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(Assuming the capital credited is based on the fair
values of their contribution upon formation is applied
PARTNERSHIP FORMATION on the next situations)

During 2016, FLASH and ARROW had their profitable

The Journey of The Flash and Arrow
year. Income Statement of the partnership had the
following balances:
On January 1, 2016, Barry Allen, a retired triathlon
champion and Oliver Queen, a retired archer, were Sales 1,300,000.00
best friends and they agreed to form a partnership Cost of Sales 500,000.00
named FLASH AND ARROW, from their two respective Expenses other than Salaries 215,000.00
proprietorships. The balance sheets presented below Salaries Expense 200,000.00
reflect the financial position of both proprietorships as
of December 31, 2015: Barry and Oliver had the following profit sharing
BARRY OLIVER provisions.
Cash 12,000.00 30,000.00
Accounts Receivable 100,000.00 50,000.00 Barry Oliver
Merchandise Inventory 198,000.00 252,000.00 Salaries 100,000.00 100,000.00
Prepaid Rent 16,000.00 Interest 10% average 10% average
Store Equipment 240,000.00 180,000.00 investment investment
Accumulated Bonus 5% after bonus,
Depreciation (90,000.00) (108,000.00) interest and
Building 750,000.00 salaries
Accumulated Remainder 50% 50%
Depreciation (150,000.00)
Land 360,000.00
Additional Information:
Totals 1,420,000.00 420,000.00
Accounts Payable 73,000.00 18,000.00
Barry had additional investment on March 31, 2016 of
Mortgage Payable 360,000.00
400,000.00 and withdrawal of 200,000.00 in
Barry, Capital 987,000.00
September 30, 2016. Oliver did not invest or withdraw
Oliver, Capital 402,000.00
during the year.
Totals 1,420,000.00 420,000.00
As of January 1, 2016, the fair value of Barry’s assets
On December 31, 2016, how much is the share of
were: merchandise inventory, P148,000; store each partner to the net income of the partnership?
equipment, P90,000; building, P300,000; and land,
P720,000. For Oliver, the fair value of the assets on the
same date were: merchandise inventory, P293,000;
store equipment, P150,000; prepaid rent, P 0. An Assuming for this item only: Assuming Order of Priority
Allowance for doubtful accounts of 10% must be Provision is elected by the partners, and the Net
established. Accounts Payable of Barry will be Income is (1) 75,000, or (2) 300,000, How much did
personally paid by Barry. each partner receive?

How much capital must be credited to Barry and Oliver

upon formation of partnership?


Assuming the partners agreed to have a profit/loss (REVALUATION METHOD)
ratio of 3:2, the capital of Barry if they are to bring their
On January 1, 2017, Barry and Oliver decided to revise
capital to their profit/loss ratio:
their profit or loss ratio from a complicated package to
a simple 60:40 sharing on the partnership income
effective immediately. Assume there were no
Assuming the partners agreed that Barry should have adjustments of capital during this day.
40% capital ratio in the new partnership, Oliver will
have to invest (withdraw) an amount of:
On January 2, 2017, Barry and Oliver agreed to admit a following are the balances taken on the latest
new partner, Kara Zor-El, a retired cosplay artist, and Statement of Financial Position.
renamed the partnership as ARROWVERSE. Kara will
invest for 20% interest in capital and profits for an Cash 900,000
investment of 715,000.00.
Non-Cash Assets 3,584,000
If the assets of FLASH AND ARROW was undervalued, Loan to Oliver 16,000
what are the balances of the partners after Kara’s TOTAL ASSETS 4,500.000
Loan from Barry 16,000
Liabilities 484,000
Barry, Capital (48%) ?
If the admission was by way of purchase of interest, Oliver, Capital (32%) ?
what are the balances of the partners? Bruce, Capital (20%) ?

The partners paid liquidation expense of 16,000 and

PARTNERSHIP DISSOLUTION – RETIREMENT paid 400,000 to outside creditors.

