Professional Documents
Culture Documents
CHAPTER 1
1-1: a
Jose's capital should be credited for the market value of the computer contributed by
him.
1-2: b (40,000 + 80,000) 2/3 = 180,000 x 1/3 = 60,000.
1-2: c
1-3: a
Cash P100,000
Land 300,000
Mortgage payable ( 50,000)
Net assets (Julio, capital) P350,000
1-4: b
Total Capital (P300,000/60%) P500,000
Perla's interest ______40%
Perla's capital P200,000
Less:Non-cash asset contributed at market value
Land P 70,000
Building 90,000
Mortgage Payable ( 40,000) _120,000
Cash contribution P 80,000
1-5: d - Zero, because under the bonus method, a transfer of capital is only required.
1-6: b
Reyes Santos
Cash P200,000 P300,000
Inventory – 150,000
Building – 400,000
Equipment 150,000
Mortgage payable ________ ( 100,000)
Net asset (capital) P350,000 P750,000
1-7: c
AA BB CC
Cash P 50,000
Property at Market Value P 80,000
Mortgage payable ( 35,000)
Equipment at Market Value _______ _______ P55,000
Capital P 50,000 P 45,000 P55,000
2
Chapter 1
1-8: a
PP RR SS
Cash P 50,000 P 80,000 P 25,000
Computer at Market Value __25,000 _______ __60,000
Capital P 75,000 P 80,000 P 85,000
1-9: c
Maria Nora
Cash P 30,000
Merchandise inventory P 90,000
Computer equipment 160,000
Liability ( 60,000)
Furniture and Fixtures 200,000 ________
Total contribution P230,000 P190,000
1-10: d
Roy Sam Tim
Cash P140,000 – –
Office Equipment – P220,000 –
Note payable ________ _( 60,000) ______
Net asset invested P140,000 P160,000 P –
1-11: a
Lara Mitra
Cash P130,000 P200,000
Computer equipment – 50,000
Note payable ________ _( 10,000)
Net asset invested P130,000 P240,000
1-12: a
Perez Reyes
Cash P 50,000 P 70,000
Office Equipment 30,000 –
Merchandise – 110,000
Furniture 100,000
Notes payable _______ ( 50,000)
Net asset invested P 80,000 P230,000
Partnership – Basic Considerations and Formation 3
Bonus Method:
Total capital (net asset invested) P310,000
Goodwill Method:
Net assets invested P310,000
Add: Goodwill (P230,000-P80,000) _150,000
Net capital P460,000
1-13: b
Required capital of each partner (P300,000/2) P150,000
Contributed capital of Ruiz:
Total assets P105,000
Less Liabilities __15,000 __90,000
Cash to be contributed by Ruiz P 60,000
1-14: d
Total assets:
Cash P 70,000
Machinery 75,000
Building _225,000 P370,000
Less: Liabilities (Mortgage payable) __90,000
Net assets (equal to Ferrer's capital account) P280,000
Divide by Ferrer's P & L share percentage ____70%
Total partnership capital P400,000
1-15: d
Adjusted assets of C Borja
Cash P 2,500
Accounts Receivable (P10,000-P500) 9,500
Merchandise inventory (P15,000-P3,000) 12,000
Fixtures __20,000 P 44,000
Asset contributed by D. Arce:
Cash P 20,000
Merchandise __10,000 __30,000
Total assets of the partnership P 74,000
4
Chapter 1
1-16: a
Cash to be invested by Mendez:
Adjusted capital of Lopez (2/3)
Unadjusted capital P158,400
Adjustments:
Prepaid expenses 17,500
Accrued expenses ( 5,000)
Allowance for bad debts (5% X P100,000) _( 5,000)
Adjusted capital P165,900
Total Capital:
Adjusted capital of Lopez P165,900
Contributed capital of Mendez __82,950
Total capital P248,850
1-17: d
Moran, capital (40%)
Cash P 15,000
Furniture and Fixtures _100,000 P115,000
Divide by Moran's P & L share percentage ______40%
Total partnership capital P287,500
Multiply by Nakar's P & L share percentage ______60%
Required capital of credit of Nakar: P172,500
Contributed capital of Nakar:
Merchandise inventory P 45,000
Land 15,000
Building __65,000
Total assets P125,000
Less Liabilities __30,000 P 95,000
Required cash investment by Nakar P 77,500
1-18: c
Garcia's adjusted capital (see schedule 1) P40,500
Divide by Garcia's P & L share percentage ______40%
Total partnership capital P101,250
Flores' P & L share percentage ______60%
Flores' capital credit P 60,750
Flores' contributed capital (see schedule 2) __43,500
Additional cash to be invested by Flores P 17,250
Partnership – Basic Considerations and Formation 5
Schedule 1:
Garcia, capital:
Unadjusted balance P 49,500
Adjustments:
Accumulated depreciation ( 4,500)
Allowance for doubtful account ( 4,500)
Adjusted balance P 40,500
Schedule 2:
Flores capital:
Unadjusted balance P 57,000
Adjustments:
Accumulated depreciation ( 1,500)
Allowance for doubtful accounts ( 12,000)
Adjusted balance P 43,500
1-19: d
Ortiz Ponce Total
( 60%) ( 40%)
Unadjusted capital balances P133,000 P108,000 P241,000
Adjustments:
Allowance for bad debts ( 2,700) ( 1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses _( 2,400) ( 1,600) ( 4,000)
Adjusted capital balances P130,900 P106,000 P237,500
Total capital before the formation of the new partnership (see above) P237,500
Divide by the total percentage share of Ortiz and Ponce (50% + 30%) ______80%
Total capital of the partnership before the admission of Roxas P296,875
Multiply by Roxas' interest ______20%
Cash to be invested by Roxas P 59,375
1-20: d
Merchandise to be invested by Gomez:
Total partnership capital (P180,000/60%) P300,000
6
Chapter 1
1-21: b
Unadjusted Ell, capital (P75,000 – P5,000) P 70,000
Allowance for doubtful accounts ( 1,000)
Accounts payable ( 4,000)
Adjusted Ell, capital P 65,000
1-22: c
Total partnership capital (P113,640/1/3) P340,920
Less David's capital _113,640
Cortez's capital after adjustments P227,280
Adjustments made:
Allowance for doubtful account (2% X P96,000) 1,920
Merchandise inventory ( 16,000)
Prepaid expenses ( 5,200)
Accrued expenses ___3,200
Cortez's capital before adjustments P211,200
1-23: a
Total assets at fair value P4,625,000
Liabilities (1,125,000)
Capital balance of Flor P3,500,000
1-24: c
Total capital of the partnership (P3,500,000 ÷ 70%) P5,000,000
Eden agreed profit & loss ratio 30%
Eden agreed capital 1,500,000
Eden contributed capital at fair value 812,000
Allocated cash to be invested by Eden P 688,000
1-25: c
__Rey __Sam_ __Tim __Total_
Contributed capital (assets-liabilities)P471,000 P291,000 P195,000 P957,000
Agreed capital (profit and loss ratio) 382,800 382,800 191,400 957,000
Capital transfer (Bonus) P 88,200 P(91,800) P 3,600 -
1-26: d
Total agreed capital (P90,000 ÷ 40%) P225,000
Contributed capital of Candy (P126,000+P36,000-P12,000) 150,000
Total agreed capital (P90,000 ÷ 40%) 225,000
Candy, agreed capital interest 60%
Agreed capital of Candy 135,000
Contributed capital of Candy 150,000
Withdrawal P 15,000
Partnership – Basic Considerations and Formation 7
1-27: a
Total agreed capital (210,000 ÷ 70%) P300,000
Nora’s interest 30%
Agreed capital of Nora P 90,000
Cash invested 42,000
Cash to be invested by Nora P 48,000
1-28: a
Contributed capital of May (P194,000 - P56,000) P138,000
Agreed capital of May (P300,000 x 70%) 210,000
Cash to be invested by May P 72,000
1-29: c
__Alex_ _Carlos_ __Total__
Contributed capital P100,000 P84,000 P184,000
Agreed capital 92,000 92,000 184,000
Capital invested P( 8,000) P 8,000 -
8
Chapter 1
SOLUTIONS TO PROBLEMS
Problem 1 – 1
Computation:
P1,000 x 6% x 3/12 = P15
P2,000 x 6% x 2/12 = _20
Total................................P35
Computation:
Pedro Castro, Capital
(1) P600 P31,400
(2) 200 35 (3)
(4) 100 400 (6)
(5) ___800
P1,700 P31,835
P30,135
Jose Bunag, Capital : 1/2 x P30,135 = P15,067.50
10
Chapter 1
Problem 1 – 2
Contributed Capitals:
Agreed Capitals:
Bonus Method:
Jose (P231,500 x 50%)................................................................ P115,750
Pedro (P231,500 x 25%)............................................................. 57,875
Pablo (P231,500 x 25%).............................................................. __57,875
Total. ........................................................................................... P231,500
Goodwill Method. To have a goodwill, the only possible base is the capital of Pablo. The
computation is:
Contributed Agreed
Capital Capital Goodwill
Jose P135,000 P137,000 (50%) 2,000
Pedro 28,000 68,500 (25%) 40,500
Pablo __68,500 __68,500 (25%) _____–
Total P231,500 274,000 42,500
Problem 1 – 3
Cash................................................................................................... 400
Accounts Receivable......................................................................... 16,000
Merchandise Inventory...................................................................... 20,000
Furniture and Fixtures........................................................................ 5,000
Estimated Uncollectible account................................................. 4,800
Accumulated Depreciation – Furniture and Fixtures................... 1,500
Accounts Payable........................................................................ 3,600
Pepe Basco, Capital..................................................................... 31,500
Cash................................................................................................... 47,250
Carlo Torre, Capital.................................................................... 47,250
Computation:
Pepe Basco, capital (Base).......................................................... P31,500
Divide by Pepe Basco's P & L ratio............................................ ___40%
Total agreed capital..................................................................... P78,750
Multiply by Carlo Torre's P & L ratio......................................... ___60%
Cash to be invested by Carlo Torre............................................. P47,250
Problem 1 – 4
Books of Sales
1. Adjusting Entries
(a) Sales, Capital........................................................................ 3,200
Accumulated Depreciation – Fixtures.............................. 3,200
2. Closing Entry
1. Adjusting Entries
Cash................................................................................................... 4,800
Accounts Receivable......................................................................... 72,000
Merchandise Inventory...................................................................... 192,000
Prepaid Insurance.............................................................................. 3,200
Delivery Equipment........................................................................... 48,000
Fixtures.............................................................................................. 96,000
Goodwill............................................................................................ 32,000
Allowance for Bad Debts............................................................ 12,800
Accumulated Depreciation – Delivery Equipment...................... 8,000
Accumulated Depreciation – Fixtures......................................... 91,200
Accounts Payable........................................................................ 64,000
Notes Payable.............................................................................. 40,000
Accrued Taxes............................................................................. 8,000
Sales, Capital............................................................................... 224,000
14
Chapter 1
Books of Roces
1. Adjusting Entries
2. Closing Entry
1. Adjusting Entries
Cash................................................................................................... 14,400
Accounts Receivable......................................................................... 57,600
Merchandise Inventory...................................................................... 132,800
Prepaid Insurance.............................................................................. 4,800
Delivery Equipment........................................................................... 19,200
Fixtures.............................................................................................. 144,000
Goodwill............................................................................................ 40,000
Allowance for Bad Debts............................................................ 1,600
Accumulated Depreciation – Delivery Equipment...................... 12,800
Accumulated Depreciation – Fixtures......................................... 64,000
Accounts Payable........................................................................ 104,000
Accrued Taxes............................................................................. 6,400
Roces, Capital............................................................................. 224,000
Books of Roces
1. Adjusting Entries
2. Closing Entry
Books of Sales
1. Adjusting Entries
2. Closing Entry
Cash................................................................................................... 19,200
Accounts Receivable......................................................................... 129,600
Merchandise Inventory...................................................................... 324,800
Prepaid Insurance.............................................................................. 8,000
Delivery Equipment (net).................................................................. 46,400
Fixtures (net)..................................................................................... 84,800
Goodwill .......................................................................................... 72,000
Allowance for Bad Debts............................................................ 14,400
Accounts Payable........................................................................ 168,000
Notes Payable.............................................................................. 40,000
Accrued Taxes............................................................................. 14,000
Roces, Capital............................................................................. 224,000
Sales, Capital............................................................................... 224,000
16
Chapter 1
Problem 1 – 5
Goodwill............................................................................................ 8,000
Allowance for Bad Debts............................................................ 210
J. Lagman, Capital....................................................................... 7,790
Cash................................................................................................... 5,000
Accounts Receivable......................................................................... 13,000
Merchandise Inventory...................................................................... 12,000
Equipment......................................................................................... 3,000
Other Assets...................................................................................... 9,000
Allowance for Bad Debts............................................................ 1,000
Accounts Payable........................................................................ 6,000
Notes Payable.............................................................................. 10,000
Accrued Interest Payable............................................................. 300
R. Magno, Capital....................................................................... 24,700
Cash................................................................................................... 10,300
R. Magno, Capital....................................................................... 10,300
(P35,000 – P24,700 = P10,300)
J. Lagman, Capital............................................................................. 35,790
Cash. ........................................................................................... 23,300
Accounts Payable to J. Lagman................................................... 12,490
(P63,000 + P7,790 = P70,790 – P35,000 = P35,790)
Assets
Cash................................................................................................... P –
Accounts receivable........................................................................... P34,000
Less Allowance for bad debts............................................................ 1,210 32,790
Merchandise inventory...................................................................... 21,000
Equipment......................................................................................... 8,000
Other assets........................................................................................ 46,000
Goodwill .......................................................................................... ___8,000
Total Assets................................................................................. P115,790
Problem 1 – 6
1. Books of Toledo
Books of Ureta
18
Chapter 1
3. Cash................................................................................................... 3,400
Ureta, Capital.............................................................................. 3,400
To record Ureta's cash contribution.
