Marian Company sells furniture for cash and on the installment plan. Entries to record cost of sales are made monthly. The trial balance on December 31, 2011 is as follows:

Marian Company Trial Balance

December 31, 2011

Cash P 90,750

Installment contracts receivable, 2010 30,000

Installment contracts receivable, 2011 95,000

Inventory - New merchandise 77,500

Inventory - Repossessed merchandise 15,000

Accounts Payable P 60,875

Deferred gross profit, 2010 27,000

Ordinary Share 125,000

Accumulated Profits 52,500

Cash sales 265,000

Installment sales 187,500

Cost of sales 206,250

Cost of installment sales 121,875

Gain or loss on repossessions 500

Selling and administrative expenses 82,500

TOTAL P719,375 P719,375

The accountant has prepared the following analysis of cash receipts for the year:

Cash sales P265,000

Installment contracts receivable, 2010 65,000

Installment contracts receivable, 2011 92,500

Others 22,500

Total P445,000

Data pertaining to the repossession recorded during the year are summarized as follows:

2010 Uncollected balance P5,000 Loss on repossession 500 Repossessed merchandise 3,000

Requirements:

1. From the trial balance and accompanying information, compute the gross profit rate on installment sales for 2010 and 2011.

2. Prepare adjusting and closing entries as of December 31, 2011 under the installment method of accounting.

3. Prepare an Income Statement for the year ended December 31, 2011.