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volume 1
advanced
ACCOUNTING
PRINCIPLES AND PROCEDURAL APPLICATONS
2011 EDITION
P.P. GUERRERO
J.F. PERALTA
To the Instructor
This Solutions Manual contains suggested solutions to all the Multiple Choice
and Problems for the 2011 edition of Advanced Accounting Principles and
Procedural Applications. All solutions have been prepared by the authors to
ensure accuracy and consistency with the discussion and illustration in the
textbook.
Multiple Choices
The multiple choices are designed to cover a variety of conceptual situations
included in each chapter. Solving these should reinforce the students
knowledge of accounting and also test their understanding of the points
covered. You may choose to assign selected multiple choices to supplement
the problems assigned in each chapter. Most of the multiple choices require a
limited amount of computations and are well suited for inclusion in quizzes
or examinations.
Problems
Problems have been provided at the end of each chapter more than you can
reasonably use in a single offering of the course. This abundance of problems
allows you to vary problem assignments in different sections of the course, or
from semester to semester, and to choose these problems that best fit the
scope, level and emphasis of your course.
Final Note
The Solutions Manual intended to accompany the 2011 edition of Advanced
Accounting Principles and Procedural Appliations has been prepared
carefully and reviewed thoroughly to ensure that the instructors who adopt
this textbook are provided with all possible assistance in making their course
effective. In the final analysis, however, any given course is shaped primarily
by the person who teaches it, and the success of our efforts will be proved
through extensive experience in the classroom. We will appreciate any
comments for suggestions from you no matter how minor the point involved.
Please address correspondence to Pedro P. Guerrero, CPAR Building, 837 F.
Cayco St., Sampaloc, Metro Manila or you may email me at ppg@pldtdsl.net.
P. P. Guerrero
J. F. Peralta
Contents
CHAPTER 1
1-1: a
Jose's capital should be credited for the market value of the computer contributed by
him.
1-2: b (40,000 + 80,000) 2/3 = 180,000 x 1/3 = 60,000.
1-3: a
Cash P100,000
Land 300,000
Mortgage payable ( 50,000)
Net assets (Julio, capital) P350,000
1-4: b
Total Capital (P300,000/60%) P500,000
Perla's interest ______40%
Perla's capital P200,000
Less: Non-cash asset contributed at market value
Land P 70,000
Building 90,000
Mortgage Payable ( 40,000) _120,000
Cash contribution P 80,000
1-5: d - Zero, because under the bonus method, a transfer of capital is only required.
1-6: b
Reyes Santos
Cash P200,000 P300,000
Inventory 150,000
Building 400,000
Equipment 150,000
Mortgage payable ________ ( 100,000)
Net asset (capital) P350,000 P750,000
1-7: c
AA BB CC
Cash P 50,000
Property at Market Value P 80,000
Mortgage payable ( 35,000)
Equipment at Market Value _______ _______ P55,000
Capital P 50,000 P 45,000 P55,000
2 Chapter 1
1-8: a
PP RR SS
Cash P 50,000 P 80,000 P 25,000
Computer at Market Value __25,000 _______ __60,000
Capital P 75,000 P 80,000 P 85,000
1-9: c
Maria Nora
Cash P 30,000
Merchandise inventory P 90,000
Computer equipment 160,000
Liability ( 60,000)
Furniture and Fixtures 200,000 ________
Total contribution P230,000 P190,000
1-10: d
Roy Sam Tim
Cash P140,000
Office Equipment P220,000
Note payable ________ _( 60,000) ______
Net asset invested P140,000 P160,000 P
1-11: a
Lara Mitra
Cash P130,000 P200,000
Computer equipment 50,000
Note payable ________ _( 10,000)
Net asset invested P130,000 P240,000
1-12: a
Perez Reyes
Cash P 50,000 P 70,000
Office Equipment 30,000
Merchandise 110,000
Furniture 100,000
Notes payable _______ ( 50,000)
Net asset invested P 80,000 P230,000
Partnership Basic Considerations and Formation 3
1-12: Continued
Bonus Method:
Total capital (net asset invested) P310,000
Goodwill Method:
Net assets invested P310,000
Add: Goodwill (P230,000-P80,000) _150,000
Net capital P460,000
1-13: b
Required capital of each partner (P300,000/2) P150,000
Contributed capital of Ruiz:
Total assets P105,000
Less Liabilities __15,000 __90,000
Cash to be contributed by Ruiz P 60,000
1-14: d
Total assets:
Cash P 70,000
Machinery 75,000
Building _225,000 P370,000
Less: Liabilities (Mortgage payable) __90,000
Net assets (equal to Ferrer's capital account) P280,000
Divide by Ferrer's P & L share percentage ____70%
Total partnership capital P400,000
1-15: d
Adjusted assets of C Borja
Cash P 2,500
Accounts Receivable (P10,000-P500) 9,500
Merchandise inventory (P15,000-P3,000) 12,000
Fixtures __20,000 P 44,000
Asset contributed by D. Arce:
Cash P 20,000
Merchandise __10,000 __30,000
Total assets of the partnership P 74,000
4 Chapter 1
1-16: a
Cash to be invested by Mendez:
Adjusted capital of Lopez (2/3)
Unadjusted capital P158,400
Adjustments:
Prepaid expenses 17,500
Accrued expenses ( 5,000)
Allowance for bad debts (5% X P100,000) _( 5,000)
Adjusted capital P165,900
Total Capital:
Adjusted capital of Lopez P165,900
Contributed capital of Mendez __82,950
Total capital P248,850
1-17: d
Moran, capital (40%)
Cash P 15,000
Furniture and Fixtures _100,000 P115,000
Divide by Moran's P & L share percentage ______40%
Total partnership capital P287,500
Multiply by Nakar's P & L share percentage ______60%
Required capital of credit of Nakar: P172,500
Contributed capital of Nakar:
Merchandise inventory P 45,000
Land 15,000
Building __65,000
Total assets P125,000
Less Liabilities __30,000 P 95,000
Required cash investment by Nakar P 77,500
1-18: c
Garcia's adjusted capital (see schedule 1) P40,500
Divide by Garcia's P & L share percentage ______40%
Total partnership capital P101,250
Flores' P & L share percentage ______60%
Flores' capital credit P 60,750
Flores' contributed capital (see schedule 2) __43,500
Additional cash to be invested by Flores P 17,250
Partnership Basic Considerations and Formation 5
1-18: Continued
Schedule 1:
Garcia, capital:
Unadjusted balance P 49,500
Adjustments:
Accumulated depreciation ( 4,500)
Allowance for doubtful account ( 4,500)
Adjusted balance P 40,500
Schedule 2:
Flores capital:
Unadjusted balance P 57,000
Adjustments:
Accumulated depreciation ( 1,500)
Allowance for doubtful accounts ( 12,000)
Adjusted balance P 43,500
1-19: d
Ortiz Ponce Total
( 60%) ( 40%)
Unadjusted capital balances P133,000 P108,000 P241,000
Adjustments:
Allowance for bad debts ( 2,700) ( 1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses _( 2,400) ( 1,600) ( 4,000)
Adjusted capital balances P130,900 P106,000 P237,500
Total capital before the formation of the new partnership (see above) P237,500
Divide by the total percentage share of Ortiz and Ponce (50% + 30%) ______80%
Total capital of the partnership before the admission of Roxas P296,875
Multiply by Roxas' interest ______20%
Cash to be invested by Roxas P 59,375
1-20: d
Merchandise to be invested by Gomez:
Total partnership capital (P180,000/60%) P300,000
6 Chapter 1
1-21: b
Unadjusted Ell, capital (P75,000 P5,000) P 70,000
Allowance for doubtful accounts ( 1,000)
Accounts payable ( 4,000)
Adjusted Ell, capital P 65,000
1-22: c
Total partnership capital (P113,640/1/3) P340,920
Less Divino's capital _113,640
Cortez's capital after adjustments P227,280
Adjustments made:
Allowance for doubtful account (2% X P96,000) 1,920
Merchandise inventory ( 16,000)
Prepaid expenses ( 5,200)
Accrued expenses ___3,200
Cortez's capital before admission of Divino P211,200
1-23: a
Total assets at fair value P4,625,000
Liabilities (1,125,000)
Capital balance of Flora P3,500,000
1-24: c
Total capital of the partnership (P3,500,000 70%) P5,000,000
Eden agreed profit & loss ratio 30%
Eden agreed capital 1,500,000
Eden contributed capital at fair value 812,000
Allocated cash to be invested by Eden P 688,000
1-25: c
__Rey __Sam_ __Tim __Total_
Contributed capital (assets-liabilities)P471,000 P291,000 P195,000 P957,000
Agreed capital (profit and loss ratio) 382,800 382,800 191,400 957,000
Capital transfer (Bonus) P 88,200 P(91,800) P 3,600 -
1-26: d
Total agreed capital (P90,000 40%) P225,000
Contributed capital of Candy (P126,000+P36,000-P12,000) 150,000
Total agreed capital (P90,000 40%) 225,000
Candy, agreed capital interest 60%
Agreed capital of Candy 135,000
Contributed capital of Candy 150,000
Withdrawal of Candy P 15,000
Partnership Basic Considerations and Formation 7
1-27: a
Total agreed capital (210,000 70%) P300,000
Noras interest 30%
Agreed capital of Nora P 90,000
Cash invested 42,000
Merchandise to be invested by Nora P 48,000
1-28: a
Contributed capital of May (P194,000 - P56,000) P138,000
Agreed capital of May (P300,000 x 70%) 210,000
Cash to be invested by May P 72,000
1-29: d Zero, because the bonus method involves only a transfer of capital.
1-30: b
Noy Bi
Cash P 10,000 P 14,000
Accounts receivable- Net 92,000 92,000
Merchandise inventory 216,000 150,000
Computer equipment 24,000 14,000
Furniture and fixtures 18,000 ----
Total assets at fair value 360,000 270,000
Accounts payable (108,000) (72,000)
Net assets invested 252,000 198,000
Agreed capital 250,000 200,000
Goodwill (withdrawal) P (2,000) P 2,000
1-31: c
Villar Roxas
Cash P 2,205,000 P -
Office equipment 630,000 -
Merchandise inventory - 1,575,000
Notes payable ( 210,000) -
Contributed capital 2,625,000 1,575,000
Agreed capital 2,520,000 1,680,000
Bonus to Roxas P( 105,000) P 105,000
1-32: b
Total capital before adjustments (P210,750 + P103,000) P313,750
Allowance for doubtful accounts ( 10,000)
Accumulated depreciation (P1,000 P500) 500
Obsolete inventory ( 3,500)
Total assets of the partnership P300,750
8 Chapter 1
1-33: b
Gibo Edu
Cash P 19,200 P136,800
Accounts receivable 163,200 129,600
Merchandise inventory 240,000 216,000
Equipment 60,000 -
Accounts payable (60,000) (96,000)
Notes payable (12,000) -
Contributed capital 410,400 386,400
Loss on sale of equipment (1,800) 1,800
Net assets 408,600 388,200
Additional investment by Edu - 20,400
Agreed capital P408,600 P408,600
1-34: a
Garnett Bryant
Unadjusted capital P2,443,364 P3,097,528
Accumulated depreciation ( 80,000) 200,000
Accounts receivable written off ( 108,000) ( 140,000)
Adjusted capital contributed 2,255,364 3,157,528
Agreed capital 2,255,364 1,503,576*
Capital withdrawal P - P 1,653,952
1-35: a
Total capital P3,758,940
Total liabilities 4,299,396
Total assets P8,058,336
1-36: a
Gordon Fernando
Unadjusted capital P220,000 P309,375
Undervaluation of inventory 11,000 -
Allowance for doubtful accounts (2,750) ( 4,125)
Accrued expenses - (20,250)
Contributed capital 228,250 285,000
Agreed capital of Gordon (P285,000/75%) x 25% 133,250 285,000
Capital withdrawal by Gordon P 95,000 P -
Partnership Basic Considerations and Formation 9
SOLUTIONS TO PROBLEMS
Problem 1 1
Computation:
P1,000 x 6% x 3/12 = P15
P2,000 x 6% x 2/12 = _20
Total ......................... ...... P35
Computation:
Pedro Castro, Capital
(1) P600 P31,400
(2) 200 35 (3)
(4) 100 400 (6)
(5) ___800
P1,700 P31,835
P30,135
Jose Bunag, Capital : 1/2 x P30,135 = P15,067.50
10 Chapter 1
Problem 1 2
Contributed Capitals:
Agreed Capitals:
Bonus Method:
Jose (P231,500 x 50%) ................................................................. P115,750
Pedro (P231,500 x 25%) .............................................................. 57,875
Pablo (P231,500 x 25%)............................................................... __57,875
Total . ........................................................................................... P231,500
12 Chapter 1
Goodwill Method. To have a goodwill, the only possible base is the capital of Pablo. The
computation is:
Contributed Agreed
Capital Capital Goodwill
Jose P135,000 P137,000 (50%) 2,000
Pedro 28,000 68,500 (25%) 40,500
Pablo __68,500 __68,500 (25%) _____
Total P231,500 274,000 42,500
Problem 1 3
Computation:
Pepe Basco, capital (Base) ........................................................... P31,500
Divide by Pepe Basco's P & L ratio ............................................. ___40%
Total agreed capital ...................................................................... P78,750
Multiply by Carlo Torre's P & L ratio .......................................... ___60%
Cash to be invested by Carlo Torre .............................................. P47,250
Problem 1 4
Books of Sales
1. Adjusting Entries
2. Closing Entry
1. Adjusting Entries
Books of Roces
1. Adjusting Entries
2. Closing Entry
1. Adjusting Entries
Books of Roces
1. Adjusting Entries
2. Closing Entry
Books of Sales
1. Adjusting Entries
2. Closing Entry
Problem 1 5
Assets
Problem 1 6
1. Books of Toledo
Books of Ureta
Computation:
Toledo, capital (P68,400 P300) ................................................. P 68,100
Divide by Toledo's profit share percentage .................................. ____50%
Total agreed capital of the partnership ......................................... P136,200
Multiply by Ureta's profit share percentage ................................. ____50%
Agreed capital of Ureta ................................................................ P 68,100
Ureta, capital ................................................................................ __64,700
Cash contribution of Ureta ........................................................... P 3,400
or
Toledo, capital (P68,400 P300) ................................................. P 68,100
Less Ureta, capital ........................................................................ __64,700
Cash contribution of Ureta ........................................................... P 3,400
20 Chapter 1
Assets
CHAPTER 2
2-2: a
JJ KK LL Total
Bonus (.20 X P90,000) P18,000 P 18,000
Interest
JJ (.15 X P100,000) P15,000 )
KK (.15 X P200,000) P 30,000 )
LL (.15 X P300,000) P45,000) 90,000
Balance, equally ( 6,000) ( 6,000) ( 6,000) ( 18,000)
Total profit share P27,000 P 24,000 P39,000 P 90,000
2-3: a
2-4: a
Allan Michael Total
Interest
Allan - .10 X (P40,000 + 60,000 /2) P 5,000 )
Michael - .10 X (P60,000 + 70,000/2) P 6,500) P 11,500
Balance, equally _14,000 _14,000 __28,000
Total P 19,000 P20,500 P 28,000
2-5: a
Fred Greg Henry Total
Interest (.10 of average capital) P12,000 P 6,000 P 4,000 P 22,000
Salaries 30,000 20,000 50,000
Balance, equally ( 35,000) ( 35,000) ( 35,000) (105,000)
Total P 7,000 ( P29,000) (P11,000) (P 33,000)
2-6: b
Average Capital
Capital Months Peso
Date Balance Unchanged Months
January 1 140,000 6 P 840,000
July 1 180,000 1 180,000
August 1 165,000 5 __825,000
12 P1,845,000
2-7: c
Capital Months Peso
Date Balance Unchanged Months
January 1 P16,000 3 P 48,000
April 1 17,600 2 35,200
June 1 19,200 3 57,600
September 1 15,200 4 __60,800
12 P201,600
2-8: a
Net profit before bonus P 24,000
Net profit after bonus (P24,000/120%) __20,000
Bonus to RJ 4,000
Balance (P24,000-P4,000)X3/5 __12,000
Total profit share P 16,000
2-9: a
LT AM Total
Interest P3,200 P 3,600 P 6,800
Salaries 15,000 7,500 22,500
Balance, 3:2 (11,580) ( 7,720) ( 19,300)
Total P 6,620 P 3,380 P 10,000
2-10: b
Net income after salary, interest and bonus P467,500
Add back: Salary (P10,000 X 12) P120,000
Interest (P250,000 X .05) __12,500 _132,500
Net income after bonus (80%) P600,000
Net income before bonus (P600,000/80%) _750,000
Paul's bonus P150,000
2-11: b
CC DD EE Total
Salary P 14,000 P 14,000
Balance P14,000 P 8,400 5,600 28,000
Additional profit to DD ( 1,500) __2,100 ( 600) ______
Total P12,500 P10,500 P 19,000 P 42,000
Net income
Fees Earned P90,000
Expenses _48,000
Net Income P42,000
Partnership Operations 23
2-12: c
LL MM NN Total
Interest P 2,000 P 1,250 P 750 P 4,000
Annual Salary 8,500 8,500
Additional profit to give LL, P20,000 9,500 5,700 3,800 19,000*
Additional profit to give MM, P14,000 _____ __7,050 _____ __7,050
Total P20,000 P14,000 P 4,550 P 38,550
*(P9,500/50%) = P19,000
2-13: a
RR SS TT Total
Excess (Deficiency)
RR (P80,000 - P95,000) P15,000 )
SS (P50,000 - P40,000) (P10,000) ) P 5,000
Balance 4:3:1 _47,500 _35,625 _11,875 __95,000
Total P62,500 P25,625 P11,875 P100,000
2-14: b AA BB CC Total
AA - 100,000 X 10% P 10,000 )
150,000 X 20% 30,000 ) P 40,000
Remainder, 210,000
BB (60,000 X .05) P 3,000 )
CC (60,000 X .05) P 3,000 6,000
Balance, equally __68,000 _68,000 _68,000 _204,000
Total P108,000 P71,000 P71,000 P250,000
2-15: a
AJ BJ CJ Total
Bonus to CJ
Net profit before bonus P44,000
Net profit after bonus (P44,000/110%)P40,000 P4,000 P4,000
Interest to BJ P1,000 1,000
Salaries P 10,000 12,000 22,000
Balance, 4:4:2 __6,800 _6,800 __3,400 _17,000
Total P 16,800 P7,800 P19,400 P44,000
2-16: c
Total profit share of Pedro P200,000
Less: Salary to Pedro P 50,000
Interest __20,000 __70,000
Share in the balance (40%) P130,000
2-17: c
Net income before extraordinary gain and bonus (69,600-12,000) P 57,600
Net income after bonus (57,600/120%) _48,000
Bonus to RR P 9,600
2-19: a
DV JE FR Total
Interest on excess (Deficiency) P 15,000 P 3,750 (P 7,500) P 11,250
Remainder 5:3:2 ( 36,875) ( 22,125) ( 14,750) ( 73,750)
Total (P 21,875) (P 18,375) (P 22,250) (P 62,500)
2-20: c
Correction of 1998 profit:
Net income per books P 19,500
Understatement of depreciation ( 2,100)
Overstatement of inventory, December 31 ( 11,400)
Adjusted net income P 6,000
2-21: a
Tiger Woods Total
Salaries P 64,000 P100,000 P164,000
Interest 24,000 30,000 54,000
Bonus (P360,000-P54,000)X.25 76,500 76,500
Remainder, 30:70 __19,650 __45,850 __65,500
Total P184,150 P175,850 P360,000
Partnership Operations 25
2-22: a
Clotty Cotto Total
Salaries P 20,000 P 20,000
Commission P 25,000 25,000
Interest 32,000 33,600 65,600
Bonus, schedule 1 30,000 30,000
Remainder, 60:40 __35,640 _23,760 __59,400
Total P117,640 P 82,360 P200,000
Schedule 1
Net income before salary, commission,
interest and bonus P200,000
Less: salaries __20,000
Net income before bonus P180,000
Net income after bonus (P180,000/120%) _150,000
Bonus P 30,000
2-23: a
Mike Tyson Total
Capital balance, beginning P600,000 P400,000 P1,000,000
Additional investment 100,000 200,000 300,000
Capital withdrawal -200,000 ( 100,000) _-300,000
Capital balance before profit and loss distribution P500,000 P500,000 P1,000,000
Net income:
