Chapter 6 Aa 1 Sol

CHAPTER 6
SUGGESTED ANSWERS
EXERCISES
Exercise 6-1
Installment Accounts Recl, Jan. 1
Less Installment Accounts Recl, Dec. 31
Collections
Gross profit rate (10,000/40,000; 4,400/20,000)
Realized Gross Profit
2006 sales
P 400,000
100,000
P 300,000
25%__
P 75,000
2007 sales
P 200,000
40,000
P 160,000
22%__
P 35,200
Deferred Gross Profit, beg

Less Deferred Gross Profit,end P100,000 x 25%, P40,000 x 22%
2006 sales
P 100,000
25,000
P 75,000
2007 sales
P 44,000
8,800
P 35,200
Exercise 6-2
Deferred Gross Profit 2006 [(P150,000 - -0- ) x 42%]
Deferred Gross Profit 2007 [(P480,000 - P120,000) x 37.5%]
Deferred Gross Profit 2008 [(P750,000 - P650,000) x 40%]*
* 66 2/3 166 2/3 = 40%
P300,000 40% = P750,000
63,000
135,000
40,000
238,000
Exercise 6-3
(G) (1) P50,000 - P11,000
(E) (2)
P10,500 - (25% of P20,000) = P5,500/P25,000
(F) (3)
P50,000 x 22%
(H) (4) P1,100/22%
(B) (5)
P80,000 x 75%
(A) (6) P80,000 x 25%
(C) (7)
P28,200 + P91,800
(D) (8) P28,200/P120,000
(9)
2006 = P10,000 x 22% = P 2,200
2007 = P50,000 x 25% = 12,500
2008 = P45,000 x 23.5% = 10,575
P 39,000
22%
P 11,000
P 5,000
P 60,000
P 20,000
P120,000
23.5%
P 25,275
Exercise 6-4
1.
Deferred Gross Profit 2006
Deferred gross profit before adj.
Deferred gross profit after adj.
(Inst. contract recl x GP rate)
Realized gross profit
4,500
14,000
69,000
2006
P 8,000
__3,500
P 4,500
87,500
2007
2008
P26,000
P105,000
_12,000
P14,000
__36,000
P 69,000
AA1 - Chapter 6 (2008 edition)

2
2.
page
Cash collections
2006 sales - P4,500 /35%
2007 sales - p14,000/30%
2008 sales - P69,000/40%
Total
Installment Contract Receivable, beg.

Less Installment Contract Receivable, end
Collections
P 12,857
46,667
172,500
P232,024
2006
P 22,857
10,000
P12,857
2007
2008
P86,667 P262,500
40,000
90,000
P46,667 P 172,500
Exercise 6-5
a.
b.
c.
d.
e.
f.
g.
h.
Installment Contracts Receivable

Installment Sales
250,000
Cash
120,000
Cost of Installment Sales

Inventory
50,000 / 250,000 = 20%
200,000
250,000
120,000
200,000
Inventory of Repossessed Merchandise

Deferred Gross Profit (P20,000 x 20%)
Loss on Repossession
14,500
4,000
1,500
Expenses
Cash
16,000
Installment Sales
Deferred Gross Profit
20,000
16,000
250,000
200,000
50,000

P120,000 x 20% = P 24,000
24,000

Expenses
Income Summary
24,000
24,000
16,000
1,500
6,500
Exercise 6-6
a.
Installment Sales
600,000
b.
405,000

Shipments on Installment Sales
600,000
405,000

3
c.
d.
e.
f.
page
Cash
360,000
360,000
Repossessed Merchandise
Deferred Gross Profit (P40,000 x 32.5%)
24,000
13,000
3,000
Installment Sales
195,000/600,000 = 32.5%
600,000

P360,000 x 32.5% = P117,000
117,000
40,000
405,000
195,000
117,000
Exercise 6-7
Requirement 1
a.
Cash
Interest Revenue
b.
c.
1,400
1,240
160
Deferred Gross Profit (P4,000 x 40%)
Loss on Defaults
2,000
1,600
400
4,000

Realized Gross Profit (P1,240 x 40%)
496
496
Requirement 2
a.
Loss on Defaults
Exercise 6-8
Repossessed Merchandise (P13,500/120%)
Deferred Gross Profit (P15,000 x 20%/120%)
Exercise 6-9
a.
Trade-In Merchandise
Installment Sales
2,000
1,600
3,600
11,250
2,500
1,250
15,000
180,000
420,000
600,000

4
page
Estimated resale
P280,000
price
Less:
Reconditioning cost
Gross profit
Estimated
realizable value
P30,000
_70,000
__100,000
P 180,000
Selling price
Less Overallowance
(P300,000 P180,000)
Adjusted selling
price
b.
c.
d.
P720,000
120,000
P600,000

