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INSTALLMENT SALES

1. Under IAS 18, what is the measurement of sales revenue from

installment sales?
a. Book value of the consideration received or receivable
b. Fair value of the consideration received or receivable
c. Cost of the consideration received or receivable
d. Carrying amount of the consideration received or receivable

2. Under IAS 18, if the company receives long-term non-interest

bearing note receivable as consideration for the sale of its
inventories on an installment basis, what is the measurement of
sales revenue from installment sales?
a. Face value of the note receivable
b. Maturity value of the note receivable
c. Present value of the note receivable
d. Undiscounted value of the note receivable

3. How shall the difference between the fair value and nominal amount
of the long-term note received as consideration in an installment
sale be accounted for?
a. It shall be recognized as expense on the date of sale.
b. It shall be recognized as gain on exchange on the date of sale.
c. It shall be recognized as interest revenue over the term of the
note using effective interest method.
d. It shall be recognized as interest revenue over the term of the
note using straight line method.

4. In an installment sales, if the collection of the note receivable

is not remote and not reasonably assured, how shall the gross profit
be recognized?
a. It shall be fully recognized on the date of sale using accrual
basis.
b. It shall be recognized in proportion to the amount of collection
under installment method.
c. It shall not be recognized.
d. It shall be recognized fully only on the year the receivable
is completely collected.

5. Under generally accepted accounting principles, what is the proper

presentation of deferred gross profit from installment sales?
a. It shall be presented as current liability.
b. It shall be presented as equity.
c. It shall be presented as deferred revenue.
d. It shall be presented as contra-installment receivable account.

6. If the fair value of the repossessed inventory cannot be estimated

reliably at the date of repossession, what shall be the basis of
initial measurement of repossessed inventory?
a. Estimated selling price less reconditioning costs less costs
to sell
b. Estimated selling price less reconditioning costs
c. Estimated selling price less costs to sell
d. Estimated selling price less reconditioning costs less costs
to sell less normal profit

COMPILED BY: PATRICK LOUIE E. REYES, CTT, MICB, RCA, CPA

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7. If the initial measurement of repossessed inventory is lower than

the net of defaulted installment receivable and its corresponding
deferred gross profit, the difference shall be recognized as
a. Loss on repossession to be presented as part of income from
continuing operation before tax
b. Deferred loss on repossession to be presented as current asset
c. Gain on repossession to be presented as part of other
comprehensive income
d. Deferred gain on repossession to be presented as current
liability

Item 8

The ABC Company recognizes profit on credit sales on installment basis.

At the end of 2021, before the accounts are adjusted, the ledger shows
the following:

Installment Accounts Receivable 2020 337,500

Installment Accounts Receivable 2021 525,000
Deferred Gross Profit 2020 185,000
Deferred Gross Profit 2021 272,500
Regular Sales 1,500,000
Cost of Regular Sales 960,000

Each year, the gross profit on installment sales was 8% lower than the
regular sales. In 2021, the gross profit on installment sales was 4%
higher than 2020.

8. How much is the total realized gross profit in 2021?

a. 229,500
b. 769,500
c. 181,000
d. 721,000

Items 9 and 10

Appliance Company reports gross profit on the installment basis. The

following data are available:

2018 2019 2020

Installment Sales 240,000 250,000 300,000
Cost of goods – installment sales 180,000 181,250 216,000
Gross profit 60,000 68,750 84,000

Collections
2018 installment contracts 45,000 75,000 72,500
2019 installment contracts 47,500 80,000
2020 installment contracts 62,500

Defaults
Unpaid balance of 2018 installment contracts 12,500 15,000
Value assigned to repossessed merchandise 6,500 6,000
Unpaid balance of 2019 installment contracts 16,000
Value assigned to repossessed merchandise 9,000

9. What is the realized gross profit before loss on repossession for

2020?
a. 49,775
b. 57,625
c. 48,975
d. 56,625

COMPILED BY: PATRICK LOUIE E. REYES, CTT, MICB, RCA, CPA

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10. What is the loss on repossession for 2020

a. 5,250
b. 2,600
c. 7,850
d. 9,000

Item 11

Davao Company uses the installment method of income recognition. The

entity provided the following pertinent data:

2018 2019 2020

Installment sales 300,000 375,000 360,000
Cost of goods sold 225,000 285,000 252,000

Balance of Deferred Gross Profit at year-end

2018 52,500 15,000 -
2019 54,000 9,000
2020 72,000

11. What is the total balance of the Installment Accounts Receivable

on December 31, 2020?
a. 270,000
b. 277,500
c. 279,000
d. 300,000

Item 12

Nikko Company, which began operations on January 5, 2018, appropriately

uses the installment method of revenue recognition. The following
information pertains to the operations for 2018 and 2019:

