Aa2 - Chapter 6 Suggested Answers: Exercises Exercise 6-1

1
AA2 - CHAPTER 6
SUGGESTED ANSWERS
EXERCISES
Exercise 6-1
Trustee's Books
a. Purchases 30,000
Trustee's Certificates Payable 30,000
b. Accounts Receivable 160,000

Sales 160,000
c. Corporation Liability paid - Accounts Payable, Old 24,000

Cash 24,000
d. Trustee's Certificates Payable 17,000

Cash 17,000
e. Cash 28,000
Allowance for Doubtful Accounts, Old* 3,000
Accounts Receivable, Old 31,000
f. Cash 92,000
Allowance for Doubtful Accounts* 1,300
Accounts Receivable 93,300
g. Corporation Liability Paid - Notes Payable, Old 30,000

Corporation Liability Paid - Accrued Interest on NP, Old 300
Corporation - Interest Expense on NP, Old 600
Cash 30,900
h. Cash 11,200
Accumulated Depreciation - Furniture and Fixtures 8,000
Corporation - Loss on Sale of Furniture and Fixtures 800
Furniture and Fixtures 20,000
*Corporation Uncollectible Accounts Expense

may also be used.
Chapter 6 – AA2 (2014 edition) page
2
Exercise 6 - 2
It is assumed in the following solution that all expenses and losses of the debtor are to be
reflected on the debtor's books. It is further assumed that the debtor recognized the liquidation of
liabilities of P30,000 by the trustee at the time such debt was paid.
Trustee's Books
a. Rowina Co. - Debtor 32,000
Rowina Co. - Loss on Sale of Investments 32,000
b. Sales 160,000
Cost of Goods Sold 112,000
Operating Expenses 28,000
Income Summary 40,000
c. Income Summary 20,000

Rowina Co. - Debtor 20,000
d. Rowina Co. - Debtor 30,000

Liabilities Paid - Robinson co. 30,000
Company's Books
a. Loss on Sale of Investments 32,000
Henry Ly, Trustee 32,000
b. Henry Ly, Trustee 20,000

Retained Earnings 20,000

Loss on Sale of Investments 32,000
Interest on Mortgage 5,000
d. Retained Earnings 37,000

Exercise 6 - 3
Trustee's Books
a. Corporation Liability Paid - Notes Payable, Old 40,000

Corporation Liability Paid - Accrued Int. on NP, Old 300
Golden City, Debtor 700
Cash 41,000
b. Cash 60,000
Investments 45,000
Golden City, Debtor 15,000
c. Corporation Liability Paid - Bonds Payable 100,000

Cash 63,500
3

d. Cash 3,200
Accumulated Depreciation - Plant and Equipment 3,200
Plant and Equipment 12,000
e. Income Summary 12,400


Corporation Liability Paid - Notes Payable, Old 40,000
Corporation Liability Paid - Accrued Int. on NP, Old 300
Corporation Liability Paid - Bonds Payable 100,000
Company's Books
a. Notes Payable 40,000
Accrued Interest on Notes Payable 300
Interest Expense 700
Trustee 41,000
b. Trustee 15,000
Gain on Sale of Investments 15,000
c. Bonds Payable 100,000

Interest Expense 1,500
Trustee 63,500
Gain on Bond Retirement 38,000
d. Loss on Sale of Plant and Equipment 5,600

Trustee 5,600
e. Trustee 12,400
Profit from Trusteeship Operations 12,400
Gain on Sale of Investments 15,000

Gain on Bond Retirement 38,000
Profit from Trusteeship Operations 12,400
Loss on Sale of Plant and Equipment 5,600
Interest Expense 2,200
Exercise 6 - 4
Assignee's Books
a. Corporation Liability Paid - Mortgage Note, Old 80,000

Corporation - Loss on Settlement with Creditors 50,000
Land and Building 130,000
b. Corporation Liability Paid - Trade Accounts Payable 70,000

4
Cash 41,000
Corporation - Gain on Settlement with Creditors 29,000
Corporation - Gain on Settlement with Creditors 29,000
Corporation - Loss on Settlement with Creditors 50,000
d. Panther Co., Debtor 228,000

Corporation Liability Paid - Mortgage Note, Old 80,000
Corporation Liability Paid - Trade Accounts Payable 70,000
Company's Books
a. Trade Accounts Payable 70,000
Mortgage Note 80,000
E. Baylor, Assignee 150,000
b. Retained Earnings 78,000

