Professional Documents
Culture Documents
Advance Accounting Book 1
Advance Accounting Book 1
Advance Accounting Book 1
CHAPTER 1
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
1-1: a
1-2: b
1-2: c
Jose's capital should be credited for the market value of the computer contributed by
him.
(40,000 + 80,000) 2/3 = 180,000 x 1/3 = 60,000.
1-3: a
Cash
Land
Mortgage payable
P100,000
300,000
( 50,000)
P350,000
P500,000
______40%
Perla's capital
Less:Non-cash asset contributed at market value
Land
P 70,000
Building
90,000
Mortgage Payable
( 40,000)
P200,000
Cash contribution
P 80,000
1-4: b
1-5: d
_120,000
- Zero, because under the bonus method, a transfer of capital is only required.
1-6: b
Reyes
Santos
P200,000
Cash
Inventory
Building
Equipment
Mortgage payable
________
P300,000
150,000
400,000
150,000
( 100,000)
P350,000
P750,000
AA
BB
CC
P55,000
P55,000
1-7: c
Cash
Property at Market Value
Mortgage payable
Equipment at Market Value
P 50,000
_______
P 80,000
( 35,000)
_______
Capital
P 50,000
P 45,000
2
Chapter 1
1-8: a
PP
RR
SS
Cash
Computer at Market Value
P 50,000
__25,000
P 80,000
_______
P 25,000
__60,000
Capital
P 75,000
P 80,000
P 85,000
Maria
Nora
1-9: c
Cash
Merchandise inventory
Computer equipment
Liability
Furniture and Fixtures
P 30,000
200,000
P 90,000
160,000
( 60,000)
________
Total contribution
P230,000
P190,000
P575,000
______60%
P345,000
190,000
Cash to be invested
P155,000
1-10: d
Roy
Sam
Tim
Cash
Office Equipment
Note payable
P140,000
________
P220,000
_( 60,000)
______
P140,000
P160,000
P100,000
1-11: a
Lara
Mitra
Cash
Computer equipment
Note payable
P130,000
________
P200,000
50,000
_( 10,000)
P130,000
P240,000
P110,000
1-12: a
Perez
Cash
Office Equipment
Merchandise
Furniture
Notes payable
P 50,000
30,000
_______
Reyes
P 70,000
110,000
100,000
( 50,000)
P 80,000
P230,000
Bonus Method:
Total capital (net asset invested)
P310,000
Goodwill Method:
Net assets invested
Add: Goodwill (P230,000-P80,000)
P310,000
_150,000
Net capital
P460,000
1-13: b
Required capital of each partner (P300,000/2)
Contributed capital of Ruiz:
Total assets
P105,000
Less Liabilities
__15,000
P150,000
P 60,000
__90,000
1-14: d
Total assets:
Cash
Machinery
Building
Less: Liabilities (Mortgage payable)
P 70,000
75,000
_225,000
P370,000
__90,000
P280,000
____70%
P400,000
P120,000
P 55,000
__65,000
1-15: d
Adjusted assets of C Borja
Cash
P 2,500
Accounts Receivable (P10,000-P500)
9,500
Merchandise inventory (P15,000-P3,000) 12,000
Fixtures
__20,000
Asset contributed by D. Arce:
Cash
P 20,000
Merchandise
__10,000
__30,000
P 74,000
P 44,000
4
Chapter 1
1-16: a
Cash to be invested by Mendez:
Adjusted capital of Lopez (2/3)
Unadjusted capital
Adjustments:
Prepaid expenses
Accrued expenses
Allowance for bad debts (5% X P100,000)
P158,400
17,500
( 5,000)
_( 5,000)
Adjusted capital
P165,900
P248,850
Mendez's capital
Less Merchandise contributed
P 82,950
__50,000
P 32,950
Total Capital:
Adjusted capital of Lopez
Contributed capital of Mendez
P165,900
__82,950
Total capital
P248,850
1-17: d
Moran, capital (40%)
Cash
Furniture and Fixtures
Divide by Moran's P & L share percentage
P 15,000
_100,000
P115,000
______40%
P287,500
______60%
P172,500
P 45,000
15,000
__65,000
P125,000
__30,000
P 95,000
P 77,500
1-18: c
Garcia's adjusted capital (see schedule 1)
Divide by Garcia's P & L share percentage
P40,500
______40%
P101,250
______60%
P 60,750
__43,500
P 17,250
Schedule 1:
Garcia, capital:
Unadjusted balance
Adjustments:
Accumulated depreciation
Allowance for doubtful account
P 49,500
( 4,500)
( 4,500)
Adjusted balance
P 40,500
Schedule 2:
Flores capital:
Unadjusted balance
Adjustments:
Accumulated depreciation
Allowance for doubtful accounts
P 57,000
( 1,500)
( 12,000)
Adjusted balance
P 43,500
1-19: d
Ortiz
Ponce
Total
( 60%)
( 40%)
P133,000
P108,000
P241,000
( 2,700)
3,000
_( 2,400)
P130,900
( 1,800)
2,000
( 1,600)
P106,000
( 4,500)
5,000
( 4,000)
P237,500
Total capital before the formation of the new partnership (see above) P237,500
Divide by the total percentage share of Ortiz and Ponce (50% + 30%) ______80%
Total capital of the partnership before the admission of Roxas
Multiply by Roxas' interest
P296,875
______20%
P 59,375
1-20: d
Merchandise to be invested by Gomez:
Total partnership capital (P180,000/60%)
P300,000
P120,000
__30,000
P 90,000
P180,000
__48,000
P132,000
_180,000
P 48,000
6
Chapter 1
1-21: b
Unadjusted Ell, capital (P75,000 P5,000)
Allowance for doubtful accounts
Accounts payable
P 70,000
( 1,000)
( 4,000)
P 65,000
P340,920
_113,640
P227,280
P211,200
1-22: c
1,920
( 16,000)
( 5,200)
___3,200
1-23: a
Total assets at fair value
Liabilities
Capital balance of Flor
P4,625,000
(1,125,000)
P3,500,000
P5,000,000
30%
1,500,000
812,000
P 688,000
1-24: c
1-25: c
__Rey
Contributed capital (assets-liabilities)P471,000
Agreed capital (profit and loss ratio) 382,800
Capital transfer (Bonus)
P 88,200
__Sam_ __Tim
__Total_
P291,000 P195,000 P957,000
382,800 191,400 957,000
P(91,800) P 3,600
-
1-26: d
Total agreed capital (P90,000 40%)
Contributed capital of Candy (P126,000+P36,000-P12,000)
Total agreed capital (P90,000 40%)
Candy, agreed capital interest
Agreed capital of Candy
Contributed capital of Candy
Withdrawal
P225,000
150,000
225,000
60%
135,000
150,000
P 15,000
P300,000
30%
P 90,000
42,000
P 48,000
P138,000
210,000
P 72,000
1-28: a
1-29: c
Contributed capital
Agreed capital
Capital invested
__Alex_
P100,000
92,000
P( 8,000)
_Carlos_
P84,000
92,000
P 8,000
__Total__
P184,000
184,000
-
8
Chapter 1
SOLUTIONS TO PROBLEMS
Problem 1 1
1.
600
200
35
Computation:
P1,000 x 6% x 3/12 =
P2,000 x 6% x 2/12 =
600
200
P15
_20
Total................................P35
4. Pedro Castro, Capital............................................................
Accrued Interest Payable..................................................
(P4,000 x 5% x 6/12 = P100)
100
800
6. Office Supplies.....................................................................
Pedro Castro, Capital........................................................
400
100
800
400
15,067.50
P30,135
Jose Bunag, Capital : 1/2 x P30,135 = P15,067.50
Partnership Basic Considerations and Formation
b.
4,000
10,000
100
1,200
1,400
30,135
6,000
3,000
24,000
7,400
400
6,000
6,000
3,000
24,000
35
7,400
400
6,000
4,000
10,000
100
1,200
1,400
30,135
15,067.50
10
Chapter 1
2.
Cash ..........................................................................................................
Notes receivable.........................................................................................
Accounts receivable................................................................................... P 24,000
Less Allowance for bad debts..................................................................... ___1,200
Accrued interest receivable........................................................................
Merchandise inventory...............................................................................
Office supplies ..........................................................................................
Furniture and fixtures.................................................................................
6,000
Less Accumulated depreciation.................................................................. ___1,400
Total Assets........................................................................................
P21,067.50
3,000.00
22,800.00
35.00
7,400.00
400.00
__4,600.00
P59,302.50
P 4,000.00
10,000.00
100.00
30,135.00
_15,067.50
P59,302.50
Problem 1 2
Contributed Capitals:
Jose:
P 135,000
28,000
___68,500
P 231,500
Goodwill Method. To have a goodwill, the only possible base is the capital of Pablo. The
computation is:
Contributed
Capital
Jose
Pedro
Pablo
Total
Agreed
Capital
P135,000
28,000
__68,500
P231,500
Goodwill
P137,000 (50%)
68,500 (25%)
__68,500 (25%)
274,000
2,000
40,500
_____
42,500
Bonus Method
Goodwill Method
P 49,000
48,000
57,500
85,000
45,000
______
P284,500
P 49,000
48,000
57,500
85,000
45,000
__42,500
P327,000
P 53,000
115,750
57,875
__57,875
P284,500
P 53,000
137,000
68,500
__68,500
P327,000
Problem 1 3
1.
3,200
3,200
500
500
12
Chapter 1
4,800
1,500
3,600
31,500
400
16,000
20,000
5,000
400
16,000
20,000
5,000
4,800
1,500
3,600
31,500
47,250
47,250
P31,500
___40%
P78,750
___60%
P47,250
3,200
(b) Goodwill...............................................................................
Sales, Capital....................................................................
32,000
3,200
32,000
2.
Closing Entry
Allowance for Bad Debts............................................................
Accumulated Depreciation Delivery Equipment......................
Accumulated Depreciation Fixtures.........................................
Accounts Payable........................................................................
Notes Payable..............................................................................
Accrued Taxes.............................................................................
Sales, Capital...............................................................................
Cash......................................................................................
Accounts Inventory...............................................................
Merchandise Inventory.........................................................
Prepaid Insurance..................................................................
Delivery Equipment..............................................................
Fixtures.................................................................................
Goodwill...............................................................................
12,800
8,000
91,200
64,000
40,000
8,000
224,000
4,800
72,000
192,000
3,200
48,000
96,000
32,000
2.
Adjusting Entries
(a) Roces, Capital.............................................................................
Allowance for Bad Debts......................................................
1,600
16,000
8,000
(d) Goodwill.....................................................................................
Roces, Capital.......................................................................
40,000
1,600
16,000
8,000
40,000
4,800
72,000
192,000
3,200
48,000
96,000
32,000
12,800
8,000
91,200
64,000
40,000
8,000
224,000
14
Chapter 1
b.
1,600
12,800
64,000
104,000
6,400
224,000
14,400
57,600
132,800
4,800
19,200
144,000
40,000
Adjusting Entries
See Requirement (a).
2.
14,400
57,600
132,800
4,800
19,200
144,000
40,000
1,600
12,800
64,000
104,000
Accrued Taxes.............................................................................
Roces, Capital.............................................................................
6,400
224,000
c.
19,200
129,600
324,800
8,000
46,400
84,800
72,000
14,400
168,000
40,000
14,000
224,000
224,000
16
Chapter 1
Problem 1 5
1.
2.
5,000
13,000
12,000
3,000
9,000
3.
1,000
6,000
10,000
300
24,700
8,000
210
7,790
5,000
13,000
12,000
3,000
9,000
1,000
6,000
10,000
300
24,700
10,300
10,300
J. Lagman, Capital.............................................................................
Cash. ...........................................................................................
Accounts Payable to J. Lagman...................................................
(P63,000 + P7,790 = P70,790 P35,000 = P35,790)
35,790
23,300
12,490
4.
P
P34,000
1,210
32,790
21,000
8,000
46,000
___8,000
P115,790
P 18,000
15,000
300
12,490
35,000
__35,000
P115,790
Problem 1 6
1.
Books of Toledo
Toledo, Capital............................................................................
Allowance for Bad Debts (15% x P32,000)..........................
4,800
4,800
Books of Ureta
Ureta, Capital..............................................................................
Allowance for Bad Debts (10% x P24,000)..........................
2,400
10,800
1,200
2,400
12,000
300
900
1,200
18
Chapter 1
2.
3.
3,200
32,000
40,000
10,000
Cash. ...........................................................................................
Accounts Receivable...................................................................
Merchandise................................................................................
Toledo, Capital............................................................................
Allowable for Bad Debts......................................................
Accounts Payable..................................................................
Ureta, Capital........................................................................
To record the investment of Ureta.
22,800
24,000
36,000
300
Cash...................................................................................................
Ureta, Capital..............................................................................
To record Ureta's cash contribution.
3,400
Computation:
Toledo, capital (P68,400 P300)................................................
Divide by Toledo's profit share percentage..................................
Total agreed capital of the partnership.........................................
Multiply by Ureta's profit share percentage.................................
Agreed capital of Ureta...............................................................
Ureta, capital...............................................................................
Cash contribution of Ureta..........................................................
or
Toledo, capital (P68,400 P300)................................................
Less Ureta, capital.......................................................................
Cash contribution of Ureta..........................................................
4,800
10,000
2,000
68,400
2,400
16,000
64,700
3,400
P 68,100
____50%
P136,200
____50%
P 68,100
__64,700
P 3,400
P 68,100
__64,700
P 3,400
4.
P 29,400
P56,000
__7,200
48,800
76,000
__10,000
P164,200
P 26,000
2,000
68,100
__68,100
P164,200
20
Chapter 2
CHAPTER 2
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
2-1: d
Jordan
P120,000
Pippen
P80,000
( 10,000)
( 10,000)
P110,000
P 70,000
JJ
P18,000
KK
LL
P15,000
P 30,000
)
)
P45,000)
( 6,000)
( 6,000)
( 6,000)
P27,000
P 24,000
P39,000
Allan
Michael
Annual salary
P200,000
Balance, equally
( 20,000)
Total
P180,000
2-2: a
Bonus (.20 X P90,000)
P 18,000
Interest
JJ (.15 X P100,000)
KK (.15 X P200,000)
LL (.15 X P300,000)
90,000
Balance, equally
( 18,000)
Total profit share
P 90,000
2-3: a
2-4: a
Interest
Allan - .10 X (P40,000 + 60,000 /2)
Michael - .10 X (P60,000 + 70,000/2)
P 11,500
Balance, equally
__28,000
Total
P 5,000
)
P 6,500)
_14,000
_14,000
P 19,000
P20,500
Greg
Henry
,000
2-5: a
Fred
P12,000
P 6,000
30,000
P 4,000
20,000
( 35,000)
( 35,000)
( 35,000)
P 7,000
( P29,000)
(P11,000)
3,000)
2-6: b
Average Capital
Date
January 1
July 1
August 1
Capital
Balance
140,000
180,000
165,000
Months
Unchanged
6
1
5
12
Peso
Months
P 840,000
180,000
__825,000
P1,845,000
P153,750
Interest
P 15,375
(P153,750 X 10%)
Partnership Operations
21
2-7: c
Date
January 1
April 1
June 1
September 1
Capital
Balance
P16,000
17,600
19,200
15,200
Months
Unchanged
3
2
3
4
12
Average Capital(P201,600/12) =
Peso
Months
P 48,000
35,200
57,600
__60,800
P201,600
P16,800
2-8: a
Net profit before bonus
Net profit after bonus (P24,000/120%)
Bonus to RJ
Balance (P24,000-P4,000)X3/5
Total profit share
P 24,000
__20,000
4,000
__12,000
P 16,000
2-9: a
Interest
Salaries
Balance, 3:2
Total
2-10: b
LT
P3,200
15,000
(11,580)
P 6,620
AM
P 3,600
7,500
( 7,720)
P 3,380
Total
P 6,800
22,500
( 19,300)
P 10,000
P467,500
_132,500
P600,000
_750,000
P150,000
2-11: b
CC
DD
EE Total
P 14,000
P14,000
P 8,400
Salary
000
Balance
28,000
Additional profit to DD
______
Total
( 1,500)
__2,100
P12,500
P10,500
Net income
Fees Earned
Expenses
Net Income
P90,000
_48,000
P42,000
5,600
(
600)
P 19,000
,000
22
Chapter 2
2-12: c
Interest
LL
P 2,000
MM
P 1,250
NN Total
P 750
8,500
9,500
5,700
3,800
_____
__7,050
_____
P20,000
P14,000
P 4,550
RR
SS
TT
P15,000
(P10,000)
_47,500
_35,625
000
Annual Salary
8,500
Additional profit to give LL, P20,000
19,000*
Additional profit to give MM, P14,000
__7,050
Total
550
*(P9,500/50%) = P19,000
2-13: a
Excess (Deficiency)
RR (P80,000 - P95,000)
SS (P50,000 - P40,000)
P 5,000
Balance 4:3:1
__95,000
Total
)
)
_11,875
Total
P100,000
Net Income (200,000 - 100,000) =
2-14: b
AA - 100,000 X 10%
150,000 X 20%
P 40,000
Remainder, 210,000
BB (60,000 X .05)
CC (60,000 X .05)
6,000
Balance, equally
_204,000
Total
P250,000
P62,500
P25,625
P11,875
BB
CC
P100,000
AA
P 10,000
30,000
Total
)
)
P 3,000
)
P 3,000
__68,000
_68,000
_68,000
P108,000
P71,000
P71,000
2-15: a
AJ
Bonus to CJ
Net profit before bonus
P44,000
Net profit after bonus (P44,000/110%)P40,000
P4,000
Interest to BJ
1,000
Salaries
P 10,000
22,000
Balance, 4:4:2
__6,800
_17,000
Total
P 16,800
P44,000
BJ
CJ
Total
P4,000
P1,000
12,000
_6,800
__3,400
P7,800
P19,400
2-16: c
Total profit share of Pedro
Less: Salary to Pedro
Interest
Share in the balance (40%)
P 50,000
__20,000
P200,000
P150,000
__70,000
__70,000
P130,000
P325,000
_220,000
P545,000
Partnership Operations
23
2-17: c
Net income before extraordinary gain and bonus (69,600-12,000)
Net income after bonus (57,600/120%)
Bonus to RR
P 57,600
_48,000
P 9,600
P 24,000
P 24,000
__4,800
P 28,800
RR
P 9,600
24,000
P 33,600
__7,200
P 40,800
Total
P 9,600
48,000
P 57,600
_12,000
P 69,600
Interest
Annual Salary
Remainder 60:40
Total
Mel
P 20,000
36,000
__60,000
P116,000
Jay
P 12,000
_40,000
P 52,000
Total
P 32,000
36,000
_100,000
P168,000
DV
P 15,000
JE
P 3,750
FR Total
(P 7,500)
( 36,875)
( 22,125)
( 14,750)
2-18: a
2-19: a
Interest on excess (Deficiency)
P 11,250
Remainder 5:3:2
( 73,750)
Total
(P 21,875)
(P 18,375) (P 22,250)
2,500)
2-20: c
Correction of 1998 profit:
Net income per books
Understatement of depreciation
Overstatement of inventory, December 31
Adjusted net income
P 19,500
( 2,100)
( 11,400)
P 6,000
Pete
Rico Total
P 9,750
P 9,750
( 3,000)
( 3,000)
P 6,750
P 6,750
500
000)
Required Decrease
P 13,500
2-21: a
Salaries
P164,000
Interest
54,000
Bonus (P360,000-P54,000)X.25
76,500
Tiger
P 64,000
Woods Total
P100,000
24,000
30,000
76,500
Remainder, 30:70
__65,500
Total
P360,000
__19,650
__45,850
P184,150
P175,850
Field
P 25,000
33,600
_23,760
P 82,360
Total
P 20,000
25,000
65,600
30,000
__59,400
P200,000
24
Chapter 2
2-22: a
Salaries
Commission
Interest
Bonus, schedule 1
Remainder, 60:40
Total
Holly
P 20,000
32,000
30,000
__35,640
P117,640
Schedule 1
Net income before salary, commission,
interest and bonus
Less: salaries
Net income before bonus
Net income after bonus (P180,000/120%)
Bonus
P200,000
__20,000
P180,000
_150,000
P 30,000
2-23: a
Capital balance, beginning
P1,000,000
Additional investment
300,000
Capital withdrawal
Mike
P600,000
Tyson
P400,000
100,000
200,000
-200,000
( 100,000)
P500,000
P500,000
P200,000
P300,000
__60,000
__40,000
P260,000
P340,000
P760,000
P840,000
( 200,000)
( 300,000)
P560,000
P540,000
300,000
Capital balance before profit and loss distribution
P1,000,000
Net income:
Salary
0,000
Balance, 3:2
__100,000
Total
0,000
Total
P1,600,000
Drawings
00,000)
Capital balance, end
P1,100,000
Average Capital - King:
Date
January 1
April 1
Capital
Balance
P40,000
55,000
Months
Unchanged
3
9
12
Peso
Months
P120,000
_495,000
P615,000
Months
Unchanged
7
5
12
Peso
Months
P700,000
__650,000
P1,350,000
Capital
Balance
P100,000
130,000
25
2-24: d
Distribution of Net Income - Schedule 1
Interest
Bonus, Schedule 2
Salaries
Residual, 50:50
Total
King
P 5,125
12,725
25,000
( 2,050)
P40,800
Queen
P11,250
30,000
_(2,050)
P39,200
Total
P16,375
12,725
55,000
_(4,100)
P80,000
Schedule 2
Net income before allocation
Less: Interest
Net income before bonus
Net income after bonus (P63,625/125%)
Bonus
P80,000
_16,375
P63,625
_50,900
P12,725
King
P40,000
_15,000
Queen
P100,000
__30,000
Total
P140,000
__45,000
P55,000
40,800
( 20,800)
P75,000
P130,000
39,000
( 20,800)
P148,400
P185,000
80,000
( 41,600)
P223,400
2-25: d
Total receipts (P1,500,000 + P1,625,000)
Expenses
Net income
P3,125,000
( 1,080,000)
P2,045,000
Distribution to Partners
Red P1,500,000/P3,125,000 X P2,045,000 =
Blue P1,625,000/P3,125,000 X P2,045,000 =
P 981,600 (1)
_1,063,400
P2,045,000
P 374,000
___22,000
P 396,000
1,063,400
( 750,000)
P 709,400 (2)
26
Chapter 2
2-26: a
Ray
P150,000
Sam
P180,000
_______
__60,000
150,000
240,000
15,000
20,000
51,000
34,000
66,000
54,000
Total
510,000
Salaries
_42,000
216,000
294,000
_18,000
_24,000
Total
552,000
Drawings
(42,000)
234,000
318,000
(18,000)
(24,000)
P216,000
P294,000
Susan
Tanny
2-27: a
P150,000
P30,000
8,000
_______
(6,000)
158,000
24,000
23,400
4,050
6,000
Total
(1,725)
(1,725)
21,675
_8,325
179,675
32,325
(12,000)
(12,000)
30,000
Total
212,000
Drawings
(24,000)
Capital balances, 12/31
P167,675
P20,325
P188,000
Partnership Operations
27
2-28: a
Capital balances, beg. 1st year
P300,000
Loss distribution, 1st year:
Salaries
30,000
Interest
30,000
Balance, 5:3:2
(80,000)
Total
Sin
P110,000
Tan
P80,000
20,000
Uy
P110,000
10,000
11,000
8,000
11,000
(40,000)
(16,000)
(24,000)
( 9,000)
( 8,000)
( 3,000)
(20,000)
Total
280,000
Drawings
(30,000)
Capital balances, beg. 2nd year
250,000
Profit distribution, 2nd year:
Salaries
30,000
Interest
25,000
Balance, 5:3:2
(15,000)
Total
40,000
Total
290,000
Drawings
_(30,000)
Capital balances, end of 2nd year
P260,000
101,000
72,000
107,000
(10,000)
(10,000)
(10,000)
91,000
62,000
97,000
20,000
10,000
9,100
6,200
9,700
( 7,500)
( 4,500)
( 3,000)
21,600
_1,700
16,700
112,600
63,700
113,700
_(10,000)
(10,000)
_(10,000)
P102,600
P53,700
P103,700
Jay
P30,000
Kay
P30,000
Loi
P30,000
_(5,000)
_(4,000)
5,000
______
25,000
26,000
35,000
3,000
7,000
_1,000
3,000
3,000
_1,000
_1,000
36,000
30,000
39,000
5,000
______
_(3,000)
_(8,000)
41,000
27,000
31,000
3,600
3,000
3,900
7,000
_1,500
_1,500
_1,500
53,100
31,500
36,400
2-29: c
Capital balances, 1/1/06
P90,000
Additional investment, 2006
Capital withdrawal, 2006
_(9,000)
Capital balances
86,000
Profit distribution, 2006:
Interest
Salary
Balance, equally
__3,000
Capital balances, 1/1/07
105,000
Additional investment, 2007
Capital withdrawal, 2002
(11,000)
Capital balances
99,000
Profit distribution, 2007:
Interest
10,500
Salary
Balance, equally
__4,500
Capital balances, 1/1/08
121,000
Additional investment, 2008
6,000
______
_(4,000)
_(2,000)
53,100
27,500
40,400
5,310
3,150
3,640
7,000
__3,300
__3,300
__3,300
P68,710
P33,950
P47,340
(2,000)
P66,710
(2,000)
P31,950
(2,000)
P45,340
28
Chapter 2
2-30: a
Ken
Capital balances, 1/1/07
P300,000
Additional investment, 2007
40,000
Capital withdrawal, 2007
( 20,000)
Balances
320,000
Profit distribution, 2007 (Schedule 1)
Salary
60,000
Balance, beg. Capital ratio
60,000
Capital balances, 1/1/08
440,000
Capital withdrawal, 2008
( 60,000)
Balances
380,000
Profit distribution, 2008:
Salary
60,000
Balance, beg. capital ratio
__60,000
P100,000
Len
P100,000
Mon
P100,000
40,000
( 20,000)
_______
_______
80,000
140,000
100,000
60,000
20,000
20,000
20,000
100,000
160,000
180,000
( 20,000)
( 40,000)
_______
80,000
120,000
180,000
60,000
__13,636
__21,818
__24,546
P 93,636
P141,818
P264,546
P500,000
_260,000
P240,000
P120,000
2-31: d
Capital balance, 1/1/08
Additional investment
Withdrawals
Cap. bal. before P/L dist.
