CHAPTER 2

Correction: Ex 16 a) P5,000 should be the allowance for bad debts, adjust against Lee Capital.
Ex 1:
a) Jan. 2 Nina and Bona made initial investments of P500,000 and P300,000,respectively.
Mar.1 Additional investment was made by Bona, P200,000 .
Oct. 1 Nina and Bona made personal drawings of of P30,000 each.
Nov.1 Another personal drawing was made by the partners for P30,000 each.
Dec. 15 A loan for P50,000 was extended by Nina to the partnership.
Dec. 31 P200,000 profit was shared equally by Bona and Nina

Income and ExpenseSummary 200,000

Nina Drawing 100,000
Bona Drawing 100,000
.
b) 1. P500,000 must be the agreed contribution required of each partner.
2. allowable withdrawals of P30,000 each month for each partner..
3. profit sharing ratio is 1:1

c) Statement of Partners’ Equity

Nina Bona Total
Initial investment, Jan. 1 500,000 300,000 800,000
Additional Investment 200,000 200,000
Profit Share 100,000 100,000 200,000
Total 600,000 600,000 1,200,000
Less: Personal Drawings 60,000 60,000 120,000
Balances, Dec 31 P540,000 P540,000 1,080,000
Ex 2. Land 3,500,000
Building 2.500,000
Cash 2,000,000
Ankoy, Capital 6,000,000
Andeng, Capital 2,000,000
Ex 3.
Jan 01 Cash 900,000
Land 300,000
Building 500,000
Notes Pyable 200,000
Elmer, Capital 900,000
Edam, Capital 600,000
Dec 28 Elmer, Drawings 30,000
Cash 30,000
Edam, Capital 25,000
Cash 25,000
Dec 31 Income Summary 255,000
Elmer, Drawings 191,250
Edam, Drawings 63,750
375,000-125,000= 255,000

Statement of Partners’ Equity

Elmer Edam Total
Initial investment, Jan. 1 900,000 600,000 1,500,000
Profit Share 191,250 63,750 255,000
Total 1,091,250 663,750 1,755,000
Less: Personal Drawings 30,000 25,000 55,000
Balances, Dec 31 P1,061,250 P638,750 1,700,000

You may close the drawing to the capital account. Whether you make this as the last entry or not,
ending equity will still be the same.
4. May 1
Merchandise Inventory 100,000
Equipment 300,000
Notes Payable 150,000
Eba, Capital 250,000

Furniture and Fixtures 250,000

Cash 125,000
Clare, Capital 375,000
250/.4=625 agreed equity x .6= 375-250=125,000 cash

5. a) Inventory 125,000
Winston, Capital 125,000

b) Cash 200,000
Furniture & Fixture 150,000

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 Rubio, Capital 350,000
c) Equipment 230,000
Notes Payable 100,000
Enriquez, Capital 130,000
6. a)
5. Blanco DelRio Total
Balances, Jan. 1 800,000 900,000 1,700,000
Add:
Investments 150,000 150,000
Profit Share 160,000 240,000 400,000
Total 1,110,000 1,140,000 2,250,000
Less: Drawings-Personal 200,000 280,000 480,000
Balances, Dec. 31 910,000 860,000 1,770,000

Although Blanco’s capital and profit share are lower by P100,000 on Jan. 1 and P80,000 on Dec
31,Blanco made an additional investment of P150,000 and withdrew only P200,000 against DelRio’s
withdrawal of P280,000.

b) The partners are withdrawing cash more than their profit share, eroding P40,000 from Blanco’s capital
and also P40,000 from Delrios capital.
7. 3/1 Cash 80,000
Accounts Receivable 50,000
Merchandise 70,000
Reyes, Capital 190,000
Allow for Doubtful 10,000

