Accounting

38. On January 1, 2016, Rex Co. sold a used machine to Lake, Inc. for P525,000.
On
this
date, the machine had a depreciated cost of P367,500. Lake paid P75,000 cash on
January1, 2016 and signed a P450,000 note bearing interest at 10%. The note was
payable in
three annual installments of P150,000 beginning January 1, 2017. Rex appropriately
accounted for the sale under the installment method. Lake made a timely payment of
first
installment on January 1, 2017 of P195,000, which included interest of P45,000 to
date of
payment. At December 31, 2017, Rex had a deferred gross profit of
A. 105,000
B. 99,000
C. 90,000
D. 76,500
(Punzalan, 2018)
39. The books of Harry Co. show the following balances on December 31, 2016:
Accounts Receivable
P313,750
Deferred Gross Profit (before adjustment)
38,000
Analysis of the accounts receivable reveal the following:
Regular accounts
P207,500
2015 installment accounts
16,250
2016 installment accounts
90,000
Sales on an installment basis in 2015 were made at 30% above cost; in 2016, at 33 ⅓
above cost. Expenses paid was P1,500 relating to installment sales, how much is the
net
income on installment sales?
A. P11,000
B. 11,500
C. P16,000
D. 10,250
(Dayag, 2015)
40. On September 30, 2015, Barry bought a car for P3,600,000. A downpayment of
P1,600,000 was made with the balance due in 10 monthly installments, the first to be
made at the end of october. Barry is to make monthly payments of P200,000 plus
interest
on the unpaid balance at 12%. What is the total collection on January 31, 2016?
A. P200,000
B. 214,000
C. P216,000
D. 218,000(Dayag, 2015)
41. Under the installment sales method,
A. revenue, costs, and gross profit are recognized proportionate to the cash that is
received from the sale of the product.
B. gross profit is deferred proportionate to cash uncollected from sale of the product,
but total revenues and costs are recognized at the point of sale.
C. gross profit is not recognized until the amount of cash received exceeds the cost
of the item sold.
D. revenues and costs are recognized proportionate to the cash received from the sale
of the product, but gross profit is deferred until all cash is received.
(K, W & W)
42. Slick's Used Cars sells pre-owned cars on the installment basis and carries its own
notes
because its customers typically cannot qualify for a bank loan. Default rates tend to be
high or unpredictable. However, in the event of nonpayment, Slick's can usually
repossess the cars without loss. The revenue method Slick would use is the:
A. Installment sales method.
B. Cost recovery method.
C. Point of sales method.
D. Completed contract method.
(S, S & T)
43. When assets that sold and accounted for by the installment method are
subsequently
repossessed and returned to inventory, they should be recorded on the books at
A. Selling price.
B. The amount of the installment receivable less associated deferred gross profit.
C. Net realizable value.
D. Net realizable value minus normal profit.
(Gleim)
44. Pie Co. uses the installment sales method to recognize revenue. Customers pay the
installment notes in 24 equal monthly amounts, which include 12% interest. What is
an
installment notes receivable balance six months after the sale?
A. 75% of the original sales price.
B. Less than 75% of the original sales price.
C. The present value of the remaining monthly payments discounted at 12%.
D. Less than the present value of the remaining monthly payments discounted at 12%
(AICPA 1192T-9)45. Gentry Co. uses the installment sales method. When an account
had a balance of P3,500,
no further collections could be made and the dining room set was repossessed. At that
time, it was estimated that the dining room set could be sold for P1,000 as
repossessed, or
for P1,300 if the company spent P125 reconditioning it. The gross profit rate on this
sale
was 70%. What is the gain or loss on repossession?
A. 2,450 loss
B. 2,500 loss
C. 300 gain
D. 125 gain
(Punzalan, 2018)
For Items #46-47, use the following information:
Baker Co. is a real estate developer that began operations on January 2, 2016. Baker
appropriately uses the installment method of revenue recognition. Baker’s sales are
made on the
basis of a 10% Down Payment, with the balance payable over 30 years. Baker’s gross
profit
percentage is 40%. Relevant information for baker’s first two years of operations is as
follows:
Sales 2017 - P16,000,000
Sales 2016 - P14,000,000
Cash Collections 2017 - P2,020,000
Cash Collections 2016 - P1,400,000
46. At Dec. 31, 2016, Baker’s deferred gross profit was
A. 5,040,000
B. 5,600,000
C. 8,400,000
D. 12,600,000
47. Baker’s realized Gross Profit for 2017 was
A. 6,400,000
B. 2,020,000
C. 1,212,000
D. 808,000
(Punzalan, 2018)
For Items #48-50, use the following information:
QR Appliances sells home theater set both on installment and cash basis. Mr. X
purchased a set
from QR Appliances on March 30, 2015 for P367,500 which has a cost of P289,800.
A used set
is accepted as down payment, P89,600 being allowed on the trade in. The used set can
be resold
for P112,140 after reconditioning cost of P5,362. The company expects to make a
20% Gross
Profit on the sale of the of used set. The balance of the sale is to be paid on a 10
monthinstallment basis starting May 1, 2015. Mr. X defaulted payment starting
November 1, 2015 and
the set was immediately repossessed. The repossessed merchandise was appraised at a
value of
P65,625 at the time of repossession. QR had to incur additional cost of repairs
amounting to
P6,475 before the car was subsequently resold on December 1, 2015 for P90,125 cash
to Mr. Y.
48. What is the adjusted installment sales price?
A. 84,350
B. 362,250
C. 367,500
D. 390,040
49. How much is the realized gross profit on the sale to Mr. X?
A. 68,243
B. 45,470
C. 52,363
D. 50,218
50. Compute for the net income to be recognized for the year 2015
A. 69,293
B. 44,940
C. 51,415
D. 68,243
(CPAR 0310)
51. Asser Computer Co. began operations at the beginning of 2016. During the year, it
had
cash sales of P6,875,000 and sales on installment basis of P16,500,000. Asser adds a
markup on cost of 25% on cash sales and 50% on installment sales. Installment
receivable at the end of 2016 is P6,600,000. Total realized gross profit for 2016 is:
A. P1,375,000
B. P3,300,000
C. P4,675,000
D. P3,575,000
(Dayag, 2015)
52. The Central Plains Subdivision sells residential subdivision lots on installment
basis. The
following information was taken from the company’s records as at December 31,
2016:
Installment Accounts Receivable
January 1, 2016
P755,000December 31, 2016
840,000
Unrealized Gross Profit, January 1, 2016
339,750
Installment Sales
950,000
How much is the balance of Unrealized Gross Profit as at December 31, 2016?
A. P378,000
B. P339,750
C. P427,500
D. P389,250

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38. On January 1, 2016, Rex Co. sold a used machine to Lake, Inc. for P525,000.

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