University of Luzon

College of Accountancy

Adjusting Entries

Problem 1
The following given data, prepare adjusting journal entries for the year ended December 31, 2012.
1. Of the P5,300office supplies inventory, P1,250 costs of supplies were on hand.
Answer:
Office Supplies Expense 4,050
Office Supplies (5,300 – 1,250) 4,050
#
2. Paid insurance premium on Oct. 1, 2012 amounting to P4,800 for a 2-year policy contract. Expense
account was debited upon payment.
Answer:
Prepaid Insurance 4,200
Insurance expense(4,800 x 21/24) 4, 200
#
3. Salaries from the period Dec. 27, 2012 to Jan. 3, 2013 at P225/day were unpaid.
Answer:
Salaries expense 1,125
Salaries Payable (225 x 5) 1,125
#
4. Of the recorded interest income account of P5,000, P3,000 was unearned at the end of the period.
Answer:
Interest Income 3,000
Unearned Interest Income 3,000
#
5. Purchase of supplies for P3,000. At the end of the year, P1,000 costs of supplies were actually used.
Expense method was used in payment of supplies.
Answer:
Supplies 2, 000
Supplies Expense (3,000 – 1,000) 2, 000
#
 University of Luzon
College of Accountancy

6. A P48,000, 6% 120-day note was received from a client dated Nov. 1, 2012. The interest was not yet
collected at the end of the accounting period.
Answer:
Interest Receivable 480
Interest Income[(48,000x 6%) x 2/12] 480
#
7. Before adjustment, the balance of the laundry supplies inventory was P35,000. Physical count of supplies
inventory was P15,000.
Answer:
Supplies Expense 20,000
Laundry Supplies (35,000-15,000) 20,000
#
8. An office equipment was acquired on May 31, 2012 for P150,000. The office equipment has an estimated
life of 5 years without scrap value.
Answer:
Depreciation Expense 17,500
Accumulated Depreciation 17,500
[(150,000/5 )x7/12]
#
9. A copying machine was rented on Nov. 30, 2012 at P1.00/copy of production. If reported to have
produced 300 copies as of Dec. 31, 2012. No payments were as of this date.
Answer:
Rent Expense 300
Rent Payable (1 x300) 300
#
10. A Signed an advertising contract on Dec. 1, 2012 with a registration for P3,500 will commence upon and
will terminate on Jan. 15, 2013. Expense method is used in recording prepayment.
Answer:
Prepaid Advertising 1,750
Advertising Expense (3,500 x 15/30) 1, 750
#
 University of Luzon
College of Accountancy

B. Supplies inventory showed a balance of P40,000 as of Dec. 31, 2011. During the year, P25,000 costs of
supplies were purchased and at the end of Dec. 31, 2012, P20,000 were found to be on hand.
Answer:
Supplies Expense 45, 000
Supplies (65,000-20,000) 45, 000
#

Problem 2
The following are selected transactions of the ABC Trading during the year 2012.
A. On July 1, 2012, The Company received P270,000, representing rental payments for the period July 1,
2012 to December.
Answer:
Liability Method Revenue Method
Original Entry:
Cash 270,000 Cash 270,000
Unearned Revenue 270,000 Rent Revenue 270,000
# #
Adjusting Entry:
Unearned Rent Revenue 90,000 Rent Revenue 180,000
Rent revenue 90,000 Unearned Rent Revenue180,000
(270,000 x 6/18) (270,000 x 12/18)
# #
B. On Oct. 1, 2012, an insurance premium of P90,000 was covering a period of two years beginning on this
date.
Answer:
Asset Method Expense Method
Original Entry:
Prepaid Insurance 90,000 Insurance Expense 90,000
Cash 90,000 Cash 90,000
# #
Adjusting Entries:
Insurance Expense 11,250 Prepaid Insurance 78,750
Prepaid Insurance 11,250 Insurance Expense 78,750
(90, 000 x 3/24) (90,000 x 21/24)
# #
 University of Luzon
College of Accountancy

Problem 3
1. Payment of insurance for 1 year recorded as expense.
Invoice Date Invoice Amount Balance Sheet Date
1-15-200B P100,000 12-31-200B
Answer:
No Adjusting Entry

2. Payment of rent for 6 months recorded as asset.

Invoice Date Invoice Amount Balance Sheet Date
9-30-200B P36,000 10-31-200B
Answer:
Original Entry:
Prepaid Rent 36,000
Cash 36,000
#
Adjusting Entry:
Rent Expense 6,000
Prepaid Rent (36,000 x 1/6) 6,000
#
3. Collection of interest for 3 months recorded as income.
Invoice Date Invoice Amount Balance Sheet Date
5-31-200B P3,000 6-30-200B
Answer:
Original Entry:
Cash 3,000
Interest Income 3,000
#
Adjusting Entry:
Interest Income 2, 000
Unearned Interest Income 2, 000
(3,000 x2/3)
#
4. Collection of royalty applicable for 6 months, recorded as liability.
Invoice Date Invoice Amount Balance Sheet Date
9-01-200B P9,000 12-31-200B
 University of Luzon
College of Accountancy

Answer:
Original Entry:
Cash 9,000
Unearned Revenue 9,000
#
Adjusting Entry:
Unearned Revenue 6,000
Revenue (9, 000 x 4/6) 6,000
#
5. Payment of interest for 90 days, recorded as asset.
Invoice Date Invoice Amount Balance Sheet Date
1-15-200B P1,500 3-31-200B
Answer:
Original Entry:
Prepaid Interest 1,500
Cash 1,500
#
Adjusting Entry:
Interest Expense 1,250
Prepaid Interest (1,500 x 75/90) 1,250
#

Problem 4
1. Accrued wages unrecorded and unpaid at year-end P4,000.
Answer:
Salaries Expense 4,000
Salaries Payable 4,000
#
2. Revenue recorded earlier and recorded as revenue but not yet earned P8,000.
Answer:
Service Revenue 8,000
Unearned Service Revenue 8,000
#
 University of Luzon
College of Accountancy

3. Depreciation expense for the year not yet recorded P8,000.

Answer:
Depreciation Expense 8,000
Accumulated Depreciation 8,000
#
4. Service at year-end in service revenue account, P62,000. Give the closing entry.
Answer:
Service Revenue 62,000
Income Summary 62,000
#
5. Service revenue earned but not yet collected at year-end P6,000.
Answer:
Accounts Receivable 6,000
Service Revenue 6,000
#
6. Balance at year-end in interest revenue account P4,200. Give the closing entry.
Answer:
Interest Revenue 4,200
Income Summary 4,200
#
7. Office supplies inventory account at year-end P4,000. Inventory Supplies on hand at year-end P1,000.
Answer:
Office Supplies Expense 3,000
Office Supplies 3,000
#
8. At year-end, interest on notes payable not yet recorded or paid P2,200.
Answer:
Interest Expense 2,200
Interest Payable 2,200
#
 University of Luzon
College of Accountancy

Problem 5
The bookkeeper for Thompson Wholesale Company records all revenue and expense items in nominal
accounts during period. The following balances among others are listed on the trial balance at the end of the
fiscal period, Dec. 31, 2012 before accounts have been adjusted:
Dr. (Cr.)
Accounts Receivable 152,000
Allowance for Bad debts (1,000)
Interest Receivable 2,800
Discount on notes payable 300
Prepaid Taxes 1,800
Salaries and Wages Payable (4,000)
Discount on Notes Receivable (2,800)
Unearned Rent Revenue (1,700)

Inspection of the company’s records reveals the following as of Dec. 31, 2012:
A. Uncollectable Account was estimated at 4% of the account receivable balance.
Answer:
Accounts Receivable 152,000
X 4%
Required Allowance 6,080
Less: AFBD (Cr.) 1,000
Bad Debts Expense 5,080

Bad Debts Expense 5,080

Allowance for Bad Debts 5,080
#
B. The accrued interest on investment totals P2,200.
Answer:
Interest Revenue 600
Interest Receivable (2,800-2,200) 600
#
 University of Luzon
College of Accountancy

C. The company borrows cash by discounting its own notes at the bank. Discount on notes payable at the
end of 2012 are P1,400.
Answer:
Discount on notes payable 1,100
Interest Expense (1,400-300) 1,100
#
D. Prepaid taxes are P1,800. The same as at the end of 2011.
Answer:
No Adjustments

E. Accrued Salaries and Wages are P6,200.

Answer:
Salaries & Wages Expense 2,200
Salaries & Wages Payable (6,200-4,000) 2,200
#
F. The company accepts notes from customer giving its customers credit for the face of the notes less a
charge for interest. At the end of each period, any interest applicable to the succeeding period is reported
as a discount. Discount on notes receivable et the end of 2012 are P1,900.
Answer:
Discount on Notes receivable 900
Interest Revenue (2,800-1,900) 900
#
G. Part of the company’s properties had been sublet on Sept. 15, 2011 at a rental of P3,000 for month. The
arrangement was terminated at the end of one year.
Answer:
Unearned Rent Revenue 1,700
Rent Revenue 1,700
#
 University of Luzon
College of Accountancy

Chapter 1:
Formation and Operation

PROBLEMS:
Problem 1-1
A. Adjustments
1. P, Capital 2, 400
Allowance for Doubtful Accounts 2, 400
(2% x 120, 000)
#
2. Merchandise Inventory 22, 000
P, Capital 22, 000
(202, 000 – 180, 000)
#
3. Prepaid Expenses 6, 500
P, Capital 6, 500
#
P, Capital 4, 000
Accrued Expenses 4, 000
#
Investment of Q
P, Capital before Adjustments 264,000
Net Adjustments 22,100
P, Capital after Adjustments 286,100
Agreed Capital x 2/3
Total Capital 429,150
Share of Q x 1/3
143, 050

Cash 143, 050

Q, Capital 143, 050
#
 University of Luzon
College of Accountancy

B. Statement ofFinancial Position

P & Q Partnership
Statement of Financial Position
As of November 30, 2013
Assets
Cash P167,050
Accounts Receivable P120,000
Less: Allowance for doubtful accounts 2,400 117,600
Merchandise Inventory 202,000
Prepaid Expenses 6,500
Total Assets P495,150
Liabilities & Capital
Liabilities
Accounts Payable P62,000
Accrued Expenses 4,000
Total Liabilities 66,000
Capital
P, Capital 286,100
Q, Capital 143,050
Total Partners Capital 429,150
Total Liabilities & Capital P495,150

Problem 1-2
A, Cash 35,000 Cash 15,000
Furniture & Equipment 25,000 Merchandise Inventory 45,000
Julie’s, Capital 60,000 Building 100,000
# Mortgage Payable 30,000
Tim’s Capital 130,000
#

Julie’s Capital – 60,000

Tim’s Capital – 130,000
 University of Luzon
College of Accountancy

B. Julie Capital 60,000 Julie - 95,000

Tim Capital 130,000 Tim - 95,000
190,000
/ 2
95, 000

C. Agreed Partnership Capital (130,000 / 50%) 260,000

Julie’s Capital (50% x 260, 000) 130,000
Less: Julie’s net tangible investments 60,000
Goodwill 70,000

Goodwill 70, 000

Julie’s Capital 70, 000
#
Julie – 60,000 + 70,000 = 130,000
Tim - 130,000

Problem 1-3
BOOK OF JOHNNY BOOK OF JENNY
Johnny, Capital 900 Inventory 2,000
AFDA 900 Jenny, Capital 2,000
# #

Johnny, Capital 800 Jenny, Capital 750

Accrued Expense 800 AFDA 750
(15000*5%) #
#
 University of Luzon
College of Accountancy

To Close the BOOK:

