CHAPTER 9 - Installment Sales

SOLUTIONS TO PROBLEMS

Problem 9 – 1
Journal Entries:
2009 2010 2011
Installment A/R–2009............ 104,000 – –
Installment A/R–2010............ – 116,000 –
Installment A/R–2011............ – – 121,000
Installment Sales.............. 104,000 116,000 121,000
Cost of Installment Sales....... 64,480 68,440 73,810
Inventory.......................... 64,480 68,440 73,810
Cash........................................  66,980 125,520 145,460
Installment A/R–2009 57,200 29,120 15,000
Installment A/R–2010...... – 71,920 26,680
Installment A/R–2011...... – – 76,230
Interest Revenue............... 9,780 24,480 27,550
Installment Sales.................... 104,000 116,000 121,000
Cost of Installment Sales. 64,480 68,440 73,810
Deferred Gross Profit–2009 39,520 – –
Deferred Gross Profit–2010 – 47,560 –
Deferred Gross Profit–2011 – – 47,190
Deferred Gross Profit–2009... 21,736 11,066 5,700
Deferred Gross Profit–2010... – 29,487 10,939
Deferred Gross Profit–2011... – – 29,730
Realized Gross Profit....... 21,736 40,553 46,369
Computations:
2009: P57,200 X .38 = P21,736
2010: P29,120 X .38 = P11,066
P71,920 X .41 = 29,987
Total RGP P40,553
2011: P15,000 X .38 = P 5,700
P26,680 X .41 = 10,939
P76,230 X .39 = 29,730
Total RGP P46,369

Problem 9 – 2
2010: Inventory..............................................................................45,200
Cash............................................................................... 45,200
Notes Receivable 2010 (P32,000 + P62,000 + 3,600)........97,600
Unearned Interest Revenue (P7,167 + P3,600)............ 10,767
Installment Sales............................................................ 86,833
Cost of Installment Sales (P45,200 – P2,000 inventory increase)43,200
Inventory........................................................................ 43,200
Cash. ....................................................................................35,600
Notes Receivable 2010................................................... 35,600
Unearned Interest Revenue 2010.........................................3,600
Interest Revenue............................................................. 3,600
 Installment Sales..................................................................86,833
Cost of Installment Sales................................................ 43,200
Deferred Gross Profit on Installment Sales–2010......... 43,633
Deferred Gross Profit on Installment Sales–2010...............16,080*
Realized Gross Profit on Installment Sales................... 16,080
*Gross profit percentage: 50.25% (P43,633/P86,833)
.5025 x 32,000 = P16,080
2011: Inventory..............................................................................52,020
Cash............................................................................... 52,020
Notes Receivable–2008........................................................89,5001
Unearned Interest Revenue............................................ 11,9552
Installment Sales............................................................ 77,545
160,000 + (P50,000 + P5,500) – P26,000* = 89,500
*2010 Notes receivable collected in 2008
2Interest revenue from 2010 notes: P7,167 – P5,579 = P1,588
Interest revenue from 2011 notes: P5,500 – P1,588 = P3,912
Discount on notes receivable at end of 2011.......................P  8,043
Interest revenue from 20011notes (see above).................... 3,912
Total discount at time of sale...............................................P11,955
Cost of Installment Sales (P52,020 – P8,000).....................44,020
Inventory........................................................................ 44,020
Cash. ....................................................................................55,500
Notes Receivable–2010 (P62,000 – P36,000)............... 26,000
Notes Receivable–2011.................................................. 29,500*
* P89,500 – P60,000 = P29,500
Discount on Notes Receivable–2010...................................1,588
Discount on Notes Receivable–2011...................................3,912
Interest Revenue............................................................. 5,500
Installment Sales..................................................................77,545
Cost of Installment Sales................................................ 44,020
Deferred Gross Profit on Installment Sales–2011......... 33,525
Deferred Gross Profit on Installment Sales–2010 (P26,000
– P1,538 = P24,412; P24,412 x .5025)...............................12,267
Deferred Gross Profit on Installment Sales–2011...............11,062*
Realized Gross Profit on Installment Sales................... 23,329
profit percentage: 43.23% (P33,525 ¸ P77,545 ; .4323 x (P29,500 – P3,912) = P11,062