Salary P200,000 P300,000 P 500,000
Balance, 3:2 __60,000 __40,000 __100,000
Total P260,000 P340,000 P 600,000
Total P760,000 P840,000 P1,600,000
Drawings ( 200,000) ( 300,000) ( 500,000)
Capital balance, end P560,000 P540,000 P1,100,000
2-24: d
Average Capital - King:
Capital Months Peso
Date Balance Unchanged Months
January 1 P40,000 3 P120,000
April 1 55,000 9 _495,000
12 P615,000
Average capital P615,000/12 = P51,250
Schedule 2
2-25: d
Total receipts (P1,500,000 + P1,625,000) P3,125,000
Expenses ( 1,080,000)
Net income P2,045,000
Distribution to Partners
Red P1,500,000/P3,125,000 X P2,045,000 = P 981,600 (1)
Blue P1,625,000/P3,125,000 X P2,045,000 = _1,063,400
P2,045,000
2-26: a
Ray Sam Total
Capital balances, March 1 P150,000 P180,000 P330,000
Additional investment, Nov. 1 _______ __60,000 __60,000
Capital balances before salaries, profit and Drawings 150,000 240,000 390,000
Profit share:
Interest 15,000 20,000 35,000
Balance, 60:40 51,000 34,000 85,000
Total 66,000 54,000 120,000
Total 216,000 294,000 510,000
Salaries _18,000 _24,000 _42,000
Total 234,000 318,000 552,000
Drawings (18,000) (24,000) (42,000)
Capital balances, Feb. 28 P216,000 P294,000 P510,000
2-27: a
Susan Tanny Total
Capital balances, 1/1 P150,000 P30,000 P180,000
Additional investment, 4/1 8,000 8,000
Capital withdrawals, 7/1 _______ (6,000) _(6,000)
Balances before profit distribution 158,000 24,000 182,000
Profit distribution:
Interest 23,400 4,050 27,450
Bonus (20% x P30,000) 6,000 6,000
Balance, equally (1,725) (1,725) (3,450)
Total 21,675 _8,325 30,000
Total 179,675 32,325 212,000
Drawings (12,000) (12,000) (24,000)
Capital balances, 12/31 P167,675 P20,325 P188,000
28 Chapter 2
2-28: a
Sin Tan Uy Total
Capital balances, beg. 1st year P110,000 P80,000 P110,000 P300,000
Loss distribution, 1st year:
Salaries 20,000 10,000 30,000
Interest 11,000 8,000 11,000 30,000
Balance, 5:3:2 (40,000) (16,000) (24,000) (80,000)
Total ( 9,000) ( 8,000) ( 3,000) (20,000)
Total 101,000 72,000 107,000 280,000
Drawings (10,000) (10,000) (10,000) (30,000)
Capital balances, beg. 2nd year 91,000 62,000 97,000 250,000
Profit distribution, 2nd year:
Salaries 20,000 10,000 30,000
Interest 9,100 6,200 9,700 25,000
Balance, 5:3:2 ( 7,500) ( 4,500) ( 3,000) (15,000)
Total 21,600 _1,700 16,700 40,000
Total 112,600 63,700 113,700 290,000
Drawings _(10,000) (10,000) _(10,000) _(30,000)
Capital balances, end of 2nd year P102,600 P53,700 P103,700 P260,000
2-29: c
Jay Kay Loi Total
Capital balances, 1/1/06 P30,000 P30,000 P30,000 P90,000
Additional investment, 2006 5,000 5,000
Capital withdrawal, 2006 _(5,000) _(4,000) ______ _(9,000)
Capital balances 25,000 26,000 35,000 86,000
Profit distribution, 2006:
Interest 3,000 3,000 3,000 9,000
Salary 7,000 7,000
Balance, equally _1,000 _1,000 _1,000 __3,000
Capital balances, 1/1/07 36,000 30,000 39,000 105,000
Additional investment, 2007 5,000 5,000
Capital withdrawal, 2002 ______ _(3,000) _(8,000) (11,000)
Capital balances 41,000 27,000 31,000 99,000
Profit distribution, 2007:
Interest 3,600 3,000 3,900 10,500
Salary 7,000 7,000
Balance, equally _1,500 _1,500 _1,500 __4,500
Capital balances, 1/1/08 53,100 31,500 36,400 121,000
Additional investment, 2008 6,000 6,000
Capital withdrawal, 2008 ______ _(4,000) _(2,000) _(6,000)
Capital balances 53,100 27,500 40,400 121,000
Profit distribution, 2008:
Interest 5,310 3,150 3,640 12,100
Salary 7,000 7,000
Balance, equally __3,300 __3,300 __3,300 ___9,900
Capital balances, 12/31/08 per books P68,710 P33,950 P47,340 P150,000
Understatement of depreciation (2,000) (2,000) (2,000) (6,000)
Adjusted capital balances, 12/31/08 P66,710 P31,950 P45,340 P144,000
Partnership Operations 29
2-30: a
2-31: d
_Nardo_ __Orly __Pedro_ _Total_
Capital balance, 1/1/08 P280,000 P300,000 P170,000 P750,000
Additional investment 96,000 60,000 - 156,000
Withdrawals ( 90,000 ) ( 72,000 ) (162,000)
Cap. bal. before P/L dist. 376,000 270,000 98,000 744,000
NP: Salary (16,500 x 12) - 198,000 - 198,000
Interest on EC (15%) 42,000 45,000 25,500 112,500
Balance 25:30:45 ( 19,875 ) ( 23,850 ) ( 35,775 ) (79,500 )
Total 22,125 219,150 ( 10,275 ) 231,000
Capital balance 12/31/08 P398,125 P 489,150 P 87,725 P975,000
2-32: d
Sam capital, beginning P120,000
Additional investment (Land) 60,000
Drawings ( 80,000 )
Capital balance before net profit (loss) 100,000
Capital balance, end 150,000
Profit share (40%) 50,000
Net profit (P50,000 40%) P125,000
30 Chapter 2
2-33: a
__Joe__ __Tom__ __Total__
Capital balance, 1/2/07 P 80,000 P 40,000 P120,000
Net loss- 2007:
Annual salary 96,000 48,000 144,000
10% interest on beg. capital 8,000 4,000 12,000
Bal. beg. cap. ratio: 8:4 ( 108,000) ( 54,000) ( 162,000)
Total ( 4,000) ( 2,000) ( 6,000)
Capital balance 76,000 38,000 114,000
Drawings ( 4,000) ( 4,000) ( 8,000)
Capital balance, 12/31/07 72,000 34,000 106,000
Net profit- 2008:
Annual salary 96,000 48,000 144,000
10% interest on BC 7,200 3,400 10,600
Bonus to JoeNPBB P 22000
NPAB (22000/110%)20000 2,000 2,000
Balance equally ( 67,300) ( 67,300) ( 134,600)
Total 37,900 ( 15,900) 22,000
Total 109,900 18,100 128,000
Drawings ( 4,000) ( 4,000) ( 8,000)
2-34: a
Decrease in capital P 60,000
Drawings ( 130,000)
Contribution 25,000
Profit share 45,000
Net income (45,000 30) P150,000
2-35: b
2009:
Original profit allocation Cris Paul Bryan Total
Salaries P 80,000 P 60,000 P 60,000 P200,000
Balance of profit 100,000 100,000 100,000 300,000
Total P180,000 P160,000 P160,000 P500,000
2-35: Continued
2010
Original profit allocation: Cris Paul Bryan Total
Salaries P 80,000 P 60,000 P 60,000 P200,000
Balance of profit 70,000 70,000 70,000 210,000
Total P150,000 P130,000 P130,000 P410,000
Revised allocation:
Salaries P 80,000 P 60,000 P 60,000 P200,000
Interest on capital (Sch. B) 3,944 2,428 3,528 9,900
Balance of profit 66,700 P 66,700 P 66,700 P200,000
Total P150,644 P129,128 P130,228 P410,000
Interest at 12%:
Cris: P62,500 x 12% = P7,500
Paul: P110,000 x 12%= P13,200
Bryan: P47,500 x 12% = P5,700
32 Chapter 2
2-35: Continued
Schedule B: Revised Computation of Interest on Average Capital
P32,867
P20,233
Interest at 12%:
Cris: P32,867 x 12% = P3,944
Paul: P20,233 x 12%= P2,428
Bryan: P29,400 x 12% = P3,528
2-36: a
Gabriel Harry Cumulative Total
Salaries P35,000 P40,000 P 75,000
Bonus (Sch. A) 12,000 87,000
Interest on capital (Sch. B) 11,467 5,333 103,800
Remainder of profit 11,280 16,920 132,000
Total P69,747 P62,253
Interest therefore:
Gabriel: P143,333 x 8% = P11,467
Harry: P66,667 x 8% = P5,333
2-37: a
Adjustments to Income:
2009 2010
Amortization of business name P(5,000) P (5,000)
Prepaid expenses, 2009 3,000 (3,000)
Accrued expenses, 2009 (2,000) 2,000
Fees billed in 2010 8,400 (8,400)
Inventory overstatement 4,000
Accrued expenses, 2010 (8,600)
Accrued income, 2010 (3,000)
Adjustments to income P 4,400 P(22,000)
Schedule 1:
Bonus = 10% (1 - Bonus)
Bonus = 10% (P4,400 Bonus)
110% Bonus = P440
Bonus = P400
Schedule 2:
Bonus = 10% )1 Bonus)
Bonus = 10% (P22,000 Bonus)
110% Bonus = (P2,200)
Bonus = (P2,000)
34 Chapter 2
2-38: b
Old Partners Capital Balances before Admission of New Partner:
SOLUTIONS TO PROBLEMS
Problem 2 1
36 Chapter 2
Computations:
a. Net profit before bonus................................................. P23,800
Net profit after bonus (P23,800 125%) ..................... _19,040
Bonus............................................................................ P 4,760
Problem 2 2
a. Average Capital:
Robin: Date Balances Months Peso
Unchanged Months
Jan. 1 P135,000 2 P270,000
Feb. 28 95,000 2 190,000
Apr. 30 175,000 5 875,000
Sept. 30 195,000 3 __585,000
12 P1,920,000
Profit Distribution:
Robin : P160,000 P340,000 x P510,000 = P240,000
Hood : P180,000 P340,000 x P510,000 = _270,000
P510,000
Partnership Operations 37
Problem 2 3
a. De Villa De Vera Total
Salaries................................................................. P 30,000 P 30,000
Commission (2% x P1,000,000) .......................... P 20,000 20,000
Interest of 8% on average capital ......................... 32,800 31,200 64,000
Bonus (see computations below) ......................... 9,818 9,818 19,636
Balance, equally................................................... __44,182 __44,182 __88,364
Total ..................................................................... P116,800 P105,200 P222,000
Bonus Computations:
Income before salary, commissions, interest & bonus ...... ....................... P222,000
Salary and commission (P30,000 + P20,000) ................... ....................... ( 50,000)
Interest......................................................... ..................... ....................... ( 64,000)
Income before bonus ................................... ..................... ....................... 108,000
Income after bonus (P108,000 110%) ..... ..................... ....................... _98,182
Bonus .......................................................... ..................... ....................... P 9,818
Problem 2 4
Bonus computations:
Net income before bonus ........... .................... ..................... ..................... P78,960
Net income after bonus (P78,960 105%) ..... ..................... ..................... _75,200
Bonus ......................................... .................... ..................... ..................... P 3,760
Interest computations:
East (10% x P28,000)................. .................... ..................... ..................... P 2,800
North (10% x P40,000) .............. .................... ..................... ..................... 4,000
West (10% x P48,000) ............... .................... ..................... ..................... __4,800
Total ........................................... .................... ..................... ..................... P11,600
Interest computations:
Average capitals:
East: Months Pesos
Date Balances Unchanged Months
1/1 P30,000 4 P120,000
5/1 36,000 4 144,000
9/1 28,000 4 _112,000
12 P376,000
Interest Computations:
East (10% x P31,333) ............ ............................................... P 3,133
North (10% x P36,333) ......... ............................................... 3,633
West (10% x P52,000)........... ............................................... __5,200
Total ... .................................. ............................................... P 11,966
Bonus Computations:
Net income ............................ ............................................... P 68,000
Less Salary ............................ ............................................... _21,000
Net income before bonus ....... ............................................... 47,080
Net income after bonus (P47,080 110%) ........................... _42,800
Bonus to North ...................... ............................................... P 4,280
* To Total
Bonus Computations:
Net income before salaries & bonus ............... ..................... ..................... P92,940
Less Salaries (P21,000 + P18,000) ................. ..................... ..................... _39,000
Net income before bonus ........... .................... ..................... ..................... P53,940
Net income after bonus (P53,940 120%) ..... ..................... ..................... _44,950
Bonus to West ............................ .................... ..................... ..................... P 8,990
Problem 2 5
Problem 2 6
Problem 2 7
Schedule 1:
Dino Nelson Oscar Total
Annual salaries.................................... P48,000 P24,000 P12,000 P84,000
Bonus (see computations below) ........ 10,909 10,909
Interest ................................................ 3,600 3,600 3,600 10,800
Balance, equally.................................. _* 4,765 __4,763 __4,763 __14,291
Totals .................................................. P56,365 P43,272 P20,363 P120,000
Bonus computations:
Net income before bonus ........... ................ ..................... ..................... P120,000
Net income after bonus (P120,000 110%) ..................... ..................... _109,091
Bonus to Nelson ......................... ................ ..................... ..................... P 10,909
* To Total
42 Chapter 2
Problem 2 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2011
Problem 2 9
Allan, Eman and Gino Partnership
Statement of Profit Distribution
Year Ended December 31, 2011
Problem 2 10
Problem 2 11
a. Entries to record the formation of the partnership and the events that occurred during 2008:
Cash 1,100,000
Inventory 800,000
Land 1,300,000
Equipment 1,000,000
Mortgage payable 500,000
Installment note payable 200,000
Kobe, capital (P600,000 + P800,000
+ P1,000,000 P200,000) 2,200,000
Lebron, capital (P500,000 + P1,300,000
- P500,000) 1,300,000
b. Kobe-Lebron Partnership
Statement of Comprehensive Income
For the Year Ended December 31, 2011
Sales P1,550,000
Less: Cost of goods sold:
Inventory, January 1 P800,000
Purchases 300,000
Goods available for sale P1,100,000
Less: Inventory, December 31 (200,000) (900,000)
Gross profit P650,000
Less: Selling and general expenses 340,000
Depreciation expenses 60,000 400,000
Operating income P250,000
Nonoperating expense- interest (40,000)
Net income P210,000
46 Chapter 2
c. Kobe-Lebron Partnership
Statement of Financial Position
At December 31, 2011
Assets
Cash P1,589,000
Accounts receivable 210,000
Inventory 200,000
Land 1,300,000
Equipment (net) 940,000
Total assets P4,239,000
CHAPTER 3
3-1: c
Implied capital of the partnership (P90,000/20%) P450,000
Actual value of the partnership ( 420,000)
Goodwill P 30,000
3-2: b
AQUINO LOCSIN DAVID HIZON
Capital balances before admission P252,000 P126,000 P42,000
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400) _84,000
Capital balances after admission P201,600 P100,800 P33,600 P 84,000
3-3: d
AQUINO LOCSIN DAVID TOTAL
Capital transferred P 50,400 P 25,200 P 8,400 P 84,000
Excess divided using profit and loss ratio __3,600 __1,800 ___600 __6,000
Cash distribution P 54,000 P 27,000 P 9,000 P 90,000
3-4: b
3-5: b
3-6: b
BANZON CORTEZ TOTAL
Capital Transfer (20%) P 16,000 P 4,000 P20,000
Excess, Profit and Loss ratio __6,000 __4,000 _10,000
Cash distribution P 22,000 P 8,000 P30,000
3-7: d
PEREZ CADIZ TOTAL
Capital balances beginning P 24,000 P 48,000 P 72,000
Net profit, 1:2 5,430 10,860 16,290
Drawings ( 5,050) ( 8,000) ( 13,050)
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430
3-8: a
3-9: a
3-11: c
3-13: c
JUNE JULY
Capital balances before admission P90,000 P 60,000
Bonus from August, equally __7,500 __7,500
Capital balances after admission P97,500 P 67,500
3-14: a
3-15: a
3-16: a
3-17: b
MONA LIZA ALMA LORNA TOTAL
Capital balances before
admission of Alma P150,000 P 50,000 P 200,000
Admission of Alma:
Investment 80,000 80,000
Goodwill to old partner,
70:30 (sch. 1) __28,000 ___12,000 _______ ______ ___40,000
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) ( P40,000)
Investment 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) __10,000 ____6,000 ____4,000 ______ ___20,000
Capital balances after
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000
Schedule 1:
Total agreed capital (80,000/25%) P 320,000
Total capital contributed (200,000+80,000) ( 280,000)
Goodwill to old partners, 70:30 P 40,000
Schedule 2:
Total agreed capital (75,000/20%) P 375,000
Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000
Partnership Dissolution Changes in Ownership 51
3-18: c
RED WHITE BLUE TOTAL
Unadjusted capital balances P175,000 P100,000 P 45,000 P320,000
Overvaluation of Marketable Securities ( 12,500) ( 7,500) ( 5,000) ( 25,000)
Allowance for Bad Debts ( 12,500) ( 7,500) ( 5,000) ( 25,000)
Adjusted capital balances before admission P150,000 P 85,000 P 35,000 P270,000
3-19: b
XX YY ZZ WW TOTAL
Capital balances before
admission P360,000 P225,000 P135,000 P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000 ______
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Equalization of capital ( 100,000) __12,500 __87,500 ______ ______
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Net profit, equally 3,150 3,150 3,150 3,150 12,600
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)
Capital balances before
WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600
Settlement to A P 30,250
A's interest (23,750+5,000) _28,750
Partial Goodwill to A P 1,500
Therefore:
1. Under partial Goodwill method the capital balances of B is P 22,250
2. Under Bonus method the capital balances of B would be:
B, capital balances before settlement to A P 22,250
Bonus to A (1,500X25/75) _( 500)
B, capital after retirement of A P 21,750
52 Chapter 3
3-21: a
Perez Reyes Suarez
Capital balances P 100,000 P 150,000 P 200,000
Net income, P140,000 70,000 42,000 28,000
Undervaluation of inventory, P20,000 ___10,000 ____6,000 ____4,000
Capital balances before settlement to Perez P 180,000 P 198,000 P 232,000
Settlement to Perez ( 195,000)
Bonus to Perez ___15,000 _( 9,000) _( 6,000)
Capital balances after retirement P P 189,000 P 226,000
3-22: c
ELY FLOR GLOR
Capital balances P 320,000 P 192,000 P 128,000
Settlement to Ely ( 360,000)
Total Goodwill (P40,000/50%)P80,000 __40,000 ___24,000 ___16,000
Capital balances after retirement of Ely P P 216,000 P 144,000
3-23: c
_Alma_ _Betty_ _Total_
Capital balance 3/1/07 480,000 240,000 720,000
Net loss-2007:
Salary (10 months) 480,000 240,000 720,000
Interest (10 months) 40,000 20,000 60,000
Bal. beg. cap. ratio: 48:24 ( 544,000) ( 272,000) ( 816,000)
Total ( 24,000) ( 12,000) ( 36,000)
Capital balance 456,000 228,000 684,000
Drawings ( 24,000) ( 24,000) ( 48,000)
Capital balance, 12/31/07 432,000 204,000 636,000
Net profit- 2008:
Salary 576,000 288,000 864,000
Interest 43,200 20,400 63,600
Balance, equally ( 397,800) ( 397,800) ( 795,600)
Total 221,400 ( 89,400) 132,000
Capital balance 653,400 114,600 768,000
Drawings ( 24,000) ( 24,000) ( 48,000)
Capital balance 12/31/08 629,400 90,600 720,000
3-25: Continued
3-26: a
3-27: c
3-27, Continued
Sch. 1:
In order for Bea to increase his allocation by P10,000, she would need to received a
P14,000 allocation based on the profit ratio. Therefore, the total amount of profit subject
to this allocation would be P140,000 (P14,000 / 10%).
