Advanced Accounting Part 1 Take Home Activity PROBLEM A = Presented below is the unadjusted trial balance, as of December 31, 2009, of Boston Corporation. Debit Credit Cash 50,000 Installment accounts receivable400,000 2008 Installment accounts receivable1,400,000 2009 Inventory, December 31, 2009 2,000,000 Other Assets 4,970,000 Operating Expenses 500,000 Trade accounts payable 500,000 Unrealized gross profit – 2007 100,000 Unrealized gross profit – 2008 860,000 Unrealized gross profit – 2009 1,000,000 Capital Stock 6,000,000 Retained Earnings 800,000 Repossession gain 60,000 Total 9,320,00 9,320,00 0 0 The cost of goods sold had been uniform over the years at 60% of sales and the company adopts perpetual inventory procedures. On installment sales, the company charges installment accounts receivable and credits inventory and unrealized gross profit accounts. Repossessions of merchandise have been made during 2009 due to some customers, failure to pay maturing installments. The analyses of those transactions have been summarized as follows: Inventory Unrealized gross profit - 2007 Unrealized gross profit – 2008 Installment accounts receivable – 2007 20,000 Installment accounts receivable – 2008 60,000 Repossession gain 60,000
108,000 8,000 24,000
The repossessions merchandise were unsold at December 31, 2009 and it was ascertained that these were booked upon repossession, at their original cost. A fair valuation would be a sales price of P80,000 after reconditioning cost of P5,000 and cost to dispose them of P5,000. Required: 1. The total realized gross profit on 2009 2. The correct gain or loss on repossession on 2009 3. The adjusted inventory 2009 4. The total deferred gross profit on 2009 5. Net income 2009 PROBLEM B = On October 1, 2010, Cleveland Co. sold article “A” costing P270,000, for P400,000. Article B, a used article, was accepted as down payment, with the balance payable in monthly installments of P20,000 starting November 1, 2010, P120,000 was allowed on the article traded in. The company estimated the reconditioning cost of this article at P8,000 and a selling price of P110,000 after such reconditioning cost. The company normally makes a 20% gross profit on the sale of used articles. The company employs the perpetual inventory method and using calendar year for annual reporting.
On April 1, 2011, the customer defaulted in the payment of his installments. Article A was reposed and its value to the was estimated at P135,000 after allowing for the estimated reconditioning cost and the normal profit on resale. Required: 6. The amount of realized profit in year ended 2010 was 7. The amount of loss on repossession on 2011 was
PROBLEM C = The following selected accounts were taken from the trial balance on December 31, 2008 of MIAMI HEAT Company: Accounts receivable – charge sales Installment receivable – 2006 Installment receivable – 2007 Installment receivable – 2008 Merchandise inventory Purchases Freight in Repossessed Loss Cash Sales Charge Sales Installment Sales Deferred gross profit – 2006 Deferred gross profit – 2007
Debit 75,000 15,000 45,000 270,000 100,500 390,000 3,000 39,000
Credit
105,000 210,000 523,100 22,200 39,360
The following additional information was also taken from the records of MIAMI HEAT Company: a. b. c.
d.
e.
Gross profit rate on 2006 installment sales was 30% and for 2007, the rate was 32%. Installment sales price exceed cash sales price by 24%, while charge sales prices exceed cash sales by 20%. The entry made for repossessed goods in year 2008 was Repossessed Loss 39,000 Installment Receivable – 2006 18,000 Installment Receivable – 2007 21,000 The repossessed merchandise on 2006 installment sales and 2007 installment sales has estimated realizable value of P5,000 and P10,000 respectively. The company failed to record the trade in merchandise included in the installment sales in 2008 transaction. The trade in merchandise value accepted was P22,500. The company estimated the reconditioning cost of this unit at P8,000 and a selling price of P37,500 after such reconditioning cost. The company normally makes 20% profit on the sale of used units. Merchandise on hand at the end, excluding assigned value of trade in merchandise and repossession merchandise, P33,500.
Determine the following: (Answers with two decimal places) 8. What amount should be assigned to merchandise inventory trade-in? 9. How much was the total sales for 2008 if all sales were on cash basis? 10. How much is the cost of goods sold on Installment Sales in 2008? 11. How much is the adjusted loss on repossession? 12. How much is the total realized gross profit in year 2008? PROBLEMD D = MIAMI HEAT Company, which began operations on January 1, 2008 appropriately uses the installment method of accounting. The following data pertains to MIAMI HEAT’s operation for the year 2008: Installment sales
450,00
Regular sales Cost of regular sales Cost of installment sales FMV of repossessed merchandise Reconditioning cost Operating expenses before defaults and repossessions Collection on installment sales including interest P12,000 Installment receivables written-off due to defaults Repossessed accounts 13.
0 187,50 0 107,50 0 315,00 0 27,000 2,000 36,000 156,00 0 22,000 50,000
How much is the deferred gross profit at December 31 2008? 14. How much is the total realized gross profit at December 31, 2008? 15. What is the net income for the year ended December 31, 2008?
