Republic of the Philippines Document Code: CBM-BF-026

UNIVERSITY OF ANTIQUE Revision No.: 00

Sibalom, Antique
Telefax No. (036) 543-8161 Effectivity Date: January 2016
E-mail: ua@antiquespride.edu.ph Page: 1 of 2

COLLEGE OF BUSINESS AND MANAGEMENT

cbm@antiquespride.edu.ph
MIDTERM EXAMINATION
ADVANCE ACCOUNTING I
TEST III – Long Problems. Sixty (60) points.
1. Sonny and Rey form a partnership. On January 1, 2018, Sonny invests a building worth P252,000 and
equipment valued at P116,000 as well as P132,000 in cash. Although Rey makes no tangible contribution to the
partnership, he will operate the business and be an equal partner in the beginning capital balances.
The partnership contract provided the following agreement:
 Sonny will be credited annually with interest equal to 10% of the beginning capital balance for the year.
 Sonny will also have added to his capital account 10% of partnership income each year(without regard
for the preceding interest figure) or P15,000, whichever is greater. All remaining income is credited to
Rey.
 Neither partner is allowed to withdraw funds from the partnership during 2018. Thereafter, they can
each draw out of P20,000 annually or 10% of the beginning capital balance for the year, whichever is
greater.

A net loss of P 30,000 is reported by the partnership during the first year of its operation. On January 1, 2019,
Glenn becomes a third partner in this business by contributing P 125,000 cash to the partnership. Glenn receives
a 20% share of the business’ capital. The profit and loss agreement is altered as follows:
 Sonny is still entitled to (1) interest on his beginning capital balance as well as (2) the share of
partnership income just specified.
 Any remaining profit or loss will be split on a 6:4 basis between Rey and Glenn, respectively.

Partnership income for 2019 is reported as P 100,000. Each partner withdraws the full amount that is
allowed.

On January 2020, Glenn falls ill and sells his interest in the partnership (w/ the consent of the other two
partners) to Karen. Karen pays P 150,000 directly to Glenn. Net Income for 2020 is P 50,000 with partners again
taking their full drawing allowance.

On January 1, 2021, Karen elects to withdraw from the business for personal reasons. The partnership contract
contains a provision stating that any partner may leave the partnership at any time and its entitled to receive cash
in an amount equal to the recorded capital balance at that time plus 5%.

Required: (a) Prepare journal entries to record the previous transactions on the assumption that the GOODWILL
method is used. Drawings need not be recorded, though it should be included in the closing
entries.(round off all amounts to the nearest peso.) Twenty Seven (27) points.
(b) Prepare Statement of Financial Position. Eight (8) points.

2. Assume that the firm of S, J and T, SJT Merchandising decides to liquidate. All partnership assets are to be
converted into cash. S and J are insolvent while T is solvent. They share profits and losses 50%, 30%, 20%
respectively. A balance sheet is prepared on June 30, 2018 just before liquidation, showed the following
balance:

SJT Merchandising
Balance Sheet
June 30, 2018
Assets Liabilities and Partner’s Equity
Cash P 5,000 Accts. Payable P 44,000
Accounts Receivables P25,000 Advances from S 15,000
Less: All. for Doubtful Accts. 4,000 21,000 S, Capital 20,000
Advances to J 3,000 J, Capital 20,000
Merchandise Inventory 30,000 J, Drawing (5,000)
Goodwill 15,000 T, Capital 15,000
Equipment 41,000
Less: Accum. Dep’n. 6,000 35,000

Total Assets P 109,000 Total Liability and Capital P 109,000

 Republic of the Philippines Document Code: CBM-BF-026
UNIVERSITY OF ANTIQUE Revision No.: 00
Sibalom, Antique
Telefax No. (036) 543-8161 Effectivity Date: January 2016
E-mail: ua@antiquespride.edu.ph Page: 2 of 2

The assets were realized as follow:

a. The accounts receivables were realized at P 12,000.
b. The merchandise inventory was sold for P13,000.
c. The equipment was sold for P 10,000.
Other information.
- Partner S has a positive personal net worth of P 8,000.
- Partner J has a negative personal net worth of P 3,000.
- Partner T has a positive personal net worth of P 15,000.

Required: (a) Prepare statement of liquidation. Ten (10) points.

(b) Prepare necessary journal Entries. Fifteen (15) points

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Prepared by: Checked and Verified by:

ALWIN B. PIANSAY, CPA NIMROD A. YBERA, CPA, MBA

Subject Instructor Program Head

Approved by:

CATHERINE C. VIESCA, CPA, MBA

Dean, CBA