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Accountancy (University of the East)
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Chapter 1
Problem I
Requirement 1: Assuming that A and B agree that each partner is to receive a capital credit equal to the
agreed values of the net assets each partner invested:
adjustment s: nothing to adjust since both of them have no set of books.
To close the books: nothing to close since both of them have no set of books.
To record investments:
Partnership
Partnership books:
Cash………………………………………………………………………………. 120,000
Inventory…………………………………………………………………………. 120,000
Equipment……………………………………………………………………….. 240,000
A, capital………………………………………………………………...
480,000
Initial investment.
Cash……………………………………………………………………………….. 120,000
Land……………………………………………………………………………….. 240,000
Building……………………………………………………………………………. 480,000
Mortgage payable…………………………………………………….
B, capital………………………………………………………………..
Initial investment.
240,000
600,000
Requirement 2: Assuming that A and B agree that each partner is to receive an equal capital interest.
To record adjustments: nothing to adjust since both of them have no set of books.
To close the books: nothing to close since both of them have no set of books.
To record investments:
Partnership
Partnership books:
Bonus Approach:
Cash…………………………………………………………………………… 120,000
Inventory……………………………………………………………………… 120,000
Equipment……………………………………………………………………. 240,000
A, capital……………………………………………………………..
480,000
Cash…………………………………………………………………………… 120,000
Land……………………………………………………………………………. 240,000
Building………………………………………………………………………… 480,000
Mortgage payable…………………………………………………
B, capital.……………………………………………………….……
240,000
600,000
B, capital……………………………………………………………………….. 60,000
A, capital………………………………………………………………
60,000
Total agreed capital (P480,000 + P600,000)….P 1,080,000
Multiplied by: Capital interest (equal)………...
1/2
Partner’s
Partner’s individual capital interest…………….P 540,000
Less: A’s capital interest………………………..….
480,000
Bonus to A…….……………………………………..P
60,000
Revaluation (Goodwill) Approach:
Cash…………………………………………………………………………… 120,000
Inventory……………………………………………………………………… 120,000
Equipment……………………………………………………………………. 240,000
A, capital……………………………………………………………..
480,000
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Cash…………………………………………………………………………… 120,000
Land……………………………………………………………………………. 240,000
Building………………………………………………………………………... . 480,000
Mortgage payable…………………………………………………
B, capital.……………………………………………………….……
240,000
600,000
Assets (or goodwill or intangible asset)…………………………………... 120,000
A, capital…………………..………………………………………..
120,000
Total
Total agreed capital (P600,000 / 1/2)………..….P1,200,000
Less: Total
Total contributed capital (P480,000 +
P 600,000)………………………………....… 1,080,000
Goodwill to A……………..………………………….P 120,000
Problem II
Invested
by John
P100,000
Agreed Fair Values
Cash
Equipment
Total assets
Note payable assumed by partnership
Net assets invested
100,000
--P100,000
Invested
by Jeff
--P 110,000
P 110,000
30,000
P 80,000
Invested
by Jane
----0
--P
0
1. Bonus Method
2. Goodwill Method (Revaluation of Asset)
Cash
Equipment
Note Payable
Cash
Equipment
Goodwill
Note Payable
100,000
110,000
30,00
0
60,00
0
60,00
0
60,00
0
John, Capital
Je
J eff, Capital
Jane, Capital
100,000
110,000
90,000
30,000
John, Capital
90,000
Jeff, Capital
90,000
Jane, Capital
90,000
2. The bonus method is used when
when John and Jeff recognize that Jane is bringing
bringing something of value to the
firm other than a tangible asset, but they do not want to recognize an intangible asset. To equalize the
capital accounts, P40,000 is transferred from John's capital account and P20,000 is transferred from Jeff's
capital account.
The goodwill method is used when the partners recognize the intangible nature of the skills Jane is
bringing to the partnership. However,
However, the capital accounts are equalized by recognizing an intangible
asset and a corresponding increase in the capital accounts of the partners. Unless the intangible asset can
be specifically identified, such as a patent being invested, it should not be recognized, because of a lack
of justification for goodwill in a new business.
Problem III
1. (a) Cash
Accounts Receivable
Office Supplies
Office Equipment
Accounts Payable
Tom, Capital
13,000
8,000
2,000
30,000
2,000
51,000
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(b)
( c)
2.
Cash
Accounts Receivable
Office Supplies
Land
Accounts Payable
Mortgage Payable
Julie, Capital
12,000
6,000
800
30,000
Tom, Drawing
Cash
15,000
Julie, Drawing
Cash
12,000
Income Summary
Tom, Capital P50,000  (P51,000/P76,000)
Julie, Capital P50,000  (P25,000/P76,000)
50,000
Tom, Capital
Julie, Capital
Tom, Drawing
Julie, Drawing
15,000
12,000
5,000
18,800
25,000
15,000
12,000
33,553
16,447
15,000
12,000
TOM AND JULIE PARTNERSHIP
Statement of Changes in Partners' Capital
For the Year Ended December 31, 20x4
Capital balances, Jan. 1
Net income allocation
Totals
Less: Withdrawals
Capital balances, Dec. 31
P
Tom
Tom
0
51,000
33,553
P 84,553
15,000
P 69,553
Julie
Juli e
0
25,000
16,447
P 41,447
12,000
P 29,447
P
Total
Total
0
76,000
50,000
P126,000
27,000
P99,000
P
Problem IV
Book of H is to be retained by the new partnership.
The following procedures are to be followed:
Individual versus Sole Proprietor
Books of
Individual
N/A
N/A
*Books of
Sole Proprietor
Yes
No
Yes**
Yes
Closing entries (real accounts)
Investments
Balance Sheet
* Books of H; Partnership
Partnership books
** Investments of individual; additional investments or withdrawals of sole proprietor.
proprietor.
1. Books of Sole Proprietor (H):
a. To record adjustments:
a. H, capital………………………………………………………………… 1,800
Allowance for doubtful accounts…………………………….
accounts…………………………….
Additional provision computed as follows:
Required allowance: 10% x P48,000 = P 4,800
Less: Previous balance…………………
3,000
Additional provision…………………… P 1,800
1,800
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b. Interest receivable or accrued interest income…………………. 3,600
H, capital……………………………………………………………
3,600
Interest income for nine months computed as follows:
P60,000 x 8% x 9/12 = P3,000.
c. H, capital………………………………………………………………….. 6,000
Merchandise inventory…………………………………………..
Decline in the value of merchandise.
P27,000 – P21,000 = P6,000.
6,000
d. H, capital…………………………………………………………………. 4,800
Accumulated depreciation…………………………………….
Under depreciation.
e. Prepaid expenses………………………………………………………...
H, capital……………………………………………………………
Expenses paid in advance.
4,800
2,400
2,400
H, capital…………………………………………………………………… 7,200
Accrued expenses………………………………………………….
Unrecorded expenses.
7,200
Note: All adjustment that reflects nominal accounts should be coursed through the capital
account, since all nominal accounts are already closed at the time of formation.
b. To close the books: nothing to close since the books of H will be retained.
c. To record investment:
Cash……………………………………………………………………………. 116,100
I, capital………………………………………………………………
116,100
Initial investment computed as follows:
Unadjusted capital of H………………………………P 246,000
a. Doubtful accounts...……………………...( 1,800)
b. Interest income……………………………..
3,600
c. Decline in the value of merchandise….( 6,000)
d. Under-depreciation……………………….(
Under-depreciation……………………….( 4,800)
e. Prepaid expenses…………………………..
2,400
Accrued expenses………………………...( 7,200)
Adjusted capital balance of H……………..……...P 232,200
Divided by: Capital interest of H……………………
2/3
Total
Total agreed capital…………………………….…….P 348,300
Multiplied by: Capital interest of I……………..……
1/3
Investment of I…………………………………………P 116,100
Note: The initial investment of H is already recorded since his books are already retained.
No further entry is required since there are no additional investments or withdrawals made
by H.
2. The balance sheet for both cases presented above is as follows:
HI Partnership
Partnership
Balance Sheet
November 1, 20x4
Assets
Cash
Accounts receivables
P 236,100
P 48,000
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Less: Allowance for doubtful accounts………...........
Notes
receivable……..................................................
.
Interest
receivable………………..................................
Merchandise
Inventory................................................
Prepaid
expenses…………..........................................
Equipment (net)
………….............................................
Less: Accumulated depreciation………………........
Total
Assets...........................................................
.........
4,800
43,200
60,000
3,600
21,000
2,400
P 72,000
10,800
61,200
P 427,500
Liabilities and Capital
Liabilities
Accrued
expenses…….. .......................................
Accounts
payable...................................................
Notes
payable…………...........................................
Total
Liabilities......................................................
..........
Capital..........................................................
.................
H,
capital………………………..................................
I,
capital…………………...........................................
Total
Capital..........................................................
........
Total Liabilities and
Capital..........................................
P
7,200
12,000
60,000
P 79,200
P 232,200
116,100
P 348,300
P 427,500
Problem V
New set of books . The following procedures are to be followed:
Sole Proprietor versus Sole Proprietor
Closing entries (real accounts)
Investments
Balance Sheet
Books of
Sole Proprietor
(Baker)
Yes
Yes
Books of
Sole Proprietor
(Carter)
Yes
Yes
* Partnership books
** Additional investments or withdrawals of sole proprietors.
1. Books of Sole Proprietor
a. To record adjustments:
*New Set of
Books
Yes**
Yes
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Books of J
a. J, capital…………………………12,000
Merchandise Inventory……
12,000
Worthless inventory.
b. J, capital………………………… 7,200
Allowance for doubtful
Accounts…………………..
7,200
Worthless accounts.
c. Rent receivable…………………12,000
J, capital…………………….
12,000
Income earned.
e. J, capital………………………… 8,400
Office supplies……………….
Expired office supplies.
f. J, capital………………………… 6,000
Accumulated depreciation
- equipment………………
Under-depreciated.
Books of K
a. Merchandise Inventory………… 6,000
K, capital………………………
6,000
Upward revaluation.
b. K, capital……….…………………. 3,000
Allowance for doubtful
accounts…………………….
3,000
Required allowance:
5% x P180,000…….. P9,000
Less: Previous
Balance……….. 6,000
Provision....…………P3,000
c. K, capital……………………………. 9,600
Salaries payable……………….
9,600
Unpaid salaries.
d. Interest receivable…………………1,200
K, capital…………..................
1,200
Interest income from August
17 to October 1.
P60,000 x 16% x 45/360
8,400
6,000
g. K, capital……………………………12,000
Accumulated depreciationFurniture and fixtures………
Under-depreciated.
12,000
h. J, capital…………………………. 1,800
Interest payable…………….
1,800
Interest expense from
July 1 to October 1.
P60,000 x 12% x 3/12
Unadjusted capital of J…….……….P 372,000
a. Worthless merchandise……..( 12,000)
b. Worthless accounts………….( 7,200)
c. Rent income……………….…. 12,000
e. Office supplies expense…….( 8,400)
f. Additional depreciation……( 6,000)
h. Interest expense………………( 1,800)
Adjusted capital of J…………………P348,600
b. To close the books:
Books of J
Allowance for doubtful
accounts................................. 12,000
i. Patent………………………………. 48,000
K, capital……………………..
48,000
Unrecorded patent.
Unadjusted capital of K..……………...P432,000
a. Merchandise revaluation…….. 6,000
b. Worthless accounts…………….( 3,000)
c. Salaries…………….…….………..( 9,600)
d. Interest income………………….. 1,200
g. Additional depreciation………( 12,000)
h. Patent………….……….…………. 48,000
Adjusted capital of K….………………..P462,600
Books of K
Allowance for doubtful
accounts.................................
9,000
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Accumulated depreciation –
equipment…………………… 60,000
Accounts payable……………159,600
Notes payable………………… 60,000
Interest payable………………. 1,800
J, capital…….…………………. 348,600
Cash…………………………
90,000
Accounts receivable…….
216,000
Merchandise inventory….
180,000
Office supplies…………….
24,000
Equipment………………….
120,000
Rent receivable…………...
12,000
Close the books of J.
Accumulated depreciation –
furniture and fixtures ………. 36,000
Accounts payable……………. 120,000
Salaries payable………………. 9,600
K, capital…….…………………. 462,600
Cash………………………….
54,000
Accounts receivable……..
180,000
Notes receivable………….
60,000
Interest receivable………...
1,200
Merchandise inventory…..
150,000
Furniture and fixtures.……..
144,000
Patent………….…………….
48,000
Close the books of K..
2. New Set of Books To record investments:
Cash……………………………………………………………….
Accounts receivable…………………………………………..
Merchandise inventory………………………………………..
Office supplies…………………………………………………..
Equipment (net)………………………………………………...
Rent Receivable………………………………………………..
Allowance for doubtful accounts…………………….
Accounts payable………………………………………..
Notes payable…………………………………………….
Interest payable…………………………………………..
J, capital……………………………………………………
Cash……………………………………………………………….
Accounts receivable…………………………………………..
Notes receivable……………………………………………….
Interest receivable……………………………………………..
Merchandise inventory………………………………………..
Furniture and fixtures (net)…..………………………………..
Patent…………..………………………………………………...
Allowance for doubtful accounts…………………….
Accounts payable………………………………………..
Salaries payable….……………………………………….
K, capital……………………………………………………
90,000
216,000
180,000
24,000
60,000
12,000
12,000
39,600
60,000
1,800
468,600
54,000
180,000
60,000
1,200
150,000
108,000
48,000
9,000
120,000
9,600
462,600
3.
H
P372,000
348,600
(P 23,400)
Unadjusted capital (refer to 1a)
Adjusted capital (refer to 1b)
I
P432,000
462,600
P 30,600
4. The balance sheet after formation is as follows:
J and K Partnership
Balance Sheet
October 1, 20x4
Assets
Cash.............................................................
..................
Accounts
P 144,000
P396,000
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9
False
10
.
11
.
12
.
13
.
True
False
True
False
14
.
15
.
16
.
17
.
18
.
True
19.
False
24.
False
29.
False
False
20.
True
25.
True
30.
True
False
21.
False
26.
False
False
22.
True
27.
True
True
23.
False
28.
True
Note for the following numbers:
17. Individuals, partnerships, and corporations are allowed to be partners in a partnership.
19. All of the general partners are liable for all the partnership’s debts.
21. Most small partnerships maintain their financial information using the tax basis.
23., While the partnership does not pay income taxes, it is responsible for other taxes such as payroll taxes and franchise taxes.
24. The proprietary theory is based on the notion that the business entity is an aggregation of the owners
26. This is an example of the proprietary theory of equity.
28. Any basis (i.e., carrying value, tax basis, or market value) can be used to value noncash assets contributed to a partnership
MULTIPLE-CHOICE QUESTIONS
31
.
32
.
33
.
34
.
35
.
a
B
a
e
d
36
.
37
.
38
.
39
.
40
.
d
41.
c
46.
a
51.
d
b
42.
c
47.
c
52.
b
c
43.
a
48.
b
53.
b
a
44.
d
49.
b
a
45.
b
50.
c
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Chapter 2
Problem I
1. Beginning Capital.
Income summary…………
X, drawing…….
Y, drawing…….
345,600
144,000
201,600
X, capital, January 1………..
X, capital, January 1………..
Total capitals
P 360,000
504,000
P 864,000
X’s share of net income: 360/864 of P345,600
Y’s share of net income 504/864of P345,600
Total capitals
P 144,000
201,600
P 345,600
2. Ending Capital.
Income summary…………
X, drawing…….
Y, drawing…….
345,600
153,600
192,000
X, capital, December 31………..
X, capital, December 31………..
Total capitals
P 432,000
540,000
P 972,000
X’s share of net income: 432/972 of P345,600
Y’s share of net income 540/972 of P345,600
Total
P 153,600
192,000
P 345,600
3. Interest on Excess Average Capital Balance.
Income summary…………
Y, drawing…….
4,320
4,320
Interest allowed based on average capitals.
Y’s interest on excess average capital:
6% of (P486,000 – P414,000)…………………..
X:
Capital
balance
P360,000
x
432,000
x
No. of Mos.
Unchanged
3
P 4,320
P1,080,000
1/1/x4:
9
3,888,000
12
P4,968,000
P 414,000
4/1/x4:
Average
Y:
Capital
balance
P504,000
No. of Mos.
Unchanged
2
x
468,000
X
8
3,744,000
540,000
x
2
1,080,000
12
P5,832,000
P 486,000
P 900,000
P 1,008,000
1/1/x4:
3/1/x4:
11/1/x4:
Average
Total
The net effect of the foregoing on capitals is:
lOMoARcPSD|9418122
X
Interest on excess
average capital……
Balance (1:2)………..
Total
P
P 113,760
P 113,760
Y
4,320
227,520
P 231,840
P
Total
4,320
341,280
P345,600
The allocation of net income may be summarized in a single entry as follows:
Income summary…………….
X, drawing…….
Y, drawing…….
345,600
113,760
231,840
Problem II
1. A bonus of 20% of net income before the bonus is deducted, the bonus would be computed as follows:
Let B
B
B
B
= Bonus
= 20% of Net income
= 20% of P504,000
= P100,800
2. A bonus of 20% of net income after deduction of the bonus, the bonus would be computed as follows:
Let B
= Bonus
= 20% of Net income after Bonus
B
= 20% (P504,000 – B)
B
B
1.20 B
B
= P100,800 - .20B
= P100,800
= P84,000
Problem III
1. Bonus is based on net income before bonus, salaries and interest
The schedule showing the allocation of net income is presented as follows:
A
P 100,800
48,000
14,400
172,800
P336,000
Bonus….
Salaries………
Interest………….
Balance (2;1)……….
Total
B
P 72,000
9,600
86,400
P168,000
Total
P 100,800
120,000
24,000
259,200
P504,000
2. Bonus is based on net income after bonus but before salaries and interest
The schedule showing the allocation of net income is presented as follows:
A
P 84,000
48,000
14,400
184,000
P330,400
Bonus….
Salaries………
Interest………….
Balance (2;1)……….
Total
B
P 72,000
9,600
92,000
P173,600
Total
P 84,000
120,000
24,000
276,000
P504,000
3. Bonus is based on net income after bonus and salaries but before interest:
Let B
= Bonus; S = Salaries; and I = Interest.
= 20% of Net income after Bonus and Salaries before Interest
B
= 20% (P504,000 – B – S)
B
lOMoARcPSD|9418122
6.
Bonus is based on net income after interest but before bonus and salaries:
Let B
= Bonus; S = Salaries; and I = Interest.
= 20% of Net income after Interest before Bonus and Salaries
B
= 20% (P504,000 – P24,000I
B
B
B
= 20% (P480,000)
= P96,000
Refer to Note of No. 3.
7.
Bonus is based on net income before bonus but after income tax (tax rate is 35%):
Let B
B
B
Let T
T
T
= Bonus;
= 20% (P504,000 – T)
= P100,800 - .20T
= Income tax
= 35% (P504,000)
= P176,400
Substituting the equation for T in the equation for B:
Let B
B
B
= P100,800 - .20 (P176,400)
= P100,800 – P35,280
= P65,520
Proof:
Net income before bonus and income tax……………
Less: Bonus………………
Net income before bonus after income tax……..
Less: Income tax……………
Net income after bonus and income tax………
P504,000
65,520
P438,480
_176,400
P262,080
Bonus as computed above:
Net income before bonus and income tax……………
Less: Income tax (35% x P504,000)
Net income after income tax before bonus……..
Multiplied by: Bonus rate………
Net income after bonus and income tax………
8. Bonus is based on net income, that is, after bonus and income tax:
Let B
B
B
Let T
T
T
= Bonus; T = Income tax
= 20% (P504,000 – B - T)
= P100,800 - .20B - .20T
= Income tax
= 35% (P504,000)
= P176,400
Substituting the equation for T in the equation for B:
Let B
B
1.20B
1.20B
B
= P100,800 - .20B - .20T
= P100,800 - .2B - .20 (P176,400)
= P100,800 – P35,280
= P65,520
= P54,600
P504,000
176,400
P327,600
____ 20%
P 65,520
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Proof:
Net income before bonus and income tax……………
Less: Bonus………………
Net income before income tax……..
Less: Income tax (35% x P504,000)
Net income after bonus and income tax………
P504,000
54,600
P449,400
176,400
P273,000
Bonus as computed above:
Net income after bonus and income tax………
Multiplied by: Bonus rate………
Bonus……………
P273,000
____ 20%
P 54,600
Problem IV
B = Bonus to Rodgers
B = 0.20(Net Income - interest - salary - bonus)
B = 0.20(P168,000 - [0.08(P150,000)] - P60,000 – B)
B = 0.20(P96,000 - B)
B = P19,200 - 0.20B
1.20B = P19,200
B = P16,000
Problem V
Interest (8%)
Salary
James
P4,400 (below)
13,000
Remaining income (loss):
P30,000
(17,200)
(48,000)
P(35,000)
(7,040)
Totals
P10,360
Keller
P5,600
15,000
(10,560)
P10,040
Rivers
P7,200
20,000
(17,600)
P9,600
CALCULATION OF JAMES INTEREST ALLOCATION
Balance, January 1 – June 1 (P48,000 x 5 months)
Balance, June 1 – December 31 (60,000 x 7 months)
Total
Months
Average monthly capital balance
Interest rate
Totals
P17,200
48,000
(36,200)
P30,000
P240,000
420,000
P660,000
&divide;
12
P 55,000
x
8%
_P 4,400
Interest allocation (above)
STATEMENT OF PARTNERS’ CAPITAL
James
Keller
Beginning balances
P 48,000
P70,000
12,000
0
Income (above)
10,060
10,040
Drawings (P1,000/month)
(12,000)
(12,000)
Ending capital balances
P58,360
P68,040
Rivers
P90,000
0
9,600
(12,000)
P87,600
Totals
P208,000
12,000
30,000
(36,000)
P214,000
Problem VI
1: Net income is P360,000
P
Q
Total
lOMoARcPSD|9418122
Salaries
Bonus on net income
Interest on average capital balances
Remainder is P 88,600 (positive)
Totals
P 80,000
21,600
9,800
___53,160
P 164,560
P 100,000
43,200
16,800
__35,440
P195,440
P180,000
64,800
26,600
___88,600
P 360,000
P
P 80,000
14,400
9,800
_(4,900)
P 99,300
Q
P 100,000
28,800
16,800
__(4,900)
P 140,700
Total
P 180,000
43,200
26,600
__(9,800)
P240,000
P
P 80,000
0
9,800
(123,300)
(P33,500)
Q
P 100,000
0
16,800
(123,300)
(P 6,500)
Total
P 180,000
0
26,600
(246,600)
(P 40,000)
2. Net income is P240,000
Salaries
Bonus on net income
Interest on average capital balances
Remainder is P 9,800 (negative)
Totals
3. Net loss is P40,000
Salaries
Bonus (no distribution)
Interest on average capital balances
Remainder is P 246,600 (negative)
Totals
Problem VII:
1 and 2.
Total to allocate:
As Bonus (Note A below)
As Salaries
As Interest (Note B below)
Subtotal:
Residual Profit-sharing
Final Allocations:
Total
P150,000
(25,000)
(72,000)
(10,720)
P 42,280
(42,280)
P
0
Carey
Drew
P25,000
36,000
6,560
P67,560
21,140
P88,700
P36,000
4,160
P40,160
21,140
P61,300
Capital
Amount
P100,000
(12,000)
88,000
(12,000)
76,000
(12,000)
P 64,000
Fraction
of Year
1/12
Interest
Rate
0.08
= Subtotal
P 667
6/12
0.08
3,520
3/12
0.08
1,520
2/12
1.0000
0.08
853
P6,560
Capital
Fraction
Interest
Note A (Bonus):
Bonus = .20(Net Income
1.2Bonus = .20(P150,000)
1.2Bonus = 30,000
Bonus = P25,000
Bonus)
Note B (Interest):
Carey:
lOMoARcPSD|9418122
D, capital (P72,000 x &frac14;)………………………………………… 18,000
E, capital (P48,000 x &frac14;)………………………………………… 12,000
F, capital………………………………………………….
