PARTNERSHIP AND CORPORATION: COMPREHENSIVE PROBLEM

On January 1, 2017, Anna Joy, April, and Jyllenn agreed to form a partnership by investing
P10,000,000 each. In addition, property, plant and equipment costing P25,000,000, with an
estimated residual value of P1,000,000 and 10 years useful life, was brought to the partnership
by Anna Joy. Accumulated Depreciation as of investment date is P2,400,000. The said property has
a fair market value of P30,000,000. They agreed to have a capital ratio of 30:40:30, giving
April the larger portion. Their profit or loss ratio was agreed to be 50:50:50.

The company’s operation is a hybrid of both merchandising and manufacturing nature of business.
Some of their products are produced internally while other products are purchased from outside
suppliers.

During 2017, the company incurred no loss and earned no gain.

The 2018 Income Statement of AAJ Company reveals the following information:

AAJ Company
Income Statement
For the Year Ended December 31, 2018
(In Philippine Peso)

Sales 30,000,000.00
Less: Cost of Goods Sold 15,000,000.00
Gross Profit 15,000,000.00
Less: Selling Expenses 3,000,000.00
Administrative Expenses 2,000,000.00 5,000,000.00
Net Income 10,000,000.00

The Notes to Financial Statements shows the details of the company’s cost of goods sold. Details
of Cost of Goods Sold (related to merchandising operation) include the following information:
Inventory, beginning- P800,000; Purchases-P4,700,000; and Inventory, ending (62.5% of Inventory,
beginning). Cost of Goods Sold related to manufacturing operation presents the following: Raw
Materials, beginning-P300,000; Purchases-P4,700,000; Raw Materials, ending-P250,000; Direct Labor
P2,850,000; Factory Overhead-P1,900,000; Work in Process, beginning-P1,200,000; Cost of Goods
Manufactured-P9,700,000; Finished Goods Inventory, beginning-P800,000; and Cost of Goods Sold
(200% of COGS related to merchandising operation).

Partnership agreement expressly states that following provisions: Each partner is to receive
annual 3% interest based on beginning capital balances. Jyllenn, April and AJ is to receive
annual salaries worth P150,000, P100,000, P120,000 respectively. Jyllen is to receive annual
bonus of 5% of Net Income after interest, salaries and bonus. Should there be excess of Net
Income over these provisions will be distributed based on P/L ratio.

On January 1, 2019, Jucarlo entered into the partnership by purchasing 10% of AJ’s interest,
paying P1,800,000. During 2019 the company experienced significant decrease of its sales
resulting to a negative bottom line. 2019 Net Loss totaled P1,500,000. In addition to the above
provisions on the allocation of Net Income/Net Loss to partners, the partners agreed to give
Jucarlo P80,000 annual salary. Early 2020, it was found out that the loss was due Jucarlo’s bad
image in the industry.
When the other partners knew about it, they immediately decide to end the partnership. The
following information was made available at the time of liquidation: Cash-P30,000,000; Non-Cash
Assets P43,500,000; Accounts Payable-P5,000,000; AJ, Capital-?; April, Capital-?; Jyllenn,
Capital-?; Jucarlo, Capital. Non-Cash Assets was sold for P10,000,000. Assume that deficient
partner is insolvent.

On January 15, 2020, a certificate of incorporation was issued by SEC to JUGSAK CORPORATION,
owned by AJ, April, and Jyllenn. The articles of incorporation shows authorized common stock of
P10,000,000 (100,000 shares at 100 par value). The stockholder’s equity of the company at
December 31, 2020 revealed the following: 50,000 shares unissued; subscribed common stock-
10,000 shares; Subscription Receivable-P500,000; Additional Paid-In Capital- P1,000,000;
Retained Earnings Appropriated- P2,000,000; Retained Earnings-Unappropriated (150% of Retained
Earnings Appropriated); Treasury Stocks-P500,000. Years later, JUGSAK CORPORATION has become the
largest distributor of FAILING MARKer across the 7,641 islands of the Philippines.

Using the information above, compute the account balances of the following:

1. Cash-January 1, 2017
2. Property, Plant, and Equipment-January 1, 2017
3. Depreciation Expense-January 1, 2017
4. Anna Joy, Capital-January 1, 2017
5. April, Capital-January 1, 2017
6. Jyllenn, Capital-January 1, 2017
7. Total Partnership Equity-January 1, 2017
8. Anna Joy, Capital-January 1, 2018
9. April, Capital-January 1, 2018
10. Jyllenn, Capital-January 1, 2018
11. Total Purchases-2018
12. Total Goods Available for Sale-2018
13. Total Inventory-January 1, 2018
14. Total Inventory-December 31, 2018
15. Total Manufacturing Cost
16. Cost of Goods Placed in Process
17. Work in Process Inventory-December 31, 2018 18.
Finished Goods Inventory-December 31, 2018 19. Cost of
Goods Sold related to Merchandising Operations 20. Cost
of Goods Sold related to Manufacturing Operations 21.
Bonus to Jyllenn-2018
22. Anna Joy, Capital-December 31, 2018
23. April, Capital-December 31, 2018
24. Jyllenn, Capital-December 31, 2018
25. Anna Joy, Capital-January 1, 2019
26. April, Capital-January 1, 2019
27. Jyllenn, Capital-January 1, 2019
28. Jucarlo, Capital-January 1, 2019
29. Bonus to Jyllenn-2019
30. Anna Joy, Capital-December 31, 2019
31. April, Capital-December 31, 2019
32. Jyllenn, Capital-December 31, 2019
33. Jucarlo, Capital-December 31, 2019
34. Cash Settlement to Anna Joy
35. Cash Settlement to April
36. Cash Settlement to Jyllenn
37. Cash Settlement to Jucarlo
38. Common Stock
39. Retained Earnings
40. Total Stockholders’ Equity
-END-
*COC_AJCG,CPA*