Problem 9 – 3
Deferred gross profit, 1/1 P24,000
1. 2009: Gross profit rate = ––––––––––––––––––––– = ––––––– = 40%
Install. contracts rec'l, 1/1 P60,000

Deferred gross profit, 1/1 P24,000

2010: Gross profit rate = ––––––––––––––––––––– = ––––––– = 42%
Install. contracts rec'l, 1/1 P140,000
 Gross profit P86,000
2011: Gross profit rate = –––––––––––– = –––––––––– = 43%
Installment sales P200,000
2. Journal Entries:
Accounts Receivable.................................................................. 600,000
Sales. .................................................................................... 600,000
Installment Contracts Receivable – 2011.................................. 200,000
Installment Sales.................................................................. 200,000
Cost of Installment Sales............................................................ 114,000
Shipments on Installment Sales............................................ 114,000
Purchases................................................................................... 476,000
Cash. .................................................................................... 476,000
Selling Expenses......................................................................... 210,000
Cash. .................................................................................... 210,000
Cash........................................................................................... 790,000
Accounts Receivable............................................................ 560,000
Installment Contracts Receivable – 2009............................ 40,000
Installment Contracts Receivable – 2010............................ 80,000
Installment Contracts Receivable – 2011............................ 110,000
Adjusting Entries:
Installment Sales........................................................................ 200,000
Cost of Installment Sales...................................................... 114,000
Deferred Gross Profit on Installment sales – 2011............. 86,000
Deferred Gross Profit – 2009 (P40,000 x 40%)........................ 16,000
Deferred Gross Profit – 2010 (P80,000 x 42%)........................ 33,600
Deferred Gross Profit – 2011 (P110,000 x 43%)...................... 47,300
Realized Gross Profit........................................................... 96,900
Doubtful Accounts Expense (1/4 x 1% x P600,000).................. 1,500
Allowance for Doubtful Accounts........................................ 1,500
Closing Entries:
Sales........................................................................................... 600,000
Merchandise Inventory, December 31....................................... 260,000
Shipments on Installment Sales.................................................. 114,000
Merchandise Inventory, January 1...................................... 240,000
Purchases............................................................................. 476,000
Selling Expenses................................................................... 210,000
Doubtful Accounts Expense................................................. 1,500
Income Summary.................................................................. 46,500
Realized Gross profit................................................................. 96,900
Income Summary.................................................................. 96,900
Income Summary........................................................................ 143,400
Retained Earnings................................................................ 143,400
3. Good Buy Mart
Statement of Comprehensive Income
Year Ended December 31, 2011
Sales........................................................................................... P600,000
Cost of sales:
Merchandise inventory, January 1....................................... P240,000
Purchases.............................................................................. 476,000
 Cost of goods available for sale........................................... 716,000
Less Shipments on installment sales.................................... 114,000
Cost of goods available for regular sales............................. 602,000
Less Merchandise inventory, December 31......................... 260,000 342,000
Gross profit on regular sales...................................................... 258,000
Add Realized gross profit on installment sales (Schedule 1).... 96,900
Total realized gross profit.......................................................... 354,900
Operating expenses:
Selling expenses................................................................... 210,000
Doubtful accounts expense.................................................. 1,500 211,500
Net income................................................................................. P143,400
Schedule 1:
Years of Installment Sales
2006 2007 2008 Total
Collections................................. P40,000 P80,000 P110,000
Multiply by Gross profit rate..... 40% 42% 43%
Realized gross profit.................. P16,000 P33,600 P  47,300 P 96,900
4. Good Buy Mart
Statement of Financial Position
December 31, 2011
A s s e t s
Cash............................................................................................ P144,000
Merchandise inventory............................................................... 260,000
Accounts receivable................................................................... P 62,000
Allowance for doubtful accounts............................................... 3,500 58,500
Installment contracts receivable – 2009..................................... 20,000
Installment contracts receivable – 2010..................................... 60,000
Installment contracts receivable – 2011..................................... 90,000
Other assets................................................................................ 200,000
Total Assets.......................................................................... P832,500
Liabilities and Equity
Liabilities:
Accounts payable................................................................. P 60,000
Deferred gross profit on installment sales – 2009............... 8,000
Deferred gross profit on installment sales – 2010............... 25,200
Deferred gross profit on installment sales – 2011............... 38,700
Total Liabilities.................................................................... 131,900
Equity:
Capital stock......................................................................... P406,000
Retained earnings................................................................. 294,600 700,600
Total Liabilities and Equity................................................. P832,500

