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SL InstS
SL InstS
SYNCHRONOUS DISCUSSION.
Problem 1
Gapan Corporation sells merchandise on the installment basis, and the uncertainties
of cash collection make the use of the installment sales method of accounting
acceptable. The following data relate to two years of operations.
2009 2010
Installment sales ............................ P480,000 P560,000
Cost of installment sales .................... 300,000 364,000
Gross profit ................................. 180,000 196,000
Gross profit 37.5% 35%
percentage ................GPR=180,000/480,000
Cash collections:
2009 Sales ................................. P190,000 P210,000
2010 Sales ................................. -- 235,000
Record the transactions related to installment sales for 2009 and 2010.
JOURNAL ENTRIES
2009
2010
Inst. AR 480,000 Inst. AR 560,000
Inst. Sales 480,000 Inst. Sales 560,000
Def. GP-2009
78,750
(210,000*37.5%)
Realized GP 78,750
Def.GP-2010
82,250
(235,000*35%)
Realized GP 82,250
Problem 2
Cavite Medical Center uses the cost recovery method in accounting for recognizing
revenue. The following information is available:
Determine the amount of gross profit to be recognized for 2009, 2010, and 2011.
Problem 3
Lucena Industrial sells machinery on the installment plan. On September 1, 2009,
Lucena entered into an installment sale contract with Western Productions for a six-
year period. Equal annual payments under the installment sale are P187,500 and are
due on August 31 of each year beginning in 2010.
Additional information:
Compute the income or loss before taxes that Lucena should record for the year
ended December 31, 2009, as a result of the above transaction, assuming that
circumstances are such that the collection of the installments due under the contract
PV F A
4.355261 X 187,500 = 816,611
DEC
INT. REC 27,220
INT. INCOME 27,220 SAME
JAN REVERSING
INT. INCOME 27,220
INT. REC 27,220 same
AUG COLLECTION
CASH 187500
IAR 105,839 SAME
INT. INCOME 81,661
Problem 4
On January 2, 2010, Yardley Co. sold a plant to Ivory, Inc. for P1.5 million. On that
date, the plant's carrying cost was P1 million. Ivory gave Yardley P300,000 cash and
a P1.2 million note, payable in four annual installments of P300,000 plus 12%
interest. Ivory made the first principal and interest payment of P444,000 on
December 31, 2010. Yardley uses the installment method of revenue recognition. In
its 2010 income statement, what amount of realized gross profit should Yardley
report?
SOLUTION: