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CHAPTER 1
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
1-1: a
1-2: b
1-2: c
Jose's capital should be credited for the market value of the computer contributed by
him.
(40,000 + 80,000) 2/3 = 180,000 x 1/3 = 60,000.
1-3: a
Cash
Land
Mortgage payable
P100,000
300,000
( 50,000)
P350,000
1-4: b
Total Capital (P300,000/60%)
Perla's interest
1-5: d
P500,000
______40%
Perla's capital
Less: Non-cash asset contributed at market value
Land
P 70,000
Building
90,000
Mortgage Payable
( 40,000)
P200,000
Cash contribution
P 80,000
_120,000
- Zero, because under the bonus method, a transfer of capital is only required.
1-6: b
Reyes
Cash
Inventory
Building
Equipment
Mortgage payable
Net asset (capital)
P200,000
________
P350,000
Santos
P300,000
150,000
400,000
150,000
( 100,000)
P750,000
1-7: c
AA
Cash
Property at Market Value
Mortgage payable
Equipment at Market Value
Capital
BB
CC
P 50,000
_______
P 50,000
P 80,000
( 35,000)
_______
P55,000
P 45,000 P55,000
Chapter 1
1-8: a
PP
RR
SS
Cash
Computer at Market Value
P 50,000
__25,000
P 80,000
_______
P 25,000
__60,000
Capital
P 75,000
P 80,000
P 85,000
1-9: c
Maria
Cash
Merchandise inventory
Computer equipment
Liability
Furniture and Fixtures
P 30,000
Total contribution
P230,000
Nora
P 90,000
160,000
( 60,000)
200,000 ________
P190,000
P575,000
______60%
P345,000
190,000
Cash to be invested
P155,000
1-10: d
Roy
Sam
Tim
Cash
Office Equipment
Note payable
P140,000
________
P220,000
_( 60,000)
______
P140,000
P160,000
P100,000
1-11: a
Lara
Mitra
Cash
Computer equipment
Note payable
P130,000
________
P200,000
50,000
_( 10,000)
P130,000
P240,000
P110,000
1-12: a
Perez
Reyes
Cash
Office Equipment
Merchandise
Furniture
Notes payable
P 50,000
30,000
_______
P 70,000
110,000
100,000
( 50,000)
P 80,000
P230,000
Bonus Method:
Total capital (net asset invested)
P310,000
Goodwill Method:
Net assets invested
Add: Goodwill (P230,000-P80,000)
P310,000
_150,000
Net capital
P460,000
1-13: b
Required capital of each partner (P300,000/2)
Contributed capital of Ruiz:
Total assets
P105,000
Less Liabilities
__15,000
P150,000
P 60,000
__90,000
1-14: d
Total assets:
Cash
Machinery
Building
Less: Liabilities (Mortgage payable)
P 70,000
75,000
_225,000
P370,000
__90,000
P280,000
____70%
P400,000
P120,000
P 55,000
__65,000
1-15: d
Adjusted assets of C Borja
Cash
P 2,500
Accounts Receivable (P10,000-P500)
9,500
Merchandise inventory (P15,000-P3,000) 12,000
Fixtures
__20,000
Asset contributed by D. Arce:
Cash
P 20,000
Merchandise
__10,000
__30,000
P 74,000
P 44,000
Chapter 1
1-16: a
Cash to be invested by Mendez:
Adjusted capital of Lopez (2/3)
Unadjusted capital
Adjustments:
Prepaid expenses
Accrued expenses
Allowance for bad debts (5% X P100,000)
Adjusted capital
P158,400
17,500
( 5,000)
_( 5,000)
P165,900
P248,850
Mendez's capital
Less Merchandise contributed
P 82,950
__50,000
P 32,950
Total Capital:
Adjusted capital of Lopez
Contributed capital of Mendez
P165,900
__82,950
Total capital
P248,850
1-17: d
Moran, capital (40%)
Cash
Furniture and Fixtures
Divide by Moran's P & L share percentage
Total partnership capital
Multiply by Nakar's P & L share percentage
Required capital of credit of Nakar:
Contributed capital of Nakar:
Merchandise inventory
Land
Building
Total assets
Less Liabilities
Required cash investment by Nakar
P 15,000
_100,000P115,000
______40%
P287,500
______60%
P172,500
P 45,000
15,000
__65,000
P125,000
__30,000 P 95,000
P 77,500
1-18: c
Garcia's adjusted capital (see schedule 1)
Divide by Garcia's P & L share percentage
P40,500
______40%
P101,250
______60%
P 60,750
__43,500
P 17,250
Schedule 1:
Garcia, capital:
Unadjusted balance
Adjustments:
Accumulated depreciation
Allowance for doubtful account
P 49,500
( 4,500)
( 4,500)
Adjusted balance
P 40,500
Schedule 2:
Flores capital:
Unadjusted balance
Adjustments:
Accumulated depreciation
Allowance for doubtful accounts
P 57,000
( 1,500)
( 12,000)
Adjusted balance
P 43,500
1-19: d
Ortiz
(
60%)
P133,000
( 2,700)
3,000
_( 2,400)
P130,900
Ponce
(
Total
40%)
P108,000
( 1,800)
2,000
P106,000
P241,000
( 4,500)
5,000
( 1,600)
P237,500
Total capital before the formation of the new partnership (see above)
P237,500
Divide by the total percentage share of Ortiz and Ponce (50% + 30%) ______80%
Total capital of the partnership before the admission of Roxas
Multiply by Roxas' interest
P296,875
______20%
P 59,375
1-20: d
Merchandise to be invested by Gomez:
Total partnership capital (P180,000/60%)
P300,000
P120,000
__30,000
P 90,000
P180,000
__48,000
P132,000
_180,000
P 48,000
( 4,000)
1-21: b
Chapter 1
P 70,000
( 1,000)
( 4,000)
P 65,000
P340,920
_113,640
P227,280
P211,200
1-22: c
1,920
( 16,000)
( 5,200)
___3,200
1-23: a
Total assets at fair value
Liabilities
Capital balance of Flor
P4,625,000
(1,125,000)
P3,500,000
P5,000,000
30%
1,500,000
812,000
P 688,000
1-24: c
1-25: c
__Rey
Contributed capital (assets-liabilities)P471,000
Agreed capital (profit and loss ratio) 382,800
Capital transfer (Bonus)
P 88,200
__Sam_ __Tim
__Total_
P291,000 P195,000 P957,000
382,800 191,400 957,000
P(91,800) P 3,600
-
1-26: d
Total agreed capital (P90,000 40%)
Contributed capital of Candy (P126,000+P36,000-P12,000)
Total agreed capital (P90,000 40%)
Candy, agreed capital interest
Agreed capital of Candy
Contributed capital of Candy
Withdrawal
P225,000
150,000
225,000
60%
135,000
150,000
P 15,000
1-27: a
Total agreed capital (210,000 70%)
Noras interest
Agreed capital of Nora
Cash invested
Cash to be invested by Nora
P300,000
30%
P 90,000
42,000
P 48,000
P138,000
210,000
P 72,000
1-28: a
1-29: c
Contributed capital
Agreed capital
Capital invested
__Alex_
P100,000
92,000
P( 8,000)
_Carlos_
P84,000
92,000
P 8,000
__Total__
P184,000
184,000
-
Chapter 1
SOLUTIONS TO PROBLEMS
Problem 1 1
1.
600
200
35
Computation:
P1,000 x 6% x 3/12 =
P2,000 x 6% x 2/12 =
600
200
35
P15
_20
100
800
400
100
800
400
15,067.50
b.
4,000
10,000
100
1,200
1,400
30,135
6,000
3,000
24,000
35
7,400
400
6,000
6,000
3,000
24,000
35
7,400
400
6,000
4,000
10,000
100
1,200
1,400
30,135
15,067.50
10
Chapter 1
2.
P21,067.50
3,000.00
22,800.00
35.00
7,400.00
400.00
__4,600.00
P59,302.50
P 4,000.00
10,000.00
100.00
30,135.00
_15,067.50
P59,302.50
Problem 1 2
Contributed Capitals:
Jose:
P 135,000
28,000
___68,500
P 231,500
11
Goodwill Method. To have a goodwill, the only possible base is the capital of Pablo. The
computation is:
Contributed
Capital
Jose
Pedro
Pablo
Total
Agreed
Capital
P135,000
28,000
__68,500
P231,500
Goodwill
P137,000 (50%)
68,500 (25%)
__68,500 (25%)
274,000
2,000
40,500
_____
42,500
Bonus Method
Goodwill Method
P 49,000
48,000
57,500
85,000
45,000
______
P284,500
P 49,000
48,000
57,500
85,000
45,000
__42,500
P327,000
P 53,000
115,750
57,875
__57,875
P284,500
P 53,000
137,000
68,500
__68,500
P327,000
Problem 1 3
1.
3,200
500
3,200
500
12
Chapter 1
4,800
1,500
3,600
31,500
400
16,000
20,000
5,000
400
16,000
20,000
5,000
4,800
1,500
3,600
31,500
47,250
47,250
P31,500
___40%
P78,750
___60%
P47,250
Problem 1 4
a.
3,200
32,000
3,200
32,000
2.
13
Closing Entry
Allowance for Bad Debts .............................................................
Accumulated Depreciation Delivery Equipment ......................
Accumulated Depreciation Fixtures ..........................................
Accounts Payable .........................................................................
Notes Payable ...............................................................................
Accrued Taxes ..............................................................................
Sales, Capital ................................................................................
Cash .......................................................................................
Accounts Inventory................................................................
Merchandise Inventory ..........................................................
Prepaid Insurance...................................................................
Delivery Equipment ...............................................................
Fixtures ..................................................................................
Goodwill ................................................................................
12,800
8,000
91,200
64,000
40,000
8,000
224,000
4,800
72,000
192,000
3,200
48,000
96,000
32,000
2.
Adjusting Entries
(a) Roces, Capital ..............................................................................
Allowance for Bad Debts.......................................................
1,600
16,000
8,000
(d) Goodwill.......................................................................................
Roces, Capital ........................................................................
40,000
1,600
16,000
8,000
40,000
4,800
72,000
192,000
3,200
48,000
96,000
32,000
12,800
8,000
91,200
64,000
40,000
8,000
224,000
14
b.
Chapter 1
1,600
12,800
64,000
104,000
6,400
224,000
14,400
57,600
132,800
4,800
19,200
144,000
40,000
Adjusting Entries
See Requirement (a).
2.
14,400
57,600
132,800
4,800
19,200
144,000
40,000
1,600
12,800
64,000
104,000
6,400
224,000
c.
15
19,200
129,600
324,800
8,000
46,400
84,800
72,000
14,400
168,000
40,000
14,000
224,000
224,000
16
Chapter 1
Problem 1 5
1.
2.
5,000
13,000
12,000
3,000
9,000
3.
1,000
6,000
10,000
300
24,700
8,000
210
7,790
5,000
13,000
12,000
3,000
9,000
1,000
6,000
10,000
300
24,700
10,300
35,790
10,300
23,300
12,490
4.
17
P
P34,000
1,210
32,790
21,000
8,000
46,000
___8,000
P115,790
P 18,000
15,000
300
12,490
35,000
__35,000
P115,790
Problem 1 6
1.
Books of Toledo
Toledo, Capital .............................................................................
Allowance for Bad Debts (15% x P32,000) ..........................
4,800
4,800
Books of Ureta
Ureta, Capital ...............................................................................
Allowance for Bad Debts (10% x P24,000) ..........................
2,400
10,800
1,200
300
900
2,400
12,000
1,200
18
2.
3.
Chapter 1
3,200
32,000
40,000
10,000
Cash .. ...........................................................................................
Accounts Receivable ....................................................................
Merchandise .................................................................................
Toledo, Capital .............................................................................
Allowable for Bad Debts .......................................................
Accounts Payable...................................................................
Ureta, Capital .........................................................................
To record the investment of Ureta.
22,800
24,000
36,000
300
3,400
Computation:
Toledo, capital (P68,400 P300) .................................................
Divide by Toledo's profit share percentage ..................................
Total agreed capital of the partnership .........................................
Multiply by Ureta's profit share percentage .................................
Agreed capital of Ureta ................................................................
Ureta, capital ................................................................................
Cash contribution of Ureta ...........................................................
or
Toledo, capital (P68,400 P300) .................................................
Less Ureta, capital ........................................................................
Cash contribution of Ureta ...........................................................
4,800
10,000
2,000
68,400
2,400
16,000
64,700
3,400
P 68,100
____50%
P136,200
____50%
P 68,100
__64,700
P 3,400
P 68,100
__64,700
P 3,400
4.
19
P 29,400
P56,000
__7,200
48,800
76,000
__10,000
P164,200
P 26,000
2,000
68,100
__68,100
P164,200
20
Chapter 2
CHAPTER 2
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
2-1: d
Jordan
Pippen
P120,000
P80,000
( 10,000)
( 10,000)
P110,000
P 70,000
Annual salary
Balance, equally
Total
Total
P200,000
( 20,000)
P180,000
2-2: a
JJ
P18,000
KK
P15,000
P 30,000
( 6,000)
P27,000
( 6,000)
P 24,000
LL
Total
P 18,000
)
)
P45,000)
90,000
( 6,000) ( 18,000)
P39,000 P 90,000
2-3: a
2-4: a
Allan
Interest
Allan - .10 X (P40,000 + 60,000 /2)
Michael - .10 X (P60,000 + 70,000/2)
Balance, equally
Total
P 5,000
_14,000
P 19,000
Michael
Total
)
P 6,500) P 11,500
_14,000 __28,000
P20,500 P 28,000
2-5: a
Fred
P12,000
30,000
( 35,000)
P 7,000
Greg
P 6,000
Henry
Total
P 4,000 P 22,000
20,000
50,000
( 35,000)
( 35,000) (105,000)
( P29,000) (P11,000) (P 33,000)
2-6: b
Average Capital
Date
January 1
July 1
August 1
Capital
Balance
140,000
180,000
165,000
Months
Unchanged
6
1
5
12
Peso
Months
P 840,000
180,000
__825,000
P1,845,000
P153,750
Interest
P 15,375
(P153,750 X 10%)
Partnership Operations
21
2-7: c
Date
January 1
April 1
June 1
September 1
Capital
Balance
P16,000
17,600
19,200
15,200
Months
Unchanged
3
2
3
4
12
Average Capital(P201,600/12) =
Peso
Months
P 48,000
35,200
57,600
__60,800
P201,600
P16,800
2-8: a
Net profit before bonus
Net profit after bonus (P24,000/120%)
Bonus to RJ
Balance (P24,000-P4,000)X3/5
Total profit share
P 24,000
__20,000
4,000
__12,000
P 16,000
2-9: a
AM
P 3,600
7,500
( 7,720)
P 3,380
Total
P 6,800
22,500
( 19,300)
P 10,000
P467,500
Interest
Salaries
Balance, 3:2
Total
LT
P3,200
15,000
(11,580)
P 6,620
2-10: b
_132,500
P600,000
_750,000
P150,000
2-11: b
CC
Salary
Balance
Additional profit to DD
Total
P14,000
( 1,500)
P12,500
Net income
Fees Earned
Expenses
Net Income
P90,000
_48,000
P42,000
DD
EE
Total
P 14,000 P 14,000
P 8,400
5,600
28,000
__2,100 ( 600) ______
P10,500
P 19,000 P 42,000
22
Chapter 2
2-12: c
Interest
Annual Salary
Additional profit to give LL, P20,000
Additional profit to give MM, P14,000
Total
*(P9,500/50%) = P19,000
LL
P 2,000
8,500
9,500
_____
P20,000
MM
NN
Total
P 1,250 P 750
P 4,000
8,500
5,700
3,800
19,000*
__7,050 _____
__7,050
P14,000
P 4,550 P 38,550
2-13: a
RR
Excess (Deficiency)
RR (P80,000 - P95,000)
SS (P50,000 - P40,000)
Balance 4:3:1
Total
Net Income (200,000 - 100,000) =
P15,000
_47,500
P62,500
SS
(P10,000)
_35,625
P25,625
TT
Total
)
)
_11,875
P11,875
P 5,000
__95,000
P100,000
P100,000
2-14: b
AA - 100,000 X 10%
150,000 X 20%
Remainder, 210,000
BB (60,000 X .05)
CC (60,000 X .05)
Balance, equally
Total
AA
P 10,000
30,000
BB
CC
P 3,000
__68,000
P108,000
_68,000
P71,000
Total
)
)
P 40,000
)
P 3,000
_68,000
P71,000
6,000
_204,000
P250,000
2-15: a
AJ
Bonus to CJ
Net profit before bonus
P44,000
Net profit after bonus (P44,000/110%)P40,000
Interest to BJ
Salaries
P 10,000
Balance, 4:4:2
__6,800
Total
P 16,800
BJ
P1,000
_6,800
P7,800
CJ
P4,000
12,000
__3,400
P19,400
2-16: c
Total profit share of Pedro
Less: Salary to Pedro
Interest
Share in the balance (40%)
P 50,000
__20,000
P200,000
P150,000
__70,000
__70,000
P130,000
P325,000
_220,000
P545,000
Total
P4,000
1,000
22,000
_17,000
P44,000
Partnership Operations
23
2-17: c
Net income before extraordinary gain and bonus (69,600-12,000)
Net income after bonus (57,600/120%)
Bonus to RR
P 57,600
_48,000
P 9,600
RR
Bonus
Balance, equally
Net profit before extraordinary gain
Extraordinary gain
Total
P 24,000
P 24,000
__4,800
P 28,800
Total
P 9,600
P 9,600
24,000
48,000
P 33,600
P 57,600
__7,200
_12,000
P 40,800
P 69,600
Interest
Annual Salary
Remainder 60:40
Total
Mel
P 20,000
36,000
__60,000
P116,000
Jay
P 12,000
_40,000
P 52,000
DV
JE
FR
Total
P 15,000
P 3,750
(P 7,500) P 11,250
( 36,875)
( 22,125) ( 14,750) ( 73,750)
(P 21,875) (P 18,375) (P 22,250) (P 62,500)
2-18: a
Total
P 32,000
36,000
_100,000
P168,000
2-19: a
2-20: c
Correction of 1998 profit:
Net income per books
Understatement of depreciation
Overstatement of inventory, December 31
Adjusted net income
P 19,500
( 2,100)
( 11,400)
P 6,000
Pete
Rico
Total
P 9,750
P 9,750
P 19,500
( 3,000)
P 6,750
( 3,000) ( 6,000)
P 6,750 P 13,500
2-21: a
Salaries
Interest
Bonus (P360,000-P54,000)X.25
Remainder, 30:70
Total
Tiger
Woods
Total
P 64,000
P100,000 P164,000
24,000
30,000
54,000
76,500
76,500
__19,650
__45,850 __65,500
P184,150
P175,850 P360,000
24
Chapter 2
2-22: a
Holly
P 20,000
32,000
30,000
__35,640
P117,640
Salaries
Commission
Interest
Bonus, schedule 1
Remainder, 60:40
Total
Field
P 25,000
33,600
_23,760
P 82,360
Schedule 1
Net income before salary, commission,
interest and bonus
Less: salaries
Net income before bonus
Net income after bonus (P180,000/120%)
Bonus
Total
P 20,000
25,000
65,600
30,000
__59,400
P200,000
P200,000
__20,000
P180,000
_150,000
P 30,000
2-23: a
Capital balance, beginning
Additional investment
Capital withdrawal
Capital balance before profit and loss distribution
Mike
P600,000
100,000
-200,000
P500,000
Tyson
Total
P400,000
P1,000,000
200,000
300,000
( 100,000) _-300,000
P500,000
P1,000,000
Net income:
Salary
Balance, 3:2
Total
Total
Drawings
Capital balance, end
P200,000
__60,000
P260,000
P760,000
( 200,000)
P560,000
P300,000 P 500,000
__40,000 __100,000
P340,000 P 600,000
P840,000
P1,600,000
( 300,000) ( 500,000)
P540,000
P1,100,000
Capital
Balance
P40,000
55,000
Months
Unchanged
3
9
12
Peso
Months
P120,000
_495,000
P615,000
Months
Unchanged
7
5
12
Peso
Months
P700,000
__650,000
P1,350,000
Capital
Balance
P100,000
130,000
Partnership Operations
25
2-24: d
Distribution of Net Income - Schedule 1
Interest
Bonus, Schedule 2
Salaries
Residual, 50:50
Total
King
Queen
P 5,125
P11,250
12,725
25,000
30,000
( 2,050)
_(2,050)
P40,800
P39,200
Total
P16,375
12,725
55,000
_(4,100)
P80,000
Schedule 2
Net income before allocation
Less: Interest
Net income before bonus
Net income after bonus (P63,625/125%)
Bonus
P80,000
_16,375
P63,625
_50,900
P12,725
King
P40,000
_15,000
P55,000
40,800
( 20,800)
P75,000
Queen
P100,000
__30,000
P130,000
39,000
( 20,800)
P148,400
Total
P140,000
__45,000
P185,000
80,000
( 41,600)
P223,400
2-25: d
Total receipts (P1,500,000 + P1,625,000)
Expenses
Net income
Distribution to Partners
Red P1,500,000/P3,125,000 X P2,045,000 =
Blue P1,625,000/P3,125,000 X P2,045,000 =
P3,125,000
( 1,080,000)
P2,045,000
P 981,600
_1,063,400
P2,045,000
(1)
P 374,000
___22,000
P 396,000
1,063,400
( 750,000)
P 709,400
(2)
26
Chapter 2
2-26: a
Ray
P150,000
_______
Sam
P180,000
__60,000
Total
P330,000
__60,000
150,000
240,000
390,000
15,000
51,000
20,000
34,000
35,000
85,000
66,000
54,000
120,000
Total
Salaries
216,000
_18,000
294,000
_24,000
510,000
_42,000
Total
Drawings
234,000
(18,000)
318,000
(24,000)
552,000
(42,000)
P216,000
P294,000
P510,000
Susan
P150,000
8,000
_______
Tanny
P30,000
158,000
24,000
23,400
(1,725)
4,050
6,000
(1,725)
27,450
6,000
(3,450)
21,675
_8,325
30,000
179,675
(12,000)
32,325
(12,000)
212,000
(24,000)
2-27: a
P167,675
Total
P180,000
8,000
(6,000) _(6,000)
P20,325
182,000
P188,000
Partnership Operations
27
2-28: a
Capital balances, beg. 1st year
Loss distribution, 1st year:
Salaries
Interest
Balance, 5:3:2
Total
Total
Drawings
Capital balances, beg. 2nd year
Profit distribution, 2nd year:
Salaries
Interest
Balance, 5:3:2
Total
Total
Drawings
Capital balances, end of 2nd year
Sin
P110,000
Tan
P80,000
Uy
P110,000
Total
P300,000
20,000
11,000
(40,000)
( 9,000)
101,000
(10,000)
91,000
8,000
(16,000)
( 8,000)
72,000
(10,000)
62,000
10,000
11,000
(24,000)
( 3,000)
107,000
(10,000)
97,000
30,000
30,000
(80,000)
(20,000)
280,000
(30,000)
250,000
20,000
9,100
( 7,500)
21,600
112,600
_(10,000)
P102,600
6,200
( 4,500)
_1,700
63,700
(10,000)
P53,700
10,000
9,700
( 3,000)
16,700
113,700
_(10,000)
P103,700
30,000
25,000
(15,000)
40,000
290,000
_(30,000)
P260,000
2-29: c
Capital balances, 1/1/06
Additional investment, 2006
Capital withdrawal, 2006
Capital balances
Profit distribution, 2006:
Interest
Salary
Balance, equally
Capital balances, 1/1/07
Additional investment, 2007
Capital withdrawal, 2002
Capital balances
Profit distribution, 2007:
Interest
Salary
Balance, equally
Capital balances, 1/1/08
Additional investment, 2008
Capital withdrawal, 2008
Capital balances
Profit distribution, 2008:
Interest
Salary
Balance, equally
Capital balances, 12/31/08 per books
Understatement of depreciation
Adjusted capital balances, 12/31/08
Jay
P30,000
_(5,000)
25,000
3,000
7,000
_1,000
36,000
5,000
______
41,000
3,600
7,000
_1,500
53,100
______
53,100
5,310
7,000
__3,300
P68,710
(2,000)
P66,710
Kay
P30,000
Loi
P30,000
5,000
_(4,000) ______
26,000
35,000
3,000
3,000
_1,000
30,000
_1,000
39,000
_(3,000)
27,000
_(8,000)
31,000
3,000
3,900
_1,500
31,500
_(4,000)
27,500
_1,500
36,400
6,000
_(2,000)
40,400
3,150
3,640
__3,300
P33,950
(2,000)
P31,950
__3,300
P47,340
(2,000)
P45,340
Total
P90,000
5,000
_(9,000)
86,000
9,000
7,000
__3,000
105,000
5,000
(11,000)
99,000
10,500
7,000
__4,500
121,000
6,000
_(6,000)
121,000
12,100
7,000
___9,900
P150,000
(6,000)
P144,000
28
Chapter 2
2-30: a
Ken
Capital balances, 1/1/07
Additional investment, 2007
Capital withdrawal, 2007
Len
Mon
P100,000
P100,000
P100,000
40,000
( 20,000)_______
_______
Balances
Profit distribution, 2007 (Schedule 1)
Salary
Balance, beg. Capital ratio
Capital balances, 1/1/08
Capital withdrawal, 2008
Total
P300,000
40,000
( 20,000)
80,000
140,000
100,000
320,000
20,000
20,000
60,000
20,000
60,000
60,000
100,000
( 20,000)
160,000
180,000
( 40,000)_______
440,000
( 60,000)
Balances
Profit distribution, 2008:
Salary
Balance, beg. capital ratio
80,000
120,000
180,000
380,000
__13,636
__21,818
60,000
__24,546
60,000
__60,000
P 93,636
P141,818
P264,546
P500,000
P500,000
_260,000
P240,000
P120,000
2-31: d
Capital balance, 1/1/08
Additional investment
Withdrawals
Cap. bal. before P/L dist.