Automobiles
500,000
Installment Sales
600,000

P180,000 x 16 2/3% = P30,000
Exercise 6 - 10
Correct entry
Allowance for Doubtful Installment Contract Recl
Deferred Gross Profit ( P 10,000 x 25/125 )
Installment Contract Receivable
Correcting Entry
Allowance for Doubtful Accounts
Exercise 6-11
Requirement 1
Oct. 31
Cash
Real Estate
GP rate = P150,000/P750,000 = 20%
Nov. 30
Cash
Interest Revenue
550,000 x 1% = 5,500
500,000
500,000
100,000
30,000
30,000
1,450
2,000
6,550
10,000
2,000
6,550
8,550
200,000
550,000
600,000
150,000
11,500
6,000
5,500

5
Dec. 31
page
Cash
Interest Revenue
P550,000 P6,000 = P544,000 x 1% = P5,440
31

P200,000 + P6,000 + P6,000 = P212,000 x 20%
Requirement 2
Oct. 31
Cash
Real Estate
GP rate = P150,000/P750,000 = 20%
Nov. 30
Dec. 31
31
11,440
6,000
5,440
42,400
42,400
200,000
550,000
600,000
150,000
Cash
Interest Revenue
P550,000 x 1% = P5,500
6,000
Cash
Interest Revenue
P550,000 P500 = P549,500 x 1% x = P5,495
6,000
500
5,500

P200,000 + P500 + P505 = P201,005 x 20% = P40,201
505
5,495
40,201
40,201
Exercise 6-12
Recovery of cost
P400,000
25,000

none
P 75,000
100,000/year
2008
2009
2010
2011 2014
none
none
P 25,000
P100,000/year
P400,000
P100,000
P 75,000
none
2008
2009 2014
P170,000
P 42,500
P230,000
P 57,500
a.
2008
2009
2010 2014
b.
c.
Exercise 6-13
1. Installment payment = P1,260,000/5.6502 = P223,000
2. Journal entries
Jan. 1
Cash
Notes Receivable (P223,000 x 10)
Real Estate Sales
Discount on Notes Receivable
140,000
2,230,000
1,400,000
970,000

6
Jan. 1
1
Dec. 31
31
31
Cost of Real Estate Sales

Inventory or Real Estate
c.
d.
850,000
850,000
Real Estate Sales

GP rate = P550,000/P1,400,000 = 39.29%
1,400,000
850,000
550,000
Cash
Notes Receivable
223,000

Interest Revenue
(P2,230,000 P970,000) x 12% = P151,200
151,200

[P140,000 + (P223,000- P151,200)] x 39.29%
83,216
Exercise 6-14
Requirement 1
a.
Land
Land Improvements
Cash
b.
page
Cash
Installment Sales
A 5 @ P400,000 = P2,000,000
B 8 @ P300,000 = 2,400,000
C 3 @ P200,000 =
600,000
Total
P5,000,000
223,000
83,216
13,440,000
3,360,000
16,800,000
750,000
4,250,000
5,000,000

3,000,000
Land
Land Improvements
Cost of sales = 16,800,000/28,000,000 = 60% x P5,000,000 = P3,000,000
Land
= 13,440,000/16,800,000 = 80% x P3,000,000 = P2,400,000
Land imp.
= 3,360,000/16,800,000 = 20% x P3,000,000 = P 600,000
Cash
Interest Revenue
Requirement 2
a.
Installment Sales
GP rate = 2,000,000/5,000,000 = 40%
b.
151, 200
2,400,000
600,000
1,400,000
1,300,000
100,000
5,000,000
3,000,000
2,000,000
820,000

7

(P750,000 + P1,300,000) x 40% = P820,000
Exercise 6-15
2005 Installment Accounts Receivable
Installment Sales
2006
820,000
4,700,000
47,000

Inventory
2,585,000
Cash
Installment Accounts Receivable
2,585,000
Installment Sales
4,700,000

Installment Sales
4,500,000

Inventory
2,610,000
Cash
Installment Accounts Receivable 2005
3,885,000
Installment Sales
4,500,000

2007
page
2,585,000
2,585,000
2,585,000
2,115,000
4,500,000
2,610,000
1,410,000
2,475,000
2,610,000
1,890,000
1,410,000
1,410,000

Installment Sales
5,800,000

Inventory
3,074,000
Cash
5,010,000
Installment Sales
5,800,000

Deferred Gross Profit 2006 P1,350,000 (P2,610,000-P2,475,000)
5,800,000
3,074,000
470,000
1,350,000
3,190,000
3,074,000
2,726,000
470,000
1,215,000
116,000

8
page

2008
1,801,000

Installment Sale
6,100,000

Inventory
3,111,000
Cash
5,545,000
Installment Sales
6,100,000

Deferred Gross Profit 2008 P3,355,000 P3,111,000
450,000
1,740,000
244,000
Gross Profit Recognized:

Full Accrual;
Cost Recovery Method
6,100,000
3,111,000
450,000
1,740,000
3,355,000
3,111,000
2,989,000
2005
P 2,150,000
0
2,434,000
2006
P 1,890,000
1,410,000
2007
P 2,726,000
1,801,000
2008
P 2,989,000
2,434,000
Exercise 6-16
Installment sales
Cost of Installment sales
Gross profit percentage
Cash collections:
2006 Sales
2007 Sales
2008 Sales
Realized gross profit on installment sales
2006
P 400,000
248,000
38%
2007
P 475,000
280.250
41%
2008
P 525,000
341,250
35%
128,000
232,000
114,000
28,000
218,500
162,750
80,250
112,000
COMPUTATIONS :
1
P 341,250 / . 65 = P 525,000
2
P 400,000 x . 62 = P 248,000
1 - (P 280,250 / P 475,000) = 41%
Gross profit recognized in 2008