Sch. 2:
If the cumulative total of income allocated before the bonus to Dina is P270,000, then
Dina would be entitled to the P20,000 bonus under the revised agreement.
3-28: a
3-29: a.
3-30: 1. b
2. b
3. b
4. d
Computations:
Lina Mina Nina Olga Total
Capital balances P150,000 P90,000 P60,000 P340,000
Admission of Olga 40,000 40,000
Bonus to Olga (Sch. (14,000) 8,400) (5,600) 28,000 -
1)
Balances, 1/1/010 136,000 81,600 54,400 68,000 340,000
Division of profit 18,800 11,280 7,520 9,400 47,000
Balances, 12/31/010 154,800 92,880 61,920 77,400 387,000
Sale of interest of L (154,800) 154,800 -
to M
Division of profit 100,000 100,000 100,000 300,000
Drawings (20,000) (10,000) (5,000) (35,000)
Balances, 12/31/011 327,680 151,920 172,400 652,000
Division of profit 65,000 65,000 65,000 195,000
Inventory overvalued (5,000) (5,000) (5,000) (15,000)
Balances before 387,680 211,920 232,400 832,000
retirement
Settlement to Mina (425,360) (425,360)
Total goodwill 37,680 37,680 37,680 113,040
Balances, 12/31/012 249,600 270,080 P519,680
3-31: a
Correction in the problem:
Interest to be acquired by new partner in Partnership AA should be 30%.
Partnership
AA BB CC
Fair value of original partnership:
Assets at book value P500,000 P600,000 P800,000
Liabilities at book and fair (369,500) (410,000) (558,000)
value
(a) Book value of original 130,500 190,000 242,000
partnership
assets appreciation (50,000) 125,000 50,000
(depreciation)
(b) Net assets 80,500 315,000 292,000
Computations:
2009:
Balances, 1/1/09 P81,600 P78,400 P - P160,000
Admission of Hara * 30,000 20,000 P 120,000
70,000
Allocation of 145,250 98,875 85,875 330,000
profit,sch. 1
Distributions (80,000) (80,000) (80,000) (240,000)
Balances, 12/31/09 P176,850 P117,275 P P - P370,000
75,875
58 Chapter 3
3-32, Continued
2011:
Balances, 1/1/011 P - P334,125 P95,875 P - P430,000
Adjustment of net - (5,000) (5,000) (10,000)
assets
Recognition of - 20,875 20,875
goodwill** (350,000) - (350,000)
Sale of interest by
Rita
Subtotal P - P - P90,875 P - P90,875
Admission of 21,625 75,000 96,625
Perla***
Balances, 12/31/011 P - P - P112,500 P 75,000 P187,500
Schedule 1:
2008 Allocation of profit:
Maya Rita Total
Profit and loss ratio 40% 60%
Salary P80,000 P100,000 P180,000
Bonus (see schedule 2) 46,000 46,000
Balance 1,600 2,400 4,000
Total P127,600 P102,400 P230,000
Schedule 2:
2008 Bonus:
Maya (P230,000 x 20%) P46,000
2009 Bonus:
Maya (P330,000 x 20%) P66,000
Hara (P330,000 x 20%) 16,500
P82,500
Partnership Dissolution Changes in Ownership 59
3-32, Continued
* Admission of Hara:
Total agreed capital of new partnership (P70,000 / 25%)
P280,000
Total contributed capital (P160,000 + P70,000)
230,000
Goodwill to old partners P
50,000
SOLUTIONS TO PROBLEMS
Problem 3 1
(a) 1. Revaluation of Assets:
Total agreed capital (P75,000 25%) ..................................... P300,000
Total contributed capital .......................................................... _275,000
Upward revaluation of assets, P/L ratio ................................... P 25,000
Entry
Assets ................................................................................ 25,000
Cash ................................................................................... 75,000
Red, capital ................................................................... 5,000
White, capital ................................................................ 10,000
Blue, capital .................................................................. 10,000
Green, capital ................................................................ 75,000
2. Bonus Method:
Contributed capital of Green .................................................... P 75,000
Agreed capital of Green (P275,000 x 25%) ............................... _68,750
Bonus to old partners, P/L ratio ................................................ P 6,250
Entry:
Cash ................................................................................... 75,000
Green, capital ................................................................ 68,750
Red, capital ................................................................... 1,250
White, capital ................................................................ 2,500
Blue, capital .................................................................. 2,500
Entries:
Goodwill ............................................................................ 100,000
Red, capital ................................................................... 20,000
White, capital ................................................................ 40,000
Blue, capital .................................................................. 40,000
Problem 3 2
a. (1) Bonus Method:
Contributed capital of Tomas ......................................................... .................. P140,000
Agreed capital of Tomas (P640,000 x 20%) ................................... .................. _128,000
Bonus to old partners, P/L ratio ...................................................... .................. P 12,000
BRUNO MARIO TOMAS TOTAL
Balances before admission .................... P200,000 P300,000 P500,000
Admission of Tomas .............................. ___9,000 ___3,000 _128,000 _140,000
Balances after admission ....................... P209,000 P303,000 P128,000 P640,000
Problem 3 3
a. Total capital after admission (P76,000 + P104,000) ..................................... .................. P180,000
Total capital before admission (P60,000 + P80,000) .................................... .................. _140,000
Goodwill recorded ........................................................................................ .................. P 40,000
62 Chapter 3
Problem 3 4
Entry:
Cash .. .... ...................................................................................... 60,000
Goodwill ...................................................................................... 100,000
Gene, capital .......................................................................... 80,000
Nancy, capital ........................................................................ 20,000
Ellen, capital .......................................................................... 60,000
No Goodwill, no bonus because the total agreed capital is equal to the total contributed
capital.
Since the total agreed capital (P172,000) is equal to the total contributed capital (P172,000),
then no Goodwill or bonus is to be recorded.
Entry:
Cash .. .... ...................................................................................... 32,000
Goodwill ...................................................................................... 3,000
Ellen, capital .......................................................................... 35,000
Problem 3 5
Entry:
Cash .. .... ...................................................................................... 25,000
Helen, capital................................................................................ 7,875
Cathy, capital................................................................................ 3,375
Cherry, capital ....................................................................... 36,250
Entry:
Cash ...................................................................................... 50,000
Goodwill ...................................................................................... 30,000
Cherry, capital ....................................................................... 50,000
Helen, capital ......................................................................... 21,000
Cathy, capital ......................................................................... 9,000
Entry:
Cash ...................................................................................... 25,000
Goodwill ...................................................................................... 15,000
Cherry, capital ....................................................................... 40,000
Problem 3 6
Problem 3 8
Problem 3 9
Problem 3 10
68 Chapter 3
Problem 3 11
Problem 3 12
Partnership Books Continued as Books of Corporation
(1) To record the acquisition of assets and liabilities from the partnership:
Problem 3 13
1. Bonus Method
a. 2010 journal entries
Jan. 1: Cash 40,000
Inventory 12,000
Equipment 48,000
Notes payable 10,000
Aquino, capital (50%) 45,000
Binay, capital (50%) 45,000
To record initial investments at fair value along with equal
capital balances.
74
Chapter 3
Closing Entry:
Aquino, Capital 9,600
Binay, capital 9,600
Aquino, drawing
9,600
Binay, drawing
9,600
To close P800 per month drawing accounts for the year.
Cash 66,000
Roxas, capital 60,600
Aquino, capital
3,240
Binay, capital 2,160
To record admission of Roxas with bonus to original partners.
SeveralWithdrawal of Binay:
Years Binay capital balance P78,000
Later Settlement 90,000
Bonus to Binay, from Aquino and Roxas
P12,000
2. Goodwill Method:
a. 2010 Journal Entries:
Jan. 1: Cash 40,000
Inventory 12,000
Equipment 48,000
Goodwill 14,000
Note payable 10,000
Aquino, capital
52,000
Binay, capital 52,000
To record investments of the partners with goodwill
attributed to Aquino.
76
Chapter 3
Closing Entries:
Aquino, Capital 9,600
Binay, capital 9,600
Aquino, drawing
9,600
Binay, drawing
9,600
To close out drawing accounts for the year.
Goodwill 2,200
Aquino, capital (60%) 1,320
Binay, capital (40%) 880
To recognize goodwill based on Roxas investment.
Cash 66,000
Roxas, capital 66,000
To record admission of Roxas.
Goodwill 60,000
Aquino, capital (40%) 24,000
Binay, capital (20%) 12,000
Roxas, capital (20%) 12,000
To recognize total goodwill.
78 Chapter 4
CHAPTER 4
4-1: a
PAR BOOGIE BIRDIE
Capital balances before realization P 20,000 P 16,000 P 10,000
Loss on liquidation, P40,000 ( 20,000) ( 12,000) ( 8,000)
Cash distribution P P 4,000 P 2,000
4-2: c
PING PANG PONG
Capital balances before liquidation P 50,000 P 50,000 P 10,000
Gain of P10,000 (150,000-140,000) __6,000 __2,000 __2,000
Cash distribution P 56,000 P 52,000 P 12,000
4-3: b
PING PANG PONG
Capital balances before liquidation P 50,000 P 50,000 P 10,000
Loss of P40,000 (P140,000-P100,000) ( 24,000) ( 8,000) ( 8,000)
Cash distribution P 26,000 P 42,000 P 2,000
4-4: a
PING PANG PONG
Capital balances before liquidation P 50,000 P 50,000 P 10,000
Loss of P70,000 (P140,000-P70,000) ( 42,000) ( 14,000) ( 14,000)
Balances P8,000 P 36,000 ( 4,000)
Absorption of Pong's deficiency, 6:2 ( 3,000) ( 1,000) __4,000
Cash distribution P 5,000 P 35,000
4-5: b
COLT MARK CLOCK
Capital balances before liquidation (net of loans)P290,000 P200,000 P220,000
Loss of P130,000, 4:3:3 ( 52,000) ( 39,000) ( 39,000)
Cash distribution P238,000 P161,000 P181,000
4-6: c
JONAS CARLOS TOMAS
Capital balances before liquidation P160,000 P 45,000 P 55,000
Loss of P60,000, 40:50:10 ( 24,000) ( 20,000) ( 6,000)
Cash distribution P136,000 P 25,000 P 49,000
Partnership Liquidation 79
4-7: a
ARIEL BERT CESAR
Capital balances before liquidation P40,000 P180,000 P 30,000
Loss of P100,000, 4:3:3 ( 40,000) ( 30,000) ( 30,000)
Cash distribution P P150,000 P
4-8: b
NORY OSCAR
Capital balances before realization P23,000 P 13,500
Additional investment by Nory for
the unpaid liabilities (33,000-18,000) 15,000
Loss on realization (schedule 1) ( 30,900) ( 20,600)
Payment by Oscar to Nory P 7,100 ( P7,100)
Schedule 1
Total capital before liquidation P 36,500
Unpaid liabilities 15,000
Total loss on realization P 51,500
4-9: d
BLACK WHITE GREEN
Capital balances before liquidation (net) P99,000 P 91,500 P138,000
Loss on realization (schedule 1) P27,500 ( 13,750) ( 27,500) _( 5,500)
Balances, cash distribution P85,250 P 64,000 P132,500
Schedule 1:
Capital balances of white (net) P 91,500
Cash received by White _83,250
White's share of total loss (30%) P 8,250
4-10: c
ANA EVA NORA
Capital balances before liquidation (net) P27,000 P 43,000 P 10,000
Loss on realization, P63,600 ( 25,320) ( 25,320) ( 12,660)
Balances P 1,680 P 17,680 ( 2,660)
Unrecorded liabilities, P500 ( 200) ( 200) ( 100)
Balances P 1,480 P 17,480 ( 2,760)
Elimination of Nora's deficiency ( 1,380) ( 1,380) __2,760
Payment to partners P 100 P 16,100 P
4-11: d
ARIES LEO TAURUS
Capital balances before liquidation (net) P33,500 P 49,000 P 36,500
Loss on realization (schedule 1) P45,000 ( 22,500) ( 13,500) ( 9,000)
Payment to partners P11,000 P 35,500 P 27,500
80 Chapter 4
4-11, continued:
Schedule 1:
Taurus capital (net) P36,500
Payment to Taurus ( 27,500)
Share of total loss (20%) P 9,000
4-12: c
TOTAL MOLY NORA OLGA
Capital balances, June 11 P32,700 P15,000 P13,500 P 4,200
Net loss from operation (squeeze) ( 9,800) ( 4,200) ( 2,800) ( 2,800)
Capital balances, August 30 before
liquidation (48,500-25,600) P22,900 P10,800 P10,700 P 1,400
Loss on realization (47,500-30,000) ( 17,500) ( 7,500) ( 5,000) ( 5,000)
Balances P 5,400 P 3,300 P 5,700 ( 3,600)
Additional investment by Olga _1,500 _____ _____ _1,500
Balances P 6,900 P 3,300 P 5,700 ( 2,100)
Elimination of Olga's deficiency ______ ( 1,260) ( 840) _2,100
Payment to partners P 6,900 P 2,040 P 4,860 P
4-13: b
RITA SARA TITA
Capital balances before liquidation P49,000 P18,000 P10,000
Operating loss, P21,000 ( 3,500) ( 7,000) ( 10,500)
Drawings ( 10,000) ( 15,000) ( 20,000)
Loans 8,000 25,000
Loss on realization, P12,000 ( 2,000) ( 4,000) ( 6,000)
Balances P33,500 P ( 1,500)
Absorption of Tita's deficiency __1,500 _____ _1,500
Payment to Nora P32,000 P P
4-14: a
CLARO PEDRO ANDRO
Capital balances before liquidation P45,000 P27,000 P50,000
Loss on realization
Accounts Receivable (P50,000 X 40%) P20,000
Investment (P30,000 - P20,000) 10,000
Equipment (P60,000-P30,000) _30,000
Total P60,000 ( 24,000) ( 24,000) ( 12,000)
Payment to partners P21,000 P 3,000 P38,000
4-15: c
TOTAL MONA LISA
Capital balances before liquidation (inclusive loans) P47,500 P28,500 P19,000
Loss on realization, (squeeze) ( 38,500) ( 23,100) ( 15,400)
Capital balances - cash distribution P 9,000 P 5,400 P 3,600
Partnership Liquidation 81
4-15, continued:
Cash after realization P 37,500
Less Liabilities (P36,000-P7,500) ( 28,500)
Total capital after realization P 9,000
4-16: a
4-17: d
TOTAL CC DD EE
Capital balances before realization (net) P100,000 P 15,000 P22,500 P62,500
Loss on realization (squeeze) ( 125,000) ( 62,500) ( 37,500) ( 25,000)
Capital balances after realization
(liabilities-unpaid) (P 25,000) ( 47,500) ( 15,000) P37,500
Elimination of CC's deficiency _______ __47,500 ( 28,500) ( 19,000)
Balances (P 25,000) (P43,500) P18,500
Investment by DD __43,500 ______ _43,500 _____
Payment to EE P 18,500 P P P18,500
4-18: d
82 Chapter 4
4-19: d
LL MM NN TOTAL
Capital balances P 50,000 P 20,000 P 10,000 P 80,000
Salary of LL (P600 X 8 months) __4,800 _______ _______ ___4,800
Capital balances before liquidation P 54,800 P 20,000 P 10,000 P 84,800
Loss on realization ( 44,880) ( 14,960) ( 14,960)
Balances P 9,920 P 5,040 (P 4,960)
Additional investment by NN ______ _____ __4,960
Payment to partners P 9,920 P 5,040 P
4-20: b
Total assets:
Total interest of the partners before liquidation:
JJ (P70,000+P30,000+P10,000) P110,000
KK (P60,000-P10,000) 50,000
LL (P30,000+P10,000) __40,000 P200,000
Divide by ______50%
Total P400,000
Loss on realization _120,000
Cash to be realized P280,000
4-21: a
TOTAL NN OO PP
Capital balances, July 1 P 75,000 P 25,000 P 25,000 P 25,000
Advances to NN, August 1 ( 10,000) ( 10,000)
OO Loan, September 1 20,000 20,000
Interest, December 31 (6%)
NN (5 mos.) ( 250) ( 250)
OO (4 mos.) 400 400
Compensation to PP __2,500 _______ _______ ___2,500
Capital balances before liquidation P 87,650 P 14,750 P 45,400 P 27,500
Loss on realization (squeeze) _56,250 ( 17,550) ( 17,550) ( 17,550)
Cash distribution P 35,000 ( 2,800) P 27,850 P 9,950
NN should pay P2,800 and this is to be divided to OO & PP equally or P1,400 each.
