chapter a a 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 Deferred Gross Profit, beg Less Deferred Gross Profit,end P100,000 x 25%, P40,000 x 22% Realized Gross Profit 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%]* Realized Gross Profit * 66 2/3 166 2/3 = 40% P300,000 40% = P750,000 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 Exercise 6-4 1. Deferred Gross Profit 2006 Deferred Gross Profit 2007 Deferred Gross Profit 2008 Realized Gross Profit Deferred gross profit before adj. Deferred gross profit after adj. (Inst. contract recl x GP rate) Realized gross profit Cash collections 2006 P 8,000 __3,500 P 4,500 2006 sales P 400,000 100,000 P 300,000 25%__ P 75,000 2006 sales P 100,000 25,000 P 75,000 63,000 135,000 40,000 238,000 2007 sales P 200,000 40,000 P 160,000 22%__ P 35,200 2007 sales P 44,000 8,800 P 35,200

P 39,000 22% P 11,000 P 5,000 P 60,000 P 20,000 P120,000 23.5% P 25,275 4,500 14,000 69,000 87,500 2007 2008 P26,000 P105,000 _12,000 P14,000 __36,000 P 69,000

2.

AA1 - Chapter 6 (2008 edition) 2

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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 Exercise 6-5 a. Installment Contracts Receivable Installment Sales b. c. Cash Installment Contracts Receivable Cost of Installment Sales Inventory 50,000 / 250,000 = 20% Inventory of Repossessed Merchandise Deferred Gross Profit (P20,000 x 20%) Loss on Repossession Installment Contracts Receivable Expenses Cash Installment Sales Cost of Installment Sales Deferred Gross Profit Deferred Gross Profit Realized Gross Profit P120,000 x 20% = P 24,000 Realized Gross Profit Expenses Loss on Repossession Income Summary 2006 P 22,857 10,000 P12,857

P 12,857 46,667 172,500 P232,024 2007 2008 P86,667 P262,500 40,000 90,000 P46,667 P 172,500 250,000 250,000 120,000 120,000 200,000 200,000 14,500 4,000 1,500 20,000 16,000 16,000 250,000 200,000 50,000 24,000 24,000 24,000 16,000 1,500 6,500 600,000 600,000 405,000 405,000 360,000 360,000

d.

e. f.

g.

h.

Exercise 6-6 a. Installment Contracts Receivable Installment Sales b. c. Cost of Installment Sales Shipments on Installment Sales Cash Installment Contracts Receivable


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d.

Repossessed Merchandise Deferred Gross Profit (P40,000 x 32.5%) Loss on Repossession Installment Contracts Receivable Installment Sales Cost of Installment Sales Deferred Gross Profit 195,000/600,000 = 32.5% Deferred Gross Profit Realized Gross Profit P360,000 x 32.5% = P117,000

24,000 13,000 3,000 40,000 600,000 405,000 195,000 117,000 117,000

e.

f.

Exercise 6-7 Requirement 1 a. Cash Installment Contracts Receivable Interest Revenue b. Repossessed Merchandise Deferred Gross Profit (P4,000 x 40%) Loss on Defaults Installment Contracts Receivable Deferred Gross Profit Realized Gross Profit (P1,240 x 40%) 1,400 1,240 160 2,000 1,600 400 4,000 496 496 2,000 1,600 3,600 11,250 2,500 1,250 15,000 180,000 420,000 600,000 P280,000 P30,000 _70,000 __100,000

c.

Requirement 2 a. Repossessed Merchandise Deferred Gross Profit Loss on Defaults Exercise 6-8 Repossessed Merchandise (P13,500/120%) Deferred Gross Profit (P15,000 x 20%/120%) Loss on Repossession Installment Contracts Receivable Exercise 6-9 a. Trade-In Merchandise Installment Contracts Receivable Installment Sales Estimated resale price Less: Reconditioning cost Gross profit


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Estimated realizable value Selling price Less Overallowance (P300,000 P180,000) Adjusted selling price b. c. Cost of Installment Sales Automobiles Installment Sales Cost of Installment Sales Deferred Gross Profit Deferred Gross Profit Realized Gross Profit P180,000 x 16 2/3% = P30,000

P 180,000 P720,000 120,000 P600,000 500,000 500,000 600,000 500,000 100,000 30,000 30,000

d.

