Installment Method 
Method 

Under this method, income is recognized only when collections are made. Problems requiring
the use of the installment method of recognizing income have appeared quite regularly in the
CPA exam. The following are the typical problems often encountered in the CPA exam:

1. Computation of Gross Profit Rate for each year of sales.

sales.
2. Computation of Realized Gross Profit for each year of sales.
sales.
3. Computation of Deferred Gross
Gross Account balance at the end of of year.
4. Computation of Gain or Loss
Loss on repossessions.

Computation of Gross Profit Rate 

Rate 

To compute the realized gross profit in proportion to the collections made, it is necessary to
determine the gross profit rate for each year’s  operations. The following are the formulas in
computing gross profit rate:
Gross Profit  
Current year sales: Gross Profit Rate = 
= 
Installment Sales
 

Prior year sales: 

sales:  
Deferred Gross Profit (Beg.) –  Prior
 Prior Year Sales 
Sales 
Gross Profit Rate = 
= 
Installment Accounts Receivable (Beg.) –  Prior
 Prior Year Sales
 

Computation of Realized Gross Profit 

Profit 

Once the gross profit rates are known, it is possible to compute the realized gross profit based
on cash collections. The formula to be used is:
 

Realized Gross Profit = Collections (excluding interest) x Gross Profit Rate (based on sale) 
sale) 

Missing Factors. In as much as the realized gross profit under the installment method depends
upon cash collections of receivables, it is important that the amounts collected must be known.
However, in some problems, the collections are not specifically stated. Such collections must be
reconstructed from related information available from the data given. The candidate should
remember the following format in computing the collections:
Current   Prior  
Year   Year 

  Sales  Sales 
Installment accounts receivable  – beginning xx xx 
xx 
Installment accounts receivable  – end  (xx)  (xx) 
Total credits 
credits  xx
xx   xx 
xx 
Credit for repossessions (unpaid balance) 
balance)  (xx)  
(xx) (xx)  
(xx)
Credit for installment A/C written off   (xx)  
(xx) (xx)  
(xx)
Credit representing collections 
collections  xx
xx   xx 
xx 
Computation of Deferred Gross Profit, End 
End 

To compute the balance of Deferred Gross profit at the end of the year, the following formula
may be used:

Installment Account Receivable –  End

 End x GPR = Deferred Gross Profit –  End 
 End  
Or
Or  
Deferred Gross Profit –  before adjustment xx
Less: Realized gross profit xx
Deferred Gross Profit - End xx  

Computation of Gain or Loss on Repossession 

Repossession 

If a customer does not make an installment payment

payment at the specified time, it iiss necessary to
repossess the merchandise in order for the seller to minimize his loss.

The gain or loss on repossession is computed as

as follows:

Fair value of repossessed merchandise xx

Less: Unrecovered cost - 
Unpaid balance  xx 
Less: deferred gross profit (unpaid balance x GP rate)  xx  xx 
Gain (loss) on repossession  xx 

The fair value of repossessed merchandise

merchandise at the time of repossession should
should be before
reconditioning cost and before adding a normal gross profit from
f rom sale of repossessed
merchandise.
 

 
Trade In 
In 

This type of installment sales

sales used by car dealers, whereby an old car is received as down
payment from the buyer for sale of the new car. Usually the old car traded-in is overvalued to
induce the trade-in. for problem solving purposes the overvaluation is computed using a
formula below:

Trade-in value allowed on the old car Pxx  

Pxx
Less: Actual value
Estimated selling price Pxx  
Pxx
Less: Normal gross profit from the sale of used car Pxx
Reconditioning costs xx xx xx
Overallowance on the old car Pxx  
Pxx
The overallowance is treated as a deduction from the selling price of the new car. When there
is overallowance on the old car traded-in, the gross profit rate is computed as follows:

Gross profit ÷ Net Sales (net of overallowance)  

The realized gross profit is also computed as follows:

Collections (cash + actual value of old car) x GPR

 

PROBLEMS 

1. Oro Company began operations on January 1, 2019 and appropriately uses the
installment sales method of accounting. The following data are available for 2019 and
2020:

2019  2020 
2020 
Installment sales P1,500,000 P1,800,000
Gross profit on sales  30%  40% 
Cash collections from: 
2019 sales  500,000   600,000 
2020 sales  -  700,000 

The realized gross profit for 2020 is:

i s:

a. P720,000
b. 520,000  
c. 460,000
d. 280,000  

2. Roco Corp., which began business on January 1, 2020, appropriately uses the
installment sales method of accounting for income tax reporting purposes. The
following data are available for 2020:

Installment accounts receivable, 12/31/2020 P200,000

Installment sales for 2020 350,000
Gross profit on sales 40%

Under the installment method, what would be Roco’s deferred gross profit at December
31, 2020?

a. P20,000
b. 90,000  
c. 80,000
d. 60,000  

3. Gray Co., which began operations on January 1, 2020, appropriately uses the installment
method of accounting. The following information pertains to Gray operations for the
2020:

Installment sales P500,000  

P500,000

Regular sales
Cost of installment sales 300,000  
300,000
250,000
 

Cost of regular sales 150,000  

150,000 
General and administrative expenses  50,000 
Collections on installment sales 
sales  100,000  
100,000

In its December 31, 2020 statement of financial position, what amount should Gray
report as deferred gross profit?

a. P250,000
b. 200,000  
c. 160,000
d. 75,000  

4. Filstate Co. is a real estate developer that began operations on JJanuary

anuary 2, 2020. Filstate
appropriately uses the installment method of revenue recognition. Filstate sales are
made on the basis of a 10% downpayment, with the balance pa payable
yable over 30 years.
Filstate gross profit percentage is 40%. Relevant information for Filstate first year of
operations is as follows:

Sales P16,000,000
Cash collections 2,020,000
The realized gross profit and deferred gross profit at December 31, 2020 are:

a. P808,000 and P5,592,000

b. 5,040,000 and 808,000  
c. 5,600,000 and 808,000
d. 808,000 and 6,400,000  

5. Long Co., which began operations on January 1, 2020, appropriately uses the installment
method of accounting. The following information pertains to Long’s operations for the
year 2020:

Installment sales P1,000,000

Regular sales  600,000 
Cost of installment sales 
sales  500,000  
500,000
Cost of regular sales 
sales  300,000  
300,000
General and administrative expenses 
expenses  100,000  
100,000
Collections on installment sales 
sales  200,0000  
200,0000

What is the total comprehensive income on December 31, 2020?

a. P400,000
b. 200,000  

c. 300,000
d. 100,000 
 

6. Kiko Co. began operations on January 1, 2020 and appropriately uses the installment
method of accounting. The following information pertains to Kiko’s operations for 2020:

Installment sales P800,000

Cost of installment sales 480,000
General and administrative expenses 80,000
Collections on installment sales 300,000

The balance in the deferred gross profit account at December 31, 2020 should be:

a. P120,000
b. 150,000  
c. 200,000
d. 320,000  

7. Tayag Corp., which began operations in 2020, accounts for revenues using the
installment method. Tayag’s sales and collections for the year were P60,000 and
P35,000, respectively. Uncollectible accounts receivable
receivable of P5,000 were written off
during 2020. Tayag’s gross profit rate is 30%. On December 31, 2020, what amount
should Tayag report as deferred revenue?

a. P10,500
b. 9,000  
c. 7,500
d. 6,000  

8. Laya Corp., which began operations on January 2, 2020, appropriately uses the
installment sales method of accounting. The following information is available for 2020:

Installment accounts receivable, December 31, 2020 P800,000

Deferred gross
(before profit, December
recognition 31,gross
of realized 2020profit for 2020) 560,000
Gross profit on sales 40%

For the year ended December 31, 2020, realized gross profit on sales should be:

a. P320,000
b. 340,000  
c. 320,000
d. 240,000  

9. Dulce Co., which began operations on January 1, 2019, appropriately uses

uses the

installment method of accounting to record revenues. The following information is

available for the years ended December 31, 2019 and 2020:
 

 
2019 
2019  2020  
2020
Installment sales P1,000,000 P1,800,000
Gross profit realized on sales made in: 
in: 
2019 150,000 90,000
2020  
2020 -  200,000  
200,000
Gross profit percentages 30% 40%
     
What amount of installment accounts receivable should Dulce report in its December
31, 2020, statement of financial position?

a. P1,225,000
b. 1,300,000  
c. 1,700,000
d. 1,775,000  

10. On January 2, 2019, Black Co. sold a used machine to White, Inc. for P900,000, resulting
in a gain of P270,000. On that date, White paid P150,000 cash and signed a P750,000

note bearing
P250,000 interestJanuary
beginning at 10%.2,The
T he note
2020. wasappropriately
Black payable in three annual installments
accounted of
for the sale under
the installment
the  installment method. White made a timely
ti mely payment of the first installment on
January 2, 2020, of P325,000, which included accrued interest of P75,000. What amount amount
of deferred gross profit should Black report at December 31, 2020?

a. P150,000
b. 172,500  
c. 180,000
d. 225,000  

11. White Plains, Inc. sells residential lots on installment basis. The following data was taken

from the accounting records of the company as at December 31, 2020:

Installment accounts receivable, January 1 P755,000
Installment accounts receivable, December 31 840,000
Deferred gross profit, January 1 339,750
Installment sales 950,000

Complete (1) the realized gross profit on December 31, 2020 and (2) the balance of the
Deferred Gross Profit account on December 31, 2020.

a. (1) P389,250; and (2) P378,000

b. (1) 427,500; and (2) 389,250  

c. (1) 330,750; and (2) 427,000

d. (1) 378,000; and (2) 339,750 
 

 
12. In August, 2019, Mega World Inc. sold condominium units
units costing P1,440,000 for
P2,400,000 receiving P350,000 cash and a mortgage note for the balance payable in
monthly installments. Installment
Installment received in 2017 reduced the principal of the note to
a balance of P2,000,000. The buyer defaulted on the note at the beginning of 2020, and
the property was repossessed. The property had a fair market value of P1,150,000 at
the time
the  time of repossession.

