Chapter 2

PARTNERSHIP - DISSOLUTION UPON

OWNERSHIP CHANGES
PROBLEM 2- 1

(1)

Inventories 3,750
Allowance for Depreciation 22,500
Allowance for Bad Debts 2,300
Equipment 17,500
Accrued Expenses 1,950
Collantes, Capital 2,700
Cosme, Capital 1,800

Collantes, Capital 8,500

Cosme, Drawing 4,000
Collantes, Drawing 8,500
Cosme, Capital 4,000

Cash 31,250
Cuesta, Capital 31,250

Combined capital for Collantes and Cosme of P 125,000 is to be equal to 80 % new capital. Capital of
new firm, then, is P 125,000 / 80 %, or P 156,250.

Cuesta’s investment: 20 % of P 156,250, or P 31,250.

Cosme, Capital 8,925

Collantes, Capital 8,925

Collantes’ Capital: 50 % of P 156,250, or P78,125; required increase, P 78,125 - P 69,200, or P

8,925.
Cosme’s Capital: 30 % of P 156,250, or P 46,875; required decrease, P 55,800- P 46,875, or P 8,925.

(2)

COLLANTES, COSME AND CUESTA

Balance Sheet
April 1, 20x7

Assets Liabilities and Capital

Cash P 55,250 Payables P 44,500

Receivables P Accrued expenses 1,950
46,000
Less allowance for
bad debts 43,700 Collantes, capital 78,125
2,300
Inventories 86,250 Cosme, capital 46,875
Equipment 17,500 Cuesta, capital 31,250
Total assets P 202,700 Total liabilities and capital P 202,700

22
 PROBLEM 2 - 2

(1)

CAIN, OSMAN, AND ROBERTO

Statement of Partners’ Capital Accounts
January 1, 20x4 - January 1, 20x7

Cain, Capital Osman, Roberto,

Capital Capital Total
(5) (2) (1)
Capitals, January 1, 20x4 P 62,500 P 25,000 P 12,500 P 100,000
Net income for 20x4 as corrected
( Schedule A) 26,375 10,550 5,275 42,200
P 88,875 P 35,550 P 17,775 P 142,200
Drawings, 20x4 (15,000) (7,800) (5,200) (28,000)
Capitals, December 31, 20x4 P 73,875 P 27,750 P 12,575 P 114,200
Net income for 20x5 as corrected
(Schedule B) 10,875 4,350 2,175 17,400
P 84,750 P 32,100 P 14,750 P 131,600
Drawings, 20x5 (15,000) (7,800) (5,200) (28,000)
Capitals, December 31, 20x5 P 69,750 P 24,300 P 9,550 P 103,600
Net loss for 20x6 as corrected
(Schedule C) (6,750) (2,700) (1,350) (10,800)
P 63,000 P 21,600 P 8,200 P 92,800
Drawings, 20x6 (10,000) (5,200) (5,200) (20,400)
Capitals, December 31, 20x6. P 53,000 P 16 ,400 P 3,000 P 72,400

Schedule A - Corrected Net Income for 20x4

Net income per books P 44,000

Add: Accrued revenue, 12/31/x4 250
P 44,250
Deduct: Accrued expenses, 12/31/x4 400
Overstatement of inventories, 12/31/x4 1,500
Understatement of depreciation on assets still held 150 (2,050)
Corrected net income, 20x4 P 42,200

Schedule B - Corrected Net Income for 20x5

Net income per books P 18,500

Add: Accrued expenses, 12/31/x4 400
Accrued revenue, 12,/31/.x5 100
Overstatement of inventories, 12/31/x4 1,500 2,000
P 20,500
Deduct: Accrued expenses, 12/31/x5 500
Accrued revenue, 12/31/x4 250
Overstatement of inventories, 12/31/x4 2,000
Understatement of depreciation on assets still 350 (3,100)
held
P 17,400

23
 Schedule C - Corrected Net Loss for 20x6

Net loss per books (P 10,500)

Add: Accrued expenses, 12/31/x5 500
Accrued revenue, 12,/31/.x6 150
Overstatement of inventories, 12/31/x5 2,000 2,650
(P 7,850)
Deduct: Accrued expenses, 12/31/x6 650
Accrued revenue, 12/31/x5 100
Overstatement of inventories, 12/31/x5 2,000
Understatement of depreciation on assets still 200 (2,950)
held
Corrected net loss, 20x6 (P 10,800)

(2)
January, 20x7

Accrued Revenue 150

Cain, Capital 2,000
Osman, Capital 800
Roberto, Capital 400
Accrued Expenses 650
Merchandise Inventory 2,000
Allowance for Depreciation 700
To correct account balances; reduction in net asset balances
is divided between Cain, Osman, and Roberto, 5/8, 2/8,
and
1/8
Cain, Capital 1,875
Osman, Capital 750
Roberto, Capital 1,875
Furniture (net) 4,500
To record transfer of furniture, book value P 4,500, at a
charge to Roberto of P 1,500; the loss on the transfer,
P3,000, is divided between Cain, Osman, and Roberto, 5/8,
2/8, and 1/8, or P 1,875, P 750, and P 375.
Roberto, Capital 1,125
Cash 1,125
Payment to Roberto : capital after corrections, 12/31/x6,
P 3,000, less charge for furniture and share of loss on trans-
fer, P 1,875 or P 1,125.

