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CHAPTER 1

Partnership Formation and Operations


EXERCISES
Exercise 1 1
1.a

Campos, Capital
Allowance for Uncollectible Accounts

14,000

Goodwill
Campos, Capital

30,000

Accumulated Depreciation
Campos, Capital
Furniture and Fixtures

1.b

6,000
6,500

Campos, Capital
Cash

40,000

Cash (P83,500 x 1/2)


Tomas, Capital
To record contributions of Tomas

41,750

Req. 2.

14,000
30,000

12,500
40,000
41,750

Campos and Tomas Partnership


Statement of financial Position
July 1, 2008
Assets

Cash
Accounts Recl
Less Allowance for
Uncol Accts.
Inventory
Furniture
Goodwill
TOTAL ASSETS

P60,000
24,000

P41,750
36,000
100,000
7,500
30,000
P215.250

Liabilities & Owners Equity

Accounts Payable
Campos, Capital
Tomas, Capital

P90,000
83,500
41,750

________

TOTAL LIABILITIES &


OWNERS EQUITY

P215,250

Exercise 1-2
1.

Cash
Accounts Receivable
Merchandise Inventory
Equipment
Allowance for Uncollectible Accounts
Accounts Payable
Notes Payable
Bernal, Capital

90,000
36,000
54,000
25,000

2,000
21,000
18,000
164,000

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2.

Cash
Camino, Capital

100,000

100,000

Exercise 1 3
1.

2.

Cash
Land
Building
Legaspi, Capital
Sabino, Capital

800,000
540,000
900,000

Cash
Land
Building
Legaspi, Capital
Sabino, Capital

800,000
540,000
900,000

800,000
1,440,000

1,120,000
1,120,000

Exercise 1 - 4
1.

Income Summary
Santos, Capital (P238,000 x 260/425)
Abad, Capital (P238,000 x 165/425)

238,000

2.

Income Summary
Santos, Capital (P238,000 x 3,125/5,000)
Abad, Capital (P238,000 x 1,875/5,000)

238,000

3.

Santos:
Jan. 1 Mar. 31
Apr. 1 Apr. 30
May 1 July 31
Aug. 1 Dec. 31

P260,000 x 3
290,000 x 1
360,000 x 3
320,000 x 5

P780,000
290,000
1,080,000
1,600,000
P3,750,000/12

Abad:
Jan. 1 May 31
June 1 Aug. 31
Sept.1 Dec. 31

P165,000 x 5
215,000 x 3
195,000 x 4

P825,000
645,000
780,000
P2,250,000/12

Income Summary
Santos, Capital
Abad, Capital
Interest on ave. capital
Salaries to partners
Balance - equally
Net Profit

Abad
P
11,250
100,000
( 21,000)
P
90,250

148,750
89,250

P312,500

P187,500
238,000

Santos
P 18,750
150,000
( 21,000)
P 147,750

145,600
92,400

Total
P 30,000
250,000
(42,000)
P238 000

147,750
90,250

AA 1 - Chapter 1 (2008 edition)


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4.

Income Summary
Santos, Capital
Abad, Capital

238,000

Bonus to Santos
25% (P238,000 - B)
Interest of 6% on excess
average investment
6% (P312,500 - P187,500)
Balance - 3:2
Net Profit

5.

Santos

Abad

Total

P 47,600
7,500
109,740
P 164,840

164,840
73,160

P 47,600

73,160
P73,160

Income Summary
Santos, Capital (P238,000 x 15/25)
Abad, Capital (P238,000 x 10/25)

7,500
182,900
P238,000

238,000

142,800
95,200

Exercise 1 5

Sanchez and Gomez


Schedule of Distribution of Net Profit
December 31, 2008
Sanchez
Gomez
6% interest on average capital
P 6,246
P 14.440
10% bonus on net profit after interest
8,331
Salaries
20,000
30,000
Balance 70%, 30%
17,488
7,495
Net Profit
P52,065
P51,935
Computation of average capital:
Sanchez, Capital
Jan. 1
P81,600 x 3
P 244,800
Apr. 1
P111,600 x 9
1,004,400
P1,249,200
Ave. capital (P1,249,200/12)

P104,100

Jan. 1
Aug. 1

Total
P 20,686
8,331
50,000
24,983
P104,000

Gomez, Capital
P224,000 x 7
P1,568,000
P264,000 x 5
1,320,000
P2,888,000

Ave. capital (P2,888,000/12)

P240,667

Computation of bonus: P160,000 x 65%= P104,000 P20,686 x 10% = P8,331


2.

Capital, January 1
Additional investment
Net profit
Drawings
Capital, December 31

Sanchez and Gomez


Statement of Partners Capital
For the Year Ended December 31, 2008
Sanchez
P 81,600
30,000
52,065
( 41,600)
P122,065

Gomez
P224,000
40,000
51,935
( 41,600)
P274,335

Total
P305,600
70,000
104,000
( 83,200)
P396,400

AA 1 - Chapter 1 (2008 edition)


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3.

Sanchez
P 6,246
8,331
34,083
P48,660

Gomez
P14.440
40,000
P 55,340

Total
P 20,686
8,331
74,983
P104,000

8% interest on beg capital


Salaries
Balance 3:2
Net Profit

Mercado
P 48,000
225,000
( 38,700)
P234,300

Puzon
P 54.000
112,500
( 25,800)
P140,700

Total
P102,000
337,500
( 64,500)
P375,000

8% interest on beg capital


Balance Salary ratio
Net Profit

Mercado
P 48,000
182,000
P230,000

Puzon
P 54.000
91,000
P145,000

Total
P102,000
273,000
P375,000

6% interest on average capital


10% bonus on net profit after interest
Balance Salary ratio
Net Profit

Exercise 1-6
1.

2.

3.

Puzon P375,000 x 2/3 = P150,000; however, minimum guaranteed amount is P160,000


Mercado P375,000 P160,000 = P215,000

Exercise 1 7
Net profit after salary, interest and bonus
Interest
P200,000 x 10%
Salary
P8,000 x 12
Net profit before interest and salary
Bonus rate
Amount of bonus to Lirio
Exercise 1 8
1.

B = .25 x P500,000 = P125,000

2.

B = .25 x P500,000 = P100,000


1.25

3.

B
T
B
B

= .25 (P500,000 - Tax)


= .35 x P500,000 = P175,000
= .25 (P500,000 P175,000)
= P 81,250

4.

B
B
B
B
B

= .25 (P500,000 - B - Tax)


= .25 (P50,0000 - B - P175,000)
= P81,250 - .25B
= P81,250/1.25
= P65,000

P20,000
96,000

P374,000
116,000
P490,000
x 25%
P122,500

AA 1 - Chapter 1 (2008 edition)


page 5

Exercise 1 - 9
1.

Estrella
Felipe
Salary
P40,000
P20,000
Bonus
6,000
4,000
Interest
10,000
9,000
Balance
26,900
26,900
Total
P82,900
P59,900
*B = 5% (P210,000 B) = P10,000
2.
Estrella
Felipe
Salary
P40,000
P20,000
Interest
10,000
9,000
Balance
( 43,100)
( 43,100)
Total
P 6,900
(P 14,100)
3.

Estrella
Interest
P10,000
Bonus
6,000
Salary
25,067
Total
P41,067
*P37,600 x 4/ 6 = P25,067;

Garcia
P 4,000
26,900
P30,900

Jimenez
P 9,400
26,900
P36,300

Garcia

Jimenez

P 4,000
( 43,100)
(P39,100)

P 9,400
( 43,100)
(P33,700)

Felipe
Garcia
P 9,000
P 4,000
4,000
12,533
_______
P25,533
P 4,000
P37,600 x 2/ 6 = P12,533

Jimenez
P 9,400
________
P 9,400

Total
P 60,000
10,000*
32,400
107,600
P210,000
Total
P 60,000
32,400
(172,400)
(P 80,000)
Total
P 32,400
10,000
37,600*
P 80,000

Exercise 1-10
1.

2.

Fees Earned
Joseph, Capital
Luis, Capital
Operating Expenses
Income Summary

750,000
50,000

Income Summary
Joseph Capital
Luis, Capital
Nicolas, Capital

500,000

200,000
100,000
500,000
150,000
250,000
100,000

Exercise 1 11
1.
Capital balances before payment
of cash
Required capital balances based on
on profit and loss ratio
Cash received (paid)

Benito

Cabral

Duenas

Total

P120,000

P100,000

P100,000

P320,000

128,000
(P 8,000)

112,000
(P 12,000)

80,000
P 20,000

320,000
-

AA 1 - Chapter 1 (2008 edition)


page 6

Journal entry on the partnership books


Duenas, Capital
Benito, Capital
Cabral, Capital

20,000

8,000
12,000

2.

Benito
Cabral
Duenas
Total
Capital balances before additional
cash investment
P120,000
P100,000
P100,000
P320,000
Required capital balances based on
lowest possible cash investment*
160,000
140,000
100,000
400,000
Required additional cash investment P 40,000
P 40,000
P 80,000
* P120,000/40% = P300,000; P100,000/35% = P285,174; P100,000/25% = P400,000
Journal entry on the partnership books
Cash
Benito, Capital
Cabral, Capital

80,000

3.
Capital balances
Required capital
Additional investment(withdrawals)

Benito
P120,000
120,000
--------

Cabral
P100,000
105,000
5,000

Duenas, Capital
Cash
Cabral, Capital
Exercise 1 12

Duenas
Total
P100,000 P320,000
75,000
300,000
(P 25,000) P 20,000
25,000

20,000
5,000

Enriquez and Flores


Schedule Showing Adjustments in Capital
For the Year Ended December 31, 2008

Reported net profit


Adjustments:
Equipment purchased charged to expense
Depreciation on equipment
Overstatement of 2008 ending inventory
Corrected net profit

40,000
40,000

P400,000
P200,000
( 20,000)
( 24,000)
P156,000
x 65%

101,400
P501,400

AA 1 - Chapter 1 (2008 edition)


page 7

Distribution of 2008 net profit


Salaries
Interest
Balance
Distribution of 2008 corrected net profit
Salaries
Interest
Balance
Adjustments
2.

Flores
P120,000
45,000
34,000
P199,000

Total
P240,000
75,000
85,000
P400,000

P120,000
30,000
111,840
P261,840
P 60,840

P120,000
45,000
74,560
P239,560
P 40,560

P240,000
75,000
186,400
P501,400
P101,400

Equipment
Enriquez, Capital
Flores, Capital
Accumulated Depreciation
Inventory
Income Tax Payable

Problem 1 1
1.

Enriquez
P120,000
30,000
51,000
P201,000

200,000

PROBLEMS

a.

Merchandise, Inventory
Ruiz, Capital

60,000

b.

Ruiz, Capital
Allowance for Uncollectible Accounts

30,000

c.

Interest Receivable
Ruiz, Capital
P150,000 x 6% x 2/12 = P1,500

1,500

d.

Ruiz, Capital
Interest Payable
P300,000 x 10% x 3/12 = P7,500

7,500

e.

Accumulated Depreciation
Ruiz, Capital
Furniture and Fixtures

f.

Office Supplies
Ruiz, Capital

g.

Cash
Santos, Capital

60,840
40,560
20,000
24,000
54,600

180,000
60,000
5,000
524,500

60,000
30,000
1,500

7,500

240,000
5,000
524,500

AA 1 - Chapter 1 (2008 edition)


page 8

Ruiz and Santos


Statement of Financial Position
December 1, 2008
Assets
Cash
Notes Receivable
Accounts Receivable
Less Allowance for Uncollectible Accounts
Interest Receivable
Merchandise Inventory
Office Supplies
Furniture and Fixtures
Total Assets
Liabilities and Capital
Notes Payable
Accounts Payable
Interest Payable
Total Liabilities
Ruiz, Capital
Santos, Capital
Total Capital
Total Liabilities and Capital

P900,000
90,000

P300,000
630,000
7,500
P1,049,000
524,500

P 764,500
150,000
810,000
1,500
300,000
5,000
480,000
P2,511,000

P 937,500
1,573,500
P2,511,000

Problem 1-2
1.

2.

Cash
Merchandise Inventory
Tomas, Capital

518,000
1,152,000

Accounts Receivable
Merchandise Inventory
Office Equipment
Goodwill
Allowance for Uncollectible Accounts
Accounts Payable
Vicente, Capital

1,792,000
256,000
160,000
198,000

1,670,000

160,000
576,000
1,670,000

Tomas and Vicente


Statement of Financial Position
June 1, 2008
Assets
Cash
Accounts Receivable
Less Allowance for Uncollectible Accounts
Inventories
Office Equipment
Goodwill
Total Assets

P1,792,000
160,000

P 518,000
1,632,000
1,408,000
160,000
198,000
P3,916,000

AA 1 - Chapter 1 (2008 edition)


page 9

Accounts Payable
Tomas, Capital
Vicente, Capital
Total Liabilities and Capital

Liabilities and Capital


P1,670,000
1,670,000

P 576,000
3,340,000
P3,916,000

Problem 1 3
1.

2.

Merchandise Inventory
Goodwill
Accumulated Depreciation
Allowance for Uncollectible Accounts
Equipment
Rosas, Capital

3,000
3,000
900

Cash
Accounts Receivable
Merchandise Inventory
Equipment
Furniture and Fixtures
Goodwill
Allowance for Uncollectible Accounts
Accounts Payable
Perlas, Capital

5,000
46,000
108,000
12,000
9,000
3,000

Cash
Accounts Receivable
Merchandise Inventory
Equipment
Furniture and Fixtures
Goodwill
Allowance for Uncollectible Accounts
Accounts Payable
Perlas, Capital

5,000
46,000
108,000
12,000
9,000
3,000

Cash
Accounts Receivable
Merchandise Inventory
Equipment
Goodwill
Allowance for Uncollectible Accounts
Accounts Payable
Rosas, Capital

7,000
49,000
75,000
7,000
3,000

Problem 1 4
1.
Cash
Inventories
Equipment
Notes Payable
Serrano, Capital

900,000
1,500,000
3,000,000

1,000
2,000
3,900

4,000
54,000
125,000

4,000
54,000
125,000

5,000
36,000
100,000

1,050,000
4,350,000

AA 1 - Chapter 1 (2008 edition)


page 10

Cash
Land
Mortgage Payable
Torres, Capital

600,000
6,000,000

Torres, Capital
Serrano, Capital

150,000

Purchases
Accounts Payable

900,000

Accounts Payable
Cash

720,000

Mortgage Payable
Interest Expense
Cash

300,000
120,000

Notes Payable
Interest Expense
Cash

225,000
75,000

Accounts Receivable
Sales

3,450,000

Cash
Accounts Receivable

3,150,000

Selling and General Expenses


Cash
Accumulated Depreciation
Accrued expenses

870,000

Serrano, Drawing
Torres, Drawing
Cash

351,000
351,000

Income Tax
Income Tax Payable

204,750

Inventories, end
Sales
Inventories, beginning
Purchases
Selling and General Expenses
Interest Expense
Income Tax
Income Summary

600,000
3,450,000

1,950,000
4,650,000
150,000
900,000
720,000

420,000

300,000
3,450,000
3,150,000
630,000
150,000
90,000

702,000
204,750

1,500,000
900,000
870,000
195,000
204,750
380,250

AA 1 - Chapter 1 (2008 edition)


page 11

Income Summary
Serrano, Capital
Torres, Capital

380,250

Interest on beginning capital


Salaries
Remainder 60%, 40%
Net Profit

Serrano

P180,000
150,000
( 137,850)
P192,150

Torres

P180,000
100,000
( 91,900)
P188,100

Serrano, Capital
Torres, Capital
Serrano, Drawing
Torres, Drawing

192,150
188,100

Total

P360,000
250,000
( 229,750)
P380,250

351,000
351,000

351,000
351,000

Serrano and Torres Partnership


Statement of Recognized Income and Expenses
For the Year Ended December 31, 2008
Sales
Cost of Goods Sold:
Inventories, beginning
Purchases
Cost of Goods Available for Sale
Less Inventories, end
Gross Profit
Selling and General Expenses
Operating Income
Interest Expense
Net Profit before Income Tax
Income Tax
Net Profit

P3,450,000
P1,500,000
900,000
P2,400,000
600,000

1,800,000
P1,650,000
870,000
P 780,000
195,000
P 585,000
204,750
P 380,250

Serrano and Torres Partnership


Statement of Financial Position
December 31, 2008
Assets
Current Assets:
Cash
Accounts Receivable (P3,450,000 P3,150,000)
Inventories
Property, Plant and Equipment:
Land
Equipment
P3,000,000
Less Accumulated Depreciation
150,000
Total Assets

P1,878,000
300,000
600,000

P 2,778,000

P6,000,000
2,850,000

8,850,000
P11,628,000

AA 1 - Chapter 1 (2008 edition)


page 12

Liabilities
Current Liabilities:
Accounts Payable (P900,000 P720,000)
Accrued Expenses
Income Tax Payable
Long-term Liabilities:
Notes Payable (P1,050,000 P225,000)
Mortgage Payable (P1,950,000 P300,000)
Total Liabilities
Serrano, Capital
Torres, Capital
Total Capital

P180,000
90,000
204,750
P 825,000
1,650,000

Capital

474,750

2,475,000
P 2,949,750

P4,341,150
4,337,100
8,678,250
P11,628,000

Total Liabilities and Capital


Problem 1 - 5

1. P2,700,000 (P200,000 + P1,100,000 + P500,000 + P1,500,000 P600,000 = P2,700,000)


2 P2,600,000. (P2,500,000 + P2,700,000) / 2 = P2,600,000
Problem 1 6
1.

Income Summary
Bernabe, Capital
Burgos, Capital
Interest on beg. capital
Balance 3:1
Net Profit

2.

Income Summary
Bernabe, Capital
Burgos, Capital
Salaries
Interest on end capital
Balance Equally
Net Profit

3.

Income Summary
Bernabe, Capital
Burgos, Capital
Salaries
Interest on average. cap
Balance 3:1
Net Profit

700,000
Bernabe
P 28,800
477,000
P 505,800

Burgos
35,200
159,000
P 194,200
P

Total
P 64,000
636,000
P700 000
700,000

Bernabe
P 140,000
48,000
96,000
P 284,000

Burgos
P 260,000
60,000
96,000
P 416,000

Total
P400,000
P108,000
96,000
P700 000
700,000

Bernabe
P 90,000
49,000
255,150
P 394,150

Burgos
P 170,000
50,800
85,050
P 305,850

Total
P260,000
99,800
340,200
P700 000

505,800
194,200

284,000
416,000

394,150
305,850

AA 1 - Chapter 1 (2008 edition)


page 13

4.

Bernabe:
Jan. 1 May 31
June 1 Oct. 31
Nov, 1 Dec. 31

P360,000 x 5
460,000 x 5
400,000 x 2

P1,800,000
2,300,000
800,000
P4,900,000/12

P408,333

Burgos:
Jan. 1 June 30
July 1 Oct. 31
Nov.1 Dec. 31

P440,000 x 6
360,000 x 4
500,000 x 2

P2,640,000
1,440,000
1,000,000
P5,080,000/12

P423,333

Income Summary
Bernabe, Capital
Burgos, Capital
Salaries
Interest on average. cap
Balance 40%, 60%
Net Profit

5.

Income Summary
Bernabe, Capital
Burgos, Capital
Salaries
Interest on beg. cap
Bonus
Balance 2:3
Net Profit
B = 10%(NI S I)

Problem 1 7
1.

2.

3.

6% interest on capital
Salaries
Balance 5:3:2
Net Profit

700,000
Bernabe
P 100,000
40,833
126,734
P 267,567

Burgos
P 200,000
42,333
190,100
P 432,433

Total
P300,000
83,166
316,834
P700 000
700,000

Bernabe
P 100,000
28,800
43,600
156,960
P 329,360

Sandy
P 16,800
( 74,500)
P(57,700)

6% interest on capital
Salaries
Balance 5:3:2
Net Profit

P 16,800

6% interest on capital
Salaries
Bonus
Balance 5:3:2
Net Profit

P 16,800

( 32,000)
P( 15,200)

56,250
P 73,050

Burgos
P 100,000
35,200
235,440
P 370,640

Total
P220,000
64,000
43,600
392,400
P700 000

267,567
432,433

329,360
370,640

Tammy
P 12,000
48,000
( 44,700)
P 15,300

Manny
P 7,200
40,000
( 29,800)
P 17,400

Total
P 36,000
88,000
(149,000)
P(25,000)

P 12,000
48,000
( 19,200)
P 40,800

P 7,200
40,000
( 12,800)
P 34,400

P 36,000
88,000
( 64,000)
P 60,000

P 12,000
48,000
13,500
33,750
P107,250

P 7,200
40,000

P 36,000
88,000
13,500
112,500
P250,000

22,500
P 69,700

AA 1 - Chapter 1 (2008 edition)


page 14

B = (P250,000 P36,000 P88,000 P72,000)25% = P13,500


Problem 1 - 8
1.

2.

5% interest on capital
Salaries
20% bonus on net profit
Balance capital ratio
Net Profit

Delmar
P 2,500
12,000
22,100
40,250
P76,850

Pilar
P 1,500
8,000
24,150
P33,650

Sales
Cost of Goods Sold
Operating Expenses
Income Taxes
Income Summary

480,000

Income Summary
Delmar, Capital
Pilar, Capital

110,500

Delmar, Capital
Pilar, Capital
Delmar, Drawing
Pilar, Drawing

6,000
10,000

Total
P 4,000
20,000
22,100
64,400
P110,500
210,000
100,000
59,500
110,500
76,850
33,650

6,000
10,000

Delmar and Pilar Company


Statement of Changes in Partners Capital
For the Year Ended December 31, 2008
Capital balances, January 1, 2008
Add Distribution of net income for 2008:
Interests
Salaries
Bonus
Balance - capital ratio
Total share in net profit
Total
Less Drawings
Capital balances, December 31, 2008

Delmar
P 50,000

Pilar
P30,000

Total
P 80,000

P 2,500
12,000
22,100
40,250
P 76,850

P 1,500
8,000
24,150
P33,650

P 4,000
20,000
22,100
64,400
P110,500

P126,850
6,000
P120,850

P63,650
10,000
P53,650

P190,500
16,000
P174,500

AA 1 - Chapter 1 (2008 edition)


page 15

Problem 1 - 9
Ramos, Gonzales and Martinez
Statement of Changes in Partners Capital
For Three Years Ended December 31, 2008
Capital, January 1, 2006
Distribution of net loss (Sch. 1)
Withdrawals
Capital, December 31, 2006
Distribution of net profit (Sch. 2)
Withdrawals
Capital, December 31, 2007
Distribution of net profit (Sch. 3)
Withdrawals
Capital, December 31, 2008

Ramos
P 80,000
( 2,000)
(12,000)
P 66,000
7,960
(13,960)
P 60,000
21,840
(20,400)
P 61,440

Gonzales
P 48,000
( 1,520)
(14,480)
P 32,000
8,320
(16,320)
P 24,000
18,840
(24,000)
P 18,840

Martinez
P 40,000
( 2,000)
(16,000)
P 22,000
7,720
(17,720)
P12,000
18,120
(21,200)
P 8,920

Total
P 168,000
( 5,520)
(42,480)
P120,000
24,000
(48,000)
P 96,000
58,800
(65,600)
P 89,200

Gonzales
P 12,000
2,880
(16,400)
P( 1,520)

Martinez
P 12,000
2,400
(16,400)
P( 2,000)

Total
P 33,600
10,080
P 49,200
P( 5,520)

Gonzales
P 12,000
1,920
( 5,600)
P 8,320

Martinez
P 12,000
1,320
( 5,600)
P 7,720

Total
P 33,600
7,200
(16,800)
P 24,000

Gonzales
P 12,000
1,440

Martinez
P 12,000
720

5,400
18,840

5,400
18,120

Total
P 33,600
5,760
3,240
16,200
58,800

Schedule 1 - Distribution of 2006 net loss


Salaries to partners
Interest of 6% on beg. Capital
Balance equally
Net income

Ramos
P 9,600
4,800
(16,400)
P( 2,000)

Schedule 2 - Distribution of 2007 net profit


Salaries to partners
Interest of 6% on beg. Capital
Balance equally
Net income

Ramos
P 9,600
3,960
( 5,600)
P 7,960

Schedule 3 - Distribution of 2008 net profit


Salaries to partners
Interest of 6% on beg. Capital
Bonus - 20% (P58,800 - P39,360 - B)
Balance equally
Net income

Ramos
P 9,600
3,600
3,240
5,400
21,840

AA 1 - Chapter 1 (2008 edition)


page 16

Problem 1 -10

Robles, Bernal and Reyes


Statement of Partners Capital
For the Year Ended December 31, 2008
Robles

Capital balances before closing


the nominal accounts
Add Distribution of net profit:
Drawing allowance
Interest on average capital
Balance - 60%, 30%, 10%
Total
Deduct Cash distribution
Capital, December 31, 2008

Bernal

Reyes

Total

P120,000

P ( 2,000)

P20,000

P138,000

20,000
7,200
58,800
P206,000
122,720
P 83,280

14,000
240
29,400
P41,640

10,000
560
9,800
P40,360
26,480
P13,880

44,000
8,000
98,000
P288,000
149,200
P138,800

P41,640

P206,000 / 60% = P343,333;


P40,360 / 10% = P403,600
P41,640 / 30% = P138,800 (required total capital)
Problem 1 - 11

Chavez, Roman, and Valdez


Statement of Changes in Partners Capital
January 1 to November 1, 2008

Beginning balances
Loan from Chavez
Transfer of equipment to Valdez
Balances
Distribution of loss on realization*
Salary to Valdez
Int. to Chavez for 7 months
Balance divided equally*
Balances
Dist. of cash in final settlement

Chavez
Loan

Chavez
Capital
P 80,000

Roman
Capital
P 80,000

Valdez
Capital
P 80,000

P 60,000

P 80,000

P 80,000

( 16,000)
P 64,000

P 60,000
60,000

2,100
( 76,700)
P 5,400
5,400

P 60,000

*Total partners equity as shown above


Less Cash available for distribution
Loss on realization
Less Salary and interest
Total loss to be divided equally

24,000
( 76,700)
P 3,300
3,300

( 76,700)
P 11,300
11,300

P284,000
80,000
P204,000
26,100
P230,100

Total
P240,000
60,000
( 16,000)
P284,000
24,000
2,100
( 230,100)
P 80,000
80,000

AA 1 - Chapter 1 (2008 edition)


page 17

Problem 1 - 12

Canlas, David, Estrella and Fajardo


Statement of Changes in Partners Capital Accounts
For the Year Ended December 31, 2008

Investment
Net profit
Total
Less: Excess rent (P225 x 6)
Withdrawals
Uncollectible accounts
Capital, December 31

Canlas
P309,000
237,700
P546,700

David
P159,000
186,230
P345,230

P 78,000
18,000
P 96,000
P450,700

P 66,000
6,750
P 72,750
P272,480

Estrella
P327,000
140,310
P467,310
P 13,500
87,000

Fajardo
------P 24,010
P 24,010

P100,500
P366,810

P 37,500
P(13,490)

Total
P 795,000
588,250
P1,383,250
P 13,500
268,500
24,750
P 306,750
P1,076,500

P 37,500

Supporting computations:
Revenue from fees
Expenses:
Total expenses, excluding depreciation and uncollectible
accounts (P290,000 - P13,500)
Depreciation [(P195,000 x 10%) + (P75,000 x 5%)
Doubtful accounts (P24,000 x 50%)
Net profit

P 900,000
P 276,500
23,250
12,000

311,750
P588,250

Distribution of net income


20% of gross fees from respective
clients
20% of fees after April 1 after
expenses but before bad debts
Balance -Canlas-40%, David-35%,
Estrella-25%
Total

Canlas
P 66,000

171,700
P237,700

David
P 36,000

150,230
P186,230

Estrella

Fajardo

P 33,000

107,310
P140,310

Total
P135,000

P24,010*

24,010

P24,010

429,240
P588,250

Revenues
Expenses before uncollectible accounts (P276,500 + P23,250) x 180 / 900
Share of Fajardo

After April 1
P 180,000
59,950
P120,050
20%
P 24,010

Problem 1-13
1.

Equipment
Accumulated Depreciation
Profit and Loss

13,500

1,350
12,150

AA 1 - Chapter 1 (2008 edition)


page 18

2.

Profit and Loss


Interest Payable
P87,500 x 6% x 10/12 = P4,375

3.

Profit and Loss


Abaya, Capital
Reyes, Capital

4,375

159,025

Salaries
Bonus [25% x (NI B S) ]
Balance equally
Total
4.

4,375

Abaya
P 39,000
24,610
P 63,610

Reyes
P 58,500
12,305
24,610
P 95,415

Abaya, Capital
Reyes, Capital
Abaya, Drawing
Reyes, Drawing

63,700
95,505

Total
P 97,500
12,305
49,220
P159,025
36,000
62,500

36,000
62,500

Problem 1-14

1.

Jaime = 5/10 x 80% = 40%


Madrid = 3/10 x 80% = 24%

2.

Corrected net income = P250,000 (P12,000 P31,000 P20,000 + P15,000 + P9,000 x


65%) = P240,250
Jaime = P240,250 x 40% = P96,100
Madrid = P240,250 x 24% = P57,660

Soriano = 2/10 x 80% = 16%


Matias = 20%

Soriano = P240,250 x 16% = P38,440


Matias = P240,250 x 20% = P48,050

MULTIPLE CHOICE
1.
2.
3.
4.

D
D
A
C
Abena MV Cost (P90,000 P60,000)
Buendia MV Cost (P60,000 P70,000)
Actual
Inequity

5.
6.
7.
8.

A
C
B
B

Molinas contribution (P190,000 P60,000)


Nuevos tangible contribution
Total capital contributions

Total
P30,000
( 10,000)
P20,000
( 20,000)
P 0

Abena
(60%)
P18,000
( 6,000)
P12,000
( 30,000)
(P18,000)

Buendia
(40%)
P12,000
( 4,000)
P 8,000
10,000
P18,000

P130,000
100,000
P230,000

AA 1 - Chapter 1 (2008 edition)


page 19

x 60%
P 138,000
130,000
P
8,000

Capital credit of Molina


Contribution of Molina
Bonus to Molina
9.

Roxas = P596,250 - P5,550 = P590,700


Bernardo = P335,000 - P4,050 - P9,000 = P321,950

10.

Roxas = (P590,700 + P321,950) x 60% = P547,590


Bernardo = (P590,700 + P321,950) x 40% = P365,060

11.

Roxas = P650,000 P590,700 = P59,300


Bernardo = P400,000 P321,950 = P78,050

12.

Bruno = P150,000 - P90,000 = P60,000

13.

Total assets = Total liab. + Total capital


= P25,000 + P300,000 = P325,000

14.

Cash contribution = (P248,850 x 1/3) P50,000 = P32,950

15

Total capital = (P158,400 + P17,500 P5,000 P5,000) 2/3 = P248,850

16.

Required capital of Esteban (P287,500 x 60%)


Non-cash contributions of Esteban (P125,000 P30,000)
Cash contribution

P172,500
95,000
P 77,500

17.

Contribution of Diaz
Contribution of Esteban (P125,000 P30,000 + P50,000)
Total partnership capital

P115,000
145,000
P260,000

18.

P115,000 + P95,000 = P210,000/2

P105,000

19.

Net increase (decrease) in capital


Add Withdrawals
Total
Less Additional investments
Profit share
Profit share percentage
Total partnership net profit

(P120,000)
260,000
(P140,000)
50,000
P 90,000
30%
P300,000

20.
21.
22.

C
B
C

Net profit (exclusive of salary, interest and bonus)


Salary (P2,000 x 12)
Interest (P50,000 x 5%)
Net profit after deduction of bonus
Bonus = .20 (P120,000 + Bonus) = P24,000 + .20 Bonus
= P24,000/.80 = P30,000

P 93,500
24,000
2,500
P120,000

AA 1 - Chapter 1 (2008 edition)


page 20

23.
24.

25.

26.

27.

28.

29.

10% x P1,000,000
20% x P1,500,000
5% (P1M P400,000)
Balance equally
Net income

Interest
Salaries
Balance equally

Bonus - 10%(P44,000 - B)
Interest on capital
in excess of P100,000
Salaries to partners
Balance - 4:4:2

Bonus - 10%(P22,000 - B)
Interest on capital
in excess of P100,000
Salaries to partners
Balance - 4:4:2

Bonus - 10%(P22,000 - B)
Interest on capital
in excess of P100,000
Balance Salary ratio

Alberto
P 100,000
300,000
680,000
P1,080,000

Ramos
P24,000
60,000
( 70,000)
P14,000
Sison

P10,000
6,800
Sison

P10,000
(1,200)
Sison

P8,636

Average capital of Tamayo


P100,000 x 6 = P 600,000
160,000 x 6 = 960,000
P1,560,000/12
P130,000

Bustos

Cancio

P30,000
680,000

P30,000
680,000

Campos
P12,000
40,000
(70,000)
Torres
P 1,000
6,800
Torres
P 1,000
(1,200)
Torres
P 1,000

Ocampo
P 8,000

Total
P 100,000
300,000
60,000
2,040,000
Total
P 44,000
100,000
( 210,000)

( 70,000)
Velasco
P 4,000

Total
P 4,000

12,000
3,400
P19,400

1,000
22,000
17,000
P44,000

Velasco
P 2,000

Total
P 2,000

12,000
(600)
P13,400

1,000
22,000
(3,000)
P22,000

Velasco
P 2,000

Total
P 2,000

10,364
P12,364

1,000
19,000
P22,000

Average capital of Vidal


P225,000 x 9 = P2,025,000
155,000 x 3 = 465,000
P2,490,000/12
P207,500

Average capital of Banson - P150,000


Total int. on ave. capital= (P130,000 + P207,500 + P150,000) 10%
= P48,750

AA 1 - Chapter 1 (2008 edition)


page 21

30.

Interest on ave. capital


Salaries to partners
Balance - divided equally

31.

Total capital before net income


(P475,000 + P60,000 P70,000)
Add Net profit
Total capital, Dec. 31, 2008

32.

Andal
P 47,250
122,325
(139,308)
P 30,267

33.

Int. on average capital


Salaries to partners
Balance - equally
Net increase (decrease)

P 48,750
144,000
9,000
P 201,750

35.
36.
37.

D
A
A

38.

Briones
P 23,865
(139,308)
P(115,443)

Camba
P 16,235
82,625
(139,308)
P( 40,448)

Net income = Net sales - CGS - Depr. - Oper. exp. Others)


= P228,000 - P123,000 - P7,500 - P58,100 x 65%
Mariano
P10,000
1,561
8,781
P 20,342

Salary to partner for 10 mos.


Bonus to managing partner
Balance based on orig. cap.
TOTAL share in profit
34.

P465,000
201,750
P666,750

TOTAL share in profit


Add Capital, beginning
TOTAL
Less Withdrawals
Capital, end
Interest
Salaries
Balance
Addl profit
for Edna
Net profit
Salaries
Bonus
Interest
Balance
Total

Belen

P 20,342
125,000
P145,342
20,000
P125,342
Lorna

P25,610

Lucas

total
P 10,000
1,561
14,049
P 25,610

P 5,268
P 5,268
P 5,268
75,000
P 80,268
30,000
P 50,268

Ursula

Total
P 87,350
204,950
(417,924)
P(125,624)

P 25,610
200,000
P 225,610
50,000
P 175,610

Edna

P 2,500.00
6,000.00
10,000.00

P 2,500.00
6,666.67

6,666.67

P12,000.00
16,000.00
33,333.34

________
P25,000.00

________
P18,500.00

_________
P9,166.67

3,333.33
P12,000.00

3,333.33
P64,666.67

Puno
P40,000
13,000
1,000
7,000
P61,000

P2,000.00

Total

P 5,000.00
10,000.00
10,000.00

Quirino
P36,000

Romero
P13,650

750
7,000
P43,750

4,600
7,000
P25,200

Total
P 89,650
13,000
6,350
21,000
P130,000

AA 1 - Chapter 1 (2008 edition)


page 22

Computation of average capital:


Puno, capital
Jan. 1 P10,000 x 3
Apr 1 - 9,000 x 3
July 1 - 11,000 x 3
Oct. 1 - 10,000 x 3
Quirino, capital
Jan. 1 P 6,000 x 6
July 1 - 10,000 x 3
Oct. 1 - 8,000 x 3
Romero, capital
Jan. 1 P40,000 x 3
Apr. 1 - 38,000 x 3
July 1 - 53,000 x 6

P 30,000
27,000
33,000
30,000

P120,000 / 12

P10,000

P 36,000
30,000
24,000
P 90,000 / 12

P 7,500

P120,000
114,000
318,000
P552,00 / 12

P46,000

Let X = Net Income


P40,000 + 10% X + P1,000 + 1/3 (X P89,650 10% X P6,350 = P61,000
P40,000 + 10% X + P1,000 + 1/3 (90% X P96,000) = P61,000
P40,000 + 10% X + P1,000 + 30% X P32,000 = P61,000
10% X + 30% X = P61,000 P40,000 P1,000 + P32,000
40% X = P52,000
X = P130,000
39.

Legarda- 5/10 x 80% = 40%


Madrigal-3/10 x 80% = 24%

Sotto - 2/10 x 80% = 16%


Pimentel 20%

40.

Share of Legarda = P25,000 ( P1,200 - P3,100 - P2,000 + P1,500 + P


900 x 65%) = P24,025 x 40% = P9,610

41.

Serrano

2008 Net income


(P50,000 P8,000)
Salary to Serrano
Remainder
Divided equally

P42,000
( 36,000)
P 6,000
( 6,000)

Understatement in 2007 NI
Divided 60:40

P8,000
( 8,000)

Income allocation

Toledo

P36,000
3,000

P 3,000

4,800

3,200

P43,800

P 6,200

CHAPTER 2
Partnership Dissolution
EXERCISES
Exercise 2 1
1.

Sales, Capital
Rosales, Capital

140,000

2.

P280,000 + P320,000 + P200,000 = P800,000

140,000

Exercise 2 2
1.

Total capital (P3,000,000 / 80%)


Capital interest of Fidel
Cash to be contributed by Fidel

2.

Cash
Fidel, Capital

P3,750,000
x 20%
P 750,000
750,000

750,000

Exercise 2 3

1.
2.

3.

Centeno, Capital
Corales, Capital

40,000

Other Assets
Cortes, Capital
Centeno, Capital
Claudio, Capital
P140,000/ = P560,000 (P200,000 + P 160,000 + P120,000)

80,000

Cortes, Capital P200,000 + P50,000 x 1/4


Centeno, Capital P160,000 + P20,000 x 1/4
Claudio, Capital P120,000 + P10,000 x 1/4
Corales, Capital

62,500
45,000
32,500

Cash

Cortez, Capital
Centeno, Capital
Claudio, Capital
Corales, Capital
old (3/4)
new (1/4)

230,000

AC
P532,500
177500
P710,000

CC
P480,000
230,000
P710,000

Bonus_
P52,500
(52,500)
P---0---

40,000
50,000
20,000
10,000

140,000
32,812
13,125
6,563
177,500

AA 1 - Chapter 2 (2008 edition)


page 2

Exercise 2 4

1.

2.

3.

Conde, Capital
Cuenco, Capital
Catral, Capital
Other Assets
Conde, Capital
Cuenco, Capital

360,000

Conde, Capital P270,000 + 270,000 x 1/3


Cuenco, Capital P180,000 + P90,000 x 1/3
Catral, Capital

180,000
90,000

Cash

270,000

Conde, Capital
Cuenco, Capital
Catral, Capital
old (3/4)
new (1/4)

4.

Cash
Other Assets
Conde, Capital
Cuenco, Capital
Catral, Capital
old (3/4)
new (1/4)

5.

90,000
60,000

AC
P540,000
180,000
P720,000

CC
P450,000
270,000
P720,000

Bonus_
P90,000
(90,000)
P---0---

150,000
270,000
90,000

270,000
67,500
22,500
180,000

270,000
360,000

AC
P 810,000
270,000
P1,080,000

CC
P450,000
270,000
P720,000

Asset Re
P360,000
P360,000

Cash
Conde, Capital
Cuenco, Capital
Catral, Capital

270,000
67,500
22,500

360,000

Exercise 2-5
1a. Bonus Method
Cash
Alba, Capital
Medel, Capital
Almeda, Capital
old (3/4)
new (1/4)

180,000
6,000
9,000
AC
P585,000
195,000
P780,000

CC
P600,000
180,000
P780,000

Bonus_
P(15,000)
15,000
P---0---

195,000

270,000
90,000
270,000

AA 1 - Chapter 2 (2008 edition)


page 3

1b.

Revaluation of Assets Method (AC = P180,000 1/4 = P720,000)


Alba, Capital (P60,000 x 40%)
Medel, Capital (P60,000 x 60%)
Other Assets (P780,000 - P720,000)
To record revaluation of assets

24,000
36,000

Cash
Almeda, Capital
2.

180,000

60,000

180,000

Balances under the bonus method

Alba
P194,000

Medel
P391,000

Almeda
P195,000

Balances under the asset rev. method


Additional depreciation
Balances after depreciation

P200,000
(
6,666)
P193,334

P400,000
(
6,667)
P393,333

P200,000
(
6,667)
P193,333

Net advantage to Medel using the asset revaluation method

P 2,333

Exercise 2 - 6
1.

Garces, Capital
Kalaw, Capital
P120,000 x 1/2 = P60,000

60,000

2.

Cash
Other Assets (P400,000 P320,000)
Kalaw, Capital
Garces, Capital (P100,000 x 3/8)
Hilario, Capital (P100,000 x 3/8)
Juan, Capital (P100,000 x 2/8)
Total agreed capital
Total capital contribution
Asset revaluation

60,000
80,000

P400,000
320,000
P 80,000

Interest acquired from Garces


Cash invested in the partnership
Total
Capital credit of Kalaw
Bonus to old partners
Exercise 2 7
Bonus method
Capital before admission of Estacio
Contribution of Estacio
Bonus to old partners
Capital after admission of Estacio

60,000

40,000
37,500
37,500
25,000

P 60,000
60,000
P 120,000
100,000
P 20,000

Sabado
P1,000,000

Galman
P800,000

24,000
P1,024,000

16,000
P816,000

Estacio
P500,000
( 40,000)
P460,000

Total
P1,800,000
500,000
P2,300,000

AA 1 - Chapter 2 (2008 edition)


page 4

Asset Revaluation method


Capital before admission of Estacio
Contribution of Estacio
Adjustment of fixed assets to fair value
Capital after admission of Estacio
Exercise 2 8
1. Bonus method
Capital balances before admission
of new partners
Contributions of new partners
Bonus to old partners
Capital balances after admission
of new partners

Sabado
P1,000,000

Galman
P800,000

120,000
P1,120,000

80,000
P880,000

Noble

Calma

P64,000

P136,000

10,950

25,550

P74,950

P161,550

Reyes

Capital balances before admission


of new partners
Adjustment of assets to FV
Contributions of new partners
Capital balances after admission
of new partners

P500,000
P500,000

Total
P1,800,000
500,000
200,000
P2,500,000

Naval

P110,000
( 24,000)

P120,000
( 12,500)

P86,000

P107,500

Cash
Equipment
Noble, Capital
Calma, Capital
Reyes, Capital
Naval, Capital
2. Asset Revaluation method

Estacio

130,000
100,000

Noble

Calma

P64,000
9,000

P136,000
21,000

P73,000

P157,000

Cash
Equipment
Inventory
Land
Building
Noble, Capital
Calma, Capital
Reyes, Capital
Naval, Capital
Exercise 2 - 9
1a.
Bonus Method
Songco, Capital
Bueno, Capital
Manzano, Capital
Cash/Payable to Songco

Reyes

Total
P200,000
230,000
P430,000

10,950
25,550
86,000
107,500

Naval

Total

P110,000

P120,000

P200,000
30,000
230,000

P110,000

P120,000

P460,000

130,000
84,000
14,000
80,000

200,000
60,000
40,000

48,000
9,000
21,000
110,000
120,000

300,000

AA 1 - Chapter 2 (2008 edition)


page 5

1b.

Asset Revaluation Method


Songco, Capital
Other Assets (P10,000 1/6)
Bueno, Capital (P50,000 x 3/5)
Manzano, Capital
(P50,000 x 2/5)
Cash/ Payable to Songco

200,000
600,000

2. The bonus method will be preferred by Manzano


Capital of Manzano after retirement
Additional depreciation
Capital of Manzano after additional depreciation
Net advantage to Manzano with the use of the bonus
method

300,000
200,000
300,000

Bonus Method
P260,000
P260,000

Asset Rev
P500,000
300,000
P200,000

P60,000

Exercise 2 10

1.

2.

3.

Delfin, Capital
Damian, Capital
Dencio, Capital

400,000

Delfin, Capital
Cash
Damian, Capital
Dencio, Capital

400,000

Other Assets
Delfin, Capital
Cash
Damian, Capital
Dencio, Capital
P460,000 P400,000 = P60,000/ 1/3 = P180,000

180,000
400,000

Exercise 2 11

1.

Guzman, Capital January 1


Drawing
Share in net profit
Interest of Guzman upon retirement

Other Assets
Guzman, Capital
Cash
Jorge, Capital
Lopez, Capital
P120,000 P108,000 = P12,000/ 30% = P40,000

200,000
200,000
320,000
40,000
40,000

460,000
60,000
60,000

P100,000
(16,000)
24,000
P108,000
40,000
108,000

120,000
12,000
16,000

AA 1 - Chapter 2 (2008 edition)


page 6

2.

Guzman, Capital
Jorge, Capital
Lopez, Capital
Cash

108,000
5,143
6,857

120,000

Exercise 2 12
1.

2.

Building
Villa, Capital
Belen, Capital
Marcos, Capital
Cordero, Capital

200,000

Belen, Capital
Cash

140,000

Villa, Capital
Belen, Capital
Marcos, Capital
Cordero, Capital
Cash

15,000
100,000
20,000
5,000

60,000
40,000
80,000
20,000
140,000

140,000

Exercise 2 - 13
1.

Galang, Capital
Henio, Capital
Israel, Capital
Cash

12,000
8,000
140,000

2.

Israel, Capital
Galang, Capital

140,000

3.

Israel, Capital
Cash
Galang, Capital
Henio, Capital

140,000

4.

Other Assets
Israel, Capital
Cash
Galang, Capital
Henio, Capital

48,000
140,000

Israel, Capital
Galang, Capital
Henio, Capital
Cash
Other Assets

140 000
60,000
40,000

5.

160,000
140,000
130,000
6,000
4,000

148,000
24,000
16,000

120,000
120,000

AA 1 - Chapter 2 (2008 edition)


page 7

6.

Israel, Capital
Henio, Capital

140,000

140,000

PROBLEMS
Problem 2 - 1
1.

2.

3.

4.

5.

6.

Locsin, Capital (P240,000 x 1/4)


Montes, Capital (P120,000 x 1/4)
Nava, Capital

60,000
30,000

Locsin, Capital (P240,000 x 1/3)


Montes, Capital (P120,000 x 1/3)
Nava, Capital

80,000
40,000

Other Assets
Locsin, Capital (P180,000 x 3/4)
Montes, Capital (P180,000 x 1/4)
P540,000 P360,000 = P180,000

180,000

Locsin, Capital [(P240,000 + P135,000) 1/3]


Montes, Capital [(P120,000 + P45,000) 1/3]
Nava, Capital

125,000
55,000

Cash
Locsin, Capital (P90,000 x 3/4)
Montes, Capital (P90,000 x 1/4)
Nava, Capital
AC
old (1/2)
270,000
new (1/2)
270,000
540,000

180,000
67,500
22,500
CC
360,000
180,000
540,000

Cash
Other Assets
Nava, Capital
Locsin, Capital
(P60,000 x 3/4)
Montes, Capital (P60,000 x 1/4)
AC
CC
old (3/4)
540,000
360,000
new (1/4)
180,000
180,000
720,000*
540,000
*180,000 1/4 = 720,000
Cash
Nava, Capital
Locsin, Capital (P60,000 x 3/4)
Montes, Capital (P60,000 x 1/4)

Bonus
(90,000)
90,000
----180,000
180,000

Asset Rev
180,000
----180,000
240,000

90,000

120,000
135,000
45,000

180,000

270,000

180,000
135,000
45,000

180,000
45,000
15,000

AA 1 - Chapter 2 (2008 edition)


page 8

7.

Cash
Locsin, Capital
Montes, Capital
Nava, Capital

240,000
54,000
18,000

8.

Cash
Locsin, Capital (P22,500 x 3/4)
Montes, Capital (P22,500 x 1/4)
Nava, Capital
(P510,000 x 1/4)

150,000

9.

Cash
Other Assetsl (P660,000 P525,000)
Locsin, Capital (P135,000 x 3/4)
Montes, Capital (P135,000 x 1/4)
Nava, Capital
(P660,000 x 1/4)

165,000
135,000

Cash
Locsin, Capital (P24,000 x 3/4)
Montes, Capital (P24,000 x 1/4)
Nava, Capital (P504,000 x 1/3)

144,000
18,000
6,000

10

Problem 2 - 2
1.
a. Ponce, Capital (P300,000 x )
Anton, Capital
b.

c.

Ponce, Capital (P300,000 x )


Salva, Capital (P200,000 x )
Victa, Capital (P100,000 x )
Anton, Capital
Cash
Ponce, Capital
Salva, Capital
Victa, Capital
Anton, Capital
Ponce
Salva
Victa
Anton

2.
a.

150,000
75,000
50,000
25,000
220,000

AC
P307,500
204,500
103,000
205,000
P820,000

Other Assets
Ponce, Capital
Salva, Capital
Victa, Capital
P960,000 P600,000 = P360,000

CC
P300,000
200,000
100,000
220,000
P820,000

Bonus
P 7,500
4,500
3,000
( 15,000)
-----360,000

312,000
16,875
5,625
127,500

101,250
33,750
165,000

168,000

150,000

150,000
7,500
4,500
3,000
205,000

180,000
108,000
72,000

AA 1 - Chapter 2 (2008 edition)


page 9

b.

c.

Ponce, Capital
Anton, Capital

240,000

Other Assets
Ponce, Capital
Salva, Capital
Victa, Capital
P180,000/ 25% = P720,000 P600,000 = P120,000

120,000

Ponce, Capital
Salva, Capital
Victa, Capital
Anton, Capital

90,000
59,000
31,000

Other Assets
Ponce, Capital
Salva, Capital
Victa, Capital
P220,000/ 25% = P880,000 P820,000 = P60,000

60,000

Cash
Anton, Capital
Problem 2-3
1.a
Cash
Cabral, Capital
Corpus, Capital
Carlos, Capital
Other Assets
Camus, Capital
old (3/4)
new (1/4)

b.

Cash
Cabral, Capital
Corpus, Capital
Carlos, Capital
Camus, Capital
old (1/2)
new (1/2)

2.a

Cabral, Capital
Corpus, Capital
Carlos, Capital
Camus, Capital

220,000

90,000
22,500
18,000
4,500
AC
630,000
90,000
720,000*

CC
675,000
90,000
765,000

Asset Rev
(45,000)
----(45,000)
90,000
2,813
2,250
562

AC
669,375
95,625
765,000

CC
675,000
90,000
765,000

Bonus
(5,625)
5,625
----40,500
27,000
16,875

240,000
60,000
36,000
24,000

180,000
30,000
18,000
12,000

220,000

45,000
90,000

95,625

84,375

AA 1 - Chapter 2 (2008 edition)


page 10

b.

Other Assets
Cabral, Capital
Corpus, Capital
Carlos, Capital
P90,000/ 1/8 = P720,000 P675,000 = P45,000

45,000

Cabral, Capital
Corpus, Capital
Carlos, Capital
Camus, Capital

43,312
29,250
17,438

Problem 2 - 4
1. a.
Inventories
Accumulated Depreciation Equipment
Allowance for Doubtful Accounts
Accrued Liabilities
Roces, Capital (P6,750 x 60/100)
Lapuz, Capital (P6,750 x 40/100)
b.
c.

2.

5,625
7,500

Cash
Doria, Capital
P187,500/80% = P234,375 x 20% = P46,875
Lapuz, Capital
Roces, Capital
Roces = (P234,375 x 50%) P103,800 = P13,388
Lapuz = (P234,375 x 30%) - P83,400 = (P13,388)

Problem 2 -5
Bal.before admission of Moreno
Transfer of 1/6 int. to Moreno
Investment of Moreno
Asset revaluation
Bonus to old partners
Capital balances after admission
of Moreno

13,388

90,000

3,450
2,925
4,050
2,700
46,875
13,388

Roces, Lapuz and Doria


Statement of Financial Position
April 1, 2008

ASSETS
Cash
Receivables
P69,000
Less Allow. for DA
3,450
Inventories
Equipment
P52,500
Less Acc. Depr.
26,250
TOTAL ASSETS

46,875

22,500
18,000
4,500

LIABILITIES and PARTNERS CAPITAL


P 82,875 Payables
P66,750
Accrued Liabilities
2,925
65,550 Roces, Capital
P117,188
129,375 Lapuz, Capital
70,312
Doria, Capital
46,875
234,375
26,250
________
TOTAL LIABILITIES and
P304,050
PARTNERS CAPITAL
P304,050

Roldan
P150,000

Angeles
P180,000
(30,000)

Lazaro
P300,000

6,000
6,000

6,000
6,000

8,000
8,000

P162,000

P162,000

P316,000

Moreno
P 30,000
150,000
(20,000)
P160,000

Total
P630,000
150,000
20,000
P800,000

AA 1 - Chapter 2 (2008 edition)


page 11

2.

Roldan 30% x 75%


Angeles 30% x 75%
Lazaro 40% x 75%
Moreno

=
=
=

22.5%
22.5%
30%
25%

Problem 2 6
1.

2.

3.

4.

Lazo, Capital
Madrid, Capital
Buildings
Allowance for Doubtful Accounts
Allowance for Valuation of Investments

19,000
19.000

Lazo, Capital
Madrid, Capital
Nuguid, Capital
(P200,000 P19,000 + P19,000 P20,000) 1/3 = P60,000
(P150,000 P19,000 + P19,000 P14,000) 1/3 = P45,333

60,000
45,333

8,000
20,000
10,000

105,333

Capital balances before admission of Nuguid


Revaluation of assets
Capital balances after revaluation
Fraction of interest transferred to Nuguid
Interest transferred to Nuguid
Gain on transfer
Cash distribution to partners

Lazo
P199,000
( 19,000)
P180,000
x 1/3
P 60,000
31,138
P 91,138

Madrid
P155,000
( 19,000)
P136,000
x 1/3
P 45,333
23,529
P 68,862

Total
P354,000
( 39,000)
P316,000
x 1/3
P105,333
54,667
P160,000

Capital balances before admission of Nuguid


Revaluation of assets
Interest transferred to Nuguid
Balances
Share in net profit
Drawings
Capital balances, December 31, 2008

Lazo
P199,000
( 19,000)
( 60,000)
P120,000
18,000
( 15,000)
P123,000

Madrid
P155,000
( 19,000)
( 45,333)
P 90,667
18,000
( 12,000)
P 96,667

Nuguid

Cash
Accounts Receivable
Investments
Accounts Payable
Osorio, Capital
Lazo, Capital
Madrid, Capital
Nuguid, Capital
Osorio, Capital

P315,000 + P85,000 = P400,000 x 1/4 P100,000 P85,000 = P15,000

66,000
40,000
20,000

5,000
5,000
5,000

105,333
P105,333
18,000
( 28,000)
P 95,333

41,000
85,000

15,000

AA 1 - Chapter 2 (2008 edition)


page 12

Problem 2 - 7
1.

Montero, Capital
Concio, Capital (P8,000 x 3/5)
Domino, Capital (P8,000 x 2/5)
Cash

100,000
4,800
3,200

2.

Montero, Capital
Concio, Capital (P10,000 x 3/5)
Domino, Capital (P10,000 x 2/5)
Cash

100,000

3.

Montero, Capital
Concio, Capital
(P60,000 x 3/6)
Domino, Capital (P60,000 x 2/6)
Cash
Other Assets (P10,000 1/6)

100,000
30,000
20,000

4.

Montero, Capital (P6,000 x 1/6)


Concio, Capital (P6,000 x 3/6)
Domino, Capital (P6,000 x 2/6)
Equipment
[(P60,000 x 40%) P18,000]
Montero, Capital
Equipment
Cash

1,000
3,000
2,000

(P100,000 P1,000)

99,000

108,000
6,000
4,000
90,000

90,000
60,000

6,000
18,000
81,000

Problem 2-8
1.

2.

3. a

Capital, January 1, 2008


Share in net loss
Drawings
Capital balances, December 31, 2008
Dangwa, Capital
Dmaso, Capital
Datu, Capital
Cash
Inventory
P39,600 P30,000 = P9,600 / 20% = P48,000
Other Assets
Dangwa, Capital
Cash
Damaso, Capital
Datu, Capital
P48,000 P39,600 = P8,400/ 20% = P42,000

Damaso
P120,000
( 9,600)
( 24,000)
P 86,400

Dangwa
P 70,000
( 6,400)
( 24,000)
P 39,600
39,600
14,400
24,000

Datu
P 80,000
( 16,000)
( 24,000)
P 40,000

30,000
48,000
42,000
39,600

48,000
12,600
21,000

AA 1 - Chapter 2 (2008 edition)


page 13

Dangwa, Capital
Damaso, Capital
Datu, Capital
Cash

39,600
3,150
5,250

48,000

Problem 2 - 9
1.

Cash
Luna, Capital
Matias, Capital
Noble, Capital
Guzman, Capital
Old
New

2.

Cash
Luna, Capital
Matias, Capital
Noble, Capital
Other Assets
Guzman, Capital
Old
New

120,000
2,000
2,000
2,000
AC
P294,000
126,000
P420,000

CC
P300,000
120,000
P420,000

Bonus
P( 6,000)
6,000
---60,000
20,000
20,000
20,000

AC
P240,000
60,000
P300,000

CC
P300,000
60,000
P360,000

Asset Rev
(P60,000)

126,000

60,000
60,000

(P60,000)

3.

Matias, Capital
Guzman, Capital
P120,000 x 30% = P36,000

36,000

4.

Luna, Capital
Matias, Capital
Noble, Capital
Cash

80,000
8,000
8,000

5.

Luna, Capital
David, Capital

80,000

6.

Luna, Capital
Matias, Capital
Noble, Capital

80,000

36,000

96,000
80,000

40,000
40,000

AA 1 - Chapter 2 (2008 edition)


page 14

Problem 2 -10

Canda, Pardo and Andres


Statement of Changes in Partners Equity
For the Period January 1, 2006 to January 1, 2009

Original capital, January 1, 2006


Corrected 2006 net profit
Drawings
Capital, January 1, 2007
Corrected 2007 net profit
Drawings
Capital, January 1, 2008
Corrected 2008 net loss
Drawings
Capital, January 1, 2009

Canda
P 62,500
26,375
(15,000)
P 73,875
10,875
(15,000)
P 69,750
( 6,750)
(10,000)
P 53,000

Schedule of computation of corrected net profit


Reported net profit (loss)
Understatement of accrued expenses
Understatement of accrued revenues
Overstatement of inventories
Understatement of depreciation exp.
Corrected net profit (loss)
2.

a.

b.

c.

2006
2007
2008
2006
2007
2008
2006
2007
2008

Pardo
P 25,000
10,550
( 7,800)
P 27,750
4,350
( 7,800)
P 24,300
( 2,700)
( 5,200)
P 16,400
2006
P 44,000
( 400 )
250

Andres
P 12,500
5,275
( 5,200)
P 12,575
2,175
( 5,200)
P 9,550
( 1,350)
( 5,200)
P 3,000
2007
P 18,500
400
( 500 )
(

250 )
100

( 1,500 )

1,500
( 2,000 )

( 150 )
P 42,200

( 350 )
P 17,400

Revenue Receivable
Canda, Capital
Pardo, Capital
Andres, Capital
Expenses Payable
Merchandise Inventory
Accumulated Depreciation

150
2,000
800
400

Canda, Capital (P3,000 x 625/1000)


Pardo, Capital (P3,000 x 250/1000)
Andres, Capital
(P3,000 x 125/1000)
Furniture (P4,500 - P1,500)

1,875
750
375

Andres, Capital
Furniture
Cash

2,625

Total
P 100,000
42,200
( 28,000)
P 114,200
17,400
( 28,000)
P 103,600
( 10,800)
( 20,400)
P 72,400
2008
P (10,500 )
(
(

500
650 )
100 )
150

2,000
( 2,000 )
( 200 )
P (10,800 )

650
2,000
700

3,000
1,500
1,125

AA 1 - Chapter 2 (2008 edition)


page 15

Problem 2 -11
Abelar and Berces
Statement of Changes in Partners Equity
For the Period January 1, 2007 to January 15, 2009
Capital balances before closing the
books, December 31, 2007
Net profit for 2007 (Sch 1)
Drawing
Capital, December 31, 2007
Admission of Custodio (Sch. 2)
Net loss for 2008
Drawings
Capital, December 31, 2008
Loss on realization on Jan. 15, 2009
Final cash distribution

Abelar

Berces

Custodio

Total

P 50,000
6,600
(8,200)
P 48,400
(7,800)
(5,250)
(7,500)
P 27,850
(16,520)
P 11,330

P 30,000
7,400
(6,800)
P 30,600
(5,200)
(3,750)
(5,000)
P 16,650
(11,800)`
P 4,850

P 33,000
(6,000)
(6,800)
P 20,200
(18,880)
P 1,320

P 80,000
14,000
(15,000)
P 79,000
20,000
(15,000)
(19,300)
P 64,700
(47,200)
P 17,500

Abelar_
P 9,000
(2,400)
P 6,600

Berces
P 9,000
(1,600)
P 7,400

Total
P 18,000
( 4,000)
P 14,000

Schedule 1 - Distribution of 2007 net profit


Salaries
Balance - 60%, 40%
Total
Schedule 2 - Admission of Custodio
Total capital contribution (P79,000 + P20,000)
Interest to be credited to Custodio
Capital credit of Custodio
Capital contribution of Custodio
Bonus to Custodio from Abelar and Berces

P 99,000
1/3__
P 33,000
20,000
P 13,000

MULTIPLE CHOICE
1.
2.
3.

B
A
B

4.

Lima
Mitra

5.

Asset revaluationP60,000/20% = P300,000 - P150,000


Lima
= [P100,000 + (P150,000 x 75%)] x 80%
Mitra
= [P 50,000 + (P150,000 x 25%)] x 80%
Nova

P264,000 [(P278,000 + P418,000 + P192,000) x 1/5] = P86,400


=
=

P100,000 x 80% = P80,000


P 50,000 x 80% = P40,000
P150,000
P170,000
P 70,000
P 60,000

AA 1 - Chapter 2 (2008 edition)


page 16

6.

7.
8.
9.
10.

D
C
C
A

11.

12.
13.

D
A

14.

Original investment
Net profit
Drawings
Capital bal . before transfer to Desta
Required capital based on orig. capital
ratio after transfer to Desta of 1/4 int.
Capital to be transferred to Desta
Excess cash to be dist. based on orig.
capital ratio (P30,000 - P18,810)
Distribution of cash to Felix and Elias

Felix
P 24,000
5,430
( 5,050)
P 24,380

Elias
P 48,000
10,860
( 8,000)
P 50,860

Total
P 72,000
16,290
( 13,050)
P 75,240

18,810
P 5,570

37,620
P 13,240

56,430
P 18,810

3,730
P 9,300

7,460
P 20,700

11,190
P 30,000

P90,000 P75,000 = P15,000


Capital of Mison prior to admission of Zamora
Share in the bonus from Zamora [(P90,000 P75,000) 1/2)
Capital of Mison in the new partnership
Voltaire
Asuncion
Leonor

AC
P180,000
210,000
195,000
P585,000

CC
P150,000
180,000
195,000
P525,000

P195,000 (P525,000 x 1/3 = P175,000) = P20,000


Old partners capital contribution
Percentage of interest of old partners
Total agreed capital of the new partnership
Percentage of interest of Sison
Capital credit of Sison
Bonus to Sison
Cash to be contributed by Sison
Capital balances before adm. of Vidal
Asset revaluation
(P180,000/20% ) P840,000 = P60,000
Adjusted capital balances
Percentage of unsold interest
Capital balances after adm. of Vidal

P105,000
7,500
P112,500
Asset Rev
P30,000
30,000
P60,000
P600,000
75%
P800,000
x 25%
P200,000
70,000
P130,000

Rivera
P504,000

Sanchez
P252,000

Torres
P 84,000

36,000
P540,000
x 80%
P432,000

18,000
P270,000
x 80%
P216,000

6,000
P 90,000
x 80%
P 72,000

15.

Total capital of the new partnership (P840,000/75%)


Percentage of interest
Amount to be invested by Vidal in the partnership

16.

Agreed capital
Capital contribution = P95,000 + P80,000 + P60,000 + P80,000 =
Asset revaluation

P1,120,000
x 25%
P 280,000
P330,000
315,000
P 15,000

AA 1 - Chapter 2 (2008 edition)


page 17

17.

P80,000 + P12,000 P70,000 = P22,000

18.

Capital balance before admission of Manalo


Interest sold to Manalo (P80,000 x 15%)
Share in the recorded asset revaluation (P15,000 x 3/10)
Share in the bonus from Manalo
[(P80,000 + P12,000) - P70,000] x 3/10
Capital balance after admission of Manalo

19.

20.

21.

22.

23.

Capital balances, April 30, 2008


1/6 Interest transferred to Magno
Balances
Cash transfers to equalize investment
Balances
Distribution of net profit -equally
Withdrawals
Capital, June 30, 2008

Juan
P 360,000
( 60,000)
P 300,000
( 100,000)
P 200,000
3,150
( 1,500)
P 201,650

P 80,000
(12,000)
4,500
6,600
P 79,100

Cosme
P 225,000
( 37,500)
P 187,500
12,500
P 200,000
3,150
( 2,000)
P 201,150

Luna
P 135,000
( 22,500)
P 112,500
87,500
P 200,000
3,150
( 1,500)
P 201,650

Agreed capital = (P201,650 + P201,150 + P201,650) 3/4 =


Interest of Magno
Required capital credit of Magno
Capital balance of Magno before investing cash
Cash to be invested by Magno
Asset revaluation method:
Capital contributions of partners
Asset revaluation
Additional depreciation
Capital balances
Bonus method:
Capital contributions of partners
Bonus to old partners from new partner
Capital balances
Net advantage of bonus method to Isleta
Capital balance
Uncollectible accounts
Worthless inventories
Other assets written off
Adjusted capital
Total capital P614,476 +P683,052
Total liabilities

Magno
P 120,000
P 120,000
P 120,000
3,150
( 2,000)
P121,150

P805,933
1/4___
P201,483
121,150
P 80,333

Galang

Hizon

Isleta

P600,000
252,000
( 140,000)
P712,000

P480,000
168,000
( 140,000)
P508,000

P500,000

P600,000
63,000
P663,000

P480,000
42,000
P522,000

P500,000
( 105,000)
P395,000
P 35,000

Campos
P641,976
( 20,000)
( 5,500)
( 2,000)
P614,476

Centeno
P728,352
( 35,000)
( 6,700)
( 3,600)
P683,052
P1,297,528
967,590
P2,265,118

( 140,000)
P360,000

AA 1 - Chapter 2 (2008 edition)


page 18

24.

25.

26.

27.
28.
29.
30.
31.
32.

C
C
D
D
D
A

33.

Total capital P1,297,528 / 80%


Interest of Coronel
Contribution of Coronel

P1,621,910
x 20%
P 324,382

Capital balances
Required capital P1,297,528/2
Cash paid (received)

Campos
P614,476
648,764
P 34,288

Centeno
P683,052
648,764
(P34,288)

Campos
P614,476
34,288
130,000
(50,000)
P728,764

Centeno
P683,052
(34,288)
130,000
(65,000)
P713,764

Capital balances
Cash paid (received)
Net profit
Drawings

65,000
(28,000)
P361,382

The capital balances would be the same as the balances prior to sale of interest.
P4,000 x 2/5 = P1,600
P3,000 / 40% = P7,500
P12,000/3 = P4,000
Interest before retirement
Adjustment of assets to FMV
Retirement of Yumul
Capital balance of Ylagan

34.

Coronel
P324,382

Amount paid to retiring partner


Capital of retiring partner
Total capital before retirement
Total capital after retirement
Asset revaluation to retiring partner
Fraction of interest of retiring partner
Total asset revaluation

Yumul
P103,000
12,000
P115,000
(115,000)

Yason
P 77,000
12,000
P 89,000
( 2,000)

Ylagan
P180,000
24,000
P204,000
( 4,000)
P200,000
P28,000

P110,000
90,000

20,000
P 8,000
2/10
P40,000

CHAPTER 3
Partnership Liquidation
EXERCISES
Exercise 3 - 1
Capital balances before liquidation
Loan from partners
Total partners interest
Loss on realization (P46,000 P12,000)
Balances
Additional loss to partners
Balances
Additional loss to partners
Distribution of cash to partners

Aguilar
P 11,000
2,000
P 13,000
(13,600)
P( 600)
600
----------------

Benito
P 10,300

Casimiro
P 13,700

David
P 9,000

P 10,300
( 10,200)
P
100
( 300)
P ( 200)
200
---------

P 13,700
( 6,800)
P 6,900
( 200)
P 6,700
(
133)
6,567

P 9,000
( 3,400)
P 5,600
( 100)
P 5,500
(
67)
5,433

Felipe
P 20,000
7,500
( 10,000)
P 17,500
( 16,250)
P 1,250
( 5,625)
P( 4,375)

Total
P 92,500
30,000
( 35,000)
P 87,500
( 65,000)
P 22,500
( 22,500)
------

Exercise 3 - 2
Original investments
Net income for 2007
Drawings in 2007
Total partners interest before dissolution
Net assets distributed to partners
Balances
Loss to partners distributed 2:1:1
Cash settlement among partners

Duque
P 50,000
15,000
( 15,000)
P 50,000
( 32,500)
P 17,500
( 11,250)
P 6,250

Espino
P 22,500
7,500
( 10,000)
P 20,000
( 16,250)
P 3,750
( 5,625)
P( 1,875)

Exercise 3 - 3
1.

Guarin, Capital
Receivable from Guarin
To offset receivable from Guarin against his capital.

2.

Salary Payable to Henson


Henson, Capital
To include salary payable to Henson to his interest.

3.

Henson, Capital (P24,500 x 40%)


Guarin, Capital (P24,500 x 60%)
Loss from Liquidation
To distribute loss from liquidation to partners.

4.

Henson, Capital (P9,500 + P500 - P9,800)


Guarin, Capital (P18,000 - P1,500 - P14,700)
Cash

1,500

500

9,800
14,700

200
1,800

1,500

500

24,500

2,000

AA1 - Chapter 3 (2008 edition)


2

page

Exercise 3 - 4
1.
Original investment
Net loss for six months*
Loss on realization (P121,000 - P49,000 = P72,000)
Balances
Additional loss to partners
Cash distribution to Ibarra
*

2.

Ibarra
P 60,000
(18,000)
(36,000)
P 6,000
( 1,200)
( 4,800)

Total capital, March 1 (P60,000 + P54,000 + P16,000)


Net assets, Aug. 31 (P5,000 + P121,000 - P32,000)
Net loss

Javier
P 54,000
(12,000)
(24,000)
P 18,000
( 800)
P130,000
94,000
P 36,000

Book value of other assets


Total loss on realization
Capital balance of Katindig after dist. of net loss
Excess of personal liabilities over personal assets
Maximum amount of loss that can be absorbed by Katindig
Fractional share of Katindig
Cash that must be realized on sale of other assets

Exercise 3 5
1.
Book value of other assets (P459,000 P3,000)
Cash realized:
Accounts receivable [P180,000 (P60,000 x 20%)]
Merchandise inventory
Prepaid advertising
Machinery and equipment (P120,000 x 60%)
Loss on realization

Katindig
P 16,000
( 6,000)
(12,000)
P( 2,000)
2,000

P121,000
P 10,000
( 5,000)
P 5,000
1/6__

( 30,000)
P 91,000

P456,000
P168,000
75,000
2,400
72,000

317,400
P138,600

Lesaca Manalo Partnership


Statement of Liquidation
December 31, 2008

Balances before liquidation


Sale of assets and distribution
of loss
Balances
Payment of liabilities
Balances
Additional investment by
Manalo
Balances
Payment of liabilities
Balances
Additional loss to Lesaca
Payment to Lesaca

Cash

P 3,000
317,400
P320,400
( 320,400)
12,000
P 12,000
(
600)
P 11,400
P 11,400

Other
Assets

P456,000
( 456,000)

Liabilities
AP
NP
P60,000

P258,000

Capital
Lesaca

P60,000
( 59,400)
P600

P258,000
( 258,000)

P34,560
( 1,200)
P33,360

(P32,160)
( 1,800)
(P33,960)
12,000

P33,360

(P21,960)

P33,360
( 21,960)
P11,400

(P21,960)
21,960

P
(

600
600)

P90,000
( 55,440)

Manalo

P 51,000
( 83,160)

AA1 - Chapter 3 (2008 edition)


3

Exercise 3 6
Capital balances before liquidation
Restricted interest possible loss
Non-cash assets
P600,000
Liquidation expenses
9,000
Unrecorded liabilities
15,000
Total
P624,000
Balances
Restricted interest possible loss to
Nocum, Oliva and Pascua for the
deficiency of Quinto
Balances
Restricted interest possible loss to
Oliva and Pascua for the deficiency of
Nocum
Safe payment

page

Nocum
P180,000

Oliva
P300,000

Pascua
P240,000

Quinto
(P 33,000)

( 156,000)
P 24,000

( 156,000)
P144,000

( 156,000)
P 84,000

( 156,000)
(P189,000)

( 63,000)
(P 39,000)

( 63,000)
P 81,000

( 63,000)
P 21,000

189,000
-

( 19,500)
P 61,500

( 19,500)
P 1,500

39,000
-

AA1 - Chapter 3 (2008 edition)


4

Exercise 3 - 8

PAYMENTS

page

Rama, Sison and Toledo


Cash Priority Program
Rama
P30,000
20,000
P50,000
40%
P125,000

Capital balances
Add Loan balances
Total partners interest
Profit and loss ratio
Loss absorption balance
Allocation I Cash to Toledo
reducing LAB to an amount
reported for Sison
(P125,000 x 20%)
Balances
P125,000
Allocation II - Cash to
Sison &
Toledo reducing LAB to an amount
reported for Rama
P100,000 x 40%
P100,000 x 20%
Balances
P125,000
Allocation III - Further cash
distribution may be made in the
P & L ratio
Exercise 3-9
1.

Capital balances before liquidation


Add Note payable to Magno
Total partners interest
Profit and loss ratio
Loss absorption balances
Allocation I Cash to Lagman reducing
LAB to an amount reported for Julian
(P60,000 x 3/10)
Balances
Allocation II Cash to Julian & Lagman
reducing LAB to an amount reported for
Magno (P40,000 x 3/10)
Balances
Allocation III Further cash distributions
may be made in the P & L ratio

Sison
P70,000
20,000
P90,000
40%
P225,000

Toledo
P40,000
30,000
P70,000
20%
P350,000

P225,000

(125,000)
P225,000

(100,000)
P125,000

Rama

(100,000)
P125,000

Sison

Toledo

P25,000

P40,000

20,000
P45,000

P40,000

Julian, Lagman and Magno


Cash Priority Program
January 1, 2008
Julian
P 36,000

Lagman
P 54,000

P 36,000
3/10
P120,000

P 54,000
3/10
P180,000

Magno
P18,000
14,000
P 32,000
4/10
P80,000

P120,000

(60,000)
P120,000

P80,000

( 40,000)
P80,000

(40,000)
P80,000

P80,000

Julian

PAYMENTS
Lagman
Magno

P18,000

P12,000
P12,000

12,000
P20,000

AA1 - Chapter 3 (2008 edition)


5

2.

page

Julian, Lagman and Magno


Statement of Liquidation
January to March, 2008

Balances before liquidation


January:
Sale of assets and dist. Of
loss
Payment of liquidation
expenses
Payment of liabilities
Distribution of cash to
partners (sch. 1)
Balances
February:
Sale of assets and
distribution of gain
Payment of liquidation
expenses
Distribution of cash to
partners (sch. 2)
Balances
March:
Sale of assets and
distribution of loss
Balances
Offset of loan against
deficiency
Final payment to partners

Cash
P12,000

Other
Assets
P146,000

30,000

( 38,000)

( 3,600)
( 36,000)
( 2,400)

Liabilities
P36,000

NP to
Magno
P14,000

( 2,400)

( 2,400)

( 3,200)

( 1,080)

(1,080

(1,440)

P32,520

(2,400)
P48,120

P13,360

2,700

2,700

3,600

(2,520)

(2,520)

(3,360)

P14,000

(10,000)
P22,700

(25,600)
P22,700

P13,600

P14,000

(11,100)
P11,600

(11,100)
P11,600

(14,800)
P(1,200)

(P11,600
)

(P11,600
)

(36,000)
P108,000

44,000

P14,000

(35,000)

(8,400)
(35,600)

36,000
P36,000

P73,000
(73,000)

( 1,200)
(P12,800)

(P36,000)

PAYMENTS
Lagman
Magno
P54,000
P18,000

Julian
P36,000

Schedule 1
Installment Liquidation
January 31, 2008
Cash available
Allocation I Payable to Lagman

Amount
P2,400
P2,400

Julian

Lagman

Mango

P2,400

Schedule 2
Installment Liquidation
February 29, 2008
Cash available
Allocation I Balance
Payable to Lagman
Allocation II Payable to Julian and
Lagman

Amount
P2,400

Julian

P2,400
P20,000

Lagman

Mango

P2,400
P10,000
P10,000

10,000
P25,600

1,200

AA1 - Chapter 3 (2008 edition)


6

3. Journal entries
January
Cash
Julian, Capital
Lagman, Capital
Magno, Capital
Other Asset
Julian, Capital
Lagman, Capital
Magno, Capital
Cash
Liabilities
Cash
Lagman, Capital
Cash
February

March

Cash
Other assets
Julian, Capital
Lagman, Capital
Magno, Capital

page

30,000
2,400
2,400
3,200
1,080
1,080
1,440
36,000
2,400
44,000

Julian, Capital
Lagman, Capital
Magno, Capital
Cash

2,520
2,520
3,360

Julian. Capital
Lagman, Capital
Cash

10,000
25,600

Cash
Julian, Capital
Lagman, Capital
Magno, Capital
Other assets

36,000
11,100
11,100
14,800

Note Payable to Magno


Magno, Capital

1,200

Note Payable to Magno


Julian, Capital
Lagman, Capital
Cash

12,800
11,600
11,600

38,000

3,600
36,000
2,400
35,000
2,700
2,700
3,600

8,400

35,600

73,000
1,200

36,000

AA1 - Chapter 3 (2008 edition)


7

Exercise 3 - 10

Capital balances
Profit and loss ratio
Loss absorption balance
Allocation I - Cash to Villa reducing
LAB to an amount reported for
Waldo (P4,900 x 2/7)
Balances
Allocation II - Cash to Villa & Waldo
reducing LAB to an amount
reported for Urbe
P21,000 x 2/7
P21,000 x 1/7
Balances
Allocation III - Further cash distribution
may be made in the P & L ratio

2.

page

U, V and W Co.
Cash Priority Program
Urbe
P 11,200
4/7
P 19,600

Villa
P13,000
2/7
P 45,500

Waldo
P 5,800
1/7
P 40,600

P 19,600

( 4,900)
P 40,600

P 40,600

( 21,000)
P 19,600

Book value of assets


Loss on realization:
Capital balance of Urbe prior to realization
Cash to be received by Urbe
Share of Urbe in the loss on realization
Fractional share of Urbe
Cash to be realized of the sale of assets

P 19,600

PAYMENTS

Urbe

Villa

P 1,400

6,000

(21,000)
P 19,600

P 7,400

P 11,200
10,000
P 1,200
4/7_

2,100
P 27,900

Allocation III - P3,200 4/7 = P5,600 x 1/7


Allocation II
Total cash received by Waldo

4.

Book value of assets


Total cash available
Allocation I
Allocation II - P1,800 - P1,400 = P400 2/3
Loss on liquidation

P 30,000

2.

Accumulated Depreciation
Equipment
Capital Adjustment Account

3.

Goodwill
Capital Adjustment Account
P980,000 P924,000 = P56,000

P 3,000
P 3,000

P 30,000

3.

Exercise 3 11
Partnership Books
1. Inventories
Capital Adjustment Account

Waldo

800
3,000
P 3,800

P 1,400
600

90,000
160,000

56,000

2,000
P 28,000

90,000
80,000
80,000
56,000

AA1 - Chapter 3 (2008 edition)


8

page

4.

Capital Adjustment Account


Belen, Capital (3/4)
Bgnes, Capital (1/4)

226,000

5.

Colored Co. Stocks


Allowance for Uncollectible Accounts
Accounts Payable
Accounts Receivable
Inventories
Equipment
Goodwill

980,000
12,000
104,000

Belen, Capital
Bagnes, Capital
Cash
Colored Co. Stocks

563,500
458,500

6.

169,500
56,500

124,000
296,000
520,000
156,000

42,000
980,000

New Corporations Books


1. Authorized to issue 50,000 shares of P50 par value Ordinary Share Capital.
2.

Cash
Ordinary Share Capital
PIC in Excess of Par

700,000

3.

Accounts Receivable
Inventories
Equipment
Goodwill
Allowance for Doubtful Accounts
Accounts Payable
Ordinary Share Capital
PIC in Excess of Par

124,000
296,000
520,000
156,000

500,000
200,000

12,000
104,000
700,000
280,000

AA1 - Chapter 3 (2008 edition)


9

page

Problem 3 2 (Case 3 cont.)


Calma, Daza and Esteban
Schedule of Cash Distribution to Partners
Capital balances before cash distribution
Add loan balance
Total partners interest
Restricted interest - possible loss to Calma and Esteban
in the ratio of 2:1 if Daza fails to pay his deficiency
Free interests - amounts to be paid to partners
Payment to apply on:
Loan
Capital
Cash distribution

Calma
P 27,000

Daza
P ( 3,000)

P 27,000

P ( 3,000)

( 2,000)
P 25,000
P 25,000
P 25,000

Esteban
P 46,000
8,000
P 54,000

3,000
-

( 1,000)
P 53,000

P 8,000
45,000
P 53,000

AA1 - Chapter 3 Partnership Liquidation (2005)


Suggested Answers

page

Problem 3 2 (Case 4 cont.)


Calma, Daza and Esteban
Schedule of Cash Distribution to Partners
Capital balances before cash distribution
Add loan balance
Total partners interest
Restricted interest - possible loss to Calm and Esteban in
the ratio of 2:1 if Daza fails to pay his deficiency
Balances
Restricted interest - possible loss to Esteban if Calma fails
to pay his deficiency
Free interests - amounts to be paid to partners
Payment to apply on:
Loan
Capital
Cash distribution

Calma
P 9,000

Daza
P (21,000)

P 9,000

P (21,000)

Esteban
P 37,000
8,000
P 45,000

(14,000)

21,000

P( 5,000)

P 38,000

5,000
-

( 5,000)
-

P 8,000
25,000
P 33,000

( 7,000)

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 - 3
1.

a.

Cash
Accumulated Depreciation
Fuentes, Capital (P72,000 x 5/15)
Goco, Capital (P72,000 x 5/15)
Herrera, Capital (P72,000 x 3/15)
Isla, Capital (P72,000 x 2/15)
Merchandise Inventory
Accounts Receivable
Store Fixtures

48,000
25,000
24,000
24,000
14,400
9,600

b.

Accounts Payable
Cash (P28,000 + P48,000)

76,000

c.

Fuentes, Capital
Herrera, Capital
Isla, Capital
Goco, Capital

4,500
2,700
1,800

Fuentes, Capital
Isla, Capital
Herrera, Capital

1,500
600

Fuentes, Loan
Isla, Loan
Fuentes, Capital
Isla, Capital

2,000
3,000

f.

Cash
Fuentes, Capital
Herrera, Capital

6,000

g.

Accounts Payable
Cash

4,000

h.

Isla, Loan
Cash

2,000

a.

Accounts Payable
Fuentes, Capital

4,000

b.

Isla, Loan
Fuentes, Capital
Herrera, Capital

2,000
3,000

d.

e.

2.

55,000
60,000
30,000
76,000

9,000

2,100

2,000
3,000
1,000
5,000
4,000
2,000
4,000

5,000

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 3 (cont.)
3.

a.

Accounts Payable
Herrera, Capital

4,000

b.

Isla, Capital
Fuentes, Capital
Herrera, Capital

2,000

4,000
1,000
1,000

Schedule to support the entries in Requirement 1

Balances before liquidation


Distribution of loss
Balances
Additional loss for the
deficiency of Goco
Balances
Additional loss for the
deficiency of Herrera
Balances
Offset against debit balance
in capital account
Balances
Additional investment by
partners
Payment to Isla

L O A N
Fuentes
Isla
P 2,000
P 5,000

C A P I T A L
Goco
Herrera
P15,000
P10,000
( 24,000) ( 14,400)
P( 9,000) P( 4,400)

P 2,000

P 5,000

Fuentes
P27,000
( 24,000)
P 3,000

P 2,000

P 5,000

( 4,500)
P( 1,500)

9,000
-

( 2,700)
P( 7,100)

( 1,800)
P( 2,400)

P 2,000

P 5,000

( 1,500)
P( 3,000)

2,100
P( 5,000)

(
600)
P( 3,000)

( 2,000)
-

( 3,000)
P 2,000

2,000
P( 1,000)

P( 5,000)

3,000
-

P 2,000

1,000
-

5,000
-

Isla
P 9,000
( 9,600)
P( 600)

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 -5
JKLM Trading Co.
Schedule To Accompany Statement of Liquidation
Amounts to be Paid to Partners
February 28, 2008
Capital balances before dist. of cash
Add Loan balances
Total partners interest
Restricted interest - possible loss if
nothing is realized on remaining assets
Balances
Restricted interest - additional possible
loss if Manabat is unable to pay his
deficiency (20:30:30)
Free interest - payments to partners
Payment to apply on
Loan
Capital
Total cash distribution

Jocson
P 19,128
15,000
P 34,128

Kaimo
P 88,992

Legarda
P 101,532

Manabat
P 22,878

P 88,992

P 101,532

P 22,878

( 25,494)
P 8,634

( 38,241)
P 50,751

( 38,241)
P 63,291

( 25,494)
P( 2,616)

( 654)
P 7,980

( 981)
P 49,770

(
981)
P 62,310

P 49,770
P 49,770

P 62,310
P 62,310

P 7,980
P 7,980

2,616
-

JKLM Trading Co.


Schedule To Accompany Statement of Liquidation
Amounts to be Paid to Partners
March 31, 2008
Capital balances before dist. of cash
Add Loan balance
Total partners interest
Restricted interest - possible loss if
nothing is realized on remaining assets
Free interest - payment to partners
Payment to apply on:
Loan
Capital
Total cash distribution

Jocson
P 18,348
7,020
P 25,368

Kaimo
P 38,052

Legarda
P 38,052

Manabat
P 22,098

P 38,052

P 38,052

P 22,098

( 16,524)
P 8,844

( 24,786)
P 13,266

( 24,786)
P 13,266

(16,524)
P 5,574

P 7,020
1,824
P 8,844

P 13,266
P 13,266

P 13,266
P 13,266

P 5,574
P 5,574

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 6

QRS Partnership
Schedule to Accompany Statement of Liquidation
Amounts to be Paid to Partners
July 31, 2008
Quizon
Roman
Balances before cash distribution
P116,250
P159,750
Add Loan balance
150,000
Total partners interest
P116,250
P309,750
Restricted interest possible loss of P480,000
on remaining unsold assets and cash
withheld of P30,000
( 255,000)
( 153,000)
Balances
( P138,750)
P156,750
Restricted interest possible loss of P138,750
to Roman and Silva
138,750
( 83,250)
Balances
P 73,500
Restricted interest possible loss to Roman
( 6,000)
Payment to Roman to apply on loan
P 67,500
QRS Partnership
Schedule to Accompany Statement of Liquidation
Amounts to be Paid to Partners
August 31, 2008
Quizon
Roman
Balances before cash distribution
P 93,000
P145,800
Add Loan balance
82,500
Total partners interest
P 93,000
P228,300
Restricted interest possible loss of P375,000
on remaining unsold assets and cash
withheld of P30,000
( 202,500)
( 121,500)
Balances
( P109,500)
P106,800
Restricted interest possible loss of P109,500
to Roman and Silva
109,500
( 65,700)
Payment to Roman to apply on loan and to Silva
to apply on capital
P 41,100

Silva
P151,500
P151,500
( 102,000)
P 49,500
( 55,500)
(P 6,000)
6,000

Silva
P142,200
P142,200
( 81,000)
P 61,200
( 43,800)
P 17,400

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

Problem 3 - 7
Requirement 1

Capital balances
Loan balances
Total partners interest
Profit and loss ratio
Loss absorption balance
Allocation I - Cash to Ureta to
reduce LAB to amount
reported for Tabora
Balances
Allocation II - Cash to Tabora
and Ureta to reduce LAB to
amount reported for Veloso
Balances
Allocation III - Further cash
distribution may be made
based on P & L ratio

page

Tabora, Ureta and Veloso


Cash Priority Program
January 1, 2008
Tabora
P120,000
45,000
P165,000
50%
P330,000

Ureta
P 90,000
30,000
P120,000
30%
P400,000

Veloso
P 40,000
13,000
P 53,000
20%
P265,000

P330,000

( 70,000)
P330,000

P265,000

( 65,000)
P265,000

( 65,000)
P265,000

P265,000

Requirement 2
January:
Cash available
Allocation I - payable to Ureta
February:
Cash available
Allocation I - Bal. payable to Ureta
Allocation II - Payable to Tabora and
Ureta in the ratio of 50:30

Amount

Tabora

PAYMENTS
Tabora
Ureta

P21,000

P32,500
P32,500

Ureta

P15,000
15,000

P15,000

P40,000
6,000

P 6,000

P34,000

March:
Cash available
Allocation II - Balance
Allocation III - Based on P & L ratio

P90,000
18,000
P72,000

April:
Cash available
Allocation III - Based on P & L ratio

P30,000
30,000

19,500
P40,500

Veloso

P21,250
P21,250

12,750
P18,750

P11,250
36,000
P47,250

P 6,750
21,600
P28,350

P14,400
P14,400

P15,000

P 9,000

P 6,000

Veloso

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

Problem 3 8 (cont.)
Requirement 1
January:
a.
Cash
Accounts Receivable
b.

February:

March:

Neri, Capital
Ordan, Capital
Pacia, Capital
Cash

c.

Accounts Payable
Cash

d.

Pacia, Loan
Pacia, Capital
Cash

a.

Cash
Accounts Receivable

b.

Neri, Capital
Ordan, Capital
Pacia, Capital
Cash

c.

Accounts Payable
Cash
Neri, Capital
Ordan, Capital
Pacia, Capital

d.

Salary Payable to Neri


Neri, Capital
Ordan, Capital
Pacia, Capital
Cash

a.

b.

Cash
Neri, Capital
Ordan, Capital
Pacia, Capital
Accounts Receivable
Neri, Capital
Ordan, Capital
Pacia, Capital
Cash

page

112,000
2,200
1,100
1,100
38,000
9,000
7,000
36,000
1,400
700
700
39,000

6,000
1,400
3,700
8,700
35,000
4,000
2,000
2,000
2,000
1,000
1,000

112,000

4,400
38,000

16,000
36,000

2,800
38,000
500
250
250

19,800

43,000

4,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

c.

page

Neri, Capital
Ordan, Capital
Pacia, Capital
Cash

39,500
19,750
19,750

79,000

Problem 3 - 9
Requirement 1

Capital balances
Receivable from partners
Total partners interest
Profit and loss ratio
Loss absorption balance
Allocation I - Cash to
Yuson to reduce LAB
to amt. reported for Zapata
Balances
Allocation II - Cash to Zapata
and Yuson to reduce LAB
to amt. reported for Wilson
Balances
Allocation III - Based on P & L
ratio (P6,000 + P100,000 P17,000 = P89,000 - P14,000)
TOTALS

Wilson, Yuson and Zapata


Cash Distribution Schedule
June 30, 2008
Wilson
P 67,000
12,000
P 55,000
50%
P110,000

Yuson
P 45,000
P 45,000
30%
P150,000

Zapata
P 31,500
7,500
P 24,000
20%
P120,000

P110,000

30,000
P120,000

P120,000

P110,000

10,000
P110,000

10,000
P110,000

P AY M E N T S
Wilson
Yuson

Zapata

P 9,000

3,000

P37,500
P37,500

22,500
P 34,500

P 2,000

15,000
P17,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 9 Requirement No 2

Wilson, Yuson and Zapata


Cash Distribution Schedule
July 1 - September 30, 2008

Capital balances before liquidation


July - Dist. of loss on sale of assets (1)
Liquidation expenses
Payment of liabilities
Payment to partners (2)
Balances
Aug.- Liquidation expenses
Equipment taken by Zapata
Gain on transfer of eqt. to Zapata
Payment to Yuson (3)
Balances
Sept- Dist. of loss on sale of assets (4)
Liquidation expenses
Final distribution to partners
(1)
(2)
(3)
(4)

Liabilities
P 17,000
(17,000)
-

Wilson
P 55,000
(4,750)
(500)

Yuson
P 45,000
(2,850)
(300)

P 49,750
(750)

(6,500)
P 35,350
(450)

(3,000)
-

P 52,000
(10,000)
(500)
P41,500

(1,800)
(4,000)
P 32,700
(6,000)
(300)
P26,400

Zapata
P 24,000
(1,900)
(200)
P 21,900
(300)
(10,000)
(1,200)
P 12,800
(4,000)
(200)
P8,600

(P22,000 + P14,000) - (P16,500 + P10,000) = P9,500 loss on sale of assets


(P6,000 + P26,500 - P1,000 - P17,000) - P8,000 cash withheld = P6,500 cash dist. Req. 1
schedule of cash distribution below8,000 1,500 2,500 +4,000
(P99,000 - P4,000 BV of equipment taken by Zapata) - P75,000 = P20,000 loss on sale

Capital balances after dist.


of equipment to Zapata
Profit and loss ratio
Loss absorption balance
Allocation I - Cash to
Yuson to reduce LAB to
amt. reported for Wilson
Balances
Allocation II - Cash to Wilson
& Yuson to reduce LAB to
amount reported for Zapata
Balances
Allocation III P & L ratio

Schedule of Cash Distribution


August 31, 20068
Wilson
Yuson
Zapata
P 52,000
50%
P104,000

P 36,700
30%
P122,333

P 12,800
20%
P 64,000

P104,000

18,333
P104,000

P 64,000

40,000
P 64,000

40,000
P 64,000

P 64,000

Wilson

Yuson

P 5,500

P20,000
P20,000

12,000
P 17,500

Zapata

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

Problem 3 - 9 - Requirement 3
Cash available in September
Allocation I Balance
Allocation II
Balance - Allocation III

Problem 3 -10

page

Amount
P76,500
1,500
32,000
P43,000

Yuson

Zapata

P 20,000
21,500
P 41.500

P 1,500
12,000
12,900
P 26,400

P 8,600
P 8,600

Arceo, Basco and Cervo


Statement of Changes in Partners Capital
For the Period January 1, 2006 to May 31, 2008

2006:
Original investment
Distribution of net income (sch. 1)
Drawings
Balance, December 31
2007:
Investment of Cervo (sch. 2)
Distribution of net loss
Drawings
Balances, December 31
2008:
Distribution of cash in Feb. (sch. 3)
Distribution of cash in April (sch. 4)
Balances
Sale of assets & distribution of loss
in May (sch. 5)
Final cash distribution
Schedule 1 - Distribution of 2006 net income
Salaries
Remainder 65%:35%
Total

Wilson

Arceo

Basco

P50,000
15,200
(7,000)
P58,200

P30,000
12,800
(6,000)
P36,800

(9,100)
4,200
(4,900)
P40,000

(4,900)
3,000
(3,900)
P25,000

P54,000
4,800
(4,200)
P45,000

40,000
12,000
(13,000)
P110,000

(5,000)
(7,000)
P28,000

(5,000)
P20,000

(5,000)
(8,000)
P32,000

(10,000)
(20,000)
P 80,000

(17,500)
P 10,500

(12,500)
P 7,500

(20,000)
P 12,000

(50,000)
P 30,000

Arceo
P10,000
5,200
P15,200

Schedule 2 - Admission of Cervo


Total capital before admission of Cervo
Investment of Cervo
Total capital
Interest acquired by Cervo
Capital credit of Cervo
Investment of Cervo
Bonus to Cervo from old partners (shared 65%:35%)

Cervo

Total
P 80,000
28,000
(13,000)
P 95,000

Basco
P10,000
2,800
P12,800
P 95,000
40,000
P135,000
40%
P 54,000
40,000
P 14,000

Total
P20,000
8,000
P28,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

page

Schedule 3 - Cash distribution in February


Capital balances before dist. of cash
Restricted interest - possible loss if nothing
is realized on remaining assets (P100,000)
Free interest - amount to be paid to partners

Arceo
P40,000

Basco
P25,000

Cervo
P45,000

35,000
P 5,000

25,000
P ------

40,000
P 5,000

Arceo
P 35,000

Basco
P25,000

Cervo
P40,000

28,000
P 7,000

20,000
P 5,000

32,000
P 8,000

Schedule 4 - Cash distribution in April


Capital balances before dist. of cash
Restricted interest - possible loss if nothing
is realized on remaining assets (P80,000)
Free interest - amount to be paid to partners
Schedule 5 - Loss on realization of assets in May
Capital balances equal to net assets
Cash realized on sale of assets
Loss on realization
Problem 3-11
Partnership Books
1.
Inventories
Prepaid Expenses
Goodwill
Accrued Expenses
Leony, Capital
Espie, Capital
2.

3.

P80,000
30,000
P50,000

60,000
3,000
243,000

Rover Corp. Stocks


Accounts Payable
Accrued Expenses
Allowance for Uncollectible Accounts
Cash
Accounts Receivable
Inventories
Prepaid Expenses
Furniture and Equipment
Goodwill

4,500,000
600,000
6,000
120,000

Leony, Capital
Espie, Capital
Rover Corp. Stocks

2,600,000
1,900,000

6,000
200,000
100,000

450,000
660,000
1,350,000
3,000
2,520,000
243,000

4,500,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

page

Corporations Books
1.
Cash
Accounts Receivable
Inventories
Prepaid Expense
Furniture and Equipment
Goodwill
Allowance for Uncollectible Accounts
Accounts Payable
Accrued Expenses
Ordinary Share Capital
2.

450,000
660,000
1,350,000
3,000
2,520,000
243,000

Land
Cash
Pre-Operating Expenses
Ordinary Share Capital
PIC in Excess of Par

3,600,000
1,500,000
450,000

120,000
600,000
6,000
4,500,000

4,800,000
750,000

Rover Corporation
Statement of Financial Position
July 1, 2008
Assets
Cash
Accounts Receivable (net of Allow
of P120,000)
Inventories
Prepaid Expenses
Land
Furniture and Equipment
Goodwill
Total Assets

P 1,950,000
540,000
1,350,000
3,000
3,600,000
2,520,000
243,000
P10,206,000

Liabilities and Shareholders Equity


Accounts Payable
P 600,000
Accrued Expenses
6,000
Total Liabilities
P 606,000
Shareholders Equity
Ordinary Share Capital
P9,300,000
PIC in Excess of Par
750,000
Retained Earnings (deficit)
(450,000)
Total Shareholders Equity
P9,600,000
Total liabilities and SH equity
P10,206,000

MULTIPLE CHOICE
1.
2.
3.
4.

D
D
C
C

5.

Share on loss on realization


(P39,000 + P4,800 P33,000)
Percentage ownership of Imperial
Total loss on realization

P10,800
20%
P54,000

Total capital
Cash available
Loss on realization

P70,000
28,000
P42,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

6.

7.

8.

page

Capital bal. before liquidation


Loss on realization
Balances
Addl loss to Gueco & Tiangco
for the deficiency of Barcelon
Cash distribution to partners

Gueco
P 40,000
( 21,000)
P 19,000

Tiangco
P 25,000
(14,000)
P 11,000

Bacelon
P 5,000
( 7,000)
P( 2,000)

( 1,200)
P 17,800

( 800)
P 10,200

2,000
P ---0---

Total capital (P360,000 + P72,000)


Total liabilities
Total loss on liquidation

Capital balances
Drawing
Distribution of net income
Loss on liquidation
Balances
Additional loss to partners
Cash to be distributed
Coronel

to

Alarcon
P 100,000
( 60,000)
24,000
(172,000)
P(108,000
108,000

9.

10

11

Total assets = Total capital + Total liabilities


= P60,000 + P 3,000
Less Cash = P3,000 + P22,200 P23,200
Book value of noncash assets

12

P61,000 P23,200 = P37,800 x 3/21

P432,000
84,000
P516,000
Baretto
P 80,000
( 40,000)
24,000
(172,000)
P(108,000)
( 54,000)

Total capital
Loans from partners
Total partners interest
Cash available to partners (P37,500 P28,500)
Total loss on realization
Capital balances before liquidation
Loan balances
Total partners interest
Loss on realization
Balances cash to be paid to partners

Coronel
P 300,000
(20,000)
24,000
(172,000)
P 132,000
( 54,000)
P 78,000
P40,000
7,500
P47,500
9,000
P38,500

Doria
P 24,500
4,000
P 28,500
( 23,100)
P 5,400

Elma
P 15,500
3,500
P 19,000
( 15,400)
P 3,600
P 63,000
___2,000
P 61,000
P 5,400

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

13

Capital balances
Loss on realization
Additional loss
Payment to Lazaro

14

15
16
17

A
A
B

19

20

Jurado
P 1,000
( 5,400)
P( 4,400)
4,400

Katindig
P25,000
( 7,200)
P(17,800)
3,920

Lazaro
P25,000
( 10,800)
P14,200
( 5,880)
P 8,320

Total credits equal debits (P130,000 + P44,000 +


P90,000)
Less Cash
Book value of other assets
Loss on realization [(P50,000 + P17,600 P55,200)/40%]
Cash received from sale of other assets

Capital balances
Loss on realization
Additional loss
Amt to be rec.from the part.

18

page

Esper
P 50,000
(112,000)
P(62,000)
(3,000)

Ester
P50,000
( 56,000)
P(6,000)
6,000

Marcelo
P 9,000
( 14,400)
P( 5,400)
5,400

P264,000
40,000
P224,000
31,000
P193,000

Ethel
P50,000
( 56,000)
P(6,000)
( 1,500)

Elmer
P 75,000
( 56,000)
P19,000
(1,500)
P 17,500
200,000
P217,500

Initial investment
Purchases
Sales
Interest
Dividends
Cash held
Equal share
Cash received (paid)

Urbe
P 137,500,000
( 1,237,500,000)
1,339,250,000
(
2,200,000)
1,100,000
P 238,150,000
172,012,500
(P 66,137,500)

Capital balances before liquidation


Loss on liquidation (P180,000)
Cash to be received by Delia

Delia
P480,000
( 72,000)
P408,000

Erma
P135,000
( 90,000)

Flora
P165,000
( 18,000)

Delia
P480,000
( 216,000)
P264,000
( 108,000)

Erma
P135,000
( 270,000)
(P135,000)
135,000

Flora
P165,000
( 54,000)
P111,000
( 27,000)
P 84,000

Capital balances before liquidation


Loss on liquidation (P540,000)
Addl loss to Delia & Flora
Cash to be received by Flora

Viray
P 137,500,000
( 495,000,000)
462,000,000
(
1.375,000)
2,750,000
P 105,875,000
172,012,500
P 66,137,500

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

21

22
23
24

D
B
A

25

26

27

28

Capital balances before liquidation


Loss on liquidation (P180,000)
Balances
Possible loss if remaining
inventories are not sold
Balances
Add loss to Delia & Flora
Distribution of cash to partners

page

Delia
P480,000
( 72,000)
P408,000

Erma
P135,000
( 90,000)
P 45,000

Flora
P165,000
( 18,000)
P147,000

(192,000)
P216,000
( 156,000)
P 60,000

( 240,000)
(P 195,000)
195,000
-

(
P
(
P

48,000)
99,000
39,000)
60,000

Estrada
Fortuna
Gener
Balances before liquidation
P 40,000
P 65,000
P 48,000
Loss on sale of assets - P40,000
( 16,000)
(16,000)
( 8,000)
Possible loss if nothing is realized
on remaining assets - P90,000
( 36,000)
(36,000)
(18,000)
Balances
P( 12,000) P 13,000
P 22,000
Addl possible loss to Fortuna and
Gener for deficiency of Estrada
12,000
( 8,000)
( 4,000)
Balances - cash to be distributed
P --------P 5,000
P 18,000
Capital balance of Gener before distribution of cash
P 18,000
Share in the cash to be withheld for possible liquidation
expenses - P3,000 x 20%/60% (shared by Fortuna
& Gener)
( 1,000)
Cash to be received by Gener
P 17,000
The remaining cash will be distributed according to profit and loss ratio.
Thus the P14,000 will be distributed as follows:
Estrada
- P14,000 x 40% = P5,600
Fortuna - P14,000 x 40% = P5,600
Gener
- P14,000 x 20% = P2,800
Total capital before drawing and net loss
P 135,000
Drawing
( 10,000)
Net loss for the year
( 20,000)
Total liabilities
5,000
Total assets
P 110,000
Cash on hand
(
700)
Amount of noncash assets before liquidation
P 109,300
Capital balance of Aguila before dist. of net loss
P 25,000
Share in net loss (P20,000 x 60%)
( 12,000)
Capital balance of Aguila before liquidation
P 13,000
Cash to be received by Aguila
19,000
Share of Aguila in the gain on sale of other assets
P
6,000
Percentage share of Aguila
60%
Total gain on sale of other assets
P 10,000
Book value of other assets
109,300
Cash to be realized from sale of other assets
P 119,300

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

29

30

Capital balances
Drawing
Net loss
Total partners interest
Profit and loss ratio
Loss absorption bal.
Alloc. I - Cash to Corpuz
Balances
Alloc. II -Cash to Balweg
and Corpuz
Balances
Alloc. III - Based on
P & L ratio

1st P500,000
next P75,000
next P375,000
Remainder

33

Balweg
P 50,000

( 12,000)
P 13,000
60%
P 21,667

( 5,000)
P 45,000
25%
P180,000

P 21,667

P180,000

Corpuz
P 60,000
(10,000)
( 3,000)
P 47,000
15%
P313,333
(133,333)
P180,000

P 21,667

(158,333)
P 21,667

(158,333)
P 21,667

Priority
Creditors
100%

Nera
Capital
100%
60%
30%

PAYMENTS
Aguila

Balweg

Corpuz

P 20,000
P 39,583
P 39,583

23,750
P43,750

P 33,000
( 20,000)
P 13,000
15/40
P 34,667
x 25/40
P 21,667
Vulnerability
Ranking
3
1
2

- P450,000 / 30% = P150,000


- P250,000 / 50% = P 50,000
- P250,000 / 20% = P125,000

32

Aguila
P 25,000

Cash received by Corpuz


Cash received from Allocation I
Cash received from Allocation Ii
Fractional share (B 25% and C -15%)
Total cash distributed
Fractional share of Balingit
Cash received by Balingit
Nera
Ochoa
Perez

31

page

Ochoa
Capital

50%

Perez
Loan

26.67%

Perez
Capital

13.33%
20.00%

Nera
Ochoa
Perez
Total
P450,000
P250,000
P250,000
P950,000
( 150,000)
( 250,000)
( 100,000) ( 500,000)
P300,000
-----P150,000
P450,000
( 225,000)
(150,000) ( 375,000)
P 75,000
--------P 75,000
Reyes (20%)
Santos (40%)
Torres (40%)
Net capital balances
P100,000
P440,000
P310,000
Possible loss of P700,000
( 140,000)
(280,000)
( 280,000)
Balances
(P 40,000)
P160,000
P 30,000
Possible loss from Reyes debit balance
40,000
( 20,000)
( 20,000)`
Cash distribution
-----P140,000
P 10,000
Equities
Loss to absorb Ochoa
Balances
Loss to absorb Perez
Balance

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

34
35

D
C

Capital balances
Add Loan
Total partners interest
Divided by P & L ratio
Loss absorption capacity
Allocation 1
Balances
Allocation II

page

Roger
P108,000
P108,000
30%
P360,000
P360,000
( 60,000)
P300,000

Sergio
P120,000
30,000
P150,000
50%
P300,000
P300,000
P300,000

Tito
P129,000
P129,000
20%
P645,000
( 285,000)
P360,000
( 60,000)
P300,000

Roger

Sergio

P57,000
P18,000
P18,000

Allocation III P & L ratio

36

37

Amount available
Allocation 1 to Tito
Allocation II 30%, 20%

P72,000
57,000
P15,000

Amount available
Allocation II Balance
Allocation III

P120,000
15,000
P105,000

Roger

Sergio

P 9,000
31,500
P40,500

Sergio

Tito

P52,500
P52,500

P 6,000
21,000
P27,000

38

39

Capital balances
Adjustment in assets (P20,000 P10,000 P3,000)
Adjusted capital

P260,000
7,000
P267,000

40

Total capital (P94,800 + P214,200)


Adjustments in assets (P6,600 P20,000 P22,000)
Adjusted capital
Ordinary Share Capital (720 x 2 x P10)
Preference Share Capital

P309,000
( 35,400)
P273,600
14,400
P259,200

Ordinary shares (P14,400 / P10)


Preference shares (P259,200 / P100)

1,440 sh..
2,592 sh.

Capital balances
Revaluation of assets
Adjusted capital
Par of capital stock
Shares of stock to be recd by partners

Jacinto
P400,000
200,000
P600,000
P100
6,000 sh.

Tito
P57,000
6,000
P63,000

P9,000
P9,000
Roger

Tito

Mapa
P600,000
200,000
P800,000
P100
8,000 sh

Magno
P1,000,000
200,000
P1,200,000
P100
12,000 sh

12,000
P69,000

AA1 -Chapter 3 Partnership Liquidation


Suggested Answers

41

page

Capital balances before incorporation


Adjustment in assets
Adjusted capital
Ordinary Share Capital (720 @P10)
Preference Share Capital

Roldan
P94,800
( 11,800)
P83,000
7,200
P75,800

Moises
P214,200
( 23,600)
P190,600
7,200
P183,400

Preference shares
Ordinary shares

758
720

1,834
720

AA1 -Chapter 3 (2008 edition))s

page 1

Exercise 3 7

Balances before liquidation


Sale of other assets & distribution of loss
Balances
Payment of liabilities
Balances
Offset of loan
Additional investment by Velasco
Balances
Asset distributed to Viola
Balances
July sale of assets and distribution of loss
Balances
Payment of liabilities
Balances
Possible loss on remaining other assets
Cash distribution to partners

Cash
P 80,000
200,000
P280,000
( 280,000)
--90,000
P 90,000
P 90,000
540,000
P630,000
(350,000)
P280,000
P280,000

Other
Assets
P960,000
( 300,000)
P660,000
P660,000
P660,000
( 200,000)
P460,000
( 400,000)
P 60,000
P 60,000
( 60,000)
-----

Liabilities
P630,000

Velasco
Loan
P 50,000

P630,000
( 280,000)
P350,000

P 50,000

P350,000

----

P350,000

-----

P350,000
( 350,000)
------

-----

-----

----

P 50,000
( 50,000)

----

Viola
P470,000
( 60,000)
P410,000
P410,000

CAPITAL
Velasco
(P140,000)
( 20,000)
(P160,000)

Vicente
P30,000
( 20,000)
P10,000
P10,000

P410,000
( 212,000)
P198,000
84,000
P282,000

(P160,000)
50,000
90,000
(P 20,000)
6,000
(P 14,000)
28,000
P 14,000

P282,000
( 36,000)
P246,000

P 14,000
( 12,000)
P 2,000

P44,000
( 12,000)
P32,000

P10,000
6,000
P16,000
28,000
P44,000

Chapter 3 Partnership Liquidation


Suggested Answers

page

PROBLEMS

Problem 3-1
1.