Compute the gain (loss) on repossession if (1) profit is recognized

rec ognized at the point of sale
and (2) gross profit is recognized in proportion to collections.

a. (1) P(850,000); and (2) P(50,000) 

P(50,000) 
b. (1) (850,000); and (2) (450,000)
(450,000)  
c. (1) 850,000; and (2) (450,000)
(450,000)  
d. (1) (50,000); and (2) 50,000  

13. Sarao Motors sells locally manufactured jeeps on installment basis. Data presented
below related to the company’s operations for the last three calendar years:

2020 
2020  2019  
2019 2018  
2018
cost of installment sales P8,765,625 P7,700,000 P4,950,000
Gross profit rates on sales 32% 30% 38%

Installment accounts receivable, 12/31:

From 2020 sales 9,728,125
From 2019 sales  3,025,000  8,387,500 
From 2018 sales  1,512,500  4,812,500 

On December 31, 2020 how much is the (1) total realized gross profit and (2) deferred
gross profit?

a. (1) P3,044,250; and (2) P4,020,500

b. (1) 3,044,250; and (2) 4,125,000  
c. (1) 3,733,750; and (2) 4,020,500
d. (1) 6,993,250; and (2) 4,020,500  

14. Polo Company appropriately uses the installment sales method of recognizing revenue.
On December 31, 2020, the accounting records show unadjusted b balances
alances of the
following:

Installment accounts receivable  – 2018 P12,000

Installment accounts receivable  – 2019 40,000

Installment accounts receivable  – 2020 130,000

Deferred gross profit  – 2018 10,500
 

Deferred gross profit  – 2019 28,900 

28,900 
Deferred gross profit  – 2020  96,000 
Gross profit rates: 
rates: 
2018  
2018 35% 
35% 
2019  
2019 34%  
34%
2020  
2020 32%  
32%

For the year ended December 31, 2020, compute (1) total realized gross profit and (2)
the total cash collections in 2020:

a. (1) P182,000; and (2) P135,400

b. (1) 76,000; and (2) 233,000  
c. (1) 158,000; and (2) 368,400
d. (1) 106,000; and (2) 97,600  

15. Bally Company, which began operations on January 2, 2020 appropriately, uses the
installment method of revenue recognition. The following data pertains to the
company’s operations for the 2020:

Installment sales P1,000,000

Cost of installment sales 500,000
Collections on installment sales 150,000
Installment accounts receivable written off 50,000

What is the balance of Deferred Gross Profit account  – 2020 on December 31, 2020?

a. P500,000
b. 150,000  
c. 400,000
d. 320,000  

16. Nike Company, which began operations on January 5, 2019, appropriately uses the
installment method of revenue recognition. The following
foll owing information pertains to the
company’s operations for 2019 and 2020:

2019  2020 
2020 
Sales P300,000   P450,000
P300,000 
Collections from:
2019 sales 
sales  100,000  
100,000  50,000 
50,000 
2020 sales 
sales  -0-
-0-   150,000  
150,000
Accounts written off from
2019 sales 25,000  
25,000 75,000  
75,000

2020 sales 
sales  -0-
-0-   150,000 
150,000 
Gross profit rates 30% 
30%  40%
 

 
What amount should Nike Company report as deferred gross profit in its December 31,
2020 statement of financial position?

a. P75,000
b. 80,000  
c. 112,000
d. 125,000  

17. The following accounts appeared in the accounting records of Adidas Sales Company as
of December 31, 2020:

Installment accounts receivable  – 2019 P15,000 Repossessions P3,000

Installment accounts receivable  – 2020  200,000  Installment sales  425,000 
Inventory, December 31, 2019 
2019  70,000  
70,000 Regular sales 
sales  385,000  
385,000
Purchases  555,000  Deferred gross profit - 2019  54,000 

 Additional information: 
information: 

Installment accounts receivable  – 2019, January 1, 2020 P120,00

Inventory of new and repossessed merchandise, December 31, 2020 95,000
Gross profit rate on regular sales 30%

Repossession was made during

during the year, 2020. It was a 2019 sale and the corresponding
uncollected balance at the time of repossession was
was P7,200.
P7 ,200.

Compute (1) the total realized gross profit for 2020 and the (2) loss on repossession:

a. (1) P129,510; and (2) P960

b. (1) 129,510; and (2) 1,464
c. (1) 245,000; and (2) 960  
d. (1) 85,500; and (2) 1,464 
1,464 

18. Mango Company, which sells appliances started operations on January 10,2020
operates on a calendar year basis, and uses the installment method of revenue
recognition.  The
recognition. The  following
following  data
data  were
were  taken
taken  from
from  the
the  2017
2017  and
and  2018
2018  accounting
accounting  records:
records:  
2019  2020 
Installment sales P480,000 P620,000
Gross profit rates based on cost 
cost  25%  
25% 20%  
20%
Cash collection on 2019 sales 
sales  130,000  
130,000 240,000  
240,000
Cash collection on 2020 sales  160,000 
What is the amount of realized gross profit to be recognized on December 31,2020?
a. P124,500
b. P100,000 
 

c. P92,000
d. P74,667  

19. Lacoste Corporation has

has been using the cash method of revenue recognition. All
All sales
are made on account with notes receivable given by the customers. The income
statement for 2020 presented the following data:
Revenues – collection on principal P32,000
Revenues – interes 3,600
Cost of goods purchases (includes 45,200

  inventory
inventory  of  goods
goods  on
on  hand
hand  P2,000)
P2,000)  
The balances due on the notes on December 31 were as follows:
follows:  
Notes receivable
Notes  receivable P62,000  
P62,000
Unearned interest income 7,167
Assuming the use of the installment method of revenue recognition, what is the realized
gross profit on December 31,2020?
a. P16,080
b. P25,586
c. P18,060
d. P43,633 
P43,633 

20. Sta. Lucia Realty Corporation sells residential subdivision lots on installment basis. The
following data were taken from the company’s accounting records as of December
31,2020. The company uses a uniform gross profit rate:
rate:  
Installment accounts
Installment  accounts receivable:
January 1,2020 P1,510,000
December 31,2020 1,680,000
Unrealized gross profit  – January 1,2020 679,500
Installment sales  – 2019 1,180,000
Installment sales - 2020 1,900,000
How much is the gross profit realized during the year 2020?
a. P778,500
b. P679,500
c. P756,500
d. P630,500  

21. The following information pertains to a sale of real estate by RR Co. to SS Co. on
December  31,2019:
December 31,2019:  
Carrying amount P2,000,000
Sales price: 
Cash  
Cash P300,000  
P300,000
Purchase money mortgage 
mortgage  2,700,000  
2,700,000 3,000,000  
3,000,000

The mortgage
31,2020 is payable
plus interest in nine
of 10%. Theannual installments
December 31,2020ofinstallment
P300,000 beginning December
was paid as scheduled,
 

together with interest of P270,000. RR uses the cost recovery method to account for the
sale. What amount of income should RR recognize in 2020 from the real estate sale and
its financing?
a. P570,000
b. P370,000
c. P270,000
d. P0  

22. Action Inc. sold a fitness equipment on installment basis on October 1,2020. The unit
cost to the company was P60,000 but the installment selling price was set at P85,000.
Terms of payment included the acceptance of a used equipment with a trade-in value of
P30,000. Cash of P5,000 was paid in addition to the traded-in equipment with the balance
to be paid in ten monthly installments due at the end of each month commencing the
month of sale.

