PRE 316 - ACCOUNTING FOR SPECIAL TRANSACTIONS

QUIZ - September 21, 2020

Ms. Aurelia B. Dalugdug, CPA, MBA - Instructor
NAME: _______________________________ Course: ____________ Score: __________
Problem 1:
Pepe and Pilar are partners sharing profits in this proportion - 60:40. A balance sheet
prepared for the partners on April 1, 2019 shows the following:

Cash 48,000
Accounts Receivable 92,000
Inventories 165,000
Equipment 70,000
Less: Accum. Depn. 45,000 25,000
Total Assets 330,000

Accounts Payable 89,000

Pepe, Capital 133,000
Pilar, Capital 108,000
Total Liabilities and Capital 330,000

On this date, the partners agree to admit Jose as a partner. The terms of the agreement
are summarized below:
Assets and liabilities are to be restated as follows:
a. an allowance for possible uncollectible of P4,500 is to be established.
b. inventories are to be restated at their present at their present replacement
value of P170,000.
c. Accrued expenses of P4,000 are to be recognized.
Pepe, Pilar and Jose will divide profits in the ratio of 5:3:2. Capital balances of the partners
after the formation of the new partnership are to be in the aforementioned ratio, with Pepe
and Pilar making cash settlement between them outside of the partnership to adjust their
capitals, and Jose investing cash in the partnership.

Required/determine:
1. How much cash is to be invested by Jose.
2. The total capital of the partnership after the admission of Jose.
3. How much is the cash settlement between Pepe and Pilar.

Problem 2:
Jack and Jill formed a partnership on January 2, 2018, and agreed to share profits, 90% & 10%,
respectively. Jack contributed capital of P25,000. Jill contributed no capital but has a specialize
expertise and manages the firm full time. There were no withdrawals during the year. The
partnership agreement provides for the following:
1. Capital accounts are to be credited annually with interest at 5% of beginning capital.
a. Jill is to be paid salary of P1,000 a month.
b. Jill is to receive a bonus of 20% of income calculated before deducting his salary
and interest on both capital accounts.
2. The partnership 2018 income statement follows:
Revenues 96,450
Expenses (including salary, interest, and bonus) 49,700
Net Income 46,750
Required: Determine how much is the bonus of Jill.
solution:
19. d
Total capital of the new partnership (see no. P 296,875
Multiply by RR’s interest 20%
Cash to be invested by RR P 59,375

20. (a)
OO PP Total
-60% -40%
Unadjusted capital ba P133,000 P108,000 P241,000
Adjustments:
Allowance ( 2,700) ( 1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses ( 2,400) ( 1,600) ( 4,000)
Adjusted capital bala P130,900 P106,600 P237,500

Total capit P 237,500

Divide by the total p 80%
Total capital of the partnership a P 296,875

21. a
Agreed Capital Contributed Capital Settlement
OO P148,437.50 (50% x P P 130,900 P 17,537.50
PP 89,062.50 (30% x P 106,600 -17,537.50

