Advanced accounting by guerrero peralta CHAPTER 9

142 Chapter CHAPTER MULTIPLE CHOICE ANSWERS AND SOLUTIONS 9-1: d Deferred gross profit, Dec 31 (before adjustment) P1,050,000 Less: Deferred gross profit, Dec 31 (after adjustment) Installment accounts receivable, Dec 31 P1,500,000 Gross profit rate ÷ 25% 375,000 Realized gross profit, 2008 P 675,000 OR Installment Sales (P1,050,000 ÷ 25%) Less: Installment account receivable, Dec 31 Collection Gross profit rate Realized gross profit, 2008 P4,200,000 1,500,00 P2,700,000 _X 25% P 675,000 9-2: a Deferred gross profit, before adjustment Deferred gross profit, end 2006 (6,000 X 35%) 2007 (61,500 X 33%) 2008 (195,000 X 30%) Realized gross profit, December 31, 2008 (Total – P107,235) 2006 P7,230 2007 P 60,750 2008 P 120,150 2,100 20,295 P5,130 P 40,455 _58,500 P 61,650 9-3: c Deferred gross profit balance, end Divide by Gross profit rate based on sales (25% ÷ 125%) P 202,000 ÷ 20% Installment Accounts Receivable, end Collection Installment Sales P1,010,000 _440,000 P1,450,000 Sales Cost of installment sales Deferred gross profit Less: Deferred gross profit, end Installment accounts receivables, 12/31 (1,000,000-400,000) Gross profit rate (300,000 ÷ 1,000,000) P1,000,000 700,000 P 300,000 9-4: b Realized gross profit Operating expenses Operating income Interest and financing charges P 600,000 _X 30% 180,000 P 120,000 _80,000 40,000 100,000 Net income P 140,000 Installment Sales 9-5: a Market value of repossessed merchandise (before reconditioning cost) Less: unrecovered cost Unpaid balance (80,000-30,000) Less: Deferred gross profit (50,000X20%) Loss on repossession P 30,000 P 50,000 _10,000 40,000 (P 10,000) 9-6: a Installment sales Less: collection on installment sales Installment account receivables, 12/31/08 Gross profit rate (500,000 ÷ 1,000,000) P1,000,000 200,000 800,000 _X 50% Deferred gross profit, 12/31/08 P 400,000 OR Deferred gross profit (1,000,000-500,000) Less: Realized Gross Profit (200,000 X 50%) Deferred gross profit, 12/31/08 P500,000 _100,000 P400,000 Fair value of repossessed merchandise Less: unrecovered cost Unpaid balance Less: Deferred gross profit (200,000 X 32.5%) Loss on repossession P120,000 9-7: d P 200,000 _65,000 _135,000 (P 15,000) 9-8: b Realized gross profit: Collections: Downpayment Installment received (205,000-200,000) Total Gross Profit Rate (150,000 ÷ 240,000) P 35,000 _5,000 40,000 _X 62.5% Realized gross profit P 25,000 Gain (loss) on repossession: Appraised value of repossessed merchandise Less:unrecovered cost unpaid balance less: deferred gross profit (200,000 X 62.5%) Gain on repossession P165,000 P 200,000 125,000 75,000 P 90,000 144 Chapter 9-9: b Sch.1 Date Apr-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Collection 750 625 625 625 625 Applying to Interest Applying to principal 125.00 115.00 104.80 94.40 P439.20 750.00 500.00 510.00 520.20 _530.60 P2,810.80 Gain (loss) on repossession: Market value of repossessed merchandise Less:unrecovered cost unpaid balance of principal (sch 1) less: deferred gross profit (4,189 X 35%) Loss on repossession (rounded) Balance of principal P7,000.00 6,250.00 5,750.00 5,240.00 4,719.80 4,189.00 P 1,875 P 4,189 1,466 Realized gross profit: Collection applying to principal (sch 1) Gross profit rate Realized gross profit _2,723 (P 848) P2,810.80 X 35% P 983.78 9-10: c Year of Sales 2007 2008 Deferred gross profit (Sales X Gross Profit Rate) 2007 (P300,000 X 30%) 2008 (P450,000 X 40%) 2007: Accounts written-off (P25,000 X 30%) Realized gross profit (P100,000 X 30%) 2008: Accounts written-off, 2007 (P75,000 X 30%) Accounts written-off, 2008 (P50,000 X 40%) Realized gross profit, 2007 (P50,000 X 30%) Realized gross profit, 2008 (P150,000 X 40%) Deferred gross profit, 12/31/08 (P75,000) ( 60,000) ( 15,000) ( 60,000) P 15,000 P 60,000 Deferred gross profit, 2007 (P1,050,000 - 735,000) Realized gross profit, 2007 (P150,000 X 30%) Deferred gross profit, 12/31/07 Realized gross profit, 2008 (P390,000-90,000) X 30% Deferred gross profit, 12/31/08 P 315,000 ( 45,000) 270,000 ( 90,000) P 180,000 P 90,000 P 180,000 ( 7,500) ( 30,000) ( 22,500) 9-11: a Installment Sales 9-12: a Deferred gross profit (Sales - Cost of Installment Sales) Realized gross profit, 2007 (P630,000 X 40%) Realized gross profit, 2007 (P450,000 X 40%) Realized gross profit, 2008 (P900,000 X 30%) Deferred gross profit, 12/31/08 (P228,000) 2007 P 480,000 ( 252,000) ( 180,000) _ P 48,000 2008 P450,000 ( 270,000) P180,000 9-13: c Trade-in value Less: Actual value Estimated selling price Less:reconditioning cost normal gross profit (25,000 X 15%) Overallowance Realized gross profit: Collection: Downpayment Actual value of merchandise-Trade In Installment collected (5,000 X 3) P 30,000 P 25,000 P 1,250 3,750 _5,000 P 5,000 20,000 _15,000 20,000 P 10,000 P 40,000 Gross Profit Rate: Sales Overallowance Net Sales Cost of Installment Sales Gross Profit Gross Profit Rate (15,000 ÷ 75,000) P 85,000 ( 10,000) P 75,000 _60,000 P 15,000 _X 20% Realized Gross Profit P 8,000 9-14: c Collection excluding interest (P900,000-P300,000) Gross profit rate (P1,200,000 ÷ P3,600,000) P 600,000 X 33 1/3% Realized Gross Profit, December 31, 2008 Add Interests Total Revenue 200,000 300,000 P 500,000 Wholesale value of repossessed merchandise Less: unrecovered cost Unpaid balance: Sales, 10/1/07 P 24,000 Collection, 2007 (6,000 ÷ 2,000) ( 8,000) Collection, 2008 (1,000 X 7) ( 7,000) P 9-15: a P 9,000 4,000 Deferred gross profit (9,000 X 25%) Loss on repossession 2,250 _6,750 (P 2,750) 146 Chapter 9-16: a Trade-in Value (P300 X 6) Less: Actual value Estimated selling price (P315 X 6) Less:Reconditioning cost (P25 X 6) Gross Profit (P1,890 X 10%) Over-allowance P 1,800 P 1,890 P150 _189 _339 _1,551 P 249 9-17: a Deferred gross profit, before adjustment Deferred gross profit, end 2007: P32,500 X (30% ÷ 130%) 2008: P180,000 X (33 1/3% ÷ 133 1/3%) P 76,000 P 7,500 _45,000 52,500 Realized gross profit on installment sales P 23,500 Unpaid balance (P27,000 - P16,000) Multiply by gross profit rate (P734,400 ÷ P2,160,000) P 11,000 _X 34% Deferred gross profit to be cancelled on repossession P 9-18: d 3,740 9-19: b Collection: 2007 Downpayment 2008 Installment collection Interest Total P 600,000 600,000 540,000 P1,740,000 Cost to be recovered P4,000,000 Since cost is not yet fully recovered, then no gross profit is to be recognized in 2008 9-20: d Regular Sales Cost of regular sales Gross profit on regular sales Add: Realized gross profit on installment sales 2007 (25,000 X 50%) 2008 (62,500 X 55%) Total realized gross profit Operating expenses Net income, 12/31/08 P 187,500 112,500 P 75,000 P12,500 _34,375 46,875 121,875 _31,250 P 90,625 Installment Sales 9-21: a Installment sales – 2007 Collections: Down payment (20% x 785,000) Installment (40% x 628,000) Installment accounts receivable 2007, 12/31/07 Gross profit rate on sales Deferred gross profit- 2007, 12/31/07 P785,000 P157,000 251,200 408,200 376,800 35/135 P 97,689 9-22: a Regular sales Cost of regular sales Gross profit on regular sales Realized gross profit on installment sales: Installment sales (1,093,750 x 240%) Installment accounts receivable-12/31/08 Collections Gross profit on rate on sales Total realized gross profit Operating expenses (1,137,500 x 70%) Net income P1,575,000 1,050,000 525,000 2,625,000 1,575,000 1,050,000 140/240 612,500 1,137,500 796,250 P 341,250 9-23: a Regular sales Cost of regular sales Gross profit on regular sales Realized gross profit on installment sales: Collections excluding Interest (312,000 – 24,000)288,000 Gross profit rate (270,000/900,000) 30% Total realized gross profit Loss on repossession Fair value of repossessed merchandise 54,000 Less: Unrecovered cost (100,000 x 70%) 70,000 Total realized GP after loss on repossession Less: Operating expenses 72,000 Installment accounts written-off (44,000 x 70) 30,800 Net operating income Interest income Net income P375,000 215,000 160,000 86,400 246,400 ( 16,000) 230,400 102,800 127,600 24,000 P151,600 148_ Chapter SOLUTIONS TO PROBLEMS Problem – Journal Entries: 2006 Installment A/R–2006 104,000 Installment A/R–2007 – Installment A/R–2008 – Installment Sales 104,000 Cost of Installment Sales Inventory 64,480 Cash Installment A/R–2006 Installment A/R–2007 Installment A/R–2008 Interest Revenue 66,980 – 116,000 – P21,736 2007: P29,120 X 38 = P71,920 X 41 = Total RGP P11,066 29,987 P40,553 2008: P15,000 X 38 = P26,680 X 41 = P76,230 X 39 = P 5,700 10,939 29,730 73,810 125,520 – – 21,736 121,000 68,440 57,200 – 9,780 Computations: 2006: P57,200 X 38 = – – 121,000 68,440 21,736 2008 116,000 64,480 Installment Sales 104,000 Cost of Installment Sales 64,480 Deferred Gross Profit–2006 39,520 Deferred Gross Profit–2007 – Deferred Gross Profit–2008 – Deferred Gross Profit–2006 Deferred Gross Profit–2007 Deferred Gross Profit–2008 Realized Gross Profit 2007 73,810 145,460 29,120 71,920 _ 24,480 116,000 15,000 26,680 76,230 27,550 121,000 68,440 – 47,560 – 11,066 29,487 – 40,553 73,810 – – 47,190 5,700 10,939 29,730 46,369 Total RGP P46,369 Installment Sales 149 2007: 2008: Problem – Inventory 45,200 Cash Notes Receivable 2007 (P32,000 + P62,000 + 3,600) 97,600 Unearned Interest Revenue (P7,167 + P3,600) Installment Sales Cost of Installment Sales (P45,200 – P2,000 inventory increase) .43,200 Inventory Cash 35,600 Notes Receivable 2007 Unearned Interest Revenue 2007 .3,600 Interest Revenue Installment Sales 86,833 Cost of Installment Sales Deferred Gross Profit on Installment Sales–2007 Deferred Gross Profit on Installment Sales–2007 .16,080* Realized Gross Profit on Installment Sales *Gross profit percentage: 50.25% (P43,633 ÷ P86,833) 5025 x 32,000 = P16,080 Inventory 52,020 Cash Notes Receivable–2008 .89,5001 Unearned Interest Revenue Installment Sales 45,200 10,767 86,833 43,200 35,600 3,600 43,200 43,633 16,080 52,020 11,9552 77,545 160,000 + (P50,000 + P5,500) – P26,000* = 89,500 *2007 Notes receivable collected in 2008 2Interest revenue from 2007 notes: P7,167 – P5,579 = P1,588 Interest revenue from 2008 notes: P5,500 – P1,588 = P3,912 Discount on notes receivable at end of 2008 P 8,043 Interest revenue from 2008 notes (see above) 3,912 Total discount at time of sale .P11,955 Cost of Installment Sales (P52,020 – P8,000) .44,020 Inventory Cash 55,500 Notes Receivable–2007 (P62,000 – P36,000) Notes Receivable–2008 * P89,500 – P60,000 = P29,500 Discount on Notes Receivable–2007 1,588 Discount on Notes Receivable–2008 3,912 Interest Revenue Installment Sales 77,545 Cost of Installment Sales 44,020 26,000 29,500* 5,500 44,020 Deferred Gross Profit on Installment Sales–2008 Deferred Gross Profit on Installment Sales–2007 (P26,000 – P1,538 = P24,412; P24,412 x 5025) .12,267 Deferred Gross Profit on Installment Sales–2008 .11,062* Realized Gross Profit on Installment Sales profit percentage: 43.23% (P33,525 ¸ P77,545) 4323 x (P29,500 – P3,912) = P11,062 150 Problem – 2006: Gross profit rate = Deferred gross profit, 1/1 ––––––––––––––––––––– = Install contracts rec'l, 1/1 P24,000 ––––––– = P60,000 40% 2007: Gross profit rate = Deferred gross profit, 1/1 P24,000 ––––––––––––––––––––– = ––––––– = Install contracts rec'l, 1/1 P140,000 42% 2008: Gross profit rate Gross profit =––––––––––––– Installment sales = P86,000 ––––––––––= P200,000 Journal Entries: Accounts Receivable Sales Installment Contracts Receivable – 2008 Installment Sales Cost of Installment Sales Shipments on Installment Sales Purchases Cash Selling Expenses Cash Cash Accounts Receivable Installment Contracts Receivable – 2006 Installment Contracts Receivable – 2007 Installment Contracts Receivable – 2008 Adjusting Entries: Installment Sales Cost of Installment Sales Deferred Gross Profit on Installment sales – 2008 Deferred Gross Profit – 2006 (P40,000 x 40%) Deferred Gross Profit – 2007 (P80,000 x 42%) Deferred Gross Profit – 2008 (P110,000 x 43%) Realized Gross Profit Doubtful Accounts Expense (1/4 x 1% x P600,000) Allowance for Doubtful Accounts Closing Entries: Sales Merchandise Inventory, December 31 Shipments on Installment Sales Merchandise Inventory, January 33,525 23,329 Chapter 43% 600,000 600,000 200,000 200,000 114,000 114,000 476,000 476,000 210,000 210,000 790,000 560,000 40,000 80,000 110,000 200,000 114,000 86,000 16,000 33,600 47,300 96,900 1,500 1,500 600,000 260,000 114,000 240,000 Purchases Selling Expenses Doubtful Accounts Expense Income Summary Realized Gross profit Income Summary Income Summary Retained Earnings Installment Sales 151 Good Buy Mart Income Statement Year Ended December 31, 2008 Sales Cost of sales: Merchandise inventory, January Purchases Cost of goods available for sale Less Shipments on installment sales Cost of goods available for regular sales Less Merchandise inventory, December 31 Gross profit on regular sales Add Realized gross profit on installment sales (Schedule 1) Total realized gross profit Operating expenses: Selling expenses Doubtful accounts expense Net income 476,000 210,000 1,500 46,500 96,900 96,900 143,400 143,400 P600,000 P240,000 476,000 716,000 114,000 602,000 260,000 210,000 1,500 342,000 258,000 96,900 354,900 211,500 P143,400 Schedule Collections Multiply by Gross profit rate Realized gross profit 2006 P40,000 40% P16,000 Years of Installment Sales 2007 2008 P80,000 P110,000 42% 43% P33,600 P 47,300 Total P 96,900 Good Buy Mart Balance Sheet December 31, 2008 A s s e t s Cash Merchandise inventory Accounts receivable Allowance for doubtful accounts Installment contracts receivable – 2006 Installment contracts receivable – 2007 Installment contracts receivable – 2008 Other assets Total Assets Liabilities and Equity Liabilities: P144,000 260,000 P 62,000 3,500 58,500 20,000 60,000 90,000 200,000 P832,500 Accounts payable Deferred gross profit on installment sales – 2006 Deferred gross profit on installment sales – 2007 Deferred gross profit on installment sales – 2008 Total Liabilities Equity: Capital stock Retained earnings 700,600 Total Liabilities and Equity P 60,000 8,000 25,200 38,700 131,900 P406,000 294,600 P832,500 Chapter 152 Problem – 2007: GP rate = 30% Deferred gross profit, 1/1 ––––––––––––––––––––– = = P21,600 + P1,200 –––––––––––––––– Install contracts rec'l, 1/1 2008: GP rate = 35% Gross