It would require P1,250 to recondition the used equipment so that it could be resold for
P25,000. A 15% gross profit was usual
usual from sale of used equipment. The realized gross
profit from the 2020
202 0 collections amounted to
a. P4,000
b. P34,000
c. P10,000
d. P8,000  

23. M & J Corp. which sells goods on installment basis, basis, recognizes at year end gross profit
on 
on collections
collections  which
which  is 
is consisted
consisted  of  cost
cost  and
and  gross
gross  profit.
profit.  It 
It reported
reported  the
the  following:
following:  
 January 1 December 31
Installment receivables
2018 P120,100 0 
2019 1,722,300 P337,200
  2020
2020   0  2,050,450  
2,050,450
Sales  and
Sales and  cost
cost  of  sales
sales  for
for  the
the  three
three  years
years  are
are  as
as  follows:
follows:  
2018  2019  2020 
Sales P1,900,000 P2,610,000 P3,010,0000
Cost of sales 1,235,000 1,425,000 1,896,300
In 2020 the company repossessed merchandise with resale value of P8,500 from
customers who defaulted in payments. The sales were made in 2019 for P27,000 on which
P16,000 was collected prior to default. As collections are made, the company debits cash
and credits installment receivable. For default and repossessions, the company debits
installment receivable. The amount of adjustment on the inventory of repossessed
merchandise to the extent of the unrealized gross profit was
a. Zero 
Zero 
b. A decrease of P6,240
c. A decrease of P2,500 
 

d. A decrease of P3,740  

24. On October 2020, Haybol Realty Co. sold to Mae Balay a property for P500,000 which is
carried in its books for P250,000. The company received P100,000 on the date of the
sale and a mortgage note for P400,000 payable in twenty (20) semiannual installments
of P20,000 plus interest on the unpaid principal at 16% per annum.

The realized profit to be recognized by Haybol Realty Corp. in 2020 if gross profit is
recognized periodically in proportion to collections would be
a. P50,000  
b. P100,000
c. P60,000
d. P250,000  

25. Quincy Enterprises uses the installment method of accounting and has the following
data  at
data at  year-end:
year-end:  
Gross margin on cost 66 2/3%
Unrealized gross profit P192,000
Cash collection including down payments 360,000
What was the total amount of sale on installment basis?
a. P480,000
b. P648,000
c. P552,000
d. P840,000

26. The Brownout, Inc. began operating at the start of the calendar year 2020 uses the
installment  method
installment method  of  accounting:
accounting:  
Installment sales P400,000  
P400,000 
Gross margin based on cost 66 2/3%
2/3%  
Inventory, Dec. 31,2020  80,000 

General and
Accounts administrative
receivable, expenses 
expenses 
Dec. 31,2020 
31,2020 40,000  
40,000
320,000 
320,000
   
The balance of the deferred gross profit account at December 31,2020 should be:
a. P192,000
b. P96,000  
c. P128,000
d. P80,000  

27. Tear Drops Corp. started operations on 1 January 2019 selling home appliances and
furniture on installment basis. For 2019 and 2020 the following represented operational
operational
details.  
details.
In thousand Pesos 

2019 2020
 

Installment sales P1,200  

P1,200 P1,500
Cost of installment sales 
sales  720  
720 1,050  
1,050
Collections on installment sales 
2019  630  450 
2020  0  900 
On 7 January 2020, an installment sale account in 2017 defaulted and the merchandise

with a market
balance value
as of date of P15,000
of default was repossessed.
and repossession The related installment receivable
was P24,000.

The balance of the unrealized gross profit as of the end of 2020 wa

a. P218,400
b. P192,000
c. P360,000
d. P275,000  

28. Four J Co. sold goods on installment. For the year just ended the following were
reported:  
reported:
Installment sales P3,000,000

Cost of installment sales 2,025,000

Collections on installment sales 1,800,000
Repossessed accounts 200,000
Fair market value of repossessions 120,000
The gain(loss) on repossession is:
a. (P15,000) 
(P15,000) 
b. P15,000  
c. (P80,000) 
(P80,000) 
d. P5,000  

29. A refrigerator was sold to Fernandina Castro for P16,000, which included a 40% markup
on selling price. She made a down payment of 20%, payment of four of the remaining 16

equal payment and defaulted on further payments. The refrigerator was repossessed, at
which time the fair value was determined to be P6,800.

The repossession resulted to the following

fol lowing (loss) gain:
a. P(1,040) 
P(1,040) 
b. P1,040
c. P4,056
d. P2,960  

30. The Company uses the installment method of accounting to recognize income, Pertinent
data  are
data are  as 
as follows:
follows:  
2018  2019  2020 

Installment sales P300,000 P375,000 P360,000

Cost of sales  225,000  285,000  252,000 
 

 
Balances of Deferred Gross Profit at Year end
2018 P52,500 P15,000 P-
P-  
2019  
2019 -  54,000  
54,000 9,000  
9,000
2019  
2019 -  -  72,000  
72,000
The total balance of the Installment Accounts
Accounts Receivable on December 31,2020 is:

a.
b. P270,000
P277,500
c. P279,500
d. P300,000  

31. In its first

f irst year of operations, Guijo Company’s sales were as follows:
Sales basis  Mark-up on cost   Sales 
Cash 25%  
25% P250,000
Charge  33-1/3%  400,000 
installment  
installment 50%  
50% 600,000  
600,000
The cost of goods sold for the year was P900,000.
No. 31 –  Continued 
  Continued  

If collections on installment sales during the year amounted to P240,000, how much was
the total gross profit realized at the end of the year?
a. P50,000
b. P60,000
c. P80,000  
d. P230,000  

32. A sale on installment basis was made in 2020 for P8,000 at a gross profit of P2,800. At
the end of 2020, when the installment account receivable had a balance of P3,500, it
was ascertained that the customer would be unable to make further payments. The
merchandise was then repossessed and was appraised at a value of P1,500. The loss on
repossession was:

a. P3,500  
b. P2,000
c. P775 
P775 
d. P1,775 
P1,775 

33. On January 1,2019 Blim Company commenced its sales of gas stoves. Separate accounts
were set up for installment and cash sales, but perpetual inventory record was not kept.
On the installment sales of a down payment of 1/3 was required, with the balance
payable in 18 equal monthly installments.

The  transactions
The transactions  of  the
the  Blim
Blim  Company
Company  are
are  as 
as follows:
follows:  
2019  2020 

Sales:
New gas stoves for cash P27,000 P37,000
 

New gas stoves on installment

(including the 1/3 cash 235,000 330,000
down payment)
Purchases 193,000 215,000
Physical inventories at
December 31:
New gas stoves at cost 45,500 60,000
Cash collections on installment contracts, exclusive of down payments:
2019 sales 54,000 77,000
2020 sales - 70,000
No. 33 –  Continued 
  Continued  

The realized gross profit for the year 2020 that would be reported on the income
statement amounted to:
a. P131,530
b. P140,000
c. P123,350
d. P131,500  

34. The data below are taken from the records of Jess Appliance Co., which sells appliances
exclusively  on
exclusively on  the
the  installment
installment  basis.
basis.  
2018  2019  2020 
Installment sales P365,500 P417,800 P610,750
Gross profit 36% 39% 40%
The balance in the Installment Accounts Receivable controlling accounts at the
beginning and end of 2020 were:
2020 
From sales made in: in:   January 1  December 31 
31 
2018 P17,400  
P17,400 P-
P-  
2019 205,400  
205,400 25,800  
25,800
2020 -  305,520  
305,520
There was one repossession recorded during 2020, it related to a 2019 sale. The
repossessed appliance was sold at its fair value of P200, which equaled the uncollected
balance in the customer’s installment accounts receivable.

The total realized gross profit on prior year sales on December 31, 2020 and the gain
(loss) from the sale of the repossesses appliance
appliance are:
a. P76,230 and P(78) 
P(78) 
b. P76,230 and P78
c. P69,966 and P78
d. P75,230 and P78 
 

35. Mr. Matias Manuel is a dealer in appliance who sells on an installment basis. A
refrigerator which originally cost P924 was sold by him for P1,650 to Jose Santos who
made a down payment of P220, but defaulted in subsequent payments.
payments.
No. 35 –  Continued 
  Continued  
Mr. Manuel repossessed the refrigerator at an appraised value of P460. To improve its
salability, he expended P60 for reconditioning. He was able to sell the refrigerator to
Pedro Reyes for P1,000 at a down payment of the first installment of P250.

The realized gross profit from the first installment sale (to Jose Santos) and from the
second installment sale (to Pedro Reyes) are:
a. P96.80 and P100
b. P26.40 and P120
c. P96.80 and P120
d. P26.40 and P100  

36. The Bengal Furniture Company appropriately used the installment sales method in
accounting for the following installment sale. During 2020 Bengal sold furniture to an
individual of P3,000 at a gross profit of P1,200. On June 1 2020, this installment account

receivable had a Bengal

would be made. balancetherefore
of P2,200 and it wasthe
repossessed determined that When
merchandise. no further collections
reacquired, the
merchandise was appraised as being worth only P1,000. In order to improve its
salability, Bengal incurred costs P100 for reconditioning. What should be the loss on
repossessions attributable
attributable to this merchandise?
a. P220
b. P320
c. P880
d. P1,100

37. Standard Sales Corporation accounts for sales on the installment basis. The balances of
control accounts for Installment Contracts Receivable at the beginning and end of 2020

were:  Jan. 1,2020 Dec. 31,2020

31,2020  
Installment contract receivable - 2018 P24,020 -
Installment contract receivable  – 2019 344,460 P67,440
Installment contract receivable  – 2020 - 410,090
No. 37 –  continued 
 continued  

During 2020, the company repossessed a refrigerator which had been sold in 2019 for P5,400
and P3,200 had been collected prior to default. The company sales and cost of sales figures are
summarized below:

2018 
2018  2019 
2019  2020 
2020 
Net sales P380,000 P432,000 P602,000
Cost of sales 247,000 
247,000  285,120
285,120   379,260 
379,260 
 

The resale price of the repossessed merchandise is P2,000 after reconditioning cost of P200 and
a normal gross profit of 35%.

