Advance Accounting Book 1

Partnership Basic Considerations and Formation
CHAPTER 1
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
1-1: a
1-2: b
1-2: c
Jose's capital should be credited for the market value of the computer contributed by
him.
(40,000 + 80,000) 2/3 = 180,000 x 1/3 = 60,000.
1-3: a
Cash
Land
Mortgage payable
P100,000
300,000
( 50,000)
Net assets (Julio, capital)
P350,000
Total Capital (P300,000/60%)

Perla's interest
P500,000
______40%
Perla's capital
Less: Non-cash asset contributed at market value
Land
P 70,000
Building
90,000
Mortgage Payable
( 40,000)
P200,000
Cash contribution
P 80,000
1-4: b
1-5: d
_120,000
- Zero, because under the bonus method, a transfer of capital is only required.
1-6: b
Reyes
Santos
P200,000
Cash
Inventory
Building
Equipment
Mortgage payable
________
P300,000
150,000
400,000
150,000
( 100,000)
Net asset (capital)
P350,000
P750,000
AA
BB
CC
P55,000
P55,000
1-7: c
Cash
Property at Market Value
Mortgage payable
Equipment at Market Value
P 50,000
_______
P 80,000
( 35,000)
_______
Capital
P 50,000
P 45,000
Chapter 1
1-8: a
PP
RR
SS
Cash
Computer at Market Value
P 50,000
__25,000
P 80,000
_______
P 25,000
__60,000
Capital
P 75,000
P 80,000
P 85,000
Maria
Nora
1-9: c
Cash
Merchandise inventory
Computer equipment
Liability
Furniture and Fixtures
P 30,000
200,000
P 90,000
160,000
( 60,000)
________
Total contribution
P230,000
P190,000
Total agreed capital (P230,000/40%)

Nora's interest
P575,000
______60%
Nora's agreed capital

Less: investment
P345,000
190,000
Cash to be invested
P155,000
1-10: d
Roy
Sam
Tim
Cash
Office Equipment
Note payable
P140,000
________
P220,000
_( 60,000)
______
Net asset invested
P140,000
P160,000
Agreed capitals, equally (P300,000/3) =
P100,000
1-11: a
Lara
Mitra
Cash
Computer equipment
Note payable
P130,000
________
P200,000
50,000
_( 10,000)
Net asset invested
P130,000
P240,000
Goodwill (P240,000 - P130,000) =
P110,000
1-12: a
Perez
Reyes
Cash
Office Equipment
Merchandise
Furniture
Notes payable
P 50,000
30,000
_______
P 70,000
110,000
100,000
( 50,000)
Net asset invested
P 80,000
P230,000
Bonus Method:
Total capital (net asset invested)
P310,000
Goodwill Method:
Net assets invested
Add: Goodwill (P230,000-P80,000)
P310,000
_150,000
Net capital
P460,000
1-13: b
Required capital of each partner (P300,000/2)
Contributed capital of Ruiz:
Total assets
P105,000
Less Liabilities
__15,000
P150,000
Cash to be contributed by Ruiz
P 60,000
__90,000
1-14: d
Total assets:
Cash
Machinery
Building
Less: Liabilities (Mortgage payable)
P 70,000
75,000
_225,000
P370,000
__90,000
Net assets (equal to Ferrer's capital account)

Divide by Ferrer's P & L share percentage
P280,000
____70%
Total partnership capital
P400,000
Required capital of Cruz (P400,000 X 30%)

Less Assets already contributed:
Cash
P 30,000
Machinery and equipment
25,000
Furniture and fixtures
__10,000
P120,000
Cash to be invested by Cruz
P 55,000
__65,000
1-15: d
Adjusted assets of C Borja
Cash
P 2,500
Accounts Receivable (P10,000-P500)
9,500
Merchandise inventory (P15,000-P3,000) 12,000
Fixtures
__20,000
Asset contributed by D. Arce:
Cash
P 20,000
Merchandise
__10,000
__30,000
Total assets of the partnership
P 74,000
P 44,000
Chapter 1
1-16: a
Cash to be invested by Mendez:
Adjusted capital of Lopez (2/3)
Unadjusted capital
Adjustments:
Prepaid expenses
Accrued expenses
Allowance for bad debts (5% X P100,000)
P158,400
17,500
( 5,000)
_( 5,000)
Adjusted capital
P165,900
Total partnership capital (P165,900/2/3)

Multiply by Mendez's interest
P248,850
Mendez's capital
Less Merchandise contributed
P 82,950
__50,000
Cash to be invested by Mendez
P 32,950
Total Capital:
Adjusted capital of Lopez
Contributed capital of Mendez
P165,900
__82,950
Total capital
P248,850
1-17: d
Moran, capital (40%)
Cash
Furniture and Fixtures
Divide by Moran's P & L share percentage
P 15,000
_100,000

Multiply by Nakar's P & L share percentage
Required capital of credit of Nakar:
Contributed capital of Nakar:
Land
Building
Total assets
Less Liabilities
Required cash investment by Nakar
P115,000
______40%
P287,500
______60%
P172,500
P 45,000
15,000
__65,000
P125,000
__30,000
P 95,000
P 77,500
1-18: c
Garcia's adjusted capital (see schedule 1)
Divide by Garcia's P & L share percentage
P40,500
______40%

Flores' P & L share percentage
P101,250
______60%
Flores' capital credit

Flores' contributed capital (see schedule 2)
P 60,750
__43,500
Additional cash to be invested by Flores
P 17,250
Schedule 1:
Garcia, capital:
Unadjusted balance
Adjustments:
Accumulated depreciation
Allowance for doubtful account
P 49,500
( 4,500)
( 4,500)
Adjusted balance
P 40,500
Schedule 2:
Flores capital:
Unadjusted balance
Adjustments:
Allowance for doubtful accounts
P 57,000
( 1,500)
( 12,000)
Adjusted balance
P 43,500
1-19: d
Ortiz
Ponce
Total
( 60%)
( 40%)
P133,000
P108,000
P241,000
Unadjusted capital balances

Adjustments:
Allowance for bad debts
Inventories
Accrued expenses
( 2,700)
3,000
_( 2,400)
Adjusted capital balances
P130,900
( 1,800)
2,000
( 1,600)
P106,000
( 4,500)
5,000
( 4,000)
P237,500
Total capital before the formation of the new partnership (see above) P237,500
Divide by the total percentage share of Ortiz and Ponce (50% + 30%) ______80%
Total capital of the partnership before the admission of Roxas
Multiply by Roxas' interest
P296,875
______20%
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
Gomez's capital (P300,000 X 40%)

Less Cash investment
P120,000
__30,000
Merchandise to be invested by Gomez
P 90,000
Cash to be invested by Jocson:

Adjusted capital of Jocson:
Total assets (at agreed valuations)
Less Accounts payable
Required capital of Jocson
Cash to be invested by Jocson
P180,000
__48,000
P132,000
_180,000
P 48,000
Chapter 1
1-21: b
Unadjusted Ell, capital (P75,000 P5,000)
Allowance for doubtful accounts
Accounts payable
P 70,000
( 1,000)
( 4,000)
Adjusted Ell, capital
P 65,000
Total partnership capital (P113,640/1/3)

Less David's capital
P340,920
_113,640
Cortez's capital after adjustments

Adjustments made:
Allowance for doubtful account (2% X P96,000)
Prepaid expenses
Accrued expenses
P227,280
Cortez's capital before adjustments
P211,200
1-22: c
1,920
( 16,000)
( 5,200)
___3,200
1-23: a
Total assets at fair value
Liabilities
Capital balance of Flor
P4,625,000
(1,125,000)
P3,500,000
Total capital of the partnership (P3,500,000 70%)

Eden agreed profit & loss ratio
Eden agreed capital
Eden contributed capital at fair value
Allocated cash to be invested by Eden
P5,000,000
30%
1,500,000
812,000
P 688,000
1-24: c
1-25: c
__Rey
Contributed capital (assets-liabilities)P471,000
Agreed capital (profit and loss ratio) 382,800
Capital transfer (Bonus)
P 88,200
__Sam_ __Tim
__Total_
P291,000 P195,000 P957,000
382,800 191,400 957,000
P(91,800) P 3,600
-
1-26: d
Total agreed capital (P90,000 40%)
Contributed capital of Candy (P126,000+P36,000-P12,000)
Total agreed capital (P90,000 40%)
Candy, agreed capital interest
Agreed capital of Candy
Contributed capital of Candy
Withdrawal
P225,000
150,000
225,000
60%
135,000
150,000
P 15,000
1-27: a
Total agreed capital (210,000 70%)
Noras interest
Agreed capital of Nora
Cash invested
Cash to be invested by Nora
P300,000
30%
P 90,000
42,000
P 48,000
Contributed capital of May (P194,000 - P56,000)

Agreed capital of May (P300,000 x 70%)
Cash to be invested by May
P138,000
210,000
P 72,000
1-28: a
1-29: c
Contributed capital
Agreed capital
Capital invested
__Alex_
P100,000
92,000
P( 8,000)
_Carlos_
P84,000
92,000
P 8,000
__Total__
P184,000
184,000
-
Chapter 1
SOLUTIONS TO PROBLEMS
Problem 1 1
1.
a. Books of Pedro Castro will be retained by the partnership

To adjust the assets and liabilities of Pedro Castro.
1. Pedro Castro, Capital .............................................................
Merchandise Inventory ......................................................
600

Allowance for Bad Debts ..................................................
200
3. Accrued Interest Receivable ..................................................

Pedro Castro, Capital.........................................................
35
Computation:
P1,000 x 6% x 3/12 =
P2,000 x 6% x 2/12 =
600
200
35
P15
_20
Total ......................... ...... P35

Accrued Interest Payable ...................................................
(P4,000 x 5% x 6/12 = P100)
100

Accumulated Depreciation Furniture and Fixtures ........
800
6. Office Supplies ......................................................................

Pedro Castro, Capital.........................................................
400
100
800
400
To record the investment of Jose Bunag.

Cash .. ........................................................................................... 15,067.50
Jose Bunag, Capital ...............................................................
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
15,067.50
b.
A new set of books will be used

Books of Pedro Castro
To adjust the assets and liabilities.
See Requirement (a).
To close the books.
Notes Payable ...............................................................................
Accounts Payable .........................................................................
Accrued Interest Payable ..............................................................
Allowance for Bad Debts .............................................................
Accumulated Depreciation Furniture and Fixtures ...................
Pedro Castro, Capital ...................................................................
Cash .......................................................................................
Notes Receivable ...................................................................
Accounts Receivable .............................................................
Accrued Interest Receivable ..................................................
Merchandise Inventory ..........................................................
Office Supplies ......................................................................
Furniture and Fixtures............................................................
4,000
10,000
100
1,200
1,400
30,135
6,000
3,000
24,000
35
7,400
400
6,000
New Partnership Books

To record the investment of Pedro Castro.
Cash ...........................................................................................
Notes Receivable ..........................................................................
Accounts Receivable ....................................................................
Accrued Interest Receivable.........................................................
Merchandise Inventory.................................................................
Office Supplies .............................................................................
Furniture and Fixtures ..................................................................
Notes Payable ........................................................................
Accounts Payable...................................................................
Accrued Interest Payable .......................................................
Allowance for Bad Debts.......................................................
Accumulated Depreciation Furniture and Fixtures .............
Pedro Castro, Capital .............................................................
6,000
3,000
24,000
35
7,400
400
6,000
4,000
10,000
100
1,200
1,400
30,135
To record the investment of Jose Bunag.

Cash .. ........................................................................................... 15,067.50
Jose Bunag, Capital ...............................................................
15,067.50
10
Chapter 1
2.
Castro and Bunag Partnership

Balance Sheet
October 1, 2008
Assets
Cash ..... ...... ... ...........................................................................................

Notes receivable ..........................................................................................
Accounts receivable .................................................................................... P 24,000
Less Allowance for bad debts...................................................................... ___1,200
Accrued interest receivable .........................................................................
Merchandise inventory ................................................................................
Office supplies ...........................................................................................
Furniture and fixtures ..................................................................................
6,000
Less Accumulated depreciation ................................................................... ___1,400
Total Assets ........................................................................................
P21,067.50
3,000.00
22,800.00
35.00
7,400.00
400.00
__4,600.00
P59,302.50
Liabilities and Capital

Notes payable ...........................................................................................
Accounts payable ........................................................................................
Accrued interest payable .............................................................................
Pedro Castro, Capital ...................................................................................
Jose Bunag, Capital .....................................................................................
Total Liabilities and Capital ...............................................................
P 4,000.00
10,000.00
100.00
30,135.00
_15,067.50
P59,302.50
Problem 1 2
Contributed Capitals:
Jose:
Capital before adjustment ...................................................... P 85,000

Notes Payable ........................................................................
62,000
Undervaluation of inventory ..................................................
13,000
Underdepreciation.................................................................. ( 25,000)
Pedro: Cash .......................................................................................
Pablo: Cash .......................................................................................
11,000
Marketable securities ............................................................. _57,500
Total contributed capital ..............................................................................
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
P 135,000
28,000
___68,500
P 231,500
11
Goodwill Method. To have a goodwill, the only possible base is the capital of Pablo. The
computation is:
Contributed
Capital
Jose
Pedro
Pablo
Total
Agreed
Capital
P135,000
28,000
__68,500
P231,500
Goodwill
P137,000 (50%)
68,500 (25%)
__68,500 (25%)
274,000
2,000
40,500
_____
42,500
Total agreed capital (P68,500 25%) = 274,000

Jose, Pedro and Pablo Partnership
Balance Sheet
June 30, 2008
Assets:
Cash
Accounts receivable (net)
Marketable securities
Inventory
Equipment (net)
Goodwill
Total
Bonus Method
Goodwill Method
P 49,000
48,000
57,500
85,000
45,000
______
P284,500
P 49,000
48,000
57,500
85,000
45,000
__42,500
P327,000
P 53,000
115,750
57,875
__57,875
P284,500
P 53,000
137,000
68,500
__68,500
P327,000
Liabilities and Capital:

Accounts payable
Jose, capital (50%)
Pedro, capital (25%)
Pablo, capital (25%)
Total
Problem 1 3
1.
Books of Pepe Basco

To adjust the assets.
a. Pepe Basco, Capital ......................................................................
Estimated Uncollectible Account ..........................................
3,200
b. Pepe Basco, Capital ......................................................................

Accumulated Depreciation Furniture and Fixtures .............
500
3,200
500
12
Chapter 1
To close the books.

Estimated Uncollectible Account .......................................................
Accumulated Depreciation Furniture and Fixtures ..........................
Accounts Payable................................................................................
Pepe Basco, Capital ............................................................................
Cash .. ...........................................................................................
Furniture and Fixtures ..................................................................
2.
4,800
1,500
3,600
31,500
400
16,000
20,000
5,000
Books of the Partnership

To record the investment of Pepe Basco.
Cash .... ... ...........................................................................................
Accounts Receivable ..........................................................................
Merchandise Inventory .......................................................................
Furniture and Fixtures.........................................................................
Estimated Uncollectible account ..................................................
Accumulated Depreciation Furniture and Fixtures ...................
Pepe Basco, Capital ......................................................................
400
16,000
20,000
5,000
4,800
1,500
3,600
31,500
To record the investment of Carlo Torre.

Cash .... ... ...........................................................................................
Carlo Torre, Capital .....................................................................
Computation:
Pepe Basco, capital (Base) ...........................................................
Divide by Pepe Basco's P & L ratio .............................................
Total agreed capital ......................................................................
Multiply by Carlo Torre's P & L ratio ..........................................
Cash to be invested by Carlo Torre ..............................................
47,250
47,250
P31,500
___40%
P78,750
___60%
P47,250
Problem 1 4
a.
Roces' books will be used by the partnership

Books of Sales
1. Adjusting Entries
(a) Sales, Capital .........................................................................
Accumulated Depreciation Fixtures ...............................
3,200
(b) Goodwill ................................................................................

Sales, Capital .....................................................................
32,000
3,200
32,000
2.
13
Closing Entry
Accumulated Depreciation Delivery Equipment ......................
Accumulated Depreciation Fixtures ..........................................
Notes Payable ...............................................................................
Accrued Taxes ..............................................................................
Sales, Capital ................................................................................
Cash .......................................................................................
Accounts Inventory................................................................
Prepaid Insurance...................................................................
Delivery Equipment ...............................................................
Fixtures ..................................................................................
Goodwill ................................................................................
12,800
8,000
91,200
64,000
40,000
8,000
224,000
4,800
72,000
192,000
3,200
48,000
96,000
32,000
Books of Roces (Books of the Partnership)

1.
2.
Adjusting Entries
(a) Roces, Capital ..............................................................................
1,600
(b) Accumulated Depreciation Fixtures ..........................................

Roces, Capital ........................................................................
16,000
(c) Merchandise Inventory.................................................................

Roces, Capital ........................................................................
8,000
(d) Goodwill.......................................................................................
Roces, Capital ........................................................................
40,000
1,600
16,000
8,000
40,000
To record the investment of Sales.

Cash .... ... ...........................................................................................
Prepaid Insurance................................................................................
Delivery Equipment ............................................................................
Fixtures ... ...........................................................................................
Goodwill . ...........................................................................................
Notes Payable ...............................................................................
Accrued Taxes ..............................................................................
Sales, Capital ................................................................................
4,800
72,000
192,000
3,200
48,000
96,000
32,000
12,800
8,000
91,200
64,000
40,000
8,000
224,000
14
b.
Chapter 1
Sales' books will be used by the partnership

Books of Roces
2. Closing Entry
Accrued Taxes ..............................................................................
Roces, Capital ..............................................................................
Cash .......................................................................................
Accounts Receivable .............................................................
Prepaid Insurance...................................................................
Delivery Equipment ...............................................................
Fixtures ..................................................................................
Goodwill ................................................................................
1,600
12,800
64,000
104,000
6,400
224,000
14,400
57,600
132,800
4,800
19,200
144,000
40,000
Books of Sales (Books of the Partnership)

1.
Adjusting Entries
2.
To record the investment of Roces.

Cash .... ... ...........................................................................................
Delivery Equipment ............................................................................
Fixtures ... ...........................................................................................
Goodwill . ...........................................................................................
Accrued Taxes ..............................................................................
Roces, Capital ..............................................................................
14,400
57,600
132,800
4,800
19,200
144,000
40,000
1,600
12,800
64,000
104,000
6,400
224,000
c.
15
A new set of books will be opened by the partnership

Books of Roces
2. Closing Entry
See Requirement (b).

Books of Sales
2. Closing Entry
To record the investment of Roces and Sales.
Cash .... ... ...........................................................................................
Delivery Equipment (net) ...................................................................
Fixtures (net).......................................................................................
Goodwill ...........................................................................................
Notes Payable ...............................................................................
Accrued Taxes ..............................................................................
Roces, Capital ..............................................................................
Sales, Capital ................................................................................
19,200
129,600
324,800
8,000
46,400
84,800
72,000
14,400
168,000
40,000
14,000
224,000
224,000
16
Chapter 1
Problem 1 5
1.
To close Magno's books.

Allowance for Bad Debts....................................................................
Accounts Payable................................................................................
Notes Payable .....................................................................................
Accrued Interest Payable ....................................................................
R. Magno, Capital ...............................................................................
Cash .. ...........................................................................................
Equipment ....................................................................................
Other Assets .................................................................................
2.
5,000
13,000
12,000
3,000
9,000
To adjust the books of Lagman.

Goodwill . ...........................................................................................
J. Lagman, Capital........................................................................
3.
1,000
6,000
10,000
300
24,700
8,000
210
7,790
To record the investment of Magno.

Cash .... ... ...........................................................................................
Equipment ...........................................................................................
Other Assets ........................................................................................
Notes Payable ...............................................................................
Accrued Interest Payable ..............................................................
R. Magno, Capital ........................................................................
5,000
13,000
12,000
3,000
9,000
1,000
6,000
10,000
300
24,700
To adjust the investments of the partners.

Cash .... ... ...........................................................................................
R. Magno, Capital ........................................................................
(P35,000 P24,700 = P10,300)
10,300
J. Lagman, Capital ..............................................................................

Cash .. ...........................................................................................
Accounts Payable to J. Lagman ...................................................
(P63,000 + P7,790 = P70,790 P35,000 = P35,790)
35,790
10,300
23,300
12,490
4.
17
Lagman and Magno

Balance Sheet
December 31, 2008
Assets
Cash .... ... ...........................................................................................
Accounts receivable ............................................................................
Less Allowance for bad debts .............................................................
Merchandise inventory .......................................................................
Equipment ...........................................................................................
Other assets .........................................................................................
Goodwill ...........................................................................................
Total Assets ..................................................................................
P
P34,000
1,210
32,790
21,000
8,000
46,000
___8,000
P115,790

Accounts payable ................................................................................
Notes payable......................................................................................
Accrued interest payable.....................................................................
Accounts payable to J. Lagman ..........................................................
J. Lagman, capital ...............................................................................
R. Magno, capital ................................................................................
Total Liabilities and Capital .........................................................
P 18,000
15,000
300
12,490
35,000
__35,000
P115,790
Problem 1 6
1.
Books of Toledo
Toledo, Capital .............................................................................
Allowance for Bad Debts (15% x P32,000) ..........................
4,800
4,800
Books of Ureta
Ureta, Capital ...............................................................................
Allowance for Bad Debts (10% x P24,000) ..........................
2,400
Cash (90% x P12,000)..................................................................

Loss from Sale of Office Equipment............................................
Office Equipment...................................................................
10,800
1,200
Toledo, Capital (1/4 x P1,200) .....................................................

Ureta, Capital ...............................................................................
Loss from Sale of Office Equipment .....................................
300
900
2,400
12,000
1,200
18
2.
3.
Chapter 1

Cash .. ...........................................................................................
Merchandise .................................................................................
Office Equipment .........................................................................
Notes Payable ........................................................................
Toledo, Capital ......................................................................
To record the investment of Toledo.
3,200
32,000
40,000
10,000
Cash .. ...........................................................................................
Merchandise .................................................................................
Toledo, Capital .............................................................................
Allowable for Bad Debts .......................................................
Ureta, Capital .........................................................................
To record the investment of Ureta.
22,800
24,000
36,000
300
Cash .... ... ...........................................................................................

Ureta, Capital ...............................................................................
To record Ureta's cash contribution.
3,400
Computation:
Toledo, capital (P68,400 P300) .................................................
Divide by Toledo's profit share percentage ..................................
Total agreed capital of the partnership .........................................
Multiply by Ureta's profit share percentage .................................
Agreed capital of Ureta ................................................................
Ureta, capital ................................................................................
Cash contribution of Ureta ...........................................................
or
Toledo, capital (P68,400 P300) .................................................
Less Ureta, capital ........................................................................
Cash contribution of Ureta ...........................................................
4,800
10,000
2,000
68,400
2,400
16,000
64,700
3,400
P 68,100
____50%
P136,200
____50%
P 68,100
__64,700
P 3,400
P 68,100
__64,700
P 3,400
4.
19
Toledo and Ureta Partnership

Balance Sheet
July 1, 2008
Assets
Cash .... ... ...........................................................................................
Accounts receivable ............................................................................
Less Allowance for bad debts .............................................................
Merchandise........................................................................................
Office equipment ................................................................................
Total Assets ..................................................................................
P 29,400
P56,000
__7,200
48,800
76,000
__10,000
P164,200

Accounts payable ................................................................................
Notes payable......................................................................................
Toledo, capital ....................................................................................
Ureta, capital .......................................................................................
Total Liabilities and Capital .........................................................
P 26,000
2,000
68,100
__68,100
P164,200
20
Chapter 2
CHAPTER 2
2-1: d
Jordan
P120,000
( 10,000)
P110,000
Annual salary
Balance, equally
Total
Pippen
Total
P80,000 P200,000
( 10,000) ( 20,000)
P 70,000 P180,000
2-2: a
Bonus (.20 X P90,000)
Interest
JJ (.15 X P100,000)
KK (.15 X P200,000)
LL (.15 X P300,000)
Balance, equally
Total profit share
JJ
P18,000
KK
P15,000
P 30,000
( 6,000)
P27,000
( 6,000)
P 24,000
LL
Total
P 18,000
)
)
P45,000)
90,000
( 6,000) ( 18,000)
P39,000 P 90,000
2-3: a
2-4: a
Allan
Interest
Allan - .10 X (P40,000 + 60,000 /2)
Michael - .10 X (P60,000 + 70,000/2)
Balance, equally
Total
P 5,000
_14,000
P 19,000
Michael
Total
)
P 6,500) P 11,500
_14,000 __28,000
P20,500 P 28,000
2-5: a
Fred
P12,000
30,000
( 35,000)
P 7,000
Interest (.10 of average capital)

Salaries
Balance, equally
Total
Greg
P 6,000
( 35,000)
( P29,000)
2-6: b
Average Capital
Date
January 1
July 1
August 1
Capital
Balance
140,000
180,000
165,000
Months
Unchanged
6
1
5
12
Peso
Months
P 840,000
180,000
__825,000
P1,845,000
Average capital - P1,845,000/12
P153,750
Interest
P 15,375
(P153,750 X 10%)
Henry
Total
P 4,000 P 22,000
20,000
50,000
( 35,000) (105,000)
(P11,000) (P 33,000)
Partnership Operations
21
2-7: c
Date
January 1
April 1
June 1
September 1
Capital
Balance
P16,000
17,600
19,200
15,200
Months
Unchanged
3
2
3
4
12
Average Capital(P201,600/12) =
Peso
Months
P 48,000
35,200
57,600
__60,800
P201,600
P16,800
2-8: a
Net profit before bonus
Net profit after bonus (P24,000/120%)
Bonus to RJ
Balance (P24,000-P4,000)X3/5
Total profit share
P 24,000
__20,000
4,000
__12,000
P 16,000
2-9: a
AM
P 3,600
7,500
( 7,720)
P 3,380
Total
P 6,800
22,500
( 19,300)
P 10,000
Net income after salary, interest and bonus

Add back: Salary (P10,000 X 12)
P120,000
Interest (P250,000 X .05)
__12,500
Net income after bonus (80%)
Net income before bonus (P600,000/80%)
Paul's bonus
P467,500
Interest
Salaries
Balance, 3:2
Total
LT
P3,200
15,000
(11,580)
P 6,620
2-10: b
_132,500
P600,000
_750,000
P150,000
2-11: b
CC
Salary
Balance
Additional profit to DD
Total
P14,000
( 1,500)
P12,500
Net income
Fees Earned
Expenses
Net Income
P90,000
_48,000
P42,000
DD
P 8,400
__2,100
P10,500
EE
Total
P 14,000 P 14,000
5,600
28,000
( 600) ______
P 19,000 P 42,000
22
Chapter 2
2-12: c
Interest
Annual Salary
Additional profit to give LL, P20,000
Additional profit to give MM, P14,000
Total
*(P9,500/50%) = P19,000
LL
P 2,000
8,500
9,500
_____
P20,000
MM
P 1,250
5,700
__7,050
P14,000
NN
P 750
3,800
_____
P 4,550
Total
P 4,000
8,500
19,000*
__7,050
P 38,550
RR
SS
TT
Total
P15,000
_47,500
P62,500
(P10,000)
_35,625
P25,625
)
)
_11,875
P11,875
P 5,000
__95,000
P100,000
BB
CC
Total
2-13: a
Excess (Deficiency)
RR (P80,000 - P95,000)
SS (P50,000 - P40,000)
Balance 4:3:1
Total
Net Income (200,000 - 100,000) =
2-14: b
AA - 100,000 X 10%
150,000 X 20%
Remainder, 210,000
BB (60,000 X .05)
CC (60,000 X .05)
Balance, equally
Total
P100,000
AA
P 10,000
30,000
)
)
P 40,000
)
P 3,000
_68,000
P71,000
6,000
_204,000
P250,000
BJ
CJ
Total
P1,000
_6,800
P7,800
P4,000
12,000
__3,400
P19,400
P4,000
1,000
22,000
_17,000
P44,000
P 3,000
__68,000
P108,000
_68,000
P71,000
2-15: a
AJ
Bonus to CJ
Net profit before bonus
P44,000
Net profit after bonus (P44,000/110%)P40,000
Interest to BJ
Salaries
P 10,000
Balance, 4:4:2
__6,800
Total
P 16,800
2-16: c
Total profit share of Pedro
Less: Salary to Pedro
Interest
Share in the balance (40%)
P 50,000
__20,000
P200,000
Net profit after salary and interest (130,000/40%)

Add: Total Salaries
Total Interest
Total Partnership Income
P150,000
__70,000
__70,000
P130,000
P325,000
_220,000
P545,000
23
2-17: c
Net income before extraordinary gain and bonus (69,600-12,000)
Net income after bonus (57,600/120%)
Bonus to RR
P 57,600
_48,000
P 9,600
Distribution of Net Income:

JJ
Bonus
Balance, equally
Net profit before extraordinary gain
Extraordinary gain
Total
P 24,000
P 24,000
__4,800
P 28,800
RR
P 9,600
24,000
P 33,600
__7,200
P 40,800
Interest
Annual Salary
Remainder 60:40
Total
Mel
P 20,000
36,000
__60,000
P116,000
Jay
P 12,000
_40,000
P 52,000
Interest on excess (Deficiency)

Remainder 5:3:2
Total
DV
P 15,000
( 36,875)
(P 21,875)
Total
P 9,600
48,000
P 57,600
_12,000
P 69,600
Total
P 32,000
36,000
_100,000
P168,000
2-18: a
2-19: a
JE
FR
Total
P 3,750
(P 7,500) P 11,250
( 22,125) ( 14,750) ( 73,750)
(P 18,375) (P 22,250) (P 62,500)
2-20: c
Correction of 1998 profit:
Net income per books
Understatement of depreciation
Overstatement of inventory, December 31
Adjusted net income
Distribution of net income per book:

Equally
Distribution of adjusted net income
Equally
Required Decrease
P 19,500
( 2,100)
( 11,400)
P 6,000
Pete
Rico
Total
P 9,750
P 9,750
P 19,500
( 3,000)
P 6,750
( 3,000) ( 6,000)
P 6,750 P 13,500
2-21: a
Salaries
Interest
Bonus (P360,000-P54,000)X.25
Remainder, 30:70
Total
Tiger
P 64,000
24,000
76,500
__19,650
P184,150
Woods
P100,000
30,000
__45,850
P175,850
Total
P164,000
54,000
76,500
__65,500
P360,000
24
Chapter 2
2-22: a
Holly
P 20,000
32,000
30,000
__35,640
P117,640
Salaries
Commission
Interest
Bonus, schedule 1
Remainder, 60:40
Total
Field
P 25,000
33,600
_23,760
P 82,360
Schedule 1
Net income before salary, commission,
interest and bonus
Less: salaries
Net income before bonus
Net income after bonus (P180,000/120%)
Bonus
Total
P 20,000
25,000
65,600
30,000
__59,400
P200,000
P200,000
__20,000
P180,000
_150,000
P 30,000
2-23: a
Capital balance, beginning
Additional investment
Capital withdrawal
Capital balance before profit and loss distribution
Mike
P600,000
100,000
-200,000
P500,000
Tyson
Total
P400,000 P1,000,000
200,000
300,000
( 100,000) _-300,000
P500,000 P1,000,000
Net income:
Salary
Balance, 3:2
Total
Total
Drawings
Capital balance, end
P200,000
__60,000
P260,000
P760,000
( 200,000)
P560,000
P300,000 P 500,000
__40,000 __100,000
P340,000 P 600,000
P840,000 P1,600,000
( 300,000) ( 500,000)
P540,000 P1,100,000
Average Capital - King:

Date
January 1
April 1
Capital
Balance
P40,000
55,000
Months
Unchanged
3
9
12
Peso
Months
P120,000
_495,000
P615,000
Months
Unchanged
7
5
12
Peso
Months
P700,000
__650,000
P1,350,000
Average capital P615,000/12 = P51,250

Average Capital - Queen:
Date
January 1
April 1
Capital
Balance
P100,000
130,000
Average capital - P1,350,000 / 12 =P112,500
25
2-24: d
Distribution of Net Income - Schedule 1
Interest
Bonus, Schedule 2
Salaries
Residual, 50:50
Total
King
P 5,125
12,725
25,000
( 2,050)
P40,800
Queen
P11,250
30,000
_(2,050)
P39,200
Total
P16,375
12,725
55,000
_(4,100)
P80,000
Schedule 2
Net income before allocation
Less: Interest
Net income before bonus
Net income after bonus (P63,625/125%)
Bonus
P80,000
_16,375
P63,625
_50,900
P12,725
Capital Balance December 31:

Capital balance, January 1
Capital balance before profit and
loss distribution
Net income (Schedule 2)
Drawings (P400 X 52)
Capital balance, December 31
King
P40,000
_15,000
Queen
P100,000
__30,000
Total
P140,000
__45,000
P55,000
40,800
( 20,800)
P75,000
P130,000
39,000
( 20,800)
P148,400
P185,000
80,000
( 41,600)
P223,400
2-25: d
Total receipts (P1,500,000 + P1,625,000)
Expenses
Net income
Distribution to Partners
Red P1,500,000/P3,125,000 X P2,045,000 =
Blue P1,625,000/P3,125,000 X P2,045,000 =
Capital balance of Blue Dec. 31

Capital Balance, Jan. 1
Capital balance before profit and
loss distribution
Profit share
Drawings
Capital balance, Dec. 31
P3,125,000
( 1,080,000)
P2,045,000
P 981,600 (1)
_1,063,400
P2,045,000
P 374,000
___22,000
P 396,000
1,063,400
( 750,000)
P 709,400 (2)
26
Chapter 2
2-26: a
Ray
P150,000
_______
Sam
P180,000
__60,000
Total
P330,000
__60,000
150,000
240,000
390,000
15,000
51,000
20,000
34,000
35,000
85,000
66,000
54,000
120,000
Total
Salaries
216,000
_18,000
294,000
_24,000
510,000
_42,000
Total
Drawings
234,000
(18,000)
318,000
(24,000)
552,000
(42,000)
Capital balances, March 1

Additional investment, Nov. 1
Capital balances before salaries, profit and Drawings
Profit share:
Interest
Balance, 60:40
Total
Capital balances, Feb. 28
P216,000
P294,000
P510,000
Capital balances, 1/1

Additional investment, 4/1
Capital withdrawals, 7/1
Susan
P150,000
8,000
_______
Tanny
P30,000
158,000
24,000
23,400
(1,725)
4,050
6,000
(1,725)
27,450
6,000
(3,450)
21,675
_8,325
30,000
179,675
(12,000)
32,325
(12,000)
212,000
(24,000)
2-27: a
Balances before profit distribution

Profit distribution:
Interest
Bonus (20% x P30,000)
Balance, equally
Total
Total
Drawings
Capital balances, 12/31
P167,675
Total
P180,000
8,000
(6,000) _(6,000)
P20,325
182,000
P188,000
27
2-28: a
Capital balances, beg. 1st year
Loss distribution, 1st year:
Salaries
Interest
Balance, 5:3:2
Total
Total
Drawings
Capital balances, beg. 2nd year
Profit distribution, 2nd year:
Salaries
Interest
Balance, 5:3:2
Total
Total
Drawings
Capital balances, end of 2nd year
Sin
P110,000
Tan
P80,000
Uy
P110,000
Total
P300,000
20,000
11,000
(40,000)
( 9,000)
101,000
(10,000)
91,000
8,000
(16,000)
( 8,000)
72,000
(10,000)
62,000
10,000
11,000
(24,000)
( 3,000)
107,000
(10,000)
97,000
30,000
30,000
(80,000)
(20,000)
280,000
(30,000)
250,000
20,000
9,100
( 7,500)
21,600
112,600
_(10,000)
P102,600
6,200
( 4,500)
_1,700
63,700
(10,000)
P53,700
10,000
9,700
( 3,000)
16,700
113,700
_(10,000)
P103,700
30,000
25,000
(15,000)
40,000
290,000
_(30,000)
P260,000
Jay
P30,000
Kay
P30,000
_(5,000)
25,000
_(4,000)
26,000
Loi
P30,000
5,000
______
35,000
Total
P90,000
5,000
_(9,000)
86,000
3,000
7,000
_1,000
36,000
5,000
______
41,000
3,000
3,000
_1,000
30,000
_1,000
39,000
_(3,000)
27,000
_(8,000)
31,000
9,000
7,000
__3,000
105,000
5,000
(11,000)
99,000
2-29: c
Capital balances, 1/1/06
Additional investment, 2006
Capital withdrawal, 2006
Capital balances
Profit distribution, 2006:
Interest
Salary
Balance, equally
Capital balances
Interest
Salary
Balance, equally
Capital balances
Interest
Salary
Balance, equally
Capital balances, 12/31/08 per books
Understatement of depreciation
Adjusted capital balances, 12/31/08
3,600
7,000
_1,500
53,100
3,000
3,900
_1,500
31,500
______
53,100
_(4,000)
27,500
_1,500
36,400
6,000
_(2,000)
40,400
5,310
7,000
__3,300
P68,710
(2,000)
P66,710
3,150
3,640
__3,300
P33,950
(2,000)
P31,950
__3,300
P47,340
(2,000)
P45,340
10,500
7,000
__4,500
121,000
6,000
_(6,000)
121,000
12,100
7,000
___9,900
P150,000
(6,000)
P144,000
28
Chapter 2
2-30: a
Ken
P100,000
Balances
Profit distribution, 2007 (Schedule 1)
Salary
Balance, beg. Capital ratio
Len
Mon
Total
P100,000
( 20,000)
P100,000
40,000
_______
_______
P300,000
40,000
( 20,000)
80,000
140,000
100,000
320,000
20,000
20,000
60,000
20,000
60,000
60,000
100,000
( 20,000)
160,000
( 40,000)
180,000
_______
440,000
( 60,000)
Balances
Salary
Balance, beg. capital ratio
80,000
120,000
180,000
380,000
__13,636
__21,818
60,000
__24,546
60,000
__60,000
P 93,636
P141,818
P264,546
P500,000
Schedule 1 Computation of net profit:

Total capital, 2008 (P647,500 P147,500)
Total capital, 2007 (P300,000 + P40,000 P80,000)
Total profit for 2 years
P500,000
_260,000
P240,000
Net profit per year (P240,000 / 2)
P120,000
2-31: d
Capital balance, 1/1/08
Withdrawals
Cap. bal. before P/L dist.
NP: Salary (16,500 x 12)
Interest on EC (15%)
Balance 25:30:45
Total
Capital balance 12/31/08
_Nardo_
P280,000
96,000
376,000
42,000
( 19,875 )
22,125
P398,125
__Orly
P300,000
60,000
( 90,000 )
270,000
198,000
45,000
( 23,850 )
219,150
P 489,150
__Pedro_
P170,000
( 72,000 )
98,000
25,500
( 35,775 )
( 10,275 )
P 87,72
2-32: d
Sam capital, beginning
Additional investment (Land)
Drawings
Capital balance before net profit (loss)
Capital balance, end
Profit share (40%)
Net profit (P50,000 40%)
P120,000
60,000
( 80,000 )
100,000
150,000
50,000
P125,000
_Total_
P750,000
156,000
(162,000)
744,000
198,000
112,500
(79,500 )
231,000
P975,000
29
2-33: a
__Joe__
P 80,000
Net loss- 2007:
Annual salary
96,000
10% interest on beg. capital
8,000
Bal. beg. cap. ratio: 8:4
( 108,000)
Total
( 4,000)
Capital balance
76,000
Drawings
( 4,000)
72,000
Net profit- 2008:
Annual salary
96,000
10% interest on BC
7,200
Bonus to JoeNPBB
P 22000
NPAB (22000/110%)20000 2,000
Balance equally
( 67,300)
Total
37,900
Total
109,900
Drawings
(
4,000)
105,900
__Tom__
P 40,000
__Total__
P120,000
48,000
4,000
( 54,000)
( 2,000)
38,000
( 4,000)
34,000
144,000
12,000
( 162,000)
( 6,000)
114,000
( 8,000)
106,000
48,000
3,400
144,000
10,600
( 67,300)
( 15,900)
18,100
(
4,000)
2,000
( 134,600)
22,000
128,000
( 8,000)
14,100
120,000
2-34: a
Decrease in capital
Drawings
Contribution
Profit share
Net income (45,000 30)
P 60,000
( 130,000)
25,000
45,000
P150,000
30
Chapter 2
Problem 2 1
1.
Castro
Diaz
:
:
(P26,000/P42,500) x
(P16,500/P42,500) x
P23,800
P23,800
=
=
P14,560
__9,240
P23,800
2.
Castro
Diaz
:
:
(P31,250/P50,000) x
(P18,750/P50,000) x
P23,800
P23,800
=
=
P14,875
__8,925
P23,800
Computation of Average Capitals:

Castro:
Date
1/1 .....................................
4/10 ...................................
5/1 .....................................
8/1 .....................................
Capital
Balances
P26,000
29,000
36,000
32,000
Average capital = P375,000 12 months =

Diaz:
Date
1/1 .....................................
6/1 .....................................
9/1 .....................................
Capital
Balances
P16,500
21,500
19,500
Average capital = P225,000 12 months =

3.
Months
Unchanged
3
1
3
5
12
Peso
Months
P 78,000
29,000
108,000
_160,000
P375,000
P31,250
Months
Unchanged
5
3
4
12
Peso
Months
P 82,500
64,500
__78,000
P225,000
P18,750
Interest ........................................................
Salaries........................................................
Balance, equally..........................................
Total ............................................................
Castro
P 7,500
36,000
( 24,100)
P19,400
Diaz
P4,500
24,000
(24,100)
P 4,400
Total
P12,000
60,000
( 48,200)
P23,800
Bonus (a) ....................................................