30,000
b: Bonus to New Partner.
The total contributed capital (TCC) is equal to total agreed capital (TAC), so no
revaluation (goodwill) should be recognized as follows:
Total agreed capital (given)…………………………………………P 48,000
Less: Total contributed capital (P24,000 + P12,000 + P12,000)…. 48,000
Difference………………………………………………………………..P
-0-
The new partner’s contributed capital is less than the agreed capital, the difference is
attributable to bonus to new partner:
J’s contributed capital (given)……………………………………...P 12,000
J’s agreed capital: (P48,000 x 35%)…………………………………. 16,800
Difference (bonus to new partner)………………………………….P 4,800
The entry to record the transaction in the books follows:
Cash……………………………………………………………….. 12,000
G, capital (P4,800 x 60%)………………………………………. 2,880
H, capital (P4,800 x 40%)………………………………………. 1,920
J, capital ……………..………………………………….
16,800
c: Revaluation (Goodwill) to New Partner
The total contributed capital (TCC) is less than the total agreed capital (TAC), so
revaluation (goodwill) should be recognized as follows:
Total agreed capital: (P18,000 / 1/3)……………………………….P 54,000
Less: Total contributed capital (P24,000 + P12,000 + P12,000)… 48,000
Difference (revaluation/goodwill)………………………………….P 6,000
The new partner’s contributed capital is less than the agreed capital, the difference of
P6,000 in (a) is attributable to revaluation/goodwill to new partner:
J’s contributed capital (given)……………………………………...P 12,000
J’s agreed capital (given) ………..…………………………………. 18,000
Difference (revaluation/goodwill to new partner)………………P 6,000
The entry to record the transaction in the books follows:
Cash………………………………………………………………..12,000
Assets (goodwill)………………………………………………… 6,000
J, capital ……………..………………………………….
18,000
d: Bonus to Old Partners.
The total contributed capital (TCC) is equal to total agreed capital (TAC), so no
revaluation (goodwill) should be recognized as follows:
Total agreed capital (should equal to TCC
since it is a bonus method)……………………………………P 60,000
Less: Total contributed capital
[(P24,000 + P12,000 + (P30,000 – P6,000)]……………….…. 60,000
lOMoARcPSD|9418122
Difference………………………………………………………………..P
-0-
The new partner’s contributed capital is greater than his agreed capital, the difference
is attributable to bonus to old partners:
J’s contributed capital (P30,000 – P6,000)………………………..P 24,000
J’s agreed capital: (P60,000 x 30%)………………………………... 18,000
Difference (bonus to old partners)..………………………………..P( 6,000)
The entry to record the transaction in the books follows:
Tangible asset…………………………………………………….30,000
Mortgage payable…………………………………….
J, capital ……………..………………………………….
G, capital (P6,000 x 60%)……………………………..
H, capital (P6,000 x 40%)……………………………..
6,000
18,000
3,600
2,400
e: Revaluation (Goodwill) to Old Partners.
The total contributed capital (TCC) is less than the total agreed capital (TAC), so
revaluation should be recognized as follows:
Total agreed capital (given) ………………………………………... P 76,800
Less: Total contributed capital (P24,000 + P12,000 +
P 8,400, revaluation + P28,800)…………………………. 73,200
Difference (revaluation/goodwill)………………..………………… P 3,600
The new partner’s contributed capital is equal to the agreed capital, the difference of
P3,600 in (a) is attributable to revaluation (goodwill) to old partners:
J’s contributed capital………………………………………………… P 28,800
J’s agreed capital: (P76,800 x 37.5%)….…………………………....
28,800
Difference …………………………..…………………………………… P
-0The entries to record the transaction in the books follows:
Equipment………………………………………………………… 8,400
G, capital (P8,400 x 60%)……………………………..
H, capital (P8,400 x 40%)………………………………
5,040
3,360
Cash………….…………………………………………………….28,800
Other assets………………………………………………………. 3,600
J, capital ……………..………………………………….
G, capital (P3,600 x 60%)……………………………..
H, capital (P3,600 x 40%)………………………………
28,800
2,160
1,440
f: Bonus and Revaluation (Goodwill) to New Partner.
The total contributed capital (TCC) is less than the total agreed capital (TAC), so
revaluation (goodwill) should be recognized as follows:
Total agreed capital (given)…………………………………………P 60,000
Less: Total contributed capital (P24,000 + P12,000 + P12,000)… 48,000
Difference (revaluation/goodwill) …………………..……………..P 12,000
lOMoARcPSD|9418122
The new partner’s contributed capital is less than the agreed capital, the difference of
P15,000 are composed of revaluation of P12,000 in (a) above and the balance is bonus to
new partner:
J’s contributed capital (given)……………………………………... P 12,000
J’s agreed capital: (P60,000 x 45%)…………………………………. 27,000
Difference (total bonus and revaluation)..………………………...P 15,000
Less: Revaluation / goodwill to new partner………………………. 12,000
Bonus to new partner…………………………………………………... P 3,000
The entry to record the transaction in the books follows:
Cash……………………………………………………………….. 12,000
Assets (goodwill)………………………………………………… 12,000
G, capital (P3,000 x 60%)………………………………………. 1,800
H, capital (P3,000 x 40%)………………………………………. 1,200
J, capital ……………..………………………………….
27,000
To record the admission of J.
g: Bonus and Revaluation to Old Partners.
The total contributed capital (TCC) is less than the total agreed capital (TAC), so
revaluation (goodwill) should be recognized as follows:
Total agreed capital (given)…………………………………………P 72,000
Less: Total contributed capital (P24,000 + P12,000 + P18,000)…. 54,000
Difference (revaluation/goodwill)…………………....…………….P 18,000
The new partner’s contributed capital is greater than the agreed capital, the difference
of P3,600 is bonus to old partners since there is already a revaluation(goodwill) as
indicated by (a) above.
J’s contributed capital (given).…………………………………….. P 18,000
J’s agreed capital: (P72,000 x 20%)………………………………… 14,400
Difference (bonus to old partners)………………………………… P( 3,600)
Less: Revaluation / goodwill to old partners……………………… 18,000
Total bonus and revaluation to old partners.……………………. P 21,600
The P3,600 difference is considered as a bonus since there was a transfer of capital (as
indicated by the decrease in capital of the new partner) made by the new partner to the
old partners.
The entry to record the transaction in the books follows:
Cash………………………………………………………………..18,000
Assets (goodwill)…………………………………………………18,000
J, capital ……………..…………………………………
G, capital (P21,600 x 60%)……………………………..
H, capital (P21,600 x 40%)……………………………..
14,400
12,960
8,640
h: Revaluation (Goodwill) to New and Old Partners.
The total contributed capital (TCC) is less than the total agreed capital (TAC), so
revaluation (goodwill) should be recognized as follows:
Total agreed capital (given)…………………………………………P 72,000
lOMoARcPSD|9418122
The entries to record the transaction in the books follows:
Other assets…………………………………………………….... 6,000
G, capital (P6,000 x 60%)……………………………..
H, capital (P6,000 x 40%)……………………………..
3,600
2,400
Cash……………………………………………………………….. 18,000
Assets (goodwill)………………………………………………… 12,000
J, capital ……………..………………………………….
G, capital (P12,000 x 60%)……………………………
H, capital (P12,000 x 40%)…………………………….
18,000
7,200
4,800
l: Revaluation (Goodwill) to New Partner with Revaluation Amount Given.
The total contributed capital (TCC) is less than the total agreed capital (TAC), so
revaluation (goodwill) should be recognized as follows:
Total agreed capital (TCC, P60,000 + P7,200, goodwill) ……….P 67,200
Less: Total contributed capital (P24,000 + P12,000 + P24,000)… 60,000
Difference (revaluation/goodwill ) …………………..……………..P 7,200
The new partner’s contributed capital is less than the agreed capital, the difference of
P7,200 in (a) is attributable to revaluation (goodwill) to new partner:
J’s contributed capital (given)……………………………………...P 24,000
J’s agreed capital: (P24,000 + P7,200)……………………………… 31,200
Revaluation/goodwill to new partner……….……………………..P 7,200
The entry to record the transaction in the books follows:
Cash……………………………………………………………….. 24,000
Assets (goodwill)………………………………………………… 7,200
J, capital ……………..………………………………….
31,200
To record the admission of J.
m: Withdrawals Instead of Revaluation.
The total contributed capital (TCC) is greater than total agreed capital (TAC), so it
should have been a negative revaluation. Since there was an indication that capital
balances should equal to the profit and loss (old or new) ratio, then the difference
should be considered as withdrawals (if it is a positive revaluation it should have been
additional investment and if the TCC = TAC, it should have been settlement between
partners) instead of negative revaluation.
Total agreed capital (given)………………………………………...P 48,000
Less: Total contributed capital (P24,000 + P12,000 + P24,000).. 60,000
Difference (withdrawals)……………………………………………..P 12,000
The new partner’s contributed capital is less than the agreed capital, the difference is
attributable to bonus to new partner:
J’s contributed capital (given)……………………………………...P 24,000
J’s agreed capital: (P48,000 x 50%)…………………………………. 24,000
lOMoARcPSD|9418122
Difference……………………………..………………………………….P
-0-
The withdrawals of P12,000 should be attributable to the old partners computed as
follows:
Total agreed capital (given)…………………………….
P 48,000
Less: J’s agreed capital (P48,000 x 50%)………………
24,000
Total agreed capital of the old partners………………
P 24,000
Less: G’s agreed capital (P24,000 x 60%)………………P 14,400
H’s agreed capital (P24,000 x 40%)………………
9,600
24,000
G’s withdrawal: P24,000 – P14,400………………………
H’s withdrawal: P12,000 – P9,600………………………..
P 9,600
P 2,400
The entry to record the transaction in the books follows:
Cash (P24,000 – P12,000)………………………………………. 12,000
G, capital…………………………………………………………. 9,600
H, capital………………………………………………………….. 2,400
J, capital ……………..………………………………….
24,000
n: Bonus and Revaluation (Goodwill) When Not Specifically Stated .
n.1: Revaluation (Goodwill) or Bonus to New Partner.
n.1.1: Bonus Approach.
The total contributed capital (TCC) is equal to the total agreed capital (TAC), so no
revaluation (goodwill) should be recognized as follows:
Total agreed capital (should equal to TCC,
since it is a bonus method)……………………………………P 54,000
Less: Total contributed capital (P24,000 + P12,000 + P18,000).. 54,000
Difference……………………………..…………………..…………….P
-0-
The new partner’s contributed capital is less than the agreed capital, the difference
is attributable to bonus to new partner:
J’s contributed capital (given).……………………………………...P 18,000
J’s agreed capital: (P54,000 x 40%)………………………………… 21,600
Difference (bonus to new partner)..………………………………..P 3,600
The entry to record the transaction in the books follows:
Cash………………………………………………………………..18,000
G, capital (P3,600 x 60%)……………………………………… 1,260
H, capital (P3,600 x 40%)………………………………………. 1,440
J, capital ……………..………………………………….
21,600
n.1.2: Revaluation (Goodwill) Approach.