(Assuming the revaluation method was carried on the Answer the following independent situations:
books of the new partnership is applied on the next
situations) 1. Assuming the non-cash assets were sold for
1,800,000, how much will Barry receive?
On December 31, 2017, Kara challenged Barry to a
race, Barry won which made him the fastest man alive. 2. Assuming all non-cash assets have zero realizable
Disappointed by the results, Kara decided to retire value, how much will Bruce receive?
from the partnership. The undivided profit is
600,000.00. Kara received 790,000.00 upon retirement 3. Assuming Barry received 564,000, how much did
and there was an overvaluation of asset amounting Oliver receive?
100,000.00. Apparently, the new profit or loss ratio is
48:32:20. 4. How much is the net proceeds from sale of non-
cash assets on no. 3 transaction?
What are the capital balances of the remaining
partners? 5. Using Cash Priority Program, How much will each
partners receive if the cash available for partners is

PARTNERSHIP DISSOLUTION – ADMISSION (BONUS 6. Using Cash Priority Program, How much will each
METHOD) partners receive if the cash available for partners is
On January 2, 2018, Bruce Wayne, previously a
billionaire, was admitted into the partnership and
renamed the partnership into JUSTICE LEAGUE. Bruce CORPORATE LIQUIDATION
invested 715,000 for 20% interest in profits and
interest. Using Bonus method, what are the capital The Gotham Company has decided to seek liquidation
balances of the partners? after previous restructuring and quasi-reorganization
attempts failed. The company has the following
condensed balance sheet as of May 1, 2011:

Receivables (Net) 280,000
On January 3, 2018, Barry Allen, Oliver Queen and Inventory 70,000
Bruce Wayne realized that having a business doesn’t Prepaid Expenses 1,000
feel right and they thought otherwise that they must Plant Assets 300,000
follow their missions, to concentrate on trying to save Goodwill 39,000
the world. So on the same date, they decided to Total 702,000
liquidate their partnership, JUSTICE LEAGUE. The
Liabilities and SHE The Net gain or loss for the three month period ending
Accrued Payroll 40,000 March 31 is:
Loans from Officer 50,000
Accounts Payable 60,000
Equipment Loan Payable 360,000 Compute the ending cash balance of cash account
Business Loan Payable 180,000 assuming that common stocks and deficits are
Common Stock 60,000 1,600,000 and 500,000 respectively
Deficit (48,000)
Total 702,000
The equipment loan payable is secured by plant assets
having book value of 300,000 and a realizable value of JJ, DD, and AA formed a joint operation for the sale of
350,000. Of the accounts payable, 40,000 is secured by assorted fruits during the Christmas season. Their
inventory which has a cost of 40,000 and a liquidation transactions during the two-month period are
value 44,000. The balance of the inventory has a summarized below:
realizable value of 32,000. Receivables with a book
value and market value of 100,000 and 80,000 Joint Operation
respectively have been pledged as collateral on the Nov. 6 Merchandise – JJ Nov. 10 Cash sales – AA
business loan payable. The balance of the receivables 8,500 20,400
have a realizable value of 150,000. 8 Merchandise – DD 7,000 12 Cash sales – AA 4,200
10 Freight-in – AA 200 28 Merchandise – DD
Required: 1,210
1. Estimated Deficiency to Unsecured Creditors Dec. 8 Purchase – AA Dec. 30 Unsold
3,500 merchandise
2. Estimated Amount Paid to Fully Secured 14 Selling expense - AA charged to JJ 540
Creditors 550

3. Estimated Amount Paid to Unsecured 1. The operation agreement provided for the division
Creditors without priority of gains and losses among JJ, DD and AA in the ration
of 2:3:5. The venture is to close on December 31, 2014.
4. Estimated Amount Paid to Partially secured The joint operation profit (loss) is:

5. Estimated Amount Paid to Unsecured 2. Using the same information, how much would JJ
Creditors without priority receive cash in final settlement?

