INSTALMENT SALES B.COM. PART II

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1 INSTALMENT SALES B.COM. PART II

2 PART A Q#1: The following is the Balance Sheet of Nishat Traders on December 31, 1989 NISHAT TRADERS BALANCE SHEET As on Dec. 31, Assets Equities Cash Rs. 25,000 Accounts Payable Rs. 6,000 Merchandise Inventory Rs. 15,000 Bank Loan Rs. 65,000 Furniture Rs. 12,000 Nishat Capital Rs. 101,000 Building Rs. 60,000 Equipment Rs. 15,000 Land Rs. 45, , ,000 Nishat Traders sell all merchandise on the instalment sales basis. The following figures have been collected from the books of Nishat Traders for the year ) Installment sales Rs. 200,000 2) Collections on instalment Rs. 90,000 3) Merchandise purchased on account Rs. 145,000 4) Cash paid on account Rs. 80,000 5) Selling & General expenses paid Rs. 8,000 6) A customer was defaulted and merchandise was repossessed, valued Rs. 6,000 and instalment account cancelled Rs. 10,000 7) Merchandise inventory end (New) Rs. 20,000 Give the entries that would be made to record the transactions and to adjust and close accounts for (I/S = 18,000) Q#2: The following transactions were made in Reyaz trades during the year ) Instalment sales Rs. 300,000 2) Collections of 1990 Instalment Receivables Rs. 50,000 3) Collections of 1991 Instalment Receivables Rs. 120,000 4) Merchandise purchased on account Rs. 180,000 5) Cash paid to accounts payable Rs. 140,000 6) Selling & Administrative expenses paid Rs. 10,000 7) Merchandise sold in 1990 and repossessed in 1991, valued Rs. 5,000 Instalment cancelled Rs. 6,000 8) Merchandise sold during the year and repossessed, valued Rs. 9,000, Instalment cancelled Rs. 15,000 9) Gross profit percentage in 1990 was 35% and in 1991 it was 28%. Prepare journal entries including adjusting and closing entries for the year. (I/S =40,400) 2

3 Q#3: The following transactions were made in Fayyaz & Sons during the ) Instalment sales Rs. 400,000 2) Collections of 1990 Instalment Receivable Rs. 44,000 3) Collections of 1991 Instalment Receivable Rs. 90,000 4) Collections of 1992 Instalment Receivable Rs. 220,000 5) Merchandise purchased on account Rs. 230,00 6) Cash paid to accounts payable Rs. 250,000 7) Selling & Administrative expenses paid Rs. 15,000 8) Merchandise sold in 1991 and repossessed in 1992, valued Rs. 7,000 Instalment cancelled Rs. 10,000 9) Merchandise sold during the year and repossessed, valued Rs. 11,000, Instalment cancelled Rs. 20,000 10) Gross profit percentage in 1990 = 15%, 1991 = 20%, 1992 = 25%. Prepare journal entries to record all transactions and adjusting & closing entries relating to the instalment sales during the year ended December 31, (I/S = 59,600) Q#4: The following is the Balance Sheet of Aftab & Company on December 31, 1984 AFTAB & COMPANY BALANCE SHEET As on Dec. 31, Assets Equities Cash Rs. 40,000 Accounts Payable Rs. 10,000 Merchandise Inventory Rs. 20,000 Bank Loan Rs. 20,000 Equipment Rs. 10,000 Aftab Capital Rs. 152,000 Building Rs. 70,000 Furniture & Fixture Rs. 12,000 Land Rs. 30, , ,000 Aftab Sons sells all merchandise on the instalment sales basis. The following figures have been collected from the books of Aftab Traders for the year ) Installment sales Rs. 120,000 2) Collections on instalment Rs. 60,000 3) Merchandise purchased on account Rs. 91,000 4) Cash paid on account Rs. 80,000 5) Selling & General expenses paid Rs. 6,000 6) A customer was defaulted and merchandise was repossessed, valued Rs. 3,000 and instalment account cancelled Rs. 5,000 7) Merchandise inventory end (New) Rs. 30,000 Give the entries that would be made to record the transactions and to adjust and close accounts for (I/S = 12,800) 3