Exercise 6 - 10 Correct entry Allowance for Doubtful Installment Contract Recl Deferred Gross Profit ( P 10,000 x 25/125 ) Repossessed Merchandise Installment Contract Receivable Correcting Entry Deferred Gross Profit Repossessed Merchandise Allowance for Doubtful Accounts Exercise 6-11 Requirement 1 Oct. 31 Cash Installment Contracts Receivable Real Estate Deferred Gross Profit GP rate = P150,000/P750,000 = 20% Nov. 30 Cash Installment Contracts Receivable Interest Revenue 550,000 x 1% = 5,500 Cash Installment Contracts Receivable Interest Revenue P550,000 P6,000 = P544,000 x 1% = P5,440 Deferred Gross Profit Realized Gross Profit P200,000 + P6,000 + P6,000 = P212,000 x 20%

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 11,440 6,000 5,440 42,400 42,400

Dec. 31

31


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Requirement 2 Oct. 31 Cash Installment Contracts Receivable Real Estate Deferred Gross Profit GP rate = P150,000/P750,000 = 20% Nov. 30 Cash Installment Contracts Receivable Interest Revenue P550,000 x 1% = P5,500 Cash Installment Contracts Receivable Interest Revenue P550,000 P500 = P549,500 x 1% x = P5,495 Deferred Gross Profit Realized Gross Profit P200,000 + P500 + P505 = P201,005 x 20% = P40,201 Recovery of cost P400,000 25,000 none none P 25,000 P100,000/year P170,000 P 42,500

200,000 550,000 600,000 150,000 6,000 500 5,500 6,000 505 5,495 40,201 40,201

Dec. 31

31

Exercise 6-12 Realized gross profit none P 75,000 100,000/year P400,000 P100,000 P 75,000 none P230,000 P 57,500 a. 2008 2009 2010 2014 2008 2009 2010 2011 2014 2008 2009 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 Jan. 1 1 Cost of Real Estate Sales Inventory or Real Estate Real Estate Sales Cost of Real Estate Sales Deferred Gross Profit GP rate = P550,000/P1,400,000 = 39.29%

140,000 2,230,000 1,400,000 970,000 850,000 850,000 1,400,000 850,000 550,000


page

Dec. 31

Cash Notes Receivable Discount on Notes Receivable Interest Revenue (P2,230,000 P970,000) x 12% = P151,200 Deferred Gross Profit Realized Gross Profit [P140,000 + (P223,000- P151,200)] x 39.29%

223,000 223,000 151,200 151, 200 83,216 83,216

31

31

Exercise 6-14 Requirement 1 a. Land Land Improvements Cash b. Cash Installment Contract Receivable 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

13,440,000 3,360,000 16,800,000 750,000 4,250,000 5,000,000

c.

Cost of Installment Sales 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 1,400,000

2,400,000 600,000

d.

Cash Installment Contract Receivable Interest Revenue Requirement 2 a. Installment Sales Cost of Installment Sales Deferred Gross Profit GP rate = 2,000,000/5,000,000 = 40% b. Deferred Gross Profit Realized Gross Profit (P750,000 + P1,300,000) x 40% = P820,000 Exercise 6-15 2005 Installment Accounts Receivable Installment Sales Cost of Installment Sales Inventory

1,300,000 100,000 5,000,000 3,000,000 2,000,000 820,000 820,000 4,700,000 47,000 2,585,000 2,585,000


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Cash Installment Accounts Receivable Installment Sales Cost of Installment Sales Deferred Gross Profit 2006 Installment Accounts Receivable Installment Sales Cost of Installment Sales Inventory Cash Installment Accounts Receivable 2005 Installment Accounts Receivable 2006 Installment Sales Cost of Installment Sales Deferred Gross Profit Deferred Gross Profit Realized Gross Profit 2007 Installment Accounts Receivable Installment Sales Cost of Installment Sales Inventory Cash Installment Accounts Receivable 2005 Installment Accounts Receivable 2006 Installment Accounts Receivable 2007 Installment Sales Cost of Installment Sales Deferred Gross Profit Deferred Gross Profit 2005 Deferred Gross Profit 2006 P1,350,000 (P2,610,000-P2,475,000) Deferred Gross Profit 2007 Realized Gross Profit 2008 Installment Accounts Receivable Installment Sale Cost of Installment Sales Inventory