Computation:
Toledo, capital (P68,400 – P300)................................................ P 68,100
Divide by Toledo's profit share percentage................................. ____50%
Total agreed capital of the partnership........................................ P136,200
Multiply by Ureta's profit share percentage................................. ____50%
Agreed capital of Ureta............................................................... P 68,100
Ureta, capital............................................................................... __64,700
Cash contribution of Ureta.......................................................... P 3,400
or
Toledo, capital (P68,400 – P300)................................................ P 68,100
Less Ureta, capital....................................................................... __64,700
Cash contribution of Ureta.......................................................... P 3,400
Partnership – Basic Considerations and Formation 19
Assets
Cash................................................................................................... P 29,400
Accounts receivable........................................................................... P56,000
Less Allowance for bad debts............................................................ __7,200 48,800
Merchandise...................................................................................... 76,000
Office equipment............................................................................... __10,000
Total Assets................................................................................. P164,200
CHAPTER 2
2-2: a
JJ KK LL
Total
Bonus (.20 X P90,000) P18,000 – –
P 18,000
Interest
JJ (.15 X P100,000) P15,000 – –)
KK (.15 X P200,000) P 30,000 –)
LL (.15 X P300,000) P45,000)
90,000
Balance, equally ( 6,000) ( 6,000) ( 6,000)
( 18,000)
Total profit share P27,000 P 24,000 P39,000
P 90,000
2-3: a
2-4: a
Allan Michael
Total
Interest
Allan - .10 X (P40,000 + 60,000 /2) P 5,000 )
Michael - .10 X (P60,000 + 70,000/2) P 6,500)
P 11,500
Balance, equally _14,000 _14,000
__28,000
Total P 19,000 P20,500 P 28
,000
2-5: a
Fred Greg Henry
Total
Interest (.10 of average capital) P12,000 P 6,000 P 4,000
P 22,000
Salaries 30,000 20,000
50,000
Balance, equally ( 35,000) ( 35,000) ( 35,000)
(105,000)
Total P 7,000 ( P29,000) (P11,000) (P
33,000)
2-6: b
Average Capital
Capital Months Peso
Date Balance Unchanged Months
January 1 140,000 6 P 840,000
July 1 180,000 1 180,000
August 1 165,000 5 __825,000
12 P1,845,000
2-7: c
Capital Months Peso
Date Balance Unchanged Months
January 1 P16,000 3 P 48,000
April 1 17,600 2 35,200
June 1 19,200 3 57,600
September 1 15,200 4 __60,800
12 P201,600
2-8: a
Net profit before bonus P 24,000
Net profit after bonus (P24,000/120%) __20,000
Bonus to RJ 4,000
Balance (P24,000-P4,000)X3/5 __12,000
Total profit share P 16,000
2-9: a
LT AM Total
Interest P3,200 P 3,600 P 6,800
Salaries 15,000 7,500 22,500
Balance, 3:2 (11,580) ( 7,720) ( 19,300)
Total P 6,620 P 3,380 P 10,000
2-10: b
Net income after salary, interest and bonus P467,500
Add back: Salary (P10,000 X 12) P120,000
Interest (P250,000 X .05) __12,500 _132,500
Net income after bonus (80%) P600,000
Net income before bonus (P600,000/80%) _750,000
Paul's bonus P150,000
2-11: b
CC DD EE Total
Salary P 14,000 P 14,
000
Balance P14,000 P 8,400 5,600
28,000
Additional profit to DD ( 1,500) __2,100 ( 600)
______–
Total P12,500 P10,500 P 19,000 P 42
,000
Net income
Fees Earned P90,000
Expenses _48,000
Net Income P42,000
22
Chapter 2
2-12: c
LL MM NN Total
Interest P 2,000 P 1,250 P 750 P 4,
000
Annual Salary 8,500 – –
8,500
Additional profit to give LL, P20,000 9,500 5,700 3,800
19,000*
Additional profit to give MM, P14,000 _____– __7,050 _____–
__7,050
Total P20,000 P14,000 P 4,550 P 38,
550
*(P9,500/50%) = P19,000
2-13: a
RR SS TT Total
Excess (Deficiency)
RR (P80,000 - P95,000) P15,000 – –)
SS (P50,000 - P40,000) – (P10,000) –)
P 5,000
Balance 4:3:1 _47,500 _35,625 _11,875
__95,000
Total P62,500 P25,625 P11,875
P100,000
2-14: b AA BB CC Total
AA - 100,000 X 10% P 10,000 )
150,000 X 20% 30,000 )
P 40,000
Remainder, 210,000
BB (60,000 X .05) P 3,000 )
CC (60,000 X .05) P 3,000
6,000
Balance, equally __68,000 _68,000 _68,000
_204,000
Total P108,000 P71,000 P71,000
P250,000
2-15: a
AJ BJ CJ Total
Bonus to CJ
Net profit before bonus P44,000
Net profit after bonus (P44,000/110%)P40,000 – – P4,000
P4,000
Interest to BJ – P1,000 –
1,000
Salaries P 10,000 – 12,000
22,000
Balance, 4:4:2 __6,800 _6,800 __3,400
_17,000
Total P 16,800 P7,800 P19,400
P44,000
2-16: c
Total profit share of Pedro P200,000
Less: Salary to Pedro P 50,000
Interest __20,000 __70,000
Share in the balance (40%) P130,000
2-19: a
DV JE FR Total
Interest on excess (Deficiency) P 15,000 P 3,750 (P 7,500)
P 11,250
Remainder 5:3:2 ( 36,875) ( 22,125) ( 14,750)
( 73,750)
Total (P 21,875) (P 18,375) (P 22,250) (P
62,500)
2-20: c
Correction of 1998 profit:
Net income per books P 19,500
Understatement of depreciation ( 2,100)
Overstatement of inventory, December 31 ( 11,400)
Adjusted net income P 6,000
2-21: a
Tiger Woods Total
Salaries P 64,000 P100,000
P164,000
Interest 24,000 30,000
54,000
Bonus (P360,000-P54,000)X.25 76,500 –
76,500
Remainder, 30:70 __19,650 __45,850
__65,500
Total P184,150 P175,850
P360,000
24
Chapter 2
2-22: a
Holly Field Total
Salaries P 20,000 – P 20,000
Commission – P 25,000 25,000
Interest 32,000 33,600 65,600
Bonus, schedule 1 30,000 – 30,000
Remainder, 60:40 __35,640 _23,760 __59,400
Total P117,640 P 82,360 P200,000
Schedule 1
Net income before salary, commission,
interest and bonus P200,000
Less: salaries __20,000
Net income before bonus P180,000
Net income after bonus (P180,000/120%) _150,000
Bonus P 30,000
2-23: a
Mike Tyson
Total
Capital balance, beginning P600,000 P400,000
P1,000,000
Additional investment 100,000 200,000
300,000
Capital withdrawal -200,000 ( 100,000) _-
300,000
Capital balance before profit and loss distribution P500,000 P500,000
P1,000,000
Net income:
Salary P200,000 P300,000 P 50
0,000
Balance, 3:2 __60,000 __40,000
__100,000
Total P260,000 P340,000 P 60
0,000
Total P760,000 P840,000
P1,600,000
Drawings ( 200,000) ( 300,000) ( 5
00,000)
Capital balance, end P560,000 P540,000
P1,100,000
2-24: d
Distribution of Net Income - Schedule 1
Schedule 2
2-25: d
Total receipts (P1,500,000 + P1,625,000) P3,125,000
Expenses ( 1,080,000)
Net income P2,045,000
Distribution to Partners
Red – P1,500,000/P3,125,000 X P2,045,000 = P 981,600 (1)
Blue – P1,625,000/P3,125,000 X P2,045,000 = _1,063,400
P2,045,000
26
Chapter 2
2-26: a
Ray Sam
Total
Capital balances, March 1 P150,000 P180,000
P330,000
Additional investment, Nov. 1 _______ __60,000
__60,000
Capital balances before salaries, profit and Drawings 150,000 240,000
390,000
Profit share:
Interest 15,000 20,000
35,000
Balance, 60:40 51,000 34,000
85,000
Total 66,000 54,000
120,000
Total 216,000 294,000
510,000
Salaries _18,000 _24,000
_42,000
Total 234,000 318,000
552,000
Drawings (18,000) (24,000)
(42,000)
Capital balances, Feb. 28 P216,000 P294,000
P510,000
2-27: a
Susan Tanny
Total
Capital balances, 1/1 P150,000 P30,000
P180,000
Additional investment, 4/1 8,000
8,000
Capital withdrawals, 7/1 _______ (6,000)
_(6,000)
Balances before profit distribution 158,000 24,000
182,000
Profit distribution:
Interest 23,400 4,050
27,450
Bonus (20% x P30,000) 6,000
6,000
Balance, equally (1,725) (1,725)
(3,450)
Total 21,675 _8,325
30,000
Total 179,675 32,325
212,000
Drawings (12,000) (12,000)
(24,000)
Capital balances, 12/31 P167,675 P20,325
P188,000
Partnership Operations 27
2-28: a
Sin Tan Uy Total
Capital balances, beg. 1st year P110,000 P80,000 P110,000
P300,000
Loss distribution, 1st year:
Salaries 20,000 10,000
30,000
Interest 11,000 8,000 11,000
30,000
Balance, 5:3:2 (40,000) (16,000) (24,000)
(80,000)
Total ( 9,000) ( 8,000) ( 3,000)
(20,000)
Total 101,000 72,000 107,000
280,000
Drawings (10,000) (10,000) (10,000)
(30,000)
Capital balances, beg. 2nd year 91,000 62,000 97,000
250,000
Profit distribution, 2nd year:
Salaries 20,000 10,000
30,000
Interest 9,100 6,200 9,700
25,000
Balance, 5:3:2 ( 7,500) ( 4,500) ( 3,000)
(15,000)
Total 21,600 _1,700 16,700
40,000
Total 112,600 63,700 113,700
290,000
Drawings _(10,000) (10,000) _(10,000)
_(30,000)
Capital balances, end of 2nd year P102,600 P53,700 P103,700
P260,000
2-29: c
Jay Kay Loi Total
Capital balances, 1/1/06 P30,000 P30,000 P30,000
P90,000
Additional investment, 2006 5,000 5,000
Capital withdrawal, 2006 _(5,000) _(4,000) ______
_(9,000)
Capital balances 25,000 26,000 35,000
86,000
Profit distribution, 2006:
Interest 3,000 3,000 3,000 9,000
Salary 7,000 7,000
Balance, equally _1,000 _1,000 _1,000
__3,000
Capital balances, 1/1/07 36,000 30,000 39,000
105,000
Additional investment, 2007 5,000 5,000
Capital withdrawal, 2002 ______ _(3,000) _(8,000)
(11,000)
Capital balances 41,000 27,000 31,000
99,000
Profit distribution, 2007:
Interest 3,600 3,000 3,900
10,500
Salary 7,000 7,000
Balance, equally _1,500 _1,500 _1,500
__4,500
Capital balances, 1/1/08 53,100 31,500 36,400
121,000
Additional investment, 2008 6,000 6,000
Capital withdrawal, 2008 ______ _(4,000) _(2,000)
_(6,000)
Capital balances 53,100 27,500 40,400
121,000
Profit distribution, 2008:
Interest 5,310 3,150 3,640
12,100
Salary 7,000 7,000
Balance, equally __3,300 __3,300 __3,300
___9,900
Capital balances, 12/31/08 per books P68,710 P33,950 P47,340
P150,000
Understatement of depreciation (2,000) (2,000) (2,000)
(6,000)
Adjusted capital balances, 12/31/08 P66,710 P31,950 P45,340
P144,000
28
Chapter 2
2-30: a
2-31: d
_Nardo_ __Orly __Pedro_ _Total_
Capital balance, 1/1/08 P280,000 P300,000 P170,000 P750,000
Additional investment 96,000 60,000 - 156,000
Withdrawals ( 90,000 ) ( 72,000 ) (162,000)
Cap. bal. before P/L dist. 376,000 270,000 98,000 744,000
NP: Salary (16,500 x 12) - 198,000 - 198,000
Interest on EC (15%) 42,000 45,000 25,500 112,500
Balance 25:30:45 ( 19,875 ) ( 23,850 ) ( 35,775 ) (79,500 )
Total 22,125 219,150 ( 10,275 ) 231,000
Capital balance 12/31/08 P398,125 P 489,150 P 87,72 P975,000
2-32: d
Sam capital, beginning P120,000
Additional investment (Land) 60,000
Drawings ( 80,000 )
Capital balance before net profit (loss) 100,000
Capital balance, end 150,000
Profit share (40%) 50,000
Net profit (P50,000 ÷ 40%) P125,000
Partnership Operations 29
2-33: a
__Joe__ __Tom__ __Total__
Capital balance, 1/2/07 P 80,000 P 40,000 P120,000
Net loss- 2007:
Annual salary 96,000 48,000 144,000
10% interest on beg. capital 8,000 4,000 12,000
Bal. beg. cap. ratio: 8:4 ( 108,000) ( 54,000) ( 162,000)
Total ( 4,000) ( 2,000) ( 6,000)
Capital balance 76,000 38,000 114,000
Drawings ( 4,000) ( 4,000) ( 8,000)
Capital balance, 12/31/07 72,000 34,000 106,000
Net profit- 2008:
Annual salary 96,000 48,000 144,000
10% interest on BC 7,200 3,400 10,600
Bonus to Joe–NPBB – P 22000
NPAB (22000/110%)20000 2,000 2,000
Balance equally ( 67,300) ( 67,300) ( 134,600)
Total 37,900 ( 15,900) 22,000
Total 109,900 18,100 128,000
Drawings ( 4,000) ( 4,000) ( 8,000)
2-34: a
Decrease in capital P 60,000
Drawings ( 130,000)
Contribution 25,000
Profit share 45,000
Net income (45,000 ÷ 30) P150,000
30 Chapter 2
SOLUTIONS TO PROBLEMS
Problem 2 – 1
Partnership Operations 31
Computations:
a. Net profit before bonus................................................ P23,800
Net profit after bonus (P23,800 125%)..................... _19,040
Bonus........................................................................... P 4,760
Problem 2 – 2
a. Average Capital:
Robin: Date Balances Months Peso
Unchanged Months
Jan. 1 P135,000 2 P270,000
Feb. 28 95,000 2 190,000
Apr. 30 175,000 5 875,000
Sept. 30 195,000 3 __585,000
12 P1,920,000
Profit Distribution:
Robin : P160,000 P340,000 x P510,000 = P240,000
Hood : P180,000 P340,000 x P510,000 = _270,000
P510,000
32 Chapter 2
Problem 2 – 3
Problem 2 – 4
Bonus computations:
Net income before bonus.......................................................................... P78,960
Net income after bonus (P78,960 105%)................................................ _75,200
Bonus........................................................................................................ P 3,760
Interest computations:
East (10% x P28,000)............................................................................... P 2,800
North (10% x P40,000)............................................................................. 4,000
West (10% x P48,000).............................................................................. __4,800
Total.......................................................................................................... P11,600
Interest computations:
Average capitals:
East: Months Pesos
Date Balances Unchanged Months
1/1 P30,000 4 P120,000
5/1 36,000 4 144,000
9/1 28,000 4 _112,000
12 P376,000
Interest Computations:
East (10% x P31,333)........................................................... P 3,133
North (10% x P36,333)......................................................... 3,633
West (10% x P52,000).......................................................... __5,200
Total..................................................................................... P 11,966
Bonus Computations:
Net income........................................................................... P 68,000
Less Salary........................................................................... _21,000
Net income before bonus...................................................... 47,080
Net income after bonus (P47,080 110%)........................... _42,800
Bonus to North..................................................................... P 4,280
* To Total
Bonus Computations:
Net income before salaries & bonus.......................................................... P92,940
Less Salaries (P21,000 + P18,000)............................................................ _39,000
Net income before bonus.......................................................................... P53,940
Net income after bonus (P53,940 120%)................................................ _44,950
Bonus to West........................................................................................... P 8,990
Problem 2 – 5
Problem 2 – 6
3. Correcting entry:
Problem 2 – 7
Schedule 1:
Dino Nelson Oscar Total
Annual salaries................................... P48,000 P24,000 P12,000 P84,000
Bonus (see computations below)........ – 10,909 – 10,909
Interest................................................ 3,600 3,600 3,600 10,800
Balance, equally................................. _* 4,765 __4,763 __4,763 __14,291
Totals.................................................. P56,365 P43,272 P20,363 P120,000
Bonus computations:
Net income before bonus...................................................................... P120,000
Net income after bonus (P120,000 110%).......................................... _109,091
Bonus to Nelson.................................................................................... P 10,909
* To Total
Partnership Operations 37
Problem 2 – 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2008
Problem 2 – 9
Problem 2 – 10
a. Entries to record the formation of the partnership and the events that occurred during 2008:
Cash 1,100,000
Inventory 800,000
Land 1,300,000
Equipment 1,000,000
Mortgage payable 500,000
40 Chapter 2
P(135,000)
Residual deficit (81,000) (54,000)
(135,000)
Total P105,000 P105,000 -0-
b. Kobe-Lebron Partnership
Income Statement
For the Year Ended December 31, 2008
Sales
P1,550,000
Less: Cost of goods sold:
Inventory, January 1 P800,000
Purchases 300,000
Goods available for sale P1,100,000
Less: Inventory, December 31 (200,000)
(900,000)
Gross profit P650,000
Less: Selling and general expenses 340,000
Depreciation expenses 60,000 400,000
Operating income P250,000
Nonoperating expense- interest (40,000)
Net income P210,000
Partnership Operations 41
c. Kobe-Lebron Partnership
Balance Sheet
At December 31, 2008
Assets
Cash P1,589,000
Accounts receivable 210,000
Inventory 200,000
Land 1,300,000
Equipment (net) 940,000
Total assets P4,239,000
42
Chapter 3
CHAPTER 3
3-1: c
Implied capital of the partnership (P90,000/20%)
P450,000
Actual value of the partnership
( 420,000)
Goodwill P
30,000
3-2: b
AQUINO LOCSIN DAVID
HIZON
Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400)
_84,000
Capital balances after admission P201,600 P100,800 P33,600
P 84,000
3-3: d
AQUINO LOCSIN DAVID
TOTAL
Capital transferred P 50,400 P 25,200 P 8,400
P 84,000
Excess divided using profit and loss ratio __3,600 __1,800 ___600
__6,000
Cash distribution P 54,000 P 27,000 P 9,000
P 90,000
3-4: b
BERNAL CUEVAS
DIAZ
Cash balances P 80,000 P40,000
P 20,000
Goodwill, Profit and Loss ratio __12,000 __6,000
__2,000
Total P 92,000 P46,000 P 22,
000
Capital Transfer (1/4) ( 23,000) ( 11,500)
( 5,500)
Capital balances after admission P 69,000 P34,500
P 16,500
Partnership Dissolution – Changes in Ownership 43
3-6: b
BANZON CORTEZ
TOTAL
Capital Transfer (20%) P 16,000 P 4,000
P20,000
Excess, Profit and Loss ratio __6,000 __4,000
_10,000
Cash distribution P 22,000 P 8,000
P30,000
3-7: d
PEREZ CADIZ
TOTAL
Capital balances beginning P 24,000 P 48,000
P 72,000
Net profit, 1:2 5,430 10,860
16,290
Drawings ( 5,050) ( 8,000) ( 13
,050)
Capital balances before admission P 24,380 P 50,860
P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240)
(18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620
P 56,430
3-8: a
3-9: a
3-11: c
3-13: c
JUNE JULY
Capital balances before admission P90,000 P 60,000
Bonus from August, equally __7,500 __7,500
Capital balances after admission P97,500 P 67,500
3-14: a
3-15: a
3-16: a
3-17: b
MONA LIZA ALMA LORNA TOTAL
Capital balances before
admission of Alma P150,000 P 50,000 – –
P 200,000
Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) __28,000 ___12,000 _______– ______–
___40,000
Capital balances before
admission of Lorna P178,000 P 62,000 P 80,000 –
P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) –
( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) __10,000 ____6,000 ____4,000 ______–
___20,000
Capital balances after
admission P168,000 P 56,000 P 76,000 P 75,000
P 375,000
Schedule 1:
Total agreed capital (80,000/25%)
P 320,000
Total capital contributed (200,000+80,000)
( 280,000)
Goodwill to old partners, 70:30 P
40,000
Schedule 2:
Total agreed capital (75,000/20%)
P 375,000
Total contributed capital (280,000+75,000)
( 355,000)
Goodwill to old partners, 5:3:2 P
20,000
46
Chapter 3
3-18: c
RED WHITE BLUE
TOTAL
Unadjusted capital balances P175,000 P100,000 P 45,000
P320,000
Overvaluation of Marketable Securities ( 12,500) ( 7,500) ( 5,000)
( 25,000)
Allowance for Bad Debts ( 12,500) ( 7,500) ( 5,000)
( 25,000)
Adjusted capital balances before admission P150,000 P 85,000 P 35,000
P270,000
3-19: b
XX YY ZZ WW
TOTAL
Capital balances before
admission P360,000 P225,000 P135,000 –
P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000
______–
Balances P300,000 P187,500 P112,500 P120,000
P720,000
Equalization of capital ( 100,000) __12,500 __87,500 ______–
______–
Balances P200,000 P200,000 P200,000 P120,000
P720,000
Net profit, equally 3,150 3,150 3,150 3,150
12,600
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000)
_( 7,000)
Capital balances before
WWs Investment P201,650 P201,150 P201,650 P121,150
P725,600
Settlement to A P 30,250
A's interest (23,750+5,000) _28,750
Partial Goodwill to A P 1,500
Therefore:
1. Under partial Goodwill method the capital balances of B is P 22,250
2. Under Bonus method the capital balances of B would be:
B, capital balances before settlement to A P 22,250
Bonus to A (1,500X25/75) _( 500)
B, capital after retirement of A P 21,750
Partnership Dissolution – Changes in Ownership 47
3-21: a
Perez Reyes
Suarez
Capital balances P 100,000 P 150,000
P 200,000
Net income, P140,000 70,000 42,000
28,000
Undervaluation of inventory, P20,000 ___10,000 ____6,000
____4,000
Capital balances before settlement to Perez P 180,000 P 198,000
P 232,000
Settlement to Perez ( 195,000) – –
Bonus to Perez ___15,000 _( 9,000)
_( 6,000)
Capital balances after retirement P – P 189,000
P 226,000
3-22: c
ELY FLOR
GLOR
Capital balances P 320,000 P 192,000
P 128,000
Settlement to Ely ( 360,000) – –
Total Goodwill (P40,000/50%)P80,000 __40,000 ___24,000
___16,000
Capital balances after retirement of Ely P – P 216,000
P 144,000
3-23: c
_Alma_ _Betty_ _Total_
Capital balance 3/1/07 480,000 240,000 720,000
Net loss-2007:
Salary (10 months) 480,000 240,000 720,000
Interest (10 months) 40,000 20,000 60,000
Bal. beg. cap. ratio: 48:24 ( 544,000) ( 272,000) ( 816,000)
Total ( 24,000) ( 12,000) ( 36,000)
Capital balance 456,000 228,000 684,000
Drawings ( 24,000) ( 24,000) ( 48,000)
Capital balance, 12/31/07 432,000 204,000 636,000
Net profit- 2008:
Salary 576,000 288,000 864,000
Interest 43,200 20,400 63,600
Balance, equally ( 397,800) ( 397,800) ( 795,600)
Total 221,400 ( 89,400) 132,000
Capital balance 653,400 114,600 768,000
Drawings ( 24,000) ( 24,000) ( 48,000)
Capital balance 12/31/08 629,400 90,600 720,000
48
Chapter 3
3-24: a
_Pete_ _Carlos_ _Total_
Capital balance, beg. 2007 P80,000 P30,000 P110,000
2007 net profit (90,000 – 59,000):
Interest 8,000 3,000 11,000
Compensation 5,000 20,000 25,000
Balance, 4:6 ( 2,000) ( 3,000) ( 5,000)
Total 11,000 20,000 31,000
Balance 91,000 50,000 141,000
Withdrawal ( 8,000) ( 11,000) (19,000)
Repairs (charge to Pete) ( 5,000) - ( 5,000)
Capital balance, 12/31/07 78,000 39,000 117,000
SOLUTIONS TO PROBLEMS
Problem 3 – 1
(a) 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........................................................................... 25,000
Cash.................................................................................. 75,000
Red, capital.................................................................. 5,000
White, capital............................................................... 10,000
Blue, capital................................................................. 10,000
Green, capital............................................................... 75,000
2. Bonus Method:
Contributed capital of Green....................................................P 75,000
Agreed capital of Green (P275,000 x 25%).............................._68,750
Bonus to old partners, P/L ratio...............................................P 6,250
Entry:
Cash.................................................................................. 75,000
Green, capital............................................................... 68,750
Red, capital.................................................................. 1,250
White, capital............................................................... 2,500
Blue, capital................................................................. 2,500
Entries:
Goodwill........................................................................... 100,000
Red, capital.................................................................. 20,000
White, capital............................................................... 40,000
Blue, capital................................................................. 40,000
Problem 3 – 3
Problem 3 – 4
Entry:
Cash. .......................................................................................... 60,000
Goodwill..................................................................................... 100,000
Gene, capital......................................................................... 80,000
Nancy, capital....................................................................... 20,000
Ellen, capital......................................................................... 60,000
b. Cash.................................................................................................. 60,000
Ellen, capital............................................................................... 60,000
No Goodwill, no bonus because the total agreed capital is equal to the total contributed
capital.
d. Cash.................................................................................................. 32,000
Ellen, capital............................................................................... 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.
Entry:
Cash. .......................................................................................... 32,000
Goodwill..................................................................................... 3,000
Ellen, capital......................................................................... 35,000
Problem 3 – 5
a. Cash.................................................................................................. 40,000
Cherry capital.............................................................................. 40,000
Entry:
Cash. .......................................................................................... 50,000
Cherry, capital...................................................................... 42,500
Helen, capital........................................................................ 5,250
Cathy, capital........................................................................ 2,250
Entry:
Cash ..................................................................................... 50,000
Goodwill..................................................................................... 30,000
Cherry, capital...................................................................... 50,000
Helen, capital........................................................................ 21,000
Cathy, capital........................................................................ 9,000
Entry:
Cash ..................................................................................... 25,000
Goodwill..................................................................................... 15,000
Cherry, capital...................................................................... 40,000
Problem 3 – 6
c. Cash......................................................................................................................... 56,000
Goodwill .................................................................................................................. 4,000
Noel, capital...................................................................................................... 60,000
Cash......................................................................................................................... 52,000
Noel, capital...................................................................................................... 52,000
Total agreed capital (P52,000 1/4)..............................................................................P208,000
Total capital before inventory write-down (180,000 + 52,000)......................................(232,000)
Write-down to old partners capital.................................................................................( 24,000)
e. Land……………………………………………………………………………………….. 92,000
Subas, capital…………………………………………………………………… 55,200
Tony, capital……………………………………………………………………. 36,800
Subas, capital (P155,200 x 1/4)................................................................................. 38,800
Tony, capital (P116,800 x 1/4).................................................................................. 29,200
Noel, capital...................................................................................................... 68,000
Total resulting capital (P68,000 1/4)...........................................................................P272,000
Total capital of old partner (net assets)............................................................................_180,000
Increase in value of land................................................................................................P 92,000
Capital of old partner after revaluation of land:
Subas (P100,000 + P55,200)..................................................................................P155,200
Tony (P80,000 + P36,800)........................................................................................116,800
54
Chapter 3
f. Cash.................................................................................................. 40,000
Subas, capital..................................................................................... 2,400
Tony, capital ..................................................................................... 1,600
Noel, capital................................................................................ 44,000
g. Cash.................................................................................................. P60,000
Goodwill........................................................................................... 60,000
Noel, capital................................................................................ P 60,000
Subas, capital (P60,000 x 3/5)..................................................... 36,000
Tony, capital (P60,000 x 2/5)...................................................... 24,000
Problem 3 – 8
b. Goodwill........................................................................................... 10,000
Conny, capital.................................................................................... 40,000
Cash. .......................................................................................... 50,000
Problem 3 – 9
d. Land................................................................................................. 20,000
Ace, capital (20%)....................................................................... 4,000
Jack, capital (30%)...................................................................... 6,000
Spade, capital (50%)................................................................... 10,000
e. Goodwill........................................................................................... 30,000
Spade, capital..................................................................................... 120,000
Cash. .......................................................................................... 150,000
g. Land................................................................................................. P40,000
Ace, capital (20%)....................................................................... 8,000
Jack, capital (30%)...................................................................... 12,000
Spade, capital (50%)................................................................... 20,000
56
Chapter 3
Problem 3 – 10
Problem 3 – 11
Problem 3 – 12
Partnership Books Continued as Books of Corporation
(1) To record the acquisition of assets and liabilities from the partnership:
Problem 3 – 13
a. 1/1/06 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.
greater than 15% of the profits from the period]. The remaining P440,000 loss is
assigned to Sy.)
Lim Sy Tan
Interest (20% of P1,034,000
beginning capital balance) P206,800
15% of P880,000 income 132,000
60:40 split of remaining P541,200 income - 324,720 216,480
Total P338,800 P524,720 P216,480
64
Chapter 3
Lim Sy Tan
Interest (20% of P2,000,000)
beginning capital balance) P400,000
15% of P880,000 income 132,000
60:40 split of remaining P348,000 - P208,800 P139,200
Totals P532,000 P208,800 P139,200
In effect, profits are shared 15% to Lim, 51% to Sy – (60% of the 85% remaining after Lim’s
income), and 34% to Tan (50% of the 85% remaining after Lim’s income). Ang is paying
P920,000, an amount P180,800 in excess of Tan’s 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 920,000
Ang, capital 920,000
(To reclassify capital balance to new partner.)
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:
CHAPTER 4
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
4-1: a
PAR BOOGIE BIRDIE
Capital balances before realization P 20,000 P 16,000 P 10,000
Loss on liquidation, P40,000 ( 20,000) ( 12,000) ( 8,000)
Cash distribution P – P 4,000 P 2,000
4-2: c
PING PANG PONG
Capital balances before liquidation P 50,000 P 50,000 P 10,000
Gain of P10,000 (150,000-140,000) __6,000 __2,000 __2,000
Cash distribution P 56,000 P 52,000 P 12,000
4-3: b
PING PANG PONG
Capital balances before liquidation P 50,000 P 50,000 P 10,000
Loss of P40,000 (P140,000-P100,000) ( 24,000) ( 8,000) ( 8,000)
Cash distribution P 26,000 P 42,000 P 2,000
4-4: a
PING PANG PONG
Capital balances before liquidation P 50,000 P 50,000 P 10,000
Loss of P70,000 (P140,000-P70,000) ( 42,000) ( 14,000) ( 14,000)
Balances P8,000 P 36,000 ( 4,000)
Absorption of Pong's deficiency, 6:2 ( 3,000) ( 1,000) __4,000
Cash distribution P 5,000 P 35,000 –
4-5: b
COLT MARK CLOCK
Capital balances before liquidation (net of loans)P290,000 P200,000 P220,000
Loss of P130,000, 4:3:3 ( 52,000) ( 39,000) ( 39,000)
Cash distribution P238,000 P161,000 P181,000
4-6: c
JONAS CARLOS TOMAS
Capital balances before liquidation P160,000 P 45,000 P 55,000
Loss of P60,000, 40:50:10 ( 24,000) ( 20,000) ( 6,000)
Cash distribution P136,000 P 25,000 P 49,000
Partnership Liquidation 69
4-7: a
ARIEL BERT CESAR
Capital balances before liquidation P40,000 P180,000 P 30,000
Loss of P100,000, 4:3:3 ( 40,000) ( 30,000) ( 30,000)
Cash distribution P – P150,000 P –
4-8: b
NORY OSCAR
Capital balances before realization P23,000 P 13,500
Additional investment by Nory for
the unpaid liabilities (33,000-18,000) 15,000 –
Loss on realization (schedule 1) ( 30,900) ( 20,600)
Payment by Oscar to Nory P 7,100 ( P7,100)
Schedule 1
Total capital before liquidation P 36,500
Unpaid liabilities 15,000
Total loss on realization P 51,500
4-9: d
BLACK WHITE GREEN
Capital balances before liquidation (net) P99,000 P 91,500 P138,000
Loss on realization (schedule 1) P27,500 ( 13,750) ( 27,500) _( 5,500)
Balances, cash distribution P85,250 P 64,000 P132,500
Schedule 1:
Capital balances of white (net) P 91,500
Cash received by White _83,250
White's share of total loss (30%) P 8,250
4-10: c
ANA EVA NORA
Capital balances before liquidation (net) P27,000 P 43,000 P 10,000
Loss on realization, P63,600 ( 25,320) ( 25,320) ( 12,660)
Balances P 1,680 P 17,680 ( 2,660)
Unrecorded liabilities, P500 ( 200) ( 200) ( 100)
Balances P 1,480 P 17,480 ( 2,760)
Elimination of Nora's deficiency ( 1,380) ( 1,380) __2,760
Payment to partners P 100 P 16,100 P –
4-11: d
ARIES LEO TAURUS
Capital balances before liquidation (net) P33,500 P 49,000 P 36,500
Loss on realization (schedule 1) P45,000 ( 22,500) ( 13,500) ( 9,000)
Payment to partners P11,000 P 35,500 P 27,500
70
Chapter 4
Schedule 1:
Taurus capital (net) P36,500
Payment to Taurus ( 27,500)
Share of total loss (20%) P 9,000
4-12: c
TOTAL MONA NORA
OLGA
Capital balances, June 11 P32,700 P15,000 P13,500
P 4,200
Net loss from operation (squeeze) ( 9,800) ( 4,200) ( 2,800)
( 2,800)
Capital balances, August 30 before
liquidation (48,500-25,600) P22,900 P10,800 P10,700
P 1,400
Loss on realization (47,500-30,000) ( 17,500) ( 7,500) ( 5,000)
( 5,000)
Balances P 5,400 P 3,300 P 5,700 ( 3,6
00)
Additional investment by Olga _1,500 _____– _____–
_1,500
Balances P 6,900 P 3,300 P 5,700 ( 2,1
00)
Elimination of Olga's deficiency ______ ( 1,260) ( 840)
_2,100
Payment to partners P 6,900 P 2,040 P 4,860P
–
4-13: b
RITA SARA TITA
Capital balances before liquidation P49,000 P18,000 P10,000
Operating loss, P21,000 ( 3,500) ( 7,000) ( 10,500)
Drawings ( 10,000) ( 15,000) ( 20,000)
Loans – 8,000 25,000
Loss on realization, P12,000 ( 2,000) ( 4,000) ( 6,000)
Balances P33,500 P – ( 1,500)
Absorption of Tita's deficiency __1,500 _____– _1,500
Payment to Nora P32,000 P – P –
4-14: a
CLARO PEDRO
ANDRO
Capital balances before liquidation P45,000 P27,000
P50,000
Loss on realization
Accounts Receivable (P50,000 X 40%) P20,000
Investment (P30,000 - P20,000) 10,000
Equipment (P60,000-P30,000) _30,000
Total P60,000 ( 24,000) ( 24,000) ( 12,
000)
Payment to partners P21,000 P 3,000
P38,000
4-15: c
TOTAL MONA LISA
Capital balances before liquidation (inclusive loans) P47,500 P28,500
P19,000
Loss on realization, (squeeze) ( 38,500) ( 23,100)
( 15,400)
Capital balances - cash distribution P 9,000 P 5,400P
3,600
Partnership Liquidation 71
4-16: a
4-17: d
TOTAL CC DD EE
Capital balances before realization (net) P100,000 P 15,000 P22,500
P62,500
Loss on realization (squeeze) ( 125,000) ( 62,500) ( 37,500)
( 25,000)
Capital balances after realization
(liabilities-unpaid) (P 25,000) ( 47,500) ( 15,000)
P37,500
Elimination of CC's deficiency _______– __47,500 ( 28,500)
( 19,000)
Balances (P 25,000) – (P43,500)
P18,500
Investment by DD __43,500 ______– _43,500
_____–
Payment to EE P 18,500 P – P –
P18,500
4-18: d
72
Chapter 4
4-19: d
LL MM NN
TOTAL
Capital balances P 50,000 P 20,000 P 10,000
P 80,000
Salary of LL (P600 X 8 months) __4,800 _______ _______
___4,800
Capital balances before liquidation P 54,800 P 20,000 P 10,000
P 84,800
Loss on realization ( 44,880) ( 14,960) ( 14,960)
Balances P 9,920 P 5,040 (P 4,960)
Additional investment by NN ______– _____– __4,960
Payment to partners P 9,920 P 5,040 P –
4-20: b
Total assets:
Total interest of the partners before liquidation:
JJ (P70,000+P30,000+P10,000) P110,000
KK (P60,000-P10,000) 50,000
LL (P30,000+P10,000) __40,000 P200,000
Divide by ______50%
Total P400,000
Loss on realization _120,000
Cash to be realized P280,000
4-21: a
TOTAL NN OO PP
Capital balances, July 1 P 75,000 P 25,000 P 25,000
P 25,000
Advances to NN, August 1 ( 10,000) ( 10,000) – –
OO Loan, September 1 20,000 – 20,000 –
Interest, December 31 (6%)
NN (5 mos.) ( 250) ( 250)
OO (4 mos.) 400 400
Compensation to PP __2,500 _______ _______
___2,500
Capital balances before liquidation P 87,650 P 14,750 P 45,400
P 27,500
Loss on realization (squeeze) _56,250 ( 17,550) ( 17,550)
( 17,550)
Cash distribution P 35,000 ( 2,800) P 27,850 P
9,950
NN should pay P2,800 and this is to be divided to OO & PP equally or P1,400 each.
Partnership Liquidation 73
4-22: a
TOTAL PG JR AS
Capital balances before realization P 950,000 P350,000 P250,000
P350,000
Loss on realization (squeeze) ( 1,000,000) __20,000 ( 200,000)
_500,000
Capital balances after realization
(unpaid liabilities) (P 50,000) P 50,000 P 50,000
( 150,000)
Elimination of AS's deficiency _______– ( 90,000) ( 60,000)
P150,000
Cash to be absorbed P – (P 40,000) (P 10,000) P
–
4-23: a
RM ST
Capital balances before realization (net) P500,000 P825,000
Loss on realization, P1,225,000 ( 490,000) ( 735,000)
Payment to Partners P 10,000 P 90,000
4-24: a
TOTAL LT AM ZP
Capital balances before realization (net) P 27,500 P 20,000 P 5,000
P 2,500
Gain on realization (squeeze) __37,500 _18,750 __-9,375
__9,375
Capital balances after realization P 65,000 P 38,750 P 14,375
P 11,875
4-25: c
AG BM CP DJ
Capital balances before realization (net) P 420,000 P375,000 P205,000
P150,000
Loss on realization, P1,000,000 ( 300,000) ( 300,000) (200,000)
(200,000)
Balances P 120,000 P 75,000 P 5,000
P(50,000)
Additional investment by DJ
50,000
4-26: a
Settlement to Uy P351,500
Uy capital before liquidation (net):
Uy capital P553,500
Receivable from Uy ( 132,000) 421,500
Loss of Uy (50%) P 70,000
74
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%)
Balances before liquidation. . . P 20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000
P10,000
Realization of assets and
distribution of loss........... _134,000 ( 200,000) _______ _______ _______ ( 59,400)
( 6,600)
Balances................................ 154,000 – 132,000 18,000 20,000 ( 19,400)
3,400
Payment of liabilities............. ( 132,000) ______– ( 132,000) ______ _______ _______
______
Balances................................ 22,000 – – 18,000 20,000 ( 19,400)
3,400
Offset Rivas' loan against his
capital deficiency............ _______ _______ _______ ( 18,000) _______ _18,000
______
Balances................................ 22,000 – – – 20,000 ( 1,400)
3,400
Additional loss to Briones...... _______ _______ _______ _______ _______ __1,400
( 1,400)
Balances................................ 22,000 – – – 20,000 –
2,000
Payment to partner................. P(22,000) – – – P(20,000) –
P(2,000)
Case 2
Rivas and Briones
Statement of Liquidation
December 31, 2008
Partners'
Capitals
Assets Rivas, Briones, Rivas
Briones
Cash Others Liabilities Loan Loan (70%)
(30%)
Balances before liquidation. . . P20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000
P10,000
Realization of assets and
distribution of loss........... 134,000 ( 200,000) _______ ______ _______ ( 46,200)
( 19,800)
Balances................................ 154,000 – 132,000 18,000 20,000 ( 6,200)
9,800
Payment of liabilities............. ( 132,000) _______ ( 132,000) ______ _______ _______
______
Balances................................ 22,000 – – 18,000 20,000 ( 6,200)
9,800
Offset loan against capital
deficiency........................ ________ _______ _______ ( 6,200) ( 9,800) __6,200
__9,800
Balances................................ 22,000 – – 11,800 10,200 – –
Payment to partner................. P(22,000) – – P(11,800) P(10,200) –
–
Partnership Liquidation 75
Case 3
Journal Entries
Case 1:
Cash.............................................................................................................. 134,000
Rivas, Capital................................................................................................. 59,400
Briones, Capital.............................................................................................. 6,600
Other Assets............................................................................................ 200,000
Liabilities. ..................................................................................................... 132,000
Cash........................................................................................................ 132,000
Rivas, Loan.................................................................................................... 18,000
Rivas, Capital.......................................................................................... 18,000
Briones, Capital.............................................................................................. 1,400
Rivas, Capital.......................................................................................... 1,400
Briones, Loan................................................................................................. 20,000
Briones, Capital.............................................................................................. 2,000
Cash .................................................................................................... 22,000
Case 2:
Cash.............................................................................................................. 134,000
Rivas, Capital................................................................................................. 46,200
Briones, Capital.............................................................................................. 19,800
Other Assets............................................................................................ 200,000
Liabilities. ..................................................................................................... 132,000
Cash........................................................................................................ 132,000
Rivas, Loan.................................................................................................... 6,200
Briones, Loan................................................................................................. 9,800
Rivas, Capital.......................................................................................... 6,200
Briones, Capital...................................................................................... 9,800
Rivas, Loan.................................................................................................... 11,800
Briones, Loan................................................................................................. 10,200
Cash........................................................................................................ 22,000
76
Chapter 4
Case 3:
Cash................................................................................................... 134,000
Rivas, Capital.................................................................................... 33,000
Briones, Capital................................................................................. 33,000
Other Assets................................................................................ 200,000
Liabilities........................................................................................... 132,000
Cash. ........................................................................................... 132,000
Briones, Loan.................................................................................... 20,000
Briones, Capital........................................................................... 20,000
Rivas, Capital.................................................................................... 3,000
Briones, Capital........................................................................... 3,000
Rivas, Loan........................................................................................ 18,000
Rivas, Capital.................................................................................... 4,000
Cash. ........................................................................................... 22,000
Problem 4 – 2
Partners'
Capitals
A s s e t s Accounts Blando, Blando
Castro
Cash Receivables Inventory Others Payable Loan (60%)
(40%)
Balances before
liquidation.................... P 18,000 P75,000 P90,000 P84,000 P42,000 P 24,000 P102,000
P99,000
Collection of
receivables and
distribution of loss........ _37,500 ( 75,000) _______ _______ _______ _______ ( 22,500)
( 15,000)
Balances............................ 55,500 – 90,000 84,000 42,000 24,000 79,500
84,000
Realization of
inventory and
distribution of
loss............................... _30,000 _______ ( 90,000) _______ _______ _______ ( 36,000) ( 24
,000)
Balances............................ 85,500 – – 84,000 42,000 24,000 43,500
60,000
Realization of other
assets and distribution
of loss........................... _40,000 _______ _______ ( 84,000) _______ _______ ( 26,400)
( 17,600)
Balances............................ 125,500 – – – 42,000 24,000 17,100
42,400
Payment of accounts
payable......................... ( 42,000) _______ _______ _______ ( 42,000) _______ _______
_______
Balances............................ 83,500 – – – – 24,000 17,100
42,400
Payments to partners….. … P(83,500) – – – – P(24,000) P( 17,100)
P(42,400)
Partnership Liquidation 77
Problem 4 – 3
a. Electric Company
Statement of Partnership Realization and Liquidation
June 30, 2008
Capital Balances
Amp. Noncash Liabil- Volt, Amp Volt Watt
Cash Loan Assets ities Loan 50% 30% 20%
Balances 20,000 15,000 135,000 30,000 10,000 80,000 36,000
14,000
Sale of
assets at a loss _95,000 ______ (135,000) ______ ______ (20,000) (12,000)
( 8,000)
115,000 15,000 -0- 30,000 10,000 60,000 24,000
6,000
Payment to
creditors _(30,000) ______ _______ (30,000) ______ _______ ______
______
85,000 15,000 -0- -0- 10,000 60,000 24,000
6,000
Offset Amp,
receivable (15,000) (15,000)
Payments to partners:
Loan (10,000) (10,000)
Capitals _(75,000) ______ _______ _______ ______ (45,000) (24,000) ( 6
,000)
Balances -0- -0- -0- -0- -0- -0- -0-
-0-
b. (1) Cash 95,000
Amp, Capital 20,000
Volt, Capital 12,000
Watt, Capital 8,000
Noncash Assets 135,000
Sell noncash assets at a loss of P40,000.
