Professional Documents
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Qa - Installment Sales
Qa - Installment Sales
Qa - Installment Sales
2. On November 1, 2020, Speed Motor which maintains a perpetual inventory record sold a new automobile
to Rapids for P6,800,000. The cost of the car to the seller was P5,205,000.
The buyer paid 30% down and received P640,000 allowance on an old car traded, the balance being payable
in equal monthly installment payments commencing the month of sale.
The monthly amortization was P240,000 inclusive of 12% interest on the unpaid amount of the obligation.
The car traded-in has a wholesale value of P960,000 after expending reconditioning cost of P180,000.
After paying three installments, the buyer defaulted and the car was subsequently repossessed. When
reacquired, the car was appraised to have a fair value of P2,400,000.
How much is the realized gross profit on installment sales during 2020?
3. Jing Trading Company, which started operations on January 2, 2012, sells video equipment on
installment terms. Whenever a contract is in default, Jing responses 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 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
2013 2012
Installment Contracts Receivable, 2012 P2, 000 P31, 500
Installment Contracts Receivable, 2013 40, 000 -
Sales 125, 000 75, 000
Loss on defaulted Contracts 4, 275 250
Allowance for Defaulted Contracts 2, 250 2, 250
Additional information:
a) No repossessed video equipment was sold in 2012 or 2013 for more than the unpaid balance of the
original contract. A further analysis of the Loss on Defaulted Contracts account showed the
following breakdown:
The repossessed goods on hand on December 31, 2013, all of which were repossessed from 2012
contracts, are valued at P200.
b) The P2, 000 balance of the Installment Contracts Receivable 2012 account is current due and
collectible.
c) The gross profit rates on installment sales were 40% in 2012 and 42% in 2013.
d) The rate of bad debts loss for 2013 is estimated to be the same as the 2012 experiences rate based
on sales:
The required balance of the allowance for Defaulted Contracts account and the realized gross profit on
December 31, 2013 from 2012 sales are:
4. The following data were taken from the records of Camille Appliance Company before its accounts were
closed for the year 2013. The company sells exclusively on the instalment basis and it uses the installment
method for recognizing profit:
During 2013, because some customers can no longer be located, the company wrote off P9, 000 of the
2011 installment accounts and P2, 800 of the 2012 installment accounts as uncollectible.
Also during 2013, a customer defaulted and the company repossessed merchandise appraised at P2,
400 after costs of reconditioning estimated at P400. The merchandise had been purchased in 2011 by a
customer who still owed P5, 000 at the date of the repossession.
5. United Trading accounts for sales under the installment method. On January 1, 2013 its ledger accounts
included the following balances:
Installment sales in 2013 were made at a 42% gross profit rate. December 31, 2013 accounts balances
before adjustment were as follows: