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.
Installment Sales
Cost of Installment Sales
General and administrative expenses
Cash collections on installment Sales:
2012
2013

2012
P 400,000
320,000
35,000

2013
P 450,000
337,500
42,000

140,000

175,000
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:
Sales
Cost of Goods Sold
Customer collections on
2012 sales
2013 sales

2012
P 300,000
180,000

2013
P 400,000
280,000

120,000

100,000
150,000

Required:
1. Gross profit for 2012 and 2013
2. Calculate the amount of gross profit that would be recognized each year from
installment sales
3. 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
Installment Receivable, 2012
Installment Receivable, 2013
Merchandise Inventory
Purchases
Repossessed Merchandise
Installment Sales
Regular Sales
Deferred Gross Profit, 2012

Debit
P 60,000
800,000
280,000
2,220,000
12,000

Credit

P 1,700,000
1,540,000
216,000

Additional Information:
Installment Receivable, 2012 as of December 31, 2012
Inventory of new & repossessed merchandise, December 31, 2013
Gross Profit rate on regular sales during the year
Repossession 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.
Installment Sales
Cost of Installment Sales
Collections during the year
From 2011 installment receivable
From 2012 installment receivable
From 2013 installment receivable
Defaults:

2011
P 480,000
360,000

2012
P 500,000
362,500

2013
P 600,000
432,000

90,000

150,000
95,000

145,000
160,000
125,000

25,000
13,000

30,000
12,000
32,000
18,000

Unpaid balance of 2011 installment receivable

Value assigned to repossessed merchandise
Unpaid balance of 2012 installment receivable
Value assigned to repossessed merchandise

Required:
1.
2.
3.
4.

Gross profit rate for 2011, 2012 and 2013.

Realized gross profit from 2011, 2012, 2013 sales.
Loss/gain on repossession.
Give all the entries for 2013 that are required in
collections, defaults and repossessions, and the
Assume the use of perpetual inventory accounts.
5. Give all the entries for 2013 that are required in
collections, defaults and repossessions, and the
Assume the use of periodic inventory accounts.

recording installment sales,

recognition of gross profit.
recording installment sales,
recognition of gross profit.

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 companys 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 rate
2. Gain or loss at the time of repossessions
3. Entry to record the repossession