ACCTG 304 ACCOUNTING FOR SPECIAL TRANSACTIONS

PROBLEM 1
On June 1, 2020, Makati and Taguig decided to pool their assets and form a partnership, to be
known as Petmalu Partnership. The balance sheet on June 1, 2020 before the formation was as
follows:

Makati Taguig
Cash P198,000 P316,800
Accounts Receivable 1,296,000 1,440,000
Allowance for doubtful accounts (32,400) (36,000)
Note Receivable 360,000 -
Merchandise Inventory 115,200 108,000
Prepaid Rent - 36,000
Transportation equipment 720,000 -
Accumulated depreciation (72,000) -
Computer equipment - 576,000
Accumulated depreciation - (43,200)
Total assets P2,584,800 P2,397,600

Accounts payable – trade P36,000 P43,200

Notes payable - 360,000
Capital 2,548,800 1,994,400
Total liabilities and capital P2,584,800 P2,397,600

The new partnership is to take over the business assets and assumes business liabilities of the
partners. Capitals of the partners are to be based on net assets invested after the following
adjustments:
a. 4% of the accounts receivable of Makati is estimated to be uncollectible while the accounts
receivable of Taguig is estimated to be 98% realizable.
b. Interest of 15% on notes receivable on Makati dated April 1, 2020 should be accrued.
c. The merchandise inventory of Makati should be valued at P110,000 and P8,000 of the
inventory of Taguig is considered worthless.
d. 4/5 of the prepaid rent has expired.
e. The transportation equipment of Makati is appraised at P660,000.
f. The replacement cost of the computer equipment of Taguig is determined to be P600,000.
g. Interest at 10% on notes payable of Taguig dated May 1, 2020 should be accrued.
h. Taguig had office supplies on hand which have been charged to expense amounting P8,000.
These are still to be used by the partnership.
i. Accrued expense of P6,000 is to be recognized in the books of Makati.

The partnership agreement provides that Makati and Taguig share profit and losses of 60% and
40%, respectively.

Questions:
1. How much is the adjusted capital of Makati?
2. How much is the adjusted capital of Taguig?
ACCTG 304 ACCOUNTING FOR SPECIAL TRANSACTIONS
Assuming the partners further agreed to bring their capital balances proportionate to their profit or
loss ratio, the new capital of the partnership is based on adjusted capital of Makati so that Taguig
may either withdraw or invest additional cash.
3. How much is the total asset?
4. How much is the total liabilities?
5. How much is the total capital?
6. How much is the total cash?

Assuming the partners further agreed to bring their capital balances proportionate to their profit or
loss ratio, the new capital of the partnership is based on adjusted capital of Taguig so that Makati
may either withdraw or invest additional cash.

7. How much is the total asset?

8. How much is the total liabilities?
9. How much is the total capital?
10.How much is the total cash?

Assuming the partners further agreed to bring their capital balances proportionate to their profit or
loss ratio, assume bonus method was used:

11.How much is the total asset?

12.How much is the total liabilities?
13.How much is the total capital?
14.How much is the total cash?

Assuming the partners further agreed to bring their capital balances proportionate to their profit or
loss ratio, assume goodwill method was used:

15.How much is the total asset?

16.How much is the total liabilities?
17.How much is the total capital?
18.How much is the total cash?

Assuming the partners further agreed the following adjustments;

 Only Makati possess the technical expertise required by the business so Taguig agreed to
provide 10% of his contributed capital as bonus to Makati, compute for the following:

19.How much is the total asset?

20.How much is the total liabilities?
21.How much is the total capital?
22.How much is the total cash?

 Owing to the business expertise of Makati and Taguig, they concurred that they will be
credited with 20% goodwill based on their contributed capital, compute for the following:

23.How much is the total asset?

ACCTG 304 ACCOUNTING FOR SPECIAL TRANSACTIONS
24.How much is the total liabilities?
25.How much is the total capital?
26.How much is the total cash?