Note: All partners permitted Amp to offset his receivable against his capital credit. Alternatively, Amp
could be required to pay the partnership the P15,000 receivable; the partnership would then pay him an
additional P15,000 for his capital credit. In this case, an offset of the receivable against the capital credit is
reasonable, provided the receivable is not interest-bearing, Amp has a sufficient capital credit, Amp is
personally solvent, and the note is not secured against specific assts of Amp. The offset is not automatic,
but must be determined by the terms of the initial note, and by the partners.
78
Chapter 4
Problem 4 – 4
a. Bina, capital before liquidation......................................................................................... P320,000
Payment to Bina................................................................................................................ _128,000
Loss absorbed by Bina (40%)........................................................................................... P192,000
Capital
Cash Other Assets Aida Bina Celia
(5) (4) (1)
Balances before liquidation. P80,000 P720,000 P320,000 P320,000 P160,000
Realization & dist. of loss. . . 240,000 ( 720,000) ( 240,000) ( 192,000) ( 48,000)
Balances............................. 320,000 – 80,000 128,000 112,000
Settlement to partners.......... (320,000) _______ ( 80,000) ( 128,000) ( 112,000)
Problem 4 – 5
b. JJ, KK & LL
Statement of Liquidation
Other Capital
Cash Assets Liabilities JJ (4) KK(4) (LL(2)
Balances before liquidation.... P50,000 P500,000 P60,000 P180,000 P240,000 P70,000
Realization & Dist. of gain.... 640,000 ( 520,000) _______ __56,000 __56,000 _28,000
Balances................................ 690,000 – 60,000 236,000 296,000 98,000
Payment of liabilities............. ( 60,000) ( 60,000)
Payment to Partners............... (630,000) _______ _______ ( 236,000) ( 296,000)
( 98,000)
Partnership Liquidation 79
Problem 4 – 6
a. BB.................................................... P160,000
CC.................................................... P20,000
DD................................................... P60,000
EE.................................................... P –0–
C a p i t a l
Cash Liabilities BB (30%) CC (10%)DD (20%) EE (40%)
Balances before liquidation.... P 0 P60,000 P160,000 P80,000 (P120,000)
P(180,000)
Advances by BB to pay liabilities ( 60,000) 60,000
Deposit by DD....................... 60,000 ______ _______ _______ __60,000
________
Balances................................ 60,000 – 220,000 80,000 ( 60,000) ( 180,00
0)
Elimination of EE's deficiency ( 90,000) ( 30,000) ( 60,000) 180,000
Elimination of DD's deficiency ______ __( 90,000) ( 30,000) 120,000 –
Payment to partners................ 60,000 – 40,000 20,000 – –
Problem 4 – 7
Liabilities P a r t n e r s' C a p i t a l s
Assets Accounts Notes Peña Sayson Zobel Ayala
Peña
Cash Noncash Payable Payable Loan (45%) (30%) (15%)
(10%)
Balances before liquidation.... P 15,000 P155,250 P11,250 P9,000 P 1,500 P 75,345 P 86,498 P(14,993)
P1,650
Realization of assets and
distribution of gain........... 185,000 ( 155,250) _______ ______ ______ 17,850 11,900 ______
______
Balances................................. 200,000 - 11,250 9,000 1,500 93,195 98,398 ( 14,993)
1,650
Payment of liabilities............. ( 20,250) ________ ( 11,250) ( 9,000) ______ ______ ______ _______
______
Balances................................. 179,750 - - - 1,500 93,195 98,398 ( 14,993)
1,650
Additional loss to Sayson,
Zobel and Peña;
45:30:10............................ _______ ________ ________ ______ ______ ( 7,937) ( 5,292) 14,993 (
1,764)
Balances................................. 179,750 - - - 1,500 85,258 93,106 -
(114)
Offset Peña's loan against
his capital deficiency........ _______ ________ ________ ______ ( 114) ______ ______ _______
114
Balances................................. 179,750 - - - 1,386 85,258 93,106 -
Payments to partners.............. P(179,750) P(1,386) P(85,258) P(93,106)
80
Chapter 4
Problem 4 – 8
b.
2008
July 5 Cash ............................................................................................. 30,700
Art capital (P63,300 x 40%)........................................................... 25,320
Bea capital (P63,300 x 40%).......................................................... 25,320
Cid capital (P63,300 x 20%)........................................................... 12,660
Other assets........................................................................... 94,000
To record realization of other assets at a loss of P63,300.
c. Cid's loss must be limited to P5,000, or P25,000 for the partnership (P5,000 / 20% = P25,000).
Because the liquidation of liabilities results in a loss of P500, only P24,500 may be lost on the
realization of other assets. This requires that other assets realize P69,500 (P94,000 – 24,500) to
enable Cid to receive P5,000 from the partnership to pay personal creditors in full.
Problem 4 –9
KGB Partnership
Statement of Realization and Liquidation
Lump-sum Liquidation on June 30, 2008
- Capital Balances -
Noncash G K G B
Cash Assets Liabilities Loan 20% 40% 40% -
Preliquidation balances 50,000 950,000 (480,000) (60,000) (240,000) (100,000) (120,000)
Sale of assets
and distribution
of 430,000 loss 520,000 950,000 - - 86,000 172,000 172,000
570,000 -0- (480,000) (60,000) (154,000) 72,000 52,000
Cash contributed
by B 50,000 - - - - - 50,000
620,000 -0- (480,000) (60,000) (154,000) 72,000 2,000
Distribution of deficit
of insolvent partner: (2,000)
20/60 (P2,000) 666
40/60 (P2,000) - - - - - 1,334 -
620,000 -0- (480,000) (60,000) (153,334) 73,334 -0-
Offset deficit with loan - - - 60,000 - (60,000) -
620,000 -0- (480,000) -0- (153,334) 13,334 -0-
Contribution by G 13,334 - (13,334) -
633,334 -0- (480,000) -0- (153,334) -0- -0-
Payment of creditors (480,000) - 480,000 - - - -
153,334 -0- -0- -0- (153,334) -0- -0-
Distribution to K (153,334) - - 153,334 - -
Postliquidation
balances -0- -0- -0- -0- -0- -0- -0- -
82
Chapter 4
KGB Partnership
Schedule of Distribution of Personal Assets
June 30, 2008
. K G B
Personal assets, excluding partnership
capital and loan interests 500,000 600,000 700,000
Personal liabilities (460,000) (480,000) (650,000)
Personal net worth, excluding
partnership capital and loan
interests 40,000 120,000 50,000
Contribution to partnership (13,334)
Distribution from partnership 153,334 -0- - -0- -
Personal capacity 193,334 106,666 -0- -
Partnership Liquidation by Installment 83
CHAPTER 5
5-1: b
RJ SJ TJ
Capital balances before liquidation P22,000 P30,000 P 8,000
Loan balances _10,000 ______– ______–
Total interest 32,000 30,000 8,000
Possible loss (40,000+10,000) ( 25,000) ( 15,000) ( 10,000)
Balances 7,000 15,000 ( 2,000)
Additional loss to RJ & SJ, 5:3 ( 1,250) ( 750) __2,000
Cash distribution P 5,750 P14,250 P –
5-2: a
AR BR CR DR
Capital balances P 5,500 P 5,150 P 6,850
P 4,500
Loan balances _1,000 _____– _____–
_____–
Total interest 6,500 5,150 6,850 4,500
Possible loss (23,000-6,000) ( 6,800) ( 5,100) ( 3,400)
( 1,700)
Balances ( 300) 50 3,450 2,800
Additional loss to BR, CR, DR, 3:2:1 ___300 ( 150) ( 100)
( 50)
Balances – ( 100) 3,350 2,750
Additional loss to CR & DR, 2:1 _____– ___100 _( 67)
_( 33)
Payment to partners P – P – P 3,283
P 2,717
5-3: c
BALANCES
DD EE FF GG
Capital balances P40,000 P30,000 P15,000
P25,000
Loan balances 5,000 10,000 – –
Advances _____– _____– ( 4,500) ( 2,
500)
Total interest 45,000 40,000 10,500
22,500
Divided by P/L Ratio ____50% ____30% ____10%
____10%
Loss Absorption balances 90,000 133,333 105,000
225,000
PI - TO GG – _____– _____– ( 91,667) __ __–
Balances 90,000 133,333 105,000
133,333
PII - TO EE & GG, 30:10 _____– ( 28,333) _____–
( 28,333)
Balances 90,000 105,000 105,000
10,500
PIII - TO EE, FF, GG, 3:1:1 _____– (15,000) ( 15,000)
( 15,000)
Balances P90,000 P90,000 P90,000
P90,000
PIV - P/L Ratio
84
Chapter 5
CASH PAYMENT
DD EE FF GG
PI - To GG – – –
P 9,167
PII - To EE (28,833 X 30%) – P 8,433 – –
GG (28,833 X 10%) – – – 2,833
PIII –To EE (15,000 X 30%) – 4,500 – –
FF (15,000 X 10%) – – 1,500 –
GG (15,000 X 10%) _____– _____– _____–
__1,500
Total – P12,933 P 1,500
P13,500
PIV - P/L Ratio
DD EE FF GG
Distribution of P18,000
PI - TO GG – – –
P 9,167
PII - TO EE & GG, 3:1, P8,833 _____– _6,625 _____–
__2,208
Cash distribution – P 6,625 –
P11,375
5-4: a
TAN LIM WAN
Capital balances before liquidation P40,000 P65,000 P48,000
Loss on realization, P40,000 ( 16,000) ( 16,000) ( 8,000)
Capital balances before cash distribution 24,000 49,000 40,000
Possible loss, P90,000 ( 36,000) ( 36,000) ( 18,000)
Balances ( 12,000) 13,000 22,000
Additional loss to Lim & Wan, 4:2 _12,000 ( 8,000) ( 4,000)
Cash distribution P – P 5,000 P18,000
5-5: b
TAN LIM WAN
Capital balances before cash distribution P24,000 P49,000 P40,000
Possible loss (90,000+3,000) ( 37,200) ( 18,600) ( 18,600)
Balances ( 13,200) 30,400 21,400
Additional loss to Lim & Wan, 4:2 _13,200 ( 8,800) _( 4,400)
Cash distribution P – P21,600 P17,000
5-6: d
Tan (14,000 X 40%) P5,600
Lim (14,000 X 40%) P5,600
Wan (14,000 X 20%) P2,800
5-7: a
CARPIO LOBO
Capital balances before liquidation P72,000 P54,000
Goodwill written-off ( 5,000) ( 5,000)
Cash balance 67,000 49,000
Possible loss (100,000+10,000), 110,000 ( 55,000) ( 55,000)
Capital balances before liquidation 12,000 ( 6,000)
Additional loss to Carpio ( 6,000) __6,000
Cash distribution P 6,000 P –
Partnership Liquidation by Installment 85
5-8: d
JACOB SANTOS
HERVAS
Capital balances before liquidation P40,000 P72,000
P 7,000
Loss on realization (120,000-90,000) ( 15,000) ( 9,000)
( 6,000)
Liquidation expenses, P2,000 ( 1,000) ( 600)
( 400)
Capital balances before cash distribution 24,000 62,400
63,600
Loan balances __8,000 _____–
_____–
Total interest 32,000 62,400
63,600
Possible Loss (210,000-120,000) ( 45,000) 27,000
( 18,000)
Balances ( 13,000) 35,400
45,600
Additional loss to Santos & Hervas _13,000 ( 7,800)
( 5,200)
Cash distribution P – P27,600
P40,400
5-9: d
A B C D
Capital balances before liquidation P16,200 P12,000 P37,700
P17,700
Salary payable– _____– ___160 ___240
_______
Balances 16,200 12,000 37,860 ( 17,9
40)
Loss on realization (P2,400) ( 600) ( 600) ( 600)
( 600)
Balances 15,600 11,400 37,260
17,340
Liquidation expenses (P600) ( 150) ( 150) ( 150)
( 150)
Balances 15,450 11,250 37,110
17,190
Loan balances 12,000 14,400 _____–
__9,600
Total interest 27,450 25,650 37,110
26,790
Possible Loss (126,000-18,000) ( 27,000) ( 27,000) ( 27,000)
( 27,000)
Balances 450 ( 1,350) 10,110 ( 21
0)
Additional loss to A & C ( 780) __1,350 ( 780)
____210
Balances ( 330) – 9,330 –
Additional loss to C ___330 _____– ( 330)
_____–
Cash distribution P – P – P 9,000 P
–
5-10: a
BALANCES
DY SY LEE
Total interest P22,000 P15,500 P14,000
Profit and Loss ratio 2/4 1/4 1/4
Loan absorption balances 44,000 62,000 56,000
Priority I - to Sy _____– ( 6,000) _____–
Balances 44,000 56,000 56,000
Priority II - to Sy & Less _____– ( 12,000) ( 12,000)
Total P44,000 P44,000 P44,000
CASH PAYMENTS
DY SY LEE
Priority I - to Sy (6,000 X 1/4) – 1,500 –
Priority II - to Sy (12,000 X 1/4) – 3,000 –
to Lee (12,000 X 1/4) _____– _____– _3,000
Total P – P 4,500 P 3,000
86
Chapter 5
5-11: d
5-12: c
5-13: c BALANCES
AA BB CC
Capital balances P15,000 P30,000 P10,000
Loan balances 10,000 _5,000 10,000
Total interest 25,000 35,000 20,000
Divided by Profit and Loss Ratio 2/5 2/5 1/5
Loss Absorption balances 62,500 87,520 100,000
Priority I to CC _____– _____– ( 12,500)
Balances 62,500 87,520 100,000
Priority II to BB & CC, 2:1 _____– ( 25,000) ( 25,000)
Total interest P62,500 P62,500 P62,500
CASH PAYMENTS
AA BB CC
Priority I to CC (12,500 X 1/5) – – 2,500
Priority II to BB (25,000 X 2/5) – 10,000 –
to CC (25,000 X 1/5) ____– _____– _5,000
Total P – P10,000 P 7,500
Priority III – P/L Ratio
Cash distribution to CC:
Priority I P2,500
Priority II (12,000-2,500) X 1/3 3,167
Total cash paid to CC P5,667
Partnership Liquidation by Installment 87
5-14: c
BALANCES
JJ KK LL MM
Capital balances P 60,000 P 64,500 P 54,000
P 30,000
Loan balances _18,000 _30,000 ______–
______–
Total interest _78,000 _94,500 _54,000
_30,000
Divided by Profit and Loss Ratio ____40% _____35% _____15%
_____10%
Loss Absorption balances 195,000 270,000 360,000
300,000
Priority I to LL ______– ______– ( 60,000)
______–
Balances 195,000 270,000 300,000
300,000
Priority II to LL, MM, 15:10 ______– ______– ( 30,000)
( 30,000)
Balances 195,000 270,000 270,000
270,000
Priority II to KK, LL, MM, 35:15:10 ______– ( 75,000) ( 75,000)
( 75,000)
Total P195,000 P195,000 P195,000
P195,000
CASH PAYMENT
JJ KK LL MM
Priority I to LL (30,000 X 15%) – – 9,000 –
Priority II to LL (30,000 X 15%) – – 4,500 –
to MM (30,000 X 10%) – – – 3,000
Priority II to KK (75,000 X 35%) – 1,750 – –
to LL (75,000 X 15%) – – 11,250 –
to MM (75,000 X 10%) ______– ______– ______–
___7,500
Total P – P 1,750 P 24,750
P 10,500
JJ KK LL MM TOTAL
Priority I to LL – – P 9,000 –
P 9,000
Priority II to LL, MM, 15:10 – – 4,500 3,000 7,500
Priority II to KK, LL, MM, 35:15:10
(29,100-16,500), 12,600 _____– __7,350 ___3,150 __2,100
__12,600
Cash distribution P – P 7,350 P 16,650 P 5,100
P 29,100
5-15: a
BALANCES
ARCE BELLO CRUZ
Capital balances P 20,000 P 24,900 P 15,000
Loan balances _10,000 ______– ______–
Total interest _32,000 _24,900 _15,000
Divided by Profit and Loss Ratio _____50% _____30% _____20%
Loss Absorption balances 64,000 83,000 75,000
Priority I to Bello ______– ( 8,000) ______–
Balances 64,000 75,000 75,000
Priority II to Bello & cruz, 3:2 ______– ( 11,000) ( 11,000)
Total P 64,000 P 64,000 P 64,000
88
Chapter 5
CASH PAYMENTS
ARCE BELLO CRUZ
P - I to Bello (8,000 X 30%) – 2,400 –
P - II to Bello (11,000 X 30%) – 3,300 –
to Cruz (11,000 X 20%) _____– _____– _2,200
Total P – P 5,700 P2,200
5-16: a
5-17: b
5-18: b
BALANCES CASH PAYMENT
MONZON NIEVA MONZON
NIEVA
Total Interest P22,500 P17,500
Profit and Loss ratio _____60% _____40%
Loss absorption balances 37,500 43,750
Priority I - to Nieka ______– ( 6,250) _____–
_2,500
Total P37,500 P37,500 P –
P2,500
All the P2,000 should be paid Nieva, since she is entitled to P2,500 under Priority I
Partnership Liquidation by Installment 89
5-19: b
CASH MONZON NIEVA
Cash distribution P12,500 – –
PI to Nieva (2,500-2,000) ( 500) – 500
Balances, 6:40 _12,000 __7,200 _4,800
Cash distribution P – P 7,200 P5,300
5-20: a
SOLUTIONS TO PROBLEMS
Problem 5 – 1
Suarez, Tulio and Umali
Statement of Liquidation
January 1 to april 31, 2008
Schedule 1
92
Chapter 5
Problem 5 – 2
Capital
Inven- Accounts Bell Miller Bell
Cash tory Payable Loan 80% 20%
Balances 25,000 120,000 15,000 60,000 65,000 5,000
Sale of inventory 40,000 ( 60,000) (16,000) (4,000)
Payment to
creditors (10,000) ______ (10,000) ______ ______ ______
55,000 60,000 5,000 60,000 49,000 1,000
Payments to
partners
(Schedule 1) (50,000) ______ ______ (49,000) _(1,000) ______
5,000 60,000 5,000 11,000 48,000 1,000
Sale of inventory 30,000 ( 60,000) (24,000) 6,000)
Payment to
creditors ( 5,000) ______ ( 5,000) ______ ______ ______
30,000 –0– –0– 11,000 24,000 (5,000)
Offset deficit
with loan ______ ______ ______ ( 5,000) ______ (5,000)
30,000 –0– –0– 6,000 24,000 –0–
Payments to
partners:
Loan ( 6,000) ( 6,000)
Capitals (24,000) ______ ______ ______ (24,000) ______
Balances –0– –0– –0– –0– –0– –0–
Schedule 1:
Miller and Bell Partnership
Schedule of Safe Payments to Partners
Miller Bell
80% 20%
Capital and loan balances 49,000 61,000
Possible loss of 60,000 on remaining inventory (48,000) (12,000)
Safe payment 1,000 49,000
Problem 5 – 3
HORIZON PARTNERSHIP
Statement of realization and Liquidation
May – July, 2008
Partners Capital
Assets SS TT PP
Cash Other Liabilities (1/3) (1/3) (1/3)
Balances before liquidation 20,000 280,000 80,000 60,000 70,000
90,000
May – sale of assets at a loss of P30,000 75,000 (105,000) ______ (10,000) (10,000)
(10,000)
Balances 95,000 175,000 80,000 50,000 60,000
80,000
Payment to creditors (80,000) ______ (80,000) ______ ______ ______
Balances 15,000 175,000 50,000 60,000
80,000
Payments to PP (Exhibit A) (15,000) ______ ______ ______ ______
(15,000)
Balances –0– 175,000 50,000 60,000
65,000
June – sale of assets at a loss of P36,000 25,000 (61,000) ______ (12,000) (12,000)
(12,000)
Balances 25,000 114,000 38,000 48,000
53,000
Payment to partners (Exhibit A) (25,000) ______ ______ ______ (10,000)
(15,000)
Balances –0– 114,000 38,000 38,000
38,000
July – sale of remaining assets at a loss of
P33,000 81,000 (114,000) (11,000) (11,000)
(11,000)
Balances 81,000 27,000 27,000
27,000
Payment to partners (81,000) (27,000) (27,000)
(27,000)
b. After the cash distribution in June, the partners capital accounts had balances corresponding to the income-sharing
ratio (38,000 each). From this point on any cash payments to partners may be made in the income-sharing ratio or
equally in this problem. In other words, after the creditors are paid and TT and PP receive 10,000 and 30,000,
respective, any additional cash that becomes available may be paid to the three partners equally.
