ADV FIN 1 – INSTALLMENT SALES (EXTENSIVE HANDOUT) PROF MIRANDA

PROBLEM 1: On Dec 31, 2016, Suzuki, a dealer of motorcycle, sells exclusively on installment basis. One
of its customers, Mr. Mio purchased a motorcycle for 136,125. The cost was 76,230. After making an initial
payment of P18,150, the balance is to be paid in 10 monthly installments commencing next month, Mr.
Mio defaulted on subsequent payments. Suzuki lost no time in repossessing the motor vehicle, by this
time, was appraised at 42,900 after reconditioning cost of 4,950. The motorcycle was subsequently resold
to Mr. Raider for 82,500 who made an initial payment of 20,625.

How much net profit was realized by Suzuki in 2016? 7,986

PROBLEM 2: On July 1, 2016, Poseidon sold a new spear to Athena with an invoice price of P220,000, with
a 20%trade discount if the sale fall on July 1 to Aug 31, 2016, the spear cost P165,000. It granted Athena
an allowance of P85,000 for his old spear as trade in. The appraised value before spending reconditioning
cost of P2,000 of the spear was P81,700. The balance was payable as follows: DPP35,000 and the
remaining balance to be paid in 20 monthly installments starting October 1, 2016. On April 1 of
subsequent year, the customer defaulted and the spear was repossessed, its appraised value after
reconditioning cost of P3,000 is P45,000.

Determine the RGP and gain/loss on repossession in 2017. 3,579 and 11,298 Loss

PROBLEM 3: The trial balance of Company is presented below as of December 31, 2016:
Installment Accounts Receivable-2015 144,000 Loss on repossession 15,840
Installment Accounts Receivable-2016 1,920,000 Installment sales 4,080,000
Inventory - December 31, 2015 672,000 Regular sales 3,696,000
Purchases 5,228,000 Operating Expenses 1,104,000
Freight-in 100,000

Additional Information:
Installment Accounts Receivable 2015 Sales, January 1, 2016 1,370,400
Inventory of new and repossessed merchandise as of January 1, 2017 912,000

Mark-up on regular sales in 2016 is 10% lower than the gross profit percentage on installment sales in
2015.

There was an installment account written-off amounting to 100,000 in 2016 pertaining to the 2016 sales.
The write-off was made during the year and was recorded correctly.
Repossession was made during the middle of the year and was recorded correctly. It was a 2015 sale and
the corresponding unrecovered cost is 44,640; related gross profit 29,760.

What is the net income for 2016? 1,170,560

PROBLEM 4: Mirana sells motor vehicles both on installment and cash basis. Slardar purchased a car from
Mirana on March 30, 2016 for 210,000 which has a cost of 165,600. A used car is accepted as down
payment P51,200 being allowed on the trade in. The used car can be resold for 64,080 after reconditioning
costs of 3,064. The company expects to make a 20% gross profit on the sale of used car. The balance of
the sale is to be paid on a 10-month installment basis starting May 1, 2016. Slardar defaulted payment
starting November 1, 2016 and the car was immediately repossessed. The repossessed merchandise was
appraised at a value of 37,500 at the time of repossession. Mirana had to incur additional costs of repairs
amounting to 3,700 before the car was subsequently resold on December 1, 2016 for P51,500 cash to
Slithice.

Compute for the realized gross profit and net income for 2016. 38,996; 25,680
ADV FIN 1 – INSTALLMENT SALES (EXTENSIVE HANDOUT) PROF MIRANDA

PROBLEM 5: Apple Company sells appliances for cash and other installment plan. Entries to record cost
of sales are made monthly.

The trial balance on December 31, 2016 is as follows:

Cash 72,600
Installment Accounts Receivable 2015 24,000
Installment Accounts Receivable 2016 76,000
Inventory - New merchandise 62,000
Inventory - Repossessed 12,000
Accounts payable 48,700
Unrealized gross profit 2015 22,800
Capital stock 100,000
Retained Earnings 42,000
Cash sales 212,000
Installment sales 150,000
Cost of sales 165,000
Cost of Installment sales 97,500
Gain or loss on repossession 400
Selling and administrative expenses 66,000
575,500 575,500

The accounting department has prepared the following analysis of cash receipts for the year:
Cash sales 212,000
Installment Accounts Receivable 2015 52,000
Installment Accounts Receivable 2016 74,000
Others 18,000
Total 356,000

Data pertaining to the repossession recorded during the year are summarized as follows:
2015
Uncollected Balance 4,000
Loss on repossession 400
Repossessed merchandise 2,400