NP: Salary (16,500 x 12)
Interest on EC (15%)
Balance 25:30:45
Total
Capital balance 12/31/08
_Nardo_
P280,000
96,000
376,000
42,000
( 19,875 )
22,125
P398,125
__Orly
P300,000
60,000
( 90,000 )
270,000
198,000
45,000
( 23,850 )
219,150
P 489,150
__Pedro_
P170,000
( 72,000 )
98,000
25,500
( 35,775 )
( 10,275 )
P 87,72
_Total_
P750,000
156,000
(162,000)
744,000
198,000
112,500
(79,500 )
231,000
P975,000
2-32: d
Sam capital, beginning
Additional investment (Land)
Drawings
Capital balance before net profit (loss)
Capital balance, end
Profit share (40%)
Net profit (P50,000 40%)
P120,000
60,000
( 80,000 )
100,000
150,000
50,000
P125,000
Partnership Operations
29
2-33: a
__Joe__
Capital balance, 1/2/07
P 80,000
Net loss- 2007:
Annual salary
96,000
10% interest on beg. capital
8,000
Bal. beg. cap. ratio: 8:4
( 108,000)
Total
( 4,000)
Capital balance
76,000
Drawings
( 4,000)
Capital balance, 12/31/07
72,000
Net profit- 2008:
Annual salary
96,000
10% interest on BC
7,200
Bonus to JoeNPBB
P 22000
NPAB (22000/110%)20000 2,000
Balance equally
( 67,300)
Total
37,900
__Tom__
P 40,000
__Total__
P120,000
48,000
4,000
( 54,000)
( 2,000)
38,000
( 4,000)
34,000
144,000
12,000
( 162,000)
( 6,000)
114,000
( 8,000)
106,000
48,000
3,400
144,000
10,600
( 67,300)
( 15,900)
2,000
( 134,600)
22,000
Total
Drawings
109,900
4,000)
105,900
18,100
4,000)
128,000
8,000)
14,100
120,000
2-34: a
Decrease in capital
Drawings
Contribution
Profit share
Net income (45,000 30)
P 60,000
( 130,000)
25,000
45,000
P150,000
30
Chapter 2
SOLUTIONS TO PROBLEMS
Problem 2 1
1.
Castro
Diaz
:
:
(P26,000/P42,500) x
(P16,500/P42,500) x
P23,800
P23,800
=
=
P14,560
__9,240
P23,800
2.
Castro
Diaz
:
:
(P31,250/P50,000) x
(P18,750/P50,000) x
P23,800
P23,800
=
=
P14,875
__8,925
P23,800
Capital
Balances
Months
Unchanged
Peso
Months
1/1.....................................
4/10...................................
5/1.....................................
8/1.....................................
P26,000
29,000
36,000
32,000
3
1
3
5
12
P31,250
Capital
Date
Balances
1/1..................................... P16,500
6/1.....................................
21,500
9/1.....................................
19,500
Months
Unchanged
5
3
4
12
Peso
Months
P 82,500
64,500
__78,000
P225,000
P18,750
Interest........................................................
Salaries........................................................
Balance, equally..........................................
Total............................................................
Castro
P 7,500
36,000
( 24,100)
P19,400
Diaz
P4,500
24,000
(24,100)
P 4,400
Total
P12,000
60,000
( 48,200)
P23,800
Bonus (a)....................................................
Interest (b)...................................................
Balance, 3:2................................................
Total............................................................
Castro
P 4,760
1,100
_10,764
P16,624
Diaz
P
_7,176
P7,176
Total
P 4,760
1,100
_17,940
P23,800
4.
Partnership Operations
31
Computations:
a. Net profit before bonus................................................
Net profit after bonus (P23,800 125%).....................
Bonus...........................................................................
b.
5.
P 78,000
29,000
108,000
_160,000
P375,000
Castro
Diaz
P23,800
_19,040
P 4,760
P29,000
_18,000
P11,000
___10%
P 1,100
:
:
P14,280
__9,520
P23,800
(P3,000/P5,000) x P23,800
(P2,000/P5,000) x P23,800
=
=
Problem 2 2
a.
Average Capital:
Robin:
Date
Jan. 1
Feb. 28
Apr. 30
Sept. 30
Balances
P135,000
95,000
175,000
195,000
Months
Unchanged
2
2
5
3
12
Peso
Months
P270,000
190,000
875,000
__585,000
P1,920,000
Months
Unchanged
3
3
2
2
2
12
Peso
Months
P420,000
600,000
300,000
440,000
__400,000
P2,160,000
Date
Balances
Jan. 1
Mar. 31
June 30
Aug. 31
Oct. 31
P140,000
200,000
150,000
220,000
200,000
P240,000
_270,000
P510,000
32
Chapter 2
b.
Interest on ave. capital.........................................
Salaries................................................................
Bonus (P510,000 30,600 160,000) x 25%)....
Balance, equally..................................................
Totals...................................................................
c.
Interest:
Robin (P195,000 P135,000) 10%.............
Hood (P200,000 P140,000) 10%..............
Balance, equally..................................................
Totals...................................................................
d.
Salaries................................................................
Robin
P 14,400
60,000
78,850
_119,775
P274,025
Hood
P 16,200
100,000
_119,775
P235,975
Total
P 30,600
160,000
79,850
_239,550
P510,000
Robin
Hood
Totals
249,000
255,000
P 6,000
249,000
255,000
P 12,000
498,000
510,000
Robin
P 80,000
Hood
P120,000
Total
P200,000
P 6,000
62,000
_248,000
P510,000
P510,000
200,000
310,000
_248,000
P 62,000
Problem 2 3
a.
De Villa
P 30,000
De Vera
P 20,000
31,200
9,818
__44,182
P105,200
Salaries................................................................
Commission (2% x P1,000,000)..........................
Interest of 8% on average capital.........................
32,800
Bonus (see computations below).........................
9,818
Balance, equally..................................................
__44,182
Total ....................................................................
P116,800
Bonus Computations:
Income before salary, commissions, interest & bonus.............................
Salary and commission (P30,000 + P20,000)..........................................
Interest....................................................................................................
Income before bonus...............................................................................
Income after bonus (P108,000 110%)..................................................
Bonus......................................................................................................
b.
Income Summary.................................................
De Villa, capital...........................................
De Vera, capital...........................................
Total
P 30,000
20,000
64,000
19,636
__88,364
P222,000
P222,000
( 50,000)
( 64,000)
108,000
_98,182
P 9,818
P 222,000
116,800
105,200
Partnership Operations
33
Problem 2 4
a.
Salaries...............................................
Bonus (see computation below)..........
Interest (see computation below)........
Balance, 3:3:4.....................................
Total ...................................................
East
P15,000
3,760
2,800
__3,180
P24,740
North
P20,000
West
P18,000
4,000
__3,180
P27,180
4,800
__4,240
P27,040
Bonus computations:
Net income before bonus..........................................................................
Net income after bonus (P78,960 105%)................................................
Bonus........................................................................................................
Interest computations:
East (10% x P28,000)...............................................................................
North (10% x P40,000).............................................................................
Total
P53,000
3,760
11,600
_10,600
P78,960
P78,960
_75,200
P 3,760
P 2,800
4,000
Balances
P30,000
36,000
28,000
East
P 3,133
24,000
( 6,056)
P 21,077
North
P 3,633
21,000
4,280
( 6,055)
P 22,858
West
P 5,200
25,000
( 6,055)
P 24,145
Months
Unchanged
4
4
4
12
__4,800
P11,600
Total
P11,966
70,000
4,280
( 18,166)
P 68,080
Pesos
Months
P120,000
144,000
_112,000
P376,000
P 31,333
North:
Pesos
Months
P80,000
124,000
72,000
_160,000
P436,000
Date
1/1
3/1
7/1
9/1
Balances
P40,000
31,000
36,000
40,000
Months
Unchanged
2
4
2
4
12
P 36,333
Chapter 2
West:
Date
1/1
4/1
6/1
8/1
Balances
P50,000
57,000
60,000
48,000
Months
Unchanged
3
2
2
5
12
Pesos
Months
P150,000
114,000
120,000
_240,000
P624,000
P 52,000
Interest Computations:
East (10% x P31,333)...........................................................
North (10% x P36,333).........................................................
West (10% x P52,000)..........................................................
Total.....................................................................................
P 3,133
3,633
__5,200
P 11,966
Bonus Computations:
Net income...........................................................................
Less Salary...........................................................................
Net income before bonus......................................................
Net income after bonus (P47,080 110%)...........................
Bonus to North.....................................................................
* To Total
c.
East
West
P 8,990
5,000
__8,237.50
P22,227.50
Total
P 8,990
39,000
12,000
_32,950
P92,940
Bonus Computations:
Net income before salaries & bonus..........................................................
Less Salaries (P21,000 + P18,000)............................................................
Net income before bonus..........................................................................
Net income after bonus (P53,940 120%)................................................
Bonus to West...........................................................................................
P92,940
_39,000
P53,940
_44,950
P 8,990
North
P 68,000
_21,000
47,080
_42,800
P 4,280
P21,000 P 18,000
3,000
4,000
_13,180 _11,532.50
P37,180 P33,532.50
Problem 2 5
a.
Maria
P12,000
7,200
__3,133
P22,333
Clara
P10,000
9,600
__3,133
P22,733
Rita
P 8,000
13,800
__3,134
P24,934
Partnership Operations
35
Total
P30,000
30,600
__9,410
P70,000
P 3,200
__4,000
P 7,200
9,600
P10,800
__3,000
_13,800
P30,600
Maria
P 80,000
20,000
Clara
P120,000
Rita
P180,000
Total
P380,000
20,000
Capital Withdrawal.............................
Net Income.........................................
Drawings ..........................................
Balance, Dec. 31.................................
22,333
( 10,000)
P112,333
22,733
( 10,000)
P132,733
( 30,000)
24,934
( 10,000)
P164,934
( 30,000)
70,000
( 30,000)
P410,000
Benny
Celia
Total
P20,000
Problem 2 6
1.
2.
Alvin
P 20,000
12,000
20,000
(29,400)
P 2,600
_(29,400)
P( 9,400)
22,000
_(39,200)
P(17,200)
54,000
_(98,000)
P(24,000)
Benny
P180,000
60,000
________
240,000
__(9,400)
230,600
_______
P230,600
Celia
P220,000
40,000
_(20,000)
240,000
_(17,200)
222,800
_______
P222,800
Total
P520,000
100,000
_(20,000)
600,000
_(24,000)
576,000
_(16,000)
P560,000
Alvin
P120,000
_______
120,000
__2,600
122,600
_(16,000)
P106,600
36
3.
Chapter 2
Correcting entry:
Celia capital........................................
2,400
Alvin capital...............................
2,200
Benny capital.............................
200
To correct capital accounts for error in loss allocation computed as follows:
Alvin
Benny
Celia
Correct loss allocation........................
P2,600
P(9,400) P(17,200)
Actual loss allocation.........................
__(400)
__9,600
__14,800
Adjustment.........................................
P2,200
P 200
P ( 2,400)
Problem 2 7
Dino
P45,000
Nelson
P45,000
Oscar
P45,000
Total
P135,000
_15,000
60,000
(1,800)
(17,000)
41,200
_____
41,200
10,800
(17,000)
35,000
______
35,000
56,365
(19,000)
P72,365
_15,000
60,000
( 1,800)
( 7,000)
51,200
_____
51,200
8,100
( 7,000)
52,300
______
52,300
42,272
( 9,000)
P86,572
__6,000
51,000
( 1,800)
( 3,200)
46,000
__6,000
52,000
8,100
( 3,200)
56,900
___6,000
62,900
20,363
( 3,200)
P80,063
__36,000
171,000
( 5,400)
( 27,200)
138,400
___6,000
144,400
27,000
( 27,200)
144,200
___6,000
150,200
120,000
( 31,200)
P239,000
Dino
P48,000
3,600
_* 4,765
P56,365
Nelson
P24,000
10,909
3,600
__4,763
P43,272
Oscar
P12,000
3,600
__4,763
P20,363
Total
P84,000
10,909
10,800
__14,291
P120,000
Schedule 1:
Annual salaries...................................
Bonus (see computations below)........
Interest................................................
Balance, equally.................................
Totals..................................................
Bonus computations:
Net income before bonus......................................................................
Net income after bonus (P120,000 110%)..........................._109,091
Bonus to Nelson....................................................................................
P120,000
P 10,909
* To Total
Partnership Operations
37
Problem 2 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2008
Red
40,200
8,800
White
20,200
4,800
Blue
40,600
4,400
_22,800
_71,800
10,400
_22,800
_47,800
8,800
_11,400
_56,400
11,600
2,400
900
P12,800
P59,000
P 9,700
P38,100
1,800
P13,400
P43,000
Green
3,200
______
__3,200
5,000
Total
P101,000
18,000
3,200
_57,000
179,200
35,800
P 5,000
P (1,800)
3,300
1,800
P 40,900
P138,300
P120,000
P38,700
__1,800
36,900
2,600
____500
P40,000
__1,800
41,800
P 8,800
48,000
4,400
________
P 78,200
P18,000
24,000
__8,000
P16,000
P 3,200
__21,200
P 57,000
P22,800
22,800
_11,400
P57,000
Chapter 2
Problem 2 9
Allan, Eman and Gino Partnership
Statement of Profit Distribution
Year Ended December 31, 2008
Allan
Eman
Gino
Total
Interest
Commission (P16,120 P5,000) x 10%
Balance, equally
P 4,000
__5,926
P 750
1,112
_5,925
P 250
1,112
_5,925
P 5,000
2,224
_17,776
Total
Adjustments (50% of P25,000 to Allan)
P 9,926
__2,574
P7,787
(1,287)
P7,287
(1,287)
P25,000
_____
Total
P12,500
P6,500
P6,000
P25,000
Problem 2 10
Gary, Sonny, and Letty Partnership
Statement of Partners' Capital Accounts
Year Ended December 31, 2008
Gary
Sonny
Letty
Total
P210,000
___9,100
P180,000
_______
P 90,000
_______
P480,000
__9,100
Total
Profit distribution:
Salaries
Interest
Bonus to Gary and Sonny (Schedule 1)
Balance, equally
_219,100
_180,000
_90,000
489,100
10,640
10,800
35,840
58,320
13,680
25,920
__(9,720)
11,520
21,600
_(9,720)
_(9,720)(29,160)
Total
__29,880
_23,400
_11,720
Total
Drawings
_(48,000)
248,980
_(21,000)
203,400
101,720
(18,000) __(9,000)
P227,980
P185,400
P 92,720
_65,000
554,100
P506,100
P 65,000
P35,840
_58,320
__94,160
P(29,160)
39
Problem 2 11
a. Entries to record the formation of the partnership and the events that occurred during 2008:
Cash
Inventory
Land
Equipment
Mortgage payable
Installment note payable
Kobe, capital (P600,000 + P800,000
+ P1,000,000 P200,000)
Lebron, capital (P500,000 + P1,300,000
- P500,000)
1,100,000
800,000
1,300,000
1,000,000
500,000
200,000
2,200,000
1,300,000
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Inventory
Cash
Accounts payable
300,000
240,000
60,000
Mortgage payable
Interest expense
Cash
50,000
20,000
35,000
20,000
Accounts receivable
Cash
Sales
70,000
55,000
210,000
1,340,000
1,550,000
340,000
Depreciation expense
Accumulated depreciation
60,000
Kobe, drawing
Lebron, drawing
Cash
Sales
278,000
62,000
60,000
104,000
104,000
208,000
1,550,000
Income summary
(9)
1,550,000
900,000
900,000
40
Chapter 2
Income summary
Cost of good sold
Selling and general expenses
Depreciation expense
Interest expense
1,340,000
900,000
340,000
60,000
40,000
Income summary
Kobe, capital
Lebron, capital
210,000
Kobe, capital
Lebron, capital
Kobe, drawing
104,000
104,000
105,000
105,000
104,000
Lebron, drawing
104,000
Lebron
40%
P1,300,000
Total
100%
210,000
39,000
P105,000
Salaries
(240,000)
P(135,000)
Residual deficit
(135,000)
Total
b.
120,000
120,000
(81,000)
(54,000)
P105,000
P105,000
-0-
Kobe-Lebron Partnership
Income Statement
For the Year Ended December 31, 2008
Sales
P1,550,000
Less: Cost of goods sold:
Inventory, January 1
Purchases
Goods available for sale
Less: Inventory, December 31
(900,000)
Gross profit
Less: Selling and general expenses
Depreciation expenses
Operating income
Nonoperating expense- interest
Net income
P800,000
300,000
P1,100,000
(200,000)
P650,000
340,000
60,000
400,000
P250,000
(40,000)
P210,000
Partnership Operations
c.
41
Kobe-Lebron Partnership
Balance Sheet
At December 31, 2008
Assets
Cash
Accounts receivable
P1,589,000
210,000
Inventory
Land
Equipment (net)
Total assets
200,000
1,300,000
940,000
P4,239,000
Liabilities and Capital
Liabilities:
Accounts payable
Accrued expenses payable
Installment note payable
Mortgage payable
Total liabilities
Capital:
Kobe, capital
Lebron, capital
Total capital
Total liabilities and capital
P60,000
62,000
165,000
450,000
P737,000
P2,201,000
1,301,000
3,502,000
P4239,000
42
Chapter 3
CHAPTER 3
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
3-1: c
Implied capital of the partnership (P90,000/20%)
P450,000
Actual value of the partnership
( 420,000)
Goodwill
30,000
HIZON
Capital balances before Goodwill
Goodwill to old partners
_____
Total
Purchase by Hizon (20%)
_90,000
Capital balances after admission
P 90,000
AQUINO
LOCSIN
DAVID
P252,000
__18,000
P126,000
___9,000
P42,000
__3,000
P270,000
( 54,000)
P135,000
( 27,000)
P45,000
( 9,000)
P216,000
P108,000
P36,000
AQUINO
LOCSIN
DAVID
P252,000
( 50,400)
P126,000
( 25,200)
P42,000
( 8,400)
P201,600
P100,800
P33,600
AQUINO
LOCSIN
DAVID
P 50,400
P 25,200
P 8,400
__3,600
__1,800
___600
P 54,000
P 27,000
P 9,000
3-2: b
HIZON
Capital balances before admission
Purchase by Hizon (20%)
_84,000
Capital balances after admission
P 84,000
3-3: d
TOTAL
Capital transferred
P 84,000
Excess divided using profit and loss ratio
__6,000
Cash distribution
P 90,000
3-4: b
Selling price
Interest sold (444,000X1/5)
Combine gain
3-5: b
Implied value of the partnership (P40,000/1/4)
P160,000
Actual value
( 140,000)
P132,000
( 88,800)
P 43,200
Goodwill
20,000
DIAZ
Cash balances
P 20,000
Goodwill, Profit and Loss ratio
__2,000
Total
BERNAL
CUEVAS
P 80,000
P40,000
__12,000
__6,000
P 92,000
P46,000
( 23,000)
( 11,500)
P 69,000
P34,500
BANZON
CORTEZ
P 16,000
P 4,000
__6,000
__4,000
P 22,000
P 8,000
PEREZ
CADIZ
P 24,000
P 48,000
5,430
10,860
000
Capital Transfer (1/4)
( 5,500)
Capital balances after admission
P 16,500
Partnership Dissolution Changes in Ownership
3-6: b
TOTAL
Capital Transfer (20%)
P20,000
Excess, Profit and Loss ratio
_10,000
Cash distribution
P30,000
3-7: d
TOTAL
Capital balances beginning
P 72,000
Net profit, 1:2
16,290
Drawings
( 5,050)
( 8,000)
P 24,380
P 50,860
( 5,570)
( 13,240)
P 18,810
P 37,620
Capital transfer
P18,810
Excess, 1:2
_11,190
Cash
P 5,570
P 13,240
__3,730
__7,460
P 9,300
P 20,700
,050)
P30,000
3-8: a
Total agreed capital (P150,000/5/6)
Diana's Interest
Cash distribution
P180,000
1/6
P 30,000
P180,000
( 156,000)
P 24,000
3-9: a
3-10: b
Contributed
Agreed
Capital
Capital
P110,000
P100,000
__40,000
__50,000
P150,000
P150,000
Old partners
New partner
Total
Increase
(Dec.)
(P 10,000)
_10,000
P
P 60,000
( 6,000)
P 54,000
P 77,000
1/5
P 15,400
3-11: c
44
Chapter 3
3-12: b
Old partner
New partner
Total
Contributed
Capital
P 65,000
25,000 (1/3)
P 90,000
Agreed
Capital
P60,000
30,000
P90,000
Increase
(Dec.)
(P 5,000)
_5,000
P
FRED
P 35,000
(
3,500)
P 31,500
RAUL
P30,000
( 1,500)
P28,500
LORY
25,000
__5,000
P 30,000
3-13: c
Total agreed capital (90,000+60,000+70,000)
P220,000
Augusts' interest
Agreed capital
Contributed capital
Bonus to June & July
_____1/4
P 55,000
__70,000
P 15,000
JUNE
P90,000
__7,500
P97,500
JULY
P 60,000
__7,500
P 67,500
3-14: a
Total agreed capital (52,000 + 88,000)/80%)
Total capital of Mira & Nina after admission
Cash paid by Elma
P175,000
( 140,000)
P 35,000
3-15: a
Total agreed capital (P41,600/2/3)
Total contributed capital (P23,000+18,600+16,000)
Goodwill to new partner, Ang
LIM
P23,000
_____
P23,000
P 62,400
( 57,600)
P 4,800
ONG
P 18,600
______
P 18,600
ANG
16,000
__4,800
P20,800
3-16: a
Capital balances before
admission
P1,300,000
Admission by Dong:
By Purchase (1/2)
By Investment
___300,000
Capital balances before
Goodwill and Bonus
P1,600,000
Goodwill to Old Partners (sch. 1)
Bonus to Old Partners
(sch. 1)
________
Capital balances after
admission
ANG
BENG
CHING
DONG
P600,000
P 400,000
P 300,000
( 300,000)
_______
_______
_______
300,000
_300,000
P300,000
P 400,000
P 300,000
P600,000
150,000
__37,500
150,000
__37,500
100,000
__25,000
( 100,000)
P487,500
P 587,500
P 425,000
P500,000
TOTAL
400,000
P2,000,000
Schedule 1:
Old Partners
New Partner
Total
CC
AC
P 1,000,000 P1,500,000
600,000 (25%) __500,000
P 1,600,000 P2,000,000
Inc. (Dec.)
P500,000
( 100,000) Bonus
P400,000 GW
3-17: b
Capital balances before
admission of Alma
P 200,000
Admission of Alma:
Investment
Goodwill to old partner,
70:30 (sch. 1)
___40,000
Capital balances before
admission of Lorna
P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2
( P40,000)
Investment
Goodwill to old partners,
5:3:2 (sch. 2)
___20,000
Capital balances after
admission
P 375,000
MONA
LIZA
ALMA
LORNA
P150,000
P 50,000
80,000
__28,000
___12,000
_______
______
P178,000
P 62,000
P 80,000
(P 20,000)
(P 12,000) (
P8,000)
TOTAL
80,000
75,000
__10,000
____6,000
____4,000
______
P168,000
P 56,000
P 76,000
P 75,000
75,000
Schedule 1:
Total agreed capital (80,000/25%)
P 320,000
Total capital contributed (200,000+80,000)
( 280,000)
Goodwill to old partners, 70:30
40,000
Schedule 2:
Total agreed capital (75,000/20%)
P 375,000
Total contributed capital (280,000+75,000)
( 355,000)
Goodwill to old partners, 5:3:2
20,000
46
Chapter 3
3-18: c
TOTAL
Unadjusted capital balances
P320,000
Overvaluation of Marketable Securities
( 25,000)
Allowance for Bad Debts
( 25,000)
Adjusted capital balances before admission
P270,000
Total agreed capital (270,000/2/3)
Green's interest
Investment
RED
WHITE
BLUE
P175,000
P100,000
P 45,000
( 12,500)
( 7,500)
( 5,000)
( 12,500)
( 7,500)
( 5,000)
P150,000
P 85,000
P 35,000
P405,000
1/3
P135,000
3-19: b
TOTAL
Capital balances before
admission
P720,000
Capital transfer
to WW (1/6)
______
Balances
P720,000
Equalization of capital
______
Balances
P720,000
Net profit, equally
12,600
Drawings (2 months)
_( 7,000)
Capital balances before
WWs Investment
P725,600
XX
YY
ZZ
WW
P360,000
P225,000
P135,000
( 60,000)
( 37,500)
( 22,500)
_120,000
P300,000
P187,500
P112,500
P120,000
( 100,000)
__12,500
__87,500
______
P200,000
P200,000
P200,000
P120,000
3,150
3,150
3,150
3,150
_( 1,500)
_( 2,000)
_( 1,500)
_( 2,000)
P201,650
P201,150
P201,650
P121,150
P906,675
1/3
P302,225
_121,150
P181,075
3-20: a
Capital balances
P 45,000
Understatement of assets, P12,000
A
P 20,750
B
P 19,250
__3,000
__3,000
__6,000
Balances before settlement to A
P 51,000
P 23,750
Settlement to A
A's interest (23,750+5,000)
Partial Goodwill to A
P 30,250
_28,750
P 1,500
P 22,250
Therefore:
1. Under partial Goodwill method the capital balances of B is P 22,250
2. Under Bonus method the capital balances of B would be:
B, capital balances before settlement to A
P 22,250
Bonus to A (1,500X25/75)
_( 500)
B, capital after retirement of A
P 21,750
Partnership Dissolution Changes in Ownership
3-21: a
Perez
Suarez
Capital balances
P 200,000
Net income, P140,000
28,000
Undervaluation of inventory, P20,000
____4,000
Capital balances before settlement to Perez
P 232,000
Settlement to Perez
Bonus to Perez
_( 6,000)
Capital balances after retirement
P 226,000
Reyes
P 100,000
P 150,000
70,000
42,000
___10,000
____6,000
P 180,000
P 198,000
( 195,000)
___15,000
_(
P 189,000
ELY
FLOR
P 320,000
P 192,000
9,000)
3-22: c
GLOR
Capital balances
P 128,000
Settlement to Ely
Total Goodwill (P40,000/50%)P80,000
___16,000
Capital balances after retirement of Ely
P 144,000
( 360,000)
__40,000 ___24,000
P
P 216,000
3-23: c
Capital balance 3/1/07
Net loss-2007:
Salary (10 months)
_Alma_
480,000
_Betty_
240,000
_Total_
720,000
480,000
240,000
720,000
40,000
( 544,000)
( 24,000)
456,000
( 24,000)
432,000
20,000
( 272,000)
( 12,000)
228,000
( 24,000)
204,000
60,000
( 816,000)
( 36,000)
684,000
( 48,000)
636,000
576,000
43,200
( 397,800)
221,400
653,400
( 24,000)
629,400
288,000
20,400
( 397,800)
( 89,400)
114,600
( 24,000)
90,600
864,000
63,600
( 795,600)
132,000
768,000
( 48,000)
720,000
1,120,000
40%
448,000
400,000
48,000
48
Chapter 3
3-24: a
Capital balance, beg. 2007
2007 net profit (90,000 59,000):
Interest
Compensation
Balance, 4:6
Total
Balance
Withdrawal
Repairs (charge to Pete)
Capital balance, 12/31/07
_Pete_
P80,000
8,000
5,000
( 2,000)
11,000
91,000
( 8,000)
( 5,000)
78,000
_Carlos_
P30,000
3,000
20,000
( 3,000)
20,000
50,000
( 11,000)
39,000
_Total_
P110,000
11,000
25,000
( 5,000)
31,000
141,000
(19,000)
( 5,000)
117,000
P160,000
20%
32,000
43,000
11,000
SOLUTIONS TO PROBLEMS
(a)
Problem 3 1
1. Goodwill Method:
Total agreed capital (P75,000 25%).....................................P300,000
Total contributed capital........................................................ ._275,000
Goodwill to old partners, P/L ratio..........................................P 25,000
Entry
Goodwill...........................................................................
Cash..................................................................................
Red, capital..................................................................
White, capital...............................................................
Blue, capital.................................................................
Green, capital...............................................................
25,000
75,000
2. Bonus Method:
Contributed capital of Green....................................................P 75,000
Agreed capital of Green (P275,000 x 25%).............................._68,750
Bonus to old partners, P/L ratio...............................................P 6,250
5,000
10,000
10,000
75,000
Entry:
Cash..................................................................................
Green, capital...............................................................
Red, capital..................................................................
White, capital...............................................................
Blue, capital.................................................................
75,000
68,750
1,250
2,500
2,500
100,000
20,000
40,000
40,000
20,000
30,000
25,000
15,000
20,000
15,000
75,000
50,000
50
Chapter 3
Problem 3 2
a.
TOMAS
_128,000
P128,000
P700,000
_640,000
P 60,000
BRUNO
P200,000
___9,000
P209,000
BRUNO
P200,000
__45,000
P245,000
MARIO
P300,000
__15,000
P315,000
TOMAS
P
_140,000
P140,000
P140,000
_128,000
P 12,000
TOTAL
P500,000
_140,000
P640,000
TOTAL
P500,000
_200,000
P700,000
BRUNO
P245,000
( 36,000)
P209,000
MARIO
P315,000
( 12,000)
P303,000
TOMAS
TOTAL
P140,000
P700,000
( 12,000) ( 60,000)
P128,000
P640,000
BRUNO
P245,000
( 24,000)
P221,000
MARIO
P315,000
( 24,000)
P291,000
TOMAS
TOTAL
P140,000
P700,000
( 12,000) ( 60,000)
P128,000
P640,000
b.
Problem 3 3
a.
P180,000
_140,000
P 40,000
P240,000
_180,000
P 60,000
P120,000
_140,000
P 20,000
P 40,000
__20,000
P 20,000
b.
Problem 3 4
a.
b.
Cash..................................................................................................
Ellen, capital...............................................................................
60,000
100,000
80,000
20,000
60,000
60,000
60,000
No Goodwill, no bonus because the total agreed capital is equal to the total contributed
capital.
c.
20,000
Nancy, capital....................................................................................
Ellen, capital...............................................................................
d.
Cash..................................................................................................
Ellen, capital...............................................................................
8,000
28,000
32,000
32,000
Since the total agreed capital (P172,000) is equal to the total contributed capital (P172,000),
then no Goodwill or bonus is to be recorded.
e.
32,000
3,000
35,000
Problem 3 5
a.
b.
Cash..................................................................................................
Cherry capital..............................................................................
40,000
40,000
52
Chapter 3
Entry:
Cash. ..........................................................................................
Cherry, capital.......................................................................
Helen, capital........................................................................
Cathy, capital........................................................................
c.
50,000
42,500
5,250
2,250
25,000
7,875
3,375
36,250
d.
e.
50,000
30,000
50,000
21,000
9,000
25,000
15,000
40,000
Problem 3 6
a.
P800,000
_____1/4
P200,000
b.
P840,000
_____1/4
P210,000
d.
e.
P832,000
_600,000
P232,000
P800,000
__10,000
Contributed capital........................................................................................................................
Contributed capital of old partners................................................................................................
790,000
_600,000
P190,000
P820,000
_600,000
P220,000
Problem 3 7
a.
b.
Tony, capital
........................................................................................................
Noel, capital......................................................................................................
40,000
Cash
90,000
........................................................................................................
40,000
Noel, capital......................................................................................................
(P180,000 2/3) x 1/3 = P90,000.
c.
Cash.........................................................................................................................
Goodwill ..................................................................................................................
Noel, capital......................................................................................................
90,000
56,000
4,000
60,000
Subas, capital
.....
Tony, capital
...
Inventory.............
24,000
14,400
9,600
Cash.........................................................................................................................
52,000
Noel, capital......................................................................................................
Total agreed capital (P52,000 1/4)...............................................................................P208,000
Total capital before inventory write-down (180,000 + 52,000)......................................(232,000)
e.
52,000
55,200
36,800
68,000
54
Chapter 3
f.
Cash..................................................................................................
Subas, capital.....................................................................................
Tony, capital .....................................................................................
Noel, capital................................................................................
40,000
2,400
1,600
44,000
Cash..................................................................................................
Goodwill...........................................................................................
Noel, capital................................................................................
Subas, capital (P60,000 x 3/5).....................................................
Tony, capital (P60,000 x 2/5)......................................................
P60,000
60,000
P 60,000
36,000
24,000
b.
c.
Conny, capital....................................................................................
Andy, capital (P8,000 x 3/4)..............................................................
Benny, capital (P8,000 x 1/4).............................................................
Cash. ..........................................................................................
40,000
6,000
2,000
Goodwill...........................................................................................
Conny, capital....................................................................................
Cash. ..........................................................................................
10,000
40,000
25,000
40,000
48,000
50,000
15,000
5,000
45,000
Problem 3 9
a.
b.
Spade, capital.....................................................................................
Jack, capital.................................................................................
120,000
60,000
150,000
120,000
12,000
18,000
30,000
150,000
c.
d.
Spade, capital.....................................................................................
Cash. ..........................................................................................
180,000
24,000
36,000
Land.................................................................................................
Ace, capital (20%).......................................................................
Jack, capital (30%)......................................................................
Spade, capital (50%)...................................................................
20,000
180,000
60,000
4,000
6,000
10,000
e.
f.
g.
Spade, capital.....................................................................................
Ace, capital (P50,000 x .40)..............................................................
Jack, capital (P50,000 x .60)..............................................................
Cash. ..........................................................................................
Land. ..........................................................................................
130,000
20,000
30,000
Goodwill...........................................................................................
Spade, capital.....................................................................................
Cash. ..........................................................................................
30,000
120,000
60,000
120,000
Land.................................................................................................
Ace, capital (20%).......................................................................
Jack, capital (30%)......................................................................
Spade, capital (50%)...................................................................
P40,000
140,000
4,000
6,000
60,000
120,000
150,000
12,000
18,000
150,000
8,000
12,000
20,000
100,000
50,000
56
Chapter 3
Problem 3 10
Case 1: Bonus of P10,000 to Eddy:
Eddy, capital................................................................................
Charly, capital (P10,000 x 3/5)....................................................
Danny, capital (P10,000 x 2/5)....................................................
Cash .....................................................................................
70,000
6,000
4,000
4,000
70,000
80,000
74,000
Eddy, capital................................................................................
Charly, capital (P5,000 x 3/5)...............................................
Danny, capital (P5,000 x 2/5)................................................
Cash .....................................................................................
Case 4: Total Implied Goodwill of P24,000:
Goodwill.....................................................................................
Eddy, capital................................................................................
Charly, capital (P24,000 x 3/6).............................................
Danny, capital (P24,000 x 2/6)..............................................
Cash .....................................................................................
Case 5: Other assets disbursed:
Eddy, capital................................................................................
Other assets.................................................................................
Charly, capital (P60,000 x 3/6).............................................
Danny, capital (P60,000 x 2/6)..............................................
Cash .....................................................................................
Case 6: Danny purchases Eddy's capital interest:
Eddy, capital................................................................................
Danny, capital.......................................................................
70,000
3,000
2,000
65,000
24,000
70,000
12,000
8,000
74,000
70,000
20,000
30,000
20,000
40,000
70,000
70,000
Problem 3 11
a. 1/1/06
Building...............................................................
Equipment...........................................................
Cash ....................................................................
Santos capital..............................................
To record initial investment.
52,000
16,000
12,000
22,000
Interest.................................................................
Additional profit..................................................
40,000
12,000
10,000
Santos
P 8,000
4,000
Reyes
P
Total
P 8,000
4,000
1/1/07
Balance to Reyes.................................................
______
(22,000)
(22,000
Total ....................................................................
P12,000
P(22,000)
(P10,000)
Cash ....................................................................
Santos capital (15%)............................................
Reyes capital (85%).............................................
Cruz capital.................................................
15,000
300
1,700
17,000
(new investment by Cruz brings total capital to P85,000 after 2006 loss [80,000
10,000 + 15,000]. Cruz's 20% interest is P17,000 [85,000 x 20%] with the extra
P2,000 coming from the two original partners [allocated between them according
to their profit and loss ratio].)
12/31/07 Santos capital.......................................................
Reyes capital........................................................
Cruz capital..........................................................
Santos drawings..........................................
Reyes drawings...........................................
Cruz drawings.............................................
10,340
5,000
5,000
10,340
5,000
5,000
To close drawings accounts for the year based on distributing 20%. Of each
partner's beginning capital balances [after adjustment for Cruz's investment] or
P5,000 whichever is greater. Santos's capital Is P51,700 [40,000 + 12,000 300].)
12/31/07 Income summary.................................................
Santos capital..............................................
Reyes capital...............................................
Cruz capital.................................................
To allocate P44,000 income figure as computed below:
Santos
Interest (20% of P51,700).................................... P10,340
15% of P44,000 income.......................................
6,600
Balance, 60:40..................................................... ______
44,000
Reyes
Cruz
P16,236
P10,824
Total ....................................................................
P16,940
P16,236
P10,824
Santos
P40,000
12,000
(300)
(10,340)
_16,940
Reyes
P40,000
(22,000)
(1,700)
(5,000)
_16,236
Capital, 12/31/07.................................................
P58,300
P27,536
16,940
16,236
10,824
58
Chapter 3
1/1/08
Cruz capital..........................................................
Diaz capital.................................................
To transfer capital purchase from Cruz to Diaz
Cruz
P17,000
(5,000)
_10,824
P22,824
22,824
22,824
1/1/09
b. 1/1/06
61,000
20,810
24,114
16,076
Reyes
Diaz
Santos
P11,660
9,150
______
P24,114
P16,076
Total ....................................................................
P20,810
P24,114
P16,076
Diaz capital..........................................................
33,900
Santos capital (15%)............................................
509
Reyes capital (85%).............................................
2,881
Cash............................................................
37,290
Diaz capital is [33,900 (P22,824 P5,000 + P16,076)]. Extra 10% is deducted
from the two remaining partners' capital accounts.
Building...............................................................
Equipment...........................................................
Cash ....................................................................
Goodwill..............................................................
Santos capital..............................................
Reyes capital...............................................
To record initial investments. Reyes is credited with goodwill of
Santos investment.
52,000
16,000
12,000
80,000
80,000
80,000
P80,000 to match
Cash ....................................................................
15,000
Goodwill..............................................................
22,500
Cruz capital.................................................
37,500
Cash and goodwill contributed by Cruz are recorded. Goodwill is Computed
algebraically as follows:
P15,000 + goodwill =
P15,000 + goodwill =
P15,000 + goodwill =
.80 goodwill
=
goodwill
=
20,000
10,000
7,500
44,000
26,600
10,400
6,960
Santos
P20,000
6,600
______
Reyes
Cruz
P10,440
P 6,960
Total ....................................................................
P26,600
P10,440
P 6,960
Reyes
P80,000
(30,000)
P50,440
(10,000)
_10,440
Cruz
P37,500
(7,500)
__6,960
P36,960
60
Chapter 3
1/1/08
Goodwill.......................................................................
26,588
Santos capital......................................................
3,988
Reyes capital.......................................................
13,560
Cruz capital.........................................................
9,040
To record goodwill implied of Cruz's interest. In effect, the profit Sharing ratio is 15% to
Santos, 51% to Reyes (60% of 85% remaining after Santos's income), and 34% to Cruz
(40% of the 85% remaining after Santos' income). Diaz is paying P46,000, P9,040 in excess
of Cruz's capital (P36,960). The additional payment for this 34% income Interest indicates
total goodwill of P26,588 (P9,040/34%).
1/1/08
Cruz capital..................................................................
Diaz capital.........................................................
To transfer of capital purchase.
46,000
46,000
22,118
12,800
9,200
61,000
22,118
12,800
9,200
31,268
12,800
9,200
Santos
P22,118
9,150
______
Reyes
Diaz
P17,839
P11,893
Totals............................................................................
P31,268
P17,839
P11,893
Santos
P106,600
3,988
Reyes
P50,440
13,560
Diaz
(22,118)
__31,268
(12,800)
_17,839
P119,738
P69,039
P46,000
(9,200)
_11,893
P48,693
1/1/09
Goodwill.......................................................................
14,321
Santos capital......................................................
2,148
Reyes capital.......................................................
7,304
Diaz capital.........................................................
4,869
To record implied goodwill. Diaz will be paid P53,562 (110% of the capital balance for his
interest. This amount is P4,869 in excess of the capital account. Since Diaz is only entitled
to a 34% share of profits and losses, the additional P4,869 must indicate that the partnership
as a whole is undervalued by P14,321 (P4,869/34%) which is treated as goodwill.
1/1/09
Diaz capital...................................................................
53,562
Cash....................................................................
53,562
To record settlement to Diaz.
Partnership Dissolution Changes in Ownership
Problem 3 12
Partnership Books Continued as Books of Corporation
Entries in the Books of the Corporation
(1) Inventories..........................................................................................
Land ...................................................................................................
Building. .............................................................................................
Accumulated depreciation bldg.........................................................
Accumulated depreciation equipment...............................................
Equipment...................................................................................
Jack capital.................................................................................
26,000
40,000
20,000
20,000
30,000
20,000
58,000
Jill capital...................................................................................
Jun capital...................................................................................
To adjust assets and liabilities of the partnership
to their current fair values.
34,800
23,200
4,000
18,000
100,000
75,000
75,000
20,200
1,800
250,000
26,000
40,000
20,000
20,000
30,000
4,000
18,000
20,000
58,000
34,800
23,200
20,200
1,800
62
Chapter 3
250,000
30,000
40,000
44,000
26,000
60,000
60,000
70,000
60,000
100,000
75,000
75,000
250,000
a. 1/1/06
12/31/06
44,000
26,000
60,000
60,000
70,000
60,000
30,000
40,000
250,000
Problem 3 13
Building
1,040,000
Equipment
320,000
Cash
240,000
Lim, capital
800,000
Sy, capital
800,000
(To record initial investment. Assets recorded at market value with two equal
capital balances.
Sy, capital
440,000
Lim, capital
240,000
Income summary
200,000
(The allocation plan specifies that Lim will receive 20% in interest [or 160,000
based on P800,000 capital balance] plus P80,000 more [since that amount is
greater than 15% of the profits from the period]. The remaining P440,000 loss is
assigned to Sy.)
1/1/07
Cash
300,000
Lim, capital (15%)
6,000
Sy, capital (85%)
34,000
Tan, capital
340,000
(New investment by Tan brings total capital to P1,700,000 after 2006 loss
[P1,600,000 P200,000 + P300,000]. Tans 20% interest is P340,000
[P1,700,000 x 20%] with the extra P40,000 coming from the two original
partners [allocated between them according to their profit and loss ratio].)
12/31/07
Lim, capital
206,800
Sy, capital
100,000
Tan, capital
100,000
Lim, drawings
206,800
Sy, drawings
100,000
Tan, drawings
100,000
(To close out drawings accounts for the year based on distributing 20% of each
partners beginning capital balances [after adjustment for Tans investment] or
P100,000 whichever is greater. Lims capital is P1,034,000 [P800,000 +
P240,000 P6,000])
12/31/07
Income summary
880,000
Lim, capital
Sy, capital
Tan, capital
(To allocate P880,000 income figure for 2007 as determined below.)
338,800
324,720
216,480
Lim
Sy
Tan
P206,800
132,000
P338,800
324,720
P524,720
216,480
P216,480
Lim
P800,000
240,000
(6,000)
(206,800)
338,800
P1,166,000
Sy
P800,000
440,000
(34,000)
(100,000)
324,720
P550,720
Tan
P340,000
(100,000)
216,480
P456,480
Tan, capital
456,480
Ang, capital
(To reclassify balance to reflect acquisition of Tans interest.)
456,480
64
Chapter 3
12/31/08
Lim, capital
233,200
Sy, capital
110,140
Ang, capital
100,000
Lim, drawings
233,200
Sy, drawings
110,140
Ang, drawings
100,000
(To close out drawings accounts for the year based on 20% of beginning capital
balances [above] or P100,000 [whichever is greater].)
12/31/08
Income summary
1,220,000
Lim, capital
Sy, capital
Ang, capital
(To allocate profit for 2008 determined as follows)
Lim
Sy
Interest (20% of P1,166,000 beg. capital)
P233,200
15% of P1,220,000 income
183,000
60:40 split of remaining P803,800
482,280
Totals
P416,200
P482,280
b.
416,200
482,280
321,520
Ang
321,520
P321,520
1/1/09
Ang, capital
678,000
Lim, capital (15%)
10,180
Sy, capital 85%)
57,620
Cash
745,800
(Angs capital is P678,000 [P456,480 P100,000 + P321,520]. Extra 10%
payment is deducted from the two remaining partners capital accounts.)
1/1/06
Building
1,040,000
Equipment
320,000
Cash
240,000
Goodwill
1,600,000
Lim, capital
1,600,000
Sy, capital
1,600,000
(To record initial capital investments. Sy is credited with goodwill of P1,600,000
to match Lims investment.)
12/31/06
Sy, capital
600,000
Lim, capital
400,000
Income summary
200,000
(Interest of P320,000 is credited to Lim [P1,600,000 x 20%] along with a base of
P80,000. The remaining amount is now a P600,000 loss that is attributed entirely
to Sy.)
1/1/07
Cash
300,000
Goodwill
450,000
Tan, capital
750,000
(Cash and goodwill being contributed by Tan are recorded. Goodwill must be
calculated algebraically.)
Lim, capital
Sy, capital
Tan, capital
Lim, drawings
400,000
200,000
150,000
400,000
Sy, drawings
200,000
Tan, drawings
150,000
(To close out drawings accounts for the year based on 20% of beginning capital
balances: Lim- P2,000,000, Sy- P100,000, and Tan- P750,000.)
12/31/07
Income summary
Lim, capital
Sy, capital
Tan, capital
(To allocate P880,000 income figure as follows)
Lim
P400,000
132,000
P532,000
880,000
532,000
208,800
139,200
Sy
Tan
P208,800
P208,800
P139,200
P139,200
Lim
P1,600,000
400,000
Sy
P1,600,000
(600,000)
Tan
(400,000)
532,000
P2,132,000
(200,000)
208,800
P1,008,800
P750,000
(150,000)
139,200
P739,200
Goodwill
531,760
Lim, capital (15%)
Sy, capital (51%)
Tan, capital (34%)
(To record goodwill indicated by purchase of Tans interest.)
79,760
271,200
180,800
In effect, profits are shared 15% to Lim, 51% to Sy (60% of the 85% remaining after Lims
income), and 34% to Tan (50% of the 85% remaining after Lims income). Ang is paying
P920,000, an amount P180,800 in excess of Tans capital (P739,200). The additional payment for
this 34% income interest indicates total goodwill of P531,760 (P180,800/34%). Since Tan is
entitled to 34% of the profits but only holds 19% of the total capital, an implied value for the
66
Chapter 3
company as a whole cannot be determined directly from the payment of P920,000. Thus,
goodwill can only be computed based on the excess payment.
1/1/08
12/31/08
Tan, capital
Ang, capital
(To reclassify capital balance to new partner.)
920,000
Lim, capital
Sy, capital
442,360
256,000
920,000
Ang, capital
184,000
Lim, drawings
442,360
Sy, drawings
256,000
Ang, drawings
184,000
(To close out drawings accounts for the year based on 20% of beginning capital
balances [after adjustment for goodwill].)
12/31/08
Income summary
Lim, capital
Sy, capital
Ang, capital
1,220,000
625,360
356,780
237,860
Sy
Ang
356,780
P356,780
237,860
P237,860
Sy
P1,008,00
271,200
( 256,000)
356,780
P1,380,780
Ang
P739,200
180,800
(184,000)
237,860
P973,860
Lim
P2,132,000
79,760
(442,360)
625,360
P2,394,760
Ang will be paid P1,071,240 (110% of the capital balance) for her interest. This amount is
P97,380 in excess of the capital account. Since Ang is only entitled to a 34% share of profits and
losses, the additional P97,380 must indicate that the partnership as a whole is undervalued by
P286,420 (P97,380/34%). Only in that circumstance would the extra payment to Ang be justified:
1/1/09
Goodwill
Lim, capital (15%)
Sy, capital (51%)
Ang, capital (34%)
(To recognize implied goodwill.)
286,420
42,960
146,080
97,380
1/1/09
Ang, capital
Cash
(To record final distribution to Ang.
1,071,240
1,071,240
68
Chapter 4
CHAPTER 4
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
4-1: a
PAR
BOOGIE
BIRDIE
P 20,000
( 20,000)
P
P 16,000
( 12,000)
P 4,000
P 10,000
( 8,000)
P 2,000
PING
P 50,000
__6,000
P 56,000
PANG
P 50,000
__2,000
P 52,000
PONG
P 10,000
__2,000
P 12,000
PING
P 50,000
( 24,000)
P 26,000
PANG
P 50,000
( 8,000)
P 42,000
PONG
P 10,000
( 8,000)
P 2,000
PING
P 50,000
( 42,000)
P8,000
( 3,000)
P 5,000
PANG
P 50,000
( 14,000)
P 36,000
( 1,000)
P 35,000
PONG
P 10,000
( 14,000)
( 4,000)
__4,000
COLT
MARK
Capital balances before liquidation (net of loans)P290,000 P200,000
Loss of P130,000, 4:3:3
( 52,000)
( 39,000)
Cash distribution
P238,000
P161,000
CLOCK
P220,000
( 39,000)
P181,000
4-2: c
4-3: b
4-4: a
4-5: b
4-6: c
Capital balances before liquidation
Loss of P60,000, 40:50:10
Cash distribution
JONAS
P160,000
( 24,000)
P136,000
CARLOS
P 45,000
( 20,000)
P 25,000
TOMAS
P 55,000
( 6,000)
P 49,000
ARIEL
P40,000
( 40,000)
P
BERT
P180,000
( 30,000)
P150,000
CESAR
P 30,000
( 30,000)
P
Partnership Liquidation
4-7: a
Capital balances before liquidation
Loss of P100,000, 4:3:3
Cash distribution
4-8: b
NORY
P23,000
OSCAR
P 13,500
15,000
( 30,900)
P 7,100
( 20,600)
( P7,100)
P 36,500
15,000
P 51,500
4-9: d
Capital balances before liquidation (net)
Loss on realization (schedule 1) P27,500
Balances, cash distribution
BLACK
P99,000
( 13,750)
P85,250
Schedule 1:
Capital balances of white (net)
Cash received by White
White's share of total loss (30%)
WHITE
P 91,500
( 27,500)
P 64,000
GREEN
P138,000
_( 5,500)
P132,500
P 91,500
_83,250
P 8,250
P 27,500
4-10: c
Capital balances before liquidation (net)
Loss on realization, P63,600
Balances
Unrecorded liabilities, P500
Balances
Elimination of Nora's deficiency
Payment to partners
ANA
P27,000
( 25,320)
P 1,680
( 200)
P 1,480
( 1,380)
P 100
EVA
P 43,000
( 25,320)
P 17,680
( 200)
P 17,480
( 1,380)
P 16,100
NORA
P 10,000
( 12,660)
( 2,660)
( 100)
( 2,760)
__2,760
P
ARIES
P33,500
( 22,500)
P11,000
LEO
P 49,000
( 13,500)
P 35,500
TAURUS
P 36,500
( 9,000)
P 27,500
4-11: d
70
Chapter 4
Schedule 1:
Taurus capital (net)
Payment to Taurus
Share of total loss (20%)
P36,500
( 27,500)
P 9,000
P45,000
4-12: c
OLGA
Capital balances, June 11
P 4,200
Net loss from operation (squeeze)
( 2,800)
Capital balances, August 30 before
liquidation (48,500-25,600)
P 1,400
Loss on realization (47,500-30,000)
( 5,000)
Balances
TOTAL
MONA
NORA
P32,700
P15,000
P13,500
( 9,800)
( 4,200)
( 2,800)
P22,900
P10,800
P10,700
( 17,500)
( 7,500)
( 5,000)
P 5,400
P 3,300
P 5,700
_1,500
_____
_____
P 6,900
P 3,300
P 5,700
00)
Additional investment by Olga
_1,500
Balances
00)
Elimination of Olga's deficiency
_2,100
Payment to partners
______
( 1,260)
( 840)
P 6,900
P 2,040
P 4,860P
RITA
P49,000
( 3,500)
( 10,000)
( 2,000)
P33,500
__1,500
P32,000
SARA
P18,000
( 7,000)
( 15,000)
8,000
( 4,000)
P
_____
P
TITA
P10,000
( 10,500)
( 20,000)
25,000
( 6,000)
( 1,500)
_1,500
P
CLARO
PEDRO
P45,000
P27,000
( 24,000)
( 24,000)
P21,000
P 3,000
4-13: b
4-14: a
ANDRO
Capital balances before liquidation
P50,000
Loss on realization
Accounts Receivable (P50,000 X 40%)
Investment (P30,000 - P20,000)
Equipment (P60,000-P30,000)
Total
P20,000
10,000
_30,000
P60,000
000)
Payment to partners
P38,000
4-15: c
Capital balances before liquidation (inclusive loans)
P19,000
Loss on realization, (squeeze)
( 15,400)
Capital balances - cash distribution
TOTAL
P47,500
MONA
P28,500
( 38,500)
( 23,100)
P 9,000
P 5,400P
3,600
Partnership Liquidation
P 37,500
( 28,500)
P 9,000
4-16: a
FF capital before distribution of net loss
Add: share of net loss (P10,000 X 40%)
FF capital before liquidation
Cash settlement to FF
FF share of total loss on realization (40%)
P100,000
_( 4,000)
96,000
( 80,000)
P 16,000
P 40,000
P250,000
_100,000
P350,000
( 50,000)
P300,000
( 40,000)
P260,000
4-17: d
Capital balances before realization (net)
P62,500
Loss on realization (squeeze)
( 25,000)
Capital balances after realization
(liabilities-unpaid)
P37,500
Elimination of CC's deficiency
( 19,000)
Balances
P18,500
Investment by DD
_____
TOTAL
P100,000
CC
P 15,000
DD
P22,500
( 125,000)
( 62,500)
( 37,500)
(P 25,000)
( 47,500)
( 15,000)
_______
__47,500
( 28,500)
(P43,500)
(P 25,000)
__43,500
______
_43,500
Payment to EE
P18,500
P 18,500
4-18: d
Total capital before liquidation
Liabilities
Total assets
Less: Cash balance before realization
Cash after payment of liabilities
payment of liabilities
Cash realized
Non-cash asset
Less: cash realized
Loss on realization
P 30,000
__1,500
P 31,500
P 11,100
1,500
( 11,600)
__1,000
P 30,500
_11,600
P 18,900
72
Chapter 4
4-19: d
TOTAL
Capital balances
P 80,000
Salary of LL (P600 X 8 months)
___4,800
Capital balances before liquidation
P 84,800
Loss on realization
Balances
Additional investment by NN
Payment to partners
LL
MM
NN
P 50,000
P 20,000
P 10,000
__4,800
_______
_______
P 54,800
P 20,000
P 10,000
( 44,880)
P 9,920
______
P 9,920
( 14,960)
P 5,040
_____
P 5,040
( 14,960)
(P 4,960)
__4,960
P
4-20: b
KK's total interest (P60,000-P10,000)
Less: Cash to be paid to KK
Share of total loss (1/3)
P 50,000
__10,000
P 40,000
P120,000
Total assets:
Total interest of the partners before liquidation:
JJ (P70,000+P30,000+P10,000)
KK (P60,000-P10,000)
LL (P30,000+P10,000)
Divide by
P110,000
50,000
__40,000
P200,000
______50%
Total
Loss on realization
Cash to be realized
P400,000
_120,000
P280,000
4-21: a
Capital balances, July 1
P 25,000
Advances to NN, August 1
OO Loan, September 1
Interest, December 31 (6%)
NN (5 mos.)