Interest (b)...................................................
Balance, 3:2 ................................................
Total ............................................................
Castro
P 4,760
1,100
_10,764
P16,624
Diaz
P
_7,176
P7,176
Total
P 4,760
1,100
_17,940
P23,800
4.
31
Computations:
a. Net profit before bonus.................................................
Net profit after bonus (P23,800 125%) .....................
Bonus............................................................................
b.
5.
Castro
Diaz
P23,800
_19,040
P 4,760
Average capital of Castro [(P26,000 + P32,000) 2] ...........................

Average of Diaz [(P16,500 + P18,500) 2]....... ..................................
Castro's excess ..................................................... ..................................
Multiply by .......................................................... ..................................
Interest ................................................................. ..................................
P29,000
_18,000
P11,000
___10%
P 1,100
:
:
P14,280
__9,520
P23,800
(P3,000/P5,000) x P23,800
(P2,000/P5,000) x P23,800
=
=
Problem 2 2
a.
Average Capital:
Robin:
Date
Jan. 1
Feb. 28
Apr. 30
Sept. 30
Balances
P135,000
95,000
175,000
195,000
Months
Unchanged
2
2
5
3
12
Peso
Months
P270,000
190,000
875,000
__585,000
P1,920,000
Months
Unchanged
3
3
2
2
2
12
Peso
Months
P420,000
600,000
300,000
440,000
__400,000
P2,160,000
Ave. Capital (P1,920,000 12) = P160,000

Hood:
Date
Balances
Jan. 1
Mar. 31
June 30
Aug. 31
Oct. 31
P140,000
200,000
150,000
220,000
200,000
Ave. Capital (P2,160,000 12) = P180,000

Profit Distribution:
Robin : P160,000 P340,000 x P510,000 =
Hood : P180,000 P340,000 x P510,000 =
P240,000
_270,000
P510,000
32
Chapter 2
b.
Robin
P 14,400
60,000
78,850
_119,775
P274,025
Hood
P 16,200
100,000
_119,775
P235,975
Total
P 30,600
160,000
79,850
_239,550
P510,000
Robin
Hood
Totals
P 6,000
249,000
255,000
P 12,000
498,000
510,000
Robin
Hood
Salaries.................................................................
P 80,000
P120,000
Bonus (see computations below) .........................
62,000
Balance, equally...................................................
_124,000
_124,000
Totals ...................................................................
P266,000
P244,000
Bonus Computations:
Net income before salaries and bonus ......... ..................... .......................
Less Salaries................................................ ..................... .......................
Net income before bonus ............................ ..................... .......................
Net income after bonus (P310,000 125%) ..................... .......................
Bonus .......................................................... ..................... .......................
Total
P200,000
62,000
_248,000
P510,000
Interest on ave. capital .........................................

Salaries.................................................................
Bonus (P510,000 30,600 160,000) x 25%) ....
Balance, equally...................................................
Totals ...................................................................
c.
Interest:
Robin (P195,000 P135,000) 10%.............
Hood (P200,000 P140,000) 10% .............
Balance, equally...................................................
Totals ...................................................................
d.
P 6,000
249,000
255,000
P510,000
200,000
310,000
_248,000
P 62,000
Problem 2 3
a.
De Villa
P 30,000
De Vera
P 20,000
31,200
9,818
__44,182
P105,200
Salaries.................................................................
Commission (2% x P1,000,000) ..........................
Interest of 8% on average capital.........................
32,800
Bonus (see computations below) .........................
9,818
Balance, equally...................................................
__44,182
Total .....................................................................
P116,800
Bonus Computations:
Income before salary, commissions, interest & bonus ...... .......................
Salary and commission (P30,000 + P20,000) ................... .......................
Interest......................................................... ..................... .......................
Income before bonus ................................... ..................... .......................
Income after bonus (P108,000 110%) ..... ..................... .......................
Bonus .......................................................... ..................... .......................
b.
Income Summary .................................................

De Villa, capital ..........................................
De Vera, capital...........................................
Total
P 30,000
20,000
64,000
19,636
__88,364
P222,000
P222,000
( 50,000)
( 64,000)
108,000
_98,182
P 9,818
P 222,000
116,800
105,200
33
Problem 2 4
a.
Salaries................................................
Bonus (see computation below) ..........
Interest (see computation below) ........
Balance, 3:3:4 .....................................
Total ....................................................
East
P15,000
3,760
2,800
__3,180
P24,740
North
P20,000
West
P18,000
4,000
__3,180
P27,180
4,800
__4,240
P27,040
Bonus computations:
Net income before bonus ........... .................... ..................... .....................
Net income after bonus (P78,960 105%) ..... ..................... .....................
Bonus ......................................... .................... ..................... .....................
Interest computations:
East (10% x P28,000)................. .................... ..................... .....................
North (10% x P40,000) .............. .................... ..................... .....................
West (10% x P48,000) ............... .................... ..................... .....................
Total ........................................... .................... ..................... .....................
b.
Interest (see computations below) ......
Salaries................................................
Bonus (see computations below) ........
Balance, equally..................................
Total ....................................................
Interest computations:
Average capitals:
East:
Date
1/1
5/1
9/1
Balances
P30,000
36,000
28,000
East
P 3,133
24,000
( 6,056)
P 21,077
North
P 3,633
21,000
4,280
( 6,055)
P 22,858
West
P 5,200
25,000
( 6,055)
P 24,145
Months
Unchanged
4
4
4
12
Total
P53,000
3,760
11,600
_10,600
P78,960
P78,960
_75,200
P 3,760
P 2,800
4,000
__4,800
P11,600
Total
P11,966
70,000
4,280
( 18,166)
P 68,080
Pesos
Months
P120,000
144,000
_112,000
P376,000
Average capital (P376,000 12) ..........................................
P 31,333
North:
Pesos
Months
P80,000
124,000
72,000
_160,000
P436,000
Date
1/1
3/1
7/1
9/1
Balances
P40,000
31,000
36,000
40,000
Months
Unchanged
2
4
2
4
12
Average capital (P436,000 12) ...........................................
P 36,333
34
Chapter 2
West:
Date
1/1
4/1
6/1
8/1
Months
Unchanged
3
2
2
5
12
Balances
P50,000
57,000
60,000
48,000
Pesos
Months
P150,000
114,000
120,000
_240,000
P624,000
Ave. capital (P624,000 12)....................................
P 52,000
Interest Computations:
East (10% x P31,333) ............ ...............................................
North (10% x P36,333) ......... ...............................................
West (10% x P52,000)........... ...............................................
Total ... .................................. ...............................................
P 3,133
3,633
__5,200
P 11,966
Bonus Computations:
Net income ............................ ...............................................
Less Salary ............................ ...............................................
Net income before bonus ....... ...............................................
Net income after bonus (P47,080 110%) ...........................
Bonus to North ...................... ...............................................
* To Total
c.
East
West
P 8,990
5,000
__8,237.50
P22,227.50
Total
P 8,990
39,000
12,000
_32,950
P92,940
Bonus Computations:
Net income before salaries & bonus ............... ..................... .....................
Less Salaries (P21,000 + P18,000) ................. ..................... .....................
Net income before bonus ........... .................... ..................... .....................
Net income after bonus (P53,940 120%) ..... ..................... .....................
Bonus to West ............................ .................... ..................... .....................
P92,940
_39,000
P53,940
_44,950
P 8,990
Bonus (see comp. below) ....................

Salaries ...........................................
Interest on beginning capital ...............
Remainder, 8:7:5.................................
Total ........ ...........................................
North
P 68,000
_21,000
47,080
_42,800
P 4,280
P21,000 P 18,000
3,000
4,000
_13,180 _11,532.50
P37,180 P33,532.50
Problem 2 5
a.
Schedule of Income Distribution:

Salaries.... ...........................................
Interest (see computation on p. 30) .....
Balance, equally..................................
Total ........ ...........................................
Maria
P12,000
7,200
__3,133
P22,333
Clara
P10,000
9,600
__3,133
P22,733
Rita
P 8,000
13,800
__3,134
P24,934
Total
P30,000
30,600
__9,410
P70,000
35
Interest on Average Capital:

Maria:
P80,000 x 8% x 6 months.. ....................
P100,000 x 5% x 6 months ....................
Clara:
P120,000 x 8% .................. ....................
Rita:
P180,000 x 8% x 9 Mos. ... ....................
P150,000 x 8% x 3 Mos. ... ....................
Total ........................................... ....................
b.
P 3,200
__4,000
P 7,200
9,600
P10,800
__3,000
_13,800
P30,600
Statement of Partners Capital:

Balances, Jan. 1...................................
Additional Investment ........................
Capital Withdrawal .............................
Net Income..........................................
Drawings ...........................................
Balance, Dec. 31 .................................
Maria
P 80,000
20,000
22,333
( 10,000)
P112,333
Clara
P120,000
22,733
( 10,000)
P132,733
Rita
P180,000
( 30,000)
24,934
( 10,000)
P164,934
Total
P380,000
20,000
( 30,000)
70,000
( 30,000)
P410,000
Benny
Celia
Total
P20,000
Problem 2 6
1.
Allocation of net loss for 2008:

Salary to Alvin ....................................
Interests on average capital:
Alvin (P120,000 x 10%) ............
Benny (P200,000 x 10%) ...........
Celia (P220,000 x 10%) .............
Balance, 30:30:40 ...............................
Total ........ ...........................................
2.
Alvin
P 20,000
12,000
20,000
(29,400)
P 2,600
_(29,400)
P( 9,400)
22,000
_(39,200)
P(17,200)
54,000
_(98,000)
P(24,000)
Benny
P180,000
60,000
________
240,000
__(9,400)
230,600
_______
P230,600
Celia
P220,000
40,000
_(20,000)
240,000
_(17,200)
222,800
_______
P222,800
Total
P520,000
100,000
_(20,000)
600,000
_(24,000)
576,000
_(16,000)
P560,000
Statement of Partnership Capital

Year Ended December 31, 2008
Capitals, January 1, 2008 ....................
Additional investments .......................
Capital withdrawals ............................
Balances .. ...........................................
Net loss (see above) ............................
Balances .. ...........................................
Drawings . ...........................................
Capitals, December 31, 2008 ..............
Alvin
P120,000
_______
120,000
__2,600
122,600
_(16,000)
P106,600
36
3.
Chapter 2
Correcting entry:
Celia capital ........................................
2,400
Alvin capital ...............................
2,200
Benny capital .............................
200
To correct capital accounts for error in loss allocation computed as follows:
Alvin
Benny
Celia
Correct loss allocation ........................
P2,600
P(9,400) P(17,200)
Actual loss allocation ..........................
__(400)
__9,600
__14,800
Adjustment..........................................
P2,200
P 200
P ( 2,400)
Problem 2 7
Dino
P45,000
_15,000
60,000
(1,800)
(17,000)
41,200
_____
41,200
10,800
(17,000)
35,000
______
35,000
56,365
(19,000)
P72,365
Nelson
P45,000
_15,000
60,000
( 1,800)
( 7,000)
51,200
_____
51,200
8,100
( 7,000)
52,300
______
52,300
42,272
( 9,000)
P86,572
Oscar
P45,000
__6,000
51,000
( 1,800)
( 3,200)
46,000
__6,000
52,000
8,100
( 3,200)
56,900
___6,000
62,900
20,363
( 3,200)
P80,063
Total
P135,000
__36,000
171,000
( 5,400)
( 27,200)
138,400
___6,000
144,400
27,000
( 27,200)
144,200
___6,000
150,200
120,000
( 31,200)
P239,000
Dino
P48,000
3,600
_* 4,765
P56,365
Nelson
P24,000
10,909
3,600
__4,763
P43,272
Oscar
P12,000
3,600
__4,763
P20,363
Total
P84,000
10,909
10,800
__14,291
P120,000
Bonus computations:
Net income before bonus ........... ................ ..................... .....................
Net income after bonus (P120,000 110%) ..................... .....................
Bonus to Nelson ......................... ................ ..................... .....................
P120,000
_109,091
P 10,909
Capital balances, 1/2/06...............................

Additional investment, 2006 .......................
Balances.......................................................
Net income (Loss) - 2006, equally ..............
Withdrawals, 2006.......................................
Capital balances, 12/31/06...........................
Balances.......................................................
Net income - 2007, 40: 30: 30 .....................
Withdrawals, 2007.......................................
Capital Balances, 12/31/07 ..........................
Balances.......................................................
Net income, 2008 (schedule 1) ....................
Withdrawals, 2008.......................................
Capital balances, 12/31/08...........................
Schedule 1:
Annual salaries....................................
Bonus (see computations below) ........
Interest ................................................
Balance, equally..................................
Totals ..................................................
* To Total
37
Problem 2 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2008
Balances, beginning of year

Add: 20% of fees billed to personal clients
Green's share of fees (Exhibit A)
Remaining net income (Exhibit A)
Subtotals
Less: Withdrawals
Uncollectible accounts identified
with clients of each partner
Excess rent charged to Blue
Total deductions
Balances, end of year
Red
40,200
8,800
White
20,200
4,800
Blue
40,600
4,400
_22,800
_71,800
10,400
_22,800
_47,800
8,800
_11,400
_56,400
11,600
2,400
900
P12,800
P59,000
P 9,700
P38,100
1,800
P13,400
P43,000
Green
3,200
______
__3,200
5,000
Total
P101,000
18,000
3,200
_57,000
179,200
35,800
P 5,000
P (1,800)
3,300
1,800
P 40,900
P138,300
Red, White & Blue Partnership

Exhibit A Computation and Division of Net income
For Year Ended December 31, 2008
Total revenue from fees
Expenses, excluding depreciation and doubtful
accounts expense
Less: Excess rent charged to N ($300 x 6)
Subtotal
Add: Depreciation, computed as follows:
$26,000 x 0.10
$10,000 x 0.10 x 1/2
Total expenses, excluding doubtful accounts expense
Add: Doubtful accounts expense ($3,000 x 0.60)
Total expenses
Net income for year ended Dec. 31, Year 1
Division of net income:
Fees billed to personal clients:
Red P44,000 x 20%
White P24,000 x 2%
Blue, P22,000 x 20%
Green's share of fees:
Gross fees from new clients after April 1, Year 1
Less: Allocated expenses ($40,000 x $24,000/
$120,000)
Net income from new clients
Green's share (P16,000 x 20%)
Total divided pursuant to special agreement
Balance, divided in income-sharing ratio as follows:
To Red, 40%
To White, 40%
To Blue, 20%
Total
P120,000
P38,700
__1,800
36,900
2,600
____500
P40,000
__1,800
41,800
P 8,800
48,000
4,400
________
P 78,200
P18,000
24,000
__8,000
P16,000
P 3,200
__21,200
P 57,000
P22,800
22,800
_11,400
P57,000
38
Chapter 2
Problem 2 9
Allan, Eman and Gino Partnership
Statement of Profit Distribution
Allan
Eman
Gino
Total
Interest
Commission (P16,120 P5,000) x 10%
Balance, equally
P 4,000
__5,926
P 750
1,112
_5,925
P 250
1,112
_5,925
P 5,000
2,224
_17,776
Total
Adjustments (50% of P25,000 to Allan)
P 9,926
__2,574
P7,787
(1,287)
P7,287
(1,287)
P25,000
_____
Total
P12,500
P6,500
P6,000
P25,000
Sonny
Letty
Total
Problem 2 10
Gary, Sonny, and Letty Partnership

Statement of Partners' Capital Accounts
Gary
Additional investments
P210,000
___9,100
P180,000
_______
P 90,000
_______
P480,000
__9,100
Total
Salaries
Interest
Bonus to Gary and Sonny (Schedule 1)
Balance, equally
_219,100
_180,000
_90,000
489,100
10,640
10,800
13,680
25,920
__(9,720)
11,520
21,600
_(9,720)
_(9,720)
35,840
58,320
(29,160)
__29,880
_23,400
_11,720
_65,000
Total
Drawings
248,980
_(21,000)
203,400
101,720
554,100
(18,000) __(9,000) _(48,000)
P227,980
Total
P185,400
Schedule 1: Computation of the bonus.

Net profit before interest, salaries and bonus
Less: Salaries
Interest
Net profit (loss) before bonus
Therefore no bonus is to be given to Gary and Sonny.
P 65,000
P35,840
_58,320
__94,160
P(29,160)
P 92,720
P506,100
39
Problem 2 11
a. Entries to record the formation of the partnership and the events that occurred during 2008:
Cash
Inventory
Land
Equipment
Mortgage payable
Installment note payable
Kobe, capital (P600,000 + P800,000
+ P1,000,000 P200,000)
Lebron, capital (P500,000 + P1,300,000
- P500,000)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Inventory
Cash
Accounts payable
1,100,000
800,000
1,300,000
1,000,000
500,000
200,000
2,200,000
1,300,000
300,000
240,000
60,000
Mortgage payable
Interest expense
Cash
50,000
20,000

Interest expense
Cash
35,000
20,000
Accounts receivable
Cash
Sales
70,000
55,000
210,000
1,340,000
1,550,000
Selling and general expenses

Cash
Accrued expenses payable
340,000
Depreciation expense
60,000
Kobe, drawing
Lebron, drawing
Cash
Sales
278,000
62,000
60,000
104,000
104,000
208,000
1,550,000
Income summary
(9)
Cost of goods sold

Inventory
P900,000 = P800,000 beginning inventory
+ 300,000 purchases
- 200,000 ending inventory
1,550,000
900,000
900,000
40
Chapter 2
Income summary
Cost of good sold
Selling and general expenses
Depreciation expense
Interest expense
1,340,000
900,000
340,000
60,000
40,000
Income summary
Kobe, capital
Lebron, capital
210,000
Kobe, capital
Lebron, capital
Kobe, drawing
Lebron, drawing
104,000
104,000
105,000
105,000
104,000
104,000
Schedule to allocate partnership net income for 2008:

Kobe
Profit percentage
60%
Beginning capital balance
P2,200,000
Net income (P1,550,000 revenue
- P 1,340,000 expenses)
Interest on beginning capital
balances (3%)
66,000
Salaries
Residual deficit
Total
b.
Lebron
40%
P1,300,000
Total
100%
P3,500,000
210,000
39,000
120,000
120,000
(81,000)
P105,000
(54,000)
P105,000
(105,000)
P105,000
(240,000)
P(135,000)
(135,000)
-0-
Kobe-Lebron Partnership
Income Statement
For the Year Ended December 31, 2008
Sales
Less: Cost of goods sold:
Inventory, January 1
Purchases
Goods available for sale
Less: Inventory, December 31
Gross profit
Less: Selling and general expenses
Depreciation expenses
Operating income
Nonoperating expense- interest
Net income
P1,550,000
P800,000
300,000
P1,100,000
(200,000)
340,000
60,000
(900,000)
P650,000
400,000
P250,000
(40,000)
P210,000
c.
41
Kobe-Lebron Partnership
Balance Sheet
At December 31, 2008
Assets
Cash
Accounts receivable
Inventory
Land
Equipment (net)
Total assets
P1,589,000
210,000
200,000
1,300,000
940,000
P4,239,000
Liabilities:
Accounts payable
Accrued expenses payable
Mortgage payable
Total liabilities
Capital:
Kobe, capital
Lebron, capital
Total capital
Total liabilities and capital
P60,000
62,000
165,000
450,000
P737,000
P2,201,000
1,301,000
3,502,000
P4239,000
42
Chapter 3
CHAPTER 3
3-1: c
Implied capital of the partnership (P90,000/20%)
Actual value of the partnership
Goodwill
P450,000
( 420,000)
P 30,000
Capital balances before Goodwill

Goodwill to old partners
Total
Purchase by Hizon (20%)
Capital balances after admission
AQUINO
P252,000
__18,000
P270,000
( 54,000)
P216,000
LOCSIN
P126,000
___9,000
P135,000
( 27,000)
P108,000
DAVID
P42,000
__3,000
P45,000
( 9,000)
P36,000
HIZON
_____
_90,000
P 90,000
Capital balances before admission

Purchase by Hizon (20%)
AQUINO
P252,000
( 50,400)
P201,600
LOCSIN
P126,000
( 25,200)
P100,800
DAVID
HIZON
P42,000
( 8,400) _84,000
P33,600 P 84,000
Capital transferred
Excess divided using profit and loss ratio
Cash distribution
AQUINO
P 50,400
__3,600
P 54,000
LOCSIN
P 25,200
__1,800
P 27,000
DAVID
P 8,400
___600
P 9,000
3-2: b
3-3: d
TOTAL
P 84,000
__6,000
P 90,000
3-4: b
Selling price
Interest sold (444,000X1/5)
Combine gain
P132,000
( 88,800)
P 43,200
3-5: b
Implied value of the partnership (P40,000/1/4)
Actual value
Goodwill
Cash balances
Goodwill, Profit and Loss ratio
Total
Capital Transfer (1/4)
P160,000
( 140,000)
P 20,000
BERNAL
P 80,000
__12,000
P 92,000
( 23,000)
P 69,000
CUEVAS
DIAZ
P40,000 P 20,000
__6,000
__2,000
P46,000 P 22,000
( 11,500) ( 5,500)
P34,500 P 16,500
Partnership Dissolution Changes in Ownership
43
3-6: b
Capital Transfer (20%)
Excess, Profit and Loss ratio
Cash distribution
BANZON
P 16,000
__6,000
P 22,000
CORTEZ
P 4,000
__4,000
P 8,000
TOTAL
P20,000
_10,000
P30,000
Capital balances beginning

Net profit, 1:2
Drawings
Capital transfer (squeeze)
Capital balances after admission 1:2
PEREZ
P 24,000
5,430
( 5,050)
P 24,380
( 5,570)
P 18,810
CADIZ
TOTAL
P 48,000 P 72,000
10,860
16,290
( 8,000) ( 13,050)
P 50,860 P 75,240
( 13,240) (18,810) (1/4)
P 37,620 P 56,430
Capital transfer
Excess, 1:2
Cash
P 5,570
__3,730
P 9,300
P 13,240
__7,460
P 20,700
3-7: d
3-8: a
Total agreed capital (P150,000/5/6)
Diana's Interest
Cash distribution
P180,000
1/6
P 30,000

Total contributed capital (80,000+40,000+36,000)
Unrecognized Goodwill
P180,000
( 156,000)
P 24,000
3-9: a
3-10: b
Old partners
New partner
Total
Contributed
Agreed
Capital
Capital
P110,000
P100,000
__40,000
__50,000
P150,000
P150,000
Increase
(Dec.)
(P 10,000)
_10,000
P
Ben, capital balance before admission

Bonus share to new partner (10,000X60%)
Ben, capital after admission
P 60,000
( 6,000)
P 54,000
Total agreed capital (P40,000+20,000+17,000)

Pete's interest
Pete's agreed capital balance
P 77,000
1/5
P 15,400
3-11: c
P18,810
_11,190
P30,000
44
Chapter 3
3-12: b
Old partner
New partner
Total
Contributed
Capital
P 65,000
25,000 (1/3)
P 90,000
Agreed
Capital
P60,000
30,000
P90,000
Increase
(Dec.)
(P 5,000)
_5,000
P

Investment by Lory
Bonus to Lory
FRED
P 35,000
(
3,500)
P 31,500
RAUL
P30,000
( 1,500)
P28,500
LORY
25,000
__5,000
P 30,000
3-13: c
Total agreed capital (90,000+60,000+70,000)
Augusts' interest
Agreed capital
Contributed capital
Bonus to June & July
P220,000
_____1/4
P 55,000
__70,000
P 15,000
JUNE
P90,000
__7,500
P97,500

Bonus from August, equally
JULY
P 60,000
__7,500
P 67,500
3-14: a
Total agreed capital (52,000 + 88,000)/80%)
Total capital of Mira & Nina after admission
Cash paid by Elma
P175,000
( 140,000)
P 35,000

Total contributed capital (P23,000+18,600+16,000)
Goodwill to new partner, Ang
P 62,400
( 57,600)
P 4,800
3-15: a

Investment by Ang
Goodwill to August
LIM
P23,000
_____
P23,000
ONG
P 18,600
______
P 18,600
ANG
16,000
__4,800
P20,800
45
3-16: a
Capital balances before

admission
Admission by Dong:
By Purchase (1/2)
By Investment
Goodwill and Bonus
Goodwill to Old Partners (sch. 1)
Bonus to Old Partners (sch. 1)
Capital balances after
admission
ANG
BENG
CHING
DONG
TOTAL
P600,000
P 400,000
P 300,000
P1,300,000
( 300,000)
_______
_______
_______
300,000
_300,000
___300,000
P300,000
150,000
__37,500
P 400,000
150,000
__37,500
P 300,000
100,000
__25,000
P600,000
( 100,000)
P1,600,000
400,000
________
P487,500
P 587,500
P 425,000
P500,000
P2,000,000
Schedule 1:
Old Partners
New Partner
Total
CC
AC
P
1,000,000 P1,500,000
600,000 (25%) __500,000
P
1,600,000 P2,000,000
Inc. (Dec.)
P500,000
( 100,000) Bonus
P400,000 GW
3-17: b
MONA
admission of Alma
Admission of Alma:
Investment
Goodwill to old partner,
70:30 (sch. 1)
admission of Lorna
Admission of Lorna:
Goodwill Written off, 5:3:2
Investment
Goodwill to old partners,
5:3:2 (sch. 2)
Capital balances after
admission
LIZA
ALMA
LORNA
TOTAL
50,000
P 200,000
80,000
80,000
__28,000
___12,000
_______
______
___40,000
P178,000
P 80,000
P 320,000
(P 20,000)
(P
P150,000
62,000
12,000) (
P8,000)
75,000
( P40,000)
75,000
__10,000
____6,000
____4,000
______
___20,000
P168,000
P 56,000
P 76,000
P 75,000
P 375,000
Schedule 1:
Total agreed capital (80,000/25%)
Total capital contributed (200,000+80,000)
Goodwill to old partners, 70:30
P 320,000
( 280,000)
P 40,000
Schedule 2:
Total agreed capital (75,000/20%)
Total contributed capital (280,000+75,000)
Goodwill to old partners, 5:3:2
P 375,000
( 355,000)
P 20,000
46
Chapter 3
3-18: c
Unadjusted capital balances
Overvaluation of Marketable Securities
Allowance for Bad Debts
Adjusted capital balances before admission
RED
P175,000
( 12,500)
( 12,500)
P150,000
Total agreed capital (270,000/2/3)

Green's interest
Investment
P405,000
1/3
P135,000
WHITE
P100,000
( 7,500)
( 7,500)
P 85,000
BLUE
P 45,000
( 5,000)
( 5,000)
P 35,000
TOTAL
P320,000
( 25,000)
( 25,000)
P270,000
3-19: b
admission
Capital transfer
to WW (1/6)
Balances
Equalization of capital
Balances
Net profit, equally
Drawings (2 months)
WWs Investment
XX
YY
ZZ
WW
TOTAL
P360,000
P225,000
P135,000
P720,000
( 60,000)
P300,000
( 100,000)
P200,000
3,150
_( 1,500)
( 37,500)
P187,500
__12,500
P200,000
3,150
_( 2,000)
( 22,500)
P112,500
__87,500
P200,000
3,150
_( 1,500)
_120,000 ______
P120,000 P720,000
______ ______
P120,000 P720,000
3,150
12,600
_( 2,000) _( 7,000)
P201,650
P201,150
P201,650
P121,150
Total agreed capital (201,650+201,150+201,650)/2/3

WW's interest
Agreed capital of WW
Contributed capital (see above)
Cash to be invested
P725,600
P906,675
1/3
P302,225
_121,150
P181,075
3-20: a
Capital balances
Understatement of assets, P12,000
Balances before settlement to A
A
P 20,750
__3,000
P 23,750
Settlement to A
A's interest (23,750+5,000)
Partial Goodwill to A
P 30,250
_28,750
P 1,500
B
P 19,250
__3,000
P 22,250
Therefore:
1. Under partial Goodwill method the capital balances of B is P 22,250
2. Under Bonus method the capital balances of B would be:
B, capital balances before settlement to A
P 22,250
Bonus to A (1,500X25/75)
_( 500)
B, capital after retirement of A
P 21,750
C
P 45,000
__6,000
P 51,000
47
3-21: a
Capital balances
Net income, P140,000
Undervaluation of inventory, P20,000
Capital balances before settlement to Perez
Settlement to Perez
Bonus to Perez
Capital balances after retirement
Perez
P 100,000
70,000
___10,000
P 180,000
( 195,000)
___15,000
P
Reyes
Suarez
P 150,000 P 200,000
42,000
28,000
____6,000 ____4,000
P 198,000 P 232,000
_( 9,000) _( 6,000)
P 189,000 P 226,000
Capital balances
Settlement to Ely
Total Goodwill (P40,000/50%)P80,000
Capital balances after retirement of Ely
ELY
FLOR
GLOR
P 320,000 P 192,000 P 128,000
( 360,000)
__40,000 ___24,000 ___16,000

P
P 216,000 P 144,000
3-22: c
3-23: c
Net loss-2007:
Salary (10 months)
Interest (10 months)
Bal. beg. cap. ratio: 48:24
Total
Capital balance
Drawings
Net profit- 2008:
Salary
Interest
Balance, equally
Total
Capital balance
Drawings
_Alma_
480,000
_Betty_
240,000
480,000
40,000
( 544,000)
( 24,000)
456,000
( 24,000)
432,000
240,000
20,000
( 272,000)
( 12,000)
228,000
( 24,000)
204,000
720,000
60,000
( 816,000)
( 36,000)
684,000
( 48,000)
636,000
576,000
43,200
( 397,800)
221,400
653,400
( 24,000)
629,400
288,000
20,400
( 397,800)
( 89,400)
114,600
( 24,000)
90,600
864,000
63,600
( 795,600)
132,000
768,000
( 48,000)
720,000
Total contributed capital (720,000 + 400,000)

Coras interest
Coras agreed capital
Coras contributed capital
Bonus to Cora, from Alma and Betty 4:2
Therefore entry (c) is correct.
_Total_
720,000
1,120,000
40%
448,000
400,000
48,000
48
Chapter 3
3-24: a
Capital balance, beg. 2007
2007 net profit (90,000 59,000):
Interest
Compensation
Balance, 4:6
Total
Balance
Withdrawal
Repairs (charge to Pete)
_Pete_
P80,000
8,000
5,000
( 2,000)
11,000
91,000
( 8,000)
( 5,000)
78,000
1/1/08: Admission of Sammy

Total agreed capital (P117,000 +43,000)
Sammys interest
Sammys agreed capital
Sammys contributed capital
Bonus to Pete & Carlos, 4:6
Therefore entry (a) is correct.
_Carlos_
P30,000
3,000
20,000
( 3,000)
20,000
50,000
( 11,000)
39,000
_Total_
P110,000
11,000
25,000
( 5,000)
31,000
141,000
(19,000)
( 5,000)
117,000
P160,000
20%
32,000
43,000
11,000
49
(a)
Problem 3 1
1. Goodwill Method:
Total agreed capital (P75,000 25%) ..................................... P300,000
Total contributed capital .......................................................... _275,000
Goodwill to old partners, P/L ratio .......................................... P 25,000
Entry
Goodwill ............................................................................
Cash ...................................................................................
Red, capital ...................................................................
White, capital ................................................................
Blue, capital ..................................................................
Green, capital ................................................................
25,000
75,000
5,000
10,000
10,000
75,000
2. Bonus Method:
Contributed capital of Green .................................................... P 75,000
Agreed capital of Green (P275,000 x 25%) ............................... _68,750
Bonus to old partners, P/L ratio ................................................ P 6,250
Entry:
Cash ...................................................................................
Green, capital ................................................................
Red, capital ...................................................................
White, capital ................................................................
Blue, capital ..................................................................
75,000
68,750
1,250
2,500
2,500
(b) 1. Implicit Goodwill Method:

Total Implied Capital (P75,000 25) ...................................... P300,000
Total existing capital................................................................ _200,000
Implied Goodwill to old partners ............................................. P100,000
Entries:
Goodwill ............................................................................
Red, capital ...................................................................
White, capital ................................................................
Blue, capital ..................................................................
100,000
20,000
40,000
40,000
Red, capital (25% x P80,000) ............................................

White, capital (25% x p120,000).......................................
Blue, capital (25% x P100,000).........................................
Green, capital ................................................................
20,000
30,000
25,000
2. Red, capital (25% x P10,000).......................................................

White, capital (25% x P80,000) ...................................................
Blue, capital (25% x P60,000) .....................................................
Green, capital .........................................................................
15,000
20,000
15,000
75,000
50,000
50
Chapter 3
Problem 3 2
a.
(1) Bonus Method:

Contributed capital of Tomas ......................................................... ..................
Agreed capital of Tomas (P640,000 x 20%) ................................... ..................
P140,000
_128,000
Bonus to old partners, P/L ratio ...................................................... ..................
P 12,000
BRUNO
MARIO
TOMAS
TOTAL
Balances before admission ....................

Admission of Tomas ..............................
P200,000
___9,000
P300,000
___3,000
_128,000
P500,000
_140,000
Balances after admission .......................
P209,000
P303,000
P128,000
P640,000
(2) Goodwill Method:

Total agreed capital (P140,000 20%) . .................. .....................
Total contributed capital ........................ .................. .....................
P700,000
_640,000
Goodwill to old partners, P/L ratio ........ .................. .....................
P 60,000
BRUNO
MARIO
TOMAS
TOTAL
Balances before admission ....................

Admission of Tomas ..............................
P200,000
__45,000
P300,000
__15,000
_140,000
P500,000
_200,000
Balances after admission .......................
P245,000
P315,000
P140,000
P700,000
(3) Goodwill with subsequent write-off.

BRUNO
MARIO
TOMAS
TOTAL
Balances from A-2 .................................

Goodwill written off, 6:2:2 ....................
P245,000
( 36,000)
P315,000
( 12,000)
P140,000
( 12,000)
P700,000
( 60,000)
Balances .................................................
P209,000
P303,000
P128,000
P640,000
BRUNO
MARIO
TOMAS
TOTAL
Balances from A-2 .................................

Goodwill written off, 4:4:2 ....................
P245,000
( 24,000)
P315,000
( 24,000)
P140,000
( 12,000)
P700,000
( 60,000)
Balances .................................................
P221,000
P291,000
P128,000
P640,000
b.
Problem 3 3
a.
b.
Total capital after admission (P76,000 + P104,000) ..................................... ..................

Total capital before admission (P60,000 + P80,000) .................................... ..................
Goodwill recorded ........................................................................................ ..................
P180,000
_140,000
P 40,000
Total capital of the partnership (P180,000 75%) ....................................... ..................

Less: Total capital of old partners plus Goodwill (P140,000 + 40,000) ....... ..................
Cash payment by Barry ................................................................................. ..................
P240,000
_180,000
P 60,000
Total capital after admission (P52,000 + P68,000) ....................................... ..................

Total capital before admission ...................................................................... ..................
Bonus to Barry .............................................................................................. ..................
P120,000
_140,000
P 20,000
Agreed capital of Barry (P120,000 75%) x 25% ....................................... ..................

Less: Bonus .............................................................................................. ..................
Cash payment by Barry ................................................................................. ..................
P 40,000
__20,000
P 20,000
51
Problem 3 4
a.
Total agreed capital (P60,000 20%) .................................................. P300,000

Total contributed capital (P100,000 + P40,000 + P60,000) ................. _200,000
Goodwill to old partners, P/L ratio ....................................................... P100,000
Entry:
Cash .. .... ......................................................................................
Goodwill ......................................................................................
Gene, capital ..........................................................................
Nancy, capital ........................................................................
Ellen, capital ..........................................................................
b.
Cash ..... .. .... ......................................................................................

Ellen, capital.................................................................................
60,000
100,000
80,000
20,000
60,000
60,000
60,000
No Goodwill, no bonus because the total agreed capital is equal to the total contributed
capital.
c.
d.
Gene, capital ......................................................................................

Nancy, capital .....................................................................................
Ellen, capital .................................................................................
20,000
Cash .... ... .... ......................................................................................

Ellen, capital .................................................................................
32,000
8,000
28,000
32,000
Since the total agreed capital (P172,000) is equal to the total contributed capital (P172,000),
then no Goodwill or bonus is to be recorded.
e.
Total agreed capital (P140,000 80%) ................................................ P175,000

Total contributed capital (P140,000 + P32,000) ................................... _172,000
Goodwill to new partner ....................................................................... P 3,000
Entry:
Cash .. .... ......................................................................................
Goodwill ......................................................................................
Ellen, capital ..........................................................................
32,000
3,000
35,000
Problem 3 5
a.
b.
Cash ..... .. .... ......................................................................................

Cherry capital ...............................................................................
40,000
Total agreed capital (P120,000 + P50,000) .......................................... P170,000

Cherry's interest .................................................................................... ____25%
Cherry's agreed capital .............................................................................. 42,500
Contributed capital................................................................................ __50,000
Bonus to old partners, 70:30 ................................................................. P 7,500
40,000
52
Chapter 3
Entry:
Cash .. .... ......................................................................................
Cherry, capital .......................................................................
Helen, capital .........................................................................
Cathy, capital .........................................................................
c.
25,000
7,875
3,375
36,250
Total agreed capital (P50,000 25%) .................................................. P200,000

Total contributed capital (P120,000 + 50,000) ....................................... 170,000
Goodwill to old partners, 70:30 ............................................................ P 30,000
Entry:
Cash
......................................................................................
Goodwill ......................................................................................
Cherry, capital .......................................................................
Helen, capital .........................................................................
Cathy, capital .........................................................................
e.
42,500
5,250
2,250
Total agreed capital (P120,000 + P25,000) .......................................... P145,000

Cherry's interest .................................................................................... ____25%
Agreed capital of Cherry .......................................................................... 36,250
Contributed capital................................................................................ __25,000
Bonus to new partner ............................................................................ P 11,250
Entry:
Cash .. .... ......................................................................................
Helen, capital................................................................................
Cathy, capital................................................................................
Cherry, capital .......................................................................
d.
50,000
50,000
30,000
50,000
21,000
9,000
Total agreed capital (P120,000 75%) ................................................ P160,000

Goodwill to new partner ....................................................................... P 15,000
Entry:
Cash
......................................................................................
Goodwill ......................................................................................
Cherry, capital .......................................................................
25,000
15,000
40,000
Problem 3 6
a.
Total agreed capital (P600,000 3/4) .................................................................

Santos interest ......................................................................................................
Contribution of Santos .........................................................................................
P800,000
_____1/4
P200,000
b.
Total agreed capital (P630,000 3/4) .................................................................

Santos' interest .....................................................................................................
Contribution of Santos .........................................................................................
P840,000
_____1/4
P210,000

c.
d.
e.
53
Total agreed capital (P624,000 3/4) ....................................................................... ....................

Less: Contributed capital of old partners ................................................................... ....................
P832,000
_600,000
Contributed capital of Santos .................................................................................... ....................
P232,000
Total agreed capital (P600,000 3/4) ....................................................................... ....................

Less: Goodwill ........................................................................................................ ....................
P800,000
__10,000
Contributed capital .................................................................................................... ....................

Contributed capital of old partners ............................................................................ ....................
790,000
_600,000
P190,000
Total agreed capital (Contributed) ............................................................................. ....................

Less: Contributed capital of old partners ................................................................... ....................
P820,000
_600,000
P220,000
Problem 3 7
a.
b.
c.
Tony, capital
........................................................................................................
Noel, capital ......................................................................................................
40,000
Cash
........................................................................................................
Noel, capital ......................................................................................................
(P180,000 2/3) x 1/3 = P90,000.
90,000
Cash ....... ..... .... ........................................................................................................

Goodwill ..... .... ........................................................................................................
Noel, capital ......................................................................................................
56,000
4,000
40,000
90,000
60,000
Total agreed capital (P180,000 3/4) ....................................................................... ..... P240,000

Total contributed capital (P180,000 + P56,000) ........................................................ ..... _236,000
Goodwill to new partner ............................................................................................ ..... P
d.
Subas, capital
.....
Tony, capital
..
Inventory.............
4,000
14,400
9,600
Cash ....... ..... .... ........................................................................................................

52,000
Noel, capital ......................................................................................................
Total agreed capital (P52,000 1/4) ......................................................................... ..... P208,000
Total capital before inventory write-down (180,000 + 52,000) ................................. ..... (232,000)
e.
Write-down to old partners capital ............................................................................ ..... ( 24,000)

Land.. 92,000
Subas, capital
Tony, capital.
Subas, capital (P155,200 x 1/4) .................................................................................
38,800
Tony, capital (P116,800 x 1/4) ..................................................................................
29,200
Noel, capital ......................................................................................................
Total resulting capital (P68,000 1/4) ...................................................................... ..... P272,000
Total capital of old partner (net assets) ...................................................................... ..... _180,000
Increase in value of land ............................................................................................ ..... P 92,000
Capital of old partner after revaluation of land:
Subas (P100,000 + P55,200) ............................................................................. ..... P155,200
Tony (P80,000 + P36,800) ................................................................................ ....... 116,800
24,000
52,000
55,200
36,800
68,000
54
f.
Chapter 3
Cash .... ... .... ......................................................................................

Subas, capital ......................................................................................
Tony, capital ......................................................................................
Noel, capital .................................................................................
40,000
2,400
1,600
44,000
Agreed capital of Noel (P220,000 x 1/5) ............................................... P 44,000

Contributed capital of Noel .................................................................... _40,000
Bonus to Noel ........................................................................................ P 4,000
g.
Cash .... ... .... ......................................................................................

Goodwill . .... ......................................................................................
Noel, capital .................................................................................
Subas, capital (P60,000 x 3/5)......................................................
Tony, capital (P60,000 x 2/5) .......................................................
P60,000
60,000
P 60,000
36,000
24,000
Total agreed capital (P60,000 1/5) .................................................... P300,000

Goodwill to old partner, 3:2.................................................................. P 60,000
Problem 3 8
a.
b.
c.
Conny, capital .....................................................................................

Andy, capital (P8,000 x 3/4) ...............................................................
Benny, capital (P8,000 x 1/4) .............................................................
Cash .. .... ......................................................................................
40,000
6,000
2,000
Goodwill . .... ......................................................................................

Conny, capital .....................................................................................
Cash .. .... ......................................................................................
10,000
40,000
Goodwill (P5,000 1/5) .....................................................................

Conny, capital .....................................................................................
Andy, capital (P25,000 x 3/5) ......................................................
Benny, capital (P25,000 x 1/5) .....................................................
Cash
......................................................................................
25,000
40,000
48,000
50,000
15,000
5,000
45,000
Problem 3 9
a.
b.
Spade, capital ......................................................................................

Jack, capital ..................................................................................
120,000
Goodwill (P30,000 50%) .................................................................

Ace, capital ...................................................................................
Jack, capital ..................................................................................
Spade, capital ...............................................................................
60,000
Spade, capital (P120,000 + P30,000)..................................................

Jack, capital ..................................................................................
150,000
120,000
12,000
18,000
30,000
150,000
55
Problem 3-9 (Continued)
c.
d.
e.
f.
g.
Spade, capital ......................................................................................

Cash .. .... ......................................................................................
180,000
Ace, capital (P60,000 x 2/5) ...............................................................

Jack, capital (P60,000 x 3/5)...............................................................
Spade, capital ...............................................................................
24,000
36,000
Land .... ... .... ......................................................................................

Ace, capital (20%) ........................................................................
Jack, capital (30%) .......................................................................
Spade, capital (50%) ....................................................................
20,000
Spade, capital ......................................................................................

Ace, capital (P50,000 x .40) ...............................................................
Jack, capital (P50,000 x .60) ...............................................................
Cash .. .... ......................................................................................
Land.. .... ......................................................................................
130,000
20,000
30,000
Goodwill . .... ......................................................................................

Spade, capital ......................................................................................
Cash .. .... ......................................................................................
30,000
120,000
Goodwill (P30,000 50%) .................................................................

Spade, capital ......................................................................................
Ace, capital (P60,000 x 20%).......................................................
Jack, capital (P60,000 x 30%) ......................................................
Cash .. .... ......................................................................................
60,000
120,000
Land .... ... .... ......................................................................................

Ace, capital (20%) ........................................................................
Jack, capital (30%) .......................................................................
Spade, capital (50%) ....................................................................
P40,000
Spade, capital (P120,000 x P20,000) ..................................................

Ace, capital (P10,000 x 40%) .............................................................
Jack, capital (P10,000 x 60%) ............................................................
Land.. .... ......................................................................................
Note payable.................................................................................
140,000
4,000
6,000
180,000
60,000
4,000
6,000
10,000
60,000
120,000
150,000
12,000
18,000
150,000
8,000
12,000
20,000
100,000
50,000
56
Chapter 3
Problem 3 10
Case 1: Bonus of P10,000 to Eddy:

Eddy, capital.................................................................................
Charly, capital (P10,000 x 3/5) ....................................................
Danny, capital (P10,000 x 2/5).....................................................
Cash ......................................................................................
70,000
6,000
4,000
Case 2: Partial Goodwill to Eddy:

Goodwill ......................................................................................
Eddy, capital.................................................................................
Cash ......................................................................................
4,000
70,000
Case 3: Bonus of P5,000 to remaining partner:

Eddy, capital.................................................................................
Charly, capital (P5,000 x 3/5) ................................................
Danny, capital (P5,000 x 2/5) ................................................
Cash ......................................................................................
Case 4: Total Implied Goodwill of P24,000:
Goodwill ......................................................................................
Eddy, capital.................................................................................
Charly, capital (P24,000 x 3/6) ..............................................
Danny, capital (P24,000 x 2/6) ..............................................
Cash ......................................................................................
Case 5: Other assets disbursed:
Eddy, capital.................................................................................
Other assets ..................................................................................
Charly, capital (P60,000 x 3/6) ..............................................
Danny, capital (P60,000 x 2/6) ..............................................
Cash ......................................................................................
Case 6: Danny purchases Eddy's capital interest:
Eddy, capital.................................................................................
Danny, capital ........................................................................
80,000
74,000
70,000
3,000
2,000
65,000
24,000
70,000
12,000
8,000
74,000
70,000
20,000
30,000
20,000
40,000
70,000
70,000
57
Problem 3 11
a. 1/1/06
Building ...............................................................
Equipment ............................................................
Cash ....................................................................
Santos capital ..............................................
To record initial investment.
52,000
16,000
12,000
12/31/06 Reyes capital ........................................................

Santos capital ..............................................
Income summary .........................................
To record distribution of loss as follows:
22,000
1/1/07
40,000
12,000
10,000
Interest .................................................................
Additional profit ..................................................
Balance to Reyes..................................................
Santos
P 8,000
4,000
______
Reyes
P
(22,000)
Total
P 8,000
4,000
(22,000)
Total ....................................................................
P12,000
P(22,000)
(P10,000)
Cash ....................................................................
Santos capital (15%) ............................................
Reyes capital (85%) .............................................
Cruz capital .................................................
15,000
300
1,700
17,000
(new investment by Cruz brings total capital to P85,000 after 2006 loss [80,000
10,000 + 15,000]. Cruz's 20% interest is P17,000 [85,000 x 20%] with the extra
P2,000 coming from the two original partners [allocated between them according
to their profit and loss ratio].)
12/31/07 Santos capital .......................................................
Reyes capital ........................................................
Cruz capital ..........................................................
Santos drawings ..........................................
Reyes drawings ...........................................
Cruz drawings .............................................
10,340
5,000
5,000
10,340
5,000
5,000
To close drawings accounts for the year based on distributing 20%. Of each
partner's beginning capital balances [after adjustment for Cruz's investment] or
P5,000 whichever is greater. Santos's capital Is P51,700 [40,000 + 12,000 300].)
12/31/07 Income summary .................................................
Santos capital ..............................................
Reyes capital ...............................................
Cruz capital .................................................
To allocate P44,000 income figure as computed below:
Santos
Interest (20% of P51,700) .................................... P10,340
15% of P44,000 income .......................................
6,600
Balance, 60:40 .....................................................
______
Total ....................................................................
P16,940
44,000
16,940
16,236
10,824
Reyes
Cruz
P16,236
P10,824
P16,236
P10,824
58
Chapter 3
Capital balances as of December 31, 2008
1/1/08
Initial investment, 2007 .......................................

2007 profit ...........................................................
Cruz investment ...................................................
2007 drawings......................................................
2007 profit ...........................................................
Santos
P40,000
12,000
(300)
(10,340)
_16,940
Reyes
P40,000
(22,000)
(1,700)
(5,000)
_16,236
P17,000
(5,000)
_10,824
Capital, 12/31/07 .................................................
P58,300
P27,536
P22,824
Cruz capital ..........................................................

Diaz capital .................................................
To transfer capital purchase from Cruz to Diaz
Cruz
22,824
22,824
12/31/08 Santos capital .......................................................

11,660
Reyes capital ........................................................
5,507
Diaz capital ..........................................................
5,000
Santos drawings ..........................................
11,660
Reyes drawings ...........................................
5,507
Diaz drawings .............................................
5,000
To close drawings accounts based on 20% of beginning capital Balances (above) or
P5,0000 (whichever is greater).
12/31/08 Income summary .................................................
Santos capital ..............................................
Reyes capital ...............................................
Diaz capital .................................................
To distribute profit for 2008 computed as follows:
1/1/09
b. 1/1/06
61,000
20,810
24,114
16,076
Santos
P11,660
9,150
______
Reyes
Diaz
Interest (20% of P58,300) ....................................

15% of P61,000 profit..........................................
Balance, P40,190, 60:40 ......................................
P24,114
P16,076
Total ....................................................................
P20,810
P24,114
P16,076
Diaz capital ..........................................................

33,900
Santos capital (15%) ............................................
509
Reyes capital (85%) .............................................
2,881
Cash.............................................................
37,290
Diaz capital is [33,900 (P22,824 P5,000 + P16,076)]. Extra 10% is deducted
from the two remaining partners' capital accounts.
Building ...............................................................
Equipment ............................................................
Cash ....................................................................
Goodwill ..............................................................
Santos capital ..............................................
Reyes capital ...............................................
To record initial investments. Reyes is credited with goodwill of
Santos investment.
52,000
16,000
12,000
80,000
80,000
80,000
P80,000 to match
59
12/31/06 Reyes capital ..............................................................

30,000
Santos capital ..............................................
20,000
Income summary .........................................
10,000
Interest of P16,000 is credited to Santos (P80,000 x 20%) along with a base of
P4,000. The remaining profit is now a P30,000 loss which is attributed entirely to
Reyes.
1/1/07
Cash ....................................................................
15,000
Goodwill ..............................................................
22,500
Cruz capital .................................................
37,500
Cash and goodwill contributed by Cruz are recorded. Goodwill is Computed
algebraically as follows:
P15,000 + goodwill =
.80 goodwill
=
goodwill
=
20% (current capital + P15,000 + goodwill)

20% (P150,000 + P15,000 + goodwill)
P33,000 + .20 goodwill
P18,000
P22,500
12/31/07 Santos capital .......................................................

20,000
Reyes capital ........................................................
10,000
Cruz capital ..........................................................
7,500
Santos drawings ..........................................
Reyes drawings ...........................................
Cruz drawings .............................................
To close drawings accounts based on 20% of beginning capital
Balances: Santos, p100,000; Reyes, P50,000; and Cruz, P37,500.
12/31/07 Income summary .................................................
Santos capital ..............................................
Reyes capital ...............................................
Cruz capital .................................................
To allocate P44,000 profit as follows:
20,000
10,000
7,500
44,000
26,600
10,400
6,960
Reyes
Cruz
Interest (20% of P100,000) ..................................

15% of P44,000 profit..........................................
Balance of P17,400, 60:40 ...................................
Santos
P20,000
6,600
______
P10,440
P 6,960
Total ....................................................................
P26,600
P10,440
P 6,960
Capital balances as of December 31, 2004:

Santos
Initial investment, 2006 ....................................... P80,000
2006 profit allocation...........................................
20,000
Additional investment ..........................................
2007 drawings...................................................... (20,000)
2007profit allocation............................................ __26,600
Reyes
P80,000
(30,000)
Cruz
(10,000)
_10,440
P37,500
(7,500)
__6,960
Capitals, 12/31/07 ................................................ P106,600
P50,440
P36,960
60
Chapter 3
1/1/08
Goodwill ......................................................................
26,588
Santos capital .....................................................
3,988
Reyes capital ......................................................
13,560
Cruz capital ........................................................
9,040
To record goodwill implied of Cruz's interest. In effect, the profit Sharing ratio is 15% to
Santos, 51% to Reyes (60% of 85% remaining after Santos's income), and 34% to Cruz
(40% of the 85% remaining after Santos' income). Diaz is paying P46,000, P9,040 in excess
of Cruz's capital (P36,960). The additional payment for this 34% income Interest indicates
total goodwill of P26,588 (P9,040/34%).
1/1/08
Cruz capital ..................................................................

Diaz capital ........................................................
To transfer of capital purchase.
46,000
12/31/08 Santos capital ...............................................................

Reyes capital ................................................................
Diaz capital ..................................................................
Santos drawings .................................................
Reyes drawings ..................................................
Diaz drawings ....................................................
To close drawings accounts based on 20% of beginning capitals.
22,118
12,800
9,200
12/31/08 Income summary .........................................................

Santos capital .....................................................
Reyes capital ......................................................
Diaz capital ........................................................
To allocate profit for 2008 as follows:
61,000
46,000
22,118
12,800
9,200
31,268
12,800
9,200
Santos
P22,118
9,150
______
Reyes
Diaz
Interest (20% of P110,588) ..........................................

15% of P61,000 ...........................................................
Balance of P29,732, 60:40 ...........................................
P17,839
P11,893
Totals ...........................................................................
P31,268
P17,839
P11,893
Santos
P106,600
3,988
Reyes
P50,440
13,560
Diaz
(22,118)
__31,268
(12,800)
_17,839
P46,000
(9,200)
_11,893
P119,738
P69,039
P48,693

12/31/07 balances ........................................................
Goodwill ......................................................................
Capital purchased ........................................................
Drawings......................................................................
Profit allocation ...........................................................
12/31/08 balances ........................................................
1/1/09
1/1/09
Goodwill ......................................................................
14,321
Santos capital .....................................................
2,148
Reyes capital ......................................................
7,304
Diaz capital ........................................................
4,869
To record implied goodwill. Diaz will be paid P53,562 (110% of the capital balance for his
interest. This amount is P4,869 in excess of the capital account. Since Diaz is only entitled
to a 34% share of profits and losses, the additional P4,869 must indicate that the partnership
as a whole is undervalued by P14,321 (P4,869/34%) which is treated as goodwill.
Diaz capital ..................................................................
53,562
Cash....................................................................
53,562
To record settlement to Diaz.
61
Problem 3 12
Partnership Books Continued as Books of Corporation
Entries in the Books of the Corporation
(1) Inventories ..... .................................................................... .................
Land ...... ........ .................................................................... .................
Building. ........ .................................................................... .................
Accumulated depreciation bldg. ...................................... .................
Accumulated depreciation equipment .............................. .................
Equipment .................................................................. .................
Jack capital ................................................................ .................
Jill capital................................................................... .................
Jun capital .................................................................. .................
To adjust assets and liabilities of the partnership
to their current fair values.
26,000
40,000
20,000
20,000
30,000
(2) Cash ...... ........ .................................................................... .................

Jack capital .... .................................................................... .................
Jill capital................................................................... .................
Jun capital .................................................................. .................
To adjust capital accounts of the partners to 4:3:3 ratio.
4,000
18,000
(3) Jack capital .... .................................................................... .................

Jill capital ...... .................................................................... .................
Jun capital...... .................................................................... .................
Capital stock............................................................... .................
To record issuance of stock to the partners.
100,000
75,000
75,000
20,000
58,000
34,800
23,200
20,200
1,800
250,000
New Books Opened for the New Corporation

Entries in the Books of the Partnership
(1) Inventories ..... .................................................................... .................
Land ...... ........ .................................................................... .................
Building. ........ .................................................................... .................
Accumulated depreciation bldg. ...................................... .................
Accumulated depreciation equipment .............................. .................
Equipment .................................................................. .................
Jack capital ................................................................ .................
Jill capital................................................................... .................
Jun capital .................................................................. .................
To adjust assets and liabilities of the partnership.
26,000
40,000
20,000
20,000
30,000
(2) Cash ...... ........ .................................................................... .................

Jack capital .... .................................................................... .................
Jill capital................................................................... .................
Jun capital .................................................................. .................
To adjust capital accounts of the partners.
4,000
18,000
20,000
58,000
34,800
23,200
20,200
1,800
62
Chapter 3
(3) Stock of JJJ Corporation .................................................... .................

Accounts payable ................................................................ .................
Loans payable Jill ............................................................ .................
Cash in bank............................................................... .................
Accounts payable ....................................................... .................
Inventories .................................................................. .................
Land....... .................................................................... .................
Building . .................................................................... .................
Equipment .................................................................. .................
To record transfer of assets and liabilities to
The corporation and the receipt of capital stock
250,000
30,000
40,000
(4) Jack capital .... .................................................................... .................

Jill capital ...... .................................................................... .................
Jun capital...... .................................................................... .................
Stock of JJJ Corporation ............................................ .................
To record issuance of stock to the partners.
100,000
75,000
75,000
44,000
26,000
60,000
60,000
70,000
60,000
250,000
Entries in the Books of the Corporation

(1) To record the acquisition of assets and liabilities from the partnership:
Cash in bank .. .................................................................... .................
Accounts receivable ............................................................ .................
Inventories ..... .................................................................... .................
Land ...... ........ .................................................................... .................
Building (net) . .................................................................... .................
Equipment (net)................................................................... .................
Accounts payable ....................................................... .................
Loans payable ............................................................ .................
Capital stock............................................................... .................
a. 1/1/06
12/31/06
44,000
26,000
60,000
60,000
70,000
60,000
30,000
40,000
250,000
Problem 3 13
Building
1,040,000
Equipment
320,000
Cash
240,000
Lim, capital
800,000
Sy, capital
800,000
(To record initial investment. Assets recorded at market value with two equal
capital balances.
Sy, capital
440,000
Lim, capital
240,000
Income summary
200,000
(The allocation plan specifies that Lim will receive 20% in interest [or 160,000
based on P800,000 capital balance] plus P80,000 more [since that amount is
63
greater than 15% of the profits from the period]. The remaining P440,000 loss is
assigned to Sy.)
1/1/07
Cash
300,000
Lim, capital (15%)
6,000
Sy, capital (85%)
34,000
Tan, capital
340,000
(New investment by Tan brings total capital to P1,700,000 after 2006 loss
[P1,600,000 P200,000 + P300,000]. Tans 20% interest is P340,000
[P1,700,000 x 20%] with the extra P40,000 coming from the two original
partners [allocated between them according to their profit and loss ratio].)
12/31/07
Lim, capital
206,800
Sy, capital
100,000
Tan, capital
100,000
Lim, drawings
206,800
Sy, drawings
100,000
Tan, drawings
100,000
(To close out drawings accounts for the year based on distributing 20% of each
partners beginning capital balances [after adjustment for Tans investment] or
P100,000 whichever is greater. Lims capital is P1,034,000 [P800,000 +
P240,000 P6,000])
12/31/07
Income summary
880,000
Lim, capital
Sy, capital
Tan, capital
(To allocate P880,000 income figure for 2007 as determined below.)
Interest (20% of P1,034,000

beginning capital balance)
15% of P880,000 income
60:40 split of remaining P541,200 income
Total
338,800
324,720
216,480
Lim
Sy
Tan
P206,800
132,000
P338,800
324,720
P524,720
216,480
P216,480

Initial 2006 investment
2006 profit allocation
Tans investment
2007 drawings
12/31/07 balances
1/1/08
Lim
P800,000
240,000
(6,000)
(206,800)
338,800
P1,166,000
Sy
P800,000
440,000
(34,000)
(100,000)
324,720
P550,720
Tan, capital
456,480
Ang, capital
(To reclassify balance to reflect acquisition of Tans interest.)
Tan
P340,000
(100,000)
216,480
P456,480
456,480
64
Chapter 3
12/31/08
Lim, capital
233,200
Sy, capital
110,140
Ang, capital
100,000
Lim, drawings
233,200
Sy, drawings
110,140
Ang, drawings
100,000
(To close out drawings accounts for the year based on 20% of beginning capital
balances [above] or P100,000 [whichever is greater].)
12/31/08
Income summary
1,220,000
Lim, capital
416,200
Sy, capital
482,280
Ang, capital
321,520
(To allocate profit for 2008 determined as follows)
Lim
Sy
Ang
Interest (20% of P1,166,000 beg. capital)
P233,200
15% of P1,220,000 income
183,000
60:40 split of remaining P803,800
482,280
321,520
Totals
P416,200
P482,280
P321,520
b.
1/1/09
Ang, capital
678,000
Lim, capital (15%)
10,180
Sy, capital 85%)
57,620
Cash
745,800
(Angs capital is P678,000 [P456,480 P100,000 + P321,520]. Extra 10%
payment is deducted from the two remaining partners capital accounts.)
1/1/06
Building
1,040,000
Equipment
320,000
Cash
240,000
Goodwill
1,600,000
Lim, capital
1,600,000
Sy, capital
1,600,000
(To record initial capital investments. Sy is credited with goodwill of P1,600,000
to match Lims investment.)
12/31/06
Sy, capital
600,000
Lim, capital
400,000
Income summary
200,000
(Interest of P320,000 is credited to Lim [P1,600,000 x 20%] along with a base of
P80,000. The remaining amount is now a P600,000 loss that is attributed entirely
to Sy.)
1/1/07
Cash
300,000
Goodwill
450,000
Tan, capital
750,000
(Cash and goodwill being contributed by Tan are recorded. Goodwill must be
calculated algebraically.)
65
P300,000 + Goodwill = 20% (Current capital + P300,000 + Goodwill)

P300,000 + Goodwill = 20% (P3,000,000 + P300,000 + Goodwill)
P300,000 + Goodwill = P660,000 + .2 Goodwill
.8 Goodwill = P360,000
Goodwill = P450,000
12/31/07
Lim, capital
400,000
Sy, capital
200,000
Tan, capital
150,000
Lim, drawings
400,000
Sy, drawings
200,000
Tan, drawings
150,000
balances: Lim- P2,000,000, Sy- P100,000, and Tan- P750,000.)
12/31/07
Income summary
Lim, capital
Sy, capital
Tan, capital
(To allocate P880,000 income figure as follows)
Lim
Interest (20% of P2,000,000)

15% of P880,000 income
Totals
P400,000
132,000
P532,000
880,000
532,000
208,800
139,200
Sy
Tan
P208,800
P208,800
P139,200
P139,200
Sy
P1,600,000
(600,000)
Tan

Initial 2006 investment
2007 drawings
12/31/07 balances
1/1/08
Lim
P1,600,000
400,000
(400,000)
532,000
P2,132,000
(200,000)
208,800
P1,008,800
Goodwill
531,760
Lim, capital (15%)
Sy, capital (51%)
Tan, capital (34%)
(To record goodwill indicated by purchase of Tans interest.)
P750,000
(150,000)
139,200
P739,200
79,760
271,200
180,800
In effect, profits are shared 15% to Lim, 51% to Sy (60% of the 85% remaining after Lims
income), and 34% to Tan (50% of the 85% remaining after Lims income). Ang is paying
P920,000, an amount P180,800 in excess of Tans capital (P739,200). The additional payment for
this 34% income interest indicates total goodwill of P531,760 (P180,800/34%). Since Tan is
entitled to 34% of the profits but only holds 19% of the total capital, an implied value for the
66
Chapter 3
company as a whole cannot be determined directly from the payment of P920,000. Thus,
goodwill can only be computed based on the excess payment.
1/1/08
Tan, capital
Ang, capital
(To reclassify capital balance to new partner.)
920,000
920,000
12/31/08
Lim, capital
442,360
Sy, capital
256,000
Ang, capital
184,000
Lim, drawings
442,360
Sy, drawings
256,000
Ang, drawings
184,000
balances [after adjustment for goodwill].)
12/31/08
Income summary
Lim, capital
Sy, capital
Ang, capital
1,220,000
625,360
356,780
237,860
To allocate profit for 2008 as follows:

Lim
Interest (20% of P2,211,760
P442,360
15% of P1,220,000 income
183,000
Totals
P625,360
Sy
Ang
356,780
P356,780
237,860
P237,860
Sy
P1,008,00
271,200
( 256,000)
356,780
P1,380,780
Ang
P739,200
180,800
(184,000)
237,860
P973,860

12/31/07 balances
Adjustment for goodwill
Drawings
Profit allocation
12/31/08 balances
Lim
P2,132,000
79,760
(442,360)
625,360
P2,394,760
Ang will be paid P1,071,240 (110% of the capital balance) for her interest. This amount is
P97,380 in excess of the capital account. Since Ang is only entitled to a 34% share of profits and
losses, the additional P97,380 must indicate that the partnership as a whole is undervalued by
P286,420 (P97,380/34%). Only in that circumstance would the extra payment to Ang be justified:
1/1/09
Goodwill
Lim, capital (15%)
Sy, capital (51%)
Ang, capital (34%)
(To recognize implied goodwill.)
286,420
42,960
146,080
97,380
1/1/09
Ang, capital
Cash
(To record final distribution to Ang.
67
1,071,240
1,071,240
68
Chapter 4
CHAPTER 4
4-1: a
Capital balances before realization
Loss on liquidation, P40,000
Cash distribution
PAR
P 20,000
( 20,000)
P
BOOGIE
P 16,000
( 12,000)
P 4,000
BIRDIE
P 10,000
( 8,000)
P 2,000
Capital balances before liquidation

Gain of P10,000 (150,000-140,000)
Cash distribution
PING
P 50,000
__6,000
P 56,000
PANG
P 50,000
__2,000
P 52,000
PONG
P 10,000
__2,000
P 12,000

Loss of P40,000 (P140,000-P100,000)
Cash distribution
PING
P 50,000
( 24,000)
P 26,000
PANG
P 50,000
( 8,000)
P 42,000
PONG
P 10,000
( 8,000)
P 2,000

Loss of P70,000 (P140,000-P70,000)
Balances
Absorption of Pong's deficiency, 6:2
Cash distribution
PING
P 50,000
( 42,000)
P8,000
( 3,000)
P 5,000
PANG
P 50,000
( 14,000)
P 36,000
( 1,000)
P 35,000
PONG
P 10,000
( 14,000)
( 4,000)
__4,000
COLT
MARK
Capital balances before liquidation (net of loans)P290,000 P200,000
Loss of P130,000, 4:3:3
( 52,000)
( 39,000)
Cash distribution
P238,000
P161,000
CLOCK
P220,000
( 39,000)
P181,000
4-2: c
4-3: b
4-4: a
4-5: b
4-6: c
Loss of P60,000, 40:50:10
Cash distribution
JONAS
P160,000
( 24,000)
P136,000
CARLOS
P 45,000
( 20,000)
P 25,000
TOMAS
P 55,000
( 6,000)
P 49,000
Partnership Liquidation
69
4-7: a
Loss of P100,000, 4:3:3
Cash distribution
ARIEL
P40,000
( 40,000)
P
BERT
P180,000
( 30,000)
P150,000
NORY
P23,000
OSCAR
P 13,500
15,000
( 30,900)
P 7,100
( 20,600)
( P7,100)
CESAR
P 30,000
( 30,000)
P
4-8: b
Additional investment by Nory for
the unpaid liabilities (33,000-18,000)
Loss on realization (schedule 1)
Payment by Oscar to Nory
Schedule 1
Total capital before liquidation
Unpaid liabilities
Total loss on realization
P 36,500
15,000
P 51,500
4-9: d
Capital balances before liquidation (net)
Loss on realization (schedule 1) P27,500
Balances, cash distribution
BLACK
P99,000
( 13,750)
P85,250
Schedule 1:
Capital balances of white (net)
Cash received by White
White's share of total loss (30%)
WHITE
P 91,500
( 27,500)
P 64,000
GREEN
P138,000
_( 5,500)
P132,500
P 91,500
_83,250
P 8,250
Total loss on realization (P8,250/39%)
P 27,500
4-10: c
Loss on realization, P63,600
Balances
Unrecorded liabilities, P500
Balances
Elimination of Nora's deficiency
Payment to partners
ANA
P27,000
( 25,320)
P 1,680
( 200)
P 1,480
( 1,380)
P 100
EVA
P 43,000
( 25,320)
P 17,680
( 200)
P 17,480
( 1,380)
P 16,100
NORA
P 10,000
( 12,660)
( 2,660)
( 100)
( 2,760)
__2,760
P

