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Chapters 9 and 10
Consignment Sales and Installment Sales
NAME: Date:
Professor: Section: Score:
QUIZ 2:

Use the following information for the next five questions:

The trial balance of General Mac Appliance Corp. as of the end of the fiscal year on September 30,
2018.
Debit Credit
Accounts Receivable P100,000
Accounts Payable P100,000
Accumulated Depreciation 33,750
Capital Stock 125,000
Cash 46,250
Deferred Gross Profit- 2017 50,000
Equipment 112,500
Installment Contract Receivable- 2017 12,500
Installment Contract Receivable- 2018 150,000
Installment Sales 375,000
Inventory, September 30, 2017 62,500
Loss on Repossessions 3.750
Prepaid Expenses 3,750
Purchases 435,000
Repossessions 2,500
Retained Earnings 30,000
Sales 312,500
Selling and Administrative Expenses 97,500
1,026.250 1,026,250

The post-closing trial balance on September 30, 2017 shows the following balances of certain
accounts:
Installment Contract Receivable- 2017 P100,000
Deferred Gross Profit- 2017 50,000
The gross profit percentage on regular sales during the year was 30%

The accountant made the following entry for repossession on a sale of 2017 towards the end of fiscal
year:
Repossessions ` 2,500
Loss on Repossessions 3,750
Installment Contract Receivable- 2017 6,250

The inventory of new and repossessed merchandise on September 30, 2018 amounted to P75.000.
1. What is the gross profit rate of 2017 and 2018 installment
sales? a. 40%; 50%
b. 50%; 40%
c. 50%; 45%
d. 45%; 50%

2. What is the gross profit realized in 2018 from 2017 installment

sales? a. P10,250
b. P40,625
c. P50,625
d. P101,250

3. The gross profit realized on collections for installment sales in fiscal year 2018
is? a. P10,250
b. P40,625
c. P50,625
d. P101,250

4. The correcting entry for repossessions made on a sale of 2017 is

a. Loss on Repossession 3,125
Deferred Gross Profit 3,125
b. Deferred Gross Profit 3,215
Loss on Repossession 3,215
c. Deferred Gross Profit 3,125
Loss on Repossession 3,125
d. No Entry

5. How much is the total RGP after gain or (loss) on repossession to be reported on September 30,
2018?
a. P40,000
b. P93,750
c. P235,625
d. P235,000

6. When the consideration receivable from an installment sale is discounted, the gross profit rate is
computed
a. based on the present value of the consideration receivable.
b. based on the undiscounted installment sale price
c. a or b
d. none of these
7. When the consideration receivable from an installment sale is discounted, realized gross profit is
computed
a. based on collections pertaining to the principal
b. based on the total collection during the period
c. a or b
d. none of these

8. Under the installment sales method, when merchandise previously sold is repossessed, the
repossessed merchandise is recorded at
a. fair value c. current cost
b. original cost d. any of these

9. For purposes of applying the installment sales method, “fair value” is

a. the appraised value of the repossessed property or traded-in merchandise
b. the estimated selling price of the repossessed property or traded-in merchandise less
reconditioning costs and normal profit margin, at date of repossession or date of trade-in.
c. a or b
d. none of these

10. Gain or loss on repossession is computed as

a. the fair value of the repossessed property less the sum of the balance in deferred gross profit
and the balance in the defaulted installment account receivable
b. the sum of the fair value of the repossessed property and the balance in the defaulted
installment account receivable less the balance in deferred gross profit
c. the difference between the fair value of the repossessed property and the balance in deferred
gross profit
d. the sum of the fair value of the repossessed property and balance in deferred gross profit less
the balance in the defaulted installment account receivable

11. Merchandise received as trade-in is recognized at

a. fair value c. current cost
b. original cost d. any of these

12. Under an installment sale where merchandise is received as “trade-in,”

a. the fair value of merchandise traded-in is considered as part of collections when determining
the realized gross profit in the year of sale.
b. the trade-in value of merchandise traded-in is considered as part of collections when
determining the realized gross profit in the year of sale.
c. neither the fair value nor the trade in value affects the computation of realized gross profit.
d. none of these

13. The excess of the trade-in value over the fair value of a traded-in merchandise in a sale
accounted for under the installment sales method represents
a. over allowance c. no allowance
b. under allowance d. small allowance
14. Under the installment sales method, an “over allowance” is
a. treated as addition to the installment sale price when computing for the gross profit rate.
b. treated as reduction to the installment sale price when computing for the gross profit rate.
c. not accounted for
d. none of these