Partnership Liquidation 83
4-22: a
TOTAL PG JR AS
Capital balances before realization P 950,000 P350,000 P250,000 P350,000
Loss on realization (squeeze) ( 1,000,000) __20,000 ( 200,000) _500,000
Capital balances after realization
(unpaid liabilities) (P 50,000) P 50,000 P 50,000 ( 150,000)
Elimination of AS's deficiency _______ ( 90,000) ( 60,000) P150,000
Cash to be absorbed P (P 40,000) (P 10,000) P
4-23: a
RM ST
Capital balances before realization (net) P500,000 P825,000
Loss on realization, P1,225,000 ( 490,000) ( 735,000)
Payment to Partners P 10,000 P 90,000
4-24: a
TOTAL LT AM ZP
Capital balances before realization (net) P 27,500 P 20,000 P 5,000 P 2,500
Gain on realization (squeeze) __37,500 _18,750 __-9,375 __9,375
Capital balances after realization P 65,000 P 38,750 P 14,375 P 11,875
4-25: c
AG BM CP DJ
Capital balances before realization (net) P 420,000 P375,000 P205,000 P150,000
Loss on realization, P1,000,000 ( 300,000) ( 300,000) (200,000) (200,000)
Balances P 120,000 P 75,000 P 5,000 P(50,000)
Additional investment by DJ 50,000
4-26: a
Settlement to Uy P351,500
Uy capital before liquidation (net):
Uy capital P553,500
Receivable from Uy ( 132,000) 421,500
Loss of Uy (50%) P 70,000
84 Chapter 4
SOLUTIONS TO PROBLEMS
Problem 4 1
Case 1
Rivas and Briones
Statement of Liquidation
December 31, 2011
Partners' Capitals
Assets Rivas, Briones, Rivas Briones
Cash Others Liabilities Loan Loan (90%) (10%)
Balances before liquidation ... P 20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000 P10,000
Realization of assets and
distribution of loss .......... _134,000 ( 200,000) _______ _______ _______ ( 59,400) ( 6,600)
Balances................................. 154,000 132,000 18,000 20,000 ( 19,400) 3,400
Payment of liabilities ............. ( 132,000) ______ ( 132,000) ______ _______ _______ ______
Balances................................. 22,000 18,000 20,000 ( 19,400) 3,400
Offset Rivas' loan against his
capital deficiency ............ _______ _______ _______ ( 18,000) _______ _18,000 ______
Balances................................. 22,000 20,000 ( 1,400) 3,400
Additional loss to Briones ..... _______ _______ _______ _______ _______ __1,400 ( 1,400)
Balances................................. 22,000 20,000 2,000
Payment to partner................. P(22,000) P(20,000) P(2,000)
Case 2
Rivas and Briones
Statement of Liquidation
December 31, 2011
Partners' Capitals
Assets Rivas, Briones, Rivas Briones
Cash Others Liabilities Loan Loan (70%) (30%)
Balances before liquidation ... P20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000 P10,000
Realization of assets and
distribution of loss .......... 134,000 ( 200,000) _______ ______ _______ ( 46,200) ( 19,800)
Balances................................. 154,000 132,000 18,000 20,000 ( 6,200) 9,800
Payment of liabilities ............. ( 132,000) _______ ( 132,000) ______ _______ _______ ______
Balances................................. 22,000 18,000 20,000 ( 6,200) 9,800
Offset loan against capital
deficiency ........................ ________ _______ _______ ( 6,200) ( 9,800) __6,200 __9,800
Balances................................. 22,000 11,800 10,200
Payment to partner................. P(22,000) P(11,800) P(10,200)
Partnership Liquidation 85
Problem 4-1, continued:
Case 3
Journal Entries
Case 1:
Cash ..... .... ................................................................................................... 134,000
Rivas, Capital................................................................................................ 59,400
Briones, Capital ............................................................................................ 6,600
Other Assets ........................................................................................... 200,000
Liabilities .. ................................................................................................... 132,000
Cash ... ................................................................................................... 132,000
Rivas, Loan ................................................................................................... 18,000
Rivas, Capital ........................................................................................ 18,000
Briones, Capital ............................................................................................ 1,400
Rivas, Capital ........................................................................................ 1,400
Briones, Loan ................................................................................................ 20,000
Briones, Capital ............................................................................................ 2,000
Cash ................................................................................................... 22,000
Case 2:
Cash ..... .... ................................................................................................... 134,000
Rivas, Capital................................................................................................ 46,200
Briones, Capital ............................................................................................ 19,800
Other Assets ........................................................................................... 200,000
Liabilities .. ................................................................................................... 132,000
Cash ... ................................................................................................... 132,000
Rivas, Loan ................................................................................................... 6,200
Briones, Loan ................................................................................................ 9,800
Rivas, Capital ........................................................................................ 6,200
Briones, Capital ..................................................................................... 9,800
Rivas, Loan ................................................................................................... 11,800
Briones, Loan ................................................................................................ 10,200
Cash ... ................................................................................................... 22,000
86 Chapter 4
Problem 4 2
Partners' Capitals
A s s e t s Accounts Blando, Blando Castro
Cash Receivables Inventory Others Payable Loan (60%) (40 %)
Balances before
liquidation .................... P 18,000 P75,000 P90,000 P84,000 P42,000 P 24,000 P102,000 P99,000
Collection of
receivables and
distribution of loss ....... _37,500 ( 75,000) _______ _______ _______ _______ ( 22,500) ( 15,000)
Balances ............................ 55,500 90,000 84,000 42,000 24,000 79,500 84,000
Realization of
inventory and
distribution of
loss............................... _30,000 _______ ( 90,000) _______ _______ _______ ( 36,000) ( 24,000)
Balances ............................ 85,500 84,000 42,000 24,000 43,500 60,000
Realization of other
assets and distribution
of loss .......................... _40,000 _______ _______ ( 84,000) _______ _______ ( 26,400) ( 17,600)
Balances ............................ 125,500 42,000 24,000 17,100 42,400
Payment of accounts
payable......................... ( 42,000) _______ _______ _______ ( 42,000) _______ _______ _______
Balances ............................ 83,500 24,000 17,100 42,400
Payments to partners.. P(83,500) P(24,000) P( 17,100) P(42,400)
Partnership Liquidation 87
Problem 4 3
a. Electric Company
Statement of Partnership Realization and Liquidation
June 30, 2011
Capital Balances
Amp. Noncash Liabil- Volt, Amp Volt Watt
Cash Loan Assets ities Loan 50% 30% 20%
Balances 20,000 15,000 135,000 30,000 10,000 80,000 36,000 14,000
Sale of
assets at a loss _95,000 ______ (135,000) ______ ______ (20,000) (12,000) ( 8,000)
115,000 15,000 -0- 30,000 10,000 60,000 24,000 6,000
Payment to
creditors _(30,000) ______ _______ (30,000) ______ _______ ______ ______
85,000 15,000 -0- -0- 10,000 60,000 24,000 6,000
Offset Amp,
receivable (15,000) (15,000)
Payments to partners:
Loan (10,000) (10,000)
Capitals _(75,000) ______ _______ _______ ______ (45,000) (24,000) ( 6,000)
Balances -0- -0- -0- -0- -0- -0- -0- -0-
b. (1) Cash 95,000
Amp, Capital 20,000
Volt, Capital 12,000
Watt, Capital 8,000
Noncash Assets 135,000
Sell noncash assets at a loss of P40,000.
Note: All partners permitted Amp to offset his receivable against his capital credit. Alternatively, Amp
could be required to pay the partnership the P15,000 receivable; the partnership would then pay him an
additional P15,000 for his capital credit. In this case, an offset of the receivable against the capital credit is
reasonable, provided the receivable is not interest-bearing, Amp has a sufficient capital credit, Amp is
personally solvent, and the note is not secured against specific assts of Amp. The offset is not automatic,
but must be determined by the terms of the initial note, and by the partners.
88 Chapter 4
Problem 4 4
Problem 4 5
b. JJ, KK & LL
Statement of Liquidation
Other Capital
Cash Assets Liabilities JJ (4) KK(4) (LL(2)
Balances before liquidation ... P50,000 P500,000 P60,000 P180,000 P240,000 P70,000
Realization & Dist. of gain ... 640,000 ( 520,000) _______ __56,000 __56,000 _28,000
Balances .... .... ...................... 690,000 60,000 236,000 296,000 98,000
Payment of liabilities ............ ( 60,000) ( 60,000)
Payment to Partners .............. (630,000) _______ _______ ( 236,000) ( 296,000) ( 98,000)
Partnership Liquidation 89
Problem 4 6
a. BB ................................................... P160,000
CC ................................................... P20,000
DD................................................... P60,000
EE ................................................... P 0
C a p i t a l
Cash Liabilities BB (30%) CC (10%)DD (20%) EE (40%)
Balances before liquidation ... P 0 P60,000 P160,000 P80,000 (P120,000) P(180,000)
Advances by BB to pay liabilities ( 60,000) 60,000
Deposit by DD ...................... 60,000 ______ _______ _______ __60,000 ________
Balances .... .... ...................... 60,000 220,000 80,000 ( 60,000) ( 180,000)
Elimination of EE's deficiency ( 90,000) ( 30,000) ( 60,000) 180,000
Elimination of DD's deficiency ______ __( 90,000) ( 30,000) 120,000
Payment to partners............... 60,000 40,000 20,000
Problem 4 7
Liabilities P a r t n e r s' C a p i t a l s
Assets Accounts Notes Pea Sayson Zobel Ayala Pea
Cash Noncash Payable Payable Loan (45%) (30%) (15%) (10%)
Balances before liquidation... P 15,000 P155,250 P11,250 P9,000 P 1,500 P 75,345 P 86,498 P(14,993) P1,650
Realization of assets and
distribution of gain .......... 185,000 ( 155,250) _______ ______ ______ 17,850 11,900 ______ ______
Balances................................ 200,000 - 11,250 9,000 1,500 93,195 98,398 ( 14,993) 1,650
Payment of liabilities ............ ( 20,250) ________ ( 11,250) ( 9,000) ______ ______ ______ _______ ______
Balances................................ 179,750 - - - 1,500 93,195 98,398 ( 14,993) 1,650
Additional loss to Sayson,
Zobel and Pea;
45:30:10 .......................... _______ ________ ________ ______ ______ ( 7,937) ( 5,292) 14,993 ( 1,764)
Balances................................ 179,750 - - - 1,500 85,258 93,106 - (114)
Offset Pea's loan against
his capital deficiency ....... _______ ________ ________ ______ ( 114) ______ ______ _______ 114
Balances................................ 179,750 - - - 1,386 85,258 93,106 -
Payments to partners ............. P(179,750) P(1,386) P(85,258) P(93,106)
90 Chapter 4
Problem 4 8
a. Art, Bea and Cid Partnership
Statement of Liquidation
June 4, 2011
b.
2011
July 5 Cash .... .... ................................ ............. .................. .................. 30,700
Art capital (P63,300 x 40%) ...... ............. .................. .................. 25,320
Bea capital (P63,300 x 40%) ..... ............. .................. .................. 25,320
Cid capital (P63,300 x 20%) ...... ............. .................. .................. 12,660
Other assets ...................... ............. .................. .................. 94,000
To record realization of other assets at a loss of P63,300.
c. Cid's loss must be limited to P5,000, or P25,000 for the partnership (P5,000 / 20% = P25,000).
Because the liquidation of liabilities results in a loss of P500, only P24,500 may be lost on the
realization of other assets. This requires that other assets realize P69,500 (P94,000 24,500) to
enable Cid to receive P5,000 from the partnership to pay personal creditors in full.
Problem 4 9
KGB Partnership
Statement of Realization and Liquidation
Lump-sum Liquidation on June 30, 2011
- Capital Balances -
Noncash G K G B
Cash Assets Liabilities Loan 20% 40% 40% -
Preliquidation balances 50,000 950,000 (480,000) (60,000) (240,000) (100,000) (120,000)
Sale of assets
and distribution
of 430,000 loss 520,000 950,000 - - 86,000 172,000 172,000
570,000 -0- (480,000) (60,000) (154,000) 72,000 52,000
Cash contributed
by B 50,000 - - - - - 50,000
620,000 -0- (480,000) (60,000) (154,000) 72,000 2,000
Distribution of deficit
of insolvent partner: (2,000)
20/60 (P2,000) 666
40/60 (P2,000) - - - - - 1,334 -
620,000 -0- (480,000) (60,000) (153,334) 73,334 -0-
Offset deficit with loan - - - 60,000 - (60,000) -
620,000 -0- (480,000) -0- (153,334) 13,334 -0-
Contribution by G 13,334 - (13,334) -
633,334 -0- (480,000) -0- (153,334) -0- -0-
Payment of creditors (480,000) - 480,000 - - - -
153,334 -0- -0- -0- (153,334) -0- -0-
Distribution to K (153,334) - - 153,334 - -
Postliquidation
balances -0- -0- -0- -0- -0- -0- -0- -
92 Chapter 4
KGB Partnership
Schedule of Distribution of Personal Assets
June 30, 2011
K G B
Personal assets, excluding partnership
capital and loan interests 500,000 600,000 700,000
Personal liabilities (460,000) (480,000) (650,000)
Personal net worth, excluding
partnership capital and loan
interests 40,000 120,000 5 0,000
Contribution to partnership (13,334)
Distribution from partnership 153,334 -0- - -0- -
Personal capacity 193,334 106,666 -0- -
Partnership Liquidation by Installment 93
CHAPTER 5
5-1: b
RJ SJ TJ
Capital balances before liquidation P22,000 P30,000 P 8,000
Loan balances _10,000 ______ ______
Total interest 32,000 30,000 8,000
Possible loss (40,000+10,000) ( 25,000) ( 15,000) ( 10,000)
Balances 7,000 15,000 ( 2,000)
Additional loss to RJ & SJ, 5:3 ( 1,250) ( 750) __2,000
Cash distribution P 5,750 P14,250 P
5-2: a
AR BR CR DR
Capital balances P 5,500 P 5,150 P 6,850 P 4,500
Loan balances _1,000 _____ _____ _____
Total interest 6,500 5,150 6,850 4,500
Possible loss (23,000-6,000) ( 6,800) ( 5,100) ( 3,400) ( 1,700)
Balances ( 300) 50 3,450 2,800
Additional loss to BR, CR, DR, 3:2:1 ___300 ( 150) ( 100) ( 50)
Balances ( 100) 3,350 2,750
Additional loss to CR & DR, 2:1 _____ ___100 _( 67) _( 33)
Payment to partners P P P 3,283 P 2,717
5-3: c
BALANCES
DD EE FF GG
Capital balances P40,000 P30,000 P15,000 P25,000
Loan balances 5,000 10,000
Advances _____ _____ ( 4,500) ( 2,500)
Total interest 45,000 40,000 10,500 22,500
Divided by P/L Ratio ____50% ____30% ____10% ____10%
Loss Absorption balances 90,000 133,333 105,000 225,000
PI - TO GG _____ _____ ( 91,667) __ __
Balances 90,000 133,333 105,000 133,333
PII - TO EE & GG, 30:10 _____ ( 28,333) _____ ( 28,333)
Balances 90,000 105,000 105,000 10,500
PIII - TO EE, FF, GG, 3:1:1 _____ (15,000) ( 15,000) ( 15,000)
Balances P90,000 P90,000 P90,000 P90,000
PIV - P/L Ratio
94 Chapter 5
5-3, continued:
CASH PAYMENT
DD EE FF GG
PI - To GG P 9,167
PII - To EE (28,833 X 30%) P 8,433
GG (28,833 X 10%) 2,833
PIII To EE (15,000 X 30%) 4,500
FF (15,000 X 10%) 1,500
GG (15,000 X 10%) _____ _____ _____ __1,500
Total P12,933 P 1,500 P13,500
PIV - P/L Ratio
DD EE FF GG
Distribution of P18,000
PI - TO GG P 9,167
PII - TO EE & GG, 3:1, P8,833 _____ _6,625 _____ __2,208
Cash distribution P 6,625 P11,375
5-4: a
TAN LIM WAN
Capital balances before liquidation P40,000 P65,000 P48,000
Loss on realization, P40,000 ( 16,000) ( 16,000) ( 8,000)
Capital balances before cash distribution 24,000 49,000 40,000
Possible loss, P90,000 ( 36,000) ( 36,000) ( 18,000)
Balances ( 12,000) 13,000 22,000
Additional loss to Lim & Wan, 4:2 _12,000 ( 8,000) ( 4,000)
Cash distribution P P 5,000 P18,000
5-5: b
TAN LIM WAN
Capital balances before cash distribution P24,000 P49,000 P40,000
Possible loss (90,000+3,000) ( 37,200) ( 18,600) ( 18,600)
Balances ( 13,200) 30,400 21,400
Additional loss to Lim & Wan, 4:2 _13,200 ( 8,800) _( 4,400)
Cash distribution P P21,600 P17,000
5-6: d
Tan (14,000 X 40%) P5,600
Lim (14,000 X 40%) P5,600
Wan (14,000 X 20%) P2,800
5-7: a
CARPIO LOBO
Capital balances before liquidation P72,000 P54,000
Goodwill written-off ( 5,000) ( 5,000)
Cash balance 67,000 49,000
Possible loss (100,000+10,000), 110,000 ( 55,000) ( 55,000)
Capital balances before liquidation 12,000 ( 6,000)
Additional loss to Carpio ( 6,000) __6,000
Cash distribution P 6,000 P
Partnership Liquidation by Installment 95
5-8: d
JACOB SANTOS HERVAS
Capital balances before liquidation P40,000 P72,000 P 7,000
Loss on realization (120,000-90,000) ( 15,000) ( 9,000) ( 6,000)
Liquidation expenses, P2,000 ( 1,000) ( 600) ( 400)
Capital balances before cash distribution 24,000 62,400 63,600
Loan balances __8,000 _____ _____
Total interest 32,000 62,400 63,600
Possible Loss (210,000-120,000) ( 45,000) 27,000 ( 18,000)
Balances ( 13,000) 35,400 45,600
Additional loss to Santos & Hervas _13,000 ( 7,800) ( 5,200)
Cash distribution P P27,600 P40,400
5-9: d
A B C D
Capital balances before liquidation P16,200 P12,000 P37,700 P17,700
Salary payable _____ ___160 ___240 _______
Balances 16,200 12,000 37,860 ( 17,940)
Loss on realization (P2,400) ( 600) ( 600) ( 600) ( 600)
Balances 15,600 11,400 37,260 17,340
Liquidation expenses (P600) ( 150) ( 150) ( 150) ( 150)
Balances 15,450 11,250 37,110 17,190
Loan balances 12,000 14,400 _____ __9,600
Total interest 27,450 25,650 37,110 26,790
Possible Loss (126,000-18,000) ( 27,000) ( 27,000) ( 27,000) ( 27,000)
Balances 450 ( 1,350) 10,110 ( 210)
Additional loss to A & C ( 780) __1,350 ( 780) ____210
Balances ( 330) 9,330
Additional loss to C ___330 _____ ( 330) _____
Cash distribution P P P 9,000 P
5-10: a
BALANCES
DY SY LEE
Total interest P22,000 P15,500 P14,000
Profit and Loss ratio 2/4 1/4 1/4
Loan absorption balances 44,000 62,000 56,000
Priority I - to Sy _____ ( 6,000) _____
Balances 44,000 56,000 56,000
Priority II - to Sy & Less _____ ( 12,000) ( 12,000)
Total P44,000 P44,000 P44,000
CASH PAYMENTS
DY SY LEE
Priority I - to Sy (6,000 X 1/4) 1,500
Priority II - to Sy (12,000 X 1/4) 3,000
to Lee (12,000 X 1/4) _____ _____ _3,000
Total P P 4,500 P 3,000
96 Chapter 5
5-10, continued:
Further cash distribution, profit and loss ratio
Cash distribution to Dy P 6,250
Divided by Dy's Profit and Loss ratio 2/4
Amount in excess of P7,500 12,500
Total payment under priority I & II __7,500
Total cash distribution to partner P20,000
5-11: d
5-12: c
5-13: c BALANCES
AA BB CC
Capital balances P15,000 P30,000 P10,000
Loan balances 10,000 _5,000 10,000
Total interest 25,000 35,000 20,000
Divided by Profit and Loss Ratio 2/5 2/5 1/5
Loss Absorption balances 62,500 87,520 100,000
Priority I to CC _____ _____ ( 12,500)
Balances 62,500 87,520 100,000
Priority II to BB & CC, 2:1 _____ ( 25,000) ( 25,000)
Total interest P62,500 P62,500 P62,500
CASH PAYMENTS
AA BB CC
Priority I to CC (12,500 X 1/5) 2,500
Priority II to BB (25,000 X 2/5) 10,000
to CC (25,000 X 1/5) ____ _____ _5,000
Total P P10,000 P 7,500
Priority III P/L Ratio
Cash distribution to CC:
Priority I P2,500
Priority II (12,000-2,500) X 1/3 3,167
Total cash paid to CC P5,667
Partnership Liquidation by Installment 97
5-14: c
BALANCES
JJ KK LL MM
Capital balances P 60,000 P 64,500 P 54,000 P 30,000
Loan balances _18,000 _30,000 ______ ______
Total interest _78,000 _94,500 _54,000 _30,000
Divided by Profit and Loss Ratio ____40% _____35% _____15% _____10%
Loss Absorption balances 195,000 270,000 360,000 300,000
Priority I to LL ______ ______ ( 60,000) ______
Balances 195,000 270,000 300,000 300,000
Priority II to LL, MM, 15:10 ______ ______ ( 30,000) ( 30,000)
Balances 195,000 270,000 270,000 270,000
Priority II to KK, LL, MM, 35:15:10 ______ ( 75,000) ( 75,000) ( 75,000)
Total P195,000 P195,000 P195,000 P195,000
CASH PAYMENT
JJ KK LL MM
Priority I to LL (30,000 X 15%) 9,000
Priority II to LL (30,000 X 15%) 4,500
to MM (30,000 X 10%) 3,000
Priority II to KK (75,000 X 35%) 1,750
to LL (75,000 X 15%) 11,250
to MM (75,000 X 10%) ______ ______ ______ ___7,500
Total P P 1,750 P 24,750 P 10,500
JJ KK LL MM TOTAL
Priority I to LL P 9,000 P 9,000
Priority II to LL, MM, 15:10 4,500 3,000 7,500
Priority II to KK, LL, MM, 35:15:10
(29,100-16,500), 12,600 _____ __7,350 ___3,150 __2,100 __12,600
Cash distribution P P 7,350 P 16,650 P 5,100 P 29,100
5-15: a
BALANCES
ARCE BELLO CRUZ
Capital balances P 20,000 P 24,900 P 15,000
Loan balances _10,000 ______ ______
Total interest _32,000 _24,900 _15,000
Divided by Profit and Loss Ratio _____50% _____30% _____20%
Loss Absorption balances 64,000 83,000 75,000
Priority I to Bello ______ ( 8,000) ______
Balances 64,000 75,000 75,000
Priority II to Bello & cruz, 3:2 ______ ( 11,000) ( 11,000)
Total P 64,000 P 64,000 P 64,000
98 Chapter 5
5-15, continued:
CASH PAYMENTS
ARCE BELLO CRUZ
P - I to Bello (8,000 X 30%) 2,400
P - II to Bello (11,000 X 30%) 3,300
to Cruz (11,000 X 20%) _____ _____ _2,200
Total P P 5,700 P2,200
5-16: a
5-17: b
5-18: b
BALANCES CASH PAYMENT
MONZON NIEVA MONZON NIEVA
Total Interest P22,500 P17,500
Profit and Loss ratio _____60% _____40%
Loss absorption balances 37,500 43,750
Priority I - to Nieka ______ ( 6,250) _____ _2,500
Total P37,500 P37,500 P P2,500
Further cash distribution - Profit and Loss ratio
All the P2,000 should be paid Nieva, since she is entitled to P2,500 under Priority I
Partnership Liquidation by Installment 99
5-19: b
CASH MONZON NIEVA
Cash distribution P12,500
PI to Nieva (2,500-2,000) ( 500) 500
Balances, 6:40 _12,000 __7,200 _4,800
Cash distribution P P 7,200 P5,300
5-20: a
Cash before liquidation P 5,000
June: Cash realized 18,000
Payment to creditor ( 20,000)
Payment to Partners __2,000
Cash balances, June 30 1,000
July: Cash realized 12,000
Payment of liquidation expense ( 500)
Payment to Partners ( 12,500)
Cash balances, July 31
Aug: Cash realized _22,500
Cash distribution for August,
Profit and Loss ratio P22,500
5-21: b, Correction to the problem: Shortly thereafter, assets with a book value of P20,000 and a fair
value of P23,000 were distributed to Carla.
Capital and Loan Balances
Cash NCA Liabilities Carla Maria Rita
Balances, June 1, 2011 P 8,000 P 96,000 P 63,000 P 47,000 P (9,000) P 3,000
Sale of assets, June 15, 2011 20,000 30,000 (6,000) (2,000) (2,000)
Payment of liabilities (20,000) (20,000)
Balances 8,000 66,000 43,000 41,000 (11,000) 1,000
Contribution of personal assets 9,000 9,000
Balances 17,000 66,000 43,000 41,000 (2,000) 1,000
Distribution of assets (20,000) (21,200) 600 600
Balances 17,000 46,000 43,000 19,800 (1,400) 1,600
Sale of assets 54,000 (40,000) 8,400 2,800 2,800
Payment of liabilities (43,000) (43,000)
Balances 28,000 6,000 -0- 28,200 1,400 4,400
Distribution to partners, sch. 1 (28,000) (24,600) (200) (3,200)
Balances P -0- P 6,000 P -0- P 3,600 P 1,200 P 1,200
100 Chapter 5
5-21, continued:
Schedule 1:
Schedule of Safe Payments:
July distribution
Carla Maria Rita Total
Capital and loan balances
Before cash distribution P28,200 P1,400 P4,400 P34,000
Maximum possible loss (3,600) (1,200) (1,200) (6,000)
Safe payments P24,600 P200 P3,200 P28,000
5-22: 1. b
None of the cash would be distributed to Partner A, because the outside creditors claims must be
satisfied before any distributions to partners occur. Even after the sale, there is only P32,000 of
cash available to service the liabilities of P35,000.
2. a
Partner A would receive P5,000 as computed below:
3. b
If Partner B received P27,000 per above statement of liquidation, then he would be need
to receive additional P52,000 to reach the target of P79,000. If his capital balance after
the first sale of assets and the distribution of P27,000 is P37,000 (P64,000 P27,000),
then his share of a gain on the sale of the remaining assets would have to bring the capital
balance to the desired amount of P52,000. The necessary share of the gain is P15,000
(P52,000 P37,000), which represents 30% of a total gain of P50,000. Therefore, the
remaining assets would have to sell for P160,000 in order to produce a gain of P50,000.
102 Chapter 5
SOLUTIONS TO PROBLEMS
Problem 5 1
Suarez, Tulio and Umali
Statement of Liquidation
January 1 to april 31, 2011
Schedule 1
Schedule 2
Suarez (40%) Tulio (35%) Umali (25%)
Capital balances ...................................... P12,950.00 P11,237.50 P6,562.50
Loan balances.......................................... __1,187.50 _2,312.50
Total ........................................................ 12,950.00 12,425.00 8,875.00
Possible loss (P1,250 + P27,000) ........... ( 11,300.00) ( 9,887.50) ( 7,062.50)
Payments to partners ............................... P 1,650.00 P 2,537.50 P1,812.50
Apply to loan........................................... _1,187.50 _1,812.50
Apply to capital ....................................... P 1,650.00 P 1,350.00 P
102 Chapter 5
Problem 5 2
Capital
Inven- Accounts Bell Miller Bell
Cash tory Payable Loan 80% 20%
Balances 25,000 120,000 15,000 60,000 65,000 5,000
Sale of inventory 40,000 ( 60,000) (16,000) (4,000)
Payment to
creditors (10,000) ______ (10,000) ______ ______ ______
55,000 60,000 5,000 60,000 49,000 1,000
Payments to
partners
(Schedule 1) (50,000) ______ ______ (49,000) _(1,000) ______
5,000 60,000 5,000 11,000 48,000 1,000
Sale of inventory 30,000 ( 60,000) (24,000) 6,000)
Payment to
creditors ( 5,000) ______ ( 5,000) ______ ______ ______
30,000 0 0 11,000 24,000 (5,000)
Offset deficit
with loan ______ ______ ______ ( 5,000) ______ (5,000)
30,000 0 0 6,000 24,000 0
Payments to
partners:
Loan ( 6,000) ( 6,000)
Capitals (24,000) ______ ______ ______ (24,000) ______
Balances 0 0 0 0 0 0
Schedule 1:
Miller and Bell Partnership
Schedule of Safe Payments to Partners
Miller Bell
80% 20%
Capital and loan balances 49,000 61,000
Possible loss of 60,000 on remaining inventory (48,000) (12,000)
Safe payment 1,000 49,000
Partnership Liquidation by Installment 103
Problem 5 3
HORIZON PARTNERSHIP
Statement of realization and Liquidation
May July, 2011
Partners Capital
Assets SS TT PP
Cash Other Liabilities (1/3) (1/3) (1/3)
Balances before liquidation 20,000 280,000 80,000 60,000 70,000 90,000
May sale of assets at a loss of P30,000 75,000 (105,000) ______ (10,000) (10,000) (10,000)
Balances 95,000 175,000 80,000 50,000 60,000 80,000
Payment to creditors (80,000) ______ (80,000) ______ ______ ______
Balances 15,000 175,000 50,000 60,000 80,000
Payments to PP (Exhibit A) (15,000) ______ ______ ______ ______ (15,000)
Balances 0 175,000 50,000 60,000 65,000
June sale of assets at a loss of P36,000 25,000 (61,000) ______ (12,000) (12,000) (12,000)
Balances 25,000 114,000 38,000 48,000 53,000
Payment to partners (Exhibit A) (25,000) ______ ______ ______ (10,000) (15,000)
Balances 0 114,000 38,000 38,000 38,000
July sale of remaining assets at a loss of
P33,000 81,000 (114,000) (11,000) (11,000) (11,000)
Balances 81,000 27,000 27,000 27,000
Payment to partners (81,000) (27,000) (27,000) (27,000)
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.
104 Chapter 5
Problem 5 4
1. X, Y and Z
Cash Priority Program
January 1, 2011
2. January
Cash X Y Z
Available for distribution .............................. P 7,500
Priority I to Y ............................................. ( 7,500) P 7,500
Payment to partner ......................................... P 7,500
Problem 5 5
AB, CD & EF Partnership
Statement of Partnership Realization and Liquidation
Capital
Able Other Accounts CD AB CD EF
Cash Loan Assets Payable Loan 50% 30% 20%
Balances before liquidation 18,000 30,000 307,000 53,000 20,000 118,000 90,000 74,000
January transactions:
1. Collection of accounts
receivable at loss
of 15,000 51,000 ( 66,000) ( 7,500) ( 4,500) ( 3,000)
2. Sale of inventory at
loss of 14,000 38,000 ( 52,000) ( 7,000) ( 4,200) ( 2,800)
3. Liquidation expenses paid ( 2,000) ( 1,000) ( 600) ( 400)
4. Share of credit memorandum ( 3,000) 1,500 900 600
5. Payments to creditors ( 50,000) _____ ______ (50,000) _____ ______ _____ ______
55,000 30,000 189,000 -0- 20,000 104,000 81,600 68,400
Sale payments to partners
(Schedule 1 ( 45,000) ______ _____ ______ (20,000) ______ ( 6,600) (18,400)
10,000 30,000 189,000 -0- -0- 104,000 75,000 50,000
February transactions:
6. Liquidation expenses paid ( 4,000) ______ ______ ______ ______ ( 2,000) ( 1,200) ( 800)
6,000 30,000 189,000 -0- -0- 102,000 73,800 49,200
Safe payments to partners
(Schedule 2) -0- _____ ______ ______ ___ 0 0 0
6,000 30,000 189,000 -0- -0- 102,000 73,800 49,200
March transactions:
8. Sale of mac. & equip. at a
loss of 43,000 146,000 (189,000) ( 21,500) (12,900) ( 8,600)
9. Liquidation expenses paid ( 5,000) ______ _______ ______ ______ ( 2,500) ( 1,500) ( 1,000)
147,000 30,000 -0- -0- -0- 78,000 59,400 39,600
10. Offset AB's loan
receivable against capital (30,000) ( 30,000)
Payments to partners (147,000) ______ _______ ______ ______ ( 48,000) (59,400) (39,600)
Balances at end of liquidation 0 0 0 0 0 0 0 0
106 Chapter 5
AB CD EF
Schedule 1: January 50% 30% 20%
Capital and loan balancesa P74,000 P101,600 P68,400
Possible loss:
Other assets (189,000) and possible liquidation
costs (10,000) ( 99,500) ( 59,700) ( 39,800)
Balances ( 25,500) 41,900 28,600
Absorption of AB's potential deficit balance 25,500
CD : (25,500 x 3/5 = 15,300) ( 15,300)
EF : (25,500 x 2/5 = 10,200) ______ _______ ( 10,200)
Safe payment P -0- P 26,600 P 18,400
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 72,000 73,800 49,200
Possible loss:
Other assets (189,000) and possible liquidation
costs (6,000) ( 97,500) ( 58,500) ( 39,000)
( 25,500) 15,300 10,200
Absorption of AB's potential deficit balance 25,500
CD : (25,500 x 3/5 = 15,300) ( 15,300)
EF : (25,500 x 2/5 = 10,200) _______ ________ ( 10,200)
Safe payment 0 0 0
b = (102,000) capital less 30,000 loan receivable
= (73,800) capital
= (49,200) capital
Partnership Liquidation by Installment 107
Problem 5 6
1. M, N, O and P
Cash Priority Program
January 1, 2011
Loss absorption
balances ......... P240,000 P200,000 P440,000 P280,000
Priority I to O .. _______ _______ ( 160,000) ________ P20,000 P20,000
Balances ............. 240,000 200,000 280,000 280,000
Priority II to O
and P .............. _______ _______ ( 40,000) ( 40,000) 5,000 P5,000 10,000
Balances ............. 240,000 200,000 240,000 240,000
Priority III to
M, O and P ..... ( 40,000) _______ ( 40,000) ( 40,000) P15,000 5,000 5,000 25,000
Total ................... P200,000 P200,000 P200,000 P200,000 P15,000 P30,000 P10,000 P55,000
2.
Schedule 1
Cash M N O P
Available for distribution .................... P25,000
Priority I to O ................................... ( 20,000) P20,000
Priority II to O and P; 1:1 ................. ( 5,000) ________ _______ 2,500 P2,500
Payments to partners............................ P22,500 2,500
Apply to loan ....................................... ( 22,500) ( 2,500)
Apply to capital ...................................
Schedule 2
Cash M N O P
Available for distribution .................... P40,000
Priority II to O and P; 1:1 ................. ( 5,000 P 2,500 P2,500
Priority III to M, O and P; 3:1:1 ....... ( 25,000) P15,000 5,000 5,000
Excess, 3:3:1:1..................................... ( 10,000) 3,750 P3,750 1,250 1,250
Payments to partners............................ 18,750 P3,750 8,750 8,750
Apply to loan ....................................... ( 18,750) ( 3,750) ( 2,500) ( 8,750)
Apply to capital P 6,250
108 Chapter 5
Problem 5 7
Problem 5 8
Part A
Balances Cash Payments
North South East West North South East West
Total Interest (capital and loan
balances P120,000 P 88,000 P109,000 P 60,000
Divided by P/L ratio 30% 10% 20% 40%
Loss absorption potential P400,000 P880,000 P545,000 P150,000
Priority II To South (335,000) ________ 33,500
Balances 400,000 545,000 545,000 150,000
Priority II To South and East, 10:20 (145,000) (145,000) 14,500 29,000
Balances 400,000 400,000 400,000 150,000
Priority III To North, South, and
east 30:10:20 (250,000) (250,000) (250,000) ______ 75,000 25,000 50,000 _____
Total 150,000 150,000 150,000 150,000 75,000 73,000 79,000
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 82,000
To records collection of receivables with losses allocated to partners.
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)
110 Chapter 5
Problem 5 9
DR Company
Schedule of Safe Payments to Partners
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, 2011.
Problem 5 10
Cash 40,000
Equipment 60,000
Jenny, capital 100,000
Cash 60,000
Inventory 10,000
Equipment 180,000
Notes payable 50,000
Kenny, capital 200,000
112 Chapter 5
Jenny Kenny
Beginning capital balance P100,000 P200,000
Interest on beginning capital balance 10,000 20,000
Annual salary 15,000 20,000
Remainder 48,000 72,000
Ending capital balance P173,000 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.
Cash 175,000
Lenny, capital 110,000
Jenny, capital 26,000
Kenny, capital 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).
