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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
The accountant has prepared the following analysis of cash receipts for the year:
P265,000
65,000
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
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.
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