Advanced Accounting Guerrero Peralta Volume 1 Solution Manual PDF

Partnership – Basic Considerations and Formation 1
CHAPTER 1
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
1-1: a
Jose's capital should be credited for the market value of the computer contributed by
him.
1-2: b (40,000 + 80,000) ÷ 2/3 = 180,000 x 1/3 = 60,000.
1-3: a
Cash P100,000
Land 300,000
Mortgage payable ( 50,000)
Net assets (Julio, capital) P350,000
1-4: b
Total Capital (P300,000/60%) P500,000
Perla's interest ______40%
Perla's capital P200,000
Less: Non-cash asset contributed at market value
Land P 70,000
Building 90,000
Mortgage Payable ( 40,000) _120,000
Cash contribution P 80,000
1-5: d - Zero, because under the bonus method, a transfer of capital is only required.
1-6: b
Reyes Santos
Cash P200,000 P300,000
Inventory – 150,000
Building – 400,000
Equipment 150,000
Mortgage payable ________ ( 100,000)
Net asset (capital) P350,000 P750,000
1-7: c
AA BB CC
Cash P 50,000
Property at Market Value P 80,000
Mortgage payable ( 35,000)
Equipment at Market Value _______ _______ P55,000
Capital P 50,000 P 45,000 P55,000
2 Chapter 1
1-8: a
PP RR SS
Cash P 50,000 P 80,000 P 25,000
Computer at Market Value __25,000 _______ __60,000
Capital P 75,000 P 80,000 P 85,000
1-9: c
Maria Nora
Cash P 30,000
Merchandise inventory P 90,000
Computer equipment 160,000
Liability ( 60,000)
Furniture and Fixtures 200,000 ________
Total contribution P230,000 P190,000
Total agreed capital (P230,000/40%) P575,000

Nora's interest ______60%
Nora's agreed capital P345,000
Less: investment 190,000
Cash to be invested P155,000
1-10: d
Roy Sam Tim
Cash P140,000 – –
Office Equipment – P220,000 –
Note payable ________ _( 60,000) ______
Net asset invested P140,000 P160,000 P –
Agreed capitals, equally (P300,000/3) = P100,000
1-11: a
Lara Mitra
Cash P130,000 P200,000
Computer equipment – 50,000
Note payable ________ _( 10,000)
Net asset invested P130,000 P240,000
Goodwill (P240,000 - P130,000) = P110,000
1-12: a
Perez Reyes
Cash P 50,000 P 70,000
Office Equipment 30,000 –
Merchandise – 110,000
Furniture 100,000
Notes payable _______ ( 50,000)
Net asset invested P 80,000 P230,000
1-12: Continued
Bonus Method:
Total capital (net asset invested) P310,000
Goodwill Method:
Net assets invested P310,000
Add: Goodwill (P230,000-P80,000) _150,000
Net capital P460,000
1-13: b
Required capital of each partner (P300,000/2) P150,000
Contributed capital of Ruiz:
Total assets P105,000
Less Liabilities __15,000 __90,000
Cash to be contributed by Ruiz P 60,000
1-14: d
Total assets:
Cash P 70,000
Machinery 75,000
Building _225,000 P370,000
Less: Liabilities (Mortgage payable) __90,000
Net assets (equal to Ferrer's capital account) P280,000
Divide by Ferrer's P & L share percentage ____70%
Total partnership capital P400,000
Required capital of Cruz (P400,000 X 30%) P120,000

Less Assets already contributed:
Cash P 30,000
Machinery and equipment 25,000
Furniture and fixtures __10,000 __65,000
Cash to be invested by Cruz P 55,000
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 P 44,000
Asset contributed by D. Arce:
Cash P 20,000
Merchandise __10,000 __30,000
Total assets of the partnership P 74,000
4 Chapter 1
1-16: a
Cash to be invested by Mendez:
Adjusted capital of Lopez (2/3)
Unadjusted capital P158,400
Adjustments:
Prepaid expenses 17,500
Accrued expenses ( 5,000)
Allowance for bad debts (5% X P100,000) _( 5,000)
Adjusted capital P165,900
Total partnership capital (P165,900/2/3) P248,850

Multiply by Mendez's interest ⅓
Mendez's capital P 82,950
Less Merchandise contributed __50,000
Cash to be invested by Mendez P 32,950
Total Capital:
Adjusted capital of Lopez P165,900
Contributed capital of Mendez __82,950
Total capital P248,850
1-17: d
Moran, capital (40%)
Cash P 15,000
Furniture and Fixtures _100,000 P115,000
Divide by Moran's P & L share percentage ______40%
Multiply by Nakar's P & L share percentage ______60%
Required capital of credit of Nakar: P172,500
Contributed capital of Nakar:
Merchandise inventory P 45,000
Land 15,000
Building __65,000
Less Liabilities __30,000 P 95,000
Required cash investment by Nakar P 77,500
1-18: c
Garcia's adjusted capital (see schedule 1) P40,500
Divide by Garcia's P & L share percentage ______40%
Flores' P & L share percentage ______60%
Flores' capital credit P 60,750
Flores' contributed capital (see schedule 2) __43,500
Additional cash to be invested by Flores P 17,250
1-18: Continued
Schedule 1:
Garcia, capital:
Unadjusted balance P 49,500
Adjustments:
Accumulated depreciation ( 4,500)
Allowance for doubtful account ( 4,500)
Adjusted balance P 40,500
Schedule 2:
Flores capital:
Unadjusted balance P 57,000
Adjustments:
Accumulated depreciation ( 1,500)
Allowance for doubtful accounts ( 12,000)
Adjusted balance P 43,500
1-19: d
Ortiz Ponce Total
( 60%) ( 40%)
Unadjusted capital balances P133,000 P108,000 P241,000
Adjustments:
Allowance for bad debts ( 2,700) ( 1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses _( 2,400) ( 1,600) ( 4,000)
Adjusted capital balances P130,900 P106,000 P237,500
Total capital before the formation of the new partnership (see above) P237,500
Divide by the total percentage share of Ortiz and Ponce (50% + 30%) ______80%
Total capital of the partnership before the admission of Roxas P296,875
Multiply by Roxas' interest ______20%
Cash to be invested by Roxas P 59,375
1-20: d
Merchandise to be invested by Gomez:
Total partnership capital (P180,000/60%) P300,000
Gomez's capital (P300,000 X 40%) P120,000

Less Cash investment __30,000
Merchandise to be invested by Gomez P 90,000
Cash to be invested by Jocson:

Adjusted capital of Jocson:
Total assets (at agreed valuations) P180,000
Less Accounts payable __48,000 P132,000
Required capital of Jocson _180,000
Cash to be invested by Jocson P 48,000
6 Chapter 1
1-21: b
Unadjusted Ell, capital (P75,000 – P5,000) P 70,000
Accounts payable ( 4,000)
Adjusted Ell, capital P 65,000
1-22: c
Total partnership capital (P113,640/1/3) P340,920
Less Divino's capital _113,640
Cortez's capital after adjustments P227,280
Adjustments made:
Allowance for doubtful account (2% X P96,000) 1,920
Merchandise inventory ( 16,000)
Prepaid expenses ( 5,200)
Accrued expenses ___3,200
Cortez's capital before admission of Divino P211,200
1-23: a
Total assets at fair value P4,625,000
Liabilities (1,125,000)
Capital balance of Flora P3,500,000
1-24: c
Total capital of the partnership (P3,500,000 ÷ 70%) P5,000,000
Eden agreed profit & loss ratio 30%
Eden agreed capital 1,500,000
Eden contributed capital at fair value 812,000
Allocated cash to be invested by Eden P 688,000
1-25: c
__Rey __Sam_ __Tim __Total_
Contributed capital (assets-liabilities)P471,000 P291,000 P195,000 P957,000
Agreed capital (profit and loss ratio) 382,800 382,800 191,400 957,000
Capital transfer (Bonus) P 88,200 P(91,800) P 3,600 -
1-26: d
Total agreed capital (P90,000 ÷ 40%) P225,000
Contributed capital of Candy (P126,000+P36,000-P12,000) 150,000
Total agreed capital (P90,000 ÷ 40%) 225,000
Candy, agreed capital interest 60%
Agreed capital of Candy 135,000
Contributed capital of Candy 150,000
Withdrawal of Candy P 15,000
1-27: a
Total agreed capital (210,000 ÷ 70%) P300,000
Nora’s interest 30%
Agreed capital of Nora P 90,000
Cash invested 42,000
Merchandise to be invested by Nora P 48,000
1-28: a
Contributed capital of May (P194,000 - P56,000) P138,000
Agreed capital of May (P300,000 x 70%) 210,000
Cash to be invested by May P 72,000
1-29: d Zero, because the bonus method involves only a transfer of capital.
1-30: b
Noy Bi
Cash P 10,000 P 14,000
Accounts receivable- Net 92,000 92,000
Merchandise inventory 216,000 150,000
Computer equipment 24,000 14,000
Furniture and fixtures 18,000 ----
Total assets at fair value 360,000 270,000
Accounts payable (108,000) (72,000)
Net assets invested 252,000 198,000
Agreed capital 250,000 200,000
Goodwill (withdrawal) P (2,000) P 2,000
1-31: c
Villar Roxas
Cash P 2,205,000 P -
Office equipment 630,000 -
Merchandise inventory - 1,575,000
Notes payable ( 210,000) -
Contributed capital 2,625,000 1,575,000
Agreed capital 2,520,000 1,680,000
Bonus to Roxas P( 105,000) P 105,000
1-32: b
Total capital before adjustments (P210,750 + P103,000) P313,750
Accumulated depreciation (P1,000 – P500) 500
Obsolete inventory ( 3,500)
Total assets of the partnership P300,750
8 Chapter 1
1-33: b
Gibo Edu
Cash P 19,200 P136,800
Accounts receivable 163,200 129,600
Merchandise inventory 240,000 216,000
Equipment 60,000 -
Accounts payable (60,000) (96,000)
Notes payable (12,000) -
Contributed capital 410,400 386,400
Loss on sale of equipment (1,800) 1,800
Net assets 408,600 388,200
Additional investment by Edu - 20,400
Agreed capital P408,600 P408,600
1-34: a
Garnett Bryant
Unadjusted capital P2,443,364 P3,097,528
Accumulated depreciation ( 80,000) 200,000
Accounts receivable written off ( 108,000) ( 140,000)
Adjusted capital contributed 2,255,364 3,157,528
Agreed capital 2,255,364 1,503,576*
Capital withdrawal P - P 1,653,952
* Total agreed capital (P2,255,364 / 60%) P3,758,940

Bryant’s interest 40%
Agreed capital of Bryant P1,503,576
1-35: a
Total capital P3,758,940
Total liabilities 4,299,396
Total assets P8,058,336
1-36: a
Gordon Fernando
Unadjusted capital P220,000 P309,375
Undervaluation of inventory 11,000 -
Allowance for doubtful accounts (2,750) ( 4,125)
Accrued expenses - (20,250)
Contributed capital 228,250 285,000
Agreed capital of Gordon (P285,000/75%) x 25% 133,250 285,000
Capital withdrawal by Gordon P 95,000 P -
SOLUTIONS TO PROBLEMS
Problem 1 – 1
1. a. Books of Pedro Castro will be retained by the partnership
To adjust the assets and liabilities of Pedro Castro.
1. Pedro Castro, Capital ............................................................. 600

Merchandise Inventory ...................................................... 600

Allowance for Bad Debts .................................................. 200
3. Accrued Interest Receivable .................................................. 35

Pedro Castro, Capital......................................................... 35
Computation:
P1,000 x 6% x 3/12 = P15
P2,000 x 6% x 2/12 = _20
Total ......................... ...... P35

Accrued Interest Payable ................................................... 100
(P4,000 x 5% x 6/12 = P100)

Accumulated Depreciation – Furniture and Fixtures ........ 800
6. Office Supplies ...................................................................... 400

Pedro Castro, Capital......................................................... 400
To record the investment of Jose Bunag.
Cash .. ........................................................................................... 15,067.50

Jose Bunag, Capital ............................................................... 15,067.50
Computation:
Pedro Castro, Capital
(1) P600 P31,400
(2) 200 35 (3)
(4) 100 400 (6)
(5) ___800
P1,700 P31,835
P30,135
Jose Bunag, Capital : 1/2 x P30,135 = P15,067.50
10 Chapter 1
b. A new set of books will be used
Books of Pedro Castro
To adjust the assets and liabilities.
See Requirement (a).
To close the books.
Notes Payable ............................................................................... 4,000

Accounts Payable ......................................................................... 10,000
Accrued Interest Payable.............................................................. 100
Allowance for Bad Debts ............................................................. 1,200
Accumulated Depreciation – Furniture and Fixtures ................... 1,400
Pedro Castro, Capital ................................................................... 30,135
Cash ....................................................................................... 6,000
Notes Receivable ................................................................... 3,000
Accounts Receivable ............................................................. 24,000
Accrued Interest Receivable .................................................. 35
Merchandise Inventory .......................................................... 7,400
Office Supplies ...................................................................... 400
Furniture and Fixtures............................................................ 6,000
New Partnership Books
To record the investment of Pedro Castro.
Cash ........................................................................................... 6,000

Notes Receivable .......................................................................... 3,000
Accounts Receivable .................................................................... 24,000
Accrued Interest Receivable......................................................... 35
Merchandise Inventory................................................................. 7,400
Office Supplies ............................................................................. 400
Furniture and Fixtures .................................................................. 6,000
Notes Payable ........................................................................ 4,000
Accounts Payable................................................................... 10,000
Accrued Interest Payable ....................................................... 100
Allowance for Bad Debts....................................................... 1,200
Accumulated Depreciation – Furniture and Fixtures ............. 1,400
Pedro Castro, Capital ............................................................. 30,135
To record the investment of Jose Bunag.
Cash .. ........................................................................................... 15,067.50

Jose Bunag, Capital ............................................................... 15,067.50
2. Castro and Bunag Partnership

Statement of Financial Position
October 1, 2011
Assets
Cash ..... ...... ... ........................................................................................... P21,067.50

Notes receivable .......................................................................................... 3,000.00
Accounts receivable .................................................................................... P 24,000
Less Allowance for bad debts...................................................................... ___1,200 22,800.00
Accrued interest receivable ......................................................................... 35.00
Merchandise inventory ................................................................................ 7,400.00
Office supplies ........................................................................................... 400.00
Furniture and fixtures .................................................................................. 6,000
Less Accumulated depreciation................................................................... ___1,400 __4,600.00
Total Assets ........................................................................................ P59,302.50
Liabilities and Capital
Notes payable ........................................................................................... P 4,000.00

Accounts payable ........................................................................................ 10,000.00
Accrued interest payable ............................................................................. 100.00
Pedro Castro, Capital ................................................................................... 30,135.00
Jose Bunag, Capital ..................................................................................... _15,067.50
Total Liabilities and Capital ............................................................... P59,302.50
Problem 1 – 2
Contributed Capitals:
Jose: Capital before adjustment ...................................................... P 85,000

Notes Payable ........................................................................ 62,000
Undervaluation of inventory .................................................. 13,000
Underdepreciation.................................................................. ( 25,000) P 135,000
Pedro: Cash ....................................................................................... 28,000
Pablo: Cash ....................................................................................... 11,000
Marketable securities ............................................................. _57,500 ___68,500
Total contributed capital .............................................................................. P 231,500
Agreed Capitals:
Bonus Method:
Jose (P231,500 x 50%) ................................................................. P115,750
Pedro (P231,500 x 25%) .............................................................. 57,875
Pablo (P231,500 x 25%)............................................................... __57,875
Total . ........................................................................................... P231,500
12 Chapter 1
Goodwill Method. To have a goodwill, the only possible base is the capital of Pablo. The
computation is:
Contributed Agreed
Capital Capital Goodwill
Jose P135,000 P137,000 (50%) 2,000
Pedro 28,000 68,500 (25%) 40,500
Pablo __68,500 __68,500 (25%) _____–
Total P231,500 274,000 42,500
Total agreed capital (P68,500 ÷ 25%) = 274,000
Jose, Pedro and Pablo Partnership

June 30, 2011
Bonus Method Goodwill Method

Assets:
Cash P 49,000 P 49,000
Accounts receivable (net) 48,000 48,000
Marketable securities 57,500 57,500
Inventory 85,000 85,000
Equipment (net) 45,000 45,000
Goodwill ______– __42,500
Total P284,500 P327,000
Liabilities and Capital:
Accounts payable P 53,000 P 53,000

Jose, capital (50%) 115,750 137,000
Pedro, capital (25%) 57,875 68,500
Pablo, capital (25%) __57,875 __68,500
Total P284,500 P327,000
Problem 1 – 3
1. Books of Pepe Basco
To adjust the assets.
a. Pepe Basco, Capital ...................................................................... 3,200

Estimated Uncollectible Account .......................................... 3,200
b. Pepe Basco, Capital ...................................................................... 500

Accumulated Depreciation – Furniture and Fixtures ............. 500
Partnership Basic Considerations and Formation 13
To close the books.
Estimated Uncollectible Account ....................................................... 4,800

Accumulated Depreciation – Furniture and Fixtures .......................... 1,500
Accounts Payable................................................................................ 3,600
Pepe Basco, Capital ............................................................................ 31,500
Cash .. ........................................................................................... 400
Furniture and Fixtures .................................................................. 5,000
2. Books of the Partnership
To record the investment of Pepe Basco.
Cash .... ... ........................................................................................... 400

Accounts Receivable .......................................................................... 16,000
Merchandise Inventory ....................................................................... 20,000
Furniture and Fixtures......................................................................... 5,000
Estimated Uncollectible account .................................................. 4,800
Accumulated Depreciation – Furniture and Fixtures ................... 1,500
Pepe Basco, Capital ...................................................................... 31,500
To record the investment of Carlo Torre.
Cash .... ... ........................................................................................... 47,250

Carlo Torre, Capital ..................................................................... 47,250
Computation:
Pepe Basco, capital (Base) ........................................................... P31,500
Divide by Pepe Basco's P & L ratio ............................................. ___40%
Total agreed capital ...................................................................... P78,750
Multiply by Carlo Torre's P & L ratio .......................................... ___60%
Cash to be invested by Carlo Torre .............................................. P47,250
Problem 1 – 4
a. Roces' books will be used by the partnership
Books of Sales
1. Adjusting Entries
(a) Sales, Capital ......................................................................... 3,200

Accumulated Depreciation – Fixtures ............................... 3,200
(b) Goodwill ................................................................................ 32,000

Sales, Capital ..................................................................... 32,000
14 Chapter 1
2. Closing Entry

Accumulated Depreciation – Delivery Equipment ...................... 8,000
Accumulated Depreciation – Fixtures .......................................... 91,200
Notes Payable ............................................................................... 40,000
Accrued Taxes .............................................................................. 8,000
Sales, Capital ................................................................................ 224,000
Cash ....................................................................................... 4,800
Accounts Inventory................................................................ 72,000
Prepaid Insurance................................................................... 3,200
Delivery Equipment ............................................................... 48,000
Fixtures .................................................................................. 96,000
Goodwill ................................................................................ 32,000
Books of Roces (Books of the Partnership)
(a) Roces, Capital .............................................................................. 1,600

(b) Accumulated Depreciation – Fixtures .......................................... 16,000

Roces, Capital ........................................................................ 16,000
(c) Merchandise Inventory................................................................. 8,000

Roces, Capital ........................................................................ 8,000
(d) Goodwill....................................................................................... 40,000

Roces, Capital ........................................................................ 40,000
2. To record the investment of Sales.
Cash .... ... ........................................................................................... 4,800

Prepaid Insurance................................................................................ 3,200
Delivery Equipment ............................................................................ 48,000
Fixtures ... ........................................................................................... 96,000
Goodwill . ........................................................................................... 32,000
Notes Payable ............................................................................... 40,000
Accrued Taxes .............................................................................. 8,000
Sales, Capital ................................................................................ 224,000
Partnership – Basic Considerations and Formatio 15
b. Sales' books will be used by the partnership
Books of Roces
2. Closing Entry

Accrued Taxes .............................................................................. 6,400
Roces, Capital .............................................................................. 224,000
Cash ....................................................................................... 14,400
Accounts Receivable ............................................................. 57,600
Prepaid Insurance................................................................... 4,800
Delivery Equipment ............................................................... 19,200
Fixtures .................................................................................. 144,000
Goodwill ................................................................................ 40,000
Books of Sales (Books of the Partnership)
2. To record the investment of Roces.
Cash .... ... ........................................................................................... 14,400

Delivery Equipment ............................................................................ 19,200
Fixtures ... ........................................................................................... 144,000
Goodwill . ........................................................................................... 40,000
Accrued Taxes .............................................................................. 6,400
Roces, Capital .............................................................................. 224,000
16 Chapter 1
c. A new set of books will be opened by the partnership
Books of Roces
2. Closing Entry
See Requirement (b).
Books of Sales
2. Closing Entry
New Partnership Books
To record the investment of Roces and Sales.
Cash .... ... ........................................................................................... 19,200

Delivery Equipment (net) ................................................................... 46,400
Fixtures (net)....................................................................................... 84,800
Goodwill ........................................................................................... 72,000
Notes Payable ............................................................................... 40,000
Accrued Taxes .............................................................................. 14,000
Roces, Capital .............................................................................. 224,000
Sales, Capital ................................................................................ 224,000
Problem 1 – 5
1. To close Magno's books.
Allowance for Bad Debts.................................................................... 1,000

Accounts Payable................................................................................ 6,000
Notes Payable ..................................................................................... 10,000
Accrued Interest Payable .................................................................... 300
R. Magno, Capital ............................................................................... 24,700
Cash .. ........................................................................................... 5,000
Equipment .................................................................................... 3,000
Other Assets ................................................................................. 9,000
2. To adjust the books of Lagman.
Goodwill . ........................................................................................... 8,000

Allowance for Bad Debts ............................................................. 210
J. Lagman, Capital........................................................................ 7,790
3. To record the investment of Magno.
Cash .... ... ........................................................................................... 5,000

Equipment ........................................................................................... 3,000
Other Assets ........................................................................................ 9,000
Notes Payable ............................................................................... 10,000
Accrued Interest Payable.............................................................. 300
R. Magno, Capital ........................................................................ 24,700
To adjust the investments of the partners.
Cash .... ... ........................................................................................... 10,300

R. Magno, Capital ........................................................................ 10,300
(P35,000 – P24,700 = P10,300)
J. Lagman, Capital .............................................................................. 35,790

Cash .. ........................................................................................... 23,300
Accounts Payable to J. Lagman ................................................... 12,490
(P63,000 + P7,790 = P70,790 – P35,000 = P35,790)
18 Chapter 1
4. Lagman and Magno

December 31, 2011
Assets
Cash .... ... ........................................................................................... P –

Accounts receivable ............................................................................ P34,000
Less Allowance for bad debts ............................................................. 1,210 32,790
Merchandise inventory ....................................................................... 21,000
Equipment ........................................................................................... 8,000
Other assets ......................................................................................... 46,000
Goodwill ........................................................................................... ___8,000
Total Assets .................................................................................. P115,790
Accounts payable ................................................................................ P 18,000

Notes payable...................................................................................... 15,000
Accrued interest payable..................................................................... 300
Accounts payable to J. Lagman .......................................................... 12,490
J. Lagman, capital ............................................................................... 35,000
R. Magno, capital................................................................................ __35,000
Total Liabilities and Capital ......................................................... P115,790
Problem 1 – 6
1. Books of Toledo
Toledo, Capital ............................................................................. 4,800

Allowance for Bad Debts (15% x P32,000) .......................... 4,800
Books of Ureta
Ureta, Capital ............................................................................... 2,400

Allowance for Bad Debts (10% x P24,000) .......................... 2,400
Cash (90% x P12,000).................................................................. 10,800

Loss from Sale of Office Equipment............................................ 1,200
Office Equipment................................................................... 12,000
Toledo, Capital (1/4 x P1,200) ..................................................... 300

Ureta, Capital ............................................................................... 900
Loss from Sale of Office Equipment ..................................... 1,200
2. New Partnership Books
Cash .. ........................................................................................... 3,200

Merchandise ................................................................................. 40,000
Office Equipment ......................................................................... 10,000
Notes Payable ........................................................................ 2,000
Toledo, Capital ...................................................................... 68,400
To record the investment of Toledo.
Cash .. ........................................................................................... 22,800

Merchandise ................................................................................. 36,000
Toledo, Capital ............................................................................. 300
Allowable for Bad Debts ....................................................... 2,400
Ureta, Capital ......................................................................... 64,700
To record the investment of Ureta.
3. Cash .... ... ........................................................................................... 3,400

Ureta, Capital ............................................................................... 3,400
To record Ureta's cash contribution.
Computation:
Toledo, capital (P68,400 – P300) ................................................. P 68,100
Divide by Toledo's profit share percentage .................................. ____50%
Total agreed capital of the partnership ......................................... P136,200
Multiply by Ureta's profit share percentage ................................. ____50%
Agreed capital of Ureta ................................................................ P 68,100
Ureta, capital ................................................................................ __64,700
Cash contribution of Ureta ........................................................... P 3,400
or
Toledo, capital (P68,400 – P300) ................................................. P 68,100
Less Ureta, capital ........................................................................ __64,700
Cash contribution of Ureta ........................................................... P 3,400
20 Chapter 1
4. Toledo and Ureta Partnership

July 1, 2011
Assets
Cash .... ... ........................................................................................... P 29,400

Accounts receivable ............................................................................ P56,000
Less Allowance for bad debts ............................................................. __7,200 48,800
Merchandise........................................................................................ 76,000
Office equipment ................................................................................ __10,000
Total Assets .................................................................................. P164,200
Accounts payable ................................................................................ P 26,000

Notes payable...................................................................................... 2,000
Toledo, capital .................................................................................... 68,100
Ureta, capital ....................................................................................... __68,100
Total Liabilities and Capital ......................................................... P164,200
Partnership Operations 21
CHAPTER 2

2-1: d
Jordan Pippen Total
Annual salary P120,000 P80,000 P200,000
Balance, equally ( 10,000) ( 10,000) ( 20,000)
Total P110,000 P 70,000 P180,000
2-2: a
JJ KK LL Total
Bonus (.20 X P90,000) P18,000 – – P 18,000
Interest
JJ (.15 X P100,000) P15,000 – –)
KK (.15 X P200,000) P 30,000 –)
LL (.15 X P300,000) P45,000) 90,000
Balance, equally ( 6,000) ( 6,000) ( 6,000) ( 18,000)
Total profit share P27,000 P 24,000 P39,000 P 90,000
2-3: a
2-4: a
Allan Michael Total
Interest
Allan - .10 X (P40,000 + 60,000 /2) P 5,000 )
Michael - .10 X (P60,000 + 70,000/2) P 6,500) P 11,500
Balance, equally _14,000 _14,000 __28,000
Total P 19,000 P20,500 P 28,000
2-5: a
Fred Greg Henry Total
Interest (.10 of average capital) P12,000 P 6,000 P 4,000 P 22,000
Salaries 30,000 20,000 50,000
Balance, equally ( 35,000) ( 35,000) ( 35,000) (105,000)
Total P 7,000 ( P29,000) (P11,000) (P 33,000)
2-6: b
Average Capital
Capital Months Peso
Date Balance Unchanged Months
January 1 140,000 6 P 840,000
July 1 180,000 1 180,000
August 1 165,000 5 __825,000
12 P1,845,000
Average capital - P1,845,000/12 = P153,750
Interest (P153,750 X 10%) = P 15,375

22 Chapter 2
2-7: c
Capital Months Peso
January 1 P16,000 3 P 48,000
April 1 17,600 2 35,200
June 1 19,200 3 57,600
September 1 15,200 4 __60,800
12 P201,600
Average Capital(P201,600/12) = P16,800
2-8: a
Net profit before bonus P 24,000
Net profit after bonus (P24,000/120%) __20,000
Bonus to RJ 4,000
Balance (P24,000-P4,000)X3/5 __12,000
Total profit share P 16,000
2-9: a
LT AM Total
Interest P3,200 P 3,600 P 6,800
Salaries 15,000 7,500 22,500
Balance, 3:2 (11,580) ( 7,720) ( 19,300)
Total P 6,620 P 3,380 P 10,000
2-10: b
Net income after salary, interest and bonus P467,500
Add back: Salary (P10,000 X 12) P120,000
Interest (P250,000 X .05) __12,500 _132,500
Net income after bonus (80%) P600,000
Net income before bonus (P600,000/80%) _750,000
Paul's bonus P150,000
2-11: b
CC DD EE Total
Salary P 14,000 P 14,000
Balance P14,000 P 8,400 5,600 28,000
Additional profit to DD ( 1,500) __2,100 ( 600) ______–
Total P12,500 P10,500 P 19,000 P 42,000
Net income
Fees Earned P90,000
Expenses _48,000
Net Income P42,000
2-12: c
LL MM NN Total
Interest P 2,000 P 1,250 P 750 P 4,000
Annual Salary 8,500 – – 8,500
Additional profit to give LL, P20,000 9,500 5,700 3,800 19,000*
Additional profit to give MM, P14,000 _____– __7,050 _____– __7,050
Total P20,000 P14,000 P 4,550 P 38,550
*(P9,500/50%) = P19,000
2-13: a
RR SS TT Total
Excess (Deficiency)
RR (P80,000 - P95,000) P15,000 – –)
SS (P50,000 - P40,000) – (P10,000) –) P 5,000
Balance 4:3:1 _47,500 _35,625 _11,875 __95,000
Total P62,500 P25,625 P11,875 P100,000
Net Income (200,000 - 100,000) = P100,000
2-14: b AA BB CC Total
AA - 100,000 X 10% P 10,000 )
150,000 X 20% 30,000 ) P 40,000
Remainder, 210,000
BB (60,000 X .05) P 3,000 )
CC (60,000 X .05) P 3,000 6,000
Balance, equally __68,000 _68,000 _68,000 _204,000
Total P108,000 P71,000 P71,000 P250,000
2-15: a
AJ BJ CJ Total
Bonus to CJ
Net profit before bonus P44,000
Net profit after bonus (P44,000/110%)P40,000 – – P4,000 P4,000
Interest to BJ – P1,000 – 1,000
Salaries P 10,000 – 12,000 22,000
Balance, 4:4:2 __6,800 _6,800 __3,400 _17,000
Total P 16,800 P7,800 P19,400 P44,000
2-16: c
Total profit share of Pedro P200,000
Less: Salary to Pedro P 50,000
Interest __20,000 __70,000
Share in the balance (40%) P130,000
Net profit after salary and interest (130,000/40%) P325,000

Add: Total Salaries P150,000
Total Interest __70,000 _220,000
Total Partnership Income P545,000
24 Chapter 2
2-17: c
Net income before extraordinary gain and bonus (69,600-12,000) P 57,600
Net income after bonus (57,600/120%) _48,000
Bonus to RR P 9,600
Distribution of Net Income:

JJ RR Total
Bonus – P 9,600 P 9,600
Balance, equally P 24,000 24,000 48,000
Net profit before extraordinary gain P 24,000 P 33,600 P 57,600
Extraordinary gain __4,800 __7,200 _12,000
Total P 28,800 P 40,800 P 69,600
2-18: a
Mel Jay Total
Interest P 20,000 P 12,000 P 32,000
Annual Salary 36,000 – 36,000
Remainder 60:40 __60,000 _40,000 _100,000
Total P116,000 P 52,000 P168,000
2-19: a
DV JE FR Total
Interest on excess (Deficiency) P 15,000 P 3,750 (P 7,500) P 11,250
Remainder 5:3:2 ( 36,875) ( 22,125) ( 14,750) ( 73,750)
Total (P 21,875) (P 18,375) (P 22,250) (P 62,500)
2-20: c
Correction of 1998 profit:
Net income per books P 19,500
Understatement of depreciation ( 2,100)
Overstatement of inventory, December 31 ( 11,400)
Adjusted net income P 6,000
Pete Rico Total

Distribution of net income per book:
Equally P 9,750 P 9,750 P 19,500
Distribution of adjusted net income
Equally ( 3,000) ( 3,000) ( 6,000)
Required Decrease P 6,750 P 6,750 P 13,500
2-21: a
Tiger Woods Total
Salaries P 64,000 P100,000 P164,000
Interest 24,000 30,000 54,000
Bonus (P360,000-P54,000)X.25 76,500 – 76,500
Remainder, 30:70 __19,650 __45,850 __65,500
Total P184,150 P175,850 P360,000
2-22: a
Clotty Cotto Total
Salaries P 20,000 – P 20,000
Commission – P 25,000 25,000
Interest 32,000 33,600 65,600
Bonus, schedule 1 30,000 – 30,000
Remainder, 60:40 __35,640 _23,760 __59,400
Total P117,640 P 82,360 P200,000
Schedule 1
Net income before salary, commission,
interest and bonus P200,000
Less: salaries __20,000
Net income before bonus P180,000
Net income after bonus (P180,000/120%) _150,000
Bonus P 30,000
2-23: a
Mike Tyson Total
Capital balance, beginning P600,000 P400,000 P1,000,000
Additional investment 100,000 200,000 300,000
Capital withdrawal -200,000 ( 100,000) _-300,000
Capital balance before profit and loss distribution P500,000 P500,000 P1,000,000
Net income:
Salary P200,000 P300,000 P 500,000
Balance, 3:2 __60,000 __40,000 __100,000
Total P260,000 P340,000 P 600,000
Total P760,000 P840,000 P1,600,000
Drawings ( 200,000) ( 300,000) ( 500,000)
Capital balance, end P560,000 P540,000 P1,100,000
2-24: d
Average Capital - King:
Capital Months Peso
January 1 P40,000 3 P120,000
April 1 55,000 9 _495,000
12 P615,000
Average capital – P615,000/12 = P51,250
Average Capital - Queen:

Capital Months Peso
January 1 P100,000 7 P700,000
April 1 130,000 5 __650,000
12 P1,350,000
Average capital - P1,350,000 / 12 =P112,500
26 Chapter 2
2-24: Continued
Distribution of Net Income - Schedule 1
King Queen Total

Interest P 5,125 P11,250 P16,375
Bonus, Schedule 2 12,725 – 12,725
Salaries 25,000 30,000 55,000
Residual, 50:50 ( 2,050) _(2,050) _(4,100)
Total P40,800 P39,200 P80,000
Schedule 2
Net income before allocation P80,000

Less: Interest _16,375
Net income before bonus P63,625
Net income after bonus (P63,625/125%) _50,900
Bonus P12,725
Capital Balance December 31:

King Queen Total
Capital balance, January 1 P40,000 P100,000 P140,000
Additional investment _15,000 __30,000 __45,000
Capital balance before profit and
loss distribution P55,000 P130,000 P185,000
Net income (Schedule 2) 40,800 39,000 80,000
Drawings (P400 X 52) ( 20,800) ( 20,800) ( 41,600)
Capital balance, December 31 P75,000 P148,400 P223,400
2-25: d
Total receipts (P1,500,000 + P1,625,000) P3,125,000
Expenses ( 1,080,000)
Net income P2,045,000
Distribution to Partners
Red – P1,500,000/P3,125,000 X P2,045,000 = P 981,600 (1)
Blue – P1,625,000/P3,125,000 X P2,045,000 = _1,063,400
P2,045,000
Capital balance of Blue Dec. 31

Capital Balance, Jan. 1 P 374,000
Additional investment ___22,000
Capital balance before profit and
loss distribution P 396,000
Profit share 1,063,400
Drawings ( 750,000)
Capital balance, Dec. 31 P 709,400 (2)
2-26: a
Ray Sam Total
Capital balances, March 1 P150,000 P180,000 P330,000
Additional investment, Nov. 1 _______ __60,000 __60,000
Capital balances before salaries, profit and Drawings 150,000 240,000 390,000
Profit share:
Interest 15,000 20,000 35,000
Balance, 60:40 51,000 34,000 85,000
Total 66,000 54,000 120,000
Total 216,000 294,000 510,000
Salaries _18,000 _24,000 _42,000
Total 234,000 318,000 552,000
Drawings (18,000) (24,000) (42,000)
Capital balances, Feb. 28 P216,000 P294,000 P510,000
2-27: a
Susan Tanny Total
Capital balances, 1/1 P150,000 P30,000 P180,000
Additional investment, 4/1 8,000 8,000
Capital withdrawals, 7/1 _______ (6,000) _(6,000)
Balances before profit distribution 158,000 24,000 182,000
Profit distribution:
Interest 23,400 4,050 27,450
Bonus (20% x P30,000) 6,000 6,000
Balance, equally (1,725) (1,725) (3,450)
Total 21,675 _8,325 30,000
Total 179,675 32,325 212,000
Drawings (12,000) (12,000) (24,000)
Capital balances, 12/31 P167,675 P20,325 P188,000
28 Chapter 2
2-28: a
Sin Tan Uy Total
Capital balances, beg. 1st year P110,000 P80,000 P110,000 P300,000
Loss distribution, 1st year:
Salaries 20,000 10,000 30,000
Interest 11,000 8,000 11,000 30,000
Balance, 5:3:2 (40,000) (16,000) (24,000) (80,000)
Total ( 9,000) ( 8,000) ( 3,000) (20,000)
Total 101,000 72,000 107,000 280,000
Drawings (10,000) (10,000) (10,000) (30,000)
Capital balances, beg. 2nd year 91,000 62,000 97,000 250,000
Profit distribution, 2nd year:
Salaries 20,000 10,000 30,000
Interest 9,100 6,200 9,700 25,000
Balance, 5:3:2 ( 7,500) ( 4,500) ( 3,000) (15,000)
Total 21,600 _1,700 16,700 40,000
Total 112,600 63,700 113,700 290,000
Drawings _(10,000) (10,000) _(10,000) _(30,000)
Capital balances, end of 2nd year P102,600 P53,700 P103,700 P260,000
2-29: c
Jay Kay Loi Total
Capital balances, 1/1/06 P30,000 P30,000 P30,000 P90,000
Additional investment, 2006 5,000 5,000
Capital withdrawal, 2006 _(5,000) _(4,000) ______ _(9,000)
Capital balances 25,000 26,000 35,000 86,000
Profit distribution, 2006:
Interest 3,000 3,000 3,000 9,000
Salary 7,000 7,000
Balance, equally _1,000 _1,000 _1,000 __3,000
Capital balances, 1/1/07 36,000 30,000 39,000 105,000
Capital withdrawal, 2002 ______ _(3,000) _(8,000) (11,000)
Interest 3,600 3,000 3,900 10,500
Salary 7,000 7,000
Balance, equally _1,500 _1,500 _1,500 __4,500
Capital withdrawal, 2008 ______ _(4,000) _(2,000) _(6,000)
Interest 5,310 3,150 3,640 12,100
Salary 7,000 7,000
Balance, equally __3,300 __3,300 __3,300 ___9,900
Capital balances, 12/31/08 per books P68,710 P33,950 P47,340 P150,000
Understatement of depreciation (2,000) (2,000) (2,000) (6,000)
Adjusted capital balances, 12/31/08 P66,710 P31,950 P45,340 P144,000
2-30: a
Ken Len Mon Total

Capital balances, 1/1/07 P100,000 P100,000 P100,000 P300,000
Capital withdrawal, 2007 ( 20,000) _______ _______ ( 20,000)
Balances 80,000 140,000 100,000 320,000
Profit distribution, 2007 (Schedule 1)
Salary 60,000 60,000
Balance, beg. Capital ratio 20,000 20,000 20,000 60,000
Capital withdrawal, 2008 ( 20,000) ( 40,000) _______ ( 60,000)
Balances 80,000 120,000 180,000 380,000
Salary 60,000 60,000
Balance, beg. capital ratio __13,636 __21,818 __24,546 __60,000
Capital balances, 12/31/08 P 93,636 P141,818 P264,546 P500,000
Schedule 1 – Computation of net profit:

Total capital, 2008 (P647,500 – P147,500) P500,000
Total capital, 2007 (P300,000 + P40,000 – P80,000) _260,000
Total profit for 2 years P240,000
Net profit per year (P240,000 / 2) P120,000
2-31: d
_Nardo_ __Orly __Pedro_ _Total_
Capital balance, 1/1/08 P280,000 P300,000 P170,000 P750,000
Additional investment 96,000 60,000 - 156,000
Withdrawals ( 90,000 ) ( 72,000 ) (162,000)
Cap. bal. before P/L dist. 376,000 270,000 98,000 744,000
NP: Salary (16,500 x 12) - 198,000 - 198,000
Interest on EC (15%) 42,000 45,000 25,500 112,500
Balance 25:30:45 ( 19,875 ) ( 23,850 ) ( 35,775 ) (79,500 )
Total 22,125 219,150 ( 10,275 ) 231,000
Capital balance 12/31/08 P398,125 P 489,150 P 87,725 P975,000
2-32: d
Sam capital, beginning P120,000
Additional investment (Land) 60,000
Drawings ( 80,000 )
Capital balance before net profit (loss) 100,000
Capital balance, end 150,000
Profit share (40%) 50,000
Net profit (P50,000 ÷ 40%) P125,000
30 Chapter 2
2-33: a
__Joe__ __Tom__ __Total__
Capital balance, 1/2/07 P 80,000 P 40,000 P120,000
Net loss- 2007:
Annual salary 96,000 48,000 144,000
10% interest on beg. capital 8,000 4,000 12,000
Bal. beg. cap. ratio: 8:4 ( 108,000) ( 54,000) ( 162,000)
Total ( 4,000) ( 2,000) ( 6,000)
Capital balance 76,000 38,000 114,000
Drawings ( 4,000) ( 4,000) ( 8,000)
Capital balance, 12/31/07 72,000 34,000 106,000
Net profit- 2008:
Annual salary 96,000 48,000 144,000
10% interest on BC 7,200 3,400 10,600
Bonus to Joe–NPBB – P 22000
NPAB (22000/110%)20000 2,000 2,000
Balance equally ( 67,300) ( 67,300) ( 134,600)
Total 37,900 ( 15,900) 22,000
Total 109,900 18,100 128,000
Drawings ( 4,000) ( 4,000) ( 8,000)
Capital balance, 12/31/08 105,900 14,100 120,000
2-34: a
Decrease in capital P 60,000
Drawings ( 130,000)
Contribution 25,000
Profit share 45,000
Net income (45,000 ÷ 30) P150,000
2-35: b
2009:
Original profit allocation Cris Paul Bryan Total
Salaries P 80,000 P 60,000 P 60,000 P200,000
Balance of profit 100,000 100,000 100,000 300,000
Total P180,000 P160,000 P160,000 P500,000
Revised profit allocation

Salaries P 80,000 P 60,000 P 60,000 P200,000
Interest on capital (Sch. A) 7,500 13,200 5,700 26,400
Total P178,799 P164,400 P156,900 P500,000
Difference in total P 1,300 P (4,400) P 3,100 P 0

2-35: Continued
2010
Original profit allocation: Cris Paul Bryan Total
Salaries P 80,000 P 60,000 P 60,000 P200,000
Total P150,000 P130,000 P130,000 P410,000
Revised allocation:
Salaries P 80,000 P 60,000 P 60,000 P200,000
Interest on capital (Sch. B) 3,944 2,428 3,528 9,900
Balance of profit 66,700 P 66,700 P 66,700 P200,000
Total P150,644 P129,128 P130,228 P410,000
Difference in totals P (644) P 872 P (228) P 0

Total of differences P 656 P (3,528) P 2,872 P 0
Therefore Paul capital should be increased by P3,528
Schedule A: Revised Computation of Interest on Average Capital
Capital Fraction of Average

Partner Date Balance Year Unchanged Capital
Cris January 1 P180,000 3/12 P45,000
March 31 30,000 6/12 15,000
September 30 10,000 3/12 2,500
P62,500
Paul January 1 P250,000 3/12 P62,500

March 31 80,000 6/12 40,000
September 30 30,000 3/12 7,500
P110,000
Bryan January 1 P60,000 9/12 P45,000

September 30 10,000 3/12 2,500
P47,500
Interest at 12%:
Cris: P62,500 x 12% = P7,500
Paul: P110,000 x 12%= P13,200
Bryan: P47,500 x 12% = P5,700
32 Chapter 2
2-35: Continued
Schedule B: Revised Computation of Interest on Average Capital
Capital Fraction of Average

Partner Date Balance Year Unchanged Capital
Cris January 1 P188,700 1/12 P15,725
March 31 18,700 11/12 17,142
P32,867
Paul January 1 P194,400 1/12 P16,200

March 31 4,400 11/12 4,033
P20,233
Bryan January 1 P166,900 1/12 P13,908

September 30 16,900 11/12 15,492
P29,400
Interest at 12%:
Cris: P32,867 x 12% = P3,944
Paul: P20,233 x 12%= P2,428
Bryan: P29,400 x 12% = P3,528
2-36: a
Gabriel Harry Cumulative Total
Salaries P35,000 P40,000 P 75,000
Bonus (Sch. A) 12,000 87,000
Interest on capital (Sch. B) 11,467 5,333 103,800
Remainder of profit 11,280 16,920 132,000
Total P69,747 P62,253
Schedule A: Computation of Bonus to Gabriel

Bonus = 10% (net income – Bonus)
110% Bonus = 10% (net income)
110% Bonus = P13,200
Bonus = P12,000
Schedule B: Calculation of average capital balances:

Partner Date Capital Balance Fraction Average Capital
Gabriel January 1 P120,000 3/12 P 30,000
April 1 140,000 512 58,333
November 1 170,000 2/12 28,333
November 1 160,000 2/12 26,667
P143,333
2-36: Continued:
Partner Date Capital Balance Fraction Average Capital

Harry January 1 60,000 10/12 P50,000
November 1 100,000 2/12 16,667
P66,667
Interest therefore:
Gabriel: P143,333 x 8% = P11,467
Harry: P66,667 x 8% = P5,333
2-37: a
Adjustments to Income:
2009 2010
Amortization of business name P(5,000) P (5,000)
Prepaid expenses, 2009 3,000 (3,000)
Accrued expenses, 2009 (2,000) 2,000
Fees billed in 2010 8,400 (8,400)
Inventory overstatement 4,000
Accrued expenses, 2010 (8,600)
Accrued income, 2010 (3,000)
Adjustments to income P 4,400 P(22,000)
Computations of Adjusted Capital Balances:
Cory Dory Eva

Unadjusted balances, December 31, 2010 P25,000 P30,000 P28,000
Bonus to Cory on change in 2009 income (Sch. 1) 400
Allocation of remaining adjustments to 2009 income 1,200 1,200 1,600
Bonus to Cory on change in 2010 income (Sch. 2) (2,000)
Allocation of remaining adjustments to 2010 income (7,000) (7,000) (6,000)
Correction of capital withdrawal (5,000)
Adjusted capital balances, December 31, 2010 P12,600 P24,200) P23,600
Schedule 1:
Bonus = 10% (1 - Bonus)
Bonus = 10% (P4,400 – Bonus)
110% Bonus = P440
Bonus = P400
Schedule 2:
Bonus = 10% )1 – Bonus)
Bonus = 10% (P22,000 – Bonus)
110% Bonus = (P2,200)
Bonus = (P2,000)
34 Chapter 2
2-38: b
Old Partners Capital Balances before Admission of New Partner:
Alma Betty Total

Capital balances, March 1, 2009 P480,000 P240,000 P720,000
2009 net loss:
Salaries (10 months) 480,000 240,000 720,000
Interest on beginning capital balances 48,000 24,000 72,000
Balance, beginning capital ratio (552,000) (276,000) (828,000)
Total (24,000) (12,000) (36,000)
Total 456,000 228,000 684,000
Drawings (24,000) (24,000) (48,000)
Capital balances, 1/1/2010 432,000 204,000 636,000
2010 net profit:
Salaries 576,000 288,000 864,000
Interest on beginning capital balances 43,200 20,400 63,600
Balance, equally (397,800) (397,800) (795,600)
Total 221,400 (89,400) 132,000
Total 653,400 114,600 768,000
Drawings (24,000) (24,000) (48,000)
Capital balances, 12/31/010 P629,400 P90,600 P720,000
Contributed capital of new partner Cora P400,000

Agreed capital of Cora (P720,000 + P400,000) x 40% 448,000
Bonus from Alma and Betty, original capital ratio(reduction from capital) P 48,000
Therefore entry a is correct.

Problem 2 – 1
1. Castro : (P26,000/P42,500) x P23,800 = P14,560

Diaz : (P16,500/P42,500) x P23,800 = __9,240
P23,800
2. Castro : (P31,250/P50,000) x P23,800 = P14,875

Diaz : (P18,750/P50,000) x P23,800 = __8,925
P23,800
Computation of Average Capitals:

Castro: Capital Months Peso
Date Balances Unchanged Months
1/1 ..................................... P26,000 3 P 78,000
4/10 ................................... 29,000 1 29,000
5/1 ..................................... 36,000 3 108,000
8/1 ..................................... 32,000 5 _160,000
12 P375,000
Average capital = P375,000 ÷ 12 months = P31,250
Diaz: Capital Months Peso

1/1 ..................................... P16,500 5 P 82,500
6/1 ..................................... 21,500 3 64,500
9/1 ..................................... 19,500 4 __78,000
12 P225,000
Average capital = P225,000 – 12 months = P18,750
3. Castro Diaz Total

Interest ........................................................ P 7,500 P4,500 P12,000
Salaries........................................................ 36,000 24,000 60,000
Balance, equally.......................................... ( 24,100) (24,100) ( 48,200)
Total ............................................................ P19,400 P 4,400 P23,800
4. Castro Diaz Total

Bonus (a) .................................................... P 4,760 P – P 4,760
Interest (b)................................................... 1,100 – 1,100
Balance, 3:2 ................................................ _10,764 _7,176 _17,940
Total ............................................................ P16,624 P7,176 P23,800
36 Chapter 2
Computations:
a. Net profit before bonus................................................. P23,800
Net profit after bonus (P23,800 ÷ 125%) ..................... _19,040
Bonus............................................................................ P 4,760
b. Average capital of Castro [(P26,000 + P32,000) ÷ 2] ........................... P29,000

Average of Diaz [(P16,500 + P18,500) ÷ 2]....... .................................. _18,000
Castro's excess ..................................................... .................................. P11,000
Multiply by .......................................................... .................................. ___10%
Interest ................................................................. .................................. P 1,100
5. Castro : (P3,000/P5,000) x P23,800 = P14,280

Diaz : (P2,000/P5,000) x P23,800 = __9,520
P23,800
Problem 2 – 2
a. Average Capital:
Robin: Date Balances Months Peso
Unchanged Months
Jan. 1 P135,000 2 P270,000
Feb. 28 95,000 2 190,000
Apr. 30 175,000 5 875,000
Sept. 30 195,000 3 __585,000
12 P1,920,000
Ave. Capital (P1,920,000 ÷ 12) = P160,000
Hood: Date Balances Months Peso

Unchanged Months
Jan. 1 P140,000 3 P420,000
Mar. 31 200,000 3 600,000
June 30 150,000 2 300,000
Aug. 31 220,000 2 440,000
Oct. 31 200,000 2 __400,000
12 P2,160,000
Ave. Capital (P2,160,000 ÷ 12) = P180,000
Profit Distribution:
Robin : P160,000 ÷ P340,000 x P510,000 = P240,000
Hood : P180,000 ÷ P340,000 x P510,000 = _270,000
P510,000
b. Robin Hood Total

Interest on ave. capital ......................................... P 14,400 P 16,200 P 30,600
Salaries................................................................. 60,000 100,000 160,000
Bonus (P510,000 – 30,600 – 160,000) x 25%) .... 78,850 – 79,850
Balance, equally................................................... _119,775 _119,775 _239,550
Totals ................................................................... P274,025 P235,975 P510,000
c. Robin Hood Totals

Interest:
Robin (P195,000 – P135,000) 10%............. P 6,000
Hood (P200,000 – P140,000) 10% ............. P 6,000 P 12,000
Balance, equally................................................... 249,000 249,000 498,000
Totals ................................................................... 255,000 255,000 510,000
d. Robin Hood Total

Salaries................................................................. P 80,000 P120,000 P200,000
Bonus (see computations below) ......................... 62,000 62,000
Balance, equally................................................... _124,000 _124,000 _248,000
Totals ................................................................... P266,000 P244,000 P510,000
Bonus Computations:
Net income before salaries and bonus......... ..................... ....................... P510,000
Less Salaries................................................ ..................... ....................... 200,000
Net income before bonus ............................ ..................... ....................... 310,000
Net income after bonus (P310,000 ÷ 125%) ..................... ....................... _248,000
Bonus .......................................................... ..................... ....................... P 62,000
Problem 2 – 3
a. De Villa De Vera Total
Salaries................................................................. P 30,000 – P 30,000
Commission (2% x P1,000,000) .......................... P 20,000 20,000
Interest of 8% on average capital......................... 32,800 31,200 64,000
Bonus (see computations below) ......................... 9,818 9,818 19,636
Balance, equally................................................... __44,182 __44,182 __88,364
Total ..................................................................... P116,800 P105,200 P222,000
Bonus Computations:
Income before salary, commissions, interest & bonus ...... ....................... P222,000
Salary and commission (P30,000 + P20,000) ................... ....................... ( 50,000)
Interest......................................................... ..................... ....................... ( 64,000)
Income before bonus ................................... ..................... ....................... 108,000
Income after bonus (P108,000 ÷ 110%) ..... ..................... ....................... _98,182
Bonus .......................................................... ..................... ....................... P 9,818
b. Income Summary ................................................. P 222,000

De Villa, capital .......................................... 116,800
De Vera, capital........................................... 105,200
38 Chapter 2
Problem 2 – 4
a. East North West Total

Salaries................................................ P15,000 P20,000 P18,000 P53,000
Bonus (see computation below).......... 3,760 3,760
Interest (see computation below) ........ 2,800 4,000 4,800 11,600
Balance, 3:3:4 ..................................... __3,180 __3,180 __4,240 _10,600
Total .................................................... P24,740 P27,180 P27,040 P78,960
Bonus computations:
Net income before bonus ........... .................... ..................... ..................... P78,960
Net income after bonus (P78,960 ÷ 105%) ..... ..................... ..................... _75,200
Bonus ......................................... .................... ..................... ..................... P 3,760
Interest computations:
East (10% x P28,000)................. .................... ..................... ..................... P 2,800
North (10% x P40,000) .............. .................... ..................... ..................... 4,000
West (10% x P48,000) ............... .................... ..................... ..................... __4,800
Total ........................................... .................... ..................... ..................... P11,600
b. East North West Total

Interest (see computations below) ...... P 3,133 P 3,633 P 5,200 P11,966
Salaries................................................ 24,000 21,000 25,000 70,000
Bonus (see computations below) ........ 4,280 4,280
Balance, equally.................................. ( 6,056) ( 6,055) ( 6,055) ( 18,166)
Total .................................................... P 21,077 P 22,858 P 24,145 P 68,080
Interest computations:
Average capitals:
East: Months Pesos
1/1 P30,000 4 P120,000
5/1 36,000 4 144,000
9/1 28,000 4 _112,000
12 P376,000
Average capital (P376,000 ÷ 12) .......................................... P 31,333
North: Months Pesos

1/1 P40,000 2 P80,000
3/1 31,000 4 124,000
7/1 36,000 2 72,000
9/1 40,000 4 _160,000
12 P436,000
Average capital (P436,000 ÷ 12) ........................................... P 36,333

West: Months Pesos

1/1 P50,000 3 P150,000
4/1 57,000 2 114,000
6/1 60,000 2 120,000
8/1 48,000 5 _240,000
12 P624,000
Ave. capital (P624,000 ÷ 12).................................... P 52,000
Interest Computations:
East (10% x P31,333) ............ ............................................... P 3,133
North (10% x P36,333) ......... ............................................... 3,633
West (10% x P52,000)........... ............................................... __5,200
Total ... .................................. ............................................... P 11,966
Bonus Computations:
Net income ............................ ............................................... P 68,000
Less Salary ............................ ............................................... _21,000
Net income before bonus....... ............................................... 47,080
Net income after bonus (P47,080 ÷ 110%) ........................... _42,800
Bonus to North ...................... ............................................... P 4,280
* To Total
c. East North West Total

Bonus (see comp. below) .................... P 8,990 P 8,990
Salaries ........................................... P21,000 P 18,000 – 39,000
Interest on beginning capital ............... 3,000 4,000 5,000 12,000
Remainder, 8:7:5................................. _13,180 _11,532.50 __8,237.50 _32,950
Total ........ ........................................... P37,180 P33,532.50 P22,227.50 P92,940
Bonus Computations:
Net income before salaries & bonus ............... ..................... ..................... P92,940
Less Salaries (P21,000 + P18,000) ................. ..................... ..................... _39,000
Net income before bonus ........... .................... ..................... ..................... P53,940
Net income after bonus (P53,940 ÷ 120%) ..... ..................... ..................... _44,950
Bonus to West ............................ .................... ..................... ..................... P 8,990
Problem 2 – 5
a. Schedule of Income Distribution:

Maria Clara Rita Total
Salaries.... ........................................... P12,000 P10,000 P 8,000 P30,000
Interest (see computation on p. 30)..... 7,200 9,600 13,800 30,600
Balance, equally.................................. __3,133 __3,133 __3,134 __9,410
Total ........ ........................................... P22,333 P22,733 P24,934 P70,000
40 Chapter 2
Problem 2-5: Continued

Interest on Average Capital:
Maria:
P80,000 x 8% x 6 months.. .................... P 3,200
P100,000 x 5% x 6 months .................... __4,000 P 7,200
Clara:
P120,000 x 8% .................. .................... 9,600
Rita:
P180,000 x 8% x 9 Mos. ... .................... P10,800
P150,000 x 8% x 3 Mos. ... .................... __3,000 _13,800
Total ........................................... .................... P30,600
b. Statement of Partners Capital:

Maria Clara Rita Total
Balances, Jan. 1................................... P 80,000 P120,000 P180,000 P380,000
Additional Investment ........................ 20,000 – – 20,000
Capital Withdrawal ............................. – – ( 30,000) ( 30,000)
Net Income.......................................... 22,333 22,733 24,934 70,000
Drawings ........................................... ( 10,000) ( 10,000) ( 10,000) ( 30,000)
Balance, Dec. 31 ................................. P112,333 P132,733 P164,934 P410,000
Problem 2 – 6
1. Allocation of net loss for 2011:

Alvin Benny Celia Total
Salary to Alvin .................................... P 20,000 P20,000
Interests on average capital:
Alvin (P120,000 x 10%) ............ 12,000
Benny (P200,000 x 10%) ........... 20,000
Celia (P220,000 x 10%) ............. 22,000 54,000
Balance, 30:30:40 ............................... (29,400) _(29,400) _(39,200) _(98,000)
Total ........ ........................................... P 2,600 P( 9,400) P(17,200) P(24,000)
2. Statement of Partnership Capital

Year Ended December 31, 2011
Alvin Benny Celia Total
Capitals, January 1, 2011 .................... P120,000 P180,000 P220,000 P520,000
Additional investments ....................... 60,000 40,000 100,000
Capital withdrawals ............................ _______ ________ _(20,000) _(20,000)
Balances .. ........................................... 120,000 240,000 240,000 600,000
Net loss (see above) ............................ __2,600 __(9,400) _(17,200) _(24,000)
Balances .. ........................................... 122,600 230,600 222,800 576,000
Drawings . ........................................... _(16,000) _______ _______ _(16,000)
Capitals, December 31, 2011 .............. P106,600 P230,600 P222,800 P560,000
Partnership Operations ..................................... 41
3. 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 Nelson Oscar Total

Capital balances, 1/2/09............................... P45,000 P45,000 P45,000 P135,000
Additional investment, 2009 ....................... _15,000 _15,000 __6,000 __36,000
Balances....................................................... 60,000 60,000 51,000 171,000
Net income (Loss) - 2009, equally .............. (1,800) ( 1,800) ( 1,800) ( 5,400)
Withdrawals, 2009....................................... (17,000) ( 7,000) ( 3,200) ( 27,200)
Capital balances, 12/31/09........................... 41,200 51,200 46,000 138,400
Additional investment, 2010 ....................... _____– _____– __6,000 ___6,000
Balances....................................................... 41,200 51,200 52,000 144,400
Net income - 2010, 40: 30: 30 ..................... 10,800 8,100 8,100 27,000
Withdrawals, 2010....................................... (17,000) ( 7,000) ( 3,200) ( 27,200)
Capital Balances, 12/31/010 ........................ 35,000 52,300 56,900 144,200
Additional investment, 2011 ....................... ______– ______– ___6,000 ___6,000
Balances....................................................... 35,000 52,300 62,900 150,200
Net income, 2011 (schedule 1) .................... 56,365 42,272 20,363 120,000
Withdrawals, 2011....................................... (19,000) ( 9,000) ( 3,200) ( 31,200)
Capital balances, 12/31/011......................... P72,365 P86,572 P80,063 P239,000
Schedule 1:
Dino Nelson Oscar Total
Annual salaries.................................... P48,000 P24,000 P12,000 P84,000
Bonus (see computations below) ........ – 10,909 – 10,909
Interest ................................................ 3,600 3,600 3,600 10,800
Balance, equally.................................. _* 4,765 __4,763 __4,763 __14,291
Totals .................................................. P56,365 P43,272 P20,363 P120,000
Bonus computations:
Net income before bonus ........... ................ ..................... ..................... P120,000
Net income after bonus (P120,000 ÷ 110%) ..................... ..................... _109,091
Bonus to Nelson ......................... ................ ..................... ..................... P 10,909
* To Total
42 Chapter 2
Problem 2 – 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2011
Red White Blue Green Total

Balances, beginning of year 40,200 20,200 40,600 P101,000
Add: 20% of fees billed to personal clients 8,800 4,800 4,400 18,000
Green's share of fees (Exhibit A) 3,200 3,200
Remaining net income (Exhibit A) _22,800 _22,800 _11,400 ______ _57,000
Subtotals _71,800 _47,800 _56,400 __3,200 179,200
Less: Withdrawals 10,400 8,800 11,600 5,000 35,800
Uncollectible accounts identified
with clients of each partner 2,400 900 3,300
Excess rent charged to Blue 1,800 1,800
Total deductions P12,800 P 9,700 P13,400 P 5,000 P 40,900
Balances, end of year P59,000 P38,100 P43,000 P (1,800) P138,300
Red, White & Blue Partnership

Exhibit A – Computation and Division of Net income
For Year Ended December 31, 2011
Total revenue from fees P120,000

Expenses, excluding depreciation and doubtful
accounts expense P38,700
Less: Excess rent charged to N ($300 x 6) __1,800
Subtotal 36,900
Add: Depreciation, computed as follows:
$26,000 x 0.10 2,600
$10,000 x 0.10 x 1/2 ____500
Total expenses, excluding doubtful accounts expense P40,000
Add: Doubtful accounts expense ($3,000 x 0.60) __1,800
Total expenses 41,800
Net income for year ended Dec. 31 P 78,200
Division of net income:

Fees billed to personal clients:
Red P44,000 x 20% P 8,800
White P24,000 x 2% 48,000
Blue, P22,000 x 20% 4,400 P18,000
Green's share of fees:
Gross fees from new clients after April 1, Year 1 24,000
Less: Allocated expenses ($40,000 x $24,000/
$120,000) __8,000
Net income from new clients P16,000
Green's share (P16,000 x 20%) P 3,200
Total divided pursuant to special agreement __21,200
Balance, divided in income-sharing ratio as follows: P 57,000
To Red, 40% P22,800
To White, 40% 22,800
To Blue, 20% _11,400
Total P57,000
Problem 2 – 9
Allan, Eman and Gino Partnership
Statement of Profit Distribution
Allan Eman Gino Total

Interest P 4,000 P 750 P 250 P 5,000
Commission (P16,120 – P5,000) x 10% – 1,112 1,112 2,224
Balance, equally __5,926 _5,925 _5,925 _17,776
Total P 9,926 P7,787 P7,287 P25,000
Adjustments (50% of P25,000 to Allan) __2,574 (1,287) (1,287) _____–
Total P12,500 P6,500 P6,000 P25,000
Problem 2 – 10
Gary, Sonny, and Letty Partnership

Statement of Partners' Capital Accounts
Gary Sonny Letty Total

Capital balances, 1/1/08 P210,000 P180,000 P 90,000 P480,000
Additional investments ___9,100 _______ _______ __9,100
Total _219,100 _180,000 _90,000 489,100
Salaries 13,680 11,520 10,640 35,840
Interest 25,920 21,600 10,800 58,320
Bonus to Gary and Sonny (Schedule 1) – – –
Balance, equally __(9,720) _(9,720) _(9,720) (29,160)
Total __29,880 _23,400 _11,720 _65,000
Total 248,980 203,400 101,720 554,100
Drawings _(21,000) (18,000) __(9,000) _(48,000)
Capital balances, 12/31/08 P227,980 P185,400 P 92,720 P506,100
Schedule 1: Computation of the bonus.
Net profit before interest, salaries and bonus P 65,000

Less: Salaries P35,840
Interest _58,320 __94,160
Net profit (loss) before bonus P(29,160)
Therefore no bonus is to be given to Gary and Sonny.

44 Chapter 2
Problem 2 – 11
a. Entries to record the formation of the partnership and the events that occurred during 2008:
Cash 1,100,000
Inventory 800,000
Land 1,300,000
Equipment 1,000,000
Mortgage payable 500,000
Installment note payable 200,000
Kobe, capital (P600,000 + P800,000
+ P1,000,000 – P200,000) 2,200,000
Lebron, capital (P500,000 + P1,300,000
- P500,000) 1,300,000
(1) Inventory 300,000

Cash 240,000
Accounts payable 60,000
(2) Mortgage payable 50,000

Interest expense 20,000
Cash 70,000
(3) Installment note payable 35,000

Cash 55,000
(4) Accounts receivable 210,000

Cash 1,340,000
Sales 1,550,000
(5) Selling and general expenses 340,000

Cash 278,000
Accrued expenses payable 62,000
(6) Depreciation expense 60,000

Accumulated depreciation 60,000
(7) Kobe, drawing 104,000

Lebron, drawing 104,000
Cash 208,000
(8) Sales 1,550,000

Income summary 1,550,000
(9) Cost of goods sold 900,000

Inventory 900,000
P900,000 = P800,000 + P300,000 – P200,000
Income summary 1,340,000

Cost of good sold 900,000
Selling and general expenses 340,000
Depreciation expense 60,000
Income summary 210,000

Kobe, capital 105,000
Lebron, capital 105,000
Kobe, capital 104,000

Lebron, capital 104,000
Kobe, drawing 104,000
Lebron, drawing 104,000
Schedule to allocate partnership net income for 2008:
Kobe Lebron Total

Profit percentage 60% 40% 100%
Beginning capital balance P2,200,000 P1,300,000 P3,500,000
Net income (P1,550,000 revenue
- P 1,340,000 expenses) 210,000
Interest on beginning capital
balances (3%) 66,000 39,000 (105,000)
P105,000
Salaries 120,000 120,000 (240,000)
P(135,000)
Residual deficit (81,000) (54,000) (135,000)
Total P105,000 P105,000 -0-
b. Kobe-Lebron Partnership
Statement of Comprehensive Income
For the Year Ended December 31, 2011
Sales P1,550,000
Less: Cost of goods sold:
Inventory, January 1 P800,000
Purchases 300,000
Goods available for sale P1,100,000
Less: Inventory, December 31 (200,000) (900,000)
Gross profit P650,000
Less: Selling and general expenses 340,000
Depreciation expenses 60,000 400,000
Operating income P250,000
Nonoperating expense- interest (40,000)
Net income P210,000
46 Chapter 2
c. Kobe-Lebron Partnership
At December 31, 2011
Assets
Cash P1,589,000
Accounts receivable 210,000
Inventory 200,000
Land 1,300,000
Equipment (net) 940,000
Total assets P4,239,000

Liabilities:
Accounts payable P60,000
Accrued expenses payable 62,000
Installment note payable 165,000
Mortgage payable 450,000
Total liabilities P737,000
Capital:
Kobe, capital P2,201,000
Lebron, capital 1,301,000
Total capital 3,502,000
Total liabilities and capital P4239,000
Partnership Dissolution – Changes in Ownership 47
CHAPTER 3
3-1: c
Implied capital of the partnership (P90,000/20%) P450,000
Actual value of the partnership ( 420,000)
Goodwill P 30,000
AQUINO LOCSIN DAVID HIZON

Capital balances before Goodwill P252,000 P126,000 P42,000 –
Goodwill to old partners __18,000 ___9,000 __3,000 _____–
Total P270,000 P135,000 P45,000 –
Purchase by Hizon (20%) ( 54,000) ( 27,000) ( 9,000) _90,000
Capital balances after admission P216,000 P108,000 P36,000 P 90,000
3-2: b
AQUINO LOCSIN DAVID HIZON
Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000
3-3: d
AQUINO LOCSIN DAVID TOTAL
Capital transferred P 50,400 P 25,200 P 8,400 P 84,000
Excess divided using profit and loss ratio __3,600 __1,800 ___600 __6,000
Cash distribution P 54,000 P 27,000 P 9,000 P 90,000
3-4: b
Selling price P132,000

Interest sold (444,000X1/5) ( 88,800)
Combine gain P 43,200
3-5: b
Implied value of the partnership (P40,000/1/4) P160,000

Actual value ( 140,000)
Goodwill P 20,000
BERNAL CUEVAS DIAZ

Cash balances P 80,000 P40,000 P 20,000
Goodwill, Profit and Loss ratio __12,000 __6,000 __2,000
Total P 92,000 P46,000 P 22,000
Capital Transfer (1/4) ( 23,000) ( 11,500) ( 5,500)
Capital balances after admission P 69,000 P34,500 P 16,500
48 Chapter 3
3-6: b
BANZON CORTEZ TOTAL
Capital Transfer (20%) P 16,000 P 4,000 P20,000
Excess, Profit and Loss ratio __6,000 __4,000 _10,000
Cash distribution P 22,000 P 8,000 P30,000
3-7: d
PEREZ CADIZ TOTAL
Capital balances beginning P 24,000 P 48,000 P 72,000
Net profit, 1:2 5,430 10,860 16,290
Drawings ( 5,050) ( 8,000) ( 13,050)
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430
Capital transfer P 5,570 P 13,240 P18,810

Excess, 1:2 __3,730 __7,460 _11,190
Cash P 9,300 P 20,700 P30,000
3-8: a
Total agreed capital (P150,000/5/6) P180,000

Diana's Interest 1/6
Cash distribution P 30,000
3-9: a
Total agreed capital (P36,000/1/5) P180,000

Total contributed capital (80,000+40,000+36,000) ( 156,000)
Unrecognized Goodwill P 24,000
3-10: b Contributed Agreed Increase

Capital Capital (Dec.)
Old partners P110,000 P100,000 (P 10,000)
New partner __40,000 __50,000 _10,000
Total P150,000 P150,000 P –
Ben, capital balance before admission P 60,000

Bonus share to new partner (10,000X60%) ( 6,000)
Ben, capital after admission P 54,000
3-11: c
Total agreed capital (P40,000+20,000+17,000) P 77,000

Pete's interest 1/5
Pete's agreed capital balance P 15,400
3-12: b Contributed Agreed Increase

Capital Capital (Dec.)
Old partner P 65,000 P60,000 (P 5,000)
New partner 25,000 (1/3) 30,000 _5,000
Total P 90,000 P90,000 P –
FRED RAUL LORY

Capital balances before admission P 35,000 P30,000 –
Investment by Lory – – 25,000
Bonus to Lory ( 3,500) ( 1,500) __5,000
Capital balances after admission P 31,500 P28,500 P 30,000
3-13: c
Total agreed capital (90,000+60,000+70,000) P220,000

Augusts' interest _____1/4
Agreed capital P 55,000
Contributed capital __70,000
Bonus to June & July P 15,000
JUNE JULY
Capital balances before admission P90,000 P 60,000
Bonus from August, equally __7,500 __7,500
Capital balances after admission P97,500 P 67,500
3-14: a
Total agreed capital (52,000 + 88,000)/80%) P175,000

Total capital of Mira & Nina after admission ( 140,000)
Cash paid by Elma P 35,000
3-15: a
Total agreed capital (P41,600/2/3) P 62,400

Total contributed capital (P23,000+18,600+16,000) ( 57,600)
Goodwill to new partner, Ang P 4,800
LIM ONG ANG

Capital balances before admission P23,000 P 18,600 –
Investment by Ang – – 16,000
Goodwill to August _____– ______– __4,800
Capital balances after admission P23,000 P 18,600 P20,800
50 Chapter 3
3-16: a
ANG BENG CHING DONG TOTAL

Capital balances before
admission P600,000 P 400,000 P 300,000 – P1,300,000
Admission by Dong:
By Purchase (1/2) ( 300,000) – – 300,000 –
By Investment _______– _______– _______– _300,000 ___300,000
Goodwill and Bonus P300,000 P 400,000 P 300,000 P600,000 P1,600,000
Goodwill to Old Partners (sch. 1) 150,000 150,000 100,000 – 400,000
Bonus to Old Partners (sch. 1) __37,500 __37,500 __25,000 ( 100,000) ________–
Capital balances after
admission P487,500 P 587,500 P 425,000 P500,000 P2,000,000
Schedule 1: CC AC Inc. (Dec.)

