Group 3

Accounting For Special Transactions

BSA 3B

Leader: Rose Ann E. Lazatin

Members:
Ma. Christina A. Busaing
Lorraine Jane T. Dela Costa
Marlyn P. Galam
Flowny M. Hernandez

PROBLEM 3

Lunch Co. began operations in 20x1. Lunch Co. uses the installment sales method. On
December 31, 20x1, Lunch Co/'s records show the following information:

Installment sales 1,000,000

Cost of sales 800,000
Installment accounts receivable- Dec. 31, 20x1 600,000

Requirements: Compute for the following:

a. The unadjusted balance of "deferred gross profit" on December 31, 20x1.
b. The amount of collections in 20x1.
c. The gross profit rate based on sales in 20x1.
d. The realized gross profit in 20x1.
e. The adjusted balance of "deferred gross profit" on December 31, 20x1.

Answer:
Solution

(a) unadjusted balance of "deferred gross profit" on December 31, 20x1.

Installment sales 1,000,000
Cost of sales (800,000)
Deferred gross profit- unadjusted balance 200,000

(b) amount of collections in 20x1.

Installment sales 1,000,000
Installment accounts receivable - Dec. 31, 20x1 (600,000)
Collections in 20x1 400,000
(c) gross profit rate based on sales in 20x1.
Installment sales 1,000,000
Cost of sales (800,000)
Deferred gross profit- unadjusted balance 200,000
Gross profit rate based on sales (200K / 1M) 20%

(d) realized gross profit in 20x1.

Collections in 20x1 400,000
Multiply by: Gross profit rate based on sales 20%
Realized gross profit- 20x1 80,000

(e) adjusted balance of "deferred gross profit" on December 31, 20x1.

Deferred gross profit- unadjusted balance 200,000
Realized gross profit-20x1 (80.000)
Deferred gross profit-adjusted balance 120,000