Problem 3: Multiple Choice - COMPUTATIONAL

1. B.

Installment sales 1,000,000.00

Less: Installment account receivable (600,000.00)
Total collections 400,000.00

Multiply by: Gross profit rate based on sales 20%

Realized gross profit 80,000.00

Sales 1,000,000.00
Cost of sales (800,000.00)
Deferred gross profit 200,000.00
Less: Realized gross profit (80,000.00)
Deferred gross profit 120,000.00

2. C.

Deferred gross profit 200,000.00

Divide by: Gross profit rate based on sales 20%

Installment sales 1,000,000.00
Less: Collections during the year (400,000.00)
Installment receivable 600,000.00

3. C.

Deferred gross profit 200,000.00

Divide by: Gross profit rate based on sales 25%

Installment receivable 800,000.00

Installment sales 1,000,000.00

Less: Installment receivable (800,000.00)
Collections during the year 200,000.00

4. D.

Installment sales 1,000,000.00

Cost of sales (750,000.00)
Gross profit 250,000.00
Less: Deferred gross profit (200,000.00)
Realized gross profit 50,000.00

5. D.

Installment sales 1,000,000.00

Cost of sales (750,000.00)
Gross profit 250,000.00
Less: Realized gross profit (220,000.00)
Deferred gross profit 30,000.00

6. A.

Realized gross profit 180,000.00

Divide by: Gross profit rate based on sales 25%

Collections during the year 720,000.00

Installment sales 1,000,000.00

Less: Collections during the year (720,000.00)
Installment receivable 280,000.00

7. B.

Realized gross profit 160,000.00

Divide by: Gross profit rate based on sales 25%

Installment receivable 640,000.00

8. B.

Deferred gross profit - beg. 200,000.00

Less: Realized gross profit (squeeze) (140,000.00)
Deferred gross profit - end 60,000.00

Realized gross profit 140,000.00

Divide by: Gross profit rate based on sales 25%

Total collections 560,000.00

9. B.

20X1 installment accounts 16,250.00

Multiply by: 20X1 GPR based on sales 23%
DGP from 20X1 sales (adjusted balance) 3,750.00

20X2 installment accounts 90,000.00

Multiply by: 20X2 GPR based on sales 25%
DGP from 20X2 sales (adjusted balance) 22,500.00

Deferred gross profit (before adjustment) 38,000.00

DGP from 20X1 sales (adjusted balance) (3,750.00)
DGP from 20X2 sales (adjusted balance) (22,500.00)
Realized gross profit in 20X2 11,750.00
Expenses relating to installment sales in 20X2 (1,500.00)
20X2 profit from installment sales 10,250.00

10. A.

20X1 20X2
Installment sales 300,000.00 375,000.00
Cost of sales 225,000.00 285,000.00
Gross profit 75,000.00 90,000.00
Gross profit rate based on sales 25% 24%

20X1 Deferred gross profit, Dec. 31, 20X3 -

Divide by: Gross profit rate 25%
20X1 Installment receivable, Dec. 31, 20X3 -

20X2 Deferred gross profit, Dec. 31, 20X3 9,000.00

Divide by: Gross profit rate 24%
20X2 Installment receivable, Dec. 31, 20X3 37,500.00

20X3 Deferred gross profit, Dec. 31, 30X3 72,000.00

Divide by: Gross profit rate 30%
20X3 Installment receivable, Dec. 31, 20X3 240,000.00

Total installment receivable, Dec. 31, 20X3 277,500.00

11. C.

20X1 Deferred gross profit, Dec. 31, 20X2 15,000.00

Divide by: Gross profit rate 25%
20X1 Installment accounts receivable, Dec. 31, 20X2 60,000.00
20X1 Installment accounts receivable, Dec. 31, 20X3 -
Collection in 20X3 from 20X1 sales 60,000.00
20X2 Deferred gross profit, Dec. 31, 20X2 54,000.00
Divide by: Gross profit rate 24%
20X2 Installment accounts receivable, Dec. 31, 20X2 225,000.00
20X2 Installment accounts receivable, Dec. 31, 20X3 37,500.00
Collection in 20X3 from 20X2 sales 187,500.00

Installment sales - 20X3 360,000.00

20X3 Installment accounts receivable, Dec. 31, 20X3 240,000.00
Collection in 20X3 from 20X3 sales 120,000.00

Total collections in 20X3 367,500.00

12. D.

Collection in 20X3 from 20X1 sales 60,000.00

Multiply by: Gross profit rate - 20X1 sales 25%
Realized gross profit in 20X3 from 20X1 sales 15,000.00

Collection in 20X3 from 20X2 sales 187,500.00

Multiply by: Gross profit rate - 20X2 sales 24%
Realized gross profit in 20X3 from 20X2 sales 45,000.00

Collection in 20X3 from 20X3 sales 120,000.00

Multiply by: Gross profit rate - 20X3 sales 30%
Realized gross profit in 20X3 from 20X3 sales 36,000.00

Total realized gross profit in 20X3 96,000.00

13. C.

Date Collection Interest

9/30/X1
9/30/X1 4,800.00 -
10/31/X1 4,800.00 432.00
11/30/X1 4,800.00 388.00
12/31/X1 4,800.00 344.00
Totals 19,200.00 1,164.00

Total ammortization 18,036.00

Multiply by: (a) 38%
Realized gross profit 6,763.50

a) (48,000-30,000) / 48,000 = 37.50%

14. A.

Inventory 16,800.00
Deferred gross profit 11,236.50
Loss on repossession (squeeze) (1,927.50)
Receivable 29,964.00

15. D.

Inst. Receivable - 20X1

1/1/X3 135,000.00 22,500.00
52,500.00
60,000.00

Inst. Receivable - 20X2

1/1/X3 300,000.00
105,000.00
195,000.00

Inst. Receivable - 20X3

Sales 495,000.00
105,000.00
390,000.00

Collections in 20X3 from:

20X1 sales 15,750.00
20X2 sales 42,000.00
20X3 sales 36,750.00
Total realized gross proift 94,500.00

16. C.

Inventory 15,000.00
Deferred gross profit 6,750.00
Loss on repossession (squeeze) (750.00)
Installment account receivable 22,500.00

17. C.

Inventory - traded-in 12,000.00

Installment account receivable (squeeze) 24,000.00
Installment sale 32,000.00
 Under allowance 4,000.00

18. C.

Fair value of old merchandise traded-in 12,000.00

Collections 12,000.00
Total 24,000.00
Multiply by: Gross profit rate 44.44%
Realized gross profit in year of sale 10,665.60

19. D.

Cash down payment 600,000.00

Collection from installment payment 1,140,000.00
Total collections 1,740,000.00
Cost of sale (4,000,000.00)
Excess of collection over cost (2,260,000.00)

Since the total collections do not exceed yet the cost of the
inventory sold, Sound Co. does not recognize any income
yet.

20. C.

Total collections from 20X1 sales 20,000.00

Cost of 20X1 sales (16,000.00)
Excess collection in 20X2 4,000.00
Total collections from 20X2 sales 24,000.00
Cost of 20X2 sales (18,000.00)
Excess collection in 20X2 6,000.00
Gross profit recognized in 20X2 10,000.00
TATIONAL
20X3
360,000.00
252,000.00
108,000.00
30%
Ammortization Principal
48,000.00
4,800.00 43,200.00
4,368.00 38,832.00
4,412.00 34,420.00
4,456.00 29,964.00
18,036.00
Write-off
Collections
12/31/X3

Collections
12/31/X3

Collections
12/31/X3