PROBLEM 2-3

(1)
A, B, and C
Statement of Partners’ Capital Accounts
Corrections to December 31, 20x7

A B C Total
Balance per books, December 31, 20x7 P 22,500 P 24,000 P 40,000 P 86,500
Corrections:
Add:
Correction (increase) in net
income for 20x6, divided
equally ( See Schedule A) 7,350 7,350 7,350 22,050
Correction (increase) in net
Income for 20x7 divided in
ratio 1:1:2 ( See Schedule B) 2,275 2,275 4,550 9,100

24
Corrected balances, December 31, P 32,125 P 33,625 P 51,900 P 117,650
20x7

Schedule A - Correction in Net Income for 20x6

Add: Expenditures improperly charged as expense P 6,000

Accrued revenues, 12/31/x6 600
Inventory increase using FIFO 18,000 P 24,600
Deduct: Accrued expenses, 12/31/x6 P 2,400
Depreciation of buildings, P 6,000 x ½ x 5 % 150 2,550
P 22,050
Schedule B - Correction in Net Income for 20x7

Add: Accrued revenues, 12/31/x7 P 800

Accrued expenses, 12/31/x6 2,400
Inventory increase using FIFO ( P 23,000
difference less P 18,000 recognized in 20x6) 5,000
Error in recording capital expenditure as an
expense 8,000 P 16,200
Deduct Accrued expenses, 12/31/x7 P 6,000
Accrued revenues, 12/31/x6 600
Depreciation of buildings ( P 300 on building
acquired in 20x6, P 200 on buildings
acquired
in 20x7) 500 7,100
Total increase in 20x7 net income P 9,100

(2)

December 31, 20x7

Buildings 14,000
Merchandise Inventory 23,000
Accrued Revenues 800
Accrued Expenses 6,000
Allowance for Depreciation of Buildings 650
A, Capital 9,625
B, Capital 9,625
C, Capital 11,900

Alternative solution: The corrections may be recorded on the partnership books by separate entries as
follows:
(1) Accrued Revenues 800
A, Capital 1,450
B, Capital 1,450
C, Capital 2,300
Accrued Expenses 6,000

(2.) Buildings 14,000

Allowance for Depreciation of Buildings 650
A, Capital 3,825
B, Capital 3,825
C, Capital 5,700

(3) Merchandise Inventory 23,000

A, Capital 7,250
B, Capital 7,250
C, Capital 8,500

25
 PROBLEM 2- 4

(1)
Cash 16,000
Eva, Capital 16,000

(2)
Cash 16,000
Crespo, Capital 1,920
Dino, Capital 1,280
Eva, Capital 19,200

Eva’s Capital: 1/3 of P 57,600 or P 19,200.

Bonus charged to Crespo: 60 % of P 3,200 or P 1,920.
Bonus charged to Dino: 40 % of P 3,200 or P 1,280.

(3)
Cash 16,000
Goodwill 4,800
Eva, Capital 20,800
Capital: 1 /2 of P41,600 or P 20,800. Since P 41,600 = 2/3
(4)

Cash 16,000
Crespo, Capital 960
Dino, Capital 640
Eva, Capital 14,400
Eva’s Capital: 1 /4 of P 57,600 or P 14,400.
Bonus to Crespo: 60 % of P1,600 or P960.
Bonus to Dino: 40 % of P1,600 or P 640.

(5)
Cash 16,000
Eva, Capital 16,000
Goodwill 6,400
Crespo, Capital 3,840
Dino, Capital 2,560

Total capitals after adjustment for goodwill, P 16,000 /.25, or P 64,000

Total capitals before adjustment for goodwill, P 23,000 + P 18,600 + P 16,000, or 57,600
Goodwill allowed old partners P 6,400

Goodwill to Crespo : 60 % of P 6,400 or P 3,840.

Goodwill to Dino: 40 % of P 6,400 or P 2,560.

26
 PROBLEM 2-5

(1)

Cash 30,000
J, Capital 2,500
K, Capital 7,500
L, Capital 20,000
L’s Capital: ¼ of P80,000, or P20,000.
Bonus to J: ¼ of P10,000, or P 2,500.
Bonus to K: ¾ of P10,000, or 7,500.