The total realized gross profit on December 31,2020

3 1,2020 and the gain (loss) on repossession are:

a. P172,892.5 and P(381)

b. P172,852.5 and P(452)
c. P142,500 and P(452) 
d. P142,500 and P452 

38. The 680 Appliance Company reports gross profit on the installment basis. The following data are
available:

2018 
2018  2019 
2019  2020 
2020 
Installment sales P240,000 P250,000 P300,000
Cost of goods  – installment sales 180,000 181,250 216,000
Gross profit  60,000  68,750  84,000 
Collections:

2018 installment contracts P45,000 P75,000 P72,500

2019 installment contracts  47,500  80,000 
2020 installment contracts  62,500 

Defaults:
Unpaid balance of 2018
Installment contracts P12,500 P15,000
Value assigned to repossessed
Merchandise 6,500 6,000
Unpaid balance of 2019
Installment contracts 16,000
Value assigned to repossessed
Merchandise 9,000

No. 38 - Continued  
The total realized gross profit after loss on repossession for 2020 is:

a. P49,775
b. P57,625
c. P48,975
d. P56,625 

39. Partial trial balance of Lakan Appliance Corporation as of the end of the fiscal year September
30,2020 follows:
Debit Credit
Deferred gross profit – 2019 P50,000
 

Installment account receivable - 2019 P12,500

Installment account receivable  – 2020
 2020   150,000 
150,000 
Installment sales 
sales  375,000  
375,000
Inventory, September 30,2019 
30,2019  62,500 
62,500 
Loss on repossession 
repossession  3,750  
3,750
Purchases  435,000 
Repossessions  2,500 
sales  
sales 312,500  
312,500

The post closing trial balance on September 30,2019 shows the following balances of certain
accounts:

Installment contract receivable - 2019 P100,000

Deferred gross profit – 2019 50,000
The gross profit rate on regular sales during the year was 30%

The inventory of new and repossessed merchandise on September 30,2020

3 0,2020 amounted to
P75,000. Unpaid balance on repossessed merchandise sale of 2019 is P6,250.

The total realized gross profit on December 31,2020

3 1,2020 is:
a. P141,875
b. P101,250
c. P40,625
d. P140,875 

40. Carlos Labung Appliance Co., sold a stove, costing P1,000 for P1,600 on September 2019. The
down payment was P160, and the same amount was to be paid at the end of each succeeding
month. Interest was charged on the unpaid balance of the contract at ½ of 1% a month,
payments being considered as applying first to accrued interest and the balance to principal.

After paying a total of P640, the customer defaulted. The stove was repossessed in February
2020. It was estimated that the stove had a value of P560 on a depreciated cost basis.

The realized gross profit and the gain (loss) on repossession on December 31,2020
31 ,2020 are:
a. P232.76 and P(52.07)
b. P240.00 and P(52.07)
c. P232.76 and P(40.00)
d. P240.00 and P(40.00) 

41. The Julia Appliance company makes all sales on installment contracts and accordingly reports
income on the installment basis. Installment contracts receivables are accounted for by years.
Defaulted contracts are recorded by debiting Loss on Repossession account and crediting the
appropriate Installment Contract Receivable account for the unpaid balance at the time of 
 

default. All repossessions and trade-ins are recorded at realizable

re alizable values. The following data
relate to the transactions during 2019 and 2020
  2019 
2019  2020 
2020 
Installment sales P150,000 P198,500
Installment contract receivable, Dec. 31: 
31: 
2019 sales 80,000 25,000
2020 sales 95,000
Purchases 100,000 120,000
New merchandise inventory, Dec. 31 at cost 10,000 26,000
Loss on repossessions 6,000
The company auditor disclosed that the inventory taken on December 31,2020 did not include
certain merchandise received as a trade-in on December 2,2020
2, 2020 for which an allowance was given.
The realizable value of the merchandise is P1,500 which was also the allowance on the trade-in.
No entry was made to record this m
merchandise
erchandise on the books at the time it was received.
In 2020, a 2019 contract was defaulted and the merchandise was repossessed. At the time of
default, the repossessed merchandise had a fair value of P2,500. The repossessed
merchandise was neither recorded nor included in the physical inventory on December 31,2020.

The total realized gross profit at December 31,2020 and the adjusted gain (loss) on repossession
are:
Realized Gross profit Gain(Loss) on repossesion
a. P70,000 P1,100  
b. P70,000 (P1,100) 
c. P50,400 P1,100  
d. P50,400 (P1,100) 

42. Kanlaon Corporation started operations on January 1,2019, selling home appliances and
furniture sets both under cash and under installment basis. Data on the installment sales
operations for the two years ended December 31, 2019 and 2020 are as follows:
2019 
2019  2020 
2020 
Installment sales P400,000 P500,000
Cost of installment sales  240,000  350,000 
Cash collections on:
2019 installment contracts 210,000 150,000
2020 installment contracts - 300,000
The balance of the Deferred Gross
Gro ss profit account on December 31,2020 is:
a. P130,000
b. P160,000
c. P190,000
d. P76,000  

43. United Trading accounts for sales under the installment method. On January 1,2020 its ledger
accounts included the following balances:
Installment Receivable, 2018 P38,500
 

Installment Receivable, 2019 155,000

Deferred Gross Profit, 2018  11,550 
Deferred Gross Profit, 2019  62,000 

Installment sales in 2020 were made at a 42% gross profit rate. December 31,2020 account
balances before adjustments were as follows:

Installment Receivable, 2018 P-0-

Installment Receivable, 2019 
2019  42,000  
42,000
Installment Receivable, 2020 
2020  100,500  
100,500
Deferred Gross Profit, 2018  11,550 
Deferred Gross Profit, 2019  62,000 
Deferred Gross Profit, 2020  75,810 
The total realized gross profit on December 31,2020
3 1,2020 is:
a. P90,350  
b. P97,510
c. P98,910
d. P97,350  

44. Presented below is the unadjusted trial balance, as of December 31,2020 of Moslim Products
Corporation:
Cash P5,000
Installment Accounts Receivable - 2019  40,000 
Installment Accounts Receivable - 2020  140,000 
Inventory, December 31,2020  200,000 
Other Assets  497,000 
Trade Accounts Payable  P50,000 
Unrealized Gross Profit - 2018  10,000 
Unrealized Gross Profit  – 2019
 2019   86,000  
86,000
Unrealized Gross Profit  – 2020
 2020   100,000  
100,000
Capital stock 
stock  600,000  
600,000

Retained Earnings 
Earnings  80,000 
80,000 
Repossession Gain 
Gain  6,000  
6,000
Operating expenses 
expenses  50,000 
50,000 
P932,000  
P932,000 P932,000  
P932,000
The cost of goods sold had been uniform over the years at 60% of sales, and the company
adopts perpetual inventory procedures. On the installment sales, the company charges
installment accounts receivable and credits inventory and unrealized gross profit accounts.

Repossessions of merchandise have been made during 2020 due to some customers’ failure to
pay maturing installments. The analysis of these transactions have been summarized as follows:
Inventory   P7,500 
P7,500 
Unrealized gross profit - 2018  800 
Unrealized gross profit –  2019
 2019 2,400
 
Installment accounts receivable - 2018     2,000 
 

Installment accounts receivable –  2019 6,000 

6,000 
Repossession gain 2,700  
2,700

The repossessed merchandise were unsold at December 31,2020 and it was ascertained that
these were booked, upon repossession, at their original cost. A fair valuation would be a sales
price of P10,000 after recorditioning
re corditioning cost of P1,000 and a normal gross profit.

The realized gross profit from 2020 sales and the gain (loss) on repossession on December
31,2020 are:
a. P44,000 and (P200) 
b. P44,000 and P200
c. P56,000 and P300
d. P56,000 and P200  

45. The following selected accounts appeared in the trial balance of Union Sales as of December
31,2020
Debit   Credit  
Installment Accounts Receivable, 2019 sales P15,000
Installment Accounts Receivable, 2020 sales 
sales  200,000 
200,000 
Inventory, December 31,2019 
31,2019  70,000  
70,000
Purchases  
Purchases 555,000  
555,000
Repossessions  
Repossessions 3,000  
3,000
Regular Sales 
Sales  P385,000 
P385,000 
Installment sales 
sales  425,000  
425,000
Unrealized Gross Profit, 2019 
2019  54,000  
54,000

 Additional information: 
information: 

Installment Accounts Receivable, 2019 sales,

As of December 31,2019 P120,000

Inventory of new and repossessed

Merchandise, December 31,2020 95,000
Gross profit rate on regular sales during the year 30%

Repossession was made during the year on a 2019 sale and the corresponding uncollected
amount at the time of repossession
r epossession was P7,750.