2,585,000 2,585,000 4,700,000 2,585,000 2,115,000 4,500,000 4,500,000 2,610,000 2,610,000 3,885,000 1,410,000 2,475,000 4,500,000 2,610,000 1,890,000 1,410,000 1,410,000 5,800,000 5,800,000 3,074,000 3,074,000 5,010,000 470,000 1,350,000 3,190,000 5,800,000 3,074,000 2,726,000 470,000 1,215,000 116,000 1,801,000 6,100,000 6,100,000 3,111,000 3,111,000


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Cash Installment Accounts Receivable 2006 Installment Accounts Receivable 2007 Installment Accounts Receivable 2008 Installment Sales Cost of Installment Sales Deferred Gross Profit 2008 Deferred Gross Profit 2006 Deferred Gross Profit 2007 Deferred Gross Profit 2008 P3,355,000 P3,111,000 Realized Gross Profit Gross Profit Recognized: Full Accrual; Cost Recovery Method 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 COMPUTATIONS : 1 P 341,250 / . 65 = P 525,000 2 3 4 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 Costs recovered in 2005 Costs to be recovered in 2005 Cash received related to 2007 sales 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 ) 2006 P 400,000 248,000 38% 128,000 2005 P 2,150,000 0 2006 P 1,890,000 1,410,000

5,545,000 450,000 1,740,000 3,355,000 6,100,000 3,111,000 2,989,000 450,000 1,740,000 244,000 2,434,000 2007 2008 P 2,726,000 P 2,989,000 1,801,000 2,434,000 2008 P 525,000 341,250 35% 28,000 218,500 162,750 80,250

2007 P 475,000 280.250 41% 232,000 114,000 112,000

P 80,250 28,000 0 P 52,250 P 280,250 114,000 166,250 P 218,500

5 6

P 360,000


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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 Cost of Real Estate Sales (240,000 x 30) Inventory of Real Estate Real Estate Sales Cost of Real Estate Sales Deferred Gross Profit - Real Estate Sales GP rate = 7,800,000/15,000,000 = 52% Cash Notes Receivable Discount on Notes Receivable Deferred Gross Profit - Real Estate Sales

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 2,197,100 2,197,100 1,350,000 1,350,000

31 31

2008 Dec. 31 31

Cash Notes Receivable

2,197,100 2,197,100 1,265,300 1,265,300 Unrecovered Cost 5,700,000 3,502,900 1,305,800

Discount on Notes Receivable Deferred Gross Profit - Real Estate Sales (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 (P8,471,000-P1,350,000- P1,265,300) Deferred gross profit (P7,800,000 + P1,350,000 + P1,265,300) Unrecovered cost Exercise 6-18 Selling Price Cost of Land Gross Profit

P17,576,800 P 5,855,700 10,415,300 16,271,000 P 1,305,800 P 10,000,000 4,000,000 P 6,000,000


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

60%

Gross Profit P 240,000 180,000 ___180,000 P 600,000 Gross Profit P 300,000 ___300,000 P 600,000

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 Cost of Installment Sales Deferred Gross Profit 2008 b. Deferred Gross Profit 2007 (520,000 x 30%) Deferred Gross Profit 2008 (740,000 x 35%) Realized Gross Profit c. Sales Realized Gross Profit Cost of Sales Gain or Loss on Repossession Selling and Administrative Expenses Income Summary d. Income Tax Income Tax Payable e. Income Summary Income Tax d. Income Summary Retained Earnings Requirement 3 Excellent Co. Statement of Recognized Income and Expenses

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 77,350 77,350 143,650 143,650


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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 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) Reliance Sales Corp. Statement of Recognized income and Expenses For the Year Ended December 31, 2008 Regular Sales P 192,000 Installment Sales P 500,000 Total P 692,000 45% 40% 38% 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