94
Chapter 5
Problem 5 – 4
1. X, Y and Z
Cash Priority Program
January 1, 2008
2. January
Cash X Y Z
Available for distribution............................... P 7,500
Priority I – to Y.............................................. ( 7,500) P 7,500
Payment to partner......................................... – P 7,500 –
February....................................................... Cash X Y Z
Available for distribution............................... P20,000
Priority I – to Y (P10,500 – P7,500)............. ( 3,000) P 3,000
Priority II – to X and Y; 5:3........................... ( 17,000)P10,625 6,375 _____
Payments to partners...................................... P10,625 P 9,375 –
March............................................................ Cash X Y Z
Available for distribution............................... P45,000
Priority II – to X and Y; 5:3
(P26,000 – P17,000)................................. ( 9,000) P 5,625 P 3,375
Excess; 5:3:2.................................................. ( 36,000) 18,000 10,800 P7,200
Payments to partners...................................... P23,625 P14,175 P7,200
April.............................................................. Cash X Y Z
Available for distribution............................... P15,000
Excess; 5:3:2.................................................. ( 15,000) P 7,500 P 4,500 P3,000
Payments to partners...................................... P 7,500 P 4,500 P3,000
Problem 5 – 5
AB, CD & EF Partnership
Statement of Partnership Realization and Liquidation
Capital
Able Other Accounts CD AB CD EF
Cash Loan Assets Payable Loan 50% 30%
20%
Balances before liquidation 18,000 30,000 307,000 53,000 20,000 118,000 90,000
74,000
January transactions:
1. Collection of accounts
receivable at loss
of 15,000 51,000 ( 66,000) ( 7,500) ( 4,500)
( 3,000)
2. Sale of inventory at
loss of 14,000 38,000 ( 52,000) ( 7,000) ( 4,200)
( 2,800)
3. Liquidation expenses paid ( 2,000) ( 1,000) ( 600)
( 400)
4. Share of credit memorandum ( 3,000) 1,500 900
600
5. Payments to creditors ( 50,000) _____ ______ (50,000) _____ ______ _____
______
55,000 30,000 189,000 -0- 20,000 104,000 81,600
68,400
Sale payments to partners
(Schedule 1 ( 45,000) ______ _____ ______ (20,000) ______ ( 6,600)
(18,400)
10,000 30,000 189,000 -0- -0- 104,000 75,000
50,000
February transactions:
6. Liquidation expenses paid ( 4,000) ______ ______ ______ ______ ( 2,000) ( 1,200)
( 800)
6,000 30,000 189,000 -0- -0- 102,000 73,800
49,200
Safe payments to partners
(Schedule 2) -0- _____ ______ ______ ___ –0– –0–
–0–
6,000 30,000 189,000 -0- -0- 102,000 73,800
49,200
March transactions:
8. Sale of mac. & equip. at a
loss of 43,000 146,000 (189,000) ( 21,500) (12,900)
( 8,600)
9. Liquidation expenses paid ( 5,000) ______ _______ ______ ______ ( 2,500) ( 1,500)
( 1,000)
147,000 30,000 -0- -0- -0- 78,000 59,400
39,600
10. Offset AB's loan
receivable against capital (30,000) ( 30,000)
Payments to partners (147,000) ______ _______ ______ ______ ( 48,000) (59,400)
(39,600)
Balances at end of liquidation –0– –0– –0– –0– –0– –0– –0– –0–
96
Chapter 5
Partnership
Schedules of Safe Payments to Partners
AB CD EF
Schedule 1: January 50% 30% 20%
Capital and loan balancesa P74,000 P101,600 P68,400
Possible loss:
Other assets (189,000) and possible liquidation
costs (10,000) ( 99,500) ( 59,700) ( 39,800)
Balances ( 25,500) 41,900 28,600
Absorption of AB's potential deficit balance 25,500
CD : (25,500 x 3/5 = 15,300) ( 15,300)
EF : (25,500 x 2/5 = 10,200) ______ _______ ( 10,200)
Safe payment P -0- P 26,600 P 18,400
a = (104,000) capital less 30,000 loan receivable
= (81,600) capital plus 20,000 loan payable
= (68,400) capital
Schedule 2: February
Capital and loan balancesb 72,000 73,800 49,200
Possible loss:
Other assets (189,000) and possible liquidation
costs (6,000) ( 97,500) ( 58,500) ( 39,000)
( 25,500) 15,300 10,200
Absorption of AB's potential deficit balance 25,500
CD : (25,500 x 3/5 = 15,300) ( 15,300)
EF : (25,500 x 2/5 = 10,200) _______ ________ ( 10,200)
Safe payment –0– –0– –0–
b = (102,000) capital less 30,000 loan receivable
= (73,800) capital
= (49,200) capital
Problem 5 – 6
1. M, N, O and P
Cash Priority Program
January 1, 2008
Loss absorption
balances..........P240,000 P200,000 P440,000 P280,000
Priority I – to O... _______ _______ ( 160,000) ________ – – P20,000 –
P20,000
Balances.............. 240,000 200,000 280,000 280,000
Priority II – to O
and P............... _______ _______ ( 40,000) ( 40,000) – – 5,000 P5,000
10,000
Balances.............. 240,000 200,000 240,000 240,000
Priority III – to
M, O and P.....( 40,000) _______ ( 40,000) ( 40,000)P15,000 – 5,000 5,000
25,000
Total....................P200,000 P200,000 P200,000 P200,000P15,000 – P30,000 P10,000
P55,000
2.
Schedule 1
Cash M N O P
Available for distribution..................... P25,000
Priority I – to O.................................... ( 20,000) P20,000
Priority II – to O and P; 1:1.................. ( 5,000) ________ _______ 2,500 P2,500
Payments to partners............................ – – P22,500 2,500
Apply to loan........................................ ( 22,500) ( 2,500)
Apply to capital.................................... – – – –
Schedule 2
Cash M N O P
Available for distribution..................... P40,000
Priority II – to O and P; 1:1.................. ( 5,000 P 2,500 P2,500
Priority III – to M, O and P; 3:1:1........ ( 25,000) P15,000 5,000 5,000
Excess, 3:3:1:1..................................... ( 10,000) 3,750 P3,750 1,250
..............................................................1,250
Payments to partners............................ 18,750 P3,750 8,750 8,750
Apply to loan........................................ ( 18,750) ( 3,750) ( 2,500) ( 8,750)
Apply to capital – – P 6,250
–
98
Chapter 5
Problem 5 – 7
Problem 5 – 8
Part A
Balances Cash Payments
North South East West North South East
West
Total Interest (capital and loan
balances P120,000 P 88,000 P109,000 P 60,000
Divided by P/L ratio 30% 10% 20% 40%
Loss absorption potential P400,000 P880,000 P545,000 P150,000
Priority II – To South (335,000) ________ 33,500
Balances 400,000 545,000 545,000 150,000
Priority II – To South and East, 10:20 (145,000) (145,000) 14,500 29,000
Balances 400,000 400,000 400,000 150,000
Priority III – To North, South, and
east 30:10:20 (250,000) (250,000) (250,000) ______ 75,000 25,000 50,000
_____
Total 150,000 150,000 150,000 150,000 75,000 73,000 79,000
–
Part B
(1) Cash 65,600
North capital (30% of P16,400 loss) 4,920
South capital (10%) 1,640
East capital (20%) 3,280
West capital (40%) 6,560
Accounts receivable 82,000
To records collection of receivables with losses allocated to partners.
First P90,000 is held to pay liabilities (P74,000) and estimated liquidation expenses of P16,000.
Next P33,500 goes entirely to South.
Next P43,500 is split between to South (P14,500) and East (P29,000).
Remaining P63,600 is allocated to North (P31,800), South (P10,600) and East (P21,200)
100
Chapter 5
(5) Cash 71,000
North capital (30% of P30,000 loss) 9,000
South capital (10%) 3,000
East capital (20%) 6,000
West capital (40%) 12,000
Inventory 101,000
To record inventory sold.
DR Company
Schedule of Safe Payments to Partners
Of the P84,000 in cash at the end of August, P58,000 will be required to liquidate the debts to
outside creditors, and P4,000 must be held in reserve to pay possible liquidation costs. Thus, a
total of P22,000 in cash can be safely distributed to partners as of August 31, 2008.
Problem 5 – 10
Cash 40,000
Equipment 60,000
Jenny, capital 100,000
Cash 60,000
Inventory 10,000
Equipment 180,000
Notes payable 50,000
Kenny, capital 200,000
102
Chapter 5
Jenny Kenny
Beginning capital balance P100,000 P200,000
Interest on beginning capital balance 10,000 20,000
Annual salary 15,000 20,000
Remainder 48,000 72,000
Ending capital balance P173,000 P312,000
Explanation:
Each partner receives 10% on beginning capital balance. Each partner receives
her respective income (P15,000 to Jenny and P20,000 to Kenny). The amount distributed
thus far is P65,000. The remainder to be distributed is P120,000 (P185,000 – 30,000 –
35,000). Two-fifths of this remainder of P129,000 (48,000) is allocated to Jenny; 3/5 x
P120,000 (72,000) is allocated to Kenny. The total income allocated to Jenny and Kenny
is P73,000 and P112,000 respectively.
The admission of Lenny can now be recorded by the following entry:
Cash 175,000
Lenny, capital 110,000
Jenny, capital 26,000
Kenny, capital 39,000
Explanation:
The book value of the partnership after the income distribution in 2006 was
P485,000 (P173,000 + P312,000). After Lenny’s contribution, the value of the
partnership is P485,000 + P175,000 = P660,000. A one-sixth interest in the partnership is
P660,000 x 1/6 = P110,000. Using the bonus method, we compute a bonus of P175,000 –
P110,000 = P65,000. Using the 2:3 profit sharing ratio, the amount allocated to Jenny is
P26,000 (2/5 x P65,000) and the amount allocated to Kenny is P39,000 (3/5 x P65,000).
Explanation:
The sale of assets realized a gain of P30,000 (P210,000 – P180,000) which is
distributed to the partners on the new profit sharing ratio: 30% to Jenny, 50% to Kenny,
and 20% to Lenny. Liabilities are paid. A possible loss on the unsold assets (P520,000) is
distributed to partners in their profit and loss ratio of 30:50:20 to Jenny, Kenny and
Lenny respectively.
Joint Venture 103
CHAPTER 6
SOLUTIONS TO MULTIPLE CHOICES
6-1: a
Assets per Jessica Company- balance sheet P3,550,000
Jessica’s proportionate interest in assets of JV (50%) 1,000,000
Total assets of Jessica P4550,000
6-3: b
6-4: b
Investment of Heart P80,000
Profit share:
Sales 150,800
Cost of sales (150,800 ÷ 125%) 120,640
Gross profit 30,160
Expenses 10,000
Net Profit 20,160
Profit/loss ratio x 40% 8,064
Balance of investment in JV P88,064
6-5: a
Cash P190,000
Merchandise inventory 29,360
Accounts receivable 150,800
Total assets 370,160
Sweet Co’s, proportionate interest x 60%
Sweet Company’s share in total asset P222,096
6-6: a
Sales 7,200
Cost of sales
Purchases P10,000
Merchandise inventory, end (50% of P10,000) __5,000 _5,000
Gross profit 2,200
Expenses ___500
Net profit P 1,700
104
Chapter 6
6-7: b
Original investment (cash) P10,000
Profit share (P1,700 / 2) ___850
Balance of Investment account P10,850
6-8: a
Joint venture account before profit distribution (credit balance) P 9,000
Unsold merchandise __2,500
Joint venture profit before fee to Salas P11,500
6-9: b
Fee of Salas (P10,000 x 15%) P 1,500
Profit share of Salas (P10,000 x 25%) _2,500
Total P 4,000
6-10: b
Salas Salve
Balance before profit distribution P 500 (dr) P 2,000 (cr)
Profit share:Sabas (P10,000 x 40%) 4,000
Salve (P10,000 x 35%) ______ _3,500
Balance P 3,500 (cr) P 5,500 (cr)
6-11: d
Joint venture account balance before profit distribution (debit) P 6,000
Joint venture profit (P4,500 x 3) _13,500
Cost of unsold merchandise (inventory) taken by Dante P19,500
6-12: b
Edwin Capital:
Debits: Balance before profit distribution P14,000
Credits: Profit share __4,500
Due from Edwin (debit balance) P 9,500
6-13: a
JV account balance before profit distribution (cr) P 4,600
Unsold merchandise (required dr balance after profit distribution) __2,000
Joint venture profit before fee to Jerry P 6,600
Joint venture profit after fee (P6,600 / 110%) __6,000
Fee to Jerry P 600
6-14: d
Harry Capital Isaac Capital
Balances before profit distribution (P 200) P 1,800
Profit distribution:
Harry P6,000 x 50%) 3,000
Isaac (P6,000 x 20%) 1,200
Cash settlements P 2,800 P 3,000
6-15: b
Sales P14,000
Cost of sales:
Merchandise inventory, beg (contributions) P14,000
Freight 300
Purchases __4,000
Goods available for sale P18,300
Merchandise inventory, end (P8,300/2) __4,150 14,150
Gross profit (loss) (150)
Expenses (P400 + P200) __600
Net profit (loss) P( 750)
6-16: c
Contributions to the Joint Venture (P5,000 + P8,000) P13,000
Loss share (P750 x 50%) ( 375)
Unsold merchandise taken (withdrawal) ( 4,150)
Final settlement to jack P 8,475
106
Chapter 6
SOLUTIONS TO PROBLEMS
Problem 6 – 1
JV cash 200,000
Joint Venture 200,000
Computation of JV Profit
Distribution
Joint Venture 30,000 Investment in JV 15,000
Profit from JV 15,000 Profit from JV 15,000
Ablan capital 15,000
2. Purchases 80,000
Supplies 2,000
Diaz capital 82,000
3. Expenses 9,000
Diaz capital 9,000
4. Cash 150,000
Sales 150,000
5. Expenses 30,000
Cash 30,000
Distribution of profit:
Income summary 33,000
Diaz capital 11,000
Ella capital 11,000
Fabia capital 11,000
108
Chapter 6
Books of Diaz
Books of Ella:
Books of Fabia:
Problem 6 – 3
7: JV cash 10,000
Bueno capital 10,000
To record settlements:
Books of Bueno
Cash 12,000
Investment in Joint Venture 12,000
Books of Castro
Cash 14,000
Investment in Joint Venture 14,000
7: Cash 10,000
Bueno capital 10,000
Sales 25,000
Income summary 25,000
Distribution of profit:
Settlements to Venturers:
Cash 2,500
Investment in Joint Venture 2,500
Problem 6 – 4
To record sales:
Computed as follows:
To record settlement:
Cash 32,687
Rolex capital 128,874
Times capital 14,099
JV cash 175,660
Computations:
Current assets:
Investment in joint Venture:
Joint Venture assets:
Cash P 72,000
Joint Venture _175,500 P247,500
Less:Equity of other venturers
(P116,500 + P43,300) _159,800 87,700
Current liabilities:
Notes payable – PNB 34,000
Joint Venture 115
Timex capital
P34,000 April
__9,000 June
P43,300
Problem 6 – 5
Cash P 61,000
Receivables 122,000
Inventory 102,500
Other assets __40,500
Total assets P326,000
Sales P246,750
Cost of sales _124,750
Gross profit 122,000
Operating expenses __58,250
Consolidated net income P 63,750
116
Chapter 6
Problem 6 –6
Land 950,000
Cash 950,000
Paid for improvements.
