
Unpoid bolonce of 201 I
instollment conlrocts 24,0@
Volue ossigned to reposs'essed
merchondise ............... r3.500
 (2) the loss
{l ) The reolized gross profit on instollment soles during 2012, ond
on repossession during the yeor 2012:

o. (l) P86,432.50; {2)P12,22s c. (t) P86,437.so; (21P11,77s

b. (l ) s0,3cCI.00; (2) 11 ,77s d. (l) 88,687.50; 12) u,27s
(PhilcPA)

26. ThdMercy Soles Co. employs the perpetuolinvenlory bosis in its occounling
for new cors. On August 15, 201 l, o new cor wos sold to Rose Costro with
o list price of P220,000 costing P165,000. ll gronted Ms. Cosiro on ollowonce
of for her old cor os trode-in, the current volue of which wos
P85,000
estimoted to be P81,700. The bolonce of P135,000 wos poyoble os j9!!o111;
Cosh ot time of purchose P35,@, bolonce in2o m-onlhlV.Ocylgnf gf ry,ry0,
poyment being mode on September l, 201 l. On April 1,2An, Ms. Costro
first
defoulied in the poyment of Morch 1,2012 instollment. The new cor sold
wos repossessed;its volue to the seller is P40,000. (use two decimol ploces
for gross profit percentoge)

(l ) The totol reolized gross profit on instqllrnenf soles in 201 I ond (2) goin
(loss) on repossession in 2O1 2. 1

o. (l) F32,617; {2}P(l5,Bl l) ci (l) P32,617; 12)?(13,298)

b. (l) 37,88e; (21 03,n3l d. (l) 87,e66: (2) 13,2e8
(PhilcPA)

27. Gionne Co., sold o computer on instollment bosis on October 1, 2oll. The
unit cost to ihe-compony wos P86,4@, but lhe instollment selling price wos
set of P122,4OO. Terms of poyment included the occeptonce of o used
compuler with o trode-in ollowonce of P43,2@. Cosh of P7,2@ wos poid in
oddition to lhe iroded-in computerwith the bolonce io be poid in ten monthly
instollments due of the end of eoch month commencing the monih of sole.

It would require Pl,BO0 to recondition the used compuier so thot it could

be resold for P36,000. A 15% gross profit wos usuol from the sole of used
computer. The reolized gross profit from the 201 I collections omounted to:

o. P 5,764 c. Pr r,520
b. r4.r00 d. 48,960
(AdoPted)

28. Following doto pertoin to Moboit Compony which sells opplionces on the
instollmenl bosis:
 2010 20t I 20t2
lnstollment Soles .............. P390,000 P420,000 P480,000
Cost of Soles 237,9@ 243,6ffi 288,000

From Soles Made in

2At0 201 t 2012
lnstollment Accounts
' Receivoble bolonces:
Jon. I,2012..... P 24,N0 P300,000
Dec.3l ,2012.. ' 60,000 P320,000

Repossessions on defoulied occountswere mode during 2o12, os follows:

From So/es Made in

20t I 20t2
Account bolonce P10,000 P5,00c)
Approised volue of repossessed
merchondise 4,500 3,500

(lI The totol reolized gross profit on inslollment soles in 2012, ond (2) net
goin (loss) on repossession on defoulted controcts of 201 I ond 2012.

o. (l) P 62,000; (2)P(800) c. (tl P167,960; (2) P( 800)

b. (l) 167,?6o: 12) 800 d. t,t godn; Q) ,lr.nTlro,
29. Mr. Motios is o deoler in opplionce who sells on on instollment bosis. A
refrigerotor which originolly cost p9,240 wos sold by him for p16,500 to Jose
who mode o down poyment of p2,2w, but defoulteciin subsequent poyments.

Mr. Motios repossessed the refrigerotor of on opproised volue of p4,600. To

im.prove its solobility,.he_expended p600 for reconditioning. He wos oble to
:ellthe refrigerotor to pedro for p10,000 ot o down poiment of the first
instollment of P2,500.

The reo.lized gross profit from the (l ) first instollment sole - Jose; (2) from the
second instollment sole - pedro ore:

g. {ll p?{9; (2) Pl,3s0 c. (l)

e68;p ?1,2ffi (2)
b. (r) 26a; pl t,200 d. iri 23oa; izi r,sso(PhilcPA)
30. The Molino Furniture Compony opproprioiely used the instollment soles
method in occounting for ihe following instollmentsole. During 201 I , Molino
sold furniture to on individuol for P3,000 ot o gross profit of P1,200. On June
1,201l, this instollment occount receivoble hod o bolonce otP2,2OO ond ii
wos determined thot no further colleciions would be mode. Molino,
lherefore, repossessed the merchondise. When reocquired, the merchondise
wos opproised os being worth only P I ,000. ln order io improve its solobility,
Bengol'incurred costs of ptOO for reconditioning. Normol profit on resole is
p200. Whot should be the loss on repossession ottributoble to this
merchondise?

o. ?220 c. ?32O
b. 620 d. BBO
(Adopted)

3l. Spicer Corporotion hos o normol gross proflt on instollment soles of 30%. A
Zbgp sote iesulted in o defoult eorly in 2011. At the dote of defoult, lhe
bolonce of the inslollment receivoble'wos P24,000, ond the repossessed
merchondise hod o foir volue of P13,500. Assuming the repossessed
merchondise is lo be recorded of foir volue. the goin or loss on repossession
should be:

o. P0 c. o P3.300loss
b. P3,30O goin d. o P7.500loss

32. Frymon Furniture uses lhe insiollment-soles method. No further collections

could be mode on on occountwith o bolonce of P18,000. ltwos estimoted
thot the repossessed furnituie could be sold os is for P5,400, or for P6,300 if
p300 were spent reconditioning it. The gross profit rote on the originolsdle
wos 40%. The loss on repossession wos:

o. P4,500 c. P12,000
b. P4,B@ d. P12,600

33. Oliver Co. uses the instollmeni-soles meihod. When on occount hod o
bolonce of P8,400, no further colleciions could be mode ond the dining
room set wos repossessed. At thot iime, it wos estimoted ihot the dining
'
room set could be sold tor P2,4@ os repossessed or for P3,000 if the compony
spent p300 reconditioning ii. The gross profit rote on'this sole wos 7O%.Ihe
goin or loss on rePossession wos o

o. P5,BB0loss c. P 600 goin

b. P6,000loss d. P lB0 goin
34. Morceliono Soles Corp. occounts for soles:on the insfollment bosis. The
bolonces of the control occounts for lnstollmeni Controcts Receivoble ot
the beginning ond end of 2012 were:

Jon. l, 2012 Dec.3t,20t2

lnstollment Contr,octs Receivoble-20,l0 p 24,020
lnstollmentControcts Receivoble -2OIl 344,,460 P 67,440
lnslollment Controcts Receivoble - 2Ol z 410,090

Prlilg 2012,the componyrepossessed o refrigerotorwhich hod been sold

in 201I for P5,400 ond p3,200 hod been co'iiected prior to defoult. The
compony soles ond cost of soles figures ore summorized belowr
20r0 20t I 20t2
Net Soles P380,000 P432,@O P502,000
Cbst of Soles 247,0@ 285,120 379,260
Morceliono soles corp. volues the repossessed goods of morket volue. The
resole price of the repossessed merchondise oilounteo io-pt,zoo.

{l ) The goin (loss) or repossession; ond (2) lhe totol reolized gross profit on
instollment soles for the yeor 20l2:
o. {l) P(3Bl), (2)Pt72,Bs2.s0 c. (1J P24B: (2)Pt72,Bs2.so
b. (l) (3Bl ); {2) 71,006.70 d. (l) 248; (2) 71,006.70
(PhilcPA)
35. Gizelle, lnc. slo.rted operotion of the beginning of 2012, selling home
opplionces exclusively on the instollment 6osis. boto for zorr oio ioii
follows:

20t I 20t2
lnstollment soles ..... P600,000 P750,000
C"'i oi inii;rd;;i' ;;l;; ::: :: :: ::
: : ::. ::. : :
::::: ::::::: 420,000
: 450,000
201 I instollment occounts, end ................... 285,m0 22,5@
2012 instollment occounts, end 300.000
on Moy_31 ,2012,o 201 I instollment occount of p3z,500wos
defoulted ond
the opplionce wos repossessed. After reconditioning of o ;ost of pzso,
repossessed opplionc.e would be priced to selltor p:o,ooo.
- lhJ

The goin (loss) on repossession omounted to:

o. P 3,000 c. P 9,000
b. (e,000) d. {3,7s0)
(Adopted)
Revenue Recopnition - Installment Sales 207

36. Since there is no reosonoble bosis for estimoting the degree of collectibility.
Bloopers Compony uses the instollmeni melhod of revenue recognition for
the following soles:

20t2 20t I
Soles .......... P450,000 P300,000
Collection from:
201I soles 50,000 r00,000
21l2soles .......... 150,000 -0-
Accounts written-off:
201I soles 75,000 25,000
2012 soles 25.000 -0- r

Gross profit percenloge ................. 4V" W"

Whot omount should Bloopers report os defened gross profit in its December
3l , 2012, bolonce sheet for the 201 I ond 2012 soles?

o. P75,000 c. Pl12,500
b. 80,000 d. 125,000
(AlcPA)

37. Jomes Smith Applionce Co., sold on equipment costing P 10,000 for P I 6,000
on Seplember 30, 20] l. The down poyment wos P],600, ond the some
omount wos to be poid of lhe end Of eoch succeeding month. lnterest
wos chorgeid on the unpoid bolonce of the coniroct oi 1 12 of I % o month,
poyments being considered os opplying.firsl to occrued interesl ond ihe
bolonce to principol.

Afier poying o tolol of P6,4OO, the customer defoulted' The equipmenl wos
' repossessed in Jonuory 5, 2012. li wos estimoted thot the equipment hod o
volue of P5,600.

Compute the (l ) totol reolized gross profit on instollment soles ond (2) the
goin (]oss) on repossession (r:ounded)

o. (tl P2,328; 12) Ps2l c. (l ) P2,400; (2) P(400)

b.. (l) 2,t00;(21 400 d. (l) 2,328i(21 (s2l)
(ArcPA)
208 Chapter 4

38. on september30, 201 l, Borry bought o cqrfor p3,600,000. A down poyment

of P1,500,000 wos mode, with the bolonce due in lo monthly insiollments,
the first to be mode of lhe end of oclober. Borry is lo moke monthly
poyments of P200,000 plus interest on the unpoid bolonce ot 12%. whot is
the totol collection on Jonuory 3l,2An?

o. P200,000 c. "P216,000
b. 214,W d. 218,000

39. Using the some informotion in No.38 ond Borry is to moke equol monthly
poyments, eoch poyment lo opply first os interesf ol 12% on the unpoid
principolond the bolonce os o reduclion in principol. such equolpoyments
orecolculoted to be P2ll,l54.l5. whot is lhe unpoid bolonce of the
instollment receivoble on Jonuory 31,2012?

o. PI,000,m0 c. Pl,223,796.90
b. r,200,000 d. 1,420,753.51

40. Using the some informotion in No.38, whol is lhe opproximote effeclive
interest rote if monthly poyments of p200,000 plus inlerest ot 12% chorged,
on the originolprincipol omount of p360,000?

o. lW" c. 32.73%
b. lu" d. 3938%

41. Shoron Compony uses the inslollment soles method in occounling for its
instollment soles. on Jonuory l, 201 l, shoron compony hod on instdllment
occount receivoble from Roweno with o bolonce of p1g,000. During 201 l,
P4,000 wos collected from Roweno. When no furlher collection coutd be
mode, the merchondise solfl to roweno wos repossessed. The merchondise
hod o foir morket volue of p6,500 ofter the compony spent for p5o0 for
reconditioning of lhe merchondise. The merchondise wos originolly sold
with o gross profit role ol 4OTo.