E. Baylor, Assignee 78,000

d. Capital Stock 100,000

PROBLEMS
Problem 6 –1
a. Cash 11,500
Notes Receivable, Old 50,000
Accrued Interest on Notes Receivable, Old 800
Merchandise Inventory 80,000
Dick Corp. Stock 30,000
Allowance for Uncollectible Accounts, Old 2,600
Accumulated Depreciation – Furniture and Fixtures 7,500
Slowly Corp., Debtor 322,200
b1 Accounts Receivable 280,000

Sales 280,000
b2. Purchases 160,000

Accounts Payable 160,000
b3. Cash 156,000

Sales Returns and Allowances 6,000
Sales Discount 8,000
5
b4. Cash 49,120

Corporation - Loss on Notes Receivable, Old 2,000
Corporation - Loss on Accrued Int. on NR, Old 200
Accrued Interest on Notes Receivable, Old 800
Interest Income 520
b5. Cash 110,000

Allowance for Uncollectible Accounts, Old 2,600
Corporation - Loss from Uncollectible Accounts, Old 17,400
b6. Cash 24,000

Dick corp. Stock (1,000 shares x P20) 20,000
Corporation - Gain on Sale of Dick Corp. Stock 4,000
b7. Accounts Payable 66,000

Cash 25,000
Notes Payable 36,000
Purchase Returns and Allowances 4,000
Purchase Discounts 1,000
b8. Corporation Liability Paid- Notes Payable, Old 50,000

Corporation Liability Paid - Accrued Int. on NP, Old 2,100
Corporation - Interest Expense on Notes, Old 700
Cash 52,800
b9. Corporation Liability Paid - Accounts Payable, Old 130,000

Cash 130,000
b10. Selling Expenses 37,000

General Expenses 46,600
Cash 83,600
c1. Income Summary 80,000

c2. Merchandise Inventory 66,500

c3. Uncollectible Accounts Expense (P110,000 x 2%) 2,200

Allowance for Uncollectible Accounts 2,200
c4. Depreciation - Furniture and Fixtures 2,000

(P30,000 x 10% x 8/12)
6
c5. Selling Expenses 500

General Expenses 600
Accrued Selling Expenses 500
Accrued General Expenses 600
c6. Corporation - Interest Expense on Notes, Old 300
c7. Interest Expense 400

c8. Sales 280,000

Purchase Returns and Allowances 4,000
Purchase Discount 1,000
Interest Income 520
Purchases 160,000
Sales Returns and Allowances 6,000
Sales Discount 8,000
Selling Expenses 37,500
General Expenses 47,200
Uncollectible Accounts Expense 2,200
Depreciation - Furniture and Fixtures 2,000
Interest Expense 400

Corporation - Gain on Sale of Dick Corp. Stock 4,000
Corporation - Interest Expense on Notes, Old 1,000
Corporation - Loss on Notes Receivable, Old 2,000
Corporation - Loss on Accrued Int. on NR, Old 200
Corporation - Loss from Doubtful Accounts, Old 17,400
c10. Slowly Corp., Debtor 7,880

c11. Slowly Corp., Debtor 182,100

Corporation Liability Paid - Notes Payable, Old 50,000
Corporation Liability Paid - Accrued Int. on NP, Old 2,100
Corporation Liability Paid - Accounts Payable, Old 130,000
d. Slowly Corp., Debtor 132,220

Cash 59,220
7

Dick Corp. Stock (500 shares) 10,000
Corporation's Books
(The transactions on the corporation's books are numbered to correspond
with the transactions on the trustee's books)
a. AC Maayos, Trustee 322,200

Cash 11,500
Notes Receivable 50,000
Accrued Interest on Notes Receivable 800
Dick Corp. Stock 30,000
b8. Notes Payable 50,000

Accrued Interest on Notes Payable 2,100
AC Maayos, Trustee 52,100

c10. Retained Earnings 7,880

AC Maayos Trustee 7,880
d. Cash 59,220
Dick Corp. Stock (500 shares) 10,000
Allowance for Doubtful Accounts 2,200
8
Problem 6 -1
Requirement 2 (a)
Slowly Corporation, Debtor
AC Maayos, Trustee
Statement of Financial Position
December 31, 2014
Assets
Current assets:
Cash P59,220
Accounts receivable P110,000
Less Allowance for doubtful accounts 2,200 107,800
Merchandise inventory 66,500 P233,520
Furniture and fixtures P30,000
Less Accumulated depreciation 9,500 20,500
Investments:
Dick Corporation stock 10,000
Total assets P264,020
Liabilities and Shareholders' Equity

