PROBLEM 3 : MULTIPLE CHOICE - COMPUTATION

1. B Installment sales 1,000,000 13. C Date Collection Interest Amortization Principal

Cost of Sales -800,000 9/30/x1 48,000
Deffered Gross profit-unadjuested balance 200,000 9/30/x1 4,800 - 4,800 43,200
10/30/x1 4,800 432 4,368 38,832
Gross profit rate based on sales(200,000/1,000,000) 20% 11/30/x1 4,800 388 4,412 34,420
12/30/x1 4,800 344 4,456 29,965
Installment sales 1,000,000 Totals 19,200 1,165 18,035
Installment accounts receivable - Dec. 31,20x1 -600,000
Collection in 20x1 400,000 Collections pertaining to principal 18,035
Multiply by: Gross profit rate based on sale 20% Multiply by: Gross profit rate 37.50%
Realized gross profit - 20x1 80,000 Realized gross profit 6,763

Deffered Gross profit-unadjuested balance 200,000 14. A Inventory 16,800

Realized gross profit - 20x1 80,000 Deffered gross profit (29,965 x 37.50%) 11,237
Deffered Gross profit-adjuested balance 120,000 Loss on ressession 1,928
Receivable 29,965
2.C Deffered Gross profit (before year-end adjustment) 200,000
Divided by: Gross profit based on sales 20% 15. D 20x1 installment account receivable, Dec. 31, 20x2 112,500 *
Installment Sales 1,000,000 20x1 installment account receivable, Dec. 31, 20x3 -60,000
Collection in 20x1 -400,000 Collections in 20x3 from 20x1 sales 52,500
installment accounts receivable - end 600,000 Multiply by: Gross profit rate - 20x1 30%
Realized gross profit in 20x3 from 20x1 sales 15,750
3. C Installment sales 1,000,000
Cost of Sales -750,000 20x2 installment account receivable, Dec. 31, 20x2 300,000
Deffered Gross profit-unadjuested balance 250,000 20x2 installment account receivable, Dec. 31, 20x3 -195,000
Gross profit rate based on sales (250,000/1,000,000) 25% Collections in 20x3 from 20x2 sales 105,000
Multiply by: Gross profit rate - 20x2 40%
Installment accounts receivable 1,000,000 Realized gross profit in 20x3 from 20x2 sales 42,000
Deffered gross profit 200,000 Squeezed
Divided by : Gross profit rate base on sale 25% 20x3 installment sales 495,000
Realized gross profit 50,000 20x3 installment account receivable, Dec. 31, 20x3 -390,000
Collections in 20x3 from 20x3 sales 105,000
Realized gross profit checking = Collection on sale x Gross profit rate Multiply by: Gross profit rate - 20x3 35%
200,000 x 25% Realized gross profit in 20x3 from 20x1 sales 36,750
Realized gross profit = 50,000
Total realized gross profit - 20x3 94,500
4. D Installment sales 1,000,000
Cost of sale -750,000 * (135,000 less 22,500 unpaid balance in repossessed merchandise) = 112,500
Deffered gross profit - unadjusted 250,000
Realized gross profit -50,000 16. C Inventory (at fair value) 15,000
Deffered gross profit - adjusted balance 200,000 Deffered gross profit (22,500 x 30%) 6,750
Loss on repossession (squeezed) 750
Realized gross profit checking = Collection on sale x Gross profit rate Installment account receivable 22,500
200,000 x 25%
 Realized gross profit = 50,000 17. C The amount of over (under) allowance is determined as follows:
Trade-in value granted to customer 8,000
5. D Deffered gross profit (before year-end adjustment) 250,000 Fair value of merchandise traded-in -12,000
Realizable gross profit 220,000 Under allowance -4,000
Deffered gross profit - End 30,000
The journal entry to record the sale is as follows:
6. A Installment sales 1,000,000 Date Inventory - trade-in (at fair value) 12,000
Cost of Sales 750,000 Installment account receivable (squeezed) 24,000
Deffered Gross profit-unadjuested balance 250,000 Installment Sale 32,000
Realizable gross profit -180,000 Under allowance on trade-in 4,000
Deffered Gross profit year-end 70,000
18. C Installment sale price 32,000
Installment Accounts receivable (70,000/25%) 280,000 Under allowance 4,000
Adjusted installment sale price 36,000
7.B Installment accounts receivable 1,000,000 Cost of sale -20,000
Total collection 640,000 Squeezed Gross profit 16,000
Multiply by: Gross profit rate base on sale 25% Gross profit rate (36,000/16,000) 44.44%
Realizable gross profit 160,000
The realized gross profit is computed as follows:
8. B Total collection 560,000 Squeezed Trade-in value granted to customer 8,000
Multiply by: Gross profit rate base on sale 25% (Over) under allowance 4,000
Realized gross profit 140,000 Subsequent collections 12,000
Total collections on installment sale 24,000
Deffered gross profit - beg 200,000 Multiply by: Gross profit rate 44.44%
Realized gross profit 140,000 Squeezed Realized gross profit 10,667
Deffered gross profit year-end 60,000
19.D Cash down payment 600,000
9.B 20x1 installment accounts 16,250 Collection from installment payment (900,000 + 540,000) 1,440,000
Multiply by: Gross profit rate based on sales 30%/130% 23.08% Total collections 2,040,000
Deffered gross profit (after adjusment) - 20x1 3,750 Cost of sale -4,000,000
Excess of collection over cost -
20x2 installment accounts 90,000
Multiply by: Gross profit rate based on sales 33 1/3%/133 1/ 25% Since total collections do not exceed the cost of sale,
Deffered gross profit (after adjusment) - 20x2 22,500 no income shall be recognized by Sound Co.

