PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines First Pre-board Examination

Partnership part, jv, corp liq Assets

Cash 30,000
1. Rodrigo and Sandoval each operating a separate business agreed to join in partnership as of Accounts Receivable (net) 144,000
January 2, 2005. The following are the given accounts: Inventory 216,000
Rodrigo Sandoval Equipment (net of accumulated depreciation of P60,000) 210,000
Cash P11,200 P42,000 Total Assets P600,000
Accounts Receivable 112,000 84,000 Liabilities and Capital
Merchandise 140,000 126,000 Accounts Payable P159,000
Office Equipment 35,000 42,000 Notes payable 186,000
Accounts Payable 35,000 56,000 Gonzalo, Capital 255,000
Notes payable 7,000 -- Total Liabilities and Capital P600,000
The assets of the two partners were carefully examined and it was agreed that certain adjustments The partners agree that the inventory is worth P255,000, and the equipment is worth half its
be made and the above accounts as adjusted be the basis on which the partnership begins original cost, and the allowance established for doubtful accounts is correct.
operations. The adjustments agreed upon are as follows: Rodrigo’s accounts receivable are to be The partners agree to use the goodwill method approach to record the formation, how much is the
taken over at a book value less 15% and Sandoval’s accounts receivable at book value less 10%. total agreed capital of the partnership?
Rodrigo’s office equipment is new and is considered adequate for the new business; therefore, it is A. P810,000 C. P690,000
decided that Sandoval dispose of his equipment at the highest cash price possible and that B. P822,000 D. P750,000
Rodrigo bear one-fourth of the loss resulting from the sale. Sandoval’s office equipment is disposed
of at book value less 10%. It is further agreed that Sandoval pay sufficient cash to give him one- 3. JJ and MM partners in the JM partnership are entitled to 40% and 60%of the profits and losses,
half interest in the business after charging to Rodrigo’s capital account his share of the loss on the respectively. During 2005, JJ contributed land to the partnership that cost him P105,000, but had a
sale by Sandoval of office equipment. current value of P126,000. Also, during 2005, JJ had drawings of P168,000. The balance of JJ’s
How much additional cash is to be contributed by Sandoval? capital accounts was P252,000 at the beginning of the year and P315,000 at the end of the year.
A. P16,100 C. P11,900 Compute the share of MM in the partnership’s earnings (loss) for 2005:
B. P12,950 D. P50,750 A. P105,000 C. P262,500
B. P157,500 D. P94,500
2. On December 1, 2004 Gonzalo, the sole proprietor of the Gonzalo Company, expands the
company and establish a partnership with Bolivar and Valdes. The partners plan to share profits 4. On December 31, 2005, L and M are partners with capital balances of P180,000 and P90,000,
and losses as follows: Gonzalo, 50%; Bolivar, 25%; Valdes, 25%. They also agree that the respectively. They share profits and losses in the ratio of 2:1. On this date N invests P81,000 cash
beginning capital balances of the partnership will reflect this same relationship. Gonzalo asked for a 1/5 interest in the capital and profit of the new partnership. The partners agree that the implied
Bolivar to join the partnership because his many business contacts are expected to be valuable partnership goodwill is to be recorded simultaneously with the admission of N.
during the expansion. Bolivar is also contributing P84,000 cash. Valdes is contributing P33,000 The total implied goodwill of the firm is:
cash and marketable securities costing P126,000 to Valdes but are currently worth P172,500. A. P135,000 C. P54,000
Gonzalo’s investment in the partnership is the Gonzalo Company. He plans to pay off the notes B. P48,000 D. P108,000
with his personal assets. The other partners have agreed that partnership will assume the accounts
payable. The balance sheet for the Gonzalo Company follows: 5. The partnership agreement of DD, EE and FF provides for the division of net income as follows:
Gonzalo Company A. EE, who manages the partnership is to receive a salary of P8,000 per month.
Balance Sheet B. Each partner is to be allowed interest at 10% on beginning capital.
December 1, 2004 C. Remaining profits are to be divided equally.
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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines First Pre-board Examination