4 Q#5: The following transactions were made in Fayyaz & Sons during the ) Instalment sales Rs. 250,000 2) Collections of 1985 Instalment Receivable Rs. 25,000 3) Collections of 1986 Instalment Receivable Rs. 120,000 4) Merchandise purchased on account Rs. 150,00 5) Cash paid to accounts payable Rs. 130,000 6) Selling & Administrative expenses paid Rs. 9,000 7) Merchandise sold in 1985 and repossessed in 1986, valued Rs. 7,000 Instalment cancelled Rs. 10,000 8) Merchandise sold during the year and repossessed, valued Rs. 10,000, Instalment cancelled Rs. 15,000 9) Gross profit percentage in 1985 = 20%, 1986 = 25%. Prepare journal entries to record all transactions and adjusting & closing entries relating to the instalment sales during the year ended December 31, (I/S = 23,750) Q#6: The following transactions were made in Fayyaz & Sons during the ) Instalment sales Rs. 340,000 2) Collections of 1985 Instalment Receivable Rs. 20,000 3) Collections of 1986 Instalment Receivable Rs. 80,000 4) Collections of 1987 Instalment Receivable Rs. 190,000 5) Merchandise purchased on account Rs. 175,000 6) Cash paid to accounts payable Rs. 200,000 7) Selling & Administrative expenses paid Rs. 150,000 8) Merchandise sold in 1986 and repossessed in 1987, valued Rs. 7,000 Instalment cancelled Rs. 12,000 9) Merchandise sold during the year and repossessed, valued Rs. 10,000, Instalment cancelled Rs. 10,000 10) Gross profit percentage in 1985 = 30%, 1986 = 35%, 1987 = 36%. Prepare journal entries to record all transactions and adjusting & closing entries relating to the instalment sales during the year ended December 31, (I/S = - 48,800) Q#7: Ideal Office Equipment supplier sells office Equipment on instalment basis the following inform the year 1985 has been collected from the accounting record. 1) Inventory of equipment (Jan. 1, 1985) Rs. 65,000 2) Purchases of Equipment during the year Rs. 177,000 3) Sales of Equipment during the year on instalment basis Rs. 300,000 4) Collections from customers Rs. 100,000 5) Inventory of Equipment (Dec. 31, 1985) Rs. 62,000 Give entries including adjusting and enclosing under instalment method. (I/S = 40,000) 4

5 Q#8: The following figures have been collected from the books of KASHIF Company, which sell its products on instalment basis ) Instalment sales Rs. 25,000 2) Cost of instalment sales Rs. 17,500 3) Cash collections during the year Rs. 15,000 4) Expenses Paid Rs. 3,000 5) Repossessed goods sold on instalment basis; instalment accounts cancelled Rs. 5,000; repossessed goods valued Rs. 4,000. Give the entries that would be made to record the transactions and to close accounts. (I/S = 2,000) Q#9: Tahir Sales Company, reports profit on the instalment basis. Sales during 1984 are summarized below: 1) Instalment sales Rs. 125,000 2) Cost of instalment sales Rs. 60,000 3) Cash collections during the year Rs. 100,000 4) Expenses Paid Rs. 8,000 5) Repossessed goods sold on instalment basis; instalment accounts cancelled Rs. 10,000 repossessed goods valued Rs. 7,250 Give the entries that would be made to record the transactions and to close accounts. (I/S = 3,250) Q#10: The following figures have been collected from the books of Habib Trading Company, which sells its product on instalment basis: 1) Instalment sales Rs. 340,000 2) Cash collected on Instalment sales Rs. 180,000 3) Purchased Merchandise for cash Rs. 230,000 4) General and selling expenses paid Rs. 17,000 5) Merchandise Inventory at start Rs. 50,000 6) Merchandise Inventory at end (New) Rs. 42,000 7) Instalment accounts cancelled Rs. 8,000 repossessed goods valued Rs. 6,000 Give entries including adjusting and closing under instalment method. (I/S = 37,400) 5