Requirement 2 Income Statement

Sales Cost of Sales: Inventory, January 1 P 30,000 Purchases 455,000 Repossessed Mdse. __10,000 Cost of Goods Available for Sale P495,000 Less Inventory, Dec. 31 __35,000 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 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: Installment sales Installment contracts recl, beginning

150,000 P 42,000 ________ P 42,000

310,000 P 190,000 32,300 P 157,700

460,000 P 232,000 32,300 P 199,700 100,650 P 300,350 3,500 P 296,850 300,000 P 3,150 2008 P500,000

2006 P 50,000

2007 P240,000


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Installment contracts recl, end Defaulted installment contracts recl Collections Gross profit rate Realized gross profit Deferred gross profit Requirement 3 -

( 5,000) ( 8,000) P 37,000 45% P 16,650 P 2,250 Reliance Corp. Statement of Financial Position December 31, 2008

( 20,000) (80,000) ( 10,000) (5,000) P210,000 P415,000 40% 38% P84,000 P157,700 P 8,000 P 30,400

Assets Cash Inst. Contracts Recl, 2008 Inst. Contracts Recl, 2007 Inst. Contracts Recl, 2006 Accounts Recl Inventory Other Assets Total Assets

P 25,000 80,000 20,000 5,000 40,000 35,000 52,000 P257,000

Liabilities & Shareholders Equity Accounts Payable P 75,000 Deferred Gross Profit, 2008 30,400 Deferred Gross Profit, 2007 8,000 Deferred Gross Profit, 2006 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 Repossessed Merchandise Cost of Goods Available for Sale Less Inventory, December 31 Cost of Goods Sold

P 240,000 1,250,000 70,000 P1,560,000 260,000 P1,300,000

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 P2,400,000 P2,000,000

Ratio 60/400 100/400 240/400

Allocation of CGS P 195,000 325,000 780,000 P1,300,000

3. Fuji Products Statement of Recognized Income and Expenses For the Year Ended December 31, 2008 Cash Charge Installment Sales Sales Sales P300,000 P600,000 P 1,500,000

Sales

Total P2,400,000


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Cost of Sales 195,000 Gross Profit P105,000 Less Deferred Gross Profit, 2008 sales Realized Gross Profit on 2008 sales P105,000 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 Net Income before Income Tax Income Tax Net Income 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. Adjusting entries a. Installment Sales Cost of Installment Sales Deferred Gross Profit 2008 b.

325,000 P275,000 P275,000

P P

780,000 720,000 460,800 263,200

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

40% 38% 39% 420,000 256,200 163,800 27,200 58,976 70,980 157,156

Deferred Gross Profit 2006 Deferred Gross Profit 2007 Deferred Gross Profit 2008 Realized Gross Profit 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

3.

Correcting entries a. Deferred Gross Profit 2006 (9,000 x 40%) Deferred Gross Profit - 2007 (2,800 x 38%) Operating Expenses b. Inventory of Repossessed Merchandise(4,000 - 400 - 600) Deferred Gross Profit 2006 (5,000 x 40%) Operating Expenses The indicated gain of P600 is ignored and deducted from the market value of the repossessed merchandise. Closing entries a. Realized Gross Profit Operating Expenses Income Summary b. c. Income Tax Income Tax Payable Income Summary

3,600 1,064 4,664 3,000 2,000 5,000

4.

157,156 94,336 62,820 21,987 21,987 21,987


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a. d.

Realized Gross Profit Income Tax Income Summary Retained Earnings Cash Installment Contract Receivable Piano Deferred Gross Profit 60/160 = 37.5% Cash Installment Contract Receivable Installment Revenue Cash Installment Contract Receivable Installment Revenue Cash Installment Contract Receivable Installment Revenue Collection 48,000 48,000 48,000 48,000 Interest 432,000 x .005 = 2,160 386,160 x .005 = 1,931 340,091 x .005 = 1,700 Principal Reduction 48,000 45,840 46,069 46,300

157,156 21,987 40,833 40,833 48,000 432,000 300,000 180,000 48,000 45,840 2,160 48,000 46,069 1,931 48,000 46,300 1,700 Principal Balance 480,000 432,000 386,160 340,091 293,791

Problem 6-5 (1) Sept. 30

(2)

Oct. 31

Nov. 30

Dec. 31

Date Sept. 30 Oct. 31 Nov. 30 Dec. 31

(3)

Dec. 31 2006 Feb.