The total contributed capital (TCC) is less than the total agreed capital (TAC), so
revaluation (goodwill) should be recognized as follows:
Total agreed capital:
(P24,000 + P12,000) / (100% - 40%)…………………………...P 60,000
Less: Total contributed capital (P24,000 + P12,000 + P18,000).. 54,000
Difference (revaluation/goodwill).…………………..…………….P 6,000
lOMoARcPSD|9418122
The new partner’s contributed capital is less than the agreed capital, the difference
of P6,000 in (a) is attributable to revaluation (goodwill) to new partner:
J’s contributed capital (given).…………………………………….P 18,000
J’s agreed capital: (P60,000 x 40%)……………………………….. 24,000
Difference (revaluation/goodwill to new partner)..…………...P 6,000
The entry to record the transaction in the books follows:
Cash………………………………………………………………..18,000
Assets (goodwill)………………………………………………… 6,000
J, capital ……………..………………………………….
24,000
The following items should be observed:
1. The New Profit and Loss Ratio. The capital interest of J is 40%, while his profit and
loss is 25%, so the new profit and loss interest of the new partnership is computed as
follows:
____G
Capital interest %..............
P &amp; L %: G (60% x 75%)……
45
H (40% x 75%)……
J ……..……………
H
_
J____
40
30
25
2. The Capital Balances of the New Partners. After admission of partner J, the capital
balances of the new partners are computed as follows:
Bonus Approach (total agreed capital)
- refer to Alternative 1 above:
G, capital (P24,000 – P2,160)………………………………P 21,840
H, capital (P12,000 – P1,440)……………………………… 10,560
J, capital…………………………………………………....... 21,600
Total……………………………………………………………. P 54,000
Revaluation (goodwill) Approach (total agreed capital)
- refer to Alternative 2 above:
G, capital……………………………………………………...P 24,000
H, capital……………………………………………………… 12,000
J, capital (P60,000 x 40%)………………………………….. 24,000
Total…………………………………………………………….P 60,000
Schedule of Account Balances
Net
Goodwill/Asset
Capital__________
Assets
Revaluation
=
J___
Bonus Approach
G
H
lOMoARcPSD|9418122
J___
Bonus Approach
of J
16,200
Revaluation Approach
of J
18,000
Depreciation/impairment
Depreciation /impairment**
( 2,400)
Totals
To
tals
15,600
P 54,000
P
-0-
P 54,000
P 6,000
( 6,000)
P 54,000
P
P 25,080
P 12,720 P
P 27,600
P 14,400 P
( 2,160) (
-0-
P 25,440
1,440)
P 12,960 P
*new profit and loss ratio (G, 36%; H, 24%, and J, 40%)
The two methods will yield the same results computed as follows;
Capital__________
G
H
J__
Balances after admission of J (Bonus approach)
Balances after admission of J (Revaluation approach)
Gain or (loss) through use of bonus approach
Problem IV
1. Phoenix, Capital
Dallas, Capital
P 25,080 P 12,720 P 16,200
25,440
12,960
15,600
P( 360) P( 240) P
600
22,500
22,500
2. Phoenix, Capital
Tucson, Capital
Dallas, Capital
18,000
10,000
3. Cash
60,000
28,000
Phoenix, Capital (P60,000 - P40,000) &times; .50
Tucson, Capital
Dallas, Capital
10,000
10,000
40,000
(P90,000 + P50,000) + P60,000 = P200,000; Therefore, no goodwill is to be recognized.
Dallas, capital = P200,000  0.20 = P40,000
4. Goodwill
Phoenix, Capital
Tucson, Capital
20,000
10,000
10,000
P40,000/0.20 = P200,000
Goodwill = P200,000 - (P90,000 + P50,000 + P40,000) = P\$20,000
lOMoARcPSD|9418122
Cash
40,000
Dallas, Capital
40,000
Problem V
1. Book value of interest
interest acquired = (P180,000
(P180,000 + P90,000)
P90,000) &acute; 1/3 = \$90,000
Bonus Method
Cash
90,000
Moore, Capital
90,000
2. Book value of interest
interest acquired = (P180,000
(P180,000 + P120,000)
P120,000) &acute; 0.45 = P135,000
P135,000
Book value of interest is greater than assets invested.
Bonus Method
Cash
Brown, Capital (0.60 &acute; P15,000)
Coss, Capital (0.40 &acute; P15,000)
Moore, Capital
120,000
9,000
6,000
135,000
The goodwill method is not applicable because the partners agreed to total capital interest
of P300,000.
1
3. Book value of interest
interest acquired (P180,000
(P180,000 + P120,000)
P120,000) &acute; 3 = P100,000
Bonus method cannot be used because Moore will not accept less than P120,000 capital
interest.
Goodwill Method
Total capital implied from contract [P120,000/(1/3)]
P360,000
Minus current capital balance + Moore's investment (P180,000 + P120,000)300,000
Goodwill
P60,000
Goodwill
Brown, Capital (0.60 &acute; P60,000)
Coss, Capital (0.40 &acute; P60,000)
Cash
60,000
36,000
24,000
120,000
Moore, Capital
120,000
4. Book value of interest
interest acquired (P180,000
(P180,000 + P40,000)
P40,000) &acute; &frac14; = P55,000
Book value of interest acquired is greater than assets invested.
Bonus Method
Cash
Cash
Brown, Capital (0.60 &acute; P15,000)
40,00
40,000
0
9,000
lOMoARcPSD|9418122
Coss, Capital (0.40 &acute; P15,000)
Moore, Capital
6,000
55,000
5. Book value of interest
interest acquired (P180,000
(P180,000 + P35,000)
P35,000) &acute; 0.20 = P43,000
P43,000
Book value of interest acquired is greater than the asset invested.
Goodwill Method
Total capital
P225,000
Minu
Minuss reco
record
rded
ed val
value
ue of
of net
net asse
assets
ts + Moo
Moore
re's
's inv
inves
estm
tmen
entt (P18
(P180,
0,00
000
0 + P35
P35,0
,000
00))
215,000
Goodwill
P10,000
Cash
Goodwill
Moore, Capital
35,000
10,000
45,000
6. Book value of interest acquired
acquired (P180,000 + P150,000)
P150,000) &acute; (1/3) = P110,000
Book value of interest acquired is less than asset invested.
Bonus Method
Land
150,000
Brown, Capital (0.60 &acute; P40,000)
Coss, Capital (0.40 &acute; P40,000)
Moore, Capital
24,000
16,000
110,000
Goodwill Method
Net value of firm implied by contract [P150,000/(1/3)]
Minu
Minuss cur
curre
rent
nt capi
capita
tall + Mo
Moor
ore'
e'ss inv
inves
estm
tmen
entt (P1
(P180
80,0
,000
00 + P150
P150,0
,000
00))
Goodwill
P450,000
330,
330,00
000
0
P120,000
Goodwill
Brown, Capital (0.60 &acute; P120,000)
Coss, Capital (0.40 &acute; P120,000)
120,000
Land
150,000
72,000
48,000
Moore, Capital
150,000
7. Bonus
Bonus Metho
Method
d
Brown, Capital (0.30 &acute; P92,000)
Coss, Capital (0.30 &acute; P88,000)
Moore, Capital
27,600
26,400
54,000
Problems- VI
1. (a) Goodwill method:
Cash………………………………………………………… 5,000
Goodwill…………………………………………………… 4,200
Mason, Capital…………………………………………
Norr
Norris
is,, Capi
Capita
tal…
l………
…………
…………
…………
…………
…………
…………
……….
…...
2,520
1,68
1,680
0
lOMoARcPSD|9418122
Oster,
Oster, Capital…………………………………………..
5,000
Computation of goodwill:
Total
Total capital after adjustment for goodwill,
P5,000 / .25…………………………………………….. P20,000
Total
Total capital before adjustment for goodwill….. 15,800
Goodwill allowed old partners……………………..P 4,200
Distribution of goodwill:
Mason: 3/5 of P4,200…………………………………P 2,250
Norris: 2/5 of P4,200…………………………………… 1,680
P 4,200
(b)Bonus method:
Cash………………………………………………………… 5,000
Mason, Capital…………………………………………
630
Norri
orriss, Cap
Capita
ital………
l……………
…………
…………
…………
…………
…………
……….
…...
420
Oster,
Oster, Capital…………………………………………..
3,950
Computation of bonus:
Amount invested by Oster………………………….. P 5,000
Oster’s interest, 25% of P 15,800………………..….. 3,950
Bonus allowed old partners………………………… P 1,050
Distribution of bonus:
Mason: 3/5 of P1,050…………………………………. P 630
Norris: 2/5 of P1,050…………………………………… 420
P 1,050
(c) The bonus method will be preferred by Oster, who will gain P350. Norris will gain P140,
while Mason will lose P490.
COMPARISON WHEN GOODWILL IS FOUND TO EXIST
GoodOther
Mason
Mason
Norris
Oster
will__
Assets
Capital Capital Capital
P4,200
P15,800
P8,520
P6,480
P5,500
P15,800
P6,630
P5,220
P3,950
When goodwill method is used…..
When bonus method is used………
Add recognition of goodwill
(gain distributed in profit and loss
ratio, equally)………………………. P4,200
P4,200
Gain (loss) through use of
bonus method……………………….
1,400
1,400
1,400
P8,030
P6,620
P5,350
P15,800
(P 490)
P 140
P350
COMPARISON WHEN GOODWILL IS NOT REALIZED
When bonus method is used………
When goodwill method is used…..
goodwill
(loss distributable equally)…………
GoodOther
Mason
Mason
Norris
Oster
will__
Assets
Capital Capital Capital
P15,800
P6,630
P5,220
P3,950
P4,200
P15,800
P8,520
P6,480
P5,500 Deduct write-off of
P4,200
P15,800
Gain (loss) through use of
bonus method……………………….
1,400
1,400
P7,120 P5,080
(P 490)
P 140
2. (a) Goodwill method:
Cash………………………………………………………… 5,000
Goodwill…………………………………………………… 2,200
1,400
P3,600
P350
lOMoARcPSD|9418122
Oster, Capital…………………………………………..
7,200
Computation of goodwill:
Total capital after adjustment for goodwill,
P10,800 / .60…………………………………………….P18,000
Total capital before adjustment for goodwill…..
15,800
Goodwill allowed to Oster………………………….. P 2,200
(b)Bonus method:
Cash………………………………………………………… 5,000
Mason, Capital…………………………………………… 792
Norris, Capital…………………………………………….. 528
Oster, Capital…………………………………………..
6,320
Computation of bonus:
Oster’s interest, 40% of P 15,800………………..….. 6,320
Amount invested by Oster………………………….. P 5,000
Bonus allowed to Oster……………………………… P 1,320
Charge to partners for bonus allowed to Oster:
Mason: 3/5 of P1,320…………………………………. P 792
Norris: 2/5 of P1,320……………………………………
528
P 1,320
(c) The goodwill method will be preferred by Oster, who will gain P146.66. Norris’ loss is
P205.33, and Mason’s gain is P58.67.
COMPARISON WHEN GOODWILL IS FOUND TO EXIST
GoodOther
Mason
Norris
Oster
will__
Assets
Capital Capital Capital
P2,200
P15,800
P6,000
P4,800
P7,200
P15,800
P5,208
P4,272
P6,320
When goodwill method is used…..
When bonus method is used………
Add recognition of goodwill
(gain distributed in profit and loss
ratio, equally)………………………. P2,200
P2,200
Gain (loss) through use of
bonus method……………………….
733.33
733.33
733.34
P15,800 P5,941.33 P5,005.33 P7,053.34
(P 58.67) P 205.33 (P146.66)
COMPARISON WHEN GOODWILL IS NOT REALIZED
Goodwill__
When bonus method is used………
When goodwill method is used…..
goodwill
(loss distributable equally)…………
Gain (loss) through use of
bonus method……………………….
P2,200
P2,200
Other
Mason
Norris
Oster
Assets
Capital Capital Capital
P15,800
P5,208
P4,272
P3,950
P15,800
P6,000
P4800
P7,200 Deduct write-off of
733.33
733.33
733.34
P15,800 P5,266.67 P4,066.67 P6,466.66
(P58.67)
P205.33 (P146.66)
Problem VII
1. The total interest of the retiring partner K amounted to:
Capital interest………………………………………………….P 36,000
Share in net income…………………………………….. 7,200
Loan receivable………………………………………….( 6,000)
lOMoARcPSD|9418122
Total Interest of K before his retirement............................P 37,200
2.
a. Payment at Book Value (Settlement price is equal to the interest of retiring partner).