Determine the goin or loss on repossession ond cost of repossessed

merchondise, r,espectiyely:

o. P2,500loss; P6.500 c. P2,500 goin; P5,900

b. P2,l00loss; P6,500 d, P2,100 goiu P5,900
(Adopted)
Ret enue Reco gn it ion - Ins tal lnrenl Sa I es 209

42. The following toble ore otoiloble for Choro Compony:

20t0 20n 2012

lnstollment soles .......... PSO,O0O P80,q00 P?

Cost of instollmeni soles.......... ? ? 91,800
Gross profit ? ? m,zffi
Gross profit percen|oge................. ? 25% ?
Cosh collections
2OlOsoles ? 25,000 10.000
201I soles ? 20,000 50,000
2012 soles ? 45,000
Reolized Gross Profit on lnstollment Soles 1,100 10,500 ?

Using instollment method, compute the reolized Qross profit in2Ql2:

o. P10,575 c. P2,2@
b. r2,500 d. 25,275
(Adopied)

43. On Jonuory I , 201 1 , Jonetle Compony sold 20,000 quore meters of formlond
for P600,0001o Michelle, toking in exchonge o l0% inlerest beoring note
Jonetle Compony purchosed lhe formlond in 201I ot o cost of P500,000.
The note will be poid in three instollments ot P241,269 including inlerest
eoch on December 31, 201 1,2012, ond 2013. Shortly, ofter the sole Jonette
Compony leorns distressing news obout Michelle's finonciol circumstonces
ond becouse colleclion is so uncertoin ond decides io occount forthe sole
. using the cost recovery melhod.

Determine the Reolized Gross Profit ond lnterest lncome for the yeor2Ol2,
ond Unrecovered Cost os of December 3l,2O12, respectively.

o. P -G-; P {-; P -O-

b. P -$-; P {-; P 17,462
c. P -0-; P60,0@; P177,462
d. P33,233;P 4-;P -O-
{Adopted)
2t0 Clupter 4

44. On June l,20ll, the Foster Compony sold inveniory to ihe Ushmon
Cgrpgqtion for P400,000. Terms of the sole colled for o down poyment of
PI00,000 ond four onnuol insiollrnents of p25,000 due on eoch June I
beginning June I ,2012. Eoch instollment olso include interest on lhe unpoid
bolonce opplying on oppropriote interest rote. The invenlory cost Foster
P150,000. The compony uses lhe perpetuol invdntory system. Compute the
omount of gross profit to be recognized in 201 l. {lghore interest chorges}.

Point-of -Delivery lnstollment Cosf

Method Method. RecoveryMefhod
o. P250,000 P62;500 P250,000
b. -o- 250,000 62,5@
c. 62,5ffi 250,000 -o-
d. 250,000 62,5W -o-
(Adopted)

45. Johnson Enterprises uses the cost recovery method for oll instollment soles.
Complete the following toble:

20t0 20n
---:- 20t2
lnstollment so|es .......... P80,000 P95,000 P?
Cost of. instollment soles .......... ? 56,050 68,2sO
Gross profit percentoge ................. 8%?- 35%
Cosh collections:
2010 soles 25,6@ 46,4@ 5,600
2Ol I soles ..:......................................... 22,8@ ?
2012 soles 32,550
neoriieJ drosiii.nili'i;;i;li;;;t ilb; ? ? 16,050
The instollment soles in2Ol2:
o. P92,137.50 c. P112,612.50
b. r05.000.00 d. 195,000.00
(Adopied)
46. Using the some informotion in No. 45, the cost of instollment soles in 2010:

o. Tero c. ?47,619
b. P30,400 d. 49,6@

47. using the some informotion in No. 45. lhe gross profit rote in 20i l:
o. n% c. 59%
b. 41% d. Connot be determined
 Sales 211
Revenue Rgcognition - Installment

48. Using the some informotion in No.45, the collections in2012 for 201I soles:

o. P10,450 c. P43,7ffi
b. 33,250 d. 48,600

4g. Using the some inforrmoiion in No. 45, the reolized gross profit on instollment
soteiin 20lo:

o. ?9,728 c. P4,800
b. 7,049 d. Tero

50. Using the some informotion in No.45, the reolized gross profit on instollmeni
soles in 201l:

o. ?8,664 c. Pl8,0l2
b. 9,348 d. n,4w
51. cooster monufoctures ond sells logging equipment. Due to the noture of
its business, Cooster unoble to r,eliobly predict bod debls. During 201 l,
is
Cooster sold equipment costing P2,400,000 for PQ,600,000. The terms of the
sole were 2A% down, with equol poyments due quorterly over the next 3
yeors. All poyments for 201I were mode on schedule. Round onswers lo
two ploces.

Assuming thot Coosler uses the instollment method of occounting for its
instollment soles, whot qmounl of reolized gross profit will Cooster report
in its income stotement for lhe yeor ended December 31, 201 1 ?

o. P1,680,000 c. P560,000
b. P1,120,000 d. P369,600

52. Assuming the some informolion in No. 5l ond lhot Cooster uses the cost-
1.".ouur/method of occounting for its inslollment soles, whoi omount of
reolized gross profit will Cooster report in its incomd stoiement for the yeor
ended December 31, 2012?

o.P0 c. P316,800
b. P240,000 d. P960,000
(wilh Presenl Volue Foctor)
lfems 53through 58 ore bosed on fhe following informolion:
Pompongo lndustriol sells mochinery on the instollment plon. on September l,
201 l, Pompongo entered into on instollment sole conlroci with GMA produclions
for o six-yeor period. Equol onnuol poyments under the instollment sole ore
P187,500 ond ore due on August 3l of eoch yeor beginning in 2012.

Additionol informdtion:
(o) The cosi of the mochinery sold to GMA wos p632,500.
(b) The implicit inlerest rote on the inslollment sole is l0%.
Pompongo lndustriol uses colendor yeor os o result of the obove tronsoclion
ond use effeclive-interest rote method of omortizing ony discount.

The present volue foctors ol lO%for six periods ore os follows:

Yeor PV of PI PV of on annuity of Pl
I .9091 .909r
2 .8264 1.7355
3 .75r3 2.4869
4 .6830 3.1699
5 .6209 3.7908
6 .5645 4.3553

53. Assuming ihot circumstonces ore such tircl the collection of lhe instollments
due under the controct is reosonobly ossured, compute lhe reolized gross
profit on instollment soles for 201I (rounded):

o. Tero c. P179,119
b. P8r,250 d. 487,500

54. Using lhe some informotion in No.53, compute the totol income for 201I
{rounded):

o. P 27,221 c. P206,34O
b. rc8,471 d. 541,721

55. Using the some informotion in No. 53, compute the totol incom e tor 2ol2
(rounded):

o. P 71,221 c. P20634O
b. 108,471 d. 2s7,433
Re.venue Recognition - Installnrcnl Sales 213

56. Assuming thot circumstonces ore such lhot lhe collection of the instollments
due underthe controct connot be reosonobly ossUred, compuie the reolized
gross profit on instollment soles for 201I (rounded):

cJ. Tero c. P179,1\9

b. PBl,25o d. 487,500

57. Using the ome informoiion in No. 56, compute the tolol income for 201I
(rounded):

o. P 27,221 c. P2O6,340
b. 108,471 d. 541/21

58. Using the some informotion in No. 56, compute the totol income for 2012
(rounded):

o. P 78,134 c. P102,194
b. l0l,4lB d. r 19.384

5g. The Ano Motors Cornpony mokes oll soles on instollment controcts ond
occordingly reports inbome on the instollment bbsis. lnstollment controcts
receivoblei ord occounted for by yeors. Defoulted controcts ore recorded
by debiling Loss on Repossession occount ond crediting the oppropriote
'lnilollmenfControct Rbceivoble occount for the unpoid bolonce of lhe
time of defqult. Allrepossessions ond lrode-ins ore recorded of reolizoble
volues. The following doto relote to the tronsoctions during 201 I ond 2012.
2Qn 2012
lnstollment soles .......... Pl50,0m P198,500
lnstollment controct receivoble, 12/31
201I soles
2012 soles 95.000
Purchoses.................... 100,000 120,000
New meirchondise inveniory,12131 oi cost 10,000 26,OW
Loss on repossessions ....".,........ 5,000

The compony ouditor disclosed thot the inventory token on December 3l .

2}l2didnot include certoin merchondise received os trode-in on December

2,2012 for which on ollowonce wos given. The opproised volue of the
merchondise is P1,500 which wos olso lhe ollowonce on the trode-in. No
enlry wos mode to record this merchondise on the books of the iime it
wos received. ln 20 I 2, o 2O1 I controci wos defoulted ond lhe merchondise
wos repossessed. At thelime of defoult, the repossessed merchondise hod
on opproised vqlue of P2,500. The repossessed merchondise wos neither
recorded nor included in the physicol inventory on December 31 ,2O12.
214 Chapter 4

Compute the (lltotol reolized gross profit on soles in 2012 ond (2) goin
(loss) on repossession.

o. (l)P70,000;(2) P 100 c. (l ) Ps0,400; (2) Ptl,l00)

b. (l) 70,000; (2) (1,100) d. (l) 1e,600; (2) 3,500
(PhitcPA)

60. On Jonuory 1,2011 Blue Compony commenced its soles of gos stoves.
Seporote occounls were set up for instollment ond cosh soles, but perpetuol
inventory record wos not kept. On lhe instollment soles o down poyment
of l/3 wos required, with the bolonce poyoble in lB equol monthly
instollmenls. The compony odjusied its records of the end of eoch yeor to
the "instollment bosis" by use of o deferred gross profit occount. When
controcts were defoulted, the unpoid bolonces were chorged to o bod.
debts expense occount, ond soles of repos5essed merchondise were
"credited lo this occount. At the end of the yeor the expense occount wos
odjusted to reflect the octuol loss.

