Loss On Repossession 3,800

AFAR 2- Quiz 4 Case 4- If the total collections during the year of sale totaled
300,000, how much is the deferred gross profit at the end of

Problem 1: B Company uses installment sale method. In 2021, the year?
B sells an inventory costing 450,000 for an installment sale Installment receivable, end: 900,000 - 300,000 = 600,000
price of 600,000. M makes the following collections: Deferred gross profit: 600,000 x 35% = 210,000
2021- 400,00; 2022- 150,000; 2023- 50,000
Requirements: Case 5- If the realized gross profit during the year is 220,000,
a. Compute for the realized gross profit in each year how much is the ending balance of deferred gross profit?
2021, 2022 and 2023. Total collections: 220,000/35% = 628,571
Installment sales 600,000 Installment receivable, end: 900,000 - 628,571 = 271,429
Costs 450,000 Deferred gross profit: 271,429 x 35% = 95,000
Gross profit 150,000
Case 6- If the realized gross profit during the year is 180,000,
Gross profit rate (150/600) = 25% how much is the ending balance of the accounts receivable?
Total collections: 180,000/35% = 514,286
2021: 400,000 x 25% = 100,000 Installment receivable, end: 900,000 - 514,286 = 385,714
2022: 150,000 x 25% = 37,500
2023: 50,000 x 25% = 12.500 Problem 3: R uses the installment sales method. Relevant
information follows:
b. Compute for the balance of installment account 2021 2022
receivable at the end of each years 2021, 2022 and Sales 300,000 480,000
2023. Cost of sales 240,000 336,000
Balance of installment receivable; Instalment receivable-2021 180,000 60,000
2021: 600,000 - 400,000 = 200,000 Instalment receivable- 2022 360,000
2022: 200,000 - 150,000 = 50,000 R repossessed a property that was sold in 2021 for 50,000.
2023: 50,000 - 50,000 = 0 Total collections from this sale were 24,000. R expects to
resell the property for 30,000 after reconditioning cost of
c. Compute for the deferred gross profit at the end of 4,000. Requirements:
each of the years 2021, 2022 and 2023. a. Compute the gain or loss on repossession
Deferred gross profit; GPR 2021: 60/300 = 20%
2021: 200,000 x 25% = 50,000 GPR 2022: 144/480 = 30%
2022: 50,000 x 25% = 12,500
2023: 0
Installment receivable (50-24) 26,000
Problem 2: C uses the installment method. During the year, C *FMV of repossessed property (17,000)
sells an inventory costing 585,000 for 900,000. Deferred gross profit (26k x 20%) (5,200)
Case 1- If the deferred gross profit at the end of the year of Loss on repossession 3,800
sale is 112,000, how much is the ending balance of the
installment receivable? *Resale value 30,000
Sales 900,000 Reconditioning cost (4,000)
Costs (585,000) Profit margin (30,000 x 30%) (9,000)
Gross profit 315,000 FMV of repossessed property 17,000
Unrecovered cost (26,000 x 1-20%) 20,800
GPR = 315/900 = 35% Loss on repossession 3,800
Installment receivable, end: 112,000/35% = 320,000 b. Compute the total realized gross profit in 2022
2021:
Case 2- If the deferred gross profit at the end of the year of Installment receivable, end 60,000
sale is 269,500, how much were collected during the year? Repossessed property 26,000
Installment receivable: 269,500/35% = 770,000 Installment receivable, beg (180,000)
Total collections: 900,000 - 770,000 = 130,000 Total collections 94,000
X GPR 20%
Case 3- If the deferred gross profit of 200,000 at the end of Realized gross profit 18,800
the year of sale, how much is the realized gross profit during
the year? 2022:
Installment receivable: 200,000/35% = 571,429
Total collections: 900,000 - 571,429 = 328,571 Sales 480,000
RGP: 328,571 x 35% = 115,000 (rounded off) Installment receivable (360,000)
Total collections 120,000 Installment sales 32,000
X GPR 30% Over allowance 4,000
Realized gross profit 36,000 Total 36,000
Total 18,800 + 36,000 = 54,800 Costs (20,000)
Gross profit 16,000
c. Compute the profit recognized in 2022. GPR: 16/36 = 44.44%
Realized gross profit 54,800
Loss on repossession (3,800) Trade in value 12,000
Profit 51,000 Cash collections 12,000
Total 24,000
Problem 4: D uses the installment sales method. D sells a X GPR 44.44%
good costing 20,000 for an installment sale price of 32,000. D Realized gross profit 10,665.6
accepts old merchandise as down payment and gives the
customer a trade-in value of 8,000 for the merchandise.
Problem 5: C uses the cost recovery method. Relevant
Case 1- The fair value of the old merchandise is 8,000. information follows:
Subsequently, cash collection during the period amounted to 2021 2022
12,000. Compute the realized gross profit recognized in the Sales 20,000 30,000
year of sale. Cost of sales 16,000 18,000
Installment sales 32,000 Cash collections
Costs (20,000) From 2021 sales 14,000 6,000
Gross profit 12,000 From 2022 sales 24,000
GPR: 12/32 = 37,5% Compute for the gross profit recognized by C in 2022.
2021 Sales:
Trade in value 8,000 Cost of sales 16,000
Cash collections 12,000 Collections, 2021 (14,000)
Total 20,000 Cost of sales 2,000
X GPR 37.5%
Realized gross profit 7,500 Collections, 2022 6,000
Cost of sales (2,000)
Case 2- The fair value of old machine is 6,000. Subsequent Profit 4,000
cash collection during the year amount to 12,000. Compute
the realized gross profit recognized in the year of sale. 2022 Sales:
Fair value 6,000 Collections 24,000
Trade in allowance (8,000) Cost of sales (18,000)
Over allowance 2,000 Profit 6,000
Installment sales 32,000 Total profit: 4,000 + 6,000 = 10,000

Over allowance (2,000)
Total 30,000
Costs (20,000)
Gross profit 10,000
GPR: 10/30 = 33.33%
Trade in value 6,000

Cash collections 12,000
Total 18,000
X GPR 33.33%
Realized gross profit 5,999
Case 3- The fair value of the old merchandise is 12,000.

Subsequent cash collection during the period amount to
12,000. Compute for the realized gross profit recognized in the
year of sale.
Fair value 12,000
Trade in allowance (8,000)
Under allowance 4,000

Loss On Repossession 3,800

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Loss On Repossession 3,800

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AFAR 2- Quiz 4 Case 4- If the total collections during the year of sale totaled

300,000, how much is the deferred gross profit at the end of

Installment sales 32,000 Total profit: 4,000 + 6,000 = 10,000

Trade in value 6,000

Case 3- The fair value of the old merchandise is 12,000.

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