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Advanced Accounting Guerrero Peralta Volume 1 Solution Manual Compress
Advanced Accounting Guerrero Peralta Volume 1 Solution Manual Compress
Advanced Accounting Guerrero Peralta Volume 1 Solution Manual Compress
CHAPTER 1
1-1: a
Jose's capital should be credited for the market value of the computer contributed by
him.
1-2: b (40,000 + 80,000) ÷ 2/3 = 180,000 x 1/3 = 60,000.
1-3: a
Cash P100,000
Land 300,000
Mortgage payable ( 50,000)
Net assets (Julio, capital) P350,000
1-4: b
Total Capital (P300,000/60%) P500,000
Perla's interest ______40%
Perla's capital P200,000
Less:Non-cash asset contributed at market value
Land P 70,000
Building 90,000
Mortgage Payable ( 40,000) _120,000
Cash contribution P 80,000
1-5: d - Zero, because under the bonus method, a transfer of capital is only required.
1-6: b
Reyes Santos
Cash P200,000 P300,000
Inventory – 150,000
Building – 400,000
Equipment 150,000
Mortgage payable ________ ( 100,000)
Net asset (capital) P350,000 P750,000
1-7: c
AA BB CC
Cash P 50,000
Property at Market Value P 80,000
Mortgage payable ( 35,000)
Equipment at Market Value _______ _______ P55,000
Capital P 50,000 P 45,000 P55,000
2 Chapter 1
1-8: a
PP RR SS
Cash P 50,000 P 80,000 P 25,000
Computer at Market Value __25,000 _______ __60,000
Capital P 75,000 P 80,000 P 85,000
1-9: c
Maria Nora
Cash P 30,000
Merchandise inventory P 90,000
Computer equipment 160,000
Liability ( 60,000)
Furniture and Fixtures 200,000 ________
Total contribution P230,000 P190,000
1-10: d
Roy Sam Tim
Cash P140,000 – –
Office Equipment – P220,000 –
Note payable ________ _( 60,000) ______
Net asset invested P140,000 P160,000 P –
1-11: a
Lara Mitra
Cash P130,000 P200,000
Computer equipment – 50,000
Note payable ________ _( 10,000)
Net asset invested P130,000 P240,000
1-12: a
Perez Reyes
Cash P 50,000 P 70,000
Office Equipment 30,000 –
Merchandise – 110,000
Furniture 100,000
Notes payable _______ ( 50,000)
Net asset invested P 80,000 P230,000
Partnership – Basic Considerations and Formation 3
1-12: Continued
Bonus Method:
Total capital (net asset invested) P310,000
Goodwill Method:
Net assets invested P310,000
Add: Goodwill (P230,000-P80,000) _150,000
Net capital P460,000
1-13: b
Required capital of each partner (P300,000/2) P150,000
Contributed capital of Ruiz:
Total assets P105,000
Less Liabilities __15,000 __90,000
Cash to be contributed by Ruiz P 60,000
1-14: d
Total assets:
Cash P 70,000
Machinery 75,000
Building _225,000 P370,000
Less: Liabilities (Mortgage payable) __90,000
Net assets (equal to Ferrer's capital account) P280,000
Divide by Ferrer's P & L share percentage ____70%
Total partnership capital P400,000
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 P 44,000
Asset contributed by D. Arce:
Cash P 20,000
Merchandise __10,000 __30,000
Total assets of the partnership P 74,000
4 Chapter 1
1-16: a
Cash to be invested by Mendez:
Adjusted capital of Lopez (2/3)
Unadjusted capital P158,400
Adjustments:
Prepaid expenses 17,500
Accrued expenses ( 5,000)
Allowance for bad debts (5% X P100,000) _( 5,000)
Adjusted capital P165,900
Total Capital:
Adjusted capital of Lopez P165,900
Contributed capital of Mendez __82,950
Total capital P248,850
1-17: d
Moran, capital (40%)
Cash P 15,000
Furniture and Fixtures _100,000 P115,000
Divide by Moran's P & L share percentage ______40%
Total partnership capital P287,500
Multiply by Nakar's P & L share percentage ______60%
Required capital of credit of Nakar: P172,500
Contributed capital of Nakar:
Merchandise inventory P 45,000
Land 15,000
Building __65,000
Total assets P125,000
Less Liabilities __30,000 P 95,000
Required cash investment by Nakar P 77,500
1-18: c
Garcia's adjusted capital (see schedule 1) P40,500
Divide by Garcia's P & L share percentage ______40%
Total partnership capital P101,250
Flores' P & L share percentage ______60%
Flores' capital credit P 60,750
Flores' contributed capital (see schedule 2) __43,500
Additional cash to be invested by Flores P 17,250
Partnership – Basic Considerations and Formation 5
1-18: Continued
Schedule 1:
Garcia, capital:
Unadjusted balance P 49,500
Adjustments:
Accumulated depreciation ( 4,500)
Allowance for doubtful account ( 4,500)
Adjusted balance P 40,500
Schedule 2:
Flores capital:
Unadjusted balance P 57,000
Adjustments:
Accumulated depreciation ( 1,500)
Allowance for doubtful accounts ( 12,000)
Adjusted balance P 43,500
1-19: d
Ortiz Ponce Total
( 60%) ( 40%)
Unadjusted capital balances P133,000 P108,000 P241,000
Adjustments:
Allowance for bad debts ( 2,700) ( 1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses _( 2,400) ( 1,600) ( 4,000)
Adjusted capital balances P130,900 P106,000 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 P296,875
Multiply by Roxas' interest ______20%
Cash to be invested by Roxas P 59,375
1-20: d
Merchandise to be invested by Gomez:
Total partnership capital (P180,000/60%) P300,000
1-21: b
Unadjusted Ell, capital (P75,000 – P5,000) P 70,000
Allowance for doubtful accounts ( 1,000)
Accounts payable ( 4,000)
Adjusted Ell, capital P 65,000
1-22: c
Total partnership capital (P113,640/1/3) P340,920
Less Divino's capital _113,640
Cortez's capital after adjustments P227,280
Adjustments made:
Allowance for doubtful account (2% X P96,000) 1,920
Merchandise inventory ( 16,000)
Prepaid expenses ( 5,200)
Accrued expenses ___3,200
Cortez's capital before admission of Divino P211,200
1-23: a
Total assets at fair value P4,625,000
Liabilities (1,125,000)
Capital balance of Flora P3,500,000
1-24: c
Total capital of the partnership (P3,500,000 ÷ 70%) P5,000,000
Eden agreed profit & loss ratio 30%
Eden agreed capital 1,500,000
Eden contributed capital at fair value 812,000
Allocated cash to be invested by Eden P 688,000
1-25: c
__Rey __Sam_ __Tim __Total_
Contributed capital (assets-liabilities)P471,000 P291,000 P195,000 P957,000
Agreed capital (profit and loss ratio) 382,800 382,800 191,400 957,000
Capital transfer (Bonus) P 88,200 P(91,800) P 3,600 -
1-26: d
Total agreed capital (P90,000 ÷ 40%) P225,000
Contributed capital of Candy (P126,000+P36,000-P12,000) 150,000
Total agreed capital (P90,000 ÷ 40%) 225,000
Candy, agreed capital interest 60%
Agreed capital of Candy 135,000
Contributed capital of Candy 150,000
Withdrawal of Candy P 15,000
Partnership – Basic Considerations and Formation 7
1-27: a
Total agreed capital (210,000 ÷ 70%) P300,000
Nora’s interest 30%
Agreed capital of Nora P 90,000
Cash invested 42,000
Merchandise to be invested by Nora P 48,000
1-28: a
Contributed capital of May (P194,000 - P56,000) P138,000
Agreed capital of May (P300,000 x 70%) 210,000
Cash to be invested by May P 72,000
1-29: d Zero, because the bonus method involves only a transfer of capital.
1-30: b
Noy Bi
Cash P 10,000 P 14,000
Accounts receivable- Net 92,000 92,000
Merchandise inventory 216,000 150,000
Computer equipment 24,000 14,000
Furniture and fixtures 18,000 ----
Total assets at fair value 360,000 270,000
Accounts payable (108,000) (72,000)
Net assets invested 252,000 198,000
Agreed capital 250,000 200,000
Goodwill (withdrawal) P (2,000) P 2,000
1-31: c
Villar Roxas
Cash P 2,205,000 P -
Office equipment 630,000 -
Merchandise inventory - 1,575,000
Notes payable ( 210,000) -
Contributed capital 2,625,000 1,575,000
Agreed capital 2,520,000 1,680,000
Bonus to Roxas P( 105,000) P 105,000
1-32: b
Total capital before adjustments (P210,750 + P103,000) P313,750
Allowance for doubtful accounts ( 10,000)
Accumulated depreciation (P1,000 – P500) 500
Obsolete inventory ( 3,500)
Total assets of the partnership P300,750
8 Chapter 1
1-33: b
Gibo Edu
Cash P 19,200 P136,800
Accounts receivable 163,200 129,600
Merchandise inventory 240,000 216,000
Equipment 60,000 -
Accounts payable (60,000) (96,000)
Notes payable (12,000) -
Contributed capital 410,400 386,400
Loss on sale of equipment (1,800) 1,800
Net assets 408,600 388,200
Additional investment by Edu - 20,400
Agreed capital P408,600 P408,600
1-34: a
Garnett Bryant
Unadjusted capital P2,443,364 P3,097,528
Accumulated depreciation ( 80,000) 200,000
Accounts receivable written off ( 108,000) ( 140,000)
Adjusted capital contributed 2,255,364 3,157,528
Agreed capital 2,255,364 1,503,576*
Capital withdrawal P - P 1,653,952
1-35: a
Total capital P3,758,940
Total liabilities 4,299,396
Total assets P8,058,336
1-36: a
Gordon Fernando
Unadjusted capital P220,000 P309,375
Undervaluation of inventory 11,000 -
Allowance for doubtful accounts (2,750) ( 4,125)
Accrued expenses - (20,250)
Contributed capital 228,250 285,000
Agreed capital of Gordon (P285,000/75%) x 25% 133,250 285,000
Capital withdrawal by Gordon P 95,000 P -
Partnership – Basic Considerations and Formation 9
SOLUTIONS TO PROBLEMS
Problem 1 – 1
Computation:
P1,000 x 6% x 3/12 = P15
P2,000 x 6% x 2/12 = _20
Total ......................... ...... P35
Computation:
Pedro Castro, Capital
(1) P600 P31,400
(2) 200 35 (3)
(4) 100 400 (6)
(5) ___800
P1,700 P31,835
P30,135
Jose Bunag, Capital : 1/2 x P30,135 = P15,067.50
10 Chapter 1
Problem 1 – 2
Contributed Capitals:
Agreed Capitals:
Bonus Method:
Jose (P231,500 x 50%) ................................................................. P115,750
Pedro (P231,500 x 25%) .............................................................. 57,875
Pablo (P231,500 x 25%)............................................................... __57,875
Total . ........................................................................................... P231,500
12 Chapter 1
Goodwill Method. To have a goodwill, the only possible base is the capital of Pablo. The
computation is:
Contributed Agreed
Capital Capital Goodwill
Jose P135,000 P137,000 (50%) 2,000
Pedro 28,000 68,500 (25%) 40,500
Pablo __68,500 __68,500 (25%) _____–
Total P231,500 274,000 42,500
Problem 1 – 3
Computation:
Pepe Basco, capital (Base) ........................................................... P31,500
Divide by Pepe Basco's P & L ratio ............................................. ___40%
Total agreed capital ...................................................................... P78,750
Multiply by Carlo Torre's P & L ratio.......................................... ___60%
Cash to be invested by Carlo Torre .............................................. P47,250
Problem 1 – 4
Books of Sales
1. Adjusting Entries
2. Closing Entry
1. Adjusting Entries
Books of Roces
1. Adjusting Entries
2. Closing Entry
1. Adjusting Entries
Books of Roces
1. Adjusting Entries
2. Closing Entry
Books of Sales
1. Adjusting Entries
2. Closing Entry
Problem 1 – 5
Assets
Problem 1 – 6
1. Books of Toledo
Books of Ureta
Computation:
Toledo, capital (P68,400 – P300) ................................................. P 68,100
Divide by Toledo's profit share percentage .................................. ____50%
Total agreed capital of the partnership ......................................... P136,200
Multiply by Ureta's profit share percentage ................................. ____50%
Agreed capital of Ureta ................................................................ P 68,100
Ureta, capital ................................................................................ __64,700
Cash contribution of Ureta ........................................................... P 3,400
or
Toledo, capital (P68,400 – P300) ................................................. P 68,100
Less Ureta, capital ........................................................................ __64,700
Cash contribution of Ureta ........................................................... P 3,400
20 Chapter 1
Assets
CHAPTER 2
2-2: a
JJ KK LL Total
Bonus (.20 X P90,000) P18,000 – – P 18,000
Interest
JJ (.15 X P100,000) P15,000 – –)
KK (.15 X P200,000) P 30,000 –)
LL (.15 X P300,000) P45,000) 90,000
Balance, equally ( 6,000) ( 6,000) ( 6,000) ( 18,000)
Total profit share P27,000 P 24,000 P39,000 P 90,000
2-3: a
2-4: a
Allan Michael Total
Interest
Allan - .10 X (P40,000 + 60,000 /2) P 5,000 )
Michael - .10 X (P60,000 + 70,000/2) P 6,500) P 11,500
Balance, equally _14,000 _14,000 __28,000
Total P 19,000 P20,500 P 28,000
2-5: a
Fred Greg Henry Total
Interest (.10 of average capital) P12,000 P 6,000 P 4,000 P 22,000
Salaries 30,000 20,000 50,000
Balance, equally ( 35,000) ( 35,000) ( 35,000) (105,000)
Total P 7,000 ( P29,000) (P11,000) (P 33,000)
2-6: b
Average Capital
Capital Months Peso
Date Balance Unchanged Months
January 1 140,000 6 P 840,000
July 1 180,000 1 180,000
August 1 165,000 5 __825,000
12 P1,845,000
2-7: c
Capital Months Peso
Date Balance Unchanged Months
January 1 P16,000 3 P 48,000
April 1 17,600 2 35,200
June 1 19,200 3 57,600
September 1 15,200 4 __60,800
12 P201,600
2-8: a
Net profit before bonus P 24,000
Net profit after bonus (P24,000/120%) __20,000
Bonus to RJ 4,000
Balance (P24,000-P4,000)X3/5 __12,000
Total profit share P 16,000
2-9: a
LT AM Total
Interest P3,200 P 3,600 P 6,800
Salaries 15,000 7,500 22,500
Balance, 3:2 (11,580) ( 7,720) ( 19,300)
Total P 6,620 P 3,380 P 10,000
2-10: b
Net income after salary, interest and bonus P467,500
Add back: Salary (P10,000 X 12) P120,000
Interest (P250,000 X .05) __12,500 _132,500
Net income after bonus (80%) P600,000
Net income before bonus (P600,000/80%) _750,000
Paul's bonus P150,000
2-11: b
CC DD EE Total
Salary P 14,000 P 14,000
Balance P14,000 P 8,400 5,600 28,000
Additional profit to DD ( 1,500) __2,100 ( 600) ______–
Total P12,500 P10,500 P 19,000 P 42,000
Net income
Fees Earned P90,000
Expenses _48,000
Net Income P42,000
Partnership Operations 23
2-12: c
LL MM NN Total
Interest P 2,000 P 1,250 P 750 P 4,000
Annual Salary 8,500 – – 8,500
Additional profit to give LL, P20,000 9,500 5,700 3,800 19,000*
Additional profit to give MM, P14,000 _____– __7,050 _____– __7,050
Total P20,000 P14,000 P 4,550 P 38,550
*(P9,500/50%) = P19,000
2-13: a
RR SS TT Total
Excess (Deficiency)
RR (P80,000 - P95,000) P15,000 – –)
SS (P50,000 - P40,000) – (P10,000) –) P 5,000
Balance 4:3:1 _47,500 _35,625 _11,875 __95,000
Total P62,500 P25,625 P11,875 P100,000
2-14: b AA BB CC Total
AA - 100,000 X 10% P 10,000 )
150,000 X 20% 30,000 ) P 40,000
Remainder, 210,000
BB (60,000 X .05) P 3,000 )
CC (60,000 X .05) P 3,000 6,000
Balance, equally __68,000 _68,000 _68,000 _204,000
Total P108,000 P71,000 P71,000 P250,000