Total Deffered gross profit (after adjustment) 3,750 + 22,500 = 26,250

Deffered gross profit (before adjustment) 38,000 20. C 20x1 20x2

Deffered gross profit (after adjustment) -26,250 Collection 20,000 24,000
Realized gross profit - 20x2 11,750 Cost of sale 16,000 18,000
Expenses relating to installment sales -1,500 Gross profit 4,000 6,000 10,000
Profit from installment sales - 20x2 10,250

10. A 20x1 20x2 20x3

Installment sales 300,000 375,000 360,000
Cost of sale 225,000 285,000 252,000
 Gross profit 75,000 90,000 108,000
Gross profit rate base on sales 25% 24% 30%

20x1 Deferred gross profit, Dec. 31, 20x3 -

Divide by: Gross profit rate 25%
20x1 Installment accounts receivable, Dec. 31, 20x3 -

20x2 Deferred gross profit, Dec. 31, 20x3 9,000

Divide by: Gross profit rate 24%
20x2 Installment accounts receivable, Dec. 31, 20x3 37,500

20x3 Deferred gross profit, Dec. 31, 20x3 72,000

Divide by: Gross profit rate 30%
20x3 Installment accounts receivable, Dec. 31, 20x3 240,000

Total installment accounts receivable, Dec. 31, 20x3 (37,500 + 240, 277,500

11. C 20x1 Deferred gross profit, Dec. 31, 20x2 15,000

Divide by: Gross profit rate 25%
20x1 Installment accounts receivable, Dec. 31, 20x2 60,000
20x1 Installment accounts receivable, Dec. 31, 20x3 -
Collection during 20x3 from 20x1 sales 60,000

20x2 Deferred gross profit, Dec. 31, 20x2 54,000

Divide by: Gross profit rate 24%
20x2 Installment accounts receivable, Dec. 31, 20x2 225,000
20x2 Installment accounts receivable, Dec. 31, 20x3 37,500
Collection during 20x3 from 20x2 sales 187,500

Installment sales - 20x3 360,000

20x3 Installment accounts receivable, Dec. 31, 20x3 240,000
Collection during 20x3 from 20x3 sales 120,000

Total collections during 20x3 (60,000 + 187,500 + 120,000) 367,500

12. D Collection during 20x3 from 20x1 sales 60,000

Multiply by: Gross profit rate - 20x1 sales 25%
Realized gross profit in 20x3 from 20x1 sales 15,000

Collection during 20x3 from 20x2 sales 187,500

Multiply by: Gross profit rate - 20x2 sales 24%
Realized gross profit in 20x3 from 20x2 sales 45,000

Collection during 20x3 from 20x3 sales 120,000

Multiply by: Gross profit rate - 20x3 sales 30%
Realized gross profit in 20x3 from 20x3 sales 36,000
Total realized gross profit in 20x3 (15,000 + 45,000 + 36,000) 96,000