Accoun&ng for Special Transac&ons

Module 6 Quiz
1. Under this, the cash collection is regarded as a partial recovery of cost and partial realization of
profit in the same proportion that these two elements are present in the original selling price.
a. Gross Profit Realization Method b. Cost Recovery Method
c. Installment Method d. Cash Sales Method

2. Any interest on Installment Contract Receivable when collected shall form part of deduction from the
principal.
a. True b. False c. Depends on the situation d. None of the three

3. At the time of repossession, repossessed merchandise is debited at its:

a. Original Cost b. Unrecovered Cost
c. FV after reconditioning cost d. FV before reconditioning cost

4. In Installment Method, the difference between the Selling Price and the COGS is recorded as:
a. Deferred gross profit b. Income
c. Asset d. Expense

5. What is deducted from the FV of the repossessed merchandise to compute the gain/loss on
repossession?
a. Deferred gross profit b. Unrecovered Cost
c. Unpaid Balance d. Reconditioning Expenses

6. Kiko Co. began operations on January 1, 2013 and appropriately uses the installment method
of accounting. The following information pertains to Kiko’s operations for 2013:

Installment sales P800,000

Cost of installment sales 480,000
General and administrative expenses 80,000
Collections on installment sales 300,000

The balance in the deferred gross profit account at December 31, 2013 should be:
a. P120,000 b. 150,000 c. 200,000 d. 320,000

6. Installment sales P800,000

Cost of installment sales 480,000
Deferred gross profit 320,000
 Realized gross profit (P300,000 x 120,000
40%*) P200,000
Deferred gross profit, 12/31/13
*Gross Profit Rate
(P320,000/P800,000) = 40%

7. Dulce Co., which began operations on January 1, 2012, appropriately uses the
installment method of accounting to record revenues. The following information is
available for the years ended December 31, 2012 and 2013:

2012 2013
Installment sales P1,000,000 P1,800,000
Gross profit realized on sales made in:
2012 150,000 90,000
2013 - 200,000
Gross profit percentages 30% 40%

What amount of installment accounts receivable should Dulce report in its December 31, 2013,
statement of financial position?
a. P1,225,000 b. 1,300,000 c. 1,700,000 d. 1,775,000

2012 Sales 2013 Total

Sales
Installment sales P1,000,000 P2,000,000
Collections (RGP/GPR)
During 2010 (P150,000/P30%) (500,000)
During 2011:
2010 sales (P90,000/30%) (300,000)
2011 sales (P200,000/40%) (500,000)
Installment accounts receivable 12/31/13 P500,000 P1,200,000 P1,700,000

0
8. Mango Company, which sells appliances started operations on January 10, 2012
operates on a calendar year basis, and uses the installment method of revenue recognition.
The following data were taken from the 2012 and 2013 accounting records:

2012 2013
Installment sales P480,000 P620,000
Gross profit rates based on cost 25% 20%
Cash collection on 2012 sales 130,000 240,000
Cash collection on 2013 sales 160,000

What is the amount of realized gross profit to be recognized on December 31,2013?

a. P124,500 b. P100,000 c. P92,000 d. P74,667

Total realized gross profit on December 31,2013 is computed below:

2012 2013
Collections during 2013 P240,000 P160,000
Gross profit rates on sales 25%/125% 20%/12
0%
Realized gross profit P48,000 P26,667
Total (P74,667)

9. A refrigerator was sold to Fernandina Castro for P16,000, which included a 40% markup on selling
price. She made a down payment of 20%, payment of four of the remaining 16 equal payment and
defaulted on further payments. The refrigerator was repossessed, at which time the fair value was
determined to be P6,800. The repossession resulted to the following (loss) gain:
a. P(1,040) b. P1,040 c. P4,056 d. P2,960

Fair value of repossessed merchandise

P6,80
0

Unrecovered Cost:
Unpaid
balance:
16,000
Sales
Collections:
Downpayment 3,200
Installment 3,200 6,400 9,60
0

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 Deferred gross profit (9,600 3,84 5,760
x 40%) 0
P1,040
Gain on repossession

10. The books of Paiyakan Company show the following account balances on December 31,2013:

Accounts receivable P313,750

Deferred gross profit (before adjustment) 38,000
Analysis of the accounts receivable reveals the following:
Regular accounts P207,500
2012 installment accounts receivable 16,250
2013 installment accounts receivable 90,000
Sales on installment basis in 2012 were made at 30% above cost, and in 2013 at 33-1/3% above
cost. Expenses paid relating to installment sales were P1,500. How much is the total comprehensive
income on installment sales?
a. P10,000 b. P10,250 c. P11,000 d. P11,500
.
Deferred gross profit, before P38,000
adjustment Less: deferred gross
profit applicable to Uncollected
installment accounts: P3,750
2012: P16,250 x 30%/130%
2013:P90,000 x 25% 22,500 26,250
Realized gross P11,750
profit Less: 1,500
Expenses P10,250
Net income on installment sales

11. Any interest on Installment Contract Receivable when collected shall be treated as:
a. Interest Income b. Form part of deduction from principal
c. Form part of unrecovered cost d. None of the three

12. Under the gross profit realization method, first collections are regarded as
a. Revenue b. Return of investment
c. Cost Recovery d. Expense

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13. An overallowance on trade in requires a downward adjustment on the original sales price.
a. True b. False c. Depends on the situation d. None of the three

14. Gain or loss on repossession can be determined by comparing the cost to be recovered
and the resale value of the repossessed merchandise.
a. True b. False c. Depends on the situation d. None of the three

15. Laya Corp., which began operations on January 2, 2013, appropriately uses the
installment sales method of accounting. The following information is available for 2013:

Installment accounts receivable, December 31, 2013 P800,000

Deferred gross profit, December 31, 2013
(before recognition of realized gross profit for 2013) 560,000
Gross profit on sales 40%

For the year ended December 31, 2013, realized gross profit on sales should be:
a. P320,000 b. 340,000 c. 320,000 d. 240,000

Installment sales (P560,000/40%) P1,400,000

Less: installment accounts receivable, 800,000
12/31/13 Collections P600,00
Gross profit rate 0 40%
Realized gross profit P240,0
00