All costs from 2006 sales are recovered
Cash received equals gross profit
All cost from 2008 sales are not recovered
Cash received goes to recover costs-gross profit
Gross profit reported in 2008 from 2006 sales
Costs of 2007 sales
P 80,250
28,000
0
P 52,250
P 280,250

9
Costs recovered in 2005

Costs to be recovered in 2005
Cash received related to 2007 sales
5
Cash collections in 2006 do not exceed costs of sales

Realized gross profit in 2006 = P 0
Cash collections for 2006 sales ( P 128,000 + 232,000 )

Costs of 2006 sales
Realized gross profit in 2007
Exercise 6-17
Requirement 1
2007
Jan.
1
Cash
Notes Receivable (2,197,100 x 10)
Real Estate Sales
Discount on Notes Receivable (2,347,100 - 1,500,000)
1
Dec 31
31
31
2008
Dec. 31
Cost of Real Estate Sales (240,000 x 30)

Inventory of Real Estate
Real Estate Sales
Deferred Gross Profit - Real Estate Sales
GP rate = 7,800,000/15,000,000 = 52%
page
114,000
166,250
P 218,500
P 360,000
248,000
P 112,000
1,500,000
21,971,000
15,000,000
8,471,000
7,200,000
7,200,000
15,000,000
7,200,000
7,800,000
Cash
Notes Receivable
2,197,100

1,350,000
Cash
Notes Receivable
2,197,100
31

(P13,500,000 - P2,197,100 + P1,350,000) x 10%
Requirement 2
Date
Cost
Collection
Jan. 01, 2007
7,200,000
1,500,000
Dec. 31, 2007
2,197,100
Dec. 31, 2008
2,197,100
Notes receivable (P21,971,000 - P2,197,100 - P2,197,100)

Less: Discount on notes receivable
2,197,100
1,350,000
2,197,100
1,265,300
1,265,300
Unrecovered Cost
5,700,000
3,502,900
1,305,800
P17,576,800

10
page
(P8,471,000-P1,350,000- P1,265,300)
Deferred gross profit (P7,800,000 + P1,350,000 + P1,265,300)
Unrecovered cost
P 5,855,700
10,415,300
16,271,000
P 1,305,800
Exercise 6-18
Selling Price
Cost of Land
Gross Profit
P 10,000,000
4,000,000
P 6,000,000
Gross Profit rate ( 600 / 1,000 )

a) Full accrual method
60%
2008
2009 2010
P 6,000,000
none
b) Installment method
2008
2009
2010
Collections
Cost Recovery
P 400,000
P 160,000
300,000
120,000
___300,000
___120,000
P1,000,000
P 400,000
Gross Profit
P 240,000
180,000
___180,000
P 600,000
Collections
Cost Recovery
P 400,000
P 400,000
300,000
___300,000
____-___
P 400,000
P 1,000,000
Gross Profit
P
300,000
___300,000
P 600,000
c) Cost Recovery method

2008
2009
2010
PROBLEMS
Problem 6-1
1.
2007 - (P12,000* + P228,000) (P240,000 + P520,000 + P40,000)
2008 - (P1,500,000 - P975,000) P1,500,000
*P40,000 P24,000 P4,000 = P12,000
2.a.Installment Sales
b.Deferred Gross Profit 2007 (520,000 x 30%)
Deferred Gross Profit 2008 (740,000 x 35%)
c.Sales
Cost of Sales
Gain or Loss on Repossession
Selling and Administrative Expenses
Income Summary
d.Income Tax
Income Tax Payable
30%
35%
1,500,000
975,000
525,000
156,000
259,000
415,000
2,120,000
415,000
1,650,000
4,000
660,000
221,000
77,350
77,350

11
page
e.Income Summary
Income Tax
77,350
d.Income Summary
Retained Earnings
Requirement 3
143,650
77,350
143,650
Excellent Co.
Statement of Recognized Income and Expenses
For the Year Ended December 31, 2008
Sales
Cost of Sales
Gross Profit
Realized Gross Profit on Installment Sales
Total Realized Gross Profit
Less Loss on Repossession
Realized Gross Profit after Loss on Repossession
Selling and Administrative Expenses
Net Income before Income Tax
Income Tax
Net Income
P 2,120,000
_1,650,000
P 470,000
__415,000
P 885,000
____4,000
P 881,000
__660,000
P 221,000
77,350
P143,650
Problem 6-2
Requirement 1 Computation of gross profit rates
2006 sales
2007 sales
2008 sales
P22,500/P50,0000
P96,000/P240,000
100% - (P310,000/P500,000)
45%
40%
38%
Requirement 2 Income Statement

