You are on page 1of 187

Partnership – Basic Considerations and Formation

1

CHAPTER 1
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
1-1: a

1-2: b
1-2: c

Jose's capital should be credited for the market value of the computer contributed by
him.
(40,000 + 80,000)  2/3 = 180,000 x 1/3 = 60,000.

1-3: a
Cash
Land
Mortgage payable

P100,000
300,000
( 50,000)

Net assets (Julio, capital)

P350,000

Total Capital (P300,000/60%)
Perla's interest

P500,000
______40%

Perla's capital
Less: Non-cash asset contributed at market value
Land
P 70,000
Building
90,000
Mortgage Payable
( 40,000)

P200,000

Cash contribution

P 80,000

1-4: b

1-5: d

_120,000

- Zero, because under the bonus method, a transfer of capital is only required.

1-6: b
Reyes

Santos

P200,000

Cash
Inventory
Building
Equipment
Mortgage payable

________

P300,000
150,000
400,000
150,000
( 100,000)

Net asset (capital)

P350,000

P750,000

AA

BB

CC

P55,000
P55,000

1-7: c
Cash
Property at Market Value
Mortgage payable
Equipment at Market Value

P 50,000

_______

P 80,000
( 35,000)
_______

Capital

P 50,000

P 45,000

2

Chapter 1

1-8: a
PP

RR

SS

Cash
Computer at Market Value

P 50,000
__25,000

P 80,000
_______

P 25,000
__60,000

Capital

P 75,000

P 80,000

P 85,000

Maria

Nora

1-9: c
Cash
Merchandise inventory
Computer equipment
Liability
Furniture and Fixtures

P 30,000

200,000

P 90,000
160,000
( 60,000)
________

Total contribution

P230,000

P190,000

Total agreed capital (P230,000/40%)
Nora's interest

P575,000
______60%

Nora's agreed capital
Less: investment

P345,000
190,000

Cash to be invested

P155,000

1-10: d
Roy

Sam

Tim

Cash
Office Equipment
Note payable

P140,000

________


P220,000
_( 60,000)



______

Net asset invested

P140,000

P160,000

P

Agreed capitals, equally (P300,000/3) =

P100,000

1-11: a
Lara

Mitra

Cash
Computer equipment
Note payable

P130,000

________

P200,000
50,000
_( 10,000)

Net asset invested

P130,000

P240,000

Goodwill (P240,000 - P130,000) =

P110,000

1-12: a
Perez

Reyes

Cash
Office Equipment
Merchandise
Furniture
Notes payable

P 50,000
30,000

_______

P 70,000

110,000
100,000
( 50,000)

Net asset invested

P 80,000

P230,000

Partnership – Basic Considerations and Formation

3

Bonus Method:
Total capital (net asset invested)

P310,000

Goodwill Method:
Net assets invested
Add: Goodwill (P230,000-P80,000)

P310,000
_150,000

Net capital

P460,000

1-13: b
Required capital of each partner (P300,000/2)
Contributed capital of Ruiz:
Total assets
P105,000
Less Liabilities
__15,000

P150,000

Cash to be contributed by Ruiz

P 60,000

__90,000

1-14: d
Total assets:
Cash
Machinery
Building
Less: Liabilities (Mortgage payable)

P 70,000
75,000
_225,000

P370,000
__90,000

Net assets (equal to Ferrer's capital account)
Divide by Ferrer's P & L share percentage

P280,000
____70%

Total partnership capital

P400,000

Required capital of Cruz (P400,000 X 30%)
Less Assets already contributed:
Cash
P 30,000
Machinery and equipment
25,000
Furniture and fixtures
__10,000

P120,000

Cash to be invested by Cruz

P 55,000

__65,000

1-15: d
Adjusted assets of C Borja
Cash
P 2,500
Accounts Receivable (P10,000-P500)
9,500
Merchandise inventory (P15,000-P3,000) 12,000
Fixtures
__20,000
Asset contributed by D. Arce:
Cash
P 20,000
Merchandise
__10,000

__30,000

Total assets of the partnership

P 74,000

P 44,000

750 __43.500 1-18: c Garcia's adjusted capital (see schedule 1) Divide by Garcia's P & L share percentage P40.500 ______40% Total partnership capital Flores' P & L share percentage P101.500 Additional cash to be invested by Flores P 17.950 Total capital P248.000 ______40% P287.000) _( 5.850 ⅓ Mendez's capital Less Merchandise contributed P 82.000 Cash to be invested by Mendez P 32.000 __65.000 _100.900 __82.4 Chapter 1 1-16: a Cash to be invested by Mendez: Adjusted capital of Lopez (2/3) Unadjusted capital Adjustments: Prepaid expenses Accrued expenses Allowance for bad debts (5% X P100.000 P 77.000 Total partnership capital Multiply by Nakar's P & L share percentage Required capital of credit of Nakar: Contributed capital of Nakar: Merchandise inventory Land Building Total assets Less Liabilities Required cash investment by Nakar P115.850 1-17: d Moran.000) P158.950 Total Capital: Adjusted capital of Lopez Contributed capital of Mendez P165.950 __50.000 15.000 P125.000 P 95.500 ( 5.000 __30.000) Adjusted capital P165.500 P 45.250 ______60% Flores' capital credit Flores' contributed capital (see schedule 2) P 60.900 Total partnership capital (P165.900/2/3) Multiply by Mendez's interest P248. capital (40%) Cash Furniture and Fixtures Divide by Moran's P & L share percentage P 15.400 17.500 ______60% P172.250 .

000 ( 1.000 _( 2.375 1-20: d Merchandise to be invested by Gomez: Total partnership capital (P180.875 ______20% Cash to be invested by Roxas P 59.000) P237.500) ( 12.000 Cash to be invested by Jocson: Adjusted capital of Jocson: Total assets (at agreed valuations) Less Accounts payable Required capital of Jocson Cash to be invested by Jocson P180.900 ( 1.000 ( 4.000 Merchandise to be invested by Gomez P 90.000 P241.000 Unadjusted capital balances Adjustments: Allowance for bad debts Inventories Accrued expenses ( 2.000 P108.500 ( 4.000 X 40%) Less Cash investment P120.000 P132.600) P106.500 Divide by the total percentage share of Ortiz and Ponce (50% + 30%) ______80% Total capital of the partnership before the admission of Roxas Multiply by Roxas' interest P296.500) 5.400) Adjusted capital balances P130.000 _180. capital: Unadjusted balance Adjustments: Accumulated depreciation Allowance for doubtful account P 49.000 __48.000 __30.500 Schedule 2: Flores capital: Unadjusted balance Adjustments: Accumulated depreciation Allowance for doubtful accounts P 57.000 .000 Gomez's capital (P300.000 P 48.500 Total capital before the formation of the new partnership (see above) P237.500) ( 4.000 ( 4.000/60%) P300.800) 2.500 1-19: d Ortiz Ponce Total ( 60%) ( 40%) P133.Partnership – Basic Considerations and Formation 5 Schedule 1: Garcia.700) 3.000 ( 1.000) Adjusted balance P 43.500) Adjusted balance P 40.

000 Total partnership capital (P113.000 (1.000 Agreed capital (profit and loss ratio) 382.000 ÷ 70%) Eden agreed profit & loss ratio Eden agreed capital Eden contributed capital at fair value Allocated cash to be invested by Eden P5.000 1-24: c 1-25: c __Rey Contributed capital (assets-liabilities)P471.920 _113.000) P3.800 191.200 1-22: c 1.000.800 Capital transfer (Bonus) P 88.000-P12.500.000 P957.000 812.280 Cortez's capital before adjustments P211.400 957.000+P36. capital P 65.000 225. capital (P75.000) Merchandise inventory Prepaid expenses Accrued expenses P227.000 ÷ 40%) Candy.200 __Sam_ __Tim __Total_ P291.000) ( 5.000 ( 1.000 P195.000 ÷ 40%) Contributed capital of Candy (P126.000 Total capital of the partnership (P3.000 150.000 P 688.500.000 30% 1.000) Allowance for doubtful accounts Accounts payable P 70.125.000 150.640/1/3) Less David's capital P340.920 ( 16.800) P 3.200) ___3.000 P(91.500. agreed capital interest Agreed capital of Candy Contributed capital of Candy Withdrawal P225.000) ( 4.6 Chapter 1 1-21: b Unadjusted Ell.000) Adjusted Ell.000 60% 135.000 382.600 - 1-26: d Total agreed capital (P90.000 – P5.640 Cortez's capital after adjustments Adjustments made: Allowance for doubtful account (2% X P96.625.000) Total agreed capital (P90.200 1-23: a Total assets at fair value Liabilities Capital balance of Flor P4.000 .000 P 15.

000 x 70%) Cash to be invested by May P138.Partnership – Basic Considerations and Formation 7 1-27: a Total agreed capital (210.000 P 72.P56.000 P 8.000 ÷ 70%) Nora’s interest Agreed capital of Nora Cash invested Cash to be invested by Nora P300.000 42.000 Contributed capital of May (P194.000 __Total__ P184.000) Agreed capital of May (P300.000 92.000) _Carlos_ P84.000 P( 8.000 .000 - .000 184.000 P 48.000 92.000 1-28: a 1-29: c Contributed capital Agreed capital Capital invested __Alex_ P100.000 30% P 90.000 210.

........ Cash .................. Pedro Castro............... ..067........... 600 2..... 400 100 800 400 To record the investment of Jose Bunag................................................... (P4..................................................... Capital (1) P600 P31...... 200 3...... Accumulated Depreciation – Furniture and Fixtures ................ 15.................... Capital ....... Capital ................. Merchandise Inventory ..............835 P30.. Accrued Interest Receivable ............................ Capital..400 (2) 200 35 (3) (4) 100 400 (6) (5) ___800 P1....000 x 5% x 6/12 = P100) 100 5..................... a..................................................................... Office Supplies . Capital .................135 Jose Bunag........... Books of Pedro Castro will be retained by the partnership To adjust the assets and liabilities of Pedro Castro............................. Pedro Castro..............000 x 6% x 3/12 = P2..............067........................... Accrued Interest Payable . Pedro Castro...........................................................50 15... Capital : 1/2 x P30..... ............ Computation: Pedro Castro................. Pedro Castro... Capital ...................8 Chapter 1 SOLUTIONS TO PROBLEMS Problem 1 – 1 1........... 1........................................ Allowance for Bad Debts ........135 = P15.................. Pedro Castro..... Capital . 35 Computation: P1..........50 Jose Bunag.....50 ................................700 P31................. 800 6......067..... Pedro Castro.................................... Capital........................ P35 4................000 x 6% x 2/12 = 600 200 35 P15 _20 Total .....................

............................... Cash .......... Accrued Interest Payable ............................ 15............................................................................................. 6........... Capital . 15..................................000 New Partnership Books To record the investment of Pedro Castro....... Merchandise Inventory .....000 10...135 6.........................................................400 30........... Cash ............... Accounts Payable........ 9 A new set of books will be used Books of Pedro Castro To adjust the assets and liabilities...................................... Office Supplies ............................ Notes Receivable ...............................................000 3...................... Office Supplies ....000 100 1.. 4...................................................................................................135 To record the investment of Jose Bunag....067.............400 400 6........................................ Cash .............. Accounts Receivable ........... Accumulated Depreciation – Furniture and Fixtures .....................000 35 7............................................................. Allowance for Bad Debts ................... Furniture and Fixtures................................ Capital .....200 1......................................000 10..... Accrued Interest Receivable. ..........067.............................................. Pedro Castro..000 3...... Pedro Castro.. Allowance for Bad Debts...........200 1..........................000 24........400 30..... Furniture and Fixtures ..............50 ..............................................000 100 1.... Notes Payable ....................................................................... Accrued Interest Payable ............................................ Merchandise Inventory.................... Notes Payable ..................................................000 35 7.......... Accumulated Depreciation – Furniture and Fixtures ...................... Notes Receivable .................................... Accounts Payable .........................................................................................................................................................................400 400 6....................................50 Jose Bunag...... To close the books.............Partnership – Basic Considerations and Formation b............................000 24................................................................................. Capital ................................................ See Requirement (a)....................... Accrued Interest Receivable .....................000 4............................. Accounts Receivable ........................................................................................................................

135.........................00 30............................................................................500 x 25%)................. __57............... Jose Bunag............................................................000 28...... ___1.........000 ___68............................................................................500 Total contributed capital .............. .... Capital ................................................................................ Pablo: Cash ..................... 57.............................................00 P59...............................................800..... P 85............................................................................................................................ ........500 .................... Accounts payable ............000.....................................00 35.......................................................000 Less Allowance for bad debts...000 Underdepreciation...................00 22..................067.......000...............50 Problem 1 – 2 Contributed Capitals: Jose: Capital before adjustment ...000 Less Accumulated depreciation .........................................00 100...................................................................... 6................................................................................. 62................500 P 231....................................................................00 _15........ ___1...................200 Accrued interest receivable ................................500 x 50%) ......... .........50 P59......750 Pedro (P231........................50 Liabilities and Capital Notes payable ...500 x 25%) .....400 Total Assets ... Agreed Capitals: Bonus Method: Jose (P231...000......................000 Undervaluation of inventory ...................................................302............875 Total ..................................00 __4............. P 4........302...................... Office supplies ............. Accounts receivable ............... P231.10 Chapter 1 2..................................875 Pablo (P231........................................000 Marketable securities ........... 11......................00 400... 2008 Assets Cash ............................................................................600.............400.................00 10...................................................... _57.... Merchandise inventory ... Accrued interest payable ...00 7......................... P 24......................... P115............................................. 13.................. ( 25...........................000) Pedro: Cash ...................................................................... ............. Pedro Castro.................. Notes receivable ...............................50 3................................................. Furniture and fixtures ........ Capital ...............000 Notes Payable ............................... Total Liabilities and Capital .............................. P21..........................500 P 135...................................................................067........... Castro and Bunag Partnership Balance Sheet October 1.......

500 _____– 42....... 2008 Assets: Cash Accounts receivable (net) Marketable securities Inventory Equipment (net) Goodwill Total Bonus Method Goodwill Method P 49....000 (50%) 68.....000 57.........500 Goodwill P137.. Pepe Basco..... The computation is: Contributed Capital Jose Pedro Pablo Total Agreed Capital P135............000 P 53..875 P284.200 b.500 P327..000 __68. To have a goodwill.........500 85... a. Accumulated Depreciation – Furniture and Fixtures ...500 P327..500 P 49.......... Estimated Uncollectible Account ..000 48.500 P 53..000 48....875 __57.................500 Total agreed capital (P68...500 P231. capital (25%) Total Problem 1 – 3 1.......000 115.. capital (25%) Pablo.. 500 3.500 (25%) __68.....000 28..000 Jose.. Books of Pepe Basco To adjust the assets...000 40.....000 2........000 68...500 (25%) 274..... Pedro and Pablo Partnership Balance Sheet June 30.............. Capital .500 __68...........000 Liabilities and Capital: Accounts payable Jose..000 ______– P284... Pepe Basco......500  25%) = 274..........000 45... Capital ..... the only possible base is the capital of Pablo....200 500 ...000 137.750 57.500 85...........000 57..000 45.Partnership – Basic Considerations and Formation 11 Goodwill Method...000 __42.. capital (50%) Pedro..... 3......

. capital (Base) ...................................... Total agreed capital ......... Merchandise Inventory....................... 3................................................. Cash to be invested by Carlo Torre ....................500 3......000 Books of the Partnership To record the investment of Pepe Basco.................................12 Chapter 1 To close the books........... Estimated Uncollectible Account ............ Divide by Pepe Basco's P & L ratio ..................................................................................... Accounts Payable.................................... ....................... Pepe Basco.750 ___60% P47................................................................... Cash ......................................................................................... Estimated Uncollectible account ............. Pepe Basco............................................ Cash ............................................ Capital ...................................................................................................................................000 4............. Computation: Pepe Basco.......... 4...600 31.............................................250 47................................250 P31. Capital ................................................................................. Accounts Receivable ............600 31. Accumulated Depreciation – Furniture and Fixtures ............................................. Merchandise Inventory .... .......000 20................ 47..............000 5........ Adjusting Entries (a) Sales........................................................................................................................... Accumulated Depreciation – Furniture and Fixtures ...............500 3................ Capital ..................... Furniture and Fixtures .....................................200 (b) Goodwill ................ 400 16........................800 1... ...................500 400 16............ Accounts Payable .....000 ................ ............500 To record the investment of Carlo Torre........ Multiply by Carlo Torre's P & L ratio ........................000 3.............. ....... Furniture and Fixtures................................... Sales..............200 32............. Cash ................................................000 5............................................000 20..500 ___40% P78.. Accounts Receivable .......... Capital ........................... Roces' books will be used by the partnership Books of Sales 1............................. Carlo Torre....250 Problem 1 – 4 a........ 32................. Capital .............800 1........................... Accumulated Depreciation – Fixtures .............. 2.....................................................................

........................................................ Capital ............................................................................................................................................ ...........................................600 16....................................................000 3................................. Prepaid Insurance.................................................................................000 4...000 91..........................................................................800 8.............................000 8................. Roces............................. Capital .....................000 40.................................000 12............................. ...........................000 1................... 16..... 12................000 (c) Merchandise Inventory....................600 (b) Accumulated Depreciation – Fixtures .............................. Merchandise Inventory ........................................ Prepaid Insurance.... Accumulated Depreciation – Delivery Equipment .......................000 96.....200 64............... ......... Accrued Taxes ............................................................................. Accounts Payable ............................... Cash ................ 13 Closing Entry Allowance for Bad Debts ...................................................................... Accounts Payable ................... Capital ........................................000 40................ Sales......................000 32...................................................... Cash . Allowance for Bad Debts......... Fixtures ...................... Roces.....000 To record the investment of Sales.....800 72..................................................................000 .................................................................................................000 Books of Roces (Books of the Partnership) 1..........800 72....... Accounts Inventory..... Accumulated Depreciation – Delivery Equipment ............................... 1....................000 192..........................................................Partnership – Basic Considerations and Formation 2............................. Accumulated Depreciation – Fixtures ......... Accumulated Depreciation – Fixtures .......................200 48.............................................. Capital .......000 91......000 192................................ Merchandise Inventory ........ 4... Goodwill .....000 224.............................. Allowance for Bad Debts .... Capital ...000 96............................... Sales......................... Accrued Taxes ... 2....................................... Adjusting Entries (a) Roces.........................000 3.........200 64................................................................................000 8.........200 48..............000 32.................................... Goodwill .......800 8............... Notes Payable .........................000 (d) Goodwill...........................................000 8.... Delivery Equipment ......................................................................................... Fixtures .........................................................000 224............................................ 40............................................................ ............................................................................... 8..................... Notes Payable ........000 40................. Accounts Receivable ...... Delivery Equipment ....................... Roces.. Capital ....................................

.............................................................................................. Merchandise Inventory ...................... Chapter 1 Sales' books will be used by the partnership Books of Roces 1...........................000 Books of Sales (Books of the Partnership) 1...................................................................................600 12..... Prepaid Insurance............. Goodwill ...800 64.................... Cash .......000 6......... Adjusting Entries See Requirement (a).400 224................................ Delivery Equipment ................... 2................... 1..400 57...................................................................................800 64.............800 19........... Merchandise Inventory .. .... Goodwill ........................ ............. Accumulated Depreciation – Delivery Equipment ......000 40.......... Accounts Receivable .................................................... Accumulated Depreciation – Fixtures ...................................................................200 144........... Capital ...............000 ........000 104...........................000 6...... Accounts Payable ...........................................................14 b....000 104............................................................................ 2.................000 1..............800 19....000 14........ Fixtures ............. Fixtures .............................................. Capital .......................800 4...........................200 144..... Cash ............................ Allowance for Bad Debts ................600 12........ Accrued Taxes .............800 4..... .....400 224...........................400 57...........................600 132.. Accumulated Depreciation – Fixtures ........................................................................ Accumulated Depreciation – Delivery Equipment ..................... Accounts Receivable ...........................................................................................................................................................................................................................600 132........... Roces............................. Accounts Payable ........................................ Delivery Equipment .................................. To record the investment of Roces....................... Adjusting Entries See Requirement (a)................................. Accrued Taxes .............................................. Roces.......................................................... Closing Entry Allowance for Bad Debts ................... ...000 40....... Prepaid Insurance................................... 14...........................................

.................200 129.................... Sales.................................................... Fixtures (net).....000 224............................600 324.............. Delivery Equipment (net) ..........400 84...................................... New Partnership Books To record the investment of Roces and Sales........000 46.......................................................................... Adjusting Entries See Requirement (a)....800 8...............400 168.......................... Capital ......................... Roces................................................. Allowance for Bad Debts ..............................................................................Partnership – Basic Considerations and Formation c..................................800 72.....................................................000 40............. Goodwill ........ Accounts Receivable ...........................000 224... Cash ................... Merchandise Inventory ......................... ................... 15 A new set of books will be opened by the partnership Books of Roces 1. Accounts Payable ........................... 2... 2........... Books of Sales 1............................................ Capital ...000 14.............................................. Accrued Taxes ................. Closing Entry See Requirement (a)......................................... 19............................................. Adjusting Entries See Requirement (a)..... Closing Entry See Requirement (b)........................ .........................................................000 14.........000 ........... Prepaid Insurance...................... Notes Payable .............

. Lagman...000 13.................790 To record the investment of Magno................000 – P24............................ (P35........................................... Goodwill ......... Accounts Payable to J.. R........................................................................300 J......... Equipment ....... Capital ............... ...... 5................................................................ R.......................... Capital.............. Merchandise Inventory ...........................790 = P70....................000 12..790 10......................... . Merchandise Inventory.........................000 10..................................... ..............000 6....................................................................................000 13........ J..................................... Other Assets ....000 210 7............................ Equipment .................000 9......................................................................................... Allowance for Bad Debts............ Capital .............................700 = P10....000 12.......................................................300) 10................. Accounts Payable.................................... ............................. To close Magno's books........................... Capital .................. Cash ................. Accounts Payable .................... Accounts Receivable ......... Accrued Interest Payable ....... .....300 12.............................700 8.........................................000 300 24...................... Lagman ...................................... Allowance for Bad Debts ..... 3............... Lagman........................................ Notes Payable ..............................790) 35.........000 1.....................................000 = P35................................................. Capital ................................ Notes Payable ....................................................................................................................... Magno........................000 To adjust the books of Lagman................................ Other Assets .................................. ................000 3..................... Cash .......................... Allowance for Bad Debts .......................000 3.................. Cash .300 23......................................................................................000 10...... Accounts Receivable .. Magno............... ............ 2..............................490 ............... Cash .........000 300 24........................000 + P7...790 – P35.......000 9..............700 To adjust the investments of the partners......................... 1................................................................ (P63........................... Magno.............000 6........................................................................................ 5............................................................. R.........16 Chapter 1 Problem 1 – 5 1.. Accrued Interest Payable .

..............................000).......... ..........000 ___8.......................200 Toledo.................400 12............................790 21............... Merchandise inventory ........... Capital ......................Partnership – Basic Considerations and Formation 4.................... J...210 – 32.....................000 8....... Accounts payable to J.......................................................................790 Problem 1 – 6 1................................. P P34................ Magno............ Ureta..200) .................... Notes payable.........................................................000 1....... 17 Lagman and Magno Balance Sheet December 31............................................................. 10.490 35.................000) ..............................................................................................................000 1........................................ Capital .... 2... R....000 P115.........................................000) ...........................400 Cash (90% x P12........ Accounts receivable ... Less Allowance for bad debts ............................ P 18................200 ....................................................................... Goodwill ................ 2008 Assets Cash .................................................................. Books of Toledo Toledo.............................. Total Liabilities and Capital .............. Lagman ...........000 __35........................ Equipment ........... Lagman............................000 15............................................................................. Total Assets ...................................................................................................000 46....000 300 12........................... Loss from Sale of Office Equipment ................................................... Allowance for Bad Debts (10% x P24................. capital ....... Allowance for Bad Debts (15% x P32................................ ............. Capital (1/4 x P1..........800 Books of Ureta Ureta...................................... Other assets ............ capital ......................000 P115.........................................800 1........... Accrued interest payable.................. Capital ............ Loss from Sale of Office Equipment.................................................................800 4........................................................................... 300 900 2... Office Equipment......... 4...............................................790 Liabilities and Capital Accounts payable ..

. Accounts Payable........ 22.......... or Toledo.............. Ureta.............. Merchandise ........ Merchandise ..................................700 P 3..................... 3......... To record the investment of Ureta..............400 – P300) ..............................400 16............................000 40....... Divide by Toledo's profit share percentage ..... ...... Accounts Payable...................... Capital ............................................................................................. 4..........400 Computation: Toledo............................ To record Ureta's cash contribution.. Total agreed capital of the partnership ....... Ureta.....................................................................000 36......800 10.................. Ureta.............................................. capital (P68.............. Multiply by Ureta's profit share percentage ...................................... Toledo.............. Less Ureta..............000 10............................................................................................................000 300 Cash .......................200 ____50% P 68.....................100 __64............ Cash contribution of Ureta ................. capital ................................................400 – P300) ............................000 64..........................................18 2...........................................800 24...........................................................................100 ____50% P136........ Office Equipment .............................400 ............... Toledo.............700 3......................................000 2.... Cash contribution of Ureta ........................... ............. Accounts Receivable .........700 P 3.... Capital .................................................... Notes Payable .... 3..............000 Cash ....................................................400 P 68........ Allowance for Bad Debts....................................................... Chapter 1 New Partnership Books Cash ..........................................................................................400 P 68................................................................... .............. Capital ................................................. Agreed capital of Ureta ........ Capital .............................000 68.................... capital (P68.................. Accounts Receivable . To record the investment of Toledo.............................................................400 2..................200 32............................................. capital .......... 3......................................... Allowable for Bad Debts .......... .100 __64................

.................................................................. P 26....................................Partnership – Basic Considerations and Formation 4...... 2008 Assets Cash .......................... Merchandise........... Accounts receivable ...........................................................000 __10..... ..........200 48...........................200 .........................................000 2..............200 Liabilities and Capital Accounts payable ...................................................................................................... 19 Toledo and Ureta Partnership Balance Sheet July 1............................................................... capital ............................ Toledo. capital ......100 P164.......800 76.....000 __7.... Total Assets ........... P 29....000 P164......... Ureta...................... Less Allowance for bad debts ......................000 68........................... Total Liabilities and Capital ...............................100 __68.................................................................... Notes payable...................................................................................................... .............................................400 P56. Office equipment .....................................

000 ( 6.000 P20.000 /2) Michael .500 P 28.000 P 19.000 KK – P15.000 ( 6.10 X (P60.10 of average capital) Salaries Balance..000 P1.000 2-5: a Fred P12.000) Interest JJ (.000 P 22.000 P 90.000 2-2: a Bonus (.375 (P153.000 ( 35.000) 2-6: b Average Capital Date January 1 July 1 August 1 Capital Balance 140.000) ( 20.000 Interest (. equally Total P 5.000) (P11.000 ( 6.000 30.000 _14.000 Months Unchanged 6 1 5 12 Peso Months P 840.000/2) Balance.15 X P300.000 + 70.000 LL – Total P 18.000 Michael Total ) P 6..000 50.000) Balance.000) ( P29.000 – P 30.000) LL (.000 ( 35.15 X P100.000 + 60.750 X 10%) Henry Total P 4.845.500) P 11.000) ( 18.10 X (P40.750 Interest = P 15.000) P 7.000 Average capital .000 165.000 20.000 180.20 X P90.000/12 = P153.000 P180.000 ( 10.000) P27.000 __28.000 ( 35.000 180.000) P110.000) 90.000) KK (. equally Total Greg P 6.000) P39.000) P 70.000) (105.000 2-3: a 2-4: a Allan Interest Allan .000) .000 –) –) P45. equally Total profit share JJ P18.000 ( 10.000 P200.P1.000) P 24.000) (P 33.000 __825.20 Chapter 2 CHAPTER 2 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 2-1: d Jordan P120.000 Annual salary Balance.15 X P200. equally Total Pippen Total P80.500 _14.845.

000 _750.000 X 12) P120.000 P 14.000 Interest (P250.500) P12.000 P150.000 __20.000 Net income after salary.300) P 10.000 2-11: b CC Salary Balance Additional profit to DD Total P14.200 15.600/12) = Peso Months P 48.600 7.000 17.800 P201.000 __12.000 4.100 P10.600 19.600 __60.000 2-9: a AM P 3.500 P600.000/80%) Paul's bonus P467.000/120%) Bonus to RJ Balance (P24.000 (11.000 5.000 P 42.580) P 6.800 22.800 2-8: a Net profit before bonus Net profit after bonus (P24.200 57.Partnership Operations 21 2-7: c Date January 1 April 1 June 1 September 1 Capital Balance P16.400 __2.500 ( 19.000 DD P 8. 3:2 Total LT P3.500 EE Total P 14.05) __12.000 X .720) P 3. interest and bonus Add back: Salary (P10.200 15.000 .000)X3/5 Total profit share P 24.500 Net income Fees Earned Expenses Net Income P90.200 Months Unchanged 3 2 3 4 12 Average Capital(P201.000 _48.380 Total P 6.000 35.620 2-10: b _132.500 Net income after bonus (80%) Net income before bonus (P600.000-P4.600 28.500 Interest Salaries Balance.500 ( 7.000 ( 600) ______– P 19.000 P42.000 ( 1.600 P16.000 P 16.

250 – 5.000 NN P 750 – 3.000 __95.000/110%)P40.000 ) ) P 40.625 –) –) _11.000 P100.000 P71. P14.000 P545.000 P71.400 P4.050 P 38.550 Total P 4.000 _68.000 X .000 _204. equally Total P100.000 X 20% Remainder.000 __68.000) _35.000 __20.000 P108.000 _220.P40.500 9.000 P44.000 X .000 BB (60.05) Balance.050 P14.500 19.000 8.05) CC (60.875 P 5.000 Net profit after bonus (P44.625 P25.550 RR SS TT Total P15.000 BB CC Total 2-13: a Excess (Deficiency) RR (P80.000 _17.500 P62.000 .500/50%) = P19. 4:4:2 __6.000 MM P 1.000 P130.000 __70.000 ) P 3.000 Additional profit to give MM.000 2-15: a AJ Bonus to CJ Net profit before bonus P44.800 P4.800 2-16: c Total profit share of Pedro Less: Salary to Pedro Interest Share in the balance (40%) P 50.100.000 30.000 .000 AA P 10.000 – _47.000 P250.000 P 3.000/40%) Add: Total Salaries Total Interest Total Partnership Income P150.000 BJ CJ Total P1.000 X 10% 150.500 – (P10.000 Total *(P9.22 Chapter 2 2-12: c Interest Annual Salary Additional profit to give LL.000 6.000* __7.100.000 _68.000 Net profit after salary and interest (130.000 – 12.700 __7.000 8.000 __70.000 __3.000 P200.800 P7.500 _____– P20.800 Total P 16.000 1.000 .000) SS (P50.000 .000 22. 210.000 – – Interest to BJ – Salaries P 10.800 _____– P 4.P95.000) = 2-14: b AA .875 P11.400 P19. P20.000 P325.000) Balance 4:3:1 Total Net Income (200.000 LL P 2.000 Balance.000 – _6.

000 P116.750 P 13.000 P 9.750 P 9.500) 2-20: c Correction of 1998 profit: Net income per books Understatement of depreciation Overstatement of inventory.000 __60.600 48.150 Woods P100.875) Total P 9.375) (P 22.000) P 6.000 76.600 Distribution of Net Income: JJ Bonus Balance.500 P360.800 Interest Annual Salary Remainder 60:40 Total Mel P 20.500) P 11.850 Total P164.000 P 52.600-12.000 ( 36.000 36.000 Pete Rico Total P 9.600 __7. 30:70 Total Tiger P 64.125) ( 14.500 ( 2.600 _48.000 P 69.000) P 6.750) ( 73.875) (P 21.000) ( 6.800 P 28.750 P 19.750 ( 3.500 __19.000 P 33.000 – __45. December 31 Adjusted net income Distribution of net income per book: Equally Distribution of adjusted net income Equally Required Decrease P 19.800 RR P 9.000 Jay P 12.500 __65.000 54.650 P184.750 (P 7.500 ( 3.850 P175.000 P 24.000 .000 30.25 Remainder.000)X.000-P54.000 36.000 P 57.000 2-18: a 2-19: a JE FR Total P 3.Partnership Operations 23 2-17: c Net income before extraordinary gain and bonus (69.000 76.750) (P 18.000) Net income after bonus (57.000 – _40.600 _12.600 Total P 32.000 __4.100) ( 11.600/120%) Bonus to RR P 57. equally Net profit before extraordinary gain Extraordinary gain Total – P 24.500 2-21: a Salaries Interest Bonus (P360.000 Interest on excess (Deficiency) Remainder 5:3:2 Total DV P 15.250) (P 62.000 24.600 24.200 P 40.000 _100.000 P168.250 ( 22.400) P 6.

000 _495.000 Months Unchanged 7 5 12 Peso Months P700.000 Average capital – P615.250 Average Capital .000 __59.000 P180.000 P300.500 .000.000 __20.000) _-300.000 __40.350. interest and bonus Less: salaries Net income before bonus Net income after bonus (P180.000 __650.Queen: Date January 1 April 1 Capital Balance P100.000 P 600.000 __35.000 200.000 P340.000) P540.360 Schedule 1 Net income before salary. beginning Additional investment Capital withdrawal Capital balance before profit and loss distribution Mike P600.000 P500.000.000) P560.000 P 500.760 P 82.000 P760.000 P500.640 Salaries Commission Interest Bonus.000 2-23: a Capital balance.000 P615.000 30.000 Tyson Total P400.000) ( 500.000 55.000 130. end P200.000 Average capital .000 25.640 P117.000 65. schedule 1 Remainder.000 Average Capital .000 33.000 100.000 P1.24 Chapter 2 2-22: a Holly P 20.000 -200.000 – 32.000 __100.600 30.000 P260.000/120%) Bonus Total P 20.600 – _23.000 300.P1.000 P1.000 P1.000 / 12 =P112.000 Months Unchanged 3 9 12 Peso Months P120. 3:2 Total Total Drawings Capital balance.100.400 P200.000 P 30.000/12 = P51.000 ( 300. commission.000 P200.000 P840.000 ( 200. 60:40 Total Field – P 25.000 Net income: Salary Balance.600.000 __60.000 P1.King: Date January 1 April 1 Capital Balance P40.000 _150.000 P1.350.000 ( 100.

000) P 709.625.000 ___22.600 (1) _1.000 __30.000) Expenses Net income Distribution to Partners Red – P1.000 = Capital balance of Blue Dec.500.045.000 Schedule 2 Net income before allocation Less: Interest Net income before bonus Net income after bonus (P63.045.125.400 P2.000 = Blue – P1.000 ( 20.800) P75.400 P185.400 ( 750.000/P3.000 P130.000 P 396.600) P223.000 _15. Jan.045.125.625 _50.000 Queen P100.125. 50:50 Total King P 5.000 80.500.000 X P2.045.000 ( 41.000 X P2. 31 Capital Balance.250 – 30.000 ( 2.000 P55.725 55.625/125%) Bonus P80.000 _16.Schedule 1 Interest Bonus.400 (2) .000 ( 1.000 __45.050) P40.000 Total P140. 31 P3.800 ( 20.625.125 12.050) P39. Schedule 2 Salaries Residual.000/P3.800 Queen P11. 1 Additional investment Capital balance before profit and loss distribution Profit share Drawings Capital balance.000 1.200 Total P16.000 39.725 25.000) P2.Partnership Operations 25 2-24: d Distribution of Net Income .000 P 374.375 P63.000 + P1. January 1 Additional investment Capital balance before profit and loss distribution Net income (Schedule 2) Drawings (P400 X 52) Capital balance.400 2-25: d Total receipts (P1.000 _(2.000 _(4.800) P148. December 31 King P40.063. Dec.725 Capital Balance December 31: Capital balance.900 P12.000 P 981.000 40.375 12.080.100) P80.063.

325 (12.000 _______ Tanny P30.675 _8.675 (12.000 510.000 34.450) 21.000 P294.325 182.725) 27.000 85.000 51.000) P20.000 (1.325 30.000 Capital balances.000 P188. 1/1 Additional investment.000 66.000 _______ Sam P180.000 .000 15.000) 318.000 240.000) Capital balances.000 (3.000) 32.000 Total P330.000 8.000 120. profit and Drawings Profit share: Interest Balance. 4/1 Capital withdrawals.000) 2-27: a Balances before profit distribution Profit distribution: Interest Bonus (20% x P30.000 (24.000 20.450 6. 7/1 Susan P150. equally Total Total Drawings Capital balances.000 __60.000 8. 28 P216.000 _18.000 _24.000) 552.000 150. 60:40 Total Capital balances.000 P510. Nov.000 (18.000 _42.000 Total Drawings 234. 1 Capital balances before salaries.000 (24.050 6.000 179.000 Total Salaries 216. 12/31 P167.000 390.000 __60.26 Chapter 2 2-26: a Ray P150.000) _(6.675 Total P180.000 158.725) 4.000 294. March 1 Additional investment.000 (6.000) 212.000 23.000 24.000 35.000 54.000) Balance.000 (42.400 (1. Feb.

000) 40.000) P66.500 31.000 __3.000 ___9.000 (15.710 (2.600 112.000) P31.000 _(9.000 (16.000 ______ 35.700 113.000 _(2.000) P144. 1/1/06 Additional investment.900 _1.500) _1. 2006: Interest Salary Balance.000 ______ 41.000 (10.500 7.000 _1.000 (11.000 6. 2002 Capital balances Profit distribution.000 2-29: c Capital balances.000 _(3.000 _1.000) 250.000 9.000) 91. 12/31/08 3.100 3.400 6.000 30.200 ( 4.000 36.000) 101.340 (2.000 Total P300.500 ______ 53. 2007 Capital withdrawal.700 63.400 5.000 Uy P110.000 (80.000) 97. 2006 Capital balances Profit distribution.700 _(10.000 (6.000 (24.600 6.000 10.000 (10.500 121. 5:3:2 Total Total Drawings Capital balances.000) 25.300 P47.000 7.500 53.000 Loi P30.000 3.000) P102.000 30.000 .100 ( 7.000) 26.000 5. equally Capital balances. 1st year: Salaries Interest Balance.710 3.100 7.000) 16.000 __4.600 7.000 5.000 (10.600 _(10.000 105.000 39.000 Total P90. 1/1/07 Additional investment.000 30.000) P45. 5:3:2 Total Total Drawings Capital balances. equally Capital balances. 1/1/08 Additional investment.000 _(4.000 _1.000) 40. 2008: Interest Salary Balance. beg.000) ( 3.000) 280. 2007: Interest Salary Balance.000) P103.000 5.900 P150.000) 107.000 _(8.000 25.300 P68.640 __3.500) 21.700 (10.000 11.000) 72.000 9.150 3.000) P260.500 _1.100 _(4.000 20.000 Jay P30. 2nd year Profit distribution.000 Kay P30.000 12.340 10.700 30.310 7.000) 121.000) 86.000 _1.700 ( 3.Partnership Operations 27 2-28: a Capital balances. 1st year Loss distribution.000 5. end of 2nd year Sin P110.300 P33.000 9.000 __3.000 _(30.000) 27. beg.000 _(6.000 (30. 2006 Capital withdrawal.000) 99.000) 31.950 __3.700 10.000) ( 9.000 3.000 290. 12/31/08 per books Understatement of depreciation Adjusted capital balances.000 Tan P80.000 _(5.000) 62.000) ( 8.950 (2.000 11. 2008 Capital withdrawal.000 7.000 (40.000 3. 2008 Capital balances Profit distribution.000) (20. equally Capital balances.500 36.000 20.000) 27. 2nd year: Salaries Interest Balance.000) P53.000 8.000 3.

000) P100. capital ratio 80.500) Total capital. 2008: Salary Balance.500 – P147.000 50.000 60.000 ( 20.000 Balances Profit distribution.275 ) P 87.000 Net profit per year (P240. 1/1/08 Additional investment Withdrawals Cap.000 _______ 440.000) 80. beginning Additional investment (Land) Drawings Capital balance before net profit (loss) Capital balance.000) Balances Profit distribution. before P/L dist.000 _Total_ P750. 2007 P100.000 ( 40.000 ( 20.000 120.000 2-31: d Capital balance.000 320.000 Capital balances.000 20.000 .000 _______ _______ P300.000 20. 2007 (P300.000 ) 270.000 __13.000 45.000 376.000 60.500 ( 35.000 ) 98. NP: Salary (16.000 ( 60.818 60.28 Chapter 2 2-30: a Ken Capital balances.500 x 12) Interest on EC (15%) Balance 25:30:45 Total Capital balance 12/31/08 _Nardo_ P280.000 100. 2007 (Schedule 1) Salary Balance.000 / 2) P120.150 __Pedro_ P170.000 P125.000 20.850 ) 219.150 P 489. bal.000 40. 1/1/08 Capital withdrawal.000 Schedule 1 – Computation of net profit: Total capital.000 ( 23.000 60.000 150.000 (162.000 ) 100.000 __24.546 60.000 P975.000 100.000 ( 72. end Profit share (40%) Net profit (P50.000 ( 90.000 _260.000 + P40.000 380.000 60.000 P240. 2007 Capital withdrawal.000 198.875 ) 22. 2008 (P647.000 42.000) 744.500 ) 231.000 156.000) Total profit for 2 years P500.000 ÷ 40%) P120.000 ( 19. 2008 Len Mon Total P100.546 P500.500 (79.72 2-32: d Sam capital.636 __21.000 ( 20.125 P398.000 96. 12/31/08 P 93.636 P141.000 25.000 ( 80.818 P264. beg.000 180.000 112.000 198.000 140.000 __60.000 40.000) 180.000) 160. 1/1/07 Additional investment.000 – P80.000 60.125 __Orly P300. beg. Capital ratio Capital balances.775 ) ( 10.

1/2/07 P 80.900 Drawings ( 4.2008: Annual salary 96.000 48.900) 18. ratio: 8:4 ( 108. 12/31/07 72.000 ( 54.000 144.000 Net loss.000 ( 134. cap.000) 38.300) ( 15.000 ( 8.000 Balance equally ( 67.000 12.2007: Annual salary 96.000) 2.000 __Total__ P120.000) 34.200 Bonus to Joe–NPBB – P 22000 NPAB (22000/110%)20000 2.000) 25.600) 22.000 P150.000) ( 2.900 Total 109.900 __Tom__ P 40.000) ( 6.000 ( 130.000 ÷ 30) P 60.400 144.000 10% interest on beg.000 ( 8.Partnership Operations 29 2-33: a __Joe__ Capital balance. capital 8.000 2-34: a Decrease in capital Drawings Contribution Profit share Net income (45.100 ( 4.000) Capital balance. 12/31/08 105.000 4.000) 14.000 .000 ( 162.000) 106.000 45.000 ( 4.000 48.300) Total 37.000 Net profit.000 10.000 10% interest on BC 7.000 Bal.000) Capital balance 76.000 3.000 128.000) 114. beg.000) Total ( 4.100 120.600 ( 67.000) Capital balance.000 Drawings ( 4.

..................200) P23.....000) x (P18..............................800 = = P14....800 2.500) x (P16...........000) x P23...........250/P50.760 1........................................800 Computation of Average Capitals: Castro: Date 1/1 ........500 24..............100 _10.............750/P50.....560 __9....................... 9/1 .............................000 36.....800 P23.......................500 64.........000  12 months = Diaz: Date 1/1 ......500 __78....800 4. Castro Diaz : : (P26...........500) x P23.500 19... Capital Balances P16...500 Average capital = P225.....100 _17....800 = = P14...000 108...........100) P 4. Capital Balances P26............. 4/10 ............ 6/1 ... 5/1 ..........500 21.000 60.................................. Total .................000 _160............................000 ( 48...........176 P7....000 ( 24.764 P16...........................750 Interest .............100) P19........ Castro P 4.....760 1.000/P42.....000 P225.......000 P31...............................000 P18.......... 3:2 ...... equally.........000 (24...000 Average capital = P375.240 P23.624 Diaz P – – _7................400 Diaz P4.....000 – 12 months = 3........ Months Unchanged 3 1 3 5 12 Peso Months P 78..500 36....000 P375.....000 32.......... 8/1 ...30 Chapter 2 SOLUTIONS TO PROBLEMS Problem 2 – 1 1. Castro Diaz : : (P31.. Salaries....................940 P23........... Balance....250 Months Unchanged 5 3 4 12 Peso Months P 82.....000 29......000 29.....176 Total P 4.... .400 Total P12....500/P42................ Interest (b)............. Total .. Castro P 7......800 P23.800 Bonus (a) ..925 P23.......875 __8..................... Balance.

...........000  P340...........000  P340....... ......................000 ___10% P 1.Partnership Operations 31 Computations: a........... 30 Sept......... Capital (P1........000 __585....800 = = Problem 2 – 2 a......800 (P2.280 __9...100 : : P14....160.......... Interest ....000 Hood: Date Balances Jan.000 875.. Castro's excess ........000 P2....... Average Capital: Robin: Date Jan........000 P510........000 = P240.....000 220.............000 Months Unchanged 2 2 5 3 12 Peso Months P270.. Multiply by ......000 600........920.............. 5.. 31 P140.000 95............. ..........................920.......... ....................000)  2] .000 __400.......000 _18.....000 440.....000 Ave.....................800  125%) .......................000 Ave.000 x P510.... ............000 175.... 28 Apr.....000/P5.. 31 June 30 Aug....000 200...500)  2].800 _19.......000) x P23... b. Castro Diaz P23....160..........................040 P 4....800 (P3.000/P5... 31 Oct. Capital (P2..........000 195.000 P1...000 + P32.........520 P23....... 30 Balances P135......... 1 Mar. P29..........000 Profit Distribution: Robin : P160.......000 P11.000 300........000 200...000  12) = P180.......000 190..760 Average capital of Castro [(P26..............000) x P23.........500 + P18.000 = Hood : P180...000 150.... Bonus... Average of Diaz [(P16...000 x P510..000 ..000 Months Unchanged 3 3 2 2 2 12 Peso Months P420..... 1 Feb................ Net profit before bonus.... Net profit after bonus (P23.000 _270.000  12) = P160.....

...... Balance..............600 160........775 P274.000 Robin Hood Salaries.000 _98.................. Interest of 8% on average capital... ........ ....................................................818 Balance........... equally.... Bonus ......................... De Villa..............800 Bonus Computations: Income before salary. equally..... Bonus (P510..........................000 31.... . capital ...200 Salaries....... __44. Commission (2% x P1............ Income before bonus ...........................000) .000 – P135......182 P 9......... ........000 – _119......636 __88.....000 Bonus (see computations below) .. De Villa P 30............................................. equally.000 20............. De Vera........ Interest: Robin (P195.................................. P266................000 _248...... Robin P 14............. ...................... c................... P 80..000 P120.........................000 Robin Hood Totals P 6........850 _239.975 Total P 30....... Less Salaries..............................000 Interest on ave.. .........000 _248.000 62............... _124........850 _119.............000) 108..............................................000 _124.......................000 78.....000 255.... Balance.......32 Chapter 2 b......000 P 12............... Totals .000 – 30..........182 P105..... Salary and commission (P30........ Total P 30..000 64....... capital.......... 62...000 498..................... Net income before bonus ........................800 105...... commissions... ...................000 Bonus Computations: Net income before salaries and bonus ...000 P 62..........................000 19................................. 32..000 – P140..000 Totals ...........775 P235.......................... ....600 – 160............................. ...................818 __44...............000 510........000) x 25%) .000 P222.......................000 + P20....200 100.......400 60................. ...... .182 Total ............. ....................818 P 222..000  110%) ......000 249....................... ........................... Income after bonus (P108.......................................................................000 P244.200 ..... .........000 310....................................000 De Vera – P 20........... Interest....000 116....................................................000) 10% ............. Income Summary ......................000 P510...364 P222...000.....000 200........................ .............550 P510.......... Salaries... ..............................000 79. 9..025 Hood P 16..................000 P510...... ........... Bonus .000 255...... P 6............................... Hood (P200.............000) 10%...........000  125%) ......... .................................... ............................000 249..200 9.... interest & bonus ...000) ( 64.000 Balance................................... Total P200.................. Net income after bonus (P310......................... d...................000 Problem 2 – 3 a........ P116.. equally....000) ................. Totals ........... capital ..............000 ( 50.................. b.....................800 Bonus (see computations below) ..

..... P 31......966 70...800 __3.........................000 _160.000 3....740 North P20......000 __4.....333 North: Pesos Months P80.......... Total ..... .....960 _75...............760 P 2.. Salaries. Interest (see computation below) ................... Net income after bonus (P78............... ..................000). Bonus (see computations below) ....000 _112........ ...... Total .....600 _10..... ....... P 36............145 Months Unchanged 4 4 4 12 Total P53.............. ....180 P24..........056) P 21... Interest computations: Average capitals: East: Date 1/1 5/1 9/1 Balances P30........055) P 22........ East P15.... North (10% x P40......600 Total P11.000 36........333 ............................ .................... .....800 P11........000 West P18.858 West P 5.....000 31.. .. Total ........................................................ ....000 Average capital (P376..........960 P78... .... ... Balance....240 P27....... Bonus (see computation below) ... ....760 11.. ............................. .......000 Months Unchanged 2 4 2 4 12 Average capital (P436..........................000) ....000  12) ...............800 4..000 P376............. ........ Salaries........000 28...280 ( 6........200 25....................... b..............000 Date 1/1 3/1 7/1 9/1 Balances P40....000 ( 6..........280 ( 18..000 P436................................. ........000 124.760 2....... Bonus ......................077 North P 3..............000 __3.................. .......................... Interest (see computations below) ......000 144.............000 ( 6.......................633 21.Partnership Operations 33 Problem 2 – 4 a...180 4......... ............000 72..... equally.........055) P 24....... ......000 4.........000 40.........000 East P 3......000 36..........133 24...000 4....... West (10% x P48........166) P 68...................800 __4................000  12) ...000 4..000) .... Balance................. Interest computations: East (10% x P28... 3:3:4 ...180 P27..................................... ..080 Pesos Months P120......000 3..960  105%) ........600 P78.........200 P 3....040 Bonus computations: Net income before bonus ....

34

Chapter 2

West:
Date
1/1
4/1
6/1
8/1

Months
Unchanged
3
2
2
5
12

Balances
P50,000
57,000
60,000
48,000

Pesos
Months
P150,000
114,000
120,000
_240,000
P624,000

Ave. capital (P624,000  12)....................................

P 52,000

Interest Computations:
East (10% x P31,333) ............ ...............................................
North (10% x P36,333) ......... ...............................................
West (10% x P52,000)........... ...............................................
Total ... .................................. ...............................................

P 3,133
3,633
__5,200
P 11,966

Bonus Computations:
Net income ............................ ...............................................
Less Salary ............................ ...............................................
Net income before bonus ....... ...............................................
Net income after bonus (P47,080  110%) ...........................
Bonus to North ...................... ...............................................
* To Total
c.

East

West
P 8,990

5,000
__8,237.50
P22,227.50

Total
P 8,990
39,000
12,000
_32,950
P92,940

Bonus Computations:
Net income before salaries & bonus ............... ..................... .....................
Less Salaries (P21,000 + P18,000) ................. ..................... .....................
Net income before bonus ........... .................... ..................... .....................
Net income after bonus (P53,940  120%) ..... ..................... .....................
Bonus to West ............................ .................... ..................... .....................

P92,940
_39,000
P53,940
_44,950
P 8,990

Bonus (see comp. below) ....................
Salaries ...........................................
Interest on beginning capital ...............
Remainder, 8:7:5.................................
Total ........ ...........................................

North

P 68,000
_21,000
47,080
_42,800
P 4,280

P21,000 P 18,000
3,000
4,000
_13,180 _11,532.50
P37,180 P33,532.50

Problem 2 – 5
a.

Schedule of Income Distribution:
Salaries.... ...........................................
Interest (see computation on p. 30) .....
Balance, equally..................................
Total ........ ...........................................

Maria
P12,000
7,200
__3,133
P22,333

Clara
P10,000
9,600
__3,133
P22,733

Rita
P 8,000
13,800
__3,134
P24,934

Total
P30,000
30,600
__9,410
P70,000

Partnership Operations

35

Interest on Average Capital:
Maria:
P80,000 x 8% x 6 months.. ....................
P100,000 x 5% x 6 months ....................
Clara:
P120,000 x 8% .................. ....................
Rita:
P180,000 x 8% x 9 Mos. ... ....................
P150,000 x 8% x 3 Mos. ... ....................
Total ........................................... ....................
b.

P 3,200
__4,000

P 7,200
9,600

P10,800
__3,000

_13,800
P30,600

Statement of Partners Capital:
Balances, Jan. 1...................................
Additional Investment ........................
Capital Withdrawal .............................
Net Income..........................................
Drawings ...........................................
Balance, Dec. 31 .................................

Maria
P 80,000
20,000

22,333
( 10,000)
P112,333

Clara
P120,000


22,733
( 10,000)
P132,733

Rita
P180,000

( 30,000)
24,934
( 10,000)
P164,934

Total
P380,000
20,000
( 30,000)
70,000
( 30,000)
P410,000

Benny

Celia

Total
P20,000

Problem 2 – 6

1.

Allocation of net loss for 2008:
Salary to Alvin ....................................
Interests on average capital:
Alvin (P120,000 x 10%) ............
Benny (P200,000 x 10%) ...........
Celia (P220,000 x 10%) .............
Balance, 30:30:40 ...............................
Total ........ ...........................................

2.

Alvin
P 20,000
12,000

20,000
(29,400)
P 2,600

_(29,400)
P( 9,400)

22,000
_(39,200)
P(17,200)

54,000
_(98,000)
P(24,000)

Benny
P180,000
60,000
________
240,000
__(9,400)
230,600
_______
P230,600

Celia
P220,000
40,000
_(20,000)
240,000
_(17,200)
222,800
_______
P222,800

Total
P520,000
100,000
_(20,000)
600,000
_(24,000)
576,000
_(16,000)
P560,000

Statement of Partnership Capital
Year Ended December 31, 2008
Capitals, January 1, 2008 ....................
Additional investments .......................
Capital withdrawals ............................
Balances .. ...........................................
Net loss (see above) ............................
Balances .. ...........................................
Drawings . ...........................................
Capitals, December 31, 2008 ..............

Alvin
P120,000
_______
120,000
__2,600
122,600
_(16,000)
P106,600

36

3.

Chapter 2

Correcting entry:
Celia capital ........................................
2,400
Alvin capital ...............................
2,200
Benny capital .............................
200
To correct capital accounts for error in loss allocation computed as follows:
Alvin
Benny
Celia
Correct loss allocation ........................
P2,600
P(9,400) P(17,200)
Actual loss allocation ..........................
__(400)
__9,600
__14,800
Adjustment..........................................
P2,200
P 200
P ( 2,400)
Problem 2 – 7
Dino
P45,000
_15,000
60,000
(1,800)
(17,000)
41,200
_____–
41,200
10,800
(17,000)
35,000
______–
35,000
56,365
(19,000)
P72,365

Nelson
P45,000
_15,000
60,000
( 1,800)
( 7,000)
51,200
_____–
51,200
8,100
( 7,000)
52,300
______–
52,300
42,272
( 9,000)
P86,572

Oscar
P45,000
__6,000
51,000
( 1,800)
( 3,200)
46,000
__6,000
52,000
8,100
( 3,200)
56,900
___6,000
62,900
20,363
( 3,200)
P80,063

Total
P135,000
__36,000
171,000
( 5,400)
( 27,200)
138,400
___6,000
144,400
27,000
( 27,200)
144,200
___6,000
150,200
120,000
( 31,200)
P239,000

Dino
P48,000

3,600
_* 4,765
P56,365

Nelson
P24,000
10,909
3,600
__4,763
P43,272

Oscar
P12,000

3,600
__4,763
P20,363

Total
P84,000
10,909
10,800
__14,291
P120,000

Bonus computations:
Net income before bonus ........... ................ ..................... .....................
Net income after bonus (P120,000  110%) ..................... .....................
Bonus to Nelson ......................... ................ ..................... .....................

P120,000
_109,091
P 10,909

Capital balances, 1/2/06...............................
Additional investment, 2006 .......................
Balances.......................................................
Net income (Loss) - 2006, equally ..............
Withdrawals, 2006.......................................
Capital balances, 12/31/06...........................
Additional investment, 2007 .......................
Balances.......................................................
Net income - 2007, 40: 30: 30 .....................
Withdrawals, 2007.......................................
Capital Balances, 12/31/07 ..........................
Additional investment, 2008 .......................
Balances.......................................................
Net income, 2008 (schedule 1) ....................
Withdrawals, 2008.......................................
Capital balances, 12/31/08...........................
Schedule 1:
Annual salaries....................................
Bonus (see computations below) ........
Interest ................................................
Balance, equally..................................
Totals ..................................................

* To Total

800 41. 20% Total P120.800 P59. 40% To Blue. excluding doubtful accounts expense Add: Doubtful accounts expense ($3.10 x 1/2 Total expenses.000 __8.000 x 20% Green's share of fees: Gross fees from new clients after April 1.300 Red.000 x 20% White P24.000 P (1. P22.000 3.200 5.400 _22.600 ____500 P40. excluding depreciation and doubtful accounts expense Less: Excess rent charged to N ($300 x 6) Subtotal Add: Depreciation.000 x 0. divided in income-sharing ratio as follows: To Red.000 P16.900 2.400 P43.600 4.000 24.700 P38.800 22.000 x 0.000 P22.800 8.800 P13.200 __21.200 8. computed as follows: $26.000 Green 3.200 _57.800 _11. Year 1 Division of net income: Fees billed to personal clients: Red P44.Partnership Operations 37 Problem 2 – 8 Red.000 4.400 11.400 900 P12.000 .800 Blue 40.200 P 57.000 P 9.800 36.400 P57.000 P 3.800 48.800) 3.200 P18. White & Blue Partnership Exhibit A – Computation and Division of Net income For Year Ended December 31. beginning of year Add: 20% of fees billed to personal clients Green's share of fees (Exhibit A) Remaining net income (Exhibit A) Subtotals Less: Withdrawals Uncollectible accounts identified with clients of each partner Excess rent charged to Blue Total deductions Balances.000/ $120.000 x 0.000 x $24.400 _22.800 _11. end of year Red 40. Year 1 Less: Allocated expenses ($40.000 Total P101.000 18. 40% To White.700 __1.000 __1. 2008 Total revenue from fees Expenses.800 P 5. 2008 Balances.800 _47.000) Net income from new clients Green's share (P16.000 P38. White & Blue Partnership Statement of Partners' Capital For Year Ended December 31.200 4.10 $10.100 1.000 x 2% Blue.600 2.800 P 40.000 x 20%) Total divided pursuant to special agreement Balance.300 1.200 ______ __3.400 ________ P 78.60) Total expenses Net income for year ended Dec.800 10.800 _71.000 179.800 White 20.400 _56. 31.200 35.900 P138.800 P 8.

000 P25. Net profit before interest. equally P 4.920 – __(9.287) P25.100 Total Profit distribution: Salaries Interest Bonus to Gary and Sonny (Schedule 1) Balance.840 _58.100 _180.720 554. salaries and bonus Less: Salaries Interest Net profit (loss) before bonus Therefore no bonus is to be given to Gary and Sonny.100 . 2008 Gary Capital balances.100 P180.776 Total Adjustments (50% of P25.400 101.000 to Allan) P 9.980 Total P185.000 P35.000) Capital balances.000 Sonny Letty Total Problem 2 – 10 Gary.720) _(9.100 (18.100 10.000 __9.600 – _(9.000 ___9.000 – __5.000 _______ P 90.400 _11.000) _(48.112 _5.520 21. equally _219.160 P(29. Eman and Gino Partnership Statement of Profit Distribution Year Ended December 31.000 2.120 – P5.160) __29.000) __(9.38 Chapter 2 Problem 2 – 9 Allan. and Letty Partnership Statement of Partners' Capital Accounts Year Ended December 31.500 P6.720 P506.787 (1.000 _____– Total P12. 2008 Allan Eman Gino Total Interest Commission (P16.000 _90.720 _65.680 25.000 _______ P480.500 P6.000) 203.925 P 5.640 10.112 _5.287) P7.320 – (29.000 Total Drawings 248. P 65. Sonny.925 P 250 1.160) P 92.000 489.880 _23. 1/1/08 Additional investments P210.720) 35.000) x 10% Balance.574 P7.980 _(21.287 (1.720) 11.224 _17.926 P 750 1.800 13.320 __94.840 58.400 Schedule 1: Computation of the bonus.926 __2. 12/31/08 P227.

000 1.000 + P800.300. capital (P600.000 104.340.200.P500.000 = P800.550.000.000 1.000 20.200.000 – P200.000 104.000 2. drawing Lebron.Partnership Operations 39 Problem 2 – 11 a.000 .000 purchases .550.000 Mortgage payable Interest expense Cash 50.550.000 1.000 200.000 Installment note payable Interest expense Cash 35.000 1.000 .000 Depreciation expense Accumulated depreciation 60.000. capital (P500. Entries to record the formation of the partnership and the events that occurred during 2008: Cash Inventory Land Equipment Mortgage payable Installment note payable Kobe.000 + P1.000 240.000 55.000 500.300.000 300.000) (1) (2) (3) (4) (5) (6) (7) (8) Inventory Cash Accounts payable 1.000 Kobe. drawing Cash Sales 278.000 + P1.000 800.000 1.000 Selling and general expenses Cash Accrued expenses payable 340.300.000 1.000 900.000) Lebron.000 ending inventory 1.000 208.000 Accounts receivable Cash Sales 70.000 900.100.000 60.000 Income summary (9) Cost of goods sold Inventory P900.000 62.000 60.000 beginning inventory + 300.000 20.000 210.

000 (900.500.000 Salaries Residual deficit Total b. capital Lebron.000 (105.000 (54. drawing 104.000) P105.000 Schedule to allocate partnership net income for 2008: Kobe Profit percentage 60% Beginning capital balance P2.300.000 60.000 210.340.000 Net income (P1.000 105.000 105.000) P105.000 60.000 120.000 300. January 1 Purchases Goods available for sale Less: Inventory.000 (240.000 39.000 40.000) P210.340.000 (40. December 31 Gross profit Less: Selling and general expenses Depreciation expenses Operating income Nonoperating expense.000 Income summary Kobe.550.000 (81.000 104. 2008 Sales Less: Cost of goods sold: Inventory.000) P(135.000 (200.000 Kobe.000 P1.000 .40 Chapter 2 Income summary Cost of good sold Selling and general expenses Depreciation expense Interest expense 1. Lebron 40% P1.000 P250.interest Net income P1.000 104.000) -0- Kobe-Lebron Partnership Income Statement For the Year Ended December 31.000 104.550. drawing Lebron. capital 210.000) P650.000 900. capital Lebron.000) P105.000 P800. capital Kobe.200.P 1.000 400.000 120.000) 340.000 revenue .100.000 340.000 expenses) Interest on beginning capital balances (3%) 66.000) (135.000 Total 100% P3.

capital Total capital Total liabilities and capital P60.000 165.300.000 P4239.000 P2.201.000 .000 Liabilities and Capital Liabilities: Accounts payable Accrued expenses payable Installment note payable Mortgage payable Total liabilities Capital: Kobe. 2008 Assets Cash Accounts receivable Inventory Land Equipment (net) Total assets P1.589.000 1.000 62.000 210.000 200.000 1.000 940.000 450.000 P737. capital Lebron.239.502.Partnership Operations c. 41 Kobe-Lebron Partnership Balance Sheet At December 31.000 3.000 P4.301.

600 P 84.000 ( 88.000 P135.000 Capital transferred Excess divided using profit and loss ratio Cash distribution AQUINO P 50.000/1/4) Actual value Goodwill Cash balances Goodwill.000) P108.000 __3.42 Chapter 3 CHAPTER 3 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 3-1: c Implied capital of the partnership (P90.200 __1.600 P 54.000 ( 50.000 P46.400) P201.000 ( 27.000 LOCSIN P 25.400 __3.400) _84.000) P216.800 P 27.000 – ( 8.000 ___9.000) P 69.000 DAVID P 8.000 Capital balances before Goodwill Goodwill to old partners Total Purchase by Hizon (20%) Capital balances after admission AQUINO P252.000 Capital balances before admission Purchase by Hizon (20%) Capital balances after admission AQUINO P252.000 ( 420.000 3-4: b Selling price Interest sold (444.000 ( 54.200) P100.000 __18.000 P 90.000 P33.000 DAVID P42.000 3-2: b 3-3: d TOTAL P 84.000 BERNAL P 80.800 DAVID HIZON P42.000 P45.000 HIZON – _____– – _90.000 P 90.500 P 16.800) P 43.000 LOCSIN P126.000 __6. Profit and Loss ratio Total Capital Transfer (1/4) Capital balances after admission P160.000) P 20.000 ( 9.000 P 92.000) P 30.000 ( 11.000 __2.000 ( 25.500) ( 5.000X1/5) Combine gain P132.000 P 20.500) P34.000/20%) Actual value of the partnership Goodwill P450.000 P 22.000 __6.200 3-5: b Implied value of the partnership (P40.000 ( 23.400 ___600 P 9.600 LOCSIN P126.000 CUEVAS DIAZ P40.000 __12.000 P270.000 ( 140.500 .000) P36.

000 10.000 ( 156.000 P30.000) Unrecognized Goodwill P180.000) Pete's interest Pete's agreed capital balance P 77.000 __50.000) _10.000 P150.Partnership Dissolution – Changes in Ownership 43 3-6: b Capital Transfer (20%) Excess.000 __40.000/5/6) Diana's Interest Cash distribution P180.000 5.000+20.000 P100.000 __4.430 Capital transfer Excess.860 16.290 ( 8.700 3-7: d 3-8: a Total agreed capital (P150.000 P 22.570 __3.000 P 8.000 P 72.000/1/5) Total contributed capital (80.240 __7.050) P 50.000+17.810 _11.430 ( 5.000 P150.000 Increase (Dec.000 1/6 P 30. capital balance before admission Bonus share to new partner (10.000 Total agreed capital (P40.000 .000) P 54.000 Capital balances beginning Net profit.730 P 9.240 ( 13.) (P 10.000+40.000 3-9: a 3-10: b Old partners New partner Total Contributed Agreed Capital Capital P110.000 ( 6.000 Total agreed capital (P36.190 P30.000+36.000 P – Ben.050) P 24.380 ( 5. capital after admission P 60.000 _10.000) P 24.000 TOTAL P20.460 P 20.000 1/5 P 15. 1:2 Drawings Capital balances before admission Capital transfer (squeeze) Capital balances after admission 1:2 PEREZ P 24.400 3-11: c P18. 1:2 Cash P 5.000 __6.810 CADIZ TOTAL P 48. Profit and Loss ratio Cash distribution BANZON P 16.570) P 18.620 P 56.000) ( 13.300 P 13.000X60%) Ben.000 CORTEZ P 4.810) (1/4) P 37.240) (18.860 P 75.

600+16.000 Agreed Capital P60.400 ( 57.000 3-13: c Total agreed capital (90.000 – ( 1.500 RAUL P30.000 ONG P 18.600 ANG – 16.600/2/3) Total contributed capital (P23.500) P 31.800 .000) P 35.000 Total agreed capital (P41.000 30.000 P – Capital balances before admission Investment by Lory Bonus to Lory Capital balances after admission FRED P 35.000 ( 140.000)/80%) Total capital of Mira & Nina after admission Cash paid by Elma P175.000 __7.000 JUNE P90.000 __7.000+18.000) _5.000 P 15.000) Goodwill to new partner.000 P90.000 P 30.600) P 4.000) Augusts' interest Agreed capital Contributed capital Bonus to June & July P220.000+70.000 (1/3) P 90.000 _____1/4 P 55.000 – ( 3.500 LORY – 25.000 __4.) (P 5.000 __5.44 Chapter 3 3-12: b Old partner New partner Total Contributed Capital P 65.500 3-14: a Total agreed capital (52.500 Capital balances before admission Bonus from August.500 P97. equally Capital balances after admission JULY P 60.800 P20.000 Increase (Dec.500) P28.000 – _____– P23.000 25. Ang P 62.000 __70.000 + 88.500 P 67.800 3-15: a Capital balances before admission Investment by Ang Goodwill to August Capital balances after admission LIM P23.000+60.600 – ______– P 18.

(Dec. 1) Capital balances before admission of Lorna Admission of Lorna: Goodwill Written off.000 GW 3-17: b MONA Capital balances before admission of Alma Admission of Alma: Investment Goodwill to old partner.000) Bonus P400.000 600.000) _______– – _______– – _______– 300. 70:30 (sch.000 12.000 Schedule 1: Total agreed capital (80.000 P 1.000 – P1.000 150.000 – – 80.Partnership Dissolution – Changes in Ownership 45 3-16: a Capital balances before admission Admission by Dong: By Purchase (1/2) By Investment Capital balances before Goodwill and Bonus Goodwill to Old Partners (sch.500.000 P178.000+80.000 ___12.000 P2.000 __10.000 P 76.000+75.000 ( 355.000 – – P 200.000) P1.000 P1.000 ______– ___20.000 ( 100.000.000 Schedule 2: Total agreed capital (75.000 __37. 70:30 P 320.000 100. 5:3:2 (sch.000 ____6.000 P600.000 P168.000) P 20.000 (P 20.000 (25%) __500.000 _300.000/20%) Total contributed capital (280.500 P 300.000) P 40.000 – 80.000 ________– P487.300.000.000 P300.000.000 P 56.000 __28.000 – ( 100.000) 75.600.000 Inc.000 P 375.000) Goodwill to old partners. 2) Capital balances after admission LIZA ALMA LORNA TOTAL 50.000 P 400. 5:3:2 Investment Goodwill to old partners.000 400.000/25%) Total capital contributed (200.000 P P 80.000 150.000) – – 75.000) – (P P150. 1) Bonus to Old Partners (sch.000 .000 P 62. 1) Capital balances after admission ANG BENG CHING DONG TOTAL P600. 5:3:2 P 375.000 ( P40.000) ( – P8.000 P 75.000 P500.000 ( 280.500 P 400.000 __37.000 – P 320.000 Schedule 1: Old Partners New Partner Total CC AC P 1.500 P 425.000 ____4.600.000 P 300.000 ( 300.000) Goodwill to old partners.000 – ___300.000 _______– ______– ___40.000 __25.) P500.000 P2.500 P 587.

000 Total agreed capital (270.250 Bonus to A (1.000 3.500 B P 19.000) P201.000 ( 7.250 __3.000 3.150+201. Under Bonus method the capital balances of B would be: B.500) P150.000 – P720.500) ( 37.000 P 22. P12.250 2.250 Therefore: 1.750 __3.000) Partial Goodwill to A P 30.000 3.000) P 35.150 _( 1.675 1/3 P302. capital balances before settlement to A P 22. equally Drawings (2 months) Capital balances before WWs Investment XX YY ZZ WW TOTAL P360.500) P112.750 Settlement to A A's interest (23.650 P121.075 3-20: a Capital balances Understatement of assets.650 P201.500) ( 12.000 P225.000 P720.000) ( 25.000/2/3) Green's interest Investment P405.500) _120. Under partial Goodwill method the capital balances of B is P 22.000 WHITE P100.000) P200.000) ( 22.225 _121.500) ( 7.000 ( 5.500 __87.000 1/3 P135.650)/2/3 WW's interest Agreed capital of WW Contributed capital (see above) Cash to be invested P725.000) P300.000 Balances before settlement to A A P 20.000 ______– ______– P120.600 P906.000 __6.500 P200. capital after retirement of A P 21.000 .000 3-19: b Capital balances before admission Capital transfer to WW (1/6) Balances Equalization of capital Balances Net profit.500 __12.500X25/75) _( 500) B.000 3.000 ( 12.500) P187.150 P181.500 P200.750 P 1.000) P270.750+5.000 ( 25.150 _( 2.000 ( 60.000 P 23.150 Total agreed capital (201.600 _( 2.000 P 51.250 _28.750 C P 45.000 BLUE P 45.000 P135.000 TOTAL P320.650+201.000 ______– P120.150 P201.000) _( 7.000 ( 100.000) ( 5.000 P720.150 _( 1.46 Chapter 3 3-18: c Unadjusted capital balances Overvaluation of Marketable Securities Allowance for Bad Debts Adjusted capital balances before admission RED P175.150 12.500) P 85.

from Alma and Betty 4:2 Therefore entry (c) is correct.400 653.000 ( 544.000 70.000 ___24. 12/31/07 Net profit.000 42.800) ( 89.000 ( 816.000 P 180.000 Undervaluation of inventory.000 ( 24.000 ( 48.600 ( 24.000) 204.000 20.600 ( 795.000 P 144.000 480.000 ( 24.000) Cora’s interest Cora’s agreed capital Cora’s contributed capital Bonus to Cora.000 P 198.000 720.000 43.600 864.000 48.000 768.000 240.000 ___16.000 63.000 ( 360.000 – – _( 9.000 ____4.000 60.Partnership Dissolution – Changes in Ownership 47 3-21: a Capital balances Net income.000) ( 12.000) ___15.000) 629.000 P – P 216.000 20.000) _( 6.000 ( 272.000 ( 48.000 P 232.000 _Betty_ 240.000 P 200.400) 114.000) – – __40.000 + 400. ratio: 48:24 Total Capital balance Drawings Capital balance.000 ( 195.000) 684.400 288.000 Capital balances before settlement to Perez Settlement to Perez Bonus to Perez Capital balances after retirement Perez P 100. P140.000) 432.000 40% 448. beg.2008: Salary Interest Balance.000) ( 36.400 ( 397. _Total_ 720. cap.000 Total contributed capital (720.000 P – Reyes Suarez P 150.000) 456.000 576.000 Capital balances after retirement of Ely ELY FLOR GLOR P 320.120.000) P 189.400 ( 24.000 1.000 P 226.000 Capital balances Settlement to Ely Total Goodwill (P40.000 .000 3-22: c 3-23: c Capital balance 3/1/07 Net loss-2007: Salary (10 months) Interest (10 months) Bal.000 P 128.000/50%)P80.000 ___10.000) 228.600) 132.000) 636.000) ( 24.000 P 192.000 28.000 400.000) 90.000 ____6.000 40.800) 221.200 ( 397. P20. equally Total Capital balance Drawings Capital balance 12/31/08 _Alma_ 480.000) 720.

4:6 Total Balance Withdrawal Repairs (charge to Pete) Capital balance.000 11.000) 31.000 ( 2.000 ( 5.000 20.000 _Total_ P110.000) ( 5.000 43.000) 20.000 141. _Carlos_ P30.000 25.000 20% 32.000 +43.000 .000 1/1/08: Admission of Sammy Total agreed capital (P117.000 8.000) 11.000 91.000) ( 5.000 ( 11.000 P160.000 ( 8. beg.000 11.000 (19.000 ( 3. 12/31/07 _Pete_ P80.000 5. 4:6 Therefore entry (a) is correct.000): Interest Compensation Balance.48 Chapter 3 3-24: a Capital balance.000 50.000 – 59.000) 39.000) 117.000) 78. 2007 2007 net profit (90.000 3.000) Sammy’s interest Sammy’s agreed capital Sammy’s contributed capital Bonus to Pete & Carlos.

...................000 ................000 75................... Blue... P 75...............000 10............ Red........................... 75....... P/L ratio ..............000) ............. Green........................000  25%) ........................... P 25...................000  25) ........................000 Agreed capital of Green (P275......................................................... 25............ Goodwill Method: Total agreed capital (P75.............. Green.....................000 Total contributed capital ....000) ... _200............... Green...................................................000 5................000 2..............000 68.........................................000 50........ White. Cash ............................................................... capital ............................................. capital ...000 30........Partnership Dissolution – Changes in Ownership 49 SOLUTIONS TO PROBLEMS (a) Problem 3 – 1 1................. capital ...............000 75..... P100....................................... Red...................000 10..........................................................750 Bonus to old partners................................ capital (25% x P60.......000 75........... Implicit Goodwill Method: Total Implied Capital (P75............. _68.................................... Red...... capital (25% x p120.................... capital ........................ capital ...... White.......................... capital .................... capital ...........................................000 40.........................................000 Goodwill to old partners..... capital .........000) .000 15..........000)................... P300......................... White........................................................................................000 Entries: Goodwill ..................................... capital ......000)..... Blue.......................................500 2....... White.....500 (b) 1................ capital (25% x P80............................... capital (25% x P80..000 Total existing capital..............000)......................... White.................... capital (25% x P10............... P/L ratio ...000 Red....000 40...................... Blue...................000 20................ Red................................................000 20...000 x 25%) .................................. capital ........... 20...............250 2.......................000 2............... capital (25% x P100............................250 Entry: Cash ....... P300............................................ Blue............. Green........................ Bonus Method: Contributed capital of Green .. _275.. 100............... capital ..................................... Blue...000 Entry Goodwill ................... capital ..............000 Implied Goodwill to old partners .................. capital .....................750 1.. 15. P 6.................000 25...........................

.. ... P209...... 4:4:2 ........ Less: Bonus ..000 __20.....000) .... ... (1) Bonus Method: Contributed capital of Tomas .000 b........... .... Total contributed capital .000 _200.................... Bonus to Barry ................000 + 40........ P120....................... Goodwill written off.......................000 (3) Goodwill with subsequent write-off.......000 Total capital of the partnership (P180.............50 Chapter 3 Problem 3 – 2 a.........000 BRUNO MARIO TOMAS TOTAL Balances before admission .....000 BRUNO MARIO TOMAS TOTAL Balances before admission .. P 40... Total capital after admission (P76.................................000 _180..................................000 P 60..........000 BRUNO MARIO TOMAS TOTAL Balances from A-2 ......000 Goodwill to old partners.............. Cash payment by Barry .... ....................................000 P140...000 _140....................... ..000 P 40..... ............................................ ..........000  75%) x 25% ......................000 P128.............000  75%) .000 P500... Less: Total capital of old partners plus Goodwill (P140................................ BRUNO MARIO TOMAS TOTAL Balances from A-2 ...................000) P315................... P/L ratio .....000 P640......000 ( 12. P180....................000 _140......000 Balances after admission ...........000) P700.................................. b...................... Agreed capital of Tomas (P640...................... ...... Cash payment by Barry .................000 P700.000 + P68........ .000 P291......................000 – _128...........000 Balances after admission ................... P245.......................................000) .. ...................000) ........... ..........000 ( 60........................... P 12.000  20%) ................... P245...............000 _640............................... .....................000 Bonus to old partners................000 P – _140...... P200.. Total capital before admission ................000 ................ P221...............000 P640. .000 ( 24.....000 ( 24.................000 x 20%) .......................000 P500.000 ( 36.. ......000 ( 12..000 + P80. Goodwill recorded ........... P209.................................000 P128.............. Goodwill written off.000 Total capital after admission (P52....000 P 20........................ P245....... Admission of Tomas ......................000 + P104.000 P303................... .......000 ( 60.....000 (2) Goodwill Method: Total agreed capital (P140.................... P 60.............000 _140.. Problem 3 – 3 a......... P700...........000) P140........000 __15.000 P 20.. 6:2:2 ......... .000 P640.............. Total capital before admission (P60.......................000 P300. P/L ratio .......000 Agreed capital of Barry (P120.................000) P315.............000 P315........ ............ P140........... Admission of Tomas ...... ..... ...............000 ( 12......000) Balances .................................000) P140..000 _128...000) .................000 P303...........000 ___3..000 ___9........................................................... P200........000) P700.....000 P128............................. ..000 P300......................................... ............... P240............................................000) Balances ..........000 __45...............

......................000 Cash ..................... Gene.............................................. Nancy.......... capital ........................................................................500 Contributed capital.... capital .....000 + P50.. .............. c...... P300.000 Bonus to old partners......................... Ellen............................. b....000 32.............................................................................................. Ellen.... 20.............................................. no bonus because the total agreed capital is equal to the total contributed capital................... capital .... Total agreed capital (P140...................................... Cherry capital ............. then no Goodwill or bonus is to be recorded................................. _172.000 60....000) ................................................ ......... capital ......000) ..........000  20%) ...........000) ....000  80%) .................................... P 7. ........................ .............. Total agreed capital (P60...................................................... Ellen................................................. 32.... capital ..................................... P100......................................... d.......... ........... capital ...................... ........000 Goodwill to old partners.......................... Ellen. 60... .............................................000 Cherry's interest .................. ____25% Cherry's agreed capital ...000 20.......................000 Entry: Cash ........................ ....................... 42.......000 28........................... Nancy.........................................000 Since the total agreed capital (P172. b..................... 40.... Ellen.......000 60.... ....000 80........................Partnership Dissolution – Changes in Ownership 51 Problem 3 – 4 a............000) is equal to the total contributed capital (P172.....................000 8............000 60............................................................000 Total contributed capital (P140.......... capital..... Cash ................................ 70:30 .. P175................... ................ Goodwill ..............................000 Problem 3 – 5 a....................... capital ............................................................... P/L ratio ............................... __50. Gene.......................... Cash ..........................................000 Total contributed capital (P100..............................000 .000 + P60.................................. capital ....... Goodwill ................ 32......000 Total agreed capital (P120......................................................... .......000 Entry: Cash ..............000)........... e.................................000 No Goodwill.... P 3.. _200............................... P170..............................000 + P32........500 40...................................................................... ................. .000 100....000 Goodwill to new partner .000 + P40......................000 3...000 35....................................................................................

. Helen................................. Contribution of Santos .. Cathy................................... P 30................ 25.........000) .......... Goodwill ............................. Santos' interest ................................000 30.............................................................................................................................000 9....52 Chapter 3 Entry: Cash ...................................................................................................................... ............000 + P25................250 Total agreed capital (P120....................................................................000 Goodwill to old partners.......... P145........................000 Total contributed capital (P120. capital ............. ____25% Agreed capital of Cherry ......................... P800......000 Entry: Cash ........... Cathy.............................250 2..................000 + P25....................................000 . Cathy...................................250 Contributed capital........................000 Total agreed capital (P120.................................. capital ........................................................................................................500 5..................................000 50.................................000 _____1/4 P210........000  3/4) ...................... P200...............................................000 b............. P840................................ Santos interest .....000 _____1/4 P200.................... 170............................250 Entry: Cash ...........................000  3/4) ................. ............ capital .. P 15.................... P160................. Cherry...................................................................000  75%) . Contribution of Santos ....... 36................................................... 50.............000 Goodwill to new partner ...... P 11..... ........................................................ Helen.. capital .................. capital........................ Total agreed capital (P600......................... Goodwill ....000 + 50.......... Cherry.000) .. c.....000 Problem 3 – 6 a................................000  25%) ..........000 Bonus to new partner .................................................. capital ................................. e............................ capital .......... capital.............000 50..................... 70:30 ....... 25................................... d................................................. 42................. _145...........................000 Total contributed capital (P120......................000 40...............................000 15..............000) ................................................................375 36.........................................000 Entry: Cash ............250 Total agreed capital (P50................. ................................... Cherry.......................................................................... capital ......... Total agreed capital (P630...... __25....................................875 3...000 21......................................................................................................................................................................... Cherry....................................000 7...................000 Cherry's interest ... Helen...................... capital ...............................

................ ........... ................................................. ........................... ......................................... P155.....................200 36....... 29...................................... capital (P116...................................800 x 1/4) ............ 790....................... P220........................................... Less: Contributed capital of old partners .......................................................000) ................. ....... .............. ............................000  1/4) ....... 53 Total agreed capital (P624............... .......................................................................800 24........000 Contributed capital of Santos .................... ..000 Total agreed capital (P600........................................................................................................................... capital ........ ...... e................... capital…………………………………………………………………….....................................................................200 x 1/4) ................................................ c.............................000 + P36......................... ..... 52................................................... P820....... P800..........................000) ......................................................................................................200) .........000) e......................000 _600............. ..... ...... ..................................000 55......Partnership Dissolution – Changes in Ownership c................... Total resulting capital (P68............. P272....200 Tony (P80..............200 Noel...... .......................... P190.......................... ......................... Tony................ _236. 4..000 Contributed capital of Santos ...000  3/4) ...... Tony.......................................000 _600. _180....................... Goodwill ............................................................................. b........................000 + P56..... 92.........000 Total contributed capital (P180........000..............................................................................................000 60................................................. ............................... capital .............000 Total capital before inventory write-down (180........................000  1/4) ..000 Contributed capital ......... (P180... P208...................................................000  3/4) ................................ Less: Contributed capital of old partners .....................................600 Cash .................... 56.. .................................................................................. P240.. .. Noel...... d................. P d..........400 9..........................000  3/4) .........000  2/3) x 1/3 = P90.. Subas.... capital…………………………………………………………………… Tony............ P232.... 90.000 90...............................000 Subas..... capital ................................. P832....................... capital………………………………………………………………… ............ ................000 Total capital of old partner (net assets) ......................... capital .... 38....................................000 .......... .......... Write-down to old partners capital ......000 Increase in value of land .................. 40.................................................... Contributed capital of old partners .............. Total agreed capital (P52...............................000 14............000 _600.. ........................ ............................................. capital……………………………………………………………… .................000 Contributed capital of Santos . Inventory………………………………………………………………...000 Cash ........ (232........... ........ Noel......... capital .... 116.........................000 + P55.............................000 Capital of old partner after revaluation of land: Subas (P100............000 52......... capital ...........................................000 Total agreed capital (P180...........................................000 + 52....800 68................................................................ Subas......................... Less: Goodwill .....................................................000 Problem 3 – 7 a.................................................................. ...............800 Tony........000 Goodwill to new partner ............................. .......800) .......... capital (P155.................................................. ( 24...................................000) Land……………………………………………………………………………………….... Noel..000 Cash ............000 40............... ....................................000 4................................. ................. P 92............................. ...............................000 Total agreed capital (Contributed) .......000 __10........ ...........000 Noel...............

........................................................ capital (P60................000  1/5) ........... P 44.........000 x 1/5) .......000).....................................000 Problem 3 – 8 a.........600 44............................................ 3:2.......................000 Goodwill ... Noel..... capital .............. b...........................................000 40..................... Subas.......................................................................................................... capital ............................ capital .............................. 40........ ......... Cash ........ ............... P300.. 40.... capital ........................................................000 12. b.................. ............000 48............. 25..............................000 Goodwill to old partner... ..........................000 g.....000) ......................................................000 Bonus to Noel .................................... 10....000 50...... ..................... Jack...... Conny.............. Goodwill ................. Cash ..................000 Contributed capital of Noel ........................................ Subas.. ............................................ capital .............................. capital .........000 2.... ....... Cash .................................000 36.................000 6................................................ .......... P 60.....................................000 x 3/4) .....................000 150......................... capital (P8... Conny............................................000 x 1/5) .......................... capital ..000 x 3/5).....000 120........... capital .....000 x 3/5) .. capital (P25........................................................................................000 Total agreed capital (P60.... capital ................ 150.... Cash ...................................................................................................................... ...................................................................000 60....................000 24.000 Goodwill (P30........ ............. Spade................... ............ P 4........ Andy...............................................................000 Agreed capital of Noel (P220............ _240...................... _40......................................................................................... Benny........ Jack................... P60..........000 45.......54 f. capital (P8.........000 P 60........................ Ace..................... capital .......... Andy.000 Problem 3 – 9 a........000 18.................000  50%) .....000 30..................000 + P30.. ......000 x 1/4) .......................................................................................000 ....................... Jack......................... 120..................... 60............... Tony......000 2..............000  1/5) .000 x 2/5) ...................................................000 40...................000 + P60.... capital ..........000 Spade....... ...........................000 Total contributed capital (P180............. Noel...... capital (P25............ capital ............... Spade......400 1.............................. capital .....000 5......................................................... Chapter 3 Cash ................. ..................................... Benny...... c................... capital (P120.............. capital (P60....................000 15...................... Conny................................. Tony..........................000 Goodwill (P5....................................

.............. Spade............................ Ace....................000 120........ Ace................................ Spade...................................................... capital (P10.................................................................40) ................................ ................................................... .........................000 120.....................................000 Spade.......................000 10..... capital ......................000 x 40%) ...........................000 8............. 60.....................000 Land .... capital ................... capital (50%) ............... capital (P50.......... Cash ...... capital (20%) ............ capital (P60....... Jack..... Ace............................. Note payable..........000 x P20..................................................... 24...... Jack... Cash .......................................... Land......................... capital (P120............................................................. Cash ........ capital (P60...000 4........ Cash ................................ Ace.... P40...........Partnership Dissolution – Changes in Ownership 55 Problem 3-9 (Continued) c.................................000 x 2/5) ....................000 Goodwill ........................ Land............................................................... ..................................000 30...........000 Spade...................000 Goodwill (P30.... Spade......................000 36.............. capital (P50................ ................................. .............. ... Jack......000 150................000 18.......................................................... capital (P60...........000 12.................. g........000 100................. ....... Jack.................... Spade...........................000 120....................... ................ capital .............................................. capital ......................................... capital (30%) .. ............................................. ............................................ d....000 x 20%).........000 50.................... ..................... ............ capital ...........................000 150....... Jack..........000 6..................................................000 20.....................................000 Land ........................ capital (30%) .......... capital (P10...........................000 6........................... Spade............. .........................000 60................................................ ........000 180................................... .... .....................60) .............000 4. Ace.. e..000  50%) ............... 30.................. Spade..... Jack...................... ................ capital (P60.... capital (20%) .....000 x ..............................................................000 x 30%) ... capital (50%) ..... f....... 140.000 Ace............... ..............000 x 60%) .... 20. 180.000 12....000) .................................................000 x ...000 .......................... .000 x 3/5).............................. 130........................................000 60............000 20........................................ .....

..................56 Chapter 3 Problem 3 – 10 Case 1: Bonus of P10.........................................................................................000 70...............000 .... Cash ...................000 3.......................................................... Danny... Eddy.....000 x 2/6) ........... capital.......000 74...... Cash .........................000 x 3/6) ........................... 80.................................000 Case 2: Partial Goodwill to Eddy: Goodwill ..... Cash .............. Case 5: Other assets disbursed: Eddy..............000 to Eddy: Eddy..000 12.................................... capital (P60.....000 70. capital (P5.............................000 30..000 24....................................... Danny................000 x 3/5) ............................................................................................... capital.................................................................................. capital.......... Cash ...............................................000 2..................... capital (P10...........................000 8............................................................................000 4.............000 70...............000 x 2/6) ......000 Case 3: Bonus of P5........ Case 6: Danny purchases Eddy's capital interest: Eddy................................ capital (P24................. Danny.......000 70............000 6..................... capital (P24.........000 x 2/5) . Cash ....................................................000 x 3/5) ..... Charly........... Charly....................... Eddy......... capital ...............................000 20...... capital (P60....................... Charly..................... 4..............................000 70...........................000 x 3/6) ........... Danny...............................000 65........................... capital (P5................................................................................. Charly......................... capital............ 70...................................................... Danny..................... capital....................000 x 2/5).......000 20........ Case 4: Total Implied Goodwill of P24.................................000: Goodwill ...000 to remaining partner: Eddy............................................................. capital (P10.......000 74.000 70.......... capital............ Other assets .......000 40..........................

............... Equipment ................................000 after 2006 loss [80...... Reyes capital .......) 12/31/07 Santos capital ..........000 + 12......................................................000 [85....................... Cash ..................000 – 10........................................... 6......000 Interest .................................. Cruz drawings ............. 52......000 12/31/06 Reyes capital ................................................................... P16................................................... Santos capital .......... To allocate P44........... 10................................. 60:40 ...................236 P10..........000 (new investment by Cruz brings total capital to P85....................... Santos drawings .....000 income figure as computed below: Santos Interest (20% of P51........700) .................000 4................ Reyes capital .............................................................................................000 ______ Reyes P – (22.........000 To close drawings accounts for the year based on distributing 20%......236 10.....000 16...340 5.........................................340 15% of P44....................... Additional profit .. Reyes capital (85%) ..... Cruz capital .. Income summary ... Cruz capital ..................236 P10..... P12.................... P10.........................700 17......000]. Santos capital ...... To record initial investment......... Santos's capital Is P51........... ______ Total .. Santos capital ..............340 5...................000 16.....................000 10............940 44.000 12..000 5...................000 (22.. To record distribution of loss as follows: 22............ Cruz capital ........... Of each partner's beginning capital balances [after adjustment for Cruz's investment] or P5................ Balance to Reyes. Santos capital (15%) ..................................................................................824 P16..............000 x 20%] with the extra P2.....000 300 1..................................................000) Total ........000) Cash .................................000 whichever is greater.................................000) Total P 8........................................................................................Partnership Dissolution – Changes in Ownership 57 Problem 3 – 11 a. 15......824 Reyes Cruz P16...000 4................940 16.....000 12........................ Reyes drawings ...000 1/1/07 40.....................................................000 P(22. Cruz's 20% interest is P17.......000 income ................. Santos P 8...............000) (P10...000 – 300].......................................000 + 15....824 ......000 10...600 Balance................ 1/1/06 Building .......................) 12/31/07 Income summary ......000 5...................................000 coming from the two original partners [allocated between them according to their profit and loss ratio]..700 [40.

......000 12................. 1/1/06 61...... 12/31/08 Income summary .......................................... 12/31/07 ............ To distribute profit for 2008 computed as follows: 1/1/09 b....................000 + P16............150 ______ Reyes Diaz Interest (20% of P58...000) _10..................... 2008 1/1/08 Initial investment.............................................076 Diaz capital ..................................................................076 Total ........................... 509 Reyes capital (85%) .000 20...........076)].824 22..................................114 P16................... Reyes is credited with goodwill of Santos investment..............000 (5..............000 16...................000 (22................076 Santos P11......................................................... Goodwill ............... 37.... 52...............236 P17................ Diaz capital ........................................................................................................824 Capital............................810 24........................ Cash ................000 To close drawings accounts based on 20% of beginning capital Balances (above) or P5........290 Diaz capital is [33.......000 80....... 2........000 to match .................................................507 Diaz capital ..... 33.....660 Reyes drawings ...............................881 Cash....................................... 2007 drawings.........700) (5..................000 P80........... 11...........000) (1. Santos capital ......................000 80............... P24.............114 16.............................000) _16..................................... 15% of P61....940 Reyes P40...000 Santos drawings ... 11..58 Chapter 3 Capital balances as of December 31.............................660 Reyes capital ............................ Reyes capital ....................660 9..... To transfer capital purchase from Cruz to Diaz Cruz 22......000 12..............................536 P22. Santos capital ................................ 2007 profit ..........................507 Diaz drawings .....................000 (300) (10........................ To record initial investments............ P20....824 Cruz capital ...............340) _16..........000 80......810 P24.............................................300) ........ Building ....................... P40.............................................................. 5..... Balance....114 P16. 2007 profit .....190........................ Reyes capital ...900 Santos capital (15%) ........................................ 5.................... Diaz capital ... Equipment ........................................900 (P22....824 12/31/08 Santos capital ................... 5.......0000 (whichever is greater)...... Extra 10% is deducted from the two remaining partners' capital accounts................824 – P5...... P58...... 60:40 ...................... 2007 ...300 P27.... 5.. Cruz investment .. Santos P40................000 profit.......................

........000) .. 7.... The remaining profit is now a P30..000 6........................................ (20........... Reyes...............................................500..............................................................................500 (7.. p100....................000 profit as follows: 20..............000) _10......000 + goodwill) P33.............. P26..440 P36............. 10...................000 Goodwill ....500 12/31/07 Santos capital .....000 Reyes capital ............................20 goodwill P18.................000 x 20%) along with a base of P4.... 12/31/07 Income summary ....................600 P10.......... 2004: Santos Initial investment.500 Santos drawings ...000 is credited to Santos (P80............960 Capital balances as of December 31.....000.... Santos capital .....................960 Total ..............................................600 Reyes P80.......... 30............................................000 Santos capital ............. 20................. 20... 60:40 .80 goodwill = goodwill = 20% (current capital + P15.........000 7........000 + goodwill = P15....... To allocate P44........ 22..........000........600 ______ P10................ P106. P50.............. 20................500) __6............000 + goodwill = P15...... To close drawings accounts based on 20% of beginning capital Balances: Santos....................... P37.......000 Interest of P16..400................... and Cruz..........000 26..................000 Additional investment ........ Goodwill is Computed algebraically as follows: P15..................................................000 2006 profit allocation............. 1/1/07 Cash ................... Reyes capital .....440 P37...... __26..... 2006 .............440 P 6...000 Cruz capital .............................500 Cash and goodwill contributed by Cruz are recorded.........000 + goodwill = .000 (30....... Reyes drawings ..000 + goodwill) 20% (P150....960 ............600 10........................... Cruz capital ........000) 2007profit allocation.....................000....000 + ..................500 Cruz capital ............................ Cruz drawings ...... 37.......000 P22................. 2007 drawings........................................... P80............................000 Income summary . 15...... Santos P20...960 Capitals...600 P50....................Partnership Dissolution – Changes in Ownership 59 12/31/06 Reyes capital ........ 10..........960 Reyes Cruz Interest (20% of P100..... 15% of P44......................400 6............................................000 10.000) Cruz (10...000 + P15.........500 44.............. 12/31/07 .440 P 6.. Balance of P17......000 loss which is attributed entirely to Reyes............................................000 profit.

..................................... 4....... Profit allocation .. This amount is P4..............................000 12/31/08 Santos capital ....... Diaz will be paid P53........588 (P9..............000 22............ Diaz is paying P46.................839 P11........................... 15% of P61.................869 must indicate that the partnership as a whole is undervalued by P14..............................588) ............................................................... 14........................................562 Cash................................... Reyes capital ................... 51% to Reyes (60% of 85% remaining after Santos's income)..... Reyes drawings .... To close drawings accounts based on 20% of beginning capitals....................................................... 12/31/08 balances ........... 53..........150 ______ Reyes Diaz Interest (20% of P110...................................960)........................588 Santos capital ..................988 Reyes capital .732....................................800 9............... 1/1/08 Cruz capital ................ The additional payment for this 34% income Interest indicates total goodwill of P26............................... 7.............839 P11......................... 53...........................560 Cruz capital ..................118 9.......................................304 Diaz capital ....... Diaz capital .....................................................869 To record implied goodwill........040 in excess of Cruz's capital (P36... Santos capital ....................321 (P4.......... Diaz drawings .............................................800 9...................268 P17....... P31...................... 13.................693 Capital balances as of December 31.. 2008: 12/31/07 balances .. and 34% to Cruz (40% of the 85% remaining after Santos' income)........ 9...............................562 To record settlement to Diaz......321 Santos capital ............ P17...200 31........ the profit Sharing ratio is 15% to Santos.....................148 Reyes capital ................................800) _17.......................................................893 P119.... P9........000 46.....893 Santos P106............................ 22.................. 26........................039 P48... 60:40 .................... Diaz capital .............000....... 3.839 P46................. Diaz capital ..................................... In effect....893 Totals .......440 13.040/34%). Reyes capital ......... Capital purchased .............200 Santos P22................. the additional P4...... Diaz capital ....................268 12...000 (9.................................040 To record goodwill implied of Cruz's interest...738 P69..........................................560 Diaz (22............................ 2.118) __31.........988 Reyes P50............... Santos drawings .600 3...000 ..... Balance of P29.................................................200 12/31/08 Income summary ......................................118 12.... To transfer of capital purchase.... Goodwill ........... Drawings.60 Chapter 3 1/1/08 Goodwill ........................................... 46............... ....800 9.........200) _11.................... Since Diaz is only entitled to a 34% share of profits and losses.............................562 (110% of the capital balance for his interest....................869/34%) which is treated as goodwill..................... To allocate profit for 2008 as follows: 61.............................................................................118 12..........................268 (12.869 in excess of the capital account.......................... 1/1/09 1/1/09 Goodwill ....

... Jill capital.........000 58...................................................................................000 58.............000 (3) Jack capital ......................... .....................................................000 30........................................................................................... ..................... Building........................................ ............................. ................000 34. ........ Jill capital ........ Jun capital ............... .............. ...................... Land ...................000 18................................... Accumulated depreciation – bldg...................................... .000 30................ .................. Jun capital ............................................................. ............. ................... To adjust assets and liabilities of the partnership................................................... ....................................................... ............................ .............. Equipment ........................ .......... .................................................................................................. ................. ..............................000 (2) Cash ................ ... .................................... ... ............... Accumulated depreciation – bldg..................................................................200 1.....800 23... ......... Building.......... Jun capital .....200 20.......000 20....................................800 250...................................................................................................... ...000 20...................... Jill capital................000 34........... Jill capital............................ Jack capital ....... . .................... ........... ................................... Capital stock................................ ......................000 20. Jack capital ......... Jack capital ................................................ .......................... .. To adjust capital accounts of the partners to 4:3:3 ratio..................................000 75..................000 20.... ............................ 100....................... .....................800 23.... Accumulated depreciation – equipment .................Partnership Dissolution – Changes in Ownership 61 Problem 3 – 12 Partnership Books Continued as Books of Corporation Entries in the Books of the Corporation (1) Inventories ................................................. ....... Jun capital... ...................................... 26. Land ....................................................... .......................................... 4...... ........................... ..................... ...... ..000 20..............000 75.................... To adjust assets and liabilities of the partnership to their current fair values............ 26....... 4...... .........000 18...............................200 1...................... ............ Accumulated depreciation – equipment ..... . Jill capital....................................... Jun capital ..... ............... .................................. ........ .. Equipment ........000 40................ ................000 (2) Cash .. To record issuance of stock to the partners.............000 20.................. .............................000 40........... Jack capital ................................800 ........................... . ........................................000 New Books Opened for the New Corporation Entries in the Books of the Partnership (1) Inventories ............... To adjust capital accounts of the partners...........................200 20....................

.. .... ..............................................................................000 (4) Jack capital ...... ............................................ capital 800..................................................................................... Loans payable – Jill .......62 Chapter 3 (3) Stock of JJJ Corporation ............ Sy................................ Jill capital ..................... Accounts payable .....000 60. ................. Accounts payable .......000 Income summary 200..............................................................................................000 Lim........................... Land..........................000 30................... .......... .............. ....... Jun capital.......... Capital stock............ ....... 1/1/06 12/31/06 44...................................................000 26.................000 Cash 240.......000 26......................... ...... ................... Cash in bank....000 250..... Loans payable .................... capital 240........ ............ Building (net) . ........000 40.................... To record issuance of stock to the partners. ............................. ........................ ...... a.. ................... . To record transfer of assets and liabilities to The corporation and the receipt of capital stock 250..000 Entries in the Books of the Corporation (1) To record the acquisition of assets and liabilities from the partnership: Cash in bank ........ Assets recorded at market value with two equal capital balances..................................... ....................... Stock of JJJ Corporation ..............................................................000 60............................ Inventories ............ 100.............. ... capital 800.......................000 based on P800............ Building ..........................000 more [since that amount is .....................000 60................. Accounts receivable ........040........................... Land ................ .................................................. Equipment (net)...000 60..........................000 30. ...000 70.......................... ....000 Equipment 320...000 75............................................000 capital balance] plus P80....000 Sy. ........ .............000 (The allocation plan specifies that Lim will receive 20% in interest [or 160....... capital 440.........000 60......................... ....................000 40...................... .......000 (To record initial investment..000 70..........................000 44............. .................................................000 60................. Accounts payable ......................... Inventories ........... .............000 75........ ...........000 Lim.................................................. Equipment ....000 Problem 3 – 13 Building 1............................. ...............................000 250.......................................................................... .......................... ..............

capital (85%) 34.000 after 2006 loss [P1. capital Tan.000 income figure for 2007 as determined below.000 – P6. capital Sy.000 beginning capital balance) 15% of P880.000 (34.720 216.000 x 20%] with the extra P40. capital 100.Partnership Dissolution – Changes in Ownership 63 greater than 15% of the profits from the period].000 Tan.166.000 [P1.720 P550.480 P216. Tan’s 20% interest is P340.800 Sy. The remaining P440.000 Lim.720 216.000 (To close out drawings accounts for the year based on distributing 20% of each partner’s beginning capital balances [after adjustment for Tan’s investment] or P100.800 Sy.000) (206.800 132.000 income 60:40 split of remaining P541. capital 456.800 P1.) Interest (20% of P1.480 456.000 (New investment by Tan brings total capital to P1. capital (15%) 6. capital 100.800) 338.480 Lim Sy Tan P206. drawings 100.000 P338.700.000 (6.000]) 12/31/07 Income summary 880.000) 324.000 (100.000 [P800.000 – P200.800 324.480 .000 440.) 12/31/07 Lim.000 Tan.000) (100. drawings 206.600.480 Capital balances as of December 31.000 whichever is greater.000 Tan.000) 216.720 Tan.000 Sy P800.000 Lim. capital 206. Lim’s capital is P1.000 240.000 Sy.480 P456.800 324. drawings 100.000 + P240.720 P524. capital 340.000 coming from the two original partners [allocated between them according to their profit and loss ratio].200 income Total 338.000].000 loss is assigned to Sy. capital (To allocate P880.480 Ang.000 Lim.) Tan P340. capital (To reclassify balance to reflect acquisition of Tan’s interest. 2007: Initial 2006 investment 2006 profit allocation Tan’s investment 2007 drawings 2007 profit allocation 12/31/07 balances 1/1/08 Lim P800.) 1/1/07 Cash 300.034.034.700.000 + P300.

000 Cash 240. capital 482.000 (To record initial capital investments.000 (Cash and goodwill being contributed by Tan are recorded.140 Ang. capital 321.000 income 183. capital 233. The remaining amount is now a P600.) 12/31/06 Sy.166.200 15% of P1.520 Totals P416.000 + P321.800 (Ang’s capital is P678.220.200 P482.000 beg.200 Sy.220.) .000 [P456.000 Lim.600.000 Tan. drawings 233.000 Sy. capital 110. capital) P233.280 321. capital 678.000. capital 100.600.040. Sy is credited with goodwill of P1.000 Lim. drawings 110.000 [whichever is greater].000 is credited to Lim [P1.280 P321.000 loss that is attributed entirely to Sy.000 (Interest of P320.000 60:40 split of remaining P803.140 Ang. 1/1/09 Ang.520 b.600. drawings 100.000 Goodwill 1.) 12/31/08 Income summary 1. capital 1. capital 85%) 57.000 Goodwill 450.600.000 Lim.600.000 (To close out drawings accounts for the year based on 20% of beginning capital balances [above] or P100. Goodwill must be calculated algebraically.280 Ang.000 Income summary 200.000 to match Lim’s investment. capital 600.000 x 20%] along with a base of P80. capital (15%) 10.) 1/1/07 Cash 300.200 Sy.64 Chapter 3 12/31/08 Lim.) 1/1/06 Building 1.620 Cash 745. capital 400.800 482.000 Equipment 320. capital 1. capital 416.520].000 Lim.480 – P100.180 Sy. capital 750. Extra 10% payment is deducted from the two remaining partners’ capital accounts.000 Lim.520 (To allocate profit for 2008 determined as follows) Lim Sy Ang Interest (20% of P1.200 Sy.

200). drawings 150.P2. capital Tan. capital (15%) Sy.200 Sy Tan P208.000) Tan Capital balances as of December 31.000) 208.000 (150.000 (200.000 + .760 271.) P750.800 139.000 132. an amount P180.000. and Tan.000 (To close out drawings accounts for the year based on 20% of beginning capital balances: Lim. The additional payment for this 34% income interest indicates total goodwill of P531.000 Goodwill = P450.000 (600.800 In effect.) 12/31/07 Income summary Lim.000 + Goodwill) P300.200 P139.000 400. 2007: Initial 2006 investment 2006 profit allocation Additional investment 2007 drawings 2007 profit allocation 12/31/07 balances 1/1/08 Lim P1. drawings 400. capital (To allocate P880.000. profits are shared 15% to Lim.Partnership Dissolution – Changes in Ownership 65 P300.800 P139. drawings 200.8 Goodwill = P360. capital (34%) (To record goodwill indicated by purchase of Tan’s interest.000 Sy.000 880.760 Lim.000. capital (51%) Tan. capital 400.000.P750. capital 150.000 Tan. Sy.600.000.000 + Goodwill = 20% (P3. Ang is paying P920. capital 200.800 in excess of Tan’s capital (P739.000 12/31/07 Lim.800 P1.200 P739.000 532.000. capital Sy.000 (400.200 79.000 income figure as follows) Lim Interest (20% of P2.000 income 60:40 split of remaining P348.760 (P180.000 P2.200 180.000 + P300.800/34%).000.000 P532.000 Totals P400.600. Since Tan is entitled to 34% of the profits but only holds 19% of the total capital.P100.000) 532.000 Tan.000) beginning capital balance) 15% of P880.800 Goodwill 531.000 Lim.200 Sy P1.008.000 + Goodwill = P660.000) 139. an implied value for the . and 34% to Tan (50% of the 85% remaining after Lim’s income). 51% to Sy – (60% of the 85% remaining after Lim’s income).000 + Goodwill = 20% (Current capital + P300.000 Sy.000 + Goodwill) P300.2 Goodwill .800 P208.132.000 208.

008.240 (110% of the capital balance) for her interest.380 . 2008: 12/31/07 balances Adjustment for goodwill Drawings Profit allocation 12/31/08 balances Lim P2. Thus.000 920. capital 1. drawings 256. This amount is P97.860 P237.360 Sy.080 97.000. 1/1/08 Tan. capital 442. capital (51%) Ang.760 Ang will be paid P1.071. Since Ang is only entitled to a 34% share of profits and losses.00 271.000 625.760 (442.780 Ang P739.000) 356.780 P356. goodwill can only be computed based on the excess payment. capital (34%) (To recognize implied goodwill.394.640 Totals P625.380.780 P1.200 ( 256.860 Sy P1. Only in that circumstance would the extra payment to Ang be justified: 1/1/09 Goodwill Lim.360 356. drawings 442. capital Sy.000 Ang.780 237.360) 625.960 146.000 12/31/08 Lim. capital Ang.380 in excess of the capital account.000 income 183.) 920.380/34%).860 Capital balances as of December 31. the additional P97. capital 184.420 (P97.000 Ang.800 (184.000 60:40 split of remaining P594.220.220.000 (To close out drawings accounts for the year based on 20% of beginning capital balances [after adjustment for goodwill].132.66 Chapter 3 company as a whole cannot be determined directly from the payment of P920. drawings 184.360 Sy Ang 356.760 beginning capital balance) P442.000 79.211.200 180.000) 237.380 must indicate that the partnership as a whole is undervalued by P286.360 15% of P1. capital (To reclassify capital balance to new partner.) 286.) 12/31/08 Income summary Lim.360 Sy.420 42.780 237.000 Lim.360 P2. capital Ang. capital (15%) Sy.860 To allocate profit for 2008 as follows: Lim Interest (20% of P2. capital 256.860 P973.

240 1. capital Cash (To record final distribution to Ang.240 .071.Partnership Dissolution – Changes in Ownership 1/1/09 Ang.071. 67 1.

6:2 Cash distribution PING P 50.000 ( 6.000 ( 8.000 ( 20. P40. 40:50:10 Cash distribution JONAS P160.000) P 26.000) __4.000 ( 8.000 P 12.000 TOMAS P 55.000 Capital balances before liquidation Gain of P10.000 P200.000) Cash distribution PING P 50.000) Cash distribution PING P 50.000) P – BOOGIE P 16.000 PONG P 10.000 PONG P 10.000 P 52.000 __2.000 Cash distribution PAR P 20.000 (P140.000) ( 39.000 ( 3.000 ( 12.000 ( 20.000) Balances Absorption of Pong's deficiency.000) P 42.000 __2.000-P100.000) P 4.000) P 2.000) P 2.000 CLOCK P220.000 ( 42.000 P 56.000 ( 24.000 Capital balances before liquidation Loss of P70.000-140.000 Loss of P130.000 ( 14.000 ( 24.000.68 Chapter 4 CHAPTER 4 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 4-1: a Capital balances before realization Loss on liquidation.000 ( 1.000) P 49.000) P 25.000 ( 8.000-P70.000) ( 4.000 PANG P 50.000 ( 39.000 __6.000) P8.000 P161.000 PANG P 50.000 (150.000 Capital balances before liquidation Loss of P40.000 (P140.000 – COLT MARK Capital balances before liquidation (net of loans)P290.000) P 35.000 4-2: c 4-3: b 4-4: a 4-5: b 4-6: c Capital balances before liquidation Loss of P60.000) P 5.000) P 36.000 ( 14.000) P136.000) Cash distribution P238.000 BIRDIE P 10.000 PONG P 10.000) P181.000 PANG P 50.000 CARLOS P 45. 4:3:3 ( 52.000.000 .

500 TAURUS P 36.000) P150.380) P 16.000 LEO P 49.500 15.000 ( 25.000 ( 12.500) P 64.000 NORY P23.000) P – 4-8: b Capital balances before realization Additional investment by Nory for the unpaid liabilities (33.660) ( 100) ( 2.000 P 51.000 ( 30.000 GREEN P138.000 ( 25. cash distribution BLACK P99.000 ( 30.000 _( 5.600 Balances Unrecorded liabilities.500 ( 9.320) P 17.500 P 91.000) Loss on realization (schedule 1) Payment by Oscar to Nory Schedule 1 Total capital before liquidation Unpaid liabilities Total loss on realization P 36.500 ( 27.250/39%) P 27.500 ( 22.660) ( 2.760 P – Capital balances before liquidation (net) Loss on realization (schedule 1) P45.680 ( 200) P 1.900) P 7.100) CESAR P 30.Partnership Liquidation 69 4-7: a Capital balances before liquidation Loss of P100.000 OSCAR P 13.250 Schedule 1: Capital balances of white (net) Cash received by White White's share of total loss (30%) WHITE P 91.750) P85.500 15.100 NORA P 10.000 ( 13.000 ( 30.480 ( 1.500 4-10: c Capital balances before liquidation (net) Loss on realization.500 4-9: d Capital balances before liquidation (net) Loss on realization (schedule 1) P27.250 Total loss on realization (P8.250 P 8.000 ( 40.000) P 27.380) P 100 EVA P 43.320) P 1.100 – ( 20.680 ( 200) P 17.500 4-11: d .000-18.500) P132.500) P 35.500 _83.480 ( 1.500 Balances.000 ( 13. P63.600) ( P7.000 Payment to partners ARIES P33. 4:3:3 Cash distribution ARIEL P40.500) P11. P500 Balances Elimination of Nora's deficiency Payment to partners ANA P27.760) __2.000) P – BERT P180.000.

500 P 6.600) Loss on realization (47.000 ( 3.500) P 3. (squeeze) Capital balances .000) Equipment (P60.000-P30.000) P38.P20.000) ( 3.700 ( 5.000) – ( 2.500-30.400 LISA P19.300 _____– P 3.000 10.000 ( 12.000) 25.500 ( 23.500) _1.000 ( 6.500 ( 27.000 _30.500 ( 38.040 P10.000 ( 4.400 ( 5.800) MONA P15.400) P 3.000 SARA P18.000 PEDRO P27.000) P 5.800 ( 7.000 TOTAL P47. June 11 Net loss from operation (squeeze) Capital balances.000) 8.260) P 2.500-25.000 Balances Absorption of Tita's deficiency Payment to Nora RITA P49.000 MONA P28.400 _1.200 ( 2.000 ( 7.000) P21.100 P – Capital balances before liquidation Operating loss.700 ( 840) P 4.700 _____– P 5.000/20%) P45.000) Total Payment to partners P20.500) P 9.900 ( 17.500) ( 10.100) P 5.000 ( 24.000) ( 15.000) P 3.500 P32.500 __1.500 ( 2.700 ( 9.900 P10.000 ( 15.500) P 9.860 P 1.200) NORA P13.000) ( 1.000 P60.000 ANDRO P50.000 Drawings Loans Loss on realization.000 ( 4.70 Chapter 4 Schedule 1: Taurus capital (net) Payment to Taurus Share of total loss (20%) P36. August 30 before liquidation (48.000 ( 24. P12.500) ( 20.000 ( 10.300 ( 1.500 P – CLARO P45.000 X 40%) Investment (P30.000) Balances Additional investment by Olga Balances Elimination of Olga's deficiency Payment to partners TOTAL P32.800) P22.500) P 5.000) P – _____– P – TITA P10.000 4-15: c Capital balances before liquidation (inclusive loans) Loss on realization.000) P33.900 ______ P 6.800) OLGA P 4.000 Total loss on realization (9.600 4-13: b 4-14: a Capital balances before liquidation Loss on realization Accounts Receivable (P50. P21.600) _1.500 ( 2.cash distribution .000 4-12: c Capital balances.000 .100) _2.

000-P7.000 P 30.600 P 18.500) __47.500) P 9.000 _( 4.600) __1.000) Add: Liabilities Total assets Cash before liquidation Non-cash assets Loss on realization Cash to be realized P250.500 _____– P18.000 Total loss on realization (P16.500) DD P22.000 ( 50.500) EE P62.000) P300.500 ( 28.000) P260.100 1.000 ( 80.500 ( 11.000 X 40%) FF capital before liquidation Cash settlement to FF FF share of total loss on realization (40%) P100.Partnership Liquidation Cash after realization Less Liabilities (P36.000 Total capital before liquidation (P260.500) _43.500 P 18.000) (P 25.000 __1.500 P – P37.500 ( 37.500) (P43.500) Total capital after realization 71 P 37.000 P350.500 _11.000) __43.000 4-16: a FF capital before distribution of net loss Add: share of net loss (P10.500 4-18: d Total capital before liquidation Liabilities Total assets Less: Cash balance before realization Cash after payment of liabilities payment of liabilities Cash realized Non-cash asset Less: cash realized Loss on realization P 30.000 _100.500 ( 25.500 P 11.000) P18.000) P 16.500 – ______– P – ( 15.500 P 31.900 .000 ( 125.000) 96.000) CC P 15.000) ( 28.000/40%) P 40.000-P10.000 4-17: d Capital balances before realization (net) Loss on realization (squeeze) Capital balances after realization (liabilities-unpaid) Elimination of CC's deficiency Balances Investment by DD Payment to EE TOTAL P100.000) _______– (P 25.500 ( 19.000 ( 40.000 ( 62.500 ( 47.

800 ( 44.000 ( 10.000) 20.000 P 84.750 ( 17.000 __10.000 P200.000 4-21: a Capital balances.000+P10. .400 each. August 1 OO Loan.000 _120.950 NN should pay P2.000 Total loss on realization (P40.880) P 9.000-P10. September 1 Interest.800 ( 14.800 P 54.000) KK (P60.960) (P 4.650 _56.000-P10.960) P 5.000 ( 14.000 50.72 Chapter 4 4-19: d Capital balances Salary of LL (P600 X 8 months) Capital balances before liquidation Loss on realization Balances Additional investment by NN Payment to partners LL P 50.920 ______– P 9.000 _______ P 20.000) LL (P30.000+P30.960) __4.500 P 45.000) Less: Cash to be paid to KK Share of total loss (1/3) P 50.000 – – 250) _______ P 14.040 NN TOTAL P 10.000 ( 10.000 P280.000 P 80.500 ( 17. December 31 (6%) NN (5 mos.000+P10.000 _______ ___4.000 P 40.000/1/3) P120.550) ( 2.) Compensation to PP Capital balances before liquidation Loss on realization (squeeze) Cash distribution TOTAL P 75. July 1 Advances to NN.000 Total assets: Total interest of the partners before liquidation: JJ (P70.850 P 9.000 PP P 25.920 MM P 20.000) – ( OO P 25.000 ( 250) 400 __2.000 NN P 25.000) Divide by Total Loss on realization Cash to be realized P110.000 ______50% P400.960 P – 4-20: b KK's total interest (P60.800) 400 _______ ___2.000 __4.) OO (4 mos.800 P 10.500 P 87.550) ( 17.250 P 35.040 _____– P 5.000 __40.000 – 20.550) P 27.400 P 27.800 and this is to be divided to OO & PP equally or P1.

000 ( 90.375 P 14. P1.000.314.000) _______– P – P 50.000 P(50.Partnership Liquidation 73 4-22: a Capital balances before realization Loss on realization (squeeze) Capital balances after realization (unpaid liabilities) Elimination of AS's deficiency Cash to be absorbed TOTAL P 950. P1.000) ( 60.000) 1.500 __37.000.000) P 75.000) PG P350.375 P 11.500 .500 P553.000 P150.000) Total loss on realization (P70.000) 50.000 (132.000 ( 300.000 __Vi__ 452.000) (40.500 ( 42.000) 545.454.000 135.000) P 90.000 JR AS P250.500 ( 132.000) 417.000 4-23: a Capital balances before realization (net) Loss on realization.000) (200.000 ( 300.000) P140.000 (P 50.000 (200.000) _500.000 ( 40.000 4-26: a Settlement to Uy Uy capital before liquidation (net): Uy capital Receivable from Uy Loss of Uy (50%) P351.500 P 70.000 ( 490.500 __Total__ 1.000 BM P375.000) P 120.225.500 (132.500 445.500 ( 140.000 ST P825.000 ( 735.000) P 5.000) P – RM P500.500 P 65.000 1.500 __9.500 421.000) P 10.000 _18.500 __Wi__ 486.000 Payment to Partners 4-24: a Capital balances before realization (net) Gain on realization (squeeze) Capital balances after realization ZP P 2.000) P150.000 587.000) (P 40.000 ( 150.000 TOTAL P 27.000 __-9.500) 135.875 4-25: c Capital balances before realization (net) Loss on realization.000 P350.500) 421.500 ( 70.750 P 38.375 AG P 420.000) 351.000 LT P 20.000 (P 10.000 ( 200.000 __20.000) P 50.000 Balances Additional investment by DJ CP DJ P205.492.000 ÷ 50%) CB before liquidation Receivable from Uy Loan to Wi Salary payable to Vi Interest before realization Loss on realization Settlement to partners __Uy__ 553.000 ( 1.750 AM P 5.500 ( 28.

..000) Balances......000 20.........400) ( 6... 2008 Partners' Capitals Assets Rivas..200) ( 46.000 Offset Rivas' loan against his capital deficiency .200) ( 19.400 _______ _18............000) ______– ( 132.... 22..800) ( 6... _134..000 P200.000 – – 18... Realization of assets and distribution of loss ..000 ( 19...000 ( 200...000 18....000) – P(2........ P(22......000) _______ ( 132........ 134. 22.... Rivas Briones Loan (90%) (10%) P 20.....000 18.800) P(10.800 __6..000 _______ ( 59....000) _______ ______ _______ Balances....000 P 20.. 154.200 __9.000 ( 200................800) Balances...... _______ _______ _______ _______ Balances......000 Balances before liquidation ........400) 3........000 P40..000 ______ 20..... ________ _______ _______ ( 6....200 Payment to partner. ( 132..000 – – 11.....000) ______ _______ Balances.000 – – – Additional loss to Briones .....74 Chapter 4 SOLUTIONS TO PROBLEMS Problem 4 – 1 Case 1 Rivas and Briones Statement of Liquidation December 31.... ( 132..000 P 18... P(22....000 P40.000 P 18............000 ( 1....... 22....200) ( 9...............400 ( 1.. 154..600) 20...400) 3... Rivas Briones Cash Others Liabilities Loan Loan (70%) (30%) P20.800 _______ ______ ( 6..........800 10.000 Realization of assets and distribution of loss ....000) _______ _______ Balances.....000 – 2.200) 9...400) 20.... 22..000 – 132......400 _______ __1.................000 – – – Payment to partner.000 Offset loan against capital deficiency .............800 – – – – ..000 – 132......000 P(20....400 _______ _______ ______ 20. 22........... 2008 Assets Rivas..................000 P132... P 20.000 P200. Briones........... Cash Others Liabilities Loan Balances before liquidation ..........000) – – – Partners' Capitals Briones......000) Case 2 Rivas and Briones Statement of Liquidation December 31....000 P10.000 20.000 Payment of liabilities ......000) ______ Balances...000 – – 18.....................000 P10.200) 9.000) – – P(11.. _______ _______ _______ ( 18..000 ( 19....000 Payment of liabilities ...400) 3.000 P132..

..................................800 11........................ Capital ..................................... Capital .. Loan ............................ ...................................................... Loan ...000 Partners' Capitals Rivas Briones (50%) (50%) P40......................000 7..................................................800 6....................................000 Offset Briones'' loan against his capital deficiency ......................... 22........... .................000 132................... 2008 Rivas.................... Capital ...................... Other Assets ..................... Capital .................000 P132..................000) ( 33.......................000 46.... Cash .000 Balances before liquidation ................... Other Assets ................................................................... Loan ....................... Capital ......... ...................000 6.....000) ( 3.................................................. Capital ......................................200 22...................000) ( 7..................... Briones...........................................................000) Assets Cash Others Liabilities P 20................. Briones.....000) _ _______ ( 7. Rivas........................................................................ Rivas........... .......000 ( 3....................................................000 132..........................000 P200....000) _______ _______ – 132...........................................000 ( 33.....000) __3.......................................... Rivas................200 9......................................... Briones..............000 ______ 20...... ......000) – ______ _20............................Partnership Liquidation 75 Case 3 Rivas and Briones Statement of Liquidation December 31.......................... 22.....................................................200 9.................................................................................000 59.....000 Additional loss to Rivas .................................800 10..........000 18.000 Payment of liabilities .............000) ( 23............... ........................................000 134.............000 __ 20............ ( 132... Loan P20.................... Case 2: Cash ..................... Capital ....................000) ( 23.. 22... Rivas.............................000 ( 200.............000 4........................................ Loan ..........................000 18..000) _______ – _______ – – _______ – _______ – – _______ ( 20....................000 – P( 4..................000 P10...................................................000 132.................................400 1. Rivas............... Briones.....................400 6....000 22........ Realization of assets and distribution of loss ..................... Liabilities ..........................400 20. Rivas.......... Rivas.......................................................000 132............... _______ Balances ................................ Rivas.............................................................000 – _______ _______ 18..........000 1...000 ................ .................. P(22.............. Briones.............. Briones.000 Balances ........................... Cash ....000 _______ ( 132........ _134...........................................000) – – 18.... Cash .....000) – Journal Entries Case 1: Cash ......000) Balances ... Briones..........000 Payment to partner . 154... Capital ............ Loan ... Liabilities ............................ 134........000 18............... Capital ..... Briones..........................600 200............... ............000 2.......... Capital ........................000) 18.........................200 19................................ Loan P 18.......000 – P(18............000 Briones.................................................................................. ............................................800 200... _______ Balances ................ Loan ........................................................................................................................................... Cash ............................

......................000 P75.......................................500) – _______ 90...............000 – 84...000 P 24............ 134................... Rivas. Capital.............000 33.............000 P42. ........... Cash .........500 – _30..000 42.......................... Cash ........... ......000 P84... Collection of receivables and distribution of loss ............................. Balances ................. Capital.....................000 _______ _______ ( 26.000) 42....000 132.............................000 24..............................400 P(42..........000 ( 90............... ( 42.......76 Chapter 4 Case 3: Cash ... Balances .........000) – – _______ _______ ( 42.......................... Other Assets .... Briones................000 _______ 85..............000 43.....................................000 P90.....000) Balances ...... Realization of inventory and distribution of loss...............500) ( 15................................ Capital .......000) _______ _______ _______ _______ ( 22....000) ( 24............500 – _40... Briones................ Loan ........... … P(83...................000 P99................000 3................000 20................ Rivas. Loan........................................000 17......400) ( 17.......000 22....... 2008 A s s e t s Cash Receivables Inventory Balances before liquidation ............000 132........... Capital... Capital .....................500 84..................500 60...........000 24..............................................000 17..... Realization of other assets and distribution of loss .................... ....000 _______ ( 84............ 125........................000 4........500 ( 75...............100) 42...000 Problem 4 – 2 Blando and Castro Statement of Liquidation April 30.........000 79..................600) 42....................................000 18..000 3.................500 Payment of accounts payable...000) – – – – – – – – 24.......500 Payments to partners…........................000) _______ _______ _______ ( 36.................................................................. 83.. Capital ...000 20..............................000 _______ Balances ..........000 P102...............400 _______ _______ _______ 55....................................... Briones...........................400) ......... Others Accounts Payable Blando..........................................000 33.............. ............000 200. Briones............000) 84............000 24... Rivas.........100 P(24.. Rivas....................000) P( 17....... Loan Partners' Blando (60%) Capitals Castro (40 %) P 18........100 42...000 _37................. Liabilities .........

000 (20.000 (12. and the note is not secured against specific assts of Amp. Capital Cash Final lump-sum distribution to partners.000 14. an offset of the receivable against the capital credit is reasonable. (1) Cash Amp.000 _______ -0- (30. the partnership would then pay him an additional P15. Loan Amp. receivable (15.000 135.000 ______ 15.000 80. Loan Offset receivable from Amp against his capital credit. Capital Volt.000) -0- ( 6. Capital Noncash Assets Sell noncash assets at a loss of P40. Amp has a sufficient capital credit.000 20.000 Note: All partners permitted Amp to offset his receivable against his capital credit.000 ______ 24. Capital Amp. Amp is personally solvent.000 45. . The offset is not automatic.000 (2) Liabilities Cash Pay creditors.000) -0- ______ 30. Capital Watt.000 10.000 for his capital credit. Electric Company Statement of Partnership Realization and Liquidation June 30.000 30.000 (24.000 36. 2008 Balances Sale of assets at a loss Payment to creditors Capital Balances Volt Watt 30% 20% Cash Amp. Loan Noncash Assets Liabilities Volt.000 85. and by the partners. Capital Volt. In this case.000 ______ 6.000 _______ 60.000) -0- ______ 10. Loan Amp 50% 20.000 _(30.000 _95. but must be determined by the terms of the initial note.000) ______ _______ Balances -0-0-0b.000) -095.000) 6. 10.000 ______ 15.000 (135.000 15. provided the receivable is not interest-bearing.000) 85.000 ______ 10.000) ______ -0- (45.000 (3) Amp.000 30.000 ( 8.000 15. (15. 15.000) 60.000 receivable. Amp could be required to pay the partnership the P15.000. Alternatively.000 8.000) Capitals _(75.000) -0- Offset Amp.000 24.Partnership Liquidation 77 Problem 4 – 3 a. 30. Capital Watt.000 135.000) Payments to partners: Loan (10.000 (4) Volt.000 6.000) _______ -0- (10.000 115.000) 24.000 12.

.............. BINA & CELIA Statement of Partnership Liquidation January 1....000 ( 80...000 Selling price P640....................000 Balances ...................................000  20%) ...........000) _______ ( 236.......................... JJ.........000 ..............000 _28...........000 _500..... of gain ......000 P60........... Settlement to partners ...000 Balances ..............000 236.... 2008 P720....000) Other Assets Liabilities P500.... P480. Bina.................000 AIDA....... Settlement to LL ........................................000 ( 128............................ ( 60......000 ( 60........000 __98..........000) 112... KK & LL Statement of Liquidation Cash Balances before liquidation ...........000 98..... LL.. P50....000) ( 98......... ..... P140......000 _128...................... ........................ Realization & Dist.............000 240......... ........ .................. Realization & dist................... (630.............000 Total gain on realization (P28...000 __56.....000 ( 240.........000) Payment to Partners ........... P320......... of loss ..000 (320.....000 Loss on realization (P192..........................000 ( 48........................... b....... Other assets sold .. b...... 690.......000 60................. P 28.. ................. ............... .........000) _______ – _______ JJ (4) P180..........000 P70..................................... ...........................................000) Problem 4 – 5 a............000 ( 112........... 320.......000 Payment of liabilities ... ..........000) 128.... ..000 ( 720............................. capital before liquidation ........000) Celia (1) P160.....000) – _______ 80.............000 ( 192.............000  40%) ... ..............78 Chapter 4 Problem 4 – 4 a.000 640.000) Cash Other Assets Balances before liquidation .. capital before liquidation .....000) Aida (5) P320................................. Payment to Bina ................000 296........................ ..000 ( 520.....000 Loss absorbed by Bina (40%) .....000 Gain realized by LL (20%) ........... P80...... ...000) ....................... .....................000 __56... P192.000) Capital Bina (4) P320................... P 70.....000 ( 296.........000) Capital KK(4) (LL(2) P240...........................

. P 0 Advances by BB to pay liabilities Deposit by DD ..000 ( 155....000) 60.......650 ______ - - 1.000) ( 60. 179........250) _______ ______ ______ 17..... P60.. P20..... Additional loss to Sayson..000) ______ __( 90............ 179.............. 60..........000 120.... .............000) _______ __60....... P(179.000) – 60.000 – 40..250) ________ 11.000 DD...850 11...106) _______ - P1............000) 1......500 93..... DD......000) ( 60...250 ( 11.....500 ______ 93.............398 ( 14..................... 45:30:10 .. Realization of assets and distribution of gain ............993 - 1.000 ( 20..000 ( 90....000 ________ – – Problem 4 – 7 Sayson and Company Statement of Liquidation –Date– Assets Cash Noncash Liabilities Accounts Notes Payable Payable Peña Loan P a r t n e r s' C a p i t a l s Sayson Zobel Ayala (45%) (30%) (15%) Balances before liquidation.....195 98..000 EE ........250) 9..... P160...... CC.....258 93......500 85.. Payment of liabilities ..292) 14...........Partnership Liquidation 79 Problem 4 – 6 a........000 Elimination of EE's deficiency Elimination of DD's deficiency Payment to partners......750 - _______ ________ ________ Balances.. P –0– b.498 P(14........000 20..750) - - - ______ ______ P 86.195 ______ 98......345 185....000 220..... & EE Statement of Liquidation Cash Balances before liquidation ........ BB..250 P9..106 - ______ ( 114) ______ ______ - 1.000 P160...000 ( 9.000) ( 180..........106 P(1............993) ______ _______ 1.258 93....000 ( 30.258) P(93..............000 ______ _______ – P80..........000) 180..000 a l EE (40%) (P120.......................937) ( 5..650 Balances......... Offset Peña's loan against his capital deficiency ....... Zobel and Peña. BB ....900 Balances............500 P 75..398 ( 14....386) P(85.....650 ______ ( 1...........764) (114) 114 ........000 Balances .... 60.......000 P155. Liabilities C a p i t CC (10%)DD (20%) BB (30%) P60.000 CC ... 179..............750 - _______ ________ ________ Balances.... .......... 200.993) 1............000) ( 30.993) Peña (10%) ______ ( 7.........000) P(180.250 P11.......000 ( 60.750 Payments to partners ....000 P 1......386 85...000 80. P 15.........

. ..........500) ______ - (25........... .. Art capital (P63...... ...... 30...................... .... 20.. Art..................80 Chapter 4 Problem 4 – 8 a.......... ...... ...........000 ( 94... ................... To eliminate Cid's capital deficit................................ Cid capital .......... ... To record realization of other assets at a loss of P63.....000...........................300 .................000 P94........760) _2...................200 Cid's loss must be limited to P5............... ...... Payment to Partners .......... .......... ............................... .................... ...............000 for the partnership (P5.......300........... .......660) (200) ______ 17.....000 – 24................ ........ ..... ............. Realization of assets at a loss of P63.660 Art capital (P500 x 40%) ....... Balances ............. ..... Cid capital .............500 may be lost on the realization of other assets.. ........... only P24..000 P27...... ..300 x 20%) ...........380 1................. ............................................320 12... Cid capital (P63.... ...000 500 20..................... ....... . - ......... . ............ Because the liquidation of liabilities results in a loss of P500........................... ....... ................ Balances . .. Bea capital .... ...300 x 40%) . Cash ....000 P43.. Cash Assets Other Liabilities Partners' Capital Art (40%) Bea (40%) Cid (20%) P 6..... ..... ....100) Cash .... .. Bea capital (P63.................................... . ................320) (200) ______ 1........... . This requires that other assets realize P69................... .760 16.....000 (100) ______ (2. ..............100 ( 16......... To record payments to partners to complete liquidation..320 25..................... .............. ...... ...... Other assets ........... Eliminate Cid's deficit .......... Bea capital (P500 x 40%) ...... .........................500) to enable Cid to receive P5....... Payment to creditors .......... Liabilities ... ............... ...................... b... ..... ....500) 16.. ............ .. .......000) ..... P4............. ................. 1... .........................100 P10....................................700 25..000)...... 2008 Balances before liquidation (including Bea loan........... ......380) 16......200) ______ ______ - (25....... To record trade accounts payable..... Cash ................500 2....... ....... Bea capital ......... Bea and Cid Partnership Statement of Liquidation June 4.. .....500 Art capital ............... ..... .................................500 (P94.480 (1.......000 / 20% = P25.................. Unrecorded accounts payable ......... ............ .......................... To record payment of liabilities............000 30. .... ........000 from the partnership to pay personal creditors in full...... . . 200 200 100 Liabilities ..........380 Art capital .320) 500 (20.......................... ..........300 x 40%) .....000 P20...200 ______ 16............. .... ...200 (16. ..480 (1...... 2008 July 5 c. Cid capital (P500 x 20%) .380) 100 _( 100) (12.000 12................................... 100 4..760 94........................ or P25......... .................... ...............000) (20.......

000) 520.334) (153.000) 60.000 172.Problem 4 –9 KGB Partnership Statement of Realization and Liquidation Lump-sum Liquidation on June 30.000) 172.000) G Loan (60.000) (60. 2008 - Preliquidation balances Sale of assets and distribution of 430.000 620.000) B 40% (120.000 loss Cash contributed by B Distribution of deficit of insolvent partner: 20/60 (P2.000) Cash 50.000) 72.000) (154.334) -0- -0-0-0- -0- -0- - -0- - -0- - .000) Offset deficit with loan Contribution by G Payment of creditors Distribution to K Postliquidation balances Capital Balances K G 20% 40% (240.000 Liabilities (480.000 72.000 52.000) (60.334 (480.000 570.334) -0- -0-0- (480.334 633.000 50.334) 153.000) 153.000 -0- (2.334 (153.000 Noncash Assets 950.000) (60.000) 40/60 (P2.000 950.000 -0- (153.334 73.000) (100.000) 666 620.000 2.000 50.000) 86.000 13.334 -0-0- -0- -0- -0- -0- -0- 1.334) (480.000 (154.000 -0- -0- (153.000 -0- (480.000 620.000) 13.000) 480.334 (60.334) (153.334 (13.000) (480.000 - (480.

334) -0.- .-0.82 Chapter 4 KGB Partnership Schedule of Distribution of Personal Assets June 30. 2008 Personal assets.000 (13.106. excluding partnership capital and loan interests Contribution to partnership Distribution from partnership Personal capacity K G B 500.000) 700.334 -0.666 5 0.000 (650.000 (480.334 193.000 153.000 120.000 (460.000) 600. excluding partnership capital and loan interests Personal liabilities Personal net worth.000) 40.

Partnership Liquidation by Installment

83

CHAPTER 5
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
5-1: b
Capital balances before liquidation
Loan balances
Total interest
Possible loss (40,000+10,000)
Balances
Additional loss to RJ & SJ, 5:3
Cash distribution

RJ
P22,000
_10,000
32,000
( 25,000)
7,000
( 1,250)
P 5,750

SJ
P30,000
______–
30,000
( 15,000)
15,000
( 750)
P14,250

TJ
P 8,000
______–
8,000
( 10,000)
( 2,000)
__2,000
P

Capital balances
Loan balances
Total interest
Possible loss (23,000-6,000)
Balances
Additional loss to BR, CR, DR, 3:2:1
Balances
Additional loss to CR & DR, 2:1
Payment to partners

AR
P 5,500
_1,000
6,500
( 6,800)
( 300)
___300

_____–
P

BR
P 5,150
_____–
5,150
( 5,100)
50
( 150)
( 100)
___100
P

CR
P 6,850
_____–
6,850
( 3,400)
3,450
( 100)
3,350
_( 67)
P 3,283

Total liabilities
Total Capital
Total Assets

P 1,000
_22,000
P23,000

5-2: a
DR
P 4,500
_____–
4,500
( 1,700)
2,800
( 50)
2,750
_( 33)
P 2,717

5-3: c

Capital balances
Loan balances
Advances
Total interest
Divided by P/L Ratio
Loss Absorption balances
PI - TO GG –
Balances
PII - TO EE & GG, 30:10
Balances
PIII - TO EE, FF, GG, 3:1:1
Balances
PIV - P/L Ratio

DD
P40,000
5,000
_____–
45,000
____50%
90,000
_____–
90,000
_____–
90,000
_____–
P90,000

BALANCES
EE
FF
P30,000
P15,000
10,000

_____–
( 4,500)
40,000
10,500
____30%
____10%
133,333
105,000
_____–
( 91,667)
133,333
105,000
( 28,333)
_____–
105,000
105,000
(15,000)
( 15,000)
P90,000
P90,000

GG
P25,000

( 2,500)
22,500
____10%
225,000
__ __–
133,333
( 28,333)
10,500
( 15,000)
P90,000

84

Chapter 5

DD
PI - To GG
PII - To EE (28,833 X 30%)
GG (28,833 X 10%)
PIII –To EE (15,000 X 30%)
FF (15,000 X 10%)
GG (15,000 X 10%)






_____–

Total
PIV - P/L Ratio
DD
Distribution of P18,000
PI - TO GG
PII - TO EE & GG, 3:1, P8,833
Cash distribution

CASH PAYMENT
EE
FF


P 8,433



4,500


1,500
_____–
_____–

GG
P 9,167

2,833


__1,500

P12,933

P 1,500

P13,500

EE

FF

GG


_____–


_6,625


_____–

P 9,167
__2,208

P 6,625

P11,375

5-4: a
Capital balances before liquidation
Loss on realization, P40,000
Capital balances before cash distribution
Possible loss, P90,000
Balances
Additional loss to Lim & Wan, 4:2
Cash distribution

TAN
P40,000
( 16,000)
24,000
( 36,000)
( 12,000)
_12,000
P

LIM
P65,000
( 16,000)
49,000
( 36,000)
13,000
( 8,000)
P 5,000

WAN
P48,000
( 8,000)
40,000
( 18,000)
22,000
( 4,000)
P18,000

Capital balances before cash distribution
Possible loss (90,000+3,000)
Balances
Additional loss to Lim & Wan, 4:2
Cash distribution

TAN
P24,000
( 37,200)
( 13,200)
_13,200
P

LIM
P49,000
( 18,600)
30,400
( 8,800)
P21,600

WAN
P40,000
( 18,600)
21,400
_( 4,400)
P17,000

CARPIO
P72,000
( 5,000)
67,000
( 55,000)
12,000
( 6,000)

LOBO
P54,000
( 5,000)
49,000
( 55,000)
( 6,000)
__6,000

5-5: b

5-6: d
Tan (14,000 X 40%)
Lim (14,000 X 40%)
Wan (14,000 X 20%)

P5,600
P5,600
P2,800

5-7: a
Capital balances before liquidation
Goodwill written-off
Cash balance
Possible loss (100,000+10,000), 110,000
Capital balances before liquidation
Additional loss to Carpio

Cash distribution
Partnership Liquidation by Installment

P 6,000

P


85

5-8: d
JACOB
P40,000
( 15,000)
( 1,000)
24,000
__8,000
32,000
( 45,000)
( 13,000)
_13,000
P

SANTOS
P72,000
( 9,000)
( 600)
62,400
_____–
62,400
27,000
35,400
( 7,800)
P27,600

HERVAS
P 7,000
( 6,000)
( 400)
63,600
_____–
63,600
( 18,000)
45,600
( 5,200)
P40,400

A
P16,200
_____–
16,200
( 600)
15,600
( 150)
15,450
12,000
27,450
( 27,000)
450
( 780)
( 330)
___330
P

B
P12,000
___160
12,000
( 600)
11,400
( 150)
11,250
14,400
25,650
( 27,000)
( 1,350)
__1,350

_____–
P

C
P37,700
___240
37,860
( 600)
37,260
( 150)
37,110
_____–
37,110
( 27,000)
10,110
( 780)
9,330
( 330)
P 9,000

D
P17,700
_______
( 17,940)
( 600)
17,340
( 150)
17,190
__9,600
26,790
( 27,000)
( 210)
____210

_____–
P

DY
P22,000
2/4
44,000
_____–
44,000
_____–
P44,000

BALANCES
SY
P15,500
1/4
62,000
( 6,000)
56,000
( 12,000)
P44,000

LEE
P14,000
1/4
56,000
_____–
56,000
( 12,000)
P44,000

Capital balances before liquidation
Loss on realization (120,000-90,000)
Liquidation expenses, P2,000
Capital balances before cash distribution
Loan balances
Total interest
Possible Loss (210,000-120,000)
Balances
Additional loss to Santos & Hervas
Cash distribution

5-9: d
Capital balances before liquidation
Salary payable –
Balances
Loss on realization (P2,400)
Balances
Liquidation expenses (P600)
Balances
Loan balances
Total interest
Possible Loss (126,000-18,000)
Balances
Additional loss to A & C
Balances
Additional loss to C
Cash distribution

5-10: a

Total interest
Profit and Loss ratio
Loan absorption balances
Priority I - to Sy
Balances
Priority II - to Sy & Less
Total

CASH PAYMENTS
SY
LEE

1,500


3,000

_____–
_____–
_3,000
DY

Priority I - to Sy (6,000 X 1/4)
Priority II - to Sy (12,000 X 1/4)
to Lee (12,000 X 1/4)

000 25.000 ( 12.500 _____– P62.000 20.000 P 1.500 3.000 5-11: d Cash before liquidation Cash realized Total Less: Payment of liquidation expense Payment of liability Payment to partners (Q 5-10) Cash withheld P12.000 X 1/5) Total Priority III – P/L Ratio Cash distribution to CC: Priority I Priority II (12.500 AA Priority I to CC (12.000-2.000 10.000 90.520 _____– 87.500 CC P10.250 2/4 12.500) X 1/3 – – ____– P – BALANCES BB P30.000 54.500 _____– 62.000 ( 25.000) P62.000 86 Chapter 5 Further cash distribution.000 _32.000 _26.520 ( 25.000 X 2/5) to CC (25.500 P 3.000 2/5 62.500 X 1/5) Priority II to BB (25.000 5.500 __7.Total – P P 4.500 P2.000) P62.000 P10.000/30%) Excess of Batista Multiply by Batista's Profit & Loss ratio Priority I to Batista P36.000 – _____– _5.500 10.000/50%) Batista (27.400 20.500 CASH PAYMENTS BB CC – 2.000 1/5 100.560 Total payment under priority I & II Total cash distribution to partner P 6.000 ____30% P16.000 2/5 87. 2:1 Total interest AA P15.000 P 7.600 5-12: c Loss absorption balances: Cena (18.000 35.167 .500 P20.000 44.000 _5.500) 100.200 5-13: c Capital balances Loan balances Total interest Divided by Profit and Loss Ratio Loss Absorption balances Priority I to CC Balances Priority II to BB & CC.000 10.400 P17. profit and loss ratio Cash distribution to Dy Divided by Dy's Profit and Loss ratio Amount in excess of P7.

MM.000 _30.500 _54.500 P 54.750 MM – – 3.900 ______– _24. MM.000 Capital balances Loan balances Total interest Divided by Profit and Loss Ratio Loss Absorption balances Priority I to LL Balances Priority II to LL.000) 270.500).500 – – 1.000) P195.000) 75. Profit and Loss ratio Cash distribution to Partners (P38.000 ______– 195.000 ______– ( 60.500 P 10.900 _____30% 83.000 X 15%) Priority II to LL (30.500 Further cash distribution.000 ______– BALANCES BELLO P 24.000 CASH PAYMENT KK LL – 9.100 __12.000 TOTAL P 9.000 X 15%) to MM (75.350 ___3.000 _30.600 Cash distribution JJ – – _____– P – KK MM – – LL P 9.667 87 5-14: c JJ P 60.000 _____35% _____15% _____10% 270.000 ______– P195.000 X 35%) to LL (75.000 ______– _15.000 300.000 _____50% 64.000 4.100-9.000 _____20% 75.000 X 10%) Priority II to KK (75. 12.000 P195. MM. 35:15:10 Total JJ – – – – – ______– P – Priority I to LL (30.350 P 7.100 P 5.650 __2.000 ______– 195.000 270.250 ______– ______– P 1.500 __7.000 ______– 64.750 – – 11.000 ( 8. 15:10 Balances Priority II to KK.000 _32.000 ______– ______– _94.000 ______– 75.000 7.000) 5-15: a Capital balances Loan balances Total interest Divided by Profit and Loss Ratio Loss Absorption balances Priority I to Bello Balances Priority II to Bello & cruz.000 P195. MM. LL.000 300. 3:2 .000 P 30.000) ( 30.100 Priority I to LL Priority II to LL.Total cash paid to CC Partnership Liquidation by Installment P5.600 P 29.000 _18.000 X 10%) Total BALANCES KK LL MM P 64.750 P 24.500 – 3.000 _78.000 ____40% 195.000 ______– ( 30. LL.000 300.000 270.000) ( 75.000 ( 11. 35:15:10 (29.000 _10.100 ARCE P 20.100-16.000) CRUZ P 15.000 – 4.150 P 16.000) ______– 270.000).000) ( 75.000 – – ___7. 15:10 Priority II to KK.000 360.000 X 15%) to MM (30.000 ( 75.000 ( 11. P29.

Cruz will receive payment and only after P7. 5-16: a Cash paid to Arce Divide by Profit & Loss ratio P2. Profit and Loss ratio Based on the above cash priority program.400 Total cash distribution to Bello P11.750 ( 6.200 Further Cash distribution.500 Profit and Loss ratio _____60% _____40% Loss absorption balances Priority I .250) _____– _2.000 Cash realized from sale of asset P61.000 P 64. Therefore no payments are made to Arce and Cruz.500 3/5 Cash distribution to Bello under Priority II Cash distribution to Bello under Priority I 9.900 Total cash distribution to partners Cash paid to Creditor (30.900 20.700 P2.000 X 30%) P .Total P 64.400 3. the P2.000 X 30%) to Cruz (11.000 _7.000 _____5% Amount in excess of P7.500 .I to Bello (8.II to Bello (11.300 __2.000-10.400 under Priority I.500 P37.900 Add: cash paid under PI and PII 40.300 _____– – – _2.000 X 20%) – – _____– 2.000 is only a partial payment to Bello who is entitled to a maximum of P2.900 _6.500 P – P2.700 5-18: b BALANCES MONZON NIEVA Total Interest P22.900 5-17: b Cash distribution to Cruz Divide by profit and loss ratio P 6.500 Further cash distribution .000 P 64.900 has been distributed to Bello and Cruz will Arce receive payment.000 88 Chapter 5 CASH PAYMENTS ARCE BELLO CRUZ P .Profit and Loss ratio CASH PAYMENT MONZON NIEVA 43.000 Total Less cash before realization 67.200 2/5 Cash distribution under Priority II Multiply by Bello's Profit and Loss ratio 15.200 Total P – P 5.500 P17. Only after satisfying Priority I.000) 47.to Nieka 37.500 ______– Total P37.