The total realized gross profit on December 31,2020

3 1,2020 and the (loss) on repossession are:
a. P85,5000 and P(1,262.5) 
b. P129,262.5 and P(1,262.5) 
c. P43,762.5 and P1,262.5
d. P119,622.5 and P1,262.5
 

46. The books of Paiyakan Company show the following account balances on December 31,2020:
Accounts receivable P313,750
Deferred gross profit (before adjustment) 38,000
Analysis of the accounts receivable reveals the following:
Regular accounts P207,500
2019 installment accounts receivable 16,250
2020 installment accounts receivable 90,000
Sales on installment basis in 2019 were made at 30% above cost, and in 2020 at 33-1/3% above
cost. Expenses paid relating to installment sales were P1,500.

How much is the total comprehensive income on installment sales?

a. P10,000
b. P10,250
c. P11,000
d. P11,500  

47. The Famcor Sales Company employs the perpetual inventory basis in the accounting for new
cars. On August 15,2019, a new car costing P165,000 and with a list price of P220,000 was sold

to Rose Castro. The company granted Ms. Castro an allowance of P85,000 on the trade-in of her
old car, the current value if which was estimated to be P81,700; the balance of P135,000 was
payable as follows: P35,000 cash at the time of purchase and twenty monthly payments of P5,000
starting September 1, 2019.

On April 1,2020, Ms. Castro defaulted in the payment of the March 1,2020, installment. The new
car sold was repossessed, and its value to the seller was P40,000.

The total realized gross profit and the gain (loss) on repossession on December 31,2020
31 ,2020 are:
a. P32,616.62 and P(13,298) 
b. P32,616.62 and P13,298  
c. P37,388.62 and P15,810.62 
d. P27,844.62 and P(15,810.62) 

48. The Jade Appliances Company started business on January 1,2020. Separate accounts were
established for installment and cash sales. On installment sales, the price was 106% of the cash
sales price. A standard installment contract was used whereby a down-payment of ¼ of the
installment price was required, with the balance payable in 15 equal monthly installment. (the
interest charge per month is 1%
1 % of the unpaid cash sale price equivalent
e quivalent at each installment.)

Installment receivable and installment sales were recorded at the contact price. When contracts
were defaulted, the unpaid balances were charged to Bad Debts Expense. The following data are
available:
 

Sales:
Cash sales P126,000
Installment sales 265,000
Repossessed sales 230

Inventory, January 1,2020:

Merchandise inventory 58,060

Purchases, 2020
New merchandise 209,300

Inventories, physical, December 31,2020

New merchandise 33,300
Repossessed inventory 180

Cash collections on installment contract

co ntract 2020:
Down payments 66,250
Subsequent installments (including interest of P9,252.84 on 
on 
all contracts except on defaulted contracts)  79,341 
Five contracts totaling P1,060 were
w ere defaulted, in each case after 3 monthly installments were paid.

Interest should be recognized in the period earned.

The total realized gross profit

profit on December 31,2020 is:
is:

a. P99,024.85
b. P99,084.87
c. P99,184.85
d. P95,024.85 

49. The following data were taken from the records of Camille Appliance Company before its
accounts were closed for the year 2020. The company sells exclusively on the installment basis

and its uses the installment method of recognizing profit:

2016  
2016 2017   2018  
2018
Installment sales P400,000 P440,000 P420,000
Cost of installment sales 
sales  240,000  
240,000 272,800  
272,800 256,200  
256,200
Operating expenses 
expenses  100,000  
100,000 94,000  
94,000 96,000  
96,000
Balances as of December 31: 31: 
Inst. Contracts Receivable -2018 
-2018  220,000  
220,000 110,000  
110,000 28,000  
28,000
Inst. Contracts Receivable -2019 
-2019  250,000  
250,000 92,000  
92,000
Inst. Contracts Receivable -2020 
-2020  238,000  
238,000
During 2020, because some customers can no longer be located, the company wrote off P9,000
of the 2018 installment accounts and P2,800 of the 2019 installment accounts as uncollectible.
 

Also during 2020, a customer defaulted and the company repossessed merchandise appraised at
P2,400 after costs reconditioning estimated at P400. The merchandise had been purchased in
2018 by a customer who still owed P5,000 at the date of the repossession.

The total comprehensive income on December 31,2020 is:

a. P157,156

b. P61,000  
c. P60,156
d. P59,156 

50. Jing Trading Company, which started operations on January 2,2019, sells video equipment on
installment terms. Whenever a contract is in default, Jing repossesses
re possesses the merchandise and writes
this off to a Loss on Defaulted Contracts account. Information regarding the repossessed goods
are not recorded in the books but are kept on a memo basis. Proceeds from the sale of these
goods are credited to the Loss on Defaulted Contracts account. The following information
are taken from the books of Jing:
December 31 
31 
2020 2019
Installment contracts receivable, 2019 P2,000 P31,500
Installment contracts receivable, 2020 40,000 -
Sales 125,000 75,000
Loss on defaulted contracts 4,275 250
Allowance for defaulted contracts 2,250 2,250
 Additional information: 
information: 
a. No repossessed video equipment was sold in 2019 or 2020 for more than the unpaid
unpaid
balance of the original contract. A further analysis of the Loss on Defaulted Contracts accounts
showed the following breakdown:
2019 2020  
2020
Contracts Contracts
Contracts written off P3,750 P1,500
Less: sales of repossessed goods 
goods  800 
800  175
175  
Loss a defaulted contracts  P2,950  P1,325 

The repossessed goods on hand on December 31,2020, all of which were repossessed from
2019 contracts, are valued at P200.

b. The P2,000 balanc

balance
e of the Installment Contracts Receivable 2019 account
account is currently
currently due
and collectible.
c. The gross profit
profit rates on installment
installment sales were 40% in 2019 and 42% in 2
2020.
020.
d. The rate of bad debts loss for 2020 is estimated to be the same as th
the
e 2019 experiences rate
based on sales:
 

The required balance of the allowance for Defaulted Contracts account and the realized
gross profit on December 31,2020 from 2019 sales are:
a. P3,675 and P10,300
b. P3,675 and P9,300  
c. P3,675 and P10,300  
d. P4,675 and P9,300  

ANSWERS 

1. 
1.  C  11. 
11.  A  21. 
21.  D  31. 
31.  D  41. 
41.  B 
2.  C  12.  A  22.  D  32.  C  42.  D 
3.  B  13.  A  23.  D  33.  A  43.  A 
4.  A  14.  B  24.  A  34.  B  44.  B 
5.  C  15.  C  25.  D  35.  C  45.  B 
6.  C  16.  A  26.  C  36.  B  46.  B 
7.  D  17.  A  27.  A  37.  B  47.  A 
8.  D  18.  D  28.  A  38.  A  48.  A 
9.  C  19.  A  29.  B  39.  A  49.  C 
10.  A  20.  A  30.  B  40.  A  50.  A 

SOLUTIONS AND EXPLANATIONS 

1. The answer can be computed by using the basic formula, collections x gross profit
rate.
2019 sales  2020 sales 
Collections during 2020 P600,000  
P600,000 P700,000  
P700,000
Gross profit rate 30% 40%
Realized gross profit P180,000  
P180,000 P280,000

Total realized gross profit (P180,000 + P280,000) 460,000  

2.  Installment account receivable, 12/31/13 P200,000

Gross profit rate 40%
Deferred gross profit, December 31,2020   P80,000  

3.  Installment sales P500,000

Collections 100,000
Installment accounts receivable, 12/31/13 400,000
Gross profit rate (P250,000/P500,000) 50%
Deferred gross profit, 12/31/13 P200,000
Or
Deferred gross profit(P500,000 – P250,000) 250,000
Realized gross profit, 12/31/13 (P100,000x50%) 50,000
 

Deferred gross profit, 12/31/13  P200,000  

4.  Realized gross profit (P2,020,000 x 40%) P808,000

Deferred gross profit, 12/31/13: 
12/31/13: 
Installment accounts receivable, 12/31/13
(P16,000,000 - P2,020,000) P13,980,000

Gross profit rate 40%

Deferred gross profit, 12/31/13  P5,592,000  

5.  Regular sales P600,00

cost of regular sales 300,000
Gross profit on regular sales P300,000
Realized gross profit on installment sales:
Collections P200,000
Gross profit rate (P500,000/P1,000,000) 50% 100,000
Total realized gross profit 400,000
General and administrative expense 100,000
Total comprehensive income  P300,000  

6.  Installment sales P800,000

Cost of installment sales 480,000
Deferred gross profit 320,000
Realized gross profit (P300,000 x 40%*) 120,000
Deferred gross profit, 12/31/13  P200,000  
*Gross Profit Rate (P320,000/P800,000) = 40%

7.  Installment sales P60,000

Less: Collections P35,000
Accounts written off 5,000 40,000
Installment accounts receivable, 12/31/13 20,000
Gross profit rate 30%
Deferred gross profit, 12/31/13  P6,000  

8.  Installment sales (P560,000/40%) P1,400,000

Less: installment accounts receivable, 12/31/13 800,000
Collections P600,000
Gross profit rate 40%
Realized gross profit   P240,000  

9. 