NP: Salary (16,500 x 12)
Interest on EC (15%)
Balance 25:30:45
Total
Capital balance 12/31/08
_Nardo_
P280,000
96,000
376,000
42,000
( 19,875 )
22,125
P398,125
__Orly
P300,000
60,000
( 90,000 )
270,000
198,000
45,000
( 23,850 )
219,150
P 489,150
__Pedro_
P170,000
( 72,000 )
98,000
25,500
( 35,775 )
( 10,275 )
P 87,72
2-32: d
Sam capital, beginning
Additional investment (Land)
Drawings
Capital balance before net profit (loss)
Capital balance, end
Profit share (40%)
Net profit (P50,000 40%)
P120,000
60,000
( 80,000 )
100,000
150,000
50,000
P125,000
_Total_
P750,000
156,000
(162,000)
744,000
198,000
112,500
(79,500 )
231,000
P975,000
Partnership Operations
29
2-33: a
__Joe__
Capital balance, 1/2/07
P 80,000
Net loss- 2007:
Annual salary
96,000
10% interest on beg. capital
8,000
Bal. beg. cap. ratio: 8:4
( 108,000)
Total
( 4,000)
Capital balance
76,000
Drawings
( 4,000)
Capital balance, 12/31/07
72,000
Net profit- 2008:
Annual salary
96,000
10% interest on BC
7,200
Bonus to JoeNPBB
P 22000
NPAB (22000/110%)20000 2,000
Balance equally
( 67,300)
Total
37,900
Total
109,900
Drawings
(
4,000)
Capital balance, 12/31/08
105,900
__Tom__
P 40,000
__Total__
P120,000
48,000
4,000
( 54,000)
( 2,000)
38,000
( 4,000)
34,000
144,000
12,000
( 162,000)
( 6,000)
114,000
( 8,000)
106,000
48,000
3,400
144,000
10,600
( 67,300)
( 15,900)
18,100
(
4,000)
2,000
( 134,600)
22,000
128,000
( 8,000)
14,100
120,000
2-34: a
Decrease in capital
Drawings
Contribution
Profit share
Net income (45,000 30)
P 60,000
( 130,000)
25,000
45,000
P150,000
30
Chapter 2
SOLUTIONS TO PROBLEMS
Problem 2 1
1.
Castro
Diaz
:
:
(P26,000/P42,500) x
(P16,500/P42,500) x
P23,800
P23,800
=
=
P14,560
__9,240
P23,800
2.
Castro
Diaz
:
:
(P31,250/P50,000) x
(P18,750/P50,000) x
P23,800
P23,800
=
=
P14,875
__8,925
P23,800
Capital
Balances
P26,000
29,000
36,000
32,000
Capital
Balances
P16,500
21,500
19,500
Months
Unchanged
3
1
3
5
12
Peso
Months
P 78,000
29,000
108,000
_160,000
P375,000
P31,250
Months
Unchanged
5
3
4
12
Peso
Months
P 82,500
64,500
__78,000
P225,000
P18,750
Interest ........................................................
Salaries........................................................
Balance, equally..........................................
Total ............................................................
Castro
P 7,500
36,000
( 24,100)
P19,400
Diaz
P4,500
24,000
(24,100)
P 4,400
Total
P12,000
60,000
( 48,200)
P23,800
Castro
P 4,760
1,100
_10,764
P16,624
Diaz
P
_7,176
P7,176
Total
P 4,760
1,100
_17,940
P23,800
4.
Partnership Operations
31
Computations:
a. Net profit before bonus.................................................
Net profit after bonus (P23,800 125%) .....................
Bonus............................................................................
b.
5.
Castro
Diaz
P23,800
_19,040
P 4,760
P29,000
_18,000
P11,000
___10%
P 1,100
:
:
P14,280
__9,520
P23,800
(P3,000/P5,000) x P23,800
(P2,000/P5,000) x P23,800
=
=
Problem 2 2
a.
Average Capital:
Robin:
Date
Jan. 1
Feb. 28
Apr. 30
Sept. 30
Balances
P135,000
95,000
175,000
195,000
Months
Unchanged
2
2
5
3
12
Peso
Months
P270,000
190,000
875,000
__585,000
P1,920,000
Months
Unchanged
3
3
2
2
2
12
Peso
Months
P420,000
600,000
300,000
440,000
__400,000
P2,160,000
Date
Balances
Jan. 1
Mar. 31
June 30
Aug. 31
Oct. 31
P140,000
200,000
150,000
220,000
200,000
P240,000
_270,000
P510,000
32
Chapter 2
b.
Robin
P 14,400
60,000
78,850
_119,775
P274,025
Hood
P 16,200
100,000
_119,775
P235,975
Total
P 30,600
160,000
79,850
_239,550
P510,000
Robin
Hood
Totals
P 6,000
249,000
255,000
P 12,000
498,000
510,000
Robin
Hood
Salaries.................................................................
P 80,000
P120,000
Bonus (see computations below) .........................
62,000
Balance, equally...................................................
_124,000
_124,000
Totals ...................................................................
P266,000
P244,000
Bonus Computations:
Net income before salaries and bonus ......... ..................... .......................
Less Salaries................................................ ..................... .......................
Net income before bonus ............................ ..................... .......................
Net income after bonus (P310,000 125%) ..................... .......................
Bonus .......................................................... ..................... .......................
Total
P200,000
62,000
_248,000
P510,000
P 6,000
249,000
255,000
P510,000
200,000
310,000
_248,000
P 62,000
Problem 2 3
a.
De Villa
P 30,000
De Vera
P 20,000
31,200
9,818
__44,182
P105,200
Salaries.................................................................
Commission (2% x P1,000,000) ..........................
Interest of 8% on average capital .........................
32,800
Bonus (see computations below) .........................
9,818
Balance, equally...................................................
__44,182
Total .....................................................................
P116,800
Bonus Computations:
Income before salary, commissions, interest & bonus ...... .......................
Salary and commission (P30,000 + P20,000) ................... .......................
Interest......................................................... ..................... .......................
Income before bonus ................................... ..................... .......................
Income after bonus (P108,000 110%) ..... ..................... .......................
Bonus .......................................................... ..................... .......................
b.
Total
P 30,000
20,000
64,000
19,636
__88,364
P222,000
P222,000
( 50,000)
( 64,000)
108,000
_98,182
P 9,818
P 222,000
116,800
105,200
Partnership Operations
33
Problem 2 4
a.
Salaries................................................
Bonus (see computation below) ..........
Interest (see computation below) ........
Balance, 3:3:4 .....................................
Total ....................................................
East
P15,000
3,760
2,800
__3,180
P24,740
North
P20,000
West
P18,000
4,000
__3,180
P27,180
4,800
__4,240
P27,040
Bonus computations:
Net income before bonus ........... .................... ..................... .....................
Net income after bonus (P78,960 105%) ..... ..................... .....................
Bonus ......................................... .................... ..................... .....................
Interest computations:
East (10% x P28,000)................. .................... ..................... .....................
North (10% x P40,000) .............. .................... ..................... .....................
West (10% x P48,000) ............... .................... ..................... .....................
Total ........................................... .................... ..................... .....................
b.
Interest (see computations below) ......
Salaries................................................
Bonus (see computations below) ........
Balance, equally..................................
Total ....................................................
Interest computations:
Average capitals:
East:
Date
1/1
5/1
9/1
Balances
P30,000
36,000
28,000
East
P 3,133
24,000
( 6,056)
P 21,077
North
P 3,633
21,000
4,280
( 6,055)
P 22,858
West
P 5,200
25,000
( 6,055)
P 24,145
Months
Unchanged
4
4
4
12
Total
P53,000
3,760
11,600
_10,600
P78,960
P78,960
_75,200
P 3,760
P 2,800
4,000
__4,800
P11,600
Total
P11,966
70,000
4,280
( 18,166)
P 68,080
Pesos
Months
P120,000
144,000
_112,000
P376,000
P 31,333
North:
Pesos
Months
P80,000
124,000
72,000
_160,000
P436,000
Date
1/1
3/1
7/1
9/1
Balances
P40,000
31,000
36,000
40,000
Months
Unchanged
2
4
2
4
12
P 36,333
34
Chapter 2
West:
Date
1/1
4/1
6/1
8/1
Months
Unchanged
3
2
2
5
12
Balances
P50,000
57,000
60,000
48,000
Pesos
Months
P150,000
114,000
120,000
_240,000
P624,000
P 52,000
Interest Computations:
East (10% x P31,333) ............ ...............................................
North (10% x P36,333) ......... ...............................................
West (10% x P52,000)........... ...............................................
Total ... .................................. ...............................................
P 3,133
3,633
__5,200
P 11,966
Bonus Computations:
Net income ............................ ...............................................
Less Salary ............................ ...............................................
Net income before bonus....... ...............................................
Net income after bonus (P47,080 110%) ...........................
Bonus to North ...................... ...............................................
* To Total
c.
East
West
P 8,990
5,000
__8,237.50
P22,227.50
Total
P 8,990
39,000
12,000
_32,950
P92,940
Bonus Computations:
Net income before salaries & bonus ............... ..................... .....................
Less Salaries (P21,000 + P18,000) ................. ..................... .....................
Net income before bonus ........... .................... ..................... .....................
Net income after bonus (P53,940 120%) ..... ..................... .....................
Bonus to West ............................ .................... ..................... .....................
P92,940
_39,000
P53,940
_44,950
P 8,990
North
P 68,000
_21,000
47,080
_42,800
P 4,280
P21,000 P 18,000
3,000
4,000
_13,180 _11,532.50
P37,180 P33,532.50
Problem 2 5
a.
Maria
P12,000
7,200
__3,133
P22,333
Clara
P10,000
9,600
__3,133
P22,733
Rita
P 8,000
13,800
__3,134
P24,934
Total
P30,000
30,600
__9,410
P70,000
Partnership Operations
35
P 3,200
__4,000
P 7,200
9,600
P10,800
__3,000
_13,800
P30,600
Maria
P 80,000
20,000
22,333
( 10,000)
P112,333
Clara
P120,000
22,733
( 10,000)
P132,733
Rita
P180,000
( 30,000)
24,934
( 10,000)
P164,934
Total
P380,000
20,000
( 30,000)
70,000
( 30,000)
P410,000
Problem 2 6
1.
2.
Alvin
P 20,000
Benny
Celia
Total
P20,000
22,000
_(39,200)
P(17,200)
54,000
_(98,000)
P(24,000)
Benny
Celia
P180,000
P220,000
60,000
40,000
_______ ________
_(20,000)
120,000
240,000
240,000
__2,600
__(9,400)
_(17,200)
122,600
230,600
222,800
_(16,000)_______
_______
P106,600
P230,600
P222,800
Total
P520,000
100,000
_(20,000)
600,000
_(24,000)
576,000
_(16,000)
P560,000
12,000
20,000
(29,400)
P 2,600
_(29,400)
P( 9,400)
Alvin
P120,000
36
3.
Chapter 2
Correcting entry:
Celia capital ........................................
2,400
Alvin capital ...............................
2,200
Benny capital .............................
200
To correct capital accounts for error in loss allocation computed as follows:
Alvin
Benny
Celia
Correct loss allocation ........................
P2,600
P(9,400) P(17,200)
Actual loss allocation ..........................
__(400)
__9,600
__14,800
Adjustment..........................................
P2,200 P 200
P ( 2,400)
Problem 2 7
Dino
P45,000
_15,000
60,000
(1,800)
(17,000)
41,200
_____
41,200
10,800
(17,000)
35,000
______
35,000
56,365
(19,000)
P72,365
Nelson
P45,000
_15,000
60,000
( 1,800)
( 7,000)
51,200
_____
51,200
8,100
( 7,000)
52,300
______
52,300
42,272
( 9,000)
P86,572
Oscar
P45,000
__6,000
51,000
( 1,800)
( 3,200)
46,000
__6,000
52,000
8,100
( 3,200)
56,900
___6,000
62,900
20,363
( 3,200)
P80,063
Total
P135,000
__36,000
171,000
( 5,400)
( 27,200)
138,400
___6,000
144,400
27,000
( 27,200)
144,200
___6,000
150,200
120,000
( 31,200)
P239,000
Dino
P48,000
3,600
_* 4,765
P56,365
Nelson
P24,000
10,909
3,600
__4,763
P43,272
Oscar
P12,000
3,600
__4,763
P20,363
Total
P84,000
10,909
10,800
__14,291
P120,000
Bonus computations:
Net income before bonus ........... ................ ..................... .....................
Net income after bonus (P120,000 110%) ..................... .....................
Bonus to Nelson ......................... ................ ..................... .....................
P120,000
_109,091
P 10,909
* To Total
Partnership Operations
37
Problem 2 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2008
Red
40,200
8,800
White
20,200
4,800
Blue
40,600
4,400
_22,800
_71,800
10,400
_22,800
_47,800
8,800
_11,400
_56,400
11,600
2,400
900
P12,800
P59,000
P 9,700
P38,100
1,800
P13,400
P43,000
Green
3,200
______
__3,200
5,000
Total
P101,000
18,000
3,200
_57,000
179,200
35,800
P 5,000
P (1,800)
3,300
1,800
P 40,900
P138,300
P120,000
P38,700
__1,800
36,900
2,600
____500
P40,000
__1,800
41,800
P 8,800
48,000
4,400
________
P 78,200
P18,000
24,000
__8,000
P16,000
P 3,200
__21,200
P 57,000
P22,800
22,800
_11,400
P57,000
38
Chapter 2
Problem 2 9
Allan, Eman and Gino Partnership
Statement of Profit Distribution
Year Ended December 31, 2008
Allan
Eman
Gino
Total
Interest
Commission (P16,120 P5,000) x 10%
Balance, equally
P 4,000 P 750
P 250
1,112
1,112
__5,926
_5,925
_5,925
P 5,000
2,224
_17,776
Total
Adjustments (50% of P25,000 to Allan)
P 9,926
__2,574
P7,787
(1,287)
P7,287
P25,000
(1,287)_____
Total
P12,500
P6,500
P6,000
P25,000
Problem 2 10
Gary, Sonny, and Letty Partnership
Statement of Partners' Capital Accounts
Year Ended December 31, 2008
Gary
Sonny
Letty
Total
Profit distribution:
Salaries
Interest
Bonus to Gary and Sonny (Schedule 1)
Balance, equally
_219,100
_180,000
Total
P480,000
__9,100
_90,000
489,100
10,640
10,800
13,680
25,920
__(9,720)
11,520
21,600
_(9,720)
_(9,720)
35,840
58,320
(29,160)
__29,880
_23,400
_11,720
_65,000
Total
Drawings
248,980
_(21,000)
203,400
101,720
554,100
(18,000) __(9,000) _(48,000)
P227,980
Total
P185,400
P 65,000
P35,840
_58,320
__94,160
P(29,160)
P 92,720
P506,100
Partnership Operations
39
Problem 2 11
a. Entries to record the formation of the partnership and the events that occurred during 2008:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Cash
Inventory
Land
Equipment
Mortgage payable
Installment note payable
Kobe, capital (P600,000 + P800,000
+ P1,000,000 P200,000)
Lebron, capital (P500,000 + P1,300,000
- P500,000)
1,100,000
800,000
1,300,000
1,000,000
500,000
200,000
Inventory
Cash
Accounts payable
300,000
2,200,000
1,300,000
240,000
60,000
Mortgage payable
Interest expense
Cash
50,000
20,000
35,000
20,000
70,000
55,000
Accounts receivable
Cash
Sales
210,000
1,340,000
340,000
Depreciation expense
Accumulated depreciation
60,000
Kobe, drawing
Lebron, drawing
Cash
Sales
1,550,000
278,000
62,000
60,000
104,000
104,000
208,000
1,550,000
Income summary
(9)
1,550,000
900,000
900,000
40
Chapter 2
Income summary
Cost of good sold
Selling and general expenses
Depreciation expense
Interest expense
1,340,000
900,000
340,000
60,000
40,000
Income summary
Kobe, capital
Lebron, capital
210,000
Kobe, capital
Lebron, capital
Kobe, drawing
Lebron, drawing
104,000
104,000
105,000
105,000
104,000
104,000
Lebron
40%
P1,300,000
Total
100%
P3,500,000
210,000
39,000
120,000
120,000
(81,000)
P105,000
(54,000)
P105,000
(105,000)
P105,000
(240,000)
P(135,000)
(135,000)
-0-
Kobe-Lebron Partnership
Income Statement
For the Year Ended December 31, 2008
Sales
Less: Cost of goods sold:
Inventory, January 1
Purchases
Goods available for sale
Less: Inventory, December 31
Gross profit
Less: Selling and general expenses
Depreciation expenses
Operating income
Nonoperating expense- interest
Net income
P1,550,000
P800,000
300,000
P1,100,000
(200,000)
340,000
60,000
(900,000)
P650,000
400,000
P250,000
(40,000)
P210,000
Partnership Operations
c.
41
Kobe-Lebron Partnership
Balance Sheet
At December 31, 2008
Assets
Cash
Accounts receivable
Inventory
Land
Equipment (net)
Total assets
P1,589,000
210,000
200,000
1,300,000
940,000
P4,239,000
Liabilities and Capital
Liabilities:
Accounts payable
Accrued expenses payable
Installment note payable
Mortgage payable
Total liabilities
Capital:
Kobe, capital
Lebron, capital
Total capital
Total liabilities and capital
P60,000
62,000
165,000
450,000
P737,000
P2,201,000
1,301,000
3,502,000
P4239,000
42
Chapter 3
CHAPTER 3
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
3-1: c
Implied capital of the partnership (P90,000/20%)
Actual value of the partnership
Goodwill
P450,000
( 420,000)
P 30,000
AQUINO
LOCSIN
DAVID
P252,000
P126,000 P42,000
__18,000
___9,000 __3,000
P270,000
P135,000 P45,000
( 54,000)
( 27,000)( 9,000)
P216,000
P108,000 P36,000
HIZON
_____
_90,000
P 90,000
AQUINO
LOCSIN
DAVID
HIZON
P252,000
P126,000
P42,000
( 50,400)
( 25,200)
( 8,400)_84,000
P201,600
P100,800
P33,600P 84,000
Capital transferred
Excess divided using profit and loss ratio
Cash distribution
AQUINO
LOCSIN
P 50,400
P 25,200
__3,600
__1,800
P 54,000
P 27,000
3-2: b
3-3: d
DAVID
P 8,400
___600
P 9,000
TOTAL
P 84,000
__6,000
P 90,000
3-4: b
Selling price
Interest sold (444,000X1/5)
Combine gain
P132,000
( 88,800)
P 43,200
3-5: b
Implied value of the partnership (P40,000/1/4)
Actual value
Goodwill
Cash balances
Goodwill, Profit and Loss ratio
Total
Capital Transfer (1/4)
Capital balances after admission
P160,000
( 140,000)
P 20,000
BERNAL
CUEVAS
DIAZ
P 80,000
P40,000 P 20,000
__12,000
__6,000
__2,000
P 92,000
P46,000 P 22,000
( 23,000)
( 11,500) ( 5,500)
P 69,000
P34,500 P 16,500
43
3-6: b
BANZON
CORTEZ
TOTAL
P 16,000
P 4,000
P20,000
__6,000
__4,000
_10,000
P 22,000
P 8,000
P30,000
PEREZ
CADIZ
TOTAL
P 24,000
P 48,000 P 72,000
5,430
10,860
16,290
( 5,050)
( 8,000) ( 13,050)
P 24,380
P 50,860 P 75,240
( 5,570)
( 13,240) (18,810)
P 18,810
P 37,620 P 56,430
P 5,570
__3,730
P 9,300
P 13,240
__7,460
P 20,700
3-8: a
Total agreed capital (P150,000/5/6)
Diana's Interest
Cash distribution
P180,000
1/6
P 30,000
3-9: a
Total agreed capital (P36,000/1/5)
Total contributed capital (80,000+40,000+36,000)
Unrecognized Goodwill
3-10: b
Old partners
New partner
Total
P180,000
( 156,000)
P 24,000
Contributed
Agreed
Increase
Capital
Capital
(Dec.)
P110,000
P100,000
(P 10,000)
__40,000
__50,000
_10,000
P150,000
P150,000 P
P 60,000
( 6,000)
P 54,000
P 77,000
1/5
P 15,400
3-11: c
P18,810
_11,190
P30,000
(1/4)
44
Chapter 3
3-12: b
Old partner
(P 5,000)
New partner
Total
Contributed
Agreed
Increase
Capital
Capital
(Dec.)
P 65,000
P60,000
25,000 (1/3)
P 90,000
30,000
P90,000 P
_5,000
FRED
RAUL
LORY
P 35,000
P30,000
25,000
(
3,500)
( 1,500) __5,000
P 31,500
P28,500 P 30,000
3-13: c
Total agreed capital (90,000+60,000+70,000)
Augusts' interest
Agreed capital
Contributed capital
Bonus to June & July
P220,000
_____1/4
P 55,000
__70,000
P 15,000
JUNE
JULY
P90,000 P 60,000
__7,500 __7,500
P97,500 P 67,500
P175,000
( 140,000)
P 35,000
P 62,400
( 57,600)
P 4,800
3-15: a
LIM
ONG
ANG
P23,000
P 18,600
16,000
_____
______
__4,800
P23,000
P 18,600 P20,800
45
3-16: a
ANG
BENG
CHING
DONG
By Investment
_______
_______ _______
Capital balances before
Goodwill and Bonus
P300,000 P 400,000 P 300,000
Goodwill to Old Partners (sch. 1)
150,000
150,000
100,000
Bonus to Old Partners (sch. 1)
__37,500
__37,500
__25,000
Capital balances after
admission
P487,500 P 587,500 P 425,000
Schedule 1:
Old Partners
New Partner
Bonus
Total
GW
TOTAL
P1,300,000
300,000
_300,000
___300,000
P600,000
P1,600,000
400,000
( 100,000)________
P500,000
P2,000,000
CC
AC
Inc. (Dec.)
P 1,000,000 P1,500,000P500,000
600,000 (25%)
__500,000 ( 100,000)
P
1,600,000 P2,000,000P400,000
3-17: b
MONA
Capital balances before
admission of Alma
Admission of Alma:
Investment
Goodwill to old partner,
70:30 (sch. 1)
Capital balances before
admission of Lorna
Admission of Lorna:
Goodwill Written off, 5:3:2
Investment
Goodwill to old partners,
5:3:2 (sch. 2)
Capital balances after
admission
LIZA
P150,000
P 50,000
ALMA
LORNA
P 200,000
80,000
______
___40,000
P 320,000
80,000
__28,000
___12,000_______
P178,000
P 62,000
(P 20,000)
P 80,000
(P 12,000) (
P8,000)
TOTAL
75,000
( P40,000)
75,000
__10,000
____6,000
____4,000 ______
___20,000
P168,000
P 56,000
P 375,000
76,000
P 75,000
Schedule 1:
Total agreed capital (80,000/25%)
Total capital contributed (200,000+80,000)
Goodwill to old partners, 70:30
P 320,000
( 280,000)
P 40,000
Schedule 2:
Total agreed capital (75,000/20%)
P 375,000
( 355,000)
P 20,000
46
Chapter 3
3-18: c
Unadjusted capital balances
Overvaluation of Marketable Securities
Allowance for Bad Debts
Adjusted capital balances before admission
RED
WHITE
BLUE
TOTAL
P175,000
P100,000
P 45,000 P320,000
( 12,500)
( 7,500)
( 5,000) ( 25,000)
( 12,500)
( 7,500)
( 5,000) ( 25,000)
P150,000
P 85,000
P 35,000 P270,000
P405,000
1/3
P135,000
3-19: b
XX
Capital balances before
admission
Capital transfer
to WW (1/6)
Balances
Equalization of capital
Balances
Net profit, equally
Drawings (2 months)
Capital balances before
WWs Investment
YY
ZZ
WW
TOTAL
P360,000
P225,000
P135,000
( 60,000)
P300,000
( 100,000)
P200,000
3,150
_( 1,500)
( 37,500)
P187,500
__12,500
P200,000
3,150
_( 2,000)
( 22,500) _120,000______
P112,500
P120,000 P720,000
__87,500 ______ ______
P200,000
P120,000 P720,000
3,150
3,150
12,600
_( 1,500) _( 2,000) _( 7,000)
P201,650
P201,150
P201,650
P121,150
P720,000
P725,600
P906,675
1/3
P302,225
_121,150
P181,075
3-20: a
Capital balances
Understatement of assets, P12,000
Balances before settlement to A
A
P 20,750
__3,000
P 23,750
Settlement to A
A's interest (23,750+5,000)
Partial Goodwill to A
P 30,250
_28,750
P 1,500
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
P 19,250
__3,000
P 22,250
C
P 45,000
__6,000
P 51,000
P 22,250
_( 500)
P 21,750
47
3-21: a
Capital balances
Net income, P140,000
Undervaluation of inventory, P20,000
Capital balances before settlement to Perez
Settlement to Perez
Bonus to Perez
Capital balances after retirement
Perez
P 100,000
70,000
___10,000
P 180,000
( 195,000)
___15,000
P
Reyes
Suarez
P 150,000 P 200,000
42,000
28,000
____6,000 ____4,000
P 198,000 P 232,000
_( 9,000) _( 6,000)
P 189,000 P 226,000
Capital balances
Settlement to Ely
Total Goodwill (P40,000/50%)P80,000
Capital balances after retirement of Ely
ELY
P 320,000
( 360,000)
__40,000
P
FLOR
P 192,000
___24,000
P 216,000
3-22: c
3-23: c
Capital balance 3/1/07
Net loss-2007:
Salary (10 months)
Interest (10 months)
Bal. beg. cap. ratio: 48:24
Total
Capital balance
Drawings
Capital balance, 12/31/07
Net profit- 2008:
Salary
Interest
Balance, equally
Total
Capital balance
Drawings
Capital balance 12/31/08
_Alma_
480,000
_Betty_
240,000
480,000
40,000
( 544,000)
( 24,000)
456,000
( 24,000)
432,000
240,000
20,000
( 272,000)
( 12,000)
228,000
( 24,000)
204,000
720,000
60,000
( 816,000)
( 36,000)
684,000
( 48,000)
636,000
576,000
43,200
( 397,800)
221,400
653,400
( 24,000)
629,400
288,000
20,400
( 397,800)
( 89,400)
114,600
( 24,000)
90,600
864,000
63,600
( 795,600)
132,000
768,000
( 48,000)
720,000
_Total_
720,000
1,120,000
40%
448,000
400,000
48,000
GLOR
P 128,000
___16,000
P 144,000
48
Chapter 3
3-24: a
Capital balance, beg. 2007
2007 net profit (90,000 59,000):
Interest
Compensation
Balance, 4:6
Total
Balance
Withdrawal
Repairs (charge to Pete)
Capital balance, 12/31/07
_Pete_
P80,000
8,000
5,000
( 2,000)
11,000
91,000
( 8,000)
( 5,000)
78,000
_Carlos_
P30,000
3,000
20,000
( 3,000)
20,000
50,000
( 11,000)
39,000
_Total_
P110,000
11,000
25,000
( 5,000)
31,000
141,000
(19,000)
( 5,000)
117,000
P160,000
20%
32,000
43,000
11,000
49
SOLUTIONS TO PROBLEMS
(a)
Problem 3 1
1. Goodwill Method:
Total agreed capital (P75,000 25%) ..................................... P300,000
Total contributed capital .......................................................... _275,000
Goodwill to old partners, P/L ratio .......................................... P 25,000
Entry
Goodwill ............................................................................
