Reference no: EM132719695

On January 1, 2020, an entity sold a car to a customer at a price of P320,000 with a production cost of P240,000. It is the entity's policy to employ installment method to recognize gross profit from installment sales. At the time of sale, the entity received cash amounting to 25% of the selling price and old car with trade-in allowance of P40,000. The said old car has fair value of P120,000. The customer issued a 5-year note for the balance to be payable in equal annual installments every December 31 starting 2018. The note payable is interest bearing with 10% rate due on the remaining balance of the note. The customer was able to pay the first annual installment and corresponding interest due. However, after the payment of the second interest due, the customer defaulted on the second annual installment which resulted to the repossession of the car sold with appraised value of P88,000. On December 31, 2019, the repossessed car was resold for P112,000 after reconditioning cost of P8,000.

Problem 1: What is the entity's realized gross profit for the year ended December 31, 2018?

Problem 2: What is the loss on repossession for the year ended December 31, 2019?