Deferred Gross Profit 69,828 Realized Gross Profit 48,000 + 45,840 +46,069 + 46,300 = 186,209 x 37.5% = 69,828 Repossessed Piano Deferred Gross Profit Loss on Repossession Installment Contract Receivable 56,000 36,724 5,207

69,828

(4)

97,931 P3,760,000 P 580,600 2,093,000

Problem 6-6 (1) Sales 1,260,000 + (2,650,000 1.06) Cost of Sales: Inventory, beginning Purchases


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Less: Inventory end Gross Profit Gross Profit Rate (1,419,400 / 3,760,000 ) (2 ) 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)

P2,673,600 333,000

2,340,600 P1,419,400 3,760,000 37.75% Cash Collection 2,650 (10,600 x 25%) 530 (7,950 15) 530 (7,950 15) 530 (7,950 15) 530 (7,950 15) 530 (7,950 15) 530 (7,950 15) P10,600.00 600.00 P10.000.00

Installment Time of Sale 1 2 3 4 5 6

Interest Revenue 73.50 (7,350 x 1%) 68.93 (6,893.50 x 1%) 64.32 (6,432.43x 1%) 59.67 (5,966.75 x 1%) 54.96 (5,496.42 x 1%) 50.21 (5,021.38 1%)

(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

P 2,650.00 P 1,590.00 206.70 1,383.30 2,252.45 2,300.00 1,800.00 4,033.60 P5,966.70 P6,352.45 P 385.75

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

P

475,650

250,093.75 522.20 P791,820.00 92,528.40 P699,291.60


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x 37.75% Realized Gross Profit Problem 6-7 1. Total installment sales Less Installment Receivable - Dec. 31 Total Collections in Sales 2. Collections GPR: Total Selling price Total Cost GP Total sales RGP Installment Receivable - Dec. 31 GPR Unrealized GP Realized gross profit Interest Income Operating Expenses Net Income before Income Tax Income Tax Net Income

263,982.60 P990,248.60 P3,450,000 1,594,600 P1,855,400 P1,855,400

P9,500,000 5,225,000 P4,275,000 9,500,000

45%__ P 834,930 P1,594,600 x 45%_ P 717,570 P 834,930 520,300 (682,130) P 673,100 235,585 P437,515 P 8,060,000 3,465,800 P 4,594,200 221,000 P 4,373,200 2,913,658 P 1,459,542

3.

4.

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 Realized gross profit Expenses: Advertising Sales Managers Salaries Gen. Operating Expenses (2,360,000 x 1/ 4 ) Net loss Schedule 1 Sales A 26 @ 150,000 B 32 @ 100,000 C 12 @ 80,000 Schedule 2 - Cost of Sales Rate Total Sales Price P3,900,000 3,200,000 960,000 P8,060,000

P730,000 900,000 590,000 P

2,220,000 760,458

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


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A B C 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

No. of lots 80 100 130 310

Unit Sales Price 150,000 100,000 80,000

Total Sales Value P12,000,000 10,000,000 10,400,000 P32,400,000 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 97,600 10,767 86,833 43,200 43,200 35,600 35,600 3,600 3,600 86,833 43,200 43,633 16,080 16,080 52,020 52,020 89,500 11,955 77,545

Notes Receivable 2007 (32,000 + 62,000 + 3,600) Discount on Notes Receivable - 2007 (7,167 + 3,600 ) Installment Sales Cost of Installment Sales (45,200 - 2,000) Inventory Cash Notes Receivable - 2007 (32,000 + 3,600) Discount on Notes Receivable - 2007 Interest Revenue Installment Sales Cost of Installment Sales Deferred Gross Profit - 2007 Deferred Gross Profit - 2007 Realized Gross Profit 43,633/86,833 = 50.25% x 32,000 2008 Inventory Cash Notes Receivable - 2008 (160,000 + 50,000 + 5,500 - 26,000) Discount on Notes Receivable 2008[8,043 + (5,500 - (7,167 - 5,579)] Installment Sales