OO (4 mos.)
Compensation to PP
___2,500
Capital balances before liquidation
P 27,500
Loss on realization (squeeze)
( 17,550)
Cash distribution
TOTAL
P 75,000
NN
P 25,000
( 10,000)
20,000
( 10,000)
250)
400
__2,500
OO
P 25,000
20,000
250)
_______
400
_______
P 87,650
P 14,750
P 45,400
_56,250
( 17,550)
( 17,550)
P 35,000
( 2,800)
P 27,850
9,950
NN should pay P2,800 and this is to be divided to OO & PP equally or P1,400 each.
Partnership Liquidation
4-22: a
Capital balances before realization
P350,000
Loss on realization (squeeze)
_500,000
Capital balances after realization
(unpaid liabilities)
( 150,000)
Elimination of AS's deficiency
P150,000
Cash to be absorbed
TOTAL
P 950,000
PG
P350,000
JR
P250,000
( 1,000,000)
__20,000
( 200,000)
(P 50,000)
P 50,000
P 50,000
_______
( 90,000)
( 60,000)
(P 40,000)
(P 10,000)
RM
P500,000
( 490,000)
P 10,000
ST
P825,000
( 735,000)
P 90,000
4-23: a
Capital balances before realization (net)
Loss on realization, P1,225,000
Payment to Partners
4-24: a
TOTAL
P 27,500
LT
P 20,000
AM
P 5,000
__37,500
_18,750
__-9,375
P 65,000
P 38,750
P 14,375
AG
P 420,000
BM
P375,000
CP
P205,000
( 300,000)
( 300,000)
(200,000)
P 120,000
P 75,000
P 5,000
4-25: c
Capital balances before realization (net)
P150,000
Loss on realization, P1,000,000
(200,000)
Balances
P(50,000)
Additional investment by DJ
50,000
4-26: a
Settlement to Uy
Uy capital before liquidation (net):
Uy capital
Receivable from Uy
Loss of Uy (50%)
P351,500
P553,500
( 132,000)
__Uy__
553,500
(132,000)
P140,000
__Vi__
452,500
135,000
587,500
( 42,000)
545,500
74
Chapter 4
SOLUTIONS TO PROBLEMS
Problem 4 1
Case 1
Rivas and Briones
Statement of Liquidation
December 31, 2008
__Wi__
486,000
( 40,500)
421,500
( 70,000)
351,500
421,500
P 70,000
445,500
( 28,000)
417,500
__Total__
1,492,000
(132,000)
(40,500)
135,000
1,454,500
( 140,000)
1,314,500
Partners'
Capitals
Assets
Rivas,
Briones,
Rivas
Loan
Loan
(90%)
Briones
Cash
(10%)
Balances before liquidation. . .
P10,000
Realization of assets and
distribution of loss...........
( 6,600)
Balances................................
3,400
Payment of liabilities.............
______
Balances................................
3,400
Offset Rivas' loan against his
capital deficiency............
______
Balances................................
3,400
Additional loss to Briones......
( 1,400)
Balances................................
2,000
Payment to partner.................
P(2,000)
Others Liabilities
P40,000
( 59,400)
154,000
132,000
18,000
20,000
20,000
( 19,400)
20,000
P(22,000)
P(20,000)
( 19,400)
_18,000
( 1,400)
__1,400
20,000
Case 2
Rivas and Briones
Statement of Liquidation
December 31, 2008
Partners'
Capitals
Assets
Rivas,
Briones,
Rivas
Loan
Loan
(70%)
Briones
Cash
(30%)
Balances before liquidation. . .
P10,000
Realization of assets and
distribution of loss...........
( 19,800)
Balances................................
9,800
Others Liabilities
P40,000
______ _______
( 46,200)
154,000
18,000
( 6,200)
132,000
20,000
18,000
20,000 ( 6,200)
9,800
Offset loan against capital
deficiency........................ ________ _______ _______ ( 6,200) ( 9,800) __6,200
__9,800
Balances................................
22,000
11,800
10,200
P(11,800) P(10,200)
Partnership Liquidation
Case 3
Rivas and Briones
Statement of Liquidation
December 31, 2008
Partners'
Capitals
Assets
Rivas,
Briones,
Rivas
Briones
Cash
(50%)
Balances before liquidation........ P 20,000
P10,000
Realization of assets and
distribution of loss............... _134,000
( 33,000)
Balances......................................
154,000
23,000)
Payment of liabilities.................. ( 132,000)
Balances......................................
22,000
23,000)
Offset Briones'' loan against
his capital deficiency........... _______
_20,000
Balances......................................
22,000
3,000)
Additional loss to Rivas.............. _______
__3,000
Balances......................................
22,000
Payment to partner...................... P(22,000)
Others
Liabilities
Loan
Loan
(50%)
P200,000
P132,000
P 18,000
P20,000
P40,000
( 200,000) _______
_______
______
( 33,000)
18,000
20,000
( 7,000)
18,000
__
20,000
_
_______
( 7,000)
132,000
_______ ( 132,000)
_______
_______
_______
18,000
_______
_______
_______
_______
( 3,000)
4,000
P( 4,000)
18,000
P(18,000)
( 20,000)
Journal Entries
Case 1:
Cash..............................................................................................................
Rivas, Capital.................................................................................................
Briones, Capital..............................................................................................
134,000
59,400
6,600
______
7,000
Other Assets............................................................................................
Liabilities. .....................................................................................................
Cash........................................................................................................
Rivas, Loan....................................................................................................
Rivas, Capital..........................................................................................
Briones, Capital..............................................................................................
Rivas, Capital..........................................................................................
Briones, Loan.................................................................................................
Briones, Capital..............................................................................................
Cash ....................................................................................................
Case 2:
Cash..............................................................................................................
Rivas, Capital.................................................................................................
Briones, Capital..............................................................................................
Other Assets............................................................................................
Liabilities. .....................................................................................................
Cash........................................................................................................
Rivas, Loan....................................................................................................
Briones, Loan.................................................................................................
Rivas, Capital..........................................................................................
Briones, Capital......................................................................................
Rivas, Loan....................................................................................................
Briones, Loan.................................................................................................
Cash........................................................................................................
76
Chapter 4
Case 3:
Cash...................................................................................................
Rivas, Capital....................................................................................
Briones, Capital.................................................................................
Other Assets................................................................................
Liabilities...........................................................................................
Cash. ...........................................................................................
Briones, Loan....................................................................................
Briones, Capital...........................................................................
Rivas, Capital....................................................................................
Briones, Capital...........................................................................
Rivas, Loan........................................................................................
Rivas, Capital....................................................................................
Cash. ...........................................................................................
Problem 4 2
Blando and Castro
Statement of Liquidation
April 30, 2008
200,000
132,000
132,000
18,000
18,000
1,400
1,400
20,000
2,000
22,000
134,000
46,200
19,800
200,000
132,000
132,000
6,200
9,800
6,200
9,800
11,800
10,200
22,000
134,000
33,000
33,000
200,000
132,000
132,000
20,000
20,000
3,000
3,000
18,000
4,000
22,000
Partners'
Capitals
A s s e t s
Accounts
Blando,
Blando
Others
Payable
Loan
(60%)
Castro
Cash Receivables Inventory
(40%)
Balances before
liquidation.................... P 18,000
P99,000
Collection of
receivables and
distribution of loss........ _37,500
( 15,000)
Balances............................
84,000
Realization of
inventory and
distribution of
loss...............................
,000)
Balances............................
60,000
Realization of other
assets and distribution
of loss...........................
( 17,600)
P75,000
P90,000
P84,000
P42,000
P 24,000
P102,000
( 75,000)
_______ _______
_______
_______
( 22,500)
84,000
42,000
24,000
( 90,000) _______
_______
_______
42,000
24,000
_______
_______
42,000
24,000
17,100
_______
_______
24,000
17,100
55,500
_30,000
_______
85,500
_40,000
_______
_______
Balances............................ 125,500
42,400
Payment of accounts
payable......................... ( 42,000)
_______
Balances............................
83,500
42,400
Payments to partners.. P(83,500)
P(42,400)
_______
90,000
84,000
( 84,000)
_______ _______
( 42,000)
79,500
( 36,000)
43,500
( 26,400)
P(24,000) P( 17,100)
Partnership Liquidation
Problem 4 3
a.
Electric Company
Statement of Partnership Realization and Liquidation
June 30, 2008
Balances
14,000
Sale of
assets at a loss
( 8,000)
Capital Balances
Volt Watt
30% 20%
Cash
Amp.
Loan
Noncash
Assets
Liabilities
Volt,
Loan
Amp
50%
20,000
15,000
135,000
30,000
10,000
80,000
36,000
_95,000
______
(135,000)
______
______
(20,000)
(12,000)
6,000
Payment to
creditors
______
115,000
15,000
-0-
_(30,000)
______
_______
85,000
15,000
-06,000
Offset Amp,
receivable
(15,000)
Payments to partners:
Loan
(10,000)
Capitals
_(75,000) ______
_______
,000)
Balances
-0-0-0-0b. (1) Cash
Amp, Capital
Volt, Capital
Watt, Capital
Noncash Assets
Sell noncash assets at a loss of P40,000.
30,000
10,000
60,000
24,000
(30,000)
______
_______
______
10,000
60,000
24,000
-0-
(15,000)
_______
-0-
(10,000)
______
(45,000)
(24,000)
-0-
-0-
-0-
95,000
20,000
12,000
8,000
135,000
(2) Liabilities
Cash
Pay creditors.
30,000
15,000
10,000
45,000
24,000
6,000
30,000
15,000
85,000
Note: All partners permitted Amp to offset his receivable against his capital credit. Alternatively, Amp
could be required to pay the partnership the P15,000 receivable; the partnership would then pay him an
additional P15,000 for his capital credit. In this case, an offset of the receivable against the capital credit is
reasonable, provided the receivable is not interest-bearing, Amp has a sufficient capital credit, Amp is
personally solvent, and the note is not secured against specific assts of Amp. The offset is not automatic,
but must be determined by the terms of the initial note, and by the partners.
78
Chapter 4
Problem 4 4
a.
P320,000
b.
Payment to Bina................................................................................................................
Loss absorbed by Bina (40%)...........................................................................................
_128,000
P192,000
P480,000
Cash
Other Assets
P80,000
240,000
320,000
(320,000)
P720,000
( 720,000)
_______
Aida
(5)
P320,000
( 240,000)
80,000
( 80,000)
Capital
Bina
Celia
(4)
(1)
P320,000
P160,000
( 192,000) ( 48,000)
128,000
112,000
( 128,000) ( 112,000)
Problem 4 5
a.
b.
P 70,000
__98,000
P 28,000
P140,000
_500,000
P640,000
JJ, KK & LL
Statement of Liquidation
Cash
P50,000
640,000
690,000
( 60,000)
(630,000)
Other
Assets
Liabilities JJ (4)
P500,000
P60,000 P180,000
( 520,000) _______ __56,000
60,000
236,000
( 60,000)
_______ _______ ( 236,000)
Partnership Liquidation
Problem 4 6
Capital
KK(4)
(LL(2)
P240,000
P70,000
__56,000
_28,000
296,000
98,000
( 296,000)
a.
BB.................................................... P160,000
CC.................................................... P20,000
DD................................................... P60,000
EE....................................................
P 0
b.
C a p i t a l
CC (10%)DD (20%)
EE (40%)
P80,000 (P120,000)
BB (30%)
P160,000
( 60,000)
60,000
______ _______
_______
220,000
( 90,000)
______ __( 90,000)
40,000
__60,000
80,000
( 60,000)
( 180,00
( 30,000)
( 30,000)
20,000
( 60,000)
120,000
180,000
Problem 4 7
Sayson and Company
Statement of Liquidation
Date
Assets
Liabilities
Accounts
Notes
Pea
P a r t n e r s' C a p i t a l s
Sayson
Zobel
Ayala
Pea
Cash
Noncash
Payable
Payable
Loan
(45%)
(30%)
(15%)
P 15,000
P155,250
P11,250
P9,000
P 1,500
P 75,345
185,000
( 155,250)
_______
______
______
17,850
11,900
______
Balances.................................
1,650
Payment of liabilities.............
______
200,000
11,250
9,000
1,500
93,195
98,398
( 14,993)
( 11,250)
( 9,000)
______
______
______
_______
1,500
93,195
98,398
( 14,993)
( 7,937)
( 5,292)
14,993
-
(10%)
Balances.................................
1,650
Additional loss to Sayson,
Zobel and Pea;
45:30:10............................
1,764)
Balances.................................
(114)
Offset Pea's loan against
his capital deficiency........
114
Balances.................................
( 20,250) ________
179,750
______
______
P 86,498 P(14,993)
1,500
85,258
93,106
______
( 114)
______
______
1,386
85,258
93,106
_______
-
80
Chapter 4
Problem 4 8
a.
(20%)
Balances before liquidation
(including Bea loan, P4,000)......
P10,000
Realization of assets
at a loss of P63,300...................
Unrecorded accounts payable..........
(100)
Payment to creditors........................
______
Balances.........................................
(2,760)
Eliminate Cid's deficit.....................
_2,760
Balances.........................................
Payment to Partners.........................
b.
2008
July 5
Cash
Assets
Other
Liabilities
Partners' Capital
Art (40%) Bea (40%) Cid
P 6,000
P94,000
P20,000
P27,000
P43,000
30,000
( 94,000)
(25,320)
500
(25,320)
(200)
(12,660)
(200)
(20,500)
______
(20,500)
______
______
16,200
1,480
17,480
______
______
______
(1,380)
(1,380)
16,200
(16,200)
100
_( 100)
16,100
( 16,100)
Cash .............................................................................................
Art capital (P63,300 x 40%)...........................................................
Bea capital (P63,300 x 40%)..........................................................
Cid capital (P63,300 x 20%)...........................................................
Other assets...........................................................................
To record realization of other assets at a loss of P63,300.
30,700
25,320
25,320
12,660
200
200
100
Liabilities. ......................................................................................
Cash. .....................................................................................
To record payment of liabilities.
20,500
94,000
500
20,500
c.
Art capital.......................................................................................
Bea capital......................................................................................
Cid capital.............................................................................
To eliminate Cid's capital deficit.
1,380
1,380
Art capital.......................................................................................
Bea capital......................................................................................
Cid capital. .....................................................................................
Cash. .....................................................................................
To record payments to partners to complete liquidation.
100
4,000
12,100
2,760
16,200
Cid's loss must be limited to P5,000, or P25,000 for the partnership (P5,000 / 20% = P25,000).
Because the liquidation of liabilities results in a loss of P500, only P24,500 may be lost on the
realization of other assets. This requires that other assets realize P69,500 (P94,000 24,500) to
enable Cid to receive P5,000 from the partnership to pay personal creditors in full.
Problem 4 9
KGB Partnership
Statement of Realization and Liquidation
Lump-sum Liquidation on June 30, 2008
-
Preliquidation balances
Sale of assets
and distribution
of 430,000 loss
Cash contributed
by B
Distribution of deficit
of insolvent partner:
20/60 (P2,000)
40/60 (P2,000)
Offset deficit with loan
Contribution by G
Payment of creditors
Distribution to K
Postliquidation
balances
Capital Balances
K
G
20%
40%
(240,000) (100,000)
B
40% (120,000)
(60,000)
86,000
(154,000)
172,000
72,000
172,000
52,000
(60,000)
(154,000)
72,000
50,000
2,000
Cash
50,000
Noncash
Assets
950,000
Liabilities
(480,000)
G
Loan
(60,000)
520,000
570,000
950,000
-0-
(480,000)
(480,000)
50,000
620,000
-0-
(2,000)
666
620,000
620,000
13,334
633,334
(480,000)
153,334
(153,334)
-0-
-0-0-
(480,000)
(480,000)
(60,000)
60,000
-0-
(153,334)
(153,334)
(480,000)
480,000
-0-
-0-
(153,334)
(153,334)
153,334
-0-0-0-
-0-
-0-
-0-
-0-
1,334
73,334
(60,000)
13,334
(13,334)
-0-
-0-0-0-
-0-
-0-
-0-
-0-
82
Chapter 4
KGB Partnership
Schedule of Distribution of Personal Assets
June 30, 2008
.
Personal assets, excluding partnership
capital and loan interests
Personal liabilities
Personal net worth, excluding
partnership capital and loan
interests
Contribution to partnership
Distribution from partnership
Personal capacity
500,000
(460,000)
600,000
(480,000)
700,000
(650,000)
40,000
120,000
(13,334)
-0- 106,666
50,000
153,334
193,334
-0- -0- -
CHAPTER 5
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
5-1: b
Capital balances before liquidation
Loan balances
Total interest
Possible loss (40,000+10,000)
Balances
Additional loss to RJ & SJ, 5:3
Cash distribution
RJ
P22,000
_10,000
32,000
( 25,000)
7,000
( 1,250)
P 5,750
SJ
P30,000
______
30,000
( 15,000)
15,000
( 750)
P14,250
TJ
P 8,000
______
8,000
( 10,000)
( 2,000)
__2,000
P
AR
P 5,500
BR
P 5,150
CR
DR
P 6,850
_1,000
_____
_____
6,500
( 6,800)
5,150
( 5,100)
6,850
( 3,400)
( 300)
___300
50
( 150)
3,450
( 100)
_____
( 100)
___100
3,350
_( 67)
P 3,283
5-2: a
Capital balances
P 4,500
Loan balances
_____
Total interest
Possible loss (23,000-6,000)
( 1,700)
Balances
Additional loss to BR, CR, DR, 3:2:1
( 50)
Balances
Additional loss to CR & DR, 2:1
_( 33)
Payment to partners
P 2,717
Total liabilities
Total Capital
Total Assets
P 1,000
_22,000
P23,000
5-3: c
Capital balances
P25,000
Loan balances
Advances
DD
P40,000
BALANCES
EE
FF
GG
P30,000
P15,000
5,000
_____
10,000
_____
( 4,500)
45,000
40,000
10,500
____50%
____30%
____10%
500)
Total interest
22,500
Divided by P/L Ratio
____10%
90,000
133,333
105,000
_____
90,000
_____
133,333
( 91,667)
105,000
_____
( 28,333)
_____
90,000
105,000
105,000
_____
(15,000)
( 15,000)
P90,000
P90,000
P90,000
__ __
84
Chapter 5
DD
PI - To GG
P 9,167
PII - To EE (28,833 X 30%)
GG (28,833 X 10%)
PIII To EE (15,000 X 30%)
FF (15,000 X 10%)
GG (15,000 X 10%)
__1,500
_____
P 8,433
4,500
_____
1,500
_____
P12,933
P 1,500
EE
FF
Total
P13,500
PIV - P/L Ratio
DD
Distribution of P18,000
PI - TO GG
P 9,167
PII - TO EE & GG, 3:1, P8,833
__2,208
Cash distribution
P11,375
CASH PAYMENT
EE
FF
GG
GG
_____
_6,625
_____
P 6,625
5-4: a
Capital balances before liquidation
Loss on realization, P40,000
Capital balances before cash distribution
Possible loss, P90,000
Balances
Additional loss to Lim & Wan, 4:2
Cash distribution
TAN
P40,000
( 16,000)
24,000
( 36,000)
( 12,000)
_12,000
P
LIM
P65,000
( 16,000)
49,000
( 36,000)
13,000
( 8,000)
P 5,000
WAN
P48,000
( 8,000)
40,000
( 18,000)
22,000
( 4,000)
P18,000
5-5: b
Capital balances before cash distribution
Possible loss (90,000+3,000)
Balances
Additional loss to Lim & Wan, 4:2
Cash distribution
TAN
P24,000
( 37,200)
( 13,200)
_13,200
P
LIM
P49,000
( 18,600)
30,400
( 8,800)
P21,600
WAN
P40,000
( 18,600)
21,400
_( 4,400)
P17,000
CARPIO
P72,000
( 5,000)
67,000
( 55,000)
12,000
( 6,000)
P 6,000
LOBO
P54,000
( 5,000)
49,000
( 55,000)
( 6,000)
__6,000
P
JACOB
SANTOS
P40,000
P72,000
( 15,000)
( 9,000)
( 1,000)
( 600)
24,000
62,400
__8,000
_____
32,000
62,400
( 45,000)
27,000
( 13,000)
35,400
_13,000
( 7,800)
P27,600
B
P12,000
C
P37,700
5-6: d
Tan (14,000 X 40%)
Lim (14,000 X 40%)
Wan (14,000 X 20%)
P5,600
P5,600
P2,800
5-7: a
Capital balances before liquidation
Goodwill written-off
Cash balance
Possible loss (100,000+10,000), 110,000
Capital balances before liquidation
Additional loss to Carpio
Cash distribution
Partnership Liquidation by Installment
5-8: d
HERVAS
Capital balances before liquidation
P 7,000
Loss on realization (120,000-90,000)
( 6,000)
Liquidation expenses, P2,000
( 400)
Capital balances before cash distribution
63,600
Loan balances
_____
Total interest
63,600
Possible Loss (210,000-120,000)
( 18,000)
Balances
45,600
Additional loss to Santos & Hervas
( 5,200)
Cash distribution
P40,400
5-9: d
Capital balances before liquidation
P17,700
A
P16,200
Salary payable
_______
Balances
_____
___160
___240
16,200
12,000
37,860
( 600)
( 600)
( 600)
15,600
11,400
37,260
( 150)
( 150)
( 150)
15,450
11,250
37,110
12,000
14,400
_____
27,450
25,650
37,110
( 27,000)
( 27,000)
( 27,000)
( 1,350)
10,110
( 780)
__1,350
( 780)
( 330)
___330
_____
9,330
( 330)
40)
450
0)
Additional loss to A & C
____210
Balances
Additional loss to C
_____
Cash distribution
Total interest
Profit and Loss ratio
Loan absorption balances
Priority I - to Sy
Balances
Priority II - to Sy & Less
Total
DY
P22,000
2/4
44,000
_____
44,000
_____
P44,000
P 9,000
5-10: a
DY
Priority I - to Sy (6,000 X 1/4)
Priority II - to Sy (12,000 X 1/4)
to Lee (12,000 X 1/4)
Total
_____
P
BALANCES
SY
P15,500
1/4
62,000
( 6,000)
56,000
( 12,000)
P44,000
CASH PAYMENTS
SY
LEE
1,500
3,000
_____
_3,000
P 4,500
P 3,000
86
Chapter 5
Further cash distribution, profit and loss ratio
Cash distribution to Dy
Divided by Dy's Profit and Loss ratio
Amount in excess of P7,560
LEE
P14,000
1/4
56,000
_____
56,000
( 12,000)
P44,000
P 6,250
2/4
12,500
__7,500
P20,000
5-11: d
Cash before liquidation
Cash realized
Total
Less: Payment of liquidation expense
Payment of liability
Payment to partners (Q 5-10)
Cash withheld
P12,000
_32,000
44,000
P 1,000
5,400
20,000
_26,400
P17,600
5-12: c
Loss absorption balances:
Cena (18,000/50%)
Batista (27,000/30%)
Excess of Batista
Multiply by Batista's Profit & Loss ratio
Priority I to Batista
P36,000
90,000
54,000
____30%
P16,200
5-13: c
Capital balances
Loan balances
Total interest
Divided by Profit and Loss Ratio
Loss Absorption balances
Priority I to CC
Balances
Priority II to BB & CC, 2:1
Total interest
AA
P15,000
10,000
25,000
2/5
62,500
_____
62,500
_____
P62,500
AA
Priority I to CC (12,500 X 1/5)
Priority II to BB (25,000 X 2/5)
to CC (25,000 X 1/5)
Total
Priority III P/L Ratio
Cash distribution to CC:
Priority I
Priority II (12,000-2,500) X 1/3
Total cash paid to CC
Partnership Liquidation by Installment
____
P
BALANCES
BB
P30,000
_5,000
35,000
2/5
87,520
_____
87,520
( 25,000)
P62,500
CC
P10,000
10,000
20,000
1/5
100,000
( 12,500)
100,000
( 25,000)
P62,500
CASH PAYMENTS
BB
CC
2,500
10,000
_____
_5,000
P10,000
P 7,500
P2,500
3,167
P5,667
5-14: c
JJ
BALANCES
KK
LL
MM
Capital balances
P 30,000
Loan balances
______
Total interest
_30,000
Divided by Profit and Loss Ratio
_____10%
Loss Absorption balances
300,000
Priority I to LL
______
Balances
300,000
Priority II to LL, MM, 15:10
( 30,000)
Balances
270,000
Priority II to KK, LL, MM, 35:15:10
( 75,000)
Total
P195,000
P 60,000
P 64,500
P 54,000
_18,000
_30,000
______
_78,000
_94,500
_54,000
____40%
_____35%
_____15%
195,000
270,000
360,000
______
______
( 60,000)
195,000
270,000
300,000
______
______
( 30,000)
195,000
270,000
270,000
______
( 75,000)
( 75,000)
P195,000
P195,000
P195,000
______
CASH PAYMENT
KK
LL
MM
9,000
4,500
1,750
11,250
______
______
P 1,750
LL
P 9,000
4,500
3,000
_____
__7,350
___3,150
__2,100
P 7,350
P 16,650
P 5,100
BALANCES
BELLO
CRUZ
JJ
Priority I to LL (30,000 X 15%)
Priority II to LL (30,000 X 15%)
to MM (30,000 X 10%)
Priority II to KK (75,000 X 35%)
to LL (75,000 X 15%)
to MM (75,000 X 10%)
___7,500
Total
P 10,500
P 24,750
Priority I to LL
P 9,000
Priority II to LL, MM, 15:10
Priority II to KK, LL, MM, 35:15:10
(29,100-16,500), 12,600
__12,600
Cash distribution
P 29,100
JJ
KK
MM TOTAL
5-15: a
ARCE
Capital balances
Loan balances
Total interest
Divided by Profit and Loss Ratio
Loss Absorption balances
Priority I to Bello
Balances
Priority II to Bello & cruz, 3:2
Total
P 20,000
_10,000
_32,000
_____50%
64,000
______
64,000
______
P 64,000
P 24,900
______
_24,900
_____30%
83,000
( 8,000)
75,000
( 11,000)
P 64,000
P 15,000
______
_15,000
_____20%
75,000
______
75,000
( 11,000)
P 64,000
88
Chapter 5
ARCE
P - I to Bello (8,000 X 30%)
P - II to Bello (11,000 X 30%)
to Cruz (11,000 X 20%)
Total
_____
P
CASH PAYMENTS
BELLO
CRUZ
2,400
3,300
_____
_2,200
P 5,700
P2,200
5-16: a
Cash paid to Arce
Divide by Profit & Loss ratio
Amount in excess of P7,900
Add: cash paid under PI and PII
Total cash distribution to partners
Cash paid to Creditor (30,000-10,000)
Total
Less cash before realization
Cash realized from sale of asset
P2,000
_____5%
40,000
_7,900
47,900
20,000
67,900
_6,000
P61,900
P 6,200
2/5
15,500
3/5
9,300
__2,400
P11,700
5-17: b
5-18: b
BALANCES
CASH PAYMENT
MONZON
NIEVA
Total Interest
Profit and Loss ratio
Loss absorption balances
Priority I - to Nieka
_2,500
Total
P2,500
NIEVA
MONZON
P22,500
_____60%
37,500
______
P17,500
_____40%
43,750
( 6,250)
_____
P37,500
P37,500
5-19: b
Cash distribution
PI to Nieva (2,500-2,000)
Balances, 6:40
Cash distribution
CASH MONZON
P12,500
( 500)
_12,000
__7,200
P
P 7,200
5-20: a
Cash before liquidation
June: Cash realized
Payment to creditor
Payment to Partners
Cash balances, June 30
July: Cash realized
Payment of liquidation expense
Payment to Partners
Cash balances, July 31
Aug: Cash realized
Cash distribution for August,
Profit and Loss ratio
Distribution to Partners - August
Monzon (22,500 X 60%)
Nieva (22,500 x 40%)
P 5,000
18,000
( 20,000)
__2,000
1,000
12,000
( 500)
( 12,500)
_22,500
P22,500
P13,500
P 9,000
NIEVA
500
_4,800
P5,300
90
Chapter 5
SOLUTIONS TO PROBLEMS
Problem 5 1
Suarez, Tulio and Umali
Statement of Liquidation
January 1 to april 31, 2008
Assets
Cash
Others Liabilities
Tulio,
Loan
Umali,
Loan
Partners' Capitals
Suarez (40%) tulio (35%)
Umali (25%)
Balances before liquidation. P 2,000.00 P46,000.00 P6,000.00 P5,000.00 P2,500.00 P14,450.00
P7,500.00
January Installment:
Realization of assets and
distribution of loss.... 10,500.00 ( 12,000.00) _______
_______
______
( 600.00)
( 375.00)
Balances......................... 12,500.00 34,000.00 6,000.00
5,000.00 2,500.00
13,850.00
7,125.00
Payment of expenses of
realization and distribution
to partners...................... ( 500.00) _______ _______ _______ _______
( 200.00)
( 125.00)
Balances......................... 12,000.00 34,000.00 6,000.00
5,000.00 2,500.00
13,650.00
7,000.00
Payment of liabilities..... ( 6,000.00) _______ ( 6,000.00) _______ _______
_______
_______
Balances......................... 6,000.00 34,000.00
5,000.00 2,500.00
13,650.00
7,000.00
Payments to partners
(Schedule 1).............. ( 4,000.00) _______ _______ ( 3,812.50) ( 187.50)
_______
_______
Balances......................... 2,000.00 34,000.00
1,187.50 2,312.50
13,650.00
7,000.00
February Installment:
Realization of assets and
distribution of loss.... 6,000.00 ( 7,000.00) _______
_______ _______ __(400.00)
( 250.00)
Balances......................... 8,000.00 27,000.00
1,187.50 2,312.50
13,250.00
P12,550.00
525.00)
12,025.00
175.00)
11,850.00
________
11,850.00
_______
11,850.00
350.00)
11,500.00
6,750.00
Payment of expenses of
realization and distribution
to partners...................... ( 750.00) _______ ______
( 187.50)
Balances......................... 7,250.00 27,000.00
6,562.50
Payments to partners
(Schedule 2).............. ( 6,000.00) _______ ______
_______
Balances......................... 1,250.00 27,000.00
6,562.50
March Installment:
Realization of assets and
distribution of loss.... 10,000.00 ( 15,000.00)______
( 1,250.00)
Balances......................... 11,250.00 12,000.00
5,312.50
Payment of expenses of
realization and distribution
to partners...................... ( 600.00) _______ ______
( 150.00)
Balances......................... 10,650.00 12,000.00
5,162.50
Payments to partners,
P & L ratio................( 10,150.00) ______
______
( 2,037.50)
Balances.........................