profit –––––––––––––– P24,000 + P52,000 = P150,000 – P97,500 –––––––––––––––– Installment sales = = P150,000 Installment Sales Cost of Installment Sales Deferred Gross Profit, 2008 Deferred Gross profit, 2007 Deferred Gross Profit, 2008 Realized Gross Profit P22,800 ––––––– = P76,000 = P52,500 –––––––– = P150,000 150,000 97,500 52,500 14,400 25,900 40,300 Computation: Installment contracts receivable, 1/1 Less Installment contracts receivable, 12/31 Total credit for the period Less Credit representing repossession Credit representing collections Multiply by Gross profit rate Realized gross profit 2007 Sales P76,000 24,000 52,000 4,000 P48,000 30% P14,400 Sales Realized Gross Profit Loss on Repossession Cost of Sales Selling and Administrative Expenses Income Summary Income Summary Retained Earnings Apple Company 2008 Sales P150,000 76,000 74,000 – P 74,000 35% P 25,900 Total P 40,300 212,000 40,300 400 165,000 66,000 20,900 20,900 20,900 Income Statement Year Ended December 31, 2008 Sales Cost of sales Gross profit on regular sales Add Realized gross profit on installment sales (Schedule 1) Total realized gross profit Less Loss on repossession Total realized gross profit after adjustment for loss on repossession Selling and administrative expenses Net income Installment Sales 153 P212,000 165,000 47,000 40,300 87,300 400 86,900 66,000 P 20,900 Problem – Schedule Installment contracts receivable, 1/1 Less Installment contracts receivable, 12/31 Total credit for the period Less Credit representing repossession Credit representing collections Multiply by Gross profit rate Realized gross profit 2007 Sales P76 000 24,000 52,000 4,000 P48,000 30% P14,400 2008 Sales P150,000 76,000 74,000 – P 74,000 35% P 25,900 Total P40,300 Problem – Cost of Installment Sales Shipments on Installment Sales 54,400 Installment Sales Cost of Installment Sales Deferred Gross Profit, 2008 80,000 54,400 54,400 25,600 Gross profit = P25,600 ÷ P80,000 = 32% Deferred Gross Profit, 2007 Deferred Gross Profit, 2008 Realized Gross Profit 14,000 8,000 22,000 Computation: Installment contracts receivable, 1/1 Less Installment contracts receivable, 12/31 2007 Sales P82,000 _ 36,000 2008 Sales P 80,000 _55,000 Total Total credit for the period Less Credit representing repossession Credit representing collections Multiply by Gross profit rate Realized gross profit 46,000 6,000 P40,000 35%* P14,000 25,000 _ – P 25,000 _32% P 8,000 P 22,000 DGP, 1/1 P28,700 (26,600 + 2,100) *2007 Gross profit rate= ––––––– = ––––––– = ICR, 1/1 P82,000 (36,000 + 40,000 + 6,000) 154 35% Chapter Sales Merchandise Inventory, December 31 Shipments on Installment Sales Merchandise Inventory, January Purchases Repossessed Merchandise Loss on Repossession Operating Expenses Income Summary 200,000 52,000 54,400 Realized Gross Profit Income Summary 22,000 Income Summary Retained Earnings 31,500 60,000 180,000 3,000 900 53,000 9,500 22,000 31,500 PPG Discount Center, Inc Income Statement Year Ended December 31, 2008 Sales Cost of sales: Inventory, January P 60,000 Purchases 180,000 Repossessed merchandise 3,000 Cost of goods available for sale 243,000 Less Shipments on installment sales _54,400 Cost of goods available for regular sales Less Inventory, December 31 _52,000 Gross profit Less Deferred gross profit on installment sales, 2008 Realized gross profit, 2008 Regular P200,000 Installment P80,000 Total P280,000 188,600 _136,600 P 63,400 54,400 25,600 191,000 89,000 17,600 8,000 17,600 71,400 Add Realized gross profit on 2007 installment sales Total realized gross