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 113
CHAPTER 6
6-1: a
Assets per Jessica Company- balance sheet P3,550,000
Jessicas proportionate interest in assets of JV (50%) 1,000,000
Total assets of Jessica P4550,000
6-3: b
6-4: b
Investment of Heart P80,000
Profit share:
Sales 150,800
Cost of sales (150,800 125%) 120,640
Gross profit 30,160
Expenses 10,000
Net Profit 20,160
Profit/loss ratio x 40% 8,064
Balance of investment in JV P88,064
6-5: a
Cash P190,000
Merchandise inventory 29,360
Accounts receivable 150,800
Total assets 370,160
Sweet Cos, proportionate interest x 60%
Sweet Companys share in total asset P222,096
6-6: a
Sales 7,200
Cost of sales
Purchases P10,000
Merchandise inventory, end (50% of P10,000) __5,000 _5,000
Gross profit 2,200
Expenses ___500
Net profit P 1,700
114 Chapter 6
6-7: b
Original investment (cash) P10,000
Profit share (P1,700 / 2) ___850
Balance of Investment account P10,850
6-8: a
Joint venture account before profit distribution (credit balance) P 9,000
Unsold merchandise __2,500
Joint venture profit before fee to Salas P11,500
6-9: b
Fee of Salas (P10,000 x 15%) P 1,500
Profit share of Salas (P10,000 x 25%) _2,500
Total P 4,000
6-10: b
Salas Salve
Balance before profit distribution P 500 (dr) P 2,000 (cr)
Profit share:Sabas (P10,000 x 40%) 4,000
Salve (P10,000 x 35%) ______ _3,500
Balance P 3,500 (cr) P 5,500 (cr)
6-11: d
Joint venture account balance before profit distribution (debit) P 6,000
Joint venture profit (P4,500 x 3) _13,500
Cost of unsold merchandise (inventory) taken by Dante P19,500
6-12: b
Edwin Capital:
Debits: Balance before profit distribution P14,000
Credits: Profit share __4,500
Due from Edwin (debit balance) P 9,500
Joint Venture 115
6-12, continued
6-13: a
JV account balance before profit distribution (cr) P 4,600
Unsold merchandise (required dr balance after profit distribution) __2,000
Joint venture profit before fee to Jerry P 6,600
Joint venture profit after fee (P6,600 / 110%) __6,000
Fee to Jerry P 600
6-14: d
Harry Capital Isaac Capital
Balances before profit distribution (P 200) P 1,800
Profit distribution:
Harry P6,000 x 50%) 3,000
Isaac (P6,000 x 20%) 1,200
Cash settlements P 2,800 P 3,000
6-15: b
Sales P14,000
Cost of sales:
Merchandise inventory, beg (contributions) P14,000
Freight 300
Purchases __4,000
Goods available for sale P18,300
Merchandise inventory, end (P8,300/2) __4,150 14,150
Gross profit (loss) (150)
Expenses (P400 + P200) __600
Net profit (loss) P( 750)
6-16: c
Contributions to the Joint Venture (P5,000 + P8,000) P13,000
Loss share (P750 x 50%) ( 375)
Unsold merchandise taken (withdrawal) ( 4,150)
Final settlement to jack P 8,475
116 Chapter 6
SOLUTIONS TO PROBLEMS
Problem 6 1
JV cash 200,000
Joint Venture 200,000
Computation of JV Profit
Distribution of Profit:
Problem 6 2
Requirement (1) - Books of the Joint Venture
2. Purchases 80,000
Supplies 2,000
Diaz capital 82,000
3. Expenses 9,000
Diaz capital 9,000
4. Cash 150,000
Sales 150,000
5. Expenses 30,000
Cash 30,000
Distribution of profit:
Income summary 12,000
Diaz capital 4,000
Ella capital 4,000
Fabia capital 4,000
118 Chapter 6
Problem 6-2, continued:
Requirement #2
Cash (110,000 x 44%) 48,000* Cash (110,000x38.5%) 42,350 Cash (110,000 x 17.5%) 19,000
C.E (105,000 x 44%) 46,000* CE (105,000 x38.5%) 40,000* CE (105,000 x 17.5%) 18,000
MI (2,500 x 44%) 1,100 MI (2,500 x 38.5%) 960* MI (2,500 x 17.5%) 400
Supplies (500 x 44%) 200* Supplies (500 x 38.5%) 190* Supplies (500 x 17.5%) 90
COS (97,500 x 44%) 42,900 COS (97,500 x 38.5%) 37.500* COS (97,500 x 17.5%) 17,000
Expense (40,500 x44%) 17,800 Exp (40,500 x 38.5%) 16,000* Exp (40,500 x 17.5%) 7,000
Inv. Income 4,000 Inv. Income 4,000 Inv. Income 4,000
Sales (150,000x44%) 66,000 Sales (150,000 x 38.5%) 57,000* Sales (150,000 x 17.5%) 26,000
Investment in JV 95,000 Investment in JV 84,000 Investment in JV 39,000
Note. Under the proportionate consolidation method, difference will exist in the journal entry
(see above) because the profit and loss ratio (equally) is not equal to the venturers capital
interest as computed below:
It may be concluded that the proportionate consolidation method can be properly applied only if
the profit and loss ratio and the venturers capital interest are equal.
Problem 6 3
7: JV cash 10,000
Bueno capital 10,000
To record settlements:
Books of Bueno
Cash 12,000
Investment in Joint Venture 12,000
Books of Castro
Cash 14,000
Investment in Joint Venture 14,000
7: Cash 10,000
Bueno capital 10,000
Sales 25,000
Income summary 25,000
Distribution of profit:
Settlements to Venturers:
Cash 2,500
Investment in Joint Venture 2,500
Problem 6 4
To record sales:
Computed as follows:
To record settlement:
Cash 32,687
Rolex capital 128,874
Times capital 14,099
JV cash 175,660
Computations:
Current assets:
Investment in joint Venture:
Joint Venture assets:
Cash P 72,000
Joint Venture _175,500 P247,500
Less: Equity of other venturers
(P116,500 + P43,300) _159,800 87,700
Current liabilities:
Notes payable PNB 34,000
Joint Venture 125
Problem 6-4, continued:
Computation of balances as of June 30, 2011:
Timex capital
P34,000 April
__9,000 June
P43,300
Problem 6 5
Problem 6 6
Land 950,000
Cash 950,000
Paid for improvements.
Sales P2,600,000
Cost of land sold:
Land P2,400,000
Improvements 950,000
Total P3,350,000
Unsold land 2,205,000 1,145,000
Gross profit 1,455,000
Expenses:
Advertising and office expenses P 628,100
Interest on mortgage 40,250
Interest on advances 60,000
Commissions 130,000 858,350
Net gain P 596,650
Distributions:
MacDo (P596,650 x 60%) P 357,990
MacEn (P596,650 x 40%) 238,660
Assets
Cash P 250,000
Land 2,205,000
Total Assets P2,455,000
CHAPTER 7
7-1: c
7-2: d
Amount realized secured by inventory P120,000
Unsecured claim (P88,000 x 75%) __66,000
Total amount received P186,000
7-4: a
Realizable value:
Current assets P 50,000
Land and building P240,000
Less mortgage payable _200,000 __40,000
Total 90,000
Less accounts payable _160,000
Estimated deficiency to unsecured creditors P 70,000
7-5: c
Total realizable value to unsecured creditors (P90,000)/total unsecured
Claims (P160,000) = 56.25%
7-6: a
Free assets:
Current assets P 33,000
Buildings and equipment _110,000
Total P143,000
7-7: c
Free assets:
Other assets P 80,000
Excess from assets pledged with secured
Creditors (P116,000 P70,000) __46,000
Total P126,000
7-8: a
The holder of Debt Two will 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 P230,000
Excess liability of Debt One in excess of pledged
Asset (P210,000 P180,000) 30,000
Excess liability of Debt Two in excess of pledged
Asset (P170,000 P100,000) __70,000
Total unsecured liabilities P330,000
Necessary percentage ____60%
Cash needed for these liabilities P198,000
In order for the holder of Debt Two to received exactly P142,000, the other free assets
must be sold for P308,000. With that much money, the liabilities with priority
(P110,000) can be paid with the remaining P198,000 going to the unsecured debts of
P330,000. This 60% figure would insure that the holder of Debt Two would get
P100,000 from the pledged asset and P42,000 (P70,000 x 60%) from the free assets.
7-9: a
Estate equity, beg. (P100,000 P85,000) P 15,000
Loss on realization (P100,000 P75,000) ( 25,000)
Unrecorded liabilities:
Interest expense P 250
Administrative expense 4,000 ( 4,250)
Estate deficit P( 14,250)
7-10: c
Total assets at net realizable value P 75,000
Fully secured liabilities (40,000)
Estimated administrative expense _( 4,000)
Estimated amount available P 31,000
Unsecured claims (P45,000 + P250) (45,250)
Estimated deficiency to unsecured creditors P 14,250
Corporation in Financial Difficulty Liquidation 133
7-11: b
Assets pledged with fully secured creditors P185,000
Fully secured creditors _130,000 55,000
Free assets _160,000
Total free assets 215,000
Less: Liabilities with priority __35,000
Available to unsecured non-priority claims P180,000
7-12: b
Machinery P 10,000
Recoveries of unsecured claims (50,000 - 10,000) X .50 __20,000
Amount to be realized P 30,000
7-13: b
Notes Payable P 23,940
Less: Inventories _ 19,200
Unsecured Liabilities 4,740
% of recovery ____78%
Recovery 3,697
Add: Inventories _19,200
Amount to be received by Wood P 22,897
7-14: a - P7,000
7-15: a - P30,000
7-16: b - P57,200 [52,000 + (8,000 X .65)]
7-17: d - P72,800 (112,000 X .65)
7-18: d
Estimated loss:
Account Receivable P 8,160
Inventories (28,000 - 18,500) 9,500
Building (59,000 - 22,000) 3 7,000
Equipment (5,600 - 2,000) 3,600
Goodwill 5,650
Prepaid expenses ___430 P 64,340
Less: Stockholder's equity
Common stock P 72,000
Deficit ( 16,660) _55,340
Estimated deficiency P 9,000
134 Chapter 7
7-19: d
Accounts Receivable (39,350 - 16, 110) P 23,240
Notes Receivable (18,500 - 12,500) 600
Inventories (87,850 - 45,100) 42,750
Prepaid expenses 950
Equipment (48,800 - 9,000) __39,800
Total estimated loss P112,740
7-21: d
Total Free Assets:
Balance of Assets Pledged to
Fully Secured Creditor (95,000 - 90,000) P 5,000
Free Assets:
Cash P 2,700
Accounts Receivable 16,110
Inventories 45,100
Equipment __9,000 __72,910
Total 77,910
Less: Unsecured liabilities with priority (1,850 + 4,650) ___6,500
Net Free Assets P 71,410
Divide by Unsecured creditors:
Balance of Partially Secured Creditor
Notes Payable - PNB P 15,000
Notes Receivable __12,500 2,500
Accounts Payable 52,500
Notes Payable __51,250 103,750 P106,250
Estimated recovery % 67%
7-22: d
Fully secured (Notes Payable) P 90,000
Partially secured:
Notes Payable - PNB P12,500
Add (2,500 X 67%) __1,675 14,175
Unsecured Creditor with Priority 6,500
Unsecured Creditor without Priority (103,750 X 67%) __69,513
Total P180,188
Corporation in Financial Difficulty Liquidation 135
7-23: a
Unsecured creditors without priority P1,102,500
Estimated deficiency to unsecured creditors:
Loss on realization 551,250
Estimated liquidation expenses 55,125
Total 606,375
Stockholders equity 441,000 165,375
Net free assets 937,125
Liabilities with priority 122,500
Free assets P 1,059,625
7-24: a
Estimated net gain (loss) on realization:
Gain on realization 78,750
Loss on realization (336,700) (257,950)
Estimated claims ( 43,750)
Total (301,700)
Stockholders equity 295,750
Estimated deficiency P( 5,950)
7-25: a
Notes payable (175,000 140,000) P 35,000
Unsecured liabilities (420,000 52,500) 367,500
Total 402,500
Net free assets (157,500 + 210,000) P52,500 315,000
Estimated deficiency 87,500
7-26: a
Old receivable (net) P 38,000
Marketable securities 12,000
Old inventory 60,000
Depreciable assets- net 96,000
Total assets to be realized P206,000
7-27: a
Old receivable P 21,000
New receivable 47,000
Marketable securities 10,500
Sales of inventory 75,000
Total asset realized P153,500
7-28: a
Gain on sale of inventory (P75,000 60,000) 15,000
Loss on realization:
Marketable securities (12,000 10,500) 1,500
Trustees expenses 4,300
Depreciation 16,000 (21,800)
Net loss P( 6,800)
136 Chapter
7
7-29: Correction of the problem: The book value of the Mortgage Payable should be
P440,000.
1. c
2. a
3. a
7-30: 1. a
Debits:
Assets to be realized P 330,000
Assets acquired 360,000
Liabilities liquidated 360,000
Liabilities not liquidated 450,000
Supplementary charges 468,000
Total P1,968,000
Credits:
Assets realized P 420,000
Assets not realized 150,000
Liabilities to be liquidated 540,000
Liabilities assumed 180,000
Supplementary credits P1,800,000
Net loss P 168,000
7-3-, continued:
2. a
7-31: 1. a
2. a
3. a
4. d
Supporting computations:
Realizable
Assets to be applied: Value
Inventory P 150,000 P130,000 P 20,000 P 150,000
Inventory 200,000 P200,000 200,000
Receivables 360,000 360,000 360,000
Equipment 300,000 300,000 300,000
Equipment 60,000 60,000 60,000
Land 260,000 192,000 68,000 260,000
Cash 60,000 P10,000 50,000 60,000
Other assets 45,000 45,000 45,000
Total P1,435,000 P322,000 P860,000 P10,000 P243,000 P1,435,000
138
Chapter 7
SOLUTIONS TO PROBLEMS
Problem 7 1
(A) Laguna Company
Statement of Affairs
October 31, 2011
Book Estimated
Value Assets Realizable Value Free Assets
Assets pledge for fully secured creditors:
P107,000 ... Plant assets .................................................. P67,400
Less; Fully secured liabilities ...................... _ 50,400 P17,000
Assets pledged for partially secured creditors:
39,000 . ... Inventories................................................... P18,000
Free Assets:
4,000 .. ... Cash............................................................. P 4,000
46,000 .. ... Accounts, receivable ................................... 46,000
2,000 .. ... Supplies ....................................................... __1,500 _51,500
Total free assets ............................................... P68,500
Less: Unsecured liabilities with priority.......... __7,000
Net Free Assets................................................ P61,500
Estimated deficiency to unsecured creditors (to balance) _20,500
P198,000 P82,000
Book Creditors' Unsecured
Value Liabilities & Stockholders' Equity Claim Liabilities
Fully secured liabilities:
P50,400 ... ... Mortgage payable (including interest, P400) P50,400
Partially secured liabilities:
21,000 ... ... Notes payable .............................................. P21,000
Less: Inventory............................................ _18,000 P 3,000
Unsecured creditors with priority:
5,800 ... ... Wages payable P 5,800
1,200 ... ... Property taxes payable ................................ _1,200
Total ............................................................ P 7,000
Unsecured creditors without priority:
60,000 ... ... Accounts payable ........................................ 60,000
19,000 ... ... Notes payable .............................................. 19,000
Stockholders' Equity........................................ _____
P198,000 P82,000
(B) Creditor Group Amount of Amount to Percentage
Claim be Paid to be paid
Unsecured liabilities with priority .................................... P7,000 P7,000 100.0%
Fully secured creditors ...................................................... 50,400 50,400 100.0%
Partially secured creditors................................................. 21,000 20,250 * 96.4%
Unsecured creditors without priority ................................ 79,000 59,250 75.0%
* P18,000 + (P3,000 X 0.75) = P20,250
(C) See statement of affairs in requirement (A)
Problem 7 2
VC Corporation
Statement of Realization and Liquidation
Month Ended January 31, 2011
Gain on realization ......... ............... ___7,600 Loss on realization ...... .............. ___6,200
Total ............................... ............... P213,000 Total ............................ .............. P213,000
VC Corporation
Statement of Financial Position
January 31, 2011
VC Corporation
Estate Deficit
January 31, 2011
140
Chapter 7
Problem 7 3
Rizal Corporation
Statement of Affairs
Book Estimated Free
Values Assets Realizable Value Assets
Assets pledged to fully secured creditors:
P 80,000 ........ Land and building .................................. P102,000
Less: Mortgage payable ......................... 43,000 P 59,000
50,000.......... Finished Goods ...................................... P 55,000
Less: Loan payable ................................ 50,000 5,000
Problem 7 4
Mapayapa Corporation
Statement of Affairs
November 1
Free assets:
66,000.... ... Cash............................................................. P 66,000
258,000.... ... Accounts receivable .................................... 193,500
291,000.... ... Merchandise inventory................................ 180,000
870,000.... ... Plant & equipment ...................................... 330,000
114,000.... ... Notes receivable .......................................... 108,300
.... ... Patent........................................................... __12,000 _889,800
Total free assets .......................................... 919,800
Less: Unsecured liabilities with priority.......... __13,800
Net free asset ............................................... 906,000
_________ Estimated deficiency (to balance) ................... 60,300
P1,839,000 Total ................................................................ P966,300
Unsecured creditor:
960,000.... ...Account payable.......................................... P960,000
Accrued expenses........................................ 6,300
300,000.... ... Capital stock
__369,000.... ... Retained earnings ............................................ _______
P1,839,000 Total ................................................................ P966,300
142
Chapter 7
Problem 7 5
P91,500
= 55.45%
P165,000
c. Distribution of P471,000:
Percent Total
Creditors Amount Realized Payment
Accounts payable P 95,000 .... 55.45% P 52,678
Wages payable 9,500 .... 100% 9,500
Taxes payable 14,000..... 100% 14,000
Notes payable & interests 125,000 .... 100% 125,000
70,000 55.45% 38,815
Bonds payable & interests 231,000 .... 100% _231,000
Total estimated payment ........................................ P470,993
Problem 7 6
1. Evergreen Company
Statement of Affairs
June 30, 2011
Estimated Available for
Book Realizable Unsecured
Values ASSETS Values Creditors
Pledged with fully secured creditors:
P460,000 Land and building ..................................... P340,000
Less: Mortgage payable (including accrued interest) (330,000) P 10,000
Free Assets:
80,000 Cash ......................................................... P 80,000
140,000 Accounts receivable net ......................... 126,000
100,000 Inventories ................................................ 84,000
120,000 Machinery net ........................................ 40,000
100,000 Goodwill ................................................... _ _____0_ 330,000
Total free assets ........................................ ................... 340,000
Less: liabilities with priority ..................... ................... _140,000
Net free assets .......................................... ................... 200,000
Estimated deficiency (Squeeze figure) ..... ................... _130,000
P1,000,000 P330,000
Stockholders' Equity
400,000 Capital stock ............................................. ___
(200,000) Retained earnings (deficit) ........................ ................... P330,000
P1,000,000
Problem 7 7
Assets
Cash ..................... ................................................. ................... P242,000
146
Chapter 7
CHAPTER 8
8-1: a
Trade accounts payable (P52,000 + P62,700) P114,700
12% preferred stock (5,000 x P1) P 5,000
Paid in capital in excess of par (5,000 x P9) 45,000
Cash (P62,700 x P0.80) _50,160 _100,160
Gain from discharge of indebtedness P 14,540
8-2: c
8-3: c
8-4: b
Carrying value of the note payable:
Principal P600,000
Interest __60,000 P660,000
Restructured value:
Principal P400,000
Interest _110,000 _510,000
Gain on debt restructuring P150,000
8-5: d
Other income:
Fair value of land P450,000
Books value of land _360,000
Other income P 90,000
Extraordinary gain:
Book value of note payable
Principal P500,000
Interest __60,000 P560,000
Fair value of land _450,000
Extraordinary gain P110,000
8-6: a
Book value of bonds payable P500,000
Par value of preferred stock (5,000 shares x P100) _500,000
No gain no loss P 0
148 Chapter 8
8-7: a
8-8: a
Carrying value of debt:
Note payable P100,000
Interest payable __12,000 P112,000
Fair value machinery _(36,000)
Balance of debt P 76,000
Restructured debt:
Note payable P 50,000
Interest (P50,000 x .08 x 2) ___8,000 __58,000
Restructuring difference (gain) P 18,000
8-9: c
Principal P300,000
Interest payable (300,000 x 10%) __30,000
Carrying value P330,000
8-10: c
Correction: Should be P310,600
Restructured principal of note payable P260,000
Interest payable:
On book value (P300,000 x 10% 30%) P 9,000
On restructured (P260,000 x 8% x 2) _41,600 __50,600
Future cash flows to liquidate the debt P310,600
8-11: d
8-12: d
Loss on transfer of land:
Original cost P290,000
Market value _270,000 P 20,000
8-13: a
Transfer gain (loss):
Carrying amount of equipment P80,000
Fair value of equipment 75,000
Transfer loss P(5,000)
Restructuring gain:
Carrying amount of the debt P100,000
Fair value of equipment transferred 75,000
Restructuring gain P 25,000
8-14: d
Carrying amount of real estate transferred P100,000
Fair value of real estate 90, 000
Loss on restructuring of payables P(10,000)
8-15: d
Carrying amount of liability P150,000
Fair value of real estate transferred 90,000
Restructuring gain P 60,000
8-16: c
Gain on revaluation of land (120,000 85,000) P 35,000
Gain on the extinguishment of debt (185,000 120,000) 65,000
Total gain P100,000
8-17: a
Carrying value of debt (P800,000 + 80,000) P880,000
Total future payments (P700,000 + 80,000) 780,000
Restructuring gain P100,000
8-18: a
First determine the expected future cash flows as follows:
70,000 x .79719 = P55,803
5,600 x 1.69005 = 9,464
Present value of future cash flow P65,267
The interest revenue can be computed using the effective interest method
as follows:
Present value at 12/31/06 P65,267
Interest income at 12/31/07 (65,267 x 12%) 7,832
Interest receivable at 12/31/07 (70,000 x 8%) 5,600 2,232
Present value at 12/31/07 P67,499
8-19: 1. b
2. a
Supporting computations:
Effect on Net Income
Alternative 1 Alternative 2
Gain on restructuring P30,000 (a) P 0 (b)
Interest expenses - (55,000) (c)
Increase (decrease) P30,000 (d) P(55,000)
8-20: b
SOLUTIONS TO PROBLEMS
Problem 8 1
Journal entries for company emerging from bankruptcy using fresh start
accounting:
Receivables 10,000
Inventory 10,000
Building 100,000
Reorganization value in excess of amount
Allocable to tangible assets 60,000
Additional paid in capital 180,000
To adjust accounts to market value as part of fresh start accounting. Since the company has
a reorganization value of P760,000 but the assets have a market value of only P700,000
(P90,000 + P210,000 + P400,000), and account entitled Reorganization Value in Excess of
Amount Allocable to Tangible Assets must be recorded for P60,000.
