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CHAPTER 9
MULTIPLE CHOICE ANSWERS AND SOLUTIONS

9-1: d
Deferred gross profit, Dec. 31 (before adjustmentP1,050,000 Less:Deferred gross profit, Dec. 31 (after adjustment)
Installment accounts receivable, Dec. 31P1,500,000
Gross profit rate____÷ 25%__375,000
Realized gross profit, 2008P   675,000
OR
Installment Sales (P1,050,000 ÷ 25%)P4,200,000
Less: Installment account receivable, Dec. 31__1,500,00
CollectionP2,700,000
Gross profit rate___X 25%
Realized gross profit, 2008P   675,000
9-2: a
2006 2007 2008 Deferred gross profit, before adjustment P7,230 P   60,750 P  120,150 Deferred gross profit, end
2006 (6,000 X 35%) 2,100
2007 (61,500 X 33%) 20,295 2008 (195,000 X 30%) 58,500 Realized gross profit, December 31, 2008P5,130 P   40,455 P   61,650

(Total – P107,235)
9-3: c
Deferred gross profit balance, endP   202,000
Divide by Gross profit rate based on sales (25% ÷ 125%)____÷ 20% Installment Accounts Receivable, endP1,010,000
Collection___440,000
Installment SalesP1,450,000
9-4: b
SalesP1,000,000
Cost of installment sales__700,000
Deferred gross profitP   300,000
Less:Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000) P  600,000
Gross profit rate (300,000 ÷ 1,000,000) ___X 30%__180,000 Realized gross profitP  120,000
Operating expenses___80,000
Operating income40,000
Interest and financing charge__100,000
Net incomeP  140,000
9-5: a
Market value of repossessed merchandiseP 30,00
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000) P   50,000 Less: Deferred gross profit (50,000X20%) ___10,000__40,000 Loss on repossession(P 10,000)
9-6: a
Installment salesP1,000,000
Less: collection on installment sales__200,000
Installment account receivables, 12/31/0800,000
Gross profit rate (500,000 ÷ 1,000,000) __X 50% Deferred gross profit, 12/31/08P  400,000
OR
Deferred gross profit (1,000,000-500,000) P500,000 Less: Realized Gross Profit (200,000 X 50%) _100,000 Deferred gross profit, 12/31/08 P400,000

9-7: d
Fair value of repossessed merchandise P120,000 Less:unrecovered cost
Unpaid balance P  200,000 Less: Deferred gross profit (200,000 X 32.5%) ___65,000_135,000 Loss on repossession (P 15,000) 9-8: b

Realized gross profit:
Collections:
Downpayment P   35,000
Installment received (205,000-200,000) ___5,000
Total 40,000 Gross Profit Rate (150,000 ÷ 240,000) _X 62.5% Realized gross profit P   25,000

Gain (loss) on repossession:
Appraised value of repossessed merchandise P165,000 Less:unrecovered cost
unpaid balance P  200,000 less: deferred gross profit (200,000 X 62.5%) __125,000 __75,000 Gain on repossession P  90,000 9-9: b

Sch.1
Applying Applying Balance
To to of
DateCollection Interest principalprincipal
Apr-1P7,000.00
Apr-1750 750.00 6,250.00 May-1625 125.00 500.005,750.00
Jun-1625 115.00 510.005,240.00
Jul-1625 104.80...
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