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Installment sales

III

IV Timing of Recognition of Gross Profit

V
Growth Sales Corporation sells on instalment basis and accounts for it using the
instalment method. Some information related to its operations are summarized
below
2009
P370,500

Cost of Sales
Gross Profit on sales

35%

2010
P855,36
0
34%

2011
P568,890
37%

Beginning and Ending Balance of Receivables


Installment Receivable
2009
Installment Receivable
2010
Installment Receivable
2011

January 1, 2011
P72,060

December 31, 2011

1,033,380

P208,320
327,270

During 2011, the company repossessed an inventory which had been sold in 2010
for P16,200 and P9,600 had been collected prior to default. GROWTH values the
repossessed goods at market value.
The resale price of the repossessed
merchandise amounted to P5,100 after incurring reconditioning cost of P1,000.
Compute for the total realized profit for the year 2011.
a. P511,010

b. 516,518

c. 518,762

d. 513,254

VI
The following data pertain to instalment sales of INNOVATEs store: Down payment
is 30%: Cost of instalment sales: 2009, P2,725,000; 2010, P3,925,000; 2011,
P4,840,000. Mark up on cost is 40%. Collections after down payment are: 45%
during the year of sale; 35% during the year after sale; 20% on the third year. What
is the amount of gross profit at December 31, 2010 to be presented in the
Statement of Financial Position?
a. P757,050

b. P659,400

c. P431,750

d. P604,450

VII
The following selected accounts appeared in the trial balance of Changes Company
as of December 31, 2011.
Installment receivable 2010
sales
Installment receivable 2011
sales
Inventory December 31,
2010
Purchases
Freight-in
Additional information:

P360,000

Loss on repossession

480,000

Installment Sales

168,000

Regular sales

1,307,000
25,000

Selling
Expenses

&

3,960

1,020,000
924,000
Adm.

276,000

Installment receivable 2010 sales, January 1, 2011


P342,000
Inventory of new and repossessed merchandise as of January 1, 2012-01-12
228,000
Mark-up on regular sales in 2011 is 10% lower than the gross profit percentage on
instalment sales in 2010.
There was an instalment account written-off amounting to P25,000 in 2011
pertaining to the 2011-sales. The write-off was made during the year and was
recorded correctly. Repossession was made during the middle of the year and was
recorded correctly. It was a 2010 sale and the corresponding unrecovered cost is
P11,160; related gross profit is P7,440. What is the net income for 2011.
a. P325,080

b. P317,640

c. P308,140

d. P321,600

VIII
Atlantic Company, which began operations on January 1, 2012 appropriately uses
the instalment method of accounting. The following data pertain to Atlantics
operations for year 2012:
Installment sales (before adjustment)
P 3,150,000
Operating expenses (before write-off and repossessions)
252,000
Regular sales
1,312,500
Cash collections on instalment sales (including interest of P84,000)
1,092,000
Cost of regular sales
752,500
Cost of instalment sales
2,205,000
Installment receivables written-off due to defaults
154,000
FMV of repossessed merchandise
189,000
Repossessed accounts
350,000
Actual value of trade-in Merchandise
280,000
Trade-in allowance
490,000
How much is the deferred gross profit at December 31, 2012? What is the net
income for the year ended December 31, 2012?
A. P353,500 ; P455,000
C. P287,000 ; P441,000
B. P353,500 ; P640,500
D. P287,000 ; P525,000
IX
The following data were taken from the records of Excel Company, before the
accounts are closed for the fiscal year ended March 31, 2012. The company sells
exclusively on instalment basis and uses instalment method of recognizing revenue.
For the year ended For the year ended For the year ended
March 31, 2010
March 31, 2011
March
31, 2012
Installment Sales
Costs of Goods Sold
682,500
Salaries Expense
Rent Expense
10,500
Balances as of
March 31, 2012
Installment AR, 2010
52,500
Installment AR, 2011
245.000
Installment AR, 2012
857,500
Deferred Gross Profit, 2010
52,500
Deferred Gross Profit, 2011
263,200
Deferred Gross Profit, 2012
367,500

P700,000
525,000

P875,000
525,000

21,000
10,500

22,750
10,500

March 31, 2010


437,500

March 31, 2011


210,000
665,000

109,375

P1,050,000

52,500
266,000

24,500

On January 2012, a customer defaulted and Excel Company repossessed


merchandise appraised at P4,375 after costs of reconditioning of P630. The
merchandise had been purchased in 2011 by a customer who still owed the
company a certain amount at the date of repossession.
How much was the net income for the fiscal year ended March 31, 2012?
A. P239,295
C. P236,950
B. P236,495
D. P239,750
X
Quest Company is a dealer of motorcycles. The company gives trade discounts of
20% to buyers who will purchase more than 5 motorcycles during its anniversary
blow-out in the month of June.
On June 1, Emerald purchased 6 units of motorcycles with a list price of P292,500
each.
Each motorcycle costs Quest P169,050.
Quest Company granted an
allowance of P144,000 to Emeralds used motorcycles as trade-in, the current
market value of each of the 6 automobiles traded-in is P31,500.
The balance is payable as follows: 40% at the time of purchase, the rest is payable
in 6 installment at the end of each quarter after month of sale. After paying 2
installments, Emerald defaulted and all the motorcycles sold to him were
repossessed. It would require total reconditioning costs of P27,000 for the items
repossessed from Emerald A 16% gross profit rate was usual from the sale of used
motorcycle.
Quest Company recognized a P1,800 loss as a result of the
repossession of motorcycles.
What was the estimated resale value per unit of motorcycle repossessed?
A. P70,500
C. P75,000
B. P60,381
D. P55,881

Long-Term Construction Contracts


On February 1, 2011, YK Construction Company obtained a contract to build an
athletic stadium. The stadium was to be built at a total cost of P5,400,000 and was
scheduled for completion by September 1, 2009. One clause of the contract stated
that YK was to deduct P15,000 from the P6,600,000 billing price for each week that
completion was delayed. Completion was delayed six weeks.
2011
2013
Cost Incurred each year
1,650,000
Estimated cost to complete
Contract billing each year
Cash collections each year
3,710,000
Selling and general expenses
70,000

2012

1,782,000

2,068,000

3,618,000
1,200,000
1,000,000

1,650,000
1,900,000
1,800,000

100,000

90,000

-03,410,000

1.

What is the net income for the year 2012 using the percentage of completion
method.
2. What is the balance of the Construction in Progress, net of Contract Billings
account at YKs December 31, 2012 balance sheet? (Using the Percentage of
Completion Method)
3. What is the balance of the Construction in Progress, net of Contract Billings
account at YKs December 31, 2012 balance sheet? (Using Zero-Profit
Method)
4. What is the amount of gross profit to be recognized for the year ended 2013?
(Using Percentage of Completion Method)
II
The XY Corporation began construction work under a three-year contract. The
contract price was P700,000. XY uses the percentage of completion method for
financial accounting purposes. The financial statement presentation relating to this
contract at December 31, 2011 is presented below:
Balance Sheet
Accounts Receivable contract billings
Construction in progress
P87,500
Less: Contract billings
82,250

P26,250
5,250

Income statement
Income (before tax) on the contract recognized in 2011 P17,500

The estimated gross profit on this contract


A. P740,000 B. P656,250
C. P691,250 D. P140,000
III
Sharp Company entered in a long-term project which begun in 2011 and continued
through 2012. Sharp uses the Percentage of Completion Method in recognizing
revenue. As of 2012, Sharp billed 40% of the total contract price. Some other
information about the project is as follows:
Construction cost
Construction in progress
Contract billings
Collection from the contract

2011
P85,000
92,000
100,000
100,000

2012
P155,000
280,000
350,000
250,000

Compute for the profit recognized in 2012 and percentage of completion as of year
2012.
A. P33,000; 32%
B. P125,000; 80%
C. P70,000; 25% D. P0-; 100%

IV
On July 1, 2011, BC Construction Corp., contracted to build an office building for FG,
Inc. for a total contract price of P2,437,500.
2011
2013
Contract cost incurred to date
2,625,000
Estimated costs to complete the contract
Billings to FG, Inc.

2012
187,500

1,500,000

1,687,500 1,000,000
-0375,000 1,375,000
687,500

How much is the Construction in progress account balance at December 31, 2012
using percentage of completion method?
How much is the Construction in progress account net of progress billings at
December 31, 2012, using the zero-profit method?
How much is the realized gross profit/(loss), using the percentage of completion
method in 2013?
V
TMJ Builders, Inc. entered in a construction contract on April 1, 2008 and uses the
percentage of completion method of accounting for it. The total contract price is
P10,000,000. TMJ received a down payment of P1,000,000 and a 5% interest
bearing note for the remaining balance. The client paid 60% of the balance plus
interest in December 31, 2008 and the rest in December 31, 2009. Estimated cost
at completion are P7,500,000 for 2008 and P8,000,000 for 2009.
How much income should TMJ recognize in this contract for the year ended
December 31, 2009?
VI
Complex Builders Construction Company entered into two construction jobs which
both commenced in 2011 (in thousands).
Project 1
Project 2

Construction Revenue
Construction cost incurred
Estimated future cost
General and administrative exp.

P10,500
6,000
3,000
500

Billing to clients

P7,140
7,000
1,560
250

6,300

Collections

5,600

6,000
5,000

Based on the information given, how much gross profit (loss) would Complex
Builders report on its 2011 income statement?
With Dependable Estimates
Without Dependable Estimates
A. (420,000)
(1,420,000)
B. 1,000,000
(1,420,000)
C. (420,000)
1,000,000
D. (1,420,000)
(420,000)
VII
On July 1, 2011, Face-off Company contracted to construct a factory building for
Destiny for a total contract price of P2,688,000. The building was completed by
December 1, 2013. The company uses the input measures cost to cost method.
2011

2012

2013
Contract cost incurred
P1,024,000
P832,000
P464,000
Estimated costs to complete the contract
1,024,000
464,000
Billings to Destiny

1,024,000

1,120,000

544,000

What is the amount of profit (loss) to be recognized for the year ended December
31, 2012? Excess of Construction in Progress over Progress Billings / Progress
Billings over Construction in Progress in 2011.
A. P294,000 ; P320,000 due to
asset
B. P(25,600) ; P320,000 current liability

C. P(25,600) ; P320,000 current


D. P25,600 ; P320,000 due from

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