2-15: a
AJ BJ CJ Total
Bonus to CJ
Net profit before bonus P44,000
Net profit after bonus (P44,000/110%)P40,000 – – P4,000 P4,000
Interest to BJ – P1,000 – 1,000
Salaries P 10,000 – 12,000 22,000
Balance, 4:4:2 __6,800 _6,800 __3,400 _17,000
Total P 16,800 P7,800 P19,400 P44,000
2-16: c
Total profit share of Pedro P200,000
Less: Salary to Pedro P 50,000
Interest __20,000 __70,000
Share in the balance (40%) P130,000
2-17: c
Net income before extraordinary gain and bonus (69,600-12,000) P 57,600
Net income after bonus (57,600/120%) _48,000
Bonus to RR P 9,600
2-19: a
DV JE FR Total
Interest on excess (Deficiency) P 15,000 P 3,750 (P 7,500) P 11,250
Remainder 5:3:2 ( 36,875) ( 22,125) ( 14,750) ( 73,750)
Total (P 21,875) (P 18,375) (P 22,250) (P 62,500)
2-20: c
Correction of 1998 profit:
Net income per books P 19,500
Understatement of depreciation ( 2,100)
Overstatement of inventory, December 31 ( 11,400)
Adjusted net income P 6,000
2-21: a
Tiger Woods Total
Salaries P 64,000 P100,000 P164,000
Interest 24,000 30,000 54,000
Bonus (P360,000-P54,000)X.25 76,500 – 76,500
Remainder, 30:70 __19,650 __45,850 __65,500
Total P184,150 P175,850 P360,000
Partnership Operations 25
2-22: a
Clotty Cotto Total
Salaries P 20,000 – P 20,000
Commission – P 25,000 25,000
Interest 32,000 33,600 65,600
Bonus, schedule 1 30,000 – 30,000
Remainder, 60:40 __35,640 _23,760 __59,400
Total P117,640 P 82,360 P200,000
Schedule 1
Net income before salary, commission,
interest and bonus P200,000
Less: salaries __20,000
Net income before bonus P180,000
Net income after bonus (P180,000/120%) _150,000
Bonus P 30,000
2-23: a
Mike Tyson Total
Capital balance, beginning P600,000 P400,000 P1,000,000
Additional investment 100,000 200,000 300,000
Capital withdrawal -200,000 ( 100,000) _-300,000
Capital balance before profit and loss distribution P500,000 P500,000 P1,000,000
Net income:
Salary P200,000 P300,000 P 500,000
Balance, 3:2 __60,000 __40,000 __100,000
Total P260,000 P340,000 P 600,000
Total P760,000 P840,000 P1,600,000
Drawings ( 200,000) ( 300,000) ( 500,000)
Capital balance, end P560,000 P540,000 P1,100,000
2-24: d
Average Capital - King:
Capital Months Peso
Date Balance Unchanged Months
January 1 P40,000 3 P120,000
April 1 55,000 9 _495,000
12 P615,000
Average capital – P615,000/12 = P51,250
Schedule 2
2-25: d
Total receipts (P1,500,000 + P1,625,000) P3,125,000
Expenses ( 1,080,000)
Net income P2,045,000
Distribution to Partners
Red – P1,500,000/P3,125,000 X P2,045,000 = P 981,600 (1)
Blue – P1,625,000/P3,125,000 X P2,045,000 = _1,063,400
P2,045,000
2-26: a
Ray Sam Total
Capital balances, March 1 P150,000 P180,000 P330,000
Additional investment, Nov. 1 _______ __60,000 __60,000
Capital balances before salaries, profit and Drawings 150,000 240,000 390,000
Profit share:
Interest 15,000 20,000 35,000
Balance, 60:40 51,000 34,000 85,000
Total 66,000 54,000 120,000
Total 216,000 294,000 510,000
Salaries _18,000 _24,000 _42,000
Total 234,000 318,000 552,000
Drawings (18,000) (24,000) (42,000)
Capital balances, Feb. 28 P216,000 P294,000 P510,000
2-27: a
Susan Tanny Total
Capital balances, 1/1 P150,000 P30,000 P180,000
Additional investment, 4/1 8,000 8,000
Capital withdrawals, 7/1 _______ (6,000) _(6,000)
Balances before profit distribution 158,000 24,000 182,000
Profit distribution:
Interest 23,400 4,050 27,450
Bonus (20% x P30,000) 6,000 6,000
Balance, equally (1,725) (1,725) (3,450)
Total 21,675 _8,325 30,000
Total 179,675 32,325 212,000
Drawings (12,000) (12,000) (24,000)
Capital balances, 12/31 P167,675 P20,325 P188,000
28 Chapter 2
2-28: a
Sin Tan Uy Total
Capital balances, beg. 1st year P110,000 P80,000 P110,000 P300,000
Loss distribution, 1st year:
Salaries 20,000 10,000 30,000
Interest 11,000 8,000 11,000 30,000
Balance, 5:3:2 (40,000) (16,000) (24,000) (80,000)
Total ( 9,000) ( 8,000) ( 3,000) (20,000)
Total 101,000 72,000 107,000 280,000
Drawings (10,000) (10,000) (10,000) (30,000)
Capital balances, beg. 2nd year 91,000 62,000 97,000 250,000
Profit distribution, 2nd year:
Salaries 20,000 10,000 30,000
Interest 9,100 6,200 9,700 25,000
Balance, 5:3:2 ( 7,500) ( 4,500) ( 3,000) (15,000)
Total 21,600 _1,700 16,700 40,000
Total 112,600 63,700 113,700 290,000
Drawings _(10,000) (10,000) _(10,000) _(30,000)
Capital balances, end of 2nd year P102,600 P53,700 P103,700 P260,000
2-29: c
Jay Kay Loi Total
Capital balances, 1/1/06 P30,000 P30,000 P30,000 P90,000
Additional investment, 2006 5,000 5,000
Capital withdrawal, 2006 _(5,000) _(4,000) ______ _(9,000)
Capital balances 25,000 26,000 35,000 86,000
Profit distribution, 2006:
Interest 3,000 3,000 3,000 9,000
Salary 7,000 7,000
Balance, equally _1,000 _1,000 _ 1,000 __3,000
Capital balances, 1/1/07 36,000 30,000 39,000 105,000
Additional investment, 2007 5,000 5,000
Capital withdrawal, 2002 ______ _(3,000) _(8,000) (11,000)
Capital balances 41,000 27,000 31,000 99,000
Profit distribution, 2007:
Interest 3,600 3,000 3,900 10,500
Salary 7,000 7,000
Balance, equally _1,500 _1,500 _ 1,500 __4,500
Capital balances, 1/1/08 53,100 31,500 36,400 121,000
Additional investment, 2008 6,000 6,000
Capital withdrawal, 2008 ______ _(4,000) _(2,000) _(6,000)
Capital balances 53,100 27,500 40,400 121,000
Profit distribution, 2008:
Interest 5,310 3,150 3,640 12,100
Salary 7,000 7,000
Balance, equally __3,300 __3,300 __3,300 ___9,900
Capital balances, 12/31/08 per books P68,710 P33,950 P47,340 P150,000
Understatement of depreciation (2,000) (2,000) (2,000) (6,000)
Adjusted capital balances, 12/31/08 P66,710 P31,950 P45,340 P144,000
Partnership Operations 29
2-30: a
2-31: d
_Nardo_ __Orly __Pedro_ _Total_
Capital balance, 1/1/08 P280,000 P300,000 P170,000 P750,000
Additional investment 96,000 60,000 - 156,000
Withdrawals ( 90,000 ) ( 72,000 ) (162,000)
Cap. bal. before P/L dist. 376,000 270,000 98,000 744,000
NP: Salary (16,500 x 12) - 198,000 - 198,000
Interest on EC (15%) 42,000 45,000 25,500 112,500
Balance 25:30:45 ( 19,875 ) ( 23,850 ) ( 35,775 ) (79,500 )
Total 22,125 219,150 ( 10,275 ) 231,000
Capital balance 12/31/08 P398,125 P 489,150 P 87,725 P975,000
2-32: d
Sam capital, beginning P120,000
Additional investment (Land) 60,000
Drawings ( 80,000 )
Capital balance before net profit (loss) 100,000
Capital balance, end 150,000
Profit share (40%) 50,000
Net profit (P50,000 ÷ 40%) P125,000
30 Chapter 2
2-33: a
__Joe__ __Tom__ __Total__
Capital balance, 1/2/07 P 80,000 P 40,000 P120,000
Net loss- 2007:
Annual salary 96,000 48,000 144,000
10% interest on beg. capital 8,000 4,000 12,000
Bal. beg. cap. ratio: 8:4 ( 108,000) ( 54,000) ( 162,000)
Total ( 4,000) ( 2,000) ( 6,000)
Capital balance 76,000 38,000 114,000
Drawings ( 4,000) ( 4,000) ( 8,000)
Capital balance, 12/31/07 72,000 34,000 106,000
Net profit- 2008:
Annual salary 96,000 48,000 144,000
10% interest on BC 7,200 3,400 10,600
Bonus to Joe–NPBB – P 22000
NPAB (22000/110%)20000 2,000 2,000
Balance equally ( 67,300) ( 67,300) ( 134,600)
Total 37,900 ( 15,900) 22,000
Total 109,900 18,100 128,000
Drawings ( 4,000) ( 4,000) ( 8,000)
2-34: a
Decrease in capital P 60,000
Drawings ( 130,000)
Contribution 25,000
Profit share 45,000
Net income (45,000 ÷ 30) P150,000
2-35: b
2009:
Original profit allocation Cris Paul Bryan Total
Salaries P 80,000 P 60,000 P 60,000 P200,000
Balance of profit 100,000 100,000 100,000 300,000
Total P180,000 P160,000 P160,000 P500,000
2-35: Continued
2010
Original profit allocation: Cris Paul Bryan Total
Salaries P 80,000 P 60,000 P 60,000 P200,000
Balance of profit 70,000 70,000 70,000 210,000
Total P150,000 P130,000 P130,000 P410,000
Revised allocation:
Salaries P 80,000 P 60,000 P 60,000 P200,000
Interest on capital (Sch. B) 3,944 2,428 3,528 9,900
Balance of profit 66,700 P 66,700 P 66,700 P200,000
Total P150,644 P129,128 P130,228 P410,000
Interest at 12%:
Cris: P62,500 x 12% = P7,500
Paul: P110,000 x 12%= P13,200
Bryan: P47,500 x 12% = P5,700
32 Chapter 2
2-35: Continued
Schedule B: Revised Computation of Interest on Average Capital
P32,867
P20,233
Interest at 12%:
Cris: P32,867 x 12% = P3,944
Paul: P20,233 x 12%= P2,428
Bryan: P29,400 x 12% = P3,528
2-36: a
Gabriel Harry Cumulative Total
Salaries P35,000 P40,000 P 75,000
Bonus (Sch. A) 12,000 87,000
Interest on capital (Sch. B) 11,467 5,333 103,800
Remainder of profit 11,280 16,920 132,000
Total P69,747 P62,253
Interest therefore:
Gabriel: P143,333 x 8% = P11,467
Harry: P66,667 x 8% = P5,333
2-37: a
Adjustments to Income:
2009 2010
Amortization of business name P(5,000) P (5,000)
Prepaid expenses, 2009 3,000 (3,000)
Accrued expenses, 2009 (2,000) 2,000
Fees billed in 2010 8,400 (8,400)
Inventory overstatement 4,000
Accrued expenses, 2010 (8,600)
Accrued income, 2010 (3,000)
Adjustments to income P 4,400 P(22,000)
Schedule 1:
Bonus = 10% (1 - Bonus)
Bonus = 10% (P4,400 – Bonus)
110% Bonus = P440
Bonus = P400
Schedule 2:
Bonus = 10% )1 – Bonus)
Bonus = 10% (P22,000 – Bonus)
110% Bonus = (P2,200)
Bonus = (P2,000)
34 Chapter 2
2-38: b
Old Partners Capital Balances before Admission of New Partner:
SOLUTIONS TO PROBLEMS
Problem 2 – 1
Computations:
a. Net profit before bonus................................................. P23,800
Net profit after bonus (P23,800 ÷ 125%) ..................... _19,040
Bonus............................................................................ P 4,760
Problem 2 – 2
a. Average Capital:
Robin: Date Balances Months Peso
Unchanged Months
Jan. 1 P135,000 2 P270,000
Feb. 28 95,000 2 190,000
Apr. 30 175,000 5 875,000
Sept. 30 195,000 3 __585,000
12 P1,920,000
Profit Distribution:
Robin : P160,000 ÷ P340,000 x P510,000 = P240,000
Hood : P180,000 ÷ P340,000 x P510,000 = _270,000
P510,000
Partnership Operations 37
Problem 2 – 3
a. De Villa De Vera Total
Salaries................................................................. P 30,000 – P 30,000
Commission (2% x P1,000,000) .......................... P 20,000 20,000
Interest of 8% on average capital......................... 32,800 31,200 64,000
Bonus (see computations below) ......................... 9,818 9,818 19,636
Balance, equally................................................... __44,182 __44,182 __88,364
Total ..................................................................... P116,800 P105,200 P222,000
Bonus Computations:
Income before salary, commissions, interest & bonus...... ....................... P222,000
Salary and commission (P30,000 + P20,000) ................... ....................... ( 50,000)
Interest......................................................... ..................... ....................... ( 64,000)
Income before bonus ................................... ..................... ....................... 108,000
Income after bonus (P108,000 ÷ 110%) ..... ..................... ....................... _98,182
Bonus .......................................................... ..................... ....................... P 9,818
Problem 2 – 4
Bonus computations:
Net income before bonus ........... .................... ..................... ..................... P78,960
Net income after bonus (P78,960 ÷ 105%) ..... ..................... ..................... _75,200
Bonus ......................................... .................... ..................... ..................... P 3,760
Interest computations:
East (10% x P28,000)................. .................... ..................... ..................... P 2,800
North (10% x P40,000) .............. .................... ..................... ..................... 4,000
West (10% x P48,000) ............... .................... ..................... ..................... __4,800
Total ........................................... .................... ..................... ..................... P11,600
Interest computations:
Average capitals:
East: Months Pesos
Date Balances Unchanged Months
1/1 P30,000 4 P120,000
5/1 36,000 4 144,000
9/1 28,000 4 _112,000
12 P376,000
Interest Computations:
East (10% x P31,333) ............ ............................................... P 3,133
North (10% x P36,333) ......... ............................................... 3,633
West (10% x P52,000)........... ............................................... __5,200
Total ... .................................. ............................................... P 11,966
Bonus Computations:
Net income ............................ ............................................... P 68,000
Less Salary ............................ ............................................... _21,000
Net income before bonus....... ............................................... 47,080
Net income after bonus (P47,080 ÷ 110%) ........................... _42,800
Bonus to North ...................... ............................................... P 4,280
* To Total
Bonus Computations:
Net income before salaries & bonus ............... ..................... ..................... P92,940
Less Salaries (P21,000 + P18,000) ................. ..................... ..................... _39,000
Net income before bonus ........... .................... ..................... ..................... P53,940
Net income after bonus (P53,940 ÷ 120%) ..... ..................... ..................... _44,950
Bonus to West ............................ .................... ..................... ..................... P 8,990
Problem 2 – 5
Problem 2 – 6
Problem 2 – 7
Schedule 1:
Dino Nelson Oscar Total
Annual salaries.................................... P48,000 P24,000 P12,000 P84,000
Bonus (see computations below) ........ – 10,909 – 10,909
Interest ................................................ 3,600 3,600 3,600 10,800
Balance, equally.................................. _* 4,765 __4,763 __4,763 __14,291
Totals .................................................. P56,365 P43,272 P20,363 P120,000
Bonus computations:
Net income before bonus ........... ................ ..................... ..................... P120,000
Net income after bonus (P120,000 ÷ 110%) ..................... ..................... _109,091
Bonus to Nelson ......................... ................ ..................... ..................... P 10,909
* To Total
42 Chapter 2
Problem 2 – 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2011
Problem 2 – 9
Allan, Eman and Gino Partnership