profit Less Loss on repossession Total realized gross profit after adjustment for loss on repossession Operating expenses Net income 14,000 22,000 _900 14,000 85,400 900 P21,100 84,500 _53,000 P31,500 Installment Sales 155 Problem – London Products Schedule of Cost of Goods Sold Year Ended December 31, 2008 Merchandise inventory, January Purchases Freight-in Repossessed merchandise Cost of goods available for sale Less Merchandise inventory, December 31 Cost of goods sold London Products Schedule of Allocation of Cost of Goods Sold Year Ended December 31, 2008 Cash sales Charge sales Installment sales Amount P60,000 120,000 300,000 ÷ 120% ÷ 125% On Cash Price Basis P 60,000 100,000 240,000 Ratio to Total 60/400 100/400 240/400 P 400,000 P 48,000 238,000 12,000 14,000 312,000 52,000 P260,000 Allocated Cost P 39,000 65,000 156,000 P260,000 London Products Income Statement Year Ended December 31, 2008 Sales Cost of goods sold Gross profit Less Unrealized gross profit: On installment contracts receivable,12/31 (192,000 x 144/300) Installment Charge Total Sales Sales P480,000 P 300,000 P120,000 260,000 156,000 65,000 P 220,000 P 144,000 P 55,000 92,160 92,160 Cash Sales P 60,000 39,000 P 21,000 Realized gross profit Add Realized gross profit on prior years' sales (Schedule 1): 2006 2007 Total realized gross profit Less Loss on repossession (Schedule 2) Total realized gross profit after adjustment for loss on repossession Less Operating expenses Net income 19,200 14,700 127,840 51,840 33,900 161,740 33,900 85,740 10,200 10,200 151,540 93,000 P 58,540 P 75,540 156 Chapter Schedule 2006 Installment contracts receivable, January 1: 2006 – P32,000 ÷ 40% 2007 – P56,000 ÷ 35% Less Installment contracts receivable, December 31 Total credits Less Credit representing repossession Total collections Multiply by Gross profit rate Realized gross profit 2007 P80,000 _22,000 58,000 _10,000 P48,000 _40% P19,200 P160,000 90,000 70,000 28,000 P 42,000 _35% P 14,700 2006 P 2,000 2007 P12,000 Total P 14,000 10,000 28,000 38,000 Schedule Fair market value of repossessed merchandise Less Unrecovered cost: Unpaid balance Less Unrealized profit – 2006 – P10,000 x40% 2007 – P28,000 x35% Balances Gain (loss) on repossession 4,000 6,000 P(4,000) 9,800 13,800 18,200 24,200 P( 6,200) P( 10,200) Problem – 2007 2007 2007 installment sales (P400,000 x 42%*) P 168,000 2008: 2007 installment sales (P173,000 x 42%) 2008 installment sales (P560,000 x 38.5%*) 2008 P 72,660 215,600 Deferred gross profit P 168,000 P 288,260 *Computation of Gross profit percentages (see next page) 2007 Installment sales P2,210,000 Less Trade-in allowances (P226,000 – P158,000) _– Adjusted installment sales 2,210,000 Cost of sales: Inventories, January (new) – Purchases (new) 1,701,800 Repossessed merchandise – Cost of goods available for sale 1,701,800 2008 P3,100,000 68,000 _3,032,000 420,000 1,767,000 _83,000* 2,270,000 Installment Sales 157 Less: Inventories, December 31 – New merchandise 420,000 Repossessed merchandise _– Total 420,000 Cost of sales 1,281,800 Gross profit P 928,200 Gross profit percentages *2007 : P195,000 x 20%=P39,000 2008 : P110,000 x 40% =_44,000 P83,000 Uncollectible installment contracts expense, per books Correct Uncollectible installment contracts expense: Fair market value of repossessed merchandise – 2007 sales (P195,000 x 20%) P 39,000 2008 sales (P110,000 x 40%) 44,000 Unrecovered cost – 2007 sales [P105,000 x (100% – 42%)] 60,900 2008 sales [P82,000 x (100% – 38.5%)] 50,430 Adjustment to Uncollectible installment contracts expense 42% 