CHAPTER 4

Ex. 1
Ben Bob Total
Capital balances 12/31 240,000 P260,000 P500,000
Share in net income P125,000 P125,000 P250,000
Drawings (60,000) (120,000) ( 180,000)
Revalue equipment (15,000) (15,000) (30,000)
Updated capital accounts 7/1/16 P290,000 P250,000 P540,000

a)
Income S 250,000
Ben, Drawing 125,000
Bob, Drawing 125,000

Ben, Drawing (125-60) 65,000

Bob, Drawing (125-120) 5,000
Ben, Capital 65,000
Bob, Capital 5,000

Ben, Capital 15,000

Bob, Capital 15,000
Accum Depn 30,000
Fair value P150,000 against book value P180,000

b) Ben, Capital 290 x .5) 145,000

Ted,Capital 145,000
0

c) and d) P&L Ratio Capital

Ben 25% P 145,000
Bob 50% 250,000
Ted 25% 145,000
Partners’ Equity 100% P 540,000

EX 2
a) P150,000

Lena, Capital 100,000

Rod, Capital 100,000

b) ) P240,000 payment against P250,000 actual interest of the three partners = loss of P10,000

. Tina, Capital 100,000

Lou, Capital 100,000
Lena, Capital 50,000
Rod, Capital 250,000

c).Tina, Capital 100,000 b) Partners’ Equity:

Lou, Capital 100,000 Tina, Capital P200,000
Lena, Capital 50,000 Lou, Capital 300,000
Assets 250,000 Lena, Capital 150,000
Rod, Capital 100,000
Tina, Capital 100,000 Total P750,000
Rod Capital 100,000

. Ex. 3
a) Daisy, Capital 160,000
Maggie, Capital 160,000
P 400,000
Bonnie
a.b) Bonnie, Capital 200,000 160,000
Maggie, Capital 200,000 160,000 Daisy 160,000
P 720,000
c. Land 160,000
Bonnie, Capital 80,000
Daisy Capital 80,000

Revaluation
Daisy’s Interest P 320,000
Payment (200,000 x 2) 400,000
Excess (share of Daisy in the asset rev) P 80,000 Revised PE
Total Asset Rev P 160,000 Bonnie P 480,000
Daisy 200,000
Daisy, Capital 200,000 Maggie 200,000
Maggie, Capital 200,000 P 880,000

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d. Bonnie, Capital 60,000
Daisy, Capital 60,000
Plant assets 120,000
Revaluation
Total Partnership Equity P 720,000
Payment (300,000 x 2) 600,000
Decrease Plant Assets P 120,000 Revised PE
Bonnie P 170,000
Bonnie, Capital 170,000 Daisy 130,000
Daisy, Capital 130,000 Maggie 300,000
Maggie, Capital 300,000 P 600,000

EXERCISE 4
. Capital Adjusted
Partners Balances Balances Difference
Edgar P 400,000 30% P360,000 P (40,000)
Paz 500,000 40% 480,000 (20,000)
Emy 300,000 30% 360,000 60,000
P1,200,000 P1,200,000

Paz, Capital 20,000

Edgar, Capital 40,000
Emy, Capital 60,000
Emy must pay Edgar and Paz if she wants her capital to be higher than before.

Exercise 5
1,200,000 of the partnership x .15= 180,000 x 4/9 and 5/9= 80,000 and 100,000

Edgar, Capital 80,000

Paz, Capital 100,000
Georgina, Capital 180,000

Revise ratio of Edgar 3/7 x15% =6.43% 30% -6.43%=23.57%

Emy 4/7 x15% =8.57% 40%- 8.57%=31.43%
Georgina 15.0%
Paz 30.0%

Exercise 6
Orig Asset Rev a) Adjusted Transfer d)Revised Revised e) Profit
Captl Bal PE P and L Share
Pen 450,000 16,000 466,000 466,000 40.00% P 89,600
May 650,000 24,000 674,000 x.4 (269,600) 404,400 20.00% 44,800
Wen 269,600 269,600 40.00% 89,600
1,100,000 40,000 1,140,000 1,140,000 P224,000

Inventory 58,000
Pen, Capital 24,000
May, Capital 16,000
Accounts Receivable 18,000

b) Wen must pay 674,000 x .4= 269,600 + 15,000 gain= P284,600

c) May Capital 269,600

Wen, Capital 269,600

Exercise 7

1,140,000/60%= total agreed equity P1,900,000 x 40%= P760,000

Pen 466,000
May 674,000 Cash 760,000
Wen 760,000 Wen, Capital 760,000
1,900,000

Exercise 8
First Option: Total Cont Agreed Equity Bonus Entry
Pen 466,000 36,000 Cash 50,000
May 674,000 54,000 Pen, Captl 36,000
Wen 500,000 (25%)410,000 (90,000) May, Captl 54,000
1,640,000 1,640,000 Wen, Captl 410,000

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Option 2: Total Cont. Agreed Equity Downward Adj. Bonus
Pen 466,000 ( 96,000) Pen, Captl 96,000
May 674,000 (144,000) May, Captl 144,000
Wen 300,000 (25%)300,000 Assets 240,000
1,440,000 1200,000 (240,000)
Cash 300,000
Wen,Captl 300,000
Option 2 may be frowned upon, cash investment is lower by P10,000, and bonus to be sacrificed is
higher that Option 1 and the new partner gets the same 30% interest over assets and profits.
Exercise 9
Option a: Agreed equity 120,000/30%= 400,000 – 320,000 total contributions= asset rev of P80,000

Assets 80,000
Athena, Capital 48,000
Apollo, Capital 32,000

Cash 120,000
Titus, Capital 120,000
Option b: Agreed equity 75,000/30%= 250,000 – 270,000 total contributions= asset impair of P20,000

Athena, Capital 12,000

Apollo, Capital 8,000
Assets 20,000

Cash 70,000
Titus, Capital 70,000

EXERCISE 10
Capital Agreed
a. Balances Balances
Fiona P 350,000 P300,000 Cash 300,000
Gary 250,000 200,000 Romy, Capital 300,000
Romy 300,000 300,000
P 900,000 P900,000

b. Investment Bonus Agreed PE

-
Fiona P 350,000 Cash 300,000
Gary 250,000 Fiona, Capital 35,000
Romy 300,000 60,000 360,000 Gary, Capital 25,000
P900,000 - - P900,000 Romy, Capital 360,000
60% of P1M

Asset Agreed Fiona,Capital 87,500

c. Investment Rev Partners E Gary, Capital 62,500
Fiona P 350,000 (87,500) Assets 150,000
Gary 250,000 (62,500)
Romy 300,000 300,000 40% Cash 300,000
P 900,000 150,000 P 750,000 Romy, Captl 300,000
d.
Investment Bonus AgreedPE
Fiona P350,000 17,500 Cash 300,000
Gary 250.000 12,500 Fiona,Capital 17,500
Romy 300,000 (30,000) 270,000 30% Gary, Capital 12,500
P900,000 P900,000 Romy, Capital 270,000

e. Investment Asset Rev Agreed Assets 100,000

PE___
Fiona P350,000 58,333 Fiona, Capital 58,333
Gary 250.000 41,667 Gary, Capital 41,667
Romy 300,000 300,000 30%
900,000 100,000 1,000,000
Cash 300,000
Romy, Capital 300,000

Exercise 11
Investment Bonus Agreed

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 PE
Chen P 2,000,000 250,000 2,250,000
Fran 1,000,000 250,000 1,250,000 Cash 2,000,000
Paula 2,000,000 (500,000) 1,500,000 30% Paula Capital 1,500,000
P5,000,000 5,000,000 Chen Capital 250,000
Fran Capital 250,000

b. Investment Bonus Agreed PE

Chen 2,000,000 (50,000) 1,950,000 Cash 2,000,000
Fran 1,000,000 (50,000) 950,000 Chen, Capital 250,000
Paula 2,800,000 100,000 2,900,000 Fran, Capital 250,000
5,800,000 5,800,000 Paula, Capital 2,500,000
c. Contributions Revalue Agreed
Assets
Chen 2,000,000 500,000 2,500,000
Fran 1,000,000 500,000 1,500,000
Paula 2,000,000 ________ 2,000,000
5,000,000 1,000,000 6,000,000

Assets 1,000,000
Chen 500,000
Fran 500,000

Cash 2,000,000
Paula 2,000,000
d.
Investments Revaluation Bonus Agreed
Chen P2,000,000 (100,000) (200,000) 1,700,000
Fran 1,000,000 (100,000) (200,000) 700,000
Paula 2,000,000 400,000 2,400,000* =Bonus to Paula
5,000,000 (200,000) 4,800,000 =Asset impaired
*4,800,000 x .5=2,400,000-200,000

Chen, Capital 100,000

Fran 100,000
Assets 200,000
(5,500,000 – 5,000,000)

Cash 2,000,000
Chen 200,000
Fran 200,000
Paula 2,400,000

e.
Investments Goodwill Agreed should be
higher
Chen P2,500,000
Fran 1,000,000
Paula 2,000,000
5,500,000
If 3,000,000 = 60% interest then agreed will become = P5,000,000 which is lower than actual. Agreement is not valid.
If interest is higher say 50% for Chen, then P3,000,000 for current partners will be also 50%. Total agreed will
become P6,000,00 against actual of P5,500,000= goodwill for the new partner.

Exercise 12
a) Update first Edna Capital: P300,000 + Share in Rev 15,000 (.1 x 150,000) = P315,000
Cash settlement P360,000-P315,000= bonus of P45,000
Or
Assets 150,000
Freda, Capital 60,000………… P500,000 + P60,000= P560,000
Alida, Capital 45,000 400,000 + 45,000 = 445,000
Minda, Capital 30,000 300,000 + 30,00 0 = 330,000
Edna, Capital 15,000

b) Bonus of P45,000 from remaining partners

Revised Partners’ Equity
Freda, Capital 20,000…………………. P560,000 - 20,000= P540,000
Alida, Capital 15,000…………………. 445,000 - 15,000= 430,000
Minda, Capital 10,000---------------------330,000 - 30,000= 300,000
Edna, Capital 315,000
Cash 360,000

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EXERCISE 14
a.
Income Summary 150,000
Liza, Drawing 60,000
Fe, Drawing 60,000
Arman, Drawing 30,000

Arman, Drawing 15,000

Arman Capital 15,000

Arman, Drawing Arman, Capital

P 15,000 P30,000 P 100,000
15,000 15,000
P 115,000-
b.
1. Arman, Capital 115,000
Liza, Capital 57,500
Fe, Capital 57,500

2. Arman, Capital 115,000

Cash 80,000
Liza, Capital 17,500
Fe,Capital 17,500

3. Assets 425,000
Liza, Capital 170,000
Fe, Capital 170,000
Arman, Capital 85,000
200-115= 85 for Arman/,2= 425,000 – 85,000=340,000
x .5= 170,000 for each partner.

Arman, Capital 200,000

Cash 200,000

c. (1) (2) (3)

Liza P 317,500 277,500 430,000*
Fe 417,500 377,500 530,000
Total P735,000 655,000 960,000
*200,000 + 60,000+ 170,000

EXERCISE 15
800,000- 750,000= P50,000 share in asset impairment x 3= total P150,000

Harry, Capital 50,000

Oliver, Capital 50,000
Peter Capital 50,000
Asset 150,000

Peter, Capital 750,000

Cash 750,000

Harry, Capital P700,000 – 50,000= P 650,000

Oliver Capital P500,000 – P50,000= 450,000
Revised Equity P1,100,000

1,100,000 + 300,000= 1,400,000 x .25= 350,000 against 300,000= bonus to new partner.

EXERCISE 16- 17
2018
1/1/18 Profit* Drawings 12/31/18 Profit ** Drawings 7/1/19***
Carl 120,000 117,600 (120,000) 117,600 48,000 (60,000) 105,600
Weber 70,000 88,200 (90,0000) 68,200 36,000 (45,000) 59,200
Larins 80,000 88,200 ( 90,000) 78,200 36,000 (45,000) 69,200
270,000 294,000* (300,000) 264,000 120,000 (150,000) 234,000

2018 Profit*
Salaries Bonus Balance Total
Carl 120,000 (2,400) 117,600
Webster 90,000 (1,800) 88,200
Larins 90,000 (1,800) 88,200
300,000 (6,000) 294,000
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July 2019 : **
Salaries Bonus Balance Total
Carl 60,000 (12,000) 48,000
Webster 45,000 ( 9,000) 36,000
Larins 45,000 ( 9,000) 36,000
150,000 (30,000) 120,000

Refer to table*** for the capital balance of Larins:

Larins, Capital 69,200
Carlson (9,800 x 4/7) 5,600
Webster (9,800 x 3/7) 4,200
Cash 79,000

7/1/19 Bonus Profit 12/31 Drawings 12/31/1

Carlson 105,600 (5,600) 52,500 (20,000) P 132,500
Webster 59,200 (4,200) 52,500 (20,000) 87,500
164,800 (9,800) 105,000 (40,000) P220,000

150,000 x .7= 105,000/2= 52,500

EXERCISE 18

a. 2017
Entry for Investment
Cash 1,200,000
Ria, Capital 300,000
Celso, Capital 400,000
Mercy, Capital 500,000

Withdrawal
Ria, Drawing 30,000
Celso, Drawing 30,000
Mercy, Drawing 30,000
Cash 90,000

Distribution of Profit
Income Summary 300,000
Ria, Drawing 82,500
Celso, Drawing 100,000
Mercy, Drawing 117,500
210,000 x 3/12 = 52.5 + 30 X 4/12=70 + 30 X 5/12=87.5 +30
b. Ria - Celso - Mercy -
Beginning P 300,000 P400,000 P500,000
Share in Net Profit 82,500) 100,000 117,500
Drawings ( 30,000) ( 30,000) ( 30,000)
Capital, Ending P352,500 P470,000 P587,500

2018
a. Ria, Drawing 60,000
Celso, Drawing 60,000
Mercy, Drawing 30,000
Cash 150,000
Mercy, Capital 500,000
Mercy Drawing 57,500
Payable to Mercy’s Estate 557,500

b. Income and Expense Summary 76,319

Payable to Mercy’s Estate 76,319
(350,000 x 7/12= 204,167-105=99,167 x
5/12=41,319 + salaries 35,000

c. Income and Expense Summary 47,536

Payable to Mercy’s Estate 47,536
(557,500+ 76,319 x .18 x 5/12)

d. Income and Expense Summary 226,145

Ria, Drawing 105,491
Celso, Drawing 120,654
350,000-76,319-47,536= 226,145-120,000 salaries x 3/7 and 4/7

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2019
Interest Expense (633,819 x .18 x 1/12) 9,507
Payable to Mercy’s Estate 633,819
Cash 643,426

EXERCISE 19
a. Appropriation Account 20,000
Allowance for Bad Debts 20,000

Appropriation Account 50,000

Inventories 50,000

Appropriation Account 30,000

Accumulated Depreciation 30,000

Net Book Value P530,000

Market Value 500,000
Decrease by P 30,000

Wilson Capital 60,000

Ona Capital 20,000
William, Capital 20,000
Appropriation Account 100,000

Partners’ Equity Per Books P2,280,000

Less: Appropriation acct 100,000
Adjusted Partners’ Capital 2,180,000 /50 = 43,600 shares

b. Shares of WOW Corporation 2,180,000

Accounts Payable 200,000
Allowance for Bad Debts 25,000
Accumulated Depreciation 50,000
Cash 705,000
Accounts Receivable 500,000
Merchandise Inventory 700,000
Furniture and Equipment 550,000

c. Wilson, Capital 680,000

Ona, Capital 580,000
William, Capital 920,000
Shares of Win Corporation 2,180,000

d. Cash 705,000
Accounts Receivable 500,000
Merchandise Inventory 700,000
Furniture and Equipment 500,000
Allowance for Bad Debts 25,000
Accounts Payable 200,000
Share Capital (43,600 x50) 2,180,000

Cash 1,570,000
Share Capital 1,070,000
75,000- 43,600= 31,400 x P50
e. Cash 3,250,000
Share Capital 3,250,000
65,000 x P50

LEGAL ISSUE-

Liabilities incurred prior to admission of a new partner stands as liabilities of the partnership with
priority over the assets. It is not a valid agreement for a new partner to exempt himself from these
liabilities. He is liable up to the extent of his contribution. There must be consent by all the current
partners. Change in profit ratio must be agreed upon by all partners.

ACOUNTING ISSUE:

a. Joey 2/4 x 600,000 P300,000

Frank 1/4 x 600,000 150,000
Bert 1/4 x 600,000 150,000
P600,000
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 b. Using Decrease in Net
Using old P/L Revised P&L Income/Share
Joey 60% x 600,000 P360,000 P300,000 P 60,000
Frank 40% x 600,000 240,000 150,000 90,000
Frank will benefit the least with the proposal.

c. Old P/L Proposed

Joey 60% x 450,000 270,000 300,000
Frank 40% x 450,000 180,000 150,000

Yes, Joey’s share will increase by P30,000 with the new investment.

Exercise 13 of PCA 2014

a. Investment Bonus Revised b) 2. Cash 100,000

Kurdis 200,000 (56,000) 144,000 Kurdis, Capital 56,000
Lawn 600,000 (84,000) 516,000 Lawn, Capital 84,000
Kendy 300,000 140,000 440,000 Kendy, Capital 240,000

1,100,000 1,100,000

b) 1. Kurdis, Capital 200,000

Kendy, Capital 200,000

c) Lawn, Capital 129,000

Luz, Capital 129,000

32