Statement of Profit Distribution
Year Ended December 31, 2011
Problem 2 – 10
Problem 2 – 11
a. Entries to record the formation of the partnership and the events that occurred during 2008:
Cash 1,100,000
Inventory 800,000
Land 1,300,000
Equipment 1,000,000
Mortgage payable 500,000
Installment note payable 200,000
Kobe, capital (P600,000 + P800,000
+ P1,000,000 – P200,000) 2,200,000
Lebron, capital (P500,000 + P1,300,000
- P500,000) 1,300,000
b. Kobe-Lebron Partnership
Statement of Comprehensive Income
For the Year Ended December 31, 2011
Sales P1,550,000
Less: Cost of goods sold:
Inventory, January 1 P800,000
Purchases 300,000
Goods available for sale P1,100,000
Less: Inventory, December 31 (200,000) (900,000)
Gross profit P650,000
Less: Selling and general expenses 340,000
Depreciation expenses 60,000 400,000
Operating income P250,000
Nonoperating expense- interest (40,000)
Net income P210,000
46 Chapter 2
c. Kobe-Lebron Partnership
Statement of Financial Position
At December 31, 2011
Assets
Cash P1,589,000
Accounts receivable 210,000
Inventory 200,000
Land 1,300,000
Equipment (net) 940,000
Total assets P4,239,000
CHAPTER 3
3-1: c
Implied capital of the partnership (P90,000/20%) P450,000
Actual value of the partnership ( 420,000)
Goodwill P 30,000
3-2: b
AQUINO LOCSIN DAVID HIZON
Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000
3-3: d
AQUINO LOCSIN DAVID TOTAL
Capital transferred P 50,400 P 25,200 P 8,400 P 84,000
Excess divided using profit and loss ratio __3,600 __1,800 ___600 __6,000
Cash distribution P 54,000 P 27,000 P 9,000 P 90,000
3-4: b
3-5: b
3-6: b
BANZON CORTEZ TOTAL
Capital Transfer (20%) P 16,000 P 4,000 P20,000
Excess, Profit and Loss ratio __6,000 __4,000 _10,000
Cash distribution P 22,000 P 8,000 P30,000
3-7: d
PEREZ CADIZ TOTAL
Capital balances beginning P 24,000 P 48,000 P 72,000
Net profit, 1:2 5,430 10,860 16,290
Drawings ( 5,050) ( 8,000) ( 13,050)
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430
3-8: a
3-9: a
3-11: c
3-13: c
JUNE JULY
Capital balances before admission P90,000 P 60,000
Bonus from August, equally __7,500 __7,500
Capital balances after admission P97,500 P 67,500
3-14: a
3-15: a
3-16: a
3-17: b
MONA LIZA ALMA LORNA TOTAL
Capital balances before
admission of Alma P150,000 P 50,000 – – P 200,000
Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) __28,000 ___12,000 _______– ______– ___40,000
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) __10,000 ____6,000 ____4,000 ______– ___20,000
Capital balances after
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000
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 P 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 P 20,000
Partnership Dissolution – Changes in Ownership 51
3-18: c
RED WHITE BLUE TOTAL
Unadjusted capital balances P175,000 P100,000 P 45,000 P320,000
Overvaluation of Marketable Securities ( 12,500) ( 7,500) ( 5,000) ( 25,000)
Allowance for Bad Debts ( 12,500) ( 7,500) ( 5,000) ( 25,000)
Adjusted capital balances before admission P150,000 P 85,000 P 35,000 P270,000
3-19: b
XX YY ZZ WW TOTAL
Capital balances before
admission P360,000 P225,000 P135,000 – P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000 ______–
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Equalization of capital ( 100,000) __12,500 __87,500 ______– ______–
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Net profit, equally 3,150 3,150 3,150 3,150 12,600
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)
Capital balances before
WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600
Settlement to A P 30,250
A's interest (23,750+5,000) _28,750
Partial Goodwill to A P 1,500
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
52 Chapter 3
3-21: a
Perez Reyes Suarez
Capital balances P 100,000 P 150,000 P 200,000
Net income, P140,000 70,000 42,000 28,000
Undervaluation of inventory, P20,000 ___10,000 ____6,000 ____4,000
Capital balances before settlement to Perez P 180,000 P 198,000 P 232,000
Settlement to Perez ( 195,000) – –
Bonus to Perez ___15,000 _( 9,000) _( 6,000)
Capital balances after retirement P – P 189,000 P 226,000
3-22: c
ELY FLOR GLOR
Capital balances P 320,000 P 192,000 P 128,000
Settlement to Ely ( 360,000) – –
Total Goodwill (P40,000/50%)P80,000 __40,000 ___24,000 ___16,000
Capital balances after retirement of Ely P – P 216,000 P 144,000
3-23: c
_Alma_ _Betty_ _Total_
Capital balance 3/1/07 480,000 240,000 720,000
Net loss-2007:
Salary (10 months) 480,000 240,000 720,000
Interest (10 months) 40,000 20,000 60,000
Bal. beg. cap. ratio: 48:24 ( 544,000) ( 272,000) ( 816,000)
Total ( 24,000) ( 12,000) ( 36,000)
Capital balance 456,000 228,000 684,000
Drawings ( 24,000) ( 24,000) ( 48,000)
Capital balance, 12/31/07 432,000 204,000 636,000
Net profit- 2008:
Salary 576,000 288,000 864,000
Interest 43,200 20,400 63,600
Balance, equally ( 397,800) ( 397,800) ( 795,600)
Total 221,400 ( 89,400) 132,000
Capital balance 653,400 114,600 768,000
Drawings ( 24,000) ( 24,000) ( 48,000)
Capital balance 12/31/08 629,400 90,600 720,000
3-25: Continued
3-26: a
3-27: c
3-27, Continued
Sch. 1:
In order for Bea to increase his allocation by P10,000, she would need to received a P14,000 allocation
based on the profit ratio. Therefore, the total amount of profit subject to this allocation would be P140,000
(P14,000 / 10%).
Sch. 2:
If the cumulative total of income allocated before the bonus to Dina is P270,000, then Dina would be
entitled to the P20,000 bonus under the revised agreement.
3-28: a
3-29: a.
3-30: 1. b
2. b
3. b
4. d
Computations:
Lina Mina Nina Olga Total
Capital balances P150,000 P90,000 P60,000 P340,000
Admission of Olga 40,000 40,000
Bonus to Olga (Sch. 1) (14,000) 8,400) (5,600) 28,000 -
Balances, 1/1/010 136,000 81,600 54,400 68,000 340,000
Division of profit 18,800 11,280 7,520 9,400 47,000
Balances, 12/31/010 154,800 92,880 61,920 77,400 387,000
Sale of interest of L to M (154,800) 154,800 -
Division of profit 100,000 100,000 100,000 300,000
Drawings (20,000) (10,000) (5,000) (35,000)
Balances, 12/31/011 327,680 151,920 172,400 652,000
Division of profit 65,000 65,000 65,000 195,000
Inventory overvalued (5,000) (5,000) (5,000) (15,000)
Balances before retirement 387,680 211,920 232,400 832,000
Settlement to Mina (425,360) (425,360)
Total goodwill 37,680 37,680 37,680 113,040
Balances, 12/31/012 249,600 270,080 P519,680
Partnership Dissolution – Changes in Ownership Interest 57
3-31: a
Correction in the problem:
Interest to be acquired by new partner in Partnership AA should be 30%.
Partnership
AA BB CC
Fair value of original partnership:
Assets at book value P500,000 P600,000 P800,000
Liabilities at book and fair value (369,500) (410,000) (558,000)
(a) Book value of original partnership 130,500 190,000 242,000
assets appreciation (depreciation) (50,000) 125,000 50,000
(b) Net assets 80,500 315,000 292,000
3-32: 1.a
2.a
3.b
4.b
Computations:
2009:
Balances, 1/1/09 P81,600 P78,400 P - P160,000
Admission of Hara * 30,000 20,000 P 70,000 120,000
Allocation of profit,sch. 1 145,250 98,875 85,875 330,000
Distributions (80,000) (80,000) (80,000) (240,000)
Balances, 12/31/09 P176,850 P117,275 P 75,875 P - P370,000
58 Chapter 3
3-32, Continued
2011:
Balances, 1/1/011 P - P334,125 P95,875 P - P430,000
Adjustment of net assets - (5,000) (5,000) (10,000)
Recognition of goodwill** - 20,875 20,875
Sale of interest by Rita (350,000) - (350,000)
Subtotal P - P - P90,875 P - P90,875
Admission of Perla*** 21,625 75,000 96,625
Balances, 12/31/011 P - P - P112,500 P 75,000 P187,500
Schedule 1:
2008 Allocation of profit:
Maya Rita Total
Profit and loss ratio 40% 60%
Salary P80,000 P100,000 P180,000
Bonus (see schedule 2) 46,000 46,000
Balance 1,600 2,400 4,000
Total P127,600 P102,400 P230,000
Schedule 2:
2008 Bonus:
Maya (P230,000 x 20%) P46,000
2009 Bonus:
Maya (P330,000 x 20%) P66,000
Hara (P330,000 x 20%) 16,500
P82,500
Partnership Dissolution – Changes in Ownership 59
3-32, Continued
* Admission of Hara:
Total agreed capital of new partnership (P70,000 / 25%) P280,000
Total contributed capital (P160,000 + P70,000) 230,000
Goodwill to old partners P 50,000
SOLUTIONS TO PROBLEMS
Problem 3 – 1
(a) 1. Revaluation of Assets:
Total agreed capital (P75,000 ÷ 25%) ..................................... P300,000
Total contributed capital .......................................................... _275,000
Upward revaluation of assets, P/L ratio ................................... P 25,000
Entry
Assets ................................................................................ 25,000
Cash ................................................................................... 75,000
Red, capital ................................................................... 5,000
White, capital ................................................................ 10,000
Blue, capital .................................................................. 10,000
Green, capital ................................................................ 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
Entry:
Cash ................................................................................... 75,000
Green, capital ................................................................ 68,750
Red, capital ................................................................... 1,250
White, capital ................................................................ 2,500
Blue, capital .................................................................. 2,500
Entries:
Goodwill ............................................................................ 100,000
Red, capital ................................................................... 20,000
White, capital ................................................................ 40,000
Blue, capital .................................................................. 40,000
Problem 3 – 2
a. (1) Bonus Method:
Contributed capital of Tomas ......................................................... .................. P140,000
Agreed capital of Tomas (P640,000 x 20%)................................... .................. _128,000
Bonus to old partners, P/L ratio ...................................................... .................. P 12,000
BRUNO MARIO TOMAS TOTAL
Balances before admission .................... P200,000 P300,000 – P500,000
Admission of Tomas.............................. ___9,000 ___3,000 _128,000 _140,000
Balances after admission ....................... P209,000 P303,000 P128,000 P640,000
Problem 3 – 3
Problem 3 – 4
Entry:
Cash .. .... ...................................................................................... 60,000
Goodwill ...................................................................................... 100,000
Gene, capital .......................................................................... 80,000
Nancy, capital ........................................................................ 20,000
Ellen, capital .......................................................................... 60,000
No Goodwill, no bonus because the total agreed capital is equal to the total contributed
capital.
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.
Entry:
Cash .. .... ...................................................................................... 32,000
Goodwill ...................................................................................... 3,000
Ellen, capital .......................................................................... 35,000
Problem 3 – 5
Entry:
Cash .. .... ...................................................................................... 25,000
Helen, capital................................................................................ 7,875
Cathy, capital................................................................................ 3,375
Cherry, capital ....................................................................... 36,250
Entry:
Cash ...................................................................................... 50,000
Goodwill ...................................................................................... 30,000
Cherry, capital ....................................................................... 50,000
Helen, capital ......................................................................... 21,000
Cathy, capital ......................................................................... 9,000
Entry:
Cash ...................................................................................... 25,000
Goodwill ...................................................................................... 15,000
Cherry, capital ....................................................................... 40,000
Problem 3 – 6
Problem 3 – 8
Problem 3 – 9
Problem 3 – 10
Problem 3 – 11
Problem 3 – 12
Partnership Books Continued as Books of Corporation
(1) To record the acquisition of assets and liabilities from the partnership:
Problem 3 – 13
1. Bonus Method
a. 2010 journal entries
Jan. 1: Cash 40,000
Inventory 12,000
Equipment 48,000
Notes payable 10,000
Aquino, capital (50%) 45,000
Binay, capital (50%) 45,000
To record initial investments at fair value along with equal
capital balances.
74 Chapter 3
Closing Entry:
Aquino, Capital 9,600
Binay, capital 9,600
Aquino, drawing 9,600
Binay, drawing 9,600
To close P800 per month drawing accounts for the year.
Cash 66,000
Roxas, capital 60,600
Aquino, capital 3,240
Binay, capital 2,160
To record admission of Roxas with bonus to original partners.
2. Goodwill Method:
a. 2010 Journal Entries:
Jan. 1: Cash 40,000
Inventory 12,000
Equipment 48,000
Goodwill 14,000
Note payable 10,000
Aquino, capital 52,000
Binay, capital 52,000
To record investments of the partners with goodwill
attributed to Aquino.
76 Chapter 3
Closing Entries:
Aquino, Capital 9,600
Binay, capital 9,600
Aquino, drawing 9,600
Binay, drawing 9,600
To close out drawing accounts for the year.
Goodwill 2,200
Aquino, capital (60%) 1,320
Binay, capital (40%) 880
To recognize goodwill based on Roxas investment.
Cash 66,000
Roxas, capital 66,000
To record admission of Roxas.
Goodwill 60,000
Aquino, capital (40%) 24,000
Binay, capital (20%) 12,000
Roxas, capital (20%) 12,000
To recognize total goodwill.