S.T.A.R. Labs has been undergoing liquidation since

January 1. As of March 31, its Condensed Statement of 3. Using the same information, how much would DD
Realization and liquidation is presented below receive cash in final settlement?

Assets to be realized 1,375,000 Daniel and Colleen formed a joint venture. Their
Assets Acquired 750,000 capital contributions and profit and loss ratio are
Assets realized 1,300,000 presented below
Assets not Realized 1,375,000
Liabilities Contributions P/L Ratio
Liabilities liquidated 1,875,000 Cash Merchandise
Liabilities not Liquidated 1,700,000 Daniel 5,000 8,000 50%
Liabilities to be liquidated 2,250,000 Colleen 6,000 50%
Liabilities assumed 1,625,000
Revenues and Expenses A summary of the joint venture account activities are
Supplementary Charges 3,125,000 presented below
Supplementary Credits 2,800,000
Purchases of merchandise by Joker 4,000
Expenses paid by Colleen
Mayor’s Permit 400
Freight on merchandise contributed However, entity B recognized a loss of P2,000,000 for
By Daniel 300 that year.
Delivery Expense of merchandise
sold 200 Published price quotations do not exist for the shares
Sales (all of the merchandise contributed and of entities A and B. Using appropriate valuation
purchased by Colleen and ½ of those contributed techniques SME determined the fair value of its
by Daniel) investment in entities A and B on Dec. 31, 2011 at
14,000 P1,300,000 and P1,500,000 respectively. Costs to sell
are estimated at 5% of the fair value of the
Required: investments.
1. The balance of joint venture account before
profit or loss distribution is Under the Cost Model, what is the total carrying
amount of the investments on Dec. 31, 2011?
2. The profit/loss of the joint venture is

Under the Equity Model, the income statement of SME

3. How much would Daniel receive in the final will have a total increase or decrease by:
settlement assuming he took the unsold
merchandise at cost?
Entity Legends acquired 25% of the ordinary shares
Aquaman, Batman and Cyborg formed a joint venture, that carry voting rights of entity DC for 5,250,000 and
Aquman is to act as manager and is designated to transactions cost of 5%
record the joint venture accounts in his books. As
manager, Lyndon is allowed to a salary of 120,000; Entity Legends has entered into a contractual
remaining profit or loss is to be divided equally. The arrangement with another party, entity League, that
following balances appear at the end of 2016 before owns 20% of the shares of entity DC, whereby entities
adjustment Legends and League jointly control entity DC.

DEBIT CREDIT There is published price quotation for entity DC.

Joint Venture Cash 480,000
Joint Venture 150,000 For the year ended December 31, 2013, entity DC
Batman, Capital 30,000 recognized a profit of 7,500,000. On December 31,
Cyborg, Capital 270,000 2013, entity declared and paid dividend of 2,625,000
for the year 2013.
The venture is to terminate as of December 31, 2016.
Unsold merchandise costing 105,000 are taken over by At December 31, 2013, management assessed the fair
Ivan. AquAman made the settlement to Batman and value cost to sell of its investment in entity DC is
Cyborg. 6,000,000 and cost to sell is 37,500.

How much is the profit share of Aquaman? Required:

1. Assume Entity Legends uses equity model to account

How much is the final settlement that Cyborg would its investment in Entity DC, the balance of the
receive? investment at the end of year is

JOINT VENTURES FOR SMEs 2. Assume Entity Legends uses fair value to account its
investment in entity DC, the net increase decrease in
On January 1, 2011, SME acquired 25% of the equity of the income statement is
each of entities A and B for P1,000,000 and of
P1,300,000 respectively. Transaction costs of 1% of the
purchase price of the shares were incurred by SME.
“Just because it’s hard, doesn’t mean it’s impossible; just because
On December 2, 2011, entity A declared and paid it seems impossible, doesn’t mean you have to give up.” – RAGM
dividend of P100,000. For the year ended December
31, 2011, entity A recognized profit of P500,000. “Don’t squeeze the lemon when the lemon is already dry – DCM