6 Q#11: Khalid Company deals in Radio and Television sets. The summary of the transactions for the year end in December 31, 1986 is as follows: 1) Instalment sales Rs. 300,000 2) Collections in respect of 1986 instalment sales Rs. 40,000 3) Collections of 1986 sales Rs. 180,000 4) Purchase on account Rs. 200,000 5) Payments to accounts payable Rs. 140,000 6) Selling expense paid Rs. 14,000 7) General expense paid Rs. 8,000 8) Repossessed Merchandise fair market value Rs. 3,000 9) Instalment Receivable, 1985 written off by repossession Rs. 4,500 10) Inventory, December 31, 1986 (New and repossessed) Rs. 23,000 11) Inventory January 1, 1986 Rs. 30,000 Journal entries, including adjusting and closing entries for the year ended on December 31, (I/S = 39,400) Q#12: Saad & Company sells Merchandise on the instalment basis Sales 180, , ,000 Cost of instalment sales 108, , ,000 Operating Expenses 50,000 55,000 54,000 Collections from sale of ,000 60,000 40,000 Collections from sale of ,000 80,000 Collections from sale of ,000 Give all entries in General journal for the year ended 1980, 1981, (I/S = 11,000) Q#13: The following figures have been collected from the books of Taha Traders sells its products on instalment basis: 1) Instalment Sales Rs. 200,000 2) Purchased Merchandise on account Rs. 160,000 3) Paid to creditors Rs. 120,000 4) Cash collected from customers Rs. 120,000 5) Expenses paid Rs. 12,000 6) Merchandise Inventory at start Rs. 20,000 7) Merchandise Inventory at end Rs. 30,000 Give entries including adjusting and closing entries under instalment method. (I/S = 18,000) 6

7 Q#14: The safe Ride Company Book showed on January 1, Cash Rs. 450,000; Merchandise Inventory Rs. 50,000 and share capital Rs. 500,000. The transactions for the year ended on 31 st December, 1989 are summarized as follows: ) Instalment sales 10,00,000 15,00,000 2) Collections on 1988 Instalment Receivable 6,00,000 3,00,000 3) Collections of 1989 Instalment Receivable 9,00,000 4) Purchase of Merchandise on account 7,30,000 10,35,000 5) Payments to accounts payable 5,00,000 3,50,000 6) Selling & Administrative expense paid 1,50,000 3,50,000 7) Repossessed Merchandise at fair market value 30,000 8) Instalment receivable 1988, written of by repossession 1,00,000 9) Inventory, December 31 (New and repossessed) 2,00,000 2,65,000 Journal entries including adjusting and closing entries for the year ended on 31 st December, 1988 and 31 st December, (I/S = 102,000) (I/S = 48,000) Q#15: The following informations were collected from the books of Aslam Traders. PARTICULARS ) Instalment sales 120,000 2,40,000 2) Collections on 1988 Instalment Receivable 70,000 25,000 3) Collections of 1989 Instalment Receivable 1,50,000 4) Purchase of Merchandise on account 1,00,000 1,64,000 5) Payments to accounts payable 90,000 1,50,000 6) Selling expense paid 6,000 8,000 7) General expense paid 3,000 4,000 8) Merchandise Inventory at end (New) 16,000 20,000 9) Value of Merchandise repossessed (1988) 3,000 7,500 10) Instalment A/Receivable written off (1988) 5,000 10,000 11) Value of Merchandise repossessed (1989) 10,000 12) Instalment A/Receivable of 1989 written off 15,000 Give the entries in General Journal including adjusting and closing entries for 1988 and (I/S = 11,500) (I/S = 45,862.5) 7