Therefore, OO will pay PP P17,537.50

44. c
Bonus = 20% (NI before deduction on salaries, interests and bonus)
B = 20% (NI after deduction of salaries, interests and bonus + salaries + interests + bonus)
B = 20% [P46,750 + (P1,000 x 12 months) + (.05 x P25,000) + B]
B = .20 [P60,000 + B]
B = P12,000 + .20B
1.20 B = P12,000
B = P15,000
Total
 PRE 316 - ACCOUNTING FOR SPECIAL TRANSACTIONS
PRELIM EXAM - OCTOBER 1, 2020
Ms. Aurelia B. Dalugdug, CPA, MBA - Instructor
NAME: _______________________________ Course: ____________ Score: __________
TEST 1: Multiple Choice: Encircle the correct answer on each given statements. Show
your solutions: 2 pts. Each
1. On October 31, 2019, BEC formed a partnership by combining their separate business proprietorships.
B contributed cash of P500,000. E contributed property with a P360,000 carrying amount, a P400,000
original cost, and P800,000 FMV. The partnership accepted responsibility for the P350,000 mortgage attached
to the property. C contributed equipment with a P300,000 carrying amount, a P750,000 original cost, and
P550,000 fair value. The partnership agreement specifies that profits and losses are to be shared equally but is
silent regarding capital contributions. What are the capital balances of the partners as of October 31, 2019?
B E C
a. 500,000 400,000 750,000
b. 500,000 800,000 550,000
c. 500,000 450,000 550,000
d. 500,000 360,000 300,000
2. The partnership business of Zach and Ellen have the following provisions as follows:
a. Annual salary of P60,000 each
b. Bonus to Zach of 20% of the net income after partners' salaries
c. Balance to be divided equally.
The partnership reported a net income of P360,000 after partners' salaries but before bonus. How much
is the share of Ellen in the profti?
a. 150,000 b. 210,000 c. 90,000 d. 60,000
3. John and Llyod are partners in the business. Balance Sheet accounts of John just before the admission of
Llyod show: Cash, P26,000, Accounts receivable, P120,000, Merchandise Inventory, P180,000; and Accounts
Payable, P62,000. It was agreed that for purposes of establishing Llyod's interest, the following adjustments be
made: 1.) An allowance for doubtful accounts of 3% of accounts receivable is to be established 2.) merchandise
inventory is to be adjusted upward by P25,000; and 3.) prepaid expenses of P3,600 and accrued liabilities of
P4,000 are to be recognized. If Llyod is to invest sufficient cash to obtain 2/5 interest in the partnership, how
much would Llyod contribute to the new partnership?
a. 113,980 b. 190,000 c. 176,000 d. 95,000
Test II: Problem - 15 pts each:
1. Luis, Lucio and Letty are partners sharing profits on a 5:3:2 ratio. On January 1, 2018, Luth was
admitted into the partnership with a 20% share in the profits. The old partners continue to participate
in profits proportionate to their original ratios. For the year 2018, the partnership books showed a net
profit of P250,000. It was disclosed, however, that the errors shown on the next page were made.
2018 2019
Accrued expenses not recorded at year-end 10,000
Inventory overstated 30,000
Purchase not recorded, for which goods have
been received and inventoried 20,000
Income received in advance not adjusted 15,000
Unused supplies not taken up at year-end 5,000

Required: 1. Determine the new profit and loss ratio of the old partners.
2. Determine the share of the partners in the corrected net profit of the
partnership. Income tax rate is 30%.
2. The statement of financial position of the partnership of Jien, Giana and JV on December 31, 2019
is presented below.
Cash 440,000
 Other Assets 120,000
Total Assets 560,000

Liabilities 80,000
Jien, Capital 80,000
Giana, Capital 160,000
JV, Capital 240,000
Total Liabilities and Capital 560,000
The partners share profits and losses in the ratio of 2:1:2. On July 1, 2020, JV decided to retire from the
partnership. The partners decided to close the partnership books as of this date so as to determine the
capital interest of JV. Profit for the 6-months ended amounted to P240,000 while drawings of Jien, Giana
and JV amounted to P16,000, P24,000 and P8,000 respectively. Profits and losses are to be shared
equally after the retirement of JV. The partnership paid JV P250,000 upon his retirement.
Instructions:
1. Determine the adjusted capital accounts of the partners prior to the retirement of JV, and
prepare the necessary journal entries.
2. Show how the settlement is prepared using the two alternative methods, Bonus method
and Asset Revaluation method. Prepare all necessary journal entries to record the
settlement of JV's claim from the partnership.
3. The partnership business of Aileen, Pauline, and Kathleen is in the crucial point of break-away situations.
They share profits and losses of 50%, 30%, and 20% respectively. The partners have agreed to liquidate
the partnership and anticipate that liquidation expenses will total P14,000. Prior to the liquidation, The
balance sheet of the partnership showed the following values:
Cash 22,000
Other Assets 370,000
Notes Payable to Pauline 30,000
Other Liabilities 162,000
Aileen, Capital 100,000
Pauline, Capital 25,000
Kathleen, Capital 75,000
784,000
The actual liquidation expenses incurred totaled P 7,000 for the first installment and that other assets with a
book value of P100,000 are sold for P80,000. In the second installment, other assets with a book value of
P150,000 are realized for P170,000. And the remaining assets are realized for P90,000.
Required: 1. Prepare Statement of Liquidation
2. Cash Priority Program or Schedule of Safe Payment to support the liquidation
3. Journalize the above transactions.