1.4 Partnership Format Problem 4 (ReSA) On July 1, 2019, XX and YY decided to form a partnership. The firm is to take over business assets and assume liabilities, and capitals are to be based on net assets transferred after the following adjustments: a) XX and YY’s inventory is to be valid at P31,000 and P22,000, respectively. b) Accounts receivable of P2,000 in Xx’s book and P1,000 in YY's books are uncollectible. ) Accrued salaries of P4,000 for XX and P5,000 for YY are still to be recognized in the books. d) Unused office supplies of XX amounted to P5,000, while that of YY amounted to P1,500. 2) Unrecorded patent of P7,000 and prepaid rent of P4,500 are to be recognized in the books of Xx and YY, respectively. f)_ XX is to invest or withdrew cash necessary to have a 40% interest in the firm. Balance sheets for XX and YY on July 1 before adjustments are given below: XX W [cash Pip 31,000 | Php 30,000 [Accounts Receivable 25,000] 20,008] Inventory 32,000] 24,000] (Office Supplies 5,000] Equipment 205000 24,000] [Accumulated Depreciation - Equipment (5,000) B,000] [Total Assets Php 100,000 | Php 120,000 [Accounts Payable Php 28,000.00 | Php 20,000.00 Capitals 72,009 100,009 [Total Liabilities and Capital Phe 100,000] Php ___120,000 Determine: 1. The net adjustments - capital in the books of XX and YY: 2. XX, P7,000 net debit; YY, P2,000 net credit b. XX, P5,000 net debit; YY, P7,000 net credit ©. XX, P7,000 net credit; YY, P2,000 net debit d. XX, P5,000 net credit; YY, P7,000 net debit 2. The adjusted capital of XX and YY in their respective books. XX = P77,000; YY - P98,000 d. XX - P77,000; YY - P93,000 a. XX = P65,000; YY ~ P102,000 © b. XX ~ P63,000; YY - P107,000 3. The additional investment (withdrawal) made by Xx a. P(15,000.00) e. b. PC 6,666.50) d 3,000.00 8,377.504. The total assets of the partnership after formation: a. P235,333.50 ¢. P220,333.50 b. P230,000.00 d. P212,000.00 5. The total liabilities of the partnership after formation: 2. P57,000.00 ¢. P54,000.00 b. P48,000.00 d. P51,000.00 6. The total capital of the partnership after formation a. 180,000.00 ¢. P163,333.50 b. P178,333.50 d. P155,000.00 7. The capital balances of XX and YY in the combined balance sheet a. XX, P61,250; YY, P72,000 <. XX, P100,000; YY, P75,000 b. XX, P81,250; YY, P75,000 d. XX, P 62,000; YY, P93,000 Solution 1D 20 XX Capital- Unadjusted 72,000.00 YY Capital- Unadjusted 100,000.00 Net adjustment 5,000.00 Net adjustment (7,000.00) Adjusted Capital 77,000.00 Adjusted Capital ‘93,000.004. D_ From the accounting equation Asset 5. A Liability + Capital 6. D Total Asset Liability Capital 28,000.00 77,000.00 20,000.00 93,000.00 4,000.00 (15,000.00) 5,000.00 70 XX (155,000x4076) 62,000 Y¥ (255, 00046034) 33,000 Problem 2 (ReSA) On December 1, 2019, AA and BB formed a partnership with contributing the following assets at fair market values: BB Cash ... soon P 9,000 P 18,000 Machinery and equipment .... 13,500 - Land nes sons - 90,000 Building — - 27,000 Office Furniture . . 13,500 - The land and building are subject to a mortgage loan of P54,000 that the partnership will assume, The partnership agreement provides that AA and BB share profits and losses, 40% and 60%, respectively and partners agreed to bring their capital balances in proportion to the profit and loss ratio and using the capital balance of BB as the basis. ‘The additional cash investment made by AA should be: a, P18,000.00 ¢. P134,000.00 b, P85,500.00 d, P166,250.00Solutions: cc AA 40% 36,000.00 BB 60% 81,000.00 117,000.00 Problem 3 (ReSA) AC 54,000.00 18,000.00 81,000.00 135,000.00 18,000.00 CC and DD are joining their separate business to form a partnership. Cash and non-cash assets are to be contributed for a total capital of P150,000. The non-cash assets to be contributed and liabilities to be assumed are: cc Book Value Fair Value Book Value Value Accounts Receivable... P11,250,00 P11,250.00 Inventories : 11,250.00 16,875.00 30,000.00 33,750.00 Equipment 18,750.00 15,000.00 33,750.00 35,625.00 ‘Accounts Payable 5,637.50 5,625.00 3,750.00 3,750.00 The partner's capital accounts are to be equal after all contributions of assets and assumptions of liabilities. Determine: 1. The total assets of the partnership. a, P159,375.00 b. P150,000.00 e d P140,625.00 112,500.00 2. The amount of cash that each partner must contribute:a. CC - P37,500; DD - P9,375 cc. CC ~ P80,625; DD - P78,750 b. CC - P37,500; DD - P5,625 d. CC = P63,750; DD - P5,625 Solution 1A Asset ability Capital 5,625.00 150,000.00 3,750.00 "158,375.00 33 150,000.00 DA ce DD Cash 37,500.00 9,375.00 Accounts Receivable 11,250.00 0.00 Inventories 16,875.00 _ 33,750.00 Equipment 15,000.00 _ 35,625.00 Total Assets 80,625.00 78,75 Accounts Payable 5,625.00 3,750.00 Capital 75,000.00 _75,000.00 Total Liabilities and Capital 80,625.00 78,750.00 Problem 4 (ReSA) On December 1, 2018, EE and FF formed a partnership agreeing to share for profits and losses in the ration of 2:3 respectively, EE invested a parcel of land that cost him 25,000. FF invested 30,000 cash. The land was sold for 50,000 on the same date, three hours after formation of the partnership. How much should be the capital balance of EE right after formation? a. 25,000 ¢. 60,000 b, 30,000 d. 50,000 Solution: The contribution of noncash assets to a partnership should be recorded based on their fair value, In this case, the fair value of the land would be measured by its sales price on the date of sale, PS0,000 Problem 5 (ReSA)On March 1, 2018, Coco and Martin formed a partnership with each contributing the following asset: Coco Martin Cash 300,000 700,000 Machinery and Equipment 250,000 750,000 Building = 2,250,000 Furniture and Fixtures 100,000 - The building is subject to mortgage loan of 800,000 which is to be assumed by the partnership agreement provides that Coco and Martin share profits and losses 30% and 70% respectively. On March 1, 2018 the balance in Martin's capital account should be ‘a. 3,700,000 . 3,050,000 b, 3,140,000 d. 2,900,000 Solution Cash 700,000.00 Machinery and Equipment 750,000.00 Building 2,250,000.00 Total assets invested 3,700,000.00 Mortgage assumed (800,000.00: Capital Balance of Martin _2,900,000.00 Problem 6 (PRTC) Baser and Michelle have just formed a partnership. Baser contributed cash of P920,000 and office equipment that costs P422,000. The equipment had been used in his sole proprietorship and had been 70% depreciated. The current value of the equipment is, 295,000. Baser also contributed a note payable of P&7,000 to be assumed by the partnership. The partners agreed on a profit and loss ratio of 50% each. Baser is to have 2 70% interest in the partnership. Michelle contributed only a merchandise inventory from her sole proprietorship carried at P550,000 on a first-in- first-out basis, The current fair value of the merchandise is P525,000. To consummate the formation of the partnership Baser should make additional investment or (withdrawal) of: ‘A. 224,000 B. P(30,000) Solution ¢. P97,000 (80,000)Michelle’s total contribution P 525,000 Interest Ratio 30% Total Capital P 1,750,000 Baser’s Ratio 70% Required capital of Baser P 1,225,000 Total contribution of Baser (920,000+295,000-87,000) (1,128,000) 97,000 Problem 7 (PRTC) In 2018, Norma and Celso agreed to form a new partnership under the following general agreements: Partners’ contributions will be on a %:4 ratio; (2) Profit and loss, 5:5, and (3) Capital credits 57:43 ratio, respectively to Norma and Celso. Their respective contributions will come from old proprietorships they owned. Norma contributed the following items and amounts Cash P 748,800 512,000 Equipment (at book value per her proprietorship records) Celso contributed the following items at their carrying amounts in the proprietorship records: Accounts receivable 96,000 Inventory 268,800 Furniture and fixtures 514,560, 220,800 Intangibles All the non-cash contributions are not properly valued. The two partners have agreed that (a) P7,680 of the accounts receivable are uncollectible; (b) the inventories are overstated by P19,200; (¢) the furniture and fixtures are understated by P11,520; and the intangibles include patent with a carrying value of P13,440, which must now be derecognized upon a court order. The rest of the intangible items are fairly valued 1, How much is the total depreciable fixed asset recorded by the partnership? a. P1,060,080 c. P1,116,480 b, P403,200 4, P1,041,480 2. What is the capital balance of Celso after the formation of the partnership? a. 1,036,541 ¢. 1,325,808 b. 1,339, 225 4. 