000 ( 500) ( 12.500 X 60%) Nieva (22.500) – _22. July 31 Aug: Cash realized Cash distribution for August.000 18. 6:40 Cash distribution CASH MONZON P12.August Monzon (22.000 should be paid Nieva. Profit and Loss ratio Distribution to Partners .200 5-20: a Cash before liquidation June: Cash realized Payment to creditor Payment to Partners Cash balances.200 P – P 7.500 – ( 500) – _12.000) Balances.000 NIEVA – 500 _4.300 89 . June 30 July: Cash realized Payment of liquidation expense Payment to Partners Cash balances.500 under Priority I Partnership Liquidation by Installment 5-19: b Cash distribution PI to Nieva (2.000 1.000 __7.500 x 40%) P 5.800 P5.500 P13.000 12.000 ( 20.500 P 9. since she is entitled to P2.500-2.000) __2.All the P2.500 P22.

..000...00 _______ ( 6.500.00) ______ – – ______ – ______ – ( 3..00) Tulio...00 Payments to partners (Schedule 2) ..150....50 _______ ______ 27.00 6...00 – ______ – ______ 500.... ( 750.......000.00 1..000.50 ( 100.500..000...187.....00 P7...000...000.250.90 Chapter 5 SOLUTIONS TO PROBLEMS Problem 5 – 1 Suarez.. ( 500.....850..00 January Installment: Realization of assets and distribution of loss .00 _______ _______ 5..00 ( 600...... 10...00) 34..00 ______ ______ ___(160.00 March Installment: Realization of assets and distribution of loss .00) 1.00) 7..000..00) ( 210....00 _______ 11.00) 11.....00 8.00) ( 3.....50 _______ 2.000. 10....00 P5.552... _(400..000...00 ______ ______ 12.....450......000..00 _______ 7.00 ( 250.....500. 2008 Assets Cash Balances before liquidation.....250..125....250.562..00) ______ 12.312..000..00 – ______ – ( 500...000.00 _______ _______ 34...650.00) Balances.00 April Installment: Realization of assets and distribution of loss .....00 – _______ _______ 1..50 ( 187.....00 P6.....000..........50) 6....00) 5.00) ( 1.000..000....800.00 _______ 13....00 _______ 7..00) 6..500..50) ( 2.00) ( ______ ______ ( 2.00) Balances.50 5..... 6.000.00 2.000..00) ( 262.000..00 ( 12.00) Balances. 6..00 ( 125.50 140.00) .....00 Payments to partners...000.00) ( 350..00 ( 7...00 _______ ______ 12..650.000..500...650... P 2.927.... 10.00) _______ 34.....00 2.000. ( 6....00) ( 1.000.00 P12..312.....00 Payments to partners (Schedule 1) .00 Balances.00 ________ 11.00 Payment of expenses of realization and distribution to partners ...000..000.00 ( 375....00 7.00 _______ ______ 5. ( 10...00 February Installment: Realization of assets and distribution of loss ..00 – ( 3. 4.00 6....00 P14.00 4........350.00 Balances. 2.50 _______ 6.562...00 3. 7.00 ( 300....125.000...850..00 11.750...650.00 Balances.. 500........000.............000.......00) _______ 27.300. 8..00 11..500..00) ( 2..00 _______ _______ 34.00 12...887.50 ( 15...500..50 _______ 13... 12.....812......... 11..00) ( 4....00) 13.00) ( 1..00 ( 175.812....50 _______ ______ 27...00) Balances........200.312.....060.800.....187.00 P2....50) ( 1.....50) 1.000..........000.00 ( 12...00) 13.......00) 13.50 2. ( 4.....00 1.... 1........187....000.. Tulio and Umali Statement of Liquidation January 1 to april 31....00 – _______ 1..00 – ( 1.....060....500... 4.025.00) 7..950......00 11........50) 12.00 Balances..750.. ( 600.000..00) Balances..850.00 – _______ _______ 5..50) ( 1........00) ( 150..000.000..000.125..50) – 5.000.....037..00 Payment of expenses of realization and distribution to partners .00) Balances...187.00 2..00) Balances....00) 9...650. Umali.50) ( 187.137.237.. Partners' Capitals Others Liabilities Loan Loan Suarez (40%) tulio (35%) Umali (25%) P46....375. P & L ratio .000.....500.00 Payment of expenses of realization and distribution to partners .250.300..00) ( 2..312..00) 9... 12.00 9.000.575.850.....250.162.00 – ______ – _______ 500.550..000..00 ( 200...000.50 __(400.00) ( 525.50 ( 240.50 2..00 Payment of liabilities ....000........ ( 6..00 Payment of expenses of realization and distribution to partners .00) – 500.

.......250 + P27...00) P( 1...................................00 __5.50) ( 7..00 9.812.......00 16........600....500...................640......... 4...............875........187................. Loan balances..00 1...00 Tulio (35%) Umali (25%) P11. Additional loss to Tulio and Umali 35:25 Payments to partners ........00 P – .850.......50 12.......435................312..650......950..50 P 187.. Apply to loan.. Payments to partners .....425..000......640................00 500....................350....00 P7..............00 ( 12......100..00) P(1..00) 4...237.....000) ...Balances.. Total interests .00 ( 9...00) Partnership Liquidation by Installment 91 Schedule 1 Capital balances .. Apply to capital .....562.....50 _1..000 + P34...00 – __ __ – Tulio (35%) Umali (25%) P11.. Loan balances...00 – P 1.........435... Balances .00) _____– – _____– – _____– – _____– 1..400....650......850......650.....00) ( 750...250..50) ( 312....00) P 1.50 _1.812..50 _2.000) ..00 ( 14................100..............50 Schedule 2 Capital balances .00 1............. Apply to loan..025.062.50) P 2.........950...50 __1. Suarez (40%) P13..........00 8... Suarez (40%) P12.........00 ( 437......50) P 3..537.....50 P 1. Total ......50 P 187....000.50 P1.............00 _2.......887...025......00 P( 1.......650....50 P 3........300....................00) ( 9....000.....00 ( 11.187............... Possible loss (P1........50 P6...00 – 12.................00 – Final Payments to partnersP(41.......812.00) ___750...812.............. Possible loss (P2....500........00 _____ _– 13.....

000) 48.000) ______ 60.000) Accounts Payable 15.000 (49.000) ______ –0– ______ –0– ( 5.000 Payments to partners (Schedule 1) (50.000) ______ 5.000) 11.000 ______ 60.000 6.000 Bell 20% 61.000 ______ 49.000 (12.000) 1.000 ( 60.000) –0– ______ –0– Schedule 1: Miller and Bell Partnership Schedule of Safe Payments to Partners Capital and loan balances Possible loss of 60.000) 5.000) ______ 1.000 .000 Payments to partners: Loan ( 6.000) 55.92 Chapter 5 Problem 5 – 2 Miller and Bell Partnership Statement of Partnership Realization and Liquidation Cash 25.000 (48.000) 49.000) 30.000 _(1.000 ______ 24.000) Balances –0– Inventory 120.000) Capitals (24.000) ______ –0– (24.000 (10.000 ______ 1.000 (5.000) 5.000 (24.000 on remaining inventory Safe payment Miller 80% 49.000 Offset deficit with loan ______ 30.000) 6.000) –0– ______ 11.000 5.000) (4.000 Sale of inventory 30.000 ( 60.000) –0– ______ –0– ______ –0– ( 6.000 ______ 60.000 40.000 Bell Loan 60.000 Payment to creditors ( 5.000 (16.000 ______ 24.000) ______ –0– ( 5.000 Capital Miller Bell 80% 20% 65.000 Balances Sale of inventory Payment to creditors (10.000 ______ (5.

000 (81.000 (27.000 1 90. 2008 Assets Partners Capital TT (1/3) Cash Other Liabilities SS (1/3) 20. ______ (20.000 20.000 1/3 b.000) Balances Payment to creditors 95.000 (12.000) 175.000) (11.000 ______ ______ 38.000 ______ 80.000 (10.000 (10.000 ______ ______ 50.000 (10.000 Balances June – sale of assets at a loss of P36.000 (12.000 to the three partners in incomesharing ratio 80.000) (11.000 70.000 1 60.000 (27.000 1 70.000 (15.000 (80.000) (10.000) –0– 25.000) 53.000 20.Partnership Liquidation by Installment 93 Problem 5 – 3 HORIZON PARTNERSHIP Statement of realization and Liquidation May – July.000 175. after the creditors are paid and TT and PP receive 10.000 70.000 90.000 ______ Balances Payments to PP (Exhibit A) 15.000 38.000 10.000) ______ 50.000) PP (1/3) Exhibit A – Cash distributions to partners during liquidation: Capital account balances before liquidation Income sharing ratio Loss absorption balances Required reduction to bring capital account balance for PP to equal the next highest balance for TT – PI.000) –0– 114.000 75.000) 27.000 38.000 ______ 80.000 (80.000 (15. 60.000 280.000) 50.000 Balances Payment to partners 81.000 (27.000) Balances 60.000 38.000) 90.000 (105.000 ______ 60.000 10. After the cash distribution in June.000) 60.000 60. From this point on any cash payments to partners may be made in the income-sharing ratio or equally in this problem.000) 114.000 81. .000) SS TT PP 60. the partners capital accounts had balances corresponding to the income-sharing ratio (38.000 and 30.000 60.000 Balances Payment to partners (Exhibit A) Balances July – sale of remaining assets at a loss of P33.000) 27.000 ______ Balances before liquidation May – sale of assets at a loss of P30.000 70.000) 65. In other words.000 (25.000) 27.000 ______ 60.000) Balances Required reduction to bring the balances for TT and PP to equal the balance for SS – PII.000) 70.000) 175.000 20.000 ______ 48.000 each).000 ______ 60.000) 25.000 ______ (10.000 (61.000 (12.000 (114.000) 80.000 (15.000 ______ 80.000 (10.000 1/3 1/3 Summary of cash distribution program: To creditors before partners receive anything To partners: (1) First distribution to PP (2) Second distribution to TT and PP equally (3) Any amount in excess of $120.000) (11.000.

.....500 100% 2...... February ......... March ..000) ( 17............ January Cash Available for distribution ..........................250 – P36.............000 (32......500 – X Y Z P10..... Loan balances ...... Priority II – to X and Y .........000 22...625 18..........................000) Y Z P 7.......... Priority II – to X and Y...250 P20.....250 9................000 P26.......000) Payments to partners....000 6............000) ( 36.......................000 P20.........375 – X Y Z P 5.............625 P 3....500 P200...000 Priority I – to Y ..... 165.............. P 7..500 50% 30% 20% P10.000 ....... Cash P20.................500 P132.................. 2008 X Balances Y Capital balances .......................................500 .200 P23....000 P16.......... Priority I – to Y .....750 – 26... 5:3 .......000 – P17.................................500 ( 7...................500 P3.....500) Total .........................respective.......... Available for distribution .......... P132...500) 132......5000 P45......... any additional cash that becomes available may be paid to the three partners equally...500) .....................500 P60..............500 – P 7.....000 P 3........000 ( 9.........................500 Total interests............625 P 9..............000 6.............. P165..... Excess..........................200 X Y Z P 7.........................................000) .......... Priority II – to X and Y..........500 P3...................................500 ________ P132..000) P132......... Cash P45.. Payments to partners.500 P 4.... Excess...... Total P10.................375 _____ P10........500 165.............................500 – P16...... Balances ...... X Cash P15......000 (35..... Priority I – to Y (P10............................ 5:3 (P26.... April ....... X.........375 10. P60...500 – P7.........175 P7..000 (32......500) Payment to partner ... Available for distribution .....................625 P14...................... P82. 5:3:2.... 5:3:2..000 ( 15..000) Payments to partners...........000 P 7.000 ( 3....... 94 Chapter 5 Problem 5 – 4 1..............................800 P7.......000 15.. Available for distribution ......500 Loss absorption balances .500 P 4....500 Z X (50%) Cash Payments Y (30%) Z (20%) – Any amount in excess of P36..... Y and Z Cash Priority Program January 1....

78.200 ( 21. Share of credit memorandum 5.20.000) (59.000 81.500) ( 1.000) 9.000 50.000 51.000) 4.000 ______ ______ ( 2.000 307.000 30.000 75.500) ( 4. Sale of inventory at loss of 14.000) Payments to partners (147.000) ______ _____ 10.800 –0– 49.000 30.000 73. & equip.000 Safe payments to partners (Schedule 2) -0.500) ( 1.500) ( 3. Liquidation expenses paid ( 4.600) (18.600 ( 30. Sale of mac.000 189.000 20. CD & EF Partnership Statement of Partnership Realization and Liquidation Able Other Accounts CD AB Cash Loan Assets Payable Loan 50% 18.000 59.000) 1.400) (39.000) ______ ______ 6.000 30.200) ( 1. at a loss of 43.000 ( 66. Liquidation expenses paid ( 5.000 March transactions: 8.000) ______ ( 6.000) ( 4.000 189.000 146.000 ( 7.400) -0-0.000) _____ ______ 55.600 ( 2.500) (12.104.000 -010.000) ______ _______ 147.800) ( 400) 600 ______ 68.000) ______ ______ ( 48.000 ( 52.000 38.000 (189.000 53.400 39. Payments to creditors ( 50.000 30.000 February transactions: 6.000) 2.000) ______ _______ Balances at end of liquidation –0– –0– –0– Capital CD 30% 90.000 –0– 73.000 Balances before liquidation January transactions: 1.000) ( 7.102.Partnership Liquidation by Installment 95 Problem 5 – 5 AB.000 189.000 118.200) ( 800) -0-0.600) –0– –0– –0– –0– –0– .000 30.200 ______ ___ –0– -0-0.500 900 (50.000 EF 20% 74.000) 3.800 49.900) ( 8.400 ______ (20.000) ( 600) ( 3.000 Sale payments to partners (Schedule 1 ( 45.000) ( 1.000) -0-0.000 30.600) ______ ______ ( 2.000 189.102._____ ______ 6. Liquidation expenses paid ( 2.000) _____ ______ _____ -0.000 104. Collection of accounts receivable at loss of 15. Offset AB's loan receivable against capital (30.

400) capital Schedule 2: February Capital and loan balancesb Possible loss: Other assets (189.300) ________ –0– ( 10.300) EF : (25.400 ( 99.000) and possible liquidation costs (6.500) 25.600 P68.000) 10.000 loan receivable = (81.500 ( 59.500) ( 25.000 ( 97.500 _______ –0– 73.000) and possible liquidation costs (10.200 ( 58.600) capital plus 20.800) 28.200) Safe payment b = (102.500 x 3/5 = 15.200) Safe payment a = (104.600 ( 15.300 ( 39.000) Absorption of AB's potential deficit balance CD : (25.500 x 3/5 = 15.500) 25.000 P101.300) EF : (25.800) capital = (49.700) 41.500) 15.000) Balances Absorption of AB's potential deficit balance CD : (25.200) capital AB 50% CD 30% EF 20% P74.900 ( 39.200) P 18.500 x 2/5 = 10.400 ______ P -0- 72.800 49.600 ( 10.500) ( 25.000 loan receivable = (73.000) capital less 30.300) _______ P 26.500 x 2/5 = 10.000) capital less 30.96 Chapter 5 Partnership Schedules of Safe Payments to Partners Schedule 1: January Capital and loan balancesa Possible loss: Other assets (189.200 ( 15.200) –0– .000 loan payable = (68.

.500) – 2. 1:1 ..500) P 6...000 280........ Schedule 2 Cash Available for distribution ...000 25......000 3..... 2008 M Capital balances .....000 P 75...000 1......750 ( 8... P200... O and P....000 ( 25..000 P P 20...... P240.000 _______ ( 40.000 1/8 1/8 8/8 2.000 280..000 Priority I – to O ............ Apply to loan .. O and P Cash Priority Program January 1.......000 Total interests ...................000 240... 240.750) – 8..000 5........000 P200.. ( 40......000 Loss absorption balances .......000 P440.........500 ( 2. Priority II – to O and P...........000 – 5............000 Balances N O P 70...000) ( 10..........500 5.... _______ Balances ......000) 200.000 – – P20..000 ( 20. 240.....000 P200.. Apply to capital ....000) ________ 200..000 P200....... Priority I – to O ..000) M ........ Apply to capital P40.000 ( 5....000) ( 5.000 Any amount in excess of P55..000 P 55....000 P5........................250 18. N...750 P3... Apply to loan ...000) Total ... 20........ 3:3:1:1. 3:1:1 ...500) – N O P P15....000 Priority II – to O and P ..........000 25.000 15....000 Cash Payments M (3/8) N (3/8) O (1/8) P (1/8) P200.....000 – – 5..Partnership Liquidation by Installment 97 Problem 5 – 6 1.................. O and P ... 1:1 .. P 70..000 3/8 3/8 Total – P20.000 5.............000 Priority III – to M.750) – P3.000 P55. _______ Balances . Excess...000 – P30.000 10....000) ( 40.000 P 35.. Cash M N O P P25.............500 5.... Schedule 1 Available for distribution .000 P10.750 ( 3........ Priority III – to M.000 1...000) P15..........250 P2................000) ( 40.... P 90.750 ( 2.500 – – – – P22..000 2..... M.....000 Loan balances ....000 240.000 P 30.........500 ( 22.750) – Payments to partners.....000) ________ _______ P20.500 P2...250 8..... Priority II – to O and P...000 P280..............000 _______ ( 160....000 _______ ( 40.... Payments to partners.750 ( 18.750 P 2..000 P15..

000) ________ P110.000 Capital and Loan Accounts Bronze Gold Silver 50% 30% 20% P55.000 .000 ( 30.000) _______ _( 2.000 ( 10.000) P110.000 x .500 P34.000 Accounts Payable Bronze 50% Gold 30% P37.000 _______ 120.000 Decrease LAB's to next highest: Gold: (10.000 P24.98 Chapter 5 Problem 5 – 7 Bronze.000 P120.500 P 9.000) 120.000 P17.000 x .000 ( 9.000 ______ 55.000 15.000 3.000 P 2.000) P -0- Silver 20% P 17.000 is Accepted) Cash available First Next Next Additional paid in P&L ratio P106.000 x .000 P150.000 ______ 24. Gold & Silver Cash Distribution Plan June 30.000 Decrease highest LAB to next highest: Gold: (30.20) _______ P110.000) ( 75.000) P 33.000 P 22.30) Silver: (10.000 Summary of Cash Distribution (If Offer of P100.000 22.000) ( 5. 2008 Loss Absorption Balances Bronze Gold Silver Profit and loss ratio Pre-liquidation capital and loan balances Loss absorption balances (Capital and loan balances/P& L ratio) P110.500 ( 3.30) _______ 110.000 _______ P 55.000) 36.000 ( 10.000 _______ P 17.000) ( 9.000 ( 17.000 P45.500 P37.

000) (250.000 (250.500) and East (P29.640 East capital (20%) 3.000 Priority II – To South (335.920 South capital (10%) 1.000) 400.800 South capital 58.560 Accounts receivable To records collection of receivables with losses allocated to partners.500 14.500 is split between to South (P14.000 150.200 Cash 140.000 73.600 41. (2) (3) Cash North capital (30% x P103.000.000) 150. Next P43.000 79.200) (4) Liabilities Cash West 74. First P90. South (P10.500 29.000 ________ 545.000) Balances 400.000 is held to pay liabilities (P74.000 150.600) and East (P21.000) Balances 400.000) Total 150. Remaining P63.000 ______ 150.000 P880. and east 30:10:20 (250.600 East capital 35.000 _____ 75.000 30.600 North capital (30% of P16.000).000) South capital (10%) East capital (20%) West capital (40%) Property and equipment To record sale of property and equipment.000 150.600 based on the cash distribution plan in Part A.000 74.000 25. South.900 10.000 75. 10:20 (145. Next P33.000 150.000 50.600 To record cash installment to partners of P230. 82.600 is allocated to North (P31.000 400.000 (145.000 Priority II – To South and East.000 P150.000 .000 P 60.200 253.000 – Further cash distribution – P/L ratio Part B (1) Cash 65.000 West capital 15.000 North capital 31.Partnership Liquidation by Installment 99 Problem 5 – 8 Part A Balances South East North Total Interest (capital and loan balances P120.280 West capital (40%) 6.000 33.000 P 88.400 loss) 4.500 goes entirely to South.000 20% 40% P545.000 Cash Payments North South East West P109.000 545.800).300 20.000 Divided by P/L ratio 30% 10% Loss absorption potential P400.000) and estimated liquidation expenses of P16.000 Priority III – To North.

000 (6) North capital 35. The Remaining P71.000 is divided among North.560) (41.100 2.000 must be retained to pay liquidation expenses.300 1. and East on a 30:20 basis.160) 4.667 Cash 71.666 5. South.000 cash is being held.920) (30.000 6.000 9.500 834 1. Although P87.500 South capital 11.053 ( 1.387 West capital To eliminate capital deficiency of West as computed below: Capital balances.280) (20. beginning Loss on accounts receivable Loss on property and equipment Cash distribution Liquidation expenses Subtotal Elimination of West deficiency Capital balances (9) 3.090) 1.100) East P109.580 ( 2.527 ( 693) 3.500 P 834 P 1.600) ( 1.300) (58.400) 4.160 North P120. P16.000 ( 6.666) ( 4.To record payment of liabilities.000 North capital (30/60 of deficit) 2.080 South capital (10/60) 693 East capital (10/60) 1. 71.200 4.833 East capital 23. (7) North capital (30% of expenses) South capital (10%) East capital (20%) West capital (40%) Cash To record liquidation expenses paid.666 2.000 To record distribution of cash according to cash distribution plan.160 P 2.000 ( 1.000 (4.900) (31.000 101.000 12.200) West P60.600) (50. 100 (5) Chapter 5 Cash North capital (30% of P30.800) ( 3.000 ( 3.000 P –0– .200) ( 2.200) –0– ( 4. (8) 11. 4.300) South P88.000 3.400 North capital South capital East capital Cash To record final cash distribution.640) (10.000 loss) South capital (10%) East capital (20%) West capital (40%) Inventory To record inventory sold.

200 (20.600 (9.000 Balances (* = deficit) Distribute Ben’s potential deficit To Dan: P7.343 (4.000 200.600 4. P58.000 60.000 in goodwill Write-off of P12.000 for remaining inventory Possible liquidation costs of P4.800) (8.400 1. 2008 Write-off of P24.800) (36.200) 14. 2008.000) 7.000 Journal entry to record Kenny’s contribution: Cash Inventory Equipment Notes payable Kenny.000) 7. capital 40.600 x 30/70 Safe payments to partners Dan (40%) Red (30%) Ben (30%) (42. and P4.143) -0- - Of the P84.000 .000 of receivables Gain of P6.857) 3.000 10.000 in cash at the end of August. a total of P22.000 on sale of P32.600 (2.000 180.600* (7.800 (45. Thus.000 will be required to liquidate the debts to outside creditors.400) 14.400) (30.000) 19.200 1.000) (1.200 3.600 (17.200 7. capital 60.000) 9.000 50.000 100.000 for remaining receivables and P32.257 (17.000 in cash can be safely distributed to partners as of August 31. August 1.000 of inventory (one-half of P64.400 1.600) 4. August 31.600 x 40/70 To Red: P7.200 3.000) (1.000 must be held in reserve to pay possible liquidation costs. Problem 5 – 10 (1) Journal entry to record Jenny’s contribution: Cash Equipment Jenny.000 book value) Capital and loan balances. 2008 Possible loss of P16.Partnership Liquidation by Installment 101 Problem 5 – 9 DR Company Schedule of Safe Payments to Partners Capital and loan balances.

A one-sixth interest in the partnership is P660.000 20.000) and the amount allocated to Kenny is P39.000 (2/5 x P65.000 (P173.000 = P660.102 (2) Chapter 5 Capital balances of Jenny and Kenny before admission of Lenny: Beginning capital balance Interest on beginning capital balance Annual salary Remainder Ending capital balance Jenny P100. Kenny and Lenny respectively.000 and P112.000) is distributed to partners in their profit and loss ratio of 30:50:20 to Jenny.000 15.000 = P65. we compute a bonus of P175.000 P173.000 (260.000 Lenny P200.000 26.000 72. and 20% to Lenny.000 (P210.000).000 – 30.000) P102.000 + P312.000.000 (50. (3) Schedule of Safe Payments Capital balances Partner’s loan Gain on realization Possible loss Safe payments to partners Jenny P200.000 to Kenny).000.000) 15.000 48.000) P105.000 (3/5 x P65.000) is allocated to Jenny. The amount distributed thus far is P65.000 9. 50% to Kenny. the value of the partnership is P485. the amount allocated to Jenny is P26. Liabilities are paid.000 10.000) is allocated to Kenny. capital Jenny. 3/5 x P120.000 (104.000 Explanation: Each partner receives 10% on beginning capital balance.000 (72. A possible loss on the unsold assets (P520.000 39.000 20.000. Using the bonus method. Two-fifths of this remainder of P129.000 – P180.000 (156.000.000 (P185. The admission of Lenny can now be recorded by the following entry: Cash 175.000 (48.000 + P175. Using the 2:3 profit sharing ratio. capital Kenny.000 Explanation: The book value of the partnership after the income distribution in 2006 was P485.000 x 1/6 = P110.000). The remainder to be distributed is P120.000 Kenny P200.000 Kenny P400. .000 Lenny. capital 110.000) which is distributed to the partners on the new profit sharing ratio: 30% to Jenny.000 to Jenny and P20. After Lenny’s contribution. The total income allocated to Jenny and Kenny is P73.000 – 35.000).000 6.000 Explanation: The sale of assets realized a gain of P30.000 respectively. Each partner receives her respective income (P15.000 P312.000 – P110.000) P 53.

000 Gross profit Expenses 2.800 ÷ 125%) Gross profit Expenses Net Profit Profit/loss ratio Balance of investment in JV P80.balance sheet Jessica’s proportionate interest in assets of JV (50%) Total assets of Jessica 6-2: a P3.160 x 40% 8.000 150.160 x 60% P222.000) 7. proportionate interest Sweet Company’s share in total asset P190.064 P88.000 P4550.000 29.064 6-5: a Cash Merchandise inventory Accounts receivable Total assets Sweet Co’s.096 6-6: a Sales Cost of sales Purchases Merchandise inventory.000 _5.000 Total liabilities only of Jenny Co.360 150. end (50% of P10.000 __5.160 10.000 20.000.Joint Venture 103 CHAPTER 6 SOLUTIONS TO MULTIPLE CHOICES 6-1: a Assets per Jessica Company.800 120.200 P10.200 ___500 Net profit P 1.550.000 1.700 .800 370. 6-3: b 6-4: b Investment of Heart Profit share: Sales Cost of sales (150.640 30.

000 6-8: a 6-9: b Fee of Salas (P10.000 x 25%) P 1.500 (cr) 6-11: d Joint venture account balance before profit distribution (debit) Joint venture profit (P4.500 Edwin Capital: Debits: Balance before profit distribution Credits: Profit share P14.000 __2.500 Balance P 3.000 ______ _3.500 .500 Joint venture profit after fee to Salas (P11.500 Cost of unsold merchandise (inventory) taken by Dante P19.850 Joint venture account before profit distribution (credit balance) Unsold merchandise P 9.000 _13.700 / 2) P10.104 Chapter 6 6-7: b Original investment (cash) Profit share (P1.500 6-12: b Due from Edwin (debit balance) P 9.000 x 15%) Profit share of Salas (P10.000 (cr) 4.000 x 40%) Salve (P10.500 _2.500 (cr) P 5.000 ___850 Balance of Investment account P10.500 / 115%) P10.500 x 3) P 6.000 x 35%) P 500 (dr) P 2.000 6-10: b Salas Salve Balance before profit distribution Profit share:Sabas (P10.000 __4.500 Total P 4.500 Joint venture profit before fee to Salas P11.

000 ( 375) ( 4.500 P20.500 Settlement to Dante (balance of JV Cash account) Debits: Balance before cash settlement Due from Edwin Credits: Due to Ferdie P30.500 Balance P39.Joint Venture 105 Settlement to Ferdie (Balance of capital account) Debits: Credits: Balance before profit distribution Profit share P –0– P16.300 __4.150) Final settlement to jack P 8.000 14.000 Joint venture profit before fee to Jerry Joint venture profit after fee (P6.800 Isaac Capital P 1.600 __2.500 P19.800 3.600 __6.000 300 __4.000 1.475 . end (P8.000 P 600 6-14: d Harry Capital Balances before profit distribution Profit distribution: Harry P6.300/2) P18.000 x 50%) Isaac (P6.150 Gross profit (loss) Expenses (P400 + P200) Net profit (loss) P14. beg (contributions) Freight Purchases P14.000 Goods available for sale Merchandise inventory.500 _20.600 / 110%) Fee to Jerry P 6.000 + P8.000) Loss share (P750 x 50%) Unsold merchandise taken (withdrawal) P13.150 (150) __600 P( 750) 6-16: c Contributions to the Joint Venture (P5.000 __9.000 x 20%) (P 200) Cash settlements P 2.000 __4.200 P 3.500 Due to Ferdie (credit balance) _20.000 6-15: b Sales Cost of sales: Merchandise inventory.000 6-13: a JV account balance before profit distribution (cr) Unsold merchandise (required dr balance after profit distribution) P 4.

000 200.000 105.000 Investment in JV Merchandise inventory 90.000 .000 105.000 90.000 155.000 Distribution Joint Venture Profit from JV Ablan capital Ablan capital JV cash Cash JV cash 30.000 100.000 Credit balance (Profit) P 30.000 JV cash Joint Venture Books of Ablan 60.106 Chapter 6 SOLUTIONS TO PROBLEMS Problem 6 – 1 Books of Blanco (Manager) JV Cash Joint Venture Cash Ablan Capital 100.000 20.000 105.000 15.000 P200.000 15.000 105.000 90.000 155.000 200.000 Computation of JV Profit Total debit to JV Total credit to JV P170.000 Joint Venture JV cash 20.000 Joint Venture JV cash 60.000 90.000 Investment in JV Profit from JV 15.000 Cash Investment in JV 15.

000 Cash 82. 4.000 9. 6. Computer equipment Ella capital Fabia capital 105.000 Sales 5.000 Income summary Merchandise inventory Purchases 77.000 Expenses Cash 30. 2.000 Merchandise inventory Ella capital 20.000 11.000 Purchases Supplies Diaz capital 80.000 30.500 Income summary Expenses 39.000 20.000 Adjusting and closing entries: (a) (b) Expenses Supplies Sales 500 500 150.000 150. 8.Joint Venture 107 Problem 6 – 2 Books of the Joint Venture 1. 3.000 11.000 39.000 11.500 Distribution of profit: Income summary Diaz capital Ella capital Fabia capital 80.000 Expenses Diaz capital 9.000 .000 45. 150.000 Fabia capital Cash 10.500 2.000 Income summary 150.500 33. 7.000 60.000 10.000 2.

000 Books of Fabia: (1) (2) Investment in Joint Venture Computer equipment 45.000 Books of Ella: (1) (2) (3) Investment in Joint Venture Computer equipment 60.000 11.000 .000 To record profit share: Investment in Joint Venture Profit from Joint Venture 11.000 To record profit share: Investment in Joint Venture Profit from Joint Venture 11.000 45.000 Investment in Joint Venture (3) 10.000 60.000 11.000 Cash 10.000 11.000 20.000 Investment in Joint Venture Merchandise inventory 20.108 Chapter 6 Books of Diaz (1) (2) (3) Investment in Joint Venture Cash 82.000 To record profit share: Investment in Joint Venture Profit from Joint Venture 11.000 9.000 Investment in Joint Venture Cash 9.000 82.

000 1.000 .000 14.500 1.500 1.000 To record profit distribution: Joint Venture Profit from JV Bueno capital Castro capital 6.000 15.000 3.000 500 10.000 9.000 2.000 9.500 30: JV accounts receivable Joint Venture 16.500 9.000 27: JV cash Joint Venture 16.000 9.000 30: To record unsold merchandise taken by Duran: Merchandise inventory Joint Venture 3.000 26: Joint Venture JV cash 12.500 JV cash Bueno capital 10.000 To record settlements: Bueno capital Castro capital JV cash Cash Accounts receivable JV accounts receivable 12.000 June 30: JV cash JV accounts receivable 15.000 24.000 2.Joint Venture 109 Problem 6 – 3 (1) No Separate Set of Joint Venture Books is Used Books of Duran (Manager) May 1: 7: Joint Venture Castro capital Cash 12.000 2.

110 Chapter 6 Books of Bueno May 7: Investment in Joint Venture Cash June 30: Investment in Joint Venture Profit from Joint Venture Cash 10.000 .000 2.000 Investment in Joint Venture 12.000 12.000 15.500 16.500 Cash 10.000 9.000 2.000 9.000 2.000 16.000 Investment in Joint Venture (2) 14.000 Sales 9.000 12.000 Books of Castro May 1: Investment in Joint Venture Merchandise inventory June 30: Investment in Joint Venture Profit from Joint Venture Cash 12.500 9.000 A Separate Set of Books is used: Books of the Joint Venture May 1: 7: Merchandise inventory Castro capital Duran capital 12.000 Accounts receivable 27: Cash 15.000 10.000 500 Bueno capital 26: Purchases Cash 30: Accounts receivable Sales June 20: Cash 10.000 12.000 14.000 2.

Joint Venture

111

June 30: Closing entries:
Sales

25,000
Income summary

Income summary
Merchandise inventory, end
Merchandise inventory
Purchases

25,000
19,000
3,000
12,500
9,500

Distribution of profit:
Income summary
Bueno capital
Castro capital
Duran capital

6,000
2,000
2,000
2,000

Settlements to Venturers:
Bueno capital
Castro capital
Duran capital
Merchandise inventory
Accounts receivable
Cash

12,000
14,000
2,500
3,000
1,000
24,500

Books of Duran (Manager/Operator)
May 1:

Investment in Joint Venture
Cash

June 30: Investment in Joint Venture
Profit from Joint Venture
Cash

500
500
2,000
2,000
2,500

Investment in Joint Venture
Books of Bueno and Castro (Same as in No. 1 requirement)

2,500

112

Chapter 6

Problem 6 – 4
(1)

Books of Seiko (Manager/Operator)

April 1:

May:

June:

JV Cash
Notes payable – PNB
Roles capital
Timex capital

August:

34,000
34,000
34,000

Joint venture
Cash
Rolex capital

64,100

Rolex capital
JV cash

30,000

Joint venture
Cash
Rolex capital
Timex capital
July:

102,000

16,300
7,800

30,000
111,400
37,400
64,700
9,300

Cash
Rolex capital
Timex capital
JV cash

40,000
15,000
10,000

Joint venture
Cash
Rolex capital
Timex capital

55,770

Cash
Rolex capital
Timex capital
JV cash

45,000
67,000
13,500

Joint venture
Cash
Rolex capital
Timex capital

30,600

65,000

13,970
31,240
10,560

125,500

9,730
16,560
4,310

To record sales:
JV cash (P421,000 x 96%)
Joint venture

404,160
404,160

Joint Venture

113

To record payment of loan to PNB:
Notes payable – PNB
Rolex capital
Timex capital
Joint venture (Interest expense)
JV cash

34,000
34,000
34,000
8,000
110,000

To record distribution of profit:
Joint venture
Gain from JV (30%)
Rolex capital (60%)
Timex capital (10%)

134,290
40,287
80,574
13,429

Computed as follows:
Total debits tot he JV account
Total credits to the JV account

P269,870
_404,160

Gain (credit balance)

P134,290

To record settlement:
Cash
Rolex capital
Times capital
JV cash

32,687
128,874
14,099
175,660

Computations:
Settlement to Rolex - Balance of capital account:
Debits: June
July
August
Payment of note payable

P30,000
15,000
67,000
_34,000

P146,000

Credits: April 1
May
June
July
August
Profit share

P34,000
47,800
64,700
31,240
16,560
_80,574

__274,874

Credit balance

P 128,874

560 4.874 __14. 2008 Books of Seiko (Manager/operator) Current assets: Investment in joint Venture: Joint Venture assets: Cash Joint Venture Less: Equity of other venturers (P116.500 _159.114 Chapter 6 Settlement to timex – Balance of capital account Debits: July August Payment of loan P 10.000 P 57.000 .429 _71.000 9.000 125.300 10.500 Balance of JV cash Less: Settlement to Rolex Settlement to Timex P128.660 Settlement to Seiko (2) _142.500 __34.500 + P43.599 Credit balance P 14.687 Partial Balance Sheet June 30.000 65.000 _330.160 Credits: June July August Payment of loan P 30.973 P 32.099 Settlement to Seiko – Balance of JV cash account Debits: April 1 Loan proceeds P102.500 _110.000 _175.800 87.700 34.500 Credits: April 1 June July August Profit share P 34.310 __13.099 175.500 P247.160 P506.000 _404.300) Current liabilities: Notes payable – PNB P 72.000 13.

000 Consolidated Income Statement Sales Cost of sales P246.800 __64.400 Balance P175.300 Problem 6 – 5 Consolidated Balance Sheet Cash Receivables Inventory Other assets P 61.000 102.500 Timex capital P34. 2008: JV Cash April 1 P102.500 __40.000 P30.Joint Venture 115 Computation of balances as of June 30.500 50.500 Total liabilities and stockholders' equity P326.000 47.750 .000 __58.000 122.750 _124.000 96.000 P146.000 April June P43.000 __9.750 Gross profit Operating expenses 122.000 Rolex capital April June P 30.500 Notes Payable P34.100 _111.500 Total assets P326.000 Joint Venture June May June P 64.000 Balance P 72.000 Accounts payable Other liabilities Capital stock Retained earnings P 61.000 _______ P 34.500 April 1 May June P116.000 _118.700 P 30.250 Consolidated net income P 63.

