Professional Documents
Culture Documents
ly/AFAR-POL-01
INSTALLMENT SALES
3. How shall the difference between the fair value and nominal amount
of the long-term note received as consideration in an installment
sale be accounted for?
a. It shall be recognized as expense on the date of sale.
b. It shall be recognized as gain on exchange on the date of sale.
c. It shall be recognized as interest revenue over the term of the
note using effective interest method.
d. It shall be recognized as interest revenue over the term of the
note using straight line method.
Item 8
Each year, the gross profit on installment sales was 8% lower than the
regular sales. In 2021, the gross profit on installment sales was 4%
higher than 2020.
Items 9 and 10
Collections
2018 installment contracts 45,000 75,000 72,500
2019 installment contracts 47,500 80,000
2020 installment contracts 62,500
Defaults
Unpaid balance of 2018 installment contracts 12,500 15,000
Value assigned to repossessed merchandise 6,500 6,000
Unpaid balance of 2019 installment contracts 16,000
Value assigned to repossessed merchandise 9,000
Item 11
Item 12
2018 2019
Sales 300,000 450,000
Collections from
2018 sales 100,000 50,000
2019 sales - 150,000
Accounts written off from
2018 sales 25,000 75,000
2019 sales - 150,000
Gross profit rates 30% 40%
Item 13
The buyer paid 30% down payment and received P640,000 allowance on an
old car traded, the balance being payable in equal monthly installment
payments commencing the month of sale.
After paying three installments, the buyer defaulted and the car was
subsequently repossessed. When reacquired, the car was appraised to have
a fair value of P2,400,000.
13. How much is the realized gross profit on installment sales during
2020?
a. 820,596
b. 855,596
c. 885,000
d. 804,897
Items 14 and 15
At the time of sale, the entity received cash amounting to 25% of the
selling price and old car with trade-in allowance of P50,000. The said
old car has fair value of P150,000. The customer issued a 5-year note
for the balance to be payable in equal annual installments every December
31 starting 2018. The note payable is interest-bearing with 10% rate due
on the remaining balance of the note.
The customer was able to pay the first annual installment and
corresponding interest due. However, after the payment of the second
interest due, the customer defaulted on the second annual installment
which resulted to the repossession of the car sold with appraised value
of P110,000. On December 31, 2019, the repossessed car was resold for
140,000 after reconditioning cost of P10,000.
14. What is the entity’s realized gross profit for the year ended
December 31, 2018?
a. 50,000
b. 120,000
c. 108,000
d. 128,000
15. What is the loss on repossession for the year ended December 31,
2019?
a. 30,000
b. 20,000
c. 10,000
d. 40,000
Items 16 and 17
01/01/2023 12/31/2023
Installment receivable – 2021 contract P 2,000,000 P 500,000
Installment receivable – 2022 contract 3,000,000 1,000,000
Installment receivable – 2023 contract 5,000,000
Deferred gross profit – 2021 contract 800,000
Deferred gross profit 2022 contract 1,800,000
New inventory 200,000 300,000
Net purchases (excluding freight-in) 5,000,000
Freight-in 100,000
Cash sales for the year 2023 2,000,000
Installment sales for the year 2023 8,000,000
The following additional notes are provided for the year ended December
31, 2023:
The gross profit rate for 2023 installment sales is the average of
previous years’ gross profit rate on installment sales.
On July 1, 2023, Sony wrote off 2021 installment receivable with
account balance of P300,000 because of the bankruptcy of the
customer. Sony records its impairment loss of installment
receivable using the direct write off method.
On October 1, 2023, a 2022 contract customer defaulted on the
installment due which resulted to repossession of the inventory
with fair value of P100,000. The defaulted account has a balance
of P600,000.
On November 1, 2023, the repossessed inventory was sold at a cash
price of P150,000 after reconditioning it at a cost of P20,000.
The sale of repossessed inventory is not yet reflected on the cash
sales stated above.
The total operating expenses, exclusive of impairment loss and loss
on repossession, of Sony for the year ended December 31, 2023
amount to P400,000.
16. What is the net income to be reported by Sony, Inc. for the year
ended December 31, 2023?
a. 2,840,000
b. 3,130,000
c. 3,520,000
d. 2,980,000