358,820 46,500 405,320 _1,864,680 P1,167,320 38.5% P 99,000 P 83,000 111,330 28,330 P 70,670 Installment Sales P3,032,000 _1,864,680 1,167,320 Total Sales P3,237,000 _2,022,680 1,214,320 Fortune Sales Corporation Income Statement Year Ended December 31, 2008 Cash Sales Sales P205,000 Cost of sales _158,000 Gross profit P 47,000 Less Unrealized gross profit on 2005 installment sales (Schedule 1) Realized gross profit on 2008 sales Add Realized gross profit on 2007 installment sales (Schedule 2) Total realized gross profit Less Uncollectible installment contracts expense Total realized gross profit after adjustment Operating expenses Net income 247,170 920,150 247,170 967,150 _51,240 971,390 _28,330 P 943,060 _51,240 1,018,390 _28,330 990,060 592,960 P 397,100 158 Chapter Schedule Installment contracts receivable 2008, December 31 Installment contracts receivable 2008 defaulted Total Multiply by 2008 gross profit percentage Unrealized gross profit on 2008 installment sales P 560,000 _82,000 P 642,000 _38.5% P 247,170 Schedule Installment contracts receivable 2007, January Less Installment contracts receivable 2007, December 31 Total credits for the period Less Installment contracts receivable 2007 defaulted Total collections Multiply by 2007 gross profit percentage Realized gross profit on 2007 installment sales P 400,000 173,000 227,000 105,000 P 122,000 _42% P 51,240 Apportionment of cost (P600,000) to Lots 1, and 3: Lot :2/3 x P360,000 Lot :2/3 x P240,000 Lot :1/3 1/3 x P240,000 Total cost P 240,000 160,000 P120,000 80,000 200,000 P 600,000 Journal Entries for 2007 March 31 Cash 36,000.00 Notes Receivable (Lot 2) 364,000.00 Lot 160,000.00 Deferred gain on Sale of Land 240,000.00 June 30 Cash 120,000.00 Notes Receivable (Lot 3) 720,000.00 Lot Deferred Gain on Sale of Land Cash 16,000.00 Interest Income (P364,000 x 12% x 3/12) Notes Receivable (Lot 2) September 30 Cash Interest Income (P358,920 x 12% x 3/12) Notes Receivable (Lot 2) 200,000.00 640,000.00 10,920.00 5,080.00 16,000.00 10,767.60 5,232.40 Installment Sales 159 October 31 Cash 72,000.00 Notes Receivable (Lot 1) 288,000.00 Lot Deferred Gain on Sale of Land December 31 Cash Notes Receivable (Lot 1) Notes Receivable (Lot 2) Notes Receivable (Lot 3) Interest Income 240,000.00 120,000.00 78,000.00 6,240.00 5,389.37 6,800.00 59,570.63 Computation: Total Collections P78,000.00 Apply to interest: Lot – P288,000.00 x 12% x 2/12 Lot – P353,687.60 x 12% x 3/12 59,570.63 Lot – P720,000.00 x 12% x 6/12 _ Apply to principal P18,429.37 Lot P12,000.00 Lot P16,000.00 Lot P50,000.00 10,610.63 _ P 5,389.37 _43,200.00 P 6,800.00 5,760.00 _ P 6,240.00 Deferred Gain on Sale of Land (Lot 1) 26,080.00 Deferred Gain on Sale of Land (Lot 2) 31,021.06 Deferred Gain on Sale of Land (Lot 3) 96,368.00 Realized Gain on Sale of Land 153,469.06 Computation: Collections applied to principal P126,800.00 Lot P78,240.00 Lot P51,701.77 Lot 3 Multiply by Gross profit rates: Lot – P120,000 ÷ P360,000 Lot – P240,000 ÷ P400,000 Lot – P640,000 ÷ P840,000 _ 60% _ _76% Realized gain P26,080.00 P31,021.06 P96,368.00 33.33% Lot (80% x P200,000) .160,000.00 Deferred Gain on Sale of Land (Lot 3) (P640,000 – P96,368) 543,632.00 Loss on Repossession 9,568.00 Notes Receivable (Lot 3) (P720,000 – P6,800) 160 713,200.00 Chapter Problem – Galaxy Investment Company Income Statement Year Ended December 31, 2008 Sales Schedule 1) Cost of sales (Schedule 2) Gross profit Less Sales commissions 221,000 Gross profit Less Deferred gross profit Installment Notes Balance P5,370,000 ––––––––––––––––––––– =–––––––––– Installment