1,071,360 Solution1D Celso’s Contribution @ BV P 1,100,160 Net decrease to FV Celso’s Contribution @ FV P 1,071,360 Contribution Ratio s/4 FV of Norma's Contribution P 1,339,200 Cash of Norma (748/800) FV equipment investment 590,400 FV of Furniture and Fixture 526.080 Total Fixed Assets P 4,116,480 2A Partner cc CNA Difference N P 1,374,019 P 1,339,200 P 34,819 c 1,036,541 1,071,360 (34,819) Total P 2,410,560 P 2,410,560 Problem 8 (PRTC) ‘A, B and C formed the ABC Partnership on July 1, 2018, with the following assets, measured at book values in their respective records, contributed by each partner: A 8 c Cash P 200,000 150,000 P 150,000 Accounts receivable 38,500 68,900 Inventory 135,000 118,000 67,000 Plant, Property and Equipment (PPE) 950,000 460,000 380,000 A part of A’s contribution, P25,000, comes from his personal borrowings. Also, the PPE of A and B are mortgaged with the bank for P160,000 and P16,500, respectively. The partnership is to assume responsibility for these PPE mortgages. The fair value of the accounts receivable contributed by C is P43,000 and her PPE at this date has a fair value 365,000. All the other assets contributed are fairly valued, The partners have agreed to share profits and losses on @ 5:3:2 ratio, to A, B and C, respectively. How much is the contribution of each partner? Calculate their contribution ratio.A B c Total Cash 200,000 150,000 150,000 500,000 Accounts Receivable 38,500 43,000 81,500 Inventory 135,000 118,000 67,000 320,000 PPE 950,000 460,000 365,000 775,000 Total Assets 1,285,000 766,500 625,000 2,676,500 Liabilities -160,000 16,500 -176,500 Net Asset 1,125,000 750,000 625,000_2,500,000 Net Assets Contribution Ratio A 1,125,000 45% B 750,000 30% c 625,000 25% Total 2,500,000 100% 2:500,000 100% What is the capital balance for each partner at July 1, inst agreed at 4:3:3 to A, B and C, respectively? Answer: A 1,000,000 (2,500,000 x 40%) B 750,000 (2,500,000 x 30%) c 750,000 (2,500,000 x 30%) Total 2,500,000 Problem 9 (PRTC) Roberts and Smith drafted 2 partnership agreement that contributed at the partnership's formation: Contributed by Roberts Cash 20,000 Inventory Building Furniture & Equipment 15,000 ‘ead, if the interest ratio is lists the following assets Smith 30,000 15,000 40,000 The building is subject to a mortgage of P 10,000, which the partnership has assumed. The partnership agreement also specifies that profits and losses are to be distributed evenly. 1, What amounts should be recorded as capital for Roberts and Smith at the formation of the partnership? Roberts Smith A. 35,000 85,000B. 35,000 75,000 cc. 55,000 55,000 D. 60,000 60,000 Solution: Roberts: 20,000 + 15,000 = P35, 000 Smith: 30,000 + 15,000 + 40,000 - 10,000 = P75,000 Problem 10 (PRTC) ‘The Grey and Redd Partnership was formed on January 2, 2010. Under the partnership. agreement, each partner has an equal initial capital balance. Partnership net income or loss is allocated 60% to Grey and 40% to Redd, To form the partnership, Grey originally contributed assets costing P30,000 with a fair value of 60,000 on January 2, 2010, and Redd contributed P20,000 cash. Drawings by the partners during 2010 totaled P3, 000 by Grey an P9,000 by Redd. The partnership net income in 2010 was P25,000 1, Under the goodwill method, what is Redd’s initial capital balance in the partnership? ‘A, 20,000 . 40,000 B, 25,000 D, 60,000 Solution: Contributed Capital Agreed Capital Increase (Decrease) Grey 60,000 60,000 Redd 20,000 60,000 40,000 Total 120,000 Problem 11 (CRC-ACE) On May 1, 2018, the business assets and liabilities of Nathan and Janice were as follows: ___Nathan Janice Cash 8,000.00 62,000.00 Receivables 200,000.00 600,000.00 Inventories 120,000.00 200,000.00 Land, Building and Equipment 650,000.00 535,000.00 Other Assets 2,000.00 3,000.00 Accounts Payable (180,000.00) (250,000.00)Nathan and Janice agreed to from a partnership by contributing their net assets, subject to the following adjustments: + Receivables of P20,000 in Nathan's books and P40,000 in Janice’s books are uncollectible. ‘+ Inventories of P6,000 and P7,000 in the respective books of Nathan and Janice are worthless + Other assets in both books are written off Upon the partnerships formation: 1. The respective capital of partners Nathan and Janice would be i 2. The total assets of the partnership would be Solution Nathan Janice Cash 8,000.00 62,000.00 Receivables 200,000.00 600,000.00 Inventories 120,000.00 200,000.00 Land Building and Equipment 650,000.00 $35,000.00 Other Assets 2,000.00 3,000.00 Accounts Payable (280,000.00) _ (250,000.00) 800,000.00 1,150,000.00 Uncollectible (20,000.00) (40,000.00) Inventories (6,000.00) (7,000.00) Written off (2,000.00) __(3,000.00) Total Copia v72.000.00 1100/0000 Problem 12 (CRC-ACE) James admits Dani as a partner in business. Accounts in the ledger of James on June 1, 2018, just before the admission of Dani, show the following balances: Cash 26,000 Accounts Payable P264,000 Accounts Receivable 120,000 James, Capital 62,000 Merchandise Inventory 180,000 It is agreed that for purposes of establishing James's interest, the following adjustments should be made: + An allowance for doubtful accounts of 2% of accounts receivable is to be established + The merchandise inventory is to be valued at P202,000.+ Prepaid expenses of P6,500 and accrued expenses of P4,000 are to be established Dani is to invest sufficient funds in order to receive a 1/3 interest in the partnership. 1. How much is the adjusted capital of James? 2. How much cash should Dani invest? 3. How much is the total assets of the partnership. Solution Cash 26,000.00 AIR 120,000.00 Merchandise Inventory 180,000.00 ap (264,000.00 —_ 62,000.00 29% Allow. For doubtful acc. (2,400.00) Merch. Inventory 22,000.00 Prepaid Exp. 6,500.00 Accrued Exp. 4,000.00) James adjusted cap. 2/3, 84,100.00 Dani 1/3 42,050.00 126,150.00 James Capital 84,100.00 Dani Capital 42,050.00 Accounts Payable 264,000.00 Accrued Expense Total Assets Problem 13 (CRC-ACE) The balance sheet as of July 31, 2018, for the business owned by Ethan, shows the following assets and liabilities: Cash 100,000 Fixtures 328,000 Accounts Receivable 268,000 Accounts Payable 57,600 Merchandise 440,000 It is estimated that 5% of the receivable will prove uncollectible. The cash balance includes 1,000 share certificates of PNB at its cost, P8,000; the stock last sold on themarket at 70.00 per share. Merchandise includes obsolete items costing P36,000 that will probably realize only P8,000. Depreciation has never been recorded; the fixtures are 2 years old, have an estimated life of 10 years, and would cost P480,000 if purchased new currently. Sundry prepaid items amount to P10,000. ava is to be admitted as a partner upon investing P400,000 cash and P200,000 merchandise. 1. What will be that total capital after the formation of the partnership? Solution Cash 100,000.00 AR 268,000.00 Merchandise 440,000.00 Fixtures 328,000.00 Acts. Payable 57,600.00: Unadjusted Cap. 1,078,400.00 Uncollectible (13,000.00) Share 62,000.00 Obsolete Merchandise (28,000.00) Prepaid Items 10,000.00 Depreciation 56,000.00 Investment ____ 600,000.00 Adjusted Capital _-1,765,400.00_ Problem 14 (CRC-ACE) Harold and Cherry are partners sharing profits 60:40. A balance sheet prepared for the partnership on April 1, 2018 shows the following: Cash 48,000.00 Accounts Payable 89,000 Accounts Receivable 92,000.00 Harold, capital 133,000 Inventory 165,000.00 Cherry, capital 108,000 Equipment 70,000.00 Accumulated Depreciation __ (45,000.00: Total Assets 330,000.00 330,000.00 On this date, the partners afree to admit lucas as a partner. The terms of the agreement is that assets and liabilities are to be restated as follows:An allowance for possible uncollectible of P4,500 is to be established Inventories are to be restated at their present replacement values of P170,000 Equipment are to be restated at a value of P35,000 Accrued expenses of P4,000 are to be recognized Harold, Cherry, and Lucas will divide profits in the ratio of 5:3:2. Capital balances for the new partners are to be in this ratio with Harold and Cherry making cash settlement outside of the partnership for the required capital adjustment between themselves and Lucas investing cash in the partnership for his interest. Questions: 1. How much cash Lucas should contribute? Solution H 136,900 17, 787.5 154,687.5 c 110,600 (17,787.5) L_6tg75_ 875 309,375 0 309,375 Problem 15 (CRC-ACE) Ferdinand and Daniel establish a partnership to operate a used-furniture business under the name of F and D Furniture. Ferdinand contributes furniture that cost P60,000 and has a fair value of P90,000. Daniel contributes P30,000 cash and delivery equipment that cost P40,000 and has a fair value of P30,000, the partners agree to share profits and losses 60% to Ferdinand and 40% to Daniel. 1. Calculate the peso amount of inequity that will result if the initial noncash. contributions of the partners are recorded at cost rather than fair market value. Solution F D T Should be 90,000 60,000 150,000 Recovered 60,000 70,000 130,000 Usb 30,000 10,000 20,000 Oshi 18,000 18,000 1.2 Partnership OperationsProblem 1 (ReSA) Left and Right are partners. Their capital accounts during 2019 were as follows: Left, Capital Right, Capital 8/23 P 3,000 | 1/1 15,000 3/5 P4,500 1/1 P 25,000 4/3 4,000 7/6, 3,500 10/31 3,000 10/7 2,500 Partnership net incbme is P25,000 for the year. The partnership agreement provides for the division of net income as follows: + Each partner is credited 10 percent interest on his or her average capital (rounded to the nearest month) + Because of prior work experience of, Left is entitled to an annual salary of P6,000 and Right is credited with P4,000 + Any remainder income or loss is to be allocated based on the beginning capital How much of the partnership net income for 2019 should be assigned to Left and Right? a. Left, P11,833.33; Right, P13,166.50 c. Left, P13,194; Right, P11,806 b. Left, P9,375; Right, P15,625 d. Left, P12,500; Right, P12,500 Solution Left Right Total Interest 1,750.00 2,362.50 4,112.50 Salaries 6,000.00 4,000.00 10,000.00 Balance 183.00 6,804.00 10,887.50 11,833.00 __ 13,166.50 25,000.00 Left Right 15,000 x 3 45,000.00 25,000 x 2 50,000.00 19,000 x 5 95,000.00 20,500 x 4 82,000.00 16,000 x 2 32,000.00 24,000 x 3 72,000.00 19,000 x 2 38,000.00 26,500 x3 79,500.00 210,000.00 283,500.00 Divide: 12 12 Average Average Capital 17,500.00 Capital 23,625.00 Problem 2 (ReSA)Hunt, Rob, Turman and Kelly own a publishing company that they operate as a partnership. The partnership agreement includes the following: + Hunt receives a salary of P10,000 and a bonus of 3% of income after all bonuses. ‘+ Rob receives a salary of P5,000 and a bonus of 2% of income after all bonuses. + All partners are to receive 10% interest on their average capital balances. The average capital balances are Hunt, 25,000; Rob, P22,500; Turman, P10,000 and Kelly, P23,500. Any remaining profit and losses are to be allocated among the partners. a. Hunt, P20,725; Rob, P14,975; Turman, P7,725; Kelly, P9,075 b, Hunt, P14,000; Rob, P8,250; Turman, P1,000; Kelly, P2,350 c. Hunt, P19,850; Rob, P14,600; Turman, P8,350; Kelly, P9,700 d. Cannot be determined. Solution Hunt Rob Turman Kelly Total Salary 10,000.00 5,000.00 - - 15,000.00 10% Interest 2,500.00 2,250.00 1,000.00 2,350.00 «8,100.00 Bonus 1,500.00 1,000.00 : : 2,500.00 Balance Equally 6,725.00 6,725.00 __ 6,725.00 __6,725.00__ 26,900.00 52,500.00 Problem 3 (ReSA) PP and QQ are partners operating @ chain of retail stores. The partnership agreement provides for the following PP QQ SAlAMICS oc rnnnesnnnnnsnnnnns 5,000 P2,500 Interest on capital balances ....... 