Cash ...................................................................................
Red, capital ...................................................................
White, capital ................................................................
Blue, capital ..................................................................
Green, capital ................................................................
25,000
75,000
5,000
10,000
10,000
75,000
2. Bonus Method:
Contributed capital of Green .................................................... P 75,000
Agreed capital of Green (P275,000 x 25%) ............................... _68,750
Bonus to old partners, P/L ratio ................................................ P 6,250
Entry:
Cash ...................................................................................
Green, capital ................................................................
Red, capital ...................................................................
White, capital ................................................................
Blue, capital ..................................................................
75,000
68,750
1,250
2,500
2,500
100,000
20,000
40,000
40,000
20,000
30,000
25,000
75,000
15,000
20,000
15,000
50,000
Chapter 3
Problem 3 2
(1) Bonus Method:
Contributed capital of Tomas ......................................................... ..................
Agreed capital of Tomas (P640,000 x 20%) ................................... ..................
P140,000
_128,000
P 12,000
BRUNO
MARIO
TOMAS
TOTAL
P200,000
___9,000
P300,000
___3,000
_128,000
P500,000
_140,000
P209,000
P303,000
P128,000
P640,000
P700,000
_640,000
P 60,000
BRUNO
MARIO
TOMAS
TOTAL
P200,000
__45,000
P300,000 P
__15,000
_140,000
P500,000
_200,000
P245,000
P315,000
P140,000
P700,000
MARIO
TOMAS
TOTAL
P245,000
( 36,000)
P315,000
( 12,000)
P140,000
( 12,000)
P700,000
( 60,000)
Balances .................................................
P209,000
P303,000
P128,000
P640,000
b.
BRUNO
MARIO
TOMAS
TOTAL
P245,000
( 24,000)
P315,000
( 24,000)
P140,000
( 12,000)
P700,000
( 60,000)
Balances .................................................
P221,000
P291,000
P128,000
P640,000
Problem 3 3
a.
b.
P180,000
_140,000
P 40,000
P240,000
_180,000
P 60,000
P120,000
_140,000
P 20,000
P 40,000
__20,000
P 20,000
51
Problem 3 4
a.
b.
60,000
100,000
80,000
20,000
60,000
60,000
60,000
No Goodwill, no bonus because the total agreed capital is equal to the total contributed
capital.
c.
d.
20,000
32,000
8,000
28,000
32,000
Since the total agreed capital (P172,000) is equal to the total contributed capital (P172,000),
then no Goodwill or bonus is to be recorded.
e.
32,000
3,000
35,000
Problem 3 5
a.
b.
40,000
40,000
Chapter 3
Entry:
Cash .. .... ......................................................................................
Cherry, capital .......................................................................
Helen, capital .........................................................................
Cathy, capital .........................................................................
c.
25,000
7,875
3,375
36,250
e.
42,500
5,250
2,250
d.
50,000
50,000
30,000
50,000
21,000
9,000
25,000
15,000
40,000
Problem 3 6
a.
P800,000
_____1/4
P200,000
b.
P840,000
_____1/4
P210,000
d.
e.
53
P832,000
_600,000
P232,000
P800,000
__10,000
790,000
_600,000
P190,000
P820,000
_600,000
P220,000
Problem 3 7
a.
b.
c.
Tony, capital
........................................................................................................
Noel, capital ......................................................................................................
40,000
Cash
........................................................................................................
Noel, capital ......................................................................................................
(P180,000 2/3) x 1/3 = P90,000.
90,000
56,000
4,000
40,000
90,000
60,000
Subas, capital
.....
Tony, capital
..
Inventory.............
4,000
14,400
9,600
24,000
52,000
55,200
36,800
68,000
54
f.
Chapter 3
40,000
2,400
1,600
44,000
P60,000
60,000
P 60,000
36,000
24,000
b.
c.
40,000
6,000
2,000
10,000
40,000
25,000
40,000
48,000
50,000
15,000
5,000
45,000
Problem 3 9
a.
b.
120,000
60,000
120,000
12,000
18,000
30,000
150,000
150,000
55
c.
d.
e.
f.
g.
180,000
24,000
36,000
20,000
130,000
20,000
30,000
30,000
120,000
60,000
120,000
P40,000
140,000
4,000
6,000
180,000
60,000
4,000
6,000
10,000
60,000
120,000
150,000
12,000
18,000
150,000
8,000
12,000
20,000
100,000
50,000
56
Chapter 3
Problem 3 10
Case 1: Bonus of P10,000 to Eddy:
Eddy, capital .................................................................................
Charly, capital (P10,000 x 3/5) ....................................................
Danny, capital (P10,000 x 2/5).....................................................
Cash ......................................................................................
70,000
6,000
4,000
4,000
70,000
80,000
74,000
70,000
3,000
2,000
65,000
24,000
70,000
12,000
8,000
74,000
70,000
20,000
30,000
20,000
40,000
70,000
70,000
57
Problem 3 11
a. 1/1/06
Building ...............................................................
Equipment ............................................................
Cash ....................................................................
Santos capital ..............................................
To record initial investment.
52,000
16,000
12,000
22,000
1/1/07
40,000
12,000
10,000
Interest .................................................................
Additional profit ..................................................
Balance to Reyes..................................................
Santos
P 8,000
4,000
______
Reyes
P
(22,000)
Total
P 8,000
4,000
(22,000)
Total ....................................................................
P12,000
P(22,000)
(P10,000)
Cash ....................................................................
Santos capital (15%) ............................................
Reyes capital (85%) .............................................
Cruz capital .................................................
15,000
300
1,700
17,000
(new investment by Cruz brings total capital to P85,000 after 2006 loss [80,000
10,000 + 15,000]. Cruz's 20% interest is P17,000 [85,000 x 20%] with the extra
P2,000 coming from the two original partners [allocated between them according
to their profit and loss ratio].)
12/31/07 Santos capital .......................................................
Reyes capital ........................................................
Cruz capital ..........................................................
Santos drawings ..........................................
Reyes drawings ...........................................
Cruz drawings .............................................
10,340
5,000
5,000
10,340
5,000
5,000
To close drawings accounts for the year based on distributing 20%. Of each
partner's beginning capital balances [after adjustment for Cruz's investment] or
P5,000 whichever is greater. Santos's capital Is P51,700 [40,000 + 12,000 300].)
12/31/07 Income summary .................................................
Santos capital ..............................................
Reyes capital ...............................................
Cruz capital .................................................
To allocate P44,000 income figure as computed below:
44,000
16,940
16,236
10,824
Santos
P10,340
6,600
______
Reyes
Cruz
P16,236
P10,824
Total ....................................................................
P16,940
P16,236
P10,824
58
Chapter 3
Santos
Reyes
P40,000
P40,000
12,000
(22,000)
(300)
(1,700)
(10,340)
(5,000)
_16,940
_16,236
P58,300
P27,536
Cruz
P17,000
(5,000)
_10,824
P22,824
22,824
22,824
1/1/09
b. 1/1/06
61,000
20,810
24,114
16,076
Santos
P11,660
9,150
______
Total ....................................................................
P20,810
Reyes
Diaz
P24,114
P16,076
P24,114
P16,076
52,000
16,000
Cash ....................................................................
12,000
Goodwill ..............................................................
80,000
Santos capital ..............................................
80,000
Reyes capital ...............................................
80,000
To record initial investments. Reyes is credited with goodwill of P80,000 to match
Santos investment.
Partnership Dissolution Changes in Ownership
59
Cash ....................................................................
15,000
Goodwill ..............................................................
22,500
Cruz capital .................................................
37,500
Cash and goodwill contributed by Cruz are recorded. Goodwill is Computed
algebraically as follows:
P15,000 + goodwill =
P15,000 + goodwill =
P15,000 + goodwill =
.80 goodwill
=
goodwill
=
20,000
10,000
7,500
44,000
20,000
10,000
7,500
26,600
10,400
6,960
Santos
P20,000
6,600
______
Total ....................................................................
P26,600
Reyes
Cruz
P10,440
P 6,960
P10,440
P 6,960
Reyes
Cruz
P80,000
20,000
P80,000
(30,000)
(20,000)
__26,600
(10,000)
_10,440
P106,600
P50,440
60
P37,500
(7,500)
__6,960
P36,960
Chapter 3
1/1/08
Goodwill ......................................................................
26,588
Santos capital .....................................................
3,988
Reyes capital ......................................................
13,560
Cruz capital ........................................................
9,040
To record goodwill implied of Cruz's interest. In effect, the profit Sharing ratio is 15% to
Santos, 51% to Reyes (60% of 85% remaining after Santos's income), and 34% to Cruz
(40% of the 85% remaining after Santos' income). Diaz is paying P46,000, P9,040 in excess
of Cruz's capital (P36,960). The additional payment for this 34% income Interest indicates
total goodwill of P26,588 (P9,040/34%).
1/1/08
46,000
22,118
12,800
9,200
61,000
46,000
22,118
12,800
9,200
31,268
12,800
9,200
Santos
P22,118
9,150
______
Totals ...........................................................................
Reyes
Diaz
P17,839
P11,893
P31,268
P17,839
P11,893
Santos
P106,600
3,988
Reyes
P50,440
13,560
Goodwill ......................................................................
Santos capital .....................................................
Reyes capital ......................................................
Diaz capital ........................................................
Diaz
(22,118)
__31,268
(12,800)
_17,839
P46,000
(9,200)
_11,893
P119,738
P69,039
P48,693
14,321
2,148
7,304
4,869
To record implied goodwill. Diaz will be paid P53,562 (110% of the capital balance for his
interest. This amount is P4,869 in excess of the capital account. Since Diaz is only entitled
to a 34% share of profits and losses, the additional P4,869 must indicate that the partnership
as a whole is undervalued by P14,321 (P4,869/34%) which is treated as goodwill.
1/1/09
Diaz capital ..................................................................
53,562
Cash....................................................................
53,562
To record settlement to Diaz.
Partnership Dissolution Changes in Ownership
61
Problem 3 12
Partnership Books Continued as Books of Corporation
Entries in the Books of the Corporation
(1) Inventories ..... .................................................................... .................
Land ...... ........ .................................................................... .................
Building. ........ .................................................................... .................
Accumulated depreciation bldg. ...................................... .................
Accumulated depreciation equipment .............................. .................
Equipment .................................................................. .................
Jack capital ................................................................ .................
Jill capital................................................................... .................
Jun capital .................................................................. .................
To adjust assets and liabilities of the partnership
to their current fair values.
26,000
40,000
20,000
20,000
30,000
4,000
18,000
100,000
75,000
75,000
20,000
58,000
34,800
23,200
20,200
1,800
250,000
26,000
40,000
20,000
20,000
30,000
20,000
58,000
34,800
23,200
4,000
18,000
20,200
1,800
62
Chapter 3
250,000
30,000
40,000
100,000
75,000
75,000
44,000
26,000
60,000
60,000
70,000
60,000
250,000
a. 1/1/06
44,000
26,000
60,000
60,000
70,000
60,000
30,000
40,000
250,000
Problem 3 13
Building
1,040,000
Equipment
320,000
Cash
240,000
Lim, capital
800,000
Sy, capital
800,000
(To record initial investment. Assets recorded at market value with two equal
capital balances.
12/31/06
Sy, capital
440,000
Lim, capital
240,000
Income summary
200,000
(The allocation plan specifies that Lim will receive 20% in interest [or 160,000
based on P800,000 capital balance] plus P80,000 more [since that amount is
63
greater than 15% of the profits from the period]. The remaining P440,000 loss is
assigned to Sy.)
1/1/07
Cash
300,000
Lim, capital (15%)
6,000
Sy, capital (85%)
34,000
Tan, capital
340,000
(New investment by Tan brings total capital to P1,700,000 after 2006 loss
[P1,600,000 P200,000 + P300,000]. Tans 20% interest is P340,000
[P1,700,000 x 20%] with the extra P40,000 coming from the two original
partners [allocated between them according to their profit and loss ratio].)
12/31/07
Lim, capital
206,800
Sy, capital
100,000
Tan, capital
100,000
Lim, drawings
206,800
Sy, drawings
100,000
Tan, drawings
100,000
(To close out drawings accounts for the year based on distributing 20% of each
partners beginning capital balances [after adjustment for Tans investment] or
P100,000 whichever is greater. Lims capital is P1,034,000 [P800,000 +
P240,000 P6,000])
12/31/07
Income summary
880,000
Lim, capital
Sy, capital
Tan, capital
(To allocate P880,000 income figure for 2007 as determined below.)
338,800
324,720
216,480
Lim
Sy
Tan
P206,800
132,000
P338,800
324,720
P524,720
216,480
P216,480
Lim
P800,000
240,000
(6,000)
(206,800)
Sy
P800,000
440,000
(34,000)
(100,000)
Tan
P340,000
(100,000)
64
338,800
P1,166,000
324,720
P550,720
Tan, capital
456,480
Ang, capital
(To reclassify balance to reflect acquisition of Tans interest.)
216,480
P456,480
456,480
Chapter 3
12/31/08
Lim, capital
233,200
Sy, capital
110,140
Ang, capital
100,000
Lim, drawings
233,200
Sy, drawings
110,140
Ang, drawings
100,000
(To close out drawings accounts for the year based on 20% of beginning capital
balances [above] or P100,000 [whichever is greater].)
12/31/08
Income summary
1,220,000
Lim, capital
416,200
Sy, capital
482,280
Ang, capital
321,520
(To allocate profit for 2008 determined as follows)
Lim
Sy
Ang
Interest (20% of P1,166,000 beg. capital)
P233,200
15% of P1,220,000 income
183,000
60:40 split of remaining P803,800
482,280
321,520
Totals
P416,200
P482,280
P321,520
b.
1/1/09
Ang, capital
678,000
Lim, capital (15%)
10,180
Sy, capital 85%)
57,620
Cash
745,800
(Angs capital is P678,000 [P456,480 P100,000 + P321,520]. Extra 10%
payment is deducted from the two remaining partners capital accounts.)
1/1/06
Building
1,040,000
Equipment
320,000
Cash
240,000
Goodwill
1,600,000
Lim, capital
1,600,000
Sy, capital
1,600,000
(To record initial capital investments. Sy is credited with goodwill of P1,600,000
to match Lims investment.)
12/31/06
Sy, capital
600,000
Lim, capital
400,000
Income summary
200,000
(Interest of P320,000 is credited to Lim [P1,600,000 x 20%] along with a base of
P80,000. The remaining amount is now a P600,000 loss that is attributed entirely
to Sy.)
1/1/07
Cash
300,000
Goodwill
450,000
Tan, capital
750,000
(Cash and goodwill being contributed by Tan are recorded. Goodwill must be
calculated algebraically.)
65
Lim, capital
400,000
Sy, capital
200,000
Tan, capital
150,000
Lim, drawings
400,000
Sy, drawings
200,000
Tan, drawings
150,000
(To close out drawings accounts for the year based on 20% of beginning capital
balances: Lim- P2,000,000, Sy- P100,000, and Tan- P750,000.)
12/31/07
Income summary
Lim, capital
Sy, capital
Tan, capital
(To allocate P880,000 income figure as follows)
Lim
P400,000
132,000
P532,000
880,000
532,000
208,800
139,200
Sy
Tan
P208,800
P208,800
P139,200
P139,200
Sy
P1,600,000
(600,000)
Tan
Lim
P1,600,000
400,000
(400,000)
532,000
P2,132,000
(200,000)
208,800
P1,008,800
Goodwill
531,760
Lim, capital (15%)
Sy, capital (51%)
Tan, capital (34%)
(To record goodwill indicated by purchase of Tans interest.)
P750,000
(150,000)
139,200
P739,200
79,760
271,200
180,800
In effect, profits are shared 15% to Lim, 51% to Sy (60% of the 85% remaining after Lims
income), and 34% to Tan (50% of the 85% remaining after Lims income). Ang is paying
P920,000, an amount P180,800 in excess of Tans capital (P739,200). The additional payment for
this 34% income interest indicates total goodwill of P531,760 (P180,800/34%). Since Tan is
entitled to 34% of the profits but only holds 19% of the total capital, an implied value for the
66
Chapter 3
company as a whole cannot be determined directly from the payment of P920,000. Thus,
goodwill can only be computed based on the excess payment.
1/1/08
Tan, capital
Ang, capital
(To reclassify capital balance to new partner.)
920,000
920,000
12/31/08
Lim, capital
442,360
Sy, capital
256,000
Ang, capital
184,000
Lim, drawings
442,360
Sy, drawings
256,000
Ang, drawings
184,000
(To close out drawings accounts for the year based on 20% of beginning capital
balances [after adjustment for goodwill].)
12/31/08
Income summary
Lim, capital
Sy, capital
Ang, capital
1,220,000
625,360
356,780
237,860
Sy
Ang
356,780
P356,780
237,860
P237,860
Sy
P1,008,00
271,200
( 256,000)
356,780
P1,380,780
Ang
P739,200
180,800
(184,000)
237,860
P973,860
Lim
P2,132,000
79,760
(442,360)
625,360
P2,394,760
Ang will be paid P1,071,240 (110% of the capital balance) for her interest. This amount is
P97,380 in excess of the capital account. Since Ang is only entitled to a 34% share of profits and
losses, the additional P97,380 must indicate that the partnership as a whole is undervalued by
P286,420 (P97,380/34%). Only in that circumstance would the extra payment to Ang be justified:
1/1/09
Goodwill
Lim, capital (15%)
Sy, capital (51%)
Ang, capital (34%)
(To recognize implied goodwill.)
286,420
42,960
146,080
97,380
1/1/09
Ang, capital
Cash
(To record final distribution to Ang.
67
1,071,240
1,071,240
68
Chapter 4
CHAPTER 4
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
4-1: a
Capital balances before realization
Loss on liquidation, P40,000
Cash distribution
PAR
BOOGIE
BIRDIE
P 20,000
P 16,000
P 10,000
( 20,000)
( 12,000)
( 8,000)
P 4,000
P 2,000
4-2: c
Capital balances before liquidation
Gain of P10,000 (150,000-140,000)
Cash distribution
PING
P 50,000
__6,000
P 56,000
PANG
PONG
P 50,000
P 10,000
__2,000
__2,000
P 52,000
P 12,000
PING
PANG
PONG
P 50,000
P 50,000
P 10,000
( 24,000)
( 8,000)
( 8,000)
P 26,000
P 42,000
P 2,000
PING
PANG
PONG
P 50,000
P 50,000
P 10,000
( 42,000)
( 14,000)
( 14,000)
P8,000
P 36,000
( 4,000)
( 3,000)
( 1,000)
__4,000
P 5,000
P 35,000
4-3: b
4-4: a
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
Capital balances before liquidation
JONAS
CARLOS
TOMAS
P160,000
P 45,000
P 55,000
( 24,000)
P136,000
( 20,000)
P 25,000
( 6,000)
P 49,000
Partnership Liquidation
69
4-7: a
Capital balances before liquidation
Loss of P100,000, 4:3:3
Cash distribution
ARIEL
BERT
CESAR
P40,000
P180,000
P 30,000
( 40,000)
( 30,000)
( 30,000)
P
P150,000 P
4-8: b
Capital balances before realization
Additional investment by Nory for
the unpaid liabilities (33,000-18,000)
Loss on realization (schedule 1)
Payment by Oscar to Nory
Schedule 1
Total capital before liquidation
Unpaid liabilities
Total loss on realization
NORY
OSCAR
P23,000
P 13,500
15,000
( 30,900)
P 7,100
( 20,600)
( P7,100)
P 36,500
15,000
P 51,500
4-9: d
Capital balances before liquidation (net)
Loss on realization (schedule 1) P27,500
Balances, cash distribution
BLACK
WHITE
GREEN
P99,000
P 91,500
P138,000
( 13,750)
( 27,500) _( 5,500)
P85,250
P 64,000
P132,500
Schedule 1:
Capital balances of white (net)
Cash received by White
White's share of total loss (30%)
P 91,500
_83,250
P 8,250
P 27,500
4-10: c
Capital balances before liquidation (net)
Loss on realization, P63,600
Balances
Unrecorded liabilities, P500
Balances
Elimination of Nora's deficiency
Payment to partners
ANA
P27,000
( 25,320)
P 1,680
( 200)
(
P 1,480
( 1,380)
P 100
EVA
NORA
P 43,000
P 10,000
( 25,320)
( 12,660)
P 17,680
( 2,660)
200)
( 100)
P 17,480
( 2,760)
( 1,380)
__2,760
P 16,100 P
4-11: d
Capital balances before liquidation (net)
Loss on realization (schedule 1) P45,000
Payment to partners
ARIES
P33,500
( 22,500)
P11,000
LEO
TAURUS
P 49,000
P 36,500
( 13,500)
( 9,000)
P 35,500
P 27,500
70
Chapter 4
Schedule 1:
Taurus capital (net)
Payment to Taurus
Share of total loss (20%)
P36,500
( 27,500)
P 9,000
P45,000
4-12: c
TOTAL
MONA
NORA
OLGA
P32,700
P15,000
P13,500
P 4,200
( 9,800)
( 4,200)
( 2,800) ( 2,800)
P22,900
P10,800
P10,700
( 17,500)
( 7,500)
( 5,000)
P 5,400
P 3,300
P 5,700
_1,500 _____
_____
P 6,900
P 3,300
P 5,700
______
( 1,260) ( 840)
P 6,900
P 2,040
P 4,860 P
RITA
SARA
TITA
P49,000
P18,000
P10,000
( 3,500)
( 7,000)
( 10,500)
( 10,000)
( 15,000)
( 20,000)
8,000
25,000
( 2,000)
( 4,000)
( 6,000)
P33,500 P
( 1,500)
__1,500 _____
_1,500
P32,000 P
P 1,400
( 5,000)
( 3,600)
_1,500
( 2,100)
_2,100
4-13: b
4-14: a
Capital balances before liquidation
Loss on realization
Accounts Receivable (P50,000 X 40%)
Investment (P30,000 - P20,000)
Equipment (P60,000-P30,000)
Total
Payment to partners
CLARO
PEDRO
ANDRO
P45,000
P27,000
P50,000
P20,000
10,000
_30,000
P60,000
( 24,000)
P21,000
( 24,000)
P 3,000
( 12,000)
P38,000
4-15: c
Capital balances before liquidation (inclusive loans)
Loss on realization, (squeeze)
Capital balances - cash distribution
TOTAL
MONA
LISA
P47,500
P28,500
P19,000
( 38,500)
( 23,100) ( 15,400)
P 9,000
P 5,400
P 3,600
Partnership Liquidation
71
P 37,500
( 28,500)
P 9,000
4-16: a
FF capital before distribution of net loss
Add: share of net loss (P10,000 X 40%)
FF capital before liquidation
Cash settlement to FF
FF share of total loss on realization (40%)
P100,000
_( 4,000)
96,000
( 80,000)
P 16,000
P 40,000
P250,000
_100,000
P350,000
( 50,000)
P300,000
( 40,000)
P260,000
4-17: d
Capital balances before realization (net)
Loss on realization (squeeze)
Capital balances after realization
(liabilities-unpaid)
Elimination of CC's deficiency
Balances
Investment by DD
Payment to EE
TOTAL
P100,000
( 125,000)
CC
P 15,000
( 62,500)
EE
P62,500
( 25,000)
(P 25,000)
( 47,500)
( 15,000) P37,500
_______
__47,500
( 28,500) ( 19,000)
(P 25,000)
(P43,500) P18,500
__43,500 ______
_43,500 _____
P 18,500 P
P18,500
4-18: d
Total capital before liquidation
Liabilities
Total assets
Less: Cash balance before realization
Cash after payment of liabilities
DD
P22,500
( 37,500)
P 30,000
__1,500
P 31,500
P 11,100
payment of liabilities
Cash realized
Non-cash asset
Less: cash realized
Loss on realization
1,500
( 11,600)
__1,000
P 30,500
_11,600
P 18,900
72
Chapter 4
4-19: d
Capital balances
Salary of LL (P600 X 8 months)
Capital balances before liquidation
Loss on realization
Balances
Additional investment by NN
Payment to partners
LL
MM
NN
TOTAL
P 50,000
P 20,000
P 10,000 P 80,000
__4,800 _______
_______
___4,800
P 54,800
P 20,000
P 10,000 P 84,800
( 44,880)
( 14,960)
( 14,960)
P 9,920
P 5,040
(P 4,960)
______
_____
__4,960
P 9,920
P 5,040 P
4-20: b
KK's total interest (P60,000-P10,000)
Less: Cash to be paid to KK
Share of total loss (1/3)
P 50,000
__10,000
P 40,000
P120,000
Total assets:
Total interest of the partners before liquidation:
JJ (P70,000+P30,000+P10,000)
KK (P60,000-P10,000)
LL (P30,000+P10,000)
Divide by
Total
Loss on realization
Cash to be realized
P110,000
50,000
__40,000
P200,000
______50%
P400,000
_120,000
P280,000
4-21: a
Capital balances, July 1
Advances to NN, August 1
OO Loan, September 1
Interest, December 31 (6%)
NN (5 mos.)