During 2005, DD invested an additional P22,000 in the partnership. EE withdrew P27,500, and FF What amount of cash did A received in the final settlement?
withdrew P22,000. No other investments or withdrawals were made during 2005. On January 1, A. P10,000 C. P30,000
2005, the capital balances were DD, P357,500; EE, P412,500; and FF, P385,000. Total capital at B. P0 D. P20,000
year-end was P1,386,000.
Compute the capital balance of EE at year-end: 9. On December 31, 2005, the accounting records of U, V and W Partnership (a general partnership)
A. P537,917 C. P415,800 included the following ledger account balances:
B. P152,917 D. P522,250 Receivable from U P132,000 U, capital P553,500
Loan to W 40,500 V, capital 452,500
6. OO and PP form a new partnership. OO invests P360,000 in cash for his 60% interest in the capital Salary payable to V 135,000 W, capital 486,000
and profits of the business. PP contributes land that has an original cost of P48,000 and a fair Total assets includes cash amounting to P234,500 and liabilities totaled P670,000. The partnership
market value of P84,000, and a building that has a tax basis of P60,000 and a fair value of was liquidated on December 31, 2005, and U received P438,000 cash pursuant to the liquidation.
P108,000. The building is subject to a P48,000 mortgage that the partnership will assume. What U, V, and W shared net income and losses in a 5:3:2 ratio, respectively.
amount of cash should PP contribute? How much cash was distributed to all the partners?
A. P48,000 C. P90,600 A. P1,923,000 C. P1,487,500
B. P96,000 D. P90,000 B. P1,847,500 D. P1,500,000

7. X, Y and Z are partners in a wholesale business. On January 1, 2005 the total capital and drawings 10. The accounts of the partnership of A, B and C at the end of its fiscal year on October 31, 2005 are
presented as follows: as follows:
Capital Drawing – Credit Cash P78,750 Loan from C P52,500
X P 375,000 P36,000 Other Non-Cash Assets 682,500 A, Capital (30%) 236,250
Y 550,000 24,000 Loan to B 26,250 B, Capital (50%) 157,500
Z 1,125,000 17,000 Liabilities 262,500 C, Capital (20%) 78,750
Partners agree that profit and loss ratio are shared equally. Because of the failure of some debtors If B received a total of P15,000 as a result of the liquidation, what was the total amount realized
to pay their outstanding accounts, the partnership lose heavily and are compelled to liquidate. The from the sale of the non-cash assets?
operating loss in 2005 is P252,000. After exhausting the partnership assets may still owe P207,000 A. P450,000 C. P45,000
to creditors on December 31, 2005. Y has no personal assets but the others are well off. B. P133,125 D. P250,000
How much was absorbed by Z to eliminate the capital deficiency of Y?
A. P100,333 C. P102,000 11. The XYZ partnership has ceased operations and is in the process of liquidation. The remaining
B. P103,000 D. P204,000 accounts and the profit and loss sharing ratios are summarized as follows:
Cash P50,000 X, capital (25%) P50,000
8. The following information is provided in connection with the liquidation of a partnership: A advances Other assets 150,000 Y, capital (50%) 100,000
the amount to pay the partnership creditors. Z, capital (25%) 50,000
Partner P&L Ratio Partnership Capital Personal Personal Total assets P200,000 Total equities P200,000
Balance (Dr) Cr Assets Liabilities Under an installment liquidation of the XYZ partnership:
A 30% P520,000 P650,000 P440,000 A. A safe payment schedule must be prepared before each cash distribution to avoid excessive
B 10 260,000 390,000 325,000 payments to partners.
C 20 (390,000) 520,000 485,000 B. A cash distribution program must be prepared so that each partner will know when he or she
D 40 (585,000) 260,000 390,000 will be included in the cash distribution.
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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines First Pre-board Examination