Reliance Sales Corp.
Statement of Recognized income and Expenses
Sales
Cost of Sales:
Inventory, January 1
Purchases
Repossessed Mdse.
Cost of Goods Available
for Sale
Less Inventory, Dec. 31
Gross Profit
Less Deferred Gross Profit, including DGP on
repossessed merchandise
Realized Gross Profit on 2008 sales
Add Realized Gross Profit on 2006 & 2007 sales
Total
Regular
Sales
P 192,000
Installment
Sales
Total
P 500,000
P 692,000
P 30,000
455,000
__10,000
P495,000
__35,000
150,000
P 42,000
310,000
P 190,000
460,000
P 232,000
________
P 42,000
32,300
P 157,700
32,300
P 199,700
100,650
P 300,350

12
page
Less Loss on Repossession [3,000-(3,600+4,000+1,900)]

Realized gross profit after loss on Repossession
Operating Expenses
Net Loss
Analysis of gross profit on installment sales:
3,500
P 296,850
300,000
P 3,150
2006
Installment sales
Installment contracts recl, beginning
Installment contracts recl, end
Defaulted installment contracts recl
Collections
Gross profit rate
Deferred gross profit
Requirement 3 -
2007
2008
P500,000
P 50,000
( 5,000)
( 8,000)
P 37,000
45%
P 16,650
P240,000
( 20,000)
( 10,000)
P210,000
40%
P84,000
(80,000)
(5,000)
P415,000
38%
P157,700
P 2,250
P 8,000
P 30,400
Reliance Corp.
Statement of Financial Position
December 31, 2008
Assets
Cash
Inst. Contracts Recl, 2008
Accounts Recl
Inventory
Other Assets
P 25,000
80,000
20,000
5,000
40,000
35,000
52,000
Total Assets
P257,000
Liabilities & Shareholders Equity

Accounts Payable
P 75,000
Deferred Gross Profit, 2008
30,400
8,000
2,250
Ordinary Share Capital
100,000
Retained Earnings
41,350
________
Total Liabilities &
Shareolders Equity
P257,000
Problem 6-3
1. Schedule of Cost of Goods Sold
Inventory, January 1
Purchases, including freight-in
Cost of Goods Available for Sale
Less Inventory, December 31
Cost of Goods Sold
2. Schedule of Allocation of Cost of Goods Sold

Type of
Amount of
Amount Based
Sale
Sales
on Cash Sales
Cash
P 300,000
P 300,000
Charge
600,000
500,000
Installment
1,500,000
1,200,000
P 240,000
1,250,000
70,000
P1,560,000
260,000
P1,300,000
Ratio
60/400
100/400
240/400
Allocation of
CGS
P 195,000
325,000
780,000

13
page
P2,400,000
P2,000,000
P1,300,000
3.
Fuji Products
Statement of Recognized Income and Expenses
Cash
Charge
Installment
Sales
Sales
Sales
Sales
P300,000
P600,000
P 1,500,000
Cost of Sales
195,000
325,000
780,000
Gross Profit
P105,000
P275,000
P 720,000
Less Deferred Gross Profit, 2008 sales
460,800
Realized Gross Profit on 2008 sales
P105,000
P275,000
P 263,200
Add Realized Gross Profit on 2006 and 2007 sales
Total Realized Gross Profit
Less Loss on Repossession
Realized Gross Profit after loss on repossession
Operating Expenses, including bad debts
Income Tax
Net Income
Total
P2,400,000
1,300,000
P1,100,000
460,800
P 639,200
P 169,500
P 808,700
51,000
P 757,700
465,000
P 292,700
102,445
P 190,255
Problem 6-4
1. Computation of gross profit rates
2006 sales
160,000/400,000
2007 sales
167,200/440,000
2008 sales
163,800/420,000
2.
a.
b.
3.
a.
b.
4.
Adjusting entries
Installment Sales
2006 - (P110,000 P28,000 - P9,000 - P5,000) x 40% = P27,200
2007 - (P250,000 P92,000 - P2,800) x 38% = P58,976
2008 - (P420,000 P238,000) x 39% = P70,980
Correcting entries
Deferred Gross Profit - 2007 (2,800 x 38%)
Operating Expenses
Inventory of Repossessed Merchandise(4,000 - 400 - 600)
Operating Expenses
The indicated gain of P600 is ignored and deducted from the
market value of the repossessed merchandise.
Closing entries
40%
38%
39%
420,000
256,200
163,800
27,200
58,976
70,980
157,156
3,600
1,064
4,664
3,000
2,000
5,000

14
a.
b.
c.
d.