Accounts payable 13,800 Goodwill 10,000
Accrued expense 800 Jenny, Capital 10,000
Johnny, Capital 31,500 #
AFDA 900 Cash 4,000
Accumulated Depreciation 4,500 Jenny, Capital 4,000
Cash 7,500 [(78750*60%)-43250]
Accounts Receivable 18,000 #
Inventory 16,000
Equipment 10,000
#
B)
Cash 7,500
Accounts Receivable 18,000
Inventory 16,000
Equipment 5,500
AFDA 900
Accounts payable 13,800
Accrued Expense 800
Johnny, Capital 31,500
#
C)
Statement of Financial Position
As of July 1, 2013
ASSET
Cash P 16,000
Accounts Receivable P33,000
Less:Allowance for Doubtful Accounts 1,65031,350
Inventory 30,000
Equip. 16,000
Goodwill 10,000
Total Asset P103,350
 University of Luzon
College of Accountancy

LIABILITIES & PARTNERS CAPITAL

Liabilities
Accounts Payable P23,800
Accrued Exp. 800
Total Liabilities 24,600
CAPITAL
Johnny, Capital 31,500
Jenny, Capital 47,250
Total Capital 78,750
Total Liabilities and Capital P103,350

Problem 1-4
Cash 40,000 Building 48,000
Inventory 12,000 Notes Payable 10,000
Mandy, Capital 52,000 Manny,Capital 38,000
# #
a. Bonus Method
Cash 40,000 Mandy 52,000
Inventory 12,000 Manny 38,000
Building 48,000 90,000
Notes payable 10,000 * 50%
Mandy,Capital 45,000 45,000
Manny,Capital 45,000
*TAC=TCC

b. 104000=90000
Goodwill 14,000
Cash 40,000 Manny,Cap. 52,000
Inventory 12,000 Less:Net 38,000
Building 48,000 Goodwill 14,000
Notes Payable 10,000
Mandy,Capital 52,000
Manny,Capital 52,000
#
 University of Luzon
College of Accountancy

Problem 1-5
a) JOE WELL RAY
Cash 10,000 12,000 30,000
Automobile 8,500
Delivery trucks 28,000
Computer printer 5,100
Office furniture 3,500 2,500
Land and building 150,000
Mortgage Payable (90,000)
Total 78,500 48,600 32,500

b)
Cash 52,000
Property and equipment 197,600
Mortgage Payable 90,000
Joe, capital 78,500
Well, capital 48,600
Ray, capital 32,500
#

Problem1-6
a)
Cash 70,000
Accounts Receivable 72,000
Supplies 1,500
Equipment 30,000
Allowance for doubtful accounts 7,000
Accounts Payable 41,000
Louie, capital 77,000
Graham, capital 48,500
#
 University of Luzon
College of Accountancy

b)
Louie, capital 77,000
Graham, capital 48,500
TOTAL 125,500
X 60%
Adjusted Graham, capital 75,300

Graham, capital 75,300

Less: Net (48,500)
Bonus 26,800

Louie, capital 26,800

Graham, capital 26,800
#

Problem 1-7
A. BOOK OF XER BOOK OF NANER
1. Inventory 44,000 4. No Journal Entry
Xer, Capital 44,000
(880,000 x 5%)
#
2. Equipment 25,000 5.Naner, Capital 10,000
Xer, Capital 25,000 Salaries Payable 10,000
(5,000 x 5) #
#
3. Xer, Capital 2,000 6.Naner, Capital 15,000
Accounts Receivable 2,000 Inventory 15,000
# #
7. Supplies 5,000
Naner, Capital 5,000

#
 University of Luzon
College of Accountancy

C.
Cash 43,000 Cash 100,000
Accounts Receivable 85,000 Accounts Receivable 11,000
Inventory 885,000 Inventory 924,000
Property, Plant and equipment 222,000 Property, Plant and equipment 332,000
Supplies 5,000 Notes Payable 80,000
Notes Payable 5,000 Accounts Payable 100,000
Accounts Payable 120,000 Long term notes payable 240,000
Salaries Payable 10,000 Xer, Capital 947,000
Long Term Notes payable 200,000 #
Naner, Capital 860,000
#

Problem 1-9
A. Partner Kazen
Capital Balances No. Of Months Unchanged Total
January 1 20,000 3 60,000
April 1 (20,000+5,000) 25,000 6 150,000
October 1(25,000+5,000) 30,000 3 90,000
12 300,000
WEIGHTED AVERAGE CAPITAL 300,000 / 12 = 25,000

B. Partner Karen
Capital Balances No. Of Months Unchanged Total
January 1 40,000 2 80,000
March 1(40,000-10,000) 30,000 6 180,000
September 1(30,000-10,000) 20,000 2 40,000
November 1 (20,000+10,000) 30,000 2 60,000
12 360,000
WEIGHTED AVERAGE CAPITAL 360,000 / 12 = 30,000
 University of Luzon
College of Accountancy

Kazen Karen Total

Interest (25,000x 8%) 2,000
(30,000 x8%) 2,400 4,400
Residual Profit(15,600/2) 7,800 7,800 15,600
9,800 10,200 20,000

B. Kazen Karen Total

Salary 9,000 9,000
Interest (30,000x8%) 2,400 2,400 4,800
Residual Profit (6,200x60%) 3,720
(6,200x40%) 2,480 6,200
Total 6,120 13,880 20,000

C. Kazen Karen Total

Salary 8,300 9,500 17,800
Residual Profit
(25,000/55,000x2,200) 1,000
(30,000/55,000x2,200) 1,200 2,200
Total 9,300 10,700 20,000

D. Kazen Karen Total

Salary 5,000 5,000
Bonus 2,500 2,500
Residual Profit(12,500/2) 6,250 6,250 12,500
Total 8,750 11,250 20,000

B=20%(20,000-5,000-B) B+.20B = 30,000 B=2,500

B=.20(15,000-B) 1.2B = 30,000
B=3,000-20%B 1.2 1.2
 University of Luzon
College of Accountancy

Problem 1-10
Jones King Lane TOTAL
Bonus 18,000 18,000
Interest 15,000 30,000 45,000 90,000
(18000/3) (6,000) (6,000) (6,000) (18,000)
27,000 24,000 39,000 90,000

Problem 1-12
A.
Franky Grace Hart Total
Interest
(300, 000 x 8%) 24, 000
(250, 000 x 8%) 20, 000
(325, 000 x 8%) 26, 000 70, 000
Salary 10, 000 15, 000 25, 000
Bonus
(250, 000 x 10%) 25, 000 25, 000
Residual Income
(130, 000 x 2/10) 26, 000
(130, 000 x 3/10) 39, 000
(130, 000 x 5/10) 65, 000 130, 000
60, 000 74, 000 116, 000 250, 000

B.
Income & Expense Summary 250, 000
Franky, Capital 60, 000
Grace, Capital 74, 000
Hart, Capital 116, 000
#
 University of Luzon
College of Accountancy

Problem 1-13
Franky Grace Hart Total
Interest 24, 000 20, 000 26, 000 70, 000
Salary 10, 000 15, 000 25, 000
Remainder
(131, 000 x 2/10) (26, 200)
(131, 000 x 3/10) (39, 300)
(131, 000 x 5/10) (65, 500) (131, 000)
7, 800 (4, 300) (39, 500) (36, 000)

Grace, Capital 4, 300

Hart, Capital 39, 500
Franky, Capital 7, 800
Income & Expense Summary 36, 000
#

Problem 1-16
2011
Mike Nike Ordan Total
Salary 4,800 6,000 6,000 16,800
Interest (6% of the beg Cap.) 2,400 1,440 1,200 5,040
Residual loss (24,600/3) (8,200) (8,200) (8,200) (24,600)
Share in Net Loss 1,000 760 1,000 2,760

Mike Nike Ordan

Beg. Capital 40,000 24,000 20,000
Share in net loss 1,000 760 1,000
Withdrawals (6,000) (7,240) (8,000)
Ending balances 33,000 16,000 11,000

2012 Mike Nike Ordan Total

Salary 4,800 6,000 6,000 16,800
Interest (6% of the beg. Cap.) 1,980 960 660 3,600
 University of Luzon
College of Accountancy

Remainder(8,400/3) (2,800) (2,800) (2,800) (8,400)

Share in net income 3,980 4,160 3,860 12,000

Mike Nike Ordan

Beg. Capital 3,300 16,000 11,000
share in net loss 3,980 4,160 3,860
Withdrawals (6,980) (8,160) (8,860)
ending balances 30,000 12,000 6,000
2013
Mike Nike Ordan Total
Salary 4,800 6,000 6,000 16,800
Interest (6% of beg. Cap.) 1,800 720 360 2,880
bonus* 1,620 1,620
remainder(8,100/3) 2,700 2,700 2,700 8,100
share in net income 10,920 9,420 9,060 29,400

Bonus*
B=20 %( 29,400-16,800-2,880-B)
=.20 (9,720 - B)
=1,944 - .2B
B+.2B=1,944
1.2B = 1,994
1.2 1.2
B=1,620

Mike Nike Ordan

Beg. Capital 30,000 12,000 6,000

Share in net income 10,920 9,420 9,060

Withdrawals 10,200 12,000 10,600

Ending balances 30,720 9,420 4,460

Problem 1-19
A. B.
1. Michael, Capital 9,600 1. Cost of Goods Sold 24,000
Jackson, Capital 14,400 Inventory 24,000
Inventory 24,000 #
# 2. Michael, Capital 2,000
 University of Luzon
College of Accountancy

2. Michael, Capital 2,000 Jackson, Capital 3,000

Jackson, Capital 3,000 Accumulated Depreciation 5,000
Accumulated Depreciation 5,000 #
# 3. Rent Revenue 22,000
3. No Journal Entry Michael, Capital 8,800
Jackson, Capital 13,200
4. Michael, Capital 500 #
Jackson, Capital 1,200 4. Interest Expense 2,000
Interest Payable 2,000 Interest Payable 2,000
# #

Problem 1-20
40,000 + B = 52,000
B =52,000 – 40,000
B = 12,000

24,000 = 10% (NI – 70,000 + 24,000)

24,000 = 10% (NI – 46,000)
24,000 + 4,600 = 10%NI
28,600 = .10NI
.10 .10
NI = 286, 000

MULTIPLE CHOICE:
1. Answer: C
Solution:
Cash 150,000
Inventory 50,000
Land 90,000
 University of Luzon
College of Accountancy

Notes payable 70,000

Albert Capital 200,000
Gilbert Capital 20,000
(220,000/2=110,000)
#
2. Answer: B
Solution:
(20,000/200,000=10%)
(20,000/10%=200,000)

Gilbert Capital 200,000

Less:G,Net Capital 20,000
Goodwill 180,000

3. Answer: C
Solution:
Vincent Capital (230,000/40%) 575,000
X 60%
To be contributed 345,000
-) 190,000
Cash to be invested by Nicole 155,000

4. Answer: A
Solution:
Andy Benny Candy
63,000 58,000 92,000
30,000 (10,000) (20,000)
93,00048,000 72,000

5. Answer: C
Solution:
Andy:P63,000; Benny: P58,000; Candy: 92,000

6. Answer: A
 University of Luzon
College of Accountancy

7. Answer: A
Solution:
Hane Lane
Cash 28,00062,000
Accounts Receivable 180,000 540,000
Inventories 114,000 193,000
Land 600,000 -
Building - 500,000
Furniture and Fixtures 50,000 35,000
Other assets (2,000) (3,000)
970,000 1,350,000
Accounts payable (180,000) (250,000)
Notes payable (200,000) (350,000)
592,000 750,000

8. Answer:A
Solution:
Lucy, capital 158,400
Prepaid expenses (17,000)
Uncollectible accounts receivable (5,000)
Accrued expenses (5,000)
2
165,900 / = 248,850
3
1
248,850× = 82, 950
3
(50,000)
32,950

9. Answer: C
Solution:
Paul
Cash 50,000
Land 310,000
 University of Luzon
College of Accountancy

Mortgage Payable (30,000)