500.00 12,000.00
3,125.00
April Installment:
Realization of assets and
distribution of loss.... 4,000.00 ( 12,000.00)______
( 2,000.00)
Balances......................... 4,500.00
1,125.00
Payment of expenses of
realization and distribution
to partners...................... _(400.00) ______
______
( 100.00)
Balances......................... 4,100.00
1,025.00
Final Payments to partnersP(41,100.00)_____
_____
P(1,025.00)
_______
1,187.50
_______
2,312.50
12,950.00
( 1,187.50) ( 1,812.50)
500.00
______
______
500.00
______
_______
500.00
______
______
______
______
______
_____
_____
262.50)
11,237.50
( 1,650.00) ( 1,350.00)
11,300.00
9,887.50
( 2,000.00) ( 1,750.00)
9,300.00
( 500.00)
300.00) (
240.00) (
9,060.00
8,137.50
210.00)
7,927.50
( 4,060.00) ( 3,552.50)
5,000.00
4,375.00
( 3,200.00) ( 2,800.00)
1,800.00
___(160.00) (
1,640.00
1,575.00
140.00)
1,435.00
P( 1,640.00) P( 1,435.00)
Schedule 1
Capital balances......................................
Loan balances.........................................
Total interests..........................................
Possible loss (P2,000 + P34,000)...........
Balances..................................................
Additional loss to Tulio and Umali 35:25
Payments to partners...............................
Apply to loan..........................................
Suarez (40%)
P13,650.00
_____ _
13,650.00
( 14,400.00)
( 750.00)
___750.00
__ __
Schedule 2
Capital balances......................................
Loan balances.........................................
Total........................................................
Possible loss (P1,250 + P27,000)...........
Payments to partners...............................
Apply to loan..........................................
Apply to capital......................................
Suarez (40%)
P12,950.00
12,950.00
( 11,300.00)
P 1,650.00
P 1,650.00
92
Chapter 5
Problem 5 2
Miller and Bell Partnership
Statement of Partnership Realization and Liquidation
Balances
Cash
25,000
Inventory
120,000
Accounts
Payable
15,000
Bell
Loan
60,000
Capital
Miller
Bell
80%
20%
65,000
5,000
( 60,000)
(16,000) (4,000)
______
60,000
(10,000)
5,000
______
60,000
______
49,000
______
1,000
______
60,000
( 60,000)
______
5,000
(49,000)
11,000
_(1,000)
______
48,000
1,000
(24,000) 6,000)
______
0
( 5,000)
0
______
11,000
______
______
24,000 (5,000)
______
0
______
0
( 5,000)
6,000
______ (5,000)
24,000
______
0
______
0
( 6,000)
______
0
(24,000)
0
______
0
Schedule 1:
Miller and Bell Partnership
Schedule of Safe Payments to Partners
Miller
80%
49,000
(48,000)
1,000
Bell
20%
61,000
(12,000)
49,000
Problem 5 3
HORIZON PARTNERSHIP
Statement of realization and Liquidation
May July, 2008
Assets
Balances before liquidation
Cash
Other
Liabilities
SS
(1/3)
20,000
280,000
80,000
60,000
Partners Capital
TT
PP
(1/3) (1/3)
70,000
90,000
May sale of assets at a loss of P30,000
(10,000)
Balances
80,000
Payment to creditors
Balances
80,000
Payments to PP (Exhibit A)
(15,000)
Balances
65,000
June sale of assets at a loss of P36,000
(12,000)
Balances
53,000
Payment to partners (Exhibit A)
(15,000)
Balances
38,000
July sale of remaining assets at a loss of
P33,000
(11,000)
Balances
27,000
Payment to partners
(27,000)
75,000
(105,000)
______
(10,000)
(10,000)
95,000
175,000
80,000
50,000
60,000
(80,000)
______
(80,000)
______
______
15,000
175,000
50,000
60,000
(15,000)
______
______
______
175,000
50,000
60,000
(12,000)
(12,000)
38,000
48,000
______
(10,000)
______
25,000
(61,000)
25,000
114,000
(25,000)
______
114,000
38,000
38,000
(114,000)
(11,000)
(11,000)
81,000
27,000
27,000
(81,000)
(27,000)
(27,000)
SS
TT
60,000
70,000
1
60,000
1
70,000
______
______
60,000
70,000
______
(10,000)
60,000
60,000
81,000
______
______
______
80,000
20,000
20,000
10,000
PP
sharing ratio
1/3
1/3
1/3
b. After the cash distribution in June, the partners capital accounts had balances corresponding to the income-sharing
ratio (38,000 each). From this point on any cash payments to partners may be made in the income-sharing ratio or
equally in this problem. In other words, after the creditors are paid and TT and PP receive 10,000 and 30,000,
respective, any additional cash that becomes available may be paid to the three partners equally.
94
Chapter 5
Problem 5 4
1. X, Y and Z
Cash Priority Program
January 1, 2008
X
Total
Balances
Y
Capital balances..................................
Loan balances.....................................
P60,000
22,5000
P45,000
15,000
P20,000
6,500
Total interests......................................
P82,500
P60,000
P26,500
P200,000
(35,000)
P132,500
Balances............................................. 165,000
Priority II to X and Y.......................
(32,500)
............................................................26,000
165,000
(32,500)
Total.................................................... P132,500
............................................................P36,500
P132,500
X (50%)
Cash Payments
Y (30%) Z (20%)
P10,500
132,500
________
P16,250
9,750
P132,500
P16,250
P20,250
50%
30%
20%
2. January
Available for distribution...............................
Priority I to Y..............................................
Cash
P 7,500
( 7,500)
Payment to partner.........................................
February.......................................................
Available for distribution...............................
Priority I to Y (P10,500 P7,500)..............
Priority II to X and Y; 5:3...........................
Y
P 7,500
P 7,500
Cash
P20,000
( 3,000)
( 17,000)P10,625
Payments to partners......................................
March............................................................
Available for distribution...............................
Priority II to X and Y; 5:3
(P26,000 P17,000).................................
Excess; 5:3:2..................................................
Y
P 3,000
6,375
P10,625 P 9,375
Cash
P45,000
( 9,000)
( 36,000)
P 5,625
18,000
P 3,375
10,800
P7,200
Payments to partners......................................
April..............................................................
Available for distribution...............................
Excess; 5:3:2..................................................
Cash
P15,000
( 15,000)
Payments to partners......................................
P23,625
P14,175
P7,200
P 7,500
P 4,500
P3,000
P 7,500
P 4,500
P3,000
Problem 5 5
AB, CD & EF Partnership
Statement of Partnership Realization and Liquidation
Cash
Able
Loan
20%
Balances before liquidation
18,000 30,000
74,000
January transactions:
1. Collection of accounts
receivable at loss
of 15,000
51,000
( 3,000)
2. Sale of inventory at
loss of 14,000
38,000
( 2,800)
3. Liquidation expenses paid ( 2,000)
( 400)
4. Share of credit memorandum
600
5. Payments to creditors
( 50,000) _____
______
55,000 30,000
68,400
Sale payments to partners
(Schedule 1
( 45,000) ______
(18,400)
10,000 30,000
50,000
February transactions:
6. Liquidation expenses paid ( 4,000) ______
( 800)
6,000 30,000
49,200
Other
Assets
307,000
Accounts CD
Payable Loan
Capital
AB
CD EF
50%
30%
90,000
( 66,000)
( 7,500) ( 4,500)
( 52,000)
( 7,000) ( 4,200)
( 1,000) ( 600)
( 3,000)
1,500
900
______
_____
81,600
-0-
-0- 104,000
-0-
75,000
( 2,000) ( 1,200)
-0- 102,000
73,800
-0- _____
102,000
73,800
( 21,500) (12,900)
( 2,500) ( 1,500)
78,000
59,400
( 30,000)
( 48,000) (59,400)
0
96
Chapter 5
Partnership
Schedules of Safe Payments to Partners
Schedule 1: January
Capital and loan balancesa
Possible loss:
Other assets (189,000) and possible liquidation
costs (10,000)
Balances
Absorption of AB's potential deficit balance
CD : (25,500 x 3/5 = 15,300)
EF : (25,500 x 2/5 = 10,200)
Safe payment
a = (104,000) capital less 30,000 loan receivable
= (81,600) capital plus 20,000 loan payable
= (68,400) capital
AB
50%
CD
30%
EF
20%
P74,000
P101,600
P68,400
( 99,500)
( 25,500)
25,500
( 59,700)
41,900
( 39,800)
28,600
( 15,300)
_______
P 26,600
( 10,200)
P 18,400
______
P
-0-
Schedule 2: February
Capital and loan balancesb
Possible loss:
Other assets (189,000) and possible liquidation
costs (6,000)
72,000
73,800
( 97,500)
( 25,500)
25,500
_______
0
49,200
( 58,500)
15,300
( 39,000)
10,200
( 15,300)
________
0
( 10,200)
0
Problem 5 6
1.
M, N, O and P
Cash Priority Program
January 1, 2008
M
Total
Capital balances. .P 70,000
Loan balances... 20,000
Total interests......P 90,000
Balances
N
O
P 70,000 P 30,000
5,000
25,000
P 75,000 P 55,000
P 20,000
15,000
P 35,000
Loss absorption
balances..........P240,000 P200,000 P440,000 P280,000
Priority I to O... _______ _______ ( 160,000) ________
P20,000
Balances.............. 240,000
200,000 280,000
280,000
Priority II to O
and P............... _______ _______ ( 40,000) ( 40,000)
Cash Payments
M (3/8) N (3/8) O (1/8)
P (1/8)
P20,000
5,000
P5,000
10,000
Balances.............. 240,000
200,000 240,000
240,000
Priority III to
M, O and P.....( 40,000) _______ ( 40,000) ( 40,000)P15,000
25,000
Total....................P200,000 P200,000 P200,000 P200,000P15,000
P55,000
Any amount in excess of P55,000
8/8
3/8
5,000
5,000
P30,000
P10,000
3/8
1/8
1/8
2.
Schedule 1
Cash
P25,000
( 20,000)
( 5,000)
________
_______
P20,000
2,500
P2,500
P22,500
( 22,500) ( 2,500)
Schedule 2
Cash
Available for distribution......................
P40,000
Priority II to O and P; 1:1..................
( 5,000
Priority III to M, O and P; 3:1:1........ ( 25,000)
Excess, 3:3:1:1.....................................
( 10,000)
..............................................................1,250
Payments to partners............................
Apply to loan........................................
Apply to capital
P15,000
3,750
P3,750
P 2,500
5,000
1,250
18,750
( 18,750)
P3,750
( 3,750)
98
Chapter 5
Problem 5 7
P
P2,500
8,750
( 2,500) ( 8,750)
P 6,250
P55,000
P45,000
P150,000
P120,000
( 30,000)
_______
______
( 9,000)
120,000
120,000
55,000
36,000
( 10,000)
________
( 10,000)
_______
( 3,000)
_______
P110,000
P110,000
P 55,000
P 33,000
Accounts
Payable
Bronze
50%
Cash available
First
Next
Next
0
Additional paid in P&L ratio
15,000
P106,000
( 17,000)
( 9,000)
( 5,000)
Gold Silver
30% 20%
P 17,000
P 9,000
3,000
( 75,000)
_______
P37,500
22,500
P 17,000
P37,500
P34,500
-0-
P17,000
Problem 5 8
Part A
North
Balances
South
East
West
Total Interest (capital and loan
balances
P120,000
P 88,000
Divided by P/L ratio
30%
10%
Loss absorption potential
P400,000 P880,000
Priority II To South
(335,000)
Balances
400,000
545,000
Priority II To South and East, 10:20
(145,000)
Balances
400,000
400,000
Priority III To North, South, and
east 30:10:20
(250,000) (250,000)
_____
Total
150,000
150,000
West
North
P109,000 P 60,000
20%
40%
P545,000 P150,000
________
545,000
150,000
(145,000)
400,000
150,000
Cash Payments
South
East
33,500
14,500 29,000
(250,000)
______
150,000
150,000
(3)
Cash
North capital (30% x P103,000)
South capital (10%)
East capital (20%)
West capital (40%)
Property and equipment
To record sale of property and equipment.
82,000
150,000
30,900
10,300
20,600
41,200
253,000
North capital
31,800
South capital
58,600
East capital
35,000
West capital
15,200
Cash
140,600
To record cash installment to partners of P230,600 based on the cash distribution plan in Part A.
First P90,000 is held to pay liabilities (P74,000) and estimated liquidation expenses of P16,000.
Next P33,500 goes entirely to South.
Next P43,500 is split between to South (P14,500) and East (P29,000).
Remaining P63,600 is allocated to North (P31,800), South (P10,600) and East (P21,200)
(4)
100
Liabilities
Cash
To record payment of liabilities.
74,000
74,000
Chapter 5
(5)
Cash
North capital (30% of P30,000 loss)
South capital (10%)
East capital (20%)
West capital (40%)
Inventory
To record inventory sold.
71,000
9,000
3,000
6,000
12,000
101,000
(6)
North capital
35,500
South capital
11,833
East capital
23,667
Cash
71,000
To record distribution of cash according to cash distribution plan. Although P87,000 cash is
being held, P16,000 must be retained to pay liquidation expenses. The Remaining P71,000
is divided among North, South, and East on a 30:20 basis.
(7)
(8)
11,000
3,300
1,100
2,200
4,400
North capital
South capital
East capital
Cash
To record final cash distribution.
4,160
North
P120,000
(4,920)
(30,900)
(31,800)
( 3,300)
South
P88,000
( 1,640)
(10,300)
(58,600)
( 1,100)
East
P109,000
( 3,280)
(20,600)
(50,200)
( 2,200)
West
P60,000
( 6,560)
(41,200)
0
( 4,400)
4,580
( 2,090)
1,527
( 693)
3,053
( 1,666)
( 4,160)
4,160
P 2,500
P 834
P 1,666
2,500
834
1,666
5,000
P 0
Problem 5 9
DR Company
Schedule of Safe Payments to Partners
Dan
(40%)
Red
(30%)
Ben
(30%)
(42,000)
9,600
4,800
(45,000)
7,200
3,600
(17,000)
7,200
3,600
(2,400)
(30,000)
(1,800)
(36,000)
(1,800)
(8,000)
19,200
1,600
(9,200)
14,400
1,200
(20,400)
14,400
1,200
7,600*
(7,600)
4,343
(4,857)
3,257
(17,143)
-0-
Of the P84,000 in cash at the end of August, P58,000 will be required to liquidate the debts to
outside creditors, and P4,000 must be held in reserve to pay possible liquidation costs. Thus, a
total of P22,000 in cash can be safely distributed to partners as of August 31, 2008.
Problem 5 10
(1)
40,000
60,000
100,000
60,000
10,000
180,000
50,000
200,000
102
Chapter 5
(2)
Jenny
P100,000
10,000
15,000
48,000
P173,000
Kenny
P200,000
20,000
20,000
72,000
P312,000
Explanation:
Each partner receives 10% on beginning capital balance. Each partner receives
her respective income (P15,000 to Jenny and P20,000 to Kenny). The amount distributed
thus far is P65,000. The remainder to be distributed is P120,000 (P185,000 30,000
35,000). Two-fifths of this remainder of P129,000 (48,000) is allocated to Jenny; 3/5 x
P120,000 (72,000) is allocated to Kenny. The total income allocated to Jenny and Kenny
is P73,000 and P112,000 respectively.
The admission of Lenny can now be recorded by the following entry:
Cash
175,000
Lenny, capital
Jenny, capital
Kenny, capital
110,000
26,000
39,000
Explanation:
The book value of the partnership after the income distribution in 2006 was
P485,000 (P173,000 + P312,000). After Lennys contribution, the value of the
partnership is P485,000 + P175,000 = P660,000. A one-sixth interest in the partnership is
P660,000 x 1/6 = P110,000. Using the bonus method, we compute a bonus of P175,000
P110,000 = P65,000. Using the 2:3 profit sharing ratio, the amount allocated to Jenny is
P26,000 (2/5 x P65,000) and the amount allocated to Kenny is P39,000 (3/5 x P65,000).
(3)
Jenny
P200,000
9,000
(156,000)
P 53,000
Kenny
P400,000
(50,000)
15,000
(260,000)
P105,000
Lenny
P200,000
6,000
(104,000)
P102,000
Explanation:
The sale of assets realized a gain of P30,000 (P210,000 P180,000) which is
distributed to the partners on the new profit sharing ratio: 30% to Jenny, 50% to Kenny,
and 20% to Lenny. Liabilities are paid. A possible loss on the unsold assets (P520,000) is
distributed to partners in their profit and loss ratio of 30:50:20 to Jenny, Kenny and
Lenny respectively.
Joint Venture
103
CHAPTER 6
SOLUTIONS TO MULTIPLE CHOICES
6-1: a
Assets per Jessica Company- balance sheet
Jessicas proportionate interest in assets of JV (50%)
Total assets of Jessica
6-2: a
P3,550,000
1,000,000
P4550,000
6-3: b
6-4: b
Investment of Heart
Profit share:
Sales
Cost of sales (150,800 125%)
Gross profit
Expenses
Net Profit
Profit/loss ratio
Balance of investment in JV
P80,000
150,800
120,640
30,160
10,000
20,160
x 40%
8,064
P88,064
6-5: a
Cash
Merchandise inventory
Accounts receivable
Total assets
Sweet Cos, proportionate interest
Sweet Companys share in total asset
P190,000
29,360
150,800
370,160
x 60%
P222,096
6-6: a
Sales
Cost of sales
Purchases
Merchandise inventory, end (50% of P10,000)
104
7,200
P10,000
__5,000
_5,000
Gross profit
Expenses
2,200
___500
Net profit
P 1,700
Chapter 6
6-7: b
Original investment (cash)
Profit share (P1,700 / 2)
P10,000
___850
P10,850
P 9,000
__2,500
P11,500
P10,000
6-8: a
6-9: b
Fee of Salas (P10,000 x 15%)
Profit share of Salas (P10,000 x 25%)
P 1,500
_2,500
Total
P 4,000
6-10: b
Salas
Salve
Balance
6-11: d
Joint venture account balance before profit distribution (debit)
Joint venture profit (P4,500 x 3)
P 6,000
_13,500
P19,500
Edwin Capital:
Debits: Balance before profit distribution
Credits: Profit share
P14,000
__4,500
6-12: b
P 9,500
Joint Venture
105
P 0
P16,000
__4,500
_20,500
P20,500
P30,000
__9,500
Balance
P39,500
_20,500
P19,000
6-13: a
JV account balance before profit distribution (cr)
Unsold merchandise (required dr balance after profit distribution)
P 4,600
__2,000
P 6,600
__6,000
P 600
6-14: d
Harry Capital
Balances before profit distribution
Profit distribution:
Harry P6,000 x 50%)
Isaac (P6,000 x 20%)
(P 200)
Cash settlements
P 2,800
Isaac Capital
P 1,800
3,000
1,200
P 3,000
6-15: b
Sales
Cost of sales:
Merchandise inventory, beg (contributions)
Freight
Purchases
P14,000
300
__4,000
P18,300
__4,150
P14,000
14,150
(150)
__600
P( 750)
6-16: c
Contributions to the Joint Venture (P5,000 + P8,000)
Loss share (P750 x 50%)
Unsold merchandise taken (withdrawal)
P13,000
( 375)
( 4,150)
P 8,475
106
Chapter 6
SOLUTIONS TO PROBLEMS
Problem 6 1
Books of Blanco (Manager)
JV Cash
Joint Venture
Cash
Ablan Capital
100,000
90,000
Investment in JV
Merchandise inventory
90,000
Investment in JV
Profit from JV
15,000
90,000
100,000
90,000
Joint Venture
JV cash
60,000
Joint Venture
JV cash
20,000
JV cash
Joint Venture
Books of Ablan
60,000
20,000
200,000
200,000
Computation of JV Profit
Total debit to JV
Total credit to JV
P170,000
P200,000
P 30,000
Distribution
Joint Venture
Profit from JV
Ablan capital
Ablan capital
JV cash
Cash
JV cash
30,000
15,000
15,000
105,000
105,000
155,000
155,000
Cash
Investment in JV
15,000
105,000
105,000
Joint Venture
107
Problem 6 2
Books of the Joint Venture
1.
2.
3.
4.
Computer equipment
Ella capital
Fabia capital
105,000
60,000
45,000
Purchases
Supplies
Diaz capital
80,000
2,000
Expenses
Diaz capital
9,000
Cash
82,000
9,000
150,000
Sales
5.
6.
7.
8.