The tronsoctions of lhe Blue Compony ore os follows:

20t I 2012
Soles:
New gos stoves for cosh......:...........,. P 27,4@ P 37,000
New gos stoves on instollment
(including the l/3 cosh down poyment) 235,000 330,000
Repossesed goi stove 7s0 875
'Purchoses 193,000 215,000
, Physicol inventories of December 3l:
New gos stoves of cost 45,500 60,@0
Repossessions of opproised volue lB0 200
Unpoid bolonces of instollment controcts defoulted:
201I soles 3,s80 4,650
2012 soles ..:............... 3.750
Cosh colleclicns on instollment controcts,
exclusive of down poyments:
s4,000 77,offi
2012 soles 70,000

Compute the (l) bolonce of lnstollment Accounts Receivoble - 20ll on

December 31, 201 2, ond (2) The reolized gross profit for the yeor 2012.

o. (11 P17,437 : (2) Pl I 4,880 (tl P22,oB7 ; (2) PI 31,500

b. (l ) t2,437; (21 lsl,s30 d. (l) 22,087: (2) I l4,B8o
(PhitcPA)
Revenue Recognition - I ns tallment Sales 215

61. The triol bolonce of Dumoguete Applionce Corporotion os of the end of

the fiscol yeor on September 30, 2Ol2 is:

, Debit Credit
Accounts receivoble P 100;@0
Accounts poyoble P 100,000
Allowonce for depreciotion 33,750
Copitol siock ......... 125,000
Cosh.......... 46,250
Deferred gross profit - 201 1 50,000
Equipment r r2,5m
lnstollment controct receivoble - 201 I . 12,500
lnstollment controct receivoble -2012 . 150,000 l

lnstollment soles .......... 375,000

lnventory, Sept. 30, 201 1 .......... 62,5@
Loss on repossessiofl s ............,......;.....,.....1. 3,7s0
Prepoid expenses 3,750
Purchoses 435,000
Repossessions ............... 2,500
Retoined eornings 30,000
Soles .............................. 3r2,500
Selling ond odministrotive expenses ...... 975ffi
Totol .......... .....;.r...!!..!..r..r.......;.. Pl,026,25A Pl ,026,25A

bolonce on Sept.30,20l I shows the following bolonces

The posl-closing triol
of cerloin occounts:

lnstollment controct receivoble - 201 l P100,000

Deferred gross profit - 201 I 50,000

The gross profit percentoge on regulor soles during the yeor wos 30%.

The occountont mode the following entry for o repossession on o sole of

201 I towords the end of fiscolyeor:
Repossessions ............... P2,5AO
1ossonrepossessions.......................................... 3,750
lnsiollment controct receivoble - 201 I . P6'25O

The inventory of new ond repossessed merchondise on Sept. 30, 2012

omounted to P75,000.
216 Chaoter 4

The totol reolized gross profit for ihe fiscol yeor september 30,2012
o. Pl41,875 c. P 93.750
b. 101,250 d. 235,625
(PhitcPA)

62. Using, the some, informotion in Numb er 61,lhe correcting entry for
repossession mode on o sole of 201 I is:

o. Deferred gross profit - 201 3,t2s

Loss on repossession 3,125
b. Defened gross profit - 201 .3,7s0
Loss on repossession 3,750
c. Loss'on repossession 3,125
lnstollment controct rec'ble - 201 I 3,125
d. No entry necessory
(PhitcPA)

63. Using the some informotion in Number 61, compute the net income for the
fiscol yeor September 3O,2012:

o. P235000 c. P235,625
b. l38,l25 d. 137,500
(PhitcPA)

64. The following selected occounts ore token from the triol bolonce on
December 3l , 20l2 of Cebu Compony:

Accounlsreceivoble'chorge'soles ........... p Z5,OO0

lnstoliinentreceivobles=2010:..................... l5,0OO
lnstollment receivobles - 201 I ...................... 45,000
lnstollment receivobles - 201 2 ..............,......- 27A,0@
Merchondise inventory j.............. 52,500
Purchoses .................. 390,000
Freight-in
Repossessed merchondise............ lS,OO0
Repossession loss ...........................:. 24,0@
Cosh soles P 90,000
Chorge soles .......... r80,000
lnstollment sgles ...,.......................... 446/ffi
Deferred groCs profit - 20 I 0 ........................... ?2,2@
Deferred gross profit * 20l I ....-..,................... 39,350
Revenue Recosnition - Installnrent Sales 2t7

Additionol infor,motion:
o. ond for 201 l,
Gross profit rote on 201O instollment soles wos 30%
lhe rote wos32%.
b. lnstollment soles prices exceed cosh soles prices by 24% while
chorge soles prices exceed cosh soles prices bV20%'
c. The entry for repossessed goods wos:
Repossessed merchondise........... P15,000
Repossession loss.......... 24'0W

lffHlin:lli:::lJ:Bi::-;31? 'l?:ffi
d. Merihondise on hond of the end of 2012 (new ond repossessed
wos P70,500.

(l ) lf oll soles were on cosh bosis, the totol soles for 2012, ond (2) The cost.of
goods sold on instollment soles for 2012:

o. (l) P600,000;(2l,P272,160 c. (l ) Psl 6,328; (2) P390,000

b. (l ) 000,000; {2} 234,400 d. '(l ) 800,0Q0; l2l 267,624 _ .
(PhilcPA)

55. Using ihe some informotion in Number 64, The cosh collections on lnstollment
Soles for -
20ta 20n 20t2
o. P89,000 P t68,000 P176,400
b. 74,0@ r23,000 176,4@
c. 4t,000 57,000 176,4ffi
d. 33,000 66,000 176,4ffi
. (PhilcPA)

66. The following doto were token from the records of Somely Compony, before
the occounis ore closed f or lhe ye or 2Ol 2.The compony sells exclusively on
. the instollment bosis ond uses the instollment method of recognizing profit.
2010 20n 2012
lnstollment soles ...... P400.000 P440,000 P420,000
cost of instollment ;;ies:::::::.....: 240,000 272,W 256,2@
Operoting expenses r00,000 94,000 r04,000
Bolonces os of Dec.3l:
lnst. Controcts Rec'ble 2010 220,W I r0,000 28,000
lnst. Controcts Rec'ble 201I 250,000 92,O@
lnst. Controcls Rec'ble 2012 238,000
Defened.gross profit - 201 0 44,W 44,W
Defened gross profit - 201 I 9s,000 9s,000
 tl
ti

f
i
t
i
llr

i
218 Chapter 4 *

During 2012, becouse the customers con no longer be locoted; the compony
wrote off P9,000 of the 2010 occounts ond P2,800 of the 201 I occounts os
uncollectible, ond {he entry mode wos:

operoting expenses ......................,........................:. I l,B0o

lnst. controcts receivoble 2010 g.OO0
lnst. controcls receivoble 201 I ..................... 2,800

Also during 2012 o customer defoulted ond the compony repossessed

rnerchondise opproised of P4,oo0 ofler costs of reconditioning estimoted
of P400. The merchondise hod been purchosed in 2010 by o customerwho
stillowed PS,OOO ot the dote of repossession. The entry mode wosi

lnventory of repossessed merchondise ................ 5,000

lnst. conirocts receivoble 2010 5,000

Compute the (l) totolreolized gross profit on instollment soles for the yeor
ond (2) The goin (loss) on repossession:
2O12,

o. (l) P1s7,156, (21 P{e60) c: (l) P 86,176: l2l P(e6o) I

b. (l) 70,e86; (2) 600 d. (l) t57,156; (21 600
(PhitcPA)

67. using the some informotion in Number 66, the conecJing entry for write-
offs:

o. Defened gross profii - 2010 3,600

Defened gross profit - 201 I ............. 1,064
Operoting Expenses 4,664
: [. Defened grosiprofit ........-.....,.......... 4,664
Operoting Expenses .;............... 4,664
c. Reolized gross profit
Operoting Expenses 4,664
d. Operoting Expenses 4,664
Defen'ed gross profit - 20lO .... 3,600
Defened gross profit - 201 I .... 1,064
(PhitcPA)
Revenue Recognition - Installment Sales 219

68. The Precious Applionce Compony storted business on Jonuory l,20ll.

Seporote occounts were estoblished for instollment bnd cosh soles.

On instollment soles, lhe conlroct price is 106% of the cosh sole price. A
stondord instollment controct is used whereby o down poyment of 114 of
the instollment price is required, with the bolqnce poyoble in l5 equol monlhly
instollments. The interest chorged per month is l% of the unpoid cosh soles
price equivolent. lt is recognized in the period eorned.

lnstollments receivoble ond instollment soles sre recorded of lhe controct

price. When controcls ore defoulted, the unpoid bolonces ore chorged to
' Bsd Debt Expense. Soles of defoulted merchondise ore credited to Bod

The following doto show the results of tronsoctiqns in 201l:

Soles:
Cosh sgles .. PI25,OO0
..........
lnstollment soles 255,000
ReBossessed soles ..........i.....'.r .....i....................... m
Merchondise invent6ry, Jonuory l, 20l I j..........r.............. ............ 58,050
Purchoses ................;... ..........:. 209,300
Merchondise inveniory, December 31, 201 I :
New merchondise 33,300
Repossessed inven1ory................:... 180
Cosh collections on instollment controcts:
Down poymenls ........,........... 66,250
Subsequent instollments including interest of P9,252.84
(overoge of six monthly instollments on oll controcts,
except on defoulted conirocts) .................. 79,341

Five conlrocts totolling P1,060 were defoulted ofter 3 monthly instollment

poyments.

The gross profii percentoge in 201 I bosed on cosh soles price equivolent is:

o. 35% c. 37.75%
b. 45% d.37.@%
(ArcPA/PhircPA)
 69. Using the some inJo'rmdtien i@,{p,4tte'totol interest eorned on o pI ,060
instollment sole controct,for thefiist four monlhs is:

a,' ?26.67 c. " P39;15

b. '37;16, d. '
,-,, ',-',, -
1,59i.00
,i,,, ' .. lnicin/philcpA)
'..':VO.
Using the some infonnqtign in.No;r68, cqffipute tha (tl net,goin or floss) on
defoulted conirocts during 201, ond (2) the reolized lros firotit toiZOtje:
'..'..
cr ,fl1 P38,.5V: (2)P?9,a21.86,
d. irI p(ee.oz); iapse se4re6

,n

*'
B
F
!i
F.
F
F
t:
Reve nue Rec ogu it ion - In s t al I nrent Sales 221

Lb il" b 21. d 31. c 41. o 51. c 61. d

2.d 12. b 22. b 32. b 42. d 52. b 62. o
3.c 13. b 23. d 33. d 43. b53.c 63. d
4.c 14. c 24. b 34. o 44. d54.c 64. b
5.d 15. o 25. c 35. b 45. b55.b 65. c
6.d 16. c 26. c 36. d 46, d56.o 66: d
7. b 17. d 27. c 37. d 47. b 57. o 67. o
B.b rB. b 28. c 38. b 48. c58.b 68. c
9.o 19. o 29. c 39. c 49. d59.b 69. o
10. c 24. b 30. c 40. d 50. d60.b 70. c

l. (b)
Reolized gross profit on instollment soles in 2012: Colleciions in 2012 x Gross
profit role %
201 I soles: P500,000 x 30% Pl50,000
201 2 soles: P600.0@ x 40% 240,W
lgeo,Ow (bl
2. (d)
lnstollment Soles: Defened gross profit, before odjustment
, gross profit rote %: PI4O,O@ " 40%.......... P35O,m0
Less: lnstollmentAccounts Receivoble,12131/l I ................... 200,000
Collections Prs0,000 (d)
Multiplied by: Gross profit rote % ................ 4V"
Reolized gross profit P 60,000 (d)