Sales P8,060,000 =67% x P6,227,000 P 8,060,000 1,612,000 6,448,000 6,227,000 4,172,090 Realized gross profit Expenses: Advertising and promotion P 730,000 Sales manager's salary 120,000 General office expenses (1/4 x P236,000) 59,000 Net profit 2,054,910 909,000 P 1,145,910 Schedule A lots : 26 @ P150,000 B lots : 32 @ P100,000 C lots : 12 @ P80,000 Schedule Total Sales Price P3,900,000 3,200,000 960,000 P8,060,000 Cash Received P1,650,000 800,000 240,000 P2,690,000 Installment Notes Balance P 2,250,000 2,400,000 720,000 P 5,370,000 Class A B C Total Number of Unit Lots Price 80 P150,000 100 100,000 120 80,000 300 Cost of tract: Cost of land Legal fees, etc Grading contract Water and sewerage system contract Paving contract General office expenses (3/4 x P236,000) Total Total Sales Value P12,000,000 10,000,000 9,600,000 P31,600,000 P 4,800,000 600,000 225,000 184,900 266,300 177,000 P 6,253,200 P6,253,200 Cost rate : –––––––––––– = 20% (rounded off) P31,600,000 Cost of sales (P8,060,000 x 20%) Installment Sales 161 P 1,612,000 Problem – 10 Rizal Company Income Statement Year Ended December 31, 2008 Installment sales [(P14,300 x 7) + (P725 x 4)] Cost of goods sold on installment (schedule 1) Gross profit Less Deferred gross profit on 19x8 sales (P103,000 – P21,000 = P82,000 x 23%*) Realized gross profit on 2008 sales Add Realized gross profit on prior years' sales – 2006 : P60,000 x 33-1/3* 2007 : P115,000 x 35%* Total realized gross profit Less Loss on repossession (Schedule 4) Total realized gross profit after adjustment General and administrative expenses Net income (loss) P103,000 79,310 23,690 18,860 4,830 P20,000 _40,250 60,250 65,080 33,100 31,980 50,000 P(18,020) *See Schedule Schedule Purchases (P10,500 x 8) Repossessed merchandise P 84,000 _2,520 Cost of goods available for sale Less Inventory, December 31 – Number of units on hand Multiply by average unit cost (Schedule 2) Cost of goods sold on installment 86,520 P 7,210 _7,210 P 79,310 Schedule Purchases during 2008 (P10,500 x 8) Add Repossessed merchandise Total divide by Number of units (8 + 4) Average unit cost P 84,000 _2,520 P 86,520 _ P 7,210 162 Chapter Schedule Sales – 2006 : P15,000 x 10 2007 : P14,000 x 20 2008 : P14,300 x P725 x Sales Cost of goods sold: Inventory, January Purchases Repossessed merchandise Cost of goods available for sale Less Inventory, December 31 Cost of goods sold Gross profit Gross profit rates 2006 2007 2008 P150,000 P280,000 _ 150,000 _ 280,000 100,100 2,900 103,000 – 120,000 _– 120,000 _20,000 100,000 P 50,000 33-1/3% 20,000 162,000 _– 182,000 _– 182,000 P 98,000 35% 84,000 _2,520 86,520 _7,210 79,310 P23,690 23% Schedule Fair market value of repossessed merchandise Less Unrecovered cost – Unpaid balance: Original sales amount (P14,000 x 4) P 56,000 Collections prior to repossession 1,200 P 2,520 Total Less Unrealized profit (P54,800 x 35%) Loss on repossession 54,800 _19,180 _35,620 P33,100 ... Net income 247,170 92 0,150 247,170 96 7,150 _51,240 97 1, 390 _28,330 P 94 3,060 _51,240 1,018, 390 _28,330 99 0,060 592 ,96 0 P 397 ,100 158 Chapter Schedule Installment contracts... 29, 120 71 ,92 0 _ 24,480 116,000 15,000 26,680 76,230 27,550 121,000 68,440 – 47,560 – 11,066 29, 487 – 40,553 73,810 – – 47, 190 5,700 10 ,93 9 29, 730 46,3 69 Total RGP P46,3 69 Installment Sales 1 49. .. Interest Revenue 66 ,98 0 – 116,000 – P21,736 2007: P 29, 120 X 38 = P71 ,92 0 X 41 = Total RGP P11,066 29, 987 P40,553 2008: P15,000 X 38 = P26,680 X 41 = P76,230 X 39 = P 5,700 10 ,93 9 29, 730 73,810 125,520