Compute the gross profit rate on installment sales

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Reference no: EM132799428

Problem - 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

P90,750

 

Installment contracts receivable, 2010

30,000

 

Installment contracts receivable, 2011

95,000

 

Inventory - New merchandise

77,500

 

Inventory - Repossessed merchandise

15,000

 

Accounts Payable

 

P60,875

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

 

 

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.

Reference no: EM132799428

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