4. (c)
201 I Soles: [P50,000 -P 14,040 (refer to No. 3)] x
00,000 - P50,000) /P I 00,000
(P I Pr4,3B4
201 2 Soles: [P90,000 - (Pl 20,000 x I B%)] x
{p r 20,000-
p80,000)/p 120,000
...:................... n,w
Reolized gross profit on instollment soles in 2012 P37,184 (c)
 222 Chapter 4

5. (d)
Defened gross profit before odjustmenl P 38;000
Less; Defened gross profit, 6nd of 2012
201 I soles: ?1 6,250x 30/1 30 P 3,750
2012 soles: P90,000 x 33 I /31 1331/3 .............. 2,m 26,2fi
Reolized gross profit on instollment soles P I 1,750
Less: Expenses 1,500

Net lncome l_le35o (d)

6. {d)
2010' 2AIt 20t2 Totot
lnstollment Accounts Receivoble,
beginning ot2012
(lnstollrnent Soles) ............... P38,500 P155,000 P256,310**
Less: lnstollment Accciunts
Receivoble, end of 2012 ... O r00,500
Collections .........:..... P38,500 Pr 13,000 Pr55,Br0
Multiplied by: Gross profit %....... . W7i 4Wo* 421142

Totol Reolized Gross Profit on

lnstollment Soles ................. l_t_]j!A P 45,2@ P 46,084 P102,834(d)
*2010: Pl 1,550 + P38,500 307"
=
*201 I : P62,000 + Pl 55,000 40%
=
..(P75,Bl 0 + 42%) + P75,81 0

7. (b)
Reolized Gross profit in 2012 for 2012 soles:
?27S,Cf,ox40%*
*(P750;000- P450,000) P750,000 4O7o
/ =

B. (b)
lnstollment soles - 201 I .............................. Pr.050,000
Less: Downpoyment- | l1 12011 ..,.....,........ 150,m0
lnstollment Collections - 1/l12011 (P39O,OOO - PSO,OOO) 300,000
lnstollment Accounts Receivoble, 1 2/31 / 201 2 P 600,000
Multiplied by: Gross profit rote (Pl,O50,OOO - P735,000) /
Pr,050,000 3V"
r,
Deferred gross profii end of 2012 .........., i.;...r...!..!. P r80.000 (b)
lt'
L

I
F

F
F
Revenue Recopnition - Installntent Sales 223

Or, olternolively:
Selling price of the idle plont focility P1,050,000
Less: Deprecioted cost of dote of sole 735,ry
Gross profit on instollment sole (Goin on sole of idle focility) P 315,m0
Less: Reqlized gross profit bosed on cosh collections:
On l/l/201 I collection: P150,000x (P315,000/
Pr,050,000)
On 1 1112012 collection: {P390,0@ - P90,000} x
90,000 135,0m
Defened gross profit, December 31, 2012 P r80,000 (b)

9. (o)
Corrying volue of lond, 101112011 P4000,000
Less: Collections from October 1 , 2011 to October 1 , 2012
(Principol ond interest) ..,....................... i........ 1s48,2@
Unrecovered cost 12131 12012 P2,451,ffi

Profit from sole ond interest income recognized................... o (o)

(4)
(t) (2) (3) u4)- (3)l
[(2)+ (3)] F%xH)T Unpaid
Dote Colleclions lnteresf Principal Bolonce
t0l1l20t1 P5,000,c00
10/112011 P600,000 PO P600,000 4,400.Q00
v1/2012 242,W r32,000 i 10,000* 4,29A,W
4n12012 238./6 r 2B.Z00 1r0,000 4,r80,000
7/112012 235,4@ 125/W I10,000 4,470,W
1011/2012 232,1@ 122,1W r 10,000 3,960,000
?1,548,m Ps08,200 Pr.040,000
*P4,400,000
. 40 = Pl 10,000
Colleclions: Principol plus interesl
lnterest: 12% x 114 x Previous unpoid bolonce
Unpoid bolonce: Previous unpoid bolonce less collection - principol

Under the cost recovery method, no income is recognized on o sole until the cost of lhe
item sold is recovered through cosh receipts. All cosh receipls, both interest ond principol
portions ore opplied first to lhe cosi of lhe ilems sold. Then, oll subseiuenl receipts ore
reporled os revenue. Becouse oll costs hove been recovered. the colleclions ofler cosl
recovery represents income. This melhod is used only when the circumstqnces sunounding
o sole ore so uncertoin thot eorlier recognilion is impossible. lncidentolly, the selecled
enlries on the following scheduled colleclions ore:
 224 Chapter 4

1011/2011: Cosh 600,000

lnstollment Accounls Receivoble 600,000
1/1/2012: Cosh 242,M
lnstollment Accounts Receivoble . r 10,000
Unrecognizecflnterest lncome ...... r32,000

10. (c)
Reolized Gross Profit:
Cosh Soles: P6,875,000x 251125
lnsiollment Soles:
lnstollment Soles - 201 2 ..................... P I 6,500,000
Less: lrlstollment Accounts Receivoble,
end of 201I ................. 6,600.000
Collections on instollment soles ...... P 9,900,000
Multiply by: gross profit ro.te 5o/r5o 3,300,000
Totol reolized gross profit - 2012 P4;525.@ (c)

r r. (b)
20t0 20t t 20t2 Total
lnstollmenl Accounls Receivoble,
1 ll 12012 (lnslollment Soles| P1,512,500 P8,387,500 P12,890,625*
Les; lnslollment Accounls Receivoble.
12t3112012 0 3.025,000 .' 9,728,125
Collections in2012. Pr,5r2,500 P5,362,500 P 3,r62,500
urrmriro ov, sr";;r.ril ;;;: 28% 30% 32%
Tolol reolized gross profit .......... P 423,500 PI,608,250 :P l,ol2.ooo 13,91128 (b)
*P8,765,625 (1W"
- 327"1

12. (b)
Reolized gross profit in2O12 P 241,W
Less: Reolized gross proiit in 2Ol2tor 2010 soles:
PI 00,@0 x 227"* ...... :.... n,w
Reolized gross profil in 2Ol2tor 201 I soles:
P500,000 x 257"** .............r...... r25,0oo
Reolized gross profit in2AVfor20l2 soles P 94,OOO
Gross profit rote for 2012: (olternotive formulo)
Reolized gross profit/collections: P94,000 + p400,000 ........
____45%

t
I
Revenue Recognition - Installtrxent Sales 22s

Therefore, the cost of instollment soles would be:

lnstollment soles - 201 2:
Gross profit / gross profil rote: P2B2,AO0/23.5% ......... PI,200,000
Less: Gross profit .......... 282,W
Cost of instollment soles .......... P 918,000 {b)
*Alternotive formulo lo compute gross profit rote:
Reolized gross profit / collections
For 2010 soles: Pl 1,000 / P50,000......

**2Ol I soles: 100%- (P600,OOO

/ 2s%

r3. (b)
PB00,OOO)
--ry"
lnstollment soles - Mr. Joey P27,ffi
Less: Cost of instollment soles:
Approised volue before reconditioning cosls . Pl2,650
Add:Recondilioning costs .......... 1,650 14,300
' Grossprofit.......... Pr3,200

Gross profit rote: Pl3,200 tP27,5@ ____487"

Reolized gross profit - Mr. Joey: P6,875 x 48% _Bilqg (b)

t4. (c)
lnstollment soles - 201 I ...-...... PI,000,m0
Less: Collections on instollment soles ........... 2m,000
lnstollment occounts receivoble, December 31,20n I .......... P, 800,0m
Multiplied by: Gross profit rote U W"- (P500,000/P l,O0O,OOO) 1 ... W"
Defened gross profit, December3l,20l I P 400,000 (c)

1s. (o)
lnstollment Accounts Receivoble, 12131 11 1 P 840,000
Multiplied by: Gross profit rote:
(P339,7fi1P75s,000) 45%
Defened gross profit, December3l,20l I P 378,000 (o)

16. (c)
lnstollment occounts receivoble, December3l, 201 I P 600,m0
Multiplied by: Gross profit rote 4V"
Defened gross profit, December3l,20l I P 240,000 (c)
226 Chapter 4

T7. (d)
. initottment occounls receivoble, December 31, 2012:
Defened gross profit, December 31, 2O0l /gross profit rote
201I soles:P120,000 1307" ......... P 400,000
201 2 soles: P440,000 I 40% ......... I .l 00,000

lnstollmentoccountsreceivoble,December31,2012

rB. (b)
lnstollment occounts receivoble, December 31, 201 2:
Defened gross profit, December 31,2012/gross profit rote
,2OlOsoles P 0
'2OlIsoles: P9,OOO 124%.......... 37,5m
2012soles: P22,0@ l3O% ........................i.... .. 2n,W
lnstollment occounts receivoble, Decernber 31 ,2012 .......... P2775W lbl
:
l?. (o)
201 I soles 2012soles Total
{l) Reolized gross profit -2012
lnsiollment occounts receivoble,
' Jonuory 1,2012
(lnstollmentsoles).:...:......... P 120,000 P425,ffi
Less: lnstollment occountsr
, receivoble,December3l . 15.000 200,000
Decreose in instollrnent occounts
receivoble 105,m0 P225,W
Less: Defoults, unpoid bolonce . ___JIP.
Collections in2012...................... P 97,2fi P225,W
Multiplied by:gross profit rote ... 457{ 3f7." '
Reolized gross profit on
instollment soles in 2Ol2 .... ?43,762.50 P 85,500 P129,262.50(ol
 227
Revenue Recognition - Installment Sales

*Gross profit rotes:

201 :l soles (prior yeor soles) : Defened gross profit - 201 I soles, 1 11 12412

lnslollment occounts receivoble - 201 I soles,

| 1112012
P54,000
= 45%
P120,000

20.l2 soles:
lnventory, December 3 l, 20 I 1 ............'u.... P 70.000
Add: Furchoses 555,000
Repossession ,.'...'.'......:'... 3,000

Cost of goods ovoiloble for sole .........."'...-...........';"' P 628,000

Less: lnventory of new ond rdpossessed
merchondise, Decemb er 31, 201 2..... r.. r!'.....-!. 95,000

Cost of goods sold - 2012 ...'..'---.......'.....:.....' P 533,000

of regulcir soles - 2012
'Less: Cost
P385,000 x 7 O7o ... -'.'... -........'. ".. -.......'. " " " " " : " "
- - :. 269,ffi
1

Cosl of lnstollment Soles - 2012.-.'....-.. P 263,500

lnstollment ssles - 201 2 .....'.'.............i...i.".. P 425,Q00

Less: Cost of lnstollment Soles 263;500

Gross profil .........."..'..'....".,... P 161,5@

Gross profit rote: P161,500 / P425,000 ' 387o

t2l Goin (loss) on rePossession: 3,000.m

Volue of repossessed merchondise ..............' P
Less: Unrecovered cost:
lnslollment occounts receivoble - 2Ol 1,
. unpoid bolonCe
Less: Defened gross Profit- 20'l I
1P7,7 5A x 45%l ..................i.......r. r. !..i 3.487:50 4,262.50

Goin (loss) P(1,262.50)(o)

228

20. (b)
(l ) Defened gross profit, t2/31/2O12: 201I sales 20I2soles fotol
lnstollment soles .......... P400,000 P500,000
Less: Collections in 201 I 210,@0
Collections in2012 1s0,000 300,000
lnstollment Accounts Receivoble,
December 31, 2012 .......... P 40,000 P200,000
Multiplied by: Gross profit rote 4Wd W"
Defened gross profit,
December3t,2012 Il_6,A00 P60,000 P76,000 (b)
*Gross profit
rotes: 20t2
lnstollmentsoles............... P5o0,mo
Less: Costof instollmeni soles"raa00t
24A,W 350,0m
Gross profit Pr60.000 Pt50,000

Gross profit rotes 4ff7" Wo.