Profit and loss ratio


Balances before liquidation
Sale of non-cash assets and distribution of loss
Payment of liquidation expenses
Balances
Payment of liabilities
Balances
Additional investment of Elma
Balances
Payment to partners

Elma, Erica and Edna


Statement of Liquidation
January 1 31, 2008
Non-cash
Cash
Assets
Liabilities
P 80,000
634,000
( 24,000)
P690,000
(270,000)
P420,000
15,000
P435,000
( 435,000)

P810,000
(810,000)

P270,000
P270,000
(270,000)

Elma
3/8
P60,000
(66,000)
( 9,000)
(P15,000)
(P15,000)
15,000

C A P I T A L
Erica
Edna
3/8
2/8
P290,000
P270,000
( 66,000) ( 44,000)
( 9,000) ( 6,000)
P215,000
P220,000
P215,000

P220,000

P215,000
( 215,000)

P220,000
( 220,000)

Chapter 3 Partnership Liquidation


Suggested Answers

page

2.

Profit and loss ratio


Balances before liquidation
Sale of non-cash assets and distribution of loss
Payment of liquidation expenses
Balances
Payment of liabilities
Balances
Offset of loan against debit balance in the
capital balance of Elma
Balances
Payment to partners
3.

Profit and loss ratio


Balances before liquidation

Cash
P 80,000
634,000
(24,000)
P690,000
(200,000)
P490,000
P490,000
(490,000)

Cash

P 80,000
Sale of non-cash assets and distribution of 634,000

Elma , Erica and Edna


Statement of Liquidation
January 1 31, 2008
Non-cash Note Payable
Assets
to Elma
P810,000
(810,000)

P70,000

P200,000

P70,000

P200,000
(200,000)

P70,000
( 15,000)
P55,000
( 55,000)
Elma , Erica and Edna
Statement of Liquidation
January 1 31, 2008
NR from
Non-cash
Assets
Erica

Elma

3/8
P60,000
(66,000)
( 9,000)
(P15,000)
(P15,000)

Liabilities

P70,000

P200,000

P110,000

P70,000

P110,000

P70,000

P200,000
(200,000)

P110,000

P700,000
(700,000)

Erica

Edna

P215,000

P220,000

P215,000
( 215,000)

P220,000
( 220,000)

3/8
P290,000
( 66,000)
( 9,000)
P215,000

2/8
P270,000
( 44,000)
( 6,000)
P220,000

15,000

NP
to Elma

loss

Payment of liquidation expenses


(24,000)
Balances
P690,000
Payment of liabilities
(200,000)
Balances
P490,000
Offset of receivable against credit balance in
the capital of Erica
Balances
P490,000
Payment to partners
(490,000)

Liabilities

C A P I T A L

Elma

Erica

Edna

3/8
P60,000
(24,750)

3/8
P290,000
( 24,750)

2/8
P270,000
( 16,500)

( 9,000)
P26,250

( 9,000)
P256,250

( 6,000)
P247,500

P26,250

P256,250

P247,500

P26,250
( 26,250)

( 110,000)
P146,250
( 146,250)

P247,500
( 247,500)

(110,000)
P70,000
( 70,000)

C A P I T A L

Chapter 3 Partnership Liquidation


Suggested Answers

Problem 3 2 (Case 1)

Balances before liquidation


Sale of assets & distribution of loss
Balances
Payment of liabilities
Payment of to partners
Problem 3 2 (Case 2)

Balances before liquidation


Sale of assets & distribution of loss
Balances
Payment of liabilities
Balances
Offset of loan against debit balance in the
capital account
Payment to partners

page

Calma, Daza and Esteban


Statement of Liquidation
January, 2009
Other
Cash
Assets
Liabilities
P 20,000
250,000
P 270,000
( 112,000)
P 158,000

P 340,000
(340,000)
-

P 112,000

P 5,000

P 8,000

P 112,000
(112,000)
-

P 5,000

P 8,000

C A
Calma
(2/5)
P 95,000
(36,000)
P 59,000

P 5,000

P 8,000

P 59,000

P 24,000

I
T A L
Daza
Esteban
(2/5)
(1/5)
P 60,000
P 80,000
(62,000)
(31,000)
P( 2,000) P 49,000

Calma, Daza and Esteban


Statement of Liquidation
January, 2009
Other
Cash
Assets
Liabilities
P 20,000
185,000
P 205,000
( 112,000)
P 93,000
P 93,000

L O A N
Daza
Esteban

I
T
Daza
(2/5)
P 60,000
(36,000)
P 24,000

A L
Esteban
(1/5)
P 80,000
(18,000)
P 62,000
P 62,000

P 112,000

P 5,000

P 8,000

P 5,000

P 8,000

P 112,000
(112,000)
-

C A
Calma
(2/5)
P 95,000
(62,000)
P 33,000

P 5,000

P 8,000

P 33,000

P( 2,000)

P 49,000

(2,000)
P 3,000

P 8,000

P 33,000

2,000
-

P 49,000

P 340,000
(340,000)
-

L O A N
Daza
Esteban

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 2 (Case 3)

Cash
Balances before liquidation
Sale of assets & distribution of loss
Balances
Payment of liabilities
Balances
Offset of loan against debit balance in the
capital account
Balances
Payment to partners
Balances
Additional investment by Daza
Payment to partners

Calma, Daza and Esteban


Statement of Liquidation
January, 2009
Other
Assets
Liabilities

P 20,000
170,000
P 190,000
( 112,000)
P 78,000
P 78,000
( 78,000)
3,000
P 3,000

P 340,000
(340,000)
-

L
Daza

O A N
Esteban

P 112,000

P 5,000

P 8,000

P 112,000
(112,000)
-

P 5,000

P 8,000

C A
Calma
(2/5)
P 95,000
(68,000)
P 27,000

P 5,000

P 8,000

P 27,000

(5,000)
-

P 8,000
( 8,000)
-

P 27,000
( 25,000)
P 2,000

P 2,000

P I
T A L
Daza
Esteban
(2/5)
(1/5)
P 60,000
P 80,000
(68,000)
(34,000)
P( 8,000) P 46,000
P( 8,000)
5,000
P(3,000)
P(3,000)
3,000
-

P 46,000
P 46,000
(45,000)
P 1,000
P 1,000

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3- 2 (Case 4)

Calma, Daza and Esteban


Statement of Liquidation
January, 2009
Cash

Balances before liquidation


Sale of assets & distribution of loss
Balances
Payment of liabilities
Balances
Offset of loan against debit balance in the
capital account
Balances
Payment to partners
Balances
Additional investment by Daza
Payment to partners

P 20,000
125,000
P 145,000
( 112,000)
P 33,000
P 33,000
( 33,000)
21,000
P 21,000

Other
Assets
P 340,000
(340,000)
-

Liabilities

L
Daza

O A N
Esteban

P 112,000

P 5,000

P 8,000

P 112,000
(112,000)
-

P 5,000

P 8,000

C A P I
T
Calma
Daza
(2/5)
(2/5)
P 95,000
P 60,000
(86,000)
(86,000)
P 9,000
P(26,000)

P 5,000

P 8,000

P 9,000

P(26,000)

P 9,000

5,000
P(21,000)

P 9,000

(5,000)
-

P 8,000
( 8,000)
-

P 9,000

P(21,000)
21,000
-

A L
Esteban
(1/5)
P 80,000
(43,000)
P 37,000
P 37,000
P 37,000
(25,000)
P 12,000
P 12,000

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 2 (Case 5)
Calma, Daza and Esteban
Statement of Liquidation
January, 2009
Other
Cash
Assets
Liabilities
Balances before liquidation
Sale of assets & distribution of loss
Balances
Payment of liabilities
Balances
Offset of loan against debit balance in the
capital account
Balances
Additional investment by Calma and Daza
Payment of liabilities, loan and capital

P 20,000
90,000
P 110,000
( 110,000)
40,000
P 40,000

P 340,000
(340,000)
-

L O A N
Daza
Esteban

P 112,000

P 5,000

P 8,000

P 112,000
(110,000)
P 2,000

P 5,000

P 8,000

C A P I
T
A L
Calma
Daza
Esteban
(2/5)
(2/5)
(1/5)
P 95,000
P 60,000 P 80,000
(100,000) (100,000)
(50,000)
P( 5,000) P(40,000) P 30,000

P 5,000

P 8,000

P( 5,000)

P(40,000)

P( 5,000)
5,000
-

5,000
P(35,000)
35,000
-

2,000

(5,000)
-

2,000

P 8,000
P 8,000

P 30,000
P 30,000
P 30,000

Chapter 3 Partnership Liquidation


Suggested Answers

Problem
1.

page

3-4

Estrella, Capital
Estrella, Drawing
Total interest of Estrella
Cash received by Estrella

P 144,000
( 12,000)
P 132,000
111,000
Share of Estrella in the loss on P 21,000

liquidation

Fractional share of Estrella


Total loss on liquidation

2.

Balances before liquidation


Sale of other assets & distribution of loss
Balances
Payment of liabilities
Balances
Payment to partners

3.

2/10
P 105,000

a.

Cash
Eugenio, Capital
Esteban, Capital
Estrella, Capital
Other Assets

463,000
52,500
31,500
21,000

b.

Liabilities
Cash

200,000

c.

Esteban, Loan
Eugenio, Capital
Esteban, Capital
Estrella, Capital
Cash

40,000
79,500
102,500
111,000

568,000

200,000

333,000

Eugenio , Esteban and Estrella


Statement of Liquidation
January 1 31, 2008

Cash
P 70,000
463,000
P 533,000
(200,000)
P 333,000
( 333,000)

Other
Assets
P 568,000
( 568,000)

Liabilities
P 200,000
P 200,000
( 200,000)

Esteban,
Loan
P 40,000
P 40,000

Eugenio
(5/10)
P 132,000
( 52,500)
P 79,500

P 40,000
( 40,000)

P 79,500
( 79,500)

CAPITAL
Esteban
Estrella
(3/10)
(2/10)
P 134,000
P132,000
( 31,500) ( 21,000)
P 102,500
P 111,000
P 102,500
(102,500)

P 111,000
( 111,000)

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 - 6
QRS Partnership
Statement of Liquidation
July to September, 2008

Balances before liquidation


July:
Sale of assets
Payment of liabilities
Payment of liquidation expenses
Payment of loan
Balances
August: Sale of assets
Payment of liquidation expenses
Payment of loan and capital

Balances
Sept.: Sale of assets
Payment of liquidation expenses
Additional loss to Roman & Silva
Payment to partners

Accounts
Payable
P1,215,000

Roman,
Loan
P150,000

Other Assets
P2,010,000
( 1,530,000)

(
P

Cash
150,000
1,170,000
1,215,000)
7,500)
97,500
67,500)
30,000
66,000
7,500)
88,500
58,500)
30,000
165,000
7,500)
187,500

41,400

187,500

41,400

P
(
(
P
(
P
(
P
(
P

( 1,215,000)

P 480,000

P 480,000
( 105,000)

P 375,000

P 375,000
( 375,000)

P150,000
( 67,500)
P 82,500
P 82,500
( 41,100)
P 41,400

Quizon
P300,000
( 180,000)

C A P I T A L
Roman
Silva
P270,000
P225,000
( 108,000)
( 72,000)

( 3,750)
P116,250

( 2,250)
P159,750

( 1,500)
P151,500

P116,250
( 19,500)
( 3,750)
P 93,000

P159,750
( 11,700)
( 2,250)
P145,800

P 93,000
( 105,000)
( 3,750)
(P 15,750)
15,750
-

P145,800
( 63,000)
( 2,250)
P 80,550
( 9,450)
P 71,100

P151,500
( 7,800)
( 1,500)
P142,200
( 17,400)
P124,800
( 42,000)
( 1,500)
P 81,300
( 6,300)
P 75,000

Chapter 3 Partnership Liquidation


Suggested Answers

Problem 3 - 5

Balances before liquidation


February:
Sale of assets & distribution of loss
Payment of liabilities
Payment of liquidation expenses
Balances
Payment to partners (sch. 1)
Balances
March:
Sale of assets & distribution of gain
Payment of liabilities
Payment of liquidation expenses
Balances
Payment to partners (sch. 2)
Balances, March 31

page

JKLM Trading
Statement of Liquidation
February 1 - March 31, 2008
Cash
P 100,320
49,320
( 17,750)
( 8,220)
P 123,670
( 120,060)
P
3,610
48,330
( 3,610)
( 7,380)
P 40,950
( 40,950)
P ---------

Other
Assets
P 193,530
( 66,060)

Liabilities
P 21,360
( 17,750)

P 127,470

P 3,610

P 127,470

P 3,610

( 44,850)

Jocson
Loan
P 15,000

P 15,000
( 7,980)
P 7,020

p --------

P 82,620

P --------

P
I
Kaimo
P 96,480

T
A
Legarda
P 109,020

L
Manabat
P 27,870

( 3,348)

( 5,022)

5,022)

( 3,348)

( 1,644)
P 19,128

( 2,466)
P 88,992
(49,770)
P 39,222

( 2,466)
P 101,532
( 62,310)
P 39,222

( 1,644)
P 22,878

P 19,128
696

( 3,610)

P 82,620

C
A
Jocson
P 24,120

P 7,020
7,020
P -------

( 1,476)
P 18,348
( 1,824)
P 16,524

1,044
( 2,214)
P 38,052
(13,266)
P 24,786

1,044
( 2,214)
P 38,052
( 13,266)
P 24,786

P 22,878
696
( 1,476)
P 22,098
( 5,574)
P 16,524

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 - 8
Req. 2

Balances before liquidation


January:
Collections from customers
Payment of liquidation expenses
Payment of liabilities
Balances
Payment to partners (see schedule)
Balances
February:
Collections from customers
Payment of liquidation expenses
Payment of liabilities & dist. of gain
Balances
Payment to partners (see schedule)
Balances
March:
Collections from customers & dist. of
loss
Payment of liquidation expenses
Payment to partners

Neri, Ordan and Pacia


Statement of Liquidation
January 1 - March 31, 2008
Cash
P 19,000

Other
Assets
P 191,000

112,000
( 4,400)
( 38,000)
P 88,600
( 16,000)
P 72,600

(112,000)

36,000
( 2,800)
(38,000)
P 67,800
( 19,800)
P 48,000

( 36,000)

Liabilities
P 77,000

P 79,000

( 38,000)
P 39,000

P 79,000

P 39,000

Pacia,
Loan
P 9,000

P 9,000
( 9,000)
-

P 43,000

( 39,000)
-

P 43,000

35,000

( 43,000)

( 4,000)
P( 79,000)

Sal. Pay.
to Neri
P 6,000

P I T
Ordan
P 28,000

A L
Pacia
P 40,000

( 2,200)

( 1,100)

( 1,100)

P 6,000

P 47,800

P 26,900

P 6,000

P 47,800

P 26,900

P 38,900
( 7,000)
P 31,900

P 6,000
( 6,000)
-

( 1,400)
500
P 46,900
( 1,400)
P 45,500

700)
250
P 26,450
( 3,700)
P 22,750

700)
250
P 31,450
( 8,700)
P 22,750

( 4,000)

( 2,000)

( 2,000)

( 2,000)
P 39,500

( 1,000)
P 19,750

( 1,000)
P 19,750

C
Neri
P 50,000

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 -8
Requirement No 1

Neri, Ordan and Pacia


Cash Priority Program
January 1, 2008

Neri
Capital balances before liquidation
P 50,000
Add Loan balances
6,000
Total partners interest
P 56,000
Profit and loss ratio
50%
Loss absorption balance
P112,000
allocation I - Cash to Pacia reducing LAB to an amount reported
for Neri and Ordan. Reduction of P84,000 requires payment
of 25% of P 84,000
Balances
P112,000
Allocation II - Further cash distributions may be made in the profit and loss raio
SCHEDULE OF CASH DISTRIBUTION:
Amount
January:
Cash available
P 16,000
Allocation I:
Payable to Pacia
16,000
February:

Cash available
Allocation I:
Payable to Pacia
Allocation II
Payable according
to P & L ratio

Neri
-

Ordan

Pacia

---------

P 16,000

P 19,800
5,000
P 14,800
-

P 5,000
P 7,400
P 7,400

P 3,700
P 3,700

3,700
P 8,700

Ordan
P 28,000

Neri

P 28,000
25%
P112,000

Pacia
P 40,000
9,000
P 49,000
25%
P196,000

P112,000

( 84,000)
P112,000

_______
--------

Ordan

Pacia

_______
---------

P 21,000
P 21,000

Chapter 3 Partnership Liquidation


Suggested Answers

page

Problem 3 - 7
Requirement 3

Balances before liquidation


January:
Sale of assets
Payment to partners
Balances
February:
Sale of assets
Payment to partners
Balances
March:
Sale of assets
Payment to partners
Balances
April:
Sale of assets & distribution of loss
Balances
Payment to partners

Tabora, Ureta and Veloso


Statement of Liquidation
January 1 to April 30, 2008
Cash
15,000
(15,000)
40,000
( 40,000)
90,000
( 90,000)
30,000
P 30,000
(30,000)

Other
Assets
P 338,000

L
Tabora
P 45,000

A N
Ureta
Veloso
P 30,000 P 13,000

C A P I T A L
Tabora
Ureta
Veloso
P 120,000 P 90,000
P 40,000

P 45,000

(15,000)
P15,000

P 120,000

P 90,000

P 40,000

( 21,250)
P 23,750

(15,000)
-

P 13,000

P 120,000

( 3,750)
P 86,250

P 40,000

(23,750)
-

(13,000)
-

( 23,500)
P 96,500

( 28,350)
P 57,900

( 1,400)
P 38,600

( 81,500)
P 15,000
P 15,000

( 48,900)
P 9,000
P 9,000

(32,600)
P 6,000
P 6,000

( 15,000)
P 323,000
( 40,000)
P 283,000
( 90,000)
P 193,000
( 193,000)
-

P 13,000

Chapter 3 Partnership Liquidation


Suggested Answers

page

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

page 4

Exercise 4-2
Books of Alvin, Managing Partner
Feb.

12

Joint Venture
Cash

10,000

14

Joint Venture
Larry

2,000

15

Cash
Larry
Joint Venture

9,000
7,500

20

Cash
Joint Venture

3,000

20

Joint Venture
Income from Joint Venture
Larry
10% commission on net purchases to Alvin
25% commission on own sales

7,500

20

Cash
Larry

Books of Larry
Feb.
12 Joint Venture
Alvin

2,287.50

10,000

14

Joint Venture
Cash

2,000

15

Cash
Alvin
Joint Venture

7,500
9,000

20

Alvin
Joint Venture

3,000

20

Joint Venture
Alvin
Income from Joint Venture
10% commission on net purchases to Alvin
25% commission on own sales

7,500

20

Alvin
Cash

2,287.50

10,000
2,000

16,500
3,000
4,287.50
3,212.50

2,287.50

10,000
2,000

16,500
3,000
4,287.50
3,212.50

2,287.50

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

page 5

Problem 4-2
Requirement 1
Books of Roland, Managing Partner
1.

Joint Venture
Greg
Medel
Land

2.

Joint Venture
Cash
Improvements on land

3.

Joint Venture Cash


Joint Venture
Sales by venturers.

35,400,000

4.

Joint Venture Cash


Joint Venture
Sales by salesmen

14,300,000

5.

Joint Venture
Joint Venture Cash
Venture expenses

684,000

6.

Joint Venture
Income from Joint Venture
Salaries to Roland as managing partner

7.

40,300,000

3,000,000

72,000

Joint Venture
Income from Joint Venture
Greg
Medel
10% commission on own sales

3,540,000

Joint Venture
Income from Joint Venture
Greg
Medel
Balance of profit divided equally

2,104,000

Greg
Medel
Joint Venture Cash
Final cash settlement

21,481,333
15,471,333

19,500,000
13,000,000
7,800,000
3,000,000

35,400,000

14,300,000

684,000

72,000

490,000
1,280,000
1,770,000

701,334
701,333
701,333

36,952,666

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

Books of Greg
1.
Joint Venture
Land
Medel
Roland

page 6

40,300,000

2.

Joint Venture
Roland
Improvements on land

3.

Roland
Joint Venture
Sales by venturers.

35,400,000

4.

Roland
Joint Venture
Sales by salesmen

14,300,000

5.

Joint Venture
Roland
Venture expenses

684,000

6.

Joint Venture
Roland
Salaries to Roland as managing partner

7.

3,000,000

72,000

Joint Venture
Roland
Income from Joint Venture
Medel
10% commission on own sales

3,540,000

Joint Venture
Roland
Income from Joint Venture
Medel
Balance of profit divided equally

2,104,000

Cash
Medel
Roland
Final cash settlement

21,481,333
15,471,333

19,500,000
13,000,000
7,800,000
3,000,000

35,400,000

14,300,000

684,000

72,000

490,000
1,280,000
1,770,000

701,334
701,333
701,333

36,952,666

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

Books of Medel
1.
Joint Venture
Greg
Land
Roland

page 7

40,300,000

2.

Joint Venture
Roland
Improvements on land

3.

Roland
Joint Venture
Sales by venturers.

35,400,000

4.

Roland
Joint Venture
Sales by salesmen

14,300,000

5.

Joint Venture
Roland
Venture expenses

684,000

6.

Joint Venture
Roland
Salaries to Roland as managing partner

7.

3,000,000

72,000

Joint Venture
Roland
Greg
Income from Joint Venture
10% commission on own sales

3,540,000

Joint Venture
Roland
Greg
Income from Joint Venture
Balance of profit divided equally

2,104,000

Greg
Cash
Roland
Final cash settlement

21,481,333
15,471,333

19,500,000
13,000,000
7,800,000
3,000,000

35,400,000

14,300,000

684,000

72,000

490,000
1,280,000
1,770,000

701,334
701,333
701,333

36,952,666

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

page 8

Problem 4-2
Requirement 2
Books of the Joint Venture
1.
Land
Greg, Capital
Medel, Capital
Roland, Capital

40,300,000

2.

Land
Roland, Capital

3.

Cash
Sales

35,400,000

4.

Cash
Sales

14,300,000

5.

Expenses
Cash

6.

Sales
Land
Expenses
Income Summary

7.

Income Summary
Roland, Capital

72,000

Income Summary
Greg, Capital
Medel, Capital
Roland, Capital

3,540,000

Income Summary
Greg, Capital
Medel, Capital
Roland, Capital

2,104,000

8.

Greg, Capital
Medel, Capital
Roland, Capital
Cash

3,000,000

684,000
49,700,000

21,481,333
15,471,333
12,063,334

19,500,000
13,000,000
7,800,000
3,000,000
35,400,000
14,300,000
684,000
43,300,000
684,000
5,716,000
72,000
1,280,000
1,770,000
490,000
701,333
701,333
701,334

49,016,000

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

Books of Greg
1.
Investment in Joint Venture
Land

page 9

19,500,000

2.

Investment in Joint Venture


Income from Joint Venture

1,981,333

3.

Cash
Investment in Joint Venture

21,481,333

Books of Medel
1.
Investment in Joint Venture
Land

13,000,000

2.

Investment in Joint Venture


Income from Joint Venture

2,471,333

3.

Cash
Investment in Joint Venture

15,471,333

Books of Roland
1.
Investment in Joint Venture
Land

7,800,000

2.

Investment in Joint Venture


Cash

3,000,000

3.

Investment in Joint Venture


Income from Joint Venture

1,262,334

4.

Cash
Investment in Joint Venture

12,063,334

19,500,000
1,981,333
21,481,333

13,000,000
2,471,333
15,471,333

7,800,000
3,000,000
1,262,334
12,063,334

Problem 4-3
Books of Marissa
1.
Joint Venture
Yolly
Beth

104,000

2.

Joint Venture Accounts Receivable


Joint Venture

160,000

3.

Joint Venture Cash


Joint Venture
Joint Venture Accounts Receivable

153,000
7,000

44,000
60,000
160,000

160,000

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

page 10

4.

Joint Venture
Joint Venture Cash

40,000

5.

Yolly
Beth
Joint Venture

10,000
7,500

6.

Joint Venture
Yolly
Beth
Interest on investment.

1,560

7.

Joint Venture
Income from Joint Venture
Commission on sales.

8,000

8.

Joint Venture
Yolly
Beth
Income from Joint Venture
Allocation of the balance.

16,940

9.

Yolly
Beth
Cash
Joint Venture Cash

40,306
59,047
13,647

Books of Yolly
1.
Joint Venture
Merchandise Inventory
Beth

104,000

2.

Marissa
Joint Venture

3.

Joint Venture
Marissa

7,000

4.

Joint Venture
Marissa

40,000

5.

Merchandise Inventory
Beth
Joint Venture

10,000
7,500

6.

Joint Venture
Income from Joint Venture
Beth
Interest on investment.

160,000

1,560

40,000

17,500
660
900

8,000

5,646
5,647
5,647

113,000

44,000
60,000
160,000
7,000
40,000

17,500
660
900

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

page 11

7.

Joint Venture
Marissa
Commission on sales.

8.

Joint Venture
Income from Joint Venture
Beth
Marissa
Allocation of the balance.

16,940

9.

Cash
Beth
Marissa

40,306
59,047

Books of Beth
1.
Joint Venture
Yolly
Merchandise Inventory

8,000

104,000

2.

Marissa
Joint Venture

160,000

3.

Joint Venture
Marissa

7,000

4.

Joint Venture
Marissa

40,000

5.

Yolly
Merchandise Inventory
Joint Venture

10,000
7,500

6.

Joint Venture
Yolly
Income from Joint Venture
Interest on investment.

1,560

7.

Joint Venture
Marissa
Commission on sales.

8,000

8.

Joint Venture
Yolly
Income from Joint Venture
Marissa
Allocation of the balance.

16,940

9.

Yolly
Cash
Marissa

40,306
59,047

8,000

5,646
5,647
5,647

99,353

44,000
60,000
160,000
7,000
40,000

17,500
660
900

8,000

5,646
5,647
5,647

99,353

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

page 12

Requirement 2
Books of the Joint Venture
1.
Merchandise
Yolly, Capital
Beth, Capital

104,000

2.

Accounts Receivable
Sales

160,000

3.

Cash
Uncollectible Accounts Expense
Sales Discount
Accounts Receivable

153,000
4,300
2,700

4.

Expenses
Cash

40,000

5.

Yolly, Capital
Beth, Capital
Merchandise

10,000
7,500

6.

Sales
Merchandise
Sales Discounts
Doubtful Accounts Expense
Expenses
Income Summary

160,000

7.

Income Summary
Yolly, Capital
Beth, Capital
Marissa, Capital

26,500

8.

Yolly, Capital
Beth, Capital
Marissa, Capital
Cash

40,306
59,047
13,647

Books of Yolly
1.
Investment in Joint Venture
Merchandise Inventory

44,000

2.

Merchandise Inventory
Investment in Joint Venture

10,000

3.

Investment in Joint Venture


Income from Joint Venture
P660 + P5,646 = P6,306

6,306

44,000
60,000
160,000

160,000
40,000

17,500
86,500
2,700
4,300
40,000
26,500
6,306
6,547
13,647

113,000

44,000
10,000
6,306

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

4.

Cash
Investment in Joint Venture

Books of Beth
1.
Investment in Joint Venture
Merchandise Inventory

page 13

40,306

60,000

2.

Merchandise Inventory
Investment in Joint Venture

7,500

3.

Investment in Joint Venture


Income from Joint Venture
P900 + P5,647 = P6,6,547

6,547

4.

Cash
Investment in Joint Venture

Books of Marissa
1.
Investment in Joint Venture
Income from Joint Venture
P8,000 + P5,647 = P13,647
2.

Cash
Investment in Joint Venture

59,047

13,647

13,647

40,306

60,000
7,500
6,547

59,047

13,647

13,647

Problem 4-4
1.

Merchandise Inventory
Joint Venture

2.

Joint Venture
Income from Joint Venture
Bonus = 10% (NI B)
Bonus = 10% (P53,636.20 B) = P4,785

3.

10,571.20
4,785

Joint Venture
Income from Joint Venture
Santi
Romy
Distribution of balance 30%, 50%, and 20% to
Noel, Santi, and Romy, respectively.

47,851.20

Santi
Romy
Cash
Final cash settlement.

22,863.60
18,628.24

10,571.20
4,785

14,355.36
23,925.60
9,570.24

41,491.84

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

page 14

Problem 4-5
Books of Leo
1.
Joint Venture
Income from Joint Venture
Bonus = 20% (NI B)
Bonus = 20% (P24,000 B) = P4,000
2.

Income from Joint Venture


Mandy
Joint Venture
Interest on deficiency and excess
Leo = P10,000 x 12% x 6/12 = P600
Mandy = P5,000 x 12% x 6/12 = P300

3.

Joint Venture
Income from Joint Venture
Niel
Mandy
Balance of profit divided in the ratio of 4:4:2 to
Leo, Niel, and Mandy, respectively

Books of Mandy
1.
Joint Venture
Leo

4,000

600

20,300

4,000

2.

Leo
Income from Joint Venture
Joint Venture

600

3.

Joint Venture
Leo
Niel
Income from Joint Venture

20,300

Books of Niel
1.
Joint Venture
Leo
2.

Leo
Mandy
Joint Venture

3.

Joint Venture
Leo
Income from Joint Venture
Mandy

4,000
600

20,300

4,000

300
300

8,120
8,120
4,060

4,000
300
300
8,120
8,120
4,060

4,000
300
300
8,120
8,120
4,060

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

page 15

MULTIPLE CHOICE
1.

Total credits in the Joint Venture account


Less Total debits in the Joint Venture account
Gain (excess of credit over debit)

P258,100
197,500
P 60,600

2.

Merchandise contribution
Add Share in the gain (P60,600 x 2/10)
Final settlement to Minda

P 85,000
12,120
P 97,120

3.

The account of Melissa has a debit balance, thus, she has to make payment..
The account of Nancy has a debit balance, thus, she has to make payment.
The account of Olivia has a credit balance, thus, she has to receive payment.

4.

P150,000 + P105,000 = P255,000

5.

P120,000 + (135,000/3) = P165,000

6.

Capital of Tan
Unsold merchandise taken by Tan
Share on the venture income (P135,000* / 3)
Amount received by Tan in final settlement

P270,000
( 105,000)
45,000
P210,000

Credit balance in the Joint Venture account


Unsold merchandise taken by Tan
Venture income
Salaries to Reyes
Remainder divided equally

P150,000
105,000
P255,000
120,000
P135,000

7.

15% (P115,000 B) = P15,000

8.

C.

Credit balance in the Joint Venture account


Unsold merchandise purchased by Soriente
Net profit before bonus
Bonus to Soriente [ 15% (P115,000 B)
Net profit after bonus

9.

P100,000 x 40% = P40,000

10.

Account balances
Share in venture profit
Cash settlement

P 90,000
25,000
P115,000
15,000
P100,000

Santos
(P 5,000)
40,000
P35,000

Salazar
P20,000
35,000
P55,000

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

11.

12.

13.

14.

page 16

Sales
Less Sales discounts
Net sales
Cost of sales:
Contributed merchandise
Less Returned merchandise
Gross profit
Operating expenses (P6,450 + P58,650)
Net income
Less Bonus (P41,250 x 25/125)
Net income after bonus

P240,000
4,050
P235,950
P156,000
26,400

129,600
P106,350
65,100
P 41,250
8,250
P 33,000

P41,250 x 25/125 = P8,250


Merchandise contribution
Merchandise returns
Interest on original capital
Balance of profit divided equally
Cash settlement
Purchases
Expenses
Balance, end

Joint Venture
300,000
Sales
34,500
225,000
559,500

Iona
P66,000
( 15,000)
990
10,220
P62,210

Paula
P90,000
( 11,400)
1,350
10,220
P90,170

559,500
559,500

Sales revenue is a credit entry in the Joint Venture account. The total of the
purchases, expenses and the ending balance is equal to total sales revenue. The
ending balance is the sum of the credit balances of Marc and Martin of P120,000
and P105,000.
15.

P236,500 x 50% = P118,250

16.

Investment of Marc
Cost of unsold goods assumed by Marc
Share in the joint venture gain:
Credit balance in the JV account
Unsold goods assumed by the partners
JV gain
Share of Marc
Cash settlement to Marc
P12,000 P2,500 = P9,500

17.
18.

B
D

Contribution
Less Share on loss (P12,000 P2,500)
Additional loss to Debbie
Cash distribution

P150,000
( 4,500)
P225,000
11,500
P236,500
50%
Debbie
P10,000
4,750
P 5,250
( 2,750)
P 2,500

118,250
P263,750
Ellie
P2,000
4,750
(P2,750)
2,750

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

19.

page 17

Valdez
Ramos
Receipts
P789,200
P654,250
Less Investment
300,000
300,000
Revenue
P489,200
P354,250
Sale of non-cash assets
Total revenue
Less Expenses disbursements (P622,750 + P706,950)
Joint venture profit

Total
P 943,450
600,000
P1,543,450
1,329,750
P 213,750

20.
21.

Debit to Joint Venture account:


Investment of Santos (12,000 shares @ P45)
Investment of Cruz (8,000 shares @ P45)
Managers fee [ 1% (176,000 + 240,000 + 133,000 +261,625)]
Miscellaneous expenses
Credit to Joint Venture account:
Sales (4,000 @ P44)
Sales (6,000 @ P40)
Cash dividend [(12,000 + 8,000 4,000 6,000) x P2]
Sales (3,500 @ P38)
Sales [(10,000 3,500) x 115% = 7,475 shares x P35]

P540,000.00
360,000.00
8,106.25
1,500.00
P909,606.25
P176,000.00
240,000.00
20,000.00
133,000.00
261,625.00
P830,625.00

Net loss of the venture (P909,606.25 P830,625)

P 78,981.25

22.

Investment of Cruz (8,000 shares @ P45)


Less Share in JV net loss (P78,981.25 x 8/20)
Share of Cruz after distribution of proceeds

P360,000.00
31,592.50
P328,407.50

23.

Loss upon the investment of shares (8,000 shares @ P10)


Share in JV loss
Loss of Cruz on the disposition of Palawan Oil Co. shares

P 80,000.00
31,592.50
P 111,592.50

Loss on the disposition of the shares of Cruz is the total of the loss upon
investment of the shares (i.e. P45 P55 = P10 per share) and the share on the net
loss of the dissolved joint venture.
24.

20,000 shares x P40 MV = P800,000

25.

20,000 4,500 + 15,500 x 120% = 18,600 5,000 = 13,600 x P1 = P13,600

26

Proceeds from sale of shares;


4,500 x P44
5,000 x P25
6,000 x P28
7,600* x P35
Cost of the shares (see # 1)
Loss from sale of the shares
Expenses (3,000 + 4,700)

P198,000
125,000
168,000
266,000

P757,000
800,000
P 43,000
(
7,700)

AA1 - Chapter 4 Joint Ventures (2005)


Suggested Answers

Dividend revenue
Number of shares after stock dividend
Less shares sold on November 5
Shares entitled to cash dividend
Dividend per share
Net loss

page 18

18,600
5,000
13,600
x P1

Share of Roxas on the venture loss


* Contributed shares
Shares sold on Oct. 20
Remaining shares
Shares received as stock dividend (20% x 15,500)
Shares sold on Nov. 5 and 22
Shares sold at P35

13,600
P 37,100
x 6/20
P11,130

20,000
4,500
15,500
3,100
(11,000)
7,600

27.

20,000 4,500 = 15,500 x 20% = 3,100

28.

Investment (10,000 shares @ P40)


Share on the joint venture loss (P37,100 x 1/2 )
Share of Silverio on the distribution of proceeds

P400,000
18,550
P381,450

29.

Loss upon contribution of the shares [(P40 P62) x 4,000]


Share on the JV loss (P37,100 x 4/20)
Tans loss on disposition of his investment in Golden Copper

P88,000
7,420
P95,420

CHAPTER 4
SUGGESTED ANSWERS
EXERCISES
Exercise 4 - 1
Paulo, Edwin and Marco
Worksheet Summarizing Joint Venture Transactions
May 12 to 26, 2008

Construction of stand
Purchases
Additional purchases
Sales
Stand taken by Edwin
Unsold merchandise taken by Marco
Net profit
Distribution of profit:
Permit paid by Paulo
Commission
Balance shared 50%, 10% and 40%
Share in net income
Totals
Cash settlement
*

Joint Venture
Debit
Credit
P 3,000
30,000
60,000
P153,000
2,000
4,000*
P 93,000
P159,000
66,000
_______
P159,000
P159,000

Purchases
Cost of sales (P153,000 / 180%**)
Inventory, end
Value upon which participants can purchase inventory
Value assigned to the inventory taken by Lito

Debit

Paulo

P 80,000
P 80,000

Credit

P 30,000
45,000

P 75,000

P33,000
2,000

P90,000
85,000
P 5,000
x 80%
P 4,000

Edwin

Credit

P10,000

P35,000

P10,000

_______
P35,000
______
P35,000

P 9,900
1,857
P11,757
P21,757
13,243
P35,000

P
_______
P 80,000
29,815
P109,815

1,530
24,000
9,285
P 34,815
P109,815
_______
P109,815

Debit

Debit

Marco

P40,000

Credit
P 3,000
5,000

4,000
P44,000

P 8,000

_______
P44,000
______
P44,000

P12,000
7,428
P19,428
P27,428
16,572
P44,000

** If markup is 80% of cost, then sales is 180% of cost.

AA1 - Chapter 4 (2008 edition)

page 2

Exercise 4 3
Books of Jolly

To set up inventory, end


(should be set up before
recognizing gain or loss)

Joint Venture Invty


Joint Venture

110,000

To recognize gain or loss,


shared 4:2:2
NI=P50,000 + P110,000

Joint Venture
Income from JV
Bernie
Sonny

160,000

To record settlement with


Sonny*

Sonny
JV Cash
Income from JV
Bernie

78,000

Interest of Sonny (P38,000 + P40,000)


Bonus to Jolly and Bernie (P78,000 x 20%)
Cash settlement to Sonny

Books of Bernie

110,000

80,000
40,000
40,000
62,400
10,400
5,200

Jolly
Joint Venture

110,000

Joint Venture
Jolly
Income from JV
Sonny

160,000

Sonny
Jolly
Income from JV

78,000

Books of Sonny

110,000

80,000
40,000
40,000
72,800
5,200

Jolly
Joint Venture

110,000

Joint Venture
Jolly
Bernie
Income from JV

160,000

Cash
Loss from JV
Bernie
Jolly

62,400
15,600
72,000

110,000

80,000
40,000
40,000

150,000

P78,000
15,600
P62,400

The bonus to Jolly and Bernie represents a gain to them and a loss to Sonny. The P15,600 bonus shall be shared by Jolly and Bernie in the ratio of 4:2. The, the
sharing is as follows: Jolly P15,600 x 4/6 = P10,400; Bernie P15,600 x 2/6 = P5,200.