The entry to record the transaction in the books follows:
K, capital…………………………………………………………. 37,200
Cash………………………….…………………………..
37,200
b. Payment at More than Book Value ((Settlement price is greater than the interest of
retiring partner).
b.1. Bonus to Retiring Partner. The excess is considered bonus chargeable to L and M.
The entry to record the transaction in the books follows:
K, capital…………………………………………………………. 37,200
L, capital (P4,800 x 5/7)……………………………………….. 3,429
M, capital (P4,800 x 2/7)………………………………………. 1,371
Cash………………………….…………………………..
42,000
Amount paid………………………..………………………….. P 42,000
Less: BV of K’s total interest (30%).……..…….....................
Bonus to Retiring Partner……………………………………… P 4,800
37,200
The following items should be observed:
1. It should be observed that under bonus approach, undervaluation of net assets should not
be recorded for this will be in contradiction of current accounting standards.
2. The capital balances of the partners after the retirement of K are as follows:
L, capital (P48,000 + P12,000, profit – P3,429, bonus)………………P56,571
M, capital (P18,000 + P4,800 profit – P1,371, bonus)……………….. 21,429
Assuming the same data, except that by mutual agreement the inventory is to be
adjusted to their fair value. Then, the undervalued asset should be recorded first before
the settlement.
The entries to record the transaction in the books follows:
Inventory………………………………………………………… 4,800
K, capital (P4,800 x 30%)…………………………….
L, capital (P4,800 x 50%)……………………………..
M, capital (P4,800 x 20%)……………………………
1,440
2,400
960
K, capital………………………………………………………….38,640
L, capital (P3,360 x 5/7)……………………………………….. 2,400
M, capital (P3,360 x 2/7)………………………………………
960
Cash………………………….………………………….
Amount paid………………………..…………………………... P 42,000
Less: BV of K’s total interest (30%) - (P37,200 + P1,440)....
Bonus to Retiring Partner……………………………………… P 3,360
42,000
38,640
lOMoARcPSD|9418122
b.2: Partial Revaluation (Goodwill) to Retiring Partner.
The entries to record the transaction in the books follows:
Inventory………………………………………………………… 4,800
K, capital (P4,800 x 30%)……………………………..
1,440
L, capital (P4,800 x 50%)……………………………..
2,400
M, capital (P4,800 x 20%)…………………………….
960
K, capital…………………………………………………………. 38,640
Assets (Goodwill)……………………………………………….. 3,360
Cash………………………….…………………………..
42,000
Amount paid………………………..………………………….. P 42,000
Less: BV of K’s total interest (30%) - P37,200 + P1,440........
38,640
Partial revaluation (goodwill) to Retiring Partner………… P 3,360
The following items should be observed:
1. Some argue that, in accordance with the cost basis, only the revaluation (goodwill) of
P3,360 that has been purchased should be recorded.
2. The situation at bar is the same situation in admission by investment Case 9, that
recognition of understatement of assets is in compliance with GAAP under the revaluation
(goodwill) approach.
3. The capital balances of the partners after the retirement of K are as follows:
L, capital (P48,000 + P12,000, profit + P2,400, adjustment).………P62,400
M, capital (P18,000 + P4,800, profit + P960 adjustment)…….…… 23,760
A modified version of this partial revaluation (goodwill) approach happens assuming
that when assets and liabilities are revalued only to the extent of the excess payment
to K, the entry to record the transaction is as follows:
K, capital…………………………………………………………. 37,200
Assets ……………)………………………………………………. 4,800
Cash………………………….…………………………..
42,000
Amount paid………………………..………………………….. P 42,000
Less: BV of K’s total interest (30%)…………………….........
37,200
Partial revaluation (goodwill) to Retiring Partner………… P 4,800
b.3: Total Revaluation (Goodwill) to Retiring Partner.
The entries to record the transaction in the books follows:
Inventory………………………………………………………… 4,800
K, capital (P4,800 x 30%)……………………………..
L, capital (P4,800 x 50%)……………………………..
M, capital (P4,800 x 20%)…………………………….
1,440
2,400
960
The excess is considered as revaluation (goodwill) to be recognized.
Assets (Goodwill)……………………………………………….. 11,200
lOMoARcPSD|9418122
Problem XII
1. Cash
Inventory
Equipment
Snow, Capital
20,000
15,000
67,000
102,000
Cash
Land
50,000
120,000
Mortgage Payable
Waite, Capital
2. Snow, Capital
Waite, Capital
Income Summary
40,000
130,000
7,680
16,320
24,000
Snow
Net loss to be allocated
Interest on capital investment
P102,000  10%
P130,000  10%
Salaries to partners
Waite
Total
P10,200
15,000
Allocation 40:60
Net loss allocated to partners
(32,880)
P(7,680)
P13,000
20,000
(49,320)
P(16,320)
3. Cash
Snow, Capital (P13,400  40%)
Waite, Capital (P13,400  60%)
Young, Capital
Capital interest of Snow (P102,000 - P7,680)
Capital interest of Waite (P130,000 - P16,320)
Investment of Young
Total capital interest in new partnership
Percentage acquired by Young
Capital interest of Young
Investment by Young
Bonus to Young
70,000
5,360
8,040
83,400
P94,320
113,680
70,000
278,000
30%
83,400
(70,000)
P13,400
4. Income Summary
Snow, Capital (P150,000  20%)
Waite, Capital (P150,000  50%)
Young, Capital (P150,000  30%)
150,000
5. Snow, Capital*
Waite, Capital (P18,960
Young, Capital (P18,960
Cash
118,960
50/80)
 30/80)

P23,200
35,000
58,200
(82,200)
P(24,000)
30,000
75,000
45,000
11,850
7,110
40,000
lOMoARcPSD|9418122
Note Payable
60,000
*P102,000 - P7,680 - P5,360 + P30,000 = P118,960
Problem XIV
Multiple Choice Problems
1. c
Note: A partnership is not dissolved when a partner assigns his or her interest in the partnership to a third party
because such an assignment does not in itself change the relations among partners. Such assignment only entitles the
assignee to receive the assigning interest partner’s interest in future partnership profits and in partnership assets in
the event of liquidation. The assignee does not become a partner, however, and does not obtain the right to share in
management of the partnership. If the assignee does not become a partner, the only change required on the
partnership books is for transfer of the capital interest of the assignor partner to the assignee. The assignment by A to
D of his 50% interest in the BIG Entertainment Company is recorded are follows:
A, Capital (P168,000 x 1/4)................................................................. 42,000
D, Capital..............................................................................
42,000
The amount of the capital transfer is equal to the recorded amount of A’s capital at the time of the assignment, and it
is independent of the consideration received by A for his 1/4 interest. If the recorded amount of A’s is P42,000, then
the amount of the transfer entry is P42,000, regardless of whether D pay A P42,000 or some amount. Therefore, the
capital of the partnership after the assignment of interest remains the same at P480,000.
2. c
Amount paid……………………………………………………………………………….P 200,000
Less: Book value of interest acquired: (P100,000 + P200,000 + P300,000) x 25%..
150,000
Excess – partial goodwill…………………………………………………………………P 50,000
Divided by: capitalization rate based on interest acquired………………….......
25%
Goodwill or revaluation of asset upward…………………………………………….P 200,000
Jethro: [P200,000 + (P200,000 x 30%)] x 75% = P195,000
3. b
Amount paid
Less: Book value of interest acquired:
(P140,000 x &frac14;)
Excess
Capitalized at: P&amp;L of W
Goodwill/revaluation
P40,000
35,000
P 5,000
1/4
P20,000
E: [P80,000 + (P20,000 x 60%)] x 3/4 = P69,000
G: [P40,000 + (P20,000 x 30%)] x 3/4 = P34,500
D: [P20,000 + (P20,000 x 10%)] x 3/4 = P16,500
4. a
Amount paid………………………………………………………………………………P 60,000
Less: Book value of interest acquired: P120,000 x 40%…………………................
48,000
Difference…………..……………………………………………………………………...P 12,000
lOMoARcPSD|9418122
Divided by: Capital Interest………………………………………………………….......
40%
Goodwill…………………………………………………………………………………….P 30,000
LL: P50,000 + (P30,000 x &frac12;) = P65,000 – (P60,000 x &frac12;) = P35,000
QQ: P70,000 + (P30,000 x &frac12;) = P85,000 – (P60,000 x &frac12;) = P55,000
DD: Since there is an adjustment, the capital of the new partner will always be
the same with the amount paid, P60,000.
5. d - The amount that Richard will pay Ray depends on many factors and cannot be
determined from the information provided here.
6.
b
Amount paid
Less: Book value of interest acquired
(P444,000 x 1/5)
Gain- personal (to N, S &amp; J)
P132,000
88,800
P 43,200
7. c
Total agreed capital* (P74,000 + P130,000 + P96,000)/80% ............ P375,000
Less: Total contributed capital *...............…………………………..... 375,000
Difference .......................................………………..………………….. ..P
0
*since no goodwill or revaluation is allowed total agreed capital is the same with total contributed
capital.
The contributed capital or investment of the new partner will be computed based on
total agreed capital.
Total contributed capital………………………………………….. . P375,000
Less: Total contributed capital of old partners............................ 300,000
Investment or contribution of new partner..................................P 75,000
or,
Total contributed capital………………………………………….. . P375,000
Multiplied by: Capital interest of Jones (new partner)………...
20%
Investment or contribution of new partner..................................P 75,000
8. b
Total Agreed Capital
P180,000
Multiplied by: Interest acquired by K
1/3
Agreed capital of K
P 60,000
Cash investment by K
50,000
Bonus to K
P 10,000
Therefore, E= P70,000 – (P10,000 x 70%) = P63,000
D= P60,000 – (P10,000 x 30%) = P57,000
J=
P50,000
9. b - Total capital is P200,000 (P110,000 + P40,000 + P50,000) after the new investment.
As Kansas's portion is to be 30 percent, the capital balance would be P60,000
lOMoARcPSD|9418122
balance............................................................................. P146,000
54. c
balance............................................................................. P146,000
Less: Liabilities (P16,400 +
P750)..................................................................
17,150
assets..................................................................................... P128,850
Less: Common stock, P5 par x 10,000 shares.....................……………...
50,000
Additional paid-in capital…………………………………………………… P 78,850
Quiz-III
1. a
2. d
3. a
4. b
5. c
6. d
7. c
8. a
9. d
Problems
1. P19,000
2.
PP invests P17,000; no goodwill/revaluation recorded:
Investment in partnership
P 17,000
New partner's proportionate book value
[(P60,000 + P17,000) x 1/5]
(15,400)
Difference (investment &gt; book value)
P 1,600
Method: Bonus to prior/old partners
PP's capital credit = P77,000 x 1/5
= P15,400
3.
Messalina, P216,000; Romulus, P144,000 and Claudius, P90,000
Total capital is P450,000 (P210,000 + P140,000 + P100,000) after the new investment. As
Claudius's portion is to be 20 percent, the new capital balance would be P90,000
(P450,000 &times; 20%). Since P100,000 was paid, a bonus of P10,000 is being given to the two
original partners based on their profit and loss ratio: Messalina – P6,000 (60%) and
Romulus – P4,000 (40%). The increase raises Messalina's capital balance from P210,000 to
P216,000 and Romulus's capital balance from P140,000 to P144,000.
4. P107,500 = [(P70,000 + P120,000 + P90,000 + P150,000)/.80](.20)
5. P337,500 = P250,000 + (P125,000 x .70)
6. P121,250 = [P120,000 - (P170,000 + P260,000 + P120,000)(.25)](.70)
lOMoARcPSD|9418122
7. Abele, P300,000; Boule, P480,000; Dann, P420,000
8. Brown, P156,000; Green, P99,000; Red, P45,000
9. Shrek, P195,000; Fiona, P123,750; Muffin, P56,250
10. Total partnership net assets can logically be revalued to P1,080,000 on the basis of the price paid by Mary
Ann.
11. P180,000
12. Net assets of the partnership will increase by P190,000, including Professor’s interest.
13. P120,000
14. b
15. c - (P150,000 + P200,000 + P120,000)(.20) = P94,000
16. P130,000
(P150,000 + P200,000 + P120,000)(.20) = P94,000, goodwill to existing partners
P120,000 + P0 = .2(P150,000 + \$200,000 + P120,000 + goodwill)
P120,000 = P94,000 + .2 goodwill
P26,000 = .2 goodwill
Goodwill = P130,000
17. b
(P250,000 + P300,000 + P225,000)(.25) = P193,750
18. P125,000
(P250,000 + P300,000 + P225,000)(.25) = P193,750, goodwill to existing partners
P225,000 + P0 = .25 (P250,000 + P300,000 + P225,000 + goodwill)
P225,000 = P193,750 + .25 goodwill
P31,250 = .25 goodwill
Goodwill = P125,000
19. P145,000
Craig receives an additional P10,000. Since Craig is assigned 20 percent of all profits and losses, this
allocation indicates total goodwill of P50,000.
20% of Goodwill = P10,000
.20 G = P10,000
G = P10,000/.20
G = P50,000
Montana is assigned 30% of all profits and losses and would, therefore, record P15,000 of this goodwill, an
entry that raises this partner's capital balance from P130,000 to P145,000.
20.
21.
22.
23.
24.
25.
26.
a – [(P80,000  P60,000)  3 + P6,667]
Susan’s capital account balance cannot be determined from the information given
P445,000 = P80,000 + P110,000 + P55,000 + P200,000
P24,000 = (P250,000 - P210,000)(45/75)
P136,000 = P160,000 - (P250,000 - 210,000)(45/75)
P172,500 = P150,000 + (P75,000 x .3)
P257,250 = P135,000 + (P75,000 x .25) + [P150,000 + (P75,000 x .30)](.60)
27. Donald, P55,000; Todd, P60,000
lOMoARcPSD|9418122
Anne receives an additional P30,000 above her capital balance. Since she is assigned
40 percent of all profits and losses, this extra allocation indicates total goodwill of
P75,000, which must be split among all partners. 40% of Goodwill = P30,000
Amount paid
Less: Book value of Anne (40%)
Capitalized at
Goodwill/revaluation
P 80,000
50,000
P 30,000
40%
P 75,000
Goodwill/assets
Donald (20%)
Anne (40%)
Todd (40%)
75,000
15,000
30,000
30,000
Anne (P50,000 + P30,000)
Cash
80,000
80,000
Donald: P40,000 + P15,000 = P55,000
Todd: PP30,000 + P30,000 = P60,000
28. Donald, P30,000; Todd, P10,000
The P30,000 bonus is deducted from the remaining partners according to their relative
profit and loss ratio. Donald = 20% and Todd = 40% which is a 1/3, 2/3 split.
Anne
Donald (P30,000 x 2/6)
Todd (P30,000 x 4/6)
Cash
50,000
10,000
20,000
80,000
Therefore: Donald: P40,000 – P10,000 = P30,000; Todd: P30,000 – P20,000 = P10,000
29. P40,000 - refer to No. 28 (P30,000 + P10,000 = P40,000)
30. Prefer bonus method due to ZZ’s gain of P35,000
Goodwill method: Using the capital of new partner as a basis for computing total agreed
capital.
Total agreed capital (P500,000 &divide; 25%)
P2,000,000
Less: Total contributed capital (P600,000 + P480,000 +
1,580,000
P500,000)
Goodwill to old partners
P 420,000
Therefore, the capital balances after admission of ZZ:
XX: [P600,000 + (P420,000 x 3/5)]
YY: [P480,000 + (P420,000 x 2/5)]
ZZ:
Total agreed capital
Bonus Method:
Total agreed capital (P600,000 + P480,000)( P500,000)
Multiplied by; ZZ’s capital interest
P852,000
648,000
500,000
P2,000,000
P 1,580,000
25
%
lOMoARcPSD|9418122
Agreed capital to be credited to ZZ
Contributed / invested capital of ZZ
Bonus to XX and YY (old partners)
The bonus would be added to XX and YY:
XX: [P600,000 + (P105,000 x 3/5)]
YY: [P480,000 + (P105,000 x 2/5)]
ZZ
Total agreed capital
P 395,000
500,000
P 105,000
P 663,000
522,000
395,000
P 1,580,000
For the purposes of comparing bonus and goodwill, there are two alternatives presented:
Alternative 1: if goodwill is found to exist:
XX
YY
ZZ
Goodwill Method is used
P 852,000
P 648,000
P 500,000
Bonus Method is used
P 663,000
P 522,000
P 395,000
140,000
140,000
140,000
equally)
P803,000
P 662,000
P 535,000
(Gain) Loss – Bonus method
P 49,000
P (140,000)
P 35,000
Alternative 2: If goodwill is not realized and written-off as a loss:
XX
YY
Goodwill Method is used
P 852,000
P 648,000
Less: Write-off of goodwill
140,000
140,000
(equally)
P 712,000
P 508,000
Bonus Method is used
663,000
522,000
(Gain) Loss – Bonus method
P 49,000
P (140,000)
ZZ
P 500,000
140,000
P 360,000
395,000
P 35,000
Note: The bonus method adheres to the historical cost concept and it is often used in accounting practice. It is objective
that is establishes total capital of the new partnership at an amount based on actual consideration received from the new
partner. The bonus method indirectly acknowledges the existence of goodwill by giving a bonus to either old or new
partners.
The goodwill method results in the recognition of an asset implied by a transaction rather than recognizing an asset
actually purchased. Historically, goodwill has been recognized only when purchased so that a more objective measure of
its value is established. Therefore, opponents of the goodwill method contend that goodwill is not determined objectively
and other factors may have influenced the amount of investment required from the new partners.
Although either method can be used in achieving the required interest for the new partner, the two methods offer the
same ultimate results only:
1. When the incoming partner’s percentage share of profit and loss and percentage interest in assets upon
admission are equal, and
2. When the former partners continue to share profits and losses between themselves in the original ratio.
If these conditions are not fully met, however, results will be different.
31. Be indifferent for the goodwill (revaluation) or bonus methods are the same.
Goodwill method: Using the capital of new partner as a basis for computing total agreed
capital.
Total agreed capital (P500,000 &divide; 25%)
P2,000,000
Less: Total contributed capital (P600,000 + P480,000 +
1,580,000
lOMoARcPSD|9418122
P500,000)
Goodwill to old partners
P 420,000
Therefore, the capital balances after admission of ZZ:
XX: [P600,000 + (P420,000 x 3/5)]
YY: [P480,000 + (P420,000 x 2/5)]
ZZ:
Total agreed capital
P852,000
648,000
500,000
P2,000,000
Bonus Method:
Total agreed capital (P600,000 + P480,000)( P500,000)
Multiplied by; ZZ’s capital interest
P 1,580,000
25
%
P 395,000
500,000
P 105,000
Agreed capital to be credited to ZZ
Contributed / invested capital of ZZ
Bonus to XX and YY (old partners)
The bonus would be added to XX and YY:
XX: [P600,000 + (P105,000 x 3/5)]
YY: [P480,000 + (P105,000 x 2/5)]
ZZ
Total agreed capital
P 663,000
522,000
395,000
P 1,580,000
For the purposes of comparing bonus and goodwill, there are two alternatives presented:
Alternative 1: if goodwill is found to exist:
XX
YY
ZZ
Goodwill Method is used
P 852,000
P 648,000
P 500,000
Bonus Method is used
P 663,000
P 522,000
P 395,000
Add: Goodwill* (45%: 30%:25%)
189,000
126,000
105,000
P852,000
P 648,000
P 500,000
(Gain) Loss – Bonus method
P
0
P
0
P
0
*XX: 75% x 3/5 = 45%; YY: 75% x 2/5 = 30%
Alternative 2: If goodwill is not realized and written-off as a loss:
XX
YY
Goodwill Method is used
P 852,000
P 648,000
Less: Write-off of goodwill*
189,000
126,000
P 633,000
P 522,000
Bonus Method is used
663,000
522,000
(Gain) Loss – Bonus method
P
0
P
0
ZZ
P 500,000
105,000
P 395,000
395,000
P
0
32. Be indifferent for the goodwill (revaluation) or bonus methods are the same.
*Goodwill (revaluation) method:
Amount paid
Less: Book value of interest – Neal (40%))
P300,000
250,000
P 50,000
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Capitalized at
Goodwill/revaluation
40%
P125,000
Neal
Palmer
Ruppe
Capital balances before withdrawal
250,000
150,000
100,000
Allocate goodwill*
50,000 37,500
37,500
300,000 187,500
137,500
Withdrawal of Neal
(300,000) _______
_______
187,500
137,500
Write-off Impaired Goodwill (125,000  0.50)_______
(62,500)
(62,500)
0
125,000
75,000
Capital balances using the bonus method**
125,000
75,000
33. Prefer bonus method due to Palmer’s gain of P12,500
Neal
Palmer
Ruppe
Capital balances before withdrawal
250,000
150,000
100,000
Allocation of goodwill*
50,000
37,500
37,500
300,000
187,500
137,500
Withdrawal of Neal
(300,000) _______
_______
-0187,500
137,500
Write-off Impaired Goodwill
125,000  0.60
(75,000)
125,000  0.40
________
_______
(50,000)
-0112,500
87,500
Capital balances using the bonus method**
125,000
75,000
(Gain) Loss – Bonus method
0
12,500
12,500
**The excess paid to Neal of P50,000 would have been divided equally between Palmer and Ruppe as follows:
Palmer
Capital balance before withdraw
Allocation of excess paid to Neal
Capital balance using bonus method
150,000
(25,000)
125,000
Ruppe
100,000
(25,000)
75,000
34. P82,000
Carrying value of net assets (P100,000 – P20,000)………………………P 80,000
Add: Adjustments to reflect fair value…………………………………… 12,000
Fair value of net assets………………………………………………………. P 92,000
Less: Common stock, P1 par (5,000 shares x 2 x P1……………………... 10,000
Additional paid-in capital…………………………………………………… P82,000
35. P54,350
Carrying value of net assets (P25,110 + P20,000))……………………… P 45,110
(P28,000 – P21,760) – P800 + [(P35,000 – (P32,400 – P11,200)]…
19,240
Fair value of net assets………………………………………………………. P 64,350
Less: Common stock, P1 par (10,000 shares x P1)……………………...
10,000
lOMoARcPSD|9418122
26. c
S
Total
Total
Capital
D
15,000
40,000
________
40,000
Loan
Total
Total interests
interests
5,000
_______
5,000
10,000
F
60,000
5,000
65,000
15,000
Loss on sale
sale (5:3:2) - [90,000 –
26,000]
(64,000)
(32,000)
8,000
( 19,200)
( 4,200)
Possible insolvency (5:3)
(12,800)
1,000
( 2,800)
2,800
( 1,050)
(1,750)
6,250
_______
6,250
0
( 5,250)
5,250
1,000
5,250
6,250
27. b
28. a –
Since the partnership currently has total capital of P350,000, the P150,000 that is available
available
would indicate maximum potential losses of P200,000 that is hypothetically split among the
partners.