150,000
Expenses
Cash
30,000
Merchandise inventory
Ella capital
20,000
Fabia capital
Cash
10,000
30,000
20,000
10,000
Expenses
Supplies
Sales
500
500
150,000
Income summary
150,000
Income summary
Merchandise inventory
Purchases
77,500
2,500
Income summary
Expenses
39,500
Distribution of profit:
Income summary
Diaz capital
Ella capital
Fabia capital
80,000
39,500
33,000
11,000
11,000
11,000
108
Chapter 6
Books of Diaz
(1)
(2)
(3)
82,000
9,000
82,000
9,000
11,000
11,000
Books of Ella:
(1)
(2)
(3)
60,000
20,000
60,000
20,000
11,000
11,000
Books of Fabia:
(1)
(2)
45,000
Cash
10,000
45,000
10,000
11,000
11,000
Joint Venture
109
Problem 6 3
(1)
7:
Joint Venture
Castro capital
Cash
12,500
JV cash
Bueno capital
10,000
12,000
500
10,000
9,500
9,500
16,000
15,000
27: JV cash
Joint Venture
16,000
15,000
9,000
9,000
3,000
3,000
6,000
2,000
2,000
2,000
To record settlements:
Bueno capital
Castro capital
JV cash
Cash
Accounts receivable
12,000
14,000
24,500
1,500
1,000
JV accounts receivable
1,000
110
Chapter 6
Books of Bueno
May 7:
10,000
10,000
2,000
2,000
12,000
12,000
Books of Castro
May 1:
12,000
12,000
2,000
2,000
14,000
14,000
7:
Merchandise inventory
Castro capital
Duran capital
12,500
Cash
10,000
12,000
500
Bueno capital
26: Purchases
Cash
30: Accounts receivable
Sales
June 20: Cash
10,000
9,500
9,500
16,000
16,000
15,000
Accounts receivable
27: Cash
15,000
9,000
Sales
9,000
Joint Venture
111
25,000
Income summary
Income summary
Merchandise inventory, end
Merchandise inventory
Purchases
25,000
19,000
3,000
12,500
9,500
Distribution of profit:
Income summary
Bueno capital
Castro capital
Duran capital
6,000
2,000
2,000
2,000
Settlements to Venturers:
Bueno capital
Castro capital
Duran capital
Merchandise inventory
Accounts receivable
Cash
12,000
14,000
2,500
3,000
1,000
24,500
500
500
2,000
2,000
2,500
2,500
112
Chapter 6
Problem 6 4
(1)
April1:
May:
June:
JV Cash
Notes payable PNB
Roles capital
Timex capital
August:
34,000
34,000
34,000
Joint venture
Cash
Rolex capital
64,100
Rolex capital
JV cash
30,000
Joint venture
Cash
Rolex capital
Timex capital
July:
102,000
16,300
7,800
30,000
111,400
37,400
64,700
9,300
Cash
Rolex capital
Timex capital
JV cash
40,000
15,000
10,000
Joint venture
Cash
Rolex capital
Timex capital
55,770
Cash
Rolex capital
Timex capital
JV cash
45,000
67,000
13,500
Joint venture
Cash
Rolex capital
Timex capital
30,600
65,000
13,970
31,240
10,560
125,500
9,730
16,560
4,310
To record sales:
JV cash (P421,000 x 96%)
404,160
Joint venture
404,160
Joint Venture
113
34,000
34,000
34,000
8,000
110,000
134,290
40,287
80,574
13,429
Computed as follows:
Total debits tot he JV account
Total credits to the JV account
P269,870
_404,160
P134,290
To record settlement:
Cash
Rolex capital
Times capital
JV cash
32,687
128,874
14,099
175,660
Computations:
Settlement to Rolex - Balance of capital account:
Debits: June
July
August
Payment of note payable
P30,000
15,000
67,000
_34,000
P146,000
Credits: April 1
May
June
July
August
Profit share
P34,000
47,800
64,700
31,240
16,560
_80,574
__274,874
Credit balance
P 128,874
114
Chapter 6
P 10,000
13,500
__34,000
P 57,500
Credits: April 1
June
July
August
Profit share
P 34,000
9,300
10,560
4,310
__13,429
_71,599
Credit balance
P 14,099
P102,000
_404,160
P506,160
Credits: June
July
August
Payment of loan
P 30,000
65,000
125,500
_110,000
_330,500
Balance of JV cash
Less:Settlement to Rolex
Settlement to Timex
P128,874
__14,099
175,660
Settlement to Seiko
(2)
_142,973
P 32,687
P 72,000
_175,500
P247,500
_159,800
87,700
34,000
Joint Venture
115
P30,000
Joint Venture
June
May
June
P 64,100
_111,400
Balance P175,500
Notes Payable
P34,000
Rolex capital
April
June
P 30,000
_______
P 34,000
47,800
__64,700
P 30,000
P146,500
P116,500
Timex capital
P34,000
__9,000
April
June
P43,300
Problem 6 5
Consolidated Balance Sheet
Cash
Receivables
Inventory
Other assets
P 61,000
122,000
102,500
__40,500
Total assets
P326,000
Accounts payable
Other liabilities
Capital stock
Retained earnings
P 61,000
96,500
50,000
_118,500
P326,000
P246,750
April 1
May
June
Cost of sales
_124,750
Gross profit
Operating expenses
122,000
__58,250
P 63,750
116
Chapter 6
Problem 6 6
(a)
Cash
1,000,000
MacDo
Initial contribution at 6%
July 1:
Land
1,000,000
2,400,000
Mortgage payable
Cash
Purchased land for cash and 6% mortgage.
Aug 1:
Cash
1,650,000
750,000
1,100,000
MacDo
Additional contribution at 6%.
Land
1,100,000
950,000
Cash
Paid for improvements.
Sept 30:
Oct 31:
Nov 30:
Dec 31:
950,000
Mortgage payable
Interest expense- Mortgage
Cash
Reduced mortgage and paid interest.
250,000
3,750
Mortgage payable
Interest expense- Mortgage
Cash
Reduced mortgage and paid interest.
400,000
8,000
Mortgage payable
Interest expense- Mortgage
Cash
Reduced mortgage and paid interest.
300,000
7,500
253,750
408,000
Mortgage payable
200,000
Interest expense- Mortgage
21,000
Cash
Reduced mortgage and make semi-annual
interest payment.
307,500
221,000
Joint Venture
31:
117
Cash
2,600,000
Sales
Sales to date.
31:
31:
31:
31:
2,600,000
Commissions
Cash
P2,600,000 x 5%
130,000
Expenses
Cash
Paid expenses
628,100
130,000
628,100
60,000
60,000
2,600,000
31:
1,145,000
628,100
130,000
40,250
60,000
596,650
Income summary
MacDo
MacEn
To divide gain, 60:40.
596,650
MacDo
801,650
596,650
238,660
Cash
Payment on account.
(b)
801,650
1,000,000
1,000,000
Aug 1:
1,100,000
1,100,000
118
Chapter 6
Dec 31:
31:
31:
60,000
60,000
357,990
Cash
801,650
357,990
801,650
P2,600,000
P2,400,000
950,000
P3,350,000
2,205,000
P 628,100
40,250
60,000
130,000
1,145,000
1,455,000
858,350
P 596,650
P 357,990
238,660
P 250,000
Land
Total Assets
2,205,000
P2,455,000
P 500,000
1,716,340
238,660
P2,455,000
Joint Venture
119
MacDo
P2,100,000
MacEn
Total
P2,100,000
P 357,990
60,000
P238,660
P 596,650
60,000
130,000
786,650
2,886,650
(931,650)
P1,955,000
417,990
2,517,990
(801,650)
P1,716,340
130,000
368,660
368,660
(130,000)
P238,660
120
Chapter 7
CHAPTER 7
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
7-1: c
Amount realized secured by inventory
Unsecured claim (P10,000 x 25%)
P 30,000
__2,500
P 32,500
P120,000
__66,000
P186,000
7-2: d
7-3: d
(P15,000,000 + P200,000)
7-4: a
Realizable value:
Current assets
Land and building
Less mortgage payable
P 50,000
P240,000
_200,000
__40,000
Total
Less accounts payable
90,000
_160,000
P 70,000
7-5: c
Total realizable value to unsecured creditors (P90,000)/total unsecured
Claims (P160,000) = 56.25%
7-6: a
Free assets:
Current assets
Buildings and equipment
Total
P 33,000
_110,000
P143,000
P 20,000
6,000
__8,000
P 34,000
P109,000
P 30,000
83,000
__70,000
P183,000
P 90,000
__18,000
P108,000
7-7: c
Free assets:
Other assets
Excess from assets pledged with secured
Creditors (P116,000 P70,000)
Total
Liabilities with priority
Free assets after payment of liabilities with priority
(P126,000 P42,000)
Unsecured liabilities:
Excess of partially secured liabilities over pledge
Assets (P130,000 P50,000)
Unsecured creditors
Total
P 80,000
__46,000
P126,000
P 42,000
P 84,000
P 80,000
_200,000
P280,000
P 50,000
__24,000
Total collected
P 74,000
122
Chapter 7
7-8: a
The holder of Debt Two will receive P100,000 from the sale of the pledged
asset. Since the holder wants to receive P142,000 out of the total debt of
P170,000, the company must be able to generate enough cash to pay off
60% of the unsecured liabilities (P42,000/P70,000) after paying 100% of
the liabilities with priority (P110,000).
Unsecured liabilities:
Unsecured creditors
Excess liability of Debt One in excess of pledged
Asset (P210,000 P180,000)
Excess liability of Debt Two in excess of pledged
Asset (P170,000 P100,000)
P230,000
30,000
__70,000
P330,000
____60%
P198,000
In order for the holder of Debt Two to received exactly P142,000, the other free assets
must be sold for P308,000. With that much money, the liabilities with priority
(P110,000) can be paid with the remaining P198,000 going to the unsecured debts of
P330,000. This 60% figure would insure that the holder of Debt Two would get
P100,000 from the pledged asset and P42,000 (P70,000 x 60%) from the free assets.
7-9: c
Estate equity, beg. (P100,000 P85,000)
Loss on realization (P100,000 P75,000)
Unrecorded liabilities:
Interest expense
Administrative expense
Estate deficit
P 15,000
( 25,000)
P
250
4,000
( 4,250)
P( 14,250)
7-10: c
Total assets at net realizable value
Fully secured liabilities
Estimated administrative expense
P 75,000
(40,000)
_( 4,000)
P 31,000
(45,250)
P 14,250
7-11: b
Assets pledged with fully secured creditors
Fully secured creditors
Free assets
_160,000
Total free assets
Less: Liabilities with priority
Available to unsecured non-priority claims
P185,000
_130,000
55,000
215,000
__35,000
P180,000
7-12: b
Machinery
Recoveries of unsecured claims (50,000 - 10,000) X .50
Amount to be realized
P 10,000
__20,000
P 30,000
7-13: b
Notes Payable
Less: Inventories
Unsecured Liabilities
% of recovery
Recovery
Add: Inventories
Amount to be received by Wood
7-14: a
7-15: a
7-16: b
7-17: d
- P7,000
- P30,000
- P57,200 [52,000 + (8,000 X .65)]
- P72,800 (112,000 X .65)
7-18: d
Estimated loss:
Account Receivable
Inventories (28,000 - 18,500)
Building (59,000 - 22,000)
Equipment (5,600 - 2,000)
Goodwill
P 8,160
9,500
7,000
3,600
5,650
P 23,940
19,200
4,740
____78%
3,697
_19,200
P 22,897
Prepaid expenses
Less: Stockholder's equity
Common stock
Deficit
Estimated deficiency
___430
P 72,000
( 16,660)
P 64,340
_55,340
P 9,000
124
Chapter 7
7-19: d
Accounts Receivable (39,350 - 16, 110)
Notes Receivable (18,500 - 12,500)
Inventories (87,850 - 45,100)
Prepaid expenses
Equipment (48,800 - 9,000)
Total estimated loss
P 23,240
600
42,750
950
__39,800
P112,740
P 5,000
P 2,700
16,110
45,100
__9,000
__72,910
77,910
___6,500
P 71,410
2,500
103,750 P106,250
67%
7-22: d
Fully secured (Notes Payable)
Partially secured:
P 90,000
P12,500
__1,675
14,175
6,500
__69,513
P180,188
7-23: a
Unsecured creditors without priority
Estimated deficiency to unsecured creditors:
Loss on realization
Estimated liquidation expenses
Total
Stockholders equity
Net free assets
Liabilities with priority
Free assets
P1,102,500
551,250
55,125
606,375
441,000
165,375
937,125
122,500
P 1,059,625
7-24: a
Estimated net gain (loss) on realization:
Gain on realization
Loss on realization
Estimated claims
Total
Stockholders equity
Estimated deficiency
78,750
(336,700)
(257,950)
( 43,750)
(301,700)
295,750
P( 5,950)
7-25: b
Notes payable (175,000 140,000)
Unsecured liabilities (420,000 52,500)
Total
Free assets (157,500 + 210,000)
Estimated deficiency
P 35,000
367,500
402,500
367,500
35,000
7-26: a
Old receivable (net)
Marketable securities
Old inventory
Depreciable assets- net
Total assets to be realized
P 38,000
12,000
60,000
96,000
P206,000
7-27: a
Old receivable
New receivable
Marketable securities
Sales of inventory
Total asset realized
P 21,000
47,000
10,500
75,000
P153,500
7-28: a
Gain on sale of inventory (P75,000 60,000)
Loss on realization:
Marketable securities (12,000 10,500)
Trustees expenses
Depreciation
Net loss
15,000
1,500
4,300
16,000
126
7
(21,800)
P( 6,800)
Chapter
SOLUTIONS TO PROBLEMS
Problem 7 1
(A)
Laguna Company
Statement of Affairs
October 31, 2008
Book
Value
Estimated
Assets
Realizable Value
Assets pledge for fully secured creditors:
P107,000 .... Plant assets.................................................. P67,400
Less; Fully secured liabilities......................_ 50,400
Assets pledged for partially secured creditors:
39,000. .... Inventories.................................................. P18,000
Free Assets:
4,000. ..... Cash............................................................ P 4,000
46,000. ..... Accounts, receivable...................................
46,000
2,000. ..... Supplies....................................................... __1,500
Total free assets...............................................
Less: Unsecured liabilities with priority..........
Net Free Assets................................................
Estimated deficiency to unsecured creditors (to balance)
P198,000
Book
Creditors'
Value
Liabilities & Stockholders' Equity
Claim
Fully secured liabilities:
P50,400....... Mortgage payable (including interest, P400) P50,400
Partially secured liabilities:
21,000.. ..... Notes payable..............................................
P21,000
Less: Inventory............................................
_18,000
Unsecured creditors with priority:
5,800.. ..... Wages payable
P 5,800
1,200.. ..... Property taxes payable................................
_1,200
Free Assets
P17,000
_51,500
P68,500
__7,000
P61,500
_20,500
P82,000
Unsecured
Liabilities
P 3,000
Total............................................................
P 7,000
Unsecured creditors without priority:
60,000.. ..... Accounts payable........................................
19,000.. ..... Notes payable..............................................
Stockholders' Equity........................................
P198,000
(B)
Creditor Group
Amount of
Percentage
Claim
paid
Unsecured liabilities with priority....................................
P7,000
Fully secured creditors.....................................................
50,400
Partially secured creditors................................................
21,000
Unsecured creditors without priority................................
79,000
* P18,000 + (P3,000 X 0.75) = P20,250
(C) See statement of affairs in requirement (A)
60,000
19,000
_____
P82,000
Amount to
be Paid
P7,000
50,400
20,250 *
59,250
P85,400
0
Assets realized:
land............................. P
0
Building......................
0
Equipment...................
8,800
Patents......................... _12,000
Assets not realized:
Land............................ P10,000
Building...................... 43,000
Equipment................... _13,000
66,000
Liabilities Liquidated:
Account payable..... P14,000
Loans payable......... __7,000
120,000
Liabilities not Liquidated:
Accounts payable....
Loans payable.........
66,000
33,000
21,000
Liabilities to be Liquidated:
Accounts payable........ P80,000
Loans payable............. _40,000
99,000
100.0%
100.0%
96.4%
75.0%
127
Problem 7 2
VC Corporation
Statement of Realization and Liquidation
Month Ended January 31, 2008
Assets to be realized:
Land........................ P10,000
Building.................. 43,000
Equipment.............. 28,000
Patents.................... __4,400
P20,800
Assets Acquired...............
to be
Loss on realization.....................
Total...........................................
VC Corporation
Balance Sheet
January 31, 2008
Cash ............................................... P 6,700
P 66,000
Land ...............................................
10,000
33,000
Building.........................................
43,000
( 26,300)
Equipment...................................... _13,000
Total ............................................... P 72,700
00
Accounts payable.........................
Loans payable..............................
Estate deficit................................
VC Corporation
Estate Deficit
January 31, 2008
Gain on realization....................................................................
Loss in realization ....................................................................
Trustee's expenses ....................................................................
Net gain on realization..............................................................
Estate deficit, January 1, 2008..................................................
Estate deficit, January 31, 2008.................................................
P 7,600
( 6,200)
( 1,300)
P 100
( 26,400)
P(26,300)
128
Chapter 7
Problem 7 3
Rizal Corporation
Statement of Affairs
Book
Values
Assets
Assets pledged to fully secured creditors:
P 80,000........... Land and building...............................................
Less: Mortgage payable......................................
50,000........... Finished Goods...................................................
Less: Loan payable.............................................
32,000...........
12,000...........
4,000...........
8,000...........
36,000...........
1,000...........
8,000...........
45,000...........
Estimated
Realizable Value
P102,000
43,000
P 55,000
50,000
24,000
3,500
27,500
Free Assets:
Cash....................................................................
AR (20% x 30,000).............................................
Inventory Materials..........................................
Prepaid expense..................................................
Trucks.................................................................
Equipment...........................................................
4,000
6,000
27,000
0
2,500
25,000
Free
Assets
P 59,000
16,000...........
Intangible............................................................_______
Total Free Assets......................................................
Less: Unsecured liability with priority (12,000 + 8,000)
Net free assets..........................................................
Estimated deficiency to unsecured creditors (to Balance)
64,500
P128,500
20,000
108,500
________
81,000
P 292,000...........Total unsecured liabilities........................................
Book
Values
P189,500
Creditors'
Claim
94,000
50,000
144,000
25,000
24,000
5,000
3,500
12,000
8,000
20,000
25,000...........
12,000...........
8,000...........
Unsecured
Liabilities
Unsecured creditors:
77,000........... Accounts payable................................................
110,000........... Stockholder Loan................................................
( 38,000)...........Stockholder Equity..................................................
P 292,000
Total.........................................................................
Corporation in Financial Difficulty Liquidation
77,000
110,000
187,000
P189,500
129
Problem 7 4
Mapayapa Corporation
Statement of Affairs
November 1
Book
Value
Estimated
Assets
Realizable Value
Assets pledged to fully secured creditors:
P60,000........ Investments................................................. P 69,000
180,000........ Accounts receivable....................................
171,000
Total............................................................
240,000
Less: Note payable......................................
210,000
66,000........
248,000........
291,000........
870,000........
Free assets:
Cash............................................................
Accounts receivable....................................
Merchandise inventory................................
Plant & equipment......................................
P 66,000
193,500
180,000
330,000
Free
Assets
P 30,000
114,000........
........
_________
P1,839,000
_889,800
919,800
__13,800
906,000
60,300
P966,300
Creditor's
Claim
Unsecured
Liabilities
Book
Value
P210,000
P 7,200
___6,600
P 13,800
Unsecured creditor:
960,000........ Account payable..........................................
Accrued expenses........................................
300,000........Capital stock
__369,000........Retained earnings............................................
P1,839,000
Total................................................................
130
P960,000
6,300
_______
P966,300
Chapter 7
Problem 7 5
a.
b.
__23,500
P 91,500
P 70,000
__95,000
P165,000
P91,500
P471,000
356,000
115,000
= 55.45%
P165,000
c.
Distribution of P471,000:
Creditors
Accounts payable
Wages payable
Taxes payable
Notes payable & interests
Amount
P 95,000....
9,500.....
14,000.....
125,000.....
70,000
Bonds payable & interests
231,000.....
Total estimated payment........................................
Percent
Realized
55.45%
100%
100%
100%
55.45%
100%
Total
Payment
P 52,678
9,500
14,000
125,000
38,815
_231,000
P470,993
131
Problem 7 6
1.
Evergreen Company
Statement of Affairs
June 30, 2008
Book
Values
P460,000
80,000
140,000
100,000
120,000
100,000
Estimated
Realizable
Values
ASSETS
Pledged with fully secured creditors:
Land and building.....................................
P340,000
Less: Mortgage payable (including accrued interest)
(330,000)
Free Assets:
Cash .........................................................
P 80,000
Accounts receivable net.........................
126,000
Inventories................................................
84,000
Machinery net........................................
40,000
Goodwill...................................................
_ _____0_
Total free assets............................................................
Less: liabilities with priority........................................
Available for
Unsecured
Creditors
P 10,000
330,000
340,000
_140,000
200,000
_130,000
P1,000,000
P330,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured &
Priority
Claims
P120,000
20,000
300,000
30,000
Total .........................................................
Fully secured creditors
Mortgage payable.....................................
Interest on mortgage payable....................
220,000
100,000
10,000
Total .........................................................
P330,000
Unsecured creditors
Accounts payable.........................................................
Note payable-unsecured...............................................
Interest payable-unsecured...........................................
Stockholders' Equity
400,000 Capital stock.............................................
(200,000) Retained earnings (deficit)...........................................
Unsecured
Non-priority
Liabilities
P120,000
__20,000
P140,000
300,000
__30,000
P220,000
100,000
10,000
___
P330,000
P1,000,000
2.
P100,000
80,000
2,000
6,000
160,000
40,000
Estate equity................................................800
Accounts receivable-net..............................
To record collection of receivables and recognize loss.
Cash.......................................................38,800
Estate equity...........................................33,200
Inventories..................................................
To record sale of inventories at a loss.
Cash.....................................................180,000
Estate equity...........................................60,000
Land............................................................
Buildings-net..............................................
To record sale of land and buildings at a loss.
Estate equity...........................................52,000
Intangible assets..........................................
To write off intangible assets.
Estate equity...................................................16,400
Administrative expenses payable.......................
16,000
72,000
40,000
200,000
52,000
16,400
2.
133
Financial Statements
Kimerald Corporation in Trusteeship
Balance Sheet
March 31, 2008
Assets
Cash .........................................................................................
P242,000
P100,000
80,000
2,000
6,000
160,000
__16,400
Total liabilities..........................................................................
Less: Estate deficit....................................................................
P364,400
_122,400
P242,000
P 8,000
Total .........................................................................................
Less: Cash disbursements.........................................................
242,000
____0
P242,000
_234,000
P 40,000
P122,400
_162,400
134
3.
Chapter 7
160,000
24,400
57,600
122,400
135
CHAPTER 8
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
8-1: a
Trade accounts payable (P52,000 + P62,700)
P114,700
12% preferred stock (5,000 x P1)
Paid in capital in excess of par (5,000 x P9)
Cash (P62,700 x P0.80)
_100,160
Gain from discharge of indebtedness
14,540
8-2: c
8-3: c
P 5,000
45,000
_50,160
8-4: b
Carrying value of the note payable:
Principal
Interest
__60,000 P660,000
Restructured value:
Principal
Interest
_110,000 _510,000
P600,000
P400,000
136
Chapter 8
8-7: a
Book value of notes payable:
P500,000
__60,000
Principal
Interest
___500 P 3,000
Par value of common stock issued (200 shares x P5)
__1,000
Additional paid in capital
P 2,000
Add gain on payment of accounts payable:
Book value
Payment
__2,000
P 2,500
P 10,000
__8,000
P100,000
__12,000
Balance of debt
76,000
Restructured debt:
Note payable
Interest (P50,000 x .08 x 2)
__58,000
P 50,000
___8,000
P 9,000
_41,600
8-11: d
8-12: d
Loss on transfer of land:
Original cost
Market value
P 20,000
P290,000
_270,000
P300,000
_270,000
137
8-13: a
Transfer gain (loss):
Carrying amount of equipment
Fair value of equipment
Transfer loss
P80,000
75,000
P(5,000)
Restructuring gain:
Carrying amount of the debt
Fair value of equipment transferred
Restructuring gain
P100,000
75,000
P 25,000
P100,000
90, 000
P(10,000)
P150,000
90,000
P 60,000
P 35,000
65,000
P100,000
P880,000
780,000
P100,000
8-14: d
8-15: d
8-16: c
8-17: a
8-18: a
First determine the expected future cash flows as follows:
70,000 x .79719
=
P55,803
5,600 x 1.69005
=
9,464
Present value of future cash flow
P65,267
The interest revenue can be computed using the effective interest method
as follows:
Present value at 12/31/06
P65,267
Interest income at 12/31/07 (65,267 x 12%)
7,832
Interest receivable at 12/31/07 (70,000 x 8%)
5,600
2,232
Present value at 12/31/07
P67,499
Interest income at 12/31/08 (67,499 x 12%)
P 8,100
138
Chapter 8
SOLUTIONS TO PROBLEMS
Problem 8 1
Journal entries for company emerging from bankruptcy using fresh start
accounting:
Receivables.......................................................................................10,000
Inventory. .........................................................................................10,000
Building...............
100,000
Reorganization value in excess of amount
Allocable to tangible assets.........................................................60,000
Additional paid in capital......................................................
180,000
To adjust accounts to market value as part of fresh start accounting. Since the company has
a reorganization value of P760,000 but the assets have a market value of only P700,000
(P90,000 + P210,000 + P400,000), and account entitled Reorganization Value in Excess of
Amount Allocable to Tangible Assets must be recorded for P60,000.
Liabilities.............
300,000
Common stock (P330,000 x 80%)...............................................
Gain on debt discharge................................................................
To record settlement of liabilities.
264,000
36,000
Problem 8 2
2008
July 14: Costs of reorganization................................................................50,000
Cash with escrow agent........................................................
50,000
Common stock
580,000
Common stock (60,000 x P1)...............................................
Additional paid in capital......................................................
60,000
520,000
120,000
123,000
80,000
20,000
260,000
50,000
139
Problem 8 3
Jade Corporation
Balance Sheet
December 31, 2008
ASSETS
Current assets:
Cash ................................................................................... P 23,000
Inventory............................................................................. __45,000
Property and equipment:
Land ................................................................................... 140,000
Buildings.............................................................................
Equipment........................................................................... _154,000
220,000
_514,000
Total assets..........................................................................
P582,000
P 68,000
P260,000
_345,000
605,000
_(23,000)
P582,000
Problem 8 4
Preliminary computations:
Book values prior to reorganization:
Total assets (P100,000 + P112,000 + P420,000 + P78,000)...............
Total liabilities (P80,000 + p35,000 + P100,000 + P200,000 +
P185,000 + P200,000).................................................................
Common stock (given)......................................................................
Deficit (given)
.............................................................................
P710,000
P800,000
P240,000
P330,000
140
Chapter 8
Book values after reorganization:
Total assets (reorganization value).................................................................
Total liabilities (P5,000 + P4,000 + P100,000 + P50,000 +
P71,000 + P110,000)..............................................................................
Common stock (returned shares are reissued)...............................................
Deficit (eliminated) ......................................................................................
Additional paid in capital (squeeze)..............................................................
P780,000
P340,000
P240,000
0
P200,000
Since the company will have 30,000 shares outstanding after the reorganization, the additional paid in
capital equals P6.66 per share.
Because the company has a reorganization value of P780,000 but the assets have a market value of only
P735,000, an account entitled Reorganization Value in Excess of Amount allocable to Tangible Assets must
be recognized for P45,000.
JOURNAL ENTRIES:
1.
Land and buildings ......................................................................................80,000
Reorganization Value in excess of amount
allocable to tangible assets......................................................................45,000
Accounts receivable.........................................................................
Inventory ......................................................................................
Equipment ......................................................................................
Additional paid in capital................................................................
To adjust accounts to market value as part of fresh start accounting.
20,000
22,000
13,000
70,000
2.
Common stock...............................................................................................144,000
Additional paid in capital........................................................................
144,000
To record shares turned in to the company by the owners as part of the reorganization plan. 18,000
shares at P8 par value.
3.
4.
Accrued expenses..........................................................................................35,000
5,000
8,000
6,666
60,334
Note payable...........................................................................................
Gain on debt discharge...........................................................................
To record settlement of accrued expenses.
5.
4,000
31,000
Note payable............
200,000
Note payable...........................................................................................
Common stock, P8 par value..................................................................
Additional paid in capital (P6.66 per share)...........................................
Gain on debt discharge...........................................................................
To record settlement of note payable due in 2007
Note payable............
185,000
Note payable...........................................................................................
Common stock, P8 par value..................................................................
Additional paid in capital, P6.66 per share.............................................
Gain on debt discharge...........................................................................
To record settlement of note payable due in 2008
Reorganization and Troubled Debt Restructuring
50,000
80,000
66,667
3,333
6.
71,000
56,000
46,667
11,333
141
Problem 8 5
7.
8.
110,000
90,000
Since the Company has a reorganization value of P800,000 but only P653,000 can be assigned to
specific assets based on market value, the remaining P147,000 is reported as a Reorganization
Value in Excess of Amount Allocable to Identifiable Assets.
Sun Corporation
Balance Sheet Fresh Start Accounting
December 31, 2008
ASSETS
Current assets
Accounts receivable...................................................................................
Inventory...................................................................................................
Property and equipment
Land and buildings. ...................................................................................
Machinery.................................................................................................
Intangible assets
Patents ...................................................................................................
Reorganization value in excess of amount allocable To identifiable assets
Total assets................................................................................................