AA1 - Chapter 4 (2008 edition)

page 3

Problem 4-1
Dario, Val, and Rene
Worksheet Summarizing Joint Venture Transactions
August 7 - 10, 2008

Construction of stand
Purchases
Payment of permit to operate
Additional purchases
Sales
Fire extinguishers divided among venturers
Unsold merchandise taken by Dario
Net profit
Distribution of profit:
Cleaning of lawn of Rene
Commission
Balance -75% to Dario and 25% to Val
Totals
Cash settlement

Purchases P10,000 + P15,000


Cost of Sales P45,000/200%
Inventory end
Inventory value taken by Dario

Joint Venture
Debit
Credit
1,000
10,000
500
15,000
45,000
26,500
19,759
46,250

1,250
46,250

Debit

Dario

15,000
3,333
1,250
19,583

10,000

21,000

Debit

Val

20,000
3,333

Credit

5,000

23,333

5,000

6,000
938
27,938

23,333

27,938

23,333

8,000
312
13,312
10,020
23,333

Debit

Rene

Credit
500

10,000
3,334

10,000

13,334

10,500

46,250

19,583
8,355
27,938
P25,000
22,500
P 2,500
X 50%
P 1,250

Credit
P 1,000
10,000

500
4,000
13,334
1,666
15,000

15,000
15,000

CHAPTER 5
SUGGESTED ANSWERS
EXERCISES
Exercise 5 1
1. Inventory on Consignment
Merchandise Inventory
To record transfer of merchandise to consignee.

90,000

2.

Consignee Receivable (P24,000 x 130%)


Consignment Sales Revenue
To record consignment sales.

31,200

3.

Cost of Consignment Goods Sold


Inventory on Consignment
To record cost of goods sold.

24,000

4.

Merchandise Inventory
Inventory on Consignment
To record return of consigned goods.

66,000

5.

Commission Expense (P31,200 x 10%)


Cash
Consignee Receivable

3,120
28,080

2.

Commission Expense
Cash
Consignment Sales Revenue

or

3,120
28,080

3.

Cost of Consignment Goods Sold


Inventory on Consignment
To record cost of goods sold.

24,000

4.

Merchandise Inventory
Inventory on Consignment
To record return of consigned goods.

66,000

Exercise 5 2
1. Consignor Books:
Inventory on Consignment
Finished Goods Inventory
Inventory on Consignment
Cash
Consignee Payable

500,000
40,000

90,000

31,200

24,000

66,000

31,200

31,200
24,000

66,000

500,000
30,000
10,000

AA1 - Chapter 5 (2008 edition)

page 2

Commission Expense (P420,000 x 10%)


Consignee Receivable
Consignment Sales

42,000
378,000

Cost of Consignment Goods Sold


Inventory on Consignment

362,880

420,000
362,880

*Cost of goods sold P420,000 /1.25 = P336,000


Freight costs P40,000 / P500,000 = 8%
Freight on goods sold P336,000 x 8% = P26,880
Total costs of goods sold P336,000 + P26,880 = P362,800
Cash
Consignee Payable
Consignee Receivable
2.

278,000
10,000

288,000

Consignee Books:
Memorandum entry to record receipt of goods on consignment.
Consignor Receivable
Cash

10,000

Cash
Consignor Payable

420,000

Consignor Payable
Commission Revenue

42,000

Consignor Payable
Cash
Consignor Receivable

288,000

10,000
420,000
42,000
278,000
10,000

3. Consignor financial statements:


Statement of Financial Position Assets section
Consignee receivable
Inventory on consignment

P 90,000
177,120

Statement of Recognized Income and Expenses


Consignment sales
P420,000
Less Cost of consignment sales
362,880
Commission expense
Profit from consignment

P57,120
42,000
P15,120

Exercise 5-3
Requirement 1 Consignment profits calculated separately
Books of Consignor
1.
Consignment Out
Merchandise Shipment on Consignment

7,000

7,000

AA1 - Chapter 5 (2008 edition)

2.

3.

page 3

Cash
Consignment-Out
Consignment-Out

3,500
2,500

Consignment-Out
Consignment Income
Sales (4 sets @P1,500)
CGS (4 sets @P700)
Freight-in (4/10 x P1,000)
Commission (25% x P6,000)
Consignment income

1,300
P6,000
( 2,800)
( 400)
( 1,500)
P1,300

6,000
1,300

Books of Consignee
1.
Received 10 sets of electric fan from Ledesma
2.

Consignment-In
Cash

1,000

3.

Cash
Consignment-In

6,000

4.

Consignment-In
Consignment Income

1,500

5.

Consignment-In
Cash

3,500

1,000
6,000
1,500
3,500

Requirement 2 Consignment profits not calculated separately


Books of Consignor
1.
Shipped merchandise to Amoranto, a consignee,
2.

3.

Cash
Freight
Commission Expense
Merchandise on Consignment
Sales

3,500
400
1,500
600

Merchandise on Consignment
Income Summary
Unsold merchandise on consignment (6 sets @P700)

4,200

Books of Consignee
1.
Received 10 sets of electric fan from Ledesma, a consignor..

6,000
4,200

..

2.

Ledesma
Cash

1,000

3.

Cash
Sales

6,000

1,000
6,000

AA1 - Chapter 5 (2008 edition)

page 4

4.

Purchases (P6,000 P1,500 commission)


Ledesma

4,500

5.

Ledesma
Cash

3,500

Exercise 5 4
1. Sales of laser discs, net of commissions and cartage
Less: Cost
Freight and handling
Loss on laser discs consignment
2.

4,500
3,500

P180,000
5,400

Sales of TV sets, net of commissions and delivery & installation costs


Less: Cost (15 x P9,000)
Freight and handling [(15 + 3*)/24** x P10,800]
Freight on return of defective units
Profit on TV sets on consignments

P135,000
8,100
1,080

P181,800
185,400
P 3,600
P173,250
144,180
P 29,070

* Number of units returned = Cost of returned units / Cost per unit


= P27,000 / P9,000
= 3
** Units shipped to consignee = Total cost of TV sets shipped / Cost per unit
= P216,000 / P9,000
= 24
3.

TV sets P54,000 + (P10,800 6/24 = P2,700) = P56,700

Exercise 5 5
1. Sales (300 x P1,000) + (100** x P1,100)
Cost of sales (400 x P600)
Gross profit
Expenses:
Freight (400/500 x P5,500)
Safety devices (100/200 x P10,000)
Commission (P410,000 x 10%)
Delivery cost
Consignment profit

P410,000*
240,000
P170,000
P 4,400
5,000
41,000
4,500

54,900
P115,100

*Consignee remitt6ance and charges represent only 90% of sales in as much as the 10% commission
of the consignee has not yet been included among the charges (P364,500 + P4,500 = P369,000 /
90% = P410,000)
** The 100 units with safety device sold at P1,100 is computed as follows:
Sales
Sales of units without safety device (300 x P600)
Sales of units with safety device
Units sold (P110,000 / P1,100)

P410,000
300,000
P110,000
100

AA1 - Chapter 5 (2008 edition)

2.

page 5

Cost (100 x P600)


Freight (100/500 x P5,500)
Safety device (100/200 x P10,000)
Inventory cost of consigned goods

P60,000
1,100
5,000
P66,100
PROBLEMS

Problem 5-1
Req. 1. Books of consignee; consignment sales merged with regular sales
April

Received 20 sets of VCD player


CCM Corp.
Cash
Accounts Receivable
Sales

24,000

Purchases
CCM Corp.

20,000

Cash
Accounts Receivable

10,000

CCM Corp.
Cash
May

1,750

5,000

Accounts Receivable
Sales

18,000

Purchases
CCM Corp.

15,000

Cash
Accounts Receivable

15,000

CCM Corp.
Cash
Req. 2 Books of consignor; consignment profits calculated separately

10,000

April

Consignment-Out
Merchandise Inventory

36,000

Cash
Consignment Out
Receivable Consignee
Consignment Out

5,000
1,750
13,250

Consignment Out
Consignment Income

4,900

1,750
24,000
20,000
10,000
5,000
18,000
15,000
15,000
10,000

36,000

20,000
4,900

AA1 - Chapter 5 (2008 edition)

page 6

Sales (8 sets @P2,500)


CGS (8 sets @P1,800)
Freight-in (P1,000 x 8/20)
Cartage-in (P750 x 8/20)
Consignment profit
May

P 20,000
( 14,400)
(
400)
(
300)
P 4,900

Cash
Receivable Consignee
Consignment Out

10,000
5,000

Consignment Out
Consignment Income
Sales (6 sets @P2,500)
CGS (6 sets @P1,800)
Freight-in (P1,000 x 6/20)
Cartage-in (P750 x 6/20)
Consignment profit

3,675
P15,000
( 10,800)
(
300)
(
225)
P 3,675

15,000
3,675

3. Charge and Profit analysis

Charges by consignor:
Cost of consigned goods
Charges by consignee
Freight-in
Cartage-in
Total
Sales price
Consignment profit

April
Inventory

Sales

May
Inventory

Total

Sales

P36,000

P14,400

P21,600

P10,800

P10,800

1,000
750
P37,750

400
300
P15,100
20,000
P 4,900

600
450
P22,650

300
225
P11,325
15,000
P 3,675

300
225
P11,325

Problem 5-2
Books of consignor
1.

Consignment Out
Merchandise Shipment on Consignment

2.

Consignment Out
Cash

3.

Cash
Consignment Out
Receivable Consignees
Consignment Out

4.

Merchandise Shipment on Consignment


Consignment Out
Returned merchandise (4 sets @P1,000)

50,000
750
5,000
10,600
16,400
4,000

50,000
750

32,000
4,000

AA1 - Chapter 5 (2008 edition)

5.

page 7

Consignment Out
Consignment Income

5,700
Total

Sales

5,700

Inventory

Charges by consignor:
Cost of consigned goods
P46,000
P16,000
P30,000
Freight-out
750
300
450
Charges by consignee
Cartage-in
1,000
400
600
Delivery and installation
1,600
1,600
Commission
8,000
8,000
Total
P57,350
P26,300
P31,050
Sales price
32,000
Consignment profit
P 5,700
*Note: Freight and cartage on sets returned are charged against sales of the period.
Books of consignee
1.
Received 50 cordless phones.
2.

Accounts Receivable
Consignment In

32,000

3.

Cash
Accounts Receivable
P32,000 P16,400 (collectible) = P15,600

15,600

4.

Returned four (4) defective cordless phones.

5.

Consignment In
Delivery and Installation Expense
Commission on Consignment
Cash
Remittance

15,600

32,000
15,600

1,600
8,000
5,000

Problem 5-3
Correcting entry to bring accounts with Alejo up to date
Consignment Commissions
Freight on Consignment Shipments (P2,600 x 65/100)
Prepaid Expenses on Consigned Merchandise (P2,600 x 35/100)
Consignment Sales
Alejo
Account sales Alejo
Sales (65 stoves @ P3,600)
Commission (25% of P234,000)
Freight
Amount owed
Total amount remitted
Balance-charge against Sunstar

P234,000
( 58,500)
( 2,600)
P172,900
( 187,900)
P 15,000

58,500
1,690
910
6,000

67,100

AA1 - Chapter 5 (2008 edition)

page 8

Entry that should have been made for transactions of Alejo on the books of consignor:
Cash
Consignment Commission
Freight on Consignment Shipments
Prepaid Expenses on Consigned Merchandise
Consignment Sales
Alejo

187,900
58,500
1,690
910

234,000
15,000

Net effect of entries already made with Alejo for transfer of merchandise and remittance
Cash
Alejo
Consignment Sales

187,900
52,100

240,000

Correcting entry to bring accounts with Burgos up to date


Consignment Commissions
Freight on Consignment Shipments (P2,600 x 65/100)
Prepaid Expenses on Consigned Merchandise (P2,600 x 35/100)
Consignment Sales
Burgos
Account sales Burgos
Sales (15 stoves @ P3,600)
Commission (25% of P54,000)
Freight
Amount owed
Total amount remitted
Balance-amount owed Sunstar

13,500
750
1,250
42,000

57,500

P54,000
( 13,500)
( 2,000)
P38,500
( 11,500)
P27,000

Entry that should have been made for transactions of Burgos on the books of consignor:
Cash
Consignment Commission
Freight on Consignment Shipments
Prepaid Expenses on Consigned Merchandise
Burgos
Consignment Sales

11,500
13,500
750
1,250
27,000

54,000

Net effect of entries already made with Burgos for transfer of merchandise and remittance
Cash
Burgos
Consignment Sales
Problem 5-4
Entries to bring account with Domingo up to date

11,500
84,500

96,000

AA1 - Chapter 5 (2008 edition)

1.

page 9

Cash
Operating Expenses
Receivables-Consignees
Remittance for 10 sets less charges

5,100
900

2.

Sales
Receivables Consignees
Unsold units previously recognized as sales.

3,000

3.

Merchandise in Transit
Cost of Goods Sold
Merchandise returned and still in transit.

1,600

Entries to bring account with Estrella up to date


1.
Cash
Merchandise on Consignment
Operating Expenses
Receivables Consignees

13,400
600
1,000

2.

Sales
Receivables Consignees

9,000

3.

Merchandise on Consignment
Cost of Goods Sold
Unsold units in the hands of consignee

4,800

4.

Merchandise on Consignment
Operating Expenses
Expenditures related to unsold consigned goods
charged to expense

1,700

Entries to bring account with Fajardo up to date


1.
Operating Expenses
Receivables Consignees
Accounts Payable

960

2.

Sales
Receivables Consignees

2,400

3.

Merchandise in Transit
Receivables Consignees

1,280

Closing Entries
1.
Sales
Cost of Goods Sold
Operating Expenses
Income Summary
2.

Income Tax
Income Tax Payable

715,600

72,219

6,000

3,000

1,600

15,000
9,000
4,800

1,700

600
360
2,400
1,280

420,100
89,160
206,340
72,219

AA1 - Chapter 5 (2008 edition)

3.

Income Summary
Income Tax

4.

Income Summary
Retained Earnings

2.

page 10

72,219
134,121

72,219
134,121

Moonstar Company
Statement of Financial Position
December 31, 2008

Current assets:
Cash
Receivables Consignees
Inventories:
On hand
In transit
On consignment
Total Current Assets
Plant and Equipment
Total Assets

P134,000
62,720
P112,000
2,880
7,100

Current Liabilities:
Accounts Payable
Income Tax Payable
Ordinary Share Capital, P100 par
Retained Earnings
Balance, beginning
Net income for 2008
Total Shareholders Equity
Total Liabilities and Shareholders Equity

P200,000
P 57,000
134,121

191,121

MULTIPLE CHOICE
1.
2
3.
4.

A
C
A
A

5.

Receipts (215 x P500)


Less Shipping charges
Remittance

P107,500
2,100
P105,400

6.

(215 x 40% x P580) + (215 x 60% x P640) (215 x P500) =

P24,860

7.

Receipts ( 7 dozens x 12 x P2,000)


Charges: Expenses
Commissions (15% x P168,000)
Remittance

P168,000

P180,000 + P9,000 = P189,000

P 3,000
25,200

28,200
P139,800

121,980
318,700
170,000
P488,700
P25,360
72,219

391,121
P488,700

AA1 - Chapter 5 (2008 edition)

8.

9.
10.

C
B

Sales 7 x 12 x P2,000
Cost of Sales 7 x 12 x P1,000
Freight 7 x P30
Expenses
Commission P168,000 x 15%
Sales ( 4 x P7,000)
Charges: Commission (20% x P28,000)
Freight
Remittance

page 11

P84,000
210
3,000
25,200

P5,600
1,600

P168,000

112,410
P 55,590
P28,000
7,200
P20,800

11

Cost (6 x P4,000)
Freight (P1,600 x 6/10)
Balance of Merchandise on Consignment account

P24,000
960
P24,960

12

Sales
Cost (4 x P4,000)
Gross profit
Less: Commission
Freight (P1,600 x 4/10)
Net profit on consignment

P28,000
16,000
P12,000

13.

Remittance
Charges:
Delivery expense
Repairs
Total
Sales
Cost of sales
Gross profit
Expenses:
Commission (P79,800 x 15%)
Repairs (P2,000 x 60/100)
Delivery
Shipping cost (P900 x 260/300)
Consignment profit
*Sales
Less Sales of units with defects (200 x P300)
Sales of repaired units
Selling price of repaired units
Number of repaired units that were sold
Units sold without repairs
Total number of units sold
Unit cost
Cost of sales

P5,600
640

6,240
P 5,760
P64,980

P 850
2,000

P11,970
1,200
850
780
P79,800
60,000
P19,800
P330
60
240
300
x P200
P52,000

2,850
P67,380
85%
P79,800
52,000*
P27,800

14,800
P13,000

AA1 - Chapter 5 (2008 edition)

page 12

14

Cost (40 x P200)


Repairs (P2,000 x 40/100)
Shipping cost (P900 x 40/300)
Value of inventory on consignment

P 8,000
800
120
P 8,920

15.

Remittance
Charges:
Cartage
Advertising
Delivery and installation
Total

P54,600
P 600
3,600
2,400

Sales
16

17.

Sales
Cost and expenses:
Cost (6 x P7,200)
Freight (P4,800 x 6/10)
Cartage (P600 x 6/10)
Advertising
Delivery and installation
Commission (15% x P72,000)
Consignment income

P72,000
P43,200
2,880
360
3,600
2,400
10,800

Remittance
Consignee charges, excluding the 15% commission
(P4,500 + P3,000 + P750)
Sum of remittances and charges

Sales
Cost of sales (6 x P9000)
Gross profit
Expenses:
Commission (P90,000 x 15%)
Freight-out (P6,000 x 6/10)
Marketing expense
Delivery and installation
Cartage (P750 x 6/10)
Net profit from the sale of consigned goods

19

P90,000 x 15% = P13,500

20

Sales collected [(2 x P1,500) + (1 x P1,800 x 25%)]


Commission (P3,450 x 15%)
Remittance

63,240
P 8,760
P68,250
8,250
P76,500
85%
P90,000

Sales price of 6 refrigerators


18

6,600
P61,200
85%
P72,000

P90,000
54,000
P36,000
P13,500
3,600
4,500
3,000
450

25,050
P10,950

P3,450
720
P2,730

AA1 - Chapter 5 (2008 edition)

21

22

Sales
Cost of sales ( 3 x P800)
Gross profit
Expenses:
Trucking (P200 x 3/5)
Delivery
Commission
Profit resulting from consignment
Sales
Cost (7 x P2,000)
Gross profit
Expenses:
Advertising
Commission
Freight (P600 x 7/10)
Net income on the consignment

23

( 3 x P2,000) + (P600 x 3/10) = P6,180

24

Remittance
Charges by consignor
Cost (P3,840 x 30/48)
Freight and handling (P1,000 x 30/48)
Freight and handling charged by consignee
Net income

25

26.

T-shirts:
Cost (P3,840 x 18/48)
Freight and handling (P1,000 x 18/48)
Baby dresses:
Cost (P2,400 x 4/24)
Freight and handling (P540 x 4/24)
Cost of the inventory in the hands of consignee
Sales
Cost of sales (P90,000 x 7/10)
Gross profit
Expenses:
Freight (P3,000 x 7/10)
Commission
Cartage-in (P1,050 x 7/10)
Profit on consignment of TV sets

page 13

P4,800
2,400
P2,400
P120
170
720

_____
P1,390
P21,000
14,000
P 7,000

P1,000
4,200
420

5,620
P 1,380

P3,750
P2,400
625
75

P1,440
375
P 400
90

3,100
P 650

P1,815
490
P2,305
P84,000
63,000
P21,000

P2,100
8,400
735

11,235
P 9,765

27.

TV sets (P94,050 x 3/10)


DVD sets (P84,450 x 2/5)
Cost of inventory in the hands of consignee

P28,215
33,780
P61,995

28.

P3,375 / 15% = P22,500 / P1,500

15 units

AA1 - Chapter 5 (2008 edition)

29

30

31

Sales (15 x P1,500)


Less: Advertising
Delivery expense
Commission
Advances (150 x P900 x 60% x 15/150)
Remittance

page 14

P2,250
1,125
3,375
8,100

Sales
Less Cost (15 x P900)
Expenses (P2,250 + P1,125 + P3,375)
Consignment profit

P13,500
6,750

Sales
Less: Cost (P8,400 x 9/12)
Freight-out (P720 x 9/12)
Delivery
Commission
Advertising
Net income

P6,300
540
450
2,160
500

32.

P10,800 P450 P2,160 P500 = P7,690

33

P9,120 x 3/12 = P2,280

34.

Net income
Expenses:
Freight (P240 x 6/10)
Advertising
Commission
Gross profit
Less Sales
Cost of goods sold

P22,500

14,850
P 7,650
P22,500
20,250
P 2,250
P10,800

3,650
P 850

P 426
P 144
150
480

774
P1,200
2,400
P1,200

35

Cost per unit (P1,200 / 6 units)


Unsold units
Total cost of unsold units
Inventoriable cost freight (P240 x 4/10)
Total cost

P200
x 4
P800
96
P896

36.

Remittance
Charges: Advertising
P120
Delivery
75
Total proceeds from sales, net of 20% commission

P3,165

37

Total sales price of the 7 handbags

195
P3,360
80%
P4,200

Cost (3 x P300)
Freight (3/10 x P150)
Advertising ( 3/10 x P120)
Inventory of unsold handbags

P 900
45
36
P 981

AA1 - Chapter 5 (2008 edition)

38

39.

40

Sales
Cost of sales (7 x P300)
Gross profit
Expenses:
Freight ( 7/10 x P150)
Commission (4,200 x 20%)
Advertising ( P120 x 7/10)
Delivery
Net income on the consignment
Sales (80 x P1,500)
Charges:
Cost of returning defective units
Transportation
Insurance
Commissions (P120,000 x 20%)
Reconditioning cost
Balance
Advances (80 + 10) x P300
Remittance
Sales
Cost of sales (80 x P500)
Gross profit
Expenses:
Transportation (90/120 x P1,500)
Insurance
Cost of returning defective units
Transportation of consignee (90/120 x P350)
Insurance consignee (90/120 x P200)
Insurance loss (P500 x 10% x 10)
Commission
Reconditioning cost
Profit on consignment

page 15

P4,200
2,100
P2,100
P 105
840
84
75

1,104
P 996
P120,000

100
350
200
24,000
150

24,800
P 95,200
27,000
P 68,200
P120,000
40,000
P 80,000

P 1,125
900
100
265
150
500
24,000
150

27,190
P 52,810

CHAPTER 6
SUGGESTED ANSWERS
EXERCISES
Exercise 6-1
Installment Accounts Recl, Jan. 1
Less Installment Accounts Recl, Dec. 31
Collections
Gross profit rate (10,000/40,000; 4,400/20,000)
Realized Gross Profit

2006 sales
P 400,000
100,000
P 300,000
25%__
P 75,000

2007 sales
P 200,000
40,000
P 160,000
22%__
P 35,200

Deferred Gross Profit, beg


Less Deferred Gross Profit,end P100,000 x 25%, P40,000 x 22%
Realized Gross Profit

2006 sales
P 100,000
25,000
P 75,000

2007 sales
P 44,000
8,800
P 35,200

Exercise 6-2
Deferred Gross Profit 2006 [(P150,000 - -0- ) x 42%]
Deferred Gross Profit 2007 [(P480,000 - P120,000) x 37.5%]
Deferred Gross Profit 2008 [(P750,000 - P650,000) x 40%]*
Realized Gross Profit
* 66 2/3 166 2/3 = 40%
P300,000 40% = P750,000

63,000
135,000
40,000

Exercise 6-3
(G) (1)
P50,000 - P11,000
(E) (2)
P10,500 - (25% of P20,000) = P5,500/P25,000
(F) (3)
P50,000 x 22%
(H) (4)
P1,100/22%
(B) (5)
P80,000 x 75%
(A) (6)
P80,000 x 25%
(C) (7)
P28,200 + P91,800
(D) (8)
P28,200/P120,000
(9)
2006 = P10,000 x 22% = P 2,200
2007 = P50,000 x 25% = 12,500
2008 = P45,000 x 23.5% = 10,575
Exercise 6-4
1.
Deferred Gross Profit 2006
Deferred Gross Profit 2007
Deferred Gross Profit 2008
Realized Gross Profit
Deferred gross profit before adj.
Deferred gross profit after adj.
(Inst. contract recl x GP rate)
Realized gross profit

238,000

P 39,000
22%
P 11,000
P 5,000
P 60,000
P 20,000
P120,000
23.5%
P 25,275
4,500
14,000
69,000
2006
P 8,000

2007
P26,000

87,500
2008
P105,000

__3,500
P 4,500

_12,000
P14,000

__36,000
P 69,000

AA1 - Chapter 6 (2008 edition)


page 2

2.

Cash collections
2006 sales - P4,500 /35%
2007 sales - p14,000/30%
2008 sales - P69,000/40%
Total

Installment Contract Receivable, beg.


Less Installment Contract Receivable, end
Collections

P 12,857
46,667
172,500
P232,024
2006
P 22,857
10,000
P12,857

2007
P86,667
40,000
P46,667

2008
P262,500
90,000
P 172,500

Exercise 6-5
a.
Installment Contracts Receivable
Installment Sales

250,000

b.

Cash
Installment Contracts Receivable

120,000

c.

Cost of Installment Sales


Inventory
50,000 / 250,000 = 20%

200,000

d.

Inventory of Repossessed Merchandise


Deferred Gross Profit (P20,000 x 20%)
Loss on Repossession
Installment Contracts Receivable

14,500
4,000
1,500

e.

Expenses
Cash

16,000

f.

Installment Sales
Cost of Installment Sales
Deferred Gross Profit

g.

Deferred Gross Profit


Realized Gross Profit
P120,000 x 20% = P 24,000

24,000

h.

Realized Gross Profit


Expenses
Loss on Repossession
Income Summary

24,000

250,000

Exercise 6-6
a.
Installment Contracts Receivable
Installment Sales

600,000

b.

405,000

Cost of Installment Sales


Shipments on Installment Sales

250,000
120,000
200,000

20,000
16,000
200,000
50,000
24,000

16,000
1,500
6,500

600,000
405,000

AA1 - Chapter 6 (2008 edition)


page 3

c.

Cash
Installment Contracts Receivable

360,000

d.

Repossessed Merchandise
Deferred Gross Profit (P40,000 x 32.5%)
Loss on Repossession
Installment Contracts Receivable

24,000
13,000
3,000

e.

Installment Sales
Cost of Installment Sales
Deferred Gross Profit
195,000/600,000 = 32.5%

600,000

f.

Deferred Gross Profit


Realized Gross Profit
P360,000 x 32.5% = P117,000

117,000

360,000

40,000
405,000
195,000

117,000

Exercise 6-7
Requirement 1
a.
Cash
Installment Contracts Receivable
Interest Revenue
b.

c.

1,400

Repossessed Merchandise
Deferred Gross Profit (P4,000 x 40%)
Loss on Defaults
Installment Contracts Receivable

2,000
1,600
400

Deferred Gross Profit


Realized Gross Profit (P1,240 x 40%)

496

Requirement 2
a.
Repossessed Merchandise
Deferred Gross Profit
Loss on Defaults
Exercise 6-8
Repossessed Merchandise (P13,500/120%)
Deferred Gross Profit (P15,000 x 20%/120%)
Loss on Repossession
Installment Contracts Receivable
Exercise 6-9
a.
Trade-In Merchandise
Installment Contracts Receivable
Installment Sales

2,000
1,600

11,250
2,500
1,250

1,240
160

4,000
496

3,600

15,000
180,000
420,000

600,000

AA1 - Chapter 6 (2008 edition)


page 4

Estimated resale price


Less: Reconditioning cost
Gross profit
Estimated realizable value

P30,000
_70,000

Selling price
Less Overallowance (P300,000 P180,000)
Adjusted selling price

P280,000
__100,000
P 180,000
P720,000
120,000
P600,000

b.

Cost of Installment Sales


Automobiles

500,000

c.

Installment Sales
Cost of Installment Sales
Deferred Gross Profit

600,000

d.

Deferred Gross Profit


Realized Gross Profit
P180,000 x 16 2/3% = P30,000

Exercise 6 - 10
Correct entry
Allowance for Doubtful Installment Contract Recl
Deferred Gross Profit ( P 10,000 x 25/125 )
Repossessed Merchandise
Installment Contract Receivable
Correcting Entry
Deferred Gross Profit
Repossessed Merchandise
Allowance for Doubtful Accounts
Exercise 6-11
Requirement 1
Oct. 31
Cash
Installment Contracts Receivable
Real Estate
Deferred Gross Profit
GP rate = P150,000/P750,000 = 20%

30,000

1,450
2,000
6,550

2,000
6,550

200,000
550,000

Nov. 30

Cash
Installment Contracts Receivable
Interest Revenue
550,000 x 1% = 5,500

11,500

Dec. 31

Cash
Installment Contracts Receivable
Interest Revenue
P550,000 P6,000 = P544,000 x 1% = P5,440

11,440

500,000
500,000
100,000
30,000

10,000

8,550

600,000
150,000

6,000
5,500

6,000
5,440

AA1 - Chapter 6 (2008 edition)


page 5

31

Deferred Gross Profit


Realized Gross Profit
P200,000 + P6,000 + P6,000 = P212,000 x 20%
Requirement 2
Oct. 31
Cash
Installment Contracts Receivable
Real Estate
Deferred Gross Profit
GP rate = P150,000/P750,000 = 20%

42,400

200,000
550,000

Nov. 30

Cash
Installment Contracts Receivable
Interest Revenue
P550,000 x 1% = P5,500

6,000

Dec. 31

Cash
Installment Contracts Receivable
Interest Revenue
P550,000 P500 = P549,500 x 1% x = P5,495

6,000

31

Deferred Gross Profit


Realized Gross Profit
P200,000 + P500 + P505 = P201,005 x 20% = P40,201

Exercise 6-12

40,201

500
5,500

505
5,495

40,201

Realized gross profit


none
P 75,000
100,000/year

2008
2009
2010 2014

b.

2008
2009
2010
2011 2014

none
none
P 25,000
P100,000/year

P400,000
P100,000
P 75,000
none

c.

2008
2009 2014

P170,000
P 42,500

P230,000
P 57,500

Exercise 6-13
1. Installment payment = P1,260,000/5.6502 = P223,000
2. Journal entries
Jan. 1
Cash
Notes Receivable (P223,000 x 10)
Real Estate Sales
Discount on Notes Receivable
Cost of Real Estate Sales
Inventory or Real Estate

600,000
150,000

Recovery of cost
P400,000
25,000

a.

Jan. 1

42,400

140,000
2,230,000

850,000

1,400,000
970,000
850,000

AA1 - Chapter 6 (2008 edition)


page 6

Dec. 31

Real Estate Sales


Cost of Real Estate Sales
Deferred Gross Profit
GP rate = P550,000/P1,400,000 = 39.29%
Cash
Notes Receivable

223,000

31

Discount on Notes Receivable


Interest Revenue
(P2,230,000 P970,000) x 12% = P151,200

151,200

31

Deferred Gross Profit


Realized Gross Profit
[P140,000 + (P223,000- P151,200)] x 39.29%

83,216

Exercise 6-14
Requirement 1
a.
Land
Land Improvements
Cash
b.

1,400,000

Cash
Installment Contract Receivable
Installment Sales
A 5 @ P400,000 = P2,000,000
B 8 @ P300,000 = 2,400,000
C 3 @ P200,000 = 600,000
Total
P5,000,000

13,440,000
3,360,000
750,000
4,250,000

c.

Cost of Installment Sales


3,000,000
Land
Land Improvements
Cost of sales = 16,800,000/28,000,000 = 60% x P5,000,000 = P3,000,000
Land
= 13,440,000/16,800,000 = 80% x P3,000,000 = P2,400,000
Land imp.
= 3,360,000/16,800,000 = 20% x P3,000,000 = P 600,000

d.

1,400,000

Cash
Installment Contract Receivable
Interest Revenue
Requirement 2
a.
Installment Sales
Cost of Installment Sales
Deferred Gross Profit
GP rate = 2,000,000/5,000,000 = 40%
b.
Deferred Gross Profit
Realized Gross Profit
(P750,000 + P1,300,000) x 40% = P820,000

5,000,000

820,000

850,000
550,000

223,000

151, 200

83,216

16,800,000

5,000,000

2,400,000
600,000

1,300,000
100,000
3,000,000
2,000,000
820,000

AA1 - Chapter 6 (2008 edition)


page 7

Exercise 6-15
2005 Installment Accounts Receivable
Installment Sales

2006

2007

4,700,000

Cost of Installment Sales


Inventory

2,585,000

Cash
Installment Accounts Receivable

2,585,000

Installment Sales
Cost of Installment Sales
Deferred Gross Profit

4,700,000

Installment Accounts Receivable


Installment Sales

4,500,000

Cost of Installment Sales


Inventory

2,610,000

Cash
Installment Accounts Receivable 2005
Installment Accounts Receivable 2006

3,885,000

Installment Sales
Cost of Installment Sales
Deferred Gross Profit

4,500,000

Deferred Gross Profit


Realized Gross Profit

1,410,000

Installment Accounts Receivable


Installment Sales

5,800,000

Cost of Installment Sales


Inventory

3,074,000

Cash
Installment Accounts Receivable 2005
Installment Accounts Receivable 2006
Installment Accounts Receivable 2007

5,010,000

Installment Sales
Cost of Installment Sales
Deferred Gross Profit

5,800,000

Deferred Gross Profit 2005


Deferred Gross Profit 2006 P1,350,000 (P2,610,000-P2,475,000)
Deferred Gross Profit 2007
Realized Gross Profit

470,000
1,215,000
116,000

47,000
2,585,000
2,585,000
2,585,000
2,115,000
4,500,000
2,610,000
1,410,000
2,475,000
2,610,000
1,890,000
1,410,000
5,800,000
3,074,000
470,000
1,350,000
3,190,000
3,074,000
2,726,000

1,801,000

AA1 - Chapter 6 (2008 edition)


page 8

2008

Installment Accounts Receivable


Installment Sale

6,100,000

Cost of Installment Sales


Inventory

3,111,000

Cash
Installment Accounts Receivable 2006
Installment Accounts Receivable 2007
Installment Accounts Receivable 2008

5,545,000

Installment Sales
Cost of Installment Sales
Deferred Gross Profit 2008

6,100,000

Deferred Gross Profit 2006


Deferred Gross Profit 2007
Deferred Gross Profit 2008 P3,355,000 P3,111,000
Realized Gross Profit

450,000
1,740,000
244,000

Gross Profit Recognized:


Full Accrual;
Cost Recovery Method

2005
P 2,150,000
0

Exercise 6-16
Installment sales
Cost of Installment sales
Gross profit percentage
Cash collections:
2006 Sales
2007 Sales
2008 Sales
Realized gross profit on installment sales

2006
P 1,890,000
1,410,000

2007
P 2,726,000
1,801,000

6,100,000
3,111,000
450,000
1,740,000
3,355,000
3,111,000
2,989,000

2,434,000
2008
P 2,989,000
2,434,000

2006
P 400,000
248,000
38%

2007
P 475,000
280.250
41%

2008
P 525,000
341,250
35%

128,000

232,000
114,000

28,000
218,500
162,750
80,250

112,000

COMPUTATIONS :
1
P 341,250 / . 65 = P 525,000
2

P 400,000 x . 62 = P 248,000

1 - (P 280,250 / P 475,000) = 41%

Gross profit recognized in 2008


All costs from 2006 sales are recovered
Cash received equals gross profit
All cost from 2008 sales are not recovered
Cash received goes to recover costs-gross profit
Gross profit reported in 2008 from 2006 sales

P 80,250
28,000
0
P 52,250

AA1 - Chapter 6 (2008 edition)


page 9

Costs of 2007 sales


Costs recovered in 2005
Costs to be recovered in 2005
Cash received related to 2007 sales
5

Cash collections in 2006 do not exceed costs of sales


Realized gross profit in 2006 = P 0

Cash collections for 2006 sales ( P 128,000 + 232,000 )


Costs of 2006 sales
Realized gross profit in 2007

Exercise 6-17
Requirement 1
2007
Jan.
1
Cash
Notes Receivable (2,197,100 x 10)
Real Estate Sales
Discount on Notes Receivable (2,347,100 - 1,500,000)
1
Dec

Cost of Real Estate Sales (240,000 x 30)


Inventory of Real Estate

P 280,250
114,000

P 360,000
248,000
P 112,000

1,500,000
21,971,000

7,200,000

31

Real Estate Sales


Cost of Real Estate Sales
Deferred Gross Profit - Real Estate Sales
GP rate = 7,800,000/15,000,000 = 52%

31

Cash
Notes Receivable

2,197,100

31

Discount on Notes Receivable


Deferred Gross Profit - Real Estate Sales

1,350,000

Cash
Notes Receivable

2,197,100

2008
Dec. 31
31

Discount on Notes Receivable


Deferred Gross Profit - Real Estate Sales
(P13,500,000 - P2,197,100 + P1,350,000) x 10%
Requirement 2
Date
Cost
Collection
Jan. 01, 2007
7,200,000
1,500,000
Dec. 31, 2007
2,197,100
Dec. 31, 2008
2,197,100

166,250
P 218,500

15,000,000

1,265,300

15,000,000
8,471,000
7,200,000
7,200,000
7,800,000

2,197,100
1,350,000

2,197,100
1,265,300

Unrecovered Cost
5,700,000
3,502,900
1,305,800

AA1 - Chapter 6 (2008 edition)


page 10

Notes receivable (P21,971,000 - P2,197,100 - P2,197,100)


Less: Discount on notes receivable
(P8,471,000-P1,350,000- P1,265,300)
Deferred gross profit (P7,800,000 + P1,350,000 + P1,265,300)
Unrecovered cost

P17,576,800
P 5,855,700
10,415,300

16,271,000
P 1,305,800

Exercise 6-18
Selling Price
Cost of Land
Gross Profit

P 10,000,000
4,000,000
P 6,000,000

Gross Profit rate ( 600 / 1,000 )


a) Full accrual method
b) Installment method
2008
2009
2010
c) Cost Recovery method
2008
2009
2010

60%
2008
2009 2010

P 6,000,000
none

Collections
P 400,000
300,000
___300,000
P1,000,000

Cost Recovery
P 160,000
120,000
___120,000
P 400,000

Gross Profit
P 240,000
180,000
___180,000
P 600,000

Collections
P 400,000
300,000
___300,000
P 1,000,000

Cost Recovery
P 400,000
____-___
P 400,000

Gross Profit
P
300,000
___300,000
P 600,000

PROBLEMS
Problem 6-1
1.
2007 - (P12,000* + P228,000) (P240,000 + P520,000 + P40,000)
2008 - (P1,500,000 - P975,000) P1,500,000
*P40,000 P24,000 P4,000 = P12,000
2.a. Installment Sales
Cost of Installment Sales
Deferred Gross Profit 2008
b. Deferred Gross Profit 2007 (520,000 x 30%)
Deferred Gross Profit 2008 (740,000 x 35%)
Realized Gross Profit
c. Sales
Realized Gross Profit
Cost of Sales
Gain or Loss on Repossession
Selling and Administrative Expenses

30%
35%
1,500,000

156,000
259,000
2,120,000
415,000

975,000
525,000

415,000

1,650,000
4,000
660,000

AA1 - Chapter 6 (2008 edition)


page 11

Income Summary
d. Income Tax
Income Tax Payable

77,350

e. Income Summary
Income Tax

77,350

d. Income Summary
Retained Earnings
Requirement 3

143,650

221,000
77,350
77,350
143,650

Excellent Co.
Statement of Recognized Income and Expenses
For the Year Ended December 31, 2008

Sales
Cost of Sales
Gross Profit
Realized Gross Profit on Installment Sales
Total Realized Gross Profit
Less Loss on Repossession
Realized Gross Profit after Loss on Repossession
Selling and Administrative Expenses
Net Income before Income Tax
Income Tax
Net Income

P 2,120,000
_1,650,000
P 470,000
__415,000
P 885,000
____4,000
P 881,000
__660,000
P 221,000
77,350
P143,650

Problem 6-2
Requirement 1 Computation of gross profit rates
2006 sales
2007 sales
2008 sales

P22,500/P50,0000
P96,000/P240,000
100% - (P310,000/P500,000)

45%
40%
38%

Requirement 2 Income Statement

Reliance Sales Corp.