White
Sands
Luke
Total
Capital before realization
100,000
200,000
50,000
350,000
Loss
Loss on sale
sale (30:
(30:20
20:5
:50)
0);; [35
[350
0 – 150]
150]
(200,00
(60,000)
( 40,000)
(100,000
0)
)
(10,000)
60,000
100,000
150,000
Possible insolvency (2:5)
10,000
(2,857)
(7,143)
0
Safe payments
57,143
92,857
15
150,000
29. b - (P13,000 – P1,000 share of gain = P12,000, refer to entries below)
Revaluation entry:
Accumulated depreciation
Gym, capital
Hob, capital
Ing, capital
3,000
1,000
1,000
1,000
Withdrawal of equipment:
Accumulated depreciation (8,000 – 3,000)
Hob, capital
Equipment
5,000
13,000
18,000
30. b –
Accumulated depreciation
70,000
K, cap
capita
itall (P150
(P150,00
,000
0 + P10,
P10,000
000 + P10,0
P10,000
00 – P70,00
P70,000)
0) 100,0
100,000
00
Machinery, at cost
150,000
Rice [P110,000 – (P150,000 – P70,000)] x 1/3
10,000
Long [P110,000 – (P150,000 – P70,000)] x 1/3
10,000
31. c
Capita
Capi
tall befo
before
re real
realiz
izat
atio
ion
n
Loss on sale
(35%:35%:30%)
X
90,0
90,000
00
(42,000)
Y
60,0
60,000
00
Z
30,0
30,000
00
(42,000)
(36,000)
Total
180,
180,00
000
0
*(120,00
0)
lOMoARcPSD|9418122
( 6,000)
48,000
60,000
18,000)
*balancing gure – total reduction in capital
Quiz - IV
1. Zero/nil
B
Capital
tal before realization
P
110,000
L
100,000
( 30,000)
80,000
(15,000)
85,000
25,000
(45,000)
Loss on sale (3:2:1:4))
S
65,000
(60,000)
5,000
(20,000)
(20,000)
( 5,714)
( 2,857)
(11,429)
74,286
82,143
( 6,429)
( 4,286)
( 2,143)
6,429
70,000
80,000
2. Zero/nil – refer
refer to No. 1
3. Page, P70,000 and Larry, P80,000 – refer to No.
No. 1
4. P39,525 = P42,000
P42,000 - (P15,000 - P9,500)(.45)
5. P56,750 = P56,000
P56,000 + [P10,000 - (P25,000 - P18,000)](.25)
P18,000)](.25)
6. P(1,000) = P20,000
P20,000 - [P30,000 + (P50,000 - P90,000)](.30)
P90,000)](.30)
7. P(1,500) = P30,000
P30,000 - [P30,000 + (P50,000 - P90,000)](.45)
P90,000)](.45)
8. P(2,500) = P15,000
P15,000 - [P30,000 + (P50,000 - P90,000)](.25)
P90,000)](.25)
9. P340,000 = (P147,000 + P28,000)/.35
10. P1,040,000 = (P260,000
(P260,000 / .25)
.25)
11. Abrams and Creighton
A
Capita
Capi
tall befo
before
re real
realiz
izat
atio
ion
n
Liquidation expenses
Loss on sale (134 - 434)
B
80,0
80,000
00
90,0
90,000
00
(3,600)
(90,000)
(2,400)
(13,600)
C
130,
130,00
000
0
(6,000)
(300,000)
(60,000)
27,600
(176,000
)
12. Tom, P30,000; Dick, P4,000 and harry, P11,000
T
D
Capital before realization
40,000
10,000
Loss on sale (85,000 –
(10,000)
(6,000)
65,000)
30,000
4,000
H
15,000
(4,000)
11,000
13. P34,000
Capi
Ca
pita
tall befo
beforre reali
ealiza
zati
tion
on
Liquidation expenses
Loss on sale (300 - 180)
K
60,0
60,000
00
L
40,0
40,000
00
M
80,
80,000
000
(2,000)
(24,000)
( 4,000)
( 4,000)
(48,000)
(1
( 12,000)
( 48,000)
28,000
34,000
_____
34,000
12,000
______
28,000
14. P25,000
P25,000
Cash, beginning
P90,000
lOMoARcPSD|9418122
Payment of liquidation expenses
Payment of liabilities
Payment to partners
( 5,
5,000)
( 60,000)
P25,000
15. P15,000
B
P
110,000
Capital
tal before realization
L
100,000
25,000
(60,000)
Loss on sale (4:2:1:3)
S
65,000
(45,000)
( 30,000)
80,000
(15,000)
85,000
20,000
(35,000)
(35,000)
(11,667)
( 5,833)
(17,500)
15,000
68,333
79,167
2,500
16. P2,500 - refer to No. 15
17. Page,
Page, P68,3333
P68,3333 and Larry, P79,167
P79,167 – refer
refer to No.15
No.15
18.
18.
Bond
Bond:: P225,0
P225,000;
00; Hamm
Hamm:: P115,0
P115,000
00;; Zell
Zell:: P –0–
–0–
Bond’s capital balance................
balance............................
...................................
.......................
Less: Bond’s share of P140,000 loss in liquidation
(P140,000
(P140,000 &times; 50%) ........
............
........
........
........
.........
.........
........
........
........
........
...........
.........
..
_____
_____
P230,000
Less: Bond’s share of Zell’s capital deciency of
P8,000
P8,000 (5/8 of P8,000)..
P8,000)......
........
........
........
........
............
................
................
..............
......
19.
19.
P300,000
(70,000)
(
5,000)
5,000)
P225
P2 25 ,000
,0 00
Alex
Alexa:
a: P25,
P25,00
000;
0; Bell:
Bell: P75,
P75,00
000;
0; Grah
Graham
am:: P–0–
P–0–
20. Jody, P5,200; Kane,
Kane, P64,800;
P64,800; Lark, P10,000
Balance, May 1
Plant sold
Inventory sold
Balances before
distribution
Oset loans
Pay creditors
Partner equity
Possible loss:
Plant assets
Distribution
Assets
250,000
10,000
6,000)
(
254,000
26,000)
88,000) (
140,000
(
(
(
(
30%
Jody
32,000
3,000
1,800 )
(
33,200
10,000 )
Debts
88,000
88,000
45%
Kane
90,000
4,500
2,700 )
(
(
25%
Lark
40,000
2,500
1,500 )
(
41,000
16,000 )
91,800
88,000 )
23,200
60,000)
80,000
(
18,000 )
5,200
91,800
(
27,000 )
64,800
25,000
(
15,000 )
10,000
(Cash Distribution: P54,000 + P54,000 + P60,000 - P88,000 = P80,000)
May 1 Inventory Plant Creditors May 30
21. Oak, P0; Nebe,
Nebe, P0; and Pang,
Pang, P11,000
NonCash
Cash
Assets
Jan 1 Balance
Balance
3,000
33,000
Sale of assets
17,000
( 15,000 )
Subtotal
20,000
18,000
First
Rank
Debt
9,00
0
9,00
0
30%
Oak
Equity
2,000
20%
Nebe
Equity
4,000
50%
Pang
Equity
21,000
600
400
1,000
2,600
4,400
22,000
Safe Payments Schedule
Oak
Equity
Nebe
Equity
Pang
Equity
lOMoARcPSD|9418122
Partners’ pre-distribution balances
Possible losses on non-cash assets
2,600
( 5,400 ) (
( 2,800 )
2,800
(
0
Write o Oak 2/7 and 5/7
Cash distribution to partners
4,400
3,600
800
800
0
22,000
) ( 9,000
13,000
) ( 2,000
11,000
)
)
Cash distribution plan on October 31:
First P9,000 goes to priority creditors, and then Pang receives P11,000.
22. Ide, P0; Hanly, P0; Jen, P92,000
Balance, Aug. 1
Ide’s personal
contribution
Ide
Capital
(
60,000
Cash
50,000
40,000
90,000
)
40,000
( 20,000 )
20,000
(
0
(
Write-o Ide
90,000
Hanly’s personal
contribution
2,000
(
Write-o Hanly
92,000
( 92,000
0
4,000
7,500
3,500
Jen
Capital
106,000
Total
50,000
106,000
) ( 12,500 )
)
93,500
2,000
92,000
Distribute cash
Hanly
Capital
4,000
1,500
1,500
0
)
)
(
(
93,500
1,500
92,000
92,000
)
92,000
0
) ( 92,000 )
0
92,000
Completion Statements
1.
a.partnership creditors other than partners
b.partners’ loans—if subordinated
c.partners’ capital
2.
statement of realization
realization and liquidation
3.
schedule of safe payments
4.
marshalling of assets
5.
rule of seto
6.
legal recourse against
7.
bringing the capital balances into the prot and loss ratio
True
True
False
False
True
True
18
.
19
.
20
.
21
.
False
True
True
True
True
False
23
.
24
.
25
.
26
.
90,000
2,000
Theories
True or False
8.
True
13
.
9.
False
14
.
10 False
15
.
.
11 False
16
.
.
40,000
90,000
False
28.
True
True
True
29.
False
False
30.
False
True
True
31.
False
33
.
34
.
35
.
True
True
True
True
False
lOMoARcPSD|9418122
12
.
True
17
.
True
22
.
True
27
.
True
32.
False
Note or the ollowing numbers:
9.
The accountant is liable i he/she ails to meet the fduciary responsibility o protecting
the creditors’ interest during the liquidation process.
10.
The amount o cash distributed to each partner is a unction o the capital balances and
the proft and loss ratios. It is unlikely that partners will receive the same amount o
cash.
11.
Partnership creditors have priority claims against partnership assets and partner
creditors have priority claims against partner assets.
14.
Partner creditors have claims frst against partner assets. They can also have a claim
against partnership assets to the extent o the partner’s equity in the partnership.
15.
The accountant has a fduciary responsibility to the partnership’s creditors to ensure that
sucient assets exist to pay the creditors. It does not mean that creditors must be ully
paid beore any partner distributions occur.
18.
Gains and losses realized during the liquidation process are generally allocated using the
residual proft and loss ratio. Other proft and loss allocation components are not
considered because these items are generally relevant to the partnership’s operation and
the current issue is the partnership’s liquidation.
21.
This is called an installment liquidation
23.
This document is called a Statement o Realization and Liquidation.
25.
The Statement o Realization and Liquidation does not include income statement
accounts. All income statement amounts are allocated directly to partnership equity.
Multiple Choice Theories
36. A
41 b
.
37. A
42 d
.
38. C
43 b
.
39. D
44 d
.
40. C
45 b
.
46
.
47
.
48
.
49
.
50
.
c
a
51
.
52
.
b
a
c
d
b
lOMoARcPSD|9418122
Chapter 5
Problem I
1.
A, B, C and D Partnership
Statement of Liquidation
January 1, 20x4 to May 31, 20x4
Cash
Balances before
Liquidation
January
- Realization
- Payment of
expenses
- Payment
of
liabilities
Balances after Jan
February
- Realization
- Payment of
expenses
- Payment
of
liabilities
Balances before
payment to
partners
Payment to
Partners (Sch.
1)
Balances after
February
March
- Realization
- Payment of
expenses
Balances before
payment to
partners
Payment to
Partners (Sch.
2)
Balances after
March
72,000
(66,00
0)
4,800
21,600
A, loan
84,000
6,000
D, loan
3,000
(90,00
0)
B,
capital
(20%)
C,
capital
(20%)
D,
capital
(20%)
26,400
25,800
20,400
16,200
(3,600)
(3,600)
(7,200)
(3,600)
( 240)
( 240)
( 480)
( 240)
______
91,800
(66,000)
18,000
_____
6,000
_____
3,000
______
______
______
18,720
______
21,960
16,560
12,360
(30,00
0)
(1,680)
(1,680)
(3,360)
(1,680)
( 528)
( 264)
( 264)
______
( 264)
______
14,616
10,416
______
_____
14,616
10,416
( 960)
( 960)
( 288)
( 288)
13,368
9,168
(5,568)
(1,368)
7,800
7,800
(2,760)
(2,760)
( 960)
( 960)
4,080
4,080
( 360)
( 360)
3,720
3,720
(3,120)
(3,120)
( 192)
( 192)
408
408
______
_____
(1,320)
(18,00
0)
_______
7,080
______
______
______
_______
61,800
6,000
3,000
14,832
20,016
( 5,280
)
______
______
_____
______
(5,280)
1,800
61,800
6,000
3,000
14,832
14,736
19,200
(24,00
0)
(1,920)
( 960)
(18,000)
( 1,440
)
______
______
_____
( 576)
( 288)
19,560
31,500
6,000
3,000
12,336
13,488
(18,36
0)
______
(2,736)
(3,000)
1,200
37,800
3,264
6,000
(5,688)
12,336
7,800
(19,80
0)
(5,520)
(2, 760)
(4,800)
______
(1,920)
( 960)
2,000
15,000
3,264
4,896
4,080
(1,500)
______
( 720)
500
18,000
2,554
2,400
(18,00
0)
May
- Realization
- Payment of
expenses
Balances before
Osetting
Oset decit vs.