(21 Goin (loss) on repossession
Approised volue of repossessed merchondise ......... P5,000
Less: Unrecovered Cost:
lnstollment occounts recelvoble - 201 I ,
unpoid bolonce
Less: Defened gross profit
(P8.000x40%) .........................:......... 3,200 4,800
Goin on repossession ................. P 200 (b)
Refer to No. 33 for further discussion on recognition of goin.

21. (d)
lnstollment occounts receivoble, end of yeor:
Unre,olized gross profit / gross profit iote
. =,P192,W / (662/3/1662t3) P480,000
Add: Collections ....,.
360.000
lnsiollment soles rglq,000 (d)
22. (b)
lnstollment occounts receivoble, I 2/gl l2}l I .................
Ps20,000
Multiptied by: sross profit rote (662/3 / 1662/31.......:.:..,.::.:.......
4Wo
Defened gross profit, end of 2Ol I
Il4 !e (b)
Revenue Recognition - Installment Sales 229

23. (d)
(l ) lnstollmenl Accounts Receivoble, end of 2012:
P
20lOSoles:(fullycollected) .......".' -O-
20.l I Soles: P285,000 x B0% net of downpoyment
x 25% unpoid bolonce - lost yeor .......... 157,000
20l2Soles: P968,000 xB}% net of down poyment
x60% unpoid bolonce - lost two yeors. 464,6N
P621,64A @)

l2t unreolized gross profit, end of 2012: (since the mork-up is constont
throughout the yeors, then it would be beiter to multiply the instollment
receivoble by gross profit rote)
P621 ,640i35/l3s .......... ..........:.................. !lg.l-J-{g (d)

24. (b)
, (l ) Unreolized gross profit on December 31, 201 l:
lnstollment occounis receivoble, 12t31 /2011 '.----- P1,594,600
Multiplied by: gross Profit rote 457J
t P 717,57O1b)

*lnstollment Soles ...............;.... P9,5Q0,000

Less: Cost of lnslollment Soles 5,225,W
Gross profit P4,2ry,W

Gross profit role (?4,275,000 / P9,500,000)..:......'....

-----lt%
(21 Net lncome:
lnstollment soles in 201I ........... P3,450,000
Less: Cost of instollmenl soles (55%x P3,450,000) .. 1,897,5m

Gross profit on instollment soles .......""..'...""........ P1,552,500

Less: Unreolized gross profit on
December3l,20l I 717,s7O lbl
Reolized gross profii on instollment soles P 834,930
Less: Operoting expenses ............... 682,r30

Operoting income ........:... P 152,800

Add: lnterest lncome s20.300

Net lncome r_!73,1!g{b}

230 Chapter 4

Or, olternotively:
Reolized gross profit on instotlment soles:
lnstollment soles in 2011 ........... P3,450,000
Less: lnstollmenl Accgunts Receivoble,
1 2Bt / nl I ...................................!. 1,594,6n
P1,855.400
45%

P 834,930
682J30
P 152,800
s20,300
Net lncome P 673,100 (b)

2s. {c)
(l) Reolized gross profit in2O12:
2010 soles: P 108,750 x (90,000 / 350,000). P27 ,187 .fi
20l I soles: Pl2O.OOOx (103,125 t 375,Un)**............ 33,OOO.O
2O12 soles: P93.750 x (126,000 / 450,000) ................. 26,2fi.n
1

P86,437,"fi (c)

{21 Loss on repossession in 2012:

2010sales 201I soles Totol
Volue of repossessed merchondise P 9.000 Pr3.500
Less: Unrecovered Cost:
Unpoid bolonce P22,sffi P24,W
Less: Defened gross profit:
' 2010: P22,500x 257"* ....... 5,625
201 l: P24,000 x27.57o** .. 6.600
Pl6;875 P17,4@
Goin (loss) on repossession ............. Pl7,87sl P(3,e00) P(l l,Z7s) (c)

J
26. {c)
(1) Reolized gross profit on instollment soles in 201 l:
Trode-in ollowonce ..................'.. P 85,000
Less: Cunen'l volue/octuqlvolue of trode-in
merchondise.....'.'.... ...........'......... 81,700

ver-ollowonce..'......................J......... P 3,300
lnstollment soles ..:....... P220,000
Less:Overollowonce ........'..'."""""""' 3,300

Adjusted instollment so|es.........'......"..................-i.. P216,7@

Leis: Cosi of instollment soles
Gross profit P 51,700

Gross profit rotio (P5l,7W I ?216,7ffil, .:.................. 23.86%

Reolized gross Profit:

Downpoyment .........'......;..... "...'................;.... P 35,000
Trode-in iot cunent morkei volue) ...........'.... Br,/00
lnstollment Collections tP5,000 x.4) 1....:....'.... 20,000

Totol collections in 201 I ...................'.......:...... Pr36,700

Muliiplied by: gross Profit rote 23.86%

tSttt {cl

l2l Goin (loss) on repossession:

Volue of repossessed merchondise P 40,000
Less: Unrecovered Cost:
lnstollment Accounts Receivoble,
unpoidbolonce P70,000*
Less: Defened gross Profit: ,

P70,000x23.86% ........... 16,702 53,n8

Loss on repossession .... ...,................'.:.... P( 13,2?8)(c)

*Unpoid Bolonce:
Adjusled initollment soles P216,7W
Les!: Trode-in (ot cunent morket volue) ,8r,700
Downpoyment ............. 35,000
lnstollment collections
(e ll ,2on -21112012]t
P5.000 x 6 ..................'.,....'..'....; 30,m0
P 70,000
 232 Chanter 4

27. (c)
Trode-in ollowonce P 43,2ffi
Less: Morket volue of trode-in merchondise
EstimotedResolePriceofterreconditioning p36,O0O
Less: Reconditioningcosts...........................-. f,A0O
Normol profit (1 5% x p36,000) 28,800
Overollowonce
:P 14,4N
lnstollment soles P122,M
Less: Overollowonce 14,4@
Adjusted instollment soles P108,000
Less: Cost of instqllment soles 86,4ffi
Gross profit
I ^,6ffi
Gross profit rote (P21,600 / P108,000) Mo
Reolized gross profit:
Downpoyment ............. P 7,2@
Trode-in (ot morket volue) 28,800
lnstollment Collections:
p7,2OOl /
{P I 08,000 - P2B.B00 - I 0 x 3 months ........ 21,6@*
Totolcollections in 201 I ........... P 57,6ffi
Multiply by:Gross profit rotio M"
*or (?122,400'P7,200- P43,200)/
P I 1,920 (c)
l0x3 months

28. (c)
{l) 2010 soles 20ll soles 2012 sotes Totot
lnstollment Accounts
Receivoble, l/1/2012
{lnslollment Sotes) ............... P24,OOO P300,000 P480,000
Less: lnstollment Accounls
Receivoble, l2/31 /2012..... 0 60,000 320,000
Decreose in lnstollmenf
Accounls Receivoble .... ?24,OOO P240,OOO P150,000
Less: Defoults, unpoid
bolonce IO,O0O s.000
Coll6ctions in 2012 P24,OOO P230,000 P155,000
Multiplied by: gross profit rote* 39% 4270 40%
Reolized gross profit in 20t2...
_t__E!q I ry49q l_qagw !lezz_q_F)
i
t
h
h

h
Revenue Recognition - Installnrent Sales 233

2010 soles 20ll soles 2012 soles

*lnstollment soles.".................... P390,000 P420,000 P480,000
Less: Cost of lnslollmenl Soles 237,9O0 243,900 288,000

Gross profil ::P152,100 P176,4O0 P192,000

Gross profil rote 397" 42% 40%

l2l Net goin (loss) on repossession in 2012:

zPll_:ote ryt2-sate: Totol
Approised volue of repossessed
merchondise P 4,500 P 3,500
Less: Unrecovered Cosl:
lnstollmenl Accounls Receivoble.
unpoid bolonce P ro,oo0 P 5.000
Less: Defened gross profil:
201 l:
P10,000 x 427" ........... 4,200
201 2: P5,000 x 40%........... 2,000

Unrecovered cost ............. P 5.800

--.:------.-.-T
P 3,000

Goin (lossl on repossession ..................... iu,399l 500 Pt800) {c)

2e. {c)
(l) Reolized gross profit - Jose:
Collections - Jose ....................
Multiplied by:Gross profitrote llW7"- (P9,2401P16,ffi]l1 .. . 44%
e _g69 (c)
tzt Reolized gross profit - Pedro:
2,500
Multiplied by: gross profit rote* 48%

l-l2oo (c)

*lnstollment soles P10,000

Less: Cost of lnstollment Soles:
Approisedvolue .......;.... ?4,6ffi
Add:Reconditioningcosts.............. 600 5,200

Gross profit P 4,BOO

Gross profit rote (P4,800 / P10,000) 4V"

234 Chapter 4

30. (c)
Approised volue before reconditioning costs PI,000
Less: Unrecovered cost:
lnstollment Accounts Receivoble. unpoid bolonce P2,2@
Less: Defened gross profit [P2,200 x ( I ,200/3,000)] 8B0 1,320

Loss on repossession ................. P{320) (c)

When goods ore ocquired in second-hond condition os o result of repossessions ond lrode-
ins. lhey should be recorded of lheir eslimoled cosh purchose prices. ln'some componies,
these plrices qre defined qnd mode ovqiloble to deolers. ll olso distinguishes belween reloil
ond wholesole volues. When prices ore published, these prices moy be used to volue
repossessed or trode-in merchondise.

The condition of lhe merchondise repossessed. the cost of reconditioning, oncJ lhe morkel ,

for second-hond merchondise of lhol porliculor type musl oll be considered. The
objeclive should be lo ppl ony ocquired osset on lhe books ot its foir vqlue or, when lhe
foir volue is nol osceitoinoble, ol lhe besl possible opproximolion of foir volue.