CHAPTER 4
4-1: a
PAR BOOGIE BIRDIE
Capital balances before realization P 20,000 P 16,000 P 10,000
Loss on liquidation, P40,000 ( 20,000) ( 12,000) ( 8,000)
Cash distribution P – P 4,000 P 2,000
4-2: c
PING PANG PONG
Capital balances before liquidation P 50,000 P 50,000 P 10,000
Gain of P10,000 (150,000-140,000) __6,000 __2,000 __2,000
Cash distribution P 56,000 P 52,000 P 12,000
4-3: b
PING PANG PONG
Capital balances before liquidation P 50,000 P 50,000 P 10,000
Loss of P40,000 (P140,000-P100,000) ( 24,000) ( 8,000) ( 8,000)
Cash distribution P 26,000 P 42,000 P 2,000
4-4: a
PING PANG PONG
Capital balances before liquidation P 50,000 P 50,000 P 10,000
Loss of P70,000 (P140,000-P70,000) ( 42,000) ( 14,000) ( 14,000)
Balances P8,000 P 36,000 ( 4,000)
Absorption of Pong's deficiency, 6:2 ( 3,000) ( 1,000) __4,000
Cash distribution P 5,000 P 35,000 –
4-5: b
COLT MARK CLOCK
Capital balances before liquidation (net of loans)P290,000 P200,000 P220,000
Loss of P130,000, 4:3:3 ( 52,000) ( 39,000) ( 39,000)
Cash distribution P238,000 P161,000 P181,000
4-6: c
JONAS CARLOS TOMAS
Capital balances before liquidation P160,000 P 45,000 P 55,000
Loss of P60,000, 40:50:10 ( 24,000) ( 20,000) ( 6,000)
Cash distribution P136,000 P 25,000 P 49,000
Partnership Liquidation 79
4-7: a
ARIEL BERT CESAR
Capital balances before liquidation P40,000 P180,000 P 30,000
Loss of P100,000, 4:3:3 ( 40,000) ( 30,000) ( 30,000)
Cash distribution P – P150,000 P –
4-8: b
NORY OSCAR
Capital balances before realization P23,000 P 13,500
Additional investment by Nory for
the unpaid liabilities (33,000-18,000) 15,000 –
Loss on realization (schedule 1) ( 30,900) ( 20,600)
Payment by Oscar to Nory P 7,100 ( P7,100)
Schedule 1
Total capital before liquidation P 36,500
Unpaid liabilities 15,000
Total loss on realization P 51,500
4-9: d
BLACK WHITE GREEN
Capital balances before liquidation (net) P99,000 P 91,500 P138,000
Loss on realization (schedule 1) P27,500 ( 13,750) ( 27,500) _( 5,500)
Balances, cash distribution P85,250 P 64,000 P132,500
Schedule 1:
Capital balances of white (net) P 91,500
Cash received by White _83,250
White's share of total loss (30%) P 8,250
4-10: c
ANA EVA NORA
Capital balances before liquidation (net) P27,000 P 43,000 P 10,000
Loss on realization, P63,600 ( 25,320) ( 25,320) ( 12,660)
Balances P 1,680 P 17,680 ( 2,660)
Unrecorded liabilities, P500 ( 200) ( 200) ( 100)
Balances P 1,480 P 17,480 ( 2,760)
Elimination of Nora's deficiency ( 1,380) ( 1,380) __2,760
Payment to partners P 100 P 16,100 P –
4-11: d
ARIES LEO TAURUS
Capital balances before liquidation (net) P33,500 P 49,000 P 36,500
Loss on realization (schedule 1) P45,000 ( 22,500) ( 13,500) ( 9,000)
Payment to partners P11,000 P 35,500 P 27,500
80 Chapter 4
4-11, continued:
Schedule 1:
Taurus capital (net) P36,500
Payment to Taurus ( 27,500)
Share of total loss (20%) P 9,000
4-12: c
TOTAL MOLY NORA OLGA
Capital balances, June 11 P32,700 P15,000 P13,500 P 4,200
Net loss from operation (squeeze) ( 9,800) ( 4,200) ( 2,800) ( 2,800)
Capital balances, August 30 before
liquidation (48,500-25,600) P22,900 P10,800 P10,700 P 1,400
Loss on realization (47,500-30,000) ( 17,500) ( 7,500) ( 5,000) ( 5,000)
Balances P 5,400 P 3,300 P 5,700 ( 3,600)
Additional investment by Olga _1,500 _____– _____– _1,500
Balances P 6,900 P 3,300 P 5,700 ( 2,100)
Elimination of Olga's deficiency ______ ( 1,260) ( 840) _2,100
Payment to partners P 6,900 P 2,040 P 4,860 P –
4-13: b
RITA SARA TITA
Capital balances before liquidation P49,000 P18,000 P10,000
Operating loss, P21,000 ( 3,500) ( 7,000) ( 10,500)
Drawings ( 10,000) ( 15,000) ( 20,000)
Loans – 8,000 25,000
Loss on realization, P12,000 ( 2,000) ( 4,000) ( 6,000)
Balances P33,500 P – ( 1,500)
Absorption of Tita's deficiency __1,500 _____– _1,500
Payment to Nora P32,000 P – P –
4-14: a
CLARO PEDRO ANDRO
Capital balances before liquidation P45,000 P27,000 P50,000
Loss on realization
Accounts Receivable (P50,000 X 40%) P20,000
Investment (P30,000 - P20,000) 10,000
Equipment (P60,000-P30,000) _30,000
Total P60,000 ( 24,000) ( 24,000) ( 12,000)
Payment to partners P21,000 P 3,000 P38,000
4-15: c
TOTAL MONA LISA
Capital balances before liquidation (inclusive loans) P47,500 P28,500 P19,000
Loss on realization, (squeeze) ( 38,500) ( 23,100) ( 15,400)
Capital balances - cash distribution P 9,000 P 5,400 P 3,600
Partnership Liquidation 81
4-15, continued:
Cash after realization P 37,500
Less Liabilities (P36,000-P7,500) ( 28,500)
Total capital after realization P 9,000
4-16: a
4-17: d
TOTAL CC DD EE
Capital balances before realization (net) P100,000 P 15,000 P22,500 P62,500
Loss on realization (squeeze) ( 125,000) ( 62,500) ( 37,500) ( 25,000)
Capital balances after realization
(liabilities-unpaid) (P 25,000) ( 47,500) ( 15,000) P37,500
Elimination of CC's deficiency _______– __47,500 ( 28,500) ( 19,000)
Balances (P 25,000) – (P43,500) P18,500
Investment by DD __43,500 ______– _43,500 _____–
Payment to EE P 18,500 P – P – P18,500
4-18: d
4-19: d
LL MM NN TOTAL
Capital balances P 50,000 P 20,000 P 10,000 P 80,000
Salary of LL (P600 X 8 months) __4,800 _______ _______ ___4,800
Capital balances before liquidation P 54,800 P 20,000 P 10,000 P 84,800
Loss on realization ( 44,880) ( 14,960) ( 14,960)
Balances P 9,920 P 5,040 (P 4,960)
Additional investment by NN ______– _____– __4,960
Payment to partners P 9,920 P 5,040 P –
4-20: b
Total assets:
Total interest of the partners before liquidation:
JJ (P70,000+P30,000+P10,000) P110,000
KK (P60,000-P10,000) 50,000
LL (P30,000+P10,000) __40,000 P200,000
Divide by ______50%
Total P400,000
Loss on realization _120,000
Cash to be realized P280,000
4-21: a
TOTAL NN OO PP
Capital balances, July 1 P 75,000 P 25,000 P 25,000 P 25,000
Advances to NN, August 1 ( 10,000) ( 10,000) – –
OO Loan, September 1 20,000 – 20,000 –
Interest, December 31 (6%)
NN (5 mos.) ( 250) ( 250)
OO (4 mos.) 400 400
Compensation to PP __2,500 _______ _______ ___2,500
Capital balances before liquidation P 87,650 P 14,750 P 45,400 P 27,500
Loss on realization (squeeze) _56,250 ( 17,550) ( 17,550) ( 17,550)
Cash distribution P 35,000 ( 2,800) P 27,850 P 9,950
NN should pay P2,800 and this is to be divided to OO & PP equally or P1,400 each.
Partnership Liquidation 83
4-22: a
TOTAL PG JR AS
Capital balances before realization P 950,000 P350,000 P250,000 P350,000
Loss on realization (squeeze) ( 1,000,000) __20,000 ( 200,000) _500,000
Capital balances after realization
(unpaid liabilities) (P 50,000) P 50,000 P 50,000 ( 150,000)
Elimination of AS's deficiency _______– ( 90,000) ( 60,000) P150,000
Cash to be absorbed P – (P 40,000) (P 10,000) P –
4-23: a
RM ST
Capital balances before realization (net) P500,000 P825,000
Loss on realization, P1,225,000 ( 490,000) ( 735,000)
Payment to Partners P 10,000 P 90,000
4-24: a
TOTAL LT AM ZP
Capital balances before realization (net) P 27,500 P 20,000 P 5,000 P 2,500
Gain on realization (squeeze) __37,500 _18,750 __-9,375 __9,375
Capital balances after realization P 65,000 P 38,750 P 14,375 P 11,875
4-25: c
AG BM CP DJ
Capital balances before realization (net) P 420,000 P375,000 P205,000 P150,000
Loss on realization, P1,000,000 ( 300,000) ( 300,000) (200,000) (200,000)
Balances P 120,000 P 75,000 P 5,000 P(50,000)
Additional investment by DJ 50,000
4-26: a
Settlement to Uy P351,500
Uy capital before liquidation (net):
Uy capital P553,500
Receivable from Uy ( 132,000) 421,500
Loss of Uy (50%) P 70,000
SOLUTIONS TO PROBLEMS
Problem 4 – 1
Case 1
Rivas and Briones
Statement of Liquidation
December 31, 2011
Partners' Capitals
Assets Rivas, Briones, Rivas Briones
Cash Others Liabilities Loan Loan (90%) (10%)
Balances before liquidation ... P 20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000 P10,000
Realization of assets and
distribution of loss .......... _134,000 ( 200,000) _______ _______ _______ ( 59,400) ( 6,600)
Balances................................. 154,000 – 132,000 18,000 20,000 ( 19,400) 3,400
Payment of liabilities ............. ( 132,000) ______– ( 132,000) ______ _______ _______ ______
Balances................................. 22,000 – – 18,000 20,000 ( 19,400) 3,400
Offset Rivas' loan against his
capital deficiency ............ _______ _______ _______ ( 18,000) _______ _18,000 ______
Balances................................. 22,000 – – – 20,000 ( 1,400) 3,400
Additional loss to Briones ..... _______ _______ _______ _______ _______ __1,400 ( 1,400)
Balances................................. 22,000 – – – 20,000 – 2,000
Payment to partner................. P(22,000) – – – P(20,000) – P(2,000)
Case 2
Rivas and Briones
Statement of Liquidation
December 31, 2011
Partners' Capitals
Assets Rivas, Briones, Rivas Briones
Cash Others Liabilities Loan Loan (70%) (30%)
Balances before liquidation ... P20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000 P10,000
Realization of assets and
distribution of loss .......... 134,000 ( 200,000) _______ ______ _______ ( 46,200) ( 19,800)
Balances................................. 154,000 – 132,000 18,000 20,000 ( 6,200) 9,800
Payment of liabilities ............. ( 132,000) _______ ( 132,000) ______ _______ _______ ______
Balances................................. 22,000 – – 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 – –
Payment to partner................. P(22,000) – – P(11,800) P(10,200) – –
Partnership Liquidation 85
Problem 4-1, continued:
Case 3
Journal Entries
Case 1:
Cash ..... .... ................................................................................................... 134,000
Rivas, Capital................................................................................................ 59,400
Briones, Capital ............................................................................................ 6,600
Other Assets ........................................................................................... 200,000
Liabilities .. ................................................................................................... 132,000
Cash ... ................................................................................................... 132,000
Rivas, Loan ................................................................................................... 18,000
Rivas, Capital ........................................................................................ 18,000
Briones, Capital ............................................................................................ 1,400
Rivas, Capital ........................................................................................ 1,400
Briones, Loan ................................................................................................ 20,000
Briones, Capital ............................................................................................ 2,000
Cash ................................................................................................... 22,000
Case 2:
Cash ..... .... ................................................................................................... 134,000
Rivas, Capital................................................................................................ 46,200
Briones, Capital ............................................................................................ 19,800
Other Assets ........................................................................................... 200,000
Liabilities .. ................................................................................................... 132,000
Cash ... ................................................................................................... 132,000
Rivas, Loan ................................................................................................... 6,200
Briones, Loan ................................................................................................ 9,800
Rivas, Capital ........................................................................................ 6,200
Briones, Capital ..................................................................................... 9,800
Rivas, Loan ................................................................................................... 11,800
Briones, Loan ................................................................................................ 10,200
Cash ... ................................................................................................... 22,000
86 Chapter 4
Problem 4 – 2
Partners' Capitals
A s s e t s Accounts Blando, Blando Castro
Cash Receivables Inventory Others Payable Loan (60%) (40%)
Balances before
liquidation.................... P 18,000 P75,000 P90,000 P84,000 P42,000 P 24,000 P102,000 P99,000
Collection of
receivables and
distribution of loss ....... _37,500 ( 75,000) _______ _______ _______ _______ ( 22,500) ( 15,000)
Balances ............................ 55,500 – 90,000 84,000 42,000 24,000 79,500 84,000
Realization of
inventory and
distribution of
loss ............................... _30,000 _______ ( 90,000) _______ _______ _______ ( 36,000) ( 24,000)
Balances ............................ 85,500 – – 84,000 42,000 24,000 43,500 60,000
Realization of other
assets and distribution
of loss .......................... _40,000 _______ _______ ( 84,000) _______ _______ ( 26,400) ( 17,600)
Balances ............................ 125,500 – – – 42,000 24,000 17,100 42,400
Payment of accounts
payable......................... ( 42,000) _______ _______ _______ ( 42,000) _______ _______ _______
Balances ............................ 83,500 – – – – 24,000 17,100 42,400
Payments to partners….. … P(83,500) – – – – P(24,000) P( 17,100) P(42,400)
Partnership Liquidation 87
Problem 4 – 3
a. Electric Company
Statement of Partnership Realization and Liquidation
June 30, 2011
Capital Balances
Amp. Noncash Liabil- Volt, Amp Volt Watt
Cash Loan Assets ities Loan 50% 30% 20%
Balances 20,000 15,000 135,000 30,000 10,000 80,000 36,000 14,000
Sale of
assets at a loss _95,000 ______ (135,000) ______ ______ (20,000) (12,000) ( 8,000)
115,000 15,000 -0- 30,000 10,000 60,000 24,000 6,000
Payment to
creditors _(30,000) ______ _______ (30,000) ______ _______ ______ ______
85,000 15,000 -0- -0- 10,000 60,000 24,000 6,000
Offset Amp,
receivable (15,000) (15,000)
Payments to partners:
Loan (10,000) (10,000)
Capitals _(75,000) ______ _______ _______ ______ (45,000) (24,000) ( 6,000)
Balances -0- -0- -0- -0- -0- -0- -0- -0-
b. (1) Cash 95,000
Amp, Capital 20,000
Volt, Capital 12,000
Watt, Capital 8,000
Noncash Assets 135,000
Sell noncash assets at a loss of P40,000.
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.