000 . Aug 1: Cash 1. 400.000. 307.Mortgage 21.000 Mortgage payable Cash Purchased land for cash and 6% mortgage.116 Chapter 6 Problem 6 –6 (a) Journal entries on venture books June 15: Cash 1.000 MacDo Additional contribution at 6%.Mortgage Cash Reduced mortgage and paid interest.000 Mortgage payable 200. 250.000 Mortgage payable Interest expense. Land 1.000.000 8.000 750.000 Cash Paid for improvements.Mortgage Cash Reduced mortgage and paid interest.000 MacDo Initial contribution at 6% July 1: Land 1.500 221.000 2.750 Mortgage payable Interest expense.000 1. Sept 30: Oct 31: Nov 30: Dec 31: 950.Mortgage Cash Reduced mortgage and paid interest.100.000 Cash Reduced mortgage and make semi-annual interest payment.100. 300.000 3.000 Mortgage payable Interest expense.650.400.500 253.000 950.000 7.750 408.000 Interest expense.

000 Investment in Joint Venture Cash Additional contribution.000 from June 15 to December 31.mortgage Interest.venturer Income summary To close income and expense accounts.650 Income summary MacDo MacEn To divide gain.000 Sales Sales to date.600.000 Commissions Cash P2.000 .000 x 5% 130. 596.600. (b) 801. and on P1.100 130.000 628.600. 60:40.000 from August 1 to December 31. 1. 31: 31: 1.Venturer MacDo 6% on P1.100.000 60.000 40.650 596.660 Cash Payment on account.100.000.650 238.Joint Venture 31: 117 Cash 2.000. 1.000 628.250 60. Sales 130.650 Journal entries on MacDo’s books: June 15: Aug 1: Investment in Joint Venture Cash Initial contribution.000 596.100 Interest expense.000 2.000 1.000.145.000 Expenses Cash Paid expenses 628.100.650 MacDo 801.100 60.000 Land (cost of land sold) Expenses Commissions Interest expense.600. 31: 31: 31: 31: 2.000 1.

650 357.340 238.118 Chapter 6 Dec 31: 31: 31: Investment in Joint Venture Interest income Interest earned on cash advanced.100 40. 2008 Assets Cash Land Total Assets P 250.660 P2.990 Cash 801.000 950.000 60.000 P3.000 P2.000 P 628.000 .250 60.990 238.650 x 60%) MacEn (P596.000 1.990 Investment in Joint Venture Repayment in part of advances.000 2.205.650 P 357. (c) 801.650 x 40%) P2. 357.660 Mac Do and MacEn Joint Venture Balance Sheet December 31.205.455.145.000 1.000 130.455.000 Liabilities and equity: Mortgage payable MacDo MacEn Total liabilities and equity P 500.400.650 MacDo and MacEn Joint Venture Income Statement For the period from June 15 to December 31. 2008 Sales Cost of land sold: Land Improvements Total Unsold land Gross profit Expenses: Advertising and office expenses Interest on mortgage Interest on advances Commissions Net gain Distributions: MacDo (P596.000 P2.000 1.716.600.350. 60.455.000 Investment in Joint Venture Gain on Joint Venture 60% of gain on venture.350 P 596.000 2.000 858.

660 (130.000 786.955.650) P1.000 P 357.660 P 596.650 60.660 368.650 (931.000 417.100.990 2.716.340 130.000 368.517.Joint Venture 119 Venturers equity (interest) Invested Shares: Gain Interest on advances Commissions Total Balances Withdrawn Equity (interests) MacDo P2.660 .000 P238.100.990 (801.886.650) P1.650 2.990 60.000) P238.000 MacEn Total P2.000 130.

000 7-2: d 7-3: d (P15.000 P 20.000) 7-4: a Realizable value: Current assets Land and building Less mortgage payable P 50.000 x 25%) P 30.000 x 75%) P120.000 6.500 Total amount received P 32.000 __2.000 Total amount received P186.000 P143.000) = 56.000 7-5: c Total realizable value to unsecured creditors (P90.000.500 Amount realized secured by inventory Unsecured claim (P88.000 + P200.000 .120 Chapter 7 CHAPTER 7 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 7-1: c Amount realized secured by inventory Unsecured claim (P10.000 __40.000 __8.000 _200.000 _160.000 Total Less accounts payable 90.000 __66.000 _110.000 P240.000 P 34.000 Estimated deficiency to unsecured creditors P 70.25% 7-6: a Free assets: Current assets Buildings and equipment Total Liabilities with priority: Administrative expenses Salary payable Income taxes Total P 33.000)/total unsecured Claims (P160.

000) Total Liabilities with priority Free assets after payment of liabilities with priority (P126.000 / P280.000 7-7: c Free assets: Other assets Excess from assets pledged with secured Creditors (P116.000 – P42.000 __24.000) Unsecured creditors Total P 80.000 P280.000 P 74.000 / P183.000 __46.000 P108.000 P 84.000 P126.000 – P70.000) Unsecured liabilities Notes payable Accounts payable Bonds payable Total 121 P109.000 = 60% Payment of notes payable: Value of security (land) 60% of remaining P30.000 P 42.000 P183.000 – P50.000 Total collected P 50.Corporation in Financial Difficulty – Liquidation Free assets after payment of liabilities with priority: (P143.000) Unsecured liabilities: Excess of partially secured liabilities over pledge Assets (P130.000 P 80.000 _200.000 __18.000 = 30% Payment of partially secured debt: Value of pledged assets 30% of remaining P80.000 Recovery percentage: P84.000 Total collected P 90.000 – P34.000 83.000 .000 Percentage of Unsecured liabilities to be paid: P109.000 __70.000 P 30.

000 ____60% Cash needed for these liabilities P198.000) Unrecorded liabilities: Interest expense Administrative expense Estate deficit P 15.000) P 250 4.000 – P180.000) Excess liability of Debt Two in excess of pledged Asset (P170.000/P70.000 x 60%) from the free assets.000 going to the unsecured debts of P330. This 60% figure would insure that the holder of Debt Two would get P100.000) can be paid with the remaining P198.000) _( 4.000 In order for the holder of Debt Two to received exactly P142.000. the liabilities with priority (P110. 7-9: c Estate equity.000 + P250) P 31.000 ( 25.000 ( 4.000.000 – P100.000 (45. the company must be able to generate enough cash to pay off 60% of the unsecured liabilities (P42.000 __70.250 .000 from the pledged asset and P42.000 (40.000) P230. beg.250) P( 14.000 – P85. the other free assets must be sold for P308.000.000.000 – P75. With that much money.000 (P70.000).000 from the sale of the pledged asset.000 30.000) Estimated amount available Unsecured claims (P45.250) 7-10: c Total assets at net realizable value Fully secured liabilities Estimated administrative expense P 75.000) Loss on realization (P100.250) Estimated deficiency to unsecured creditors P 14. Since the holder wants to receive P142.000 out of the total debt of P170. (P100. Unsecured liabilities: Unsecured creditors Excess liability of Debt One in excess of pledged Asset (P210.122 Chapter 7 7-8: a The holder of Debt Two will receive P100.000) after paying 100% of the liabilities with priority (P110.000 Total unsecured liabilities Necessary percentage P330.

P57.200 4.000 ( 16.660) P 64.340 _55.940 19.18.000 .P7.65) 7-18: d Estimated loss: Account Receivable Inventories (28.000 .P72.000) X .000 .000 3.000 X .000) Equipment (5.000 + (8.2.65)] .160 9.000 _160.000 P 30.P30.000 _130.000 55.000 215.22.340 P 9.000 7-13: b Notes Payable Less: Inventories Unsecured Liabilities % of recovery Recovery Add: Inventories Amount to be received by Wood 7-14: a 7-15: a 7-16: b 7-17: d _ P 23.000 __20.500) Building (59.200 [52.600 5.50 Amount to be realized P 10.897 .000) Goodwill Prepaid expenses Less: Stockholder's equity Common stock Deficit Estimated deficiency 3 P 8.000 .10.697 _19.500 7.200 P 22.000 .000 X .000 .600 .000 7-12: b Machinery Recoveries of unsecured claims (50.000 P180.Corporation in Financial Difficulty – Liquidation 123 7-11: b Assets pledged with fully secured creditors Fully secured creditors Free assets Total free assets Less: Liabilities with priority Available to unsecured non-priority claims P185.650 ___430 P 72.740 ____78% 3.800 (112.000 __35.

500 __69.740 7-20: b P33.500) Inventories (87.350 .16.910 77.000 .513 P180.000 __72.000) Total estimated loss P 23.000 P12.750 950 __39.61.800 P112.PNB P 15.000 .500 __1.124 Chapter 7 7-19: d Accounts Receivable (39.000 P 2.500 X 67%) Unsecured Creditor with Priority Unsecured Creditor without Priority (103.500 P 71.250) on Land and Building 7-21: d Total Free Assets: Balance of Assets Pledged to Fully Secured Creditor (95.850 .100) Prepaid expenses Equipment (48.700 16.188 .500 Notes Payable __51.675 14.PNB Add (2.250 67% 7-22: d Fully secured (Notes Payable) Partially secured: Notes Payable . 110) Notes Receivable (18.750 ÷ P106.240 600 42.750 X 67%) Total P 90.750 (95.500 .100 __9.500 103.650) Net Free Assets Divide by Unsecured creditors: Balance of Partially Secured Creditor Notes Payable .110 45.910 ___6.000) Free Assets: Cash Accounts Receivable Inventories Equipment Total Less: Unsecured liabilities with priority (1.250 Estimated recovery % P 5.90.800 .45.175 6.500 Accounts Payable 52.000 Notes Receivable __12.12.410 2.9.850 + 4.

000 1.500 35.000 – 10.102.000 12.500 367.500) Total Free assets (157.950) ( 43.059.000) Loss on realization: Marketable securities (12.000 10.000 – 52.800) P( 6.700) (257.Corporation in Financial Difficulty – Liquidation 125 7-23: a Unsecured creditors without priority Estimated deficiency to unsecured creditors: Loss on realization Estimated liquidation expenses Total Stockholders’ equity Net free assets Liabilities with priority Free assets P1.000) Estimated deficiency P 35.950) 7-25: b Notes payable (175.000 Old receivable New receivable Marketable securities Sales of inventory Total asset realized P 7-27: a 21.125 122.800) .375 441.500 + 210.500 75.000 96.250 55.500) Trustee’s expenses Depreciation Net loss 15.000 47.000) Unsecured liabilities (420.300 16.750) (301.000 165.500 P 1.000 P153.000 P206.625 7-24: a Estimated net gain (loss) on realization: Gain on realization Loss on realization Estimated claims Total Stockholders equity Estimated deficiency 78.500 7-28: a Gain on sale of inventory (P75.375 937.net Total assets to be realized P 38.000 367.000 7-26: a Old receivable (net) Marketable securities Old inventory Depreciable assets.000 – 140.000 (21.750 (336.500 4.500 402.000 60.500 551.125 606.700) 295.000 – 60.750 P( 5.

.....800 ........ receivable ..... .................500 _20................. ..000 (B) Creditor Group Amount of Claim Unsecured liabilities with priority .0% 96......... ...............000 60..400 20............000 * P18.............126 Chapter 7 SOLUTIONS TO PROBLEMS Problem 7 – 1 (A) Laguna Company Statement of Affairs October 31........... 46...... 50........ P21.........000 + (P3................................000 Supplies . Estimated deficiency to unsecured creditors (to balance) Creditors' Liabilities & Stockholders' Equity Claim Fully secured liabilities: P50.250 Percentage to be paid 100..........400 Partially secured creditors......000 Fully secured creditors ..............................000 .....250 * 59. P7.........000 Unsecured creditors without priority .75) = P20.......... . P18... Plant assets .....................250 (C) See statement of affairs in requirement (A) Free Assets P17.....................000 Unsecured creditors without priority: 60................. .... P 7..... P198............... Mortgage payable (including interest.... 19... P198.000 Unsecured Liabilities P 3.................... Notes payable .............. Wages payable P 5.......000 ..........000 50....................500 __7...500 P82.000 ..000 ..........000 19................... .400 Less.................. ....... .000 .........400 Assets pledged for partially secured creditors: 39... Notes payable ..000 Book Value Free Assets: Cash.........................000 Amount to be Paid P7...........000 4.........................000 .........000 ......000 P61..000 _51..200 ........000 Accounts...........500 P68.............. ..........................000 Less: Inventory................................................ Inventories..... _ 50... _18... 2....... 46. Less: Unsecured liabilities with priority..............500 Total free assets ...................400 Partially secured liabilities: 21..............4% 75........... Stockholders' Equity....... ......... Net Free Assets....800 1............... Property taxes payable ...... Fully secured liabilities ......000 . Accounts payable ........ P400) P50............................400 ....000 _____– P82.000 Unsecured creditors with priority: 5..... _1..............................000 X 0.... P 4.. 2008 Book Value Estimated Assets Realizable Value Assets pledge for fully secured creditors: P107..................200 Total ............ P67................ 79........ __1.0% 100................... 21.0% ................

.......... 2008 ..............000 Equipment .300) P 100 ( 26......................000 Loans payable ................ ___6.... 8....200 P213....... Estate deficit............... _13.................................. P85..............000 Assets realized: land.....000 Accounts payable .... 43...........000 Total ........................700 P 72................ 2008 Cash ....000 ( 26.....000 Loans payable ... January 31........ Total ................................ 28...000 Patents .................................... ............ _13...........400) P(26........ P10........... 10......000 Liabilities not Liquidated: Accounts payable ..........000 33......................... P 0 Building .......300) VC Corporation Balance Sheet January 31..... P 66........................ P10............700 VC Corporation Estate Deficit January 31... P 7.....000 21.600 ( 6.........................Corporation in Financial Difficulty – Liquidation 127 Problem 7 – 2 VC Corporation Statement of Realization and Liquidation Month Ended January 31................................ Loss in realization ...... P213..........700 Land .................... Estate deficit ..........................800 66.......... 2008 ..600 Total ...000 99. Trustee's expenses ... P14...........000 P20............... 0 Equipment ................ ................. __7. P 72.................................... 2008 Assets to be realized: Land ... 43................. _12.................800 Patents ............. P80...................... Loans payable ....000 Loss on realization ........000 Building .. ................................000 Liabilities to be Liquidated: Accounts payable .000 Equipment .. Estate deficit................ P 6...................000 Equipment ....000 Assets not realized: Land ......................................................000 120............ __4............ _40...400 Assets Acquired ......300) ..000 Loans payable ... 43...................000 Building ...... January 1............. Net gain on realization............................... 2008 Gain on realization ........ ................400 0 Liabilities Liquidated: Account payable ........000 Building .....200) ( 1......000 Gain on realization ...................................... 66.................. ___7................................................. 33.................

....... 1.. Trucks ....000 ........000 – P189.. 32....000 P189................000 _______ Creditors' Claim Unsecured creditors with Priority: Wages payable ........000 .................................000 0 2........................... 45.. .........000 ...................... ...................................000 1............. 36........000 27. ......... Total Free Assets ...... Equipment ...............000 ...................... 50..... Less: Unsecured liability with priority (12.. ...........000 ............... ................. P 59....................... Total ............................... Land and building ...000 Unsecured creditors: 77.................................000) ...........000 .......000 50...000 P 55..................................... P 292. Assets pledged to partially secured creditors: Accounts receivable (80% x 30........000 3.. ... 8.................................... Estimated Realizable Value P102...................000 .000 25................ Intangible ............ .......................000 .................... Prepaid expense ..................000 43....000) Net free assets .... Truck Loan ....000 ....................... 8...000 .. ....................500 187..... ........... ...... 110........................................ Mortgage payable ............... Stockholder Equity .......... ..........000 .......000 ................... Free Assets 77..................... ................................ Totals....................000) ......................... 16...000 3... .....500 25......................... ..................... Less: trucks ...................... 12..........................000 144....000 110....... ......... .....000 ...............500 Partially secured creditors': Bank Loan ..000 .................. 25.... Total unsecured liabilities .................... Totals....000 20....... Accounts payable .......... ( 38.000 108..... 8..........500 P128...000 ...................000 5.... 4................... 12................................................................ Trucks . ....500 20... ....000 + 8.... ..........000 .....................000 Total ........................................ 50......................... 5...000 6.................................500 27.........000 P 1...128 Chapter 7 Problem 7 – 3 Rizal Corporation Statement of Affairs Book Values Assets Assets pledged to fully secured creditors: P 80......000) .................. Less: Loan payable ............. AR (20% x 30.....................................000) ...............000 8.... Taxes payable ... Book Values Liabilities and Equity Fully secured creditors: P 43............000 24......................................................................................... Stockholder Loan ....... ________ Estimated deficiency to unsecured creditors (to Balance) P 292........500 Unsecured Liabilities 94............500 12.......... 5...............................................000 ...... Inventory – Materials ........ Less: Mortgage payable ...................................000 50..... Free Assets: Cash...... Finished Goods ........ ..........................500 81.......500 ...........000 ..........000 64..... Loans payable .............000 ............................... Less: Receivable (80% x 30... .......000 24........................000 4...000 .

....... __12............. Accounts receivable .... .......... Less: Unsecured liabilities with priority.. 291....................................Corporation in Financial Difficulty – Liquidation 129 Problem 7 – 4 Mapayapa Corporation Statement of Affairs November 1 Book Value Assets Assets pledged to fully secured creditors: P60......000.......839.......... _889.............................................. Capital stock __369..........500 Merchandise inventory....................... 108.............................................839...........000 Accounts receivable ..300 P966.... ........................... P 66.....000.......... 960..............000 Total ................... Unsecured creditor: Account payable................ Total .............000..... ..... ..................800 P960.......................000......000.......................300 ................. _________ P1.............000 Total free assets...... ...............000 240.000.000...................... 330..........................600 P 13.... ...... 248............ 870...........800 919............. Notes payable ... ....000 P 7........000...............000 6.............. 300............ P1.........000 Plant & equipment ......... Net free asset ....... Estimated Realizable Value P210.....................000 Free assets: Cash............................000............ Total .......... 180............. Total ........ ............000 171... Unsecured creditor with priority: Accrued wages ........000 Free Assets P 69...........................000 Notes receivable ....................300 Patent..............000 210...300 Creditor's Claim Unsecured Liabilities Book Value Liabilities & Equity Fully secured creditors: P 210... Less: Note payable ................. 180.......... ...... 193.........000 P 30... .............000............... Investments ..........................000......................................................200 ___6..000 60...................... ............ Accrued property tax......... .......... Accrued expenses........ Retained earnings ..................800 906....... 66....................800 __13........ –..............300 _______ P966............. Estimated deficiency (to balance) ... 114....

..815 _231. Percent Realized 55.500 P 91.. P 70............ 9................... 125.................993 ......000 Bonds payable (secured by land & building) ................000 c..000 38.........500 ––––––– = 55..000 ...130 Chapter 7 Problem 7 – 5 a...........000........000 ........500 Taxes payable........................................678 9............ Distribution of P471.................000 Bonds payable & interests 231.................................................45% 100% Total Payment P 52............. Less: Unsecured creditors with priority: Wages payable ...............000 __95............... 125...........000 __23...000 P470............... 14................. P 9...000 356..... 70.........000 ....... __14..45% P165............ Total claims of unsecured creditors ..... Less: Fully and partially secured creditors claim: Notes payable......500 .......000: Creditors Accounts payable Wages payable Taxes payable Notes payable & interests Amount P 95......000 Amount available to unsecured creditors......... Total fair value of assets (estimated proceeds) ..... P471.......45% 100% 100% 100% 55..000 P91..................000 125...500 Unsecured portion of notes payable and interests (P195-P125) Accounts payable ................000 P165.. interest (secured by receivable and inventory) ...................................000 Available to unsecured creditors.............500 14.......... 231.... b.........000 115............... Total estimated payment .....

............ ......6250 (P200................... ........... .000 Machinery – net .......... 40......... ..........................000 Total .000 __30.000 100....................................000 _130.........................000 120....000 80.......................................000 P220.........000 P1...000 Net free assets ...................................000...Corporation in Financial Difficulty – Liquidation 131 Problem 7 – 6 1................ No payment is made for the P10........... 126...000 140...............000).. P 80......000 P330...... Fully secured creditors Mortgage payable .000/P320...................000 30...........000 P1...000 ___ P330..... _ _____0_ Available for Unsecured Creditors P 10......000 330. ................000 Goodwill .000 Accounts receivable – net .. 300..................... 340....000 P140. P340......................000 100............000 LIABILITIES AND STOCKHOLDERS' EQUITY Secured & Priority Claims P120............................. ................................................000...........000) Retained earnings (deficit) .......000 unsecured interest claim................. 220..000 Estimated Realizable Values ASSETS Pledged with fully secured creditors: Land and building ...000 2... 2008 Book Values P460...000 Total ....000 __20................ Estimated deficiency (Squeeze figure) .......................000 100...000 Less: Mortgage payable (including accrued interest) (330...... Evergreen Company Statement of Affairs June 30.............000 20......000 _140..............000 300........000 Inventories ...........000 Liabilities with priority Wages payable ...................... Property taxes payable ......... 84... ............... P330..000 10.................... Less: liabilities with priority ........ .............. ...................... Interest payable-unsecured ..000 Total free assets ............. Settlement per peso of unsecured creditors is P.......000 100....... 200.................000 10. (200.......000 Unsecured creditors Accounts payable ................... Unsecured Non-priority Liabilities P120.000 Capital stock ................ Note payable-unsecured..............000) Free Assets: Cash .. Stockholders' Equity 400............................................... Interest on mortgage payable ..........................................

......000 2... .......400 Administrative expenses payable ...... 15..................................................000 80............................... 40..... Note payable....... .. Estate equity ............. ........200 Estate equity.... 16..........800 Estate equity.................................. Cash .....000 Inventories ...000 Intangible assets ...000 72........................................ .............. .... To record sale of inventories at a loss............... 33............... .... Buildings-net ............ ........... ...200 Inventories .. ...... Estate equity.000 40.. Entries on trustee's books.... ..................................... ...000 Buildings – net ......................... To accrue trustee expenses............000 Estate equity....... 52.............000 16.............................. 72.................................................. Wages payable................ To record collection of receivables and recognize loss............... P8..............................000 Intangible assets ................... ....000 Land......... Estate equity ............................. To record sale of land and buildings at a loss. ........ ..... 60..........................000 Land ............ 16. 200........................000 52....... Mortgage payable .000 16..... .000 200............ ...............Chapter 7 132 ____ Problem 7 – 7 1........................ ...................................... ..... .................. P100....................... 800 Accounts receivable-net .......................................000 160.... 52... ........ 180..... .........................................400 ...... To record custody of Kimerald Corporation.....000 Accounts payable ...................000 40.000 6............... 2008 March 1: Cash ....................000 Accounts receivable – net ............. ........... 38....................... .............. March 1 to 31: Cash .................. Deferred revenue ...... Cash ............................................... To write off intangible assets. ........... ........ ....

...............000 Estate deficit...................... ......... ...................................................... 2008 Cash balance.. Mortgage payable ......... ....... Revenue received in advance.......... Less: Loss on uncollectible receivables...... P242............ Wages payable ...... P364.............................. ....... 52.................... .....000 __16.................................... P 15..200 Loss on sale of land and buildings .....400 ......000 2...... ...........000 Kimerald Corporation in Trusteeship Statement of Changes in Estate Equity March 1 to 31................................ 2008 Assets Cash .. .............. ..... ...............400 _162.............. ............................400 P 40............................... Less: Estate deficit ......... March 31 ..................................... Administrative expense payable-new ....................................... 38.......................................................000 80......................................... 242.............. .......000 ____–0– Cash balance.400 Total liabilities ............. .. ................................... ..400 Total liabilities net of deficit ........800 Sale of land and buildings ................................000 Loss on write off of intangibles .......................... P 800 Loss on sale of inventories ................................ March 31................... .......000 Administrative expenses ............................ 2008 Estate equity.......... ...... 2008 .............. ....... March 1 ..... Add: Cash receipts Collections of receivables ..... Note payable-unsecured... March 1.... P242...................400 _122....... ......... .......... P122......................000 Kimerald Corporation in Trusteeship Statement of Cash Receipts and Disbursements March 1 to 31......................... _16.......................000 Total . 33... ............000 P 8.................................... .... 180. ..000 6... ..000 Liabilities and Deficit Accounts payable ........200 Sale of inventories............................................ ....... 60...................... 2008 ....... ...... 133 Financial Statements Kimerald Corporation in Trusteeship Balance Sheet March 31................ P242..... ....................000 _234... P100............ ....................................... ... Less: Cash disbursements ..000 160.................. .......................Corporation in Financial Difficulty – Liquidation 2.....................

.... . .000 Cash................. 25..................................000 Cash.............. 16...400 Deferred revenue .. Accounts payable ............000)......................400 Estate equity .........32 per peso to unsecured creditors (available Cash of P57.....................000 Wages payable .................. Chapter 7 Entries on trustee's books: 2008 April: Mortgage payable ..................... . Accounts payable .................. .........600 122............ Administrative expenses payable-new....... .......................... 160..................... 32. 54....................000 Note payable-unsecured.................... 160................ 68..................................... . ... ......... To record payment of secured creditors from proceeds from sale of Land and buildings..................................... To record payment of priority liabilities.....600 Cash........................400 ... 6.000 Note payable-unsecured......134 3.. ...........................600 divided by unsecured claims of P180. To record payment of P...... ......... 2............ ....... To write-off remaining liabilities and close trustee's records..........................400 57..........000 24...................... ...........................

000 P400.000 x P9) Cash (P62.000 45.000 _500.Reorganization and Troubled Debt Restructuring 135 CHAPTER 8 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 8-1: a Trade accounts payable (P52.000 No gain no loss P –0– .000 shares x P100) P500.000 _50.160 Gain from discharge of indebtedness _100.160 P 14.000 __60.700 x P0.000 Extraordinary gain P110.000 P560.000 _510.000 Gain on debt restructuring P150.700) 12% preferred stock (5.000 x P1) Paid in capital in excess of par (5.000 8-5: d Other income Extraordinary gain: Book value of note payable Principal Interest Fair value of land P 90.000 8-6: a Book value of bonds payable Par value of preferred stock (5.000 _450.000 P660.000 + P62.80) P114.000 __60.540 8-2: c 8-3: c 8-4: b Carrying value of the note payable: Principal Interest Restructured value: Principal Interest P600.700 P 5.000 Other income: Fair value of land Books value of land P450.000 _110.000 P500.000 _360.

000 __30.000 P 30.000 P 4.000 x .000 Carrying value P330.000 8-8: a Carrying value of debt: Note payable Interest payable Fair value machinery Balance of debt Restructured debt: Note payable Interest (P50.136 Chapter 8 8-7: a Book value of notes payable: Principal Interest Par value of common stock issued (200 shares x P5) Additional paid in capital Add gain on payment of accounts payable: Book value Payment P 2.000 .000 P 2.000 Restructuring difference (gain) P 18.000 Gain on restructuring of debt: Carrying value of debt Market value of land P300.000 __8.500 ___500 P 3.000 _270.000 _270.600 P310.000 _(36.000 x 10% 30%) On restructured (P260.000 P 10.000 __12.000 P 50.000 P 20.000 Principal Interest payable (300.000) P 76.600 Restructured principal of note payable Interest payable: On book value (P300.000 P112.08 x 2) P100.000 x 10%) P300.000 Total gain on debt discharge __2.600 8-11: d 8-12: d Loss on transfer of land: Original cost Market value P290.600 Future cash flows to liquidate the debt __50.000 __58.000 x 8% x 2) P260.000 _41.000 ___8.000 __1.000 P 9.000 8-9: d 8-10: c Should be P310.

Reorganization and Troubled Debt Restructuring 137 8-13: a Transfer gain (loss): Carrying amount of equipment Fair value of equipment Transfer loss P80.000) Restructuring gain: Carrying amount of the debt Fair value of equipment transferred Restructuring gain P100.000 P100.267 Interest income at 12/31/07 (65.69005 = 9.499 x 12%) P 8.000 Carrying value of debt (P800.000) Restructuring gain P880.000) Total future payments (P700. 000 P(10.803 5.000 75.000 90.000 90.000) Gain on the extinguishment of debt (185.000 65.267 The interest revenue can be computed using the effective interest method as follows: Present value at 12/31/06 P65.000 x 8%) 5.600 x 1.000 Gain on revaluation of land (120.000 + 80.000 x .000 P100.000 + 80.000 – 85.000 P 25.232 Present value at 12/31/07 P67.499 Interest income at 12/31/08 (67.000 Carrying amount of real estate transferred Fair value of real estate Loss on restructuring of payables P100.600 2.000 8-14: d 8-15: d 8-16: c 8-17: a 8-18: a First determine the expected future cash flows as follows: 70.000 780.464 Present value of future cash flow P65.832 Interest receivable at 12/31/07 (70.000 75.100 .000 P 60.000 P(5.267 x 12%) 7.000) Carrying amount of liability Fair value of real estate transferred Restructuring gain P150.79719 = P55.000 – 120.000) Total gain P 35.

000 Cash P100.................................................................. To record settlement of liabilities.................138 Chapter 8 SOLUTIONS TO PROBLEMS Problem 8 – 1 Journal entries for company emerging from bankruptcy using fresh start accounting: – Receivables ................000 ...50...........................................000 36.......................... Gain on debt discharge .... 264..........000 Additional paid in capital 290.. ............................................................... Additional paid in capital....................... 100..................................000 Cash with escrow agent .......000 Common stock (P330.....000 x 10% x 3/12) ..000)................................. ......................... .. 123... 3....... 60............000 Gain on debt discharge 20.............................000 x 0.000 + P210....000 but the assets have a market value of only P700................10....000 50... Gain on debt discharge ..000 Reorganization value in excess of amount Allocable to tangible assets ......... 180......................000 Additional paid in capital...10.......... .....000 Inventory ............. .........000 + P400........................................000 x 80%) ............80) ....................000 Common stock 580................................................000 To adjust accounts to market value as part of fresh start accounting........000 Note payable – 10% 120..... 80.........60............................000 520............................... Liabilities .................. Costs of reorganization .....000....... ..... and account entitled Reorganization Value in Excess of Amount Allocable to Tangible Assets must be recorded for P60................000 Note payable – 12% .............................................. Since the company has a reorganization value of P760. .................000 Common stock (60.................... .........000 x P1) .. 300........000 Problem 8 – 2 2008 July 14: Costs of reorganization.000 Building .........................000 Trade accounts payable 100...............000 20....................................000 Retained earnings.................... 260. 50......................000 Interest payable (P120......000 (P90................

.......000 + P420. Total liabilities (P80.............. ..000 ...000 P330.......... ...... ................000 Problem 8 – 4 Preliminary computations: Book values prior to reorganization: Total assets (P100.......................... P582...............000 Long-term liabilities: Note payable (2006) ........000 Retained earnings (deficit) ............... ......... ..............000) ....000 Buildings ..000 + P78........000 + P100. ....................... __45.......... .... ....... ........000 Inventory ......................................000 + P112................................................. ... .... ... P582... P 23.000 + P200................000 _345....000 + P185..... .... 22........ 30..000) Total liabilities and stockholders' equity (deficit) .. .......... ...... .............. _170......... ..........000 P260................000 P240........000 + p35.................... ..... _154...... 2008 ASSETS Current assets: Cash .......... .. ....................000 605...... ..................... ... _100......................... ................... 140.....000 P800................... ..............................000 220.......................... P710................................................................................000 Accrued expenses ......................................... .....000 Property and equipment: Land ......000 Income taxes payable .... Deficit (given) .... 123........................000 + P200... ............ .....000 _514..... _ 200..000 Stockholders' Equity Common stock ......Reorganization and Troubled Debt Restructuring 139 Problem 8 – 3 Jade Corporation Balance Sheet December 31....000 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities not subject to compromise Current liabilities: Accounts payable ..000) .....000 Total liabilities......................... ............................. P100.. ............................................ Common stock (given) ...... Equipment .......................... ..... (223................................................ ....................000 Total assets ........... ................ ...........000 Note payable (2003) ............... P 60..... .......... P 68. 200............................... ... .......000 Note payable (due 2008) ......... . .........000 .......................000 Liabilities subject of compromise Accounts payable .......... .........................000) _(23...

. Inventory .....000 31........ 5........ P8 par value ....... Equipment ................................................................................. 4................................................000 –0– P200....................000 P340....................... 185............................ To record settlement of accounts payable.............. ..................................................................000 13......................................... ..........................000 + P4..............000..000 Reorganization Value in excess of amount allocable to tangible assets ..............000 shares outstanding after the reorganization...............667 3... Gain on debt discharge .......................... Common stock........ .. the additional paid in capital equals P6........000 but the assets have a market value of only P735.......... 45................ Deficit (eliminated) ............. ............ 20............... .............. JOURNAL ENTRIES: 1........ 80...............000 To record shares turned in to the company by the owners as part of the reorganization plan.000 56.......000.. Common stock................333 Note payable ..... Gain on debt discharge ................................ To adjust accounts to market value as part of fresh start accounting............................................000 46.... an account entitled Reorganization Value in Excess of Amount allocable to Tangible Assets must be recognized for P45............. Additional paid in capital (P6........ Because the company has a reorganization value of P780....... 144............................................................... 200............... P6..................................................... 35........ ...........................................66 per share) ......... 6...................................000 8.............................. P8 par value ..000 + P110..........000 Note payable .............. Gain on debt discharge .................333 4....................................................... Accounts payable ...............................................................................................000 80............................................. P8 par value ................... Land and buildings ................................................000) ..140 Chapter 8 Book values after reorganization: Total assets (reorganization value) ..............................000 + P50...........................666 60............ To record settlement of accrued expenses.................... To record settlement of note payable due in 2008 71.....000 2.................................. Additional paid in capital (P6...........000 70.................. Additional paid in capital (squeeze) ..................................................................000 Additional paid in capital ................ 18..................................................66 per share .000 Note payable ................................... 3........................... ..........000 P240.............................66 per share) .... ................... P780..............................................000 + P100.................334 Accrued expenses.............................. Common stock ................................000 Accounts receivable .....000 Note payable ....... Common stock..... 144........66 per share.........000 Note payable ..........000 + P71...................000 66.................... ...................................000 Since the company will have 30..000 22......... Common stock (returned shares are reissued)............... Total liabilities (P5...................... To record settlement of note payable due in 2007 50................................................................................667 11....000 6................................. Additional paid in capital. ...................... . Gain on debt discharge ...........000 shares at P8 par value..............000 Note payable .......................... Additional paid in capital ............ 5...... 80.......

............................... Gain on debt discharge ........... ............ .......................................000 is reported as a Reorganization Value in Excess of Amount Allocable to Identifiable Assets...............200............... P 97... Intangible assets Patents .................... ...........................................................................000 Total liabilities.. 8. ............... ......000 399..000 Additional paid in capital (squeeze) ................. To record settlement of note payable due in 2009 110..........................................000 _111..000 _518.....................................000 Additional paid in capital (P334..............................................000 Note payable (due in 5 years) .............. ........................000 but only P653.... 330.. P 35. ................... P500.... Since the Company has a reorganization value of P800............................................000 Retained earnings (deficit) .................. P800...................................................000 _121..........000 _185....... ..................000 278..........000 Total assets ................................ Reorganization value in excess of amount allocable To identifiable assets P 18....................... Long-term liabilities Note payable (due in 2 years) .........000 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable .196........ Note payable ...........................................................000 To adjust additional paid in capital to appropriate balance.................................000 P129..........000 P800................................... .......... ........ .......000 Total liabilities and stockholders' equity ............ Inventory ....................000)................. ...................... ... ................... .......... ............ ........................................ P282. ............ ................ .000 _147..........134...........000 90................................. ...................... ....................................... ..............Reorganization and Troubled Debt Restructuring 141 Problem 8 – 5 7............000 .................... ......000 Note payable (due in 8 years) .. _100....... and eliminate deficit balance as part of fresh start accounting...................................... Property and equipment Land and buildings ............000 _272....... .....000 Stockholders' Equity: Common stock ...... .............................000 can be assigned to specific assets based on market value.......................000 Gain on debt discharge .........................000 – P200...........................000 125....... ....000 Note payable... __18..... close out gain............................. 50.. ...... 2008 ASSETS Current assets Accounts receivable ............................................ ................ the remaining P147.............. Machinery............... .... Sun Corporation Balance Sheet – Fresh Start Accounting December 31................................................