(2)

Cash 30,000
Goodwill 10,000
J, Capital 2,500
K, Capital 7,500
L, Capital 20,000
L’s Capital: 1/3 of P90,000 or P30,000.
Goodwill to J: 1/4 of P10,000 or P 2,500.
Goodwill to K: 3/4 of P10,000 or P 7,500.
(3)

Goodwill 12,000
J, Capital 3,000
K, Capital 9,000
Goodwill to J: 1/4 of P12,000 or P30,000.
Goodwill to K: 3/4 of P12,000 or P 9,000.

Cash 30,000
J, Capital 2,500
K, Capital 7,500
L, Capital 20,000
Bonus to J: 1/4 of P10,000, or P2,500.
Bonus to K: 3/4 of P10,000, or P7,500.

(4)

J,Capital 2,500
K, Capital 10,000
L, Capital 12,500
Reduction in J’s Capital: 1/4 of P10,000 or P2,500
Reduction in K’s Capital: 1/4 of P40,000 or P10,000.

27
 PROBLEM 2-6

(1)

M, Capital 10,000
N, Capital 5,000
O, Capital 15,000
M’s Sale of Capital: 1/4 of P40,000 or P10,000.
N’s Sale of Capital: 1/4 of P20,000 or P 5,000.

(2)

M, Capital 13,333.33
N, Capital 6,666.67
O, Capital 20,000
M’s Sale of Capital: 1/3 of P40,000 or P 13,333.33
N’s Sale of Capital: 1/3 of P20,000 or P 6,666.67.

(3)

Goodwill 30,000
M, Capital 22,500
N, Capital 7,500
Goodwill: (3 x P30,000) - P60,000 or P30,000.
M’s Share: 75% of P30,000 or P22,500.
N’s Share: 25% of P30,000 or P 7,500.

M, Capital 20,833.33
N, Capital 9,166.67
O, Capital 30,000.00
M’s Sale of Capital: 1/3 of P62,500 or P20,833.33.
N’ s Sale of Capital: 1/3 of P26,500 or P 9,166.67.

(4)

Goodwill 30,000
M, Capital 22,500
N, Capital 7,500
Goodwill: (4 x P30,000) - P90,000, or P30,000.
M’s Share: 75 % of P30,000 or P22,500.
N’s Share: 25% of P15,000 or P 7,500.

Cash 30,000
O, Capital 30,000

(5)

Cash 30,000
M, Capital 11,250
N, Capital 3,750
O, Capital 45,000
Bonus charged to M: 75 % of P15,000 or P11,250.
Bonus charged to N: 25% of P15,000 or P 3,750.

28
 (6)

Cash 40,000
M, Capital 7,500
N, Capital 2,500
O, Capital 30,000

Bonus to M: 75% of P10,000 or P7,500.

Bonus to N: 25% of P10,000 or P2,500.

(7)

Cash 40,000
Goodwill 12,000
O, Capital 52,000

(8)

Cash 25,000
M, Capital 2,812.50
N, Capital 937.50
O, Capital 21,250.00

O’s Capital = 1/4 of P85,000 or P21,250.

Bonus to M = 75% of P 3,750 or P 2,812.50
Bonus to N = 25% of P 3,750 or P 937.50.

(9)

Cash 27,500
Goodwill 22,500
M, Capital 16,875
N, Capital 5,625
O, Capital 27,500
Goodwill: P 110,000 - P 87,500 or P 22,500.
M’s Share: 75 % of P22,500 or P16,875.
N’s Share: 25 % of P22,500 or 5,625.
O’s Capital: 1/4 of P 110,000 or P 27,500.

(10)

Cash 24,000
M, Capital 3,000
N, Capital 1,000
O, Capital 28,000
O’s Capital: 1/3 of P 84,000 or P28,000.
Bonus charged to M: 75% of P4,000 or P3,000.
Bonus charged to N: 25% of P4,000 or P1,000.

29
 PROBLEM 2-7

ROSETE, SENEN, AND TOMAS

Statement of Changes in Partners’ Capital Accounts
For Period from January 1, 20x6 to January 1, 20x8

