Lupisan Baysa

CHAPTER 1
Partnership Formation and Operations
EXERCISES
Exercise 1 –1
1.a Campos, Capital 14,000

Allowance for Uncollectible Accounts 14,000
Goodwill 30,000
Campos, Capital 30,000
Accumulated Depreciation 6,000

Furniture and Fixtures 12,500

Cash 40,000
1.b Cash (P83,500 x 1/2) 41,750

Tomas, Capital 41,750
To record contributions of Tomas
Req. 2.
Campos and Tomas Partnership
Statement of financial Position
July 1, 2008
Assets Liabilities & Owners’ Equity

Cash P41,750 Accounts Payable P90,000
Accounts Rec’l P60,000 Campos, Capital 83,500
Less Allowance for Tomas, Capital 41,750
Uncol Accts. 24,000 36,000
Inventory 100,000
Furniture 7,500
Goodwill 30,000 ________
TOTAL LIABILITIES &
TOTAL ASSETS P215.250 OWNERS’ EQUITY P215,250
Exercise 1-2
1. Cash 90,000
Accounts Receivable 36,000
Merchandise Inventory 54,000
Equipment 25,000
Accounts Payable 21,000
Notes Payable 18,000
Bernal, Capital 164,000
AA 1 - Chapter 1 (2008 edition)
page 2
2. Cash 100,000
Camino, Capital 100,000
Exercise 1 –3
1. Cash 800,000
Land 540,000
Building 900,000
Legaspi, Capital 800,000
Sabino, Capital 1,440,000
2. Cash 800,000
Land 540,000
Building 900,000
Legaspi, Capital 1,120,000
Sabino, Capital 1,120,000
Exercise 1 - 4
1. Income Summary 238,000

Santos, Capital (P238,000 x 260/425) 145,600
Abad, Capital (P238,000 x 165/425) 92,400

Santos, Capital (P238,000 x 3,125/5,000) 148,750
Abad, Capital (P238,000 x 1,875/5,000) 89,250
Santos:
Jan. 1 – Mar. 31 P260,000 x 3 P780,000
Apr. 1 – Apr. 30 290,000 x 1 290,000
May 1 – July 31 360,000 x 3 1,080,000
Aug. 1 – Dec. 31 320,000 x 5 1,600,000
P3,750,000/12 P312,500
Abad:
Jan. 1 – May 31 P165,000 x 5 P825,000
June 1 – Aug. 31 215,000 x 3 645,000
Sept.1 – Dec. 31 195,000 x 4 780,000
P2,250,000/12 P187,500

Santos, Capital 147,750
Abad, Capital 90,250
Santos Abad Total
Interest on ave. capital P 18,750 P 11,250 P 30,000
Salaries to partners 150,000 100,000 250,000
Balance - equally ( 21,000) ( 21,000) (42,000)
Net Profit P 147,750 P 90,250 P238 000
page 3

Abad, Capital 73,160
Santos Abad Total
Bonus to Santos
25% (P238,000 - B) P 47,600 P 47,600
Interest of 6% on excess
average investment
6% (P312,500 - P187,500) 7,500 7,500
Balance - 3:2 109,740 73,160 182,900
Net Profit P 164,840 P73,160 P238,000

Santos, Capital (P238,000 x 15/25) 142,800
Abad, Capital (P238,000 x 10/25) 95,200
Exercise 1 – 5
Sanchez and Gomez
Schedule of Distribution of Net Profit
December 31, 2008
Sanchez Gomez Total
6% interest on average capital P 6,246 P 14.440 P 20,686
10% bonus on net profit after interest 8,331 8,331
Salaries 20,000 30,000 50,000
Balance – 70%, 30% 17,488 7,495 24,983
Net Profit P52,065 P51,935 P104,000
Computation of average capital:

Sanchez, Capital Gomez, Capital
Jan. 1 P81,600 x 3 P 244,800 Jan. 1 P224,000 x 7 P1,568,000
Apr. 1 P111,600 x 9 1,004,400 Aug. 1 P264,000 x 5 1,320,000
P1,249,200 P2,888,000
Ave. capital (P1,249,200/12) P104,100 Ave. capital (P2,888,000/12) P240,667
Computation of bonus: P160,000 x 65%= P104,000– P20,686 x 10% = P8,331
2.
Sanchez and Gomez
Statement of Partners’ Capital
For the Year Ended December 31, 2008
Sanchez Gomez Total

Capital, January 1 P 81,600 P224,000 P305,600
Additional investment 30,000 40,000 70,000
Net profit 52,065 51,935 104,000
Drawings ( 41,600) ( 41,600) ( 83,200)
Capital, December 31 P122,065 P274,335 P396,400
page 4
3. Sanchez Gomez Total

6% interest on average capital P 6,246 P14.440 P 20,686
10% bonus on net profit after interest 8,331 8,331
Balance – Salary ratio 34,083 40,000 74,983
Net Profit P48,660 P 55,340 P104,000
Exercise 1-6
1. Mercado Puzon Total

8% interest on beg capital P 48,000 P 54.000 P102,000
Salaries 225,000 112,500 337,500
Balance 3:2 ( 38,700) ( 25,800) ( 64,500)
Net Profit P234,300 P140,700 P375,000
2. Mercado Puzon Total

8% interest on beg capital P 48,000 P 54.000 P102,000
Balance – Salary ratio 182,000 91,000 273,000
Net Profit P230,000 P145,000 P375,000
3. Puzon P375,000 x 2/3 = P150,000; however, minimum guaranteed amount is P160,000

Mercado P375,000 – P160,000 = P215,000
Exercise 1 – 7
Net profit after salary, interest and bonus P374,000

Interest P200,000 x 10% P20,000
Salary P8,000 x 12 96,000 116,000
Net profit before interest and salary P490,000
Bonus rate x 25%
Amount of bonus to Lirio P122,500
Exercise 1 – 8
1. B = .25 x P500,000 = P125,000
2. B = .25 x P500,000 = P100,000

1.25
3. B = .25 (P500,000 - Tax)

T = .35 x P500,000 = P175,000
B = .25 (P500,000 – P175,000)
B = P 81,250
4. B = .25 (P500,000 - B - Tax)

B = .25 (P50,0000 - B - P175,000)
B = P81,250 - .25B
B = P81,250/1.25
B = P65,000
page 5
Exercise 1 - 9
1.
Estrella Felipe Garcia Jimenez Total
Salary P40,000 P20,000 P 60,000
Bonus 6,000 4,000 10,000*
Interest 10,000 9,000 P 4,000 P 9,400 32,400
Balance 26,900 26,900 26,900 26,900 107,600
Total P82,900 P59,900 P30,900 P36,300 P210,000
*B = 5% (P210,000 – B) = P10,000
2.
Salary P40,000 P20,000 P 60,000
Interest 10,000 9,000 P 4,000 P 9,400 32,400
Balance ( 43,100) ( 43,100) ( 43,100) ( 43,100) (172,400)
Total P 6,900 (P 14,100) (P39,100) (P33,700) (P 80,000)
3.
Interest P10,000 P 9,000 P 4,000 P 9,400 P 32,400
Bonus 6,000 4,000 10,000
Salary 25,067 12,533 _______ ________ 37,600*
Total P41,067 P25,533 P 4,000 P 9,400 P 80,000
*P37,600 x 4/ 6 = P25,067; P37,600 x 2/ 6 = P12,533
Exercise 1-10
1. Fees Earned 750,000

Joseph, Capital 50,000
Luis, Capital 200,000
Operating Expenses 100,000
Income Summary 500,000

Joseph Capital 150,000
Luis, Capital 250,000
Nicolas, Capital 100,000
Exercise 1 – 11
1.
Benito Cabral Duenas Total
Capital balances before payment
of cash P120,000 P100,000 P100,000 P320,000
Required capital balances based on
on profit and loss ratio 128,000 112,000 80,000 320,000
Cash received (paid) (P 8,000) (P 12,000) P 20,000 -
page 6
Journal entry on the partnership books
Duenas, Capital 20,000

Benito, Capital 8,000
Cabral, Capital 12,000
2.
Capital balances before additional
cash investment P120,000 P100,000 P100,000 P320,000
Required capital balances based on
lowest possible cash investment* 160,000 140,000 100,000 400,000
Required additional cash investment P 40,000 P 40,000 - P 80,000
* P120,000/40% = P300,000; P100,000/35% = P285,174; P100,000/25% = P400,000
Journal entry on the partnership books
Cash 80,000
Benito, Capital 40,000
3.
Capital balances P120,000 P100,000 P100,000 P320,000
Required capital 120,000 105,000 75,000 300,000
Additional investment(withdrawals) -------- 5,000 (P 25,000) P 20,000
Duenas, Capital 25,000

Cash 20,000
Exercise 1 – 12
Enriquez and Flores
Schedule Showing Adjustments in Capital
Reported net profit P400,000

Adjustments:
Equipment purchased charged to expense P200,000
Depreciation on equipment ( 20,000)
Overstatement of 2008 ending inventory ( 24,000)
P156,000
x 65% 101,400
Corrected net profit P501,400
page 7
Distribution of 2008 net profit

Enriquez Flores Total
Salaries P120,000 P120,000 P240,000
Interest 30,000 45,000 75,000
Balance 51,000 34,000 85,000
P201,000 P199,000 P400,000
Distribution of 2008 corrected net profit

Salaries P120,000 P120,000 P240,000
Interest 30,000 45,000 75,000
Balance 111,840 74,560 186,400
P261,840 P239,560 P501,400
Adjustments P 60,840 P 40,560 P101,400
2. Equipment 200,000
Enriquez, Capital 60,840
Flores, Capital 40,560
Inventory 24,000
Income Tax Payable 54,600
PROBLEMS
Problem 1 – 1
1. a. Merchandise, Inventory 60,000

Ruiz, Capital 60,000
b. Ruiz, Capital 30,000

c. Interest Receivable 1,500

Ruiz, Capital 1,500
P150,000 x 6% x 2/12 = P1,500
d. Ruiz, Capital 7,500

Interest Payable 7,500
P300,000 x 10% x 3/12 = P7,500
e. Accumulated Depreciation 180,000

Ruiz, Capital 60,000
f. Office Supplies 5,000

Ruiz, Capital 5,000
g. Cash 524,500
page 8
Ruiz and Santos

Statement of Financial Position
December 1, 2008
Assets
Cash P 764,500
Notes Receivable 150,000
Accounts Receivable P900,000
Less Allowance for Uncollectible Accounts 90,000 810,000
Interest Receivable 1,500
Office Supplies 5,000
Total Assets P2,511,000
Liabilities and Capital
Notes Payable P300,000
Total Liabilities P 937,500
Ruiz, Capital P1,049,000
Total Capital 1,573,500
Total Liabilities and Capital P2,511,000
Problem 1-2
1. Cash 518,000
Merchandise Inventory 1,152,000
Tomas, Capital 1,670,000
2. Accounts Receivable 1,792,000

Office Equipment 160,000
Goodwill 198,000
Vicente, Capital 1,670,000
Tomas and Vicente

June 1, 2008
Assets
Cash P 518,000
Accounts Receivable P1,792,000
Less Allowance for Uncollectible Accounts 160,000 1,632,000
Inventories 1,408,000
Office Equipment 160,000
Goodwill 198,000
page 9
Liabilities and Capital

Accounts Payable P 576,000
Tomas, Capital P1,670,000
Vicente, Capital 1,670,000 3,340,000
Problem 1 – 3
1. Merchandise Inventory 3,000

Goodwill 3,000
Accumulated Depreciation 900
Equipment 2,000
Rosas, Capital 3,900
Cash 5,000
Equipment 12,000
Goodwill 3,000
Perlas, Capital 125,000
2. Cash 5,000
Equipment 12,000
Goodwill 3,000
Perlas, Capital 125,000
Cash 7,000
Equipment 7,000
Goodwill 3,000
Rosas, Capital 100,000
Problem 1 – 4
1. Cash 900,000
Equipment 3,000,000
Notes Payable 1,050,000
Serrano, Capital 4,350,000
page 10
Cash 600,000
Land 6,000,000
Mortgage Payable 1,950,000
Torres, Capital 4,650,000
Torres, Capital 150,000

Serrano, Capital 150,000
Purchases 900,000

Cash 720,000
Mortgage Payable 300,000

Interest Expense 120,000
Cash 420,000
Notes Payable 225,000

Cash 300,000
Accounts Receivable 3,450,000

Sales 3,450,000
Cash 3,150,000
Accounts Receivable 3,150,000
Selling and General Expenses 870,000

Cash 630,000
Accrued expenses 90,000
Serrano, Drawing 351,000

Torres, Drawing 351,000
Cash 702,000
Income Tax 204,750

Inventories, end 600,000

Sales 3,450,000
Inventories, beginning 1,500,000
Purchases 900,000
Income Tax 204,750
page 11

Serrano Torres Total

Interest on beginning capital P180,000 P180,000 P360,000
Salaries 150,000 100,000 250,000
Remainder – 60%, 40% ( 137,850) ( 91,900) ( 229,750)
Net Profit P192,150 P188,100 P380,250

Serrano, Drawing 351,000
Torres, Drawing 351,000
Serrano and Torres Partnership

Statement of Recognized Income and Expenses
Sales P3,450,000
Cost of Goods Sold:
Inventories, beginning P1,500,000
Purchases 900,000
Cost of Goods Available for Sale P2,400,000
Less Inventories, end 600,000 1,800,000
Gross Profit P1,650,000
Operating Income P 780,000
Net Profit before Income Tax P 585,000
Income Tax 204,750
Net Profit P 380,250
Serrano and Torres Partnership

December 31, 2008
Assets
Current Assets:
Cash P1,878,000
Accounts Receivable (P3,450,000 – P3,150,000) 300,000
Inventories 600,000 P 2,778,000
Property, Plant and Equipment:
Land P6,000,000
Equipment P3,000,000
Less Accumulated Depreciation 150,000 2,850,000 8,850,000
page 12
Liabilities
Current Liabilities:
Accounts Payable (P900,000 – P720,000) P180,000
Accrued Expenses 90,000
Income Tax Payable 204,750 P 474,750
Long-term Liabilities:
Notes Payable (P1,050,000 – P225,000) P 825,000
Mortgage Payable (P1,950,000 – P300,000) 1,650,000 2,475,000
Total Liabilities P 2,949,750
Capital
Serrano, Capital P4,341,150
Torres, Capital 4,337,100
Total Capital
8,678,250
Problem 1 - 5
1. P2,700,000 (P200,000 + P1,100,000 + P500,000 + P1,500,000 – P600,000 = P2,700,000)

2 P2,600,000. (P2,500,000 + P2,700,000) / 2 = P2,600,000
Problem 1 – 6

Bernabe, Capital 505,800
Burgos, Capital 194,200
Bernabe Burgos Total
Interest on beg. capital P 28,800 P 35,200 P 64,000
Balance – 3:1 477,000 159,000 636,000
Net Profit P 505,800 P 194,200 P700 000

Salaries P 140,000 P 260,000 P400,000
Interest on end capital 48,000 60,000 P108,000
Balance – Equally 96,000 96,000 96,000
Net Profit P 284,000 P 416,000 P700 000

Salaries P 90,000 P 170,000 P260,000
Interest on average. cap 49,000 50,800 99,800
Balance – 3:1 255,150 85,050 340,200
Net Profit P 394,150 P 305,850 P700 000
page 13
Bernabe:
Jan. 1 – May 31 P360,000 x 5 P1,800,000
June 1 – Oct. 31 460,000 x 5 2,300,000
Nov, 1 – Dec. 31 400,000 x 2 800,000
P4,900,000/12 P408,333
Burgos:
Jan. 1 – June 30 P440,000 x 6 P2,640,000
July 1 – Oct. 31 360,000 x 4 1,440,000
Nov.1 – Dec. 31 500,000 x 2 1,000,000
P5,080,000/12 P423,333

Salaries P 100,000 P 200,000 P300,000
Interest on average. cap 40,833 42,333 83,166
Balance – 40%, 60% 126,734 190,100 316,834
Net Profit P 267,567 P 432,433 P700 000

Salaries P 100,000 P 100,000 P220,000
Interest on beg. cap 28,800 35,200 64,000
Bonus 43,600 43,600
Balance – 2:3 156,960 235,440 392,400
Net Profit P 329,360 P 370,640 P700 000
B = 10%(NI –S – I)
Problem 1 – 7
Sandy Tammy Manny Total
1. 6% interest on capital P 16,800 P 12,000 P 7,200 P 36,000
Salaries 48,000 40,000 88,000
Balance – 5:3:2 ( 74,500) ( 44,700) ( 29,800) (149,000)
Net Profit P(57,700) P 15,300 P 17,400 P(25,000)

Salaries 48,000 40,000 88,000
Balance – 5:3:2 ( 32,000) ( 19,200) ( 12,800) ( 64,000)
Net Profit P( 15,200) P 40,800 P 34,400 P 60,000

Salaries 48,000 40,000 88,000
Bonus 13,500 13,500
Balance – 5:3:2 56,250 33,750 22,500 112,500
Net Profit P 73,050 P107,250 P 69,700 P250,000
page 14
B = (P250,000 – P36,000 – P88,000 – P72,000)25% = P13,500
Problem 1 - 8
1. Delmar Pilar Total

5% interest on capital P 2,500 P 1,500 P 4,000
Salaries 12,000 8,000 20,000
20% bonus on net profit 22,100 22,100
Balance – capital ratio 40,250 24,150 64,400
Net Profit P76,850 P33,650 P110,500
2. Sales 480,000
Cost of Goods Sold 210,000
Income Taxes 59,500

Delmar, Capital 76,850
Pilar, Capital 33,650
Delmar, Capital 6,000

Pilar, Capital 10,000
Delmar, Drawing 6,000
Pilar, Drawing 10,000
Delmar and Pilar Company

Statement of Changes in Partners’ Capital
Delmar Pilar Total

Capital balances, January 1, 2008 P 50,000 P30,000 P 80,000
Add Distribution of net income for 2008:
Interests P 2,500 P 1,500 P 4,000
Salaries 12,000 8,000 20,000
Bonus 22,100 22,100
Balance - capital ratio 40,250 24,150 64,400
Total share in net profit P 76,850 P33,650 P110,500
Total P126,850 P63,650 P190,500

Less Drawings 6,000 10,000 16,000
Capital balances, December 31, 2008 P120,850 P53,650 P174,500
page 15
Problem 1 - 9
Ramos, Gonzales and Martinez

For Three Years Ended December 31, 2008
Ramos Gonzales Martinez Total

Capital, January 1, 2006 P 80,000 P 48,000 P 40,000 P 168,000
Distribution of net loss (Sch. 1) ( 2,000) ( 1,520) ( 2,000) ( 5,520)
Withdrawals (12,000) (14,480) (16,000) (42,480)
Capital, December 31, 2006 P 66,000 P 32,000 P 22,000 P120,000
Distribution of net profit (Sch. 2) 7,960 8,320 7,720 24,000
Withdrawals (13,960) (16,320) (17,720) (48,000)
Capital, December 31, 2007 P 60,000 P 24,000 P12,000 P 96,000
Distribution of net profit (Sch. 3) 21,840 18,840 18,120 58,800
Withdrawals (20,400) (24,000) (21,200) (65,600)
Capital, December 31, 2008 P 61,440 P 18,840 P 8,920 P 89,200
Schedule 1 - Distribution of 2006 net loss

Salaries to partners P 9,600 P 12,000 P 12,000 P 33,600
Interest of 6% on beg. Capital 4,800 2,880 2,400 10,080
Balance – equally (16,400) (16,400) (16,400) P 49,200
Net income P( 2,000) P( 1,520) P( 2,000) P( 5,520)
Schedule 2 - Distribution of 2007 net profit

Interest of 6% on beg. Capital 3,960 1,920 1,320 7,200
Balance – equally ( 5,600) ( 5,600) ( 5,600) (16,800)
Net income P 7,960 P 8,320 P 7,720 P 24,000

Interest of 6% on beg. Capital 3,600 1,440 720 5,760
Bonus - 20% (P58,800 - P39,360 - B) 3,240 3,240
Balance – equally 5,400 5,400 5,400 16,200
Net income 21,840 18,840 18,120 58,800
page 16
Problem 1 -10
Robles, Bernal and Reyes
Statement of Partners’ Capital
Robles Bernal Reyes Total

Capital balances before closing
the nominal accounts P120,000 P ( 2,000) P20,000 P138,000
Add Distribution of net profit:
Drawing allowance 20,000 14,000 10,000 44,000
Interest on average capital 7,200 240 560 8,000
Balance - 60%, 30%, 10% 58,800 29,400 9,800 98,000
Total P206,000 P41,640 P40,360 P288,000
Deduct Cash distribution 122,720 26,480 149,200
Capital, December 31, 2008 P 83,280 P41,640 P13,880 P138,800
P206,000 / 60% = P343,333; P40,360 / 10% = P403,600

P41,640 / 30% = P138,800 (required total capital)
Problem 1 - 11
Chavez, Roman, and Valdez
January 1 to November 1, 2008
Chavez Chavez Roman Valdez

Loan Capital Capital Capital Total
Beginning balances P 80,000 P 80,000 P 80,000 P240,000
Loan from Chavez P 60,000 60,000
Transfer of equipment to Valdez ( 16,000) ( 16,000)
Balances P 60,000 P 80,000 P 80,000 P 64,000 P284,000
Distribution of loss on realization*
Salary to Valdez 24,000 24,000
Int. to Chavez for 7 months 2,100 2,100
Balance divided equally* ( 76,700) ( 76,700) ( 76,700) ( 230,100)
Balances P 60,000 P 5,400 P 3,300 P 11,300 P 80,000
Dist. of cash in final settlement 60,000 5,400 3,300 11,300 80,000
*Total partners’ equity as shown above P284,000

Less Cash available for distribution 80,000
Loss on realization P204,000
Less Salary and interest 26,100
Total loss to be divided equally P230,100
page 17
Problem 1 - 12
Canlas, David, Estrella and Fajardo
Statement of Changes in Partners’ Capital Accounts
Canlas David Estrella Fajardo Total

Investment P309,000 P159,000 P327,000 ------- P 795,000
Net profit 237,700 186,230 140,310 P 24,010 588,250
Total P546,700 P345,230 P467,310 P 24,010 P1,383,250
Less: Excess rent (P225 x 6) P 13,500 P 13,500
Withdrawals P 78,000 P 66,000 87,000 P 37,500 268,500
Uncollectible accounts 18,000 6,750 24,750
P 96,000 P 72,750 P100,500 P 37,500 P 306,750
Capital, December 31 P450,700 P272,480 P366,810 P(13,490) P1,076,500
Supporting computations:
Revenue from fees P 900,000

Expenses:
Total expenses, excluding depreciation and uncollectible
accounts (P290,000 - P13,500) P 276,500
Depreciation [(P195,000 x 10%) + (P75,000 x 5%) 23,250
Doubtful accounts (P24,000 x 50%) 12,000 311,750
Net profit P588,250
Distribution of net income
Canlas David Estrella Fajardo Total

20% of gross fees from respective
clients P 66,000 P 36,000 P 33,000 P135,000
20% of fees after April 1 after
expenses but before bad debts P24,010* 24,010
Balance -Canlas-40%, David-35%,
Estrella-25% 171,700 150,230 107,310 429,240
Total P237,700 P186,230 P140,310 P24,010 P588,250
After April 1
Revenues P 180,000
Expenses before uncollectible accounts (P276,500 + P23,250) x 180 / 900 59,950
P120,050
20%
Share of Fajardo P 24,010
Problem 1-13
1. Equipment 13,500
Profit and Loss 12,150
page 18
2. Profit and Loss 4,375

P87,500 x 6% x 10/12 = P4,375
3. Profit and Loss 159,025

Abaya, Capital 63,700
Reyes, Capital 95,505
Abaya Reyes Total
Salaries P 39,000 P 58,500 P 97,500
Bonus [25% x (NI – B – S) ] 12,305 12,305
Balance – equally 24,610 24,610 49,220
Total P 63,610 P 95,415 P159,025
4. Abaya, Capital 36,000

Abaya, Drawing 36,000
Reyes, Drawing 62,500
Problem 1-14
1. Jaime = 5/10 x 80% = 40% Soriano = 2/10 x 80% = 16%

Madrid = 3/10 x 80% = 24% Matias = 20%
2. Corrected net income = P250,000 – (P12,000 – P31,000 – P20,000 + P15,000 + P9,000 x

65%) = P240,250
Jaime = P240,250 x 40% = P96,100 Soriano = P240,250 x 16% = P38,440

Madrid = P240,250 x 24% = P57,660 Matias = P240,250 x 20% = P48,050
MULTIPLE CHOICE
1. D
2. D
3. A
4. C Abena Buendia
Total (60%) (40%)
Abena – MV – Cost (P90,000 – P60,000) P30,000 P18,000 P12,000
Buendia – MV – Cost (P60,000 – P70,000) ( 10,000) ( 6,000) ( 4,000)
Actual P20,000 P12,000 P 8,000
Inequity ( 20,000) ( 30,000) 10,000
P 0 (P18,000) P18,000
5. A
6. C
7. B
8. B Molina’s contribution (P190,000 – P60,000) P130,000
Nuevo’s tangible contribution 100,000
Total capital contributions P230,000
page 19
x 60%
Capital credit of Molina P 138,000
Contribution of Molina 130,000
Bonus to Molina P 8,000
9. Roxas = P596,250 - P5,550 = P590,700

Bernardo = P335,000 - P4,050 - P9,000 = P321,950
10. Roxas = (P590,700 + P321,950) x 60% = P547,590

Bernardo = (P590,700 + P321,950) x 40% = P365,060
11. Roxas = P650,000 – P590,700 = P59,300

Bernardo = P400,000 – P321,950 = P78,050
12. Bruno = P150,000 - P90,000 = P60,000
13. Total assets = Total liab. + Total capital

= P25,000 + P300,000 = P325,000
14. Cash contribution = (P248,850 x 1/3) – P50,000 = P32,950
15 Total capital = (P158,400 + P17,500 – P5,000 – P5,000) ÷ 2/3 = P248,850
16. Required capital of Esteban (P287,500 x 60%) P172,500

Non-cash contributions of Esteban (P125,000 – P30,000) 95,000
Cash contribution P 77,500
17. Contribution of Diaz P115,000

Contribution of Esteban (P125,000 – P30,000 + P50,000) 145,000
Total partnership capital P260,000
18. C P115,000 + P95,000 = P210,000/2 P105,000
19. A Net increase (decrease) in capital (P120,000)

Add Withdrawals 260,000
Total (P140,000)
Less Additional investments 50,000
Profit share P 90,000
Profit share percentage ÷ 30%
Total partnership net profit P300,000
20. C
21. B
22. C Net profit (exclusive of salary, interest and bonus) P 93,500
Salary (P2,000 x 12) 24,000
Interest (P50,000 x 5%) 2,500
Net profit after deduction of bonus P120,000
Bonus = .20 (P120,000 + Bonus) = P24,000 + .20 Bonus
= P24,000/.80 = P30,000
page 20
23. D
24. C Alberto Bustos Cancio Total
10% x P1,000,000 P 100,000 P 100,000
20% x P1,500,000 300,000 300,000
5% (P1M – P400,000) P30,000 P30,000 60,000
Balance – equally 680,000 680,000 680,000 2,040,000
Net income P1,080,000
25. A Ramos Campos Ocampo Total

Interest P24,000 P12,000 P 8,000 P 44,000
Salaries 60,000 40,000 100,000
Balance – equally ( 70,000) (70,000) ( 70,000) ( 210,000)
P14,000
26. C Sison Torres Velasco Total

Bonus - 10%(P44,000 - B) P 4,000 P 4,000
Interest on capital
in excess of P100,000 P 1,000 1,000
Salaries to partners P10,000 12,000 22,000
Balance - 4:4:2 6,800 6,800 3,400 17,000
P19,400 P44,000
27. B Sison Torres Velasco Total

Bonus - 10%(P22,000 - B) P 2,000 P 2,000
Interest on capital
in excess of P100,000 P 1,000 1,000
Salaries to partners P10,000 12,000 22,000
Balance - 4:4:2 (1,200) (1,200) (600) (3,000)
P13,400 P22,000
28. D Sison Torres Velasco Total

Bonus - 10%(P22,000 - B) P 2,000 P 2,000
Interest on capital
in excess of P100,000 P 1,000 1,000
Balance – Salary ratio P8,636 10,364 19,000
P12,364 P22,000
29. A Average capital of Tamayo Average capital of Vidal

P100,000 x 6 = P 600,000 P225,000 x 9 = P2,025,000
160,000 x 6 = 960,000 155,000 x 3 = 465,000
P1,560,000/12 P2,490,000/12
P130,000 P207,500
Average capital of Banson - P150,000
Total int. on ave. capital= (P130,000 + P207,500 + P150,000) 10%

= P48,750
page 21
30. D Interest on ave. capital P 48,750

Salaries to partners 144,000
Balance - divided equally 9,000
P 201,750
31. B Total capital before net income

(P475,000 + P60,000 – P70,000) P465,000
Add Net profit 201,750
Total capital, Dec. 31, 2008 P666,750
32. D Andal Briones Camba Total

Int. on average capital P 47,250 P 23,865 P 16,235 P 87,350
Salaries to partners 122,325 82,625 204,950
Balance - equally (139,308) (139,308) (139,308) (417,924)
Net increase (decrease) P 30,267 P(115,443) P( 40,448) P(125,624)
33. C Net income = Net sales - CGS - Depr. - Oper. exp. Others)
= P228,000 - P123,000 - P7,500 - P58,100 x 65% P25,610
Mariano Lucas total

Salary to partner for 10 mos. P10,000 P 10,000
Bonus to managing partner 1,561 1,561
Balance – based on orig. cap. 8,781 P 5,268 14,049
TOTAL share in profit P 20,342 P 5,268 P 25,610
34. A TOTAL share in profit P 20,342 P 5,268 P 25,610

Add Capital, beginning 125,000 75,000 200,000
TOTAL P145,342 P 80,268 P 225,610
Less Withdrawals 20,000 30,000 50,000
Capital, end P125,342 P 50,268 P 175,610
35. D Belen Lorna Ursula Edna Total

36. A Interest P 5,000.00 P 2,500.00 P 2,500.00 P2,000.00 P12,000.00
37. A Salaries 10,000.00 6,000.00 16,000.00
Balance 10,000.00 10,000.00 6,666.67 6,666.67 33,333.34
Add’l profit
for Edna ________ ________ _________ 3,333.33 3,333.33
Net profit P25,000.00 P18,500.00 P9,166.67 P12,000.00 P64,666.67
38. B Puno Quirino Romero Total

Salaries P40,000 P36,000 P13,650 P 89,650
Bonus 13,000 13,000
Interest 1,000 750 4,600 6,350
Balance 7,000 7,000 7,000 21,000
Total P61,000 P43,750 P25,200 P130,000
page 22
Computation of average capital:

Puno, capital
Jan. 1 – P10,000 x 3 P 30,000
Apr 1 - 9,000 x 3 27,000
July 1 - 11,000 x 3 33,000
Oct. 1 - 10,000 x 3 30,000
P120,000 / 12 P10,000
Quirino, capital
Jan. 1 – P 6,000 x 6 P 36,000
July 1 - 10,000 x 3 30,000
Oct. 1 - 8,000 x 3 24,000
P 90,000 / 12 P 7,500
Romero, capital
Jan. 1 – P40,000 x 3 P120,000
Apr. 1 - 38,000 x 3 114,000
July 1 - 53,000 x 6 318,000
P552,00 / 12 P46,000
Let X = Net Income

P40,000 + 10% X + P1,000 + 1/3 (X – P89,650 – 10% X – P6,350 = P61,000
P40,000 + 10% X + P1,000 + 1/3 (90% X – P96,000) = P61,000
P40,000 + 10% X + P1,000 + 30% X – P32,000 = P61,000
10% X + 30% X = P61,000 – P40,000 – P1,000 + P32,000
40% X = P52,000
X = P130,000
39. D Legarda- 5/10 x 80% = 40% Sotto - 2/10 x 80% = 16%

Madrigal-3/10 x 80% = 24% Pimentel - 20%
40. C Share of Legarda = P25,000 – ( P1,200 - P3,100 - P2,000 + P1,500 + P

900 x 65%) = P24,025 x 40% = P9,610
41. C Serrano Toledo

2008 Net income
(P50,000 – P8,000) P42,000
Salary to Serrano ( 36,000) P36,000
Remainder P 6,000
Divided equally ( 6,000) 3,000 P 3,000
Understatement in 2007 NI P8,000

Divided 60:40 ( 8,000) 4,800 3,200
Income allocation P43,800 P 6,200

1
CHAPTER 2
Partnership Dissolution
EXERCISES
Exercise 2 – 1
1. Sales, Capital 140,000

Rosales, Capital 140,000
2. P280,000 + P320,000 + P200,000 = P800,000
Exercise 2 –2
1. Total capital (P3,000,000 / 80%) P3,750,000

Capital interest of Fidel x 20%
Cash to be contributed by Fidel P 750,000
2. Cash 750,000
Fidel, Capital 750,000
Exercise 2 – 3
1.
Centeno, Capital 40,000
Corales, Capital 40,000
2.
Other Assets 80,000
Cortes, Capital 50,000
Claudio, Capital 10,000
P140,000/ ¼ = P560,000 – (P200,000 + P 160,000 + P120,000)
Cortes, Capital P200,000 + P50,000 x 1/4 62,500

Centeno, Capital P160,000 + P20,000 x 1/4 45,000
Claudio, Capital P120,000 + P10,000 x 1/4 32,500
3.
Cash 230,000
Cortez, Capital 32,812
Claudio, Capital 6,563
AC CC Bonus_
old (3/4) P532,500 P480,000 P52,500
new (1/4) 177500 230,000 (52,500)
P710,000 P710,000 P---0---
page 2
Exercise 2 – 4
1.
Conde, Capital 90,000
Cuenco, Capital 60,000
Catral, Capital 150,000
2.
Other Assets 360,000
Conde, Capital P270,000 + 270,000 x 1/3 180,000

Cuenco, Capital P180,000 + P90,000 x 1/3 90,000
3.
Cash 270,000
AC CC Bonus_
old (3/4) P540,000 P450,000 P90,000
new (1/4) 180,000 270,000 (90,000)
P720,000 P720,000 P---0---
4.
Cash 270,000
AC CC Asset Re
old (3/4) P 810,000 P450,000 P360,000
new (1/4) 270,000 270,000
P1,080,000 P720,000 P360,000
5.
Cash 270,000
Exercise 2-5
1a. Bonus Method
Cash 180,000
Alba, Capital 6,000
Medel, Capital 9,000
Almeda, Capital 195,000
AC CC Bonus_
old (3/4) P585,000 P600,000 P(15,000)
new (1/4) 195,000 180,000 15,000
P780,000 P780,000 P---0---
page 3
1b. Revaluation of Assets Method (AC = P180,000 ÷ 1/4 = P720,000)
Alba, Capital (P60,000 x 40%) 24,000

Medel, Capital (P60,000 x 60%) 36,000
Other Assets (P780,000 - P720,000) 60,000
To record revaluation of assets
Cash 180,000
Almeda, Capital 180,000
2. Alba Medel Almeda

Balances under the bonus method P194,000 P391,000 P195,000
Balances under the asset rev. method P200,000 P400,000 P200,000

Additional depreciation ( 6,666) ( 6,667) ( 6,667)
Balances after depreciation P193,334 P393,333 P193,333
Net advantage to Medel using the asset revaluation method P 2,333
Exercise 2 - 6
1. Garces, Capital 60,000

Kalaw, Capital 60,000
P120,000 x 1/2 = P60,000
2. Cash 60,000
Other Assets (P400,000 – P320,000) 80,000
Kalaw, Capital 40,000
Garces, Capital (P100,000 x 3/8) 37,500
Hilario, Capital (P100,000 x 3/8) 37,500
Juan, Capital (P100,000 x 2/8) 25,000
Total agreed capital P400,000
Total capital contribution 320,000
Asset revaluation P 80,000
Interest acquired from Garces P 60,000

Cash invested in the partnership 60,000
Total P 120,000
Capital credit of Kalaw 100,000
Bonus to old partners P 20,000
Exercise 2 – 7
Bonus method
Sabado Galman Estacio Total
Capital before admission of Estacio P1,000,000 P800,000 P1,800,000
Contribution of Estacio P500,000 500,000
Bonus to old partners 24,000 16,000 ( 40,000)
Capital after admission of Estacio P1,024,000 P816,000 P460,000 P2,300,000
page 4
Asset Revaluation method

Sabado Galman Estacio Total
Capital before admission of Estacio P1,000,000 P800,000 P1,800,000
Contribution of Estacio P500,000 500,000
Adjustment of fixed assets to fair value 120,000 80,000 200,000
Capital after admission of Estacio P1,120,000 P880,000 P500,000 P2,500,000
Exercise 2 – 8
1. Bonus method
Noble Calma Reyes Naval Total
Capital balances before admission
of new partners P64,000 P136,000 P200,000
Contributions of new partners P110,000 P120,000 230,000
Bonus to old partners 10,950 25,550 ( 24,000) ( 12,500)
Capital balances after admission
of new partners P74,950 P161,550 P86,000 P107,500 P430,000
Cash 130,000
Equipment 100,000
Noble, Capital 10,950
Calma, Capital 25,550
Naval, Capital 107,500
2. Asset Revaluation method

Noble Calma Reyes Naval Total
Capital balances before admission
of new partners P64,000 P136,000 P200,000
Adjustment of assets to FV 9,000 21,000 30,000
Contributions of new partners P110,000 P120,000 230,000
of new partners P73,000 P157,000 P110,000 P120,000 P460,000
Cash 130,000
Equipment 84,000
Inventory 14,000
Land 80,000
Building 48,000
Calma, Capital 21,000
Naval, Capital 120,000
Exercise 2 - 9
1a. Bonus Method
Songco, Capital 200,000
Bueno, Capital 60,000
Manzano, Capital 40,000
Cash/Payable to Songco 300,000
page 5
1b. Asset Revaluation Method
Songco, Capital 200,000

Other Assets (P10,000 ÷ 1/6) 600,000
Bueno, Capital (P50,000 x 3/5) 300,000
Manzano, Capital (P50,000 x 2/5) 200,000
Cash/ Payable to Songco 300,000
2. The bonus method will be preferred by Manzano

Bonus Method Asset Rev
Capital of Manzano after retirement P260,000 P500,000
Additional depreciation 300,000
Capital of Manzano after additional depreciation P260,000 P200,000
Net advantage to Manzano with the use of the bonus P60,000

method
Exercise 2 – 10
1.
Delfin, Capital 400,000
Damian, Capital 200,000
Dencio, Capital 200,000
2.
Cash 320,000
3.
Cash 460,000
P460,000 – P400,000 = P60,000/ 1/3 = P180,000
Exercise 2 – 11
1. Guzman, Capital January 1 P100,000
Drawing (16,000)
Share in net profit 24,000
Interest of Guzman upon retirement P108,000
Other Assets 40,000

Guzman, Capital 108,000
Cash 120,000
Jorge, Capital 12,000
Lopez, Capital 16,000
P120,000 – P108,000 = P12,000/ 30% = P40,000
page 6
2.
Jorge, Capital 5,143
Lopez, Capital 6,857
Cash 120,000
Exercise 2 – 12
1. Building 200,000
Villa, Capital 60,000
Belen, Capital 40,000
Marcos, Capital 80,000
Cordero, Capital 20,000

Cash 140,000
2. Villa, Capital 15,000

Marcos, Capital 20,000
Cordero, Capital 5,000
Cash 140,000
Exercise 2 - 13
1. Galang, Capital 12,000

Henio, Capital 8,000
Israel, Capital 140,000
Cash 160,000
2. Israel, Capital 140,000

Galang, Capital 140,000

Cash 130,000
4. Other Assets 48,000

Israel, Capital 140,000
Cash 148,000
5. Israel, Capital 140 000

Cash 120,000
page 7

PROBLEMS
Problem 2 - 1
1. Locsin, Capital (P240,000 x 1/4) 60,000

Montes, Capital (P120,000 x 1/4) 30,000
Nava, Capital 90,000
2. Locsin, Capital (P240,000 x 1/3) 80,000
3. Other Assets 180,000
Locsin, Capital (P180,000 x 3/4) 135,000
P540,000 – P360,000 = P180,000
Locsin, Capital [(P240,000 + P135,000) 1/3] 125,000

Montes, Capital [(P120,000 + P45,000) 1/3] 55,000
4. Cash 180,000
AC CC Bonus
old (1/2) 270,000 360,000 (90,000)
new (1/2) 270,000 180,000 90,000
540,000 540,000 -----
5. Cash 180,000
AC CC Asset Rev
old (3/4) 540,000 360,000 180,000
new (1/4) 180,000 180,000 -----
720,000* 540,000 180,000
*180,000 ÷ 1/4 = 720,000
6. Cash 240,000
page 8
7. Cash 240,000
Locsin, Capital 54,000
Montes, Capital 18,000
8. Cash 150,000
Nava, Capital (P510,000 x 1/4) 127,500
9. Cash 165,000
Other Assetsl (P660,000 – P525,000) 135,000
Nava, Capital (P660,000 x 1/4) 165,000
10 Cash 144,000
Nava, Capital (P504,000 x 1/3) 168,000
Problem 2 - 2
1.
a. Ponce, Capital (P300,000 x ½) 150,000
Anton, Capital 150,000
b. Ponce, Capital (P300,000 x ¼) 75,000

Salva, Capital (P200,000 x ¼) 50,000
Victa, Capital (P100,000 x ¼) 25,000
c. Cash 220,000
Ponce, Capital 7,500
Salva, Capital 4,500
Victa, Capital 3,000
AC CC Bonus
Ponce P307,500 P300,000 P 7,500
Salva 204,500 200,000 4,500
Victa 103,000 100,000 3,000
Anton 205,000 220,000 ( 15,000)
P820,000 P820,000 ------
2.
a. Other Assets 360,000
P960,000 – P600,000 = P360,000
page 9

b. Other Assets 120,000

P180,000/ 25% = P720,000 – P600,000 = P120,000

c. Other Assets 60,000

P220,000/ 25% = P880,000 – P820,000 = P60,000
Cash 220,000
Problem 2-3
1.a Cash 90,000
Corpus, Capital 18,000
Carlos, Capital 4,500
Other Assets 45,000
Camus, Capital 90,000
AC CC Asset Rev
old (3/4) 630,000 675,000 (45,000)
new (1/4) 90,000 90,000 -----
720,000* 765,000 (45,000)
b. Cash 90,000
Carlos, Capital 562
AC CC Bonus
old (1/2) 669,375 675,000 (5,625)
new (1/2) 95,625 90,000 5,625
765,000 765,000 -----
2.a Cabral, Capital 40,500

page 10
b. Other Assets 45,000

P90,000/ 1/8 = P720,000 – P675,000 = P45,000

Problem 2 - 4
1. a. Inventories 5,625
Accumulated Depreciation – Equipment 7,500
Allowance for Doubtful Accounts 3,450
Accrued Liabilities 2,925
Roces, Capital (P6,750 x 60/100) 4,050
Lapuz, Capital (P6,750 x 40/100) 2,700
b. Cash 46,875
Doria, Capital 46,875
P187,500/80% = P234,375 x 20% = P46,875
c. Lapuz, Capital 13,388
Roces, Capital 13,388
Roces = (P234,375 x 50%) – P103,800 = P13,388
Lapuz = (P234,375 x 30%) - P83,400 = (P13,388)
2.
Roces, Lapuz and Doria
April 1, 2008
ASSETS LIABILITIES and PARTNERS’ CAPITAL

Cash P 82,875 Payables P66,750
Receivables P69,000 Accrued Liabilities 2,925
Less Allow. for DA 3,450 65,550 Roces, Capital P117,188
Inventories 129,375 Lapuz, Capital 70,312
Equipment P52,500 Doria, Capital 46,875 234,375
Less Acc. Depr. 26,250 26,250 ________
TOTAL LIABILITIES and
TOTAL ASSETS P304,050 PARTNERS’ CAPITAL P304,050
Problem 2 -5
Roldan Angeles Lazaro Moreno Total
Bal.before admission of Moreno P150,000 P180,000 P300,000 P630,000
Transfer of 1/6 int. to Moreno (30,000) P 30,000
Investment of Moreno 150,000 150,000
Asset revaluation 6,000 6,000 8,000 20,000
Bonus to old partners 6,000 6,000 8,000 (20,000)
of Moreno P162,000 P162,000 P316,000 P160,000 P800,000
page 11
2. Roldan 30% x 75% = 22.5%

Angeles 30% x 75% = 22.5%
Lazaro 40% x 75% = 30%
Moreno 25%
Problem 2 – 6
1. Lazo, Capital 19,000

Madrid, Capital 19.000
Buildings 8,000
Allowance for Valuation of Investments 10,000
Lazo, Capital 60,000

Madrid, Capital 45,333
Nuguid, Capital 105,333
(P200,000 – P19,000 + P19,000 – P20,000) 1/3 = P60,000
(P150,000 – P19,000 + P19,000 – P14,000) 1/3 = P45,333
2. Lazo Madrid Total

Capital balances before admission of Nuguid P199,000 P155,000 P354,000
Revaluation of assets ( 19,000) ( 19,000) ( 39,000)
Capital balances after revaluation P180,000 P136,000 P316,000
Fraction of interest transferred to Nuguid x 1/3 x 1/3 x 1/3
Interest transferred to Nuguid P 60,000 P 45,333 P105,333
Gain on transfer 31,138 23,529 54,667
Cash distribution to partners P 91,138 P 68,862 P160,000
3. Lazo Madrid Nuguid

Capital balances before admission of Nuguid P199,000 P155,000
Revaluation of assets ( 19,000) ( 19,000)
Interest transferred to Nuguid ( 60,000) ( 45,333) 105,333
Balances P120,000 P 90,667 P105,333
Share in net profit 18,000 18,000 18,000
Drawings ( 15,000) ( 12,000) ( 28,000)
Capital balances, December 31, 2008 P123,000 P 96,667 P 95,333
4. Cash 66,000
Investments 20,000
Osorio, Capital 85,000
Lazo, Capital 5,000

Madrid, Capital 5,000
Nuguid, Capital 5,000
Osorio, Capital 15,000
P315,000 + P85,000 = P400,000 x 1/4 P100,000 – P85,000 = P15,000
page 12
Problem 2 - 7
1. Montero, Capital 100,000

Concio, Capital (P8,000 x 3/5) 4,800
Domino, Capital (P8,000 x 2/5) 3,200
Cash 108,000

Cash 90,000

Cash 90,000
Other Assets (P10,000 ÷ 1/6) 60,000
4. Montero, Capital (P6,000 x 1/6) 1,000

Equipment [(P60,000 x 40%) – P18,000] 6,000
Montero, Capital (P100,000 – P1,000) 99,000

Equipment 18,000
Cash 81,000
Problem 2-8
1. Damaso Dangwa Datu

Capital, January 1, 2008 P120,000 P 70,000 P 80,000
Share in net loss ( 9,600) ( 6,400) ( 16,000)
Drawings ( 24,000) ( 24,000) ( 24,000)
Capital balances, December 31, 2008 P 86,400 P 39,600 P 40,000
2. Dangwa, Capital 39,600

Dmaso, Capital 14,400
Datu, Capital 24,000
Cash 30,000
Inventory 48,000
P39,600 – P30,000 = P9,600 / 20% = P48,000
3. a Other Assets 42,000

Dangwa, Capital 39,600
Cash 48,000
Damaso, Capital 12,600
Datu, Capital 21,000
P48,000 – P39,600 = P8,400/ 20% = P42,000
page 13
Dangwa, Capital 39,600

Damaso, Capital 3,150
Datu, Capital 5,250
Cash 48,000
Problem 2 - 9
1. Cash 120,000
Luna, Capital 2,000
Matias, Capital 2,000
AC CC Bonus
Old P294,000 P300,000 P( 6,000)
New 126,000 120,000 6,000
P420,000 P420,000 ----
2. Cash 60,000
Luna, Capital 20,000
Other Assets 60,000
AC CC Asset Rev
Old P240,000 P300,000 (P60,000)
New 60,000 60,000
P300,000 P360,000 (P60,000)
3. Matias, Capital 36,000

P120,000 x 30% = P36,000
4. Luna, Capital 80,000

Cash 96,000

David, Capital 80,000

page 14
Problem 2 -10
Canda, Pardo and Andres
Statement of Changes in Partners’ Equity
For the Period January 1, 2006 to January 1, 2009
Canda Pardo Andres Total

Original capital, January 1, 2006 P 62,500 P 25,000 P 12,500 P 100,000
Corrected 2006 net profit 26,375 10,550 5,275 42,200
Drawings (15,000) ( 7,800) ( 5,200) ( 28,000)
Corrected 2007 net profit 10,875 4,350 2,175 17,400
Drawings (15,000) ( 7,800) ( 5,200) ( 28,000)
Corrected 2008 net loss ( 6,750) ( 2,700) ( 1,350) ( 10,800)
Drawings (10,000) ( 5,200) ( 5,200) ( 20,400)
Schedule of computation of corrected net profit

2006 2007 2008
Reported net profit (loss) P 44,000 P 18,500 P (10,500 )
Understatement of accrued expenses 2006 ( 400 ) 400
2007 ( 500 ) 500
2008 ( 650 )
Understatement of accrued revenues 2006 250 ( 250 )
2007 100 ( 100 )
2008 150
Overstatement of inventories 2006 ( 1,500 ) 1,500
2007 ( 2,000 ) 2,000
2008 ( 2,000 )
Understatement of depreciation exp. ( 150 ) ( 350 ) ( 200 )
Corrected net profit (loss) P 42,200 P 17,400 P (10,800 )
2. a. Revenue Receivable 150

Canda, Capital 2,000
Pardo, Capital 800
Andres, Capital 400
Expenses Payable 650
Accumulated Depreciation 700
b. Canda, Capital (P3,000 x 625/1000) 1,875

Pardo, Capital (P3,000 x 250/1000) 750
Andres, Capital (P3,000 x 125/1000) 375
Furniture (P4,500 - P1,500) 3,000
c. Andres, Capital 2,625

Furniture 1,500
Cash 1,125
page 15
Problem 2 -11
Abelar and Berces

Statement of Changes in Partners’ Equity
For the Period January 1, 2007 to January 15, 2009
Abelar Berces Custodio Total

Capital balances before closing the
books, December 31, 2007 P 50,000 P 30,000 P 80,000
Net profit for 2007 (Sch 1) 6,600 7,400 14,000
Drawing (8,200) (6,800) (15,000)
Capital, December 31, 2007 P 48,400 P 30,600 P 79,000
Admission of Custodio (Sch. 2) (7,800) (5,200) P 33,000 20,000
Net loss for 2008 (5,250) (3,750) (6,000) (15,000)
Drawings (7,500) (5,000) (6,800) (19,300)
Capital, December 31, 2008 P 27,850 P 16,650 P 20,200 P 64,700
Loss on realization on Jan. 15, 2009 (16,520) (11,800)` (18,880) (47,200)
Final cash distribution P 11,330 P 4,850 P 1,320 P 17,500
Abelar_ Berces Total

Salaries P 9,000 P 9,000 P 18,000
Balance - 60%, 40% (2,400) (1,600) ( 4,000)
Total P 6,600 P 7,400 P 14,000
Schedule 2 - Admission of Custodio
Total capital contribution (P79,000 + P20,000) P 99,000

Interest to be credited to Custodio 1/3__
Capital credit of Custodio P 33,000
Capital contribution of Custodio 20,000
Bonus to Custodio from Abelar and Berces P 13,000
MULTIPLE CHOICE
1. B
2. A
3. B P264,000 – [(P278,000 + P418,000 + P192,000) x 1/5] = P86,400
4. A Lima = P100,000 x 80% = P80,000

Mitra = P 50,000 x 80% = P40,000
5. A Asset revaluationP60,000/20% = P300,000 - P150,000 P150,000

Lima = [P100,000 + (P150,000 x 75%)] x 80% P170,000
Mitra = [P 50,000 + (P150,000 x 25%)] x 80% P 70,000
Nova P 60,000
page 16
6. D Felix Elias Total

Original investment P 24,000 P 48,000 P 72,000
Net profit 5,430 10,860 16,290
Drawings ( 5,050) ( 8,000) ( 13,050)
Capital bal . before transfer to Desta P 24,380 P 50,860 P 75,240
Required capital based on orig. capital
ratio after transfer to Desta of 1/4 int. 18,810 37,620 56,430
Capital to be transferred to Desta P 5,570 P 13,240 P 18,810
Excess cash to be dist. based on orig.
capital ratio (P30,000 - P18,810) 3,730 7,460 11,190
Distribution of cash to Felix and Elias P 9,300 P 20,700 P 30,000
7. D
8. C
9. C P90,000 – P75,000 = P15,000
10. A Capital of Mison prior to admission of Zamora P105,000
Share in the bonus from Zamora [(P90,000 – P75,000) 1/2) 7,500
Capital of Mison in the new partnership P112,500
11. C AC CC Asset Rev

Voltaire P180,000 P150,000 P30,000
Asuncion 210,000 180,000 30,000
Leonor 195,000 195,000
P585,000 P525,000 P60,000
12. D P195,000 – (P525,000 x 1/3 = P175,000) = P20,000

13. A Old partners’ capital contribution P600,000
Percentage of interest of old partners ÷ 75%
Total agreed capital of the new partnership P800,000
Percentage of interest of Sison x 25%
Capital credit of Sison P200,000
Bonus to Sison 70,000
Cash to be contributed by Sison P130,000
14. C Rivera Sanchez Torres

Capital balances before adm. of Vidal P504,000 P252,000 P 84,000
Asset revaluation
(P180,000/20% ) – P840,000 = P60,000 36,000 18,000 6,000
Adjusted capital balances P540,000 P270,000 P 90,000
Percentage of unsold interest x 80% x 80% x 80%
Capital balances after adm. of Vidal P432,000 P216,000 P 72,000
15. D Total capital of the new partnership (P840,000/75%) P1,120,000

Percentage of interest x 25%
Amount to be invested by Vidal in the partnership P 280,000
16. B Agreed capital P330,000

Capital contribution = P95,000 + P80,000 + P60,000 + P80,000 = 315,000
Asset revaluation P 15,000
page 17
17. A P80,000 + P12,000 – P70,000 = P22,000
18. C Capital balance before admission of Manalo P 80,000

Interest sold to Manalo (P80,000 x 15%) (12,000)
Share in the recorded asset revaluation (P15,000 x 3/10) 4,500
Share in the bonus from Manalo
[(P80,000 + P12,000) - P70,000] x 3/10 6,600
Capital balance after admission of Manalo P 79,100
19. B Juan Cosme Luna Magno

Capital balances, April 30, 2008 P 360,000 P 225,000 P 135,000
1/6 Interest transferred to Magno ( 60,000) ( 37,500) ( 22,500) P 120,000
Balances P 300,000 P 187,500 P 112,500 P 120,000
Cash transfers to equalize investment ( 100,000) 12,500 87,500
Balances P 200,000 P 200,000 P 200,000 P 120,000
Distribution of net profit -equally 3,150 3,150 3,150 3,150
Withdrawals ( 1,500) ( 2,000) ( 1,500) ( 2,000)
Capital, June 30, 2008 P 201,650 P 201,150 P 201,650 P121,150
20. A Agreed capital = (P201,650 + P201,150 + P201,650) ÷ 3/4 = P805,933

Interest of Magno 1/4___
Required capital credit of Magno P201,483
Capital balance of Magno before investing cash 121,150
Cash to be invested by Magno P 80,333
21. A Galang Hizon Isleta

Asset revaluation method:
Capital contributions of partners P600,000 P480,000 P500,000
Asset revaluation 252,000 168,000
Additional depreciation ( 140,000) ( 140,000) ( 140,000)
Capital balances P712,000 P508,000 P360,000
Bonus method:
Capital contributions of partners P600,000 P480,000 P500,000
Bonus to old partners from new partner 63,000 42,000 ( 105,000)
Net advantage of bonus method to Isleta P 35,000
22. A Campos Centeno

Capital balance P641,976 P728,352
Uncollectible accounts ( 20,000) ( 35,000)
Worthless inventories ( 5,500) ( 6,700)
Other assets written off ( 2,000) ( 3,600)
Adjusted capital P614,476 P683,052
23. C Total capital P614,476 +P683,052 P1,297,528

Total liabilities 967,590
P2,265,118
page 18
24. D Total capital P1,297,528 / 80% P1,621,910

Interest of Coronel x 20%
Contribution of Coronel P 324,382
25. D Campos Centeno

Capital balances P614,476 P683,052
Required capital P1,297,528/2 648,764 648,764
Cash paid (received) P 34,288 (P34,288)
26. B Campos Centeno Coronel

Cash paid (received) 34,288 (34,288)
Net profit 130,000 130,000 65,000
Drawings (50,000) (65,000) (28,000)
P728,764 P713,764 P361,382
27. C The capital balances would be the same as the balances prior to sale of interest.
28. C
29. D
30. D P4,000 x 2/5 = P1,600
31. D P3,000 / 40% = P7,500
32. A P12,000/3 = P4,000
33. C Yumul Yason Ylagan

Interest before retirement P103,000 P 77,000 P180,000
Adjustment of assets to FMV 12,000 12,000 24,000
P115,000 P 89,000 P204,000
Retirement of Yumul (115,000) ( 2,000) ( 4,000)
Capital balance of Ylagan P200,000
34. A Amount paid to retiring partner P28,000

Capital of retiring partner
Total capital before retirement P110,000
Total capital after retirement 90,000 20,000
Asset revaluation to retiring partner P 8,000
Fraction of interest of retiring partner ÷ 2/10
Total asset revaluation P40,000
CHAPTER 3
Partnership Liquidation
EXERCISES
Exercise 3 - 1
Aguilar Benito Casimiro David

Capital balances before liquidation P 11,000 P 10,300 P 13,700 P 9,000
Loan from partners 2,000
Total partners’ interest P 13,000 P 10,300 P 13,700 P 9,000
Loss on realization (P46,000 – P12,000) (13,600) ( 10,200) ( 6,800) ( 3,400)
Balances P( 600) P 100 P 6,900 P 5,600
Additional loss to partners 600 ( 300) ( 200) ( 100)
Balances -------- P ( 200) P 6,700 P 5,500
Additional loss to partners 200 ( 133) ( 67)
Distribution of cash to partners --------- --------- 6,567 5,433
Exercise 3 - 2
Duque Espino Felipe Total

Original investments P 50,000 P 22,500 P 20,000 P 92,500
Net income for 2007 15,000 7,500 7,500 30,000
Drawings in 2007 ( 15,000) ( 10,000) ( 10,000) ( 35,000)
Total partners’ interest before dissolution P 50,000 P 20,000 P 17,500 P 87,500
Net assets distributed to partners ( 32,500) ( 16,250) ( 16,250) ( 65,000)
Balances P 17,500 P 3,750 P 1,250 P 22,500
Loss to partners distributed 2:1:1 ( 11,250) ( 5,625) ( 5,625) ( 22,500)
Cash settlement among partners P 6,250 P( 1,875) P( 4,375) ------
Exercise 3 - 3
1. Guarin, Capital 1,500

Receivable from Guarin 1,500
To offset receivable from Guarin against his capital.
2. Salary Payable to Henson 500

Henson, Capital 500
To include salary payable to Henson to his interest.
3. Henson, Capital (P24,500 x 40%) 9,800

Guarin, Capital (P24,500 x 60%) 14,700
Loss from Liquidation 24,500
To distribute loss from liquidation to partners.
4. Henson, Capital (P9,500 + P500 - P9,800) 200

Guarin, Capital (P18,000 - P1,500 - P14,700) 1,800
Cash 2,000
AA1 - Chapter 3 (2008 edition) page
2
Exercise 3 - 4
1. Ibarra Javier Katindig
Original investment P 60,000 P 54,000 P 16,000
Net loss for six months* (18,000) (12,000) ( 6,000)
Loss on realization (P121,000 - P49,000 = P72,000) (36,000) (24,000) (12,000)
Balances P 6,000 P 18,000 P( 2,000)
Additional loss to partners ( 1,200) ( 800) 2,000
Cash distribution to Ibarra ( 4,800)
* Total capital, March 1 (P60,000 + P54,000 + P16,000) P130,000

Net assets, Aug. 31 (P5,000 + P121,000 - P32,000) 94,000
Net loss P 36,000
2. Book value of other assets P121,000

Total loss on realization
Capital balance of Katindig after dist. of net loss P 10,000
Excess of personal liabilities over personal assets ( 5,000)
Maximum amount of loss that can be absorbed by Katindig P 5,000
Fractional share of Katindig 1/6__ ( 30,000)
Cash that must be realized on sale of other assets P 91,000
Exercise 3 – 5
1. Book value of other assets (P459,000 – P3,000) P456,000
Cash realized:
Accounts receivable [P180,000 – (P60,000 x 20%)] P168,000
Merchandise inventory 75,000
Prepaid advertising 2,400
Machinery and equipment (P120,000 x 60%) 72,000 317,400
Lesaca – Manalo Partnership

Statement of Liquidation
December 31, 2008
Other Liabilities Capital

Cash Assets AP NP Lesaca Manalo
Balances before liquidation P 3,000 P456,000 P60,000 P258,000 P90,000 P 51,000
Sale of assets and distribution 317,400 ( 456,000) ( 55,440) ( 83,160)
of loss
Balances P320,400 P60,000 P258,000 P34,560 (P32,160)
Payment of liabilities ( 320,400) ( 59,400) ( 258,000) ( 1,200) ( 1,800)
Balances P600 P33,360 (P33,960)
Additional investment by 12,000 12,000
Manalo
Balances P 12,000 P 600 P33,360 (P21,960)
Payment of liabilities ( 600) ( 600)
Balances P 11,400 P33,360 (P21,960)
Additional loss to Lesaca ( 21,960) 21,960
Payment to Lesaca P 11,400 P11,400
3
Exercise 3 – 6
Nocum Oliva Pascua Quinto
Capital balances before liquidation P180,000 P300,000 P240,000 (P 33,000)
Restricted interest – possible loss
Non-cash assets P600,000
Liquidation expenses 9,000
Unrecorded liabilities 15,000
Total P624,000 ( 156,000) ( 156,000) ( 156,000) ( 156,000)
Balances P 24,000 P144,000 P 84,000 (P189,000)
Restricted interest – possible loss to
Nocum, Oliva and Pascua for the
deficiency of Quinto ( 63,000) ( 63,000) ( 63,000) 189,000
Balances (P 39,000) P 81,000 P 21,000 -
Restricted interest – possible loss to
Oliva and Pascua for the deficiency of
Nocum 39,000 ( 19,500) ( 19,500)
Safe payment - P 61,500 P 1,500 -
4
Exercise 3 - 8
Rama, Sison and Toledo
Cash Priority Program
PAYMENTS
Rama Sison Toledo Rama Sison Toledo
Add Loan balances 20,000 20,000 30,000
Total partners’ interest P50,000 P90,000 P70,000
Profit and loss ratio 40% 40% 20%
Loss absorption balance P125,000 P225,000 P350,000
Allocation I – Cash to Toledo
reducing LAB to an amount
reported for Sison
(P125,000 x 20%) (125,000) P25,000
Balances P125,000 P225,000 P225,000
Allocation II - Cash to Sison &
Toledo reducing LAB to an amount
reported for Rama
P100,000 x 40% (100,000) P40,000
P100,000 x 20% (100,000) 20,000
Balances P125,000 P125,000 P125,000 P40,000 P45,000
Allocation III - Further cash
distribution may be made in the
P & L ratio
Exercise 3-9
1. Julian, Lagman and Magno
January 1, 2008
PAYMENTS
Julian Lagman Magno Julian Lagman Magno
Capital balances before liquidation P 36,000 P 54,000 P18,000
Add Note payable to Magno 14,000
Total partners’ interest P 36,000 P 54,000 P 32,000
Profit and loss ratio 3/10 3/10 4/10
Loss absorption balances P120,000 P180,000 P80,000
Allocation I – Cash to Lagman reducing
LAB to an amount reported for Julian
(P60,000 x 3/10) (60,000) P18,000
Balances P120,000 P120,000 P80,000
Allocation II – Cash to Julian & Lagman
reducing LAB to an amount reported for
Magno (P40,000 x 3/10) ( 40,000) (40,000) P12,000 12,000
Balances P80,000 P80,000 P80,000 P12,000 P20,000 -
Allocation III – Further cash distributions
may be made in the P & L ratio
5
2. Julian, Lagman and Magno

January to March, 2008
Other NP to PAYMENTS
Cash Assets Liabilities Magno Julian Lagman Magno
Balances before liquidation P12,000 P146,000 P36,000 P14,000 P36,000 P54,000 P18,000
January:
Sale of assets and dist. Of
loss 30,000 ( 38,000) ( 2,400) ( 2,400) ( 3,200)
Payment of liquidation
expenses ( 3,600) ( 1,080) (1,080 (1,440)
Payment of liabilities ( 36,000) (36,000)
Distribution of cash to
partners (sch. 1) ( 2,400) (2,400)
Balances P108,000 P14,000 P32,520 P48,120 P13,360
February:
Sale of assets and
distribution of gain 44,000 (35,000) 2,700 2,700 3,600
Payment of liquidation
expenses (8,400) (2,520) (2,520) (3,360)
Distribution of cash to
partners (sch. 2) (35,600) (10,000) (25,600)
Balances P73,000 P14,000 P22,700 P22,700 P13,600
March:
Sale of assets and
distribution of loss 36,000 (73,000) (11,100) (11,100) (14,800)
Balances P36,000 P14,000 P11,600 P11,600 P(1,200)
Offset of loan against
deficiency ( 1,200) 1,200
Final payment to partners (P36,000) (P12,800) (P11,600 (P11,600
) )
Schedule 1
Installment Liquidation
January 31, 2008
Amount Julian Lagman Mango

Cash available P2,400
Allocation I – Payable to Lagman P2,400 P2,400
Schedule 2
Installment Liquidation
February 29, 2008
Amount Julian Lagman Mango

Allocation I – Balance
Payable to Lagman P2,400 P2,400
Allocation II – Payable to Julian and
Lagman P20,000 P10,000 10,000
P10,000 P25,600 -
6
3. Journal entries
January Cash 30,000
Julian, Capital 2,400
Lagman, Capital 2,400
Magno, Capital 3,200
Other Asset 38,000

Cash 3,600
Liabilities 36,000
Cash 36,000

Cash 2,400
February Cash 44,000

Other assets 35,000

Cash 8,400
Julian. Capital 10,000

Cash 35,600
March Cash 36,000

Other assets 73,000
Note Payable to Magno 1,200

Note Payable to Magno 12,800

Cash 36,000
7
Exercise 3 - 10
U, V and W Co.
PAYMENTS
Urbe Villa Waldo Urbe Villa Waldo
Capital balances P 11,200 P13,000 P 5,800
Loss absorption balance P 19,600 P 45,500 P 40,600
Allocation I - Cash to Villa reducing
LAB to an amount reported for
Waldo (P4,900 x 2/7) ( 4,900) P 1,400
Balances P 19,600 P 40,600 P 40,600
Allocation II - Cash to Villa & Waldo
reducing LAB to an amount
reported for Urbe
P21,000 x 2/7 ( 21,000) 6,000
P21,000 x 1/7 (21,000) P 3,000
Balances P 19,600 P 19,600 P 19,600 P 7,400 P 3,000
Allocation III - Further cash distribution
may be made in the P & L ratio
2. Book value of assets P 30,000

Loss on realization:
Capital balance of Urbe prior to realization P 11,200
Cash to be received by Urbe 10,000
Share of Urbe in the loss on realization P 1,200
Fractional share of Urbe 4/7_ 2,100
Cash to be realized of the sale of assets P 27,900
3. Allocation III - P3,200 ÷ 4/7 = P5,600 x 1/7 P 800

Allocation II 3,000
Total cash received by Waldo P 3,800
4. Book value of assets P 30,000

Total cash available
Allocation I P 1,400
Allocation II - P1,800 - P1,400 = P400 ÷ 2/3 600 2,000
Loss on liquidation P 28,000
Exercise 3 – 11
Partnership Books
1. Inventories 90,000
Capital Adjustment Account 90,000
2. Accumulated Depreciation 160,000

Equipment 80,000
3. Goodwill 56,000
P980,000 – P924,000 = P56,000
8
4. Capital Adjustment Account 226,000

Belen, Capital (3/4) 169,500
Bgnes, Capital (1/4) 56,500
5. Colored Co. Stocks 980,000

Inventories 296,000
Equipment 520,000
Goodwill 156,000
6. Belen, Capital 563,500

Bagnes, Capital 458,500
Cash 42,000
Colored Co. Stocks 980,000
New Corporation’s Books

1. Authorized to issue 50,000 shares of P50 par value Ordinary Share Capital.
2. Cash 700,000
Ordinary Share Capital 500,000
PIC in Excess of Par 200,000
3. Accounts Receivable 124,000

Inventories 296,000
Equipment 520,000
Goodwill 156,000
9
Problem 3 – 2 (Case 3 – cont.)
Calma, Daza and Esteban

Schedule of Cash Distribution to Partners
Calma Daza Esteban

Capital balances before cash distribution P 27,000 P ( 3,000) P 46,000
Add loan balance 8,000
Total partners’ interest P 27,000 P ( 3,000) P 54,000
Restricted interest - possible loss to Calma and Esteban
in the ratio of 2:1 if Daza fails to pay his deficiency ( 2,000) 3,000 ( 1,000)
Free interests - amounts to be paid to partners P 25,000 - P 53,000
Payment to apply on:
Loan P 8,000
Capital P 25,000 45,000
Cash distribution P 25,000 - P 53,000
AA1 - Chapter 3 – Partnership Liquidation (2005)
Suggested Answers page
Problem 3 – 2 (Case 4 – cont.)

Schedule of Cash Distribution to Partners
Calma Daza Esteban

Capital balances before cash distribution P 9,000 P (21,000) P 37,000
Add loan balance 8,000
Total partners’ interest P 9,000 P (21,000) P 45,000
Restricted interest - possible loss to Calm and Esteban in
the ratio of 2:1 if Daza fails to pay his deficiency (14,000) 21,000 ( 7,000)
Balances P( 5,000) - P 38,000

Restricted interest - possible loss to Esteban if Calma fails
to pay his deficiency 5,000 - ( 5,000)
Free interests - amounts to be paid to partners - - -
Loan P 8,000
Capital 25,000
Cash distribution - - P 33,000
Chapter 3 – Partnership Liquidation
Problem 3 - 3
1. a. Cash 48,000
Fuentes, Capital (P72,000 x 5/15) 24,000
Goco, Capital (P72,000 x 5/15) 24,000
Herrera, Capital (P72,000 x 3/15) 14,400
Isla, Capital (P72,000 x 2/15) 9,600
Store Fixtures 30,000
b. Accounts Payable 76,000

Cash (P28,000 + P48,000) 76,000
c. Fuentes, Capital 4,500

Herrera, Capital 2,700
Isla, Capital 1,800
Goco, Capital 9,000
d. Fuentes, Capital 1,500

Isla, Capital 600
e. Fuentes, Loan 2,000

Isla, Loan 3,000
Fuentes, Capital 2,000
Isla, Capital 3,000
f. Cash 6,000
g. Accounts Payable 4,000

Cash 4,000
h. Isla, Loan 2,000

Cash 2,000
2. a. Accounts Payable 4,000

b. Isla, Loan 2,000

Problem 3 – 3 (cont.)
3. a. Accounts Payable 4,000

b. Isla, Capital 2,000

Schedule to support the entries in Requirement 1
L O A N C A P I T A L
Fuentes Isla Fuentes Goco Herrera Isla
Balances before liquidation P 2,000 P 5,000 P27,000 P15,000 P10,000 P 9,000
Distribution of loss ( 24,000) ( 24,000) ( 14,400) ( 9,600)
Balances P 2,000 P 5,000 P 3,000 P( 9,000) P( 4,400) P( 600)
Additional loss for the
deficiency of Goco ( 4,500) 9,000 ( 2,700) ( 1,800)
Balances P 2,000 P 5,000 P( 1,500) - P( 7,100) P( 2,400)
Additional loss for the
deficiency of Herrera ( 1,500) 2,100 ( 600)
Balances P 2,000 P 5,000 P( 3,000) - P( 5,000) P( 3,000)
Offset against debit balance
in capital account ( 2,000) ( 3,000) 2,000 - 3,000
Balances - P 2,000 P( 1,000) P( 5,000) -
Additional investment by
partners 1,000 5,000
Payment to Isla - P 2,000 - - - -
Problem 3 -5
JKLM Trading Co.

Schedule To Accompany Statement of Liquidation
Amounts to be Paid to Partners
February 28, 2008
Jocson Kaimo Legarda Manabat

Capital balances before dist. of cash P 19,128 P 88,992 P 101,532 P 22,878
Add Loan balances 15,000
Restricted interest - possible loss if
nothing is realized on remaining assets ( 25,494) ( 38,241) ( 38,241) ( 25,494)
Balances P 8,634 P 50,751 P 63,291 P( 2,616)
Restricted interest - additional possible
loss if Manabat is unable to pay his
deficiency (20:30:30) ( 654) ( 981) ( 981) 2,616
Free interest - payments to partners P 7,980 P 49,770 P 62,310 -
Payment to apply on
Loan P 7,980
Capital P 49,770 P 62,310 -
Total cash distribution P 7,980 P 49,770 P 62,310 -
JKLM Trading Co.

Schedule To Accompany Statement of Liquidation
March 31, 2008
Jocson Kaimo Legarda Manabat

Capital balances before dist. of cash P 18,348 P 38,052 P 38,052 P 22,098
Add Loan balance 7,020
Restricted interest - possible loss if
nothing is realized on remaining assets ( 16,524) ( 24,786) ( 24,786) (16,524)
Free interest - payment to partners P 8,844 P 13,266 P 13,266 P 5,574

Loan P 7,020
Capital 1,824 P 13,266 P 13,266 P 5,574
Total cash distribution P 8,844 P 13,266 P 13,266 P 5,574
AA1 -Chapter 3 – Partnership Liquidation
Problem 3 – 6
QRS Partnership
Schedule to Accompany Statement of Liquidation
July 31, 2008
Quizon Roman Silva
Balances before cash distribution P116,250 P159,750 P151,500
Restricted interest – possible loss of P480,000
on remaining unsold assets and cash
withheld of P30,000 ( 255,000) ( 153,000) ( 102,000)
Balances ( P138,750) P156,750 P 49,500
to Roman and Silva 138,750 ( 83,250) ( 55,500)
Balances - P 73,500 (P 6,000)
Restricted interest – possible loss to Roman ( 6,000) 6,000
Payment to Roman to apply on loan P 67,500
QRS Partnership
Schedule to Accompany Statement of Liquidation
August 31, 2008
Quizon Roman Silva
Balances before cash distribution P 93,000 P145,800 P142,200
Total partners’ interest P 93,000 P228,300 P142,200
on remaining unsold assets and cash
withheld of P30,000 ( 202,500) ( 121,500) ( 81,000)
Balances ( P109,500) P106,800 P 61,200
to Roman and Silva 109,500 ( 65,700) ( 43,800)
Payment to Roman to apply on loan and to Silva
to apply on capital - P 41,100 P 17,400
Problem 3 - 7
Requirement 1
Tabora, Ureta and Veloso
January 1, 2008
PAYMENTS
Tabora Ureta Veloso Tabora Ureta Veloso
Capital balances P120,000 P 90,000 P 40,000
Loan balances 45,000 30,000 13,000
Total partners’ interest P165,000 P120,000 P 53,000
Allocation I - Cash to Ureta to
reduce LAB to amount
reported for Tabora ( 70,000) P21,000
Balances P330,000 P330,000 P265,000
Allocation II - Cash to Tabora
and Ureta to reduce LAB to
amount reported for Veloso ( 65,000) ( 65,000) P32,500 19,500
Balances P265,000 P265,000 P265,000 P32,500 P40,500
Allocation III - Further cash
distribution may be made
based on P & L ratio
Requirement 2
Amount Tabora Ureta Veloso
January:
Allocation I - payable to Ureta 15,000 P15,000
February:
Allocation I - Bal. payable to Ureta 6,000 P 6,000
Allocation II - Payable to Tabora and
Ureta in the ratio of 50:30 P34,000 P21,250 12,750
P21,250 P18,750
March:
Allocation II - Balance 18,000 P11,250 P 6,750
Allocation III - Based on P & L ratio P72,000 36,000 21,600 P14,400
P47,250 P28,350 P14,400
April:
Allocation III - Based on P & L ratio 30,000 P15,000 P 9,000 P 6,000
Problem 3 – 8 (cont.)
Requirement 1
January: a. Cash 112,000
b. Neri, Capital 2,200

Ordan, Capital 1,100
Pacia, Capital 1,100
Cash 4,400
c. Accounts Payable 38,000

Cash 38,000
d. Pacia, Loan 9,000

Cash 16,000
February: a. Cash 36,000


Ordan, Capital 700
Pacia, Capital 700
Cash 2,800
c. Accounts Payable 39,000

Cash 38,000
Neri, Capital 500
Ordan, Capital 250
Pacia, Capital 250
d. Salary Payable to Neri 6,000

Neri, Capital 1,400
Cash 19,800
March: a. Cash 35,000

Neri, Capital 4,000

Cash 4,000
c. Neri, Capital 39,500

Cash 79,000
Problem 3 - 9
Requirement 1 Wilson, Yuson and Zapata

Cash Distribution Schedule
June 30, 2008
P AY M E N T S
Wilson Yuson Zapata Wilson Yuson Zapata
Capital balances P 67,000 P 45,000 P 31,500
Receivable from partners 12,000 7,500
Allocation I - Cash to
Yuson to reduce LAB
to amt. reported for Zapata 30,000 P 9,000
Balances P110,000 P120,000 P120,000
Allocation II - Cash to Zapata
and Yuson to reduce LAB
to amt. reported for Wilson 10,000 10,000 3,000 P 2,000
Balances P110,000 P110,000 P110,000
Allocation III - Based on P & L
ratio (P6,000 + P100,000 -
P17,000 = P89,000 - P14,000) P37,500 22,500 15,000
TOTALS P37,500 P 34,500 P17,000
Problem 3 – 9 Requirement No 2
Wilson, Yuson and Zapata
Cash Distribution Schedule
July 1 - September 30, 2008
Liabilities Wilson Yuson Zapata

Capital balances before liquidation P 17,000 P 55,000 P 45,000 P 24,000
July - Dist. of loss on sale of assets (1) (4,750) (2,850) (1,900)
Liquidation expenses (500) (300) (200)
Payment of liabilities (17,000)
Payment to partners (2) (6,500)
Balances - P 49,750 P 35,350 P 21,900
Aug.- Liquidation expenses (750) (450) (300)
Equipment taken by Zapata (10,000)
Gain on transfer of eqt. to Zapata (3,000) (1,800) (1,200)
Payment to Yuson (3) (4,000)
Balances - P 52,000 P 32,700 P 12,800
Sept- Dist. of loss on sale of assets (4) (10,000) (6,000) (4,000)
Liquidation expenses (500) (300) (200)
Final distribution to partners - P41,500 P26,400 P8,600
(1) (P22,000 + P14,000) - (P16,500 + P10,000) = P9,500 loss on sale of assets

(2) (P6,000 + P26,500 - P1,000 - P17,000) - P8,000 cash withheld = P6,500 cash dist. Req. 1
(3) schedule of cash distribution below8,000 – 1,500 – 2,500 +4,000
(4) (P99,000 - P4,000 BV of equipment taken by Zapata) - P75,000 = P20,000 loss on sale
Schedule of Cash Distribution

August 31, 20068
Wilson Yuson Zapata Wilson Yuson Zapata
Capital balances after dist.
of equipment to Zapata P 52,000 P 36,700 P 12,800
Loss absorption balance P104,000 P122,333 P 64,000
Allocation I - Cash to
Yuson to reduce LAB to
amt. reported for Wilson 18,333 P 5,500
Balances P104,000 P104,000 P 64,000
Allocation II - Cash to Wilson
& Yuson to reduce LAB to
amount reported for Zapata 40,000 40,000 P20,000 12,000
Balances P 64,000 P 64,000 P 64,000 P20,000 P 17,500
Allocation III – P & L ratio
Problem 3 - 9 - Requirement 3
Amount Wilson Yuson Zapata
Cash available in September P76,500
Allocation I – Balance 1,500 P 1,500
Allocation II 32,000 P 20,000 12,000
Balance - Allocation III P43,000 21,500 12,900 P 8,600
P 41.500 P 26,400 P 8,600
Problem 3 -10
Arceo, Basco and Cervo
For the Period January 1, 2006 to May 31, 2008
Arceo Basco Cervo Total

2006:
Original investment P50,000 P30,000 P 80,000
Distribution of net income (sch. 1) 15,200 12,800 28,000
Drawings (7,000) (6,000) (13,000)
Balance, December 31 P58,200 P36,800 P 95,000
2007:
Investment of Cervo (sch. 2) (9,100) (4,900) P54,000 40,000
Distribution of net loss 4,200 3,000 4,800 12,000
Drawings (4,900) (3,900) (4,200) (13,000)
Balances, December 31 P40,000 P25,000 P45,000 P110,000
2008:
Distribution of cash in Feb. (sch. 3) (5,000) (5,000) (10,000)
Distribution of cash in April (sch. 4) (7,000) (5,000) (8,000) (20,000)
Balances P28,000 P20,000 P32,000 P 80,000
Sale of assets & distribution of loss
in May (sch. 5) (17,500) (12,500) (20,000) (50,000)
Final cash distribution P 10,500 P 7,500 P 12,000 P 30,000
Schedule 1 - Distribution of 2006 net income

Arceo Basco Total
Salaries P10,000 P10,000 P20,000
Remainder – 65%:35% 5,200 2,800 8,000
Total P15,200 P12,800 P28,000
Schedule 2 - Admission of Cervo

Total capital before admission of Cervo P 95,000
Investment of Cervo 40,000
Total capital P135,000
Interest acquired by Cervo 40%
Capital credit of Cervo P 54,000
Investment of Cervo 40,000
Bonus to Cervo from old partners (shared 65%:35%) P 14,000
Schedule 3 - Cash distribution in February
Arceo Basco Cervo

Capital balances before dist. of cash P40,000 P25,000 P45,000
Restricted interest - possible loss if nothing
is realized on remaining assets (P100,000) 35,000 25,000 40,000
Free interest - amount to be paid to partners P 5,000 P ------ P 5,000
Schedule 4 - Cash distribution in April
Arceo Basco Cervo

Capital balances before dist. of cash P 35,000 P25,000 P40,000
Restricted interest - possible loss if nothing
is realized on remaining assets (P80,000) 28,000 20,000 32,000
Free interest - amount to be paid to partners P 7,000 P 5,000 P 8,000
Schedule 5 - Loss on realization of assets in May
Capital balances equal to net assets P80,000

Cash realized on sale of assets 30,000
Problem 3-11
Partnership Books
1. Inventories 60,000
Prepaid Expenses 3,000
Goodwill 243,000
Leony, Capital 200,000
Espie, Capital 100,000
2. Rover Corp. Stocks 4,500,000

Cash 450,000
Prepaid Expenses 3,000
Furniture and Equipment 2,520,000
Goodwill 243,000
3. Leony, Capital 2,600,000

Espie, Capital 1,900,000
Rover Corp. Stocks 4,500,000
Corporation’s Books
1. Cash 450,000
Prepaid Expense 3,000
Furniture and Equipment 2,520,000
Goodwill 243,000
Ordinary Share Capital 4,500,000
2. Land 3,600,000
Cash 1,500,000
Pre-Operating Expenses 450,000
Ordinary Share Capital 4,800,000
Rover Corporation
July 1, 2008
Assets Liabilities and Shareholders’ Equity

Cash P 1,950,000 Accounts Payable P 600,000
Accounts Receivable (net of Allow Accrued Expenses 6,000
of P120,000) 540,000 Total Liabilities P 606,000
Inventories 1,350,000 Shareholders’ Equity
Prepaid Expenses 3,000 Ordinary Share Capital P9,300,000
Land 3,600,000 PIC in Excess of Par 750,000
Furniture and Equipment 2,520,000 Retained Earnings (deficit) (450,000)
Goodwill 243,000 Total Shareholders’ Equity P9,600,000
Total Assets P10,206,000 Total liabilities and SH equity P10,206,000
MULTIPLE CHOICE
1. D
2. D
3. C
4. C Share on loss on realization
(P39,000 + P4,800 – P33,000) P10,800
Percentage ownership of Imperial ÷ 20%
Total loss on realization P54,000
5. A Total capital P70,000

Cash available 28,000
6. B Gueco Tiangco Bacelon

Capital bal. before liquidation P 40,000 P 25,000 P 5,000
Loss on realization ( 21,000) (14,000) ( 7,000)
Balances P 19,000 P 11,000 P( 2,000)
Add’l loss to Gueco & Tiangco
for the deficiency of Barcelon ( 1,200) ( 800) 2,000
Cash distribution to partners P 17,800 P 10,200 P ---0---
7. D Total capital (P360,000 + P72,000) P432,000

Total loss on liquidation P516,000
8. A Alarcon Baretto Coronel

Drawing ( 60,000) ( 40,000) (20,000)
Distribution of net income 24,000 24,000 24,000
Loss on liquidation (172,000) (172,000) (172,000)
Balances P(108,000 P(108,000) P 132,000
Additional loss to partners 108,000 ( 54,000) ( 54,000)
Cash to be distributed to P 78,000
Coronel
9. C Total capital P40,000

Loans from partners 7,500
Total partners’ interest P47,500
Cash available to partners (P37,500 – P28,500) 9,000
Total loss on realization P38,500
10 C Doria Elma
Capital balances before liquidation P 24,500 P 15,500
Loan balances 4,000 3,500
Total partners’ interest P 28,500 P 19,000
Loss on realization ( 23,100) ( 15,400)
Balances – cash to be paid to partners P 5,400 P 3,600
11 C Total assets = Total capital + Total liabilities

= P60,000 + P 3,000 P 63,000
Less Cash = P3,000 + P22,200 – P23,200 ___2,000
Book value of noncash assets P 61,000
12 C P61,000 – P23,200 = P37,800 x 3/21 P 5,400

13 B Jurado Katindig Lazaro Marcelo

Capital balances P 1,000 P25,000 P25,000 P 9,000
Loss on realization ( 5,400) ( 7,200) ( 10,800) ( 14,400)
P( 4,400) P(17,800) P14,200 P( 5,400)
Additional loss 4,400 3,920 ( 5,880) 5,400
Payment to Lazaro P 8,320
14 C Total credits equal debits (P130,000 + P44,000 +

P90,000) P264,000
Less Cash 40,000
Book value of other assets P224,000
Loss on realization [(P50,000 + P17,600 – P55,200)/40%] 31,000
Cash received from sale of other assets P193,000
15 A
16 A
17 B Esper Ester Ethel Elmer
Capital balances P 50,000 P50,000 P50,000 P 75,000
Loss on realization (112,000) ( 56,000) ( 56,000) ( 56,000)
P(62,000) P(6,000) P(6,000) P19,000
Additional loss (3,000) 6,000 ( 1,500) (1,500)
Amt to be rec.from the part. P 17,500
200,000
P217,500
18 D Urbe Viray
Initial investment P 137,500,000 P 137,500,000
Purchases ( 1,237,500,000) ( 495,000,000)
Sales 1,339,250,000 462,000,000
Interest ( 2,200,000) ( 1.375,000)
Dividends 1,100,000 2,750,000
Cash held P 238,150,000 P 105,875,000
Equal share 172,012,500 172,012,500
Cash received (paid) (P 66,137,500) P 66,137,500
19 C Delia Erma Flora

Capital balances before liquidation P480,000 P135,000 P165,000
Loss on liquidation (P180,000) ( 72,000) ( 90,000) ( 18,000)
Cash to be received by Delia P408,000
20 A Delia Erma Flora

P264,000 (P135,000) P111,000
Add’l loss to Delia & Flora ( 108,000) 135,000 ( 27,000)
Cash to be received by Flora P 84,000
21 D Delia Erma Flora

Balances P408,000 P 45,000 P147,000
Possible loss if remaining
inventories are not sold (192,000) ( 240,000) ( 48,000)
Balances P216,000 (P 195,000) P 99,000
Add’ loss to Delia & Flora ( 156,000) 195,000 ( 39,000)
Distribution of cash to partners P 60,000 - P 60,000
22 D
23 B
24 A Estrada Fortuna Gener
Balances before liquidation P 40,000 P 65,000 P 48,000
Loss on sale of assets - P40,000 ( 16,000) (16,000) ( 8,000)
Possible loss if nothing is realized
on remaining assets - P90,000 ( 36,000) (36,000) (18,000)
Balances P( 12,000) P 13,000 P 22,000
Add’l possible loss to Fortuna and
Gener for deficiency of Estrada 12,000 ( 8,000) ( 4,000)
Balances - cash to be distributed P --------- P 5,000 P 18,000
25 B Capital balance of Gener before distribution of cash P 18,000
Share in the cash to be withheld for possible liquidation
expenses - P3,000 x 20%/60% (shared by Fortuna
& Gener) ( 1,000)
Cash to be received by Gener P 17,000
26 D The remaining cash will be distributed according to profit and loss ratio.
Thus the P14,000 will be distributed as follows:
Estrada - P14,000 x 40% = P5,600
Fortuna - P14,000 x 40% = P5,600
Gener - P14,000 x 20% = P2,800
27 C Total capital before drawing and net loss P 135,000
Drawing ( 10,000)
Net loss for the year ( 20,000)
Total assets P 110,000
Cash on hand ( 700)
Amount of noncash assets before liquidation P 109,300
28 C Capital balance of Aguila before dist. of net loss P 25,000
Share in net loss (P20,000 x 60%) ( 12,000)
Capital balance of Aguila before liquidation P 13,000
Cash to be received by Aguila 19,000
Share of Aguila in the gain on sale of other assets P 6,000
Percentage share of Aguila ÷ 60%
Total gain on sale of other assets P 10,000
Book value of other assets 109,300
Cash to be realized from sale of other assets P 119,300
PAYMENTS
29 D Aguila Balweg Corpuz Aguila Balweg Corpuz
Drawing (10,000)
Net loss ( 12,000) ( 5,000) ( 3,000)
Profit and loss ratio ÷ 60% ÷ 25% ÷ 15%
Loss absorption bal. P 21,667 P180,000 P313,333
Alloc. I - Cash to Corpuz (133,333) P 20,000
Balances P 21,667 P180,000 P180,000
Alloc. II -Cash to Balweg
and Corpuz (158,333) (158,333) P 39,583 23,750
Balances P 21,667 P 21,667 P 21,667 P 39,583 P43,750
Alloc. III - Based on
P & L ratio
Cash received by Corpuz P 33,000
Cash received from Allocation I ( 20,000)
Cash received from Allocation Ii P 13,000
Fractional share (B – 25% and C -15%) ÷ 15/40
Total cash distributed P 34,667
Fractional share of Balingit x 25/40
Cash received by Balingit P 21,667
30 B Vulnerability
Ranking
Nera - P450,000 / 30% = P150,000 3
Ochoa - P250,000 / 50% = P 50,000 1
Perez - P250,000 / 20% = P125,000 2
31 D Priority Nera Ochoa Perez Perez

Creditors Capital Capital Loan Capital
1st P500,000 100%
next P75,000 100%
next P375,000 60% 26.67% 13.33%
Remainder 30% 50% 20.00%
32 A Nera Ochoa Perez Total

Equities P450,000 P250,000 P250,000 P950,000
Loss to absorb Ochoa ( 150,000) ( 250,000) ( 100,000) ( 500,000)
Balances P300,000 ------ P150,000 P450,000
Loss to absorb Perez ( 225,000) (150,000) ( 375,000)
Balance P 75,000 ------ ---- P 75,000
33 C Reyes (20%) Santos (40%) Torres (40%)
Net capital balances P100,000 P440,000 P310,000
Possible loss of P700,000 ( 140,000) (280,000) ( 280,000)
Balances (P 40,000) P160,000 P 30,000
Possible loss from Reyes debit balance 40,000 ( 20,000) ( 20,000)`
Cash distribution ------ P140,000 P 10,000
34 D Roger Sergio Tito Roger Sergio Tito

35 C Capital balances P108,000 P120,000 P129,000
Add Loan 30,000
Divided by P & L ratio 30% 50% 20%
Loss absorption capacity P360,000 P300,000 P645,000
Allocation 1 ( 285,000) P57,000
Balances P360,000 P300,000 P360,000
Allocation II ( 60,000) ( 60,000) P18,000 12,000
P300,000 P300,000 P300,000 P18,000 - P69,000
Allocation III – P & L ratio
36 B Roger Sergio Tito

Amount available P72,000
Allocation 1 to Tito 57,000 P57,000
Allocation II – 30%, 20% P15,000 P9,000 6,000
P9,000 P63,000
37 A Roger Sergio Tito

Amount available P120,000
Allocation II – Balance 15,000 P 9,000 P 6,000
Allocation III P105,000 31,500 P52,500 21,000
P40,500 P52,500 P27,000
38 D Jacinto Mapa Magno

Capital balances P400,000 P600,000 P1,000,000
Revaluation of assets 200,000 200,000 200,000
Adjusted capital P600,000 P800,000 P1,200,000
Par of capital stock ÷ P100 ÷ P100 ÷ P100
Shares of stock to be rec’d by partners 6,000 sh. 8,000 sh 12,000 sh
39 C Capital balances P260,000

Adjustment in assets (P20,000 – P10,000 – P3,000) 7,000
Adjusted capital P267,000
40 B Total capital (P94,800 + P214,200) P309,000

Adjustments in assets (P6,600 – P20,000 – P22,000) ( 35,400)
Adjusted capital P273,600
Ordinary Share Capital (720 x 2 x P10) 14,400
Preference Share Capital P259,200
Ordinary shares (P14,400 / P10) 1,440 sh..

Preference shares (P259,200 / P100) 2,592 sh.
41 C Roldan Moises
Capital balances before incorporation P94,800 P214,200
Adjustment in assets ( 11,800) ( 23,600)
Adjusted capital P83,000 P190,600
Ordinary Share Capital (720 @P10) 7,200 7,200
Preference Share Capital P75,800 P183,400
Preference shares 758 1,834

Ordinary shares 720 720
AA1 -Chapter 3 (2008 edition))s page 1
Exercise 3 – 7
Other Velasco CAPITAL

Cash Assets Liabilities Loan Viola Velasco Vicente
Balances before liquidation P 80,000 P960,000 P630,000 P 50,000 P470,000 (P140,000) P30,000
Sale of other assets & distribution of loss 200,000 ( 300,000) ( 60,000) ( 20,000) ( 20,000)
Balances P280,000 P660,000 P630,000 P 50,000 P410,000 (P160,000) P10,000
Payment of liabilities ( 280,000) ( 280,000)
Balances --- P660,000 P350,000 P 50,000 P410,000 (P160,000) P10,000
Offset of loan ( 50,000) 50,000
Additional investment by Velasco 90,000 90,000
Balances P 90,000 P660,000 P350,000 ---- P410,000 (P 20,000) P10,000
Asset distributed to Viola ( 200,000) ( 212,000) 6,000 6,000
Balances P 90,000 P460,000 P350,000 ----- P198,000 (P 14,000) P16,000
July sale of assets and distribution of loss 540,000 ( 400,000) 84,000 28,000 28,000
Balances P630,000 P 60,000 P350,000 ----- P282,000 P 14,000 P44,000
Payment of liabilities (350,000) ( 350,000)
Balances P280,000 P 60,000 ------ ---- P282,000 P 14,000 P44,000
Possible loss on remaining other assets ( 60,000) ( 36,000) ( 12,000) ( 12,000)
Cash distribution to partners P280,000 ----- ----- ---- P246,000 P 2,000 P32,000
PROBLEMS
Problem 3-1
1. Elma, Erica and Edna

January 1 – 31, 2008
Non-cash C A P I T A L
Cash Assets Liabilities Elma Erica Edna
Balances before liquidation P 80,000 P810,000 P270,000 P60,000 P290,000 P270,000
Sale of non-cash assets and distribution of loss 634,000 (810,000) (66,000) ( 66,000) ( 44,000)
Payment of liquidation expenses ( 24,000) ( 9,000) ( 9,000) ( 6,000)
Balances P690,000 P270,000 (P15,000) P215,000 P220,000
Payment of liabilities (270,000) (270,000)
Balances P420,000 (P15,000) P215,000 P220,000
Additional investment of Elma 15,000 15,000
Balances P435,000 P215,000 P220,000
Payment to partners ( 435,000) ( 215,000) ( 220,000)
2. Elma , Erica and Edna

January 1 – 31, 2008
Non-cash Note Payable C A P I T A L
Cash Assets to Elma Liabilities Elma Erica Edna
Balances before liquidation P 80,000 P810,000 P70,000 P200,000 P60,000 P290,000 P270,000
Sale of non-cash assets and distribution of loss 634,000 (810,000) (66,000) ( 66,000) ( 44,000)
Payment of liquidation expenses (24,000) ( 9,000) ( 9,000) ( 6,000)
Balances P690,000 P70,000 P200,000 (P15,000) P215,000 P220,000
Balances P490,000 P70,000 (P15,000) P215,000 P220,000
Offset of loan against debit balance in the
capital balance of Elma ( 15,000) 15,000
Balances P490,000 P55,000 P215,000 P220,000
Payment to partners (490,000) ( 55,000) ( 215,000) ( 220,000)
3. Elma , Erica and Edna
January 1 – 31, 2008
NR from Non-cash NP C A P I T A L
Cash Erica Assets to Elma Liabilities Elma Erica Edna
Balances before liquidation P 80,000 P110,000 P700,000 P70,000 P200,000 P60,000 P290,000 P270,000
Sale of non-cash assets and distribution of 634,000 (700,000) (24,750) ( 24,750) ( 16,500)
loss
Payment of liquidation expenses (24,000) ( 9,000) ( 9,000) ( 6,000)
Balances P690,000 P110,000 P70,000 P200,000 P26,250 P256,250 P247,500
Balances P490,000 P110,000 P70,000 P26,250 P256,250 P247,500
Offset of receivable against credit balance in
the capital of Erica (110,000) ( 110,000)
Balances P490,000 P70,000 P26,250 P146,250 P247,500
Payment to partners (490,000) ( 70,000) ( 26,250) ( 146,250) ( 247,500)
Problem 3 – 2 (Case 1)
January, 2009
Other L O A N C A P I T A L
Cash Assets Liabilities Daza Esteban Calma Daza Esteban
(2/5) (2/5) (1/5)
Balances before liquidation P 20,000 P 340,000 P 112,000 P 5,000 P 8,000 P 95,000 P 60,000 P 80,000
Sale of assets & distribution of loss 250,000 (340,000) (36,000) (36,000) (18,000)
Balances P 270,000 - P 112,000 P 5,000 P 8,000 P 59,000 P 24,000 P 62,000
Payment of to partners P 158,000 - - P 5,000 P 8,000 P 59,000 P 24,000 P 62,000
January, 2009
(2/5) (2/5) (1/5)
Balances P 205,000 - P 112,000 P 5,000 P 8,000 P 33,000 P( 2,000) P 49,000
Balances P 93,000 - - P 5,000 P 8,000 P 33,000 P( 2,000) P 49,000
capital account (2,000) 2,000
Payment to partners P 93,000 - - P 3,000 P 8,000 P 33,000 - P 49,000

January, 2009
(2/5) (2/5) (1/5)
Balances P 190,000 - P 112,000 P 5,000 P 8,000 P 27,000 P( 8,000) P 46,000
Balances P 78,000 - - P 5,000 P 8,000 P 27,000 P( 8,000) P 46,000
Balances P 78,000 - - - P 8,000 P 27,000 P(3,000) P 46,000
Payment to partners ( 78,000) ( 8,000) ( 25,000) (45,000)
Balances - - - - - P 2,000 P(3,000) P 1,000
Additional investment by Daza 3,000 3,000
Payment to partners P 3,000 - - - - P 2,000 - P 1,000
Problem 3- 2 (Case 4)
January, 2009
(2/5) (2/5) (1/5)
Balances P 145,000 - P 112,000 P 5,000 P 8,000 P 9,000 P(26,000) P 37,000
Balances P 33,000 - - P 5,000 P 8,000 P 9,000 P(26,000) P 37,000
Balances P 33,000 - - - P 8,000 P 9,000 P(21,000) P 37,000
Payment to partners ( 33,000) ( 8,000) (25,000)
Balances - - - - - P 9,000 P(21,000) P 12,000
Additional investment by Daza 21,000 21,000
Payment to partners P 21,000 - - - - P 9,000 - P 12,000

January, 2009
(2/5) (2/5) (1/5)
Balances P 110,000 - P 112,000 P 5,000 P 8,000 P( 5,000) P(40,000) P 30,000
Balances - - P 2,000 P 5,000 P 8,000 P( 5,000) P(40,000) P 30,000
Balances - - P 2,000 - P 8,000 P( 5,000) P(35,000) P 30,000
Additional investment by Calma and Daza 40,000 5,000 35,000
Payment of liabilities, loan and capital P 40,000 - P 2,000 - P 8,000 - - P 30,000
Problem 3-4
1. Estrella, Capital P 144,000 3. a. Cash 463,000

Estrella, Drawing ( 12,000) Eugenio, Capital 52,500
Total interest of Estrella P 132,000 Esteban, Capital 31,500
Cash received by Estrella 111,000 Estrella, Capital 21,000
Share of Estrella in the loss on P 21,000 Other Assets 568,000
liquidation
Fractional share of Estrella  2/10
Total loss on liquidation P 105,000 b. Liabilities 200,000
Cash 200,000
c. Esteban, Loan 40,000

Eugenio, Capital 79,500
Esteban, Capital 102,500
Estrella, Capital 111,000
Cash 333,000
2.
Eugenio , Esteban and Estrella
January 1 – 31, 2008
CAPITAL
Other Esteban, Eugenio Esteban Estrella
Cash Assets Liabilities Loan (5/10) (3/10) (2/10)
Balances before liquidation P 70,000 P 568,000 P 200,000 P 40,000 P 132,000 P 134,000 P132,000
Sale of other assets & distribution of loss 463,000 ( 568,000) ( 52,500) ( 31,500) ( 21,000)
Balances P 533,000 P 200,000 P 40,000 P 79,500 P 102,500 P 111,000
Payment of liabilities (200,000) ( 200,000)
Balances P 333,000 P 40,000 P 79,500 P 102,500 P 111,000
Payment to partners ( 333,000) ( 40,000) ( 79,500) (102,500) ( 111,000)
Problem 3 - 6
QRS Partnership
July to September, 2008
Accounts Roman, C A P I T A L
Cash Other Assets Payable Loan Quizon Roman Silva
Balances before liquidation P 150,000 P2,010,000 P1,215,000 P150,000 P300,000 P270,000 P225,000
July: Sale of assets 1,170,000 ( 1,530,000) ( 180,000) ( 108,000) ( 72,000)
Payment of liabilities ( 1,215,000) ( 1,215,000)
P 97,500 P 480,000 - P150,000 P116,250 P159,750 P151,500
Payment of loan ( 67,500) ( 67,500)
Balances P 30,000 P 480,000 - P 82,500 P116,250 P159,750 P151,500
August: Sale of assets 66,000 ( 105,000) ( 19,500) ( 11,700) ( 7,800)
P 88,500 P 375,000 - P 82,500 P 93,000 P145,800 P142,200
Payment of loan and capital ( 58,500) ( 41,100) ( 17,400)
Balances P 30,000 P 375,000 - P 41,400 P 93,000 P145,800 P124,800
Sept.: Sale of assets 165,000 ( 375,000) ( 105,000) ( 63,000) ( 42,000)
P 187,500 - - P 41,400 (P 15,750) P 80,550 P 81,300
Additional loss to Roman & Silva 15,750 ( 9,450) ( 6,300)
Payment to partners P 187,500 - - P 41,400 - P 71,100 P 75,000
Problem 3 - 5
JKLM Trading
February 1 - March 31, 2008
Other Jocson C A P I T A L
Cash Assets Liabilities Loan Jocson Kaimo Legarda Manabat
February:
Sale of assets & distribution of loss 49,320 ( 66,060) ( 3,348) ( 5,022) ( 5,022) ( 3,348)
Payment of liquidation expenses ( 8,220) ( 1,644) ( 2,466) ( 2,466) ( 1,644)
Balances P 123,670 P 127,470 P 3,610 P 15,000 P 19,128 P 88,992 P 101,532 P 22,878
Payment to partners (sch. 1) ( 120,060) ( 7,980) (49,770) ( 62,310)
March:
Sale of assets & distribution of gain 48,330 ( 44,850) 696 1,044 1,044 696
Payment of liquidation expenses ( 7,380) ( 1,476) ( 2,214) ( 2,214) ( 1,476)
Balances P 40,950 P 82,620 p -------- P 7,020 P 18,348 P 38,052 P 38,052 P 22,098
Payment to partners (sch. 2) ( 40,950) 7,020 ( 1,824) (13,266) ( 13,266) ( 5,574)
Balances, March 31 P --------- P 82,620 P -------- P ------- P 16,524 P 24,786 P 24,786 P 16,524
Problem 3 - 8
Req. 2
Neri, Ordan and Pacia
January 1 - March 31, 2008
Other Pacia, Sal. Pay. C A P I T A L

Cash Assets Liabilities Loan to Neri Neri Ordan Pacia
January:
Collections from customers 112,000 (112,000)
Payment to partners (see schedule) ( 16,000) ( 9,000) ( 7,000)
Balances P 72,600 P 79,000 P 39,000 - P 6,000 P 47,800 P 26,900 P 31,900
February:
Collections from customers 36,000 ( 36,000)
Payment of liquidation expenses ( 2,800) ( 1,400) ( 700) ( 700)
Payment of liabilities & dist. of gain (38,000) ( 39,000) 500 250 250
Balances P 67,800 P 43,000 - - P 6,000 P 46,900 P 26,450 P 31,450
Payment to partners (see schedule) ( 19,800) ( 6,000) ( 1,400) ( 3,700) ( 8,700)
Balances P 48,000 P 43,000 - - - P 45,500 P 22,750 P 22,750
March:
Collections from customers & dist. of 35,000 ( 43,000) ( 4,000) ( 2,000) ( 2,000)
loss
Payment to partners P( 79,000) - - - - P 39,500 P 19,750 P 19,750
Problem 3 -8
Requirement No 1 Neri, Ordan and Pacia
January 1, 2008
Neri Ordan Pacia Neri Ordan Pacia

Capital balances before liquidation P 50,000 P 28,000 P 40,000
Add Loan balances 6,000 9,000
Profit and loss ratio ÷ 50% ÷ 25% ÷ 25%
allocation I - Cash to Pacia reducing LAB to an amount reported
for Neri and Ordan. Reduction of P84,000 requires payment
of 25% of P 84,000 ( 84,000) _______ _______ P 21,000
Balances P112,000 P112,000 P112,000 -------- --------- P 21,000
Allocation II - Further cash distributions may be made in the profit and loss raio
SCHEDULE OF CASH DISTRIBUTION:

Amount Neri Ordan Pacia
January: Cash available P 16,000
Allocation I:
Payable to Pacia 16,000 - --------- P 16,000
February: Cash available P 19,800

Allocation I:
Payable to Pacia 5,000 P 5,000
Allocation II
Payable according
to P & L ratio P 14,800 P 7,400 P 3,700 3,700
- P 7,400 P 3,700 P 8,700
Problem 3 - 7
Requirement 3
Tabora, Ureta and Veloso
January 1 to April 30, 2008
Cash Assets Tabora Ureta Veloso Tabora Ureta Veloso
Balances before liquidation - P 338,000 P 45,000 P 30,000 P 13,000 P 120,000 P 90,000 P 40,000
January:
Sale of assets 15,000 ( 15,000)
Payment to partners (15,000) (15,000)
Balances - P 323,000 P 45,000 P15,000 P 13,000 P 120,000 P 90,000 P 40,000
February:
Sale of assets 40,000 ( 40,000)
Payment to partners ( 40,000) ( 21,250) (15,000) ( 3,750)
Balances P 283,000 P 23,750 - P 13,000 P 120,000 P 86,250 P 40,000
March:
Sale of assets 90,000 ( 90,000)
Payment to partners ( 90,000) (23,750) (13,000) ( 23,500) ( 28,350) ( 1,400)
Balances - P 193,000 - - - P 96,500 P 57,900 P 38,600
April:
Sale of assets & distribution of loss 30,000 ( 193,000) ( 81,500) ( 48,900) (32,600)
Balances P 30,000 - - - - P 15,000 P 9,000 P 6,000
Payment to partners (30,000) - - - - P 15,000 P 9,000 P 6,000
AA1 - Chapter 4 – Joint Ventures (2005)
Suggested Answers page 4
Exercise 4-2
Books of Alvin, Managing Partner
Feb. 12 Joint Venture 10,000

Cash 10,000
14 Joint Venture 2,000

Larry 2,000
15 Cash 9,000
Larry 7,500
Joint Venture 16,500
20 Cash 3,000
Joint Venture 3,000

Income from Joint Venture 4,287.50
Larry 3,212.50
10% commission on net purchases to Alvin
25% commission on own sales
20 Cash 2,287.50
Larry 2,287.50
Books of Larry
Feb. 12 Joint Venture 10,000
Alvin 10,000

Cash 2,000
15 Cash 7,500
Alvin 9,000
20 Alvin 3,000
Joint Venture 3,000

Alvin 4,287.50
10% commission on net purchases to Alvin
20 Alvin 2,287.50
Cash 2,287.50
Problem 4-2
Requirement 1
Books of Roland, Managing Partner
1. Joint Venture 40,300,000

Greg 19,500,000
Medel 13,000,000
Land 7,800,000

Cash 3,000,000
Improvements on land
3. Joint Venture Cash 35,400,000

Joint Venture 35,400,000
Sales by venturers.
4. Joint Venture Cash 14,300,000

Sales by salesmen
5. Joint Venture 684,000

Joint Venture Cash 684,000
Venture expenses

Income from Joint Venture 72,000
Salaries to Roland as managing partner

Greg 1,280,000
Medel 1,770,000

Greg 701,333
Medel 701,333
Balance of profit divided equally
7. Greg 21,481,333
Medel 15,471,333
Joint Venture Cash 36,952,666
Final cash settlement
Books of Greg
Land 19,500,000
Medel 13,000,000
Roland 7,800,000

Roland 3,000,000
3. Roland 35,400,000
Sales by venturers.
4. Roland 14,300,000
Sales by salesmen

Roland 684,000
Venture expenses

Roland 72,000

Roland 490,000
Income from Joint Venture 1,280,000
Medel 1,770,000

Roland 701,334
Medel 701,333
7. Cash 21,481,333
Medel 15,471,333
Roland 36,952,666
Books of Medel
Greg 19,500,000
Land 13,000,000
Roland 7,800,000

Roland 3,000,000
3. Roland 35,400,000
Sales by venturers.
4. Roland 14,300,000
Sales by salesmen

Roland 684,000
Venture expenses

Roland 72,000

Roland 490,000
Greg 1,280,000

Roland 701,334
Greg 701,333
7. Greg 21,481,333
Cash 15,471,333
Roland 36,952,666
Problem 4-2
Requirement 2
Books of the Joint Venture

1. Land 40,300,000
Greg, Capital 19,500,000
Medel, Capital 13,000,000
Roland, Capital 7,800,000
2. Land 3,000,000
3. Cash 35,400,000
Sales 35,400,000
4. Cash 14,300,000
Sales 14,300,000
5. Expenses 684,000
Cash 684,000
6. Sales 49,700,000
Land 43,300,000
Expenses 684,000
Income Summary 5,716,000

Roland, Capital 72,000

Greg, Capital 1,280,000

Greg, Capital 701,333
Medel, Capital 701,333
8. Greg, Capital 21,481,333

Cash 49,016,000
Books of Greg
1. Investment in Joint Venture 19,500,000
Land 19,500,000

3. Cash 21,481,333
Investment in Joint Venture 21,481,333
Books of Medel
Land 13,000,000

3. Cash 15,471,333
Books of Roland
Land 7,800,000

Cash 3,000,000

4. Cash 12,063,334
Problem 4-3
Books of Marissa
Yolly 44,000
Beth 60,000
2. Joint Venture Accounts Receivable 160,000

3. Joint Venture Cash 153,000

Joint Venture 7,000
Joint Venture Accounts Receivable 160,000

5. Yolly 10,000
Beth 7,500

Yolly 660
Beth 900
Interest on investment.

Commission on sales.

Yolly 5,646
Beth 5,647
Allocation of the balance.
9. Yolly 40,306
Beth 59,047
Cash 13,647
Books of Yolly
Beth 60,000
2. Marissa 160,000

Marissa 7,000

Marissa 40,000

Beth 7,500

Income from Joint Venture 660
Beth 900

Marissa 8,000

Beth 5,647
Marissa 5,647
9. Cash 40,306
Beth 59,047
Marissa 99,353
Books of Beth
Yolly 44,000
2. Marissa 160,000

Marissa 7,000

Marissa 40,000
5. Yolly 10,000

Yolly 660

Marissa 8,000

Yolly 5,646
Marissa 5,647
9. Yolly 40,306
Cash 59,047
Marissa 99,353
Requirement 2
Books of the Joint Venture

1. Merchandise 104,000
Yolly, Capital 44,000
Beth, Capital 60,000

Sales 160,000
3. Cash 153,000
Uncollectible Accounts Expense 4,300
Sales Discount 2,700
4. Expenses 40,000
Cash 40,000
5. Yolly, Capital 10,000

Beth, Capital 7,500
Merchandise 17,500
6. Sales 160,000
Merchandise 86,500
Sales Discounts 2,700
Doubtful Accounts Expense 4,300
Expenses 40,000

Yolly, Capital 6,306
Beth, Capital 6,547
Marissa, Capital 13,647
8. Yolly, Capital 40,306

Beth, Capital 59,047
Marissa, Capital 13,647
Cash 113,000
Books of Yolly
1. Investment in Joint Venture 44,000

Investment in Joint Venture 10,000

P660 + P5,646 = P6,306
4. Cash 40,306
Books of Beth


P900 + P5,647 = P6,6,547
4. Cash 59,047
Books of Marissa
P8,000 + P5,647 = P13,647
2. Cash 13,647
Problem 4-4
1. Merchandise Inventory 10,571.20

Joint Venture 10,571.20

Bonus = 10% (NI – B)
Bonus = 10% (P53,636.20 – B) = P4,785
Joint Venture 47,851.20

Santi 23,925.60
Romy 9,570.24
Distribution of balance – 30%, 50%, and 20% to
Noel, Santi, and Romy, respectively.
3. Santi 22,863.60
Romy 18,628.24
Cash 41,491.84
Final cash settlement.
Problem 4-5
Books of Leo
Bonus = 20% (NI – B)
Bonus = 20% (P24,000 – B) = P4,000
2. Income from Joint Venture 600

Mandy 300
Joint Venture 300
Interest on deficiency and excess
Leo = P10,000 x 12% x 6/12 = P600
Mandy = P5,000 x 12% x 6/12 = P300

Niel 8,120
Mandy 4,060
Balance of profit divided in the ratio of 4:4:2 to
Leo, Niel, and Mandy, respectively
Books of Mandy
Leo 4,000
2. Leo 600
Joint Venture 300

Leo 8,120
Niel 8,120
Books of Niel
Leo 4,000
2. Leo 600
Mandy 300
Joint Venture 300

Leo 8,120
Mandy 4,060
MULTIPLE CHOICE
1. A Total credits in the Joint Venture account P258,100

Less Total debits in the Joint Venture account 197,500
Gain (excess of credit over debit) P 60,600
2. D Merchandise contribution P 85,000

Add Share in the gain (P60,600 x 2/10) 12,120
Final settlement to Minda P 97,120
3. A The account of Melissa has a debit balance, thus, she has to make payment..
The account of Nancy has a debit balance, thus, she has to make payment.
The account of Olivia has a credit balance, thus, she has to receive payment.
4. C P150,000 + P105,000 = P255,000
5. C P120,000 + (135,000/3) = P165,000
6. B Capital of Tan P270,000

Unsold merchandise taken by Tan ( 105,000)
Share on the venture income (P135,000* / 3) 45,000
Amount received by Tan in final settlement P210,000
* Credit balance in the Joint Venture account P150,000

Unsold merchandise taken by Tan 105,000
Venture income P255,000
Salaries to Reyes 120,000
Remainder – divided equally P135,000
7. B 15% (P115,000 –B) = P15,000
8. C. Credit balance in the Joint Venture account P 90,000

Unsold merchandise purchased by Soriente 25,000
Net profit before bonus P115,000
Bonus to Soriente [ 15% (P115,000 – B) 15,000
Net profit after bonus P100,000
9. C P100,000 x 40% = P40,000
10. B Santos Salazar

Account balances (P 5,000) P20,000
Share in venture profit 40,000 35,000
Cash settlement P35,000 P55,000
11. C Sales P240,000

Less Sales discounts 4,050
Net sales P235,950
Cost of sales:
Contributed merchandise P156,000
Less Returned merchandise 26,400 129,600
Gross profit P106,350
Operating expenses (P6,450 + P58,650) 65,100
Net income P 41,250
Less Bonus (P41,250 x 25/125) 8,250
Net income after bonus P 33,000
12. B P41,250 x 25/125 = P8,250
13. D Iona Paula

Merchandise contribution P66,000 P90,000
Merchandise returns ( 15,000) ( 11,400)
Interest on original capital 990 1,350
Balance of profit divided equally 10,220 10,220
Cash settlement P62,210 P90,170
14. A Joint Venture

Purchases 300,000 Sales 559,500
Expenses 34,500
Balance, end 225,000
559,500 559,500
Sales revenue is a credit entry in the Joint Venture account. The total of the
purchases, expenses and the ending balance is equal to total sales revenue. The
ending balance is the sum of the credit balances of Marc and Martin of P120,000
and P105,000.
15. B P236,500 x 50% = P118,250
16. A Investment of Marc P150,000

Cost of unsold goods assumed by Marc ( 4,500)
Share in the joint venture gain:
Credit balance in the JV account P225,000
Unsold goods assumed by the partners 11,500
JV gain P236,500
Share of Marc 50% 118,250
Cash settlement to Marc P263,750
17. B P12,000 – P2,500 = P9,500
18. D Debbie Ellie
Contribution P10,000 P2,000
Less Share on loss (P12,000 – P2,500) 4,750 4,750
P 5,250 (P2,750)
Additional loss to Debbie ( 2,750) 2,750
Cash distribution P 2,500
19. B Valdez Ramos Total

Receipts P789,200 P654,250
Less Investment 300,000 300,000
Revenue P489,200 P354,250 P 943,450
Sale of non-cash assets 600,000
Total revenue P1,543,450
Less Expenses – disbursements (P622,750 + P706,950) 1,329,750
Joint venture profit P 213,750
20.
21. B Debit to Joint Venture account:

Investment of Santos (12,000 shares @ P45) P540,000.00
Investment of Cruz (8,000 shares @ P45) 360,000.00
Manager’s fee [ 1% (176,000 + 240,000 + 133,000 +261,625)] 8,106.25
Miscellaneous expenses 1,500.00
P909,606.25
Credit to Joint Venture account:
Sales (4,000 @ P44) P176,000.00
Sales (6,000 @ P40) 240,000.00
Cash dividend [(12,000 + 8,000 – 4,000 – 6,000) x P2] 20,000.00
Sales (3,500 @ P38) 133,000.00
Sales [(10,000 – 3,500) x 115% = 7,475 shares x P35] 261,625.00
P830,625.00
Net loss of the venture (P909,606.25 – P830,625) P 78,981.25
22. D Investment of Cruz (8,000 shares @ P45) P360,000.00

Less Share in JV net loss (P78,981.25 x 8/20) 31,592.50
Share of Cruz after distribution of proceeds P328,407.50
23. B Loss upon the investment of shares (8,000 shares @ P10) P 80,000.00
Share in JV loss 31,592.50
Loss of Cruz on the disposition of Palawan Oil Co. shares P 111,592.50
Loss on the disposition of the shares of Cruz is the total of the loss upon
investment of the shares (i.e. P45 – P55 = P10 per share) and the share on the net
loss of the dissolved joint venture.
24. A 20,000 shares x P40 MV = P800,000
25. A 20,000 – 4,500 + 15,500 x 120% = 18,600 – 5,000 = 13,600 x P1 = P13,600
26 B Proceeds from sale of shares;

4,500 x P44 P198,000
5,000 x P25 125,000
6,000 x P28 168,000
7,600* x P35 266,000 P757,000
Cost of the shares (see # 1) 800,000
Loss from sale of the shares P 43,000
Expenses (3,000 + 4,700) ( 7,700)
Dividend revenue
Number of shares after stock dividend 18,600
Less shares sold on November 5 5,000
Shares entitled to cash dividend 13,600
Dividend per share x P1 13,600
Net loss P 37,100
x 6/20
Share of Roxas on the venture loss P11,130
* Contributed shares 20,000

Shares sold on Oct. 20 4,500
Remaining shares 15,500
Shares received as stock dividend (20% x 15,500) 3,100
Shares sold on Nov. 5 and 22 (11,000)
Shares sold at P35 7,600
27. D 20,000 – 4,500 = 15,500 x 20% = 3,100
28. C Investment (10,000 shares @ P40) P400,000

Share on the joint venture loss (P37,100 x 1/2 ) 18,550
Share of Silverio on the distribution of proceeds P381,450
29. A Loss upon contribution of the shares [(P40 – P62) x 4,000] P88,000
Share on the JV loss (P37,100 x 4/20) 7,420
Tan’s loss on disposition of his investment in Golden Copper P95,420
CHAPTER 4
SUGGESTED ANSWERS
EXERCISES
Exercise 4 - 1
Paulo, Edwin and Marco

Worksheet Summarizing Joint Venture Transactions
May 12 to 26, 2008
Joint Venture Paulo Edwin Marco

Debit Credit Debit Credit Debit Credit Debit Credit
Construction of stand P 3,000 P 3,000
Purchases 30,000 P 30,000
Additional purchases 60,000 45,000 P10,000 5,000
Sales P153,000 P 80,000 P33,000 P40,000
Stand taken by Edwin 2,000 2,000
Unsold merchandise taken by Marco 4,000* 4,000
P 93,000 P159,000 P 80,000 P 75,000 P35,000 P10,000 P44,000 P 8,000
Net profit 66,000 _______
P159,000 P159,000
Distribution of profit:
Permit paid by Paulo P 1,530
Commission 24,000 P 9,900 P12,000
Balance – shared 50%, 10% and 40% 9,285 1,857 7,428
Share in net income _______ P 34,815 _______ P11,757 _______ P19,428
Totals P 80,000 P109,815 P35,000 P21,757 P44,000 P27,428
Cash settlement 29,815 _______ ______ 13,243 ______ 16,572
P109,815 P109,815 P35,000 P35,000 P44,000 P44,000
* Purchases P90,000 ** If markup is 80% of cost, then sales is 180% of cost.

Cost of sales (P153,000 / 180%**) 85,000
Inventory, end P 5,000
Value upon which participants can purchase inventory x 80%
Value assigned to the inventory taken by Lito P 4,000
AA1 - Chapter 4 (2008 edition) page 2
Exercise 4 – 3
Books of Jolly Books of Bernie Books of Sonny

To set up inventory, end Joint Venture Invty 110,000 Jolly 110,000 Jolly 110,000
(should be set up before Joint Venture 110,000 Joint Venture 110,000 Joint Venture 110,000
recognizing gain or loss)
To recognize gain or loss, Joint Venture 160,000 Joint Venture 160,000 Joint Venture 160,000
shared 4:2:2 Income from JV 80,000 Jolly 80,000 Jolly 80,000
NI=P50,000 + P110,000 Bernie 40,000 Income from JV 40,000 Bernie 40,000
Sonny 40,000 Sonny 40,000 Income from JV 40,000
To record settlement with Sonny 78,000 Sonny 78,000 Cash 62,400

Sonny* JV Cash 62,400 Jolly 72,800 Loss from JV 15,600
Income from JV 10,400 Income from JV 5,200 Bernie 72,000
Bernie 5,200 Jolly 150,000
* Interest of Sonny (P38,000 + P40,000) P78,000

Bonus to Jolly and Bernie (P78,000 x 20%) 15,600
Cash settlement to Sonny P62,400
The bonus to Jolly and Bernie represents a gain to them and a loss to Sonny. The P15,600 bonus shall be shared by Jolly and Bernie in the ratio of 4:2. The, the
sharing is as follows: Jolly – P15,600 x 4/6 = P10,400; Bernie – P15,600 x 2/6 = P5,200.
Problem 4-1
Dario, Val, and Rene

Worksheet Summarizing Joint Venture Transactions
August 7 - 10, 2008
Joint Venture Dario Val Rene

Debit Credit Debit Credit Debit Credit Debit Credit
Construction of stand 1,000 P 1,000
Purchases 10,000 10,000
Payment of permit to operate 500 500
Additional purchases 15,000 10,000 5,000
Sales 45,000 15,000 20,000 10,000
Fire extinguishers divided among venturers 3,333 3,333 3,334 10,000
Unsold merchandise taken by Dario 1,250 1,250
26,500 46,250 19,583 21,000 23,333 5,000 13,334 10,500
Net profit 19,759
46,250 46,250
Distribution of profit:
Cleaning of lawn of Rene 500
Commission 6,000 8,000 4,000
Balance -75% to Dario and 25% to Val 938 312
Totals 19,583 27,938 23,333 13,312 13,334 15,000
Cash settlement 8,355 10,020 1,666
27,938 27,938 23,333 23,333 15,000 15,000
Purchases P10,000 + P15,000 P25,000

Cost of Sales P45,000/200% 22,500
Inventory end P 2,500
X 50%
Inventory value taken by Dario P 1,250
CHAPTER 5
SUGGESTED ANSWERS
EXERCISES
Exercise 5 – 1
1. Inventory on Consignment 90,000
To record transfer of merchandise to consignee.
2. Consignee Receivable (P24,000 x 130%) 31,200

Consignment Sales Revenue 31,200
To record consignment sales.
3. Cost of Consignment Goods Sold 24,000

Inventory on Consignment 24,000
To record cost of goods sold.

To record return of consigned goods.
5. Commission Expense (P31,200 x 10%) 3,120

Cash 28,080
Consignee Receivable 31,200
or
2. Commission Expense 3,120
Cash 28,080
Consignment Sales Revenue 31,200
3. Cost of Consignment Goods Sold 24,000

To record cost of goods sold.

To record return of consigned goods.
Exercise 5 – 2
1. Consignor Books:
Finished Goods Inventory 500,000

Cash 30,000
Consignee Payable 10,000
Commission Expense (P420,000 x 10%) 42,000

Consignment Sales 420,000
Cost of Consignment Goods Sold 362,880

*Cost of goods sold – P420,000 /1.25 = P336,000

Freight costs – P40,000 / P500,000 = 8%
Freight on goods sold – P336,000 x 8% = P26,880
Total costs of goods sold – P336,000 + P26,880 = P362,800
Cash 278,000
Consignee Payable 10,000
2. Consignee Books:
Memorandum entry to record receipt of goods on consignment.
Consignor Receivable 10,000

Cash 10,000
Cash 420,000
Consignor Payable 420,000

Commission Revenue 42,000

Cash 278,000
Consignor Receivable 10,000
3. Consignor financial statements:
Statement of Financial Position – Assets section

Consignee receivable P 90,000
Inventory on consignment 177,120

Consignment sales P420,000
Less Cost of consignment sales 362,880 P57,120
Commission expense 42,000
Profit from consignment P15,120
Exercise 5-3
Requirement 1 – Consignment profits calculated separately
Books of Consignor
1. Consignment –Out 7,000
Merchandise Shipment on Consignment 7,000
2. Cash 3,500
Consignment-Out 2,500
Consignment-Out 6,000
3. Consignment-Out 1,300
Consignment Income 1,300
Sales (4 sets @P1,500) P6,000
CGS (4 sets @P700) ( 2,800)
Freight-in (4/10 x P1,000) ( 400)
Commission (25% x P6,000) ( 1,500)
Consignment income P1,300
Books of Consignee
1. Received 10 sets of electric fan from Ledesma …………
2. Consignment-In 1,000
Cash 1,000
3. Cash 6,000
Consignment-In 6,000
Cash 3,500
Requirement 2 – Consignment profits not calculated separately

Books of Consignor
1. Shipped merchandise to Amoranto, a consignee, ………
2. Cash 3,500
Freight 400
Commission Expense 1,500
Merchandise on Consignment 600
Sales 6,000
3. Merchandise on Consignment 4,200

Unsold merchandise on consignment (6 sets @P700)
Books of Consignee
1. Received 10 sets of electric fan from Ledesma, a consignor.. ………………..
2. Ledesma 1,000
Cash 1,000
3. Cash 6,000
Sales 6,000
4. Purchases (P6,000 – P1,500 commission) 4,500

Ledesma 4,500
5. Ledesma 3,500
Cash 3,500
Exercise 5 – 4
1. Sales of laser discs, net of commissions and cartage P181,800
Less: Cost P180,000
Freight and handling 5,400 185,400
Loss on laser discs consignment P 3,600
2. Sales of TV sets, net of commissions and delivery & installation costs P173,250
Less: Cost (15 x P9,000) P135,000
Freight and handling [(15 + 3*)/24** x P10,800] 8,100
Freight on return of defective units 1,080 144,180
Profit on TV sets on consignments P 29,070
* Number of units returned = Cost of returned units / Cost per unit

= P27,000 / P9,000
= 3
** Units shipped to consignee = Total cost of TV sets shipped / Cost per unit
= P216,000 / P9,000
= 24
3. TV sets P54,000 + (P10,800 6/24 = P2,700) = P56,700
Exercise 5 – 5
1. Sales (300 x P1,000) + (100** x P1,100) P410,000*
Cost of sales (400 x P600) 240,000
Expenses:
Freight (400/500 x P5,500) P 4,400
Safety devices (100/200 x P10,000) 5,000
Commission (P410,000 x 10%) 41,000
Delivery cost 4,500 54,900
Consignment profit P115,100
*Consignee remitt6ance and charges represent only 90% of sales in as much as the 10% commission
of the consignee has not yet been included among the charges (P364,500 + P4,500 = P369,000 /
90% = P410,000)
** The 100 units with safety device sold at P1,100 is computed as follows:
Sales P410,000
Sales of units without safety device (300 x P600) 300,000
Sales of units with safety device P110,000
Units sold (P110,000 / P1,100) 100
2. Cost (100 x P600) P60,000

Freight (100/500 x P5,500) 1,100
Safety device (100/200 x P10,000) 5,000
Inventory cost of consigned goods P66,100
PROBLEMS
Problem 5-1
Req. 1. Books of consignee; consignment sales merged with regular sales
April Received 20 sets of VCD player………………
CCM Corp. 1,750

Cash 1,750

Sales 24,000
Purchases 20,000
CCM Corp. 20,000
Cash 10,000
CCM Corp. 5,000

Cash 5,000
May Accounts Receivable 18,000

Sales 18,000
Purchases 15,000
CCM Corp. 15,000
Cash 15,000
CCM Corp. 10,000

Cash 10,000
Req. 2 – Books of consignor; consignment profits calculated separately
April Consignment-Out 36,000

Cash 5,000
Consignment – Out 1,750
Receivable – Consignee 13,250

Sales (8 sets @P2,500) P 20,000

CGS (8 sets @P1,800) ( 14,400)
Freight-in (P1,000 x 8/20) ( 400)
Cartage-in (P750 x 8/20) ( 300)
Consignment profit P 4,900
May Cash 10,000

Receivable – Consignee 5,000

Sales (6 sets @P2,500) P15,000
CGS (6 sets @P1,800) ( 10,800)
Freight-in (P1,000 x 6/20) ( 300)
Cartage-in (P750 x 6/20) ( 225)
3. Charge and Profit analysis
April May
Total Sales Inventory Sales Inventory
Charges by consignor:
Cost of consigned goods P36,000 P14,400 P21,600 P10,800 P10,800
Charges by consignee
Freight-in 1,000 400 600 300 300
Cartage-in 750 300 450 225 225
Total P37,750 P15,100 P22,650 P11,325 P11,325
Sales price 20,000 15,000
Consignment profit P 4,900 P 3,675
Problem 5-2
Books of consignor
1. Consignment – Out 50,000

Merchandise Shipment on Consignment 50,000
2. Consignment – Out 750

Cash 750
3. Cash 5,000
Receivable – Consignees 16,400
4. Merchandise Shipment on Consignment 4,000

Returned merchandise (4 sets @P1,000)
5. Consignment – Out 5,700

Total Sales Inventory

Charges by consignor:
Cost of consigned goods P46,000 P16,000 P30,000
Freight-out 750 300 450
Charges by consignee
Cartage-in 1,000 400 600
Delivery and installation 1,600 1,600
Commission 8,000 8,000
Total P57,350 P26,300 P31,050
Sales price 32,000
*Note: Freight and cartage on sets returned are charged against sales of the period.
Books of consignee
1. Received 50 cordless phones………….

Consignment – In 32,000
3. Cash 15,600
P32,000 – P16,400 (collectible) = P15,600
4. Returned four (4) defective cordless phones…………….
5. Consignment – In 15,600
Delivery and Installation Expense 1,600
Commission on Consignment 8,000
Cash 5,000
Remittance
Problem 5-3
Correcting entry to bring accounts with Alejo up to date
Consignment Commissions 58,500

Freight on Consignment Shipments (P2,600 x 65/100) 1,690
Prepaid Expenses on Consigned Merchandise (P2,600 x 35/100) 910
Alejo 67,100
Account sales – Alejo

Sales (65 stoves @ P3,600) P234,000
Commission (25% of P234,000) ( 58,500)
Freight ( 2,600)
Amount owed P172,900
Total amount remitted ( 187,900)
Balance-charge against Sunstar P 15,000
Entry that should have been made for transactions of Alejo on the books of consignor:
Cash 187,900
Consignment Commission 58,500
Freight on Consignment Shipments 1,690
Prepaid Expenses on Consigned Merchandise 910
Alejo 15,000
Net effect of entries already made with Alejo for transfer of merchandise and remittance
Cash 187,900
Alejo 52,100
Correcting entry to bring accounts with Burgos up to date
Consignment Commissions 13,500

Freight on Consignment Shipments (P2,600 x 65/100) 750
Prepaid Expenses on Consigned Merchandise (P2,600 x 35/100) 1,250
Burgos 57,500
Account sales – Burgos

Sales (15 stoves @ P3,600) P54,000
Commission (25% of P54,000) ( 13,500)
Freight ( 2,000)
Amount owed P38,500
Total amount remitted ( 11,500)
Balance-amount owed Sunstar P27,000
Entry that should have been made for transactions of Burgos on the books of consignor:
Cash 11,500
Consignment Commission 13,500
Freight on Consignment Shipments 750
Prepaid Expenses on Consigned Merchandise 1,250
Burgos 27,000
Net effect of entries already made with Burgos for transfer of merchandise and remittance
Cash 11,500
Burgos 84,500
Problem 5-4
Entries to bring account with Domingo up to date
1. Cash 5,100
Operating Expenses 900
Receivables-Consignees 6,000
Remittance for 10 sets less charges
2. Sales 3,000
Receivables – Consignees 3,000
Unsold units previously recognized as sales.
3. Merchandise in Transit 1,600

Merchandise returned and still in transit.
Entries to bring account with Estrella up to date

1. Cash 13,400
Merchandise on Consignment 600
2. Sales 9,000

Unsold units in the hands of consignee

Expenditures related to unsold consigned goods
charged to expense
Entries to bring account with Fajardo up to date

1. Operating Expenses 960
Receivables – Consignees 600
Accounts Payable 360
2. Sales 2,400
3. Merchandise in Transit 1,280

Closing Entries
1. Sales 715,600
2. Income Tax 72,219


Income Tax 72,219

Retained Earnings 134,121
2.
Moonstar Company
December 31, 2008
Current assets: P134,000

Cash 62,720
Receivables – Consignees
Inventories:
On hand P112,000
In transit 2,880
On consignment 7,100 121,980
Total Current Assets 318,700
Plant and Equipment 170,000
Total Assets P488,700
Accounts Payable P25,360
Ordinary Share Capital, P100 par P200,000
Retained Earnings
Balance, beginning P 57,000
Net income for 2008 134,121 191,121
Total Shareholders’ Equity 391,121
Total Liabilities and Shareholders’ Equity P488,700
MULTIPLE CHOICE
1. A
2 C
3. A
4. A P180,000 + P9,000 = P189,000
5. A Receipts (215 x P500) P107,500

Less Shipping charges 2,100
Remittance P105,400
6. B (215 x 40% x P580) + (215 x 60% x P640) – (215 x P500) = P24,860
7. D Receipts ( 7 dozens x 12 x P2,000) P168,000

Charges: Expenses P 3,000
Commissions (15% x P168,000) 25,200 28,200
Remittance P139,800
8. C Sales 7 x 12 x P2,000 P168,000

Cost of Sales 7 x 12 x P1,000 P84,000
Freight 7 x P30 210
Expenses 3,000
Commission P168,000 x 15% 25,200 112,410
P 55,590
9. C
10. B Sales ( 4 x P7,000) P28,000
Charges: Commission (20% x P28,000) P5,600
Freight 1,600 7,200
Remittance P20,800
11 D Cost (6 x P4,000) P24,000

Freight (P1,600 x 6/10) 960
Balance of Merchandise on Consignment account P24,960
12 D Sales P28,000
Cost (4 x P4,000) 16,000
Less: Commission P5,600
Freight (P1,600 x 4/10) 640 6,240
Net profit on consignment P 5,760
13. B Remittance P64,980

Charges:
Delivery expense P 850
Repairs 2,000 2,850
Total P67,380
÷ 85%
Sales P79,800
Cost of sales 52,000*
Expenses:
Commission (P79,800 x 15%) P11,970
Repairs (P2,000 x 60/100) 1,200
Delivery 850
Shipping cost (P900 x 260/300) 780 14,800
Consignment profit P13,000
*Sales P79,800
Less Sales of units with defects (200 x P300) 60,000
Sales of repaired units P19,800
Selling price of repaired units ÷ P330
Number of repaired units that were sold 60
Units sold without repairs 240
Total number of units sold 300
Unit cost x P200
Cost of sales P52,000
14 B Cost (40 x P200) P 8,000

Repairs (P2,000 x 40/100) 800
Shipping cost (P900 x 40/300) 120
Value of inventory on consignment P 8,920
15. D Remittance P54,600

Charges:
Cartage P 600
Advertising 3,600
Delivery and installation 2,400 6,600
Total P61,200
÷ 85%
Sales P72,000
16 C Sales P72,000
Cost and expenses:
Cost (6 x P7,200) P43,200
Freight (P4,800 x 6/10) 2,880
Cartage (P600 x 6/10) 360
Advertising 3,600
Delivery and installation 2,400
Commission (15% x P72,000) 10,800 63,240
Consignment income P 8,760
17. D Remittance P68,250

Consignee charges, excluding the 15% commission
(P4,500 + P3,000 + P750) 8,250
Sum of remittances and charges P76,500
÷ 85%
Sales price of 6 refrigerators P90,000
18 A Sales P90,000
Cost of sales (6 x P9000) 54,000
Expenses:
Commission (P90,000 x 15%) P13,500
Freight-out (P6,000 x 6/10) 3,600
Marketing expense 4,500
Delivery and installation 3,000
Cartage (P750 x 6/10) 450 25,050
Net profit from the sale of consigned goods P10,950
19 D P90,000 x 15% = P13,500
20 A Sales collected [(2 x P1,500) + (1 x P1,800 x 25%)] P3,450

Commission (P3,450 x 15%) 720
Remittance P2,730
21 C Sales P4,800
Cost of sales ( 3 x P800) 2,400
Gross profit P2,400
Expenses:
Trucking (P200 x 3/5) P120
Delivery 170
Commission 720 _____
Profit resulting from consignment P1,390
22 B Sales P21,000
Cost (7 x P2,000) 14,000
Gross profit P 7,000
Expenses:
Advertising P1,000
Commission 4,200
Freight (P600 x 7/10) 420 5,620
Net income on the consignment P 1,380
23 C ( 3 x P2,000) + (P600 x 3/10) = P6,180
24 D Remittance P3,750
Charges by consignor
Cost (P3,840 x 30/48) P2,400
Freight and handling (P1,000 x 30/48) 625
Freight and handling charged by consignee 75 3,100
Net income P 650
25 C T-shirts:
Cost (P3,840 x 18/48) P1,440
Freight and handling (P1,000 x 18/48) 375 P1,815
Baby dresses:
Cost (P2,400 x 4/24) P 400
Freight and handling (P540 x 4/24) 90 490
Cost of the inventory in the hands of consignee P2,305
26. Sales P84,000

Cost of sales (P90,000 x 7/10) 63,000
Expenses:
Freight (P3,000 x 7/10) P2,100
Commission 8,400
Cartage-in (P1,050 x 7/10) 735 11,235
Profit on consignment of TV sets P 9,765
27. C TV sets (P94,050 x 3/10) P28,215

DVD sets (P84,450 x 2/5) 33,780
Cost of inventory in the hands of consignee P61,995
28. A P3,375 / 15% = P22,500 / P1,500 15 units

29 C Sales (15 x P1,500) P22,500

Less: Advertising P2,250
Delivery expense 1,125
Commission 3,375
Advances (150 x P900 x 60% x 15/150) 8,100 14,850
Remittance P 7,650
30 A Sales P22,500
Less Cost (15 x P900) P13,500
Expenses (P2,250 + P1,125 + P3,375) 6,750 20,250
31 D Sales P10,800
Less: Cost (P8,400 x 9/12) P6,300
Freight-out (P720 x 9/12) 540
Delivery 450
Commission 2,160
Advertising 500 3,650
Net income P 850
32. B P10,800 – P450 – P2,160 – P500 = P7,690
33 B P9,120 x 3/12 = P2,280
34. C Net income P 426

Expenses:
Freight (P240 x 6/10) P 144
Advertising 150
Commission 480 774
Gross profit P1,200
Less Sales 2,400
Cost of goods sold P1,200
35 B Cost per unit (P1,200 / 6 units) P200

Unsold units x 4
Total cost of unsold units P800
Inventoriable cost – freight (P240 x 4/10) 96
Total cost P896
36. A Remittance P3,165

Charges: Advertising P120
Delivery 75 195
Total proceeds from sales, net of 20% commission P3,360
÷ 80%
Total sales price of the 7 handbags P4,200
37 C Cost (3 x P300) P 900

Freight (3/10 x P150) 45
Advertising ( 3/10 x P120) 36
Inventory of unsold handbags P 981
38 B Sales P4,200
Gross profit P2,100
Expenses:
Freight ( 7/10 x P150) P 105
Commission (4,200 x 20%) 840
Advertising ( P120 x 7/10) 84
Delivery 75 1,104
Net income on the consignment P 996
39. B Sales (80 x P1,500) P120,000

Charges:
Cost of returning defective units P 100
Transportation 350
Insurance 200
Commissions (P120,000 x 20%) 24,000
Reconditioning cost 150 24,800
Balance P 95,200
Advances (80 + 10) x P300 27,000
Remittance P 68,200
40 D Sales P120,000
Expenses:
Transportation (90/120 x P1,500) P 1,125
Insurance 900
Cost of returning defective units 100
Transportation of consignee (90/120 x P350) 265
Insurance – consignee (90/120 x P200) 150
Insurance loss (P500 x 10% x 10) 500
Commission 24,000
Reconditioning cost 150 27,190
Profit on consignment P 52,810
CHAPTER 6
SUGGESTED ANSWERS
EXERCISES
Exercise 6-1
2006 sales 2007 sales
Installment Accounts Rec’l, Jan. 1 P 400,000 P 200,000
Less Installment Accounts Rec’l, Dec. 31 100,000 40,000
Collections P 300,000 P 160,000
Gross profit rate (10,000/40,000; 4,400/20,000) 25%__ 22%__
Realized Gross Profit P 75,000 P 35,200
2006 sales 2007 sales

Deferred Gross Profit, beg P 100,000 P 44,000
Less Deferred Gross Profit,end P100,000 x 25%, P40,000 x 22% 25,000 8,800
Realized Gross Profit P 75,000 P 35,200
Exercise 6-2
Deferred Gross Profit – 2006 [(P150,000 - -0- ) x 42%] 63,000
Deferred Gross Profit – 2007 [(P480,000 - P120,000) x 37.5%] 135,000
Deferred Gross Profit – 2008 [(P750,000 - P650,000) x 40%]* 40,000
Realized Gross Profit 238,000
* 66 2/3 ÷ 166 2/3 = 40%
P300,000 ÷ 40% = P750,000
Exercise 6-3
(G) (1) P50,000 - P11,000 P 39,000
(E) (2) P10,500 - (25% of P20,000) = P5,500/P25,000 22%
(F) (3) P50,000 x 22% P 11,000
(H) (4) P1,100/22% P 5,000
(B) (5) P80,000 x 75% P 60,000
(A) (6) P80,000 x 25% P 20,000
(C) (7) P28,200 + P91,800 P120,000
(D) (8) P28,200/P120,000 23.5%
(9) 2006 = P10,000 x 22% = P 2,200
2007 = P50,000 x 25% = 12,500
2008 = P45,000 x 23.5% = 10,575 P 25,275
Exercise 6-4
1. Deferred Gross Profit – 2006 4,500
Deferred Gross Profit – 2007 14,000
2006 2007 2008
Deferred gross profit before adj. P 8,000 P26,000 P105,000
Deferred gross profit after adj.
(Inst. contract rec’l x GP rate) __3,500 _12,000 __36,000
Realized gross profit P 4,500 P14,000 P 69,000
AA1 - Chapter 6 (2008 edition)
page 2
2. Cash collections
2006 sales - P4,500 /35% P 12,857
2007 sales - p14,000/30% 46,667
2008 sales - P69,000/40% 172,500
Total P232,024
2006 2007 2008

Installment Contract Receivable, beg. P 22,857 P86,667 P262,500
Less Installment Contract Receivable, end 10,000 40,000 90,000
Collections P12,857 P46,667 P 172,500
Exercise 6-5
a. Installment Contracts Receivable 250,000
Installment Sales 250,000
b. Cash 120,000
Installment Contracts Receivable 120,000
c. Cost of Installment Sales 200,000

Inventory 200,000
50,000 / 250,000 = 20%
d. Inventory of Repossessed Merchandise 14,500

Deferred Gross Profit (P20,000 x 20%) 4,000
Loss on Repossession 1,500
e. Expenses 16,000
Cash 16,000
f. Installment Sales 250,000

Cost of Installment Sales 200,000
Deferred Gross Profit 50,000
g. Deferred Gross Profit 24,000

P120,000 x 20% = P 24,000
h. Realized Gross Profit 24,000

Expenses 16,000
Exercise 6-6
a. Installment Contracts Receivable 600,000
b. Cost of Installment Sales 405,000

Shipments on Installment Sales 405,000
page 3
c. Cash 360,000
d. Repossessed Merchandise 24,000

Deferred Gross Profit (P40,000 x 32.5%) 13,000
e. Installment Sales 600,000

195,000/600,000 = 32.5%
f. Deferred Gross Profit 117,000

P360,000 x 32.5% = P117,000
Exercise 6-7
Requirement 1
a. Cash 1,400
Interest Revenue 160
b. Repossessed Merchandise 2,000

Deferred Gross Profit (P4,000 x 40%) 1,600
Loss on Defaults 400
c. Deferred Gross Profit 496

Realized Gross Profit (P1,240 x 40%) 496
Requirement 2
a. Repossessed Merchandise 2,000
Loss on Defaults 3,600
Exercise 6-8
Repossessed Merchandise (P13,500/120%) 11,250
Deferred Gross Profit (P15,000 x 20%/120%) 2,500
Exercise 6-9
a. Trade-In Merchandise 180,000
page 4
Estimated resale price P280,000

Less: Reconditioning cost P30,000
Gross profit _70,000 __100,000
Estimated realizable value P 180,000
Selling price P720,000

Less Overallowance (P300,000 – P180,000) 120,000
Adjusted selling price P600,000
b. Cost of Installment Sales 500,000

Automobiles 500,000
c. Installment Sales 600,000

d. Deferred Gross Profit 30,000

P180,000 x 16 2/3% = P30,000
Exercise 6 - 10
Correct entry
Allowance for Doubtful Installment Contract Rec’l 1,450
Deferred Gross Profit ( P 10,000 x 25/125 ) 2,000
Repossessed Merchandise 6,550
Installment Contract Receivable 10,000
Correcting Entry
Exercise 6-11
Requirement 1
Oct. 31 Cash 200,000
Real Estate 600,000
GP rate = P150,000/P750,000 = 20%
Nov. 30 Cash 11,500

Interest Revenue 5,500
550,000 x 1% = 5,500
Dec. 31 Cash 11,440

P550,000 – P6,000 = P544,000 x 1% = P5,440
page 5
31 Deferred Gross Profit 42,400

P200,000 + P6,000 + P6,000 = P212,000 x 20%
Requirement 2
Oct. 31 Cash 200,000
Real Estate 600,000
GP rate = P150,000/P750,000 = 20%
Nov. 30 Cash 6,000

Installment Contracts Receivable 500
P550,000 x 1% = P5,500
Dec. 31 Cash 6,000

Installment Contracts Receivable 505
P550,000 – P500 = P549,500 x 1% x = P5,495

P200,000 + P500 + P505 = P201,005 x 20% = P40,201
Exercise 6-12
Recovery of cost Realized gross profit
a. 2008 P400,000 none
2009 25,000 P 75,000
2010 – 2014 100,000/year
b. 2008 none P400,000

2009 none P100,000
2010 P 25,000 P 75,000
2011 – 2014 P100,000/year none
c. 2008 P170,000 P230,000

2009 – 2014 P 42,500 P 57,500
Exercise 6-13
1. Installment payment = P1,260,000/5.6502 = P223,000
2. Journal entries
Jan. 1 Cash 140,000
Notes Receivable (P223,000 x 10) 2,230,000
Real Estate Sales 1,400,000
Discount on Notes Receivable 970,000
Jan. 1 Cost of Real Estate Sales 850,000

Inventory or Real Estate 850,000
page 6
1 Real Estate Sales 1,400,000

Cost of Real Estate Sales 850,000
GP rate = P550,000/P1,400,000 = 39.29%
Dec. 31 Cash 223,000

31 Discount on Notes Receivable 151,200

Interest Revenue 151, 200
(P2,230,000 – P970,000) x 12% = P151,200

[P140,000 + (P223,000- P151,200)] x 39.29%
Exercise 6-14
Requirement 1
a. Land 13,440,000
Land Improvements 3,360,000
Cash 16,800,000
b. Cash 750,000
Installment Contract Receivable 4,250,000
Installment Sales 5,000,000
A – 5 @ P400,000 = P2,000,000
B – 8 @ P300,000 = 2,400,000
C – 3 @ P200,000 = 600,000
Total P5,000,000
c. Cost of Installment Sales 3,000,000

Land 2,400,000
Land Improvements 600,000
Cost of sales = 16,800,000/28,000,000 = 60% x P5,000,000 = P3,000,000
Land = 13,440,000/16,800,000 = 80% x P3,000,000 = P2,400,000
Land imp. = 3,360,000/16,800,000 = 20% x P3,000,000 = P 600,000
d. Cash 1,400,000
Installment Contract Receivable 1,300,000
Requirement 2
a. Installment Sales 5,000,000
Cost of Installment Sales 3,000,000
Deferred Gross Profit 2,000,000
GP rate = 2,000,000/5,000,000 = 40%
b. Deferred Gross Profit 820,000
(P750,000 + P1,300,000) x 40% = P820,000
page 7
Exercise 6-15
2005 Installment Accounts Receivable 4,700,000

Inventory 2,585,000
Cash 2,585,000
Installment Accounts Receivable 2,585,000



Inventory 2,610,000
Cash 3,885,000
Installment Accounts Receivable – 2005 1,410,000


Realized Gross Profit 1,410,000


Inventory 3,074,000
Cash 5,010,000
Installment Accounts Receivable – 2005 470,000


Deferred Gross Profit – 2006 P1,350,000 – (P2,610,000-P2,475,000) 1,215,000
page 8

Installment Sale 6,100,000

Inventory 3,111,000
Cash 5,545,000
Installment Accounts Receivable – 2006 450,000

Deferred Gross Profit – 2008 2,989,000

Deferred Gross Profit – 2007 1,740,000
Deferred Gross Profit – 2008 P3,355,000 – P3,111,000 244,000
Gross Profit Recognized: 2005 2006 2007 2008

Full Accrual; P 2,150,000 P 1,890,000 P 2,726,000 P 2,989,000
Cost Recovery Method 0 1,410,000 1,801,000 2,434,000
Exercise 6-16
2006 2007 2008
Installment sales P 400,000 P 475,000 P 525,000
Cost of Installment sales 248,000 280.250 341,250
Gross profit percentage 38% 41% 35%
Cash collections:
2006 Sales 128,000 232,000 28,000
2007 Sales 114,000 218,500
2008 Sales 162,750
Realized gross profit on installment sales 112,000 80,250
COMPUTATIONS :
1 P 341,250 / . 65 = P 525,000
2 P 400,000 x . 62 = P 248,000
3 1 - (P 280,250 / P 475,000) = 41%
4 Gross profit recognized in 2008 P 80,250

All costs from 2006 sales are recovered
Cash received equals gross profit 28,000
All cost from 2008 sales are not recovered
Cash received goes to recover costs-gross profit 0
Gross profit reported in 2008 from 2006 sales P 52,250
page 9
Costs of 2007 sales P 280,250

Costs recovered in 2005 114,000
Costs to be recovered in 2005 166,250
Cash received related to 2007 sales P 218,500
5 Cash collections in 2006 do not exceed costs of sales

Realized gross profit in 2006 = P 0
6 Cash collections for 2006 sales ( P 128,000 + 232,000 ) P 360,000

Costs of 2006 sales 248,000
Realized gross profit in 2007 P 112,000
Exercise 6-17
Requirement 1
2007
Jan. 1 Cash 1,500,000
Notes Receivable (2,197,100 x 10) 21,971,000
Real Estate Sales 15,000,000
Discount on Notes Receivable (2,347,100 - 1,500,000) 8,471,000
1 Cost of Real Estate Sales (240,000 x 30) 7,200,000

Inventory of Real Estate 7,200,000
Dec 31 Real Estate Sales 15,000,000

Cost of Real Estate Sales 7,200,000
Deferred Gross Profit - Real Estate Sales 7,800,000
GP rate = 7,800,000/15,000,000 = 52%
31 Cash 2,197,100
Notes Receivable 2,197,100
31 Discount on Notes Receivable 1,350,000

2008
Dec. 31 Cash 2,197,100
31 Discount on Notes Receivable 1,265,300

(P13,500,000 - P2,197,100 + P1,350,000) x 10%
Requirement 2
Date Cost Collection Unrecovered Cost
Jan. 01, 2007 7,200,000 1,500,000 5,700,000
Dec. 31, 2007 2,197,100 3,502,900
Dec. 31, 2008 2,197,100 1,305,800
page 10
Notes receivable (P21,971,000 - P2,197,100 - P2,197,100) P17,576,800

Less: Discount on notes receivable
(P8,471,000-P1,350,000- P1,265,300) P 5,855,700
Deferred gross profit (P7,800,000 + P1,350,000 + P1,265,300) 10,415,300 16,271,000
Unrecovered cost P 1,305,800
Exercise 6-18
Selling Price P 10,000,000
Cost of Land 4,000,000
Gross Profit P 6,000,000
Gross Profit rate ( 600 / 1,000 ) 60%
a) Full accrual method 2008 P 6,000,000

2009 – 2010 none
b) Installment method
Collections Cost Recovery Gross Profit
2008 P 400,000 P 160,000 P 240,000
2009 300,000 120,000 180,000
2010 ___300,000 ___120,000 ___180,000
P1,000,000 P 400,000 P 600,000
c) Cost Recovery method

Collections Cost Recovery Gross Profit
2008 P 400,000 P 400,000 P -
2009 300,000 - 300,000
2010 ___300,000 ____-___ ___300,000
P 1,000,000 P 400,000 P 600,000
PROBLEMS
Problem 6-1
1. 2007 - (P12,000* + P228,000) ÷ (P240,000 + P520,000 + P40,000) 30%
2008 - (P1,500,000 - P975,000) ÷ P1,500,000 35%
*P40,000 – P24,000 – P4,000 = P12,000
2.a. Installment Sales 1,500,000
b. Deferred Gross Profit – 2007 (520,000 x 30%) 156,000

Deferred Gross Profit – 2008 (740,000 x 35%) 259,000
c. Sales 2,120,000
Cost of Sales 1,650,000
Gain or Loss on Repossession 4,000
Selling and Administrative Expenses 660,000
page 11

d. Income Tax 77,350
e. Income Summary 77,350

Income Tax 77,350
d. Income Summary 143,650

Requirement 3
Excellent Co.
Sales P 2,120,000
Cost of Sales _1,650,000
Gross Profit P 470,000
Realized Gross Profit on Installment Sales __415,000
Total Realized Gross Profit P 885,000
Less Loss on Repossession ____4,000
Realized Gross Profit after Loss on Repossession P 881,000
Selling and Administrative Expenses __660,000
Net Income before Income Tax P 221,000
Income Tax 77,350
Net Income P143,650
Problem 6-2
Requirement 1 Computation of gross profit rates
2006 sales P22,500/P50,0000 45%

2007 sales P96,000/P240,000 40%
2008 sales 100% - (P310,000/P500,000) 38%
Requirement 2 Income Statement

Reliance Sales Corp.
Statement of Recognized income and Expenses
Regular Installment
Sales Sales Total
Sales P 192,000 P 500,000 P 692,000
Cost of Sales:
Inventory, January 1 P 30,000
Purchases 455,000
Repossessed Mdse. __10,000
Cost of Goods Available
for Sale P495,000
Less Inventory, Dec. 31 __35,000 150,000 310,000 460,000
Gross Profit P 42,000 P 190,000 P 232,000
page 12
Less Deferred Gross Profit, including DGP on

repossessed merchandise ________ 32,300 32,300
Realized Gross Profit on 2008 sales P 42,000 P 157,700 P 199,700
Add Realized Gross Profit on 2006 & 2007 sales 100,650
Total P 300,350
Less Loss on Repossession [3,000-(3,600+4,000+1,900)] 3,500
Realized gross profit after loss on Repossession P 296,850
Net Loss P 3,150
Analysis of gross profit on installment sales:
2006 2007 2008

Installment sales P500,000
Installment contracts rec’l, beginning P 50,000 P240,000
Installment contracts rec’l, end ( 5,000) ( 20,000) (80,000)
Defaulted installment contracts rec’l ( 8,000) ( 10,000) (5,000)
Collections P 37,000 P210,000 P415,000
Gross profit rate 45% 40% 38%
Realized gross profit P 16,650 P84,000 P157,700
Deferred gross profit P 2,250 P 8,000 P 30,400

Requirement 3 -
Reliance Corp.
December 31, 2008
Assets Liabilities & Shareholders’ Equity

Cash P 25,000 Accounts Payable P 75,000
Inst. Contracts Rec’l, 2008 80,000 Deferred Gross Profit, 2008 30,400
Accounts Rec’l 40,000 Ordinary Share Capital 100,000
Inventory 35,000 Retained Earnings 41,350
Other Assets 52,000 ________
Total Liabilities &
Total Assets P257,000 Shareolders’ Equity P257,000
Problem 6-3
1 Schedule of Cost of Goods Sold
.
Inventory, January 1 P 240,000
Purchases, including freight-in 1,250,000
Cost of Goods Available for Sale P1,560,000
Less Inventory, December 31 260,000
Cost of Goods Sold P1,300,000
page 13
2. Schedule of Allocation of Cost of Goods Sold

Type of Amount of Amount Based Allocation of
Sale Sales on Cash Sales Ratio CGS
Cash P 300,000 P 300,000 60/400 P 195,000
Charge 600,000 500,000 100/400 325,000
Installment 1,500,000 1,200,000 240/400 780,000
P2,400,000 P2,000,000 P1,300,000
3.
Fuji Products
Cash Charge Installment
Sales Sales Sales Total
Sales P300,000 P600,000 P 1,500,000 P2,400,000
Cost of Sales 195,000 325,000 780,000 1,300,000
Gross Profit P105,000 P275,000 P 720,000 P1,100,000
Less Deferred Gross Profit, 2008 sales 460,800 460,800
Realized Gross Profit on 2008 sales P105,000 P275,000 P 263,200 P 639,200
Add Realized Gross Profit on 2006 and 2007 sales P 169,500
Total Realized Gross Profit P 808,700
Less Loss on Repossession 51,000
Realized Gross Profit after loss on repossession P 757,700
Operating Expenses, including bad debts 465,000
Income Tax 102,445
Net Income P 190,255
Problem 6-4
1. Computation of gross profit rates
2006 sales 160,000/400,000 40%
2007 sales 167,200/440,000 38%
2008 sales 163,800/420,000 39%
2. Adjusting entries
a. Installment Sales 420,000
b. Deferred Gross Profit –2006 27,200

Deferred Gross Profit –2007 58,976
Deferred Gross Profit –2008 70,980
2006 - (P110,000 – P28,000 - P9,000 - P5,000) x 40% = P27,200
2007 - (P250,000 – P92,000 - P2,800) x 38% = P58,976
2008 - (P420,000 – P238,000) x 39% = P70,980
3. Correcting entries
a. Deferred Gross Profit – 2006 (9,000 x 40%) 3,600
Deferred Gross Profit - 2007 (2,800 x 38%) 1,064
page 14

b. Inventory of Repossessed Merchandise(4,000 - 400 - 600) 3,000
Deferred Gross Profit – 2006 (5,000 x 40%) 2,000
The indicated gain of P600 is ignored and deducted from the
market value of the repossessed merchandise.
4. Closing entries
a. Realized Gross Profit 157,156
b. Income Tax 21,987

c. Income Summary 21,987

Income Tax 21,987
d. Income Summary 40,833

Problem 6-5
(1) Sept. 30 Cash 48,000
Piano 300,000
60/160 = 37.5%
(2) Oct. 31 Cash 48,000

Installment Revenue 2,160
Nov. 30 Cash 48,000

Dec. 31 Cash 48,000

Principal Principal
Date Collection Interest Reduction Balance
480,000
Sept. 30 48,000 48,000 432,000
Oct. 31 48,000 432,000 x .005 = 45,840 386,160
2,160
Nov. 30 48,000 386,160 x .005 = 46,069 340,091
1,931
Dec. 31 48,000 340,091 x .005 = 46,300 293,791
1,700
page 15
(3) Dec. 31 Deferred Gross Profit 69,828

48,000 + 45,840 +46,069 + 46,300 = 186,209 x 37.5% = 69,828
2006
(4) Feb. Repossessed Piano 56,000
Problem 6-6
(1) Sales 1,260,000 + (2,650,000 ÷1.06) P3,760,000

Cost of Sales:
Inventory, beginning P 580,600
Purchases 2,093,000
P2,673,600
Less: Inventory end 333,000 2,340,600
Gross Profit P1,419,400
÷3,760,000
Gross Profit Rate (1,419,400 / 3,760,000 ) 37.75%
(2 Equivalent Cash Contract Interest Cash

) Installment Sales Price Balance Revenue Collection
Time of 10,000 10,600 - 2,650
Sale (10,600 ÷ 1.06) (10,600 x 25%)
1 7,350 7,950 73.50 530
(10,000 - 2,650) (10,600 - 2,650) (7,350 x 1%) (7,950 ÷ 15)
2 6,893.50 7,420 68.93 530
(7,350 - (530 - 73.50) (7,950 -530) (6,893.50 x 1%) (7,950÷ 15)
3 6,432.43 6,890 64.32 530
(6,893.50 -(530 - 68.93) (7,420 - 530) (6,432.43x 1%) (7,950 ÷15)
4 5,966.75 6,360 59.67 530
(6,432.43-(530 - 64.32) (6,890 - 530) (5,966.75 x 1%) (7,950 ÷ 15)
5 5,446.42 5,830 54.96 530
(5,966.75- (530 - 59.67) (6,360 -530) (5,496.42 x 1%) (7,950 ÷ 15)
6 5,021.38 5,300 50.21 530
(5,446.42- (530 - 54.96) (5,830 -530) (5,021.38 1%) (7,950 ÷ 15)
(3 Installment Sales Price P10,600.00

)
Less: Installment on contract 600.00
10,600 - (10,600 ÷ 1.06)
Installment sales at cash sales price P10.000.00
Less: Downpayment P 2,650.00
Collections P 1,590.00
Less interest 206.70 1,383.30 4,033.60
page 16
Balance P5,966.70
Less: DGP 5,966.75 x 37.75% 2,252.45
Repossessed Sales 2,300.00
Repossessed Inventory 1,800.00 P6,352.45
Net gain on defaults P 385.75
(4 Cash Sales (1,260,000 x 37.75%) P 475,650

)
Installment Sales:
Downpayment 662,500 x 37.75% 250,093.75
Installments on defaults 1,383.30 x 37.75% 522.20
Installment Collections P791,820.00
Less Interest (P2,650,000 - P10,600) /1.06 x .03716 92,528.40
Balance P699,291.60
x 37.75% 263,982.60
Realized Gross Profit P990,248.60
Problem 6-7
1. Total installment sales P3,450,000
Less Installment Receivable - Dec. 31 1,594,600
Total Collections in Sales P1,855,400
2. Collections P1,855,400
GPR:
Total Selling price P9,500,000
Total Cost 5,225,000
GP P4,275,000
Total sales ÷9,500,000 45%__
RGP P 834,930
3. Installment Receivable - Dec. 31 P1,594,600

GPR x 45%_
Unrealized GP P 717,570
4. Realized gross profit P 834,930

Interest Income 520,300
Operating Expenses (682,130)
Income Tax 235,585
Net Income P437,515
Problem 6-8
Sales (Schedule 1) P 8,060,000
Cost of Sales (43% of Sales, Schedule 2) 3,465,800
Gross Profit P 4,594,200
Less Sales Commission 221,000
Gross profit excluding Commission P 4,373,200
page 17
Less DGP 4,373,200 / 8,060,000 x 5,370,000 2,913,658

Realized gross profit P 1,459,542
Expenses:
Advertising P730,000
Sales Managers Salaries 900,000
Gen. Operating Expenses (2,360,000 x 1/ 4 ) 590,000 2,220,000
Net loss P 760,458
Schedule 1 – Sales
Total Sales Cash Installment
Price Received NR Balance
A 26 @ 150,000 P3,900,000 P1,650,000 2,250,000
B 32 @ 100,000 3,200,000 800,000 2,400,000
C 12 @ 80,000 960,000 240,000 720,000
P8,060,000 P2,690,000 5,370,000
Schedule 2 - Cost of Sales Rate

Unit Total
No. of lots Sales Price Sales Value
A 80 150,000 P12,000,000
B 100 100,000 10,000,000
C 130 80,000 10,400,000
310 P32,400,000
Cost of Land P 4,800,000

Legal fees, etc. 600,000
Grading 2,250,000
Water & Sewerage 1,849,000
Paving expenses 2,663,000
General operating expenses (2,360,000 x 3/4) 1,770,000
Total cost P13,932,000
Total sales value ÷ 32,400.000
Cost of sales rate 43%
Problem 6 - 9
2007 Inventory 45,200
Cash 45,200
Notes Receivable – 2007 (32,000 + 62,000 + 3,600) 97,600

Discount on Notes Receivable - 2007 (7,167 + 3,600 ) 10,767
Cost of Installment Sales (45,200 - 2,000) 43,200

Inventory 43,200
Cash 35,600
Notes Receivable - 2007 (32,000 + 3,600) 35,600
page 18
Discount on Notes Receivable - 2007 3,600


Deferred Gross Profit - 2007 43,633

43,633/86,833 = 50.25% x 32,000
2008 Inventory 52,020

Cash 52,020
Notes Receivable - 2008 (160,000 + 50,000 + 5,500 - 26,000) 89,500

Discount on Notes Receivable 2008[8,043 + (5,500 - (7,167 - 11,955
5,579)]
Cost of Installment Sales (52,020 - 8,000) 44,020

Inventory 44,020
Cash 55,500
Notes Receivable – 2008 (89,500 - 60,000) 29,500
Notes Receivable – 2007 (62,000 - 36,000) 26,000
Discount on Notes Receivable – 2008 (5,500 - 1,588) 3,912

Discount on Notes Receivable – 2007 (7,167 - 5,579) 1,588

Deferred Gross Profit - 2008 (29,500 - 3,912 x 43.33%) 11,062

Deferred Gross Profit - 2007 (26,000 - 1,588 = 24,412 x 50.22%) 11,267
33,525/77,545 = 43.23%
Problem 6-10
2005
Jan. 1 Cash 2,000,000
Idle Plant 5,000,000
page 19
2006
July 1 Cash 1,900,000
2007
Dec. 31 Cash 2,250,000
Interest. Revenue 1,150,000
2,250,000 - (5,000,000 - 2,000,000 - 1,900,000) = 1,150,000
2008
Feb. 1 Cash 2,825,000
Feb. 1 Deferred Gross Profit (2,000,000 + 900,000 - 400,000) 2,500,000

Gain on Sale of Idle Plant 2,000,000
(900,000 + 750,000 + 325,000 = 1,975,000 - 1,150,000 - 325,000 = 500,000)
MULTIPLE CHOICE
1. D 2008 2007 2006

Inst. Sales
8,765,625 ÷ 68% P12,890,625
Inst. Rec. beg. P8,387,500 P1,512,500
Inst. Rec. end (9,728,125) (3,025,000) __________
Collections P 3,162,500 P5,362,500 P1,512,500 P10,037,500
GPR x 32% x 30% x 28%
P 1,012,000 P1,608,750 P 423,500 P3,044,250
2 A
3 B
4 C
5 B Deferred gross profit before adjustment P38,000

Deferred gross profit after adjustment
2007 - P16,250 x 30/130 P 3,750
2008 - P90,000 x 33 1/3 /133 1/3 22,500 26,250
Realized gross profit P11,750
Operating expenses 1,500
Net income P10,250
6 B Downpayment (P545,000 x .2) P109,000

Inst. Collections (P545,000 x 8 x .40) 174,400
Collections in year 1 on Year 1 Inst. Sales P283,400
x 35/135
page 20
Realized gross profit for Year 1 P 73,474

7 A Installment sales - Year 2 P785,000
Less Collections in Year 2
DP (P785,000 x .20) P157,000
Installment collection (P785,000 x .80 x .40) 251,200 408,200
Balance, end of Year 2 P376,800
x 35/135
Unrealized GP on Year 2 installment sales at the end of Year 2 P 97,689
8 B Inst. Accts. Rec., end of year 3

On year 3 installment sales (P968,000 x .80 x .60) P464,640
On Year 2 installment sales (P785,000 x .80 x .25) 157,000
Total installment accounts receivable, end of Year 3 P621,640
9 B Total installment accounts receivable, end of Year 3 P621,640

x 35/135
Total unrealized gross profit at end of Year 3 P161,166
10 C
11 A 2007 - 100% - (31,250/62,500) = 50% x P25,000 P12,500

2008 - 100% - (45,000/100,000) = 55% x P62,500 34,375
Total P46,875
12 D Sales - regular P187,500

Cost of sales - regular 112,500
Gross profit - regular P 75,000
Realized gross profit (see D1) 46,875
Total gross profit P121,875
Selling expenses 31,250
Net income P 90,625
13 D P610,750 x 60% P366,450

.
14 D P306,520 x 40% P122,608
15 B 2006 sales - P17,400 x 36% P 6,264

2007 sales - P(205,400 - P200 - P25,800) x 39% 69,966
Total P76,230
16 B Selling price P 200

Cost (P200 x 61%) 122
Gain from sale of repossessed merchandise P 78
17 B (P344,460 - P67,440 - P2,200) x 34% P93,438.80
18 B Market value of repossessed ref (P1,700 x 63%) P1,071

Unrecovered cost (P2,200 x 66%) 1,452
Loss on repossession P 381
page 21
19 D 2006 sales - 100% - (247/380) = 35% x P24,020 P 8,407.00

2007 sales - see 6-17 93,438.80
2008 sales - 100% - (379,260/602,000 = 37%
37% x (P602,000-P410,090) 71,006.70
Total P172,852.50
20 D ( P100,000 - P12,500 - P6,250) x 50% P40,625
21 B ( 375,000 - 150,000) x 45%* P101,250

*Installment sales P 375,000
Invty. Beg. P 62,500
Purchases 435,000
Repossessions 2,500
Mdse. Avail for sale 500,000
Less Invty. End 75,000
CGS 425,000
Cost of Regular sale ( 312,500 x 70% ) 218,750
Gross profit on Installment sales 206,250
Gross profit rate on Installment sales = 45%
(168,750/375,000)
22 A (3,750 - (6,250 x 50%) P625 loss
23 B 2006 sales - P108,750 x 25% P27,187.50

2007 sales - P120,000 x 27.5% 33,000.00
2008 sales - P 93,750 x 28% 26,250.00
Total P86,437.50
24 A Value assigned to repossessed merchandise:

2006 sales P 9,000
2007 sales 13,500 P22,500
Unrecovered cost
2006 sales - P22,500 x 75% P16,875
2007 sales - P24,000 x 72.5% 17,400 34,275
Loss on repossession P11,775
25 D 2006 sales - P24,000 x 39% P 9,360

2007 sales - (P300,000 - P60,000 - P10,000) x 42% 96,600
2008 sales - (P480,000 - P320,000 - P5,000) x 40% 62,000
Total P167,960
26 B 2007 sales - P4,500 - (P10,000 x 58%) P(1,300)

2008 sales - P3,500 - (P5,000 x 60%) 500
Net gain (loss) on repossession P (800)
27 A P360,000 x 33 1/3% P120,000
28 B Loss = P8,000 - (P15,000 x 60%) P1,000

page 22
29 C (P800,000 - P250,000 - P300,000 - P15,000) x 40% P94,000

30 A (P75,810/42%) + P75,810 P256,310
31 D 2006 sales - P35,800 x 32.26% P 11,550

2007 sales - (P155,000 - P42,000) x 40% 45,200
2008 sales - (P256,310 - P100,500) x 42/142 46,085
total P102,835
32 C (P120,000 - P15,000 - P7,750) x 45% P43,762.50
33 C Inventory, Dec. 31, 2007 P 70,000

Purchases 555,000
Repossessions 3,000
Cost of goods available for sale P628,000
Less Inventory, Dec. 31, 2008 95,000
Less Cost of goods sold on regular sales (P385,000 x 70%) 269,500
Cost of installment sales P263,500
Gross profit rate on installment sales [100% - (263,500/425,000)] 38%
Realized gross profit - (P425,000 - P200,000) x 38% P85,500
34 A. (7,750 x 55%) - 3,000 P1,262.50
35 B Cash sales P 90,000

Charge sales (P180,000/120%) 150,000
Installment sales (P446,400/124%) 360,000
Total sales - cash basis P600,000
36 A Inventory, beginning P52,500

Delivered cost of purchases 393,000
Repossessed merchandise 15,000
Less Inventory, end 70,500
Cost of installment sales - P390,000 x 360/600 P234,000
37 C 2006 2007 2008

Installment rec’l, beg P 74,000 P123,000
Installment sales P446,400
Installment rec’l, end ( 15,000) ( 45,000) ( 270,000)
Defaulted rec’l ( 18,000) ( 21,000) ---___
Collections P 41,000 P 57,000 P176,400
page 23
38 A Sales price of Article “A” P400,000

Less Overvaluation on trade -in
Sales price P110,000
Reconditioning cost ( 8,000)
Normal profit ( 22,000)
Market value of trade-in P 80,000
Allowed trade-in value 120,000 40,000
Adjusted sales price P360,000
Cost of Article “A” 270,000
Gross profit rate 25%
Realized GP - (P80,000 + P40,000) x 25% P30,000
39 C Inst. rec’l balance, Dec. 31, 2007 (P360,000 - P120,000) P240,000

Installment payment, Jan. 1 - Mar. 1 (P20,000 x 3) 60,000
Inst. rec’l balance, April 1 P180,000
Cost percentage x 75%
Unrecovered cost P135,000
Market value of repossessed mdse. (P13,500 - P800 - P2,700) 100,000
Loss on repossession P 35,000
40 B Expected loss (125,000 x 4%*) P5,000

Less: Loss on default 2008 P1,500
Recovery from sale of repossessed merchandise 175 1,325
Balance of allowance for defaulted contracts; Dec. 31, 2008 P3,675
*Loss on default in 2007 on 2007 sales P 250
Loss on default in 2008 on 2007 sales 3,750 P 4,000
Recovery on sale of repossession in 2008 P 800
Repossessed Merchandise on hand 200 1,000
Expected loss P 3,000
Sales ÷
P75,000
Rate of loss as a % of sales 4%
41 C Inst. contract rec’l beg. P31,500

Less: Inst. Contract rec’l, end P2,000
Inst. Contract rec’l written off 3,750 5,750
Collections P25,750
Gross profit rate x 40%
Realized gross profit P10,300
42 C Lot A (791,086.20 x 30%) P 237,325.80

Lot B (973,333.30 x 25%) 243,333.30
Lot C and House (P2,080,000 x 40%) 832,000.00
page 24
Realized gross profit P1,312,659.10
Schedule of Collection Principal Balance

Lot A
3/31 - Initial balance P1,714,280.00
3/31 - Down payment P514,280.00 1,200,000.00
6/30 - P120,000 - (P1,200,000 x 2.5%) 90,000.00 1,110,000.00
9/30 - P120,000 - (P1,110,000 x 2.5%) 92,250.00 1,017,750.00
12/31- P120,000 - (P1,017,750 x 2.5%) 94,556.20 923,193.80
P791,086.20
Lot B
10/31 – Initial balance P2,400,000.00
10/31 – Down payment P800,000.00 160,000
12/31 – P200,000 – (P1,600,000 x 1.667%) 173,330.30 1,426,666.70
P973,333.30
Lot C
6/30 – Initial balance P4,200,000
6/30 – Down payment P1,800,000.00 2,400,000
12/31- P400,000 – (P2,400,000 x 5%) 280,000.00 2,120,000
P2,080,000.00
Allocation of Cost & GP rates:
Cost SP GP %
Lot A – P1,600,000 x 6/8 P1,200,000 P1,714,280 P514,280 35%
Lot B - P2,400,000 x 6/8 1,800,000 2,400,000 600,000 25%
Lot C: Farm A – P400,000
B – P600,000
House - P1,520,000 2,520,000 4,200,000 1,680,000 40%
43 B Unpaid balance upon default P2,120,000

Less: DGP (P2,120,000 x 40%) 848,000
Unrecovered cost P1,272,000
Market value [P2,520,000 – (P1,520,000 ÷ 20)] 2,444,000
Gain on repossession P1,172,000
44 A 8,000,000 – (8,000,000 x 20%) = 6,400,000 x 3% = P192,000.00
6,400,000 – (642,957.30 – 192,000) x 3% 178,471.30
Collections to be applied on interest P370,471.30
45 D Downpayment P1,600,000.00
1st inst. 642,957.30 - 192,000 450,957.30
2nd inst. 642,957.30 - 192,000 464,486.00
Total collections (P8,000,000 - (2,500,000 + 3,560,000) / P 2,515,443.30
8,000,000]
x 24.25%
Realized gross profit P 609,995.00
CHAPTER 7
SUGGESTED ANSWERS
Exercise 7-1
1. 2006 2007 2008
Contract price P50,000,000 P50,000,000 P50,000,000
Cost incurred to date P 7,500,000 P34,500,000 P40,800,000
Est. cost to complete 30,000,000 8,625,000 -
__________
Total estimated cost 37,500,000 P43,125,000 P40,800,000
Total estimated gross profit P12,500,000 P 6,875,000 P 9,200,000
Percentage of completion 20% 80% 100%
To Date Recognized in prior year/s To be recognized this year

2006 - Recognized revenue P10,000,000 - P10,000,000
Cost of revenue 7,500,000 - 7,500,000
Gross profit P 2,500,000 - P 2,500,000
2007 - Recognized revenue P40,000,000 P10,000,000 P30,000,000

Cost of revenue 34,500,000 7,500,000 27,000,000
Gross profit P 5,500,000 P 2,500,000 P 3,000,000

Cost of revenue 40,800,000 34,500,000 6,300,000
Gross profit P 9,200,000 P 5,500,000 P 3,700,000
2. 2006 2007 2008

a. Construction in progress 7,500,000 27,000,000 6,300,000
Cash, Materials, etc. 7,500,000 27,000,000 6,300,000
b. Accounts Receivable 8,000,000 36,000,000 6,000,000

Progress Billings on Const. Contracts 8,000,000 36,000,000 6,000,000
c. Cash 5,500,000 33,000,000 11,500,000

Accounts Receivable 5,500,000 33,000,000 11,500,000
d. Cost of LTCC 7,500,000 27,000,000 6,300,000

Construction in Progress 2,500,000 3,000,000 3,700,000
Revenue from LTCC 10,000,000 30,000,000 10,000,000
e. Progress Billings on
Construction Contracts 50,000,000
Construction In Progress 50,000,000
3.
Current Assets:
Accounts Receivable P5,500,000
Progress Billings on Construction Contracts P44,000,000
Less Construction in Progress 40,000,000 P4,000,000
Exercise 7-2
2006 2007 2008
a. Construction in Progress 32,000,000 43,000,000 15,500,000

Progress Billing on Const. Contract 33,000,000 45,000,000 22,000,000
c. Cash 31,000,000 40,000,000 29,000,000

Cost of LTCC 23,000,000 45,250,000 22,250,000

Construction in Progress 2,000,000 4,750,000 2,750,000
e. Progress Billing on Const. Contracts 100,000,000

Construction in Progress 100,000,000
2006 2007 2008

Cost incurred to date P 32,000,000 P 75,000,000 P 90,500,000
Estimated cost to complete 60,000,000 16,000,000 ___________
Total estimated cost P 92,000,000 P 91,000,000 P 90,500,000
Total estimated gross profit P 8,000,000 P 9,000,000 P 9,500,000
To date Recognized in prior year/s To be recognized this year

Cost of revenue 23,000,000 - 23,000,000
Gross profit P 2,000,000 - P 2,000,000

Cost of revenue 68,250,000 23,000,000 45,250,000
Gross profit P 6,750,000 P 2,000,000 P 4,750,000

Cost of revenue 90,500,000 68,250,000 22,250,000
Gross profit P 9,500,000 P 6,750,000 P 2,750,000
Exercise 7-3
1. Contract price P25,000,000

Total estimated cost:
Cost incurred to date P 4,400,000
Estimated cost to complete 15,600,000 20,000,000
Total estimated gross profit P 5,000,000
Percentage of completion ( P 400,000/20,000,000) 22%
Gross profit to be recognized in 2008 P 1,100,000
2. Accounts Receivable (P25,000,000 x 30% x 10%) P 750,000

Construction in Progress (P4,400,000 + P1,100,000) P5,500,000
Progress Billings on Construction Contracts (P25,000,000 x 30%) P7,500,000
Exercise 7-4
2006 2007 2008
Cost incurred to date P17,500,000 P29,250,000 P31,000,000
Estimated cost to complete 10,500,000 3,250,000 -
Total estimated cost P28,000,000 P32,500,000 P31,000,000
Percentage of completion 62.5% 90% 100%
To date Recognized in prior year/s To be recognized this year

Cost of revenue 17,500,000 - 17,500,000
Gross profit P 4,375,000 P 4,375,000
2007 - Recognized revenue P31,500,000 P21,875,000 P 9,625,000

Cost of revenue 29,250,000 17,500,000 11,750,000
Gross profit P 2,250,000 P 4,375,000 P(2,125,000)
2008 - Recognized revenue P35,000,000 P31,500,000 P 3,500,000

Cost of revenue 31,000,000 29,250,000 1,750,000
Gross profit P 4,000,000 P 2,250,000 P 1,750,000
2. Journal entries
2006 2007 2008
a. Construction in Progress 17,500,000 11,750,000 1,750,000

Progress Billing on
Const. Contracts 16,000,000 12,000,000 7,000,000
c. Cash 15,000,000 10,000,000 10,000,000

d. Cost of LTCC 17,500,000 11,750,000 1,750,000

Construction in Progress 4,375,000 1,750,000
Rev. from LTCC 21,875,000 9,625,000 3,500,000
e. Progress Billing on Const. Contract 35,000,000

3. To date Recognized in prior year/s To be recognized this year

Cost of revenue 17,500,000 - 17,500,000
Gross profit - - -
========== ============ ==========

Cost of revenue 29,250,000 17,500,000 11,750,000
Gross profit P 2,250,000 ---------------- P 2,250,000

Cost of revenue 31,000,000 29,250,000 1,750,000
Gross profit P 4,000,000 P 2,250,000 P1,750,000
Exercise 7-5
Revenue recognized in 2008 (P26,000,000 x 40%) P10,400,000
Gross profit/income recognized in 2008 (P3,120,000 - P1,300,000) 1,820,000
Cost incurred in 2008 P 8,580,000
Exercise 7-6
Binondo Project Pasig Project
Revenue (CP x % of work done in 2007) P12,000,000 P1,290,000
Cost of revenue 12,400,000 1,400,000
Gross profit (loss) P (400,000) P( 110,000)
Exercise 7-7
1. Contract revenue/price P10,000,000
Less Total profit 800,000
Total cost incurred P 9,200,000
Less Cost incurred in 2006 and 2008 5,900,000
Cost incurred in 2007 P 3,300,000
2. Gross profit to date, 12.31.07 P 900,000

Cost incurred to date, 12.31.07 (P1,800,000 + P3,300,000) 5,100,000
Revenue to date, 12.31.07 P6,000,000
Percentage-of-completion (6,000,000/10,000,000) 60%
3. Gross profit to date, 12.31.07 P 900,000

Percentage of completion ÷ 60%
Total estimated gross profit P1,500,000
4. Contract price P10,000,000

Less Total estimated gross profit 1,500,000
Total estimated cost P 8,500,000
Less Cost incurred to date 5,100,000
Estimated cost to complete P 3,400,000
Exercise 7-8
Cash 500,000
Unearned Franchise Fees 1,292,460
Exercise 7-9
1. Cash 4,000,000
2. Cash 4,000,000
Discount on Notes Receivable
(3,000,000-(2.48685 x 1,000,000) 513,200
Revenue from Franchise Fees 6,486,800
3. Cash 4,000,000
4. Cash 4,000,000
Revenue from Franchise Fees 4,000,000
Unearned Franchise Fees (1,000,000 x 2.48685) 2,486,800
Exercise 7-10
2007
July 1 - Cash 1,200,000
Unearned Franchise Fee 3,735,900
P800,000 x 3.1699 = P2,535,900
P3,200,000 - P2,535,900 = P664,100
Sept. 1 - Deferred Franchise Cost 100,000

Cash 100,000
Nov. 15 - Deferred Franchise Cost 60,000

Cash 60,000
Dec. 31 - Discount on Notes Receivable 126,795

P2,535,900 x 10% x 6/12 = P126,795
2008
Jan. 10 - Deferred Franchise Cost 100,000
Cash 100,000
15 - Unearned Franchise Fee 3,735,900

Franchise Fee Revenue 3,735,900
15 - Cost of Franchise Fee Revenue 260,000

Deferred Franchise Cost 260,000
July 1 - Cash 800,000

1 - Discount on Notes Receivable 126,795

Problem 7-1
2007 2008
a. Construction in Progress 11,000,000 4,800,000
Cash, Materials, etc. 11,000,000 4,800,000
b. Accounts Receivable 10,800,000 9,200,000

Progress Billing on Const. Contract 10,800,000 9,200,000
c. Cash 10,000,000 10,000,000

Accounts Receivable 10,000,000 10,000,000
d. Cost of LTCC 11,000,000 4,800,000

Construction in Progress 2,750,000 1,450,000
Revenue from LTCC 13,750,000 6,250,000
e. Progress Billing on Construction Contracts 20,000,000

Problem 7-2
Statement of Recognized Income and Expenses:
Income: 2007 P2,750,000
2008 1,450,000

Receivable: 2007 P 800,000
2008 -
Inventory - CIP, net of billings

2007 (13,750,000 - 10,800,000) P2,950,000
2008 -
Problem 7-3
Year Income (loss) Recognized Rec’l ending balance CIP Invty. ending balance Cost in excess of billings
2006 1,000,000 380,000 5,000,000 1,200,000
2007 1,000,000 940,000 12,000,000 2,600,000
2008 1,000,000 - - -
2006 2007 2008

Estimated cost to complete 8,000,000 2,500,000 ----------------
Percentage of completion 33 1/3% 80% 100%
Gross profit to date P 1,000,000 P 2,000,000 P 3,000,000
Less Gross profit recognized in prior year/s _____-______ 1,000,000 2,000,000
Gross profit to be recognized this year P 1,000,000 P 1,000,000 P 1,000,000
Problem 7-4
PROJECT A PROJECT B PROJECT C PROJECT D
2007 2008 2007 2008 2007 2008 2008
Contract price P29,000,000 P29,000,000 P34,000,000 P34,000,000 P17,000,000 P17,000,000 P2,000,000
Cost incurred to date P16,800,000 P26,400,000 P14,400,000 P21,200,000 P 3,200,000 P11,830,000 P 5,600,000
Estimated cost to complete 11,200,000 ------------- 17,600,000 13,000,000 9,600,000 1,170,000 10,400,000
Total estimated cost P28,000,000 P26,400,000 P32,000,000 P34,200,000 P12,800,000 P13,000,000 P16,000,000
Total estimated gross profit (loss) P 1,000,000 P 2,600,000 P 2,000,000 P( 200,000) P 4,200,000 P 4,000,000 P 4,000,000
Percentage of completion 60% 100% 45% 25% 91% 35%
Gross profit (loss) to date P 600,000 P 2,600,000 P 900,000 P( 200,000)* P 1,050,000 P 3,640,000 P 1,400,000
Less gross profit recognized in prior year ------- 600,000 ------ 900,000 ---- 1,050,000 -----
Gross profit - current year P 600,000 P 1,000,000 P 900,000 P(1,100,000) P 1,050,000 P 2,590,000 P 1,400,000
* The entire loss should be recognized immediately
(1) Percentage of completion method
2007 2008
Gross profit P2,550,000 P3,890,000
Operating expenses 1,200,000 1,200,000
Net income P1,350,000 P2,690,000
Problem 7-5
1. (a) 2006 2007 2008 2009
Contract price P120,000,000 P120,000,000 P120,000,000 P120,000,000
Cost incurred to date P 24,000,000 P60,500,000 P90,000,000 P105,000,000
Estimated cost to complete 76,000,000 49,500,000 10,000,000 --------
Total estimated cost P100,000,000 P110,000,000 P100,000,000 P105,000,000
Total estimated gross profit P 20,000,000 P 10,000,000 P 20,000,000 P 15,000,000
Percentage of completion 24% 55% 90% 100%

Recognized in To be
recognized
To date prior year in current year
2006-Revenue P28,800,000 ------ P28,800,000
Cost of revenue 24,000,000 ------ 24,000,000
Gross profit P 4,800,000 ------ P 4,800,000
To be
Recognized in recognized
2007-Revenue P66,000,000 P28,800,000 P37,200,000
Cost of revenue 60,500,000 24,000,000 36,500,000
Gross profit P 5,500,000 P 4,800,000 P 700,000
2008-Revenue P108,000,000 P66,000,000 P42,000,000

Cost of revenue 90,000,000 60,500,000 29,500,000
Gross profit P 18,000,000 P 5,500,000 P12,500,000
To be
Recognized in recognized
2009-Revenue P120,000,000 P108,000,000 P 12,000,000
Cost of revenue 105,000,000 90,000,000 15,000,000
Gross profit P 15,000,000 P 18,000,000 P( 3,000,000)
2. 2006 2007 2008 2009

a Construction in Progress 24,000,000 36,500,000 29,500,000 15,000,000
Cash, Materials, etc. 24,000,000 36,500,000 29,500,000 15,000,000
b. Accounts Receivable 26,000,000 31,000,000 34,000,000 29,000,000

Progress Billings on Const. Contract 26,000,000 31,000,000 34,000,000 29,000,000
c. Cash 24,000,000 27,000,000 30,000,000 30,000,000

Accounts Receivable 24,000,000 27,000,000 30,000,000 30,000,000
d. Cost of LTCC 24,000,000 36,500,000 29,500,000 15,000,000

Construction in Progress 4,800,000 700,000 12,500,000 3,000,000
e. Progress Billings on Const. Contracts 120,000,000

Problem 7-6
2006 2007 2008
Contract price P14,000,000 P14,000,000 P13,000.000
Estimated cost to complete 7,500,000 1,275,000 -------
Total estimated gross profit P 1,500,000 P 1,250,000 P 705,000
Gross profit to date P 600,000 P 1,125,000 P 705,000
Less Gross profit recognized in prior year ------ 600,000 1,125,000
Gross profit - current year P 600,000 P 525,000 P (420,000)
Problem 7-7
2006 2007 2008 Total
1. Recognized revenue P 1,100,000 P1,300,000 (2) P1,100,000 (3) P3,500,000
Cost of revenue 1,000,000 1,250,000 1,150,000 (4) 3,400,000 –(5)
Gross Profit (loss) P 100,000 – (1) P 50,000 P (50,000) P 100,000
2006 2007
2. Contract-price P3,500,000 P3,500,000
Cost incurred to date 1,000,000 2,250,000
Estimated cost to complete P2,250,000 P 950,000
Total estimated cost P3,250,000 P3,200,000
Total estimated gross profit 250,000 300,000
Percentage of completion 30.77% 70.3125%
Gross profit to date P 76,925 P 210,938
Less GP recognized in prior year/s - 76,925
GP to be recognized this year P 76,925 P 134,013
Problem 7-8
Franchise A:
The circumstances imply that the full accrual method could be used.
Franchise revenue P3,578,000*
Franchise cost 1,400,000 P2,178,000
Interest revenue (P2,178,000 x 4%) 87,200
Income from Franchise A P2,265,200
*Initial deposit P 1,400,000

PV of four payments [4% for 4 periods
(P600,000 x 3.6299)] 2,178,000
P 3,578,000
Franchise B:
Because of the doubtful collection and only partial completion, the deposit method should be used. No revenue or income would be
recognized in 2008 from the franchise fee. However, because the first payment of P600,000 was made, interest revenue of P87,200 would
be recognized.
Franchise C:
Because of the doubtful collection but substantial completion, either the installment sales or cost recovery method could be used. If the
installment sales method is used, gross profit of P843,600* would be recognized in 2008 plus interest revenue of P87,200.
*Franchise revenue P3,578,000

Franchise cost 2,000,000
Franchise gross profit P1,578,000
Gross profit percentage: P1,578,000 ÷ P3,578,000 44.1%
Collections in 2008:
Initial fee P1,400,000
First payment:
Interest P 87,200
Principal 512,800 512,800
Total P 600,000 P1,912,800
Gross profit recognized – 2008: P1,912,800 x 44.1% = P843,600
If the cost recovery method is used, no revenue or income would be recognized, because the P2,000,000 collections are exactly offset by
the P2,000,000 costs.
Problem 7-9
2007
July 1 Cash 7,000,000
Unearned Franchise Fee 15,000,000
Aug. 15 Deferred Franchise Cost 800,000

Cash 800,000
Sept. 15 Deferred Franchise Cost 500,000

Cash 500,000
Dec. 31 Interest Receivable 400,000

2008
Jan. 1 Cash 2,400,000
Interest Receivable 400,000
15 Deferred Franchise Cost 1,000,000

Cash 1,000,000
31 Unearned Franchise Fee 15,000,000

Cost of Franchise Revenue 2,300,000
Franchise Fee Revenue 15,000,000
Deferred Franchise Cost 2,300,000
July 1 Cash 2,300,000

P6,000,000 x 10% x 6/12
Dec. 31 Interest Receivable 200,000

Problem 7-10
1. Downpayment made on 1/1/ 07 P 800,000.00
Present value of an ordinary annuity (P240,000 x 3.69590) 887,016.00
Total revenue recorded by Triple Eight P1,687.016.00
2. Cost of acquisition P 1,687,016
3. Cash 800,000.00
Notes Receivable 1,200,000.00
Discount on Notes Receivable 312,984.00
Unearned Franchise Fees 1,687,016.00
4. a. P800,000 cash received from downpayment. (P887,016.00 is recorded as unearned revenue from franchise fees).
b. P800,000 cash received from downpayment
c. None. (P 800,000 is recorded as unearned revenue from Franchise fees).
MULTIPLE CHOICE
1. C 6. B
2. B 7. D
3. D 8. D
4. A 9. D
5. C 10. C
11. D P20,000,000 x (3,000,000/15,000,000) = P4,000,000

12. A Contract price P10,500,000

Less Total estimated cost:
Cost incurred to date P3,150,000
Est. cost to complete 6,300,000 9,450,000
Total estimated income P 1,050,000
% of completion (3150/9450) 33 1/3%
Income to be recognized in 2007 P 350,000
13. B Contract price P9,000,000

Total estimated cost 8,100,000
Total estimated income P 900,000
Percentage-of-completion (27/81) 33 1/3%
Income recognized last year P 300,000
14. C Contract price P15,000,000

Total estimated cost (P4,650,000 + P10,850,000) 15,500,000
Total estimated loss – to be recognized in full P 500,000
15 B Contract price P14,000,000

Total estimated cost (P4M + P4M + P2M) 10,000,000
Percentage-of-completion (8M/10M) 80%
Gross profit to date P 3,200,000

Less Gross profit recognized in 2006
(P14M –P8M = P6M x 4/8) 3,000,000
Gross profit to be recognized in 2007 P 200,000
16 B Contract price P3,000,000

Total estimated gross profit P1,200,000
Percentage-of-completion (600/1,800) 33 1/3%
Gross profit to be recognized in 2007 P 400,000
17. B Contract price P12,000,000

Total cost incurred 10,800,000
Gross profit P 1,200,000
Gross profit percentage (1,200/12,000) 10%
18 A Cubao Marikina
Contract price P16,200,000 P25,200,000
Total estimated cost 14,400,000 23,100,000
Total est. gross profit P 1,800,000 P 2,100,000
Percentage-of-completion 83 1/3% 100%
Gross profit to date P 1,500,000 P 2,100,000
Less GP recognized in 2007 750,000 1,872,000
GP to be recognized In 2008 P 750,000 P 228,000
Total GP = P750,000 + P228,000 P 978,000
19. 20,000,000/24,000,000 83.33%
20 Contract price P30,000,000

Percentage-of-completion 83.33%
GP to date P 5,000,000
GP recognized in prior years
(P30M - P22M = P8M x 50%) 4,000,000
GP to be recognized in 2008 P 1,000,000
21. Total amount billed P843,750

Less Balance of accounts receivable 300,000
Total collections P543,750
Amount deposited 500,000
Cash collected not yet deposited P 43,750
22 P150,000 ÷ 937,500/9,000,000 P1,440,000

23 C Mobilization fee (P1.2B x 1%) P 1.2M

Collections on billings (1.2B x 10% x 90%) 10.8M
Total fee received by NNO P12.0M
24 B Contract price P100.00M

Gross profit rate 25%
Total estimated gross profit P25.00M
Percentage-of-completion 50%
Realized gross profit P12.50M
25. B
26 A
27 B
28 C
29
30 A Downpayment P 50,000
First installment payment 50,000
Add’l fee (P1,000,000 x 3%) 30,000
Earned Franchise Fees P130,000
31 C P 100,000 x 1/5 = P 20,000 + 1% of P500,000 = P 25,000

32 A P 1,000,000 + 5% of P8,000,000 = P1,400,000
33 C Downpayment P 100,000
PV of installment payment 199,650
Additional fee ( P 9,000,000 x 5% ) 450,000
Earned franchise fee P 749,650
CHAPTER 8
SUGGESTED ANSWERS
EXERCISES
Exercise 8 - 1
(a) Working Fund - Agency 5,000

Cash 5,000
(b) Accounts Receivable - Agency 50,000

Sales - Agency 50,000
(c) Cash 35,000

Accounts Receivable - Agency 35,000
(d) Expenses - Agency 4,500

Cash 4,500
(e) Expenses - Agency 2,250

Cash 2,250
(f) Cost of Sales - Agency 36,000

Shipments to Agency 36,000
Exercise 8- 2
(a) Working Fund - Makati Agency 10,000

Samples - Makati Agency 60,000
Cash 10,000
Shipments to Makati Agency 60,000
(b) Accounts Receivable - Makati Agency 200,000

Sales - Makati Agency 200,000
(c) Cost of Sales - Makati Agency 116,000

Shipments to Makati Agency 116,000
(d) Salaries and Commission - Makati Agency 20,000

Furniture and Fixtures - Makati Agency 45,000
Cash 65,000
(e) Delivery Expense - Makati Agency 6,200

Office Supplies Expense - Makati Agency 1,000
Cash 7,200
(f) Samples Expense - Makati Agency 25,000

Samples - Makati Agency 25,000
AA1- Chapter 8 (2008 edition) page
2
(g) Office Supplies - Makati Agency 300

Office Supplies Expense 300
(h) Depreciation Expense - Makati Agency 1,250

Accumulated Depr. - Furniture & Fixtures 1,250
(I) Sales - Makati Agency 200,000

Agency Income 30,850
Cost of Sales - Makati Agency 116,000
Salaries and Commission - Makati Agency 20,000
Delivery Expense - Makati Agency 6,200
Samples Expense - Makati Agency 25,000
Office Supplies Expense - Makati Agency 700
Depreciation Expense - Makati Agency 1,250
(j) Agency Income 30,850

Exercise 8-3
Home Office Books
(a) Cash 20,000

Iloilo Branch 20,000
(b) Iloilo Branch 3,500

Cash 3,500
(c) Expenses 1,200

Iloilo Branch 1,200
(d) Iloilo Branch 32,000

Shipments to Iloilo Branch 32,000
(e) Shipments to Iloilo Branch 15,000

(f) Furniture and Fixtures 5,500

Cash 5,500
(g) Iloilo Branch 550

Accumulated Depr. - Furniture & Fixtures 550
(h) Branch Income 2,600

Branch 2,600
3
Branch Office Books
(a) Home Office 20,000

Cash 20,000
(b) Expenses 3,500

Home office 3,500
(c) Home Office 1,200

Cash 1,200
(d) Shipments from Home Office 32,000

Home Office 32,000
(e) Home Office 15,000

Shipments from Home Office 15,000
(f) Memo entry
(g) Depreciation Expense 550

Home Office 550
(h) Home Office 2,600

Exercise 8-4
Home Office Books
(a)
(1) Dagupan Branch 300,000
Shipments to Branch 300,000
(5) Cash 150,000

Dagupan Branch 150,000
Branch Office Books
(1) Shipments from Home Office 300,000

Home Office 300,000
(2) Accounts Receivable 390,000

Sales 390,000
(3) Expenses 74,000

Cash 72,000
4
(4) Cash 288,000

Sales Discount 6,000
(5) Home Office 150,000

Cash 150,000
(6) Furniture and Fixtures 40,000

Cash 40,000
(7) Expenses 8,000

(b)
Sales 390,000
Expenses 82,000
Sales Discounts 6,000

Home Office 62,000
(c)
Honda Sales, Inc.
Statement of Recognized Income and Expenses - Branch
For the Year Ended December 31,2008
Sales P 390,000
Less: Sales Discount 6,000 P384,000
Cost of sales:
Shipment to Home Office P 300,000
Less: Inventory, end 60,000 240,000
Expenses 82,000
Net Profit P 62,000
(d)
Honda Sales, Inc.
Statement of Financial Position - Branch
December 31,2008
Assets
Cash (-720,00 + 288,000 - 150,000 - 40,000) P 26,000

Accounts Receivable (390,000 – 294,000) 96,000
Furniture and Fixture P 40,000
Less: Accumulated Depreciation 8,000 32,000
Total Assets P 214,000
5
Liabilities
Accrued Expenses P 2,000

Home Office (300,000 - 150,000 + 62,000) 212,000
Total Liabilities P 214,000
Exercise 8- 5
Home Office Books
(a) Furniture and Fixtures 24,500

Branch 24,500
(b) Branch 24,500

Cash 24,500
(c) Branch 2,450

(d) Furniture & Fixtures - new 40,000

Branch Income 7,050
Furniture & Fixtures - old 24,500
Cash 25,000
Branch Office Books
(a) Home Office 24,500

(b) Accounts Payable 24,500

Home Office 24,500
(c) Depreciation Expense 2,450

Home Office 2,450
(d) Memo entry
Exercise 8-6
Jan. 10 Notes Payable 2,500

Home Office 2,500
10 Furniture and Fixtures 10,000

Home Office 10,000
16 Shipments from Home Office 6,500

Home Office 6,500
6
16 Home Office 2,000

Cash 2,000
20 Home Office 1,200

25 Home Office 150

Accounts Receivable 150
30 Expenses 800
Home office 800
31 Home Office 750

Income Summary 750
Exercise 8 -7
Honda Company
Reconciliation of Home Office and Branch Accounts
December 31,2008
HO Books Branch
Books
Branch Acct. HO Acct.
Unadjusted balances P 8,400 P 9,735
Adjustments;
(a) Merchandise in transit 615
(b) Collection of home office accounts rec’l 2,500
(c) Error in recording the net income of branch
(P1,215 - P1,125) 90
(d) Merchandise returned by branch still in
transit ( 640) _______
Adjusted balances P 10,350 P 10,350
Requirement 2
Home Office Books
(b) Branch 2,500

(c) Branch 90
Branch Income 90
(d) Shipments to Branch 640

Branch 640
Branch Books
(a) Shipments from Home Office 615

Home Office 615
7
Exercise 8-8
Home Office Books
(a) Allowance for Doubtful Accounts 600

Makati Branch 600
(b) Makati Branch 1,250

General and Administrative Expense 1,250
(c) Manila Branch 1,200

Makati Branch 1,200
(d) Makati Branch 850

Allowance for Uncollectible Accounts 850
Branch Books
(a) Home Office 600

(b) General and Administrative Expenses 1,250

Home Office 1,250
(c) No entry
(d) Uncollectible Accounts Expense 850

Home office 850
PROBLEMS
Problem 8-1
(a) Samples - Cebu Agency 60,000

Advertising Materials - Cebu Agency 35,000
Shipments to Cebu Agency 60,000
Advertising Materials 35,000
(b) Working Fund - Cebu Agency 30,000

Cash 30,000
(c) Accounts Receivable - Cebu Agency 330,000

Sales - Cebu Agency 330,000
Cost of Sales - Cebu Agency 250,000

Shipments to Cebu Agency 250,000
8
(d) Cash 245,000

Sales Discounts - Cebu Agency 5,000
Accounts Receivable - Cebu Agency 250,000
(e) Rent Expense - Cebu Agency 15,000

Delivery Expense - Cebu Agency 3,000
Repairs and Maintenance - Cebu Agency 2,200
Cash 20,200
(f) Salaries and Wages - Cebu Agency 10,200

Commission Expense - Cebu Agency 33,000
Salaries and Wages 10,200
Commission Expense 33,000
(g) Samples Expense - Cebu Agency 15,000

Samples - Cebu Agency 15,000
(g) Advertising Materials Expense - Cebu Agency 10,500

Advertising Materials - Cebu Agency 10,500
(h) Sales - Cebu Agency 330,000

Cost of Sales - Cebu Agency 250,000
Sales Discounts - Cebu Agency 5,000
Rent Expense - Cebu Agency 15,000
Delivery Expense - Cebu Agency 3,000
Repairs and Maintenance - Cebu Agency 2,200
Salaries and Wages - Cebu Agency 10,200
Commission Expense - Cebu Agency 33,000
Samples Expense - Cebu Agency 15,000
Advertising Materials Expense - Cebu Agency 10,500
(I) Income Summary 13,900

Problem 8- 2
Home Office Books
(a) Branch 150,000

Cash 150,000
(b) Branch 90,000

(c) No entry
(d) Branch 90,000

Cash 3,000
Equipment 75,000
Gain on Transfer of Equipment 12,000
9
(e) No entry
(f) Expenses 7,500

Cash 7,500
(g) and (h) no entry
(I) Cash 52,500

Branch 52,500
Branch Books
(a) Cash 150,000

Home Office 150,000
(b) Shipments from Home Office 90,000

Home Office 90,000
(c) Purchases 120,000

Cash 120,000
(d) Equipment 90,000

Home Office 90,000
(e) Accounts Receivable 250,000

Sales 250,000
Cash 100,000
(f) No entry
(g) Depreciation Expense - Equipment 9,000

Accumulated Depr. - Equipment 9,000
(h) Selling and Administrative Expenses 45,000

Cash 45,000
(I) Home Office 52,500

Cash 52,500
Problem 8-3
Requirement 1
a. Accounts Receivable 80,000

Sales 80,000
10
b. Purchases 21,000
c. Shipments from Home Office 40,000

Home office 40,000
d. Cash 76,000
e. Accounts Payable 20,200

Cash 20,200
f. Allowance for Uncollectible Accounts 1,200

g. Home Office 30,000

Cash 30,000
h. Expenses 24,800
Cash 24,800
I. Expenses 1,600
Home Office 1,600
j. Prepaid Expenses 200

Accrued Expenses 400
Expenses 1,700
k. Merchandise Inventory, end 38,800

Sales 80,000
Merchandise Inventory, beg. 33,000
Purchases 21,000
Expenses 28,100
l. Home Office 3,300

11
Requirement 2
Volvo Company
Statement of Recognized Income and Expenses - Branch
Sales P80,000
Cost of goods sold:
Inventory, January 1 P33,000
Purchases 21,000
Shipments from home office 40,000
Less Inventory, December 31 38,800 55,200
Net loss P 3,300
Volvo Company
Statement of Financial Position - Branch
December 31, 2008
Assets
Cash (7,000 + 76,000 + 20,200 - 30,000 - 24,800) P 8,000

Accounts Receivable (24,400 + 80,000 - 76,000 -1,200) P27,200
Prepaid Expenses 900
Furniture and Fixtures P 7,700
Less Accumulated Depreciation 6,600 1,100
Liabilities
Accounts Payable (4,000 + 21,000 - 20,200) P 4,800

Accrued Expenses 800
Home Office (60,500 + 40,000 - 30,000 + 1,600 - 3,300) 68,800
Total Liabilities P74,400
Volvo Company
Statement of Changes in Home Office Account
Home office account balance, January 1 P 60,500

Add: Shipments from home office P 40,000
Expenses paid by home office 1,600 41,600
Total P102,100
Deduct: Remittance to home office P 30,000
Net loss 3,300 33,300
Home office account balance, December 31 P 68,800
12
Requirement 3
c. Davao Branch 40,000

g. Cash 30,000
Davao Branch 30,000
i. Davao Branch 1,600

Cash 1,600
Branch Income 3,300

Davao Branch 3,300
Problem 8-4
Requirement 1
Branch Books
a. Cash 15,000
Home Office 143,000
Home Office 9,000

Cash 9,000
b. Accounts Receivable 62,000

Sales 62,000
c. Cash 26,000
d. Purchases 30,000

Cash 14,500
f. Expenses 12,500
Cash 12,500
g. Cash 16,000
Home Office 1,500
h. Shipments from Home Office 12,500

Home Office 12,500
13
I. Home Office 10,000

Cash 10,000
Home Office Books
a. Bacolod Branch 143,000

Cash 15,000
Store Furniture and Fixtures 9,000

Bacolod Branch 9,000
b. Accounts Receivable 346,000

Sales 346,000
c. Cash 400,000
d. Purchases 316,000

Cash 362,000
f. Expenses 89,500
Cash 92,000
g. Allowance for Uncollectible Accounts 1,500

h. Bacolod Branch 12,500

I. Cash 10,000
14
Requirement 2
Jazz Company
Statement of Recognized Income and Expenses - Bacolod Branch
For the Month Ended January 31, 2008
Sales P 62,000
Cost of goods Sold:
Shipments from Home Office (102,000 + 12,500 + 6,000) P120,500
Purchases 30,000
Cost of Goods Available for Sale P150,500
Less Merchandise Inventory, December 31 (9,800 + 600) 104,000 46,500
Expenses (12,500 + 4,750 + 350+ 3,500) 21,100
Net Loss P 5,600
Jazz Company
Statement of Financial Position - Bacolod Branch
January 31, 2008
Assets
Cash (15,000 - 9,000 + 26,000 - 14,500 - 12,500 + 16,000 - 10,000) P 11,000
Accounts Receivable (62,000 + 26,000 - 26,000 – 17,500) 44,500
Merchandise Inventory (98,000 + 6,000) 104,000
Liabilities
Accounts Payable (30,000 - 14,500) P 15,500
Home Office (143,000-9,000-1,500+12,500-10,000+6,000+4,750+350 -5,600) 140,500
Total Liabilities P159,500
Jazz Company
Statement of Recognized Income and Expenses - Home Office
Sales P346,000
Cost of Goods Sold:
Merchandise Inventory, January 1 P460,000
Purchases 316,000
Less Shipments to Branch (102,000 + 12,500 + 6,000) 120,500
Cost of Goods Available for Own Sale P655,500
Less Merchandise Inventory, December 31 445,000 210,500
Gross Profit P135,500
Expenses (89,500 - 4,750 + 1,000 + 7,500) 93,250
Net Income from Own Operations P 42,250
Less Branch Net Loss 5,600
Net profit P 36,650
Income Tax 12,828
Net Profit P23,822
15
Jazz Company
Statement of Financial Position - Home Office
January 31, 2008
Assets
Cash (150,000 - 15,000 + 400,000 – 362,000 - 92,000 + 10,000) P 91,000

Accounts Receivable (420,000 - 26,000 + 346,000 - 400,000) P340,000
Less Allowance for Uncollectible Accounts (12,000 - 1,500) 10,500 329,500
Branch (143,000 - 9,000 - 1,500 + 12,500 - 10,000
+ 6,000 + 4,750+ 350 - 5,600) 140,500
Store Furniture and Fixtures (150,000 + 9,000) P159,000
Less Accumulated Depreciation (46,000 + 1,350) 47,350 111,650
Liabilities and Shareholders’ Equity
Accounts Payable (337,500 + 316,000 - 362,000) P 291,500

Ordinary Share Capital (282,000 + 36,650) 500,000
Retained Earnings (282,000 + 23,822 305,822
Total Liabilities and Shareholders’ Equity P1,117,650
Requirement 3
Jazz Company
Combined Statement of Recognized Income and Expenses for Home Office and Branch
Sales P408,000
Cost of Goods Sold:
Merchandise Inventory, January 1 P460,000
Purchases 346,000
Less Merchandise Inventory, December 31 549,000 257,000
Expenses 114,350
Net Profit P 36,650
Income Tax 12,828
Net profit P 23,822
16
Jazz Company
Combined Statement of Financial Position for Home Office and Branch
January 31, 2008
Assets
Cash P 102,000
Accounts Receivable P384,500
Store Furniture and Fixtures P159,000
Less Accumulated Depreciation 47,350 111,650
Liabilities and Shareholders’ Equity
Accounts Payable P 307,000

Total Liabilities and Shareholders’ Equity P1,136,650
Requirement 4
Branch Books
a. Shipments from Home Office 6,000

Home Office 6,000
b. Expenses 4,750
Home Office 4,750
c. Expenses 350
Home Office 350
P22,500 + P9,000 = P31,500/7.5 yrs x 1/12
d. Expenses 3,500
e. Sales 62,000
Merchandise Inventory, end 104,000
Purchases 30,000
Expenses 21,100
f. Home Office 5,600

17
Home Office Books
a. Bacolod Branch 6,000

b. Bacolod Branch 4,750

Expenses 4,750
c. Expenses 1,000
Bacolod Branch 350
( 150,000 - 30,000 = 120,000 x 10% x 1/12 = 1,000 )
d. Expenses 7,500
e. Branch Income 5,600

f. Sales 346,000
Purchases 316,000
Expenses 93,250
Branch Income 5,600
Income Tax 12,828


Income Tax 12,828
g. Income Summary 23,822

18
Problem 8-5
Requirement 1
Feroza Company
Working Paper for Combined Financial Statement
For the Year Ended December 31,2008
Adjustments Combined Income Combined Balance

Eliminations Statement Sheet
Debits HO BR Dr. Cr. Dr. Cr. Dr. Cr.
Cash 63,000 21,900 84,900
NR 10,500 10,500
AR 120,600 55,950 176,550
Inventories 143,700 36,300 180,000
F&E 72,150 72,150
Branch 124,050 a.124,050
Cur.
CGS 300,750 128,700 429,450
OE 104,250 32,850 137,100
939,000 275,700
Credits
AP 61,500 61,500
CS 300,000 300,000
HO Cur. 124,050 a.124,050
RE 37,500 37,500
Sales 540,000 151,650 691,650
939,000 275,700 124,050 124,050 566,550 691,650
Net Profit 125,100 125,100
691,650 691,650 524,100 524,100
Requirement 2
a. Sales 151,650
b. Home Office 9,900

Requirement 3
a. Branch Income 9,900

Branch 9,900
b. Income Summary 9,900

Branch Income 9,900
19
Problem 8-6
Requirement 1
Isuzu Company
January 31, 2008
Home Office Branch Books

Books
Branch Acct. Home Office Acct.
Unadjusted balances P77,150 P56,450
Add (deduct);
Advertising expense charged to branch 600
Merchandise shipment in transit 4,400
Merchandise shipment for P16,560 recorded
as P16,650 ( 90)
Collection of home office account 750
Understatement of 1994 depreciation ( 540)
Remittance to home office in transit (16,000) _______
Adjusted balances P61,360 P61,360
Requirement 2
Home Office Books
a. Cash 16,000
Retained Earnings 540
Branch Books
a. Advertising Expense 600

Home Office 4,910
Problem 8-7
Requirement 1
a. Shipments from Home Office 57,600

Home Office Current 65,700
20
b. Sales 778,200

Home Office Current 116,990
Requirement 2
a. Freight-Out 470
Branch Current 470
b. Cash 19,200
Branch Current 19,200
c. Branch Current 116,990

Branch Income 116,990
Requirement 3
Ford Company
Reconciliation of Current Account
December 31,2008
Branch Home Office

Acct. Acct.
Balances before adjustment P 206,344 P120,974
Shipment in transit 57,600

Advertising charged to branch 4,200
Rent charged to branch 3,900
Error in charging freight (470)
Remittance in transit (19,200)
P 186,674 P 186,674
21
Problem 8-8
Mitsubishi Trading Company

December 31, 2008
Branch Acct. Home Office Acct.