Old Partners P 1,000,000 P1,500,000 P500,000
New Partner 600,000 (25%) __500,000 ( 100,000) Bonus
Total P 1,600,000 P2,000,000 P400,000 GW
3-17: b
MONA LIZA ALMA LORNA TOTAL
admission of Alma P150,000 P 50,000 – – P 200,000
Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) __28,000 ___12,000 _______– ______– ___40,000
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) __10,000 ____6,000 ____4,000 ______– ___20,000
Capital balances after
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000
Schedule 1:
Total agreed capital (80,000/25%) P 320,000
Total capital contributed (200,000+80,000) ( 280,000)
Goodwill to old partners, 70:30 P 40,000
Schedule 2:
Total agreed capital (75,000/20%) P 375,000
Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000
3-18: c
RED WHITE BLUE TOTAL
Unadjusted capital balances P175,000 P100,000 P 45,000 P320,000
Overvaluation of Marketable Securities ( 12,500) ( 7,500) ( 5,000) ( 25,000)
Allowance for Bad Debts ( 12,500) ( 7,500) ( 5,000) ( 25,000)
Adjusted capital balances before admission P150,000 P 85,000 P 35,000 P270,000
Total agreed capital (270,000/2/3) P405,000

Green's interest 1/3
Investment P135,000
3-19: b
XX YY ZZ WW TOTAL
admission P360,000 P225,000 P135,000 – P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000 ______–
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Equalization of capital ( 100,000) __12,500 __87,500 ______– ______–
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Net profit, equally 3,150 3,150 3,150 3,150 12,600
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)
WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600
Total agreed capital (201,650+201,150+201,650)/2/3 P906,675

WW's interest 1/3
Agreed capital of WW P302,225
Contributed capital (see above) _121,150
Cash to be invested P181,075
3-20: a
A B C
Capital balances P 20,750 P 19,250 P 45,000
Understatement of assets, P12,000 __3,000 __3,000 __6,000
Balances before settlement to A P 23,750 P 22,250 P 51,000
Settlement to A P 30,250
A's interest (23,750+5,000) _28,750
Partial Goodwill to A P 1,500
Therefore:
1. Under partial Goodwill method the capital balances of B is P 22,250
2. Under Bonus method the capital balances of B would be:
B, capital balances before settlement to A P 22,250
Bonus to A (1,500X25/75) _( 500)
B, capital after retirement of A P 21,750
52 Chapter 3
3-21: a
Perez Reyes Suarez
Net income, P140,000 70,000 42,000 28,000
Undervaluation of inventory, P20,000 ___10,000 ____6,000 ____4,000
Capital balances before settlement to Perez P 180,000 P 198,000 P 232,000
Settlement to Perez ( 195,000) – –
Bonus to Perez ___15,000 _( 9,000) _( 6,000)
Capital balances after retirement P – P 189,000 P 226,000
3-22: c
ELY FLOR GLOR
Settlement to Ely ( 360,000) – –
Total Goodwill (P40,000/50%)P80,000 __40,000 ___24,000 ___16,000
Capital balances after retirement of Ely P – P 216,000 P 144,000
3-23: c
_Alma_ _Betty_ _Total_
Capital balance 3/1/07 480,000 240,000 720,000
Net loss-2007:
Salary (10 months) 480,000 240,000 720,000
Interest (10 months) 40,000 20,000 60,000
Bal. beg. cap. ratio: 48:24 ( 544,000) ( 272,000) ( 816,000)
Total ( 24,000) ( 12,000) ( 36,000)
Capital balance 456,000 228,000 684,000
Drawings ( 24,000) ( 24,000) ( 48,000)
Capital balance, 12/31/07 432,000 204,000 636,000
Net profit- 2008:
Salary 576,000 288,000 864,000
Interest 43,200 20,400 63,600
Balance, equally ( 397,800) ( 397,800) ( 795,600)
Total 221,400 ( 89,400) 132,000
Capital balance 653,400 114,600 768,000
Drawings ( 24,000) ( 24,000) ( 48,000)
Capital balance 12/31/08 629,400 90,600 720,000
Total contributed capital (720,000 + 400,000) 1,120,000

Cora’s interest 40%
Cora’s agreed capital 448,000
Cora’s contributed capital 400,000
Bonus to Cora, from Alma and Betty 4:2 48,000
Therefore entry (c) is correct.
3-24: a
_Pete_ _Carlos_ _Total_
Capital balance, beg. 2007 P80,000 P30,000 P110,000
2007 net profit (90,000 – 59,000):
Interest 8,000 3,000 11,000
Compensation 5,000 20,000 25,000
Balance, 4:6 ( 2,000) ( 3,000) ( 5,000)
Total 11,000 20,000 31,000
Balance 91,000 50,000 141,000
Withdrawal ( 8,000) ( 11,000) (19,000)
Repairs (charge to Pete) ( 5,000) - ( 5,000)
Capital balance, 12/31/07 78,000 39,000 117,000
1/1/08: Admission of Sammy

Total agreed capital (P117,000 +43,000) P160,000
Sammy’s interest 20%
Sammy’s agreed capital 32,000
Sammy’s contributed capital 43,000
Bonus to Pete & Carlos, 4:6 11,000
Therefore entry (a) is correct.
3-25: d, Should be P700,269.5
Maria Ana Paz Total

Capital balances, 8/1/010 P300,000 P1,500,000 P - P1,800,000
Capital withdrawal (25,000) (25,000) (50,000)
Balances before P/L distribution 275,000 1,475,000 1,750,000
Net income, 12/31, P100,000:
Interest 6,250 31,250 37,500
Salary to Maria 40,000 - 40,000
Balance, equally 11,250 11,250 22,500
Balances, 12/31/010 332,500 1,517,500 1,850,000
Capital withdrawal (30,000) (30,000) (60,000)
Balances before P/L distribution 302,500 1,487,500 1,790,000
Net income, 7/1/011, P150,000:
Interest 8,312.5 37,937.5 46,250
Salary to Mara 48,000 48,000
Balance, 60:40 33,450 22,300 55,750
Balances before admission of Paz 392,262.5 1,547,737.5 1,940,000
Admission of Paz:
Cash investment 800,000 800,000
Goodwill to Maria and Ana,6:4 276,000 184,000 - 460,000*
Balances, 7/1/011 668,262.5 1,731,737.5 800,000 3,200,000
* Total agreed capital (P800,000/25%) P3,200,000

Total contributed capital (P1,940,000 + P800,000) 2,740,000
Goodwill to Maria and Ana, 6:4 P460,000
54 Chapter 3
3-25: Continued
Maria Ana Paz Total

Balances after admission of Paz P668,262.5 P1,731,737.5 P800,000 P3,200,000
Capital withdrawal (12,000) (12,000) (12,000) (36,000)
Balance before P/L distribution 656,262.5 1,719,737.5 788,000 3,164,000
Net income 12/31/011, P150,000:
Interest 16,707 43,293 20,000 80,000
Salaries 12,000 12,000 12,000 36,000
Balance, 45:30:25 15,300 10,200 8,500 34,000
Capital balance, 12/31/011 P700,269.5 P1,785,230.5 P828,500 P3,314,000
3-26: a
Total agreed capital of the new partnership (P84,000 / 30%) P 280,000

Total contributed capital:
Old partners (P45,000 + P65,000) + P30,000 P140,000
New partner 84,000 224,000
Goodwill P 56,000
If the P56,000 goodwill proved to be worthless, Warren would be charged 35% of

P56,000, or P19,600. However, the real harm to Warren would be that of having paid
more to enter the partnership than he should have. If the goodwill did not exist, then the
adjusted assets of the previous partners would have been P140,0000, which represents
70% of the total partnership value of P200,000. In that case, Warren would have only
paid P60,000 for a 30% interest in capital. Therefore, Warren would have paid extra
P24,000 (P84.000 against P60,000) for the goodwill that proved to be worthless.
3-27: c
Allocation of profits under the original partnership’s agreement:
Amor Bea Cora Total

Salaries P30,000 P30,000 P40,000 P100,000
Bonus to Amor* 12,000 12,000
Remaining profits 10,000 4,000 6,000 20,000
Total P52,000 P34,000 P46,000 P132,000
*Bonus = 10% (Net income – Bonus)

110% Bonus = 10% (Net income)
110% Bonus = P13,200
Bonus = P12,000
Partnership Dissolution – Changs in Ownership Interest 55
3-27, Continued
Allocation of new partnership profits necessary to satisfy Bea:
Amor Bea Cora Dina Total

Salaries P30,000 P30,000 P40,000 P30,000 P130,000
Remaining profits (Sch. 1) 42,000 14,000 42,000 42,000 140,000
Bonus to Dina, (Sch. 2) 20,000 20,000
Total P72,000 P44,000 P82,000 P92,000 P290,000
Sch. 1:
In order for Bea to increase his allocation by P10,000, she would need to received a P14,000 allocation
based on the profit ratio. Therefore, the total amount of profit subject to this allocation would be P140,000
(P14,000 / 10%).
Sch. 2:
If the cumulative total of income allocated before the bonus to Dina is P270,000, then Dina would be
entitled to the P20,000 bonus under the revised agreement.
3-28: a
Total capital of the new partnership (P56,000 / 70%) P80,000

Total fair value of the net assets of the original partnership :
(P530,000 – P474,000) 56,000
Dina should pay P24,000
3-29: a.
Fair value of the original partnership:

Value of recorded net assets P268,000
Value of goodwill 40,000
Total fair value P308,000
Total agreed capital of new partnership (P308,000 / 70%) P440,000

Total capital of the original partnership 308,000
Total contribution needed from Carlos 132,000
Fair value of recorded assets contributed (90,000)
Fair value of intangible contributed (20,000)
Necessary cash contribution P 22,000
56 Chapter 3
3-30: 1. b
Net income per books P50,000

Adjustments:
Accrued expenses 2,400
Inventory overstated (6,200)
Unrecorded purchases (4,000)
Income received in advance 3,000
Supplies 1,800
Corrected net income P47,000
Lina’s new P/L ratio (50% x 80%) 40%

Lina’s share P18,800
2. b
3. b
4. d
Computations:
Lina Mina Nina Olga Total
Capital balances P150,000 P90,000 P60,000 P340,000
Admission of Olga 40,000 40,000
Bonus to Olga (Sch. 1) (14,000) 8,400) (5,600) 28,000 -
Balances, 1/1/010 136,000 81,600 54,400 68,000 340,000
Division of profit 18,800 11,280 7,520 9,400 47,000
Balances, 12/31/010 154,800 92,880 61,920 77,400 387,000
Sale of interest of L to M (154,800) 154,800 -
Division of profit 100,000 100,000 100,000 300,000
Drawings (20,000) (10,000) (5,000) (35,000)
Balances, 12/31/011 327,680 151,920 172,400 652,000
Division of profit 65,000 65,000 65,000 195,000
Inventory overvalued (5,000) (5,000) (5,000) (15,000)
Balances before retirement 387,680 211,920 232,400 832,000
Settlement to Mina (425,360) (425,360)
Total goodwill 37,680 37,680 37,680 113,040
Balances, 12/31/012 249,600 270,080 P519,680
Partnership Dissolution – Changes in Ownership Interest 57
3-31: a
Correction in the problem:
Interest to be acquired by new partner in Partnership AA should be 30%.
Partnership
AA BB CC
Fair value of original partnership:
Assets at book value P500,000 P600,000 P800,000
Liabilities at book and fair value (369,500) (410,000) (558,000)
(a) Book value of original partnership 130,500 190,000 242,000
assets appreciation (depreciation) (50,000) 125,000 50,000
(b) Net assets 80,500 315,000 292,000
Percent of new partnership represented by:

(c) Investment of new partner 30% 25% 20%
(d) Fair value of the original partnership 70% 75% 80%
(e) Fair value of new partnership

suggested by the fair value of the
original partnership (b / d) P115,000 P420,000 P365.000
(f) Fair value of original partnership 80,500 315,000 292,000
(g) Fair value of consideration that should
be conveyed by the Darna (e-f) P34,500 P105,000 P73,000
3-32: 1.a
2.a
3.b
4.b
Computations:
Maya Rita Hara Perla Total

2008:
Balances, 12/31/07 P54,000 P76,000 P - P - P130,000
Allocation of profit, sch. 1 127,000 102,400 230,000
Distributions (100,000) (100,000) (200,000)
Balances, 12/31/08 P81,600 P78,400 P - P - P160,000
2009:
Balances, 1/1/09 P81,600 P78,400 P - P160,000
Admission of Hara * 30,000 20,000 P 70,000 120,000
Allocation of profit,sch. 1 145,250 98,875 85,875 330,000
Distributions (80,000) (80,000) (80,000) (240,000)
Balances, 12/31/09 P176,850 P117,275 P 75,875 P - P370,000
58 Chapter 3
3-32, Continued
Maya Rita Hara Perla Total

2010:
Balances, 12/31/010 P176,850 P117,272 P75,875 P - P370,000
Sale of interest to Rita (176,850) 176,850 -
Allocation of profit, sch. 1 - 100,000 100,000 200,000
Distributions - (60,000) (80,000) (140,000)
Balances, 12/31/08 P - P334,125 P95,875 P - P430,000
2011:
Balances, 1/1/011 P - P334,125 P95,875 P - P430,000
Adjustment of net assets - (5,000) (5,000) (10,000)
Recognition of goodwill** - 20,875 20,875
Sale of interest by Rita (350,000) - (350,000)
Subtotal P - P - P90,875 P - P90,875
Admission of Perla*** 21,625 75,000 96,625
Balances, 12/31/011 P - P - P112,500 P 75,000 P187,500
Schedule 1:
2008 Allocation of profit:
Maya Rita Total
Profit and loss ratio 40% 60%
Salary P80,000 P100,000 P180,000
Bonus (see schedule 2) 46,000 46,000
Balance 1,600 2,400 4,000
Total P127,600 P102,400 P230,000
2009 Allocation of profit:

Maya Rita Hara Total
Profit and loss ratio 30% 45% 25%
Salary P80,000 P100,000 P70,000 P250,000
Bonus (see schedule 2) 66,000 16,500 82,500
Balance (750) (1,125) (625) (2,500)
Total P145,250 P98,875 P85,875 P330,000
Schedule 2:
2008 Bonus:
Maya (P230,000 x 20%) P46,000
2009 Bonus:
Maya (P330,000 x 20%) P66,000
Hara (P330,000 x 20%) 16,500
P82,500
3-32, Continued
* Admission of Hara:
Total agreed capital of new partnership (P70,000 / 25%) P280,000
Total contributed capital (P160,000 + P70,000) 230,000
Goodwill to old partners P 50,000
** Sale of interest by Rita:

Settlement to Rita P350,000
Rita’s adjusted capital balance 329,125
Goodwill traceable to Rita P 20,875
*** Admission of Perla:

Total agreed capital of the new partnership (P75,000 / 40%) P187,500
Total contributed capital of all the partners (P90,875 + P75,000) 165,875
Goodwill to Hara P 21,625
60 Chapter 3
Problem 3 – 1
(a) 1. Revaluation of Assets:
Total agreed capital (P75,000 ÷ 25%) ..................................... P300,000
Total contributed capital .......................................................... _275,000
Upward revaluation of assets, P/L ratio ................................... P 25,000
Entry
Assets ................................................................................ 25,000
Cash ................................................................................... 75,000
Red, capital ................................................................... 5,000
White, capital ................................................................ 10,000
Blue, capital .................................................................. 10,000
Green, capital ................................................................ 75,000
2. Bonus Method:
Contributed capital of Green .................................................... P 75,000
Agreed capital of Green (P275,000 x 25%)............................... _68,750
Bonus to old partners, P/L ratio ................................................ P 6,250
Entry:
Cash ................................................................................... 75,000
Green, capital ................................................................ 68,750
Red, capital ................................................................... 1,250
White, capital ................................................................ 2,500
Blue, capital .................................................................. 2,500
(b) 1. Implicit Goodwill Method:

Total Implied Capital (P75,000 ÷ 25) ...................................... P300,000
Total existing capital................................................................ _200,000
Implied Goodwill to old partners ............................................. P100,000
Entries:
Goodwill ............................................................................ 100,000
Red, capital ................................................................... 20,000
White, capital ................................................................ 40,000
Blue, capital .................................................................. 40,000
Red, capital (25% x P80,000) ............................................ 20,000

White, capital (25% x p120,000)....................................... 30,000
Blue, capital (25% x P100,000)......................................... 25,000
Green, capital ................................................................ 75,000
2. Red, capital (25% x P10,000)....................................................... 15,000

White, capital (25% x P80,000) ................................................... 20,000
Blue, capital (25% x P60,000) ..................................................... 15,000
Green, capital ......................................................................... 50,000
Problem 3 – 2
a. (1) Bonus Method:
Contributed capital of Tomas ......................................................... .................. P140,000
Agreed capital of Tomas (P640,000 x 20%) ................................... .................. _128,000
Bonus to old partners, P/L ratio ...................................................... .................. P 12,000
BRUNO MARIO TOMAS TOTAL
Balances before admission .................... P200,000 P300,000 – P500,000
Admission of Tomas .............................. ___9,000 ___3,000 _128,000 _140,000
Balances after admission ....................... P209,000 P303,000 P128,000 P640,000
(2) Goodwill Method:

Total agreed capital (P140,000 ÷ 20%) . .................. ..................... P700,000
Total contributed capital ........................ .................. ..................... _640,000
Goodwill to old partners, P/L ratio ........ .................. ..................... P 60,000
Balances before admission .................... P200,000 P300,000 P – P500,000
Admission of Tomas .............................. __45,000 __15,000 _140,000 _200,000
Balances after admission ....................... P245,000 P315,000 P140,000 P700,000
(3) Goodwill with subsequent write-off.

Balances from A-2 ................................. P245,000 P315,000 P140,000 P700,000
Goodwill written off, 6:2:2 .................... ( 36,000) ( 12,000) ( 12,000) ( 60,000)
Balances ................................................. P209,000 P303,000 P128,000 P640,000
b. BRUNO MARIO TOMAS TOTAL
Balances from A-2 ................................. P245,000 P315,000 P140,000 P700,000
Goodwill written off, 4:4:2 .................... ( 24,000) ( 24,000) ( 12,000) ( 60,000)
Balances ................................................. P221,000 P291,000 P128,000 P640,000
Problem 3 – 3
a. Total capital after admission (P76,000 + P104,000) ..................................... .................. P180,000

Total capital before admission (P60,000 + P80,000) .................................... .................. _140,000
Goodwill recorded ........................................................................................ .................. P 40,000
Total capital of the partnership (P180,000 ÷ 75%) ....................................... .................. P240,000

Less: Total capital of old partners plus Goodwill (P140,000 + 40,000) ....... .................. _180,000
Cash payment by Barry ................................................................................. .................. P 60,000
b. Total capital after admission (P52,000 + P68,000) ....................................... .................. P120,000

Total capital before admission ...................................................................... .................. _140,000
Bonus to Barry .............................................................................................. .................. P 20,000
Agreed capital of Barry (P120,000 ÷ 75%) x 25% ....................................... .................. P 40,000

Less: Bonus .............................................................................................. .................. __20,000
Cash payment by Barry ................................................................................. .................. P 20,000
62 Chapter 3
Problem 3 – 4
a. Total agreed capital (P60,000 ÷ 20%) .................................................. P300,000

Total contributed capital (P100,000 + P40,000 + P60,000) ................. _200,000
Goodwill to old partners, P/L ratio ....................................................... P100,000
Entry:
Cash .. .... ...................................................................................... 60,000
Goodwill ...................................................................................... 100,000
Gene, capital .......................................................................... 80,000
Nancy, capital ........................................................................ 20,000
Ellen, capital .......................................................................... 60,000
b. Cash ..... .. .... ...................................................................................... 60,000

Ellen, capital................................................................................. 60,000
No Goodwill, no bonus because the total agreed capital is equal to the total contributed
capital.
c. Gene, capital ...................................................................................... 20,000

Nancy, capital ..................................................................................... 8,000
Ellen, capital................................................................................. 28,000
d. Cash .... ... .... ...................................................................................... 32,000

Ellen, capital................................................................................. 32,000
Since the total agreed capital (P172,000) is equal to the total contributed capital (P172,000),
then no Goodwill or bonus is to be recorded.
e. Total agreed capital (P140,000 ÷ 80%) ................................................ P175,000

Total contributed capital (P140,000 + P32,000) ................................... _172,000
Goodwill to new partner ....................................................................... P 3,000
Entry:
Cash .. .... ...................................................................................... 32,000
Goodwill ...................................................................................... 3,000
Ellen, capital .......................................................................... 35,000
Problem 3 – 5
a. Cash ..... .. .... ...................................................................................... 40,000

Cherry capital ............................................................................... 40,000
b. Total agreed capital (P120,000 + P50,000) .......................................... P170,000

Cherry's interest .................................................................................... ____25%
Cherry's agreed capital.............................................................................. 42,500
Contributed capital................................................................................ __50,000
Bonus to old partners, 70:30 ................................................................. P 7,500
Problem 3-5, continued:
Entry:
Cash .. .... ...................................................................................... 50,000
Cherry, capital ....................................................................... 42,500
Helen, capital ......................................................................... 5,250
Cathy, capital ......................................................................... 2,250
c. Total agreed capital (P120,000 + P25,000) .......................................... P145,000

Cherry's interest .................................................................................... ____25%
Agreed capital of Cherry .......................................................................... 36,250
Contributed capital................................................................................ __25,000
Bonus to new partner ............................................................................ P 11,250
Entry:
Cash .. .... ...................................................................................... 25,000
Helen, capital................................................................................ 7,875
Cathy, capital................................................................................ 3,375
Cherry, capital ....................................................................... 36,250
d. Total agreed capital (P50,000 ÷ 25%) .................................................. P200,000

Total contributed capital (P120,000 + 50,000) ....................................... 170,000
Goodwill to old partners, 70:30 ............................................................ P 30,000
Entry:
Cash ...................................................................................... 50,000
Goodwill ...................................................................................... 30,000
Cherry, capital ....................................................................... 50,000
Helen, capital ......................................................................... 21,000
Cathy, capital ......................................................................... 9,000
e. Total agreed capital (P120,000 ÷ 75%) ................................................ P160,000

Goodwill to new partner ....................................................................... P 15,000
Entry:
Cash ...................................................................................... 25,000
Goodwill ...................................................................................... 15,000
Cherry, capital ....................................................................... 40,000
Problem 3 – 6
a. Total agreed capital (P600,000 ÷ 3/4) ................................................................. P800,000

Santos interest ...................................................................................................... _____1/4
Contribution of Santos ......................................................................................... P200,000
b. Total agreed capital (P630,000 ÷ 3/4) ................................................................. P840,000

Santos' interest ..................................................................................................... _____1/4
Contribution of Santos ......................................................................................... P210,000
64 Chapter 3
c. Total agreed capital (P624,000 ÷ 3/4) ....................................................................... .................... P832,000
Less: Contributed capital of old partners ................................................................... .................... _600,000
Contributed capital of Santos .................................................................................... .................... P232,000
d. Total agreed capital (P600,000 ÷ 3/4) ....................................................................... .................... P800,000

Less: Goodwill ........................................................................................................ .................... __10,000
Contributed capital .................................................................................................... .................... 790,000
Contributed capital of old partners ............................................................................ .................... _600,000
e. Total agreed capital (Contributed)............................................................................. .................... P820,000

Less: Contributed capital of old partners ................................................................... .................... _600,000
Problem 3 – 7
a. Tony, capital ........................................................................................................ 40,000
Noel, capital ...................................................................................................... 40,000
b. Cash ........................................................................................................ 90,000

Noel, capital ...................................................................................................... 90,000
(P180,000 ÷ 2/3) x 1/3 = P90,000.
c. Cash ....... ..... .... ........................................................................................................ 56,000

Goodwill ..... .... ........................................................................................................ 4,000
Noel, capital ...................................................................................................... 60,000
Total agreed capital (P180,000 ÷ 3/4) ....................................................................... ..... P240,000

Total contributed capital (P180,000 + P56,000) ........................................................ ..... _236,000
Goodwill to new partner ............................................................................................ ..... P 4,000
d. Subas, capital……………………………………………………………… ..... 14,400

Tony, capital………………………………………………………………… .. 9,600
Inventory………………………………………………………………............. 24,000
Cash ....... ..... .... ........................................................................................................ 52,000

Noel, capital ...................................................................................................... 52,000
Total agreed capital (P52,000 ÷ 1/4) ......................................................................... ..... P208,000
Total capital before inventory write-down (180,000 + 52,000) ................................. ..... (232,000)
Write-down to old partners capital ............................................................................ ..... ( 24,000)
e. Land……………………………………………………………………………………….. 92,000
Subas, capital…………………………………………………………………… 55,200
Tony, capital……………………………………………………………………. 36,800
Subas, capital (P155,200 x 1/4) ................................................................................. 38,800
Tony, capital (P116,800 x 1/4) .................................................................................. 29,200
Noel, capital ...................................................................................................... 68,000
Total resulting capital (P68,000 ÷ 1/4) ...................................................................... ..... P272,000
Total capital of old partner (net assets)...................................................................... ..... _180,000
Increase in value of land ............................................................................................ ..... P 92,000
Capital of old partner after revaluation of land:
Subas (P100,000 + P55,200) ............................................................................. ..... P155,200
Tony (P80,000 + P36,800) ................................................................................ ....... 116,800
f. Cash .... ... .... ...................................................................................... 40,000
Subas, capital ...................................................................................... 2,400
Tony, capital ...................................................................................... 1,600
Noel, capital ................................................................................. 44,000
Agreed capital of Noel (P220,000 x 1/5) ............................................... P 44,000

Contributed capital of Noel .................................................................... _40,000
Bonus to Noel ........................................................................................ P 4,000
g. Cash .... ... .... ...................................................................................... P60,000

Goodwill . .... ...................................................................................... 60,000
Noel, capital ................................................................................. P 60,000
Subas, capital (P60,000 x 3/5)...................................................... 36,000
Tony, capital (P60,000 x 2/5) ....................................................... 24,000
Total agreed capital (P60,000 ÷ 1/5) .................................................... P300,000

Goodwill to old partner, 3:2.................................................................. P 60,000
Problem 3 – 8
a. Conny, capital ..................................................................................... 40,000

Andy, capital (P8,000 x 3/4) ............................................................... 6,000
Benny, capital (P8,000 x 1/4) ............................................................. 2,000
Cash .. .... ...................................................................................... 48,000
b. Goodwill . .... ...................................................................................... 10,000

Conny, capital ..................................................................................... 40,000
Cash .. .... ...................................................................................... 50,000
c. Goodwill (P5,000 ÷ 1/5) ..................................................................... 25,000

Conny, capital ..................................................................................... 40,000
Andy, capital (P25,000 x 3/5) ...................................................... 15,000
Benny, capital (P25,000 x 1/5) ..................................................... 5,000
Cash ...................................................................................... 45,000
Problem 3 – 9
a. Spade, capital ...................................................................................... 120,000

Jack, capital .................................................................................. 120,000
b. Goodwill (P30,000 ÷ 50%) ................................................................. 60,000

Ace, capital................................................................................... 12,000
Jack, capital .................................................................................. 18,000
Spade, capital ............................................................................... 30,000
Spade, capital (P120,000 + P30,000).................................................. 150,000

Jack, capital .................................................................................. 150,000
66 Chapter 3
Problem 3-9 (Continued)
c. Spade, capital ...................................................................................... 180,000

Cash .. .... ...................................................................................... 180,000
Ace, capital (P60,000 x 2/5) ............................................................... 24,000

Jack, capital (P60,000 x 3/5)............................................................... 36,000
Spade, capital ............................................................................... 60,000
d. Land .... ... .... ...................................................................................... 20,000

Ace, capital (20%) ........................................................................ 4,000
Jack, capital (30%) ....................................................................... 6,000
Spade, capital (50%) .................................................................... 10,000
Spade, capital ...................................................................................... 130,000

Ace, capital (P50,000 x .40) ............................................................... 20,000
Jack, capital (P50,000 x .60) ............................................................... 30,000
Cash .. .... ...................................................................................... 60,000
Land.. .... ...................................................................................... 120,000
e. Goodwill . .... ...................................................................................... 30,000

Spade, capital ...................................................................................... 120,000
Cash .. .... ...................................................................................... 150,000
f. Goodwill (P30,000 ÷ 50%) ................................................................. 60,000

Spade, capital ...................................................................................... 120,000
Ace, capital (P60,000 x 20%)....................................................... 12,000
Jack, capital (P60,000 x 30%) ...................................................... 18,000
Cash .. .... ...................................................................................... 150,000
g. Land .... ... .... ...................................................................................... P40,000

Ace, capital (20%) ........................................................................ 8,000
Jack, capital (30%) ....................................................................... 12,000
Spade, capital (50%) .................................................................... 20,000
Spade, capital (P120,000 + P20,000).................................................. 140,000

Ace, capital (P10,000 x 40%) ............................................................. 4,000
Jack, capital (P10,000 x 60%) ............................................................ 6,000
Land.. .... ...................................................................................... 100,000
Note payable................................................................................. 50,000
Problem 3 – 10
Case 1: Bonus of P10,000 to Eddy:

Eddy, capital................................................................................. 70,000
Charly, capital (P10,000 x 3/5) .................................................... 6,000
Danny, capital (P10,000 x 2/5)..................................................... 4,000
Cash ...................................................................................... 80,000
Case 2: Partial Goodwill to Eddy:

Goodwill ...................................................................................... 4,000
Eddy, capital................................................................................. 70,000
Cash ...................................................................................... 74,000
Case 3: Bonus of P5,000 to remaining partner:

Eddy, capital................................................................................. 70,000
Charly, capital (P5,000 x 3/5) ................................................ 3,000
Danny, capital (P5,000 x 2/5) ................................................ 2,000
Cash ...................................................................................... 65,000
Case 4: Total Implied Goodwill of P24,000:

Goodwill ...................................................................................... 24,000
Eddy, capital................................................................................. 70,000
Charly, capital (P24,000 x 3/6) .............................................. 12,000
Danny, capital (P24,000 x 2/6) .............................................. 8,000
Cash ...................................................................................... 74,000
Case 5: Other assets disbursed:

Eddy, capital................................................................................. 70,000
Other assets .................................................................................. 20,000
Charly, capital (P60,000 x 3/6) .............................................. 30,000
Danny, capital (P60,000 x 2/6) .............................................. 20,000
Cash ...................................................................................... 40,000
Case 6: Danny purchases Eddy's capital interest:

Eddy, capital................................................................................. 70,000
Danny, capital ........................................................................ 70,000
68 Chapter 3
Problem 3 – 11
a. 1/1/08 Building ............................................................... 52,000

Equipment ............................................................ 16,000
Cash .................................................................... 12,000
Santos capital .............................................. 40,000
To record initial investment.
12/31/08Reyes capital ......................................................... 22,000

Santos capital .............................................. 12,000
Income summary ......................................... 10,000
To record distribution of loss as follows:
Santos Reyes Total
Interest ................................................................. P 8,000 P – P 8,000
Additional profit .................................................. 4,000 4,000
Balance to Reyes.................................................. ______ (22,000) (22,000)
Total .................................................................... P12,000 P(22,000) (P10,000)
1/1/09 Cash .................................................................... 15,000

Santos capital (15%) ............................................ 300
Reyes capital (85%) ............................................. 1,700
Cruz capital ................................................. 17,000
(new investment by Cruz brings total capital to P85,000 after 2006 loss [80,000 –
10,000 + 15,000]. Cruz's 20% interest is P17,000 [85,000 x 20%] with the extra
P2,000 coming from the two original partners [allocated between them according
to their profit and loss ratio].)
12/31/09 Santos capital ....................................................... 10,340

Reyes capital ........................................................ 5,000
Cruz capital .......................................................... 5,000
Santos drawings .......................................... 10,340
Reyes drawings ........................................... 5,000
Cruz drawings ............................................. 5,000
To close drawings accounts for the year based on distributing 20%. Of each
partner's beginning capital balances [after adjustment for Cruz's investment] or
P5,000 whichever is greater. Santos's capital Is P51,700 [40,000 + 12,000 – 300].)
12/31/09 Income summary ................................................. 44,000

Santos capital .............................................. 16,940
Reyes capital ............................................... 16,236
Cruz capital ................................................. 10,824
To allocate P44,000 income figure as computed below:
Santos Reyes Cruz
Interest (20% of P51,700) .................................... P10,340
15% of P44,000 income ....................................... 6,600
Balance, 60:40 ..................................................... ______ P16,236 P10,824
Total .................................................................... P16,940 P16,236 P10,824
Capital balances as of December 31, 2009
Santos Reyes Cruz
Initial investment, 2008 ....................................... P40,000 P40,000
2008 profit ........................................................... 12,000 (22,000)
Cruz investment ................................................... (300) (1,700) P17,000
2009 drawings...................................................... (10,340) (5,000) (5,000)
2009 profit ........................................................... _16,940 _16,236 _10,824
Capital, 12/31/09 ................................................. P58,300 P27,536 P22,824
1/1/010 Cruz capital .......................................................... 22,824

Diaz capital ................................................. 22,824
To transfer capital purchase from Cruz to Diaz
12/31/010 Santos capital ....................................................... 11,660

Reyes capital ........................................................ 5,507
Diaz capital .......................................................... 5,000
Santos drawings .......................................... 11,660
Reyes drawings ........................................... 5,507
Diaz drawings ............................................. 5,000
To close drawings accounts based on 20% of beginning capital Balances (above) or
P5,0000 (whichever is greater).
12/31/010 Income summary ................................................. 61,000

Santos capital .............................................. 20,810
Reyes capital ............................................... 24,114
Diaz capital ................................................. 16,076
To distribute profit for 2008 computed as follows:
Santos Reyes Diaz
Interest (20% of P58,300) .................................... P11,660
15% of P61,000 profit.......................................... 9,150
Balance, P40,190, 60:40 ...................................... ______ P24,114 P16,076
Total .................................................................... P20,810 P24,114 P16,076
1/1/011 Diaz capital .......................................................... 33,900

Santos capital (15%) ............................................ 509
Reyes capital (85%) ............................................. 2,881
Cash............................................................. 37,290
Diaz capital is [33,900 (P22,824 – P5,000 + P16,076)]. Extra 10% is deducted
from the two remaining partners' capital accounts.
b. 1/1/08 Building ............................................................... 52,000

Equipment ............................................................ 16,000
Cash .................................................................... 12,000
Goodwill .............................................................. 80,000
Santos capital .............................................. 80,000
Reyes capital ............................................... 80,000
To record initial investments. Reyes is credited with goodwill of P80,000 to match
Santos investment.
70 Chapter 3

12/31/08 Reyes capital .............................................................. 30,000
Santos capital .............................................. 20,000
Income summary ......................................... 10,000
Interest of P16,000 is credited to Santos (P80,000 x 20%) along with a base of
P4,000. The remaining profit is now a P30,000 loss which is attributed entirely to
Reyes.
1/1/09 Cash .................................................................... 15,000