Rosete Senen Tomas Total

Capitals, January 1, 20x6 P50,000 P30,000 P80,000
Debit balances in personal accounts,
December 31, 20x6, transferred to
capital accounts (8,200) (6,800) (15,000)
P41,800 P23,200 P65,000
Amounts allowed for salaries, 20x6 9,000 9,000 18,000
P50,800 P32,200 P83,000
Loss of P 4,000 for 20x6 after
allowance for salaries distributed
in the profit and loss ratio of 60 :40 (2,400) (1,600) (4,000)
Capitals, December 31, 20x6 P48,400 P30,600 P79,000
Investment by Tomas, January 2, P20,000 20,000
20x7.
Allowance of bonus to Tomas charge-
able to capital accounts of Rosete
and Senen in the profit and loss
ratio. (7,800) (5,200) 13,000
P40,600 P25,400 P33,000 P99,000
Debit balances in personal accounts
December 31, 20x7, transferred to
capital accounts (7,500) (5,000) (6,800) (19,300)
P33,100 P20,400 P26,200 P79,700
Loss of P15,000 for 20x7 distributed
in the profit and loss ration of
35:25:40 (5,250) (3,750) (6,000) (15,000)
Capitals, December 31, 20x7 P27,850 P16,650 P20,200 P64,700

Loss from realization of assets,

P47,200, distributed in the profit
and
loss ratio of 35:25:40 (16,520) (11,800) (18,880) (47,200)
P11,330 P4,850 P1,320 P17,500
Distribution of cash in final
settlement
in January, 20x8 (11,330) (4,850) (1,320) (17,500)

30
 PROBLEM 2-8

X, Y and Z
Statement of Changes in Partners’ Capital Accounts
For Years 20x6 and 20x7

X Y Z Total
Capitals, January 1, 20x6 P38,500 P21,500 P60,000
Amounts allowed for salaries, 20x6 9,000 7,200 16,200
P47,500 P28,700 P76,200
Balance of profit for 20x6 distributed
equally 900 900 1,800
Capitals, December 31, 20x6 P48,400 P29,600 P78,000
Changes in capitals as a result of correction
in profit for 20x6 (See Note 1) (2,900) (2,500) (5,400)
P45,500 P27,100 P72,600
Investment by Z, April 1, 20x7 P48,000 48,000
P45,500 P27,100 P48,000 P120,600
Distribution of profit of P36,000 for 20x7:
Profit from January 1 to April 1, P 9,000
divided according to agreement before
Z’S
admission (See Note 2) 4,725 4,275 9,000
Distribution of remaining profit, P27,000,
equally 9,000 9,000 9,000 27,000
Capitals, December 31, 20x7 P59,225 P40,375 P57,000 P156,600

Note 1: The corrected profit for 20x6 is P12,600 (P18,000 less P5,400 fire loss).
Corrected profit distribution for 20x6 is: X, 5/9 x P12,600, or P7,000; Y, 4/9 x P12,600 or
P5,600. Loss on settlement with fire insurance company would require charges to capital
accounts
as follows:

X: P9,900 - P7,000 = P2,900.

Y: P8,100 - P5,600 = P2,500

Note 2: Profit from January 1 to April 1 would be estimated at ¼ of P 36,000 or P9,000, which is
divided
as follows:

X Y Total
Allowance for salaries P2,250 P1,800 P4,050
Balance divided equally 2,475 2,475 4,950
P4,725 P4,275 P9,000

31
 PROBLEM 2-9

(1)

December 31

Profit and Loss 16,875.00

D, Capital 6,750.00
E, Capital 5,062.50
F, Capital 2,531.25
G, Capital 2,531.25

31
G, Capital 25,031.25
Payable to Estate of G 25,031.25

31
Profit and Loss 5,625.00
Payable to Estate of G 187.73
D, Capital 2,558.71
E, Capital 1,919.04
F, Capital 959.52

Profit, November 16 - December 31, P5,625 (1/4 of P22,500) divided as follows:

Interest on balance owed estate of G, 6% on P 25,031.25
for
45 Days P187.73
Balance after interest: to D, 40/85 x P5,437.27 2,558.71
to E, 30/85 x P5,437.27 1,919.04
to F, 15/85 x P5,437.27 959.52
P5,625.00

31
F, Capital 27,490.77
Note Payable to F 21,992.62
D, Capital 3,141.80
E, Capital 2,356.35
Note payable to F: 80% of P27,490.77 or P21,992.62
Bonus to remaining partners distributed as follows:
To D, 40/70 x P5,498.15 or P3,141.80.
To E, 30/70 x P5,498.15 or P,2356.35.
(2)
D and E
Balance Sheet
December 31, 20__

Assets Liabilities and Capital

Cash P 7,500.00 Notes Payable P 15,000.00
Accounts receivable 70,000.00 Notes Payable to F 21,992.62
Inventories 95,000.00 Accounts payable 70,500.00
Machinery and equipment 45,000.00 Payable to G’s estate 25,218.98
Store, furniture and D, Capital 54,450.51
fixtures 16,500.00 E, Capital 46,837.89
Total assets P 234,000.00 Total liabilities & P 234,000.00

32
 capital

PROBLEM 2 -10

(1)