330,000

10. Answer: D
Solution:
Myra:
Cash 100,000
Land 300,000
Mortgage payable (25,000)
375,000

11. Answer:280, 000

Solution:
Office Equipment 124,000
Delivery Equipment 150,000
Cash (60,000)
Note payable (54,000)
280,000
12. Answer:B
Solution:
E F G Total
Salary 10,000 8,000 6,000 24,000
Interest 4,000 3,000 2,500 9,500
Profit 3,500 3,500 3,500 10,500
Balance 17,500 14,500 12,000 44,000
Absorption (1,500) (1,500) 3,000
Balance 16,000 13,000 15,000

13. Answer:C
Solution:
A B C Total
Interest 1,000 1,000
Salary 10,000 12,000 12,000
 University of Luzon
College of Accountancy

Bonus 4,000 4,000

Profit 4:4:2 13,600 13,600 3,400 17,000
Balance 23,600 14,600 19,400 44,000

B = .10(44,000-B)
= 4,400-.10B
1.1B=4,400
B=4,000

14.Answer:D
Solution:
Aira Bea Cindy Total
Cap.,beg. 60,000 80,000 100,000
Interest 6,000 8,000 10,000 24,000
Compensation 20,000 20,000
Profit 3:3:4 1,800 1,800 2,400 6,000
Balance 67,800 109,800 112,400 50,000
Withdrawal (5,000) (5,000) (5,000)
Cap.,end. 62,800 104,800107,400

15.Answer:A
Solution:
Wendy Dindi Cindy Total
st
1 year:
Cap.,beg. 110,000 80,000 100,000
Salary 20,000 10,000 30,000
Interest 11,000 8,000 11,000 30,000
Loss 5:2:3 (40,000) (16,000) (24,000) (80,000)
Withdrawal (10,000) (10,000) (10,000) .
Cap.,end. 91,000 62,000 97,000
2nd year:
Salary 20,000 10,000 30,000
Interest 9,100 6,200 9,700 25,000
Loss 5:2:3 (7,500) (3,000) (4,500) (15,000)
Withdrawal (10,000) (10,000) (10,000) .
 University of Luzon
College of Accountancy

Cap.,end. 102,600 55,200 102,200

16.Answer:B
Solution:
Bonus = .15 (Net Income before Salaries, Interest, and Bonus)
B = .15 (Net Income after Salaries, Interest and Bonus + Salaries + Interest + Bonus)
B = .15 [P32, 000 + (P5,000 × 12) + (5% × P200,000) + B]
B = .15 [P32,000 + P60,000 + P10,000 + B]
B = .15 [P102,000 + B]
B = P15,300 + .15B
B - .15 B = P15,300
.85 B = P15,300 B = P15,300/.85
B = P18,00

17.Answer: D
Solution:
JIMMY EDWIN RENAN TOTAL
Salary……………………………… P24,000 P18,000 P12,000 P54,000
*Interest on average capital:
Jimmy: (12% × P162,500)… 19,500
Edwin: (12% × P205,834)………….. 24,700
Renan: (12% × P245,000)…………... 9,400 73,600
Balance: 2:4:4 ……………… 9,68019,36019,36048,400
P53,180P62,060P60,760P176,000

*average capitals:
JIMMY: (1/ -7/1: P150,000 × 6/12) P 75,000
(7/1-10/1: P180,000 × 3/12) 45,000
(10/1-12/31: P170,000 × 3/12) 42,500
P 162,500
EDWIN: (1/1-8/1: P200,000 × 7/12) P 116,667
(8/1-10/1: P220,000 × 2/12) 36,667
(10/1-12/31: P210,000 × 3/12) 52,500
P 205,834
 University of Luzon
College of Accountancy

RENAN: (1/1-11/1: P250,000 × 10/12) P 208,333

(11/1-12/31: P220,000 × 2/12) 36,667
P 245,000

18. Answer:A
Solution:
RED WHITE BLUE TOTAL
Interest on average capital:
Red: P240,000 × 10% P24,000
White: P120,000 × 10% P12,000
Blue: P80,000 × 10% P8,000 P 44,000
Salaries 60,000 40,000 100,000
Balance or Residual: Equally (70,000) (70,000) (70,000) (210,000)
Increase (Decrease) P14,000 (P58,000) (P22,000) (P66,000)

19. Answer:C
Solution: 30,000 + 40,000 = 70,000

20.Answer:B
Solution:
Sales P70,000
Less: Cost of Goods Sold 40,000
Gross Profit 30,000
Less: Operating Expenses 10,000
Operating Income 20,000
Less: Other Expenses (Interest Expenses) 2,000
Net Income P18,000

21.Answer:C
Solution:
ALMA BELLA CELIA
Cash P50,000
Property P80,000
 University of Luzon
College of Accountancy

Equipment P55,000
Less: Mortgage assumed 35,000
Capital Balances P50,000 P45,000P55,000

22.Answer:B
Solution:
Jan. 1 – July 1: P140,000 × 6/12 P 70,000
July 1 – Aug. 1: P180,000 × 1/12 15,000
Aug. 1 – Dec. 31: P165,000 × 5/12 68,750
Weighted-Average Capital P 153,750
Multiply by: Interest rate per year 10%
Amount of interest pear year P 15,375.

23. Answer: A

24. Answer: A

25. Answer: C

Chapter 2
Partnership: Dissolution

Problem 2-1 (admission by investment)

a. TCC Bonus TAC
 University of Luzon
College of Accountancy

Ronnie 40,000 4,000 44,000

Yrah 40,000 4,000 44,000
Zarah 60,000 12,000 72,000
Total 140,000 20,000 160,000
Veyrah 60,000 (20,000) 40,000 (200,000 x 20%)
Total 200,0000200,000

Cash 60,000
Rennie Capital 60,000
#
Rennie, Capital 20,000
Ronnie Capital 4,000
Rody, Capital 4,000
Ronald, Capital 12,000
#

b. TCC Goodwill TAC

Ronnie 40,000 20,000 60,000
Yrah 40,000 20,000 60,000
Zarah 60,000 60,000 120,000
Total 140,000 100,000 240,000
Veyrah 60,000 0 60,000
Total 200,000 100,000 300,000 (60,000 ÷20%)

Cash 60,000
Rennie, Capital 60,000
#

Goodwill 100,000
Ronnie, Capital 20,000
Rody, Capital 20,000
Ronald, Capital 60,000
#
 University of Luzon
College of Accountancy

c. TCC Bonus TAC

Ronnie 40,000 (4,000) 36,000
Yrah 40,000 (4,000) 36,000
Zarah 60,000 (12,000) 48,000
Total 140,000 20,000 120,000
Veyrah 60,000 20,000 80,000 (200,000 x 40%)
Total 200,0000200,000

Cash 60,000
Rennie, Capital 60,000
#
Ronnie, Capital 4,000
Rody, Capital 4,000
Ronald, Capital 12,000
Rennie, Capital 20,000
#

d. TCC Goodwill TAC

Ronnie 40,000 0 40,000
Yrah 40,000 0 40,000
Zarah 60,000 0 60,000
Total 140,000 0 140,000
Veyrah 60,000 33,333 93,333
Total 200,00033,333 233,333 (140,000 ÷60%)

Cash 60, 000

Rennie, Capital 60,000
#
Goodwill 33,333
Rennie, Capital 33,333
#

Problem 2-2 (Purchase of Interest, Book Value approach)

 University of Luzon
College of Accountancy

Kathy, Capital (140,000 x 40%) 56,000

Belly, Capital (60,000 x 40%) 24,000
Trannee, Capital (200,000 x 40%) 80,000
#
Capital after admission:
Kathy (140,000 – 56,000 ) = 84,000
Belly (60,000 – 24,000) = 36,000
Trannee 80,000
Total 200,000

Problem 2-3 (Revaluation approach)

1
Total Partnership Capital (150,000 ÷ ) 450,000
3
Less: Book Value 360,000
Goodwill 90,000

To record the goodwill:

Goodwill 90,000
Jimmy, Capital (90,000 x 60%) 54,000
Mercy, Capital (90,000 x 40%) 36,000
#

To record the admission:

1
Jimmy, Capital [(180,000 + 54,000) ] 78,000
3

1
Mercy, Capital [(90,000 x 40%) ] 72,000
3
Franky, Capital 150,000
#

Capital after admission:

Jimmy (234,000 – 78,000) 156,000
Mercy (216,000 – 72,000) 144,000
Franky 150,000
 University of Luzon
College of Accountancy

Problem 2-4
a-1) . Settlement Price 160,000
Less: Sandy, Capital 120,000
Bonus to Sandy 40,000

3
Roland, Capital ( x 40,000) 24,000
5

2
Teddy, Capital ( x 40,000) 16,000
5
Sandy, Capital 40,000
#
Sandy, Capital 160,000
Cash 160,000
#

a-2). Goodwill 40,000

Sandy, Capital 40,000
#
Sandy, Capital 160,000
Cash 160,000
#

1
a-3). Goodwill (40,000÷ ) 240,000
6

3
Roland, Capital (240,000 x ) 120,000
6

2
Teddy, Capital (240,000 x ) 80,000
6

1
Sandy, Capital (240,000 x ) 40,000
6
#
 University of Luzon
College of Accountancy

b. Sandy, Capital 120,000

Teddy, Capital 120,000
#

c. Sandy, Capital 120,000

Sally, Capital 120,000
#

Problem 2-5 (by investing)

a. TCC Goodwill TAC
Airah 80,000 0 80,000
Bella 90,000 0 90,000
Cyrah 70,000 0 70,000
Total 240,000 0 240,000
Dynah 50,000 10,000 60,000 (300,000 x 20%)
Total 290,000 10,000300,000

Cash 50,000
Dynah, Capital 50,000
#
Goodwill 10,000
Dynah, Capital 10,000
#

b. TCC Goodwill TAC

Airah 80,000 12,000 92,000
Bella 90,000 20,000 110,000
Cyrah 70,000 8,000 78,000
Total 240,000 40,000 248,000
Dyna 70,000 0 70,000
Total 310,000 0350,000(70,000 ÷ 20%)
 University of Luzon
College of Accountancy

Cash 70,000
Dynah, Capital 70,000
#
Goodwill 40,000
Airah, Capital 12,000
Bella, Capital 20,000
Cyrah, Capital 8,000
#

c. A B
Airah 80,000 92,000
Bella 90,000 110,000
Cyrah 70,000 78,000
Dynah 60,000 70,000

Problem 2-6
a. TCC Bonus TAC
Alpha 140,000 (3,600) 136,000
Bella 100,000 (2,400) 97,600
Cyrah 160,000 (4,000) 156,000
Total 400,000 (10,000) 390,000
Dynah 120,000 10,000 130,000 (520,000 x 25%)
Total 520,000 0520,000

b. Alpha (36% x 75%) 27%

Bravo (24% x 75%) 18%
Charlie (40% x 75%) 30%
Delta 25%
 University of Luzon
College of Accountancy

Problem 2-7
a. Veyrah, Capital 62,500
1
Zarah, Capital(125,500 x ) 62,500
2
#
Xyrah 75,000
Yrah 100,000
Zarah (125,000-62,500) 62,500
Veyrah 62,500

b. TCC Goodwill TAC

Xyrah 75,000 0 75,000
Yra 100,000 0 100,000
Zarah 125,000 0 125,000
Total(75%) 300,000 0 300,000
Veyrah(25%)75,000 25,000 100,000
Total 375,00025,000 400,000 (300,000 ÷ 75%)

Cash 75,000
Veyrah, Capital 75,000
#
Goodwill 25,000
Veyrah, Capital 25,000
#
c. TCC Goodwill TAC
Xyrah 75,000 5,000 80,000
Yrah 100,000 5,000 105,000
Zarah 125,000 10,000 135,000
Total(75%) 300,000 20,000 320,000
Veyrah(25%)80,000 0 80,000
Total 380,00020,000400,000 (80,000 ÷ 20%)
d.
Cash 80,000
Veyrah, Capital 80,000
#
 University of Luzon
College of Accountancy