88 Chapter 4
Problem 4 – 4
Capital
Cash Other Assets Aida Bina Celia
(5) (4) (1)
Balances before liquidation. P80,000 P720,000 P320,000 P320,000 P160,000
Realization & dist. of loss ... 240,000 ( 720,000) ( 240,000) ( 192,000) ( 48,000)
Balances .... .... .................... 320,000 – 80,000 128,000 112,000
Settlement to partners ......... (320,000) _______ ( 80,000) ( 128,000) ( 112,000)
Problem 4 – 5
b. JJ, KK & LL
Statement of Liquidation
Other Capital
Cash Assets Liabilities JJ (4) KK(4) (LL(2)
Balances before liquidation... P50,000 P500,000 P60,000 P180,000 P240,000 P70,000
Realization & Dist. of gain ... 640,000 ( 520,000) _______ __56,000 __56,000 _28,000
Balances .... .... ...................... 690,000 – 60,000 236,000 296,000 98,000
Payment of liabilities ............ ( 60,000) ( 60,000)
Payment to Partners .............. (630,000) _______ _______ ( 236,000) ( 296,000) ( 98,000)
Partnership Liquidation 89
Problem 4 – 6
a. BB ................................................... P160,000
CC ................................................... P20,000
DD................................................... P60,000
EE ................................................... P –0–
C a p i t a l
Cash Liabilities BB (30%) CC (10%)DD (20%) EE (40%)
Balances before liquidation... P 0 P60,000 P160,000 P80,000 (P120,000) P(180,000)
Advances by BB to pay liabilities ( 60,000) 60,000
Deposit by DD ...................... 60,000 ______ _______ _______ __60,000 ________
Balances .... .... ...................... 60,000 –220,000 80,000 ( 60,000) ( 180,000)
Elimination of EE's deficiency ( 90,000) ( 30,000) ( 60,000) 180,000
Elimination of DD's deficiency ______ __( 90,000) ( 30,000) 120,000 –
Payment to partners............... 60,000 – 40,000 20,000 – –
Problem 4 – 7
Liabilities P a r t n e r s' C a p i t a l s
Assets Accounts Notes Peña Sayson Zobel Ayala Peña
Cash Noncash Payable Payable Loan (45%) (30%) (15%) (10%)
Balances before liquidation... P 15,000 P155,250 P11,250 P9,000 P 1,500 P 75,345 P 86,498 P(14,993) P1,650
Realization of assets and
distribution of gain .......... 185,000 ( 155,250) _______ ______ ______ 17,850 11,900 ______ ______
Balances ................................ 200,000 - 11,250 9,000 1,500 93,195 98,398 ( 14,993) 1,650
Payment of liabilities ............ ( 20,250) ________ ( 11,250) ( 9,000) ______ ______ ______ _______ ______
Balances ................................ 179,750 - - - 1,500 93,195 98,398 ( 14,993) 1,650
Additional loss to Sayson,
Zobel and Peña;
45:30:10 .......................... _______ ________ ________ ______ ______ ( 7,937) ( 5,292) 14,993 ( 1,764)
Balances ................................ 179,750 - - - 1,500 85,258 93,106 - (114)
Offset Peña's loan against
his capital deficiency ....... _______ ________ ________ ______ ( 114) ______ ______ _______ 114
Balances ................................ 179,750 - - - 1,386 85,258 93,106 -
Payments to partners ............. P(179,750) P(1,386) P(85,258) P(93,106)
90 Chapter 4
Problem 4 – 8
a. Art, Bea and Cid Partnership
Statement of Liquidation
June 4, 2011
b.
2011
July 5 Cash .... .... ................................ ............. .................. .................. 30,700
Art capital (P63,300 x 40%) ...... ............. .................. .................. 25,320
Bea capital (P63,300 x 40%) ..... ............. .................. .................. 25,320
Cid capital (P63,300 x 20%) ...... ............. .................. .................. 12,660
Other assets ...................... ............. .................. .................. 94,000
To record realization of other assets at a loss of P63,300.
c. 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, 2011
- Capital Balances -
Noncash G K G B
Cash Assets Liabilities Loan 20% 40% 40% -
Preliquidation balances 50,000 950,000 (480,000) (60,000) (240,000) (100,000) (120,000)
Sale of assets
and distribution
of 430,000 loss 520,000 950,000 - - 86,000 172,000 172,000
570,000 -0- (480,000) (60,000) (154,000) 72,000 52,000
Cash contributed
by B 50,000 - - - - - 50,000
620,000 -0- (480,000) (60,000) (154,000) 72,000 2,000
Distribution of deficit
of insolvent partner: (2,000)
20/60 (P2,000) 666
40/60 (P2,000) - - - - - 1,334 -
620,000 -0- (480,000) (60,000) (153,334) 73,334 -0-
Offset deficit with loan - - - 60,000 - (60,000) -
620,000 -0- (480,000) -0- (153,334) 13,334 -0-
Contribution by G 13,334 - (13,334) -
633,334 -0- (480,000) -0- (153,334) -0- -0-
Payment of creditors (480,000) - 480,000 - - - -
153,334 -0- -0- -0- (153,334) -0- -0-
Distribution to K (153,334) - - 153,334 - -
Postliquidation
balances -0- -0- -0- -0- -0- -0- -0- -
92 Chapter 4
KGB Partnership
Schedule of Distribution of Personal Assets
June 30, 2011
K G B
Personal assets, excluding partnership
capital and loan interests 500,000 600,000 700,000
Personal liabilities (460,000) (480,000) (650,000)
Personal net worth, excluding
partnership capital and loan
interests 40,000 120,000 50,000
Contribution to partnership (13,334)
Distribution from partnership 153,334 -0- - -0- -
Personal capacity 193,334 106,666 -0- -
Joint Venture 113
CHAPTER 6
6-1: a
Assets per Jessica Company- balance sheet P3,550,000
Jessica’s proportionate interest in assets of JV (50%) 1,000,000
Total assets of Jessica P4550,000
6-3: b
6-4: b
Investment of Heart P80,000
Profit share:
Sales 150,800
Cost of sales (150,800 ÷ 125%) 120,640
Gross profit 30,160
Expenses 10,000
Net Profit 20,160
Profit/loss ratio x 40% 8,064
Balance of investment in JV P88,064
6-5: a
Cash P190,000
Merchandise inventory 29,360
Accounts receivable 150,800
Total assets 370,160
Sweet Co’s, proportionate interest x 60%
Sweet Company’s share in total asset P222,096
6-6: a
Sales 7,200
Cost of sales
Purchases P10,000
Merchandise inventory, end (50% of P10,000) __5,000 _5,000
Gross profit 2,200
Expenses ___500
Net profit P 1,700
114 Chapter 6
6-7: b
Original investment (cash) P10,000
Profit share (P1,700 / 2) ___850
Balance of Investment account P10,850
6-8: a
Joint venture account before profit distribution (credit balance) P 9,000
Unsold merchandise __2,500
Joint venture profit before fee to Salas P11,500
6-9: b
Fee of Salas (P10,000 x 15%) P 1,500
Profit share of Salas (P10,000 x 25%) _2,500
Total P 4,000
6-10: b
Salas Salve
Balance before profit distribution P 500 (dr) P 2,000 (cr)
Profit share:Sabas (P10,000 x 40%) 4,000
Salve (P10,000 x 35%) ______ _3,500
Balance P 3,500 (cr) P 5,500 (cr)
6-11: d
Joint venture account balance before profit distribution (debit) P 6,000
Joint venture profit (P4,500 x 3) _13,500
Cost of unsold merchandise (inventory) taken by Dante P19,500
6-12: b
Edwin Capital:
Debits: Balance before profit distribution P14,000
Credits: Profit share __4,500
Due from Edwin (debit balance) P 9,500
Joint Venture 115
6-12, continued
6-13: a
JV account balance before profit distribution (cr) P 4,600
Unsold merchandise (required dr balance after profit distribution) __2,000
Joint venture profit before fee to Jerry P 6,600
Joint venture profit after fee (P6,600 / 110%) __6,000
Fee to Jerry P 600
6-14: d
Harry Capital Isaac Capital
Balances before profit distribution (P 200) P 1,800
Profit distribution:
Harry P6,000 x 50%) 3,000
Isaac (P6,000 x 20%) 1,200
Cash settlements P 2,800 P 3,000
6-15: b
Sales P14,000
Cost of sales:
Merchandise inventory, beg (contributions) P14,000
Freight 300
Purchases __4,000
Goods available for sale P18,300
Merchandise inventory, end (P8,300/2) __4,150 14,150
Gross profit (loss) (150)
Expenses (P400 + P200) __600
Net profit (loss) P( 750)
6-16: c
Contributions to the Joint Venture (P5,000 + P8,000) P13,000
Loss share (P750 x 50%) ( 375)
Unsold merchandise taken (withdrawal) ( 4,150)
Final settlement to jack P 8,475
116 Chapter 6
SOLUTIONS TO PROBLEMS
Problem 6 – 1
JV cash 200,000
Joint Venture 200,000
Computation of JV Profit
Distribution of Profit:
Problem 6 – 2
Requirement (1) - Books of the Joint Venture
2. Purchases 80,000
Supplies 2,000
Diaz capital 82,000
3. Expenses 9,000
Diaz capital 9,000
4. Cash 150,000
Sales 150,000
5. Expenses 30,000
Cash 30,000
Distribution of profit:
Income summary 12,000
Diaz capital 4,000
Ella capital 4,000
Fabia capital 4,000
118 Chapter 6
Problem 6-2, continued:
Requirement #2
Cash (110,000 x 44%) 48,000* Cash (110,000x38.5%) 42,350 Cash (110,000 x 17.5%) 19,000
C.E (105,000 x 44%) 46,000* CE (105,000 x38.5%) 40,000* CE (105,000 x 17.5%) 18,000
MI (2,500 x 44%) 1,100 MI (2,500 x 38.5%) 960* MI (2,500 x 17.5%) 400
Supplies (500 x 44%) 200* Supplies (500 x 38.5%) 190* Supplies (500 x 17.5%) 90
COS (97,500 x 44%) 42,900 COS (97,500 x 38.5%) 37.500* COS (97,500 x 17.5%) 17,000
Expense (40,500 x44%) 17,800 Exp (40,500 x 38.5%) 16,000* Exp (40,500 x 17.5%) 7,000
Inv. Income 4,000 Inv. Income 4,000 Inv. Income 4,000
Sales (150,000x44%) 66,000 Sales (150,000 x 38.5%) 57,000* Sales (150,000 x 17.5%) 26,000
Investment in JV 95,000 Investment in JV 84,000 Investment in JV 39,000
Note. Under the proportionate consolidation method, difference will exist in the journal entry
(see above) because the profit and loss ratio (equally) is not equal to the venturer’s capital
interest as computed below:
It may be concluded that the proportionate consolidation method can be properly applied only if
the profit and loss ratio and the venturer’s capital interest are equal.
Problem 6 – 3
7: JV cash 10,000
Bueno capital 10,000
To record settlements:
Books of Bueno
Cash 12,000
Investment in Joint Venture 12,000
Books of Castro
Cash 14,000
Investment in Joint Venture 14,000
7: Cash 10,000
Bueno capital 10,000
Sales 25,000
Income summary 25,000
Distribution of profit:
Settlements to Venturers:
Cash 2,500
Investment in Joint Venture 2,500
Problem 6 – 4
To record sales:
Computed as follows:
To record settlement:
Cash 32,687
Rolex capital 128,874
Times capital 14,099
JV cash 175,660
Computations:
Credits:April 1 P34,000
May 47,800
June 64,700
July 31,240
August 16,560
Profit share _80,574 __274,874
Credits:April 1 P 34,000
June 9,300
July 10,560
August 4,310
Profit share __13,429 _71,599
Credits:June P 30,000
July 65,000
August 125,500
Payment of loan _110,000 _330,500
Balance of JV cash 175,660
Less:Settlement to Rolex P128,874
Settlement to Timex __14,099 _142,973
Settlement to Seiko P 32,687
Current assets:
Investment in joint Venture:
Joint Venture assets:
Cash P 72,000
Joint Venture _175,500 P247,500
Less: Equity of other venturers
(P116,500 + P43,300) _159,800 87,700
Current liabilities:
Notes payable – PNB 34,000
Joint Venture 125
Problem 6-4, continued:
Computation of balances as of June 30, 2011:
Timex capital
P34,000 April
__9,000 June
P43,300
Problem 6 – 5
Problem 6 –6
Land 950,000
Cash 950,000
Paid for improvements.
Sales P2,600,000
Cost of land sold:
Land P2,400,000
Improvements 950,000
Total P3,350,000
Unsold land 2,205,000 1,145,000
Gross profit 1,455,000
Expenses:
Advertising and office expenses P 628,100
Interest on mortgage 40,250
Interest on advances 60,000
Commissions 130,000 858,350
Net gain P 596,650
Distributions:
MacDo (P596,650 x 60%) P 357,990
MacEn (P596,650 x 40%) 238,660
Assets
Cash P 250,000
Land 2,205,000
Total Assets P2,455,000
CHAPTER 7
7-1: c
7-2: d
Amount realized secured by inventory P120,000
Unsecured claim (P88,000 x 75%) __66,000
Total amount received P186,000
7-4: a
Realizable value:
Current assets P 50,000
Land and building P240,000
Less mortgage payable _200,000 __40,000
Total 90,000
Less accounts payable _160,000
Estimated deficiency to unsecured creditors 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 P 33,000
Buildings and equipment _110,000
Total P143,000
7-7: c
Free assets:
Other assets P 80,000
Excess from assets pledged with secured
Creditors (P116,000 – P70,000) __46,000
Total P126,000
7-8: a
The holder of Debt Two will rece ive 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 P230,000
Excess liability of Debt One in excess of pledged
Asset (P210,000 – P180,000) 30,000
Excess liability of Debt Two in excess of pledged
Asset (P170,000 – P100,000) __70,000
Total unsecured liabilities P330,000
Necessary percentage ____60%
Cash needed for these liabilities 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: a
Estate equity, beg. (P100,000 – P85,000) P 15,000
Loss on realization (P100,000 – P75,000) ( 25,000)
Unrecorded liabilities:
Interest expense P 250
Administrative expense 4,000 ( 4,250)
Estate deficit P( 14,250)
7-10: c
Total assets at net realizable value P 75,000
Fully secured liabilities (40,000)
Estimated administrative expense _( 4,000)
Estimated amount available P 31,000
Unsecured claims (P45,000 + P250) (45,250)
Estimated deficiency to unsecured creditors P 14,250
Corporation in Financial Difficulty – Liquidation 133
7-11: b
Assets pledged with fully secured creditors P185,000
Fully secured creditors _130,000 55,000
Free assets _160,000
Total free assets 215,000
Less: Liabilities with priority __35,000
Available to unsecured non-priority claims P180,000
7-12: b
Machinery P 10,000
Recoveries of unsecured claims (50,000 - 10,000) X .50 __20,000
Amount to be realized P 30,000
7-13: b
Notes Payable P 23,940
Less: Inventories _ 19,200
Unsecured Liabilities 4,740
% of recovery ____78%
Recovery 3,697
Add: Inventories _19,200
Amount to be received by Wood P 22,897
7-14: a - P7,000
7-15: a - P30,000
7-16: b - P57,200 [52,000 + (8,000 X .65)]
7-17: d - P72,800 (112,000 X .65)
7-18: d
Estimated loss:
Account Receivable P 8,160
Inventories (28,000 - 18,500) 9,500
Building (59,000 - 22,000) 3 7,000
Equipment (5,600 - 2,000) 3,600
Goodwill 5,650
Prepaid expenses ___430 P 64,340
Less: Stockholder's equity
Common stock P 72,000
Deficit ( 16,660) _55,340
Estimated deficiency P 9,000
134 Chapter 7
7-19: d
Accounts Receivable (39,350 - 16, 110) P 23,240
Notes Receivable (18,500 - 12,500) 600
Inventories (87,850 - 45,100) 42,750
Prepaid expenses 950
Equipment (48,800 - 9,000) __39,800
Total estimated loss P112,740
7-21: d
Total Free Assets:
Balance of Assets Pledged to
Fully Secured Creditor (95,000 - 90,000) P 5,000
Free Assets:
Cash P 2,700
Accounts Receivable 16,110
Inventories 45,100
Equipment __9,000 __72,910
Total 77,910
Less: Unsecured liabilities with priority (1,850 + 4,650) ___6,500
Net Free Assets P 71,410
Divide by Unsecured creditors:
Balance of Partially Secured Creditor
Notes Payable - PNB P 15,000
Notes Receivable __12,500 2,500
Accounts Payable 52,500
Notes Payable __51,250 103,750 ÷ P106,250
Estimated recovery % 67%
7-22: d
Fully secured (Notes Payable) P 90,000
Partially secured:
Notes Payable - PNB P12,500
Add (2,500 X 67%) __1,675 14,175
Unsecured Creditor with Priority 6,500
Unsecured Creditor without Priority (103,750 X 67%) __69,513
Total P180,188
Corporation in Financial Difficulty – Liquidation 135
7-23: a
Unsecured creditors without priority P1,102,500
Estimated deficiency to unsecured creditors:
Loss on realization 551,250
Estimated liquidation expenses 55,125
Total 606,375
Stockholders’ equity 441,000 165,375
Net free assets 937,125
Liabilities with priority 122,500
Free assets P 1,059,625
7-24: a
Estimated net gain (loss) on realization:
Gain on realization 78,750
Loss on realization (336,700) (257,950)
Estimated claims ( 43,750)
Total (301,700)
Stockholders equity 295,750
Estimated deficiency P( 5,950)
7-25: a
Notes payable (175,000 – 140,000) P 35,000
Unsecured liabilities (420,000 – 52,500) 367,500
Total 402,500
Net free assets (157,500 + 210,000) – P52,500 315,000
Estimated deficiency 87,500
7-26: a
Old receivable (net) P 38,000
Marketable securities 12,000
Old inventory 60,000
Depreciable assets- net 96,000
Total assets to be realized P206,000
7-27: a
Old receivable P 21,000
New receivable 47,000
Marketable securities 10,500
Sales of inventory 75,000
Total asset realized P153,500
7-28: a
Gain on sale of inventory (P75,000 – 60,000) 15,000
Loss on realization:
Marketable securities (12,000 – 10,500) 1,500
Trustee’s expenses 4,300
Depreciation 16,000 (21,800)
Net loss P( 6,800)
136 Chapter 7
7-29: Correction of the problem: The book value of the Mortgage Payable should be P440,000.
1. c
2. a
3. a
7-30: 1. a
Debits:
Assets to be realized P 330,000
Assets acquired 360,000
Liabilities liquidated 360,000
Liabilities not liquidated 450,000
Supplementary charges 468,000
Total P1,968,000
Credits:
Assets realized P 420,000
Assets not realized 150,000
Liabilities to be liquidated 540,000
Liabilities assumed 180,000
Supplementary credits P1,800,000
Net loss P 168,000
Corporation in Financial Difficulty – Liquidation 137
7-3-, continued:
2. a
7-31: 1. a
2. a
3. a
4. d
Supporting computations:
Realizable
Assets to be applied: Value
Inventory P 150,000 P130,000 P 20,000 P 150,000
Inventory 200,000 P200,000 200,000
Receivables 360,000 360,000 360,000
Equipment 300,000 300,000 300,000
Equipment 60,000 60,000 60,000
Land 260,000 192,000 68,000 260,000
Cash 60,000 P10,000 50,000 60,000
Other assets 45,000 45,000 45,000
Total P1,435,000 P322,000 P860,000 P10,000 P243,000 P1,435,000
5. d
Total consideration to be received by Note B:
Partially secured portion P300,000
Unsecured portion (P200,000 x 60.15%) 120,300
Total consideration received P420,300
138 Chapter 7
SOLUTIONS TO PROBLEMS
Problem 7 – 1
(A) Laguna Company
Statement of Affairs
October 31, 2011
Book Estimated
Value Assets Realizable Value Free Assets
Assets pledge for fully secured creditors:
P107,000 ... Plant assets .................................................. P67,400
Less; Fully secured liabilities...................... _ 50,400 P17,000
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 _51,500
Total free assets ............................................... P68,500
Less: Unsecured liabilities with priority.......... __7,000
Net Free Assets................................................ P61,500
Estimated deficiency to unsecured creditors (to balance) _20,500
P198,000 P82,000
Book Creditors' Unsecured
Value Liabilities & Stockholders' Equity Claim Liabilities
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 P 3,000
Unsecured creditors with priority:
5,800 ... ... Wages payable P 5,800
1,200 ... ... Property taxes payable ................................ _1,200
Total ............................................................ P 7,000
Unsecured creditors without priority:
60,000 ... ... Accounts payable ........................................ 60,000
19,000 ... ... Notes payable .............................................. 19,000
Stockholders' Equity........................................ _____–
P198,000 P82,000
(B) Creditor Group Amount of Amount to Percentage
Claim be Paid to be paid
Unsecured liabilities with priority .................................... P7,000 P7,000 100.0%
Fully secured creditors...................................................... 50,400 50,400 100.0%
Partially secured creditors................................................. 21,000 20,250 * 96.4%
Unsecured creditors without priority ................................ 79,000 59,250 75.0%
* P18,000 + (P3,000 X 0.75) = P20,250
(C) See statement of affairs in requirement (A)
Corporation in Financial Difficulty – Liquidation 139
Problem 7 – 2
VC Corporation
Statement of Realization and Liquidation
Month Ended January 31, 2011
Gain on realization ......... ............... ___7,600 Loss on realization ...... .............. ___6,200
Total ............................... ............... P213,000 Total ............................ .............. P213,000
VC Corporation
Statement of Financial Position
January 31, 2011
VC Corporation
Estate Deficit
January 31, 2011
Problem 7 – 4
Mapayapa Corporation
Statement of Affairs
November 1
Free assets:
66,000.... ... Cash............................................................. P 66,000
258,000.... ... Accounts receivable .................................... 193,500
291,000.... ... Merchandise inventory................................ 180,000
870,000.... ... Plant & equipment ...................................... 330,000
114,000.... ... Notes receivable .......................................... 108,300
–.... ... Patent........................................................... __12,000 _889,800
Total free assets........................................... 919,800
Less: Unsecured liabilities with priority.......... __13,800
Net free asset ............................................... 906,000
_________ Estimated deficiency (to balance) ................... 60,300
P1,839,000 Total ................................................................ P966,300
Unsecured creditor:
960,000.... ... Account payable.......................................... P960,000
Accrued expenses........................................ 6,300
300,000.... ... Capital stock
__369,000.... ... Retained earnings ............................................ _______
P1,839,000 Total ................................................................ P966,300
142 Chapter 7
Problem 7 – 5
P91,500
––––––– = 55.45%
P165,000
c. Distribution of P471,000:
Percent Total
Creditors Amount Realized Payment
Accounts payable P 95,000.... 55.45% P 52,678
Wages payable 9,500 .... 100% 9,500
Taxes payable 14,000..... 100% 14,000
Notes payable & interests 125,000 .... 100% 125,000
70,000 55.45% 38,815
Bonds payable & interests 231,000 .... 100% _231,000
Total estimated payment ........................................ P470,993
Corporation in Financial Difficulty – Liquidation 143
Problem 7 – 6
1. Evergreen Company
Statement of Affairs
June 30, 2011
Estimated Available for
Book Realizable Unsecured
Values ASSETS Values Creditors
Pledged with fully secured creditors:
P460,000 Land and building ..................................... P340,000
Less: Mortgage payable (including accrued interest) (330,000) P 10,000
Free Assets:
80,000 Cash ......................................................... P 80,000
140,000 Accounts receivable – net ......................... 126,000
100,000 Inventories ................................................ 84,000
120,000 Machinery – net ........................................ 40,000
100,000 Goodwill ................................................... _ _____0_ 330,000
Total free assets ........................................ ................... 340,000
Less: liabilities with priority ..................... ................... _140,000
Net free assets .......................................... ................... 200,000
Estimated deficiency (Squeeze figure) ..... ................... _130,000
P1,000,000 P330,000
Stockholders' Equity
400,000 Capital stock ............................................. ___
(200,000) Retained earnings (deficit) ........................ ................... P330,000
P1,000,000
Problem 7 – 7
Assets
Cash ..................... ................................................. ................... P242,000
CHAPTER 8
8-1: a
Trade accounts payable (P52,000 + P62,700) P114,700
12% preferred stock (5,000 x P1) P 5,000
Paid in capital in excess of par (5,000 x P9) 45,000
Cash (P62,700 x P0.80) _50,160 _100,160
Gain from discharge of indebtedness P 14,540
8-2: c
8-3: c
8-4: b
Carrying value of the note payable:
Principal P600,000
Interest __60,000 P660,000
Restructured value:
Principal P400,000
Interest _110,000 _510,000
Gain on debt restructuring P150,000
8-5: d
Other income:
Fair value of land P450,000
Books value of land _360,000
Other income P 90,000
Extraordinary gain:
Book value of note payable
Principal P500,000
Interest __60,000 P560,000
Fair value of land _450,000
Extraordinary gain P110,000
8-6: a
Book value of bonds payable P500,000
Par value of preferred stock (5,000 shares x P100) _500,000
No gain no loss P –0–
148 Chapter 8
8-7: a
8-8: a
Carrying value of debt:
Note payable P100,000
Interest payable __12,000 P112,000
Fair value machinery _(36,000)
Balance of debt P 76,000
Restructured debt:
Note payable P 50,000
Interest (P50,000 x .08 x 2) ___8,000 __58,000
Restructuring difference (gain) P 18,000
8-9: c
Principal P300,000
Interest payable (300,000 x 10%) __30,000
Carrying value P330,000
8-10: c
Correction: Should be P310,600
Restructured principal of note payable P260,000
Interest payable:
On book value (P300,000 x 10% 30%) P 9,000
On restructured (P260,000 x 8% x 2) _41,600 __50,600
Future cash flows to liquidate the debt P310,600
8-11: d
8-12: d
Loss on transfer of land:
Original cost P290,000
Market value _270,000 P 20,000
8-13: a
Transfer gain (loss):
Carrying amount of equipment P80,000
Fair value of equipment 75,000
Transfer loss P(5,000)
Restructuring gain:
Carrying amount of the debt P100,000
Fair value of equipment transferred 75,000
Restructuring gain P 25,000
8-14: d
Carrying amount of real estate transferred P100,000
Fair value of real estate 90, 000
Loss on restructuring of payables P(10,000)
8-15: d
Carrying amount of liability P150,000
Fair value of real estate transferred 90,000
Restructuring gain P 60,000
8-16: c
Gain on revaluation of land (120,000 – 85,000) P 35,000
Gain on the extinguishment of debt (185,000 – 120,000) 65,000
Total gain P100,000
8-17: a
Carrying value of debt (P800,000 + 80,000) P880,000
Total future payments (P700,000 + 80,000) 780,000
Restructuring gain P100,000
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
8-19: 1. b
2. a
Supporting computations:
Effect on Net Income
Alternative 1 Alternative 2
Gain on restructuring P30,000 (a) P 0 (b)
Interest expenses - (55,000) (c)
Increase (decrease) P30,000 (d) P(55,000)
8-20: b
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%) 264,000
Gain on debt discharge 36,000
To record settlement of liabilities
Problem 8 – 2
2011
July 24: Costs of reorganization 50,000
Cash with escrow agent 50,000
Problem 8 – 3
Jade Corporation
Statement of Financial Position
December 31, 2011
ASSETS
Current assets:
Cash P 23,000
Inventory 45,000 P 68,000
Property and equipment:
Land 140,000
Buildings 220,000
Equipment 154,000 514,000
Total asset P582,000
Stockholders' Equity
Common stock 200,000
Retained earnings (deficit ) (223,000) (23,000)
Total liabilities and stockholders' equity (deficit) P582,000
Problem 8 – 4
Preliminary computations:
Book values prior to reorganization:
Total assets (P100,000 + P112,000 + P420,000 + P78,000) .............. P710,000
Total liabilities (P80,000 + p35,000 + P100,000 + P200,000 +
P185,000 + P200,000) .................................................................. P800,000
Common stock (given) ....................................................................... P240,000
Deficit (given) .............................................................................. P330,000
Reorganization and Troubled Debt Restructuring 153
Problem 8-4, continued:
Book values after reorganization:
Total assets (reorganization value) ............................................................... P780,000
Total liabilities (P5,000 + P4,000 + P100,000 + P50,000 +
P71,000 + P110,000) ............................................................................. P340,000
Common stock (returned shares are reissued)............................................... P240,000
Deficit (eliminated) ..................................................................................... –0–
Additional paid in capital (squeeze).............................................................. 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........................................................................ 20,000
Inventory ..................................................................................... 22,000
Equipment ..................................................................................... 13,000
Additional paid in capital ............................................................... 70,000
To adjust accounts to market value as part of fresh start accounting.
Problem 8 – 5
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
Statement of Financial Position – Fresh Start Accounting
December 31, 2011
ASSETS
Current assets
Accounts receivable P 18,000
Inventory 111,000 P129,000
Property and equipment
Land and building 278,000
Machinery 121,000 399,000
Intangible assets
Patents 125,000
Reorganization value in excess of amount allocable to identifiable assets 147,000 272,000
Total assets P800,000
Stockholders' Equity:
Common stock P500,000
Additional paid in capital (squeeze) 18,000 518,000
Total liabilities and stockholders' equity P800,000
Installment Sales 155
CHAPTER 9
9-2: a
2009 2010 2011
Deferred gross profit, before adjustment P7,230 P 60,750 P 120,150
Deferred gross profit, end
2009 (6,000 X 35%) 2,100
2010 (61,500 X 33%) 20,295
2011 (195,000 X 30%) ___58,500
Realized gross profit, December 31, 2011 P5,130 P 40,455 P 61,650
(Total – P107,235)
9-3: c
9-4: b
Sales P1,000,000
Cost of installment sales __700,000
Deferred gross profit P 300,000
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000) P 600,000
Gross profit rate (300,000 ÷ 1,000,000) ___X 30% __180,000
Realized gross profit P 120,000
Operating expenses ___80,000
Operating income 40,000
Interest and financing charges __100,000
Net income P 140,000
156 Chapter 9
9-5: a
Market value of repossessed merchandise P 30,000
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000) P 50,000
Less: Deferred gross profit (50,000X20%) ___10,000 __40,000
Loss on repossession (P 10,000)
9-6: a
Installment sales P1,000,000
Less: collection on installment sales __200,000
Installment account receivables, 12/31/08 800,000
Gross profit rate (500,000 ÷ 1,000,000) ___X 50%
Deferred gross profit, 12/31/011 P 400,000
OR
9-7: d
Fair value of repossessed merchandise P120,000
Less: unrecovered cost
Unpaid balance P 200,000
Less: Deferred gross profit (200,000 X 32.5%) ___65,000 _135,000
Loss on repossession (P 15,000)
9-8: b
Realized gross profit:
Collections:
Downpayment P 35,000
Installment received (205,000-200,000) ___5,000
Total 40,000
Gross Profit Rate (150,000 ÷ 240,000) _X 62.5%
Realized gross profit P 25,000
9-10: c
Year of Sales
2010 2011
Deferred gross profit (Sales X Gross Profit Rate)
2010 (P300,000 X 30%) P 90,000
2011 (P450,000 X 40%) P 180,000
2010: Accounts written-off (P25,000 X 30%) ( 7,500)
Realized gross profit (P100,000 X 30%) ( 30,000)
2011: Accounts written-off, 2010 (P75,000 X 30%) ( 22,500)
Accounts written-off, 2011 (P50,000 X 40%) ( 60,000)
Realized gross profit, 2010 (P50,000 X 30%) ( 15,000)
Realized gross profit, 2011 (P150,000 X 40%) ________ ( 60,000)
Deferred gross profit, 12/31/011 (P75,000) P 15,000 P 60,000
9-11: a
Deferred gross profit, 2010 (P1,050,000 - 735,000) P 315,000
Realized gross profit, 2010 (P150,000 X 30%) ( 45,000)
Deferred gross profit, 12/31/010 270,000
Realized gross profit, 2011 (P390,000-90,000) X 30% ( 90,000)
Deferred gross profit, 12/31/011 P 180,000
158 Chapter 9
9-12: b
2010 2011
Deferred gross profit (Sales - Cost of Installment Sales) P 480,000 P450,000
Realized gross profit, 2010 (P630,000 X 40%) ( 252,000)
Realized gross profit, 2010 (P450,000 X 40%) ( 180,000)
Repossession (P2,400 x .40) (9,600)
Realized gross profit, 2011 (P900,000 X 30%) _______ ( 270,000)
Deferred gross profit, 12/31/011 (P218,400) P 38,400 P180,000
9-13: 1c
Trade-in value P 30,000
Less: Actual value
Estimated selling price P 25,000
Less: reconditioning cost P 1,250
normal gross profit (25,000 X 15%) __3,750 ___5,000 __20,000
Overallowance P 10,000
Realized gross profit:
Collection:
Downpayment P 5,000
Actual value of merchandise-Trade In 20,000
Installment collected (5,000 X 3) _15,000 P 40,000
9-16: a
Trade-in Value (P300 X 6) P 1,800
Less: Actual value
Estimated selling price (P315 X 6) P 1,890
Less:Reconditioning cost (P25 X 6) P150
Gross Profit (P1,890 X 10%) _189 ___339 ___1,551
Over-allowance P 249
9-17: a
Deferred gross profit, before adjustment P 76,000
Deferred gross profit, end
2010: P32,500 X (30% ÷ 130%) P 7,500
2011: P180,000 X (33 1/3% ÷ 133 1/3%) _45,000 __52,500
Realized gross profit on installment sales P 23,500
9-18: d
Unpaid balance (P27,000 - P16,000) P 11,000
Multiply by gross profit rate (P734,400 ÷ P2,160,000) ___X 34%
Deferred gross profit to be cancelled on repossession P 3,740
9-19: b
Collection:
2010 Downpayment P 600,000
2011 Installment collection 600,000
Interest __540,000
Total P1,740,000
Since cost is not yet fully recovered, then no gross profit is to be recognized in 2011.