Problem 9 – 4
Deferred gross profit, 1/1 = P21,600 + P1,200 = P22,800
1. 2010: GP rate = ––––––––––––––––––––– = –––––––––––––––– = ––––––– = 30%
Install. contracts rec'l, 1/1 P24,000 + P52,000 P76,000
 Gross profit P150,000 – P97,500 P52,500
2011: GP rate = –––––––––––––– = –––––––––––––––– = –––––––– = 35%
Installment sales P150,000 P150,000
2. Installment Sales........................................................................ 150,000
Cost of Installment Sales...................................................... 97,500
Deferred Gross Profit, 2011................................................ 52,500
Deferred Gross profit, 2010....................................................... 14,400
Deferred Gross Profit, 2011...................................................... 25,900
Realized Gross Profit........................................................... 40,300
Computation:
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1........ P76,000 P150,000
Less Installment contracts receivable, 12/31 24,000 76,000
Total credit for the period........................ 52,000 74,000
Less Credit representing repossession..... 4,000 –
Credit representing collections................ P48,000 P 74,000
Multiply by Gross profit rate................... 30% 35%
Realized gross profit................................ P14,400 P  25,900 P 40,300
Sales........................................................................................... 212,000
Realized Gross Profit................................................................. 40,300
Loss on Repossession........................................................... 400
Cost of Sales......................................................................... 165,000
Selling and Administrative Expenses................................... 66,000
Income Summary.................................................................. 20,900
Income Summary........................................................................ 20,900
Retained Earnings................................................................ 20,900
3. Apple Company
Statement of Comprehensive Income
Year Ended December 31, 2011
Sales........................................................................................................... P212,000
Cost of sales............................................................................... 165,000
Gross profit on regular sales...................................................................... 47,000
Add Realized gross profit on installment sales (Schedule 1)....... 40,300
Total realized gross profit.......................................................................... 87,300
Less Loss on repossession......................................................... 400
Total realized gross profit after adjustment for loss on repossession........ 86,900
Selling and administrative expenses............................................. 66,000
Net income................................................................................................. P  20,900
Schedule 1
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1.................. P76 000 P150,000
Less Installment contracts receivable, 12/31..... 24,000 76,000
Total credit for the period.................................. 52,000 74,000
Less Credit representing repossession............... 4,000 –
Credit representing collections.......................... P48,000 P 74,000
Multiply by Gross profit rate............................. 30% 35%
 Realized gross profit.......................................... P14,400 P 25,900 P40,300