Goodwill 20,000
Xyrah, Capital 5,000
Yrah, Capital 5,000
Zarah, Capital 10,000
#
e. . TCC Bonus TAC
Xyrah75,000 (6,750) 68,250
Yrah 100,000 (6,750) 93,250
Zarah 125,000 (13,500) 111,500
Total 300,000 (27,000) 273,000
Veyrah 90,000 27,000 117,000 (390,000 ÷ 30%)
Total 390,0000 390,000

Cash 90,000
Veyrah, Capital 90,000
#
Xyrah, Capital 6,750
Yrah, Capital 6,750
Zarah, Capital 13,500
Veyrah, Capital 27,000
#

Problem 2-8
a. Assets (100,000 – 80,000) 20,000
Bee, Capital (20,000 x 50%) 10,000
Dee, Capital (20,000 x 40%) 8,000
Lee, Capital (20,000 x 10%) 2,000
#
Dee, capital 30,000
Adjusted 8,000
Adjusted, Capital 38,000
Loan (10,000)
Partner’s interest 28,000
 University of Luzon
College of Accountancy

Retirement Fee (31,000)

Total (3,000)

Bee, Capital 2,500

Lee, Capital 500
Dee, Capital 3,000
#
Dee, Capital 41,000
Cash 31,000
Dee, Loan 10,000
#

b. Bee, Capital (30,000 + 10,000 - 2,500 ) 37,500

Lee, Capital (10,000 + 20,000 - 500 ) 29,500

Problem 2-10
Accounts Receivable 64,000
Merchandise Inventory 82,000
Allowance for uncollectible accounts 2,000
Accounts Payable 34,000
Eyesberg, Capital 110,000
#

Problem 11
a. Garcia, Capital 80,000
Adams, Capital 80,000
#
b. Adams, Capital 8,000
Bulo, Capital 4,000
Garcia, Capital 12,000
#
 University of Luzon
College of Accountancy

Garcia, Capital 92,000

Cash 92,000
#
c. Garcia, Capital 30,000
Adams, Capital 20,000
Bulo, Capital 10,000
#

Problem 2-12
RON DONTON MON SON
Capital Balance 61,800 45,000 78,600 50,000 73,600
Adjusted Accounts Receivable (4,000) (4,000) (4,000) (4,000) (4,000)
Adjusted Inventory (4,400) (4,400) (4,400) (4,400) (4,400)
Adjusted Property, Plant
and Equipment 1,320 1,320 1,320 1,320 1,320
Adjusted Capital (a) 54,720 37,920 71,520 42,920 59,320
Ordinary Share (720 x 10) (7,200) (7,200) (7,200) (7,200) (7,200)
Preference Share 47,520 30,720 64,320 38,720 59,320
÷) Par 10 10 10 10 10
Number of Preference share (b) 4,752 3,072 6,432 3,872 5,932

(c) Opening Entry:

Cash 45,000
Accounts Receivable 40,000
Inventory 68,000
Property, Plant & Equipment 180,000
Liabilities 60,000
Ordinary Share (7200 x 5) 36,000
Preference Share 237,000
#
 University of Luzon
College of Accountancy

MULTIPLE CHOICE:
1. Answer: C
Solution: TCC > TAC
18,000 > 15,000 (75,000 x 20%)

2. Answer: D
Solution: TCC Bonus TAC
A(60%) 80,000 2,400 82,400
B(40%) 60,000 1,600 61,600
Total 140,000 4,000 144,000

1 1
C( ) 40,000 (4,000) (36,000) (180,000 x )
5 5
Total 180,000 0 180,000

3. Answer: B
Solution: TCC Goodwill TAC
Able (60%) 80,000 12,000 92,000
Baker (40%) 60,000 8,000 68,000
Total 140,000 20,000 160,000
Cook 40,000 0 40,000

1
Total 180,00020,000200,000 (40,000 ÷ )
5

4. Answer: A
Solution: TCC Bonus TAC
X (60%) 50,000 (6,000) 44,000
Y (40%) 40,000 (4,000) 36,000
Total 90,000 (10,000) 80,000
1
Cook 30,000 10,000 40,000(120,000x )
3
Total 120,000 0 120,000
 University of Luzon
College of Accountancy

5. Answer: E
Solution: TCC Goodwill TAC
Airah 50,000 0 50,000
Cyrah 40,000 0 40,000
Total 90,000 0 90,000

1
Dynah 30,000 15,000 45,000 (135,000 x )
3

2
Total 120,000 15,000135,000 (90,000 ÷ )
3

6. Answer: A
1
Solution: X (70,000 x ) = 14,000
5
after admission:
X (70,000 – 14,000) = 56,000
Y (30,000 – 6,000) = 24,000
Z (14,000 + 6,000) = 20,000

7. Answer: D
Solution:
Settlement Price 37,000
Less: Withdrawing partner, capital
(105,000 x 20%) (21,000)
Total 16,000

TCC 105,000
Less: Withdrawing partner, Capital (21,000)
Capital of remaining partner before 84,000
the withdrawal Capital of remaining
partner after the admission (80,000)
Total 4,000
 University of Luzon
College of Accountancy

Capital of Continuing partners 80,000

Less: Goodwill to with partner
(16,000 + 4,000) 20,000
Total 60,000

8. Answer: C

9. Answer: C

10. Answer: B
Solution: TCC Bonus TAC
A (80%) 50,000 2,000 42,000
B (20%) 15,000 500 15,500
Total 55,000 2,500 57,500
C 60,000 (2,500) 57,500(115,000 x 50%)
Total 115,000 0115,000

11. Answer: B
Solution: TCC Bonus TAC
Adam (80% x 130,000) 104,000 11,200 115,200
Bean (20% x 130,000) 26,000 2,800 28,800
Total 103,000 14,000 144,000
Cherry 50,000 (14,000) 36,000 (180,000 x 20%)
Total 180,0000180,000

12. Answer: D

13. Answer: C
Solution: TCC Bonus TAC

2
Reen( ) 40,000 1,067 41,067
3

1
Queeny( ) 20,000 533 20,533
3
 University of Luzon
College of Accountancy

4
Total ( ) 60,000 1,600 61,600
5

1 1
Poe ( ) 17,000 (1,600) 15,400(77,000 x )
5 5
Total 77,000 077,000

14. Answer: D
Solution: TCC Bonus TAC

2
Reen( ) 40,000 5,333 45,333
3

1
Queeny( ) 20,000 2,667 22,667
3

4
Total ( ) 60,000 8,000 68,000
5

1
Poe ( ) 17,000 0 17,000
5

1
Total 77,0008,00085,000 (17,000 ÷ )
5

15. Answer: A
Solution: Settlement Price 74,000
Less:Dexter, capital
(210,000 x 20%) (42,000)
Total 32,000

TCC 210,000
Less: Withdrawing partner, Capital ( 42,000)
Capital of remaining partner before 168,000
the withdrawal Capital of remaining
partner after the admission (160,000)
Total 8,000
 University of Luzon
College of Accountancy

Capital of Continuing partners 160,000

Less: Goodwill to Dexter, Capital
(32,000 + 8,000) 40,000
Total 120,000

CHAPTER 3
Partnership Liquidation

PROBLEMS:
Problem 3-1
OTHER BUNNY, HANES, BENCH,
CASH LIABILITY
ASSET CAPITAL CAPITAL CAPITAL
Balance Before
P120,000 P600,000 P240,000 P300,000 P160,000 P20,000
Distribution

Realization Of
460,000 (600,000) - (70,000) (42,000) (28,000)
Other Asset

Payment Of
(240,000) -0- (240,000) - - -
Liability

Balances 340,000 -0- 230,000 118,000 (8,000)

Absorbed - - - (5,000) (3,000) 8,000

Balances 340,000 225,000 115,000 -0-

(P340,000
Distribution (P225,000) (P115,000)
)

Problem 3-2
 University of Luzon
College of Accountancy

OTHER ALEX, BAL, CURIE,

CASH LIABILITY
ASSET CAPITAL CAPITAL CAPITAL
Balance
before P80,000 P280,000 P140,000 P100,000 P100,000 P20,000
Distribution
Realization of
160,000 (280,000) - (72,000) (24,000) (24,000)
Other Asset
Payment of
(140,000) -0- (140,000) - - -
Liability
Balances 100,000 -0- 28,000 76,000 (4,000)

Absorbed - - - (3,000) (1,000) 4,000

Balances 100,000 25,000 75,000 -0-

Distribution (P100,000) (P25,000) (P75,000)

Problem3-3
OTHER ARREN, ERNAN, RENAN,
CASH LIABILITY
ASSET CAPITAL CAPITAL CAPITAL
Balance before
P60,000 P640,000 P140,000 P280,000 P28,000 P252,000
Distribution

Realization of
500,000 (640,000) - (70,000) (42,000) (28,000)
Other Asset
Payment of
(140,000) -0- (140,000) - - -
Liability
Balances 420,000 -0- 210,000 (14,000) 224,000

Absorbed - - - (10,000) 14,000 (4,000)

Balances 420,000 200,000 -0- 220,000

(P420,000
Distribution (P200,000) (P220,000)
)

Problem 3-4
OTHER MEO, TONY, NANTE,
CASH LIABILITIES
ASSETS CAPITAL CAPITAL CAPITAL
Balance before
P50,000 P250,000 P60,000 P80,000 P90,000 P70,000
liquidation
Sale of assets &
distribution of 120,000 (150,000) (15,000) (9,000) (6,000)
loss
 University of Luzon
College of Accountancy

Payment of
(60,000) (60,000)
liabilities
Balance before
110,000 100,000 --- 65,000 81,000 64,000
distribution
Payment to (110,000
(15,000) (51,000) (44,000)
partners )
Balance, January
--- P100,000 --- P50,000 P30,000 P20,000
31
Schedule of Safe Payment – January
MEO TONY NANTE
Capital balances before
Distribution to partners 65,000 81,000 64,000
Add (less) Loans --- --- ---
Net equity 65,000 81,000 64,000
Possible loss (50,000) (30,000) (20,000)
Safe payment 15,000 51,000 44,000
Problem 3-5
OTHER LIABILITIE ALPHA, BRAVO, CHARLIE,
CASH
ASSETS S CAPITAL CAPITAL CAPITAL
Balance before
P20,000 P180,000 P50,000 P37,000 P65,000 P48,000
liquidation
Sale of assets &
distribution of 50,000 (90,000) (16,000) (16,000) (8,000)
loss
Payment of
(50,000) (50,000)
liabilities
Balance before
20,000 90,000 --- 21,000 49,000 40,000
distribution
Payment to
(20,000) (3,000) (17,000)
partners
Balance, January
--- P90,000 --- P21,000 P46,000 P23,000
31

Schedule of Safe Payment

ALPHA BRAVO CHARLIE
Capital balances before
Distribution to partners 21,000 49,000 40,000
Add (less) Loans --- --- ---
Net equity 21,000 49,000 40,000
Possible loss (36,000) (36,000) (18,000)
Balance (15,000) 13,000 22,000
Absorbed 15,000 (10,000) (5,000)
 University of Luzon
College of Accountancy

Balance - 3,000 17,000

Problem 3-6
NOTES NOTES
OTHER Erap, Fernando, Gloria,
CASH LIAB. PAY. - PAY. -
ASSETS CAP. CAP. CAP.
Erap Fernando
Balance
before P10,000 P290,000 P100,000 P15,000 P5,000 P43,000 **P73,000 P64,000
liquidation
Sale of
assets &
120,000 (140,000) (12,000) (6,000) (2,000)
distribution
of loss
Payment of
(100,000) (100,000)
liabilities
Balance
before 30,000 150,000 --- 15,000 5,000 31,000 67,000 62,000
distribution
Payment to
(30,000) (30,000)
partners
Balance,
--- P150,000 --- P15,000 P5,000 P31,000 P67,000 P32,000
January 31