10% 10% Bonus .... seni 20% of net income before interest but after bonus & salaries Remainder 30% 70% The income summary account for year 2019 shows a credit balance of P25,000 before any deductions, Average capital balances for PP and QQ are P25,000 and P37,500, respectively. The share of PP and QQ in the P25,500 net income would be: a. PP, 12,031.25; QQ, P13,468.75, ¢. PP, P11,750; QQ, P13,750 b. PP, P13,275.75; QQ, P12,229.25 dd. PP, P13,125; QQ, P12,375PP. Total Salaries 5,000.00 2,500.00 7,500.00 10% Interest 2,500.00 3,750.00 6,250.00 Bonus 3,000.00 - 3,000.00 Balance 30%, 70% 2,625.00 6,125.00 50.00 13,125.00 12,375.00 25,500.00 Problem 4 (ReSA) XX and YY formed a partnership on January 2, 2019 and agreed to share profits and loss in the ratio of 90% and 10%, respectively. XX contributed capital of P6,250. YY contributed no capital but has a specialized expertise and manages the firm full time. ‘There were no withdrawals during the year. The partnership agreement provides for the following: ‘+ Capital accounts are to be credited annually wit capital + Y¥is to be paid a salary of P250 a month + YY is to receive a bonus of 20% of net income calculated before deducting his salary and interest on both capital accounts + Bonus, interest, and Y's salary are to be considered as partnership expenses interest at 5% of the beginning The partnership's income statement for 2019 follows Revenues 24,112.50 Less: Expenses (including salary, interest, and bonus) 12,425.00 Net Income .... sna 11,687.50 1. What is YY's 2019 bonus? a. P2,922.00 ©. P3,750.00 b. 3,000.00 d, P3,934.50 2. How much is the total share of YY on the 2019 partnership net income? a. P7,084.50 ©. P7,918.75 b. P7,162.50 d. P8,097.00 Solution1c Net Income after salaries interest and bonus 11,687.50 Salaries 3,000.00 Interest 312.50 Net income after bonus 15,000.00) Divide 80% Net income before salaries, interest and bonus 18,750.00 20% Bonus 3,750.00 2 XX yy. Total 52% Interest 312.50 - 312.50 Salaries - 3,000.00 3,000.00 Bonus - 3,750.00 3,750.00 Balance 9:1 10,518.25 1,168.75 11,687.00 Share in Net Income 10,830.75 7,918.75 18,749.50 Problem 5 (ReSA) The Trading Company, @ partnership, was formed on January 1, 2019, with four partners, DD, EE, FF, and GG. Capital contributions were as follows: DD, P25,000; EE, P12,500; FF, P12,500; GG, P10,000. The partnership agreement provides that partners shall receive 5% interest in the amounts of their capital contributions. In addition, DD is to receive a salary of P2,500 and EE a salary of P1,500. The agreement further provides that FF shall receive a minimum of P1,250 per annum from the partnership and GG a minimum of P3,000 per annum, both including amounts allowed as interest on capital and their respective shares of profits. The balance of the profits is to be shared in the following proportions: DD, 30%; EE, 30%; FF, 20%; and GG, 20%, Calculate the amount that must be earned by the partnership during 2019, before any charges for interest on capital or partners’ salaries, in order that DD may receive an aggregate of 6,250 including interest, salaries and share of profits. a. P 8,333.33 c. P15,333.33 b. P 15,000.00 d. P16,166.67 SolutionoD EE FF GG Total Salaries 2,500.00 1,500.00 0.00) 0.00 4,000.00 Interest 1,250.00 625.00 625.00 500.00 3,000.00 Balance 2,500.00 2,500.00 1,666.00 1,667.00 8,333.00 6,250.00 4,625.00 2,291.00 2,167.00 15,333.00 833.00 833.00 3,000.00 __ 16,166.00 Problem 6 (CRC-ACE) David and Ruby organized the DR Partnership on January 1, 2018. the following entries were made in their capital accounts during 2018: Debi Credit David, capital: January 1 180,000.00 April 50,000.00 October 1 10,000.00 Ruby, capital January 1 60,000.00 March 1 10,000.00 September 20,000.00 November 1 10,000.00 Required: If the partnership net income, computed before salaries, interest and bonus is P56,000 for 2018, indicate 's division between the partners under each of the following independent profit-sharing agreements: ‘a, Interest at 4% is allowed on average capital investments, and the balance is divided equally. b. A salary of P24,000 is to be credited to Ruby, 4% interest is allowed on each partner on their ending capital balance, and the balance in the ratio of beginning capital balances. ¢. Salaries allowed to David and Ruby in the amounts of 34,000 and P38,000. respectively, and remaining profits ad losses are divided in the ratio of average capital balances. d. A bonus of 10% of partnership net income is credited to David, a salary of DAVID P16,000 is allowed to Ruby, and remaining profits and losses are shared equally. (The bonus is regarded as an expense for purposes of calculating the bonus amount). RUBY43,101 43,191 43,374 A. INTERES T BALANCE 8, SALARIE s INTERES T BALANCE 180,000 (50,000) (10,000) 120,000, DAVID 5,600 24,000 29,600 DAVID 4,800 18,000 12/12 9/12 #3/12 RUBY 2,400 24,000 26,400 Problem 7 (CRC-ACE) 180,000 (37,500) 2,500) 140,000. TOTAL 8,000 48,000 56,000 TOTAL 24,000 8,000 24,000 6,000 43,101 43,160 43,344 43,405 ¢ SALARIE s BALANCE D. SALARY BONUS BALANCE 60,000 (10,000) 20,000 10,000 80,000 DAVID 34,000 11,200) 22,800 DAVID 5,091 ALASS. 22,546 12/12 10/12 4/12 2/12 AVE CAP RUBY 38,000 4,800) 33,200 RUBY 16,000 33,455 60,000 8,333 6,667 1,565. 60,000 TOTAL 72,000 (16,000) 56,000 TOTAL 16,000 5,091 34,909 56,000 X,Y and Z, doctors, agree to form a partnership and to share profits in the ratio 5:3:2. they also agreed that Z is to be allowed a salary of P140,000 and that Y is to be guaranteed P105,000 higher as his share of the profits. During the first year of Operations, income from fees are P900,000, while expenses total P480,000. How much of the profits should be credited to X?, to Y? to Z?,Solution x Y z TOTAL SALARY 140,000 140,000 BALANC __ — E 140,000 84,000 56,000 280,000 140,000 84,000 196,000 420,000 (48,000) 21,000 © (6,000) PROFIT 125,000 105,000 190,000 420,000 Problem 8 (CRC-ACE) Partners L and M share profits 3:1 after annual salary allowances of P400,000 and P60,000, respectively; however, if profits are not adequate to meet the salary allowances, the entire profit is tobe divided in the salary ratio. Profits of P90,000 were reported for the year 2018. in 2019 it is ascertained that in calculating net income for the year ended December 31, 2018, depreciation was overstated by P36,000 and ending inventory was understated by P80,000. What adjustments should be made on the capital of L and M? Adjusting entry needed to correct the partner's capital balances. Solution L M TOTAL 40,000 60,000 100,000 25,500 8500 34,000 SHOULD BE 65,500 68,500 134,000 MADE (36,000) (54,000) (90,000) ADJUSTMENTS 29,500 14,500. 44,000 ENTRIES MDSE 8,000 AD 36,00029,500 M 14,500 Problem 9 (CRC-ACE) NEGOSYO TO Company @ partnership was formed on January 1, 2018, with four partners, C, P, A and S. Capital contributions were as follows: C- Pi,000,000; P- 500,000; A- P500,000; and S- P400,000. the partnership agreement provides that each partner shall receive S%interest on the amount of his capital contribution. In addition, C is to receive a salary of P100,000 and P a salary of P60,000 which are to be charged as expenses of the business. The agreement provides that A shall receive a minimum of P50,000 per annum from the partnership and S a minimum of P120,000 per annum, both including amounts allowed as interest on capital and their respective shares of profits. The balance of the profits to be shared in the following proportions: C- 30%; P- 30% A- 20% and S-20%, Calculate the amount that must be earned by the partnership during 2018, before any charge for interest on capital or partners * salaries, in order that C may receive an aggregate of P250,000, including interest, salary and share of profits. Solution c P A s TOTAL INTERES T 50,000 25,000 25,000 20,000 120,000 SALARIE s 100,000 60,000 160,000 BALANCE 100,000 100,000 66,667 66,666 333,333. 250,000 185,000 91,667 86,666 613,333 33,334 33,334 250,000 185.000 91.667 120,000 646,667. 50,000 25,000 25,000 20,000 120,000 Problem 10 (CRC-ACE) The following account balances appear in the ledger for the firm of X and Y at the end of 2018 before the profit for the year has been transferred to the partner's accounts: X, drawing 72,000.00 Y, drawing 125,000.00 X, loan 175,000.00 X, capital 500,000.00 Y, capital 500,000.00 Profit and loss 302,250.00The following information is to be considered in closing the profit and loss account and the drawing accounts + The cost of installing equipment at the beginning of 2018, P27,000, was charged to expense. The installation relates to equipment with a 10-year life. + The loan to the firm was made by X on March 1, 2018. No entry has been made for interest on the loan, which is 6% and is to be paid to X at the time the loan is prepaid. ‘The partnership agreement permits X and Y to withdraw weekly sums of P1,500 and P2,250, respectively, these amounts to be regarded as salaries. Actual withdrawals by partners differed from allowed amounts and are summarized in the drawing accounts. Y, the managing partner, is entitled to special bonus of 25% of the net profit after deduction of all special allowances to partners (including the bonus), and any remaining profit is to be distributed equally. 