Problem 9 – 5
1. Cost of Installment Sales............................................................ 54,400
Shipments on Installment Sales............................................ 54,400
Installment Sales........................................................................ 80,000
Cost of Installment Sales...................................................... 54,400
Deferred Gross Profit, 2011................................................ 25,600
Gross profit = P25,600/P80,000 = 32%
Deferred Gross Profit, 2010...................................................... 14,000
Deferred Gross Profit, 2011...................................................... 8,000
Realized Gross Profit........................................................... 22,000
Computation:
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1........ P82,000 P 80,000
Less Installment contracts receivable, 12/31 _ 36,000 _55,000
Total credit for the period........................ 46,000 25,000
Less Credit representing repossession..... __6,000 ___–
Credit representing collections................ P40,000 P 25,000
Multiply by Gross profit rate................... __35%* ___32%
Realized gross profit................................ P14,000 P   8,000 P 22,000
DGP, 1/1 P28,700 (26,600 + 2,100)
*2010 Gross profit rate = ––––––– = ––––––– = 35%
ICR, 1/1 P82,000 (36,000 + 40,000 + 6,000)
Sales........................................................................................... 200,000
Merchandise Inventory, December 31....................................... 52,000
Shipments on Installment Sales.................................................. 54,400
Merchandise Inventory, January 1...................................... 60,000
Purchases............................................................................. 180,000
Repossessed Merchandise.................................................... 3,000
Loss on Repossession........................................................... 900
Operating Expenses............................................................. 53,000
Income Summary.................................................................. 9,500
Realized Gross Profit................................................................. 22,000
Income Summary.................................................................. 22,000
Income Summary........................................................................ 31,500
Retained Earnings................................................................ 31,500
2. PPG Discount Center, Inc.
Statement of Comprehensive Income
Year Ended December 31, 2011
Regular Installment Total
Sales....................................................... P200,000 P80,000 P280,000
Cost of sales:
Inventory, January 1......................... P  60,000
Purchases.......................................... 180,000
Repossessed merchandise................ __3,000
Cost of goods available for sale....... 243,000
 Less Shipments on installment sales _54,400
Cost of goods available for regular sales 188,600
Less Inventory, December 31.......... _52,000 _136,600 54,400 191,000
Gross profit............................................ P 63,400 25,600 89,000
Less Deferred gross profit on installment
sales, 2011........................................ 17,600 17,600
Realized gross profit, 2011.................... 8,000 71,400
Add Realized gross profit on 2010
installment sales............................... 14,000 14,000
Total realized gross profit...................... 22,000 85,400
Less Loss on repossession..................... ___900 __900
Total realized gross profit after adjustment
for loss on repossession................... P21,100 84,500
Operating expenses................................ _53,000
Net income............................................. P31,500

Problem 9 – 6
1. London Products
Schedule of Cost of Goods Sold
Year Ended December 31, 2011
Merchandise inventory, January 1............................................................. P 48,000
Purchases....................................................................................................
238,000
Freight-in....................................................................................................
12,000
Repossessed merchandise............................................................. 14,000
Cost of goods available for sale................................................................. 312,000
Less Merchandise inventory, December 31.................................. 52,000
Cost of goods sold...................................................................................... P260,000
2. London Products
Schedule of Allocation of Cost of Goods Sold
Year Ended December 31, 2011
On Cash Ratio to Allocated
Amount Price Basis Total Cost
Cash sales............... P60,000 P   60,000 60/400 P  39,000
Charge sales........... 120,000 / 120% 100,000 100/400 65,000
Installment sales..... 300,000 /125% 240,000 240/400 156,000
P 400,000 P260,000
3. London Products
Statement of Comprehensive Income
Year Ended December 31, 2011
Installment Charge Cash
Total Sales Sales Sales
Sales......................................... P480,000 P 300,000 P120,000 P 60,000
Cost of goods sold.................... 260,000 156,000 65,000 39,000
Gross profit.............................. P 220,000 P 144,000 P 55,000 P 21,000
Less Unrealized gross profit:
 On installment contracts
receivable,12/31 (192,000 x 144/300) 92,160 92,160
Realized gross profit................ 127,840 51,840
Add Realized gross profit on
prior years' sales (Schedule 1):
2009.............................. 19,200
2010.............................. 14,700 33,900 33,900
Total realized gross profit........ 161,740 85,740
Less Loss on repossession
(Schedule 2)....................... 10,200 10,200
Total realized gross profit after
adjustment for loss on
repossession....................... 151,540 P  75,540
Less Operating expenses.......... 93,000
Net income............................... P 58,540
Schedule 1
2009 2010
Installment contracts receivable, January 1:
2009 – P32,000 / 40%.......................................................... P80,000
2010 – P56,000 / 35%.......................................................... P160,000
Less Installment contracts receivable, December 31................. _22,000 __90,000
Total credits............................................................................... 58,000 70,000
Less Credit representing repossession....................................... _10,000 28,000
Total collections......................................................................... P48,000 P 42,000
Multiply by Gross profit rate..................................................... ___40% ___35%
Realized gross profit.................................................................. P19,200 P 14,700
Schedule 2
2009 2010 Total
Fair market value of repossessed merchandise P 2,000 P12,000
P 14,000
Less Unrecovered cost:
Unpaid balance......................................... 10,000 28,000 38,000
Less Unrealized profit –
2009 – P10,000 x 40%....................... 4,000
2010 – P28,000 x 35%....................... 9,800 13,800
Balances ........................................................ __6,000 18,200 __24,200
Gain (loss) on repossession............................ P(4,000) P( 6,200) P(  10,200)