8 Q#16: The Yasin Appliance Co. reports gross profit on the instalment basis the following data are available: Instalment sales 240, , ,000 Cost of instalment sales 180, , ,000 Collections: 1985 instalment contracts 45,000 75,000 72, instalment contracts 47,500 80, instalment contracts 62,500 Defaults: Unpaid balance of 1985 instalment contracts 12,500 15,000 Value assigned and repossessed goods 6,500 6,000 Unpaid balance of 1986 instalment contracts 16,000 Value assigned and repossessed Goods 9,000 Give all of the entries for 1985, 1986 and 1987 that are required in recording instalment sales, collections, defaults and repossession and the recognition of Gross profit. (I/S = 11,250) (I/S = 28,937.5) (I/S = 49,775) Q#17: Plan. Raheel House uses the instalment basis of recognizing Gross profit for sales made on the instalment 1980: Sold for Rs a television set having a cost of Rs. 900 and received account payment of Rs : Received twelve monthly instalment of Rs. 75/= each. 1982: The customer defaulted on monthly instalment payment, the set was repossessed, and the remaining four instalments were cancelled. The set was estimated to be worth Rs Prepare all journal entries for 1980, 1981 and (I/S = 120) (I/S = 360) (I/S = 90) 8

9 Q#18: Rohail Broadcasting Company sold radio sets on instalment basis for a contract price of Rs. 60,000 which cost Rs. 30,000. Other Details are: 1) Down payment received at 10% of the contract price. 2) Total amount collected from customers (excluding down payment Rs. 36,000). 3) Two customers default on sales amounting to Rs. 600 each after making only the down payments. 4) One set was recovered from the customer and value assigned to it Rs. 300, and the other set was considered at lost. Entries in the General Journal to record the above transactions including adjusting and closing entries. (I/S = 20,760) Q#19: A Television dealer sold sets on the instalment basis for a contract price of Rs. 75,000 which cost Rs. 37,500. Other Details are given as under: 1) Down payment was made 5% of the contract price. 2) Total each collected after the down payment was Rs. 45,000). 3) Two customers default after making only the down payments on a total sales of Rs. 1,500. 4) One radio set was repossessed having a value of Rs. 375, and other radio set was considered irrecoverable. Entries in the General Journal to record the above transactions, including adjusting and closing entries. (I/S = 24,037.50) 9

10 PART B Q#1: Pak furniture Company began business on July 1, On June 30, 1969, its Balance Sheet included the following account balances, among others. Instalment Accounts Receivable Rs. 62,400 Deferred Gross profit on instalment sales Rs. 26,208 During the year ended June 30, 1970 the company made sales on the instalment basis totaling Rs. 188,500. The cost of Merchandise sold on the instalment basis was Rs. 113,100. The following amounts were collected on Instalment Contract during the year ended June 30, YEAR OF SALES AMOUNT COLLECTED Year ended June 30, 1969 Rs. 50,200 Year ended June 30, 1970 Rs. 96,400 Instalment Contracts adjusting in the year ended June 30, 1969 with balance totaling Rs. 6,600 were determined to be uncollectible and the Merchandise was repossessed. All the date of repossession these Merchandise had an estimated value at Rs. 3,250. Prepare journal entries to record all transactions and adjusting entries relating to the instalment sales during the year ended June 30, (I/S = 59,066) Q#2: Ather Trader began business on January 1, On January 1, 1981, its Balance Sheet included the following accounts. Instalment Accounts Receivable Rs. 50,800 Unrealized Gross profit 1980 Rs. 20,320 During the year ended December 31, 1981 the company made sales on the instalment basis totaling Rs. 460,000. The cost of Merchandise sold on the instalment basis was Rs. 299,000. The following amounts were collected on Instalment Contract during the year ended December 31, DEFAULTS: Unpaid balance of 1980 instalment contracts Rs. 7,000 Value assigned to repossessed goods Rs. 4,500 Unpaid balance of 1981 instalment contracts Rs. 5,000 Value assigned to repossessed goods Rs. 3,300 Prepare journal entries to record all transactions and adjusting entries relating to the instalment sales during the year ended December 31, (I/S = 117,850) Q#3: The following data relates to instalment Account Receivable of various year: Instalment A/R of 1975 collected in 1978 Rs. 60,000 Instalment A/R of 1976 collected in 1978 Rs. 80,000 Instalment A/R of 1977 collected in 1978 Rs. 120,000 Instalment A/R of 1978 collected in 1978 Rs. 160,000 10