9-20: d
Regular Sales P 187,500
Cost of regular sales __112,500
Gross profit on regular sales P 75,000
Add: Realized gross profit on installment sales
2010 (25,000 X 50%) P12,500
2011 (62,500 X 55%) _34,375 __46,875
Total realized gross profit 121,875
Operating expenses ___31,250
Net income, 12/31/011 P 90,625
160 Chapter 9
9-21: a
Installment sales – 2010 P785,000
Collections:
Down payment (20% x 785,000) P157,000
Installment (40% x 628,000) 251,200 408,200
Installment accounts receivable 2010, 12/31/010 376,800
Gross profit rate on sales 35/135
Deferred gross profit- 2010, 12/31/010 P 97,689
9-22: a
Regular sales P1,575,000
Cost of regular sales 1,050,000
Gross profit on regular sales 525,000
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%) 2,625,000
Installment accounts receivable-12/31/011 1,575,000
Collections 1,050,000
Gross profit on rate on sales 140/240 612,500
Total realized gross profit 1,137,500
Operating expenses (1,137,500 x 70%) 796,250
Net income, 12/31/011 P 341,250
9-23: a
Regular sales P375,000
Cost of regular sales 215,000
Gross profit on regular sales 160,000
Realized gross profit on installment sales:
Collections excluding Interest (312,000 – 24,000)288,000
Gross profit rate (270,000/900,000) 30% 86,400
Total realized gross profit 246,400
Loss on repossession
Fair value of repossessed merchandise 54,000
Less: Unrecovered cost (100,000 x 70%) 70,000 ( 16,000)
Total realized GP after loss on repossession 230,400
Less: Operating expenses 72,000
Installment accounts written-off (44,000 x .70) 30,800 102,800
Net operating income 127,600
Interest income 24,000
Net income P151,600
9-24: 1. a
Fair value of repossessed air conditioners (5 x P4,000) P20,000
Less unrecovered cost (P25,600 x 65%) 16,640
Loss on repossession P 3,360
Installment Sales 161
9-24, continued:
2. a
9-25: 1. a
9-24, continued:
2. a
9-25. c
9-26: 1. a
9-26, continued:
2. a
9-27: b
9-28 1. a
2. a
Supporting computations:
2009 2010 2011
Installment accounts receivable, 1/1/011 P180,000 P625,000 P900,000
Installment accounts receivable, 12/31/011 - 125,000 650,000
Collections (P930,000) P180,000 P500,000 P250,000
SOLUTIONS TO PROBLEMS
Problem 9 – 1
Journal Entries:
2009 2010 2011
Installment A/R–2009 ............... 104,000 – –
Installment A/R–2010 ............... – 116,000 –
Installment A/R–2011 ............... – – 121,000
Installment Sales ................. 104,000 116,000 121,000
Computations:
2009: P57,200 X .38 = P21,736
Problem 9 – 2
2010: Inventory ................................................................................................ 45,200
Cash................................................................................................ 45,200
Notes Receivable 2010 (P32,000 + P62,000 + 3,600) .......................... 97,600
Unearned Interest Revenue (P7,167 + P3,600).............................. 10,767
Installment Sales............................................................................. 86,833
Cost of Installment Sales (P45,200 – P2,000 inventory increase) ......... 43,200
Inventory ......................................................................................... 43,200
Cash ... ................................................................................................... 35,600
Notes Receivable 2010.................................................................... 35,600
Unearned Interest Revenue 2010 ........................................................... 3,600
Interest Revenue ............................................................................. 3,600
Installment Sales.................................................................................... 86,833
Cost of Installment Sales ................................................................ 43,200
Deferred Gross Profit on Installment Sales–2010.......................... 43,633
Deferred Gross Profit on Installment Sales–2010 ................................. 16,080*
Realized Gross Profit on Installment Sales .................................... 16,080
*Gross profit percentage: 50.25% (P43,633 ÷ P86,833)
.5025 x 32,000 = P16,080
2011: Inventory ................................................................................................ 52,020
Cash................................................................................................ 52,020
Notes Receivable–2008.......................................................................... 89,5001
Unearned Interest Revenue............................................................. 11,9552
Installment Sales............................................................................. 77,545
160,000 + (P50,000 + P5,500) – P26,000* = 89,500
*2010 Notes receivable collected in 2008
2Interest revenue from 2010 notes: P7,167 – P5,579 = P1,588
Interest revenue from 2011 notes: P5,500 – P1,588 = P3,912
Discount on notes receivable at end of 2011 ......................................... P 8,043
Interest revenue from 20011notes (see above)....................................... 3,912
Total discount at time of sale ................................................................. P11,955
Adjusting Entries:
Installment Sales ........................................................................................... 200,000
Cost of Installment Sales........................................................................ 114,000
Deferred Gross Profit on Installment sales – 2011 ............................... 86,000
Deferred Gross Profit – 2009 (P40,000 x 40%) ........................................... 16,000
Deferred Gross Profit – 2010 (P80,000 x 42%) ........................................... 33,600
Deferred Gross Profit – 2011 (P110,000 x 43%) ......................................... 47,300
Realized Gross Profit............................................................................. 96,900
Doubtful Accounts Expense (1/4 x 1% x P600,000)...................................... 1,500
Allowance for Doubtful Accounts .......................................................... 1,500
Closing Entries:
Sales ..... .... ................................................................................................... 600,000
Merchandise Inventory, December 31 .......................................................... 260,000
Shipments on Installment Sales ..................................................................... 114,000
Merchandise Inventory, January 1 ........................................................ 240,000
Purchases............................................................................................... 476,000
Selling Expenses .................................................................................... 210,000
Doubtful Accounts Expense ................................................................... 1,500
Income Summary ................................................................................... 46,500
Realized Gross profit .................................................................................... 96,900
Income Summary ................................................................................... 96,900
Income Summary........................................................................................... 143,400
Retained Earnings ................................................................................. 143,400
Installment Sales 167
Problem 9-3, continued:
3. Good Buy Mart
Statement of Comprehensive Income
Year Ended December 31, 2011
Problem 9 – 4
Computation:
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1.................... P76,000 P150,000
Less Installment contracts receivable, 12/31 ....... 24,000 76,000
Total credit for the period .................................... 52,000 74,000
Less Credit representing repossession ................. 4,000 –
Credit representing collections ............................ P48,000 P 74,000
Multiply by Gross profit rate ............................... 30% 35%
Realized gross profit ............................................ P14,400 P 25,900 P 40,300
3. Apple Company
Statement of Comprehensive Income
Year Ended December 31, 2011
Schedule 1
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1 ....................... P76 000 P150,000
Less Installment contracts receivable, 12/31 ........... 24,000 76,000
Total credit for the period ........................................ 52,000 74,000
Less Credit representing repossession ..................... 4,000 –
Credit representing collections ................................ P48,000 P 74,000
Multiply by Gross profit rate ................................... 30% 35%
Realized gross profit ................................................ P14,400 P 25,900 P40,300
Problem 9 – 5
Computation:
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1 ............. P82,000 P 80,000
Less Installment contracts receivable, 12/31. _ 36,000 _55,000
Total credit for the period.............................. 46,000 25,000
Less Credit representing repossession........... __6,000 ___ –
Credit representing collections...................... P40,000 P 25,000
Multiply by Gross profit rate......................... __35%* ___32%
Realized gross profit ..................................... P14,000 P 8,000 P 22,000
1. London Products
Schedule of Cost of Goods Sold
Year Ended December 31, 2011
2. London Products
Schedule of Allocation of Cost of Goods Sold
Year Ended December 31, 2011
3. London Products
Statement of Comprehensive Income
Year Ended December 31, 2011
Schedule 2
Problem 9 – 7
1. 2010 2011
2010
2010 installment sales (P400,000 x 42%*) .................................. P 168,000
2011:
2010 installment sales (P173,000 x 42%) .................................... P 72,660
2011 installment sales (P560,000 x 38.5%*) ............................... ________ __215,600
Deferred gross profit........................................................................... P 168,000 P 288,260
Schedule 1
Schedule 2
Computation:
Total Lot 1 Lot 2 Lot 3
Collections....................................... P78,000.00 P12,000.00 P16,000.00 P50,000.00
Apply to interest:
Lot 1 – P288,000.00 x 12% x 2/12 5,760.00
Lot 2 – P353,687.60 x 12% x 3/12 59,570.63 10,610.63
Lot 3 – P720,000.00 x 12% x 6/12 _________ _________ _________ _43,200.00
Apply to principal............................ P18,429.37 P 6,240.00 P 5,389.37 P 6,800.00
Computation:
Lot 1 Lot 2 Lot 3
Collections applied to principal....... P78,240.00 P51,701.77 P126,800.00
Multiply by Gross profit rates:
Lot 1 – P120,000 ÷ P360,000 ..... 33.33%
Lot 2 – P240,000 ÷ P400,000 ..... 60%
Lot 3 – P640,000 ÷ P840,000 ..... _________ _________ _____76%
Realized gain ................................... P26,080.00 P31,021.06 P96,368.00
Problem 9 – 9
Schedule 1
Total Cash Installment
Sales Price Received Notes Balance
A lots : 26 @ P150,000 ............................................... P3,900,000 P1,650,000 P 2,250,000
B lots : 32 @ P100,000 ................................................ 3,200,000 800,000 2,400,000
C lots : 12 @ P80,000.................................................. 960,000 240,000 720,000
........................................................ P8,060,000 P2,690,000 P 5,370,000
Schedule 2
Number of Unit Total
Class Lots Price Sales Value
A ... ...... .... ........................................................ 80 P150,000 P12,000,000
B .... ...... .... ........................................................ 100 100,000 10,000,000
C .... ...... .... ........................................................ 120 80,000 9,600,000
Total... ........................................................ 300 P31,600,000
Cost of tract:
Cost of land ................................................................................................... P 4,800,000
Legal fees, etc. .............................................................................................. 600,000
Grading contract............................................................................................ 225,000
Water and sewerage system contract ............................................................ 184,900
Paving contract ............................................................................................. 266,300
General office expenses (3/4 x P236,000) .................................................... 177,000
Total ..... .... ................................................................................................... P 6,253,200
P6,253,200
Cost rate : –––––––––––– = 20% (rounded off)
P31,600,000
Cost of sales (P8,060,000 x 20%)........................................................................... P 1,612,000
Installment Sales 177
Problem 9 – 10
Rizal Company
Statement of Comprehensive Income
Year Ended December 31, 2011
*See Schedule 3
Schedule 1
Schedule 2
Schedule 4
Fair market value of repossessed merchandise............................................ P 2,520
Less Unrecovered cost –
Unpaid balance:
Original sales amount (P14,000 x 4) ............................................ P 56,000
Collections prior to repossession.................................................. __1,200
Total . ........................................................................................... 54,800
Less Unrealized profit (P54,800 x 35%) ............................................ _19,180 _35,620
Loss on repossession ................................................................................... P33,100
Problem 9-11
The key to this solution is solving the gross profit rate for 2009 (3)
1. P39,000 (P50,000 – P11,000)
2. P11,000 (P60,000 x 0.22)
3. 22%: 2010 realized gross profit on 2010 cash collections, P5,000 (P20,000 x .25)
2010 realized gross profit on 2009 cash collections, P5,500 (P10,500 – P5,000)
Gross profit rate – 2009, 22% (P5,500 / P25,000 cash collections)
4. P5,000 (P1,100 / .22)
5. P60,000 (P80,000 – P20,000)
6. P20,000 (P80,000 x .25)
7. P120,000 (P91,000 + P28,200)
8. 23.5% (P28,200 / P120,000)
9. P25,275: 2011 realized gross profit on 2009 collections, (P10,000 x .22)
2011 realized gross profit on 2010 collections, (P50,000 x .25)
2011 realized gross profit on 2011 collections, (P45,000 x .235)
Installment Sales 179
Problem 9-12
Computations:
(a) P74,750 / .66 = P115,000
(b) P92,000 x .64 = P58,880
(c) 1 - (P62,830 / P103,000) = 39%
Problem 9-13
1. Repossessed Inventory
2010 repossessi0ns (P37,500 x 20%) P 7,500
2011 repossessions (P24,000 x 50%) 12,000 P19,500
Trade-In inventory:
Fair value P40,875
Sold 27,000 13,875
Total inventory P33,375
180 Chapter 9
CHAPTER 10
10-1: a
Percentage of Completion Method:
Contract Price P1,000,000
Less:Total estimated cost
Cost incurred P 200,000
Estimated remaining cost _400,000 __600,000
Gross profit estimated 400,000
% of completion (200,000/600,000) __33 1/3%
Gross profit to be recognized P 133,333
10-2: a P100,000
2007 2008
Contract Price P9,000,000 P9,000,000
Less: Total estimated cost _7,800,000 _8,100,000
Estimated gross profit 1,200,000 900,000
% of completion:
2007 (3,900,000/7,800,000) 50%
2008(6,300,000/8,100,000) _________ ______78%
Gross profit earned to date 600,000 700,000
Less: Gross profit earned in prior year ________– ___600,000
Gross profit earned each year P 600,000 P 100,000
10-3: a
Contract Price P6,000,000
Less: Total estimated cost (3,600,000 + 1,200,000) _4,800,000
Estimated gross profit 1,200,000
% of completion (3,600,000/4,800,000) _____75%
Gross profit earned to date 900,000
Less: Gross profit earned in 2007 __600,000
Gross profit earned in 2008 P 300,000
10-4: b
Contract Price P3,000,000
Less: Total estimated cost (930,000 + 2,170,000) _3,100,000
Loss (P 100,000)
182 Chapter 10
10-5: b
Total cost to date, 2011 (4,800,000 X 60%) P2,880,000
Less: Cost incurred in 2010 (4,500,000 X 20%) __900,000
Cost incurred in 2011 P1,980,000
10-6: a
Percentage of Completion Method:
Contract Price P3,000,000
Less: Total estimated cost (900,000/1,800,000) _2,700,000
Estimated gross profit 300,000
% of completion (900,000/2,700,000) ___33.33%
Gross profit recognized, 2010 100,000
Add: Cost Incurred ___900,000
Construction in Progress - 2010 P 1,000,000
10-7: a
2010 2011
Contract Price P4,200,000 P4,200,000
Less: Total estimated cost _3,000,000 _3,750,000
Estimated gross profit 1,200,000 450,000
% of completion _____20% ____100%
Gross Profit earned to date 240,000 450,000
Gross Profit earned in prior year _______– __240,000
Gross Profit earned this year P 240,000 P 210,000
10-8: b
Collections:
Contract Billings P 47,000
Less: Accounts receivable ___15,000
Collections P 32,000
10-9: a
10-10: b
10-12: d
10-13: d
10-14: d
Project 1 Project 2
Percentage of Completion Method:
Contract price P 420,000 P 300,000
Less: Total estimated cost
Cost incurred to date - 2011 P 240,000 P 280,000
Estimated cost to complete __120,000 ___70,000
Total __360,000 __350,000
Estimated gross profit (Loss) 60,000 (50,000)
Percentage of completion __66.67% _______–
Profit (loss) to be recognized P 40,000 (P 50,000)
Total is (P10,000)
10-15: a
2009 2010 2011
Contract price (cost X 120%) P3,744,000 P3,744,000 P3,744,000
Less: Total estimated costs
(1) Cost incurred to date 546,000 1,544,400 3,120,000
Estimated cost to complete _2,054,000 _1,315,000 ________–
(2) Total _2,600,000 _2,860,000 _3,120,000
Estimated gross profit 1,144,000 884,000 624,000
Percentage of completion (1 ÷ 2) _____20% _____54% ____100%
Gross profit earned to date 240,240 477,360 624,000
Gross profit earned in prior years _______– __240,240 __477,360
Gross profit earned this year P 240,240 P 237,120 P 146,640
10-16: d
2010 2011
Contract price P6,300,000 P6,300,000
Less: Total estimated cost
Cost incurred to date 1,425,000 3,040,000
Estimated cost to complete _4,075,000 _1,960,000
Total P5,500,000 P5,000,000
Estimated gross profit 800,000 1,300,000
Percentage of completion:
2010 (1,425,000 - 50,000) ÷ 5,500,000 25%
2011 (3,040,000 - 50,000) ÷ 5,000,000 ________– __59.80%
Profit earned to date 200,000 777,400
Less: Gross profit earned in prior year ________– __200,000
Gross profit earned this year P 200,000 P 577,400
Long-Term Construction Contracts 185
10-17: a
Cash collections:
Progress billings P1,500,000
Less: Accounts receivable, end __500,000
Collection P1,000,000
Zero Profit Method : P210,000 gross profit earned in 2011 for Apartment B.