**Fernando, capital 43,000

Loan to partnership 30,000
Adjusted capital 73,000

Schedule of Safe Payment – January

ERAP FERNANDO GLORIA
Capital balances before
Distribution to partners 31,000 67,000 62,000
Add (less) Loans 15,000 5,000 ----
Net equity 46,000 72,000 62,000
Possible loss (90,000) (45,000) (15,000)
Balances (44,000) 27,000 47,000
Absorption 44,000 (33,000) (11,000)
Balance --- (6,000) 36,000
Absorption --- 6,000 (6,000)
Safe payment --- --- 30,000
 University of Luzon
College of Accountancy

Problem 3-8
Cash Pre-Distribution Plan
X Y Z X Y Z
Balance before Liquidation P21,500 P23,000 P11,000
+/-) Loans 15,000 - . 5,000
Net Equity 36500 23000 16000
÷ P/L Ratio 40% 40% 20%
Loss Absorption Balance 91,250 57,500 80,000
1st Priority (11,250) . . 4,500
Balance 80,000 57,500 80,000
2nd Priority (22,500) . (22,500) 9,000 4,500
Balance P57,500 P57,500 P57,500

Problem 3-9
A. Remaining non-cash inventory 101,000
Remaining non-cash equipment 20,500
Cash withheld 5,000 .
Possible Loss 126,500

B. Schedule of Safe Payment – January

Jason (50%) Kelly (30%) Becky (20%)
Balance before distribution 52,500 45,500 32,500
Add/Less: Loan 0 0 9,500
Net Equity 52,500 45,500 42,000
Possible Loss (63,250) (37,950) (25,300)
Balance (10,750) 7,550 16,700
Absorption 10,750 (6,450) (4,300)
Safe Payment 0 1100 12400

C. Jason, Kelly & Becky Partnership

Statement of Partnership Liquidation
For the month of January, 2012
Loan Loan
Jason, Kelly, Becky,
Cash A/R Invt’y Equip’t to A/P from
Cap. Cap. Cap.
Jason Becky
Bal.
P16,50 P28,00 P20,50 P101,00 P14,00 P21,00 P9,50 P69,00 P47,00 P33,50
bef.
0 0 0 0 0 0 0 0 0 0
Liq’n
Real’ 25,000 (28,000 - - - - - (1,500) (900) (600)
n of )
 University of Luzon
College of Accountancy

A/R
Paym
’t of
(2,000) - - - - - - (1,000) (600) (400)
Liq.
Exp.
Offse (14,000 (14,000
0 0 0 0 0 0 0 0
t ) )
Bal.
bef.
39,500 - 20,500 101,000 0 21,000 9,500 52,500 45,500 32,500
Dist.
1st (13,500 (9,500
0 0 0 0 0 0 (11,00) (2,900)
ins. ) )
P26,00 P20,50 P101,00 P21,00 P52,50 P44,40 P29,60
Bal. - - -
0 0 0 0 0 0 0

D. Jason, Kelly & Becky Partnership

Statement of Partnership Liquidation
For the month of February, 2012
Loan Loan
A/ to from Jason, Kelly, Becky,
Cash Invt’y Equip’t
R Jaso A/P Beck Cap. Cap. Cap.
n y
P20,50 P101,00 P21,00
Bal. P26,000 - - - P52,500 P44,400 P29,600
0 0 0
Sale (20,50
18,000 - - - - - (1,250) (750) (500)
-inv. 0)
Sale (101,00
90,000 - - - - - (5,500) (3,300) (2,200)
-eqp. 0)
Add
’l - - - - - (3,000) - (1,500) (900) (600)
A/P
Liq.
(2000) - - - - - - (1,000) (600) (400)
Exp.
Pay’
(24,00
t of (24,000) 0 0 0 0 0 0 0 0
0)
A/P
Bal. 108,000 - - - - - - 43,250 38,850 25,900
Pay’ (P108,000 (P43,250 (P38,850 (P25,900
t ) ) ) )
E. Journal Entries:
JANUARY FEBRUARY
 University of Luzon
College of Accountancy

Cash 25,000 Cash 18,000

Jason, Capital 1,500 Jason, Capital 12,500
Kelly, Capital 900 Kelly, Capital 750
Becky, Capital 600 Becky, Capital 500
Accounts Receivable 28,000 Inventory 20,500
# #
Jason, Capital 14,000 Cash 90,000
Loan to Jason 14,000 Jason, Capital 5,500
# Kelly, Capital 3,300
Jason, Capital 1,000 Becky, Capital 2,200
Kelly, Capital 600 Equipment 101,000
Becky, Capital 400 #
Cash 2,000 Jason, Capital 1,500
# Kelly, Capital 900
Loan from Becky 9,500 Becky, Capital 600
Kelly, Capital 1,100 Accounts Payable 3,000
Becky, Capital 2,900 #
Cash 13,500
Jason, Capital 1,000
Kelly, Capital 600
Becky, Capital 400
Cash 2,000
#
Accounts Payable 24,000
Cash 24,000
#
Jason, Capital 43,250
Kelly, Capital 38,850
Becky, Capital 25,900
Cash 108,000
#

Problem 3-10
A. Cash Pre-Distribution Plan
 University of Luzon
College of Accountancy

COR
ANNE BEA CORA ANNE BEA
A
Balance before Liquidation 155,000 135,000 65,000
+/-) Loans - . - . - .
Net Equity 155,000 135,000 65,000
÷ P/L Ratio 50% 25% 25%
Loss Absorption Balance 310,000 540,000 260,000
1st Priority - . (230,000) - . 57,500
Balance 310,000 310,000 260,000
2nd Priority (50000) (50000) 25,000 12,500
Balance 260,000 260,000 260,000

B.
N/P N/P
Invt’ Acc. Anne, Bea, Cora,
Cash A/R PPE A/P (current (long-
y Liab. Cap. Cap. Cap.
‘000 ‘000 ‘000 ‘000 ) term)
‘000 ‘000 ‘000 ‘000 ‘000
‘000 ‘000
Bal.
Bef. P50 P150 P20 P500 P35 P70 P10 P250 P155 P135 P65
Liq.
(150
Sale 485 (20) (500) (92.5) (46.25) (46.25)
)
Pay’t
(365) (35) (70) (10) (250)
Bal. 170 - - - - - - 62.5 88.75 18.75
Pay’
(P170) (P62.5) (P88.75) (P18.75)
t

C.Journal Entries:
Cash 485,000 Accounts Payable 35,000
Anne, Capital 92,500 Notes Payable- current 70,000
Bea, Capital 46,250 Accrued Liabilities 10,000
Cora, Capital 46,250 Notes Payable- long-term 250,000
Accounts Receivable 150,000 Cash 365,000
Inventory 20,000 #
Property, Plant & Equipment 500,000 Anne, Capital 62,500
# Bea, Capital 88,750
Cora, Capital 18,750
Cash 170,000
#

Problem 3-11
 University of Luzon
College of Accountancy

A. Cash Priority Program

Billy Rayne William Billy Rayne William
Bal bef liq. 135,000 150,000 95,000
Add (less) loan
Net Interest 135,000 150,000 95,000
Divide P/L 50% 25% 25%
LAB 270,000 600,000 380,000
Priority I (220,000) 55,000
270,000 380,000 380,000
Priority II 110,000 110,000 27,500 27,500
Balance 270,000 270,000 270,000

January:
Billy Rayne William Total
Priority I 50,000 50,000
February:
Priority I 5,000 5,000
Priority II 27,500 27,500 55,000
Remainder 97,500 48,750 48,750 195,000
97,500 81,250 76,250 255,000
B.
25%
Acct Note 50% 25%
Cas Accts. Acc. Rayne
s Invt’y PPE s Billy, Wiliam,
h Pay Exp. ,
Rec. ‘000 ‘000 Pay Cap Cap
‘000 ‘000 ‘000 Cap
‘000 ‘000 ‘000 ‘000
‘000
Balance P285 P110 P50 P300 P55 P300 P10 P135 P150 P95
Sale of accounts
130 (110) (50) (15) (7.5) 7.5
receivable & inventory
(365
Payment of liability (55) (300) (10)
)
Balbefore first ins.
50 300 300 120 142.5 87.5
Distribution
1st installment (50) (50)

Balance 300 120 92.5 87.5

Sale of PPE 255 (200) 27.5 13.75 13.75

Balance 255 100 147.5 106.25 101.25

 University of Luzon
College of Accountancy

(225
2nd installment (97.5) (81.25) (76.25)
)

Balance P100 P50 P25 P25

Schedule of Safe Payment – January

BILLY RAYNE WILLIAM
Balance before cash distribution 120,000 142,500 87,500
Add (less) Loans
Net equity 120,000 142,500 87,500
Possible loss (150,000) (75,000) (75,000)
Balance (30,000) 67,500 12,500
Absorbed 30,000 (15,000) (15,000)
Balance 52,500 (2,500) 2,500
Absorbed (2,500) 2,500
0 50,000 0

Schedule of Safe Payment – February

BILLY RAYNE WILLIAM
Balance before cash distribution 147,000 106,250 101,250
Possible loss (50,000) (25,000) (25,000)
Balance (97,500) 81,250 76,250

Problem 12
Nice, Rice & Dice Partnership
Statement of Partnership Liquidation
Noncash Other Nice, Rice, Dice,
Cash Note rec.-Nice
asset liabilities Capital Capital Capital
Balance P18,000 P51,000 P3,000 P20,000 P6,000 P30,000 P16,000
Sale 22,000 (40,000) (8,100) (6,300) (3,600)
Paymen (20,000
(20,000)
t )
Balance 20,000 11,000 3,000 (2,100) 23,700 12,400
 University of Luzon
College of Accountancy

(19,000 (12,818
First Ins (6,182)
) )
(P2,100
Balance P1,000 P11,000 P3,000 P10,882 P6,218
)

Schedule of Safe Payment

NICE RICE DICE
Balance before Distribution (2,100) 23,700 12,400
Add (less) loan (3,000)
Net Interest (5,100) 23,700 12,400
Possible Loss (5,400) (4,200) (2,400)
Balance (10,500) 19,500 10,000
10,500 (6,682) (3,818)
Balance 0 12,818 6,182

Problem 3-13
A.
Prop. Alice Candice
Accts Acct Allice, Bellice Candice
Cash Invt’y & , ,
. Rec. Pay Cap Cap Cap
‘000 ‘000 Equip’t Loan Loan
‘000 ‘000 ‘000 ‘000 ‘000
‘000 ‘000 ‘000
Balance P6 P22 P14 P99 P12 P7.5 P17 P67 P45 P31.5
Sale of
Accounts 16.5 (22) (2.75) (1.65) (1.1)
rec.
Sale of
10 (14) (2) (1.2) (0.8)
Invt’y
Liquidation
(1) (0.5) (0.3) (0.2)
Exp.
Payment of
Accounts (17) (17)
Payable
Balance 14.5 61.75 41.85 29.4
 University of Luzon
College of Accountancy

before dist
Payment to
(6.5) (6.5)
partner
Balance,
8 99 12 7.5 61.75 35.35 29.4
July 31
Liquidation
(1.5) (0.75) (0.45) (0.3)
Expense
Sale of
10 (4) 3 1.8 1.2
PPE
Balance 16.5 95 12 7.5 64 36.7 30.3
Payment to
(14) (3.25) (7.45) (3.3)
partner
Balance,
2.5 95 12 7.5 60.75 29.25 27
Aug 31
Sale of
75 (95) (10) (6) (4)
PPE
Liquidation
(1) (0.5) (0.3) (0.2)
exp.
Offset of
(12) (12)
Alice, loan
Offset of
Candice, (7.5) (7.5)
loan
Balance
76.5 38.25 22.95 15.3
before dist
Final (P22.9
(P76.5) (P38.25) (P15.3)
payment )