FOUR PARTNERS’ DISCOUNT STORES

Work Sheet to Adjust and Combine
The Partnerships’ Accounts
June 30, 20x7

A&B C&D Four Partners’

Trial Balance Trial Balance Adjusting and Discount Stores
June 30,20x7 June 30, 20x7 Combining Entries Beginning Balances
Cash 20,000 15,000 35,000
Accounts Receivable 100,000 150,000 250,000
Allowance for doubtful accts. 2,000 6,000 (a) 500 7,500
Merchandise Inventory 175,000 119,000 (b) 21,000 315,000
Land 25,000 35,000 60,000
Buildings and Equipment 80,000 125,000 205,000
Allowance for depreciation 24,000 61,000 (c) 15,040 100,04
0
Prepaid Expenses 5,000 7,000 12,000
Goodwill (f) 5,540 5,540
Accounts Payable 40,000 60,000 (d) 4,000 104,00
0
Notes Payable 70,000 75,000 145,00
0
Accrued Expenses 30,000 45,000 (e) 1,000 76,000
A, Capital 95,000 (a) 400 (f) 816 90,000
(c) 6,016 (g) 600
144,000 (a) 600 (f) 1,224 135,00
0
B, Capital (c) 9,024
(g) 600
65,000 (d) 1,200 (a) 450 67,500
C, Capital (e) 300 (b) 6,300
(g) 3,800 (f) 1,050
139,000 (d) 2,800 (a) 1,050 157,50
0
D, Capital (e) 700 (b) 14,700
(f) 2,450
(g) 3,800
405,000 405,000 451,000 451,000 52,480 52,480 882,540 882,54
0

PROBLEM 2-10

Adjustments:
a) To raise allowance for doubtful accounts on the books of A & B by P1,000 [ (3% of
P100,000) - P2,000], and to reduce allowance on books of C & D by P1,500 [ (P6,000 - (3%
of P150,000)].
b) To raise inventory of C & D by P21,000 [ (P119,000/ .85) - 119,000].
c) To raise allowance for depreciation on the books of A & B by P15,040 [ (20% of P80,000/
20% of P64,000/ 20% of P51,200) - 24,000].
d) To record liability arising from an unrecorded merchandise purchase on books of C & D,
P4,000.
e) To establish accrual for vacation pay on books of C & D, P1,000.

33
 f) To establish goodwill per schedule to A and B, P2,040, divided 40:60; to C and D, P3,500,
divided 30:70
g) To establish new capitals as follows: A, 20% of P450,000, or P90,000; B, 30% of
P450,000, or P135,000; C, 15% of P450,000, or P67,500; D, 35% of P450,000, or
P157,500.

Schedule to Calculate Goodwill

A&B C&D Total
Capital balances before adjustment P239,000 P204,000 P443,000
Adjustment increase (decrease) (16,040) 17,500 1,460
P222,960 P221,500 P444,460
Goodwill to raise A & B interests to P225,000 2,040 2,040
Goodwill to raise C & D to 50% interest, or
amount equal to A & B 3,500 3,500
Capital balances as adjusted P225,000 P225,000 P450,000

(2)
Schedule to Calculate Capital Adjustments
and Cash Settlement Between Parties

A B C D
Capital balances after recognition
of goodwill P89,400 P135,600 P71,300 P153,700
Required capital transfer - B to A,
requiring P 600 payment to B 600 (600)
Required capital transfer - C to D,
requiring P 3,800 payment to C (3,800) 3,800
Capital balances in new
partnership
in rates of 20:30:15:35 P90,000 P135,000 P67,500 P157,500

PROBLEM 2-11

(1)

LINSAO, MINA, and JARQUE

Worksheet Summarizing Account Adjustments and Admission of New Partner
January 1, 20x8

Balance Sheet Adjustments Balance Sheet

December 31, 20x7 and Transactions January 1, 20x8
Dr. Cr. Dr. Cr. Dr. Cr.
Cash 7,000 (c) 30,000.00 37,000
Accounts Receivable 42,500 42,500
Allowance for Doubtful Accounts (a) 4,500.00 4,500
Notes Receivable 6,000 6,000
Accrued Income (a) 475.00 475
Merchandise 64,000 (a) 860.00 63,140
Prepaid Expenses (a) 872.00 872
Store Fixtures 12,400 12,400
Allowance for Depreciation of Fixtures 5,300 5,300
Goodwill (b) 9,973.00 9,973
Accounts Payable 43,200 43,200
Notes Payable 25,000 25,000

34
Accrued Expenses (a) 4,360.00 4,360
Linsao, Capital 22,000 (a) 4,186.50 (b) 4,986.50 22,800
Mina, Capital 36,400 (a) 4,186.50 (b) 4,986.50 37,200
Jarque, Capital (c) 30,000.00 30,000
131,900 131,900 49,693 49,693 172,360 172,360

Legend to worksheet adjustments and transactions:

a) To record asset and liability charges, capitals of Linsao and Mina being charged equally for loss of
P8,373 on asset restatement.
b) To record partnership goodwill, capitals of Linsao and Mina being credited equally for gain.
Goodwill established at amount required to raise capitals to total of P60,000 as determined by
capitalization of average profit at 10 %. (Note: if in entry (a) a liability balance of P4,000 is
recognized representing unpaid salaries of P4,000 to partners for prior years and capitals are charged
for P 12,373, then goodwill of P13,973 would be recognized in raising capitals to P60,000.)
c) To record investment by Jarque.