15. Under the cost recovery method,

a. the initial collections on the sale are treated as recovery of the cost of the inventory sold.
Thus, no gross profit or interest income is recognized until total collections from the sale
equals the cost of inventory sold.
b. the initial collections on the sale are treated as recovery of the cost of the inventory sold.
Thus, no gross profit is recognized until total collections from the sale equals the cost of
inventory sold. However, interest income may nonetheless be recognized.
c. a or b
d. none of these

16. BUCOLIC RURAL Co. uses the installment method. Information on BUCOLIC’s transactions
during 20x1 and 20x2 is shown below:
20x1 20x2
Installment sales 2,000,000 2,400,000
Cost of sales 1,200,000 1,320,000
Gross profit 800,000 1,080,000
Cash collections from:
20x1 sales 800,000 400,000
20x2 sales 960,000

How much is the total realized gross profit in

20x2? a. 160,000
b. 432,000
c. 592,000
d. 642,000

Use the following information for the next three questions:

INNOCUOUS HARMLESS Co. uses the installment method. On January 1, 20x3,
INNOCUOUS Co.’s records show the following balances:

Installment receivable - 20x1 800,000

Installment receivable - 20x2 2,400,000
Deferred gross profit - 20x1 176,000
Deferred gross profit - 20x2 576,000
On December 31, 20x3, INNOCUOUS Co.’s records show the following balances before adjustments
for realized gross profit:
Installment receivable - 20x1 -
Installment receivable - 20x2 960,000
Installment receivable - 20x3 2,400,000
Deferred gross profit - 20x1 176,000
Deferred gross profit - 20x2 576,000
Deferred gross profit - 20x3 1,500,000

Installment sales in 20x3 were made at 331/3 above cost.

17. How much is the installment sale in

20x3? a. 4,836,000
b. 5,800,000
c. 6,000,000
d. 7,200,000

18. How much is the total cash collections in

20x3? a. 5,840,000
b. 1,440,000
c. 3,600,000
d. 5,640,000

19. How much is the total realized gross profit in

20x3? a. 984,600
b. 1,241,200
c. 1,520,000
d. 1,421,600

20. DEMOTIC POPULAR Co. uses the installment method. The following information was taken
from the incomplete records of DEMOTIC Co.:
20x1 20x2 20x
3
Installment sales 4,000,000 4,800,000 ?
Cost of sales ? ? ?
Gross profit ? ? ?
Gross profit rates ? ? 25%
Collections:
from 20x1 sales 2,000,000 1,200,000 800,000
from 20x2 sales 2,400,000 1,440,000
from 20x3 sales 3,600,000
Realized gross profit 440,000 ? 1,421,600

How much is the cost of sales in

20x2? a. 2,840,000 c. 3,648,000
b. 3,248,000 d. 3,946,000
Use the following information for the next three questions:
THRALL SLAVE Co. uses the installment method. Information on installment sales in 20x1 and
20x2 is shown below:

20x1 20x2
Sales 400,000 640,000
Cost of sales 320,000 448,000
Gross profit rate 20% 30%
Installment receivable - 20x1 180,000 60,000
Installment receivable - 20x2 288,000

During 20x2, THRALL Co. repossessed a property which was sold in 20x1 for ₱40,000. Prior to
repossession, ₱10,000 were collected from the buyer. The estimated resale price of the repossessed
property was ₱34,000 after reconditioning costs of ₱6,000.

21. How much is the gain or loss on repossession?

a. 17,800
b. 6,200
c. 12,800
d. 5,400

22. How much is the total realized gross profit in

20x2? a. 123,600
b. 352,000
c. 117,400
d. 90,000

23. How much is the profit recognized in

20x2? a. 123,600
b. 352,000
c. 117,400
d. 90,000

Use the following information for the next three questions:

Songing Co. sells household furniture both on cash and on installment basis. For each installment
sale, a contract is entered into whereby the following terms are stated:
a. A down payment of 25% of the installment selling price is required and the balance is
payable in 15 equal monthly installments.
b. Interest of 1% per month is charged on the unpaid cash sales price equivalent at each
installment.
c. The price on installment sale is equal to 110% of the cash sales price.

For accounting purposes, installment sales are recorded at contract price. Any unpaid balances on
defaulted contracts are charged ton uncollectible accounts expense. Sales of defaulted merchandise
are credited to uncollectible accounts expense. Interests are recorded in the period earned. For its
first year of operation ending December 31, 20x1, the books of the company showed the following:

Cash sales ₱378,000

Installment sales 794,970
Merchandise inventory, Jan. 1 174,180
Cash collections on installment contracts:
Down payment, including defaulted contract 198,750
Installment payments, including interest
of ₱27,758.52 (average of
six monthly installments on
all
contracts, except on defaulted
contracts) 238,023

A contract amounting to ₱3,300 was defaulted after the payment of 3 installments.