Problem 9 – 7
1. 2010 2011
2010
2010 installment sales (P400,000 x 42%*)..........................P  168,000
2011:
2010 installment sales (P173,000 x 42%)............................ P   72,660
2011 installment sales (P560,000 x 38.5%*).......................________ __215,600
Deferred gross profit..................................................................P  168,000 P  288,260
*Computation of Gross profit percentages (see next page)
2010 2011
 Installment sales.........................................................................P2,210,000 P3,100,000
Less Trade-in allowances (P226,000 – P158,000)....................._______– ____68,000
Adjusted installment sales..........................................................2,210,000 _3,032,000
Cost of sales:
Inventories, January 1 (new)................................................ – 420,000
Purchases (new)...................................................................1,701,800 1,767,000
Repossessed merchandise.................................................... – _83,000*
Cost of goods available for sale...........................................1,701,800 2,270,000
Less: Inventories, December 31 –
New merchandise........................................................... 420,000 358,820
Repossessed merchandise.............................................._______– ____46,500
Total............................................................................... 420,000 405,320
Cost of sales.........................................................................1,281,800 _1,864,680
Gross profit................................................................................P 928,200 P1,167,320

Gross profit percentages............................................................ 42% 38.5%

*2010 : P195,000 x 20%=P39,000
2011 : P110,000 x 40%=_44,000
P83,000
2. Uncollectible installment contracts expense, per books P   99,000
Correct Uncollectible installment contracts expense:
Fair market value of repossessed merchandise –
2010 sales (P195,000 x 20%)......................P  39,000
2011 sales (P110,000 x 40%)......................__44,000     83,000
Unrecovered cost –
2010 sales [P105,000 x (100% – 42%)]...... 60,900
20011 sales [P82,000 x (100% – 38.5%)]...__50,430__ 111,330 28,330
Adjustment to Uncollectible installment contracts expense P   70,670
3 Fortune Sales Corporation
Statement of Comprehensive Income
Year Ended December 31, 2011

Cash Installment Total

Sales Sales Sales
Sales .................................................................P205,000 P3,032,000 P3,237,000
Cost of sales............................................................_158,000 _1,864,680 _2,022,680
Gross profit.............................................................P  47,000 1,167,320 1,214,320
Less Unrealized gross profit on 2011 installment
sales (Schedule 1).............................................. __247,170 __247,170
Realized gross profit on 2011 sales........................ 920,150 967,150
Add Realized gross profit on 2010 installment
sales (Schedule 2).............................................. ___51,240 ___51,240
Total realized gross profit....................................... 971,390 1,018,390
Less Uncollectible installment contracts expense... ___28,330 ___28,330
Total realized gross profit after adjustment............ P  943,060 990,060
Operating expenses................................................. __592,960
Net income.............................................................. P  397,100
Schedule 1