Operating Expenses
Income Summary
157,156
Income Tax
Income Tax Payable
21,987
Income Summary
Income Tax
21,987
Income Summary
Retained Earnings
40,833
Problem 6-5
(1)
Sept. 30
(2)
Oct. 31
Nov. 30
Dec. 31
Sept. 30
Oct. 31
Nov. 30
Dec. 31
(4)
Dec. 31
2006
Feb.
Problem 6-6
94,336
62,820
21,987
21,987
40,833
Cash
Piano
60/160 = 37.5%
48,000
432,000
300,000
180,000
Cash
Installment Revenue
48,000
Cash
Installment Revenue
48,000
Cash
Installment Revenue
48,000
Date
(3)
page
45,840
2,160
46,069
1,931
46,300
1,700
Collection
Interest
Principal
Reduction
48,000
48,000
48,000
48,000
432,000 x .005 = 2,160

386,160 x .005 = 1,931
340,091 x .005 = 1,700
48,000
45,840
46,069
46,300
Principal
Balance
480,000
432,000
386,160
340,091
293,791

69,828
48,000 + 45,840 +46,069 + 46,300 = 186,209 x 37.5% = 69,828
Repossessed Piano
69,828
56,000
36,724
5,207
97,931

15
(1)
page
Sales 1,260,000 + (2,650,000 1.06)

Cost of Sales:
Inventory, beginning
Purchases
P3,760,000
P 580,600
2,093,000
P2,673,600
333,000
Less: Inventory end

Gross Profit
Gross Profit Rate (1,419,400 / 3,760,000 )
(2)
Installment
Time of Sale
1
2
3
4
5
6
Equivalent Cash
Sales Price
10,000
(10,600 1.06)
7,350
(10,000 - 2,650)
6,893.50
(7,350 - (530 - 73.50)
6,432.43
(6,893.50 -(530 - 68.93)
5,966.75
(6,432.43-(530 - 64.32)
5,446.42
(5,966.75- (530 - 59.67)
5,021.38
(5,496.42- (530 - 54.96)
Contract
Balance
10,600
7,950
(10,000 - 2,650)
7,420
(7,950 -530)
6,890
(7,420 - 530)
6,360
(6,890 - 530)
5,830
(6,360 -530)
5,300
(5,830 -530)
(3) Installment Sales Price

Less: Installment on contract
10,600 - (10,600 1.06)
Installment sales at cash sales price
Less: Downpayment
Collections
Less interest
Balance
Less: DGP 5,966.75 x 37.75%
Repossessed Sales
Repossessed Inventory
Net gain on defaults
(4) Cash Sales (1,260,000 x 37.75%)

Installment Sales:
Downpayment 662,500 x 37.75%
Installments on defaults 1,383.30 x 37.75%
Installment Collections
2,340,600
P1,419,400
3,760,000
37.75%
Interest
Revenue
-
Cash
Collection
2,650
(10,600 x 25%)
73.50
530
(7,350 x 1%)
(7,950 15)
68.93
530
(6,893.50 x 1%)
(7,950 15)
64.32
530
(6,432.43x 1%)
(7,950 15)
59.67
530
(5,966.75 x 1%)
(7,950 15)
54.96
530
(5,496.42 x 1%)
(7,950 15)
50.21
530
(5,021.38 1%)
(7,950 15)
P10,600.00
600.00
P10.000.00
P 2,650.00
P 1,590.00
206.70
1,383.30
4,033.60
P5,966.70
2,252.45
2,300.00
1,800.00
P6,352.45
P 385.75
475,650
250,093.75
522.20
P791,820.00

16
page
Less Interest (P2,650,000 - P10,600) /1.06 x .03716

Balance
92,528.40
P699,291.60
x 37.75%
263,982.60
P990,248.60

Problem 6-7
1. Total installment sales
Less Installment Receivable - Dec. 31
Total Collections in Sales
P3,450,000
1,594,600
P1,855,400
2.
P1,855,400
Collections
GPR:
Total Selling price
Total Cost
GP
Total sales
RGP
P9,500,000
5,225,000
P4,275,000
9,500,000
45%__
P 834,930
3.
Installment Receivable - Dec. 31

GPR
Unrealized GP
P1,594,600
x 45%_
P 717,570
4.

Interest Income
Operating Expenses
Income Tax
Net Income
P 834,930
520,300
(682,130)
P 673,100
235,585
P437,515
Problem 6-8
Sales (Schedule 1)
Cost of Sales (43% of Sales, Schedule 2)
Gross Profit
Less Sales Commission
Gross profit excluding Commission
Less DGP 4,373,200 / 8,060,000 x 5,370,000
Expenses:
Advertising
Sales Managers Salaries
Gen. Operating Expenses (2,360,000 x 1/ 4 )
Net loss
P 8,060,000
3,465,800
P 4,594,200
221,000
P 4,373,200
2,913,658
P 1,459,542
P730,000
900,000
590,000 2,220,000
P 760,458
Schedule 1 Sales
A 26 @ 150,000
B 32 @ 100,000
C 12 @ 80,000
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 NR
Balance
2,250,000
2,400,000
720,000
5,370,000

17
page
Schedule 2 - Cost of Sales Rate

A
B
C
No. of lots
80
100
130
310
Unit
Sales Price
150,000
100,000
80,000
Cost of Land
Legal fees, etc.
Grading
Water & Sewerage
Paving expenses
General operating expenses (2,360,000 x 3/4)
Total cost
Total sales value
Cost of sales rate
Problem 6 - 9
2007 Inventory
Cash
P 4,800,000
600,000
2,250,000
1,849,000
2,663,000
1,770,000
P13,932,000
32,400.000
43%
45,200
45,200
Notes Receivable 2007 (32,000 + 62,000 + 3,600)