24. The gross profit rate based on total sales at cash sales price equivalent
is: a. 33.75% c. 37.00%
b. 36.34% d. 40.88%

25. The total interest earned for the first four months on the defaulted contract is:
a. 60.94 c. 72.07
b. 69.30 d. 80.85

26. The realized gross profit for the year 20x1 is:
a. 151,335.35 c. 249,674.52
b. 161,789.16 d. 291,355.96

Use the following information for the next three questions:

Bulldog Manufacturing Corp. consigned ten refrigerators to Poodle Sales Co. These refrigerators had
a cost of P180 each. Freight on the shipment was paid by Bulldog in the amount of P120.
Poodle Sales Co. submitted an account sales stating that it had sold six refrigerators and remitted the
P1,365 balance due Bulldog after the following deductions from the selling price of the
refrigerators: Commission 15% of selling price
Marketing Expenses P90
Delivery and installation of items sold P60
Cartage cost paid upon receipt of consignment P15

27. The consignee sold the 6 refrigerators for a total

of a. P1,080
b. P1,152
c. P1,530
d. P1,800
28. The commission earned on the sale of the 6 refrigerators by Central Sales Co. was
a. P162
b. P180
c. P250
d. P270

29. The consignor’s net profit for the sale of the consigned goods was
a. P219
b. P285
c. P600
d. P800

30. Taylor Corp. which began operations in 2017, accounts for revenues using the installment
method. Taylor’s sales and collections for the year were P60,000 and P35,000, respectively.
Uncollectible accounts receivable of P5,000 were written off during 2017. Taylor’s gross profit rate
is 30%. In its December 31, 2017, balance sheet, what amount should Taylor report as deferred
revenue?
a. P10,500
b. P9,000
c. P7,500
d. P6,000

“With the tongue we praise our Lord and Father, and with it we curse human beings, who have been made in
God’s likeness. Out of the same mouth come praise and cursing. My brothers and sisters, this should not be.” –
(James 3:9-10)
SOLUTIONS TO QUIZ 2

ANSWERS TO QUIZ 1:

1. C
2. B
3. D
4. C
5. D

6. A 11. A
7. A 12. A
8. A 13. A
9. C 14. B
10. D 15. A

16. C Solution:
The gross profit rates based on sales are computed as follows:
20x1 20x2
Gross profit 800,000 1,080,000
Installment sales 2,000,000 2,400,000
Gross profit rates based on sales 40% 45%

The realized gross profit in 20x2 is computed as follows:

Collections in 20x2 from:
20x1 sales: (400,000 x 40%) 160,000
20x2 sales: (960,000 x 45%) 432,000
Total realized gross profit in 20x2 592,000

17. C Solution:
Deferred gross profit - 20x3 1,500,000
Divide by: Gross profit rate based on cost 331/3% / 1331/3%
Installment sale in 20x3 6,000,000

18. A Solution:
Installment receivable - 20x1, Jan. 1, 20x3 800,000
Less: Installment receivable - 20x1, Dec. 31, 20x3 -
Cash collection in 20x3 800,000

Installment receivable - 20x2, Jan. 1, 20x3 2,400,000

Less: Installment receivable - 20x2, Dec. 31, 20x3 (960,000)
Cash collection in 20x3 1,440,000

Installment sale in 20x3 (see previous solution) 6,000,000

Less: Installment receivable - 20x1, Dec. 31, 20x3 (2,400,000)
Cash collection in 20x3 3,600,000

Total collections in 20x3 5,840,000

19. D Solution:
The gross profit rates are computed as follows:
20x1 20x2
Deferred gross profit - Jan. 1, 20x3 176,000 576,000
Divide by: Installment receivable - Jan. 1, 20x3 800,000 2,400,000
Gross profit rate based on sales 22% 24%

The gross profit rate based on cost in 20x3 can be translated to gross profit based on sales as shown
below:
20x3
Gross profit rate based on cost 331/3%
Divide by: 100% + 331/3% 1331/3%
Gross profit rate based on sales 25%

The total realized gross profit in 20x3 is computed as follows:

Collections in 20x3 from:
20x1 sales: (800,000 x 22%) 176,000
20x2 sales: (1,440,000 x 24%) 345,600
20x3 sales: (3.6M x 25%) or (3.6M x 331/3%/1331/3% ) 900,000
Total realized gross profit in 20x3 1,421,600