OO (4 mos.)
Compensation to PP
Capital balances before liquidation
TOTAL
P 75,000
( 10,000)
20,000
(
NN
P 25,000
( 10,000)
OO
P 25,000
20,000
PP
P 25,000
250)
( 250)
400
400
__2,500 _______
_______
P 87,650
P 14,750
P 45,400
___2,500
P 27,500
_56,250
P 35,000
( 17,550)
( 2,800)
( 17,550) ( 17,550)
P 27,850 P 9,950
NN should pay P2,800 and this is to be divided to OO & PP equally or P1,400 each.
Partnership Liquidation
73
4-22: a
Capital balances before realization
Loss on realization (squeeze)
Capital balances after realization
(unpaid liabilities)
Elimination of AS's deficiency
Cash to be absorbed
TOTAL
PG
P 950,000
P350,000
( 1,000,000)__20,000
(P 50,000)
_______
P
JR
AS
P250,000 P350,000
( 200,000) _500,000
P 50,000
( 90,000)
(P 40,000)
P 50,000 ( 150,000)
( 60,000) P150,000
(P 10,000)P
RM
P500,000
( 490,000)
P 10,000
ST
P825,000
( 735,000)
P 90,000
4-23: a
Capital balances before realization (net)
Loss on realization, P1,225,000
Payment to Partners
4-24: a
Capital balances before realization (net)
Gain on realization (squeeze)
Capital balances after realization
TOTAL
P 27,500
__37,500
P 65,000
LT
AM
P 20,000 P 5,000
_18,750 __-9,375
P 38,750 P 14,375
ZP
P 2,500
__9,375
P 11,875
4-25: c
Capital balances before realization (net)
Loss on realization, P1,000,000
Balances
Additional investment by DJ
AG
P 420,000
( 300,000)
P 120,000
BM
CP
DJ
P375,000P205,000 P150,000
( 300,000)(200,000) (200,000)
P 75,000P 5,000 P(50,000)
50,000
4-26: a
Settlement to Uy
Uy capital before liquidation (net):
Uy capital
Receivable from Uy
Loss of Uy (50%)
P351,500
P553,500
( 132,000)
__Uy__
553,500
(132,000)
421,500
P 70,000
P140,000
__Vi__
452,500
__Wi__
486,000
__Total__
1,492,000
(132,000)
Loan to Wi
Salary payable to Vi
Interest before realization
Loss on realization
Settlement to partners
( 40,500)
421,500
( 70,000)
351,500
135,000
587,500
( 42,000)
545,500
74
445,500
( 28,000)
417,500
(40,500)
135,000
1,454,500
( 140,000)
1,314,500
Chapter 4
SOLUTIONS TO PROBLEMS
Problem 4 1
Case 1
Rivas and Briones
Statement of Liquidation
December 31, 2008
Partners' Capitals
Assets
Rivas, Briones, Rivas Briones
Cash
Others Liabilities
Loan
Loan
(90%)
(10%)
P 20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000
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, 2008
Partners' Capitals
Assets
Rivas, Briones, Rivas Briones
Cash
Others Liabilities
Loan
Loan
(70%)
(30%)
P20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000
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
75
Case 3
Rivas and Briones
Statement of Liquidation
December 31, 2008
Partners' Capitals
Assets
Rivas,
Briones,
Rivas
Briones
Cash
Others Liabilities
Loan
Loan
(50%)
(50%)
P 20,000 P200,000 P132,000 P 18,000 P20,000 P40,000
132,000
( 132,000)_______
______
18,000
( 33,000)
20,000 ( 7,000)
( 132,000)
__
18,000
20,000 ( 7,000)
_______ _______
22,000
_______
_______
18,000
( 20,000)______
7,000
_______
_______
_______
_______
18,000
P(18,000)
22,000
22,000
P(22,000)
_______
( 3,000)
4,000
P( 4,000)
_20,000
Journal Entries
Case 1:
Cash ..... .... ...................................................................................................
Rivas, Capital ................................................................................................
Briones, Capital ............................................................................................
Other Assets ...........................................................................................
Liabilities .. ...................................................................................................
Cash ... ...................................................................................................
Rivas, Loan ...................................................................................................
Rivas, Capital .........................................................................................
Briones, Capital ............................................................................................
Rivas, Capital .........................................................................................
Briones, Loan ................................................................................................
Briones, Capital ............................................................................................
Cash ...................................................................................................
Case 2:
Cash ..... .... ...................................................................................................
Rivas, Capital ................................................................................................
Briones, Capital ............................................................................................
Other Assets ...........................................................................................
Liabilities .. ...................................................................................................
Cash ... ...................................................................................................
Rivas, Loan ...................................................................................................
Briones, Loan ................................................................................................
Rivas, Capital .........................................................................................
Briones, Capital .....................................................................................
Rivas, Loan ...................................................................................................
Briones, Loan ................................................................................................
Cash ... ...................................................................................................
76
Case 3:
Cash .... ... ...........................................................................................
Rivas, Capital ......................................................................................
Briones, Capital ..................................................................................
Other Assets .................................................................................
Liabilities ...........................................................................................
Cash .. ...........................................................................................
Briones, Loan......................................................................................
Briones, Capital ............................................................................
Rivas, Capital ......................................................................................
Briones, Capital ............................................................................
Rivas, Loan .........................................................................................
Rivas, Capital ......................................................................................
Cash .. ...........................................................................................
Problem 4 2
134,000
59,400
6,600
200,000
132,000
132,000
18,000
18,000
1,400
1,400
20,000
2,000
22,000
134,000
46,200
19,800
200,000
132,000
132,000
6,200
9,800
6,200
9,800
11,800
10,200
22,000
Chapter 4
134,000
33,000
33,000
200,000
132,000
132,000
20,000
20,000
3,000
3,000
18,000
4,000
22,000
P 18,000
P75,000
_37,500
Others
P90,000
P84,000
( 75,000)_______ _______
55,500
90,000
_30,000 _______
_40,000 _______
_______
125,500
( 42,000) _______
Partnership Liquidation
_______
84,000
84,000
P 24,000
42,000
_______
42,000
P102,000
P99,000
79,500
84,000
( 36,000)
24,000
_______
43,500
60,000
( 26,400)
24,000
17,100
( 42,000)_______ _______
Capitals
Castro
(40 %)
( 22,500)
24,000
42,000
Partners'
Blando
(60%)
_______
( 84,000)_______
_______ _______
Blando,
Loan
P42,000
( 90,000)_______ _______
85,500
Balances ............................
83,500
Payments to partners.. P(83,500)
a.
Accounts
Payable
42,400
_______
24,000
17,100
42,400
P(24,000) P( 17,100) P(42,400)
77
Problem 4 3
Electric Company
Statement of Partnership Realization and Liquidation
June 30, 2008
Balances
Sale of
assets at a loss
Payment to
creditors
Offset Amp,
receivable
Capital Balances
Volt
Watt
30%
20%
Cash
Amp.
Loan
Noncash
Assets
Liabilities
Volt,
Loan
Amp
50%
20,000
15,000
135,000
30,000
10,000
80,000
36,000
14,000
_95,000
115,000
______
15,000
(135,000)
-0-
______
30,000
______
10,000
(20,000)
60,000
(12,000)
24,000
( 8,000)
6,000
_(30,000)______
85,000
15,000
_______
-0-
(30,000)______
-010,000
_______
60,000
______
24,000
______
6,000
(15,000)
(15,000)
Payments to partners:
Loan
(10,000)
Capitals
_(75,000)______
_______
( 6,000)
Balances
-0-0-0b. (1) Cash
Amp, Capital
Volt, Capital
Watt, Capital
Noncash Assets
Sell noncash assets at a loss of P40,000.
_______
-0-
(10,000)
______
-0-
(45,000)
-095,000
20,000
12,000
8,000
(24,000)
-0-
-0-
135,000
(2) Liabilities
Cash
Pay creditors.
30,000
15,000
10,000
45,000
24,000
6,000
30,000
15,000
85,000
Note: All partners permitted Amp to offset his receivable against his capital credit. Alternatively, Amp
could be required to pay the partnership the P15,000 receivable; the partnership would then pay him an
additional P15,000 for his capital credit. In this case, an offset of the receivable against the capital credit is
reasonable, provided the receivable is not interest-bearing, Amp has a sufficient capital credit, Amp is
personally solvent, and the note is not secured against specific assts of Amp. The offset is not automatic,
but must be determined by the terms of the initial note, and by the partners.
78
Chapter 4
Problem 4 4
a.
b.
P320,000
_128,000
P192,000
P480,000
Cash
Other Assets
Aida
Capital
Bina
Celia
P80,000
240,000
320,000
(320,000)
P720,000
( 720,000)
(5)
P320,000
( 240,000)
(4)
P320,000
( 192,000)
(1)
P160,000
( 48,000)
80,000
( 80,000)
128,000
( 128,000)
112,000
( 112,000)
_______
Problem 4 5
a.
b.
P 70,000
__98,000
P 28,000
P140,000
_500,000
Selling price
P640,000
.............................................................................................. ..................
JJ, KK & LL
Statement of Liquidation
Other
Assets
Cash
Balances before liquidation ...
Realization & Dist. of gain ...
P50,000
640,000
690,000
( 60,000)
(630,000)_______
Liabilities
JJ (4)
P500,000 P60,000
( 520,000)_______
P180,000
__56,000
60,000
236,000
( 60,000)
_______
( 236,000)
Capital
KK(4)
(LL(2)
P240,000
__56,000
P70,000
_28,000
296,000
98,000
( 296,000)
( 98,000)
Partnership Liquidation
79
Problem 4 6
a.
BB ................................................... P160,000
CC ................................................... P20,000
DD................................................... P60,000
EE ...................................................
P 0
b.
Cash
Balances before liquidation ...
P
Advances by BB to pay liabilities
Deposit by DD ......................
Liabilities
BB (30%)
C a p i t
CC (10%)DD (20%)
P60,000 P160,000
P80,000
( 60,000)
60,000
60,000 ______ _______
_______
l
EE (40%)
(P120,000) P(180,000)
__60,000
________
60,000
Payment to partners...............
60,000
220,000
( 90,000)
__( 90,000)
______
80,000
( 30,000)
( 30,000)
40,000
( 60,000) ( 180,000)
( 60,000)
180,000
120,000
20,000
Problem 4 7
Sayson and Company
Statement of Liquidation
Date
Liabilities
Accounts
Notes
Payable Payable
Assets
Cash Noncash
Balances before liquidation...
P 15,000
P(14,993) ......................... P1,650
Realization of assets and
distribution of gain ..........
185,000
P155,250
P11,250
Pea
Loan
P9,000
( 155,250)_______ ______
Balances................................
200,000
( 14,993) ......................... 1,650
Payment of liabilities ............
( 20,250)________
P 1,500
______
11,250
( 11,250)
P a r t n e r s' C a p i t a l s
Sayson
Zobel
Ayala
(45%)
(30%)
(15%)
9,000
( 9,000)______
Balances................................
179,750
( 14,993) ......................... 1,650
Additional loss to Sayson,
Zobel and Pea;
45:30:10 ..........................
_______ ________ ________ ______
______
( 1,764)
Balances................................
179,750
- ........................................ (114)
Offset Pea's loan against
his capital deficiency .......
_______ ________ ________ ______
Balances................................
..................................
179,750
P(179,750)
P 75,345
P 86,498
17,850
11,900 ______
1,500
93,195 98,398
______
______
1,500
( 7,937)
______
_______
______
______
93,195 98,398
1,500
( 114)
Pea
(10%)
( 5,292) 14,993
85,258 93,106
______
1,386
_______
114
85,258 93,106
80
Chapter 4
Problem 4 8
a.
Cash
Balances before liquidation
(including Bea loan, P4,000) ......
Assets
Other
P 6,000
Liabilities
P94,000
P20,000
Partners' Capital
Art (40%) Bea (40%) Cid (20%)
P27,000
P43,000
P10,000
Realization of assets
at a loss of P63,300 ..................
30,000 ( 94,000) (25,320)
(25,320)
(12,660)
Unrecorded accounts payable .........
500
(200)
(200)
(100)
Payment to creditors .......................
(20,500)______
(20,500) ______
______
______
Balances .... .... ................................
16,200
1,480
17,480
Eliminate Cid's deficit ..................... ______
______
______
(1,380)
(1,380)
_2,760
Balances .... .... ................................
16,200
100
16,100
Payment to Partners ........................
(16,200)
_( 100)
( 16,100)
b.
2008
July 5
c.
30,700
25,320
25,320
12,660
94,000
200
200
100
500
20,500
1,380
1,380
100
4,000
12,100
20,500
2,760
16,200
Cid's loss must be limited to P5,000, or P25,000 for the partnership (P5,000 / 20% = P25,000).
Because the liquidation of liabilities results in a loss of P500, only P24,500 may be lost on the
realization of other assets. This requires that other assets realize P69,500 (P94,000 24,500) to
enable Cid to receive P5,000 from the partnership to pay personal creditors in full.
(2,76
Problem 4 9
KGB Partnership
Statement of Realization and Liquidation
Lump-sum Liquidation on June 30, 2008
-
Preliquidation balances
Sale of assets
and distribution
of 430,000 loss
Cash contributed
by B
Distribution of deficit
of insolvent partner:
20/60 (P2,000)
40/60 (P2,000)
Offset deficit with loan
Contribution by G
Payment of creditors
Distribution to K
Postliquidation
balances
Capital Balances
K
G
20%
40%
(240,000) (100,000)
B
40% (120,000)
Cash
50,000
Noncash
Assets
950,000
Liabilities
(480,000)
G
Loan
(60,000)
520,000
570,000
950,000
-0-
(480,000)
(60,000)
86,000
(154,000)
172,000
72,000
172,000
52,000
(480,000)
(60,000)
(154,000)
72,000
50,000
2,000
50,000
620,000
-0-
(2,000)
666
620,000
620,000
13,334
633,334
(480,000)
153,334
(153,334)
-0-
-0-0-
(480,000)
(480,000)
(60,000)
60,000
-0-
(153,334)
(153,334)
(480,000)
480,000
-0-
-0-
(153,334)
(153,334)
153,334
-0-0-
-0-
-0-
-0-
-0-
-0-
1,334
73,334
(60,000)
13,334
(13,334)
-0-
-0-0-0-
-0-
-0-
-0-
-0-
82
Chapter 4
KGB Partnership
Schedule of Distribution of Personal Assets
June 30, 2008
500,000
(460,000)
600,000
(480,000)
700,000
(650,000)
40,000
120,000
(13,334)
-0- 106,666
50,000
153,334
193,334
-0- -0- -
83
CHAPTER 5
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
5-1: b
Capital balances before liquidation
Loan balances
Total interest
Possible loss (40,000+10,000)
Balances
Additional loss to RJ & SJ, 5:3
Cash distribution
RJ
SJ
TJ
P22,000
P30,000
P 8,000
_10,000 ______
______
32,000
30,000
8,000
( 25,000)
( 15,000)
( 10,000)
7,000
15,000
( 2,000)
( 1,250) ( 750)
__2,000
P 5,750
P14,250 P
5-2: a
Capital balances
Loan balances
Total interest
Possible loss (23,000-6,000)
Balances
Additional loss to BR, CR, DR, 3:2:1
Balances
Additional loss to CR & DR, 2:1
Payment to partners
Total liabilities
Total Capital
Total Assets
AR
BR
CR
DR
P 5,500
P 5,150
P 6,850
P 4,500
_1,000 _____
_____
_____
6,500
5,150
6,850
4,500
( 6,800)
( 5,100)
( 3,400)
( 1,700)
( 300)
50
3,450
2,800
___300
( 150)
( 100)
( 50)
( 100)
3,350
2,750
_____
___100
_( 67)
_( 33)
P
P 3,283
P 2,717
P 1,000
_22,000
P23,000
5-3: c
Capital balances
Loan balances
Advances
Total interest
Divided by P/L Ratio
Loss Absorption balances
PI - TO GG
Balances
PII - TO EE & GG, 30:10
Balances
PIII - TO EE, FF, GG, 3:1:1
Balances
PIV - P/L Ratio
DD
P40,000
5,000
_____
45,000
____50%
90,000
_____
90,000
_____
90,000
_____
P90,000
BALANCES
EE
FF
GG
P30,000
P15,000
P25,000
10,000
_____
( 4,500)
( 2,500)
40,000
10,500
22,500
____30%
____10%
____10%
133,333
105,000
225,000
_____
( 91,667)
__ __
133,333
105,000
133,333
( 28,333) _____
( 28,333)
105,000
105,000
10,500
(15,000)
( 15,000)
( 15,000)
P90,000
P90,000
P90,000
84
Chapter 5
DD
PI - To GG
PII - To EE (28,833 X 30%)
GG (28,833 X 10%)
PIII To EE (15,000 X 30%)
FF (15,000 X 10%)
GG (15,000 X 10%)
_____
Total
PIV - P/L Ratio
DD
Distribution of P18,000
PI - TO GG
PII - TO EE & GG, 3:1, P8,833
Cash distribution
CASH PAYMENT
EE
FF
P 8,433
4,500
1,500
_____
_____
P12,933
EE
P 1,500
FF
_____
_6,625
_____
P 9,167
__2,208
P 6,625
P11,375
TAN
P40,000
( 16,000)
24,000
( 36,000)
( 12,000)
_12,000
P
LIM
P65,000
( 16,000)
49,000
( 36,000)
13,000
( 8,000)
P 5,000
WAN
P48,000
( 8,000)
40,000
( 18,000)
22,000
( 4,000)
P18,000
TAN
P24,000
( 37,200)
( 13,200)
_13,200
P
LIM
P49,000
( 18,600)
30,400
( 8,800)
P21,600
WAN
P40,000
( 18,600)
21,400
_( 4,400)
P17,000
CARPIO
P72,000
( 5,000)
67,000
( 55,000)
12,000
LOBO
P54,000
( 5,000)
49,000
( 55,000)
( 6,000)
5-5: b
5-6: d
P5,600
P5,600
P2,800
5-7: a
Capital balances before liquidation
Goodwill written-off
Cash balance
Possible loss (100,000+10,000), 110,000
Capital balances before liquidation
P13,500
GG
5-4: a
GG
P 9,167
2,833
__1,500
( 6,000)
__6,000
P 6,000 P
85
5-8: d
JACOB
SANTOS
HERVAS
P40,000
P72,000
P 7,000
( 15,000)
( 9,000)
( 6,000)
( 1,000) ( 600)
( 400)
24,000
62,400
63,600
__8,000 _____
_____
32,000
62,400
63,600
( 45,000)
27,000
( 18,000)
( 13,000)
35,400
45,600
_13,000
( 7,800)
( 5,200)
P
P27,600
P40,400
5-9: d
Capital balances before liquidation
Salary payable
Balances
Loss on realization (P2,400)
Balances
Liquidation expenses (P600)
Balances
Loan balances
Total interest
Possible Loss (126,000-18,000)
Balances
Additional loss to A & C
Balances
Additional loss to C
Cash distribution
A
B
C
D
P16,200
P12,000
P37,700
P17,700
_____
___160
___240
_______
16,200
12,000
37,860
( 17,940)
( 600)
( 600)
( 600)
( 600)
15,600
11,400
37,260
17,340
( 150)
( 150)
( 150)
( 150)
15,450
11,250
37,110
17,190
12,000
14,400 _____
__9,600
27,450
25,650
37,110
26,790
( 27,000)
( 27,000)
( 27,000)
( 27,000)
450
( 1,350)
10,110 ( 210)
( 780)
__1,350 ( 780)
____210
( 330)
9,330
___330
_____
( 330)
_____
P
P 9,000 P
5-10: a
Total interest
Profit and Loss ratio
Loan absorption balances
Priority I - to Sy
Balances
Priority II - to Sy & Less
Total
DY
P22,000
2/4
44,000
_____
44,000
_____
P44,000
BALANCES
SY
LEE
P15,500
P14,000
1/4
1/4
62,000
56,000
( 6,000) _____
56,000
56,000
( 12,000)
( 12,000)
P44,000
P44,000
CASH PAYMENTS
DY
SY
LEE
1,500
3,000
_____
P
_____
P 4,500
86
Further cash distribution, profit and loss ratio
Cash distribution to Dy
Divided by Dy's Profit and Loss ratio
Amount in excess of P7,560
Total payment under priority I & II
Total cash distribution to partner
_3,000
P 3,000
Chapter 5
P 6,250
2/4
12,500
__7,500
P20,000
5-11: d
Cash before liquidation
Cash realized
Total
Less:
Payment of liquidation expense
Payment of liability
Payment to partners (Q 5-10)
Cash withheld
P12,000
_32,000
44,000
P 1,000
5,400
20,000
_26,400
P17,600
5-12: c
Loss absorption balances:
Cena (18,000/50%)
Batista (27,000/30%)
Excess of Batista
Multiply by Batista's Profit & Loss ratio
Priority I to Batista
5-13: c
Capital balances
Loan balances
Total interest
Divided by Profit and Loss Ratio
Loss Absorption balances
Priority I to CC
Balances
Priority II to BB & CC, 2:1
Total interest
P36,000
90,000
54,000
____30%
P16,200
BALANCES
AA
BB
P15,000
P30,000
10,000
_5,000
25,000
35,000
2/5
2/5
62,500
87,520
_____
_____
62,500
87,520
_____
( 25,000)
P62,500
P62,500
AA
Priority I to CC (12,500 X 1/5)
Priority II to BB (25,000 X 2/5)
to CC (25,000 X 1/5)
Total
Priority III P/L Ratio
Cash distribution to CC:
Priority I
____
P
CC
P10,000
10,000
20,000
1/5
100,000
( 12,500)
100,000
( 25,000)
P62,500
CASH PAYMENTS
BB
CC
2,500
10,000
_____
_5,000
P10,000
P 7,500
P2,500
3,167
P5,667
87
5-14: c
JJ
P 60,000
_18,000
_78,000
____40%
195,000
______
195,000
______
195,000
______
P195,000
Capital balances
Loan balances
Total interest
Divided by Profit and Loss Ratio
Loss Absorption balances
Priority I to LL
Balances
Priority II to LL, MM, 15:10
Balances
Priority II to KK, LL, MM, 35:15:10
Total
JJ
______
P
BALANCES
KK
LL
MM
P 64,500
P 54,000
P 30,000
_30,000 ______
______
_94,500
_54,000
_30,000
_____35%
_____15% _____10%
270,000
360,000
300,000
______
( 60,000)______
270,000
300,000
300,000
______
( 30,000) ( 30,000)
270,000
270,000
270,000
( 75,000)
( 75,000) ( 75,000)
P195,000
P195,000
P195,000
CASH PAYMENT
KK
LL
9,000
4,500
1,750
11,250
______
______
P 1,750
P 24,750
MM
3,000
___7,500
P 10,500
Priority I to LL
Priority II to LL, MM, 15:10
Priority II to KK, LL, MM, 35:15:10
(29,100-16,500), 12,600
Cash distribution
JJ
_____
P
KK
__7,350
P 7,350
LL
P 9,000
4,500
___3,150
P 16,650
MM
TOTAL
P 9,000
3,000
7,500
__2,100
P 5,100
5-15: a
Capital balances
Loan balances
Total interest
Divided by Profit and Loss Ratio
Loss Absorption balances
Priority I to Bello
Balances
BALANCES
ARCE
BELLO
P 20,000
P 24,900
_10,000 ______
_32,000
_24,900
_____50%
_____30%
64,000
83,000
______
( 8,000)
64,000
75,000
CRUZ
P 15,000
______
_15,000
_____20%
75,000
______
75,000
__12,600
P 29,100
______
P 64,000
( 11,000)
P 64,000
( 11,000)
P 64,000
88
Chapter 5
CASH PAYMENTS
ARCE
BELLO
CRUZ
_____
2,400
3,300
_____
_2,200
Total
P 5,700
P2,200
5-16: a
Cash paid to Arce
Divide by Profit & Loss ratio
P2,000
_____5%
40,000
_7,900
47,900
20,000
Total
Less cash before realization
67,900
_6,000
P61,900
5-17: b
Cash distribution to Cruz
Divide by profit and loss ratio
P 6,200
2/5
15,500
3/5
9,300
__2,400
P11,700
5-18: b
BALANCES
MONZON
Total Interest
P22,500
_____60%
37,500
______
Total
P37,500
CASH PAYMENT
NIEVA
MONZON
NIEVA
P17,500
_____40%
43,750
( 6,250) _____
_2,500
P2,500
P37,500
5-19: b
Cash distribution
PI to Nieva (2,500-2,000)
Balances, 6:40
Cash distribution
CASH MONZON
NIEVA
P12,500
( 500)
500
_12,000
__7,200
_4,800
P
P 7,200
P5,300
5-20: a
Cash before liquidation
June: Cash realized
Payment to creditor
Payment to Partners
Cash balances, June 30
July: Cash realized
Payment of liquidation expense
Payment to Partners
Cash balances, July 31
Aug: Cash realized
Cash distribution for August,
Profit and Loss ratio
Distribution to Partners - August
Monzon (22,500 X 60%)
Nieva (22,500 x 40%)
P 5,000
18,000
( 20,000)
__2,000
1,000
12,000
( 500)
( 12,500)
_22,500
P22,500
P13,500
P 9,000
89
90
Chapter 5
SOLUTIONS TO PROBLEMS
Problem 5 1
Suarez, Tulio and Umali
Statement of Liquidation
January 1 to april 31, 2008
Assets
Tulio,
Umali,
Partners' Capitals
Cash
Others Liabilities
Loan
Loan Suarez (40%) tulio (35%) Umali (25%)
Balances before liquidation.