Goodwill .............................................................. 22,500
Cruz capital ................................................. 37,500
Cash and goodwill contributed by Cruz are recorded. Goodwill is Computed
algebraically as follows:
P15,000 + goodwill = 20% (current capital + P15,000 + goodwill)

P15,000 + goodwill = 20% (P150,000 + P15,000 + goodwill)
P15,000 + goodwill = P33,000 + .20 goodwill
.80 goodwill = P18,000
goodwill = P22,500
12/31/09 Santos capital ....................................................... 20,000

Reyes capital ........................................................ 10,000
Cruz capital .......................................................... 7,500
Santos drawings .......................................... 20,000
Reyes drawings ........................................... 10,000
Cruz drawings ............................................. 7,500
To close drawings accounts based on 20% of beginning capital
Balances: Santos, p100,000; Reyes, P50,000; and Cruz, P37,500.
12/31/09 Income summary ................................................. 44,000

Santos capital .............................................. 26,600
Reyes capital ............................................... 10,400
Cruz capital ................................................. 6,960
To allocate P44,000 profit as follows:
Santos Reyes Cruz
Interest (20% of P100,000) .................................. P20,000
15% of P44,000 profit.......................................... 6,600
Balance of P17,400, 60:40 ................................... ______ P10,440 P 6,960
Total .................................................................... P26,600 P10,440 P 6,960
Capital balances as of December 31, 2009:

Santos Reyes Cruz
Initial investment, 2008 ....................................... P80,000 P80,000
2008 profit allocation........................................... 20,000 (30,000)
Additional investment.......................................... P37,500
2009 drawings...................................................... (20,000) (10,000) (7,500)
2009profit allocation............................................ __26,600 _10,440 __6,960
Capitals, 12/31/09 ................................................ P106,600 P50,440 P36,960
1/1/010 Goodwill ...................................................................... 26,588
Santos capital ..................................................... 3,988
Reyes capital ...................................................... 13,560
Cruz capital ........................................................ 9,040
To record goodwill implied of Cruz's interest. In effect, the profit Sharing ratio is 15% to
Santos, 51% to Reyes (60% of 85% remaining after Santos's income), and 34% to Cruz
(40% of the 85% remaining after Santos' income). Diaz is paying P46,000, P9,040 in excess
of Cruz's capital (P36,960). The additional payment for this 34% income Interest indicates
total goodwill of P26,588 (P9,040/34%).
1/1/010 Cruz capital .................................................................. 46,000

Diaz capital ........................................................ 46,000
To transfer of capital purchase.
12/31/010 Santos capital ............................................................... 22,118

Reyes capital ................................................................ 12,800
Diaz capital .................................................................. 9,200
Santos drawings ................................................. 22,118
Reyes drawings .................................................. 12,800
Diaz drawings .................................................... 9,200
To close drawings accounts based on 20% of beginning capitals.
12/31/010 Income summary ......................................................... 61,000

Santos capital ..................................................... 31,268
Reyes capital ...................................................... 12,800
Diaz capital ........................................................ 9,200
To allocate profit for 2008 as follows:
Santos Reyes Diaz
Interest (20% of P110,588) .......................................... P22,118
15% of P61,000 ........................................................... 9,150
Balance of P29,732, 60:40 ........................................... ______ P17,839 P11,893
Totals ........................................................................... P31,268 P17,839 P11,893
Capital balances as of December 31, 2010:

Santos Reyes Diaz
12/31/07 balances ........................................................ P106,600 P50,440
Goodwill ...................................................................... 3,988 13,560
Capital purchased ........................................................ P46,000
Drawings...................................................................... (22,118) (12,800) (9,200)
Profit allocation ........................................................... __31,268 _17,839 _11,893
12/31/08 balances ........................................................ P119,738 P69,039 P48,693
1/1/011 Goodwill ...................................................................... 14,321

Santos capital ..................................................... 2,148
Reyes capital ...................................................... 7,304
Diaz capital ........................................................ 4,869
To record implied goodwill. Diaz will be paid P53,562 (110% of the capital balance for his
interest. This amount is P4,869 in excess of the capital account. Since Diaz is only entitled
to a 34% share of profits and losses, the additional P4,869 must indicate that the partnership
as a whole is undervalued by P14,321 (P4,869/34%) which is treated as goodwill.
1/1/011 Diaz capital .................................................................. 53,562
Cash.................................................................... 53,562
To record settlement to Diaz.
72 Chapter 3
Problem 3 – 12
Partnership Books Continued as Books of Corporation
Entries in the Books of the Corporation
(1) Inventories ..... .................................................................... ................. 26,000

Land ...... ........ .................................................................... ................. 40,000
Building. ........ .................................................................... ................. 20,000
Accumulated depreciation – bldg. ...................................... ................. 20,000
Accumulated depreciation – equipment .............................. ................. 30,000
Equipment .................................................................. ................. 20,000
Jack capital ................................................................ ................. 58,000
Jill capital................................................................... ................. 34,800
Jun capital .................................................................. ................. 23,200
To adjust assets and liabilities of the partnership
to their current fair values.
(2) Cash ...... ........ .................................................................... ................. 4,000

Jack capital .... .................................................................... ................. 18,000
Jill capital................................................................... ................. 20,200
Jun capital .................................................................. ................. 1,800
To adjust capital accounts of the partners to 4:3:3 ratio.
(3) Jack capital .... .................................................................... ................. 100,000

Jill capital ...... .................................................................... ................. 75,000
Jun capital...... .................................................................... ................. 75,000
Capital stock............................................................... ................. 250,000
To record issuance of stock to the partners.
New Books Opened for the New Corporation
Entries in the Books of the Partnership
(1) Inventories ..... .................................................................... ................. 26,000

Land ...... ........ .................................................................... ................. 40,000
Building. ........ .................................................................... ................. 20,000
Accumulated depreciation – bldg. ...................................... ................. 20,000
Accumulated depreciation – equipment .............................. ................. 30,000
Equipment .................................................................. ................. 20,000
Jack capital ................................................................ ................. 58,000
Jill capital................................................................... ................. 34,800
Jun capital .................................................................. ................. 23,200
To adjust assets and liabilities of the partnership.
(2) Cash ...... ........ .................................................................... ................. 4,000

Jack capital .... .................................................................... ................. 18,000
Jill capital................................................................... ................. 20,200
Jun capital .................................................................. ................. 1,800
To adjust capital accounts of the partners.
(3) Stock of JJJ Corporation .................................................... ................. 250,000
Accounts payable ................................................................ ................. 30,000
Loans payable – Jill ............................................................ ................. 40,000
Cash in bank............................................................... ................. 44,000
Accounts payable ....................................................... ................. 26,000
Inventories .................................................................. ................. 60,000
Land....... .................................................................... ................. 60,000
Building . .................................................................... ................. 70,000
Equipment .................................................................. ................. 60,000
To record transfer of assets and liabilities to
The corporation and the receipt of capital stock
(4) Jack capital .... .................................................................... ................. 100,000

Jill capital ...... .................................................................... ................. 75,000
Jun capital...... .................................................................... ................. 75,000
Stock of JJJ Corporation ............................................ ................. 250,000
To record issuance of stock to the partners.
Entries in the Books of the Corporation
(1) To record the acquisition of assets and liabilities from the partnership:
Cash in bank .. .................................................................... ................. 44,000

Accounts receivable ............................................................ ................. 26,000
Inventories ..... .................................................................... ................. 60,000
Land ...... ........ .................................................................... ................. 60,000
Building (net) . .................................................................... ................. 70,000
Equipment (net)................................................................... ................. 60,000
Accounts payable ....................................................... ................. 30,000
Loans payable ............................................................ ................. 40,000
Capital stock............................................................... ................. 250,000
Problem 3 – 13
1. Bonus Method
a. 2010 journal entries
Jan. 1: Cash 40,000
Inventory 12,000
Equipment 48,000
Notes payable 10,000
Aquino, capital (50%) 45,000
Binay, capital (50%) 45,000
To record initial investments at fair value along with equal
capital balances.
74 Chapter 3
Oct. 1: Cash 12,000

Aquino, capital 12,000
To record additional investment of Aquino.
Dec. 31: Computation of the bonus:

Net profit before bonus P33,000
Net profit after bonus (P33,000 / 110%) 30,000
Bonus P 3,000
Computation of interest on average capital:

Aquino: Beginning capital: P45,000 x 9 months = P405,000
New balance : P57,000 x 3 months = 171,000
Total P576,000
Average capital: P576,000 / 12 = P 48,000

Interest rate 10%
Interest credited to Aquino P 4,800
Binay: P45,000 x 10% = P 4,500
Allocation of P33,000 profit:
Aquino Binay Total

Bonus P 3,000 P- P 3,000
Interest 4,800 4,500 9,300
Balance of income 12,420 8,280 20,700
Total P20,220 P12,780 P33,000
Closing Entry:
Aquino, Capital 9,600
Binay, capital 9,600
Aquino, drawing 9,600
Binay, drawing 9,600
To close P800 per month drawing accounts for the year.

To close profit for the year.
b. Statement of Changes in Partner’s Equity
Aquino Binay Total

Capital balances, beginning P45,000 P45,000 P 90,000
Additional investments 12,000 - 12,000
Net income 20,220 12,780 33,000
Drawings (9,600) (9,600) (19,200)
Capital balances, end P67,620 P48,180 P115,800
2011 journal entries:

Jan. 1: Admission of Roxas.
Total agreed capital of the new partnership (P115,800 + P66,000) P181,800
Roxas’ interest 1/3
Roxas’ agreed capital P 60,600
Roxas’ contributed capital 66,000
Bonus to Aquino and Binay, 60:40 P 5,400
Cash 66,000
Roxas, capital 60,600
To record admission of Roxas with bonus to original partners.
Several Withdrawal of Binay:

Years Binay capital balance P78,000
Later Settlement 90,000
Bonus to Binay, from Aquino and Roxas P12,000

Cash 90,000
To record withdrawal of Binay with bonus from the
Remaining partners split equally.
2. Goodwill Method:
a. 2010 Journal Entries:
Jan. 1: Cash 40,000
Inventory 12,000
Equipment 48,000
Goodwill 14,000
Note payable 10,000
To record investments of the partners with goodwill
attributed to Aquino.
76 Chapter 3
Oct. 1: Cash 12,000

To record additional investment of Aquino.
De. 31: Bonus to Aquino (the same) P3,000
Interest on average capital:

Aquino: Beginning capital: P52,000 x 9/12 = P39,000
New balance: P64,000 x 3/12 = 16,000
Average capital P55,000
Interest rate x 10%
Interest P 5,500
Binay: P52,000 x 10% = P 5,200
Allocation of income of P33,000:
Aquino Binay Total

Bonus P 3,000 P- P 3,000
Interest 5,500 5,200 10,200
Balance of income 11,580 7,720 19,300
Total P20,080 P12,920 P33,000
Closing Entries:
Aquino, Capital 9,600
Aquino, drawing 9,600
Binay, drawing 9,600
To close out drawing accounts for the year.

To allocate profits computed above.
b. Statement of Changes in Partners’ Equity
Aquino Binay Total

Capital balances, beginning P52,000 P52,000 P104,000
Additional investments 12,000 - 12,000
Net income 20,080 12,920 33,000
Drawings (9,600) (9,600) (19,200)
Capital balances, end P74,480 P55,320 P129,800
2011 Journal Entries:

Jan. 1: Admission of Roxas
Total agreed capital of the new partnership (P66,000 / 1/3) P198,000
Total contributed capital (P129,800 + P66,000) 195,800
Goodwill to old partners P 2,200
Goodwill 2,200
Binay, capital (40%) 880
To recognize goodwill based on Roxas investment.
Cash 66,000
To record admission of Roxas.
Several: Withdrawal of Binay

Years Binay capital balance P78,000
Later: Settlement 90,000
Goodwill to Binay (20%) P12,000
Total goodwill (P12,000/20%) P60,000
Goodwill 60,000
Binay, capital (20%) 12,000
Roxas, capital (20%) 12,000
To recognize total goodwill.

Cash 90,000
To record cash settlement to Binay.
78 Chapter 4
CHAPTER 4
4-1: a
PAR BOOGIE BIRDIE
Capital balances before realization P 20,000 P 16,000 P 10,000
Loss on liquidation, P40,000 ( 20,000) ( 12,000) ( 8,000)
Cash distribution P – P 4,000 P 2,000
4-2: c
PING PANG PONG
Capital balances before liquidation P 50,000 P 50,000 P 10,000
Gain of P10,000 (150,000-140,000) __6,000 __2,000 __2,000
Cash distribution P 56,000 P 52,000 P 12,000
4-3: b
PING PANG PONG
Loss of P40,000 (P140,000-P100,000) ( 24,000) ( 8,000) ( 8,000)
Cash distribution P 26,000 P 42,000 P 2,000
4-4: a
PING PANG PONG
Loss of P70,000 (P140,000-P70,000) ( 42,000) ( 14,000) ( 14,000)
Balances P8,000 P 36,000 ( 4,000)
Absorption of Pong's deficiency, 6:2 ( 3,000) ( 1,000) __4,000
Cash distribution P 5,000 P 35,000 –
4-5: b
COLT MARK CLOCK
Capital balances before liquidation (net of loans)P290,000 P200,000 P220,000
Loss of P130,000, 4:3:3 ( 52,000) ( 39,000) ( 39,000)
Cash distribution P238,000 P161,000 P181,000
4-6: c
JONAS CARLOS TOMAS
Capital balances before liquidation P160,000 P 45,000 P 55,000
Loss of P60,000, 40:50:10 ( 24,000) ( 20,000) ( 6,000)
Cash distribution P136,000 P 25,000 P 49,000
Partnership Liquidation 79
4-7: a
ARIEL BERT CESAR
Capital balances before liquidation P40,000 P180,000 P 30,000
Loss of P100,000, 4:3:3 ( 40,000) ( 30,000) ( 30,000)
Cash distribution P – P150,000 P –
4-8: b
NORY OSCAR
Capital balances before realization P23,000 P 13,500
Additional investment by Nory for
the unpaid liabilities (33,000-18,000) 15,000 –
Loss on realization (schedule 1) ( 30,900) ( 20,600)
Payment by Oscar to Nory P 7,100 ( P7,100)
Schedule 1
Total capital before liquidation P 36,500
Unpaid liabilities 15,000
Total loss on realization P 51,500
4-9: d
BLACK WHITE GREEN
Capital balances before liquidation (net) P99,000 P 91,500 P138,000
Loss on realization (schedule 1) P27,500 ( 13,750) ( 27,500) _( 5,500)
Balances, cash distribution P85,250 P 64,000 P132,500
Schedule 1:
Capital balances of white (net) P 91,500
Cash received by White _83,250
White's share of total loss (30%) P 8,250
Total loss on realization (P8,250/39%) P 27,500
4-10: c
ANA EVA NORA
Capital balances before liquidation (net) P27,000 P 43,000 P 10,000
Loss on realization, P63,600 ( 25,320) ( 25,320) ( 12,660)
Balances P 1,680 P 17,680 ( 2,660)
Unrecorded liabilities, P500 ( 200) ( 200) ( 100)
Balances P 1,480 P 17,480 ( 2,760)
Elimination of Nora's deficiency ( 1,380) ( 1,380) __2,760
Payment to partners P 100 P 16,100 P –
4-11: d
ARIES LEO TAURUS
Capital balances before liquidation (net) P33,500 P 49,000 P 36,500
Loss on realization (schedule 1) P45,000 ( 22,500) ( 13,500) ( 9,000)
Payment to partners P11,000 P 35,500 P 27,500
80 Chapter 4
4-11, continued:
Schedule 1:
Taurus capital (net) P36,500
Payment to Taurus ( 27,500)
Share of total loss (20%) P 9,000
Total loss on realization (9,000/20%) P45,000
4-12: c
TOTAL MOLY NORA OLGA
Capital balances, June 11 P32,700 P15,000 P13,500 P 4,200
Net loss from operation (squeeze) ( 9,800) ( 4,200) ( 2,800) ( 2,800)
Capital balances, August 30 before
liquidation (48,500-25,600) P22,900 P10,800 P10,700 P 1,400
Loss on realization (47,500-30,000) ( 17,500) ( 7,500) ( 5,000) ( 5,000)
Balances P 5,400 P 3,300 P 5,700 ( 3,600)
Additional investment by Olga _1,500 _____– _____– _1,500
Balances P 6,900 P 3,300 P 5,700 ( 2,100)
Elimination of Olga's deficiency ______ ( 1,260) ( 840) _2,100
Payment to partners P 6,900 P 2,040 P 4,860 P –
4-13: b
RITA SARA TITA
Capital balances before liquidation P49,000 P18,000 P10,000
Operating loss, P21,000 ( 3,500) ( 7,000) ( 10,500)
Drawings ( 10,000) ( 15,000) ( 20,000)
Loans – 8,000 25,000
Loss on realization, P12,000 ( 2,000) ( 4,000) ( 6,000)
Balances P33,500 P – ( 1,500)
Absorption of Tita's deficiency __1,500 _____– _1,500
Payment to Nora P32,000 P – P –
4-14: a
CLARO PEDRO ANDRO
Capital balances before liquidation P45,000 P27,000 P50,000
Loss on realization
Accounts Receivable (P50,000 X 40%) P20,000
Investment (P30,000 - P20,000) 10,000
Equipment (P60,000-P30,000) _30,000
Total P60,000 ( 24,000) ( 24,000) ( 12,000)
Payment to partners P21,000 P 3,000 P38,000
4-15: c
TOTAL MONA LISA
Capital balances before liquidation (inclusive loans) P47,500 P28,500 P19,000
Loss on realization, (squeeze) ( 38,500) ( 23,100) ( 15,400)
Capital balances - cash distribution P 9,000 P 5,400 P 3,600
4-15, continued:
Cash after realization P 37,500
Less Liabilities (P36,000-P7,500) ( 28,500)
Total capital after realization P 9,000
4-16: a
FF capital before distribution of net loss P100,000

Add: share of net loss (P10,000 X 40%) _( 4,000)
FF capital before liquidation 96,000
Cash settlement to FF ( 80,000)
FF share of total loss on realization (40%) P 16,000
Total loss on realization (P16,000/40%) P 40,000
Total capital before liquidation (P260,000-P10,000) P250,000

Add: Liabilities _100,000
Cash before liquidation ( 50,000)
Non-cash assets P300,000
Loss on realization ( 40,000)
Cash to be realized P260,000
4-17: d
TOTAL CC DD EE
Capital balances before realization (net) P100,000 P 15,000 P22,500 P62,500
Loss on realization (squeeze) ( 125,000) ( 62,500) ( 37,500) ( 25,000)
Capital balances after realization
(liabilities-unpaid) (P 25,000) ( 47,500) ( 15,000) P37,500
Elimination of CC's deficiency _______– __47,500 ( 28,500) ( 19,000)
Balances (P 25,000) – (P43,500) P18,500
Investment by DD __43,500 ______– _43,500 _____–
Payment to EE P 18,500 P – P – P18,500
4-18: d
Total capital before liquidation P 30,000

Liabilities __1,500
Total assets P 31,500
Less: Cash balance before realization
Cash after payment of liabilities P 11,100
payment of liabilities 1,500
Cash realized ( 11,600) __1,000
Non-cash asset P 30,500
Less: cash realized _11,600
Loss on realization P 18,900
82 Chapter 4
4-19: d
LL MM NN TOTAL
Capital balances P 50,000 P 20,000 P 10,000 P 80,000
Salary of LL (P600 X 8 months) __4,800 _______ _______ ___4,800
Capital balances before liquidation P 54,800 P 20,000 P 10,000 P 84,800
Loss on realization ( 44,880) ( 14,960) ( 14,960)
Balances P 9,920 P 5,040 (P 4,960)
Additional investment by NN ______– _____– __4,960
Payment to partners P 9,920 P 5,040 P –
4-20: b
KK's total interest (P60,000-P10,000) P 50,000

Less: Cash to be paid to KK __10,000
Share of total loss (1/3) P 40,000
Total loss on realization (P40,000/1/3) P120,000
Total assets:
Total interest of the partners before liquidation:
JJ (P70,000+P30,000+P10,000) P110,000
KK (P60,000-P10,000) 50,000
LL (P30,000+P10,000) __40,000 P200,000
Divide by ______50%
Total P400,000
Loss on realization _120,000
Cash to be realized P280,000
4-21: a
TOTAL NN OO PP
Capital balances, July 1 P 75,000 P 25,000 P 25,000 P 25,000
Advances to NN, August 1 ( 10,000) ( 10,000) – –
OO Loan, September 1 20,000 – 20,000 –
Interest, December 31 (6%)
NN (5 mos.) ( 250) ( 250)
OO (4 mos.) 400 400
Compensation to PP __2,500 _______ _______ ___2,500
Capital balances before liquidation P 87,650 P 14,750 P 45,400 P 27,500
Loss on realization (squeeze) _56,250 ( 17,550) ( 17,550) ( 17,550)
Cash distribution P 35,000 ( 2,800) P 27,850 P 9,950
NN should pay P2,800 and this is to be divided to OO & PP equally or P1,400 each.
4-22: a
TOTAL PG JR AS
Capital balances before realization P 950,000 P350,000 P250,000 P350,000
Loss on realization (squeeze) ( 1,000,000) __20,000 ( 200,000) _500,000
Capital balances after realization
(unpaid liabilities) (P 50,000) P 50,000 P 50,000 ( 150,000)
Elimination of AS's deficiency _______– ( 90,000) ( 60,000) P150,000
Cash to be absorbed P – (P 40,000) (P 10,000) P –
4-23: a
RM ST
Capital balances before realization (net) P500,000 P825,000
Loss on realization, P1,225,000 ( 490,000) ( 735,000)
Payment to Partners P 10,000 P 90,000
4-24: a
TOTAL LT AM ZP
Capital balances before realization (net) P 27,500 P 20,000 P 5,000 P 2,500
Gain on realization (squeeze) __37,500 _18,750 __-9,375 __9,375
Capital balances after realization P 65,000 P 38,750 P 14,375 P 11,875
4-25: c
AG BM CP DJ
Capital balances before realization (net) P 420,000 P375,000 P205,000 P150,000
Loss on realization, P1,000,000 ( 300,000) ( 300,000) (200,000) (200,000)
Balances P 120,000 P 75,000 P 5,000 P(50,000)
Additional investment by DJ 50,000
4-26: a
Settlement to Uy P351,500
Uy capital before liquidation (net):
Uy capital P553,500
Receivable from Uy ( 132,000) 421,500
Loss of Uy (50%) P 70,000
Total loss on realization (P70,000 ÷ 50%) P140,000
__Uy__ __Vi__ __Wi__ __Total__

CB before liquidation 553,500 452,500 486,000 1,492,000
Receivable from Uy (132,000) (132,000)
Loan to Wi ( 40,500) (40,500)
Salary payable to Vi 135,000 135,000
Interest before realization 421,500 587,500 445,500 1,454,500
Loss on realization ( 70,000) ( 42,000) ( 28,000) ( 140,000)
Settlement to partners 351,500 545,500 417,500 1,314,500
84 Chapter 4
Problem 4 – 1
Case 1
Rivas and Briones
Statement of Liquidation
December 31, 2011
Partners' Capitals
Assets Rivas, Briones, Rivas Briones
Cash Others Liabilities Loan Loan (90%) (10%)
Balances before liquidation ... P 20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000 P10,000
Realization of assets and
distribution of loss .......... _134,000 ( 200,000) _______ _______ _______ ( 59,400) ( 6,600)
Balances................................. 154,000 – 132,000 18,000 20,000 ( 19,400) 3,400
Payment of liabilities ............. ( 132,000) ______– ( 132,000) ______ _______ _______ ______
Balances................................. 22,000 – – 18,000 20,000 ( 19,400) 3,400
Offset Rivas' loan against his
capital deficiency ............ _______ _______ _______ ( 18,000) _______ _18,000 ______
Balances................................. 22,000 – – – 20,000 ( 1,400) 3,400
Additional loss to Briones ..... _______ _______ _______ _______ _______ __1,400 ( 1,400)
Balances................................. 22,000 – – – 20,000 – 2,000
Payment to partner................. P(22,000) – – – P(20,000) – P(2,000)
Case 2
Rivas and Briones
December 31, 2011
Partners' Capitals
Balances before liquidation ... P20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000 P10,000
distribution of loss .......... 134,000 ( 200,000) _______ ______ _______ ( 46,200) ( 19,800)
Balances................................. 154,000 – 132,000 18,000 20,000 ( 6,200) 9,800
Payment of liabilities ............. ( 132,000) _______ ( 132,000) ______ _______ _______ ______
Balances................................. 22,000 – – 18,000 20,000 ( 6,200) 9,800
Offset loan against capital
deficiency ........................ ________ _______ _______ ( 6,200) ( 9,800) __6,200 __9,800
Balances................................. 22,000 – – 11,800 10,200 – –
Payment to partner................. P(22,000) – – P(11,800) P(10,200) – –
Case 3
Rivas and Briones

December 31, 2011
Partners' Capitals
Balances before liquidation ........ P 20,000 P200,000 P132,000 P 18,000 P20,000 P40,000 P10,000
distribution of loss ............... _134,000 ( 200,000) _______ _______ ______ ( 33,000) ( 33,000)
Balances ..................................... 154,000 – 132,000 18,000 20,000 ( 7,000) ( 23,000)
Payment of liabilities .................. ( 132,000) _______ ( 132,000) __ _ _______
Balances ..................................... 22,000 – – 18,000 20,000 ( 7,000) ( 23,000)
Offset Briones'' loan against
his capital deficiency ........... _______ _______ _______ _______ ( 20,000) ______ _20,000
Balances ..................................... 22,000 – – 18,000 – 7,000 ( 3,000)
Additional loss to Rivas.............. _______ _______ _______ _______ _______ ( 3,000) __3,000
Balances ..................................... 22,000 – – 18,000 – 4,000 –
Payment to partner...................... P(22,000) – – P(18,000) – P( 4,000) –
Journal Entries
Case 1:
Cash ..... .... ................................................................................................... 134,000
Rivas, Capital................................................................................................ 59,400
Briones, Capital ............................................................................................ 6,600
Other Assets ........................................................................................... 200,000
Liabilities .. ................................................................................................... 132,000
Cash ... ................................................................................................... 132,000
Rivas, Loan ................................................................................................... 18,000
Rivas, Capital ........................................................................................ 18,000
Briones, Capital ............................................................................................ 1,400
Rivas, Capital ........................................................................................ 1,400
Briones, Loan ................................................................................................ 20,000
Briones, Capital ............................................................................................ 2,000
Cash ................................................................................................... 22,000
Case 2:
Cash ..... .... ................................................................................................... 134,000
Rivas, Capital................................................................................................ 46,200
Briones, Capital ............................................................................................ 19,800
Other Assets ........................................................................................... 200,000
Liabilities .. ................................................................................................... 132,000
Cash ... ................................................................................................... 132,000
Rivas, Loan ................................................................................................... 6,200
Briones, Loan ................................................................................................ 9,800
Rivas, Capital ........................................................................................ 6,200
Briones, Capital ..................................................................................... 9,800
Rivas, Loan ................................................................................................... 11,800
Briones, Loan ................................................................................................ 10,200
Cash ... ................................................................................................... 22,000
86 Chapter 4

Case 3:
Cash .... ... ........................................................................................... 134,000
Rivas, Capital ..................................................................................... 33,000
Briones, Capital .................................................................................. 33,000
Other Assets ................................................................................. 200,000
Liabilities ........................................................................................... 132,000
Cash.. ........................................................................................... 132,000
Briones, Loan...................................................................................... 20,000
Briones, Capital ........................................................................... 20,000
Rivas, Capital ..................................................................................... 3,000
Briones, Capital ........................................................................... 3,000
Rivas, Loan ......................................................................................... 18,000
Rivas, Capital ..................................................................................... 4,000
Cash.. ........................................................................................... 22,000
Problem 4 – 2
Blando and Castro

April 30, 2011
Partners' Capitals
A s s e t s Accounts Blando, Blando Castro
Cash Receivables Inventory Others Payable Loan (60%) (40%)
Balances before
liquidation .................... P 18,000 P75,000 P90,000 P84,000 P42,000 P 24,000 P102,000 P99,000
Collection of
receivables and
distribution of loss ....... _37,500 ( 75,000) _______ _______ _______ _______ ( 22,500) ( 15,000)
Balances ............................ 55,500 – 90,000 84,000 42,000 24,000 79,500 84,000
Realization of
inventory and
distribution of
loss............................... _30,000 _______ ( 90,000) _______ _______ _______ ( 36,000) ( 24,000)
Balances ............................ 85,500 – – 84,000 42,000 24,000 43,500 60,000
Realization of other
assets and distribution
of loss .......................... _40,000 _______ _______ ( 84,000) _______ _______ ( 26,400) ( 17,600)
Balances ............................ 125,500 – – – 42,000 24,000 17,100 42,400
Payment of accounts
payable......................... ( 42,000) _______ _______ _______ ( 42,000) _______ _______ _______
Balances ............................ 83,500 – – – – 24,000 17,100 42,400
Payments to partners….. … P(83,500) – – – – P(24,000) P( 17,100) P(42,400)
Problem 4 – 3
a. Electric Company
Statement of Partnership Realization and Liquidation
June 30, 2011
Capital Balances
Amp. Noncash Liabil- Volt, Amp Volt Watt
Cash Loan Assets ities Loan 50% 30% 20%
Balances 20,000 15,000 135,000 30,000 10,000 80,000 36,000 14,000
Sale of
assets at a loss _95,000 ______ (135,000) ______ ______ (20,000) (12,000) ( 8,000)
115,000 15,000 -0- 30,000 10,000 60,000 24,000 6,000
Payment to
creditors _(30,000) ______ _______ (30,000) ______ _______ ______ ______
85,000 15,000 -0- -0- 10,000 60,000 24,000 6,000
Offset Amp,
receivable (15,000) (15,000)
Payments to partners:
Loan (10,000) (10,000)
Capitals _(75,000) ______ _______ _______ ______ (45,000) (24,000) ( 6,000)
Balances -0- -0- -0- -0- -0- -0- -0- -0-
b. (1) Cash 95,000
Amp, Capital 20,000
Volt, Capital 12,000
Watt, Capital 8,000
Noncash Assets 135,000
Sell noncash assets at a loss of P40,000.
(2) Liabilities 30,000

Cash 30,000
Pay creditors.
(3) Amp, Capital 15,000

Amp, Loan 15,000
Offset receivable from Amp against his capital credit.
(4) Volt, Loan 10,000

Amp, Capital 45,000
Volt, Capital 24,000
Watt, Capital 6,000
Cash 85,000
Final lump-sum distribution to partners.
Note: All partners permitted Amp to offset his receivable against his capital credit. Alternatively, Amp
could be required to pay the partnership the P15,000 receivable; the partnership would then pay him an
additional P15,000 for his capital credit. In this case, an offset of the receivable against the capital credit is
reasonable, provided the receivable is not interest-bearing, Amp has a sufficient capital credit, Amp is
personally solvent, and the note is not secured against specific assts of Amp. The offset is not automatic,
but must be determined by the terms of the initial note, and by the partners.
88 Chapter 4
Problem 4 – 4
a. Bina, capital before liquidation ..................................................................... .................. P320,000

Payment to Bina ............................................................................................ .................. _128,000
Loss absorbed by Bina (40%) ....................................................................... .................. P192,000
Loss on realization (P192,000 ÷ 40%) .......................................................... .................. P480,000
b. AIDA, BINA & CELIA

Statement of Partnership Liquidation
January 1, 2011
Capital
Cash Other Assets Aida Bina Celia
(5) (4) (1)
Balances before liquidation . P80,000 P720,000 P320,000 P320,000 P160,000
Realization & dist. of loss ... 240,000 ( 720,000) ( 240,000) ( 192,000) ( 48,000)
Balances .... .... .................... 320,000 – 80,000 128,000 112,000
Settlement to partners ......... (320,000) _______ ( 80,000) ( 128,000) ( 112,000)
Problem 4 – 5
a. LL, capital before liquidation........................................................................ .................. P 70,000

Settlement to LL ........................................................................................... .................. __98,000
Gain realized by LL (20%) ........................................................................... .................. P 28,000
Total gain on realization (P28,000 ÷ 20%) ................................................... .................. P140,000

Other assets sold ........................................................................................... .................. _500,000
Selling price .............................................................................................. .................. P640,000
b. JJ, KK & LL
Other Capital
Cash Assets Liabilities JJ (4) KK(4) (LL(2)
Balances before liquidation ... P50,000 P500,000 P60,000 P180,000 P240,000 P70,000
Realization & Dist. of gain ... 640,000 ( 520,000) _______ __56,000 __56,000 _28,000
Balances .... .... ...................... 690,000 – 60,000 236,000 296,000 98,000
Payment of liabilities ............ ( 60,000) ( 60,000)
Payment to Partners .............. (630,000) _______ _______ ( 236,000) ( 296,000) ( 98,000)
Problem 4 – 6
a. BB ................................................... P160,000
CC ................................................... P20,000
DD................................................... P60,000
EE ................................................... P –0–
b. BB, CC, DD, & EE

C a p i t a l
Cash Liabilities BB (30%) CC (10%)DD (20%) EE (40%)
Balances before liquidation ... P 0 P60,000 P160,000 P80,000 (P120,000) P(180,000)
Advances by BB to pay liabilities ( 60,000) 60,000
Deposit by DD ...................... 60,000 ______ _______ _______ __60,000 ________
Balances .... .... ...................... 60,000 –220,000 80,000 ( 60,000) ( 180,000)
Elimination of EE's deficiency ( 90,000) ( 30,000) ( 60,000) 180,000
Elimination of DD's deficiency ______ __( 90,000) ( 30,000) 120,000 –
Payment to partners............... 60,000 – 40,000 20,000 – –
Problem 4 – 7
Sayson and Company

–Date–
Liabilities P a r t n e r s' C a p i t a l s
Assets Accounts Notes Peña Sayson Zobel Ayala Peña
Cash Noncash Payable Payable Loan (45%) (30%) (15%) (10%)
Balances before liquidation... P 15,000 P155,250 P11,250 P9,000 P 1,500 P 75,345 P 86,498 P(14,993) P1,650
distribution of gain .......... 185,000 ( 155,250) _______ ______ ______ 17,850 11,900 ______ ______
Balances................................ 200,000 - 11,250 9,000 1,500 93,195 98,398 ( 14,993) 1,650
Payment of liabilities ............ ( 20,250) ________ ( 11,250) ( 9,000) ______ ______ ______ _______ ______
Balances................................ 179,750 - - - 1,500 93,195 98,398 ( 14,993) 1,650
Additional loss to Sayson,
Zobel and Peña;
45:30:10 .......................... _______ ________ ________ ______ ______ ( 7,937) ( 5,292) 14,993 ( 1,764)
Balances................................ 179,750 - - - 1,500 85,258 93,106 - (114)
Offset Peña's loan against
his capital deficiency ....... _______ ________ ________ ______ ( 114) ______ ______ _______ 114
Balances................................ 179,750 - - - 1,386 85,258 93,106 -
Payments to partners ............. P(179,750) P(1,386) P(85,258) P(93,106)
90 Chapter 4
Problem 4 – 8
a. Art, Bea and Cid Partnership
June 4, 2011
Assets Partners' Capital

Cash Other Liabilities Art (40%) Bea (40%) Cid (20%)
Balances before liquidation
(including Bea loan, P4,000) ...... P 6,000 P94,000 P20,000 P27,000 P43,000 P10,000
Realization of assets
at a loss of P63,300 .................. 30,000 ( 94,000) (25,320) (25,320) (12,660)
Unrecorded accounts payable ......... 500 (200) (200) (100)
Payment to creditors ....................... (20,500) ______ (20,500) ______ ______ ______
Balances .... .... ................................ 16,200 - - 1,480 17,480 (2,760)
Eliminate Cid's deficit ..................... ______ ______ ______ (1,380) (1,380) _2,760
Balances .... .... ................................ 16,200 - - 100 16,100
Payment to Partners ........................ (16,200) - - _( 100) ( 16,100) -
b.
2011
July 5 Cash .... .... ................................ ............. .................. .................. 30,700
Art capital (P63,300 x 40%) ...... ............. .................. .................. 25,320
Bea capital (P63,300 x 40%) ..... ............. .................. .................. 25,320
Cid capital (P63,300 x 20%) ...... ............. .................. .................. 12,660
Other assets ...................... ............. .................. .................. 94,000
To record realization of other assets at a loss of P63,300.
Art capital (P500 x 40%) ........... ............. .................. .................. 200