Some conlend thot repossessed merchondise should be entered ol o voluolion ihot will
permil the compony to moke its regulor rotdof gross profit on resole. lf il is entered oi its
opproximole cosl lo purchose, lhe regulor rqie of gross profil could be provided for
upon its ultimote sole, but lhol is only o secondory considerolion. lt is more imporlonl 1

thot the ossel ocquired by repossession be recorded of its foir volue is occordqnce wilh
the generol proclice of corrying ossets of ocquisition price os represented by lhe foir
morket volue ol lhe dqte of ocquisilion.

ln lhis porticulor problem lhe opproised vqlue is similor lo foir volue in which cose normql
profii is'nol lo be deducied. Likewise, opproised volue os given in the problem is before the
recondilioning costs omounl, so there's no need olso, io deduct the Pl00 recondilioning
costs.

31. (c) -refer lo No. 30 forf urlherdiscussion.

Foir volue before reconditioning costs Pr3,500
Less: Unrecovered cost -
lnstollment occounts receivoble
unpoid bolonce
Less: Deferred gross profit (30% x P24,000) ......... 7,2OO r 6,800
Loss on repossession ........:....... P(3,300)
R evenue Recognition - Installment Sales 235

32. (b)-refer to No. 30 for furtherdiscussion.

Nofe: Io determine which volue should be use os o bosis to compute lhe goin or loss
on repbssession. ll should be lhe one fhoi witl resutt to o more beneticiol transaction.
Foir volue before reconditioning costs (P6,300 - P300) P 6,000.
Less: Unrecovered cost -
lnstollment occounts receivoble,
unpoid bolonce ................. Pr8,000
Less:Deferred gross protit (4O% x P18,000............ 7,2W 10,800

Loss on repossession ................

* P6,0OO is higher thon the omount of P5,400. The P6,000 is considered olreody os fhe
foir volue ot the dofe of repossession foking inta accaunl thot thbre is on obsence
of normal protit. The gross profif role refers to the oiginol sole nof lo lhe one being
. repossessed.

33. {d) -refer to Nos. 30 ond 32 for f urther discussion.

Foir volue before recon.ditioning costs (P3.000 - P300) P 2,700*
Less: Unrecovered cost -
lnstollment occounts receivoble,
unpoid bolonce
5,880 " 2,f20
P B,4OO
Less: Deferred gross profil (7O7"x P18,000....i.......

Goin on repossession ................. :P 180

* P2,700 is higher fhon the amount ot P2,400. The P2,700 is considered oheady as the
fok vqlue ot the dote of repossession (refer to the problem the phrose "ot thgt
time")

Ordinorily, hovtever, conservofism would suggest thot no more thon the vnrecovered
cosf, lhe difference betweeh lhe receivoble bolonce ond the deferred gross profit
bolonce, be ossigned lo lhe repossessed goods. No goin, thn, would be reported ot
the time of repossession: recognition of ony goin would owoif the sole of fhe
repossessed goods.

Any goin or loss on defoults ond repossessions is normatly recognized on the income
sfofemenf os on oddilion to or subfroclion from the reolized gross profif on rnstollmenf
soles. (Source: Advonced Accovnting by Allan R. Drebin)

Eventuolly, the goin would be recognized.

236 Chapter 4

34. (o)
(l) Goin (los) on repossession:
Estimoted Selling Price ......,... PI,700
Less: Normol profit (P 1,700 x 37%*l ..i.................. 629

Foir Morket Volue of Repossessed merchondise Pl,07l

Less: Unrecovered Cost:
lnstollment occounts receivoble - 201 1,
unpoid bolonce (P5,40O-P3,200) ?2,2ffi
Les: Defened gross profit-201I
(P2,2@x34%**l 748 1,452
Loss on repossession P( 381)(o)
*Gross profit rote in lhe,yeor
of repossession.
**Gross profit rote where the yeor
of instollment occounts receivoble
is reloted to.
Refer to No. 30 for further discussion on estimoted selling price.

Gross profil roles:

20t0 20n 20t2
lnstollment so|es........... P3BO,ffi0 P42,m0 P602,000
Less: Cost of instollment soles . 247,W 285,1n 379,260
Gross profit P133,000 Pr46,880 P222,740
Gross profit rote 35% 37%

(21 Reolized gross profit on insiollment soles -2012;

2010 soles 201 I soles 2012 soles

lnslollmenl occounls receivoble,
I ll12012 (lnstollmenl Soles) P24,020 P344,460 P602,000
Less: lnslollment occounls
receivoble 12/3112012 67,440 4l O.O9o

Decreose in receivobles....... P24,O2O P277,O20 Pl9l,9l0

Less: Defoults, unpoid bolonce 2,200
Colleclions in 2012................. P24,O2O P274,820 Pr9l,9l0
Multiplied by: Gross profit role 35% 34% 37%
Reolized gross profit in2012.. P8,&7.@ P93,438.80 P7t,W6.ZO pt72,812.filol
Reve nue Recogtt ilion = Ins t al I men t Sa les 237

3s. (b)
Estimoted selling price ofter reconditioning costs P 30,000
Less: Reconditioning costs ...........................,........... P7fi
Normol profit/gross profit {P30,000 x AV"*I ... 12,000 12,7fi
Foir morket volue of repossessed merchondise ... P 17,2ffi
Less: Unrecovered Cosi:
lnsfollment occounts receivoble - 201 l,
unpoid bolonce P 37,500
Less: Defened gross profit - 2Ol I
(P37,500 x 30%**) .................... 11,250 26,2fi
Loss on repossession................. ............: P( e,000)(b)
*Gross profit role in the yeor of repossession.
**Gross profitrotewhere theyeorof inslollme.nt occounts receivobleisreloted to.

Gross profit rotes: ' 201I 20t2

lnstollment soles P600,000 P750,000
Less: Cost of instollment soles 420,W 450,m0
1-
Gross profil
:Pl80,m0 P300,m0

Gross profit rote W" 4M"

Refer to No. 34 for further discussion on Estimoted Selling Price.

36. (d)
20ll soles 2012soles Totol
lnslollment soles .....................i............... P300,m0 P450,000
Less: Collection from 2011 soles 100,000
Write-off from 20ll soles 25,000
Collections trom 2Ol2soles ......... 50,m0 150,000
Write-offs trom 2012 soles ............. 7s,m0 25,m0
lnstollment occounts receivoble,
December3l,nl2 P 50,000 P275,W
Multiplied by: Gross profit rote W" 4V"
Defened gross profit, December3l, 2fl2 P 15,000 Pr 10,000 P125,000 (d)
238
, ., . Chapter 4

37. (d)
(l) Reolized gross profit:
Collections os to principol* ............
Multiplied by: Gross profit rote [l 007" - (P I 0,000/P I 6,0m)] . -----
37 .W"
' P2,328(dl
*Schedule of Collections:
(4)
(t) (2) (3) tH)'pil
[.s%xH)] ut). (2il lJnpoid
Dote Col/ections lnferest Pnncipol Bolonce
9/W2011 Pr6,000.00
el 12011 PI,600 P- Pr,600.00 14,400.00
toBllml1 r.600 7z.ffi 1,528.00 12,872.ffi
tlrcotn11 1,6m 64.36 r,s35.64 r r,336.35
n/31l20lt r,600 56.68 1,543.32 9,793.04
P6,400 P193.04 P6,m6.96

{2} ' Goin (loss} or repossession:

Volue of repossessed merchondise ...............
Less: Unrecovered Cost:
lnstollment occounts receivoble - 2012.
unpoid bolonce ................. P9,793
Less: Defened gross profit - 2012
(37.50%xP9,7931 ......... 3,672 6,121
Loss on repossession ...............,. P_Ll2ll (d)

38. (b)
(t) (2) (3) (4)
t%x ft) (t)-(2) (4)=(3)
Dofes Col/ection lnferesf Pincipol Unptd bqlolg=
9/go/11 P3,500,000
9/&/11 P1,600,m0 P-O- Pr,600,000 2,000,000
10131/1 220,W 20,000 *200,000 r,800,000
1vwl 218,@ 18,000 200,000 r,600,000
12/31t1 215,000 16,000 200,000 r.400,000
1/3v12 2r4,0oo l4,o0o
*Monthly collections os to principol.
200,000 r,200,000
Revenue Recognition * Installment Sales 239

3e. (c)
(t) {2) (3) (4)
t%x(4) (t) -(2) (4)-(s)
Dotes Collection lnteresllnc. Principol Unpoidbolonce
et3f,ill P3,600,000.00
9l30l1t Pr,600,000.00 P-o- Pr,600,000.00 2,000,000.00
1013111 211,1U.|5 20,000.00 r9r,164.15 r,808,835.85
I l/30/l 211,1U.15 l8,088.36 193,075.79 1,615,760.06
1213111 211,164.15 16,157.& 195,006.55 1,420,753.51
1131112 211,164.15 14,207.54 196,9s6.61 1,n3,796.90

40. (d)
Averogg omount owed, (P2,000,000 + P200O00) l'2=P1,100,000
lnterest poid: P3,600,W x 1 2% x 10 I 1 2 = P360,000
lnterest cost for lO-monlh period = P360,000 / P1,100,000 =32.73%
Interest role per ye or = 32 -7 57" I 11 O I 1 Z,l = 39 .28%

41. (o)
Foir Morket volue ofter reconditioning costs ........,. P6,500
Less: Reconditioning costs .......... 600

Foir Morket volue before reconditioning costs P5,900

Less: Unrecovered cost:
Unpoid bolonce {P I 8,000 - P4,000) ................... P 14,000
Less: Defened gross piofit (40%x P14,000)......... s,6Qq 8,400

Loss on reolizotion P2,500

The costof repossessed merchondise should omount to,P6,500 (P5,900 + P6001. it should be
noted lhol reconditioniong costs is invenlorioble. lncidentolly, the entries for repossessed
merchondise ore os follows:. '
Repossessed merchqndise (ol foir moftel
5,900

Repossessed merchondise (for reconditioning) 600

Cosh, AP, etc 600
 42. (d)
Reolized Gross Profit on lnstollment Soles in2012:
20l0soles: PlO,0@x22% P 2,2ffi
201 I soles: P50,000 x 25% 12,500
2012 soles: P45,000 x P28,2@ I (P2B,2W + p9l ,800) 10,575

P25,27s

Reolized Gross Profit on Soles in 201I plO,sOO

Less: Reolized Gross Profit in 2Qt2tor 2012 Soles: (p20,000 x25%) 5,000
Reolized Gross Profit in 201 I for 2010 soles P 5,500
Divided by: Colleclions in 201 I for 2010 sotes 25.000
Gross Profit % for 2010 soles 2ry"

43. (b)
Cost, Jonuory 1,201I ..............................:...... p500.000
Less: Collections including interest - 201 | 241,269
Collections including interest - 2012
Unrecovered Cost, December 31, 2012 P 17,462

Under lhe cosl recovery melhod, no income is recognr2ed on o sole untit the cosf of fhe
itern sod is iecovered through cosh recepfs. All cosh recefpfs, bofh interesf and principol
portions, ore opplied fint fo lhe cosf df fhe iterns sold. Then, dlt subsequenf receipls ore
reporled os revenue. Becouse oll cosls hove been recovered, the recognized reyenue
otter the cost recovery represenls income (rnteresf qnd reolized gross prolFifl. Ihis method
is used only when lhe circumsfonces sunoudning a so/e ore so uncerloin thot eorlier
recognition is impossible.