Discount on Notes Receivable - 2007 (7,167 + 3,600 )
Installment Sales
97,600
Cost of Installment Sales (45,200 - 2,000)

Inventory
43,200
Cash
Notes Receivable - 2007 (32,000 + 3,600)
35,600
Discount on Notes Receivable - 2007

Interest Revenue
2008
Total
Sales Value
P12,000,000
10,000,000
10,400,000
P32,400,000
10,767
86,833
43,200
35,600
3,600
3,600
Installment Sales
Deferred Gross Profit - 2007
86,833

43,633/86,833 = 50.25% x 32,000
16,080
Inventory
Cash
52,020
Notes Receivable - 2008 (160,000 + 50,000 + 5,500 - 26,000)

Discount on Notes Receivable 2008[8,043 + (5,500 - (7,167 - 5,579)]
89,500
43,200
43,633
16,080
52,020
11,955

18
page
Installment Sales
77,545
Cost of Installment Sales (52,020 - 8,000)

Inventory
44,020
Cash
Notes Receivable 2008 (89,500 - 60,000)
Notes Receivable 2007 (62,000 - 36,000)
55,500
Discount on Notes Receivable 2008 (5,500 - 1,588)

Discount on Notes Receivable 2007 (7,167 - 5,579)
Interest Revenue
3,912
1,588
Installment Sales
77,545
Deferred Gross Profit - 2008 (29,500 - 3,912 x 43.33%)

Deferred Gross Profit - 2007 (26,000 - 1,588 = 24,412 x 50.22%)
33,525/77,545 = 43.23%
11,062
11,267
Problem 6-10
2005
Jan. 1
2006
July 1
2007
Dec. 31
2008
Feb. 1
Feb. 1
44,020
29,500
26,000
5,500
44,020
33,525
23,329
Cash
Notes Receivable
Idle Plant
2,000,000
5,000,000
Cash
Notes Receivable
1,900,000
5,000,000
2,000,000
1,000,000
900,000
Cash
2,250,000
400,000
Notes Receivable
Interest. Revenue
2,250,000 - (5,000,000 - 2,000,000 - 1,900,000) = 1,150,000
Cash
Notes Receivable
Interest Revenue
2,825,000
Deferred Gross Profit (2,000,000 + 900,000 - 400,000)

Gain on Sale of Idle Plant
2,500,000
1,500,000
1,150,000
2,500,000
325,000
2,000,000

19
page
Interest Revenue
500,000
(900,000 + 750,000 + 325,000 = 1,975,000 - 1,150,000 - 325,000 = 500,000)
MULTIPLE CHOICE
1.
2008
Inst. Sales
8,765,625 68%
Inst. Rec. beg.
Inst. Rec. end
Collections
GPR
2
3
4
A
B
C
2007
P12,890,625
(9,728,125)
P 3,162,500
x 32%
P 1,012,000
P8,387,500
P1,512,500
(3,025,000) __________
P5,362,500
P1,512,500 P10,037,500
x 30%
x 28%
P1,608,750 P 423,500 P3,044,250
Deferred gross profit before adjustment

Deferred gross profit after adjustment
2007 - P16,250 x 30/130
2008 - P90,000 x 33 1/3 /133 1/3
Operating expenses
Net income
P38,000
P 3,750
22,500
Downpayment (P545,000 x .2)

Inst. Collections (P545,000 x 8 x .40)
Collections in year 1 on Year 1 Inst. Sales
Realized gross profit for Year 1
Installment sales - Year 2
Less Collections in Year 2
DP (P785,000 x .20)
Installment collection (P785,000 x .80 x .40)
Balance, end of Year 2
26,250
P11,750
1,500
P10,250
P109,000
174,400
P283,400
x 35/135
P 73,474
P785,000
P157,000
251,200
Unrealized GP on Year 2 installment sales at the end of Year 2
408,200
P376,800
x 35/135
P 97,689
Inst. Accts. Rec., end of year 3

On year 3 installment sales (P968,000 x .80 x .60)
On Year 2 installment sales (P785,000 x .80 x .25)
Total installment accounts receivable, end of Year 3
P464,640
157,000
P621,640
Total installment accounts receivable, end of Year 3

Total unrealized gross profit at end of Year 3
10
2006
P621,640
x 35/135
P161,166

20
page
11
2007 - 100% - (31,250/62,500) = 50% x P25,000

2008 - 100% - (45,000/100,000) = 55% x P62,500
Total
P12,500
34,375
P46,875
12
Sales - regular
Cost of sales - regular
Gross profit - regular
Realized gross profit (see D1)
Total gross profit
Selling expenses
Net income
P187,500
112,500
P 75,000
46,875
P121,875
31,250
P 90,625
13. D
P610,750 x 60%
P366,450
14
P306,520 x 40%
P122,608
15
2006 sales - P17,400 x 36%

2007 sales - P(205,400 - P200 - P25,800) x 39%
Total
16
Selling price
Cost (P200 x 61%)
Gain from sale of repossessed merchandise
17
(P344,460 - P67,440 - P2,200) x 34%
18
Market value of repossessed ref (P1,700 x 63%)