142

Chapter 9

CHAPTER 9
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
9-1: d
Deferred gross profit, Dec. 31 (before adjustment)
P1,050,000
Less: Deferred gross profit, Dec. 31 (after adjustment)
Installment accounts receivable, Dec. 31
P1,500,000
Gross profit rate
____ 25% __375,000
Realized gross profit, 2008
P 675,000
OR
Installment Sales (P1,050,000  25%)
P4,200,000
Less: Installment account receivable, Dec. 31
__1,500,00
Collection
P2,700,000
Gross profit rate
___X 25%
Realized gross profit, 2008
P 675,000
9-2: a
Deferred gross profit, before adjustment
Deferred gross profit, end
2006 (6,000 X 35%)
2007 (61,500 X 33%)
2008 (195,000 X 30%)
Realized gross profit, December 31, 2008
(Total – P107,235)

2006
P7,230

2007
P 60,750

2008
P 120,150

2,100
20,295
P5,130

P 40,455

___58,500
P 61,650

9-3: c
Deferred gross profit balance, end
Divide by Gross profit rate based on sales (25%  125%)
Installment Accounts Receivable, end
Collection
Installment Sales

P 202,000
____ 20%
P1,010,000
___440,000
P1,450,000

Sales
Cost of installment sales
Deferred gross profit
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000)
Gross profit rate (300,000  1,000,000)
Realized gross profit
Operating expenses
Operating income
Interest and financing charges
Net income

P1,000,000
__700,000
P 300,000

9-4: b

P 600,000
___X 30%

__180,000
P 120,000
___80,000
40,000
__100,000
P 140,000

Installment Sales

143

9-5: a
Market value of repossessed merchandise
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000)
Less: Deferred gross profit (50,000X20%)
Loss on repossession

P 30,000

P 50,000
___10,000

__40,000
(P 10,000)

9-6: a
Installment sales
Less: collection on installment sales
Installment account receivables, 12/31/08
Gross profit rate (500,000  1,000,000)
Deferred gross profit, 12/31/08

P1,000,000
__200,000
800,000
___X 50%
P 400,000

OR
Deferred gross profit (1,000,000-500,000)
Less: Realized Gross Profit (200,000 X 50%)
Deferred gross profit, 12/31/08

P500,000
_100,000
P400,000

Fair value of repossessed merchandise
Less: unrecovered cost
Unpaid balance
Less: Deferred gross profit (200,000 X 32.5%)
Loss on repossession

P120,000

9-7: d

P 200,000
___65,000

_135,000
(P 15,000)

9-8: b
Realized gross profit:
Collections:
Downpayment
Installment received (205,000-200,000)
Total
Gross Profit Rate (150,000  240,000)
Realized gross profit
Gain (loss) on repossession:
Appraised value of repossessed merchandise
Less: unrecovered cost
unpaid balance
less: deferred gross profit (200,000 X 62.5%)
Gain on repossession

P 35,000
___5,000
40,000
_X 62.5%
P 25,000

P165,000
P 200,000
__125,000

__75,000
P 90,000

144

Chapter 9

9-9: b
Sch.1

Date
Apr-1
Apr-1
May-1
Jun-1
Jul-1
Aug-1

Collection
750
625
625
625
625

Applying
to
Interest

Applying
to
principal

125.00
115.00
104.80
__94.40
P439.20

750.00
500.00
510.00
520.20
___530.60
P2,810.80

Gain (loss) on repossession:
Market value of repossessed merchandise
Less: unrecovered cost
unpaid balance of principal (sch. 1)
less: deferred gross profit (4,189 X 35%)
Loss on repossession (rounded)

Balance
of
principal
P7,000.00
6,250.00
5,750.00
5,240.00
4,719.80
4,189.00

P 1,875
P 4,189
__1,466

Realized gross profit:
Collection applying to principal (sch. 1)
Gross profit rate
Realized gross profit

___2,723
(P 848)

P2,810.80
__X 35%
P 983.78

9-10: c
Year of Sales
2007
2008
Deferred gross profit (Sales X Gross Profit Rate)
2007 (P300,000 X 30%)
2008 (P450,000 X 40%)
2007: Accounts written-off (P25,000 X 30%)
Realized gross profit (P100,000 X 30%)
2008: Accounts written-off, 2007 (P75,000 X 30%)
Accounts written-off, 2008 (P50,000 X 40%)
Realized gross profit, 2007 (P50,000 X 30%)
Realized gross profit, 2008 (P150,000 X 40%)
Deferred gross profit, 12/31/08 (P75,000)

P 90,000
P 180,000
( 7,500)
( 30,000)
( 22,500)
( 60,000)
( 15,000)
________
P 15,000

( 60,000)
P 60,000

9-11: a
Deferred gross profit, 2007 (P1,050,000 - 735,000)
Realized gross profit, 2007 (P150,000 X 30%)
Deferred gross profit, 12/31/07
Realized gross profit, 2008 (P390,000-90,000) X 30%
Deferred gross profit, 12/31/08

P 315,000
( 45,000)
270,000
( 90,000)
P 180,000

750 ___5.000 P 5.000 X 3) P 30.000) Realized Gross Profit __20.000 Gross Profit Rate: Sales Overallowance Net Sales Cost of Installment Sales Gross Profit Gross Profit Rate (15.000 X 30%) Deferred gross profit.000 2008 P450. 10/1/07 P 24. December 31.000 _15.000 P 25.000 ___6.000  P3.000 P 85.000  75.000) ( 8. 2008 Add Interests Total Revenue P 600.000 20.000) 2007 P 480.600.250 4.000 X 40%) Realized gross profit.000 P 1.000 __300.000 P 500.200.750) .000 ( 252.000 X 7) ( 7.000  2.000 P 15.000 ( 270.000) P180.000) ( 180.000 X 40%) Realized gross profit.250 __3.Cost of Installment Sales) Realized gross profit.Installment Sales 145 9-12: a Deferred gross profit (Sales .000 9-15: a Wholesale value of repossessed merchandise Less: unrecovered cost Unpaid balance: Sales.000 X 15%) Overallowance Realized gross profit: Collection: Downpayment Actual value of merchandise-Trade In Installment collected (5. 2007 (6.000) P 75.000 _X 20% P 8.000 _60.000 X 25%) Loss on repossession P P 9.000) Realized Gross Profit.000 ( 10.000 Collection.000) Deferred gross profit (9.000 P 40.000) Collection.000 9-13: c Trade-in value Less: Actual value Estimated selling price Less: reconditioning cost normal gross profit (25.750 (P 2.000 P 10.000) _______ P 48.000 __2. 12/31/08 (P228. 2007 (P450.000-P300.000 9-14: c Collection excluding interest (P900.000) Gross profit rate (P1.000 X 33 1/3% 200. 2008 (P900. 2007 (P630. 2008 (1.

000 Cost to be recovered P4.625 .000 __540.000 P 7.375 __46.000 P1.500 P 23. 9-20: d Regular Sales Cost of regular sales Gross profit on regular sales Add: Realized gross profit on installment sales 2007 (25.000 X (33 1/3%  133 1/3%) Realized gross profit on installment sales P 76.000 600.800 P 1.500 P 75.000 X 50%) 2008 (62.740 Collection: 2007 Downpayment 2008 Installment collection Interest Total P 600.551 P 249 9-17: a Deferred gross profit.890 P150 _189 ___339 ___1.400  P2.000) Multiply by gross profit rate (P734.000 .P16.740.000 __52. before adjustment Deferred gross profit.160.875 ___31.890 X 10%) Over-allowance P 1.500 X 55%) Total realized gross profit Operating expenses Net income.000) Deferred gross profit to be cancelled on repossession P 11.000.250 P 90. 12/31/08 P 187.500 X (30%  130%) 2008: P180.875 121.000 ___X 34% P 3.500 9-18: d Unpaid balance (P27.500 _34. end 2007: P32.000 P12.500 _45.500 __112.146 Chapter 9 9-16: a Trade-in Value (P300 X 6) Less: Actual value Estimated selling price (P315 X 6) Less: Reconditioning cost (P25 X 6) Gross Profit (P1. then no gross profit is to be recognized in 2008.000 9-19: b Since cost is not yet fully recovered.

600 24.000) 30% Total realized gross profit Loss on repossession Fair value of repossessed merchandise 54.800 35/135 P 97.000 86.000 1.400 ( 16.050.250 9-23: a Regular sales Cost of regular sales Gross profit on regular sales Realized gross profit on installment sales: Collections excluding Interest (312.70) 30.000 P151.000 x 70%) 70.000 Gross profit rate (270.000/900.200 376.575.500 1.500 796.250 P 341. 12/31/07 Gross profit rate on sales Deferred gross profit.000 160.050.000 1.000 525.800 127.689 9-22: a Regular sales Cost of regular sales Gross profit on regular sales Realized gross profit on installment sales: Installment sales (1.500 x 70%) Net income P1.575.137.2007.750 x 240%) Installment accounts receivable-12/31/08 Collections Gross profit on rate on sales Total realized gross profit Operating expenses (1.000 Total realized GP after loss on repossession Less: Operating expenses 72.000 140/240 612.000) Installment (40% x 628.625.000 Installment accounts written-off (44.000) 230.137.000 P157. 12/31/07 P785.000 2.400 102.400 246.000 1.000) Installment accounts receivable 2007.000)288.600 .000 x .Installment Sales 147 9-21: a Installment sales – 2007 Collections: Down payment (20% x 785.000 – 24.000 Less: Unrecovered cost (100.800 Net operating income Interest income Net income P375.093.200 408.000 251.000 215.

480 116. Deferred Gross Profit–2008 ......... 104.480 Deferred Gross Profit–2006 39.000 Cost of Installment Sales .......39 = Total RGP P 5....38 = P71........736 2008 – – 121.200 – 9..38 = P21.....000 64....939 29...369 121........ Inventory .000 73.520 21.. Realized Gross Profit .................000 X ... – Installment A/R–2008 .000 68..120 X ......460 29.. 66.553 2008: P15......440 57...38 = P26... – Installment Sales ..066 29........................736 2007: P29..190 5..920 X ......780 – – 21...810 145......000 Cost of Installment Sales ....480 68.. 2007 73.369 .......730 46..440 Installment Sales......440 – 47....700 10.. Installment A/R–2008 ...939 29.... 64..553 73....200 X ......... Interest Revenue ...550 121.520 Deferred Gross Profit–2007 – Deferred Gross Profit–2008 – Deferred Gross Profit–2006 ..230 27..... 64...41 = Total RGP P11.........987 P40..730 P46.920 _ 24..230 X .000 26.........000 Installment A/R–2007 ............... Installment A/R–2006 Installment A/R–2007 .680 76....700 10...480 Cash .. Deferred Gross Profit–2007 .000 15..810 125.980 – 116. 104..148_ Chapter 9 SOLUTIONS TO PROBLEMS Problem 9 – 1 Journal Entries: 2006 Installment A/R–2006 ..810 – – 47.41 = P76.487 – 40.560 – 11..000 – 116. 104.........066 29...120 71....736 Computations: 2006: P57.680 X ....000 68...

........................... Installment Sales ................545 44..000) ................................ 45...............000 – P36.........5025) .412.........................................................500 – P60...............767 86. 3...............................000 + P5................... Notes Receivable–2008 ............................080 52....538 = P24........................................500* 5...000) ................ Deferred Gross Profit on Installment Sales–2007 (P26....... 44...........................545 Cost of Installment Sales ..........................020 11................... 16.............. ..................................................5025 x 32............................................080 Inventory ...........062* Realized Gross Profit on Installment Sales ...........000 29...................000 = P29.............................................020 Cash ...................955 Cost of Installment Sales (P52........................... 52... 3......................167 + P3............................412 x ...........................................................................833) ............200 43...600 43....912 Total discount at time of sale .................................... Installment Sales .............000 inventory increase) .... P11.. 11........ Cash .................4323 x (P29.579 = P1...500 Notes Receivable–2007 (P62..........000 + (P50..............................................9552 77..........633 16........................................ 35...............500) – P26..............................500 44.....25% (P43...............600 Notes Receivable 2007 ... 86.................... ...................... Deferred Gross Profit on Installment Sales–2008......................Installment Sales 2007: 2008: Problem 9 – 2 Inventory ...........912 Discount on notes receivable at end of 2008 . P 8.....................................................................200 35................................912) = P11..............................588 Discount on Notes Receivable–2008 ..... Deferred Gross Profit on Installment Sales–2007 ...........833 43...... 160................ Unearned Interest Revenue 2007 ..................................5001 Unearned Interest Revenue ...600 3................................. 97.................................020 Inventory..................633  P86...167 – P5.........................................................062 149 45...................329 p .......................000 – P1.................................................................. Deferred Gross Profit on Installment Sales–2007.....................020 33....................................................................... 3..................................... Installment Sales .................. *Gross profit percentage: 50... Notes Receivable–2008 ..200 10....... * P89.......................000 + P62........................................020 – P8..912 Interest Revenue ...........043 Interest revenue from 2008 notes (see above)............. P24................ Cost of Installment Sales (P45......................588 Interest revenue from 2008 notes: P5...................... 43.........588 = P3.............................................................. 77..............................500 – P1........200 Cash . 55.. 12..................833 Cost of Installment Sales .......... Notes Receivable 2007 (P32..267 Deferred Gross Profit on Installment Sales–2008 ....................600) ................525 23......080* Realized Gross Profit on Installment Sales ....................500 Discount on Notes Receivable–2007 .... 1.............................500 – P3................................................................ .........200 – P2........... 89....................600 Interest Revenue ..200 Inventory................... Cash ..500 *2007 Notes receivable collected in 2008 2Interest revenue from 2007 notes: P7............................020 26...600) .............................................................000 = P16.....................................000* = 89..... Installment Sales ...............000 + 3........600 Unearned Interest Revenue (P7.........

.........................................500 1.........................000 210........................ Doubtful Accounts Expense ..........................................500 96......... ..............000 114........... Cost of Installment Sales .............................. contracts rec'l................. Realized Gross profit ................................................................... Closing Entries: Sales ...................000 16.............................000 x 42%) ...... Cash .........000 560...... 2006: Gross profit rate = Deferred gross profit.............................................................................................. Cash .......000 86...........000 40.......................................................................... Realized Gross Profit ....................000 210.................900 1................... Cost of Installment Sales ......................................................................................................................000 Journal Entries: Accounts Receivable ....................................................................................................................................................................... Deferred Gross Profit – 2006 (P40....................................000 114............................................ Accounts Receivable................. ................................................... 1/1 P24.........................000 ––––––––––= P200. Deferred Gross Profit – 2008 (P110............000 1..........000) ...000 240............000 114........ contracts rec'l.... Income Summary ...................000 110....... December 31 .................................................. 1/1 ––––––––––––––––––––– = Install........ Purchases .................................000 600............................................................................................. Sales ......................................000 200. ...000 ––––––– = P60..... ................... Selling Expenses ........................ Installment Contracts Receivable – 2006............900 96..................600 47......................000 200................................000 210............................ Adjusting Entries: Installment Sales ............000 260................................................................................... Income Summary .....400 143.......................................... 2...................................... Deferred Gross Profit on Installment sales – 2008 ......900 143.....................................................................000 ––––––––––––––––––––– = ––––––– = Install.......000 33...................................... ......................... 1/1 P140.................. Selling Expenses .............................................000 80... .......................................... 43% 600.............................000 476.................................... Installment Contracts Receivable – 2008 ............................300 96.......000 114........000 x 40%) . Installment Contracts Receivable – 2007..................................................................................................... Shipments on Installment Sales ......... Shipments on Installment Sales .......................000 42% 2008: Gross profit rate Gross profit =––––––––––––– Installment sales = P86..................000 200. 1/1 P24................. Installment Contracts Receivable – 2008........... Doubtful Accounts Expense (1/4 x 1% x P600....................................................................... Merchandise Inventory....................................................000 40% 2007: Gross profit rate = Deferred gross profit.500 600..................................................... ...........000 x 43%) ......500 46.............................000 790................ Merchandise Inventory.............................................................. Purchases .........400 ........000 476...............................................000 476......... Cash ....... Income Summary ....................150 Chapter 9 Problem 9 – 3 1.................. .. Allowance for Doubtful Accounts ........... Installment Sales .... Retained Earnings .............. Deferred Gross Profit – 2007 (P80........... January 1 ...

............................................................................................................ Total Liabilities ................600 P 47................................................... Deferred gross profit on installment sales – 2007 .................000 40% P16.................................... Net income ............... Total Assets . 2006 P40...........................................................................................000 294.................... P600................. Less Shipments on installment sales ........ 2008 A s s e t s Cash ....000 P240...................................000 476.......... Cost of goods available for regular sales ...000 200........................................ Installment contracts receivable – 2007 ............... Equity: Capital stock ..000 1........... Add Realized gross profit on installment sales (Schedule 1) ................................... Allowance for doubtful accounts .......000 3.000 96............................. ...........................900 211................. Cost of goods available for sale ............................................... Good Buy Mart Income Statement Year Ended December 31............................. Purchases .................000 258.. Total realized gross profit ...000 90.. Gross profit on regular sales ...................... Deferred gross profit on installment sales – 2006 ............. Merchandise inventory.................................................500 20...................................................... P144............................................................. January 1 ......... Other assets ... Deferred gross profit on installment sales – 2008 ......000 P110..........000 716.........................500 342........................... 4...............000 602.............600 P832..................................................................................400 Schedule 1 Collections ........000 210............................. Retained earnings .................................................................500 Liabilities and Equity Liabilities: Accounts payable ............................................... Installment contracts receivable – 2008 .......................................................................... Total Liabilities and Equity ...............700 131....................000 42% 43% P33............................. Multiply by Gross profit rate ..........................900 Good Buy Mart Balance Sheet December 31...........000 P 62......................Installment Sales 3................................................. Operating expenses: Selling expenses........... Less Merchandise inventory.......................................500 .....................................000 260......200 38......000 260..................................900 354.........................900 P406..................000 P832.............000 25.............................................................000 8............ December 31 ............................... Installment contracts receivable – 2006 .........................500 P143............................. Doubtful accounts expense ............................................. 2008 151 Sales ..........................................................................................................000 Years of Installment Sales 2007 2008 P80..... ...... Cost of sales: Merchandise inventory.................300 Total P 96................. Realized gross profit ...............600 700............................000 114... ...... Accounts receivable .................................. .................000 60.............................................................500 58......... P 60...................

Loss on Repossession ...500 52..... ......................500 –––––––– P150................................................................500 –––––––––––––––– P150..... Retained Earnings .................................... 2008 ..................... Total P 40........ Less Credit representing repossession ......300 Total realized gross profit ......000 P150...............300 400 Total realized gross profit after adjustment for loss on repossession .. Less Loss on repossession...........................................900 ............ Less Installment contracts receivable.......... Income Summary .....................................................900 Sales ...........900 20................................................900 66....... 2007: GP rate = Deferred gross profit....................................................... Realized Gross Profit .. 12/31 .............. 1/1 ––––––––––––––––––––– Install........................................................... ........................ Multiply by Gross profit rate ............... ..........300 212...900 40.................... . 3....300 400 165................... 52....................... P48............................................................................................. 2........................ 1/1 .........................900 Apple Company Income Statement Year Ended December 31..................................... ... P14.......... 47................................. Realized Gross Profit ................. Selling and administrative expenses ................ Deferred Gross Profit.......... = = = P22.......000 P150.................200 –––––––––––––––– P24............................. ........... P76..400 25................................000 66......................000 4.............. Cost of sales ............. Income Summary ........................... Cost of Sales .. 2008 ...............000 76...............000 97............ ................900 20........................................ 86.......................000 35% Realized gross profit ........... 2007 ........................000 = 35% 150......... ............000 40.........................................000 + P52..................... 87...... 1/1 2008: GP rate = Gross profit –––––––––––––– Installment sales = = = P21.... .......................................................................... Deferred Gross profit......... 2008 Sales .......... Cost of Installment Sales ..... ...000 Total credit for the period ...............000 20...............................................000 74.........................................................................600 + P1....000 – P97.......000 40....000 24................. Selling and Administrative Expenses .... .........400 P 25............ ....................................................000 Gross profit on regular sales ...................................................................................................................................................... P 20...........................................500 14.... .....................300 Computation: 2007 Sales 2008 Sales Installment contracts receivable........................000 – Credit representing collections ..........000 Installment Sales ...152 Chapter 9 Problem 9 – 4 1........................................................................000 30% P 74.............................000 Net income ................ Add Realized gross profit on installment sales (Schedule 1) ..000 165............. contracts rec'l...........800 ––––––– P76..... P212..................000 = 30% P52...................... Deferred Gross Profit...........................................

....... 80.......................000 DGP............000 25..........100) *2007 Gross profit rate= ––––––– = ––––––– = ICR.000 ___ – P 25......... Credit representing collections .. Less Installment contracts receivable............. Realized gross profit .. Cost of Installment Sales ............900 Total P40.... 54.................................000 _ 36....700 (26..................... Total credit for the period ................................................... 1/1 P82......... 2007 Sales P82...400 2008 Sales P150.......600 + 2....... Less Credit representing repossession..000 74.... 2007 ...............000 __6....600  P80.....400 54.. 12/31 ...............000 (36..................... Shipments on Installment Sales...000 __35%* P14.. Multiply by Gross profit rate . 2008 ................Installment Sales 153 Problem 9 – 4 Schedule 1 Installment contracts receivable.000 + 40....... 1/1 . Deferred Gross Profit......600 Gross profit = P25........000 22...............................000 54.... Cost of Installment Sales ..................000 P40.000 35% P 25...000 52....000) Total P 22................................ 2008 .....000 35% ...................................................000 = 32% Deferred Gross Profit......... Realized gross profit .............................................. Multiply by Gross profit rate .............000 46............400 25.....000 + 6............... 2007 Sales P76 000 24..................000 8...........................................000 P48.. Realized Gross Profit .... Less Credit representing repossession ......... Deferred Gross Profit...........................300 Problem 9 – 5 1.000 30% P14.............................. Total credit for the period........................000 76...................000 ___32% P 8............. 12/31...............000 – P 74.... Less Installment contracts receivable. 14. 1/1 .......000 2008 Sales P 80.... Credit representing collections .............................000 4...400 Installment Sales ....................... 1/1 P28......000 _55........000 Computation: Installment contracts receivable................................

..000 188.................000 Repossessed merchandise ..........000 Installment P80.............. 2008 .......................... Purchases .. ..000 17.......... Chapter 9 Sales ..........600 8.......000 Cost of goods available for sale ................. Loss on Repossession ........................................000 ___900 14.........000 9......... .......................... Add Realized gross profit on 2007 installment sales ..........................000 17.......... December 31 ......000 900 53............. ......................000 85..................................100 84..................... 2008 Sales ..... P 60...................... 22................................ 31.....500 60............................ Income Summary .400 __900 P21................000 Income Summary .............000 Less Shipments on installment sales . January 1 ...................... Operating expenses ...........600 191.............000 P31............................154 2....400 14................... 243.................................................... 2008 ..................... Total realized gross profit ..............600 P 63........500 ................................... __3............................ _52................. Repossessed Merchandise ........... 180................000 52...600 71.... Retained Earnings ..................... Total realized gross profit after adjustment for loss on repossession ..... _54.........000 180......... Merchandise Inventory..... Income Statement Year Ended December 31......................................000 54............................000 89............ Net income .........................400 54..... Merchandise Inventory.000 31........... Operating Expenses . Shipments on Installment Sales ....000 Purchases ..... 200...500 _53......................................000 22.... Realized gross profit.............................. January 1 .................................................................. Less Loss on repossession ...............................600 _136................................................ ..............000 Total P280.............................500 22................................ Regular P200....................................................................... December 31.......................000 Gross profit .............................400 25................. Less Deferred gross profit on installment sales...............000 3...................400 Cost of goods available for regular sales Less Inventory......500 PPG Discount Center.. Income Summary ................400 Realized Gross Profit ....... Cost of sales: Inventory......... Inc.......

................. Less Unrealized gross profit: On installment contracts receivable.........................000 P 220.....................................000 Amount P60......................000 52......................... Cost of goods sold ................000 260........ 3........... ........................... Less Merchandise inventory. Total realized gross profit after adjustment for loss on repossession ...000 312......000 14..................... Cost of goods available for sale ..........540 93............... ........000 12...... Total P480........ P 48........740 10....200 10...........000 65. ...................840 33................. 2008 Merchandise inventory.....Installment Sales 155 Problem 9 – 6 1....000 P 21...................................160 51. Repossessed merchandise .............................................. Add Realized gross profit on prior years' sales (Schedule 1): 2006 ..900 161..000 P 400..........000 P260................000 156..................... January 1 .......000 92.................. Charge sales ............000  120%  125% On Cash Price Basis P 60..... ..... Less Loss on repossession (Schedule 2) ..........000 238...................000 Ratio to Total 60/400 100/400 240/400 Allocated Cost P 39... 2... .900 85. Purchases ...000 Installment Sales P 300.. 14........ Installment sales .....000 120.......000 P260...... Cost of goods sold ....... Net income ......000 Cash Sales P 60......................... .............540 P 75. 2008 Cash sales ...............................000 100................... December 31 ..................................................000 39....12/31 (192................ 19..........200 151.....740 33.......160 127............ 2008 Sales ...........000 156..... ..000 P 55...000 P 58......000 P 144........000 65......................................000 x 144/300) Realized gross profit ... London Products Schedule of Cost of Goods Sold Year Ended December 31............540 Charge Sales P120.........000 240.000 London Products Income Statement Year Ended December 31........................................... ......................... Less Operating expenses ............................. .840 92.............000 300..........................................................700 Total realized gross profit ... Freight-in ................................200 2007 ....... London Products Schedule of Allocation of Cost of Goods Sold Year Ended December 31............. Gross profit .000 .............

..............767.......000 Schedule 2 Fair market value of repossessed merchandise .................... Less Credit representing repossession ........... December 31 ..............156 Chapter 9 Schedule 1 2006 Installment contracts receivable...800 __24....000 x 38............... Less Installment contracts receivable................................................000 1.............000 Cost of sales: Inventories.....................................000 28.....000 28...................000 10.....000 x 42%*) ........ _______– Adjusted installment sales ............5%*) ...000 __90.................. Less Unrealized profit – 2006 – P10.....................................200) Problem 9 – 7 1...200 P( 10..............000 Total P 14...............................210................. – Purchases (new) .. 2007 2007 2007 installment sales (P400..000 __6................... 2007 P80...................................800 Repossessed merchandise ...000  35% ....210.. 2007 – P28..............000 2007 P12.............. Gain (loss) on repossession ................................................... Realized gross profit ........ Multiply by Gross profit rate ...... P 168........270..200) 13............................................800 2008 P3..................000 _83.....................................................660 __215.000  40% ................. Less Unrecovered cost: Unpaid balance ........................... ________ Deferred gross profit .. Total credits ...000 420........... 1............ 2008 installment sales (P560.000 – P158....... 2007 – P56............................032............................... 2...............200 P160.....000 x40%..........100.........000 2008 P 72............... 4.............000 _10............................. Total collections...701...............................000 38....................................701...................... Balances ..000 ___40% P19........................................................................000 ____68...000 ..........................000 ___35% P 14.......000* 2.000 _3........... P 168...................000 2008: 2007 installment sales (P173....... 1.800 18...000 x35%...............................................000 P48...000 _22.. January 1 (new) ..............................000 58.......000)..............000 Less Trade-in allowances (P226......................260 *Computation of Gross profit percentages (see next page) 2007 Installment sales........000) 9.200 P( 6....................P2..........700 2006 P 2....................000 x 42%) ..............000 P(4.... January 1: 2006 – P32........000 70... – Cost of goods available for sale ..............000 P 42.........600 P 288...............

................240 971....000 P 83....................390 ___28. P 47........................000 x 40% =_44............................... *2007 : P195....670 Installment Sales P3............960 P 397....... Net income .................................. Operating expenses .......032.....864.....000 x 20% =P39.....100 Fortune Sales Corporation Income Statement Year Ended December 31........................... __50.....................330 990...... Less Uncollectible installment contracts expense.................................................................... 420....Installment Sales 157 Less: Inventories. P205...........000 x (100% – 42%)] .......281..... ......................167.....000 2008 sales (P110. P 39.............000 x 40%) .................000 Cost of sales ........................864.............000 Unrecovered cost – 2007 sales [P105.................000 Cost of sales ............170 920...................5% P 99...........000 x (100% – 38.............150 __247.......... 420.680 1.330 P 70..167.....................500 405..............214................. __44...430 Adjustment to Uncollectible installment contracts expense 42% 358.............. Realized gross profit on 2008 sales .....330 P 943. 60......060 __592.......... 2008 Cash Sales Sales .....800 Gross profit ..170 967.................000 x 20%) .... per books Correct Uncollectible installment contracts expense: Fair market value of repossessed merchandise – 2007 sales (P195.............150 ___51...........000 Gross profit .................................680 1........................................000 Uncollectible installment contracts expense.....022.000 __111....330 __28....................680 P1........ Add Realized gross profit on 2007 installment sales (Schedule 2) ............................... P 928............5%)] ... _158............................ Total realized gross profit after adjustment .320 _1..................................320 38..........237........000 P83.......000 _2...........000 Repossessed merchandise .................000 _1.....820 ____46.......... _______– Total ....................200 Gross profit percentages ..................................240 1.....018. December 31 – New merchandise........320 __247.......390 ___28...060 ___51............................. 1......320 Total Sales P3..............000 2008 : P110..........................900 2008 sales [P82................................... Total realized gross profit .000 Less Unrealized gross profit on 2005 installment sales (Schedule 1) ..

40 .......................... December 31 .. P 560.....000) to Lots 1................000 ......................000 36.................... Deferred Gain on Sale of Land .................................................................................... June 30 Cash ......000 _____42% P 51...........00 120..... Installment contracts receivable 2008 defaulted ................ Total collections................. Notes Receivable (Lot 2).... ..................... Lot 2 .............000 P120......................00 16...................................00 640................................................000............ Lot 2 : 2/3 x P240......................000.000................................. .......................00 720............... 2 and 3: Lot 1 : 2/3 x P360... ......080.. ....................................920 x 12% x 3/12) .000 __105.......................000 P 600......................000..........................................000...........................000 x 12% x 3/12) .............170 Schedule 2 Installment contracts receivable 2007................... .........000 ___82...........00 10.............................. ........ Notes Receivable (Lot 3) ........ December 31 ........................000 ___38........................000 P 122.............................................................158 Chapter 9 Schedule 1 Installment contracts receivable 2008......................000 __80...000..........00 200.. ................. Realized gross profit on 2007 installment sales..................000. ........................................... Total cost ..000 __173............................ Lot 3 : 1/3 ............ Cash ........ January 1 ..................................00 240... Multiply by 2007 gross profit percentage ............920.........5% P 247............. Multiply by 2008 gross profit percentage ................. ....00 160..................240 Apportionment of cost (P600............000 P 642. .................00 10...................... Total credits for the period .......000 Journal Entries for 2007 March 31 Cash ........000......60 5................. Interest Income (P358............ September 30 Cash .......... 1.. Deferred gain on Sale of Land ..................................000.... .............. Less Installment contracts receivable 2007..........232... Unrealized gross profit on 2008 installment sales .................000 160.. .....00 364....................000...... P 400.......000 227............................................ __200.......................................................... Notes Receivable (Lot 2).................. Lot 3 ............................00 16....................... Interest Income (P364.................. ...... . Total .767.......00 5..... Less Installment contracts receivable 2007 defaulted ................000............. .............................000................. Notes Receivable (Lot 2) ....... ................ 1/3 x P240..... P 240............................................

....... December 31 Cash ..........................000 – P96...................000 ......021.........000).........00 33. ...77 P126.800....00 Realized Gain on Sale of Land .60 x 12% x 3/12 59...............000  P360....687..00 240.......00 Lot 3 P50......000.......... Realized gain ..........00 Loss on Repossession ............. Lot 1 P78.......................................00 Deferred Gain on Sale of Land (Lot 3) (P640............................. 72.........00 Lot 2 P16......63 Lot 3 – P720.......760.............000.......200............ 3........000.. Lot 1 P12........000......00 60% _________ P31.....00 59............... Interest Income ................06 Lot 3 (80% x P200..37 6.....000.......................... 96........000 – P6.............00 P 6....00 Lot 2 Lot 3 P51... 31.568... ..240.....37 _43...............800) ... Lot 1 ........... P18.............................00 Deferred Gain on Sale of Land (Lot 2) ...................00 78................ 26..........000 .......632... 9.............000...............080.......................000.63 _________ P 5.........................00 x 12% x 2/12 Lot 2 – P353..240.....389.............................. Lot 3 – P640. P78...000  P840.........160.......... .......800......................570.......200.....00 5............33% _________ P26.00 ...............000...... Deferred Gain on Sale of Land ..000  P400.570.021.........00 5.000........... Multiply by Gross profit rates: Lot 1 – P120.... Notes Receivable (Lot 1). Notes Receivable (Lot 1) ....00 120..368..........701......Installment Sales 159 October 31 Cash ......... ...............................800..000..............00 10......00 6............00 713..610...368) .....................................................06 Computation: Collections applied to principal ........368.000.00 Notes Receivable (Lot 3) (P720..................................... .00 _________ P 6.................................................080.. Lot 2 – P240......06 Deferred Gain on Sale of Land (Lot 3) .........543...... 153.37 2.......................00 x 12% x 6/12 _________ Apply to principal .........429..63 Computation: Total Collections . _____76% P96......000............... Notes Receivable (Lot 3)........00 288..............................389...................469..............000 ................00 Deferred Gain on Sale of Land (Lot 1) ....00 Apply to interest: Lot 1 – P288........................ Notes Receivable (Lot 2)......240.

...............000 800...............................................000 9...................000 Installment Notes Balance P 2....... Number of Lots 80 100 120 300 Cost of tract: Cost of land ................000 P 8.000 221................................000 General office expenses (1/4 x P236...............................910 Schedule 1 A lots : 26 @ P150............. P 730...000 80...............250.............. .......253....000 6.000 x 20%) ........................................000 1. ... .......000 4......... ..........000 2..000 225.....000 100..................................227......................060..................... ................................. Cost of sales (Schedule 2)........................................................000 ––––––––––––––––––––– =–––––––––– Installment Sales P8.... Expenses: Advertising and promotion ............................ .......... ... .................................900 266.............................................................000 Sales manager's salary...000 P 5.............................................................................. .......000 Cash Received P1..650............. 2.......... Total ............................................................... ...172....000 P 1........... 120...227...000 Total Sales Value P12.......... etc........370...... ... .......................000 ........600.................................................................000 960.......000 Unit Price P150.000 600.060............. ....160 Chapter 9 Problem 9 – 9 Galaxy Investment Company Income Statement Year Ended December 31........900....................000 6.................300 177............600.........................................200 P6................. ................................000 Cost of sales (P8.....000 .... P 1...........612............................................................090 Realized gross profit ..................................800..........................054......000 240........................................... C lots : 12 @ P80.......000 720...........000 P2... Gross profit ...253.......000........................................ B ........................................................ ......... .................200............................... ... B lots : 32 @ P100...................370. General office expenses (3/4 x P236.....000 P 6..................................... Total ..000 P31.. Legal fees..............................................612................910 909...........690.................................. 2008 Sales Schedule 1) ...000 Net profit ..........................000 Schedule 2 Class A ...................600.... Grading contract................................... C ..200 Cost rate : –––––––––––– = 20% (rounded off) P31...145...................................... Gross profit ....060.................................... ....... Less Sales commissions .................... ........................000 3.....000............. P 4......................000 =67% x P6..448.......000 10.000 184..... Less Deferred gross profit Installment Notes Balance P5........ Total Sales Price P3...............................................000.......................000 P8.................000) .......... Paving contract ....000 ......... .... Water and sewerage system contract ..000) ............... 59..................................400.060.........................

....... Total realized gross profit... Less Deferred gross profit on 19x8 sales (P103.......................000 – P21........................... .................................... Multiply by average unit cost (Schedule 2) ......310 23. Average unit cost ..... ....... Cost of goods sold on installment (schedule 1) ..........100 31...............................250 65......................................... 2007 : P115.......................................................................................... 2008 Installment sales [(P14........ General and administrative expenses . Cost of goods sold on installment ............................... Less Loss on repossession (Schedule 4) ........................................ P 84........................................................000 x 33-1/3*..310 Schedule 2 Purchases during 2008 (P10................... divide by Number of units (8 + 4)...............830 P20..............000 x 35%* ..........................520 1 P 7...................................... Realized gross profit on 2008 sales ........................................ December 31 – Number of units on hand ......980 __50........................080 __33........020) *See Schedule 3 Schedule 1 Purchases (P10......................................................................690 __18....................................000 _40...520 _____12 P 7............................. Net income (loss).........000 __79.................................................................250 __60................................................................................ Add Repossessed merchandise ............ Repossessed merchandise..............................000 x 23%*) ...........................................000 ___2............................................. Add Realized gross profit on prior years' sales – 2006 : P60..................210 P 79............................................. Gross profit ..................300 x 7) + (P725 x 4)] .............................. . Cost of goods available for sale...........................Installment Sales 161 Problem 9 – 10 Rizal Company Income Statement Year Ended December 31.........................................................860 4... P103.........520 86............. P 84..............500 x 8) ................................................................... Less Inventory..........................210 .. ................................000 = P82.210 ___7...............000 ___2................................................................ ............... Total realized gross profit after adjustment .......520 P 86.... Total .........500 x 8) ...............................000 P(18............

......... P 2............. Less Unrecovered cost – Unpaid balance: Original sales amount (P14........000 _20.. P725 x 4 .... Sales ...........520 _7..000 100.100 __2........... ..........200 Total ....000 _____– 120.................000 P 98.................................. Gross profit .... Gross profit rates .................000 Collections prior to repossession........800 x 35%) ........................... 2006 2007 2008 P150...520 Cost of goods sold: Inventory.................. Repossessed merchandise .............................................................000 P280.000 x 4) ........................... 2007 : P14.......180 Loss on repossession .............100 ................................210 79............................................. .... P 56...............000 x 20 ............. __1.......................................................... 54........................ December 31 ...162 Chapter 9 Schedule 3 ............................000 33-1/3% 20...................300 x 7 .......................900 103..................................520 86...............310 P23.... Cost of goods available for sale ....000 – 120................000 35% – 84.........000 _____– 182......................... Purchases ................................................................000 _____– 182............................................ Schedule 4 _35....................................620 P33... Less Inventory.....000 _2.......690 23% Fair market value of repossessed merchandise...... _19......................................000 _______ 280.............................800 Less Unrealized profit (P54.................. Cost of goods sold . ............000 _______ 150........................000 162......... January 1 ........000 x 10 .... 2008 : P14.000 P 50...000 100.... Sales – 2006 : P15........

