Problem 4: Classroom Discussion

1 Installment Sales Method 20x1 20x2

Gross Profit 300,000 455,000
Installment Sales 1,000,000 1,300,000
Gross Profit rate based on sales 30% 35%

Requirement A
Collection in 20x1
20x1 Sales: 500K x 30% 150,000
Total realized GP in 20x1 150,000

Collections in 20x2
20x1 sales: 300K x 30% 90,000
20x2 sales: 650K x 35% 227,500
Total realized GP in 20x2 317,500

Requirement B
Installment Receivabe
20x1
1M - 500K 500,000

20x2
1M - 500K - 300K 200,000
1.3M - 650K 650,000
850,000

Requirement C
20x1
Installment Receivable 500,000
Multiply by: GP rate 30%
DGP 150,000

20x2
200K x 30% 60,000
650K x 35% 227,500
DGP 287,500

2 Repossession

Requirement A
Inventory (15K - 2K - 4,500) 8,500,000
Deferred GP (13K x 20%) 2,600
Loss on Repossession (squeezed) 1,900
Installment Receivable (15K - 2K) 13,000
 Requirement B and C
Realized GP from:
20x1 sales (45K x 20%) 9,400 Installment Receivable - 20x1
20x2 sales (176K x 30%) 18,000 Beg. 90,000 13,000
Total realized gross profit in 20x2 27,400 47,000
Loss on Repossession (1,900) 30,000
Profit in 20x2 25,500

3 Trade-In

Requirement A
Inventory Traded-In 3,000
Over allowance (4K - 3K) 1,000
Installment Receivable 12,000
Installment Sales 16,000

Requirement B
Sale price 16,000
Less: Over allowance (1,000)
Adjusted sale price 15,000
COS (10,000)
Adjusted gross profit 5,000
Adjusted gross profit rate 33.33%

FV of old merchandise traded-in 3,000

Collections 4,000
Total 7,000
Multiply by: GP rate 33.33%
Realized GP in the year of sale 2,333.1
nt Receivable - 20x1 Installment Receivable - 20x2
Write-off Beg - - Write-off
Collection Sale 320,000 176,000 Collection
End 144,000 End