P 2,000.00 P46,000.00 P6,000.00 P5,000.00 P2,500.00 P14,450.00 P12,550.00
P7,500.00
January Installment:
Realization of assets and
distribution of loss ....
10,500.00 ( 12,000.00) _______
_______
______( 600.00)( 525.00) ( 375.00)
Balances.........................
12,500.00 34,000.00 6,000.00 5,000.00 2,500.00
13,850.00 12,025.00
7,125.00
Payment of expenses of
realization and distribution
to partners ...................... ( 500.00) _______ _______
_______ _______ ( 200.00) ( 175.00) ( 125.00)
Balances.........................
12,000.00 34,000.00 6,000.00 5,000.00 2,500.00
13,650.00 11,850.00
7,000.00
Payment of liabilities .....
( 6,000.00) _______ ( 6,000.00) _______ _______
_______
________ ............................
_______
Balances.........................
6,000.00 34,000.00
5,000.00 2,500.00
13,650.00 11,850.00
7,000.00
Payments to partners
(Schedule 1) .............
( 4,000.00) _______ _______ ( 3,812.50)( 187.50)
_______
_______
_______
Balances.........................
2,000.00 34,000.00
1,187.50 2,312.50
13,650.00 11,850.00
7,000.00
February Installment:
Realization of assets and
distribution of loss ....
6,000.00 ( 7,000.00) _______
_______ _________(400.00)( 350.00) ( 250.00)
Balances.........................
8,000.00 27,000.00
1,187.50 2,312.50
13,250.00 11,500.00
6,750.00
Payment of expenses of
realization and distribution
to partners ...................... ( 750.00) _______ ______
_______
_______ ( 300.00) ( 262.50) ( 187.50)
Balances.........................
7,250.00 27,000.00
1,187.50 2,312.50
12,950.00 11,237.50
6,562.50
Payments to partners
(Schedule 2) .............
( 6,000.00) _____________
( 1,187.50) ( 1,812.50) ( 1,650.00) ( 1,350.00)
_______
Balances.........................
1,250.00 27,000.00
500.00
11,300.00
9,887.50
6,562.50
March Installment:
Realization of assets and
distribution of loss ....
10,000.00 ( 15,000.00)______ ______
______
( 2,000.00)( 1,750.00)
( 1,250.00)
Balances.........................
11,250.00 12,000.00
500.00
9,300.00 8,137.50
5,312.50
Payment of expenses of
realization and distribution
1,125.00
Payment of expenses of
realization and distribution
to partners ...................... _(400.00)
______
______
Balances.........................
4,100.00
1,025.00
Final Payments to partners P(41,100.00)_____ _____
P( 1,435.00) ................... P(1,025.00)
______
_______ (
500.00
______ ( 500.00)
______
______
______
______
_____
_____
( 4,060.00)( 3,552.50)
5,000.00
4,375.00
( 3,200.00)( 2,800.00)
1,800.00
1,575.00
91
Schedule 1
Suarez (40%)
Tulio (35%) Umali (25%)
Capital balances ......................................
P13,650.00
P11,850.00
P7,000.00
Loan balances..........................................
_____ _
__5,000.00
_2,500.00
Total interests ..........................................
13,650.00
16,850.00
9,500.00
Possible loss (P2,000 + P34,000) ...........
( 14,400.00)
( 12,600.00)
( 9,000.00)
Balances .................................................. ( 750.00)
4,250.00 500.00
Additional loss to Tulio and Umali 35:25 ___750.00
( 437.50)
( 312.50)
Payments to partners ...............................
P 3,812.50P 187.50
Apply to loan...........................................
__ __
P 3,812.50P 187.50
Schedule 2
Capital balances ......................................
Loan balances..........................................
Total ........................................................
Possible loss (P1,250 + P27,000) ...........
Payments to partners ...............................
Apply to loan...........................................
Apply to capital .......................................
Suarez (40%)
Tulio (35%) Umali (25%)
P12,950.00
P11,237.50
P6,562.50
__1,187.50
_2,312.50
12,950.00
12,425.00
8,875.00
( 11,300.00)
( 9,887.50)
( 7,062.50)
P 1,650.00
P 2,537.50
P1,812.50
_1,187.50
_1,812.50
P 1,650.00
P 1,350.00
P
92
Chapter 5
Problem 5 2
Miller and Bell Partnership
Statement of Partnership Realization and Liquidation
Balances
Sale of inventory
Payment to
creditors
Payments to
partners
(Schedule 1)
Sale of inventory
Payment to
creditors
Offset deficit
with loan
Payments to
partners:
Loan
Capitals
Cash
25,000
40,000
InvenAccounts
tory
Payable
120,000
15,000
( 60,000)
(10,000)
55,000
______
60,000
(50,000)
5,000
30,000
______
______
60,000
5,000
( 60,000)
( 5,000)
30,000
______
0
______
30,000
( 6,000)
(24,000)
(10,000)
5,000
( 5,000)
0
Bell
Loan
60,000
______
60,000
(49,000)
11,000
______
11,000
______
0
______
0
( 5,000)
6,000
______
______
( 6,000)
______
Capital
Miller
Bell
80%
20%
65,000
5,000
(16,000)
(4,000)
______
______
49,000
1,000
_(1,000) ______
48,000
1,000
(24,000)
6,000)
______
______
24,000
(5,000)
______
24,000
(5,000)
0
(24,000) ______
Balances
Schedule 1:
Miller and Bell Partnership
Schedule of Safe Payments to Partners
Miller
80%
49,000
(48,000)
1,000
Bell
20%
61,000
(12,000)
49,000
93
Problem 5 3
HORIZON PARTNERSHIP
Statement of realization and Liquidation
May July, 2008
Assets
Cash
Balances before liquidation
May sale of assets at a loss of P30,000
20,000
75,000
Other
Liabilities
280,000
80,000
(105,000) ______
Balances
Payment to creditors
95,000
175,000
(80,000) ______
Balances
Payments to PP (Exhibit A)
15,000
175,000
(15,000) ______
______
Balances
June sale of assets at a loss of P36,000
Balances
Payment to partners (Exhibit A)
Balances
July sale of remaining assets at a loss of
P33,000
Balances
Payment to partners
0
25,000
175,000
(61,000) ______
81,000
81,000
(81,000)
Partners Capital
TT
(1/3)
PP
(1/3)
60,000
(10,000)
70,000
(10,000)
90,000
(10,000)
50,000
______
60,000
______
80,000
______
50,000
60,000
______
______
80,000
(15,000)
80,000
(80,000)
25,000
114,000
(25,000) ______
______
0
SS
(1/3)
50,000
(12,000)
38,000
______
60,000
(12,000)
65,000
(12,000)
48,000
(10,000)
53,000
(15,000)
114,000
38,000
38,000
38,000
(114,000)
(11,000)
(11,000)
(11,000)
27,000
(27,000)
27,000
(27,000)
27,000
(27,000)
TT
60,000
1
60,000
PP
70,000
1
70,000
90,000
1
90,000
______
Balances
Required reduction to bring the balances for
TT and PP to equal the balance for SS PII.
______
60,000
______
Balances
70,000
70,000
(10,000)
(10,000)
60,000
60,000
10,000
20,000
10,000
60,000
(20,000)
80,000
20,000
20,000
1/3
1/3
1/3
b. After the cash distribution in June, the partners capital accounts had balances corresponding to the income-sharing
ratio (38,000 each). From this point on any cash payments to partners may be made in the income-sharing ratio or
equally in this problem. In other words, after the creditors are paid and TT and PP receive 10,000 and 30,000,
respective, any additional cash that becomes available may be paid to the three partners equally.
94
Chapter 5
Problem 5 4
1. X, Y and Z
Cash Priority Program
January 1, 2008
Balances
Y
P60,000
22,5000
P45,000 P20,000
15,000
6,500
Total interests......................................
P82,500
P60,000 P26,500
P165,000
P200,000P132,500
(35,000)
Balances ..............................................
Priority II to X and Y .......................
Total ....................................................
165,000
(32,500)
P132,500
165,000 132,500
(32,500)________
P132,500P132,500
X (50%)
Cash Payments
Y (30%) Z (20%)
Total
P10,500
P10,500
P16,250
9,750
26,000
P16,250
P20,250
P36,500
50%
30%
20%
100%
2. January
Cash
Available for distribution ..............................
Priority I to Y .............................................
P 7,500
( 7,500)
Cash
P20,000
( 3,000)
P 7,500
P 7,500
P 3,000
( 17,000)
Payments to partners......................................
March ...........................................................
Available for distribution ..............................
Priority II to X and Y; 5:3
(P26,000 P17,000) .................................
Excess; 5:3:2..................................................
6,375
_____
P10,625
P 9,375
Cash
P45,000
( 9,000)
( 36,000)
Payments to partners......................................
April ..............................................................
Available for distribution ..............................
Excess; 5:3:2..................................................
P10,625
Cash
P15,000
( 15,000)
Payments to partners......................................
P 5,625
18,000
P 3,375
10,800
P7,200
P23,625
P14,175
P7,200
P 7,500
P 4,500
P3,000
P 7,500
P 4,500
P3,000
95
Problem 5 5
AB, CD & EF Partnership
Statement of Partnership Realization and Liquidation
Capital
Able
Other Accounts CD
AB
CD
EF
Cash
Loan
Assets Payable Loan
50%
30%
20%
18,000 30,000 307,000 53,000 20,000 118,000 90,000
( 7,500)
( 7,000)
( 1,000)
( 3,000)
1,500 900
600
(50,000)_____ ______ _____ ______
-020,000 104,000 81,600
______
-0-
-0-
(20,000)
104,000 75,000
February transactions:
6. Liquidation expenses paid
( 4,000)____________ ______ ______
( 1,200)
( 800)
6,000 30,000 189,000 -0-049,200
Safe payments to partners
(Schedule 2)
-0- _____ ______ ______ ___
6,000 30,000 189,000 -0-049,200
March transactions:
8. Sale of mac. & equip. at a
loss of 43,000
146,000
(189,000)
(12,900)
( 8,600)
9. Liquidation expenses paid
( 5,000)___________________ ______
( 1,500)
( 1,000)
147,000 30,000
-0-0-039,600
10. Offset AB's loan
receivable against capital
(30,000)
Payments to partners
(147,000)___________________ ______
(59,400)
(39,600)
Balances at end of liquidation
0
0
0
0
0
( 2,000)
102,000 73,800
0
0
102,000 73,800
( 21,500)
( 2,500)
78,000 59,400
( 30,000)
( 48,000)
0
96
Chapter 5
Partnership
Schedules of Safe Payments to Partners
Schedule 1: January
Capital and loan balancesa
Possible loss:
Other assets (189,000) and possible liquidation
costs (10,000)
Balances
Absorption of AB's potential deficit balance
CD : (25,500 x 3/5 = 15,300)
EF : (25,500 x 2/5 = 10,200)
Safe payment
AB
50%
CD
30%
EF
20%
P74,000
P101,600
P68,400
( 99,500)
( 25,500)
25,500
( 59,700)
41,900
( 39,800)
28,600
( 15,300)
_______
P 26,600
( 10,200)
P 18,400
______
P
-0-
72,000
73,800
( 97,500)
( 25,500)
25,500
_______
0
49,200
( 58,500)
15,300
( 39,000)
10,200
( 15,300)
________
0
( 10,200)
0
97
Problem 5 6
1.
M, N, O and P
Cash Priority Program
January 1, 2008
Capital balances ..
Loan balances .....
Total interests .....
Balances
M
N
O
P 70,000 P 70,000 P 30,000
20,000
5,000
25,000
P 90,000 P 75,000 P 55,000
Cash Payments
P
M (3/8) N (3/8) O (1/8)
P (1/8)
P 20,000
15,000
P 35,000
Loss absorption
balances .........
P240,000 P200,000 P440,000 P280,000
Priority I to O .. _______ _______
( 160,000)________
Balances .............
240,000
200,000 280,000
280,000
P20,000
Total
P20,000
Priority II to O
and P .............. _______ _______
( 40,000) ( 40,000)
Balances .............
240,000
200,000 240,000
240,000
Priority III to
M, O and P .....
( 40,000)_______
( 40,000) ( 40,000)P15,000
Total ...................
P200,000 P200,000 P200,000 P200,000P15,000
Any amount in excess of P55,000
3/8
5,000
5,000
P30,000
3/8
1/8
P5,000
10,000
5,000 25,000
P10,000 P55,000
1/8
8/8
2.
Schedule 1
Cash
P25,000
( 20,000)
( 5,000) ________
_______
Payments to partners............................
Apply to loan .......................................
Apply to capital ...................................
P20,000
2,500
P2,500
P22,500
( 22,500)
2,500
( 2,500)
Schedule 2
Cash
P15,000
3,750
P3,750
18,750
( 18,750)
P3,750
( 3,750)
98
P
P 2,500
5,000
1,250
8,750
( 2,500)
P 6,250
P2,500
5,000
8,750
( 8,750)
Chapter 5
Problem 5 7
loan balances
Loss absorption balances
(Capital and loan
balances/P& L ratio)
Decrease highest LAB
to next highest:
Gold: (30,000 x .30)
P55,000
P110,000
P150,000
_______
110,000
Decrease LAB's
to next highest:
Gold: (10,000 x .30)
Silver: (10,000 x .20) _______
P110,000
P45,000
P24,000
P120,000
( 30,000)_______
______
120,000
120,000
55,000
( 10,000)
________
P110,000
( 9,000)______
36,000
24,000
( 3,000)
( 10,000)_______ _______
_( 2,000)
P110,000
P 55,000 P 33,000 P 22,000
Bronze
50%
P106,000
( 17,000)
P 17,000
( 9,000)
( 5,000)
( 75,000)_______
P
-0-
P 17,000
Gold
30%
Silver
20%
P 2,000
P37,500
P 9,000
3,000
22,500
P37,500
P34,500
P17,000
99
Problem 5 8
Part A
North
Total Interest (capital and loan
balances
Divided by P/L ratio
Loss absorption potential
Priority II To South
Balances
P120,000
30%
P400,000
400,000
Balances
Priority III To North, South, and
400,000
Balances
South
East
West
Cash Payments
North South
East
West
33,500
14,500 29,000
east 30:10:20
Total
(250,000)
150,000
(250,000)
150,000
(250,000)______
150,000
150,000
(3)
Cash
North capital (30% x P103,000)
South capital (10%)
East capital (20%)
West capital (40%)
Property and equipment
To record sale of property and equipment.
82,000
150,000
30,900
10,300
20,600
41,200
253,000
North capital
31,800
South capital
58,600
East capital
35,000
West capital
15,200
Cash
140,600
To record cash installment to partners of P230,600 based on the cash distribution plan in Part A.
First P90,000 is held to pay liabilities (P74,000) and estimated liquidation expenses of P16,000.
Next P33,500 goes entirely to South.
Next P43,500 is split between to South (P14,500) and East (P29,000).
Remaining P63,600 is allocated to North (P31,800), South (P10,600) and East (P21,200)
(4)
Liabilities
Cash
To record payment of liabilities.
74,000
74,000
100
(5)
(6)
Chapter 5
Cash
North capital (30% of P30,000 loss)
South capital (10%)
East capital (20%)
West capital (40%)
Inventory
To record inventory sold.
71,000
9,000
3,000
6,000
12,000
101,000
North capital
35,500
South capital
11,833
East capital
23,667
Cash
71,000
To record distribution of cash according to cash distribution plan. Although P87,000 cash
is being held, P16,000 must be retained to pay liquidation expenses. The Remaining
(8)
11,000
4,580
( 2,090)
Capital balances
(9)
3,300
1,100
2,200
4,400
P 2,500
North capital
South capital
East capital
Cash
To record final cash distribution.
South
P88,000
( 1,640)
(10,300)
(58,600)
( 1,100)
1,527
( 693)
P 834
4,160
East
P109,000
( 3,280)
(20,600)
(50,200)
( 2,200)
West
P60,000
( 6,560)
(41,200)
0
( 4,400)
3,053
( 1,666)
( 4,160)
4,160
P 1,666
P 0
2,500
834
1,666
5,000
101
Problem 5 9
DR Company
Schedule of Safe Payments to Partners
Dan
(40%)
Red
(30%)
Ben
(30%)
(42,000)
9,600
4,800
(45,000)
7,200
3,600
(17,000)
7,200
3,600
value)
Capital and loan balances, August 31, 2008
Possible loss of P16,000 for remaining
receivables and P32,000 for
remaining inventory
Possible liquidation costs of P4,000
Balances (* = deficit)
Distribute Bens potential deficit
To Dan: P7,600 x 40/70
To Red: P7,600 x 30/70
Safe payments to partners
(2,400)
(30,000)
(1,800)
(36,000)
(1,800)
(8,000)
19,200
1,600
(9,200)
14,400
1,200
(20,400)
14,400
1,200
7,600*
(7,600)
3,257
(17,143)
-0- -
4,343
(4,857)
Of the P84,000 in cash at the end of August, P58,000 will be required to liquidate the debts to
outside creditors, and P4,000 must be held in reserve to pay possible liquidation costs. Thus, a
total of P22,000 in cash can be safely distributed to partners as of August 31, 2008.
Problem 5 10
(1)
40,000
60,000
100,000
60,000
10,000
180,000
50,000
200,000
102
(2)
Chapter 5
Jenny
P100,000
10,000
15,000
48,000
P173,000
Kenny
P200,000
20,000
20,000
72,000
P312,000
Explanation:
Each partner receives 10% on beginning capital balance. Each partner receives
her respective income (P15,000 to Jenny and P20,000 to Kenny). The amount distributed
175,000
Lenny, capital
Jenny, capital
Kenny, capital
110,000
26,000
39,000
Explanation:
The book value of the partnership after the income distribution in 2006 was
P485,000 (P173,000 + P312,000). After Lennys contribution, the value of the
partnership is P485,000 + P175,000 = P660,000. A one-sixth interest in the partnership is
P660,000 x 1/6 = P110,000. Using the bonus method, we compute a bonus of P175,000
P110,000 = P65,000. Using the 2:3 profit sharing ratio, the amount allocated to Jenny is
P26,000 (2/5 x P65,000) and the amount allocated to Kenny is P39,000 (3/5 x P65,000).
(3)
Explanation:
Jenny
P200,000
9,000
(156,000)
P 53,000
Kenny
P400,000
(50,000)
15,000
(260,000)
P105,000
Lenny
P200,000
6,000
(104,000)
P102,000
Joint Venture
103
CHAPTER 6
SOLUTIONS TO MULTIPLE CHOICES
6-1: a
Assets per Jessica Company- balance sheet
Jessicas proportionate interest in assets of JV (50%)
Total assets of Jessica
6-2: a
6-3: b
6-4: b
P3,550,000
1,000,000
P4550,000
Investment of Heart
Profit share:
Sales
Cost of sales (150,800 125%)
Gross profit
Expenses
Net Profit
Profit/loss ratio
Balance of investment in JV
P80,000
150,800
120,640
30,160
10,000
20,160
x 40%
8,064
P88,064
6-5: a
Cash
Merchandise inventory
Accounts receivable
Total assets
Sweet Cos, proportionate interest
Sweet Companys share in total asset
P190,000
29,360
150,800
370,160
x 60%
P222,096
6-6: a
Sales
Cost of sales
Purchases
Merchandise inventory, end (50% of P10,000)
7,200
P10,000
__5,000 _5,000
Gross profit
Expenses
2,200
___500
Net profit
P 1,700
104
Chapter 6
6-7: b
Original investment (cash)
Profit share (P1,700 / 2)
P10,000
___850
P10,850
P 9,000
__2,500
P11,500
P10,000
6-8: a
6-9: b
Fee of Salas (P10,000 x 15%)
Profit share of Salas (P10,000 x 25%)
P 1,500
_2,500
Total
P 4,000
6-10: b
Salas
Balance before profit distribution
Profit share:Sabas (P10,000 x 40%)
Salve (P10,000 x 35%)
P 500 (dr)
4,000
______
Balance
Salve
P 2,000 (cr)
_3,500
(cr)
6-11: d
Joint venture account balance before profit distribution (debit)
Joint venture profit (P4,500 x 3)
P 6,000
_13,500
P19,500
Edwin Capital:
Debits: Balance before profit distribution
Credits: Profit share
P14,000
__4,500
6-12: b
P 9,500
Joint Venture
105
P 0
P16,000
__4,500
_20,500
P20,500
P30,000
__9,500
P39,500
_20,500
P19,000
P 4,600
__2,000
P 6,600
__6,000
P 600
6-14: d
Harry Capital
Balances before profit distribution
Profit distribution:
Harry P6,000 x 50%)
Isaac (P6,000 x 20%)
Isaac Capital
(P 200)
P 1,800
3,000
1,200
Cash settlements
P 2,800
P 3,000
6-15: b
Sales
Cost of sales:
Merchandise inventory, beg (contributions)
Freight
Purchases
P14,000
P14,000
300
__4,000
P18,300
__4,150
14,150
(150)
__600
P( 750)
6-16: c
Contributions to the Joint Venture (P5,000 + P8,000)
Loss share (P750 x 50%)
Unsold merchandise taken (withdrawal)
P13,000
( 375)
( 4,150)
P 8,475
106
Chapter 6
SOLUTIONS TO PROBLEMS
Problem 6 1
Books of Blanco (Manager)
JV Cash
Joint Venture
Cash
Ablan Capital
Joint Venture
JV cash
Books of Ablan
100,000
90,000
Investment in JV
Merchandise inventory
100,000
90,000
60,000
60,000
90,000
90,000
Joint Venture
JV cash
JV cash
Joint Venture
20,000
20,000
200,000
200,000
Computation of JV Profit
Total debit to JV
Total credit to JV
P170,000
P200,000
P 30,000
Distribution
Joint Venture
Profit from JV
Ablan capital
Ablan capital
JV cash
Cash
JV cash
30,000
15,000
15,000
105,000
105,000
15,000
Investment in JV
Profit from JV
15,000
105,000
Cash
Investment in JV
105,000
155,000
155,000
Joint Venture
107
Problem 6 2
Books of the Joint Venture
1.
2.
3.
Computer equipment
Ella capital
Fabia capital
105,000
60,000
45,000
Purchases
Supplies
Diaz capital
80,000
2,000
Expenses
Diaz capital
9,000
82,000
9,000
4.
Cash
150,000
Sales
5.
6.
7.
8.
