Installment Sales
Installment Sales
The DJ Company accounts for sales of merchandise on the installment basis. At the end of each year it recognizes gross profit on these sales, considering collections during the year to be composed of cost and gross profit elements.
The balances of the control accounts for installment contract receivable at the beginning and at the end of 2009 were:
1/01/2009 12/31/2009
Installment Accounts Receivable:
2007………………………… P 24,020 P -
2008………………………… 344,460 67,440
2009………………………… - 410,090
As collections are made, the company debits to Cash and Credits Installment Accounts Receivable. During 2009, upon default in payment by customers, the company repossessed merchandise having an estimated selling price of P1,700 after a normal profit. The sales had been made in 2008 for P5,400 and P3,200 had been collected prior to default. The company recorded the default and repossession by a debit to Inventory of Repossessed Merchandise and a credit to Installment Accounts Receivable – 2008 for the uncollected balance.
The company’s sales and cost of sales for the three (3) years involved are summarized below:
2007 2008 2009
Net Sales………………………… P 380,000 P 432,000 P 602,000
Cost of Installment Sales………... 247,000 285,120 379,260
Gross profit rate………………….. 35% 34% 37%
Compute the total realized gross profit on installment sales for year 2009:
a. P 71,006.70 c. P172,852.50
b. 173,600.50 d. 94,186.80
2. Timing of Recognition of Gross Profit
Using the same information in Problem 1 compute gain or (loss) on repossession assuming that:
Profit is Recognized Profit is Recognized in
When the sale is made proportion to Periodic Collections
(Time of Sale) (Installment Sales Method)
a. P(1,143) P(1,143)
b. 744 1,143
c. ( 500)
The DJ Company accounts for sales of merchandise on the installment basis. At the end of each year it recognizes gross profit on these sales, considering collections during the year to be composed of cost and gross profit elements.
The balances of the control accounts for installment contract receivable at the beginning and at the end of 2009 were:
1/01/2009 12/31/2009
Installment Accounts Receivable:
2007………………………… P 24,020 P -
2008………………………… 344,460 67,440
2009………………………… - 410,090
As collections are made, the company debits to Cash and Credits Installment Accounts Receivable. During 2009, upon default in payment by customers, the company repossessed merchandise having an estimated selling price of P1,700 after a normal profit. The sales had been made in 2008 for P5,400 and P3,200 had been collected prior to default. The company recorded the default and repossession by a debit to Inventory of Repossessed Merchandise and a credit to Installment Accounts Receivable – 2008 for the uncollected balance.
The company’s sales and cost of sales for the three (3) years involved are summarized below:
2007 2008 2009
Net Sales………………………… P 380,000 P 432,000 P 602,000
Cost of Installment Sales………... 247,000 285,120 379,260
Gross profit rate………………….. 35% 34% 37%
Compute the total realized gross profit on installment sales for year 2009:
a. P 71,006.70 c. P172,852.50
b. 173,600.50 d. 94,186.80
2. Timing of Recognition of Gross Profit
Using the same information in Problem 1 compute gain or (loss) on repossession assuming that:
Profit is Recognized Profit is Recognized in
When the sale is made proportion to Periodic Collections
(Time of Sale) (Installment Sales Method)
a. P(1,143) P(1,143)
b. 744 1,143
c. ( 500)