Equipment 75,000
Cash 40,000
Ortiz, Capital 115,000

5/1 Equipments 210,000

Flores, Capital 135,000
Notes Payable 75,000

5/31 Cash 130,000

Ortiz, Capital 75,000
Flores Capital 55,000

Cash P250,000 Notes Payable P 75,000

Accts Recble (net of P10,000 allow) 40,000 Reyes, Capital 190,000
Merchandise 70,000 Flores, Capital 190,000
Equipment 285,000 Ortiz, Capital 190,000
P645,000 Total P645,000
8. a) 1) Allowance for bad debts Taverna, Capital 8,000
Should be 70,000 Allowance for Bad Debts 8,000
per books 78,000
Increase allowance 8,000
2) Merchandise Inventory 120,000 Taverna, Capital 12,000
Merchandise should be 108,000 Merchandise Inventory 12,000
Decrease by 10% 12,000
3) Furniture & Equipment at 75% 67,500 Taverna, Capital 4,500
Book Value 72,000 Allowance for Depn. 4,500
Add’l provision 4,500

Taverna, Capital 225,500

Allowance for Depreciation 22,500
Allowance for Bad Debts 10,000
Accounts Payable 40,000
Cash 20,000
Accounts Receivable 80,000
Merchandise Inventory 108,000
Furniture & Equipment 90,000
b) 1) cash is not invested:

Accounts Receivable 80,000

Merchandise Inventory 108,000
Furniture & Equipment 67,500
Allowance for Bad Debts 10,000
Accounts Payable 40,000
Taverna, Capital 205,500

2) Cash 342,500
Elchico, Capital 171,250
Baylon, Capital 171,250
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 Total Equity (205,500/.6) 342,500/2= 171,250

9. a) Equipment 260,000
Furniture and Fixtures 40,000
Gilmore, Capital 300,000
Cash 200,000
Gilmore Capital 50,000
Raymond, Capital 250,000
Total contributions which is total equity P500,000/2= 250,000 capital credit for each partner.
Gilmore will give bonus to Raymond.

10. a) Cash P 34,000

Accounts Receivable (net) 76,000
Inventory 125,000
Land 300,000
Building (net) 340,000
Accounts Payable 25,000
Mortgage Payable 175,000
Gonzales, Capital 675,000

b)1. Cash 200,000

Gonzales, Capital 18,750
Espiritu, Capital 218,750

To Prof: Under the bonus method, total contributions is also total agreed equity. Espiritu’s contribution is
only P200,000 but her interest or equity is P218,750 based on .25 of P875,000. Gonzales equity
should only be P656,250 but actual contribution is P675,000. Bonus is given by Espiritu.

b) 2. Cash 200,000
Goodwill 25,000
Espiritu, Capital 225,000

To Prof: Under the goodwill method, agreed equity should be higher than actual contribution for Espiritu
To make this possible, we use the actual contribution of Gonzales to come up with total agreed equity:
675,000 / .75= 900,000 x .25= 225,000 for Espiritu. But her actual contribution is only P200,000, the
excess equity is debited to goodwill.

11.
Actual contributions Alice Alex
Cash 25,000
Accounts Receivable 25,000
Inventory 20,000
Equipment (40,000-18,000) 22,000 _____
Adjusted contributions 47,000 45,000
Cash method- Alex makes addtl investment 2,000

Adjusted contributions 47,000 45,000

Goodwill method (45,000 / .4=112,500 x .6= 67,500 20,500
67,500 – 47,000

Adjusted contributions 47,000 45,000

Bonus method Total equity P92,000 / 2= 46,000
47,000-46,000= 1,000 bonus to Alex (1,000) 1,000