Compute for the net income in 2016. P22,100

PROBLEM 6: Tanda Appliances sells items both on installment and cash basis. Sexy purchased a set from
Tanda on March 2016 for 367,500 which has a cost of 289,800. A used set is accepted as down payment.
89,600 being allowed on the trade in. The used set can be resold for 112,140 after reconditioning costs of
5,362. The company expects to make a 20% gross profit on the sale of used set. The balance of the sale is
to be paid on a 10-month installment basis starting May 1, 2016. Sexy defaulted, payment starting
November 1, 2016 and the set was immediately repossessed. The repossessed merchandise was
appraised at a value of 65,625 at the time of repossession. Tanda had to incur additional costs of repairs
amounting to 6,475 before the car was subsequently resold on December 1, 2016 for 90,125 cash to Pogi.

Compute for the Net Income for the year 2016. 44,940

PROBLEM 7: On July 10, 2016, Supreme Company sold a new automobile to Noynoy for 1,700.000. The
car costs the seller 1,301,250, the buyer paid 30% down and received 160,000 allowance on an old car
traded, the balance being payable in equal monthly, installment payments. The monthly amortization
amounts to 60,000 inclusive of 12% interest on the unpaid amount of the obligation. The car traded in has
a wholesale value of 240,000 after spending reconditioning costs of 45,000. After paying three
installments, the buyer suffered major financial setback incapacitating him to continue paying so the car
was subsequently repossessed. When reacquired, the car was appraised to have fair value of 600,000.

How much is the RGP on installment sales during the year? 213,899
ADV FIN 1 – INSTALLMENT SALES (EXTENSIVE HANDOUT) PROF MIRANDA

PROBLEM 8: PPG Discount Center Inc. sells merchandise for cash and other installment plan. Entries to
record cost of sales are made at the end of each year. The trial balance at December 31, 2016 is as follows:

Cash 50,700
Installment Accounts Receivable 2015 36,000
Installment Accounts Receivable 2016 55,000
Inventory - Jan 1, 2016 60,000
Inventory - Repossessed 3,000
Accounts payable 12,000
Unrealized gross profit 2015 26,600
Capital stock 100,000
Retained Earnings 20,000
Regular Sales 200,000
Installment sales 80,000
Purchases 180,000
Gain or loss on repossession 900
Selling and administrative expenses 53,000
438,600 438,600

*The inventory of merchandise on hand, December 31, 2016 consists of new merchandise, P50,000;
repossessed merchandise, P2,000. There is no repossessed merchandise on hand January 1, 2016.

*The cost of merchandise sold under the installment plan during 2016 was P54,400.

*Collections on contracts receivable during 2016 were as follows:

Installment Accounts Receivable 2015 P40,000
Installment Accounts Receivable 2016 25,000

*Merchandise sold in 2015 was repossessed in 2016 which was recorded correctly as follows:
Loss on Repossession 900
Inventory - Repossessed 3,000
Unrealized gross profit 2015 2,100
Installment Accounts Receivable 2015 6,000

*Part of repossessed merchandise was sold for cash during 2016 and the sale was recorded by a debit to
Cash and a credit to Sales.

Compute for the net income for 2016. P31,500

PROBLEM 9: The partial trial balance of Company is presented below for December 31, 2016:
Accounts Receivable 34,000
Installment Accounts Receivable 2016 192,000
Installment Accounts Receivable 2015 90,000
Installment Accounts Receivable 2014 22,000
Merchandise Inventory - 12/31/15 48,000
Purchases 238,000
Freight-in 12,000
Repossessed merchandise 14,000
Selling expenses 92,000
Loss on repossession, 2016 16,000
Loss on repossession, 2014 8,000
Bad Debts - charges sales 1,000
Cash sales 60,000
Charges sales 120,000
Installment sales 300,000
ADV FIN 1 – INSTALLMENT SALES (EXTENSIVE HANDOUT) PROF MIRANDA

Unrealized gross profit 2015 56,000

Unrealized gross profit 2014 32,000

Additional Information:
a. Merchandise inventory on Decenter 31 , 2016 (including new and repossessed) was P52,000.
b. Charge sales and installment sales prices were higher than cash sales prizes by 20% and 25%, respectively.
c. Installment sales in 2014 and 2015 had gross profit rates of 40% and 35%, respectively.
d. The following is the summary of the repossession account on December 31, 2016:

FMV of Loss on Installment Contracts

Year of Sales
merchandise Repossession Receivable
2014 2,000 8,000 10,000
2016 12,000 16,000 28,000
TOTAL 14,000 24,000 38,000

e. The unrealized gross profit balances shown above were the amounts as of January 1, 2016 and were
not adjusted during the year.