Loss on realization (schedule 1) P45,000
Payment to partners
ARIES
P33,500
( 22,500)
P11,000
LEO
P 49,000
( 13,500)
P 35,500
TAURUS
P 36,500
( 9,000)
P 27,500
4-11: d
70
Chapter 4
Schedule 1:
Taurus capital (net)
Payment to Taurus
Share of total loss (20%)
P36,500
( 27,500)
P 9,000
Total loss on realization (9,000/20%)
P45,000
4-12: c
Capital balances, June 11
Net loss from operation (squeeze)
Capital balances, August 30 before
liquidation (48,500-25,600)
Loss on realization (47,500-30,000)
Balances
Additional investment by Olga
Balances
Elimination of Olga's deficiency
Payment to partners
TOTAL
P32,700
( 9,800)
MONA
P15,000
( 4,200)
NORA
P13,500
( 2,800)
OLGA
P 4,200
( 2,800)
P22,900
( 17,500)
P 5,400
_1,500
P 6,900
______
P 6,900
P10,800
( 7,500)
P 3,300
_____
P 3,300
( 1,260)
P 2,040
P10,700
( 5,000)
P 5,700
_____
P 5,700
( 840)
P 4,860
P 1,400
( 5,000)
( 3,600)
_1,500
( 2,100)
_2,100
P

Operating loss, P21,000
Drawings
Loans
Balances
Absorption of Tita's deficiency
Payment to Nora
RITA
P49,000
( 3,500)
( 10,000)
( 2,000)
P33,500
__1,500
P32,000
SARA
P18,000
( 7,000)
( 15,000)
8,000
( 4,000)
P
_____
P
TITA
P10,000
( 10,500)
( 20,000)
25,000
( 6,000)
( 1,500)
_1,500
P
CLARO
P45,000
PEDRO
P27,000
ANDRO
P50,000
( 24,000)
P21,000
( 24,000)
P 3,000
( 12,000)
P38,000
TOTAL
P47,500
( 38,500)
P 9,000
MONA
P28,500
( 23,100)
P 5,400
LISA
P19,000
( 15,400)
P 3,600
4-13: b
4-14: a
Loss on realization
Accounts Receivable (P50,000 X 40%)
Investment (P30,000 - P20,000)
Equipment (P60,000-P30,000)
Total
Payment to partners
P20,000
10,000
_30,000
P60,000
4-15: c
Capital balances before liquidation (inclusive loans)
Loss on realization, (squeeze)
Capital balances - cash distribution
Cash after realization

Less Liabilities (P36,000-P7,500)
Total capital after realization
71
P 37,500
( 28,500)
P 9,000
4-16: a
FF capital before distribution of net loss
Add: share of net loss (P10,000 X 40%)
FF capital before liquidation
Cash settlement to FF
FF share of total loss on realization (40%)
P100,000
_( 4,000)
96,000
( 80,000)
P 16,000
Total loss on realization (P16,000/40%)
P 40,000
Total capital before liquidation (P260,000-P10,000)

Add: Liabilities
Total assets
Cash before liquidation
Non-cash assets
Loss on realization
Cash to be realized
P250,000
_100,000
P350,000
( 50,000)
P300,000
( 40,000)
P260,000
4-17: d
Capital balances before realization (net)
Loss on realization (squeeze)
Capital balances after realization
(liabilities-unpaid)
Elimination of CC's deficiency
Balances
Investment by DD
Payment to EE
TOTAL
P100,000
( 125,000)
CC
P 15,000
( 62,500)
DD
P22,500
( 37,500)
EE
P62,500
( 25,000)
(P 25,000)
_______
(P 25,000)
__43,500
P 18,500
( 47,500)
__47,500
______
P
( 15,000)
( 28,500)
(P43,500)
_43,500
P
P37,500
( 19,000)
P18,500
_____
P18,500
4-18: d
Total capital before liquidation
Liabilities
Total assets
Less: Cash balance before realization
Cash after payment of liabilities
payment of liabilities
Cash realized
Non-cash asset
Less: cash realized
Loss on realization
P 30,000
__1,500
P 31,500
P 11,100
1,500
( 11,600)
__1,000
P 30,500
_11,600
P 18,900
72
Chapter 4
4-19: d
Capital balances
Salary of LL (P600 X 8 months)
Loss on realization
Balances
Additional investment by NN
Payment to partners
LL
P 50,000
__4,800
P 54,800
( 44,880)
P 9,920
______
P 9,920
MM
P 20,000
_______
P 20,000
( 14,960)
P 5,040
_____
P 5,040
NN
TOTAL
P 10,000 P 80,000
_______ ___4,800
P 10,000 P 84,800
( 14,960)
(P 4,960)
__4,960
P
4-20: b
KK's total interest (P60,000-P10,000)
Less: Cash to be paid to KK
Share of total loss (1/3)
P 50,000
__10,000
P 40,000
Total loss on realization (P40,000/1/3)
P120,000
Total assets:
Total interest of the partners before liquidation:
JJ (P70,000+P30,000+P10,000)
KK (P60,000-P10,000)
LL (P30,000+P10,000)
Divide by
Total
Loss on realization
Cash to be realized
P110,000
50,000
__40,000
P200,000
______50%
P400,000
_120,000
P280,000
4-21: a
Capital balances, July 1
Advances to NN, August 1
OO Loan, September 1
Interest, December 31 (6%)
NN (5 mos.)
OO (4 mos.)
Compensation to PP
Cash distribution
TOTAL
P 75,000
( 10,000)
20,000
(
250)
400
__2,500
P 87,650
_56,250
P 35,000
NN
P 25,000
( 10,000)
OO
P 25,000
20,000
PP
P 25,000
250)
_______
P 14,750
( 17,550)
( 2,800)
400
_______ ___2,500
P 45,400 P 27,500
( 17,550) ( 17,550)
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.
73
4-22: a
(unpaid liabilities)
Elimination of AS's deficiency
Cash to be absorbed
TOTAL
P 950,000
( 1,000,000)
PG
P350,000
__20,000
JR
AS
P250,000 P350,000
( 200,000) _500,000
(P 50,000)
_______
P
P 50,000
( 90,000)
(P 40,000)
P 50,000 ( 150,000)
( 60,000) P150,000
(P 10,000) P
RM
P500,000
( 490,000)
P 10,000
ST
P825,000
( 735,000)
P 90,000
TOTAL
P 27,500
__37,500
P 65,000
LT
P 20,000
_18,750
P 38,750
AM
P 5,000
__-9,375
P 14,375
AG
P 420,000
( 300,000)
P 120,000
BM
P375,000
( 300,000)
P 75,000
4-23: a
Loss on realization, P1,225,000
Payment to Partners
4-24: a
Gain on realization (squeeze)
ZP
P 2,500
__9,375
P 11,875
4-25: c
Loss on realization, P1,000,000
Balances
Additional investment by DJ
CP
DJ
P205,000 P150,000
(200,000) (200,000)
P 5,000 P(50,000)
50,000
4-26: a
Settlement to Uy
Uy capital before liquidation (net):
Uy capital
Receivable from Uy
Loss of Uy (50%)
P351,500
P553,500
( 132,000)
Total loss on realization (P70,000 50%)
CB before liquidation
Receivable from Uy
Loan to Wi
Salary payable to Vi
Interest before realization
Loss on realization
Settlement to partners
__Uy__
553,500
(132,000)
P140,000
__Vi__
452,500
__Wi__
486,000
( 40,500)
421,500
( 70,000)
351,500
421,500
P 70,000
135,000
587,500
( 42,000)
545,500
445,500
( 28,000)
417,500
__Total__
1,492,000
(132,000)
(40,500)
135,000
1,454,500
( 140,000)
1,314,500
74
Chapter 4
Problem 4 1
Case 1
Rivas and Briones
Statement of Liquidation
December 31, 2008
Assets
Rivas,
Cash
Others Liabilities
Loan
Balances before liquidation ... P 20,000 P200,000 P132,000 P 18,000
Realization of assets and
distribution of loss .......... _134,000 ( 200,000) _______ _______
Balances................................. 154,000
132,000
18,000
Payment of liabilities ............. ( 132,000) ______ ( 132,000) ______
Balances.................................
22,000
18,000
Offset Rivas' loan against his
capital deficiency ............ _______ _______ _______ ( 18,000)
Balances.................................
22,000
Additional loss to Briones ..... _______ _______ _______ _______

Balances.................................
22,000
Payment to partner................. P(22,000)
Partners' Capitals
Briones, Rivas Briones
Loan
(90%)
(10%)
P 20,000 P40,000 P10,000
_______ ( 59,400) ( 6,600)
20,000 ( 19,400) 3,400
_______ _______ ______
20,000 ( 19,400) 3,400
_______ _18,000 ______
20,000 ( 1,400) 3,400
_______ __1,400 ( 1,400)
20,000
2,000
P(20,000)
P(2,000)
Case 2
Rivas and Briones
December 31, 2008
Partners' Capitals
Assets
Rivas, Briones, Rivas Briones
Cash
Others Liabilities
Loan
Loan
(70%)
(30%)
P20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000 P10,000
Balances before liquidation ...

distribution of loss .......... 134,000 ( 200,000) _______ ______ _______
Balances................................. 154,000
132,000
18,000
20,000
Payment of liabilities ............. ( 132,000) _______ ( 132,000) ______ _______
Balances.................................
22,000
18,000
20,000
Offset loan against capital
deficiency ........................ ________ _______ _______ ( 6,200) ( 9,800)
Balances.................................
22,000
11,800
10,200
Payment to partner................. P(22,000)
P(11,800) P(10,200)
( 46,200) ( 19,800)
( 6,200) 9,800
_______ ______
( 6,200) 9,800
__6,200 __9,800
75
Case 3
Rivas and Briones
December 31, 2008
Rivas,
Loan
P 18,000
Briones,
Loan
P20,000
Partners' Capitals
Rivas
Briones
(50%)
(50%)
P40,000 P10,000
( 200,000) _______ _______
132,000
18,000
_______ ( 132,000)
18,000
______
20,000
__
20,000
( 33,000) ( 33,000)
( 7,000) ( 23,000)
_
_______
( 7,000) ( 23,000)
Assets
Cash
Others Liabilities
P 20,000 P200,000 P132,000
Balances before liquidation ........

distribution of loss ............... _134,000
Balances .....................................
154,000
Payment of liabilities .................. ( 132,000)
Balances .....................................
22,000
Offset Briones'' loan against
his capital deficiency ........... _______
Balances .....................................
22,000
Additional loss to Rivas .............. _______
Balances .....................................
22,000
Payment to partner ...................... P(22,000)
_______
_______
_______
_______
_______ ( 20,000)
18,000
_______ _______
18,000
P(18,000)
______ _20,000
7,000 ( 3,000)
( 3,000) __3,000
4,000
P( 4,000)
Journal Entries
Case 1:
Cash ..... .... ...................................................................................................
Rivas, Capital ................................................................................................
Briones, Capital ............................................................................................
Other Assets ...........................................................................................
Liabilities .. ...................................................................................................
Cash ... ...................................................................................................
Rivas, Loan ...................................................................................................
Rivas, Capital .........................................................................................
Briones, Capital ............................................................................................
Rivas, Capital .........................................................................................
Briones, Loan ................................................................................................
Briones, Capital ............................................................................................
Cash ...................................................................................................
Case 2:
Cash ..... .... ...................................................................................................
Rivas, Capital ................................................................................................
Briones, Capital ............................................................................................
Other Assets ...........................................................................................
Liabilities .. ...................................................................................................
Cash ... ...................................................................................................
Rivas, Loan ...................................................................................................
Briones, Loan ................................................................................................
Rivas, Capital .........................................................................................
Briones, Capital .....................................................................................
Rivas, Loan ...................................................................................................
Briones, Loan ................................................................................................
Cash ... ...................................................................................................
134,000
59,400
6,600
200,000
132,000
132,000
18,000
18,000
1,400
1,400
20,000
2,000
22,000
134,000
46,200
19,800
200,000
132,000
132,000
6,200
9,800
6,200
9,800
11,800
10,200
22,000
76
Chapter 4
Case 3:
Cash .... ... ...........................................................................................
Rivas, Capital......................................................................................
Briones, Capital ..................................................................................
Other Assets .................................................................................
Liabilities ...........................................................................................
Cash .. ...........................................................................................
Briones, Loan......................................................................................
Briones, Capital ............................................................................
Rivas, Capital......................................................................................
Briones, Capital ............................................................................
Rivas, Loan .........................................................................................
Rivas, Capital......................................................................................
Cash .. ...........................................................................................
134,000
33,000
33,000
200,000
132,000
132,000
20,000
20,000
3,000
3,000
18,000
4,000
22,000
Problem 4 2
Blando and Castro

April 30, 2008
A s s e t s
Cash Receivables Inventory
Balances before
liquidation ....................
Collection of
receivables and
distribution of loss .......
Balances ............................
Realization of
inventory and
distribution of
loss...............................
Balances ............................
Realization of other
assets and distribution
of loss ..........................
Others
Accounts
Payable
Blando,
Loan
Partners'
Blando
(60%)
Capitals
Castro
(40 %)
P 18,000
P75,000
P90,000
P84,000
P42,000
P 24,000
P102,000
P99,000
_37,500
( 75,000)
_______ _______
_______
_______
( 22,500)
( 15,000)
84,000
42,000
24,000
79,500
84,000
( 90,000) _______
_______
_______
( 36,000)
( 24,000)
42,000
24,000
43,500
60,000
_______
_______
( 26,400)
( 17,600)
42,000
24,000
17,100
42,400
_______
_______
_______
55,500
_30,000
_______
85,500
_40,000
_______
Balances ............................ 125,500

Payment of accounts
payable......................... ( 42,000)
Balances ............................
83,500
Payments to partners.. P(83,500)
_______
90,000
84,000
_______ ( 84,000)
_______ _______
( 42,000)
24,000
17,100
P(24,000) P( 17,100)
42,400
P(42,400)
77
Problem 4 3
a.
Electric Company
Statement of Partnership Realization and Liquidation
June 30, 2008
Balances
Sale of
assets at a loss
Payment to
creditors
Capital Balances
Volt
Watt
30%
20%
Cash
Amp.
Loan
Noncash
Assets
Liabilities
Volt,
Loan
Amp
50%
20,000
15,000
135,000
30,000
10,000
80,000
36,000
14,000
_95,000
115,000
______
15,000
(135,000)
-0-
______
30,000
______
10,000
(20,000)
60,000
(12,000)
24,000
( 8,000)
6,000
_(30,000)
85,000
______
15,000
_______
-0-
(30,000)
-0-
______
10,000
_______
60,000
______
24,000
______
6,000
(24,000)
-0-
( 6,000)
-0-
Offset Amp,
receivable
(15,000)
Payments to partners:
Loan
(10,000)
Capitals
_(75,000) ______
_______
Balances
-0-0-0b. (1) Cash
Amp, Capital
Volt, Capital
Watt, Capital
Noncash Assets
Sell noncash assets at a loss of P40,000.
(15,000)
_______
-0-
(10,000)
______
-0-
(45,000)
-095,000
20,000
12,000
8,000
135,000
(2) Liabilities
Cash
Pay creditors.
30,000
(3) Amp, Capital

Amp, Loan
Offset receivable from Amp against his capital credit.
15,000
(4) Volt, Loan

Amp, Capital
Volt, Capital
Watt, Capital
Cash
Final lump-sum distribution to partners.
10,000
45,000
24,000
6,000
30,000
15,000
85,000
Note: All partners permitted Amp to offset his receivable against his capital credit. Alternatively, Amp
could be required to pay the partnership the P15,000 receivable; the partnership would then pay him an
additional P15,000 for his capital credit. In this case, an offset of the receivable against the capital credit is
reasonable, provided the receivable is not interest-bearing, Amp has a sufficient capital credit, Amp is
personally solvent, and the note is not secured against specific assts of Amp. The offset is not automatic,
but must be determined by the terms of the initial note, and by the partners.
78
Chapter 4
Problem 4 4
a.
b.
Bina, capital before liquidation ..................................................................... ..................

Payment to Bina ............................................................................................ ..................
P320,000
_128,000
Loss absorbed by Bina (40%) ....................................................................... ..................
P192,000
Loss on realization (P192,000 40%) .......................................................... ..................
P480,000
AIDA, BINA & CELIA

Statement of Partnership Liquidation
January 1, 2008
P720,000
( 720,000)
Aida
(5)
P320,000
( 240,000)
Capital
Bina
(4)
P320,000
( 192,000)
Celia
(1)
P160,000
( 48,000)
_______
80,000
( 80,000)
128,000
( 128,000)
112,000
( 112,000)
Cash
Other Assets
Balances before liquidation .

Realization & dist. of loss ...
P80,000
240,000
Balances .... .... ....................

Settlement to partners .........
320,000
(320,000)
Problem 4 5
a.
b.
LL, capital before liquidation ........................................................................ ..................

Settlement to LL ........................................................................................... ..................
P 70,000
__98,000
Gain realized by LL (20%) ........................................................................... ..................
P 28,000
Total gain on realization (P28,000 20%) ................................................... ..................

Other assets sold ........................................................................................... ..................
P140,000
_500,000
Selling price
P640,000
.............................................................................................. ..................
JJ, KK & LL
Cash
Realization & Dist. of gain ...
P50,000
640,000
Balances .... .... ...................... 690,000

Payment of liabilities ............ ( 60,000)
Payment to Partners .............. (630,000)
Other
Assets
Liabilities
P500,000 P60,000
( 520,000) _______
_______
JJ (4)
P180,000
__56,000
60,000
236,000
( 60,000)
_______ ( 236,000)
Capital
KK(4)
(LL(2)
P240,000
__56,000
P70,000
_28,000
296,000
98,000
( 296,000)
( 98,000)
79
Problem 4 6
a.
BB ................................................... P160,000
CC ................................................... P20,000
DD................................................... P60,000
EE ...................................................
P 0
b.
BB, CC, DD, & EE

Cash
P
0
Advances by BB to pay liabilities
Deposit by DD ......................
60,000
Balances .... .... ......................
60,000
Elimination of EE's deficiency
Elimination of DD's deficiency
Payment to partners...............
Liabilities
C a p i t
CC (10%)DD (20%)
BB (30%)
P60,000 P160,000
( 60,000)
60,000
______ _______
P80,000
220,000
( 90,000)
______ __( 90,000)
60,000
l
EE (40%)
(P120,000) P(180,000)
_______
__60,000
80,000
( 30,000)
( 30,000)
( 60,000) ( 180,000)
( 60,000)
180,000
120,000
40,000
20,000
________
Problem 4 7
Sayson and Company
Date
Assets
Cash Noncash
Liabilities
Accounts
Notes
Payable Payable
Pea
Loan
P a r t n e r s' C a p i t a l s
Sayson
Zobel
Ayala
(45%)
(30%)
(15%)
Balances before liquidation...

distribution of gain ..........
P 15,000
P155,250
P11,250
P9,000
P 1,500
P 75,345
185,000
( 155,250)
_______
______
______
17,850
11,900
Balances................................
Payment of liabilities ............
200,000
( 20,250) ________
11,250
( 11,250)
9,000
( 9,000)
1,500
______
93,195
______
98,398 ( 14,993)
______ _______
1,650
______
1,500
93,195
98,398 ( 14,993)
1,650
Balances................................
Additional loss to Sayson,
Zobel and Pea;
45:30:10 ..........................
179,750
_______ ________ ________
Balances................................
Offset Pea's loan against
his capital deficiency .......
179,750
_______ ________ ________
Balances................................
179,750
Payments to partners .............
P(179,750)
______
______
P 86,498 P(14,993)
Pea
(10%)
______
( 7,937)
( 5,292)
14,993
1,500
85,258
93,106
______
( 114)
______
______
1,386
85,258
93,106
P(1,386) P(85,258) P(93,106)
_______
-
P1,650
______
( 1,764)
(114)
114
80
Chapter 4
Problem 4 8
a.
Art, Bea and Cid Partnership

June 4, 2008
Balances before liquidation

(including Bea loan, P4,000) ......
Realization of assets
at a loss of P63,300 ..................
Unrecorded accounts payable .........
Payment to creditors .......................
Balances .... .... ................................
Eliminate Cid's deficit .....................
Balances .... .... ................................
Payment to Partners ........................
b.
2008
July 5
c.
Cash
Assets
Other
Liabilities
Partners' Capital
Art (40%) Bea (40%) Cid (20%)
P 6,000
P94,000
P20,000
P27,000
P43,000
30,000
( 94,000)
(20,500)
16,200
______
16,200
(16,200)
______
______
-
(25,320)
500
(20,500)
______
-
(25,320)
(200)
______
1,480
(1,380)
100
_( 100)
(12,660)
(200)
______
17,480
(1,380)
16,100
( 16,100)
Cash .... .... ................................ ............. .................. ..................

Art capital (P63,300 x 40%) ....... ............. .................. ..................
Bea capital (P63,300 x 40%) ...... ............. .................. ..................
Cid capital (P63,300 x 20%) ...... ............. .................. ..................
Other assets ....................... ............. .................. ..................
To record realization of other assets at a loss of P63,300.
30,700
25,320
25,320
12,660
Art capital (P500 x 40%) ............ ............. .................. ..................

Bea capital (P500 x 40%) ........... ............. .................. ..................
Cid capital (P500 x 20%) ........... ............. .................. ..................
Liabilities .......................... ............. .................. ..................
To record trade accounts payable.
200
200
100
Liabilities .. ................................ ............. .................. ..................

Cash . ................................ ............. .................. ..................
To record payment of liabilities.
20,500
Art capital .. ................................ ............. .................. ..................

Bea capital . ................................ ............. .................. ..................
Cid capital ......................... ............. .................. ..................
To eliminate Cid's capital deficit.
1,380
1,380
Art capital .. ................................ ............. .................. ..................

Bea capital . ................................ ............. .................. ..................
Cid capital . ................................ ............. .................. ..................
Cash . ................................ ............. .................. ..................
To record payments to partners to complete liquidation.
100
4,000
12,100
P10,000
(100)
______
(2,760)
_2,760
94,000
500
20,500
2,760
16,200
Cid's loss must be limited to P5,000, or P25,000 for the partnership (P5,000 / 20% = P25,000).
Because the liquidation of liabilities results in a loss of P500, only P24,500 may be lost on the
realization of other assets. This requires that other assets realize P69,500 (P94,000 24,500) to
enable Cid to receive P5,000 from the partnership to pay personal creditors in full.
Problem 4 9
KGB Partnership
Statement of Realization and Liquidation
Lump-sum Liquidation on June 30, 2008
-
Preliquidation balances
Sale of assets
and distribution
of 430,000 loss
Cash contributed
by B
Distribution of deficit
of insolvent partner:
20/60 (P2,000)
40/60 (P2,000)
Offset deficit with loan
Contribution by G
Payment of creditors
Distribution to K
Postliquidation
balances
Capital Balances
K
G
20%
40%
(240,000) (100,000)
B
40% (120,000)
Cash
50,000
Noncash
Assets
950,000
Liabilities
(480,000)
G
Loan
(60,000)
520,000
570,000
950,000
-0-
(480,000)
(60,000)
86,000
(154,000)
172,000
72,000
172,000
52,000
(480,000)
(60,000)
(154,000)
72,000
50,000
2,000
50,000
620,000
-0-
(2,000)
666
620,000
620,000
13,334
633,334
(480,000)
153,334
(153,334)
-0-
-0-0-
(480,000)
(480,000)
(60,000)
60,000
-0-
(153,334)
(153,334)
(480,000)
480,000
-0-
-0-
(153,334)
(153,334)
153,334
-0-0-
-0-
-0-
-0-
-0-
-0-
1,334
73,334
(60,000)
13,334
(13,334)
-0-
-0-0-0-
-0-
-0-
-0-
-0-
82
Chapter 4
KGB Partnership
Schedule of Distribution of Personal Assets
June 30, 2008
Personal assets, excluding partnership

capital and loan interests
Personal liabilities
Personal net worth, excluding
partnership capital and loan
interests
Contribution to partnership
Distribution from partnership
Personal capacity
500,000
(460,000)
600,000
(480,000)
700,000
(650,000)
40,000
120,000
(13,334)
-0- 106,666
5 0,000
153,334
193,334
-0- -0- -
Partnership Liquidation by Installment
83
CHAPTER 5
5-1: b
Loan balances
Total interest
Possible loss (40,000+10,000)
Balances
Additional loss to RJ & SJ, 5:3
Cash distribution
RJ
P22,000
_10,000
32,000
( 25,000)
7,000
( 1,250)
P 5,750
SJ
P30,000
______
30,000
( 15,000)
15,000
( 750)
P14,250
TJ
P 8,000
______
8,000
( 10,000)
( 2,000)
__2,000
P
Capital balances
Loan balances
Total interest
Possible loss (23,000-6,000)
Balances
Additional loss to BR, CR, DR, 3:2:1
Balances
Additional loss to CR & DR, 2:1
Payment to partners
AR
P 5,500
_1,000
6,500
( 6,800)
( 300)
___300
_____
P
BR
P 5,150
_____
5,150
( 5,100)
50
( 150)
( 100)
___100
P
CR
P 6,850
_____
6,850
( 3,400)
3,450
( 100)
3,350
_( 67)
P 3,283
Total liabilities
Total Capital
Total Assets
P 1,000
_22,000
P23,000
5-2: a
DR
P 4,500
_____
4,500
( 1,700)
2,800
( 50)
2,750
_( 33)
P 2,717
5-3: c
Capital balances
Loan balances
Advances
Total interest
Divided by P/L Ratio
Loss Absorption balances
PI - TO GG
Balances
PII - TO EE & GG, 30:10
Balances
PIII - TO EE, FF, GG, 3:1:1
Balances
PIV - P/L Ratio
DD
P40,000
5,000
_____
45,000
____50%
90,000
_____
90,000
_____
90,000
_____
P90,000
BALANCES
EE
FF
P30,000
P15,000
10,000
_____
( 4,500)
40,000
10,500
____30%
____10%
133,333
105,000
_____
( 91,667)
133,333
105,000
( 28,333)
_____
105,000
105,000
(15,000)
( 15,000)
P90,000
P90,000
GG
P25,000
( 2,500)
22,500
____10%
225,000
__ __
133,333
( 28,333)
10,500
( 15,000)
P90,000
84
Chapter 5
DD
PI - To GG
PII - To EE (28,833 X 30%)
GG (28,833 X 10%)
PIII To EE (15,000 X 30%)
FF (15,000 X 10%)
GG (15,000 X 10%)
_____
Total
PIV - P/L Ratio
DD
Distribution of P18,000
PI - TO GG
PII - TO EE & GG, 3:1, P8,833
Cash distribution
CASH PAYMENT
EE
FF
P 8,433
4,500
1,500
_____
_____
GG
P 9,167
2,833
__1,500
P12,933
P 1,500
P13,500
EE
FF
GG
_____
_6,625
_____
P 9,167
__2,208
P 6,625
P11,375
5-4: a
Capital balances before cash distribution
Possible loss, P90,000
Balances
Additional loss to Lim & Wan, 4:2
Cash distribution
TAN
P40,000
( 16,000)
24,000
( 36,000)
( 12,000)
_12,000
P
LIM
P65,000
( 16,000)
49,000
( 36,000)
13,000
( 8,000)
P 5,000
WAN
P48,000
( 8,000)
40,000
( 18,000)
22,000
( 4,000)
P18,000

Possible loss (90,000+3,000)
Balances
Additional loss to Lim & Wan, 4:2
Cash distribution
TAN
P24,000
( 37,200)
( 13,200)
_13,200
P
LIM
P49,000
( 18,600)
30,400
( 8,800)
P21,600
WAN
P40,000
( 18,600)
21,400
_( 4,400)
P17,000
CARPIO
P72,000
( 5,000)
67,000
( 55,000)
12,000
( 6,000)
LOBO
P54,000
( 5,000)
49,000
( 55,000)
( 6,000)
__6,000
5-5: b
5-6: d
Tan (14,000 X 40%)
Lim (14,000 X 40%)
Wan (14,000 X 20%)
P5,600
P5,600
P2,800
5-7: a
Goodwill written-off
Cash balance
Possible loss (100,000+10,000), 110,000
Additional loss to Carpio
Cash distribution
P 6,000
85
5-8: d
JACOB
P40,000
( 15,000)
( 1,000)
24,000
__8,000
32,000
( 45,000)
( 13,000)
_13,000
P
SANTOS
P72,000
( 9,000)
( 600)
62,400
_____
62,400
27,000
35,400
( 7,800)
P27,600
HERVAS
P 7,000
( 6,000)
( 400)
63,600
_____
63,600
( 18,000)
45,600
( 5,200)
P40,400
A
P16,200
_____
16,200
( 600)
15,600
( 150)
15,450
12,000
27,450
( 27,000)
450
( 780)
( 330)
___330
P
B
P12,000
___160
12,000
( 600)
11,400
( 150)
11,250
14,400
25,650
( 27,000)
( 1,350)
__1,350
_____
P
C
P37,700
___240
37,860
( 600)
37,260
( 150)
37,110
_____
37,110
( 27,000)
10,110
( 780)
9,330
( 330)
P 9,000
D
P17,700
_______
( 17,940)
( 600)
17,340
( 150)
17,190
__9,600
26,790
( 27,000)
( 210)
____210
_____
P
DY
P22,000
2/4
44,000
_____
44,000
_____
P44,000
BALANCES
SY
P15,500
1/4
62,000
( 6,000)
56,000
( 12,000)
P44,000
LEE
P14,000
1/4
56,000
_____
56,000
( 12,000)
P44,000

Loss on realization (120,000-90,000)
Liquidation expenses, P2,000
Loan balances
Total interest
Possible Loss (210,000-120,000)
Balances
Additional loss to Santos & Hervas
Cash distribution
5-9: d
Salary payable
Balances
Loss on realization (P2,400)
Balances
Liquidation expenses (P600)
Balances
Loan balances
Total interest
Possible Loss (126,000-18,000)
Balances
Additional loss to A & C
Balances
Additional loss to C
Cash distribution
5-10: a
Total interest
Profit and Loss ratio
Loan absorption balances
Priority I - to Sy
Balances
Priority II - to Sy & Less
Total
CASH PAYMENTS
SY
LEE
1,500
3,000
_____
_____
_3,000
DY
Priority I - to Sy (6,000 X 1/4)

Priority II - to Sy (12,000 X 1/4)
to Lee (12,000 X 1/4)
Total
P 4,500
P 3,000
86
Chapter 5
Further cash distribution, profit and loss ratio
Cash distribution to Dy
Divided by Dy's Profit and Loss ratio
Amount in excess of P7,560
Total payment under priority I & II
Total cash distribution to partner
P 6,250
2/4
12,500
__7,500
P20,000
5-11: d
Cash realized
Total
Less:
Payment of liquidation expense
Payment of liability
Payment to partners (Q 5-10)
Cash withheld
P12,000
_32,000
44,000
P 1,000
5,400
20,000
_26,400
P17,600
5-12: c
Loss absorption balances:
Cena (18,000/50%)
Batista (27,000/30%)
Excess of Batista
Multiply by Batista's Profit & Loss ratio
Priority I to Batista
P36,000
90,000
54,000
____30%
P16,200
5-13: c
Capital balances
Loan balances
Total interest
Divided by Profit and Loss Ratio
Priority I to CC
Balances
Priority II to BB & CC, 2:1
Total interest
AA
P15,000
10,000
25,000
2/5
62,500
_____
62,500
_____
P62,500
AA
Priority I to CC (12,500 X 1/5)
Priority II to BB (25,000 X 2/5)
to CC (25,000 X 1/5)
Total
Priority III P/L Ratio
Cash distribution to CC:
Priority I
Priority II (12,000-2,500) X 1/3
____
P
BALANCES
BB
P30,000
_5,000
35,000
2/5
87,520
_____
87,520
( 25,000)
P62,500
CC
P10,000
10,000
20,000
1/5
100,000
( 12,500)
100,000
( 25,000)
P62,500
CASH PAYMENTS
BB
CC
2,500
10,000
_____
_5,000
P10,000
P 7,500
P2,500
3,167
Total cash paid to CC

P5,667
87
5-14: c
JJ
P 60,000
_18,000
_78,000
____40%
195,000
______
195,000
______
195,000
______
P195,000
Capital balances
Loan balances
Total interest
Priority I to LL
Balances
Priority II to LL, MM, 15:10
Balances
Priority II to KK, LL, MM, 35:15:10
Total
JJ
______
P
Priority I to LL (30,000 X 15%)

Priority II to LL (30,000 X 15%)
to MM (30,000 X 10%)
Priority II to KK (75,000 X 35%)
to LL (75,000 X 15%)
to MM (75,000 X 10%)
Total
BALANCES
KK
LL
MM
P 64,500
P 54,000
P 30,000
_30,000
______
______
_94,500
_54,000
_30,000
_____35%
_____15% _____10%
270,000
360,000
300,000
______
( 60,000)
______
270,000
300,000
300,000
______
( 30,000) ( 30,000)
270,000
270,000
270,000
( 75,000)
( 75,000) ( 75,000)
P195,000
P195,000
P195,000
CASH PAYMENT
KK
LL
9,000
4,500
1,750
11,250
______
______
P 1,750
P 24,750
MM
3,000
___7,500
P 10,500
Further cash distribution, Profit and Loss ratio

Cash distribution to Partners (P38,100-9,000), P29,100
Priority I to LL
Priority II to LL, MM, 15:10
Priority II to KK, LL, MM, 35:15:10
(29,100-16,500), 12,600
Cash distribution
JJ
_____
P
KK
MM
LL
P 9,000
4,500
3,000
TOTAL
P 9,000
7,500
__7,350
P 7,350
___3,150
P 16,650
__2,100
P 5,100
__12,600
P 29,100
ARCE
P 20,000
_10,000
_32,000
_____50%
64,000
______
64,000
______
BALANCES
BELLO
P 24,900
______
_24,900
_____30%
83,000
( 8,000)
75,000
( 11,000)
CRUZ
P 15,000
______
_15,000
_____20%
75,000
______
75,000
( 11,000)
5-15: a
Capital balances
Loan balances
Total interest
Priority I to Bello
Balances
Priority II to Bello & cruz, 3:2
Total
P 64,000
P 64,000
P 64,000
88
Chapter 5
CASH PAYMENTS
ARCE
BELLO
CRUZ
P - I to Bello (8,000 X 30%)

P - II to Bello (11,000 X 30%)
to Cruz (11,000 X 20%)
_____
2,400
3,300
_____
_2,200
Total
P 5,700
P2,200
Further Cash distribution, Profit and Loss ratio

Based on the above cash priority program, the P2,000 is only a partial payment to Bello who
is entitled to a maximum of P2,400 under Priority I. Only after satisfying Priority I, Cruz will
receive payment and only after P7,900 has been distributed to Bello and Cruz will Arce receive
payment. Therefore no payments are made to Arce and Cruz.
5-16: a
Cash paid to Arce
Divide by Profit & Loss ratio
P2,000
_____5%
Amount in excess of P7,900

Add: cash paid under PI and PII
40,000
_7,900
Total cash distribution to partners

Cash paid to Creditor (30,000-10,000)
47,900
20,000
Total
Less cash before realization
67,900
_6,000
Cash realized from sale of asset
P61,900
5-17: b
Cash distribution to Cruz
Divide by profit and loss ratio
P 6,200
2/5
Cash distribution under Priority II

Multiply by Bello's Profit and Loss ratio
15,500
3/5
Cash distribution to Bello under Priority II

Cash distribution to Bello under Priority I
9,300
__2,400
Total cash distribution to Bello
P11,700
5-18: b
BALANCES
MONZON
NIEVA
Total Interest
P22,500
P17,500
_____60%
_____40%
Loss absorption balances

Priority I - to Nieka
37,500
______
Total
P37,500
Further cash distribution - Profit and Loss ratio
CASH PAYMENT
MONZON
NIEVA
43,750
( 6,250)
_____
_2,500
P37,500
P2,500
All the P2,000 should be paid Nieva, since she is entitled to P2,500 under Priority I
5-19: b
Cash distribution
PI to Nieva (2,500-2,000)
Balances, 6:40
Cash distribution
CASH MONZON
P12,500
( 500)
_12,000
__7,200
P
P 7,200
5-20: a
June: Cash realized
Payment to creditor
Payment to Partners
Cash balances, June 30
July: Cash realized
Payment of liquidation expense
Payment to Partners
Cash balances, July 31
Aug: Cash realized
Cash distribution for August,
Distribution to Partners - August
Monzon (22,500 X 60%)
Nieva (22,500 x 40%)
P 5,000
18,000
( 20,000)
__2,000
1,000
12,000
( 500)
( 12,500)
_22,500
P22,500
P13,500
P 9,000
NIEVA
500
_4,800
P5,300
89
90
Chapter 5
Problem 5 1
Suarez, Tulio and Umali
January 1 to april 31, 2008
Assets
Cash
Balances before liquidation. P 2,000.00
January Installment:
distribution of loss .... 10,500.00
Balances......................... 12,500.00
Payment of expenses of
realization and distribution
to partners ...................... ( 500.00)
Balances......................... 12,000.00
Payment of liabilities ..... ( 6,000.00)
Balances......................... 6,000.00
Payments to partners
(Schedule 1) ............. ( 4,000.00)
Balances......................... 2,000.00
February Installment:
Balances......................... 8,000.00
to partners ...................... ( 750.00)
Balances......................... 7,250.00
(Schedule 2) ............. ( 6,000.00)
Balances......................... 1,250.00
March Installment:
Balances......................... 11,250.00
to partners ...................... ( 600.00)
Balances......................... 10,650.00
Payments to partners,
P & L ratio ................ ( 10,150.00)
Balances.........................
500.00
April Installment:
Balances......................... 4,500.00
to partners ...................... _(400.00)
Tulio,
Umali,
Partners' Capitals
Others Liabilities
Loan
Loan Suarez (40%) tulio (35%) Umali (25%)
P46,000.00 P6,000.00 P5,000.00 P2,500.00 P14,450.00 P12,550.00 P7,500.00
( 12,000.00) _______
34,000.00 6,000.00
_______
______
5,000.00 2,500.00
( 600.00) ( 525.00)
13,850.00 12,025.00
( 375.00)
7,125.00
_______ _______
34,000.00 6,000.00
_______ ( 6,000.00)
34,000.00
_______ _______
5,000.00 2,500.00
_______ _______
5,000.00 2,500.00
( 200.00)
13,650.00
_______
13,650.00
( 175.00)
11,850.00
________
11,850.00
( 125.00)
7,000.00
_______
7,000.00
_______ _______
34,000.00
( 3,812.50) ( 187.50)
1,187.50 2,312.50
_______
13,650.00
_______
11,850.00
_______
7,000.00
( 7,000.00) _______
27,000.00
_______ _______
1,187.50 2,312.50
_______
2,312.50
__(400.00) ( 350.00)
13,250.00 11,500.00
( 250.00)
6,750.00
( 300.00) ( 262.50)
12,950.00 11,237.50
( 187.50)
6,562.50
_______ ______
27,000.00
_______
1,187.50
_______ ______
27,000.00
( 1,187.50) ( 1,812.50) ( 1,650.00) ( 1,350.00)
500.00
11,300.00
9,887.50
_______
6,562.50
( 15,000.00) ______
12,000.00
______
______
500.00
_______ ______
12,000.00
______
_______
500.00
______
______
12,000.00
______
( 500.00) ( 4,060.00) ( 3,552.50) ( 2,037.50)
5,000.00
4,375.00
3,125.00
( 12,000.00) ______
______
______
( 3,200.00) ( 2,800.00) ( 2,000.00)

1,800.00
1,575.00
1,125.00
______
______
___(160.00) (
______
______
( 2,000.00) ( 1,750.00) ( 1,250.00)

9,300.00
8,137.50
5,312.50
240.00) ( 210.00)
9,060.00
7,927.50
140.00)
( 150.00)
5,162.50
( 100.00)
Balances.........................
4,100.00
Final Payments to partnersP(41,100.00) _____
_____
_____
_____
1,640.00
1,435.00
1,025.00
P( 1,640.00) P( 1,435.00) P(1,025.00)
91
Schedule 1
Capital balances ......................................