2019 Sales 
Sales  2020 Sales 
Sales  Total  
 

Installment sales P1,000,000 P2,000,000

Collections (RGP/GPR) 
During 2017 (P150,000/P30%)  (500,000) 
During 2018: 
2017 sales (P90,000/30%)  (300,000) 
2018 sales (P200,000/40%)  (500,000) 
Installment accounts receivable 12/31/13  P500,000   P1,200,000   P1,700,000  

10. Deferred gross profit (gain) P270,000

Realized gross profit:
Down payment P150,000
Installment collections excluding interest:
(P325,000  – P75,000) 250,000
Total collections 400,000
Gross profit rate (P270,000/P900,000) 30% 120,000
Deferred gross profit, 12/31/13  P150,000  

11. Installment accounts receivable, January 1 P755,000

Installment sales 950,000
Total P1,705,000
Less: Installment accounts receivable, Dec. 31 840,000
Collections 865,000
Gross profit rate (P339,750/P755,000) 45%
Realized gross profit 389,250  
Installment accounts receivable, December 31 P840,000
Gross profit rate 45%
Deferred gross profit, December 31 P378,000  

12. (1) Profit is recognized at the point of sale 

sale 

Fair value of repossessed property P1,150,000

Less: Unrecovered cost (unpaid balance) 2,000,000
Loss on repossession  P(850,000) 

(2) Profit is recognized in proportion to collections 

collections 

Fair value of repossessed property P1,150,000

Less: Unrecovered cost
Unpaid balance P2,000,000
Deferred gross profit (P2,000,000 x 40%) 800,000 1,200,000
Loss on repossession  P(50,000) 
 

13. (1) total realized gross profit  

2020 
2020  2019 2018  
2018
Installment accounts receivable, 1/1/13  P12,890,625  P8,387,500 P1,512,500 
Installment accounts receivable, 12/31/13 9,728,125 3,025,000 -0-
Collections during 2020 P3,162,500 P5,362,500 P1,512,500
Gross profit rates 32% 30% 28%
Realized gross profit, 12/31/13 P1,012,000  P1,608,750 P423,500 
(Total, P3,044,250) 

(2) deferred gross profit, December 31,2020:

2020 
2020  2019 2018  
2018
Installment accounts receivable, 12/31/13 P9,728,125 P3,025,000 P-0-
Gross profit rates  32%  30% 28% 
Deferred gross profit, 12/31/13  P3,113,000   P907,500 P-0- 

14. (1) Total realized gross profit  

2018 
2018  2019 2020  
2020
Deferred gross profit before adjustment P10,500 P28,900 P96,000
Deferred gross profit, end: 
end: 
2018 sales (P12,000 x 35%) 4,200
2019 sales (P40,000 x 34%)  13,600 
2018 sales (P130,000 x 32%)  41,600 
Realized gross profit, 12/31/13  P6,300   P15,300 P54,400  
Total (P76,000) 

(2) Total collections in 2020 

2020 
2018  
2018 2019 2020 
2020 
Installment accounts receivable, beg
2018 sales (P10,500/35%) 
(P10,500/35%)  P30,000  
P30,000
2019 sales (P28,900/34%) 85,000
2018 sales (P96,000/32%) 
(P96,000/32%)  P300,000 
P300,000 
Installment accounts receivable, end 12,000 40,000 130,000
Collections during 2020   P18,000   P45,000 P170,000  
Total (P233,000) 

15. 

Installment sales P1,000,000

Collections (150,000)
Accounts written off (50,000)
Installment accounts receivable, 12/31/13 800,000
Gross profit rate (P500,000/P1,000,000) 50%
Deferred gross profit, 12/31/13 P400,000  

16. The balance of Deferred Gross Profit Account on December

De cember 31,2020 is computed follows:
 

2019 
2019  2020 
2020 
Sales  P300,000  P450,000 
Collections  (150,000)  (150,000) 
Accounts written off   (100,000)  (150,000) 
Installment accounts receivable, 12/31/13  P50,000  P150,000 
Gross profit rates  30%  40% 
Deferred gross profit, 12/31/13  P15,000   P60,000  
Total (P75,000) 

17. (1) Realized gross profit, December 31,2020 

31,2020 
Regular Sales P385,000
Cost of regular sales (70%) 269,500
Gross profit on regular sales (30%) 115,500
Realized gross profit on installment sales (Sched 1) 128,510
Total realized gross profit P245,010  

Schedule 1: 
1: 
2019 
2019  2020 
2020 
Installment accounts receivable, 1/1/13  P120,000  P425,000 
Installment accounts receivable, 12/31/13  15,000  200,000 
Total credit  105,000  225,000 
Less: credit for repossession (unpaid balance)  7,200  -0- 
Collections  P97,800  P225,000 
Gross profit rates: 
2019 sales (P54,000/P120,000)  45% 
2020 sales (Schedule 2)  38% 
Realized gross profit, 12/31/13  P44,010   P85,500  
Total (P129,510) 

Schedule 2: 
2: 
Installment sales P425,000
Cost of installment sales: 
sales: 
Inventory, January 1,2020 P70,000
Purchases  
Purchases 555,000  
555,000
Inventory, December 31,2020 (New) 
(New)  (92,000)  
(92,000)
Cost of sales 
sales  533,000  
533,000
Cost of regular sales 
sales  269,500  
269,500 263,500 
263,500 
Gross profit on installment sales P161,500
Gross profit rate (P161,500/P425,000) 38%

(2) loss on repossession 

repossession 

Repossession merchandise P3,000

Unrecovered cost:
Unpaid balance P7,200
 

Deferred gross profit (P7,200 x 45%) 3,240 3,960

Loss on repossession  P(960) 

18. Total realized gross profit on December 31,2020

31 ,2020 is computed below:
2019 
2019  2020 
2020 
Collections during 2020  P240,000  P160,000 
Gross profit rates on sales  25%/125%  20%/120% 
Realized gross profit   P48,000   P26,667  
Total (P74,667) 

19. 
Collections during 2020 P32,000
Gross profit rate:
Installment sales:
Notes receivable (P32,000 + P62,000 + P3,600) P97,600
Unearned interest income (P7,167 + P3,600)  (10,767) 
Installment sales  P86,833 
Cost of installment sales (P45,200  – P2,000)  43,200 
Gross profit  P43,633 

Gross profit rate (P46,633/ P86,833) 

P86,833)  50.25%  
50.25%
Realized gross profit   P16,080  

20.  Collections during 2020 (P1,510,000 + P1,900,000  – P1,680,000) P1,730,000

Gross profit rate (P679,500/ P1,510,000)  45% 
Realized gross profit, 2020   P778,500  

21 Zero, because the total cost of P2,000,000 is not yet fully recovered. The total collections
applying to principal as of December 31, 2020 is only P330,000 (P300,000 + P30,000), so no
income is yet to be recognized.

22. First the over- allowance on the equipment

e quipment traded- in should be computed as follows:
Trade- in value P30,000
Actual value: 
value: 
Estimated sales price  25,000 
Less: Reconditioning Cost 
Cost  1,250 
1,250 
Gross profit(25,000 x 15%) 
15%)  3,750  
3,750 5,000  
5,000 20,000 
20,000 
Over allowance  P10,000 

The over allowance is treated as a deduction from the selling price of new equipment.
The realized gross profit can now be computed as show below:
Collections
Downpayment:
Cash 5,000
Actual value of Trade- in 
in  20,000  
20,000 25,000 
25,000 
Installment collection (3 mos. X 5,000) 
5,000)  15,000  
15,000
Total  
Total 40,000  
40,000
 

Gross Profit Rate  – (15,000/ 75,000) 20%

Realized gross profit, 12/31/2020 8,000  

23. the unrealized gross profit

profit relating to the unpaid balance
balance of P11,000 (P27,000-P16,000) is
3,740 (11,000x34%). The inventory of repossessed merchandise is to be decreased by this amount. 

24. Collection during 2020 100,000

Gross profit rate (250,000/500,000) 50%
REALIZED GORSS PROFIT  50,000 

25. Installment accounts receivable-end:

Unrealized gross profit-end 192,000
Divide by GPR on sales (66-2/3% / 116-2/3%) 40% 480,000
ADD: Collections 360,000
Installment Sales  P840,000  

26. Installment accounts receivable P320,000

Gross Profit Rate on Sales (66- 2/3% / 166-2/3%) 40%

Deferred gross profit, 12/31/2020   P128,000  

27. 

In Thousand Pesos
 

2019 Sales 2020 Sales

Installment sales P1,200 P1,500

Collection:

During 2019 (630)

During 2020 (450) (900)

Repossession (unpaid balance) (24) -

Installment accounts receivable, 12/31/2020 96 600

Gross Profit rate (GP/IS) 40% 30%

Deferred Gross Profit, 12/31/2020 P38.4 P180

Total balance is P218,400 (P38,400 + 180,000)  

28. Fair market value of repossessed merchandise P120,000

Less: Unrecovered cost 200,000

Unpaid balance 65,000 135,000

Loss on repossession  P(15,000) 

 

29. Fair value of repossessed merchandise P6,800

Unrecovered Cost:

Unpaid balance:

Sales 16,000
Collections:

Downpayment 3,200
Installment 3,200 6,400 9,600
Deferred gross profit (9,600 x 40%) 3,840 5,760
Gain on repossession P1,040  
30. 

