Chapter 10 1M sale price – 750K cost of sale = 250K total gross

profit – 200K deferred = 50K realized

Problem 1: True or False

1. True 5. D
2. True 1M sale price – 750K cost of sale = 250K total gross
profit – 220K realized = 30K deferred
3. False (.80)
4. True
5. True 6. A
1M sale price – 750K cost of sale = 250K total
gross profit – 180K realized = 70K deferred ÷
Problem 2: Multiple Choice- Theories
25% = 280,000

1. D
2. D 7. B
1M sale price – 750K cost of sale = 250K total
3. D gross profit – 160K realized = 90K deferred ÷
4. B 25% = 360,000 ending A/R;
1M sale price – 360,000 ending A/R = 640,000
5. A collection

Problem 3: Multiple Choice- Computational 8. B

200K – 60K = 140K realized ÷ 25% = 560,000
1. B
Collections in 20x1 400,000 9. B
Multiply by: Gross profit rate based on
sales 20% 20x1 installment accounts 16,250
Realized gross profit - 20x1 80,000 Multiply by: Gross profit rate based on
sales 30%/130%
Installment accounts receivable - Dec. Deferred gross profit (after
31, 20x1 600,000 adjustment) - 20x1 sales 3,750
Multiply by: Gross profit rate based on
sales 20% 20x2 installment accounts 90,000
Multiply by: Gross profit rate based on 33 1/3%/133
Deferred gross profit - adjusted balance 120,000 sales 1/3%
Deferred gross profit (after
adjustment) - 20x2 sales 22,500
2. C Total deferred gross profit (after
adjustment) 26,250
Installment sales 1,000,000

Collections in 20x1 (400,000)

Installment accounts receivable - Dec. Deferred gross profit (before adjustment) 38,000
31, 20x1 600,000 Deferred gross profit (after adjustment) (26,250)
Realized gross profit - 20x2 11,750
Expenses relating to installment sales (1,500)
3. C Profit from installment sales - 20x2 10,250

(200,000 ÷ 25%) = 800,000 ending A/R

10. A
1M sale price – 800,000 ending A/R = 200,000 collections
The gross profit rates are computed as follows:
during the year
20x1 20x2 20x3
300,00 375,00 360,00
4. D Installment sales 0 0 0
225,00 285,00 252,00
Cost of sales 0 0 0
 108,00
Gross profit 75,000 90,000 0 367,
Gross profit rate based on Total collections during 20x3 500
sales 25% 24% 30%

20x1 Deferred gross profit, Dec. 31, 20x3 - 12. D

Divide by: Gross profit rate 25%
20x1 Installment accounts receivable, Dec. Collection during 20x3 from 20x1
31, 20x3 - sales 60,000
Multiply by: Gross profit rate - 20x1
sales 25%
20x2 Deferred gross profit, Dec. 31, 20x3 9,000 Realized gross profit in 20x3 from
Divide by: Gross profit rate 24% 20x1 sales 15,000
20x2 Installment accounts receivable, Dec.
31, 20x3 37,500 Collection during 20x3 from 20x2
sales 187,500
Multiply by: Gross profit rate - 20x2
20x3 Deferred gross profit, Dec. 31, 20x3 72,000
sales 24%
Divide by: Gross profit rate 30% Realized gross profit in 20x3 from
20x3 Installment accounts receivable, Dec.
20x2 sales 45,000
31, 20x3 240,000

Total installment accounts receivable, Dec. Collection during 20x3 from 20x3
31, 20x3 277,500 sales 120,000
Multiply by: Gross profit rate - 20x3
sales 30%
11. C Realized gross profit in 20x3 from
20x3 sales 36,000
20x1 Deferred gross profit, Dec. 31, 15,
20x2 000 Total realized gross profit in 20x3 96,000
Divide by: Gross profit rate 25%
20x1 Installment accounts receivable, 60, 13. C
Dec. 31, 20x2 000
20x1 Installment accounts receivable,
Dec. 31, 20x3 - Collectio Amortizatio Principa
60, Date n Interest n l
Collection during 20x3 from 20x1 sales 000 9/30/x1 48,000
9/30/x1 4,800 - 4,800 43,200
20x2 Deferred gross profit, Dec. 31, 54, 10/31/x
20x2 000 1 4,800 432 4,368 38,832
Divide by: Gross profit rate 24% 11/30/x
1 4,800 388 4,412 34,420
20x2 Installment accounts receivable, 225,
12/31/x
Dec. 31, 20x2 000 1 4,800 344 4,457 29,964
20x2 Installment accounts receivable, 37,
Dec. 31, 20x3 500 Totals 19,200 1,165 18,036
187,
18,036 x 37.5% = 6,764
Collection during 20x3 from 20x2 sales 500
14. A
360,
Installment sales - 20x3 000 Inventory 16,800
20x3 Installment accounts receivable, 240, Deferred gross profit (29,964 x 37.5%) 11,237
Dec. 31, 20x3 000 Loss on repossession 1,928
120 Receivable 29,964
Collection during 20x3 from 20x3 sales ,000
 15. D Under allowance on trade-in 4,000
18. C.
20x1 installment account receivable, Dec. 31,
20x2 112,500*
FV of old merchandise trade in 12,000
20x1 installment account receivable, Dec. 31, Collections 12,000
20x3 (60,000) Total 24,000
Collections in 20x3 from 20x1 sales 52,500 Gross profit rate 44.48
Multiply by: Gross profit rate - 20x1 30% Realized Gross Profit 10,667

Realized gross profit in 20x3 from 20x1 sales 15,750

19. D
20x2 installment account receivable, Dec. 31,
20x2 300,000 20x1 20x2
20x2 installment account receivable, Dec. 31, Cumulative collection 600,000 1,200,000
20x3 (195,000) COGS 4,000,000 4,000,000
Collections in 20x3 from 20x2 sales 105,000
Excess Collection - -
Multiply by: Gross profit rate - 20x2 40%

Realized gross profit in 20x3 from 20x2 sales 42,000

20x3 installment sales 495,000

20x3 installment account receivable, Dec. 31,
20x3 (390,000)

Collections in 20x3 from 20x3 sales 105,000

Multiply by: Gross profit rate - 20x3 35% 20. C
Realized gross profit in 20x3 from 20x1 sales 36,750 20x1 Sale 20x1 20x2

Cumulative collection 14,000 20,000

Total realized gross profit - 20x3 94,500
COGS 16,000 16,000

16. C Excess Collection - 4,000

20x Inventory (at fair value) 15,000 RGP in previous Year - -

3 Deferred gross profit (22.5K x 6,750
30%) 750 RGP in current year - 4,000
Loss on repossession (squeeze) 22,500
Installment account 20x2 Sale 20x1 20x2
receivable
Cumulative collection 24,000
17. C COGS 18,000

Trade-in value granted 8,00 Excess Collection - 6,000

to customer 0
Fair value of (12,0 RGP in previous Year - -
merchandise traded-in 00) RGP in current year - 6,000
(4,00
Under allowance 0)

Dat Inventory – traded-in (at fair value) 12,00

e
Installment account receivable 0
(squeeze)
24,00 32,00
Installment sale 0 0
Problem 4: For Classroom Discussion

1. Requirement A
Collections 500,000
Multiply By: GPR (1m-700k/1m) 70%
Realized Gross Profit- 20x1 150,000

Realized GP on 20x1 Sales (300,000x30%) 90,000

RGP on 20x2 sales (650Kx 1.3M-845K/1.3M or 25 %) 227,500
RGP- 20x2 317,500

Requirement B
Installment Sales-20x1 1,000,000
Less: Collections 500,000
Installment Receivable at the end of 20x1 500,000

Installment Receivable on 20x1 Sale

Installment Receivable Beg, 500,000
Less: Collections (300,000) 200,000
Installment Receivable on 20x2 Sale
Installment Receivable Beg, 1,300,000
Less: Collections (650,000) 650,000

Installment Receivable at the end of 20x2 850,000

Requirement C

Installment Receivable 20x1 Sales 500,000

Multiply By: GPR (1m-700k/1m) 30%
DGP at the end of 20x1 150,000

DGP on 20x1 Sale

Installment Receivable Beg, 200,000
Multiply by: GPR 30% 60,000

DGP on 20x2 Sale

Installment Receivable Beg, 650,000
Multiply by: GPR 35% 227,500
287,500
2. Requirement A
Inventory (15,000-15,000x30%)-2000 8,500
DGP (13,000x 20%) 2,600
Loss on Repossession (squeeze) 1,900
Installment Receivable (25,000-12,000) 13,000

DGP= 150,000-120,000
150,000 =20%

Requirement B

RGP on 20x1 Sales

Collection (90,000-30,000-13,000) 47,000

Multiply by: GPR 20% 9,400

Collection (90,000-30,000-13,000) 60,000

Multiply by: GPR 30% 18,000

Total RGP in 20x2 27,400

Requirement C
Total RGP in 20x2 27,400
Loss on Repossession (1,900)
Profit in 20x2 25,500

3. Requirement A

Inventory traded in 3,000

Over Allowance (4k-3k) 1,000
Installment Receivable (squeeze) 12,000
Installment Sales 16,000

Requirement B
FV of old merchandise traded in 3,000
Collections 6,000
Total 9,000
Multiply by: GPR 33.33%
RGP in the year or sale 3,000