Loan balances..........................................
Total interests ..........................................
Possible loss (P2,000 + P34,000) ...........
Balances ..................................................
Additional loss to Tulio and Umali 35:25
Payments to partners ...............................
Apply to loan...........................................
Suarez (40%)
P13,650.00
_____ _
13,650.00
( 14,400.00)
( 750.00)
___750.00
__ __
Tulio (35%) Umali (25%)

P11,850.00
P7,000.00
__5,000.00
_2,500.00
16,850.00
9,500.00
( 12,600.00)
( 9,000.00)
4,250.00
500.00
( 437.50)
( 312.50)
P 3,812.50
P 187.50
P 3,812.50
P 187.50
Schedule 2
Capital balances ......................................
Loan balances..........................................
Total ........................................................
Possible loss (P1,250 + P27,000) ...........
Payments to partners ...............................
Apply to loan...........................................
Apply to capital .......................................
Suarez (40%)
P12,950.00
12,950.00
( 11,300.00)
P 1,650.00
P 1,650.00
Tulio (35%) Umali (25%)

P11,237.50
P6,562.50
__1,187.50
_2,312.50
12,425.00
8,875.00
( 9,887.50)
( 7,062.50)
P 2,537.50
P1,812.50
_1,187.50
_1,812.50
P 1,350.00
P
92
Chapter 5
Problem 5 2
Miller and Bell Partnership
Cash
25,000
40,000
Balances
Sale of inventory
Payment to
creditors
(10,000)
55,000
Payments to
partners
(Schedule 1)
(50,000)
5,000
Sale of inventory 30,000
Payment to
creditors
( 5,000)
30,000
Offset deficit
with loan
______
30,000
Payments to
partners:
Loan
( 6,000)
Capitals
(24,000)
Balances
0
Inventory
120,000
( 60,000)
Accounts
Payable
15,000
Bell
Loan
60,000
Capital
Miller
Bell
80%
20%
65,000
5,000
(16,000)
(4,000)
______
60,000
(10,000)
5,000
______
60,000
______
49,000
______
1,000
______
60,000
( 60,000)
______
5,000
(49,000)
11,000
_(1,000)
48,000
(24,000)
______
1,000
6,000)
______
0
( 5,000)
0
______
11,000
______
24,000
______
(5,000)
______
0
______
0
( 5,000)
6,000
______
24,000
(5,000)
0
______
0
______
0
( 6,000)
______
0
(24,000)
0
______
0
Schedule 1:
Miller and Bell Partnership
Schedule of Safe Payments to Partners
Capital and loan balances

Possible loss of 60,000 on remaining inventory
Safe payment
Miller
80%
49,000
(48,000)
1,000
Bell
20%
61,000
(12,000)
49,000
93
Problem 5 3
HORIZON PARTNERSHIP
Statement of realization and Liquidation
May July, 2008
Assets
Partners Capital
TT
(1/3)
Cash
Other
Liabilities
SS
(1/3)
20,000
75,000
280,000
(105,000)
80,000
______
60,000
(10,000)
70,000
(10,000)
90,000
(10,000)
Balances
Payment to creditors
95,000
(80,000)
175,000
______
80,000
(80,000)
50,000
______
60,000
______
80,000
______
Balances
Payments to PP (Exhibit A)
15,000
(15,000)
175,000
______
______
50,000
______
60,000
______
80,000
(15,000)
0
25,000
175,000
(61,000)
______
50,000
(12,000)
60,000
(12,000)
65,000
(12,000)
25,000
(25,000)
114,000
______
______
38,000
______
48,000
(10,000)
53,000
(15,000)
114,000
38,000
38,000
38,000
(114,000)
(11,000)
(11,000)
(11,000)
27,000
(27,000)
27,000
(27,000)
27,000
(27,000)
SS
TT
PP
60,000
1
60,000
70,000
1
70,000
90,000
1
90,000
______

May sale of assets at a loss of P30,000
Balances
June sale of assets at a loss of P36,000
Balances
Payment to partners (Exhibit A)
Balances
July sale of remaining assets at a loss of
P33,000
Balances
Payment to partners
81,000
81,000
(81,000)
PP
(1/3)
Exhibit A Cash distributions to partners during liquidation:
Capital account balances before liquidation

Income sharing ratio
Required reduction to bring
capital account balance for PP
to equal the next highest balance for TT PI.
______
(20,000)
Balances
Required reduction to bring the balances for
TT and PP to equal the balance for SS PII.
60,000
70,000
70,000
______
(10,000)
(10,000)
Balances
60,000
60,000
60,000
10,000
20,000
10,000
1/3
1/3
Summary of cash distribution program:

To creditors before partners receive anything
To partners:
(1) First distribution to PP
(2) Second distribution to TT and PP equally
(3) Any amount in excess of $120,000
to the three partners in incomesharing ratio
80,000
20,000
20,000
1/3
b. After the cash distribution in June, the partners capital accounts had balances corresponding to the income-sharing
ratio (38,000 each). From this point on any cash payments to partners may be made in the income-sharing ratio or
equally in this problem. In other words, after the creditors are paid and TT and PP receive 10,000 and 30,000,
respective, any additional cash that becomes available may be paid to the three partners equally.
94
Chapter 5
Problem 5 4
1. X, Y and Z
Cash Priority Program
January 1, 2008
Balances
Y
Capital balances ..................................

Loan balances .....................................
P60,000
22,5000
P45,000
15,000
P20,000
6,500
Total interests......................................
P82,500
P60,000
P26,500
P200,000
(35,000)
P132,500
165,000
(32,500)
132,500
________
P132,500
Loss absorption balances .................... P165,000

Priority I to Y ...................................
Balances ..............................................
Priority II to X and Y .......................
165,000
(32,500)
Total .................................................... P132,500
P132,500
X (50%)
Cash Payments
Y (30%) Z (20%)
Any amount in excess of P36,500 .......
Total
P10,500
P16,250
9,750
26,000
P16,250
P20,250
P36,500
50%
30%
20%
P10,500
100%
2. January
Cash
Available for distribution ..............................
Priority I to Y .............................................
P 7,500
( 7,500)
Payment to partner .........................................

February .......................................................
Priority I to Y (P10,500 P7,500) .............
Priority II to X and Y; 5:3 ..........................
Cash
P20,000
( 3,000)
( 17,000)
Payments to partners......................................
March ...........................................................
Priority II to X and Y; 5:3
(P26,000 P17,000) .................................
Excess; 5:3:2..................................................
Cash
P45,000
( 9,000)
( 36,000)
April ..............................................................
Excess; 5:3:2..................................................
Cash
P15,000
( 15,000)
P 7,500
P 7,500
P10,625
P 3,000
6,375
_____
P10,625
P 9,375
P 5,625
18,000
P 3,375
10,800
P7,200
P23,625
P14,175
P7,200
P 7,500
P 4,500
P3,000
P 7,500
P 4,500
P3,000
95
Problem 5 5
AB, CD & EF Partnership
Able
Other Accounts CD
AB
Cash
Loan
Assets Payable Loan
50%
18,000 30,000 307,000 53,000 20,000 118,000

January transactions:
1. Collection of accounts
receivable at loss
of 15,000
51,000
( 66,000)
2. Sale of inventory at
loss of 14,000
38,000
( 52,000)
3. Liquidation expenses paid ( 2,000)
4. Share of credit memorandum
5. Payments to creditors
( 50,000) _____ ______
55,000 30,000 189,000
Sale payments to partners
(Schedule 1
( 45,000) ______
_____
10,000 30,000 189,000
February transactions:
6. Liquidation expenses paid ( 4,000) ______ ______
6,000 30,000 189,000
Safe payments to partners
(Schedule 2)
-0- _____ ______
6,000 30,000 189,000
March transactions:
8. Sale of mac. & equip. at a
loss of 43,000
146,000
(189,000)
9. Liquidation expenses paid ( 5,000) ______ _______
147,000 30,000
-010. Offset AB's loan
receivable against capital
(30,000)
(147,000) ______ _______
Balances at end of liquidation
0
0
0
Capital
CD
30%
90,000
EF
20%
74,000
( 7,500) ( 4,500) ( 3,000)

( 7,000) ( 4,200)
( 1,000) ( 600)
( 3,000)
1,500
900
(50,000) _____ ______ _____
-0- 20,000 104,000 81,600
( 2,800)
( 400)
600
______
68,400
______ (20,000) ______ ( 6,600) (18,400)

-0-0- 104,000 75,000 50,000
______ ______ ( 2,000) ( 1,200) ( 800)
-0-0- 102,000 73,800 49,200
______ ___
0
-0-0- 102,000
0
73,800
0
49,200
( 21,500) (12,900) ( 8,600)

______ ______ ( 2,500) ( 1,500) ( 1,000)
-0-0- 78,000 59,400 39,600
( 30,000)
______ ______ ( 48,000) (59,400) (39,600)
0
0
0
0
0
96
Chapter 5
Partnership
Schedules of Safe Payments to Partners
Schedule 1: January
Capital and loan balancesa
Possible loss:
Other assets (189,000) and possible liquidation
costs (10,000)
Balances
Absorption of AB's potential deficit balance
CD : (25,500 x 3/5 = 15,300)
EF : (25,500 x 2/5 = 10,200)
Safe payment
a = (104,000) capital less 30,000 loan receivable
= (81,600) capital plus 20,000 loan payable
= (68,400) capital
Schedule 2: February
Capital and loan balancesb
Possible loss:
Other assets (189,000) and possible liquidation
costs (6,000)
Absorption of AB's potential deficit balance
CD : (25,500 x 3/5 = 15,300)
EF : (25,500 x 2/5 = 10,200)
Safe payment
b = (102,000) capital less 30,000 loan receivable
= (73,800) capital
= (49,200) capital
AB
50%
CD
30%
EF
20%
P74,000
P101,600
P68,400
( 99,500)
( 25,500)
25,500
( 59,700)
41,900
( 39,800)
28,600
( 15,300)
_______
P 26,600
( 10,200)
P 18,400
______
P
-0-
72,000
( 97,500)
( 25,500)
25,500
_______
0
73,800
49,200
( 58,500)
15,300
( 39,000)
10,200
( 15,300)
________
0
( 10,200)
0
97
Problem 5 6
1.
M, N, O and P
Cash Priority Program
January 1, 2008
M
Capital balances .. P 70,000
Loan balances ..... 20,000
Total interests ..... P 90,000
Loss absorption
balances ......... P240,000
Priority I to O .. _______
Balances ............. 240,000
Priority II to O
and P .............. _______
Balances ............. 240,000
Priority III to
M, O and P ..... ( 40,000)
Total ................... P200,000
Balances
N
O
P 70,000 P 30,000
5,000
25,000
P 75,000 P 55,000
P
P 20,000
15,000
P 35,000
Cash Payments
M (3/8) N (3/8) O (1/8)
P (1/8)
P200,000 P440,000 P280,000

_______ ( 160,000) ________
200,000 280,000
280,000
_______ ( 40,000) ( 40,000)
200,000 240,000
240,000
P20,000
5,000
5,000
P30,000
_______ ( 40,000) ( 40,000) P15,000

P200,000 P200,000 P200,000 P15,000
Any amount in excess of P55,000
3/8
3/8
Total
P20,000
P5,000
10,000
5,000 25,000
P10,000 P55,000
1/8
1/8
8/8
2.
Schedule 1
Available for distribution ....................

Priority I to O ...................................
Priority II to O and P; 1:1 .................
Cash
P25,000
( 20,000)
( 5,000)
________
_______
P20,000
2,500
P2,500
P22,500
( 22,500)
2,500
( 2,500)
P15,000
3,750
P3,750
P 2,500
5,000
1,250
P2,500
5,000
1,250
18,750
( 18,750)
P3,750
( 3,750)
8,750
( 2,500)
P 6,250
8,750
( 8,750)
Payments to partners............................
Apply to loan .......................................
Apply to capital ...................................
Schedule 2
Cash
Available for distribution ....................
Priority II to O and P; 1:1 .................
Priority III to M, O and P; 3:1:1 .......
Excess, 3:3:1:1.....................................
Payments to partners............................
Apply to loan .......................................
Apply to capital
P40,000
( 5,000
( 25,000)
( 10,000)
98
Chapter 5
Problem 5 7
Bronze, Gold & Silver

Cash Distribution Plan
June 30, 2008
Loss Absorption Balances
Bronze
Gold
Silver
Profit and loss ratio
Pre-liquidation capital and
loan balances
(Capital and loan
balances/P& L ratio)
P110,000
Decrease highest LAB
to next highest:
Gold: (30,000 x .30) _______
110,000
Decrease LAB's
to next highest:
Gold: (10,000 x .30)
Silver: (10,000 x .20) _______
P110,000
Capital and Loan Accounts

Bronze
Gold
Silver
50%
30%
20%
P55,000
P45,000
P24,000
( 9,000)
36,000
______
24,000
P150,000
P120,000
( 30,000)
120,000
_______
120,000
______
55,000
( 10,000)
________
P110,000
( 10,000)
P110,000
_______
P 55,000
Accounts
Payable
Bronze
50%
Gold
30%
P37,500
P37,500
P 9,000
3,000
22,500
P34,500
( 3,000)
_______ _( 2,000)
P 33,000 P 22,000
Summary of Cash Distribution

(If Offer of P100,000 is Accepted)
Cash available
First
Next
Next
Additional paid in P&L ratio
P106,000
( 17,000)
( 9,000)
( 5,000)
( 75,000)
P
-0-
Silver
20%
P 17,000
_______
P 17,000
P 2,000
15,000
P17,000
99
Problem 5 8
Part A
Balances
South
East
North
Total Interest (capital and loan
balances
P120,000
P 88,000
Divided by P/L ratio
30%
10%
Loss absorption potential
P400,000 P880,000
Priority II To South
(335,000)
Balances
400,000
545,000
Priority II To South and East, 10:20
(145,000)
Balances
400,000
400,000
Priority III To North, South, and
east 30:10:20
(250,000) (250,000)
Total
150,000
150,000
Cash Payments
North South
East
West
P109,000 P 60,000
20%
40%
P545,000 P150,000
________
545,000
150,000
(145,000)
400,000
150,000
(250,000)
150,000
______
150,000
33,500
14,500 29,000
75,000 25,000 50,000 _____

75,000 73,000 79,000
Further cash distribution P/L ratio

Part B
(1) Cash
65,600
North capital (30% of P16,400 loss)
4,920
South capital (10%)
1,640
East capital (20%)
3,280
West capital (40%)
6,560
Accounts receivable
To records collection of receivables with losses allocated to partners.
(2)
(3)
Cash
North capital (30% x P103,000)
South capital (10%)
East capital (20%)
West capital (40%)
Property and equipment
To record sale of property and equipment.
82,000
150,000
30,900
10,300
20,600
41,200
253,000
North capital
31,800
South capital
58,600
East capital
35,000
West capital
15,200
Cash
140,600
To record cash installment to partners of P230,600 based on the cash distribution plan in Part A.
First P90,000 is held to pay liabilities (P74,000) and estimated liquidation expenses of P16,000.
Next P33,500 goes entirely to South.
Next P43,500 is split between to South (P14,500) and East (P29,000).
Remaining P63,600 is allocated to North (P31,800), South (P10,600) and East (P21,200)
(4)
Liabilities
Cash
West
74,000
74,000
To record payment of liabilities.

100
(5)
Chapter 5
Cash
North capital (30% of P30,000 loss)
South capital (10%)
East capital (20%)
West capital (40%)
Inventory
To record inventory sold.
71,000
9,000
3,000
6,000
12,000
101,000
(6)
North capital
35,500
South capital
11,833
East capital
23,667
Cash
71,000
To record distribution of cash according to cash distribution plan. Although P87,000 cash
is being held, P16,000 must be retained to pay liquidation expenses. The Remaining
P71,000 is divided among North, South, and East on a 30:20 basis.
(7)
North capital (30% of expenses)

South capital (10%)
East capital (20%)
West capital (40%)
Cash
To record liquidation expenses paid.
(8)
11,000
North capital (30/60 of deficit)

2,080
South capital (10/60)
693
East capital (10/60)
1,387
West capital
To eliminate capital deficiency of West as computed below:
Capital balances, beginning

Loss on accounts receivable
Loss on property and equipment
Cash distribution
Liquidation expenses
Subtotal
Elimination of West deficiency
Capital balances
(9)
3,300
1,100
2,200
4,400
North capital
South capital
East capital
Cash
To record final cash distribution.
4,160
North
P120,000
(4,920)
(30,900)
(31,800)
( 3,300)
South
P88,000
( 1,640)
(10,300)
(58,600)
( 1,100)
East
P109,000
( 3,280)
(20,600)
(50,200)
( 2,200)
West
P60,000
( 6,560)
(41,200)
0
( 4,400)
4,580
( 2,090)
1,527
( 693)
3,053
( 1,666)
( 4,160)
4,160
P 2,500
P 834
P 1,666
2,500
834
1,666
5,000
P 0
101
Problem 5 9
DR Company
Schedule of Safe Payments to Partners
Capital and loan balances, August 1, 2008

Write-off of P24,000 in goodwill
Write-off of P12,000 of receivables
Gain of P6,000 on sale of P32,000 of
inventory (one-half of P64,000 book
value)
Capital and loan balances, August 31, 2008
Possible loss of P16,000 for remaining
receivables and P32,000 for
remaining inventory
Possible liquidation costs of P4,000
Balances (* = deficit)
Distribute Bens potential deficit
To Dan: P7,600 x 40/70
To Red: P7,600 x 30/70
Dan
(40%)
Red
(30%)
Ben
(30%)
(42,000)
9,600
4,800
(45,000)
7,200
3,600
(17,000)
7,200
3,600
(2,400)
(30,000)
(1,800)
(36,000)
(1,800)
(8,000)
19,200
1,600
(9,200)
14,400
1,200
(20,400)
14,400
1,200
7,600*
(7,600)
4,343
(4,857)
3,257
(17,143)
-0-
Of the P84,000 in cash at the end of August, P58,000 will be required to liquidate the debts to
outside creditors, and P4,000 must be held in reserve to pay possible liquidation costs. Thus, a
total of P22,000 in cash can be safely distributed to partners as of August 31, 2008.
Problem 5 10
(1)
Journal entry to record Jennys contribution:

Cash
Equipment
Jenny, capital
40,000
60,000
100,000
Journal entry to record Kennys contribution:

Cash
Inventory
Equipment
Notes payable
Kenny, capital
60,000
10,000
180,000
50,000
200,000
102
(2)
Chapter 5
Capital balances of Jenny and Kenny before admission of Lenny:
Beginning capital balance

Interest on beginning capital balance
Annual salary
Remainder
Ending capital balance
Jenny
P100,000
10,000
15,000
48,000
P173,000
Kenny
P200,000
20,000
20,000
72,000
P312,000
Explanation:
Each partner receives 10% on beginning capital balance. Each partner receives
her respective income (P15,000 to Jenny and P20,000 to Kenny). The amount distributed
thus far is P65,000. The remainder to be distributed is P120,000 (P185,000 30,000
35,000). Two-fifths of this remainder of P129,000 (48,000) is allocated to Jenny; 3/5 x
P120,000 (72,000) is allocated to Kenny. The total income allocated to Jenny and Kenny
is P73,000 and P112,000 respectively.
The admission of Lenny can now be recorded by the following entry:
Cash
175,000
Lenny, capital
Jenny, capital
Kenny, capital
110,000
26,000
39,000
Explanation:
The book value of the partnership after the income distribution in 2006 was
P485,000 (P173,000 + P312,000). After Lennys contribution, the value of the
partnership is P485,000 + P175,000 = P660,000. A one-sixth interest in the partnership is
P660,000 x 1/6 = P110,000. Using the bonus method, we compute a bonus of P175,000
P110,000 = P65,000. Using the 2:3 profit sharing ratio, the amount allocated to Jenny is
P26,000 (2/5 x P65,000) and the amount allocated to Kenny is P39,000 (3/5 x P65,000).
(3)
Schedule of Safe Payments

Capital balances
Partners loan
Gain on realization
Possible loss
Jenny
P200,000
9,000
(156,000)
P 53,000
Kenny
P400,000
(50,000)
15,000
(260,000)
P105,000
Lenny
P200,000
6,000
(104,000)
P102,000
Explanation:
The sale of assets realized a gain of P30,000 (P210,000 P180,000) which is
distributed to the partners on the new profit sharing ratio: 30% to Jenny, 50% to Kenny,
and 20% to Lenny. Liabilities are paid. A possible loss on the unsold assets (P520,000) is
distributed to partners in their profit and loss ratio of 30:50:20 to Jenny, Kenny and
Lenny respectively.
Joint Venture
103
CHAPTER 6
SOLUTIONS TO MULTIPLE CHOICES
6-1: a
Assets per Jessica Company- balance sheet
Jessicas proportionate interest in assets of JV (50%)
Total assets of Jessica
6-2: a
P3,550,000
1,000,000
P4550,000
Total liabilities only of Jenny Co.
6-3: b
6-4: b
Investment of Heart
Profit share:
Sales
Cost of sales (150,800 125%)
Gross profit
Expenses
Net Profit
Profit/loss ratio
Balance of investment in JV
P80,000
150,800
120,640
30,160
10,000
20,160
x 40%
8,064
P88,064
6-5: a
Cash
Accounts receivable
Total assets
Sweet Cos, proportionate interest
Sweet Companys share in total asset
P190,000
29,360
150,800
370,160
x 60%
P222,096
6-6: a
Sales
Cost of sales
Purchases
Merchandise inventory, end (50% of P10,000)
7,200
P10,000
__5,000
_5,000
Gross profit
Expenses
2,200
___500
Net profit
P 1,700
104
Chapter 6
6-7: b
Original investment (cash)
Profit share (P1,700 / 2)
P10,000
___850
Balance of Investment account
P10,850
Joint venture account before profit distribution (credit balance)

Unsold merchandise
P 9,000
__2,500
Joint venture profit before fee to Salas
P11,500
Joint venture profit after fee to Salas (P11,500 / 115%)
P10,000
6-8: a
6-9: b
Fee of Salas (P10,000 x 15%)
Profit share of Salas (P10,000 x 25%)
P 1,500
_2,500
Total
P 4,000
6-10: b
Salas
Salve
Balance before profit distribution

Profit share:Sabas (P10,000 x 40%)
Salve (P10,000 x 35%)
P 500 (dr) P 2,000 (cr)

4,000
______
_3,500
Balance
P 3,500 (cr) P 5,500 (cr)
6-11: d
Joint venture account balance before profit distribution (debit)
Joint venture profit (P4,500 x 3)
P 6,000
_13,500
Cost of unsold merchandise (inventory) taken by Dante
P19,500
Edwin Capital:
Debits: Balance before profit distribution
Credits: Profit share
P14,000
__4,500
6-12: b
Due from Edwin (debit balance)
P 9,500
Joint Venture
105
Settlement to Ferdie (Balance of capital account)

Debits:
Credits: Balance before profit distribution
Profit share
P 0
P16,000
__4,500
Due to Ferdie (credit balance)
_20,500
P20,500
Settlement to Dante (balance of JV Cash account)

Debits: Balance before cash settlement
Due from Edwin
Credits: Due to Ferdie
P30,000
__9,500
Balance
P39,500
_20,500
P19,000
6-13: a
JV account balance before profit distribution (cr)
Unsold merchandise (required dr balance after profit distribution)
P 4,600
__2,000
Joint venture profit before fee to Jerry

Joint venture profit after fee (P6,600 / 110%)
Fee to Jerry
P 6,600
__6,000
P 600
6-14: d
Harry Capital
Balances before profit distribution
Harry P6,000 x 50%)
Isaac (P6,000 x 20%)
(P 200)
Cash settlements
P 2,800
Isaac Capital
P 1,800
3,000
1,200
P 3,000
6-15: b
Sales
Cost of sales:
Merchandise inventory, beg (contributions)
Freight
Purchases
P14,000
300
__4,000
Goods available for sale

Merchandise inventory, end (P8,300/2)
P18,300
__4,150
Gross profit (loss)

Expenses (P400 + P200)
Net profit (loss)
P14,000
14,150
(150)
__600
P( 750)
6-16: c
Contributions to the Joint Venture (P5,000 + P8,000)
Loss share (P750 x 50%)
Unsold merchandise taken (withdrawal)
P13,000
( 375)
( 4,150)
Final settlement to jack
P 8,475
106
Chapter 6
Problem 6 1
Books of Blanco (Manager)
JV Cash
Joint Venture
Cash
Ablan Capital
100,000
90,000
Investment in JV
90,000
Investment in JV
Profit from JV
15,000
90,000
100,000
90,000
Joint Venture
JV cash
60,000
Joint Venture
JV cash
20,000
JV cash
Joint Venture
Books of Ablan
60,000
20,000
200,000
200,000
Computation of JV Profit
Total debit to JV
Total credit to JV
P170,000
P200,000
Credit balance (Profit)
P 30,000
Distribution
Joint Venture
Profit from JV
Ablan capital
Ablan capital
JV cash
Cash
JV cash
30,000
15,000
15,000
105,000
105,000
155,000
155,000
Cash
Investment in JV
15,000
105,000
105,000
Joint Venture
107
Problem 6 2
Books of the Joint Venture
1.
2.
3.
4.
Computer equipment
Ella capital
Fabia capital
105,000
60,000
45,000
Purchases
Supplies
Diaz capital
80,000
2,000
Expenses
Diaz capital
9,000
Cash
82,000
9,000
150,000
Sales
5.
6.
7.
8.
150,000
Expenses
Cash
30,000
Ella capital
20,000
Fabia capital
Cash
10,000
30,000
20,000
10,000
Adjusting and closing entries:

(a)
(b)
Expenses
Supplies
Sales
500
500
150,000
Income summary
150,000
Income summary
Purchases
77,500
2,500
Income summary
Expenses
39,500
Distribution of profit:
Income summary
Diaz capital
Ella capital
Fabia capital
80,000
39,500
33,000
11,000
11,000
11,000
108
Chapter 6
Books of Diaz
(1)
(2)
(3)
Investment in Joint Venture

Cash
82,000

Cash
9,000
82,000
9,000
To record profit share:

Profit from Joint Venture
11,000
11,000
Books of Ella:
(1)
(2)
(3)

Computer equipment
60,000

20,000
60,000
20,000

11,000
11,000
Books of Fabia:
(1)
(2)

Computer equipment
45,000
Cash
10,000
45,000

(3)
10,000

11,000
11,000
Joint Venture
109
Problem 6 3
(1)
No Separate Set of Joint Venture Books is Used
Books of Duran (Manager)

May 1:
7:
Joint Venture
Castro capital
Cash
12,500
JV cash
Bueno capital
10,000
26: Joint Venture

JV cash
12,000
500
10,000
9,500
9,500
30: JV accounts receivable

Joint Venture
16,000
June 30: JV cash

JV accounts receivable
15,000
27: JV cash
Joint Venture
16,000
15,000
9,000
9,000
30: To record unsold merchandise taken by Duran:

Joint Venture
3,000
3,000
To record profit distribution:

Joint Venture
Profit from JV
Bueno capital
Castro capital
6,000
2,000
2,000
2,000
To record settlements:
Bueno capital
Castro capital
JV cash
Cash
Accounts receivable
JV accounts receivable
12,000
14,000
24,500
1,500
1,000
1,000
110
Chapter 6
Books of Bueno
May 7:

Cash
June 30: Investment in Joint Venture

Cash
10,000
10,000
2,000
2,000
12,000
12,000
Books of Castro
May 1:


Cash
12,000
12,000
2,000
2,000
14,000

(2)
14,000
A Separate Set of Books is used:
Books of the Joint Venture

May 1:
7:
Castro capital
Duran capital
12,500
Cash
10,000
12,000
500
Bueno capital
26: Purchases
Cash
30: Accounts receivable
Sales
June 20: Cash
10,000
9,500
9,500
16,000
16,000
15,000
Accounts receivable
27: Cash
15,000
9,000
Sales
9,000
Joint Venture
111
June 30: Closing entries:

Sales
25,000
Income summary
Income summary
Merchandise inventory, end
Purchases
25,000
19,000
3,000
12,500
9,500
Distribution of profit:
Income summary
Bueno capital
Castro capital
Duran capital
6,000
2,000
2,000
2,000
Settlements to Venturers:
Bueno capital
Castro capital
Duran capital
Accounts receivable
Cash
12,000
14,000
2,500
3,000
1,000
24,500
Books of Duran (Manager/Operator)

May 1:

Cash

Cash
500
500
2,000
2,000
2,500

Books of Bueno and Castro (Same as in No. 1 requirement)
2,500
112
Chapter 6
Problem 6 4
(1)
Books of Seiko (Manager/Operator)
April 1:
May:
June:
JV Cash
Notes payable PNB
Roles capital
Timex capital
August:
34,000
34,000
34,000
Joint venture
Cash
Rolex capital
64,100
Rolex capital
JV cash
30,000
Joint venture
Cash
Rolex capital
Timex capital
July:
102,000
16,300
7,800
30,000
111,400
37,400
64,700
9,300
Cash
Rolex capital
Timex capital
JV cash
40,000
15,000
10,000
Joint venture
Cash
Rolex capital
Timex capital
55,770
Cash
Rolex capital
Timex capital
JV cash
45,000
67,000
13,500
Joint venture
Cash
Rolex capital
Timex capital
30,600
65,000
13,970
31,240
10,560
125,500
9,730
16,560
4,310
To record sales:
JV cash (P421,000 x 96%)
Joint venture
404,160
404,160
Joint Venture
113
To record payment of loan to PNB:

Notes payable PNB
Rolex capital
Timex capital
Joint venture (Interest expense)
JV cash
34,000
34,000
34,000
8,000
110,000
To record distribution of profit:

Joint venture
Gain from JV (30%)
Rolex capital (60%)
Timex capital (10%)
134,290
40,287
80,574
13,429
Computed as follows:
Total debits tot he JV account
Total credits to the JV account
P269,870
_404,160
Gain (credit balance)
P134,290
To record settlement:
Cash
Rolex capital
Times capital
JV cash
32,687
128,874
14,099
175,660
Computations:
Settlement to Rolex - Balance of capital account:
Debits: June
July
August
Payment of note payable
P30,000
15,000
67,000
_34,000
P146,000
Credits: April 1
May
June
July
August
Profit share
P34,000
47,800
64,700
31,240
16,560
_80,574
__274,874
Credit balance
P 128,874
114
Chapter 6
Settlement to timex Balance of capital account

Debits: July
August
Payment of loan
P 10,000
13,500
__34,000
P 57,500
Credits: April 1
June
July
August
Profit share
P 34,000
9,300
10,560
4,310
__13,429
_71,599
Credit balance
P 14,099
Settlement to Seiko Balance of JV cash account

Debits: April 1
Loan proceeds
P102,000
_404,160
P506,160
Credits: June
July
August
Payment of loan
P 30,000
65,000
125,500
_110,000
_330,500
Balance of JV cash
Less: Settlement to Rolex
Settlement to Timex
P128,874
__14,099
175,660
Settlement to Seiko
(2)
_142,973
P 32,687
Partial Balance Sheet

June 30, 2008
Books of Seiko (Manager/operator)
Current assets:
Investment in joint Venture:
Joint Venture assets:
Cash
Joint Venture
Less: Equity of other venturers
(P116,500 + P43,300)
Current liabilities:
Notes payable PNB
P 72,000
_175,500
P247,500
_159,800
87,700
34,000
Joint Venture
115
Computation of balances as of June 30, 2008:

JV Cash
April 1 P102,000
Balance P 72,000
P30,000
Joint Venture
June
May
June
P 64,100
_111,400
Balance P175,500
Notes Payable
P34,000
Rolex capital
April
June
P 30,000
_______
P 34,000
47,800
__64,700
P 30,000
P146,500
April 1
May
June
P116,500
Timex capital
P34,000
__9,000
April
June
P43,300
Problem 6 5
Consolidated Balance Sheet

