Problem 1

At the end of 2013, Williams Realty Corporation sells for P1,200,000 a property that had a cost of P900,000. Terms of the sale were 10% down payment with the balance to be paid in monthly installments of P30,000.

Required: Indicate the profit to be recognized by Williams Realty Corporation in 2013 and in each of three years that follow assuming that:

1. First collections on the contract are considered a return on the property cost; after recovery of the cost, collections are regarded as profit.

2. First collections are considered realization of the profit on the contracts; after recovery of the profit, collections are regard as a return on cost.

3. Each collection is considered both a return of cost and of profit in the ration in which these are found in the sales price.

Problem 2

Makulit Corporation, which began business on January 1, 2012, appropriately uses the installment method for financial reporting purposes. The following data were obtained for 2012 and 2013.

2012 2013Installment Sales P 400,000 P 450,000Cost of Installment Sales 320,000 337,500General and administrative expenses 35,000 42,000Cash collections on installment Sales:2012 140,000 175,0002013 280,000

Requirements:

1. Gross Profit rate for 2012 and 2013.2. Realized gross profit for 2012 and 2013.3. Balance in the Deferred Gross Profit control account at December 31, 2012 and

December 31, 2013.

Problem 3

Ajax Company appropriately accounts for certain sales using the installment sales method. The perpetual inventory system is used. Information related to installment sales for 2012 and 2013 is as follows:

2012 2013Sales P 300,000 P 400,000Cost of Goods Sold 180,000 280,000Customer collections on

2012 sales 120,000 100,0002013 sales 150,000

Required:

1. Gross profit for 2012 and 20132. Calculate the amount of gross profit that would be recognized each year from

installment sales3. Necessary journal entries for each year.

Problem 4

The following selected accounts appeared in the trail balance of Alonzo Company as of December 31, 2013

Debit CreditInstallment Receivable, 2012 P 60,000Installment Receivable, 2013 800,000Merchandise Inventory 280,000Purchases 2,220,000Repossessed Merchandise 12,000Installment Sales P 1,700,000Regular Sales 1,540,000Deferred Gross Profit, 2012 216,000

Additional Information:

Installment Receivable, 2012 as of December 31, 2012Inventory of new & repossessed merchandise, December 31, 2013Gross Profit rate on regular sales during the yearRepossession was made during the year on a 2012 sale and the unpaid balance at the time of repossession was P 31,000. The value of the repossessed machine is P 12,000

Problem 5

The Wonderful Appliance Co. reports gross profit on the installment basis. The following data were available.

2011 2012 2013Installment Sales P 480,000 P 500,000 P 600,000Cost of Installment Sales 360,000 362,500 432,000Collections during the yearFrom 2011 installment receivable 90,000 150,000 145,000From 2012 installment receivable 95,000 160,000From 2013 installment receivable 125,000Defaults:Unpaid balance of 2011 installment receivable 25,000 30,000Value assigned to repossessed merchandise 13,000 12,000Unpaid balance of 2012 installment receivable 32,000Value assigned to repossessed merchandise 18,000

Required:

1. Gross profit rate for 2011, 2012 and 2013.2. Realized gross profit from 2011, 2012, 2013 sales.3. Loss/gain on repossession.4. Give all the entries for 2013 that are required in recording installment sales,

collections, defaults and repossessions, and the recognition of gross profit. Assume the use of perpetual inventory accounts.

5. Give all the entries for 2013 that are required in recording installment sales, collections, defaults and repossessions, and the recognition of gross profit. Assume the use of periodic inventory accounts.

Problem 6

Selina Company repossessed equipment in 2013 that it had for P120,000 on the installment basis on 2012. The company appropriately used the installment method for financial reporting purposes. At the time of repossession the installment receivable was P80,000 and the deferred gross profit P20,000. The company expects to resell the repossessed item for P40,000 after it incurs corresponding reconditioning costs of P1,000. The company’s normal gross profit margin on sales of used equipment of this type in 10%. The company also expects to incur a 3% sales commission on the resale.

Requirements:

1. Gross profit rate2. Gain or loss at the time of repossessions3. Entry to record the repossession