Bea capital (P500 x 40%) .......... ............. .................. .................. 200
Cid capital (P500 x 20%) ........... ............. .................. .................. 100
Liabilities .......................... ............. .................. .................. 500
To record trade accounts payable.
Liabilities .. ................................ ............. .................. .................. 20,500

Cash . ................................ ............. .................. .................. 20,500
To record payment of liabilities.
Art capital . ................................ ............. .................. .................. 1,380

Bea capital ................................ ............. .................. .................. 1,380
Cid capital ........................ ............. .................. .................. 2,760
To eliminate Cid's capital deficit.
Art capital . ................................ ............. .................. .................. 100

Bea capital ................................ ............. .................. .................. 4,000
Cid capital . ................................ ............. .................. .................. 12,100
Cash . ................................ ............. .................. .................. 16,200
To record payments to partners to complete liquidation.
c. Cid's loss must be limited to P5,000, or P25,000 for the partnership (P5,000 / 20% = P25,000).
Because the liquidation of liabilities results in a loss of P500, only P24,500 may be lost on the
realization of other assets. This requires that other assets realize P69,500 (P94,000 – 24,500) to
enable Cid to receive P5,000 from the partnership to pay personal creditors in full.
Problem 4 –9
KGB Partnership
Statement of Realization and Liquidation
Lump-sum Liquidation on June 30, 2011
- Capital Balances -
Noncash G K G B
Cash Assets Liabilities Loan 20% 40% 40% -
Preliquidation balances 50,000 950,000 (480,000) (60,000) (240,000) (100,000) (120,000)
Sale of assets
and distribution
of 430,000 loss 520,000 950,000 - - 86,000 172,000 172,000
570,000 -0- (480,000) (60,000) (154,000) 72,000 52,000
Cash contributed
by B 50,000 - - - - - 50,000
620,000 -0- (480,000) (60,000) (154,000) 72,000 2,000
Distribution of deficit
of insolvent partner: (2,000)
20/60 (P2,000) 666
40/60 (P2,000) - - - - - 1,334 -
620,000 -0- (480,000) (60,000) (153,334) 73,334 -0-
Offset deficit with loan - - - 60,000 - (60,000) -
620,000 -0- (480,000) -0- (153,334) 13,334 -0-
Contribution by G 13,334 - (13,334) -
633,334 -0- (480,000) -0- (153,334) -0- -0-
Payment of creditors (480,000) - 480,000 - - - -
153,334 -0- -0- -0- (153,334) -0- -0-
Distribution to K (153,334) - - 153,334 - -
Postliquidation
balances -0- -0- -0- -0- -0- -0- -0- -
92 Chapter 4
KGB Partnership
Schedule of Distribution of Personal Assets
June 30, 2011
K G B
Personal assets, excluding partnership
capital and loan interests 500,000 600,000 700,000
Personal liabilities (460,000) (480,000) (650,000)
Personal net worth, excluding
partnership capital and loan
interests 40,000 120,000 50,000
Contribution to partnership (13,334)
Distribution from partnership 153,334 -0- - -0- -
Personal capacity 193,334 106,666 -0- -
Joint Venture 113
CHAPTER 6
SOLUTIONS TO MULTIPLE CHOICES
6-1: a
Assets per Jessica Company- balance sheet P3,550,000
Jessica’s proportionate interest in assets of JV (50%) 1,000,000
Total assets of Jessica P4550,000
6-2: a Total liabilities only of Jenny Co.
6-3: b
6-4: b
Investment of Heart P80,000
Profit share:
Sales 150,800
Cost of sales (150,800 ÷ 125%) 120,640
Gross profit 30,160
Expenses 10,000
Net Profit 20,160
Profit/loss ratio x 40% 8,064
Balance of investment in JV P88,064
6-5: a
Cash P190,000
Merchandise inventory 29,360
Total assets 370,160
Sweet Co’s, proportionate interest x 60%
Sweet Company’s share in total asset P222,096
6-6: a
Sales 7,200
Cost of sales
Purchases P10,000
Merchandise inventory, end (50% of P10,000) __5,000 _5,000
Gross profit 2,200
Expenses ___500
Net profit P 1,700
114 Chapter 6
6-7: b
Original investment (cash) P10,000
Profit share (P1,700 / 2) ___850
Balance of Investment account P10,850
6-8: a
Joint venture account before profit distribution (credit balance) P 9,000
Unsold merchandise __2,500
Joint venture profit before fee to Salas P11,500
Joint venture profit after fee to Salas (P11,500 / 115%) P10,000
6-9: b
Fee of Salas (P10,000 x 15%) P 1,500
Profit share of Salas (P10,000 x 25%) _2,500
Total P 4,000
6-10: b
Salas Salve
Balance before profit distribution P 500 (dr) P 2,000 (cr)
Profit share:Sabas (P10,000 x 40%) 4,000
Salve (P10,000 x 35%) ______ _3,500
Balance P 3,500 (cr) P 5,500 (cr)
6-11: d
Joint venture account balance before profit distribution (debit) P 6,000
Joint venture profit (P4,500 x 3) _13,500
Cost of unsold merchandise (inventory) taken by Dante P19,500
6-12: b
Edwin Capital:
Debits: Balance before profit distribution P14,000
Credits: Profit share __4,500
Due from Edwin (debit balance) P 9,500
Joint Venture 115
6-12, continued
Settlement to Ferdie (Balance of capital account)

Debits: P –0–
Credits: Balance before profit distribution P16,000
Profit share __4,500 _20,500
Due to Ferdie (credit balance) P20,500
Settlement to Dante (balance of JV Cash account)

Debits: Balance before cash settlement P30,000
Due from Edwin __9,500 P39,500
Credits: Due to Ferdie _20,500
Balance P19,000
6-13: a
JV account balance before profit distribution (cr) P 4,600
Unsold merchandise (required dr balance after profit distribution) __2,000
Joint venture profit before fee to Jerry P 6,600
Joint venture profit after fee (P6,600 / 110%) __6,000
Fee to Jerry P 600
6-14: d
Harry Capital Isaac Capital
Balances before profit distribution (P 200) P 1,800
Harry P6,000 x 50%) 3,000
Isaac (P6,000 x 20%) 1,200
Cash settlements P 2,800 P 3,000
6-15: b
Sales P14,000
Cost of sales:
Merchandise inventory, beg (contributions) P14,000
Freight 300
Purchases __4,000
Goods available for sale P18,300
Merchandise inventory, end (P8,300/2) __4,150 14,150
Gross profit (loss) (150)
Expenses (P400 + P200) __600
Net profit (loss) P( 750)
6-16: c
Contributions to the Joint Venture (P5,000 + P8,000) P13,000
Loss share (P750 x 50%) ( 375)
Unsold merchandise taken (withdrawal) ( 4,150)
Final settlement to jack P 8,475
116 Chapter 6
Problem 6 – 1
Books of Blanco (Manager) Books of Ablan
JV Cash 100,000 Investment in JV 90,000

Joint Venture 90,000 Merchandise inventory 90,000
Cash 100,000
Ablan Capital 90,000
Joint Venture 60,000

JV cash 60,000

JV cash 20,000
JV cash 200,000
Computation of JV Profit
Total debit to JV P170,000

Total credit to JV P200,000
Credit balance (Profit) P 30,000
Distribution of Profit:
Joint Venture 30,000 Investment in JV 15,000

Profit from JV 15,000 Profit from JV 15,000
Ablan capital 15,000
Ablan capital 105,000 Cash 105,000

JV cash 105,000 Investment in JV 105,000
Cash 155,000
JV cash 155,000
Joint Venture 117
Problem 6 – 2
Requirement (1) - Books of the Joint Venture
1. Computer equipment 105,000

Ella capital 60,000
Fabia capital 45,000
2. Purchases 80,000
Supplies 2,000
Diaz capital 82,000
3. Expenses 9,000
Diaz capital 9,000
4. Cash 150,000
Sales 150,000
5. Expenses 30,000
Cash 30,000
6. Merchandise inventory 20,000

Ella capital 20,000
7. Fabia capital 10,000

Cash 10,000
8. Adjusting and closing entries:
(a) Expense 1,500

Supplies 1,500
(b) Sales 150,000


Merchandise inventory, beg (Investment of Ella) 20,000
Purchases 80,000

Expenses 40,500
Distribution of profit:
Diaz capital 4,000
Ella capital 4,000
Fabia capital 4,000
118 Chapter 6
Requirement #2
Books of Diaz Books of Ella Books of Fabia

Investment in JV 91,000 Investment in JV 80,000 Investment in JV 45,000
Cash 91,000 Comp. Equip. 60,000 Comp. Equip. 45,000
MI 20,000
Cash 10,000
Investment in JV 10,000

Inv. Income 4,000 Inv. Income 4,000 Inv. Income 4,000
Cash (110,000 x 44%) 48,000* Cash (110,000x38.5%) 42,350 Cash (110,000 x 17.5%) 19,000
C.E (105,000 x 44%) 46,000* CE (105,000 x38.5%) 40,000* CE (105,000 x 17.5%) 18,000
MI (2,500 x 44%) 1,100 MI (2,500 x 38.5%) 960* MI (2,500 x 17.5%) 400
Supplies (500 x 44%) 200* Supplies (500 x 38.5%) 190* Supplies (500 x 17.5%) 90
COS (97,500 x 44%) 42,900 COS (97,500 x 38.5%) 37.500* COS (97,500 x 17.5%) 17,000
Expense (40,500 x44%) 17,800 Exp (40,500 x 38.5%) 16,000* Exp (40,500 x 17.5%) 7,000
Inv. Income 4,000 Inv. Income 4,000 Inv. Income 4,000
Sales (150,000x44%) 66,000 Sales (150,000 x 38.5%) 57,000* Sales (150,000 x 17.5%) 26,000
*rounded to balance *rounded to balance Diff. of P490 due to rounding of the

amounts.
Note. Under the proportionate consolidation method, difference will exist in the journal entry
(see above) because the profit and loss ratio (equally) is not equal to the venturer’s capital
interest as computed below:
Computation of capital interest:
Diaz Ella Favia Total

Investments P91,000 P80,000 P45,000 P196,000
Withdrawal (10,000) (10,000)
Profit share 4,000 4,000 4,000 12,000
Venturer’s capital P95,000 P84,000 P39,000 P218,000
Interest in the Joint Venture

Diaz (P95,000/P218,000) 44%
Ella (P84,000/P218,000) 38.5%
Favia (P39,000/P218,000) 17.5%
It may be concluded that the proportionate consolidation method can be properly applied only if
the profit and loss ratio and the venturer’s capital interest are equal.
In US GAAP there is an exposure draft to eliminate the proportionate consolidation method. US

GAAP favor the use of the equity method contrary to IFRS No. 31 which favors the use of the
proportionate consolidation method
Joint Venture 119
Problem 6 – 3
(1) No Separate Set of Joint Venture Books is Used
Books of Duran (Manager)
May 1: Joint Venture 12,500

Castro capital 12,000
Cash 500
7: JV cash 10,000
Bueno capital 10,000
26: Joint Venture 9,500

JV cash 9,500
30: JV accounts receivable 16,000

June 30: JV cash 15,000

JV accounts receivable 15,000
27: JV cash 9,000

Joint Venture 9,000
30: To record unsold merchandise taken by Duran:

Joint Venture 3,000
To record profit distribution:
Joint Venture 6,000

Profit from JV 2,000
Bueno capital 2,000
To record settlements:

JV cash 24,500
Cash 1,500

JV accounts receivable 1,000
120 Chapter 6
Books of Bueno
May 7: Investment in Joint Venture 10,000

Cash 10,000
June 30: Investment in Joint Venture 2,000

Profit from Joint Venture 2,000
Cash 12,000
Investment in Joint Venture 12,000
Books of Castro
May 1: Investment in Joint Venture 12,000


Cash 14,000
(2) A Separate Set of Books is used:
Books of the Joint Venture
May 1: Merchandise inventory 12,500

Duran capital 500
7: Cash 10,000
26: Purchases 9,500

Cash 9,500
30: Accounts receivable 16,000

Sales 16,000
June 20: Cash 15,000

27: Cash 9,000

Sales 9,000
Joint Venture 121
June 30: Closing entries:
Sales 25,000

Merchandise inventory, end 3,000
Purchases 9,500
Distribution of profit:

Bueno capital 2,000
Duran capital 2,000
Settlements to Venturers:

Duran capital 2,500
Cash 24,500
Books of Duran (Manager/Operator)
May 1: Investment in Joint Venture 500

Cash 500

Cash 2,500
Books of Bueno and Castro (Same as in No. 1 requirement)

122 Chapter 6
Problem 6 – 4
(1) Books of Seiko (Manager/Operator)
April 1: JV Cash 102,000

Notes payable – PNB 34,000
Roles capital 34,000
Timex capital 34,000
May: Joint venture 64,100

Cash 16,300
Rolex capital 7,800
June: Rolex capital 30,000

JV cash 30,000
Joint venture 111,400

Cash 37,400
Rolex capital 64,700
Timex capital 9,300
July: Cash 40,000

JV cash 65,000

Cash 13,970
August: Cash 45,000

JV cash 125,500

Cash 9,730
Timex capital 4,310
To record sales:
JV cash (P421,000 x 96%) 404,160

Joint Venture 123
To record payment of loan to PNB:

Joint venture (Interest expense) 8,000
JV cash 110,000
To record distribution of profit:

Gain from JV (30%) 40,287
Rolex capital (60%) 80,574
Timex capital (10%) 13,429
Computed as follows:
Total debits tot he JV account P269,870

Total credits to the JV account _404,160
Gain (credit balance) P134,290
To record settlement:
Cash 32,687
Times capital 14,099
JV cash 175,660
Computations:
Settlement to Rolex - Balance of capital account:
Debits: June P30,000

July 15,000
August 67,000
Payment of note payable _34,000 P146,000
Credits: April 1 P34,000

May 47,800
June 64,700
July 31,240
August 16,560
Profit share _80,574 __274,874
Credit balance P 128,874

124 Chapter 6
Settlement to timex – Balance of capital account
Debits: July P 10,000

August 13,500
Payment of loan __34,000 P 57,500
Credits: April 1 P 34,000

June 9,300
July 10,560
August 4,310
Profit share __13,429 _71,599
Credit balance P 14,099
Settlement to Seiko – Balance of JV cash account
Debits: April 1 P102,000

Loan proceeds _404,160 P506,160
Credits: June P 30,000

July 65,000
August 125,500
Payment of loan _110,000 _330,500
Balance of JV cash 175,660
Less: Settlement to Rolex P128,874
Settlement to Timex __14,099 _142,973
Settlement to Seiko P 32,687
(2) Partial Statement of Financial Position

June 30, 2011
Books of Seiko (Manager/operator)
Current assets:
Investment in joint Venture:
Joint Venture assets:
Cash P 72,000
Joint Venture _175,500 P247,500
Less: Equity of other venturers
(P116,500 + P43,300) _159,800 87,700
Current liabilities:
Joint Venture 125
Computation of balances as of June 30, 2011:
JV Cash Joint Venture

April 1 P102,000 P30,000 June May P 64,100
Balance P 72,000 June _111,400
Balance P175,500
Notes Payable Rolex capital

P34,000 April June P 30,000 P 34,000 April 1
47,800 May
_______ __64,700 June
P 30,000 P146,500
P116,500
Timex capital
P34,000 April
__9,000 June
P43,300
Problem 6 – 5
Consolidated Statement of Financial Position

Cash P 61,000
Receivables 122,000
Inventory 102,500
Other assets __40,500
Accounts payable P 61,000

Other liabilities 96,500
Capital stock 50,000
Retained earnings _118,500
Total liabilities and stockholders' equity P326,000
Consolidated Income Statement

Sales P246,750
Cost of sales _124,750
Gross profit 122,000
Operating expenses __58,250
Consolidated net income P 63,750
126 Chapter 6
Problem 6 –6
(a) Journal entries on venture books
June 15: Cash 1,000,000

MacDo 1,000,000
Initial contribution at 6%
July 1: Land 2,400,000

Mortgage payable 1,650,000
Cash 750,000
Purchased land for cash and 6% mortgage.
Aug 1: Cash 1,100,000

MacDo 1,100,000
Additional contribution at 6%.
Land 950,000
Cash 950,000
Paid for improvements.
Sept 30: Mortgage payable 250,000

Interest expense- Mortgage 3,750
Cash 253,750
Reduced mortgage and paid interest.
Oct 31: Mortgage payable 400,000

Cash 408,000
Nov 30: Mortgage payable 300,000

Cash 307,500
Dec 31: Mortgage payable 200,000

Cash 221,000
Reduced mortgage and make semi-annual
interest payment.
Joint Venture 127
31: Cash 2,600,000

Sales 2,600,000
Sales to date.
31: Commissions 130,000

Cash 130,000
P2,600,000 x 5%
31: Expenses 628,100

Cash 628,100
Paid expenses
31: Interest expense- Venturer 60,000

MacDo 60,000
6% on P1,000,000 from June 15 to
December 31, and on P1,100,000
from August 1 to December 31.
31: Sales 2,600,000

Land (cost of land sold) 1,145,000
Expenses 628,100
Commissions 130,000
Interest expense- mortgage 40,250
Interest- venturer 60,000
To close income and expense accounts.
31: Income summary 596,650

MacDo 596,650
MacEn 238,660
To divide gain, 60:40.
31: MacDo 801,650

Cash 801,650
Payment on account.
(b) Journal entries on MacDo’s books:
June 15: Investment in Joint Venture 1,000,000

Cash 1,000,000
Initial contribution.
Aug 1: Investment in Joint Venture 1,100,000

Cash 1,100,000
Additional contribution.
128 Chapter 6
Dec 31: Investment in Joint Venture 60,000
Interest income 60,000
Interest earned on cash advanced.
31: Investment in Joint Venture 357,990

Gain on Joint Venture 357,990
60% of gain on venture.
31: Cash 801,650

Repayment in part of advances.
(c) MacDo and MacEn Joint Venture

Income Statement
For the period from June 15 to December 31, 2011
Sales P2,600,000
Cost of land sold:
Land P2,400,000
Improvements 950,000
Total P3,350,000
Unsold land 2,205,000 1,145,000
Gross profit 1,455,000
Expenses:
Advertising and office expenses P 628,100
Interest on mortgage 40,250
Interest on advances 60,000
Commissions 130,000 858,350
Net gain P 596,650
Distributions:
MacDo (P596,650 x 60%) P 357,990
MacEn (P596,650 x 40%) 238,660
Mac Do and MacEn Joint Venture

December 31, 2011
Assets
Cash P 250,000
Land 2,205,000
Total Assets P2,455,000
Liabilities and equity:

Mortgage payable P 500,000
MacDo 1,716,340
MacEn 238,660
Total liabilities and equity P2,455,000
Joint Venture 129
Venturers equity (interest)

MacDo MacEn Total
Invested P2,100,000 P2,100,000
Shares:
Gain P 357,990 P238,660 P 596,650
Interest on advances 60,000 60,000
Commissions 130,000 130,000
Total 417,990 368,660 786,650
Balances 2,517,990 368,660 2,886,650
Withdrawn (801,650) (130,000) (931,650)
Equity (interests) P1,716,340 P238,660 P1,955,000
130 Chapter 7
CHAPTER 7
7-1: c
Amount realized secured by inventory P 30,000

Unsecured claim (P10,000 x 25%) __2,500
Total amount received P 32,500
7-2: d
Amount realized secured by inventory P120,000
Unsecured claim (P88,000 x 75%) __66,000
Total amount received P186,000
7-3: d (P15,000,000 + P200,000)
7-4: a
Realizable value:
Current assets P 50,000
Land and building P240,000
Less mortgage payable _200,000 __40,000
Total 90,000
Less accounts payable _160,000
Estimated deficiency to unsecured creditors P 70,000
7-5: c
Total realizable value to unsecured creditors (P90,000)/total unsecured
Claims (P160,000) = 56.25%
7-6: a
Free assets:
Current assets P 33,000
Buildings and equipment _110,000
Total P143,000
Liabilities with priority:

Administrative expenses P 20,000
Salary payable 6,000
Income taxes __8,000
Total P 34,000
Corporation in Financial Difficulty – Liquidation 131
7-6, continued:
Free assets after payment of liabilities with priority:
(P143,000 – P34,000) P109,000
Unsecured liabilities
Notes payable P 30,000
Bonds payable __70,000
Total P183,000
Percentage of Unsecured liabilities to be paid: P109,000 / P183,000 = 60%
Payment of notes payable:

Value of security (land) P 90,000
60% of remaining P30,000 __18,000
Total collected P108,000
7-7: c
Free assets:
Other assets P 80,000
Excess from assets pledged with secured
Creditors (P116,000 – P70,000) __46,000
Total P126,000
Liabilities with priority P 42,000

Free assets after payment of liabilities with priority
(P126,000 – P42,000) P 84,000
Unsecured liabilities:
Excess of partially secured liabilities over pledge
Assets (P130,000 – P50,000) P 80,000
Unsecured creditors _200,000
Total P280,000
Recovery percentage: P84,000 / P280,000 = 30%
Payment of partially secured debt:

Value of pledged assets P 50,000
30% of remaining P80,000 __24,000
Total collected P 74,000
132 Chapter 7
7-8: a
The holder of Debt Two will receive P100,000 from the sale of the pledged
asset. Since the holder wants to receive P142,000 out of the total debt of
P170,000, the company must be able to generate enough cash to pay off
60% of the unsecured liabilities (P42,000/P70,000) after paying 100% of
the liabilities with priority (P110,000).
Unsecured liabilities:
Unsecured creditors P230,000
Excess liability of Debt One in excess of pledged
Asset (P210,000 – P180,000) 30,000
Excess liability of Debt Two in excess of pledged
Asset (P170,000 – P100,000) __70,000
Total unsecured liabilities P330,000
Necessary percentage ____60%
Cash needed for these liabilities P198,000
In order for the holder of Debt Two to received exactly P142,000, the other free assets
must be sold for P308,000. With that much money, the liabilities with priority
(P110,000) can be paid with the remaining P198,000 going to the unsecured debts of
P330,000. This 60% figure would insure that the holder of Debt Two would get
P100,000 from the pledged asset and P42,000 (P70,000 x 60%) from the free assets.
7-9: a
Estate equity, beg. (P100,000 – P85,000) P 15,000
Loss on realization (P100,000 – P75,000) ( 25,000)
Unrecorded liabilities:
Interest expense P 250
Administrative expense 4,000 ( 4,250)
Estate deficit P( 14,250)
7-10: c
Total assets at net realizable value P 75,000
Fully secured liabilities (40,000)
Estimated administrative expense _( 4,000)
Estimated amount available P 31,000
Unsecured claims (P45,000 + P250) (45,250)
Estimated deficiency to unsecured creditors P 14,250
7-11: b
Assets pledged with fully secured creditors P185,000
Fully secured creditors _130,000 55,000
Free assets _160,000
Total free assets 215,000
Less: Liabilities with priority __35,000
Available to unsecured non-priority claims P180,000
7-12: b
Machinery P 10,000
Recoveries of unsecured claims (50,000 - 10,000) X .50 __20,000
Amount to be realized P 30,000
7-13: b
Notes Payable P 23,940
Less: Inventories _ 19,200
Unsecured Liabilities 4,740
% of recovery ____78%
Recovery 3,697
Add: Inventories _19,200
Amount to be received by Wood P 22,897
7-14: a - P7,000
7-15: a - P30,000
7-16: b - P57,200 [52,000 + (8,000 X .65)]
7-17: d - P72,800 (112,000 X .65)
7-18: d
Estimated loss:
Account Receivable P 8,160
Inventories (28,000 - 18,500) 9,500
Building (59,000 - 22,000) 3 7,000
Equipment (5,600 - 2,000) 3,600
Goodwill 5,650
Prepaid expenses ___430 P 64,340
Less: Stockholder's equity
Common stock P 72,000
Deficit ( 16,660) _55,340
Estimated deficiency P 9,000
134 Chapter 7
7-19: d
Accounts Receivable (39,350 - 16, 110) P 23,240
Notes Receivable (18,500 - 12,500) 600
Inventories (87,850 - 45,100) 42,750
Prepaid expenses 950
Equipment (48,800 - 9,000) __39,800
Total estimated loss P112,740
7-20: b P33,750 (95,000 - 61,250) on Land and Building
7-21: d
Total Free Assets:
Balance of Assets Pledged to
Fully Secured Creditor (95,000 - 90,000) P 5,000
Free Assets:
Cash P 2,700
Accounts Receivable 16,110
Inventories 45,100
Equipment __9,000 __72,910
Total 77,910
Less: Unsecured liabilities with priority (1,850 + 4,650) ___6,500
Net Free Assets P 71,410
Divide by Unsecured creditors:
Balance of Partially Secured Creditor
Notes Payable - PNB P 15,000
Notes Receivable __12,500 2,500
Accounts Payable 52,500
Notes Payable __51,250 103,750 ÷ P106,250
Estimated recovery % 67%
7-22: d
Fully secured (Notes Payable) P 90,000
Partially secured:
Notes Payable - PNB P12,500
Add (2,500 X 67%) __1,675 14,175
Unsecured Creditor with Priority 6,500
Unsecured Creditor without Priority (103,750 X 67%) __69,513
Total P180,188
7-23: a
Unsecured creditors without priority P1,102,500
Estimated deficiency to unsecured creditors:
Loss on realization 551,250
Estimated liquidation expenses 55,125
Total 606,375
Stockholders’ equity 441,000 165,375
Net free assets 937,125
Liabilities with priority 122,500
Free assets P 1,059,625
7-24: a
Estimated net gain (loss) on realization:
Gain on realization 78,750
Loss on realization (336,700) (257,950)
Estimated claims ( 43,750)
Total (301,700)
Stockholders equity 295,750
Estimated deficiency P( 5,950)
7-25: a
Notes payable (175,000 – 140,000) P 35,000
Unsecured liabilities (420,000 – 52,500) 367,500
Total 402,500
Net free assets (157,500 + 210,000) – P52,500 315,000
Estimated deficiency 87,500
7-26: a
Old receivable (net) P 38,000
Marketable securities 12,000
Old inventory 60,000
Depreciable assets- net 96,000
Total assets to be realized P206,000
7-27: a
Old receivable P 21,000
New receivable 47,000
Marketable securities 10,500
Sales of inventory 75,000
Total asset realized P153,500
7-28: a
Gain on sale of inventory (P75,000 – 60,000) 15,000
Loss on realization:
Marketable securities (12,000 – 10,500) 1,500
Trustee’s expenses 4,300
Depreciation 16,000 (21,800)
Net loss P( 6,800)
136 Chapter 7
7-29: Correction of the problem: The book value of the Mortgage Payable should be P440,000.
1. c
Net free assets:

Cash P 40,000
Inventory 140,000
Property and equipment (P560,000 – P440,000) 120,000
Total free assets P300,000
Less liabilities with priority 160,000
Amount available for unsecured claims without priority P140,000
2. a
Net free assets / Unsecured creditors without priority

P140,000 / (P50,000 + P300,000) = 40%
3. a
Unsecured liabilities with priority P160,000

Fully secured liabilities (Mortgage payable) 440,000
Partially secured liabilities (Note payable):
Secured by accounts receivable P150,000
Unsecured (P50,000 x 40%) 20,000 170,000
Unsecured liabilities without priority 120,000
Total estimated payment to creditors P890,000
7-30: 1. a
Debits:
Assets to be realized P 330,000
Assets acquired 360,000
Liabilities liquidated 360,000
Liabilities not liquidated 450,000
Supplementary charges 468,000
Total P1,968,000
Credits:
Assets realized P 420,000
Assets not realized 150,000
Liabilities to be liquidated 540,000
Liabilities assumed 180,000
Supplementary credits P1,800,000
Net loss P 168,000
7-3-, continued:
2. a
Capital stock P300,000

Retained earnings 120,000
Liabilities not liquidated 450,000
Less assets not realized 150,000
Cash balance P720,000
7-31: 1. a
2. a
3. a
4. d
Supporting computations:
Fully Partially Unsecured Unsecured

Liabilities Secured Secured W/Priority W/O Prio. Total
Accounts payable P130,000 P150,000 P 280,000
Note payable – A P560,000 40,000 600,000
Note payable – B 300,000 200,000 500,000
Mortgage payable 180,000 180,000
Accrued interest 12,000 12,000
Other liabilities P10,000 14,000 24,000
Total P322,000 P860,000 P10,000 P404,000 P1,596,000
Realizable
Assets to be applied: Value
Inventory P 150,000 P130,000 P 20,000 P 150,000
Inventory 200,000 P200,000 200,000
Receivables 360,000 360,000 360,000
Equipment 300,000 300,000 300,000
Equipment 60,000 60,000 60,000
Land 260,000 192,000 68,000 260,000
Cash 60,000 P10,000 50,000 60,000
Other assets 45,000 45,000 45,000
Total P1,435,000 P322,000 P860,000 P10,000 P243,000 P1,435,000
Recovery 100% 100% 100% 60.15%
5. d
Total consideration to be received by Note B:
Partially secured portion P300,000
Unsecured portion (P200,000 x 60.15%) 120,300
Total consideration received P420,300
138 Chapter 7
Problem 7 – 1
(A) Laguna Company
Statement of Affairs
October 31, 2011
Book Estimated
Value Assets Realizable Value Free Assets
Assets pledge for fully secured creditors:
P107,000 ... Plant assets .................................................. P67,400
Less; Fully secured liabilities...................... _ 50,400 P17,000
Assets pledged for partially secured creditors:
39,000 . ... Inventories................................................... P18,000
Free Assets:
4,000 .. ... Cash............................................................. P 4,000
46,000 .. ... Accounts, receivable ................................... 46,000
2,000 .. ... Supplies ....................................................... __1,500 _51,500
Total free assets ............................................... P68,500
Less: Unsecured liabilities with priority.......... __7,000
Net Free Assets................................................ P61,500
Estimated deficiency to unsecured creditors (to balance) _20,500
P198,000 P82,000
Book Creditors' Unsecured
Value Liabilities & Stockholders' Equity Claim Liabilities
Fully secured liabilities:
P50,400 ... ... Mortgage payable (including interest, P400) P50,400
Partially secured liabilities:
21,000 ... ... Notes payable .............................................. P21,000
Less: Inventory............................................ _18,000 P 3,000
Unsecured creditors with priority:
5,800 ... ... Wages payable P 5,800
1,200 ... ... Property taxes payable ................................ _1,200
Total ............................................................ P 7,000
Unsecured creditors without priority:
60,000 ... ... Accounts payable ........................................ 60,000
19,000 ... ... Notes payable .............................................. 19,000
Stockholders' Equity........................................ _____–
P198,000 P82,000
(B) Creditor Group Amount of Amount to Percentage
Claim be Paid to be paid
Unsecured liabilities with priority .................................... P7,000 P7,000 100.0%
Fully secured creditors ...................................................... 50,400 50,400 100.0%
Partially secured creditors................................................. 21,000 20,250 * 96.4%
Unsecured creditors without priority ................................ 79,000 59,250 75.0%
* P18,000 + (P3,000 X 0.75) = P20,250
(C) See statement of affairs in requirement (A)
Problem 7 – 2
VC Corporation
Statement of Realization and Liquidation
Month Ended January 31, 2011
Assets to be realized: Assets realized:

Land ....................... P10,000 land.............................. P 0
Building ................. 43,000 Building ...................... 0
Equipment .............. 28,000 Equipment ................... 8,800
Patents .................... __4,400 P85,400 Patents ......................... _12,000 P20,800
Assets Acquired .............. 0 Assets not realized:
Land ............................ P10,000
Building ...................... 43,000
Equipment ................... _13,000 66,000
Liabilities liquidated: Liabilities to be liquidated:

Account payable .... P14,000 Accounts payable ........ P80,000
Loans payable ........ __7,000 21,000 Loans payable ............. _40,000 120,000
Liabilities not liquidated:

Account payable .... 66,000
Loans payable ........ 33,000 99,000
Gain on realization ......... ............... ___7,600 Loss on realization ...... .............. ___6,200
Total ............................... ............... P213,000 Total ............................ .............. P213,000
VC Corporation
January 31, 2011
Cash ............................................... P 6,700 Accounts payable ......................... P 66,000

Land ............................................... 10,000 Loans payable .............................. 33,000
Building .......................................... 43,000 Estate deficit ................................. ( 26,300)
Equipment ...................................... _13,000
Total ............................................... P 72,700 P 72,700
VC Corporation
Estate Deficit
January 31, 2011
Gain on realization .................................................................... P 7,600

Loss in realization .................................................................... ( 6,200)
Trustee's expenses .................................................................... ( 1,300)
Net gain on realization............................................................... P 100
Estate deficit, January 1, 2011 ................................................... ( 26,400)
Estate deficit, January 31, 2011 ................................................. P(26,300)
140 Chapter 7
Problem 7 – 3
Rizal Corporation
Book Estimated Free
Values Assets Realizable Value Assets
Assets pledged to fully secured creditors:
P 80,000 ...... .... Land and building .............................................. P102,000
Less: Mortgage payable ..................................... 43,000 P 59,000
50,000 ...... .... Finished Goods .................................................. P 55,000
Less: Loan payable ............................................. 50,000 5,000
Assets pledged to partially secured creditors:

32,000 ...... .... Accounts receivable (80% x 30,000) ................. 24,000
12,000 ...... .... Trucks ................................................................ 3,500
Totals.................................................................. 27,500
Free Assets:
4,000 ...... .... Cash.................................................................... 4,000
8,000 ...... .... AR (20% x 30,000) ............................................ 6,000
36,000 ...... .... Inventory – Materials ......................................... 27,000
1,000 ...... .... Prepaid expense.................................................. 0
8,000 ...... .... Trucks ................................................................ 2,500
45,000 ...... .... Equipment .......................................................... 25,000
16,000 ...... .... Intangible ........................................................... _______ 64,500
Total Free Assets .................................................... P128,500
Less: Unsecured liability with priority (12,000 + 8,000) 20,000
Net free assets ......................................................... 108,500
________ Estimated deficiency to unsecured creditors (to Balance) 81,000
P 292,000 ...... .... Total unsecured liabilities ....................................... P189,500
Book Creditors' Unsecured

Values Liabilities and Equity Claim Liabilities
Fully secured creditors:
P 43,000 ...... .... Mortgage payable ............................................... 94,000
50,000 ...... .... Loans payable .................................................... 50,000
Total ................................................................... 144,000
Partially secured creditors':

25,000 ...... .... Bank Loan .......................................................... 25,000
Less: Receivable (80% x 30,000) ....................... 24,000 P 1,000
5,000 ...... .... Truck Loan ......................................................... 5,000
Less: trucks ........................................................ 3,500 1,500
Unsecured creditors with Priority:
12,000 ...... .... Wages payable ................................................... 12,000
8,000 ...... .... Taxes payable ..................................................... 8,000
Totals.................................................................. 20,000
Unsecured creditors:
77,000 ...... .... Accounts payable ............................................... 77,000
110,000 ...... .... Stockholder Loan ............................................... 110,000 187,000
( 38,000) ...... .... Stockholder Equity ................................................. –
P 292,000 Total ........................................................................ P189,500
Problem 7 – 4
Mapayapa Corporation
November 1
Book Estimated Free

Value Assets Realizable Value Assets
Assets pledged to fully secured creditors:
P60,000.... ... Investments ................................................. P 69,000
180,000.... ... Accounts receivable .................................... 171,000
Total ............................................................ 240,000
Less: Note payable ...................................... 210,000 P 30,000
Free assets:
66,000.... ... Cash............................................................. P 66,000
258,000.... ... Accounts receivable .................................... 193,500
291,000.... ... Merchandise inventory................................ 180,000
870,000.... ... Plant & equipment ...................................... 330,000
114,000.... ... Notes receivable .......................................... 108,300
–.... ... Patent........................................................... __12,000 _889,800
Total free assets........................................... 919,800
Less: Unsecured liabilities with priority.......... __13,800
Net free asset ............................................... 906,000
_________ Estimated deficiency (to balance) ................... 60,300
P1,839,000 Total ................................................................ P966,300
Book Creditor's Unsecured

Value Liabilities & Equity Claim Liabilities
Fully secured creditors:
P 210,000.... ... Notes payable .............................................. P210,000
Unsecured creditor with priority:
Accrued wages ............................................ P 7,200
Accrued property tax................................... ___6,600
Total ............................................................ P 13,800
Unsecured creditor:
960,000.... ... Account payable.......................................... P960,000
Accrued expenses........................................ 6,300
300,000.... ... Capital stock
__369,000.... ... Retained earnings ............................................ _______
P1,839,000 Total ................................................................ P966,300
142 Chapter 7
Problem 7 – 5
a. Total fair value of assets (estimated proceeds) .......................... P471,000

Less: Fully and partially secured creditors claim:
Notes payable, interest (secured by receivable and
inventory) ................................................................... 125,000
Bonds payable (secured by land & building) .................... 231,000 356,000
Available to unsecured creditors................................................ 115,000
Less: Unsecured creditors with priority:
Wages payable .................................................................. P 9,500
Taxes payable.................................................................... __14,000 __23,500
Amount available to unsecured creditors................................... P 91,500
b. Unsecured portion of notes payable and interests (P195-P125) P 70,000

Accounts payable ....................................................................... __95,000
Total claims of unsecured creditors ........................................... P165,000
P91,500
––––––– = 55.45%
P165,000
c. Distribution of P471,000:
Percent Total
Creditors Amount Realized Payment
Accounts payable P 95,000 .... 55.45% P 52,678
Wages payable 9,500 .... 100% 9,500
Taxes payable 14,000..... 100% 14,000
Notes payable & interests 125,000 .... 100% 125,000
70,000 55.45% 38,815
Bonds payable & interests 231,000 .... 100% _231,000
Total estimated payment ........................................ P470,993
Problem 7 – 6
1. Evergreen Company
June 30, 2011
Estimated Available for
Book Realizable Unsecured
Values ASSETS Values Creditors
Pledged with fully secured creditors:
P460,000 Land and building ..................................... P340,000
Less: Mortgage payable (including accrued interest) (330,000) P 10,000
Free Assets:
80,000 Cash ......................................................... P 80,000
140,000 Accounts receivable – net ......................... 126,000
100,000 Inventories ................................................ 84,000
120,000 Machinery – net ........................................ 40,000
100,000 Goodwill ................................................... _ _____0_ 330,000
Total free assets ........................................ ................... 340,000
Less: liabilities with priority ..................... ................... _140,000
Net free assets .......................................... ................... 200,000
Estimated deficiency (Squeeze figure) ..... ................... _130,000
P1,000,000 P330,000
LIABILITIES AND STOCKHOLDERS' EQUITY

Secured & Unsecured
Priority Non-priority
Claims Liabilities
Liabilities with priority
P120,000 Wages payable .......................................... P120,000
20,000 Property taxes payable .............................. __20,000
Total ......................................................... P140,000
Fully secured creditors
300,000 Mortgage payable ..................................... 300,000
30,000 Interest on mortgage payable .................... __30,000
Total ......................................................... P330,000
Unsecured creditors
220,000 Accounts payable ...................................... ................... P220,000
100,000 Note payable-unsecured............................ ................... 100,000
10,000 Interest payable-unsecured ....................... ................... 10,000
Stockholders' Equity
400,000 Capital stock ............................................. ___
(200,000) Retained earnings (deficit) ........................ ................... P330,000
P1,000,000
2. Settlement per peso of unsecured creditors is P.6250 (P200,000/P320,000). No payment is

made for the P10,000 unsecured interest claim.
144 ____ Chapter 7
Problem 7 – 7
1. Entries on trustee's books.