11 The ratio of cost to instalment sales is as under: Instalment Accounts Receivable % Instalment Accounts Receivable % Instalment Accounts Receivable % Instalment Accounts Receivable % Give all the general entries to record the instalment sales related transactions for the year 1978 assuming the unrealized gross profit for the year 1978 before adjustment amounted to Rs. 200,000. (I/S = 144,000) Q#4: The following data collected from the book of Indus Trading Company on December 31, Cash collections during the year of 1983 Instalment Accounts Receivable of 1980 Rs. 50,000 Instalment Accounts Receivable of 1981 Rs. 70,000 Instalment Accounts Receivable of 1982 Rs. 100,000 Instalment Accounts Receivable of 1983 Rs. 180,000 The ratio of cost to Instalment Sales is as under: Cost of instalment sales % Cost of instalment sales % Cost of instalment sales % Other Informations: Merchandise Inventory ( ) Rs. 60,000 Merchandise Inventory ( ) Rs. 35,000 Purchase Merchandise on account Rs. 200,000 Selling & Administrative expenses paid Rs. 29,000 Give all the general entries to record the instalment sales related transactions for the year 1983 assuming the unrealized gross profit for the year 1983 before adjustment amounted to Rs. 150,000. (I/S = 120,000) 11

12 Q#5: The Umair Sales Company accounts for instalment sales on the instalment basis. On January 1, 1984, the customer accounts included the following balances. Instalment Accounts Receivable 1982 Rs. 40,000 Instalment Accounts Receivable 1983 Rs. 90,000 Deferred Gross profit 1982 Rs. 16,000 Deferred Gross profit 1983 Rs. 36,000 December 31, 1984, the account balances, before adjustment for realized gross profit on instalment sales are: Instalment Accounts Receivable 1982 Rs. 10,000 Instalment Accounts Receivable 1983 Rs. 50,000 Instalment Accounts Receivable 1984 Rs. 128,000 Deferred Gross profit 1982 Rs. 16,000 Deferred Gross profit 1983 Rs. 36,000 Instalment Sales 1984 Rs. 240,000 Cost of instalment sales 1984 Rs. 144,000 (a) Statement showing collections in 1984 on Instalment accounts of each year. (b) Give all general journal entries including closing and adjusting entries for (I/S = 72,800) Q#6: The Uzair Trading Company accounts for instalment sales on the instalment basis. On January 1, 1983, the customer accounts included the following balances. Instalment Accounts Receivable 1981 Rs. 60,000 Instalment Accounts Receivable 1982 Rs. 100,000 Deferred Gross profit 1981 Rs. 18,000 Deferred Gross profit 1982 Rs. 32,000 December 31, 1983, the account balances, before adjustment for realized gross profit on instalment sales are: Instalment Accounts Receivable 1981 Rs. 15,000 Instalment Accounts Receivable 1982 Rs. 30,000 Instalment Accounts Receivable 1983 Rs. 120,000 Unrealized Gross profit 1981 Rs. 18,000 Unrealized Gross profit 1982 Rs. 32,000 Instalment Sales 1983 Rs. 300,000 Cost of instalment sales 1983 Rs. 195,000 Selling & General Expense Rs. 21,000 (a) Statement showing collections in 1983 on Instalment accounts of each year. (b) Give all general journal entries including closing and adjusting entries for (I/S = 77,900) 12

13 Q#7: Nasir & Company accounts for instalment sales by reporting income in the proportion of the collections the selling price. On December 31, 1982 his books show account balances as follows: YEAR INSTALMENT A/R PERCENTAGE OF NREALIZED GROSS PROFIT DECEMBER 31, 1982 ABOVE COST DECEMBER 31, Rs. 1,000 30% 7, Rs. 11,571 45% 10, Rs. 35,000 40% 20,000 Give the entry to adjust the unrealized Gross profit accounts at end of Q#8: YEAR PERCENTAGE OF INSTALMENT A/R COLLECTED INSTALMENT A/R GROSS PROFIT ON JAN. 1, 1973 DURING 1973 ON DEC. 31, % Rs. 60,000 Rs. 60,000 Nil % Rs. 120,000 Rs. 48,000 Rs. 72, % Rs. 120,000 Rs. 300,000 Prepare all journal entries for 1973 from the data above, including those required for the recognition of Gross Profit at the end of the year. (I/S = 52,080) Q#9: Noor Zada & Company accounts for instalment sales by reporting income in the proportion of the collections to the selling price. On December 31, 1972, his books show accounts balances as follows: INSTALMENT RECEIVABLE UNREALIZED GROSS PROFIT 1970 Rs. 15, Rs. 12, Rs. 60, Rs. 39, Rs. 135, Rs. 157,000 The Gross Profit rates were 1970: 35%, 1971: 30%, 1972: 40% (a) How much collected in 1972 from Accounts Receivable of each year. (b) What adjusting entries are required of December 31, (I/S = 131,000) 13