150,000
Expenses
Cash
30,000
Merchandise inventory
Ella capital
20,000
Fabia capital
Cash
10,000
30,000
20,000
10,000
(b)
Expenses
Supplies
Sales
500
500
150,000
Income summary
150,000
Income summary
Merchandise inventory
Purchases
77,500
2,500
Income summary
Expenses
39,500
Distribution of profit:
Income summary
Diaz capital
Ella capital
Fabia capital
80,000
39,500
33,000
11,000
11,000
11,000
108
Chapter 6
Books of Diaz
(1)
(2)
(3)
82,000
9,000
82,000
9,000
Books of Ella:
11,000
11,000
(1)
(2)
(3)
60,000
20,000
60,000
20,000
11,000
11,000
Books of Fabia:
(1)
(2)
45,000
Cash
10,000
45,000
10,000
11,000
11,000
Joint Venture
109
Problem 6 3
(1)
7:
Joint Venture
Castro capital
Cash
12,500
JV cash
Bueno capital
10,000
12,000
500
10,000
9,500
JV cash
9,500
16,000
15,000
27: JV cash
Joint Venture
16,000
15,000
9,000
9,000
3,000
3,000
6,000
2,000
2,000
2,000
To record settlements:
Bueno capital
Castro capital
JV cash
Cash
Accounts receivable
JV accounts receivable
12,000
14,000
24,500
1,500
1,000
1,000
110
Chapter 6
Books of Bueno
May 7:
10,000
10,000
2,000
2,000
12,000
12,000
Books of Castro
May 1:
12,000
Merchandise inventory
June 30: Investment in Joint Venture
Profit from Joint Venture
Cash
12,000
2,000
2,000
14,000
14,000
7:
Merchandise inventory
Castro capital
Duran capital
12,500
Cash
10,000
12,000
500
Bueno capital
26: Purchases
Cash
30: Accounts receivable
Sales
June 20: Cash
10,000
9,500
9,500
16,000
16,000
15,000
Accounts receivable
27: Cash
15,000
9,000
Sales
9,000
Joint Venture
111
25,000
Income summary
Income summary
Merchandise inventory, end
Merchandise inventory
Purchases
25,000
19,000
3,000
12,500
9,500
Distribution of profit:
Income summary
Bueno capital
Castro capital
6,000
2,000
2,000
Duran capital
2,000
Settlements to Venturers:
Bueno capital
Castro capital
Duran capital
Merchandise inventory
Accounts receivable
Cash
12,000
14,000
2,500
3,000
1,000
24,500
500
500
2,000
2,000
2,500
2,500
112
Chapter 6
Problem 6 4
(1)
April 1:
May:
June:
JV Cash
Notes payable PNB
Roles capital
Timex capital
102,000
34,000
34,000
34,000
Joint venture
Cash
Rolex capital
64,100
Rolex capital
JV cash
30,000
16,300
7,800
30,000
Joint venture
Cash
Rolex capital
Timex capital
July:
August:
111,400
37,400
64,700
9,300
Cash
Rolex capital
Timex capital
JV cash
40,000
15,000
10,000
Joint venture
Cash
Rolex capital
Timex capital
55,770
Cash
Rolex capital
Timex capital
JV cash
45,000
67,000
13,500
Joint venture
Cash
Rolex capital
Timex capital
30,600
65,000
13,970
31,240
10,560
125,500
9,730
16,560
4,310
To record sales:
JV cash (P421,000 x 96%)
Joint venture
404,160
404,160
Joint Venture
113
34,000
34,000
34,000
8,000
110,000
134,290
40,287
80,574
13,429
Computed as follows:
Total debits tot he JV account
Total credits to the JV account
P269,870
_404,160
P134,290
To record settlement:
Cash
Rolex capital
Times capital
JV cash
32,687
128,874
14,099
175,660
Computations:
Settlement to Rolex - Balance of capital account:
Debits: June
July
August
Payment of note payable
P30,000
15,000
67,000
_34,000
P146,000
Credits: April 1
May
June
July
August
Profit share
P34,000
47,800
64,700
31,240
16,560
_80,574
__274,874
Credit balance
P 128,874
114
Chapter 6
P 10,000
13,500
__34,000
P 57,500
Credits: April 1
June
July
August
Profit share
P 34,000
9,300
10,560
4,310
__13,429
_71,599
Credit balance
Settlement to Seiko Balance of JV cash account
P 14,099
Debits: April 1
Loan proceeds
P102,000
_404,160
P506,160
Credits: June
July
August
Payment of loan
P 30,000
65,000
125,500
_110,000
_330,500
Balance of JV cash
Less: Settlement to Rolex
Settlement to Timex
P128,874
__14,099
175,660
_142,973
Settlement to Seiko
(2)
P 32,687
P 72,000
_175,500
P247,500
_159,800
Current liabilities:
Notes payable PNB
87,700
34,000
Joint Venture
115
P30,000
Joint Venture
June
May
June
P 64,100
_111,400
Balance P175,500
Notes Payable
P34,000
Rolex capital
April
June
P 30,000
_______
P 34,000
47,800
__64,700
P 30,000
P146,500
P116,500
April 1
May
June
Timex capital
P34,000
__9,000
April
June
P43,300
Problem 6 5
Consolidated Balance Sheet
Cash
Receivables
Inventory
Other assets
P 61,000
122,000
102,500
__40,500
Total assets
P326,000
Accounts payable
Other liabilities
Capital stock
Retained earnings
P 61,000
96,500
50,000
_118,500
P326,000
P246,750
_124,750
Gross profit
Operating expenses
122,000
__58,250
P 63,750
116
Chapter 6
Problem 6 6
(a)
Cash
1,000,000
MacDo
Initial contribution at 6%
July 1:
Land
1,000,000
2,400,000
Mortgage payable
Cash
Purchased land for cash and 6% mortgage.
Aug 1:
Cash
1,650,000
750,000
1,100,000
MacDo
1,100,000
950,000
Cash
Paid for improvements.
Sept 30:
Oct 31:
Nov 30:
Dec 31:
950,000
Mortgage payable
Interest expense- Mortgage
Cash
Reduced mortgage and paid interest.
250,000
3,750
Mortgage payable
Interest expense- Mortgage
Cash
Reduced mortgage and paid interest.
400,000
8,000
Mortgage payable
Interest expense- Mortgage
Cash
Reduced mortgage and paid interest.
300,000
7,500
253,750
408,000
307,500
Mortgage payable
200,000
Interest expense- Mortgage
21,000
Cash
Reduced mortgage and make semi-annual
interest payment.
221,000
Joint Venture
31:
117
Cash
2,600,000
Sales
Sales to date.
31:
31:
31:
2,600,000
Commissions
Cash
P2,600,000 x 5%
130,000
Expenses
Cash
Paid expenses
628,100
130,000
628,100
60,000
60,000
Sales
2,600,000
31:
1,145,000
628,100
130,000
40,250
60,000
596,650
Income summary
MacDo
MacEn
To divide gain, 60:40.
596,650
MacDo
801,650
596,650
238,660
Cash
Payment on account.
(b)
801,650
Aug 1:
1,000,000
1,100,000
1,000,000
1,100,000
118
Chapter 6
Dec 31:
31:
31:
60,000
357,990
Cash
801,650
60,000
357,990
801,650
Sales
Cost of land sold:
Land
Improvements
Total
Unsold land
Gross profit
Expenses:
Advertising and office expenses
Interest on mortgage
Interest on advances
Commissions
Net gain
P2,600,000
P2,400,000
950,000
P3,350,000
2,205,000
P 628,100
40,250
60,000
130,000
Distributions:
MacDo (P596,650 x 60%)
MacEn (P596,650 x 40%)
1,145,000
1,455,000
858,350
P 596,650
P 357,990
238,660
P 250,000
2,205,000
P2,455,000
P 500,000
1,716,340
238,660
P2,455,000
Joint Venture
119
MacDo
P2,100,000
MacEn
Total
P2,100,000
P 357,990
60,000
P238,660
P 596,650
60,000
130,000
786,650
2,886,650
(931,650)
P1,955,000
417,990
2,517,990
(801,650)
P1,716,340
130,000
368,660
368,660
(130,000)
P238,660
120
Chapter 7
CHAPTER 7
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
7-1: c
Amount realized secured by inventory
Unsecured claim (P10,000 x 25%)
P 30,000
__2,500
P 32,500
P120,000
__66,000
P186,000
7-2: d
7-3: d
(P15,000,000 + P200,000)
7-4: a
Realizable value:
Current assets
Land and building
Less mortgage payable
P 50,000
P240,000
_200,000__40,000
Total
Less accounts payable
90,000
_160,000
P 70,000
7-5: c
Total realizable value to unsecured creditors (P90,000)/total unsecured
Claims (P160,000) = 56.25%
7-6: a
Free assets:
Current assets
Buildings and equipment
Total
Liabilities with priority:
Administrative expenses
Salary payable
Income taxes
Total
P 33,000
_110,000
P143,000
P 20,000
6,000
__8,000
P 34,000
121
P109,000
P 30,000
83,000
__70,000
P183,000
P 90,000
__18,000
P108,000
7-7: c
Free assets:
Other assets
Excess from assets pledged with secured
Creditors (P116,000 P70,000)
Total
Liabilities with priority
Free assets after payment of liabilities with priority
(P126,000 P42,000)
Unsecured liabilities:
Excess of partially secured liabilities over pledge
Assets (P130,000 P50,000)
Unsecured creditors
Total
P 80,000
__46,000
P126,000
P 42,000
P 84,000
P 80,000
_200,000
P280,000
P 50,000
__24,000
P 74,000
122
Chapter 7
7-8: a
The holder of Debt Two will receive P100,000 from the sale of the pledged
asset. Since the holder wants to receive P142,000 out of the total debt of
P170,000, the company must be able to generate enough cash to pay off
60% of the unsecured liabilities (P42,000/P70,000) after paying 100% of
the liabilities with priority (P110,000).
Unsecured liabilities:
Unsecured creditors
Excess liability of Debt One in excess of pledged
Asset (P210,000 P180,000)
Excess liability of Debt Two in excess of pledged
Asset (P170,000 P100,000)
Total unsecured liabilities
Necessary percentage
P230,000
30,000
__70,000
P330,000
____60%
P198,000
In order for the holder of Debt Two to received exactly P142,000, the other free assets
must be sold for P308,000. With that much money, the liabilities with priority
(P110,000) can be paid with the remaining P198,000 going to the unsecured debts of
P330,000. This 60% figure would insure that the holder of Debt Two would get
P100,000 from the pledged asset and P42,000 (P70,000 x 60%) from the free assets.
7-9: c
P 15,000
( 25,000)
P
250
4,000
4,250)
Estate deficit
P( 14,250)
7-10: c
Total assets at net realizable value
Fully secured liabilities
Estimated administrative expense
P 75,000
(40,000)
_( 4,000)
P 31,000
(45,250)
P 14,250
123
7-11: b
Assets pledged with fully secured creditors
Fully secured creditors
Free assets
Total free assets
Less: Liabilities with priority
Available to unsecured non-priority claims
P185,000
_130,000 55,000
_160,000
215,000
__35,000
P180,000
7-12: b
Machinery
Recoveries of unsecured claims (50,000 - 10,000) X .50
Amount to be realized
7-13: b
P 10,000
__20,000
P 30,000
Notes Payable
Less: Inventories
Unsecured Liabilities
% of recovery
Recovery
Add: Inventories
Amount to be received by Wood
7-14: a
7-15: a
7-16: b
7-17: d
P 23,940
19,200
4,740
____78%
3,697
_19,200
P 22,897
- P7,000
- P30,000
- P57,200 [52,000 + (8,000 X .65)]
- P72,800 (112,000 X .65)
7-18: d
Estimated loss:
Account Receivable
Inventories (28,000 - 18,500)
Building (59,000 - 22,000)
Equipment (5,600 - 2,000)
Goodwill
Prepaid expenses
Less: Stockholder's equity
Common stock
Deficit
Estimated deficiency
P 8,160
9,500
7,000
3,600
5,650
___430
P 64,340
P 72,000
( 16,660) _55,340
P 9,000
124
Chapter 7
7-19: d
Accounts Receivable (39,350 - 16, 110)
Notes Receivable (18,500 - 12,500)
Inventories (87,850 - 45,100)
Prepaid expenses
Equipment (48,800 - 9,000)
Total estimated loss
P 23,240
600
42,750
950
__39,800
P112,740
P 5,000
Cash
Accounts Receivable
Inventories
Equipment
P 2,700
16,110
45,100
__9,000__72,910
77,910
___6,500
P 71,410
Total
Less: Unsecured liabilities with priority (1,850 + 4,650)
Net Free Assets
Divide by Unsecured creditors:
Balance of Partially Secured Creditor
Notes Payable - PNB
P 15,000
Notes Receivable
__12,500
Accounts Payable
52,500
Notes Payable
__51,250
Estimated recovery %
2,500
103,750 P106,250
67%
7-22: d
Fully secured (Notes Payable)
Partially secured:
Notes Payable - PNB
Add (2,500 X 67%)
Unsecured Creditor with Priority
Unsecured Creditor without Priority (103,750 X 67%)
Total
P 90,000
P12,500
__1,675 14,175
6,500
__69,513
P180,188
125
7-23: a
Unsecured creditors without priority
Estimated deficiency to unsecured creditors:
Loss on realization
Estimated liquidation expenses
Total
Stockholders equity
Net free assets
Liabilities with priority
Free assets
P1,102,500
551,250
55,125
606,375
441,000
165,375
937,125
122,500
P 1,059,625
7-24: a
Estimated net gain (loss) on realization:
Gain on realization
Loss on realization
Estimated claims
78,750
(336,700)
(257,950)
( 43,750)
7-25: b
Total
Stockholders equity
Estimated deficiency
(301,700)
295,750
P( 5,950)
P 35,000
367,500
402,500
367,500
35,000
7-26: a
Old receivable (net)
Marketable securities
Old inventory
Depreciable assets- net
Total assets to be realized
P 38,000
12,000
60,000
96,000
P206,000
Old receivable
New receivable
Marketable securities
Sales of inventory
Total asset realized
P 21,000
47,000
10,500
75,000
P153,500
7-27: a
7-28: a
15,000
1,500
4,300
16,000
126
(21,800)
P( 6,800)
Chapter 7
SOLUTIONS TO PROBLEMS
Problem 7 1
(A)
Laguna Company
Statement of Affairs
October 31, 2008
Book
Value
Estimated
Assets
Realizable Value
Assets pledge for fully secured creditors:
P107,000 ... Plant assets .................................................. P67,400
Less; Fully secured liabilities ...................... _ 50,400
Assets pledged for partially secured creditors:
39,000 . ... Inventories................................................... P18,000
Free Assets:
4,000 .. ... Cash.............................................................
46,000 .. ... Accounts, receivable ...................................
P 4,000
46,000
Free Assets
P17,000
2,000 .. ...
P198,000
Book
Value
Creditors'
Liabilities & Stockholders' Equity
Claim
Fully secured liabilities:
P50,400 ... ... Mortgage payable (including interest, P400) P50,400
Partially secured liabilities:
21,000 ... ... Notes payable ..............................................
P21,000
Less: Inventory............................................
_18,000
Unsecured creditors with priority:
5,800 ... ... Wages payable
P 5,800
1,200 ... ... Property taxes payable ................................
_1,200
Total ............................................................
P 7,000
Unsecured creditors without priority:
60,000 ... ... Accounts payable ........................................
19,000 ... ... Notes payable ..............................................
Stockholders' Equity........................................
P198,000
(B)
Creditor Group
Amount of
Claim
Unsecured liabilities with priority ....................................
P7,000
Fully secured creditors ......................................................
50,400
Partially secured creditors.................................................
21,000
Unsecured creditors without priority ................................
79,000
* P18,000 + (P3,000 X 0.75) = P20,250
(C) See statement of affairs in requirement (A)
_51,500
P68,500
__7,000
P61,500
_20,500
P82,000
Unsecured
Liabilities
P 3,000
60,000
19,000
_____
P82,000
Amount to
be Paid
P7,000
50,400
20,250 *
59,250
Percentage
to be paid
100.0%
100.0%
96.4%
75.0%
127
Problem 7 2
VC Corporation
Statement of Realization and Liquidation
Month Ended January 31, 2008
Assets to be realized:
Land ....................... P10,000
Building ................. 43,000
Equipment .............. 28,000
Patents .................... __4,400
Assets Acquired ..............
P85,400
0
Assets realized:
land.............................. P
0
Building ......................
0
Equipment ...................
8,800
Patents ......................... _12,000
Assets not realized:
Land ............................ P10,000
Building ...................... 43,000
Equipment ................... _13,000
P20,800
66,000
Liabilities Liquidated:
Account payable .... P14,000
Loans payable ........ __7,000
21,000
99,000
Liabilities to be Liquidated:
Accounts payable ........ P80,000
Loans payable ............. _40,000
120,000
___6,200
P213,000
VC Corporation
Balance Sheet
January 31, 2008
Cash ............................................... P 6,700
Land ...............................................
10,000
Building ..........................................
43,000
Equipment ...................................... _13,000
Total ............................................... P 72,700
P 66,000
33,000
( 26,300)
P 72,700
VC Corporation
Estate Deficit
January 31, 2008
Gain on realization ....................................................................
Loss in realization ....................................................................
Trustee's expenses ....................................................................
Net gain on realization...............................................................
Estate deficit, January 1, 2008 ...................................................
Estate deficit, January 31, 2008 .................................................
128
Chapter 7
Problem 7 3
Rizal Corporation
Statement of Affairs
Book
Values
Assets
Assets pledged to fully secured creditors:
P 80,000 ...... .... Land and building ..............................................
Less: Mortgage payable .....................................
50,000 ...... .... Finished Goods ..................................................
Less: Loan payable .............................................
P 7,600
( 6,200)
( 1,300)
P
100
( 26,400)
P(26,300)
Estimated
Realizable Value
P102,000
43,000
P 55,000
50,000
24,000
3,500
27,500
Free
Assets
P 59,000
5,000
Free Assets:
Cash....................................................................
AR (20% x 30,000) ............................................
Inventory Materials .........................................
Prepaid expense ..................................................
Trucks ................................................................
Equipment ..........................................................
Intangible ...........................................................
Total Free Assets ....................................................
Less: Unsecured liability with priority (12,000 + 8,000)
Net free assets .........................................................
________
Estimated deficiency to unsecured creditors (to Balance)
P 292,000 ...... .... Total unsecured liabilities .......................................
4,000 ...... ....
8,000 ...... ....
36,000 ...... ....
1,000 ...... ....
8,000 ...... ....
45,000 ...... ....
16,000 ...... ....
Book
Values
4,000
6,000
27,000
0
2,500
25,000
_______
Creditors'
Claim
25,000
24,000
5,000
3,500
12,000
8,000
20,000
Unsecured creditors:
77,000 ...... .... Accounts payable ...............................................
110,000 ...... .... Stockholder Loan ...............................................
( 38,000) ...... .... Stockholder Equity .................................................
P 292,000
Total ........................................................................
Corporation in Financial Difficulty Liquidation
Unsecured
Liabilities
94,000
50,000
144,000
64,500
P128,500
20,000
108,500
81,000
P189,500
77,000
110,000
P 1,000
1,500
187,000
P189,500
129
Problem 7 4
Mapayapa Corporation
Statement of Affairs
November 1
Book
Value
Estimated
Assets
Realizable Value
Assets pledged to fully secured creditors:
P60,000.... ... Investments ................................................. P 69,000
180,000.... ... Accounts receivable ....................................
171,000
Total ............................................................
240,000
Less: Note payable ......................................
210,000
Free
Assets
P 30,000
66,000.... ...
248,000.... ...
291,000.... ...
870,000.... ...
114,000.... ...
.... ...
_________
P1,839,000
Free assets:
Cash............................................................. P 66,000
Accounts receivable .................................... 193,500
Merchandise inventory................................ 180,000
Plant & equipment ...................................... 330,000
Notes receivable .......................................... 108,300
Patent........................................................... __12,000
Total free assets...........................................
Less: Unsecured liabilities with priority..........
Net free asset ...............................................
Estimated deficiency (to balance) ...................
Total ................................................................
_889,800
919,800
__13,800
906,000
60,300
P966,300
Creditor's
Claim
Unsecured
Liabilities
Book
Value
P210,000
P 7,200
___6,600
P 13,800
Unsecured creditor:
Account payable..........................................
Accrued expenses........................................
300,000.... ... Capital stock
__369,000.... ... Retained earnings ............................................
P1,839,000
Total ................................................................
960,000.... ...
130
P960,000
6,300
_______
P966,300
Chapter 7
Problem 7 5
a.
b.
P471,000
__23,500
P 91,500
P 70,000
356,000
115,000
__95,000
P165,000
P91,500
= 55.45%
P165,000
c.
Distribution of P471,000:
Creditors
Accounts payable
Wages payable
Taxes payable
Notes payable & interests
Amount
P 95,000 ....
9,500 ....
14,000.....
125,000 ....
70,000
Bonds payable & interests
231,000 ....
Total estimated payment ........................................
Percent
Realized
55.45%
100%
100%
100%
55.45%
100%
Total
Payment
P 52,678
9,500
14,000
125,000
38,815
_231,000
P470,993
131
Problem 7 6
1.
Evergreen Company
Statement of Affairs
June 30, 2008
Book
Values
Estimated
Realizable
Values
ASSETS
Pledged with fully secured creditors:
P460,000
Land and building ............................
P340,000
Less: Mortgage payable (including accrued interest)
(330,000)
Free Assets:
80,000
Cash.................................................. ...................
140,000
Accounts receivable net ................
126,000
100,000
Inventories........................................
84,000
Available for
Unsecured
Creditors
P 10,000
P 80,000
120,000
100,000
40,000
_ _____0_
330,000
340,000
_140,000
200,000
_130,000
P1,000,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured &
Priority
Claims
Liabilities with priority
P120,000
Wages payable .................................
20,000
Property taxes payable .....................
Total .........................................................
Fully secured creditors
300,000
Mortgage payable.............................
30,000
Interest on mortgage payable ...........
P120,000
__20,000
P140,000
300,000
__30,000
Total .........................................................
P330,000
Unsecured creditors
220,000
Accounts payable ............................. ...................
100,000
Note payable-unsecured ................... ...................
10,000
Interest payable-unsecured............... ...................
Stockholders' Equity
400,000
Capital stock.....................................
(200,000) Retained earnings (deficit) ............... ...................
Unsecured
Non-priority
Liabilities
P220,000
100,000
10,000
___
P330,000
P1,000,000
2.
P100,000
80,000
2,000
6,000
160,000
40,000
16,000
72,000
40,000
200,000
52,000
16,400
2.
133
Financial Statements
Kimerald Corporation in Trusteeship
Balance Sheet
March 31, 2008
Assets
Cash ..................... ................................................. ...................
P242,000
P100,000
80,000
2,000
6,000
160,000
__16,400
P364,400
_122,400
P242,000
P 8,000
242,000
____0
P242,000
_234,000
P 40,000
P122,400
_162,400
134
3.
Chapter 7
160,000
24,400
57,600
122,400
135
CHAPTER 8
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
8-1: a
Trade accounts payable (P52,000 + P62,700)
12% preferred stock (5,000 x P1)
Paid in capital in excess of par (5,000 x P9)
Cash (P62,700 x P0.80)
Gain from discharge of indebtedness
8-2: c
P114,700
P 5,000
45,000
_50,160
_100,160
P 14,540
8-3: c
8-4: b
Carrying value of the note payable:
Principal
Interest
Restructured value:
Principal
Interest
P600,000
__60,000
P660,000
P400,000
_110,000
_510,000
P150,000
Other income:
Fair value of land
Books value of land
P450,000
_360,000
8-5: d
Other income
Extraordinary gain:
Book value of note payable
Principal
Interest
Fair value of land
P 90,000
P500,000
__60,000
P560,000
_450,000
Extraordinary gain
P110,000
8-6: a
Book value of bonds payable
Par value of preferred stock (5,000 shares x P100)
No gain no loss
136
P500,000
_500,000
P
Chapter 8
8-7: a
Book value of notes payable:
Principal
Interest
Par value of common stock issued (200 shares x P5)
Additional paid in capital
Add gain on payment of accounts payable:
Book value
Payment
Total gain on debt discharge
8-8: a
P 2,500
___500
P 3,000
__1,000
P 2,000
P 10,000
__8,000
__2,000
P 4,000
P100,000
__12,000
P112,000
_(36,000)
P 76,000
P 50,000
___8,000
__58,000
P 18,000
Principal
Interest payable (300,000 x 10%)
P300,000
__30,000
Carrying value
P330,000
8-9: d
8-10: c
Should be P310,600
Restructured principal of note payable
Interest payable:
On book value (P300,000 x 10% 30%)
On restructured (P260,000 x 8% x 2)
P260,000
P 9,000
_41,600
__50,600
P310,600
8-11: d
8-12: d
Loss on transfer of land:
Original cost
Market value
P290,000
_270,000
P 20,000
P300,000
_270,000
P 30,000
137
8-13: a
Transfer gain (loss):
Carrying amount of equipment
Fair value of equipment
Transfer loss
P80,000
75,000
P(5,000)
Restructuring gain:
Carrying amount of the debt
Fair value of equipment transferred
Restructuring gain
P100,000
75,000
P 25,000
P100,000
90, 000
8-14: d
P(10,000)
P150,000
90,000
P 60,000
P 35,000
65,000
P100,000
P880,000
780,000
P100,000
8-15: d
8-16: c
8-17: a
8-18: a
First determine the expected future cash flows as follows:
70,000 x .79719
=
P55,803
5,600 x 1.69005
=
9,464
Present value of future cash flow
P65,267
The interest revenue can be computed using the effective interest method
as follows:
Present value at 12/31/06
P65,267
Interest income at 12/31/07 (65,267 x 12%)
7,832
Interest receivable at 12/31/07 (70,000 x 8%)
5,600
2,232
Present value at 12/31/07
P67,499
Interest income at 12/31/08 (67,499 x 12%)
138
P 8,100
Chapter 8
SOLUTIONS TO PROBLEMS
Problem 8 1
Journal entries for company emerging from bankruptcy using fresh start
accounting:
a reorganization value of P760,000 but the assets have a market value of only P700,000
(P90,000 + P210,000 + P400,000), and account entitled Reorganization Value in Excess of
Amount Allocable to Tangible Assets must be recorded for P60,000.
Liabilities ....... ....
300,000
Common stock (P330,000 x 80%) ...............................................
Gain on debt discharge .................................................................
To record settlement of liabilities.
264,000
36,000
Problem 8 2
2008
July 14: Costs of reorganization.................................................................50,000
Cash with escrow agent .........................................................
50,000
Common stock
580,000
Common stock (60,000 x P1) ................................................
Additional paid in capital.......................................................
60,000
520,000
123,000
80,000
20,000
260,000
50,000
139
Problem 8 3
Jade Corporation
Balance Sheet
December 31, 2008
ASSETS
Current assets:
Cash ..... ...... ... ...... ..... ........................................................ P 23,000
Inventory ..... ... ...... ..... ........................................................ __45,000
Property and equipment:
Land ..... ...... ... ...... ..... ........................................................ 140,000
Buildings ..... ... ...... ..... ........................................................
Equipment ... ... ...... ..... ........................................................ _154,000
P 68,000
220,000
_514,000
P582,000
P260,000
_345,000
605,000
Stockholders' Equity
Common stock . ...... ..... ........................................................ 200,000
Retained earnings (deficit) .................................................... (223,000)
_(23,000)
P582,000
Problem 8 4
Preliminary computations:
Book values prior to reorganization:
Total assets (P100,000 + P112,000 + P420,000 + P78,000) ..............
Total liabilities (P80,000 + p35,000 + P100,000 + P200,000 +
P185,000 + P200,000) ..................................................................
Common stock (given) .......................................................................
Deficit (given)
..............................................................................
P710,000
P800,000
P240,000
P330,000
140
Book values after reorganization:
Total assets (reorganization value) ...............................................................
Total liabilities (P5,000 + P4,000 + P100,000 + P50,000 +
P71,000 + P110,000) .............................................................................
Common stock (returned shares are reissued)...............................................
Deficit (eliminated) .....................................................................................
Additional paid in capital (squeeze) ..............................................................