44. {d}
. Point of Delivery full Accruol Method / Iime of SoleJ: Revenue / income ore recognized ot
the lime of so,e ond cosls ore correspondingty charged. Ihe gross profit then is-p250,N0
(P400,000 - Pt50,000).

lnstollment Soles Mefhod: lncome is recognized os cosh is co/lecfed. The gross profit
reolized then is P62,500 Ft00,000 x (p250.000/p4OO,OOOil.

Cosl Recovery Method: No ,ncorne rs recognized on o sole until thecosf of fhe j/em sold
ts recovered through cosh recerpts. Ihe gross profit then is zero (p250,000 cosf less \TS,OOO
down poyment = P175,000 unrecovered cosf).

4s. (b)
lnstollment oles:
Cost of lnstottment Sotes: ?68,250 t (tOO%_35%) Pr0s,000 {b)
fl

F
46. (d)
' Cost of lnstollment Soles: P8O,00Ox (100%- 3fi7") .......... I49{qg (d}

47. (b)
Gross profit percentoge: (P95,000- P56,050) / P95,000
---!v(bl
48. (c)
Cost of instollment soles for 201 I lnstollment Soles P56,050
Less: Colleclions in 201I for2Ol I lnstollment Sieles 2.,W
Colleclions in2012for20l I lnstollmenf Solds
(batoncingfigwe) ..,......... $,7m
RGP on lnstollment Soles in 2012tor 201 I lnstollment Soles ......
-l.!.0,450.
*RGP on l/S in 2012
P16,050
Less: RGP on l/S in 2012 for 2010 l/S since Costof P49.600 {No. 2)
is olreody recovered in 201 I {equivolent to collection) ... 5,@
RGP on l/S in 201 2tor 2O1l lnstollment Soles P10,450

49. (d) - cost is not yet fully recovered, therefore, no piofit should be recognized.
Cost of instollment soles for 20lO lnstollmenl So|es.................... P49,ffi
Soles
Less: collections in 2010 for 2010 lnstollment .. 25,600
Unrecoveredcostin20l0 tor2}ll lnslollmentsoles P24,W

s0. (d)
Cost of instollment soles for 2010 lnstollment Soles P49,500
Less: Collections in 2010 for 2010 lnsiollment Soles 25,ffi
Collections in 201 I for 2010 lnstoliment Sotes 46,4W
RGP on l/S in 201 I for20l0 lnstollment Soles P22,4@
RGP on US in 201 I for 201 I l/S:
Cosl of inslollment soles for 201I lnstollment
Soles P55,050
Less: Collections in 201 I for20l I lstollment Soles n,w
Unrecovered Cost in 201 I for 2}ll t/S ...... P33,250 0
RGP on l/S in 201I P22,4@

51. (c)
(P3,600,000 - P2,400,00O) + P3,600,000 = 33 l/3%
(P3,600,000 (.20)+ [(3,600,000 (.80) ( 4/ 12]11 = P 1 .680,000 x 33 1 13% = P560,000
 242 Chapter 4

s2. (b)
i(ps,eoo,ooo (.20) + {p3,600,000 (.80 (8121- p2,4oo,ooo = p240,000

s3. (c)
' Nofs Since the colleclibility of the note is reosonobly osured, the occruolbosis
should be opplied. There, full gnoss proffis recognized in the yeorof sole.
Gross profit on sole:
PBl6,6l9
637,ffi
P179,119

54. (c) i
Totol lncome for 201l:
Gross profit (reolized) - No.53 P179,119
lnterest revenue - 4 rnonlhs: PBI 6,61 9 x lo%x 41 12 27,221
Totolincome for20l I P2c,6,U0

5s. (b)
Totol lncome for 2012:
Gross profit (reolized) - olreody recognized in 201 I
lnterest revenue -
B months in Yeor 1 (P81,662* x8ll2l
4 months in Yeor 2(P71,078* x 4112], .................23,693 78,1.U
Totol lncome tor 2O12
:P78,134
*Schedule bf Discount Amortizotion/lnterest lncome computotion:

(t) (2) (3)

' Net (4)
Foce Discounl
Amount Unomortized Amount omortization
Ye.or o f N o le i
Discounf (t)-(2) t1%x (3)
I P1,125,000 pgog,38r3 Pg',t5,6192 P81,662s
2 937,ffi zzeJtga 710,781 71,078

'P187,500 x 6 yeors = P1,125,000; everyyeor P187,500 should be deducted on

lhe pervious bolonce.
The present volue oisoles/receivobles: P I 87,500 x 4.3553 = PB I 6,51 9
3P1,125,000-P815.619
'(2)-(4)
tbi'scount omortizolion give rise to recognition of interest revenue/income.

I
t
I
I
$"t

I i
I
 243
Revenue Recognition - Installment Sales

56. (o)
Nofe; since ihb collectibiliiy of lhe nole connol be reosonobly ossured, lhe inslollmenl ssles
melhod should be opplied. Also, if lhe there is high degree of vncerlolnly os to collecfibilfi,
the cosl recovety melhod moy be used.
lnsiollment sole: Gross profil (Pl79,ll9lP8l6,5l9l =g ftounded|

Gloss profit eqrned in 201I (P0* x227"1 ........'..".........'..:":"""' ' P 0

'no colleclions in 2011.

s7. (o)
ioiot tncome for 201 l:
Gross profit eorned in 201 I (?O* x22%l PO

ry
lnterest revenue {refer to No. 54) 27.,221

Totolincome for 201 1 ..,......."..'..

58. (b)
Colleclions in 2O1 2 (August 31, 201 21 PtB7.s00
Less: lnterest revenue/income from Sepiember 1,201 I to August
3l,?0l2 (refer lo schedule of omorlizotion in No. 55) .' 81,662

Collection os io principol ......'.'.... P105,838

*'c'*;irotit%(ieferioNo.56}........i..........,.......'..l..,...... 2To

Grossprofitreolizedin2aQ.....'....:..'...... P 23,284
Add: lnterest revenue/income tor 2o12 (refer to No. 55) .....'---,. 78,1U
Totollncome for2A12 P t01,418

se. {b)
. if j Reolized gross profit in2ol2: 20ll soles 2Ol2 sotes Totol

lnstollment controct receivoble, | /l /2012

' (lnsiollment soles) ..'. P80,000 P200,000**
Less: lnstollment Controct Receivoble,
12131/2012 25,000 95,000

Decreose in inslollment occounls Rec. P55,000 Pr 05.000

Less: Defoulls, unpoid bolonce 6,000*

Collections P49,000 P105,000

Multiplied by:'Gross profit role 40% 48%

Reolized gross profit in 2012 P19,600 P 50,400 P70,000 (b)

*The omount of P6,000 debited to loss on repossession is simply lhe some with the
inslollmenl occounts receivqble (refer to por. I of the problem).
 Gross profit roie:
201 l: lnstollment soles P150,000
Less: Cost of lnstollment Soles:
Purchoses Pr00,Q00
Less: Merchondise lnventory,
12/31 10,000
.__zgpga
Gross profil P 6gpa
Gross profit roie {P60,000 / PI50,000) . ' 4ff7.,

2012: lnstollment Soles (Pl9B,50O + pl,50O,

trode-in) P200,000**
Less: Cost of lnstollment Soles:
Merchondise lnvenlory,
111/2012 P 10,000
Add: Purchoses 120,000
Cost of goods ovoiloble for sole Pr30,000
Less: Merchondise lnventory,
12t31/n12 26,000 104,000
Gross profit P 96,000

Gross profit rote {P96,000 / P2m,000} .

'*For purposes of computing lhe gross profil role, it would be besl not lo include lhe
lrode-in ond repossessed merchondise in the cosl of inslollmenl soles becouse including
them in lhe ovoiloble for sqle qnd ending invenlory (if hot yel soldt will dislort lhe grosi
profil rote becouse of lhe presence of mork-up on lhis inventory ond their voluolion.

12) Goin (loss) on repossession:

Approisedvolueofrepossessedmerchondise ......... p 2,5@
Less: Unrecovered Cost:
lnstollment Accounls Receivoble -
201l,unpoid bolonce P6,OOO
Less: Defened gross profit- 201I
(P6,000x40%)............... 2,M 3,500
Loss on repossession P{r,rm)(b)
Revenue Recognilion - Inslallment Sales 245

60. (b)
it i lnstollment Accounts Receivoble-20l l', December3l,2Ol2:
lnsiollment Soles - 201 I ........... P235,000
Less: Downpoyment { l /3 x P235,000) .................. 78,333
, Collections in 201 I 54.000
Defoults '...;............... 3,s80

lnslollment Accounts Receivoble- 20l l, 12131 /2011 ....... P 99,087

Less: Collections in 2012 ......,.... 77,W
Defoults .........'..."..... 4,650
lnstollment Accounts Receivoble - 201 I ,12131 l2ol2 ..-.-'. !_17,437_lb)

(21, Reolized gross profit in2O12:

201I soies 2012soles Total
Collections in2012:
Downpoyment ( I /3 x P330,@0) Pl10,000
lnstollment .....:.....................:..... P77,W 70,009
Collections in2O12 P77,M
' 44%P180,000
Multiplied by:gross profit rote* ... 45%

Reolized gross profit on instollmen't

soles ........... P33,BBO r PBr,000 PI I4,BBO

Add: Gross profit on Cosh Soles -2012

P37,000 x 45% ........................ 16,650

Reolized gross profit in 2012......... Pr3r,530 (b)

*Gross profit rote: ........:................. 201I sales 20I2soles
Soles: 201I - {P27,000 +
P235,0m) ..:.................. P262,W
2Ot2- (P37,000 +
P330,000) P367,000
Less: Cost of goods sold:
lnveniory, Jonuory L..... P - P 45,500
Add: Purchoses .............. ' 193,@ 215,000
Cosi of goods ovoiloble
for sole P193,000 P260,500
Less: lnventory,
December3 I ............. 45,500 60,000
Cost of goods sold ....... Pr47J00 200,500
Gross profit Pl14,500 PT56,500

Gross profit rote 45%

:-
246 Chapter 4

61. td)
201I sales 2?l2sales Totol
lnstollment controct receivoble,
9 l3O/2U I {lnstollment Soles},....... Pr00,000 P375,000
Less: lnstollment coniroct receivoble,
. 9/3f'12012 12,500 r50.000
Decreose in instollment controct
, receivoble P 82,500 P225,W
Less: Defoults, unpoid bolonce 6,2fi
Colleclions in2O12 P 81,250 P225,W
Multiplied by: Gross profit rote ............: wo* 457*
Reol2ed gros profit on instollmeni soles ? 40,625 PI0l,250 Pr4r,875