Cash
Receivables
Inventory
Other assets
P 61,000
122,000
102,500
__40,500
Total assets
P326,000
Accounts payable
Other liabilities
Capital stock
Retained earnings
P 61,000
96,500
50,000
_118,500
Total liabilities and stockholders' equity
P326,000
Consolidated Income Statement

Sales
Cost of sales
P246,750
_124,750
Gross profit
Operating expenses
122,000
__58,250
Consolidated net income
P 63,750
116
Chapter 6
Problem 6 6
(a)
Journal entries on venture books

June 15:
Cash
1,000,000
MacDo
Initial contribution at 6%
July 1:
Land
1,000,000
2,400,000
Mortgage payable
Cash
Purchased land for cash and 6% mortgage.
Aug 1:
Cash
1,650,000
750,000
1,100,000
MacDo
Additional contribution at 6%.
Land
1,100,000
950,000
Cash
Paid for improvements.
Sept 30:
Oct 31:
Nov 30:
Dec 31:
950,000
Mortgage payable
Interest expense- Mortgage
Cash
Reduced mortgage and paid interest.
250,000
3,750
Mortgage payable
Cash
400,000
8,000
Mortgage payable
Cash
300,000
7,500
253,750
408,000
Mortgage payable
200,000
21,000
Cash
Reduced mortgage and make semi-annual
interest payment.
307,500
221,000
Joint Venture
31:
117
Cash
2,600,000
Sales
Sales to date.
31:
31:
31:
31:
2,600,000
Commissions
Cash
P2,600,000 x 5%
130,000
Expenses
Cash
Paid expenses
628,100
Interest expense- Venturer

MacDo
6% on P1,000,000 from June 15 to
December 31, and on P1,100,000
from August 1 to December 31.
Sales
130,000
628,100
60,000
60,000
2,600,000
Land (cost of land sold)

Expenses
Commissions
Interest expense- mortgage
Interest- venturer
Income summary
To close income and expense accounts.
31:
31:
1,145,000
628,100
130,000
40,250
60,000
596,650
Income summary
MacDo
MacEn
To divide gain, 60:40.
596,650
MacDo
801,650
596,650
238,660
Cash
Payment on account.
(b)
801,650
Journal entries on MacDos books:

June 15:
Aug 1:

Cash
Initial contribution.
1,000,000

Cash
Additional contribution.
1,100,000
1,000,000
1,100,000
118
Chapter 6
Dec 31:
31:
31:

Interest income
Interest earned on cash advanced.
60,000
60,000

Gain on Joint Venture
60% of gain on venture.
357,990
Cash
801,650
357,990

Repayment in part of advances.
(c)
801,650
MacDo and MacEn Joint Venture

Income Statement
For the period from June 15 to December 31, 2008
Sales
Cost of land sold:
Land
Improvements
Total
Unsold land
Gross profit
Expenses:
Advertising and office expenses
Interest on mortgage
Interest on advances
Commissions
Net gain
Distributions:
MacDo (P596,650 x 60%)
MacEn (P596,650 x 40%)
P2,600,000
P2,400,000
950,000
P3,350,000
2,205,000
P 628,100
40,250
60,000
130,000
1,145,000
1,455,000
858,350
P 596,650
P 357,990
238,660
Mac Do and MacEn Joint Venture

Balance Sheet
December 31, 2008
Assets
Cash
Land
Total Assets
P 250,000
2,205,000
P2,455,000
Liabilities and equity:

Mortgage payable
MacDo
MacEn
Total liabilities and equity
P 500,000
1,716,340
238,660
P2,455,000
Joint Venture
119
Venturers equity (interest)

Invested
Shares:
Gain
Interest on advances
Commissions
Total
Balances
Withdrawn
Equity (interests)
MacDo
P2,100,000
MacEn
Total
P2,100,000
P 357,990
60,000
P238,660
P 596,650
60,000
130,000
786,650
2,886,650
(931,650)
P1,955,000
417,990
2,517,990
(801,650)
P1,716,340
130,000
368,660
368,660
(130,000)
P238,660
120
Chapter 7
CHAPTER 7
7-1: c
Amount realized secured by inventory
Unsecured claim (P10,000 x 25%)
P 30,000
__2,500
Total amount received
P 32,500
Amount realized secured by inventory

Unsecured claim (P88,000 x 75%)
P120,000
__66,000
Total amount received
P186,000
7-2: d
7-3: d
(P15,000,000 + P200,000)
7-4: a
Realizable value:
Current assets
Land and building
Less mortgage payable
P 50,000
P240,000
_200,000
__40,000
Total
Less accounts payable
90,000
_160,000
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
Buildings and equipment
Total
Liabilities with priority:
Administrative expenses
Salary payable
Income taxes
Total
P 33,000
_110,000
P143,000
P 20,000
6,000
__8,000
P 34,000
Corporation in Financial Difficulty Liquidation
Free assets after payment of liabilities with priority:

(P143,000 P34,000)
Unsecured liabilities
Notes payable
Accounts payable
Bonds payable
Total
121
P109,000
P 30,000
83,000
__70,000
P183,000
Percentage of Unsecured liabilities to be paid: P109,000 / P183,000 = 60%

Payment of notes payable:
Value of security (land)
60% of remaining P30,000
Total collected
P 90,000
__18,000
P108,000
7-7: c
Free assets:
Other assets
Excess from assets pledged with secured
Creditors (P116,000 P70,000)
Total
Liabilities with priority
Free assets after payment of liabilities with priority
(P126,000 P42,000)
Unsecured liabilities:
Excess of partially secured liabilities over pledge
Assets (P130,000 P50,000)
Unsecured creditors
Total
P 80,000
__46,000
P126,000
P 42,000
P 84,000
P 80,000
_200,000
P280,000
Recovery percentage: P84,000 / P280,000 = 30%

Payment of partially secured debt:
Value of pledged assets
30% of remaining P80,000
Total collected
P 50,000
__24,000
P 74,000
122
Chapter 7
7-8: a
The holder of Debt Two will receive P100,000 from the sale of the pledged
asset. Since the holder wants to receive P142,000 out of the total debt of
P170,000, the company must be able to generate enough cash to pay off
60% of the unsecured liabilities (P42,000/P70,000) after paying 100% of
the liabilities with priority (P110,000).
Unsecured liabilities:
Unsecured creditors
Excess liability of Debt One in excess of pledged
Asset (P210,000 P180,000)
Excess liability of Debt Two in excess of pledged
Asset (P170,000 P100,000)
P230,000
30,000
__70,000
Total unsecured liabilities

Necessary percentage
P330,000
____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: c
Estate equity, beg. (P100,000 P85,000)
Loss on realization (P100,000 P75,000)
Unrecorded liabilities:
Interest expense
Administrative expense
Estate deficit
P 15,000
( 25,000)
P
250
4,000
4,250)
P( 14,250)
7-10: c
Total assets at net realizable value
Fully secured liabilities
Estimated administrative expense
P 75,000
(40,000)
_( 4,000)
Estimated amount available

Unsecured claims (P45,000 + P250)
P 31,000
(45,250)
Estimated deficiency to unsecured creditors
P 14,250
123
7-11: b
Assets pledged with fully secured creditors
Fully secured creditors
Free assets
Total free assets
Less: Liabilities with priority
Available to unsecured non-priority claims
P185,000
_130,000
55,000
_160,000
215,000
__35,000
P180,000
7-12: b
Machinery
Recoveries of unsecured claims (50,000 - 10,000) X .50
Amount to be realized
P 10,000
__20,000
P 30,000
7-13: b
Notes Payable
Less: Inventories
Unsecured Liabilities
% of recovery
Recovery
Add: Inventories
Amount to be received by Wood
7-14: a
7-15: a
7-16: b
7-17: d
P 23,940
19,200
4,740
____78%
3,697
_19,200
P 22,897
- P7,000
- P30,000
- P57,200 [52,000 + (8,000 X .65)]
- P72,800 (112,000 X .65)
7-18: d
Estimated loss:
Account Receivable
Inventories (28,000 - 18,500)
Building (59,000 - 22,000)
Equipment (5,600 - 2,000)
Goodwill
Prepaid expenses
Less: Stockholder's equity
Common stock
Deficit
Estimated deficiency
P 8,160
9,500
7,000
3,600
5,650
___430
P 72,000
( 16,660)
P 64,340
_55,340
P 9,000
124
Chapter 7
7-19: d
Accounts Receivable (39,350 - 16, 110)
Notes Receivable (18,500 - 12,500)
Inventories (87,850 - 45,100)
Prepaid expenses
Equipment (48,800 - 9,000)
Total estimated loss
P 23,240
600
42,750
950
__39,800
P112,740
7-20: b P33,750 (95,000 - 61,250) on Land and Building

7-21: d
Total Free Assets:
Balance of Assets Pledged to
Fully Secured Creditor (95,000 - 90,000)
Free Assets:
Cash
Accounts Receivable
Inventories
Equipment
Total
Less: Unsecured liabilities with priority (1,850 + 4,650)
Net Free Assets
Divide by Unsecured creditors:
Balance of Partially Secured Creditor
Notes Payable - PNB
P 15,000
Notes Receivable
__12,500
Accounts Payable
52,500
Notes Payable
__51,250
Estimated recovery %
P 5,000
P 2,700
16,110
45,100
__9,000
__72,910
77,910
___6,500
P 71,410
2,500
103,750 P106,250
67%
7-22: d
Fully secured (Notes Payable)
Partially secured:
Notes Payable - PNB
Add (2,500 X 67%)
Unsecured Creditor with Priority
Unsecured Creditor without Priority (103,750 X 67%)
Total
P 90,000
P12,500
__1,675
14,175
6,500
__69,513
P180,188
125
7-23: a
Unsecured creditors without priority
Estimated deficiency to unsecured creditors:
Loss on realization
Estimated liquidation expenses
Total
Stockholders equity
Net free assets
Free assets
P1,102,500
551,250
55,125
606,375
441,000
165,375
937,125
122,500
P 1,059,625
7-24: a
Estimated net gain (loss) on realization:
Gain on realization
Loss on realization
Estimated claims
Total
Stockholders equity
78,750
(336,700)
(257,950)
( 43,750)
(301,700)
295,750
P( 5,950)
7-25: b
Notes payable (175,000 140,000)
Unsecured liabilities (420,000 52,500)
Total
Free assets (157,500 + 210,000)
P 35,000
367,500
402,500
367,500
35,000
7-26: a
Old receivable (net)
Old inventory
Depreciable assets- net
Total assets to be realized
P 38,000
12,000
60,000
96,000
P206,000
Old receivable
New receivable
Sales of inventory
Total asset realized
7-27: a
21,000
47,000
10,500
75,000
P153,500
7-28: a
Gain on sale of inventory (P75,000 60,000)
Loss on realization:
Marketable securities (12,000 10,500)
Trustees expenses
Depreciation
Net loss
15,000
1,500
4,300
16,000
(21,800)
P( 6,800)
126
Chapter 7
Problem 7 1
(A)
Laguna Company
Statement of Affairs
October 31, 2008
Book
Value
Estimated
Assets
Realizable Value
Assets pledge for fully secured creditors:
P107,000 ... Plant assets .................................................. P67,400
Less; Fully secured liabilities ...................... _ 50,400
Assets pledged for partially secured creditors:
39,000 . ... Inventories................................................... P18,000
4,000 .. ...
46,000 .. ...
2,000 .. ...
P198,000
Book
Value
Free Assets:
Cash............................................................. P 4,000
Accounts, receivable ...................................
46,000
Supplies ....................................................... __1,500
Total free assets ...............................................
Less: Unsecured liabilities with priority..........
Net Free Assets................................................
Estimated deficiency to unsecured creditors (to balance)
Creditors'
Liabilities & Stockholders' Equity
Claim
Fully secured liabilities:
P50,400 ... ... Mortgage payable (including interest, P400) P50,400
Partially secured liabilities:
21,000 ... ... Notes payable ..............................................
P21,000
Less: Inventory............................................
_18,000
Unsecured creditors with priority:
5,800 ... ... Wages payable
P 5,800
1,200 ... ... Property taxes payable ................................
_1,200
Total ............................................................
P 7,000
Unsecured creditors without priority:
60,000 ... ... Accounts payable ........................................
19,000 ... ... Notes payable ..............................................
Stockholders' Equity........................................
P198,000
(B)
Creditor Group
Amount of
Claim
Unsecured liabilities with priority ....................................
P7,000
Fully secured creditors ......................................................
50,400
Partially secured creditors.................................................
21,000
Unsecured creditors without priority ................................
79,000
* P18,000 + (P3,000 X 0.75) = P20,250
(C) See statement of affairs in requirement (A)
Free Assets
P17,000
_51,500
P68,500
__7,000
P61,500
_20,500
P82,000
Unsecured
Liabilities
P 3,000
60,000
19,000
_____
P82,000
Amount to
be Paid
P7,000
50,400
20,250 *
59,250
Percentage
to be paid
100.0%
100.0%
96.4%
75.0%
127
Problem 7 2
VC Corporation
Statement of Realization and Liquidation
Month Ended January 31, 2008
Assets to be realized:
Land ....................... P10,000
Building ................. 43,000
Equipment .............. 28,000
Patents .................... __4,400
Assets Acquired ..............
P85,400
0
Liabilities Liquidated:
Account payable .... P14,000
Loans payable ........ __7,000
21,000
Liabilities not Liquidated:

Accounts payable ... 66,000
Loans payable ........ 33,000
99,000
Gain on realization ......... ............... ___7,600

Total ............................... ............... P213,000
Assets realized:
land.............................. P
0
Building ......................
0
Equipment ...................
8,800
Patents ......................... _12,000
Assets not realized:
Land ............................ P10,000
Building ...................... 43,000
Equipment ................... _13,000
P20,800
66,000
Liabilities to be Liquidated:
Accounts payable ........ P80,000
Loans payable ............. _40,000
120,000
Loss on realization ...... ..............

Total ............................ ..............
___6,200
P213,000
Accounts payable .........................

Loans payable ..............................
Estate deficit .................................
P 66,000
33,000
( 26,300)
VC Corporation
Balance Sheet
January 31, 2008
Cash ............................................... P 6,700
Land ...............................................
10,000
Building ..........................................
43,000
Equipment ...................................... _13,000
Total ............................................... P 72,700
P 72,700
VC Corporation
Estate Deficit
January 31, 2008
Gain on realization ....................................................................
Loss in realization ....................................................................
Trustee's expenses ....................................................................
Net gain on realization...............................................................
Estate deficit, January 1, 2008 ...................................................
Estate deficit, January 31, 2008 .................................................
P 7,600
( 6,200)
( 1,300)
P 100
( 26,400)
P(26,300)
128
Chapter 7
Problem 7 3
Rizal Corporation
Book
Values
Assets
Assets pledged to fully secured creditors:
P 80,000 ...... .... Land and building ..............................................
Less: Mortgage payable .....................................
50,000 ...... .... Finished Goods ..................................................
Less: Loan payable .............................................
32,000 ...... ....

12,000 ...... ....
Assets pledged to partially secured creditors:

Accounts receivable (80% x 30,000) .................
Trucks ................................................................
Totals..................................................................
Free Assets:
Cash....................................................................
AR (20% x 30,000) ............................................
Inventory Materials .........................................
Prepaid expense ..................................................
Trucks ................................................................
Equipment ..........................................................
Intangible ...........................................................
Total Free Assets ....................................................
Less: Unsecured liability with priority (12,000 + 8,000)
Net free assets .........................................................
________
Estimated deficiency to unsecured creditors (to Balance)
P 292,000 ...... .... Total unsecured liabilities .......................................
4,000 ...... ....
8,000 ...... ....
36,000 ...... ....
1,000 ...... ....
8,000 ...... ....
45,000 ...... ....
16,000 ...... ....
Book
Values
Liabilities and Equity

Fully secured creditors:
P 43,000 ...... .... Mortgage payable ...............................................
50,000 ...... .... Loans payable ....................................................
Total ...................................................................
Estimated
Realizable Value
P102,000
43,000
P 55,000
50,000
4,000
6,000
27,000
0
2,500
25,000
_______
Creditors'
Claim
Unsecured creditors with Priority:

Wages payable ...................................................
Taxes payable .....................................................
Totals..................................................................
12,000
8,000
20,000
Unsecured creditors:
77,000 ...... .... Accounts payable ...............................................
110,000 ...... .... Stockholder Loan ...............................................
( 38,000) ...... .... Stockholder Equity .................................................
P 292,000
Total ........................................................................
5,000
64,500
P128,500
20,000
108,500
81,000
P189,500
Unsecured
Liabilities
94,000
50,000
144,000
25,000
24,000
5,000
3,500
12,000 ...... ....

8,000 ...... ....
P 59,000
24,000
3,500
27,500
Partially secured creditors':

Bank Loan ..........................................................
Less: Receivable (80% x 30,000) .......................
5,000 ...... .... Truck Loan .........................................................
Less: trucks ........................................................
25,000 ...... ....
Free
Assets
77,000
110,000
P 1,000
1,500
187,000
P189,500
129
Problem 7 4
Mapayapa Corporation
November 1
Book
Value
Assets
Assets pledged to fully secured creditors:
P60,000.... ... Investments .................................................
180,000.... ... Accounts receivable ....................................
Total ............................................................
Less: Note payable ......................................
66,000.... ...
248,000.... ...
291,000.... ...
870,000.... ...
114,000.... ...
.... ...
_________
P1,839,000
Free
Assets
P 69,000
171,000
240,000
210,000
P 30,000
Free assets:
Cash............................................................. P 66,000
Accounts receivable .................................... 193,500
Merchandise inventory................................ 180,000
Plant & equipment ...................................... 330,000
Notes receivable .......................................... 108,300
Patent........................................................... __12,000
Total free assets...........................................
Less: Unsecured liabilities with priority..........
Net free asset ...............................................
Estimated deficiency (to balance) ...................
Total ................................................................
_889,800
919,800
__13,800
906,000
60,300
P966,300
Creditor's
Claim
Unsecured
Liabilities
Book
Value
Liabilities & Equity

Fully secured creditors:
P 210,000.... ... Notes payable ..............................................
Unsecured creditor with priority:
Accrued wages ............................................
Accrued property tax...................................
Total ............................................................
Unsecured creditor:
Account payable..........................................
Accrued expenses........................................
300,000.... ... Capital stock
__369,000.... ... Retained earnings ............................................
P1,839,000
Total ................................................................
960,000.... ...
Estimated
Realizable Value
P210,000
P 7,200
___6,600
P 13,800
P960,000
6,300
_______
P966,300
130
Chapter 7
Problem 7 5
a.
b.
Total fair value of assets (estimated proceeds) ..........................

Less: Fully and partially secured creditors claim:
Notes payable, interest (secured by receivable and
inventory) ................................................................... 125,000
Bonds payable (secured by land & building) .................... 231,000
Available to unsecured creditors................................................
Less: Unsecured creditors with priority:
Wages payable .................................................................. P 9,500
Taxes payable.................................................................... __14,000
Amount available to unsecured creditors...................................
P471,000
__23,500
P 91,500
Unsecured portion of notes payable and interests (P195-P125)

Accounts payable .......................................................................
Total claims of unsecured creditors ...........................................
P 70,000
__95,000
P165,000
356,000
115,000
P91,500
= 55.45%
P165,000
c.
Distribution of P471,000:
Creditors
Accounts payable
Wages payable
Taxes payable
Notes payable & interests
Amount
P 95,000 ....
9,500 ....
14,000.....
125,000 ....
70,000
Bonds payable & interests
231,000 ....
Total estimated payment ........................................
Percent
Realized
55.45%
100%
100%
100%
55.45%
100%
Total
Payment
P 52,678
9,500
14,000
125,000
38,815
_231,000
P470,993
131
Problem 7 6
1.
Evergreen Company
June 30, 2008
Book
Values
P460,000
80,000
140,000
100,000
120,000
100,000
Estimated
Realizable
Values
ASSETS
Pledged with fully secured creditors:
Land and building .....................................
P340,000
Less: Mortgage payable (including accrued interest)
(330,000)
Free Assets:
Cash .........................................................
P 80,000
Accounts receivable net .........................
126,000
Inventories ................................................
84,000
Machinery net ........................................
40,000
Goodwill ...................................................
_ _____0_
Available for
Unsecured
Creditors
P 10,000
330,000
Total free assets ........................................ ...................

Less: liabilities with priority ..................... ...................
340,000
_140,000
Net free assets .......................................... ...................

Estimated deficiency (Squeeze figure) ..... ...................
200,000
_130,000
P1,000,000
P330,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured &
Priority
Claims
P120,000
20,000

Wages payable ..........................................
Property taxes payable ..............................
300,000
30,000
Total .........................................................
Fully secured creditors
Mortgage payable .....................................
Interest on mortgage payable ....................
220,000
100,000
10,000
Total .........................................................
P330,000
Unsecured creditors
Accounts payable ...................................... ...................
Note payable-unsecured............................ ...................
Interest payable-unsecured ....................... ...................
Stockholders' Equity
400,000 Capital stock .............................................
(200,000) Retained earnings (deficit) ........................ ...................
Unsecured
Non-priority
Liabilities
P120,000
__20,000
P140,000
300,000
__30,000
P220,000
100,000
10,000
___
P330,000
P1,000,000
2.
Settlement per peso of unsecured creditors is P.6250 (P200,000/P320,000). No payment is

made for the P10,000 unsecured interest claim.
Chapter 7
132 ____
Problem 7 7
1.
Entries on trustee's books.

2008
March 1:
Cash ............................................... ........ P8,000
Accounts receivable net .............. ........ 16,000
Inventories ..................................... ........ 72,000
Land ............................................... ........ 40,000
Buildings net ............................... ...... 200,000
Intangible assets ............................. ........ 52,000
Accounts payable .................... ...................
Note payable............................ ...................
Deferred revenue ..................... ...................
Wages payable......................... ...................
Mortgage payable .................... ...................
Estate equity ............................ ...................
To record custody of Kimerald Corporation.
March 1 to 31: Cash ............................................... ........ 15,200
Estate equity................................... ............. 800
Accounts receivable-net .......... ...................
To record collection of receivables and recognize loss.
Cash ............................................... ........ 38,800
Estate equity................................... ........ 33,200
Inventories ............................... ...................
To record sale of inventories at a loss.
Cash ............................................... ...... 180,000
Estate equity................................... ........ 60,000
Land......................................... ...................
Buildings-net ........................... ...................
To record sale of land and buildings at a loss.
Estate equity................................... ........ 52,000
Intangible assets ...................... ...................
To write off intangible assets.
Estate equity ........................................ ......... 16,400
Administrative expenses payable . ....................
To accrue trustee expenses.
P100,000
80,000
2,000
6,000
160,000
40,000
16,000
72,000
40,000
200,000
52,000
16,400
2.
133
Financial Statements
Kimerald Corporation in Trusteeship
Balance Sheet
March 31, 2008
Assets
Cash ..................... ................................................. ...................
P242,000
Liabilities and Deficit

Accounts payable . ................................................. ...................
Note payable-unsecured......................................... ...................
Revenue received in advance................................. ...................
Wages payable ..... ................................................. ...................
Mortgage payable ................................................. ...................
Administrative expense payable-new .................... ...................
P100,000
80,000
2,000
6,000
160,000
__16,400
Total liabilities ..... ................................................. ...................

Less: Estate deficit ................................................. ...................
P364,400
_122,400
Total liabilities net of deficit .................................. ...................
P242,000

Statement of Cash Receipts and Disbursements
March 1 to 31, 2008
Cash balance, March 1, 2008 ................................. ...................
Add: Cash receipts
Collections of receivables ............................. ..... P 15,200
Sale of inventories......................................... ........ 38,800
Sale of land and buildings ............................. ...... 180,000
P 8,000
Total ..................... ................................................. ...................

Less: Cash disbursements ...................................... ...................
242,000
____0
Cash balance, March 31, 2008 ............................... ...................
P242,000
_234,000

Statement of Changes in Estate Equity
March 1 to 31, 2008
Estate equity, March 1 ........................................... ...................
Less: Loss on uncollectible receivables.................. ....... P 800
Loss on sale of inventories ............................ ........ 33,200
Loss on sale of land and buildings ................ ........ 60,000
Loss on write off of intangibles .................... ........ 52,000
Administrative expenses ............................... ...... _16,400
P 40,000
Estate deficit, March 31 ......................................... ...................
P122,400
_162,400
134
3.
Chapter 7
Entries on trustee's books:

2008
April: Mortgage payable ..................................... ...... 160,000
Cash.................................................. ...................
To record payment of secured creditors from
proceeds from sale of Land and buildings.
Administrative expenses payable-new...... ........ 16,400
Deferred revenue ...................................... .......... 2,000
Wages payable .......................................... .......... 6,000
Cash.................................................. ...................
To record payment of priority liabilities.
Accounts payable ...................................... ........ 32,000
Note payable-unsecured............................ ........ 25,600
Cash.................................................. ...................
To record payment of P.32 per peso to unsecured
creditors (available Cash of P57,600 divided by
unsecured claims of P180,000).
Accounts payable ...................................... ........ 68,000
Note payable-unsecured............................ ........ 54,400
Estate equity ..................................... ...................
To write-off remaining liabilities and
close trustee's records.
160,000
24,400
57,600
122,400
Reorganization and Troubled Debt Restructuring
135
CHAPTER 8
8-1: a
Trade accounts payable (P52,000 + P62,700)
12% preferred stock (5,000 x P1)
Paid in capital in excess of par (5,000 x P9)
Cash (P62,700 x P0.80)
P114,700
P 5,000
45,000
_50,160
Gain from discharge of indebtedness
_100,160
P 14,540
8-2: c
8-3: c
8-4: b
Carrying value of the note payable:
Principal
Interest
Restructured value:
Principal
Interest
P600,000
__60,000
P660,000
P400,000
_110,000
_510,000
Gain on debt restructuring
P150,000
Other income:
Fair value of land
Books value of land
P450,000
_360,000
8-5: d
Other income
Extraordinary gain:
Book value of note payable
Principal
Interest
Fair value of land
P 90,000
P500,000
__60,000
P560,000
_450,000
Extraordinary gain
P110,000
8-6: a
Book value of bonds payable
Par value of preferred stock (5,000 shares x P100)
P500,000
_500,000
No gain no loss
136
Chapter 8
8-7: a
Book value of notes payable:
Principal
Interest
Par value of common stock issued (200 shares x P5)
Additional paid in capital
Add gain on payment of accounts payable:
Book value
Payment
P 2,500
___500
P 3,000
__1,000
P 2,000
P 10,000
__8,000
Total gain on debt discharge
__2,000
P 4,000
8-8: a
Carrying value of debt:
Note payable
Interest payable
Fair value machinery
Balance of debt
Restructured debt:
Note payable
Interest (P50,000 x .08 x 2)
P100,000
__12,000
P112,000
_(36,000)
P 76,000
P 50,000
___8,000
__58,000
Restructuring difference (gain)
P 18,000
Principal
Interest payable (300,000 x 10%)
P300,000
__30,000
Carrying value
P330,000
8-9: d
8-10: c
Should be P310,600
Restructured principal of note payable
Interest payable:
On book value (P300,000 x 10% 30%)
On restructured (P260,000 x 8% x 2)
P260,000
P 9,000
_41,600
Future cash flows to liquidate the debt
__50,600
P310,600
8-11: d
8-12: d
Loss on transfer of land:
Original cost
Market value
P290,000
_270,000
P 20,000
Gain on restructuring of debt:

Carrying value of debt
Market value of land
P300,000
_270,000
P 30,000
137
8-13: a
Transfer gain (loss):
Carrying amount of equipment
Fair value of equipment
Transfer loss
P80,000
75,000
P(5,000)
Restructuring gain:
Carrying amount of the debt
Fair value of equipment transferred
Restructuring gain
P100,000
75,000
P 25,000
Carrying amount of real estate transferred

Fair value of real estate
Loss on restructuring of payables
P100,000
90, 000
P(10,000)
Carrying amount of liability

Fair value of real estate transferred
Restructuring gain
P150,000
90,000
P 60,000
Gain on revaluation of land (120,000 85,000)

Gain on the extinguishment of debt (185,000 120,000)
Total gain
P 35,000
65,000
P100,000
Carrying value of debt (P800,000 + 80,000)

Total future payments (P700,000 + 80,000)
Restructuring gain
P880,000
780,000
P100,000
8-14: d
8-15: d
8-16: c
8-17: a
8-18: a
First determine the expected future cash flows as follows:
70,000 x .79719
=
P55,803
5,600 x 1.69005
=
9,464
Present value of future cash flow
P65,267
The interest revenue can be computed using the effective interest method
as follows:
Present value at 12/31/06
P65,267
Interest income at 12/31/07 (65,267 x 12%)
7,832
Interest receivable at 12/31/07 (70,000 x 8%)
5,600
2,232
Present value at 12/31/07
P67,499
Interest income at 12/31/08 (67,499 x 12%)
P 8,100
138
Chapter 8
Problem 8 1
Journal entries for company emerging from bankruptcy using fresh start
accounting:
Receivables .... ..... ..............................................................................10,000

Inventory . ...... ..... ..............................................................................10,000
Building .. ...... .....
100,000
Reorganization value in excess of amount
Allocable to tangible assets ..........................................................60,000
Additional paid in capital.......................................................
180,000
To adjust accounts to market value as part of fresh start accounting. Since the company has
a reorganization value of P760,000 but the assets have a market value of only P700,000
(P90,000 + P210,000 + P400,000), and account entitled Reorganization Value in Excess of
Amount Allocable to Tangible Assets must be recorded for P60,000.
Liabilities ....... ....
300,000
Common stock (P330,000 x 80%) ...............................................
Gain on debt discharge .................................................................
To record settlement of liabilities.
264,000
36,000
Problem 8 2
2008
July 14: Costs of reorganization.................................................................50,000
Cash with escrow agent .........................................................
50,000
Common stock
580,000
Common stock (60,000 x P1) ................................................
Additional paid in capital.......................................................
60,000
520,000
Note payable 10%

120,000
Interest payable (P120,000 x 10% x 3/12) ................................... 3,000
Note payable 12% ...............................................................
123,000
Trade accounts payable

100,000
Cash P100,000 x 0.80) ...........................................................
Gain on debt discharge ..........................................................
80,000
20,000
Additional paid in capital

290,000
Gain on debt discharge
20,000
Retained earnings...................................................................
Costs of reorganization ..........................................................
260,000
50,000
139
Problem 8 3
Jade Corporation
Balance Sheet
December 31, 2008
ASSETS
Current assets:
Cash ..... ...... ... ...... ..... ........................................................ P 23,000
Inventory ..... ... ...... ..... ........................................................ __45,000
Property and equipment:
Land ..... ...... ... ...... ..... ........................................................ 140,000
Buildings ..... ... ...... ..... ........................................................
Equipment ... ... ...... ..... ........................................................ _154,000
220,000
_514,000
Total assets .. ... ...... ..... ........................................................
P582,000

Liabilities not subject to compromise
Current liabilities:
Accounts payable ... ..... ........................................................ P 60,000
Long-term liabilities:
Note payable (2006) .....
P100,000
Note payable (2003) .....
_100,000 .. _ 200,000
Liabilities subject of compromise
Accounts payable ... ..... ........................................................ 123,000
Accrued expenses ... ..... ........................................................
30,000
Income taxes payable ... ........................................................
22,000
Note payable (due 2008) ....................................................... _170,000
Total liabilities. ...... ..... ........................................................
P 68,000
P260,000
_345,000
605,000
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) ..............
Total liabilities (P80,000 + p35,000 + P100,000 + P200,000 +
P185,000 + P200,000) ..................................................................
Common stock (given) .......................................................................
Deficit (given)
..............................................................................
P710,000
P800,000
P240,000
P330,000
140
Chapter 8
Book values after reorganization:

Total assets (reorganization value) ...............................................................
Total liabilities (P5,000 + P4,000 + P100,000 + P50,000 +
P71,000 + P110,000) .............................................................................
Common stock (returned shares are reissued)...............................................
Deficit (eliminated) .....................................................................................
Additional paid in capital (squeeze) ..............................................................
P780,000
P340,000
P240,000
0
P200,000
Since the company will have 30,000 shares outstanding after the reorganization, the additional paid in
capital equals P6.66 per share.
Because the company has a reorganization value of P780,000 but the assets have a market value of only
P735,000, an account entitled Reorganization Value in Excess of Amount allocable to Tangible Assets
must be recognized for P45,000.
JOURNAL ENTRIES:
1.
Land and buildings ..................................................................................... 80,000
Reorganization Value in excess of amount
allocable to tangible assets ..................................................................... 45,000
Accounts receivable ........................................................................
Inventory .....................................................................................
Equipment .....................................................................................
Additional paid in capital ................................................................
To adjust accounts to market value as part of fresh start accounting.
20,000
22,000
13,000
70,000
2.
Common stock . ...... ..................................................................................... 144,000

Additional paid in capital .......................................................................
144,000
To record shares turned in to the company by the owners as part of the reorganization plan. 18,000
shares at P8 par value.
3.
Accounts payable .... ..................................................................................... 80,000

Note payable .... .....................................................................................
Common stock, P8 par value .................................................................
Additional paid in capital (P6.66 per share) ..........................................
Gain on debt discharge ..........................................................................
To record settlement of accounts payable.
5,000
8,000
6,666
60,334
Accrued expenses.... ..................................................................................... 35,000

Note payable .... .....................................................................................
To record settlement of accrued expenses.
4,000
31,000
Note payable .... ......

200,000
Note payable .... .....................................................................................
Additional paid in capital (P6.66 per share) ..........................................
To record settlement of note payable due in 2007
50,000
80,000
66,667
3,333
Note payable .... ......