12.1) Accounts Receivable 500,000 Solis, Capital 117,500

less: write off 50,000 Allowance for Bad Debts 67,500
realizable value 450,000 Accounts Receivable 50,000
(15%) 15%
Allow For Bad Debts 67,500
2) Supplies Inventory 75,000 Solis, Capital 15,000
FMV (80%) 60,000 Supplies Inventory 15,000
Decrease supplies by 15,000
3) Furniture & Fixtures 35,000 Solis, Capital 5,000
FMV 25,000 Accumulated Depreciation 5,000
Accum. Depn.-Req’d. 10,000
Per books 5,000
Increase by 5,000
4) Accrued taxes Solis, Capital 5,000
Accrued Taxes 5,000
5) Book Value of radio equipment 380,000 Solis, Capital 80,000
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 Lower by 80,000 Accum Depn 80,000
Market value 300,000
a) Solis, Capital per books 815,000
Less: Adjustments 222,500
Adjusted Capital P 592,500
b) Prieto’s Investment 1,000,000 – 592,500 = P407,500
c) Radio Equipment 300,000
Furniture & Equipment 25,000
Cash 170,000
Prepaid Insurance 10,000
Accounts Receivable 450,000
Supplies 60,000
Allowance for Bad Debts 67,500
Accrued Taxes 5,000
Accounts Payable 350,000
Solis, Capital 592,500
Cash 407,500
Prieto, Capital 400,000
Solis, Capital 7,500
Agreed capitalization P1,000,000 x 40% interest of Prieto
Agreed Capital for Prieto P400,000
Actual contribution 407,500
Bonus for Solis P 7,500
13.
Marlo, Capital 90,000 Entries:
Cash 10,000
Inventory 1,000 Accts Recble 38,000
Plant & Equipt ( 2,000) Inventory 51,000
89,000/.4 Plant & Equipment 30,000
Agreed 222,500 x .6 Accum Depn 20,000
Bello agreed capital 133,500 Accts Payable 20,000
Actual 100,000 Marlo Capital 89,000
Goodwill P33,500
Cash 100,000
Goodwill 33,500
Bello, Capital 133,500
89,000/.4=222,500 x .6=133,500 – 100,000= 33,500 GW

14.
Steve Guy
Unadjusted Capital P145,000 P116,000
Bad Debts ( 5,000)
Fixed Assets ( 15,000) ( 15,000)
Inventory ( 10,000)
Supplies ( 10,000)
Accrued Interest ( 2,500) ______
Adjusted P112,500 P 91,000
Agreed 100,000 100,000
Cash investment P 9,000
(withdrawal) (P 12,500)

Or list adjusted values:

Cash 25,000 11,000
Accounts Receivable 25,000
Merchandise Inventory 70,000
Supplies Inventory 15,000 15,000
Furniture & Equipment 35,000 70,000
Allow for Bad Debts ( 5,000)
Accrued Interest ( 2,500)
Accounts Payable (20,000) (5,000)
Notes Payable (30,000) _____
Steve Capital P112,500 P 91,000
Agreed 100,000 100,000
Cash investment (withdrawal) (P 12,500) P 9,000

b) Cash 25,000
Accounts Receivable 25,000
Merchandise Inventory 70,000
Supplies Inventory 15,000
Furniture & Equipment 35,000
Allow for Bad Debts 5,000
Accrued Interest 2,500
Accounts Payable 20,000
Notes Payable 30,000
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 Steve Capital 112,500
Cash 11,000
Supplies Inventory 15,000
Furniture & Equipment 70,000
Accounts Payable 5,000
Guy, Capital 91,000
c) Steve, Capital 12,500
Cash 12,500

Cash 9,000
Guy, Capital 9,000
d) Name of Partnership
Statement of Financial Position
Date
Cash P 32,500 Accounts Payable P 25,000
Accounts Receivable 25,000 Notes Payable 30,000
Allow for Bad Debts ( 5,000) Accrued interest 2,500
Merchandise Inventory 70,000 Steve, Capital 100,000
Supplies 30,000 Guy, Capital 100,000
Furniture & Equipment 105,000
Totals P257,500 Totals P257,500

e) Steve Guy Total

Adjusted P112,500 P91,000 P203,500
Agreed 101,750 101,750 203,500
Bonus P10,750 10,750 0
f) Steve, Capital 10,750
Guy, Capital 10,750
Ex 15.
Cash 19,500
Accounts Receivable 15,000
Inventory 32,000
Equipment 31,000
Allowance 3,500
Accounts payable 45,000
Dan, Capital 49,000