10-19: d
2010 2011
Contract price:
2010 P6,000,000
2011 (P6,000,000-P50,000) _________ P5,950,000
Less: Total estimated costs
(1) Cost incurred to date 2,340,000 2,650,000
Estimated cost to complete 260,000 –
(2) Total estimated cost 2,600,000 2,650,000
Estimated Gross Profit 3,400,000 3,300,000
Percentage of completion (1 ÷ 2) ____90% ___100%
Gross profit earned to date 3,060,000 3,300,000
Less: Gross profit earned in Prior year _______– 3,060,000
Gross Profit earned this year P3,060,000 P 240,000
186 Chapter 10
10-20: a
2009 2010 2011
(1)Cost incurred to date P3,400,000 P5,950,000 P6,150,000
(2)Estimated cost to complete 1,600,000 150,000 –
(3)Total Estimated Costs 5,000,000 6,100,000 6,150,000
2010 2011
Gross profit earned P 255,000 P 429,000
General and administrative expenses 120,000 120,000
Net income P 135,000 P 309,000
10-24: c
Contract price P10,000,000
Gross profit earned to date, 2008 (P900,000 – P100,000) 800,000
Total cost to date, 2011 9,200,000
Less: cost incurred in 2011 4,100,000
Cost to date, 2010 P 5,100,000
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 550,000
Less: Contract billings (P2,500,000 x 30%) 750,000
Excess of contract billings over construction in progress (CL) P( 200,000)
188 Chapter 10
10-26: a
Contract price P120,000,000
Total estimated cost:
Cost incurred to date:
Site labor cost 10,000,000
Cost of construction materials 30,000,000
Depreciation of special plant & equip 5,000,000
Total 45,000,000
Estimated cost to complete 55,000,000 100,000,000
Estimated gross profit 20,000,000
Percentage of completion (45/100) 45%
Gross profit to be recognized P 9,000,000
10-27: a
Cost incurred to date- 2010
Total estimated cost (8,000,000 / 40%) 20,000,000
Estimated cost to complete 8,000,000 P12,000,000
Cost incurred in 2010 3,700,000
Cost incurred in 2009 8,300,000
Estimated cost at completion- 2009 12,450,000
Total estimated cost- 2009 P20,750,000
10-28: a
2010
Contract 1 Contract 2
Contract price P600,000 P450,000
Total estimated cost:
Cost incurred to date 150,000 87,500
Estimated cost to complete 150,000 162,500
Total estimated cost 300,000 250,000
Estimated gross profit 300,000 200,000
Percentage of completion 50% 35%
Gross profit recognized P150,000 P70,000
2011
Contract 1 Contract 2 Contract 3
Contract price 600,000 450,000 900,000
Total estimated cost 350,000 300,000 500,000
Estimated gross profit 250,000 150,000 400,000
Percentage of completion 80% 60% 36%
Gross profit earned to date 200,000 90,000 144,000
Gross profit earned in 2007 150,000 70,000 -
Gross profit earned this year 50,000 20,000 144,000
10-30: a
Contract price P40,825,000
Total estimated cost:
Cost incurred 8,475,000
Estimated cost to complete 28,400,000 36,875,000
Estimated gross profit 3,950,000
Percentage of completion 22.983%
Gross profit recognized P 907,830
10-31: a
Cost of direct materials used P220,000
Cost of direct labor, including supervision 150,000
Cost of indirect materials used 55,000
Depreciation of plant and equipment used on the contract 120,000
Payroll of design and technical department 80,000
Insurance costs 60,000
Costs of contracted research and development activities 105,000
General and administrative expenses 30,000
Borrowing costs 130,000
Total cost incurred to date P930,000
190 Chapter 10
10-32: 1. a
Project 1 Project 2
Contract price P420,000 P150,000
Less total estimated costs 180,000 175,000
Estimated gross profit (loss) 240,000 (25,000)
% of completion:
Project 1 (P120,000 / P180,000) 66.67%
Project 2 100%
Realized gross profit (loss) 160,000 (25,000)
Expenses 10,000 5,000
Net income (loss), Dec. 31, 2011, P120,000 P150,000 P(30,000)
2. a, Project 2 only.
10-33: a
AA BB CC DD
Contract price P384,000,000 P35,000,000 P175,000,000 P99,400,000
Total estimated costs 350,240,000 30,552,000 143,640,000 91,200,000
Estimated gross profit 33,760,000 4,448,000 31,360,000 8,200,000
% of completion * 5% 75% 75% 50%
Realized gross profit P1,688,000 P3,336,000 P23,520,000 P4,100,000
1. a
Realized gross profit P374,000
Operating expenses 90,000
Net income P284,000
2. a
Construction in progress (P770,000 + P3,850,000) P4,620,000
Contract billings 3,100,000
Balance P1,520,000
3. a
Construction in progress P2,850,000
Contract billings 3,100,000
Balance 750,000
192 Chapter 10
SOLUTIONS TO PROBLEMS
Problem 10 – 1
(a) 2010 2011
Contract Price P 450,000 P 450,000
Less: Total estimated cost
(1) Cost incurred to date 200,000 320,000
Estimated costs to complete __100,000 _______–
(2) Total __300,000 _320,000
Estimated gross profit 150,000 130,000
Percentage of completion (1 ÷ 2) ______2/3 ___100%
Estimated gross profit to date 100,000 130,000
Less: Gross profit earned in prior year _______– __100,000
Gross profit earned this year P 100,000 P 30,000
Problem 10 – 4
Problem 10 – 5
Problem 10 – 6
Problem 10 – 7
(4) The following entry would be the only one different from (2).
Problem 10 – 8
(1) 2009 2010 2011
Contract Price P6,500,000 P6,500,000 P6,500,000
Less: Total Estimated Costs
Cost incurred to date 2,150,000 5,250,000 6,850,000
Estimated costs to complete _3,850,000 _1,500,000 ________–
Total _6,000,000 _6,750,000 _6,850,000
Estimated gross profit (loss) 500,000 (250,000) (350,000)
Less: Gross profit (loss) in prior yrs. ________– ___520,000 _(250,000)
Gross profit (loss) this years P 520,000 P( 250,000) P( 600,000)
Problem 10-9
1
Prior to 2011 2011
Total revenue all buildings P12,707,500 P10,853,385
Total costs – all buildings 11,388,000 10,940,885
Total gross profit – all buildings P1,319,500 P (87,500)
CHAPTER 11
11-1: b
No revenue is to be reported. Because the franchisor fails to render substantial
services to the franchisee as of December 31, 2011.
11-2: c
Initial franchise fee P5,000,000
Less: Cost of franchise ____50,000
Net income 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 P 100,000
Collection of note applying to principal __200,000
Revenue from initial franchise fee P 300,000
11-5: a
Cash downpayment, January 2, 2008 P2,000,000
Collection applying to principal, December 31, 2008 _1,000,000
Total Collection 3,000,000
Gross profit rate [(5,000,000-500,000) ÷ 5,000,000] _____90%
Realized gross profit, December 31, 2008 P2,700,000
11-6: b
Face value of the note (P1,200,000 - P400,000) P 800,000
Present value of the note (P200,000 X 2.91) __582,000
Unearned interest income, July 1, 2008 P 218,000
11-7: d
Initial franchise fee P1,200,000
Less: unearned interest income __218,000
Deferred revenue from franchise fee P 982,000
11-8: d
Initial franchise fee P 500,000
Continuing franchise fee (P400,000 X .05) ___20,000
Total revenue 520,000
Cost ___10,000
Net income P 510,000
Franchise Accounting 199
11-9: b
Deferred Revenue from franchise fee:
Downpayment P6,000,000
Present value of the note (P1,000,000 X 2.91) 2,910,000 P8,910,000
Less: Cost of franchise fee _2,000,000
Deferred gross profit P6,910,000
11-10: b
Face value of the note receivable P1,800,000
Present value of the note receivable 1,263,900
Unearned interest income P 536,100
11-11: b
Revenues from:
Adjusted sales value of IFF (P1,000,000 – 282,260) P 717,740
Continuing franchise fee (P2,000,000 X .05) 100,000
Total revenue from franchise fees P817,740
11-12: a
Realized gross profit from initial franchise fee [(350,000 + 180,000) x 37%] P 196,100
Continuing franchise fee (P121,000 + P147,500) x 5% ___13,425
Total revenue 209,525
Expenses ___42,900
Net operating profit 166,625
Interest income (P900,000 x 15%) x 6/12 ___67,500
Net income P 234,125
9-18: d
Unpaid balance (P27,000 - P16,000) P 11,000
Multiply by gross profit rate (P734,400 ÷ P2,160,000) ___X 34%
Deferred gross profit to be cancelled on repossession P 3,740
9-19: b
Collection:
2010 Downpayment P 600,000
2011 Installment collection 600,000
Interest __540,000
Total P1,740,000
Since cost is not yet fully recovered, then no gross profit is to be recognized in 2011.
9-20: d
Regular Sales P 187,500
Cost of regular sales __112,500
Gross profit on regular sales P 75,000
Add: Realized gross profit on installment sales
2010 (25,000 X 50%) P12,500
2011 (62,500 X 55%) _34,375 __46,875
Total realized gross profit 121,875
Operating expenses ___31,250
Net income, 12/31/011 P 90,625
160 Chapter 9
9-21: a
Installment sales – 2010 P785,000
Collections:
Down payment (20% x 785,000) P157,000
Installment (40% x 628,000) 251,200 408,200
Installment accounts receivable 2010, 12/31/010 376,800
Gross profit rate on sales 35/135
Deferred gross profit- 2010, 12/31/010 P 97,689
9-22: a
Regular sales P1,575,000
Cost of regular sales 1,050,000
Gross profit on regular sales 525,000
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%) 2,625,000
Installment accounts receivable-12/31/011 1,575,000
Collections 1,050,000
Gross profit on rate on sales 140/240 612,500
Total realized gross profit 1,137,500
Operating expenses (1,137,500 x 70%) 796,250
Net income, 12/31/011 P 341,250
9-23: a
Regular sales P375,000
Cost of regular sales 215,000
Gross profit on regular sales 160,000
Realized gross profit on installment sales:
Collections excluding Interest (312,000 – 24,000)288,000
Gross profit rate (270,000/900,000) 30% 86,400
Total realized gross profit 246,400
Loss on repossession
Fair value of repossessed merchandise 54,000
Less: Unrecovered cost (100,000 x 70%) 70,000 ( 16,000)
Total realized GP after loss on repossession 230,400
Less: Operating expenses 72,000
Installment accounts written-off (44,000 x .70) 30,800 102,800
Net operating income 127,600
Interest income 24,000
Net income P151,600
9-24: 1. a
Fair value of repossessed air conditioners (5 x P4,000) P20,000
Less unrecovered cost (P25,600 x 65%) 16,640
Loss on repossession P 3,360
Installment Sales 161
9-24, continued:
2. a
9-25: 1. a
9-24, continued:
2. a
9-25. c
9-26: 1. a
9-26, continued:
Fair value of merchandise traded in (downpayment) P120,500
Installment collected (517,500 – P120,500) / 10 x 6 238,200
Total collections P358,700
Gross profit rate 20%
Realized gross profit – Mew merchandise P 71,740
Realized gross profit – Repossessed merchandise:
Sales price P128,750
Cost of repossessed merchandise 103,000 25,750
Total realized gross profit P 97,490
2. a
9-27: b
9-28 1. a
2. a
Supporting computations:
2009 2010 2011
Installment accounts receivable, 1/1/011 P180,000 P625,000 P900,000
Installment accounts receivable, 12/31/011 - 125,000 650,000
Collections (P930,000) P180,000 P500,000 P250,000
SOLUTIONS TO PROBLEMS
Problem 9 – 1
Journal Entries:
2009 2010 2011
Installment A/R–2009 ............... 104,000 – –
Installment A/R–2010 ............... – 116,000 –
Installment A/R–2011 ............... – – 121,000
Installment Sales ................. 104,000 116,000 121,000
Computations:
2009: P57,200 X .38 = P21,736
Problem 9 – 2
2010: Inventory ................................................................................................ 45,200
Cash................................................................................................ 45,200
Notes Receivable 2010 (P32,000 + P62,000 + 3,600) .......................... 97,600
Unearned Interest Revenue (P7,167 + P3,600).............................. 10,767
Installment Sales............................................................................. 86,833
Cost of Installment Sales (P45,200 – P2,000 inventory increase) ......... 43,200
Inventory ......................................................................................... 43,200
Cash ... ................................................................................................... 35,600
Notes Receivable 2010.................................................................... 35,600
Unearned Interest Revenue 2010 ........................................................... 3,600
Interest Revenue ............................................................................. 3,600
Installment Sales.................................................................................... 86,833
Cost of Installment Sales ................................................................ 43,200
Deferred Gross Profit on Installment Sales–2010.......................... 43,633
Deferred Gross Profit on Installment Sales–2010 ................................. 16,080*
Realized Gross Profit on Installment Sales .................................... 16,080
*Gross profit percentage: 50.25% (P43,633 ÷ P86,833)
.5025 x 32,000 = P16,080
2011: Inventory ................................................................................................ 52,020
Cash................................................................................................ 52,020
Notes Receivable–2008.......................................................................... 89,5001
Unearned Interest Revenue............................................................. 11,9552
Installment Sales............................................................................. 77,545
160,000 + (P50,000 + P5,500) – P26,000* = 89,500
*2010 Notes receivable collected in 2008
2Interest revenue from 2010 notes: P7,167 – P5,579 = P1,588
Interest revenue from 2011 notes: P5,500 – P1,588 = P3,912
Discount on notes receivable at end of 2011 ......................................... P 8,043
Interest revenue from 20011notes (see above)....................................... 3,912
Total discount at time of sale ................................................................. P11,955
166 Chapter 9
Problem 9 – 3