Mr. X is a sole proprietor who handles a manufacturing business.

On December 31, 1990, the following

data were given to you:
Sales P5,000,000
Raw materials purchased 1,200,000
Direct Labor 1,500,000
Sales Salaries 175,000
Office supplies expense 7,850
Sales allowances 25,000
Freight out 28,000
Factory overhead 1,750,000
Advertising Expense 150,000
Delivery expense 60,000

INVENTORIES: Beginning Ending

Finished Goods P250,000 P320,000
Work in process 78,500 65,000
Raw materials 95,000 88,000

The post Closing Trial Balance revealed the following:

Cash P150,000
Accounts receivable 80,000
Inventories 473,000
Property and Equipment 250,000
Supplies 7,500
Accounts Payable 260,500
Other payables 100,000
X, Capital 600,000

On April 30, 1991, due to lack of capital, Mr. X asked Mr. Y, his close friend to be his partner. The capital
balance of Mr. X at this time has not changed. Mr. Y agreed and thus will invest cash to commensurate
with his 40% share in the total capital after effecting the following adjustments:

· It is estimated that 6.25 % of the accounts receivable is uncollectible

· The property and equipment is under depreciated by P5,000
· Inventories should be revalued at P450,000
· Supplies found in the storage room amounting to P3,000 were not included in the physical
count.
· Unrecorded liabilities amounted to P6,000

After the adjustments, Mr. X and Mr. Y will share profits and losses according to the following
agreement:
· A monthly salary of 8,000 will be allowed for Mr. X
· An annual interest of 12% will be credited to each partner based on ending capital
· A 20% bonus will be given to Mr. X. Said bonus is computed after bonus.
· The remainder will be divided 6:4.

The summary of withdrawals and additional investment of each partner is:

 Mr. X Mr. Y
Withdrawal P51,500 P8,000
Investments 12,500 57,000

As of December 31, 1991, the Partnership earned a net income of P300,000. Share in net income is
considered as an addition to capital accounts. The business continues to earn good profit until on July 1,
1992, Mr. X and Mr. Y decided to Admit Mr. Z by investing P250,000 for a 25% interest in the
partnership. Partners agree that no asset revaluation should be recognized. The partners will share
income and losses in accordance with the prior agreement except that the remainder will be shared
45%, 30% and 25% respectively. No change in the capital account has occurred as of July 1. 1992
Quarterly net income are as follows:

First quarter P75,000

Second Quarter 105,000
Third quarter 120,000
Fourth quarter 150,000

After operating profitably for another 10 years, Mr. X decided to migrate to the United States with his
family. The other partners decided to liquidate the partnership instead. The adjusted balances of the
accounts as of the liquidation date are as follows:

Cash P375,000 Accounts Payable P115,000

Accounts Receivable 250,000 X Capital 785,000
Allowance for Bad Debts 25,000 Y, Capital 600,000
Property and equipment 950,000 Z, Capital 400,000
Accumulated Depreciation 350,000
Other non cash assets 175,000
Inventories 525,000

All partners are solvent. The following are the proceeds from the sale of non cash assets:
· They were able to collect 80% of the total accounts receivable
· The other assets were sold for P130,000
· Inventories were realized at 85% of its book value
· Property and equipment were sold for P450,000