Liabilities 300,000
Common stock (P330,000 x 80%) 264,000
Gain on debt discharge 36,000
To record settlement of liabilities
Problem 8 2
2011
July 24: Costs of reorganization 50,000
Cash with escrow agent 50,000
Problem 8 3
Jade Corporation
Statement of Financial Position
December 31, 2011
ASSETS
Current assets:
Cash P 23,000
Inventory 45,000 P 68,000
Property and equipment:
Land 140,000
Buildings 220,000
Equipment 154,000 514,000
Total asset P582,000
Stockholders' Equity
Common stock 200,000
Retained earnings (deficit ) (223,000) (23,000)
Total liabilities and stockholders' equity (deficit) P582,000
Problem 8 4
Preliminary computations:
Book values prior to reorganization:
Total assets (P100,000 + P112,000 + P420,000 + P78,000) .............. P710,000
Total liabilities (P80,000 + p35,000 + P100,000 + P200,000 +
P185,000 + P200,000) .................................................................. P800,000
Common stock (given) ....................................................................... P240,000
Deficit (given) .............................................................................. P330,000
Reorganization and Troubled Debt Restructuring 153
Problem 8-4, continued:
Book values after reorganization:
Total assets (reorganization value) ............................................................... P780,000
Total liabilities (P5,000 + P4,000 + P100,000 + P50,000 +
P71,000 + P110,000) ............................................................................. P340,000
Common stock (returned shares are reissued)............................................... P240,000
Deficit (eliminated) ..................................................................................... 0
Additional paid in capital (squeeze) .............................................................. P200,000
Since the company will have 30,000 shares outstanding after the reorganization, the additional paid in
capital equals P6.66 per share.
Because the company has a reorganization value of P780,000 but the assets have a market value of only
P735,000, an account entitled Reorganization Value in Excess of Amount allocable to Tangible Assets
must be recognized for P45,000.
JOURNAL ENTRIES:
1. Land and buildings ..................................................................................... 80,000
Reorganization Value in excess of amount
allocable to tangible assets .................................................................... 45,000
Accounts receivable ........................................................................ 20,000
Inventory ..................................................................................... 22,000
Equipment ..................................................................................... 13,000
Additional paid in capital ............................................................... 70,000
To adjust accounts to market value as part of fresh start accounting.
Problem 8 5
Since the Company has a reorganization value of P800,000 but only P653,000 can be assigned to
specific assets based on market value, the remaining P147,000 is reported as a Reorganization
Value in Excess of Amount Allocable to Identifiable Assets.
Sun Corporation
Statement of Financial Position Fresh Start Accounting
December 31, 2011
ASSETS
Current assets
Accounts receivable P 18,000
Inventory 111,000 P129,000
Property and equipment
Land and building 278,000
Machinery 121,000 399,000
Intangible assets
Patents 125,000
Reorganization value in excess of amount allocable to identifiable assets 147,000 272,000
Total assets P800,000
Stockholders' Equity:
Common stock P500,000
Additional paid in capital (squeeze) 18,000 518,000
Total liabilities and stockholders' equity P800,000
Installment Sales 155
CHAPTER 9
9-2: a
2009 2010 2011
Deferred gross profit, before adjustment P7,230 P 60,750 P 120,150
Deferred gross profit, end
2009 (6,000 X 35%) 2,100
2010 (61,500 X 33%) 20,295
2011 (195,000 X 30%) ___58,500
Realized gross profit, December 31, 2011 P5,130 P 40,455 P 61,650
(Total P107,235)
9-3: c
9-4: b
Sales P1,000,000
Cost of installment sales __700,000
Deferred gross profit P 300,000
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000) P 600,000
Gross profit rate (300,000 1,000,000) ___X 30% __180,000
Realized gross profit P 120,000
Operating expenses ___80,000
Operating income 40,000
Interest and financing charges __100,000
Net income P 140,000
156 Chapter 9
9-5: a
Market value of repossessed merchandise P 30,000
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000) P 50,000
Less: Deferred gross profit (50,000X20%) ___10,000 __40,000
Loss on repossession (P 10,000)
9-6: a
Installment sales P1,000,000
Less: collection on installment sales __200,000
Installment account receivables, 12/31/08 800,000
Gross profit rate (500,000 1,000,000) ___X 50%
Deferred gross profit, 12/31/011 P 400,000
OR
9-7: d
Fair value of repossessed merchandise P120,000
Less: unrecovered cost
Unpaid balance P 200,000
Less: Deferred gross profit (200,000 X 32.5%) ___65,000 _135,000
Loss on repossession (P 15,000)
9-8: b
Realized gross profit:
Collections:
Downpayment P 35,000
Installment received (205,000-200,000) ___5,000
Total 40,000
Gross Profit Rate (150,000 240,000) _X 62.5%
Realized gross profit P 25,000
9-10: c
Year of Sales
2010 2011
Deferred gross profit (Sales X Gross Profit Rate)
2010 (P300,000 X 30%) P 90,000
2011 (P450,000 X 40%) P 180,000
2010: Accounts written-off (P25,000 X 30%) ( 7,500)
Realized gross profit (P100,000 X 30%) ( 30,000)
2011: Accounts written-off, 2010 (P75,000 X 30%) ( 22,500)
Accounts written-off, 2011 (P50,000 X 40%) ( 60,000)
Realized gross profit, 2010 (P50,000 X 30%) ( 15,000)
Realized gross profit, 2011 (P150,000 X 40%) ________ ( 60,000)
Deferred gross profit, 12/31/011 (P75,000) P 15,000 P 60,000
9-11: a
Deferred gross profit, 2010 (P1,050,000 - 735,000) P 315,000
Realized gross profit, 2010 (P150,000 X 30%) ( 45,000)
Deferred gross profit, 12/31/010 270,000
Realized gross profit, 2011 (P390,000-90,000) X 30% ( 90,000)
Deferred gross profit, 12/31/011 P 180,000
158 Chapter 9
9-12: b
2010 2011
Deferred gross profit (Sales - Cost of Installment Sales) P 480,000 P450,000
Realized gross profit, 2010 (P630,000 X 40%) ( 252,000)
Realized gross profit, 2010 (P450,000 X 40%) ( 180,000)
Repossession (P2,400 x .40) (9,600)
Realized gross profit, 2011 (P900,000 X 30%) _______ ( 270,000)
Deferred gross profit, 12/31/011 (P218,400) P 38,400 P180,000
9-13: 1c
Trade-in value P 30,000
Less: Actual value
Estimated selling price P 25,000
Less: reconditioning cost P 1,250
normal gross profit (25,000 X 15%) __3,750 ___5,000 __20,000
Overallowance P 10,000
Realized gross profit:
Collection:
Downpayment P 5,000
Actual value of merchandise-Trade In 20,000
Installment collected (5,000 X 3) _15,000 P 40,000
9-16: a
Trade-in Value (P300 X 6) P 1,800
Less: Actual value
Estimated selling price (P315 X 6) P 1,890
Less: Reconditioning cost (P25 X 6) P150
Gross Profit (P1,890 X 10%) _189 ___339 ___1,551
Over-allowance P 249
9-17: a
Deferred gross profit, before adjustment P 76,000
Deferred gross profit, end
2010: P32,500 X (30% 130%) P 7,500
2011: P180,000 X (33 1/3% 133 1/3%) _45,000 __52,500
Realized gross profit on installment sales P 23,500
9-18: d
Unpaid balance (P27,000 - P16,000) P 11,000
Multiply by gross profit rate (P734,400 P2,160,000) ___X 34%
Deferred gross profit to be cancelled on repossession P 3,740
9-19: b
Collection:
2010 Downpayment P 600,000
2011 Installment collection 600,000
Interest __540,000
Total P1,740,000
Since cost is not yet fully recovered, then no gross profit is to be recognized in 2011.
9-20: d
Regular Sales P 187,500
Cost of regular sales __112,500
Gross profit on regular sales P 75,000
Add: Realized gross profit on installment sales
2010 (25,000 X 50%) P12,500
2011 (62,500 X 55%) _34,375 __46,875
Total realized gross profit 121,875
Operating expenses ___31,250
Net income, 12/31/011 P 90,625
160 Chapter 9
9-21: a
Installment sales 2010 P785,000
Collections:
Down payment (20% x 785,000) P157,000
Installment (40% x 628,000) 251,200 408,200
Installment accounts receivable 2010, 12/31/010 376,800
Gross profit rate on sales 35/135
Deferred gross profit- 2010, 12/31/010 P 97,689
9-22: a
Regular sales P1,575,000
Cost of regular sales 1,050,000
Gross profit on regular sales 525,000
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%) 2,625,000
Installment accounts receivable-12/31/011 1,575,000
Collections 1,050,000
Gross profit on rate on sales 140/240 612,500
Total realized gross profit 1,137,500
Operating expenses (1,137,500 x 70%) 796,250
Net income, 12/31/011 P 341,250
9-23: a
Regular sales P375,000
Cost of regular sales 215,000
Gross profit on regular sales 160,000
Realized gross profit on installment sales:
Collections excluding Interest (312,000 24,000)288,000
Gross profit rate (270,000/900,000) 30% 86,400
Total realized gross profit 246,400
Loss on repossession
Fair value of repossessed merchandise 54,000
Less: Unrecovered cost (100,000 x 70%) 70,000 ( 16,000)
Total realized GP after loss on repossession 230,400
Less: Operating expenses 72,000
Installment accounts written-off (44,000 x .70) 30,800 102,800
Net operating income 127,600
Interest income 24,000
Net income P151,600
9-24: 1. a
Fair value of repossessed air conditioners (5 x P4,000) P20,000
Less unrecovered cost (P25,600 x 65%) 16,640
Loss on repossession P 3,360
Installment Sales 161
9-24, continued:
2. a
9-25: 1. a
9-24, continued:
2. a
9-25. c
9-26: 1. a
9-26, continued:
2. a
9-27: b
9-28 1. a
2. a
Supporting computations:
2009 2010 2011
Installment accounts receivable, 1/1/011 P180,000 P625,000 P900,000
Installment accounts receivable, 12/31/011 - 125,000 650,000
Collections (P930,000) P180,000 P500,000 P250,000
SOLUTIONS TO PROBLEMS
Problem 9 1
Journal Entries:
2009 2010 2011
Installment A/R2009 ............... 104,000
Installment A/R2010 ............... 116,000
Installment A/R2011 ............... 121,000
Installment Sales ................. 104,000 116,000 121,000
Computations:
2009: P57,200 X .38 = P21,736
Problem 9 2
2010: Inventory ................................................................................................ 45,200
Cash ................................................................................................ 45,200
Notes Receivable 2010 (P32,000 + P62,000 + 3,600) .......................... 97,600
Unearned Interest Revenue (P7,167 + P3,600) .............................. 10,767
Installment Sales ............................................................................. 86,833
Cost of Installment Sales (P45,200 P2,000 inventory increase) ......... 43,200
Inventory ......................................................................................... 43,200
Cash ... ................................................................................................... 35,600
Notes Receivable 2010.................................................................... 35,600
Unearned Interest Revenue 2010 ........................................................... 3,600
Interest Revenue ............................................................................. 3,600
Installment Sales .................................................................................... 86,833
Cost of Installment Sales ................................................................ 43,200
Deferred Gross Profit on Installment Sales2010 .......................... 43,633
Deferred Gross Profit on Installment Sales2010 ................................. 16,080*
Realized Gross Profit on Installment Sales .................................... 16,080
*Gross profit percentage: 50.25% (P43,633 P86,833)
.5025 x 32,000 = P16,080
2011: Inventory ................................................................................................ 52,020
Cash ................................................................................................ 52,020
Notes Receivable2008 .......................................................................... 89,5001
Unearned Interest Revenue............................................................. 11,9552
Installment Sales ............................................................................. 77,545
160,000 + (P50,000 + P5,500) P26,000* = 89,500
*2010 Notes receivable collected in 2008
2Interest revenue from 2010 notes: P7,167 P5,579 = P1,588
Interest revenue from 2011 notes: P5,500 P1,588 = P3,912
Discount on notes receivable at end of 2011 ......................................... P 8,043
Interest revenue from 20011notes (see above)....................................... 3,912
Total discount at time of sale ................................................................. P11,955
Adjusting Entries:
Installment Sales ........................................................................................... 200,000
Cost of Installment Sales........................................................................ 114,000
Deferred Gross Profit on Installment sales 2011 ............................... 86,000
Deferred Gross Profit 2009 (P40,000 x 40%) ........................................... 16,000
Deferred Gross Profit 2010 (P80,000 x 42%) ........................................... 33,600
Deferred Gross Profit 2011 (P110,000 x 43%) ......................................... 47,300
Realized Gross Profit ............................................................................. 96,900
Doubtful Accounts Expense (1/4 x 1% x P600,000)...................................... 1,500
Allowance for Doubtful Accounts .......................................................... 1,500
Closing Entries:
Sales ..... .... ................................................................................................... 600,000
Merchandise Inventory, December 31 .......................................................... 260,000
Shipments on Installment Sales ..................................................................... 114,000
Merchandise Inventory, January 1 ........................................................ 240,000
Purchases............................................................................................... 476,000
Selling Expenses .................................................................................... 210,000
Doubtful Accounts Expense ................................................................... 1,500
Income Summary ................................................................................... 46,500
Realized Gross profit .................................................................................... 96,900
Income Summary ................................................................................... 96,900
Income Summary ........................................................................................... 143,400
Retained Earnings ................................................................................. 143,400
Installment Sales 167
Problem 9-3, continued:
3. Good Buy Mart
Statement of Comprehensive Income
Year Ended December 31, 2011
Problem 9 4
Computation:
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1 .................... P76,000 P150,000
Less Installment contracts receivable, 12/31 ....... 24,000 76,000
Total credit for the period .................................... 52,000 74,000
Less Credit representing repossession ................. 4,000
Credit representing collections ............................ P48,000 P 74,000
Multiply by Gross profit rate ............................... 30% 35%
Realized gross profit ............................................ P14,400 P 25,900 P 40,300
3. Apple Company
Statement of Comprehensive Income
Year Ended December 31, 2011
Schedule 1
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1 ....................... P76 000 P150,000
Less Installment contracts receivable, 12/31 ........... 24,000 76,000
Total credit for the period ........................................ 52,000 74,000
Less Credit representing repossession ..................... 4,000
Credit representing collections ................................ P48,000 P 74,000
Multiply by Gross profit rate ................................... 30% 35%
Realized gross profit ................................................ P14,400 P 25,900 P40,300
Problem 9 5
Computation:
2010 2011
Sales Sales Total
Installment contracts receivable, 1/1 ............. P82,000 P 80,000
Less Installment contracts receivable, 12/31. _ 36,000 _55,000
Total credit for the period.............................. 46,000 25,000
Less Credit representing repossession........... __6,000 ___
Credit representing collections ...................... P40,000 P 25,000
Multiply by Gross profit rate ......................... __35%* ___32%
Realized gross profit ..................................... P14,000 P 8,000 P 22,000
1. London Products
Schedule of Cost of Goods Sold
Year Ended December 31, 2011
2. London Products
Schedule of Allocation of Cost of Goods Sold
Year Ended December 31, 2011
3. London Products
Statement of Comprehensive Income
Year Ended December 31, 2011
Schedule 2
Problem 9 7
1. 2010 2011
2010
2010 installment sales (P400,000 x 42%*) .................................. P 168,000
2011:
2010 installment sales (P173,000 x 42%) .................................... P 72,660
2011 installment sales (P560,000 x 38.5%*) ............................... ________ __215,600
Deferred gross profit ........................................................................... P 168,000 P 288,260
Schedule 1
Schedule 2
Computation:
Total Lot 1 Lot 2 Lot 3
Collections ....................................... P78,000.00 P12,000.00 P16,000.00 P50,000.00
Apply to interest:
Lot 1 P288,000.00 x 12% x 2/12 5,760.00
Lot 2 P353,687.60 x 12% x 3/12 59,570.63 10,610.63
Lot 3 P720,000.00 x 12% x 6/12 _________ _________ _________ _43,200.00
Apply to principal ............................ P18,429.37 P 6,240.00 P 5,389.37 P 6,800.00
Computation:
Lot 1 Lot 2 Lot 3
Collections applied to principal ....... P78,240.00 P51,701.77 P126,800.00
Multiply by Gross profit rates:
Lot 1 P120,000 P360,000 ..... 33.33%
Lot 2 P240,000 P400,000 ..... 60%
Lot 3 P640,000 P840,000 ..... _________ _________ _____76%
Realized gain ................................... P26,080.00 P31,021.06 P96,368.00
Problem 9 9
Schedule 1
Total Cash Installment
Sales Price Received Notes Balance
A lots : 26 @ P150,000 ............................................... P3,900,000 P1,650,000 P 2,250,000
B lots : 32 @ P100,000 ................................................ 3,200,000 800,000 2,400,000
C lots : 12 @ P80,000.................................................. 960,000 240,000 720,000
........................................................ P8,060,000 P2,690,000 P 5,370,000
Schedule 2
Number of Unit Total
Class Lots Price Sales Value
A ... ...... .... ........................................................ 80 P150,000 P12,000,000