Statement of Recognized income and Expenses
For the Year Ended December 31, 2008

Sales
Cost of Sales:
Inventory, January 1
Purchases
Repossessed Mdse.
Cost of Goods Available
for Sale
Less Inventory, Dec. 31
Gross Profit

Regular
Sales
P 192,000

Installment
Sales
P 500,000

Total
P 692,000

P 30,000
455,000
__10,000
P495,000
__35,000

150,000
P 42,000

310,000
P 190,000

460,000
P 232,000

AA1 - Chapter 6 (2008 edition)


page 12

Less Deferred Gross Profit, including DGP on


repossessed merchandise
Realized Gross Profit on 2008 sales
Add Realized Gross Profit on 2006 & 2007 sales
Total
Less Loss on Repossession [3,000-(3,600+4,000+1,900)]
Realized gross profit after loss on Repossession
Operating Expenses
Net Loss
Analysis of gross profit on installment sales:
Installment sales
Installment contracts recl, beginning
Installment contracts recl, end
Defaulted installment contracts recl
Collections
Gross profit rate
Realized gross profit
Deferred gross profit
Requirement 3 -

Assets

________
P 42,000

32,300
P 157,700

32,300
P 199,700
100,650
P 300,350
3,500
P 296,850
300,000
P 3,150

2006

2007

2008
P500,000

P 50,000
( 5,000)
( 8,000)
P 37,000
45%
P 16,650

P240,000
( 20,000)
( 10,000)
P210,000
40%
P84,000

P 2,250

P 8,000

(80,000)
(5,000)
P415,000
38%
P157,700
P 30,400

Reliance Corp.
Statement of Financial Position
December 31, 2008

Cash
Inst. Contracts Recl, 2008
Inst. Contracts Recl, 2007
Inst. Contracts Recl, 2006
Accounts Recl
Inventory
Other Assets

P 25,000
80,000
20,000
5,000
40,000
35,000
52,000

Total Assets

P257,000

Problem 6-3
1 Schedule of Cost of Goods Sold
.
Inventory, January 1
Purchases, including freight-in
Repossessed Merchandise
Cost of Goods Available for Sale
Less Inventory, December 31
Cost of Goods Sold

Liabilities & Shareholders Equity


Accounts Payable
P 75,000
Deferred Gross Profit, 2008
30,400
Deferred Gross Profit, 2007
8,000
Deferred Gross Profit, 2006
2,250
Ordinary Share Capital
100,000
Retained Earnings
41,350
________
Total Liabilities &
Shareolders Equity
P257,000

P 240,000
1,250,000
70,000
P1,560,000
260,000
P1,300,000

AA1 - Chapter 6 (2008 edition)


page 13

2.

3.

Schedule of Allocation of Cost of Goods Sold


Type of
Amount of
Amount Based
Sale
Sales
on Cash Sales
Cash
P 300,000
P 300,000
Charge
600,000
500,000
Installment
1,500,000
1,200,000
P2,400,000
P2,000,000

Ratio
60/400
100/400
240/400

Allocation of
CGS
P 195,000
325,000
780,000
P1,300,000

Fuji Products
Statement of Recognized Income and Expenses
For the Year Ended December 31, 2008
Cash
Charge
Installment
Sales
Sales
Sales
Sales
P300,000
P600,000
P 1,500,000
Cost of Sales
195,000
325,000
780,000
Gross Profit
P105,000
P275,000
P 720,000
Less Deferred Gross Profit, 2008 sales
460,800
Realized Gross Profit on 2008 sales
P105,000
P275,000
P 263,200
Add Realized Gross Profit on 2006 and 2007 sales
Total Realized Gross Profit
Less Loss on Repossession
Realized Gross Profit after loss on repossession
Operating Expenses, including bad debts
Net Income before Income Tax
Income Tax
Net Income

Total
P2,400,000
1,300,000
P1,100,000
460,800
P 639,200
P 169,500
P 808,700
51,000
P 757,700
465,000
P 292,700
102,445
P 190,255

Problem 6-4
1. Computation of gross profit rates
2006 sales
160,000/400,000
2007 sales
167,200/440,000
2008 sales
163,800/420,000
2.

Adjusting entries
a. Installment Sales
Cost of Installment Sales
Deferred Gross Profit 2008
b.

3.

Deferred Gross Profit 2006


Deferred Gross Profit 2007
Deferred Gross Profit 2008
Realized Gross Profit
2006 - (P110,000 P28,000 - P9,000 - P5,000) x 40% = P27,200
2007 - (P250,000 P92,000 - P2,800) x 38% = P58,976
2008 - (P420,000 P238,000) x 39% = P70,980

Correcting entries
a. Deferred Gross Profit 2006 (9,000 x 40%)
Deferred Gross Profit - 2007 (2,800 x 38%)

40%
38%
39%
420,000

27,200
58,976
70,980

3,600
1,064

256,200
163,800

157,156

AA1 - Chapter 6 (2008 edition)


page 14

b.

4.

Operating Expenses
Inventory of Repossessed Merchandise(4,000 - 400 - 600)
Deferred Gross Profit 2006 (5,000 x 40%)
Operating Expenses
The indicated gain of P600 is ignored and deducted from the
market value of the repossessed merchandise.

Closing entries
a. Realized Gross Profit
Operating Expenses
Income Summary

157,156

b.

Income Tax
Income Tax Payable

21,987

c.

Income Summary
Income Tax

21,987

d.

Income Summary
Retained Earnings

40,833

Problem 6-5
(1)
Sept. 30

(2)

3,000
2,000

Cash
Installment Contract Receivable
Piano
Deferred Gross Profit
60/160 = 37.5%

48,000
432,000

Oct. 31

Cash
Installment Contract Receivable
Installment Revenue

48,000

Nov. 30

Cash
Installment Contract Receivable
Installment Revenue

48,000

Dec. 31

Cash
Installment Contract Receivable
Installment Revenue

48,000

Date

Collection

Sept. 30
Oct. 31

48,000
48,000

Nov. 30

48,000

Dec. 31

48,000

Interest
432,000 x .005 =
2,160
386,160 x .005 =
1,931
340,091 x .005 =
1,700

Principal
Reduction
48,000
45,840

Principal
Balance
480,000
432,000
386,160

46,069

340,091

46,300

293,791

4,664
5,000

94,336
62,820
21,987
21,987
40,833

300,000
180,000

45,840
2,160
46,069
1,931
46,300
1,700

AA1 - Chapter 6 (2008 edition)


page 15

(3)

Dec. 31

(4)

2006
Feb.

Problem 6-6
(1)

Deferred Gross Profit


69,828
Realized Gross Profit
48,000 + 45,840 +46,069 + 46,300 = 186,209 x 37.5% = 69,828
Repossessed Piano
Deferred Gross Profit
Loss on Repossession
Installment Contract Receivable

56,000
36,724
5,207

Sales 1,260,000 + (2,650,000 1.06)


Cost of Sales:
Inventory, beginning
Purchases

P 580,600
2,093,000
P2,673,600
333,000

Gross Profit Rate (1,419,400 / 3,760,000 )

Installment
Time of
Sale
1
2
3
4
5
6

(3
)

Equivalent Cash
Sales Price
10,000
(10,600 1.06)
7,350
(10,000 - 2,650)
6,893.50
(7,350 - (530 - 73.50)
6,432.43
(6,893.50 -(530 - 68.93)
5,966.75
(6,432.43-(530 - 64.32)
5,446.42
(5,966.75- (530 - 59.67)
5,021.38
(5,446.42- (530 - 54.96)

Contract
Balance
10,600

Interest
Revenue
-

7,950
(10,600 - 2,650)
7,420
(7,950 -530)
6,890
(7,420 - 530)
6,360
(6,890 - 530)
5,830
(6,360 -530)
5,300
(5,830 -530)

73.50
(7,350 x 1%)
68.93
(6,893.50 x 1%)
64.32
(6,432.43x 1%)
59.67
(5,966.75 x 1%)
54.96
(5,496.42 x 1%)
50.21
(5,021.38 1%)

Installment Sales Price


Less: Installment on contract
10,600 - (10,600 1.06)
Installment sales at cash sales price
Less: Downpayment
Collections
Less interest

97,931
P3,760,000

Less: Inventory end


Gross Profit

(2
)

69,828

2,340,600
P1,419,400
3,760,000
37.75%
Cash
Collection
2,650
(10,600 x 25%)
530
(7,950 15)
530
(7,950 15)
530
(7,950 15)
530
(7,950 15)
530
(7,950 15)
530
(7,950 15)
P10,600.00
600.00

P 1,590.00
206.70

P 2,650.00
1,383.30

P10.000.00
4,033.60

AA1 - Chapter 6 (2008 edition)


page 16

Balance
Less: DGP 5,966.75 x 37.75%
Repossessed Sales
Repossessed Inventory
Net gain on defaults

(4
)

2,252.45
2,300.00
1,800.00

Cash Sales (1,260,000 x 37.75%)


Installment Sales:
Downpayment 662,500 x 37.75%
Installments on defaults 1,383.30 x 37.75%
Installment Collections
Less Interest (P2,650,000 - P10,600) /1.06 x .03716
Balance
Realized Gross Profit

P5,966.70
P6,352.45
P 385.75

P791,820.00
92,528.40
P699,291.60
x 37.75%

475,650

250,093.75
522.20

263,982.60
P990,248.60

Problem 6-7
1. Total installment sales
Less Installment Receivable - Dec. 31
Total Collections in Sales

P3,450,000
1,594,600
P1,855,400

2.

P1,855,400

Collections
GPR:
Total Selling price
Total Cost
GP
Total sales
RGP

P9,500,000
5,225,000
P4,275,000
9,500,000

45%__
P 834,930

3.

Installment Receivable - Dec. 31


GPR
Unrealized GP

P1,594,600
x 45%_
P 717,570

4.

Realized gross profit


Interest Income
Operating Expenses
Net Income before Income Tax
Income Tax
Net Income

P 834,930
520,300
(682,130)
P 673,100
235,585
P437,515

Problem 6-8
Sales (Schedule 1)
Cost of Sales (43% of Sales, Schedule 2)
Gross Profit
Less Sales Commission
Gross profit excluding Commission

P 8,060,000
3,465,800
P 4,594,200
221,000
P 4,373,200

AA1 - Chapter 6 (2008 edition)


page 17

Less DGP 4,373,200 / 8,060,000 x 5,370,000


Realized gross profit
Expenses:
Advertising
Sales Managers Salaries
Gen. Operating Expenses (2,360,000 x 1/ 4 )
Net loss
Schedule 1 Sales

2,913,658
P 1,459,542
P730,000
900,000
590,000

Total Sales
Price
P3,900,000
3,200,000
960,000
P8,060,000

A 26 @ 150,000
B 32 @ 100,000
C 12 @ 80,000
Schedule 2 - Cost of Sales Rate
A
B
C

No. of lots
80
100
130
310

Cost of Land
Legal fees, etc.
Grading
Water & Sewerage
Paving expenses
General operating expenses (2,360,000 x 3/4)
Total cost
Total sales value
Cost of sales rate
Problem 6 - 9
2007 Inventory
Cash

2,220,000
P 760,458

Cash
Received
P1,650,000
800,000
240,000
P2,690,000

Installment
NR Balance
2,250,000
2,400,000
720,000
5,370,000

Unit
Sales Price
150,000
100,000
80,000

Total
Sales Value
P12,000,000
10,000,000
10,400,000
P32,400,000
P 4,800,000
600,000
2,250,000
1,849,000
2,663,000
1,770,000
P13,932,000
32,400.000
43%
45,200

Notes Receivable 2007 (32,000 + 62,000 + 3,600)


Discount on Notes Receivable - 2007 (7,167 + 3,600 )
Installment Sales

97,600

Cost of Installment Sales (45,200 - 2,000)


Inventory

43,200

Cash
Notes Receivable - 2007 (32,000 + 3,600)

35,600

45,200
10,767
86,833
43,200
35,600

AA1 - Chapter 6 (2008 edition)


page 18

Discount on Notes Receivable - 2007


Interest Revenue

2008

3,600

Installment Sales
Cost of Installment Sales
Deferred Gross Profit - 2007

86,833

Deferred Gross Profit - 2007


Realized Gross Profit
43,633/86,833 = 50.25% x 32,000

16,080

Inventory
Cash

52,020

Notes Receivable - 2008 (160,000 + 50,000 + 5,500 - 26,000)


Discount on Notes Receivable 2008[8,043 + (5,500 - (7,167 5,579)]
Installment Sales

89,500

Cost of Installment Sales (52,020 - 8,000)


Inventory

44,020

Cash
Notes Receivable 2008 (89,500 - 60,000)
Notes Receivable 2007 (62,000 - 36,000)

55,500

Discount on Notes Receivable 2008 (5,500 - 1,588)


Discount on Notes Receivable 2007 (7,167 - 5,579)
Interest Revenue

3,912
1,588
77,545

Deferred Gross Profit - 2008 (29,500 - 3,912 x 43.33%)


Deferred Gross Profit - 2007 (26,000 - 1,588 = 24,412 x 50.22%)
Realized Gross Profit
33,525/77,545 = 43.23%

11,062
11,267

Cash
Notes Receivable
Idle Plant
Deferred Gross Profit

43,200
43,633

16,080

52,020
11,955
77,545

Installment Sales
Cost of Installment Sales
Deferred Gross Profit - 2008

Problem 6-10
2005
Jan. 1

3,600

2,000,000
5,000,000

44,020
29,500
26,000

5,500
44,020
33,525

23,329

5,000,000
2,000,000

AA1 - Chapter 6 (2008 edition)


page 19

2006
July 1

Cash
Notes Receivable
Deferred Gross Profit

2007
Dec. 31

2008
Feb. 1

Feb. 1

1,900,000

Cash
2,250,000
Deferred Gross Profit
400,000
Notes Receivable
Interest. Revenue
2,250,000 - (5,000,000 - 2,000,000 - 1,900,000) = 1,150,000
Cash
Notes Receivable
Interest Revenue

2,825,000

1,000,000
900,000

1,500,000
1,150,000

2,500,000
325,000

Deferred Gross Profit (2,000,000 + 900,000 - 400,000) 2,500,000


Gain on Sale of Idle Plant
2,000,000
Interest Revenue
500,000
(900,000 + 750,000 + 325,000 = 1,975,000 - 1,150,000 - 325,000 = 500,000)
MULTIPLE CHOICE

1.

2
3
4

A
B
C

Inst. Sales
8,765,625 68%
Inst. Rec. beg.
Inst. Rec. end
Collections
GPR

2008
P12,890,625
(9,728,125)
P 3,162,500
x 32%
P 1,012,000

Deferred gross profit before adjustment


Deferred gross profit after adjustment
2007 - P16,250 x 30/130
2008 - P90,000 x 33 1/3 /133 1/3
Realized gross profit
Operating expenses
Net income
Downpayment (P545,000 x .2)
Inst. Collections (P545,000 x 8 x .40)
Collections in year 1 on Year 1 Inst. Sales

2007

2006

P8,387,500
(3,025,000)
P5,362,500
x 30%
P1,608,750

P1,512,500
__________
P1,512,500
x 28%
P 423,500

P10,037,500
P3,044,250

P38,000
P 3,750
22,500

26,250
P11,750
1,500
P10,250
P109,000
174,400
P283,400
x 35/135

AA1 - Chapter 6 (2008 edition)


page 20

Realized gross profit for Year 1


Installment sales - Year 2
Less Collections in Year 2
DP (P785,000 x .20)
Installment collection (P785,000 x .80 x .40)
Balance, end of Year 2

P 73,474
P785,000
P157,000
251,200

Unrealized GP on Year 2 installment sales at the end of Year 2

408,200
P376,800
x 35/135
P 97,689
P464,640
157,000
P621,640

Inst. Accts. Rec., end of year 3


On year 3 installment sales (P968,000 x .80 x .60)
On Year 2 installment sales (P785,000 x .80 x .25)
Total installment accounts receivable, end of Year 3

Total installment accounts receivable, end of Year 3


Total unrealized gross profit at end of Year 3

P621,640
x 35/135
P161,166

10

11

2007 - 100% - (31,250/62,500) = 50% x P25,000


2008 - 100% - (45,000/100,000) = 55% x P62,500
Total

12

Sales - regular
Cost of sales - regular
Gross profit - regular
Realized gross profit (see D1)
Total gross profit
Selling expenses
Net income

P187,500
112,500
P 75,000
46,875
P121,875
31,250
P 90,625

13
.

P610,750 x 60%

P366,450

14

P306,520 x 40%

P122,608

15

2006 sales - P17,400 x 36%


2007 sales - P(205,400 - P200 - P25,800) x 39%
Total

16

Selling price
Cost (P200 x 61%)
Gain from sale of repossessed merchandise

17

(P344,460 - P67,440 - P2,200) x 34%

18

Market value of repossessed ref (P1,700 x 63%)


Unrecovered cost (P2,200 x 66%)
Loss on repossession

P12,500
34,375
P46,875

P 6,264
69,966
P76,230
P 200
122
P 78
P93,438.80
P1,071
1,452
P 381

AA1 - Chapter 6 (2008 edition)


page 21

19

2006 sales - 100% - (247/380) = 35% x P24,020


2007 sales - see 6-17
2008 sales - 100% - (379,260/602,000 = 37%
37% x (P602,000-P410,090)
Total

20

( P100,000 - P12,500 - P6,250) x 50%

21

( 375,000 - 150,000) x 45%*


*Installment sales
Invty. Beg.
Purchases
Repossessions
Mdse. Avail for sale
Less Invty. End
CGS
Cost of Regular sale ( 312,500 x 70% )
Gross profit on Installment sales
Gross
profit
rate
on
Installment
(168,750/375,000)

22

(3,750 - (6,250 x 50%)

23

2006 sales - P108,750 x 25%


2007 sales - P120,000 x 27.5%
2008 sales - P 93,750 x 28%
Total

24

Value assigned to repossessed merchandise:


2006 sales
2007 sales
Unrecovered cost
2006 sales - P22,500 x 75%
2007 sales - P24,000 x 72.5%
Loss on repossession

25

2006 sales - P24,000 x 39%


2007 sales - (P300,000 - P60,000 - P10,000) x 42%
2008 sales - (P480,000 - P320,000 - P5,000) x 40%
Total

26

2007 sales - P4,500 - (P10,000 x 58%)


2008 sales - P3,500 - (P5,000 x 60%)
Net gain (loss) on repossession

27

P360,000 x 33 1/3%

28

Loss = P8,000 - (P15,000 x 60%)

8,407.00
93,438.80

71,006.70
P172,852.50
P40,625

P 62,500
435,000
2,500
500,000
75,000
425,000
218,750
sales = 45%

P101,250
P 375,000

206,250

P625 loss
P27,187.50
33,000.00
26,250.00
P86,437.50
P 9,000
13,500
P16,875
17,400

P22,500
34,275
P11,775
P 9,360
96,600
62,000
P167,960
P(1,300)
500
P (800)
P120,000
P1,000

AA1 - Chapter 6 (2008 edition)


page 22

29
30

C
A

(P800,000 - P250,000 - P300,000 - P15,000) x 40%


(P75,810/42%) + P75,810

P94,000
P256,310

31

2006 sales - P35,800 x 32.26%


2007 sales - (P155,000 - P42,000) x 40%
2008 sales - (P256,310 - P100,500) x 42/142
total

P 11,550
45,200
46,085
P102,835

32

(P120,000 - P15,000 - P7,750) x 45%

33

Inventory, Dec. 31, 2007


Purchases
Repossessions
Cost of goods available for sale
Less Inventory, Dec. 31, 2008
Cost of goods sold
Less Cost of goods sold on regular sales (P385,000 x 70%)
Cost of installment sales
Gross profit rate on installment sales [100% - (263,500/425,000)]
Realized gross profit - (P425,000 - P200,000) x 38%

P 70,000
555,000
3,000
P628,000
95,000
P533,000
269,500
P263,500
38%
P85,500

34

A.

(7,750 x 55%) - 3,000

P1,262.50

35

Cash sales
Charge sales (P180,000/120%)
Installment sales (P446,400/124%)
Total sales - cash basis

P 90,000
150,000
360,000
P600,000

36

Inventory, beginning
Delivered cost of purchases
Repossessed merchandise
Cost of goods available for sale
Less Inventory, end
Cost of goods sold

P52,500
393,000
15,000
P460,500
70,500
P390,000

Cost of installment sales - P390,000 x 360/600

P234,000

37

Installment recl, beg


Installment sales
Installment recl, end
Defaulted recl
Collections

P43,762.50

2006
P 74,000

2007
P123,000

( 15,000)
( 18,000)
P 41,000

( 45,000)
( 21,000)
P 57,000

2008
P446,400
( 270,000)
---___
P176,400

AA1 - Chapter 6 (2008 edition)


page 23

38

Sales price of Article A


Less Overvaluation on trade -in
Sales price
Reconditioning cost
Normal profit
Market value of trade-in
Allowed trade-in value
Adjusted sales price
Cost of Article A
Gross profit
Gross profit rate

P400,000
P110,000
( 8,000)
( 22,000)
P 80,000
120,000

40,000
P360,000
270,000
P 90,000
25%

Realized GP - (P80,000 + P40,000) x 25%

P30,000

39

Inst. recl balance, Dec. 31, 2007 (P360,000 - P120,000)


Installment payment, Jan. 1 - Mar. 1 (P20,000 x 3)
Inst. recl balance, April 1
Cost percentage
Unrecovered cost
Market value of repossessed mdse. (P13,500 - P800 - P2,700)
Loss on repossession

40

Expected loss (125,000 x 4%*)


Less: Loss on default 2008
P1,500
Recovery from sale of repossessed merchandise
175
Balance of allowance for defaulted contracts; Dec. 31, 2008
*Loss on default in 2007 on 2007 sales
P 250
Loss on default in 2008 on 2007 sales
3,750
P 4,000
Recovery on sale of repossession in 2008
P 800
Repossessed Merchandise on hand
200
1,000
Expected loss
P 3,000

Sales
P75,000
Rate of loss as a % of sales
4%

41

42

Inst. contract recl beg.


Less: Inst. Contract recl, end
Inst. Contract recl written off
Collections
Gross profit rate
Realized gross profit
Lot A (791,086.20 x 30%)
Lot B (973,333.30 x 25%)
Lot C and House (P2,080,000 x 40%)

P2,000
3,750

P240,000
60,000
P180,000
x 75%
P135,000
100,000
P 35,000
P5,000
1,325
P3,675

P31,500
5,750
P25,750
x 40%
P10,300
P 237,325.80
243,333.30
832,000.00

AA1 - Chapter 6 (2008 edition)


page 24

Realized gross profit

P1,312,659.10

Schedule of Collection
Lot A
3/31 - Initial balance
3/31 - Down payment
6/30 - P120,000 - (P1,200,000 x 2.5%)
9/30 - P120,000 - (P1,110,000 x 2.5%)
12/31- P120,000 - (P1,017,750 x 2.5%)
Lot B
10/31 Initial balance
10/31 Down payment
12/31 P200,000 (P1,600,000 x 1.667%)
Lot C
6/30 Initial balance
6/30 Down payment
12/31- P400,000 (P2,400,000 x 5%)
Allocation of Cost & GP rates:
Lot A P1,600,000 x 6/8
Lot B - P2,400,000 x 6/8
Lot C: Farm A P400,000
B P600,000
House - P1,520,000

Principal
P514,280.00
90,000.00
92,250.00
94,556.20
P791,086.20
P800,000.00
173,330.30
P973,333.30
P1,800,000.00
280,000.00
P2,080,000.00

Balance
P1,714,280.00
1,200,000.00
1,110,000.00
1,017,750.00
923,193.80
P2,400,000.00
160,000
1,426,666.70
P4,200,000
2,400,000
2,120,000

Cost
P1,200,000
1,800,000

SP
P1,714,280
2,400,000

GP
P514,280
600,000

%
35%
25%

2,520,000

4,200,000

1,680,000

40%

43

Unpaid balance upon default


Less: DGP (P2,120,000 x 40%)
Unrecovered cost
Market value [P2,520,000 (P1,520,000 20)]
Gain on repossession

P2,120,000
848,000
P1,272,000
2,444,000
P1,172,000

44

8,000,000 (8,000,000 x 20%) = 6,400,000 x 3% =


6,400,000 (642,957.30 192,000) x 3%
Collections to be applied on interest

P192,000.00
178,471.30
P370,471.30

45

Downpayment
1st inst. 642,957.30 - 192,000
2nd inst. 642,957.30 - 192,000
Total collections (P8,000,000 - (2,500,000 + 3,560,000) /
8,000,000]
Realized gross profit

P1,600,000.00
450,957.30
464,486.00
P 2,515,443.30
x 24.25%
P 609,995.00

CHAPTER 7

SUGGESTED ANSWERS
Exercise 7-1
1.
Contract price
Cost incurred to date
Est. cost to complete

2.

2006
P50,000,000
P 7,500,000
30,000,000

2007
P50,000,000
P34,500,000
8,625,000

Total estimated cost


Total estimated gross profit
Percentage of completion

37,500,000
P12,500,000
20%

P43,125,000
P 6,875,000
80%

2008
P50,000,000
P40,800,000
__________
P40,800,000
P 9,200,000
100%

2006 - Recognized revenue


Cost of revenue
Gross profit

To Date
P10,000,000
7,500,000
P 2,500,000

Recognized in prior year/s


-

To be recognized this year


P10,000,000
7,500,000
P 2,500,000

2007 - Recognized revenue


Cost of revenue
Gross profit

P40,000,000
34,500,000
P 5,500,000

P10,000,000
7,500,000
P 2,500,000

P30,000,000
27,000,000
P 3,000,000

2008 - Recognized revenue


Cost of revenue
Gross profit

P50,000,000
40,800,000
P 9,200,000

P40,000,000
34,500,000
P 5,500,000

P10,000,000
6,300,000
P 3,700,000

2006

2007

2008

a. Construction in progress
Cash, Materials, etc.

7,500,000

b. Accounts Receivable
8,000,000
Progress Billings on Const. Contracts

7,500,000
8,000,000

27,000,000
36,000,000

27,000,000
36,000,000

6,300,000
6,000,000

6,300,000
6,000,000

AA1 - Chapter 7 (2008 edition)

page

c. Cash
Accounts Receivable

5,500,000

d. Cost of LTCC
Construction in Progress
Revenue from LTCC

7,500,000
2,500,000

33,000,000

5,500,000

33,000,000

27,000,000
3,000,000

10,000,000

30,000,000

e. Progress Billings on
Construction Contracts
Construction In Progress
3.

11,500,000

6,300,000
3,700,000

10,000,000

50,000,000

Statement of Financial Position


Current Assets:
Accounts Receivable

50,000,000

P5,500,000

Current Liabilities:
Progress Billings on Construction Contracts
Less Construction in Progress

P44,000,000
40,000,000

Exercise 7-2
a. Construction in Progress
Cash, Materials, etc.

32,000,000

b. Accounts Receivable
Progress Billing on Const. Contract

33,000,000

c. Cash
Accounts Receivable

31,000,000

Cost of LTCC
Construction in Progress
Revenue from LTCC

11,500,000

23,000,000
2,000,000

2006
32,000,000
33,000,000
31,000,000

25,000,000

43,000,000
45,000,000
40,000,000

P4,000,000
2007
43,000,000
45,000,000
40,000,000

45,250,000
4,750,000

50,000,000

15,500,000

2008

22,000,000
29,000,000

22,250,000
2,750,000

15,500,000
22,000,000
29,000,000

25,000,000

AA1 - Chapter 7 (2008 edition)

page

e. Progress Billing on Const. Contracts


Construction in Progress
Contract price
Cost incurred to date
Estimated cost to complete
Total estimated cost
Total estimated gross profit
Percentage of completion

100,000,000
100,000,000
2006
P100,000,000
P 32,000,000
60,000,000
P 92,000,000
P 8,000,000
25%

2007
P100,000,000
P 75,000,000
16,000,000
P 91,000,000
P 9,000,000
75%

2008
P100,000,000
P 90,500,000
___________
P 90,500,000
P 9,500,000
100%

2006 - Recognized revenue


Cost of revenue
Gross profit

To date
P25,000,000
23,000,000
P 2,000,000

Recognized in prior year/s


-

To be recognized this year


P25,000,000
23,000,000
P 2,000,000

2007 - Recognized revenue


Cost of revenue
Gross profit

P75,000,000
68,250,000
P 6,750,000

P25,000,000
23,000,000
P 2,000,000

P50,000,000
45,250,000
P 4,750,000

2008 - Recognized revenue


Cost of revenue
Gross profit

P100,000,000
90,500,000
P 9,500,000

P75,000,000
68,250,000
P 6,750,000

P25,000,000
22,250,000
P 2,750,000

Exercise 7-3
1.

Contract price
Total estimated cost:
Cost incurred to date
P 4,400,000
Estimated cost to complete
15,600,000
Total estimated gross profit
Percentage of completion ( P 400,000/20,000,000)
Gross profit to be recognized in 2008

P25,000,000
20,000,000
P 5,000,000
22%
P 1,100,000

AA1 - Chapter 7 (2008 edition)

2.

page

Accounts Receivable
Construction in Progress
Progress Billings on Construction Contracts

Exercise 7-4

(P25,000,000 x 30% x 10%)


(P4,400,000 + P1,100,000)
(P25,000,000 x 30%)

P 750,000
P5,500,000
P7,500,000

Contract price
Cost incurred to date
Estimated cost to complete
Total estimated cost
Total estimated gross profit
Percentage of completion

2006
P35,000,000
P17,500,000
10,500,000
P28,000,000
P 7,000,000
62.5%

2007
P35,000,000
P29,250,000
3,250,000
P32,500,000
P 2,500,000
90%

2008
P35,000,000
P31,000,000
P31,000,000
P 4,000,000
100%

2006 - Recognized revenue


Cost of revenue
Gross profit

To date
P21,875,000
17,500,000
P 4,375,000

Recognized in prior year/s


-

To be recognized this year


P21,875,000
17,500,000
P 4,375,000

2007 - Recognized revenue


Cost of revenue
Gross profit

P31,500,000
29,250,000
P 2,250,000

P21,875,000
17,500,000
P 4,375,000

P 9,625,000
11,750,000
P(2,125,000)

2008 - Recognized revenue


Cost of revenue
Gross profit
2. Journal entries

P35,000,000
31,000,000
P 4,000,000

P31,500,000
29,250,000
P 2,250,000

P 3,500,000
1,750,000
P 1,750,000

2006

2007

2008

a. Construction in Progress
Cash, Materials, etc.

17,500,000

b. Accounts Receivable
Progress Billing on
Const. Contracts

16,000,000

17,500,000

11,750,000

11,750,000

12,000,000
16,000,000

1,750,000

1,750,000

7,000,000
12,000,000

7,000,000

AA1 - Chapter 7 (2008 edition)

page

c. Cash
Accounts Receivable

15,000,000

d. Cost of LTCC
Construction in Progress
Construction in Progress
Rev. from LTCC

17,500,000
4,375,000

15,000,000

10,000,000

10,000,000

10,000,000

11,750,000
21,875,000

10,000,000

1,750,000
1,750,000

2,125,000
9,625,000

3,500,000

e. Progress Billing on Const. Contract


Construction in Progress

35,000,000

35,000,000

3.
2006 - Recognized revenue
Cost of revenue
Gross profit

To date
P17,500,000
17,500,000
==========

Recognized in prior year/s


============

To be recognized this year


P17,500,000
17,500,000
==========

2007 - Recognized revenue


Cost of revenue
Gross profit

P31,500,000
29,250,000
P 2,250,000

P17,500,000
17,500,000
----------------

P14,000,000
11,750,000
P 2,250,000

2008 - Recognized revenue


Cost of revenue
Gross profit

P35,000,000
31,000,000
P 4,000,000

P31,500,000
29,250,000
P 2,250,000

P3,500,000
1,750,000
P1,750,000

Exercise 7-5
Revenue recognized in 2008
Gross profit/income recognized in 2008
Cost incurred in 2008

(P26,000,000 x 40%)
(P3,120,000 - P1,300,000)

P10,400,000
1,820,000
P 8,580,000

AA1 - Chapter 7 (2008 edition)

Exercise 7-6
Revenue (CP x % of work done in 2007)
Cost of revenue
Gross profit (loss)

page

Binondo Project
P12,000,000
12,400,000
P (400,000)

Pasig Project
P1,290,000
1,400,000
P( 110,000)

Exercise 7-7
1. Contract revenue/price
Less Total profit
Total cost incurred
Less Cost incurred in 2006 and 2008
Cost incurred in 2007

P10,000,000
800,000
P 9,200,000
5,900,000
P 3,300,000

2. Gross profit to date, 12.31.07


Cost incurred to date, 12.31.07 (P1,800,000 + P3,300,000)
Revenue to date, 12.31.07
Percentage-of-completion (6,000,000/10,000,000)

P 900,000
5,100,000
P6,000,000
60%

3. Gross profit to date, 12.31.07


Percentage of completion
Total estimated gross profit

P 900,000
60%
P1,500,000

4. Contract price
Less Total estimated gross profit
Total estimated cost
Less Cost incurred to date
Estimated cost to complete

P10,000,000
1,500,000
P 8,500,000
5,100,000
P 3,400,000

Exercise 7-8
Cash
Notes Receivable
Discount on Notes Receivable
Unearned Franchise Fees

500,000
1,000,000

207,540
1,292,460

AA1 - Chapter 7 (2008 edition)

Exercise 7-9
1. Cash
Notes Receivable
Discount on Notes Receivable
Unearned Franchise Fees

page

4,000,000
3,000,000

2. Cash
Notes Receivable
Discount on Notes Receivable
(3,000,000-(2.48685 x 1,000,000)
Revenue from Franchise Fees

4,000,000
3,000,000

3. Cash
Unearned Franchise Fees

4,000,000

513,200
6,486,800

513,200
6,486,800
4,000,000

4. Cash
4,000,000
Notes Receivable
3,000,000
Discount on Notes Receivable
Revenue from Franchise Fees
Unearned Franchise Fees (1,000,000 x 2.48685)
Exercise 7-10
2007
July 1 - Cash
Notes Receivable
Discount on Notes Receivable
Unearned Franchise Fee
P800,000 x 3.1699 = P2,535,900
P3,200,000 - P2,535,900 = P664,100

513,200
4,000,000
2,486,800

1,200,000
3,200,000

Sept. 1 - Deferred Franchise Cost


Cash

100,000

Nov. 15 - Deferred Franchise Cost


Cash

60,000

644,100
3,735,900

100,000
60,000

AA1 - Chapter 7 (2008 edition)

page

Dec. 31 - Discount on Notes Receivable


Interest Revenue
P2,535,900 x 10% x 6/12 = P126,795
2008
Jan. 10 - Deferred Franchise Cost
Cash

126,795

100,000

15 - Unearned Franchise Fee


Franchise Fee Revenue

3,735,900

15 - Cost of Franchise Fee Revenue


Deferred Franchise Cost

260,000

July 1 - Cash
Notes Receivable

800,000

1 - Discount on Notes Receivable


Interest Revenue

126,795

Problem 7-1
a. Construction in Progress
Cash, Materials, etc.