185,000
Note payable .... .....................................................................................
Additional paid in capital, P6.66 per share ............................................
71,000
56,000
46,667
11,333
4.
5.
6.
141
Problem 8 5
7.
8.
Note payable .. ..... ..............................................................................200,000

Note payable.. ..............................................................................
Gain on debt discharge .................................................................
110,000
90,000
Additional paid in capital (P334,000 P200,000)..............................134,000

Gain on debt discharge .......................................................................196,000
Retained earnings (deficit) ...........................................................
330,000
To adjust additional paid in capital to appropriate balance, close out gain, and eliminate
deficit balance as part of fresh start accounting.
Since the Company has a reorganization value of P800,000 but only P653,000 can be assigned to
specific assets based on market value, the remaining P147,000 is reported as a Reorganization
Value in Excess of Amount Allocable to Identifiable Assets.
Sun Corporation
Balance Sheet Fresh Start Accounting
December 31, 2008
ASSETS
Current assets
Accounts receivable ..... ..............................................................................
Inventory ..... ... ...... ..... ..............................................................................
Property and equipment
Land and buildings . ..... ..............................................................................
Machinery.... ... ...... ..... ..............................................................................
Intangible assets
Patents ...... ... ...... ..... ..............................................................................
Reorganization value in excess of amount allocable To identifiable assets
P 18,000
_111,000
P129,000
278,000
_121,000
399,000
125,000
_147,000
_272,000
Total assets .. ... ...... ..... ..............................................................................
P800,000

Current liabilities
Accounts payable ... ..... ..............................................................................
Long-term liabilities
Note payable (due in 2 years) ...................................................................... P 35,000
Note payable (due in 5 years) ......................................................................
50,000
Note payable (due in 8 years) ...................................................................... _100,000
_185,000
Total liabilities. ...... ..... ..............................................................................
P282,000
Stockholders' Equity:
Common stock . ...... ..... .............................................................................. P500,000
Additional paid in capital (squeeze) ............................................................ __18,000
_518,000
Total liabilities and stockholders' equity ................................................................
P 97,000
P800,000
142
Chapter 9
CHAPTER 9
9-1: d
Deferred gross profit, Dec. 31 (before adjustment)
P1,050,000
Less: Deferred gross profit, Dec. 31 (after adjustment)
Installment accounts receivable, Dec. 31
P1,500,000
Gross profit rate
____ 25% __375,000
Realized gross profit, 2008
P 675,000
OR
Installment Sales (P1,050,000 25%)
P4,200,000
Less: Installment account receivable, Dec. 31
__1,500,00
Collection
P2,700,000
Gross profit rate
___X 25%
Realized gross profit, 2008
P 675,000
9-2: a
Deferred gross profit, before adjustment
Deferred gross profit, end
2006 (6,000 X 35%)
2007 (61,500 X 33%)
2008 (195,000 X 30%)
Realized gross profit, December 31, 2008
(Total P107,235)
2006
P7,230
2007
P 60,750
2008
P 120,150
2,100
20,295
P5,130
P 40,455
___58,500
P 61,650
9-3: c
Deferred gross profit balance, end
Divide by Gross profit rate based on sales (25% 125%)
Installment Accounts Receivable, end
Collection
Installment Sales
P 202,000
____ 20%
P1,010,000
___440,000
P1,450,000
Sales
Cost of installment sales
Deferred gross profit
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000)
Gross profit rate (300,000 1,000,000)
Realized gross profit
Operating expenses
Operating income
Interest and financing charges
Net income
P1,000,000
__700,000
P 300,000
9-4: b
P 600,000
___X 30%
__180,000
P 120,000
___80,000
40,000
__100,000
P 140,000
Installment Sales
143
9-5: a
Market value of repossessed merchandise
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000)
Less: Deferred gross profit (50,000X20%)
Loss on repossession
P 30,000
P 50,000
___10,000
__40,000
(P 10,000)
9-6: a
Installment sales
Less: collection on installment sales
Installment account receivables, 12/31/08
Gross profit rate (500,000 1,000,000)
Deferred gross profit, 12/31/08
P1,000,000
__200,000
800,000
___X 50%
P 400,000
OR
Deferred gross profit (1,000,000-500,000)
Less: Realized Gross Profit (200,000 X 50%)
P500,000
_100,000
P400,000
Fair value of repossessed merchandise

Unpaid balance
Less: Deferred gross profit (200,000 X 32.5%)
P120,000
9-7: d
P 200,000
___65,000
_135,000
(P 15,000)
9-8: b
Realized gross profit:
Collections:
Downpayment
Installment received (205,000-200,000)
Total
Gross Profit Rate (150,000 240,000)
Gain (loss) on repossession:
Appraised value of repossessed merchandise
unpaid balance
less: deferred gross profit (200,000 X 62.5%)
Gain on repossession
P 35,000
___5,000
40,000
_X 62.5%
P 25,000
P165,000
P 200,000
__125,000
__75,000
P 90,000
144
Chapter 9
9-9: b
Sch.1
Date
Apr-1
Apr-1
May-1
Jun-1
Jul-1
Aug-1
Collection
750
625
625
625
625
Applying
to
Interest
Applying
to
principal
125.00
115.00
104.80
__94.40
P439.20
750.00
500.00
510.00
520.20
___530.60
P2,810.80
Gain (loss) on repossession:

Market value of repossessed merchandise
unpaid balance of principal (sch. 1)
less: deferred gross profit (4,189 X 35%)
Loss on repossession (rounded)
Balance
of
principal
P7,000.00
6,250.00
5,750.00
5,240.00
4,719.80
4,189.00
P 1,875
P 4,189
__1,466

Collection applying to principal (sch. 1)
Gross profit rate
___2,723
(P 848)
P2,810.80
__X 35%
P 983.78
9-10: c
Year of Sales
2007
2008
Deferred gross profit (Sales X Gross Profit Rate)
2007 (P300,000 X 30%)
2008 (P450,000 X 40%)
2007: Accounts written-off (P25,000 X 30%)
Realized gross profit (P100,000 X 30%)
2008: Accounts written-off, 2007 (P75,000 X 30%)
Accounts written-off, 2008 (P50,000 X 40%)
Realized gross profit, 2007 (P50,000 X 30%)
Deferred gross profit, 12/31/08 (P75,000)
P 90,000
P 180,000
( 7,500)
( 30,000)
( 22,500)
( 60,000)
( 15,000)
________
P 15,000
( 60,000)
P 60,000
9-11: a
Deferred gross profit, 2007 (P1,050,000 - 735,000)
Realized gross profit, 2008 (P390,000-90,000) X 30%
P 315,000
( 45,000)
270,000
( 90,000)
P 180,000
Installment Sales
145
9-12: a
Deferred gross profit (Sales - Cost of Installment Sales)
Deferred gross profit, 12/31/08 (P228,000)
2007
P 480,000
( 252,000)
( 180,000)
_______
P 48,000
2008
P450,000
( 270,000)
P180,000
9-13: c
Trade-in value
Less: Actual value
Estimated selling price
Less: reconditioning cost
normal gross profit (25,000 X 15%)
Overallowance
Collection:
Downpayment
Actual value of merchandise-Trade In
Installment collected (5,000 X 3)
P 30,000
P 25,000
P 1,250
__3,750
___5,000
P 5,000
20,000
_15,000
Gross Profit Rate:

Sales
Overallowance
Net Sales
Cost of Installment Sales
Gross Profit
Gross Profit Rate (15,000 75,000)
Realized Gross Profit
__20,000
P 10,000
P 40,000
P 85,000
( 10,000)
P 75,000
_60,000
P 15,000
_X 20%
P 8,000
9-14: c
Collection excluding interest (P900,000-P300,000)
Gross profit rate (P1,200,000 P3,600,000)
Realized Gross Profit, December 31, 2008
Add Interests
Total Revenue
P 600,000
X 33 1/3%
200,000
__300,000
P 500,000
9-15: a
Wholesale value of repossessed merchandise
Unpaid balance:
Sales, 10/1/07
P 24,000
Collection, 2007 (6,000 2,000)
( 8,000)
Collection, 2008 (1,000 X 7)
( 7,000)
Deferred gross profit (9,000 X 25%)
P 9,000
__2,250
4,000
___6,750
(P 2,750)
146
Chapter 9
9-16: a
Trade-in Value (P300 X 6)
Less: Actual value
Estimated selling price (P315 X 6)
Less: Reconditioning cost (P25 X 6)
Gross Profit (P1,890 X 10%)
Over-allowance
P 1,800
P 1,890
P150
_189
___339
___1,551
P
249
9-17: a
Deferred gross profit, before adjustment
Deferred gross profit, end
2007: P32,500 X (30% 130%)
2008: P180,000 X (33 1/3% 133 1/3%)
Realized gross profit on installment sales
P 76,000
P 7,500
_45,000
__52,500
P 23,500
9-18: d
Unpaid balance (P27,000 - P16,000)
Multiply by gross profit rate (P734,400 P2,160,000)
Deferred gross profit to be cancelled on repossession
P 11,000
___X 34%
P 3,740
Collection:
2007 Downpayment
2008 Installment collection
Interest
Total
P 600,000
600,000
__540,000
P1,740,000
Cost to be recovered
P4,000,000
9-19: b
Since cost is not yet fully recovered, then no gross profit is to be recognized in 2008.
9-20: d
Regular Sales
Cost of regular sales
Gross profit on regular sales
Add: Realized gross profit on installment sales
2007 (25,000 X 50%)
2008 (62,500 X 55%)
Total realized gross profit
Operating expenses
Net income, 12/31/08
P 187,500
__112,500
P 75,000
P12,500
_34,375
__46,875
121,875
___31,250
P 90,625
Installment Sales
147
9-21: a
Installment sales 2007
Collections:
Down payment (20% x 785,000)
Installment (40% x 628,000)
Installment accounts receivable 2007, 12/31/07
Gross profit rate on sales
Deferred gross profit- 2007, 12/31/07
P785,000
P157,000
251,200
408,200
376,800
35/135
P 97,689
9-22: a
Regular sales
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%)
Installment accounts receivable-12/31/08
Collections
Gross profit on rate on sales
Operating expenses (1,137,500 x 70%)
Net income
P1,575,000
1,050,000
525,000
2,625,000
1,575,000
1,050,000
140/240
612,500
1,137,500
796,250
P 341,250
9-23: a
Regular sales
Realized gross profit on installment sales:
Collections excluding Interest (312,000 24,000)288,000
Gross profit rate (270,000/900,000)
30%
Fair value of repossessed merchandise
54,000
Less: Unrecovered cost (100,000 x 70%)
70,000
Total realized GP after loss on repossession
Less: Operating expenses
72,000
Installment accounts written-off (44,000 x .70) 30,800
Net operating income
Interest income
Net income
P375,000
215,000
160,000
86,400
246,400
( 16,000)
230,400
102,800
127,600
24,000
P151,600
148_
Chapter 9
Problem 9 1
Journal Entries:
2006
Installment A/R2006 ............... 104,000
Installment A/R2007 ...............
Installment A/R2008 ...............
Installment Sales .................

104,000
Cost of Installment Sales ...........
Inventory .............................
64,480
Cash ...........................................
Installment A/R2006
Installment A/R2007 .........
Installment A/R2008 .........
Interest Revenue .................
66,980
116,000
116,000
64,480
68,440
57,200
9,780
21,736
Computations:
2006: P57,200 X .38 =
P21,736
2007: P29,120 X .38 =

P71,920 X .41 =
Total RGP
P11,066
29,987
P40,553
2008: P15,000 X .38 =

P26,680 X .41 =
P76,230 X .39 =
Total RGP
P 5,700
10,939
29,730
P46,369
121,000
73,810
125,520
21,736
2008
121,000
68,440
Installment Sales........................ 104,000

Cost of Installment Sales ....
64,480
Deferred Gross Profit2006
39,520
Deferred Gross Profit2006 ......

Realized Gross Profit ..........
2007
73,810
145,460
29,120
71,920
_
24,480
116,000
15,000
26,680
76,230
27,550
121,000
68,440
47,560
11,066
29,487
40,553
73,810
47,190
5,700
10,939
29,730
46,369
Installment Sales
2007:
2008:
Problem 9 2
Inventory ................................................................................................ 45,200
Cash ................................................................................................
Notes Receivable 2007 (P32,000 + P62,000 + 3,600) ........................... 97,600
Unearned Interest Revenue (P7,167 + P3,600) ...............................
Installment Sales .............................................................................
Cost of Installment Sales (P45,200 P2,000 inventory increase) ......... 43,200
Inventory.........................................................................................
Cash ... ................................................................................................... 35,600
Notes Receivable 2007 ...................................................................
Unearned Interest Revenue 2007 ........................................................... 3,600
Interest Revenue .............................................................................
Installment Sales .................................................................................... 86,833
Cost of Installment Sales ................................................................
Deferred Gross Profit on Installment Sales2007...........................
Deferred Gross Profit on Installment Sales2007 .................................. 16,080*
Realized Gross Profit on Installment Sales .....................................
*Gross profit percentage: 50.25% (P43,633 P86,833)
.5025 x 32,000 = P16,080
Inventory ................................................................................................ 52,020
Cash ................................................................................................
Notes Receivable2008 ......................................................................... 89,5001
Unearned Interest Revenue .............................................................
Installment Sales .............................................................................
160,000 + (P50,000 + P5,500) P26,000* = 89,500
*2007 Notes receivable collected in 2008
2Interest revenue from 2007 notes: P7,167 P5,579 = P1,588
Interest revenue from 2008 notes: P5,500 P1,588 = P3,912
Discount on notes receivable at end of 2008 ......................................... P 8,043
Interest revenue from 2008 notes (see above)........................................ 3,912
Total discount at time of sale ................................................................. P11,955
Cost of Installment Sales (P52,020 P8,000) ....................................... 44,020
Inventory.........................................................................................
Cash ... ................................................................................................... 55,500
Notes Receivable2007 (P62,000 P36,000) ................................
Notes Receivable2008 ..................................................................
* P89,500 P60,000 = P29,500
Discount on Notes Receivable2007 ..................................................... 1,588
Discount on Notes Receivable2008 ..................................................... 3,912
Interest Revenue .............................................................................
Installment Sales .................................................................................... 77,545
Cost of Installment Sales ................................................................
Deferred Gross Profit on Installment Sales2008...........................
Deferred Gross Profit on Installment Sales2007 (P26,000
P1,538 = P24,412; P24,412 x .5025) .................................................. 12,267
Deferred Gross Profit on Installment Sales2008 .................................. 11,062*
Realized Gross Profit on Installment Sales .....................................
.4323 x (P29,500 P3,912) = P11,062
149
45,200
10,767
86,833
43,200
35,600
3,600
43,200
43,633
16,080
52,020
11,9552
77,545
44,020
26,000
29,500*
5,500
44,020
33,525
23,329
150
Chapter 9
Problem 9 3
1.
2.
2006: Gross profit rate
Deferred gross profit, 1/1

=
Install. contracts rec'l, 1/1
P24,000
=
P60,000
40%

P24,000
= =
P140,000
42%
Gross profit
=
Installment sales
P86,000
=
P200,000
Journal Entries:
Accounts Receivable .....................................................................................
Sales ... ...................................................................................................
Installment Contracts Receivable 2008 ......................................................
Installment Sales ....................................................................................
Cost of Installment Sales ..............................................................................
Shipments on Installment Sales .............................................................
Purchases .. ...................................................................................................
Cash ... ...................................................................................................
Selling Expenses ...........................................................................................
Cash ... ...................................................................................................
Cash ..... .... ...................................................................................................
Accounts Receivable..............................................................................
Installment Contracts Receivable 2006...............................................
Adjusting Entries:
Installment Sales ...........................................................................................
Cost of Installment Sales .......................................................................
Deferred Gross Profit on Installment sales 2008 ................................
Deferred Gross Profit 2006 (P40,000 x 40%) ............................................
Deferred Gross Profit 2007 (P80,000 x 42%) ............................................
Deferred Gross Profit 2008 (P110,000 x 43%) ..........................................
Realized Gross Profit .............................................................................
Doubtful Accounts Expense (1/4 x 1% x P600,000) .....................................
Allowance for Doubtful Accounts .........................................................
Closing Entries:
Sales ..... .... ...................................................................................................
Merchandise Inventory, December 31 ..........................................................
Shipments on Installment Sales ....................................................................
Merchandise Inventory, January 1 .........................................................
Purchases ...............................................................................................
Selling Expenses ....................................................................................
Doubtful Accounts Expense ..................................................................
Income Summary ...................................................................................
Realized Gross profit ....................................................................................
Income Summary ...................................................................................
Income Summary ..........................................................................................
Retained Earnings ..................................................................................
43%
600,000
600,000
200,000
200,000
114,000
114,000
476,000
476,000
210,000
210,000
790,000
560,000
40,000
80,000
110,000
200,000
114,000
86,000
16,000
33,600
47,300
96,900
1,500
1,500
600,000
260,000
114,000
240,000
476,000
210,000
1,500
46,500
96,900
96,900
143,400
143,400
Installment Sales
3.
Good Buy Mart
Income Statement
151
Sales ..... .... ...................................................................................................

Cost of sales:
Merchandise inventory, January 1 .........................................................
Purchases ...............................................................................................
Cost of goods available for sale .............................................................
Less Shipments on installment sales ......................................................
Cost of goods available for regular sales ...............................................
Less Merchandise inventory, December 31 ...........................................
Gross profit on regular sales .........................................................................
Add Realized gross profit on installment sales (Schedule 1) ........................
Total realized gross profit .............................................................................
Operating expenses:
Selling expenses.....................................................................................
Doubtful accounts expense ....................................................................
Net income ...................................................................................................
P600,000
P240,000
476,000
716,000
114,000
602,000
260,000
210,000
1,500
342,000
258,000
96,900
354,900
211,500
P143,400
Schedule 1
Collections ..........................................
Multiply by Gross profit rate ...............
Realized gross profit ............................
4.
2006
P40,000
40%
P16,000
Years of Installment Sales

2007
2008
P80,000
P110,000
42%
43%
P33,600
P 47,300
Total
P 96,900
Good Buy Mart

Balance Sheet
December 31, 2008
A s s e t s
Cash ..... .... ...................................................................................................
Merchandise inventory..................................................................................
Accounts receivable ......................................................................................
Allowance for doubtful accounts ..................................................................
Installment contracts receivable 2006 ........................................................
Other assets ...................................................................................................
Total Assets ...........................................................................................
P144,000
260,000
P 62,000
3,500
58,500
20,000
60,000
90,000
200,000
P832,500
Liabilities and Equity

Liabilities:
Accounts payable ...................................................................................
Deferred gross profit on installment sales 2006 ..................................
Total Liabilities ......................................................................................
Equity:
Capital stock ..........................................................................................
Retained earnings ...................................................................................
Total Liabilities and Equity ...................................................................
P 60,000
8,000
25,200
38,700
131,900
P406,000
294,600
700,600
P832,500
152
Chapter 9
Problem 9 4
1.
2.
2007: GP rate =
2008: GP rate =
Gross profit
Installment sales
=
=
P21,600 + P1,200
P24,000 + P52,000
P150,000 P97,500
P150,000
Installment Sales ...........................................................................................

Cost of Installment Sales .......................................................................
Deferred Gross Profit, 2008 ...................................................................
Deferred Gross profit, 2007 ..........................................................................
Deferred Gross Profit, 2008 ..........................................................................
Realized Gross Profit .............................................................................
=
=
P22,800
P76,000
30%
P52,500
P150,000
35%
150,000
97,500
52,500
14,400
25,900
40,300
Computation:
2007
Sales
2008
Sales
Installment contracts receivable, 1/1 ....................

Less Installment contracts receivable, 12/31 .......
P76,000
24,000
P150,000
76,000
Total credit for the period ....................................

Less Credit representing repossession .................
52,000
4,000
74,000
Credit representing collections ............................

Multiply by Gross profit rate ...............................
P48,000
30%
P 74,000
35%
Realized gross profit ............................................
P14,400
P 25,900
Sales ..... .... ...................................................................................................

Realized Gross Profit ....................................................................................
Loss on Repossession ............................................................................
Cost of Sales ..........................................................................................
Selling and Administrative Expenses ....................................................
Income Summary ...................................................................................
Income Summary ..........................................................................................
Retained Earnings ..................................................................................
3.
Total
P 40,300
212,000
40,300
400
165,000
66,000
20,900
20,900
20,900
Apple Company
Income Statement
Sales ..... .... ................................................................................................... ..................
Cost of sales .................................................................................................. ..................
P212,000
165,000
Gross profit on regular sales ......................................................................... ..................

Add Realized gross profit on installment sales (Schedule 1) ........................ ..................
47,000
40,300
Total realized gross profit ............................................................................. ..................

Less Loss on repossession............................................................................. ..................
87,300
400
Total realized gross profit after adjustment for loss on repossession ............ ..................
Selling and administrative expenses ............................................................. ..................
86,900
66,000
Net income ................................................................................................... ..................
P 20,900
Installment Sales
153
Problem 9 4
Schedule 1
Installment contracts receivable, 1/1 .......................

Less Installment contracts receivable, 12/31 ...........
Total credit for the period ........................................
Less Credit representing repossession .....................
Credit representing collections ................................
Multiply by Gross profit rate ...................................
Realized gross profit ................................................
2007
Sales
P76 000
24,000
52,000
4,000
P48,000
30%
P14,400
2008
Sales
P150,000
76,000
74,000
P 74,000
35%
P 25,900
Total
P40,300
Problem 9 5
1.
Cost of Installment Sales ....................................................................

Shipments on Installment Sales....................................................
54,400
Installment Sales .................................................................................

Cost of Installment Sales ..............................................................
Deferred Gross Profit, 2008 .........................................................
80,000
54,400
54,400
25,600
Gross profit = P25,600 P80,000 = 32%

Deferred Gross Profit, 2007 ................................................................
Deferred Gross Profit, 2008 ................................................................
Realized Gross Profit ...................................................................
14,000
8,000
22,000
Computation:
Installment contracts receivable, 1/1 .............

Less Installment contracts receivable, 12/31.
Total credit for the period..............................
Less Credit representing repossession...........
Credit representing collections ......................
Multiply by Gross profit rate .........................
Realized gross profit .....................................
2007
Sales
P82,000
_ 36,000
46,000
__6,000
P40,000
__35%*
P14,000
2008
Sales
P 80,000
_55,000
25,000
___
P 25,000
___32%
P 8,000
DGP, 1/1
P28,700 (26,600 + 2,100)
*2007 Gross profit rate= =
=
ICR, 1/1
P82,000 (36,000 + 40,000 + 6,000)
Total
P 22,000
35%
154
2.
Chapter 9
Sales .... ... ...........................................................................................

Merchandise Inventory, December 31 ................................................
Shipments on Installment Sales ..........................................................
Merchandise Inventory, January 1 ...............................................
Purchases ......................................................................................
Repossessed Merchandise ............................................................
Loss on Repossession ...................................................................
Operating Expenses ......................................................................
Income Summary .........................................................................
200,000
52,000
54,400
Realized Gross Profit ..........................................................................

Income Summary .........................................................................
22,000
Income Summary ................................................................................

Retained Earnings ........................................................................
31,500
60,000
180,000
3,000
900
53,000
9,500
22,000
31,500
PPG Discount Center, Inc.

Income Statement
Sales .... ... ...................................................

Cost of sales:
Inventory, January 1 ............................. P 60,000
Purchases .............................................. 180,000
Repossessed merchandise .................... __3,000
Cost of goods available for sale ........... 243,000
Less Shipments on installment sales .... _54,400
Cost of goods available for regular sales
Less Inventory, December 31............... _52,000
Gross profit .................................................
Less Deferred gross profit on installment
sales, 2008 ............................................
Realized gross profit, 2008 .........................
Add Realized gross profit on 2007
installment sales ...................................
Total realized gross profit ...........................
Less Loss on repossession ..........................
Total realized gross profit after adjustment
for loss on repossession ........................
Operating expenses .....................................
Net income ..................................................
Regular
P200,000
Installment
P80,000
Total
P280,000
188,600
_136,600
P 63,400
54,400
25,600
191,000
89,000
17,600
8,000
17,600
71,400
14,000
22,000
___900
14,000
85,400
__900
P21,100
84,500
_53,000
P31,500
Installment Sales
155
Problem 9 6
1.
London Products
Schedule of Cost of Goods Sold
Merchandise inventory, January 1 ................................................................ ..................
Purchases ................................................................................................... ..................
Freight-in ................................................................................................... ..................
Repossessed merchandise ............................................................................. ..................
Cost of goods available for sale .................................................................... ..................
Less Merchandise inventory, December 31 .................................................. ..................
Cost of goods sold ......................................................................................... ..................
2.
London Products
Schedule of Allocation of Cost of Goods Sold
Cash sales ..................

Charge sales .................
Installment sales ...........
3.
P 48,000
238,000
12,000
14,000
312,000
52,000
P260,000
Amount
P60,000
120,000
300,000
120%
125%
On Cash
Price Basis
P 60,000
100,000
240,000
P 400,000
Ratio to
Total
60/400
100/400
240/400
Allocated
Cost
P 39,000
65,000
156,000
P260,000
London Products
Income Statement
Sales ..... .... .......................................

Cost of goods sold .............................
Gross profit .......................................
Less Unrealized gross profit:
On installment contracts
receivable,12/31 (192,000 x 144/300)
Realized gross profit .........................
Add Realized gross profit on
prior years' sales (Schedule 1):
2006 ....................................
19,200
2007 ....................................
14,700
Total realized gross profit .................
Less Loss on repossession
(Schedule 2) ...............................
Total realized gross profit after
adjustment for loss on
repossession ...............................
Less Operating expenses ...................
Net income .......................................
Total
P480,000
260,000
P 220,000
Installment
Sales
P 300,000
156,000
P 144,000
92,160
127,840
92,160
51,840
33,900
161,740
33,900
85,740
10,200
10,200
151,540
93,000
P 58,540
P 75,540
Charge
Sales
P120,000
65,000
P 55,000
Cash
Sales
P 60,000
39,000
P 21,000
156
Chapter 9
Schedule 1
2006
Installment contracts receivable, January 1:
2006 P32,000 40% .................................................................
2007 P56,000 35% .................................................................
Less Installment contracts receivable, December 31 ..........................
Total credits ........................................................................................
Less Credit representing repossession ................................................
Total collections..................................................................................
Multiply by Gross profit rate ..............................................................
Realized gross profit ...........................................................................
2007
P80,000
_22,000
58,000
_10,000
P48,000
___40%
P19,200
P160,000
__90,000
70,000
28,000
P 42,000
___35%
P 14,700
2006
P 2,000
2007
P12,000
Total
P 14,000
10,000
28,000
38,000
Schedule 2
Fair market value of repossessed merchandise ....

Less Unrecovered cost:
Unpaid balance ..............................................
Less Unrealized profit
2006 P10,000 x40%.............................
2007 P28,000 x35%.............................
Balances ............................................................
Gain (loss) on repossession .................................
4,000
__6,000
P(4,000)
9,800
18,200
P( 6,200)
13,800
__24,200
P( 10,200)
Problem 9 7
1.
2007
2007
2007 installment sales (P400,000 x 42%*) .................................. P 168,000
2008:
2007 installment sales (P173,000 x 42%) ....................................
2008 installment sales (P560,000 x 38.5%*) ............................... ________
Deferred gross profit ........................................................................... P 168,000
2008
P 72,660
__215,600
P 288,260
*Computation of Gross profit percentages (see next page)

2007
Installment sales..................................................................................P2,210,000
Less Trade-in allowances (P226,000 P158,000).............................. _______
Adjusted installment sales .................................................................. 2,210,000
Cost of sales:
Inventories, January 1 (new) ........................................................
Purchases (new) ........................................................................... 1,701,800

Repossessed merchandise ............................................................
Cost of goods available for sale ................................................... 1,701,800
2008
P3,100,000
____68,000
_3,032,000
420,000
1,767,000
_83,000*
2,270,000
Installment Sales
157
Less: Inventories, December 31

New merchandise................................................................... 420,000
Repossessed merchandise ...................................................... _______
Total ....................................................................................... 420,000
Cost of sales ................................................................................. 1,281,800
Gross profit ......................................................................................... P 928,200
Gross profit percentages .....................................................................
*2007 : P195,000 x 20% =P39,000
2008 : P110,000 x 40% =_44,000
P83,000
Uncollectible installment contracts expense, per books
Correct Uncollectible installment contracts expense:
Fair market value of repossessed merchandise
2007 sales (P195,000 x 20%) ........................... P 39,000
2008 sales (P110,000 x 40%) ........................... __44,000
Unrecovered cost
2007 sales [P105,000 x (100% 42%)] ........... 60,900
2008 sales [P82,000 x (100% 38.5%)] .......... __50,430
Adjustment to Uncollectible installment contracts expense
42%
358,820
____46,500
405,320
_1,864,680
P1,167,320
38.5%
P 99,000
P 83,000
__111,330
__28,330
P 70,670
Installment
Sales
P3,032,000
_1,864,680
1,167,320
Total
Sales
P3,237,000
_2,022,680
1,214,320
__247,170
920,150
__247,170
967,150
___51,240
971,390
___28,330
P 943,060
___51,240
1,018,390
___28,330
990,060
__592,960
P 397,100
Fortune Sales Corporation

Income Statement
Cash
Sales
Sales
...................................................................... P205,000
Cost of sales ................................................................... _158,000
Gross profit .................................................................... P 47,000
Less Unrealized gross profit on 2005 installment
sales (Schedule 1) ....................................................
Realized gross profit on 2008 sales ...............................
Add Realized gross profit on 2007 installment
sales (Schedule 2) ....................................................
Total realized gross profit ..............................................
Less Uncollectible installment contracts expense..........
Total realized gross profit after adjustment ...................
Operating expenses ........................................................
Net income .....................................................................
158
Chapter 9
Schedule 1
Installment contracts receivable 2008, December 31 ....... ............
Installment contracts receivable 2008 defaulted ............... ............
Total .... ... ......................................................................... ............
Multiply by 2008 gross profit percentage ......................... ............
Unrealized gross profit on 2008 installment sales ............ ............
P 560,000
___82,000
P 642,000
___38.5%
P 247,170
Schedule 2
Installment contracts receivable 2007, January 1 ...............................
Less Installment contracts receivable 2007, December 31 .................
Total credits for the period .................................................................
Less Installment contracts receivable 2007 defaulted ........................
Total collections..................................................................................
Multiply by 2007 gross profit percentage ...........................................
Realized gross profit on 2007 installment sales..................................
1.
P 400,000
__173,000
227,000
__105,000
P 122,000
_____42%
P 51,240
Apportionment of cost (P600,000) to Lots 1, 2 and 3:

Lot 1 : 2/3 x P360,000....................................
Lot 2 : 2/3 x P240,000....................................
Lot 3 : 1/3 .......................................................
1/3 x P240,000 ........................................
Total cost .......................................................
P 240,000
160,000
P120,000
__80,000
Journal Entries for 2007

March 31
Cash .... ... ......................................................................................
Notes Receivable (Lot 2) ...............................................................
Lot 2 ......................................................................................
Deferred gain on Sale of Land ................................................
June 30
Cash .... ... ......................................................................................
Lot 3 . ......................................................................................
Deferred Gain on Sale of Land ...............................................
Cash .... ... ......................................................................................
Interest Income (P364,000 x 12% x 3/12) ...............................
Notes Receivable (Lot 2).........................................................
September 30
Cash .... ... ......................................................................................
Interest Income (P358,920 x 12% x 3/12) ...............................
__200,000
P 600,000
36,000.00
364,000.00
160,000.00
240,000.00
120,000.00
720,000.00
200,000.00
640,000.00
16,000.00
10,920.00
5,080.00
16,000.00
10,767.60
5,232.40
Installment Sales
159
October 31
Cash .... ... ......................................................................................
Lot 1 . ......................................................................................
Deferred Gain on Sale of Land ...............................................
December 31
Cash .... ... ......................................................................................
Interest Income ........................................................................
72,000.00
288,000.00
240,000.00
120,000.00
78,000.00
6,240.00
5,389.37
6,800.00
59,570.63
Computation:
Total
Collections ....................................... P78,000.00
Apply to interest:
Lot 1 P288,000.00 x 12% x 2/12
Lot 2 P353,687.60 x 12% x 3/12 59,570.63
Lot 3 P720,000.00 x 12% x 6/12 _________
Apply to principal ............................ P18,429.37
2.
Lot 1
P12,000.00
Lot 2
P16,000.00
Lot 3
P50,000.00
10,610.63
_________
P 5,389.37
_43,200.00
P 6,800.00
5,760.00
_________
P 6,240.00
Deferred Gain on Sale of Land (Lot 1) ............................................... 26,080.00

Realized Gain on Sale of Land .....................................................
153,469.06
Computation:
Collections applied to principal .......
Multiply by Gross profit rates:
Lot 1 P120,000 P360,000 .....
Lot 2 P240,000 P400,000 .....
Lot 3 P640,000 P840,000 .....
Realized gain ...................................
3.
Lot 1
P78,240.00
Lot 2
Lot 3
P51,701.77 P126,800.00
33.33%
_________
P26,080.00
60%
_________
P31,021.06
Lot 3 (80% x P200,000)......................................................................160,000.00

Deferred Gain on Sale of Land (Lot 3) (P640,000 P96,368) ..........543,632.00
Loss on Repossession ......................................................................... 9,568.00
Notes Receivable (Lot 3) (P720,000 P6,800) ...........................
_____76%
P96,368.00
713,200.00
160
Chapter 9
Problem 9 9
Galaxy Investment Company

Income Statement
Sales Schedule 1) ...................................................................................................
Cost of sales (Schedule 2).......................................................................................
Gross profit .... .... ...................................................................................................
Less Sales commissions .........................................................................................
Gross profit .... .... ...................................................................................................
Less Deferred gross profit
Installment Notes Balance P5,370,000
=
Installment Sales
P8,060,000
=67% x P6,227,000
P 8,060,000
1,612,000
6,448,000
221,000
6,227,000
4,172,090
Realized gross profit ...............................................................................................

Expenses:
Advertising and promotion ........................................................................... P 730,000
Sales manager's salary...................................................................................
120,000
General office expenses (1/4 x P236,000) ....................................................
59,000
Net profit ...... .... ...................................................................................................
2,054,910
909,000
P 1,145,910
Schedule 1
A lots : 26 @ P150,000 ...............................................

B lots : 32 @ P100,000 ................................................
C lots : 12 @ P80,000..................................................
........................................................
Total
Sales Price
P3,900,000
3,200,000
960,000
P8,060,000
Cash
Received
P1,650,000
800,000
240,000
P2,690,000
Installment
Notes Balance
P 2,250,000
2,400,000
720,000
P 5,370,000
Unit
Price
P150,000
100,000
80,000
Total
Sales Value
P12,000,000
10,000,000
9,600,000
P31,600,000
Schedule 2
Class
A ... ...... .... ........................................................
B .... ...... .... ........................................................
C .... ...... .... ........................................................
Total ... ........................................................
Number of
Lots
80
100
120
300
Cost of tract:
Cost of land ...................................................................................................
Legal fees, etc. ..............................................................................................
Grading contract............................................................................................
Water and sewerage system contract ............................................................
Paving contract .............................................................................................
General office expenses (3/4 x P236,000) ....................................................
Total ..... .... ...................................................................................................
P 4,800,000
600,000
225,000
184,900
266,300
177,000
P 6,253,200
P6,253,200
Cost rate : = 20% (rounded off)
P31,600,000
Cost of sales (P8,060,000 x 20%) ...........................................................................
P 1,612,000
Installment Sales
161
Problem 9 10
Rizal Company
Income Statement
Installment sales [(P14,300 x 7) + (P725 x 4)] ...........................................
Cost of goods sold on installment (schedule 1) ...........................................
Gross profit .. ... ...........................................................................................
Less Deferred gross profit on 19x8 sales
(P103,000 P21,000 = P82,000 x 23%*) ..........................................
Realized gross profit on 2008 sales .............................................................
Add Realized gross profit on prior years' sales
2006 : P60,000 x 33-1/3*....................................................................
2007 : P115,000 x 35%* .....................................................................
Total realized gross profit............................................................................
Less Loss on repossession (Schedule 4) ......................................................
Total realized gross profit after adjustment .................................................
General and administrative expenses ..........................................................
Net income (loss).........................................................................................
P103,000
__79,310
23,690
__18,860
4,830
P20,000
_40,250
__60,250
65,080
__33,100
31,980
__50,000
P(18,020)
*See Schedule 3
Schedule 1
Purchases (P10,500 x 8) ..............................................................................
Repossessed merchandise............................................................................
Cost of goods available for sale...................................................................
Less Inventory, December 31
Number of units on hand ....................................................................
Multiply by average unit cost (Schedule 2) ........................................
Cost of goods sold on installment ...............................................................
P 84,000
___2,520
86,520
1
P 7,210
___7,210
P 79,310
Schedule 2
Purchases during 2008 (P10,500 x 8) ..........................................................
Add Repossessed merchandise ....................................................................
Total ..... ...... ... ...........................................................................................
divide by Number of units (8 + 4)...............................................................
Average unit cost .........................................................................................
P 84,000
___2,520
P 86,520
_____12
P 7,210
162
Chapter 9
Schedule 3
........................................................
Sales
2006 : P15,000 x 10 .......................................
2007 : P14,000 x 20 .......................................
2008 : P14,300 x 7 .........................................
P725 x 4 ..............................................
Sales
........................................................
2006
2007
2008
P150,000
P280,000
_______
150,000
_______
280,000
100,100
__2,900
103,000
120,000
_____
120,000
_20,000
100,000
P 50,000
33-1/3%
20,000
162,000
_____
182,000
_____
182,000
P 98,000
35%
84,000
_2,520
86,520
_7,210
79,310
P23,690
23%
Fair market value of repossessed merchandise............................................