Current liabilities:
Notes payable P56,000
Accounts payable 94,000
Accrued selling expenses 500
Accrued general expenses 600
Accrued interest on notes payable 700 P151,800
Shareholders' equity:
Ordinary share capital P100,000
Retained earnings (P20,100 - P7,880) 12,220 112,220
Total shareholders' equity P264,020

9
Problem 6 -1
Requirement 2(b)
Slowly Corporation, Debtor
AC Maayos, Trustee
Income Statement
For the Period May 1 to December 31, 2014
Gross sales P280,000

Less: Sales returns and allowances P 6,000
Sales discount 8,000 14,000
Net sales P266,000
Cost of goods sold:
Merchandise inventory, May 1 P 80,000
Purchases P160,000
Less: Purchase returns and allow. P4,000
Purchase discount 1,000 5,000 155,000
Merchandise available for sale P235,000
Less Merchandise inventory, December 31 66,500 168,500
Gross profit P 97,500
Operating expenses:
Selling expenses P 37,500
General expenses 47,200
Uncollectible accounts expense 2,200
Depreciation - furniture and fixtures 2,000 88,900
Operating income P 8,600
Other revenue and expense items:
Interest income P 520
Interest expense 400 120
Income from trustee's operations P 8,720
Corporation revenue and expense items:
Corporation expenses:
Interest expense on notes, old P 1,000
Uncollectible accounts expense 17,400 P 18,400
Corporation losses:
Loss on notes receivable, old P2,000
Loss on accrued int. on NR, old 200 2,200
Total corporation expenses and losses P20,600
Less corporation gains:
Gain on sale of Dick Corp. stock 4,000
Net corporation loss 16,600
Decrease in retained earnings P 7,880
10
Problem 6 -2
Requirement 1
Trustee's Books
a. Cash 8,000
Cash Surrender Value of Life Insurance 9,400
Accumulated Depreciation - Furniture and Fixtures 600
Cory and Fidel, Debtors 120,000
b1. Accounts Receivable Pledged 40,000

b2 Cash 28,800
Interest and Finance Charges 1,200
Loan from Acro Finance Company 30,000
Loan: P28,800/(100% - 4%) = P30,000
b3. Partnership Liability Paid - Notes Payable, Old 15,000

Partnership Liability Paid - Accrued Int. on NP 600
Partnership - Interest Expense on Notes, Old 100
Cash 15,700
b4. Cash 15,000

Partnership - Uncollectible Accounts Expense 1,900
Accounts Receivable, Old (P56,900 - P40,000 pledged) 16,900
b5. Cash 5,000

b6. Partnership Liability Paid - Accounts Payable, Old 69,400

Cash 31,000
Installment Notes Payable 38,400
b7. Cash 40,000

Accounts Receivable Pledged 40,000
b8. Loan from Acro Finance Company 30,000

Interest and Finance Charges 300
11
Cash 30,300
Interest = P30,000 x 6% x 2/12 = P300.
b9. Purchases 80,000

b10. Accounts Receivable 150,000

Sales 150,000
b11. Operating Expenses 25,000

Cash 25,000
b12. Installment Notes Payable (P3,200 x 11) 35,200

Partnership - Interest Expense on Installment Notes 880
Cash 36,080
FV of installment notes = P38,400/12 = P3,200
Interest = P3,200 x 5% [1/12(1+2+3+4+5+6+7+8+
9+10+11)] = P880
b13. Trustee's Expenses and Fees 13,000

Cash 7,000
Due to Ferdie, Trustee 6,000
b14. Cash 122,800


Cash 56,000
c1. Operating Expenses 1,520

Accrued Operating Expenses 1,520

c3. Merchandise Inventory 33,000

c4. Depreciation - Furniture and Fixtures 360

c5. Uncollectible Accounts Expense 1,360

P27,200 x 5% = P1,360
c6. Partnership - Interest Expense on Installment Notes 160