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Cost of Installment Sales (52,020 - 8,000) Inventory Cash Notes Receivable 2008 (89,500 - 60,000) Notes Receivable 2007 (62,000 - 36,000) Discount on Notes Receivable 2008 (5,500 - 1,588) Discount on Notes Receivable 2007 (7,167 - 5,579) Interest Revenue Installment Sales Cost of Installment Sales Deferred Gross Profit - 2008 Deferred Gross Profit - 2008 (29,500 - 3,912 x 43.33%) Deferred Gross Profit - 2007 (26,000 - 1,588 = 24,412 x 50.22%) Realized Gross Profit 33,525/77,545 = 43.23% Problem 6-10 2005 Jan. 1

44,020 44,020 55,500 29,500 26,000 3,912 1,588 5,500 77,545 44,020 33,525 11,062 11,267 23,329

Cash Notes Receivable Idle Plant Deferred Gross Profit

2,000,000 5,000,000 5,000,000 2,000,000

2006 July 1

Cash Notes Receivable Deferred Gross Profit

1,900,000 1,000,000 900,000

2007 Dec. 31

Cash 2,250,000 Deferred Gross Profit 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

1,500,000 1,150,000

2008 Feb. 1

2,500,000 325,000

Feb. 1

Deferred Gross Profit (2,000,000 + 900,000 - 400,000) 2,500,000 Gain on Sale of Idle Plant 2,000,000 Interest Revenue 500,000 (900,000 + 750,000 + 325,000 = 1,975,000 - 1,150,000 - 325,000 = 500,000)


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MULTIPLE CHOICE 1. D Inst. Sales 8,765,625 68% Inst. Rec. beg. Inst. Rec. end Collections GPR 2 3 4 5 A B C B 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 Realized gross profit Operating expenses Net income 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 P38,000 P 3,750 22,500 26,250 P11,750 1,500 P10,250 P109,000 174,400 P283,400 x 35/135 P 73,474 P785,000 P157,000 251,200 408,200 P376,800 x 35/135 P 97,689 P464,640 157,000 P621,640 P621,640 x 35/135 P161,166 2008 P12,890,625 (9,728,125) P 3,162,500 x 32% P 1,012,000 P8,387,500 (3,025,000) P5,362,500 x 30% P1,608,750 P1,512,500 __________ P1,512,500 x 28% P 423,500 P10,037,500 P3,044,250 2007 2006

6

B

7

A

Unrealized GP on Year 2 installment sales at the end of Year 2 8 B 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 Total installment accounts receivable, end of Year 3 Total unrealized gross profit at end of Year 3 10 11 C A 2007 - 100% - (31,250/62,500) = 50% x P25,000 2008 - 100% - (45,000/100,000) = 55% x P62,500 Total

9

B

P12,500 34,375 P46,875


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12

D

Sales - regular Cost of sales - regular Gross profit - regular Realized gross profit (see D1) Total gross profit Selling expenses Net income P610,750 x 60% P306,520 x 40% 2006 sales - P17,400 x 36% 2007 sales - P(205,400 - P200 - P25,800) x 39% Total Selling price Cost (P200 x 61%) Gain from sale of repossessed merchandise (P344,460 - P67,440 - P2,200) x 34% Market value of repossessed ref (P1,700 x 63%) Unrecovered cost (P2,200 x 66%) Loss on repossession 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 ( P100,000 - P12,500 - P6,250) x 50% ( 375,000 - 150,000) x 45%* *Installment sales Invty. Beg. Purchases Repossessions Mdse. Avail for sale Less Invty. End CGS Cost of Regular sale ( 312,500 x 70% ) Gross profit on Installment sales Gross profit rate on Installment (168,750/375,000) (3,750 - (6,250 x 50%) P

P187,500 112,500 P 75,000 46,875 P121,875 31,250 P 90,625 P366,450 P122,608 P 6,264 69,966 P76,230 P 200 122 P 78 P93,438.80 P1,071 1,452 P 381 8,407.00 93,438.80