2018 2019
Sales 300,000 450,000
Collections from
2018 sales 100,000 50,000
2019 sales - 150,000
Accounts written off from
2018 sales 25,000 75,000
2019 sales - 150,000
Gross profit rates 30% 40%

12. What amount should be reported as deferred gross profit on December

31, 2019?
a. 75,000
b. 80,000
c. 112,000
d. 125,000

Item 13

On November 1, 2020, Speed Motor, which maintains a perpetual inventory

record, sold a new automobile to Rapids for P6,800,000. The cost of the
car to the seller was P5,205,000.

The buyer paid 30% down payment and received P640,000 allowance on an
old car traded, the balance being payable in equal monthly installment
payments commencing the month of sale.

The monthly amortization was P240,000 inclusive of 12% interest on the

unpaid amount of the obligation.

COMPILED BY: PATRICK LOUIE E. REYES, CTT, MICB, RCA, CPA

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The car traded-in has a wholesale value of P960,000 after expending

reconditioning costs of P180,000.

After paying three installments, the buyer defaulted and the car was
subsequently repossessed. When reacquired, the car was appraised to have
a fair value of P2,400,000.

13. How much is the realized gross profit on installment sales during
2020?
a. 820,596
b. 855,596
c. 885,000
d. 804,897

Items 14 and 15

On January 1, 2018, an entity sold a car to a customer at a price of

P400,000 with a production cost of P300,000. It is the entity’s policy
to employ installment method to recognize gross profit from installment
sales.

At the time of sale, the entity received cash amounting to 25% of the
selling price and old car with trade-in allowance of P50,000. The said
old car has fair value of P150,000. The customer issued a 5-year note
for the balance to be payable in equal annual installments every December
31 starting 2018. The note payable is interest-bearing with 10% rate due
on the remaining balance of the note.

The customer was able to pay the first annual installment and
corresponding interest due. However, after the payment of the second
interest due, the customer defaulted on the second annual installment
which resulted to the repossession of the car sold with appraised value
of P110,000. On December 31, 2019, the repossessed car was resold for
140,000 after reconditioning cost of P10,000.

14. What is the entity’s realized gross profit for the year ended
December 31, 2018?
a. 50,000
b. 120,000
c. 108,000
d. 128,000

15. What is the loss on repossession for the year ended December 31,
2019?
a. 30,000
b. 20,000
c. 10,000
d. 40,000

COMPILED BY: PATRICK LOUIE E. REYES, CTT, MICB, RCA, CPA

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Items 16 and 17

The chief accountant of Sony Appliances, Inc. provided the following

balances from its unadjusted trial balance for the year ended December
31, 2023:

01/01/2023 12/31/2023
Installment receivable – 2021 contract P 2,000,000 P 500,000
Installment receivable – 2022 contract 3,000,000 1,000,000
Installment receivable – 2023 contract 5,000,000
Deferred gross profit – 2021 contract 800,000
Deferred gross profit 2022 contract 1,800,000
New inventory 200,000 300,000
Net purchases (excluding freight-in) 5,000,000
Freight-in 100,000
Cash sales for the year 2023 2,000,000
Installment sales for the year 2023 8,000,000

The following additional notes are provided for the year ended December
31, 2023:

 The gross profit rate for 2023 installment sales is the average of
previous years’ gross profit rate on installment sales.
 On July 1, 2023, Sony wrote off 2021 installment receivable with
account balance of P300,000 because of the bankruptcy of the
customer. Sony records its impairment loss of installment
receivable using the direct write off method.
 On October 1, 2023, a 2022 contract customer defaulted on the
installment due which resulted to repossession of the inventory
with fair value of P100,000. The defaulted account has a balance
of P600,000.
 On November 1, 2023, the repossessed inventory was sold at a cash
price of P150,000 after reconditioning it at a cost of P20,000.
The sale of repossessed inventory is not yet reflected on the cash
sales stated above.
 The total operating expenses, exclusive of impairment loss and loss
on repossession, of Sony for the year ended December 31, 2023
amount to P400,000.

16. What is the net income to be reported by Sony, Inc. for the year
ended December 31, 2023?
a. 2,840,000
b. 3,130,000
c. 3,520,000
d. 2,980,000

17. What is the total adjusted deferred gross profit as of December

31, 2023, respectively?
a. 3,200,000
b. 3,300,000
c. 3,100,000
d. 3,400,000

COMPILED BY: PATRICK LOUIE E. REYES, CTT, MICB, RCA, CPA