P3,200 x 5% = P160
12
c7. Sales 150,000

Purchases 80,000
Operating Expenses 26,520
Trustee's Expenses and Fees 13,000
Depreciation - Furniture and Fixtures 360
Uncollectible Accounts Expense 1,360
Interest and Finance Charges 1,500

Partnership - Interest Expense on Notes, Old 100
Partnership - Interest on Installment Notes 1,040

Cornie and Fidelie, Debtor 19,520
c10. Cornie and Fidelie, Debtor 85,000

Partnership Liability Paid - Notes Payable, Old 15,000
Partnership Liability Paid - Accrued Int. on NP 600
Partnership Liability Paid - Accounts Payable, Old 69,400
d. Cornie and Fidelie, Debtor 54,520

Accrued Interest on Installment Notes 160
Due to Ferdinie, Trustee 6,000
Cash 18,520
Partnership Books
(The transactions on the partnership books are numbered to correspond with
the transactions on the trustee's books)
a. Ferdinie, Trustee 120,000
Cash 8,000
Notes Receivable 7,500
b3. Notes Payable 15,000

13

Ferdinie, Trustee 15,600

c. Ferdinie, Trustee 19,520

Cornie, Capital (P19,520 x 20/35) 11,154
Fidelie, Capital (P19,520 x 15/35) 8,366
d. Cash 18,520
Accrued Interest on Installment Notes 160
Due to Ferdie, Trustee 6,000
Problem 6 -2 Requirement 2(a)

Cornie and Fidelie,, Debtor
Ferdinie, Trustee
June 30, 2015
Assets
Current assets:
Cash P 18,520
Accounts receivable P27,200
Less Allowance for doubtful accounts 1,360 25.840
Merchandise inventory 33,000 P 77,360
Long-term investment:
Cash surrender value of life insurance 9,400
Furniture and fixtures P 3,600
Less Accumulated depreciation 960 2,640
Total assets P 89,400
Liabilities and Partners' Capital

Liabilities:
Accounts payable P 24,000
Installment on notes payable 3,200
Accrued interest on installment notes 160
14
Due to Ferdinie, Trustee 6,000

Total liabilities P 34,880
Partners' capital:
Cornie, capital P 31,154
Fidelie, capital 23,366
Total partners' capital 54,520
Total liabilities and partners' capital P 89,400
Problem 6 - 2 (Req. 2b)

Cornie and Fidelie, Debtor
Ferdinie, Trustee
Income Statement
For the Fiscal Year Ended June 30, 2015
Sales P150,000
Cost of goods sold:
Merchandise inventory, July 1, 2014 P 35,200
Purchases 80,000
Less Merchandise inventory, June 30, 2005 33,000 82,200
Gross profit P67,800
Operating expenses 41,240
Operating income P26,560
Other expenses:
Interest and finance charges 1,500
Income from trustee's operations P25,060
Partnership revenue and expense items:
Uncollectible accounts expense P 4,400
Interest expense on notes, old 100
Interest expense on installment notes 1,040 5,540
Increase in partners' capital P19,520
Problem 6 - 3
Winala Stores, Inc. Debtor
Pamana, Trustee
Income Statement
For Six Months Ended December 31, 2014
Sales P401,000
Cost of goods sold:
Merchandise inventory, July 1 P 50,600
Purchases 252,800
Less Merchandise inventory, December 31 41,500 261,900
Gross profit P139,100
Operating expenses:
15
Selling expenses P 45,600

General expenses 28,220
Depreciation 10,980
Trustee's expenses 3,000 87,800
Income from trustee's operations P 51,300
Interest expense P 8,000
Uncollectible accounts expense 15,000
Total corporation expenses 23,000
Increase in retained earnings P 28,300
Winala Stores, Inc. Debtor

Pamana, Trustee
December 31, 2014
Assets
Current assets:
Cash P 56,840
Accounts receivable, old 75,600
Accounts receivable, new 79,360
Merchandise inventory 41,500 P253,300
Fixtures P183,000
Less Accumulated depreciation 35,000 148,000
Intangible asset:
Trademark 25,000
Liabilities
Accounts payable, new P 39,200
Mortgage payable 100,000
Total liabilities P139,200
Shareholders' Equity
Share capital P300,000
Less Deficit 12,900
Total shareholders' equity 287,100
Total liabilities and shareholders' equity P426,300
Problem 6-4
Universal Company, Debtor