118
Chapter 6
Sales P2,600,000
Cost of land sold:
Land P2,400,000
Improvements 950,000
Total P3,350,000
Unsold land 2,205,000 1,145,000
Gross profit 1,455,000
Expenses:
Advertising and office expenses P 628,100
Interest on mortgage 40,250
Interest on advances 60,000
Commissions 130,000 858,350
Net gain P 596,650
Distributions:
MacDo (P596,650 x 60%) P 357,990
MacEn (P596,650 x 40%) 238,660
Assets
Cash P 250,000
Land 2,205,000
Total Assets P2,455,000
Liabilities and equity:
Mortgage payable P 500,000
MacDo 1,716,340
MacEn 238,660
Total liabilities and equity P2,455,000
Joint Venture 119
CHAPTER 7
7-1: c
7-2: d
Amount realized secured by inventory P120,000
Unsecured claim (P88,000 x 75%) __66,000
Total amount received P186,000
7-4: a
Realizable value:
Current assets P 50,000
Land and building P240,000
Less mortgage payable _200,000 __40,000
Total 90,000
Less accounts payable _160,000
Estimated deficiency to unsecured creditors P 70,000
7-5: c
Total realizable value to unsecured creditors (P90,000)/total unsecured
Claims (P160,000) = 56.25%
7-6: a
Free assets:
Current assets P 33,000
Buildings and equipment _110,000
Total P143,000
7-7: c
Free assets:
Other assets P 80,000
Excess from assets pledged with secured
Creditors (P116,000 – P70,000) __46,000
Total P126,000
7-8: a
The holder of Debt Two will receive P100,000 from the sale of the pledged
asset. Since the holder wants to receive P142,000 out of the total debt of
P170,000, the company must be able to generate enough cash to pay off
60% of the unsecured liabilities (P42,000/P70,000) after paying 100% of
the liabilities with priority (P110,000).
Unsecured liabilities:
Unsecured creditors P230,000
Excess liability of Debt One in excess of pledged
Asset (P210,000 – P180,000) 30,000
Excess liability of Debt Two in excess of pledged
Asset (P170,000 – P100,000) __70,000
Total unsecured liabilities P330,000
Necessary percentage ____60%
Cash needed for these liabilities P198,000
In order for the holder of Debt Two to received exactly P142,000, the other free assets
must be sold for P308,000. With that much money, the liabilities with priority
(P110,000) can be paid with the remaining P198,000 going to the unsecured debts of
P330,000. This 60% figure would insure that the holder of Debt Two would get
P100,000 from the pledged asset and P42,000 (P70,000 x 60%) from the free assets.
7-9: c
Estate equity, beg. (P100,000 – P85,000) P 15,000
Loss on realization (P100,000 – P75,000) ( 25,000)
Unrecorded liabilities:
Interest expense P 250
Administrative expense 4,000 ( 4,250)
Estate deficit P( 14,250)
7-10: c
Total assets at net realizable value P 75,000
Fully secured liabilities (40,000)
Estimated administrative expense _( 4,000)
Estimated amount available P 31,000
Unsecured claims (P45,000 + P250) (45,250)
Estimated deficiency to unsecured creditors P 14,250
Corporation in Financial Difficulty – Liquidation 123
7-11: b
Assets pledged with fully secured creditors P185,000
Fully secured creditors _130,000 55,000
Free assets
_160,000
Total free assets 215,000
Less: Liabilities with priority __35,000
Available to unsecured non-priority claims P180,000
7-12: b
Machinery P 10,000
Recoveries of unsecured claims (50,000 - 10,000) X .50 __20,000
Amount to be realized P 30,000
7-13: b
Notes Payable P 23,940
Less: Inventories _ 19,200
Unsecured Liabilities 4,740
% of recovery ____78%
Recovery 3,697
Add: Inventories _19,200
Amount to be received by Wood P 22,897
7-14: a - P7,000
7-15: a - P30,000
7-16: b - P57,200 [52,000 + (8,000 X .65)]
7-17: d - P72,800 (112,000 X .65)
7-18: d
Estimated loss:
Account Receivable P 8,160
Inventories (28,000 - 18,500) 9,500
Building (59,000 - 22,000) 3 7,000
Equipment (5,600 - 2,000) 3,600
Goodwill 5,650
Prepaid expenses ___430 P 64,340
Less: Stockholder's equity
Common stock P 72,000
Deficit ( 16,660) _55,340
Estimated deficiency P 9,000
124
Chapter 7
7-19: d
Accounts Receivable (39,350 - 16, 110) P 23,240
Notes Receivable (18,500 - 12,500) 600
Inventories (87,850 - 45,100) 42,750
Prepaid expenses 950
Equipment (48,800 - 9,000) __39,800
Total estimated loss P112,740
7-21: d
Total Free Assets:
Balance of Assets Pledged to
Fully Secured Creditor (95,000 - 90,000) P 5,000
Free Assets:
Cash P 2,700
Accounts Receivable 16,110
Inventories 45,100
Equipment __9,000 __72,910
Total 77,910
Less: Unsecured liabilities with priority (1,850 + 4,650) ___6,500
Net Free Assets P 71,410
Divide by Unsecured creditors:
Balance of Partially Secured Creditor
Notes Payable - PNB P 15,000
Notes Receivable __12,500 2,500
Accounts Payable 52,500
Notes Payable __51,250 103,750 ÷ P106,250
Estimated recovery % 67%
7-22: d
Fully secured (Notes Payable) P 90,000
Partially secured:
Notes Payable - PNB P12,500
Add (2,500 X 67%) __1,675 14,175
Unsecured Creditor with Priority 6,500
Unsecured Creditor without Priority (103,750 X 67%) __69,513
Total P180,188
7-23: a
Unsecured creditors without priority P1,102,500
Estimated deficiency to unsecured creditors:
Loss on realization 551,250
Estimated liquidation expenses 55,125
Total 606,375
Stockholders’ equity 441,000 165,375
Net free assets 937,125
Liabilities with priority 122,500
Free assets P 1,059,625
7-24: a
Estimated net gain (loss) on realization:
Gain on realization 78,750
Loss on realization (336,700) (257,950)
Estimated claims ( 43,750)
Total (301,700)
Stockholders equity 295,750
Estimated deficiency P( 5,950)
7-25: b
Notes payable (175,000 – 140,000) P 35,000
Unsecured liabilities (420,000 – 52,500) 367,500
Total 402,500
Free assets (157,500 + 210,000) 367,500
Estimated deficiency 35,000
7-26: a
Old receivable (net) P 38,000
Marketable securities 12,000
Old inventory 60,000
Depreciable assets- net 96,000
Total assets to be realized P206,000
7-27: a
Old receivable P 21,000
New receivable 47,000
Marketable securities 10,500
Sales of inventory 75,000
Total asset realized P153,500
7-28: a
Gain on sale of inventory (P75,000 – 60,000) 15,000
Loss on realization:
Marketable securities (12,000 – 10,500) 1,500
Trustee’s expenses 4,300
Depreciation 16,000 (21,800)
Net loss P( 6,800)
126 Chapter
7
SOLUTIONS TO PROBLEMS
Problem 7 – 1
(A) Laguna Company
Statement of Affairs
October 31, 2008
Book Estimated
Value Assets Realizable Value Free Assets
Assets pledge for fully secured creditors:
P107,000 .... Plant assets.................................................. P67,400
Less; Fully secured liabilities......................_ 50,400 P17,000
Assets pledged for partially secured creditors:
39,000. .... Inventories.................................................. P18,000
Free Assets:
4,000. ..... Cash............................................................ P 4,000
46,000. ..... Accounts, receivable................................... 46,000
2,000. ..... Supplies....................................................... __1,500 _51,500
Total free assets............................................... P68,500
Less: Unsecured liabilities with priority.......... __7,000
Net Free Assets............................................... P61,500
Estimated deficiency to unsecured creditors (to balance) _20,500
P198,000 P82,000
Book Creditors' Unsecured
Value Liabilities & Stockholders' Equity Claim Liabilities
Fully secured liabilities:
P50,400....... Mortgage payable (including interest, P400) P50,400
Partially secured liabilities:
21,000.. ..... Notes payable.............................................. P21,000
Less: Inventory............................................ _18,000 P 3,000
Unsecured creditors with priority:
5,800.. ..... Wages payable P 5,800
1,200.. ..... Property taxes payable................................ _1,200
Total............................................................ P 7,000
Unsecured creditors without priority:
60,000.. ..... Accounts payable........................................ 60,000
19,000.. ..... Notes payable.............................................. 19,000
Stockholders' Equity........................................ _____–
P198,000 P82,000
(B) Creditor Group Amount of Amount to
Percentage
Claim be Paid to be
paid
Unsecured liabilities with priority.................................... P7,000 P7,000 100.0%
Fully secured creditors..................................................... 50,400 50,400 100.0%
Partially secured creditors................................................ 21,000 20,250 * 96.4%
Unsecured creditors without priority................................ 79,000 59,250 75.0%
* P18,000 + (P3,000 X 0.75) = P20,250
(C) See statement of affairs in requirement (A)
Problem 7 – 2
VC Corporation
Statement of Realization and Liquidation
Month Ended January 31, 2008
VC Corporation
Balance Sheet
January 31, 2008
VC Corporation
Estate Deficit
January 31, 2008
128 Chapter 7
Problem 7 – 3
Rizal Corporation
Statement of Affairs
Book Estimated Free
Values Assets Realizable Value Assets
Assets pledged to fully secured creditors:
P 80,000........... Land and building............................................... P102,000
Less: Mortgage payable...................................... 43,000 P 59,000
50,000........... Finished Goods................................................... P 55,000
Less: Loan payable............................................. 50,000 5,000
Problem 7 – 4
Mapayapa Corporation
Statement of Affairs
November 1
Free assets:
66,000........ Cash............................................................ P 66,000
248,000........ Accounts receivable.................................... 193,500
291,000........ Merchandise inventory................................ 180,000
870,000........ Plant & equipment...................................... 330,000
114,000........ Notes receivable.......................................... 108,300
–........ Patent.......................................................... __12,000 _889,800
Total free assets........................................... 919,800
Less: Unsecured liabilities with priority.......... __13,800
Net free asset............................................... 906,000
_________ Estimated deficiency (to balance).................... 60,300
P1,839,000 Total................................................................ P966,300
Unsecured creditor:
960,000........
Account payable.......................................... P960,000
Accrued expenses........................................ 6,300
300,000........Capital stock
__369,000........Retained earnings............................................ _______
P1,839,000 Total................................................................ P966,300
130 Chapter 7
Problem 7 – 5
P91,500
––––––– = 55.45%
P165,000
c. Distribution of P471,000:
Percent Total
Creditors Amount Realized Payment
Accounts payable P 95,000.... 55.45% P 52,678
Wages payable 9,500..... 100% 9,500
Taxes payable 14,000..... 100% 14,000
Notes payable & interests 125,000..... 100% 125,000
70,000 55.45% 38,815
Bonds payable & interests 231,000..... 100% _231,000
Total estimated payment........................................ P470,993
Problem 7 – 6
1. Evergreen Company
Statement of Affairs
June 30, 2008
Estimated Available for
Book Realizable Unsecured
Values ASSETS Values Creditors
Pledged with fully secured creditors:
P460,000 Land and building..................................... P340,000
Less: Mortgage payable (including accrued interest) (330,000) P 10,000
Free Assets:
80,000 Cash ......................................................... P 80,000
140,000 Accounts receivable – net......................... 126,000
100,000 Inventories................................................ 84,000
120,000 Machinery – net........................................ 40,000
100,000 Goodwill................................................... _ _____0_ 330,000
Total free assets........................................................... 340,000
Less: liabilities with priority........................................ _140,000
Net free assets.............................................................. 200,000
Estimated deficiency (Squeeze figure)......................... _130,000
P1,000,000 P330,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured & Unsecured
Priority Non-priority
Claims Liabilities
Liabilities with priority
P120,000 Wages payable.......................................... P120,000
20,000 Property taxes payable.............................. __20,000
Total......................................................... P140,000
Fully secured creditors
300,000 Mortgage payable..................................... 300,000
30,000 Interest on mortgage payable.................... __30,000
Total......................................................... P330,000
Unsecured creditors
220,000 Accounts payable......................................................... P220,000
100,000 Note payable-unsecured............................................... 100,000
10,000 Interest payable-unsecured........................................... 10,000
Stockholders' Equity
400,000 Capital stock............................................. ___
(200,000) Retained earnings (deficit)........................................... P330,000
P1,000,000
Problem 7 – 7
March 1 to 31:Cash.......................................................15,200
Estate equity................................................800
Accounts receivable-net.............................. 16,000
To record collection of receivables and recognize loss.
Cash.......................................................38,800
Estate equity...........................................33,200
Inventories.................................................. 72,000
To record sale of inventories at a loss.
Cash.....................................................180,000
Estate equity...........................................60,000
Land............................................................ 40,000
Buildings-net.............................................. 200,000
To record sale of land and buildings at a loss.
Estate equity...........................................52,000
Intangible assets.......................................... 52,000
To write off intangible assets.
Estate equity...................................................16,400
Administrative expenses payable....................... 16,400
To accrue trustee expenses.
2. Financial Statements
Kimerald Corporation in Trusteeship
Balance Sheet
March 31, 2008
Assets
Cash ......................................................................................... P242,000
134 Chapter 7
Accounts payable..............................................32,000
Note payable-unsecured....................................25,600
Cash..................................................................... 57,600
To record payment of P.32 per peso to unsecured
creditors (available Cash of P57,600 divided by
unsecured claims of P180,000).
Accounts payable..............................................68,000
Note payable-unsecured....................................54,400
Estate equity........................................................ 122,400
To write-off remaining liabilities and
close trustee's records.
CHAPTER 8
8-1: a
Trade accounts payable (P52,000 + P62,700)
P114,700
12% preferred stock (5,000 x P1) P 5,000
Paid in capital in excess of par (5,000 x P9) 45,000
Cash (P62,700 x P0.80) _50,160
_100,160
Gain from discharge of indebtedness P
14,540
8-2: c
8-3: c
8-4: b
Carrying value of the note payable:
Principal P600,000
Interest
__60,000 P660,000
Restructured value:
Principal P400,000
Interest
_110,000 _510,000
Gain on debt restructuring
P150,000
8-5: d
Other income:
Fair value of land
P450,000
Books value of land
_360,000
Other income P
90,000
Extraordinary gain:
Book value of note payable
Principal P500,000
Interest __60,000
P560,000
Fair value of land
_450,000
Extraordinary gain
P110,000
8-6: a
Book value of bonds payable
P500,000
Par value of preferred stock (5,000 shares x P100)
_500,000
No gain no loss P
–0–
136
Chapter 8
8-7: a
8-8: a
Carrying value of debt:
Note payable P100,000
Interest payable __12,000
P112,000
Fair value machinery
_(36,000)
Balance of debt P
76,000
Restructured debt:
Note payable P 50,000
Interest (P50,000 x .08 x 2) ___8,000
__58,000
Restructuring difference (gain)
P 18,000
8-9: d
Principal
P300,000
Interest payable (300,000 x 10%)
__30,000
Carrying value
P330,000
8-10: c
Should be P310,600
Restructured principal of note payable
P260,000
Interest payable:
On book value (P300,000 x 10% 30%) P 9,000
On restructured (P260,000 x 8% x 2) _41,600
__50,600
Future cash flows to liquidate the debt
P310,600
8-11: d
8-12: d
Loss on transfer of land:
Original cost P290,000
Market value _270,000
P 20,000
8-13: a
Transfer gain (loss):
Carrying amount of equipment P80,000
Fair value of equipment 75,000
Transfer loss P(5,000)
Restructuring gain:
Carrying amount of the debt P100,000
Fair value of equipment transferred 75,000
Restructuring gain P 25,000
8-14: d
Carrying amount of real estate transferred P100,000
Fair value of real estate 90, 000
Loss on restructuring of payables P(10,000)
8-15: d
Carrying amount of liability P150,000
Fair value of real estate transferred 90,000
Restructuring gain P 60,000
8-16: c
Gain on revaluation of land (120,000 – 85,000) P 35,000
Gain on the extinguishment of debt (185,000 – 120,000) 65,000
Total gain P100,000
8-17: a
Carrying value of debt (P800,000 + 80,000) P880,000
Total future payments (P700,000 + 80,000) 780,000
Restructuring gain P100,000
8-18: a
First determine the expected future cash flows as follows:
70,000 x .79719 = P55,803
5,600 x 1.69005 = 9,464
Present value of future cash flow P65,267
The interest revenue can be computed using the effective interest method
as follows:
Present value at 12/31/06 P65,267
Interest income at 12/31/07 (65,267 x 12%) 7,832
Interest receivable at 12/31/07 (70,000 x 8%) 5,600 2,232
Present value at 12/31/07 P67,499
138
Chapter 8
SOLUTIONS TO PROBLEMS
Problem 8 – 1
Journal entries for company emerging from bankruptcy using fresh start
accounting:
– Receivables.......................................................................................10,000
Inventory. .........................................................................................10,000
Building............... 100,000
Reorganization value in excess of amount
Allocable to tangible assets.........................................................60,000
Additional paid in capital...................................................... 180,000
To adjust accounts to market value as part of fresh start accounting. Since the company has
a reorganization value of P760,000 but the assets have a market value of only P700,000
(P90,000 + P210,000 + P400,000), and account entitled Reorganization Value in Excess of
Amount Allocable to Tangible Assets must be recorded for P60,000.
Liabilities............. 300,000
Common stock (P330,000 x 80%)............................................... 264,000
Gain on debt discharge................................................................ 36,000
To record settlement of liabilities.
