Instalment Sales

41.Mayura Company uses the instalment sales method in accounting for its
instalment sales. On January 1, 2015, Mayura Company had an instalment
account receivable from Rowena with a balance of P18,000. During 2015,
P4,000 was collected from Rowena. When no further collection could be
made, the merchandise sold to Rowena was repossessed. The merchandise
had a fair market value of P6,500 after the company spent for P600 for
reconditioning of the merchandise. The merchandise was originally sold with
a gross profit rate of 40%.
Determine the gain or loss on repossession and cost of repossessed
merchandise after reconditioning, respectively:

43.On January 1, 2014, Landlady Company sold 20,000 square meters of

farmland for P600,000 to Michelle, taking in exchange a 10% interest bearing
note Landlady Company purchased the farmland in 2011 at a cost of
P500,000. The note will be paid in three instalments of P241,269 including
interest each on December 31, 2014, 2015, and 2016. Shortly, after the sale
Landlady Company learns distressing news about Michelles financial
circumstances and because collection is so uncertain and decides to account
for the sale using the cost recovery method.
Determine the Realized gross profit and interest income for the year 2015,
and unrecovered cost as of December 31, 2015, respectively.

59.The Leanne Motors Company makes all sales on instalment contracts and
accordingly reports income on the instalment basis. Instalment contracts
receivables are accounted for by years. Defaulted contacts are recorded by
debiting Loss on Repossession account and crediting the appropriate
Instalment Accounts Receivable account for the unpaid balance at the time of
default. All repossessions and trade-ins are recorded at realizable values. The
following data relate to the transactions during 2011 and 2012.

Instalment Sales
Instalment Contract Receivable, Dec. 31
2011 Sales
2012 Sales
Purchases
New merchandise Inventory, 12/31, at cost
Loss on Repossession

2011
P150,000

2012
P198,500

80,000

25,000
95,000
120,000
26,000
6,000

100,000
10,000

The company auditor disclosed that the inventory taken on December 31,
2012 did not include certain merchandise received as trade-in on December
2, 2012 for which an allowance was given. The appraised value of the
merchandise is P1,500 which was also the allowance on the trade-in. No
entry was made to record this merchandise on the books at that time it was
received. In 2012, a 2011 contract was defaulted and the merchandise was
repossessed. At the time of default, the repossessed merchandise had an
appraised value of P2,500. The repossessed merchandise was neither
recorded nor included in the physical inventory on December 31, 2012.
Compute the (1) total realized gross profit on sale in 2012 and (2) gain or loss
on repossession.

Construction Accounting
27. In 2011, Joey Builders was contracted to build the private road network of
Althea Subdivision for P100 million. The project was expected to be finished
in 2 years, and the contract provided for:
-

A 5% mobilization fee (to be deducted from the last billing), payable

within 15 days from the contract signing.
A retention provision of 10% on all billings, payable with the final bill after
the completed project is accepted.
Payment of progress billings within 7 days from acceptance.

Joey Builders, which uses the percentage-of-completion method of accounting

for income, estimated a 25% gross margin on the project. By the end of the
year, Joey Builders had presented progress billings corresponding to 50%
completion. Althea accepted all the bills presented, except one for 10% which
was accepted on January 5 next year. With the exception of the second to the
last billing for 8% which was due January 3 of next year, all accepted billings
were settled.
In 2011, Joey Builders realized gross profit from the project the amount of
.

31. AJD Builders entered into a contract to construct an office building and
plaza at a contract price of P10, 000, 000. Gross profit is to be recognized
using the percentage-of-completion methodoutput measures as determined
by estimates made by the architect. The data below summarizes the
activities on the construction for the years 2010 through 2012:

Year

Actual
Cost Incurred

Estimated
Cost to
Complete

201
0
201
1
201
2

P3,200,000

P6,000,000

%
Complete
Architects
Estimate
25%

Progress
Billings

Collections

P3,100,000

75%

P3,300,00
0
4,500,000

P4,300,000

1,600,000

P1,550,000

100%

2,200,000

2,900,000

4,000,000

Compute the gross profit-proportional cost approach recognized for the years
2010-2012.