Schedule of corrected Profit and Determination of Investment by Jarque

20x6 20x7
Profit per books P8,585 P10,497
Add:
Prepaid expense, 12/31 P1,226 872
Accrued income, 12/31 250 475
Accrued expense, 1/1 3,201 2,472
Bad debts of prior years charged 3,100 7,777 2,280 6,099
off
P16,362 P16,596
Deduct:
Prepaid expense, 1/1 P1,010 P1,,226
Accrued income, 1/1 250
Accrued expense, 12/31 2,472 4,360
Bad debts charged off in later years 2,280
Underpayment of partners’ salaries 2,000 2,000
Provision for bad debts 600 3,900
Provision for obsolete merchandise 860
Total deductions 8,362 12,596
Corrected profits for 20x6 and 20x7 P8,000 P4,000
Average profit for 20x6 and 20x7 = (P8,000 + 4,000) / 2, or P6,000.
Aggregate partners’ capitals as redetermined by capitalizing average profit at 10% = P6,000/.10, or
P60,000
Amount of capital to be contributed by Jarque: 1/2 x P60,000, or P30,000.

(2)

LINSAO, MINA, and JARQUE

Balance Sheet
January 1, 20x8

Assets
Current assets:
Cash P37,000
Accounts receivable P42,500
Less allowance for bad debts 4,500 38,000
Notes receivable 6,000
Accrued income 475
Merchandise inventory 63,140
Prepaid expenses 872 P145,487
Fixed assets:
Store fixtures 12,400
Less allowance for depreciation 5,300 7,100
Goodwill 9,973
Total assets P162,560

35
 Liabilities and Capital
Current liabilities: P43,200
Accounts payable 25,000
Notes payable 4,360 P72,560
Accrued expense

Capital:
Linsao, capital P22,800
Mina, capital 37,200
Jarque, capital 30,000 90,000
Total liabilities and capital P162,560

PROBLEM 2-12

(1)

Schedule summarizing cash payment made by Castro to Alto and Baile:

Total capital - Store #3 on January 1, 20x7 P60,000

Add increase in value of furniture and fixtures per agreement of
sale
(P 18,000 - P12,000) 6,000
Adjusted capital of Store #3 on January 1, 20x7 P66,000

One-third interest in Store # 3 on January 1, 20x7 P22,000

Cash to be paid to Castro

To Alto P11,000
To Baile 11,000 P22,000

(2)

A B C CO.
Income Statement
For the Year ended December 31, 20x7
Sales P620,000
Cost of goods sold:
Merchandise inventory January 1, 20x7 P63,000
Purchases 493,000
Merchandise available for sale 556,000
Deduct merchandise inventory December 31, 20x7 60,000
Cost of goods sold 496,000
Gross profit on sales P124,000
Operating expenses:
Salaries and wages (not including partner’s salary) * P68,000
General expenses (P3,900 + P25,400 - P3,000) 26,300
Depreciation (20% of P18,000 + 5% of P3,000) 3,750 98,050
Net income P25,950
The partnership net income is divided as follows:
Alto: 33-1/3% of P16,950 (net income, P25,950, less salary
to
to Castro, P9,000) P5,650
Baile: 33-1/3% of P16,950 5,650
Castro: Salary 9,000
33-1/3% of P16,950 5,650 14,650
Total P25,950
* It would be possible to treat partner’s salary as an expense with the net income being summarized as
P16,950.

36
 PROBLEM 2-13

(Working papers are not required but facilitate the preparation of financial statements.)