11,000,000

b. Accounts Receivable
Progress Billing on Const. Contract

10,800,000

c. Cash
Accounts Receivable

10,000,000

d. Cost of LTCC
Construction in Progress
Revenue from LTCC

11,000,000
2,750,000

2007
11,000,000
10,800,000

10,000,000

13,750,000

126,795

100,000
3,735,900
260,000
800,000
126,795

4,800,000

2008

9,200,000

10,000,000
4,800,000
1,450,000

4,800,000
9,200,000

10,000,000

6,250,000

AA1 - Chapter 7 (2008 edition)

page

e. Progress Billing on Construction Contracts


Construction in Progress

20,000,000

Problem 7-2
Statement of Recognized Income and Expenses:
Income: 2007
2008

P2,750,000
1,450,000

Statement of Financial Position


Receivable: 2007
2008

P 800,000
-

Inventory - CIP, net of billings


2007 (13,750,000 - 10,800,000)
2008
Problem 7-3
Year
2006
2007
2008

20,000,000

P2,950,000
-

Income (loss) Recognized


1,000,000
1,000,000
1,000,000

Contract price
Cost incurred to date
Estimated cost to complete
Total estimated cost
Total estimated gross profit
Percentage of completion
Gross profit to date
Less Gross profit recognized in prior year/s
Gross profit to be recognized this year

Recl ending balance


380,000
940,000
-

2006
P15,000,000
P 4,000,000
8,000,000
P12,000,000
P 3,000,000
33 1/3%
P 1,000,000
_____-______
P 1,000,000

CIP Invty. ending balance


5,000,000
12,000,000
2007
P15,000,000
P10,000,000
2,500,000
P12,500,000
P 2,500,000
80%
P 2,000,000
1,000,000
P 1,000,000

Cost in excess of billings


1,200,000
2,600,000
2008
P15,000,000
P12,000,000
---------------P12,000,000
P 3,000,000
100%
P 3,000,000
2,000,000
P 1,000,000

AA1 - Chapter 7 (2008 edition)

page

Problem 7-4

PROJECT A
2007
2008
P29,000,000
P29,000,000
P16,800,000
P26,400,000
11,200,000
------------P28,000,000
P26,400,000
P 1,000,000
P 2,600,000
60%
100%
P 600,000
P 2,600,000
------600,000
P 600,000
P 1,000,000

Contract price
Cost incurred to date
Estimated cost to complete
Total estimated cost
Total estimated gross profit (loss)
Percentage of completion
Gross profit (loss) to date
Less gross profit recognized in prior year
Gross profit - current year

PROJECT B
2007
2008
P34,000,000 P34,000,000
P14,400,000 P21,200,000
17,600,000
13,000,000
P32,000,000 P34,200,000
P 2,000,000 P( 200,000)
45%
P 900,000 P( 200,000)*
-----900,000
P 900,000 P(1,100,000)

PROJECT C
2007
2008
P17,000,000
P17,000,000
P 3,200,000
P11,830,000
9,600,000
1,170,000
P12,800,000
P13,000,000
P 4,200,000
P 4,000,000
25%
91%
P 1,050,000
P 3,640,000
---1,050,000
P 1,050,000
P 2,590,000

* The entire loss should be recognized immediately


(1) Percentage of completion method
Gross profit
Operating expenses
Net income
Problem 7-5
1. (a)
Contract price
Cost incurred to date
Estimated cost to complete
Total estimated cost
Total estimated gross profit
Percentage of completion

2007
P2,550,000
1,200,000
P1,350,000
2006
P120,000,000
P 24,000,000
76,000,000
P100,000,000
P 20,000,000
24%

2008
P3,890,000
1,200,000
P2,690,000
2007
P120,000,000
P60,500,000
49,500,000
P110,000,000
P 10,000,000
55%

2008
P120,000,000
P90,000,000
10,000,000
P100,000,000
P 20,000,000
90%

2009
P120,000,000
P105,000,000
-------P105,000,000
P 15,000,000
100%

10

PROJECT D
2008
P2,000,000
P 5,600,000
10,400,000
P16,000,000
P 4,000,000
35%
P 1,400,000
----P 1,400,000

AA1 - Chapter 7 (2008 edition)

page

Recognized in
To date
P28,800,000
24,000,000
P 4,800,000

prior year
----------------

2007-Revenue
Cost of revenue
Gross profit

To date
P66,000,000
60,500,000
P 5,500,000

Recognized in
prior year
P28,800,000
24,000,000
P 4,800,000

2008-Revenue
Cost of revenue
Gross profit

P108,000,000
90,000,000
P 18,000,000

P66,000,000
60,500,000
P 5,500,000

To date
P120,000,000
105,000,000
P 15,000,000

Recognized in
prior year
P108,000,000
90,000,000
P 18,000,000

2006-Revenue
Cost of revenue
Gross profit

2009-Revenue
Cost of revenue
Gross profit
2.
a

Construction in Progress
Cash, Materials, etc.

2006
24,000,000

b.

Accounts Receivable
Progress Billings on Const. Contract

26,000,000

c.

Cash
Accounts Receivable

24,000,000

24,000,000
26,000,000
24,000,000

2007
36,500,000
31,000,000
27,000,000

11

To be
recognized
in current year
P28,800,000
24,000,000
P 4,800,000
To be
recognized
in current year
P37,200,000
36,500,000
P 700,000
P42,000,000
29,500,000
P12,500,000
To be
recognized
in current year
P 12,000,000
15,000,000
P( 3,000,000)

36,500,000
31,000,000
27,000,000

2008
29,500,000
34,000,000
30,000,000

29,500,000
34,000,000
30,000,000

2009
15,000,000
29,000,000
30,000,000

15,000,000
29,000,000
30,000,000

AA1 - Chapter 7 (2008 edition)

d.

e.

page

Cost of LTCC
Construction in Progress
Construction in Progress
Revenue from LTCC

24,000,000
4,800,000

36,500,000
700,000
28,800,000

29,500,000
12,500,000
37,200,000

15,000,000
42,000,000

Progress Billings on Const. Contracts


Construction in Progress

Problem 7-6
Contract price
Cost incurred to date
Estimated cost to complete
Total estimated cost
Total estimated gross profit
Percentage of completion
Gross profit to date
Less Gross profit recognized in prior year
Gross profit - current year
Problem 7-7
1. Recognized revenue
Cost of revenue
Gross Profit (loss)

120,000,000

2006
P14,000,000
P 5,000,000
7,500,000
P12,500,000
P 1,500,000
40%
P 600,000
-----P 600,000

2006
P 1,100,000
1,000,000
P 100,000 (1)

2. Contract-price
Cost incurred to date
Estimated cost to complete
Total estimated cost
Total estimated gross profit
Percentage of completion
Gross profit to date
Less GP recognized in prior year/s
GP to be recognized this year

2007
P14,000,000
P11,475,000
1,275,000
P12,750,000
P 1,250,000
90%
P 1,125,000
600,000
P 525,000

2007
P1,300,000 (2)
1,250,000
P 50,000
2006
P3,500,000
1,000,000
P2,250,000
P3,250,000
250,000
30.77%
P 76,925
P 76,925

2008
P13,000.000
P12,295,000
------P12,295,000
P 705,000
100%
P 705,000
1,125,000
P (420,000)

2008
P1,100,000 (3)
1,150,000 (4)
P (50,000)
2007
P3,500,000
2,250,000
P 950,000
P3,200,000
300,000
70.3125%
P 210,938
76,925
P 134,013

Total
P3,500,000
3,400,000 (5)
P 100,000

12

3,000,000
12,000,000

120,000,000

AA1 - Chapter 7 (2008 edition)

page

Problem 7-8
Franchise A:
The circumstances imply that the full accrual method could be used.
Franchise revenue
P3,578,000*
Franchise cost
1,400,000
Interest revenue (P2,178,000 x 4%)
Income from Franchise A
*Initial deposit
PV of four payments [4% for 4 periods
(P600,000 x 3.6299)]

13

P2,178,000
87,200
P2,265,200

P 1,400,000
2,178,000
P 3,578,000

Franchise B:
Because of the doubtful collection and only partial completion, the deposit method should be used. No revenue or income would be
recognized in 2008 from the franchise fee. However, because the first payment of P600,000 was made, interest revenue of P87,200 would
be recognized.
Franchise C:
Because of the doubtful collection but substantial completion, either the installment sales or cost recovery method could be used. If the
installment sales method is used, gross profit of P843,600* would be recognized in 2008 plus interest revenue of P87,200.
*Franchise revenue
Franchise cost
Franchise gross profit
Gross profit percentage: P1,578,000 P3,578,000
Collections in 2008:
Initial fee
First payment:
Interest
P 87,200
Principal
512,800
Total
P 600,000
Gross profit recognized 2008: P1,912,800 x 44.1% = P843,600

P3,578,000
2,000,000
P1,578,000
44.1%
P1,400,000
512,800
P1,912,800

AA1 - Chapter 7 (2008 edition)

page

14

If the cost recovery method is used, no revenue or income would be recognized, because the P2,000,000 collections are exactly offset by
the P2,000,000 costs.
Problem 7-9
2007
July 1
Cash
Notes Receivable
Unearned Franchise Fee

7,000,000
8,000,000

Aug. 15

Deferred Franchise Cost


Cash

800,000

Sept. 15

Deferred Franchise Cost


Cash

500,000

Dec. 31

Interest Receivable
Interest Revenue

400,000

2008
Jan. 1

July

Cash
Notes Receivable
Interest Receivable

2,400,000

15

Deferred Franchise Cost


Cash

1,000,000

31

Unearned Franchise Fee


Cost of Franchise Revenue
Franchise Fee Revenue
Deferred Franchise Cost

Cash
Notes Receivable
Interest Revenue
P6,000,000 x 10% x 6/12

15,000,000
2,300,000

2,300,000

15,000,000
800,000
500,000
400,000

2,000,000
400,000
1,000,000

15,000,000
2,300,000
2,000,000
300,000

AA1 - Chapter 7 (2008 edition)

Dec.

31

page

Interest Receivable
Interest Revenue

200,000

Problem 7-10
1. Downpayment made on 1/1/ 07
Present value of an ordinary annuity (P240,000 x 3.69590)
Total revenue recorded by Triple Eight

P 800,000.00
887,016.00
P1,687.016.00

2. Cost of acquisition

P 1,687,016

3. Cash
Notes Receivable
Discount on Notes Receivable
Unearned Franchise Fees
4.

800,000.00
1,200,000.00

200,000

312,984.00
1,687,016.00

a. P800,000 cash received from downpayment. (P887,016.00 is recorded as unearned revenue from franchise fees).
b. P800,000 cash received from downpayment
c. None. (P 800,000 is recorded as unearned revenue from Franchise fees).

MULTIPLE CHOICE

1.
2.
3.
4.
5.

C
B
D
A
C

6.
7.
8.
9.
10.

11.

P20,000,000 x (3,000,000/15,000,000) =

B
D
D
D
C
P4,000,000

15

AA1 - Chapter 7 (2008 edition)

12.

Contract price
Less Total estimated cost:
Cost incurred to date
Est. cost to complete
Total estimated income
% of completion (3150/9450)
Income to be recognized in 2007

page

P10,500,000
P3,150,000
6,300,000

9,450,000
P 1,050,000
33 1/3%
P 350,000

13.

Contract price
Total estimated cost
Total estimated income
Percentage-of-completion (27/81)
Income recognized last year

14.

Contract price
Total estimated cost (P4,650,000 + P10,850,000)
Total estimated loss to be recognized in full

P15,000,000
15,500,000
P 500,000

15

Contract price
Total estimated cost (P4M + P4M + P2M)
Total estimated gross profit
Percentage-of-completion (8M/10M)

P14,000,000
10,000,000
P 4,000,000
80%

Gross profit to date


Less Gross profit recognized in 2006
(P14M P8M = P6M x 4/8)
Gross profit to be recognized in 2007

P 3,200,000

Contract price
Total estimated cost
Total estimated gross profit
Percentage-of-completion (600/1,800)
Gross profit to be recognized in 2007

P3,000,000
1,800,000
P1,200,000
33 1/3%
P 400,000

16

P9,000,000
8,100,000
P 900,000
33 1/3%
P 300,000

3,000,000
200,000

16

AA1 - Chapter 7 (2008 edition)

17.

18

page

Contract price
Total cost incurred
Gross profit
Gross profit percentage (1,200/12,000)
Contract price
Total estimated cost
Total est. gross profit
Percentage-of-completion
Gross profit to date
Less GP recognized in 2007
GP to be recognized In 2008

P12,000,000
10,800,000
P 1,200,000
10%
Cubao
P16,200,000
14,400,000
P 1,800,000
83 1/3%
P 1,500,000
750,000
P 750,000

Marikina
P25,200,000
23,100,000
P 2,100,000
100%
P 2,100,000
1,872,000
P 228,000

Total GP = P750,000 + P228,000


19.

20,000,000/24,000,000

20

Contract price
Total estimated cost
Total estimated gross profit
Percentage-of-completion
GP to date
GP recognized in prior years
(P30M - P22M = P8M x 50%)
GP to be recognized in 2008

21.

Total amount billed


Less Balance of accounts receivable
Total collections
Amount deposited
Cash collected not yet deposited

22

P150,000 937,500/9,000,000

P 978,000
83.33%
P30,000,000
24,000,000
P 6,000,000
83.33%
P 5,000,000
4,000,000
P 1,000,000
P843,750
300,000
P543,750
500,000
P 43,750
P1,440,000

17

AA1 - Chapter 7 (2008 edition)

page

23

Mobilization fee (P1.2B x 1%)


Collections on billings (1.2B x 10% x 90%)
Total fee received by NNO

P 1.2M
10.8M
P12.0M

24

Contract price
Gross profit rate
Total estimated gross profit
Percentage-of-completion
Realized gross profit

P100.00M
25%
P25.00M
50%
P12.50M

25.
26
27
28
29

B
A
B
C

30

Downpayment
First installment payment
Addl fee (P1,000,000 x 3%)
Earned Franchise Fees

P 50,000
50,000
30,000
P130,000

31
32

C
A

P 100,000 x 1/5 = P 20,000 + 1% of P500,000 =


P 1,000,000 + 5% of P8,000,000 =

33

Downpayment
PV of installment payment
Additional fee ( P 9,000,000 x 5% )
Earned franchise fee

P 25,000
P1,400,000
P 100,000
199,650
450,000
P 749,650

18

CHAPTER 8
SUGGESTED ANSWERS

Exercise 8 - 1

EXERCISES

(a)

Working Fund - Agency


Cash

5,000

(b)

Accounts Receivable - Agency


Sales - Agency

50,000

(c)

Cash
Accounts Receivable - Agency

35,000

(d)

Expenses - Agency
Cash

4,500

(e)

Expenses - Agency
Cash

2,250

(f)

Cost of Sales - Agency


Shipments to Agency

36,000

5,000
50,000
35,000
4,500
2,250
36,000

Exercise 8- 2
(a)

Working Fund - Makati Agency


Samples - Makati Agency
Cash
Shipments to Makati Agency

10,000
60,000

(b)

Accounts Receivable - Makati Agency


Sales - Makati Agency

200,000

(c)

Cost of Sales - Makati Agency


Shipments to Makati Agency

116,000

(d)

Salaries and Commission - Makati Agency


Furniture and Fixtures - Makati Agency
Cash

20,000
45,000

Delivery Expense - Makati Agency


Office Supplies Expense - Makati Agency
Cash

6,200
1,000

(e)

(f)

Samples Expense - Makati Agency


Samples - Makati Agency

25,000

10,000
60,000
200,000
116,000

65,000

7,200
25,000

AA1- Chapter 8 (2008 edition)


2

page

(g)

Office Supplies - Makati Agency


Office Supplies Expense

(h)

Depreciation Expense - Makati Agency


Accumulated Depr. - Furniture & Fixtures

(I)

Sales - Makati Agency


Agency Income
Cost of Sales - Makati Agency
Salaries and Commission - Makati Agency
Delivery Expense - Makati Agency
Samples Expense - Makati Agency
Office Supplies Expense - Makati Agency
Depreciation Expense - Makati Agency

(j)

Agency Income
Income Summary

Exercise 8-3

300
1,250
200,000

30,850

300
1,250
30,850
116,000
20,000
6,200
25,000
700
1,250
30,850

Home Office Books

(a)

Cash
Iloilo Branch

20,000

(b)

Iloilo Branch
Cash

3,500

(c)

Expenses
Iloilo Branch

1,200

(d)

Iloilo Branch
Shipments to Iloilo Branch

32,000

(e)

Shipments to Iloilo Branch


Iloilo Branch

15,000

(f)

Furniture and Fixtures


Cash

(g)

Iloilo Branch
Accumulated Depr. - Furniture & Fixtures

(h)

Branch Income
Branch

5,500
550
2,600

20,000
3,500
1,200
32,000
15,000
5,500
550
2,600

AA1- Chapter 8 (2008 edition)


3

page

Branch Office Books


(a)

Home Office
Cash

(b)

Expenses
Home office

3,500

(c)

Home Office
Cash

1,200

(d)

Shipments from Home Office


Home Office

32,000

(e)

Home Office
Shipments from Home Office

15,000

(f)

Memo entry

(g)

Depreciation Expense
Home Office

(h)

Home Office
Income Summary

Exercise 8-4
(a)
(1)
(5)

20,000

550
2,600

20,000
3,500
1,200
32,000
15,000

550
2,600

Home Office Books

Dagupan Branch
Shipments to Branch

300,000

Cash
Dagupan Branch

150,000

300,000
150,000

Branch Office Books


(1)

Shipments from Home Office


Home Office

300,000

(2)

Accounts Receivable
Sales

390,000

(3)

Expenses
Cash
Accrued Expenses

74,000

300,000
390,000
72,000
2,000

AA1- Chapter 8 (2008 edition)


4

(4)

page

Cash
Sales Discount
Accounts Receivable

288,000
6,000

(5)

Home Office
Cash

150,000

(6)

Furniture and Fixtures


Cash

(7)

Expenses
Accumulated Depr. - Furniture & Fixtures

(b)

40,000

Merchandise Inventory
Sales
Shipments from Home Office
Expenses
Sales Discounts
Income Summary

60,000
390,000

Income Summary
Home Office
(c)

8,000

62,000

294,000
150,000
40,000
8,000

300,000
82,000
6,000
62,000
62,000

Honda Sales, Inc.


Statement of Recognized Income and Expenses - Branch
For the Year Ended December 31,2008

Sales
Less: Sales Discount
Cost of sales:
Shipment to Home Office
Less: Inventory, end
Gross Profit
Expenses
Net Profit
(d)

P 390,000
6,000
P 300,000
60,000

P384,000
240,000
P 144,000
82,000
P 62,000

Honda Sales, Inc.


Statement of Financial Position - Branch
December 31,2008
Assets

Cash (-720,00 + 288,000 - 150,000 - 40,000)


Accounts Receivable (390,000 294,000)
Merchandise Inventory
Furniture and Fixture
Less: Accumulated Depreciation
Total Assets

P 40,000
8,000

P 26,000
96,000
60,000
32,000
P 214,000

AA1- Chapter 8 (2008 edition)


5

page

Liabilities
Accrued Expenses
Home Office (300,000 - 150,000 + 62,000)
Total Liabilities

2,000
212,000
P 214,000

Exercise 8- 5
Home Office Books
(a)

Furniture and Fixtures


Branch

24,500

(b)

Branch
Cash

24,500

(c)

Branch
Accumulated Depr. - Furniture & Fixtures

(d)

Furniture & Fixtures - new


Accumulated Depr. - Furniture & Fixtures
Branch Income
Furniture & Fixtures - old
Cash
Branch Office Books

2,450
40,000
2,450
7,050

(a)

Home Office
Accounts Payable

24,500

(b)

Accounts Payable
Home Office

24,500

(c)

Depreciation Expense
Home Office

(d)

Memo entry

2,450

24,500
24,500
2,450

24,500
25,000

24,500
24,500
2,450

Exercise 8-6
Jan.

10

Notes Payable
Home Office

10

Furniture and Fixtures


Home Office

16

Shipments from Home Office


Home Office

2,500
10,000
6,500

2,500
10,000
6,500

AA1- Chapter 8 (2008 edition)


6

page

16

Home Office
Cash

2,000

20

Home Office
Shipments from Home Office

1,200

25

Home Office
Accounts Receivable

150

30

Expenses
Home office

800

31

Home Office
Income Summary

750

Exercise 8 -7

2,000
1,200
150
800
750

Honda Company
Reconciliation of Home Office and Branch Accounts
December 31,2008
HO Books

Unadjusted balances
Adjustments;
(a) Merchandise in transit
(b) Collection of home office accounts recl
(c) Error in recording the net income of branch
(P1,215 - P1,125)
(d) Merchandise returned by branch still in
transit
Adjusted balances

Branch
Books
HO Acct.
P 9,735

Branch Acct.
P 8,400

615

2,500
90
( 640)
P 10,350

_______
P 10,350

Requirement 2
Home Office Books
(b)

Branch
Accounts Receivable

(c)

Branch
Branch Income

(d)

Shipments to Branch
Branch

2,500
90
640

2,500
90
640

Branch Books
(a)

Shipments from Home Office


Home Office

615

615

AA1- Chapter 8 (2008 edition)


7

Exercise 8-8

page

Home Office Books

(a)

Allowance for Doubtful Accounts


Makati Branch

600

(b)

Makati Branch
General and Administrative Expense

1,250

(c)

Manila Branch
Makati Branch

1,200

(d)

Makati Branch
Allowance for Uncollectible Accounts

850

600
1,250
1,200
850

Branch Books
(a)

Home Office
Accounts Receivable

(b)

General and Administrative Expenses


Home Office

(c)

No entry

(d)

Uncollectible Accounts Expense


Home office

Problem 8-1
(a)

600
1,250

850

600
1,250

850

PROBLEMS

Samples - Cebu Agency


Advertising Materials - Cebu Agency
Shipments to Cebu Agency
Advertising Materials

60,000
35,000

(b)

Working Fund - Cebu Agency


Cash

30,000

(c)

Accounts Receivable - Cebu Agency


Sales - Cebu Agency

330,000

Cost of Sales - Cebu Agency


Shipments to Cebu Agency

250,000

60,000
35,000
30,000
330,000
250,000

AA1- Chapter 8 (2008 edition)


8

(d)

(e)

page

Cash
Sales Discounts - Cebu Agency
Accounts Receivable - Cebu Agency

245,000
5,000

250,000

Rent Expense - Cebu Agency


Delivery Expense - Cebu Agency
Repairs and Maintenance - Cebu Agency
Cash

15,000
3,000
2,200

Salaries and Wages - Cebu Agency


Commission Expense - Cebu Agency
Salaries and Wages
Commission Expense

10,200
33,000

(g)

Samples Expense - Cebu Agency


Samples - Cebu Agency

15,000

(g)

Advertising Materials Expense - Cebu Agency


Advertising Materials - Cebu Agency

10,500

(h)

Sales - Cebu Agency


Agency Income
Cost of Sales - Cebu Agency
Sales Discounts - Cebu Agency
Rent Expense - Cebu Agency
Delivery Expense - Cebu Agency
Repairs and Maintenance - Cebu Agency
Salaries and Wages - Cebu Agency
Commission Expense - Cebu Agency
Samples Expense - Cebu Agency
Advertising Materials Expense - Cebu Agency

(f)

(I)

Income Summary
Agency Income

Problem 8- 2
(a)

Branch
Cash

(b)

Branch
Shipments to Branch

(c)

No entry

(d)

Branch
Cash
Equipment
Gain on Transfer of Equipment

330,000
13,900

13,900

20,200

10,200
33,000
15,000
10,500

250,000
5,000
15,000
3,000
2,200
10,200
33,000
15,000
10,500
13,900

Home Office Books


150,000
90,000

90,000

150,000
90,000

3,000
75,000
12,000

AA1- Chapter 8 (2008 edition)


9

(e)

No entry

(f)

Expenses
Cash

(g)

and (h) no entry

(I)

Cash
Branch

page

7,500

52,500

7,500

52,500

Branch Books
(a)

Cash
Home Office

150,000

(b)

Shipments from Home Office


Home Office

(c)

Purchases
Cash

(d)

Equipment
Home Office

(e)

Accounts Receivable
Sales

250,000

Cash
Accounts Receivable

100,000

90,000
120,000
90,000

(f)

No entry

(g)

Depreciation Expense - Equipment


Accumulated Depr. - Equipment

9,000

(h)

Selling and Administrative Expenses


Cash

45,000

(I)

Home Office
Cash

52,500

150,000
90,000
120,000
90,000
250,000
100,000

9,000
45,000
52,500

Problem 8-3
Requirement 1
a.

Accounts Receivable
Sales

80,000

80,000

AA1- Chapter 8 (2008 edition)


10

page

b.

Purchases
Accounts Payable

21,000

c.

Shipments from Home Office


Home office

40,000

d.

Cash
Accounts Receivable

76,000

e.

Accounts Payable
Cash

20,200

f.

Allowance for Uncollectible Accounts


Accounts Receivable

g.

Home Office
Cash

30,000

h.

Expenses
Cash

24,800

I.

Expenses
Home Office

1,600

j.

Prepaid Expenses
Accrued Expenses
Expenses
Allowance for Doubtful Accounts
Accumulated Depreciation

200
400
1,700

k.

l.

Merchandise Inventory, end


Sales
Income Summary
Merchandise Inventory, beg.
Shipments from Home Office
Purchases
Expenses
Home Office
Income Summary

1,200

38,800
80,000
3,300

3,300

21,000
40,000
76,000
20,200
1,200
30,000
24,800
1,600

1,100
1,200

33,000
40,000
21,000
28,100
3,300

AA1- Chapter 8 (2008 edition)


11

Requirement 2

page

Volvo Company
Statement of Recognized Income and Expenses - Branch
For the Year Ended December 31, 2008

Sales
Cost of goods sold:
Inventory, January 1
Purchases
Shipments from home office
Cost of goods available for sale
Less Inventory, December 31
Gross profit
Operating expenses
Net loss

P80,000
P33,000
21,000
40,000
P94,000
38,800

55,200
P24,800
28,100
P 3,300

Volvo Company
Statement of Financial Position - Branch
December 31, 2008
Assets
Cash (7,000 + 76,000 + 20,200 - 30,000 - 24,800)
Accounts Receivable (24,400 + 80,000 - 76,000 -1,200)
Less Allowance for Uncollectible Accounts
Merchandise Inventory
Prepaid Expenses
Furniture and Fixtures
Less Accumulated Depreciation
Total Assets
Liabilities

P27,200
1,600
P 7,700
6,600

Accounts Payable (4,000 + 21,000 - 20,200)


Accrued Expenses
Home Office (60,500 + 40,000 - 30,000 + 1,600 - 3,300)
Total Liabilities

P 8,000
25,600
38,800
900
1,100
P74,400
P 4,800
800
68,800
P74,400

Volvo Company
Statement of Changes in Home Office Account
For the Year Ended December 31, 2008
Home office account balance, January 1
Add:
Shipments from home office
Expenses paid by home office
Total
Deduct:
Remittance to home office
Net loss
Home office account balance, December 31

P 40,000
1,600
P 30,000
3,300

P 60,500
41,600
P102,100
33,300
P 68,800

AA1- Chapter 8 (2008 edition)


12

page

Requirement 3
c.

Davao Branch
Shipments to Branch

40,000

g.

Cash
Davao Branch

30,000

i.

Davao Branch
Cash

1,600

Branch Income
Davao Branch

3,300

40,000
30,000
1,600
3,300

Problem 8-4
Requirement 1
a.

Cash
Shipments from Home Office
Accounts Receivable
Home Office
Home Office
Cash

Branch Books
15,000
102,000
26,000
9,000

b.

Accounts Receivable
Sales

62,000

c.

Cash
Accounts Receivable

26,000

d.

Purchases
Accounts Payable

30,000

e.

Accounts Payable
Cash

14,500

f.

Expenses
Cash

12,500

g.

Cash
Home Office
Accounts Receivable

16,000
1,500

Shipments from Home Office


Home Office

12,500

h.

143,000
9,000

62,000
26,000
30,000
14,500
12,500

17,500
12,500

AA1- Chapter 8 (2008 edition)


13

I.

page

Home Office
Cash

10,000

10,000

Home Office Books


a.

Bacolod Branch
Cash
Shipments to Branch
Accounts Receivable
Store Furniture and Fixtures
Bacolod Branch

143,000

9,000

b.

Accounts Receivable
Sales

346,000

c.

Cash
Accounts Receivable

400,000

d.

Purchases
Accounts Payable

316,000

e.

Accounts Payable
Cash

362,000

f.

Expenses
Accrued Expenses
Cash

89,500
2,500

g.

Allowance for Uncollectible Accounts


Bacolod Branch

1,500

h.

Bacolod Branch
Shipments to Branch

12,500

I.

Cash
Bacolod Branch

10,000

15,000
102,000
26,000
9,000
346,000
400,000
316,000
362,000

92,000
1,500
12,500
10,000

AA1- Chapter 8 (2008 edition)


14

Requirement 2

page

Jazz Company
Statement of Recognized Income and Expenses - Bacolod Branch
For the Month Ended January 31, 2008

Sales
Cost of goods Sold:
Shipments from Home Office (102,000 + 12,500 + 6,000)
Purchases
Cost of Goods Available for Sale
Less Merchandise Inventory, December 31 (9,800 + 600)
Gross Profit
Expenses (12,500 + 4,750 + 350+ 3,500)
Net Loss

P 62,000
P120,500
30,000
P150,500
104,000

46,500
P 15,500
21,100
P 5,600

Jazz Company
Statement of Financial Position - Bacolod Branch
January 31, 2008
Assets
Cash (15,000 - 9,000 + 26,000 - 14,500 - 12,500 + 16,000 - 10,000)
Accounts Receivable (62,000 + 26,000 - 26,000 17,500)
Merchandise Inventory (98,000 + 6,000)
Total Assets
Liabilities
Accounts Payable (30,000 - 14,500)
Accrued Expenses
Home Office (143,000-9,000-1,500+12,500-10,000+6,000+4,750+350 -5,600)
Total Liabilities

P 11,000
44,500
104,000
P159,500
P 15,500
3,500
140,500
P159,500

Jazz Company
Statement of Recognized Income and Expenses - Home Office
For the Month Ended January 31, 2008
Sales
Cost of Goods Sold:
Merchandise Inventory, January 1
Purchases
Cost of Goods Available for Sale
Less Shipments to Branch (102,000 + 12,500 + 6,000)
Cost of Goods Available for Own Sale
Less Merchandise Inventory, December 31
Gross Profit
Expenses (89,500 - 4,750 + 1,000 + 7,500)
Net Income from Own Operations
Less Branch Net Loss
Net profit
Income Tax
Net Profit

P346,000
P460,000
316,000
P776,000
120,500
P655,500
445,000

210,500
P135,500
93,250
P 42,250
5,600
P 36,650
12,828
P23,822

AA1- Chapter 8 (2008 edition)


15

page

Jazz Company
Statement of Financial Position - Home Office
January 31, 2008
Assets
Cash (150,000 - 15,000 + 400,000 362,000 - 92,000 + 10,000)
Accounts Receivable (420,000 - 26,000 + 346,000 - 400,000)
Less Allowance for Uncollectible Accounts (12,000 - 1,500)
Merchandise Inventory
Branch (143,000 - 9,000 - 1,500 + 12,500 - 10,000
+ 6,000 + 4,750+ 350 - 5,600)
Store Furniture and Fixtures (150,000 + 9,000)
Less Accumulated Depreciation (46,000 + 1,350)
Total Assets

P340,000
10,500

P159,000
47,350

P 91,000
329,500
445,000
140,500
111,650
P1,117,650

Liabilities and Shareholders Equity


Accounts Payable (337,500 + 316,000 - 362,000)
Accrued Expenses
Income Tax Payable
Ordinary Share Capital (282,000 + 36,650)
Retained Earnings (282,000 + 23,822
Total Liabilities and Shareholders Equity

P 291,500
7,500
12,828
500,000
305,822
P1,117,650

Requirement 3

Jazz Company
Combined Statement of Recognized Income and Expenses for Home Office and Branch
For the Month Ended January 31, 2008

Sales
Cost of Goods Sold:
Merchandise Inventory, January 1
Purchases
Cost of Goods Available for Sale
Less Merchandise Inventory, December 31
Gross Profit
Expenses
Net Profit
Income Tax
Net profit

P408,000
P460,000
346,000
P806,000
549,000

257,000
P151,000
114,350
P 36,650
12,828
P 23,822

AA1- Chapter 8 (2008 edition)


16

page

Jazz Company
Combined Statement of Financial Position for Home Office and Branch
January 31, 2008
Assets
Cash
Accounts Receivable
Less Allowance for Uncollectible Accounts
Merchandise Inventory
Store Furniture and Fixtures
Less Accumulated Depreciation
Total Assets

P384,500
10,500
P159,000
47,350

P 102,000
374,000
549,000
111,650
P1,136,650

Liabilities and Shareholders Equity


Accounts Payable
Accrued Expenses
Income Tax Payable
Ordinary Share Capital
Retained Earnings
Total Liabilities and Shareholders Equity
Requirement 4

P 307,000
11,000
12,828
500,000
305,822
P1,136,650

Branch Books

a.

Shipments from Home Office


Home Office

6,000

b.

Expenses
Home Office

4,750

c.

Expenses
Home Office
P22,500 + P9,000 = P31,500/7.5 yrs x 1/12

d.

Expenses
Accrued Expenses

e.

Sales
Merchandise Inventory, end
Income Summary
Shipments from Home Office
Purchases
Expenses

f.

Home Office
Income Summary

350

3,500
62,000
104,000
5,600

5,600

6,000
4,750
350

3,500

120,500
30,000
21,100
5,600

AA1- Chapter 8 (2008 edition)


17

page

Home Office Books


a.

Bacolod Branch
Shipments to Branch

6,000

b.

Bacolod Branch
Expenses

4,750

c.

Expenses
Bacolod Branch
Accumulated Depreciation
( 150,000 - 30,000 = 120,000 x 10% x 1/12 = 1,000 )
Expenses
Accrued Expenses

1,000
350

e.

Branch Income
Bacolod Branch

5,600

f.

Sales
Shipments to Branch
Merchandise Inventory, end
Income Summary
Merchandise Inventory, beg.
Purchases
Expenses
Branch Income

d.

g.

7,500

346,000
120,500
445,000

Income Tax
Income Tax Payable

12,828

Income Summary
Income Tax

12,828

Income Summary
Retained Earnings

23,822

6,000
4,750

1,350
7,500
5,600

36,650
460,000
316,000
93,250
5,600
12,828
12,828
23,822

AA1- Chapter 8 (2008 edition)


18

page

Problem 8-5
Requirement 1

Debits
Cash
NR
AR
Inventories
F&E
Branch
Cur.
CGS
OE
Credits
AP
CS
HO Cur.
RE
Sales

Feroza Company
Working Paper for Combined Financial Statement
For the Year Ended December 31,2008

HO
63,000
10,500
120,600
143,700
72,150
124,050

BR
21,900

300,750
104,250
939,000

128,700
32,850
275,700

61,500
300,000
37,500
540,000
939,000

Net Profit

Adjustments
Eliminations
Dr.
Cr.

Combined Income
Statement
Dr.
Cr.

Combined Balance
Sheet
Dr.
Cr.
84,900
10,500
176,550
180,000
72,150

55,950
36,300
a.124,050

124,050
151,650
275,700

429,450
137,100
61,500
300,000

a.124,050
124,050

124,050

566,550
125,100
691,650

37,500

691,650
691,650
691,650

524,100

Requirement 2
a.

b.

Sales
Income Summary
Cost of Goods Sold
Operating Expenses
Home Office
Income Summary

151,650
9,900

9,900

128,700
32,850
9,900

Requirement 3
a.

Branch Income
Branch

9,900

b.

Income Summary
Branch Income

9,900

9,900
9,900

125,100
524,100

AA1- Chapter 8 (2008 edition)


19

page

Problem 8-6
Requirement 1

Isuzu Company
Reconciliation of Home Office and Branch Accounts
January 31, 2008

Unadjusted balances
Add (deduct);
Advertising expense charged to branch
Merchandise shipment in transit
Merchandise shipment for P16,560 recorded
as P16,650
Collection of home office account
Understatement of 1994 depreciation
Remittance to home office in transit
Adjusted balances

Home Office
Books
Branch Acct.
P77,150

Branch Books
Home Office Acct.
P56,450
600
4,400

750
( 540)
(16,000)
P61,360

90)

_______
P61,360

Requirement 2
Home Office Books
a.