B .... ...... .... ........................................................ 100 100,000 10,000,000
C .... ...... .... ........................................................ 120 80,000 9,600,000
Total ... ........................................................ 300 P31,600,000
Cost of tract:
Cost of land ................................................................................................... P 4,800,000
Legal fees, etc. .............................................................................................. 600,000
Grading contract............................................................................................ 225,000
Water and sewerage system contract ............................................................ 184,900
Paving contract ............................................................................................. 266,300
General office expenses (3/4 x P236,000) .................................................... 177,000
Total ..... .... ................................................................................................... P 6,253,200
P6,253,200
Cost rate : = 20% (rounded off)
P31,600,000
Cost of sales (P8,060,000 x 20%) ........................................................................... P 1,612,000
Installment Sales 177
Problem 9 10
Rizal Company
Statement of Comprehensive Income
Year Ended December 31, 2011
*See Schedule 3
Schedule 1
Schedule 2
Schedule 4
Fair market value of repossessed merchandise............................................ P 2,520
Less Unrecovered cost
Unpaid balance:
Original sales amount (P14,000 x 4) ............................................ P 56,000
Collections prior to repossession.................................................. __1,200
Total . ........................................................................................... 54,800
Less Unrealized profit (P54,800 x 35%) ............................................ _19,180 _35,620
Loss on repossession ................................................................................... P33,100
Problem 9-11
The key to this solution is solving the gross profit rate for 2009 (3)
1. P39,000 (P50,000 P11,000)
2. P11,000 (P60,000 x 0.22)
3. 22%: 2010 realized gross profit on 2010 cash collections, P5,000 (P20,000 x
.25)
2010 realized gross profit on 2009 cash collections, P5,500 (P10,500 P5,000)
Gross profit rate 2009, 22% (P5,500 / P25,000 cash collections)
4. P5,000 (P1,100 / .22)
5. P60,000 (P80,000 P20,000)
6. P20,000 (P80,000 x .25)
7. P120,000 (P91,000 + P28,200)
8. 23.5% (P28,200 / P120,000)
9. P25,275: 2011 realized gross profit on 2009 collections, (P10,000 x .22)
2011 realized gross profit on 2010 collections, (P50,000 x .25)
2011 realized gross profit on 2011 collections, (P45,000 x .235)
Installment Sales 179
Problem 9-12
Computations:
(a) P74,750 / .66 = P115,000
(b) P92,000 x .64 = P58,880
(c) 1 - (P62,830 / P103,000) = 39%
Problem 9-13
1. Repossessed Inventory
2010 repossessi0ns (P37,500 x 20%) P 7,500
2011 repossessions (P24,000 x 50%) 12,000 P19,500
Trade-In inventory:
Fair value P40,875
Sold 27,000 13,875
Total inventory P33,375
180 Chapter 9
CHAPTER 10
10-1: a
Percentage of Completion Method:
Contract Price P1,000,000
Less: Total estimated cost
Cost incurred P 200,000
Estimated remaining cost _400,000 __600,000
Gross profit estimated 400,000
% of completion (200,000/600,000) __33 1/3%
Gross profit to be recognized P 133,333
10-2: a P100,000
2007 2008
Contract Price P9,000,000 P9,000,000
Less: Total estimated cost _7,800,000 _8,100,000
Estimated gross profit 1,200,000 900,000
% of completion:
2007 (3,900,000/7,800,000) 50%
2008(6,300,000/8,100,000) _________ ______78%
Gross profit earned to date 600,000 700,000
Less: Gross profit earned in prior year ________ ___600,000
Gross profit earned each year P 600,000 P 100,000
10-3: a
Contract Price P6,000,000
Less: Total estimated cost (3,600,000 + 1,200,000) _4,800,000
Estimated gross profit 1,200,000
% of completion (3,600,000/4,800,000) _____75%
Gross profit earned to date 900,000
Less: Gross profit earned in 2007 __600,000
Gross profit earned in 2008 P 300,000
10-4: b
Contract Price P3,000,000
Less: Total estimated cost (930,000 + 2,170,000) _3,100,000
Loss (P 100,000)
182 Chapter 10
10-5: b
Total cost to date, 2011 (4,800,000 X 60%) P2,880,000
Less: Cost incurred in 2010 (4,500,000 X 20%) __900,000
Cost incurred in 2011 P1,980,000
10-6: a
Percentage of Completion Method:
Contract Price P3,000,000
Less: Total estimated cost (900,000/1,800,000) _2,700,000
Estimated gross profit 300,000
% of completion (900,000/2,700,000) ___33.33%
Gross profit recognized, 2010 100,000
Add: Cost Incurred ___900,000
Construction in Progress - 2010 P 1,000,000
10-7: a
2010 2011
Contract Price P4,200,000 P4,200,000
Less: Total estimated cost _3,000,000 _3,750,000
Estimated gross profit 1,200,000 450,000
% of completion _____20% ____100%
Gross Profit earned to date 240,000 450,000
Gross Profit earned in prior year _______ __240,000
Gross Profit earned this year P 240,000 P 210,000
10-8: b
Collections:
Contract Billings P 47,000
Less: Accounts receivable ___15,000
Collections P 32,000
10-9: a
10-10: b
10-12: d
10-13: d
10-14: d
Project 1 Project 2
Percentage of Completion Method:
Contract price P 420,000 P 300,000
Less: Total estimated cost
Cost incurred to date - 2011 P 240,000 P 280,000
Estimated cost to complete __120,000 ___70,000
Total __360,000 __350,000
Estimated gross profit (Loss) 60,000 (50,000)
Percentage of completion __66.67% _______
Profit (loss) to be recognized P 40,000 (P 50,000)
Total is (P10,000)
10-15: a
2009 2010 2011
Contract price (cost X 120%) P3,744,000 P3,744,000 P3,744,000
Less: Total estimated costs
(1) Cost incurred to date 546,000 1,544,400 3,120,000
Estimated cost to complete _2,054,000 _1,315,000 ________
(2) Total _2,600,000 _2,860,000 _3,120,000
Estimated gross profit 1,144,000 884,000 624,000
Percentage of completion (1 2) _____20% _____54% ____100%
Gross profit earned to date 240,240 477,360 624,000
Gross profit earned in prior years _______ __240,240 __477,360
Gross profit earned this year P 240,240 P 237,120 P 146,640
10-16: d
2010 2011
Contract price P6,300,000 P6,300,000
Less: Total estimated cost
Cost incurred to date 1,425,000 3,040,000
Estimated cost to complete _4,075,000 _1,960,000
Total P5,500,000 P5,000,000
Estimated gross profit 800,000 1,300,000
Percentage of completion:
2010 (1,425,000 - 50,000) 5,500,000 25%
2011 (3,040,000 - 50,000) 5,000,000 ________ __59.80%
Profit earned to date 200,000 777,400
Less: Gross profit earned in prior year ________ __200,000
Gross profit earned this year P 200,000 P 577,400
Long-Term Construction Contracts 185
10-17: a
Cash collections:
Progress billings P1,500,000
Less: Accounts receivable, end __500,000
Collection P1,000,000
Zero Profit Method : P210,000 gross profit earned in 2011 for Apartment B.
10-19: d
2010 2011
Contract price:
2010 P6,000,000
2011 (P6,000,000-P50,000) _________ P5,950,000
Less: Total estimated costs
(1) Cost incurred to date 2,340,000 2,650,000
Estimated cost to complete 260,000
(2) Total estimated cost 2,600,000 2,650,000
Estimated Gross Profit 3,400,000 3,300,000
Percentage of completion (1 2) ____90% ___100%
Gross profit earned to date 3,060,000 3,300,000
Less: Gross profit earned in Prior year _______ 3,060,000
Gross Profit earned this year P3,060,000 P 240,000
186 Chapter 10
10-20: a
2009 2010 2011
(1) Cost incurred to date P3,400,000 P5,950,000 P6,150,000
(2) Estimated cost to complete 1,600,000 150,000
(3) Total Estimated Costs 5,000,000 6,100,000 6,150,000
2010 2011
Gross profit earned P 255,000 P 429,000
General and administrative expenses 120,000 120,000
Net income P 135,000 P 309,000
10-24: c
Contract price P10,000,000
Gross profit earned to date, 2008 (P900,000 P100,000) 800,000
Total cost to date, 2011 9,200,000
Less: cost incurred in 2011 4,100,000
Cost to date, 2010 P 5,100,000
10-25: d
Construction in progress:
Cost incurred to date P 440,000
Gross profit earned to date (P2,500,000 P2,000,000) 110,000
Total 550,000
Less: Contract billings (P2,500,000 x 30%) 750,000
Excess of contract billings over construction in progress (CL) P( 200,000)
188 Chapter 10
10-26: a
Contract price P120,000,000
Total estimated cost:
Cost incurred to date:
Site labor cost 10,000,000
Cost of construction materials 30,000,000
Depreciation of special plant & equip 5,000,000
Total 45,000,000
Estimated cost to complete 55,000,000 100,000,000
Estimated gross profit 20,000,000
Percentage of completion (45/100) 45%
Gross profit to be recognized P 9,000,000
10-27: a
Cost incurred to date- 2010
Total estimated cost (8,000,000 / 40%) 20,000,000
Estimated cost to complete 8,000,000 P12,000,000
Cost incurred in 2010 3,700,000
Cost incurred in 2009 8,300,000
Estimated cost at completion- 2009 12,450,000
Total estimated cost- 2009 P20,750,000
10-28: a
2010
Contract 1 Contract 2
Contract price P600,000 P450,000
Total estimated cost:
Cost incurred to date 150,000 87,500
Estimated cost to complete 150,000 162,500
Total estimated cost 300,000 250,000
Estimated gross profit 300,000 200,000
Percentage of completion 50% 35%
Gross profit recognized P150,000 P70,000
2011
Contract 1 Contract 2 Contract 3
Contract price 600,000 450,000 900,000
Total estimated cost 350,000 300,000 500,000
Estimated gross profit 250,000 150,000 400,000
Percentage of completion 80% 60% 36%
Gross profit earned to date 200,000 90,000 144,000
Gross profit earned in 2007 150,000 70,000 -
Gross profit earned this year 50,000 20,000 144,000
10-30: a
Contract price P40,825,000
Total estimated cost:
Cost incurred 8,475,000
Estimated cost to complete 28,400,000 36,875,000
Estimated gross profit 3,950,000
Percentage of completion 22.983%
Gross profit recognized P 907,830
10-31: a
Cost of direct materials used P220,000
Cost of direct labor, including supervision 150,000
Cost of indirect materials used 55,000
Depreciation of plant and equipment used on the contract 120,000
Payroll of design and technical department 80,000
Insurance costs 60,000
Costs of contracted research and development activities 105,000
General and administrative expenses 30,000
Borrowing costs 130,000
Total cost incurred to date P930,000
190 Chapter 10
10-32: 1. a
Project 1 Project 2
Contract price P420,000 P150,000
Less total estimated costs 180,000 175,000
Estimated gross profit (loss) 240,000 (25,000)
% of completion:
Project 1 (P120,000 / P180,000) 66.67%
Project 2 100%
Realized gross profit (loss) 160,000 (25,000)
Expenses 10,000 5,000
Net income (loss), Dec. 31, 2011, P120,000 P150,000 P(30,000)
2. a, Project 2 only.
10-33: a
AA BB CC DD
Contract price P384,000,000 P35,000,000 P175,000,000 P99,400,000
Total estimated costs 350,240,000 30,552,000 143,640,000 91,200,000
Estimated gross profit 33,760,000 4,448,000 31,360,000 8,200,000
% of completion * 5% 75% 75% 50%
Realized gross profit P1,688,000 P3,336,000 P23,520,000 P4,100,000
1. a
Realized gross profit P374,000
Operating expenses 90,000
Net income P284,000
2. a
Construction in progress (P770,000 + P3,850,000) P4,620,000
Contract billings 3,100,000
Balance P1,520,000
3. a
Construction in progress P2,850,000
Contract billings 3,100,000
Balance 750,000
192 Chapter 10
SOLUTIONS TO PROBLEMS
Problem 10 1
(a) 2010 2011
Contract Price P 450,000 P 450,000
Less: Total estimated cost
(1) Cost incurred to date 200,000 320,000
Estimated costs to complete __100,000 _______
(2) Total __300,000 _320,000
Estimated gross profit 150,000 130,000
Percentage of completion (1 2) ______2/3 ___100%
Estimated gross profit to date 100,000 130,000
Less: Gross profit earned in prior year _______ __100,000
Gross profit earned this year P 100,000 P 30,000
Problem 10 4
Problem 10 5
Problem 10 6
Problem 10 7
(4) The following entry would be the only one different from (2).
Problem 10 8
(1) 2009 2010 2011
Contract Price P6,500,000 P6,500,000 P6,500,000
Less: Total Estimated Costs
Cost incurred to date 2,150,000 5,250,000 6,850,000
Estimated costs to complete _3,850,000 _1,500,000 ________
Total _6,000,000 _6,750,000 _6,850,000
Estimated gross profit (loss) 500,000 (250,000) (350,000)
Less: Gross profit (loss) in prior yrs. ________ ___520,000 _(250,000)
Gross profit (loss) this years P 520,000 P( 250,000) P( 600,000)
Problem 10-9
1
Prior to 2011 2011
Total revenue all buildings P12,707,500 P10,853,385
Total costs all buildings 11,388,000 10,940,885
Total gross profit all buildings P1,319,500 P (87,500)
CHAPTER 11
11-1: b
No revenue is to be reported. Because the franchisor fails to render substantial
services to the franchisee as of December 31, 2011.
11-2: c
Initial franchise fee P5,000,000
Less: Cost of franchise ____50,000
Net income P4,950,000
11-3: a
The total initial franchise fee of P500,000 is to be recognized as earned because the
collectibility of the note for the balance is reasonably assured.
11-4: b
Cash downpayment P 100,000
Collection of note applying to principal __200,000
Revenue from initial franchise fee P 300,000
11-5: a
Cash downpayment, January 2, 2008 P2,000,000
Collection applying to principal, December 31, 2008 _1,000,000
Total Collection 3,000,000
Gross profit rate [(5,000,000-500,000) 5,000,000] _____90%
Realized gross profit, December 31, 2008 P2,700,000
11-6: b
Face value of the note (P1,200,000 - P400,000) P 800,000
Present value of the note (P200,000 X 2.91) __582,000
Unearned interest income, July 1, 2008 P 218,000
11-7: d
Initial franchise fee P1,200,000
Less: unearned interest income __218,000
Deferred revenue from franchise fee P 982,000
11-8: d
Initial franchise fee P 500,000
Continuing franchise fee (P400,000 X .05) ___20,000
Total revenue 520,000
Cost ___10,000
Net income P 510,000
Franchise Accounting 199
11-9: b
Deferred Revenue from franchise fee:
Downpayment P6,000,000
Present value of the note (P1,000,000 X 2.91) 2,910,000 P8,910,000
Less: Cost of franchise fee _2,000,000
Deferred gross profit P6,910,000
11-10: b
Face value of the note receivable P1,800,000
Present value of the note receivable 1,263,900
Unearned interest income P 536,100
11-11: b
Revenues from:
Adjusted sales value of IFF (P1,000,000 282,260) P 717,740
Continuing franchise fee (P2,000,000 X .05) 100,000
Total revenue from franchise fees P817,740
11-12: a
Realized gross profit from initial franchise fee [(350,000 + 180,000) x 37%] P 196,100
Continuing franchise fee (P121,000 + P147,500) x 5% ___13,425
Total revenue 209,525
Expenses ___42,900
Net operating profit 166,625
Interest income (P900,000 x 15%) x 6/12 ___67,500
Net income P 234,125
200 Chapter 11
11-13: c
Cash down-payment P 95,000
Present of the note (P40,000 x 3.0374) __121,496
Total P 216,496
11-14: a
Initial franchise fee P 50,000
Continuing franchise fee (P400,000 x 5%) __20,000
Total revenue P 70,000
11-15: b
Initial franchise fee down-payment (P100,000 / 5) P 20,000
Continuing franchise fee (P500,000 x 1%) __5,000
Total earned franchise fee P 25,000
11-16: a
The unearned interest to be credited is P180,000, the difference between the face
value and the present value of the notes receivable (900,000 720,000).
11-17: b
Cora (P100,000 + P500,000) P 600,000
Dora (P100,000 + P500,000) 600,000
Total P1,200,000
11-18: c
Down payment (3,125,000 x 40%) P1,250,000
Present value of notes receivable ( 1,875,000/4) 468,750 x 3.04 1,425,000
Adjusted sales value of initial franchise fee 2,675,000
Direct cost of services 802,500
Gross profit 1,872,500
11-19: c
11-21: a.
11-22: b, because the collectivity of the note is reasonable assured, therefore all the initial
franchise fee is considered earned at December 31, 2011.
No income is recognized in the initial franchise fee since the collectability of the note
Issued by Ms. Manalo is doubtful.
SOLUTIONS TO PROBLEMS
Problem 11 1
Adjusting Entries:
(1) Cost of franchise revenue ........................................... 2,000,000
Deferred cost of franchises .................................. 2,000,000
Adjusting entry: to recognized revenue from the initial franchise fee (installment method)
Problem 11 2
a. Collection of the note is reasonably assured.
Jan. 5: Cash .. ..... .............................................................................. 600,000
Notes Receivable.................................................................... 1,000,000
Unearned interest income ................................................. 401,880
Deferred revenue from F.F. .............................................. 1,198,120
Face value of NR ............................................................................ 1,000,000
Present value (P200,000 x P2,9906) .............................................. __598,120
Unearned interest ........................................................................... 401,880
Adjusting Entries:
1) Unearned interest income ................................................. 119,624
Interest income............................................................ 119,624
P598,120 x 20%
Problem 11 3
2010
July 1: Cash.. ...... ..... .............................................................................. 120,000
Notes Receivable .......................................................................... 320,000
Unearned interest income ...................................................... 66,408
Deferred revenue from FF ..................................................... 373,592
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 ............................................................ 80,000
Cash .. ..... .............................................................................. 80,000
(P50,000 + P30,000)
2011
Jan. 10: Deferred cost of franchise ............................................................ 50,000
Cash .. ..... .............................................................................. 50,000
Problem 11 4
2011
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
b) Journal Entries:
Jan. 2: Cash .. ..... .............................................................................. 1,500,000
Notes receivable..................................................................... 3,000,000
Deferred revenue from FF (adjusted SV) .......................... 2,700,000
Revenue from FF (Market value of equipment) ................ 1,800,000
Problem 11 6
Problem 11 7
1/12/2011 6/1/2011 7/1/2011 6/30/2011
Revenue
Initial FF (Sch. 1) 287,200
Interest income 45,490*
Continuing FF 48,000
Others 62,500 80,000
Expenses:
Initial expenses ( 70,000)
Continuing expense ( 36,000)
Others ( 50,000) ( 68,000)
Net Income P 12,500 P 12,000 P217,200 P 57,490
A. Unearned Interest:
Face value of the note .......................................................................................... P600,000
Present value (120,000 x 3.7908) ........................................................................ 454,900 rounded
Unearned interest ................................................................................................. P145,100