2019 Sales 2020 Sales

Deferred gross profit  – Dec.31,2020 P9,000 P72,000

Divide by GPR (GP/IS) 24% 30%

Installment accounts receivable, Dec.31,2020 P37,500 P240,000

Total balance of receivable on Dec. 31,2020 is 
is 

(P37,500 + 240,000) P277,500  

31. Gross profit rate based on sales:

Cash (25%/125%) 20%

Charge (33-1/3% / 133-1/3%) 25%

Installment (50% - 150%) 33.33%

Total realized gross profit:

Cash sales (250,000 x 20%) P50,000
Charge sales (400,000 x 25%) 100,000
Installment Sales (240,000 x 33.33%) 80,000
Total P230,000  
32. Appraised value of repossessed merchandise P1,500
Less: Unrecovered cost:
Unpaid balance 3,500
Less: Deferred gross profit (3,500 x 35% *) 1,225 2,275
Loss on repossession P775
 

*Gross profit rate (P2,800 / 8,000) 35% 

33. 

2019 2020

Sales Sales

Collections:

Downpayment (1/3 of sales) - P110,000

Collection of installment receivables 77,000 70,000

Total 77,000 180,000

Gross Profit rate (schedule 1) 44% 45%

Realized gross profit on Installment Sales 33,880 81,000

Realized gross profit on Cash Sales 2020 (P37,000 x 45%) - 16,650

Realized Gross Profit (P131,530)  P33,880   97,650  

Schedule 1 2020 2019

Sales Sales

Sales: Cash 37,000 27,000

Installment 330,000 235,000

Total 367,000 262,000

Cost of Sales:

Inventories, 1/1 45,500 -

Purchases 215,000 193,000

Total 260,500 193,000

Inventories 12/31 60,000 45,500

Cost of sales 200,500 147,500

Gross Profit P166,500 P114,500

Gross profit rate (GP/IS) 45% 44%

34. P76,230 represents the total realized gross profit based on 2020 collections of Installment  
 Accounts Receivable of 2018 and 2019 sales.
 
2018 2019 
2019 
Sales Sales

Collections:
 
Installment accounts receivable, 1/1/13 P17,400 P205,400
 

Installment accounts receivable, - 25,800

12/31/13
 
Total credits 17,400 179,600
 
Less: credit for repossession 200
 
Collections during 2020 17,400 179,400
Gross profit rate 36% 39%

Realized gross proft, 12/31/13 P6,264 P69,966

Total realized gross profit: 

(P6,264 + P69,966) P76,230  
 A P78 gain is realized from the sale of the repossessed
repossessed merchandise as
as computed below: 
below: 
Sales price P200
Unrecovered cost:
Unpaid balance P200
Less: deferred gross profit (P200 x 39%) 78 122
Gain on repossession P78  
35. on the first installment, a profit of P96.80 is realized which is computed as follows: 
follows: 
Installment sales P1,650
Cost of sales 924
Gross profit P726

Gross profit rate 44%

Realized gross profit

Collections P220
Gross profit rate 44%
Realized gross profit P96.8  
On the second installment, a profit of P120 is realized as shown below:
below:  
Sales P1,000
Cost of repossessed merchandise:
Appraised value P460
Add: reconditioning cost 60 520
 

gross profit P480

Gross profit rate (P480/P1,000) 48%

Realized gross profit:

Collections: P250

Gross profit rate 48%

Realized gross profit   P120  

36. Appraised value of repossessed merchandise

me rchandise P1,000
Unrecovered cost: 
Unpaid balance P2,200
Less: deferred gross profit (P2,200 x 40%)  880  1,320 
Loss on repossession  (P320) 
Gross profit rate (P1,200 + P3,000 ) =40%

37. The realized gross profit is computed as follows: 

follows:  
Year of sales 
sales 
2018  2019  2020 
Installment contract receivable, 1/1/13 P24,020 P344,460 P602,000
Installment contract receivable, 12/31/13 
12/31/13  -  67,440 
67,440  410,090
410,090  
Total credit 
credit  24,020 
24,020  277,020 
277,020  191,910 
191,910 
Credit for repossession 
repossession  2,200  
2,200
Collections  
Collections 24,020  
24,020 274,820  
274,820 191,910  
191,910
Gross profit rate:
2018: 133,000/380,000 35%
2019:146,880/432,000  
2019:146,880/432,000 34% 
34% 
2020:22,740/602,000 37%
Realized gross profit  P8,407  P93,438.8  P71,006.7 

Total realized gross profit, 12/31/13:

2018 P8.407
2019  93,438.80 
2020 
2020  71,006.70  
71,006.70
Total   P172,852.5 

The loss on repossession is computed as follows: 

follows: 

Actual value of repossession

r epossession merchandise:
Resale price P2,000
Less: Reconditioning cost P300
Gross profit (P2,000 x 35%) 700 1,000 P1,000

Unrecovered cost
Unpaid balance (P5,400-P3,200)  P2,200 
Less deferred gross profit (P2,200 x 34%) 748 1,452
Loss on repossession  P(452) 
 

38. This is computed by deducting the loss on repossession from the total realized gross profit:
profit :
Year of Sales 
Sales 
2018 2019 2020 Total  
Collections P72,500 P80,000 P62,500
Gross profit rate
2018:P60,000/P240,000 25%
2019:P68,750/P250,000 27.5%
2020:P84,000/P300,000 28%

Realized gross profit P18,125 P22,000 P17,500 57,625

Loss on repossession
Value of repossessed merchandise P6,000 P9,000
Unrecovered cost:
Unpaid balance 15,000 16,000
Less: deferred gross profit
2018:P15,000x25% 3,750
2019:P16,000x27% 4,400

Unrecovered cost 11,250 11,600

Loss on repossession (P5,250) (P2,600) (7,850)

Total realized gross profit after loss on repossession P49,775 
39. The computation is as follows:
Year of sales 
sales 
2019 2020
Installment contract receivable, 1/1/13 P100,000 P375,000
Installment contract receivable, 12/31/13 (12,500) (150,000)
Total credit 87,500 225,000
Credit for repossession (6,250) -
Collections 81,250 225,000
Gross profit rate (schedule ) 50% 45%
Realized gross profit (P141,875) P40,625 P101,250  

Schedule 1 : gross profit rate 

2019 sales: rate 
Gross = Deferred gross profit  – 2019, 9/30/2019 P50,000 = 50%
profit rate Inst. Contract rec’ble  –
– 2019, 9/30/2019 100,000

 
2020 sales:

Installment sales P375,000

Less: cost of installment sales-
Cost of goods sold:
Inventories, 9/30/12 P62,500
Purchases  435,000 
Cost of goods available 497,500
   
Less: inventories, 9/30/12 
9/30/12  
(P75,000-P2,500)  
(P75,000-P2,500) 72,500 
72,500 
Cost of goods sold 
sold  425,000  
425,000
 

Less: cost of regular sales (70% x P312,500) 218,750 206,250

Gross profit on installment sales P168,750
Gross profit rate: (P168,750/P375,000) 45%

40. The realized gross profit is computed as follows: 

follows: 
Collections applying to principal (Sch. 1) P620.69
Gross profit rate (P600/P1,600) 37.5%
Realized gross profit rate P232.76 

The loss on repossession is computed below: 

below: 

Fair value of repossessed merchandise P560

Less: unrecovered cost
Unpaid balance (sch. 1) P979.31
Less: deferred gross profit (P979.31 x 37.5%) 367.24 612.07
Loss on repossession (P52.07) 

Schedule 1: 
1: 
Date (1) Total (2) Applying to (3) Applying to (4) Balance of
 payment   Interest 005  principal (1) 
(1)   principal (4) 
(4) 
 x (4) 
(4)  –  (2)
 (2)   –  (3)
Sept. 30 P1,600
Sept. 30 P160 - P160 1,440
Oct. 31 160 7.20 152.8 1287.20
Nov. 30 160 6.44 153.56 1,133.64
Dec. 31 160 5.67 154.33 979.31
640 P19.31 P620.69

41. P70,000 is the sum of the realized gross profit in 2019 and 2020 which are computed as follows: 
follows: 
2019  
2019 2020  
2020
Installment contract receivable, P80,000 P200,000
beg. (1/1/13) 

Installment contract receivable, 25,000 95,000

beg. (1/1/13) 
(1/1/13) 
Total credits 55,000 105,000
Less: credit for repossession  6,000  - 
Collections  49,000  105,000 
Gross profit rate (schedule 1)  40%  48% 
Realized gross profit 12/31/13 (P70,000)   P19,600   P50,400  

