PDFD - Work Advanced Accounting Dayag Solution Manual PDF Goodwill Accounting Debits and Credits

(2
(2)) If Boo
Bookk (or bonus)
bonus) method is used
used,, the cap
c ap ital ba lanc
lances
es would
would be:
be :
Ad a ms
ms.........
...................
...................
...................
...................
...................
................…………
......…………………
…………P
…P 60 60,00
,0000
Brown..............................................................…………………….. 40,000
C a ll: (P60,000 + P40,000)
P40,000) x 30%………… …… ………… ………… …………
…………
……….
…. ..__
..__ 30,000
30,000
Total
Total c ap ital after ad mis mission…………………………………….
on……………………………………... .P .P1
130,0
30,00
00
For purposes of c ompari

omp aring
ng bonus
bo nus and good
go od will,
will, tthere
here ar
a re two alternativ
alternatives
es pres
presented
ented::
Alternative 1: If go od will is found to exis

exist:
Ada
Ad a ms Brown
ow n C all
G o o d will M ethod
etho d is us
use
e d ……………
…… …………… …….. P72,00
P72,0000 P48,00
P48,0000 P36,00
P36,0000
BV/B
BV/ Bo nus M etho d is usused
ed ……………
…… …………… …… P60,00
P60,0000 P40,00
P40,0000 P30,00
P30,0000
Ad d : G o od will *……......................
*……................................
.............
... 8,400
8,400 5,600
5,600 6,000
6,000
P68,400 P45,600 P36,000
(G
(Gaa in) loss
loss – BV/ b onus metho
methodd ………….
………… . P 3,60
3,6000 P 2,
2,40
4000 P 0
Ad a ms: 70% x 6/10

6/ 10 = 42%
Brown:
Brow n: 70% x 4/10
4/ 10 = 28%
C a ll 3
30%
0%
Alternative 2: If good
go od will is not rea liz
lized a nd written-off
written-off a s a loss
loss:
Ada
Ad a ms Brown
ow n C all
etho d is us
usee d ……………
…… ……………. ……. P 72,00
72,0000 P48,00
P48,0000 P36,00
P36,0000
Less
Less: Write-o
Write-o ff o f g o o d will *………………
*………… …….. 8,400
8,400 5,600
5,600 6,000
6,000
P63,600 P42,400 P30,000
BV/B
BV/ Bo nus M etho d is us used
ed ……………
…… …………… …… P60,00
P60,000 0 P40,00
P40,0000 P30,00
P30,0000
(Ga
(G a in) loss – b o nus metho
meth o d ……………
…… …………. …. P 3,600
3,600 P 2,400
2,400 P 0
Note: The
The bonus mmethod
ethod ad her
heres
es to the his
histori
toric al c ost
ost c onc ept and it iis
s oft
often
en us
used
ed in ac c ount
ountiing p rac ti
tic
c e. It is
objective that is establishes total capital of the new partnership at an amount based on actual consideration
received from the new partner. The bonus method indirectly acknowledges the existence of goodwill by giving a
bonus to either old or new partners.
T
The
he good will
will met
method
hod res
resul
ults
ts in the
the rrec
ec ognition
ognition of an ass
asset impl
implied
ied by a tr
trans
ansac
ac ti
tion
on rrather
ather th
than
an rrec
ec ogniz
ognizin
ing
g an as
ass
set
actually purchased. Historically, goodwill has been recognized only when purchased so that a more objective
measure of its value is established. Therefore, opponents of the goodwill method contend that goodwill is not
determined objectively and other factors may have influenced the amount of investment required from the new
partners.
Although either method

method c a n be used
used in ac hieving
hieving the requir
required
ed int
interes
erestt for th
the
e new p artn
artner,
er, the
the two memethods
thods offer
the same ultimate results only:
1. When the inco ming pa rt rtner’s
ner’s pe
perrc entage
enta ge share of profit a nd los loss
s a nd pe
perrc enta
entage
ge interest
interest in a ssets upon
upo n
ad mi
misssion ar
a re e qua
qual,
l, and
2. When the former pa rtners c ontinue to sh sha
a re p
prrofits a nd los
loss
ses betwe
between en themselves in the
the o
orriginal rra
a ti
tio.
o.
If these
these c ond it
itions
ions are no
nott full
fully
y met, ho
howe
wever,
ver, rresul
esults
ts will be different.
48.
48. d – refer to No. 47 for Note.
Note .
(1
(1)) Goo
G oodw
dwil
illl m
method
ethod:: Us
Using
ing the c a pital balanc
ba lance
e of
o f new partner
p artner as a ba
b a sis of c omputi
omp uting
ng tota l
agr
ag reed c ap ital,:
tal,:
Total
Total agr
ag reed c ap ital (P5
(P5,0
,00
00/ 25%)…………………………………….
)……………………………………. P20,
P20,00
000
0
Less
Less: To tal
ta l c o ntrib
ntrib uted c a p ital (P6,000/P
(P6,000/P4,8
4,800
00+
+P5,000
P5,000)……
)…………
………
… 15,80
15,800
0
G oo
oodw
dwililll to o
old
ld p
paa rtner
tners
s…………………………………………
…………………… ……………………………. ………. P 4,20
4,200

Ther
Therefor
efore,
e, tthe
he ca pital
pital ba lanc es after the ad mis
mission of O O :
M M : [P6,00
[P6,000+
0+(P4,2
(P4,200
00xx3/
3/5)]………
5)]…………………………………………………… ………………………………
……….. P 8,520
8,520
NN: [P4,800+
[P4,800+(P4,20
(P4,200x0x2/
2/5)]………
5)]……………………………………………………………… ………………………..
…….. 6,480
6,480
OO………………………………………………………………………………. 5,000
Total
Total agr
ag reed c ap ital
tal……………………………………………
………………………………………………………… …………… P20
P20,0
,00
00
(2
(2)) If Total
bonus
T method
otal agr
ag is used
reed c ap us ed,
ital , the
(P6
(P6,0 0c
,00ca
0a+pital
P4
P4,8 0ba
,80 lanc
lances
0+P5
P5,00es
,00 0)wo
woul
uld
d be:
be :
0)…………………………..
………………………….... ....
....
....
.. P 15
15,8
,80
00
M ult
ultipli
iplied
ed b y: O O ’s c a pital
pita l int
interes
erest………………
t……………………… ……………………………………
………... .....
.. 25%
25%
Agreed capc ap ital to be cr credited
edited to to OO ………………………………………...
………………………………………... P 3,9 ,95
50
C ontributed/
ontributed/ Inv
Inves
ested
ted c a pital of O O ……………………………………
……………… …………………….. ....
.....
......
... 5,
5,0
000
Bonus to MM a and
nd NN (old pa rtner)…………………………
tner)……………… …………………… ……………....
…........
...... P 1,
1,05
050
0
The
The bonus would be add ed to MM and
a nd NN:
NN:
M M : [P60,
[P60,00
000+
0+(1,0
(1,050
50,00
,000x
0x3/
3/5)]………
5)]………………
………………
………………
……………
……………
……….. P 6.630
6.630
NN: [P4,800+
[P4,800+(P1,05
(P1,050x0x2/
2/5)]………
5)]…………… …………
……………
………………
………………
………………
………..
.. 5,220
5,220
OO……………………………………………………………………………… 3,950
Total
Total agr
ag reed c ap ital
tal……………………………………………
……………………………………………………….. ………….. P 15,
15,8
800

omp aringng bonus
bo nus and good
go od will,
will, tthere
here ar
a re two alternativ
alternatives
es pres
presented
ented::
Alternative 1: If go od will is found to exis
exist:
MM NN OO
G o od will M ethod
etho d is used
used …………
…………………. ………. P8,52
P8,520
0 P6,480
P6,480 P5,000
P5,000
Bonus M etho
eth o d is us
used
ed ……………
…… ……………… ………...
... P6,63
P6,630
0 P5,220
P5,220 P3,950
P3,950
Ad
Addd : G o od will (alloc a ted eq
equa
uall
lly)……..
y)…….. 1,40
1,400
0 1,
1,40
400
0 1,
1,40
400
0
P8,030 P6,620 P5,350
(G
(Gaa in) loss
loss – bo nus method…
metho d…………
…………….
……. P 490
490 P (140)
(140) P 350
350 (d)
loss:
MM NN OO
G o od will M ethod
etho d is used
used …………
………………….
………. P8,52
P8,520
0 P6,480
P6,480 P5,000
P5,000
Less
Les s: Write-off
Write-off o f goo
g oo dwil
dw illl
(alloc a ted eq ua
uall
lly)……………
y)………………….
……. 1,40
1,400
0 1,
1,40
400
0 1,
1,40
400
0
P7,120 P5,080 P3,600
Bonus M etho
eth o d is us
used
ed ……………
…… ………………
………...
... P6,63
P6,630
0 P5,220
P5,220 P3,950
P3,950
(G
(Gaa in) loss
loss – bo nus method…
metho d…………
…………….
……. P 49
4900 P (140)
(140) P 350
350 (d)
49.
49. a – refer
efe r tto
o No
N o . 47
47 for Note.
Goodwill method: Using the capital balance of new partner as a basis of computing total agreed
capital.
Total
Total agr
(P500,0
0,000/ 25%)……………………………………. P2 P2,0
,000
00,0
,00
00
Less:: To ta
Less tall c o ntribute
ntribute d c a p ital
ita l (P600,000/
(P600,000/P480,00
P480,000+
0+P500,0
P500,000)……
00)…….... 1,580,00
1,580,000
0
G oo dwil
dw illl to old pa rtners
tners………
………………… ………………………………………… ……………………
…………...... P 420,0
420,000
00
Ther
Therefore,
efore, the c ap ital ba lanc es after the ad mis
mission of C C :
A A::[P480,000+
BB:
BB [P600,00
[P600,000+
[P480,00 0+
0+ (P420
(P420,00
,000x
(P420,0000x3/
(P420,000x2 3/5)]………
x2/ 5)]………………
/ 5)]………
5)]… ………………
…………
…………………………
………… ………………
………… ……………
…………
………… ……. P 648,000
…………
……. 852
852,00
648,000
0 (d)
,000 (d )
CC……………………………………………………………………………… 500,000
CC……………………………………………………………………………… 500,000
Total
Total agreed
agreed c api
ap ital…………………………………………………
tal…………………………………………………………..
……….. P 2,0
2,000
00,0
,00
00
Bonus Method :
Total
Total agr
(P600,0 0,000+P48
P480,0
0,000+P50
P500,00
,000)……………….
)………………...
.. P 1,5
1,58
80,
0,0
000
M ult
ultiply
iply b y: C C ’s c a p ita
ita l int
interes
erest……………
t…………………… …………………
……………………
………… 25%
25%
Ag
Agrree
eedd c a pital to be credited to C C …………………
…………………………………..
……………….. P 395,0
95,00
00
C ontributed/
ontributed/
Bonus aInv
Inves
ndested
to AA and Bted
BB c a pital
B (old of C)……………………
C …………………………………….
…………………
pa rtners)…………
tners ………………….
……………………
…………………
……….. P 500,
50
100,00
105,000
5,000
000
0
The
The bonus would
would be add
a dd ed to AA and BB
BB:
A A : [P600,00
[P600,000+
0+(1,0
(1,050,
50,00
000x
0x3/
3/5)]………
5)]……………
………… ……………
………………
……………
………….
……. P 66
663,0
3,000
00
BB:
BB: [P480,000+
[P480,000+(P105,000
(P105,000x2x2// 5)]………
5)]……………
…………
……………………
…………
…………
…………
………
… 522,000
522,000
CC………………………………………………………………………………. 395,000
Total
Total agr
ag reed c ap ital
tal………………………………………………
………………………………………………………… ………… P 1,5
,58
80,0
,00
00

omp aringng b onus and good
go od will,
will, ass
assume
ume that goo
g oodw
dwililll iis
s not realiz
realized a nd it should be
be
written-off as a loss:
AA BB CC
etho d is us
use
e d ……………
…… ……………. ……. P852,0
P852,000 00 P648,00
P648,0000 P500,00
P500,000 0
Ad
Add d : G o od will (alloc a ted eq ually)…….. 14
140,0,00
000
0 14
140,
0,00
000
0 140,
140,00
0000
P712,000 P508,000 P360,000
Bonus M etho
eth o d is us
used
ed ……………
…… ……………… ………...
... P663,00
P663,000 0 P522,0
P522,000
00 P395,00
P395,000 0
(Ga
(G a in) loss – b o nus metho
meth o d ……………
…… …………. …. P 49
49,00
,000
0 P (14,00
(14,000)
0) P 3535,00
,0000
50. b
Total
Total Roy Gil
C a p ital, b efore
efo re a d justmen
justment………
t……………… ………… … P309,00
P309,000 0 P94,8
P94,800
00 P214,2
P214,200
00
Less:: Net
Less Ne t a d justme
justment*……
nt*………… ………… ………… ………..….. 35,400
35,400 11,800
11,800 23,600
23,600
C a p ital, a fter a d justmen
justment………
t……………… ………….. ….. P273,60
P273,600 0 P83,
P83,00
000
0 P190,6
P190,600
00
Less: Portion covered by common stock,
p a r P10 (720 shaharere to ea c h p a rtner).. 14,400
14,400 7,200
7,200 7,200
7,200
Portion
Portion to be c overed by pr p referred
eferred stoc k,
p a r P100……
P100………… ………… ……………
……………… ………….....
…..... P259,20
P259,200 0 P75,
P75,80
800
0 P183,4
P183,400
00
Shares to be issued:
Preferr
Prefe rred
ed sto
tocc k………………
k……… ……………………….. 2,592
2,592 75
758
8 1,834
1,834
C ommon
ommo n stoc k……………
k………………………
………… 1,44
1,440
0 720
720 720
720
*FV, P40,000 + P68,000 + P180,600 – BV, P60,000 + 90,000 + P174,000.
51. d
Fair value
va lue o f the a ssets (P200,
(P200,00
000 0 + P24,00
P24,000)………
0)…………… …………………………………….. P224,
P224,00
000
0
Less
Les s: Tota l lia
lia b iliti
ilities…………
es………………… ……………… ……………………………… ……………… ……………… ………….
…. 40 40,00
,0000
Fa ir value o f Net As A ssets………
ets………………… …………………… …………………… ………………… ………………
……… P184,
P184,00
0000
Less
Les s: C o mmon
mmo n stoc to c k a t P1 p a r (10,00
(10,000
0 sha
hares
res x 2 x 1 p a r)……………
r)………… … 20
20,00
,000
0
Additi
Ad ditiona
ona l pa id-i
id-in n c a pital…………………………………………………
pital……………………………………… ………… P1 P164
64,0
,000
00

52. b
Unad justed
justed c a p ital ba lanc es (P140
(P140,00
,000
0 + P120,00
P120,000)………
0)……………
…………
………
… P260,00
P260,0000
Add
Ad d (ded uct):
uc t): ad justments:
All
Allow
owanc
anc es for do ubtful a c c ounts…………………
ounts……………………………… …………… (1 (100
00000)
Revaluatio
Reva luation n of inventory
invento ry (P160,00
(P160,0000 - P140,00
P140,000)………
0)………………
………...
... 20,00
20,000
0
Additi
Ad ditiona
ona l deprec
de preciati
iation…………
on…………………………………
…………………………………. …………. (3 (3,0
,00
00)
Adjusted capital balances equivalent to the total shares issued……P267,000

53.
53. c
Unadjusted assets (P10,500 + P15,900 + P42,000 + P60,000)……………. P128,400
Add
Ad d (ded uct):
uc t): ad jus
justments:
All
Allow
owanc
anc es for d oub
oubtfu tfull a c c ounts…………………
ounts……………………………… …………… ( 1, 1,20
200)
0)
Sho
hort-term
rt-term p repa
rep a yments............
yments.....................
...................
....................
.....................
....................
...........
.. 80
800
0
Revaluatio
Reva luationn o f invento
inventory ry (P48,000
(P48,000 – P42,000P42,000)...………)...……………… ………... ... 6,000
6,000
Revaluatio
Reva luationn o f eq uipment
uipme nt (P72,000
(P72,000 – P60,000 P60,000)…… )…………… …………... …... 12,00
12,000
0
Ad justed
justed a sset b a lanc
lan c e...........................
e.....................................
....................
...................
..................
....................
............. P146,00
P146,000
0
54.
54. c
Ad justed
justed a sset b a lanc
lan c e...........................
e.....................................
....................
...................
..................
....................
............. P146,00
P146,0000
Less: Liab
Less: Liabili
ilities
ties (P16,400 + P750)..................................
P750)..................... ...............................
................................
.............. 17,150
17,150
Ad juste
justedd ne
nett a sse ts..............
ts..............................
...............................
..............................
...............................
.........................
......... P128,850
P128,850
Less
Less: C o mmon
mmo n stoc to c k, P5 p a r x 10 10,00
,000 0 shaharesres.........
...................
............………
..…………… ……... ... 50
50,00
,000
0
Additi
Ad ditiona
ona l pa id-i
id-in
n c a pital……………………………………………………
pital……………………………………… …………… P 78,8 78,850
50
Quiz-III
1. a
2. d
3. a
4. b
5. c
6. d
7. c
8. a
9. d
Problems
1. P19,000
2.
PP invests P17,000; no goodwill/revaluation recorded:
Investment in pa rtnership
rtnership P 17
17,00
,000
0
New p artner's
artner's propo rtiona
tiona te b
boo
ook
k value
value
[(P60,000
[(P 60,000 + P17,000) x 1/
1/5]
5] (15,400)
Differenc e (investmen
(investmentt > b oo k value)
va lue) P 1,600
1,600
Method: Bonus to prior/old partners

PP's c a p ital c redit
red it =P77,00
P77,000
0 x 1/5
1/ 5
= P15,400
3. M essa
essa lina
lina,, P21
P 216,0
6,000
00;; Romulus
Rom ulus,, P14
P 144,0
4,000
00 and
a nd C laud ius,
ius, P90
P 90,00
,0000
Total
Total c ap ital is P4
P4550,00
,000 (P210
(P210,0 ,00
00 + P
P1
140,0
0,000 + P10
P100,0,000
00)) after the
the new investm
nvestment.
ent. As C laudius'
audius's
po rtion is to b e 20 pe
perrc ent, the new
ne w c a pital ba
b a lanc e w
would
ould b e P90,00
P90,000
0 (P450
(P450,0
,000
00 × 20%
20%). Since
Since
P100,000 was paid, a bonus of P10,000 is being given to the two original partners based on their
p rofit and
a nd loss ratio: M essa
essa lina
lina – P6,000
P6,000 (60%
(60%) a nd Romulus – P4,000
P4,000 (40%
(40%). The
The increa
inc reas
se raise
raise s
M essa
essa lina
lina's
's c a p ita
ita l ba lanc e from
from P210,0
P210,000
00 to
to P21
P216,
6,00
000
0 an
andd Romulus's
omulus's c a p it
ita
a l ba lanc e fr
from
om P140,
P140,00
000
0
to P144,000.
P144,000.
4. P107,500 =[(P70,000
[(P 70,000 +P120,000 +P90,000 +P150,000)/ .80](.20)
5. P337,500
P337,500 = P250,000
P250,000 + (P
(P125,000
125,000 x .70)
6. P121,250 =[P120,000 - (P170,000 + P260,000 + P120,000)(.25)](.70)
P120,000)(.25)] (.70)
7. Ab ele,
ele , P300,000;
P300,000; Boule,
Boule , P480,000;
P480,000; Dann,
Da nn, P420,000
P420,000
8. Bro
Bro wn,
wn , P156,000;
P156,000; G ree
reen,
n, P99,000;
P99,000; Red,
Red , P45,000
P45,000
9. Shrek, P195,000;
P195,000; Fiona , P123,750
P123,750;; M uffin, P56,250
P56,250
10.
10. Tota l part
pa rtners
nership
hip net a
asssets c a n logic
logicaa lly
lly be revalued
reva lued to P1,08
P1,080,
0,00
000
0 on the ba
b a sis of the p rice pa id by
by
Ma ry Ann.
11. P180,000
12
12.. Net a ssets of the p a rtne
rtners
rship w
wil
illl inc
inc reas
rea se by
b y P190,0
P190,000
00,, including
inc luding Profes
Profe sso r’s interest.
interest.
13. P120,000
14. b
15. c - (P
(P150,000
150,000 +P200,000 +P120,000)(.20) =P94,000
16. P130,000
(P150,000
(P150,00 0 + P200,000
P200,000 + P120,000)(.20)
P120,000)(.20) = P94,000,
P94,000, g
goo od will to e xi
xis
sting p a rtners
P120,000
P120, 000 +P0 = .2(
.2(P150,
P150,000
000 +$200,000 +P120,000
P120,000 + g oo d will)
P120,000 = P94,000 + .2 goodwill
P26,000 = .2 goodwill
G o o d will =P130,000
P130,000
17. b
(P250,000 + P300,000 + P225,000)(.25) = P193,750
18. P125,000
(P250,000
(P250,00 0 + P300,000
P300,000 + P225,000)(.25)
P225,000)(.25) = P193,750,
P193,750, go
go o d will to e xi
xissting p a rtners
P225,000 + P0 = .25 (P250,000 + P300,000 + P225,000 + goodwill)
P225,000 = P193,750 + .25 goodwill
P31,250 = .25 goodwill
G o o d will =P125,000
P125,000
19. P145,000
C ra ig receives
rec eives an a d d itiona
itiona l P1
P10,
0,00
000.
0. Since C raig is a ssigned 20 pe rc ent of
of a
all
ll p rofits a nd loss
losses, this
this
allocation indicates total goodwill of P50,000.
20% of G o o d will =P10,000

P10,000
.20 G = P10,000
G = P10,000/
P10,000/.20
.20
G = P50,000
M onta na is a ssigned 30 30% % of a ll p rofits a nd loss losses and would,

wo uld, therefore, rec ord P15,0
P15,000
00 of this
g oo d will, a n entry tha
thatt rra
a ises
ises this p a rtne
rtner'
r's
s c a p ital ba lanc
lan c e from P130,0
P130,000
00 to P145,00
P145,000.
0.
20. a – [(P80,00
[(P80,0000 − P60,000) ÷ 3 + P6,667]
21.
21. Susa
usa n’s c ap ita
ita l a c c ount balanc e ca
c a nnot be deter
de termi
mined
ned from
from the infor
information
mation given
given
22. P445,
P445,000
000 =P80,000
P80,000 + P110,
P110,000
000 + P55,000 + P200,000
23. P24,000 = (P
(P250,000
250,000 - P210,000)(45/75)
P210,000)(45/ 75)
24. P136,000 =P160,000 - (P250,000 - 210,000)(45/75)
210,000)(45/ 75)
25. P172,
P172,500
500 =P150,000
P150,000 +(P (P75,000
75,000 x .3)
26. P257,
P257,250
250 =P135,000
P135,000 +(P (P75,000
75,000 x .25) +[P
[P150,000
150,000 + (P
(P75,000
75,000 x .30)](.
.30)] (.60)
60)
27
27.. Dona
Do nald,
ld, P55,000;
P55,000; To d d , P60,00
P60,000 0
Anne rec eives an a dd itional
itional P30,0
P30,00
00 above
ab ove her ca pital ba lance.
lanc e. Sin
Sinc
c e she
she is assigned
assigned 40 pe rc ent
of a llng
a mong
mo profits
profits
a ll pa
and loss
los
rtne rs..ses,
rtners 40%
40% thi
this
osf extra
extr
G
Go a awill
o od lloc
lloc=aP30,00
tion
tion,000
P30 indica
indic
0 a tes tota
tota l good
go od will of P75,0
P75,000
00,, which
whic h must
must b
bee split
Amo unt p a id P 80,0

80,000
00
Less:: Boo
Less Book k value
va lue o f Anne (40%) 50,000
50,000
Pa
Part
rtial
ial go
good od will/
will/ reva luation a d justment P 30
30,0
,000
00
C ap ita
ita liz
lized a t 40% G oo dwil
dw ill/revaluati
l/revaluation
on
P 75,000
G o o d will/a ssets 75
75,00
,000
0
Dona
Do na ld (20%) 15,000
15,000
Anne (40%) 30,000
30,000
Tod
Todd d (4
(40%
0%) 30,0
,00
00
Anne
nne (P
(P50,000
50,000 + P30,000) 80,000
C a sh 80
80,00
,000
0
Dona
Do na ld:
ld : P40,000 +P15,000 =P55,000
Tod
Todd:
d: PP
PP3 30,00
,000 + P3
P30
0,00
,000 = P60
P60,00
,000
28
28.. Dona
Do nald,
ld, P30,000
P30,000;; To d d , P10,00
P10,000
0
The
The P30,
P30,0000 bonus
bo nus is deduc
de duc ted frfrom
om the
the remaini
remainingng partner
partners s ac c ording
ording to
to their
their relative
elative profi
profitt and loss
loss
ratio. Don
D onaa ld = 20
20%
% a nd To d d = 4040%
% whic h is a 1/3,
1/ 3, 2/
2/ 3 s
sp
p li
lit.
t.
Anne 50,000
Dona
Do na ld (P30,000 x 2/6)
2/ 6) 10,000
10,000
Tod
Toddd (P3
(P300,00
,000 x 4/ 6) 20,0
,00
00
C a sh 80
80,00
,000
0
Ther
Therefor
efore:
e: Donald: P40
P40,00
,000 – P1
P10
0,000
,000 = P3
P30,
0,0
000; Tod
odd:
d: P
P3
30,0
,00
00 – P20
P20,0
,00
00 = P10
P10,0
,00
00
29. P40,000 - rre e fer

fe r to No.
No . 28 (P30,000 + P10,000 =P40,000)
30
30.. Prefer
Prefe r b o nus metho d due d ue to Z ZZ
Z’ s g a in of P35,00
P35,000
0
G oo
oodw
dwililll m
method
ethod:: Us
Using the capc ap ital
ital of new pa rtner as a basi
b asis
s for computi
co mputing
ng total
tota l agreed c ap it
ita
a l.
Total
Total agr
ag reed c ap ital (P5 (P50
00,00
,000 ÷25%
÷25%) P2
P2,0
,00
00,0
,00
00
Less:: To ta
ntribute d c a p ita
itall (P600,000
(P600,000 + P480,000
P480,000 + P500,000)
P500,000) 1,580,00
1,580,0000
G oo dwil
dw illl to old pa rtners P 420,
420,00
000
0
Ther
Therefor
efore,
e, tthe
he ca pital
pital ba lanc es after ad mis
mission of ZZ:
XX: [P600,000 + (P420,000 x 3/3/5)]
5)] P852,000
YY: [P48
[P480,0
0,000 + (P42
(P420,0
0,000 x 2/ 5)] 648,0
,00
00
ZZ: 500,000
Total
Total agr
ag reed c ap ital P2
P2,0
,00
00,0
,00
00
Bonus Method:
Metho d:
Total
Total agr
(P60 00,00
,000 + P48
P480,00
,000)(
0)( P50
P500,00
,000) P 1,
1,5
580,0
,00
00
M ultiplied
ultiplied b y; ZZ’s c a p ital interest 25
25%%
Ag
Agrree
eedd c a pital
pita l to b e c red
edited
ited to ZZ P 395,
395,00
000
0
C ontribute
ontributedd / inves
invested
ted c a pital
pita l of ZZ 500,
500,00
000
0
Bo nus to XX a nd YY (old
(o ld p a rtners
rtners)) P 10
105,0
5,000
00
The
The bonus would be add ed to XX XX and YY:
XX: [P600,000 + (P105,000 x 3/
3/5)]
5)] P 663,000
YY: [P48
[P480,0
0,000 + (P10
(P105,0
5,000 x 2/ 5)] 522,0
,00
00
ZZ 395,000
Total
Total agr
ag reed c ap ital P 1,
1,5
580,0
,00
00
For the pur

p urpo
po ses of c ompari
omp aring
ng b onus and good
go od will,
will, there
there a
arre two alternativ
alternatives
es pres
presented
ented::
Alternative 1: if goodwill is found to exist:
XX YY ZZ
ZZ
etho d is us
used
ed P 85
852,0
2,000
00 P 64
648,0
8,000
00 P 50
500,0
0,000
00
Bonus M e thod
tho d is us
use
ed P 663
663,000
,000 P 522,000
522,000 P 395,000
395,000
Ad d : G o od will (alloc a ted eq
equa
uall
lly)
y) 14
140,0,00
000
0 14
140,
0,00
000
0 14
140,
0,00
000
0
P803,000 P 662,000 P 535,000
(G a in) Loss – Bonus
Bonus metho
me thodd P 49,000
49,000 P (140,000)
(140,000) P 35,000
35,000
loss:
XX YY ZZ
ZZ
etho d is us
used
ed P 85
852,0
2,000
00 P 64
648,0
8,000
00 P 50
500,0
0,000
00
Less:: Write-o
Less Write-offff of g o od will (eq
(e q ua
ually)
lly) 140,000
140,000 140,000
140,000 140,000
140,000
P 712,000 P 508,000 P 360,000
Bonus M e thod
tho d is us
use
ed 663,000
663,000 522,000
522,000 395,000
395,000
(G a in) Loss – Bonus
Bonus metho
me thod
d P 49,000
49,000 P (140,000)
(140,000) P 35,000
35,000
Note: The
The bonus mmethod
ethod ad her
heres
es to the his
histori
toric al c ost
ost c onc ept and it iis
s oft
often
en us
used
ed in ac c ount
ountin
ing
g practice. It is
objective that is establishes total capital of the new partnership at an amount based on actual consideration
received from the new partner. The bonus method indirectly acknowledges the existence of goodwill by giving a
bonus to either old or new partners.
T
The
he good will
will met
method
hod res
resul
ults
ts in the
the rrec
ec ognition
ognition of an ass
asset impl
implied
ied by a tr
trans
ansac
ac ti
tion
on rrather
ather th
than
an rrec
ec ogniz
ognizin
ing
g an as ass
set
actually purchased. Historically, goodwill has been recognized only when purchased so that a more objective
mea sure of itits
s value is estab
establilis
shed
hed.. Therefor
herefo re, op po nents of the go od will metho
method d c onte
ontend
nd that
tha t goodw
goo dwil
illl is
is not
determined objectively and other factors may have influenced the amount of investment required from the new
partners.
Although either method
method c a n be used
used in ac hieving
hieving the requir
required
ed int
interes
erestt for th
the
e new p artn
artner,
er, the
the two me
methods
thods offer
the same ultimate results only:
1. When the inco ming pa rt rtner’s
ner’s per
pe rc enta
entage
ge sha
sha re of profit a nd los
loss
s a nd pe
perrc enta
entage
ge interest
interest in a ssets upon
upo n
ad mi
misssion ar
a re e qua
qual,
l, and
2. When the former pa rtners c ontinue to sh sha
a re profit
profits
s a nd loss
losses betwe
between en themselv
themselveses iin
n the original
original ra
ra ti
tio.
o.
If these
these c ond
onditi
itions
ons are no t full
fully
y met, howe
ho wever,
ver, rresul
esults
ts will be different.
31. Be indifferent for the goodwill (revaluation) or bonus methods are the same.
G oo
oodw
dwililll m
method
ethod:: Us
Using the capc ap ital
ital of new pa rtner as a basi
b asis
s for computi
co mputing
ng total
tota l agreed c ap it
ita
a l.
Total
Total agr
ag reed c ap ital (P5(P5000,00
,000 ÷25%
÷25%) P2
P2,0
,00
00,0
,00
00
Less:: To ta
ntribute d c a p ita
itall (P600,000
(P600,000 + P480,000
P480,000 + P500,000)
P500,000) 1,580,00
1,580,0000
G oo dwil
dw illl to old pa rtners P 420,
420,00
000
0
Ther
Therefor
efore,
e, tthe
he ca pital
pital ba lanc es after ad mis
mission of ZZ:
XX: [P600,000 + (P420,000 x 3/
3/5)]
5)] P852,000
YY: [P48
[P480,0
0,000 + (P42
(P420,0
0,000 x 2/ 5)] 648,0
,00
00
ZZ: 500,000
Total
Total agr
ag reed c ap ital P2
P2,0
,00
00,0
,00
00
Bonus Method:
Metho d:
Total
Total agr
(P60
00,00
,000 + P48
P480,00
,000)(
0)( P50
P500,00
,000) P 1,
1,5
580,0
,00
00
M ultiplied
ultiplied b y; ZZ’s c a p ital interest 25
25%%
Ag
Agrree
eed d c a pital
pita l to b e c red
edited
ited to ZZ P 395,
395,00
000
0
C ontribute
ontributed d / inves
invested
ted c a pital
pita l of ZZ 500,
500,00
000
0
Bo nus to XX a nd YY (old(o ld p a rtners
rtners)) P 10
105,0
5,000
00
The
The bonus would be add ed to XX XX and YY:
XX: [P600,000 + (P105,000 x 3/3/5)]
5)] P 663,000
YY: [P48
[P480,0
0,000 + (P10
(P105,0
5,000 x 2/ 5)] 522,0
,00
00
ZZ 395,000
Total
Total agr
ag reed c ap ital P 1,
1,5
580,0
,00
00
For the pur

p urpo
po ses of c ompari
omp aring
ng bonus
bo nus and good
go od will,
will, there
there a
arre two alternativ
alternatives
es pres
presented
ented::
Alternative 1: if goodwill is found to exist:
XX YY ZZ
ZZ
etho d is us
used
ed P 85
852,0
2,000
00 P 64
648,0
8,000
00 P 50
500,0
0,000
00
Bonus M e thod
tho d is us
use
ed P 663
663,000
,000 P 522,000
522,000 P 395,000
395,000
Ad d : G o od will* (45%
(45%:: 30%:25%
30%:25%) 189,000 126,000 105,000
P852,000 P 648,000 P 500,000
(G
(Gaa in) Los
Loss
s – Bonus metho
methodd P 0 P 0 P 0
*XX: 75% x 3/5

3/ 5 =45%; YY: 75% x 2/
2/55 =30%
loss:
XX YY ZZ
ZZ
etho d is us
used
ed P 85
852,0
2,000
00 P 64
648,0
8,000
00 P 50
500,0
0,000
00
Less:: Write-o
Less Write-off ff of g o o d will* 189
189,000
,000 126,000
126,000 105,000
105,000
P 633,000 P 522,000 P 395,000
Bonus M e thod
tho d is us
useed 663,000
663,000 522,000
522,000 395,000
395,000
(G
(Gaa in) Los
Loss s – Bonus metho
method d P 0 P 0 P 0
32. Be indifferent for the goodwill (revaluation) or bonus methods are the same.
*Good
*Go odwil
willl (r
(reva
evalu
luation)
ation) method :
Amo unt pa id P300,
P300,00
000
0
Less: Book value of interest – Neal (40%)) 250,000
Pa
Parrtial go od will
will// reva luation a djus
djustment
tment P 50
50,0
,000
00
C a pita
pitali
liz
zed a t 40
40%
%
Goodwill/revaluation P125,000
Nea l
Neal Palmer Ruppe
upp e
C a pital
pita l ba lanc es b efor
efo re withdrawa l 250,
250,00000
0 15
150,
0,00
000
0 10
100,
0,00
000
0
Alloc
Allo c a te go o d will* 50
50,00
,000
0 37
37,50
,500
0 37
37,50
,500
0
300,000 187,500 137,500
Withd
Withdrrawa
aw a l of Nea l (300,0
(300,000
00)) _______
___ ____ _______
___ ____
187,500 137,500
Writ
Write-o
e-off
ff Impa ired
ired G oo d will
will (12
(125,
5,00
000
0 × 0.50) __
____
____
____ (62,500)
(62,500) (62,500)
(62,500)
0 125,000 75,000
C a p ital b a lanc es using
using the b onus method
metho d ** 12
125,
5,00
000
0 75,0
75,000
00
33.
33. Prefe
Preferr bo nus method
metho d d ue to Pa lmer
lmer’s
’s ga in of P12,50
P12,500
0
Neall
Nea Palmer Ruppe
upp e
C a pital
pita
Alloc
Allo l ba o
c a tion lanc
f goes
o dbwill*
efor
efo re withdrawa l 250,
250,00
50 000
50,00
,0000
0 15
150,
0,00
37 000
37,50 0
,500
0 10
100,
0,00
37 000
37,50 0
,500
0
300,000 187,500 137,500
Withd
Withdrra wa l of Nea l (300,0
(300,000
00)) _______
___ ____ _______
___ ____
- 0- 187,500 137,500
Write-o
Write-off
ff Impair
Impaired
ed G oo
oodd will
will
125,000 × 0.60 (75,000)
125,000 × 0.40
0.40 ______
___ _____
__ ______
___ ____
_ (5
(50,
0,00
000)
0)
- 0- 112,500 87,500
C a pital
pita l ba lanc es using
using the bo nus method
metho d ** 125,
125,00
000
0 75,0
75,000
00
(Ga
(G a in) Loss – Bo nus metho d 0 12
12,50
,500
0 12
12,50
,500
0
**
**T
The ex
e xc ess
ess pa id to Nea l of P50,
P50,00
000
0 would ha
have
ve b
been
een divide
dividedd equa
e qua ll
lly
y between
betwe en Palm
Pa lmer
er and Ruppe
upp e a s
follows:
Palmer Ruppe
C a p ita
ita l ba lanc e b efo
eforre withdraw 150,
150,00000
0 10
100,
0,00
000
0
Alloc a tion of exc
excess
ess p a id to Nea l (2
(25,0
5,000
00)) (25,0
(25,000
00))
C a p ita
ita l ba lanc e using
using bo nus method
metho d 12
125,
5,00
000
0 75,0
75,000
00
34. P82,000
C a rrying
rrying value
va lue of
o f ne
nett as
a ssets (P10
(P100,0
0,000
00 – P20,000)………
P20,000)…………………………
…………P
…P 80,0
80,00000
Ad d : Ad
Adjus
justments
tments to reflec t fair value……
value………………
…………………… ……………………
………… 12 12,0
,000
00
Fa ir value o f net a ssets
ets………
………………… ………………………………………… ……………………
……………….
……. P 92,00
92,000 0
Less
Les s: Co
C o mmo
mmon n sto
stocc k, P1 pa r (5,000
(5,000 sha
hares
res x 2 x P1………
P1……………
…………
………...
…... 10,00
10,000 0
Additi
Ad ditiona
ona l paid-i
pa id-in
n ca
c a pital………………………………………
pital…………………………………………………… …………… P8 P82
2,0
,000
00
35. P54,350
C a rrying
Add:rrying value of
Adjustments o f net ass
assetsfair
to reflect (P25,1
(P25,110
10 + P20,00
value P20,000))……
0))……………
………………
…………
… P 4545,11
,110
0
(P28,000
(P28,000 – P21,760) – P800 + [(P35,000 – (P32,400 – P11,200)]… 19,240
Fa ir value ooff net ass
assets
ets………
………………… …………………… …………………… ……………………
……………….
……. P 64,3
64,350
50
Less
Les s: C o mmon
mmo n stocto c k, P1 p a r (10,00
(10,000
0 sha
hares
res x P1)……
P1)……………
………………
………...
... 10
10,00
,000
0
Additi
Ad ditiona
ona l pa id-i
id-in
n c a pital……………………………………………………
pital……………………………………… …………… P 54, 4,35
350
0
Note: Refer to Problem XI I for journal entries for ffurt
urther
her a nalysis
THEORIES
HEORIES
True o
or
r False
1. Fa
Fals
lse
e 6. Fa
Fals
lse
e 11. True 16. True 21. Fa
Fals
lse
e 26. Fa
Fals
lse
e 31. True
2. True 7. Fa
Fals
lse
e 12. True 17. True 22. True 27. True 32. True
3. Fa
Fals
lse
Fals
lse
e 23. Fa
Fals
lse
e 28. Fa
Fals
lse
e
4. True 9. Fa
Fals
lse
e 14. Fa
Fals
lse
e 19.
19. Fa
Fals
lse
e 24. True 29. True
5. Fa
Fals
lse
e 10. Fa
Fals
lse
e 15, True 20. True 25. Fa
Fals
lse
e 30. Fa
Fals
lse
e

Note for the foll

following numbers:
1. A dissolut
olution
ion occ
oc c urs
urs eve
ever ry ttime
ime there is a change
c hange in rela
elattionsh
ionship
ip among the partners. This c an oc c ur when a
new part
pa rtner enters the pa partnership or an exist
existing
ing part
pa rtner leave
leaves s the pa
partnership. A dissoluti
dissolution
on oc c urs when the
partnership is going out of business but the termination of business is not a requirement for a dissolution.
3. A new partner's liab
liabilit
ility
y for
for ac tions tha
hatt oc c urred before
before joining the partnership
partnership is
is limited to the a
amount
mount invested
in the partnership.
5. Rega
egarrdless how a new pa parrtner enters a ppart
artners
nership, the other paparrtners have to approve
approve the admission
admission bec aus
usee
they must
must ac acc c ept
ept unlimited liability due to a ac c tions of the ne neww par
pa rtner tak
taken
en oon
n be
behalf
half of tthe
he p paartnership.
6. There is no nec ess essary
ary r
rela
elattionsh
ionship ip bebettween the perc percentage
entage of equity ac acquir
quired
ed aandnd tthe
he amount
amount of prof profit
it or los
loss
s
rec eive
eived.d. These are sepa epar rate contr
contrac tual issu issues.
es.
7. There are thr three methods that may be us used
ed when a ne new w partner is pa paying
ying a ann amount m more
ore tthan
han book
book value
va lue for
the invest
investment: reva evalua
luattion of existing a ass
ssets, bobonus
nus method, a and
nd goo
goodwill
dwill method. The pa part rtners do not
not have
to c
choose
hoose one method. It would not be inc inconsis
onsistent to revalue
revalue the ass a ssets and apply
a pply eiteither
her the bonus
bonus or the
goodwill
goo dwill method
method to rec ord the investment.
9. Existing pa par rtners shashare the difference
erenc e b betw
etwee een n market value a and
nd boo
book k va
value
lue equally
equally if that is the manner ma nner in
which
whic h profits and losses are sha hared.
red. If profits and losses are s shared
hared in some ot o ther manne
manner, r, then the difference
differenc e
between market and book values are shared in that manner.
10. While it is poss possible that an error has be beenen made
made,, it is more like likely
ly ttha
hatt the exist
existing pa part
rtners recrecog
ognized
nized a ann
increase
increase in their c apit apital
al aacc c ount
ounts s via a bonus. The diff differenc
erence e be
bettween the amount amount c redited to the new
pa
par rtner’s c apit
apital ac c ount and the a amount
mount invest
vesteded is shared by the e exis
xistting pa
par rtners.
14
14.. New pa partrtners may rec receive
eive a bonus if they b br
ring vavaluelue to the p paartnership in exc excess
ess of the tangible asset assetss
invested.
ed. This additi
additiona
onall amount may be from such thin things gs as expe
exper rtise,
ise, eexperienc
xperience, e, o
or r business
business c ontact
ontac ts. The
bonus
bo nus alloclloca ated to the ne new w papart rtner is payme
pa yment nt for these typ ypes
es of unidentifiable assets c ontributed to the
partnership.
18
18.. Good
G oodwill
will may be rec recognized
ognized with regard to tthe he eexis
xistting par
pa rtners but it may also be rec ognized with regard to
the new partner.
19
19.. When goodwill
goodwill is rec recognized
ognized with reg regard
ard to the ne new w partner, the new par pa rtner’s c apit
apital
al aacc c ount will be g grreat
ea ter
than the amo amount unt invested by the recognized
recognized g good
oodwill
will..
21
21.. The a art
rticles
icles of pa par rtnership may inc include
lude a an
n agreeme
agreement nt on tthe he length of adva advancnceded no
notticice
e a pa par rtner mu
must st give
before
be fore wi withdr
thdrawing ffrom rom a pa partrtnership. Failure to provide provide the ag agreed
reed notice
notice may
may result in the withdrawing
pa
par rtner being
being lia liable
ble for dama
damage ges ss suf
uffer
fered
ed by the pa partrtnership.
23
23.. If exist
existing pa par rtners acquirquiree a withdrawin
hdrawing g pa
par rtner’s equity, they they c an divide the purchase
purchase o off that equity among
themselves in any manne manner r they c hoose.
25
25.. Part
artners
nership a ass
ssets may be revalued
eva lued b but
ut they mamay ya als
lso
o rema
remain in at their c ca
arrying va
value.
lue.
26. The reva
revalua
luatition
on o off the pa
part
rtnership’s assets is unrelat ela ted to tthe he purc
purchahase se of the withdrawing pa partrtners ownership
ownership
interest in the partnership.
28. The reva
revalua
luattion of pa part
rtnership assets at the time of a pa part rtner’s withdrawa
ithdrawall has no impa impac c t on the rec ognit
ognition
ion o
off a
bonus or goodwill.
30. While the pa partrtners ca cann rec
recogognize
nize e eit
ither
her the withdra
withdrawing pa partrtner’s goodwill
goodwill or the ent entire
ire pa
partrtnership’s good
goodwill,
will,
there is no requirement
requirement to rec recogognize
nize a any
ny go
goododwill
will w
when
hen a partpa rtner withdraws from a pa part rtnership.
Multiple Choice
Mult C hoice
33
33.. b 38
38.. e 43
43.. c 47
47.. a 53
53.. c 58
58.. a 63
63.. c
34 d 39
39.. e 44
44.. c 48
48.. c 54
54.. c 59
59.. c 64
64.. d
35
35.. d 40
40.. d 45
45.. d 50
50.. c 55
55.. c 60
60.. b 65
65.. c
36
36.. d 41
41.. d 46
46.. c 51
51.. a 56
56.. b 61
61.. b 66
66.. d
37
37.. d 42
42.. b 47
47.. b 52
52.. d 57
57.. b 62
62.. b 67
67.. d
68. a

C hap
haptter 4
Problem I
1: Gain
Ga in on Realization
Realization Fully
Fully Alloc
Allocated
ated to Partner
artner’s
’s Cap
Capitital
al Balanc
ala nces.
es.
Q RS Partners
Pa rtnership
hip
Statement of Realization and Liquidation
Novemb
No vemb er 1 – 30, 20x4
20x4
Non- Q, R, S,
Cash Capital Capital Capital
Cash Assets
Assets Liabilities Q , Loa
Loann 30%) (50%) (20%)
Bala nc e s be fo
Balanc fore
re liquid a tion 24,0
24,000
00 84,000
84,000 12,000
12,000 2,400
2,400 9,60
9,600
0 48,0
48,000
00 36,0
36,000
00
Realization and distribution
o f ga in 96,0
96,000
00 (84,000)
(84,000) _____
___ __ _____
___ ___
_ 3,600
3,600 6,00
6,000
0 2,40
2,400
0
Balanc
Bala nc e s a fte
fterr realizatio
rea lization
n 120,000
120,000 12,000
12,000 2,400
2,400 13,2
13,200
00 54,0
54,000
00 38,4
38,400
00
Pa ymen
ymentt o f liab ilities (12,00
(12,000)
0) (12,000)
(12,000)
Balances after payment of
liab
lia b ilities
ilitie s 108,000
108,000 2,400 13,200 54,000 38,400
Pa
Payment
yment to pa rtners rtners - loa n (2,4
(2,400
00)) (2,400
(2,400)) ____
______
__ ____
______
__ _______
____ ___
p a rtners
rtne rs’’ lo
loa
a ns 105,60
105,600
0 13,200 54,000 38,400
Pa
Payment
yment to pa rtners rtners -
c a pita l (105,600)
(105,600) (13,200)
(13,200) (54,00
(54,000)
0) (38,40
(38,400)
0)
2: Loss on Rea
ealization
lization Creates
C reates a Deficit
Deficit Balanc
ala nce
e in Part
Partner’s
ner’s C apital A
Ac
c c ount Req
equir
uiring Transfer from
Partner’s Loa
oann Ac
Ac c ount (Right of Offset Exercised).
Exercised).
Q RS Partners
Pa rtnership
hip
Novemb
No vemb er 1 – 30, 20x4
20x4
Non- Q, R, S,
Cash capital Capital Capital
Cash Assets
Loann (30%) (50%) (20%)
Bala nc e s be fo
Balanc fore
24,000
00 84,000
84,000 12,000
12,000 2,400
2,400 9,60
9,600
0 48,0
48,000
00 36,0
36,000
00
o f loss 48,0
48,000
00 (84,000)
(84,000) _____
___ __ _____
__ ____
_ (10,80
(10,800)
0) (18,00
(18,000)
0) (7,200
(7,200))
Balanc
Bala nc e s a ftefterr realizatio
rea lizationn 72,000
72,000 12,000
12,000 2,400
2,400 (1,200)
(1,200) 30,0
30,000
00 28,8
28,800
00
Pa ymen
ymentt o f liab ilities (12,00
(12,000)
0) (12,000)
(12,000)
liab
lia b ilities
ilitie s 60,000 2,400 (1,200) 30,000 28,800
O ffs
ffset
et de
deficit
ficit versus
versus loa ns ____
_______
___ (1,200
(1,200)) 1
1,20
,200
0 ____
_______
___ ____
_______
___
Balanc
Bala nc e s a fte
fterr o ffsetting 60,0
60,000
00 1,200
1,200 30,000
30,000 28,8
28,800
00
Pa
Payment
yment to pa rtners
rtners – loa n (1,2
(1,200
00)) (1,200
(1,200)) ____
_______
___ ____
______
__
pa rtners’
rtners’ loa ns 58,800
58,800 30,000
30,000 28,8
28,800
00
Pa
Payment
yment to pa rtners
rtners -
c a pita l (58,800)
(58,800) (30,000)
(30,000) (28,80
(28,800)
0)

3: Loss on Rea
ealization
lization Creates
C reates a Deficit
Deficit Balanc
ala nce
e in Part
Partner’s
ner’s C apital A
Ac
c c ount Req
equir
uiring Transfer from
Partner’s Loan
oa n Acc
Ac c ount (R
(Right
ight of Offset Exerc
Exerc ised and
and Additional
Additional Ca
C apital Investment
Investment is Reqequir
uired
ed and
Made).
Q RS Partners
Pa rtnership
hip
Novemb
No vemb er 1 – 30, 20x4
20x4
Non- Q, R, S,
Cash Assets
Loann (30%) (50%) (20%)
Bala nc e s be fo
Balanc fore
24,000
00 84,000
84,000 12,000
12,000 2,400
2,400 9,60
9,600
0 48,0
48,000
00 36,0
36,000
00
o f loss 36,0
36,000
00 (84,000)
(84,000) _____
__ ______
___ ______
___ _____
__ (14,40
(14,400)
0) (24,00
(24,000)
0) (9,600
(9,600))
Balanc
60,000 12,000
12,000 2,400
2,400 ( 4,80
4,800)
0) 24
24,000
,000 26,4
26,400
00
Pa
Payment
yment of liab liabilit
ilities
ies (12,
(12,00
000)
0) (12
(12,00
,000)
0) ________
____ ____ ____
_______
___ ____
_______
___ ____
_______
___
liab
lia b ilities
ilitie s 48,000 2,400 ( 4,800) 24,000 26,400
O ffs
ffset
et loa n vers versus
us de ficit – _______
____ ___ (2,400
(2,400)) 2,400
2,400 ____
_______
___ ____
_______
___
Balanc
ala nces es after o offs
ffsetting
etting
pa rtner’s loa n 48,000
48,000 (2,400)
(2,400) 24,0
24,000
00 26,4
26,400
00
Ad ditiona l investment
investment by Q __2,400
__2,400 2,400
2,400 ____
_______
___ ____
_______
___
Balances after additional
Inve stmen
stmentt 50,400 24,000 26,400
Pa
Payment
c a pita l (50,400)
(50,400) (24,000)
(24,000) (26,40
(26,400)
0)
4: Loss on Rea
Realization
lization Creates
Creates a Deficit
Defic it Balance
lanc e in OOne
ne Partner’s C apital Ac c ount Reqequir
uiring
ing Trans
ransfer
fer
Partner’s Loa
oann Ac c ount (Right of Offset
Offset Is Exer
Exerc
c ised) and
a nd Additiona
Additionall Investment
Investment is Req
equir
uired
ed but not Made
(Personally
(Personally Insolve
Insolvent
nt).
Q RS Pa
Partners
rtnership
hip
Novemb
No vemb er 1 – 30, 20x4
20x4
Non- Q, R, S,
Cash Assets
Loann (30%) (50%) (20%)
Bala nc e s be fo
Balanc fore
24,000
00 84,000
84,000 12,000
12,000 2,400
2,400 9,60
9,600
0 48,0
48,000
00 36,0
36,000
00
o f ga in 42,0
42,000
00 (84,000)
(84,000) _____
__ _____
__ ______
___ _____
__ (12,600)
(12,600) (21,00
(21,000)
0) (8,400
(8,400))
Balanc
Bala nc e s a fte
fterr realizatio
66,000 12,000
12,000 2,400
2,400 ( 3,00
3,000)
0) 27
27,000
,000 27,6
27,600
00
Pa
Payment
ilities
ies (12,
(12,00
000)
0) (12
(12,00
,000)
0) _______
____ ___ ____
_______
___ ____
_______
___ ____
_______
___
liab
lia b ilities
ilitie s 54,000 2,400 (3,000) 27,000 27,600
O ffs
ffset
et loa n versversus
us de ficit ____
_______
___ (2,4
(2,400
00)) 2,400
2,400 ______
____ __ ____
______
__
Balanc
Bala nc e s a fte
54,000
00 ( 600
600)) 27,0
27,000
00 27,6
27,600
00
Ad
Additional
ditional loss due to
insolve
insolvenc ncy y of Q ____
_______
___ 60
600
0 ( 42
429)
9) ( 17
171)
1)
Balances after additional ,
Loss
Loss 54,000 26,571 27,429
Pa
Payment
c a pita l (54,000)
(54,000) (26,571)
(26,571) (27,42
(27,429)
9)

5: Loss on Rea
Realization
lization Creates
Creates a Deficit
Defic it Balance
lanc e in OOne
ne Partner’s C apital Ac c ount Reqequir
uiring
ing Trans
ransfer
fer
Partner’s Loa
oann Ac c ount (Right of Offset
Offset Is Exer
Exerc
c ised) and
a nd Additiona
Additionall Investment
Investment is Req
equir
uired
ed but not Made
(Personally
(Personally Insolve
Insolvent
nt).
Q RS Pa
Part
rtne
ners
rship
November 1 – 30, 20x4
Non- Q, R, S,
Cash Assets
Loann (30%) (50%) (20%)
Bala nc e s be fo
Balanc fore
24,000
00 84,000
84,000 12,000
12,000 2,400
2,400 9,60
9,6000 48,0
48,000
00 36,0
36,000
00
o f ga in 24,0
24,000
00 (84,000)
(84,000) _____
__ _____
__ ______
___ ____
_ (18,00
(18,000)
0) (30,00
(30,000)
0) (12,00
(12,000)
0)
Balanc
rea lization
n 48,000
48,000 12,000
12,000 2,400
2,400 ( 8,40
8,400)
0) 18
18,000
,000 24,0
24,000
00
Pa
Payment
ilities
ies (12,
(12,00
000)
0) (12
(12,00
,000)
0) _______
____ ___ ____
_______
___ ____
_______
___ ____
_______
___
liab
lia b ilities
ilitie s 36,000 2,400 ( 8,400) 18,000 24,000
O ffs
ffset
et loa n vers versus
us de ficit ____
______
__ (2,400
(2,400)) 2,400
2,400 ______
____ __ ____
_______
___
Balanc
Bala nc e s a ftefterr o ffsetting 36,0
36,000
00 (6,000),
(6,000), 18,0
18,000
00 24,0
24,000
00
Ad ditiona l investment
investment by Q _3,60
_3,6000 _ 3,600
3,600 ____
______
__ ____
_______
___
investmen
inve stmentt 39,600 (2,400) 18,000 24,000
Ad
Additional
ditional loss due to
insolve
insolvenc ncy y of Q ____
______
__ 2,400
2,400 (1,7
(1,714
14)) ( 68
686)
6)
Loss
Loss 39,600 16,286 23,314
Pa
Payment
c a pita l (39,600)
(39,600) (16,286)
(16,286) (23,31
(23,314)
4)
6: Loss on Rea
Realization
lization Cr
C rea
eattes a Defic
Deficit
it Balanc e in Pa
Partn
tner’s
er’s Ca
Capital A
Acc c ount Req
equir
uiring Trans
ransfer
fer Partn
artner’s
er’s
Loa
oann Ac c ount (Right
(Right of Offset Is Exercised)
xerc ised) and
a nd A
All
ll Partners are Per
Personally
sonally Solvent.
Q RS Pa
Part
rtne
ners
rship
Non- Q, R, S,
Cash Assets
Loann (30%) (50%) (20%)
Bala nc e s be fo
Balanc fore
24,000 84,000
84,000 12,000
12,000 2,400
2,400 9,60
9,6000 48,0
48,000
00 36,0
36,000
00
Payment of liquidation
expe nsnses
es (14
(14,40
,400)
0) ____
______
__ ____
________
____ ________
____ ____ (4,320
(4,320)) (7,2
(7,200
00)) (2,8
(2,880
80))
liquid
liq uida
a tio
tionn e xpenses
xpe nses 9,600 84,00
84,000
0 12,000 2,400
2,400 5,280 40,800 33,120
Write-off goodwill and
prep a id expe ns nses
es _______
____ ___ (72
(72,00
,000)
0) _______ ____
________
____ (21,
(21,60
600)
0) (3
(36,0
6,000
00)) (14,
(14,40
400)
0)
Bal
Balaa nc e s a fte
fterr write-o
rite- o ffs 9,600 12,000 12,000 2,400 (16,320) 4,800 18,720
o f loss 1,20
1,2000 (12,000)
(12,000) _____
__ _____
__ ______
___ _____
__ ( 3,24
3,240)
0) ( 5,40
5,400)
0) ( 2,16
2,160)
0)
Balanc
Bala nc e s a fte
fterr realizatio
rea lization n 10,8
10,800
00 12,000
12,000 2,400
2,400 ( 19,5
19,560)
60) ( 600600)) 16,5
16,560
60
Pa
Payment
ilities
ies (10
(10,80
,800)
0) (10
(10,80
,800)
0) ____
________
____ ____
_______
___ ____
________
____ _______
____ ___
Lia
Liabi
bilitie
litiess -0- 1,200 2,400 (19,560) ( 600) 16,560
O ffs
ffset
et loa n vers
versus
us de ficit ______
____ __ ____
_______
___ (2,400
(2,400)) 2,400
2,400 ____
_______
___ ____
_______
___
Balanc
Bala nc e s a fte
fterr o ffsetting -0- 1,20
1,2000 (17,16
(17,160)
0) ( 600
600)) 16,5
16,560
60
Ad
Additional
ditional investment
investment by Q
a nd R 17,7
17,760
60 _____
__ _____
__ 17,160
17,160 600 _____
__ ____
_
Inve stmen
stmentt 17,760 1,200 16,560
Pa
Payment
ilities
ies (1,2
(1,200
00)) (1,2
(1,200
00)) ____ ___
_______
Lia
Liabb ilitie
ilitiess 16,560 16,560
Pa
Payment
yment to pa rtners
rtners - C ap ital (16
(16,56
,560)
0) (16,560)
(16,560)
7: Loss on Rea
Realization
lization Cr
C rea
eattes a Defic
Deficit
it Balanc e in Pa
Partn
tner’s
er’s Ca
Capital A
Ac c c ount Req
equir
uiring Trans
ransfer
fer Partn
artner’s
er’s
Loa
oann Ac c ount (Right of Off
Offset Is Exercised)
xerc ised) with RReva
evaluation
luation of Ass
Assets
ets..
Q RS Pa
Part
rtne
ners
rship
Non- Q, R, S,
Cash Assets
Loann (30%) (50%) (20%)
Bala nc e s be fo
Balanc fore
24,000
00 84,000
84,000 12,000
12,000 2,400
2,400 9,60
9,600
0 48,0
48,000
00 36,0
36,000
00
Inc rea se in e quip ment men t 1,20
1,2000 360 600 240
Dec reas
rea se in furnfurnitur
ituree ______
____ __ (600
(600)) ____
_______
___ ____
______
__ _(180
_(180)) (300
(300)) (120
(120))
Balanc
Bala nc e s a fte
fterr revalua
reva luation
tion 24,0
24,000
00 84,600
84,600 12,000
12,000 2,400
2,400 9,78
9,780
0 48,3
48,300
00 36,1
36,120
20
Refund
Refu nd ofo f prepaid
e xpe
xpenses
nses _6,960 (8,400)
(8,400) _____
__ _____
__ _____
___ ___
_ _(432) (720) (288)
Bal
Balaa nc e s a ftefterr refund
refu nds s 30,960 76,200 12,000 2,400 9,348 47,5
47,580
80 35,832
Rec eive
eived d nonc a sh a ssets ____
______
__ (10
(10,20
,200)
0) _______
____ ___ ____
______
__ ____
______ (7,2
(7,200
00)) (3,0
(3,000
00))
Balances after receipt
o f no
nonc nc a sh a sse ts 30,960 6
66,000
6,000 12,000 2,400 9,348 40,380 32,832
Realization and distribution (
o f loss 32,4
32,400
00 (66,000)
(66,000) _____
__ _____
__ _____
___ ___
_ 10,080) ( 16,800) ( 8,064)
Balanc
Bala nc e s a fte
fterr realizatio
63,360 12,000
12,000 2,400
2,400 ( 732
732)) 23,5
23,580
80 2
26,11
6,112
2
Pa
Payment
ilities
ies (12,
(12,00
000)
0) (12
(12,00
,000)
0) _______
____ ___ ____
_______
___ ____
_______
___ ____
_______
___
liab
lia b ilities
ilitie s 51,360 2,400 ( 732) 23,580 26,112
O ffs
ffset
et loa n versversus
us de ficit ____
_______
___ ( 73
732)
2) 73
732
2 ____
______
__ ____
______
__
Balanc
Bala nc e s a fte
51,360
60 1,66
1,668
8 23,5
23,580
80 26,1
26,112
12
Pa
Payment
loa n (1,6
(1,668
68)) (1,668
(1,668)) ____
______
__ ____
_______
___
Balances after payment
o f loa
lo a ns 49,692 23,580 26,112
Pa
Payment
yment to p a rtners rtners--
c a pita ls (49,692)
(49,692) (23,580)
(23,580) (26,11
(26,112)
2)
Problem II
DISCO UNT PARTNERSHIP
Sc hed ule of
o f Pa rtnership Liqui
Liquida
da tion
J anuary 14
14,, 20
20x
x4
C apit
ap ital
al Balances
Explana
planati
tion
on C ash O ther Lia
Lia biliti
bilities
es Daw
Dawsson Feeney
Feene y Hardin
Balanc
Bala nc es b efore
fo re rea
realizatio
lization
n P25,000 Assets
P120,000
P120,000 P(40,000) P(31,000) P(65,000) P(9,000)
Sa les o f nonc
no nc a sh a ssets 60,00
60,000
0 (120
(120,000)
,000) __
____
____
__ 18,000
18,000 24,000 18,000
Bala nc e s
Balanc 85,00
85,000
0 0 (40,000
(40,000)) (13,000
(13,000)) (41,000)
(41,000) 9,000
Payment
Pa yment of li
lia
a bili
biliti
ties
es (40
(40,0
,000
00)) __________
_____ _____ 40,00
40,000
0 ________
____ ____ ________
_____ ___ ________
____ ____
Balanc
Bala nc e s 45,00
45,000
0 0 0 (13,000)
(13,000) (41,000
(41,000)) 9,000
Allocation of Hardin's debit
balance
______ __________
__________ ______ 3,
3,8
857 5,1
,14
43 (9,0
(9,00
00)
Balanc
Bala nc e s 45,00
45,000
0 0 0 (9,143) (35,857)
(35,857) 0
Distribution
Distribution of c a sh to pa rtners (45,
(45,000
000)) ______
___ ______
_____ ___
______
___ 9,143
9,143 35,
35,85
857
7 ___
______
_____
__
Balanc
Bala nc e s P 0 P 0 P 0 P 0 P 0 P 0

Problem III
1.
C DG Partnership
Stateme
tatement
nt of Realizati
Realization
on a nd Liqui
Liquida
da ti
tion
on
Lump-sum Liquidation on December 10, 20X6
C apital B
Balanc
alanc es
Nonc ash C arlos
arlos Dan G a il
C a sh Asset
Assetss Lia
Liabbilitie
ilitiess 20% 40% 40%
Preliquid
Preliq uida
a tion b a la
lanc
nc es 25,00
25,000
0 475,0
475,000
00 (270,0
(270,000)
00) (120,0
(120,000)
00) (50,00
(50,000)
0) (60,000
(60,000))
Sale of assets and distribution

o f P215,000 lo
loss
ss 260,000 (475,000) 43,000 86,000 86,000
285,000 -0- (270,000) (77,000) 3
36,000
6,000 26,000
Cash contributed by Gail to
e xten
xtentt o f p ositi
ositive
ve ne
nett worth
wo rth 25
25,00
,000
0 (25,000)
(25,000)
310,000 -0- (270,000) (77,000) 36,000 1,000
Distribution
Distribution o
off d
defic
eficit
it of
insolve
insolvent
nt pa rt
rtne
ner:
r: (1,000)
(1,000)
20/60(P1,000) 333
40/60(P1,000)
40/ 60(P1,000) 667
667
310,000 -0- (270,000) (76,667) 36,667 -0-
C ontr
ontribut
ibution
ion by DaDan
n to 36,667 (36,667)
remed
emedy y de
defi
fic
c it
346,667 -0- (270,000) (76,667) -0- -0-
Pa
Payment
yment to c redito
reditors
rs (27
(270,0
0,000
00)) 270,0
270,000
00
76,667
76,667 -0- -0- (76,667)
(76,667) -0- -0-
Pa
Payment
yment to p a rtner (76
(76,66
,667)
7) 76
76,66
,667
7
Post-liquida
Post-liquidation
tion ba lanc es -0- -0- -0- -0- -0- -0-

2.
C DG Partnership
Net Worth of Partners
December 10, 20X6
Pers
Pe rsona
on a l a sse ts
ts,, exclud
excluding ing C arl
arlos
os Dan G ail
p a rtnership c a p ita itall inte
interests
rests 250,000
250,000 300
300,000
,000 350,000
350,000
Pe
Pers
rso
onal
na l liab iliti
ilitie
es (230,000)
(230,000) (240
(240,000)
,000) (325,0
(325,000)
00)
Persona
Pers ona l net worth, exc excluding
luding
p a rtnership c a p ita itall inte
interests
rests,, De
Decc . 1, 20X
20X6
6 20,00
20,000
0 60,00
60,0000 25,00
25,0000
C on
ontr
tributio
ibution n to pa rtnership (36,667))
(36,667 (25,
(25,000
000))
Liquidating
Liquida ting distributio
distribution n from pa rtnership
rtnership 76
76,66
,667
7 -0- -0-
Net
Ne t worth,
wo rth, Dec
De c emb
embe e r 10
10,, 20X6
20X6 96
96,66
,667
7 23
23,33
,3333 -0-
Thi
This
s c omputation
omputation ass
assumes that no no other events oc c urr urred in the
the 1010-day
-da y peri
period that changed
c hanged any of the
the
p a rtners’
tners’ pers
p ersona
ona l a ssets a nd pers
p ersona
ona l liab
liab ilit
ilities
ies.. In prac
pra c tice,
tice , the ac c ounta nt mus
must be sur
sure
e that a
computation of net worth is current and timely.