Schedule of Safe Payment - July

ALICE BELLICE CANDICE
Balance before distribution 61,750 41,850 29,400
Add (less) loan (12,000) (7,500)
Net Interest 49,750 41,850 21,900
Possible Loss (53,500) (32,100) (21,400)
Balance (3,750) 9,750 500
Absorption 3,750 (2,250) (1,500)
0 7,500 (1,000)
Absorption (1,000) 1,000
Balance 6,500 0
Schedule of Safe Payment - August
 University of Luzon
College of Accountancy

ALICE BELLICE CANDICE

Balance before distribution 64,000 36,700 30,300
Add (less) loan (12,000) (7,500)
Net Interest 52,000 36,700 22,800
Possible Loss (48,750) (29,250) (19,500)
Balance 3,250 7,450 3,300

B. Journal Entries:
JULY
Cash 16,500
Alice, Capital 2,750
Bellice, Capital 1,650
Candice, Capital 1,100
Accounts Receivable 22,000
#
Cash 10,000
Alice, Capital 2,000
Bellice, Capital 1,200
Candice, Capital 800
Inventory 14,000
#

Alice, Capital 500

Bellice, Capital 300
Candice, Capital 200
Cash 1,000
#
Accounts Payable 17,000
Cash 17,000
#
Bellice, Capital 6,500
Cash 6,500
#
AUGUST
 University of Luzon
College of Accountancy

Alice, Capital 750

Bellice, Capital 450
Candice, Capital 300
Cash 1,500
#
Cash 10,000
Property & Equipment 4,000
Alice, Capital 3,000
Bellice, Capital 1,800
Candice, Capital 1,200
#
Alice, Capital 3,250
Bellice, Capital 7,450
Candice, Capital 3,300
Cash 14,000
#
SEPTEMBER
Cash 75,000
Alice, Capital 10,000
Bellice, Capital 6,000
Candice, Capital 4,000
Property & equipment 95,000
#
Alice, Capital 500
Bellice, Capital 300
Candice, Capital 200
Cash 1,000
#
Alice, Capital 12,000
Alice, Loan 12,000
#
Candice, Capital 7,500
Candice, Loan 7,500
#
Alice, Capital 38,250
 University of Luzon
College of Accountancy

Bellice, Capital 22,950

Candice, Capital 15,300
Cash 76,500
#

MULTIPLE CHOICE:
1. Answer: C

2. Answer:A
Solution: MARTA BARBARA ROBERTS
Capital balances before cash
distribution to partners 80,000 60,000 (24,000)
Add/Less: Loans - - - .
Net Equity 80,000 60,000 (24,000)
Possible Loss - - - .
Balances 80,000 60,000 (24000)
Roberta deficit absorbed by
Marta and Barbara (15,000) (9,000) 24,000
Safe payment 65,000 51,000 0

3. Answer:D
Solution: APER CAROL MAE
Beginning balance before liquidation 30,000 25,000 5,000
Add/less: loan - - -
Net Interest/net Equity 30,000 25,000 5,000
Divide: Profit or Loss Ratio 60% 20% 20%
Loss Absorption balance 50,000 125,000 25,000
Priority 1 (75,000)
Balance 50,000 50,000 25,000
Priority2 (25,000) (25,000)
Balance 25,000 25,000 25,000
 University of Luzon
College of Accountancy

4. Answer:B
Solution: APER CAROL MAE
Capital balances before cash
Distribution to partners 30,000 25,000 5,000
Add/Less: Loans - - -
Net Equity 30,000 25,000 5,000
Possible Loss (2,250) (8,000) (8,000)
Balances 6,000 17,000 (3,000)
Mae deficiency absorbed by
Aper and Carol (15,000) (9,000) 24,000
Safe payment 3,750 16,250 0

5. Answer: D

6. Answer:E

7. Answer:D
Solution: PAUL MARK JO
Capital balances before cash
Distribution to partners 40,000 45,000 35,000
Add/Less: Loans - - -
Net Equity 40,000 45,000 35,000
Possible Loss (50,000) (25,000) (25,000)
Balances (10,000) 20,000 10,000
Paul deficiency absorbed by
Mark and Jo 10,000 (5,000) (5,000)
Safe payment 0 15,000 5,000

8. Answer:E
Solution: PAUL MARK JO
Capital balances before cash
Distribution to partners 40,000 45,000 35,000
Add/Less: Loans - - -
Net Equity 40,000 45,000 35,000
 University of Luzon
College of Accountancy

Possible Loss (10,000) (5,000) (5,000)

Safe Payment 30,000 40,000 30,000

9. Answer:A
Solution: X Y Z
Capital balances before cash
Distribution to partners 10,000 7,800 5,200
Add/Less: Loans - - -
Net Equity 10,000 7,800 5,200
Possible Loss (10,000) (6,000) (4,000)
Safe Payment 0 1,800 1,200

10. Answer:B
Solution: AILEEN BERLIN CARLYN
Capital balances before cash
Distribution to partners (5,000) 18,000 6,000
Add/Less: Loans - - -
Net Equity (5,000) 18,000 6,000
Possible Loss (2,800) (7,000) (4,200)
Balances (8,800) 11,000 1,800
Paul deficiency absorbed by
Mark and Jo 8,800 (4,875) (3,925)
Balance 0 6,126 (1,125)
Carlyn deficiency absorbed by
Berlin (1,125) 1,125
Safe payment 5,000 0

11. Answer:C
Solution:
Marlon Capital 39,000
Add: Marlon drawing 4,800
Total 43,800
Less: Cash received 33,000
Total 10,800
 University of Luzon
College of Accountancy

Divide: 20%
Total loss on realization 54,000

12. Answer:A
Solution: P25,000 x 40% = 10,000

13. Answer:D

14. Answer:C
Solution: SONIA LORNA ELSIE
Capital balances before cash
Distribution to partners 54,000 30,000 32,000
Add/Less: Loans - - -
Net Equity 54,000 30,000 32,000
Possible Loss (10,000) (7,500) (7,500)
Safe Payment 44,000 22,500 24,500

15. Answer:B
Solution:
LOAN
NONCAS LIABILITIE PAYABL LORN
CASH SONIA ELSIE
H S E TO A
ELSIE
Beginning
P50,000 P125,000 P35,000 P24,000 P54,000 P30,000 P32,000
Balances
Sale of Asset (42,000 (31,500
20,000 (125,000) (31,500)
) )
Balances 70,000 0 35,000 24,000 12,000 (1,500) 500
Lorna deficiency
absorbed by (875) 1,500 (643)
Sonia & Elsie
Balances 24,000 11,143 0 (143)
Loan to Elsie (143) 143
Balance 70,000 0 35,000 23,857 11,143 0 0
Payment of (35,000
(35,000)
Liabilities )
Balances P35,00 P11,14
0 P23,857
0 3
 University of Luzon
College of Accountancy

CHAPTER 4
Corporate Liquidation

PROBLEMS:
Problem 4-1
A. Troublesome Corporation
Statement of Affairs
October 1, 2013
ASSETS
BOOK VALUE Estimated
Realizable Value Amount Available
 University of Luzon
College of Accountancy

Less Secured for Unsecured

Creditor Liability Creditors
Pledged with
Fully Secured
Creditors:
P80,000 Land P160,000
800,000 Building-Net 600,000
Less: Mortgage 400,000
Payable
Interest Payable 40,000 440,000 P320,000
Pledge with
Partially Secured
Creditors:
280,000 Equipment-Net 280,000
Less: Note Payable 400,000 0
Free Assets:
40,000 Cash 40,000
Accounts
240,000 200,000
Receivable-Net
400,000 Inventory 280,000
168,000 Goodwill 0 .
Total Free Assets: 840,000
Less: Priority
720,000
Liabilities
Net Free Assets: 120,000
Estimated
Deficiency to
Unsecured
Creditors W/o 488,000
Priority
P608,000
P2,048,000

Liabilities and Shareholder’s Equity

Secured And Unsecured Non-
BOOK VALUE
Priority Claims Priority Claims
Priority
Liabilities:
Liquidation
P200,000
Expenses
Wages And
P120,000 120,000
Salaries Payable
Pension Plan
80,000 80,000
Payable
320,000 Taxes Payable 320,000 P720,000
Fully Secured
 University of Luzon
College of Accountancy

Liabilities:
400,000 Mortgage Payable 400,000
40,000 Interest Payable 40,000 440,000
Partially Secured
Liabilities:
400,000 Notes Payable 400,000
Less: Equip’t-Net 280,000 P120,000
Unsecured
Liabilities W/o
Priority:
8,000 Interest Payable 8,000
480,000 Accounts Payable 480,000 488,000
280,000 Share Capital
(80,000) Deficit

P2,048,000 P608,000

B. ERR= Net Free Assets

Total Unsecured Non-Priority Claims
= 120,000
608,000
= 19.74%

C. 160,000 x 19.74%
= 31,584

Problem 4-2
A). RECOVERY RATE = Net Free Asset
Total Unsecured NP Claims
= 60,000
300,000
= 20 %

Total Free Asset 450,000

Less:Priority Liabilities 390,000
Net Free Asset 300,000
 University of Luzon
College of Accountancy

Total Liabilities 690,000

Priority (390,000)
Total Unsecured NP 300,000

B). Partially Secured Liabilities

Secured Portion (82,000 x 50%) 41,000
Less:Asset Pledged 30,000 30,000
Balance 11,000
Unsecured Portion (82,000 x 50%) 41,000
Total Unsecured 52,000
X 20% 10,400
40,400

Problem 4-3
A. Pauper Corporation
Statement of Affairs
June 1, 2013
ASSETS
Estimated
Realizable Value Amount Available
BOOK VALUE
Less Secured for Unsecured
Creditor Liability Creditors
Pledged with
Fully Secured
Creditors:
P591,000 Land and Building P556,800
Less: Mortgage
Payable 410,000
Interest Payable 3600 436,000 P1,332,000
Investment in
34800 Affluent Shares 90,000
Less: Notes
Payable 60,000
62,250 27,750
Interest Payable 2,250
Pledge with
Partially Secured
Creditors:
246,000 Inventory 120,000
258,000 Equipment 48,000
Less: Accounts
Payable 300,000 0
 University of Luzon
College of Accountancy

Free Assets:
11,100 Cash 11,100
Accounts
127,200 68,000
Receivable-Net
90,000 Notes Receivable 90,000
Total Free Assets: 330,050
Less: Priority
Liabilities 22,650
Net Free Assets: 307,400
Estimated
Deficiency to
Unsecured
Creditors W/o 128.350
Priority
P1,358,100 P435,750

Liabilities and Shareholder’s Equity

Secured And Unsecured Non-
BOOK VALUE
Priority Claims Priority Claims
Priority
Liabilities:
Wages And
P22,650 P22,650
Salaries Payable
Fully Secured
Liabilities:
420,000 Mortgage Payable 420,000
3,600 Interest Payable 3,600 P423,600
Partially Secured
Liabilities:
300,000 Accounts Payable 300,000
Less: Inventory 120,000
Equipment 48,000 168,000 P132,000
Unsecured
Liabilities W/o
Priority:
243,750 Accounts Payable 243.750
Other Accrued
60,000 Liabilities 60,000 303,750
280,000 Share Capital
P1,358,100 P453,750

b. Opening Entry
Cash 11,100
Accounts Receivable(net) 127,200
Notes Receivable 90,000
Inventory 246,000
 University of Luzon
College of Accountancy