Chapter 8
P780,000
P340,000
P240,000
0
P200,000
Since the company will have 30,000 shares outstanding after the reorganization, the additional paid in
capital equals P6.66 per share.
Because the company has a reorganization value of P780,000 but the assets have a market value of only
P735,000, an account entitled Reorganization Value in Excess of Amount allocable to Tangible Assets
must be recognized for P45,000.
JOURNAL ENTRIES:
1.
Land and buildings ..................................................................................... 80,000
20,000
22,000
13,000
70,000
2.
3.
5,000
8,000
6,666
60,334
4,000
31,000
50,000
80,000
66,667
3,333
4.
5.
6.
71,000
56,000
46,667
11,333
141
Problem 8 5
7.
8.
110,000
90,000
Since the Company has a reorganization value of P800,000 but only P653,000 can be assigned to
specific assets based on market value, the remaining P147,000 is reported as a Reorganization
Value in Excess of Amount Allocable to Identifiable Assets.
Sun Corporation
Balance Sheet Fresh Start Accounting
December 31, 2008
ASSETS
Current assets
Accounts receivable ..... ..............................................................................
Inventory ..... ... ...... ..... ..............................................................................
Property and equipment
Land and buildings . ..... ..............................................................................
Machinery.... ... ...... ..... ..............................................................................
Intangible assets
Patents ...... ... ...... ..... ..............................................................................
Reorganization value in excess of amount allocable To identifiable assets
P 18,000
_111,000
P129,000
278,000
_121,000
399,000
125,000
_147,000
_272,000
P800,000
_185,000
P282,000
Stockholders' Equity:
Common stock . ...... ..... .............................................................................. P500,000
Additional paid in capital (squeeze) ............................................................ __18,000
_518,000
P 97,000
P800,000
Chapter 9
CHAPTER 9
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
9-1: d
Deferred gross profit, Dec. 31 (before adjustment)
P1,050,000
Less: Deferred gross profit, Dec. 31 (after adjustment)
Installment accounts receivable, Dec. 31
P1,500,000
Gross profit rate
____ 25% __375,000
Realized gross profit, 2008
P 675,000
OR
Installment Sales (P1,050,000 25%)
P4,200,000
Less: Installment account receivable, Dec. 31
__1,500,00
Collection
P2,700,000
Gross profit rate
___X 25%
P 675,000
9-2: a
Deferred gross profit, before adjustment
Deferred gross profit, end
2006 (6,000 X 35%)
2007 (61,500 X 33%)
2008 (195,000 X 30%)
Realized gross profit, December 31, 2008
(Total P107,235)
2006
P7,230
2007
P 60,750
2008
P 120,150
2,100
20,295
P5,130
P 40,455
___58,500
P 61,650
9-3: c
Deferred gross profit balance, end
Divide by Gross profit rate based on sales (25% 125%)
Installment Accounts Receivable, end
Collection
Installment Sales
P 202,000
____ 20%
P1,010,000
___440,000
P1,450,000
Sales
Cost of installment sales
Deferred gross profit
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000)
Gross profit rate (300,000 1,000,000)
Realized gross profit
Operating expenses
Operating income
Interest and financing charges
Net income
P1,000,000
__700,000
P 300,000
9-4: b
P 600,000
___X 30%
__180,000
P 120,000
___80,000
40,000
__100,000
P 140,000
Installment Sales
143
9-5: a
Market value of repossessed merchandise
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000)
Less: Deferred gross profit (50,000X20%)
Loss on repossession
P 30,000
P 50,000
___10,000__40,000
(P 10,000)
9-6: a
Installment sales
Less: collection on installment sales
Installment account receivables, 12/31/08
Gross profit rate (500,000 1,000,000)
Deferred gross profit, 12/31/08
P1,000,000
__200,000
800,000
___X 50%
P 400,000
OR
Deferred gross profit (1,000,000-500,000)
Less: Realized Gross Profit (200,000 X 50%)
Deferred gross profit, 12/31/08
P500,000
_100,000
P400,000
P120,000
9-7: d
P 200,000
___65,000_135,000
(P 15,000)
9-8: b
Realized gross profit:
Collections:
Downpayment
Installment received (205,000-200,000)
Total
Gross Profit Rate (150,000 240,000)
Realized gross profit
P 35,000
___5,000
40,000
_X 62.5%
P 25,000
P165,000
P 200,000
__125,000__75,000
P 90,000
144
Chapter 9
9-9: b
Sch.1
Date
Apr-1
Apr-1
May-1
Jun-1
Jul-1
Aug-1
Collection
750
625
625
625
625
Applying
to
Interest
Applying
to
principal
125.00
115.00
104.80
__94.40
P439.20
750.00
500.00
510.00
520.20
___530.60
P2,810.80
Balance
of
principal
P7,000.00
6,250.00
5,750.00
5,240.00
4,719.80
4,189.00
P 1,875
P 4,189
__1,466___2,723
(P 848)
P2,810.80
__X 35%
P 983.78
9-10: c
Year of Sales
2007
2008
Deferred gross profit (Sales X Gross Profit Rate)
2007 (P300,000 X 30%)
2008 (P450,000 X 40%)
2007: Accounts written-off (P25,000 X 30%)
Realized gross profit (P100,000 X 30%)
2008: Accounts written-off, 2007 (P75,000 X 30%)
Accounts written-off, 2008 (P50,000 X 40%)
Realized gross profit, 2007 (P50,000 X 30%)
Realized gross profit, 2008 (P150,000 X 40%)
Deferred gross profit, 12/31/08 (P75,000)
P 90,000
P 180,000
( 7,500)
( 30,000)
( 22,500)
( 60,000)
( 15,000)
________
( 60,000)
P 15,000P 60,000
9-11: a
Deferred gross profit, 2007 (P1,050,000 - 735,000)
Realized gross profit, 2007 (P150,000 X 30%)
Deferred gross profit, 12/31/07
Realized gross profit, 2008 (P390,000-90,000) X 30%
Deferred gross profit, 12/31/08
P 315,000
( 45,000)
270,000
( 90,000)
P 180,000
Installment Sales
145
9-12: a
Deferred gross profit (Sales - Cost of Installment Sales)
Realized gross profit, 2007 (P630,000 X 40%)
Realized gross profit, 2007 (P450,000 X 40%)
Realized gross profit, 2008 (P900,000 X 30%)
Deferred gross profit, 12/31/08 (P228,000)
2007
2008
P 480,000
P450,000
( 252,000)
( 180,000)
_______
( 270,000)
P 48,000
P180,000
9-13: c
Trade-in value
Less: Actual value
Estimated selling price
Less: reconditioning cost
normal gross profit (25,000 X 15%)
P 30,000
P 25,000
P 1,250
__3,750
___5,000
__20,000
Overallowance
Realized gross profit:
Collection:
Downpayment
Actual value of merchandise-Trade In
Installment collected (5,000 X 3)
P 10,000
P 5,000
20,000
_15,000
P 40,000
P 85,000
( 10,000)
P 75,000
_60,000
P 15,000
_X 20%
P 8,000
9-14: c
Collection excluding interest (P900,000-P300,000)
Gross profit rate (P1,200,000 P3,600,000)
Realized Gross Profit, December 31, 2008
Add Interests
Total Revenue
P 600,000
X 33 1/3%
200,000
__300,000
P 500,000
9-15: a
Wholesale value of repossessed merchandise
Less: unrecovered cost
Unpaid balance:
Sales, 10/1/07
Collection, 2007 (6,000 2,000)
Collection, 2008 (1,000 X 7)
Deferred gross profit (9,000 X 25%)
Loss on repossession
P
P 24,000
( 8,000)
( 7,000)
P 9,000
__2,250
4,000
___6,750
(P 2,750)
146
Chapter 9
9-16: a
Trade-in Value (P300 X 6)
Less: Actual value
Estimated selling price (P315 X 6)
Less: Reconditioning cost (P25 X 6)
Gross Profit (P1,890 X 10%)
Over-allowance
P 1,800
P 1,890
P150
_189
___339
P
___1,551
249
9-17: a
Deferred gross profit, before adjustment
Deferred gross profit, end
2007: P32,500 X (30% 130%)
2008: P180,000 X (33 1/3% 133 1/3%)
Realized gross profit on installment sales
P 76,000
P 7,500
_45,000__52,500
P 23,500
9-18: d
Unpaid balance (P27,000 - P16,000)
Multiply by gross profit rate (P734,400 P2,160,000)
Deferred gross profit to be cancelled on repossession
P 11,000
___X 34%
P 3,740
Collection:
2007 Downpayment
2008 Installment collection
Interest
Total
P 600,000
600,000
__540,000
P1,740,000
Cost to be recovered
P4,000,000
9-19: b
Since cost is not yet fully recovered, then no gross profit is to be recognized in 2008.
9-20: d
Regular Sales
Cost of regular sales
Gross profit on regular sales
Add: Realized gross profit on installment sales
2007 (25,000 X 50%)
2008 (62,500 X 55%)
Total realized gross profit
Operating expenses
Net income, 12/31/08
P 187,500
__112,500
P 75,000
P12,500
_34,375__46,875
121,875
___31,250
P 90,625
Installment Sales
9-21: a
147
P785,000
P157,000
251,200
408,200
376,800
35/135
P 97,689
9-22: a
Regular sales
Cost of regular sales
Gross profit on regular sales
Realized gross profit on installment sales:
P1,575,000
1,050,000
525,000
2,625,000
1,575,000
1,050,000
140/240
612,500
1,137,500
796,250
P 341,250
9-23: a
Regular sales
Cost of regular sales
Gross profit on regular sales
Realized gross profit on installment sales:
Collections excluding Interest (312,000 24,000)288,000
Gross profit rate (270,000/900,000)
30%
Total realized gross profit
Loss on repossession
Fair value of repossessed merchandise
54,000
Less: Unrecovered cost (100,000 x 70%)
70,000
Total realized GP after loss on repossession
Less: Operating expenses
72,000
Installment accounts written-off (44,000 x .70) 30,800
Net operating income
Interest income
Net income
P375,000
215,000
160,000
86,400
246,400
( 16,000)
230,400
102,800
127,600
24,000
P151,600
148_
Chapter 9
SOLUTIONS TO PROBLEMS
Problem 9 1
Journal Entries:
2006
Installment A/R2006 ............... 104,000
Installment A/R2007 ...............
64,480
2007
116,000
2008
121,000
116,000
68,440
121,000
73,810
Inventory .............................
Cash ...........................................
Installment A/R2006
Installment A/R2007 .........
Installment A/R2008 .........
Interest Revenue .................
64,480
66,980
125,520
57,200
9,780
68,440
21,736
Computations:
2006: P57,200 X .38 =
P21,736
P11,066
29,987
P40,553
P 5,700
10,939
29,730
P46,369
21,736
73,810
145,460
29,120
71,920
_
24,480
116,000
15,000
26,680
76,230
27,550
121,000
68,440
47,560
11,066
29,487
40,553
73,810
47,190
5,700
10,939
29,730
Installment Sales
2007:
Problem 9 2
Inventory ................................................................................................ 45,200
Cash ................................................................................................
Notes Receivable 2007 (P32,000 + P62,000 + 3,600) ........................... 97,600
Unearned Interest Revenue (P7,167 + P3,600) ...............................
Installment Sales .............................................................................
Cost of Installment Sales (P45,200 P2,000 inventory increase) ......... 43,200
Inventory.........................................................................................
Cash ... ................................................................................................... 35,600
Notes Receivable 2007 ...................................................................
Unearned Interest Revenue 2007 ........................................................... 3,600
Interest Revenue .............................................................................
Installment Sales .................................................................................... 86,833
Cost of Installment Sales ................................................................
46,369
149
45,200
10,767
86,833
43,200
35,600
3,600
43,200
2008:
43,633
16,080
52,020
1.
2.
26,000
29,500*
5,500
44,020
33,525
23,329
Chapter 9
Problem 9 3
2006: Gross profit rate
P24,000
=
P60,000
40%
42%
Gross profit
=
Installment sales
44,020
P86,000
=
P200,000
Journal Entries:
Accounts Receivable .....................................................................................
Sales ... ...................................................................................................
43%
600,000
600,000
200,000
200,000
114,000
114,000
476,000
476,000
210,000
210,000
790,000
560,000
40,000
80,000
110,000
200,000
114,000
86,000
16,000
33,600
47,300
96,900
1,500
1,500
600,000
260,000
114,000
240,000
476,000
210,000
1,500
46,500
96,900
96,900
143,400
143,400
151
P600,000
P240,000
476,000
716,000
114,000
602,000
260,000
342,000
258,000
96,900
354,900
Operating expenses:
Selling expenses.....................................................................................
Doubtful accounts expense ....................................................................
Net income ...................................................................................................
210,000
1,500
211,500
P143,400
Schedule 1
Collections ..........................................
Multiply by Gross profit rate ...............
Realized gross profit ............................
4.
2006
P40,000
40%
P16,000
Total
P 96,900
P144,000
260,000
P 62,000
3,500
58,500
20,000
60,000
90,000
200,000
P832,500
P 60,000
8,000
25,200
38,700
131,900
P406,000
294,600
152
700,600
P832,500
Chapter 9
Problem 9 4
1.
2.
2007: GP rate =
2008: GP rate =
Gross profit
Installment sales
=
=
P21,600 + P1,200
P24,000 + P52,000
P150,000 P97,500
P150,000
=
=
P22,800
P76,000
30%
P52,500
P150,000
35%
150,000
97,500
52,500
14,400
25,900
40,300
Computation:
2007
Sales
2008
Sales
P76,000
24,000
P150,000
76,000
52,000
4,000
74,000
P48,000
30%
P 74,000
35%
P14,400
P 25,900
Total
P 40,300
212,000
40,300
400
165,000
66,000
20,900
20,900
20,900
Apple Company
Income Statement
Year Ended December 31, 2008
Sales ..... .... ................................................................................................... ..................
Cost of sales .................................................................................................. ..................
P212,000
165,000
47,000
40,300
87,300
400
Total realized gross profit after adjustment for loss on repossession ............ ..................
Selling and administrative expenses ............................................................. ..................
86,900
66,000
P 20,900
153
Problem 9 4
Schedule 1
2007
Sales
P76 000
24,000
52,000
4,000
P48,000
30%
2008
Sales
P150,000
76,000
74,000
P 74,000
35%
Total
P14,400
P 25,900
P40,300
Problem 9 5
1.
54,400
80,000
54,400
54,400
25,600
14,000
8,000
22,000
Computation:
2007
Sales
P82,000
_ 36,000
46,000
__6,000
P40,000
__35%*
P14,000
2008
Sales
P 80,000
_55,000
25,000
___
P 25,000
___32%
P 8,000
DGP, 1/1
P28,700 (26,600 + 2,100)
*2007 Gross profit rate= =
=
ICR, 1/1
P82,000 (36,000 + 40,000 + 6,000)
154
Total
P 22,000
35%
Chapter 9
200,000
52,000
54,400
22,000
60,000
180,000
3,000
900
53,000
9,500
22,000
31,500
Installment Sales
1.
31,500
Regular
P200,000
Installment
P80,000
Total
P280,000
188,600
_136,600
P 63,400
54,400
25,600
191,000
89,000
17,600
8,000
17,600
71,400
14,000
22,000
___900
14,000
85,400
__900
P21,100
84,500
_53,000
P31,500
Problem 9 6
London Products
Schedule of Cost of Goods Sold
Year Ended December 31, 2008
Merchandise inventory, January 1 ................................................................ ..................
Purchases ................................................................................................... ..................
Freight-in ................................................................................................... ..................
Repossessed merchandise ............................................................................. ..................
Cost of goods available for sale .................................................................... ..................
Less Merchandise inventory, December 31 .................................................. ..................
Cost of goods sold ......................................................................................... ..................
2.
155
London Products
P 48,000
238,000
12,000
14,000
312,000
52,000
P260,000
3.
Amount
P60,000
120,000
300,000
120%
125%
On Cash
Price Basis
P 60,000
100,000
240,000
P 400,000
Ratio to
Total
60/400
100/400
240/400
Allocated
Cost
P 39,000
65,000
156,000
P260,000
London Products
Income Statement
Year Ended December 31, 2008
Total
P480,000
260,000
P 220,000
Installment
Sales
P 300,000
156,000
P 144,000
92,160
127,840
92,160
51,840
33,900
161,740
33,900
85,740
10,200
10,200
151,540
93,000
P 58,540
P 75,540
Charge
Sales
P120,000
65,000
P 55,000
156
Cash
Sales
P 60,000
39,000
P 21,000
Chapter 9
Schedule 1
2006
Installment contracts receivable, January 1:
2006 P32,000 40% .................................................................
2007 P56,000 35% .................................................................
Less Installment contracts receivable, December 31 ..........................
Total credits ........................................................................................
Less Credit representing repossession ................................................
Total collections..................................................................................
Multiply by Gross profit rate ..............................................................
Realized gross profit ...........................................................................
2007
P80,000
_22,000
58,000
_10,000
P48,000
___40%
P19,200
P160,000
__90,000
70,000
28,000
P 42,000
___35%
P 14,700
Schedule 2
2006
P 2,000
2007
P12,000
Total
P 14,000
10,000
28,000
38,000
4,000
__6,000
P(4,000)
9,800
13,800
18,200
__24,200
P( 6,200)
P( 10,200)
Problem 9 7
1.
2007
2007
2007 installment sales (P400,000 x 42%*) .................................. P 168,000
2008:
2007 installment sales (P173,000 x 42%) ....................................
2008 installment sales (P560,000 x 38.5%*) ............................... ________
Deferred gross profit ........................................................................... P 168,000
2008
P 72,660
__215,600
P 288,260
420,000
1,767,000
_83,000*
2,270,000
157
2008
P3,100,000
____68,000
_3,032,000
42%
358,820
____46,500
405,320
_1,864,680
P1,167,320
38.5%
P 99,000
P 83,000
__111,330
__28,330
P 70,670
Installment
Sales
P3,032,000
_1,864,680
1,167,320
Total
Sales
P3,237,000
_2,022,680
1,214,320
__247,170
920,150
__247,170
967,150
___51,240
971,390
___28,330
P 943,060
___51,240
1,018,390
___28,330
990,060
__592,960
P 397,100
158
Chapter 9
Schedule 1
Installment contracts receivable 2008, December 31 ....... ............
Installment contracts receivable 2008 defaulted ............... ............
Total .... ... ......................................................................... ............
Multiply by 2008 gross profit percentage ......................... ............
Unrealized gross profit on 2008 installment sales ............ ............
P 560,000
___82,000
P 642,000
___38.5%
P 247,170
Schedule 2
Installment contracts receivable 2007, January 1 ...............................
Less Installment contracts receivable 2007, December 31 .................
P 400,000
__173,000
1.
227,000
__105,000
P 122,000
_____42%
P 51,240
P 240,000
160,000
P120,000
__80,000
__200,000
P 600,000
36,000.00
364,000.00
160,000.00
240,000.00
120,000.00
720,000.00
200,000.00
640,000.00
16,000.00
10,920.00
5,080.00
16,000.00
10,767.60
5,232.40
Installment Sales
October 31
Cash .... ... ......................................................................................
Notes Receivable (Lot 1) ...............................................................
Lot 1 . ......................................................................................
Deferred Gain on Sale of Land ...............................................
December 31
Cash .... ... ......................................................................................
Notes Receivable (Lot 1).........................................................
Notes Receivable (Lot 2).........................................................
Notes Receivable (Lot 3).........................................................
Interest Income ........................................................................
159
72,000.00
288,000.00
240,000.00
120,000.00
78,000.00
6,240.00
5,389.37
6,800.00
59,570.63
Computation:
Total
Collections ....................................... P78,000.00
Apply to interest:
Lot 1 P288,000.00 x 12% x 2/12
Lot 2 P353,687.60 x 12% x 3/12 59,570.63
Lot 3 P720,000.00 x 12% x 6/12 _________
Apply to principal ............................ P18,429.37
2.
Lot 1
P12,000.00
Lot 2
P16,000.00
Lot 3
P50,000.00
10,610.63
_________
P 5,389.37
_43,200.00
P 6,800.00
5,760.00
_________
P 6,240.00
153,469.06
Computation:
Collections applied to principal .......
Multiply by Gross profit rates:
Lot 1 P120,000 P360,000 .....
Lot 2 P240,000 P400,000 .....
Lot 3 P640,000 P840,000 .....
Realized gain ...................................
3.
Lot 1
P78,240.00
Lot 2
Lot 3
P51,701.77 P126,800.00
33.33%
_________
P26,080.00
60%
_________
P31,021.06
160
_____76%
P96,368.00
713,200.00
Chapter 9
Problem 9 9
P 8,060,000
1,612,000
6,448,000
221,000
6,227,000
=
Installment Sales
P8,060,000
=67% x P6,227,000
4,172,090
2,054,910
909,000
P 1,145,910
Schedule 1
Total
Sales Price
P3,900,000
3,200,000
960,000
P8,060,000
Cash
Received
P1,650,000
800,000
240,000
P2,690,000
Installment
Notes Balance
P 2,250,000
2,400,000
720,000
P 5,370,000
Unit
Price
P150,000
100,000
80,000
Total
Sales Value
P12,000,000
10,000,000
9,600,000
P31,600,000
Schedule 2
Class
A ... ...... .... ........................................................
B .... ...... .... ........................................................
C .... ...... .... ........................................................
Total ... ........................................................
Number of
Lots
80
100
120
300
Cost of tract:
Cost of land ...................................................................................................
Legal fees, etc. ..............................................................................................
Grading contract............................................................................................
Water and sewerage system contract ............................................................
Paving contract .............................................................................................
General office expenses (3/4 x P236,000) ....................................................
Total ..... .... ...................................................................................................
P 4,800,000
600,000
225,000
184,900
266,300
177,000
P 6,253,200
P6,253,200
Cost rate : = 20% (rounded off)
P31,600,000
Cost of sales (P8,060,000 x 20%) ...........................................................................
Installment Sales
P 1,612,000
161
Problem 9 10
Rizal Company
Income Statement
Year Ended December 31, 2008
Installment sales [(P14,300 x 7) + (P725 x 4)] ...........................................
Cost of goods sold on installment (schedule 1) ...........................................
Gross profit .. ... ...........................................................................................
Less Deferred gross profit on 19x8 sales
(P103,000 P21,000 = P82,000 x 23%*) ..........................................
Realized gross profit on 2008 sales .............................................................
P103,000
__79,310
23,690
__18,860
4,830
P20,000
_40,250
__60,250
65,080
__33,100
31,980
__50,000
P(18,020)
*See Schedule 3
Schedule 1
Purchases (P10,500 x 8) ..............................................................................
Repossessed merchandise............................................................................
Cost of goods available for sale...................................................................
Less Inventory, December 31
Number of units on hand ....................................................................
Multiply by average unit cost (Schedule 2) ........................................
Cost of goods sold on installment ...............................................................
P 84,000
___2,520
86,520
1
P 7,210
___7,210
P 79,310
Schedule 2
Purchases during 2008 (P10,500 x 8) ..........................................................
Add Repossessed merchandise ....................................................................
Total ..... ...... ... ...........................................................................................
divide by Number of units (8 + 4)...............................................................
Average unit cost .........................................................................................
P 84,000
___2,520
P 86,520
_____12
P 7,210
162
Chapter 9
Schedule 3
........................................................
Sales
2006 : P15,000 x 10 .......................................
2007 : P14,000 x 20 .......................................
2008 : P14,300 x 7 .........................................
P725 x 4 ..............................................
Sales
........................................................
Cost of goods sold:
Inventory, January 1 ........................................
2006
2007
2008
P150,000
P280,000
_______
150,000
_______
280,000
100,100
__2,900
103,000
20,000
Purchases ........................................................
Repossessed merchandise ................................
Cost of goods available for sale .......................
Less Inventory, December 31 ..........................
Cost of goods sold ...........................................
Gross profit .. ... ........................................................
Gross profit rates ......................................................
120,000
_____
120,000
_20,000
100,000
P 50,000
33-1/3%
162,000
_____
182,000
_____
182,000
P 98,000
35%
84,000
_2,520
86,520
_7,210
79,310
P23,690
23%
P 2,520
Schedule 4
_35,620
P33,100
163
CHAPTER 10
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
10-1: a
Percentage of Completion Method:
Contract Price
Less: Total estimated cost
Cost incurred
Estimated remaining cost
Gross profit estimated
% of completion (200,000/600,000)
Gross profit to be recognized
P1,000,000
P 200,000
_400,000
__600,000
400,000
__33 1/3%
P 133,333
10-2: a P100,000
Contract Price
Less: Total estimated cost
Estimated gross profit
% of completion:
2007 (3,900,000/7,800,000)
2008(6,300,000/8,100,000)
Gross profit earned to date
Less: Gross profit earned in prior year
Gross profit earned each year
2007
2008
P9,000,000 P9,000,000
_7,800,000 _8,100,000
1,200,000
900,000
50%
_________ ______78%
600,000
700,000
________ ___600,000
P 600,000 P 100,000
10-3: a
Contract Price
Less: Total estimated cost (3,600,000 + 1,200,000)
Estimated gross profit
% of completion (3,600,000/4,800,000)
Gross profit earned to date
Less: Gross profit earned in 2007
Gross profit earned in 2008
P6,000,000
_4,800,000
1,200,000
_____75%
900,000
__600,000
P 300,000
Contract Price
Less: Total estimated cost (930,000 + 2,170,000)
Loss
P3,000,000
_3,100,000
(P 100,000)
10-4: b
164
Chapter 10
10-5: b
Total cost to date, 2008 (4,800,000 X 60%)
Less: Cost incurred in 2007 (4,500,000 X 20%)
Cost incurred in 2008
P2,880,000
__900,000
P1,980,000
P3,000,000
_2,700,000
300,000
___33.33%
100,000
___900,000
P 1,000,000
10-6: a
P 900,000
10-7: a
Contract Price
P4,200,000
Less: Total estimated cost
_3,750,000
Estimated gross profit
% of completion
Gross Profit earned to date
Gross Profit earned in prior year
Gross Profit earned this year
2007
2008
P4,200,000
_3,000,000
1,200,000450,000
_____20% ____100%
240,000 450,000
_______ __240,000
P 240,000P 210,000
10-8: b
Collections:
Contract Billings
Less: Accounts receivable
Collections
Initial Gross Profit:
Contract Price
Gross Profit rate:
Income recognized
Divide by Construction in Progress
Initial Gross Profit
P 47,000
___15,000
P 32,000
P 800,000
10,000
50,000 =_____20%
P 160,000
165
10-9: a
Gross profit (loss) earned in 2008
Gross profit earned in prior years
Gross profit earned to date - 2008
Divide by percentage of completion - 2008
Estimated gross profit - 2008
Less: Contract price
Total estimated cost
Less: Cost incurred - 2008
Cost incurred to date - 2007
Less: Cost incurred - 2006
(P 20,000)
_180,000
160,000
___100%
160,000
2,000,000
1,840,000
_820,000
1,020,000
__360,000
P 660,000
10-10: b
Gross profit earned to date - 2007 (P40,000 + P140,000)
P 180,000
Divide by estimated gross profit - 2007:
Contract price
P2,000,000
Gross profit rate [180,000/(1,020,000 + 180,000)]
___X 15% __300,000
Percentage of completion - 2007
60%
10-11: a, Refer to Q 10-10 solutions.