Installment contracts receivable 2011, December 31 ............ P   560,000

Installment contracts receivable 2011 defaulted.................... ___82,000
Total....................................................................................... P   642,000
Multiply by 2011 gross profit percentage.............................. ___38.5%
Unrealized gross profit on 2011 installment sales................. P   247,170
Schedule 2
Installment contracts receivable 2010, January 1...................... P   400,000
Less Installment contracts receivable 2010, December 31........ __173,000
Total credits for the period......................................................... 227,000
Less Installment contracts receivable 2010 defaulted............... __105,000
Total collections......................................................................... P   122,000
Multiply by 2010 gross profit percentage.................................. _____42%
Realized gross profit on 2010 installment sales......................... P     51,240
1. Apportionment of cost (P600,000) to Lots 1, 2 and 3:
Lot 1 : 2/3 x P360,000.............................. P   240,000
Lot 2 : 2/3 x P240,000.............................. 160,000
Lot 3 : 1/3................................................. P120,000
1/3 x P240,000................................... __80,000 __200,000
Total cost.................................................. P   600,000
Journal Entries for 2010
March 31
Cash....................................................................................... 36,000.00
Notes Receivable (Lot 2)........................................................ 364,000.00
Lot 2 ................................................................................ 160,000.00
Deferred gain on Sale of Land......................................... 240,000.00
June 30
Cash....................................................................................... 120,000.00
Notes Receivable (Lot 3)........................................................ 720,000.00
Lot 3. ................................................................................ 200,000.00
Deferred Gain on Sale of Land........................................ 640,000.00
Cash....................................................................................... 16,000.00
Interest Income (P364,000 x 12% x 3/12)....................... 10,920.00
Notes Receivable (Lot 2).................................................. 5,080.00
September 30
Cash....................................................................................... 16,000.00
Interest Income (P358,920 x 12% x 3/12)....................... 10,767.60
Notes Receivable (Lot 2).................................................. 5,232.40
October 31
Cash....................................................................................... 72,000.00
Notes Receivable (Lot 1)........................................................ 288,000.00
Lot 1. ................................................................................ 240,000.00
Deferred Gain on Sale of Land........................................ 120,000.00
December 31
Cash....................................................................................... 78,000.00
Notes Receivable (Lot 1).................................................. 6,240.00
 Notes Receivable (Lot 2).................................................. 5,389.37
Notes Receivable (Lot 3).................................................. 6,800.00
Interest Income................................................................. 59,570.63
Computation:
Total Lot 1 Lot 2 Lot 3
Collections.................................. P78,000.00 P12,000.00 P16,000.00 P50,000.00
Apply to interest:
Lot 1 – P288,000.00 x 12% x 2/12 5,760.00
Lot 2 – P353,687.60 x 12% x 3/1259,570.63 10,610.63
Lot 3 – P720,000.00 x 12% x 6/12__________________ _________ _43,200.00
Apply to principal....................... P18,429.37 P 6,240.00 P  5,389.37 P  6,800.00
2. Deferred Gain on Sale of Land (Lot 1)......................................26,080.00
Deferred Gain on Sale of Land (Lot 2)......................................31,021.06
Deferred Gain on Sale of Land (Lot 3)......................................96,368.00
Realized Gain on Sale of Land............................................. 153,469.06
Computation:
Lot 1 Lot 2 Lot 3
Collections applied to principal. . P78,240.00 P51,701.77 P126,800.00
Multiply by Gross profit rates:
Lot 1 – P120,000 / P360,000. . 33.33%
Lot 2 – P240,000 / P400,000. . 60%
Lot 3 – P640,000 / P840,000. . _________ _________ _____76%
Realized gain............................... P26,080.00 P31,021.06 P96,368.00
3. Lot 3 (80% x P200,000).............................................................160,000.00
Deferred Gain on Sale of Land (Lot 3) (P640,000 – P96,368). 543,632.00
Loss on Repossession................................................................. 9,568.00
Notes Receivable (Lot 3) (P720,000 – P6,800)................... 713,200.00