Problem 8 – 2
2008
July 14: Costs of reorganization................................................................50,000
Cash with escrow agent........................................................ 50,000
Problem 8 – 3
Jade Corporation
Balance Sheet
December 31, 2008
ASSETS
Current assets:
Cash ................................................................................... P 23,000
Inventory............................................................................. __45,000 P 68,000
Property and equipment:
Land ................................................................................... 140,000
Buildings............................................................................. 220,000
Equipment........................................................................... _154,000 _514,000
Total assets. ........................................................................ P582,000
Stockholders' Equity
Common stock. ................................................................... 200,000
Retained earnings (deficit).................................................... (223,000) _(23,000)
Total liabilities and stockholders' equity (deficit)................. P582,000
Problem 8 – 4
Preliminary computations:
Book values prior to reorganization:
Total assets (P100,000 + P112,000 + P420,000 + P78,000).............. P710,000
Total liabilities (P80,000 + p35,000 + P100,000 + P200,000 +
P185,000 + P200,000)................................................................. P800,000
Common stock (given)...................................................................... P240,000
Deficit (given) ............................................................................. P330,000
140
Chapter 8
Since the company will have 30,000 shares outstanding after the reorganization, the additional paid in
capital equals P6.66 per share.
Because the company has a reorganization value of P780,000 but the assets have a market value of only
P735,000, an account entitled Reorganization Value in Excess of Amount allocable to Tangible Assets
must be recognized for P45,000.
JOURNAL ENTRIES:
1. Land and buildings ......................................................................................80,000
Reorganization Value in excess of amount
allocable to tangible assets......................................................................45,000
Accounts receivable......................................................................... 20,000
Inventory ...................................................................................... 22,000
Equipment ...................................................................................... 13,000
Additional paid in capital................................................................ 70,000
To adjust accounts to market value as part of fresh start accounting.
2. Common stock...............................................................................................144,000
Additional paid in capital........................................................................ 144,000
To record shares turned in to the company by the owners as part of the reorganization plan. 18,000
shares at P8 par value.
4. Accrued expenses..........................................................................................35,000
Note payable........................................................................................... 4,000
Gain on debt discharge........................................................................... 31,000
To record settlement of accrued expenses.
Problem 8 – 5
Since the Company has a reorganization value of P800,000 but only P653,000 can be assigned to
specific assets based on market value, the remaining P147,000 is reported as a Reorganization
Value in Excess of Amount Allocable to Identifiable Assets.
Sun Corporation
Balance Sheet – Fresh Start Accounting
December 31, 2008
ASSETS
Current assets
Accounts receivable................................................................................... P 18,000
Inventory................................................................................................... _111,000 P129,000
Property and equipment
Land and buildings. ................................................................................... 278,000
Machinery................................................................................................. _121,000 399,000
Intangible assets
Patents ................................................................................................... 125,000
Reorganization value in excess of amount allocable To identifiable assets _147,000 _272,000
Total assets. .............................................................................................. P800,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable....................................................................................... P 97,000
Long-term liabilities
Note payable (due in 2 years)..................................................................... P 35,000
Note payable (due in 5 years)..................................................................... 50,000
Note payable (due in 8 years)..................................................................... _100,000 _185,000
Total liabilities. ......................................................................................... P282,000
Stockholders' Equity:
Common stock. ......................................................................................... P500,000
Additional paid in capital (squeeze)........................................................... __18,000 _518,000
Total liabilities and stockholders' equity................................................................. P800,000
142
Chapter 9
CHAPTER 9
9-2: a
2006 2007 2008
Deferred gross profit, before adjustment P7,230 P 60,750 P 120,150
Deferred gross profit, end
2006 (6,000 X 35%) 2,100
2007 (61,500 X 33%) 20,295
2008 (195,000 X 30%) ___58,500
Realized gross profit, December 31, 2008 P5,130 P 40,455 P 61,650
(Total – P107,235)
9-3: c
9-4: b
Sales P1,000,000
Cost of installment sales __700,000
Deferred gross profit P 300,000
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000) P 600,000
Gross profit rate (300,000 1,000,000) ___X 30% __180,000
Realized gross profit P 120,000
Operating expenses ___80,000
Operating income 40,000
Interest and financing charges __100,000
Net income P 140,000
Installment Sales 143
9-5: a
Market value of repossessed merchandise P 30,000
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000) P 50,000
Less: Deferred gross profit (50,000X20%) ___10,000 __40,000
Loss on repossession (P 10,000)
9-6: a
Installment sales P1,000,000
Less: collection on installment sales __200,000
Installment account receivables, 12/31/08 800,000
Gross profit rate (500,000 1,000,000) ___X 50%
Deferred gross profit, 12/31/08 P 400,000
OR
9-7: d
Fair value of repossessed merchandise P120,000
Less: unrecovered cost
Unpaid balance P 200,000
Less: Deferred gross profit (200,000 X 32.5%) ___65,000 _135,000
Loss on repossession (P 15,000)
9-8: b
Realized gross profit:
Collections:
Downpayment P 35,000
Installment received (205,000-200,000) ___5,000
Total 40,000
Gross Profit Rate (150,000 240,000) _X 62.5%
Realized gross profit P 25,000
144
Chapter 9
9-9: b
Sch.1
Applying Applying Balance
to to of
Date Collection Interest principal principal
Apr-1 P7,000.00
Apr-1 750 750.00 6,250.00
May-1 625 125.00 500.00 5,750.00
Jun-1 625 115.00 510.00 5,240.00
Jul-1 625 104.80 520.20 4,719.80
Aug-1 625 __94.40 ___530.60 4,189.00
P439.20 P2,810.80
9-10: c
Year of Sales
2007 2008
Deferred gross profit (Sales X Gross Profit Rate)
2007 (P300,000 X 30%) P 90,000
2008 (P450,000 X 40%) P 180,000
2007: Accounts written-off (P25,000 X 30%) ( 7,500)
Realized gross profit (P100,000 X 30%) ( 30,000)
2008: Accounts written-off, 2007 (P75,000 X 30%) ( 22,500)
Accounts written-off, 2008 (P50,000 X 40%) ( 60,000)
Realized gross profit, 2007 (P50,000 X 30%) ( 15,000)
Realized gross profit, 2008 (P150,000 X 40%) ________ ( 60,000)
Deferred gross profit, 12/31/08 (P75,000) P 15,000 P 60,000
9-11: a
Deferred gross profit, 2007 (P1,050,000 - 735,000) P 315,000
Realized gross profit, 2007 (P150,000 X 30%) ( 45,000)
Deferred gross profit, 12/31/07 270,000
Realized gross profit, 2008 (P390,000-90,000) X 30% ( 90,000)
Deferred gross profit, 12/31/08 P 180,000
9-12: a
2007 2008
Deferred gross profit (Sales - Cost of Installment Sales) P 480,000 P450,000
Realized gross profit, 2007 (P630,000 X 40%) ( 252,000)
Realized gross profit, 2007 (P450,000 X 40%) ( 180,000)
Realized gross profit, 2008 (P900,000 X 30%) _______ ( 270,000)
Deferred gross profit, 12/31/08 (P228,000) P 48,000 P180,000
9-13: c
Trade-in value P 30,000
Less: Actual value
Estimated selling price P 25,000
Less:reconditioning cost P 1,250
normal gross profit (25,000 X 15%) __3,750 ___5,000 __20,000
Overallowance P 10,000
Realized gross profit:
Collection:
Downpayment P 5,000
Actual value of merchandise-Trade In 20,000
Installment collected (5,000 X 3) _15,000 P 40,000
9-14: c
Collection excluding interest (P900,000-P300,000) P 600,000
Gross profit rate (P1,200,000 P3,600,000) X 33 1/3%
Realized Gross Profit, December 31, 2008 200,000
Add Interests __300,000
Total Revenue P 500,000
9-15: a
Wholesale value of repossessed merchandise P 4,000
Less: unrecovered cost
Unpaid balance:
Sales, 10/1/07 P 24,000
Collection, 2007 (6,000 2,000) ( 8,000)
Collection, 2008 (1,000 X 7) ( 7,000) P 9,000
Deferred gross profit (9,000 X 25%) __2,250 ___6,750
Loss on repossession (P 2,750)
146
Chapter 9
9-16: a
Trade-in Value (P300 X 6) P 1,800
Less: Actual value
Estimated selling price (P315 X 6) P 1,890
Less:Reconditioning cost (P25 X 6) P150
Gross Profit (P1,890 X 10%) _189 ___339 ___1,551
Over-allowance P 249
9-17: a
Deferred gross profit, before adjustment P 76,000
Deferred gross profit, end
2007: P32,500 X (30% 130%) P 7,500
2008: P180,000 X (33 1/3% 133 1/3%) _45,000 __52,500
Realized gross profit on installment sales P 23,500
9-18: d
Unpaid balance (P27,000 - P16,000) P 11,000
Multiply by gross profit rate (P734,400 P2,160,000) ___X 34%
Deferred gross profit to be cancelled on repossession P 3,740
9-19: b
Collection:
2007 Downpayment P 600,000
2008 Installment collection 600,000
Interest __540,000
Total P1,740,000
Since cost is not yet fully recovered, then no gross profit is to be recognized in 2008.
9-20: d
Regular Sales P 187,500
Cost of regular sales __112,500
Gross profit on regular sales P 75,000
Add: Realized gross profit on installment sales
2007 (25,000 X 50%) P12,500
2008 (62,500 X 55%) _34,375 __46,875
Total realized gross profit 121,875
Operating expenses ___31,250
Net income, 12/31/08 P 90,625
9-21: a
Installment sales – 2007 P785,000
Collections:
Down payment (20% x 785,000) P157,000
Installment (40% x 628,000) 251,200 408,200
Installment accounts receivable 2007, 12/31/07 376,800
Gross profit rate on sales 35/135
Deferred gross profit- 2007, 12/31/07 P 97,689
9-22: a
Regular sales P1,575,000
Cost of regular sales 1,050,000
Gross profit on regular sales 525,000
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%) 2,625,000
Installment accounts receivable-12/31/08 1,575,000
Collections 1,050,000
Gross profit on rate on sales 140/240 612,500
Total realized gross profit 1,137,500
Operating expenses (1,137,500 x 70%) 796,250
Net income P
341,250
9-23: a
Regular sales P375,000
Cost of regular sales 215,000
Gross profit on regular sales 160,000
Realized gross profit on installment sales:
Collections excluding Interest (312,000 – 24,000)288,000
Gross profit rate (270,000/900,000) 30% 86,400
Total realized gross profit 246,400
Loss on repossession
Fair value of repossessed merchandise 54,000
Less: Unrecovered cost (100,000 x 70%) 70,000 ( 16,000)
Total realized GP after loss on repossession 230,400
Less: Operating expenses 72,000
Installment accounts written-off (44,000 x .70) 30,800 102,800
Net operating income 127,600
Interest income 24,000
Net income P151,600
148_ Chapter 9
SOLUTIONS TO PROBLEMS
Problem 9 – 1
Journal Entries:
2006 2007 2008
Installment A/R–2006................ 104,000 – –
Installment A/R–2007................ – 116,000 –
Installment A/R–2008................ – – 121,000
Installment Sales.................. 104,000 116,000 121,000
Computations:
2006: P57,200 X .38 = P21,736
Installment Sales
149
Problem 9 – 2
2007: Inventory.................................................................................................45,200
Cash................................................................................................. 45,200
Notes Receivable 2007 (P32,000 + P62,000 + 3,600)............................97,600
Unearned Interest Revenue (P7,167 + P3,600)............................... 10,767
Installment Sales.............................................................................. 86,833
Cost of Installment Sales (P45,200 – P2,000 inventory increase)..........43,200
Inventory.......................................................................................... 43,200
Cash........................................................................................................35,600
Notes Receivable 2007.................................................................... 35,600
Unearned Interest Revenue 2007............................................................3,600
Interest Revenue.............................................................................. 3,600
Installment Sales.....................................................................................86,833
Cost of Installment Sales................................................................. 43,200
Deferred Gross Profit on Installment Sales–2007........................... 43,633
Deferred Gross Profit on Installment Sales–2007..................................16,080*
Realized Gross Profit on Installment Sales..................................... 16,080
*Gross profit percentage: 50.25% (P43,633 P86,833)
.5025 x 32,000 = P16,080
2008: Inventory.................................................................................................52,020
Cash................................................................................................. 52,020
Notes Receivable–2008..........................................................................89,5001
Unearned Interest Revenue.............................................................. 11,9552
Installment Sales.............................................................................. 77,545
160,000 + (P50,000 + P5,500) – P26,000* = 89,500
*2007 Notes receivable collected in 2008
2Interest revenue from 2007 notes: P7,167 – P5,579 = P1,588
Interest revenue from 2008 notes: P5,500 – P1,588 = P3,912
Discount on notes receivable at end of 2008..........................................P 8,043
Interest revenue from 2008 notes (see above)........................................ 3,912
Total discount at time of sale..................................................................P11,955
Adjusting Entries:
Installment Sales............................................................................................ 200,000
Cost of Installment Sales........................................................................ 114,000
Deferred Gross Profit on Installment sales – 2008................................. 86,000
Deferred Gross Profit – 2006 (P40,000 x 40%)............................................. 16,000
Deferred Gross Profit – 2007 (P80,000 x 42%)............................................. 33,600
Deferred Gross Profit – 2008 (P110,000 x 43%)........................................... 47,300
Realized Gross Profit.............................................................................. 96,900
Doubtful Accounts Expense (1/4 x 1% x P600,000)..................................... 1,500
Allowance for Doubtful Accounts.......................................................... 1,500
Closing Entries:
Sales............................................................................................................. 600,000
Merchandise Inventory, December 31........................................................... 260,000
Shipments on Installment Sales..................................................................... 114,000
Merchandise Inventory, January 1.......................................................... 240,000
Purchases................................................................................................ 476,000
Selling Expenses..................................................................................... 210,000
Doubtful Accounts Expense................................................................... 1,500
Income Summary.................................................................................... 46,500
Realized Gross profit..................................................................................... 96,900
Income Summary.................................................................................... 96,900
Income Summary........................................................................................... 143,400
Retained Earnings................................................................................... 143,400
Installment Sales
151
3. Good Buy Mart
Income Statement
Year Ended December 31, 2008
Sales............................................................................................................. P600,000
Cost of sales:
Merchandise inventory, January 1.......................................................... P240,000
Purchases................................................................................................ 476,000
Cost of goods available for sale.............................................................. 716,000
Less Shipments on installment sales....................................................... 114,000
Cost of goods available for regular sales................................................ 602,000
Less Merchandise inventory, December 31............................................ 260,000 342,000
Gross profit on regular sales.......................................................................... 258,000
Add Realized gross profit on installment sales (Schedule 1)........................ 96,900
Total realized gross profit.............................................................................. 354,900
Operating expenses:
Selling expenses...................................................................................... 210,000
Doubtful accounts expense..................................................................... 1,500 211,500
Net income .................................................................................................... P143,400
Schedule 1
Years of Installment Sales
2006 2007 2008 Total
Collections ........................................... P40,000 P80,000 P110,000
Multiply by Gross profit rate................ 40% 42% 43%
Realized gross profit............................. P16,000 P33,600 P 47,300 P 96,900
Problem 9 – 4
Computation:
2007 2008
Sales Sales Total
Installment contracts receivable, 1/1..................... P76,000 P150,000
Less Installment contracts receivable, 12/31........ 24,000 76,000
Total credit for the period..................................... 52,000 74,000
Less Credit representing repossession.................. 4,000 –
Credit representing collections.............................. P48,000 P 74,000
Multiply by Gross profit rate................................ 30% 35%
Realized gross profit............................................. P14,400 P 25,900 P 40,300
Sales............................................................................................................. 212,000
Realized Gross Profit..................................................................................... 40,300
Loss on Repossession............................................................................. 400
Cost of Sales........................................................................................... 165,000
Selling and Administrative Expenses..................................................... 66,000
Income Summary.................................................................................... 20,900
Income Summary........................................................................................... 20,900
Retained Earnings................................................................................... 20,900
3. Apple Company
Income Statement
Year Ended December 31, 2008
Sales................................................................................................................................ P212,000
Cost of sales....................................................................................................... 165,000
Gross profit on regular sales............................................................................................. 47,000
Add Realized gross profit on installment sales (Schedule 1)............................ 40,300
Total realized gross profit................................................................................................. 87,300
Less Loss on repossession............................................................................. 400
Total realized gross profit after adjustment for loss on repossession............................... 86,900
Selling and administrative expenses................................................................... 66,000
Net income ....................................................................................................................... P 20,900
Installment Sales
153
Problem 9 – 4
Schedule 1
2007 2008
Sales Sales Total
Installment contracts receivable, 1/1........................ P76 000 P150,000
Less Installment contracts receivable, 12/31............ 24,000 76,000
Total credit for the period........................................ 52,000 74,000
Less Credit representing repossession...................... 4,000 –
Credit representing collections................................. P48,000 P 74,000
Multiply by Gross profit rate.................................... 30% 35%
Realized gross profit................................................ P14,400 P 25,900 P40,300
Problem 9 – 5
Computation:
2007 2008
Sales Sales Total
Installment contracts receivable, 1/1............. P82,000 P 80,000
Less Installment contracts receivable, 12/31. _ 36,000 _55,000
Total credit for the period.............................. 46,000 25,000