800.000 + 1.000.333 0 10-2: a P100.Long-Term Construction Contracts 163 CHAPTER 10 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 10-1: a Percentage of Completion Method: Contract Price Less: Total estimated cost Cost incurred Estimated remaining cost Gross profit estimated % of completion (200.000 __600.000 _3.600.200.000.000 _7.000 1.800.000 _8.000/4.000 P9.000 + 2.000) 10-4: b .000 ________– ___600.000/600.000) Gross profit to be recognized Zero Profit Method: P1.000 (P 100.000) 2008(6.000 10-3: a Contract Price Less: Total estimated cost (3.000 P 300.170.000 __33 1/3% P 133.000 400.600.000 900.900.100.000/7.100.000 Contract Price Less: Total estimated cost Estimated gross profit % of completion: 2007 (3.200.000 700.000 P 100.200.000.000.000 _400.000.000 1.300.800.000) Gross profit earned to date Less: Gross profit earned in 2007 Gross profit earned in 2008 P6.000) Estimated gross profit % of completion (3.000 _4.800.000 P 200.000/8.000 50% _________ ______78% 600.000) Loss P3.000 Contract Price Less: Total estimated cost (930.000 P 600.100.000 __600.000 _____75% 900.000) Gross profit earned to date Less: Gross profit earned in prior year Gross profit earned each year 2007 2008 P9.

000 Zero Profit Method: Cost incurred to Construction in Progress .000 _2.000 450.000 .200.000 __900. 2008 (4.000 P 32.33% 100.700.000 10-7: a Contract Price Less: Total estimated cost Estimated gross profit % of completion Gross Profit earned to date Gross Profit earned in prior year Gross Profit earned this year 2007 2008 P4.000 P 1.000 ___33.000 ___15.000 10.000 _3.880.164 Chapter 10 10-5: b Total cost to date.000 P 800.2007 P 10-6: a 900. 2007 Add: Cost Incurred Construction in Progress .000) Gross profit recognized.000/2.000 300.000/1.000 Percentage of Completion Method: Contract Price Less: Total estimated cost (900.000 P 210.000 _____20% ____100% 240.200.750.000 _3.000 1.000 ___900.000.700.500.000 P 240.000 X 20%) Cost incurred in 2008 P2.000) Estimated gross profit % of completion (900.800.2007 P3.000 50.000 450.000.000.200.000 X 60%) Less: Cost incurred in 2007 (4.000 _______– __240.800.000 = _____20% P 160.000 P4.000 10-8: b Collections: Contract Billings Less: Accounts receivable Collections Initial Gross Profit: Contract Price Gross Profit rate: Income recognized Divide by Construction in Progress Initial Gross Profit P 47.000 P1.980.

000 P 34.000 1.000 __360.000 10-10: b __300.2007 Less: Cost incurred .2007 (Refer to Q 10-10) Total estimated cost Less: Cost incurred to date .000 + 180.700.000) Less: Construction costs Gross profit recognized .000) _180.000 1.2008 Divide by percentage of completion .000 P 660.2007 P2.000)] ___X 15% Percentage of completion .2007 (P40.000 Gross profit rate [180.000 2.000 ___100% 160.Long-Term Construction Contracts 165 10-9: a Gross profit (loss) earned in 2008 Gross profit earned in prior years Gross profit earned to date .2007: Contract price P2. Refer to Q 10-10 solutions.000.020.2008 P 484.000-P244.020.2007 (refer to Q 10-9) Estimated cost to complete .000/(1.000 P 680.000.2007 P 180.000 __210.000 2008: Construction in progress (P728.000 1.2008 Less: Contract price Total estimated cost Less: Cost incurred .000 2007: Construction in progress Less: Construction costs Gross profit recognized .000 + P140.2008 Estimated gross profit .000 1.000 __300.000) Divide by estimated gross profit .000 10-13: d .840. 10-12: d Contract price Estimated gross profit .000 _820.2007 P 244.000 Gross profit earned to date .000 __384.000 60% 10-11: a.000 160.000 P 100.2008 Cost incurred to date .2006 Cost incurred in 2007 (P 20.000.020.

744.000 P 577.50.000 P 300.000 _2.000 624.000) Project 2 P 420.000 Profit earned to date Less: Gross profit earned in prior year Gross profit earned this year 2007 2008 P6.240 P 237.000 546.000) for project 2 only.040.50.120 P 146.000) Zero Profit Method .425.000 P5.000 777.744.000) _______– (P 50.000 884.000.315.144.000 __360.000 800.000 __66.000 P5.744.000 3.000 P 200.000 P 280.000 _____20% _____54% ____100% 240.000 __120.000 _3.240 __477.000)  5.960.400 ________– __200.000 2008 (3.120.2008 Estimated cost to complete Total Estimated gross profit (Loss) Percentage of completion Profit (loss) to be recognized Total is (P10.000 __350.500.000 P3.000 _1.000 P 240.000 1.000 (50.67% P 40.000 _4.000 ________– _2.500.The loss (P50. 10-15: a Contract price (cost X 120%) Less: Total estimated costs (1) Cost incurred to date Estimated cost to complete (2) Total Estimated gross profit Percentage of completion (1  2) Gross profit earned to date Gross profit earned in prior years Gross profit earned this year 2006 2007 2008 P3.80% 200.300.240 477.360 624.300.400 3.000 _1.000 P3.360 P 240.040.860.000.425.000 .000 .000 1.300.075.000 _2.000 25% ________– __59.000 60.400 .000 1.640 10-16: d Contract price Less: Total estimated cost Cost incurred to date Estimated cost to complete Total Estimated gross profit Percentage of completion: 2007 (1.000 P6.000)  5.166 Chapter 10 10-14: d Project 1 Percentage of Completion Method: Contract price Less: Total estimated cost Cost incurred to date .054.600.000 _______– __240.120.544.000 1.000 ___70.

310.000 __500.000 P2.000 Contract price Less: Total Estimated Costs (1) Cost incurred to date Estimated cost to complete (2) Total estimated cost Estimated Gross Profit Percentage of completion (1  2) Gross profit earned to date Less: Gross profit earned in Prior years Gross Profit earned this year Total Gross Profit 20 (P75.000 _______– P3.000 gross profit earned in 2008 for Apartment B.310.000 180.000 3.00% 75.000 2.800 P97.000 180.000 _______– ___75.520.000 2.Long-Term Construction Contracts 167 10-17: a Cash collections: Progress billings Less: Accounts receivable.33% _69.000 3.650.000 690.000 2.67% _83.520.000 2.000 _______– __187.560.000 2.000 P1.000 2.200 P 75.440.060.000 ___100% 3.000 1.500.000 P 600.000 1.300.000 P1.000 P1.000.000 150.000 10-18: d Percentage of Completion Method: Apartment A 2007 2008 1.000 .000 P 75.060.000 – 2.950.400.000.400.000 3.650.060.000 __200.340.800) Apartment B 2007 2008 2.000 240.000 P 22.000 Cost incurred to date: Construction in Progress Less: Gross profit earned Cost incurred to date P1.250.000 – 1.33% _100.000 P 240.000-P50.000 ____90% 3.800 Zero Profit Method .000 _41. end Collection P1.P210.600.620.300.000 210.000 + P22.000 P1.000 270.000 P 187.200.000. 10-19: d 2007 Contract price: 2007 2008 (P6.200 210.000 187.620.000 840.000 260.600.000) Less: Total estimated costs (1) Cost incurred to date Estimated cost to complete (2) Total estimated cost Estimated Gross Profit Percentage of completion (1  2) Gross profit earned to date Less: Gross profit earned in Prior year Gross Profit earned this year 2008 P6.440.000 _________ P5.

000 750.000 150. 2007 Gross profit earned.000 68% 680.000 4.625. 2006 2006 2007 P3.400.000.000 – 10-21: c Construction in Progress: Cost incurred to date.000) 100% 100% (100.000 5.000 60.000 P 225.100.000 2006 2007 P2.250.87% 71.000 Estimated gross profit 140.000 5.440.000 1.200.960.000 Percentage of completion (1  3) 68% Contract price Less: Total estimated cost Estimated Gross Profit Percentage of completion Gross profit earned (loss) to date Add: Cost incurred to date Construction in Progress Less: Contract billings Balance P6.000 P 880.000 780.000 1.600.000) – Gross profit (loss) to date Gross profit earned in prior years 225.000 P3.000 100.200.740.375.437.500 Schedule 1 – Computation of gross profit earned.000 P2.250.000 2.150.820.000 1.500 40% (125.000 2.53% – Total .000 1.800.000 3.950.687.250.000 3.000.000 2.100. 2007 (Schedule 1) Less: Contract billings.612.000 (20.000 6.000 6.000 – 6.000 1.000 5.150.000 6.000.000) (150.075.300.000.000 P 100.000 2.000.000.168 Chapter 10 10-20: a (1) Cost incurred to date (2) Estimated cost to complete (3) Total Estimated Costs 2006 P3.000 2.000 P2.000 Estimated gross profit (loss) % of completion 562.000 2.000) (150.000 6.500 Excess of Construction in Progress over Contract Billings (CA) P 287.000 Contract price Total estimated cost: Cost to date Estimated cost to complete 1.000.000) 5.000 P 650.360.400.800.000 Total Gross profit earned this year 10-22: a Contract price Estimated cost: Cost to date Estimated costs to complete 2005 P2.500 2.660.500 3.000 6.625.000 P6.150.000 98% 100% P6.850.000 – (125.150.000 P6.000 6.800. 2006 (P3.725.000 2007 2008 P5.000 (100.950.000) 225.000 380.000 x 75%) P2.000 5.000 1.000.080.000) % of completion 48.

000 P 140.000 2.400.000) Gross profit earned General and administrative expenses Net income P 135.000 Cost to date.000 120.000 P 10.000 1.000 45% 420.000) / P10.000 3.000 60% 200.000 10-24: c Contract price Gross profit earned to date.900.100.500. 2008 (P900.000 P 489.000 Project B P3.200.000 2007 P 255.480.000 – P100.000 –0– P 200.000) – 400.000 P 259.000 60.000) Total Less: Contract billings (P2.000) 90.000 1.680.000 2008 P 609.000 Gross profit earned this year(P609.000 Project C P1.000 1.000 + P900.400.000) 2008 Contract price Estimated costs Cost to date 2.000 1.120.120.900.000 960.000 1.000 91% 400.Long-Term Construction Contracts 169 10-23: b 2007 Contract price Estimated costs: Cost to date Estimated cost to complete Project A P2.000 1.360.000 Estimated gross profit (loss) % of completion 260.000.000 4.000 Total Estimated gross profit % of completion Gross profit earned this year (P255.000.000 100% (80.800.000 320.300.000 P 105.000 364. 2007 P 5.000 60% 10-25: d Construction in progress: Cost incurred to date Gross profit earned to date (P2.000 2.200.000) P10.500.760.040.000 1.000 x 30%) Excess of contract billings over construction in progress (CL) P 440.000 Project B P3.700.600.000.000 Total cost to date.000 105.000 110.280.100.000 (80.500.000 Estimated costs to complete Total Project A P2.000 Project C P 1.000 117.000 – P2.000 Gross profit earned to date Divided by % of completion: (P5.000 Project D P 2.000 1.000 25% P 60. 2008 Less: cost incurred in 2008 9.000 1.000 2.640.000 P( 200.000 3.000 –0– 1.000 100. 2007 P 1.700.000 900.000) .000 750.000.000 35% Gross profit (loss) to date Gross profit earned in prior year 260.000 P Estimated gross profit.000 550.000 800.640.000 560.183.100.000 140.000 P 90.440.000 120.

000 350.000 80% 200.000.000 150.000 20.000 50% P150.750.000 P450.000.000 200.000 300.000.000 150.300.000 55.000 250.300.000 144.2006 20.000.000 Contract 3 900.000.000 100.000 2008 Contract 2 450.000 10-27: a Cost incurred to date.500 P220.750.500 250.000 300.000 70.000 35% P70.000.700.000 5.000.450.000) = 40% 10-28: a Contract price Total estimated cost: Cost incurred to date Estimated cost to complete Total estimated cost Estimated gross profit Percentage of completion Gross profit recognized Contract price Total estimated cost Estimated gross profit Percentage of completion Gross profit earned to date Gross profit earned in 2007 Gross profit earned this year 2007 Contract 1 Contract 2 P600.000 3.000 P20.000 50.000 500.2007 Total estimated cost (8.000 CIP-2007 P237.000 10.000 20.000.000 8.500 162.000 Percentage of completion.000 300.2006 (8.000.000 87.000.000 45% P 9.000 36% 144.000 12.000 400.000.000 60% 90.000 150.000 30.000/ 20.000 Contract 1 600.000 8.000 / 40%) Estimated cost to complete Cost incurred in 2007 Cost incurred in 2006 Estimated cost at completion.000.000 .000 45.170 Chapter 10 10-26: a Contract price Total estimated cost: Cost incurred to date: Site labor cost Cost of construction materials Depreciation of special plant & equip Total Estimated cost to complete Estimated gross profit Percentage of completion (45/100) Gross profit to be recognized P120.000.2006 Total estimated cost.000 150.000 P12.

225.250 Est.983% P 907.500 175.312.750 1.000 875.825.875.000 8.500 1.000 1.500 Zero Profit 1.000 20% P 70.000 3.225.500 (87.000 Percentage of completion 1.500 50% P43.000 36.000 P437.400.000 87.830 . cost to complete Total estimated cost 656.250 218.312.000 28.000 350.750 Total cost incurred Total gross profit earned Construction in progress Less: Billings Due from (to) Davao Aklan P1.000 22.250 332.338.000 Total estimated cost Cost incurred 656.750 Percentage of completion 100% Gross profit earned P218.250 Estimated gross profit 218.000 350.Long-Term Construction Contracts 171 10-29: a Bicol Contract price P875.000 175.750 1.006.500) 10-30: a Contract price Total estimated cost: Cost incurred Estimated cost to complete Estimated gross profit Percentage of completion Gross profit recognized P40.475.006.250 332.006.000 700.250 175.750 Total 1.500 26.950.

250.000 _1.000 P(290.000) .000 P –0– Construction in Progress (cost incurred) Less: Contract billings (P5.800.172 Chapter 10 SOLUTIONS TO PROBLEMS Problem 10 – 1 (a) Contract Price Less: Total estimated cost (1) Cost incurred to date Estimated costs to complete (2) Total Estimated gross profit Percentage of completion (1  2) Estimated gross profit to date Less: Gross profit earned in prior year Gross profit earned this year (b) Contract Price Less: Total cost incurred Gross profit (c) 2007: Construction in Progress Cost of construction Construction Revenue 2008: Construction in Progress Cost of Construction Construction Revenue 2007 P 450.000 Problem 10 – 2 (a) (b) Construction Revenue Less: Cost incurred Gross profit – 2008 P1.000 320.000 _______– _320.000 x 30%) Billings in excess of related costs P1.000 P1.000 320.450.000.000 300.000) Contract price Less: Total estimated costs Cost incurred to date Estimated costs to complete Estimated gross profit Percentage of Completion (P1.000) Gross profit P5.250.000) Less: Contract billings Billings in excess of related costs P1.740.000 ______2/3 100.000 P 130.000 _______– P 100.000 200.000 Construction on Progress (P1.000 100.000 30.000 P 450.000 __320.000 2008 P 450.000 130.000 ___100% 130.000 350.250.000 800.800.000 __100.000 P(490.000  500.000 __300.000 3.000 200.250.000 _1.000 _____25% P 200.000 + P200.740.740.000 _1.000 __100.250.000 P 30.250.000 150.000 5.

000.33% 2006 P15.500.000 2008 15.000 (3) Cash Accounts Receivable 12.000 5.000.000.000 _____70% 3.000 P55.000 15.000.000.000.500.000 9.000.000.000 5.000 ______30% 1.500.000 ___11.000.000.000 __8.000 P 1.000.000 5.000 2007 2008 P55.000.000 ______50% ___83.000 2007 (1) Construction in Progress Cash or Payable 15.000 6.000.000.000 20.000 3.000 1.600 _2.000 12.000.000 50.000 5.000 2006 P 1.000 P 9.000 ___666.500.000.000 P 1.000 P 1.500.500.000.000 P55.000.000.000 10.000 P 1.000 _12.000 1.500.000.000 15.000 2007 2008 P15.000 P10.000 __5.000 15.000.333.000.000 (2) Accounts Receivable Contract Billings 15.500.500.33% 2000.11% 2007 2008 P 5.000.000.Long-Term Construction Contracts 173 Problem 10 – 3 2005 2006 P55.000.000 35.000.000.000 50.000.000.000.500.000 (4) Construction in Progress Cost of Construction Construction Revenue 1.000.500. Gross profit earned this year .000.000.000 (b) 25.000.000.000.000.000 P15.000.000 _2.000 Problem 10 – 4 (a) Cost incurred to date Divide by total estimated cost Percentage of Completion (b) Contract Price Less: Total Estimated Cost Cost incurred to date Estimated costs to complete Total Estimated gross profit Percentage of completion Gross profit earned to date Less: Gross profit earned in prior yrs.000.000 (a) Contract Price Less: Total estimated costs (1) Cost incurred to date Estimated costs to complete (2) Total Estimated gross profit Percentage of completion (1  2) Gross profit earned to date Gross profit earned in prior yr(s) Gross profit earned the year 15.600 ________– P 666.500.000 _12.600 5.000 16.000.000 50% 83.000 16.000 ________– P 1.000.000 _____50% 2.000 15.000 15.000 20.000 _3.000 25.000 _1.120.400 P 500.000.000.000 P11.000 __9.000.000 ____100% 5.000 11.500.000.000 _35.000.000.000 ________– 50.000.000.000 __2.11% 666.000 25.000.000.000 25.000.000 _50.000 15.000 50.000.000 4.000 _11.000.000.500.000.

800.900.000 ________– 13.100.500.000 ___71.000 Contract Price Less: Total Estimated Cost Cost incurred to date 6.100 P 409.100 6.000 Estimated cost to complete __6.000 ( 100.000.700.100 ________– P 309.000 2.600 1.000) P 200. Gross profit (loss) this year 2005 P 6.87% Gross profit (loss) to date 342.000 2006 P 6.000 13.085.000 _1.174 (c) Chapter 10 (1) Construction in progress (cost incurred) Cash 1.700.000 2007 P 6.000 ( 100.400.000 2007 2008 P14.000 _2.000) __309.325.410 1.000.000.150.300.500 314.000 ____100% 100.900.600 Problem 10 – 5 (1) 2005 P14.325.900.000.000 (2) Accounts Receivable Contract Billings 1.000 Construction in progress 342.000 ________– _6.000) _______– ( 100.000 _3.666.500 2.090 3.590 ___342.590 P( 314.172.842.000 _5.590 200.200.000.300.400.000 _6.000 Estimated gross profit 700.000 14.000 3.000.150.000 (3) Cash Accounts Receivable 1.000.100.000.000) ___214.000 .000.53% 214.000 3.900.000 1.000 ___150.000 Construction Revenue 6.090 P( 127.800.000 Problem 10 – 6 (1) Contract Price Less: Total estimated costs Cost incurred to date Estimated costs to complete Total Estimated gross profit Percentage of completion Gross profit (loss) to date Gross profit (loss) in prior yrs.500.000 ___61.200.900.100.590) 2006 2007 13.000) ________– ( 150.000 500.100 5.000) ( 100.000 1.000 (4) Construction in progress (gross profit) Cost of construction Construction Revenue 666.000 1.000 ( 100.000.000 100. ________– Gross profit (loss) this year P 342.000 ( 150.000 2008 Cost of construction 6.000 1.200.090 Less: Gross profit (loss) in prior yrs.000 9.000 Total _13.500) 12.000 P14.000 Percentage of completion ___48.000 300.090 127.090 (2) 2005 2006 P14.82% 309.000) _____100% ( 100.950.000) P 50.500.000 1.

000 5.000 (e) Contract billings 16.000 (3) Zero Profit Method: 2008 Entres (a) Construction in progress Cash / accounts payable (b) Accounts receivable Contract billings 5.600.000.500.140.000 6.998.250.600 P 498.500.000 50.000 (b) Accounts receivable Contract billings 5.709.000 ______58% 1.000 2.000 9.100 2.000 (d) Cost of constructions 4.000 2006 4.400 5.000.000 6.350.100.000 5.000 _1.600 (2) (a) Construction on progress Cash 2007 P16.650.000.000.100 3.500.550.500.000 5.000.000 6.000 5.000 150.000 2008 5.000 6.000 5.000 Construction revenue 5.600 4.500.640.000.100.250.250.Long-Term Construction Contracts (2) Cost of construction Construction in progress Construction Revenue (3) 175 2005 2006 3.000.200.400 606. P 545.000 4.600.000 1.145.000.250.000 Contract Price Less: Total Estimated Cost Cost incurred to date 4.000 __5.600. ________– Gross profit earned this yr.000.000 5.000 4.600 498.000 5.000 _____100% 1.800.100 409.240.000.000 Construction on progress 16.000 _14.400.000 Engineer's estimate of comp.400.000 4.000.250.000 P 606. ______31% Gross profit to date 545.000.000 4.000 5.000 2008 P16.000 Estimated gross profit 1.400.350.000 2007 4.100.044.000 Total _14.000 400.760.856.044.000 400.600 Less: Gross profit earned in prior yrs.000.000 (c) Cash Accounts receivable 4.000 309.000 6.000.000 __545.000 5.100.900 Cash Accounts Receivable Contract Billings Construction in progress 2007 200.000.600.000 _________– _14.650.000 1.000 Construction in progress 545.000 Problem 10 – 7 (1) 2006 P16.000 Estimated costs to complete __9.000 6.410 14.000 .000 5.

000 (e) Contract billings Construction in progress (4) 16.900.960.000 545.500.000) _(250.000) 6.000.000 _1.000 4.000 (250.000 6.821.000.000 _3.400 606. 2006 2007 2008 4.000) .850.850.100.500.150.000 (d) Cost of construction Construction in progress Construction revenue 5.600 6.000 5.000 ________– P 520.000) P( 600.000 The following entry would be the only one different from (2).850.000) ___520.000.720.000 _6.000 * Cost of construction Construction in progress Construction revenue * Total estimated costs x estimated percentage of completion.000 6.000 1.750.000 (350. 2006 P6. Problem 10 – 8 (1) Contract Price Less: Total Estimated Costs Cost incurred to date Estimated costs to complete Total Estimated gross profit (loss) Less: Gross profit (loss) in prior yrs.650.000 2007 P6.000 2.600 498.400 3. Gross profit (loss) this years (2) In 2008 when the project is completed.000 ________– _6.000 500.100.000 16.000 2008 P6.500.414.250.320.500.176 Chapter 10 (c) Cash Accounts receivable 6.250.000 4.000 P( 250.000 6.114.000 _6.

000.000 .Franchise Accounting 177 CHAPTER 11 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 11-1: b No revenue is to be reported.000 520.200.000-500.000.000 __582.000 P 300.000 ___20.000)  5.000] Realized gross profit.950.000 _1.000 _____90% P2.000 Cash downpayment. 11-2: c Initial franchise fee Less: Cost of franchise Net income P5. 2008 P2. December 31.000.P400.000 P4. 2008. December 31.000 is to be recognized as earned because the collectibility of the note for the balance is reasonably assured.000 3. Because the franchisor fails to render substantial services to the franchisee as of December 31.000 P 982.000 X .000 Initial franchise fee Less: unearned interest income Deferred revenue from franchise fee P1.000 __200. 2008 Collection applying to principal. 2008 P 800.000.000 Initial franchise fee Continuing franchise fee (P400.000) Present value of the note (P200.000 P 510.000 ___10.000 Face value of the note (P1.000 11-5: a 11-6: b 11-7: d 11-8: d . July 1.000 X 2.000 P 218.000.000 11-3: a The total initial franchise fee of P500.05) Total revenue Cost Net income P 500.000 ____50. January 2.200. 2008 Total Collection Gross profit rate [(5.91) Unearned interest income.700.000.000 __218. 11-4: b Cash downpayment Collection of note applying to principal Revenue from initial franchise fee P 100.

800.900 Unearned interest income P 536.000 ___50.178 Chapter 11 11-9: b Deferred Revenue from franchise fee: Downpayment Present value of the note (P1.900 Net operating profit Interest income (P900.000 100.000 P1. 12/31/05 (P2.55% Realized gross profit from initial franchise fee Add: Continuing franchise fee (5.000 P6.653.500) x 5% P 162.000  8.000 X 2.000 ___77.800 ___13.000 _2.000.910.700 P5.000 x 15%) x 6/12 133.55% Downpayment (collection during 2008) Gross profit rate P6.000 2.903.91) Less: Cost of franchise fee P6.910.000.463.910.825 .05) P4.425 Total revenue Expenses 176.000 77.000.000.056.100 Deferred revenue from franchise fee P2.000.000) P8.000 + 90.000.000 __ 536.000 P4.000 + P147.000) x 37%] Continuing franchise fee (P121.000 X .05) Total revenue from franchise fees P1.000 __203.100.000 X 14%) X 6/12 Net income P4.325 ___67.000 Total Less: Franchise expense Operating income Interest income.853.263.000.100 Initial franchise fee Less: Unearned interest income P3.700 Face value of the note receivable Present value of the note receivable P1.000 __250.000 11-10: b 11-11: a 11-12: d Realized gross profit from initial franchise fee [(350.910.000.000 1.910.225 ___42.910.900 Revenues from: Initial franchise fee Continuing franchise fee (P2.000 Deferred gross profit Gross profit rate (6.500 Net income P 200.000 X .

675.000 __60.000 Total revenue P 70.000 x 3.000 600.425.500 11-18: Gross profit rate (1.200.000 x 40%) Present value of notes receivable ( 1.000 2.000) Dora (P100.000 Initial franchise fee – down-payment (P100.500 ÷ 2.000 is recognized as revenue since it is a fair measure of the services already performed by the franchisor.000 x 12%) P 20.000 Total earned franchise fee P 80.000 – 720000).250.675.04 Adjusted sales value of initial franchise fee Direct cost of services Gross profit P1.496 11-14: a Initial franchise fee Continuing franchise fee (P400.000 1.000 __121.872.496 Total P 216.000 / 5) Continuing franchise fee (P500.125.875.000 P1.000) 70% .Franchise Accounting 179 11-13: c Cash down-payment Present of the note (P40.000 + P500.750 x 3.000) Total P 600.000/4) 468.000 11-15: c 11-16: a The unearned interest credited is the difference between the face value and the present value of the notes receivable (900.000 x 5%) P 50. The down payment of P600.000 + P500.000 Down payment (3.000 Should be P80.872.000 __20. 11-17: b Cora (P100.500 1.000 802.0374) P 95.

881.127.230 1.000 1.480 631.000 12/30 468.250 793.750 171.230 70% 1.180 Chapter 11 Date Collection Interest 1/1 6/30 468.250.316.000 1.750 333.770 .861 Balance of PV of NR P1.270 Total collection applying to principal Down payment Total collection Gross profit rate Realized gross profit on initial franchise fee 11-19: c Principal 297.425.750 135.

........000...000 Notes receivable....... 2....000............. 2 to Dec...... 31: Cash / AR ....... 2.......000 Cost of Franchise Revenue ..............................000...........12.......... ..... To recognize revenue from the initial franchise fee........................000..... Deferred gross profit – Franchises ......................000 29....600... 36.......Franchise Accounting 181 SOLUTIONS TO PROBLEMS Problem 11 – 1 a.......000................ Interest income (P8...000 Revenue from IFF ......20..............000.......000.......................................000 The collectibility of the note is not reasonably assured........................000 x 10%) ......................000....... Jan........000  P20............000.................................. b......................... 2...................................................................... Adjusting entry: to recognized revenue from the initial franchise fee (installment method) (1) (2) To defer gross profit: Deferred Revenue from IFF ...... Revenue from CFF ....................000 Realized gross profit..........000 (2) Deferred revenue from IFF ...................000 800............000 Deferred cost of franchises ......................800..600..000.... 2: July 31: Cash .........000 Deferred cost of Franchises.................. GPR = P18.............................. (P14....000...000 Deferred Revenue from IFF..........000 Notes receivable ..........................000 18. ......... 2...................................................... 2.. 2......................000............ Jan.... 20..000 Cash ............... 29....000 36................000 = 90% To recognize gross profit: Deferred gross profit – Franchises ........ 20..... 30: Cash/AR .........000.......000 12.. Revenue from continuing franchise fee (CFF) .....................000 Dec.................000......................20.......... 8....................000 Nov...............................................000.... The collectibility of the note is reasonably assured.12.................................... 31 = Refer to assumption a...............................000 Cash .000 Adjusting Entries: (1) Cost of franchise revenue ..................000 .....000 X 90%) 2.....000......................... ...

.... Deferred revenue from F...........................................718 3) Deferred revenue from FF .... Face value of NR .......................................................... 5 to Dec....880 Nov.................................................................... 1...198...................................000 200. 600......... .......................718 179...... ...........319.............................................. 401.120 Unearned interest ..... 25: Deferred cost of Franchise ...................................... 2) Cost of franchise............... Collection of the note is not reasonably assured.......000.. Chapter 11 Problem 11 – 2 Collection of the note is reasonably assured......................................718 179......60 ...........018.............................................. 1.......000............................... Interest income................182 a........ 179.........120 Cost of Franchise .............F.........000 __598.........................................000 Cash ...................624 119.......319.....................624 119........................... 1................. 200......... b........................578..718 1...................................................120 = 85%) 179...............................9906) ...000 X 5%) 4.. 31: Cash / AR ........ (P80..............198..........................018....000 + P200.......... 401....718 4................. .........................000 119................120 179.... Revenue from CFF .................................................718 Dec....................................................... P598............................198....... Dec........624 179..000 x P2....................................198..........120 119....P119.............. 31: Adjusting Entries: 1) Unearned interest income ......... 1........... Deferred cost of Franchise ...............000 Unearned interest income ........120 Revenue from FF ... 31 before adjusting entries – Refer to Assumption a....... (P600.......................................... 1....000 Adjusting Entries: 1) Unearned interest income ......... Deferred gross profit – Franchise ................ Interest income .................718 3) Deferred revenue from FF .......................402  1..............120 x 20% 2) Cost of Franchise ....................... Deferred cost of franchise ...... Notes Receivable .....000...............880 1...... GPR = 1.......... Jan.......624) x 85% 578................ Cash ............ 5: Cash .....................................................................000 Notes Receivable ......................60 Realized gross profit – Franchise..........624 179.................................................402 4) Deferred gross profit – Franchise .........198................ Jan.. .......... Present value (P200............

............................................000 Present value (P80...................................... ...................... Interest income .............. _253..000 (2) Deferred revenue from FF ........................................................ (P50............... Deferred revenue from FF ................................... 66... .......... 320...........000 July 1: 80.............Franchise Accounting 183 Problem 11 – 3 2007 July 1: Cash .........000 x 3.. 120..........................000 130.........592 x 10% x 1/2) 80. .......................360 ..........592 (3) Unearned interest income .........408 Sept........000 Notes Receivable .................. 31: Adjusting Entries: (1) Cost of franchise .... ............... ........ ............................................. 373..... .......................................... Revenue from FF ................................................... Cash .................................. (P253...............................................592 50...360 373.................... Interest income .......... 50.................... Face value of NR ...................000) Dec.......................000 80.....000 Unearned interest income .............................. Cash ........ 15: Deferred cost of franchise ........................................................000 130.......................................... .........592 25.................................................. 1 to Nov...........................................680 2008 Jan.................................................. P 66......000 Cash ............................592 Unearned interest income ...............................................................000 12...........................680 12............................ Note receivable ................... Deferred cost of franchise ...............000 + P30................................. 25............... P320.....1699)............ 10: Deferred cost of franchise ...................................408 373.................................. 31: Adjusting Entry: Unearned interest income .... .................000 80..... Dec......................................................... ...

.. 1.000 Deferred revenue from FF (adjusted SV) .............. . 2........................ 4......... Sale of kitchen equipment ...........................................................F...........000 1.....000 (b) Deferred revenue from FF .............000.........000 Cost of kitchen equipment ...000 1...... ..........................................000 Revenue from FF . 1............................000 Deferred revenue from FF .... 1....................... Total .....................................000 200....000 Jan..........000 July 15: (a) Continuing expenses .............. .................500....700........ Cash / Accounts payable .......................500.000 Cost of kitchen equipment............................000  90%) x 10 yrs.......................................000 x 2%) .................................. 180....................................... ....... 2........ 6.................000 P2.700... ......................................... Less: Face Market value of kitchen equipment ...............000 P4...000 P2.... Adjusted initial FF........ .......000...............000 Journal Entries: Jan................... .............( 2.... 3...000............ 1.................000 Net income .. P 500....................... Expenses: Initial expenses ...........P4..................800.................. .............000 . Continuing F.....540...... ..............................................000 Revenue from CFF .............................................................000.. Initial Franchise fee ..............................................................................................000 4.....................000..........184 Chapter 11 Problem 11 – 4 2008 Jan........................................500.000..000....000 Kitchen equipment ...............000 Cash .......000 Notes receivable....000  90%) Problem 11 – 5 Adjusted initial franchise fee: Total initial F...................000 180............................................. .....F...............700.......800...250..................... ..........250.........000..........000 P2....................... 10 to July 15: Franchise expense ............. 6........... ............000 Deficiency Market value of costs (P180................ ........................ Revenue from FF (Market value of equipment) .000 _2.........540.. 2: Cash ........................................................................ 200............................... (P2........................................800........................... 10: Cash .........................................P6..................000 Deferred revenue from FF.. a) b) 4............................ ........... .............. 2..........................................000) Adjusted initial fee (revenue) ...000..............000............................ (P180................... ....................500...................................000 ___40..000 _1....................... Revenues: Initial FF .........500...

........ Cash ......... 2..000 Notes receivable ...000 Problem 11 – 6 Recognition of initial franchise fee (IFF) (6 mos............................ 40..................000 P 50........ 1) .....000 125.... . .............000 P 25..................000 Years 6-8 P150..000 P120.000 250.....000 125.000....000 125.........000 – – – – – 35...............000 Deferred revenue from FF ....... .....700.000 7 150.000 Recognition of revenue from CFF and costs: Years 1-3 Revenue from CFF ...Franchise Accounting 185 Jan............ Revenue from continuing FF ..000 5 220................ ..................................................000 _100...... 2.....................................000 Years 9-10 P125........000 Years 4-5 P220....000 40..000 3 220.........000 __700.000 (Excess of 2 over 1) Deficiency P 30...1................................000 _100.......................................................000 125.000 9 90............000 __35........ 31: Cash ........000 500................................. Schedule 1 – Estimated deficiency in CFF (1) Yr................000 125.000 8 150............................................ .................. of Estimated Contract Continuing FF 1 P220. _200..... 1......000 4 220..............000 P160.......000 125.........................................................2................. ..............000 30...................000 6 150.... ..........000 10 90.........................000 Net income ... Net income ...................640....000 Expenses . .........000 Notes receivable .500..000 Revenue from FF ... P250...........000 _100................000 250.. .. ............. after opening) Revenue from initial FF: Total initial FF .........000 Expense (costs of initial services) ................... 160.................... 500..........................340..000 30....... .......000 Dec.....000 P1......... .......................700.........000...000 Less: Deficiency in continuing FF (Sch.................. 2........ P 50.....000........000...............000 125.000 2............000 (2) Market Value of Continuing Services P250.000 2 220............ 18: Franchise expense .......P2...000 Cash / Account receivable ........ ...........000 .... ..... ..000 April 1: Cash ...........................................................

.............000  80%)..490 * P454...........490* 48.................... P 62.... Market value of equipment .................... P600.......... Number of years ..................186 Chapter 11 Problem 11 – 7 Revenues: Initial FF (Sch.........200 – ( 36.500 118..............000/mo............500 ( 175.500 50.......... Continuing Fees: Years 1-4 Gross revenues ................000) ( 3..................................................................................... . .........500 80................700 ( 48...000) ( 62...................000) P 12.......... Market value of inventory ..........000/mo.500 ( 48.................000) – – P217........100) ( 80.........................500 – – – 80.475/mo..000 – – – ( 50........... Deficiency per year ............................000 ( 145.....000 68............000 287......................... Gross fees per year .100 rounded Market value of equipment and inventory: Equipment (P50...000) ( 7.......000 454.... .....500) x 12 P( 90................ Present value (120.200 A B B C Unearned Interest: Face value of the note ..................... .......000 ( 48................................ P750....375/mo. Inventory ...........................000) .........200) Inventory P80.......... Gross fees per month .............. Net income ..750/mo................. 1) Interest income – Continuing FF – Others Expenses: Initial expenses – Continuing expense Others Net Income 1/12/2008 6/1/2008 7/1/2008 6/30/2009 – – – 62.............000/mo....... Deficiency ..............300) x4 P( 73... .......000) P 12.............. Less: Interest unearned on the note ...000/Mo.............. Cost .................. Years 17-20 P500.................................. .............000 x 3..... Market value of continuing costs ................000 ( 70............ Unearned interest .........................000 Income from Sales: Sales Price.................900 P145..... ... P330..........500 – ( 68..............................................................000) P 45.... Equipment P62............................................000) x4 P( 12......... P 40. P 3........................ A.000 P12....................200 – – 45.......... .000) ( 18.............................000 Total P142...........500 Years 5-16 P450.......... P 2...................... P 3...........200) P287................................................. C...........7908) ...........900 x 10% = P45................000 P 24...... or P48............ Adjusted initial FF ....000) – P 57......................200 P 29....................000 P12..........500 Analysis of Continuing costs: Market value of costs is P4........................... ................................................ ............. Total deficiency for 20 years is P175........ B................490 Schedule 1: Computation of initial FF to the recognized: Total initial fee ..... Deficiency in continuing costs ..............000 / yr.........

....... June 30............ January 12..........Franchise Accounting Dates of Revenue Recognition: ........ 2008 ................................................................. June 1............................................................................................................ .... 2008 ............... 2009 ........... 187 Types of Revenue Sale of equipment Sale of inventory Initial FF (as adjusted0 Interest income and continuing revenue.................. July 1.................................................... 2008 .........