20. C Solution:
Realized gross profit - 20x1 440,000
Divide by: Collections in 20x1 2,000,000
Gross profit rate - 20x1 22%

Realized gross profit in 20x3 from 20x1 sales 176,000

Realized gross profit in 20x3 from 20x2 sales (squeeze) 345,600
Realized gross profit in 20x3 from 20x3 sales 900,000
Total realized gross profit in 20x3 1,421,600

Realized gross profit in 20x3 from 20x2 sales 345,600

Divide by: Collections in 20x3 from 20x2 sales 1,440,000
Gross profit rate – 20x2 24%

Installment sales - 20x2 4,800,000

Multiply by: Cost ratio in 20x2 (100% - 24%) 76%
Cost of sales - 20x2 3,648,000

21. B Solution:
The fair value of the repossessed inventory is computed as follows:
Estimated selling price 34,000
Reconditioning costs (6,000)
Normal profit margin (year of repossession) (34K x 30%) a (10,200)
Fair value of repossessed property 17,800
 The gain or loss on repossession is computed as follows:
Date Inventory (at fair value) 17,800
Deferred gross profit (30K x 20%) a 6,000
Loss on repossession (squeeze) 6,200
Installment account receivable 30,000
(40K – 10K)
a
Notice that the gross profit rate in the year of repossession is used in computing for the normal profit
margin while the gross profit rate in the year of original sale is used in computing for the deferred gross
profit on the defaulted receivable.

22. A Solution:
The collections in 20x2 from the 20x1 and 20x2 sales are computed as follows:
Collections in 20x2 from: 20x1 sale 20x2 sale
Installment receivable - beg. 180,000 640,000
Defaulted receivable (Account written-off) (30,000) -
Installment receivable - end. (60,000) (288,000)
Collections in 20x2 90,000 352,000

The profit in 20x2 is computed as follows:

Realized gross profit from:
- 20x1 sale (90K x 20%) 18,000
- 20x2 sale (352K x 30%) 105,600
Total realized gross profit in 20x2 123,600
Loss on repossession (6,200)
Profit in 20x2 117,400
23. C (see solution above)
24. D
Solution:
Cash sales 378,000
Installment sales at cash price (794,970 / 110%) 722,700
Total sales at cash price equivalent 1,100,700
Cost of goods sold (see T-account below) (693,441)
Gross profit 407,259
Gross profit rate 37.00%

Inventory
beg. 174,180
COGS
Purchases 627,891 693,441 (squeeze)
108,630 end.

25. A
Solution:
Date Collection Interest Amortization Principal
Date of sale 3,000(a)
Down payment 825(b) - 825.00 2,175
1st installment 165(c) 21.75(d) 143.25 2,032
2nd installment 165 20.32 144.68 1,887
3rd installment 165 18.87 146.13 1,741
Total interest 60.94
(a)
3,300 installment price ÷ 100% = 3,000 cash price equivalent
(b)
3,300 x 25% = 825 down payment
(c)
(3,300 – 825 down payment) ÷ 15 = 165 monthly installment
(d)
2,175 unpaid cash price equivalent x 1% monthly interest = 21.75

26. D
Solution:
Cash sale 378,000.00
Down payment 198,750.00
Installment payments, net of interest
(238,023 – 27,758.52) 210,264.48
Collections of principal on defaulted contract
(143.25 + 144.68 + 146.13) 434.06
Total collections 787,448.54
Gross profit rate 37.00%
Realized gross profit 291,355.96

27. D
Solution:
Remittance 1,365
+ Marketing Expenses 90
+ Delivery Expense 60
+ Cartage Cost 15
Total Net of Commission 1,530
Divided by: (100% - Commission%) 85%
Total Sales 1,800

28. D
Solution:
Total Sales 1,800
x %Commission 15%
Commission earned by Consignee 270

29. A
Solution:
Total Sales 1,800
Less Cost of Sales:
BI (180x10) 1,800
Freight 120
Cartage Cost 15
Total Cost of 10 units 1,935
/ Number of units 10
Cost per unit (CPU) 19.35
x Units Sold 6
Cost of Sales 1,161 = (1,161)
Gross Profit 639
Less: Delivery Expenses (60)
Marketing Expenses (90)
Commission Expense (270)
Net Profit P219

30. D
Solution:
The deferred revenue is 30% of sales less collections and write-offs.
Installment Receivable P60,000
Collections (35,000)
Write Off (5,000)
Receivable, 12/31/92 20,000
Profit Rate x 0.30
Deferred Revenue (profit) P6,000