The P1,100 adjusted loss is determined as follows: 

follows: 
Value of repossessed merchandise P2,500
Unrecovered cost:
Unpaid balance 6,000
Less: deferred gross profit (P6,000 x 40%) 
40%)  2,400  
2,400 3,600 
3,600 

repossession 
 Adjusted loss on repossession (P1,100) 
 

Schedule 1 –  gross
 gross profit rates: 
rates: 

2019 Sales: 
Sales: 
Installment sales  P150,000 
Cost sales:
Purchases P100,000
Merchandise inventory, 12/31 
12/31  10,000 90,000  
90,000
Gross profit P60,000
Gross profit rate (P60,000/P150,000) 40%

2020 Sales: 
Sales: 

Adjusted installment sales

(P198,500 + P1,500, Trade-in) P200,000
Cost of sales:
Merchandise inventory, 1/1 P10,000
Purchases  120,000 
Goods available for sale  130,000 
Merchandise inventory, 12/31  26,000 104,000 
Gross profit P96,000
Gross profit rate (P96,000/P200,000) 48%

42. The balance of deferred gross profit on Dec. 31,2020 is computed as follows:

2019 2020  
2020
Sales Sales 
Sales 
Installment sales P400,000 P500,000
Collections in 2019 (210,000)
Collections in 2020 (150,000) (300,000)
Installment contract receivable, 12/31/13 40,000 200,000
Gross profit rate (GP/IS) 40% 30%
Deferred gross profit, 12/31/13 (P76,000) P16,000 P60,000  

43. Deferred gross profit before adjustment:

2018 sales P11,550

2019 sales 62,000
2020 sales 75,810
Total 149,360
Less: deferred gross profit, end (IAR end X GPR)
2018 sales -
2019 sales (P42,000 x 40%) P16,810
2020 sales(P100,500 x 42%) 42,210 59,010
Total realized gross profit, 12/31/13 P90,350  
2019 GPR: P62,000/P155,000 = 40%

44. The total realized gross profit is computed below:

 

2020 Installment sales:

Unrealized gross profit, 2020  P100,000 
Divided by GPR on sales  ÷ 40%  P250,000 
Less: Installment receivable  – 2020,12/31/13  140,000 
Collection from 2020 sales  110,000 
Gross profit rate  40% 
Realized gross profit on 2020 sales  P44,000  

The gain (loss) on repossession is computed as follows: 

follows: 

Actual value of repossessed

merchandise:
Sales price P10,000
Less: reconditioning cost P1,000
Gross profit (P10,000 x 40%) 4,000 5,000 P5,000
Less: unrecovered cost
Unpaid balance:
2018 accounts P2,000
2019 accounts 6,000 8,000
Deferred gross profit:
2018 account(P2,000 x 40%) 800
2019 account(6,000 x 40%) 2,400 3,200 4,800
Gain on repossession P200  
45. Total realized gross profit is computed below: 
below: 
Year of sales
2019 2020 
2020 
Sales Sales
Installment receivable, 1/1/13 P120,000 P425,000
Installment receivable, 12/31/13 (15,000) (200,000)
Defaulted balance (7,750) -
Collections 97,250 225,000
Gross profit rates 45% 38%
Realized gross profit, 12/31/13 P43,762.50 P85,500  
Total (P129,562.50) 

Gross profit rate: 

rate: 
2019 sales (P54,000/P120,000) 45%
2020 sales P425,000
Installment sales
Cost of installment sale:
Inventory, 1/1 70,000
Purchases  555,000 
Inventory, 12/31  (95,000) 
Repossession  3,000 
Total  533,000 
Cost of regular sale (70% x P385,000)  269,500  263,500 
Gross profit 
profit  161,500  
161,500
 

GPR(P161,500/P425,000) 38%

The loss on repossession is computed as follows: 

follows: 
Value of repossessed merchandise P3,000
Less: unrecovered cost:
Unpaid balance P7,750
Deferred gross profit (7,750 x 45%) 3,487.50 4,262.50
Loss on repossession P1,262.50  

46. 
Deferred gross profit, before adjustment P38,000
Less: deferred gross profit applicable to
Uncollected installment accounts:
2019: P16,250 x 30%/130% P3,750
2020:P90,000 x 25% 22,500 26,250
Realized gross profit P11,750
Less: Expenses 1,500
Net income on installment sales P10,250  

47. The computation of the realized gross profit is shown below:

below:  
List price P220,000
Less: trade-in overallowance P85,000-P81,700 3,300
Adjusted selling price P216,700 100%
Less: cost of sales 
sales  165,000  
165,000 76.14%  
76.14%
Gross profit 
profit  51,700  
51,700 23.86%  
23.86%
Value of old car trade-in P 81,700
Cash received at time of sale 35,000
Installment collected: P5,000 x4 
x4  20,000  
20,000
Total collections in 2020  136,700 
Multiply by gross profit rate 
rate  .2386  
.2386
Realized gross profit as of December 31,2020   P32,616.62 

Gain (loss) on repossession is computed as follows: 

follows: 
Adjusted selling price P216,700
Less: collections
In 2019 (No.47) P136,700
In 2020: P5,000 x 2 
2  10,000  
10,000 146,700 
146,700 
Defaulted balance P70,000
Multiply by cost rate .7614
Unrecovered cost P53,298
Value of repossessed car P40,000
Less: unrecovered cost 53,298
Repossession gain (loss)  P(13,298) 

48. 
Cash sales P126,000
Installment sales collected
Downpayment (P265,000 x ¼) P66,250
 

Subsequent installments P79,341

Less: interest  (9,252.84) 
Interest on defaulted contracts (sch.1)  (20.67)  70,067.49  136,317.49 
Total collection  P262,317.49 
Gross profit rate (sch.2)  37.75% 
Realized gross profit, 12/31/13  P99,024.85 

Schedule 1 –  interest on defaulted contracts: 

contracts: 

The total interest is determined through the use of the following table:
Installment (1) Equivalent (2) Contact (3) Interest (4) Cash
number   cash sales 1- 
1-  sales  
sales income1%  
income1% collection
(4-3)  
(4-3)  price2-4  
 price2-4  x 1 
1 

First month P1,000 P1,060 265

Second month 735 795 7.35 53
Third month 689.35 742 6.89 53
Fourth month 689.35 689 6.43 53
Total interest earned 20.67
Schedule 2 –  gross
 gross profit rate: 
rate: 

The 37.75% gross profit rate is determined as follows:

Sales:  
Sales: P126,000 
P126,000 
Cash sales 250,000
Installment sales at cash 
cash  376,000  
376,000
sales price (P265,000/106%)
Total sales at cash sales
price

CostMerchandise
of sales: inventory, January 1 P58,060
Purchases 209,300
Goods available for sale  267,360 
Less: merchandise inventory, Dec. 31 
31  33,300  
33,300 234,060  
234,060
Gross profit 
profit  141,940 
141,940 
Gross profit rate (P141,940/P376,000) 
(P141,940/P376,000)  37.75%  
37.75%

49. 
Total realized gross profit (Sch.1) P157,156
Loss on repossession (Sch.2) 
(Sch.2)  (1,000)  
(1,000)
Total realized gross profit loss on repossession  156,156 
Operating expenses  96,000 
Net income, Dec. 31,2020   P60,156 

Schedule 1 –  realized
 realized gross profit  

2018  
2018 2019  
2019 2020  
2020
Sales  
Sales Sales  
Sales Sales  
Sales
Inst. Contract receivable, 1/1/13 P110,000 P250,000 P420,000
 

Inst. Contract receivable, 21/31/13 (28,000) (92,000) (238,000)

Accounts written off   (9,000)  (2,800)  - 
Defaulted accounts  (5,000)  -  - 
Collections  68,000  155,200  182,000 
Gross profit rate (GP/IS)  40%  38%  39% 
Realized gross profit (P157,156) P27,200 P58,976 P70,980

Schedule 2 - loss o repossessio

repossession:
n:  

Appraised value of repossessed merchandise P2,400

Less: reconditioning cots 400
Actual value at time of repossession 
repossession  2,000  
2,000
Less: unrecovered cost
Unpaid balance 5,000
Deferred gross profit (P5,000 x 40%)  2,000  3,000 
Loss on repossession P(1,000)

51. The computation of the required balance of the allowance for defaulted contracts account is
shown below: 
below: 
2020 Bad debts rate
Loss on defaulted contracts P250
Contracts written off 3,750
Sales of repossessed goods (800)
Value of repossessed goods (200)
Total 3,000
Divided by 2019 sales ÷75,000
Rate of bad debt loss 4%

Estimated loss from 2020 sales (125,000 x 4%) P5,000  

Less: loss on defaulted contract  – 2020 sales 1,325 
Required balance of allowance, Dec. 31,2020   P3,675 

The realized gross profit on Dec. 31,2020 from 2019 Sales is computed below: 
below: 
Installment contract receivable  – 2019, 1/1/13 P31,500
Installment contract receivable  – 2019, 12/31/13 (2,000)
Installment contract, receivable written off  – 2019 sales (3,750)
Collections during 2020 25,750
Gross profit rate  – 2019 40%
Realized gross profit from 2019 sales, 12/31/13 P10,300