2011
March 1: Cash ............................................... ....... P8,000
Accounts receivable – net .............. ........ 16,000
Inventories ..................................... ........ 72,000
Land ............................................... ........ 40,000
Buildings – net ............................... ...... 200,000
Intangible assets ............................ ........ 52,000
Accounts payable..................... ................... P100,000
Note payable............................ ................... 80,000
Deferred revenue ..................... ................... 2,000
Wages payable......................... ................... 6,000
Mortgage payable ................... ................... 160,000
Estate equity ............................ ................... 40,000
To record custody of Kimerald Corporation.
March 1 to 31: Cash ............................................... ........ 15,200

Estate equity................................... ............. 800
Accounts receivable-net .......... ................... 16,000
To record collection of receivables and recognize loss.
Cash ............................................... ........ 38,800

Estate equity................................... ........ 33,200
Inventories ............................... ................... 72,000
To record sale of inventories at a loss.
Cash ............................................... ...... 180,000

Estate equity................................... ........ 60,000
Land......................................... ................... 40,000
Buildings-net ........................... ................... 200,000
To record sale of land and buildings at a loss.
Estate equity................................... ........ 52,000

Intangible assets ...................... ................... 52,000
To write off intangible assets.
Estate equity ........................................ ......... 16,400

Administrative expenses payable .. .................... 16,400
To accrue trustee expenses.

2. Financial Statements
Kimerald Corporation in Trusteeship
March 31, 2011
Assets
Cash ..................... ................................................. ................... P242,000
Liabilities and Deficit

Accounts payable . ................................................. ................... P100,000
Note payable-unsecured......................................... ................... 80,000
Revenue received in advance................................. ................... 2,000
Wages payable ..... ................................................. ................... 6,000
Mortgage payable ................................................. ................... 160,000
Administrative expense payable-new .................... ................... __16,400
Total liabilities ..... ................................................. ................... P364,400
Less: Estate deficit ................................................. ................... _122,400
Total liabilities net of deficit.................................. ................... P242,000

Statement of Cash Receipts and Disbursements
March 1 to 31, 2011
Cash balance, March 1, 2011 ................................. ................... P 8,000

Add: Cash receipts
Collections of receivables ............................. ..... P 15,200
Sale of inventories......................................... ........ 38,800
Sale of land and buildings ............................. ...... 180,000 _234,000
Total ..................... ................................................. ................... 242,000
Less: Cash disbursements ...................................... ................... ____–0–
Cash balance, March 31, 2011 ............................... ................... P242,000

Statement of Changes in Estate Equity
March 1 to 31, 2011
Estate equity, March 1 ........................................... ................... P 40,000

Less: Loss on uncollectible receivables.................. ....... P 800
Loss on sale of inventories ............................ ........ 33,200
Loss on sale of land and buildings ................ ........ 60,000
Loss on write off of intangibles .................... ........ 52,000
Administrative expenses ............................... ...... _16,400 _162,400
Estate deficit, March 31 ......................................... ................... P122,400
146 Chapter 7
3. Entries on trustee's books:

2011
April: Mortgage payable ..................................... ...... 160,000
Cash.................................................. ................... 160,000
To record payment of secured creditors from
proceeds from sale of Land and buildings.
Administrative expenses payable-new...... ........ 16,400

Deferred revenue ...................................... .......... 2,000
Wages payable .......................................... .......... 6,000
Cash.................................................. ................... 24,400
To record payment of priority liabilities.
Accounts payable ...................................... ........ 32,000

Note payable-unsecured............................ ........ 25,600
Cash.................................................. ................... 57,600
To record payment of P.32 per peso to unsecured
creditors (available Cash of P57,600 divided by
unsecured claims of P180,000).
Accounts payable ...................................... ........ 68,000

Note payable-unsecured............................ ........ 54,400
Estate equity ..................................... ................... 122,400
To write-off remaining liabilities and
close trustee's records.
Reorganization and Troubled Debt Restructuring 147
CHAPTER 8
8-1: a
Trade accounts payable (P52,000 + P62,700) P114,700
12% preferred stock (5,000 x P1) P 5,000
Paid in capital in excess of par (5,000 x P9) 45,000
Cash (P62,700 x P0.80) _50,160 _100,160
Gain from discharge of indebtedness P 14,540
8-2: c
8-3: c
8-4: b
Carrying value of the note payable:
Principal P600,000
Interest __60,000 P660,000
Restructured value:
Principal P400,000
Interest _110,000 _510,000
Gain on debt restructuring P150,000
8-5: d
Other income:
Fair value of land P450,000
Books value of land _360,000
Other income P 90,000
Extraordinary gain:
Book value of note payable
Principal P500,000
Interest __60,000 P560,000
Fair value of land _450,000
Extraordinary gain P110,000
8-6: a
Book value of bonds payable P500,000
Par value of preferred stock (5,000 shares x P100) _500,000
No gain no loss P –0–
148 Chapter 8
8-7: a
Book value of notes payable:

Principal P 2,500
Interest ___500 P 3,000
Par value of common stock issued (200 shares x P5) __1,000
Additional paid in capital P 2,000
Add gain on payment of accounts payable:
Book value P 10,000
Payment __8,000 __2,000
Total gain on debt discharge P 4,000
8-8: a
Carrying value of debt:
Note payable P100,000
Interest payable __12,000 P112,000
Fair value machinery _(36,000)
Balance of debt P 76,000
Restructured debt:
Note payable P 50,000
Interest (P50,000 x .08 x 2) ___8,000 __58,000
Restructuring difference (gain) P 18,000
8-9: c
Principal P300,000
Interest payable (300,000 x 10%) __30,000
Carrying value P330,000
8-10: c
Correction: Should be P310,600
Restructured principal of note payable P260,000
Interest payable:
On book value (P300,000 x 10% 30%) P 9,000
On restructured (P260,000 x 8% x 2) _41,600 __50,600
Future cash flows to liquidate the debt P310,600
8-11: d
8-12: d
Loss on transfer of land:
Original cost P290,000
Market value _270,000 P 20,000
Gain on restructuring of debt:

Carrying value of debt P300,000
Market value of land _270,000 P 30,000
8-13: a
Transfer gain (loss):
Carrying amount of equipment P80,000
Fair value of equipment 75,000
Transfer loss P(5,000)
Restructuring gain:
Carrying amount of the debt P100,000
Fair value of equipment transferred 75,000
Restructuring gain P 25,000
8-14: d
Carrying amount of real estate transferred P100,000
Fair value of real estate 90, 000
Loss on restructuring of payables P(10,000)
8-15: d
Carrying amount of liability P150,000
Fair value of real estate transferred 90,000
Restructuring gain P 60,000
8-16: c
Gain on revaluation of land (120,000 – 85,000) P 35,000
Gain on the extinguishment of debt (185,000 – 120,000) 65,000
Total gain P100,000
8-17: a
Carrying value of debt (P800,000 + 80,000) P880,000
Total future payments (P700,000 + 80,000) 780,000
Restructuring gain P100,000
8-18: a
First determine the expected future cash flows as follows:
70,000 x .79719 = P55,803
5,600 x 1.69005 = 9,464
Present value of future cash flow P65,267
The interest revenue can be computed using the effective interest method
as follows:
Present value at 12/31/06 P65,267
Interest income at 12/31/07 (65,267 x 12%) 7,832
Interest receivable at 12/31/07 (70,000 x 8%) 5,600 2,232
Present value at 12/31/07 P67,499
Interest income at 12/31/08 (67,499 x 12%) P 8,100

150 Chapter 8
8-19: 1. b
2. a
Effect on Net Income
Alternative 1 Alternative 2
Gain on restructuring P30,000 (a) P 0 (b)
Interest expenses - (55,000) (c)
Increase (decrease) P30,000 (d) P(55,000)
(a) P620,000 – (P350,000 + P120,000 + P120,000)

(b) There is no gain because the sum of the payments (5 x P135,000) exceeds the book value
of the debt (P620,000).
(c) (5 x P135,000) – P620,000.
(d) If the gain of the disposition of the land were included, this alternative would have
an even larger effect on in come. However, the land gain could also be realized
under Alternative 2 if management elected to dispose this property.
8-20: b
Exchange of preferred stock for debt (P5,100,000 of preferred stock, at

Market value in exchange for P5,500 of debt) P 400,000
Exchange of land for debt (3,000,000 of land at book value in
Exchange for P4,500,000 of debt 1,500,000
Restructuring of remaining debt of P10,875,000 with semiannual
Payments of P818,016. The sum of the payments is P16,360,320
(20 x P818,016). Since the sum of the payments exceeds the
unpaid balance, no gain is recognized on the restructuring 0
Total effect on net income (increase) P1,900,000
Retained earnings before restructuring (3,400,000)
Adjusted retained earnings P1,500,000
Problem 8 – 1
Journal entries for company emerging from bankruptcy using fresh start
accounting:
– Receivables 10,000
Inventory 10,000
Building 100,000
Reorganization value in excess of amount
Allocable to tangible assets 60,000
Additional paid in capital 180,000
To adjust accounts to market value as part of fresh start accounting. Since the company has
a reorganization value of P760,000 but the assets have a market value of only P700,000
(P90,000 + P210,000 + P400,000), and account entitled Reorganization Value in Excess of
Amount Allocable to Tangible Assets must be recorded for P60,000.
Liabilities 300,000
Common stock (P330,000 x 80%) 264,000
Gain on debt discharge 36,000
To record settlement of liabilities
Problem 8 – 2
2011
July 24: Costs of reorganization 50,000
Cash with escrow agent 50,000
Common stock 580,000

Common stock (60,000 x P1) 60,000
Note payable – 10% 120,000

Interest payable (P120,000 x 10% x 3/12) 3,000
Note payable – 12% 123,000
Trade accounts payable 100,000

Cash P100,000 x 0.80) 80,000

Retained earnings 260,000
Costs of reorganization 50,000
152 Chapter 8
Problem 8 – 3
Jade Corporation
December 31, 2011
ASSETS
Current assets:
Cash P 23,000
Inventory 45,000 P 68,000
Property and equipment:
Land 140,000
Buildings 220,000
Equipment 154,000 514,000
Total asset P582,000

Liabilities not subject to compromise
Current liabilities:
Long-term liabilities:
Note payable (2006) P100,000
Note payable (2003) _100,000 200,000 P260,000
Liabilities subject of compromise
Accrued expenses 30,000
Income taxes payable 22,000
Note payable (due 2011) 170,000 345,000
Total liabilities 605,000
Stockholders' Equity
Common stock 200,000
Retained earnings (deficit ) (223,000) (23,000)
Total liabilities and stockholders' equity (deficit) P582,000
Problem 8 – 4
Preliminary computations:
Book values prior to reorganization:
Total assets (P100,000 + P112,000 + P420,000 + P78,000) .............. P710,000
Total liabilities (P80,000 + p35,000 + P100,000 + P200,000 +
P185,000 + P200,000) .................................................................. P800,000
Common stock (given) ....................................................................... P240,000
Deficit (given) .............................................................................. P330,000
Book values after reorganization:
Total assets (reorganization value) ............................................................... P780,000
Total liabilities (P5,000 + P4,000 + P100,000 + P50,000 +
P71,000 + P110,000) ............................................................................. P340,000
Common stock (returned shares are reissued)............................................... P240,000
Deficit (eliminated) ..................................................................................... –0–
Additional paid in capital (squeeze).............................................................. P200,000
Since the company will have 30,000 shares outstanding after the reorganization, the additional paid in
capital equals P6.66 per share.
Because the company has a reorganization value of P780,000 but the assets have a market value of only
P735,000, an account entitled Reorganization Value in Excess of Amount allocable to Tangible Assets
must be recognized for P45,000.
JOURNAL ENTRIES:
1. Land and buildings ..................................................................................... 80,000
Reorganization Value in excess of amount
allocable to tangible assets .................................................................... 45,000
Accounts receivable ........................................................................ 20,000
Inventory ..................................................................................... 22,000
Equipment ..................................................................................... 13,000
Additional paid in capital ............................................................... 70,000
To adjust accounts to market value as part of fresh start accounting.
2. Common stock .. ...... ..................................................................................... 144,000

Additional paid in capital ...................................................................... 144,000
To record shares turned in to the company by the owners as part of the reorganization plan. 18,000
shares at P8 par value.
3. Accounts payable .... ..................................................................................... 80,000

Note payable .... ..................................................................................... 5,000
Common stock, P8 par value ................................................................. 8,000
Additional paid in capital (P6.66 per share) ......................................... 6,666
Gain on debt discharge .......................................................................... 60,334
To record settlement of accounts payable.
4. Accrued expenses .... ..................................................................................... 35,000

Note payable .... ..................................................................................... 4,000
To record settlement of accrued expenses.
5. Note payable .... ...... 200,000

Note payable .... ..................................................................................... 50,000
Additional paid in capital (P6.66 per share) ......................................... 66,667
To record settlement of note payable due in 2007
6. Note payable .... ...... 185,000

Note payable .... ..................................................................................... 71,000
Additional paid in capital, P6.66 per share ........................................... 46,667
154 Chapter 8
Problem 8 – 5
7. Note payable .. ..... ..............................................................................200,000

Note payable.. .............................................................................. 110,000
Gain on debt discharge ................................................................ 90,000
8. Additional paid in capital (P334,000 – P200,000) .............................134,000

Gain on debt discharge .......................................................................196,000
Retained earnings (deficit) ........................................................... 330,000
To adjust additional paid in capital to appropriate balance, close out gain, and eliminate
deficit balance as part of fresh start accounting.
Since the Company has a reorganization value of P800,000 but only P653,000 can be assigned to
specific assets based on market value, the remaining P147,000 is reported as a Reorganization
Value in Excess of Amount Allocable to Identifiable Assets.
Sun Corporation
Statement of Financial Position – Fresh Start Accounting
December 31, 2011
ASSETS
Current assets
Accounts receivable P 18,000
Inventory 111,000 P129,000
Property and equipment
Land and building 278,000
Machinery 121,000 399,000
Intangible assets
Patents 125,000
Reorganization value in excess of amount allocable to identifiable assets 147,000 272,000

Current liabilities
Long-term liabilities
Note payable (due in 2 years) P 35,000
Note payable (due in 5 years) 50,000
Note payable (due in 8 years) 100,000 185,000
Total liabilities P282,000
Stockholders' Equity:
Common stock P500,000
Additional paid in capital (squeeze) 18,000 518,000
Total liabilities and stockholders' equity P800,000
Installment Sales 155
CHAPTER 9

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
2009 2010 2011
Deferred gross profit, before adjustment P7,230 P 60,750 P 120,150
Deferred gross profit, end
2009 (6,000 X 35%) 2,100
2010 (61,500 X 33%) 20,295
2011 (195,000 X 30%) ___58,500
Realized gross profit, December 31, 2011 P5,130 P 40,455 P 61,650
(Total – P107,235)
9-3: c
Deferred gross profit balance, end P 202,000

Divide by Gross profit rate based on sales (25% ÷ 125%) ____÷ 20%
Installment Accounts Receivable, end P1,010,000
Collection ___440,000
Installment Sales P1,450,000
9-4: b
Sales P1,000,000
Cost of installment sales __700,000
Deferred gross profit P 300,000
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000) P 600,000
Gross profit rate (300,000 ÷ 1,000,000) ___X 30% __180,000
Realized gross profit P 120,000
Operating expenses ___80,000
Operating income 40,000
Interest and financing charges __100,000
Net income P 140,000
156 Chapter 9
9-5: a
Market value of repossessed merchandise P 30,000
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000) P 50,000
Less: Deferred gross profit (50,000X20%) ___10,000 __40,000
Loss on repossession (P 10,000)
9-6: a
Installment sales P1,000,000
Less: collection on installment sales __200,000
Installment account receivables, 12/31/08 800,000
Gross profit rate (500,000 ÷ 1,000,000) ___X 50%
Deferred gross profit, 12/31/011 P 400,000
OR
Deferred gross profit (1,000,000-500,000) P500,000

Less: Realized Gross Profit (200,000 X 50%) _100,000
Deferred gross profit, 12/31/011 P400,000
9-7: d
Fair value of repossessed merchandise P120,000
Unpaid balance P 200,000
Less: Deferred gross profit (200,000 X 32.5%) ___65,000 _135,000
9-8: b
Realized gross profit:
Collections:
Downpayment P 35,000
Installment received (205,000-200,000) ___5,000
Total 40,000
Gross Profit Rate (150,000 ÷ 240,000) _X 62.5%
Gain (loss) on repossession:

Appraised value of repossessed merchandise P165,000
unpaid balance P 200,000
less: deferred gross profit (200,000 X 62.5%) __125,000 __75,000
Gain on repossession P 90,000
9-9: b
Sch.1
Applying Applying Balance
to to of
Date Collection Interest principal principal
Apr-1 P7,000.00
Apr-1 750 750.00 6,250.00
May-1 625 125.00 500.00 5,750.00
Jun-1 625 115.00 510.00 5,240.00
Jul-1 625 104.80 520.20 4,719.80
Aug-1 625 __94.40 ___530.60 4,189.00
P439.20 P2,810.80
Gain (loss) on repossession:

Market value of repossessed merchandise P 1,875
unpaid balance of principal (sch. 1) P 4,189
less: deferred gross profit (4,189 X 35%) __1,466 ___2,723
Loss on repossession (rounded) (P 848)

Collection applying to principal (sch. 1) P2,810.80
Gross profit rate __X 35%
Realized gross profit P 983.78
9-10: c
Year of Sales
2010 2011
Deferred gross profit (Sales X Gross Profit Rate)
2010 (P300,000 X 30%) P 90,000
2011 (P450,000 X 40%) P 180,000
2010: Accounts written-off (P25,000 X 30%) ( 7,500)
Realized gross profit (P100,000 X 30%) ( 30,000)
2011: Accounts written-off, 2010 (P75,000 X 30%) ( 22,500)
Accounts written-off, 2011 (P50,000 X 40%) ( 60,000)
Realized gross profit, 2010 (P50,000 X 30%) ( 15,000)
Realized gross profit, 2011 (P150,000 X 40%) ________ ( 60,000)
Deferred gross profit, 12/31/011 (P75,000) P 15,000 P 60,000
9-11: a
Deferred gross profit, 2010 (P1,050,000 - 735,000) P 315,000
Deferred gross profit, 12/31/010 270,000
Realized gross profit, 2011 (P390,000-90,000) X 30% ( 90,000)
Deferred gross profit, 12/31/011 P 180,000
158 Chapter 9
9-12: b
2010 2011
Deferred gross profit (Sales - Cost of Installment Sales) P 480,000 P450,000
Repossession (P2,400 x .40) (9,600)
Realized gross profit, 2011 (P900,000 X 30%) _______ ( 270,000)
Deferred gross profit, 12/31/011 (P218,400) P 38,400 P180,000
9-13: 1c
Trade-in value P 30,000
Less: Actual value
Estimated selling price P 25,000
Less: reconditioning cost P 1,250
normal gross profit (25,000 X 15%) __3,750 ___5,000 __20,000
Overallowance P 10,000
Collection:
Downpayment P 5,000
Actual value of merchandise-Trade In 20,000
Installment collected (5,000 X 3) _15,000 P 40,000
Gross Profit Rate:

Sales P 85,000
Overallowance ( 10,000)
Net Sales P 75,000
Cost of Installment Sales _60,000
Gross Profit P 15,000
Gross Profit Rate (15,000 ÷ 75,000) _X 20%
Realized Gross Profit P 8,000
9-14: c
Collection excluding interest (P900,000-P300,000) P 600,000
Gross profit rate (P1,200,000 ÷ P3,600,000) X 33 1/3%
Realized Gross Profit, December 31, 2011 200,000
Add Interests __300,000
Total Revenue P 500,000
9-15: a
Wholesale value of repossessed merchandise P 4,000
Unpaid balance:
Sales, 10/1/010 P 24,000
Collection, 2010 (6,000 ÷ 2,000) ( 8,000)
Collection, 2011 (1,000 X 7) ( 7,000) P 9,000
Deferred gross profit (9,000 X 25%) __2,250 ___6,750
9-16: a
Trade-in Value (P300 X 6) P 1,800
Less: Actual value
Estimated selling price (P315 X 6) P 1,890
Less: Reconditioning cost (P25 X 6) P150
Gross Profit (P1,890 X 10%) _189 ___339 ___1,551
Over-allowance P 249
9-17: a
Deferred gross profit, before adjustment P 76,000
Deferred gross profit, end
2010: P32,500 X (30% ÷ 130%) P 7,500
2011: P180,000 X (33 1/3% ÷ 133 1/3%) _45,000 __52,500
Realized gross profit on installment sales P 23,500
9-18: d
Unpaid balance (P27,000 - P16,000) P 11,000
Multiply by gross profit rate (P734,400 ÷ P2,160,000) ___X 34%
Deferred gross profit to be cancelled on repossession P 3,740
9-19: b
Collection:
2010 Downpayment P 600,000
2011 Installment collection 600,000
Interest __540,000
Total P1,740,000
Cost to be recovered P4,000,000
Since cost is not yet fully recovered, then no gross profit is to be recognized in 2011.
9-20: d
Regular Sales P 187,500
Cost of regular sales __112,500
Gross profit on regular sales P 75,000
Add: Realized gross profit on installment sales
2010 (25,000 X 50%) P12,500
2011 (62,500 X 55%) _34,375 __46,875
Total realized gross profit 121,875
Operating expenses ___31,250
Net income, 12/31/011 P 90,625
160 Chapter 9
9-21: a
Installment sales – 2010 P785,000
Collections:
Down payment (20% x 785,000) P157,000
Installment (40% x 628,000) 251,200 408,200
Installment accounts receivable 2010, 12/31/010 376,800
Gross profit rate on sales 35/135
Deferred gross profit- 2010, 12/31/010 P 97,689
9-22: a
Regular sales P1,575,000
Cost of regular sales 1,050,000
Gross profit on regular sales 525,000
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%) 2,625,000
Installment accounts receivable-12/31/011 1,575,000
Collections 1,050,000
Gross profit on rate on sales 140/240 612,500
Total realized gross profit 1,137,500
Operating expenses (1,137,500 x 70%) 796,250
Net income, 12/31/011 P 341,250
9-23: a
Regular sales P375,000
Cost of regular sales 215,000
Gross profit on regular sales 160,000
Realized gross profit on installment sales:
Collections excluding Interest (312,000 – 24,000)288,000
Gross profit rate (270,000/900,000) 30% 86,400
Total realized gross profit 246,400
Loss on repossession
Fair value of repossessed merchandise 54,000
Less: Unrecovered cost (100,000 x 70%) 70,000 ( 16,000)
Total realized GP after loss on repossession 230,400
Less: Operating expenses 72,000
Installment accounts written-off (44,000 x .70) 30,800 102,800
Net operating income 127,600
Interest income 24,000
Net income P151,600
9-24: 1. a
Fair value of repossessed air conditioners (5 x P4,000) P20,000
Less unrecovered cost (P25,600 x 65%) 16,640
Loss on repossession P 3,360
9-24, continued:
2. a
Sales price (P100,000 x 90%) P90,000

Add underallowance (P12,000 – P10,000) 2,000
Adjusted sales value P92,000
Less cost of sales 59,800
Sales price P90,000

Less fair value of merchandise traded in 10,000
Balance P80,000
Fair value of merchandise traded in P12,000

Down payment (P80,000 x 20%) 16,000
Installment collected (P6,400 x 6) 38,400
Total collection P66,400
Gross profit rate (P32,200/92,000) 35%
Realized gross profit P23,240
9-25: 1. a
Sales price P850,000

Add underallowance on trade in (P97,500 – P80,000) 17,500
Adjusted sales price 867,500
Cost of sales 650,625
Gross profit rate (P216,875 / P867,500) 25%

Less trade in value of merchandise traded in 80,000
Balance 770,000
Cash downpayment (25% of P850,000) 212,500
Installment accounts receivable P557,500
Date Collection Interest income Principal Balance

July P557,500
July P30,000 P5,575 P24,425 533,075
August 30,000 5,331 24,669 508,506
September 30,000 5,084 24,916 483,490
Total P15,990 P74,010

Unrecovered cost (P483,490 x 75%) 362.617.5
Loss on repossession P(62,617.5)
162 Chapter 9
9-24, continued:
2. a
Fair value of merchandise traded in P 97,500

Cash downpayment 212,500
Installment collected applying to principal (see table) 74,010
Total collections 384,010
Gross profit rate 25%
9-25. c

Loss on repossessions 13,500
Unrecovered cost 126,000
Divided by account defaulted 180,000
Cost ratio (P126,000 / P180,000) 70%
Installment sales (P525,000 / 70%) P750,000

Installment accounts receivable, 12/31 (P108,000 / 30%) 360,000
Collections during the year P390,000
9-26: 1. a
Trade in value of merchandise traded in P128,000

Less fair value:
Estimated sales price P160,200
Reconditioning cost (7,660)
Normal gross profit (20% x P160,200) (32,040) 120,500
Overallowance on merchandise traded in P 7,500
Net sales price (P525,000 – P7,500) P517,500

Cost of installment sales 414,000
Gross profit rate (P103,500 / P517,500) 20%
9-26, continued:
Fair value of merchandise traded in (downpayment) P120,500

Installment collected (517,500 – P120,500) / 10 x 6 238,200
Total collections P358,700
Realized gross profit – Mew merchandise P 71,740
Realized gross profit – Repossessed merchandise:
Cost of repossessed merchandise 103,000 25,750
Total realized gross profit P 97,490
2. a

Loss on repossession:
Fair value of repossessed merchandise P 93,750
Unrecovered cost (P397,000 x 4/10 x 80%) 127,040 (33,290)
Net income P 64,200
9-27: b
2009 2010 2011

Installment sales (Cost of sales / Cost ratio) P828,000 P980,000 P1,250,000
Total collections (617,000) (578,000) (425,000)
Accounts written off (7,200)
Repossessed accounts (4,200)
Installment accounts receivable, 12/31 P203,800 P397,800 P825,000
Gross profit rates 28% 30% 32%
Deferred gross profit, 12/31 (P440,404) P57,064 P119,340 P264,000
9-28 1. a
2. a
2009 2010 2011
Installment accounts receivable, 1/1/011 P180,000 P625,000 P900,000
Installment accounts receivable, 12/31/011 - 125,000 650,000
Collections (P930,000) P180,000 P500,000 P250,000
Installment accounts receivable, 1/1/011:

2009 sales (P45,000 / 25%) P180,000
2010 sales (P150,000 / 24%) P625,000
Installment accounts receivable, 12/31/011:
2010 sales (P30,000 / 24%) P125,000
2011 sales (P195,000 / 30%) 650,000
Total P775,000
164 Chapter 9
Problem 9 – 1
Journal Entries:
2009 2010 2011
Installment A/R–2009 ............... 104,000 – –
Installment A/R–2010 ............... – 116,000 –
Installment A/R–2011 ............... – – 121,000
Installment Sales ................. 104,000 116,000 121,000
Cost of Installment Sales ........... 64,480 68,440 73,810

Inventory ............................. 64,480 68,440 73,810
Cash ........................................... 66,980 125,520 145,460

Installment A/R–2009 57,200 29,120 15,000
Installment A/R–2010 ......... – 71,920 26,680
Installment A/R–2011 ......... - _ 76,230
Interest Revenue ................. 9,780 24,480 27,550
Installment Sales........................ 104,000 116,000 121,000

Cost of Installment Sales .... 64,480 68,440 73,810
Deferred Gross Profit–2009 39,520 – –
Deferred Gross Profit–2010 – 47,560 –
Deferred Gross Profit–2011 – – 47,190
Deferred Gross Profit–2009 ...... 21,736 11,066 5,700

Deferred Gross Profit–2010 ...... – 29,487 10,939
Deferred Gross Profit–2011 ...... – – 29,730
Realized Gross Profit .......... 21,736 40,553 46,369
Computations:
2009: P57,200 X .38 = P21,736
2010: P29,120 X .38 = P11,066

P71,920 X .41 = 29,987
Total RGP P40,553
2011: P15,000 X .38 = P 5,700

P26,680 X .41 = 10,939
P76,230 X .39 = 29,730
Total RGP P46,369
Problem 9 – 2
2010: Inventory ................................................................................................ 45,200
Cash ................................................................................................ 45,200
Notes Receivable 2010 (P32,000 + P62,000 + 3,600) .......................... 97,600
Unearned Interest Revenue (P7,167 + P3,600).............................. 10,767
Installment Sales ............................................................................. 86,833
Cost of Installment Sales (P45,200 – P2,000 inventory increase) ......... 43,200
Inventory ......................................................................................... 43,200
Cash ... ................................................................................................... 35,600
Notes Receivable 2010.................................................................... 35,600
Unearned Interest Revenue 2010 ........................................................... 3,600
Interest Revenue ............................................................................. 3,600
Installment Sales .................................................................................... 86,833
Cost of Installment Sales ................................................................ 43,200
Deferred Gross Profit on Installment Sales–2010 .......................... 43,633
Deferred Gross Profit on Installment Sales–2010 ................................. 16,080*
Realized Gross Profit on Installment Sales .................................... 16,080
*Gross profit percentage: 50.25% (P43,633 ÷ P86,833)
.5025 x 32,000 = P16,080
2011: Inventory ................................................................................................ 52,020
Cash ................................................................................................ 52,020
Notes Receivable–2008 .......................................................................... 89,5001
Unearned Interest Revenue............................................................. 11,9552
Installment Sales ............................................................................. 77,545
160,000 + (P50,000 + P5,500) – P26,000* = 89,500
*2010 Notes receivable collected in 2008
2Interest revenue from 2010 notes: P7,167 – P5,579 = P1,588
Interest revenue from 2011 notes: P5,500 – P1,588 = P3,912
Discount on notes receivable at end of 2011 ......................................... P 8,043
Interest revenue from 20011notes (see above)....................................... 3,912
Total discount at time of sale ................................................................. P11,955
Cost of Installment Sales (P52,020 – P8,000) ....................................... 44,020

Inventory ......................................................................................... 44,020
Cash ... ................................................................................................... 55,500
Notes Receivable–2010 (P62,000 – P36,000) ................................ 26,000
Notes Receivable–2011................................................................... 29,500*
* P89,500 – P60,000 = P29,500
Discount on Notes Receivable–2010...................................................... 1,588
Discount on Notes Receivable–2011...................................................... 3,912
Interest Revenue ............................................................................. 5,500
Cost of Installment Sales ................................................................ 44,020
Deferred Gross Profit on Installment Sales–2011 .......................... 33,525
Deferred Gross Profit on Installment Sales–2010 (P26,000
– P1,538 = P24,412; P24,412 x .5025) ................................................. 12,267
Deferred Gross Profit on Installment Sales–2011 ................................. 11,062*
Realized Gross Profit on Installment Sales .................................... 23,329 p
.4323 x (P29,500 – P3,912) = P11,062
166 Chapter 9
Problem 9 – 3
Deferred gross profit, 1/1 P24,000

1. 2009: Gross profit rate = ––––––––––––––––––––– = ––––––– = 40%
Install. contracts rec'l, 1/1 P60,000
Deferred gross profit, 1/1 P24,000

2010: Gross profit rate = ––––––––––––––––––––– = ––––––– = 42%
Install. contracts rec'l, 1/1 P140,000