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
Loss on repossession ...................................................................................
P 2,520
Cost of goods sold:

Inventory, January 1 ........................................
Purchases ........................................................
Repossessed merchandise ................................
Cost of goods available for sale .......................
Less Inventory, December 31 ..........................
Cost of goods sold ...........................................
Gross profit .. ... ........................................................
Gross profit rates ......................................................
Schedule 4
_35,620
P33,100
Long-Term Construction Contracts
163
CHAPTER 10
10-1: a
Percentage of Completion Method:
Contract Price
Less: Total estimated cost
Cost incurred
Estimated remaining cost
Gross profit estimated
% of completion (200,000/600,000)
Gross profit to be recognized
Zero Profit Method:
P1,000,000
P 200,000
_400,000
__600,000
400,000
__33 1/3%
P 133,333
0
10-2: a P100,000
Contract Price
Estimated gross profit
% of completion:
2007 (3,900,000/7,800,000)
2008(6,300,000/8,100,000)
Gross profit earned to date
Less: Gross profit earned in prior year
Gross profit earned each year
2007
2008
P9,000,000 P9,000,000
_7,800,000 _8,100,000
1,200,000
900,000
50%
_________ ______78%
600,000
700,000
________ ___600,000
P 600,000 P 100,000
10-3: a
Contract Price
Less: Total estimated cost (3,600,000 + 1,200,000)
% of completion (3,600,000/4,800,000)
Less: Gross profit earned in 2007
Gross profit earned in 2008
P6,000,000
_4,800,000
1,200,000
_____75%
900,000
__600,000
P 300,000
Contract Price
Less: Total estimated cost (930,000 + 2,170,000)
Loss
P3,000,000
_3,100,000
(P 100,000)
10-4: b
164
Chapter 10
10-5: b
Total cost to date, 2008 (4,800,000 X 60%)
Less: Cost incurred in 2007 (4,500,000 X 20%)
Cost incurred in 2008
P2,880,000
__900,000
P1,980,000

Contract Price
Less: Total estimated cost (900,000/1,800,000)
% of completion (900,000/2,700,000)
Gross profit recognized, 2007
Add: Cost Incurred
Construction in Progress - 2007
P3,000,000
_2,700,000
300,000
___33.33%
100,000
___900,000
P 1,000,000
Zero Profit Method:

Cost incurred to Construction in Progress - 2007
10-6: a
900,000
10-7: a
Contract Price
% of completion
Gross Profit earned to date
Gross Profit earned in prior year
Gross Profit earned this year
2007
2008
P4,200,000 P4,200,000
_3,000,000 _3,750,000
1,200,000
450,000
_____20% ____100%
240,000
450,000
_______ __240,000
P 240,000 P 210,000
10-8: b
Collections:
Contract Billings
Less: Accounts receivable
Collections
Initial Gross Profit:
Contract Price
Gross Profit rate:
Income recognized
Divide by Construction in Progress
Initial Gross Profit
P 47,000
___15,000
P 32,000
P 800,000
10,000
50,000 = _____20%
P 160,000
165
10-9: a
Gross profit (loss) earned in 2008
Gross profit earned in prior years
Gross profit earned to date - 2008
Divide by percentage of completion - 2008
Estimated gross profit - 2008
Less: Contract price
Total estimated cost
Less: Cost incurred - 2008
Cost incurred to date - 2007
Less: Cost incurred - 2006
(P 20,000)
_180,000
160,000
___100%
160,000
2,000,000
1,840,000
_820,000
1,020,000
__360,000
P 660,000
Gross profit earned to date - 2007 (P40,000 + P140,000)

Divide by estimated gross profit - 2007:
Contract price
P2,000,000
Gross profit rate [180,000/(1,020,000 + 180,000)]
___X 15%
Percentage of completion - 2007
P 180,000
10-10: b
__300,000
60%
10-11: a, Refer to Q 10-10 solutions.

10-12: d
Contract price
Estimated gross profit - 2007 (Refer to Q 10-10)
Less: Cost incurred to date - 2007 (refer to Q 10-9)
Estimated cost to complete - 2007
P2,000,000
__300,000
1,700,000
1,020,000
P 680,000
2007: Construction in progress

Less: Construction costs
Gross profit recognized - 2007
P 244,000
__210,000
P 34,000
2008: Construction in progress (P728,000-P244,000)

Less: Construction costs
Gross profit recognized - 2008
P 484,000
__384,000
P 100,000
10-13: d
166
Chapter 10
10-14: d
Project 1
Contract price
Cost incurred to date - 2008
Estimated cost to complete
Total
Estimated gross profit (Loss)
Percentage of completion
Profit (loss) to be recognized
Total is (P10,000)
Project 2
P 420,000 P 300,000
P 240,000
__120,000
__360,000
60,000
__66.67%
P 40,000
P 280,000
___70,000
__350,000
(50,000)
_______
(P 50,000)
Zero Profit Method - The loss (P50,000) for project 2 only.

10-15: a
Contract price (cost X 120%)
Less: Total estimated costs
(1) Cost incurred to date
(2) Total
Percentage of completion (1 2)
Gross profit earned this year
2006
2007
2008
P3,744,000 P3,744,000 P3,744,000
546,000 1,544,400 3,120,000
_2,054,000 _1,315,000 ________
_2,600,000 _2,860,000 _3,120,000
1,144,000
884,000
624,000
_____20% _____54% ____100%
240,240
477,360
624,000
_______ __240,240 __477,360
P 240,240 P 237,120 P 146,640
10-16: d
Contract price
Cost incurred to date
Total
Percentage of completion:
2007 (1,425,000 - 50,000) 5,500,000
2008 (3,040,000 - 50,000) 5,000,000
Profit earned to date
2007
2008
P6,300,000 P6,300,000
1,425,000
_4,075,000
P5,500,000
800,000
3,040,000
_1,960,000
P5,000,000
1,300,000
25%
________ __59.80%
200,000
777,400
________ __200,000
P 200,000 P 577,400
167
10-17: a
Cash collections:
Progress billings
Less: Accounts receivable, end
Collection
P1,500,000
__500,000
P1,000,000
Cost incurred to date:

Construction in Progress
Less: Gross profit earned
P1,600,000
__200,000
P1,400,000
10-18: d
Apartment A
2007
2008
1,620,000 1,620,000
Contract price
Less: Total Estimated Costs
(1)
(2)
Estimated Gross Profit
Less: Gross profit earned in Prior years
Total Gross Profit 20 (P75,000 + P22,800)
Apartment B
2007
2008
2,520,000 2,520,000
P 600,000 P1,200,000 P1,560,000 P2,310,000

840,000
240,000
690,000
1,440,000 1,440,000 2,250,000 2,310,000

180,000
180,000
270,000
210,000
_41.67%
_83.33%
_69.33% _100.00%
75,000
150,000
187,200
210,000
_______ ___75,000 _______ __187,200
P 75,000 P 75,000 P 187,000 P 22,800
P97,800
Zero Profit Method - P210,000 gross profit earned in 2008 for Apartment B.
10-19: d
2007
Contract price:
2007
2008 (P6,000,000-P50,000)
(2) Total estimated cost
Less: Gross profit earned in Prior year
2008
P6,000,000
_________ P5,950,000
2,340,000
260,000
2,600,000
3,400,000
____90%
3,060,000
_______
P3,060,000
2,650,000
2,650,000
3,300,000
___100%
3,300,000
3,060,000
P 240,000
168
Chapter 10
10-20: a
(2) Estimated cost to complete
(3) Total Estimated Costs
2006
P3,400,000
1,600,000
5,000,000
68%
Contract price
Gross profit earned (loss) to date
Add: Cost incurred to date
Construction in Progress
Less: Contract billings
Balance
P6,000,000
5,000,000
1,000,000
68%
680,000
3,400,000
4,080,000
3,200,000
P 880,000
2007
2008
P5,950,000 P6,150,000
150,000
6,100,000 6,150,000
98%
100%
P6,000,000 P6,000,000
6,100,000 6,150,000
(100,000) (150,000)
100%
100%
(100,000) (150,000)
5,950,000 6,150,000
5,850,000 6,000,000
5,200,000 6,000,000
P 650,000
10-21: c
Construction in Progress:
Cost incurred to date, 2007
Gross profit earned, 2007 (Schedule 1)
Less: Contract billings, 2006 (P3,250,000 x 75%)
P2,625,000
100,000 P2,725,000
2,437,500
Excess of Construction in Progress over Contract Billings (CA)
P 287,500
Schedule 1 Computation of gross profit earned, 2006

2006
2007
P3,250,000 P3,250,000
Contract price
Total estimated cost:
Cost to date
1,075,000
1,612,500
2,625,000
750,000
2,687,500
3,375,000
Estimated gross profit (loss)

% of completion
562,500
40%
(125,000)
Gross profit (loss) to date

225,000
(125,000)
225,000
P 225,000
P 100,000
Total
10-22: a
Contract price
Estimated cost:
Cost to date
Estimated costs to complete
2005
P2,800,000
2006
2007
P2,800,000 P2,800,000
1,300,000
1,360,000
1,960,000
780,000
2,440,000
380,000
2,660,000
2,740,000
2,820,000
140,000
60,000
(20,000)
% of completion
48.87%
71.53%
Total
169
10-23: b
2007
Contract price
Estimated costs:
Cost to date
Project A
P2,900,000
Project B
P3,400,000
Project C
P 1,700,000
1,680,000
1,120,000
1,440,000
1,760,000
320,000
960,000
2,800,000
3,200,000
1,280,000
100,000
60%
200,000
45%
420,000
25%
P 60,000
P 90,000
P 105,000
Project B
P3,400,000
Project C
P1,700,000
Project D
P 2,000,000
2,120,000
0
1,183,000
1,360,000
560,000
117,000
1,040,000
2,640,000
3,480,000
1,300,000
1,600,000
Total
% of completion
Gross profit earned this year (P255,000)
2008
Contract price
Estimated costs
Cost to date 2,640,000
Total
Project A
P2,900,000

% of completion
260,000
100%
(80,000)
400,000
91%
400,000
35%

Gross profit earned in prior year
260,000
60,000
(80,000)
90,000
364,000
105,000
140,000
0
P 200,000
P 10,000
P 259,000
P 140,000
2007
P 255,000
120,000
2008
P 609,000
120,000
Gross profit earned this year(P609,000)
Gross profit earned

General and administrative expenses
Net income
P 135,000
P 489,000
10-24: c
Contract price
Gross profit earned to date, 2008 (P900,000 P100,000)
P10,000,000
800,000
Total cost to date, 2008

Less: cost incurred in 2008
9,200,000
4,100,000
Cost to date, 2007
P 5,100,000

Divided by % of completion:
(P5,100,000 + P900,000) / P10,000,000
Estimated gross profit, 2007
P 1,500,000
900,000
60%
10-25: d
Construction in progress:
Gross profit earned to date (P2,500,000 P2,000,000)
Total
Less: Contract billings (P2,500,000 x 30%)
Excess of contract billings over construction in progress (CL)
P 440,000
110,000
550,000
750,000
P( 200,000)
170
Chapter 10
10-26: a
Contract price
Cost incurred to date:
Site labor cost
Cost of construction materials
Depreciation of special plant & equip
Total
Percentage of completion (45/100)
Gross profit to be recognized
P120,000,000
10,000,000
30,000,000
5,000,000
45,000,000
55,000,000
100,000,000
20,000,000
45%
P 9,000,000
10-27: a
Cost incurred to date- 2007
Total estimated cost (8,000,000 / 40%)
Estimated cost at completion- 2006
Total estimated cost- 2006
20,000,000
8,000,000
P12,000,000
3,700,000
8,300,000
12,450,000
P20,750,000
Percentage of completion- 2006 (8,300,000/ 20,750,000) = 40%

10-28: a
Contract price
Gross profit recognized
Contract price
Gross profit earned in 2007
2007
Contract 1
Contract 2
P600,000
P450,000
150,000
150,000
300,000
300,000
50%
P150,000
Contract 1
600,000
350,000
250,000
80%
200,000
150,000
50,000
87,500
162,500
250,000
200,000
35%
P70,000
2008
Contract 2
450,000
300,000
150,000
60%
90,000
70,000
20,000
CIP-2007
P237,500
P220,000
Contract 3
900,000
500,000
400,000
36%
144,000
144,000
171
10-29: a
Bicol
Contract price
P875,000
Cost incurred
656,250
Est. cost to complete
656,250
218,750
100%
Gross profit earned
P218,750
Total cost incurred

Total gross profit earned
Construction in progress
Less: Billings
Due from (to)
Davao
Aklan
P1,225,000 P437,500
175,000
700,000
875,000
350,000
20%
P 70,000
1,006,250
332,500
1,338,750
1,312,500
26,250
175,000
175,000
350,000
87,500
50%
P43,750
Total
1,006,250
332,500
Zero Profit
1,006,250
218,750
1,225,000
1,312,500
(87,500)
10-30: a
Contract price
Cost incurred
Gross profit recognized
P40,825,000
8,475,000
28,400,000
36,875,000
3,950,000
22.983%
P 907,830
172
Chapter 10
Problem 10 1
(a)
Contract Price
(2) Total
Estimated gross profit to date
(b)
Contract Price
Less: Total cost incurred
Gross profit
(c)
2007: Construction in Progress

Cost of construction
Construction Revenue
2008: Construction in Progress
Cost of Construction
2007
P 450,000
2008
P 450,000
200,000
__100,000
__300,000
150,000
______2/3
100,000
_______
P 100,000
320,000
_______
_320,000
130,000
___100%
130,000
__100,000
P 30,000
P 450,000
__320,000
P 130,000
100,000
200,000
300,000
30,000
320,000
350,000
Problem 10 2
(a)
(b)
Less: Cost incurred
Gross profit 2008
P1,250,000
_1,250,000
P
0
Construction in Progress (cost incurred)

Less: Contract billings (P5,800,000 x 30%)
Billings in excess of related costs
P1,250,000
_1,740,000
P(490,000)
Contract price
Percentage of Completion (P1,250,000 500,000)
Gross profit
P5,800,000
Construction on Progress (P1,250,000 + P200,000)

Less: Contract billings
Billings in excess of related costs
P1,250,000
3,740,000
5,000,000
800,000
_____25%
P 200,000
P1,450,000
_1,740,000
P(290,000)
173
Problem 10 3
2005
2006
P55,000,000 P55,000,000
(a)
Contract Price
(2) Total
Gross profit earned in prior yr(s)
Gross profit earned the year
15,000,000
_35,000,000
_50,000,000
5,000,000
______30%
1,500,000
________
P 1,500,000
(b)
25,000,000
25,000,000
50,000,000
5,000,000
_____50%
2,500,000
_1,500,000
P 1,000,000
2007
(1) Construction in Progress

Cash or Payable
15,000,000
(2) Accounts Receivable

Contract Billings
15,000,000
(3) Cash
Accounts Receivable
12,000,000
(4) Construction in Progress

Cost of Construction
1,000,000
15,000,000
15,000,000
2007
2008
P55,000,000 P55,000,000
35,000,000
15,000,000
50,000,000
5,000,000
_____70%
3,500,000
_2,500,000
P 1,000,000
50,000,000
________
50,000,000
5,120,000
____100%
5,000,000
_3,500,000
P 1,500,000
2008
15,000,000
15,000,000
20,000,000
15,000,000
20,000,000
25,000,000
12,000,000
25,000,000
1,500,000
15,000,000
16,000,000
16,500,000
2006
P 1,000,000
P 9,000,000
11.11%
2007
2008
P 5,500,000 P10,000,000
P11,000,000 _12,000,000
50%
83.33%
2006
P15,000,000
2007
2008
P15,000,000 P15,000,000
1,000,000
__8,000,000
__9,000,000
6,000,000
___11.11%
666,600
________
P 666,600
5,500,000 10,000,000
__5,500,000 __2,000,000
_11,000,000 _12,000,000
4,000,000
3,000,000
______50% ___83.33%
2000,000
9,500,000
___666,600 _2,000,000
P 1,333,400 P 500,000
Problem 10 4
(a)
Divide by total estimated cost
Percentage of Completion
(b)
Contract Price
Less: Total Estimated Cost
Total
Less: Gross profit earned in prior yrs.
174
(c)
Chapter 10
(1) Construction in progress (cost incurred)

Cash
1,000,000
(2) Accounts Receivable

Contract Billings
1,325,000
(3) Cash
Accounts Receivable
1,200,000
(4) Construction in progress (gross profit)

666,600
1,000,000
1,000,000
1,325,000
1,200,000
1,666,600
Problem 10 5
(1)
2005
P14,000,000
Contract Price
6,500,000
__6,800,000
Total
_13,300,000
700,000
___48.87%
342,090
Less: Gross profit (loss) in prior yrs. ________
Gross profit (loss) this year
P 342,090
(2)
2005
2006
P14,000,000
2007
2008
P14,000,000 P14,000,000
9,800,000
_3,900,000
13,700,000
300,000
___71.53%
214,590
___342,090
P( 127,500)
12,200,000
_1,900,000
14,100,000
( 100,000)
_____100%
( 100,000)
___214,590
P( 314,590)
2006
2007
13,900,000
________
13,900,000
100,000
____100%
100,000
( 100,000)
P 200,000
2008
6,500,000
3,300,000
2,400,000
1,700,000
Construction in progress 342,090
127,500
314,590
200,000
6,842,090
3,172,500
2,085,410
1,900,000
Problem 10 6
(1)
Contract Price
Total
Gross profit (loss) in prior yrs.
Gross profit (loss) this year
2005
P 6,000,000
2006
P 6,000,000
2007
P 6,000,000
3,400,000
_2,100,000
_5,500,000
500,000
___61.82%
309,100
________
P 309,100
5,950,000
___150,000
_6,100,000
( 100,000)
_______
( 100,000)
__309,100
P 409,100
6,150,000
________
_6,150,000
( 150,000)
________
( 150,000)
( 100,000)
P 50,000
(2)
(3)
175
2005
2006
3,400,000
2,550,000
309,100
409,100
3,709,100
2,140,900
Cash
Accounts Receivable
Contract Billings
2007
200,000
50,000
150,000
400,000
400,000
6,000,000
6,000,000
Problem 10 7
(1)
2006
P16,000,000
Contract Price
4,600,000
__9,640,000
Total
_14,240,000
1,760,000
Engineer's estimate of comp.
______31%
Gross profit to date
545,600
Less: Gross profit earned in prior yrs. ________
Gross profit earned this yr.
P 545,600
(2)
(a) Construction on progress
Cash
2007
P16,000,000
2008
P16,000,000
9,100,000
__5,100,000
_14,200,000
1,800,000
______58%
1,044,000
__545,600
P 498,410
14,350,000
_________
_14,350,000
1,650,000
_____100%
1,650,000
_1,044,000
P 606,000
2006
4,600,000
2007
4,500,000
4,600,000
(b) Accounts receivable

Contract billings
5,000,000
(c) Cash
Accounts receivable
4,500,000
2008
5,250,000
4,500,000
6,000,000
5,000,000
5,000,000
6,000,000
5,400,000
4,500,000
5,250,000
5,000,000
6,100,000
5,400,000
6,100,000
(d) Cost of constructions

4,600,000
4,500,000
5,250,000
545,600
498,400
606,000
Construction revenue
5,145,600
4,998,400
5,856,000
(e) Contract billings
16,000,000
Construction on progress
16,000,000
(3)
Zero Profit Method: 2008 Entres

(a) Construction in progress
Cash / accounts payable
(b) Accounts receivable
Contract billings
5,250,000
5,250,000
5,000,000
5,000,000
176
Chapter 10
(c) Cash
Accounts receivable
6,100,000
(d) Cost of construction

5,250,000
1,650,000
6,100,000
6,900,000
(e) Contract billings

(4)
16,000,000
16,000,000
The following entry would be the only one different from (2).
2006
2007
2008
4,414,400
3,821,600
6,114,000
545,600
498,400
606,000
4,960,000
4,320,000
6,720,000
Total estimated costs x estimated percentage of completion.

Problem 10 8
(1)
Contract Price
Less: Total Estimated Costs
Total
Less: Gross profit (loss) in prior yrs.
Gross profit (loss) this years
(2)
In 2008 when the project is completed.
2006
P6,500,000
2007
P6,500,000
2008
P6,500,000
2,150,000
_3,850,000
_6,000,000
500,000
________
P 520,000
5,250,000
_1,500,000
_6,750,000
(250,000)
___520,000
P( 250,000)
6,850,000
________
_6,850,000
(350,000)
_(250,000)
P( 600,000)
Franchise Accounting
177
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, 2008.
11-2: c
Initial franchise fee
Less: Cost of franchise
Net income
P5,000,000
____50,000
P4,950,000
11-3: a
The total initial franchise fee of P500,000 is to be recognized as earned because the
collectibility of the note for the balance is reasonably assured.
11-4: b
Cash downpayment
Collection of note applying to principal
Revenue from initial franchise fee
P 100,000
__200,000
P 300,000
Cash downpayment, January 2, 2008

Collection applying to principal, December 31, 2008
Total Collection
Gross profit rate [(5,000,000-500,000) 5,000,000]
Realized gross profit, December 31, 2008
P2,000,000
_1,000,000
3,000,000
_____90%
P2,700,000
Face value of the note (P1,200,000 - P400,000)

Present value of the note (P200,000 X 2.91)
Unearned interest income, July 1, 2008
P 800,000
__582,000
P 218,000

Less: unearned interest income
Deferred revenue from franchise fee
P1,200,000
__218,000
P 982,000

Continuing franchise fee (P400,000 X .05)
Total revenue
Cost
Net income
P 500,000
___20,000
520,000
___10,000
P 510,000
11-5: a
11-6: b
11-7: d
11-8: d
178
Chapter 11
11-9: b
Deferred Revenue from franchise fee:
Downpayment
Present value of the note (P1,000,000 X 2.91)
Less: Cost of franchise fee
P6,000,000
2,910,000
Deferred gross profit

Gross profit rate (6,910,000 8,910,000)
P8,910,000
_2,000,000
P6,910,000
77.55%
Downpayment (collection during 2008)

Gross profit rate
P6,000,000
___77.55%
Realized gross profit from initial franchise fee

Add: Continuing franchise fee (5,000,000 X .05)
P4,653,000
__250,000
Total
Less: Franchise expense
Operating income
Interest income, 12/31/05 (P2,910,000 X 14%) X 6/12
Net income
P4,903,000
___50,000
P4,853,000
__203,700
P5,056,700
Face value of the note receivable

Present value of the note receivable
P1,800,000
1,263,900
Unearned interest income
P 536,100

Less: Unearned interest income
P3,000,000
__ 536,100
Deferred revenue from franchise fee
P2,463,900
Revenues from:
Continuing franchise fee (P2,000,000 X .05)
Total revenue from franchise fees
P1,000,000
100,000
P1,100,000
11-10: b
11-11: a
11-12: d
Realized gross profit from initial franchise fee [(350,000 + 90,000) x 37%]
Continuing franchise fee (P121,000 + P147,500) x 5%
P 162,800
___13,425
Total revenue
Expenses
176,225
___42,900
Net operating profit

Interest income (P900,000 x 15%) x 6/12
133,325
___67,500
Net income
P 200,825
179
11-13: c
Cash down-payment
Present of the note (P40,000 x 3.0374)
P 95,000
__121,496
Total
P 216,496
11-14: a
Continuing franchise fee (P400,000 x 5%)
P 50,000
__20,000
Total revenue
P 70,000
Should be P80,000
Initial franchise fee down-payment (P100,000 / 5)
Continuing franchise fee (P500,000 x 12%)
P 20,000
__60,000
Total earned franchise fee
P 80,000
11-15: c
11-16: a
The unearned interest credited is the difference between the face value and the
present value of the notes receivable (900,000 720000).
The down payment of P600,000 is recognized as revenue since it is a fair
measure of the services already performed by the franchisor.
11-17: b
Cora (P100,000 + P500,000)
Dora (P100,000 + P500,000)
Total
P 600,000
600,000
P1,200,000
Down payment (3,125,000 x 40%)

Present value of notes receivable ( 1,875,000/4) 468,750 x 3.04
Adjusted sales value of initial franchise fee
Direct cost of services
Gross profit
P1,250,000
1,425,000
2,675,000
802,500
1,872,500
11-18:
Gross profit rate (1,872,500 2,675,000)
70%
180
Chapter 11
Date
Collection
Interest
1/1
6/30
468,750
171,000
12/30
468,750
135,270
Total collection applying to principal
Down payment
Total collection
Gross profit rate
Realized gross profit on
initial franchise fee
11-19: c
Principal
297,750
333,480
631,230
1,250,000
1,881,230
70%
1,316,861
Balance of PV of NR
P1,425,000
1,127,250
793,770
181
Problem 11 1
a.
The collectibility of the note is reasonably assured.

Jan. 2:
July 31:
Cash ..... ..............................................................................12,000,000

Notes receivable................................................................. 8,000,000
Deferred Revenue from IFF. ........................................
20,000,000
Deferred cost of Franchises................................................ 2,000,000

Cash ..............................................................................
2,000,000
Nov. 30: Cash/AR ............................................................................

Revenue from continuing franchise fee (CFF) ..............
29,000
Dec. 31: Cash / AR ..........................................................................

Revenue from CFF ........................................................
36,000
29,000
36,000
Cash .... .............................................................................. 2,800,000

Notes receivable ............................................................
Interest income (P8,000,000 x 10%) .............................
2,000,000
800,000
Adjusting Entries:
(1)
Cost of franchise revenue ........................................... 2,000,000
Deferred cost of franchises ...................................
2,000,000
(2)
Deferred revenue from IFF .........................................20,000,000

Revenue from IFF ...................................................
To recognize revenue from the initial franchise fee.
b.
20,000,000
The collectibility of the note is not reasonably assured.

Jan. 2 to Dec. 31 = Refer to assumption a.
Adjusting entry: to recognized revenue from the initial franchise fee (installment method)
(1)
(2)
To defer gross profit:

Deferred Revenue from IFF ........................................20,000,000
Cost of Franchise Revenue ...................................
Deferred gross profit Franchises .......................
GPR = P18,000 P20,000,000 = 90%
To recognize gross profit:
Deferred gross profit Franchises ..............................12,600,000
Realized gross profit.............................................
(P14,000,000 X 90%)
2,000,000
18,000,000
12,600,000
182
a.
Chapter 11
Problem 11 2
Collection of the note is reasonably assured.
Jan. 5: Cash .. ..... .............................................................................. 600,000
Notes Receivable ................................................................... 1,000,000
Unearned interest income ..................................................
Deferred revenue from F.F. ...............................................
Face value of NR ............................................................................
Present value (P200,000 x P2,9906) ...............................................
1,000,000
__598,120
Unearned interest ............................................................................
401,880
Nov. 25: Deferred cost of Franchise ................................................

Cash ..............................................................................
179,718
Dec. 31: Cash / AR ..........................................................................

Revenue from CFF ........................................................
(P80,000 X 5%)
4,000
Cash .... ..............................................................................

Notes Receivable ...........................................................
200,000
Adjusting Entries:
1) Unearned interest income ..................................................
Interest income............................................................
P598,120 x 20%
2) Cost of Franchise ...............................................................
Deferred cost of Franchise ..........................................
b.
401,880
1,198,120
179,718
4,000
200,000
119,624
119,624
179,718
179,718
3) Deferred revenue from FF ................................................. 1,198,120

Revenue from FF ........................................................
Collection of the note is not reasonably assured.
Jan. 5 to Dec. 31 before adjusting entries Refer to Assumption a.
Dec. 31: Adjusting Entries:
1) Unearned interest income .................................................
Interest income ...........................................................
2) Cost of franchise................................................................
Deferred cost of franchise ...........................................
1,198,120
119,624
119,624
179,718
179,718
3) Deferred revenue from FF ................................................. 1,198,120

Cost of Franchise ........................................................
Deferred gross profit Franchise ...............................
GPR = 1,018,402 1,198,120 = 85%)
179,718
1,018,402
4) Deferred gross profit Franchise ......................................578,319.60

Realized gross profit Franchise................................
(P600,000 + P200,000- P119,624) x 85%
578,319.60
183
Problem 11 3
2007
July 1:
Cash .. ...... ..... .............................................................................. 120,000

Notes Receivable .......................................................................... 320,000
Unearned interest income ......................................................
Deferred revenue from FF .....................................................
Face value of NR .......................................................................... P320,000
Present value (P80,000 x 3.1699)................................................. _253,592
Unearned interest income ............................................................. P 66,408
Sept. 1 to
Nov. 15: Deferred cost of franchise ............................................................
Cash .. ..... ..............................................................................
(P50,000 + P30,000)
Dec. 31: Adjusting Entry:
Unearned interest income .............................................................
Interest income ......................................................................
(P253,592 x 10% x 1/2)
80,000
80,000
12,680
12,680
2008
Jan. 10: Deferred cost of franchise ............................................................
Cash .. ..... ..............................................................................
50,000
July 1:
80,000
Cash .. ...... ..... ..............................................................................

Note receivable ......................................................................
Dec. 31: Adjusting Entries:

(1) Cost of franchise ....................................................................
Deferred cost of franchise .................................................
66,408
373,592
50,000
80,000
130,000
130,000
(2) Deferred revenue from FF .....................................................

Revenue from FF ...............................................................
373,592
(3) Unearned interest income ......................................................

Interest income ..................................................................
25,360
373,592
25,360
184
Chapter 11
Problem 11 4
2008
Jan. 10: Cash .. ...... ..... .............................................................................. 6,000,000
Deferred revenue from FF. ....................................................
6,000,000
Jan. 10 to
July 15: Franchise expense ........................................................................ 2,250,000
Cash .. ..... ..............................................................................
2,250,000
Deferred revenue from FF ............................................................ 4,000,000

Revenue from FF ...................................................................
Initial Franchise fee .....................................................................P6,000,000
Deficiency
Market value of costs (P180,000 90%) x 10 yrs. ................( 2,000,000)
Adjusted initial fee (revenue) .......................................................P4,000,000
July 15: (a) Continuing expenses ..............................................................
Cash / Accounts payable ...................................................
a)
b)
4,000,000
180,000
(b) Deferred revenue from FF ..................................................... 200,000

Revenue from CFF ............................................................
(P180,000 90%)
Problem 11 5
Adjusted initial franchise fee:
Total initial F.F.............................................................................
Less: Face Market value of kitchen equipment ............................
Adjusted initial FF........................................................................
Revenues:
Initial FF .. ..... ..............................................................................
Sale of kitchen equipment ............................................................
Continuing F.F. (P2,000,000 x 2%) .............................................
Total . ...... ..... ..............................................................................
Expenses:
Initial expenses ............................................................................. P 500,000
Cost of kitchen equipment............................................................ 1,500,000
Net income ..... ..... ..............................................................................
180,000
200,000
P4,500,000
_1,800,000
P2,700,000
P2,700,000
1,800,000
___40,000
4,540,000
_2,000,000
P2,540,000
Journal Entries:
Jan. 2: Cash .. ..... .............................................................................. 1,500,000
Notes receivable..................................................................... 3,000,000
Deferred revenue from FF (adjusted SV) ..........................
Revenue from FF (Market value of equipment) ................
2,700,000
1,800,000
Cost of kitchen equipment ..................................................... 1,500,000

Kitchen equipment ............................................................
1,500,000
185
Jan. 18: Franchise expense ........................................................................

Cash .... ..............................................................................
500,000
500,000
April 1: Cash ...... ..... ..............................................................................2,000,000

Notes receivable ................................................................
2,000,000
Dec. 31: Cash ...... ..... ..............................................................................1,000,000

Notes receivable ................................................................
1,000,000
Cash / Account receivable ............................................................

Revenue from continuing FF .............................................
40,000
40,000
Deferred revenue from FF ............................................................ 2,700,000

Revenue from FF ...............................................................
2,700,000
Problem 11 6
Recognition of initial franchise fee (IFF) (6 mos. after opening)
Revenue from initial FF:
Total initial FF ..... ..............................................................................P2,500,000
Less: Deficiency in continuing FF (Sch. 1) ........................................ 160,000
Expense (costs of initial services) ...............................................................
Net income .. ... ...... ..... ..............................................................................
Schedule 1 Estimated deficiency in CFF
(1)
Yr. of
Estimated
Contract
Continuing FF
1
P220,000
2
220,000
3
220,000
4
220,000
5
220,000
6
150,000
7
150,000
8
150,000
9
90,000
10
90,000
(2)
Market Value
of Continuing Services
P250,000
250,000
250,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
2,340,000
__700,000
P1,640,000
(Excess of 2 over 1)
Deficiency
P 30,000
30,000
30,000
35,000
__35,000
P160,000
Recognition of revenue from CFF and costs:

Years 1-3
Revenue from CFF ........................ P250,000
Expenses . ...... ..... ......................... _200,000
Net income ..... ..... ......................... P 50,000
Years 4-5
P220,000
_100,000
P120,000
Years 6-8
P150,000
_100,000
P 50,000
Years 9-10
P125,000
_100,000
P 25,000
186
Chapter 11
Problem 11 7
Revenues:
Initial FF (Sch. 1)
Interest income
Continuing FF
Others
Expenses:
Initial expenses
Continuing expense
Others
Net Income
1/12/2008
6/1/2008
7/1/2008
6/30/2009
62,500
80,000
287,200
45,490*
48,000
( 50,000)
P 12,500
( 68,000)
P 12,000
( 70,000)
P217,200
( 36,000)
P 57,490
* P454,900 x 10% = P45,490

Schedule 1: Computation of initial FF to the recognized:
Total initial fee ...... ...................................................................................................
Less:
Interest unearned on the note ........................................................................
Market value of inventory ............................................................................
Market value of equipment ...........................................................................
Deficiency in continuing costs ......................................................................
Adjusted initial FF .. ...................................................................................................
A.
B.
P750,000
( 145,100)
( 80,000)
( 62,500
( 175,200)
P287,200
A
B
B
C
Unearned Interest:
Face value of the note ..........................................................................................
Present value (120,000 x 3.7908) ........................................................................
Unearned interest .................................................................................................
P600,000
454,900
P145,100
rounded
Market value of equipment and inventory:

Equipment (P50,000 80%)................................................................................
Inventory ... ...... ...................................................................................................
P 62,500
80,000
Income from Sales:

Sales Price. ...... ..........................................
Cost .... ...... ...... ..........................................
Net income ...... ..........................................
C.
Equipment
P62,500
50,000
P12,500
Analysis of Continuing costs:

Market value of costs is P4,000/Mo. or P48,000 / yr.
Continuing Fees:
Years 1-4
Gross revenues ..........................................
P330,000/mo.
Gross fees per month ..................................
P 2,475/mo.
Gross fees per year ......................................
Market value of continuing costs ................
Deficiency per year .....................................
Number of years .........................................
Deficiency
..........................................
Total deficiency for 20 years is P175,200
P 29,700
( 48,000)
( 18,300)
x4
P( 73,200)
Inventory
P80,000
68,000
P12,000
Total
P142,500
118,000
P 24,500
Years 5-16
P450,000/mo.
P 3,375/mo.
Years 17-20
P500,000/mo.
P 3,750/mo.
P 40,500
( 48,000)
(
7,500)
x 12
P( 90,000)
P 45,000
( 48,000)
(
3,000)
x4
P( 12,000)
Dates of Revenue Recognition: .....................................................

January 12, 2008 ............................................................
June 1, 2008 ...................................................................
July 1, 2008 ....................................................................
June 30, 2009 .................................................................
187
Types of Revenue
Sale of equipment
Sale of inventory
Initial FF (as adjusted0
Interest income and
continuing revenue.

Advance Accounting Book 1

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Advance Accounting Book 1

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Partnership Basic Considerations and Formation

Net assets (Julio, capital)

Total Capital (P300,000/60%)

Net asset (capital)

Total agreed capital (P230,000/40%)

Nora's agreed capital

Net asset invested

Agreed capitals, equally (P300,000/3) =

Net asset invested

Goodwill (P240,000 - P130,000) =

Net asset invested

Partnership Basic Considerations and Formation

Cash to be contributed by Ruiz

Net assets (equal to Ferrer's capital account)

Total partnership capital

Required capital of Cruz (P400,000 X 30%)

Cash to be invested by Cruz

Total assets of the partnership

Total partnership capital (P165,900/2/3)

Cash to be invested by Mendez

Total partnership capital

Total partnership capital

Flores' capital credit

Additional cash to be invested by Flores

Partnership Basic Considerations and Formation

Unadjusted capital balances

Adjusted capital balances

Cash to be invested by Roxas

Gomez's capital (P300,000 X 40%)

Merchandise to be invested by Gomez

Cash to be invested by Jocson:

Adjusted Ell, capital

Total partnership capital (P113,640/1/3)

Cortez's capital after adjustments

Cortez's capital before adjustments

Total capital of the partnership (P3,500,000 70%)

Partnership Basic Considerations and Formation

Contributed capital of May (P194,000 - P56,000)

a. Books of Pedro Castro will be retained by the partnership

2. Pedro Castro, Capital .............................................................

3. Accrued Interest Receivable ..................................................

Total ......................... ...... P35

5. Pedro Castro, Capital .............................................................

6. Office Supplies ......................................................................

To record the investment of Jose Bunag.

Partnership Basic Considerations and Formation

A new set of books will be used

New Partnership Books

To record the investment of Jose Bunag.

Castro and Bunag Partnership

Cash ..... ...... ... ...........................................................................................

Liabilities and Capital

Capital before adjustment ...................................................... P 85,000

Partnership Basic Considerations and Formation

Total agreed capital (P68,500 25%) = 274,000

Liabilities and Capital:

Books of Pepe Basco

b. Pepe Basco, Capital ......................................................................

To close the books.

Books of the Partnership

To record the investment of Carlo Torre.

Roces' books will be used by the partnership

(b) Goodwill ................................................................................

Partnership Basic Considerations and Formation