10-12: d
Contract price
Estimated gross profit - 2007 (Refer to Q 10-10)
Total estimated cost
Less: Cost incurred to date - 2007 (refer to Q 10-9)
Estimated cost to complete - 2007
P2,000,000
__300,000
1,700,000
1,020,000
P 680,000
P 244,000
__210,000
P 34,000
P 484,000
__384,000
P 100,000
10-13: d
166
Chapter 10
10-14: d
Project 1
Percentage of Completion Method:
Contract price
Less: Total estimated cost
Cost incurred to date - 2008
Estimated cost to complete
Total
Estimated gross profit (Loss)
Percentage of completion
Profit (loss) to be recognized
Total is (P10,000)
Project 2
P 420,000 P 300,000
P 240,000
__120,000
__360,000
60,000
__66.67%
P 40,000
P 280,000
___70,000
__350,000
(50,000)
_______
(P 50,000)
2007
P3,744,000
2008
546,0001,544,400 3,120,000
_2,054,000
_2,600,000
1,144,000884,000 624,000
_____20% _____54% ____100%
240,240 477,360
624,000
_______ __240,240 __477,360
P 240,240P 237,120P 146,640
10-16: d
Contract price
Less: Total estimated cost
Cost incurred to date
Estimated cost to complete
Total
Estimated gross profit
Percentage of completion:
2007 (1,425,000 - 50,000) 5,500,000
2008 (3,040,000 - 50,000) 5,000,000
Profit earned to date
Less: Gross profit earned in prior year
Gross profit earned this year
2007
2008
P6,300,000 P6,300,000
1,425,000
_4,075,000
P5,500,000
800,000
3,040,000
_1,960,000
P5,000,000
1,300,000
25%
________ __59.80%
200,000
777,400
________ __200,000
P 200,000 P 577,400
167
10-17: a
Cash collections:
Progress billings
Less: Accounts receivable, end
Collection
P1,500,000
__500,000
P1,000,000
P1,600,000
__200,000
P1,400,000
10-18: d
Percentage of Completion Method:
Apartment A
Apartment B
2007
2008
2007
2008
1,620,000 1,620,0002,520,0002,520,000
Contract price
Less: Total Estimated Costs
(1)
Cost incurred to date
P1,560,000 P2,310,000
Estimated cost to complete
(2)
Total estimated cost
Estimated Gross Profit
Percentage of completion (1 2)
Gross profit earned to date
Less: Gross profit earned in Prior years
Gross Profit earned this year
Total Gross Profit 20 (P75,000 + P22,800)
P 600,000
P1,200,000
840,000
240,000 690,000
1,440,000 1,440,0002,250,0002,310,000
180,000
180,000 270,000
210,000
_41.67%
_83.33%
_69.33% _100.00%
75,000
150,000 187,200
210,000
_______
___75,000_______ __187,200
P 75,000 P 75,000P 187,000P 22,800
P97,800
Zero Profit Method - P210,000 gross profit earned in 2008 for Apartment B.
10-19: d
2007
Contract price:
2007
2008 (P6,000,000-P50,000)
Less: Total estimated costs
(1) Cost incurred to date
Estimated cost to complete
(2) Total estimated cost
Estimated Gross Profit
Percentage of completion (1 2)
Gross profit earned to date
Less: Gross profit earned in Prior year
Gross Profit earned this year
2008
P6,000,000
_________ P5,950,000
2,340,000
260,000
2,600,000
3,400,000
____90%
3,060,000
_______
P3,060,000
168
2,650,000
2,650,000
3,300,000
___100%
3,300,000
3,060,000
P 240,000
Chapter 10
10-20: a
(1) Cost incurred to date
(2) Estimated cost to complete
(3) Total Estimated Costs
Percentage of completion (1 3)
Contract price
2006
P3,400,000
1,600,000
5,000,000
68%
P6,000,000
2007
2008
P5,950,000 P6,150,000
150,000
6,100,000 6,150,000
98%
100%
P6,000,000 P6,000,000
5,000,000
1,000,000
68%
680,000
3,400,000
4,080,000
3,200,000
P 880,000
6,100,000
(100,000)
100%
(100,000)
5,950,000
5,850,000
5,200,000
P 650,000
6,150,000
(150,000)
100%
(150,000)
6,150,000
6,000,000
6,000,000
10-21: c
Construction in Progress:
Cost incurred to date, 2007
Gross profit earned, 2007 (Schedule 1)
Less: Contract billings, 2006 (P3,250,000 x 75%)
P2,625,000
100,000 P2,725,000
2,437,500
P 287,500
Contract price
Total estimated cost:
Cost to date
Estimated cost to complete
1,075,000
1,612,500
2,625,000
750,000
2,687,500
3,375,000
562,500
40%
(125,000)
225,000
(125,000)
225,000
P 225,000
P 100,000
Total
10-22: a
Contract price
Estimated cost:
Cost to date
Estimated costs to complete
Total
Estimated gross profit
% of completion
Long-Term Construction Contracts
2005
P2,800,000
2006
2007
P2,800,000 P2,800,000
1,300,000
1,360,000
1,960,000
780,000
2,440,000
380,000
2,660,000
2,740,000
2,820,000
140,000
60,000
(20,000)
48.87%
71.53%
169
10-23: b
2007
Contract price
Estimated costs:
Cost to date
Estimated cost to complete
Total
Estimated gross profit
% of completion
Project A
P2,900,000
Project B
P3,400,000
Project C
P 1,700,000
1,680,000
1,120,000
1,440,000
1,760,000
320,000
960,000
2,800,000
3,200,000
1,280,000
100,000
60%
200,000
45%
420,000
25%
P 60,000
P 90,000
Project A
Project B
Project C
P2,900,000P3,400,000P1,700,000
2,120,0001,183,000
0 1,360,000
Total
1,600,000
2,640,000
P 105,000
Project D
P 2,000,000
560,000
117,000
3,480,000
1,040,000
1,300,000
260,000 (80,000)
100%
400,000
91%
400,000
35%
260,000 (80,000)
60,000
90,000
364,000
105,000
140,000
0
P 200,000
P 10,000
2007
P 255,000
120,000
P 259,000
P 135,000
2008
P 609,000
120,000
P 489,000
10-24: c
Contract price
Gross profit earned to date, 2008 (P900,000 P100,000)
P10,000,000
800,000
9,200,000
4,100,000
P 5,100,000
P 1,500,000
900,000
60%
10-25: d
Construction in progress:
Cost incurred to date
Gross profit earned to date (P2,500,000 P2,000,000)
P 440,000
110,000
Total
Less: Contract billings (P2,500,000 x 30%)
550,000
750,000
P( 200,000)
Chapter 10
10-26: a
Contract price
Total estimated cost:
Cost incurred to date:
Site labor cost
Cost of construction materials
Depreciation of special plant & equip
Total
P120,000,000
10,000,000
30,000,000
5,000,000
45,000,000
55,000,000
100,000,000
20,000,000
45%
P 9,000,000
10-27: a
Cost incurred to date- 2007
Total estimated cost (8,000,000 / 40%)
Estimated cost to complete
Cost incurred in 2007
Cost incurred in 2006
Estimated cost at completion- 2006
Total estimated cost- 2006
20,000,000
8,000,000
P12,000,000
3,700,000
8,300,000
12,450,000
P20,750,000
Contract price
Total estimated cost
Estimated gross profit
Percentage of completion
Gross profit earned to date
Gross profit earned in 2007
Gross profit earned this year
2007
Contract 1
Contract 2
P600,000
P450,000
150,000
150,000
300,000
300,000
50%
P150,000
Contract 1
600,000
350,000
250,000
80%
200,000
150,000
50,000
CIP-2007
87,500
162,500
250,000
200,000
35%
P70,000
P237,500
P220,000
2008
Contract 2
450,000
300,000
150,000
60%
90,000
70,000
20,000
Contract 3
900,000
500,000
400,000
36%
144,000
144,000
171
10-29: a
Bicol
Contract price
P875,000
Total estimated cost
Cost incurred
656,250
Est. cost to complete
Total estimated cost
656,250
Estimated gross profit
218,750
Davao
Aklan
P1,225,000 P437,500
175,000
700,000
875,000
350,000
175,000
175,000
350,000
87,500
Total
1,006,250
Percentage of completion
Gross profit earned
100%
P218,750
20%
P 70,000
Percentage of completion
1,006,250
332,500
1,338,750
1,312,500
26,250
50%
P43,750
332,500
Zero Profit
1,006,250
218,750
1,225,000
1,312,500
(87,500)
10-30: a
Contract price
Total estimated cost:
Cost incurred
Estimated cost to complete
Estimated gross profit
Percentage of completion
Gross profit recognized
P40,825,000
8,475,000
28,400,000
36,875,000
3,950,000
22.983%
P 907,830
172
Chapter 10
SOLUTIONS TO PROBLEMS
Problem 10 1
(a)
Contract Price
Less: Total estimated cost
(1) Cost incurred to date
Estimated costs to complete
2007
P 450,000
2008
P 450,000
200,000
__100,000
320,000
_______
(2) Total
Estimated gross profit
Percentage of completion (1 2)
Estimated gross profit to date
Less: Gross profit earned in prior year
Gross profit earned this year
(b)
Contract Price
Less: Total cost incurred
Gross profit
(c)
(a)
(b)
__300,000
150,000
______2/3
100,000
_______
P 100,000
P 450,000
__320,000
P 130,000
100,000
200,000
300,000
30,000
320,000
350,000
Problem 10 2
Construction Revenue
Less: Cost incurred
Gross profit 2008
P1,250,000
_1,250,000
P
0
P1,250,000
_1,740,000
P(490,000)
Contract price
Less: Total estimated costs
Cost incurred to date
Estimated costs to complete
Estimated gross profit
Percentage of Completion (P1,250,000 500,000)
Gross profit
P5,800,000
P1,250,000
3,740,000
5,000,000
800,000
_____25%
P 200,000
P1,450,000
_1,740,000
P(290,000)
(a)
_320,000
130,000
___100%
130,000
__100,000
P 30,000
173
Problem 10 3
2005
2006
P55,000,000 P55,000,000
Contract Price
Less: Total estimated costs
(1) Cost incurred to date
15,000,000
Estimated costs to complete _35,000,000
(2) Total
_50,000,000
Estimated gross profit
5,000,000
25,000,000
25,000,000
50,000,000
5,000,000
2007
2008
P55,000,000 P55,000,000
35,000,000
15,000,000
50,000,000
5,000,000
50,000,000
________
50,000,000
5,120,000
Percentage of completion (1 2)
Gross profit earned to date
Gross profit earned in prior yr(s)
Gross profit earned the year
______30%
1,500,000
________
P 1,500,000
(b)
_____50%
2,500,000
_1,500,000
P 1,000,000
2007
15,000,000
15,000,000
(3) Cash
Accounts Receivable
12,000,000
1,000,000
15,000,000
15,000,000
_____70%
3,500,000
_2,500,000
P 1,000,000
____100%
5,000,000
_3,500,000
P 1,500,000
2008
15,000,000
15,000,000
20,000,000
15,000,000
20,000,000
25,000,000
12,000,000
25,000,000
1,500,000
15,000,000
16,000,000
16,500,000
2006
P 1,000,000
P 9,000,000
11.11%
2007
2008
P 5,500,000 P10,000,000
P11,000,000 _12,000,000
50%
83.33%
2006
P15,000,000
2007
2008
P15,000,000 P15,000,000
1,000,000
__8,000,000
__9,000,000
6,000,000
___11.11%
666,600
________
P 666,600
5,500,000 10,000,000
__5,500,000 __2,000,000
_11,000,000 _12,000,000
4,000,000
3,000,000
______50% ___83.33%
2000,000
9,500,000
___666,600 _2,000,000
P 1,333,400 P 500,000
Problem 10 4
(a)
Cost incurred to date
Divide by total estimated cost
Percentage of Completion
(b)
Contract Price
Less: Total Estimated Cost
Cost incurred to date
Estimated costs to complete
Total
Estimated gross profit
Percentage of completion
Gross profit earned to date
Less: Gross profit earned in prior yrs.
Gross profit earned this year
174
(c)
Chapter 10
1,000,000
1,325,000
(3) Cash
Accounts Receivable
1,200,000
1,000,000
1,325,000
1,200,000
666,600
1,000,000
1,666,600
Problem 10 5
(1)
2005
P14,000,000
Contract Price
Less: Total Estimated Cost
Cost incurred to date
6,500,000
Estimated cost to complete
__6,800,000
Total
_13,300,000
Estimated gross profit
700,000
Percentage of completion
___48.87%
Gross profit (loss) to date
342,090
Less: Gross profit (loss) in prior yrs. ________
Gross profit (loss) this year
P 342,090
(2)
2005
2006
P14,000,000
2007
2008
P14,000,000 P14,000,000
9,800,000
_3,900,000
13,700,000
300,000
___71.53%
214,590
___342,090
P( 127,500)
12,200,000
_1,900,000
14,100,000
( 100,000)
_____100%
( 100,000)
___214,590
P( 314,590)
2006
13,900,000
________
13,900,000
100,000
____100%
100,000
( 100,000)
P 200,000
2007
2008
Cost of construction
6,500,000
3,300,000
2,400,000
1,700,000
Construction in progress 342,090
127,500
314,590
200,000
Construction Revenue
6,842,090
3,172,500
2,085,410
1,900,000
Problem 10 6
(1)
Contract Price
Less: Total estimated costs
Cost incurred to date
Estimated costs to complete
Total
Estimated gross profit
Percentage of completion
Gross profit (loss) to date
Gross profit (loss) in prior yrs.
Gross profit (loss) this year
2005
P 6,000,000
2006
P 6,000,000
2007
P 6,000,000
3,400,000
_2,100,000
_5,500,000
500,000
___61.82%
309,100
________
P 309,100
5,950,000
___150,000
_6,100,000
( 100,000)
_______
( 100,000)
__309,100
P 409,100
6,150,000
________
_6,150,000
( 150,000)
________
( 150,000)
( 100,000)
P 50,000
(2)
Cost of construction
Construction in progress
Construction Revenue
(3)
Cash
Accounts Receivable
Contract Billings
175
2005
2006
3,400,000
2,550,000
309,100
409,100
3,709,100
2,140,900
400,000
400,000
6,000,000
2007
200,000
50,000
150,000
Construction in progress
6,000,000
Problem 10 7
(1)
2006
P16,000,000
Contract Price
Less: Total Estimated Cost
Cost incurred to date
4,600,000
Estimated costs to complete
__9,640,000
Total
_14,240,000
Estimated gross profit
1,760,000
Engineer's estimate of comp.
______31%
Gross profit to date
545,600
Less: Gross profit earned in prior yrs. ________
Gross profit earned this yr.
P 545,600
(2)
(a) Construction on progress
Cash
2007
P16,000,000
2008
P16,000,000
9,100,000
__5,100,000
_14,200,000
1,800,000
______58%
1,044,000
__545,600
P 498,410
14,350,000
_________
_14,350,000
1,650,000
_____100%
1,650,000
_1,044,000
P 606,000
2006
4,600,000
2007
4,500,000
4,600,000
5,000,000
(c) Cash
Accounts receivable
4,500,000
2008
5,250,000
4,500,000
6,000,000
5,000,000
5,000,000
6,000,000
5,400,000
4,500,000
5,250,000
5,000,000
6,100,000
5,400,000
6,100,000
5,250,000
5,250,000
5,000,000
5,000,000
176
Chapter 10
(c) Cash
Accounts receivable
6,100,000
5,250,000
1,650,000
6,100,000
6,900,000
16,000,000
16,000,000
(4)
The following entry would be the only one different from (2).
2006
2007
2008
4,414,400
3,821,600
6,114,000
545,600
498,400
606,000
4,960,000
4,320,000
6,720,000
Cost of construction
Construction in progress
Construction revenue
(1)
Contract Price
Less: Total Estimated Costs
Cost incurred to date
Estimated costs to complete
Total
Estimated gross profit (loss)
Less: Gross profit (loss) in prior yrs.
Gross profit (loss) this years
(2)
2006
P6,500,000
2007
P6,500,000
2008
P6,500,000
2,150,000
_3,850,000
_6,000,000
500,000
________
P 520,000
5,250,000
_1,500,000
_6,750,000
(250,000)
___520,000
P( 250,000)
6,850,000
________
_6,850,000
(350,000)
_(250,000)
P( 600,000)
Franchise Accounting
177
CHAPTER 11
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
11-1: b
No revenue is to be reported. Because the franchisor fails to render substantial
services to the franchisee as of December 31, 2008.
11-2: c
P5,000,000
____50,000
P4,950,000
11-3: a
The total initial franchise fee of P500,000 is to be recognized as earned because the
collectibility of the note for the balance is reasonably assured.
11-4: b
Cash downpayment
Collection of note applying to principal
Revenue from initial franchise fee
P 100,000
__200,000
P 300,000
P2,000,000
_1,000,000
3,000,000
_____90%
P2,700,000
P 800,000
__582,000
P 218,000
P1,200,000
__218,000
P 982,000
P 500,000
___20,000
520,000
___10,000
P 510,000
11-5: a
11-6: b
11-7: d
11-8: d
178
Chapter 11
11-9: b
Deferred Revenue from franchise fee:
Downpayment
Present value of the note (P1,000,000 X 2.91)
Less: Cost of franchise fee
Deferred gross profit
Gross profit rate (6,910,000 8,910,000)
P6,000,000
2,910,000
P8,910,000
_2,000,000
P6,910,000
77.55%
P6,000,000
___77.55%
P4,653,000
__250,000
Total
Less: Franchise expense
Operating income
Interest income, 12/31/05 (P2,910,000 X 14%) X 6/12
Net income
P4,903,000
___50,000
P4,853,000
__203,700
P5,056,700
P1,800,000
1,263,900
P 536,100
P3,000,000
__ 536,100
P2,463,900
Revenues from:
Initial franchise fee
Continuing franchise fee (P2,000,000 X .05)
Total revenue from franchise fees
P1,000,000
100,000
P1,100,000
11-10: b
11-11: a
11-12: d
Realized gross profit from initial franchise fee [(350,000 + 90,000) x 37%]
Continuing franchise fee (P121,000 + P147,500) x 5%
P 162,800
___13,425
Total revenue
Expenses
176,225
___42,900
133,325
___67,500
Net income
P 200,825
Franchise Accounting
179
11-13: c
Cash down-payment
Present of the note (P40,000 x 3.0374)
P 95,000
__121,496
Total
P 216,496
11-14: a
Initial franchise fee
P 50,000
__20,000
Total revenue
P 70,000
Should be P80,000
Initial franchise fee down-payment (P100,000 / 5)
Continuing franchise fee (P500,000 x 12%)
P 20,000
__60,000
P 80,000
11-15: c
11-16: a
The unearned interest credited is the difference between the face value and the
present value of the notes receivable (900,000 720000).
The down payment of P600,000 is recognized as revenue since it is a fair
measure of the services already performed by the franchisor.
11-17: b
Cora (P100,000 + P500,000)
Dora (P100,000 + P500,000)
Total
P 600,000
600,000
P1,200,000
P1,250,000
1,425,000
2,675,000
802,500
1,872,500
11-18:
70%
180
Chapter 11
Date
Collection
Interest
Principal
1/1
6/30
468,750
171,000
297,750
12/30
468,750
135,270
333,480
Total collection applying to principal 631,230
Down payment
1,250,000
Total collection
1,881,230
Gross profit rate
70%
Realized gross profit on
Balance of PV of NR
P1,425,000
1,127,250
793,770
1,316,861
11-19: c
Franchise Accounting
181
SOLUTIONS TO PROBLEMS
Problem 11 1
a.
20,000,000
July 31:
29,000
36,000
2,000,000
29,000
36,000
2,000,000
800,000
Adjusting Entries:
(1)
Cost of franchise revenue ........................................... 2,000,000
Deferred cost of franchises ...................................
2,000,000
(2)
b.
20,000,000
(2)
182
a.
2,000,000
18,000,000
12,600,000
Chapter 11
Problem 11 2
Collection of the note is reasonably assured.
Jan. 5: Cash .. ..... .............................................................................. 600,000
Notes Receivable ................................................................... 1,000,000
Unearned interest income ..................................................
Deferred revenue from F.F. ...............................................
401,880
1,198,120
1,000,000
__598,120
401,880
179,718
4,000
200,000
Adjusting Entries:
1) Unearned interest income ..................................................
Interest income............................................................
P598,120 x 20%
2) Cost of Franchise ...............................................................
Deferred cost of Franchise ..........................................
b.
179,718
4,000
200,000
119,624
119,624
179,718
179,718
1,198,120
119,624
119,624
179,718
179,718
179,718
1,018,402
578,319.60
Franchise Accounting
183
Problem 11 3
2007
July 1:
66,408
373,592
80,000
80,000
12,680
12,680
2008
Jan. 10: Deferred cost of franchise ............................................................
Cash .. ..... ..............................................................................
50,000
July 1:
80,000
50,000
80,000
130,000
130,000
373,592
25,360
373,592
184
25,360
Chapter 11
Problem 11 4
2008
Jan. 10: Cash .. ...... ..... .............................................................................. 6,000,000
Deferred revenue from FF. ....................................................
6,000,000
Jan. 10 to
July 15: Franchise expense ........................................................................ 2,250,000
Cash .. ..... ..............................................................................
2,250,000
a)
b)
4,000,000
180,000
180,000
200,000
P4,500,000
_1,800,000
P2,700,000
P2,700,000
1,800,000
___40,000
4,540,000
_2,000,000
P2,540,000
Journal Entries:
Jan. 2: Cash .. ..... .............................................................................. 1,500,000
Notes receivable..................................................................... 3,000,000
Deferred revenue from FF (adjusted SV) ..........................
Revenue from FF (Market value of equipment) ................
2,700,000
1,800,000
1,500,000
Franchise Accounting
185
500,000
500,000
2,000,000
1,000,000
40,000
40,000
2,700,000
Problem 11 6
Recognition of initial franchise fee (IFF) (6 mos. after opening)
Revenue from initial FF:
Total initial FF ..... ..............................................................................P2,500,000
Less: Deficiency in continuing FF (Sch. 1) ........................................ 160,000
Expense (costs of initial services) ...............................................................
Net income .. ... ...... ..... ..............................................................................
Schedule 1 Estimated deficiency in CFF
(1)
Yr. of
Estimated
Contract
Continuing FF
1
P220,000
2
220,000
3
220,000
4
220,000
5
220,000
6
150,000
7
150,000
8
150,000
9
90,000
10
90,000
(2)
Market Value
of Continuing Services
P250,000
250,000
250,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
2,340,000
__700,000
P1,640,000
(Excess of 2 over 1)
Deficiency
P 30,000
30,000
30,000
35,000
__35,000
P160,000
Revenues:
Initial FF (Sch. 1)
Interest income
Continuing FF
Others
Expenses:
Initial expenses
Continuing expense
Years 4-5
P220,000
_100,000
P120,000
Years 6-8
P150,000
_100,000
P 50,000
Years 9-10
P125,000
_100,000
P 25,000
Chapter 11
Problem 11 7
1/12/2008
6/1/2008
7/1/2008
6/30/2009
62,500
80,000
287,200
45,490*
48,000
( 70,000)
( 36,000)
Others
Net Income
( 50,000)
P 12,500
( 68,000)
P 12,000
P217,200
P 57,490
B.
P750,000
( 145,100)
( 80,000)
( 62,500
( 175,200)
P287,200
Unearned Interest:
Face value of the note ..........................................................................................
Present value (120,000 x 3.7908) ........................................................................
rounded
Unearned interest .................................................................................................
P145,100
P 62,500
80,000
P600,000
454,900
Equipment
P62,500
50,000
P12,500
P 29,700
( 48,000)
( 18,300)
x4
P( 73,200)
Inventory
P80,000
68,000
P12,000
Years 5-16
P450,000/mo.
P 3,375/mo.
Years 17-20
P500,000/mo.
P 3,750/mo.
P 40,500
( 48,000)
(
7,500)
x 12
P( 90,000)
P 45,000
( 48,000)
(
3,000)
x4
P( 12,000)
Total
P142,500
118,000
P 24,500
187
Types of Revenue
Sale of equipment
Sale of inventory