25. ST Construction Companys construction jobs, which commenced during

2011:

Construction Price
Cost incurred during 2011
Estimated Costs to Complete
Billed to customers during 2011
Received from customers
during 2011
General and Administrative
expenses

Project X
P420,000
240,000
120,000
250,000
240,000

Project Y
P300,000
280,000
70,000
290,000
280,000

20,000

10,000

It is therefore agreed between the contractor and the client that any costs
incurred are expected to be recoverable.
What amount of net income (loss) would ST Construction Company report in
its 2011 Income Statement?

19. Ruby Fruits Corporation enters into a franchise agreement with Rodel on June 1,
2011. As per agreement, Rodel is to pay Ruby an-up front franchise fee of
P1,000,000 and subsequent annual franchise fees of P50,000 over the next fours
years. Cost of initial franchise services rendered by Ruby during the year is
P250,000 and estimates the cost of subsequent annual services to be P100,000.
Ruby expects a profit of 20% on subsequent services. Rodel paid the annual fee for
2012 and Ruby rendered annual services for that year. In its December 31, 2012
income statement, the realized franchise revenue to be reported by Ruby is
.

On January 1, 20x1, TREMULOUS Co. granted franchise right to TIMID, Inc. The
franchise agreement contains the following:
The initial franchise fee is P400,000 payable as follows: 20% cash down
payment upon signing of the contract and the balance is payable in 4 equal
annual instalments starting December 31, 20x1.
The continuing franchise fee is annual fixed payment of P120,000 payable at
each year-end starting on the year of commencement of franchisees
business.
The duration of the franchise agreement is 4 years starting on the
commencement of franchisees business. The year of commencement shall
be counted as one full year.
TIMID, Inc. commenced operations on March 1, 20x1. The prevailing rate of interest
on January 1, 20x1 is 12%.
Case #1: Non-bargain fee for continuing services
11. Tremulous Co. estimates that continuing services will cost P80,000 per year. A
reasonable profit from such services is estimated at 15% of cost. How much total
franchise revenue is revognized in 20x1?

Case #2: Bargain Fee for continuing services

12. Tremulous Co. estimates that continuing services will cost P120,000 per year. A
reasonable profit from such services is estimated at 10% of cost. How much total
franchise revenue is recognized in 20x1?

11. TREMULOUS Co. estimates that continuing services will cost P80,000 per year. A
reasonable profit from such services is estimated at 10% of cost. How much total
franchise revenue is recognized in 20x1.
Case #2: Bargain fee for continuing services

24. Each of Pizza Pie Co.s 21 new franchisees contracted to pay an initial franchise
fee of P30,000. By December 31, 2011, each franchise had paid a paid a nonrefundable P10,000 fee and signed a note to pay P10,000 principal plus the market
rate of interest on December 31, 2012 and December 31, 2013. Experience
indicates that one franchise will default on the additional payments. Services for the
initial fee will be performed in 2012. What amount of net unearned franchise fee
would Pizza report at December 31, 2011?

28. On January 1, 2011 Rosales Na Ndi Jericho, Inc, entered into a franchise
agreement with a company allowing the company to do business under Rosales Na
Ndi Jerichos name. Rosales Na Ndi Jericho had performed substantially all required
services by January 1, 2011, and the franchisee paid the initial franchise fee of
P70,000 in full on that date. The franchise agreement specifies that the franchisee
mustpay a continuing franchise fee of P6,000 annually, of which 20% must be spent
on advertising by Rosales Na Ndi Jericho. What entry should Rosales Na Ndi Jericho
make on January 1, 2011 to record the receipt of the initial franchise fee and the
continuing franchise fee for 2011?
4. On June 1, Saging na Gulay Company shipped 25 television sets to Prutas na
Calamares, Inc. on consignment. The sets are to be sold at an advertised price of
P20,000. The cost of each set to the consignor was P10,000. The cost of shipment
paid by the consignor was P7,500. The consignor agreed to absorb the consignees
expenditure for freight and also to allow the consignee P1,000 for delivery and
installation of each set. Commission is to be 25% of the sales price. On June 30,
Prutas na Calamares submitted the following summary of consignment sales:
Sets
Sets
Sets
Sets

received
sold
returned to consignor (defective)
on hand

25
8
2

June 3-30 sales, 8 sets at P20,000

Charges:
Freight-in
P
5,000
Deliveries and installation expenses
8,000
Commissions, 25% of sales
40,000
.
Remittance enclosed
Balance owed (collections from customers not yet made