The
The table shows the effects of the tr trans
ansac
ac tions
tions between
be tween the pa rtner tners
shi
hip
p and eacea c h pa rtner
tner.. A
p resu
esumption
mption o off this
this tab le is
is that the p pers
ersona
ona l cred
credititors
ors of Da n or Ga il would
wo uld not ssee
eekk c ourt ac tition
on to
b lock
loc k the s settlement
ettlement ttrra nsa
nsa c tions with the pa parrtnership.
tnership. Upon Upo n winding up and liquida tion, the
p a rtnership
tnership doe
d oes s not ha ve a ny priorit
priorityy to the pa rt
rtner’s
ner’s p ers
ersona
ona l assets. Thus,
hus, the p
pers
ersona
ona l cr
c red
editor
itors
s may
ma y
seek to block the transactions with the partnership in order to provide more resources from which they
c a n be p aid. A partner
p artner who fa ilsils to remed
remedy y his
his or her defi
de fic
c it c an be
b e sued
sued b y the
the other par
pa rtners
tners who
had to make additional contributions or even by a partnership creditor if the failed partner is liable to
the pa
p a rtnership
tnership c red
editor
itor.. But those
those c laims a re not
no t supe
superrior to the o
other
ther claims
c laims to the p a rtner’s individ
individ ual
a sse ts.
When accountants provide professional services to partnerships and to its partners, the accountant
should e
exxpe
pecc t, a t some
some time,
time, lleg
egaa l suit
uits
s involving
involving the pa rtnership
tnership and / or individua
individuall p a rtners.
tners. A str
strong
ong
and thorough understanding of the legal and accounting foundations of partnerships will be very
important to that accountant.
Problem IV
Nonca sh C ap ital and Loa n Balances
alanc es
C a sh Assets
Assets Lia
Lia b iliti
ilities
es Me
Merz
rz Dec
De c hter
hte r Fl
Flow
owers
ers
Beg inning b a lanc

Beginning lan c e s P 25,000
25,000 P200,000
P200,000 P165,000
P165,000 P 40,000
40,000 P30,000
P30,000 P(10,000)
Liquida
Liquid a tion
tion e xpense
xpe nse (20,00
(20,000)
0) (8,000)
(8,000) (8,000)
(8,000) (4,000)
(4,000)
Sa le o f no
non-c
n-c a sh a sse ts 160,00
160,000
0 (200,000)
(200,000) (16,000)
(16,000) (16,000)
(16,000) (8,000)
(8,000)
Pa yment
ymen t of liab ilities
ilities (165,0
(165,000)
00) (165,000)
(165,000)
C o ntrib
ntrib ution b y Flow
Flowersers 10
10,00
,000
0 10
10,00
,000
0
Alloc
Allo c a tion o f Flo Flo wer'
we r's
s (6,000
(6,000)) (6,000
(6,000)) 12
12,00
,000
0
Distributio
Dis tributionn to p a rtners (10,000)
(10,000) (10,000)
(10,000) 0 0
Endin ba lanc es 0 0 0 0 0 0
Problem V
C a sh Lia
Lia b ilit
ilities
ies Ab
Able
le Bower
ow er C ra mer
Beginning
Beg inning:: P20,000
P20,000 P(30,000)
P(30,000) P(10,000) P5,000 P15,000
P15,000
Pa yment
yme nt of liab ilities
ilities (20,0
(20,000)
00) 20,000
20,000
P 0 P(
P(10,000)
10,000) P(
P(10,000)
10,000) P5,000 P15,000
Cramer/Bower pay in
fr
from
om pers
p ersona
ona l worth
to cover
c over
de
deficit
ficit ba lanc es: 12
12,0
,000
00 _______
___ _____
_ ______
___ _____
__ (2,00
(2,000)
0) (1
(10,
0,00
000)
0)
P12,000 P(
P(10,000)
10,000) P(
P(10,000)
10,000) P3,000 P 5,000
Pa yment
yme nt of liab ilities
ilities (10,0
(10,000)
00) 10,000
10,000
P 2,000 P 0 P(10,000) P3,000 P 5,000
Alloc
Alloc ation of
de
deficit
ficit ba lanc es: ______
___ ___ ___
_______
_____
_ 8,
8,00
000
0 (3,
(3,00
000)
0) (5,
(5,00
000)
0)
P 2,00
2,0000 P 0 P (2,000)
(2,000) P 0 P 0
Ab le p a id: (2,0
(2,000
00)) 2,0
2,000
00
P 0 P 0 P 0 P 0 P 0

Problem VI
Answer:
C a sh 70
70,00
,000
0
Arthur, C a p ital 6,000
6,000
Ba ker, C a p ital 15
15,00
,000
0
C a sey, C a p ita
ita l 9,
9,00
000
0
O the
therr Asse ts 100,000
100,000
To
To rec
rec ord rea lization of ass
assets at a llos
oss
s of $
$330,00
0,000,
0, divided
divided
a mong Arthur
Arthur,, B
Ba
a ker, a nd C a sey in 2:5:
2:5:3
3 rra
a tio,
tio, respe
respecc tiv
tively.
ely.
Tr
Trad e Ac c ounts Payable 65,0
,00
00
C a sh 65
65,00
,000
0
To
To rec
rec ord payment of liliab ilities
ties..
Arthur, C a p ital 20
20,00
,000
0
Loan
Loa n Rec
Receivab
eivab le from
from Arthur 20
20,0
,000
00
To
To offset
offset Arthu
Arthurr's loan ac c ount agains
ag ainstt Arth
Arthur
ur's
's c ap ital
account.
Arthur, C a p ital 14
14,00
,000
0
Loa n Pa
Payab
yablele to Ba ker 20,0
20,000
00
C a sey, C a p ita
ita l 1,
1,00
000
0
C a sh 35
35,00
,000
0
To
To rec
rec ord payment
payments s to partner
partners
s, c omputed as follows
follows::
Arthur
Arthur Bak
aker
er C asey
C a pita
pitall a c c ount ba lances
lanc es P70,0
P70,000
00 P80,0
P80,000
00 P55,0
P55,000
00
Ad d: Loa n pa yable to Ba ker 30,
0,00
000
0
Less
Les s: Loa
Loan n receiva
rec eivab b le from Arthur (20,00
(20,000)
0)
Loss
Los s o n rea lization
lization of a ssets,
P30,000 (6,000) (15,000) (9,000)
Balanc
Bala nc e s P44,000
P44,000 P95,000
P95,000 P46,000
P46,000
Maximum potential additional loss
of P150,000 (P250,000 – P100,000 =
P150,000)
P150,0 00) d ivided
ivide d in 2:5:3 ratio (30,000)
(30,000) (75,000)
(75,000) (45,000)
C a sh p a yments
yme nts P14,000
P14,000 P20,000
P20,000 P 1,000
1,000
Multiple Choic
C hoice e Problems
1. b - (P
(P40,000
40,000 + P10,000 – P2,000 – P4,000 = P44,000)
2. d – PP80,000
80,000 – (P150,000
(P 150,000 – P50,00) x 50% =P30,000
3. c
4. a - P
Phil
hil (P35,000 +P10,000); Harry
Harry P28,000; Bill
Bill (P
(P27,000
27,000 - P5,000)
5. c - Rick P46,000; M a ry (P39,000
(P39,000 - P15,000);
P15,000); Fra
Fra n (P29,000 + P10,000)
P10,000)
6. d - P50,00
P50,000 0 - (P15,000
(P15,000 - P9,500)(.25)
P9,500)(.25)
7. b - P45,00
P45,000 0 - (P15,000
(P15,000 - P9,500)(.30)
P9,500)(.30)
8. a - P108,000 + [P10,000 - (P25,000 - P18,000)](.55)
P18,000)]( .55)
9. c - P62,000 + [P10,000 - (P25,000 - P18,000)](.20)
10. b
11.
11. c
12. d
13.
13. c

Vulne
Vulnerab
rabilility
ity ranks
ranks::
Lang
Lan g eq uity (P70,000
(P70,000 - P40,000)/
P40,000)/.25
.25 =P120,0
P120,000
00 = 1
M a a s e q uity (P80,000
(P80,000 + P50,0000/
P50,0000/.25
.25 =P520,000 =3
Nea
Ne a l e q uity (P150,000/
(P150,000/.5)
.5) = P300,0
P300,000
00 = 2
Assumed loss absorption:

25% 25% 50%
Lang Maas Neal Total
Equitie
Equitiess P 30,000 P 130,000 P 150,000
150,000 P 310,000
Loss to eliminate
Lang
Lan g ( 30,000
30,000 ) ( 30,000
30,000 ) ( 60,000
60,000 ) ( 120,000
120,000 )
0 P 100,000
100,000 P 90,000 P 190,000
190,000
Loss to eliminate
Nea
Ne a l ( 45,000
45,000 ) ( 90,000
90,000 ) ( 135,000
135,000 )
P 55,000 P 0 P 55,000
14. c JJ CC TT Total
ota l
Profit
Pro fit ra
ratio
tio 40% 50% 10% 100%
Prior c a p ital
ita l (160,000)
(160,000) (45,000)
(45,000) (55,000)
(55,000) (260,000)
(260,000)
Loss
Los s on sale
o f invento
inve nto ry 24,000 30,000 6,000 60,000
(136,000) (15,000)
(15,000) (49,000) (200,000)
15. a Prior c a p ital

ita l (160,000)
(160,000) (45,000)
(45,000) (55,000)
(55,000) (260,000)
(260,000)
Loss on sale
o f invento
inve ntoryry 72,000 90,000 18,000 180,000
(88,000) 45,000 (37,000) (80,000)
All
Alloc
oc a te Charl
C harleses''
c a p ita
ita l d eficit
efic it:: (45
(45,0
,000
00))
J J = .40
.40/ .50
.50 36,00
,000
TT
TT = .10
.10/ .50
.50 9,0
,00
00
(52,000) -0- (28,000) (80,000)
16. c – ((P234,000
P234,000 – P434,000) x 20% = P40,000
17. b
T D H
C a p ital b efo re reali
rea lization
zation 40
40,00
,000
0 10,00
10,000
0 15
15,00
,000
0
Loss
Loss o n sa le (85,000 – 33,000) (26,000) (15,600) (10,400)
14,000 ( 5,600) 4,600
Ad d itiona l loss (5:2) (4,000
(4,000)) 5,600
5,600 ( 1,600)
1,600)
10,000 3,000

18. a
T D H
rea lization
zation 40
40,00
,000
0 10,00
10,000
0 15
15,00
,000
0
Loss
Loss o n sa le (85,000 – 21,100) (31,950) (19,170) (12,780)
8,050 ( 9,170) 2,220
Ad d itiona l loss (5:2) (6,550
(6,550)) 9,17
9,170
0 (2,620)
(2,620)
1,500 ( 400)
Ad d itio
itio na
nall loss ( 40
400)
0) 40
400
0
1,100
19. b
K L M
rea lization
zation 60
60,00
,000
0 40
40,00
,000
0 80
80,00
,000
0
Liq
Liq uida tion exp
expenens
ses (2,000
(2,000)) ( 4,000
4,000)) ( 4,000
4,000))
Loss o n sa le (300 - 180)
180) (24,000)
(24,000) (48,000)
(48,000) ( 48,000)
48,000)
34,000 (12,000) 28,000
Ad d ition
itionaa l loss (2:4) ( 4,000)
4,000) 12,000
12,000 ( 8,000)
8,000)
30,000 20,000
20. d
H I J Tota l
C a p ital
ita l b e fore
fo re realiz
rea liza
a tion 80,000
80,000 110,00
110,000
0 140,000
140,000 330,00
330,000
0
Loss
Loss o n sa le (2:4:4) (61,000) (122,000) (122,000)
(122,000) (305,000)
19,000 (12,000) 18,000 25,000
Ad d ition
itionaa l loss (2:4) ( 4,000)
4,000) 12,000
12,000 ( 8,000)
8,000)
15,000 10,000
21. d – [(P
[(P240,000
240,000 – P96,000) / 30% = P480,000]
22. a
C a pita
pitall before
be fore rea liz
liza tion
tion – C 130,
130,00
0000
Liquida
Liquid a tion
tion e xpenses
xpe nses (12,000
(12,000 x 50%) (6,000)
(6,000)
Sha
hare
re o n loss o n rea
realilization
zation (132,0
(13 2,000)
00)
C a pital ba lanc
lancee a fter rea liz
lization ( 8,8,0
000)
00)
Total
Total loss
oss on rrea
eallization: P1
P13
32,00
,000/ 50% (2
(26
64,0
,00
00)
Non-c
No n-c a sh a ssets 43
434,0
4,000
00
Proc ee
eedds 17
170,0
0,000
00
23. b
Ding Laurel Ez
Ezzard
zard Till
illma
mann To ta
tall
C a p ital
ita l b e fore
fo re realiz
rea liza
a tion 60,000
60,000 67,000
67,000 17,000
17,000 96,000
96,000 240,000
240,000
Loss
Loss o n sa le (4:2:2:2) (52,800) ( 26,400) (26,400) (26,400) (132,000)
7,200 40,600 ( 9,400) 69,600 108,000
Pos
Po ssible
ible inso
inso lvenc
lven c y loss (4:2:2)
(4:2:2) ( 4,700)
4,700) ( 2,350)
2,350) ( 9,400)
9,400) ( 2,350)
2,350) -0-
Sa fe p a yments
yme nts 2,500
2,500 38,
38,250
250 0 67,250
67,250 108,00
108,0000
24.
24. e – refer tto
o No . 2
23
3

25. b
G ond
ondaa H
Herr
erron
on Mo rse Total
ota l
rea lization
zation 60,00
60,000
0 70
70,00
,000
0 40,00
40,000
0 17
170,0
0,000
00
Loss
Loss o n sa le (30:45:25); [200 – 150] (15,000) ( 22,500) (12,500) (50,000)
45,000 47,500 27,500
27,500 120,000
26.
26. c
S D F To ta
tall
C a p ital
ita l 40,000
40,000 15,000
15,000 5,000
5,000 60,000
60,000
Loan
Loa n ______
___ _____
__ ______
___ ____
_ 5,
5,00
000
0 5,
5,00
0000
Total
Total interes
nterests
ts 40,0
0,000 15,
5,0
000 10,0
,00
00 65,0
,00
00
Loss
Loss o n sa le (5:3:2) - [90,000 – 26,000]
26,000] (32,000) ( 19,200) (12,800) (64,000)
8,000 ( 4,200) ( 2,800) 1,000
Poss
Po ssible inso
inso lvenc
lvenc y (5:3) (1,750)
(1,750) ( 1,050)
1,050) 2,800
2,800 0
6,250 ( 5,250) 1,000
Ad d itio
itio na
nall investmen
investmentt ____
__ ____
____ 5,2
5,250
50 5,2
5,250
50
6,250 6,250
27. b
28.
28. a –
Since the p a rtnership
tnership c ur urrentl
rentlyy has
ha s total
tota l cap
c ap ita
ita l of P35
P 350,
0,00
000,
0, the P150,
P150,00000
0 that is a vailable
vailab le would
wo uld
indica
indic a te maximum
maximum pote p otenti
ntia
a l los
loss
ses of P200,
P200,000000 that is hypothetic
hypo thetica
a ll
lly
y split
split among
amo ng the pa rtners.
tners.
White Sa nd
ndss Luke
Luke To ta
tall
C a p ital
ita l b e fore
fo re realiz
rea liza
a tion 50,0
50,000
00 100,000
100,000 200,000
200,000 350,000
350,000
Loss
Loss o n sa le (30:20:50); [350 – 150] (60,000) ( 40,000) (100,000) (200,000)
(10,000) 60,000 100,000 150,000
Poss
Po ssible inso
inso lvenc
lvenc y (2:5) 10,0
10,000
00 (2,857)
(2,857) (7,143)
(7,143) 0
Sa fe p a yments
yme nts 57,143
57,1 43 92,857
92,857 150
150,000
,000
29
29.. b - (P13,000
(P13,000 – P1,000
P1,000 sha
share
re of
of g
gaa in =P12,0
P12,000,
00, refe
referr to e
entri
ntries
es below
be low))
Rev al
aluation
uation e ntry:
ntry:
A c c umulate d d dee pre c iation 3,000
G ym, c apital 1,000
1,00 0
Hob, c ap ital 1,000
Ing , c apital 1,000
1,00 0
Withdrawal of eq uipment:
A c c umulate d d
dee pre c iation ( 8,00
8,0000 – 3,000)
3,000 ) 5,000
Hob, c ap ital
ital 13,000
Equipment 18,000
30.
30. b –
Ac c umul
umulatedated deprec
de preciati
iation
on 70,0
70,00
00
K, c a p ital
ita l (P150,000
(P150,000 + P10,000 + P10,000 – P70,000) 100,000
100,000
M a c hinery,
hinery, a t c ost 15
150,
0,00
000
0
Rice [P110,00
[P110,0000 – (P150,000 – P70,000)]
P70,000)] x 1/3
1/ 3 10,000
10,000
Long
Lon g [P110,000
[P110,000 – (P150,000 – P70,000)]
P70,000)] x 1/3
1/ 3 10,000
10,000
31. c
X Y Z To ta
tall
C
Loass
Losspoital
n sbaefo re reali
le (35%rea
(35%:35%lization
:35%zation
:30%) 90
90,00
,000
0
(42,000) 60
60,00
,000
0
(42,000) 30
30,00
,000
0
(36,000) 18
180,0
0,000
00
*(120,000)
48,000 18,000) ( 6,000) 60,000
*balanc
*balanc ing figure – total rreduc
educ tion
tion in c apital
Quiz - IV
1. Ze ro/ nil
B P L S
rea lization
zation 25,00
25,000
0 11
110,0
0,000
00 10
100,0
0,000
00 65,00
65,000
0
Loss o n sa le (3:2:1:4))
(3:2:1:4)) (45,000)
(45,000)
(20,000) ( 30,000)
30,000)
80,000 (15,000)
(15,00
85,0000) (60,000)
(60,00
5,0000)
Ad d ition
itionaa l loss (2:1:4)
(2:1:4) (20,000)
(20,000) ( 5,714)
5,714) ( 2,857)
2,857) (11,429)
(11,429)
74,286 82,143 ( 6,429)
Ad d itiona l loss (2:1) ( 4,286)
4,286) ( 2,143)
2,143) 6,429
6,429
70,000 80,000
2. Zero/
ero / nil – rrefe
eferr to No.
No . 1
3. Pag
Pa g e, P70,000
P70,000 a nd Larry,
Larry, P8
P80,0
0,000
00 – refer
refe r to N
Noo. 1
4. P39,525 =P42,000 - (P15,000 - P9,500)(.45)
5. P56,750 =P56,000 + [P10,000 - (P25,000
(P 25,000 - PP18,000)](.25)
18,000)](.25)
6. P(
P(1,000)
1,000) =P20,000 - [P30,000 + (P50,000
(P50,000 - P90,000)](.30)
P90,000)](.30)
7. P(
P(1,500)
1,500) =P30,000 - [P30,000 + (P50,000
(P50,000 - P90,000)](.45)
P90,000)](.45)
8. P(
P(2,500)
2,500) =P15,000 - [P30,000 + (P50,000 - P90,000)]
P90,000)](.25)
(.25)
9. P340,000 =(P147,000
(P147,000 + P28,000)/ .35
10. P1,040,000 =(P260,000
(P260,000 / .25)
11.
11. Abr
Ab rams and C reighton
A B C
rea lization
zation 80
80,00
,000
0 90
90,00
,000
0 13
130,0
0,000
00
Liq
Liq uida tion exp
expenens
ses (3,600
(3,600)) (2,400
(2,400)) (6,000)
(6,000)
Loss o n sa le (134 - 434)
434) (90,000)
(90,000) (60,000)
(60,000) (300,000)
(300,000)
(13,600) 27,600 (176,000)
12. To m, P30,000;
P30,000; Dick, P4,000 a nd ha rry,
rry, P11,000
P11,000
T D H
rea lization
zation 40
40,00
,000
0 10,00
10,000
0 15
15,00
,000
0
Loss
Loss o n sa le (85,000 – 65,000) (10,000) (6,000) (4,000)
30,000 4,000 11,000
13. P34,000
K L M
rea lization
zation 60
60,00
,0000 40
40,00
,000
0 80
80,00
,0000
Liq
Liq uida tion exp
expenens
ses (2,000
(2,000)) ( 4,000
4,000)) ( 4,000
4,000))
Loss o n sa le (300 - 180)
180) (24,000)
(24,000) (48,000)
(48,000) ( 48,000)
48,000)
34,000 (12,000) 28,000
Ad ditional
ditiona l investment
investment ___
_____
__ 12,
12,00
0000 ______
___ ___
34,000 28,000
14. P25,000
C a sh, b eg
eginni
inning
ng P90,000
P90,0 00
Pa
Payment
yment of liqliq uidati
uida tionon expens
expe nses
es ( 5,
5,00
000)
0)
Payment
Pa yment of lia lia b iliti
ilities
es ( 60
60,00
,000)
0)
Payment
Pa yment to p a rtnertners rs P25,00
P25, 000
0

15. P15,000
B P L S
rea lization
zation 25,00
25,000
0 11
110,0
0,000
00 10
100,0
0,000
00 65,00
65,000
0
Loss o n sa le (4:2:1:3)
(4:2:1:3) (60,000)
(60,000) ( 30,000)
30,000) (15,000)
(15,000) (45,000)
(45,000)
(35,000) 80,000 85,000
85,000 20,000
Ad d ition
itionaa l loss (2:1:3)
(2:1:3) (35,000)
(35,000) (11,667)
(11,667) ( 5,833)
5,833) (17,500)
15,000 68,333 79,167 2,500
16. P2,500 - rrefefe
e r to No . 1 15
5
17
17.. Pag
Pa g e , P68,3
P68,333
333 3 a nd Larr
La rry,
y, P79,1
P79,167 67 – refer to No No.15 .15
18. Bond : P225,000;
P225,000; Hamm:
Ha mm: P115,0 P115,000; 00; Ze ll: P –0–
Bond ’ s c a p ital
ita l b a lanc
la nc e ...........
......................
......................
......................
......................
....................
......... P300,000
P300,000
Less: Bond’s share of P140,000 loss in liquidation
(P140,000 ×50%) 50%) ..........................
.......................................
..........................
..........................
.......................
.......... (70,000)
P230,000
Less
Les s: Bond
Bond ’s s sha
harere of Zell’s c a p ita ita l de
deficienc
ficienc y of
P8,000 (5/8
(5/ 8 o f P8,000) ......................
................................
.....................
......................
......................
.............
.. ( 5,000)
5,000)
P225,000
19
19.. Alex
Ale xa : P25,000
P25,000;; Bell:
Bell: P75,00
P75,000; 0; G raha m: P–0–
20. J o d y, P5,200;
P5,200; Kane
Ka ne,, P64,800;
P64,800; Lark, P10,000
P10,000
30% 45% 25%
Assets Debts J ody Kane Lark
Balanc
Bala nc e , M a y 1 250,0
250,000
00 88,000
88,000 32,00
32,000
0 90,000
90,000 40,000
40,000
Plant
Pla nt sold 10,000 3,000 4,500 2,500
Inventory
Invento ry sold ( 6,0
6,000
00)) ( 1,800 ) ( 2,700 ) ( 1,500 )
Balances before
d istrib
istributio
utio n 254,000 88,000 33,200 91
91,800
,800 41,000
O ffs
ffse
e t loa ns ( 26
26,00
,000
0) ( 10,00
10,000
0) ( 16,00
16,000
0)
Pay
Pa y c red
reditors
itors ( 88
88,00
,000
0) ( 88,000
88,000 )
Pa
Partner
rtner eq uity 140
140,000
,000 23,20
23,200
0 91,80
91,800
0 25,000
25,000
Possible loss:
Plant
Pla nt a ssets 60,00
60,000
0) ( 18,000
18,000 ) ( 27,000
27,000 ) ( 15,000
15,000 )
Distributio
Distribut ionn 80,000 5,200 64,800 10,000
(C a sh Distr
Distrib
ibutio
ution:
n: P54,000 + P54,000 +P60,000 - P88,000 = P80,000)
Ma y 1 Inventory Plant
Pla nt C red itors
itors Ma y 30
21.
21. O a k, P0; Nebe,
Neb e, P0; a nd Pa ng, P11
P11,0
,000
00
Non- First 30% 20% 50%
Cash Cash Rank Oak Nebe Pang
Assets Debt Equity Equity Equity
a n 1 Bala
Balanc nc e 3,000
3,000 33,000
33,000 9,000
9,000 2,00
2,0000 4,000
4,000 21,000
21,000
Sa le of a sse
ssets 17,000 ( 15,000 ) 600 400 1,000
Subto
ub tota
tall 20,000 18,000 9,000 2,600 4,400 22,000
Safe Payments Schedule

Oak Nebe Pang
Equity Equity Equity
Partners
Pa rtners’’ p re-d
re-dis
istr
tributio
ibutionn b a lanc es 2,600
2,600 4,40
4,4000 22
22,00
,000
0
Pos
Po ssible losse
losse s o n no
non-c
n-c a sh a ssets
ets ( 5,400
5,400 ) ( 3,600
3,600 )( 9,000
9,000 )
( 2,800 ) 800 13,000
Write
Write off O a k 2/
2/77 a nd 5/
5/77 2,800
2,800 ( 80
800
0 ) ( 2,000
2,000 )
C a sh d istri
istrib
b ution to p a rtners 0 0 11
11,00
,000
0
C a sh dis
d istr
tributi
ibution
on plan on O c tober
tob er 31:
31:
Firs
Firstt P9,0
P9,00000 g o es to pri
p rio
o rity
rity cred
c reditors
itors,, and
an d then Pang
Pa ng receive
rec eives
s P11,000.
P11,000.
22
22.. Ide,
Ide , P0; Hanly,
Han ly, P0; J en
en,, P92,000
P92,000
Ide Hanly en
Cash Capital Capital Capital Total
Balanc
Bala nc e , Aug
ug.. 1 50,000
50,000 ( 60,000
60,000 ) 4,000
4,000 106,00
106,000
0 50,000
50,000
Ide’s personal
c o ntribut
ntribution
ion 40,000
40,000 40,000
40,000 40,000
40,000
90,000 ( 20,000 ) 4,000 106,000 90,000
Write-off
Write-o ff Id
Idee 20,000
20,000 ( 7,500
7,500 )( 12,500
12,500 )
90,000 0 ( 3,500 ) 93,500 90,000
Hanly’s pers
pe rsona
ona l
c o ntribut
ntribution
ion 2,000
2,000 2,00
2,000
0 2,000
2,000
92,000 ( 1,500 ) 93,500 92,000

Write-off
Write-o ff Hanly
Ha nly 1,500
1,500 ( 1,500
1,500 )
92,000 0 92,000 92,000

Distribute
Distribute c a sh 92,000
92,000 ) ( 92,000
92,000 ) ( 92,000
92,000 )
0 0 0
Theories
C omplet
ompletion Statement
ements s
1. a . pa rtnership
tnership c red edititors
ors othe
otherr tha
thann pa rtners
b. pa rtrtners
ners’’ loa
loans
ns—if
—if subordina
ub ordinated
ted
c . pa rtner
tners s’ c a pital
2. state
tatement
ment of rea liz liza tion a nd liq
liq uidati
uida tion
on
3. sc hedule
hed ule of sa fe pa yments
4. mars
ma rsha
hall lling
ing o f a ssets
5. rule
rule o f seto ff
6. lega l rec ourse
ourse a ga inst
inst
7. bringing the c a pitalpita l ba lanc es into the p rofit and los
loss
s ra tio
True o
or
r False
8. True 13. True 18. Fa
Fals
lse
e 23. Fa
Fals
lse
e 28. True 33. True
9. Fa
Fals
lse
e 14. Fa
Fals
lse
Fals
lse
e 34. True
10. False 15. False 20. True 25. False 30. False 35. False
11. Fa
Fals
lse
e 16. True 21. Fa
Fals
lse
e 26. True 31. Fa
Fals
lse
e
12. True 17. True 22. True 27. True 32. Fa
Fals
lse
e

No te for the
the foll
following
owing numbe rs:
9. The acc ount
ountant
ant is liable if he/she fails fails to mee t the fiducia ry responsibility
responsibility of protec
protec ting th
thee cred itors’
itors’ int
interest
erest
during the liquidat
liquidation
ion proc ess.
10. The amount of c ash distr distribut
ibuteded tto
o eac h partn
partner er is a ffunction
unction of the ca pital balanc es and the the profit
profit and loss
loss
ratios.
ratios. It is unl
unlike
ike ly that part
partners
ners will
will rrec
ec eive the sam e a mount of c ash.
11. Part
Partnership
nership c reditors
reditors have prior priorit
ityy c laims ag ainst partnership
partnership assets and partner partner c reditors
reditors have priorit priorityy
c laims ag ainst partn
partnerer asse ts.
14. Part
Partner
ner c reditor
reditorss have claims fir first
st ag ainst partner
partner assets. They can also also have a c laim ag ainst partnership
partnership
asse ts to
to the ex tent of the
the p artner’
artner’ss eq uity in tthehe p artnership.
15. The ac c ountant has a fiduc iary resp resp onsibilit
onsibi lityy to the pa rtnership
rtnership ’s c red itors to ensure that
that suffici
sufficient
ent asse ts
ex ist to pa y the c reditor
reditors.
s. It does not mean that cred it itors
ors must be full
fully p aid b efore any partner
partner distribut
distributions
ions
occur.
18. G ains and losses realizrealized
ed during tthe he liquidation proc ess are g ene ral rallly alloc
alloc ated using the the residual profit
and loss ratio.
ratio. Other profprofitit and loss all alloc
oc ation compone nt ntss are not c onsidered b ec ause these items are
g ene
en e rally relev
relevant
ant tto
o the pa rtnership ’s ope ration an andd the c urrent issue is the pa rtne
rtnership
rship ’s lliq
iquid
uidation.
ation.
21. This is c alled aann install
installme
me nt liquid ation
23. This d
dococ ume nt is c alled a Statem
Statemen entt of Rea lization and Liquida
Liqui da tion.
25. The Stateme nt o f Realization
Re alization and Liq iquid
uidation
ation do es not inc lude inc ome stateme nt a c c ounts. A ll inc ome
stateme nt am ounts are a lloc lloc ated di direc
rec tly
tly to partnership
pa rtnership e quity.
qui ty.
Multiple C hoice
hoic e Theories
36
36.. A 41
41.. b 46
46.. c 51
51.. b
37
37.. A 42
42.. d 47
47.. a 52
52.. a
38
38.. C 43
43.. b 48
48.. c
39. D 44. d 49. d
40
40.. C 45
45.. b 50
50.. b

C hap
haptter 5
Prob
oblem
lem I
1.
A, B, C and D Partnership
Statement of Liquidation
J anuary 1, 20x4 to May 31
31, 20x4
Non- A, B, C, D,
Cash A, capital capital capital capital
Cash Assets Liabilities loan D, loan (40%) (20%) (20%) (20%)
Balanc es before
Liquid
Liqui d a tio
tionn 181,800
181,800 84,000 6,000 3,000 26,400 25,800 20,400 16,200
J anuary
- Rea lization 72,000 (90,000) (7,200) (3,600) (3,600) (3,600)
- Payment of
expenses (1,200) ( 480) ( 240) ( 240) ( 240)
- Payment
of liabilities (66,000) ______ (66,000) _____ _____ ______ ______ ______ ______
Bal
Balaa nc e s a fte
fterr J a n 4,800 91,800 18,000 6,000 3,000 18,720 21,960 16,560 12,360
February
- Rea lization 21,600 (30,000) (3,360) (1,680) (1,680) (1,680)
- Payment of
expenses (1,320) ( 528) ( 264)
- Payment ( 264) ( 264)
of liabilities (18,000) _______ (18,
(18,0
000
00)) ______ ______ ______ _______ ______ ______
Balanc es before
pa ym
ymentent to
p a rtners
rtne rs 7,080 61,800 6,000 3,000 14,832 20,016 14,616 10,416
Payment to
Pa
Partnrtners
ers (Sch. 1) ( 5,280
5,280)) ______
____ __ ______
____ __ ____
______ ____
______
__ (5,280
(5,280)) ____
______
__ ____
______
Balances after
Feb ruary
rua ry 1,800 61,800 6,000 3,000 14,832 14,736 14,616 10,416
March
- Rea lization 19,200 (24,000) (1,920) ( 960) ( 960) ( 960)
- Payment of
expenses ( 1,440) ______ ______ _____ ( 576) ( 288) ( 288) ( 288)
Balanc es before
pa ym
ymentent to
p a rtners
rtne rs 19,560 31,500 6,000 3,000 12,336 13,488 13,368 9,168
Payment to
Pa rtners (Sch
(Sch.. 2) (18,36
(18,360)
0) ______
___ ___ (2,736)
(2,736) (3,000)
(3,000) (5,688)
(5,688) (5,568
(5,568)) (1,368
(1,368))
Balances after
M a rc
rch
h 1,200 37,800 3,264 12,336 7,800 7,800 7,800
April
- Rea lization 6,000 (19,800) (5,520) (2, 760) (2,760) (2,760)
- Payment of
expenses (4,800) ______ (1,920) ( 960) ( 960) ( 960)
Balanc es before
pa ymyment
ent to
p a rtners
rtne rs 2,000 15,000 3,264 4,896 4,080 4,080 4,080
Payment to
Pa rtners (No te 1) (1,500
(1,500)) ______
___ ___ ( 720)
720) ( 360)
360) ( 360
360)) ( 360
360))
Balances after
Ap ril 500 18,000 2,554 4,896 3,720 3,720 3,720
May
- Rea liz
liza
a tion
tion 2,400 (18,000) (6,240) (3,120) (3,120) (3,120)
- Payment of
expenses ( 960) _____ ( 384) ( 192) ( 192) ( 192)
Balanc es before
O ffsetti
ffsetting
ng 1,440 2,554 ( 1,728) 408 408 408
Offset deficit vs.
Loan
Loa n ____
______
__ (1,728
(1,728)) 1,728
1,728 _____
____ _ ______
____ __ ____
______
Balanc es before
p a yment
yme nt 2,040 816 408 408 408
Payment to
Pa rtners (No te 2) (2,040
(2,040)) (816) (408) (408) (408)
2.
A, B, C and D Partnership
Sc hed
hedul
ule
e of Safe Payments
Schedule 1 – February
C omp utation o f Distr 28,on
Distributi 20x4
ibution of C a sh on
o n February 28,
28, 20x
20x4
A, B, C, D,
capital capital capital capital
(40%) (20%) (20%) (20%)
Balances before payment to partners:
Loa ns 6,000 3,000
C a pi
pita
tall 14,832 20,016 14,616 10,416
T
Total
otal Inter
Interestest 20
20,8
,832
32 20
20,0
,016
16 14,61
4,616
6 13
13,4
,416
16
Restricted
ic ted interest for poss
p ossible
ible losses:
losses:
Unrea
Unr ea liz
lized
ed non-c
non -ca
a sh a ssets P 61
61,80
,800
0
C a sh withheld 1,800
1,800
P 63,600 (25,440) (12,720) (12,720) (12,720)
( 4,608) 7,296 1,896 696
Restric
Restric ted for p ossible
ossible insolvenc
insolve ncy
y o f A (2:2:2
(2:2:2)) 4,608
4,608 (1,536
(1,536)) (1,536
(1,536)) (1,536
(1,536))
5,760 360 ( 840)
Restricted
ic ted for po ssible insolve
insolvenc
ncy
y of D (2:2
(2:2)) ( 42
420)
0) ( 42
420)
0) 84
840
0
Restricted
ic ted for po ssible insolve
insolvenc
ncy
y of C ( 5,340
60
60)) ( 60)
60
Pa
Payment
yment to pa rtner
rtner (s) 5,280
5,280
App li
lied
ed to:
Loans -0-
C a pital 5,280
5,280
5,280
Sc hed ule 2 – Ma
M a rc h 31,
31, 20x
20x4
C omp utation of
o f Dis
Distributi
tribution
on of
of C
Caa sh on
o n Ma rch 31, 20
20x
x4
A, B, C, D,
capital capital capital capital
(40%) (20%) (20%) (20%)
Balances before payment to partners:
Loa ns 6,000 3,000
C a pi
pita
tall 12,336 13,488 13,488 9,168
T
Total
otal Inter
Interest
est 18
18,3
,336
36 13
13,4
,488
88 13,48
3,488
8 12
12,1
,168
68
Restricted
ic ted interest for poss
p ossible
ible losses:
losses:
Unrea
Unr ea liz
lized
ed non-c
non -ca
a sh a ssets P 37
37,80
,800
0
C a sh withheld 1,200
1,200
P 39,000 (15,600) ( 7,800) ( 7,800) ( 7,800)
2,736 5,688 5,568 4,368
App li
lied
ed to:
Loa ns 2,736 -0- -0- 3,000
C a pita l ___-0-
__ _-0- 5,68
5,6888 5,56
5,5688 1,36
1,368
8
2,736 5,688 5,568 4,368

3.
T,
T, U, V and W Partner
Partnersshi
hip
p
C a sh Pa yment Priorit
Priority
y Program*
J anuary 31, 20x4
Interests Payments
T,
T, U, V, W, T,
T, U, V, W,
capital capital capital capital capital capital capital capital
(40%) (20%) (20%) (20%) (40%) (20%) (20%) (20%) Total
Balanc es before
liquidation:
Loa ns 6,000 3,000
C a p ita
itall 26,400 25,800 20,400 16,200
Total
Total Int
Interes
erests
ts 32
32,4
,400
00 25,
5,80
800
0 20
20,4
,400
00 19
19,2
,200
00
Divide d b y: P & L % __40%
__ 40% ___20%
__ _20% __20
__ 20%
% __20%
__ 20%
Loss Ab sorption
orptio n
Ab ilities
ilitie s 81,000 129,000
129,000 102,000 96,000
Priority I _____
___ ___
_ (27,00
(27,000)
0) _____
__ _____
__ ______
___ _____ 5,400
5,400 5,400
5,400
81,000 102,000 102,000 96,000
Priority II _____
___ ___
_ ( 6,00
6,000)
0) ( 6,000)
6,000) ______
___ _____ 1,200
1,200 1,20
1,200
0 2,40
2,400
0
81,000 96,000 96,000 96,000
Priority III _____
___ ___
_ (15,00
(15,000)
0) (15,000)
(15,000) (15,000)
(15,000) _____
___ ____
__ 3,00
3,000
0 3,00
3,000
0 3,00
3,000
0 9
9,000
,000
81,000 81,000 81,000 81,000 ____
__ __-0-
-0- 9,600 4,200 3,000 16,800
*also know
known n a s Sche dule of Ca
C a sh Distr
Distributio
ibutionn Plan / Pre-d
Pre-dis
istr
tribution
ibution Plan.
4.
T,
T, c ap ital U, capital V, ca pit
pital
al W, ca pit
pital
al
(40%) (20%) (20%) (20%)
Total
Total In
Inter
teres
eststs P 32,
32,4
400 P 25,8
5,800 P 20,
0,4
400 P 19,
19,2
200
Divided
Divide d b y: P & L % ____
__ __40
40%
% __
____
__20
20%% __
____
__20
20% % __
____
__20
20%%
Loss Absorption
A b ilities P 81,000 P129,000 P 102,000 P 96,000
O rde
rderr o f C a sh Distri
Distrib
b ution (4) (1) (2) (3)
Vulnerab
Vulne rabili
ility
ty R
Raa nkings (1
Is mos
mo st vulnerab
vulnera b le) (1) (4) (3) (2)
The
The vulner
vulnerab
ab ility ranks
ranks indica te that p
part
artner
ner T is mos
mostt vul
vulner
nerab
ab le to loss
losses bec ause
ause hi
his
s equity
equity were
were
reduced to zero with a partnership liquidation loss of P81,000. Partner U is least vulnerable because
his eq uity
explain is
is suffic
w hy
why ufficient
ient U
pa rtner torrec
a beived
ec sorb his
a llsthe
ha
hare
rec a
of
osfhliquida
dis
d istr tion los
tributed
ibuted loto
sses
paup to P129,00
rtner P129,000.
on the 0.sT
firs
fir this interpretadistr
installment
installment tion
dis help
h elps
tribution
ibutions
(August 20x4).
Incidenta lly,
Incidentall y, the
the c a sh pr
p riori
ority
ty program ddevelop
eveloped
ed will
will y
yiel
ield
d the same
same c a sh pap a yment
yment a s the pr
p roc ess
ess
of c omputi
omp uting
ng safe p ayments ea c h time time c ash is
is ava il
ilab
ab le. The c a sh dis
d istr
tributi
ibution
on under the c ash
priority program is as follows:
O rd er o f C a sh Dis
Distr
tribution
ibution C red
editor
itors
s T U V W
1. First
First P70,000
P70,000 100%
2. Next
Ne xt P 4,500 100%
3. Next
Ne xt P2,
P2,000
000 50% 50%
4. Next
Ne xt P7,500 33 1/3%
1/ 3% 1/ 3%
33 1/3% 1/ 3%
33 1/
5. Rema
Rema ind e r 40% 20% 20% 20%
The
The fir
first P8
P84
4,00
,000 avai ava ilab le is, of c our
oursse pa id to the c redied itors
tors. C ash
ash may be heldheld ba c k fr from
om
distr
distribution
ibution if iitt is
is a ntic
ntic ipated
ipa ted that a d ditional
ditiona l expe
expens
nses
es will
will b e incur
inc urrred a nd unrec
unrec orde
ordedd liabil
liab iliti
ities
es will
will
be discovered. The distribution of cash in excess of the reserve amount proceeds as determined.
Partner U will receive all of an additional ash up to P5,400. Additional cash in excess of P5,400 and
up to P7,800
P7,800 is
is d istri
istrib
b uted 50
50:5
:50
0 to pa
p a rtners U and V. Any
A ny amo
a mountunt in excess
exc ess o f P7,800up
P7,800up to P16,800
P16,800 is
d istribute
istributedd 1: 1:
1: 1 to p a rtners U, V, and
a nd W, respe
respec
c tively. Afte
A fterr P16,800
P16,800 (P5,400 + P2,400 + P9,000) has
ha s
been distributed to the partners, the capital accounts are in the desired profit and loss ratio of
4:2:2:2. Any further distributions to the partners are made in accordance with the profit and loss
ratio.
Even though both methods produce the same results, the cash payment priority program is more
informative to both personal and partnership creditors, and to the partners. Interested parties now
know the order in which the individual partners will receive cash and the amounts that each may
rec eive at
a t ea c h peri
p eriod
od of the distr
distribut
ibution
ion proc ess
ess.
One requirement that must be satisfied in the development of the advance plan is that the
pa rtners mus
mustt sha
sharre inco me in the sa me ratio that they s
sha
harre loss
losses. If
If this wer
we re not the c a se the
potential amount of a new loss would need to be computed after every allocation to the partners’
capital accounts. This occurs because the allocation of liquidation gain alters the order of cash
distr
distribution
ibution c omputed
omp uted in tthe
he p riori
iority
ty program.

Prob
oblem
lem II
ABC Par
Pa rtnership
tnership
Statement of Partnership Realization and Liquidation
For the
the p eriod from J a nuary
nua ry 1, 20x
20x4,
4, throug
through h Ma rch 31, 220x
0x4
4
C apital B
Balanc
alanc es
Other Ac c ount
ounts s AA BB CC
C a sh Ass
Asse
e ts Paya
Pa yabb le 5
50%
0% 30% 20%
Bala
alanc
nces
es be
befor
fore
e Liquida
iquida ti
tion,
on, 18,000 307,000 (53,000) (88,000) (110,000) (74,000)
J anuary 1,2 ,20
0x4
J anuary trtrans
ansacac ti
tions
ons::
1. Collection of accounts
rec eivable a t a loss
o f P15,000 51,000 (66,000) 7,500 4,500 3,000
2. Sa le o f inventory
invento ry a t a lloss
oss 38,000 (52,000) 7,000 4,200 2,800
of P14,000
3. Liquidation
Liquida tion expe ns nses
es p a id (2,000)
(2,000) 1,0
1,000
00 60
6000 40
4000
4. Share
ha re o f c redit memorand
memo randum um 3,000
3,000 (1,5
(1,500)
00) (90
(900)
0) (600)
(600)
5. Payments
Pa yments to c reditors
redito rs (50,00
(50,000)
0) 50
50,00
,0000
55,000 189,000 -0- (74,000) (101,600) (68,400)
Safe payments to partners
(Sche
(Sc hedd ule 1) (45,00
(45,000)0) __ 26,60
26,600 0 18,400
18,400
10,000 189,000 -0- (74,000) (75,000) (50,000)
February
Feb ruary tr
tra
a nsa
nsa c tions:
6. LiLiquida
quida tion expens
expe nses es pa id
(4,000) __ 2,000 1,200 800
6,000 189,000 -0- (72,000) (73,800) (49,200)
(Sc
(Sc hed
hedule
ule 2) -0- __ ___ -0- -0- -0-
6,000 189,000 -0- (72,000) (73,800) (49,200)
Ma rch trans
transaa c ti
tions:
ons:
8. Sa le of M&Eq. a t a los losss of 146,000 (189,000) 21,500 12,900 8,600
P43,000
9. LiLiquida
quida tion expens
expe nses es pa id
(5,000) 2,500 1,500 1,000
147,000 -0- -0- (48,000) (59,400) (39,600)
10. PaPayme
ymentsnts to p a rtners (147,000)
(147,000) 48,00
48,0000 59,400
59,400 39,600
39,600
Balances at end of
liquida tion, M a rc h 31
31,, 20x4 -0- -0- -0- -0- -0- -0-

ABC Part
Pa rtners
nership
hip
Sc hed ules of Safe Payments
Pa yments to Pa rtners
AA BB CC
Sc hed
he d ule 1: J a nua ry 31, 20x4 50% 30% 20%
C a pita l ba lanc e s (74,000)
(74,000) (10
(101,6
1,600
00)) (68,400)
(68,400)
Possible loss:
Other assets (P189,000) and possible
liquida
liquid a tio
tionn c osts (P10,000)
(P10,000) 99,50
99,500
0 5
59,70
9,700
0 39,800
39,800
25,500 (41,900) (28,600)
Ab
Abs sorpti
orption
on of AA’
AA’ss potenti
po tential
al de
defi
fic
c it ba lanc
lancee (2
(25,
5,50
500)
0)
BB:
BB: (P25,500 x 3/5
3/ 5 = P15,300) 15,300
C C : (P25,500 x 2/
2/55 =P10,200)
P10,200) 10,200
10,200
Sa fe pa yment, J a nua
nuary
ry 31
31,, 20x4 -0- (26,60
(26,600)
0) (18,400)
(18,400)
Sc he
hedu
dulele 2: Feb
February
ruary 27
27,, 20x
20x4
4
(72,000) (73,8
(73,800
00)) (49,2
(49,200)
00)
Possible loss:
Other assets (P189,000) and possible
liquida
liquid a tio
tionn c osts (P6,000) 97,50
97,500
0 58,500
58,500 39,00
39,000
0
25,500 (15,300) (10,200)
Ab
Abs sorpti
orption
on of AA’
AA’ss potenti
po tential
al de
defi
fic
c it ba lanc
lance:
e: (2
(25,
5,50
500)
0)
BB:
BB: (P25,500 x 3/5
3/ 5 = P15,300) 15,300
C C : (P25,500 x 2/
2/55 =P10,200)
P10,200) 10,200
10,200
Sa fe pa yment, February
Feb ruary 27
27,, 20x4 -0- -0- -0-
Note that the c ompomputation

utation o f ssa
a fe p a yments on Feb
Febru
rua
a ry 27
27,, 20x
20x4, rresul
esulted
ted in no pa
p a yments to p
paa rt
rtners
ners.. This is
due to the large book value of Other Assets still unrealized and the reservation of the $6,000 cash on hand for
po ssible futur
future
e li
liquida
quida tion e
exxpens
pe nses.
es.
Prob
oble
lem
m III: C ash Distribution Pla
lan
n
PET Partnership
C a sh Dis
Distri
trib
b ution Plan
J une 30, 20x4
Loss
Loss Absorption
Absorption Power
Powe r C apit
ap ital
al Acc
Ac c ounts
PP EE TT PP EE TT
Profit and loss
p erce
rc e ntag
nta g es 50% 30% 20%
Preliquidation
c a pita
pitall ba lanc e s (55,000
(55,000)) (45,0
(45,000
00)) (24,0
(24,000)
00)
Loss absorption
Power (Ca pitpital
al
balances /
Loss p erc
rceent) (110,0
(110,000)
00) (150,00
(150,000)
0) (120,000
(120,000))
Decrease highest LAP

to next highest:
EE
(P30,000 x .30) 30,000 9,000
(110,000) (120,000) (120,000) (55,000) (36,000) (24,000)
Dec rea se LAPs

to next highest:
EE
(P10,000 x .30) 10,000 3,000
T
TT
T
(P10,000 x .20) 10,000 2,000
(110,000) (110,000) (110,000) (55,000) (33,000) (22,000)
Summary
umma ry of C a sh Distr
Distribution
ibution
(If Offer
Offe r of P100,00
P100,000
0 iis
s Ac c epted
ep ted))
Ac c ounts
ou nts PP EE TT
Pa ya
yabb le 50% 30% 20%
C a sh a vailable
vailab le P106,0
P106,000
00
First (17,000) P17,000
Ne
Nextxt (9,000) P 9,000
Ne
Nextxt (5,000) 3,000 P 2,000
Addit
Add itional
ional paid
in P&L ratio (75,000)
(75,000) ____
__ ____
__ P37,500 22,50
22,500
0 15,000
15,000
P -0- P17,000 P37,500 P34,500 P17,000
Problem IV
PET Partnership
Statement of Partnership Liquidation and Realization
Fro
Fro m J uly 1, 20x
20x4,
4, thro
thro ug
ughh Sep
Sep tember
temb er 30, 20x
20x4
4
Capital
Nonc a sh Ac c ounts PP EE TT
C a sh Asse
Asse ts Pa
Paya
yabb le 50% 30% 20%
Preliquid
Preliq uida
a tion b a la
lanc
nc e s 6,000 135,0
135,000
00 (17,000)
(17,000) (55,000
(55,000)) (45,000)
(45,000) (24,000)
(24,000)
J uly:
uly:
Asse
Ass ets Rea lize
lize d 26,50
26,500
0 (36,000
(36,000)) 4,750 2,850 1,900
Pa
Paid
id li
liquid
quidaa tion c osts (1,00
(1,000)
0) 500 300
300 20
200
0
Paid
Pa id c red
reditors
itors (17,00
(17,000)
0) 17,000
17,000
14,500 99,000 -0- (49,750) (41,850) (21,900)
Sa fe Payments
Pa yments (Sc
(Sc h. 1) (6,5
(6,500
00)) 6,500
6,500
8,000 99,000 -0- (49,750) (35,350) (21,900)

August:
Equipment
Equipme nt withd
withdrawn
rawn (4,000)
(4,000) (3,00
(3,000)
0) (1,800)
(1,800) 8,800
8,800
(allocate P6,000 gain)
Pa
Paid
id li
liquid
(1,500
00)) 75
750
0 450
450 30
300
0
6,500 95,000 -0- (52,000) (36,700) (12,800)
Sa fe Payments
Pa yments (Sc
(Sc h. 2) (4,0
(4,000
00)) 4,000
4,000
2,500 95,000 -0- (52,000) (32,700) (12,800)
September:
Asse
Ass ets Rea lize
lize d 75,00
75,000
0 (95.000
(95.000)) 10,000
10,000 6,000 4,000
Pa
Paid
id li
liquid
(1,000
00)) 50
500
0 300
300 20
200
0
76,500 -0- -0- (41,500) (26,400) (8.600)
Payme
Pa yments
nts to p a rtners (76,50
(76,500)
0) 41,50
41,500
0 26,400
26,400 8,600
Postliquida
Postliquidation
tion ba lanc es -0- -0- -0- -0- -0- -0-

PET Partnership
Sc hed
hedules
ules of Safe Payments
Pa yments to Pa rtners
PP EE TT
Sc hed
he d ule 1: J uly 31, 20x
20x4
4 50% 30% 20%
(49,750) (41,850
(41,850)) (21,9
(21,900
00))
Po
Posssib
sib le loss on nonc
no nc a sh a ssets (P99,000) 49,500
49,500 29,70
29,700
0 19,800
19,800
C a sh reta ine
inedd (P8,000) 4,000 2,400 1,600
1,600
3,750 (9,750) (500)
Abs
Ab sorption of Pen's popotential
tential deficit
de ficit (3,7
(3,750
50))
EE: P3,750 x .30/.50
.30/ .50 2,250
TT: P3
P3,7
,750
50 x .2
.20/.5
0/.500 1,5
,50
00
-0- (7,500) 1
1,000
,000
Abs
Ab sorption of TT’s po tential deficit
de ficit (1,000
(1,000))
EE P1,000 x .30/.30
.30/ .30 1,000
Sa fe pa yment -0- (6,500)
(6,500) -0-
Sc he
hedu
dulele 2: Au
August
gust 31
31,, 20x
20x4
4
(52,000) (36,700
(36,700)) (12,8
(12,800
00))
Po
Posssib
sib le loss on nonc
no nc a sh a ssets (P95,000) 47,500
47,500 28,50
28,500
0 19,000
19,000
C a sh reta ine
ined
d (P2,500) 1,250 750 500
(3,250) (7,450) 6,700
Abs
Ab sorption of TTs’ po tential deficit
de ficit (6,700
(6,700))
PP: P6,700 x .50/.80
.50/ .80 4,188
EE: P6,700 x .30/.80
.30/ .80 2,512
938 (4,938) -0-
Abs
Ab sorption of PPs po tential de
deficit
ficit (938)
(938)
EE: P938 x .30/.30
.30/ .30 938
Sa fe pa yment -0- (4,0
(4,000
00)) -0-
Problem V
DS
DSVV Pa
Part
rtne
ners
rship
State
tatement
ment o
off Par
Pa rtners
tnership
hip Rea
Realilization
zation a
and
nd Liquida
Liquidation
tion — Ins Installment
tallment Liquida
Liquida tion
Fr
Froo m J uly 1, 20x
20x4, through Sep tember
temb er 30, 20 20x4
x4
C apit
ap ital
al Balances
Nonc a sh D S V
C a sh Assets
Assets Lia
Liabb ilitie
ilitiess 50% 30% 20%
Preliquid
Preliq uida
a tion b a la
lanc
nc es, 6/
6/30
30 50,00
50,000
0 670,0
670,000
00 (405,0
(405,000)
00) (100,0
(100,000)
00) (140,0
(140,000)
00) (75,000)
(75,000)
J uly,
uly, 20x4: Sale of as
ass
sets and
distribution of P120,000 loss (510,000) 60,000 36,000 24,000
390,000
440,000 160,000 (405,000) (40,000) (104,000) (51,000)
Liquida
Liquid a tion expe
xpenses
nses (2,500
(2,500)) 1,250
1,250 750 500
437,500 160,000 (405,000) (38,750) (103,250) (50,500)
Pa
Payment
yment to c reditors
red itors (40
(405,0
5,000
00)) 40
405,0
5,000
00
32,500 160,000 -0- (38,750) (103,250) (50,500)
Pa
Payments
yments to pa rtners (Sc
(Sc h. 1) (22
(22,50
,500)
0) 22,50
22,500
0
10,000 160,000 -0- (38,750) (80,750) (50,500)
Au
August,
gust, 20x
20x4:
4: Sa
Sa le o f a ssets &
d istrib
istributio
ution
n of P13,000 lo loss
ss 22,000 (35,000) 6,500 3,900 2,600
32,000 125,000 -0- (32,250) (76,850) (47,900)
Liquida
Liquid a tion expe
xpenses
nses (2,500
(2,500)) 1,250
1,250 750 500
29,500 125,000 -0- (31,000) (76,100) (47,400)
Payme
Pa yments
nts to p a rtners (Sch
(Sch.. 2) (19,500)
(19,500) 13,700
13,700 5,80
5,800
0
10,000 125,000 -0- (31,000) (62,400) (41,600)
September, 20x4: Sale of

assets
d istributio n of P70,000 lo
loss
ss 55,000 (125,000) 35,000 21,000 14,000
65,000 -0- -0- 4,000 (41,400) (27,600)
Alloc a te D's de
defic
ficit
it to S a nd V (4,000)
(4,000) 2,4
2,400
00 1,6
1,600
00
65,000
65,000 -0- -0- -0- (39,000
(39,000)) (26,000
(26,000))
Liquida
Liquid a tion expe
xpenses
nses (2,500
(2,500)) 1,500
1,50 0 1,00
1,0000
62,500
62,50 0 -0- -0- -0- (37,500
(37,500)) (25,000
(25,000))
Payme
Pa yments
nts to p a rtners (62,50
(62,500)
0) -0- 37,500
37,500 25,000
25,000
Postliquida
Postliquidation
tion ba lanc es -0- -0- -0- -0- -0- -0-
DS
DSV
V Part
Pa rtne
ners
rship
Schedule of Safe Payments to Partners
D S V
Sc hed
he d ule 1, J uly 31, 20x
20x4:
4: 50% 30% 20%
C ap it
ital
al balanc
ba lances,es, J ul
uly
y 31,
31,
Before
Befo re c a sh d is
istributio
tributionn (38,750))
(38,750 (103,25
(103,250)
0) (50,500
(50,500))
Assume full loss of P160,000 on
remaining noncash assets and
P10,000 in possible future
liquida
liquid a tion
tion expe
xpenses
nses 85,000
85,000 51,00
51,000
0 34,000
34,000
46,250 (52,250) (16,500)
Assume D's pote
Assume potential
ntial de
deficit
ficit
mustt be a bsorbed by S a nd V:
mus (46
(46,25
,250)
0)
30/50
30/ 50 x P46,250 27,750
20/50
20/ 50 x P46,250 18,500
-0- (24,500)
(24,500) 2,000
2,000
Assume V's potential deficit
mustt be a bsorbed by S c ompletely
mus omp letely 2,
2,00
000
0 (2,0
(2,000
00))
o n J uly 31, 20x
20x4
4 -0- (22,500)
(22,500) -0-
Sc he
hedu
dulele 2, A
Augu
ugus st 31, 2
20x
0x4:
4:
C ap it
ital
al ba lanc
lances,
es, Augus
Augustt 31,
31,
b efo re c a sh distr
distribution
ibution (31,000)
(31,000) (76,1
(76,100)
00) (47,4
(47,400
00))
Assume full loss of P125,000 on
remaining noncash assets and
P10,000 in possible liquidation
Expense
Expe nsess 67,500 40,500 27,000
36,500 (35,600) (20,400)
Assume D's pote
Assume potential
ntial de
deficit
ficit
mustt be a bsorbed by S a nd V:
mus (36
(36,50
,500)
0)
30/50
30/ 50 x P36,500 21,900
20/50
20/ 50 x P36,500 14,600
Sa fe pa yments to pa rtners -0- (13,70
(13,700)
0) (5,8
(5,800
00))

Prob
oblem
lem VI:
VI: C ash Dis
Distr
tribution P
Pla
lan
n (or be
bett
tter use the forma
formatt presented in the discuss
discussion)
DS
DSV V Pa
Partrtne
ners
rship
C a sh Distributio
tribution n Pl
Pla
an
J une 30, 20x4
Loss
Loss Absorption
Absorption Power
Powe r C ap it
ital
al Ac c ounts
D S V D S V
Prof it a nd loss sharing ratio

Profit 50% 30% 20%
Preliquida tion c a pita
pitall ba lanc es (100,0
(100,000)
00) (140,00
(140,000)
0) (75,0
(75,000
00))
Loss absorption power (LAP)
capital accounts /
loss shar
ha ring pe rc e nta
ntage
ge (200
(200,00
,000)
0) (466,6
(466,667)
67) (37
(375,0
5,000)
00)
Decrease highest LAP to next

highest LAP:
Dec rea se S by P91,6
P91,667
67 91,
91,667
667
(C a sh d is
istributio
tribution:
n: P91,667 x .30) 27,500
27,500
(200,000) (375,000) (375,000) (100,000) (112,500) (75,000)
Decrease LAP to next highest
level:
De
Dec c rea
rease
se S b y P175,00
P175,000 0 175,0
175,000
00
C a sh d is
istributio
tribution:
n: P175,00
P175,000
0 x .30) 52,500
52,500
Dec
De c rea
reasse V by P175
P175,00
,000
0 17
175,0
5,000
00
C a sh d is
istributio
tribution:
n: P175,00
P175,000
0 x .20) 35,000
35,000
(200,000) (200,000) (200,000) (100,000) (60,000) (40,000)

Dec rea se LAPs by dist
distri
ributing
buting
c a sh in the P/ L sharing ratio 50% 30% 20%
Summary
umma ry o f C
Caa sh Distr
Distribution
ibution Pla n
(Estim
tima
a ted on J une 30, 30, 20x4)
Liquidation
C redito
reditors
rs Expe
Expensnse
es D S V
1. First P405,
P405,000
000 100%
2. Ne
Nextxt P10,000 100%
3. Ne
Nextxt P27,500 100%
4. Next
Ne xt P87,
P87,500
500 60% 40%
5. Any a dd itiona
itionall distr
distributio
ibutions
ns
in the partners' profit
a nd lo
loss
ss ra
ratio
tio 50% 30% 20%

b. C onfirm
onfirma
a tion of c
caa sh dis
distr
tribution
ibution plan
DS
DSVV Pa
P a rtnership
rtnership
Capital Account Balances
J une 3030, 20x4, thr
through
ough September 30, 20x4
D S V
Profit
Pro fit a nd lo loss
ss ra
ratio
tio 50% 30% 20%
Preliquida tion ba lanc e s, J une 30 (10
(100,0
0,000
00)) (140
(140,00
,000)
0) (75,000
(75,000))
J uly
uly loss
loss of P1P12 20,0,0000 on di
disspos
posalal of assets
a nd P2,500
P2,500 pa id in li liquid
quidaa tion c osts 61
61,25
,2500 36
36,75
,750
0 24
24,50
,500
0
(38,750) (103,250) (50,500)
J uly
uly 31 disdistr
tribut
ibutionion of P2P22,5
,5000 of
a vailable
vailab le c ca a sh to pa rtners (S (Sc
c h. 1)
1)
First P22,500 of P27,500 layer:
100% to S 22,500
(38,750) (80,750) (50,500)
August loss of P13,000 on disposal of
assets and P2,500 paid in
liquida
liquid a tion c osts 7,750 4,65
4,650
0 3,100
3,100
(31,000) (76,100) (47,400)
August
Aug ust 331 1 distr
distributio
ibution n of
o f P19,5
P19,50000 of
a vailable
c h. 2)
2)
Remaining
Rema ining P5,000 of P27,50P27,500 0 layer
laye r
of which
w hich P22,5
P22,500 00 pa id oonn J uly 331:
1:
100% to S 5,000
Next $14,500 of P87,500 layer:
60% to S 8,700
40% to V 5,800
(31,000) (62,400) (41,600)
September loss of P70,000 on disposal of
a ssets and P2,5 P2,500 00 paid in lliquida
iquidation
tion
C osts 36,250 21,750 14,500
5,250 (40,650) (27,100)
Distribibutio
ution n of D's d efic it (5,250
(5,250)) 3,150
3,150 2,100
-0- (37,500)
(37,500) (25,000)
(25,000)
September 30 distribution of P62,500 of
a vailable
c h. 3)
3)
Next
Ne xt P6P62,5
2,50000 of P87,5
P87,500
00 lala yer of
o f whic h
P14,500 paid on August 31:
60% to S 37,500
40% to V 25,000
Postliquida
Postl iquidationtion ba lanc es -0- -0- -0-
Sc hed
hedule
ule 1, J uly 31,
31, 20x
20x4:
4: C omp
omputation
utation ofo f P22
P22,50
,500
0 of ca sh availab
a vailable
le to b
bee dis
d istr
tributed
ibuted to pa
p a rt
rtners
ners on
J uly
uly 31, 2200x4:
C a sh ba lanc e, J uly 1, 20
20x x4 P 50,0
50,000
00
C a sh from sa le of no
nonc
nc a sh a ssets 39
390,0
0,000
00
Less
Les s: Payment
Pa yment of a c tual liquida
liquida tion expeexpensnses
es (2,
(2,50
500)
0)
Less:: Pa
Less Payments
yments to c red
reditors
itors (405,00
(405 ,000)
0)
Less: Amount held for possible
future liquidation
liquida tion expenses
expe nses (10,00
(10 ,000)
0)
C a sh a va
vailab
ilable
le to pa rt
rtne
ners rs, J uly 31
31,, 20
20x4
x4 P 22,
22,500
500

Schedule 2, August 31, 20x4: Computation of P19,500 of cash available to be distributed to partners
on August 31, 20x4:
C a sh ba lanc e, Aug
Augus
ustt 1, 20x
20x4 4 P10,000
P10,000
C a sh from sa le of no
nonc
nc a sh a ssets 22,000
22,000
Less
Les s: Payment
liquida tion expe
expens nses
es (2,
(2,50
500)
0)
Less: Amount held for possible
future liquidation
liquida tion expenses
expe nses (10,00
(10,000)
0)
C a sh a va
vailab
ilable
le to pa rt
rtne
nersrs, Augus
Aug ustt 31
31,, 20
20x4
x4 P 19,500
19,500
Sc hed
hedule
ule 3, Septembe
ep tembe r 30
30,, 20x
20x4:
4: C omputation
omp utation of
o f P6
P62,5
2,500
00 of c a sh a
availab
vailable
le to b
bee dis
d istr
tributed
ibuted to
partners on September 30, 20x4:
C a sh ba lanc e, Sep tembe

temberr 1, 20x20x4 P10,000
P10,000
C a sh received
rec eived frfrom
om sa le of nonc a sh a ssets 55
55,0
,000
00
Less
Les s: Payment
liquida tion expe
expensnses
es (2,
(2,50
500)
0)
C a sh a va
vailab
ilable
le to pa rt
rtne
nersrs, Se pte
ptembe
mberr 30, 20
20x
x4 P62,500
P62,500
Problem VII
C a sh distr
distributi
ibution
on p rogr
og ra m:
C redit
editors Ames
Ames Bear
ea rd C raig
First P 50,000 100%
Next
Ne xt 34,000 100%
Next
Ne xt 48,000
48,000 33 1/3%
1/ 3% 66 2/3%
2/ 3%
All o ve
verr P132,000 40% 20% 40%
Working
Work ing pa
p a per
pe r for
for ca
c a sh dis
d istr
tributi
ibutions
ons to pa
p a rtners during
during liliq
q uidati
uida tion
on (not requir
req uired
ed ):
Ames Bear
eard C raig
C a pital b a lanc es before
be fore li
liq
q uidati
uida tion
on P60,0
P60,000
00 P80,0
P80,00000 P92,0
P92,00000
Income
Inc ome-s -sha
harring ra ti
tio
o 4 4 2
C a p ital p er unit o f inco
inc o me sharha ring P15,00
P15,0000 P40,00
P40,000 0 P23,00
P23,000 0
Reduc e Bea rd's c a pital to next highe highesst c a pital for C ra ig ______ (17
(17,000
,000)) ______
P15,0000 P23,00
P23,000 0 P23,00
P23,000 0
Reduc
Red uce e Bea rd 's a nd C ra ig's c a pital to Ames
Ame s's c a pital ______
____ __ (8,00
(8,000)
0) (8
(8,0
,000
00))
P15,0000 P15,00
P15,000 0 P15,00
P15,000 0
Problem VIII
C a sh 60
60,00
,000
0
Q uanto, C a pital 5,
5,00
000
0
Rollo, C a pita
pitall 3,
3,00
000
0
Simms,
imms, C a p ital 2,000
2,000
Assets 70,000
To
To rec
rec ord rrea
eallization of ass
assets at a llos
oss
s of $
$1
10,00
0,000,0, divi
divided
a mount Q uanto,
ua nto, Rollo, a nd Simms
imms in 5:3:
5:3:2
2 ra
ra tio
tio , respec
respec ti
tively.
vely.
Liabilities 30,000
C a sh 30
30,00
,000
0
To
To rec
rec ord pa ym
yment
ent to cred
crediitor
tors
s.
Loa n Pa
Payab
yable
le to Q uanto 9,
9,50
500
0
Rollo, C a p ital 10
10,50
,500
0
Simms,
imms, C a p ital 5,000
5,000
C a sh 25
25,00
,000
0
To rec ord pa ym
yment
ent to pa rtner
tners
s, c omputed
omp uted as foll
follow
owss:
Quant
uanto
o Roll
ollo
o Simms
Capital (including Quanto's
loan of P10,000)
b efore
efo re liq
liq uida tion P42,
P42,00
000
0 P30,00
P30,000
0 P18,00
P18,000
0
Loss o n rea liza
liza tion o f a sse ts (5,000
(5,000)) (3,000)
(3,000) (2,000)
(2,000)
Balanc
Bala nc e s P37,000
P37,000 P27,000
P27,000 P16,000
P16,000
Ma ximum
imum p otential
additional
loss (P5,000 +
P50,000 = P55,000)
d ivided
ivide d in 5:3:2
5:3:2 ratio (27,500)
(27,500) (16,500)
(16,500) (11,000)
(11,000)
C a sh p a yments
yme nts P 9,50
9,500
0 P10,500
P10,500 P 5,000
5,000
Multiple C hoice
hoice Problems
1. c
J J CC TT Total
Profit
Pro fit ra
ratio
tio 40% 50% 10% 100%
Prior c a p ital
ita l (160,000)
(160,000) (45,00
(45,000)
0) (55,000)
(55,000) (260,000)
(260,000)
Loss on sa le
o f invento
inve ntoryry 24,000 30,000 6,000 60,000
(136,000) (15,000))
(15,000 (49,000) (200,000)
2. a
Peter Paul Mary T
Total
otal
Capital balances 300,000 350,000 400,000 1,050,000
Loss o n sale o f a ssets
(475,000 – 600,000) – 4:4:2 ( 50,000) (50,000) (25,000) (125,000)
250,000 300,000 375,000 925,000
Pos
Po ssible loss fo
forr unrea
unreali
lized
zed a ssets
P1,000,000 – P600,000 = 400,000 160,000 160,000 80,000 400,000
(90,000 140,000 295,000 525,000
3. d
4. d AA BB CC
C a p ital b a lanc es 37
37,00
,000
0 65
65,00
,000
0 48,000
48,000
Divide
Divid e d b y: Pro
Profit
fit a nd loss ratio 40% 40% 20%
Loss a b so rption
rptio n p o wer
we r 92,500
92,500 162,500
162,500 240,000
240,000
Loss to reduc e C C to BB: BB:
(77,500 x .20 =15,500) 77,500
Bala
Balancnc e s 92,500 162,500
162,500 162,500
Loss to reduc e BB & CC C C to AA:
A A:
(B:70,000 x .40 =28,000) 70,000
(C :70,000 x .20 = 14,000) 70,000
Bala nc e s 92,500
92,500 92,500
92,500 92,500
92,500
C a sh of
o f P20,000
P20,000 a fter settle
settlemen
mentt of
o f lia
lia b iliti
ilities:
es: C
CCC receive
rec eives
s fir
firs
st P15,50
P15,500;
0;
rema ini
ining
ng P4,50
P4,500
0 split
split 2/
2/ 3 to BB a nd 1/3 to C C
5. d C a sh o f P17,0
P17,000
00:: C C rec eives
eive s firs
first P15,
P15,50
500;
0; remaining
rema ining P1,500
P1,500 sp li
litt 2/3
2/ 3 to BB
BB a nd
1/ 3 to CC
CC.
6. a If a ll p a rtners rec
received
eived c
caa sh a fter the sec ond sa
sa le, then the remaining 12
12,0
,000
00 is
distributed in the loss ratio.
7. b
A B C Tota l
rea lization
zation 37,00
37,000
0 65
65,00
,000
0 48
48,00
,000
0 15
150,0
0,000
00
Loss o n sa le (2:2:1);
(2:2:1); [90 – 50] (16,00
(16,000)
0) ( 16,000)
16,000) ( 8,000)
8,000) (40,000)
(40,000)
21,000 49,000 40,000 110,000
Poss
Po ssible loss P90,000,
P90,000, unrea
unre a lize
lize d NC A (36,00
(36,000)
0) (36,000)
(36,000) (18,000)
(18,000) 90,000
90,000
(15,000) 13,000 22,000 20,000
Pos
Po ssible
ible inso
inso lvenc
lven c y los
loss (2:1) 15,000
15,000 (10,00
(10,000)
0) ( 5,000)
5,000) 0
3,000 17,000
8. b
A B C Tota l
rea lization
zation 37,00
37,000
0 65
65,00
,000
0 48
48,00
,000
0 15
150,0
0,000
00
Loss o n sa le (2:2:1);
(2:2:1); [90 – 50] (16,00
(16,000)
0) ( 16,000)
16,000) ( 8,000)
8,000) (40,000)
(40,000)
21,000 49,000 40,000 110,000
Po
Posssible los
lo ss P90,0
P90,000
00,, unreali
unrea lized
zed NC A
p lus P3,000 =P93,000 (37,200) (37,200) (18,600) 93,000
(16,200) 11,800 21,400 17,000
Pos
Po ssible
ible inso
inso lvenc
lvenc y los
loss (2:1) 16,200
16,200 (10,80
(10,800)
0) ( 5,400)
5,400) 0
1,000 16,000 17,000
9. a AE BT KT
Pro fit a nd lo
Profit losss ratio
ra tio 40% 30% 30%
C a p ital b a lanc es (40,00
(40,000)
0) (180,0
(180,000
00)) (30,000
(30,000))
Loss
Loss o f P100,000 40,000 30,000 30,000
Remaining
Rema ining eq uities
uities -0- (150,0
(150,000
00)) -0-
AE will receive nothing; the entire P150,000 will be paid to BT.
10.
10. c
11. d
12. d
13.
13. c
14. a
CC DD EE Tota l
Profit a nd loss ratio 5/10
5/ 10 3/10
3/ 10 2/
2/10
10 10
10// 10
Beginning
Beg inning c a p ital
ita l 80,000
80,000 90,000
90,000 70,000
70,000 240,000
240,000
Ac tual
tua l loss o n a sse ts (5:3:2)
(5:3:2) (15,000)
(15,000) (9,000)
(9,000) (6,000)
(6,000) ( 30,000)
30,000)
65,000 81,000 64,000 210,000
Poss
Po ssible loss – unre
unreaa lize
lize d NC A ( 50,0
50,000)
00) (30,000)
(30,000) (20,000)
(20,000) ( 20,000)
20,000)
Safe
Saf e p a yments
yme nts 15,000 51,000 44,000 190,000

15. c
X Y Z
rea lization
zation 13
130,0
0,000
00 13
130,0
0,000
00 10
100,0
0,000
00
Divide
Divid e d b y: 50% 30% 20%
Loss a b so rption
rptio n a b ilities
ilities 260,000
260,000 260,000
260,000 500,000
500,000
16. a
The
The loa
loa n payabl
payab le to AA has the same lega
lega l statu
tatus
s as the pa rtners
tnershi
hip’s
p’s other
liab
liab ili
ilities
ties.. After pa ym
yment
ent of tthe
he loan, then
then any avail
ava ilab
ab le c ash c a n be
distr
distributed
ibuted to the pa rtners using
using the safe p a yments c omp utations.
17. a
D R N J
72,00
,0000 32,00
32,000
0 52
52,00
,000
0 24,0
24,000
00
Divide
Divid e d b y: Pro
Profit
fit a nd loss ratio
ratio 40% 20% 20% 20%
Loss a b so rption
rptio n p ower
we r 180
180,00
,000
0 160,000
160,000 260,000
260,000 120,000
120,000
Loss to reduce N to D:
(80,000 x .20 =16,000) 80,000 __
____
__0
0
18
18.. d – Harding,
Hard ing, P6,107;
P6,107; J ones,
on es, P12
P12,27
,275
5
C a p ital b a lanc es 20H

20,00
,000
0 J 000
22,00
22, 0 (10,S
(10,00
000)
0) 3T2,000
ota00
32,0 l
Potential
Pote ntial los
loss
s from
from Sa nd
ndyy deficit
de ficit (5,882) (4,118) 10,000 0
14,118 17,882 0 32,000
Loss to red
reduc
uce
e H and J :
(50:35) (8,011) (5,607) (13,618)
Balanc
Bala nc e s 6,107
6,107 12,275
12,275 13,3
13,382
82
Note:
1. Rega rdless there is a fort
fo rthc
hc oming c ontribution to be made ma de b y Sa ndy, it is a ssumed that the P10,0
P10,000
00 de ficit may
not be rec overed for purpurpo
po ses of distr
distribution of c ash.
2. The P13
P13,3,382
82 c a nnot be d isistr
tributed
ibuted in ac c orda
ordance
nce with profit
profit and loss ra tio for reason that the ca pital balanc
ba lanc es of Ha
Ha rdin
rding
g
a nd J one s is not
not the sa me with
w ith the P&L ratio (H: 20
20// 42 =48
48%
%; J : 22/
22/ 42 =52
=52% %)
or, alter
a lterna
nativ
tively:
ely: U
Us
sing C a sh Pa yment Priorit
Priority
y Prog
Progrra m
H J S
20,00
,000 0 22
22,00
,0000 (10,00
(10,000)
0)
Ad d itiona
itionall c ontrib
ontrib ution
ution 0 0 10,0
10,000
00
C a pita
pitall b a lanc es 20
20,0
,000
00 22
22,0
,000
00
Divide
Div ided d b y: Profit a nd loss
loss ratio 50
50// 85 35
35// 85
Loss
Los s a b so rption p ower
ow er 34
34,00
,0000 53
53,42
,4299
Loss
oss to rred
educe
uce J J to HH:
HH:
(19,428
(19, 428 x 35/
35/85
85 = 8,000) 19,428
Balanc
Bala nc e s 34,000
34,000 34,000
34,000
C a sh a vailab
vailable le P18,3
P18,382
82
Less:: Priority I to J one
Less ness (P19,428 x 35/85)
35/ 85) 8,000
8,000 P 8,000
8,000
P10,382
Less: P& L (50:35) (10,382) P 6,107 4,275
P6,107 P 12,275
19.
19. c
20. b
21.
21. c
A B C Tota l
rea lization
zation 70,00
70,000
0 30
30,00
,0000 50
50,00
,000
0 15
150,0
0,000
00
Loan
Loa n 20,00
20,000
0 __
____
____
__ __
____
____
__ 20
20,00
,000
0
Total
Total interes
nterests
ts 90,0
0,000 30,
0,0
000 50,0
,0000 170,0
,0000
Loss
Loss o n sa le (240,000 – 195,000) (15,000) ( 15,000) (15,000) (45,000)
75,000 15,000 35,000 125,000
22.
22. b – –li
lia
a b ilit
ilities
ies should b bee pa
p a id firs
first, then
then the b baa lanc e of
o f P3
P30,
0,00
000
0 should
ho uld be given to Able
A ble sinc
sincee he is the
one entitled to the first priority.
INTERESTS PAYMENTS______
A B C A B C Total
ota l
Balanc
ala nces es bebefore
fore realiza
realiza tion
tion
Loans
Loa ns……………… ………… ………..
….. P 2020,00
,0000
C a p ital……………
ital…… …………... …... 70
70,00
,0000 P 30
30,00
,000 0 P 50 50,00
,0000
Total
Total interes
ntereststs………..
……….... P 90 90,00
,000 P 30 30,00
,000 P 50, 50,00
0000
Divide
Divided d by: P&L ra tio…………
tio……… … 1/3 1/
1/3 3 1/3
Loss a b sorption
sorption a b ility……
ility………..
….. P270,0
P 270,00000 P 90,000
90,000 P150,0
P150,00000
Pri
Prio
o rity
rity I………………
I……… ……………… …………. …. 12 120,0
0,000
00 - ____
__ _____
___ P40,00
P40,0000 P40,00
P40,000 0
P150,000 P90,000 P150,000
Priority II……………
II……… …………
…………
………
… 60,00
60,000
0 P
P 90,000 P90,0000 P 90,000
90,000 60,000
60,000 20,000
20,000 P
P60,000 0
0 P20,000
P20,000
P20,000 40,000
40,000
P80,000
23. d
A B C Tota l
rea lization
zation 70,00
70,0000 30
30,00
,0000 50
50,00
,000
0 15
150,0
0,000
00
Loan
Loa n 20,00
20,0000 __
________
__ __
____
____
__ 20
20,00
,000
0
Total
Total interes
nterests
ts 90,0
0,000 30,
0,0000 50,0
,0000 170,0
,0000
Loss
Loss o n sa le (240,000 – 195,000) (15,000) ( 15,000) (15,000) (45,000)
75,000 15,000 35,000 125,000
Pa
Payment
yment of loans
loa ns to p a rtner (2
(20,0
0,000
00)) ______
___ ___ _____
___ __ (20,0
(20,000
00))
55,000 15,000 35,000 105,000
Asset
Ass et rec eived ______
___ ___ ______
___ ___ (30,0
(30,00000)) (30,0
(30,000
00))
Payment
Pa yment to p a rtnertners
rs a fter p a yment o f loa n 55
55,00
,0000 15
15,00
,000 0 5,000
5,000 75,00
75,0000
Note: The requirement is payment to partners after outside creditors and loans to partners had been paid, therefore, the
pa yme nt to partne rs is iin
n so far as ca pita l is c onc erne d.
24. a
D E F
40,00
,0000 90
90,00
,000
0 30,00
30,0000
Less:
ess: M a c hine, a t fair value ______
___ ___ (3
(35,0
5,000
00)) ______
___ ___
40,00
,0000 55
55,00
,000
0 30,00
30,0000
Divide
Div idedd b y: Profit a nd loss
loss ratio 1/3
1/ 3 1/3 1/3
Loss a b so rption
rptio n p ower
we r 120
120,000
,000 165,000
165,000 90,000
90,000
Loss to red
red uc
uce e E to D:
(45,000 x 1/ 1/33 = 15,000) (45,000) __
____
__0
0
Balanc
Bala nc e s 120,000
120,000 120,000
120,000 90,000
90,000

25.
25. c
K M B J
59,00
,0000 39,00
39,000
0 34
34,00
,000
0 34,0
34,000
00
Divide
Divid e d b y: Pro
Profit
fit a nd loss ratio
ratio 40% 30% 10% 20%
Loss a b so rption
rptio n p ower
we r 147
147,50
,500
0 130,000
130,000 340,000
340,000 170,000
170,000
Loss to reduce CC to BB:
(170,000 x .10 = 17,000) 170,000 __
____
__0
0
Bala
Balanc
nc e s 147,500 130,000 170,000 170,000
26.
26. c
C P H M
60,00
,0000 27,00
27,000
0 43
43,00
,000
0 20,0
20,000
00
Divide
Divid e d b y: Pro
Profit
fit a nd loss ratio
ratio 40% 30% 20% 10%
Loss a b so rption
rptio n p ower
we r 150
150,000
,000 90,000
90,000 215,000
215,000 200,000
200,000
Loss to reduce CC to BB:
(15,000 x .20 =3,000) 15,000 __
____
__0
0
Bala
Balanc
nc e s 150,000
150,000 90,000 200,000 200,000
27.
27. c - the P16,
P16,00
000
0 a vailable
vailab le c ca
a sh ca
c a n be dis
d istr
tributed
ibuted b ut should
should be
b e don
d one
e under
und er the
the asa ssumption that all
a ll
de
deficit
ficit ba lanc es wil
willl be total
to tal loss
losses. Afte
Afterr offsetting
offsetting J J loa
loan,
n, the two de
deficits
ficits total
tota l P4,0
P4,000
00.. F
FF
F a nd RR, the
two partners with positive capital balances, share profits in a 30:20 relationship (the equivalent of a
60%:40% ratio). FF would absorb P2,400 of the potential loss with RR being allocated P1,600. The
remaining capital balances (P10,600 and P5,400) are safe capital balances and those amounts can
be immediately distributed.
or, alternatively:
W J F R
(2,000)) (5,000)
(5,000) 13
13,00
,000
0 7,000
7,000
Loa n ______ 3,
3,00
000
0 _______
_____ __ __
Total
Total interes
ntereststs (2,0
(2,00
00) (2,0
(2,00 00) 13,
3,0
000 7,
7,0
000
Potentia
Po tentia l ins
inso
o lvenc y lo
lo ss (3:2)
(3:2) 2,000 2,000 ( 2,400) (1,600)
10,600 5,400
28. b
A B C Tota l
(5,000)) 18
18,00
,000
0 6,000
6,000 19,0
19,000
00
Potential
Pote ntial los
losss ffrom
rom A de
deficit
ficit (5:3)
(5:3) 5,000 (3,125) (1,875) 0
14,875 4,125 19,000
Loss to red
reduc
uce
e H and J :
(5:3) (8,750) (5,250) (14,000)
6,125 (1,125) 5,000
Pos
Po ssible inso
insolvenc
lven c y loss (1,125)
(1,125) 1,125 0
5,000

29.
29. a – ins
installment
tallment liquida
liquidation
tion (refe
(referr for more prob lems in Cha pter
pte r 5)
INTEREST
INTERESTS PAYM
PA YMENTS
ENTS __
____
P Q R P Q R Tota
otall
Ba lances
lanc es be
befor
fore
e rea lizliza ti
tion
on
Totall in
inter
teres
ests ts………..
……….... P 70 70,0
,00
00 P 50,0,00
00 P10
P100,
0,0000
Divide
Divid ed b y: P&L ratio……
ratio ………… …… 20% 40% 40%
Loss a b so rptio
rptionn a b iliti
ilitie
e s……
……….. ….. P350,00
P350,0000 P125
P 125,000
,000 P250,000
P250,000
Priority I……
I…………………… ………… ………… …….. (100,000)
(100,000) 0 P20,000 P20,000
P250,000 P125,000 P250,000
Priority II……
II…………………… ………… ………… …… (125,0
(125,000)
00) (125,0
(125,000)
00) 25,0
25,000
00 P50,000 75,00
75,000
0
P125,000 P125,000 P125,000 P75,000 P 4,500 P50,000 P95,000
C a sh, be
beginning
ginning P 90
90,0
,000
00
Add (deduct):
Liq
Liq uida
uidati
tion
on expens
expe nses es pa id ( 8,000
8,000))
Payment
ilities
es (170,000
(170,0 00))
Proc ee
eedd s from sa le o f a ssets (? (?)) 10
108,0
8,000
00
Pa
Payment
yment to pa rtner be before
fore pa yment to Renq uist (pri
(priorit
ority
y I only) P 20,
20,00
000
0
30
30.. d – J us
ustic
ticee P15,533
P15,533
C a p ital b a lanc es J,000

23
23,00 0 Z000
22,00
22, 0 (14,D
(14,00
000)
0) Total
31
31,00
,000
0
Potentia
Po tentia l los
loss
s fro
fro m Do
Doug
uglass
lass (40:
(40:35)
35) (7,467) (6,533) 14,000 0
15,533 15,467 0 31,000
Note:
1. Rega rdles
rdlesss there is a forthc
forthc oming c ontr
ontributi
ibution
on to be mad e b y Douglas Dougla ss, it is a ssumed tha thatt the P14,0
P14,000
00 de ficit
may not
no t be rec ove
overed
red for purposes of dis
d istr
tribution
ibution of c ash.
2. The P31
P31,0
,000
00 c a nnot be d isistr
tributed
ibuted in ac c orda
ordance
nce with pr
profit
ofit and loss ra tio for reason tha
tha t tthe
he c a pital ba lanc es of J us
ustice
tice
a nd Zob a rt is
is not the sa me w ith the P&
P&LL ra
ra tio (H: 20/42 =48
48%%; J : 22
22// 42 =52
=52%
%)
or, alternatively: Using

Using C a sh Pa yment Priori
Priority
ty Pr
Prog
ogrra m (refer to C hap
ha p ter 5
5))
J Z D
23,00
,000 0 22
22,00
,000
0 (14,00
(14,000)
0)
Ad d itiona
itionall c ontrib
ontrib ution
ution 0 0 14,0
14,000
00
C a pita
pitall b a lanc es 23
23,0
,000
00 22
22,0,000
00
Divide
Div ided d b y: Profit a nd loss
loss ratio 40
40// 75 35
35// 75
Loss
Los s a b so rption p ower
ow er 43
43,12
,1255 47
47,14
,143
3
Loss
Los s to red uc
uce e Z to D:
D:
(4,018 x 35/55
35/ 55 =1,875) 4,018
Balanc
Bala nc e s 43,125
43,1 25 43,125
43,125
C a sh a vailab
vailable le P31,0
P31,000
00
Less:: Priority I to Doug
Less Do ugla
lasss (P4,018 x 35/75)
35/75) 1,87
1,875
5 P 1,875
1,875
P29,125
Less: P& L (40:35) (29,125) P15,533 13,592
P15,533 P15,467

31. d
INT
INTERESTS PAYM
PA YM ENT
ENTS
S __
____
D K R D K R Tota
tall
Ba lances
lanc es be
befor
foree rea lizliza ti
tion
on
Loans
Loa ns………
……………… ………….. ….. P 0 P 10 10,00
,0000 P(20,000
P(20,000))
C a p ital………
ita l…………… ………..….... 170,000
170,000 170
170,000
,000 100
100,000
,000
Total iint
nteres
ereststs……….
………... .. P170
P170,0
,00
00 P1
P1880,0
,00
00 P 80,0,00
00
Divide
Divid ed b y: P&L ratio……
ratio ………… …… 50% 30% 20%
Loss a b so rptio
rption n a b iliti
ilitie
e s……
……….. ….. P340,00
P340,0000 P600,00
P600,0000 P400,0
P400,000
00
Priority I……
I………… ………… ………… ………… …….. - (200,000)
(200,000) 0 P60,00
P60,000
0 P60,00
P60,000
0
P340,000 P400,000 P400,000
Priority II……
II………… ………… ………… ………… …… - (60,00
(60,000)
0) (60,000)
(60,000) 18,0
18,000
00 18,000
18,000 36,000
36,000
P340,000 P340,000 P340 P340,000
,000 P – P 78,000 P18,000 P 96,000
C a sh rec eived b y the p a rtner Kemp P 60,0

60,000
00
Add (deduct):
Lia
Lia b ilities
ilities p a id 250,000
250,00 0
Ex
Expp en
ens ses p a id 5,000
5,000
Contingency 10,000
C a sh, b egeginning
inning (120,0
(120,000
00))
Proc ee
eedd s from sa le o f o ther a ssets P205,00
P205 ,000
0
32. b
INT
INTERESTS PAYM
PA YMENTS
ENTS __
____
T N D T N D Total
Ba lances
lanc es be
befor
foree rea lizliza ti
tion
on
Loans
Loa ns…………
………………….. ……….. P 0 P 0 P 0
C a pita
pital…………
l………………... ……... 22
22,00
,0000 15,50
15,5000 14,
14,00
0000
Total iint
nteres
erests ts……….
………... .. P 22
22,0
,00 00 P1
P15
5,5
,50
00 P 1 14
4,0
,00
00
Divide
Div idedd by: P&L ratio………… 2/4 1/4 1/4
Loss a b so rptio
rption n a b iliti
ilitie
e s……
……….. ….. P 44,000
44,000 P62,000
P62,000 P 56,000
56,000
Priority I……
I………… ………… ………… ………… …… - ( 6,000) 0 P 1,500 P1,500
P 44,000 P56,000 P56,000
Priority II……
II………… ………… ………… ………… …… - (12,00
(12,000)
0) (12,000)
(12,000) __ 3,000 P 3,000 6,00
6,000
0
P 44,000 P44,000 P44,000 P – P 4,500 P 3,000 P 7,500
C a sh rec eived b y Tree P 6,

6,25
250
0
Divided
Divide d b y: P & L ra tio 2/4
Amo
Am o unt in exc
excess
ess o f P7,500
P7,500 P 12
12,50
,500
0
Total
Total c ash
ash payments
payments – refer
refer to prog
progrram 7,
7,5
500
Pa yment to p a rtners P 20
20,00
,000
0
33. d
C a sh, be
beginning
ginning P 12
12,0
,000
00
Add (deduct):
Proc ee
eedd s from sa le of c ertain
erta in a ssets 32,00
32,0000
Liquid
Liquidaa tion expe
expens nseses p a id ( 1,000
1,000))
Payment
ilities
es ( 5,400
5,400))
Payment
Pa yment to p a rtners (refer to No. No . 30
30)) ( 20
20,00
,000)
0)
C a sh withheld
withhe ld P 17
17,60
,600
0

34. d
Priority
C red itors
itors M a ttews Norell Rea ms Tota l
Fir
Firs
st P300,000……….
P300,000………. P300,000 P300,000
Next
Ne xt P80,000 (7:3)… P56,000 P24,000 80,000
Next
Ne xt P70,000 (3:4)… 30,000 P40,000 70,000
Rema inde
ind e r*
r*……
………..
….. 22,0
22,000
00 34,0
34,000
00 44,000
44,000 100,000
100,000
P300,000 P108,000 P58,000 P84,000 P550,000 (d
(d))
*P550,000 – P300,000 – P80,000 – P70,000 = P100,000
INTERESTS
INTERES PAYM
PA YM ENTS
ENTS___
____
___
_
P Q R P Q R Tota l
Balanc
ala nceses be
before
fore realiza
realiza tion
tion
Loans
Loa ns………………………… ………..….. P 6,000
6,000 P(10,000)
P(10,000)
C a p ital……………
ital…… …………... …... 2 24,0
4,000
00 P36,
P36,000
000 60,00
60,000
0
Total
Total interes
nterests
ts………..
……….... P3P300,00
,000 P3
P36,
6,0
000 P5
P50,
0,0
000
Divide
Divided d by: P&L ra tio…………
tio……… … 3/10 3/10 4/10
Loss a b sorption
sorption a b ilities……..
ilities…….. P100,000
P100,000 P120,000
P120,000 P125,000
P125,000
Priority I…………
I……………… ………… ………… …….. - - (5,000)
(5,000) P 2,000
2,000 P 2,000
2,000
P100,000 P120,000 P120,000
Priority II……………
II……… …………
…………
………
… - (20,000)
(20,000) (20,000)
(20,000) P6,000 8,000
8,000 14,000
14,000 (d
(d))
P100,000 P100,000 P100,000 P – P6,000 P10,000 P16,000
35. d
Priority
C red itors
itors M a ttews Norell Rea ms Tota l
Fir
Firs
st P300,000……….
P300,000………. P300,000 P300,000
Next
Ne xt P80,000 (7:3)… P56,000 P24,000 80,000
Next
Ne xt P70,000 (3:4)… 30,000 P40,000 70,000
Rema inde
ind e r*
r*……
………..
….. 22,0
22,000
00 34,0
34,000
00 44,000
44,000 100,000
100,000
P300,000 P108,000 P58,000 P84,000 P550,000 (d
(d))
*P550,000 – P300,000 – P80,000 – P70,000 = P100,000
Quiz - V
1. M = 0, K=2525,00
,000,
0, C=
C = 0 - this p roblem
rob lem is more
mo re on
o n insta
install
llment
ment li
liq
q uida tion p ri
rinc
nciple
iples
s.
M K C Total
ota l
C a p ital
ita l b e fore
fo re realiz
rea liza
a tion 100,000
100,000 175,00
175,0000 75,000
75,000 350,000
350,000
Loss
Loss o n sa le (50%
(50%:30%
:30%:20%) (162,500) (97,500) (65,000) *(325,000)
( 62,500) 77,500 10,000 **25,000
Ad d ition
itiona a l loss (3:2
(3:2)) 62
62,50
,500
0 (37,50
(37,500)
0) (25,00
(25,000)
0) __
____
____
__--
40,000 (15,000) 25,000
Ad d ition
itiona a l loss (15,000)
(15,000) 15,000
15,000 -0-
25,000
*balanc
*balanc ing figure – tot
total
al red
red uction in ca pital
Payme
Pa yment
nt to p a rtners:
rtners: P200,000
P200,000 – P25,0
P 25,000
00 – P150,000 = P25,000**
P25,000**
2. Home
Homer,
r, P54,000;
P54,000; M a rge,
rge , P84
P84,000
,000;; Bart, P177,00
P177,000.
0.
3. P150,000
4. Stan,
ta n, P0; Kenney,
Kenne y, P10,000
P10,000;; C a rtma
rtman,
n, P0
5. P500,000 =(P
(P147,000
147,000 + P28,000)/ .35
6. P1,040,000 = (P260,000
(P260,000 / .25)
7. P675,000 = (P
(P285,000
285,000 - P15,000)/ .40
8. a
9. Perr
Pe rry:
y: P15,000
P15,000;; Q Quinc
uinc y: P51,000
P51,000;; Ed
Ed d y: P44,
P44,000
000
10.
11. b
12. P33,000
Fi
Firs
rstt a lloc a tion (H) (P400,000 - P380,000)
P380,000) (.30) P 6,000
6,000
Sec o nd a llollo c a tion (H) (P380,00
(P380,0000 - P300,00
P300,000)0) (.30)
(.30) P24,000
P24,000
(F) (P380,000
(P380,000 - P300,000) (.25) 20,000 44,000
Thi
Thirrd alloc
alloc ation, share
hare ba sed on profi
profitt and loss
loss ratios 10,0
,00
00
Harold
Ha rold : P6,000 + P24,000 + (P10,000 x .30)
13. P2,500
Firs
First a lloc a tion (H) (P400,000
(P400,000 - P380,000)
P380,000) (.30) P 6,000
6,000
Sec o nd a llo
llo c a tion (H) (P380,00
(P380,000
0 - P300,00
P300,000)
0) (.30)
(.30) P24,00
P24,000
0
(F) (P380,000
(P380,000 - P300,000) (.25) 20,000 44,000
Thi
Thirrd alloc
alloc ation, share
profitt and loss
loss ratios 10,0
,00
00
Sheldon: (P10,000 x .25)
14. P24,500
Firs
First a lloc a tion (H) (P400,000
(P400,000 - P380,000)
P380,000) (.30) P 6,000
6,000
Sec o nd a llo
llo c a tion (H) (P380,00
(P380,000
0 - P300,00
P300,000)
0) (.30)
(.30) P24,00
P24,000
0
(F) (P380,000 - P300,000) (.25) 20,000 44,000
Thi
Thirrd alloc
alloc ation, share
profitt and loss
loss ratios 10,0
,00
00
Fred: P20,000 + (P10,000 x .45)
15. P147,000
Losses 40% 30% 30%
Hara Ives J ac k
Equitie
Equitiess 135,000 216,000 49,000
Possible loss on
rema ining a ssets
ets 200,000
200,000 ( 80,000
80,000 ) ( 60,000
60,000 ) ( 60,000
60,000 )
C o ntingenc
ntinge nc ies 10
10,00
,000
0 ( 4,000
4,000 ) ( 3,000
3,000 ) ( 3,000
3,000 )
Subto
ub tota
tals
ls 51,000 153,000 ( 14,000 )
Eli
limi
minate
nate J ac k’s
d eb it b a lanc e ( 8,0
8,000
00 ) ( 6,000
6,000 ) 14
14,00
,000
0
Sa fe p a yments
yme nts 43,000
43,000 147,000
147,000 0
16. P495,
P495,000
000 =(P
(P162,000
162,000 +P36,000) / .40

17.
17. c
P Q R
rea lization
zation 70
70,00
,000
0 50
50,00
,000
0 10
100,0
0,000
00
Liq
Liq uida tion exp
expenens
ses (1,600
(1,600)) ( 3,200
3,200)) ( 3,200
3,200))
68,400 46,800
46,800 96,800
Divide
Divid e d b y: 20% 40% 40%
Loss a b so rption
rptio n a b ilities
ilities 342,000
342,000 117,000
117,000 242,000
242,000
Se lling
lling Price
Pric e 183,000
183,000
Bo ok value
va lue 30
300,0
0,000
00
Loss (117,000)
or,
Q uinc
uincyy ca
c a pital before
be fore liquida
liquidati tion…………
on…………………………………
……………………………………..P
……………..P 50
50,0
,000
00
Less
Les s: Sha
hare
re in liq
liq uida tion exp
exp en
ens ses (P8,00
(P8,000
0 x 40%)……
)…………
……………
………………
……….…
.… 3,200
3,200
Quincy capital before realization of non-cash assets……………………….P 46,800
Less:
ess: C a sh rec eived by Q uincy (minimum)……………
(minimum)……………………… ……………………
…………….
…. 0
Sha
harre in the loss
loss on reali
rea lizza tion…………
tion…………………… …………………………………………
……………………
…………P P 46,8
46,800
00
Divide
Div idedd b y: Profit
Profit a nd loss
loss ra tio…………
tio…………………… ………………………………………
…………………
…………..
.. 40%
40%
Loss
Los s on rea liz
liza tion…
tion……………
…………………… ………………… …………………
……………………
…………………
……………..P11
……..P117,
7,00
000
0
Less
Les
Pr s;eed
Proc
oc Non-c
No n-cfra
s from
omsh saasle……………………………………………………
sets…………………
ets………… ………………
………………
le…………………………… ………………
……………
…….......
................
...............
……………………………………P18
……………P183, ...... 30
300,0
0,000
3,0000
0000
18. P29,000
(P14,000
(P14,000 Warle c a p ital + P10,00
P10,0000 Xin
Xin c a p ital +
P6,000
P6,000 Yates
Ya tes ca
c a p ital + P5,000
P5,000 Loan
Loa n from Xin -
P6,00
P6,000
0 Loa
Loa n to War
Wa rle)
19. P2,000
(P4,000
(P4,000 beginning
be ginning ba lanc e + P3,
P3,00
0000 c a sh collec
c ollected
ted + P4,00
P4,000
0 for invento
inventory
ry
sold - P7,
P7,00
000
0 of a
acc c ounts payab
pa yable
le - P2,000
P2,000 for expens
expe nses)
es)
20. P2,000
Wa rle
Warl e Xin
Xin Ya
Yates
tes To ta
tall
Equitie s,J un 30
Equities 8,000
8,000 15,000
15,000 6,000
6,000 29,000
29,000
Invento
Inve ntory
ry loss ( 2,000
2,000 ) ( 3,000
3,000 ) ( 5,000
5,000 ) ( 10,000
10,000 )
C o ntingenc
ntinge nc y fund ( 40
400
0 ) ( 60
600
0 ) ( 1,000
1,000 ) ( 2,000
2,000 )
Sub
ubtotota
tals
ls 5,600 11,400 0 17,000
Possible losses on
rema ining a sse ts ( 3,00
3,000
0 ) ( 4,500
4,500 ) ( 7,500
7,500 ) ( 15,000
15,000 )
Sub
ubto
tota
tals
ls 2,600 6,900 ( 7,500 ) 2,000
Eliminate Yates’s
Defic
De ficit
it ( 3,00
3,000
0 ) ( 4,500
4,500 ) 7,500
7,500
Sub
ubto
tota
tals
ls ( 400 ) 2,400
2,400 0 2,00
2,000
0
Eliminate Warle’s
CDe
Defic
a sficit
hditistributio
istributionn 400
0 ( 400
2,000 )
2,000 0 2,000
2,000
THEORIES
HEORIES
True or False
1. False 6. True 11. False 16. False
2. True 7. True 12. True 17. True
3. False 8. False 13. False
4. Fa
Fals
lse
e 9. True 14. True
5. True 10. True 15, True
Note for the following numbers:
1. A n inst
install
allment
ment liquida tion oc c urs over an ex tende d period of time and partn partners
ers g enerally
enerally rec eive interim
interim
(installme
(install ment nt)) distributions.
3. The ac c ountant must m ust ensure
e nsure that the pa rtnership will hav e suffic ie ient
nt c ash
as h to pa y c urren
urrentt and pro
prospe
spe c tive
c reditor
reditorss be fore
fore distr
distribut
ibutions
ions are made to p art artners.
ners.
4. It may n not
ot be prudent for the ac c ount ountant
ant to pay cred itors
itors as quic kly as possible. Howeve r, fu funds
nds should
should be
se
sett asid
as ide
e so that cre ditors
di tors ca n be pai
p aid
d in a time
timelyly manne r.
8. The size of the c apitalap ital ac c ount must be eva luated in c onjunc tion with the resid ual profit and lloss oss ratio to
determine whic h partner partner is lea
lea st like ly to have a de ficit occ ur during
during the pa rtnership
rtnership liquidation.
liquidation.
11. The ca sh distributi
distribution
on plan indic ates how a dist distribut
ribution
ion wil
willl be all
alloc
oc ated among th the
e partners
partners but it doe s not
g uara ntee that a distribution
distribu tion will be made
ma de .
13. The loss abso rption pow er indic ates the amo unt of loss the pa rtnership rtnership woul
would d have to to oc c ur be fore that
pa rtner’
rtner’ss ccap
ap ital ac c ount balanc e is re reduc
duc ed to zero.
16. The sched ul ule e of safe paym ents c an be used ffor or any partpartnership
nership liquidation but it provide s the same
distribut
distribution
ion as the c ash distr
distribut
ibution
ion plan under most c ircumstanc es.
Multiple Choice
Mult C hoice
18
18.. b 23
23.. a 28
28.. b 33
33.. b 38
38.. c 43
43.. d
19
19.. b 24
24.. d 29
29.. e 34
34.. d 39
39.. d 44
44.. b
20
20.. a 25
25.. d 30
30.. a 35
35.. b 40
40.. b 45
45.. c
21
21.. a 26
26.. a 31
31.. a 36
36.. a 41
41.. a 46
46.. d
22
22.. d 27
27.. d 32
32.. c 37
37.. b 42
42.. b

C hap
haptter 6
Problem I
1. Stateme
ta tement
nt of Affair
Affa irs
s - Fo
Fo rmal
MINER
MINE R C OM PANY
Statement
tate ment of
o f Affair
A ffairs
s
May 31, 2012
Boo
ookk Value Realizable
Assets Value
Assets Pl
Assets Pled
edge
gedd with Ful
Fully
ly Sec
Sec ured
ured C reditors:
reditors:
P 50,
50,00
000
0 Notes
No tes Rec
Receiva
eivabb le P39,80
P39,8000
1,200
1,200 Ac c rued Interest Rec.
Rec . 1,000
1,000 P 40
40,80
,800
0
Note s Pa
Notes Payab
yable
le 40,0
40,000
00
Ac c rued Interest Pay.
Pa y. 80
800
0 40
40,80
,800
0
119,000
119,000 Building
Building 75,000
Note Pa
Payab
yable
le 20,0
20,000
00
Ac c rued Interest Pay.
Pa y. 80
800
0 20
20,80
,800
0 P 54
54,20
,200
0
Assets Pl
Assets Pled
edgegedd with Par
Pa rtia
tia lly
lly S
Sec
ec ur
ured
ed C red
editor
itors
s:
13,200
13,200 Equ
Equipm
ipme e nt 4,200
4,200
Note Pa
Payab
yablele 10,0
10,000
00
Free Assets
6,000
6,000 C a sh 6,000
6,000
61,0
61,000
00 Ac c o unts Rec eivab le 50
50,0
,000
00
60,000
60,000 Invento
Inve ntory ry 30,000
30,000
1,100
1,100 Prepa
Prep a id InsInsuranc
uranc e 40
400
0
8,500
8,500 G o o d will 0
Total
Total Net Real ea lizab le Value 140,6
,60
00
Lia
Lia b iliti
ilities
es ha
having
ving Pri
Prio
o rity
rity – Wa
Wagg es 6,000
6,000
Taxes
Taxes 2,4
,40
00 8,4
,40
00
Net
Ne t Fre
Fre e Asse ts 132,200
132,200
Esti
Estima
mated
ted Defic
Deficienc
iency
y to Unsec
Unsec ur
ured
ed C reditors 53
53,6
,600
00
P 320,000 P 185,800
Book
Value Equities Unsecured
Liabilities Having Priority:
P 6,00
6,000
0 Ac c rued
rued Wa
Wage ges
s P 6,
6,00
000
0
2,400
2,400 Ta xes Pa yab
ya b le 2,40
2,400
0 P 8,400
8,400
Fully Sec ured C reditors

Fully red itors::
60
60,00
,000
0 Notes
No tes Paya
Pa yab
b le 60
60,00
,000
0
1,600
1,600 Ac c rued Interest Paya
Pa yab b le 1,600
1,600 61
61,60
,600
0
Pa
Parrtia
tia lly
lly Sec
Sec ured
ured C red
editors
itors:
10
10,00
,000
0 Note
No te Pa yab le 10
10,00
,000
0
Equipme
Equip mentnt 4,200
4,200 P 5,800
5,800

Unsec ured C red itors
Unsec itors::
17
170,0
0,000
00 Ac c o unts Pa
Paya
yab b le 17
170,0
0,000
00
10
10,00
,000
0 Notes
No tes Paya
Pa yab
b le 10
10,00
,000
0
Stoc khold
kholders
ers’’ Eq
Eq uity
11
110,0
0,000
00 C o mmon
mmo n Stoc
to c k
( 50,
50,00
000)
0) Retained
Reta ined Earnings (Defic
(De ficit)
it)
P 320,000 P 185,800
2. Defic
Defic iency State
Statement
ment to deter
de termi
mine
ne esti
estimated
mated defi
de fic
c iency to unsec
unsec ured
ured c red
edit
itors
ors::
Deficiency Account
M a y 31, 2201
0122
Es
Estimate
timated d Loss
Losses: Es
Estimate
timated d G a ins:
ins:
Ac c ounts Rec eivab le P 11,0
11,000
00 C o mmon Stoc k P 110,0
110,000
00
Notes
No tes Receiva
Rec eivab b le 10
10,40
,400
0 Retained
Reta ined Earnings (50,000
(50,000))
Inventory 30,0
30,000
00 Estimatetimated d Deficienc
Defic iency y to
Build
Buil d ing
ingss 44,000
44,000 Unse
Unse c ured C redito
red itors
rs 53,600
53,600
Equipment 9,000
Prepa id Insur
Insura
a nc
nce e 70
700
0
Goodwill 8,500
P113,600 P 113,600
Es
Estimate
timated d final d ivi
ivid
d end rate to unsec
unsec ured c reditors
red itors is:
is: P132
P132,20
,200/0/P18
P185,8
5,800
00 =71
71.15
.15%
%
Problem II
1. Formal
Down Dog C orpor
orporation
ation
Statement
tate ment ooff A
Affairs
ffairs
J une 30
30, 20
2014
Deficiency
Account
Boo k Value
Va lue Assets Reali
Rea lizab
zable
le Value
Va lue (L
(Lo
o ss/ G a in)
Pl
Pled
ed g ed with part
partiall
iallyy sec ured c reditors
reditors
P165,000
P165,000 Equipme
Equip ment-ne
nt-ne t P87,000 (78,000
(78,000))
Less
Less: Note pa yab
yable
le a nd a c c rued int
interest
erest (96,0
(96,000
00)) P 0
Unsec
Uns ec ur
ured
ed a mount (S(See
ee be
below)
low) (9,
(9,00
000)
0)
Free
Free A ssets
3,000 C a sh 3,000
72
72,00
,000
0 Ac c o unts rec eivable
eiva ble-ne-nett 48
48,00
,000
0 (24,000
(24,000))
60,000 Inve
Invento
ntories
ries 72,000 12,000
Total nnet
et rea
reallizab
izablle valu
valuee 123,0
,00
00
Less:: Prio
Less Prio rity liab
liabililities
ities – wa ges
ge s pa yab le (45,00
(45,000)
0)
Total avail
availabab le for unsec ur ured
ed c reditors
editors 78,0
,00
00
______ Esti
timated
mated deficiency tto o unsec ur
ured
ed c reditors
editors 30,000
,00 ______
P300,000 P108,000 (90,000)

Unsecured
Book
Boo k Va
Value
lue Equities Liab
Liabil
ilities
ities
Priority liabilit
Priority liabilitie
iess
P 45,00
45,000
0 Wag
Wages es pa yab
yable le (assumed
(assumed unde
underr
P4,650
P4,6 50 pe
perr employe
emp loyeee) P 45,
45,000
000
Partiall
Partiallyy sec ured c reditors
reditors
96,00
96,000
0 Note pa yab le a nd a c c rued interest
interest P 96
96,00
,000
0
Less:: Equipment
Less Equipme nt pledg
ple dged
ed a s sec urity
urity (87,
(87,000
000)) P 9,000
9,000
Unsecured creditors
72,00
72,000
0 Ac c ounts pa yable
yab le 72
72,00
,000
0
27
27,00
,000
0 Rent pa yab le 27,00
27,000
0
Stoc k holde rs’ e quity

qui ty
18
180,0
0,000
00 C a pita l stoc k 180,0
180,000
00
(120,0
(120,000
00)) Retained
Reta ined e a rnings
rnings (defic
(de ficit)
it) __
_____
____
_ (120,0
(120,000
00))
P300,000 P108,000 P 60,000
Estima
tima ted Deficienc
Defic ienc y P(30,00
P(30,000)
0)
2. Es
Esti
tima
mated
ted p
paa yments pe
perr d ollar for uns
unsec
ec ured
ured c red
editor
itors
s
C a sh a vailab
vailable
le P210,
P210,00
000
0
Distribution
Distribution to p a rtially
tially s
sec
ec ured
ured a nd unsec
unsec ur
ured
ed p riority
iority c
crred
editor
itors
s:
Note pa yable
yab le a nd interest
interest P87,0
P87,000
00
Ad ministrative expens
expe nses
es 24
24,00
,000
0
Wage
Wa ges s p a yab
ya b le 45
45,00
,000
0 (156,0
(156,000
00))
Ava ila
ila ble to unsec
unsec ured nonprior
no npriority
ity c red
editor
itors
s P 54,0
54,000
00
Note p a yable
yab le a nd interest
interest (unsec
(unsec ur ured
ed po rtion) P 9,
9,00
000
0
Ac c ounts pa yab
yablele 72,0
72,00
00
Rent pa yable
yab le 27
27,0
,000
00
Unsec
Uns ec ured nononp
npri
rio
o rity
rity c laims P108,00
P108,000
0
(P54,000
(P54,000 / P108,000
P108,000 =P0.50 per
pe r pes
pe so )
Expect
xpec ted recover
ec overy
y for eac
eac h c
class
lass of c
claims
laims
Partiallyy sec ured
Partiall
Note pa
p a yable a nd interes
interestt
Sec ured p o rti
rtio
on P87,000
P87,000
Unsec
Unsec ured p o rtion (P9,000 ×0.50)
0.50) 4,500
4,500 P91,500
P91,500
Unsec ured priority

priority
Ad ministr
ministraa tive expen
exp ens
ses P24,00
P24,000
0
Wage
Wa ges s p a yab le 45
45,00
,000
0 69
69,00
,000
0
Unsec ured nonpriority

nonpriority
Ac c o unts p a yab
ya b le (P72,
(P72,000
000 ×0.50
0.50 P36,
P36,00
000
0
Rent p a yab
ya b le (P27,000 × 0.50)
0.50) 13,500
13,500 49,500
49,500
Total
Total pa yments
yments P2
P21
10,
0,0
000

Problem III
Rea liz
liza
a b le va
value
lue o f a ll a sse ts (P635,000
(P635,000 + P300,000
P300,000 + P340,000)
P340,000) P1,275,000
P1,275,000
Alloc
Alloc ated to:
Fully
Ful ly sec ured c reditors
red itors (316,000)
(316,000)
Pa
Parti
rtia
a lly
lly sec ured c redreditors
itors (300,0
(300,000)
00)
Unsec
Uns ec ured c reditors
red itors with p rio rio rity
rity (100,0
(100,000)
00)
Remainderr a vailable
Remainde vailab le to ge general
neral unsec
unsec ur
ured
ed c reditors P55
P559,
9,00
000
0
Payment rate to general

ge neral uns
unsec
ec ured
ured c red edit
itors
ors
(In
(Inc
c luding
luding balanc
b alanc e due
d ue to p
paa rtia
tia lly sec ured
ured c redit
ed itors
ors))
P559,000 / (P
(P1,165,000
1,165,000 + (P400,000 - P300,000)) 44.2%
Realiza b le value
Realiza va lue of
o f a ssets:
Assets
Ass ets p ledge
led ged d to fully se c ured c reditors
red itors P635,00
P635,0000
Assets
Ass ets pled ged
ge d to p a rtiall
tially
y sec ur
ured
ed c red itors
itors 300,
300,00
000
0
Fre
Fre e a sse
sse ts 340,000
Total
Total real
ea lizab le val
value
ue P1
P1,2
,27
75,0
,00
00
Amounts to be paid to:

Fully
Fully sec ured c reditors
red itors P316,00
P316,000
0
Partially
Pa rtially se c ured c red
reditors
itors [P300,000
[P300,000 + (0.442
(0.442 ×P100,000)]
P100,000)] 344,200
344,200
Unsec ured c reditors
Unsec red itors with p riority
riority 10
100,0
0,000
00
G e ne
neral
ral unsec ured c redito
red itorsrs (0.442 × P1,165,000
P1,165,000)) 514
514,800
,800**
Total
Total P1
P1,2
,27
75,0
,00
00
*Round
*Round ed P13
P130
0
Problem IV
Free Assets:
C urre
urre nt Assets
ets .....................
................................
......................
......................
......................
.....................
................
...... P 35,000
35,000
Build
Building
ings
s a nd Equipm
Equipme e nt ......................
.................................
......................
......................
..................
....... 110,000
110,000
Total
Total ..........
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
.. P14
P145,0
,000
00
Liabilities with Priority:
Aadlaries
S ministrative
ministrative
Payab
Pa yab le Ex
Exp p
(oens
en
(only
nlyseP3,00
s ......................
...........
P3,000 0 p......................
er emp ......................
loye e......................
loyee ....................
) ........
............
........ .........
........
........
.......
... P 20,000
20,0
6,000
6,000
00
Inc o me Ta xes .....................
................................
......................
......................
.....................
.....................
.................
...... 8,000
8,000
Total
Total ....
......
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
.. P 34
34,0
,00
00
Free
Free Assets
Assets Afte
Afterr Payment
Payme nt of
o f Lia
Lia b iliti
ilities
es with Pri Prio o rity
rity
(P145,000
(P145,000 – P34,000) ...........................
........................................
..........................
...........................
.................
... P111,000
Unsec ured Liab iliti

Unsec ilities
es
Notes
No tes Pa yab le (in excess
exc ess o f value va lue of sec urity) urity) ........
............
........
........
........
...... P 30
30,00
,000
0
Ac c o unts Pa ya
yab b le .....................
................................
......................
......................
......................
....................
......... 85,000
85,000
Bonds
Bond s Pa yab
ya b le ......................
................................
.....................
......................
......................
......................
...............
.... 70,000
70,000
Total
Total ....
......
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
.. P18
P185,0
,000
00
Perce
Pe rcenta
ntage
ge of Unsec
Unsec ured Lia
Lia b iliti
ilities
es To Be Pa
Paid:
id: P111,000
P111,000// P185,00
P185,000
0 =60 %

Payment On Notes Payable:

Va lue of Se c urity (land
(la nd)) ......................
.................................
......................
......................
....................
......... P 90,000
90,000
60% o f Rema ining P30,00
P30,000 0 ......................
.................................
......................
.....................
................
...... 18,000
18,000
Total
Total C ollec
ollec ted by holder
holders s ....
......
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
.... P1
P10
08,0
,000
00
Problem V
Free Assets:
C a sh ........................
...................................
......................
......................
......................
......................
....................
......... P30,000
P30,000
Receiva
Rec eivabb les (30 p erc ercen entt c ollec tible) ....................
........
........
........
........
........
........
........
......
.. 15
15,00
,000
0
Invento
Inve ntory
ry ...........
......................
......................
......................
......................
......................
.....................
.....................
............. 39,000
39,000
Land (value in excess of secured note:
P120,000 – P110,000) ..........................
.......................................
...........................
.........................
........... 10,000
Total
Total ....
......
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
.. P94
P94,0
,00
00
Less: Liab
Less: Liabili
ilities
ties with pri
p rio
o rity
rity
Sa lary p a yab
ya b le (belo
(b elow w maxi
ma ximum).....
mum)......... ........
........
........
........
........
........
........
.......
... (10,00
(10,000)
0)
Fr
Fre
e e a ssets
ets a vailab
va ilab le ......................
.................................
......................
......................
....................
......... P84,000
P84,000
Unsec ured Lia

Unsec Lia b iliti
ilities:
es:
Ac c o unts p a yayabb le .....................
................................
......................
......................
......................
....................
......... P90,000
P90,000
Bond s pa yab
yable
le (less
(less sec ured
ured interest
interest in in
b uilding:
uilding : P300,000
P300,000 – P180,000)
P180,000).....................
................................
......................
................
..... 120,000
120,000
Unse
Uns e c ured liab ilities
ilities......................
.................................
......................
......................
......................
........... P210,000
P210,000
Perce
Pe rcenta
ntagg e of
o f unsec
unsec ured liab
lia b iliti
ilities
es tto
obbe
eppa
a id: P84,00
P84,000/
0/P210
P210,00
,000
0 = 40
40%
%
Amo unts to be
Amounts b e paid
p aid fo forr:
Salary payable (liability with priority to be paid
in full) .........................
......................................
...........................
...........................
..........................
.......................
.......... P10,000
Ac c ounts pa yabyable le (unsec
(unsec ured ured—wil—willl co llec llec t 40%40%
o f d eb ts o f P90,000)
P90,000)......................
.................................
......................
......................
......................
........... P36,000
P36,000
Note pa
p a yable (fully
(fully sec ured ured by land—w land—wil illl co
collllec
ec t
e ntire b a la
lanc
nc e ) ......................
.................................
......................
......................
......................
.................
...... P110,000
P110,000
Bonds
ond s pa yable
yab le (pa rtia tia lly
lly ssec
ec ured
ured—wil —willl c collollec
ec t
P180,
P180,00
rema 0000 fr
iningfrom
om b uil
uild
P120,0 d ing
P120,000)
00) and
a nd......................
40 per
pe......................
......................
........... rc ent......................
o
off the.....................
.......... P228,000
P228,000
Problem VI
Total % of Total
Amounts C laims
Expec ted to Expec ted to
Total Creditor’s
C reditor’s be be
C lass of C Creditor
reditors s Claims Recovered Recovered
Fully
Fully sec
sec ured lialia b iliti
ilities
es 183,600 183,600 100.0
Parti
Pa rtia
a lly sec ured liablia b iliti
ilities
es 54,600 51,720 94.7
Unsec
Uns ec ured lialia b iliti
ilities
es with p pri
rio
o rity
rity 30,810 30,810 100.0
Unsec
Uns ec ured liabil
liab iliti
ities
es witho
without ut 182,500 116,800 64.0
priority

Problem VII
1. To ta
tall estima
estimated ted p roc eeeedds P910,0
P910,000
00
Less
ess a sset p prroc eed s c laimed
laimed by s sec
ec ured
ured
c red
editor
itorss:
Notes payable and interest (from
proc eeeed d s o f receiva
rec eivables
bles a nd inventory)
inventory) P150,
P150,00
000
0
Mortgage payable and interest (from
proc eeeed d s o f land a nd building) 320,
320,00
000
0 47
470,
0,00
000
0
Total
Total avai
ava ilabl
ab le tto
o unsec ured
ured c laimants. P4
P44
40,
0,0
000
Less
Les s d istri
istrib
b utions to unsec ured c laims
with priority:
Wage
Wa ges s pa yab
yablele P 10
10,0
,000
00
Taxes
Taxes pa yable 20,0
,00
00 30,
0,0
000
Amount
Amo unt a vailable
vailab le for unsec
unsec ur
ured
ed c laims P410,
P410,00
000
0
2. Uns
Unsec ured
ured portion
portion of notes pa yab
yable
le a nd
interest
inte rest (P500,000 + P30,000 – P150,000) P380,000
Ac c ounts pa yab
yable
le 26
260,
0,00
000
0
Total
Total c laims ofunsec
ofunsec ured
ured c reditors
editors P64
P640,
0,0
000
Divide
Dividend
nd to Uns
Unsec
ec ur
ured
ed C red
editor
itors
s
P410,000 ÷P640,000 = 64.1%
3. Uns
Unsec ured
ured portion
portion of notes pa yabyablele a nd
Interest P380,000
Divi
Divide
dend
nd oonn unsec
unsec ured
ured a mount  64.1%
Amount
Amo unt rec eived on unsec
unsec ured
ured p ortion
ortion P243,
P243,58
580
0
Procee
Proc eedd s from
from receivab
rec eivab les a nd inventory 15
150,
0,00
000
0
Total
Total Rec eiv
eived
ed P39
P393,
3,5580
Dividend to note holders: P393,580 ÷P530,000 = 74.3%

Problem VIII
1.
WILBUR C O RPORAT
WILBUR RPO RATIOIONN
STATEM
EMENT
ENT O F A
AFFAIRS
FFAIRS
DEC EM
EMBE
BER
R 31
31,, 20x4
20x4
Assets
Estimated
Amount Estimated
Estimated Availab
Availab le to Gain
Current Unsecured (Loss) on
Boo
ookk Value Values Claims Realization
(1) Ass
Assets pledg ed with fully
fully sec ur
ured
ed
c red
editor
itors
s:
P 40,0
40,000
00 Ac c o unts rec eivab le (net) P 40
40,0
,000
00
Less:
ess: 1
10%
0% note p a yable
yab le and
a nd
interest
inte rest 38,500 P 1,500
50,000
50,000 Land
Lan d P 65,000
65,000 P 15,0
15,000
00
11
110,0
0,000
00 Plant
Pla nt a nd eq uipment
uipme nt (net)
(ne t) 10
100,0
0,000
00 (10,00
(10,000)
0)
P165,000
Less
ess: Mo rtgage
tga ges
s pa yab
yable
le and
interest
inte rest (157,500) 7,500
(2) Assets
Assets pledge
pled ged d with pa rtially
tially
secured creditors:
20,000
20,000 M a rke
rke tab
ta b le sec uritie
uritie s P 16,0
16,000
00 (4,000)
(4,000)
Less
Les s: 1
10%
0% note p a yable
yab le and
a nd
interest (20,800)
35,000
35,000 Invento
Inve ntory
ry P 32,000
32,000 (3,000)
(3,000)
Less:
ess: Ac c ounts pa yab
yable
le (60,0
(60,000
00))
(3) Fre
Fre e a sse ts:
4,000
4,000 C a sh P 4,000
4,000 4,000
4,000
35
35,00
,000
0 Ac c o unts rec
receiva
eivabb le (ne
(net)
t) 35
35,00
,000
0 35
35,00
,000
0
55,000 Inve
Invento ry 50,000 50,000 (5,000)
6,000
6,000 Prepa
Prep a id insura
insuranc
nc e 1,00
1,000
0 1,000
1,000 (5,000)
(5,000)
14
140,0
0,000
00 Plant
Plan t a nd eq uipment
uipme nt (net)
(ne t) 60
60,00
,000
0 60
60,00
,000
0 (80,00
(80,000)
0)
48,000 Fra
Fra nc hises 15,000 15,000 (33,000)
Estim
timate
atedd a mount a vailable
vailab le P 174,
174,00
0000
Less:: C reditors
Less red itors with p rio
rio rity
rity (43,00
(43,000)
0)
Net a vailab
vailablele to unsec
unsec ur
ureded c red
editor
itors
s P 131,
131,00
0000
Estim
timate
atedd deficienc
de ficienc y 45,0
45,000
00
P 543,000 (P 125,000)
Total
Total unsec
unsec ured
ured de
debt
bt P 17
176,
6,0
000
2. Perce
Pe rcenta
ntage
ge to unsec ured c reditors
red itors:: P1
P131,
31,00
000/
0/P176
P176,00
,000
0 =74
74.43
.43%
%
Problem IX
Smi
mith
th C ompa
omp a ny
Stateme
ement
nt of Rea
ealization
lization and
and Liquidation
Assets
A ssets to b e rea
reali
lized
zed Ass
Assets
ets Rea
Reali
lized
zed
O ld Rec eivebles
eiveb les,, net P 50,0
50,000
00 O ld Rec eivbles P 28,0
28,000
00
M a rketa
rketa ble Sec urities
urities 20
20,00
,0000 New Receivb
Rec eivbles
les 65
65,00
,0000
O ld Inventory
Invento ry 72
72,00
,0000 M a rketa
rketa b le Sec urities
urities 15
15,00
,0000
Dep
De p rec
reciab
iab le Ass
Assets,
ets, ne
nett 12
120,0
0,000
00 Sa les of Inventory
Invento ry 10
100,0
0,000
00
Assets
Assets Ac quired
quired Assets
Assets Not Rea li
liz
zed
New Receivab
Rec eivab les 100,0
100,000
00 O ld Rec eivab les,
les, net 22,0
22,000
00
New Rec eivab les,
les, net 35
35,0
,000
00
Dep rec
reciab
iab le Assets
Assets 96
96,00
,0000
Supp lementary
lementa ry C harges
ha rges Supplementary
upplementary
SuppIt
Items
ems
lementar
lementa ry C red
edits
its
O ld C urr
urren
entt Pa
Payab
yab les P 31
31,00
,000
0 Net Loss P 7,0
7,000
00
Liabilities
Lia
Lia b il
ilit
ities
ies Liquid
Liquidaa ted Liabil
iab ilit
ities
ies to b e Liquida ted
O ld C urr
urrent Pa
Payab
yables
les P 31
31,0
,000
00 O ld C urr
urrent Pa
Payab
yables
les P 65,0
65,000
00
Li
Lia
a b il
iliti
ities
es Not
No t Liq
Liq uida ted Lia
Lia b iliti
ilities
es Inc
Incurr
urred
ed
O ld C urr
urrent Pa
Payab
yables
les P 34,0
34,000
00 ___ _____
______ __
P433,000 P 433,000
Problem X
Mallory Corporation
For the Three
Three M o nths Ende
Endedd J uly 31,
31, 20x
20x5
5
Assets
Assets
Ass ets C a sh Non-C a sh
Beg
eginning
inning b a lanc es a ssigned
igne d 5/1/
5/ 1/x5
x5 P 4,000
4,000 P720,00
P720,000
0
Cash Receipts:
C ollection
ollec tion of Ac c o unts Rec eivab le 60,0
60,000
00 (70,0
(70,000
00))
Sa le o f invento
inve ntory
ry 170,000
170,000 (200,000)
(200,000)
Sa le o f lan
landd a nd b uild
uild ing 20
20,00
,000
0 (340,0
(340,000
00))
Sa le o f ma
mac c hinery 70
70,00
,000
0 (100,0
(100,000
00))
C a sh Disb
Disb urseme
ursements
nts::
Pa
Payment
Paryment
Pa rtial pa of sa laries
yment lariof
esapcacyab
yable
le pa y.
ounts (60
(60,0
,000
(170,0
(17 00)))
0,000
00)
Pa
Parrtial pa yment of b a nk loanloa n (70
(70,0
,000
00))
Ending b a lanc e P24,00
P24,0000 P10,00
P10,000
0
Liabilities
Unsecured
Fully
Fully Parti
Pa rtia
a ll
lly
y With Witho
Without ut O wner'
wne r's
s
Assets
Assets Sec ured Sec ured Pri
Priority
ority Pri
Prio
o ri
rity
ty Equity
Beg inning b a la
Beginning lanc
nc e s a ssigne
ign e d P240,000
P240,000 P270,000
P270,000 P94,00
P94,000 0 P0 P120,000
P120,000
Cash Receipts:
C oll
ollec
ec tion
tion of Ac c ounts (1
(10,
0,00
000)
0)
Sa le o f invento
inventoryry (30,00
(30,000)
0)
Sa le o f lan
landd a nd b uild
uild ing (240,0
(240,000
00)) (80,00
(80,000)
0)
Sa le o f ma
mac c hinery (30,00
(30,000)
0)
C a sh Disb
Disb urseme
ursements
nts::
Pa
Payment
yment of sa laries
laries p a yab
yable
le (60
(60,0
,000
00))
Pa
Parrtial pa yment of a c c ounts (180,0
(180,000
00)) 10,0
10,000
00
Pa
Parrtial pa yment of b a nk loanloa n (9
(90,
0,00
000)
0) 20,0
20,000
00
Ending b a lanc e P 0 P 0 P34,00
P34,000
0 P30,00
P30,000
0 P (30,00
(30,000)
0)
Multiple Choic
C hoice
e Problems
1. d – s
since
ince there iis
s p a rent and
a nd subsi
subsid
d iary relations
ela tionship,
hip, any interco
interco mpa ny ac c ounts a re eliminated
eliminated fr
from
om
consolidated point of view.
2. a - [P90,000 + P36,000
P36,000 + P10,000
P10,000 – P45,000
P45,000 = P91,000
P91,000 tota l estima
estimate
ted
d a mount
mo unt a va
vailab
ilab le; P91,000 –
(P4,500
(P4,500 + P10,00
P10,000)
0) = P76,
P76,50
500
0 estimate
estimatedd a mo
mount
unt ava
a vail
ila
a b le for
fo r unsec
unsec ured,
ured , non-p
no n-pri
rio
o ri
rity
ty cred
c reditors
itors;;
P76,500 ÷ P90,000 = 0.85]
3. c – it is a pa
p a rti
rtia
a lly
lly sec ured liab ility
ility
4. d – [[(P1,110,000
(P1,110,000 – P780,000) + P960,000] – P210,000
P210,000 = P1,080,000
5. b – P25,000
P 25,000 + [.30 x (P75,000 – P25,000)] =P40,000
6. d – (P555,000
(P555,000 – P390,000) + P480,000 =P645,000 – P105,00
P 105,000
0 = P540,000
7. b – P30,000
P 30,000 + [.30 x (P90,000 – P30,000)] = P48,000
8. c – [ P110,000 +(P
(P150,000
150,000 – P110,000) x 40%] = P128,000
9. d
10. c – P60,000
P 60,000 +[(P
[(P120,000
120,000 +P6,000) – (P
(P30,000
30,000 +P35,000) = P121,000
11. b - P20,000 + P80,000 + [P170,000 – (P150,000

(P150,000 +P7,000)] = P113,000 – (P10,000
(P10,000 + P10,000)
= P93,
P93,000
000
12. c – P93,000
P93,000// P121,000
P121,000 = 77% round
roun d ed .
13. a
Net Free Assets:
(P700,000 – P300,000) + P70,000 + P230,000 = P700,000 – P140,000 = P560,000
Total
Total Unsec
nsec ured
ured C redi
ed itor
tors
s without
without pri
priori
ority
ty::
(P400,000 – P300,000) + P600,000 = P700,000
14. c - P
Pee nsion P10,000 + Sa laries
la ries P35,000 (= P10,600 + P10,950 + P10,950 + P2,500) + Ta xes P80,000 + Liq.
Liq.
expenses P40,000 = P165,000.
15.
15. c
Assets to b e Rea liz

Assets lize
e d…………
d… ……….. P 1,375,
1,375,000
000 Asse
Asse ts Rea
Realiz
lized
ed ………
……………… …………..P…..P 1,200,
1,200,000
000
Assets
Ass ets Ac q uired
uired ………
……………… ……….... 750,0
750,000
00 Ass
Assee ts Not
No t Rea
Realizlized
ed ………
…………… …… 1,375,
1,375,000
000
Li
Lia
a biliti
bilitie
e s Li
Liquid
quidaa ted ………
…………. …. 1,8
1,875
75,00
,000
0 Lia
Lia biliti
bilities
es to be Li Liquid
quida a ted
ted….
…. 2,250
2,250,00
,000
0
Li
Lia
a biliti
bilitie
e s Not
No t Liquida ted
ted…….
……. 1,7
1,700
00,00
,000
0 Lia
Lia bilitie
bilitie s Ass
Assume
umed… d………………….. .. 1,625
1,625,00
,0000
Supp
upplementa
lementary ry c har
ha rge
gess/ Supp
upplementa
lementarry c reditsed its……… 2,
2,80
800,0
0,000
00
debits……………………… 3,125,000
P 8,825,000 P 9,250,000
Net Ga
G a in…………………
in………………………..
…….. P 425,0
425,000
00
16.
16. No req uir
uireme
ement
nt
17.
17. c
Total
Total Li
Liab ilities
ties (refer
(refer to Li
Liab ilities
ties not liquidated–No. 1
14
4)…………………… P1,7
P1,70
00,0
,00
00
+otal
: Sto
Total
T toccSkholders
LS
L khold
HE =T ers’’ Equ
otal Equity
Assity
Ass ets(P1,50
(P1,500,0
0,000
00 – P500,00
P500,000)………
ets…………………………………………
……………………………………………………………0)…………… …………
……………
………………
………P 21,000
………………… 1,0
,7000,00
,70 0,
0,0
0,000
000
-: No
Nonc
nca a sh a ssets (refe
(referr to Ass
Assets
ets no
nott reali
rea lized
zed-No
-No.. 14)……….…………
14)……….… ……………
…… 1,375,
1,375,00
0000
C ash balanc e, endinend ing…………
g…………………………………
…………………………………………… ……………………………P1,
………P1,32
325,
5,00
0000
18. P440,000
Total
Total Free Ass
Assets:
ets:
Fully secured:
Land
Lan d a nd b uilding : P650,000
P650,000 – (P300
(P 300,000
,000 + P20,000)
P20,000) =P 330,000
330,000
Free assets:
C a sh 10,00
10,000
0
Equipme
Equip mentnt 100,000
100,000 P440,000
P440,000
Or,
Total
Total esti
estimated
mated proceeds
proce eds P91
P910,0
,000
00
Less
ess a sset pprroc eed s c laimed b y sec
sec ured
ured
c red
editor
itors
s:
proc ee
eed d s of receiva
rec eivables
inventory) P150,
P150,00
000
0
proc ee
eed d s of land a nd building) 320,
320,00
000
0 47
470,
0,00
000
0
Total
Total avail
availab le toto uns
unsec ured
ured c laimants/ total free
free P4
P44
40,0
,000
00
19. P410,000
Total
Total avail
availab le to to uns
unsec ured
ured c laimants/ total free
free P4
P44
40,0
,000
00
Less
Les s d istri
istrib
with p riority:
iority:
Wage
Wa ges s p a yab
yable
le P 10,0
10,000
00
Taxes
Taxes pa yable 20,
0,0
000 30,
0,0
000
Amount
Amo unt availa
availa ble for unsec
unsec ured
ured
c laims/
laims/ ne
nett free a ssets
et s P410,00
P410,000
0
20. P640,
P640,000
000 =P260,000
P260,000 +[(P50,
[(P50,000
000 +P100,
P100,000)
000) – (P500,
(P500,000
000 +30,000),
30,000), o
orr
Unsecured portion of notes payable and
interest
inte rest (P500,000 + P30,000 – P150,000) P380,000
Ac c ounts pa yab
yable
le 260,
260,0
000
Total
Total c laims of uns
unsec
ec ured
ured c redi
ed itor
tors
s P6
P64
40,0
,000
00
21. 64.1%
Dividend to unsecured creditors
P410,000 ÷P640,000 = 64.1%
22. P320,000 = P300,000 + P20,000
23. P393,580
interest P380,000
Divide
Dividend
nd on unsec
unsec ured a mount x 64.1
64.1%
%
unsec ured
ured po rtion
tion P243,5
P243,580
80
Procee
Proc eeds
ds from
from receivab
150,
0,00
0000
Total
Total Rec eived
eived P3
P39
93,
3,5
580
24. P30,000
25. P166,
P166,666
666 =P260,000
P260,000 x 64.1
26. P910,2
P910,247
47 =P320,000
P320,000 +P393,580
P393,580 + P30,000
P30,000 +P166,666
P166,666 (discrep
(disc repa
a nc y of
of P247 due
due tto
o round
roun d ing-o
ing-off)
ff)
27. P230,000
Net free a ssets (No.
(No . 19
19)) P410,00
P410 ,000
0
Less
Less: Unsec
Unsec ured c red
reditors
itors without
witho ut priority (No.
(No . 20)
20) 640,000
P230,000
28. P340,000
P340,000 =P910,000 – P1,250,000
29
29.. P340,0
P340,000
00,, s
sa
a me with
w ith No. 28, since
inc e the
there
re are
a re no unrec o rded
rde d expens
expe nses
es liab
liab il
iliti
ities)
es)
30.
30. P60
P60,6
,675
75 – you ma y the sasa me p
prroc ed ure
ure in Nos. 18 to 29 to solve
solve this prob lem, the
the foll
fo llow
owing
ing is the
formal presenta
presenta tion of sta
sta tement
temen t of a ffairs

Estimated Estim
timaa ted Amt Estimated
Net Avail for G ain or
Book Assets Realizable Unsecured (Loss)on
Value Value C reditor
ed itors
s Liquidation
Assets pledged with fully secured
c redito
reditors
rs:
98,500
98,500 La
Land
nd a nd Bldg 92,800
92,800 22,200
22,200 (5,700)
5,800 Inve
Invesstment
tme nt in C a land
la ndirir 15,00
15,000
0 4,625 9,200
Total 107
07,8
,80
00
Assets pledged with partially
secured creditors:
41,000
41,000 Inve
Invento
ntory
ry 20,00
20,000
0 (21,000)
(21,000)
43,000
43,000 Equip
Equipmement
nt 8,000 (35,000)
(35,000)
Free Assets:
1,850 C a sh 1,850 1,850 0
21,200
21,200 Ac c ounts Rec 17,000
17,000 17,000
17,000 (4,200)
15,000
15,000 No
Note
te Rec 15,00
15,000
0 15,000
15,000 0
Estimated Amount Avail for unsecured creditors
with a nd without
witho ut priorit
priority
y 60,675
60,675
Less unsec
unsecured
ured c redito
reditorsrs with priority
priority (3,775
(3,775))
Estimated amounts for unsecured creditors
without priority (Net Free Assets):
Net Rea li
lizab
zable
le Amount AvailAva il 56
56,90
,900
0
_______ Deficienc
Deficiency y _______ 15
15,7
,72
25 _______
226,350 169,650 72,625 (56,700)
Estima
tima ted Estima
tima ted Unsec
Unsec ured
ured Amo
Amountunt
Book
Boo k Liab
Liabil
ilities
ities Sec ured With Without
Va
Value
lue a nd O wners
wne rs Equity Amount
Amo unt Prio
Prio rity Priority
Priority
Fully
Fully Se c ured C redito
reditorsrs:
60
600
0 Ac c rued Mtg Interes
Interestt 60
600
0
70
70,00
,000
0 Mo rtgage
tga ge Payab
Pa yable le 70,0
70,000
00
37
375
5 Ac c rued N/ P Interest
Interest 37
375
5
10,00
10,000
0 Note
No te Paya
Pa yable
ble 10
10,00
,000
0
Total 80
80,9
,97
75
Par
Pa rtiall
tiallyy Sec
Sec ured
ured
C reditor
ed itors s:
50,00
50,000
0 Ac c ouounts
nts Pa
Paya
yable
ble 28,00
28,000
0 22
22,00
,000
0
Unsec ured
ured C reditor
ed itorss wi
withth
Priority:
3,775
3,775 Ac c rued Pa Payr
yroll
oll 3,775
3,775
Unsec ured
ured c reditor
ed itorss without
Priority:
40,62
40,625
5 Ac c ouounts
nts Pa
Paya
yable
ble 40
40,62
,625
5
10
10,00
,000
0 O ther Ac c rued LiabLiabililities
ities _____
__ _____
__ 10
10,00
,000
0
185,375 Tota
talsls 108,975 3,775 72,625
40,975
40,975 O wne r Equity
226,350
31.
31. P56
P56,9
,900
00 – refer to
to No
No. 330
0 ffor
or comp
c omp utation
32.
32. P72
P72,6
,625
25 – refer to No . for c o mputation
mputa tion
33
33.. Divid
Divid en
endd - P56,900
P56,900// P72,625
P72,625 = P.78 – refe
referr to No . 3
30
0 for further
further co
c o mputa
mp utation
tion
34.
34. P80
P80,9
,975
75 – refer to
to No
No. 3
30
0 ffor
or comp
c omp utation
35. P45,
P45,160
160 =P28,
P28,000
000 +(P(P22,000
22,000 x 78%)
36. P3,775
37. P39,
P39,487.50
487.50 =78% x (P40,625
(P40,625 +P10,
P10,000)
000)
38. P169,397.50
No.. 34
No 34……
……………………..P
..P 80.97
80.975
5
No.. 35
No 35……
…………………….... 45
45,16
,160
0
No.. 36
No 36……
…………………….... 3,7
3,775
75
No.. 37
No 37……
…………………….... 39
39,48
,487.5
7.50
0
P169,
P169,39
397.
7.50
50 (disc
(disc rep a ncy
nc y around P250
P250 plus due to rounding-off)
round ing-off)
39
39.. P15,725
P15,725 – refe
referr to No . 30 or P56,70
P56,700,
0, estima
estimated
ted net loss – P
P40
40,97
,975,5, owne
ow ners rs’’ eq uity
40. P56,700 – refer to No. 30 or P169,650 – P226,350
41
41.. P56,7
P56,700
00 (sa
(sa me with
w ith No. 40 sinc
incee the
there
re are no unrec o rded
rde d ex
e xp en
ens ses li
lia
a b il
iliti
ities)
es)
42. P22,475
Li
Lia
a b ili
ilities
ties
Unsecured
Assets
Assets Fully
Fully Part
Pa rtial
ial With Without O wners wne rs''
C a sh Nonc a sh Sec uredured Sec urured
ed Priorit
Priority
y Priori
Priority
ty Equity
Equity
6/1/x5 Balances:
1,850 224,500 80,975 50,000 3,775 50,625 40,975
Cash
Receipts:
Se c uritie
uritiess Sa le 16,000 (5,800) 10,200
N/ R C o llec
llec ted 15
15,00
,000
0 (15,00
(15,000)
0) 0
Equipment 7,000 (43,000) (36,000)
Sale
Invento
Inve ntoryry Sa le 22,000
22,000 (41,00
(41,000)
0) (19,000)
(19,000)
C a sh Disb
Disb urseme
ursements
nts::
Bank
Ban k Loa n (10,375)
(10,375) (10,375)
(10,375)
Pa
Partrt Pyt-A/ P (29,00
(29,000)0) ---------- --------- (50,00
(50,000)
0) ------- 21
21,00
,000
0 ----------
6/30
6/ 30 Bala
Balancnc e 22,475 119,700
119,700 70,600 0 3,775 71,625 (3,825)
43. P119,700 – refer to No. 42

44. P70,600 – refer to No. 42
45
45.. None – refer to No . 42
46. P3,775 – refer to No. 42
47. P71,625 – refer to No. 42
48
48.. (P3,825
(P3,825)) defic
d efic it – rrefe
eferr to No
N o . 42

49. P150,900
Estimated
Estimated Amount Estimated
Net Available for
fo r G ain or
Book Realizable Unsecured (Loss)) o
(Loss onn
Value Assets Value C red
edit
itor
or Liquidation
57
57,000 Ass
,000 Assets
etscpled
Ac pledge
ged
o unts d with
rec eiva fully
full
bley(ne
eivable s
sec
ect)ured
(net)ured c reditor
ed itors
s: 45
45,00
,000
0 12
12,60
,600
0 (12,000
(12,000))
174,0
174,000
00 Land , pla nt a nd e quipmen
quip mentt (net) 15
150,0
0,000
00 77,40
77,400
0 (24,000
(24,000))
Total 195,0
,00
00
Free assets:
6,000
6,000 Notes
No tes rec eivable
eiva ble 6,0
6,000
00 6,000
6,000 0
90
900
0 Ac c rued
rued interest
interest rec eivab
eivablele 90
900
0 900
900 0
90,000 Inve
Invento
ntories
ries (90,000 x 60%) 54,000 54,000 (36,000)
Estimated amount available for
unsecured creditors with and
without priority 150,900
Less unsec
unsecured
ured c redito
reditors
rs with priority (26,90
(26,900)
0)
Estimated amounts for unsecured
c redito
reditors
rs without
withou t priori
priority:
ty:
Net realiz
realiza
a ble a mount a vailab
vailablele 124,0
124,000
00
Defic ienc y 26
26,00
,000
0
327,900 To ta
tals
ls 255,900 150,000 (72,000)
Estimated Estima
tima ted Unsec ur
ured
ed
Secured Amount
Amount
Book Without
Va
Value
lue Li
Lia
a bili
biliti
ties
es a nd OwneOwnerrs' Equity
Equity With Priority Priority
Fully
Fully sec ured c re ditors
dito rs:
3,600
3,6 00 Ac c rued interest 3,600
3,600
69,00
69,0000 Note
No te pa yab le 69
69,00
,000
0
2,400
2,4 00 Ac c rued interest 2,400
2,400
30,00
30,0000 Note
No te pa yab le 30
30,00
,000
0
Total 105,0
,00
00
Unsec
Uns ec ured c red reditors
itors with pri
priority:
ority:
24,90
24,9000 Wa
Wage ges s p a yab le 24
24,90
,900
0
Admini
Ad minis str
tra
a tion ffee
eess – ac c ounta
ountant’snt’s
0 fee 2,000
Unsec
Uns ec ured c red reditors
itors withou
withoutt p riority:
riority:
0 Ac c rued
rued interest
interest 0
18,00
18,0000 C a sh ove
overdraft
rdraft 18,00
18,000
0
6,000
6,0 00 Notes
No tes p a yab le 6,000
6,000
12
126,0
6,000
00 Ac c ounts pa yableyab le -------- -------- 12
126,0
6,000
00
279,900 To ta
tals
ls 105,000 26,900 150,000
48,00
48,0000 O wners
wne rs' eq uity--s
uity--see
ee Note A
327,900
Note A: Includes the effect of the P2,000 professional fee.
50. P124,0
P124,000
00 – refer
refe r to N
Noo . 49
49
51. P150,000–
52. 82.67% =P124,000/
P124,000/P150,
P150,000
000
53. P105,000
54. None
55. P26,900
56. P124,
P124,005
005 =P150,000
P150,000 x 82.67%
57. P255,900 =P72,000 + P26,900 + P124,005 (dis (d isc

c rep a nc y of P5)
58. P26,00
P26,000
0 =(P72,000 + P2,000 unrec o rded rde d ) – P48,000
P48,000 oror P15
P150,00
0,000
0 – P124,000
59. P72,00
P72,000
0 – refer
refe r to N
Noo . 49
49
60. P74,000 = P72,000,
P72,000, loss o f realiz
rea liza
a tion o f a
assse ts + P2,000 unrec o rded
rde d expe
e xpenses
nses
Quiz - VI
1. P96,000
C laims of pa rtially
rtially se c ured
ure d c reditors
red itors ...........
......................
......................
......................
......................
......................
............. P 120,000
120,000
C urren
urrentt value
va lue o f a ssets p ledg
led g ed with the thes se c reditors
red itors.... ........
........
........
........
........
........
........
........
......
.. (80,00
(80,000)
0)
Defic
De ficien
iencc y tha t is unsec ured ..........
.....................
......................
......................
......................
......................
......................
................
..... P 40,000
40,000
C laims of o ther unsecured c reditors
other red itors.....................
................................
......................
......................
......................
..............
... 360,000
360,000
Total unsecured c redito
Total red itors
rs c laims
la ims.....................
................................
......................
......................
......................
..................
....... P 400,000
400,000
ava ilab le to unsecured c

Amount avai c red
editor
itorss:
Exc
Exc ess left over
ove r after pa ying ful
p a ying fully
ly sec ured
ure d cc rededitor
itors s
(P195,000 – P150,000) .........................
.......................................
...........................
..........................
...........................
..........................
............ P 45,000
C urren
urrentt value o f free
free a ssets (net of P45,000 P45,000 to
creditors with priority )..........................
.......................................
...........................
...........................
..........................
.........................
............ 115,000
availab le to unsecured c reditors
Amount availab red itors...........
......................
......................
......................
......................
............. P160,000
P160,000
Settlement
ettleme nt to unsec
unsec ured c laims p er d o lla
lla r (P160,00
(P160,000/
0/P400
P400,00
,000)
0) ....
........
........
........
.......
... P .40
Total
Total distr
distriibution
bution toto pa rtially
rtially se c ured
ure d cc red
editor
itors s:
C urren
urrentt value
va lue o f a sse ts p ledg
led g e d ..........
.....................
......................
......................
......................
......................
..................
....... P 80,000
80,000
Defic
De ficien
ienc c y o f P40,000
P40,000 × P.40......................
.................................
......................
......................
......................
.....................
..............
.... 16,000
P 96,000
2. P144,000
P144,000 =P360,000
P360,000 x 40%
3. P56,000
C laims of pa rtially
rtially se c ured
ure d c reditors
red itors ...........
......................
......................
......................
......................
......................
............. P 90,000
90,000
C urren
urrentt value
va lue o f a ssets p ledge
led ged d with these c reditors red itors.... ........
........
........
........
........
........
........
........
......
.. (50,00
(50,000
0)
Defic
De ficien
iencc y tha t is unsec ured ..........
.....................
......................
......................
......................
......................
......................
................
..... P 40,000
40,000
C laims of o other
ther unsecured c reditors
red itors.....................
................................
......................
......................
......................
..............
... 200,000
200,000
Total
Total unsecured c reditors
red itors c laims
la ims .....................
................................
......................
......................
......................
..................
....... P 240,000
240,000
ava ilab le to unsecured c

Amount avai c red
editor
itorss:
Exc
Exc ess left over
ove r after pa ying ful
p a ying fully
ly sec ured
ure d cc rededitor
itors s
(P300,000 – P250,000) .........................
.......................................
...........................
..........................
...........................
..........................
............ P 50,000
C urrent
urrent va lue of
o f fr
free
ee a ssets (net of P60,000 P60,000 to
creditors with priority )..........................
.......................................
..........................
...........................
...........................
.........................
............ (14,000)
(14,000)
availab le to unsecured c reditors
Amount availab red itors...........
......................
......................
......................
......................
............. P 36,000
36,000
Settlement
ettleme nt to unsec
unsec ured c laims p er p eso (P36,0
(P36,000
00// P240,00
P240,000)
0)....
........
........
........
........
.......
... P .15
Total
Total distr
distriibution to pa rtially
bution to rtially se c ured
ure d c
c red
editor
itors s:
C urren
urrentt value
va lue o f a sse ts p ledg
led g e d ..........
.....................
......................
......................
......................
......................
..................
....... P 50,000
50,000
Defic
De ficien
iencc y o f P40,000
P40,000 × P.15......................
.................................
......................
......................
......................
.....................
..............
.... 6,000
6,000
P 56,000
4. P30,000 = P200,000 x 15%
5. P35,000 = P20,000 + (P70,000 – P20,000) x 30%
6. P96,000 =Free a sse

ssets P220,000 - ppriority
riority c laims
la ims P100,00
P100,0000 =P120,000
P120,00
P120,000/
0/P300
P300,00
,0000 unsec
unsec ured =p a yment of o f 40%
40% o n unsec
unsec ured p eso
40% x P240,000 A A// P = P96,000
P96,000
7. P474,0
P474,000
00 =Land a nd b uild uild ing sold for
fo r P450,0
P450,000
00 lea
lea ves P60,00
P60,000 0 unsec
unsec ured stil
tilll owing.
ow ing. 40% x
P60,000 = P24,000
8. P295,000 = P200,000 + P95,000
9. P42,950 - (P(P10,950
10,950 +P2,000
P2,000 +P20, P20,000
000 +P10,00
P10,000)
0)
10. P76,050 - Exc
Exc ess o f s sa
a lari
la rie
e s, P1,050
P1,050 +nonote
tes
s p a y in exce
exc e ss o f s
se
e c urity P25,000
P25,000 +a c c ounts pa y P50,000
P50,000
11. P163,800
P163,800
Free assets:
O the
therr a sse ts P104,000
P104,000
Exc ess fro
fro m asa ssets pledge
pled ged d with sec
sec ur
ured
ed
(P150,800
(P150,80 0 – P91,000
P91,000)) 59,800
P163,800
12. P109,200
Total
Total free
free ass
assets P1
P16 63,
3,8800
Less:: Liab
Less Liabili
ilities
ties with p riority
riority 54,600
54,600
P109,200
13. P364,000
P364,000
Unsec
Unsec ured c red
editor
itors
s:
Ex
Exc
c ess o f pa rti
rtia
a lly sec ured liab
lia b iliti
ilities
es ove
overr
Pled
Ple d ge d a sse ts (P169,000
(P169,000 – P65,000)
P65,000) P104,000
P104,000
Unsec
Uns ec ured c reditors
red itors 26
260,0
0,000
00
P364,000
14. P96,200
Payment of p artially
artially sec ured
ured debt:
de bt:
Va lue of pled ged
ge d a ssets P 65,0
65,000
00
30%* o f rema ining P104,00
P104,000
0 31,2
31,200
00
P 96,200
*P109,200/ P364,000 =30%
15. P78,000
C a sh P 65
65,00
,000
0
Ex
Exc
c ess of p ledg
ledged
ed with s
sec
ec ur
ured
ed lia
lia bili
biliti
ties
es
(P117,000
(P117,000 – P104,000) 13,000
P 78,000
16. P52,000
Fr
Free
ee a ssets after
a fter of
o f liab
liabil
iliti
ities
es with p
prriority:
iority:
Total
Total free
free ass
assets P 78,
8,0
000
Less:: Liab
Less Liabili
ilities
ties with p riority
riority 26,000
26,000
P 52,000
17. P260,000
Unsec
Unsec ured c red
editor
itors
s:
Ex
Exc
c ess of pa
p a rti
rtia
a lly
lly sec
sec ured lia
lia b iliti
ilities
es ove
overr
p ledg
led g e d a sse ts (P195,000 – P169,000)
P169,000) P 26,000
26,000
Ac c ounts pa yabyable le 234,
234,00
000
0
P 260,000

18. P174,200
Payment
Paym ent on bond:
b ond:
Va lue of pled ged
ge d a ssets P 169,
169,00
000
0
20%* o f rema ining P26,00
P26,000 0 5,200
5,200
P 174,200
Fr
Fre
e e a fter
fte r p
pri
rio
o rity:
rity: P52,000/P260,0
P52,000/P260,000
00 =20%
19. P247,000
Fre
Fre e a sse
sse ts P390,000
Ex
Exc
c ess fro
fro m a asssets pledge
pled gedd with fully
fully sec
sec ured
ured
(P260,000
(P260,000 – P195,000) 65,000
Amount
Amo unt a vailable
vailab le P45
P455,
5,00
000
0
Unsec
Uns ec ured lialia b iliti
ilities
es with p rio
rio rity
rity ( 20
208,0
8,000)
00)
Net free
free a ssets / a vailable
vailab le for unsec
unsec ured
ured P247,
P247,00
000
0
20. P32,000
C a sh 120,00
120,000
0
Mo rtgage
tga ge pa yable,
yab le, pa id in ful
fulll ( 60,0
60,00
00 )
60,000
Note pa yable
yab le to ba nk,
nk, sec ured
ured p ortion
ortion ( 30,0
30,00
00 )
30,000
Priority c la
laims
ims (P16,000 o f ad
a d ministrative
ministrative c osts +
P2,000
P2,0 00 o f c us
usto
tomer
mer d ep o sits + P4,0
P4,00000 p roperty
rop erty tax)
ta x) ( 22
22,00
,000
0 )
Ava ila
ila ble for unsec
unsec ured nonp riorit
riority
y c laims 8,
8,00
000
0
Unsec ur
Unsec ured
ed , nonprior
no npriority
ity claims
c laims::
Uns
Un sec ured
ured por
po rtion
tion of note pa yable
yab le to ba nk 10,
0,00
000
0
Ac c ounts pa yable 30,
0,00
000
0
Total
Total unsec
unsec ured
ured,, nonpr
nonpriiori
ority
ty c laims
laims 40,0
,00
00
P8,000 c a sh/ P40,000
P8,000 P40,000 c laims = P.20 on the d o lla
lla r
Amount pai
pa id to ba nk:
nk:
P30,00
P30, 000
0 for secured
sec ured p o rtion
rtion + (P10,00
(P10,000
0 x .20
.20)) for
fo r unsec
unsec ured
p ortion = 32,000
32,000
21. P15,400
Morrtgage
Mo tga ge note rec eivable 35,0
35,000
00
Less:
ess: Porti
Portion
on sec ur
ured
ed b y eq
equipment
uipment ( 7,
7,00
000
0 )
Unsec
Uns ec ured p o rti
rtio
on 28
28,00
,000
0
Estimate
timatedd rec over
ove ry on sec ur
ured
ed po rtion
tion 7,
7,00
000
0
Estimated recovery on unsecured portion
(P
(P28,000
28,000 x P.30) = 8,400
Rec overy on mortga
mortga ge note rec eivable 15,4
15,400
00
22.
Mo rtgage
tga ge note rec eivabl
eivab le 80,
0,00
000
0
Less
Less: Port
Po rtion
ion sec ured b y mark
ma rketa
eta b le sec urities
urities ( 60
60,00
,000
0 )
Unsec
Uns ec ured p o rtion
rtion 20
20,00
,000
0
Estim
timate
atedd rec over
ove ry on sec ur
ured
ed po rtion 60
60,0
,000
00
Estimated recovery on unsecured portion
(20,000 x P.25) = 5,000
Rec overy on mortga

mortga ge note rec eivable
eivab le 65,
5,00
000
0
23. P30,000
Book
Boo k value
va lue o f a ssets P700,000
P700,000
Nett reali
Ne rea lizab
zable
le o f a ssets 37
370,0
0,000
00
P330,000
Less stoc khold
Less kholders
ers'' eq
equity
uity
(P700,000
(P700,000 – P400,000) 300,000
Defic
De ficienc
ienc y P 30
30,00
,000
0
24. P.75 Dividend

Divide nd = P370,000
P370,000 – P250,000
P250,000 – P30,000
P30,000 / P400,000
P400,000 – P250,000
P250,000 – P30,0
P 30,000
00
25. P8,500 =P7,000 +[(P [(P9,000
9,000 – P7,000) x .75]
26. P410,000
Total
Total esti
estimated
mated proceed
proce eds s P9
P91
10,
0,0
000
Less
ess a sset pprroc eed s c laimed b y sec
sec ured
ured
c red
editor
itors
s:
proc ee
eedd s o f receiva
rec eivables
inventory) P150,
P150,00
000
0
proc eeeed d s o f land a nd building) 320,
320,00
000
0 470,
470,00
000
0
Total
Total avai
ava ilabl
ab le to
to unsec ured
ured c laimants. P4
P44
40,
0,0
000
Less
Les s d istri
istrib
with priority:
Wage
Wa ges s pa yable
yab le P 10,0
10,000
00
Taxes
Taxes pa yable 20,0
,00
00 30,
0,0
000
Amount
Amo unt a vailable
vailab le for unsec
unsec ured
ured c red
editor
itors
s P410,
P410,00
000
0
27. 64.10%
interest
inte rest (P500,000 + P30,000 – P150,000) P380,000
Ac c ounts pa yable
yab le 26
260,
0,00
000
0
Total
Total c laims of uns
unsec
ec ured
ured c reditors
editors P64
P640,
0,0
000
Dividend to unsecured creditors:

P410,000 ÷P640,000 = 64.1%
28.
28. Un
Uns
sec ured
ured po rtion
tion of notes pa yab
yablele a nd
Interest P380,000
Divide
Dividend
nd on unsec
unsec ured a mount x 64
64.1
.1%
%
Amount
unsec ur
ured
ed p ortion
ortion P243,
P243,58
5800
Procee
Proc eedd s from
from receivab
150,
0,00
0000
Total
Total Rec eived
eived P3
P39
93,
3,5
580

THEO
HEORIES
RIES
1. debtor
2. P5,000
3. inab
inabil ility
ity to p
paa y de
debts bts a s they matur
maturee
4. a . a d ministrative
ministrative c o sts
b. c ertain pos po stfili
tfiling
ng “g a p” c laims in iinvoluntary
nvoluntary filings
filings
c . wa gesge s, sa lari
laries,
es, a nd c o mmis
mmissions
d. employ
emp loyee ee benefit
be nefit plans
e. d ep eposi
osits
ts b y individ
individ uals
f. taxes
5. infrequent
6. two
two-thi
-thirrds, more than one-haone -halflf
7. fr
fra
a ud
udulent,
ulent, prefer
prefe rential
8. rea liz
liza tion a nd liquida
liquidation
tion
9. False 14. False 19. False 24. c 29. b 34. b 39. b

10. False 15. Tr
True 20. False 25.. a
25 30.
30. b 35.
35. d 40.
40. c
11. False 16. Tr
True 21. c
21. 26.
26. d 31.
31. b 36.
36. b 41.
41. b
12. Tr
True 17. Tr
True 22.. a
22 27. c
27. 32. a 37. c 42. a
13. False 18. Tr
True 23.. a
23 28.
28. e 33.
33. c 38.
38. a 43.
43. c
44. a 49. c 54. d 59.

59. a
45.
45. c 50.
50. d 55.
55. c 60.
60. c
46..
46 c 51. a
51. 56. d
47..
47 a 52.
52. d 57.
57. b
48..
48 b 53.
53. b 58.
58. a

C hap
haptter 7
Problem I
1. Entries in 20x4:
C a sh 3,500
3,500
M ortgage
ortga ge Notes
Note s Receivab
Rec eivab le 20
20,5
,500
00
Rea
G l Eon
a in state ……………………
…………
Sa le Real……………………
of Rea l Estate ……………
… 15
15,000 9,000
,000 9,000
C a sh 500
500
Mo rtgage
tga ge Notes Rec eivable
eivab le 500
Entry in 20x5:
20x5:
Rea l Estate ……………………
………… …………………… …………………… ……………………
………………
…… 16
16,5
,500
00
Loss on Rep
Rep o sse ssion o f Rea
Reall Es
Esta
tate
te ……………
…… ………………
…………
… 3,500
3,500
Mo rtgage
tga ge Notes Rec eivable ………………………………
……………………… ……… 20,020,000
00
2. Entries iin
n 20x4
20x4
C ash …………………………………………
………………… ……………………………………………… ……………………………… ……… 3, 500
Morrtgage
Mo tga ge Notes Rec eivable …………………………………
…………………… …………… 20,5 20,500
00
………… …………………… …………………… ……………………………………………… 9,
9,00
000
0
Deferr
Defe rred
ed G ross Profit on Insta
Install
llment
ment Sa
Sa les …………
……… … … 1515,00
,000
0
C ash …………………………………………
………………… ……………………………………………… ……………………………… ……… 500
500
Mo rtgage
eivab le ………………………………
…………………… ………… 500
Rec eipt P500
P500 ca sh in 20x
20x4
4 applica
ap plica ble to pri
princ
ncipal
ipal of note
no te
Deferred
De ferred Gros
G rosss Profit o n Ins
Insta
tall
llment
ment Sa les ……
…………… …………… 2,500
2,500
Reali
Rea lized
zed G ross
ross Profit o n Ins
Insta
tall
llment
ment Sa les……
les……………
…………… 2,500
2,500
G ro ss Profit Perc
Percenta
enta ges
ge s
15,000// 24,000, or 62.5%
15,000
6.25%
6.2 5% o f P4,0
P4,000
00 (c ollec tions in
in co
c o ntrac t in 20x
20x4)
4)
Or P2,500
Entry in 20x5
Rea l Estate…………
tate …………………… …………………… …………………… …………………… …………………
……… 16
16,5
,500
00
Deferr
Defe rred
ed G ross
ross Profit o n IIns
nsta
tall
llment
ment Sa
Sa les ………
………………
……… 12
12,50
,500
0
Mo rtgage
tga ge Notes Rec eivable ……………………………………
…………………… ……………… 20,0 20,000
00
G a in in Rep ossess
ossessionion of Rea
Rea l Estate ……………
………………………
…………… … 9,9,00
000
0
Problem II
1. 20x4: No Profit is recognized. P4,000 down payment is treated as a return of investment.
20
20x5
x5 P750 is p rofit. P250 is
is ttrea
reated
ted a s a return of
o f investment.
Following yea rs:rs: E
Ea
a c h annua
a nnua l ins
insta
tall
llment
ment f P1,000
P1,000 iis
s p rofit.
2. 20x4: P4,000 is profit.
20x5: P1,000 is profit.
20
20x
x6: P750
P750 is p rofit, a
and
nd P250
P250 is treated
trea ted a s return of investment.
Following yea rs:
rs: E
Ea
a c h annua
a nnua l ins
insta
tall
llment
ment is P1,000
P1,000 is treated
trea ted a s a return of investment.
3. Profit Perce
Pe rcenta
ntage
ge is 5,750
5,750 / P10,0
P10,000
00,, o
orr 5.75
5.75%
% o f sales
20x4:
20x4: P4,000
P4,000 x 57.5%, or
or P2,30
P2,300,
0, is p rofit; P1,700 is trea ted
te d a s a return of
o f inves
inve stment.
tme nt.
Following yea rs:

rs: P1,000
P1,000 x 57.5
57.5%
%, or
o r P57
P575
5 per
pe r year,
yea r, is
is reg
regaa rded
rde d a s p rofit.
P425 per year is treated as return of investment.
Problem III
1.
a. Ins
Installment
tallment C ontrac ts Rec eivab le 19
19X8
X8…………
…………………
……… 25
250,
0,00
000
0
Installment
Installment Sa les …………
…………………………………………
……………………
……………………
………… 25
250,
0,00
000
0
b. C ash …………………………………………

………………… ……………………………………………… ……………………………… ……… 120,
120,00
000
0
Installment
Installment C ontrac ts Receivab
Rec eivab le 19X
19X8
8 …………
……………………
………… 12
120,
0,00
000
0
c . C ost of Ins
Installment
tallment Sa les …………
……………………………………
……………………
……………
… 200,
200,00
000
0
M ercha
erc hand
ndis
ise
e Inventory ……………………
………… ……………………
………………
…… 200,
200,00
000
0
d. M ercha
erc handis
ndisee Rep
eposs
ossess
essions
ions …………………
……… …………………… ……………… …… 14
14,5
,500
00
Deferr
Defe rred
ed G ross
ross Profit o n Ins
Insta
tall
llment
ment Sa les 19
19X8
X8 …………
…… …… 4,000
4,000
Loss
Loss o n Repo
Rep o ssession
ession ……………
…… ……………… …………………………… ……… … 1,5
1,500
00
Installment
Installment C ontrac ts Rec eivab le, 19 19X8
X8 …………….
……… ……. 20
20,0
,000
00
G ros
ross
s Profit Perce
Pe rcenta
ntageges
s: 50,00
50,000/0/25
250,0
0,000
00,, or 20%
Defe
De ferr
rre
e d G ross Profit
Profit on Rep
Re p o sse ssion:
ion : 20
20%
% of P20,000 or P4,000
P4,000
Fair value
va lue o f repo
rep o ssessed
essed merc
mercha
hand
ndis
ise..
e.. P 14
14,50
,500
0
Less
Less: Unrec
Unrec over
ove red c ost:
Unpa
Un pa id ba lanc
lance……………
e…………………………P ……………P 20,0 20,000
00
Less
Less: Deferred
De ferred G ross
ross Pr
Profit
ofit
20% x P20,000……
P20,000………… …………
……………… 4,000 4,000 16,000
16,000
Loss o n reposs
rep ossess
ession…
ion…………………………………
…….. P 1,500
1,500
e. Ex
Expe
pens
nses
es ………
…………………
……………………
……………………
……………………
……………………
……………………
………… 16,0
16,000
00
C a sh …………………………………………
………………… ………………………………………………
……………………….. 16,0
16,000
00
2. Adjus
Ad justment
tment to Recog
Rec og nize
nize G ross Profit on Insta
Install
llments
ments Sa les
les::
a. To
To set-u
set-up
pCCos
ostt of Ins
Install
tallment
ment Sales
ales::
No entry (since perpetual inventory method is used)
b. To
To set-u
set-up
p Defer
Deferrred G ross
oss Profi
Profitt on IIns
nstal
talllment Sales
ales::
Installment
…………………… …………………… …………………… …………………… …………… … 250,
250,00
0000
C o st o f Insta
Install
llmen
mentt Sa les ……………
…… ……………… ……………… …………… …….. 20
200,0
0,000
00
Deferred
De ferred G ross
nsta
tall
llment
ment Sa
Sa les-20x
les-20x4..
4.. ………
…… … 50
50,00
,000
0
c . A d justmen
justmentt to Rec
Recoo gn
gniz
ize
e G ross
ross Profit on Insta
Install
llment
ment Sales:
Deferr
Defe rred
ed G ross
ross Profit o n Ins
Insta
tallment
llment Sa les – 20
20x4
x4……
……… … 24,00
24,000
0
Reali
Rea lized
zed G ross
ross Profit o n Ins
Insta
tall
llment
ment Sa les – 20
20x x4 ……….
…… …. 24,00
24,000
0
Reali
Rea lized
zed G ross
ross Pr
Pro
o fit: 20%
20% o f P120
P120,00
,000
0 (co
(c o ll
llec
ec tions),
or P24,000
d. C losin
losing
g o f nomi
nominal
nal ac c ounts
ounts..
Reali
Rea lized
zed G ross
ross Profit o n Ins
Insta
tall
llment
ment Sa les – 20
20x
x4………………
4……… …………
… 24
24,00
,000
0
Exp
Exp enses …………………
……… …………………… …………………… …………………………………….
……. 16
16,0
,000
00
Loss o n Repo
Rep o sse ssions ……………
…… ……………… ……………… ………………
………….
…. 1,500
1,500
Income
Inc ome Summary ……………………
………… …………………… ……………………
…………….
…. 6,
6,50
500
0
To
To cl
c lose
ose th
thee ac c ounts for 20x4.
Problem IV
1.
J anuary to D
Dec
ec ember 31 20
20x
x4 20x5
(1) To rec o rd reg
reg ular sa
sa les:
Ac c ounts
ou nts rec eivable
eiva ble 60
600,0
0,000
00 1,080
1,080,00
,000
0
Sales
Sale s 600,00 1,080,000
(2) To rec o rd ins

insta
tallm
llmen
entt s
sa
a le:
C a sh 60,000
60,000 144,000
144,000
Ins
Insta
tall
llment
ment a c c ounts
ou nts rec eivable
eiva ble 30
300,0
0,000
00 33
336,0
6,000
00
Installment
Installme nt Sa les 360,000
360,000 480,000
480,000
(3) To rec
record
ord c ost of sa
sa les
les::
Periodic
Per iodic Me
Method:
thod: No entr
e ntry
y
Perpetual Method:
Regular Sales:
C ost of Sa les 480,000
480,000 864
864,000
,000
Me rc ha
handise
ndise inventory
invento ry 48
480,0
0,000
00 86
864,0
4,000
00
Ins
Insta
tall
llment
ment Sa les:
C ost of installme
installment
nt sa les 252
252,000
,000 312
312,000
,000
Me rc ha
handise
ndise inventory
invento ry 25
252,0
2,000
00 31
312,0
2,000
00
(4) To rec ord c ollec tions

tions::
Regular Sales:
C a sh 144,000 360,000
Ac c ou
ounts
nts receiva
rec eivable
ble 14
144,0
4,000
00 360
360,00
,000
0
Ins
Insta
tallm
llmen
entt Sa les:
C a sh 108,000 204,000
Installment
tallment Ac c ounts rec eivable –
20x2 72,000 72,000
Installment
tallment Ac c ounts rec eivable –
20x3 60,000
Interest
Inte rest inc
incoo me 36,000
36,000 72,000
72,000
(5
(5)) to rec ord pa yment
yment of opoperatin
erating
g ex
e xpens
pe nses:
es:
O pe
perating
rating e xpe ns
nses
es 90
90,00
,000
0 10
102,0
2,000
00
C a sh 90,000
90,000 102
102,000
,000
2.
Adjusting entries (end of the year):
(6
(6)) T
To
o rec og
ogniz
nize
e ac c rued inter
interest
est rec
rec eivable
Interest receiva
rec eivab
b le 1,4
1,440
40 2,8
2,880
80
Interest inc
incoo me 1,440
1,440 2,8
2,880
80
(7) To set-up C ost of S

Sa
a les:
Periodic Method:
C ost of installme
installment
nt sa les 480
480,000
,000 864
864,000
,000
M ercha
erc handise
ndise inventory
invento ry 48
480,0
0,000
00 86
864,0
4,000
00
Perpetual Method:
Me thod: No entry
entry
(7) To set-up C ost of Installment S

Sa
a les:
Periodic Method:
C ost of installme
installment
nt sa les 252
252,000
,000 312
312,000
,000
Ship
hipme
ment
nt s on installme
installment
nt sale
saless 252
252,000
,000 312,000
312,000
Perpetual Method:
Me thod: No entry
entry
(8) To set-up Deferred Gross Profit
Installme nt sale
Installment saless 360,000
360,000 480
480,000
,000
C ost of installme
installment
nt sa les 252
252,000
,000 312,000
312,000
De
Defe
ferr
rre
e d gross
gro ss p rofit – 20x4
20x4 108
108,000
,000
De
Defeferr
rre
e d gross
gro ss p rofit – 20x5
20x5 168,000
168,000
G ross p rof
rofit
it rate – 20x4:
20x4: P 108,000 / P360,000 =30%.
G ross p rof
rofit
it rate
rate – 20x5: P168,000 / P480,000 =35%.
(9) To rec o rd rrea

ea liz
lize
ed g
gros
ross
s profit
pro fit on ins
insta
tallm
llmen
entt
sales:
De
Defe
ferr
rre
ed gro
grosss p rofit – 20x
20x4
4 25,20
25,200
0 25,20
25,200
0
De
Defe
ferr
rre
ed gro
grosss p rofit – 20x
20x5
5 21,000
21,000
Rea lize
lize d gro
gross
ss p rofit 25,20
25,200
0 46,200
46,200
20
20x4
x4:: Rea li
lized
zed gross pro
profit
fit on insta
install
llment
ment sa les:
C ollec
ollections
tions a pp
pply
lying
ing as to princ
princ ipa
ipal..
l..……………
………………………
………………P
……P 72
72,00
,000
0
Multiplied by: G ross profit ra te…………………
Multiplied te……… ……………………… ………………….
……. 30%
30%
Reali
Rea lized
zed gros
grosss profit
profit……………
………………………… ……………………… ………………………
……………PP 21,600
21,600
20
20x5
x5:: Rea li
lized
zed gross pro
profit
fit on insta
install
llment
ment sa les;
20x4 20x5
C ollec tions – pri
princ
ncipa
ipal……………
l…………… P 72,00
72,000
0 P 60,00
60,000
0
M ultiplies by: G ros
ross
s profit
pro fit %.......... ___
____30%
_30% ___
____35%
_35%
Rea lize
lized gro
gross
ss p rofit………
rofit……………
………
… P 21,600
21,600 P 21,000
21,000 P 42,600
42,600
C losi
losing
ng entr
e ntries:
ies:
(10)) To
(10 To c los
lose
e rea li
lized
zed gross
gross profit ac c ount:
Rea lize
lized gro
gross
ss p rofit 21,600
21,600 42,60
42,600
0
Inc o me summa
summary
ry 21,60
21,600
0 42,600
42,600
(11)) To c los
(11 lose
eoother
ther nomina
nomina l ac c ounts
Sales
Sale s 600,000 1,080,000
Inte
Interest
rest inc ome 37,44
37,440
0 74,880
74,880
C o st of sales
sale s 480,000
480,000 864,000
864,000
O pe
perating
rating expenses
expe nses 90
90,00
,000
0 102,0
102,000
00
Inc ome summary
summary 67,440
67,440 188
188,880
,880
(12) To c lose results

results of o pe ra tions:
Inc o me summa
summary
ry 89,040
89,040 231,4
231,480
80
Retained
Reta ined e a rnings 89
89,04
,040
0 23
231,4
1,480
80
Problem V
1.
Type
Type of Sale Amount Ratio tto
o Total Sales Alloc
Alloc ated C ost
ost
Regular Sales:
C a sh sales
sale s P 225
225,000
,000 P *14
*146,250
6,250
C red
redit
it sa les ___450,00
__ _450,000
0 **
**292
292,500
,500
Total rregular
egular sales P 675,0,00
00 675/ 1,8
,80
00 P 43438
8,7
,75
50
Installment
Installme nt Sa les _ 1,125,000
1,125,000 1,125/
1,125/ 1,800 __
__731
731,250
,250
Total Sales P11,8
,80
00,0
,00
00 P 1,1
,17
70,0
,00
00
*P225,000/P1,800,000 x P1,170,000 = P146,250
**P450,000/P1,800,000
The
The al tion axbove
a lloca tion P1,170,000
bo ve wa s= ba
P292,500
sed on the a ssumptions
umptions that the
the markup
markup for eac h type
type of sale
sale is the
same. Normally, the selling prices of the merchandise are not the same for each type of sales.
2.
Amount based on Ratio to Total
Type of Sale Amount C a sh Sa les (100%
(100%) Sales Alloc
Alloc a ted C ost
C a sh sa les P 225,000
225,000 P 225,000
225,000 225
225// 1,500 P 175 175,500
,500
C red
reditit sales
sale s 450
450,000
,000 375,000*
375,000* 375
375// 1,500 292,500
292,500
Installme
Insta llmentnt Sales
Sale s 1,125,000 900,000**
900,000** 900/
900/1,500
1,500 __ 702,000
Total Sales P1
1,5
,50
00,
0,0
000 P 1,2
1,2550,
0,0
000 P 1,1
,1770,0
,00
00
*P450,000 / 120% = P375,000
**P1,125,000 / 125% = P900,000
3.
Type
Type of Sale Amount Gros
Gross
s pr
profi
ofitt rate C ost
ost ratio Alloc
Alloc ated C ost*
ost*
C a sh sale
saless P 225,000 30% 70% P 157,500
C red
reditit sales
sale s 450,000 36% 64% 288,000
Installme
Insta llmentnt Sales
Sale s 1,125,000 40% 60% _ _675,000
Total Sales P1
1,8
,80
00,
0,0
000 P 1,1
1,17
70,0
,00
00
* Amo unt of sal
sale
e x c ost rratio.
atio.

Problem VI
The
The entr
entries are requir
equired
ed under the period
periodiic method:
Repos
Repo ssess
essed
ed mercha ndis
ndise……
e…………………
……………………… ………………
…… 68
68,40
,400
0
De
Deferred
ferred gross profit – 20
20x4
x4………
……………… ……………… ………………
……… 48
48,00
,000
0
Loss on repo ssess
ession…
ion…………
……………… ……………… ………………………………
……………
…… 3,6
3,600
00
Ins
Installment
tallment a c c ounts rec
receivab
eivab le – 20x
20x4……………………
4…………………….. 12
120,0
0,000
00
To record repossessed merchandise.
R epo
epo sssses
esssed merch
merch a ndi
ndisse… … … … … … … … … … … … 12,00
,000
C ash,
ash, et etcc (or vari
various
ous cred
crediits)… … … … … … … … 12,0
12,000
00
To reco rd rec onditi
onditioning
oning c ost
ostss
The
The los
losss on rrep
epos
oss sess
ession iiss c omputed as fol folllows:
ows:
Es
Estimate
timated d selling p ric
ric e a fter reco
rec o nd
nditi
itio
o ning c o sts P 10
108,0
8,000
00
Less:
ess: Recond
Rec ond itioning
itioning c osts
osts…………………
……… …………………… …………………… ………… P 12
12,0
,000
00
C osts to sell a nd disp
disp ose………
ose………………… …………………… …………… … 6,
6,00
000
0
Normal
No rmal p rofit (20
(20% % x 10
108,0
8,000
00)……
)………… …………… …………… ………… __
__21
21,60
,600
0 __
__39
39,60
,600
0
M a rket value be before
fore rec ond itioning
itioning c osts…………………
………… ……… P 68,4
68,400
00
Less:
ess: Unr
Unrecec over
ove red c ost
Installment
Installment ac c ounts rec receivab
eivab le – 20x
20x4,
unpaid
unpa id ba lanc
lance………
e………………………………
…………………………… …… P1
P1220,
0,00
000
0
Less:: De
Less Defe
ferr
rre
e d g ross p rofit – 20x
20x4 4 (P120,000
(P120,000 x 40%) __
__48,0
48,000
00 __
__72,0
72,000
00
Loss
Los s o n repo
rep o ssession…
ession……… …………………………… …………… …….. P( 3,600
3,600))
Problem VII
The
The entr
entry to rec
rec ord the sale of the new vehi
vehic
c le under
under the period
periodiic method:
Trade-in
ad e-in Merchandise……………………………
Merchandise……………………………… … 840,0
,00
00
O ver-allowa
ver-allowanc nce e on tr
tra
a de
de-in
-in merchand
merc hand ise…
ise………………
……………….
…. 360,0
360,000
00
C a sh……………
h………………………… ……………………… ……………………… ………………………………… 2
2,40
,400,0
0,000
00
Ins
Insta
tallm
llmen
entt a c c o unts receiva
rec eivable
ble – 20
20x4
x4…
… 3,3
3,360
60,00
,000
0
Ins
Insta
tallment
llment sa les…………………
les………… ……………… ………… … 6,960
6,960,00
,000
0
To rec ord install
installmen
mentt sales
sales with tr
trad
ad e-
e-in.
in.
Alternatively, the over-allowance on trade-in merchandise may also be treated as net of installment
sa les,
les T
, rthe entr
e ntry
ade-in
y would
wo uld be
b e a s follows:
Merchandise……………………………… … 840,0
,00
00
C a sh……………
h………………………… ……………………… ……………………… ……………………… ……………
… 2,4
2,400
00,00
,000
0
Ins
Insta
tallm
llmen
entt a c c o unts receiva
rec eivable
ble – 2020x4
x4………
……… 3,3
3,360
60,00
,000
0
Ins
Installment
tallment sa les (net of ove
overr-all
-a llow
owaa nc
nce)…
e)… 6,6
6,600
00,00
,000
0
To rec ord install
installmen
mentt sales
sales with tr
trad
ad e-
e-in.
in.
The
The over-all
over-allowa
owa nce is c omputed as fol
folllows:
ows:
Trade-in
ad e-in allowa
allowa nce
nce…………………
……………………………… …………… P1,2
P1,20
00,0
,00
00
Less
Less: Ma
Marrket value befo
b eforre rec ond
ondititioning
ioning c
costs
osts:
Estima
tima ted resale pri
pricc e a fter recond
rec onditi
itioning
oning c osts. P1,
P1,68
680,
0,00
000
0
Less: Rec on
onditioning
ditioning c osts
osts………
……………… ……………… …………… …… 42
420,0
0,000
00
C osts to sell (5% x P1,680,000)………
P1,680,000)…………… ………… ……… … 84,000
84,000
No
Normal
rmal p rofit (20% x P1,680,000)………
P1,680,000)……… __
__336
336,000
,000 __
__840
840,000
,000
Overr-allowanc e………………
Ove e……………………………………………………
…………………………………… P 36
360,
0,00
000
0

The
The gros
gross
s profi
profitt rate on ins
install
tallment
ment sales is c omputed as fol
folllows:
ows:
Installment
Installment sa les……………
les………………………… …………………………
………………………
………………
…… P6,9
P6,960
60,0
,000
00
Less
Les s: O ver-allowanc
ver-allowa nce… e………………
………………………………………………
………………………
…………………
……… ___360
___360,0
,000
00
Ad
Adjus
justed
ted Ins
Installment
tallment Sa les…………
les………………………
…………………………
………………………
………………
…… P6,6
P6,600
00,0
,000
00
Less: C ost o f ins
insta
tallm
llmen
entt sa les…………
les…………………
………………
………………
………………
……………
…… __3,920,00
__3,920,000
0
G ros
rosss profit…………………
profit……………………………… …………………………
…………………………
………………………
………… P2,6
P2,680
80,0
,000
00
G ross pro
profit
fit rate (P2,680,0
(P2,680,000
00// P6,600,0
P6,600,000
00)……
)……………
………………
……………
…… 40
40.60
.60%
%
Fur
Further, the entr
e ntry
y to rec ord the rec ond itioning
itioning c osts
osts is a s follows:
Trade-in
Merchandise……………………………… … 420,0
,00
00
C a sh, etc (or various c redits
ed its)……………
)…………………
…… 420,0
420,000
00
To reco rd rec onditi
onditioning
oning c osts.
osts.
Incidentally, the realiz

realized
ed g ross profit on install
installment sales of the
the ne w merc handise for the year 20x4 is
c omputed
omp uted a s follow
followss:
Trad e-in merc

merc handis
handise e (mar
(marketket value
value before
before rec
rec ondit
ondition
ioniing cost
costs
s)……… P 840,0
,00
00
Down pa yment……………………………
yment……………… ………………………… ………………………… ………………………… …………… 2,000
2,000,00
,000
0
Ins
Insta
tallm
llmen
entt c ollec tion (Ma rch 31 – Dec De c emb
emberer 31
31:: P80,000
P80,000 x 10 months) ___
___80
800,0
0,000
00
Total coll
collec
ec ti
tions
ons…………………
………………………………………… ………………………………………… ………………… P3,6
P3,6440,0
,00
00
M ultiplie
ultiplie d b y: G ros
rosss pro
profit
fit rate in 20x4…………………
4………… ……………… ……………… ……… ___
___40
40.60
.60%%
Reali
Rea lized
zed gross proprofit
fit o n insta
installllment
ment sa les of ne
neww merc
merchahand
ndisise…
e…………
……… P1,477,8
P1,477,84040
Problem VIII
1. Ent
Entrries a ssuming
uming that monthly
mo nthly p a yments c onsis
onsist of P
P60
600
0 plus interest
interest on the unpa
unp a id ba
b a lanc e:
O c t. 31 C a sh …………………
……………………………………… …………………………………………… ……………………………… ……… 20,0 20,000
00
Mo rtgage
eivab le …………………………………
…………………… …………… 55,0 55,0000
Real Estate …………………
………… ………………… …………………… ………………… ……………………… 60
60,0
,000
00
Deferred
De ferred Gros
G ross
s Profit on Ins
Insta
tall
llment
ment Sa les ……………
…… ……… 15 15,00
,000
0
Nov. 30 C a sh ………………………………………
……………… ……………………………………………… ……………………………… ……… 1,1
,150
50
Mo rtgage
tga ge Notes Rec eivable …………………………………
…………………… …………… 600
600
Interes
Interestt Income
Inco me ……………………………………………
…………………… …………………………… …… 550
Interest Rec
Rec eived
eive d : P55,
P55,00
00 at 12% for 1 month,
mo nth, or
o r P550
P550
Dec . 31 C a sh ……………………………………………………………
…………………………………… …………………………………… …………… 1,1
,144
44
Mo rtgage
tga ge Notes Rec eivable ………………………………
…………………… ………… 600
Interes
Interestt Income
Inco me ……………………………………………
…………………… ……………………………… ……… 544
544
Interest
Inte rest rec e ived : P54,4
P54,400
00 (P55,000-P600
(P55,000-P600)) at
a t 12%1 month,
mon th, or
o r P544
P544
31 Deferred
De ferred G ross
Install
llment
ment Sa Sa les ………………
……… ……… 4,240 4,240
Reali
Rea lized
zed G ross
Install
llment
ment Sa
Sa les ……………
…… …………… …… 4,240
4,240
G ros
ross
s Pr
Pro
o fit Pe
Perce
rcenta
ntagege:: 15,00
15,000/
0/75
75,00
,000,0, or
o r 20%
20%
Reali
Rea lized
zed G ross
ross Profit: 20%
20% o f P21,
P21,20
2000 (collec
(c ollec tions a p p lica ble to p ri
rinc
nc ipa l iin
n 19X3
19X3)) or P4,240
P4,240
2. Ent
Entrries a ssuming
uming monthly
mo nthly p a yments of P600 that include
inc lude interest
interest on the unpa
unp a id ba
b a lanc e of
o f the
contract:
Dec . 31 C a sh ……………………
………… …………………… …………………… …………………… …………………… …………………
……… 20 20,0
,000
00.0
.00
0
Mo rtgage
tga ge Notes Rec
Rec eivable
eivab le …………………………………
…………… …………………… 55,0 55,000
00.0
.00
0
………… …………………… …………………… ………………… ………………… 60,0
60,000
00.0
.00
0
Deferred
De ferred G ross
ross Profit o n Insta
Install
llment
ment Sa les …………
…… …… 15,00
15,000.0
0.00
0

Nov. 30 C a sh ………………………………………
……………… ……………………………………………… ………………………………
……… 600
600
Mo rtgage
tga ge Notes Rec eivable …………………… 50.0
50.00
0
Interest
Interest Inc
Income
ome ……………………
………… …………………… …………………
…………………
………… 55
550.
0.00
00
Interest Rec
Rec eived
eive d : P55,00
P55,000
0 at
a t 12%
12% for
fo r 1 month or
o r P550.
P550. Ba
Ba lanc e Payment,
Pa yment, P60
P 600-P55
0-P550,
0, or P50, is
is
reduc
ed ucti
tion
on in princ
principal)
ipal)
Dec . 31 C a sh ………………………………………………
……………………… ……………………………………………… ……………………….. 600.
600.00
00
Mo rtgage
tga ge Notes Rec eivable …………………………………
…………………… …………… 50.
0.50
50
Interest
Interest Rec eived …………
……………………
……………………
……………………
………………
…… 549.
549.50
50
Interest Receive
Rec eived
d : P54,95
P54,950.
0. Ba lanc e Pa yment, P600.00
P600.00-54
-549.5
9.50,
0, o P50.50,
P50.50, is
is reduc
red uction
tion in principa
princ ipa l.
31 Deferred
De ferred G ross
ross Profit on
o n Insta
Install
llment
ment SalesSale s …………
…… …………… ……… 4,0204,020.10
.10
Reali
Rea lized
zed G ross Profit o n Ins
Insta
tallllment
……… ………… …… 4,020
4,020.10
.10
G ros
ross
s Pr
Pro
o fit Pe
Perce
rcenta
ntagege:: 15,00
15,000/
0/75
75,00
,000,
0, or
o r 20%
20%
Reali
Rea lized
zed G ross
ross Profit: 20%
20% o f P20,
P20,10
100.5
0.50
0 (co
(c o llec
llec tions ap
app
p li
lic
c a b le to p ri
rinc
nc ipa l iin
n 19X3
19X3),
), or
o r P4,02
P4,020.1
0.10
0
Problem IX
1. 6/30x
6/30x4:
4: C a sh…………………
h……… …………………… …………………… …………………… …………………… ……………………………………
…… 25
25,0
,000
00
Notes Rec eivable …………………………………
…………… …………………………………………… ………………………… … 125,0
25,00
00
Ac c umula
umula ted Dep
Deprrec iation (3.1/2[2%
(3.1/2[2% of P90,0
P90,000
00])
]) ………………
……… ……………
…… 6,6,30
3000
Deprrec iation Exp
Dep Exp ense (1/2[2%of P90,0
P90,000
00])
]) …………………
……… …………………… ………… 90
9000
La nd ……………………………………………
…………………… …………………………………………… ……………………… … 10,
0,00
000
0
Buil
uilding
ding …………………
………… ………………… …………………… …………………… ……………………………… 90
90,0
,000
00
Deferrred G ross
Defe ross Profit on Sa le of Prop
Property
erty ………
…………………
……………… 57,2
57,200
00
Deferrred G ro ss Profit on Sa le of Prope

Defe Properrty ………………
……… ……… 9,
9,55
553
3
Rea liz
lized G ross Profit on Sa le of Property
Prop erty ………
…………………
………… 9,
9,55
553
3
Amount
mo unt rea lize
lize d : (P25,000/
(P25,000/150,
150,000
000)) x 57,200
57,200
2. 6/30x
6/30x5:
5: C a sh …………………
……… …………………… ……………………
……………………
……………………
……………………
………………
…… 30
30,0
,000
00
Notes Rec eivable ……………………………………………
……………………… ……………………………
……… 30,0
30,000
00
Deferrred G ross
Defe ross Profit
Profit on Sa
Sa le of Pr
Prop
op erty ………
…………………
………… 11,4
11,440
40
Rea liz
lized Gr
G ross Profit on Sa le of Proper
Prope rty ………
…………………
…………………
……… 11
11,4
,440
40
Amount
mo unt realiz
rea lize
e d (P30,00
(P30,000/0/P150,0
P150,000)
00) x 57,200
57,200
6/30// x6 C a sh ………………………………………
6/30 ………………… …………………………………………
…………………………………
…………… 50,0
50,00
00
Notes Rec eivable …………………………………………
………………… …………………………………
………… 50,0
50,000
00
Deferrred G ross
Defe ross Profit
Profit on Sa
Sa le of Prop
Property
erty ………
…………… …… … 19,0
19,067
67
Rea liz
lized Gr
G ross Profit on Sa le of Proper
Prope rty ………
…………………
…………………
……… 19
19,0
,067
67
Amount
mo unt Realiz
Rea lizee d : (P50,000/
(P50,000/P150,0
P150,000)
00) X 57,200
57,200
6/30// x7 C ash …………………………………………

6/30 ………………… …………………………………………………………………………
……… 15,0
15,00
00
Notes Rec eivable …………………………………………
………………… …………………………………
………… 15,
5,00
000
0
Deferrred G ross
Defe ross Profit
Profit on Sa
Sa le of Prop
Property
erty ………
…………………………… 5,
5,72
720
0
Realized
Realized G ross Profit on Sa le of Prop
Property
erty ………
…………………
…………………
……… 5,
5,72
720
0
Amo
Am o unt Realiz
Rea lized
ed : (P
(P15
15,00
,000/
0/P150
P150,00
,000)
0) X 57,
57,20
200
0
Problem X
Installment
Installment C ontrac ts Rec eivab le ……………………
………… …………………
……… 20
200,
0,00
000
0
Installment
…………………… ……………………
……………………
……………………
…………… … 20
200,
0,00
000
0
C o st of Installment
……………………
……………………
…………………
……………
…… 120,
120,00
000
0
M ercha
erc hand
ndis
ise
e Inventory ……………………
………… ……………………
……………………
………………
…… 12
120,
0,00
000
0
C o st of
of S
Sa
a les: 60%
60% o f P200,00
P200,000 0
Installment
…………………… …………………… …………………… …………………… ………………
…… 200,
200,00
000
0
C o st of Installment
Installment Sa les ………
………………… …………………………………………
………………
…… 12
120,
0,00
000
0
Deferr
De ferred
ed G ross
ross Profit o n Ins
Insta
tall
llment
…… ………………
…………… 60
60,00
,000
0
C ash …………………………………………
………………… ……………………………………………… …………………………………….……………. 124,
124,00
000
0
Installment
Installment on C ontrac ts Rec eivab le – 20x
20x4…………… 30,0
30,000
00
Installment
20x5………………
5…………………… 34,0
34,000
00
Installment
20x6………………
6…………………… 60,0
60,000
00
Deferr
Defe rred
ed G ross
ross Pr
Pro
o fit on Insta
Installllment
ment Sa les -20x
-20x4
4 ……………
……… …… 13
13,80
,800
0
Defe rred
Deferr ed G ross
ross Profit o n Ins
Insta
tall
llment
ment Sa
Sa les-20
les-20x5
x5 ………
………… … 14
14,28
,2800
Deferr
Defe rred
ed G ross
nsta
tallment
llment Sa les -20x
-20x6 …………
…… …… 24
24,00
,0000
Reali
Rea lized
zed G ross
ross Profit o n Ins
Insta
tall
llment
ment Sa les ……
……………………………
…………
… …… 52
52,08
,080
0
Realized Gross Profit
20x4: 46% of P30,000 or P13,800
20x5: 42% of P34,000 or P14,280
20x6: 40% of P60,000 or P24,000

Problem XI
1. Calculation of gross profit percentage on installment sales
20x6:
20x6: P88,000
P88,000 g ross p rofit o n ins
insta
tallment
llment sa les, 20x
20x6,
6, / P320,000
P320,000 insta
installment
llment sa les 20x6
20x6 27.5%
27.5%
20
20x
x5: P45,0
P45,000
00 d e ferred gros
gro ss p rofit, 20
20x5
x5,, / P150,00
P150,0000 insta
install
llment
ment ac
a c c o unts receiva
rec eivab b le 20x
20x5
5 30
30%
%
20
20x
x4: P9,60
P9,600
0 d eferr
efe rred
ed gross p rofit, 2020x
x4 , / 30
30,00
,000
0 insta
install
llment
ment a c c o unts receiva
rec eivabb le 20
20xx4 32
32%
%
2.
WW EQUIPMENT
EQUIPM ENT, Inc.Inc .
Ba lance
lanc e Sheet
Sheet
Dec emb er 31,
31, 20
20x6x6
Assets
C a sh …………………
……… …………………… …………………… …………………… ……………………
……………………………………… ………... .......
........
........
........
......
.. P27,5
P27,500
00
Installment
Installment Ac c o unts Rec eivab le 20x
20x6 ……………
………………………
……………... …... P 55,0
55,000
00
20
20x5
x5 ……
……………
………………
…………… …….. .. 12,00
12,0000
20x4
20x4 ……
…………
…………
………… ……………….. .. 3,000
3,000 70,000
70,000
Ac c ounts rec eivable ………………………
…………………………………………… ……………………………………………
……………………………. ……. 17,0
17,0000
Inventory
Inventory ……………………………………………
…………………… ………………………………………… ………………… ………………………..
…………………… ….. 60,0
60,000
00
O ther Assets
Assets ………
…………………
…………………… …………………… ……………………
……………………………………… ……… ………………...
……… ………... 40
40,0
,000
00
Total
Total Ass
Assets ………………………………………………………………
………………………………………………………………… … ……………………
…………………… P 214,5
,50
00
Liabilities
Ac c ounts pa yabyable
le ……………………
………………… … …………………………………………
………………… ……………………… P 40,
0,00
000
0
Deferr
Defe rred
ed G ross
ross Profit 20
20x6
x6 …… ………………
……… ……………… ……… P 15
15,12
,125
5
20
20x
x5 …………
…… …… ………………
……… ………… … 3,600
3,600
20
20x4
x4 ……
…………
………
… ……………
…… ………… … 96
9600 19
19,68
,685
5
Total
Total Liab ilities
ties P 59,6
,68
85
Stockhol
toc kholde
ders
rs’ Equity
C ap ita
ita l Stoc k ………………………………………………
……………………… …………………………………………… …………………….. .. P 100,0
00,000
00
Retained Earnings ……………………
………… …………………… …………………………………….. …….. P 68,
68,40
400
0
Ba lanc e, J a n. 1, 20
20x
x6 ……
………………
…………………… …………………… ……………. …. 13 13,5
,585
85
Ba lanc e, Dec . 31
31,, 20
20x
x6 …………………
……… …………………… ………………………………………… ……………. …. 54,1
54,185
85
Total
Total Stock
toc kholder’s
holder’s Equity
quity ………………………………………………………
……………………………………………………… P15
P154,
4,8
815
Total
Total Liab ilities
ties and S
Stoc
tock
kholder’s
holder’s Equity
quity ……………………………………. P 21
214,5
,5000
WW EQUIPMENT
EQUIPM ENT, Inc.
Inc .
Income
Inco me Statement
Statement
For Yea r Ended Dec ember
emb er 31,
31, 20
20x
x6
Installment Regular T
Total
otal
Sales Sales
Sa les ………
……………… ……………… ……………… ……………… ……………… ……………… ………............
............ P320,00
P320,0000 P125
P125,00
,000
0 P445
P445,00
,000
0
C ost of ggoo
oodsds sold:
sold:
Mer
Me rc handis
ha ndise e Inventory
Inventory,, J a n. 1 ………………P
………… ……P 52 52,0,000
00
Purcha
Purch a se s ………
……………… ……………… ………….........
…..................
......... 35
350,0
0,00000
Mer
Me rc handis
ha ndise e Ava
Availila
a ble for sa le ........
.................
......... 402,
402,00 000 0
Less:: M erc
Less rcha
handndis
ise
e Inv. De
Decc . 31 …………
…… …… 60,00
60,000 0 232
232,000
,000 110,0
110,000
00 342,000
342,000
G ros
rosss Profit ………
……………… ……………… ……………… ……………… ……………… ……………………….. .. P88,000
P88,000 P15,
P15,000
000 P103,
P103,000
000
Less: Defe
De ferrred G ros
rosss Profit on 19X3
19X34 4 ………………
……… ……………… ………… … 15
15,12
,125
5 15,125
15,125
Reali
Rea lized
zed G ros
rosss Profit o n c urr
urren
entt yea r’s sa les ……… ……………………….. P78,8
P78,875
75 P15,
P15,000
000 P87,8
P87,875
75
Add:
Ad d: rea lilized
zed gross profit on p rior years
years’’ sa les on
Ins
Insta
tallm
llmen
entt ba sis (see
(see gross profit
pro fit sc he
hedu
dule)
le) ………
……………………….. 50,
50,040
040
Total R Rea
ealiliz
zed G ross
oss Pr
Profi
ofitt ………………………
……………………………………. ……………. P137
P137,9
,91
15
O perating
pe rating Ex Expe
pens
nses
es ……………
………………………… ……………………… ………………...……... 15
151,5
1,500
00
Net Los
Loss s …………
……………………… ……………………… ……………………… ……………………….. ………….. P 13,58
13,5855
WW EQUIPMENT
EQUIPM ENT, Inc.
Inc .
Ana
An a lys
lysis
is o f G ros
ross
s Profit on
o n Insta
Install
llment
ment Sa les
Sc hedule to Ac c ompa ny Inco Inco me S Statement
tatement
For Yea r E Ende
ndedd Dec ember
emb er 31,31, 20
20x
x6
Deferred Gross profit on installment sales, 20x6
Ins
Insta
tall
llment
ment c on
ontrac
trac ts rec eivable
eiva ble,, P32
P320,0
0,000
00 less c o llec
llec tions P265
P265,00
,000
0
O r P55,00
P55,000;0; P55,00
P55,000 0 x 27.5
27.5%
% ………………
……… ……………… ………………………………………………
………………
…………
… P 15
15,12
,125
5
Realized Gross Profit:

20x6 20x5 20x4
C ollec tions on Ins
Insta
tallm
llmen
entt C ontrac
on trac ts Rec eiva
eivable
ble ………
………...
... P265,00
P265,0000 P138
P138,00
,000
0 P27,0
P27,000
00
Ins
Insta
tallm
llmen
entt sa les gross profit
pro fit pe
perce
rcenta
ntagege ………………
……… ………….. ….. 27.
27.5%
5% 30
30%
% 32
32%
%
Reali
Rea lized
zed G ross Profit ………
……………… ……………… ……………… ……………… …………….
……... P 72,
72,875
875 P 41,40
41,4000 P 8,6
8,640
40
Installment
Installment Sales ………………
…… …………………………………………………
………………………
………… 32
320,0
0,000
00
C ost of Ins
Installm
tallment
ent Sa les …………
………………………
…………………………
………………….
……. 23
232,0
2,000
00
De
Deferred
ferred G ros
ross
s profit -20x6…………………
6………… ………………
………………
………………
……………
…… 88,00
88,000
0
De
Deferred
ferred G ros
rosss Profit, 20
20x
x6 ………
……………………………… …………….……...............
.............. 72,87
72,875
5
De
Deferred
ferred G ros
rosss Profit, 20x5 ………………
……… ……………… …………….……...............
.............. 41,40
41,400
0
De
Deferred
ferred G ross Profit, 20x4 ………………
……… ……………… …………….……...............
.............. 8,640
8,640
Realiz
Rea lized
ed G ross Profit on Ins
Installment
tallment sa les…………
les…………… … 122,9
122,915
15
Inco me Summary ………………………

………… ……………………… ………………………………………… 170,0
170,000
00
Shipme
hipment
nt on Ins
Insta
tallm
llmen
entt o f Sa les ………
………………………………………………
……… 23
232,0
2,000
00
Mercha
Me rchandis
ndisee Inventory,
Inventory, J a n. 1, 20x
20x6 ……………
……………….
…. 52,00
52,000
0
Purc
Purc ha
hasses …………
……………………………………………………… …………………………… 35
350,0
0,000
00
Mercha
Me rchandis
ndise
e Inventory,
Inventory, Dec . 31
31,, 20
20x
x6 ……………………..
…………… ……….. 60
60,0
,000
00
Inco me Summary ……………………
………… ……………………… ………………… 60,00
60,000
0
Sa les …………
……………………………………………… ………………………
……………………… ……………….……. 12
125,
5,00
000
0
………… ……………………… ………………. …. 12
125,0
5,000
00
Realiz
Rea lized
ed G ross Profit on Ins
Installment
tallment Sa les………..…
les………..……….
……...
.. 122
122,91
,915
5
………… ……………………… ………………. …. 12
122,9
2,915
15
Inco me Summary ………………………

………… …………………………………………………
………… 151,
151,50
500
0
O pe
perra ting
ting Expe
Expens
nses
es ……………………………
……………… ………………...
…... 15
151,5
1,500
00
Retained Earni
Earnings
ngs …………………………
…………… ………………………
…………………..
……….. 13
13,58
,585
5
………… ………………………
……………...
... 13,58
13,585
5
Problem XII
1. C a lcula
lculation
tion of gross
gross p rofit
rofit perc
percenta
enta ge o n iins
nstallm
tallment
ent sa
sa les
20x6:
20x 6: P190,000
P190,000 gross p rofit oon
n installment
installme nt sales
sale s, 20x6,
20x6, /P500,0
/ P500,000
00 installme
installment
nt
sales 20x6 …………………………………………………………………………………… 38%
20x5:
20x 5: P96,000
P96,000 d e ferr
fe rre
e d gross p rofit, 20x
20x5,
5, /P240,00
/ P240,0000 insta
installment
llment
ac c ounts rec eivable 20x
20x5 ………………………
…………………………………………… ………………………………………. …………………. 40%
40%
20x4:
20x 4: P22,500
P22,500 d e ferr
fe rre
e d gross p rofit, 20x
20x4
4 , /50,0
/ 50,000
00 iinstallme
nstallmentnt
ac c ounts rec eivable 20x
20x4 ……………………
…………………………………………… …………………………………………. …………………. 45%
45%

2.
Defe rred
Deferr ed G ross
ross Profit, 20x6………
20x6……………… ……………………………… ……… 1,900
1,900
Deferr
Defe rred
ed G ross
ross p rofit, 20
20x5
x5………
……………… ……………………………… ……… 4,000
4,000
Deferr
Defe rred
ed G ross
ross Profit, 20x4………
20x4……………… ……………………………… ……… 3,600
3,600
Loss o n Repo
Rep o sse ssions……………
ions……… …………… …………… ……..
.. 9,5
9,500
00
C anc ell
ellation
ation of
o f defer
de ferrred gros
grosss profi
profit,
t,
ba lanc es upon
upo n reposs
rep ossess
essions
ions::
20x6: 38% of P5,000, or P1,900
20x5: 40% of P10,000, or P4,000
20x4: 45% of P8,000, or P3,600
G G SALE
ALES
S CO RPORAT
PO RATION
Income
Inco me Statement
Statement
For Yea r E
Ende
ndedd Dec ember
emb er 31,
31, 20
20x
x6
Installment Regular T
Total
otal
Sa les Sales
Sa les ………
……………………………… ………………
……………… ……………… ………………
………............
............ P500,00
P500,000 0 P192,00
P192,0000 P692,00
P692,000
0
C ost of g
goo
oods
ds sold:
sold:
Mer
Me rc handis
ha ndise
e Inventory,
Inventory, J a n. 1 ……………
………… … P 30,0
30,000 00
Purch a se s ………
Purcha ……………… ……………… ………….........
…..................
......... 44
445,0
5,000
00
Repos
Repo ssess
essed
ed Me
Merrc hand ise
ise ………………..
…………… ….. 10,0
10,000
00
Mer
Me rc handis
ha ndisee Ava
Availila
a ble for sa le ........
.................
......... 495,
495,00
0000
Less:: M erc
Less rcha
hand
ndis
ise
e Inv. De
Decc . 31 …………
…… …… 35,00
35,0000 310,000
310,000 150,000
150,000 460,000
460,000
G ros
rosss Profit ………
……………… ……………… ……………… ……………… ……………… ……………… ……….. .. P190,00
P190,0000 P42,0
P42,000
00 P103,00
P103,0000
Less: Defe
De ferrred G ros
rosss Profit on 20x
20x6 sa les (s (see
ee sc hedu
he dule)
le) 32,30
32,3000 32
32,30
,300
0
Reali
Rea lized
zed G ros
ross
s Profit o n c urr
urren
entt yea r’s sa les ……… ……………… ……….. P157
P157,70
,700
0 P42,0
P42,000
00 P199,70
P199,7000
Add:
Ad d: rea lilized
zed gross profit on p rior years
years’’ sa les on
Ins
Installment
tallment ba sis (see
(see gross profit sc sc hed
hedule)
ule) ……………….
…… …………. 100,650
P300,350
Deduc
Ded uctt lloss
oss on reposs
rep ossess
ession
ion ………………………
………… ………………………
………….. 3,500
Total R
Rea
eali liz
zed G ross
oss Pr
Profi
ofitt ………………………
…………………………………….
……………. P29
P296,8
,85
50
O perating
pe rating Ex Expe
pens
nses
es ……………
………………………… ………………………
…………………
……… 300,0
300,000
00
Net Los
Losss …………
……………………… ……………………… ………………………
………………………..
………….. P 3,1
3,150
50
Ana lysis of G
Analysis Gross
ross Profit on Inst
Insta
allment Sale
Sales
s
Sc hedule tto
o Ac c ompa
ompany ny Income Statement
For Yea
Year r Ended Dec
Decembe
ember r 31, 20x6
Deferred gross profit on Installment sales – before defaults, 19X8:
Insta
Install
llment
ment c ontr
on tra
a c ts receiva
rec eivab
b le, P500,0
P500,00,
0, less c o llections,
llec tions, P415,00
P415,000,
0, or
P85,00
P85, 000;
0; P85,00
P85,000 0 x 38
38%
% ……………
…… ……………… ……………… ……………… ……………… …………………………. …. P 32
32,30
,300
0
Realized Gross Profit:

20x6 20x5 20x4
C o llec
llec tions of Insta
Installllment
ment c on
ontrac
trac ts rec
receiva
eivab
b le.. P415
P415,00
,000
0 P210,00
P210,000
0 P 37
37,00
,000
0
Insta
Installllment
ment sa les g ross
ross p rofit p ercen
erc enta
tage
ge ………..
……… .. 38
38%% 40
40%
% 45
45%
%
Reali
Rea lized
zed gros
gro ss p rofit ……
……………
……………… ……………… …………… ……..P15
..P157,7
7,700
00 P 84
84,00
,000
0 P 16
16,65
,650
0

GG SALES CO
CORPORATIONION
Balanc
ala nce
e Shee
Sheett
Decemb
Dec ember
er 31, 20x6
20x6
Assets
C ash …………………………………………
………………… ………………………………………………
………………………………………...………………... P 25,0
25,00
00
Installment
Installment Ac c o unts Receivab
Rec eivab le 20x
20x6
5 …………
20x5
20x …………………
……
………… ………P
…………
…………P 80
80,0
,000
00
20,000
20,000
20x4
20x4 ……
…………
…………
………… 5,00
5,000
0 105
105,000
,000
Ac c ounts rec eivable
eivab le ……………………………………………
…………………… ……………………………………………
…………………….... 40,0
40,000
00
Inventory
Inventory ………………………………………
………………… …………………………………………… ………………………………………….
…………………. 35,0
35,000
00
O ther Assets ………
…………………
……………………
……………………
……………………
……………………
……………………
…………………
……… 52,0
52,000
00
Total
Total Ass
Assets ………………………………………………………
………………………………………………………………………………. ……………………….P P 257,0
,00
00
Lia
Lia b ili
ilities
ties
Ac c ounts pa yable ………………
………………………………………
……………………………………. ……………. P 75,
5,00
000
0
Deferred Gross Profit 20x6 ………………………………. P 30,400
20
20x5
x5 ……
…………
……………
……………
…………………….. 8,000
8,000
20
20x
x4 ……………
…… ………………
……………
…………. ……. 2,250
2,250 40
40,65
,650
0
Total
Total Liab ilities
ties P 115,6
15,65
50
Stoc khold
kholders
ers’’ Eq
Eq uity
C ap ita
ita l Stoc k ………………………………………………
……………………… …………………………………. …………. P1
P10
00,
0,00
000
0
Reta ined Earni
Earnings
ngs …………………………
……………… …………………… ……………. …. P 44,50
44,5000
Ba lanc e, J a n. 1, 20
20xx6 …………………
……… …………………… …………… … 3,
3,15
150
0
Ba lanc e, Dec . 3131,, 20
20x
x6 …………………
……… …………………… ………… 41
41,3
,350
50
Total
Total Stock
toc kholder’s
holder’s Equi
quity
ty …………………………………………. 141,
1,3
350
Total
Total Liabili
iabilities
ties and SStoc
tockkholde
holderr’s Equity
quity ……………………….. P 257,0
,00
00
4. Ins
Installment
tallment Sa les ………
……………………………………… ……………………
……………………
……………………
……………..
….. 50
500,
0,00
000
0
C o st of Insta
Install
llment
ment Sa les …………
……………………
…………………
…………………
…………………
………..
.. 31
310,
0,00
000
0
Deferred
De ferred G ros
rosss Profit, 20
20x6
x6 ……
…………
……………
………………
………………
……………
…………..
…….. 19
190,0
0,000
00
Deferred
De ferred G ros
ross
s Profit, 20
20x6
x6 ……
……………
………………
……………
……………
………………
………………
…………… 15
157,5
7,500
00
Deferrred G ross
Defe ross Profit,
Profit, 20x
20x5 …………………
……… ………………… ……………………………………
………………
……… 84
84,0
,000
00
Defe rred G ross
Defer ross Profit,
Profit, 20x
20x4 …………………
……… ………………… ……………………………………
………………
……… 16
16,6
,650
50
Reali
Rea lized
zed G ross
ross Profit o n Ins
Insta
tall
llment
ment Sa les…
les… ……………
……… …………
……………
……… 25
258,3
8,350
50
Inc ome Summary …………………

Income ……… …………………… ……………………
……………………
……………………
……………… 18
185,
5,00
000
0
Shipment on Installment
…………………… ……………………
……………………
………………
…… 31
310,
0,00
000
0
M ercha
erc hand
ndis
ise
e Inv, J a nuary
nua ry 1, 20
20x
x6 …………………
……… ……………………
………………….
………. 30
30,0
,000
00
Purc
Purc ha
hasses ………
………………… …………………… …………………… ……………………
……………………
……………….
……. 455,
455,00
000
0
Rep
epoo ssessed
essed M ercha
erc handndis
ise
e …………………
……… ………………… …………………
…………………
………..
.. 10,0
10,000
00
M ercha
erc hand
ndis
ise
e Inv, Dec ember
emb er 31
31,, 20
20x
x6……..…………………………
6……..……………… ……………….
……. 35,0
35,000
00
Income
……… …………………… ……………………
……………………
………………..
…….. 35,0
35,000
00
Sa les ………
…………………
……………………
……………………
……………………
……………………
……………………
………………....
…….... 192,
192,00
000
0
Income
……… ……………………
……………………
……………………
…………………
……… 19
192,
2,00
000
0
Reali
Rea lized
zed G ross
ross Profit o n Ins
Insta
tall
llment
ment Sa les……
les…………
……………
………………
………………
………..
.. 25
258,3
8,350
50
Income
……… …………………… …………………………………………
………………..
…….. 25
258,
8,35
350
0

Income
Inco me Summary
ummary ………………………………………
………………… ……………………………………………
……………………… 3,
3,50
500
0
Loss on Rep
epoo ssession
ession …………………
……… ……………………
……………………
……………………
…………….
…. 3,
3,50
500
0
Income
……… …………………………………………
……………………
……………………
……………
… 30
300,
0,00
000
0
O p erating Expe
pens
nses
es …………
……………………
……………………
……………………
……………………
…………..
.. 300,
300,00
000
0
Reta ined Earnings

Earnings …………
……………………
……………………
……………………
……………………
……………………
………… 3,
3,15
150
0
Income
……… ……………………
……………………
……………………
………………….
………. 3,
3,15
150
0
Problem XIII
1.
Deferr
Defe rred
ed gro
gros ss p rofit – 20
20x
x4……….………
4……… .……………… …………… ……………
……………… ……….. 8,407
8,407.00
.00
Deferred
De ferred gros
gro ss p rofit – 20
20x
x5……….………
5……… .……………… …………… ……………
……………… ……….. 9393,43
,438.8
8.80
0
Deferred
De ferred gros
gro ss p rofit – 20
20x
x6……….………
6……… .……………… …………… ……………
……………… ……….. 7171,00
,006.7
6.70
0
Realiz
Rea lize
e d G ross Profit
Profit o n Ins
Insta
tallment
llment Sa les (20x
(20x4
4 – 20x6)…..
20x6)….. 172,852
172,852.50
.50
Computation of GP rates:
20x4:
20x 4: P247,000/P380,000
P247,000/ P380,000 =65%,
65%, c o st rate
rate; G P ra te =100% - 65% = 35%
20x5:
20x 5: P285,120/P432,000
P285,120/ P432,000 =66%,
66%, c o st rate
ra te;; G P ra te =100% - 66% = 34%
20x6:
20x6: P379,260/P602,000
P379,260/ P602,000 =63%,
63%, c o st rate
ra te;; G P ra te = 100% - 63% = 37%
Calculation of collections in 20x6:

20
20xx4: Beginning b a lanc
lan c e P 24
24,02
,020
0
20x5: P344,460 (beginning balance) – P67,440 (ending balance) –
P2,200
P2,200 (write-offs
(write-o ffs o n d efa ult) 27
274,8
4,820
20
20
20xx6: P602,00
P602,0000 (sa
(sa les) – P410,09
P410,090
0 (end
(en d ing b a lanc e) 19
191,9
1,910
10
Calculation of realized gross profit:

20x4: 35% x P24,020
P24,020 P 8,407.00
20x5: 34% x P274,820
P274,820 93,438.80
20x6; 37% x P191,910
P191,910 71,006.70
Total
Total P1
P17
72,
2,8
852.
2.5
50
2. Defe
Deferr
rred
ed g rossof
Inventory p rR
ofit
ep
epo 20
20x
o sx5…………………………
5………………
sess
essed
ed M erc
ercha ……………………
hand
ndis ……………………
ise……
e…………………………………
………
……………………
……………….
……. 74
748.
8.00
0074
748.
8.00
00
To reduc e b y 20x
20x5
5 defe rr
rred
ed g ross
ross profit rel
related
ated to default
defaulted
ed c ontrac
ontrac t and requiring
requiring
c anc ell
ellation,
ation, 34% of P2,200 (P5,400 sales
sales p ric
ric e- P3,200 c oll
ollec tions to da te); inventory
now reported at P2,200 (b alanc
alanc e of ins
instal
talllment c ontrac
ontrac t), less
less P748 or P1
P1,452.
,452.
Loss
Loss on rep ossess
ossession……
ion………………
……………………
………………… …………………
……………………
………………..
…….. 381.
381.00
00
Inventory of repos
repo ssessed
essed merch
merchaa nd
ndis
ise…
e……………
……………………
…………………..
……….. 38
381.
1.00
00
To red uc e inv entory to “market” as fol
folllow s: to re
re alize
alize a g ross profit of 37% on a resale
estimated
estim ated at P1,700
P1,700,, the repossessed
repossessed merc handise shouldshould b e rep ort
orted
ed at a va lue of
63% of P1,700, or P1,071; the inventory then requires a further write-down of P381
(P1, 452 – P1,071)
Rep ossess
ossessed
ed merc
merchahandis
ndise
e c ould b e rec orded
orde d a t its
its res
resa
a le value
va lue less
less the usua
usuall gross
gross p rofit margin on
sa les. Rec ord
ording
ing the me
merc
rcha
hand
ndis
ise
e a t P1,45
P1,452
2 will res
result
ult in the rrea
ea li
lization
zation of
o f less
less than
tha n the normal
no rmal profit
sa les. Rec ord
ording
ing the me
merc
rcha
hand
ndis
ise
e a t P1,45
P1,452
2 will res
result
ult in the rrea
ea li
lization
zation of
o f less
less than
tha n the normal
no rmal profit
margin
(P1,700 on the resale
– P1,452), theof the period
later goods would
in the actually
subsequent
haveperiod. if expenses
to absorb a loss asof the resale
a result exceed
of such P248
valuation.
Recording the goods at resale value reduced by the company’s usual profit margin on sales is
recommended, for such practice will charge the next period with no more than the utility of the
goods carried forward.
Problem XIV – HH Instruments

1. Ins
Installment
tallment C ontrac ts Rec eivab le ……………………
………… …………………… ……………….
……. 1,
1,60
600.
0.00
00
M ercha
erc hand
ndis
ise
e Inventory (Piano)
(Piano ) …………………
……… ………………… ……………
…… 1,
1,00
000.
0.00
00
Deferr
De ferred
ed G ross Profit o n Ins
Insta
tall
llment
ment Sa les ………………
……… …………
… 60
600.0
0.00
0
C a sh …………………
……… …………………… …………………… …………………… ……………….....
…….........
........
........
........
........
...... 160.
160.00
00
Installment
Rec eivab le …………………
……… …………………… ………… 16
160.
0.00
00
2. C a sh ………
…………………
…………………… …………………… …………………… …………………......
………..........
........
.........
.........
...... 16
160.
0.00
00
Interest
Interest Inc
Income
ome ……………………
………… …………………… ……………………
…………………… ………… 14.4
14.40
0
Installment
Rec eivab le …………………
……… …………………… ………….. 14
145.
5.60
60
C a sh …………………
……… …………………… …………………… …………………… ……………………
…………...
.......
........
........
........
.......
... 160.
160.00
00
Interest
Interest Inc
Income
ome ……………………
………… …………………… ……………………
………………… …………. …. 11
11.4
.47
7
Installment
………… …………………… ………… 148.
148.53
53
3. Deferred
De ferred G ros
rosss Profit on Insta
Install
llment
ment o f Sa les ……
…………… …………………………
………..
.. 22
225.4
5.45
5
Reali
Rea lized
zed G ross
ross Profit o n Ins
Insta
tall
llment
ment o f Sa les …………
…… ……………
……… 22
225.4
5.45
5
G ros
rosss Profit Perce
Pe rcenta
ntagege:: 37.5%
37.5% (P600/
(P600/ P1,600)
P1,600)
Rea lized
lized G ross Profit
Profit for
fo r 20x
20x4:
4: 37.5%
37.5% of 601.19
(sum of payments on installment contract)
4. M ercha
erc handndis
ise
e Inventory (piano)
(pia no) …………………
……… …………………… ………………… ……………...……... 56 560.
0.00
00
Deferred
De ferred G ross
ross Profit on Ins
Insta
tall
llment
ment of Sa
Sa les ……
………… ……………
…………...........
…........... 37
374.5
4.55
5
Loss o n Repo
Rep o sse ssions ……………
…… ……………… ……………… ……………… ……………… ……………… …………. …. 64
64.36
.36
Installment
………… …………………… ………… 99
998.
8.81
81
Deferred Gross profit cancelled upon repossession:
37
37.5%
.5% o f P998.8
P998.811 (ba lanc e in insta
install
llment
ment c o ntrac ts
rec eivable
eivab le ac c ount) or P 374
374.5
.55
5
Problem XV – Big Bear

20x4:
Insta
Install
llment
ment receiva
rec eivabb les 25
250,0
0,000
00
Inventory 150,000
Deferred
De ferred g ross
ross p rofit 10
100,0
0,000
00
C a sh 80
80,00
,000
0
Insta
Install
llmen
mentt receiva
rec eivab
b les 80,00
80,000
0
20x5:
C a sh 120,000
120,000
Insta
Install
llmen
mentt receiva
rec eivab
b les 12
120,0
0,000
00
Deferred
De ferred gros
gro ss p rofit 50
50,00
,000
0
Reali
Rea lized
zed g ross
ross p rofit 50
50,00
,000
0
20x6:
C a sh 50,00
50,000
0
Insta
Install
llmen
mentt receiva
rec eivab
b les 50
50,00
,000
0

Insta
Install
llment
ment receiva
rec eivabb les 30
300,0
0,000
00
Inventory 210,000
Deferred
De ferred g ross
ross p rofit 90,00
90,000
0
C a sh 135,000
135,000
Insta
Install
llmen
mentt receiva
rec eivab
b les 13
135,0
5,000
00
Deferred
De ferred gros
gro ss p rofit 40
40,50
,500
0
Reali
Rea lized
zed g ross
ross p rofit 40
40,50
,500
0
G ross p rofit d e ferr

fe rre
e d a t sale =30% x P300,000
P300,000 =P90,000.
P90,000.
G ross p rofit ea rned a t c o llec tion = (P135,000/
(P135,000/P300,00
P300,000)
0) x P90,000
P90,000 = P40,500
P40,500
(Or
(O r c a sh co
c o llec ted
te d x G P% =P135,0
P135,000
00 x 30% = P40,50
P40,500)
0)
Problem XVI – Tappan Industrial

(1) Reasonab
Reasona b ly a ssur
ured
ed - ac
a c c rual b
baa sis should
ho uld be used
used : full
full gross profit rec
rec o gnized
gnized in the
the yea r of the sale.
Deterrmination o
Dete off s
selli
elling
ng price:
price :
PV n = R(PVAFn/i ) Tab le IV
PV n = P187,500 x 4.3553 n = 6, i = 10%
PV n = P816,61
P816,619 9 (round ed )
Gross profit on sale:

Sales P816,619
C o st o f sa les 637,500
637,500
G ross p rofit P179,119
P179,119
Interest
Inte rest reve
revenue
nue--4
--4 months:
mo nths: P816,619
P816,619 x 10% x 4/12
4/ 12 = _ 27,221
27,221
Total
Total inco me for for 20x
20x5 = P1
P17
79,11
,119 + P27,
P27,2
221 = P20
P206,
6,3
340
(2) No reas
rea sona b le assur
assura
a nce
nc e – a ssume the us
use
e of
o f ins
installment
tallment s
sa
a les method
metho d
Insta
Installment
llment sa le: G ross p rofit (P179,11
(P179,119/
9/P816,6
P816,619)
19) = 22%round
roun d e d
G ross p rofit e a rned in 20x
20x55 (P0 x 22%) P 0
Interest
Inte rest reve
revenue
nue 27,221
27,221
Total
Total inco me forfor 20x
20x5 P 27,
7,2
221
Multiple Choic
C hoice
e Problems
1. b –
20x4: P500,000 x 30% = P 150,000
20x5: P600,000
P600,000 x 40% = 240,000 P390,000
P390,000
2. d
Reali
Rea lized
zed G ross
ross Pro
Pro fit o
onn Installment Sale
Saless in
in 20x
20x6:
6:
20x4 sales:
sale s: P10,
P10,000
000 x 22%
22%PP 2,200
20x5 sa
sale
les:
s: P50,
P50,000
000 x 25% 12,500
20x6
20x6 sales:
sale s: P45,000 x P28,200 / (P
(P28,200+
28,200+P91,800) 10,575
P 25,275
Realiz
Rea lize
e d G ross Profit
Profit o n Sa les in 20x5
20x5 P 10,500
10,500
Less: Rea lized G ros
Less: ross Pro
Profit
fit in 20x
20x5 5 for
fo r 20x5
20x5 sa les:
les: (P20,000
(P 20,000 x 25%)
25%) 5,000
Realiz
Rea lize
e d G ross Profit
Profit in 20x5
20x5 forfo r 20x
20x44 sa les P 5,50
5,500
0
Divid
Divid ed b y: C o llec
llec tions in 20
20x5
x5 for
fo r 20
20x4
x4 sa les P 25
25,00
,000
0
G ro
rosss Pro
Profit
fit % for
fo r 20x4
20x4 sa les
les 22%
3. a
Installment
Installment Sales Method
Me thod::
20x3
20x3 Sa les:
les: P240,000 x 25/125P
25/ 125P 48,000
20x4
20x4 Sales:
Sale s: P180,000 x 28/128
28/ 128 39,375
Reali
Rea lized
zed G ross
ross Profit o n Ins
Insta
tall
llment
ment Sa les P 87,37
87,375
5
Cost Recovery
3 C oMethod:
20x3
20x st: P480,000
P480,000 / 1.25 P384,000
P384,000
Less:: C o llec tions
Less tion s in 20x
20x33 140,000
140,000
C o llec tions
tion s in 20x4
20x4 240,00
240,000
0
Unrec
Unrec o vered C o st, 12 12// 31
31// 20
20x
x4 P 4,000
4,000
Under the cost recovery method , no inc

inc ome is rec
rec og nized
nized on a sale sale until
until the c ost of the
the item sold
sold is
rec overed throug
throug h c ash rec eipts.
eipts. A ll c ash rec eipts,
eipts, b oth inter
interest
est and principa
principa l port
portions
ions,, a re ap plied
plied
first to the c ost of the
th e ite ms sold.
sold. The n, a ll subseq
subse q ue
uent
nt rec
re c e ipts are
a re rep
re p orted
orte d a s reve nue . Be c a use a ll
c osts
osts have b een rec overed, the rec og nized nized revenue a fter the co st rec rec overy represents
represents income
(interest and rea lized
ized g ross
ross profi
profit).
t). This
This method is usused
ed only
only whe n the c irc irc umstanc
umstanc es surr
surrounding
ounding a
sale are so unc
un c e rtain tha
thatt ea rl
rlier
ier rec og nition is impossible.
imp ossible.
4. a P0.
5. c
6. e , 20x6
20x6 – 0; 20x7
20x7 - 0
Unrec ove
Unrec overred c o ststs,1/
,1/1/
1/20
20x4
x4 11
110,0
0,000
00
Less
Less: C ollec tions
1/
1/1//
1// 20
20x4
x4 0
Add:
Ad d: Sa les on a c c ount 15,00
15,000
0
Total
Total 15
15,0
,00
00
Le
Less
ss: 1/1/
1/ 1/20x
20x5
5 10,500
C o ll
llec
ec tions in 20x4 __4,500
Unrec
Unrec ove
overred c o ststs,1/
,1/1/
1/20
20x5
x5 10
105,5
5,500
00
1/1/
1/ 1/// 20x5
20x5 10,500
10,500
Add:
30,000
0
Total
Total 40
40,5
,50
00
Le
Less
ss: 1/1/
1/ 1/20x
20x6
6 25,500
ec C
Unrec
Unr o llec
ove
over redtion
tions
c ossts
in,1/1/
20x5
20x
ts,1/ 520x6
1/20x6 15,00
15,000
90
90,500
,500
0
1/1/
1/ 1/// 20x6
20x6 25,500
25,500
Add:
60,000
0
Total
Total 85
85,5
,50
00
Le
Less
ss: 1/1/
1/ 1/20x
20x7 7 40,500
C o llec tion
tions s in 20x6
20x6 45,000
45,000
Unrec
Unrec ove
overred c o sts ts,1/
,1/1/
1/20
20x7
x7 45
45,50
,500
0
1/1/
1/ 1/// 20x7
20x7 40,500
40,500
Add:
24,000
0
Total
Total 64
64,5
,50
00
Le
Less
ss: 1/1/
1/ 1/20x
20x8 8 70,000
C o ll
llec
ec tions in 20x7 __
____-0-
__-0-
Unrec
Unrec ove
overred c o sts ts,1/
,1/1/
1/20
20x8
x8 45
45,50
,500
0
7. b
20x4: P150,000 – (P568,620 x 10%) = P93,138.
20x5: (P568,620 – P93,138) x 10% = P47,548.
8. a – refer to NoNo.. 3 for disc

disc uss
ussion.
C o st, J a nua ry 1, 20
20x
x4 P 60,00
60,000
0
Less
Les s: C o llec
llec tions including
inc luding interest – 20
20xx4 32,17
32,170
0
Unrec
Unr ec over
ove red C o st, Dec ember
emb er 31
31,, 20
20x
x4 P 27
27,8
,830
30
9. c (P3,600,000
(P3,600,000 – P2,400,000) ÷P3,600,000
÷P3,600,000 =33 1/ 1/3%
3%
(P3,600,000 × .20) + [(3,600,000 × .80) × 4/12)]
4/ 12)] = P1,680,000
P1,680,000 × 33 1/3%
1/ 3% = P560,
P560,000.
000.
10. b [(P
[(P3,60
3,600,00
0,000
0 × .20) + (P3,600,000 × .80 x 8/12]
8/ 12] – P2,400,000 =P240,000.
11
11.. b – refer
refe r to No.
No . 3 d isc
isc us
uss
sion.
C ost, J a nuar
nua ry 1, 20x
20x4…………………………
4……………… …………………… ……………………
……………………
…………….P ….P 50
500,
0,00
000
0
Less
Less: C
Co o llec
llec tions inc
inc luding interest – 20x4…………
20x4……………………………
……….P24
.P241,2
1,269
69
C ollec tions including
inc luding interest
interest – 20
20x5
x5………
……………
……………
…………
… 2241
41,26
,269
9 48
482,5
2,538
38
Unrec
Unrec over
ove red Co C o st, Dec ember
emb er 31
31,, 20
20x
x5…………………………
5……………… ……………………
…………….P ….P 17,4
17,462
62
12. b [(P
[(P1,400,000
1,400,000 – P980,000)
P 980,000) ÷P1,400,000] x P840,000 =P252,000.
13. c P300,000 + P50,000 = P350,000

P350,000
P350,000
P350,0 00 – P245,000
P245,000 =P105,000
P105,000 gros
gro ss profit
pro fit (30% gross p rofit rate)
rate )
(P300,000 – P100,000) x 30% = P60,000.
14. c P1,200,
P1,200,000
000 – P720,00
P720,000
0 =P480,000
P480,000 g ross p rofit (40% g ross p rofit rate)
rate )
P480,000 – (P288,000 ×.4) = P364,800.
15. d – [P
[P225,000
225,000 + (P120,000/40%
(P120,000/ 40%)]
)]
16. b (P36,000
(P 36,000 ÷24%) + (P
(P198,000
198,000 ÷30%) =P810
P810,000.
,000.
17. d
Installment
Installment Ac c o unts Rec eivab le, Dec ember
emb er 31,
31, 20x
20x5: DG P, 1
12/
2/31
31// 20
20x
x5 / G P%
20x4
20x4 Sa les:
les: P120,000/ 30% P 400,000
20x5
20x5 Sa les: P440,000/ 40% 1,100,000
P 1,500,000
18.
18. c
Sa le: Insta
Install
llment
ment receiva
rec eivabb les 4,500,
4,500,00
000
0
Inventory 3,600,000
Deferred
De ferred g ross
ross p rofit 90
900,0
0,000
00
Payment:
Pa yment: C a sh 50
500,0
0,000
00
Insta
Ins tall
llmen
mentt receiva
rec eivab b les 50
500,0
0,000
00
Deferred
De ferred gros
gro ss p rofit 10
100,0
0,000
00
Realiz
Rea lize
e d gross p rofit 100,000
100,000
Ba lance
lanc e Sheet:
Installment
Installme nt rec e ivab
iva b les (4,500,000
(4,500,000 – 500
500,000)
,000) P 4,000,00
4,000,000
0
Defe
De ferr
rred
ed g ross p rofit (900,0
(900,00000 – 100,000
100,000)) 800,000
800,000
Insta
Installment
llment receiva
rec eivab
b les (net) P 3,200
3,200,00
,000
0
19. b
12/15/
12/ 15/x5
x5 C a sh [(P
[(P4,50
4,500,00
0,000
0 – P500,000)/
P500,000)/2 2 = P2,000,
P2,000,000
000]] 2,000,000
2,000,000
Insta
Installllment
ment receiva
rec eivab b les 2,000
2,000,00
,000
0
Defe
De ferr
rre
e d gross p rofit [P2,000
[P2,000,000
,000 x (900/
(900/4,50
4,500)]
0)] 400,000
400,000
Realiz
Rea lize
e d gross p rofit 400,000
400,000
Ba lance
lanc
Defe
De erre
ferrse
heet:
d gross p rofit: P800,000
P800,000 400,000
400,000 = P400,000
P400,000
Rea liz
lized gross p rofit of P400,0
P400,000
00 would
wo uld b
bee reported
rep orted in the income sta tement.
inco me sta
20.
20. No rreq
eq uir
uireme
ement
nt
21. c - P300,000 (20x4 sa les) + P500,000 (20x5

(20x5 sa
sa les)
les) =P800,000
22. a G ro
rosss p rofit
rofit % = (P900,000
(P900,000 P450,000)/ P900,000 =50%
20x4: 50% x P300,000 = P150,000
23. c
20x4 sa les:
les: G ross p rofit
rofit % = (P900,000
(P900,000 P450,000)/ P900,000 = 50%
50% x P300,000 rec e ived
ive d in 2010 =P150,000
20x5
20x5 sa les:
les: G ro
rosss p rofit
rofit % = (P
(P1,500,000
1,500,000 P900,000)/ P1,500,000 = 40%
40% x P400,000 rec e ived ive d in 2010 =P160,000
Total:
Total: P1
P150
50,0
,00
00 + P1P1660,00
,000 = P31
P310,0
0,000
24.
24. c
20x4
20x4 Sa les: Ins
Insta
tallment
llment rec e ivab
iva b les =P900,0
P900,000 00 – P300,000
P300,000 (x4
(x4 c o llec tio
tions)
ns)
- P300,000
P300,000 (x5 c o llec tions
tion s) = P 300
300,000
,000
Deferr
Defe rred
ed gro
gros
ss profit = P450,00
P450,000 0 – P150
P150,00
,000
0 (x4 co
c o ll
llec
ec tions)
- P150,000
tion s) = 150,00
150,000
0
Net
Ne t ins
insta
tallment
llment rec e iva
ivabb le for
fo r 20x4
20x4 sa les = P 150,000
150,000
20x5
20x5 Sa les: Ins
Insta
tallment
llment rec e ivab
iva b les =P1,500
P1,500,000
,000 – P500,0
P500,000
00 (x5 c o llec tio
tions)=
ns)= P1,000,000
P1,000,000
Defe
De ferr
rre
e d gross p rofit = P600,000
P600,000 – P200,000
tion s) = 400,000
400,000
Nett insta
Ne install
llment
ment receiva
rec eivab b le for
fo r 20
20x5
x5 = P 60
600,0
0,000
00
Total
Total = P 750,
0,00
000
0
25.
25. a - C ososts
ts not yet
yet rec
rec overed.
overed .
26.
26. c
C o st, 20x4
20x4 P 30,000
30,000
20
20x4
x4 c o st reco
rec o very (20,00
(20,000)
0)
Remaining
Rema ining c o st, 12
12// 31
31// x4 P 10,00
10,000
0
20
20xx5 c o llec
llec tion 15
15,00
,000
0
G ross p rofit – 20x5
20x5 P 5,000
5,000
27. d
C ost P 30
30,00
,000
0
20
20xx4 c ost reco
rec o very ( 20
20,00
,000)
0)
20
20x
x5 c ost reco
rec o very ( 10,00
10,000)
0)
Remaining c ost 0
The
The enti
entire P20,
P20,0
000 pa yment
yment rec eiv
eived
ed in 20x6 is rec ogniz
ognized
ed as gross
gross profit.
profit.
28. d
Sa le: Insta
Install
llment
ment receiva
rec eivab
b les 55
55,00
,000
0
Inventory 30,000
Deferr
Defe rred
ed gro
grosss p rofit 25
25,00
,000
0
Payment:
Pa yment: C a shIns
Insta
tallment
llment receiva
rec eivab
b les 20
20,00
,000
0 20
20,00
,000
0
Balanc
ala nce
e Sheet:
Insta
Installment
llment rec e iva
ivabb les P55,00
P55,0000 – 20,0
20,000
00 P 35,0
35,000
00
Deferred
De ferred gros
gro ss p rofit ( 25
25,00
,000)
0)
Insta
Install
llment
ment receiva
rec eivab b les (ne
(net)
t) P 10
10,00
,000
0
29. a
Sa le: Insta
Install
llment
ment receiva
rec eivab
b les 55
55,00
,000
0
Inventory 30,000
Deferr
Defe rred
ed gro
grosss p rofit 25
25,00
,000
0
2008:
2008: C a sh 20,000
20,000
Insta
Installment
llment receiva
rec eivab
b les 20
20,00
,000
0
C a sh 15
15,00
,000
0
Install
Insta llment
ment receiva
rec eivab b les 15
15,00
,000
0
2009:
2009: Defe
De ferr
rred
ed g ross p rofit 5,00
5,000
0
Reali
Rea lized
zed g ros
rosss p rofit 5,000
5,000
Balanc
ala nce
e Sheet:
Insta
Install
llment
ment receiva
rec eivab b les P 20
20,00
,000
0
Deferr
Defe rred
ed gro
grosss p rofit ( 20
20,00
,000)
0)
Installment
Installment rec eivab les (net) P 0
30.
30. c
Note: Since the collectibility of the note is reasonably assured, the accrual basis should be applied.
Ther
Therefore, full g ross profit
efore, pro fit is
is rec og
ogniz
nized
ed in the year
yea r of s
sa
a le.
Gross profit on sale:
Sale s (P187,500
Sales (P187,500 x 4.3553) P816,619
637,500
0
G ros
ross
s p rofit (reali
(rea lized
zed)) P179,11
P179,119
9
31.
31. c
Total
Total Inc
Inc ome forfor 20x4:
Gross profit (realized) – No. 51 P179,119
Interest
Inte rest re
re venue
ve nue—4
—4 months:
mo nths: P816,619
P816,619 x 10%
10% x 4/12..
4/12.. _ 27
27,2
,22
21
Total
Total income
nco me forfor 20x4 P20
P206,
6,3
340
32. b
Total
Total Inco
Inco me ffor
or 20x5:
G ro ss profit (rea
(rea liz
lized
ed)) – a lrea
lrea d y rec og nized
nized in 20x
20x4 P 0
Interest
Inte rest reve
revenue
nue 8 months
mo nths in Yea
Ye a r 1 (P81,662 x 8/12)
8/ 12) P 54,4
54,441
41
Total
Total Inc ome for 204xmonths
Inc mo
5 nths in Yea
Ye a r 2 (P71,07
(P71,078*
8* x 4/12)
4/ 12) 23,693
23,693 P 7
78,1
78,134
8,134
,134
34
*Sc hedul
hed ule
e of Dis
Disc ount Amortiz
Amortization/
ation/Int
Interes
erestt Inco me c omputati
omp utation:
on:
(1) (2) (3) (4)

Fac e Net Di
Dis
sc ount
Amount
Amo unt Unamor
Unamo rtized
tized Amount
Amo unt Amort
Amo rtiz
iza
a ti
tion
on
Year of Note
Note1 Disc
Disc o unt (1) – (2) 10%× (3)
1 P1,125,000 P308,3813 P 816,6192 81,6625
4
2 937,500 226,719 710,781 71,078
1 P18
P187,5
7,500
00 x 6 yea
yea rs = P1,125
P1,125,00
,000;0; eve ry yea r P187,50
P187,500 0 sho
hould
uld be
b e d ed ucted
uc ted o n the previous
p revious b a lanc
lan c e.
2 The p resent va lue ofof s
sa
a les/rec
les/ rec eiva b les: P187,50
P187,5000 x 4.3553
4.3553 = P816,619
P816,619
3 P1,125,000 – P816,619
4 (2) – (4)
5 Disc ount amorti
a mortiz
za tion
tion give
g ive ris
rise
e to rec og
ogniti
nition
on o
off interes
interestt rreve
evenue/
nue/ income
inc ome..
33. a
Note: Sin
Sinc
c e the c oll
ollec
ec tibil
tibiliity of the note c a nnot be
b e reas
rea sona bly assured,, the instal
assured installlme nt sales
sales metho
m ethod
d
should be a pp lied . Also, if the there is hi higg h deg ree of unce rtaint
tainty
y as to c ollec
ollec tibil
tibility
ity , the cost
rec overy method
method may
may be used used .
Insta
Install
llment
ment sa le: G ross p rofit (P179
(P179,11
,119/
9/P816
P816,61
,619)
9) 22
22%
% (rounded
(round ed )
G ross p rofit e a rned in 20x4

20x4 (P0* x 22%) P 0
* no c o llec
llec tions in 20x
20x4.
4.
34. a
Total
Total In
Inc
c ome for 20x4:
G ross p rofit ea rned in 20x4
20x4 (P0* x 22%) P 0
Interest revenue (refer to No.
No . 52 27
27,22
,221
1
Total
Total inco me ffor
or 20x4. P 27,2
,22
21
35. d
C ollec tions
tion s in 20x5
20x5 (Aug
(A ugust
ust 31, 20x
20x5)
5) P 187,500
187,500
Less: Interest revenue/income from September 1, 20x4 to
Aug
Au g us
ustt 31
31,, 20
20xx5 (refer
(refe r to sc he
hedd ule o f a mortiz
mortiza
a tion in No.
No . 53
53)) 81
81,66
,662
2
C ollection
ollec tion a s to principa l P 10
105,
5,83
8388
x: G ross Profit
Profit % (refe
(referr to No.
No . 54) 22%
G ross p rofit rea
realiz
lize
e d in 20x5
20x5 P 23,284
23,284
Ad d : Interest
Interest reve
evenue/
nue/ inco me for 20
20x
x5 (refe
(referr to No. 53
53)) 78
78,1
,134
34
Total
Total Inco
Inco me ffor
or 20x5 P 101,4
,41
18
36. d (P
(P2,000,000
2,000,000 – P1,500,000) ÷P2,000,000
÷P 2,000,000 = 25%
37. a (P800,000 x .25) – P90,000 =P110,000,
38. d P700,
P700,000
000 x .25 =P175,000;
P175,000; P500,000 x .25 = P125,
P125,000.
000.
39. a (P3,000,000
(P3,000,000 – P2,100,000)
P2,100,000) ÷P3,000,000
÷P 3,000,000 = 30%.
40. d (P1,200,000
(P1,200,000 × .30) – P120,000 = P240,000.
×
41. a P1,050,000 .30 = P315,000
P900,000 – [(P1,200,000 + P1,050,000) × .30] = P225,000.
42. b P24,000 – P7,200 = P16,800
P16,800 – P13,500 =P3,300 los

loss.
43. d [P5,600 x (1 – .40)]

.40)] – (P2,100 – P140) =P1,400.
44. d P8,400 – P5,880 = P2,520
(P3,000 – P300) – P2,520 = P180 gain.
45.20x
d 4: P24,000 – P0 = P24,000 c ollec tions
20x4: tio ns x 39%P 9,360
20x5:
20x 5: P300,000 – P60,000 – P10,000 d e faultsfa ults = P230,000 x 42% 96,600
20x6:
20x 6: P480,000 – P320,000 – P5,000 d e faultsfa ults = P155,000 x 40% 62,000
Realiz
Rea lize
e d gross p rofit o n insta
installment
llment sa les in 20x6
20x6 P167,960
P167,960
46. b
20x5 Sa les
20x5 les 20x6
20x6 Sa les Net
Ne t
M a rket
rket Va lues P 4,500
4,500 P 3,500
3,500
Less:
ess: Unrec
Unrec over
ove red C o st:
IAR, unpa id ba lanc es P10,0
P10,000
00 P 5,
5,00
000
0
x: C o st Ratio
Ra tio 50% 5,800 60% 3,000
G a in (los
(loss) P (1,300)
(1,300) P 500 P( 800)
800)
47. a
(1)
(1) G a in or Loss o n reposs
rep ossess
ession:
ion:
Es
Estimate
timated d selling p ric
ric e P 1,700
1,700
Less:: Normal
Less No rmal p rofit (37% x P1,700) 629
M a rket value of repeposs
ossess
essed
ed mercha
merc hand
ndis
ise
e P 1,
1,07
071
1
Less:
ess: Unrec
Unrec over
ove red C ost:
ost:
Unpaid
Unpa id ba lanc e – 20x
20x3 P 2,
2,20
200
0
Less:: DG P – x3 (P
Less (P2,200
2,200 x34%) 748 1,452
Loss o n repo
rep osse ssion P( 381)
(2) Realized gross profit on installment sales:

20x2
20x2 Sa les:
les: (P24,020
(P 24,020 – P 0) x 35% P 8,407.0
20x3
20x3 Sales:
Sale s: (P344,460
(P344,460 – P67,440 – P2,200) x 34% 93,438.8
20x4
20x4 Sa les:
les: (P602,000
(P602,000 – P410,090) x 37% 71,006.7
Reali
Rea lized
zed gros
gro ss p rofit o n ins
insta
tall
llment
ment sa les P 17
172,8
2,852
52.5
.5
48.
48. c
Deferr
Defe rred
ed G ross
ross Profit, end (12/
(12/ 31
312/
2/20
20x
x4: IAR, end
en d o f 2004
2004 x G P %)
%)
20x2
20x2 Sa les:
les: P 0
20x3 Sales:
Sale s: (P
(P67,440
67,440 x 34%
34%.. 22,929.6
20x4 Sales:
Sale s: (P410,090
(P410,090 x 37%)
37%) 151,733.3
P174,662.9
49. d*
Resa
Res a le Va lue P 8,500
8,500
Less
Less: Normal
No rmal pprofit
rofit for 20x6
20x6 - yea r of repo
rep o sse ssion
[(P3,010,000
[(P 3,010,000 – P1,896,300)/ P3,010,000] x 8,500 3,145
M a rket Va lue of Rep ossess
ossessed
ed M ercha
erc handndis
ise
e P 5,
5,35
355
5
Less
Less: Unrec
Unrec o vered C o sts – 20x5
20x5
Defa
De faulted
ulted b a lanc e* (P27,0
(P27,000
00 – P16,000
P16,000)) P 11
11,00
,000
0
Less: DG P [(P
Less: [(P2,16
2,160,000
0,000 - P1,425,
P1,425,600)/
600)/P2,160,
P2,160,000]
000] x
P11,000 __
___3,740
_3,740 __
__7,26
7,260
0
Loss o n repo
rep o sse ssion P( 1,905)
1,905)
Entrry ma
Ent made
de::
Inventory
Invento ry o f RM* 11
11,00
,000
0
IAR-20x5 11,000
Correct Entry (Should be):
Inventory
DG P-20x
P-20x55of RM (at M V) 5,
5,35
355
5
3,740
Loss on repo
rep o sse ssion 1,905
1,905
IAR-20x5 11,000
C orrec
orrec ting
ting Entr
Entry:
y:
DG P-20x5 3,740
3,740
Loss on repo
rep o sse ssion 1,905
1,905
Inventory of RM 5,645***
5,645*
50.
50. c
Installment
Installme nt Sa les P 3,600,00
3,600,000
0
Less: Over-allowance:
Tr
Trad e-in
e-in alalllowa nce P1
P1,5
,50
00,
0,0
000
Less:
ess: MV of Tr Tra de -in Mer
Me rc handis
ha ndise:e:
Es
Estimate
timated d Resa
Resa le Price P 1,400
1,400,00
,000
0
Less: Norma
No rmall p rofit
rofit (25% x P1,400,000) 350,000
Rec o nd
nditi
itio
o ning c o sts 150,00
150,000
0 90
900,0
0,000
00 600,000
Ad juste
justedd Installme
Installment nt Sa les P 3,000,00
3,000,0000
Less:: C o st o f I/
Less I/SS 2,500,000
2,500,000
G ross Profit
Profit P 500,000
500,000
G ross p rofit rate
rate:: P500,0
P500,000/00/ P3,000,000
P3,000,000 16 2/3%
2/ 3%
x: C ollections
ollec tions –Tr–Tra de
de-in
-in mercha
merc hand ndis
ise
e (at M V) P 90900,
0,00
0000
RGP
RG P o n I/
I/SS in 20x4
20x4 P 150,000
150,000
51.
51. c
Tr
Trade-i
ad e-in
n allowa
allowa nce P4
P43
3,2
,20
00
Less
ess: MV of trade-i
trade -in
n all
a llowa
owa nce:
nc e:
Estima
timated
ted resale price a fter rec ond itioning
itioning c osts
osts P36,0
P36,000
00
Less
Les s: Recon
Rec ond d ition
itioning
ing c o sts 1,800
1,800
Norma
No rmall p rofit (15% x P36,000)
P36,000) 5,400
5,400 28,800
28,800
O ver-allowa nc nce e P 14,4
14,400
00
Installment
Installme nt sa les P122,400
P122,4 00
Less
Les s: O ver-a
ver-allllo
o wa nc e 14,40
14,4000
Ad justed
justed InsInsta
tall
llment
ment Sa les P108,00
P108 ,000
0
Less:: C o st o f Installment
Less Installme nt Sa les 86,400
86,400
G ross p rofit P 21,600
21,600
G ross p rofit rate:
rate : P21,60
P21,600/ 0/P108,0
P108,000 00 20%
Realized gross profit:

Down
Dow n pa yment P 7,
7,20
200
0
Tr
Trad e-in
e-in ((at
at mark
market value)
value) 28,8
,80
00
Installment
Installment c ollections
ollec tions::
Total (P108,000
(P108,00
Total c ollec
oll tions0in– P28,800
ec tions P28,80
2
20008 0 – P7,200)
P7,200) / 10 mos
mo s. X 3 mos
mo s. P 21,600
21,6
57,6
57 00
,60
00
x: G ross p rofit rat
ratee 20%
Reali
Rea lized
zed g ros
ross
s p rofit P 11
11,52
,520
0
52. d
(Note: For financial accounting purposes, the installment-sales method is not used, and the full gross
profit is recognized in the year of sale, because collection of the receivable is reasonably assured.)
Finley
inley Co
Compa
mpa ny
C omputati
omp utation
Onon of
o f Inc
Inc omeSale
Installment Before In
Inc
c ome Ta
Contract Ta xes
For the Yea
Ye a r E
Ende
ndedd Dec ember
emb er 31,
31, 20x
20x3
Sales P4,584,000
C o st of Sa les 3,825,00
3,825,000
0
G ross Profit
Profit 759,00
759,000
0
Interest Revenue
Revenu e (Sc
(Sc he
hedd ule I) 32
328,3
8,320
20
Income
Inc ome before
be fore Income
Inc ome Ta xes P1,087
P1,087,3
,320
20
Sc hedul
hed ule
eI
C omputati
omp utation
on o f Interes
Interestt R
Revenue
evenue on
Installment Sale Contract
C a sh selling p ric
ric e (sa
(sa les) P4,584,00
P4,584,000
0
Pa
Payment
yment mad e on J a nua nuarry 1, 20x3
20x3 93
936,
6,00
000
0
Balanc
Bala nc e outs
ou tsta
tand
nding
ing a t 12
12// 31
31// x3 3,648
3,648,00
,000
0
Interest
Inte rest rate 9%
Interest Revenue
Revenu e P 32
328,3
8,320
20
Quiz - VII
1. P920,000
20x4: P1,200,000 x 30% = P 360,000

20x5: P1,400,000
P1,400,000 x 40% = 560,000 P920,000
P920,000
2. P190,000
(P
(P300,000
300,000 ÷P750,000) x P250,000 = P100,000
[(P
[(P270,000
270,000 ÷P900,000) x P300,000] + P100,000
P100,000 = P190,000
3. P1,
P1,60
600–
0– assume
assume the use of installment
installment s
sa
a les method . It should be noted
note d tha t if the c ollectab
ollec tab il
ilit
ity
y is
is
highly uncertain or extremely uncertain, the use of cost recovery method is preferable.
4. Zero/
ero / Nil
When the cost recovery method is used, gross profit is recognized only after all costs have been
recovered.
20x5
P45,000 x 63% = P28,350 C o st o f sa le
P28,350
P28,35 0 - P24,000 =P4,350 No gross p rofit is rec og nized in 20x5.20x5.
C o sts still
till to be
b e rec over
ove red .
5. P19,250
20x6
Relating to 20 20x5
x5 sa les:
P19,000
P19,000 - P4,350 = P14,650
P14,650 G ross p rofit rec o gnized
Relating to 20
20x6
x6 sa les:
P60,000 x 59% =P35,400 C o st o f sale
P40,000
P40,000 - P35,400
P35,400 = 4,600
4,600 G ross p rofit rec o gnized
P19,25
P19,250
0 Reco
Rec o gn
gnizized
ed in 20
20x6
x6
6. P21,000
20x7
Relating to 20x5 sales:
Sinc
inc e a ll c os
osts
ts have been
be en
recovered, all cash collected is
recog
rec og nized
Relating nizto
ed20x6
a s gsales:
ross
ross p rofit ...... P 2,000
2,000
Sinc
inc e a ll c os
osts
ts have been
be en
recovered, all cash collected is
recog
rec og nized
nized a s g ross
ross p rofit ...... 17
17,00
,000
0
Relating to 20x7 sales:
P85,000 x 60% =P51,000 C o st o f sale
P53,000
P53,00 0 - P51,000 = .......... 2,000
2,000 G ross p rofit
recognized
P21,00
P21,000
0 Reco
Rec o gn
gnizized
ed in 20
20x7
x7
7. P320,000
[(P
[(P1,000,000
1,000,000 – P
P200,000)
200,000) x (P1,000,000
(P1,000,000 – P600,000)/
P 600,000)/P1,000,000
P1,000,000 =P320,000
8. P390,000
P1,800,000 – P1,080,000 =P720,000 (40% g ross p rof rofit
it rate
rate)
P720,000 – (P825,000 x 40%) = P390,000.
9. P 128,000
Installment
Installment Ac c ounts Rec eivab le, end of 20 20x
x4 P 32
320,
0,00
000
0
x: G ross
ross p rofit rate (66 2/3
2/ 3 / 16
1666 2/3)
2/ 3) __
_____
___40
40%
%
Deferr
De ferred
ed G ross
ross Profit, en
endd o f 20
20x4
x4 P 12
128,0
8,000
00
10. P25,168, determined as follows:
Gross profit percentages:

20x3: P136,
P136,000/
000/ P160,
160,000
000 = 85%; 100% x 85% = 15%
20x4: P158,
P158,240/
240/ P184,
184,000
000 = 86%; 100% x 86% = 14%
To
To deferred
deferred gross
gross profit:
profit:
20x3: P160,
P160,000
000 x P136,
P136,000
000 = P24,000
P24,000
20x4: P184,
P184,000
000 x P158,
P158,240
240 = 25,760
P49,760
Gross profit realized:

0.15 x P40,000
P40,000 = P 6,000
0.15 x P89,600
P89,600 = 13,440
0.14 x P36,800
P36,800 = 5,152
P24,592
Balance of Gross Profit Deferred:
P49,760 - P24,592 = P25,168
11
11.. P 0 – a ll p rofit rec
recoo g nized
nized in 20
20x5
x5
12. P240 – (P1,20
(P 1,200/0/P2,000)
P2,000) x P400
13
13.. P100
P100 - (100%
(100% of c o sts we
were
re full
fully
y rec
rec o vered p rio
rio r tto
o 20
20x
x7
14.
15 . P10
P450million, the–amount
– [P1,000 of sale
P250 = P750 – (P750
(P750 x 400/
400/1,000)]
1,000)] = P450
16
16.. P50 ga in
Repossessed merchandise……………………………………… 500
Deferred gross profit……………………………………………… 300
Installment
Installment Ac c ounts rec eivab le……………………
le………… …………..
.. 750
750
G a in on rep
epoo ssession……
ession………………
…………………… ……………………
………… 50
17. 0
Unrec ove
Unrec overred c o ststs,1/
,1/1/
1/20
20x4
x4 10
100
0
Less: C o ll
lle
e c tions 70
Unrec
Unr ec ove
overred c osts,1/1/20
,1/1/ 20x
x5 30
Less: C o ll
lle
e c tions 40
Profit
Pro fit – 20x5
20x5 10
Profit
Pro fit – 20x5
20x5 30
18
18.. P10 – refer
refe r to No . 1
17
7
19
19.. P30 –refer
–refe r to No . 1
17
7
20. Zero
Unrec ove
Unrec overred c o sts – 20 20x4
x4 12
120,0
0,000
00
Less: C o ll
lle
e c tions – 20
20x4x4 ___
______
___0
0
Unrec
Unrec ove
overred c o ststs,, 12/31/
12/31/20
20x4
x4 12
120,0
0,000
00
Ad
Addd itional
itiona l c osts – 20
20x5x5 _20,000
_20,0 00
Total: Ccost
Less:
Less costs s tions
o llec tions – 20x
20x55 180,00
40,0
,00
00
0
80,000
Unrec
Unr ec ove
12/31/20
20x5
x5 60,00
60,000
0
Ad
Addd itional
20x6x6 20,00
20,000
0
Total cost
costs s 80,
0,0
000
Less tions – 20x
20x66 40,000
40,000
Unrec
Unr ec ove
12/31/20
20x6
x6 40,00
40,000
0
Ad
Addd itional
20x7x7 10,00
10,000
0
Total cost
costs s 50,
0,0
000
Less tions – 20x
20x77 100,000
100,000
Profit
Pro fit – 20x7
20x7 50,000
21
21.. P50,000
P50,000 p rofit – refer
refe r to No . 20
22. P105,000
P105,000 =P68,250
P68,250 / (100% - 35%)35%)
23. P31,000 = P50,000 x (100% - 38%)
24. P43,700
Unrec
Unrec ove
overred c o sts – C ost o f ins insta
tallm
llmen
entt sa les for 20x
20x5 insta
installment
llment sa les 56,
56,05
050
0
Less: C o llec tions
Less: tions in 20x
20x55 for
fo r 20x5
20x5 installment
installment sa les _22,800
Unrec
Unrec ove
overred c o sts ts,, 12/31/
12/31/20
20x5x5 33,25
33,250
0
Less: C
Coo ll
lle
e c tions iin
n 20
20x6
x6 for
fo r 2
20x
0x55 iins
nsta
tallm
llmen
entt sa
sa les (ba lan
lancc ing figure) _ 43,700
43,700
Rea lize
lized G P o n I/SI/ S in 20x6
20x6 for
fo r 20x5
20x5 sa les *1
*10,450
0,450
*
Rea lized
Reali zed G P on I/I/SS in 20x6 16,05
16,050
0
Less: Rea
Realiz
lize
e d G P on
o n I/S
I/ S in 20
20x6
x6 for
fo r 20x
20x55 I/S s
sinc
incee c o st of
o f P31,0
P31,000
00 (No. 23) is
a lrea
lrea dy rec ove
overred in 20x 20x5 equiv
eq uiva a lent to c ollec tion __5,600
__5,600
Rea lize
lized G P o n I/S
I/ S in 20x6
20x6 forfo r 20x5
20x5 installment
installment sa les *1
*10,450
0,450
25.
25. Zero – c osts is not yet fully
fully rec
rec overed,
ove red, the p rofit should
should be recog
rec ogniz
nized
ed
Unrec ove
Unrec overred c o sts – C ost o f ins
insta
tallm
llmen
entt sa les for 20x
20x4 (No.
(No . 23) 31,
31,00
000
0
Less tions in 20x
20x44 for
fo r 20x4
20x4 installment
Unrec
Unrec ove
12/31/20
20x4
x4 8,200
8,200
26. P41,000
Unrec
Unrec ove
overred c o sts – C ost o f ins
insta
tallm
llmen
entt sa les for 20x
20x4 insta
installment
llment sa les 31,
31,000
000
Less: C o llec tions
Less: tions in 20x
20x44 for
fo r 20x4
20x4 installment
Unrec
Unrec ove
overred c o sts ts,, 12/31/
12/31/20
20x4
x4 5,400
5,400
Less:: C o llec tion
Less tionss in 20x5
20x5 for
fo r 20x4
20x4 installment
installment sa les 46,400
46,400
Rea lized
Reali zed G P on I/ I/S
S in 20x5 for 20 20x4
x4 ins
insta
tallm
llmen
entt sa les 41,000
41,000
Reali
Rea lized
zed G P o on
n I/ S iin
n 20x
20x55 for 20x
20x5 5 insta
installm
llmen
entt sales:
Unrec
Unr ec ove
overred c o sts – C Cost
ost o f ins
insta
tallment
llment ssa
a les for 2
20x
0x5
5 ins
insta
tallm
llmen
entt
Sales
Sale s 56,050
Less:: C o llec tion
Less tionss in 20x5
20x5 for
fo r 20x5
20x5 installment
installment sa les 22,80
22,800
0
Unrec
Unr ec ove
overred c o sts, ts, 12/31/20x
12/31/20x4 4 33,250
33,250 ___
____-0-
_-0-
Reali
Rea lized
zed G P on I/ I/S
S in 20x5 41,000
41, 000
27. P 45,000
Insta
Install
llment
ment receiva
rec eivabb le = P200,0
P200,000
00
Defe
De ferr
rre
ed ggross
ross p rofit = P80,000
P80,000 (P200,000
(P200,000 x 40%)
Fair va
value
lue = P75,000
P75,000
Rep o sse ssed invento

Repo inve ntory ry P 75,000
75,000
Deferr
Defe rred
ed gro
gros ss p rofit P 80,00
80,000
0
Loss o n repo
rep o sse ssion (plug
(p lug)) P 45,000
45,000
Insta
Install
llment
ment receiva
rec eivab b le P 20
200,0
0,000
00
28. Zero
P450,00
P450,000
0 c o st P300,0
P300,000
00 c o llec
llec tions = P150,0
P150,000
00 unrec o vered costs
c osts
29. P300,000
20x4
20x4 sa les: C o st =P450,0
P450,000;
00; P300,000
P300,000 c o llec tedte d in eea
a c h yea r 20x4-20
20x4-20x6 x6.. P300,000
P300,000 o f cco
ost
reco
rec o vered in 20x20x4,4, the other
o ther P15
P150,0
0,000
00 of c o st rrec
ec o vered in 20x20x5,
5, so
so P15
P 150,0
0,000
00 o f
g ross
ross p rofit rrec
ec o g nized
nized in 20x
20x5, llea
ea ving P300,00
P300,000 0 rrec
ec o gn
gniz
ized
ed in 20x
20x6.
6.
20x5
20x5 sa
sa les: C o st =P900,000;
P900,000; P500,000
P500,000 co co llec ted
te d in 20x
20x5,
5, P40
P400,00
0,000 0 co
c ollec te
ted
d in 20x6.
20x6. P500,00
P500,000 0 of c o st
reco
rec o vered in 20x20x5,5, the other
o ther P40
P400,0
0,000
00 of c o st rrec
ec o vered in 20x20x5,
5, so
so P0
P 0 of gros
g ross
s
profit recognized in 20x6.
Total:
Total: P3
P3000,0
0,000 + P0 = P3P3000,00
,000
30. d
20x4
20x4 Sa les: Ins
Insta
tallment
llment rec e ivab
iva b les =P900,0
P900,00000 – P300,000
P300,000 (x4(x4 c o llec tio
tions)
ns)
- P300,000
tion s) = P 300
300,000
,000
Deferr
Defe rred
ed gro
grosss p rofit =P450
P450,00
,0000 – P0 (all
(a ll x
x4
4cco
o ll
llec
ec tions to c o st
rec o very
c ollecvetions
tiry
ons- P150,00
P150,000
to c ost0rec
to (P150,000
(P150,0
over 00=of x5
ove ry) 300,000
Nett insta
Ne install
llment
ment receiva
rec eivab
b le for
fo r 20
20x4
x4 sa les = P 0
20x5
20x5 Sa les: Ins
Insta
tallment
llment rere c e ivab
iva b les =P1,500
P1,500,000
,000 – P500,00
P500,000 0 (x5 c o llec tio
tions)=
ns)= P1,000,000
P1,000,000
Deferr
De ferred
ed gross
g ross p rofit = P600,00
P600,000 0 – P0 (all
(a ll x5 c ollec tions to
c o st reco
rec o very) = P 60
600,0
0,000
00
Nett insta
Ne install
llment
ment receiva
rec eivab b le for
fo r 20
20x5
x5 = P 40
400,0
0,000
00
Total
Total = P 40
400,
0,0
000
31. 24%.
Determined from the repossession entry:
Deferred
De ferred gros
gro ss p rofit P2,400
P2,400
———— = 24%
Installment
Installment a c c ounts rec eivab le P10,0
P10,000
00
32. 35%
Insta
Installment
llment sa les P120,0
P120,000
00
78,000
0
42,000
G ross p rofit P42,000

P42,000 = 35% gross profit rate
————-
Insta
Installment
llment sa les P120,0
P120,000
00
33.
a . 20
20x4
x4 Deferr
Defe rred
ed gro
gros ss p rofit b a lan
lancce P 12
12,00
,000
0
G ros
ross
s p rofit rate ÷ 25
25%%
Beg
eginni
inning
ng a c c ounts rec eivab le P 48,0
48,000
00
Beg
eginni
inning
ng a c c ounts rec eivab le P 48,0
48,000
00
Ending a c c ounts recreceivab
eivab le (2
(20,0
0,000
00))
C ash c oll
ollec
ec ted P 28,0
28,000
00
b . 20
20x5
x5 Deferred
De ferred g ross
ross p rofit b a lan
lancce P 26
26,40
,400
0
G ros
ross
s p rofit rate ÷ 24
24%%
Beg
eginni
inning
ng a c c ounts rec eivab le* P110,
P110,00
000
0
Beg
eginni
inning
ng a c c ounts rec eivab le* P110,
P110,00
000
0
Ending a c c ounts rec eivab le* (5
(50,0
0,000
00))
C ash c oll
ollec
ec ted P 60,0
60,000
00
c . 20x
20x6
6 Insta
Installment
llment sa les—20x6
les—20x6 P120,000
P120,000
Ac c o unts rec eivab le—20x
le—20x6 (9
(90,0
0,000
00))
C ash c oll
ollec
ec ted P 30,0
30,000
00
34. P31,900
Total
Total real
ea lized gross
gross profit
profit in 20
20x6
From 20x4 P28,000
P28,000 ×25% = P 7,000
20x5 P6
P60,000
0,000 ×24% = 14,40
14,400
0
20x6 P30,000
30,000 ×35% = 10,50
10,500
0
P31,900
*Excluding accounts receivable for repossessed merchandise.
35. 20x4 (2010), P33,750; 20x5 (2011), P95,250

G ross p rofit rea lize
lize d in 20x4
20x4 (201
(2010):
0):
Installment
Installme nt sa les = [(P300,000  P165,000)/ P300,000] x P75,000 = P33,750
G ross p rofit rea lize

lize d in 20x5
20x5 (201
(2011):
1):
From
From 20x4 sa sa les
le s = [(P300,000  P P165,000
165,000)/
)/ P300,000] x P105,000 = P47,250
From
From 20x5 sa
sa les
le s = [(P450,000  P
P270,000
270,000)/
)/ P450,000] x P120,000 = 48,000
P95,250

36. 20x4 (2010), P148,750; 20x5 (2011), P275,250
20x4 20x5
(2010) (2011
Sales
Sale s P450,000 P450,000
C
Go st opf rofit
ross sa les 335,00
335,000
P115,0 0
P115,000
00 270,000
270,000
P180,000
P180,000
G ross p rofit rea
realiz
lizee d on ins
insta
tallment
llment sa les 33,7
33,750
50 95,250
95,250
Total
Total gros
gross s profi
profitt P1
P14
48,
8,7
750 P27
P275,2
,250
50
37. 20x4 (2010), P148,750; 20x5 (2011), P275,250

. 20x4 20x5
(2010) (2011
Insta
Install
llment
ment a c c o unts rec
receiva
eivab
b le P225
P225,00
,000
0 P450
P450,00
,000
0
Less: De
Less: Defe
ferr
rre
e d g ross p rofit 101
101,25
,250
0 186,000
186,000
Nett of d eferr
Ne efe rred
ed g ross p rofit P123,75
P123,750
0 P264
P264,00
,000
0
Theories
1. Fa
Fals
lse
e 6. True 11. True 16. True 21. True 26. True
2. Tr
True 7. False 12. False 17. Tr
True 22. T
Trrue 27. True
3. False 8. Tr
True 13. False 18. Fa
Fals e
lse 23. T
Trrue 28. Fals
alse
e
4. Tr
True 9. False 14. Tr
True 19. Fa
Fals e
lse 24. T
Trrue 29. True
5. Tr
True 10. Tr
True 15. Tr
True 20. True
Tr 25. T
Trrue
30
30.. c 35
35.. b 40
40..a 45
45.. b 50. d 55. d
31. b 36. d 41. e 46.
46. c 51.
51. c 56. b
32. b 37. d 42. b 47..
47 c 52.
52. b 57. d
33. b 38. e 43. b 48. c 53. a 58. c
34. c 39. c 44.. d
44 49.
49. d 54.
54. b 59. c
60. C 65. b
61. B 66. b
62.
62. b 67.
67. d
63. c 68. d
64..
64 d 69.
69. c

Chapter 8
Problem I
1. Input
Input Measu
Measur re - Percent
ercentag
agee of
of Completion
Completion Method
Method (Cost
(C ost to C ost Meth
Method)
od)
2008:
C ontrac t price P 1,
1,80
800,
0,00
000
0
Ac tual c osts
osts to da te P 450,
450,00
000
0
Es
Estimate
timated d c o sts to c omp lete 1,200,
1,200,00
000
0
Total
Total esti
estimated
mated projec
projec t c osts
osts 1,6
,65
50,
0,0
000
Es
Estimate
timated d tota l gros
gro ss p rofit 15
150,0
0,000
00
Perc
Per c entage of c ompletion:
ompletion:
P450,000 / P,1650,000 27.27%
G ros
rosss p rofit rec
recog
og nized
nized P 40,90
40,905
5
2009: P 1,800,000
C ontrac
ontrac t pri
pric e
C o sts incurr
incurred
ed :
2008 P 450,00
2009 1,100,000
Total
Total c ost
ost 1,5
,55
50,
0,0
000
Total
Total gros
grosss profi
profitt 250,
0,0
000
Reco
Rec o g nized
nized in 20
200808 40
40,90
,905
5
Reco
Rec o g nized
nized in 20
200909 P 20
209,0
9,095
95
2. Input
Input Measu
Measur re - C ost Recovery
ec overy Method
Method
20
2008
08:: (a
(all
ll c osts not yet rec over
ove red ) P -0-
2009:
C ontrac t price 1,
1,80
800,
0,00
00
C o sts incurr
inc urre ed : 2008
2008 P 450,000
450,000
2009 1,100,000
Total
Total c ost
ost 1,5
,55
50,
0,0
000
Total
Total gros
grosss profi
profitt P 25
250,
0,0
000
Problem II
1. Input
Input Measu
Measur
re - Percent
ercentag agee of
of Completion
Completion Method
Method (Cost(C ost to c ost Method)
Method)
Years Gross
Gross Pr
Profi
ofitt (or Loss
oss) Supp
upporti
orting
ng c omputati
omp utations
ons
recognized
2008
2008 P 2 millio
million (P108 – 90) x (P30/P90)
(P30/ P90) = P6 millio
millio n
2009 ( P18 million)
million) Total
ta l los
loss is (P
(P108
108 –120) = (P12 million)
million)
To
To da te, P6 mil million was rec orded:
therefore, (P12 million) – P6 million =
(P18 million) in 2009
2010 P 10 million
million Total
ta l los
loss is P 108 – 110) = (P
(P2
2 million)
million)
To
To da te, (P 12 mil million was rec orded:
therefore, ( P2 million) – (P12 million)
= P10 million in 2010

2. Input
Input Measu
Measur
re - C ost Recovery
ec overy Method
Method
Years Gross
Gross Pr
Profi
ofitt (or Loss
oss) Suppo rting
ting co
comput
mputations
ations
20
2008
08 P -0- ( P108 – 90
90)) = P18 a nticipa
ntic ipa ted g ross
ross
profit,
profit, so no ne
need
ed to rec
rec og
ogni
niz
zed a
gross loss
2009 (P 12 million)
million) Total
ta l los
loss is ( P108 – 120) = (12 million)
million)
2010
2010 P 10 millio
millio n Total
ta l loss is (P108- 110)
110) – ( P2 millio
millio n)
To
To da te, ( P1P12 2 mil
million was rec orded:
therefore, ( P2 million) – ( P12 million)
= P10 million in 2010
Problem III
1. J ourna
ournal En
Enttries
a. Input Measu
Measur re – Percent
ercentag
ageeooff completi
completion
on – (c
(cost
ost-to-
o-cc ost meth
method)
od)
The
The foll
following
owing ana lysis is to deter
determimine
ne tthe
he perc
perc entage of complet
co mpletiion:
20x3 20x4 20x5
C ontr
ontracac t pric
pric e:
Initia
Initia l a mount
moun t o f c ontr
on tra
a c t…………
t…………... ... P528
P528,00
,0000 P528,00
P528,0000 P528
P528,00
,000
0
Variation……………………………….. _______- __12,0
__12 ,00
00 __12,0
__12 ,00
00
Total
Total contr
contracac t pr
priic e…………………….
e……………………... P5
P52 28,0
,00
00 P540
P540,0
,00
00 P54
P540,0
,00
00
C osts inc
incurr
urre
e d e a c h yea r……………
r……………… … P 126,0
126,048
48 *P2
*P244,
44,032
032 P121
P121,92
,920
0
Add:
Ad d: C osts incurred
incurred in priprior
or year
yea rs……. ____
_______-
___- _1
_1226,0
,04
48 _3
_3770,0
,08
80
Ac tual
tua l c o sts incurr
inc urre
e d to da te (1)…..… P126,04
P126,048 8 *P370,
*P370,080
080 P492
P492,00
,000
0
Add:
Ad d: EsEstim
timaa ted c osts to c omp
omplete…..
lete….. _358,7
_358,752
52 _1
_1221,9
,92
20 _______--
_______
Total
Total esesti
timated
mated c cos
osts
ts (3
(3)……..
)……..…………
………… P4
P48 84,8
,80
00 P492
P492,0
,00
00 P49
P492,00
,000
Estima
Estimate tedd gro
gross
ss p rofit…
rofit………………… ………… ……… … P 43,20
43,2000 P 48,00
48,0000 P 48,00
48,000
0
Perce
Pe rcentantagege o f c omp
ompletio
letion
n (1) / (3) 26
26%
% **
**74
74%% 10
100%
0%
* including the P7,2
P 7,200
00 add itiona
itiona l costs
c osts in 20
20x4
x4..
** it should be no noted
ted that the perce ntage of co mpletion for 20 20x
x4 is c alc ulated bbyy dededuc
duc tin
ting
g the P6,0
P6,000
00 of materials held for
the follo
followw ing pe
p e riod from
fro m the c o ststs
s inc urred
urred up to that
tha t yea
yearr end
end,, i. e., P370,080
P370,080 – P6,000 =P364
=P 364,080
,080,, P364
P364,080
,080 / P492,0
P492,000
00 = 74%.
The
The revenue,
revenue, expe
expens
nses
es (co
(cossts)
ts) and pr
p rofi
ofitt will
will be rec
rec ognized
ognized in profit
profit or loss
oss as fol
folllows:
ows:
Rec ognized
Recogniz ed in Rec ognized
Recogniz ed in
20
20x3
x3 To d a te prior yea rs current year
Re
Reve
venue
nue (P528,000 x 26%) P 137,280 - P 137,280
C osts
sts// Expe
Expenses
nses (P484,800 x 26%) 126,048 - 126,048
G ross Pro
Profit
fit (P43,200 x 26%) P 11,232 - P 11,232
Rec ognized
Recogniz ed in
20
20x4
Re
Reve
venue
nue (P540,000 x 74%) P 399,600 P 137,280 P 262,320
C osts
sts// Expe
Expenses
nses (P492,000 x 74%) _364,080 _126,048 238,032
G ross Pro
Profit
fit (P48,000 x 74%) P 35,520 P 11,232 P 24,288
Rec ognized
Recogniz ed in
20
20x5
Re
Reve
venue
nue (P540,000 x 100%) P 540,000 P 399,600 P 140,400
C osts
sts// Expe
Expenses
nses (P492,000 x 100%) _492,000 _364,080 _127,920
G ross Pro
Profit
fit (P48,000 x 100%) P 48,000 P 35,520 P 12,480
Alternativel
Alternatively,
y, the
the g ros
oss
s profit rec
rec og
ogni
niz
zed ea c h yea
yearr may a
als
lso be c omputed
omp uted as follows:
follows:
20x3 20x4 20x5
C ontr
ontrac
ac t pri
pric
c e:
Initia
Initia l a moun
mountt o f c on
ontr
tra
a c t…………
t………….......
....... P528,00
P528,000
0 P528,00
P528,000
0 P528
P528,00
,000
0
Va
Varriation………………………
iation……… …………………………… …………… _______-
____ ___- __12,00
__12,0000 12,00
12,0000
Total
Total contr
contrac ac t pr
price…………………………
ice………………………… P52
P528,0 ,00
00 P54
P540,0
,00
00 P5
P5440,0
,00
00
C o sts incurr
inc urree d e a c h yea r……………
r…………………. ……. P126
P126,04,0488 P240
P240,03
,032
2 P121
P121,92
,9200
Ad d : C o sts inc
incurr
urred
ed in prior yea rs………..
……… .. ___
______
____-
_- _126,04
_126,0488 _370,08
_370,080 0
Ac tual
inc urree d to da te (1)…..…….
(1)…..…… . P126
P126,04,0488 P370
P370,08
,080
0 P492
P492,00
,0000
Ad
Add:d: Es
Estim
tima a ted c osts to c omp
omplete………
lete……… _35
_358,
8,75
7522 _12
_121,9
1,920
20 _______-
____ ___-
Total
Total es
esti
timated
mated c cos
osts
ts (3)……..
(3)……..…………….
……………. P48
P484,8 ,80
00 P49
P492,0
,00
00 P49
P492,0
,00
00
Estimate
Estimated d gross proprofit…………
fit………………… …………… …… P 4343,20
,2000 P 48
48,00
,000
0 P 48
48,00
,0000
Percenta
Perc entage ge of c omp
ompletion
letion (1) / (3)……... ____26% ____74
____ 74%
% ___100%
___100%
G ros
rosss pro
profit
fit to da te…………
te… ……………… ……………… ……….. P 11,
11,23
2322 P 35
35,52
,520
0 P 48
48,00
,0000
Less:: G ros
Less rosss pro
profit
fit in prior yea rs…………….
……… ……. ___
______
____-
_- ___
___11
11,23
,232
2 __
__35
35,52
,5200
G ros
rosss pro
profit
fit in c urr
urren
entt yea r -% of c ompletion
omp letion P 11,
11,23
2322 P 24
24,28
,288
8 P 12
12,48
,4800
G ross profit in c ur urrent
rent yea
yearr –c ost rec ove
overry method P 0 P 0 P 48,00
48,0000
Follow ing a re the entries for the yea

Following ye a rs 20
20x3
x3 to 20
20x5
x5::
Percent
ercentage
age of Completion
C ompletion Meth
Methodod
20x3 20x4
20x4 20x5
1. To rec ord c osts incurred
incurred :
C onstr
nstruc
uc tion In Prog
Progress
ress*………
*……….....
....... 126,048
126,048 232,0
232,032
32 127,9
127,920
20
M a terials Invento
Inventoryry………
……………… …………..
….. 6,0
6,000
00 6,0
6,000
00
C a sh, pa yab les, etc ………
……………..
…….. 126,0
126,048
48 24
244,0
4,032
32 12
121,9
1,920
20
2. To rec o rd prog
progres ress
s billings:
billings:
Ac c ou
ounts
nts rec eivable
eiva ble………
……………… ………..
.. 144,00
144,000
0 240,00
240,000
0 156
156,00
,000
0
Progress
Prog ress b ill
illing
ings*
s*.……
.………… ………………….
…. 144
144,000
,000 240
240,000
,000 156,000
156,000
3. To rrec
ec ord co ll
llec
ec tions
tions::
C a sh………
h……………… ……………… ……………… ………….....
…..... 120,00
120,000
0 228,00
228,000
0 192
192,00
,000
0
Ac c o unts rec eivable
eiva ble………
……………
…… 120,0
120,000
00 22
228,0
8,000
00 19
192,0
2,000
00
4. To rec
recog
ogniz
nize
e Revenue
Revenue,, Co Cossts
and Gross Profit:
C onstr
nstruc
uc tion Ex
Expp e nses……………
nses……………… … 126,048
126,048 238,0
238,032
32 127,9
127,920
20
C onstr
nstruc
uc tion in Prog
Progress
ress*..……
*..………..
….... .. 11,232
11,232 24,28
24,288
8 12,480
12,480
Revenue
Reve nue from C o nstruc
nstruc tion
tion.....
....... 137
137,280
,280 262
262,320
,320 140,400
140,400
5. To c lose CCon
ons str
truc
uc tion In Prog
Progress
ress**
a nd Prog
Progres
ress sBBil
illi
lings
ngs ac c ount:
Progres
Prog ress
s billings
billings………
……………… ……………… ……… 540,00
540,000
0
C onstr
onstruc
uc tion In Progress………
Progress……….. 54
540,0
0,000
00
* The term “Co ntrac
ntrac t ac c ount” may alternativ
alternatively
ely be used
used..
** If “C
“Contrac
ontrac t ac c ount” is usedused then no entry is requir
eq uired
ed for No. 5.
b. Input Measu
Measurre – C ost Recovery
ec overy Method
Method
The
The foll
following
owing ttab
ablle s
shows
hows the da ta needed for further
further ana lysis:
20x3 20x4 20x5
C ontr
ontrac
ac t pric
pric e:
Initia
Initia l a mount of c o ntrac t…………
t…………...
... P528
P528,00
,000
0 P528,00
P528,000
0 P528,000
Variation……………………………….. _______- __12,0
__12,00
00 __12,0
__12,00
00
Total contr
contracac t pric
pric e…………………….
e……………………... P5
P52
28,0
,00
00 P54
P540,0
,00
00 P5
P540
40,0
,00
00
C osts inc
incurr
urred
ed ea c h yea r……………
r………………… P126
P126,04
,048
8 P244,03
P244,032
2 P121
P121,92
,920
0
Add:
Ad d: C osts incurred
incurred in pri
prior
or years
yea rs……. _____
_______-
__- _1
_1226,0
,04
48 _3
_3770,0
,08
80
Ac tual
tua l c osts incurr
inc urred
ed to da te…
te……....…
…....… P126
P126,04
,0488 P370,08
P370,0800 P492
P492,00
,000
0
Ad
Add:
d: Esti
timated
mated c ost
osts
s to c omplete….. ____ _? ____ _? _______-
Total es
esti
timated
mated co sts ….……..………
….……..………… … P ? P ? P492
P492,0
,00
00

The
The revenue,
revenue, expens
expenses
es (co
(cossts)
ts) and pr
p rofit
ofit wil
willl be rec
rec ogniz
ognized
ed in profit
profit or loss
oss as fol
folllows:
ows:
Rec ognized
Recogniz ed in
20x3 To da te prior yea rs current year
Revenue
Reve nue** P 126,048
126,048 - P 126,048
126,048
C o sts/Expe
ts/Expenses
nses 126
126,048
,048 - 126,048
126,048
G ros
rosss Profit P 0 - P 0
* equivalent to costs incurred
Rec ognized
Recogniz ed in
Revenue
Reve nue** P 364,080
364,080 P 126
126,048
,048 P 238
238,032
,032
C o sts/Expe
ts/Expenses
nses _364,08
_364,080
0 126
126,048
,048 238
238,032
,032
G ross Prof
Profit
it P 0 P 0 P 0
* equivalent to costs incurred
Rec ognized
Recogniz ed in
Reve
Revenue
nue (P540,000 x 100%) P 540,000 P 364,080 P 175,200
C o sts
sts// Expe
Expenses
nses (P492,000 x 100%) _492,000 364,080 127,920
G ross Pro
Profit
fit (P48,000 x 100%) P 48,000 P 0 P 48,000
Alternativel
Alternatively,
y, the
the g ros
oss
s profit rec
rec og
ogni
niz
zed ea c h yea
yearr may a
als
lso be c omputed
omp uted as follows:
follows:
20x3 20x4 20x5
C ontr
ontracac t pri
pric
c e:
Initia
Initia l a moun
mountt o f c on
ontr
tra
a c t…………
t………….......
....... P528,00
P528,000 0 P528
P528,00
,000
0 P528,00
P528,0000
Variation…………………………………… _______- __12
__1 2,0
,00
00 12,000
Total
Total contr
contracac t pr
price…………………………
ice………………………… P52
P528,
8,0
000 P54
P540,0
,00
00 P54
P540,0
,00
00
C o sts incurr
inc urre
e d e a c h yea r……………
r…………………. ……. P 12
126,0
6,048
48 P244
P244,03
,032
2 P 12
121,9
1,920
20
Ad
Add:d: C osts incurred
incurred in prior
prior year
yea rs……….. ____
_______-
___- _1
_1226,0
,04
48 _3
_3770,0
,08
80
Ac tual
inc urre
e d to da te ……...…….
……...… …. P 12
126,0
6,048
48 P370
P370,08
,080
0 P492,00
P492,0000
Add:
Ad d: Esti timated
mated c ostosts
s to c omplete……… ____ _? ____ _? _______--
_______
Total
Total esesti
timated
mated c cos
osts
ts …….….
…….…..………….……………. …. P ? P ? P49
P492,0
,00
00
Estimate
Estimated d gross pro
profit…………
fit………………… …………….
……. P 0 P 0 P 48,00
48,000
0
Perc
Per c entage of c omplet
ompletion……
ion………………..
………….. _ -___ _ -___ ___10
___100%
G ross
Less: Gprofit
Less: ross
ros to da
s pro
profit te………
te…………………
fit in ………………….
prior yea ……….
rs…………….
……… ……. P___
______ 0
____-
_- P 0-
_______-
_______ P 48
__48,00
,000
0
0
G ros
ross
s pro
profit
fit in c urr
urren
entt yea r……………
r………………...
…... P 0 P 0 P 48
48,00
,000
0
Following
Follow ing a re the entries for the yea
ye a rs 20
20x
x3 to 20
20x
x5:
20x3 20x4
20x4 20x5
1. To rec ord c osts incurred
incurred :
C onstr
nstruc
uc tion In Prog
Progress
ress*………
*……….....
....... 126,048
126,048 238,032
238,032 127
127,920
,920
M a terials Invento
Inventoryry………
……………… …………..
….. 6,000
6,000 6,0
6,000
00
C a sh, pa yab les, etc ………
…………….
……... 12
126,0
6,048
48 244,0
244,032
32 121,92
121,920
0
2. To rec o rd prog
progres ress
s billings:
billings:
Ac c o unts rec eivable
eiva ble………
……………… ………..
.. 14
144,0
4,000
00 240,0
240,000
00 15
156,0
6,000
00
Progress
Prog ress b illing
illings*
s*.……
.………… ………………….
…. 144,000
144,000 240
240,000
,000 156,0
156,000
00
3. T
Coarrec
sec
h……ord………………
h…………… co ll
llec
ec………………
tions
tions:: ……………....
……...... 12
120,0
0,000
00 228,0
228,000
00 19
192,0
2,000
00
Ac c ounts
ou nts rec eivable
eiva ble………
……………
…… 12
120,0
0,000
00 228,0
228,000
00 192,00
192,000
0
4. To rec
recog
ogniz
nize
e Revenue
Revenue,, Co
Cossts
a nd G ros
ross
s Profit:
C onstr
nstruc
uc tion Ex
Expp e nses……………
nses……………… … 126,480
126,480 238,032
238,032 127
127,920
,920
C on
onsstr
truc
uc tion in Progre
Progres ss*..………....
*..………... . 48,00
48,000
0
Revenue
Reve nue from C onstruc
nstruc tion.....
tion ....... 126,480
126,480 238
238,032
,032 175,9
175,920
20
5. To c lose CCon
ons struction
tructio n IIn
n Pr
Pro
o gress**
gress**
a nd Prog
Progrress Billi
illings
ngs ac c ount:
Progres
Prog ress
s billi
billings………
ngs……………… ……………… ……… 54
540,0
0,000
00
C onstr
onstruc
uc tion In Progres
Prog resss……….
……… . 540,00
540,000
0
* The term “C“Contr
ontracac t ac c ount” may alter
alternativ
natively
ely be used
used..
** If “Co ntra
ntra c t ac c ount” is usused
ed then no entry is req uired
uired for No. 5.
5.
2. Due
Due from/ Due to Cus
C usttomers
omers
a. Input Measu
Mea sur re - Percent
ercentag
ageeo
off Complet
Completion
ion Method
Method
C urren
urrentt Asset:
Asset:
20x3 20x4 20x5
Ac c ounts rec eivab le………………………
le………… …………….. P 24,00
24,000
0 P 36,00
36,000
0 P -
O ther rrec
ec eivables:
eivables:
C o ns
nstru
truc
c tion In Progr
Prog re ss………………
……… ………… … P399
P399,60
,600
0
Less:: Prog
Less Progress
ress b illing
illings…………
s………………
…………
…….. _384,000
_384,000
Gross amount due from custome omers
rs…... P 15,600
Raw mate
materrials Inventory……………
Inventory……………………
……… P 6,0
6,000
00
C urren
urrentt Lia
Lia b ility:
ility:
Payables (“Payments on Account”)
Progres
Prog resss billings
billings………
……………… ……………………………………… P144
P144,00
,000
0
Less: C on
Less: onsstr
truc
uc tion In Progres
Prog ress
s…………….
……… ……. _137
_137,28
,280
0
Gross amo
amount unt due to c us
usttome
omerrs……
s…………
…… P 6,7
6,720
20
C o ns
nstructio
tructionn In Prog
Progres
ress
s Progres
Prog ress
s Bil
illi
ling
ngss
20x3
20x3 C I 126,048
126,048 144,000 20x3
20x3
Pr 11,232
end
en d o f x3 137
137,280
,280 144,000 e nd o f x3
144,000
20x4
20x4 C I 238,032 240,000 20x4
20x4
Pr 11,232
end
en d o f x4 399,6
399,600
00 384,000 e nd o f x4
384,000
20x5 C I 127,920 156,000 20x5
Pr 12,480
540,000 540,000 540,000 540,000
where: CI - c ost incur

incurrred ea ch yea r
Pr - profit
b. Input Measu
Mea sur re – C ost Recovery
ec overy Method
Method
C urren
urrentt Asset:
Asset:
20x3 20x4 20x5
Ac c ounts rec eivab le………………………
le………… …………….. P 24,00
24,000
0 P 36,00
36,000
0 P -
Raw mate
materrials Inventory……………
Inventory……………………
……… P 6,0
6,000
00
C urr
urren
entt Lia
Lia b ility
ility::
Payables (“Payments on Account”)
Prog ress
Progres s billings
billings………
……………… ……………………………………… P 13
137,2
7,280
80 P384
P384,00
,000
0
Less:: C on
Less onsstr
truc
uc tion In Progres
Prog ress
s…………….
……… ……. _144
_144,00
,000
0 _364,08
_364,080
0
Gross amount due to c ustome omersrs………… P 6,720 P 19,920
C o ns
nstructio
tructionn In Prog
Progres
ress
s Progres
Prog ress
s Bil
illi
ling
ngss
20x3 C I 126,048 144,000 20x3

Pr 0
e nd o f x3 126
126,048
,048 144,000 e nd of x3
144,000
20x4 C I 238,032 240,000 20x4
Pr 0
end
en d o f x4 364
364,080
,080 384,000 e nd o f x4
384,000
20x5 C I 127,920 156,000 20x5
Pr 48,000
540,000 540,000 540,000 540,000
where: CI - c ost incur

incurrred ea ch yea r
Pr - profit
3. Gross
Gross Profit
a. Input Measu
Mea sure
re - Percentage
Percentage of C
Comple
ompletion
tion Method
Method (refer to req
equir
uireme
ement
nt 1 for detailed
c omputation)
20x3 20x4 20x5
Reve nue………
Revenue ……………… ………………………………
………………
……… P 137,2
137,280
80 P 262,3
262,320
20 P 140,4
140,400
00
Less:: C osts / Ex
Less Exp
p enses………
nses……………
…………
………...
…... _126,048
_126,048 _238,032
_238,032 _127,92
_127,920
0
G ros
rosss Profit………………
Profit……… ……………… ………………
…………….
……. P 1111,23
,232
2 P 24
24,28
,288
8 P 12
12,48
,480
0
b. Input Measu
Mea sure
re – Cost
C ost Rec overy
overy Method (refer to requirement 1 for detailed
detailed computation)
c omputation)
20x3 20x4 20x5
Reve nue………
Revenue ……………… ………………………………
………………
……… P 126,0
126,048
48 P 238,0
238,032
32 P 175
175,92
,920
0
Less:: C osts / Ex
Less Exp
p enses………
nses……………
…………
………...
…... _126,048
_126,048 _238,032
_238,032 _127,92
_127,920
0
G ros
ross
s Profit………………
Profit……… ………………
………………
…………….
……. P 0 P 0 P 48
48,00
,000
0
Problem IV
1. Anticipa
Anticipated/
ted/ Gross
ross Loss
a. Input Measu
Measur re – Percent
ercentag
agee of Completion
C ompletion (Cost
(Cost-to-C
o- C ost Method)
Method)
2008:
C ontrac t price P2,50
P2,500,
0,00
000
0
Ac tual c ost to d a te P1,500
P1,500,0
,000
00
Es
Estimate
timatedd c o sts to c omp lete 1,200
1,200,00
,000
0
Total
Total esti
estimated
mated projec
projec t c osts
osts 2,7
,70
00,0
,00
00
Es
Estimate
timatedd loss,
loss, reco
rec o g nize
nize d in 20
2008
08 P (200,0
(200,000
00))
2009:
C ontrac t price P 2,
2,50
500,
0,00
000
0
C o sts incurr
inc urre
ed : In 2008
2008 P1,500,000
P1,500,000
In 2008 1,300,000 a. Input
Total
Total c ost
ost 2,8
,80
00,0
,00
00 Measure –
Total
Total loss
oss P ((30
300,
0,0
000) C ost
Reco
Rec o g nized
nized in 20
2008
08 (200,0
(20 0,000
00)) Recovery
Reco
Rec o g nized
nized in 20
2009
09 P (100,0
(100,000
00)) Method
Los
Loss in 20x
20x4
4 P( 200,000)
Los
Loss in 20x
20x5
5 P (100,000)
2. J ourna
ournal Entries
a. Input Meas
Measure – Percent
ercentag
agee of
of C ompletion (Cost
(Cost-to-
o-CC ost Meth
Method)
od)
2008:
C o ns
nstructio
truction n in p rog
rogres
ress
s 1,5
1,500
00,00
,000
0
Va rio
rio us c red
redits
its 1,500,00
1,500,000
0
Ac cB
oillings
unts
illingsrec
o neivab
c o ns le
nstructio
tructionn c o ntrac t 1,20
1,200,
0,00
000
0 1,200
1,200,00
,000
0
C a sh 1,000,000
1,000,000
Ac c ounts rec eivab le 1,
1,00
000,
0,00
000
0
C o st o f c ons
on struction
tructio n 1,588
1,588,88
,889
9
C o ns
nstructio
tructionn in p rog
rogres
ress
s (loss)
(loss) 20
200,0
0,000
00
Revenue
Reven ue from long-term
long -term c o ntrac ts*
ts* 1,388
1,388,88
,889
9
2009:
C o ns
nstructio
truction n in p rog
rogres
ress
s 1,3
1,300
00,00
,000
0
Va rio
rious c redits
red its 1,300,00
1,300,000
0
Ac c o unts rec eivab le 1,30

1,300,
0,00
000
0
Billings
illings o n c o ns
nstructio
tructionn c o ntrac t 1,300
1,300,00
,000
0
C a sh 1,500,000
1,500,000
Ac c ounts rec eivab le 1,
1,50
500,
0,00
000
0
C o st o f c ons
on struction
tructio n 1,211
1,211,11
,111
1
C o ns
nstructio
truction
n in p rog
rogres
ress
s (loss)
(loss) 10
100,0
0,000
00
Revenue
Reven ue from long-term
long -term c o ntrac ts**
ts** 1,111
1,111,11
,111
1
Billi
illing
ngss on c ons
on struc
truction
tion c o ntrac t 2,5
2,500
00,00
,000
0
C o ns
nstructio
tructionn in p rog
rogres
ress
s 2,500
2,500,00
,000
0
*P2,500,000 (P1,500,000/P2,700,000)
(P1,500,000/ P2,700,000)
** P2,
P2,500,000
500,000 1,388,889
Problem V
It
Item
em to c omp
omputeute Answer
Answer
Total
Total revenue rec ognizognized
ed d dur
uriing 20
2009 (w): P5
P500 mil
million
C IP c o nta
ntains
ins c o st + gros
gro ss p rofit = revenue , so w = P50 P 15 milli
million
on
G ros
ross
s p rofit rec
recog
og nized
nized d uring
uring 202009
09 (x):
(x): P50 – P35 =P15
Billi
Billing
ngss on c onstruc
nstruc tion
tion (y) : P14 + P 46 =P60 P60million
P60million
Net b illi
illing
ngss in exc
excess
ess o f c
coo ns
nstructio
tructionn in progress
pro gress (z): Bi
Bill
llings
ings of P60 – CIP
C IP of P10 million
P50
C alculate the per p erc
c entage of PAC that that wa s c ompleted dur d uriing 200
2009:
50/ 150 = 33.33%
33.33% 333.33%
333.33%
Problem VI
It
Item
em to c omp
omputeute Answer
Answer
C a sh c ollected
ollec ted by KP on C incy O ne during 20 2009
09.. (P75 b il
illi
lings
ngs – P10 A/ R) P65 milli
million
on
Ac tual c osts
osts incurred
incurred b y KP
KP on C incy One
O ne d ur
uring
ing 2009
2009 (P66 C IP – P22 P44 million
gross pofit)
At 12/
12/ 31/2009
1/2009,, the ees
stimated
timated remain
ema inining
g c os
osts
ts to c omplete
omp lete C in inc
c y One
O ne P156 million
million
(44
44// {44 + x})(300 – {44 + x}) = 22; x = 156
The
The perc
perc entage of Cincy One that that wa co mpleted
mpleted duriduring 20 2009 100 x (44/
(44/ 22%
{44 + 156}
156})
Problem VII
1.
Progres
Prog resss b illi
illing
ngss on c o ns
nstr
truc
uction
tion c o ntrac t P562,000
P562,000
Less
Les s a c c ounts rec eivab le 15
150,
0,50
500
0
C a sh c o llec
llec ted in 2020xx4 P411,5
P411,500
00
2.
G ross p rofit fr
fro
o m co
c o ns
nstructio
tructionn co
c o ntrac t +C o ns
nstructio
tructionn in progres
prog ress
s = Revenue
Reve nue fo r 20
20x4
x4
P301,000 + P602,000 = P903,000
P903,0
P90 3,000
00// P7,525,
P7,525,00
0000 =12% Pe Perc
rcen
enta
tage
ge co
c o mplete
mp leted
d iin
n 20
20xx4
P301,0
P30 1,000
00// .12 = P2,508,3
P2,508,33333 Es Estimate
timated d inco
inc o me o n c o ns
nstructio
truction
n c o ntrac t
Problem VIII
1. Perc
ercent
entagagee of CoCompleti
mpletion on Method
Method (Cost
(Cost-to-c
o- c ost Appr
Approac
oac h)
20x4 20x5 20x6
C o ntrac t p ric
ric e ...................
................... P250,00
P250,000
0 P250,00
P250,000
0 P250,0
P250,000
00
C urre
urre nt yea r c o sts ...............
............. .. 110,000
110,000 120,000
120,000 15,000
15,000
C o sts to d a te ....................
................ .... 110,000
110,000 230,0
230,000
00 245,00
245,000
0
Es
Estimate
timated d c ost to c o mp mpletelete ....... 10
100,0
0,000
00 20
20,00
,000
0 0
Es
Estima
timate ted
d to
tota
tall c ost ............. 210,000
210,000 245,000
245,000 240,00
240,000
0
Es
Estima
timate ted
d to
tota
tall gross p rofit ..... 40,000
40,000 5,000
5,000 5,000
5,000
Perc
Pe rcee nt c o mplete
mp lete ................. 52% 94% 100%
100%
Revenue
Reve nue to d a te ..................
............. ..... P130,000
P130,000 P230,00
P230,000
0 P250,00
P250,000
0
To
To Date Pr
Previ
evious
ous C urr
urrent
a t Dec . 31 Yea rs Yea r
20x4:
20x4: Revenue
Reve nue P130,0
P130,00000 P130,000
P130,000
C o sts (110/210
(110/ 210 x 210) 110,000 110,000
20,000 P 20,000
20,000
20x5:
20x5: Revenu
Reve nue e P235,000 P130,000 P105,000
C o sts (230/
(230/245
245 x 245) 230,000 110,000
110,000 120,000
G ross p rofit (loss)
(loss) P 5,00
5,000
0 P 20,000
20,000 P(15,000)
20x6:
20x6: Revenu
Reve nue
e P250,000 P235,000 P 15,000
C o sts 245,000 230,000
230,000 15,000
5,000 P 5,000
5,000 P 0
20x4 20x5 20x6

1. Revenue rec og ogni
niz
zed d urin
uringg
the yea r P130,000
P130,000 P100,000
P100,000 P15,000
P15,000
2. G ro ss profit rec og nized
nized d uring
uring
the yea r 20,000
20,000 (15,000)
(15,000) 0
3. Ba lanc e in the c onstr
onstruc
uctition
on in
p rogres
rog ress s a c c o unt a t Dec . 31 . 13
130,0
0,000
00 23
235,0
5,000
00 0
4. Ba lanc e in the progr
prog ress
b illi
illing
ngss a c c ou
ount
nt a t Dec
De c . 31 . 12
125,0
5,000
00 25
250,0
0,000
00 0
5. Net
Ne t (3-4) o r (4-3) – d ue from (due (d ue to) 5,000
5,000 (15,00
(15,000)
0) 0
2. Cost
Cost Rec
ecovery
overy Method
Method
20x4 20x5 20x6
1. Revenue rec og ogni
niz
zed d urin
uringg
the yea r P110,000
P110,000 P120,000
P120,000 P20,000
P20,000
2. G ro ss profit rec og nized
nized d uring
uring
the yea r 0 0 5,00
5,000
0
onstruc
uctition
on in
p rogres
rog ress s a c c o unt a t Dec . 31 . 11
110,0
0,000
00 23
230,0
0,000
00 0
4. Ba lanc e in the progr
prog ress
b illi
illing
ngss a c c ou
ount
nt a t Dec
De c . 31 . 12
125,0
5,000
00 25
250,0
0,000
00 0
5. Net
Ne t (3-4) o r (4-3) – d ue from (due (d ue to) (15,00
(15,000)
0) (20,00
(20,000)
0) 0
Problem IX
1. Perc
ercent
entag
agee of Co
Completi
mpletion
on Method
Method (Cost
(Cost-to-c
o- c ost Appr
Approac
oac h)
2005 2006 2007

C on
ontrac
trac t p ric
ric e P250,00
P250,000 0 P250,0
P250,000
00 P250,00
P250,000
0
C urre
urre nt yea r c o sts 150,000
150,000 100,00
100,0000 15,000
15,000
C o sts to d a te 150,000
150 ,000 250,00
250,0000 265,000
265,000
Es
Estimate
timated d c o st to c o mplete
mp lete 90
90,00
,0000 20
20,00
,000
0 0
Es
Estima
timate ted
d to
tota
tall c o st 240,000
240,000 270,00
270,0000 265,000
265,000
Es
Estima
timate ted
d to
tota
tall gross p rofit
rofit 10,000
10,000 (20,000)
(20,000) (15,000)
(15,000)
Pe
Perce
rcentnt c o mplete
mp lete 63
63%% 93
93%
% 10
100%
0%
Revenue
Reven ue to d a te P157,50
P157,500
0 P232,5
P232,500
00 P250,00
P250,000
0
To
To Date Pr
Previ
evious
ous C urr
urrent
a t Dec . 31 Yea rs Yea r
2005:
2005: Revenue
Reve nue ............ P157,500
P157,500 P157,5
P157,500
00
C o sts (150/
(150/240
240 x 240) 150,000
150,000 150,000
150,000
G ross p rofit ............ P 7,500
7,500 P 7,500
7,500
2006:
2006: Revenue
Reve nue ............ P232,500
P232,500 P157,500
P157,500 P 75,000
75,000
C o sts .........
............
... 252,500
252,500 150,000 102,500
102,500
G ross p rofit (los(loss) ............ P(20,000) P 7,500
7,500 P(27,500)
P(27,500)
2007:
2007: Revenue
Reve nue ............ P250,000
P250,000 P232,500
P232,500 P 17,500
17,500
C o sts .........
............
... 265,000
265,000 252,500 12,500
G ross p rofit (los
(loss) ............ P(15,000) $(20,000)
$(20,000) P 5,000
5,000
20x4 20x5 20x6
1. C onstruc
onstructiontion c osts (expens
(expe nse) e)
reco
rec o gn
gnizized
ed d uring
uring the yea r P150,0
P150,000
00 P102,50
P102,500
0 P12,50
P12,500
0
2. G ross
ross profit rec og nized
nized dur
d uring
ing
the yea r 7,500
7,500 (27,500)
(27,500) 5,00
5,000
0
3. Ba lanc e in the c onstronstrucuction
tion in
progress
progres s ac c ount at Dec . 3 311
(a
(afte
fterr c losing e ntries) 157
157,50
,500
0 230,000
230,000*
* 0
4. Ba lanc e in the p rog ogrress
b illi
illing
ngss a c c ou
ount
nt a t Dec
De c . 31 . 11
110,0
0,000
00 23
230,0
0,000
00 0
5. Net (3-4) or (4-3) – d ue from (due (d ue to)
to ) 47
47,50
,500
0 0 0
B
aalanc
t De
Decc .e31
in (after
acfter
(a c ounts
c losirng
ec eivab
losing eiv
en ab
entri le
tries)
es) 10,00
10,000
0 10
10,00
,000
0 0
*P150,000 +7,500 +157,500

157,500 +100,000 c o sts incurred
inc urred d uring the ye
yeaa r – 27,500 loss
2. Cost
Cost Rec
ecovery
overy Method
Method
20x4 20x5 20x6
1. C onstruc
onstructiontion c osts (expens
(expe nse)e)
reco
rec o gn
gnizized
ed d uring
uring the yea r P150,0
P150,000
00 P 80
80,00
,000*
0* P20,00
P20,000*
0**
*
2. G ross
ross profit rec og nized
nized dur
d uring
ing
the yea r 0 (20,000)
(20,000) 5,000
5,000
onstrucuction
tion in
progress
progres s ac c ount at Dec . 3 31
1
(a
(afte
fterr c losing e ntries) 150
150,000
,000 ***230
***230,000
,000 0
4. Bablanc
illi
illinges in
ngs a cthe
c oupnt
ountrog
ogr
a tress
Dec
De c . 31 . 11
110,0
0,000
00 23
230,0
0,000
00 0
5. Net (3-4) or (4-3) – d ue from (due
(d ue to)
to ) 40
40,00
,000
0 0 0
Balanc e in ac c ounts rec eivabeivab le

a t De
Decc . 31 (after
(a fter c losi
losing
ng en
entri
tries)
es) 10,00
10,0000 10
10,00
,000
0 0
*P100,000
*P100, 000 c o sts inc
incurr
urre
ed – PP20,00
20,000
0 estimate
estimate d loss = P80,000,
P80,000, re
re ve
venue
nue – 20x5
20x5
** P250,000 – P150,000, revenue – 20x4 – P80,000, revenue – 20x5
***P150,000 + P100,000 – P20,000
Multiple C hoic
hoicee Problems
1. a
C osts
osts inc
inc urr
urred ea c h year
(2.5 M + 2.0 M + 1 M * + .5 M ) P 6M
Ad
C d :sC
osts
ost inocsurr
inc t incurred
urincurr
red toeddain
tep rior year
yea rs P 6 M0
Add: Estimated cost to complete
Total esti
estimated
mated cosc osts
ts P 18 M
Perc entage of c ompletion

Perc ompletion 6 M / 18M
Ad minis
ministr
tra
a tive long a s reimbursable is included
tive c ost as long includ ed in the const
c onstrruction
uc tion c
costs
osts..
Marketing costs are considered as expenses.
Deprrec iation
Dep iation of
o f idle
idle e
equipment
quipment is c harged to e ex
xpens
pe nses
es..
2. b
P7,200,000
——————————— x (P15,000,000 – P12,000,000) = P1,800,000.
P7,200,000 + $4,800,000
3. c
P1,170,000
—————- x (P3,300,000 – P1,950,000) = P810,000
P1,950,000
(P3,300,000 – P2,010,000) – P810,000 = P480,000.
4. d
Unde
Underr the
the p
perce
ercentag
ntagee of
o f c omp
ompleti
letion
on method,
metho d, the C onstr
onstruc
ucti
tion-In-P
on-In-Prrog
ogrress
ess ac c ount is used
used for cost
c ost
incurred
incurred during the yea r and a ny rea
rea liz
lized gross profit (los
(loss
s). The foll
fo llow
owing
ing T
T-a
-acc c ount is prepa
prep a red :
C on
onsstruc
truction-In-Pr
tion-In-Prog
og ress
C I in 2004 210,000
RG P in 20x4 (?
(?)) 34,000
34,000
End o f 20x4
20x4 244,000
C I in 20x5
20x5 384,000
RG P in 20x5 (?
(?)) 100,000
100,000
End o f 20x5
20x5 728,000
728,000
5. b P1,200,000
P1,200,000
————
—— ——— — x (P7,200,000 – P4,800,000)
P4,800,000) =P600,000.
P4,800,000
6. c P7,200,000 – P4,875,000 =P2,325,000.
7. a
20x4
C ontrac t Price
Price P4,800,
P4,80 0,00
000
0
x: Perce
Percentage
ntage-of-c
-of-comp
ompleti
letion
on _______75
______ _75%%
Rec og nized
nized Revenue
eve nue to da te P3,60
P3,600,
0,00
000
0
Less
Les s: C o sts inc
incurr
urred
ed to d a te P3,400
P3,4 00,00
,000
0
G ros
rosss Profit to d a te P 20
200,0
0,000
00
Less:
ess: G P in prior year
yea r _______
___ ____-0-
-0-
G ros
rosss p rofit in c urren
urrentt yea r P 20
200,0
0,000
00
8. a P3,600,000
P3,600,000
————— x (P8,400,000 – P6,000,000) = P1,440,000.
P6,000,000
9. b P8,400,000 – P5,600,000 = P2,800,000.
Items 10 and 11
No number requirement
requirement identif
identified,
ied, if perce nt
ntag
ag e- of-c
of-c ompleti
ompletion
on then
then the a nswer would
would ( a)
a [P1,950,000 ÷(P1,950,000
÷(P1,950,000 + P1,300,000)] ×P2,250,000 = P1,350,000
(P5,500,000 – P3,350,000) – P1,350,000 = P800,000.
10.
10. C os
ostt Rec overy Method
Me thod - c - P5,500,000 – P3,350,000 = P2,150,000.
11
11.. a - G ros
ross
s p rofit is
is reco
rec o gn
gniz
ized
ed in the year
yea r o f sa
sa le, 20x
20x4; therefore
the refore,, iin
n 20x6
20x6 no gros
g ross
s p rofit sho
should
uld be
be
realized.
12. c P600,0
P600,000
00
——————
———— ————————
—— x (P1,500,000
(P1,500,000 – P1,000,00
P1,000,000)
0) =P300,000
P300,000
P600,000 + P400,000
(P1,500,000 – P1,050,000) – P300,000 = P150,000.

13. a
C ontrac t Price
Price P6,00
P6,000,
0,00
000
0
Less:: To ta
Less tall Es
Estimate
tima ted d C o sts
C o sts Inc
Incurr
urred
ed -1/10
-1/ 10// x4 to 12
12// 31
31// x5 P3,600
P3,600,00
,000
0
Ad d : EsEstimate
timated d c o sts to c o mplete
mp lete 1,2
1,200
00,00
,000
0 4,800
4,800,00
,000
0
Less
Less: C o sts inc
incurr
urred
ed to d a te P1,200
P1,2 00,00
,000
0
M ult
ultipli
iplied
ed by: % of c omp ompletion
letion ___3.
___ 3.6/4.8
6/4.8
G ros
ross s Profit to d a te P 90
900,0
0,000
00
Less
Less: G P in p riorio r yea r (given)
(g iven) __
___600
_600,00
,000
0
G ros
ross s p rofit in c urren
urrentt yea r P 30
300,0
0,000
00
14. b
20x4: C o st to d a te – P7,500,000
20x4: P7,500,000 x 20% P1,500,000
P1,500,000
20x5:
20x5: C ost to d a te – P8,000,000
P8,000,000 x 60% 4,800,00
4,800,000
0
C o st incurr
inc urred
ed d uring
uring 20
20x5
x5 P3,300
P3,300,00
,000
0
15. b = (P25,000,000
(P25,000,000 ×.60) – (P
(P22,500,000
22,500,000 × .25) = P9,375,000.
P9,375,000.
16. b
C osts Inc
Incurr
urre
ed 50
50,00
,000
0
C ontrac t price
price…………
………………………… …………………………… …………….. P260,0
P260,00000
C ost incurr
incurreded ea c h yea
yearr……………
……………………………………….. .. P 50
50,00
,000 0
Ad
Add:d: C ost incurr
incurred
ed in pri
prior
or year………………….
yea r…………………. -0-
C osts incurr
incurreded to da te……………………
te……… …………………….. ……….. P 50
50,00
,000 0
Ad
Add:d: Estim
omplete……
lete………………
………… 150,0
150,00000
Total esesti
timated
mated co sts ts………………………
………………………………. ………. P20
P200,0
,0000
Estimate
profit
fit (loss)……
(loss)………….…
…….…………………….…. P60,0
P60,00000))
Multiplied
Multipli ed by: pe perrc enta
entage ge of c omp
ompletion………..
letion……….. __50
__50// 20
2000 15,00
15,000
0
C onst
onstruruc
c ti
tion
on In Prog
Progrress a c c ount 65,00
65,000
0
Le
Less
ss: Pro
Proggress b illing
illings
s 30,000
C onst
onstruruc
c ti
tion
on In Prog
Progrress a c c ount (net) or Due fr
from
om c us
ustomers
tomers 35
35,00
,000
0
17
17.. d - P2,040
P2,040,00
,000
0 – P980,
P980,00
000
0 =P1,060,0
P1,060,000
00 (revenue
(reven ue limited
limited to c o sts incurr
inc urred
ed since
inc e c o st-rec overy
ove ry
method must be used).
18. a - P2,040,000 – (P1,000,000 + P1,000,000) = P40,000.
19. c - (P
(P1,000,000
1,000,000 + P1,000,000) – (P648,000
(P648,000 +P1,280,000) = P72,000.
20. d
21. d
Rec og nized
nized gross p rofit
rofit (los
(loss
s) to da te……
te…………..…….. P( 100,
100,00
000)
0)
Less
Less: Rec og nized
nized gro
grosss p rofit in p rio
rio r yea rs……
rs…….. __
____
__20
20,00
,000
0
Rec og nized
nized gross p rofit
rofit ea c h yea
yearr……………..
……… …….. P (12
(120,
0,00
000)
0)
22. b =P5,600,000 – (P2,560,000
( P2,560,000 +P3,280,000) = –P
–P240,00
240,000.
0.
23.
23. c
Prior
Prior year
yea r C urr
urrent year
yea r
C ontrac t price…………
price …………………… …………………… ………………….………. P7,00
P7,000,
0,00
000
0 P7,00
P7,000,
0,00
000
0
Cost incurred each year…………………………..
Add:
Ad d: C ost inc
incur
urrred in prprior
ior year………………….
C osts incurred
incurred to da te……te……………………………………
…………….. ….. P5,00
P5,000,
0,00
000
0
Ad d : Estima
tima ted c osts to c omplete……
omp lete………………
………… 2,
2,80
800,
0,00
000
0
Total
Total esti
estimated
mated cosc osts
ts……………………………….
………………………………. P7,8
P7,80
00,0
,00
00
Es
Estimate
timated d gros
gro ss p rofit (loss
(loss)……
)……………….………
.…………… …….. (P 80
800,0
0,000
00))
Multipli
Multi plied
ed by: per
pe rc entage
entag e of c ompleti
omp letion………..
on……….. _____10
_____100%0%
Rec o g nized
Reco nized g ross
ross p rofit (loss
(loss)) to d a te…
te………………..….. P600,00
P600,000
0 (P 80
800,0
0,000
00))
Less
Less: Rec o gn
gniz
ized
ed gro
gros ss p rofit in p rio
rio r yea rs……
rs…….. __
___600
_600,00
,000
0
Rec og nized
nized gross p rofit
rofit ea c h yea
yearr……………..
……… …….. (P1,4
(P1,400
00,0
,000
00))
24. c P7,440,000
P7,440,000 × .30 = P2,232,000.
25. d (P7,200,000
(P7,200,000 × .75) – (P7,100,000 × .30) = P3,270,000.
26. b (P7,440,000
(P7,440,000 × .75) – (P620,000
(P620,000 × 8) = P620,000 debit.
27. c P7,440,000
P7,440,000 × .25 = P1,860,000
P7,500,000 – (P7,200,000 × .75) = P2,100,000.
28. b (P9,000,000
(P9,000,000 – P8,250,000
P8,250,000)) × (P3,795,000 ÷P8,250,000) = P345,000.
29. c P3,795,000
P3,795,000 + P345,000
P345,000 = P4,140,000.
P4,140,000.
30. d P3,500,000 –P
–P1,350,000
1,350,000 – P1,525,000 = P625,000.
31. b P240,000 – P100,000 = P140,000.
32. d P300,000 – P60,000 = P240,000
P240,000
——— —————
————— ———— — x (P2,400,0
(P2,400,000
00 – To
To tal
ta l es
estimate
timatedd c o st) = P60,000
P60,000
Total
Total esti
estimated
mated cos
c ostt
Total
Total esti
estimated
mated cos
c ostt =P1,9
P1,920
20,0
,00
00
P2,400,000 – P1,920,000 =P480,000.

33. c (P
(P6,325,000
6,325,000 ÷P13,750,00
÷P 13,750,000)
0) × P1,250,000 =P575,000.
34. a (P
(P6,325,000
6,325,000 ÷P13,750,000)
P13,750,000) ×P1,
P1,250,000
250,000 = P575,000.
P575,000.
P6,
P6,325,000
325,000 + P575,000
P575,000 = P6,900.000.
P6,900.000.
35
35.. d - P85M c o sts incurr
inc urred
ed in 2 201
011
1 =revenue
reven ue rec o gn
gniz
ized
ed in 2
201
011.
1. Und
Under
er the c o sts reco
rec o very (zero
(zero-p
-profit
rofit
ap proac
proa c h) of c ons
onstr
truc
ucti
tion
on a c c ounting,
ounting, rrevenue
evenue is rec og
ogni
niz
zed up to the ex
e xtent of cos
c osts
ts in
inc
c urr
urred a s
long a s it iis
s proba
prob a ble wi
w ill be rec overable.
overab le.
36. b - 20x5:
20x5: P12,000,000 > P11,870,000, No loss
lo ss;;
20x6: P12,000,000 – P12,400,000 = P400,000 loss.
37.
37. a - R
Reve
evenue
nue rec
rec og
ogniz
nized
ed to the ext
extent
ent of costs
c osts incurred
incurred
38. c P3,200,000 – P2,150,000 = P1,050,000.
39. c P1,500,000 – P820,000 = P680,000.
40. a
Underr PFRS
Unde PFRS, the excess
exc ess o f C o ns
nstructio
tructionn In Prog
P rogres
ress
s amo
amounting
unting to P2,100
P2,100,00
,000
0 (P2,250,0
(P2,250,000
00 – P150,00
P150,000,
0,
loss)) – P1,900,000,
loss P1,900,000, billings =P200,000
P200,000 isis c las
la ssified a s due from c ustomers
ustome rs..
Under the US
US FA
FA SB, the
the e xc ess of P200,00
P200,00 is c onsidered as an inve nt
ntory
ory ac c ount.
ount.
41. c
C osts o f c on
onsstr
truc
uc tion 1,200,00
1,200,000
0
C ons
on str
truc
uc tion in prog
progres
ress
s 80
800,0
0,000
00
Revenue
Reve nue for long-te
long -term
rm c on
ontrac
trac ts 2,000,
2,000,000
000
Perce
Pe rcenta
ntage
ge c o mplete
mp lete =P1,2
P1,200
00,00
,000
0 / (P1,200,0
(P1,200,000
00 +P600,00
P600,000)
0) = 2/3
2/ 3
Revenue
Reve nue rec o gnized = 2/3
2/ 3 P3,000,000
P3,000,000 =P2,000,000
P2,000,000
C o st reco
rec o g nized
nized = P1,200,0
P1,200,000
00
G ross p rofit rec og nized =P2,000,000
P2,000,000 P1,200,000
P1,200,000 = P800,000
P800,000
42. a
C o sts o f c o ns
nstructio
truction n P1,200,00
P1,200,000
0
Profit 800,000
C o ns
nstructio
truction n In Progres
Prog ress s P2,000
P2,000,00
,000
0
Less:: Pro
Less Prog g ress b illing
illingss 1,500,000
Ex
Exc
c ess (Due from c us usto
tome
mers
rs)) P 500,000
500,000
43. b
C osts o f c on
onsstr
truc
uc tion 60
600,0
0,000
00
C ons
on str
truc
uc tion in prog
progres
ress
s 40
400,0
0,000
00
Revenue
long -term
rm c on
ontrac
trac ts 1,000,
1,000,000
000
Total
Total revenue P3,0 P3,000
00,0
,00
00 revenue previous
previouslly rec ogniz
ognized
ed P2,0
P2,000,
0,0
000 = Revenue to
to
rec o gn
gnizize
e this yea r P1,000,
P1,000,00
000.
0.
C o st rec
rec o g nized
nized = P600,00
P600,0000
G ross p rofit rec o gnized =P1,000,000
P1,000,000 P600,000
P600,000 = P400,000
P400,000
44. d
C osts o f c on
onsstr
truc
uc tion 1,200
1,200,00
,000
0
Revenue
long -term
rm c on
ontrac
trac ts 1,200
1,2000,0
0,000
00
Unde
Underr c os
ostt rec overy method
method,, revenue should be rrec
ec og
ogni
niz
zed up to the extent
extent of c osts
osts in
inc
c urr
urred
ed..
45. b
C o sts o f c o ns
nstructio
tructionn P1,200
P1,200,00
,000
0
Profit 0
C o ns
nstructio
tructionn In Progres
Prog ress
s P1,200,00
P1,200 ,000
0
Less: Pro
Less: Progg ress b illing
illingss 1,500,000
Ex
Exc
c ess (Due to c us ustome
tomers
rs)) P( 30
300,0
0,000
00))
46. d
C osts o f c on
onsstr
truc
uc tion 60
600,0
0,000
00
C ons
on str
truc
uc tion in prog
progres
ress
s 1,200
1,200,00
,000
0
Revenue
long -term
rm c on
ontrac
trac ts 1,800,
1,800,000
000
Underr the c
Unde cos
ostt rrec
ec over
ove ry method
method,, rrec
ec ord eq ual amounts
amo unts of revenue and c os
ostt unt
until
il c os
ostt rrec
ec overed,
and then record gross profit. In 20x4, recorded revenue and cost of P1,200,000, so record
remaining
rema ining c o st ooff P600,00
P600,0000 and
a nd a ll gross p rofit of
o f P1,200,0
P1,200,000
00 in
in 20x5.
20x5.
47. a
20x4 20x5
Co
C osntrac
ts inc turred
incurrp ric
ried
c eto d a te P 4,9
P 9,600
9,6 00,00
4,920 ,000
20,00
,0000
0 P10,08
P10, 080,0
0,000
P 8,640,
8,6 000
40,00
000
Ad d : Es
Estimate
timated d c o st to c omp lete 4,920
4,920,00
,0000 2,160
2,160,00
,0000
Total esti
estimated
mated cos c osts
ts P 9,8
9,8440,
0,00
0000 P 10
10,8
,80
00,
0,0
000
Es
Estima
timate tedd G ross Profit
Profit (los
(loss) P(240,000)
P(240,000) P (720,000
(720,000))
M ultiply
ultiply b y: % o f c o mpletion
mp letion 10
100%
0% 10
100%
0%
Reco
Rec o g nized
nized G ross Profit (Loss(Loss)) to d a te P (24
(240,0
0,000)
00) P (720,0
(720,00000))
Less
Les s: G ross Profit (Loss
(Loss)) in p rio
rio r yea r __
____
____
_____
___ (240,0
(240,000
00))
Reco
Rec o g nized
nized G ross Profit (Loss(Loss)) in c urr
urren
entt yea r P (240,0
(240,000)
00) P (480,0
(480,000
00))
% of Completion / Cost Recovery Method:

C on
onsstruction
tructio n in Prog
Progres
ress
s Prog
Progress
ress Billings
illings
CI 4,920,000 240,000 loss

loss 5,280,000
4,680,000 5,280,000
CI 3,720,000 480,000 loss 3,420,000
7,920,000 8,700,000
due to c us
ustome
tomerrs
P780,000
Note : IIff there is a n a

Note: anti
ntic
c ipa
ipated
ted los
loss
s, the C onstruc
onstruction-in-Pr
tion-in-Prog
og ress for bo th method s will exac tl
tly
y be
the same in the year yea r tthe incurred .
he loss wa s incurred
48. d
Perce nt
ntag
ag e of C ompletion:
ompletion: Projec
Projec t 6 Pr
Projec
ojec t 7 Pr
Projec
ojec t 8
C o ntrac t p ric
ric e…………
e… ………………
………………
………..
.. P500,0
P500,000
00 P700,0
P700,000
00 P250,00
P250,000
0
C o st incurr
inc urred
ed ea c h yea r………………
r………… …….. P375,0
P375,000
00 P100,0
P100,000
00 P100,00
P100,000
0
Ad
C od:
stsC ost
inc
incurrinc
in
urred
edc urr
urto
redd ain pri
prior
te… or
te………… year………
……………………… _________
______
P375,0___
P375,000
00 ________
______
P100,0
P10 __
0,000
00 ________
______
P100,00
P100 __
,0000
Ad d : Estima
timated
ted c osts
osts to c omp ute…….
ute…… . ______
___ _____
__ 40
400,
0,00
0000 100,
100,00
0000
Total
Total esti
estimated
mated cos c osts
ts………………….
…………………. P3
P37
75,
5,0000 P50
P500,
0,0
000 P2
P20
00,
0,0
000
Es
Estima
timate tedd gross p rofit…
rofit………………… ………… …… P125,000
P125,000 P200,000
P200,000 P 50,000
50,000
M ult
ultiply
iply by: per
pe rc enta ge of c omp letion
letion.. 10
100%
0% 20%
20% 50
50%
%
Reco
Rec o gn
gnizized
ed gro
grosss p rofit to d a te………
te… …… P125,0
P125,000
00 P 40
40,00
,000
0 P 25
25,00
,000
0
Less
Les s: Rec og nized
nized gross p rofit in prior year
yea rs ___
_______
______
__ ______
___ ______
___ _______
___ ______
__
Reco
Rec o gn
gnizized
ed gro
grosss p rofit ea c h yea r…. P125,0
P125,000
00 P 40
40,00
,000
0 P 25,00
25,0000
C ost Rec overy M ethod

ethod of C onst
onstru
rucc tion A c c ounting
ounting :
Projec
Projec t 6 Pr
Projec
ojec t 7 Projec t 8
Rec o gn
Reco gniz
ized
ed Reven
Revenue…ue………
……..………
..……….. .. P500,0
P500,000*
00* P100,0
P100,000
00 P100,0
P100,000
00
Less
Less: C osts o f long
long-term
-term constr
c onstruc
ucti
tion
on
c o ntrac t……………
t……… …………… …………… ………..….. 37
375,0
5,000
00 10
100,0
0,000
00 10
100,0
0,000
00
Rec og
ogniz
nized
ed gross profit ea c h year….
yea r…. P125,
P125,00
000
0 P 0 P 0
* S
Sinc
inc e the c ontr
ontrac
ac t is
is comp leted then the ful
fulll amount of P500
P500,000
,000 contrac t pri
pricc e should
should b e rec og niz
nized
ed as
revenue.
Percc entag e of C ompleti

Per ompletion
on C ost
ost Rec overy Method of C onstr
onstruction
uction
C onstruc
onstruc tion in Prog ress C onstr
onstruc
uc tion
tion in Prog ress
Pr. 6 - C l. 375,000 500,000 Pr. 6
375,000 Pr. 6 - C l. 375,000 500,000 Pr. 6
Pr. 125,000 Pr. 125,000
Pr. 7 – C l. 100,000
100,000 Pr. 7 – C I 100,000
100,000
Pr. 40,000 Pr. 8 – C I 100,000
100,000
Pr. 8. C l 100,000
100,000 700,000 500,000
Pr. 100,000 12/31
12/ 31 200,000
200,000 (d)
765,000 500,000
12/31
12/ 31 265,000
265,000 (d)
49. a
Input Me asures: Effort
Efforts-
s-Expend
Expend ed Me thod - using
using ti
timbe
mbe rs laid
Year 2 Year
Yea r 3
Timer
imerss laid E Eac
ac h Yea
Yearr 300 500
Ad d : Timbers
imbe rs laid in Pri
Prio
o r Yea
Ye a rs 15
150 0 45
4500
Timbers
imbers laid to da te 450 950
Ad d : Ad
Add d itiona
itionall supp ort timbe
timberrs to be laid 52
520 0 -0-
Total Es
Estimated
timated Timbers
mbers 970 950
Percenta
Perc enta ge-of-C
ge -of-C ompletion
omp letion 45
45// 97 10
100%
0%
x: C O NTRAC
NTRAC T PRICE
PRIC E P 800,000
800,000 P 800,000
800,000
Rec og nized
nized Revenue
eve nue to Date
Da te P 371,
371,13
134 4 P 800,
800,00
0000
Reco
Rec o g nized
nized Reven
Revenueue in Pri
Prior
or Yea
Ye a rs 37
371,1
1,134
34
Recognized Revenue in Current Yr. P 428,866
O utput Mea sures

sures – Numbe r of trail
trail fee t
Yea r 2
Year Year
Yea r 3
Trail feet Eac h YeaYearr 7,5
,50
00 8,0
,00
00
Ad d : Trail fee
fe e s in Prior Yea
Ye a rs 3,000
3,000 10,500
10,500
Trail feet to date 10,5
,50
00 18,5
,50
00
Add:
Ad d: Additi
Ad ditiona
ona l trail
trail feet to be c onstr
onstruc
ucted
ted 8,
8,20
200
0 ___-0-
Totalenta
Es
Estimated
Percenta
Perc timated
ge -of-CTrompletion
ge-of-C ail feet
omp letion 1015/187
8,7
,70
00
105/187 18,5
,50
10 00
100%
0%
x: C O NTRAC
NTRAC T PRICE
PRIC E P 800,000
800,000 P 800,000
800,000
Rec og nized
nized Revenue
eve nue to DateDa te P 449,
449,19
198
8 P 800,
800,00
000
0
Rec o g nized
Reco nized Reven
Revenue
ue in Pri
Prior
or Yea
Ye a rs 44
449,1
9,198
98
Recognized Revenue in Current Yr. P 350,802
50. b
2006 2007 2008
C o ntrac t p ric
ric e…………
e… ……………… ……………… ……….. .. P5,000
P5,000,00
,000
0 P5,000
P5,000,00
,000
0 P5,000,
P5,000,00
000
0
Cost incurred each year………………. P2,050,000
Ad d : C o st incurr
inc urred
ed in p rior
rior yea r……… 90
900,0
0,000
00 2,550
2,550,00
,0000
C o sts inc
incurr
urred
ed to d a te…
te………………………… ……… P 90
900,0
0,000
00 P2,550
P2,550,00
,000
0 P4,600,
P4,600,000000
Ad d: Es
Esti
timated
mated c os osts
ts to c omplete
omp lete 1,700,000 -0-
Total
Total esti
estimated
mated cos c osts
ts………………….
…………………. P4,2
P4,25
50,
0,00
000
0 P4,6
P4,6000,
0,00
0000
Es
Estimate
timated d gros
gro ss p rofit………………
rofit……… ………… … P 75
750,0
0,000
00 P 40400,0
0,000
00
M ult
ultiply
iply by: per
pe rc enta ge of c omp letion
letion.. 60%
60% 100%
100%
Reco
Rec o gn
gnizized
ed gro
grosss p rofit to d a te………
te… …… P 10
100,0
0,000
00 P 45
450,0
0,000
00 P 40400,0
0,000
00
Less:: Rec o g nized g ross p rofit in p rior yea rs
Less -0- 100
100,000
,000 450,000
450,000
Reco
Rec o gn
gnizized
ed gro
grosss p rofit ea c h yea r…. P 10
100,0
0,000
00 P 35
350,0
0,000
00 P( 50,00
50,000)0)
51. d – refer to No. 50
52.
52. c
C ontrac
ontrac t Pr Price
ice…………………………
……………………………………………… …………………… P6
P60,
0,00
000,
0,00
0000
Less:: To ta
Less tall Es
Estima
timateted
d C o sts
C ost Incur
Inc urrred to Da
Date………
te………………… ………………… ……………
…… P26,0
P26,000
00,0
,000
00
Ad d : Es
Estimate
timated d C o sts to C o mp
mplete
lete……
…………
…………
…… 2525,00
,000,0
0,000
00 51,00
51,000,0
0,000
00
Es
Estimate
timated d G ross
ross Profit……………
Profit……… …………… ……………… ………………
……….. P 9,000
9,000,00
,0000
M ult
ultipli
iplied
ed b y: % of c ompletion…………
omp letion…………………… ……………….
……. 30
30%%
Recog
Rec ogniz
nized
ed gross profit to da te………
te………………… ………………..
…….. P 2,
2,70
700,0
0,00000
Less
Les s: RG P in prior yea rs…………………
……… …………………… …………………
……… ___
______
______
___0 0
Recog
Rec ogniz
nized
ed gross profit in c ururrrent year
yea r………………
………… …… P 2,700
2,700,0
,000
00
C onstr
onstruc
uction-in-progres
tion-in-progresss Ac c ount:
C osts incurred
incurred to d a te…………………
te……… …………………… ………………..
…….. P 26,0
26,000
00,0
,000
00
G P iin
n the c
cur
urrrent year……………………………………
year……………………………… …… 2,700,000
P 28,700,000
Less: Progres
Less Prog ress
s b illi
illing
ngss……
………………………
………………
……………
…………..
…….. 5,000,
5,000,00
0000
Due from
from c ustome
ustomerr (net)…………………
(net)……… ……………………
…………….
…. P 23,7
23,700
00,0
,000
00
53.
53. c
C o ntrac t Pri
Pricce P100,000,
P100,0 00,00
000
0
M ult
ultipli
iplied
ed by: G ross Profit Rate _______
___ ______25%
__25%
Es
Estimate
timated d G ross
ross Profit of the entire c o ntrac t P 25
25,00
,000,0
0,000
00
M ult
ultipli
iplied
ed by: Percenta
Perc enta ge of C omp letion
letion for firs
first year
yea r _______
___ ______50%
__50%
G ros
rosss Profit rea
reali
lized
zed for
fo r c urr
urren
entt yea r P 12
12,50
,500,0
0,000
00
54.
54. c
C o ntrac t Pri
Pric
ce P120,00
P120,000,0
0,000
00
x: M ob iliz
ilizaa tion Fee 10%
C o llec tion
tion in 20x4
20x4 P 12,000,00
12,000,000
0
Note
No te:: Bi
Bill
llings
ings fo
forr 20
20x
x4 will b e c o llec
llec ted in J a nua
nuary
ry 20
20x
x5.
55. a
M ob iliz
iliza
a tion Fee
Fee:: 5% x P10M P 5.0 M
C ollec
ollection
tion on Billi
illings:
ngs:
C ontrac
ontrac t pri
pric ce P 100 M
x: Pro
Proggress b illing
illings,
s, net
ne t o f 10% a nd 8% (50% - 10% - 8%)
8%) 32%
Prog ress b illing
illings s P 32 M
x: C ollections
ollec tions net of c ontrac t retenti
ete ntion
on of 10%
10% 90
90%
% 28
28.8
.8 M
C o llec
llec tions in 20
20x4
x4 P 33
33.8
.8 M
56.
56. b – c
cost
ost rec over
ove ry metho
methodd is used
used .
A t the e nd of 20x4 the c on
ontrac
trac tor must rec og nized only
o nly to
to the e xtent
xten t of rec ov
overa
era ble c on
ontrac
trac t ccosts
osts
incurred
incurr ed (i.e., P5,000
P5,000 c ontrac
ontrac t revenue and P5,000
P5,000 c onstr
onstruc
uc tion
tion c osts/
osts/expe
expe nses).
nses).
Quiz- VIII
1. P100,000 = [P900,000
[P900,000 ÷(P900
÷(P900,000
,000 +P1,800,000)
P1,800,000)]] ×P3,
P3,000,000
000,000 =P1,000,000
P1,000,000
P1,000,000 – P900,000 = P100,000.
2. P150,000
C ontrac t price 4,
4,50
500,
0,00
000
0
C o sts inc
incurr
urred
ed to d a te 1,350
1,350,00
,000
0
Ad d : Estima
tima ted c ost to c omplete
omp lete _2,700
_2,700,0
,000
00
Total
Es
Estima esti
es
timate timated
teddmated
G rosscos
cProfit
osts
Pro ts
fit (los
(loss) 4,0
,05
50,0
,00
00
450,000
450,000
M ultiply
ultiply b y: % o f c o mpletion
mp letion 1,350
1,350// 4,050
4,050
Reco
Rec o g nized
nized G ross Profit (Loss
(Loss)) to d a te 15
150,0
0,000
00
Less
(Loss)) in p rio
rio r yea r __
______-0-
-0-
Reco
Rec o g nized
(Loss)) in c urr
urren
entt yea r 15
150,0
0,000
00
3. P150,000
20x5 20x6
C o ntrac t p ric
ric e 3,000
3,000,00
,000
0 3,000
3,000,00
,000
0
C o sts inc
incurr
urred
ed to d a te 1,800
1,800,00
,000
0
Ad d : Estima
omp lete _600,
_600,00
000
0
Total esti
estimated
mated cos
c osts
ts 2,2
,25
50,
0,0
000 2,4
,40
00,0
,00
00
Es
Estima
Profit (los
(loss) 750,000
750,000 600,000
600,000
M ultiplied
ultiplied b y: % of c o mpletio
mp letion n 1,800
1,800// 2,400
2,400
Reco
Rec o g nized
300,0
0,000
00 45
450,0
0,000
00
Less:: G ross Profit
Less Profit (Los
(Loss) in p rio
rio r yea r _300,000
_300,00 0
Reco
Rec o g nized
(Loss)) in c urr
urren
entt yea r 15
150,0
0,000
00
4. P80,000
20x5
C ontrac t price 1,
1,60
600,
0,00
000
0
C osts incurred
incurred to da te 24
240,
0,00
000
0
Ad d : Estima
omp lete _960,
_960,00
000
0
Total esti
estimated
mated cos
c osts
ts 1,2
,20
00,0
,00
00
Es
Estima
timatetedd G ross Profit
Profit (los
(loss) 400,000
400,000
M ult
ultipli
iplied
ed by: % of c omp
ompletion
letion 24
240/1,20
0/1,200
0
Reco
Rec o g nized
80,00
,000
0
Less
Less: G ross Profit (Loss
(Loss)) in p rio
rio r yea r __
____
____
__00
Rec o g nized
Reco nized G ross Profit (Loss
(Loss)) in c urr
urren
entt yea r 80
80,00
,0000
5. P20,000
20x5 20x6
C o ntrac t p ric
ric e 1,400
1,400,00
,0000 1,400
1,400,00
,000
0
C o sts inc
incurr
urred
ed ea c h yea r 40
400,0
0,000
00 40
400,0
0,000
00
Ad d : C ost incurred
incurred in prior year
yea rs _____-0-
___ __-0- 40
400,
0,00
000
0
C o sts inc
incurr
urred
ed to d a te 40
400,0
0,000
00 80
800,0
0,000
00
Ad d : Estima
timated
ted c ost to c omplete
omp lete _40
_400,
0,00
000
0 200,
200,00
000
0
Total
Total esti
estimated
mated cosc osts
ts 800,
0,0
000 1,0
,00
00,0
,00
00
Es
Estima
Profit (loss
(loss)) 600,000
600,000 400,000
400,000
M ultip
ultip lied
lied b y: % o f c o mpletion
mp letion 40
400/
0/800
800 80
800/
0/1,0
1,000
00
Reco
Rec o gn
gnizized
ed G ross Profit (Loss
300,0
0,000
00 32
320,0
0,000
00
Less Profit (Lo
(Losss) in p rio
rio r yea r __
____
____
__00 300.000
300.000
Reco
Rec o gn
gnizized
(Loss)) in c urren
urrentt yea r 30
300,0
0,000
00 20,00
20,0000
6. P-0
P-0-- , Unde
Underr the
the c os
ostt rec
rec overy method
method , rec
rec ord equa
e qua l amounts
amo unts of revenue a nd c os
ostt until
until co st
rec overed, a nd then rec ord gr g ros
oss
s profit
7.P240,000
7.P240,000 Profit
Profit
20x5
C ontrac t p rice 4,
4,00
000,
0,00
000
0
C o sts incurred
incurred ea c h year
yea r 96
960,
0,00
000
0
yea rs ______
___ ____0
_0
C o sts incurred
incurred to d a te 96
960,
0,00
000
0
Total
Total esti
estimated
mated cos
c osts
ts 3,2
,20
00,
0,0
000
Es
Estima
Profit (loss
(loss)) 800,00
800 ,0000
M ult
ultipli
iplied
ed b y: % of c ompletion
omp letion 960/3,20
960/3,200 0
Reco
Rec o gn
gnizized
240,0
0,000
00
Less
(Loss)) in p rio
rio r yea r __
____
____
___0
_0
Reco
Rec o gn
gnizized
(Loss)) in c urren
urrentt yea r 24
240,0
0,000
00
8. P102,000
20x5
C ontrac t p rice 85
850,
0,00
0000
C o sts incurred
yea r 23
238,
8,00
0000
yea rs ______
___ ____0
_0
C o sts incurred
238,
8,00
0000
Ad d : Estima
timated
omp lete 357,
357,00
0000
Total
Total esti
estimated
mated cos
c osts
ts 595,
5,0
000
Es
Estima
Profit (loss
(loss)) 255,00
255 ,0000
M ult
ultipli
iplied
omp letion 238/595
238/595
Reco
Rec o gn
gnizized
102,0
2,000
00
Less
(Loss)) in p rio
rio r yea r __
____
____
___0
_0
Reco
Rec o gn
gnizized
(Loss)) in c urren
urrentt yea r 10
102,0
2,000
00

9. P990,000
20x5 20x6
C o ntrac t p ric
ric e 3,000
3,000,00
,000
0 3,000,
3,000,00
000
0
C o sts incurred
yea r 99
990,
0,00
000
0
inc urred
ed in p rior
rior yea rs 45
450,0
0,000
00
C o sts inc
incurr
urred
ed to d a te* 45
450,0
0,000
00 1,440
1,440,00
,000
0
Total
Total esti
estimated
mated cosc osts
ts 2,2
,25
50,
0,0
000 2,4
,40
00,
0,0
000
Es
Estima
Profit (loss
(loss)) 750,000
750,000 600,00
600,0000
M ult
ultipli
iplied
omp letion ___
____20
_20%% _____60
___ __60%%
Reco
Rec o gn
gnizized
150,0
0,000
00 36
360,0
0,000
00
Less Profit (Lo
(Losss) in p rio
rio r yea r __
____
____
__00 150.00
150.0000
Reco
Rec o gn
gnizized
(Loss)) in c urren
urrentt yea r 15
150,0
0,000
00 21
210,0
0,000
00
* total
total estimated c osts x % of c ompletion
10. P50,000
20x5
C ontrac t p rice 1,
1,50
500,
0,00
000
0
C o sts incurred
yea r 46
465,
5,00
000
0
yea rs ___ ____0
______ _0
C o sts incurred
465,
5,00
0000
Ad d : Estima
timated
omp lete 1,
1,08
085,
5,00
0000
Total
Total esti
estimated
mated cos
c osts
ts 1,5
,5550,
0,0
000
Es
Estima
Profit (loss
(loss)) ( 50,000)
50,000)
M ult
ultipli
iplied
omp letion 10
100%
0%
Rec og
ogniz
nized
ed G ross
ross Profit (Loss
(Loss)) to da te ( 50
50,0
,000
00))
Less
(Loss)) in p rio
rio r yea r __
____
____
___0
_0
Reco
Rec o gn
gnizized
(Loss)) in c urren
urrentt yea r ( 50
50,00
,000)
0)
11. P625,000
20x5 20x6
C o ntrac t p ric
ric e 3,500
3,500,00
,000
0 3,500,
3,500,00
0000
C o sts inc
incurr
urred
ed ea c h yea r 1,3
1,350
50,00
,0000 1,525,
1,525,00
0000
inc urred
ed in p rior
rior yea rs -0- 1,350
1,350,00
,0000
C o sts inc
incurr
urred
ed to d a te 1,350
1,350,00
,000
0 2,875,
2,875,00
0000
Ad d : Estima
timatedted c ost to c omplete
omp lete 1,
1,35
350,
0,00
000
0 ______
___ ____0
_0
Total
Total esti
estimated
mated cos c osts
ts 2,7
,70
00,
0,0000 2,8
,87
75,
5,0
000
Es
Estima
Profit (loss
(loss)) 800,000
800,000 625,00
625,000 0
M ult
ultipli
iplied
omp letion - ___10
___ 100%
0%
Reco
Rec o gn
gnizized
625,0
5,000
00
Less
(Loss)) in p rio
rio r yea r -0- __
____
____
___0
_0
Reco
Rec o gn
gnizized
(Loss)) in c urren
urrentt yea r -0- 62
625,0
5,000
00

12. P550
C osts Inc
Incur
urrred ……………
……………………… ………………………
………………………
………………………
………………………
………….. 40
400
0
C ontr
ontracac t pric
pric e…………………………
e………………………………………. ……………. P2,7
P2,750
50
C os
ostt incurr
incurred ea c h year………………………….. P 400
400
Ad
Add:
d: C ost incurr
incurred
ed in pri
prior
yea r…………………. ___-0-
C
Adosts
Add: incurr
incurred
d: Estim
tima aed
tedtoc osts
da te……………………
te………
to c omp……………………..
omplete…… ………..
………… P 40
400
_1,6 0
_1,600
00
Total es
esti
timated
………………………………. ………. P2,0
P2,00
00
Estimate
profit
fit (loss)……
(loss)………….…
…….…………………….…. P 75
750
0
Multiplied
Multiplied by: pe perrc enta
entage ge of c omp
letion……….. 400/2,00
400/2,000
0 150
150
C onst
onstru
ruc
c ti
tion
on In Prog
Progrress a c c ount – inventory a c c ount……………
ount……………………
……… 55
550
0
13. P1,200,000
The term “complet
“co mpleted”
ed” should
should b e “c ost rec ove ry”
C osts Inc
Incurr
urre
ed 70
700,0
0,000
00
C ontrac t price
price…………
……………………………………………………… …………….. P2,00
P2,000,
0,00
0000
C ost incurr
incurred
ed ea c h yea
………………………………………..
.. P 700,
700,00
0000
Ad
Add:
d: C ost incurr
incurred
ed in pri
prior
yea r…………………. _____
______-0-
_-0-
C osts incurr
incurred
ed to da te…………………
te……… …………………….. ………….. P 700,
700,00
0000
Ad
Add:
d: Estim
timaa ted c osts to c omp
omplete……
………… __80
__800,0
0,000
00
Total es
esti
Estimate
Estimatedtimated
dmated co sfit
gross pro ts
ts………………………
profit ……………………………….
(loss)……
(loss)………….…
…….………… ……….
………….…. P1,5
P1,500
P 00,0
50 ,00
500,000
0,000
00
Multipli
Multiplied
ed by: per
pe rc entag
entage e of c ompletion……….. ________0 _______0
C onst
onstru
rucc ti
tion
on In Prog
Progrress a c c ount – inventory a c c ount 700,0
700,000
00
20x5
C osts incurr
inc urred
ed 60
600,0
0,000
00
C ontrac t price
price…………
………………………… …………………………… …………….. P2,00
P2,000,
0,00
000
0
C ost incurr
……………………………………….. .. P 600,
600,00
000
0
Ad
Add:
d: C ost incurr
incurred
ed in priprior
yea r…………………. _70
_700,
0,00
000
0
C osts incurr
incurreded to da te…………………
te……… …………………….. ………….. P1,3
P1,300
00,00
,000)
0)
Ad
Add:
d: Estim
omplete……
………… __80
__800,0
0,000
00
Total es
esti
timated
………………………………. ………. P(2
P(2,1
,10
00,0
,00
00)
Estimate
profit
fit (loss)……
(loss)………….…
…….…………………….…. P (10
(100,0
0,000
00))
Multiplied
entage ge of c omp
letion……….. ________0
_____ ___0 _(100,0
_(100,000
00))
C onst
onstru
ruc
c ti
tion
on In Prog
1,200
00,00
,000
0
14. P32,000 = P47,000 – P15,000

15. P782,000
20x5
C osts Inc
Incurr
urre
ed 23
238,0
8,000
00
C ontr
ontrac
ac t pric
pric e…………………………
e……………………………………….
……………. P850
P850,0
,000
00
C ost
Ad d: incurr
Add: incurreded eaed
C ost incurr c hin
incurred yea
year
priror
……………
…………………………
prior ……………..
year………………….
yea r…………………. .. P238,
P238,00
_____ 000
______-0-0
_-0-
C osts incurr
te……… …………………….. ……….. P238,
P238,00
0000
Ad
Add:
d: Estim
omplete……
………… _35
_357,
7,00
0000
Total es
esti
timated
………………………………. ………. P595
P595,0
,00
00
Estimate
profit
fit (loss)……
(loss)………….…
…….…………………….
…. P255,00
P255,000 0
Multiplied
entage ge of c omp
letion……….. _238/595
_238/595 10
102,0
2,000
00
C onst
onstru
ruc
c ti
tion
on In Prog
340,000
00
20x6
C osts incurr
inc urred
ed 31
319,6
9,600
00
C ontr
ontracac t pric
pric e…………………………
e………………………………………. ……………. P850
P850,0
,000
00
C ost incurr
………………………… …………….. .. P319,
P319,60600
0
Ad
Add:d: C ost incurr
incurred
ed in pri
prior
yea r…………………. _23
_238,
8,00000
0
C osts incurr
te……… …………………….. ……….. P557,
P557,60600
0
Ad
Add:d: Estim
omplete……
lete………………………… _13
_139,
9,40400
0
Total esesti
timated
………………………………. ………. P697
P697,0
,0000
Estimate
profit
fit (loss)……
(loss)………….…
…….………… ………….…. P153,00
P153,000 0
Multiplied
Multipli ed by: pe perrc enta
entage ge of c omp
letion……….. _55
_557.6
7.6// 69
697
7 _122,4
_122,400
00
C onst
onstruruc
c ti
tion
on In Prog
782,000
00
Le
Less
ss: Pro
Proggress b illing
illings
s (P260,000 + P210,000) 470,000
C onst
onstruruc
c ti
tion
on In Pr
Prog
ogrress a c c ount (net) – Due from
c ustome
ustomers rs 312,000
312,000
16. P312,000
P312,000
17. same with no.16 – P312,000
18. (P9,000,000 – P8,250,000) × (P3,795,000 ÷P8,250,000) = P345,000.
19.P3,795,000 + P345,000 = P4,140,000.
20. P2,750,000
P1,650,000
————— × P5,000,000 = P2,750,000
P3,000,000
21. Ac c o unts Rec eiva b le ......................

.................................
......................
......................
......................
......................
..............
... 1,650,00
1,650,000
0
Billi
Billing
ngss on C o nstruc
nstruc tion in Proc e ss ......................
.................................
.....................
.......... 1,650,00
1,650,000
0
22. C onstruc
nstruc tion
tion Ex
Exp
p e nses...........
......................
......................
......................
......................
.....................
.....................
.............
.. 1,650,00
1,650,000
0
C onstruc
nstruc tion
tion in Pro
Pro c ess.....................
................................
......................
......................
......................
......................
............. 1,100,00
1,100,000
0
Revenue
Reve nue from Long
Long-T -Tee rm C o ntra ntrac c ts .....................
................................
...................
........ 2,750,00
2,750,000
0
23. P875,000
Revenue P5,000,000
C o sts 3,025,000
3,025,000
Total
Total gros
grosss profi
profitt 1,97
,975,
5,0
000
Reco
Rec o gn
gniz
ized
ed in 20
20x x5 (1,100,
(1,100,00
000)
0)
Reco
Rec o gn
gniz
ized
ed in 20
20x x6 P 87875,0
5,000
00
Or
Total
Total revenue
revenue P5,0
P5,0000,0
,00
00
Reco
Rec o gn
gniz
ized
ed in 20
20x x5 (2,750,
(2,750,00
000)
0)
Rec o gnized in 20x20x6

6 2,250,00
2,250,000
0
C o sts in 20x6
20x6 (1,375,000)
G ross p rofit in 20x
20x6
6 P 875,000
875,000
Percentage-of-Completion Completed-Contract
G ros
ross
s Profit G ros
ross
s Profit
24. 20x5 P750,000
P750,000a 20x5
20x5 —
25. 20x6 P210,000
P210,000b 20x6
20x6 —
26. 20x7 P440,000
P440,000c 20x7 P1,400,000
P1,400,000d
a P1,500,000
—— ———
———— — × P2,000,000 = P750,000
P4,000,000
b P2,640,000
—— ———
———— — × P1,600,000 = P960,000
P4,400,000
Less 20x5
20x5 g ross p rofit
rofit (750,000)
20x6
20x6 gro
rosss p rofit
rofit P210,000
c Total
Total revenue P6
P6,0
,00
00,00
0,0000
Total
Total costs
costs 4,60
,600,0
0,000
Total
Total gros
gross
s profi
profitt 1,40
,400,0
0,000
Recog
Rec ogniz
nized
ed to da te (9
(960
60,0
,000
00))
20x7
20x7 g ross p rofit
rofit P 440,000
d Total
Totalrevenue
revenue P6
P6,0
,00
00,00
0,000
0
Total
Total c osts
osts 4,60
,600,0
0,000
Total
Total gross
gross profi
profitt P1
P1,4
,40
00,00
0,000
0
27. P312,500
Revenu
Reve nue
e = [P250,000/ (P250,000 + P750,000)] 
P1,250,000
= P312,500
G ros
ross p ro
rofit
fit = P312,500  P250,000 = P62,500
C o nstructio
nstruc tion n in p
prog
rog ress = P250,000 +P62,500 =P312,500
28. P125,000
(2) C urren
urrentt Ass
Assets
ets
Inventories
C o ns
nstr
truc
uction
tion in p rogres
rog ress
s* P1,0
P1,000
00,00
,000
0
Less:: Pa rtial b illing
Less illingss** (875,0
(875,000)
00)
C osts
osts a nd rec
recogogniz
nized
ed profit not P 125,000
yet billed
*Revenue
Reven ue to d a te = (P250,00
(P250,0000+
P600,000)/ (P
(P250,000
250,000 + P600,000 +
P212,500)  1,250,000 = P1,000,000
C onstruc
nstruc tion
tion in prog
p rogress
ress = P250,000
P250,000 +
P600,000 + P150,000 = P1,000,000
**Pa rtia
rtiall b
billing
illings
s =P375,000 + P500,000 =
P875,000

29. P60,00
Revenue
eve nue to d a te P1,250,0
P1,250,000
00
Revenue
Reven ue from p revious p eriods
eriod s _1,000,
_1,000,00
000
0
Revenue
Reve nue for
fo r 20x7
20x7 P 250,000
250,000
C o sts incurr
inc urre
e d in 20x7
20x7 _ 190,00
190,000
0
G ross p rofit for
fo r 20x
20x7
7 P 60,000
60,000
THEO
HEORIES
RIES
1. Fa
Fals
lse
e 6. Fa
Fals
lse
e 11. Fa
Fals
lse
e 16. True 21. True 26. True 31. Fa
Fals
lse
e
2. True 7. Fa
Fals
lse
e 12. True 17. Fa
Fals
lse
e 22. Fa
Fals
lse
e 27. True 32. Fa
Fals
lse
e
3. True 8. Fa
Fals
lse
e 13. Fa
Fals
lse
e 18. True 23. Fa
Fals
lse
e 28. Fa
Fals
lse
e 33. True
4. False 9. True 14. True 19. False 24. False 29. False 34. False
5. Fa
Fals
lse
e 10, Fa
Fals
lse
e 15, Fa
Fals
lse
e 20. True 25. Fa
Fals
lse
e 30. True 35. True
36. False
True
37. Tr
38. Tr
True
39. False
40. False
41. b 46
46.. a 51
51.. c 56
56.. d 61
61.. d 66
66.. c
42. c 47.
47. d 52.
52. b 57.
57. b 62.
62. b 67.
67. b
43..
43 b 48. c 53..
53 c 58.
58. c 63..
63 a 68. a
44..
44 c 49.
49. c 54.
54. b 59.
59. c 64.
64. c 69.
69. d
45. b 50. a 55. a 60. c 65..
65 d 70. C

Chapter 9
Problem I
1. J ollibee
ollibee has subs
substanti
tantially
ally pe rformed
formed all material
material serv
serviic es,
es, the rrefund
efund pe riod has ex expir
pired
ed , and the
c ollec
ollectibil
tibility
ity o f the note is rea sona
on a bly ass
assur
ured
ed . J o ll
llibee
ibee rec og niz
nizes
es reve
evenue
nue a s follows:
C a sh………..
h…… ….. 240,00
240,000
0
Notes
Note s rec eivab le…………….
le……… ……. 600,
600,00
000
0
Fra
Fra nc his
hise
e reve
evenue
nue……
……………
………………
………..
.. 84
840,0
0,000
00
2. The
The refund pe riod ha hass expired
expired and the c ollec ollec tibil
tibilit
ity
y of the note is rea sona bly ass assur
ured
ed , but
J ollibee
ollibee has not subs ubstantiall
tantially
y pe rformed
formed all materimaterial al serv
ervice
icess. J olli
ollibe
be e do es no t rec og
ogni
niz
ze
revenue,
eve nue, b ut instea d rec og nizes
nizes a lia
lia bility
bility as foll
follo
o ws:
ws:
C a sh………..
h…… ….. 240,00
240,000
0
Notes
le……… ……. 600,
600,00
000
0
Unearrned fr
Unea fra
a nchis
nc hise revenue…
eve nue…………
…………………
…………..
.. 84
840,
0,00
000
0
Fra nc
nchis
hisor
or will
will rec
rec og niz
nize
e the unea rned fra
fra nc hise
hise fees
fe es as revenue
eve nue when
w hen it has p erform
erformed
ed a ll
materrial servi
mate servic
c es, the a d justing
justing entry
entry to rec
rec ord the revenue then
the n would
wo uld be :
Unea rned fra

Unear fra nchis
nc hise revenue……
eve nue………………
………………...
……... 840,
840,00
000
0
Fra
Fra nc his
hise
e reve
evenue
nue….…
….…….…. 84
840,0
0,000
00
3. J ollib
ollib ee has substa
ubsta ntially
ntially p erformed
erformed a ll servic
ervic es a nd the c ollec tibil
tibility
ity o f the no
note
te is rrea
ea sona bly
assur
ass ured
ed,, but the refund pe riod has not expired expired . J ollibee
ollibee do es not recrec og niz
nize rrevenue,
evenue, but
instea
instea d rec og nizes
nizes a li
lia
a bility
bility as follows:
C a sh………..
h…… ….. 240,00
240,000
0
Notes le……… ……. 600,
600,00
000
0
Unearrned fr
Unea fra
a nchis
nc hise revenue…
eve nue…………
…………………
…………..
.. 84
840,
0,00
000
0
The
The fr
franc
anc his
hisor will
will rec
rec og ni
niz
ze the unea rned fr
fra
a nc
nchi
his
se fees as rrevenue
evenue when the refund p eriod
eriod
expires, the adjusting entry to record the revenue then would be:
Unea rned fra

Unear fra nchis
………………...
……... 840,
840,00
000
0
Fra nchis
nc hise
e revenue…
eve nue….…………
.……………………
…………………
…………..….. 84
840,
0,00
000
0
4. J ollibe
ollibe e has substantially
ubstantially pe rformed all a ll servic
ervic es a nd the refund p peri
erio
o d has expir
expireded , b ut the
c ollec
ollectibil
tibility
ity of the no te is not reas
rea so na
nably
bly assur
assureded . J ollib
ollib ee rec og niz
nizes
es revenue
eve nue by
b y tthe
he installment
installment
or coc o st rec
rec ove ry method . If If we a ssume thattha t J olli
ollib
b ee uses
uses the ins
installment
tallment method , it it rrec
ec o gnizes
revenue of P240,000 as follows:
C a sh………..
h…… ….. 240,00
240,000
0
Notes
le……… ……. 600,
600,00
000
0
Fra
Fra nc his
hise
e reve
evenue
nue…………………
………………………..
.. 24
240,0
0,000
00
Unearrned fr
Unea fra
a nchis
nc hise revenue…
eve nue…………
………… … 60
600,
0,00
000
0
The
The fr
franc
anc hisor
hisor is usin
using
g the in
ins
stallment
tallment method
method,, it rec og niz
nizes the unea
unearrned fr
franc
anc hise fees a s
revenue
eve nue in the a mount o f P120,
P120,00
0000 eac
ea c h yea r a s it rec eives ca sh a
asssuming there is no c o st of
franchise, the entry would be as follows:

Unea rned fra
Unear fra nchis
eve nue……………
……… 120,
120,00
000
0
Fra
Fra nc his
hise
e reve
evenue
nue…………………………………
………..
.. 12
120,0
0,000
00
Thi
his
s revenue rec ognit
og nition
ion may be true
true only
o nly in the event
eve nt there
there iis
s no c ost
ost of fr
franc
anc his
hise a t all. O n the
otherr ha
othe hand
nd,, it ma
may y be some wha t mismislea
lead
d ing sinc
sincee und er the ins
installment
tallment s
sa
a les metho
methodd ; gross
gross p rofit
is ea rned or rea
rea li
liz
zed thr
thru
u c ollec tions.
tions.
5. T
The
he refund p erioderiod ha hass expired
expired , b ut J olli
ollib
b ee ha
has s not substantiall
ubstantially
y p erform
erformed
ed a ll servi
ervicc es a nd
there
ther e is no b asis
asis for esti
estimating
mating the collc ollec
ec ti
tibil
bilit
ity
y of the note. J ollibee
ollibee do es not rrec
ec og niz
nize the note
a s a n a sset. Instea
Instea d , it us
uses
es a for
fo rm ·o f the depde p osit
osit method
metho d . For examp le, supp ose J olli ollibe
be e has
de velope d an enti entirrely new product
prod uct whose succ ess ess is unce rtain and the fr franc
anc hisee wilwilll pa y
the note fr from
om the c a sh fl flow
owss fr
from
om the sale of the the prod
product,
uct, if any. J ollibee
ollibee rrec
ec ords the init
initial
ial
tr
tra
a ns
nsa
a c tion a s follows:
C a sh………..
h…… ….. 240,000
240,000
Unearrned fr
Unea fra
a nchis
nc hise revenue…
eve nue…………
…………………
…………..
.. 24
240,
0,00
000
0
The
The franc
franc his
method hiin
sorthe
may recaogniz
norma
norm og nize
e the aunearned
l manner fr
franc
anc
t the c ompleti
omp hise of
letion
on fees as srrevenue
the evenue
erv
ervice unde
under
ice s to be r perfor
the ac
performed
medc rual
(i
(iff
c ollec
ollectibil
tibility
ity is rea sona b ly a ssur
ured
ed ), the ad justing
justing entry to rec ord the revenue
reve nue then wwould
ould b e:
Unea rned fra

Unear fra nchis
………………...
……... 240,
240,00
000
0
Fra nchis
nc hise
e revenue…
.……………………
…………………
…………..….. 24
240,
0,00
000
0
Alternatively, it may recognize revenue under the installment method if it has no basis for
estimating the collectibility of the note.
6. Now a ssume that J olli ollib

b ee ha
hass ea rned only P360,0
P360,000
00 fr from
om p roviding initi
initia
a l servi
ervic
c es, with the
ba lance
lanc e be inging a do wn pa ymentyment for c ontinui
ontinuing
ng serv
service
ice s. If the refund period
period ha s expir
expired
ed a
and
nd
the collec
c ollec tibilit
tibility
y of the note is rea sona b ly a ssur
ured
ed , J ollibe
ollibe e rec
recog
og niz
nizes
es revenue
eve nue of o f P360,000 as
as
follows:
C a sh………..
h…… ….. 240,00
240,000
0
Notes
le……… ……. 600,
600,00
000
0
Fra
Fra nc his
hise
e reve
evenue
nue…………………
………………………..
.. 36
360,0
0,000
00
Unearrned fr
Unea fra
a nchis
nc hise revenue…
eve nue…………
……….... 48
480,
0,00
000
0
The
The fr
franc
anc his
hisor rec og
ogniz
nizes
es the unea
unearrned franc
franc hi
his
se revenue of P48
P480,
0,00
000
0 a s revenue when it
performs the continuing services, the adjusting entry to record the revenue then would be:
Unea rned fra

Unear fra nchis
………………...
……... 480,
480,00
000
0
Fra nchis
nc hise
e revenue…
.……………………
…………………
…………..….. 48
480,
0,00
000
0
In all these
these c a ses excep
exc ep t the fifth,
fifth, the fra
fra nc hiso
hiso r a c c ounts for tthe
he c ollec tion of int
interes
erestt and
principal on the note receivable in the usual manner. In the fifth situation, it does not recognize
the note a nd reven
revenueue until a future
future event
e vent oc c ur
urs
s. IIn
n ad d ition,
ition, the fr
fra
a nc his
hisor
or ac c ounts for iits
ts c osts
in the sa
sa me wa
w a y as
a s its reven
evenue
ue rec og nition.
nition. T Tha
ha t is,
is, if iitt de fers reve
evenue,
nue, then
the n it de
defers
fers the related
relate d
c ost of g
goo
oo d s sold.
old . Then, whe
when n it rec og niz
nizes
es revenue,
eve nue, it ma matctches
hes the c ost of g goo
oo ds sold
sold a ga inst
inst
the revenues. The fra franc
nc hise e a c c o unts for its
its pa yments a s a n intangintangible
ible a sset.
Sometim
ome times
es the
the franc hisor
hisor collec
c ollects
ts the initi
initia
a l fr
fra nc
nchis
hise
e fe e fa r in adva
ad vanc
ncee o f pe rforming
forming its
servi
ervicc es. At other
othe r times
times co llec
llec tion of
o f pa rt of the initi
initia
a l fra
fra nc hise
hise fe e is d efe
eferrred unti
untill the fr
fra
a nc
nchis
hise
e
is o p e ra ting s
suc
uc c e ssfully.
fully.
Problem II
1.
C a sh ..................................
.................. .......................
....... 75,000
75,000
Unea rne
ned d Fra
Fra ncnchis
hise e Fee ...................
.....................
.. 75,00
75,000
0
2.
C a sh ..................................
.................. .......................
....... 75,000
75,000
Note
No te Receiva
Rec eivab b le ...................
............................
...........
.. 12
120,0
0,000
00
Unearrned I.I
Unea I.I.. or Disc
Disc o unt on Note Rec eivab le 28
28,8
,881
81
Revenue
Reven ue from Fra Fra nc hise
hise Fee .........
.................
........ 16
166,1
6,119
19
[P{
[P{75,000 + (P
(P30,000
30,000 x 3.0373)]
3.0373)] = P116,119
(Ta ble IV n = 4, i = 12%)
3.
C a sh ..................................
.................. .......................
....... 75,000
75,000
No te Receiva
Note Rec eivab b le ...................
............................
...........
.. 12
120,0
0,000
00
Unearrned I.I
Unea I.I.. or Disc
Disc o unt on Note Rec eivab le 28
28,8
,881
81
Revenue
Reven ue from Fra Fra nc hise
hise Fee .........
.................
........ 75
75,00
,000
0
Unea rnened d Fra
Fra ncnchis
hise e Fee ...................
.....................
.. 91,11
91,119
9
Problem III
1. If there
there is a reasonab
reasonable le ex
expe
pecc tation that
that the down
do wn pa yment
yment may be refunded a nd subs
substantial
tantial fut
futur
ure
e
servic
ervic es rema
rema in to be
b e perform
p erformeded b y Pizz
Pizza
a , Inc., the entr
e ntry
y sho
should
uld b
be:
e:
C a sh………
h……….. .. 12
120,0
0,000
00.00
.00
Notes
Note s rec eivab le……………
le…………….. 48
480,0
0,000
00.0
.00
0
Unearned interinterest
est inco me (or Dis
Disc
c ount on note
notess rec eiva
eivable)
ble) 80
80,58
,583.2
3.20
0
Unearned fra fra nchis
nc hise
e reve
evenue……
nue…………………
……………….. ….. 41
419,4
9,416
16,80
,80
2. If tthe
he pr
p rob a bility
bility of refund
refunding
ing the initi
initia
a l ffrra nchis
nc hise fee
fe e is extr
extreme
emely
ly low, the a mount o
off futu
futurre service
servicess
to be provided to the franchisee is minimal, collectibility of the note is reasonably assured, and
substantial performance has occurred, the entry should be:
C a sh………
h……….. .. 12
120,0
0,000
00.00
.00
Notes
le…………….. 48
480,0
0,000
00.0
.00
0
Unearned inter interest
est inco me (or Dis
Disc
c ount on note
notess rec eiva
eivable)
ble) 96
96,69
,699.8
9.84
4
Fr
Fra
a nc
nchis
hise
e reven
revenue…
ue…………
………………………….. ….. 503,30
503,300.1
0.16
6
3. If the ini
initial
tial do wn pa yment is not refund
refunda a b le, rep resents a fafair
ir mea sure
ure o
off the servi
ervic
c es a lr
lrea
ea dy
provided
provide d , with a signifi
signific
c a nt amount
a mount of
o f servi
servic
c es still
till to
to b e perfor
p erformed
med b y the frfra
a nchis
nc hisor in ffutur
uture
e
pe riod
iodss, and c ollec
ollectibil
tibilit
ity
y of the no te is rea sona b ly a ssured
ured , the entry should b e:
C a sh………
h……….. .. 12
120,0
0,000
00.00
.00
Notes le…………….. 48
480,0
0,000
00.0
.00
0
Unearned inter
interest
est inco me (or Dis
Disc
c ount on note
notess rec eiva
eivable)
ble) 96
96,69
,699.8
9.84
4
Fr
Fra
a nc
nchis
hise
e reven
revenue…
ue…………
…………………………..
….. 120,00
120,000.0
0.00
0
Unea rned franc hise
Unearned hise revenue 383,300.1
383,300.16
6
4. If the init
initial
ial do
down
wn payment
p ayment is not refunda ble a nd no future
future servi
servic
c es are req
req uir
uired
ed b y the fr
fra
a nchis
nc hisor,
or,
but collection of the note is so uncertain that recognition of the note as an asset is unwarranted, the
entry should be :
C a sh………
h……….. .. 12
120,0
0,000
00.00
.00
Fr
Fra
a nc
nchis
hise
e reven
revenue…
ue…………
………………
…………..
….. 12
120,0
0,000
00.00
.00
Where the c ollection

ollec tion of the note is extreme
extremely ly uncertain,
unc ertain, reve
revenue
nue thru gr
gross
oss profit iis
s rec og niz
nized
ed b y
means
mea ns of c a sh c oll
ollec
ec tion
tion usin
using
g the c ost
ost rrec
ec overy method
method..
5. If the iinit
nitial
ial dow
downn payment
pa yment iis
s refund
efundaa b le or subs
ub stantial servi
servic
c es a re yet to be perfor
p erformed
med , b ut
c oll
ollec
ec tion
tion of the note is so uncer
unce rtain that rec
rec ogni
og niti
tion
on of the note as an assasset
et is unwarr
unwarranted
anted,, the
entry should b e:
C a sh………
h………..
.. 120,000
120,000
Unearned fra
fra nchis
nc hise
e reve
evenue……
nue…………………
………………..
….. 12
120,0
0,000
00
Where the c ollecti

ollec tion
on of the note is extr
extreme
emelyly uncertain,
unc ertain, reve
revenue
nue thru gr
gross
oss profit is rec ogniz
og nized
ed by
means
mea ns of c a sh c oll
ollec
ec tion
tion usin
using
g the c ost
ost rrec
ec overy method
method..
Problem IV
1. If the down
do wn pa ym
yment
ent iis
s refunda ble, and no serviceservices have b bee
eenn rrend
endered
ered aatt tthe
he titime
me the
a rrangement
ang ement is made,
mad e, a nd c oll
ollec
ec tion
tion o n the note
no te is rea sona bly c
cert
ertain,
ain, the entr
entry
ysshould
hould bbe:
e:
C a sh………
h……….. .. 12
120,0
0,000
00.00
.00
Notes
le…………….. 18
180,0
0,000
00.00
.00
Unearned interinterest
est inco me (or Dis
Disc
c ount on note
notess rec eiva
eivable)
ble) 37
37,35
,354.5
4.50
0
nc hise
e reve
evenue……
nue…………………
……………….. ….. 26
262,6
2,645
45.50
.50
2. Ini
Initi
tia
a l servic
ervic es a re d
dete
eterrmined to b e s
subst
ubsta
a nti
ntia
a ll
lly
y performed
performed , the rrefund
efund p eri
eriod
od has
ha s expir
expired
ed a nd the
collection of the note is reasonably assured, the full accrual method would be used. Assume that
sub
ubsstantial
ta ntial performa
p erformanc
nc e of
o f the initia
initia l service s c o sts P52,529
P52,529.1
.1 the entry
e ntry should
ho uld b
be:
e:
C a sh………
h……….. .. 12
120,0
0,000
00.00
.00
Notes
le…………….. 18
180,0
0,000
00.00
.00
Unearned inter interest
est inco me (or Dis
Disc
c ount on note
notess rec eiva
eivable)
ble) 37
37,35
,354.5
4.50
0
Fr
Fra
a nc
nchis
hise
e reven
revenue…
ue…………
………………………….. ….. 26
262,6
2,645
45.50
.50
C ost o f franc hise

hise reven
revenue
ue 52
52,52
,529.1
9.10
0
C a sh, etc …………… 52
52,52
,529.1
9.10
0
Few months after, the collectibility of the note becomes doubtful or no reasonable assurance, the
installment sales method could be used as a general rule. In addition to the entries above, following
entries would be required:
a. To set-up cost of franchise:

No entry rreq
equir
uired
ed,, alr
a lrea
ea dy set-up p
previous
reviously
ly..
b. To de fer gross profit on franc hise:

Fr
Fra
a nc
nchis
hise
e reven
revenue
ue 26
262,6
2,645
45.50
.50
C ost o f franc hise

hise revenu
revenue e 52
52,52
,529.1
9.10
0
De
Deferr
ferred
ed gross pro
profit
fit on franc hise
hise 21
210,1
0,116
16.40
.40
c . Ad
Adjus
justments
tments to rec
recog
ogniz
nize
eg grross profit on fr
fra
a nchis
nc hise:
Deferr
Defe rred
ed gross profit on fra
fra nc hise
hise 96
96,00
,000.0
0.00
0
Reali
Rea lized
zed gross profit on franc his
hise
e 96
96,00
,000.0
0.00
0
Fr
Fra
a nc his
hise
e reve
revenue
nue………
……….. .. 26
262,6
2,645
45.5
.5
Less: C o st of franc his
hise
e revenue 52
52,52
,529.1
9.1
G ross p rofit……
rofit………..….. 210
210,116.4
,116.4
G ross p rofit rate (210,116.4
(210,116.4// 262
262,645
,645.5)
.5) 80%
C ollec tions a s to princ

principa
ipal…….
l……. P12
P120,0
0,000
00.0
.00
0
M ultiplie
ultiplie d b y: G ros
ross
s pro
profit
fit rate…….
rate ……. 80
80%%
Reali
Rea lized
zed gross pro
profit
fit o n franc hise
hise ….. P 96
96,00
,000.0
0.00
0
Problem V
If we a ssume that
tha t EC
EC HI
HI,, whose fisc
fisc a l y
yea
ea r end s on De c emb er 31,
31, sec ures
ures the lea se a nd the p ermi
ermits
ts
on Febr
Feb rua
uarry 1,
1, 2
20x
0x5,
5, a nd o pe ra tions c o mmenc e a t that time,
time, the following journal entr
entries
ies wo
would
uld be
appropriate:
J ul
uly
y 1, 20x
20x4:
C a sh………
h……….. .. 120,00
120,000
0
Notes
Note s rec eivab le…………
le……………. …. 48
480,
0,00
000
0
Unearrned fra
Unea fra nchis
nc hise revenue…
revenue………………
…………………..
…….. 60
600,0
0,000
00
Defe rra l of revenue rec og nit

Defer nition
ion is req uired
uired when
whe n “sub
“subsstantial perform
p erformaa nc e" of fra
fra nc
nchis
hisor
or s
servi
ervic
c es has
not be en c ompleted.
omp leted. It woul
wo uld
d c a ll for
for defer
defe rral of revenue rrecec og
ogni
niti
tion
on until
until evi
evide
de nc
nce e of sserv
erviic e
performance was available. The best evidence, of course, would be the commencement of
operations of the franchise outlet and at this point in time, revenue is recognized.
During 20x4:
Deferrred c ost of fra
Defe fra nchis
nc hise reve
evenue….
nue…. 36
360,
0,00
000
0
C a sh………
h…………..……
…..……….. ….. 36
360,0
0,000
00
Dec
De c e mbe
mberr 31
31,, 20
20x4
x4::
Interest
Inte rest rec eiva b le (P480,00
(P480,000
0 x 14%x 6/
6/12)………
12)…………..
….. 33,600
33,600
C a sh…………..………
h…………..……….. .. 33
33,60
,600
0
February 1, 20x5:
Unearrned fra
Unea fra nchis
nc hise reve
evenue……
nue…………………
………………..
….. 60
600,
0,00
000
0
Fr
Fra
a nc
nchis
hisee reven
revenue…
ue…………
………………
…………..
….. 60
600,0
0,000
00
C ost of fra
fra nchis
nc hise revenue…
revenue………………
………………….. …….. 36
360,
0,00
000
0
Defe fra nchis
nc hise reve
evenue……
nue…………………
………………..
….. 36
360,0
0,000
00
Problem VI
No reasonable
Reas
Rea sona bly Ass
Assur
ured
ed assurance
J anuary 1, 20x4
C a sh………
sh………….. ….. 1,500
1,500,000
,000 1,500,000
1,500,000
No
Notes
tes rec eivable
eiva ble…….
……. 4,500,
4,500,000
000 4,5
4,500
00,00
,000
0
Unea rned franc hise hise revenu

revenue…
e…….
…. 6,0
6,000,
00,000
000 6,0
6,000,
00,000
000
Receipt of initial franchise fee.
C onditi
onditions
ons to be met: C ash Notes C ash Notes
Serv
ervice
icess No No No No
Period of refund Yes Yes

Reasonably Yes Yes
No
assured reasonable
C ollec tibil
tibility
ity assurance
1/1/
1/ 1/20x
20x44 Bala
Balanc nc e 1,500
1,500,000
,000 4,500,000
4,500,000 1,500,000
1,500,000 4,500,000
4,500,000
Status
ta tus Liability
Liab ility Lia bility
Liability Liability Liability
Dec
De c e mbe
mberr 31 31,, 20
20x4
x4
C a sh………
sh………….. ….. 1,575
1,575,000
,000 1,575,000
1,575,000
No
Notes
tes rec
receiva
eivable
ble…….
……. 1,125,000
1,125,000 1,125,5
1,125,500
00
Interest
Inte rest inc ome (P3,750,00
(P3,750,000
0 x 10%) 450,0
450,000
00 450,000
450,000
A nnua l c ollec
ollec tion.
Deferred
De ferred c ost of fr fra
a nc hise
hise 1,800,
1,800,000
000 1,8
1,800
00,00
,000
0
C a sh………
sh…………… ………… …… 1,800,000
1,800,000 1,800,000
1,800,000
To d efe r cost of franc hise si
sinc
nc e substantial
servic es had not be en p erforme d.
O pe rating e xp enses 12
120,0
0,000
00 12
120,0
0,000
00
C a sh………
h……………… ………… … 12
120,0
0,000
00 12
120,0
0,000
00
To record expenses.
Adjustments:
C o st of franc his
hise
e 1,8
1,800,
00,000
000
Defe rre
rre d c ost of fr
fraa nc hise
hise 1,800,
1,800,000
000
To rec og nize
nize c ost of fr
franc
anc hise.
hise.
Unea rned fra

Unear fra nchis
nc hise
e reve
evenue……
nue…….. 6,0
6,000
00,0
,000
00
Fr
Fra
a nc
nchis
hisee reven
revenueue 6,000,
6,000,000
000
To rec og nize
nize franchise revenue ba sed on the
followingg ana lysis
followin
: C onditi
onditions
ons to be met: C ash Notes
Servic
ervicees Yes Yes
Ye s
Reasonably
C ollec tibil
tibility
ity assured
1/1/
1/ 1/20
20x
x4 Bala
Balanc nc e…
e………………………… ……….. .. 1,5
1,500,
00,000
000 4,500,00
4,500,000 0
12
12// 31/20x
31/20x4:
4: C o llec
llec tion a s to princ
principa
ipa l 1,125
1,125,00
,000
0 (1,125
(1,125,00
,000)
0)
12/31/ 20x
20x44 Bala
Balanc nc e 2,625
2,625,000
,000 2,625,000
2,625,000
Status Revenue Revenue
Adjustments (Installment sales method)

a . To set-up c ost of fr
fra
a nchis
nc hise:
No entry*
b. To set-up de ferr
ferred
ed gross profit
hise revenu
revenue e 6,000
6,000,00
,000
0
Defe fra nchis
nc hise
e revenue
eve nue 1,800,0
1,800,000
00
De
Deferr
ferre
e d gross pro
profit
fit 4,200,
4,200,000
000
*There are different options on this matter, an entry may be made to set-up cost of franchise and eventually it will be closed to
set-up de ferred g ross p
profit.
rofit. R
Reg
eg ardless
ard less of the op tion, the ob jec tive is to set-up de ferred g ross p
profit.
rofit. R efe r to Illustration
Illustration 9-6 fo r
alternative
alternative treatme nt to sset-up
et-up c ost of frfranc
anc hise.
C onditi
onditions
ons to be met: C ash Notes
Servic
ervicees Yes Yes
Ye s
No
reasonabe
C ollec tibil
tibility
ity assurance
1/1/
1/ 1/20
20x
x4 Bala
Balanc nc e…
e………………………… ……….. .. 1,500,00
1,500,000
0 4,500,
4,500,000
000
12
12// 31/20x
31/20x4:
4: C o llec
llec tion a s to princ
principa
ipa l 1,125
1,125,00
,000
0 (1,125
(1,125,00
,000)
0)
12/31/ 20x
20x44 Bala
Balanc nc e 2,625,000
2,625,000 2,625,000
2,625,000
Status Revenue – Liability
I/S Method
. To recog
rec ogniz
nizee rea lized
lized gros
gross
s pr
profit
ofit on
franchise:
De
Defeferr
rre
ed gro
gross
ss p rofit 1,837,500
1,837,500
Realiz
Rea lized
ed gross profit on franc his
hise
e 1,837,
1,837,500
500
C ol
olllec tions – pri
princ
nc ipal x g ross profit rate
rate
P2,625,000 x (6, 000 – 1,800)/6, 000 = P1,837,500
2.
No reasonable
Reas
Rea sona bly Assur
Assured
ed a ssur
ura
a nc
ncee
Income Stateme
Income ementnt, 12
12// 31/
31/20
20x4:
x4:
Fra
Fra nchis
nc hise revenue (ac c rua uall method )* P6,0
P6,000
00,00
,000
0 P 0
Less:: C ost of franc his
Less hise
e (a
(acc c rual method
metho d )* 1,800
1,800,00
,000
0 0
G ross profit on regular
eg ular fr
fra
a nchis
nc hise
e
(ac
(a c c rual)* P4,200,0
P4,200,000
00 P 0
Ad
Add:d: G ross profit on fra
fra nchis
nc hise (installment
sa les me
metho
thodd) -0- *1,837,50
*1,837,500
0
G ross p rofit o n fran
francc his
hise
e P4,200,000
P4,200,000 P1,837,500
P1,837,500
Less:: O p erating expe
Less xpenses
nses 120,000
120,000 120,0
120,000
00
P4,080,000 P1,717,500
Ad d : Interest income
inc ome………
……………..
…….. 45
450,0
0,000
00 450
450,00
,000
0
Ne
Nett income
inc ome ………
……………. ……. P4,530,000
P4,530,000 P2,16
P2,167,5
7,500
00
Problem VII
1.
No reasonable
Reas
Rea sona bly Assur
Assured
ed assurance
J anuary 1, 20x
20x4
C a sh………
sh………….. ….. 1,440,000
1,440,000 1,440,000
1,440,000
No
Notes
tes rec eivable
eiva ble…….……. 3,840,
3,840,00
000
0 3,8
3,840
40,00
,000
0
Unea rned interest inc income
ome * 796
796,89
,896
6 79
796,8
6,896
96
Unea rned franc hise hise revenu
revenue…
e…….
…. 4,4
4,483
83,10
,104
4 4,483,
4,483,104
104
Receipt of initial franchise fee.

C onditi
onditions
ons to be met: C a sh Notes (PV) C ash Notes (PV)
Servi
ervic
c es*
es**
* No No No No
Period
Period of refund – until
until da
date
te o
off
Openi
Op ening
ng No No No No
Reasonably No
assured reasonable
C ollec tibil
tibility
ity assurance
1/1/
1/ 1/20x
20x44 Bala
Balanc nc e 1,440,000 3,043,104***
3,043,104*** 1,440,000 3,043,104**
3,043,104*** *
Status
ta tus Liabili
Liab ility
ty Liab
Liabil ity
ility Liability Liability
*U
*Unea
nea rned interest inco me o r discount on notes rec eivab le: P3,840,000 – P3P3,043,104
,043,104 = P796,8
P796,896.
96.
* *S
*Services
ervices had bee n subssubstanti
tantial
allly pe rf
rformed
ormed only on tthehe d ate of op ening which is Dec embe r 8.
8. Revenue is deferr
deferred
ed and
subse que nt direc t co
cost
st of franc hise should als
also
o be de ferred .
***P960,000 x 3.1699 = P2,535,920
February 2, 20x4:
De
Deferred
ferred c ost of fr fra
a nc hise
hise 14
144,9
4,931
31.20
.20 14
144,9
4,931
31.20
.20
C a sh………
sh…………… ………… …… 144,931.2
144,931.20
0 144,931.20
144,931.20
sinc
nc e substantial
servic es ha
hadd not be en p erforme d.
J une 13
13, 20x4:
G en
enera
erall e xp en
ensse s 60,
60,00
000
0 60
60,00
,000
0
C a sh………
h……………… ………… … 60
60,00
,000
0 60,
60,000
000
To record expenses.
August 8, 20x4:
De
Deferred
a nc hise
hise 36
360,0
0,000
00 36
360,0
0,000
00
C a sh………
h……………… ………… … 360,00
360,000
0 36
360,0
0,000
00
sinc
nc e substantial
servic es ha
November 2, 20x4:
De
Deferred
a nc hise
hise 84
840,0
0,000
00 84
840,0
0,000
00
C a sh………
h……………… ………… … 840,00
840,000
0 84
840,0
0,000
00
sinc
nc e substantial
servic es ha
November 2, 20x4:
Subst
ubsta
a ntia
ntia l co mpletion of
o f servi
servic
c es.
De
Dec c e mbe
mberr 3131,, 20
20x4
x4::
C a sh………
sh………….. ….. 960
960,000
,000 960
960,000
,000
No
Notes
tes rec
receiva
eivable
ble………
………………
…………… 960,00
960,000
0 96
960,0
0,000
00
A nnua l c ollec
ollec tions.
Adjustments:
Unea rned interest inco
inc o me 304,31
304,310.4
0.40
0 30
304,3
4,310
10.40
.40
Interest
Inte rest inc ome 304,310.4
304,310.40
0 304,310.40
304,310.40
To rec
rec ogniz
ognize
e int
interes
erestt in
inc
c ome tthr
hru
u
a morti
mortization
zation a s follows
follows::
10% x P3,043,104 = P304,310.4.
C o st of franc hise
hise 1,3
1,344
44,93
,931.2
1.20
0
Defe rre
rre d c ost of fr
fraa nc
nchis
hise
e 1,3
1,344
44,93
,931.2
1.20
0
To rec og nize
nize c ost of fr
franc
anc hise.
hise.

Unea rned fr
fra
a nc
nchis
hise
e revenue ……. 4,4
4,438,
38,104
1040
0
Fr
Fra
a nc hise
hise reven
revenueue 4,438
4,438,10
,1040
40
To rec og nize
nize franchise revenue ba sed on the
followingg ana lysis:
followin
C onditi
onditions
ons to be met: C ash Notes (PV)
Service s** Yes
Ye s Ye
Yess
Period
Period of refund – outl
o utlet
et a
alr
lrea
ea dy
op
opened
ened . Yes Yes
Reasonably
C ollec tibil
tibility
ity assured
1/1/
1/ 1/20x
20x44 Bala
Balanc nc e 1,440
1,440,000
,000 4,438
4,438,104
,104
12/31/20x4:
12/ 31/20x4:
C ollec
ollection……………
tion…………….....
..... . P96
P960,0
0,000
00
Less:: Interest c ollec tion…
Less 304
304,310
,310.40
.40
C ollec
ollec tion
tion – Princip
Principal……
al…….P655,6
.P655,689.60
89.60 655,689.60 ( 655,689.60)
2,095,689.60 2,387,414.40
Adjustments
a . To set-up c(Installment
ost of fr
fra sales
a nchis
nc hise: method)
C ost of franc hise
hise reve
revenue…
nue….. .. 1,344
1,344,93
,931.2
1.20
0
Deferred
De ferred c ost of franc hise
hise revenu
revenue
e 1,344,
1,344,93
931.2
1.20
0
b. To set-up de ferr
ferred
ed gross profit:
hise revenu
revenue
e 3,483
3,483,10
,104
4
C ost of franc his
hise
e revenu
revenue
e 1,344,93
1,344,931.2
1.20
0
Defe
De ferr
rre
ed gro
gross
ss p rofit 2,138,172.8
2,138,172.80
0
*There are different options on this matter, an entry may be made to set-up cost of franchise and eventually it will be closed to
set-up de ferred g ross p
profit.
rofit. R
Reg
eg ardless
ard less of the op tion, the ob jec tive is to set-up de ferred g ross p
profit.
rofit. R efe r to Illustration
Illustration 9-5 fo r
alternative
alternative treatme nt to sset-up
et-up c ost of frfranc
anc hise.
C onditions to be met: C ash Notes (PV)

Se rvic
rvic es*
s**
* Ye
Yess Ye
Yess
Peri
Period
opod
openeof d.
ened.refund – outl
o utlet
et a lrea
lrea dy Yes Yes
No
reasonable
C ollec tibil
tibility
ity assurance
1/
1/1/
1/20x
20x4 4 Bala
Balancnc e 1,440,000
1,440,000 304
304,104
,104
12/31/20x4:
12/ 31/20x4:
C ollec tion……………
tion……………..... ..... . P96
P960,0
0,000
00
Less:: Interest c ollec tion… 30
Less 304,3
4,310
10.40
.40
C ollec tion – Princ
Principa
ipa l…….P
l…….P655 655,689.6
,689.60
0 655
655,689
,689.60
.60 ( 655
655,689.6
,689.60)
0)
2,095,689.60 2,387,414.4
Status
ta tus Revenue
Reve nue – Liability
I/S Method
. To recog
rec ogniz
nize
e rea lized
lized gros
gross
s pr
profit
ofit on
franchise:
Defe
De ferr
rre
ed gro
gross
ss p rofit 1,466,983.2
1,466,983.20
0
Realiz
Rea lized
ed gross profit on franc hise
hise 1,466
1,466,98
,983.2
3.20
0
C ollec
ec tions – principa l x g ross profit rate
P2,095,689.60 x (4,483,104 – 1,344,931.20)/ 4,483,104 = P1,466,983.20
2.
No reasonable
Reas
Rea sona bly Assur
Assured
ed assurance
Inc
Income
Fra ome
Fra nchis
nc Sta
hise teme
ement
revenue nt,(ac
12
12//c31/
31/20
rua20x4:
ual x4:
l method )* P 4,4
4,471
71,1
,104
040
0 P 0
Less
Les s: C ost of fr
fra
a nchis
nc hise (ac
(a c c rua
uall method )* 1,344,931.20 0
G ross profit on regular
eg ular fr
fra
a nchis
nc hise
e
(ac
(a c c rual)* P3,138,1
P3,138,172
72.8
.8 P 0
Ad
Add:d: G ross profit on frafra nchis
nc hise (installment
sa les me
metho
thodd) -0- *1,4
*1,466,98
66,983.20
3.20
G ross p rofit o n fran
francc his
hisee P3,138,172.8
P3,138,172.8 P1,466,98
P1,466,983.20
3.20
Less:: O p erating expe
Less xpenses
nses 60,000
60,00 0 60,000
60,000
P3,078,172.8 P1,406,983.20
Ad d : Interest income
inc ome………
……………..
…….. 304,31
304,310.4
0.40
0 30
304,3
4,310.
10.40
40
Ne
Nett income
inc ome ………
……………. ……. P3,382,4
P3,382,483
83.20
.20 P1,77
P1,771,2
1,293.
93.60
60
*Note : This
This item
item rep resents reg ul
ular
ar franc his
hise
e sales-type
sales-type transac tion.
tion. If the c oll
ollec tibil
tibility
ity of the fe e (note
(no te
rec eiva bl
ble)
e) is rea
rea sonably assured,
assured, the p ermiss
ermissible
ible method to be a pp lied should
should be the ac c rual method.
It should be observed that in the event, there is cost of franchise and the installment sales method is
used,
us ed, the c onc ept of revenue
revenue rec og nition
nition does lit literal
erallly app ly to franchis
franchise
e revenue b ut to to the
rec og nition
nition of rea lized
ized g ross
ross profit on franc his
hise
e thru c oll
ollec tions as to p rinc
rinc ipal multi
multipl
plied
ied by g ros
rosss profit
rate.
A lte
terna
rnative
tive ly, c ompu
om putatio
tationn of interest
inte rest and p rinc ipa l c ollec
ollec tions are a s follow
follows:
s:
Interest (10% of
Date
Date C
Collec
ollecttion Unpaid Bala
alanc
nce)
e) Principa
incipall Unpaid Balanc
alancee
1/03/
1/ 03/20x
20x4
4 4,483,104
1/03/
1/ 03/20x
20x4
4 1,440,000 -0- 1,440,000 3,043,104
12/31/
12/ 31/20x4
20x4 960,000 304,310.40 655,689.60 2,387,414.40
Total 2,4
,40
00,0
,00
00 304,3
,3110.
0.4
40 2,0
,09
95,6
,68
89.
9.6
60
Problem VIII
1. The fee

fee is
is ea
earrned for providing
providing conti
continui
nuing
ng ser
servi
vic
c es
es::
C a sh or Ac c ounts rec eivab le………… 10
108,0
8,000
00
Fr
Fra
a nchis
nc hise
e reve
evenue
nue – c ontinui
ontinuing
ng fra
fra nchis
nc hise
e fee 10
108,0
8,000
00
2. If P10,000 of the fee is for national advertising:

C a sh or Ac c ounts rec eivab le………… 10
108,0
8,000
00
Fr
Fra
a nchis
nc hise
e reve
evenue
nue – c ontinui
ontinuing
ng fra
fra nchis
nc hise
e fee 96
96,00
,000
0
nc hise
e reve
evenue
nue – c ontinui
ontinuing
ng fra
fra nchis
nc hise
e fee
fee……
…… 12
12,00
,000
0
The franc
franc his
hisor rrec
ec ognizes
ognizes tthe
he unearned
unearned fr
franc
anc hi
his
se fees
fee s as rrevenue
evenue when it perfor
performs
ms the ad ver
verti
tis
sing
servic
ervic es and a lso rec ords the c osts a s expens
expe nses,
es, tthe
he entries
entries s
should
hould be :
Ad vertis
vertising
ing expe ns
nses…………
es………… xxx
xxx
C a sh, etc ……………
………………..
….. xxx
Unea rned
Unearn ed fra
fra nchis
nc hise
e reve
evenue
nue – c ontinui
ontinuing
ng fra
fra nchis
nc hise fee
fee……
…… 12
12,00
,000
0
Fr
Fra
a nchis
nc hise
e reve
evenue
nue – c ontinui
ontinuing
ng fra
fra nchis
nc hise
e fee 12
12,00
,000
0
Problem IX
M arch 20
20::
C a sh 5,000
5,000
Notes
Note s rec eivab le 20
20,00
,000
0
Unearned fra
fra nchis
nc hise
e fee 25
25,00
,000
0
J une 15:
Unea rned
Unearn ed fra
fra nchis
nc hise
e reve
evenue
nue 25
25,00
,000
0
Fr
Fra
a nc
nchis
hise
e reven
revenueue 25
25,00
,000
0
J ul
uly
y 15
15::
C a sh 500
500
Servic
ervice
e re venu
venuee 50
500
0
Problem X
C a sh or Ac c ounts rec eivab le… 11

117,6
7,600
00
Fr
Fra
a nc hise
hise reven
revenue
ue – supp lies sa les……………..
les………… ….. 11
117,6
7,600
00
C o st of franc hise
hise – sup
upplies
plies sa les……… 90,000
90,000
Sup
upplies
plies invento
inventoryry………
……….. 90
90,00
,000
0
Problem XI
C a sh……………
h…………….. 21
21,60
,600
0
No
Notes
tes rec eivable
eiva ble (P108
(P108,00
,000
0 – P21,6
P21,600
00)) 86,400
86,400
Unea rned interest inc income
ome (P86,4
(P86,400
00 – P69,9
P69,978
78)) 16
16,42
,422
2
Fra
Fra nc his
hise
e reve
revenue
nue (P21,600 + 69,978
69,978 – P4,800*
P4,800*)) 86,778
86,778
Unearrned fra
Unea fra nchis
nc hise revenue – eq uipment sa le* 4,800
4,800
All the criteria to recognize initial franchise fee as revenue was met, except that an amount of P4,800
eq uiva
uiva lent to indica ted profit (P24
(P24,0
,000
00,, s
selli
elling
ng p rice les
less
s P19,2
P19,200
00 option pric
pric e) will be d efe
eferrred.
ed .
When the fra

fra nchis
nc hisee subsequently
ubseque ntly p urc
urc has
ha ses the eq uipment, the entr
e ntries
ies a re a s follows:
C a sh or Ac c ounts rec eivab le… 19
19,20
,200
0
Unea rned fra
Unear fra nchis
nc hise reve
evenue
nue – equipment
eq uipment sa le 4,8
4,800
00
Fr
Fra
a nchis
nc hise reve
evenue
nue – eq
equipment
uipment sa le…………
le…………….. ….. 24
24,0
,000
00
C ost of fra
fra nchis
nc hise - eq uipment sa le………. 19
19,20
,200
0
Equipment
Equipme nt invento
inventoryry………
……….. 19,200
19,200
Problem XII
Ap ril 1, 20x4:
20x4:
C a sh………
h……………. ……. 288,0
288,000
00
Notes
Note s rec eivab le………… 19
192,0
2,000
00
Fra
Fra nc his
hise
e reve
revenue
nue (P21,600 + P86,400 – P4,800*
P4,800*)) 480,000
480,000
De
Decc e mbe
mberr 31
31,, 20
20x4
x4::
Fr
Fra
a nc his
hise
e reven
revenue ue – init
initia
iall fra
fra nc hise
hise fe
feee 48
480,0
0,000
00
Inte
Interest
rest inc ome (P192,00
(P192,000
0 x 8% x 9/
9/12)
12) 11,520
11,520
C a sh (P153,600 – P11,520
P11,520)……
)……………….. 142,080
142,080
Notes
Note s rec eivab le…………
le…………… … 19
192,0
2,000
00
G ain or reve
evenue
nue from
from rep oss
ossess
essed
ed fra
fra nchis
nc hise…
e……………
………… 13
134,4
4,400
00
Problem XIII
C a sh 72,000
72,000
Notes
Note s rec eivab le………… 36
360,0
0,000
00
Deferrred fra
Defe fra nchis
nc hise
e purcha se option
op tion li
lia
a bili
bility…….
ty……. 43
432,0
2,000
00
Defe rred c ost of fra

Defer fra nchis
eve nue……………
……… 28
288,0
8,000
00
C a sh, etc ……… 28
288,0
8,000
00
Investment………………………….. 120,000
Deferrred fra
Defe fra nchis
nc hise
e purcha se option
op tion li
lia
a bili
bility…….
ty……. 43
432,0
2,000
00
Defe fra nchis
eve nue…………… ……… 28
288,0
8,000
00
C a sh, etc ……… 26
264,0
4,000
00
Multiple Choic
C hoice
e Problems
1. a – follow
followiningg c ondit
ond itions
ions should be
b e obser
o bserved
ved to rec ogni
og niz
ze revenue:
Servic
ervic es – none
Period
Period of Refund – expired
expired
C ollectibil
ollec tibilit
ity
y of the note – reas
rea sona bly assured
ured
There
here was failur
failure
e on one condi
cond ition;
tion; therefor
therefore,
e, n
no
o revenue
revenue shoul
hould
d be rrec
ec og
ogni
niz
zed
ed..
5. a
C a sh 6,000
6,000
Notes
30,00
,000
0
nc hise
e fee 36
36,00
,000
0
6. b
Unea rned
Unearn ed fra
fra nchis
nc hise
e fee 36
36,00
,000
0
Fr
Fra
a nc
nchis
hise
e fee reve
revenue
nue 36
36,00
,000
0
7. a
C a sh 6,000
6,000
Notes
30,00
,000
0
Fr
Fra
a nc
nchis
hise
e fee reve
revenue
nue 36
36,00
,000
0
9. b
In this
this p rob lem, since
since there is d oubtful
oub tful of c ollec tion, it iis
s sa fely ass
assumed
umed to used
used installment
installment metho
methodd.
Therefor
herefore, e, tthe
he rea
reallized gross
gross profit
profit would be:
C ollections
ollec tions in 20x
20x4………………
4………………………… …………………… …………………… …………………… ……………..P…..P 200,
200,00
000
0
x: G ross p rofit rate [100
[100%
% - (P150,00
(P150,000/0/P500,0
P500,000)]……
00)]………… ………… ………… …………
…….. 70%
Realized gross profit in 20x4…………………………………………………. P 140,000
Revenue Analysis:
Cash N/R
Service s Yes
Ye s Yes
Ye s
Period
Period of Refund Yes Yes
C ollectibil
ollec tibilit
ity
y No Rea s.
Assured
200,000 300,000
Status Rev – I/S
I/ S M ethod
etho d Lia
Lia bili
bility
ty
10. d
In this
this p rob lem, ffull
ull a c c rual
ua l method
metho d is used
used to rrec
ec og
ogniz ed the init
nized initial
ial franc
franc hise fee of
Initial
Initial Franchis
ranc hise
e Fee
ee::
C ash Notes Receivable
ec eivable
Services
ervic es Yes Yes
Collectibility Reasonab ly A ssu
sured
red
P20,000 P80,000
Substanti
ubstantia
a l perf
perform
orma
a nce
nc e o
off serv
service
icess has been
bee n rend
rendered
ered b
bec
ec ause c
commenc
ommenc ement of ope
o perrations
by the franchisee shall be presumed to be the earliest point of which substantial performance has
oc c ur
urrred,
ed , unles
unless
s it ca n be
b e de
demons
monstr
trate
atedd that subs
substanti
tantiaa l pe
perrfor
formanc
manc e of a ll obli
ob liga
ga tions
tions,, includin
including
g
servi
ervic
c es rend
endered
ered voluntarily
voluntarily,, has occ
oc c urr
urred be fore tha
thatt time.
time.
Period of refunding the initial franchise fee and collectibility of the notes is not anymore a
problem (they depend on the profitability of its first year of operations) because the result of
o p era
erations
tions in the first yea r iis
s p ro fitab le. T
The
herrefo re , the initial
initial franc his
hise
e fee o f P100
P100,00
,000
0 (P20,00
(P20,000
0 +P
P80,00
P80, 000)
0) is c on
ons ide red a s revenue , and
sider an d a c onontinuing
tinuing franc hishise
e fe
feee ooff P5,0
P5,000
00 (1% x P500,00
P500,000)
0)
should beb e a lso b e rec og nized
nized as revenue – c ont ontinuin
inuingg fanc hise.
Therefor
herefore,
e, the ea
earrned fr
franc
anc hi
his
se fee amounted to P1
P10
05,0
5,000 (P10
(P100,0
0,000 initi
nitial
al plu
plus
s P5
P5,0
,00
00
continuing).
11. a
Initial
andfranchisee
assumed thatrevenue (since
period all services
of refunding had been
already performed
expired)………………………….. P100,000
Add
Ad d : C ontinuing fr
fra
a nchis
nc hise reve
revenue
nue (5%
(5% x P800,
P800,00
000)………………
0)………………………… ……………………
………… 4040,0
,000
00
Total
Total Revenue fr from
om frfranc hi
his
se……………………………………………………………….
e………………………………………………………………. P14 P140,0
0,000
12. d
There
here is alr
alrea
eady
dy subs
ubstanti
tantial
al perfor
performanc
mancee of ser
ervi
vic
c es rendered
rendered since , the fr
franc
anc his
hise outl
outlet
et star
tarted
ted
operations and it is assumed that period of refund has expired.
The c ontinui
ontinuing
ng franc
franc hi
his
se fee is rec
rec ognized
ognized als
also
o as revenue
revenue since it is ea
earrned at the time
time it w
was
as
received.
The net
net inco
inco me would
would be:
Fra nchis
nc hise
e Revenue:
eve nue:
Initia
Initial F
Frra nc hise
hise Fee:
Fee :
Down pa yment…………………………
yment…………………………………………… ………………… P 30,0
30,00
00
PV o f insta
installment
llment (P10,000 x 1.73
1.7355)……
55)…………
…………
…………
…….. 17,35
17,355
5 P47,355
P47,355
C o ntinuing Fra
Fra nc hise
hise Fee (5% x P500,00
P500,000)
0) 25,000
25,000
Total Franc his
hise R Revenue……………………………………………
evenue………………………………………………………………… …………………… P7
P72
2,35
,355
Ad d : Inter
Interest
est Inc
Income
ome (10%
(10% x P17,3
P17,355
55)…………
)……………………
……………………
……………………
…………………
……… 1,73
1,735
5
Total Revenue/Net
evenue/ Net InInc
c ome……………………………………………………………… P74
P74,09
,090
13. a
All co nditi
nditions
ons that
that ini
initi
tial
al fr
franc
anc hi
his
se fee be rec og ni
niz
zed a s revenue had be en me
mett as
a s foll
follows:
ows:
Reve nue A nalysis ffor
or IFF
IFF
Cash N/R
Services
ervic es Yes
Ye s Yes
Ye s
Period of Refund
Period Yes Yes
(note)
C ollec tib
tib ilit
ility
y Rea s. Ass
Assur
ured
ed
200,000 300,000
Status Rev
evenue
enue Revenue
evenue
The Net Inc
Inc ome then
then would
would be as
a s fol
folllows:
ows:
Franchise Revenue………………………………………………………………..P 500,000
Less
Less: C o st of Fra nchis
nc hise……………
e… ………………………………………………………………
……………………
………………
…… 150,
150,00
000
0
Net Income………………
Inco me……………………………………… ………………………………………………
…………………………………P
…………P 35
350,
0,00
000
0
14. d
In this problem, full accrual method is used to recognized the initial franchise fee of P100,000
a naly
na lyz
ze a s follows:
Reve nue A nalysis for for IFF
Cash N/R
Services
ervic es Yes
Ye s Yes
Ye s
Period
Per iod of Refund Yes Yes
(note)
C ollec tib
tib ilit
ility
y Rea s. Ass
Assur
ured
ed
20,000 80,000
Status Rev
evenue
enue Revenue
evenue
Period
Note: Peri
Note: od of refunding the initi initia
a l franc
franc hi
his
se fee
fe e was
w as presumed
presumed to ha ve b been
een expi
expirred sinc
inc e the
business operates profitably in its first year of operation.
C ontinui
ontinuing
ng Franchise Fee: C onsidered
onsidered revenue the moment c ontinuin
ontinuing
g s
serv
ervice
icess had been
be en
rendered amounted to P5,000 (1% x P500,000).