THE WESTERN COMPANY

Working Papers for Preparation of Financial Statements
October 31, 20x7

Balances Adjustments Profit and Loss Balance Sheet

October 31, 20x7 October 31, 20x7 1/1/x7 11/31/x7 October 31, 20x7
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

Cash 55,000 55,000

Inventory account 195,000 (1) 195,000
Fixed assets 59,000 59,000
Accruals 16,000 16,000
Notes Payable 60,000 60,000
Partners’ equities:
A 10,500 10,500
B 52,500 52,500
C 77,000 77,000
D 7,000 7,000
E 21,000 21,000
Sales 2,000,000 (2) 1,000 (2) 3,300 2,002,300
Purchases 1,725,000 (2) 500 (2) 5,000 1,720,500
Operating expenses 210,000 (2) 4,000 214,000
2,244,000 2,244,000
Accounts receivable (1) 80,000 83,300
(2) 3,300
Merchandise inventory 1/1/x7 (1) 200,000 (3) 200,000
Merchandise inv. 10/31/x7 (2) 221,000 221,000
Freight claims receivable (1) 2,000 (2) 500 1,500
Prepaid operating expenses (1) 10,000 (2) 4,000 6,000
Accounts payable (2) 5,000 (1) 90,000 85,000
(1) 7,000
Allowance due customers (2) 1,000 8,000
(3) 200,000 (2) 221,000 200,000 221,000
Profit and Loss 726,800 726,800 2,134,500 2,223,300
88,800
Net income for 10 mos. period
Distributed: To A 6.25 % 5,550
B 31.25% 27,750
C 37.50% 33,300
D 12.50% 11,100
E 12.50% 11,100
2,223,300 2,223,300 425,800 425,800

Legend:
1) To eliminate inventory account and set up individual accounts comprising the balance as of Jan. 1,
20x7.
2) To set up ending inventory and to adjust payables and receivables to agree with balance as of
October 31, 20x7.
3) To close beginning inventory to profit and loss.

37
 (1)

THE WESTERN COMPANY

Income Statement
For Ten Months Ended October 31, 20x7

Net Sales P 2,002,300

Cost of Sales
Merchandise inventory, Jan. 1, 20x7 P 200,000
Purchases Goods available for sale 1,720,500
Less Merchandise inventory, October 31, 20x7 P 1,920,500
Cost of Sales 221,000
Gross profit on sales 1,699,500
Operating expenses P 302,800
Net income for ten-month period 214,000
The net income is distributed as follows: P 88,800
A - 6.25% P5,550
B - 31.25% 27,750
C - 37.50% 33,300
D - 12.50% 11,100
E - 12.50% 11,100
100.00% P88,800

(2)

THE WESTERN COMPANY

Statement of Financial Position
October 31, 20x7
Assets
Current Assets:
Cash P 55,000
Accounts receivable 83,300
Freight claims receivable 1,500
Merchandise inventory 221,000
Prepaid operating expenses 6,000 P 366,800
Fixed assets (net) 59,000
Total assets P 425,800

Liabilities and Capital

Current Liabilities
Notes payable 60,000
Accounts payable 85,000
Allowance due customers 8,000
Accruals 16,000 169,000
Capital balances
A 16,050
B 80,250
C 110,300

38
 D 18,100
E 32,100 256,800
Total liabilities and capital P425,800

(3)
Entry to transfer E’s equity to A,C, and F:
E, Capital 32,100
A, Capital 10,700
C, Capital 10,700
F, Capital 10,700

THE WESTERN COMPANY

Statement of Partners’ Equities
November 1, 20x7
Capital balances:
A P 26,750
B 80,250
C 121,000
D 18,100
F 10,700
Total capitals P 256,800

PROBLEM 2 - 14

EAST BAY
Work Sheet Summarizing
April 1,

Trial Balance Adjustments

March 31, 20x7 March 31, 20x7
Dr. Cr. Dr. Cr.
1 Cash 630
2 Petty Cash 100
3 Prepaid Insurance 1,360 (d 360
)
4 Land 32,500
5 Building 75,000
6 Allowance for Depreciation-Building 15,000
7 Furniture and Fixtures 30,000
8 Allowance for Depreciation-
Furniture
and Fixture 10,800
9 Mortgage Payable- ABC Life
Insurance Co. 53,000
10 Caton, Capital 28,265
11
12
13 Josue, Capital 28,265
14

39
15
16
17
18 Room Income 17,249
19 Wages 3,545 (a) 370
20 Advertising and Supplies 2,755
21 Repairs and Utilities 2,234
22 Office Ezpense 114
23 Taxes 166 (b) 300
24 Depreciation 3,770
25 Interest 405 (c ) 500
26 152,579 152,579
27 Supplies on Hand (a) 370
28 Accrued Taxes (b 300
)
29 Accrued Interest on Mortgage (c) 500
30 Insurance (d) 360
31 1,530 1,530
32 Net Income transferred to capitals in
equal amounts
33
34 First Mortgage-Second National
Bank
35 Financing Costs of New Enterprise
36 Goodwill
37 Second Mortgage - Josue
38