Unrecovered cost (P2,200 x 66%)
Loss on repossession
19
2006 sales - 100% - (247/380) = 35% x P24,020

2007 sales - see 6-17
2008 sales - 100% - (379,260/602,000 = 37%
37% x (P602,000-P410,090)
Total
P 6,264
69,966
P76,230
P 200
122
P 78
P93,438.80
P1,071
1,452
P 381
P
20
( P100,000 - P12,500 - P6,250) x 50%
21
( 375,000 - 150,000) x 45%*

*Installment sales
Invty. Beg.
P 62,500
Purchases
435,000
Repossessions
2,500
Mdse. Avail for sale
500,000
Less Invty. End
75,000
CGS
425,000
Cost of Regular sale ( 312,500 x 70% )
218,750
Gross profit on Installment sales
Gross profit rate on Installment sales (168,750/375,000) = 45%
8,407.00
93,438.80
71,006.70
P172,852.50
P40,625
P101,250
P 375,000
206,250

21
22
(3,750 - (6,250 x 50%)
23
2006 sales - P108,750 x 25%

2007 sales - P120,000 x 27.5%
2008 sales - P 93,750 x 28%
Total
24
Value assigned to repossessed merchandise:

2006 sales
2007 sales
Unrecovered cost
2006 sales - P22,500 x 75%
2007 sales - P24,000 x 72.5%
page
P625 loss
P27,187.50
33,000.00
26,250.00
P86,437.50
P 9,000
13,500
P16,875
17,400
P22,500
34,275
P11,775
25
2006 sales - P24,000 x 39%

2007 sales - (P300,000 - P60,000 - P10,000) x 42%
2008 sales - (P480,000 - P320,000 - P5,000) x 40%
Total
P 9,360
96,600
62,000
P167,960
26
2007 sales - P4,500 - (P10,000 x 58%)

2008 sales - P3,500 - (P5,000 x 60%)
Net gain (loss) on repossession
27
P360,000 x 33 1/3%
28
Loss = P8,000 - (P15,000 x 60%)
29
30
C
A
(P800,000 - P250,000 - P300,000 - P15,000) x 40%

(P75,810/42%) + P75,810
P94,000
P256,310
31
2006 sales - P35,800 x 32.26%

2007 sales - (P155,000 - P42,000) x 40%
2008 sales - (P256,310 - P100,500) x 42/142
total
P 11,550
45,200
46,085
P102,835
32
(P120,000 - P15,000 - P7,750) x 45%
33
Inventory, Dec. 31, 2007

Purchases
Repossessions
Cost of goods available for sale
Less Inventory, Dec. 31, 2008
Cost of goods sold
Less Cost of goods sold on regular sales (P385,000 x 70%)
Cost of installment sales
Gross profit rate on installment sales [100% - (263,500/425,000)]
Realized gross profit - (P425,000 - P200,000) x 38%
P 70,000
555,000
3,000
P628,000
95,000
P533,000
269,500
P263,500
38%
P85,500
34
A.
(7,750 x 55%) - 3,000
P1,262.50
P(1,300)
500
P (800)
P120,000
P1,000
P43,762.50

22
page
35
Cash sales
Charge sales (P180,000/120%)
Installment sales (P446,400/124%)
Total sales - cash basis
P 90,000
150,000
360,000
P600,000
36
Inventory, beginning
Delivered cost of purchases
Repossessed merchandise
Cost of goods available for sale
Less Inventory, end
Cost of goods sold
P52,500
393,000
15,000
P460,500
70,500
P390,000
Cost of installment sales - P390,000 x 360/600
P234,000
37
C
Installment recl, beg
Installment sales
Installment recl, end
Defaulted recl
Collections
38
2006
P 74,000
2007
P123,000
( 15,000)
( 18,000)
P 41,000
( 45,000)
( 21,000)
P 57,000
Sales price of Article A

Less Overvaluation on trade -in
Sales price
Reconditioning cost
Normal profit
Market value of trade-in
Allowed trade-in value
Adjusted sales price
Cost of Article A
Gross profit
Gross profit rate
Realized GP - (P80,000 + P40,000) x 25%
39
Inst. recl balance, Dec. 31, 2007 (P360,000 - P120,000)

Installment payment, Jan. 1 - Mar. 1 (P20,000 x 3)
Inst. recl balance, April 1
Cost percentage
Unrecovered cost
Market value of repossessed mdse. (P13,500 - P800 - P2,700)
2008
P446,400
( 270,000)
---___
P176,400
P400,000
P110,000
( 8,000)
( 22,000)
P 80,000
120,000
40,000
P360,000
270,000
P 90,000
25%
P30,000
P240,000
60,000
P180,000
x 75%
P135,000
100,000
P 35,000

23
40
41
42
page
Expected loss (125,000 x 4%*)

Less: Loss on default 2008
Recovery from sale of repossessed merchandise
Balance of allowance for defaulted contracts; Dec. 31, 2008
*Loss on default
P 250
in 2007 on 2007
sales
Loss on default
3,750
in 2008 on 2007
sales
Recovery on
P 800
sale
of
repossession in
2008
Repossessed
200
Merchandise on
hand
Expected loss
Sales
Rate of loss as
a % of sales
Inst. contract recl beg.
Less: Inst. Contract recl, end
Inst. Contract recl written off
Collections
Gross profit rate
P5,000
P1,500
175
P 4,000
1,000
P 3,000
P75,000
4%
P31,500
P2,000
3,750
Lot A (791,086.20 x 30%)