P 18,000
_111,000
P129,000
278,000
_121,000
399,000
125,000
_147,000
_272,000
P800,000
_185,000
Total liabilities...........................................................................................
P282,000
Stockholders' Equity:
Common stock. ......................................................................................... P500,000
Additional paid in capital (squeeze)........................................................... __18,000
_518,000
P 97,000
P800,000
CHAPTER 9
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
9-1: d
Deferred gross profit, Dec. 31 (before adjustment)
P1,050,000
Less: Deferred gross profit, Dec. 31 (after adjustment)
Installment accounts receivable, Dec. 31
P1,500,000
Gross profit rate
____
25% __375,000
Realized gross profit, 2008
P 675,000
OR
Installment Sales (P1,050,000 25%)
P4,200,000
Less: Installment account receivable, Dec. 31
__1,500,00
Collection
P2,700,000
Gross profit rate
___X 25%
Realized gross profit, 2008
P 675,000
9-2: a
Deferred gross profit, before adjustment
Deferred gross profit, end
2006 (6,000 X 35%)
2007 (61,500 X 33%)
2008 (195,000 X 30%)
Realized gross profit, December 31, 2008
(Total P107,235)
2006
P7,230
2007
P 60,750
2008
P 120,150
2,100
20,295
P5,130
P 40,455
___58,500
P 61,650
9-3: c
Deferred gross profit balance, end
Divide by Gross profit rate based on sales (25% 125%)
Installment Accounts Receivable, end
Collection
P 202,000
____
20%
P1,010,000
___440,000
Installment Sales
P1,450,000
Sales
Cost of installment sales
Deferred gross profit
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000)
Gross profit rate (300,000 1,000,000)
Realized gross profit
Operating expenses
Operating income
Interest and financing charges
Net income
P1,000,000
__700,000
P 300,000
9-4: b
P 600,000
___X 30%
__180,000
P 120,000
___80,000
40,000
__100,000
P 140,000
Installment Sales
9-5: a
Market value of repossessed merchandise
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000)
Less: Deferred gross profit (50,000X20%)
Loss on repossession
P 30,000
P 50,000
___10,000
__40,000
(P 10,000)
9-6: a
Installment sales
Less: collection on installment sales
Installment account receivables, 12/31/08
Gross profit rate (500,000 1,000,000)
Deferred gross profit, 12/31/08
P1,000,000
__200,000
800,000
___X 50%
P 400,000
OR
Deferred gross profit (1,000,000-500,000)
Less: Realized Gross Profit (200,000 X 50%)
Deferred gross profit, 12/31/08
P500,000
_100,000
P400,000
P120,000
9-7: d
9-8: b
Realized gross profit:
Collections:
P 200,000
___65,000
_135,000
(P 15,000)
Downpayment
Installment received (205,000-200,000)
Total
Gross Profit Rate (150,000 240,000)
Realized gross profit
P 35,000
___5,000
40,000
_X 62.5%
P 25,000
P165,000
P 200,000
__125,000
__75,000
P 90,000
144
Chapter 9
9-9: b
Sch.1
Date
Apr-1
Apr-1
May-1
Jun-1
Jul-1
Aug-1
Collection
750
625
625
625
625
Applying
to
Interest
Applying
to
principal
125.00
115.00
104.80
__94.40
P439.20
750.00
500.00
510.00
520.20
___530.60
P2,810.80
Balance
of
principal
P7,000.00
6,250.00
5,750.00
5,240.00
4,719.80
4,189.00
P 1,875
P 4,189
__1,466
___2,723
(P 848)
P2,810.80
__X 35%
P 983.78
9-10: c
Year of Sales
2007
2008
Deferred gross profit (Sales X Gross Profit Rate)
2007 (P300,000 X 30%)
P 90,000
P 180,000
( 60,000)
( 15,000)
________
( 60,000)
P 15,000 P 60,000
P 315,000
( 45,000)
270,000
( 90,000)
P 180,000
( 7,500)
( 30,000)
( 22,500)
9-11: a
Installment Sales
9-12: a
Deferred gross profit (Sales - Cost of Installment Sales)
Realized gross profit, 2007 (P630,000 X 40%)
Realized gross profit, 2007 (P450,000 X 40%)
Realized gross profit, 2008 (P900,000 X 30%)
Deferred gross profit, 12/31/08 (P228,000)
2007
P 480,000
( 252,000)
( 180,000)
_______
P 48,000
2008
P450,000
( 270,000)
P180,000
9-13: c
Trade-in value
Less: Actual value
Estimated selling price
Less:reconditioning cost
normal gross profit (25,000 X 15%)
Overallowance
Realized gross profit:
Collection:
Downpayment
Actual value of merchandise-Trade In
Installment collected (5,000 X 3)
Gross Profit Rate:
Sales
Overallowance
Net Sales
Cost of Installment Sales
Gross Profit
Gross Profit Rate (15,000 75,000)
Realized Gross Profit
P 30,000
P 25,000
P 1,250
__3,750
___5,000
P 5,000
20,000
_15,000
__20,000
P 10,000
P 40,000
P 85,000
( 10,000)
P 75,000
_60,000
P 15,000
_X 20%
P 8,000
9-14: c
Collection excluding interest (P900,000-P300,000)
Gross profit rate (P1,200,000 P3,600,000)
Realized Gross Profit, December 31, 2008
Add Interests
Total Revenue
P 600,000
X 33 1/3%
200,000
__300,000
P 500,000
9-15: a
Wholesale value of repossessed merchandise
Less: unrecovered cost
Unpaid balance:
Sales, 10/1/07
P 24,000
Collection, 2007 (6,000 2,000)
( 8,000)
Collection, 2008 (1,000 X 7)
( 7,000)
Deferred gross profit (9,000 X 25%)
Loss on repossession
P 9,000
__2,250
4,000
___6,750
(P 2,750)
146
Chapter 9
9-16: a
Trade-in Value (P300 X 6)
Less: Actual value
Estimated selling price (P315 X 6)
Less:Reconditioning cost (P25 X 6)
Gross Profit (P1,890 X 10%)
Over-allowance
P 1,800
P 1,890
P150
_189
___339
___1,551
P
249
9-17: a
Deferred gross profit, before adjustment
Deferred gross profit, end
2007: P32,500 X (30% 130%)
2008: P180,000 X (33 1/3% 133 1/3%)
Realized gross profit on installment sales
P 76,000
P 7,500
_45,000
__52,500
P 23,500
9-18: d
Unpaid balance (P27,000 - P16,000)
Multiply by gross profit rate (P734,400 P2,160,000)
Deferred gross profit to be cancelled on repossession
P 11,000
___X 34%
P 3,740
Collection:
2007 Downpayment
2008 Installment collection
Interest
Total
P 600,000
600,000
__540,000
P1,740,000
Cost to be recovered
P4,000,000
9-19: b
Since cost is not yet fully recovered, then no gross profit is to be recognized in 2008.
9-20: d
Regular Sales
Cost of regular sales
Gross profit on regular sales
Add: Realized gross profit on installment sales
2007 (25,000 X 50%)
2008 (62,500 X 55%)
Total realized gross profit
Operating expenses
Net income, 12/31/08
P 187,500
__112,500
P 75,000
P12,500
_34,375
__46,875
121,875
___31,250
P 90,625
Installment Sales
9-21: a
Installment sales 2007
Collections:
Down payment (20% x 785,000)
Installment (40% x 628,000)
Installment accounts receivable 2007, 12/31/07
Gross profit rate on sales
Deferred gross profit- 2007, 12/31/07
P785,000
P157,000
251,200
408,200
376,800
35/135
P 97,689
9-22: a
Regular sales
Cost of regular sales
Gross profit on regular sales
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%)
Installment accounts receivable-12/31/08
Collections
Gross profit on rate on sales
Total realized gross profit
Operating expenses (1,137,500 x 70%)
Net income
P1,575,000
1,050,000
525,000
2,625,000
1,575,000
1,050,000
140/240
612,500
1,137,500
796,250
P
341,250
9-23: a
Regular sales
Cost of regular sales
Gross profit on regular sales
Realized gross profit on installment sales:
Collections excluding Interest (312,000 24,000)288,000
P375,000
215,000
160,000
30%
54,000
70,000
72,000
30,800
86,400
246,400
( 16,000)
230,400
102,800
127,600
24,000
P151,600
148_
Chapter 9
SOLUTIONS TO PROBLEMS
Problem 9 1
Journal Entries:
2006
Installment A/R2006................ 104,000
Installment A/R2007................
Installment A/R2008................
Installment Sales..................
104,000
Cost of Installment Sales............
Inventory.............................
64,480
Cash...........................................
Installment A/R2006
Installment A/R2007..........
Installment A/R2008..........
Interest Revenue..................
66,980
2007
116,000
121,000
116,000
68,440
64,480
121,000
73,810
68,440
125,520
57,200
9,780
2008
73,810
145,460
29,120
71,920
_
24,480
116,000
15,000
26,680
76,230
27,550
121,000
68,440
47,560
73,810
47,190
21,736
21,736
Computations:
2006: P57,200 X .38 =
P21,736
P11,066
29,987
P40,553
P 5,700
10,939
29,730
P46,369
11,066
29,487
40,553
5,700
10,939
29,730
46,369
Installment Sales
149
2007:
2008:
Problem 9 2
Inventory.................................................................................................45,200
Cash.................................................................................................
Notes Receivable 2007 (P32,000 + P62,000 + 3,600)............................97,600
Unearned Interest Revenue (P7,167 + P3,600)...............................
Installment Sales..............................................................................
Cost of Installment Sales (P45,200 P2,000 inventory increase)..........43,200
Inventory..........................................................................................
Cash........................................................................................................35,600
Notes Receivable 2007....................................................................
Unearned Interest Revenue 2007............................................................3,600
Interest Revenue..............................................................................
Installment Sales.....................................................................................86,833
Cost of Installment Sales.................................................................
Deferred Gross Profit on Installment Sales2007...........................
Deferred Gross Profit on Installment Sales2007..................................16,080*
Realized Gross Profit on Installment Sales.....................................
*Gross profit percentage: 50.25% (P43,633 P86,833)
.5025 x 32,000 = P16,080
Inventory.................................................................................................52,020
Cash.................................................................................................
Notes Receivable2008..........................................................................89,5001
Unearned Interest Revenue..............................................................
Installment Sales..............................................................................
160,000 + (P50,000 + P5,500) P26,000* = 89,500
*2007 Notes receivable collected in 2008
2Interest revenue from 2007 notes: P7,167 P5,579 = P1,588
45,200
10,767
86,833
43,200
35,600
3,600
43,200
43,633
16,080
52,020
11,9552
77,545
2.
P24,000
=
P60,000
40%
42%
Gross profit
=
Installment sales
P86,000
=
P200,000
Journal Entries:
Accounts Receivable......................................................................................
Sales.......................................................................................................
Installment Contracts Receivable 2008......................................................
Installment Sales.....................................................................................
Cost of Installment Sales...............................................................................
Shipments on Installment Sales..............................................................
Purchases.......................................................................................................
Cash........................................................................................................
Selling Expenses............................................................................................
Cash........................................................................................................
Cash..............................................................................................................
Accounts Receivable..............................................................................
Installment Contracts Receivable 2006...............................................
Installment Contracts Receivable 2007...............................................
Installment Contracts Receivable 2008...............................................
44,020
26,000
29,500*
5,500
44,020
33,525
23,329
Chapter 9
43%
600,000
600,000
200,000
200,000
114,000
114,000
476,000
476,000
210,000
210,000
790,000
560,000
40,000
80,000
110,000
Adjusting Entries:
Installment Sales............................................................................................
Cost of Installment Sales........................................................................
Deferred Gross Profit on Installment sales 2008.................................
Deferred Gross Profit 2006 (P40,000 x 40%).............................................
Deferred Gross Profit 2007 (P80,000 x 42%).............................................
Deferred Gross Profit 2008 (P110,000 x 43%)...........................................
Realized Gross Profit..............................................................................
Doubtful Accounts Expense (1/4 x 1% x P600,000)......................................
Allowance for Doubtful Accounts..........................................................
Closing Entries:
Sales.............................................................................................................
Merchandise Inventory, December 31...........................................................
Shipments on Installment Sales.....................................................................
Merchandise Inventory, January 1..........................................................
Purchases................................................................................................
Selling Expenses.....................................................................................
Doubtful Accounts Expense...................................................................
Income Summary....................................................................................
Realized Gross profit.....................................................................................
Income Summary....................................................................................
Income Summary...........................................................................................
Retained Earnings...................................................................................
Installment Sales
151
3.
Good Buy Mart
Income Statement
Year Ended December 31, 2008
Sales.............................................................................................................
Cost of sales:
Merchandise inventory, January 1..........................................................
Purchases................................................................................................
Cost of goods available for sale..............................................................
Less Shipments on installment sales.......................................................
Cost of goods available for regular sales................................................
Less Merchandise inventory, December 31............................................
Gross profit on regular sales..........................................................................
Add Realized gross profit on installment sales (Schedule 1)........................
Total realized gross profit..............................................................................
Operating expenses:
Selling expenses......................................................................................
Doubtful accounts expense.....................................................................
Net income ....................................................................................................
200,000
114,000
86,000
16,000
33,600
47,300
96,900
1,500
1,500
600,000
260,000
114,000
240,000
476,000
210,000
1,500
46,500
96,900
96,900
143,400
143,400
P600,000
P240,000
476,000
716,000
114,000
602,000
260,000
210,000
1,500
342,000
258,000
96,900
354,900
211,500
P143,400
Schedule 1
Collections ...........................................
Multiply by Gross profit rate................
Realized gross profit.............................
2006
P40,000
40%
P16,000
Total
P 96,900
4.
P144,000
260,000
P 62,000
3,500
58,500
20,000
60,000
90,000
200,000
P832,500
P 60,000
8,000
25,200
38,700
131,900
P406,000
294,600
P832,500
Chapter 9
152
Problem 9 4
1.
2007: GP rate =
30%
=
=
P21,600 + P1,200
Gross profit
P24,000 + P52,000
=
P150,000 P97,500
Installment sales
2.
=
=
P150,000
Installment Sales............................................................................................
Cost of Installment Sales........................................................................
Deferred Gross Profit, 2008....................................................................
Deferred Gross profit, 2007...........................................................................
Deferred Gross Profit, 2008...........................................................................
Realized Gross Profit..............................................................................
P22,800
P76,000
=
P52,500
P150,000
150,000
97,500
52,500
14,400
25,900
40,300
Computation:
2007
Sales
P76,000
24,000
52,000
2008
Sales
P150,000
76,000
74,000
Total
4,000
P48,000
30%
P14,400
Sales.............................................................................................................
Realized Gross Profit.....................................................................................
Loss on Repossession.............................................................................
Cost of Sales...........................................................................................
Selling and Administrative Expenses.....................................................
Income Summary....................................................................................
Income Summary...........................................................................................
Retained Earnings...................................................................................
3.
P 74,000
35%
P 25,900
P 40,300
212,000
40,300
400
165,000
66,000
20,900
20,900
20,900
Apple Company
Income Statement
Year Ended December 31, 2008
Sales................................................................................................................................
Cost of sales.......................................................................................................
Gross profit on regular sales.............................................................................................
Add Realized gross profit on installment sales (Schedule 1)............................
Total realized gross profit.................................................................................................
Less Loss on repossession.............................................................................
Total realized gross profit after adjustment for loss on repossession...............................
Selling and administrative expenses...................................................................
Net income .......................................................................................................................
Installment Sales
153
P212,000
165,000
47,000
40,300
87,300
400
86,900
66,000
P 20,900
Problem 9 4
Schedule 1
2007
Sales
P76 000
24,000
52,000
4,000
P48,000
30%
P14,400
2008
Sales
P150,000
76,000
74,000
P 74,000
35%
P 25,900
Total
P40,300
Problem 9 5
1.
54,400
54,400
Installment Sales................................................................................
Cost of Installment Sales.............................................................
Deferred Gross Profit, 2008........................................................
80,000
54,400
25,600
14,000
8,000
22,000
Computation:
2007
Sales
P82,000
_ 36,000
46,000
__6,000
P40,000
__35%*
P14,000
2008
Sales
P 80,000
_55,000
25,000
___
P 25,000
___32%
P 8,000
Total
P 22,000
DGP, 1/1
P28,700 (26,600 + 2,100)
*2007 Gross profit rate= =
=
ICR, 1/1
P82,000 (36,000 + 40,000 + 6,000)
154
2.
35%
Chapter 9
Sales..................................................................................................
Merchandise Inventory, December 31...............................................
Shipments on Installment Sales.........................................................
Merchandise Inventory, January 1...............................................
Purchases.....................................................................................
Repossessed Merchandise...........................................................
Loss on Repossession..................................................................
Operating Expenses.....................................................................
Income Summary........................................................................
200,000
52,000
54,400
22,000
Income Summary...............................................................................
Retained Earnings.......................................................................
31,500
60,000
180,000
3,000
900
53,000
9,500
22,000
31,500
Installment
Total
Sales...........................................................
Cost of sales:
Inventory, January 1............................. P 60,000
Purchases.............................................. 180,000
Repossessed merchandise..................... __3,000
Cost of goods available for sale............ 243,000
Less Shipments on installment sales..... _54,400
Cost of goods available for regular sales
Less Inventory, December 31............... _52,000
Gross profit.................................................
Less Deferred gross profit on installment
sales, 2008............................................
Realized gross profit, 2008..........................
Add Realized gross profit on 2007
installment sales....................................
Total realized gross profit............................
Less Loss on repossession...........................
Total realized gross profit after adjustment
for loss on repossession........................
Operating expenses.....................................
Net income..................................................
P200,000
P80,000
P280,000
188,600
_136,600
P 63,400
54,400
25,600
191,000
89,000
17,600
8,000
17,600
71,400
14,000
22,000
___900
14,000
85,400
__900
P21,100
84,500
_53,000
P31,500
Installment Sales
155
Problem 9 6
1.
London Products
Schedule of Cost of Goods Sold
Year Ended December 31, 2008
Merchandise inventory, January 1....................................................................................
Purchases .......................................................................................................................
Freight-in .......................................................................................................................
Repossessed merchandise..................................................................................
Cost of goods available for sale........................................................................................
Less Merchandise inventory, December 31.........................................................
Cost of goods sold.............................................................................................................
2.
P 48,000
238,000
12,000
14,000
312,000
52,000
P260,000
London Products
Schedule of Allocation of Cost of Goods Sold
Year Ended December 31, 2008
Amount
P60,000
120,000
120%
On Cash
Price Basis
P 60,000
100,000
Ratio to
Total
60/400
100/400
Allocated
Cost
P 39,000
65,000
Installment sales...........
300,000
125%
240,000
240/400
156,000
P 400,000
3.
P260,000
London Products
Income Statement
Year Ended December 31, 2008
Sales.................................................
Cost of goods sold..............................
Gross profit........................................
Less Unrealized gross profit:
On installment contracts
receivable,12/31 (192,000 x 144/300)
Realized gross profit..........................
Add Realized gross profit on
prior years' sales (Schedule 1):
2006.....................................
19,200
2007.....................................
14,700
Total realized gross profit..................
Less Loss on repossession
(Schedule 2)................................
Total realized gross profit after
adjustment for loss on
repossession................................
Less Operating expenses....................
Net income ........................................
Installment
Charge
Cash
Total
Sales
Sales
Sales
P480,000 P 300,000
P120,000
P 60,000
260,000
156,000
65,000
39,000
P 220,000 P 144,000P 55,000P 21,000
92,160
127,840
92,160
51,840
33,900
161,740
33,900
85,740
10,200
10,200
151,540
93,000
P 58,540
P 75,540
156
Chapter 9
Schedule 1
2006
Installment contracts receivable, January 1:
2006 P32,000 40%................................................................
2007 P56,000 35%................................................................
Less Installment contracts receivable, December 31.........................
Total credits.......................................................................................
Less Credit representing repossession...............................................
Total collections.................................................................................
Multiply by Gross profit rate.............................................................
Realized gross profit..........................................................................
2007
P80,000
_22,000
58,000
_10,000
P48,000
___40%
P19,200
P160,000
__90,000
70,000
28,000
P 42,000
___35%
P 14,700
2007
P12,000
Total
P 14,000
Schedule 2
2006
P 2,000
Unpaid balance..............................................
Less Unrealized profit
2006 P10,000 x40%.............................
2007 P28,000 x35%.............................
Balances ............................................................
Gain (loss) on repossession..................................
10,000
28,000
38,000
4,000
__6,000
P(4,000)
9,800
13,800
18,200
__24,200
P( 6,200) P( 10,200)
Problem 9 7
1.
2007
2007
2007 installment sales (P400,000 x 42%*)..................................P 168,000
2008:
2007 installment sales (P173,000 x 42%)....................................
2008 installment sales (P560,000 x 38.5%*)............................... ________
Deferred gross profit.......................................................................... P 168,000
2008
P 72,660
__215,600
P 288,260
2008
P3,100,000
____68,000
_3,032,000
420,000
1,767,000
_83,000*
2,270,000
Installment Sales
157
42%
358,820
____46,500
405,320
_1,864,680
P1,167,320
38.5%
P 99,000
P 83,000
Unrecovered cost
2007 sales [P105,000 x (100% 42%)]............ 60,900
2008 sales [P82,000 x (100% 38.5%)]........... __50,430
Adjustment to Uncollectible installment contracts expense
__111,330
__28,330
P 70,670
Installment
Sales
P3,032,000
_1,864,680
1,167,320
Total
Sales
P3,237,000
_2,022,680
1,214,320
__247,170
920,150
__247,170
967,150
___51,240
971,390
___28,330
P 943,060
___51,240
1,018,390
___28,330
990,060
__592,960
P 397,100
158
Chapter 9
Schedule 1
Installment contracts receivable 2008, December 31....................
Installment contracts receivable 2008 defaulted...........................
Total............................................................................................
Multiply by 2008 gross profit percentage.....................................
Unrealized gross profit on 2008 installment sales........................
P 560,000
___82,000
P 642,000
___38.5%
P 247,170
Schedule 2
Installment contracts receivable 2007, January 1...............................
Less Installment contracts receivable 2007, December 31.................
Total credits for the period.................................................................
Less Installment contracts receivable 2007 defaulted........................
Total collections.................................................................................
Multiply by 2007 gross profit percentage..........................................
Realized gross profit on 2007 installment sales.................................
P 400,000
__173,000
227,000
__105,000
P 122,000
_____42%
P 51,240
1.
P 240,000
160,000
P120,000
__80,000
__200,000
P 600,000
160,000.00
240,000.00
200,000.00
640,000.00
10,920.00
5,080.00
16,000.00
10,767.60
5,232.40
Installment Sales
159
October 31
Cash..............................................................................................
72,000.00
Notes Receivable (Lot 1)............................................................... 288,000.00
Lot 1.......................................................................................
Deferred Gain on Sale of Land...............................................
December 31
Cash..............................................................................................
Notes Receivable (Lot 1)........................................................
Notes Receivable (Lot 2)........................................................
Notes Receivable (Lot 3)........................................................
Interest Income.......................................................................
240,000.00
120,000.00
78,000.00
6,240.00
5,389.37
6,800.00
59,570.63
Computation:
Total
Collections...................................... P78,000.00
Apply to interest:
Lot 1
P12,000.00
Lot 2
P16,000.00
Lot 3
P50,000.00
5,760.00
_________
P 6,240.00
10,610.63
_________
P 5,389.37
_43,200.00
P 6,800.00
153,469.06
Computation:
Lot 1
P78,240.00
Lot 2
P51,701.77
Lot 3
33.33%
_________
P26,080.00
60%
_________
P31,021.06
160
_____76%
P96,368.00
713,200.00
Chapter 9
Problem 9 9
=67% x P6,227,000
P 8,060,000
1,612,000
6,448,000
6,227,000
4,172,090
2,054,910
Expenses:
Advertising and promotion............................................................................ P 730,000
Sales manager's salary...................................................................................
120,000
General office expenses (1/4 x P236,000)..................................................... 59,000
Net profit ...............................................................................................................
909,000
P 1,145,910
Schedule 1
A lots : 26 @ P150,000................................................
B lots : 32 @ P100,000................................................
C lots : 12 @ P80,000..................................................
.........................................................
Total
Sales Price
P3,900,000
3,200,000
960,000
P8,060,000
Cash
Received
P1,650,000
800,000
240,000
P2,690,000
Installment
Notes Balance
P 2,250,000
2,400,000
720,000
P 5,370,000
Number of
Unit
Lots
Price
80
P150,000
100
100,000
120 80,000
300
Total
Sales Value
P12,000,000
10,000,000
9,600,000
P31,600,000
Schedule 2
Class
A........................................................................
B........................................................................
C........................................................................
Total.. ..........................................................
Cost of tract:
Cost of land....................................................................................................
Legal fees, etc................................................................................................
Grading contract.............................................................................................
Water and sewerage system contract.............................................................
Paving contract...............................................................................................
General office expenses (3/4 x P236,000).....................................................
Total..............................................................................................................
P 4,800,000
600,000
225,000
184,900
266,300
177,000
P 6,253,200
P6,253,200
Cost rate : = 20% (rounded off)
P31,600,000
Cost of sales (P8,060,000 x 20%)...........................................................................
Installment Sales
161
P 1,612,000
Problem 9 10
Rizal Company
Income Statement
Year Ended December 31, 2008
Installment sales [(P14,300 x 7) + (P725 x 4)]...........................................
Cost of goods sold on installment (schedule 1)..........................................
Gross profit. ...............................................................................................
Less Deferred gross profit on 19x8 sales
(P103,000 P21,000 = P82,000 x 23%*).........................................
Realized gross profit on 2008 sales............................................................
Add Realized gross profit on prior years' sales
2006 : P60,000 x 33-1/3*...................................................................
P103,000
__79,310
23,690
__18,860
4,830
P20,000
_40,250
__60,250
65,080
__33,100
31,980
__50,000
P(18,020)
*See Schedule 3
Schedule 1
Purchases (P10,500 x 8).............................................................................
Repossessed merchandise...........................................................................
Cost of goods available for sale..................................................................
Less Inventory, December 31
Number of units on hand...................................................................
Multiply by average unit cost (Schedule 2)........................................
Cost of goods sold on installment...............................................................
P 84,000
___2,520
86,520
1
P 7,210
___7,210
P 79,310
Schedule 2
Purchases during 2008 (P10,500 x 8).........................................................
Add Repossessed merchandise...................................................................
Total ..........................................................................................................
divide by Number of units (8 + 4)..............................................................
Average unit cost........................................................................................
P 84,000
___2,520
P 86,520
_____
P 7,210
162
Chapter 9
Schedule 3
.......................................................
Sales
2006 : P15,000 x 10.......................................
2007 : P14,000 x 20.......................................
2008 : P14,300 x 7.........................................
P725 x 4..............................................
Sales
.......................................................
Cost of goods sold:
Inventory, January 1........................................
Purchases .......................................................
Repossessed merchandise................................