MOTEL
Dissolution of Partnership
20x7
Income Statement Balance Sheet Adjustments for Opening Balances
Jan.1-Mar.1, 20x7 March 31, 20x7 Dissolution Caton’s Books
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
630 (1 630 1
)
100 100 2
1,000 1,000 3
32,500 (4) 13,000 45,500 4
75,000 (4) 3,000 78,000 5
6
15,000 (4) 15,000
30,000 (4 11,800 18,200 7
)
8
10,800 (4) 10,800
9
53,000 (3) 53,000
28,265 (1) 315 (2 235 44,095 10
)
1,735 (3) 1,325 (3 500 11
)
(4 15,000 12
)
28,265 (1) 315 (4 15,000 13
)
1,735 (2) 235 14
(3) 1,325 15
(3) 27,725 16

40
 (5) 15,400 17
17,249 18
3,545 19
2,385 20
2,234 21
114 22
466 23
3,770 24
905 25
26
370 370 27
300 300 28
500 (3) 500 29
360 30
13,779 17,249 31
3,470 32
17,249 17,249 139,600 139,600 33
(3 84,000 84,000 34
)
(3) 625 625 35
(5) 14,600 14,600 36
(5 30,000 30,000 37
)
157,165 157,165 158,395 158,395 38

Adjustments:
a) To record supplies balance, P370, as indicated by subsequent settlement.
b) To record accrued taxes, P300, as indicated by subsequent settlement.
c) To record accrued interest on mortgage, P500, as indicated by subsequent settlement.
d) To record expired insurance, P360, as indicated by subsequent settlement.

Dissolution:
1) To record withdrawal of cash in equal amounts by partners, P630.
2) To record payment to Josue by Caton, P235.
3) To record cash contribution by Caton, P500, and loan from Second National Bank, P84,000,
in settlement of mortgage and interest, P53,000 and P500, payment of penalty on settlement
of mortgage, P2,650, charged equally to partners, payment to Josue of amount due, P27,725,
and financing cost relating to new enterprise, P625.
4) To record appraisal values for properties at P30,000 in excess of book values, appraisal
increase being divided equally between partners.
5) To record issue of second-mortgage to Josue to P30,000 in settlement of P15,400 interest
after adjustment, indicating payment for goodwill of P14,600.

PROBLEM 2-15

GOMEZ, BURGOS AND ZAMORA

Statement of Changes in Partners’ Capital Accounts
January 1 to June 30, 20x0

Gomez Burgos Zamora Total

(1) Capital balances, January 1,20x0 P19,000 P19,000 P19,000 P57,000
(2) Adjustment- Net book value of fixed assets 12,740 12,740 12,740 38,220
(3) Excess of receipts over disbursements and
depreciation 101,556 101,556 101,556 304,668
Total P133,296 P133,296 P133,296 P399,888
Less- withdrawals 54,000 60,000 72,000 186,000
Capital balances before liquidation P79,296 P73,296 P61,296 P213,888
Distribution of fixed assets (net)
Automobiles (7,200) (4,200) (12,600) (24,000)

41
 Books (4,050) (4,050)
Office Furniture and Fixtures (1,950) (1,950) (1,950) (5,850)
Capital balances before final cash P66,096 P67,146 P46,746 P179,888
distribution
Final cash distribution (66,096) (67,146) (46,746) (179,888)

(1)
Cash balance, June 30, 20x0 P179,988
Add: - Disbursement January 1 to June 30 237,012
Total P417,000
Less- Cash receipts January 1 to June 30 360,000
Cash balance, January 1, 20x0 P57,000

P 57,000 / 3= P 19,000 = Capital balance, Jan.1 for each partner.

(2)
Total fixed assets P50,400
Less - Allowance for depreciation 12,180
Net book value of fixed assets, January 1, 20x0 P38,220

P38,220 / 3 = P12,740 = adjustment to capital balances.

(3)
Total cash receipts Jan.1 to June 30 P360,000
Less: Expenses
Expenses paid P51,012
Depreciation:
Office furniture 9,000 / 10 = 900 / 2 450
Automobiles 36,000 / 5 = 7,200 /2 3,600
Books, 5,400 /10 = 540/2 270 55,332
Net income P304,668

PROBLEM 2-16

A memorandum entry is made on the common stock account showing authorized capital stock of
P 500,000, on Oct. 31, 20x7

Cash 55,000
Accounts receivable 83,300
Freight Claims Receivable 1,500
Merchandise Inventory 221,000
Prepaid Operating Expenses 6,000
Fixed Assets (net) 59,000
Notes Payable 60,000
Accounts Payable 85,000
Allowance Due Customers 8,000
Accruals 16,000
Common Stocks 256,800
To record receipt of assets & liabilities distributed among partners in payment of stock
subscription of each partner:

42
 A 26,750
B 80,250
C 121,000
D 18,100
E 10,700
TOTAL p 256,800

43