Problem 9 – 9
Galaxy Investment Company
Income Statement
Year Ended December 31, 2011
Sales Schedule 1)............................................................................... P 8,060,000
Cost of sales (Schedule 2).................................................................. 1,612,000
Gross profit ........................................................................................ 6,448,000
Less Sales commissions..................................................................... 221,000
Gross profit ........................................................................................ 6,227,000
Less Deferred gross profit
Installment Notes Balance P5,370,000
––––––––––––––––––––– = –––––––––– = 67% x P6,227,000 = 4,172,090
Installment Sales P8,060,000
Realized gross profit.......................................................................... 2,054,910
Expenses:
Advertising and promotion........................................................P  730,000
Sales manager's salary............................................................... 120,000
General office expenses (1/4 x P236,000)................................. 59,000 909,000
Net profit............................................................................................ P 1,145,910
Schedule 1
 Total Cash Installment
Sales Price Received Notes Balance
A lots : 26 @ P150,000.................................. P3,900,000 P1,650,000 P 2,250,000
B lots : 32 @ P100,000.................................. 3,200,000 800,000 2,400,000
C lots : 12 @ P80,000.................................... 960,000 240,000 720,000
................................................ P8,060,000 P2,690,000 P 5,370,000
Schedule 2
Number of Unit Total
Class Lots Price Sales Value
A............................................................. 80 P150,000 P12,000,000
B............................................................. 100 100,000 10,000,000
C............................................................. 120 80,000 9,600,000
Total. ................................................ 300 P31,600,000
Cost of tract:
Cost of land................................................................................ P 4,800,000
Legal fees, etc............................................................................ 600,000
Grading contract......................................................................... 225,000
Water and sewerage system contract......................................... 184,900
Paving contract........................................................................... 266,300
General office expenses (3/4 x P236,000)................................. 177,000
Total........................................................................................... P 6,253,200
P6,253,200
Cost rate : –––––––––––– = 20% (rounded off)
P31,600,000
Cost of sales (P8,060,000 x 20%)...................................................... P 1,612,000

Problem 9 – 10
Rizal Company
Statement of Comprehensive Income
Year Ended December 31, 2011
Installment sales [(P14,300 x 7) + (P725 x 4)].................................. P103,000
Cost of goods sold on installment (schedule 1)................................. __79,310
Gross profit ........................................................................................ 23,690
Less Deferred gross profit on 2011 sales
(P103,000 – P21,000 = P82,000 x 23%*)................................. __18,860
Realized gross profit on 2011 sales................................................... 4,830
Add Realized gross profit on prior years' sales –
2009 : P60,000 x 33-1/3*........................................................... P20,000
2010 : P115,000 x 35%*............................................................ _40,250 __60,250
Total realized gross profit.................................................................. 65,080
Less Loss on repossession (Schedule 4)............................................ __33,100
Total realized gross profit after adjustment....................................... 31,980
General and administrative expenses................................................. __50,000
Net income (loss)............................................................................... P(18,020)
*See Schedule 3
Schedule 1
Purchases (P10,500 x 8)..................................................................... P  84,000
Repossessed merchandise.................................................................. ___2,520
Cost of goods available for sale......................................................... 86,520
Less Inventory, December 31 –
Number of units on hand............................................................ 1
Multiply by average unit cost (Schedule 2)............................... P 7,210 ___7,210
Cost of goods sold on installment...................................................... P  79,310
Schedule 2
Purchases during 2008 (P10,500 x 8)................................................ P  84,000
Add Repossessed merchandise.......................................................... ___2,520
Total................................................................................................... P  86,520
divide by Number of units (8 + 4)..................................................... _____12
Average unit cost............................................................................... P    7,210
Schedule 3
2009 2010 2011
Sales –
2009 : P15,000 x 10.................................. P150,000
2010 : P14,000 x 20.................................. P280,000
2011 : P14,300 x 7.................................... 100,100
P725 x 4......................................... _______ _______ __2,900
Sales .................................................... 150,000 280,000 103,000
Cost of goods sold:
Inventory, January 1................................... – 20,000 –
Purchases.................................................... 120,000 162,000
84,000
Repossessed merchandise.......................... _____– _____– _2,520
Cost of goods available for sale................. 120,000 182,000 86,520
Less Inventory, December 31.................... _20,000 _____– _7,210
Cost of goods sold...................................... 100,000 182,000 79,310
Gross profit ........................................................ P 50,000 P 98,000 P23,690
Gross profit rates................................................ 33-1/3% 35% 23%
Schedule 4
Fair market value of repossessed merchandise.................................. P 2,520
Less Unrecovered cost –
Unpaid balance:
Original sales amount (P14,000 x 4).................................... P 56,000
Collections prior to repossession......................................... __1,200
Total. .................................................................................... 54,800
Less Unrealized profit (P54,800 x 35%).................................... _19,180 _35,620
Loss on repossession.......................................................................... P33,100