P. Cesar, Trustee
Balance Sheet
November 20, 2014
Assets
Cash P268,400
Accounts receivable P800
16
Less Allowance for doubtful accounts 800 ------

Liabilities
Bank overdraft P 2,000
Bank loans 210,000
Poker, Inc. 60,000
Acceptances 46,000
Total liabilities P544,000
Shareholders' Equity (Deficiency)

Contributed capital:
Preference shares P200,000
Ordinary shares 200,000
Total contributed capital P400,000
Retained earnings - deficit 675,600
Total shareholders' equity (deficiency) (275,600)
Total liabilities and shareholders' equity P268,400
Universal Company, Debtor

P. Cesar, Trustee
Income Statement
For the Period April 28 to November 20, 2014
Sales P150,000
Cost of goods sold 120,000
Gross profit P 30,000
Operating and general expenses (including materials and
supplies used, P18,000) 140,000
Operating loss P110,000
Other revenue:
Rental income P 2,000
Unclaimed wages 1,000
Interest income 400 3,400
Loss from trustee's operations P106,600
Corporation losses:
Loss on cancellation of insurance P 1,400
Loss on realization of goods and supplies 42,000
Loss on sale of machinery and equipment 540,000
Interest on city taxes 800
P584,200
Interest on mortgage 4,000
Uncollectible accounts expense 800
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P589,000
Less Corporation gains:
Proceeds from surrender of insurance
policy on life of manager P2,000
Gain from reduction of accounts payable 14,000
Gain on machinery lease settlement 4,000 20,000 569,000
Decrease in retained earnings P675,600

Aa2 - Chapter 6 Suggested Answers: Exercises Exercise 6-1

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1

b. Accounts Receivable 160,000

c. Corporation Liability paid - Accounts Payable, Old 24,000

d. Trustee's Certificates Payable 17,000

g. Corporation Liability Paid - Notes Payable, Old 30,000

*Corporation Uncollectible Accounts Expense

c. Income Summary 20,000

d. Rowina Co. - Debtor 30,000

b. Henry Ly, Trustee 20,000

c. Income Summary 37,000

d. Retained Earnings 37,000

a. Corporation Liability Paid - Notes Payable, Old 40,000

c. Corporation Liability Paid - Bonds Payable 100,000

Golden City, Debtor 36,500

e. Income Summary 12,400

Golden City, Debtor 140,300

c. Bonds Payable 100,000

d. Loss on Sale of Plant and Equipment 5,600

Gain on Sale of Investments 15,000

a. Corporation Liability Paid - Mortgage Note, Old 80,000

b. Corporation Liability Paid - Trade Accounts Payable 70,000

d. Panther Co., Debtor 228,000

b. Retained Earnings 78,000

c. Income Summary 3,000

d. Capital Stock 100,000

b1 Accounts Receivable 280,000

b2. Purchases 160,000

b3. Cash 156,000

b4. Cash 49,120

b5. Cash 110,000

b6. Cash 24,000

b7. Accounts Payable 66,000

b8. Corporation Liability Paid- Notes Payable, Old 50,000

b9. Corporation Liability Paid - Accounts Payable, Old 130,000

b10. Selling Expenses 37,000

c1. Income Summary 80,000

c2. Merchandise Inventory 66,500

c3. Uncollectible Accounts Expense (P110,000 x 2%) 2,200

c4. Depreciation - Furniture and Fixtures 2,000

c5. Selling Expenses 500

c7. Interest Expense 400

c8. Sales 280,000

c9. Income Summary 16,600

c10. Slowly Corp., Debtor 7,880

c11. Slowly Corp., Debtor 182,100

d. Slowly Corp., Debtor 132,220

Furniture and Fixtures 30,000

a. AC Maayos, Trustee 322,200

b8. Notes Payable 50,000

b9. Accounts Payable 130,000

c10. Retained Earnings 7,880

Liabilities and Shareholders' Equity

Total shareholders' equity P264,020

Gross sales P280,000

b1. Accounts Receivable Pledged 40,000

b3. Partnership Liability Paid - Notes Payable, Old 15,000

b4. Cash 15,000

b5. Cash 5,000

b6. Partnership Liability Paid - Accounts Payable, Old 69,400

b7. Cash 40,000

b8. Loan from Acro Finance Company 30,000

b9. Purchases 80,000

b10. Accounts Receivable 150,000