Less Credit representing repossession........... __6,000 ___ –
Credit representing collections...................... P40,000 P 25,000
Multiply by Gross profit rate......................... __35%* ___32%
Realized gross profit..................................... P14,000 P 8,000 P 22,000
154 Chapter 9
Sales.................................................................................................. 200,000
Merchandise Inventory, December 31............................................... 52,000
Shipments on Installment Sales......................................................... 54,400
Merchandise Inventory, January 1............................................... 60,000
Purchases..................................................................................... 180,000
Repossessed Merchandise........................................................... 3,000
Loss on Repossession.................................................................. 900
Operating Expenses..................................................................... 53,000
Income Summary........................................................................ 9,500
Installment Sales
155
Problem 9 – 6
1. London Products
Schedule of Cost of Goods Sold
Year Ended December 31, 2008
2. London Products
Schedule of Allocation of Cost of Goods Sold
Year Ended December 31, 2008
156 Chapter 9
Schedule 1
2006 2007
Installment contracts receivable, January 1:
2006 – P32,000 40%................................................................ P80,000
2007 – P56,000 35%................................................................ P160,000
Less Installment contracts receivable, December 31......................... _22,000 __90,000
Total credits....................................................................................... 58,000 70,000
Less Credit representing repossession............................................... _10,000 28,000
Total collections................................................................................ P48,000 P 42,000
Multiply by Gross profit rate............................................................. ___40% ___35%
Realized gross profit.......................................................................... P19,200 P 14,700
Schedule 2
Problem 9 – 7
1. 2007 2008
2007
2007 installment sales (P400,000 x 42%*)..................................P 168,000
2008:
2007 installment sales (P173,000 x 42%).................................... P 72,660
2008 installment sales (P560,000 x 38.5%*)............................... ________ __215,600
Deferred gross profit.......................................................................... P 168,000 P 288,260
Installment Sales
157
158 Chapter 9
Schedule 1
Schedule 2
Installment Sales
159
October 31
Cash.............................................................................................. 72,000.00
Notes Receivable (Lot 1)............................................................... 288,000.00
Lot 1....................................................................................... 240,000.00
Deferred Gain on Sale of Land............................................... 120,000.00
December 31
Cash.............................................................................................. 78,000.00
Notes Receivable (Lot 1)........................................................ 6,240.00
Notes Receivable (Lot 2)........................................................ 5,389.37
Notes Receivable (Lot 3)........................................................ 6,800.00
Interest Income....................................................................... 59,570.63
Computation:
Total Lot 1 Lot 2 Lot 3
Collections...................................... P78,000.00 P12,000.00 P16,000.00 P50,000.00
Apply to interest:
Lot 1 – P288,000.00 x 12% x 2/12 5,760.00
Lot 2 – P353,687.60 x 12% x 3/12 59,570.63 10,610.63
Lot 3 – P720,000.00 x 12% x 6/12 _________ _________ _________ _43,200.00
Apply to principal........................... P18,429.37 P 6,240.00 P 5,389.37 P 6,800.00
Computation:
Lot 1 Lot 2 Lot 3
Collections applied to principal....... P78,240.00 P51,701.77
P126,800.00
Multiply by Gross profit rates:
Lot 1 – P120,000 P360,000..... 33.33%
Lot 2 – P240,000 P400,000..... 60%
Lot 3 – P640,000 P840,000..... _________ _________ _____76%
Realized gain................................... P26,080.00 P31,021.06 P96,368.00
160 Chapter 9
Problem 9 – 9
Schedule 1
Total Cash Installment
Sales Price Received Notes Balance
A lots : 26 @ P150,000................................................ P3,900,000 P1,650,000 P 2,250,000
B lots : 32 @ P100,000................................................ 3,200,000 800,000 2,400,000
C lots : 12 @ P80,000.................................................. 960,000 240,000 720,000
......................................................... P8,060,000 P2,690,000 P 5,370,000
Schedule 2
Number of Unit Total
Class Lots Price Sales Value
A........................................................................ 80 P150,000 P12,000,000
B........................................................................ 100 100,000 10,000,000
C........................................................................ 120 80,000 9,600,000
Total............................................................ 300 P31,600,000
Cost of tract:
Cost of land.................................................................................................... P 4,800,000
Legal fees, etc................................................................................................ 600,000
Grading contract............................................................................................. 225,000
Water and sewerage system contract............................................................. 184,900
Paving contract............................................................................................... 266,300
General office expenses (3/4 x P236,000)..................................................... 177,000
Total............................................................................................................. P 6,253,200
P6,253,200
Cost rate : –––––––––––– = 20% (rounded off)
P31,600,000
Cost of sales (P8,060,000 x 20%)........................................................................... P 1,612,000
Installment Sales
161
Problem 9 – 10
Rizal Company
Income Statement
Year Ended December 31, 2008
*See Schedule 3
Schedule 1
Schedule 2
162 Chapter 9
Schedule 3
Schedule 4
CHAPTER 10
10-1: a
Percentage of Completion Method:
Contract Price P1,000,000
Less:Total estimated cost
Cost incurred P 200,000
Estimated remaining cost _400,000 __600,000
Gross profit estimated 400,000
% of completion (200,000/600,000) __33 1/3%
Gross profit to be recognized P 133,333
10-3: a
Contract Price P6,000,000
Less: Total estimated cost (3,600,000 + 1,200,000) _4,800,000
Estimated gross profit 1,200,000
% of completion (3,600,000/4,800,000) _____75%
Gross profit earned to date 900,000
Less: Gross profit earned in 2007 __600,000
Gross profit earned in 2008 P 300,000
10-4: b
Contract Price P3,000,000
Less: Total estimated cost (930,000 + 2,170,000) _3,100,000
Loss (P 100,000)
164
Chapter 10
10-5: b
Total cost to date, 2008 (4,800,000 X 60%) P2,880,000
Less: Cost incurred in 2007 (4,500,000 X 20%) __900,000
Cost incurred in 2008 P1,980,000
10-6: a
Percentage of Completion Method:
Contract Price P3,000,000
Less: Total estimated cost (900,000/1,800,000) _2,700,000
Estimated gross profit 300,000
% of completion (900,000/2,700,000) ___33.33%
Gross profit recognized, 2007 100,000
Add: Cost Incurred ___900,000
Construction in Progress - 2007 P 1,000,000
10-7: a
2007 2008
Contract Price P4,200,000 P4,200,000
Less: Total estimated cost _3,000,000 _3,750,000
Estimated gross profit 1,200,000 450,000
% of completion _____20% ____100%
Gross Profit earned to date 240,000 450,000
Gross Profit earned in prior year _______– __240,000
Gross Profit earned this year P 240,000 P 210,000
10-8: b
Collections:
Contract Billings P 47,000
Less: Accounts receivable ___15,000
Collections P 32,000
10-9: a
10-10: b
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%
10-12: d
10-13: d
166
Chapter 10
10-14: d
Project 1
Project 2
Percentage of Completion Method:
Contract price P 420,000
P 300,000
Less: Total estimated cost
Cost incurred to date - 2008 P 240,000
P 280,000
Estimated cost to complete __120,000
___70,000
Total __360,000
__350,000
Estimated gross profit (Loss) 60,000
(50,000)
Percentage of completion __66.67%
_______–
Profit (loss) to be recognized P 40,000
(P 50,000)
Total is (P10,000)
10-15: a
2006 2007 2008
Contract price (cost X 120%) P3,744,000 P3,744,000
P3,744,000
Less: Total estimated costs
(1) Cost incurred to date 546,000 1,544,400
3,120,000
Estimated cost to complete _2,054,000 _1,315,000
________–
(2) Total _2,600,000 _2,860,000
_3,120,000
Estimated gross profit 1,144,000 884,000
624,000
Percentage of completion (1 2) _____20% _____54%
____100%
Gross profit earned to date 240,240 477,360
624,000
Gross profit earned in prior years _______– __240,240
__477,360
Gross profit earned this year P 240,240 P 237,120 P
146,640
10-16: d
2007 2008
Contract price P6,300,000
P6,300,000
Less: Total estimated cost
Cost incurred to date 1,425,000
3,040,000
Estimated cost to complete _4,075,000
_1,960,000
Total P5,500,000
P5,000,000
Estimated gross profit 800,000
1,300,000
Percentage of completion:
2007 (1,425,000 - 50,000) 5,500,000 25%
2008 (3,040,000 - 50,000) 5,000,000 ________–
__59.80%
Profit earned to date 200,000
777,400
Less: Gross profit earned in prior year ________–
__200,000
Gross profit earned this year P 200,000
P 577,400
10-17: a
Cash collections:
Progress billings P1,500,000
Less: Accounts receivable, end __500,000
Collection P1,000,000
10-18: d
10-19: d
2007 2008
Contract price:
2007 P6,000,000
2008 (P6,000,000-P50,000) _________
P5,950,000
Less: Total estimated costs
(1) Cost incurred to date 2,340,000
2,650,000
Estimated cost to complete 260,000 –
(2) Total estimated cost 2,600,000
2,650,000
Estimated Gross Profit 3,400,000
3,300,000
Percentage of completion (1 2) ____90%
___100%
Gross profit earned to date 3,060,000
3,300,000
Less: Gross profit earned in Prior year _______–
3,060,000
Gross Profit earned this year P3,060,000 P
240,000
168
Chapter 10
10-20: a
2006 2007 2008
(1)Cost incurred to date P3,400,000 P5,950,000
P6,150,000
(2)Estimated cost to complete 1,600,000 150,000 –
(3)Total Estimated Costs 5,000,000 6,100,000
6,150,000
10-21: c
Construction in Progress:
Cost incurred to date, 2007 P2,625,000
Gross profit earned, 2007 (Schedule 1) 100,000
P2,725,000
Less: Contract billings, 2006 (P3,250,000 x 75%)
2,437,500
Excess of Construction in Progress over Contract Billings (CA)
P 287,500
10-22: a
2005 2006 2007
Contract price P2,800,000 P2,800,000
P2,800,000
Estimated cost:
Cost to date 1,300,000 1,960,000
2,440,000
Estimated costs to complete 1,360,000 780,000
380,000
Total 2,660,000 2,740,000
2,820,000
Estimated gross profit 140,000 60,000
(20,000)
2007 2008
Gross profit earned P 255,000
P 609,000
General and administrative expenses 120,000 120,000
Net income P 135,000 P 489,000
10-24: c
Contract price
P10,000,000
Gross profit earned to date, 2008 (P900,000 – P100,000) 800,000
Total cost to date, 2008
9,200,000
Less: cost incurred in 2008
4,100,000
Cost to date, 2007
P 5,100,000
Gross profit earned to date P
900,000
Divided by % of completion:
(P5,100,000 + P900,000) / P10,000,000 60%
Estimated gross profit, 2007
P 1,500,000
10-25: d
Construction in progress:
Cost incurred to date
P 440,000
Gross profit earned to date (P2,500,000 – P2,000,000) 110,000
Total 550,000
Less: Contract billings (P2,500,000 x 30%) 750,000
Excess of contract billings over construction in progress (CL)
P( 200,000)
170
Chapter 10
10-26: a
Contract price P120,000,000
Total estimated cost:
Cost incurred to date:
Site labor cost 10,000,000
Cost of construction materials 30,000,000
Depreciation of special plant & equip 5,000,000
Total 45,000,000
Estimated cost to complete 55,000,000 100,000,000
Estimated gross profit 20,000,000
Percentage of completion (45/100) 45%
Gross profit to be recognized P 9,000,000
10-27: a
Cost incurred to date- 2007
Total estimated cost (8,000,000 / 40%) 20,000,000
Estimated cost to complete 8,000,000 P12,000,000
Cost incurred in 2007 3,700,000
3,700,000
Cost incurred in 2006 8,300,000
Estimated cost at completion- 2006 12,450,000
Total estimated cost- 2006 P20,750,000
10-28: a
2007
Contract 1 Contract 2 CIP-2007
Contract price P600,000 P450,000
Total estimated cost:
Cost incurred to date 150,000 87,500 P237,500
Estimated cost to complete 150,000 162,500
Total estimated cost 300,000 250,000
Estimated gross profit 300,000 200,000
Percentage of completion 50% 35%
Gross profit recognized P150,000 P70,000 P220,000
2008
Contract 1 Contract 2 Contract
3
Contract price 600,000 450,000 900,000
Total estimated cost 350,000 300,000 500,000
Estimated gross profit 250,000 150,000 400,000
Percentage of completion 80% 60% 36%
Gross profit earned to date 200,000 90,000 144,000
Gross profit earned in 2007 150,000 70,000 -
Gross profit earned this year 50,000 20,000 144,000
10-29: a
Bicol Davao Aklan Total
Contract price P875,000 P1,225,000 P437,500
Total estimated cost
Cost incurred 656,250 175,000 175,000 1,006,250
Est. cost to complete - 700,000 175,000
Total estimated cost 656,250 875,000 350,000
Estimated gross profit 218,750 350,000 87,500
Percentage of completion 100% 20% 50%
Gross profit earned P218,750 P 70,000 P43,750 332,500
10-30: a
Contract price P40,825,000
Total estimated cost:
Cost incurred 8,475,000
Estimated cost to complete 28,400,000 36,875,000
Estimated gross profit 3,950,000
Percentage of completion 22.983%
Gross profit recognized P 907,830
172 Chapter 10
SOLUTIONS TO PROBLEMS
Problem 10 – 1
(a) 2007 2008
Contract Price P 450,000
P 450,000
Less: Total estimated cost
(1) Cost incurred to date 200,000 320,000
Estimated costs to complete __100,000
_______–
(2) Total __300,000
_320,000
Estimated gross profit 150,000 130,000
Percentage of completion (1 2) ______2/3
___100%
Estimated gross profit to date 100,000 130,000
Less: Gross profit earned in prior year _______–
__100,000
Gross profit earned this year P 100,000P
30,000
Problem 10 – 3
(a) 2005 2006 2007 2008
Contract Price P55,000,000 P55,000,000 P55,000,000
P55,000,000
Less: Total estimated costs
(1) Cost incurred to date 15,000,000 25,000,000 35,000,000
50,000,000
Estimated costs to complete _35,000,000 25,000,000 15,000,000
________–
(2) Total _50,000,000 50,000,000 50,000,000
50,000,000
Estimated gross profit 5,000,000 5,000,000 5,000,000
5,120,000
Percentage of completion (1 2) ______30% _____50% _____70%
____100%
Gross profit earned to date 1,500,000 2,500,000 3,500,000
5,000,000
Gross profit earned in prior yr(s) ________– _1,500,000 _2,500,000
_3,500,000
Gross profit earned the year P 1,500,000 P 1,000,000 P 1,000,000
P 1,500,000
Problem 10 – 4
Problem 10 – 5
Problem 10 – 6
Problem 10 – 7
(1) 2006 2007 2008
Contract Price P16,000,000 P16,000,000 P16,000,000
Less:Total Estimated Cost
Cost incurred to date 4,600,000 9,100,000 14,350,000
Estimated costs to complete __9,640,000 __5,100,000 _________–
Total _14,240,000 _14,200,000 _14,350,000
Estimated gross profit 1,760,000 1,800,000 1,650,000
Engineer's estimate of comp. ______31% ______58% _____100%
Gross profit to date 545,600 1,044,000 1,650,000
Less: Gross profit earned in prior yrs. ________– __545,600 _1,044,000
Gross profit earned this yr. P 545,600 P 498,410 P 606,000
(4) The following entry would be the only one different from (2).
Problem 10 – 8
11-1: b
No revenue is to be reported. Because the franchisor fails to render substantial
services to the franchisee as of December 31, 2008.
11-2: c
Initial franchise fee P5,000,000
Less: Cost of franchise ____50,000
Net income P4,950,000
11-3: a
The total initial franchise fee of P500,000 is to be recognized as earned because the
collectibility of the note for the balance is reasonably assured.
11-4: b
Cash downpayment P 100,000
Collection of note applying to principal __200,000
Revenue from initial franchise fee P 300,000
11-5: a
Cash downpayment, January 2, 2008 P2,000,000
Collection applying to principal, December 31, 2008 _1,000,000
Total Collection 3,000,000
Gross profit rate [(5,000,000-500,000) 5,000,000] _____90%
Realized gross profit, December 31, 2008 P2,700,000
11-6: b
Face value of the note (P1,200,000 - P400,000) P 800,000
Present value of the note (P200,000 X 2.91) __582,000
Unearned interest income, July 1, 2008 P 218,000
11-7: d
Initial franchise fee P1,200,000
Less: unearned interest income __218,000
Deferred revenue from franchise fee P 982,000
11-8: d
Initial franchise fee P 500,000
Continuing franchise fee (P400,000 X .05) ___20,000
Total revenue 520,000
Cost ___10,000
Net income P 510,000
178
Chapter 11
11-9: b
Deferred Revenue from franchise fee:
Downpayment P6,000,000
Present value of the note (P1,000,000 X 2.91) 2,910,000
P8,910,000
Less: Cost of franchise fee
_2,000,000
Deferred gross profit
P6,910,000
11-10: b
Face value of the note receivable
P1,800,000
Present value of the note receivable
1,263,900
Unearned interest income P
536,100
11-11: a
Revenues from:
Initial franchise fee
P1,000,000
Continuing franchise fee (P2,000,000 X .05)
100,000
Total revenue from franchise fees
P1,100,000
11-12: d
Realized gross profit from initial franchise fee [(350,000 + 90,000) x 37%]
P 162,800
Continuing franchise fee (P121,000 + P147,500) x 5%
___13,425
Total revenue 176,225
Expenses
___42,900
Net operating profit 133,325
Interest income (P900,000 x 15%) x 6/12
___67,500
Net income
P 200,825
11-13: c
Cash down-payment P
95,000
Present of the note (P40,000 x 3.0374)
__121,496
Total P 216,
496
11-14: a
Initial franchise fee
P 50,000
Continuing franchise fee (P400,000 x 5%)
__20,000
Total revenue
P 70,000
11-15: c
Should be P80,000
Initial franchise fee – down-payment (P100,000 / 5)
P 20,000
Continuing franchise fee (P500,000 x 12%)
__60,000
Total earned franchise fee
P 80,000
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).
11-17: b
Cora (P100,000 + P500,000) P 600,000
Dora (P100,000 + P500,000) 600,000
Total P1,200,000
11-18:
Down payment (3,125,000 x 40%) P1,250,000
Present value of notes receivable ( 1,875,000/4) 468,750 x 3.04 1,425,000
Adjusted sales value of initial franchise fee 2,675,000
Direct cost of services 802,500
Gross profit 1,872,500
180
Chapter 11
11-19: c
Franchise Accounting 181
SOLUTIONS TO PROBLEMS
Problem 11 – 1
Jan. 2: Cash...................................................................................12,000,000
Notes receivable................................................................ 8,000,000
Deferred Revenue from IFF......................................... 20,000,000
Cash.................................................................................. 2,800,000
Notes receivable........................................................... 2,000,000
Interest income (P8,000,000 x 10%)............................. 800,000
Adjusting Entries:
(1) Cost of franchise revenue........................................... 2,000,000
Deferred cost of franchises.................................. 2,000,000
Adjusting entry: to recognized revenue from the initial franchise fee (installment method)
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Chapter 11
Problem 11 – 2
a. Collection of the note is reasonably assured.
Jan. 5: Cash. .................................................................................... 600,000
Notes Receivable.................................................................. 1,000,000
Unearned interest income................................................. 401,880
Deferred revenue from F.F............................................... 1,198,120
Face value of NR............................................................................. 1,000,000
Present value (P200,000 x P2,9906)................................................ __598,120
Unearned interest............................................................................. 401,880
Cash.................................................................................. 200,000
Notes Receivable.......................................................... 200,000
Adjusting Entries:
1) Unearned interest income................................................. 119,624
Interest income........................................................... 119,624
P598,120 x 20%
Problem 11 – 3
2007
July 1: Cash. .......................................................................................... 120,000
Notes Receivable......................................................................... 320,000
Unearned interest income..................................................... 66,408
Deferred revenue from FF.................................................... 373,592
Face value of NR......................................................................... P320,000
Present value (P80,000 x 3.1699)................................................ _253,592
Unearned interest income............................................................ P 66,408
Sept. 1 to
Nov. 15: Deferred cost of franchise........................................................... 80,000
Cash. .................................................................................... 80,000
(P50,000 + P30,000)
2008
Jan. 10: Deferred cost of franchise........................................................... 50,000
Cash. .................................................................................... 50,000
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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
b) Journal Entries:
Jan. 2: Cash. .................................................................................... 1,500,000
Notes receivable.................................................................... 3,000,000
Deferred revenue from FF (adjusted SV)......................... 2,700,000
Revenue from FF (Market value of equipment)................ 1,800,000
Problem 11 – 6
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Chapter 11
Problem 11 – 7
A. Unearned Interest:
Face value of the note........................................................................................... P600,000
Present value (120,000 x 3.7908).......................................................................... 454,900
rounded
Unearned interest.................................................................................................. P145,100