Problem 9-11
The key to this solution is solving the gross profit rate for 2009 (3)
1. P39,000 (P50,000 – P11,000)
2. P11,000 (P60,000 x 0.22)
3. 22%: 2010 realized gross profit on 2010 cash collections, P5,000 (P20,000 x .25)
2010 realized gross profit on 2009 cash collections, P5,500 (P10,500 – P5,000)
Gross profit rate – 2009, 22% (P5,500 / P25,000 cash collections)
4. P5,000 (P1,100 / .22)
5. P60,000 (P80,000 – P20,000)
 6. P20,000 (P80,000 x .25)
7. P120,000 (P91,000 + P28,200)
8. 23.5% (P28,200 / P120,000)
9. P25,275: 2011 realized gross profit on 2009 collections, (P10,000 x .22)
2011 realized gross profit on 2010 collections, (P50,000 x .25)
2011 realized gross profit on 2011 collections, (P45,000 x .235)

Problem 9-12
2009 2010 2011
Installment sales P92,000 P103,000 P115,000 (a)
Cost of installment sales 58,880 (b) 62,830 74,750
Gross profit rates 36% 39% (c) 35%
Cash collections:
2009 sales 27,200 48,300 12,200
2010 sales 36,600 33,280 (d)
2011 sales 43,450
Realized gross profit 0 (e) 16,620 (f) 19,250 (g)
Computations:
(a) P74,750 / .66 = P115,000
(b) P92,000 x .64 = P58,880
(c) 1 - (P62,830 / P103,000) = 39%
(d) Gross profit recognized in 2011 P19,250
All costs from 2009 sales are recovered.
Cash collections equals gross profit (12,200)
Cash collected goes to recover costs – gross profit 0
Gross profit reported in 2011 from 2010 sales P 7,050
Cost of 2010 sales P62,830
Costs recovered in 2010 36,660
Costs to be recovered in 2011 26,230
Cash collected related to 2010 sales P33,280
(e) Cash collections in 2009 do not exceed cost of sales:
Realized gross profit in 2009 = P0
(f) Cash collections for 2009 sales (P27,200 + P48,300) P75,500
Cost of 2009 sales 58,880
Realized gross profit in 2010 P16,620
(g) Cash collections for 2009 sales P12,200
Cash collections for 2010 sales (P36,600 + P33,280) P69,880
Cost of 2010 sales 62,830 7,050
Realized gross profit in 2011 P19,250

Problem 9-13
1. Repossessed Inventory
2010 repossessi0ns (P37,500 x 20%) P 7,500
2011 repossessions (P24,000 x 50%) 12,000 P19,500
Trade-In inventory:
Fair value P40,875
Sold 27,000 13,875
Total inventory P33,375
2. Repossessed Inventory 19,500
Loss on repossession or Allowance for bad debts 13,900
Accounts receivable 33,400
To record repossessions on defaulted contracts.
Note: No deferred gross profit is cancelled because no
Gross profit rate on installment sales is given.
3. Sales (P64,035 – P40,875) 23,160
Cost of trade-Ins sold 27,000
Trade-In inventory 11,160
Loss on trade-in inventory 12,000
Sales-trade-ins 27,000
To reduce trade-in inventory to wholesale market value
And to reflect this in lower sales and losses.
To reflect sales and cost of sales for trade-ins in separate accounts.