Installment Sales Method

1.ABC Co. has the following information:

2021 2022

Installment sales ? ?

Cost of sales 600,000 660,000

Installment receivable - 2021 600,000 400,000

Installment receivable - 2022 720,000

Gross profit rates based on sales 40% 45%

How much is the total realized gross profit in 2022?

a.189,000

b.268,000

c.296,000

d.326,000

Use the following information for the next two questions:

ABC Co.'s records show the following information:

2021 2022

Deferred gross profit (adjusted ending balances):

from 2021 sale 240,000 160,000

from 2022 sale 324,000

Gross profit rates based on sales 40% 45%

Cash collections from:

2021 sales 400,000 200,000

2022 sales 480,000

2.How much is the total installment receivable on December 31, 2022?

a.1,000,000

b.1,120,000

c.1,280,000

d.720,000

3.How much are the installment sales in 2021 and 2022, respectively?

20212022

a.1,000,0001,200,000

b.1,000,0001,120,000

c.600,000480,000

d.900,000720,000

4.ABC Co. uses the installment sales method. The following information was taken from ABC's records:

2021 2022

Installment sales 1,000,000 1,200,000

Cost of sales 600,000 660,000

Cash collections from:

2021 sales 400,000 200,000

2022 sales 480,000

How much is the total deferred gross profit on December 31, 2022?

a.324,000

b.484,000

c.284,000

d.504,000

5.ABC Co. uses the installment sales method. ABC Co. has the following collection policy on its installment sales:

20% down payment

Balance collectible as follows: 50% in the year of sale, 30% in the second year, and 20% in the third year.

Installment sales during 2021, 2022 and 2023 were 1,200,000, 1,500,000 and 1,800,000, respectively.

Gross profit rate throughout the three years was 40% based on sales.

How much are the realized gross profits in 2021, 2022 and 2023, respectively?

202120222023

a.288,000475,200652,800

b.276,000475,200628,600

c.288,000457,200652,800

d.286,000487,200632,800

Use the following information for the next three questions:

Rooster Co. uses the installment sales method. Relevant information follows:

2021 2022

Sales 300,000 480,000

Cost of sales 240,000 336,000

Installment receivable - 2021 180,000 60,000

Installment receivable - 2022 360,000

Rooster Co. repossessed a property that was sold in 2021 for 50,000. Total collections from this sale were 24,000. Rooster Co. expects to resell the property for 30,000 after reconditioning costs of 4,000. The normal profit margin on resale of repossessed property is 30%.

6.How much is the gain or loss on repossession?

a.3,200

b.3,800

c.4,300

d.2,900

7.How much is the total realized gross profit in 2022?

a.56,000

b.54,800

c.53,200

d.51,600

8.How much is the profit recognized in 2022?

a.56,000

b.54,800

c.51,000

d.51,600

9.Garden Co. uses the installment sales method. Garden Co. sells a good costing 10,000 for an installment sale price of 16,000. Garden Co. accepts old merchandise as down payment and gives the customer a trade-in value of 4,000 for this merchandise. The fair value of the old merchandise is 6,000. Subsequent cash collections during the period amount to 6,000. How much is the realized gross profit recognized in the year of sale?

a.5,444

b.5,966

c.5,333

d.6,667

10.Demolish Co. uses the "cost recovery method" (traditional accounting based on old US GAAP). The records of Demolish Co. show the following information:

2021 2022

Sales 10,000 15,000

Cost of sales 8,000 9,000

Cash collections:

- from 2021 sales 7,000 3,000

- from 2022 sales 12,000

How much is the gross profit recognized by Demolish in 2022?

a.0

b.5,000

c.3,000

d.2,000