1. The total sales for 2016, if all sales were on cash basis: P400,000
2. The cost of goods sold on installment sales for 2016 should be: P156,000
3. The total realized gross profit in 2016 should be: P158,100
4. The net income (loss) for the year 2016 should be: P58,540

PROBLEM 10: The partial trial balance of Company is presented below for December 31 ,2016:
Accounts Receivable 750,000
Installment Receivable 2014 150,000
Installment Receivable 2015 450,000
Installment Receivable 2016 2,700,000
Merchandise Inventory - 12/31/15 525,000
Purchases 3,900,000
Freight-In 30,000
Repossessed Merchandise 150,000
Loss on Repossession 240,000
Cash sales 900,000
Charges sales 1,800,000
Installment Sales 4,460,000
Deferred gross profit 2014 222,000
Deferred gross profit 2015 393,600
Operating Expenses 150,000
Shipment on Installment Sales 2,787,500

Additional Information:
*Gross profit rates for 2014 and 2015 installment sales were 30% and 32% respectively.
*The entry for repossessed goods was:
Repossessed merchandise 150,000
Loss on Repossession 240,000
Installment Receivable 2014 180,000
Installment Receivable 2015 210,000

*Merchandise on hand at the end of 2016 (new & repossessed) was P282,000.
1. What is the total realized gross profit in 2016? 2,129,900
2. How much is the balance of DGP as of 12/31/16? 1,201,500
3. How much is the net income for the year 2016? 1,861,100
ADV FIN 1 – INSTALLMENT SALES (EXTENSIVE HANDOUT) PROF MIRANDA

PROBLEM 11: Femme Company began operations on January 1, 2016. The following data
pertains to Femme's operations for the year 2016:
Installment sales (before over/under allowance) 7,875,000
Operating Expenses 918,750
Regular sales 3,281,250
Total cash collections for the year (excluding interest of P210,000) 5,220,000
Cost of Regular sales 1,881,250
Cost of Installment sales 5,512,500
Accounts Receivable, end 1,281,250
Installment Receivable written-off 385,000
Estimated resale value of Repossessed inventory 725,000
Repossessed accounts 875,000
Actual value of trade-in merchandise 700,000
Trade-in allowance 1,225,000
Reconditioning cost of the Repossessed inventory 143,750
Usual Profit on the sale of Repossessed inventory 15%

What are the DGP balances as of December 31, 2016 and the Net income for the year 2016? P542,500
and P1,198,750

PROBLEM 12: SUZUKI MOTORS Inc., a dealer of motorcycles, sells on installment basis. On Jan 6, 2017,
one of its customers, Mr. JAMES, bought a unit costing P172,500 for P275,000. JAMES traded his old
mountain bike which was accepted by SUZUKI and was granted a trade-in allowance of P30,000. This
mountain bike had a resale value of P50,000 after reconditioning cost of P7,500. Also, an additional cash
of P12,500 was paid by JAMES upon purchase; balance payable in 12 months.

After making a total installment payments of P135,625, JAMES ceased to pay and defaulted on all his
subsequent payments. SUZUKI Inc. lost no time in repossessing the motorcycle. By then it had an
estimated value of P50,000. After couple of weeks, on October 10, 2017, SUZUKI INC. was able to sell the
motorcycle to Mr. JOHN on installment for P90,000. However, additional repair and repainting cost of
P5,500 was incurred to enhance its salability. Terms of sale: 25% down; balance in 3 months every end of
the month starting on the month of sale.

1. What is the total realized gross profit in 2017? 110,750

2. What is the gain or (loss) on repossession? 8125 Loss

PROBLEM 13: Abad Corporation began operations on July 1, 2016. The following information extracted
from its records at year end:
Cost of Installment Sales 546,875
Cost of Regular Sales 525,000
Mark-up on Installment Sales 140% of cost
Mark-up on Regular Sales 33 1/3 on sales
Accounts Receivable at 12/31/16 367,500
Operating Expenses 398,125
Net Income 170,625

A write-off of installment receivable amounting to P126,000 was made prior to the closing of 2016.
What is the ending balance of installment receivable as of December 31, 2016? P661,500

"Successful people do what unsuccessful people are not willing to do. Don't wish it were easier; wish
you were better."

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matter."

*** END ***