10
15
P160,

53,000
P
107,000
25,000
P
82,000

Compute the inventory value of the units unsold in the hands of the consignee:
5. Compute the profit for the consignor for the units sold.
14. On July 15, 2013, James Last Sales Company received a shipment of
merchandise with a selling price of P150,000 from James Bond Company. The
consigned goods cost James Bond Company P100,000 and freight charges of P1,200
had been paid to ship the goods to James Last Company.
The consignment agreement provided for a sale of merchandise on credit with
terms of 2/10, n/30. The 15% commission is to be based on the accounts receivable
by the consignee. Cash discounts taken by the customers, expenses applicable to
goods on consignment and any cash advanced to the consignor are deductible from
the remittance by the consignee.

James Last Company advanced P60,000 to James Bond Company upon receipt of
the shipment. Expenses of P8000 was paid by James Last. By August 2013, 70% of
the shipment had been sold, and 80% of the resulting accounts receivable had been
collected, all within the discount period. Remittance of the amount due was made
on August 30, 2013.
The cash remitted by James Last Company is?
17. The account balances shown below were taken from the trial balances
submitted to Bon-Apetit Corporation by its Alabang branch:
2011

2012

Petty cash fund

P1,500
P1,500
Accounts Receivable.
43,800
49,140
Inventory..
37,170

--

Sales
173,180
195,120
Shipments from home (140% of cost) ...
136,080

107,450

Expenses .
51,260
57,930
Accounts written off .
1,920

1,220

All branch collections are remitted to the home office. All branch expenses are paid
out of the petty cash fund. When the petty cash funds is replenished, the branch
debits appropriate expense accounts and credits Home Office Current. The petty
cash is counted every December 31, and its composition was as follows:
12/31/11
12/31/12
Currency and coins
P860

P580

Expense vouchers .
640

920

The branch inventory on December 31, 2012 was P41,370. The correct branch net
income for 2012 was?

29. Selected balances from the Legaspi Companys Branch A and Branch B are as
follows:

Inventory, Jan. 1, 2011 ..............

P19,000

P21,000

Imprest Branch Fund .

1,500

2,000

Inventory, Dec, 31, 2011 .

12,000

19,000

A/Receivable, Jan. 1, 2011

43,500

55,000

Merchandise from Home Office ..

47,000

61,000

A/Receivable, Dec. 31, 2011 ..

53,500

70,000

Cash Collections ..
70,000

85,000

Sales .
80,000
Cash Expenses ..
14,300

100,000
21,000

All sales, collections, and expenses are handled at the branch. All cash received
from sales and collections are sent directly to the Home Office. Expenses are paid
by the branch from the imprest fund and immediately reimbursed by the Home
Office and credited to the Home Office account. All expenses paid by the branch are
recorded in the books of the branch.
Compute the balance of the Home Office account on January 1, 2011?
46. The following were found in your examination of the interplant accounts
between the Home Office and the Bacolod Branch.
1. Transfer of fixed assets from Home Office amounting to P53,960 was not recorded
by the branch. Fixed assets used in the branch are required to be maintained in the
books of the branch.
2. P10,000 covering marketing expense of another branch was charged by Home
Office to Bacolod.
3. Bacolod recorded a debit note on inventory transfers from Home Office of
P75,000 twice.

4. Home Office recorded cash transfer of P65,700 from Bacolod Branch as coming
from Tacloban Branch.
5. Bacolod reversed a previous debit memo from Samar Branch amounting to
P10,500. Home Office decided that this charge is appropriately Taclobans Branchs
cost.
6. Bacolod recorded a debit memo from Home Office of P4,650 as P4,560.
The net adjustments Debit (Credit) to the Bacolod Branch Current account and the
Home Office Current account are?