2011: Gross profit rate =––––––––––––– = ––––––––––= 43%
Installment sales P200,000
2. Journal Entries:
Accounts Receivable ..................................................................................... 600,000
Sales ... ................................................................................................... 600,000
Installment Contracts Receivable – 2011 ..................................................... 200,000
Cost of Installment Sales ............................................................................... 114,000
Shipments on Installment Sales .............................................................. 114,000
Purchases .. ................................................................................................... 476,000
Cash ... ................................................................................................... 476,000
Selling Expenses............................................................................................ 210,000
Cash ... ................................................................................................... 210,000
Cash ..... .... ................................................................................................... 790,000
Accounts Receivable .............................................................................. 560,000
Installment Contracts Receivable – 2009 .............................................. 40,000
Adjusting Entries:
Installment Sales ........................................................................................... 200,000
Cost of Installment Sales........................................................................ 114,000
Deferred Gross Profit on Installment sales – 2011 ............................... 86,000
Deferred Gross Profit – 2009 (P40,000 x 40%) ........................................... 16,000
Deferred Gross Profit – 2010 (P80,000 x 42%) ........................................... 33,600
Deferred Gross Profit – 2011 (P110,000 x 43%) ......................................... 47,300
Realized Gross Profit ............................................................................. 96,900
Doubtful Accounts Expense (1/4 x 1% x P600,000)...................................... 1,500
Allowance for Doubtful Accounts .......................................................... 1,500
Closing Entries:
Sales ..... .... ................................................................................................... 600,000
Merchandise Inventory, December 31 .......................................................... 260,000
Shipments on Installment Sales ..................................................................... 114,000
Merchandise Inventory, January 1 ........................................................ 240,000
Purchases............................................................................................... 476,000
Selling Expenses .................................................................................... 210,000
Doubtful Accounts Expense ................................................................... 1,500
Income Summary ................................................................................... 46,500
Realized Gross profit .................................................................................... 96,900
Income Summary ................................................................................... 96,900
Income Summary........................................................................................... 143,400
Retained Earnings ................................................................................. 143,400
3. Good Buy Mart
Sales ..... .... ................................................................................................... P600,000

Cost of sales:
Merchandise inventory, January 1 ......................................................... P240,000
Purchases ............................................................................................... 476,000
Cost of goods available for sale ............................................................. 716,000
Less Shipments on installment sales ...................................................... 114,000
Cost of goods available for regular sales ............................................... 602,000
Less Merchandise inventory, December 31 ........................................... 260,000 342,000
Gross profit on regular sales ......................................................................... 258,000
Add Realized gross profit on installment sales (Schedule 1) ........................ 96,900
Total realized gross profit ............................................................................. 354,900
Operating expenses:
Selling expenses..................................................................................... 210,000
Doubtful accounts expense .................................................................... 1,500 211,500
Net income ................................................................................................... P143,400
Schedule 1:
Years of Installment Sales
2006 2007 2008 Total
Collections .......................................... P40,000 P80,000 P110,000
Multiply by Gross profit rate ............... 40% 42% 43%
Realized gross profit ............................ P16,000 P33,600 P 47,300 P 96,900
4. Good Buy Mart

December 31, 2011
A s s e t s
Cash ..... .... ................................................................................................... P144,000
Merchandise inventory.................................................................................. 260,000
Accounts receivable ...................................................................................... P 62,000
Allowance for doubtful accounts .................................................................. 3,500 58,500
Installment contracts receivable – 2009 ........................................................ 20,000
Other assets ................................................................................................... 200,000
Total Assets ........................................................................................... P832,500
Liabilities and Equity
Liabilities:
Accounts payable ................................................................................... P 60,000
Deferred gross profit on installment sales – 2009.................................. 8,000
Deferred gross profit on installment sales – 2010 .................................. 25,200
Deferred gross profit on installment sales – 2011 .................................. 38,700
Total Liabilities ...................................................................................... 131,900
Equity:
Capital stock .......................................................................................... P406,000
Retained earnings ................................................................................... 294,600 700,600
Total Liabilities and Equity ................................................................... P832,500
168 Chapter 9
Problem 9 – 4
Deferred gross profit, 1/1 = P21,600 + P1,200 = P22,800

1. 2010: GP rate = ––––––––––––––––––––– = –––––––––––––––– = ––––––– = 30%
Install. contracts rec'l, 1/1 P24,000 + P52,000 P76,000
Gross profit P150,000 – P97,500 P52,500

2011: GP rate = –––––––––––––– = –––––––––––––––– = –––––––– = 35%
Installment sales P150,000 P150,000
2. Installment Sales ........................................................................................... 150,000

Cost of Installment Sales........................................................................ 97,500
Deferred Gross Profit, 2011 .................................................................. 52,500
Deferred Gross profit, 2010 .......................................................................... 14,400
Deferred Gross Profit, 2011 ......................................................................... 25,900
Realized Gross Profit ............................................................................. 40,300
Computation:
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1.................... P76,000 P150,000
Less Installment contracts receivable, 12/31 ....... 24,000 76,000
Total credit for the period .................................... 52,000 74,000
Less Credit representing repossession ................. 4,000 –
Credit representing collections ............................ P48,000 P 74,000
Multiply by Gross profit rate ............................... 30% 35%
Realized gross profit ............................................ P14,400 P 25,900 P 40,300
Sales ..... .... ................................................................................................... 212,000

Realized Gross Profit .................................................................................... 40,300
Loss on Repossession ............................................................................. 400
Cost of Sales .......................................................................................... 165,000
Selling and Administrative Expenses ..................................................... 66,000
Income Summary ................................................................................... 20,900
Income Summary........................................................................................... 20,900
Retained Earnings ................................................................................. 20,900
3. Apple Company
Sales ..... .... ................................................................................................... .................. P212,000

Cost of sales .................................................................................................. .................. 165,000
Gross profit on regular sales ......................................................................... .................. 47,000
Add Realized gross profit on installment sales (Schedule 1) ........................ .... 40,300
Total realized gross profit ............................................................................. .................. 87,300
Less Loss on repossession............................................................................. .... 400
Total realized gross profit after adjustment for loss on repossession ............ .................. 86,900
Selling and administrative expenses ............................................................. .................. 66,000
Net income ................................................................................................... .................. P 20,900
Schedule 1
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1 ....................... P76 000 P150,000
Less Installment contracts receivable, 12/31 ........... 24,000 76,000
Total credit for the period ........................................ 52,000 74,000
Less Credit representing repossession ..................... 4,000 –
Credit representing collections ................................ P48,000 P 74,000
Multiply by Gross profit rate ................................... 30% 35%
Realized gross profit ................................................ P14,400 P 25,900 P40,300
Problem 9 – 5
1. Cost of Installment Sales .................................................................... 54,400

Shipments on Installment Sales .................................................... 54,400
Installment Sales ................................................................................. 80,000

Cost of Installment Sales .............................................................. 54,400
Deferred Gross Profit, 2011......................................................... 25,600
Gross profit = P25,600 ÷ P80,000 = 32%
Deferred Gross Profit, 2010 ............................................................... 14,000
Deferred Gross Profit, 2011 ............................................................... 8,000
Realized Gross Profit ................................................................... 22,000
Computation:
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1 ............. P82,000 P 80,000
Less Installment contracts receivable, 12/31. _ 36,000 _55,000
Total credit for the period.............................. 46,000 25,000
Less Credit representing repossession........... __6,000 ___ –
Credit representing collections ...................... P40,000 P 25,000
Multiply by Gross profit rate......................... __35%* ___32%
Realized gross profit ..................................... P14,000 P 8,000 P 22,000
DGP, 1/1 P28,700 (26,600 + 2,100)

*2010 Gross profit rate= ––––––– = ––––––– = 35%
ICR, 1/1 P82,000 (36,000 + 40,000 + 6,000)
170 Chapter 9
Sales .... ... ........................................................................................... 200,000

Merchandise Inventory, December 31 ................................................ 52,000
Shipments on Installment Sales .......................................................... 54,400
Merchandise Inventory, January 1............................................... 60,000
Purchases ..................................................................................... 180,000
Repossessed Merchandise ............................................................ 3,000
Loss on Repossession ................................................................... 900
Operating Expenses ..................................................................... 53,000
Income Summary .......................................................................... 9,500
Realized Gross Profit .......................................................................... 22,000

Income Summary .......................................................................... 22,000
Income Summary ................................................................................ 31,500

Retained Earnings ........................................................................ 31,500
2. PPG Discount Center, Inc.

Regular Installment Total

Sales .... ... ................................................... P200,000 P80,000 P280,000
Cost of sales:
Inventory, January 1 ............................. P 60,000
Purchases .............................................. 180,000
Repossessed merchandise .................... __3,000
Cost of goods available for sale ........... 243,000
Less Shipments on installment sales .... _54,400
Cost of goods available for regular sales 188,600
Less Inventory, December 31............... _52,000 _136,600 54,400 191,000
Gross profit ................................................. P 63,400 25,600 89,000
Less Deferred gross profit on installment
sales, 2011 ............................................ 17,600 17,600
Realized gross profit, 2011 ......................... 8,000 71,400
Add Realized gross profit on 2010
installment sales ................................... 14,000 14,000
Total realized gross profit ........................... 22,000 85,400
Less Loss on repossession .......................... ___900 __900
Total realized gross profit after adjustment
for loss on repossession ........................ P21,100 84,500
Operating expenses ..................................... _53,000
Net income .................................................. P31,500
Problem 9 – 6
1. London Products
Schedule of Cost of Goods Sold
Merchandise inventory, January 1 ................................................................ .................. P 48,000

Purchases ................................................................................................... .................. 238,000
Freight-in ................................................................................................... .................. 12,000
Repossessed merchandise ............................................................................. ..... 14,000
Cost of goods available for sale .................................................................... .................. 312,000
Less Merchandise inventory, December 31 .................................................. .................. 52,000
Cost of goods sold ......................................................................................... .................. P260,000
2. London Products
Schedule of Allocation of Cost of Goods Sold
On Cash Ratio to Allocated

Amount Price Basis Total Cost
Cash sales .................. P60,000 P 60,000 60/400 P 39,000
Charge sales ................. 120,000 ÷ 120% 100,000 100/400 65,000
Installment sales ........... 300,000 ÷ 125% 240,000 240/400 156,000
P 400,000 P260,000
3. London Products
Installment Charge Cash

Total Sales Sales Sales
Sales ..... .... ....................................... P480,000 P 300,000 P120,000 P 60,000
Cost of goods sold............................. 260,000 156,000 65,000 39,000
Gross profit ....................................... P 220,000 P 144,000 P 55,000 P 21,000
Less Unrealized gross profit:
On installment contracts
receivable,12/31 (192,000 x 144/300) 92,160 92,160
Realized gross profit ......................... 127,840 51,840
Add Realized gross profit on
prior years' sales (Schedule 1):
2009 .................................... 19,200
2010 .................................... 14,700 33,900 33,900
Total realized gross profit ................. 161,740 85,740
Less Loss on repossession
(Schedule 2) ............................... 10,200 10,200
Total realized gross profit after
adjustment for loss on
repossession ............................... 151,540 P 75,540
Less Operating expenses ................... 93,000
Net income ....................................... P 58,540
172 Chapter 9
Schedule 1
2009 2010
Installment contracts receivable, January 1:
2009 – P32,000 ÷ 40% ................................................................. P80,000
2010 – P56,000 ÷ 35% ................................................................. P160,000
Less Installment contracts receivable, December 31 .......................... _22,000 __90,000
Total credits ........................................................................................ 58,000 70,000
Less Credit representing repossession ................................................ _10,000 28,000
Total collections.................................................................................. P48,000 P 42,000
Multiply by Gross profit rate .............................................................. ___40% ___35%
Realized gross profit ........................................................................... P19,200 P 14,700
Schedule 2
2009 2010 Total

Fair market value of repossessed merchandise .... P 2,000 P12,000 P 14,000
Less Unrecovered cost:
Unpaid balance .............................................. 10,000 28,000 38,000
Less Unrealized profit –
2009 – P10,000 x40%............................. 4,000
2010 – P28,000 x35%............................. 9,800 13,800
Balances ............................................................ __6,000 18,200 __24,200
Gain (loss) on repossession ................................. P(4,000) P( 6,200) P( 10,200)
Problem 9 – 7
1. 2010 2011
2010
2010 installment sales (P400,000 x 42%*) .................................. P 168,000
2011:
2010 installment sales (P173,000 x 42%) .................................... P 72,660
2011 installment sales (P560,000 x 38.5%*) ............................... ________ __215,600
Deferred gross profit ........................................................................... P 168,000 P 288,260
*Computation of Gross profit percentages (see next page)

2010 2011
Installment sales..................................................................................P2,210,000 P3,100,000
Less Trade-in allowances (P226,000 – P158,000).............................. _______– ____68,000
Adjusted installment sales .................................................................. 2,210,000 _3,032,000
Cost of sales:
Inventories, January 1 (new) ........................................................ – 420,000
Purchases (new) ........................................................................... 1,701,800 1,767,000
Repossessed merchandise ............................................................ – _83,000*
Cost of goods available for sale ................................................... 1,701,800 2,270,000

Less: Inventories, December 31 –
New merchandise................................................................... 420,000 358,820
Repossessed merchandise ...................................................... _______– ____46,500
Total ....................................................................................... 420,000 405,320
Cost of sales ................................................................................. 1,281,800 _1,864,680
Gross profit ......................................................................................... P 928,200 P1,167,320
Gross profit percentages ..................................................................... 42% 38.5%

*2010 : P195,000 x 20% =P39,000
2011 : P110,000 x 40% =_44,000
P83,000
2. Uncollectible installment contracts expense, per books P 99,000

Correct Uncollectible installment contracts expense:
Fair market value of repossessed merchandise –
2010 sales (P195,000 x 20%) ........................... P 39,000
2011 sales (P110,000 x 40%) ........................... __44,000 83,000
Unrecovered cost –
2010 sales [P105,000 x (100% – 42%)] ........... 60,900
20011 sales [P82,000 x (100% – 38.5%)] ........ __50,430__ 111,330 28,330
Adjustment to Uncollectible installment contracts expense P 70,670
3 Fortune Sales Corporation

Cash Installment Total

Sales Sales Sales
Sales ...................................................................... P205,000 P3,032,000 P3,237,000
Cost of sales ................................................................... _158,000 _1,864,680 _2,022,680
Gross profit .................................................................... P 47,000 1,167,320 1,214,320
Less Unrealized gross profit on 2011 installment
sales (Schedule 1) .................................................... __247,170 __247,170
Realized gross profit on 2011 sales ............................... 920,150 967,150
Add Realized gross profit on 2010 installment
sales (Schedule 2) .................................................... ___51,240 ___51,240
Total realized gross profit .............................................. 971,390 1,018,390
Less Uncollectible installment contracts expense.......... ___28,330 ___28,330
Total realized gross profit after adjustment ................... P 943,060 990,060
Operating expenses ........................................................ __592,960
Net income ..................................................................... P 397,100
174 Chapter 9
Schedule 1
Installment contracts receivable 2011, December 31 ....... ............ P 560,000

Installment contracts receivable 2011 defaulted ............... ............ ___82,000
Total .... ... ......................................................................... ............ P 642,000
Multiply by 2011 gross profit percentage ......................... ............ ___38.5%
Unrealized gross profit on 2011 installment sales ............ ............ P 247,170
Schedule 2
Installment contracts receivable 2010, January 1 ............................... P 400,000

Less Installment contracts receivable 2010, December 31 ................. __173,000
Total credits for the period ................................................................. 227,000
Less Installment contracts receivable 2010 defaulted ........................ __105,000
Total collections.................................................................................. P 122,000
Multiply by 2010 gross profit percentage ........................................... _____42%
Realized gross profit on 2010 installment sales.................................. P 51,240
1. Apportionment of cost (P600,000) to Lots 1, 2 and 3:

Lot 1 : 2/3 x P360,000.................................... P 240,000
Lot 2 : 2/3 x P240,000.................................... 160,000
Lot 3 : 1/3 ....................................................... P120,000
1/3 x P240,000 ........................................ __80,000 __200,000
Total cost ....................................................... P 600,000
Journal Entries for 2010

March 31
Cash .... ... ...................................................................................... 36,000.00
Notes Receivable (Lot 2) ................................................................ 364,000.00
Lot 2 ...................................................................................... 160,000.00
Deferred gain on Sale of Land ................................................ 240,000.00
June 30
Cash .... ... ...................................................................................... 120,000.00
Lot 3 . ...................................................................................... 200,000.00
Deferred Gain on Sale of Land ............................................... 640,000.00
Cash .... ... ...................................................................................... 16,000.00
Interest Income (P364,000 x 12% x 3/12) ............................... 10,920.00
Notes Receivable (Lot 2) ......................................................... 5,080.00
September 30
Cash .... ... ...................................................................................... 16,000.00
Interest Income (P358,920 x 12% x 3/12) ............................... 10,767.60
October 31
Cash .... ... ...................................................................................... 72,000.00
Lot 1 . ...................................................................................... 240,000.00
Deferred Gain on Sale of Land ............................................... 120,000.00
December 31
Cash .... ... ...................................................................................... 78,000.00
Interest Income ........................................................................ 59,570.63
Computation:
Total Lot 1 Lot 2 Lot 3
Collections ....................................... P78,000.00 P12,000.00 P16,000.00 P50,000.00
Apply to interest:
Lot 1 – P288,000.00 x 12% x 2/12 5,760.00
Lot 2 – P353,687.60 x 12% x 3/12 59,570.63 10,610.63
Lot 3 – P720,000.00 x 12% x 6/12 _________ _________ _________ _43,200.00
Apply to principal............................ P18,429.37 P 6,240.00 P 5,389.37 P 6,800.00
2. Deferred Gain on Sale of Land (Lot 1) ............................................... 26,080.00

Deferred Gain on Sale of Land (Lot 2) ............................................... 31,021.06
Deferred Gain on Sale of Land (Lot 3) ............................................... 96,368.00
Realized Gain on Sale of Land ..................................................... 153,469.06
Computation:
Lot 1 Lot 2 Lot 3
Collections applied to principal ....... P78,240.00 P51,701.77 P126,800.00
Multiply by Gross profit rates:
Lot 1 – P120,000 ÷ P360,000 ..... 33.33%
Lot 2 – P240,000 ÷ P400,000 ..... 60%
Lot 3 – P640,000 ÷ P840,000 ..... _________ _________ _____76%
Realized gain ................................... P26,080.00 P31,021.06 P96,368.00
3. Lot 3 (80% x P200,000) ......................................................................160,000.00

Deferred Gain on Sale of Land (Lot 3) (P640,000 – P96,368) ..........543,632.00
Loss on Repossession.......................................................................... 9,568.00
Notes Receivable (Lot 3) (P720,000 – P6,800) ............................ 713,200.00
176 Chapter 9
Problem 9 – 9
Galaxy Investment Company

Income Statement
Sales Schedule 1) ................................................................................................... P 8,060,000

Cost of sales (Schedule 2)....................................................................................... 1,612,000
Gross profit .... .... ................................................................................................... 6,448,000
Less Sales commissions ......................................................................................... 221,000
Gross profit .... .... ................................................................................................... 6,227,000
Less Deferred gross profit
Installment Notes Balance P5,370,000
––––––––––––––––––––– =–––––––––– =67% x P6,227,000 4,172,090
Installment Sales P8,060,000
Realized gross profit ............................................................................................... 2,054,910
Expenses:
Advertising and promotion ........................................................................... P 730,000
Sales manager's salary................................................................................... 120,000
General office expenses (1/4 x P236,000) .................................................... 59,000 909,000
Net profit ...... .... ................................................................................................... P 1,145,910
Schedule 1
Total Cash Installment
Sales Price Received Notes Balance
A lots : 26 @ P150,000 ............................................... P3,900,000 P1,650,000 P 2,250,000
B lots : 32 @ P100,000................................................ 3,200,000 800,000 2,400,000
C lots : 12 @ P80,000.................................................. 960,000 240,000 720,000
........................................................ P8,060,000 P2,690,000 P 5,370,000
Schedule 2
Number of Unit Total
Class Lots Price Sales Value
A ... ...... .... ........................................................ 80 P150,000 P12,000,000
B .... ...... .... ........................................................ 100 100,000 10,000,000
C .... ...... .... ........................................................ 120 80,000 9,600,000
Total ... ........................................................ 300 P31,600,000
Cost of tract:
Cost of land ................................................................................................... P 4,800,000
Legal fees, etc. .............................................................................................. 600,000
Grading contract............................................................................................ 225,000
Water and sewerage system contract ............................................................ 184,900
Paving contract ............................................................................................. 266,300
General office expenses (3/4 x P236,000) .................................................... 177,000
Total ..... .... ................................................................................................... P 6,253,200
P6,253,200
Cost rate : –––––––––––– = 20% (rounded off)
P31,600,000
Cost of sales (P8,060,000 x 20%)........................................................................... P 1,612,000
Problem 9 – 10
Rizal Company
Installment sales [(P14,300 x 7) + (P725 x 4)] ........................................... P103,000

Cost of goods sold on installment (schedule 1) ........................................... __79,310
Gross profit .. ... ........................................................................................... 23,690
Less Deferred gross profit on 2011 sales
(P103,000 – P21,000 = P82,000 x 23%*) .......................................... __18,860
Realized gross profit on 2011 sales ............................................................. 4,830
Add Realized gross profit on prior years' sales –
2009 : P60,000 x 33-1/3*.................................................................... P20,000
2010 : P115,000 x 35%* ..................................................................... _40,250 __60,250
Total realized gross profit............................................................................ 65,080
Less Loss on repossession (Schedule 4) ...................................................... __33,100
Total realized gross profit after adjustment ................................................. 31,980
General and administrative expenses .......................................................... __50,000
Net income (loss)......................................................................................... P(18,020)
*See Schedule 3
Schedule 1
Purchases (P10,500 x 8) .............................................................................. P 84,000

Repossessed merchandise............................................................................ ___2,520
Cost of goods available for sale................................................................... 86,520
Less Inventory, December 31 –
Number of units on hand .................................................................... 1
Multiply by average unit cost (Schedule 2) ........................................ P 7,210 ___7,210
Cost of goods sold on installment ............................................................... P 79,310
Schedule 2
Purchases during 2008 (P10,500 x 8) .......................................................... P 84,000

Add Repossessed merchandise .................................................................... ___2,520
Total ..... ...... ... ........................................................................................... P 86,520
divide by Number of units (8 + 4)............................................................... _____12
Average unit cost ......................................................................................... P 7,210
178 Chapter 9

Schedule 3
2009 2010 2011
Sales –
2009 : P15,000 x 10 ....................................... P150,000
2010 : P14,000 x 20 ....................................... P280,000
2011 : P14,300 x 7 ......................................... 100,100
P725 x 4 .............................................. _______ _______ __2,900
Sales ........................................................ 150,000 280,000 103,000
Cost of goods sold:
Inventory, January 1 ........................................ – 20,000 –
Purchases ........................................................ 120,000 162,000 84,000
Repossessed merchandise ................................ _____– _____– _2,520
Cost of goods available for sale ....................... 120,000 182,000 86,520
Less Inventory, December 31 .......................... _20,000 _____– _7,210
Cost of goods sold ........................................... 100,000 182,000 79,310
Gross profit .. ... ........................................................ P 50,000 P 98,000 P23,690
Gross profit rates ...................................................... 33-1/3% 35% 23%
Schedule 4
Fair market value of repossessed merchandise............................................ P 2,520
Less Unrecovered cost –
Unpaid balance:
Original sales amount (P14,000 x 4) ............................................ P 56,000
Collections prior to repossession.................................................. __1,200
Total . ........................................................................................... 54,800
Less Unrealized profit (P54,800 x 35%) ............................................ _19,180 _35,620
Loss on repossession ................................................................................... P33,100
Problem 9-11
The key to this solution is solving the gross profit rate for 2009 (3)
1. P39,000 (P50,000 – P11,000)
2. P11,000 (P60,000 x 0.22)
3. 22%: 2010 realized gross profit on 2010 cash collections, P5,000 (P20,000 x .25)
2010 realized gross profit on 2009 cash collections, P5,500 (P10,500 – P5,000)
Gross profit rate – 2009, 22% (P5,500 / P25,000 cash collections)
4. P5,000 (P1,100 / .22)
5. P60,000 (P80,000 – P20,000)
6. P20,000 (P80,000 x .25)
7. P120,000 (P91,000 + P28,200)
8. 23.5% (P28,200 / P120,000)
9. P25,275: 2011 realized gross profit on 2009 collections, (P10,000 x .22)
2011 realized gross profit on 2010 collections, (P50,000 x .25)
2011 realized gross profit on 2011 collections, (P45,000 x .235)
Problem 9-12
2009 2010 2011

Installment sales P92,000 P103,000 P115,000 (a)
Cost of installment sales 58,880 (b) 62,830 74,750
Gross profit rates 36% 39% (c) 35%
Cash collections:
2009 sales 27,200 48,300 12,200
2010 sales 36,600 33,280 (d)
2011 sales 43,450
Realized gross profit 0 (e) 16,620 (f) 19,250 (g)
Computations:
(a) P74,750 / .66 = P115,000
(b) P92,000 x .64 = P58,880
(c) 1 - (P62,830 / P103,000) = 39%
(d) Gross profit recognized in 2011 P19,250

All costs from 2009 sales are recovered.
Cash collections equals gross profit (12,200)
Cash collected goes to recover costs – gross profit 0
Gross profit reported in 2011 from 2010 sales P 7,050
Cost of 2010 sales P62,830
Costs recovered in 2010 36,660
Costs to be recovered in 2011 26,230
Cash collected related to 2010 sales P33,280
(e) Cash collections in 2009 do not exceed cost of sales:

Realized gross profit in 2009 = P0
(f) Cash collections for 2009 sales (P27,200 + P48,300) P75,500

Cost of 2009 sales 58,880
Realized gross profit in 2010 P16,620
(g) Cash collections for 2009 sales P12,200

Cash collections for 2010 sales (P36,600 + P33,280) P69,880
Cost of 2010 sales 62,830 7,050
Realized gross profit in 2011 P19,250
Problem 9-13
1. Repossessed Inventory
2010 repossessi0ns (P37,500 x 20%) P 7,500
2011 repossessions (P24,000 x 50%) 12,000 P19,500
Trade-In inventory:
Fair value P40,875
Sold 27,000 13,875
Total inventory P33,375
180 Chapter 9
2. Repossessed Inventory 19,500

Loss on repossession or Allowance for bad debts 13,900
To record repossessions on defaulted contracts.
Note: No deferred gross profit is cancelled because no
Ggoss profit rate on installment sales is given.
3. Sales (P64,035 – P40,875) 23,160

Cost of trade-Ins sold 27,000
Trade-In inventory 11,160
Loss on trade-in inventory 12,000
Sales-trade-ins 27,000
To reduce trade-in inventory to wholesale market value
And to reflect this in lower sales and losses.
To reflect sales and cost of sales for trade-ins in separate accounts.
Long-Term Construction Contracts 181
CHAPTER 10
10-1: a
Percentage of Completion Method:
Contract Price P1,000,000
Less: Total estimated cost
Cost incurred P 200,000
Estimated remaining cost _400,000 __600,000
Gross profit estimated 400,000
% of completion (200,000/600,000) __33 1/3%
Gross profit to be recognized P 133,333
Zero Profit Method: 0
10-2: a P100,000
2007 2008
Contract Price P9,000,000 P9,000,000
Less: Total estimated cost _7,800,000 _8,100,000
Estimated gross profit 1,200,000 900,000
% of completion:
2007 (3,900,000/7,800,000) 50%
2008(6,300,000/8,100,000) _________ ______78%
Gross profit earned to date 600,000 700,000
Less: Gross profit earned in prior year ________– ___600,000
Gross profit earned each year P 600,000 P 100,000
10-3: a
Less: Total estimated cost (3,600,000 + 1,200,000) _4,800,000
Estimated gross profit 1,200,000
% of completion (3,600,000/4,800,000) _____75%
Gross profit earned to date 900,000
Less: Gross profit earned in 2007 __600,000
Gross profit earned in 2008 P 300,000
10-4: b
Less: Total estimated cost (930,000 + 2,170,000) _3,100,000
Loss (P 100,000)
182 Chapter 10
10-5: b
Total cost to date, 2011 (4,800,000 X 60%) P2,880,000
Less: Cost incurred in 2010 (4,500,000 X 20%) __900,000
Cost incurred in 2011 P1,980,000
10-6: a
Less: Total estimated cost (900,000/1,800,000) _2,700,000
Estimated gross profit 300,000
% of completion (900,000/2,700,000) ___33.33%
Gross profit recognized, 2010 100,000
Add: Cost Incurred ___900,000
Construction in Progress - 2010 P 1,000,000
Zero Profit Method:

Cost incurred to Construction in Progress - 2010 P 900,000
10-7: a
2010 2011
Contract Price P4,200,000 P4,200,000
Less: Total estimated cost _3,000,000 _3,750,000
Estimated gross profit 1,200,000 450,000
% of completion _____20% ____100%
Gross Profit earned to date 240,000 450,000
Gross Profit earned in prior year _______– __240,000
Gross Profit earned this year P 240,000 P 210,000
10-8: b
Collections:
Contract Billings P 47,000
Less: Accounts receivable ___15,000
Collections P 32,000
Initial Gross Profit:

Contract Price P 800,000
Gross Profit rate:
Income recognized 10,000
Divide by Construction in Progress 50,000 = _____20%
Initial Gross Profit P 160,000
10-9: a
Gross profit (loss) earned in 2011 (P 20,000)

Gross profit earned in prior years _180,000
Gross profit earned to date - 2011 160,000
Divide by percentage of completion - 2011 ___100%
Estimated gross profit - 2011 160,000
Less: Contract price 2,000,000
Total estimated cost 1,840,000
Less: Cost incurred - 2011 _820,000
Cost incurred to date - 2010 1,020,000
Less: Cost incurred - 2009 __360,000
Cost incurred in 2010 P 660,000
10-10: b
Gross profit earned to date - 2010 (P40,000 + P140,000) P 180,000

Divide by estimated gross profit - 2010:
Contract price P2,000,000
Gross profit rate [180,000/(1,020,000 + 180,000)] ___X 15% __300,000
Percentage of completion - 2010 60%
10-11: a, Refer to Q 10-10 solutions.
10-12: d

Estimated gross profit - 2010 (Refer to Q 10-10) __300,000
Total estimated cost 1,700,000
Less: Cost incurred to date - 2010 (refer to Q 10-9) 1,020,000
Estimated cost to complete - 2010 P 680,000
10-13: d
2010: Construction in progress P 244,000

Less: Construction costs __210,000
Gross profit recognized - 2010 P 34,000
2011: Construction in progress (P728,000-P244,000) P 484,000

Less: Construction costs __384,000
Gross profit recognized - 2011 P 100,000
184 Chapter 10
10-14: d
Project 1 Project 2
Contract price P 420,000 P 300,000
Cost incurred to date - 2011 P 240,000 P 280,000
Estimated cost to complete __120,000 ___70,000
Total __360,000 __350,000
Estimated gross profit (Loss) 60,000 (50,000)
Percentage of completion __66.67% _______–
Profit (loss) to be recognized P 40,000 (P 50,000)
Total is (P10,000)
Zero Profit Method - The loss (P50,000) for project 2 only.
10-15: a
2009 2010 2011
Contract price (cost X 120%) P3,744,000 P3,744,000 P3,744,000
Less: Total estimated costs
(1) Cost incurred to date 546,000 1,544,400 3,120,000
Estimated cost to complete _2,054,000 _1,315,000 ________–
(2) Total _2,600,000 _2,860,000 _3,120,000
Estimated gross profit 1,144,000 884,000 624,000
Percentage of completion (1 ÷ 2) _____20% _____54% ____100%
Gross profit earned to date 240,240 477,360 624,000
Gross profit earned in prior years _______– __240,240 __477,360
Gross profit earned this year P 240,240 P 237,120 P 146,640
10-16: d
2010 2011
Contract price P6,300,000 P6,300,000
Cost incurred to date 1,425,000 3,040,000
Estimated cost to complete _4,075,000 _1,960,000
Total P5,500,000 P5,000,000
Estimated gross profit 800,000 1,300,000
Percentage of completion:
2010 (1,425,000 - 50,000) ÷ 5,500,000 25%
2011 (3,040,000 - 50,000) ÷ 5,000,000 ________– __59.80%
Profit earned to date 200,000 777,400
Less: Gross profit earned in prior year ________– __200,000
Gross profit earned this year P 200,000 P 577,400
10-17: a
Cash collections:
Progress billings P1,500,000
Less: Accounts receivable, end __500,000
Collection P1,000,000
Cost incurred to date:

Construction in Progress P1,600,000
Less: Gross profit earned __200,000
Cost incurred to date P1,400,000
10-18: d
Apartment A Apartment B
2010 2011 2010 2011
Contract price 1,620,000 1,620,000 2,520,000 2,520,000
Less: Total Estimated Costs
(1) Cost incurred to date P 600,000 P1,200,000 P1,560,000 P2,310,000
Estimated cost to complete 840,000 240,000 690,000 –
(2) Total estimated cost 1,440,000 1,440,000 2,250,000 2,310,000
Estimated Gross Profit 180,000 180,000 270,000 210,000
Percentage of completion (1 ÷ 2) _41.67% _83.33% _69.33% _100.00%
Gross profit earned to date 75,000 150,000 187,200 210,000
Less: Gross profit earned in Prior years _______– ___75,000 _______– __187,200
Gross Profit earned this year P 75,000 P 75,000 P 187,000 P 22,800
Total Gross Profit 20 11 (P75,000 + P22,800) P97,800
Zero Profit Method : P210,000 gross profit earned in 2011 for Apartment B.
10-19: d
2010 2011
Contract price:
2010 P6,000,000
2011 (P6,000,000-P50,000) _________ P5,950,000
(1) Cost incurred to date 2,340,000 2,650,000
Estimated cost to complete 260,000 –
(2) Total estimated cost 2,600,000 2,650,000
Estimated Gross Profit 3,400,000 3,300,000
Percentage of completion (1 ÷ 2) ____90% ___100%
Gross profit earned to date 3,060,000 3,300,000
Less: Gross profit earned in Prior year _______– 3,060,000
Gross Profit earned this year P3,060,000 P 240,000
186 Chapter 10
10-20: a
2009 2010 2011
(1)Cost incurred to date P3,400,000 P5,950,000 P6,150,000
(2)Estimated cost to complete 1,600,000 150,000 –
(3)Total Estimated Costs 5,000,000 6,100,000 6,150,000
Percentage of completion (1 ÷ 3) 68% 98% 100%
Contract price P6,000,000 P6,000,000 P6,000,000

Less: Total estimated cost 5,000,000 6,100,000 6,150,000
Estimated Gross Profit 1,000,000 (100,000) (150,000)
Percentage of completion 68% 100% 100%
Gross profit earned (loss) to date 680,000 (100,000) (150,000)
Add: Cost incurred to date 3,400,000 5,950,000 6,150,000
Construction in Progress 4,080,000 5,850,000 6,000,000
Less: Contract billings 3,200,000 5,200,000 6,000,000
Balance P 880,000 P 650,000 –
10-21: d
Construction in Progress:
Cost incurred to date, 2010 P2,625,000
Gross profit (loss), 2010 (Schedule 1) (125,000) P2,500,000
Less: Contract billings, 2009 (P3,250,000 x 75%) 2,437,500
Excess of Construction in Progress over Contract Billings (CA) P 62,500
Schedule 1 – Computation of gross profit earned:

2009 2010
Contract price P3,250,000 P3,250,000
Total estimated cost:
Cost to date 1,075,000 2,625,000
Estimated cost to complete 1,612,500 750,000
Total 2,687,500 3,375,000
Estimated gross profit (loss) 562,500 (125,000)
% of completion 40% –
Gross profit (loss) to date 225,000 (125,000)
Gross profit earned in prior years – 225,000
Gross profit earned this year P 225,000 P(350,000)
10-22: b
2008 2009 2010
Estimated cost:
Cost to date 1,300,000 1,960,000 2,440,000
Estimated costs to complete 1,360,000 780,000 380,000
Total 2,660,000 2,740,000 2,820,000
Estimated gross profit 140,000 60,000 (20,000)
% of completion 48.87% 71.53% –
RGP to date 68,418 42,918 (20,000)
RGP in prior years - 68,418 42,918
RGP each year 68,418 (25,500) (62,918)
10-23: a
2010 Project A Project B Project C
Contract price P2,900,000 P3,400,000 P 1,700,000
Estimated costs:
Cost to date 1,680,000 1,440,000 320,000
Estimated cost to complete 1,120,000 1,760,000 960,000
Total 2,800,000 3,200,000 1,280,000
Estimated gross profit 100,000 200,000 420,000
% of completion 60% 45% 25%
Gross profit earned this year (P255,000) P 60,000 P 90,000 P 105,000
2011 Project A Project B Project C Project D