Investment in Affluent Shares 34,800

Land and Building(net) 591,000
Equipment(net) 258,000
Accounts payable 543,750
Wages payable 22,650
Other Accrued liabilities 60,000
Accrued interest on N/P 2,250
Accrued interest on M/P 3,600
Notes payable 60,000
Mortgage payable 420,000
Estate Equity 245,850
#

c. ASSETS LIABILITIES
Unsecured
Fully Partially Estate
Cash Non-Cash W/o
Secured Secured W/ Priority Equity
Priority
P1,347,00 P485,85
June 1 Bal. P11,100 P300,000 P22,650 P303,750 P245,850
0 0
Sale of Aff. Sh. 96,000 (34,800) 61,200
Coll. Of N/R 90,000 (90,000)
(216,000
Sale of Eqp’t 42,000 (258,000)
)
(114,000
Sale of Invty. 132,000 (246,000)
)
(174,000
P’ment of A/P (174,000)
)
P’ment of N/P (62,250) (62,250)
P423,60 (P22,950
June 31 Bal. P134,850 P718,200 P126,000 P22,650 P303,750
0 )

d.Entries during June

Cash 96,000
Investment in Affluent Shares 34,800
Estate Equity 61,200
#
Cash 90,000
Notes Receivable 90,000
 University of Luzon
College of Accountancy

#
Cash 42,000
Estate Equity 216,000
Equipment 258,000
#
Cash 132,000
Estate Equity 114,000
Inventory 246,000
#
Accounts Payable 174,000
Cash 174,000
#
Notes Payable 60,000
Interest Payable-N/P 2,250
Cash 62,250
#
Wages Payable 22,650
Cash 22,650
#

Problem 4-5
a. Assets pledge fully 1,300,000
Less: Fully Secured 640,000
Balance 660,000
Free Assets 220,000
Total Free Assets 880,000
Less: Liabilities w/ Priority 60,000
 University of Luzon
College of Accountancy

Net Free Assets 820,000

b. Unsecured = 520,000 + 760,000

= 1,280,000
Estimated Recovery Rate= Net Free Assets
Total Unsecured Nonpriority Claims
= 820,000
1,280,000
= 64.06 %

c. Partially secured 300,000

Unsecured portion(1,060,000-300,000) x 64.06% 486,856
Cash to be received to be received by note holders 786,856

Cash to be received to be received by note holders 786,856

Divided by 1,060,000
0.7423

Problem 4-6
Total Asset realized 180,000
Pledge to fully secured creditors (90,000)
Pledge to partially secured creditors (45,000)
Total free assets 45,000
Priority Liabilities (33,000)
Net Free Assets 12,000
÷) Total Non-Priority Liab. 60,000
Estimated recovery rate 20%
Partially Secured 45,000
Unsecured portion (15,000 x 20%) 3,000
Cash received by bank P48,000

MULTIPLE CHOICE:
 University of Luzon
College of Accountancy

1. Answer: C
Solution: Debit Credit
Assets to be realized 55,000 Assets realized 70,000
Assets acquired 60,000 Assets not realized 25,000
Liabilities liquidated 60,000 Liabilities to be liquidated 90,000
Liabilities not liquidated 75,000 Liabilities assumed 30,000
Supplementary charges 78,000 Supplementary credits 85,000

Total debit 328,000

Total credit 300,000
(28,000)

2. Answer: A
Solution: A = L + E
60,000 = 80,000 + 27,000
60,000 = 107,000
= 107,000 – 60,000
= 47,000

3. Answer : C
Solution: Secured Portion: 8,000
Unsecured Portion: (10250-8000)30 675
8,675

4. Answer: B
Solution: Secured Portion: 80,000
Unsecured Portion:(120,000-80000)50%20,000
100,000
5. Answer: A
Solution: A = L + E
60,000 = 80,000 + 27,000
60,000 = 107,000
= 107,000 – 60,000
= 47,000
6. Answer : E
 University of Luzon
College of Accountancy

Solution: Assets pledge fully 390,000

Less: Fully Secured 300,000
Balance 90,000
Free Assets 320,000
Total Free Assets 410,000
Less: Liabilities w/ Priority 90,000
Net Free Assets 320,000
Estimated Recovery Rate = Net Free Assets
Total Unsecured Nonpriority Claims
= 320,000
800,000
= 40 %
Unsecured = 720,000 + 80,000
= 800,000

Secured portion 160,000

Unsecured portion (240,000-160,000) x .40 P 32,000
P192,000

7. Answer: C
Solution: Fully secured 390,000
Less: Fully secured liability 300,000
Balance 390,000
Add: Free assets 320,000
Total Free assets 410,000
Less: Priority liability 90,000
Net Free assets 320,000

Unsecured Non-Priority claim

Partially Secured 290,000
Less: Assets Pledged for partially 160,000
Balance 80,000
Add: Unsecured liability 720,000
Total 800,000
 University of Luzon
College of Accountancy

Estimated Recovery rate = 320,000

800,000
= 40%

Unsecured liability 720,000

X 40%
= 288,000

8. Answer: B
Solution: Fully secured 900,000
Less: Fully secured liability 750,000
Balance 150,000
Add: Free assets 138000
Total Free assets 288000
Less: Priority liability 180,000
Net Free assets 108,000

Unsecured Non-Priority claim

Partially Secured 270,000
Less: Assets Pledged for partially 150,000
Balance 120,000
Add: Unsecured liability 600,000
Total 720,000

Estimated Recovery rate =108,000

720,000
=15%

Partially Secured Portion 150,000

Unsecured Portion (120,000 *15%) 18000
168 000

9. Answer: A
Solution: Unsecured liability 600,000
 University of Luzon
College of Accountancy

X 15%
90,000

10. Answer: C
Solution: Note Payable P 70,000
Less: Secured portion P 20,000 x 100% P20,000
Unsecured portion P 50,000 x .30 P15,000
P35,000

CHAPTER 5
Revenue Recognition: Installment Sales

PROBLEMS:
Problem 5-1
A. Sales 400,000
 University of Luzon
College of Accountancy

Less: Cost of Goods Sold 150,000

Gross Profit 250,000

Deferred Gross Profit for the Year 250,000

B. Gross Profit Rate = =
Installment Sales for the Year 400,000
= 62.5%

2013 2014 2015 2016 2017 Total

Cash Collection 400,000
2013 100,000
2014 75,000
2015 75,000
2016 75,000
2017 75,000
Gross Profit Rate 62.50% 62.50% 62.50% 62.50% 62.50% 62.50%
Realized Gross Profit 62,500 46,875 46,875 46,875 46,875 250,000
C.
2013 2014 2015 2016 2017
Collections 100,000 75,000 75,000 75,000 75,000
Costs Recovered (100,000) (50,000)
Realized Gross Profit 0 25,000 75,000 75,000 75,000

Problem 5-2
A. 1. Sales 800,000
Less: Cost of Goods Sold 400,000
Gross Profit 400,000

Deferred Gross Profit for the Year

2.Gross Profit Rate =
Installment Sales for the Year
400,000
= = 50 %
800,000
 University of Luzon
College of Accountancy

2012 2013 2014 2015 Total

Cash Collection 800,000
2012 200,000
2013 200,000
2014 200,000
2015 200,000
Gross Profit Rate 50% 50% 50% 50% 50%
Realized Gross Profit 100,000 100,000 100,000 100,000 400,000

3.
2012 2013 2014 2015
Collections 200,000 200,000 200,000 200,000
Costs Recovered (200,000) (200,000)
Realized Gross Profit 0 0 200,000 200,000

B.
1.Entries
Oct. 31, 2012
Cash 200,000
Installment Account Receivable 600,000
Installment Sales 800,000
#
Cost of Installment Sales 400,000
Inventory 400,000
#
Oct. 31, 2013
Cash 200,000
Installment Account Receivable 200,000
#

Oct. 31, 2014

Cash 200,000
Installment Account Receivable 200,000
#
Oct. 31, 2015
Cash 200,000
 University of Luzon
College of Accountancy

Installment Account Receivable 200,000

#

2.Entries
Oct. 31, 2012
Cash 200,000
Installment Account Receivable 600,000
Installment Sales 800,000
#
Cost of Installment Sales 400,000
Inventory 400,000
#
Dec. 31, 2012
Installment Sales 800,000
Cost of Installment Sales 400,000
Deferred Gross Profit 400,000
#
Deferred Gross Profit 100,000
Realized Gross Profit 100,000
#
Dec. 31, 2013
Cash 200,000
Installment Account Receivable 200,000
#
Deferred Gross Profit 100,000
Realized Gross Profit 100,000
#

Dec. 31, 2014

Cash 200,000
Installment Account Receivable 200,000
#
Deferred Gross Profit 100,000
Realized Gross Profit 100,000
 University of Luzon
College of Accountancy

#
Dec. 31, 2015
Cash 200,000
Installment Account Receivable 200,000
#
Deferred Gross Profit 100,000
Realized Gross Profit 100,000
#

3. Entries
Oct. 31, 2012
Cash 200,000
Installment Account Receivable 600,000
Installment Sales 800,000
#
Cost of Installment Sales 400,000
Inventory 400,000
#
Dec. 31, 2012
Installment Sales 800,000
Cost of Installment Sales 400,000
Deferred Gross Profit 400,000
#
Oct. 31, 2013
Cash 200,000
Installment Account Receivable 200,000
#

Oct. 31, 2014

Cash 200,000
Installment Account Receivable 200,000
#
Deferred Gross Profit 200,000
Realized Gross Profit 200,000
 University of Luzon
College of Accountancy

#
Oct. 31, 2015
Cash 200,000
Installment Account Receivable 200,000
#
Deferred Gross Profit 200,000
Realized Gross Profit 200,000
#

Problem 5-3
January 1, 2012
Installment Accounts Receivable 200,000
Installment Sales 200,000
#
Cost of Installment Sales 120,000
Inventory 120,000
#
December 31, 2012
Cash 128,000
Installment Accounts Receivable-2012 80,000
Interest Receivable (200000 x 24 x12/12) 48,000
#
Installment Sales 200,000
Cost of Installment Sales 120,000
Deferred Gross Profit 80,000
#

Deferred Gross Profit 32,000

Realized Gross Profit (80000x40%) 32,000
#
January 1, 2013
Installment Account Receivable – 2013 180,000
Installment Sales 180,000
 University of Luzon
College of Accountancy

#
Cost of Installment Sales 120000
Inventory 120000
#
December 31, 2013
Installment Sales 180,000
Cost of Installment Sales 120,000
Deferred Gross Profit 60,000
#
Cash 128,800
Installment Account Receivable - 2013 100,000
Interest Receivable (120000 x 24% x 12/12) 28,800
#
Cash 178,200
Installment Account Receivable 135,000
Interest Receivable (180000 x 24% x 12/12) 432000
#
Deferred Gross Profit – 2012 (100000 x 40%) 40,000
Deferred Gross Profit – 2013 (135000 x 1/3) 45,000
Realized Gross Profit 85,000
#
2012 2013
Installment Accounts Rec.-2012 (200,000-80,000) 120,000 (120,000-100,000) 20,000
Installment Account Receivable - 2013 ---- 45,000

Deferred Gross Profit – 2012 (80,000-32,000) 48,000 8,000

Deferred Gross Profit – 2013 ---- 15,000

Problem 54
2010 2011 2012
Installment Accounts Receivable, beginning 114,286 433,333 1,050,000
-) Installment Accounts Receivable, ending (50,000) (200,000) (360,000)
Collections 64,286 233,333 690,000
Multiply by: Gross Profit Rate 35% 30% 40%
 University of Luzon
College of Accountancy

Realized Gross Profit 22,500 70,000 276,000

Installment Accounts Receivable, beginning 2010 = 40,000 / 35% = 114,286

Installment Accounts Receivable, beginning 2011 = 130,000 / 30%= 433,333
Installment Accounts Receivable, beginning 2012 = 420000 / 40% = 1,050,000

