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142Chapter 9

CHAPTER 9

MULTIPLE CHOICE ANSWERS AND SOLUTIONS
9-1: d
Deferred gross profit, Dec. 31 (before adjustment)P1,050,000
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
200620072008
Deferred gross profit, before adjustmentP7,230P   60,750P  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, 2008P5,130P   40,455P   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 charges__100,000
Net incomeP  140,000
Installment Sales143

9-5: a
Market value of repossessed merchandiseP 30,000
(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, 12/31/08800,000
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, 12/31/08P400,000

9-7: d
Fair value of repossessed merchandiseP120,000
Less:unrecovered cost
Unpaid balanceP  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:
DownpaymentP   35,000
Installment received (205,000-200,000)___5,000
Total40,000
Gross Profit Rate (150,000 ÷ 240,000)_X 62.5%
Realized gross profitP   25,000

Gain (loss) on repossession:
Appraised value of repossessed merchandiseP165,000
Less:unrecovered cost
unpaid balanceP  200,000
less: deferred gross profit (200,000 X 62.5%)__125,000__75,000
Gain on repossessionP  90,000

144Chapter 9

9-9: b
Sch.1
ApplyingApplyingBalance
totoof
DateCollectionInterestprincipalprincipal
Apr-1P7,000.00
Apr-1750750.006,250.00
May-1625125.00500.005,750.00
Jun-1625115.00510.005,240.00
Jul-1625104.80520.204,719.80
Aug-1625__94.40___530.604,189.00
P439.20P2,810.80

Gain (loss) on repossession:
Market value of repossessed merchandiseP   1,875
Less:unrecovered cost
unpaid balance of principal (sch. 1)P  4,189
less: deferred gross profit (4,189 X 35%)__1,466___2,723
Loss on repossession (rounded)(P    848)

Realized gross profit:
Collection applying to principal (sch. 1)P2,810.80
Gross profit rate__X 35%
Realized gross profitP   983.78

9-10: c
Year of Sales...
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