1. How much should be the Dec. 31 ending capital balance of each partner? Solution: 302,5 PROFIT AND LOSS 00 SALARIE 27,0 s INSTALLATION 00 B ACCUP. DEP. 2.700 BALANC 326,8 E 00 INTEREST 8.750, DRAWIN 318,0 6 ADJUSTED PROFIT 50 5,220 5,830 CAPITAL 0,000 0,000. 55 56 5,220 5,830 Problem 11 (PRTC) Linda and Mario created a partnership to own and operate a health-food store. The partnership agreement provided that Linda receives an annual salary of P10,000 and Mario a salary of P5,000 to recognize their relative time spent in operating the store. Remaining profits and losses were divided 60:40 to Linda and Mario, respectively. Income of P13,000 for 2017, the first year of operations, was allocated P8,800 to Linda and P4,200 to Mario. On January 1, 2018, the partnership agreement was changed to reflect the fact that Mario could no longer devote any time to the store's operations. The new agreement allows Linda a salary of P18,000, and the remaining profits and losses are divided equally. In 2018, an error was discovered such that 2017 reported income was understated by 4,000. The partnership income of P25,000 for 2018 included this 4,000 related to 2017.1. In the reported new income of P25,000 for the year 2018, Linda would have ‘A. P21,900 B. P17,100 B. PO D. P12,500 Solution 2018 income to allocate (25,000-4000=21,000) Linda Mario Total Salary 18,000 18,000 Remainder to divide | 1 soo 1,500 3,000 income 2017 aaaerstatement 2,400 1,600 4,000 21,900 3,100 Problem 12 (PRTC) Derha, a senior partner in a law firm, has a 30% participation in the firm's profit and losses. During 2018, Derha withdrew P130,000 against her capital but contributed property with a fair value of P25,000. Derha’s capital increased by P15,000 during 2018. 2. The net income of the partnership for 2018 is A. P150,000 . P.350,000 B. P400,000 D. P550,000 Solutioy Increase in Capital P 15,000 Contributed Property (25,000) Withdrawal 130,000 Share in Net Income 120,000 Ratio 30% Net Income of Partnership 400,000 Problem 13 (PRTC) Elmo, Fred and Greg invest P40,000, P30,000 and P25,000 respectively, in a partnership on June 30, 2017, They agree to divide net income or loss as follows: A. Interest at 10% on beginning capital account balances B, Salaries of P10,000, P8,000 and P6,000, respectively to Elmo, Fred and Greg, respectively. C. Remaining net income or loss is divided equally D. A minimum of P18,000 of income is guaranteed to Greg regardless of the result of operations. 3. If the net income for the year ended June 30, 2018 before interest and salaries allowances to partners was P44,000, the amount of the net income credited to Elmo is: A, P21,875 ¢, P18,334 B. P20,000 D, P14,500Solution Elmo Fred Greg Total Interest 4,000, 3,000 2,500 9,500 Salaries 10,000 8,000 6,000 24,000 Unallocated 3,500 3,500 3,500 10,500 Unadjusted share 17,500 14,500 12,000 44,000 qiarantes | (3,000) (3,000) 6,000 - Net Income 14,500 11,500 18,000 44,000 Problem 14 (PRTC) X, Y and Z are partners with average capital balances during 2018 of P120,000, P60,000 and P40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting salaries of P30,000 to X and P20,000 to Y, the residual profit or loss is divided equally. In 2018 the partnership sustained a P33,000 loss before interest and salaries to partners. 4. By what amount should X’s capital account change? A. P7,000 increase C. P11,000 decrease B. P35,000 decrease D. P42,000 increase Solution: x Y Zz Total Interest 12,000 6,000 4,000 22,000 Salaries 30,000 20,000 = 50,000 Unallocated (35,000) (35,000) (35,000) (105,000) Total 7,000 (9,000) (31,000) (33,000Problem 15 (PRTC) Partners Joyce and Marie share profits 3:1 after annual salary allowances of P4,000 and 6,000 respectively; however, if profits are not adequate to meet the salary allowances, the entire profit is to be divided in the salary ratio. Profits of P9,000 were reported for the year 2017. in 2018, it is ascertained that in calculating net income for the year ended December 31, 2017, depreciation was overstated by P3,600 and the ending inventory was understated by P800. 5. The amount of the net adjustments in the books of Joyce and Marie are: Joyce Marie A P(3,699) P(1,813) B P2,950 P1,450 c P8,188 P8,563 D 2,300 P3,475 Solution 2017 Net Income = 9,000 Joyce Marie Total 4:6 Ratio 3,600 5,400 9,000 2017 corrected Net Income = 9,000 + 3,600 + 800 = 13,400 Salaries 4,000 6,000 10,000 Unallocated (3:1) _2,550 850 3,400 Total 6,550 6,850 13,400 Ratio (3600.00) _(5400.00) Distribution 2,950 1,4501.3 Partnership Dissolution Problem 1 (ReSA) A partnership had the following condensed balance sheet: Assets Liabilities and Capital Cash 2,500.00 Liabilities 7,500.00 32,500.0 Noneash Assets o XX Capital (80%) 20,000.00 XX Loan 2,500.00 YY Capital (20%) _10,000.00 37,500.0 Total oO 37,500.00 The percentages in parentheses after the partner's capital balances represent their respective interests in profits and losses. The partners agree admit ZZ as a member of the firm. 1. ZZ purchases a % interest in the firm. One fourth of each partner's capital is to be transferred to the new partner. ZZ pays the partners which is divided between them in proportion to the equities given up. The capital balances of XX, YY, and ZZ after should be: XX YY ZZ xX ow. zz a. 15,000 7,500 9,375 ©. 15,000 7,500 7,500 b. 12,500 12,500 12,500 d. 10,000 10,000 10,000 Solution x X (20,000 x 3/4) 15,000.00 YY (10,000 x 3/4) 7,500.00 Zz Z (30,000 x 1/4) 7,500.00 30,000.00 Problem 2 (ReSA) WW desires to purchase a one-fourth capital and profit and loss interest in the partnership of EE, GG, DD. The three partners agree to sell WW a one fourth of their respective capital and profit and loss interest in exchange for a total payment of 40,000. The capital accounts and the respective percentage interest in profits and losses immediately before the sale to WW are: EE, capital (60%) 80,000.00 GG, capital (30%) 40,000.00 DD, capital (10%) 20,000.00Total 140,000.00 All other assets and liabilities are fairly valued and with no adjustments is to be recorded prior to the acquisition by WW immediately after WW's acquisition, what would be the capital balances of EE, GG and DD respectively? a, 60,000; 30,000; 15,000 ¢. 77,000; 38,500; 19,500 b. 69,000; 34,500; 16,500 d. 92,000; 46,000; 22,000 Solution EE (80,000 x 3/4) 60,000.00 6 G (40,000 x 3/4) 30,000.00 D D (20,000 x 3/4) 15,000.00 105,000.00 Problem 3 (ReSA) The following condensed balance sheet is presented for the partnership of AA and BB who share profit and losses in the ratio of 6:4 respectively: Cash 33,750.00 Other Asset 468,750.00 BB, loan 22,500.00 525,000.00 Accounts Payable 90,000.00 AA, capital 261,000.00 BB, capital 174,000.00 525,000.00 The assets and liabilities are fairly valued on the balance sheet. AA and BB decide to admit CC as a new partner with 20% interest. No bonus or goodwill is to be recorded What amount should CC contribute or invest in cash and other assets? a. 82,500 . 105,000 b. 87,000 d. 108,750Solution AA, capital 261,000.00 BB, capital 174,000.00 Total 435,000.00 Divide 80% Total Agreed Capital 543,750.00 CC's interest 20% 108,750.00 Problem 4 (ReSA) Xx and YY are partners who have capital balances of 300,000 and 240,000 sharing profits in the ratio of 3:2. ZZ is admitted as a partner upon investing 250,000 for a 25% interest in the firm, profits are to be allocated equally. Given the choice between goodwill and bonus method, ZZ will: . Prefer bonus method due to 22’s gain of 17,500 Prefer bonus method due to 22's gain of 70,000 Prefer goodwill method due to 22's gain of 70,000 Be indifferent for the goodwill and bonus methods are the same aoop Solution Bonus Method: cc ac Bonus x X 300,000,00 331,500,00 31,500.00 3/5 YY ___240,000.00 261,000.00 _21,000.00_ 2/5 540,000.00 592,500.00 52,500.00 Zz Z __ 250,000.00 197,500.00 (52,500.00) 790,000.00 790,000.00 - Goodwill Method: cc ac Goodwill XX 300,000.00 426,000.00 126,000.00 Yy ___ 240,000.00 __ 324,000.00 84,000.00 540,000.00 750,000.00 210,000.00 ZZ ____250,000.00__ 250,000.00 -790,000.00 1,000,000.00 210,000.00 For purposes of comparing bonus and goodwill, goodwill is assumed not realized and it should be written off outright as a loss, therefore: XX yw zz Capital balance if Goodwill method is used 426,000.00 324,000.00 250,000.00 Less: write off of Goodwill (equally) 70,000.00) _ (70,000.00) 70,000.00) Capital balance after write off of goodwill 356,000.00 254,000.00 180,000.00 Capital balance of Bonus method is used __ 331,500.00 _261,000.00__ 197,500.00 Gain (loss) if Bonus method is used 24,500.00 (7,000.00) —-47,500.00 Problem 5 (ReSA) DD, EE and FF are partners sharing profits and losses of 50%, 30% and 20% respectively. The December 31, 2019 balance sheet of the partnership before any profit allocation was summarized as follows: ASSETS LIABILITES AND CAPITAL Cash 60,000.00 Accounts Payable 4,000.00 Inventories 40,000.00 FF, loan 3,000.00 Furn, & Fixt (net) 50,000.00 DD, capital 70,000.00 Patent 15,000.00 EE, capital 60,000.00 FF, capital 30,000.00 FF, drawings 2,000.00 Total Assets 165,000.00 Total Liabilities and Capital 165,000.00 The partnership net income for the year amounted to 30,000, On January 1, 2020, FF has decided to retire from the partnership and by mutual agreement among partners; the following have been arrived at: ‘a, Inventories amounting to 5,000 is considered obsolete and must be written off b. Furniture and fixtures should be adjusted to their current value of 65,000 c. Patents are considered worthless and must be written off immediately before the retirement of FF It was agreed that the partners will pay FF for his interest in the partnership inclusive of loan balance 1. The interest of FF immediately before his retirement amounted to: a. 37,000 ¢. 35,000 b. 36,000 d. 24,0002. FF retires by receiving 36,000 cash payment at book value, the capital balances of DD and EE after the retirement of FF: a. DD, 82,500; EE, 67,500 ¢. DD, 67,500; EE, 58,500 b. DD, 85,000; EE, 69,000 d. DD, 57,500’ EE, 52,500 3. FF retires by receiving 38,000 cash (payment at more than book value), using bonus method, the capital balances of DD and E€ after the retirement of FF: 2, DD, 81,250; EE, 66,750 ¢. DD, 81,875; EE, 67,125 b. DD, 83,750; EE, 68,250 d. DD, 82,500; EE, 67,500 4, FF retires by receiving 38,000 cash (payment at more than book value), using total implied goodwill method, the capital balances of DD and EE after the retirement of FF: 2, DD, 87,500; EE, 70,500 ¢. DD, 81,875; EE, 67,125 b. DD, 83,750; EE, 68,250 d. DD, 82,500; EE, 67,500 Solution: 1B 28 DD EE FF Unadjusted Capital 70,000.00 60,000.00 30,000.00 Share in Net Income 15,000.00 9,000.00 __6,000.00 Total 85,000.00 69,000.00 10 Inventories written off (2,500.00) (1,500.00) ~ (1,000.00) Furniture and Fixtures 7,500.00 4,500.00 3,000.00 Patent 7,500.00) (4,500.00) _ (3,000.00: Adjusted Capital 35,000.00 3A Bonus Method (38,000-36,000) 2,000 DD EE Capital 82,500.00 67,500.00 (2,000 x 5/8) (1,250.00) (2,000 x 3/8) (750.00) Capital Balances 81,250.00 66,750.00DD EE Capital 82,500.00 67,500.00 (10,000 x 50%) 5,000.00 (10,000 x 30%) 3,000.00 Capital Balances 87,500.00 70,500.00 Problem 6 (PRTC) The capital accounts of the Sarah and Opel partnership on January 1, 2018 were: Sarah, Capital (75% profit percentage) P 140,000 Opel, Capital (25% profit percentge) 60,000 Total Capital P 200,000 On October 1, Tina was admitted for a 40% interest in the partnership when she purchased 40% of each existing partner's capital for P100,000, paid directly to Sarah and Opel. The partnership's net income for the year is P82,500 and 2/3 of it was earned in the last quarter of the year. 1. What are the capital balances of Sarah, Opel and Tina after Tina’s admission to the partnership? A. P105,000; P45,000; P100,000 B. P135,875; P55,313; P127,500 C. P96,375; P40,125; P91,000 D. P112,500; P50,000; P87,500 Solution Sarah Opel Tina Total Beginning Balance 140,000 60,000 200,000 Net Income (27,500) 20,625, 6,875 27,500 Adjusted Net 160,625 66,875 227,500 Income Purchase Interest _(64,250) (26,750) 91,000 Ending Balance _ 96,375 40,125 91,000 227,500 2. How much will Sarah receive from the above transaction? A. P71,000 C. P86,250B. P92,500 D. P118,750 Solution: Sarah 64,250 6,750 71,000 Opel 29,000 Total 9,000 100,000 3. Assume Tina is admitted by investing the P100,000 into the partnership for a 40% interest, how much is the ending capital balance of Opel after admission and the bonus (given)/received to/from Tina? A. P68,750; (P6,250) C. P89,063; P5313 B, P79,063; (P13,125) D. P59,125;(P7,750) Solution Interest Ratio Partner TAC CAN Difference Sarah 137,375 160,625 (23,250) Opel 59,125 66,875 (7,750) 40% Tina 131,000 31,000 Total 3,275,000 327,500 0 Problem 7 (PRTC) The balance sheet at December 31, 2018, for the Beth, Daisy and Maya partnership is, summarized as follow: Daisy is retiring from the partnership. The partners agreed that the partnership assets, Assets P 1,000,000 Liabilities P 250,000 Loan to Daisy 125,000 Beth Capital (50%) 375,000 Daisy Capital (40%) 375,000 Maya Capital (10%) 125,000 Total P 1,125,000 Total P1,1125,000 excluding Daisy's loan, should be adjusted to their fair market value of P1,250,000 and that Daisy should receive P380,000 for her capital balance net of the P125,000 loan How much is the capital balance of Beth and Maya immediately after Daisy's retirement. ‘A, P475,000; P145,000 C. P481,250; P146,250 B. P500,000; P150,000 D. P385,416; P127,084Solution Beth Daisy Maya Total Beg. Balance 375,000 375,000 125,000 875,000 Adjusment 125,000 100,000 25,000 250,000 Adjusted interest 500,000 475,000 150,000 1,125,000 Total Cash paid to Daisy -505,000 -505,000 Bonus -25,000 30,000 -5,000 o End. Balance 475,000 ___ 0 145,000 __ 620,000 Problem 8 (PRTC) On January 2, 2018, Lexy and Ace dissolve their partnership and transfer all assets and liabilities to a newly formed corporation. At the date of incorporation, the fair value of the net assets was P22,500 more than the carrying amount on the partnership's books. Of which P12,500 was assigned to tangible assets and P10,000 was assigned to patent. Lexy and Ace were each issued 5,000 shares of the corporations P12.50 par common stock. 5, Immediately following incorporation, additional paid-in capital in excess of par should be credited for A. P160,000 ¢, P25,000 B, P47,500 D. P137,500 Solution (250,000+22,500 FV of Net Assets) 172,500 PV of shares issued (10,000x12.5) 125,000. APIC 47,500 Problem 9 (PRTC) On June 30, 2017, the balance sheet for the partnership of D, E and F, together with their respective profit and loss ratios, is summarized as follows: Assets, at cost. P 375,000 D, Loan P 18,750 D, Capital (20%) 87,500 E, Capital (20%) 61,250F, Capital (60%) 187,500 Total P 375,000 D has decided to retire from the partnership, and by mutual agreement the assets are to be adjusted to their fair value of P450,000 at June 30, 2018. It is agreed that the partnership will pay D P127,500 cash for his partnership interest exclusive of his loan, Which is to be repaid in full. 1. After D's reti respectively? ment, what are the capital account balances of partners E and F, ‘A. P81,250 and P187,500 C. P121,250 and P307,500 B. P90,000 and P213,750 D. P96,250 and P232,500 Solution: D E F Total Beg. Balance 87,500 81,250 187,500 356,250 Adjustment 15,000 15,000 45,000 75,000 Adjusted Balance 102,500 96,250 232,500 431,250 Cash Paid (127,500) (127,500) Bonus 25,000 (6,250) (18,750) 90,000 _ 213,750 Problem 10 (PRTC) Partners Boba and Tess, who share profits and losses equally, have decided to incorporate the partnership at December 31, 2018. The partnership net assets after the following adjustments will be contributed in exchange for share of stocks from the corporation. 1. Provision of allowance for doubtful accounts, P6,250 IL. Adjustment of overstated equipment by P2,500 IIL. Adjustment of understated inventory by P13,750 and IV. Recognition of additional depreciation of P5,000. The corporation's ordinary share is to have a par value of P25 each and the partners are to be issued corresponding shares equivalent to 80% of their adjusted capital balances. The partnership balance sheet at December 31, 2018 follows: Cash P 112,500 Liabilities P 107,500 Accounts Receivable 62,500 Accounts Payable 5,000 Inventory 87,500 Boba, Capital 106,250 Equipment 50,000 Tess, Capital 93,750 Total P 312,500 Total P 312,5001. Determine the total credit to APIC upon incorporation of partnership A. P61,875 ¢. P40,000 B. P144,375 D. P140,000 Solution: BV of Net Asset (106,250 + 93, 750) 200,000 Net Adjustment - a 200,000 PV of Shares (200,000 x 80%) (160,000) Total credit of APIC for the excess of credits 40,000 2. The number of ordinary shares issued to Partner Tess is A. 210 ¢. 238 B, 300 D. 217 Solution: Tess! FV contribution 93,750 80% PV of share issued to Tess 75,000 Number of shares received by Tess /250 300 Problem 11 (CRC-ACE) Capital balances and profit sharing percentages for the partnership of Aaron, Nimrod, and Elijah on January 1,2018 are as follows: Aaron (36%) P140,000 Nimrod (24%) 100,000 Elijah (40%) 160,000 On January 2,2018 the partners agree to admit Ruth in the partnership for a 25% interest in capital and earnings for her investment in the partnership of P120,000. Partnership are not to be revalued. a, The capital balance of Aaron, Nimrod, Elijah and Ruth, immediately after the admission of Ruth would be: b. What will be new profit and loss ratio for Aaron, Nimrod, Elijah, and Ruth, if old partners will share profits using the old ratio? Solution: TAC 8A 140,000 (36,000) «136,400 27% N 100,000 (2,400) 97,600 18% — 160,000 (4,000) 156,000 30% R 20,000 10,000) __130,000 _25% T 520,000 0 520,000 100% Problem 12 (CRC-ACE) The balance sheet of Dylan and Samuel Partnership at December 31, 218, appears below: Assets: u st Cash P15,000 Accounts Payable P35,000 Accounts Receivable (net) 45,000 Notes Payable 25,000 Inventories 75,000 Accrued Liabilities 40,000 PPE (net) 225,000 Mortgage Payable 110,000 Dylan, Capital 60,000 Samuel. Capital 20,000 P360,000 P360,000 Determine the capital balances of partners immediately after the admission of Sebastian under the ff. independent situations: 2. Sebastian acquired 25% interest in the partnership capital directly from Dylan ‘and Samuel for PS0,000. Sebastian paid P18,750 directly from Dylan and P31,250 directly to Samuel, Total Assets of the partnership after the admission of Sebastian were P360,000. How much must be the capital balance of Dylan immediately after the admission of Sebastian b, Assume the same facts as in a except that total assets of the partnership were P410,000 after the admission of Sebastian. At January 1,2019, inventories had a fair value of P85,000, while PPE (net) had a fair value of 265,000. Both Dylan and Samuel decided to revalue the partnership's assets before the admission of Sebastian. Determine the capital balance of Samuel immediately after the admission of Sebastian ¢. Sebastian acquired 2 25% interest in capital by investing P50,000 of cash into the partnership. Total capital of the Dylan-Samuel-Sebastian Partnership on January 1,2019, amounted to P200,000. Determine the capital balance of Sebastian immediately after his admissiond. Sebastian acquired 25% interest in capital by investing P80,000 of cash into the partnership. Total capital of the Dylan-Samuel-Sebastian Partnership after Sebastian's admission amounted to P320,000. The fair value of the inventories was P85,000 and the fair value of the PPE (net) was P305,000 on January 1,2019. Determine the capital balance of Dylan, Samuel and Sebastian immediately after Sebastian's admission. Solution B D 60,000 15,000 3,750 s 90,000 22,500 8,750 s 50,000 200,00 a A D S TOTAL CAPITALSOLD 13,750 23,750 37,500 GAIN/BONUS, 5,000 7.500 12,500 SELLING PRICE 18,750 31,250 50,000 60,000+3,750= 46,250 B. D D SEB TOTAL SEB.CA 150,00 Pp 50,000 60,000 90,000 ° ° 200,00 REVAL, TAC © 20,000 30,000 © 50,000 Tce 150,00 120,00 200,00 VAL. 0 80,000 o 0 0 400,00 50,00 200,00 O 18,750 31,250 Q Q 61,250 c Tec D 60,000 s s 50,000 200,00 0 BONUS METHOD D. D 60,000 36,000 96,000 s 90,000 54,000 144,00° s 80,000 80,000 230,00 320,00 0 90,000 0 Problem 13 (CRC-ACE) 1. A, B and C have capital balances of P112,000, P130,000 and P58,000, respectively and share profits in the ratio 3:2:1. D invest cash in the partnership fora % interest. a. D receives a % interest in the assets of the partnership, which includes credit for 25,000 of goodwill that is recognized upon admission, How much cash D invest? b. D receives a % interest in the assets of the partnership and B is credited with P15,000 of the bonus from D, how much cash D invest? Solution A Tec 112,00 A 0 130,00 B 0 c 58,000 300,000 25,00 100,00 D 75,000 0 o 375,00 25,00 0 0 400,000 B. 112,00 22,50 A 0 0 130,00 15,00 B 0 0 c 58,000 7,500 160,00 45,00 115,00 D 9 9 ° 460,00 o 9 460,000 Problem 14 (CRC-ACE) L, Mand M are partners sharing profits in the ratio of 3:2:1, respectively. Capital accounts are P500,000. P300,000 and P200,000 on December 31,2018, when N decides to withdraw. It is agreed to pay P300,000 for Ns interest. Profits after the withdrawal of N are to be shared equally.Questions: a. Using the bonus approach, how much are the capital balances of L and M after N's withdrawal? b. Using the goodwill approach, how much are the capital balances of L and M after N's withdrawal? Solution: A L M 440,0 260,0 cap 00 oo N 200,00 cap. 0 L 60,000 M 40,000 300,00 CASH 0 B, VALUATION L M 600,0 800,0 500,0 00 00 00 600,00 ASSET 0 300,00 cu 0 200,00 M 0 100,00 N 0 Problem 15 (CRC-ACE)©, P and Q share profits in the ratio of 5:3:2, Q is permitted to withdraw from the firm on December 31, 2018. Profits after withdrawal of Q are to be shared 3:2. The partnership balance sheet on this date is as follows: Receivable from Q P10,000 Liabilities 80,000 Goodwill 80,000 Payable to P_ 30,000 Other Assets 190,000 0, capital 70,000 Solution P, capital 60,000 Q capital 40,000 280,000 280,000 Assuming that Q is paid P44,000 in full settlement of the capital interest and P10,000 claim balance, using the bonus method of recording the withdrawal of Q, how much are the capital balances of O and P after Q's withdrawal? Using the data in question A, using the goodwill method of recording the withdrawal of Q, how much are the capital balances of O and P after Q's withdrawal? A PAID 44,000 CAP. — -30,000 BONUS 14,000 14,000*5/8 8,750-70,000= 61,250 O 5,250-60,000= 54,750 Pp QcAP 40,000 O-cAP 8,750 P CAP 5,250 RIBLE OF Q 10,000 CASH 10,000 B, 44,000 =30,000 14,000 SHARE OF Q IN VALUATION70,000 1.4 Partnership Liquidation Problem 1 (ReSA) On December 31, 2019, the accounting record of MM, NN, OO Partnership (a general partnership) included the following ledger account balances: Dr.) Cr. MM, drawing (15,000.00) 00, drawing (5,625.00) NN, loan 18,750.00 MM, capital 76,875.00 NN, capital 62,812.50 00, capital 67,500.00 Total assets of the partnership amounted to P299,062.50 including P32,812.50 cash and partnership liabilities totalled, P93,750. The partnership was liquidated on December 31, 2019 and OO received P52,031.25 cash pursuant to the liquidation. MM, NN and OO shared net income and losses in a 5:3:2 ratio, respectively. 1. The loss on realization a. 9,843.75 ©. 49,218.75 b. 15,468.75 d. 77,343.50 2. The amount realized from sale of non-cash assets? a. 160,781.25 ce. 217,031.25 b. 188,906.25 d. 266,250.00 3. The cash balance after payment of liabilities?a. 156,093.75 c. 221,718.75 b, 193,593.75 ¢. 249,843.75 Solution: 1c Cash Proceeds 217,031.25 2.€ Book Value of Asset _ (266,250.00) 3A (49,218.75) cash Other Asset _ Liabilities MM NN 00 32,812.50 266,250.00 93,750.00 61,875.00 81,562.50 61,875.00 2 ) __ 247,034.25 266,250.00 9,843.75 249,843.75 - 93,750.00 52,031.25 (93,750.00) (93,750.00) 3 Problem 2 (ReSA) Fleming, Durano and Mart are partners in a wholesale business. On January 1, 2019 the total capital was P30,00 and drawings presented as follows: Capitals Drawings Fleming 6,250.00 3,750.00 Durano 5,000.00 2,500.00 Mart 18,750.00 1,250.00 Partners agree that profit and loss ratio are shared equally, Because of the failure of some debtors to pay their outstanding accounts, the partnership loses heavily and is compelled to liquidate. After exhausting the partnership assets, including those arising from an operating profit of P4,500 in 2019, they still owe P5,250 to creditors on December 31, 2019. Fleming has no personal but the others are well off 1. The partnership liquidation loss: a. None c. 27,750 b. 10,000 d, 32,250 2. The amount to be received by Mart as a result of the liquidation a. 818.75 c. 7,125 b. 4,875 4, 9,750Solution Asset Liabilities Capital 5,250.00 22,500.00 Profit 4,500.00 Liquidation Loss _-32,250.00_ 5,250.00 27,000.00 Fleming Durano Mart Capital 6,250.00 5,000.00 18,750.00 Drawings (3,750.00) __ (2,500.00) _ (1,250.00) 2,500.00 2,500.00 17,500.00 Profit 1,500.00 1,500.00 1,500.00 Loss on Realization __(10,750.00) (10,750.00) _ (10,750.00) (6,750.00) (6,750.00) 8,250.00 6,750.00 __ (3,375.00) _(3,375.00) Problem 3 (ReSA) (10,125.00) __4,875.00 Following is the balance sheet of DD, EE and FF partnership (a general partnership) on June 4, 2019 immediately prior to its liquidation Assets Cash 6,000.00 Other Asset 94,000.00 100,000.00 ———— 100,200.00 ‘The partners shared net income and losses a: Liabilities and Capital Liabilities 20,000.00 EE, loan 4,000.00 DD, capital 27,000.00 EE, capital 39,000.00 FF, capital 10,000.00 Total 100,000.00 s follows: DD, 40%; EE, 40% and FF, 20%. On June 4, 2019, the other cash were realized at P30,700 and P20,500 had to be paid to liquidate the liabilities because of an unrecorded trade accounts payable of P500. DD and EE were solvent, but FF’s personal liabilities exceeded personal assets by P5,000. How much would each partner receive? a. DD, b. DD, Db, DD, 1,680; EE, 17,680; FF, 0 1,480; EE, 17,480; FF, 0 100; EE, 12,100; FF, 0 100; EE, 16,100; FF, 0Solution 40% 40% 20% DD. EE FF. Total 27,000.00 43,000.00 10,000.00 80,000.00 25,520.00) (25,520.00) 12,760.00) 63,800.00 1,480.00 17,480.00 (2,760.00) 16,200.00 1,380.00) (1,380.00) 2,760.00 100,00 16,100.00 Cash Beg. 6,000.00 Proceeds 30,700.00 Payment of Liabilities (20,500.00) Payment to Partners 16,200.00) Problem 4 (ReSA) When Ray and Conniff, general partners of the Ray Conniff partnership who shared net income and losses in a 4:6 ratio were incapacitated in an accident, a liquidator was appointed to raise up the partnership. The partnership's balance sheet showed the following: Assets. Liabilities and Capital Cash 17,500.00 Liabilities 10,000.00 Other Asset 50,000.00 Ray, capital 35,500.00 Goodwill 5,000.00. Conniff, capital 27,000.00 72,500.00. Total 72,500.00 Liquidation expenses paid P2,500 for advertising, rent, travel, etc. and in the process of liquidating the partnership an overlooked bill for landscaping of P1,000 is discovered and in addition, partners agree to keep a P1,500 contingent fun. Determine the amount of cash that should be paid to each partner: a. Ray, 11,500; Conniff, 0 c. Ray, 7500; Conniff, 0 b. Ray, 2,500; Conniff, 0 d. Ray, 5,000; Conniff, 0 Solution40% 60% Ray Conniff Total 35,500.00 27,000.00 62,500.00 24,000.00. 36,000.00) 60,000.00 11,500.00 (9,000.00) 2,500.00 9,000.00) 9,000.00 : 2,500.00 - 2,500.00 Cash beg 17,500.00 Liquidation Expenses (2,500.00) Payment of Liability (10,000.00) Unrecorded (1,000.00) Cash Withheld 1,500.00 Payment to Partners 2,500.00 Problem 5 (ReSA) ‘The partnership of JJ, KK, LL and MM is preparing to liquidate. Profit and loss sharing ratios are shown is the summarized balance sheet at December 31, 2019 as follows: Assets. Cash 100,000.00 Inventories 100,000.00 Loan to KK 10,000.00 Other Assets 255,000.00 Total 465,000.00 jabilities and Capital Other Liabilities, 50,000.00 33, loan 50,000.00 13, capital (40%) 100,000.00 Kk, capital (20%) 160,000.00 LL, capital (20%) 50,000.00 MM, capital (20%) 55,000.00 Total 465,001 During January 2020, the inventories are sold for 42,500, the others liabilities are paid and P25,000 is set-aside for contingencies Compute the total cash payment to partners: Payment to Partners a 97,500.00 b. 102,500.00 c 72,500.00. 67,500.00 Solution Cash beg. 100,000.00 Proceeds 42,500.00 Payment of Liability (50,000.00) Cash Withheld Payment to Partners Problem 6 (PRTC) Partners Edong, Sally and Zarah decided to liquidate their partnership on November 30, 2017. Their capital balances and profit and loss are as follows: Capitals PAL ratio Edong P 600,000 40% sally 784,000 40% Zarah 240,000, 20% The net income from January 1, 2017 to November 30, 2017 is P656,000. On November 30, 2017, the cash balance is P520,000, and that of liabilities is P1,160,000. Edong is to receive P706,560 in the settlement of his interest. 1, Calculate: (1) The loss on realization, and (2) the amount to be realized from the sale of non-cash assets? A. (1) P 389,600 (2) P2,530,400 B. (1) P 248,000 (2) P5,100,000 C. (1) P 620,000 (2) P3,860,000 D. (1) P 522,000 (2) P3,860,000 Solution Edong Sally Zarah Total Beg. Balance 600,000 784,000 240,000 1,624,000 Net Income 262,400 262,400 131,200 __ 656,000 Adjusted Balance 862,400 1,046,400 371,200 2,280,000 Cumulative Loss 155,840) 155,840) 77,920) 389,600} Cash Payment 706,560 890,560 293,280 ___1,890,400 (1,160,000 + 2,280,000 - Book Value of NCA 520,000) 2,920,000 Loss on Realization (389,600) Proceeds 2,530,400Problem 7 (PRTC) ‘The partnership of Mikee and Rosa is in the process of liquidation. On January 1, 2017, the ledger shows account balances as follows Cash P 8,000 Accounts Payable P 12,000 Accounts Receivable 20,000 Mikee, Capital 32,000 Lumber Inventory 32,000 Rosa, Capital 16,000 On January 10, 2017, the lumber inventory is sold for P20,000, and during January, accounts receivable of 16,800 is collected. No further collections on the receivables are expected and the partners have incurred P3,200 of liquidation expenses. Profits are shared 60% for Mikee and 40% for Rosa. 2, How much cash will partner Mikee and Rosa receive upon liquidation? ‘A. P22,800; P9,920 C. P20,960; P8,640 B. P37,600; P18,400 D. 20,500; P20,500 Solutioy Mikee Rosa Total Beg. Balance 32,000 16,000 48,000 Cumulative Loss (11,040) (7,360) (18,400) Cash Payments 20,960 8,640 29,600 Problem 8 (PRTC) ‘The partnership ABC is currently liquidating and on February 15, 2017, their balances in capital and their profit and loss ratios are shown below: Apple, Capital (P&L 40%) P 22,000 Bryan, Capital (P&L 20%) 14,000 Cecile, Capital (P&L 40%) -12,000 Assume non-cash assets have been all disposed and Cecile has promised to pay his deficiency in a week's time. 3. Calculate the amount to be received by one of the partners if cash is paid immediately on February 15, 2017. A, Apple, P22,000 ¢. Bryan, P10,000 B. Bryan, P12,000 D. Apple, P12,000 Solution Apple Bryan Cecile Balance 22,000 14,000 12,000APL -8,000 -4,000 -12,000 Free Interest 14,000 10,000 0 Problem 9 (PRTC) The balance sheet for Chester, Joana and John partnership, who share profits and losses in the ratio of 50%, 25% and 25%, respectively, shows the following balances just before liquidation. Cash P 24,000 Other Assets 119,000 Liabilities 40,000 Chester, Capital 44,000 Joana, Capital 31,000 John, Capital 28,000 On the first month of liquidation, certain assets are sold for P64,000. Liquidation expense of P2,000 are paid, and additional liquidation expenses are anticipated. Liabilities are paid amounting to P10,800 and sufficient cash is retained to insure the payment to creditors before making payments to partners. On the first payment to the partners, Chester receives P12,500 4, Determine the amount of cash withheld for anticipated liquidation expenses. A. P35,200 C. P33,200 B. P29,200 D. P6,000 Solution Chester Joana John Total Beg Balance 44,000 31,000 28,000 103,000 Loss (31,500) (25-759 (45,750) (63,000) Cash 12,500 15,250 12,250 40,000 Payment 24,000 + 64,000 - 40,000 - 2,000 - 40,000 6,000 Problem 10 (PRTC) ‘A condensed balance sheet with profit sharing percentages for the E, F and G partnership on January 1, 2017, shows the following:Cash P 100,000 Liabilities P 80,000 Other Assets 500,000 E, Capital (40%) 100,000 F, Capital (40%) 250,000 G, Capital (20%) 170,000 Total P 600,000 Total P 600,000 On January 2, 2017, the partners decided to liquidate the business, and during January they sell assets with a book value of P300,000 for 170,000. 5. How much cash will the partners receive if all available cash, except for a P10,000 contingency fund, is distributed immediately after the sale A. All partners will receive P60,000 B. Partners F and G will both receive P90,000 C. Partner F will receive 96,667 and Partner G will receive P93,333 D, Partner F will receive P190,000 Solution E F G Beg, Balance 100,000 250,000 170,000 Cumulative Loss (136,000) (136,000) (68,000) Balance -36,000 114,000 102,000 Absorption 36,000 (24,000) (12,000) Cash 0 ‘90,000 ‘90,000 Problem 11 (CRC-ACE) A, B, and C are partners sharing profits in the ratio of 5:3:2, respectively. A balance sheet prepared just prior to partnership liquidation shows the following: A B c Capital Balances P122,000 P 72,000 —P47,000 Loan Balances P 43,000 48,000 —_P_6,000 Assets are sold and cash is distributed to partners in monthly instalments during the course of liquidation as follows: January P 20,000 February 50,000 March 80,000 April (final distribution) 20,000 Required:Prepare a program to show how cash is to be distributed during the entire course of liquidation. Using the program developed above, prepare a schedule summarizing the payments to be made to partners at the end of each month, b. Solution A cCP/ACDP A 165,00 TOTAL EQUITY 0 P&L 1 330,00 0 PL 65,000 265,00 0 B. TOTA T L A JANUAR 20,00 Y 0 20,00 PL 9 50,00 FEBRUARY 0 PL 1,000 49,00 P2 9 30,625 50,00 © 30,625 80,00 MARCH 0 P2 3,000 1,875 72.00 PIL 9 38,500 8 120,00 1,125 c 153,00 O 265,00 0 265,00 a CASH DISTRIBUTION A 8B c TOTAL 21,00 21,00 0 0 32,50 19,50 52,00 0 0 ° ANY CASH IN EXCESS OF 73,000 IS ALLOCATED AT P/LO 40,375 24,225 15,400 20,00 APRIL O 10.000 6,000 4,000 Problem 12 (CRC-ACE) Elizabeth, Diana, Anthony, and Scarlett were partners who decided to liquidate the affairs of the partnership. Prior to dissolution, the condensed balance sheet together With the profit and loss sharing ratio was derived as follows: P Pp Cash 100,000 Liabilities 750,000 Other Assets 1,800,000 Diana, Loan 60,000 Scarlett, Loan 50,000 Elizabeth,Capital (30%) 420,000 Diana, Capital (30%) 315,000 Anthony, Capital (20%) 205,000 Scarlett, Capital (20%) _100,000 p> 1,900,000 P 1,900,000 The other assets were sold for P 1,200,000. Payments were made to creditors and final distributions of cash were made to partners. ‘a, The partner who got paid the most was: b. The cash received by Scarlett will be applied: Solution: E D A s TOTAL 420,0 375,0 205,00 150,0 1,150,0 00 00 0 oo 00 180,0 180,0 120,00 120,0 - 00 00 0 90 600,000 240,0 195,0 30,00 00 00 85,000 0 550,000LOAN Problem 13 (CRC-ACE) D, E, and F are partners sharing profits in the ratio of 40:35:25, respectively. On December 31, 2018, they agree to liquidate. A balance sheet prepared on this date follows: DEF Partnership Balance Sheet As of December 31, 2018 Cash P 2,000 Liabi P 6,000 Other Assets 46,000 5,000 2,500 D, Capital 14,450 E, Capital 12,550 F, Capital 7.500 P.48,000 P.48,000 The results of liquidation are summarized below: Cash Withheld Realization Book Cash EXPERSES at end of month Liability s Value Realized peai ation forestimated Paid future expenses January P 12,000 P 10,500 P 500 P 2,000 P 4,000 February 7,000 6,000 750 1,250 2,000 March 15,000 10,000 600 500 - April 12,000 4,000 400 - - All cash available, except the amount withheld for future expenses, is distributed at the end of each month. Required: Determine the share of each partner every month of distribution. Solution JAN. 2,000 FEB. 4,000 MARCH APRIL BEGINNING 1,250 500PROCEEDS. EXPENS, E LIABILITIES CASH WITHELD AFD JANUAR, Y TOTAL EQUITY caFD FEBRUARY MARCH APRIL Problem 14 (CRC-ACE) 10,500 -500 -6,000 -2,000 4,000 D 14,450 15.200 -750 750 Q 14,450 1,650 4,060 1,640 6,000 -750 -2,000 1,250 6,000 E 17,550 13,200 4,250 440 3,812.50 13,737.5 0 (11.200) 2,540 3,553 1,435 10,000 -600 500 10,150 1,813 2,540 1,025 4,000 -400 4,100 TOTAL 42,000 4,000 4,000 38,000 6,000 10,150 4,100The balance sheet of J, K, and L Partnership shows the following information as of December 31, 2018: Cash P 2,000 Liabilities Other Assets 28,000 3, Loan J, Capital K, Capital L, Capital P.30,000 Profit and loss ratio is 3: realized as follows: respectively, for J, K, and L. Other assets were Date Cash Received Book Value January, 2018 P 8,000 P 9,000 February, 2018 3,500 7,700 March, 2018 12,500 11,300 Cash is distributed as assets are realized a. How much is the total loss to J? b. How much is the total cash received by K? ¢. How much cash does L receive in January? Solution TOTALEQUITY 15,000 7,000 3,000 ~—-25,000 2,000) (4,333) (667) 4,000 13,000. 5,667, 2,333. 21,000 JANUAR Y 15,000 7,000 3,000 25,000 (10,000) (6,667) (3,333) 20,000 5,000 333 (333) 5,000(200) (133) «333 4,800 200 - 5,000 A 2,000 8 5,667 c -0- Problem 15 (CRC-ACE) Balance sheet data for the firm of W, X, and Y as of January 1, 2018, follow: P Assets 1,225,000 Liabilities P 675,000 W, Capital 200,000 X, Capital 200,000 Y, Capital 200,000 P P 1,225,000 1,225,000 Partners share profits equally after allowance of a salary to Y, the managing partner, of P7,500 monthly. As a result of operation losses sustained at the beginning of 2018, W advanced P 150,000 to the firm on April 1; it was agreed that he would be allowed interest at 6%. With continued losses, the members decided to liquidate. Y agreed to take over partnership equipment in part of settlement of his interest, the transfer being made at an agreed value of P 40,000. On November1, P 200,000 cash was available for distribution to partners after the sale of remaining assets and payment of partnership obligations to outsiders. Y had withdrawn his salary for January and February but had not received his salary for the period of March 1 to November 1; no other cash payments had been made to partners. Available cash was distributed on November 1 and the firm was declared dissolved How much cash should W received in the distribution of P 200,000 cash available?Solution w 200,000 150,000 5,250 (1,750) 353,500 d 163,500 x 200,000 (1,750) 198,250 d 8,250 200,000 (1,750) (40,000) TOTAL 600,000 (5,250) (40,000) 200,000 2.0 Corporate Liquidation Problem 1 (ReSA) The following data were taken from the statement of affairs for Liquo Company: Asset pledged for fully secured liabilities (fair value, P75,000) ‘Asset pledged for partially secured liabilities (fair value, P52,000) Free Assets (fair value, 40,000) Unsecured Liabilities with priority Fully secured liabilities Partially secured liabilities 90,000.00 74,000.00 70,000.00 7,000.00 30,000.00 60,000.00Unsecured liabilities without priority 112,000.00 1. Total estimated deficiency to unsecured creditors amounted to: a. 27,000 ¢. 