2006
2007
2008
P150,000
P280,000
_______
150,000
_______
280,000
100,100
__2,900
103,000
120,000
_____
20,000
162,000
_____
84,000
_2,520
120,000
_20,000
100,000
P 50,000
33-1/3%
182,000
_____
182,000
P 98,000
35%
86,520
_7,210
79,310
P23,690
23%
P 2,520
Schedule 4
_35,620
P33,100
CHAPTER 10
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
10-1: a
Percentage of Completion Method:
Contract Price
Less:Total estimated cost
Cost incurred
Estimated remaining cost
Gross profit estimated
% of completion (200,000/600,000)
Gross profit to be recognized
P1,000,000
P 200,000
_400,000
__600,000
400,000
__33 1/3%
P 133,333
10-2: a P100,000
Contract Price
Less: Total estimated cost
Estimated gross profit
% of completion:
2007 (3,900,000/7,800,000)
2008(6,300,000/8,100,000)
Gross profit earned to date
Less: Gross profit earned in prior year
Gross profit earned each year
2007
2008
P9,000,000 P9,000,000
_7,800,000 _8,100,000
1,200,000
900,000
50%
_________ ______78%
600,000
700,000
________ ___600,000
P 600,000 P 100,000
10-3: a
Contract Price
Less: Total estimated cost (3,600,000 + 1,200,000)
Estimated gross profit
% of completion (3,600,000/4,800,000)
Gross profit earned to date
Less: Gross profit earned in 2007
Gross profit earned in 2008
P6,000,000
_4,800,000
1,200,000
_____75%
900,000
__600,000
P 300,000
Contract Price
Less: Total estimated cost (930,000 + 2,170,000)
Loss
P3,000,000
_3,100,000
(P 100,000)
10-4: b
164
Chapter 10
10-5: b
Total cost to date, 2008 (4,800,000 X 60%)
Less: Cost incurred in 2007 (4,500,000 X 20%)
Cost incurred in 2008
P2,880,000
__900,000
P1,980,000
P3,000,000
_2,700,000
300,000
___33.33%
100,000
___900,000
10-6: a
P 1,000,000
P 900,000
10-7: a
Contract Price
Less: Total estimated cost
Estimated gross profit
% of completion
Gross Profit earned to date
Gross Profit earned in prior year
Gross Profit earned this year
2007
2008
P4,200,000 P4,200,000
_3,000,000 _3,750,000
1,200,000
450,000
_____20% ____100%
240,000
450,000
_______ __240,000
P 240,000 P 210,000
10-8: b
Collections:
Contract Billings
Less: Accounts receivable
Collections
Initial Gross Profit:
Contract Price
Gross Profit rate:
Income recognized
Divide by Construction in Progress
Initial Gross Profit
P 47,000
___15,000
P 32,000
P 800,000
10,000
50,000 =_____20%
P 160,000
10-9: a
Gross profit (loss) earned in 2008
Gross profit earned in prior years
Gross profit earned to date - 2008
Divide by percentage of completion - 2008
Estimated gross profit - 2008
Less: Contract price
Total estimated cost
Less: Cost incurred - 2008
Cost incurred to date - 2007
Less: Cost incurred - 2006
Cost incurred in 2007
(P 20,000)
_180,000
160,000
___100%
160,000
2,000,000
1,840,000
_820,000
1,020,000
__360,000
P 660,000
10-10: b
Gross profit earned to date - 2007 (P40,000 + P140,000)
Divide by estimated gross profit - 2007:
Contract price
P2,000,000
Gross profit rate [180,000/(1,020,000 + 180,000)]
___X 15%
Percentage of completion - 2007
P 180,000
__300,000
60%
P2,000,000
__300,000
1,700,000
1,020,000
P 680,000
P 244,000
__210,000
P 34,000
P 484,000
__384,000
P 100,000
10-13: d
166
Chapter 10
10-14: d
Project 1
Project 2
Percentage of Completion Method:
Contract price
P 300,000
Less: Total estimated cost
Cost incurred to date - 2008
P 280,000
Estimated cost to complete
___70,000
Total
P 420,000
P 240,000
__120,000
__360,000
__350,000
Estimated gross profit (Loss)
(50,000)
Percentage of completion
_______
Profit (loss) to be recognized
(P 50,000)
Total is (P10,000)
60,000
__66.67%
P 40,000
2006
2007 2008
P3,744,000 P3,744,000
546,000
1,544,400
_2,054,000 _1,315,000
_2,600,000 _2,860,000
1,144,000
884,000
_____20%
_____54%
240,240
477,360
_______
__240,240
P 240,240
P 237,120
146,640
10-16: d
Contract price
P6,300,000
Less: Total estimated cost
Cost incurred to date
3,040,000
Estimated cost to complete
_1,960,000
Total
P5,000,000
Estimated gross profit
1,300,000
Percentage of completion:
2007 (1,425,000 - 50,000) 5,500,000
2007 2008
P6,300,000
1,425,000
_4,075,000
P5,500,000
800,000
25%
________
200,000
________
P 200,000
10-17: a
Cash collections:
Progress billings
Less: Accounts receivable, end
Collection
P1,500,000
__500,000
P1,000,000
P1,600,000
__200,000
P1,400,000
10-18: d
Percentage of Completion Method:
Contract price
2,520,000
Less: Total Estimated Costs
(1)
Cost incurred to date
P2,310,000
Estimated cost to complete
(2)
Total estimated cost
2,310,000
Estimated Gross Profit
210,000
Percentage of completion (1 2)
_100.00%
Gross profit earned to date
210,000
Less: Gross profit earned in Prior years
__187,200
Gross Profit earned this year
Apartment A
2007
2008
1,620,000 1,620,000
Apartment B
2007 2008
2,520,000
240,000
1,440,000
690,000
2,250,000
180,000
180,000
270,000
_41.67%
_83.33%
_69.33%
75,000
150,000
187,200
_______
___75,000
_______
P 75,000
P 75,000
P 187,000
22,800
Total Gross Profit 20 (P75,000 + P22,800)
P97,800
Zero Profit Method - P210,000 gross profit earned in 2008 for Apartment B.
10-19: d
2007
Contract price:
2007
2008 (P6,000,000-P50,000)
P5,950,000
Less: Total estimated costs
(1) Cost incurred to date
2,650,000
Estimated cost to complete
(2) Total estimated cost
2,650,000
Estimated Gross Profit
3,300,000
Percentage of completion (1 2)
___100%
Gross profit earned to date
3,300,000
Less: Gross profit earned in Prior year
3,060,000
Gross Profit earned this year
2008
P6,000,000
_________
2,340,000
260,000
2,600,000
3,400,000
____90%
3,060,000
_______
P3,060,000
240,000
168
Chapter 10
10-20: a
(1)Cost incurred to date
P6,150,000
(2)Estimated cost to complete
(3)Total Estimated Costs
6,150,000
Percentage of completion (1 3)
Contract price
P6,000,000
Less: Total estimated cost
6,150,000
Estimated Gross Profit
(150,000)
Percentage of completion
Gross profit earned (loss) to date
(150,000)
Add: Cost incurred to date
2006
P3,400,000
1,600,000
5,000,000
68%
P6,000,000
5,000,000
2007 2008
P5,950,000
150,000
6,100,000
98%
P6,000,000
6,100,000
1,000,000
(100,000)
68%
680,000
100%
(100,000)
3,400,000
5,950,000
6,150,000
Construction in Progress
6,000,000
Less: Contract billings
6,000,000
Balance
4,080,000
5,850,000
3,200,000
5,200,000
P 880,000
P 650,000
10-21: c
Construction in Progress:
Cost incurred to date, 2007
Gross profit earned, 2007 (Schedule 1)
P2,725,000
Less: Contract billings, 2006 (P3,250,000 x 75%)
2,437,500
P2,625,000
100,000
Contract price
P3,250,000
Total estimated cost:
Cost to date
2,625,000
Estimated cost to complete
750,000
1,075,000
1,612,500
Total
3,375,000
2,687,500
562,500
225,000
40%
P 225,000
10-22: a
Contract price
P2,800,000
Estimated cost:
Cost to date
2,440,000
Estimated costs to complete
380,000
2005
2006
P2,800,000 P2,800,000
1,300,000
1,360,000
Total
2,820,000
2,660,000
140,000
1,960,000
780,000
2,740,000
60,000
% of completion
Long-Term Construction Contracts
48.87%
71.53%
10-23: b
2007
Project A
Project B
P2,900,000
P3,400,000
1,680,000
1,120,000
1,440,000
1,760,000
Project
C
Contract price
P 1,700,000
Estimated costs:
Cost to date
Estimated cost to complete
960,000
Total
1,280,000
2,800,000
3,200,000
100,000
60%
200,000
45%
P 60,000
P 90,000
Project A
Project B
Project C
P2,900,000
P3,400,000
P1,700,000
2,120,000
0
1,183,000
1,360,000
560,000
117,000
2,640,000
3,480,000
1,300,000
2008
320,000
420,000
Project
D
Contract price
P 2,000,000
Estimated costs
Cost to date2,640,000
Estimated costs to complete
1,040,000
Total
1,600,000
Estimated gross profit (loss)
% of completion
260,000
100%
260,000
60,000
P 200,000
(80,000)
400,000
91%
400,000
(80,000)
364,000
90,000
105,000
140,000
P 10,000
2007
P 255,000
P 259,000
120,000
P 135,000
120,000
P 489,000
10-24: c
Contract price
P10,000,000
Gross profit earned to date, 2008 (P900,000 P100,000)
Total cost to date, 2008
9,200,000
Less: cost incurred in 2008
4,100,000
800,000
900,000
Divided by % of completion:
(P5,100,000 + P900,000) / P10,000,000
Estimated gross profit, 2007
P 1,500,000
10-25: d
Construction in progress:
Cost incurred to date
P 440,000
Gross profit earned to date (P2,500,000 P2,000,000)
110,000
Total
Less: Contract billings (P2,500,000 x 30%)
550,000
750,000
10-26: a
Contract price
Total estimated cost:
Cost incurred to date:
Site labor cost
Cost of construction materials
Depreciation of special plant & equip
Total
Estimated cost to complete
Estimated gross profit
Percentage of completion (45/100)
Gross profit to be recognized
P120,000,000
10,000,000
30,000,000
5,000,000
45,000,000
55,000,000
20,000,000
8,000,000
100,000,000
20,000,000
45%
P 9,000,000
10-27: a
3,700,000
Cost incurred in 2006
Estimated cost at completion- 2006
Total estimated cost- 2006
Percentage of completion- 2006 (8,300,000/ 20,750,000) = 40%
P12,000,000
3,700,000
8,300,000
12,450,000
P20,750,000
10-28: a
Contract price
Total estimated cost:
Cost incurred to date
Estimated cost to complete
Total estimated cost
Estimated gross profit
Percentage of completion
Gross profit recognized
2007
Contract 1
Contract 2
P600,000
P450,000
150,000
150,000
300,000
300,000
50%
P150,000
87,500
162,500
250,000
200,000
35%
P70,000
CIP-2007
P237,500
P220,000
Contract 1
2008
Contract 2
Contract
600,000
350,000
250,000
80%
200,000
150,000
50,000
450,000
300,000
150,000
60%
90,000
70,000
20,000
900,000
500,000
400,000
36%
144,000
144,000
3
Contract price
Total estimated cost
Estimated gross profit
Percentage of completion
Gross profit earned to date
Gross profit earned in 2007
Gross profit earned this year
10-29: a
Bicol
Contract price
P875,000
Total estimated cost
Cost incurred
656,250
Est. cost to complete
Total estimated cost
656,250
Estimated gross profit
218,750
Percentage of completion
100%
Gross profit earned
P218,750
Total cost incurred
Total gross profit earned
Construction in progress
Less: Billings
Due from (to)
Davao
Aklan
P1,225,000 P437,500
175,000
700,000
875,000
350,000
20%
P 70,000
Percentage of completion
1,006,250
332,500
1,338,750
1,312,500
26,250
175,000
175,000
350,000
87,500
50%
P43,750
Total
1,006,250
332,500
Zero Profit
1,006,250
218,750
1,225,000
1,312,500
(87,500)
10-30: a
Contract price
Total estimated cost:
Cost incurred
P40,825,000
8,475,000
28,400,000
172
36,875,000
3,950,000
22.983%
P 907,830
Chapter 10
SOLUTIONS TO PROBLEMS
Problem 10 1
(a)
Contract Price
P 450,000
Less: Total estimated cost
(1) Cost incurred to date
Estimated costs to complete
_______
(2) Total
_320,000
Estimated gross profit
Percentage of completion (1 2)
___100%
Estimated gross profit to date
Less: Gross profit earned in prior year
__100,000
Gross profit earned this year
30,000
2007
P 450,000
200,000
__100,000
2008
320,000
__300,000
150,000
______2/3
130,000
100,000
_______
130,000
P 100,000P
(b)
Contract Price
P 450,000
Less: Total cost incurred
__320,000
Gross profit
P 130,000
(c)
100,000
200,000
300,000
30,000
320,000
350,000
Problem 10 2
(a)
Construction Revenue
P1,250,000
Less: Cost incurred
_1,250,000
Gross profit 2008
0
Construction in Progress (cost incurred)
P1,250,000
Less: Contract billings (P5,800,000 x 30%)
_1,740,000
Billings in excess of related costs
P(490,000)
(b)
Contract price
P5,800,000
Less: Total estimated costs
Cost incurred to date
Estimated costs to complete
5,000,000
Estimated gross profit
Percentage of Completion (P1,250,000 500,000)
_____25%
Gross profit
P 200,000
P1,250,000
3,740,000
800,000
173
Problem 10 3
2005
P55,000,000
(a)
Contract Price
P55,000,000
Less: Total estimated costs
(1) Cost incurred to date
50,000,000
Estimated costs to complete
________
(2) Total
50,000,000
Estimated gross profit
5,120,000
Percentage of completion (1 2)
____100%
Gross profit earned to date
5,000,000
Gross profit earned in prior yr(s)
_3,500,000
Gross profit earned the year
P 1,500,000
2006
P55,000,000
2007
P55,000,000
15,000,000
25,000,000
35,000,000
_35,000,000
25,000,000
15,000,000
_50,000,000
50,000,000
50,000,000
5,000,000
5,000,000
5,000,000
______30%
_____50%
_____70%
1,500,000
2,500,000
3,500,000
________
_1,500,000
_2,500,000
P 1,500,000
P 1,000,000
P 1,000,000
(b)
2007
(1) Construction in Progress
Cash or Payable
15,000,000
15,000,000
15,000,000
(3) Cash
Accounts Receivable
25,000,000
12,000,000
1,000,000
15,000,000
2008
2008
15,000,000
15,000,000
20,000,000
15,000,000
25,000,000
12,000,000
1,500,000
15,000,000
16,000,000
Problem 10 4
(a)
Cost incurred to date
P10,000,000
Divide by total estimated cost
_12,000,000
Percentage of Completion
2006
P 1,000,000
2007
P 5,500,000
P 9,000,000
P11,000,000
11.11%
50%
2008
83.33%
(b)
Contract Price
P15,000,000
Less: Total Estimated Cost
Cost incurred to date
10,000,000
Estimated costs to complete
__2,000,000
Total
_12,000,000
Estimated gross profit
3,000,000
Percentage of completion
___83.33%
Gross profit earned to date
9,500,000
Less: Gross profit earned in prior yrs.
_2,000,000
Gross profit earned this year
P 500,000
2006
P15,000,000
2007
P15,000,000
1,000,000
5,500,000
__8,000,000
__5,500,000
__9,000,000
_11,000,000
6,000,000
4,000,000
___11.11%
______50%
666,600
2000,000
________
___666,600
P 666,600
P 1,333,400
174
10
(c)
2008
Chapter
1,000,000
1,325,000
(3) Cash
Accounts Receivable
1,200,000
1,200,000
666,600
1,000,000
Problem 10 5
(1)
Contract Price
P14,000,000
Less: Total Estimated Cost
Cost incurred to date
2005
P14,000,000
2006
P14,000,000
2007
P14,000,000
6,500,000
9,800,000
12,200,000
2008
13,900,000
Estimated cost to complete
__6,800,000
________
Total
_13,300,000
13,900,000
Estimated gross profit
700,000
Percentage of completion
___48.87%
____100%
Gross profit (loss) to date
342,090
Less: Gross profit (loss) in prior yrs. ________
( 100,000)
Gross profit (loss) this year
P 342,090
200,000
(2)
2005
_3,900,000
_1,900,000
13,700,000
14,100,000
300,000
___71.53%
( 100,000)
_____100%
100,000
214,590
___342,090
( 100,000)
___214,590
100,000
P( 127,500)
P( 314,590)
2006
2007
2008
Cost of construction
6,500,000
3,300,000
2,400,000
1,700,000
Construction in progress 342,090
127,500
314,590
200,000
Construction Revenue
6,842,090
3,172,500
2,085,410
1,900,000
Problem 10 6
(1)
Contract Price
Less: Total estimated costs
Cost incurred to date
Estimated costs to complete
Total
Estimated gross profit
Percentage of completion
Gross profit (loss) to date
Gross profit (loss) in prior yrs.
Gross profit (loss) this year
2005
P 6,000,000
2006
P 6,000,000
2007
P 6,000,000
3,400,000
_2,100,000
_5,500,000
500,000
___61.82%
309,100
________
P 309,100
5,950,000
___150,000
_6,100,000
( 100,000)
_______
( 100,000)
__309,100
P 409,100
6,150,000
________
_6,150,000
( 150,000)
________
( 150,000)
( 100,000)
P 50,000
(2)
Cost of construction
Construction in progress
50,000
Construction Revenue
150,000
(3)
Cash
Accounts Receivable
Contract Billings
Construction in progress
2005
3,400,000
309,100
3,709,100
400,000
400,000
6,000,000
6,000,000
2006
2,550,000
409,100
2,140,900
2007
200,000
Problem 10 7
(1)
2006
Contract Price
P16,000,000
Less:Total Estimated Cost
Cost incurred to date
4,600,000
Estimated costs to complete
__9,640,000
Total
_14,240,000
Estimated gross profit
1,760,000
Engineer's estimate of comp.
______31%
Gross profit to date
545,600
Less: Gross profit earned in prior yrs. ________
Gross profit earned this yr.
P 545,600
(2)
(a) Construction on progress
Cash
5,250,000
2007
P16,000,000
2008
P16,000,000
9,100,000
__5,100,000
_14,200,000
1,800,000
______58%
1,044,000
__545,600
P 498,410
14,350,000
_________
_14,350,000
1,650,000
_____100%
1,650,000
_1,044,000
P 606,000
2006
4,600,000
2007
4,500,000
4,600,000
5,000,000
(c) Cash
Accounts receivable
6,100,000
4,500,000
2008
5,250,000
4,500,000
6,000,000
5,000,000
5,000,000
6,000,000
5,400,000
4,500,000
6,100,000
5,400,000
5,250,000
5,250,000
5,000,000
5,000,000
176
Chapter 10
(c) Cash
Accounts receivable
6,100,000
5,250,000
1,650,000
6,100,000
Construction revenue
6,900,000
16,000,000
16,000,000
The following entry would be the only one different from (2).
*
Cost of construction
Construction in progress
Construction revenue
6,720,000
*
2006
2007
2008
4,414,400
3,821,600
6,114,000
545,600
498,400
606,000
4,960,000
4,320,000
(1)
Contract Price
P6,500,000
Less:Total Estimated Costs
Cost incurred to date
6,850,000
Estimated costs to complete
________
Total
_6,850,000
Estimated gross profit (loss)
(350,000)
Less: Gross profit (loss) in prior yrs.
_(250,000)
Gross profit (loss) this years
P( 600,000)
(2)
2006
P6,500,000
2007
P6,500,000
2,150,000
5,250,000
_3,850,000
_1,500,000
_6,000,000
_6,750,000
500,000
(250,000)
________
___520,000
P 520,000
P( 250,000)
2008
Franchise Accounting
CHAPTER 11
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
11-1: b
No revenue is to be reported. Because the franchisor fails to render substantial
services to the franchisee as of December 31, 2008.
11-2: c
Initial franchise fee
Less: Cost of franchise
Net income
P5,000,000
____50,000
P4,950,000
11-3: a
The total initial franchise fee of P500,000 is to be recognized as earned because the
collectibility of the note for the balance is reasonably assured.
11-4: b
Cash downpayment
Collection of note applying to principal
Revenue from initial franchise fee
P 100,000
__200,000
P 300,000
P2,000,000
_1,000,000
3,000,000
_____90%
P2,700,000
P 800,000
__582,000
P 218,000
P1,200,000
__218,000
P 982,000
P 500,000
___20,000
520,000
___10,000
P 510,000
11-5: a
11-6: b
11-7: d
11-8: d
178
Chapter 11
11-9: b
Deferred Revenue from franchise fee:
Downpayment
Present value of the note (P1,000,000 X 2.91)
P8,910,000
Less: Cost of franchise fee
_2,000,000
P6,000,000
2,910,000
77.55%
P2,463,900
11-11: a
Revenues from:
Initial franchise fee
P1,000,000
Continuing franchise fee (P2,000,000 X .05)
100,000
Total revenue from franchise fees
P1,100,000
11-12: d
Realized gross profit from initial franchise fee [(350,000 + 90,000) x 37%]
P 162,800
Continuing franchise fee (P121,000 + P147,500) x 5%
___13,425
Total revenue
Expenses
___42,900
176,225
133,325
Net income
P 200,825
Franchise Accounting
11-13: c
Cash down-payment
95,000
Present of the note (P40,000 x 3.0374)
__121,496
Total
496
11-14: a
Initial franchise fee
P 50,000
Continuing franchise fee (P400,000 x 5%)
__20,000
Total revenue
P 70,000
11-15: c
Should be P80,000
P 600,000
600,000
P1,200,000
P1,250,000
1,425,000
2,675,000
802,500
1,872,500
11-18:
70%
180
Chapter 11
Date
Collection
Interest
Principal
1/1
6/30
468,750
171,000
297,750
12/30
468,750
135,270
333,480
Total collection applying to principal 631,230
Down payment
1,250,000
Total collection
1,881,230
Gross profit rate
70%
Realized gross profit on
initial franchise fee
1,316,861
Balance of PV of NR
P1,425,000
1,127,250
793,770
11-19: c
Franchise Accounting
SOLUTIONS TO PROBLEMS
Problem 11 1
a.
Cash...................................................................................12,000,000
Notes receivable................................................................ 8,000,000
Deferred Revenue from IFF.........................................
20,000,000
July 31:
29,000
36,000
2,000,000
29,000
36,000
Cash.................................................................................. 2,800,000
Notes receivable...........................................................
Interest income (P8,000,000 x 10%).............................
2,000,000
800,000
Adjusting Entries:
(1)
Cost of franchise revenue........................................... 2,000,000
Deferred cost of franchises..................................
2,000,000
(2)
b.
20,000,000
(2)
2,000,000
18,000,000
12,600,000
182
Chapter 11
a.
Problem 11 2
Collection of the note is reasonably assured.
Jan. 5: Cash. .................................................................................... 600,000
Notes Receivable.................................................................. 1,000,000
Unearned interest income.................................................
Deferred revenue from F.F................................................
Face value of NR.............................................................................
Present value (P200,000 x P2,9906)................................................
Unearned interest.............................................................................
401,880
1,198,120
1,000,000
__598,120
401,880
179,718
4,000
Cash..................................................................................
Notes Receivable..........................................................
200,000
Adjusting Entries:
1) Unearned interest income.................................................
Interest income...........................................................
P598,120 x 20%
2) Cost of Franchise..............................................................
Deferred cost of Franchise.........................................
b.
179,718
4,000
200,000
119,624
119,624
179,718
179,718
1,198,120
119,624
119,624
179,718
179,718
179,718
1,018,402
578,319.60
Franchise Accounting
Problem 11 3
2007
July 1:
66,408
373,592
80,000
80,000
12,680
12,680
2008
Jan. 10: Deferred cost of franchise...........................................................
Cash. ....................................................................................
50,000
July 1:
80,000
Cash. ..........................................................................................
Note receivable.....................................................................
50,000
80,000
130,000
130,000
373,592
25,360
373,592
25,360
184
Chapter 11
Problem 11 4
2008
Jan. 10: Cash. .......................................................................................... 6,000,000
Deferred revenue from FF.....................................................
Jan. 10 to
July 15: Franchise expense....................................................................... 2,250,000
6,000,000
Cash. ....................................................................................
2,250,000
a)
b)
4,000,000
180,000
180,000
200,000
P4,500,000
_1,800,000
P2,700,000
P2,700,000
1,800,000
___40,000
4,540,000
_2,000,000
P2,540,000
Journal Entries:
Jan. 2: Cash. .................................................................................... 1,500,000
Notes receivable.................................................................... 3,000,000
Deferred revenue from FF (adjusted SV).........................
Revenue from FF (Market value of equipment)................
2,700,000
1,800,000
1,500,000
Franchise Accounting
500,000
500,000
2,000,000
Notes receivable...............................................................
Cash / Account receivable...........................................................
Revenue from continuing FF............................................
1,000,000
40,000
40,000
2,700,000
Problem 11 6
Recognition of initial franchise fee (IFF) (6 mos. after opening)
Revenue from initial FF:
Total initial FF...................................................................................P2,500,000
Less: Deficiency in continuing FF (Sch. 1)........................................ 160,000
Expense (costs of initial services)..............................................................
Net income................................................................................................
Schedule 1 Estimated deficiency in CFF
(1)
Yr. of
Estimated
Contract
Continuing FF
1
P220,000
2
220,000
3
220,000
4
220,000
5
220,000
6
150,000
7
150,000
8
150,000
9
90,000
10
90,000
(2)
Market Value
of Continuing Services
P250,000
250,000
250,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
2,340,000
__700,000
P1,640,000
(Excess of 2 over 1)
Deficiency
P 30,000
30,000
30,000
35,000
__35,000
P160,000
Years 4-5
P220,000
_100,000
P120,000
Years 6-8
P150,000
_100,000
P 50,000
Years 9-10
P125,000
_100,000
P 25,000
1/12/2008
6/1/2008
7/1/2008
6/30/2009
287,200
186
Chapter 11
Problem 11 7
Revenues:
Initial FF (Sch. 1)
Interest income
Continuing FF
45,490*
48,000
Others
Expenses:
Initial expenses
Continuing expense
Others
Net Income
62,500
80,000
( 50,000) ( 68,000)
P 12,500
P 12,000
( 70,000)
P217,200
( 36,000)
P 57,490
B.
Unearned Interest:
Face value of the note...........................................................................................
Present value (120,000 x 3.7908)..........................................................................
rounded
Unearned interest..................................................................................................
Market value of equipment and inventory:
Equipment (P50,000 80%).................................................................................
Inventory..............................................................................................................
P750,000
( 145,100)
( 80,000)
( 62,500
( 175,200)
P287,200
P600,000
454,900
P145,100
P 62,500
80,000
Inventory
P80,000
68,000
Total
P142,500
P12,500
P12,000
P 24,500
Years 5-16
P450,000/mo.
P 3,375/mo.
Years 17-20
P500,000/mo.
P 3,750/mo.
P 40,500
( 48,000)
(
7,500)
x 12
P( 90,000)
P 45,000
( 48,000)
(
3,000)
x4
P( 12,000)
P 29,700
( 48,000)
( 18,300)
x4
P( 73,200)
Types of Revenue
Sale of equipment
Sale of inventory
Initial FF (as adjusted0
Interest income and
continuing revenue.