13 . 14 15

D D B

16

B

17 18

B B

19

D

71,006.70 P172,852.50 P40,625 P101,250 P 375,000 P 62,500 435,000 2,500 500,000 75,000 425,000 218,750 206,250 sales = 45% P625 loss

20 21

D B

22

A


page

23

B

2006 sales - P108,750 x 25% 2007 sales - P120,000 x 27.5% 2008 sales - P 93,750 x 28% Total Value assigned to repossessed merchandise: 2006 sales 2007 sales Unrecovered cost 2006 sales - P22,500 x 75% 2007 sales - P24,000 x 72.5% Loss on repossession 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 2007 sales - P4,500 - (P10,000 x 58%) 2008 sales - P3,500 - (P5,000 x 60%) Net gain (loss) on repossession P360,000 x 33 1/3% Loss = P8,000 - (P15,000 x 60%) (P800,000 - P250,000 - P300,000 - P15,000) x 40% (P75,810/42%) + P75,810 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 (P120,000 - P15,000 - P7,750) x 45% 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% (7,750 x 55%) - 3,000 Cash sales P 9,000 13,500 P22,500 P16,875 17,400

P27,187.50 33,000.00 26,250.00 P86,437.50

24

A

34,275 P11,775 P 9,360 96,600 62,000 P167,960 P(1,300) 500 P (800) P120,000 P1,000 P94,000 P256,310 P 11,550 45,200 46,085 P102,835 P43,762.50 P 70,000 555,000 3,000 P628,000 95,000 P533,000 269,500 P263,500 38% P85,500 P1,262.50 P 90,000

25

D

26

B

27 28 29 30 31

A B C A D

32 33

C C

34 35

A. B


page

Charge sales (P180,000/120%) Installment sales (P446,400/124%) Total sales - cash basis 36 A Inventory, beginning Delivered cost of purchases Repossessed merchandise Cost of goods available for sale Less Inventory, end Cost of goods sold Cost of installment sales - P390,000 x 360/600 37 C Installment recl, beg Installment sales Installment recl, end Defaulted recl Collections 2006 P 74,000 ( 15,000) ( 18,000) P 41,000 2007 P123,000 ( 45,000) ( 21,000) P 57,000

150,000 360,000 P600,000 P52,500 393,000 15,000 P460,500 70,500 P390,000 P234,000 2008 P446,400 ( 270,000) ---___ P176,400

38

A

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%

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 P5,000

39

C

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) Loss on repossession Expected loss (125,000 x 4%*)

40

B


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Less: Loss on default 2008 P1,500 Recovery from sale of repossessed merchandise 175 Balance of allowance for defaulted contracts; Dec. 31, 2008 *Loss on default in 2007 on 2007 sales P 250 Loss on default in 2008 on 2007 sales 3,750 P 4,000 Recovery on sale of repossession in 2008 P 800 Repossessed Merchandise on hand 200 1,000 Expected loss P 3,000 Sales P75,000 Rate of loss as a % of sales 4% 41 C Inst. contract recl beg. Less: Inst. Contract recl, end Inst. Contract recl written off Collections Gross profit rate Realized gross profit Lot A (791,086.20 x 30%) Lot B (973,333.30 x 25%) Lot C and House (P2,080,000 x 40%) Realized gross profit 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 12/31- P400,000 (P2,400,000 x 5%) 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 2,520,000 SP P1,714,280 2,400,000 4,200,000 GP P514,280 600,000 1,680,000 Principal P514,280.00 90,000.00 92,250.00 94,556.20 P791,086.20 P2,000 3,750

1,325 P3,675

P31,500 5,750 P25,750 x 40% P10,300 P 237,325.80 243,333.30 832,000.00 P1,312,659.10 Balance P1,714,280.00 1,200,000.00 1,110,000.00 1,017,750.00 923,193.80

42

C

P2,400,000.00 P800,000.00 160,000 173,330.30 1,426,666.70 P973,333.30 P1,800,000.00 280,000.00 P2,080,000.00 P4,200,000 2,400,000 2,120,000

% 35% 25% 40%


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43

B

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 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 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] Realized gross profit

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

44

A

45

D

chapter a a 1 sol

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