ALDERSGATE COLLEGE

ACCOUNTING FOR SPECIAL TRANSACTIONS

1ST SEMESTER; A.Y. 2020 – 2021

INSTALLMENT SALES:
HANDOUT / MOCK QUIZ

NAME: _________________________________________ COURSE & YEAR: _________ SCORE: ________________

PART 1 – THEORIES
1
2 29
3
4
5
6
7
8 30

9 31

10
32
11

33
12

34
13
14
15
16 35

17
18

PART 2 – COMPUTATION
19 1
2
3
20 4
5
6
21
7
22
8
23
9
24
10
11
25 12
26 13
27 14
15
16
28 17
18
19

NJLGIMARINO 2020 Page 1

 ALDERSGATE COLLEGE
ACCOUNTING FOR SPECIAL TRANSACTIONS
1ST SEMESTER; A.Y. 2020 – 2021

INSTALLMENT SALES:
HANDOUT / MOCK QUIZ

TEST I: Supply the information. Fill in the answer sheet as the discussion goes. This theoretical part is only for review
purposes.

a) What are the three methods to account for Installment sales under the Cash Basis? (1-3)
b) What method must be used if the problem is silent? (4)
c) What are the three standards in which Installment sales is tackled? (5-7)
d) What are the journal entries to record Installment sales? (8-9; Hint: Sales and Cost)
e) What is the journal entry to record receipt of payment? (10)
f) How do we record the year-end entry? (11)
g) How do we adjust Deferred Gross Profit? (12)
h) What are the three ways to compute for the GP rate? (13-15)
i) Why is it dangerous to use the shortcut in computing the GP rate when a trial balance is given? (16)
j) How do we measure repossessions? (17)
k) Why do we have to deduct the reconditioning costs, normal GP and commissions from the estimated resale value in both
repossessions and trade-ins? (18-20)
l) How do we call the amount computed after deducting the reconditioning costs, normal GP and commissions from the
estimated resale value? (21-23)
m) What is the entry to record repossessions? (24)
n) How is the Loss on repossession presented in the Income Statement? (25)
o) How is the Gain on repossession presented in the Income Statement? (26)
p) What is the entry to record defaults if no item has been repossessed? (27)
q) How do we compute for Loss on repossessions? (28; Hint: Table)
r) How do we compute for over/underallowance in trade-ins? (29; Hint: Table)
s) Why do we have to compute for the adjusted sales price in trade-ins? (30)
t) What are the journal entries to record sales with trade-ins? (31-32; Hint: Sales and Cost)
u) How do we record the year-end entry for trade-ins? (33)
v) How do we compute for IARb in trade-ins? (34)
w) How do we compute for RGP in trade-ins? (35)

TEST II: COMPUTATION: Supply the information being asked. (Note: Round the GP rates to two decimals. Ex:
23.89%)

A. The following data were obtained for the years 2016 to 2018 for the MK Company.

2016 2017 2018

Installment Sales P 980, 000 P 1,120,000 P 1,870,500
Cost of Installment Sales 392,000 425,600 617,265
Collections from
2016 Sales 400,000 200,000 150,000
2017 Sales 690,000 180,000
2018 Sales 425,600

1. What is the GP rate of 2016, 2017 and 2018?

2. How much is the DGP16 in 2017?
3. How much is the DGP17 in 2018?
4. How much is the total RGP in 2018?

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 ALDERSGATE COLLEGE
ACCOUNTING FOR SPECIAL TRANSACTIONS
1ST SEMESTER; A.Y. 2020 – 2021

B. Nikki Inc. sold equipment costing 170,000 to Ryan Co. for 425,000 in September 17, 2015 on installment basis. Ryan
Co. monthly pays 25,000 plus 2% interest at the end of each month starting 2 months from the month of sale. On,
February 29, 2016, Ryan Co. defaulted on its payments due to financial difficulties. Nikki Inc. immediately repossessed
the equipment and is expecting to resell it at 100,000 after incurring reconditioning costs of 15,000 and commission of
1%. The normal gross profit margin on sales of used equipment is 10%.

5. How much is the Loss on Repossession?

6. If Nikki Inc. succeeds to resell the equipment at 100,000, how much is the Net Income in 2016?
7. How much is the total RGP from the installment sale?
8. How much is the unrecovered cost?
9. How much is the DGP after repossession?

C. On June 7, 2017. Rom Company sells a new truck to Jose Co. for 754,000 at 25% above cost. As down payments, Rom
accepted 150,000 cash and a used truck with 238,000 being allowed on the trade in. The wholesale value of the used
truck is 290,000 after reconditioning cost of 46,800. During the period, 240,000 cash was collected on the contract.

10. How much is the IARb?

11. How much is the under/overallowance?
12. How much should the trade-in be recorded?
13. How much is the RGP in 2017?

D. Cuppie Co. repossessed merchandise in 2017 that it sold to Katcha Co. for 1,100,000 on the installment basis in
September 2016 for 30% GP margin. A down payment of 100,000 and the same amount was to be paid at the end of
each succeeding month plus 10% interest. After paying a total of P1,000,000, Katcha defaulted and Cuppie immediately
repossessed the remaining merchandise. It was estimated that the item’s fair value is 225,000. Commission expense is
estimated at 3,000.

14. How much is the amount of the IAR upon default?

15. How much is the loss on repossession?
16. At what amount should the repossessed merchandise be recorded?

E. The following selected accounts appeared in the trial balance of the KAD Sales as of December 31, 2018 before
adjustment:

IAR – 2017 sales P 6,000 Repossessions P 1,200

IAR – 2018 sales 80,000 Installment Sales 170,000
Inventory. Dec. 31, 2017 28,000 Regular Sales 154,000
Purchases 222,000 DGP - 2017 21,600
Operating Expenses 46,000

Additional Information:
a) IAR – 2017 sales balance as of December 2017 amount to 60,000.
b) Inventory of new and repossessed merchandise as of December 2018 amount to 38,000
c) GP rate on regular sales during the year is 30% based on sales
d) Repossession was made during the year and was recorded correctly. It was a 2018 sale and the corresponding
uncollected account at the time of the repossession was 3,100.

17. How much is the loss on repossession?

18. What are the GP rates for 2017 and 2018?
19. How much is the Net income for the year 2018?

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