14 Q#10: Muhammad Farroque & Company accounts for instalment sales by reporting income in the proportion of the collections to the selling price. On December 31, 1967, his books show accounts balances as follows: INSTALMENT RECEIVABLE UNREALIZED GROSS PROFIT 1965 Rs. 10, Rs. 8, Rs. 40, Rs. 27, Rs. 90, Rs. 105,000 The Gross Profit rates were 1965: 35%, 1966: 30%, 1967: 40% (a) How much collected in 1967 from Accounts Receivable of each year. (b) What adjusting entries are required of December 31, (I/S = 88,550) Q#11: On July 31, 1967 Shabbir sold property that had cost him Rs. 60,000 for Rs. 75,000. He received Rs. 10,000 as down payment; the balance is payable in monthly instalment, with the first payment due at the end of August 31. Monthly payments are sum consisting of Rs. 400 to apply against the principal plus interest on the unpaid balance at 6% per annum. Shabbir decided to report profit on the instalment basis. What entries would be made for the sale, for the receipts of instalment with interest at the end of each month for the recognized of profit for (I/S = 5,755) Q#12: On July 1, 1969, the Shariq Autos sold 10 Suzuki cars on instalment basis at Rs. 13,500 each, cost being Rs. 11,475 each. The terms of sale were: 1) Rs. 3,500 should be paid at the time of signing the agreement. 2) The balance should be paid in 20 quarterly instalment of Rs. 500 each. The first instalment is payable on September 30, The interest at 8% should be paid on the balance and be paid along with the instalment amount. Give all entries, including adjusting and closing entries for the year ended December 31, (I/S = 10,650) Q#13: On April 1, 1981 Qamar Autos sold one car to Ansar Ahmed for Rs. 15,000 which cost Rs. 12,000. The agreement provides: 1) Down payment Rs. 3,000. 2) The balance to be paid in 6 equal instalments; carrying interest at 6% on unpaid balance. 3) Instalment are payable quarterly and the first instalment is payable on June 30. Mr. Ansar Ahmed has paid three instalments in 1981 together with interest. Give all entries, including adjusting and closing entries for the year ended December 31, (I/S = 2,250) Q#14: On January 1, 1970, the Indus Autos sold four rikshaws of 6,000 each, payment was made Rs. 6,000 as down payment and the balance in 3 annual instalment of Rs. 6,

15 The rate of interest was charged on the unpaid balance at 5%. The instalment is payable on December 31 each years. The cost of the rikshaws was Rs. 20,000. Entries in the General Journal of Indus Autos for the year 1970, 1971 and (I/S = 2900) (I/S = 1600) (I/S = 1300) Q#15: Nasir Traders sold on March 31, 1980, ten T.V. sets for Rs. 48,000 costing Rs. 30,000 receiving a down payment of Rs and the same is in equal monthly instalments. Interest is also allowed on the unpaid balance at ½ of 1% a month. The customers pay the instalments regularly upto May, The customers of two T.V. sets defaults after making payment of May 1980 instalment. The sets are repossessed having a market price of Rs Give the necessary journal entries in proper form on the books of Nasir Traders to record the above transactions on March 31, April 30, and May 31, 1980, under instalment method. Give the adjusting and closing journal entries also. (I/S = 6,908) 15

B.COM II ADVANCED ACCOUNTING

B.COM II ADVANCED ACCOUNTING The workings under the heading of Additional Working are not required according to the requirement of the examiner. These are only for understanding the solutions. For more help, visit www.a4accounting.net