Add (deduct):
Error in recording cost of equipment 3,150
Insurance premium recorded twice by branch ( 675)
Freight for P1,125 recorded as P1,215 ( 90)
Discount from home office not recorded ( 800)
Share of branch in advertising not recorded 700
Error in recording remittance ( 3,000) ________
Adjusted balances P222,770 P222,770
Requirement 3
a. Office Equipment 3,150

Advertising Expense 700
Insurance Expense 675
Freight 90
Discount from Home Office 800
Home Office 2,285
MULTIPLE CHOICE
1. B
2. A
3. A Sales P400,000
Cost of sales ( 400,0000 - 70,000) 330,000
Gross profit 70,000
Expenses [30,000 + 10,000 + (10,000 - 6,000) + 5,000] 49,000
Net profit P 21,000
4. A Sales P46,500
x 70%
Cost of sales w/o freight P32,550
Add freight 1,100
Cost of sales w/ freight P33,650
22
5. Sales P46,500
Less Sales Discount (39,690 / 98%) - 39,690 810 P45,690
Cost of sales 33,650
Expenses:
Selling P 2,820
Administrative (46,500 x 5%) 2,325
Samples Expenses 1,900 7,045
Net Profit P 4,995
6. 17,500 + 8,000 +9,250 + (50,000 x 60% x 1/6)
7. C Sales P176,000
Expenses 39,750
Net Income P 31,250
8. D P 87,00 / 125% = P70,000

9. B Sales P 87,500
Expenses (350 + 250) 6,000
Net Income P 11,500
10 A
11 C
12 B
13 A Sales P74,000
Cost of sales
Shipments P67,680
Less Inventory, end 9,180 58,500
Expenses 6,820
Net Profit P 8,680
14 A P17,500 + 8,680 P 26,180

15 A
16 D 203,500 – (186,120 – 25,245 – 18,755) = 23,870
17 D Home Office Current P 48,125

Correct branch account - current P 71,995
23
18 B Sales P112,500
Cost of Sales:
Shipments from home office P120,000
Less Inventory, Dec. 31 30,000 90,000
Expenses 8,100
Net Profit P 14,400
19 C P90,000 + P14,400 P104,400
20 A P1,500 + 43,800 + 37,170 P 82,470
21 D Net Sales (198,720 - 3,600) P 195,120

Cost of sales
Beg. Inventory P 37,170
Shipments 136,000
Goods available for sale P 173,170
End. Inventory 41,370 131,800
Expenses (57,930 + 1,920) 59,850
Net Profit P 3,470
22 C BR. Acct. HO Acct.

Balances before adjustment P150,000 P117,420
Adjustments:
1. Shipments in transit 37,500
2. HO AR collected by branch 10,500
3. Supplies returned (4,500)
4. Error in recording Br. net income (1,080)
5. Cash to Branch in transit 25,000 25,000
P179,920 P 179,920
23 D P 179,920
24 C BR Acct. HO. Acct.

Balances P43,500 P41,900
Error in recording allowance 60
Advances taken by Pres. (550)
Share in advertising expense 900
P42,950 P42,950
25 A Sales
Cost of sales P 100,000
Inventory, beg. P21,000
Merchandise from Home Office 61,000
Merchandise available for sale P82,000
Net profit of Branch A P16,000
24
26 C Branch A Branch B
Imprest branch fund P 2,000 P 1,500
Accounts Receivable, Jan.1 55,000 43,500
Inventory, Jan.1 21,000 19,000
Home Office account P 78,000 P 64,000
27 B
28 C Imprest branch fund P 1,500

Accounts Receivable, Dec. 31 53,000
Inventory, Dec. 31 12,000
Balance of Branch account - current P 67,000
29 D Sales P 80,000
Cost of sales
Inventory, Jan.1 P 19,000
Merchandise from Home office 47,000
Merchandise available for sale P 66,000
Less Inventory, Dec.31 12,000 54,000
Net profit of Branch B P 11,700
30 D HO Account. Branch
Acct.
Beg. Balances P 30,670 P 30,670
1. Branch remittances (55,000) (47,800)
2. Shipment to branch 138,000 160,000
3. Home office expense paid by branch (5,700)
4. Branch receivable collected by branch (8,900)
P 107,970 P 133,970
31 D Branch Acct. HO Acct.

Unadjusted balances P 133,970 P 107,970
1. Remittance in transit (7,200)
2. Shipment in transit 22,000
3. Home office expense paid by branch (5,700)
4. Branch receivable collected by branch (8,900)
5. Branch net profit 6,500 6,500
P 127,570 P 127,570
32 A Marketing Expense of another branch charged to Butuan P (10,000)

Butuan’s remittance credited to Davao ( 65,700)
Net adjustment in Home Office Banch account P (75,700)
25
33 C Fixed account not recorded by Butuan P (53,960)

Inventory transfer recorded twice by Butuan 75,000
Error in recording debit memo 4,650 ( 90)
Net adjustment in Branch Books P 20,950
34 D.
Branch Account Home Office
Account
35 B. Net adjustment in Branch Account (75,700) (20,950)

Adjusted balances P 90,220 P 90,220
CHAPTER 9
SUGGESTED ANSWERS
EXERCISES
Exercise 9 - 1
Books of Branch R
Home Office 15,000
Cash 15,000
Books of Branch S
Cash 15,000
Home Office 15,000
Books of the Home Office

Branch S 15,000
Branch R 15,000
Exercise 9 - 2
Books of Branch No. 1
Home Office 1,950
Freight-In 350
Books of Branch No. 5

Freight-In 400
Cash 350
Home Office 1,650
Books of the Home Office

Branch No. 5 1,650
Excess Freight 300
Branch No. 1 1,950
Exercise 9 – 3
Home Office Books
1. no entry
2. Branch 360,000
Allowance for Markup in Branch Inventory 120,000
120,000/240,000 = 50%
3. no entry
4. Branch 134,000
Advertising Expense 40,000
Depreciation Expense 70,000
Utility Expense 24,000
AA1- Chapter 9 (2008 edition)
page 2
5. no entry
Cash 360,000
Branch 360,000
6. no entry
7. Branch 58,000
8. Allowance for Markup in Branch Inventory 100,000

P300,000 x 50/150 = P100,000
9. Branch Income 158,000

Branch Books
1. Purchases 160,000
2. Shipments from Home Office 360,000

Home Office 360,000

Sales 652,000
4. Advertising Expense 40,000

Home Office 134,000
5. Cash 470,000
Home Office 360,000

Cash 360,000

Sales 652,000
Purchases 160,000
Advertising Expense 40,000

Home Office 58,000
page 3
Exercise 9 - 4
a. Merchandise inventory, beg. P150,000
Less Merchandise from home office at billed price
Markup on merchandise shipped to branch P 36,000
Markup on current shipment (P96,000 – P80,000) 16,000
Markup on beginning inventory P 20,000
x 120/20 120,000
Merchandise purchased from outsiders P 30,000
b. Allowance for Intercompany Inventory Profit 22,000

Bal. of allowance before adjustment P36,000
Adjusted balance of allowance acct
(P84,000 x 20/120) 14,000
Realized markup P22,000
Exercise 9 – 5
Home Office Books
1. Branch 450,000
150,000/300,000 = 50%
2. no entry

Realized markup on beginning inventory
P600,000 x 55% = P330,000 x 25/125* P 66,000
Realized markup on current shipments
P450,000 x 1/3 = P150,000 x 50/150 50,000
Total P116,000
*(600,000 – 480,000) / 480,000 = 25%
Branch Books
Home Office 450,000

Sales 870,000
P590,000 + P280,000 = P870,000
3. no entry
Exercise 9 – 6
1. Branch 820,000
Cash 80,000
page 4
Land 300,000
Allowance on Transfer of Land 80,000
120,000/240,000 = 50%
2. Branch 560,000
160,000/400,000 = 40%
3. Branch 130,000

Realized markup on 1st inventory transfer P120,000
Realized markup on 2nd inventory transfer
(P640,000 – P360,000) x 40/140 80,000
Total P200,000
5. Allowance on Transfer of Land 80,000


Exercise 9 - 7
Required balance of allowance (markup on branch ending inventory)
P9,600 x 20/120 P 1,600
Adjustment for realized markup 36,400
Balance of allowance before adjustment P38,000
Allowance on current shipment (P160,000 x 20%) 32,000
Allowance on branch beginning inventory P 6,000
Markup rate ÷ 20%
Branch beginning inventory, at cost P30,000
Exercise 9 - 8
a. Merchandise available for sale at billed price (P16,200 + P20,250) P36,450
Merchandise available for sale at cost (P36,450/135%) 27,000
Unrealized intercompany inventory profit balance before adjustment P 9,450
b. Unrealized Intercompany Inventory Profit 4,550

Branch Income 4,550
Balance before adjustment P 9,450
Adjusted balance (P18,900 x 35/135) 4,900
Realized markup P 4,550
page 5
Home Office Books

c. Shipments to Branch 400
Unrealized Intercompany Inventory Profit 140
Branch 540
Branch Books
Home Office 540
Shipments from Home Office 540
Exercise 9 – 9
1. P20,000 ÷ 25/125 = P100,000

P100,000 + P350,000 – P80,000 = P370,000 x 25/125 = P74,000
Exercise 9 - 10
Separate cost of goods sold of the home office:
Purchases 2,800,000
Shipments to branch ( 600,000)
Cost of goods available for sale P2,452,000
Less Inventory, end 240,000 P2,212,000
Separate cost of goods sold of the branch:
Inventory, beginning
From outside purchases P 12,000
From home office (P36,000 / 120%) 30,000
Total P 42,000
Purchases 96,000
Shipments from home office (P720,000 / 120%) 600,000
Cost of goods available for sale P 738,000
Less Inventory, end:
From outside purchases P10,000
From home office (P42,000 / 120%) 35,000 45,000 693,000
Combined cost of goods sold P2,905,000
Exercise 9– 11
1. Total Resold On Hand
Shipments from home office P450,000 P360,000 P90,000
Shipments to branch 375,000 300,000* 75,000**
Markup P 75,000 P 60,000 P15,000
* 75,000 / 375,000 = 20%

** 90,000 / 120% = P75,000
2. Cost of Goods Sold 420,000

Inventory 420,000
P60,000 + P450,000 – P90,000 = P420,000
page 6
3. Billed Price Cost Markup

Inventory, beginning P 60,000 P 50,000 P 10,000
Shipments 450,000 375,000 75,000
Total P510,000 P425,000 P 85,000
Inventory, end 90,000 75,000 15,000
Cost of goods sold P420,000 P350,000 P 70,000
Exercise 9 - 12
a. Merchandise Inventory, January 1 P26,400
Add Shipments from Home Office 20,000
Cost of Goods Sold
Sales, net of Sales Returns (P15,000 - P2,000) P13,000
Sales rate 125% 10,400
Merchandise destroyed by fire at billed price P36,000
÷ 120%
Merchandise destroyed by fire at cost P30,000
b. Home Office Books
Branch Loss from Fire 30,000
Branch 36,000
Branch Books
Home Office 36,000
Exercise 9 – 13
Cost of Goods Sold P230,000 x 15/115 30,000
Branch 20,000
2. Home Office 520,000

Branch 520,000

Inventory 9,000
PROBLEMS
Problem 9 – 1
Billed Price Cost Markup
Beginning inventory:
Acquired from vendors P100,000 P100,000 -
Acquired from home office 40,000 32,000 P 8,000
Purchases from vendors 240,000 240,000 -
Shipments from Home Office P180,000 + P30,000 210,000 168,000 42,000
Total inventory available for sale P590,000 P540,000 P50,000
Less Ending inventory:
Acquired from vendors 40,000 40,000 -
Acquired from home office P60,000 + P30,000 90,000 72,000 18,000
Cost of goods sold P460,000 P428,000 P32,000
page 7
Problem 9 – 2
Home Office Books
a. Dagupan Branch 10,000
Cash 10,000
b. Dagupan Branch 25,000

Baguio Branch 40,000
c. Furniture and Fixtures 17,500

Cash 17,500
d. Expenses 800
Dagupan Branch 800
e. Baguio Branch 29,400

Sales Discounts 600
f. Baguio Branch 15,000

g. Shipments to Branch 2,500

h. Dagupan Branch 1,800

Baguio Branch 1,800
i. Dagupan Branch 20,100

Cash 100
j. Baguio Branch 20,110

Excess Freight 35
Dagupan Branch Books

a. Cash 10,000
Home Office 10,000
b. Shipments from Home Office 25,000

Home Office 25,000
c. no entry
d. Home Office 800

Cash 800
e. no entry
page 8
f. Home Office 15,000

Cash 15,000

h. Expenses 1,800
Home Office 1,800
i. Shipments from Home Office 20,000

Freight-In 100
Home Office 20,100
j. Home Office 20,145

Freight-In 100
Cash 45
Baguio Branch Books

a. no entry
b. Shipments from Home Office 40,000

Home Office 40,000
c. no entry
d. no entry
e. Cash 29,400
Home Office 29,400
f. Cash 15,000
Home Office 15,000
g. no entry
h. Home Office 1,800

Cash 1,800
i. no entry
j. Shipments from Home Office 20,000

Freight-In 110
Home Office 20,110
Problem 9 – 3
Requirement 1
Home Office Books
1. Baguio Branch 20,000
Cash 20,000
page 9

3. Cash 245,000

Cash 7,000
5 – 7 - no entry
Baguio Branch Books

1. Cash 18,000
Home Office 18,000

Home Office 257,600
3. Home Office 247,400

Cash 247,400

Home Office 2,400
4. Expenses 7,000
Home Office 7,000
5. Cash 247,400
Sales 288,000
6. Expenses 21,000
Cash 21,000
7. Merchandise Inventory, end P30,100 + P1,400 31,500

Sales 288,000
Merchandise Inventory, beginning P257,600 + P1,400 17,500
Expenses 28,000

Home Office 15,000
Requirement 2

(P17,500 + P259,000 – P31,500) x 40/140
page 10

Requirement 3

Home Office 1,400
Cash 2,000
Home Office 2,000
Problem 9 - 4
Requirement 1
Triple D Bookstore
Statement of Recognized Income and Expenses - Quezon City Branch
Sales P192,690
Cost of Goods Sold:
Merchandise Inventory, beginning P 31,500
Less Merchandise Inventory, end 22,750 136,750
Operating Expenses:
Advertising and Promotion P 6,400
Depreciation 2,400
Uncollectible Accounts Expense 1,250
Others 36,600 46,680
Net income P 9,260
Requirement 2
Branch 9,260
Branch Income 9,260

P136,750 x 25/125

Problem 9 - 5
Branch Books
a. Sales 78,000
Merchandise Inventory, beginning 10,000
Selling Expenses 4,000
Administrative Expenses 6,000
page 11

Home Office Books

a. Sales 310,000
Purchases 300,000
Selling Expenses 20,000
Administrative Expenses 30,000
b. Branch Income 10,000

Branch 10,000
c. Allowance for Overvaluation in Branch Inventory 15,600

P18,000 - (P12,000 x 25/125) = P15,600
d. Branch Income 5,600

e. Income Tax 12,110

f. Income Summary 12,110

Income Tax 12,110

Problem 9 - 6
Requirement 1
Triple F Products Inc. - Branch
Trial Balance
December 31, 2008
Debit Credit
Cash 12,800
Home Office 68,900
Sales 256,000
Cost of Sales 191,620
Operating Expenses 47,080 _______
326,940 326,940
page 12
Requirement 2
Home Office Books
a. Sales 640,600
b. Branch 17,300
c. Allowance for Overvaluation of Branch Inventory 17,420

P191,620 x 10/110
P21,100 ÷ (P202,400 + P29,700 – P21,100) = 10%



Income Tax 26,628

Branch Books
a. Merchandise Inventory P202,400 – P189,200 13,200
Home Office 13,200
b. Sales 256,000

Home Office 17,300
Requirement 3
Combined net income (P41,360 + P34,720 – P26,628) P49,452
Combined Merchandise Inventory:

Home Office P156,640
Branch [ P27,280 + P13,200) ÷110% 36,800 P193,440
page 13
Problem 9 - 7
Triple G Company
Combined Statement of Recognized Income and Expenses
for Home Office and Branch
Sales P325,000
Cost of goods sold:
Merchandise inventory, beginning P107,500
Purchases 215,000
Less Merchandise inventory, end 81,300 241,200
Net income before Income Tax P 33,800
Income Tax 11,830
Net Income P 21,970
Inventory: Beginning Ending

Home Office P 80,000 P55,000
Branch P7,500 + (P24,000/120%) 27,500 P5,500 + (P26,000/125%) 26,300
Total P107,500 P81,300
** P37,500 – P30,000 = P7,500/ P30,000 = 25%
Requirement 2
Davao Branch Books
a. Sales 75,000
Purchases 15,000
Expenses 10,000
b. Income Summary 12,500

Home Office 12,500
Requirement 3
Home Office Books
a. Davao Branch 12,500
b. Allowance for Markup in Branch Inventory 6,300

Branch Income 6,300
Markup on branch beginning inventory
(P24,000 x 20/120) P 4,000
Markup on shipments 7,500
Allowance balance before adjustments P11,500
Markup on branch ending inventory
(P26,000 x 25/125) 5,200
page 14
c. Sales 250,000
Purchases 200,000
Expenses 40,000



Income Tax 11,830

Problem 9 – 8
Requirement 2
a. Plant Assets 4,000
Branch 4,000

c. Cash 5,000
Branch 5,000
d. Expenses 1,000
Home Office 1,000
e. Shipments from Home Office 3,000

Home Office 3,000
f. Retained Earnings 2,500

Inventory 2,500
P15,000 x 20/120

Branch 11,000
h. Sales 48,000
page 15
page 16
page 17
MULTIPLE CHOICE
1. B 3. C 5. D 7. D
2. B 4. D 6. B 8. D
9 A
10 C
11 C
12 D P13,200 + P350 = P13,550
13 C P11,000 + P350 = P11,350
14 A P12,000 x 20/120 = P2,000
15 D Inventory, beginning (P165,000 / 125%) P132,000

Shipments (P110,000 / 125%) 88,000
Merchandise available for sale from home office at cost P220,000
Cost of merchandise sold from home at cost
Sales, net of returns and allowances P165,250
Less Sales from merchandise purchased from
outsiders (P7,500 x 120%) 9,000
Sales from merchandise from home office P156,250
÷ 125%
Cost of sales at billed price P125,000
Billed price rate ÷ 125% 100,000
Inventory destroyed by fire P120,000
16 D Balance of allowance before adjustment P370,000

Required balance of allowance (P1,170,000 x 20/120) 195,000
Realized markup P175,000
17 C Sales P141,000
Cost of goods sold (P120,000 x 3/4 x 125%) 112.500
Net income reported by the branch P 1,500
18 A P50,400/120% P42,000
19 B P90,000 + P36,000 – P2,520 – P50,400/120% = P60,900
20 B Net income (loss) reported by branch (P 7,800)

Realized markup
(P90,000 + P36,000 – P2,520 - P50,400 = P73,080) x 20/120 12,180
True net income of the branch P 4,380
21 B Net income reported by branch P 4,800

Realized markup [(P3,960 + P17,600 – P4,840) x 10/110] 1,520
Actual branch income P 6,320
page 18
22 B Branch ending inventory, at cost (P4,840 / 110%) P 4,400

Home office ending inventory 11,200
Ending inventory to be reported in the combined balance sheet P15,600
23 D Net income reported by the branch P 5,000

Realized markup[P280,000 - (P50,000 – P6,600)] x 40/140 67,600
24 B Branch inventory from home office (P43,400 /140%) P31,000

Branch inventory from outside purchases 6,600
Total cost of branch inventory, end P37,600
25 D P60,000 - P7,500 P52,500
26 A P60,000 - (P7,500 x 120/20) P15,000
27 B Sales P 292,500
Cost of goods sold (P180,000 + P45,000 - P60,000) (165,000)
Operating expenses ( 72,000)
Realized markup [(P180,000 x 20/120) - P7,500 22,500
28 A Unadjusted balance of allowance account P99,900

Markup on 2008shipments from home office
(P390,000 – P300,000) 90,000
x 130/30 P 42,900
Total merchandise inventory beg 54,600
Merchandise from outside purchases P 11,700
29 D Sales P540,000
Cost of goods sold
(P54,600 + P390,000 + P144,600 - P48,750) (540,450)
Realized markup [P99,900 - (P39,000 x 30/130)] 90,900
30 C P39,000 x 30/130 = P9,000
31 D Sales (net of discount of P1,480) P115,520

Cost of goods sold (P104,000 - P12,500) ( 91,500)
Net income reported by branch P 4,020
32 C Net income reported by branch P 4,020

Realized markup (P91,500 x 25/125) 18,300
page 19
33 C Sales P 37,400
Cost of goods sold (P5,000 + P2,000 + P26,400 – P4,500) ( 28,900)
Realized markup [P2,800 – (P3,960 x 10/110)] 2,440
True profit of Cebu branch P 7,940
34 D Sales P110,000
Cost of goods sold
(P16,000 + P80,000 – P24,000 – P20,000) ( 52,000)
Net income of the home office P 48,000
Net income of the branch 7,940
Combined net income of the home office and branch P 55,940
35 C Sales P155,000
Cost of sales:
Purchases 190,000
Goods available for sale P213,000
Shipments to branch (P110,000/110%) 100,000
Goods available for own sale P113,000
Expenses 52,000
Net income P 20,000
36 A Sales P140,000
Cost of sales:
Inventory, beginning (P11,550 – P1,000) P 10,550
Shipments from HO, including freight-in 105,750
Goods available for sale P116,300
Less Inventory, end
[(P10,400 + P5,000)/110%] + P520 + P250 14,770 101,530
Expenses 28,400
True branch net income P 10,470
37 D (P10,400 + P5,000) x 10/110 P1,400
38 B Unadjusted balance of allowance account P 57,500

Markup on 2008 shipments (P200,000 x 25%) 50,000
x 125/25
Branch beginning inventory at billed price P 37,500
page 20
39 C Sales P400,000
Operating expenses (100,000)
Net income reported by branch P 52,500
40 C Net income reported by branch P 52,500

Realized markup (P247,500 x 25/125) 49,500
True net income of the branch P102,000
41 B Beginning inventory P 8,000

Purchases 30,000
Shipments from home office 93,750
Ending inventory ( 10,350)
Cost of goods sold reported by branch P 121,400
Realized markup [P19,750 - (P6,000 x 25/125)* ( 18,550)
Cost of goods sold at cost P 102,850
*P93,750 – P75,000 = P18,750/P75,000 = 25%
42 C The amount of the realized markup of P18,550
43 C Adjusted net income P156,000

Reported net income 60,000
Cost of sales at cost
(P70,000 + P350,000 – P84,000) – P96,000 ÷ P240,000
140%
44 C P84,000 x 40/140 P24,000
45 A 72,500 ÷ (75,000 + 444,000 -84,000 – 72,500) 20%
46 D P444,000 / 120% P370,000
47 D Sales P 600,000
Operating expenses (200,000)
Realized markup [P72,500 - (P84,000 x 20/120)] 58,500
Adjusted profit of the branch P 23,500
48 C P84,000 x 20/120 = P14,000
49 A P84,000 – P14,000 = P70,000
50 B Home office inventory (P160,500 - P10,500) P 150,000

Branch inventory (P108,000/120%) 90,000
Inventories reported in the combined balance sheet P 240,000
AA1-Chapter 9 (2008 edition) page1
Problem 9 – 8
Triple J Wholesale Company
Work Sheet for Combined Financial Statements
Adjustments and
Trial Balance Eliminations Income Statement Balance Sheet
Debits Home Office Branch Debit Credit Debit Credit Debit Credit
Cash 36,000 8,000 (c ) 5,000 49,000
Accounts Receivable 35,000 12,000 (b) 2,000 45,000
Inventory 70,000 15,000 (f) 2,500 82,500 74,500 74,500
Plant Assets, net 90,000 (a) 4,000 94,000
Branch 20,000 (a) 4,000
(c ) 5,000
(g) 11,000
Purchases 290,000 24,000 314,000
Shipments from Home Office 45,000 (e) 3,000 (h) 48,000
Expenses 44,000 16,000 (d) 1,000 61,000
Income Tax (i) 36,400 36,400
585,000 120,000
Credits
Accounts Payable 36,000 13,500 49,500
Accrued Expenses 14,000 2,500 16,500
Income Tax Payable (i) 36,400 36,400
Home Office 9,000 (b) 2,000 (d) 1,000
(g) 11,000 (e) 3,000
Ordinary Share Capital 50,000 50,000
Retained Earnings 45,000 (f) 2,500 42,500
Sales 440,000 95,000 (h) 48,000 487,000

585,000 120,000 112,900 112,900 493,900 561,500
Net income 67,600 67,600
561,500 561,500 262,500 262,500
Inventory, beg: Inventory, end:

Home Office P55,000 Home Office P70,000
Branch P2,000 + P21,000/120% 19,500 Branch 12,500
P74,500 P82,50
Problem 9 – 9
Triple M Company
Work Sheet for Combined Financial Statements
Adjustments and Combined
Trial Balance Eliminations Cost of Goods Sold Income Statement Balance Sheet
Debits HO Branch Debit Credit Debit Credit Debit Credit Debit Cred8t
Cash 17,000 200 a. 1,700 20,700
b. 1,800
Inventory 23,000 11,550 e. 1,000 33,550 44,770 44,770
Sundry Assets 200,000 48,450 248,450
Investment in Branch 60,000 a. 1,700
g. 58,300
Purchases 190,000 190,000
Shipment from Home Office 105,000 c. 5,000 f. 110,000
Freight-in from Home Office 5,500 d. 250 5,750
Sundry Expenses 42,000 24,300
Income Tax h. 15,460 15,460
532,000 195,000 66,300
Credits
Sundry Liabilities 35,000 3,500 d. 250 38,750
Income Tax Payable h. 15,460 15,460
Ordinary Share Capital 200,000 200,000
Retained Earnings 31,000 31,000
Home Office Equity 51,500 g. 58,300 b. 1,800
c. 5,000
Sales 155,000 140,000 295,000
Shipments to Branch 110,000 f. 110,000
Allowance for Markup in BI 1,000 e. 1,000
532,000 195,000 193,510 193,510 229,300 44,770
Cost of Goods Sold 184,530 184,530
229,300 229,300 266,290 295,000
Net income 28,710 28,710
295,000 295,000 313,920 313,920
Merchandise inventory, end:
Home office P30,000
Branch [((P15,400 / 110%) + (P15,400 x 5%)] = P14,000 + P770 14,770
Total P44,770
Problem 9 – 10
Triple N Commercial
Working Paper for Combined Financial Statements for Home Office and Branch
Adjusted Branch Home Office Combined

Trial Balance Adjustments Trial Balance Eliminations Income Statement Income Statement Balance Sheet
Debits HO Branch HO Branch HO Branch Debit Credit Debit Credit Debit Credit Debit Credit
Cash 50,100 1,260 a. 5,320 b. 2,100 55,420 3,360 58,780
Accounts Receivable (net) 350,000 135,660 c. ( 2,500) 350,000 133,160 483,160
Inventory – Home office 64,400 64,400 64,400 70,000
Branch 32,340 32,340 a. 2,940 29,400 32,200 102,200
Fixed Assets (net) 210,000 210,000 210,000
Branch Current 163,120 a. (5,320) 157,800 c. 157,800
Purchases 532,000 532,000 532,000
Shipments from Home Office 294,000 d. 14,000 308,000 b. 28,000 280,000
Sundry Expenses 119,980 83,440 119,980 83,440 83,440 119,980
Income Tax f. 23,667 e. 10,976 23,667 10,976 10,976 23,667
1,489,600 546,700 23,667 24,576 1,513,267 571,276
Credits
Accounts Payable 30,500 10,500 30,500 10,500 41,000
Mortgage Payable 67,500 67,500 67,500
Income Tax Payable f. 23,667 e. 10,976 23,667 10,976 34,643
Home Office Current 144,200 b. 2,100
c. ( 2,500)
d. 14,000 157,800 c. 157,800
Sales 434,000 392,000 434,000 392,000 392,000 434,000
Shipments to Branch 308,000 308,000 b. 28,000 280,000
Allowance for Overvaluation 2,940 2,940 a. 2,940
Ordinary Share Capital 600,000 600,000 600,000
Retained Earnings 46,660 46,660 46,660
1,489,600 546,700 23,667 24,576 1,513,267 571,276 188,740 188,740 403,816 424,200 740,047 784,000 854,140 789,803
Branch net income 20,384 20,384
Home Office net income 43,953 43,953
424,200 424,200 784,000 784,000 854,140 854,140
Inventory, end:
Home Office P 70,000
Branch [(P21,420 + P14,000) / 110%] 32,200
Total P102,200

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CHAPTER 1

Partnership Formation and Operations

1.a Campos, Capital 14,000

Accumulated Depreciation 6,000

Campos, Capital 40,000

1.b Cash (P83,500 x 1/2) 41,750

Assets Liabilities & Owners’ Equity

1. Income Summary 238,000

2. Income Summary 238,000

3. Income Summary 238,000

4. Income Summary 238,000

5. Income Summary 238,000

Computation of average capital:

Ave. capital (P1,249,200/12) P104,100 Ave. capital (P2,888,000/12) P240,667

Computation of bonus: P160,000 x 65%= P104,000– P20,686 x 10% = P8,331

Sanchez Gomez Total

3. Sanchez Gomez Total

1. Mercado Puzon Total

2. Mercado Puzon Total

3. Puzon P375,000 x 2/3 = P150,000; however, minimum guaranteed amount is P160,000

Net profit after salary, interest and bonus P374,000

1. B = .25 x P500,000 = P125,000

2. B = .25 x P500,000 = P100,000

3. B = .25 (P500,000 - Tax)

4. B = .25 (P500,000 - B - Tax)

1. Fees Earned 750,000

2. Income Summary 500,000

Journal entry on the partnership books

Duenas, Capital 20,000

Journal entry on the partnership books

Duenas, Capital 25,000

Reported net profit P400,000

Distribution of 2008 net profit

Distribution of 2008 corrected net profit

1. a. Merchandise, Inventory 60,000

b. Ruiz, Capital 30,000

c. Interest Receivable 1,500

d. Ruiz, Capital 7,500

e. Accumulated Depreciation 180,000

f. Office Supplies 5,000

Ruiz and Santos

2. Accounts Receivable 1,792,000

Tomas and Vicente

Liabilities and Capital

1. Merchandise Inventory 3,000

Torres, Capital 150,000

Accounts Payable 720,000

Mortgage Payable 300,000

Notes Payable 225,000

Accounts Receivable 3,450,000

Selling and General Expenses 870,000

Serrano, Drawing 351,000

Income Tax 204,750

Inventories, end 600,000

Income Summary 380,250

Serrano Torres Total

Serrano, Capital 351,000

Serrano and Torres Partnership

Serrano and Torres Partnership

1. P2,700,000 (P200,000 + P1,100,000 + P500,000 + P1,500,000 – P600,000 = P2,700,000)

1. Income Summary 700,000

2. Income Summary 700,000

3. Income Summary 700,000