C. Cash will be distributed in the profit and loss sharing ratio as it becomes available. On October 1, 2012, A, B, and C entered into a joint venture. They were to market a special alarm
D. No cash should be distributed until all noncash assets are converted into cash. device. The venture’s profits and losses were to be shared in a 5:3:2 ratio, respectively.
On December 31, 2012, although the joint venture was still uncompleted, the three participants decided
12. At the end of its fiscal year on August 31, 2004, the Billy, Johnny, and Marky partnership had to recognize the profit or loss for the three-month period. The inventory was listed at 25% above cost of
account balances as follows: P50,000 and the joint venture account had a debit balance of P24,000.
Cash P35,000 Accounts payable P61,250 No separate books were kept for the joint venture.
Accounts receivable 52,500 Loan from Johnny 43,750 14. The joint venture’s profit or loss for the three-month period amounted to
Inventories 122,500 Billy, capital (20%) 122,500 a. P16,000 profit. c. P14,000 loss.
Plant asset – net 105,000 Johnny, capital (30%) 87,500 b. P26,000 profit. d. P13,500 loss.
Loan to Billy 52,500 Marky, capital (50%) 52,500
P367,500 P367,500 15. The respective shares of A, B, and C in the joint venture’s profit (loss) are
The percentages shown are the residual profit sharing ratios. Marky also gets a P21,000 annual a. P(6,750); P(4,050); and P(2,700) c. P13,000; P 7,800 ; and P 5,200
salary allowance. The partners dissolved the partnership on September 1, 2004 and began the b. P8,000 ; P 4,800 ; and P 3,200 d. P(7,000); P(4,200); and P(2,800)
liquidation process. During September, the following events occurred:
 Receivables of P26,250 were collected Questions 16 and 17 are based on the following information. RPCPA 0583)
 The inventory was sold for P35,000 Al Bonin and Rey Sucat formed a joint venture on January 1, 2012 to operate two stores to be managed
 All available cash was discussed on September 30, except for P17,500 of expected by each participant. They agreed to contribute cash as follows:
expenses. Bonin P30,000
The amount of cash Johnny should receive on September 30, 2004 Sucat 20,000
A. P35,000 C. P17,500 Profits and losses are to be divided in the capital ratio. All venture transactions are for cash. Cash
B. P253,750 D. P0 receipts and disbursements of the business during 4-month period handled through the participants’
personal bank accounts are as follows:
13. The balance sheet for J and K Partnership on January 1, 2005 before liquidation is as follows: Benin Sucat
Assets Liabilities and Capital Receipts P78,920 P65,425
Disbursements 62,275 70,695
Cash P157,500 Liabilities P393,750
On April 30, the remaining non-cash venture assets in the hands of the participants were sold for
Other Assets 798,750 J, Capital (60%) 315,000
P60,000. The venture is terminated and settlement is made between Benin and Sucat.
K, Capital (40%) 247,500
Total Assets P956,250 Total Equity P956,250
16. The venture profit (loss) for the 4-month period after selling the remaining venture assets is
In January, assets with a book value of P382,500 are sold for P326,250, creditors are paid 80% of a. P11,375 c. (P31,375)
the amount owing to them, liquidation expenses of 6,500 is paid, unrecorded liabilities of P4,750 is b. P21,375 d. (P38,625)
paid.
For the month of January, how much cash is available for distribution to the partners? 17. The P60,000 is divided between the participants as follows:
A. P157,500 C. P33,750
a. b. c. d.
B. P78,750 D. P0
Benin P16,180 P21,905 P26,180 P48,095
Sucat P43,820 P38,095 P33,820 P11,905
Joint Venture
Questions 14 and 15 are based on the following information. RPCPA 1091)
Corporate Liquidation
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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines First Pre-board Examination

18. A receiver was appointed for Andrada Corporation on September 1, at which the following trial Accounts receivable 23,100
balance was prepared from the general ledger: Inventories 84,000
Trial Balance Prepaid expenses 2,100
Cash P33,000 Machinery and equipment 70,000
Notes receivable 57,000 Goodwill and patents 157,500
Accounts receivable 219,000 Estimated claims requiring settlement, not recorded on books:
Merchandise inventory 145,500 Liquidation expense 17,500
Investments, cost 30,000 Contingent liabilities 26,250
Plant and equipment 520,000 Estimated deficiency to unsecured creditors
Accumulated depreciation P85,000 A. P54,450 C. P81,550
Notes payable 105,000 B. P40,950 D. P5,950
Accounts payable 480,000
Capital stock, par value P20 150,000 20. ABC Corporation has become insolvent and a statement of affairs is being prepared. The following
Retained earnings 184,500 figures on a statement of affairs are condensed as follows:
P1,004,500 P1,004,500 Assets Liabilities
Additional data: Pledged with fully secured creditors P71,000 With priority P3,000
A. Accrued expenses not recorded as of this date, amount to P10,050, of which P3,300 is for Pledged with partially secured Fully secured 60,000
property taxes and P3,600 is for wages for the past month. creditors 12,500
B. The investments have a market value of P34,500 and have been pledged as collateral on a Free 11,000 Unsecured without priority 18,000
note for P30,000. The estimated deficiency to unsecured creditors (without priority) is:
C. Accounts receivable of P90,000 have been assigned as security for the remainder of the notes A. P5,000 C. P15,500
payable. B. P12,500 D. P6,500
D. It is estimated that 95% of the notes receivable, 95% of the assigned accounts receivable, and
75% of the remaining accounts receivable will be collected.
E. A quick sale of the inventory will realize P90,000 and of the plant, P165,000. The corporation
also owns a patent not recorded on the books which is expected to realize P6,000.
Assume that the assets are converted into cash at estimated current value and the business is
liquidated, how much cash will be available to pay the unsecured non-priority claims?
A. P459,000 C. P453,000
B. P435,000 D. P459,900

19. The following are the date for the AMV Company:
Stockholders’ equity, per books:
Capital stock P350,000
Deficit 54,250
Estimated gain on realization of assets:
Land and buildings P78,750
Estimated loss on realization of assets: on realization of assets:
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PRACTICAL ACCOUNTING PROBLEM 2 CPA Review School of the Philippines First Pre-board Examination

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