Lot B (973,333.30 x 25%)
Lot C and House (P2,080,000 x 40%)
Schedule of Collection
Lot A
3/31 - Initial balance
3/31 - Down payment
6/30 - P120,000 - (P1,200,000 x 2.5%)
9/30 - P120,000 - (P1,110,000 x 2.5%)
12/31- P120,000 - (P1,017,750 x 2.5%)
Lot B
10/31 Initial balance
10/31 Down payment
12/31 P200,000 (P1,600,000 x 1.667%)
Lot C
6/30 Initial balance
6/30 Down payment
1,325
P3,675
5,750
P25,750
x 40%
P10,300
P 237,325.80
243,333.30
832,000.00
P1,312,659.10
Principal
P514,280.00
90,000.00
92,250.00
94,556.20
P791,086.20
P800,000.00
173,330.30
P973,333.30
P1,800,000.00
Balance
P1,714,280.00
1,200,000.00
1,110,000.00
1,017,750.00
923,193.80
P2,400,000.00
160,000
1,426,666.70
P4,200,000
2,400,000

24
page
12/31- P400,000 (P2,400,000 x 5%)
280,000.00
P2,080,000.00
2,120,000
Allocation of Cost & GP rates:

Lot A P1,600,000 x 6/8
Lot B - P2,400,000 x 6/8
Lot C: Farm A P400,000
B P600,000
House - P1,520,000
Cost
P1,200,000
1,800,000
SP
P1,714,280
2,400,000
GP
P514,280
600,000
%
35%
25%
2,520,000
4,200,000
1,680,000
40%
43
Unpaid balance upon default

Less: DGP (P2,120,000 x 40%)
Unrecovered cost
Market value [P2,520,000 (P1,520,000 20)]
Gain on repossession
44
8,000,000 (8,000,000 x 20%) = 6,400,000 x 3% =

6,400,000 (642,957.30 192,000) x 3%
Collections to be applied on interest
45
Downpayment
1st inst. 642,957.30 - 192,000
2nd inst. 642,957.30 - 192,000
Total collections (P8,000,000 - (2,500,000 + 3,560,000) / 8,000,000]
P2,120,000
848,000
P1,272,000
2,444,000
P1,172,000
P192,000.00
178,471.30
P370,471.30
P1,600,000.00
450,957.30
464,486.00
P 2,515,443.30
x 24.25%
P 609,995.00

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Chapter 6 Aa 1 Sol

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CHAPTER 6

Deferred Gross Profit, beg

AA1 - Chapter 6 (2008 edition)

Installment Contract Receivable, beg.

Installment Contracts Receivable

Cost of Installment Sales

Inventory of Repossessed Merchandise

Deferred Gross Profit

Realized Gross Profit

Cost of Installment Sales

AA1 - Chapter 6 (2008 edition)

Deferred Gross Profit

Deferred Gross Profit

AA1 - Chapter 6 (2008 edition)

Cost of Installment Sales

Deferred Gross Profit

AA1 - Chapter 6 (2008 edition)

Deferred Gross Profit

Deferred Gross Profit

Realized gross profit

AA1 - Chapter 6 (2008 edition)

Cost of Real Estate Sales

Real Estate Sales

Discount on Notes Receivable

Deferred Gross Profit

Cost of Installment Sales

AA1 - Chapter 6 (2008 edition)

Realized Gross Profit

Cost of Installment Sales

Installment Accounts Receivable

Cost of Installment Sales

Deferred Gross Profit

Installment Accounts Receivable

Cost of Installment Sales

Deferred Gross Profit 2005

AA1 - Chapter 6 (2008 edition)

Realized Gross Profit

Installment Accounts Receivable

Cost of Installment Sales

Deferred Gross Profit 2006

Gross Profit Recognized:

1 - (P 280,250 / P 475,000) = 41%

Gross profit recognized in 2008

AA1 - Chapter 6 (2008 edition)

Costs recovered in 2005

Cash collections in 2006 do not exceed costs of sales

Cash collections for 2006 sales ( P 128,000 + 232,000 )

Cost of Real Estate Sales (240,000 x 30)

Discount on Notes Receivable

Discount on Notes Receivable

Notes receivable (P21,971,000 - P2,197,100 - P2,197,100)

AA1 - Chapter 6 (2008 edition)

Gross Profit rate ( 600 / 1,000 )

c) Cost Recovery method

AA1 - Chapter 6 (2008 edition)

Requirement 2 Income Statement

AA1 - Chapter 6 (2008 edition)

Less Loss on Repossession [3,000-(3,600+4,000+1,900)]

Liabilities & Shareholders Equity

2. Schedule of Allocation of Cost of Goods Sold

AA1 - Chapter 6 (2008 edition)

AA1 - Chapter 6 (2008 edition)

Realized Gross Profit