Cash
Retained Earnings
Accounts Receivable
Iloilo Branch

16,000
540

750
15,790

Branch Books
a.

Advertising Expense
Shipments from Home Office
Home Office

600
4,310

4,910

Problem 8-7
Requirement 1
a.

Shipments from Home Office


Operating Expenses
Home Office Current

57,600
8,100

65,700

AA1- Chapter 8 (2008 edition)


20

b.

c.

page

Sales
Merchandise Inventory, end
Income Summary
Merchandise Inventory, beg.
Shipments from Home Office
Operating Expenses

778,200
122,180

Income Summary
Home Office Current

116,990

116,990
47,800
680,800
54,790
116,990

Requirement 2
a.

Freight-Out
Branch Current

470

b.

Cash
Branch Current

19,200

c.

Branch Current
Branch Income

116,990

Requirement 3

470
19,200
116,990

Ford Company
Reconciliation of Current Account
December 31,2008

Balances before adjustment


Shipment in transit
Advertising charged to branch
Rent charged to branch
Error in charging freight
Remittance in transit

Branch
Acct.
P 206,344

(470)
(19,200)
P 186,674

Home Office
Acct.
P120,974
57,600
4,200
3,900
P 186,674

AA1- Chapter 8 (2008 edition)


21

page

Problem 8-8
Mitsubishi Trading Company
Reconciliation of Home Office and Branch Accounts
December 31, 2008
Unadjusted balances
Add (deduct):
Error in recording cost of equipment
Insurance premium recorded twice by branch
Freight for P1,125 recorded as P1,215
Discount from home office not recorded
Share of branch in advertising not recorded
Error in recording remittance
Adjusted balances

Branch Acct.
P225,770

Home Office Acct.


P220,485
3,150
675)
90)
800)
700
________
P222,770
(
(
(

3,000)
P222,770

Requirement 3
a.

Office Equipment
Advertising Expense
Insurance Expense
Freight
Discount from Home Office
Home Office

3,150
700

675
90
800
2,285

MULTIPLE CHOICE

1.

2.

3.

Sales
Cost of sales ( 400,0000 - 70,000)
Gross profit
Expenses [30,000 + 10,000 + (10,000 - 6,000) + 5,000]
Net profit

4.

Sales
Cost of sales w/o freight
Add freight
Cost of sales w/ freight

P400,000
330,000
70,000
49,000
P 21,000
P46,500
x 70%
P32,550
1,100
P33,650

AA1- Chapter 8 (2008 edition)


22

5.

Sales
Less Sales Discount (39,690 / 98%) - 39,690
Cost of sales
Gross Profit
Expenses:
Selling
Administrative (46,500 x 5%)
Samples Expenses
Net Profit

6.

page

P46,500
810

P 2,820
2,325
1,900

P45,690
33,650
P12,040

7,045
P 4,995

17,500 + 8,000 +9,250 + (50,000 x 60% x 1/6)

7.

Sales
Cost of sales
Gross Profit
Expenses
Net Income

8.
9.

D
B

P 87,00 / 125% =
Sales
Cost of sales
Gross Profit
Expenses (350 + 250)
Net Income

P70,000
P 87,500
70,000
P 17,500
6,000
P 11,500

10

11

12

13

Sales
Cost of sales
Shipments
Less Inventory, end
Gross Profit
Expenses
Net Profit

P74,000

14
15

A
A

P17,500 + 8,680

16

203,500 (186,120 25,245 18,755) = 23,870

17

Home Office Current


Branch Income
Correct branch account - current

P176,000
105,000
P 71,000
39,750
P 31,250

P67,680
9,180

58,500
P15,500
6,820
P 8,680
P 26,180

P 48,125
23,870
P 71,995

AA1- Chapter 8 (2008 edition)


23

18

Sales
Cost of Sales:
Shipments from home office
Less Inventory, Dec. 31
Gross profit
Expenses
Net Profit

19

P90,000 + P14,400

20

P1,500 + 43,800 + 37,170

21

Net Sales (198,720 - 3,600)


Cost of sales
Beg. Inventory
Shipments
Goods available for sale
End. Inventory
Gross Profit
Expenses (57,930 + 1,920)
Net Profit

22

23

24

25

Balances before adjustment


Adjustments:
1. Shipments in transit
2. HO AR collected by branch
3. Supplies returned
4. Error in recording Br. net income
5. Cash to Branch in transit

Balances
Error in recording allowance
Advances taken by Pres.
Share in advertising expense
Sales
Cost of sales
Inventory, beg.
Merchandise from Home Office
Merchandise available for sale
Less Inventory, end
Gross profit
Operating Expenses
Net profit of Branch A

page

P112,500
P120,000
30,000

90,000
P 22,500
8,100
P 14,400
P104,400
P 82,470
P 195,120

P 37,170
136,000
P 173,170
41,370

131,800
P 63,320
59,850
P 3,470

BR. Acct.
HO Acct.
P150,000
P117,420
37,500
10,500
(4,500)
(1,080)
25,000
25,000
P179,920
P 179,920
P 179,920
BR Acct.
P43,500
(550)

HO. Acct.
P41,900
60

P42,950
P21,000
61,000
P82,000
19,000

900
P42,950
P 100,000

63,000
P37,000
21,000
P16,000

AA1- Chapter 8 (2008 edition)


24

page

26

27

28

Imprest branch fund


Accounts Receivable, Dec. 31
Inventory, Dec. 31
Balance of Branch account - current

P 1,500
53,000
12,000
P 67,000

29

Sales
Cost of sales
Inventory, Jan.1
Merchandise from Home office
Merchandise available for sale
Less Inventory, Dec.31
Gross profit
Operating Expenses
Net profit of Branch B

P 80,000

30

Imprest branch fund


Accounts Receivable, Jan.1
Inventory, Jan.1
Home Office account

32

P 19,000
47,000
P 66,000
12,000

HO Account.
Beg. Balances
1. Branch remittances
2. Shipment to branch
3. Home office expense paid by branch
4. Branch receivable collected by branch

31

Branch A
P 2,000
55,000
21,000
P 78,000

Unadjusted balances
1. Remittance in transit
2. Shipment in transit
3. Home office expense paid by branch
4. Branch receivable collected by branch
5. Branch net profit
Marketing Expense of another branch charged to Butuan
Butuans remittance credited to Davao
Net adjustment in Home Office Banch account

30,670
(55,000)
138,000
(5,700)

P 107,970
Branch Acct.
P 133,970
(7,200)
(5,700)
6,500
P 127,570

Branch B
P 1,500
43,500
19,000
P 64,000

54,000
P 26,000
14,300
P 11,700
Branch
Acct.
P 30,670
(47,800)
160,000
(8,900)
P 133,970
HO Acct.
P 107,970
22,000
(8,900)
6,500
P 127,570
P (10,000)
( 65,700)
P (75,700)

AA1- Chapter 8 (2008 edition)


25

33

34

35

Fixed account not recorded by Butuan


Inventory transfer recorded twice by Butuan
Error in recording debit memo
Net adjustment in Branch Books

D.

B.

page

4,650

Branch Account

P (53,960)
75,000
(
90)
P 20,950

Unadjusted balances

P165,920

Home Office
Account
P111,170

Net adjustment in Branch Account


Adjusted balances

(75,700)
P 90,220

(20,950)
P 90,220

CHAPTER 9
SUGGESTED ANSWERS
EXERCISES
Exercise 9 - 1
Home Office
Cash
Cash
Home Office
Branch S
Branch R
Exercise 9 - 2
Home Office
Shipments from Home Office
Freight-In
Shipments from Home Office
Freight-In
Cash
Home Office
Branch No. 5
Excess Freight
Branch No. 1
Exercise 9 3

Books of Branch R

Books of Branch S

Books of the Home Office

Books of Branch No. 1

Books of Branch No. 5

Books of the Home Office

15,000

15,000

15,000

1,950

1,600
400

1,650
300

15,000

15,000

15,000

1,600
350

350
1,650

1,950

Home Office Books

1.

no entry

2.

Branch
Shipments to Branch
Allowance for Markup in Branch Inventory
120,000/240,000 = 50%

3.

no entry

4.

Branch
Advertising Expense
Depreciation Expense
Utility Expense

360,000

134,000

240,000
120,000

40,000
70,000
24,000

AA1- Chapter 9 (2008 edition)


page 2

5.

no entry
Cash
Branch

360,000

6.

no entry

7.

Branch
Branch Income

8.

Allowance for Markup in Branch Inventory


Branch Income
P300,000 x 50/150 = P100,000

100,000

9.

Branch Income
Income Summary

158,000

1.

Purchases
Accounts Payable

2.

Shipments from Home Office


Home Office

360,000

3.

Accounts Receivable
Sales

652,000

4.

Advertising Expense
Depreciation Expense
Utility Expense
Home Office

40,000
70,000
24,000

5.

6.

7.

58,000

Branch Books

160,000

Cash
Accounts Receivable

470,000

Home Office
Cash

360,000

Merchandise Inventory
Sales
Purchases
Shipments from Home Office
Advertising Expense
Depreciation Expense
Utility Expense
Income Summary

60,000
652,000

Income Summary
Home Office

58,000

360,000

58,000
100,000

158,000

160,000
360,000
652,000

134,000
470,000
360,000

160,000
360,000
40,000
70,000
24,000
58,000
58,000

AA1- Chapter 9 (2008 edition)


page 3

Exercise 9 - 4
a. Merchandise inventory, beg.
Less Merchandise from home office at billed price
Markup on merchandise shipped to branch
Markup on current shipment (P96,000 P80,000)
Markup on beginning inventory

P150,000
P 36,000
16,000
P 20,000
x 120/20

Merchandise purchased from outsiders


b.

Allowance for Intercompany Inventory Profit


Branch Income
Bal. of allowance before adjustment
Adjusted balance of allowance acct
(P84,000 x 20/120)
Realized markup

Exercise 9 5

P36,000

Branch
Shipments to Branch
Allowance for Markup in Branch Inventory
150,000/300,000 = 50%

2.

no entry

3.

Allowance for Markup in Branch Inventory


Branch Income
Realized markup on beginning inventory
P600,000 x 55% = P330,000 x 25/125*
Realized markup on current shipments
P450,000 x 1/3 = P150,000 x 50/150
Total
*(600,000 480,000) / 480,000 = 25%
Branch Books

1.

Shipments from Home Office


Home Office

2.

Accounts Receivable
Sales
P590,000 + P280,000 = P870,000

3.

no entry

22,000

14,000
P22,000

Home Office Books

1.

Exercise 9 6
1.
Branch
Cash
Shipments to Branch

22,000

120,000
P 30,000

450,000

116,000

300,000
150,000

116,000

P 66,000
50,000
P116,000

450,000
870,000

820,000

450,000
870,000

80,000
240,000

AA1- Chapter 9 (2008 edition)


page 4

Land
Allowance for Markup in Branch Inventory
Allowance on Transfer of Land
120,000/240,000 = 50%

300,000
120,000
80,000

2.

Branch
Shipments to Branch
Allowance for Markup in Branch Inventory
160,000/400,000 = 40%

560,000

3.

Branch
Branch Income

130,000

4.

Allowance for Markup in Branch Inventory


Branch Income
Realized markup on 1st inventory transfer
Realized markup on 2nd inventory transfer
(P640,000 P360,000) x 40/140
Total

200,000

5.

Allowance on Transfer of Land


Branch Income

6.

Branch Income
Income Summary

P120,000

80,000

410,000

200,000

410,000

P36,450
27,000
P 9,450
4,550

P 9,450
4,900
P 4,550

80,000

P 1,600
36,400
P38,000
32,000
P 6,000
20%
P30,000

Exercise 9 - 8
a. Merchandise available for sale at billed price (P16,200 + P20,250)
Merchandise available for sale at cost (P36,450/135%)
Unrealized intercompany inventory profit balance before adjustment
Unrealized Intercompany Inventory Profit
Branch Income
Balance before adjustment
Adjusted balance (P18,900 x 35/135)
Realized markup

130,000

80,000
P200,000

Exercise 9 - 7
Required balance of allowance (markup on branch ending inventory)
P9,600 x 20/120
Adjustment for realized markup
Balance of allowance before adjustment
Allowance on current shipment (P160,000 x 20%)
Allowance on branch beginning inventory
Markup rate
Branch beginning inventory, at cost

b.

400,000
160,000

4,550

AA1- Chapter 9 (2008 edition)


page 5

c.

Home Office Books


Shipments to Branch
Unrealized Intercompany Inventory Profit
Branch

400
140

Branch Books

Home Office
Shipments from Home Office

540

540

540

Exercise 9 9
1. P20,000 25/125 = P100,000
2.

Allowance for Markup in Branch Inventory


Branch Income
P100,000 + P350,000 P80,000 = P370,000 x 25/125 = P74,000

Exercise 9 - 10
Separate cost of goods sold of the home office:
Inventory, beginning
Purchases
Shipments to branch
Cost of goods available for sale
Less Inventory, end
Separate cost of goods sold of the branch:
Inventory, beginning
From outside purchases
From home office (P36,000 / 120%)
Total
Purchases
Shipments from home office (P720,000 / 120%)
Cost of goods available for sale
Less Inventory, end:
From outside purchases
From home office (P42,000 / 120%)
Combined cost of goods sold
Exercise 9 11
1.
Shipments from home office
Shipments to branch
Markup

74,000

P 252,000
2,800,000
( 600,000)
P2,452,000
240,000

74,000

P2,212,000

12,000
30,000
P 42,000
96,000
600,000
P 738,000
P10,000
35,000

Total
P450,000
375,000
P 75,000

45,000

Resold
P360,000
300,000*
P 60,000

693,000
P2,905,000
On Hand
P90,000
75,000**
P15,000

* 75,000 / 375,000 = 20%


** 90,000 / 120% = P75,000
2.

Cost of Goods Sold


Inventory
P60,000 + P450,000 P90,000 = P420,000

420,000

420,000

AA1- Chapter 9 (2008 edition)


page 6

3.

Billed Price
P 60,000
450,000
P510,000
90,000
P420,000

Inventory, beginning
Shipments
Total
Inventory, end
Cost of goods sold

Cost
P 50,000
375,000
P425,000
75,000
P350,000

Exercise 9 - 12
a. Merchandise Inventory, January 1
Add Shipments from Home Office
Cost of Goods Available for Sale
Cost of Goods Sold
Sales, net of Sales Returns (P15,000 - P2,000)
Sales rate
Merchandise destroyed by fire at billed price
b.

Markup
P 10,000
75,000
P 85,000
15,000
P 70,000
P26,400
20,000
P46,400

P13,000
125%

Merchandise destroyed by fire at cost

Home Office Books


Branch Loss from Fire
Allowance for Markup in Branch Inventory
Branch
Branch Books
Home Office
Merchandise Inventory

Exercise 9 13
1. Branch Income
Cost of Goods Sold P230,000 x 15/115
Branch
2.

Home Office
Branch

3.

Allowance for Markup in Branch Inventory


Inventory

Problem 9 1

30,000
6,000
36,000

50,000

520,000
9,000

10,400
P36,000
120%
P30,000

36,000
36,000

30,000
20,000
520,000
9,000

PROBLEMS

Beginning inventory:
Acquired from vendors
Acquired from home office
Purchases from vendors
Shipments from Home Office P180,000 + P30,000
Total inventory available for sale
Less Ending inventory:
Acquired from vendors
Acquired from home office P60,000 + P30,000
Cost of goods sold

Billed Price

Cost

Markup

P100,000
40,000
240,000
210,000
P590,000

P100,000
32,000
240,000
168,000
P540,000

P 8,000
42,000
P50,000

40,000
90,000
P460,000

40,000
72,000
P428,000

18,000
P32,000

AA1- Chapter 9 (2008 edition)


page 7

Problem 9 2

Home Office Books

a.

Dagupan Branch
Cash

b.

Dagupan Branch
Baguio Branch
Shipments to Branch

25,000
40,000

c.

Furniture and Fixtures


Cash

17,500

d.

Expenses
Dagupan Branch

e.

Baguio Branch
Sales Discounts
Accounts Receivable

29,400
600

f.

Baguio Branch
Dagupan Branch

15,000

g.

Shipments to Branch
Dagupan Branch

2,500

h.

Dagupan Branch
Baguio Branch

1,800

i.

Dagupan Branch
Shipments to Branch
Cash

20,100

j.

Baguio Branch
Excess Freight
Dagupan Branch

20,110
35

a.

Cash
Home Office

b.

Shipments from Home Office


Home Office

c.

no entry

d.

Home Office
Cash

e.

no entry

10,000

800

Dagupan Branch Books

10,000
25,000

800

10,000

65,000
17,500
800

30,000
15,000
2,500
1,800
20,000
100

20,145

10,000
25,000

800

AA1- Chapter 9 (2008 edition)


page 8

f.

Home Office
Cash

g.

Home Office
Shipments from Home Office

2,500

h.

Expenses
Home Office

1,800

i.

Shipments from Home Office


Freight-In
Home Office

20,000
100

Home Office
Shipments from Home Office
Freight-In
Cash

20,145

j.

15,000

no entry

b.

Shipments from Home Office


Home Office

c.

no entry

d.

no entry

e.

Cash
Home Office

29,400

f.

Cash
Home Office

15,000

g.

no entry

h.

Home Office
Cash

i.

no entry

j.

Shipments from Home Office


Freight-In
Home Office

1.

Baguio Branch
Cash

2,500
1,800

20,100
20,000
100
45

Baguio Branch Books

a.

Problem 9 3
Requirement 1

15,000

40,000

1,800

20,000
110

Home Office Books

20,000

40,000

29,400
15,000

1,800

20,110

20,000

AA1- Chapter 9 (2008 edition)


page 9

2.

Baguio Branch
Shipments to Branch
Allowance for Markup in Branch Inventory

259,000

3.

Cash
Baguio Branch

245,000

4.

Baguio Branch
Cash

7,000

185,000
74,000
245,000
7,000

5 7 - no entry
Baguio Branch Books

1.

Cash
Home Office

18,000

2.

Shipments from Home Office


Home Office

257,600

3.

Home Office
Cash

247,400

Accounts Receivable
Home Office

2,400

4.

Expenses
Home Office

7,000

5.

Cash
Accounts Receivable
Sales

6.

Expenses
Cash

7.

Merchandise Inventory, end P30,100 + P1,400


Sales
Income Summary
Merchandise Inventory, beginning P257,600 + P1,400
Shipments from Home Office
Expenses
Income Summary
Home Office

Requirement 2
Baguio Branch
Branch Income
Allowance for Markup in Branch Inventory
Branch Income
(P17,500 + P259,000 P31,500) x 40/140

247,400
40,600
21,000
31,500
288,000

15,000

15,000
70,000

18,000
257,600
247,400
2,400
7,000

288,000
21,000

15,000
17,500
259,000
28,000
15,000

15,000
70,000

AA1- Chapter 9 (2008 edition)


page 10

Branch Income
Income Summary

85,000

85,000

Requirement 3
Shipments from Home Office
Home Office

1,400

Cash
Home Office

2,000

Problem 9 - 4
Requirement 1

Triple D Bookstore
Statement of Recognized Income and Expenses - Quezon City Branch
For the Year Ended December 31, 2008

Sales
Cost of Goods Sold:
Merchandise Inventory, beginning
Shipments from Home Office
Cost of Goods Available for Sale
Less Merchandise Inventory, end
Gross Profit
Operating Expenses:
Advertising and Promotion
Depreciation
Uncollectible Accounts Expense
Others
Net income

P 31,500
128,000
P159,500
22,750
P 6,400
2,400
1,250
36,600

Requirement 2
Branch
Branch Income

9,260

Allowance for Markup in Branch Inventory


Branch Income
P136,750 x 25/125

27,350

Branch Income
Income Summary

36,610

Problem 9 - 5
a.

Sales
Merchandise Inventory, end
Income Summary
Merchandise Inventory, beginning
Shipments from Home Office
Selling Expenses
Administrative Expenses

Branch Books

78,000
12,000
10,000

1,400
2,000

P192,690

136,750
P 55,940

46,680
P 9,260

9,260
27,350

36,610

10,000
80,000
4,000
6,000

AA1- Chapter 9 (2008 edition)


page 11

b.

a.

Home Office
Income Summary

10,000

Home Office Books


Sales
Shipments to Branch
Merchandise Inventory, end
Merchandise Inventory, beginning
Purchases
Selling Expenses
Administrative Expenses
Income Summary

310,000
64,000
30,000

b.

Branch Income
Branch

10,000

c.

Allowance for Overvaluation in Branch Inventory


Branch Income
P18,000 - (P12,000 x 25/125) = P15,600

15,600

d.

Branch Income
Income Summary

e.

Income Tax
Income Tax Payable

12,110

f.

Income Summary
Income Tax

12,110

g.

Income Summary
Retained Earnings

22,490

Problem 9 - 6
Requirement 1

Cash
Accounts Receivable
Merchandise Inventory
Accounts Payable
Home Office
Sales
Cost of Sales
Operating Expenses

10,000

25,000
300,000
20,000
30,000
29,000
10,000
15,600

5,600

5,600
12,110
12,110
22,490

Triple F Products Inc. - Branch


Trial Balance
December 31, 2008
Debit
12,800
48,160
27,280

191,620
47,080
326,940

Credit

2,040
68,900
256,000
_______
326,940

AA1- Chapter 9 (2008 edition)


page 12

Requirement 2

Home Office Books

a.

Sales
Income Summary
Cost of Sales
Operating Expenses

b.

Branch
Branch Income

17,300

c.

Allowance for Overvaluation of Branch Inventory


Branch Income
P191,620 x 10/110
P21,100 (P202,400 + P29,700 P21,100) = 10%

17,420

d.

Branch Income
Income Summary

34,720

e.

Income Tax
Income Tax Payable

26,628

f.

Income Summary
Income Tax

26,628

g.

Income Summary
Retained Earnings

76,080

a.
b.

Branch Books
Merchandise Inventory P202,400 P189,200
Home Office
Sales
Income Summary
Cost of Sales
Operating Expenses

c.

Income Summary
Home Office
Requirement 3

640,600

13,200
256,000

17,300

Combined net income (P41,360 + P34,720 P26,628)


Combined Merchandise Inventory:
Home Office
Branch [ P27,280 + P13,200) 110%

41,360
452,840
146,400
17,300
17,420

34,720
26,628
26,628
76,080

13,200
17,300
191,620
47,080
17,300
P49,452

P156,640
36,800

P193,440

AA1- Chapter 9 (2008 edition)


page 13

Problem 9 - 7
Triple G Company
Combined Statement of Recognized Income and Expenses
for Home Office and Branch
For the Year Ended December 31, 2008
Sales
Cost of goods sold:
Merchandise inventory, beginning
Purchases
Cost of goods available for sale
Less Merchandise inventory, end
Gross profit
Operating expenses
Net income before Income Tax
Income Tax
Net Income

P325,000
P107,500
215,000
P322,500
81,300

241,200
P 83,800
50,000
P 33,800
11,830
P 21,970

Inventory:
Beginning
Ending
Home Office
P 80,000
Branch
P7,500 + (P24,000/120%)
27,500
P5,500 + (P26,000/125%)
Total
P107,500
** P37,500 P30,000 = P7,500/ P30,000 = 25%
Requirement 2
Davao Branch Books
a. Sales
75,000
Merchandise Inventory, end
31,500
Income Summary
Shipments from Home Office
Purchases
Expenses
Merchandise Inventory, beginning
b.

Income Summary
Home Office
Requirement 3

12,500
Home Office Books

a.

Davao Branch
Branch Income

b.

Allowance for Markup in Branch Inventory


Branch Income
Markup on branch beginning inventory
(P24,000 x 20/120)
Markup on shipments
Allowance balance before adjustments
Markup on branch ending inventory
(P26,000 x 25/125)
Realized markup

12,500
6,300
P 4,000
7,500
P11,500
5,200
P 6,300

P55,000
26,300
P81,300

12,500
37,500
15,000
10,000
31,500
12,500

12,500
6,300

AA1- Chapter 9 (2008 edition)


page 14

c.

Sales
Shipments to Branch
Merchandise Inventory, end
Income Summary
Purchases
Expenses
Merchandise Inventory, beginning

250,000
30,000
55,000

d.

Branch Income
Income Summary

18,800

e.

Income Tax
Income Tax Payable

11,830

f.

Income Summary
Income Tax

11,830

g.

Income Summary
Retained Earnings

21,970

15,000
200,000
40,000
80,000
18,800
11,830
11,830
21,970

Problem 9 8
Requirement 2
a. Plant Assets
Branch

4,000

b.

Home Office
Accounts Receivable

2,000

c.

Cash
Branch

5,000

d.

Expenses
Home Office

1,000

e.

Shipments from Home Office


Home Office

3,000

f.

Retained Earnings
Inventory
P15,000 x 20/120

2,500

g.

Home Office
Branch

11,000

h.

Sales
Shipments from Home Office

48,000

4,000
2,000
5,000
1,000
3,000
2,500

11,000
48,000

AA1- Chapter 9 (2008 edition)


page 15

AA1- Chapter 9 (2008 edition)


page 16

AA1- Chapter 9 (2008 edition)


page 17

MULTIPLE CHOICE
1.
2.

B
B

3.
4.

C
D

5.
6.

D
B

10
11
12
13

C
C
D
C

P13,200 + P350 = P13,550


P11,000 + P350 = P11,350

14

P12,000 x 20/120 = P2,000

15

Inventory, beginning (P165,000 / 125%)


Shipments (P110,000 / 125%)
Merchandise available for sale from home office at cost
Cost of merchandise sold from home at cost
Sales, net of returns and allowances
Less Sales from merchandise purchased from
outsiders (P7,500 x 120%)
Sales from merchandise from home office
Cost of sales at billed price
Billed price rate
Inventory destroyed by fire

7.
8.

D
D

P132,000
88,000
P220,000
P165,250
9,000
P156,250
125%
P125,000
125%

100,000
P120,000

16

Balance of allowance before adjustment


Required balance of allowance (P1,170,000 x 20/120)
Realized markup

P370,000
195,000
P175,000

17

Sales
Cost of goods sold (P120,000 x 3/4 x 125%)
Gross profit
Operating expenses
Net income reported by the branch

P141,000
112.500
P 28,500
27,000
P 1,500

18

P50,400/120%

P42,000

19

P90,000 + P36,000 P2,520 P50,400/120% = P60,900

20

Net income (loss) reported by branch


Realized markup
(P90,000 + P36,000 P2,520 - P50,400 = P73,080) x 20/120
True net income of the branch

(P 7,800)

Net income reported by branch


Realized markup [(P3,960 + P17,600 P4,840) x 10/110]
Actual branch income

P 4,800
1,520
P 6,320

21

12,180
P 4,380

AA1- Chapter 9 (2008 edition)


page 18

22

Branch ending inventory, at cost (P4,840 / 110%)


Home office ending inventory
Ending inventory to be reported in the combined balance sheet

P 4,400
11,200
P15,600

23

Net income reported by the branch


Realized markup[P280,000 - (P50,000 P6,600)] x 40/140
True net income of the branch

P 5,000
67,600
P 72,600

24

Branch inventory from home office (P43,400 /140%)


Branch inventory from outside purchases
Total cost of branch inventory, end

P31,000
6,600
P37,600

25

P60,000 - P7,500

P52,500

26

P60,000 - (P7,500 x 120/20)

P15,000

27

Sales
Cost of goods sold (P180,000 + P45,000 - P60,000)
Operating expenses
Realized markup [(P180,000 x 20/120) - P7,500
True net income of the branch

P 292,500
(165,000)
( 72,000)
22,500
P 78,000

28

Unadjusted balance of allowance account


Markup on 2008shipments from home office
(P390,000 P300,000)
Markup on beginning inventory
Total merchandise inventory beg
Merchandise from outside purchases

29

Sales
Cost of goods sold
(P54,600 + P390,000 + P144,600 - P48,750)
Operating expenses
Realized markup [P99,900 - (P39,000 x 30/130)]
True net income of the branch

P99,900
90,000
P 9,900
x 130/30

P 42,900
54,600
P 11,700
P540,000
(540,450)
( 51,000)
90,900
P 39,450

30

P39,000 x 30/130 = P9,000

31

Sales (net of discount of P1,480)


Cost of goods sold (P104,000 - P12,500)
Operating expenses
Net income reported by branch

P115,520
( 91,500)
( 20,000)
P 4,020

32

Net income reported by branch


Realized markup (P91,500 x 25/125)
True net income of the branch

P 4,020
18,300
P 22,320

AA1- Chapter 9 (2008 edition)


page 19

33

34

35

36

Sales
Cost of goods sold (P5,000 + P2,000 + P26,400 P4,500)
Operating expenses
Realized markup [P2,800 (P3,960 x 10/110)]
True profit of Cebu branch

P 37,400
( 28,900)
( 3,000)
2,440
P 7,940

Sales
Cost of goods sold
(P16,000 + P80,000 P24,000 P20,000)
Operating expenses
Net income of the home office
Net income of the branch
Combined net income of the home office and branch

P110,000

Sales
Cost of sales:
Inventory, beginning
Purchases
Goods available for sale
Shipments to branch (P110,000/110%)
Goods available for own sale
Less Inventory, end
Gross profit
Expenses
Net income

P155,000

Sales
Cost of sales:
Inventory, beginning (P11,550 P1,000)
Shipments from HO, including freight-in
Goods available for sale
Less Inventory, end
[(P10,400 + P5,000)/110%] + P520 + P250
Gross profit
Expenses
True branch net income

( 52,000)
( 10,000)
P 48,000
7,940
P 55,940

P 23,000
190,000
P213,000
100,000
P113,000
30,000

83,000
P 72,000
52,000
P 20,000
P140,000

P 10,550
105,750
P116,300
14,770

101,530
P 38,470
28,400
P 10,470

37

(P10,400 + P5,000) x 10/110

P1,400

38

Unadjusted balance of allowance account


Markup on 2008 shipments (P200,000 x 25%)
Markup on beginning inventory

P 57,500
50,000
P 7,500
x 125/25
P 37,500

Branch beginning inventory at billed price

AA1- Chapter 9 (2008 edition)


page 20

39

Sales
Cost of goods sold (P37,500 + P250,000 - P40,000)
Operating expenses
Net income reported by branch

P400,000
(247,500)
(100,000)
P 52,500

40

Net income reported by branch


Realized markup (P247,500 x 25/125)
True net income of the branch

P 52,500
49,500
P102,000

41

Beginning inventory
Purchases
Shipments from home office
Ending inventory
Cost of goods sold reported by branch
Realized markup [P19,750 - (P6,000 x 25/125)*
Cost of goods sold at cost

P 8,000
30,000
93,750
( 10,350)
P 121,400
( 18,550)
P 102,850

*P93,750 P75,000 = P18,750/P75,000 = 25%


42

The amount of the realized markup of P18,550

43

Adjusted net income


Reported net income
Realized markup
Cost of sales at cost
(P70,000 + P350,000 P84,000) P96,000

P156,000
60,000
P 96,000
P240,000
140%

44

P84,000 x 40/140

P24,000

45

72,500 (75,000 + 444,000 -84,000 72,500)

20%

46

P444,000 / 120%

P370,000

47

Sales
Cost of goods sold (P75,000 + P444,000 - P84,000)
Operating expenses
Realized markup [P72,500 - (P84,000 x 20/120)]
Adjusted profit of the branch

P 600,000
(435,000)
(200,000)
58,500
P 23,500

48

P84,000 x 20/120 = P14,000

49

P84,000 P14,000 = P70,000

50

Home office inventory (P160,500 - P10,500)


Branch inventory (P108,000/120%)
Inventories reported in the combined balance sheet

P 150,000
90,000
P 240,000

AA1-Chapter 9 (2008 edition)

page1

Problem 9 8

Triple J Wholesale Company


Work Sheet for Combined Financial Statements
For the Year Ended December 31, 2008

Debits

Cash
Accounts Receivable
Inventory
Plant Assets, net
Branch

Purchases
Shipments from Home Office
Expenses
Income Tax

Trial Balance
Home Office
Branch
36,000
8,000
35,000
12,000
70,000
15,000
90,000
20,000

44,000

24,000
45,000
16,000

585,000

120,000

Accounts Payable
Accrued Expenses
Income Tax Payable
Home Office

36,000
14,000

13,500
2,500

Ordinary Share Capital


Retained Earnings

50,000
45,000

Credits

Sales
Net income

Inventory, beg:
Home Office
Branch P2,000 + P21,000/120%

290,000

9,000

440,000
585,000

P55,000
19,500
P74,500

Adjustments and
Eliminations
Debit
Credit
(c ) 5,000
(b) 2,000
(f) 2,500
(a) 4,000
(a) 4,000
(c ) 5,000
(g) 11,000
(e) 3,000
(d) 1,000
(i) 36,400

(b) 2,000
(g) 11,000
(f)

95,000
120,000

(h) 48,000

Income Statement
Debit
Credit
82,500

74,500

Balance Sheet
Debit
Credit
49,000
45,000
74,500
94,000

314,000
61,000
36,400
49,500
16,500
36,400

(i) 36,400
(d) 1,000
(e) 3,000

50,000
42,500

2,500

(h) 48,000
112,900

Inventory, end:
Home Office
Branch

112,900

493,900
67,600
561,500

P70,000
12,500
P82,50

487,000
561,500
561,500

262,500

67,600
262,500

AA1-Chapter 9 (2008 edition)

page2

Problem 9 9

Cash

Debits

Triple M Company
Work Sheet for Combined Financial Statements
For the Year Ended December 31, 2008
Trial Balance
HO
Branch
17,000
200

Inventory
Sundry Assets
Investment in Branch

23,000
200,000
60,000

Purchases
Shipment from Home Office
Freight-in from Home Office
Sundry Expenses
Income Tax

190,000

Credits
Sundry Liabilities
Income Tax Payable
Ordinary Share Capital
Retained Earnings
Home Office Equity
Sales
Shipments to Branch
Allowance for Markup in BI
Cost of Goods Sold
Net income

11,550
48,450

42,000

105,000
5,500
24,300

532,000

195,000

35,000

3,500

200,000
31,000
155,000
110,000
1,000
532,000

51,500
140,000
195,000

Adjustments and
Eliminations
Debit
Credit
a. 1,700
b. 1,800
e. 1,000

a. 1,700
g. 58,300
c. 5,000
d.
250

f. 110,000

Cost of Goods Sold


Debit
Credit
33,550

Income Statement
Debit
Credit

44,770

Combined
Balance Sheet
Debit
Cred8t
20,700
44,770
248,450

190,000
5,750

h. 15,460

15,460
66,300
d.
250
h. 15,460

g. 58,300
f. 110,000
e. 1,000
193,510

38,750
15,460
200,000
31,000

b. 1,800
c. 5,000

193,510

295,000
229,300
229,300

44,770
184,530
229,300

Merchandise inventory, end:


Home office
Branch [((P15,400 / 110%) + (P15,400 x 5%)] = P14,000 + P770
Total

184,530
266,290
28,710
295,000

P30,000
14,770
P44,770

295,000
295,000

313,920

28,710
313,920

AA1-Chapter 9 (2008 edition)

page3

AA1 - Chapter 9 (2008 edition)

page 19

Problem 9 10

Debits
Cash
Accounts Receivable (net)
Inventory Home office
Branch
Fixed Assets (net)
Branch Current
Purchases
Shipments from Home Office
Sundry Expenses
Income Tax
Credits
Accounts Payable
Mortgage Payable
Income Tax Payable
Home Office Current
Sales
Shipments to Branch
Allowance for Overvaluation
Ordinary Share Capital
Retained Earnings

Triple N Commercial
Working Paper for Combined Financial Statements for Home Office and Branch
For the Year Ended December 31, 2008
Trial Balance
HO
Branch
50,100
1,260
350,000
135,660
64,400
32,340
210,000
163,120
532,000
294,000
119,980
83,440
1,489,600

546,700

30,500
67,500

10,500
144,200

434,000
308,000
2,940
600,000
46,660
1,489,600

Adjustments
HO
Branch
a. 5,320
b. 2,100
c. ( 2,500)

a. (5,320)
d. 14,000
f. 23,667
23,667

f. 23,667

392,000

546,700

23,667

e. 10,976
24,576

e. 10,976
b. 2,100
c. ( 2,500)
d. 14,000

24,576

Adjusted
Trial Balance
HO
Branch
55,420
3,360
350,000
133,160
64,400
32,340
210,000
157,800
532,000
308,000
119,980
83,440
23,667
10,976
1,513,267
571,276
30,500
67,500
23,667

434,000
308,000
2,940
600,000
46,660
1,513,267

a.

2,940

Branch
Income Statement
Debit
Credit

29,400

32,200

c. 157,800
b. 28,000

Home Office
Income Statement
Debit
Credit
64,400

70,000

Combined
Balance Sheet
Debit
Credit
58,780
483,160
102,200
210,000

532,000

280,000
83,440
10,976

119,980
23,667

10,500

41,000
67,500
34,643

10,976
157,800
392,000

571,276

Branch net income


Home Office net income

Inventory, end:
Home Office
Branch [(P21,420 + P14,000) / 110%]
Total

Eliminations
Debit
Credit

P 70,000
32,200
P102,200

c. 157,800
b.
a.

392,000

28,000
2,940
188,740

188,740

434,000
280,000

403,816
20,384

424,200

740,047

784,000

854,140

424,200

424,200

43,953
784,000

784,000

854,140

600,000
46,660
789,803
20,384
43,953
854,140

AA1 - Chapter 9 (2008 edition)

page 19