Deferred Gross Profit – 2010 22,500

Deferred Gross Profit – 2011 70,000
Deferred Gross Profit – 2012 276,000
Realized Gross Profit 368,500
#

Problem 5-5
2011 2012 2013
Ins. Accts. Rec., beg 150,000 480,000 750,000
Ins. Accts. Rec., end --- 120,000 650,000
Collections 150,000 360,000 100,000
x) Gross Profit Rate 42% 37.5% 40%
Realized Gross Profit 63,000 135,000 40,000

2
Sales 750,000* 166 % 100% Deferred Gross Profit-2011 63,000
3
Cost 450,000 100% 60% Deferred Gross Profit-2012 135,000
2
Gross Profit 300,000 66 % 40% Deferred Gross Profit-2013 40,000
3
Realized Gross Profit 238,000
*300,000 ÷ 40% = 750,000 #

Problem 5-7
Trade-in Allowance 450,000
Less: Value of Trade In
Selling Price 420,000
Reconditioning Cost (45,000)
 University of Luzon
College of Accountancy

Notes Payable(420000x25%) (105,000) 270,000

180,000

Inventory - Trade in 270,000

Over Allowance 180,000
Installment Accounts Receivable 630,000
Installment Accounts Receivable 1,080,000
#
Cost of Installment Sales 750,000
Inventory 750,000
#
Installment Sales 180,000
Over Allowance 180,000
#
Installment Sales 900,000
Cost of Installment Sales 750,000
Deferred Gross Profit 150,000
#
Deferred Gross Profit 45,000
Realized Gross Profit 45,000
#

Problem 5-8
Installment Accounts Receivable-2013 200,000
Installment Sales 200,000
#
Cost of Installment Sales 120,000
Inventory 120,000
#
Installment Sales 200,000
Cost of Installment Sales 120,000
Deferred Gross Profit-2013 80,000
#
Cash 30,000
 University of Luzon
College of Accountancy

Installment Accounts Receivable-2011 30,000

#
Cash 34,000
Installment Accounts Receivable-2012 34,000
#
Cash 60,000
Installment Accounts Receivable-2013 60,000
#
Deferred Gross Profit-2011 13,800
Deferred Gross Profit-2012 14,280
Deferred Gross Profit-2013 24,000
Realized Gross Profit 52,080
#

Problem 5-9
1. Contract price 2,230,000
-) cash sale price 1,260,000
Unearned interest income 970,000

Present value factors = 1-(1+.12)-10

.12
= 5.6502

Cash sales price 126,000

Present value factors 5.6502
Cash received 223,000

b.
Int. Accounts Amortized Realized
Date Cash Received Int. Income
Rec. Cost Gross Profit
Jan. 1,2013 1,260,000
Dec.31,2013 223,000 151,200 71,800 1,188,200 28,002
Dec.31, 2014 223,000 142,584 80,416 1,107,784 31,362
 University of Luzon
College of Accountancy

Dec.31, 2015 223,000 132,934 90,056 1,017,718 35,126

Dec.31, 2016 223,000 122,126 100,874 916,844 39,341
Dec.31, 2017 223,000 110,021 112,974 803,865 44,062
Dec.31, 2018 223,000 96,464 126,536 677,329 49,349
Dec.31, 2019 223,000 81,279 141,720 535,608 55,271
Dec.31, 2020 223,000 64,273 158,727 376,881 61,904
Dec.31, 2021 223,000 45,226 177,774 119,107 69,332
Dec.31, 2022 223,000 23,893 199,107 - 77,652

Cash 140,000
Installment accounts receivable 126,000
Installment sales 1,400,000
#
Cost of installment sales 840,000
Inventory 840,000
#
Installment sales 1,400,000
Cost of installment sales 850,000
Deferred gross profit 550,000
#
Cash 223,000
Installment accounts receivable 71,800
Interest income 151,200
#
Deferred gross profit 28,002
Realized gross profit 28,002
#

Problem 5-13
A. Trade in 5,000
Installment Accounts Receivable 5,000
#
B. 2012
Sales 1,386,750
Less:Cost of Sales
Beginning Inventory ----
 University of Luzon
College of Accountancy

Add: Purchases 1,600,000

Less: Ending Inventory 601,540 998,460
DGP 388,290 = 28%

2013
Sales 2,209,250
Less: Cost of Sales
Beginning Inventory 601,540
Add: Purchases 1,546,000
Trade-in 5,000
Repossession 20,000
GAS 2,172,540
Less: Ending inventory 755420 1,477,120
DGP 792130 = 35.86%

C.
Entry Made
Loss on default 50000
Installment Accounts Receivable 50000
#
Should be Entry
Repossession 20000
Deferred Gross Profit 14000
Loss 16000
Accounts Receivable 50000
#
Correcting Entry
Repossession 20000
Deferred Gross Profit 14000
Loss 34000
#
Problem 5-14
1. Installment sales 100,000
x) Gross profit rate 78% 2. Installment sales 100,000
78000 Cost of installment sales 88,000
 University of Luzon
College of Accountancy

Gross profit 22,000

3. 11,000
÷) 55,000
22%

4. Realized gross profit 2,200

÷) gross profit rate 22%
10,000

5. 160,000
x) _ 75%
Cost of installment sales 120,000

6. Installment sales 160,000

-)Cost of installment sales 120,000
Gross profit 40,000

7. Cost of installment sales 183,600

+) gross profit 56,400
Installment sales 240,000

8. Gross profit 56,400

÷) installment sales 240,000
Gross profit rate 23.5%
 UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
9. Installment sales x Gross profit rate total
2010: 20,000 22.00% 4,400
2011: 100,000 25.00% 25,000
2012: 90,000 23.50% 21,150
50,550

Problem 5-15
1. Cost of installment sales 136,500
/) gross profit rate 65%
Installment sales 210,000

2. Installment sales 160,000

x) gross profit rate 62%
cost of installment sales 99,200

3. Installment sales 190,000

-)cost of installment sales 112,100
Gross profit 77,500
/) installment sales 190,000
Gross profit rate 41%

4. From 2011 Sales:

32,100
(11,200) 66,500
From 2012 sales:
112,100
(45,600) 20,900
87,400

5. Cash , 2010 51,200

Cost of installment sales 51,200
Realized gross profit 0
 UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
Problem 5-16
a. 2011 2012 2013
Installment Accounts Receivable, beg. 300,000 1,500,000 3,200,000
Installment Accounts Receivable, end 30,000 120,000 550,000
Collection 270,000 1,380,000 2,650,000
x) Gross Profit Rate 32% 30% 27.5%
Realized Gross Profit 86,400 414,000 728,750

b.
Income Statement
Sales P1,250,000
-)Cost of Sales
Beginning Inventory P 520,000
+) Purchases 3,500,000
-)Shipment on Installment Sales 2,320,000
Goods Available for Sale 1,700,000
-)Ending Inventory 600,0001,100,000
Gross Profit on RS 150,000
Realized Gross Profit on Installment Sales 1,229,150
Total Gross Profit 1,379,150
-)Operating Expenses 1,515,000
Net Loss (P135,850)

Balance Sheet
ASSETS LIABILITIES
Cash P275,000 Accounts Payable P400,000
Installment Accounts Receivable-2013 550,000 Deferred Gross Profit-2013 151,250
Installment Accounts Receivable-2012 120,000 Deferred Gross Profit-2012 36,000
Installment Accounts Receivable-2011 30,000 Deferred Gross Profit-2011 9,600
Accounts Receivable 170,000 Share Capital 1,000,000
Inventory 12/31/13 600,000 Retained Earnings 548,150
Other Assets 510,000
P2,145,000 P2,145,000

C.
 UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
Adjusting Entries
Installment sales 3,200,000
Cost of installment sales 2,320,000
Deferred Gross Profit 880,000
#
DGP 2011 (3000000-30000) x32% 86,400
DGP 2012 (1500000-120000) x30% 414,000
DGP 2013 (3200000-550000) x27.5% 728,750
Realized Gross Profit 1,229,150
#

Closing Entries
Sales-Regular 1,250,000
Shipment on installment sales 2320000
Inventory 12/31/13 600,000
Realized Gross Profit 1,299,150
Income Summary 135,850
Operating Expenses 1,515,000
Purchases 3,500,000
Inventory 12/31/13 520,000
#
Retained Earnings 135,850
Income Summary 135,850
#

MULTIPLE CHOICE:
 UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
1. Answer:C
Solution:
2012 2013
Installment Accounts Receivable 3,000,000 2,000,000 1,000,000
- ) Installment Expense 2,250,000 1,000,000 400,000
Collection 750,000 1,000,000 600,000
x) Gross Profit Rate 40% 30% 30%
Realized Gross Profit 300,000 300,000 180,000

Installment Expense 2,250,000

400,000
Installment Accounts Receivable Dec.31, 2013 2,650,000

2. Answer: C
Solution:
Installment Accounts Receivable/Beg. 2,100,000
Less: Installment Accounts Receivable/End. 1,200,000
Collection 900,000
Realized Gross Profit (900000 x .40) = 360000

3. Answer: C
Solution:
Installment Sales 3,000,000 GPR= 1,500,000/300,000= 50%
Less: Cost of Installment Sales 1,500,000
1,500,000

1,500,000
(600000x.50) (300,000)
Deferred Gross Profit 1,200,000

4. Answer: D
Solution:
2012 35,000 – 35,000 = 0

Cost of Sales
 UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
2012 10,000 – 5,000 = 5,000
2013 48,000 – 36,000 = 12,000
Gross Profit 17,000

5. Answer: B
Solution:
Deferred Gross profit (2012) 10,000 60,000
Less: Realized Gross Profit 5,000 36,000
Deferred Gross profit 5,000 24,000
12,000
Gross profit 12,000

Deferred Gross profit (5,000 + 12,000) = 17000

6. Answer: C
Solution:
Inventory Repossessed 8,000
Deferred Gross Profit 4,000
Loss 3,200
Installment Account Receivable 16,000
#

7. Answer: D
Solution:
Installment Sales 420,000
Cost Of Installment Sales 168,000
Deferred Gross Profit 252,000
#
(252,000 / 420,000) = 60 % RGP RATE
84,000 x 60 % = 50 400

8. Answer: C
 UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
Solution:
Installment Sales 2012 600,000
Gross Profit Sales 40% 180,000
Installment Sales 2013 700,000
Gross Profit on Sales 30% 280,000
460,000

9. Answer: C
Solution:
Collections :
Trade In 817,000
Deferred Profit 550,000
1,367,000
X 23.86%
Realized Gross Profit 326,166.20

10. Answer: D
Solution:
Collection X Gross Profit
2011 1,512,500 28% = 423,500
2012 5,362,500 30% = 1,608,750
2013 3,162,500 32% = 1,012,000
3,044,250

11. Answer: D
Solution:
Merchandise Inventory, January 1, 2013 210,000
Purchases 1,665,000
Repossessed 9,000
Goods Available for Sale 1,884,000
Merchandise Inventory, December 31, 2013 (285,000)
Cost of sale 1,599,000

Fair value of repossessed inventory 9,000

Less: balance of accounts receivable 21,600
 UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
Less:Deferred Gross
Profit(45%) 9,720 11,880
Loss on repossession 2,880

Realized gross profit from:

Regular sales (1,155,000 x 30%) 346,500
Installment sales
From 2012 (293,400 x 45%) 132,030
From 2013 (675,000 x 38%) 256,000 388,530
Realize Gross Profit 735,030

12. Answer: A
Solution:
Deferred, December 31,2013 360,000
Divided by: Gross profit rate 40%
Installment sales – 2013 900,000

13. Answer: A
Solution:
November sales 0

14. Answer: C
Solution:
Interest 540,000
Income - 2014 540,000

15. Answer: A
Solution:
Carrying amount, Inventory 18,000
Freight paid 900
Consigned Inventory 18,900