Contract price P2,900,000 P3,400,000 P1,700,000 P 2,000,000
Estimated costs
Cost to date2,640,000 2,120,000 1,183,000 560,000
Estimated costs to complete –0– 1,360,000 117,000 1,040,000
Total 2,640,000 3,480,000 1,300,000 1,600,000
Estimated gross profit (loss) 260,000 (80,000) 400,000 400,000
% of completion 100% – 91% 35%
Gross profit (loss) to date 260,000 (80,000) 364,000 140,000
Gross profit earned in prior year 60,000 90,000 105,000 –0–
Gross profit earned this year(P429,000) P 200,000 P(170,000) P 259,000 P 140,000
2010 2011
Gross profit earned P 255,000 P 429,000
General and administrative expenses 120,000 120,000
Net income P 135,000 P 309,000
10-24: c
Gross profit earned to date, 2008 (P900,000 – P100,000) 800,000
Total cost to date, 2011 9,200,000
Less: cost incurred in 2011 4,100,000
Cost to date, 2010 P 5,100,000
Gross profit earned to date P 900,000

Divided by % of completion:
(P5,100,000 + P900,000) / P10,000,000 60%
Estimated gross profit, 2107 P 1,500,000
10-25: d
Construction in progress:
Cost incurred to date P 440,000
Gross profit earned to date (P2,500,000 – P2,000,000) 110,000
Total 550,000
Less: Contract billings (P2,500,000 x 30%) 750,000
Excess of contract billings over construction in progress (CL) P( 200,000)
188 Chapter 10
10-26: a
Cost incurred to date:
Site labor cost 10,000,000
Cost of construction materials 30,000,000
Depreciation of special plant & equip 5,000,000
Total 45,000,000
Estimated cost to complete 55,000,000 100,000,000
Percentage of completion (45/100) 45%
Gross profit to be recognized P 9,000,000
10-27: a
Cost incurred to date- 2010
Total estimated cost (8,000,000 / 40%) 20,000,000
Estimated cost to complete 8,000,000 P12,000,000
Cost incurred in 2010 3,700,000
Cost incurred in 2009 8,300,000
Estimated cost at completion- 2009 12,450,000
Total estimated cost- 2009 P20,750,000
Percentage of completion- 2009 (8,300,000/ 20,750,000) = 40%
10-28: a
2010
Contract 1 Contract 2
Contract price P600,000 P450,000
Cost incurred to date 150,000 87,500
Estimated cost to complete 150,000 162,500
Total estimated cost 300,000 250,000
Estimated gross profit 300,000 200,000
Percentage of completion 50% 35%
Gross profit recognized P150,000 P70,000
2011
Contract 1 Contract 2 Contract 3
Contract price 600,000 450,000 900,000
Total estimated cost 350,000 300,000 500,000
Gross profit earned to date 200,000 90,000 144,000
Gross profit earned in 2007 150,000 70,000 -
Gross profit earned this year 50,000 20,000 144,000
Actual cost incurred to date P 640,000

Gross profit earned to date (P220,000 P214,000) 434,000
Construction in Progress, 12/31/011 P1,074,000

10-29: a
Bicol Davao Aklan Total
Contract price P875,000 P1,225,000 P437,500
Total estimated cost
Cost incurred 656,250 175,000 175,000 1,006,250
Est. cost to complete - 700,000 175,000
Total estimated cost 656,250 875,000 350,000
Gross profit earned P218,750 P 70,000 P43,750 332,500
Percentage of completion Zero Profit

Total cost incurred 1,006,250 1,006,250
Total gross profit earned 332,500 218,750
Construction in progress 1,338,750 1,225,000
Less: Billings 1,312,500 1,312,500
Due from (to) 26,250 (87,500)
10-30: a
Cost incurred 8,475,000
Estimated cost to complete 28,400,000 36,875,000
Percentage of completion 22.983%
Gross profit recognized P 907,830
10-31: a
Cost of direct materials used P220,000
Cost of direct labor, including supervision 150,000
Cost of indirect materials used 55,000
Depreciation of plant and equipment used on the contract 120,000
Payroll of design and technical department 80,000
Insurance costs 60,000
Costs of contracted research and development activities 105,000
General and administrative expenses 30,000
Borrowing costs 130,000
Total cost incurred to date P930,000
Estimated gross profit (P2,950,000 – P2,600,000) P350,000

% of completion (P930,000 / P2,600,000) 35.77%
190 Chapter 10
10-32: 1. a
Project 1 Project 2
Contract price P420,000 P150,000
Less total estimated costs 180,000 175,000
Estimated gross profit (loss) 240,000 (25,000)
% of completion:
Project 1 (P120,000 / P180,000) 66.67%
Project 2 100%
Realized gross profit (loss) 160,000 (25,000)
Expenses 10,000 5,000
Net income (loss), Dec. 31, 2011, P120,000 P150,000 P(30,000)
2. a, Project 2 only.
10-33: a
AA BB CC DD
Contract price P384,000,000 P35,000,000 P175,000,000 P99,400,000
Total estimated costs 350,240,000 30,552,000 143,640,000 91,200,000
Estimated gross profit 33,760,000 4,448,000 31,360,000 8,200,000
% of completion * 5% 75% 75% 50%
Realized gross profit P1,688,000 P3,336,000 P23,520,000 P4,100,000
* Actual cost incurred / Total estimated cost.
Total realized gross profit P 32,644,000

Total cost incurred to date 193,756,000
Construction in progress 226,400,000
Billings:
Contract signing (P693,400,000 x 20%) P 138,680,000
AA: P384,000,000 – (384,000 x 20%) x 5% 15,360,000
BB: P35,000,000 – (35,000,000 x 20%) x 75% 21,000,000
CC: P175,000,000 – (P175,000 x 20%) x 75% 105,000,000
DD: P99,400 - (P99,400 x 20%) x 50% 39,760,000 319,800,000
Due to P 93,400,000
10-34: b (P1.2 Billion x 10%)

10-35: Supporting Computation:
2009 2010 2011

Reduction due to delay 90,000
Net contract price 6,600,000 6,600,000 5,910,000
Less total estimated cost:
Cost incurred to date 1,782,000 3,850,000 5,500,000
Estimated costs to complete 3,618,000 1,650,000 -
Total 5,400,000 5,500,000 5,500,000
Estimated gross profit 5,400,000 5,500,000 5,500,000
% of completion (CITD / TEC) 33% 70% 100%
Realized gross profit to date 396,000 770,000 410,000
Realized gross profit in prior years - 396,000 770,000
Realized gross profit (loss) this year P396,000 P374,000 P(360,000)
1. a
Operating expenses 90,000
Net income P284,000
2. a
Construction in progress (P770,000 + P3,850,000) P4,620,000
Contract billings 3,100,000
Balance P1,520,000
3. a
Construction in progress P2,850,000
Balance 750,000
192 Chapter 10
Problem 10 – 1
(a) 2010 2011
Contract Price P 450,000 P 450,000
(1) Cost incurred to date 200,000 320,000
Estimated costs to complete __100,000 _______–
(2) Total __300,000 _320,000
Estimated gross profit 150,000 130,000
Percentage of completion (1 ÷ 2) ______2/3 ___100%
Estimated gross profit to date 100,000 130,000
Less: Gross profit earned in prior year _______– __100,000
Gross profit earned this year P 100,000 P 30,000
(b) Contract Price P 450,000

Less: Total cost incurred __320,000
Gross profit P 130,000
(c) 2010: Construction in Progress 100,000

Cost of construction 200,000
Construction Revenue 300,000
2011: Construction in Progress 30,000
Cost of Construction 320,000
Construction Revenue 350,000
Problem 10 – 2
(a) Construction Revenue P1,250,000

Less: Cost incurred _1,250,000
Gross profit – 2011 P –0–
Construction in Progress (cost incurred) P1,250,000

Less: Contract billings (P5,800,000 x 30%) _1,740,000
Billings in excess of related costs P(490,000)
(b) Contract price P5,800,000

Cost incurred to date P1,250,000
Estimated costs to complete 3,740,000 5,000,000
Estimated gross profit 800,000
Percentage of Completion (P1,250,000 ÷ 500,000) _____25%
Construction on Progress (P1,250,000 + P200,000) P1,450,000

Less: Contract billings _1,740,000
Billings in excess of related costs P(290,000)
Problem 10 – 3
(a) 2008 2009 2010 2011
Contract Price P55,000,000 P55,000,000 P55,000,000 P55,000,000
(1) Cost incurred to date 15,000,000 25,000,000 35,000,000 50,000,000
Estimated costs to complete _35,000,000 25,000,000 15,000,000 ________–
(2) Total _50,000,000 50,000,000 50,000,000 50,000,000
Estimated gross profit 5,000,000 5,000,000 5,000,000 5,120,000
Percentage of completion (1 ÷ 2) ______30% _____50% _____70% ____100%
Gross profit earned to date 1,500,000 2,500,000 3,500,000 5,000,000
Gross profit earned in prior yr(s) ________– _1,500,000 _2,500,000 _3,500,000
Gross profit earned the year P 1,500,000 P 1,000,000 P 1,000,000 P 1,500,000
(b) 2010 2011

(1) Construction in Progress 15,000,000 15,000,000
Cash or Payable 15,000,000 15,000,000
(2) Accounts Receivable 15,000,000 20,000,000

Contract Billings 15,000,000 20,000,000
(3) Cash 12,000,000 25,000,000

Accounts Receivable 12,000,000 25,000,000
(4) Construction in Progress 1,000,000 1,500,000

Cost of Construction 15,000,000 15,000,000
Construction Revenue 16,000,000 16,500,000
Problem 10 – 4
(a) 2009 2010 2011

Cost incurred to date P 1,000,000 P 5,500,000 P10,000,000
Divide by total estimated cost P 9,000,000 P11,000,000 _12,000,000
Percentage of Completion 11.11% 50% 83.33%
2009 2010 2011

(b) Contract Price P15,000,000 P15,000,000 P15,000,000
Less: Total Estimated Cost
Estimated costs to complete __8,000,000 __5,500,000 __2,000,000
Total __9,000,000 _11,000,000 _12,000,000
Percentage of completion ___11.11% ______50% ___83.33%
Gross profit earned to date 666,600 2000,000 9,500,000
Less: Gross profit earned in prior yrs. ________– ___666,600 _2,000,000
Gross profit earned this year P 666,600 P 1,333,400 P 500,000
194 Chapter 10
(c) (1) Construction in progress (cost incurred) 1,000,000
Cash 1,000,000
(2) Accounts Receivable 1,325,000

Contract Billings 1,325,000
(3) Cash 1,200,000

Accounts Receivable 1,200,000
(4) Construction in progress (gross profit) 666,600

Cost of construction 1,000,000
Construction Revenue 1,666,600
Problem 10 – 5
(1) 2008 2009 2010 2011

Contract Price P14,000,000 P14,000,000 P14,000,000 P14,000,000
Cost incurred to date 6,500,000 9,800,000 12,200,000 13,900,000
Estimated cost to complete __6,800,000 _3,900,000 _1,900,000 ________–
Total _13,300,000 13,700,000 14,100,000 13,900,000
Estimated gross profit 700,000 300,000 ( 100,000) 100,000
Percentage of completion ___48.87% ___71.53% _____100% ____100%
Gross profit (loss) to date 342,090 214,590 ( 100,000) 100,000
Less: Gross profit (loss) in prior yrs. ________– ___342,090 ___214,590 ( 100,000)
Gross profit (loss) this year P 342,090 P( 127,500) P( 314,590) P 200,000
(2) 2008 2009 2010 2011

Cost of construction 6,500,000 3,300,000 2,400,000 1,700,000
Construction in progress 342,090 127,500 314,590 200,000
Construction Revenue 6,842,090 3,172,500 2,085,410 1,900,000
Problem 10 – 6
(1) 2008 2009 2010

Contract Price P 6,000,000 P 6,000,000 P 6,000,000
Estimated costs to complete _2,100,000 ___150,000 ________–
Total _5,500,000 _6,100,000 _6,150,000
Estimated gross profit 500,000 ( 100,000) ( 150,000)
Percentage of completion ___61.82% _______– ________–
Gross profit (loss) to date 309,100 ( 100,000) ( 150,000)
Gross profit (loss) in prior yrs. ________– __309,100 ( 100,000)
Gross profit (loss) this year P 309,100 P 409,100 P 50,000

(2) 2008 2009 2010
Cost of construction 3,400,000 2,550,000 200,000
Construction in progress 309,100 409,100 50,000
Construction Revenue 3,709,100 2,140,900 150,000
(3) Cash 400,000

Accounts Receivable 400,000
Contract Billings 6,000,000

Problem 10 – 7
(1) 2009 2010 2011

Contract Price P16,000,000 P16,000,000 P16,000,000
Estimated costs to complete __9,640,000 __5,100,000 _________–
Total _14,240,000 _14,200,000 _14,350,000
Engineer's estimate of comp. ______31% ______58% _____100%
Gross profit to date 545,600 1,044,000 1,650,000
Less: Gross profit earned in prior yrs. ________– __545,600 _1,044,000
Gross profit earned this yr. P 545,600 P 498,410 P 606,000
(2) 2009 2010 2011

(a) Construction on progress 4,600,000 4,500,000 5,250,000
Cash 4,600,000 4,500,000 5,250,000
(b) Accounts receivable 5,000,000 6,000,000 5,000,000

Contract billings 5,000,000 6,000,000 5,000,000
(c) Cash 4,500,000 5,400,000 6,100,000

Accounts receivable 4,500,000 5,400,000 6,100,000
(d) Cost of constructions 4,600,000 4,500,000 5,250,000

Construction revenue 5,145,600 4,998,400 5,856,000
(e) Contract billings 16,000,000
Construction on progress 16,000,000
(3) Zero Profit Method: 2011 Entries

(a) Construction in progress 5,250,000
Cash / accounts payable 5,250,000
(b) Accounts receivable 5,000,000

196 Chapter 10
(c) Cash 6,100,000
Accounts receivable 6,100,000
(d) Cost of construction 5,250,000

Construction revenue 6,900,000
(e) Contract billings 16,000,000

(4) The following entry would be the only one different from (2).
2009 2010 2011

* Cost of construction 4,414,400 3,821,600 6,114,000
Construction revenue 4,960,000 4,320,000 6,720,000
* Total estimated costs x estimated percentage of completion.
Problem 10 – 8
(1) 2009 2010 2011
Contract Price P6,500,000 P6,500,000 P6,500,000
Less: Total Estimated Costs
Estimated costs to complete _3,850,000 _1,500,000 ________–
Total _6,000,000 _6,750,000 _6,850,000
Estimated gross profit (loss) 500,000 (250,000) (350,000)
Less: Gross profit (loss) in prior yrs. ________– ___520,000 _(250,000)
Gross profit (loss) this years P 520,000 P( 250,000) P( 600,000)
(2) In 2011 when the project is completed.
Problem 10-9
1. P20,000 (P220,000 – P200,000)

2. P260,000 (P250,000 + P10,000)
3. P370,000 [P850,000 – (P220,000 + P260,000)]
4. P380,000 (P370,000 + PP10,000)
5. P830,000 (P200,000 + P250,000 + P380,000)
6. P86,095:
2011: 450/640 = 0.7031 x P850,000 = P597,635
Less cost to date 450,000
Gross profit to date 147,635
2010: 200/650 = 0.3077 x P200,000 = (61,540)
RGP - 2011 P86,095

Problem 10-10
Building 1 Building 2 Building 3 Bldg. 4

Prior Prior Prior
To 2011 2011 To 2011 2011 To 2011 2011 2011
a. Contract price P4,000,000 P4,000,000 P9,000,000 P9,000,000 P13,150,000 P13,150,000 P2,500,000
b. Cost to date 2,070,000 3,000,000 6,318,0000 8,118,000 3,000,000 10,400,000 800,000
c. ECTC 1,380,000 750,000 1,782,000 - 9,000,000 2,800,000 1,200,000
d. TEC 3,450,000 3,750,000 8,100,000 9,118,000 12,000,000 13,200,000 2,000,000
e. Est. GP
a-d 550,000 250,000 900,000 882,000 1,150,000 (50,000) 500,000
f. % of comp.
b/d 60% 80% 78% 100% 25% 78.79% 40%
g. RGP to date
axf 2,400,000 3,200,000 7,020,000 9,000,000 3,287,500 10,360,885 1,000,000
h RGP-prior yr - 2,400,000 - 7,020,000 - 3,287,500 -
i RGP this yr 2,400,000 800,000 7,020,000 1,980,000 3,287,500 7,073,385 1,000,000
j CITD (b) 2,070,000 3,000,000 6,318,000 8,118,000 3,000,000 10,410,885* 800,000
k CITD prior yr. - 2,070,000 - 6,318,000 - 3,000,000 -
l CITD this yr. 2,070,000 930,000 6,318,000 1,800,000 3,000,000 7,410,885 800,000
m GP (loss) P330,000 P(130,000) P702,000 P180,000 P287,500 P(337,500) P200,000
*P10,360,885 + P50,000 = P10,410,885
1
Prior to 2011 2011
Total revenue all buildings P12,707,500 P10,853,385
Total costs – all buildings 11,388,000 10,940,885
Total gross profit – all buildings P1,319,500 P (87,500)
2. Revenue – Building 2 P9,000,000

Cost – Building 2 8,118,000
Less anticipated loss on Building 3 ( 50,000)
198 Chapter 11
CHAPTER 11
11-1: b
No revenue is to be reported. Because the franchisor fails to render substantial
services to the franchisee as of December 31, 2011.
11-2: c
Initial franchise fee P5,000,000
Less: Cost of franchise ____50,000
11-3: a
The total initial franchise fee of P500,000 is to be recognized as earned because the
collectibility of the note for the balance is reasonably assured.
11-4: b
Cash downpayment P 100,000
Collection of note applying to principal __200,000
Revenue from initial franchise fee P 300,000
11-5: a
Cash downpayment, January 2, 2008 P2,000,000
Collection applying to principal, December 31, 2008 _1,000,000
Total Collection 3,000,000
Gross profit rate [(5,000,000-500,000) ÷ 5,000,000] _____90%
Realized gross profit, December 31, 2008 P2,700,000
11-6: b
Face value of the note (P1,200,000 - P400,000) P 800,000
Present value of the note (P200,000 X 2.91) __582,000
Unearned interest income, July 1, 2008 P 218,000
11-7: d
Less: unearned interest income __218,000
Deferred revenue from franchise fee P 982,000
11-8: d
Initial franchise fee P 500,000
Continuing franchise fee (P400,000 X .05) ___20,000
Total revenue 520,000
Cost ___10,000
Franchise Accounting 199
11-9: b
Deferred Revenue from franchise fee:
Downpayment P6,000,000
Present value of the note (P1,000,000 X 2.91) 2,910,000 P8,910,000
Less: Cost of franchise fee _2,000,000
Deferred gross profit P6,910,000
Gross profit rate (6,910,000 ÷ 8,910,000) 77.55%
Downpayment (collection during 2008) P6,000,000

Gross profit rate ___77.55%
Realized gross profit from initial franchise fee P4,653,000
Add: Continuing franchise fee (5,000,000 X .05) __250,000
Total P4,903,000
Less: Franchise expense ___50,000
Operating income P4,853,000
Interest income, 12/31/05 (P2,910,000 X 14%) X 6/12 __203,700
11-10: b
Face value of the note receivable P1,800,000
Present value of the note receivable 1,263,900
Unearned interest income P 536,100

Less: Unearned interest income __ 536,100
Deferred revenue from franchise fee P2,463,900
11-11: b
Revenues from:
Adjusted sales value of IFF (P1,000,000 – 282,260) P 717,740
Continuing franchise fee (P2,000,000 X .05) 100,000
Total revenue from franchise fees P817,740
11-12: a
Realized gross profit from initial franchise fee [(350,000 + 180,000) x 37%] P 196,100
Continuing franchise fee (P121,000 + P147,500) x 5% ___13,425
Total revenue 209,525
Expenses ___42,900
Net operating profit 166,625
Interest income (P900,000 x 15%) x 6/12 ___67,500
200 Chapter 11
11-13: c
Cash down-payment P 95,000
Present of the note (P40,000 x 3.0374) __121,496
Total P 216,496
11-14: a
Initial franchise fee P 50,000
Continuing franchise fee (P400,000 x 5%) __20,000
Total revenue P 70,000
11-15: b
Initial franchise fee – down-payment (P100,000 / 5) P 20,000
Continuing franchise fee (P500,000 x 1%) __5,000
Total earned franchise fee P 25,000
11-16: a
The unearned interest to be credited is P180,000, the difference between the face
value and the present value of the notes receivable (900,000 – 720,000).
The non-refundable down payment of P600,000 is recognized as revenue since

it is a fair measure of the services already performed by the franchisor.
11-17: b
Cora (P100,000 + P500,000) P 600,000
Dora (P100,000 + P500,000) 600,000
Total P1,200,000
11-18: c
Down payment (3,125,000 x 40%) P1,250,000
Present value of notes receivable ( 1,875,000/4) 468,750 x 3.04 1,425,000
Adjusted sales value of initial franchise fee 2,675,000
Direct cost of services 802,500
Gross profit 1,872,500
Gross profit rate (1,872,500 ÷ 2,675,000) 70%

Date Collection Interest Principal Balance of PV of NR

1/1 P1,425,000
6/30 468,750 171,000 297,750 1,127,250
12/30 468,750 135,270 333,480 793,770
Total collection applying to principal 631,230
Down payment 1,250,000
Total collection 1,881,230
Realized gross profit on
initial franchise fee 1,316,861
11-19: c
11-20: d, The total initial franchise fee.
11-21: a.
Initial franchise fee P500,000

Continuing franchise fee (9M x 5%) 450,000
Earned franchise fee P950,000
11-22: b, because the collectivity of the note is reasonable assured, therefore all the initial
franchise fee is considered earned at December 31, 2011.
11-23: a, should be P11,137.50 the interest income on December 31, 2011.
Interest income (P1,209,375 – P590,625) / 5 x 9/12 =P11,137.50.
No income is recognized in the initial franchise fee since the collectability of the note
Issued by Ms. Manalo is doubtful.
No continuing franchise fee is also recognize since no monthly sales is given.

202 Chapter 11
Problem 11 – 1
a. The collectibility of the note is reasonably assured.
Jan. 2: Cash ..... ..............................................................................12,000,000

Notes receivable................................................................. 8,000,000
Deferred Revenue from IFF. ........................................ 20,000,000
July 31: Deferred cost of Franchises ............................................... 2,000,000

Cash .............................................................................. 2,000,000
Nov. 30: Cash/AR............................................................................. 29,000

Revenue from continuing franchise fee (CFF) .............. 29,000
Dec. 31: Cash / AR........................................................................... 36,000

Revenue from CFF ........................................................ 36,000
Cash .... .............................................................................. 2,800,000

Notes receivable ............................................................ 2,000,000
Interest income (P8,000,000 x 10%) ............................. 800,000
Adjusting Entries:
(1) Cost of franchise revenue ........................................... 2,000,000
Deferred cost of franchises .................................. 2,000,000
(2) Deferred revenue from IFF.........................................20,000,000

Revenue from IFF ................................................... 20,000,000
To recognize revenue from the initial franchise fee.
b. The collectibility of the note is not reasonably assured.
Jan. 2 to Dec. 31 = Refer to assumption a.
Adjusting entry: to recognized revenue from the initial franchise fee (installment method)
(1) To defer gross profit:

Deferred Revenue from IFF ........................................20,000,000
Cost of Franchise Revenue ................................... 2,000,000
Deferred gross profit – Franchises ...................... 18,000,000
GPR = P18,000 ÷ P20,000,000 = 90%
(2) To recognize gross profit:

Deferred gross profit – Franchises .............................12,600,000
Realized gross profit............................................. 12,600,000
(P14,000,000 X 90%)
Problem 11 – 2
a. Collection of the note is reasonably assured.
Jan. 5: Cash .. ..... .............................................................................. 600,000
Notes Receivable.................................................................... 1,000,000
Unearned interest income ................................................. 401,880
Deferred revenue from F.F. .............................................. 1,198,120
Face value of NR ............................................................................ 1,000,000
Present value (P200,000 x P2,9906) .............................................. __598,120
Unearned interest ........................................................................... 401,880
Nov. 25: Deferred cost of Franchise ................................................ 179,718

Cash .............................................................................. 179,718
Dec. 31: Cash / AR........................................................................... 4,000

Revenue from CFF ........................................................ 4,000
(P80,000 X 5%)
Cash .... .............................................................................. 200,000

Notes Receivable ........................................................... 200,000
Adjusting Entries:
1) Unearned interest income ................................................. 119,624
Interest income............................................................ 119,624
P598,120 x 20%
2) Cost of Franchise .............................................................. 179,718

Deferred cost of Franchise ......................................... 179,718
3) Deferred revenue from FF ................................................ 1,198,120

Revenue from FF ........................................................ 1,198,120
b. Collection of the note is not reasonably assured.
Jan. 5 to Dec. 31 before adjusting entries – Refer to Assumption a.
Dec. 31: Adjusting Entries:

1) Unearned interest income ................................................. 119,624
Interest income ........................................................... 119,624
2) Cost of franchise................................................................ 179,718

Deferred cost of franchise........................................... 179,718
3) Deferred revenue from FF ................................................ 1,198,120

Cost of Franchise ........................................................ 179,718
Deferred gross profit – Franchise .............................. 1,018,402
GPR = 1,018,402 ÷ 1,198,120 = 85%)
4) Deferred gross profit – Franchise .....................................578,319.60

Realized gross profit – Franchise ............................... 578,319.60
(P600,000 + P200,000- P119,624) x 85%
204 Chapter 11
Problem 11 – 3
2010
July 1: Cash.. ...... ..... .............................................................................. 120,000
Notes Receivable .......................................................................... 320,000
Unearned interest income ...................................................... 66,408
Deferred revenue from FF ..................................................... 373,592
Face value of NR .......................................................................... P320,000
Present value (P80,000 x 3.1699) ................................................ _253,592
Unearned interest income ............................................................ P 66,408
Sept. 1 to
Nov. 15: Deferred cost of franchise ............................................................ 80,000
Cash .. ..... .............................................................................. 80,000
(P50,000 + P30,000)
Dec. 31: Adjusting Entry:

Unearned interest income ............................................................ 12,680
Interest income ...................................................................... 12,680
(P253,592 x 10% x 1/2)
2011
Jan. 10: Deferred cost of franchise ............................................................ 50,000
Cash .. ..... .............................................................................. 50,000
July 1: Cash.. ...... ..... .............................................................................. 80,000

Note receivable ...................................................................... 80,000
Dec. 31: Adjusting Entries:

(1) Cost of franchise .................................................................... 130,000
Deferred cost of franchise ................................................. 130,000
(2) Deferred revenue from FF ..................................................... 373,592

Revenue from FF ............................................................... 373,592
(3) Unearned interest income ...................................................... 25,360

Interest income .................................................................. 25,360
Problem 11 – 4
2011
Jan. 10: Cash.. ...... ..... .............................................................................. 6,000,000
Deferred revenue from FF. .................................................... 6,000,000
Jan. 10 to
July 15: Franchise expense ........................................................................ 2,250,000
Cash .. ..... .............................................................................. 2,250,000
Deferred revenue from FF ........................................................... 4,000,000

Revenue from FF ................................................................... 4,000,000
Initial Franchise fee .....................................................................P6,000,000
Deficiency
Market value of costs (P180,000 ÷ 90%) x 10 yrs. ................( 2,000,000)
Adjusted initial fee (revenue) .......................................................P4,000,000
July 15: (a) Continuing expenses .............................................................. 180,000

Cash / Accounts payable ................................................... 180,000
(b) Deferred revenue from FF ..................................................... 200,000

Revenue from CFF ............................................................ 200,000
(P180,000 ÷ 90%)
Problem 11 – 5
a) Adjusted initial franchise fee:
Total initial F.F............................................................................. P4,500,000
Less: Face Market value of kitchen equipment ............................ _1,800,000
Adjusted initial FF........................................................................ P2,700,000
Revenues:
Initial FF .. ..... .............................................................................. P2,700,000
Sale of kitchen equipment ............................................................ 1,800,000
Continuing F.F. (P2,000,000 x 2%) ............................................. ___40,000
Total . ...... ..... .............................................................................. 4,540,000
Expenses:
Initial expenses ............................................................................. P 500,000
Cost of kitchen equipment............................................................ 1,500,000 _2,000,000
Net income ..... ..... .............................................................................. P2,540,000
b) Journal Entries:
Jan. 2: Cash .. ..... .............................................................................. 1,500,000
Notes receivable..................................................................... 3,000,000
Deferred revenue from FF (adjusted SV) .......................... 2,700,000
Revenue from FF (Market value of equipment) ................ 1,800,000
Cost of kitchen equipment...................................................... 1,500,000

Kitchen equipment ............................................................. 1,500,000
206 Chapter 11
Jan. 18: Franchise expense ........................................................................ 500,000
Cash.... .............................................................................. 500,000
April 1: Cash ...... ..... ..............................................................................2,000,000

Notes receivable ................................................................ 2,000,000
Dec. 31: Cash ...... ..... ..............................................................................1,000,000

Notes receivable ................................................................ 1,000,000
Cash / Account receivable ............................................................ 40,000

Revenue from continuing FF ............................................. 40,000
Deferred revenue from FF ........................................................... 2,700,000

Revenue from FF ............................................................... 2,700,000
Problem 11 – 6
Recognition of initial franchise fee (IFF) (6 mos. after opening)

Revenue from initial FF:
Total initial FF ..... ..............................................................................P2,500,000
Less: Deficiency in continuing FF (Sch. 1) ........................................ 160,000 2,340,000
Expense (costs of initial services) ............................................................... __700,000
Net income .. ... ...... ..... .............................................................................. P1,640,000
Schedule 1 – Estimated deficiency in CFF

(1) (2)
Yr. of Estimated Market Value (Excess of 2 over 1)
Contract Continuing FF of Continuing Services Deficiency
1 P220,000 P250,000 P 30,000
2 220,000 250,000 30,000
3 220,000 250,000 30,000
4 220,000 125,000 –
5 220,000 125,000 –
6 150,000 125,000 –
7 150,000 125,000 –
8 150,000 125,000 –
9 90,000 125,000 35,000
10 90,000 125,000 __35,000
P160,000
Recognition of revenue from CFF and costs:
Years 1-3 Years 4-5 Years 6-8 Years 9-10

Revenue from CFF ........................ P250,000 P220,000 P150,000 P125,000
Expenses . ...... ..... ......................... _200,000 _100,000 _100,000 _100,000
Net income ..... ..... ......................... P 50,000 P120,000 P 50,000 P 25,000
Problem 11 – 7
1/12/2011 6/1/2011 7/1/2011 6/30/2011
Revenue
Initial FF (Sch. 1) – – 287,200 –
Interest income – – – 45,490*
Continuing FF – – – 48,000
Others 62,500 80,000 – –
Expenses:
Initial expenses – – ( 70,000) –
Continuing expense – – – ( 36,000)
Others ( 50,000) ( 68,000) – –
Net Income P 12,500 P 12,000 P217,200 P 57,490
* P454,900 x 10% = P45,490
Schedule 1: Computation of initial FF to the recognized:

Total initial fee ...... ................................................................................................... P750,000
Less: Interest unearned on the note ........................................................................ ( 145,100) A
Market value of inventory ............................................................................ ( 80,000) B
Market value of equipment ........................................................................... ( 62,500 B
Deficiency in continuing costs ...................................................................... ( 175,200) C
Adjusted initial FF .. ................................................................................................... P287,200
A. Unearned Interest:
Face value of the note .......................................................................................... P600,000
Present value (120,000 x 3.7908) ........................................................................ 454,900 rounded
Unearned interest ................................................................................................. P145,100
B. Market value of equipment and inventory:

Equipment (P50,000 ÷ 80%)................................................................................ P 62,500
Inventory ... ...... ................................................................................................... 80,000
Income from Sales:

Equipment Inventory Total
Sales Price. ...... .......................................... P62,500 P80,000 P142,500
Cost .... ...... ...... .......................................... 50,000 68,000 118,000
Net income ...... .......................................... P12,500 P12,000 P 24,500
C. Analysis of Continuing costs:

Market value of costs is P4,000/Mo. or P48,000 / yr.
Continuing Fees:
Years 1-4 Years 5-16 Years 17-20
Gross revenues .......................................... P330,000/mo. P450,000/mo. P500,000/mo.
Gross fees per month .................................. P 2,475/mo. P 3,375/mo. P 3,750/mo.
Gross fees per year ...................................... P 29,700 P 40,500 P 45,000

Market value of continuing costs ................ ( 48,000) ( 48,000) ( 48,000)
Deficiency per year ..................................... ( 18,300) ( 7,500) ( 3,000)
Number of years ......................................... x4 x 12 x4
Deficiency .......................................... P( 73,200) P( 90,000) P( 12,000)
Total deficiency for 20 years is P175,200

208 Chapter 11
Dates of Revenue Recognition: ..................................................... Types of Revenue

January 12, 2011 ............................................................ Sale of equipment
June 1, 2011 ................................................................... Sale of inventory
July 1, 2011 .................................................................... Initial FF (as adjusted0
June 30, 2012 ................................................................. Interest income and
continuing revenue.

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Partnership – Basic Considerations and Formation 1

MULTIPLE CHOICE ANSWERS AND SOLUTIONS

Total agreed capital (P230,000/40%) P575,000

Agreed capitals, equally (P300,000/3) = P100,000

Goodwill (P240,000 - P130,000) = P110,000

Required capital of Cruz (P400,000 X 30%) P120,000

Total partnership capital (P165,900/2/3) P248,850

Gomez's capital (P300,000 X 40%) P120,000

Cash to be invested by Jocson:

* Total agreed capital (P2,255,364 / 60%) P3,758,940

1. a. Books of Pedro Castro will be retained by the partnership

To adjust the assets and liabilities of Pedro Castro.

1. Pedro Castro, Capital ............................................................. 600

2. Pedro Castro, Capital ............................................................. 200

3. Accrued Interest Receivable .................................................. 35

4. Pedro Castro, Capital ............................................................. 100

5. Pedro Castro, Capital ............................................................. 800

6. Office Supplies ...................................................................... 400

To record the investment of Jose Bunag.

Cash .. ........................................................................................... 15,067.50

b. A new set of books will be used

Books of Pedro Castro

To adjust the assets and liabilities.

See Requirement (a).

To close the books.

Notes Payable ............................................................................... 4,000

New Partnership Books

To record the investment of Pedro Castro.

Cash ........................................................................................... 6,000

To record the investment of Jose Bunag.

Cash .. ........................................................................................... 15,067.50

2. Castro and Bunag Partnership

Cash ..... ...... ... ........................................................................................... P21,067.50

Liabilities and Capital

Notes payable ........................................................................................... P 4,000.00

Jose: Capital before adjustment ...................................................... P 85,000

Total agreed capital (P68,500 ÷ 25%) = 274,000

Jose, Pedro and Pablo Partnership

Bonus Method Goodwill Method

Liabilities and Capital:

Accounts payable P 53,000 P 53,000

1. Books of Pepe Basco

To adjust the assets.

a. Pepe Basco, Capital ...................................................................... 3,200

b. Pepe Basco, Capital ...................................................................... 500

To close the books.

Estimated Uncollectible Account ....................................................... 4,800

2. Books of the Partnership

To record the investment of Pepe Basco.

Cash .... ... ........................................................................................... 400

To record the investment of Carlo Torre.

Cash .... ... ........................................................................................... 47,250

a. Roces' books will be used by the partnership

(a) Sales, Capital ......................................................................... 3,200

(b) Goodwill ................................................................................ 32,000

Allowance for Bad Debts ............................................................. 12,800

Books of Roces (Books of the Partnership)

(a) Roces, Capital .............................................................................. 1,600

(b) Accumulated Depreciation – Fixtures .......................................... 16,000

(c) Merchandise Inventory................................................................. 8,000

(d) Goodwill....................................................................................... 40,000

2. To record the investment of Sales.

Cash .... ... ........................................................................................... 4,800