Add: Gross profit on Cosh scles -2012

P3 I 2,500 x 30% ............." 93.750
Reqlized gross profit in 2Ol2 P2ss,525 (d)

*Gross profit rotes:

201I Soles (prioryeorsoles) : Defened groSs profit-201I soles, g/30/201I
I nsto m e n toc
I I eiv o b re -
i,?Isr?!8ii
: P 50,000
= :50%
Pr00,000
20l2Soles:
lnventory, Sept. 30, 201 I ........... ? 62sffi
Add: Purchoses ........... ......;.............'..... 435,000
Repossessions ........ :.-........................ 2,ffi
Cosl of goods ovoiloble for sqle Ps00,m0
Less: lnventory of new ond repossessed
merchondise, of Sept. 30, 2012..... 75,000
Cost of goods sold - 2A12 ..:....... P425,000
Less: Cost of the Regulor: Soles -2012
P312,500 x 70% ............ 218,750
Cost of lnstollment Soles - 2012 P20!2fr.
lnsloltment Sqles - 2012 P375,000
Less: Cost of lnsiollment Sqles 206,250
Gross profil
:P168,750
Gross profit rote (Pl 68,75O1P375,000) ........... 45%
Revenue Recognition - Installment Sales 247

62. (o)
Vcitue of Repossessed Merchondise .................,............... P2.500
Less: Unrecovered Cost:
lnstollment Controct Receivoble - 2Ol 1,
unpoid bolonce
Less: Defened gross Profit - 201 I
(P6,250x50%) .................... "......:... 3'125 3,125
Loss on repossession ................. P{ 62s){o)

Conecting Enlry: (o)

Defened gross profit - 20 I I .................,...............'...'..... 3,125
Loss on repossession (P3,750 - P625) '.......... 3,125
Enlry Mode:
Repossessions 2,500
Loss on repossessions ..................."... 3,750
lnstqllmeni conlroct receivoble - 2011'................'.'... 6,250
Should be/Conect Entry:
Repossessions 2.500
Defened gross profit - 201 I ............................ 3,125
Loss on repossessions . ..............::::,:::::::::::::::::::::: 625
lnstollmeni conlroct receivoble - 201 I .'...........'.."..... 6,250

(d)
ileiolized gross profit in 2Ol2 (refer to No. 5 I ) ...........,.......'..'..' P235,625
Less: Loss6n rebossession (refer io No. 62ir ...........'.. 625
Selling ond odministroiive expenses .............:..'... 97,5@
Net lncome ll3z,s00 (d)

64. (b)
(l) Totol Soles lor 2Ol2:
Cosh soles (equivolent to I 007.) ..r ir...r.......r.!:........:':::. P 90,000
nsiollment sbles P446,400 / I 24% = equivolent to I Offid
I
( 360,000
Chorges Soles {P I 80,000 I I 20% = equivolent to I @%) r50,000
P600,000 (b)

(2t Cost of lnstollment Soles for 2012:

Merchondise lnVentory, 12131 1201 I ................. P 52,500
Add: Purchoses ............. 390,000
Freightln 3,000
Repossessed Merchondise ..................'................. 15,m0
P460,500

70.s00
P390,m0

360/600
Cost of instollment soles ...............i...............r..!.r.!..r..i, P234.000 (b)
f.

248 Chaprer 4

6s. (c)
20lgsotes 201 I soles 2012soles
lnstollment Accounts Receivoble, I /l
.2912(lnslollmentSotes)......;........ P446AW
20ll:P39,360+32% Pr23,000
2010 : P22,2W +fi%
Less: lnstollment Accounts
Receivoble,'12./31/2012 l5.OO0 45,000 274,W
Decreose in lnstollment Accounts
Receivoble P59,000 P 78,000 P176,M
Less: Defoults, unpoid bolonce rB.0@ 21.000
Colleciions in2O12 P41,000 P 57,000 P176,4@(c)

66. (d)
(l l 2010 soles 201I soles 2OI2 soles Totot
Reolized gross profit in 2012:
lnstollment Accounts
Receivoble, l/1/2012
(lnslollment Soles) .......... Pl10.000 P250.000 P420,000
Less: lnstollment Accounts
Receivoble. 12/31 /2012 28,000 e2.009 238,000
Decreose in lnslollment
Accts. Rec,....................... p 82,000 Pr58,000 . P182,000
Less: Defoults, unpoid bolonce 5,000
Write-off 9,000 2,800 0
Colleclions in 2012 p 68,000 PI55,200 PI82,000
Mullipiied by: gross profit rote 40%* 3g%* 397"*
Reolized gross profit in 2Ol2 P 27,200 P58,976 P70,980 jr57.lj1(d)
*Gross profit
roles: 20ta 2on + 2or2
lnstollment soles P400,000 P44o,OOO P42o,OOO
Less: Cosi of lnstollment
So1es............ 24o,OO0 272,8AA 2s6,iAO
Gross profit P160,000 P|67,zffi Fl63,300
Gross profrl roles 40% g8% 3970
Revenue Recognilion - Installnrent Sules 249

l2l Goin (loss) on repossession:

Approised volue ofier recondilioning costs........................:...... P4,000
Less: Reconditioning costs............ 400
Approised volue before recondiiioning cosls P3,6OO
Less: Unrecovered Cosls:
lnslollment occounls receivoble - 2010,
unpoidbolonce .............. P5,000
Less: Defened gross profit
- 20'10
{P5,000 x ao%l 2,ow 3,000

Goin on repossession _t__99. (d)

Ordinorily, however, conservolism would suggesf lhof no more thon the vnrecovered
cost, the difference belween the receivoble bolonce ond the deferred gross profit
bolonce, be ossigned lo fhe repossessed goods. No gorrL then, wovld be reporled ot
lhe fime of the repossession; recognition of ony goin would owoit thb sole of lhe
repossessed goods.

67. (o)
Conecling enlry for write-offs: -
Defened gross profil- 2Ol0 ............... 3,600
Defenedgrossprofit-201 1................... ......1...... 1,064
Operoling expenses... ....................:........ 1,,664
Enlry Mode:
Operoling expenses....... I 1,800
lnslollmenl Conlrocl Receivoble - 20 I 0 ...;.;...........,.. 9,000
lnslollmenl Conkoct Receivoble - 201I .................... 2,800
Should be / Conect Entry:
Operoting expenses (doublful occounts) 7,136
Delened gross profil - 2010 (P9,000 x 407o1 ............ 3,600
Delened gross profil - 201I (P2.800 x fi%l ........................:..... 1,064
lnstollmeni .occounls receivoble - 2010 ..................... 9,000
lnslollmenl occounts receivoble - 201I ........... 2,800
.
68. (c)
Soles ......... P126,000
. lnstollment Soles qt Cosh Soles (P265,000 / 1.06) .................... 250,000'
TololSoles of Cosh Soles Price P376,000
Less: Cost of Goods Sold:
Merchondise lnventory, I l1 lll ......................... P 58,060
Add: Purchoses............................"..... 2@,300
Cost of goods ovoiloble for sole..................... P267,360
Less: Merchondise lnventory, 12131 l l l ............ 33,300 2U,O&
Gross Profii Pl41,940

Gross Profit PercentogetPl4l940 | P376,ffi0 3775% (cl

250 Chapter 4

69. (o)
(ll t2t (3) t4t (sl
lT"x (41 (l)
- (31 {4}- (3} (5) - (ll
Unpoid Bol. Unpoid Bol.
Cosh lnlerest Principol- Equivolent Conlroct Soles
lnslolliTenl Colleclions lRcome Colleclion Cosh Soles Price. ' Price
(lsl Mo.l Time of Sole P 1,000.00"* Pr,060.00
(lsl Mo.l lime of Sole P265.001 P265.00 735.00 795.00
(2nd Mo.l I 53.00'* P 7.35 45.65 689.35 742.@
(3rd Mo.| 2 s3.00 6.89 46.1 I 643.24 689.m
(4th Mo.l 3 .' 53.00 6.43 46.57 596.67 636.00

en.&_ (ol
*Pl,060 )257"= P255.00.
**(P1,060
-P2651l15 months = P53/month.
***Pl,060 + 1.06 Pl,@0.
=

70. (c)
(l ) Nel goin or loss o.n defoulted cosl neis:
Morkel volue of Repossessed Merchondise:
Repossessed inventory P230
Add bock Repossessed soles...... 180 P 410.00
. Less: Unrecovered Cost:
Unpoid bolonce [refer to No. 59].................... P 596.67
Less: Defened Gross profit 1P596.67 x37.79.1 225.24 371.43
Net goin on defoulled controci 38.57 (c)

(2) Reolized Gross profit for 201 I on:

Regulor-CoshSoles: P125,000 x37.757o P47,565.00
lnstollmenl Soles:
Downpoyments. (P265,00O x 257").......,..!......... P66,250.00
lnstollment Collections os to Principol:
Cosh Collections on defoulled
ond live controcls :... P79.341.00
Less: lnleresl on defoulted
Controcts included in
the Pl59 collections
(Pts I3 monlhs) -
ffiEii.l y $'; 20 67

controcls......... 9,252.84* 70,067.49

Colleclions or lnstollment Soles P136,317,49
Multiplied by: Gross Profii Percentoge. 37.757" 1,459.86
Totol Reolized Gross Profit for 201I P99,O24,86 (cl
*As indicoled per
droblem the omount ot P9,252.84 orises from inleresl on live conlrocls
omounling to P249,@0, computed os follows:

lnslollment Soles .......... P265,m0

Less: Fivb conlrocts defoulied totolling 1,060

Live Controcts of Controct Soles Price P263,940

Dividend by: Cosh Soles Price Equivolent 106%

LiveControctsotCoshSolesPriceEquivolent...........' P249,W
Divided by: Five Controcls of Cosh Soles Price
Equivolenl (P1,060 + 1.06) ..........' P r,000

Nufiber of Live Controcts with Five Controcts eoch ..'............ 249

lnterest Computotion on lnterest of Live Controcti per P1,000:

(r l (21 (31 (41 (51

17"xj41 {ll- (2} (4}- (11 {5} - (rl

Unpoid Bol. Unpoid Bol.
Cosh lnleresi Principol Equivolenl Controct
lnstollmenl Colleclions lncome Collectionr-Cosh Soles Price Soles Price

(lst Mo.) Time of Sqle P1,000.@ P1,060.00

(lst Mo.l Tirne of Sole P265.00 735.00 795.00
(2nd Mo.f lst lnsl. 53.00 P7.35 P45.65 689.35 742.@
(3rd Mo.) 2nd lnst. 53.00 6.89 46.1I 643.24 689.m
(4th Mo.l 3rd lnsl. 53.00 6.43 46.57 596.67 636.00
(5lh Mo.l 4lh lnst. 53.00 5.97 47.03 549.64 583.00
(6lh Mo.l sth lnst. 53.00 s.sg 47.so 502.14 530.m
(7lh Mo.! 6ih lnsl. 53.00 5.02 47.98 454.16 477.@

P3a!.

Therefore, the interest collected on live controct would be:

249 x P37 .1 6 =, P9,252.84