INSTALLMENT SALES- AAC and BAC

The Central Plain Subdivision sells residential subdivision lots in installment. The following
information was taken from the accounting records of Central Plain Subdivision as at Dec. 31, 2015:
Installment Accounts Receivable, Jan. 1(2014 contracts)
P755,000
Installment Receivable, Dec. 3 1 (2015 contract)
840,000
Installment Accounts Receivable, Dec. 31 (2014 contracts)
600,000
Unrealized Gross Profit, Jan. 1 (2014 contracts)
339,750
Installment Sales
950,000
2015 contracts gross profit rate is 5% lower than that of 2014.
Question 1. Give the realized gross profit to be recognized in 2015.
Question 2. Give the balances of the unrealized gross profit in Dec. 31, 2015.
Mahangin Company which began operation in 2014 sells air cooling appliances and freezers in
installment basis. The following information is given to you for 2015:
Total cash collections (a third coming from 2014 contracts)
P712,425
Down payment received in 2015
250,000
Deferred Gross Profit, Dec. 31 for 2015 sales
465,500
Gross Profit Ratio for 2015
35%
GPR for 2014 was 2% lower than the current ratio
Installment Receivable, Dec 31 (2014 contracts).
P187,525
3.
4.
5.
6.
7.

What is the total amount of sales revenue for 2015 contracts?

What is the cost of sales for 2015 contracts?
Last 2 entries at the end of year.
Under accrual method, what will be realized gross profit at the end of 2015?
If instalment sales for 2014 was P750,000, using cost recovery method, how much will realized
gross profit be in 2015 for the 2014 contracts.?

SOLUTION
PROBLEM A
1.)
GPR
(339.75/755)
COLLECTIONS 755-600
REALIZED GP
2.)
UNREALIZED GP (339.75-69.75)

2014
45%
155,000

(45-5)
(950-840)

69,750
P270,000

(840 x 40%)

PROBLEM B
3) INSTALLMENT RECBLE 12/31 465,500/35%
ADD BACK COLLECTIONS 712,425 X 2/3
INSTALLMENT SALES

2015
40%
110,000

TOTAL

44,000

P113,750

P336,000

P1,330,000
474,950
P1,804,950

4) SALES 1,804,950 X COST RATIO 65% (100-35) = COST OF SALES P1,173,217.50

5) RGP FROM 2014 CONTRACTS (712,425 /3= 237,475 X 33% = P78,366.75
RGP FROM 2015 CONTRACTS (474,950 X 35% = P166,232.50
6) INSTALLMENT SALES
COST OF INST SALES
DEFERRED GP- 2015
DEFERRED GP-2014
DEFERRED GP-2015
REALIZED GP

P1,804,950
P1,173,217.50
631,732.50
P78,366.75
166,232.50
P244,599.25

7) SALES OF P1,804,950 LESS COST OF SALES 1,173,217.50 = REALIZED GP P631,732.50

8) SALES OF 750,000 X 67% = TOTAL COST TO BE RECOVERED P502,500 BEFORE
RECOVERY OF PROFIT
COLLECTIONS
IN 2014 P325,000
IN 2015 P237,475

RECOVERY OF COST
325,000
177,500

Add back ending balance to collections = beg balance of recble, thus

187,525 = 237,475= 425,000
750,000 425,000= COLLECTIONS IN 2014 P325,000

RECOVERY OF PROFIT
59,975

INSTALLMENT SALES- CAC and DAC

The Central Plain Subdivision sells residential subdivision lots in installment. The following
information was taken from the accounting records of Central Plain Subdivision as at Dec. 31, 2015:
Installment Accounts Receivable, Jan. 1(2014 contracts)
Installment Receivable, Dec. 3 1 (2015 contract)
Installment Accounts Receivable, Dec. 31 (2014 contracts)
Unrealized Gross Profit, Jan. 1 (2014 contracts)
Installment Sales

P755,000
840,000
600,000
264,250
950,000

2016 contracts gross profit rate is 5% lower than that of 2014.

Question 1. Give the realized gross profit to be recognized in 2015.
Question 2. Give the balances of the unrealized gross profit in Dec. 31, 2015.
Mahangin Company which began operation in 2014 sells air cooling appliances and freezers in
installment basis. The following information is given to you for 2015:
Total cash collections (a third coming from 2014 contracts)
P712,425
Down payment received in 2015
250,000
Deferred Gross Profit, Dec. 31 for 2015 sales
465,500
Gross Profit Ratio for 2015
40%
GPR for 2014 was 2% lower than the current ratio
Installment Receivable, Dec 31 (2014 contracts).
P187,525
8.
9.
10.
11.
12.

What is the total amount of sales revenue for 2015 contracts?

What is the cost of sales for 2015 contracts?
Last 2 entries at the end of year.
Under accrual method, what will be realized gross profit at the end of 2015?
If instalment sales for 2014 was P750,000, using cost recovery method, how much will realized
gross profit be in 2015 for the 2014 contracts.?

SOLUTION
PROBLEM A
1.)
GPR
(264.25/755)
COLLECTIONS 755-600
REALIZED GP
2.)
UNREALIZED GP (264.25-54.25)
OR 600,000 X 35%

2014
35%
155,000

(35-5)
(950-840)

54,250
P210,000

PROBLEM B
3) INSTALLMENT RECBLE 12/31 465,500/40%
ADD BACK COLLECTIONS 712,425 X 2/3
INSTALLMENT SALES

(840 x 30%)

2015
30%
110,000

TOTAL

33,000

P87,250

P252,000

P1,163,750
474,950
P1,638,700

4) SALES 1,638,700 X COST RATIO 60% (100-40) = COST OF SALES P983,220

5) RGP FROM 2014 CONTRACTS (712,425 /3= 237,475 X 38% = P90,240.50
RGP FROM 2015 CONTRACTS (474,950 X 40% = P189,980
INSTALLMENT SALES
COST OF INST SALES
DEFERRED GP- 2015

P1,638,700

DEFERRED GP-2014
DEFERRED GP-2015
REALIZED GP

P90,240.50
189,980.00

P983,220
655,480

P280,220.50

6) REALIZED GP P655,480 refer to entry for deferre)d gross profit in no. 5

7) SALES OF 750,000 X 62% = TOTAL COST TO BE RECOVERED P465,000 BEFORE
RECOVERY OF PROFIT
COLLECTIONS
IN 2014 P325,000
IN 2015 P237,475

RECOVERY OF COST
325,000
140,000

RECOVERY OF PROFIT
97,475

Add back ending balance to collections = beg balance of recble, thus

187,525 + 237,475= 425,000
750,000 425,000= COLLECTIONS IN 2014 P325,000 as recovery of cost, balance of cost to
be recovered in 2015