Cash 16,000
Accounts Receivable 23,000
Inventory 15,000
Equipment 19,000
Allowance 5,000
Accounts payable 37,000
Jude, Capital 31,000

b) Jude, Capital 1,600

Cash 1,600

49,000/.625= 78,400 – 49,000= Jude 29,400 – 31,000= 1,600

c) 80,000 x .6= 48,000 equity for Dan against his actual contribution of P49,000= bonus of P1,000 to Jude
80,000 x .4= 32,000 equity for Jude against his actual contribution of P31,000= bonus from Dan.

Dan, Capital P1,000

Jude, Capital P1,000

Ex 16. a) Cash P 17,500

Accounts Receivable 35,000
Notes Receivable 50,000
Accrued Interest inc. (50,000 x 5/12 x 12%) 2,500
Merchandise Inventory 145,000
Store Furniture & Equipment 289,000
Accounts Payable ( 50,000)
Adjusted Capital P 489,000

Reduce store and equipment by P89,000.

b) Agreed Cont. Actual Cont. Asset Rev
Veejay Lee (1/2) 400,000 489,000 (89,000)
Jackie Lou (1/2) 400,000 400,000 -
800,000 889,000 (89,000)

c) Adjust Lee’s books and close:

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 1. Lee, Capital 1, 500
Allow for Bad Debts 3,500
Accounts Recble 5,000
Accrued Interest income 2,500
Lee, Capital 2,500
Lee, Capital 35,000
Merchandise Inventory 35,000
2. Lee, Capital 89,000
Accum. Depn. 89,000

d) Partnership books:

Cash 17,500
Accounts Receivable 35,000
Notes Receivable 50,000
Accrued Interest 2,500
Merchandise Inventory 145,000
Store Furniture & Equipment 200,000
Accounts Payable 50,000
Adjusted Capital 400,000

Cash 400,000
Lou, Capital 400,000

17. Cash 311,000

Lou, Capital 311,000
(800,000-489,000)

Lee, Capital 89,000

Lou, Capital 89,000

Lee Lou Total

Agreed 400,000 400,000 800,000
Actual 489,000 311,000 800,000
Bonus to Carter (89,000) 89,000 0

LEGAL, ETHICAL AND ACCOUNTING ISSUES

Legal and Ethical Issues- Art. 1778: properties invested becomes common property of the
partnership as well as the profits thereof.

Ethical Issue- confidentiality is one of the ethical conduct mentioned in the code, but applies to
outsiders and not to any one partner who has vested interest over the partnership (Art.
1805-1806). Books must be kept in the principal place of business subject to inspection
most specially by partners who have a right over this. Partners must be informed of
business contracts specially the general partners. Partners are required not to make false
concealments of contracts to the other partners, this cnstitutes a legal violation..

Accounting Issues-

a.)
Land P300,000
Fernandez Capital P300,000

Cash 650,000
Land 300,000
Gain 335,000

Equity over investment P300,000

Share in the gain 111,667
Total equity of Fernandez P411,667
b.)
Land P600,000
Fernandez Capital P600,000

Cash 650,000
Land 600,000
Gain 50,000

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 Equity over investment P600,000
Share in the gain 16,667
Total equity of Fernandez P616,667

c) The second approach is the acceptable approach.

Assets should be recorded at cost- current value at point of ransaction/investment.
It will give a fair and equitable treatment to all partners concerned, most specially to
the investing partner.

Tax Issue:
A) P150,000 x .30= P45,000 tax provision which will decrease the net income for distribution to partners.
Profit share: Eli P52,500 Mumar P26,250 and Nedo P26,250.

B) No tax liability
Profit share: Eli P75,000 Mumar P37,500 and Nedo P37,500.

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