Ini
Initi
tia
a l Fr
Fra nchis
nc hise Fee
ee………
……………… …………………
……………………
……………………
……………………
…………PP 100,
100,00
0000
C ontinui
ontinuing ng fr
franc
anc hi
his
se fee……………………………
fee…… …………………………………………….
……………………. 5,00
,000
Total……………………………………………………………………………
otal…………………………………………………………………………… P 105,00 ,000
Less
Les s: Indirec
Indirec t c ost of fr
fra
a nchis
nc hise………………
e…… ……………………
……………………
…………………
……… 15
15,0
,000
00
Net incinc ome…
ome………………………
…………………………………………… ……………………………………………
……………………PP 90
90,0
,000
00
15. d
Revenue = P400,000
Interes
Inte restt inc
incoo me =P160,000
P160,000 × P9,600
8% ×9/12 =
C a sh = P128,000 – P9,600
P 9,600 =P118,400
Repo
Rep o sse ssion
io n revenue
reve nue : P240,000
P240,000 – P128,0
P128,000
00 =P112,0
P112,000.
00.
16.
16. c
C a sh = P560,000
P560,000 +P48,000
P48,000 =P608,000
P608,000
Fra
Fra nc his
hise
e Fee Revenue
Reve nue = P560,00
P560,000 0
Unea rned
ne d Fra
Fra nc hise
hise Fees = P48,00
P48,000 0× P9,600
20% =
Revenue
Reve nue from C o ntinuing FrFra
a nc hise
hise Fees
Fe es =P48,000
P48,000 – P9,600 =P38,400.
P38,400.
17. b - P200,000 + P545,872 – P24,000 =P721,872.
18. b
Fr
Fra
a nchis
nc hisee
ee freq
freq uently pur purc
c hases all of the eq uipment, prod produc uctsts,, and
a nd supplies ffrom
rom the franc hisor. The
fra
fra nchis
nc hisor would ac a c c ount for tthese
hese s sa
a les a s if, it would
wo uld be a p rod oduc
uctt sa
sa les
les.. Some
Sometimtimes,
es, howe
however,
ver, tthe
he
franchise agreement grants the franchisee the right to make bargain purchases of equipment or supplies
a fter the initi
initia
a l fra
fra nchis
nc hise fee is pa id. If the babargain
rgain pri
pric
c e is lowe
lowerr that the normal selli elling
ng pric
pric e of the sa sa me
produc
prod uctt or it do es not provi
provide
de the fra
fra nchis
nc hisor the rrea
ea sona ble profi
p rofit,
t, tthen,
hen, a po rtion of the iniiniti
tia
a l ffranc
ranchis
hise fee
should be deferred. The deferred portion would be accounted for as adjustment of the selling price when
the franchis
franc hisee
ee subseque
ubsequentl ntly
y purcha ses tthe
he e
equipme
quipment nt or s
supp
uppli lies.
es. Therefo
hereforre, the a mount of revenue wo woulduld
be P90,234 computed as follows:
C ash Notes Rec

eceivable
eivable
Servic
ervicees Yes Ye
Yess
C ollec tibil
tibility
ity Reas
Rea sona bly Assur
ured
ed
Status P25,000
Revenue P68,234
Revenue exc
excep
eptt
P3,000
P3,000 rrea
ea sona ble
profit on sale of
equipment
The rrevenue
evenue ffrrom ffrranc hihisse woul
would
d be:
C ash………………………………………………………………………………………
ash……………………………………………………………………………………………… ……… P 25 25,0
,000
00
PV of Note………………
Note…………………………………………………………
…………………………………………………………..P6 ………………..P68, 8,23
2344
Less: Reasonable profit on sale of
Equipment
Equipme nt P15,0
P15,000 00 – P12,0
P12,000
00)………
)………………………………
……………… ………………………….…
….… 3,0
3,000
00 65
65,23
,2344
P 90,234
Inc idental
identallly, the e nt
ntries
ries would be :
Upon rec eipt o off IF
IFF:
F:
C ash………………………………………………………………………… 25 25,0
,00
00
Notes Rec eivable………………………
eivable…………………………………………………………
………………………………… 90 90,0
,000
00
Unea rned Interest Income
Inc ome (P90,0
(P90,000
00 – P68,2
P68,234
34)………
)………….
…. 21,
21,76
7666
Fra
Fra nchis
nc hise Revenue
Revenue……………
………………………………………………
…………………….
………. 90
90,2
,234
34
Unea rned Fra
Unear Fra nchis
nc hise
e Revenue…
………………………
………………….
……. 3,0
3,000
00
If equipment was sold:

C ash or Ac
Accc ounts Rec eivable………………………
eivable…………………………………………
………………… 12,
12,00
000
0
Unearn
Unea rned
ed Fra
Fra nchis
nc hise Revenue…
………………………
…………………………
………………… 3,0
3,000
00
Fra
Fra nchis
nc hise Revenue – Equipment……………
Equipment…………………………
………………… 15
15,00
,000
0
C ost of S
Sa
a les – eq
equipment…………
uipment………………………
………………………
………………………
…………… 12,0
12,000
00
Equipment Inventory………………………
Inventory……………………………………
…………………..
…….. 12
12,0
,000
00

C hapter 10
10
Problem I
1. The journa
journa l entries
entries shown b elow would
w ould b
bee made
ma de on the c onsignor’s
onsignor’s and c onsignee’
onsignee’ss bo oks (ass
(assume
the use of perpetual inventory):
Entries on C ons
Entries on signo
ignor’sr’s Books
Boo ks Entries on C on
Entries onssignee’
igne e’s
s Books
Boo ks
Transac
ansac ti
tions
ons (Herba
(Her ba life
life Supp
upplilier)
er) (C onrad
onradoo Ent
Enterpris
erprises)
Shi
hipment
pment o off good
go ods
s on Inventory on No entry
consignment. Consigment…… 60,000 (memorandum
Finished Goods entry only)
Inventory*.... 60,000
2. Pa yment of
expens
expe nses
es by Inventory on No entry
consignor. C onsi
onsignment…..
gnment….. 600
Cash…….. 600
3. Pa yment of C onsi
onsigno
gnorr
expenses
by consignee. Inventory on
Consignment…… 2,400 Receivable 2,400
Consignee Cash……………. 2,400
Payable……… 2,400
Advanc es by Cash……… 3,360 Advances to
C onsi
onsigno
gnorr Advances from C onsi
onsigno
gnorr 3,360
Consignee….. 3,360 Cash 3,360
Cash
Sa le of mercha ndis
ndise
e No entry
entry.. C onsi
onsigno
gnorr 48,000
payable 48,000
C onsi
onsigno
gnorr
Payable..
C ommission C ommission
6. Notification of sale expense
to c ons
onsignor
ignor and Advances from Revenue……..
payment of cash due. Consignee…… 4,800 C onsi
onsigno
gnorr 48,000
C ommiss
ommission:
ion: Cash……. Receivable
10% x P48,000 = Consignee 3,360 ….. 4,800
P4,800 Payable 37,440 Cash………
C onsi
onsignme
gnment
nt 2,400 Advances 2,400
Sales from 37,440
Revenue.. 48,000
Consignee…… 3,360
7. To rec ord c ost of Cost of goods

goods sold and sold** 31,500
related costs. Inventory on
** (P60,000 + P600 + C ons
onsignm
ignment
ent 31,500
P2,400) x ½ =
P31,500
*i
*iff periodic method is used,
used, the c redit shoul
shouldd be “c onsig nment shipments”
shipments” ac c ount treated
treated as
reduc tion in
in the
the C osts of g ood s av ailab
ailab le for sale
sale to arrive
arrive at C ost of G ood s Sold
Sold A vailab
vailab le for Reg ular
ular
Sale.
2. The rremittanc
emittanc e amounting
a mounting to P37,4
P37,440
40 c a n be dete
d eterrmined by
b y prepa
prep a ring the Acc
Ac c ount Sa
Sa les a s follows:
Sold for the Account of:
J ingk
ngkaa J uic
uic e
Sa les (60 sa c hets o f herba l good
go od s) P48,0
P48,000
00
Charges:
Finis
Finishing
hing c osts
osts………
……………… ……………..…….. P 2,400
2,400
C o mmis
mmiss sio
ionn (P48,000 x 10%)…………
)…… ………… …….. .. 4,800
4,800 7200
7200
Due to C onsigno
onsigno r……………………………………………… ………….. P40,8
P40,800
00
Less
Les s: Ad
Advanc
vanc es……………….
es…………… …. 3,
3,36
360
0
Balance………………………… P37,440
Remittanc e En Encc losed
losed………
……………… ……… 37
37,4
,440
40
Balanc
ala ncee Due…………… P 0
Items on Hand (5 (50
0 sa
sa c hets of her
he rba l good
go od s): P60,0
P60,000
00 x
50% P30,000
Problem II
1. The ac c o unt sa les:
les:
Sold for the Account of:
AA C ompany
Sa les (8 se ts @ P24,00
P24,000)……
0)………… ……………… P 192,000
192,000
Charges:
Freight-in……………
Freight-in…………… P 6,000
Ad vertising
vertising expense……
exp ense………… …… 2,400
2,400
Deliveries
Deliver ies and insinstallation
tallation expens
expe nses
es 9,600
Repa
Rep a irs
irs expens
expe nse e – o n units so ld.. 4,800
4,800
C o mmis
mmiss sion
ionss, 2
25%
5% of sa
sa les
les 48,000 70,800
Due to C onsigno
onsigno r………………………… …………………… ………….. P121,2
P121,200
00
Less:
ess: Ad
Advan
vanc c es……………….
es…………… …. 0
Balance………………………… P121,200
Remittanc e Enc Enc los
losed
ed………
……………… ……… 30
30,0
,000
00
Ba lanc e Due……………
Due…… ……… P 91
91,2
,200
00
Items o n Hand ……………… …… 15 sets
Items Returned
Returned (de
(defec
fec tive)…
tive)….…….
.……. 2 sets
2. The inventory on c onsignme
onsignmentnt amounted
amo unted to P18 P 189,
9,00
000
0 c omputed
omp uted a s:
C harge Analy sis
Ana lys
Sales Inventory T
Total
otal
(8 sets) (15 sets) (25 sets)
C harges by cons
c onsignor:
ignor:
C ost
ost of c
cons
onsiigned good
go odss
(@P12,000/s
(@P12,000/ se t) P 96,000 P180,000 P 300,000
Fr
Fre
e ight-o
ight-out
ut (P9,000/25 se ts = P360 p e r se t) 3,600*
3,600* 5,400
5,400 9,000
9,000
Charges by consignee:
Freig ht-in
Freight- in (P6,000/
(P6,000/25
25 sets =P240 p er se t) 2,400 3,600 6,000
Ad vertising
vertising expens
expe nse…
e………………….... 2,400
2,400 0 2,400
2,400
Delivery a nd insta
install
lla
a tion 9,600
9,600 0 9,600
9,600
Repa
Rep a irs
irs exp
expen
ens se………
e… ……………… 4,8
4,800
00 0 4,800
4,800
C ommiss
mmissio ions
ns [25%
[25% o f sa
sales
les (8 sets x
P24,000
P24,00 0 p e r set]
et] 48,000
48,000 0 __
___48,000
_48,000
Total
Total P1
P16
66,8
,800
00 P18
P189,
9,0
000 P37
P379,
9,8
800
* Freig
Freig ht on sets
sets returned
returned is c harg ed ag
a g ainst sales
sales of tthe
he period.
** NoNormall
rmally,
y, the term “freig ht-out” is synonymous
synonym ous to “delivery exp en ense”
se” whic h is c lassified
assified as sell
selling
expe ns
nses
es if we are d ea ling with
with a third
third party. But,
But, for c onsig
onsig nment ac c ounting
ounting where the transfer
transfer
of merc handise
handise if from
from c onsig
onsig nor to c onsig
onsig nee, the usag usag e of the term “fr “freig
eig ht
ht-out
-out”” does not
c onstrued
onstrued to be a selling
selling expe nse but stil
stilll an inventoriab le c ost (whic h is pa rt of freig ht-in).
ht-in).
The
The cons
co nsiignment net inco me amounted amounted to P2 P255,20
,200 c omputed as:
as:
C o nsig
nsignment
nme nt Sa les (8 se ts x P24,000
P24,000 p e r se t) P 192,000
192,000
Less
Les s: Co
C o sts a nd expens
expe nse e s:
C harges by Cons C onsignor:
ignor:
C ost of c onsigne
onsigned d go o ds @P12,0
P12,00000// set) P 96
96,0
,000
00
Fr
Freig
eight-o
ht-outut (P9,000/
(P9,000/25 25 se ts =P360 p e r se t) 3,600*
3,600* 99,600
99,600
Charges by consignee:
Fr
Freig
eight-in
ht-in (P6,000/
(P6,000/25 25 se ts =P240 p er se t) P 2,400*
2,400*
Ad vertising
vertising expens
expe nse… e………………….. .. 2,400
2,400
Delivery a nd instainstall
lla
a tion 9,600
9,600
Repa
Rep a irs
irs exp
expenensse………
e… ………… …… 4,800
4,800
C ommissio
mmissions ns [25% o f sa lesles (8 se ts x P24,000 p e r set] 48,000 67,200
Net Income
Inc ome P 25,2
25,200
00
Problem III
Summit Electronics Company

Inventory
Invento ry o n C o ns
nsignme
ignmentnt (800
(800 @ P570)
P570) 45
456,0
6,000
00
Finis
Finishe
hed d G o o d s Inventory
Invento ry 45
456,0
6,000
00
C o nsig
nsig nment
nme nt Ex
Exp
p e nse (P368,00
(P368,0000 x 30%) 110,40
110,400
0
Ac c o unts Rec eivab le--Con
le--C onssignee Sa les 257,
257,60
600
0
Sa les Reven
Revenue—
ue—C C o ns
nsignme
ignmentnt (P920 x 400
400)) 36
368,0
8,000
00
C o st o f C o ns
nsigne
ignedd G o o d s Sold (P570 x 40
400)
0) 22
228,0
8,000
00
Inventory
Inven tory o n C ons
on signment
ignme nt 22
228,0
8,000
00
C a sh [(P
[(P920
920 x 70%) x 380] 244,720
244,720
Ac c ounts Rec
Receivab
eivab le--Consi
le--C onsigne
gneee Sa les 244,
244,72
720
0
Farley Hardware
No entry upon
upo n rec
rec eipt of cons
c onsigned
igned mercha ndise.
ndise.
C a sh (P920 x 400)
400) 368,00
368,000
0
C onsigno
onsignorr Pa
Payab
yable
le 25
257,
7,60
600
0
C o mmis
mmiss
sion Revenue
Reven ue 11
110,4
0,400
00
C on
onssignor
igno r Pa
Payab
yable
le 24
244,
4,72
720
0
C a sh 244,720
244,720
Multiple Choic
C hoice
e Problem
1. c – P
P1,2
1,200
00
C o mmiss
mmission =25% x Sa les pric
price
e
P400 = 25% x SaSa les pric
p rice
e
Sa les
les price
pric e =P400 ÷25%
÷25% =P1,600
Number
Numb er of units so ld = Selli
Selling
ng p ric
ric e = __P1,6
__ P1,600
00__
__ = 8 ta
tapp es
Pr
Price
ice per
pe r tape
tap e P2
P20
00 per
pe r tape
tap e
Sales ……………………………………………………………….. P1,600

Less
Less C ommiss
ommission of c onsi
onsigne
gnee…e……………
……………………
…………………
………...
... 400
400
Amo unt remitted
remitted by Beta View
V iew S
Store………
tore…………………
………………...P1,
……...P1,20
200
0
2. a – P 370
Charges Related to
Total
Total Consignment Inventory on
Charges Sales Consignment
(25) (8) (15)
Consignor’s charges:
C ost P2,500 P800 P1,500
Fr
Fre
e ight-o
ight-outut 75 30 45
C on
ons signee’s
ignee ’s c ha
harrge - C ommiss
ommission __400__
__400__ __400__
__400__ _______
___ ____
Total
Total P2
P2,9
,97
75 1,2
,23
30 _P1,5
_P1,5445_
Sa les p ric
ric e _1,600_
_1,60 0_
C on
ons signment profit _P370_
_P37 0_
3. a – P1,545
P1,545 (refe
(referr to No . 2 for
for comp
c omputation)
utation)
4. b
Sa les (P2,250
(P2,250 / 15%)
15%) P15,000
Divid ed b y: Selling p ric
Divid ric e p er unit P 1,000
1,000
Numbe
Numb e r of units so ld 15 units
5. c
Sa les P15,000
Less
Les s C ha
harge
rges
s:
C o mmiss
mmission P 2,250
2,250
Advertising 1,500
Delivery expen
exp ens
se __
___750
_750 __
__4,5
4,500
00
Due to C onsigno
onsigno r P10,5
P10 ,500
00
Less: Advances
Va lue o f no
note
te – sight d raft: (100
(100 b ed s x P600 p er b ed ) x 60
60%
% P36,00
P36,0000
M ult
ultipli
iplied
ed by: Proporti
Prop ortiona
ona l numbe
numberr of beds
be ds sold 15/
15/ 10
100
0 __5,400
__5,400
Amo
Am o unt remitted P 5,100
5,100
6. d – P1,500
P1,500
Sa les P15,000
Less
Les s C ha
harge
rgess:
C onsignor’s
onsignor’s c harge:
C ost of bed
be d s (P60
(P6000 per
pe r b ed x 15 beds)
be ds) 9,
9,00
000
0
C onsignee’
onsignee’s s c harges:
C ommission P2,250
P2,250
Advertising 1,500
Deli
De livery
very expen
exp ens se __
___750
_750 __
__4,5
4,500
00
C on
onssignment net income
inco me P1,50
P1, 500
0
7. a – no items
items we
werre s
sold
old in Novemb
November;
er;
Sa les (unkno
(unknown)
wn) P x
Less
Les s C ha
harge
rges
s:
C o mmis
mmisssion 15%x
Remittanc e P 27
27,20
,200
0
x – 15%x = P27,200
85%x = P27,200
x = P32,000
8. c – P16
P 16,80
,800
0
Sa les (unkno
(unknown)
wn) x
Less
Les s C ha
harge
rgess:
Advertising P500
Delivery
Deliv ery a nd installation
installation c har
ha rges
ge s 100
100
C ommission
ommission (unknown)
(unkno wn) 20
20%
%x __
____
____
___
_
Remittanc e P 12
12,84
,840
0
x – (P500 + P100 + 20%x) = P 12,840

x – 20%x = P12,840 + P600
80%x = P13,440
x = P16,800
9. b- P6,080
C o st (P150 p er unit x 40 units) P6,000
Fr
Fre
e ight
igh t o n shipme
hip ment
nt (P200 x 40/100
40/ 100)) 80
C o st of inventory on c on
onssignment P6,080
P6,080
10
10.. c - 6
Sa les (unkno
(unknown)
wn) x
Less
Les s C ha
harge
rges
s:
C o mmiss
mmission (unknown)
(unkno wn) 20
20%
%x
Advertising P1,000
Delivery a nd insta
install
lla
a tion 60
6000
C artag
artagee on c onsi
onsigned goodgo ods
s 500
Remittance P21,900
x – (20%x + P1,000 + P600 + P500) = P21,900
x – 20%x = P21,900 + P2,100
80%x = P24,000
x = P3
P30,00
0,000
0
Numb e r o f units so ld =_P

_P30,0
30,000_
00_ =6
P5,000 per set
11. b – P2,300
Charges Related to
Total
(10) (6) (3)
C ost P30,000
P30,000 P18,000
P18,000 P9,000
Fr
Fre
e ight-o
ight-outut 2,500
2,500 1,750
1,750 750
C onsignee’
C ommissio
mmission n (20% x P30,000) 6,000 6,000
A d vertis
ve rtising 1,00
1,0000 1,000
1,000
Delivery a nd insta
install
lla
a tion 60
6000 60
6000
C a rtag e __500
__500__
__ __350__
__350__ __150__
__150__
Total
Total P40
P40,60
,600 27,7
,70
00 _P9
_P9,9
,90
00_
Sa les p ric
ric e _30,000
_30, 000_
_
Profit
Profit on C onsignme
onsignment nt __P2,300
__P2,3 00__
__
12.
12. d – None of the a bove
bo ve (P9,
(P9,9
900)
00) – refer
refer to No. 11 for computation.
co mputation.
13
13.. No ans
a nswe
werr a vail
va ila
a b le - P17,62
P17,625
5
Sa les – ((S
Sa les x 20%
20%)) – P600 – P390
P390 – P210 = P12,900
.8 Sale
Saless =P14,100
P14,100
Sales
Sale s =P17,625.
14. a (P270 x 50) +[(P

[(P600
600 ÷80) x 50] = P13,875.
AA Sales - Nos. 15 to 17:

15. a
G ross c o llec tio
tionn (P15,000 x 70% x 80%) P 8,400
8,400
Less
Less: C a sh d isc
isc o unt taken
ta ken b y c us
usto
tome
merr (P8,400
(P8,400 x 2%) __
__16
168
8
Net c ollec tion
tion P 8,
8,23
232
2
Less
Less C ha
harge
rges s:
Ex
Expp ens
en se s P 800
C o mmiss
mmission (P8,400 x 15%) _1,260 __
__2,06
2,060
0
Due to C onsigno
onsigno r P 6,
6,17
172
2
Less
Less: Ad vanc
va nc es _6,000
_6,00 0
Amount
Amo unt remitted P 172172

16. b
Charges Related to
Total
(100%) (70%) (30%)
C ost P10,000
P10,000 P 7,000
7,000 P 3,000
3,000
Fr
Fre
e ight
ight 120 84 36
C onsignee’
Ex
Expp e nses 800 800
C ommissio
mmission n (15% x P10,500) 1,575 1,575
C a sh d isc
isc o unt (P10,500 x 80%x 2%)
2%) 168 168
Total
Total P12
P12,66
,663 P 9,6
,62
27 _P3
_P3,0
,03
36_
Sa les p rice (70% x P15,000)
P15,000) _10,500_
_10,500 _
Profit
onsignment nt P 873
873
17. b – refer to No. 16 for computation
RR Product
roduc ts CComp
ompanyany – Nos. 19 to 21
19.
19. c
Collection made pertaining to:
Ma y sale
sale
Down
Do wn p a yment (3 x P50) P 15
150
0
M o nthly p a yment therea fter (3 x P10) 30 P 18
180
0
J une sale
Down
Dow n p a yment (1 x P50
P50)) ___ 50
___50
Total
Total P 230
Less:: C ommiss
Less mmission (P230 x 20%) __
___46
_46
Amount
Amo unt remitted P 184
184
20. d – P14
P140
0
Total
Total Charges Related
Consignment to on
Inventory
(5) (4) (1
C ost P 775 P 620 P 155
Fr
Fre
e ight
ight 50 40 10
C onsignee’
C ommission 20
200
0 20
2000 __
____
__
Total
Total P1
P1,0
,02
25 P 860 P16
P165
Sa les p rice (4 units x P250/
P250/unit)
unit) _ 1,000
1,000
Profit
onsignment
nt P 140
140
21.
21. b – rrefe
eferr to No.
No . 20 for computa
co mputa tion
22. b
C ollec
ollec tion
tion mad
made:e:
C a sh sa le (P1,500 x 2) P 3,000
3,000
C redit
red it sa le (P1,800 x 25%) __
___450
_450
Total
Total P3,4
P3,4550
Less
Less: Cha
C harge
rges s
Fr
Fre
e ight
ight P 320
C ommissio
mmission n [(P3,000
[(P 3,000 + P1,800) x 15%] __
__720
720 __
__1,040
1,040
Amo
Am o unt remitted P 2,410
2,410
23. a
Charges Related to
Total
(5) (3) (2)
C ost P4,000 P 2,400
2,400 P 1,600
1,600
Fr
Fre
e ight
ight 200 120 80
C onsignee’
Fr
Fre
e ight
ight 320 192 128
C ommission 72
7200 72
720
0 __
____
____
__
Total
Total P5
P5,2
,24
40 P 3,4
,43
32 P1
P1,8
,80
08
Sa les p ric
ric e 4,800
4,800
Profit
onsignmentnt P 1,
1,36
3688
24.
24. b – P1,80
P1,808
8 – refe
referr tto
o No . 23
23 for computa
co mputa tion
tion
25. d – 244,600
Sa les o n c redit
red it (14,000
(14,000 p e r unit x 12 units) + (13,00
(13,000
0 x 10) P298,000
P298,000
Less:
ess: Sa les a llow
llowa a nce
nc e grante
granted d P 2,
2,00
000
0
Ba d d eb ts 7,000
7,000
C o mmis
mmiss sion [2% x (P298,00
(P298,000 0 – P2,000)] _44,400 __
__53,4
53,400
00
Amo
Am o unt still
till d ue from BB, Inc P 24
244,6
4,600
00
26. d – P67,280
Total
Total Charges Related
Consignment to on
Inventory
(30) (22) (8)
C ost P240,000 P176,000 P64,000
Fr
Fre
e ight-o
ight-outut 1,800
1,800 1,320
1,320 480
C onsignee’
Sa les a llo
llo wa nc e 2,0
2,000
00 2,000
2,000
Ba d d eb ts 7,0
7,000
00 7,000
7,000
C ommission
[15% x (P298,000
(P298,000 – P2,000)] 44,400 44,400
Total
Total P29
P295,2
5,200 P2
P23
30,
0,7
720 _P64
_P64,4
,48
80_
Sa les pric
pricee [P14,00
[P14,000
0 per
pe r unit x 12 units)
+ (P13,000 p e r unit x 10 units
units)] 298,000
C o ns
nsignme
ignment
nt p rofit P 67
67,28
,280
0
27. d – refer to No. 26 for computation
28. b – 395
Sa les (unkno
(unknown)
wn) x
Less
Les s C ha
harge
rges
s:
C ommiss
ommission (unknown)
( )
__x__
__x__ P1
P10
0
P100
Delivery expens
Delivery expe nse
e __P45__ ______
___ _____
__
Remittance P35,505
x- [( _ x__
x__ ) P10 + P45 ] = P35,505
100
x – _P10x_ = P35,550
P100
P100x – P10x = P3,555,000
P90x = P3,555,000
x = P39,500
Numb er of b a llpens
llpe ns so ld =P100
_P
_P39,5
39,500_
p er00_
unit = P395
29. b
Consignment
Regular Sales Sales Total
Sa les P120,000 P30,000 P150,000
84,000 19,500*
19,500* 103,500
103,500
36,000
00 P10,500
P10,500 P 46,500
46,500
Operating expenses:
C ommissio
mmission n (P
(P30,000
30,000 x 5%
5%)) P 1,500 P 1,500
Fr
Fre
e ight-in
ight-in (P260 x P19,500*/
P19,500*/P26,00
P26,000)
0) 1,95
1,950
0 1,950
1,950
Others
Regula
Reg ularr (P15,150 x P19,500/
P19,500/P26,00
P26,000)
0) 12,120
12,120
Consignment
(P15,150 x P30,000/
P30,000/P150,0
P150,000)
00) ____
__ ____
____ 3,030
3,030 3,030
3,030
Total
Total P 12,
12,1
120 P 4,7
,72
25 _P16
_P16,8
,84
45_
Net
Ne t p rofit P 23,8
23,880
80 P 5,775
5,775 P29,655
P29,655
*P26,000 – P6,500 = P19,500
30.
30. d – P5,775
P5,775 (refe
(referr to
to No
No.. 29
29 for comp
c omputation)
utation)
31. a – ((P18,000
P18,000 +P900) = P18,900

C hapt
hapter 11
11
Problem
oblem III
1.
• C ontributi
ontributions
ons of cash
c ash by the ope
o perrato
atorrs
C a sh 360,000
360,000
KK C o mpa
mp a ny 18
180,0
0,000
00
C eris
erise C omp a ny 18
180,
0,00
000
0
C ontribution
ontribution by joint ope rators.
rators.
• Use
Use o
off c
caa sh and loan to buy mac hinery
hinery & eq
equipment
uipment and ra w materials
materials
M a c hinery a nd eq
equipment
uipment 96,0
96,000
00
C a sh 60
60,00
,000
0
Loa ns pa yable
yab le – mac hinery
hinery and eq
equi
uipme
pment
nt 36,0
36,00
00
C ontribution
ontribution by joint ope rators.
rators.
Materials 78,000
Ac c ounts pa yab
yable
le 78,
8,00
000
0
A c qu
quisiti
isition
on of
o f materia
ma terialls.
• La
La bo r inc
inc urr
urrenc e
Payroll 86,400
C a sh 84
84,00
,000
0
Ac c rued p a yr
yroll
oll 2,
2,40
400
0
A nnua
nnu a l la bo r.
• Loans
Loa ns from
from the ba nk
C a sh 72
72,00
,000
0
Ba nk loans
loa ns p a yable
yab le 72
72,0
,000
00
A mount
mo unt borrow
bo rrowe
e d.
• Repaym
Repa yment
ent of loan – ma c hinery
hinery and equi
eq uipme
pment
nt and other
o ther fac tory
tory exp
exp enses
enses
Loa n pa yable
yab le – mac hinery
hinery and eq
equi
uipment
pment 12,0
12,00
00
C a sh pa yment of loan.
Partial 12
12,00
,000
0
Ac c ounts pa yable 50,4

50,40
00
C a sh 50
50,40
,400
0
Payment of trad
trad e c reditors
reditors..
Fac tor
toryy ove
overrhead
hea d c ontrol
ontrol – heat,
hea t, light
light and power
po wer 156,0
56,00
00
C a sh 156,000
156,000
Payment of manufac turing
turing expe ns
nses
es suc
suc h as heat, lig
lig ht
and powe r.
• Depreciation of machinery and equipment
Fac tor
tory
y ove
overrhead
hea d c ontrol
ontrol – deprec
de preciati
iation
on 9,
9,60
600
0
Ac c umul
umulate
atedd deprec
de preciati
iation
on 9,
9,60
600
0
De prec iation
iation of equipment.
• Tr
Tra nsfer
nsfer of ma
materi
teria
a ls,
ls, labor
lab or and over
ove rhea d to Work-i
Work-in-Pr
n-Proc
oc ess
Wo rk-in-p
Work -in-proc
roc ess 309,60
309,600
0
Pa yroll 86,400
86,400
Ma teria ls 57,600
Fa c tory overhead c ontrol
ontrol – heat,
hea t, light
light and power
po wer 156,
156,00
000
0
Fa c tory overhead c ontrol
ontrol – deprec
de preciati
iation
on 9,
9,60
600
0
A lloc a tion of
o f c osts to wo rk-in-p roc e ss
• Transfer
Transfer o f Work-i
Work-in-Proc
n-Proc ess to Finishe
hedd G o o d s Inventory
Invento ry..
Finis
Finishe
hedd go o d s 21
216,0
6,000
00
Work
Wo rk-in-p
-in-proc
roc ess 216,000
216,000
A lloc a tion to finished
finishe d g oo
oodds
• Tr
Tra nsfer
nsfer of Fi
Finis
nished
hed G oo d s Inventory to J oint Ope
O perra tors throug
throughout
hout the yea r
KK C ompa
omp a ny 96
96,0
,000
00
DD C o mpa ny 96
96,0
,000
00
Finis
Finishe
hedd go o d s 19
192,0
2,000
00
De livery of outp ut to joint operators.
2.
Cash
C ontribution
ontribution – Drei
Drei 18
180,
0,00
000
0 60,0
60,000
00 M a c hinery
hinery a nd eq
equipment
uipment
C o ntrib
ntrib ution – C erise
erise 18
180,0
0,000
00 84
84,00
,000
0 Labor
Lab or
Ba nk loan
loa n 60
60,0
,000
00 12
12,0
,000
00 M a c hinery
hinery a nd eq
equipment
uipment
50,4
50,40
00 Ac c ounts pa yable
yab le
15
156,
6,00
000
0 Fa c tory over
ove rhea d c ontrol
Ba lanc
lan c e, 12
12// 31/x4 57
57,60
,600
0
Wo rk-in-Proc
Work -in-Proc ess
Labo
Lab or 86,
86,40
400
0 21
216,0
6,000
00 to Fi
Finis
nishe
hedd G ood s
Materials 57,600
Fac tory O verhea
verheadd – hea t, etc . 156,
156,00
0000
Fac tory O verhea
verhead d – deprec
de preciati
iation
on 9,6
9,600
Ba lanc
lan c e, 12
12// 31/x4 93,60
93,600
0
3.
a . To
To ta
tall as
a sse ts, P28
P282,00
2,000
0
b. KK’s investment, P84,000
c . DD’s
DD’ s iinve
nves stment, P84,000
P84,000
December 31, 20x4
Assets
C urren
urrentt Assets
Assets
C a sh P 57
57,60
,600
0
Finis
Finishe
hedd go o d s inventory
invento ry 24
24,00
,000
0
Work
Wo rk-in-Proc
-in-Proc ess inventory
invento ry 93
93,60
,600
0
M a terials inventory
invento ry 20
20,40
,400
0
No Total
Total
Non-c
n-c urrcent
urrenurr
urtrent ass
assets
Assets P 195,6
,600
00
Equipmen
Equip mentt P 96
96,00
,000
0
Less
Les s: Ac c umula
umula ted dep
de p rec iation 9,
9,60
600
0 86,4
86,400
00
Total
Total Ass
Assets P28
P282,0
,000
00

Lia
Lia b iliti
ilities
es a
andnd Net Assets
Assets
C urren
urrentt Liabil
Liab iliti
ities
es
Ac c rued
rued p a yroll
yroll P 2,
2,40
400
0
Ac c ounts pa yab yable le 27
27,6
,600
00 P 30,0
30,000
00
Non-c
No n-c urren
urrentt Liab
Liabili
ilities
ties
Ba nk loan
loa n p a yable
yab le P 60
60,0
,000
00
Loan
Loa n p a yable
yab le – ma macc hinery
hinery a nd eq
equipment
uipment 24,0
24,000
00 __84,00
__84,000
0
Total Li Liab ilities
ties P 114,0
,000
00
Net
Ne t Assets 168,000
Total Li Liab ilities
ties and Net As Asssets P28
P282,0
,000
00
J oint Op erator’s
erator’s Equity
quity
KK C ompa
omp a ny: C ontributions
ontributions – J a nuary 1, 20x
20x4 P 18
180,
0,00
000
0
C o st o f inventory
invento ry d istr
istribute
ibutedd ( 96,
96,00
000)
0) P 84
84,00
,000
0
DD C omp a ny: C ontributions

ontributions – J a nuary 1, 20
20x
x4 P 18
180,
0,00
000
0
C o st o f inventory
invento ry d istr
istribute
ibutedd ( 96,
96,00
000)
0) P 84
84,00
,000
0
Total J oint O perator’s
perator’s Equit
quityy P1
P16
68,0
,000
00
Problem
oblem VI
The
The joint
joint oper
op erator,
ator, Enti
ntity K ac c ount for their
their interes
nterests
ts in tthe
he join
jointt oper
op eration
ation as fol
folllows:
ows:
J anuary 1, 20x4 (P12,

(P12,0
000,00
,000 / 5 =P2,4
P2,40
00,00
,000)
Prop
Prop erty,
erty, p lant a nd eq uipment (interes
(interestt in a n a irc
irc ra ft) 2,
2,40
400,
0,00
000
0
C a sh 2,400,000
2,400,000
To rec og nize
nize the p urcha se of an owne rship-inter
rship-interest
est in
in a
jointly c on
ontroll
trolled
ed a irc raft.
In 20x4
C a sh 12
12,00
,000
0
Profit o r loss (rental
(renta l inc
incoo me)
me ) 12
12,00
,000
0
To rec
the irog
a irc nize
nizeininc
c raft ome e arned in renting
20x4.
20x4. renting to others the use
use of
Profit o r loss (air

(a irc
c raft o p erating
era ting exp
expen
ens
ses) 18
180,0
0,000
00
C a sh 180,000
180,000
To rec og nize
nize the c osts of running
running an a irc
irc raft in
in 20x4.
20x4.
Profit o r loss (dep

(d ep reciatio
rec iation
n expe
expensnse)
e) 12
120,0
0,000
00
Ac c umu
umulated
lated deprec
de preciati
iation
on (interes
(interestt in
in an a irc
irc raft
aft 120,000
To rec og nize
nize de prec iation of an owne rship-int
rship-interest
erest in a
jointly c on
ontroll
trolle
e d airc
a irc raft in 20x4: P12,000, 000/20 ye a rs =
P600,000/5 opera
op era tors = P120,000
sha re for ea c h joint ope
share op e rator.
rato r.
Problem VII
1. The fo
foll
llow
owing
ing ar
a re the summari
summaries
es of the a b ove transac tions for a joint oper
ope ra ti
tion
on in the form of
a pa rtnership:
tnership:
Investment in
Event J oint Op er
eration
ation AA BB CC
Dr. C r.
Cr. Dr
Dr.. C r. Dr. Cr.
C r. Dr. C r.
a. P 12,00
12,000 0 P12,000
b. 120,000 120,000
6,000 P 6,000
c. 180,000 120,000 P60,000
d. P588,000 P204,000 P312,000 P72,000
e. 3,600 3,600 3,600 10,800
6,000 6,000
f. * ________ __
___3,0
_3,000
00 ___3,00
___3,000 0 ________
____ ____ _
______
_______
__ ______
____ __ _______
____ ___ _______
____ ___
P318,000 P597,000 P210,600 P252,000 P315,600 P 60,000 P81,600 P 16,800
NI** _297
_297,00
,000
0 _____
________
___ _
____
______
_____ __11
__ 112,2
2,200
00 ___
______
_____
__ _147,0
_147,000
00 ___
______
____
_ 31,800
31,800
P597,000 P597,000 P210,600 P364,200 P315,600 P195,000 P81,600 P48,600
C a sh***
Settlement _____
_______
__ _____
________
___ _15
_153,6
3,600
00 ________
____ ____ ___
________
_____ _120
_120,60
,600
0 _______
____ ___ _33,0
_33,000
00
Totals
Totals P597
P597,0
,000
00 P59
P597,
7,0
000 P36
P364,
4,2
200 P3
P36
64,2
,20
00 P31
P315,6
,60
00 P31
P315,6
,60
00 P81
P81,6
,6000 P81
P81,6
,600
00
* purc hases, P300,000;

P300,000; c ost of g ood s sold,
sold, P294,000;
P294,000; ending inventory P6,000 x 50% = P3,000.
**
**NI
NI – Net Inc
Income
ome All
Alloc
oc ation
AA BB CC Tota
otall
Allowa nc
nce e for c leaning-up
lea ning-up op erations P 3,
3,00
000
0 P 3,
3,00
0000
C o mmiss
mmission:
Aljon:
ljon : 40% o f P204,000 P81,600 81,600
Elerie:: 40% o f P312,000
Elerie P124,800 124,800
124,800
M a c : 40% of P72,000
P72,000 28,800
28,800 28,8
28,800
00
Balanc
Bala nc e (75%: 25%) 30,600
30,600 10,200
10,200 __
____
____
____ 40,800
40,800
Total
Total P1
P11
12,2
,200
00 P1
P13
35,0
,000
00 P31,
P31,8
800 P2
P27
79,
9,0
000
**
**T
To ta
tall c
cred
redits
its o f P597,00
P597,000
0 – To
To tal
ta l deb
de b its o f P318,00
P318,000
0 =P279,0
P279,000
00,, net
ne t inco
inc o me.
me .
2. The cash settlement entry (refer to No. 1 for the computation of settlement) would be as
follows:
AA , c a pital
pita l 153,
153,60
600
0
BB,
BB, c a p ita
itall 120,600
120,600
C C , c a pital 33,0
33,00
00
Ther
Therefor
efore,
e, B
BB
B wil
willl pa y P1
P12
20,60
,600 and C C will
will pa y, P3
P33
3,00
,000 to AA as fi
final
nal settlement
ettlement for th
the
e jjoint
oint
operations.

Problem
oblem VIII
Sc hed
hedul
ule
e of Deter
Dete rmination
mination and
a nd All
Alloc
oc ation of
of E
Ex
xc ess
ess
Da te of Ac
Date A c q uisition
ition – J a nuary 1 1,, 2
20x
0x4
4
C o st of investment
investment
C o ns
nside
ideration
ration transferred
transferred P2,016,
P2,016,00
000
0
Less
Les s: Bo
Bo ok value
va lue ofof sstoc
toc kholder
kholde rs’ eq uit
uity
y of Son:
C o mmo
mmon n stoc
to c k (P3,600,000
(P3,600,000 x 30%) P 1,08
1,080,00
0,000
0
Reta ined
ine d ea rnings (P1,080,000
(P1,080,000 x 30%) 324,000
324,000 1,404,00
1,404,000
0
Alloc a ted excexcess
ess (exces
(exce ss of c o st over
ove r b oo k value) P 612,
612,00
000
0
Less
Les s: O
Over/
ver/und
under er valuation
va luation of a ssets and lia lia bili
bilities
ties::
Inc rea
reas se in inve
invento
ntoryry (P240,00
(P240,000 0 x 30%) P 72,0
72,000
00
Inc rea
reas se in land
la nd (P960,000
(P960,000 x 30%) 288,000
288,000
Inc rea
reas se in b uilding (P600,00
(P600,000 0 x 30%) 180,000
180,000
Dec
De c reas
rea se in eq uipment
uipme nt (P840,00
(P840,000 0 x 30
30% %) ( 25
252,0
2,000
00))
Increa
Inc reas se in b o nd
nds s p a yab le (P120
(P120,00
,000
0 x 30
30% %) ( 36
360,0
0,000
00)) 25
252,0
2,000
00
Positiv
Positive
e excess
exc ess:: G oo dwil
dw illl (exc
(excess
ess o f c ost o ver fair va
value)
lue) P 36
360,
0,00
000
0
The
The over/
over/ under valuation
valuation of ass
assets and liliab
ab ilities
ties are summari
ummariz zed a s fol
folllows:
ows:
Anton
Ant on C o. Anton C o.
Anton (Over) Under
Boo
ook k value Fair v va
a lue Valuation
Invento
Inve ntoririe
e s (sold in 20x4)
20x4) P1,200,000
P1,200,000 P1,440,000
P1,440,000 P 240,000
240,000
Land
La nd 1,080,000
1,080,00 0 2,040,000 960,00
960,000
0
Build
Build ing
ingss – ne
nett ( 10 yea r rema ining life) 1,80
1,800,00
0,0000 2,400,00
2,400,000 0 600,000
600,000
Equipmen
Equip mentt – net ( 7 yea r remaining
rema ining life)
life) 1,440
1,440,00
,000
0 60
600,0
0,000
00 ( 84
840,0
0,000
00))
Bo nd
nds s p a yab le (due
(d ue J a nua
nuary
ry 1, 20
20x9
x9)) ( 1,2
1,200,
00,00
000)
0) (1,320,
(1,320,00 000)
0) ( 12
120,0
0,000
00))
Net
Ne t P4,320,000 P5,160,000 P 840,000
A summary or dep
de p rec iation a nd a morti
mortiz
za tion adjus
a djustments
tments is a s follows:
Over/ 30% Current

Ac c ount Ad jus
justments to be
b e a mor
morti
tiz
zed Under thereof Life Year(20x4)
Year(2
Invento
Inve ntori
rie
e s (sold in 20x4)
20x4) P 240,000
240,000 P 72,000
72,000 1 P 72,000
72,000
Lan d
Land 960,000
960,000 288,000
288,000 - -
Build
Build ing
ingss – ne
nett ( 10 yea r rema ining life) 600
600,00
,000
0 180,000
180,000 10 18,000
18,000
Equipmen
Equip mentt – net ( 7 yea r remaining
rema ining life)
life) ( 84
840,0
0,000
00)) ( 25
252,0
2,000
00)) 7 (36,00
(36,000)
0)
Bo nd
nds s p a yab le (due
(d ue J a nua
nuary
ry 1, 20
20x9
x9)) ( 120
120,00
,000)
0) ( 36,00
36,000)
0) 5 ( 7,2
7,200
00))
Net
Ne t P 840,000 P 252,000 P 46,800
The
The foll
following
owing ar
are
e entri
entries rec orded by tthe
he parent in 20x4 in rrelati
elation
on to
to iits
ts investm
nvestment
ent in jjoin
ointt
venture:
J anuary 1, 20x4:
(1) Investment in DD C o mpa
mp a ny 2,016
2,016,00
,000
0
C a sh 2,016,000
2,016,000
A c qu
quired
ired 30%
3 0% joint c ontrol in D D C omp
om p a ny.
J(2)
anuary
C a sh1, 20x4 – Dec
Dec ember 31, 20x4: 216,000
216,000
Inves
Inve stment
tme nt in DD C o mpa
mp a ny (P720,000
(P720,000 x 30%) 216,000
216,000
Rec or
ord
d d iv
ividends
idends from
from DD C ompany.
December 31, 20x4:

(3) Investment in DD C o mpa
mp a ny 43
432,0
2,000
00
Inves
Inve stment
tme nt inc
incoo me (P1,440,000
(P1,440,000 x 30%) 432,000
432,000
Rec or
ord
d share
share in net income
income of DD C ompany.
December 31, 20x4:

(4) Investment inco
inc o me 46
46,80
,800
0
Investment
Investment in DD C ompa
omp a ny……………………
ny………… ………….. 46
46,8
,800
00
Rec ord amo rtiz
rtization
ation of all
alloc ate d exc ess of inventory,
equipment, building
building s and bonds pa yable.
Thus,, the inves

Thus investment
tment ba lanc e and investment inco me in the books
bo oks of T
TT
T C omp any is
is as follows:
Investment
Inves tment iinn J oint Venture
Venture (DD C
Comp
ompany)
any)
C o st, 1/1/
1/ 1/x4
x4 2,016,00
2,016,000
0 216,00
216,000
0 Dividen
Dividend d s – So n (720,000x
(720,000x 80%)
NI o f An
Anton
ton 46,80
46,800
0 Amo rti
rtization
zation
(1,440,000
(1,440 ,000 x 30%)
30%) 432,000
Ba lanc e, 1212// 31
31// x4 2,185
2,185,20
,200
0
Investment Income
Amo
Am o rtiz
rtiza
a tion 46
46,80
,800
0 NI o f So n
432,000 (P
(P1,440,000
1,440,000 x 30%)
30%)
38
385,2
5,200
00 Balanc
Bala nc e, 12
12// 31
31// x4
To
To chec
c heckk the ba lanc e of Inves
Investm
tment
ent in J oint
oint Ventu
Venturre (DD
(DD Company):
Comp any):
DD C omp a ny’s Stoc
Stoc kholde
kholderrs’ Equity,
Equity, 12
12// 31
31// 20
20x
x4:
C o mmo
mmon n stoc
to c k P3,600
P3,600,00
,000
0
Retained earnings
Retained
Reta ined ea rning
rningss,1/
,1/1/
1/20
20x4
x4 P 1,0
1,080
80,00
,000
0
Net
Ne t inco
inc o me – 20x4
20x4 1,440,000
1,440,00 0
Divide
Divid e nd
ndss – 20x4
20x4 ( 720,000
720,000)) 1,800,00
1,800,000
0
Boo k value of stoc kholde
kholderrs’ eq
equit
uity
y of DD C omp a ny,12/31/
ny,12/31/20
20x
x4 P5,
P5,40
400,
0,00
000
0
M ultiplied
ultiplied b y: Interest in J o int Venture
Ve nture 30
30%%
Bo ok value
va lue o f Interest in J oint Venture
Ve nture P1,620
P1,620,00
,000
0
Add: Unamortized allocated excess – 30% thereof
P252,000
P252,00 0 – P46,800,
P46,800, a mortiz
mo rtiza
a tion)
tion) 205,200
205,200
G o o d will 36
360,0
0,000
00
Investment
Inves tment in J oint Ve Ventur
nture
e (DD C o mpa ny) – eq
equit
uity
y method
metho d P2,18
P2,185,
5,20
200
0
Multtiple C hoic
Mul hoicee Problems
30. a
Books of X
In
Inv.
v. in J O X, c api
ap ital Jo urnal
urna l e ntry for se
se ttl
ttle
e me nt should be :
Z , c a pita l… … … … … … … … … .. 6,500
6,50 0
4,000 6,500 2,500 X , c a pita l… … … … … … … … 2,500
2,500 Y , c a pital
pita l… … … … … … … … 4,00 0
4,000
Books of Y
In
Inv.
v. in J O Y. c ap ital
2,500 6,500 4,000

4,000
Books
Boo ks of Z
Inv.. in J O
Inv Z, c ap ita
ita l
2,500 6,500
4,000
6,500
31.
Total
Total c redits - Inves
Investm
tment
ent in J oin
ointt Op erations
erations…………………………………P
…………………………………P 25,8
,8110
Total
Total debit
de bits
s - In
Inves
vestm
tment
ent in J oint
oint O perations
perations………………………………….
…………………………………. 19,7,75
50
Net inc
inc ome or total ga in (c(crred
edit
it ba lanc
lance)…………………
e)…………………………………….P
………………….P 6,
6,06
060
0
32. d
J ose,
ose, ca
capital
pital
8,500 investment
1,212
1,2 12 sha
hare
re in net
ne t inco
inc o me (P6,060
(P6,060 x 2/10)
2/ 10)
9,712
33
33.. a – The
The 20
20,00
,000
0 sha
shares
res sho
hould
uld b e valued
va lued a t mark
ma rket
et va lue, thus, P800
P800,00
,000
0 (20,00
(20,000
0 sha
shares
res x P40
P40
pe
perr s
sha
harre)
34. b
J ose,
ose, ca pital
pital
20,000
20,000 sha res a t P40/s
P40/ sha re P800,00
P800,000 0 P 198,000
198,000 (4,500 x P44) – Sa les
Exp
Exp enses 3,000
125,000
125,000 (5,000 x P25)
4,700
4,70013,600*
13,600* (13,600
(13,600 x P1) - C a sh d ividend
ivide nd
168,000
168,000 (6,000 x P28) - Sale
Sa les
s
266,000 (7,600 x P35)
P807,700 P 770,600
J oint oper
op eration
ation loss
loss P 37,
37,1
100
*
9/
9/30
30 Sha res issued
issued (6,000 + 10,000 + 4,000) 20,000
10/20 So ld
10/20 (4,500)
(4,500)
11/ 1 Sto
toc
c k d ividend
ivide nd (20,000
(20,000 – 4,500)
4,500) x 20% 3,100
3,100
11/15
11/ 15 So ld (5,000)
(5,000)
Ba lanc e of shar
ha res outs
outstand
tand ing b efor
efo re c a sh d ivide
ividend
nd 13
13,6
,600
00
Ther
Therefor
efore,
e, R
Rox
oxas
as share would be P11
P11,13
,130 (P37,
(P37,10
100
0 x 6,
6,0
000/ 20,0
,00
00 shares)
hares)
35
35.. c
Investment
Investment iin
n J oint Op erations
Sha
hare
re in ne
nett loss P400,000
P400,000 Inves
Inve stment
tme nt (10,000
(10,000 sha res x P40)
P37,100 x (10,000/20,000)
(10,000/ 20,000) P18,550
P381,450
36. b
Unrea liz
Unrea lized los
losss due to dec
d ec line
line in the value
va lue of shares a t the time of investment
investment
(P62
(P62 – P40) x 4,000 sha res P68,000
Sha
hare
re in joint op era
eration
tion (P37,
(P37,101000 x 4/20
4/ 20)) __
__7,4
7,420
20
Reduc
Red uction
tion o f loss b y c a sh d ivid
ivid en
endd (P13,600
(P13,600 x 4/20)
4/ 20) P98,14
P98,1400
37. a
Investment iin
Investment n J oint Operations
Op erations
b efore
efo re ne
nett inco
inc o me o r loss 15
15,00
,000
0 25
25,00
,000
0 en
endd ing inventory
invento ry
10
10,00
,000
0 ne
nett iinc
nc ome
38. a (A
(A-- P
P10,000
10,000 x 50% = P5,000; B – P
P10,000
10,000 x 30% =P3,000; C – P10,000 x 20%
20%)
39. a
J oint O perations
perations Anson,
Anson, C ap ital
Purc ha se s
Purcha 20,000
20,000 77,000 Sales
Sales (? ) Uns
Unso
o ld mercha
merc hand
ndis
ise
e 60
600
0 20,00
20,0000
C o ntr/
ntr/Inve
Inves
st 20,000
20,000 18,600
18,6 00 Profit(50%
Profit(50%)
Expenses 800
1,800 600 38,600
42,600 77,000 00 to Alas

38,000
38,0 Ala s
34,400 (P16,000
(P16,000 + P18,400)
2,800 (P600 + P2,200)
Unsold merchandise
37,200
37,200 Net
Ne t p rofit
40.
40. c – refer
refer to No. 39
39 c omputati
omp utation.
on.
41. a
Investment in J oint Op erations
Investment Santo
anto,, c ap ital
Purc hases
Purcha ses 10,0
10,000
00 7,200
7,200 sales
sale s 10,000
10,0 00 C on
ontri
trib
b ution/
ution / Invest
Inve st
Freig
Freig ht-in 240 5,12
5,120 0 unsold 910 Shahare
re in NI
Freight-o
Freig ht-o ut 260 (P10,000
(P 10,000 + P240) x 1/2
1/ 2
10,500 12,320 10,910
1,820
42. a – refer to No. 41 for computation

43
43.. c
Investment
Investment in
in J oint Op erations
b e fore
fo re sa le 6,500 3,500
3,500 Sa les
Net
Ne t los
loss 3,000
N, ca pital O, ca pital
1,100 14,500 1,100 6,500
13,400 5,400

Distribution of Loss:
M N O Tota
otall
Sa lary
la ry P 300 P - P - P 300
Balanc
Bala nc e , e qu
quaa lly (1,100)
(1,100) (1,100)
(1,100) (1,100
(1,100)) (3,300
(3,300))
P ( 900
900)) P(1,100)
P(1,100) P(1,100) P(3,000)
44
44.. a – refer to No.
No . 43 for co mputation
mputa tion
45. b
Revenues
Total
Total c ash
ash rec
rec eipts (P7
(P78
8,92
,920 + P6
P65
5,24
,245) P1
P14
44,3
,345
45
Less:: C a sh inves
Less inve stme
tments
nts (P30,000 + P20,000) 50,000
C a sh sa les P 94,345
94,345
Ad
Add d : Proc
Proc ee
eed d s from
from sa le of rema ini
ining
ng a ssets 60,0
60,000
00
Total
Total Revenue P1
P15
54,3
,345
45
Less:: Expe
Less Expenses
nses (P62,275
(P62,275 + P70,695) 132,970
Net income
inco me P 21,3
21,375
75
46
46.. c
Benin, ca pital Suca t, ca pital
Rec eip ts 78,920
78,920 30,000
30,000 C o ntribution
ntributio n Rec eip ts 65,4
65,425
25 20,0
20,000
00 C o ntributio
ntributionn
62,275
62,2 75 Disbu
Disburs
rse
e ment
me nt 70,695
70,695 Disburs
Disbursem
emen
entt
12,825
12,8 25 Sha
hare
re in NI (3/5)
(3/ 5) 8,550
8,55 0 Sha
hare
re in NI (2/5)
(2/ 5)
78,920 105,100 65,425 99,245
26,180 33,820
47. d
N’s books
bo oks:: it
it sshow
hows s P5,0
P5,000
00 rec eivab le from P, and
a nd P3,00
P3,000
0 pa yable
yab le to O ; thus,
thus, N should
should
rec eive net
ne t ca
c a sh of P2,000:
P2,000:
O , c a pital
pita l 3,
3,00
000
0
C a sh 2,000
2,000
P, c a p ita
ita l 5,
5,00
000
0
O ’s bo
books
oks:: it
it s
show
hows s P5,0
P5,000
00 rec eivab le from
from P, and P2,000
P2,000 p a yable
yab le to N; thus,
thus, O sho
hould
uld
rec eive net
ne t ca
c a sh of
o f P3,00
P3,000:
0:
N, c a p ita
ita l 2,
2,00
000
0
C a sh 3,000
3,000
P, c a p ital 5,
5,00
000
0
P’s books: it shows P2,000 payable to N and P3,000 payable to O; thus, in final settlement, P
should pa y a totatotall of P5,000
P5,000;; P2,00
P2,000
0 and P3,000
P3,000 to N and
a nd O , rrespe
espec c tiv
tively:
ely:
N, c a p ita
ita l 2,
2,00
000 0
O , c a pital
pita l 3,
3,00
000 0
O , c a pital
pita l 3,
3,00
000
0
C a sh 5,000
5,000
50
50.. b – refer to No.
No . 2
25
5 for further
further dis
disc
c us
uss
sion.
The
The Inco
Inco me ffrrom Inves
Investm
tment
ent in Bask
asket Co. on D
Dec
ec ember 31 is as fol
folllows:
ows:
Sha
hare
re in ne
nett inco
inc ome (P90,000 x 40%] P 36,000
36,000
Amorrtiza
Amo tiza tion of a lloc
lloc a ted exc
excess
ess ( 16,4
16,400
00))
Income
Inc ome from
from Investment
Investment on Dec ember
emb er 31 P 19
19,6
,600
00
51. d
The
The joint arrange
arrangement
ment is a joi
joint
nt ventur
venture
e bec ause
ause it need s unanim
unanimous
ous co nsent
nsent to all pa rti
ties
es
involved
involved.. The
The p a rties rec
recog
ogniz
nize
e their rights
rights to the net a ssets of Harris
Harrison
on C ompa
omp a ny as as
investments and account for them using the equity method.
The
The Inves
Investm
tment
ent in Goldman Co Co.. as of Decemb
December er 31, 2015 is as follows
follows::
Ac q uis
uisiti
ition
on c ost, J a nuary
nua ry 1, 20
201313 P 60
600,0
0,000
00
Add (deduct):
Sha
hare
re in ne
nett inco
inc ome [(P140,000
[(P140,000 x 3 yea rs)
rs) x 40%] 168
168,000
,000
Sha
hare
re in d ividend
ivide ndss [(P50,000 x 3 yea rs)
rs) x 40%] (60,000)
(60,000)
Amorrtiz
Amo tiza tion of a lloc
lloc a ted exc
excess
ess ( 0)
Investment
Inves tment b a lanc e on Dec ember emb er 31 P 708,
708,00
000
0
C o st of investmen
investmentt P 60
600,0
0,000
00
Less:: Boo
Less Book k value
va lue o f interest
inte rest a c q uired (40% x P1,200,000
P1,200,000)) 480,000
480,000
Alloc a ted excess
exc essP
P 120,0
120,00000
Less
Les s: O ver/
ver/unde
underrvaluation
va luation of a ssets a nd lia
lia bilities
bilities 0
G o od will P 12
120,0
0,000
00
Ther
There
e iis
s no indica
indica tion
tion as to iimpair
mpairment
ment of good will
will.
52. d
To
To deter
de termi
mine
ne whether a c ontracontrac tual
tual a rrangement
ange ment gives
gives pa rti ties
es control
control of a n a rrangement
ange ment
c ollec tively, it is ne
necc essa
essa ry firs
first to identify
ide ntify the releva nt ac
a c tivities
tivities o f that arr
a rra
a ng
ngeme
ement.
nt. Tha
hatt iis
s,
what are the activities that significantly affect the returns of the arrangement?
When identifying the relevant activities, consideration should be given to the purpose and
design of the arrangement. In particular, consideration should be given to the risks to which
the joint arrangement was designed to be exposed, the risks the joint arrangement was
designed to pass on to the parties involved with the joint arrangement, and whether the
pa rties
ties are ex
e xpo sed to so me o r all of thos
tho se risks
isks..
In many cases, directing the strategic operating and financial policies of the arrangement
will be the a c tivit
will tivity
y that mo
mos st s
signifi
ignific
c a ntly a ffec ts returns.
eturns. Often,
O ften, the a rra ngement
nge ment requir
req uires
es the
parties to agree on both of these policies. However, in some cases, unanimous consent may
be required to direct the operating policies, but not the financial policies (or vice versa). In
suc
uch h ca
c a ses, since the ac a c tivi
tivities
ties a re d dir
irec
ec ted by d diff
ifferent
erent pa rt
rties
ies,, the pa rtities
es would
wo uld need
nee d to
a ssess which
whic h ofo f those two a c tivit
tivities
ies (operating
(op erating or financ ing) mos mo st s signifi
ignific
c a ntly a ffec ts returns,
eturns,
and whether there is joint control over that activity. This would be the case whenever there is
more than one activity that significantly affects returns of the arrangements, and those
activities are directed by different parties.
Based on the ownership structure, even though Wallace can block any decision, Wallace
does not control the arrangement, because Wallace needs Zimmerman to agree —
therefore joint control between Wallace and Zimmerman (since their votes and only their
votes, together meet the requirement). Because they are the only combination of parties
that collectively
unanimously control the arrangement, it is clear that Wallace and Zimmerman must
agree.
The
The ap propriate
propriate method
method for the joint vent
ventur
uree is the equity
equity method
method.. The Inc
Inc ome fr
from
om
Investment
Investment in Gold
G old C o. o n Dec ember
emb er 31,
31, 201
2015
5 iis
s a s follows:
Sha
hare
re in ne
nett inco
inc o me (P140,000
(P140,000 x 40%) P 56,000
56,000
Amorrtiz
Amo tization of allocate
alloc ated
d excess ( 0)
Income
Inc ome from
from Investment
Investment on Dec ember
emb er 31,
31, 20
2015
15 P 56,0
56,000
00

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(2

For purposes of c ompari

Alternative 1: If go od will is found to exis

Ad a ms: 70% x 6/10

Although either method

For purposes of c ompari

For purposes of c ompari

Adjusted capital balances equivalent to the total shares issued……P267,000

Method: Bonus to prior/old partners

20% of G o o d will =P10,000

M onta na is a ssigned 30 30% % of a ll p rofits a nd loss losses and would,

Amo unt p a id P 80,0

29. P40,000 - rre e fer

For the pur

For the pur

*XX: 75% x 3/5

Note for the foll

Sale of assets and distribution

Beg inning b a lanc

Assumed loss absorption:

15. a Prior c a p ital

Safe Payments Schedule

92,000 ( 1,500 ) 93,500 92,000

92,000 0 92,000 92,000

Note that the c ompomputation

Decrease highest LAP

Dec rea se LAPs

8,000 99,000 -0- (49,750) (35,350) (21,900)

September, 20x4: Sale of

Prof it a nd loss sharing ratio

Decrease highest LAP to next

Decrease LAP to next highest

(200,000) (200,000) (200,000) (100,000) (60,000) (40,000)

C a sh ba lanc e, Sep tembe

AE will receive nothing; the entire P150,000 will be paid to BT.

C a p ital b a lanc es 20H

C a p ital b a lanc es J,000

or, alternatively: Using

C a sh rec eived b y the p a rtner Kemp P 60,0

C a sh rec eived b y Tree P 6,

*P550,000 – P300,000 – P80,000 – P70,000 = P100,000

*P550,000 – P300,000 – P80,000 – P70,000 = P100,000

Sheldon: (P10,000 x .25)

Fred: P20,000 + (P10,000 x .45)

Fully Sec ured C reditors

Stoc k holde rs’ e quity

Unsec ured priority

Unsec ured nonpriority

Payment rate to general

Amounts to be paid to:

Liabilities with Priority:

Unsec ured Liab iliti

Payment On Notes Payable:

Unsec ured Lia

11. b - P20,000 + P80,000 + [P170,000 – (P150,000

Assets to b e Rea liz

22. P320,000 = P300,000 + P20,000

43. P119,700 – refer to No. 42

57. P255,900 =P72,000 + P26,900 + P124,005 (dis (d isc

ava ilab le to unsecured c

ava ilab le to unsecured c

6. P96,000 =Free a sse

Rec overy on mortga