35,000 b. 34,000 d. 42,000 2. The expected recovery per peso of unsecured claims amounted to: a. 0.35 ©. 0.70 b. 0.65 4.0.71 Solution Free assets on assets pledged to fully secured assets (75,000-30,000) Free assets on assets pledged to fully secured assets (75,000-30,000) Total Free assets Less: Unsecured creditors w/ priority Net free assets Unsecured Creditors Partially secured creditors (60,000-52,000) Unsecured creditors without priority Estimated deficiency to unsecured creditors Expected recovery per peso of unsecured creditors Net free assets / Total unsecured creditors 8,000 112,000 120,000 42,000 0.65 78,000/120,000 Problem 2 (ReSA) Zero Na Corp. has been undergoing liquidation since January 1. As of March 31, its condensed statement of realization and liquidation is presented below: Assets: Assets to be realized Assets acquired Assets realized Assets not realized Liabilities Liabilities liquidated Liabilities not liquidated 95,000 5,000 30,000 42,000 35,000, 31,850Liabilties to be liquidated 65,000 Liabilities assumed 1,500 Revenue and Expenses: Sales on account 5,000 Purchases 1,500 Payment of expenses of trustee 7,500 Sales for cash 25,000 Interest on marketable securities 150 The net gain (loss) for the three-month period ending March 31 is: a. 7,200 c. 49,500 b. (7,200) d. (17,500) Solution ‘Statement of Reali 95,000 30,000 5,000 42,000 35,000 65,000 31,850 1,500 1,500 5,000 7,500 25,000 150 175,850 168,650 200 Problem 3 (ReSA) Orville Company recently petitioned for bankruptcy and is now in the process of preparing a statement of affairs. The carrying values and estimated fair values of the assets or Orville Company are as follows Carrying Value___Fair Value Cash 20,000 20,000 Accounts Receivable 45,000 30,000 Inventory 60,000 35,000 Land 75,000 70,000 Building (net) 180,000 100,000 Equipment (net) 170,000 80,000Total 550,000 335,000 Debts of Orville are as follows: Accounts payable 60,000.00 Wages payable (all have priority) 10,000.00 ‘Taxes payable 10,000.00 Notes payable (secured by receivable and inventory) 120,000.00 Interest on Notes Payable 6,000.00 Bonds Payable (secured by land and building) 150,000.00 Interest on Bonds payable 7,000.00 Total 363,000.00 1, What is the total amounts of unsecured claims a. 93,000 . 121,000 b. 113,000 d, 126,000 2. What is the estimated amount will be available for general unsecured creditors upon liquidation? a. 28,000 c. 113,000 b. 93,000 d. 121,000 3. What is the estimated dividend percentage? a. 23% ©. 77% b. 93% d. 68% Solution 1. 60,000 + [(120,000+)] - (30,000) + (35,000) = 124,000 2. 20,000+80,000+[170,000-(150,000+7,0000]=113,000-(10,000+10,000)= 93,000 3. 93,000/121,00 77% Problem 4 (ReSA) Kareindeer Corporation filed 2 voluntary petition for bankruptcy on January 2016. On March 31, 2016, the trustee provided the following information about the corporation’s financial affairs Est. Realizable Assets Book Value Value Cash 40,000 40,000 Accounts receivable- net 200,000 150,000 Inventories 300,000 140,000 Plant assets - net 500,000 560,000Total Assets Liabilities for priority claims 160,000 Accounts payable - unsecured 300,000 Notes payable, secured by accounts receivable 200,000 Mortgage payable, secured by all plant assets 440,000 Total Liabilities 1,100,000 1. The amount expected to be available for unsecured claims without priority (net free assets) a. 300,000 c. 140,000 b, 580,000 4, 310,000 2, The expected recovery per peso of unsecured creditors: a. .215 41s b, .223 d. 400 3. The estimated payment to creditors a. 730,000 ©. 770,000 b. 45,000 d. 890,000 Solution 1 Cash 40,000 Inventories 140,000 2 Plant Assets (560,000-440,000) 120,000 Liabilities w/ priority claims 160,000) Exppatedengyety per peso of unsecured creditors. 40,000 Net free assets / Total unsecured creditors 140,000/350,000 0.40 3 Secured Liability 440,000 Liability w/ priority 160,000 Liability w/out priority (300,000x40%) 120,000 Partially secured [150,000+(50,000x40%)] 170,000, Est. payment to creditors 890,000 Problem 5 (ReSA)‘The unsecured creditors of Insolve Corporation filed a petition in July 1, 2016 to force Insolve Corporation into bankruptcy. The court order for relief was granted on July 10 at which time an interim trustees was appointed to supervise liquidation of the estate. A listing of assets and liabilities of Insolve Corporation as of July 10, 2016, along with estimated realizable value is as follows: Assets Book Value Est. Realizable Value Cash 61,400 61,400 Accounts Receivable 250,000 | 159% of the accounts receivable is Allownce for D/A (20,000) | ___ estimated to be uncollectible Estimated selling price , P340,000 which will require additional cost of Inventories 420,000 P50,000 Prepaid Expenses 40,000 2 Investments 180,000 110,000, Land 210,000 An offer of P500,000 has been Buildings (net) 260,000 | _ received for land and buildings Machinery and Equipment 220,000 53,900 Goodwill 200,000 2 Total Assets 1,821,400 Liabilities & Equity ‘Accounts Payable 670,000 Wages payable 3,400 Notes payable 160,000, ‘Accrued Interest notes 5,000 Mortgage payable, secured by land and building 400,000 Capital Stock 800,000 Addtl Paid in Capital 80,000 Deficit 297,000) Total Liab.& Equity 1,821,400 Additional information ‘a. Patents completely written off the books in past years but with a realizable value of P10,000 b. The books do not show the following accruals (unrecorded expenses/additional liabilities): Taxes Interest on Mortgage 16,400 10,000c. The investment have been pledged as security for holder of the notes payable d, The trustee fees and other costs of liquidating the estate are estimated to be 60,000 Determine: 1, The total free assets should be: a. 1,831,400 c. 717,800 b. 1,821,400 d. 638,000 2. The net free assets should be: a. 717,800 c. 638,000 b. 698,000 d. 628,000 3. The estimated deficiency to unsecured creditors should be: a. 87,000 ¢. 27,000 b. 47,800 d. 7,200 Solution 1 Assets pledged to fully secured creditors: Land and Buildings 500,000 Less : Mortgage Payable 400,000 Interest Payable 10,000 __410,000 90,000 Free Assets: Cash 61,400 Accounts Rec. (250,000x85%) 212,500 Inventories (340,000-50,000) 290,000 Prepaid Expenses - Machinery & Equipment 53,900 Goodwill Additional Assets/unrecorded assets Patent 10,000Total Free Assets 2 Total Free Assets 717,800 Unsecured creditors w/ priority 3,400 Taxes payable 16,400 Administrative expenses 60,000 79,800 Net Free Assets 3 Secured Creditors: Investments 110,000 Less: Notes Payable 160,000 Interest payable 5,000 165,000 55,000 Unsecured Creditors w/out priority: Accounts payable 670,000 Total Unsecured creditor w/out priority 725,000 Net Free Assets (638,000) 87,000 PROBLEM 6(PRTC) The following data were taken from the statement of affairs of MIRIAM CORPORATION: Assets pledged for fully secured liabilities (current fair value, P93,750) P112,500 Assets pledged for partially secured liabilities (current fair value P65,000) 92,500 Free assets (current fair value, P50,000) 87,500 Unsecured liabilities with priority 18,750 Fully secured liabilities 37,500 Partially secured liabilities 75,000 Unsecured liabilities without priority 140,000 1. The amount that will be paid to creditors with priority is: ‘A. P8,750 CC. P9,375 B. P7,500 D. P7,750 2. The amount to be paid fully secured creditors is: ‘A. P37,500 C. P25,000 B. P40,000 D. P43,750 3. The amount to be paid to partially secured creditors is: A. P65,875 ¢. P70,250 B, P71,500 D. P71,250 3. The amount to be paid to unsecured creditors isA, P97,750 CC. P90,000 B. P88,500 D. P91,000 Solution: Cash available (93,750+65,50,000) Prioritized Claims Fully secured Partially secured liabilities (secured) W/ Priority Net Cash Unsecured Amount Partially secured liabilities (unsecured) Wout Priority ERR = 97,500/150,000 Partially secured Secured Portion Unsecured Portion Unsecured w/out priority PROBLEM 7 (PRTC) 37,500 65,000 8,750 10,000 140,000 65% 75,000 65,000 10,000 140,000 208,751 0 111,250) 97,500 150,000 52,500 100% 65% 65% 65,000 71,500 91,000 ‘The Statement of Affairs for CANDY CORPORATION shows that approximately PO.78 on the peso probably will be paid to unsecured creditors without priority. The corporation owes TOY COMPANY P28,750 on a promissory note, plus accrued interest of P1,175... Inventories with a current fair value of P24,000 collateralize the note payable. Compute the amount that the TOY COMPANY would receive from CANDY CORPORATION assuming that the actual payments to unsecured creditors without priority consist of 78% of total claims. Round ail amounts to the nearest peso ‘A. P24,000 B, P28,612.50 Solution: Partially secured (28,750 + 1,175) Secured Portion C. P42,483.75 D. P65,250 29,92 5 24,00 0 100% 24,000