Loan
Liabilities
A,
capital
(40%)
(1,200)
April
- Realization
- Payment of
expenses
Balances before
payment to
partners
Payment to
Partners (Note
1)
Balances after
April
NonCash
Assets
181,80
0
( 360)
4,896
3,720
(6,240)
(3,120)
( 960)
_____
( 384)
( 192)
1,440
______
2,554
(1,728)
( 1,728)
1,728
408
_____
lOMoARcPSD|9418122
Balances before
payment
Payment to
Partners (Note
2)
2,040
816
408
(2,040)
(816)
(408)
408
408
(408)
(408)
2.
A, B, C and D Partnership
Schedule of Safe Payments
Schedule 1 – February 28, 20x4
Computation of Distribution of Cash on February 28, 20x4
Balances before payment to partners:
Loans
Capital
Total Interest
Restricted interest for possible losses:
Unrealized non-cash assets
61,800
Cash withheld
1,800
A,
capital
(40%)
B,
capital
(20%)
C,
capital
(20%)
D,
capital
(20%)
6,000
14,832
20,832
20,016
20,016
14,616
14,616
3,000
10,416
13,416
(12,72
0)
(12,72
0)
1,896
(12,72
0)
696
(1,536)
360
( 420)
(
60)
60
(1,536)
( 840)
840
P
P 63,600
Restricted for possible insolvency of A (2:2:2)
(25,44
0)
( 4,60
8)
4,608
Restricted for possible insolvency of D (2:2)
Restricted for possible insolvency of C
Payment to partner (s)
Applied to:
Loans
Capital
7,296
(1,536)
5,760
( 420)
5,340
( 60)
5,280
-05,280
5,280
Schedule 2 – March 31, 20x4
Computation of Distribution of Cash on March 31, 20x4
B,
capital
(20%)
C,
capital
(20%)
D,
capital
(20%)
6,000
12,336
18,336
13,488
13,488
13,488
13,488
3,000
9,168
12,168
(15,600)
2,736
( 7,800)
5,688
( 7,800
)
5,568
( 7,800
)
4,368
2,736
___-02,736
-05,688
5,688
-05,568
5,568
3,000
1,368
4,368
A, capital
(40%)
Balances before payment to partners:
Loans
Capital
Total Interest
Restricted interest for possible losses:
Unrealized non-cash assets
Cash withheld
P 37,800
1,200
P 39,000
Applied to:
Loans
Capital
3.
T, U, V and W Partnership
Cash Payment Priority Program*
January 31, 20x4
Interests
Payments
T,
U,
V,
W,
T,
U,
V,
W,
lOMoARcPSD|9418122
Decrease LAPs
to next highest:
EE
(P10,000 x .30)
TT
(P10,000 x .20
.20)
10,000
(110,000)
3,000
(110,000)
10,00
,000
(110,000)
(55,000)
2,000
(2
(22,000)
(33,000)
Summary of Cash Distribution
(If Oer of P100,000 is Accepted)
Accounts
Pay
Pa yable
ab le
Cash available
First
Next
Next
in P&amp;L ratio
P106,000
(17,000)
(9,000)
(5,000)
PP
50%
50 %
EE
30%
30%
TT
20%
2 0%
P 9,000
3,000
P 2,000
22,500
P34,500
15,000
P17,000
P17,000
(75,000)
P
-0-
______
P17,000
P37,500
P37,500
Problem IV
PET Partnership
Statement of Partnership
Partnership Liquidation and Realization
From July 1, 20x4, through September 30, 20x4
Capital
Cash
Cas h
Preliquidation balances
July:
July:
Assets Realized
Paid liquidation costs
Paid creditors
Nonc
Nonca
ash
Assets
Ass ets
6,000
135,000
26,500
(1,000)
(17,000
)
14,500
(36,000)
Accou
ccoun
nts
Payable
Paya ble
( 17
17,000)
PP
EE
TT
20%
50%
(55,00
0)
30%
(45,000)
(24,000)
4,750
500
2,850
300
1,900
200
(49,75
0)
(41,850)
(21,900)
17,000
99,000
-0-
Safe Payments (Sch. 1)
6,500
(6,500)
8,000
August:
Equipment withdrawn
(allocate P6,000 gain)
Paid liquidation costs
99,000
-0-
(4,000)
(49,75
0)
(35,350)
(21,900)
(3,000)
(1,800)
8,800
450
(1,500)
6,500
95,000
-0-
750
(52,00
0)
Safe Payments (Sch. 2)
(36,700)
300
(12,800)
4,000
(4,000)
2,500
95,000
-0-
(52,00
0)
(32,700)
(12,800)
lOMoARcPSD|9418122
September:
Assets Realized
Paid liquidation costs
75,000
(1,000)
76,500
Payments to partners
Postliquidation balances
(95.000)
-0-
(76,500
)
-0-
10,000
500
(41,50
0)
41,500
-0-
-0-
-0-
6,000
300
4,000
200
(26,400)
(8.600)
26,400
8,600
-0-
-0-
0-
PET Partnership
Schedules of Safe Payments to Partners
Schedule 1: July 31, 20x4
Capital balances
Possible loss on noncash assets (P99,000)
Cash retained (P8,000)
Absorption of Pen's potential decit
EE: P3,750 x .30/.50
TT:
TT: P3,750 x .20/.50
PP
50%
(49,750)
49,500
4,000
3,750
(3,750)
EE
30%
(41,850)
29,700
2,400
(9,750)
TT
20%
(21,900)
19,800
1,600
(500)
2,250
-0-
Absorption of TT’s potential decit
EE P1,000 x .30/.30
Safe payment
(7,500)
-0-
Schedule 2: August 31, 20x4
Capital balances
Possible loss on noncash assets (P95,000)
Cash retained (P2,500)
Absorption of TTs’ potential decit
PP: P6,700 x .50/.80
EE: P6,700 x .30/.80
1,500
1,000
(1,000)
(52,000)
47,500
1,250
(3,250)
1,000
(6,500)
-0-
(36,700)
28,500
750
(7,450)
(12,800)
19,000
500
6,700
(6,700)
4,188
938
(938)
Absorption of PPs potential decit
EE: P938 x .30/.30
Safe payment
-0-
2,512
(4,938)
-0-
938
(4,000)
-0-
Problem V
DSV Partnership
Statement of Partnership Realization and Liquidation — Installment Liquidation
From July 1, 20x4, through September 30, 20x4
Capital
Preli
Preliqu
quida
idatio
tion
n balan
balances
ces,, 6/30
6/30
July, 20x4:
20x4: Sale of assets and
distribution of P120,000
loss
Cash
Cas h
Noncash
Asset
Ass ets
s
50,00
50,000
0
670,0
670,000
00
390,000
440,000
(510,000
)
160,000
Liabil
Lia biliti
itie
e
s
(405,0
(405,000
00
)
(405,000
)
Balanc
Bal ances
es
D
50%
S
30%
20%
20 %
(100,00
0)
(140,00
0)
(75,000)
36,000
24,000
(104,00
0)
(51,000)
60,000
(40,000)
V
lOMoARcPSD|9418122
Liquidation expenses
Payment to creditors
Payments to partners (Sch.
1)
750
(2,500)
437,500
160,000
(405,00
0)
32,5
32,500
00
(405,000
)
405,000
160,
160,00
000
0
-0-0-
(22,500)
10,000
,000
160,00
,000
22,000
32,000
,000
August, 20x4: Sale of assets
&amp;
distr
istrib
ibu
ution
tion of P13,00
,000 loss
oss
1,250
(38,750)
(103,25
0)
(50,500)
(38,
(38,75
750)
0)
(103
(103,2
,25
5
0)
22,5
22
,500
00
(50,500)
-0-0-
(38,75
,750)
(80,75
,750)
(50
(50,50
,500)
(35,000
)
125,00
,000
3,900
2,600
-0-0-
6,500
(32,25
,250)
(76,85
,850)
750
(47
(47,90
,900)
500
125,00
,000
-0-0-
1,250
(31,00
,000)
(76,10
,100)
13,700
(47
(47,40
,400)
5,800
125,00
,000
-0-0-
(31,00
,000)
(62,40
,400)
(41
(41,60
,600)
21,000
14,000
(41,
(41,40
400)
0)
2,400
(27,
(27,60
600)
0)
1,600
(39,
(39,00
000)
0)
(26,
(26,00
000)
0)
1,000
Liquidation expenses
Payments to partners (Sch.
2)
(2,500)
29,500
,500
(19,500
)
10,000
,000
September, 20x4: Sale of
assets
distribution of P70,000 loss
500
55,000
65,0
65,000
00
(125,000
)
-0-0-
-0-0-
35,000
4,00
4,000
0
65,0
65,000
00
-0-0-
-0-0-
(4,000)
-0-0-
(2,500)
62,5
62,500
00
-0-0-
-0-0-
-0-0-
Allocate D's decit to S and
V
Liquidation expenses
Payments to partners
1,500
(37,
(37,50
500)
0)
37,500
(62,500)
Postliquidation balances
(25,
(25,00
000)
0)
25,000
0-0-
-0-
-0-
-
-0-
-0-
0-
DSV Partnership
Schedule of Safe Payments to Partners
Schedule 1, July 31, 20x4:
Capital balances, July 31,
Before cash distribution
Assume full loss of P160,000 on
remaining noncash assets and
P10,000 in possible future
liquidation expenses
Assume D's potential decit
must be absorbed by S and V:
30/50 x P46,250
20/50 x P46,250
D
50%
S
30%
20%
(38,750)
(103,250)
(50,500)
85,000
46,250
51,000
(5
(52,250)
34,000
(16,500)
(46,250)
27,750
-0-
Assume V's potential decit
must be absorbed by S completely
Safe payments to partners
on July 31, 20x4
V
-0-
(2
(24,500)
18,500
2,000
2,000
(2,000)
(22,500)
Schedule 2, August 31, 20x4:
-0-
lOMoARcPSD|9418122
Capital balances, August 31,
before cash distribution
Assume full loss of P125,000 on
remaining noncash assets and
P10,000 in possible liquidation
Expenses
Assume D's potential decit
must be absorbed by S and V:
30/50 x P36,500
20/50 x P36,500
Safe payments to partners
(31,000)
(76,100)
(47,400)
67,500
36,500
40,500
(3
(35,600)
27,000
(20,400)
(36,500)
21,900
-0-
14,600
(5,800)
(13,700)
Problem VI: Cash Distribution Plan (or better use the ormat
ormat presented in the
discussion)
DSV Partnership
Cash Distribution Plan
June 30, 20x4
Loss Absorption Power
D
S
Capital Accounts
V
D
Prot and loss sharing ratio
Preliquidation capital balances
Loss absorption power (LAP)
capital accounts /
loss sharing percentage
50%
(100,000)
(200,00
0)
Decrease highest LAP to next
highest LAP:
Decrease S by P91,667
(Cash distribution: P91,667 x .
30)
20%
(75,000
)
(375,00
0)
(375,00
0)
(375,00
0)
(100,000)
(112,500)
(75,000
)
175,000
52,500
175,000
35,000
(200,00
0)
(200,00
0)
(200,00
0)
50%
30%
20%
(100,000)
(60,000)
Summary of Cash Distribution Plan
(Estimated on June 30, 20x4)
Liquidatio
n
Creditors
D
S
Expenses
First P405,000
30%
(140,000)
27,500
Decrease LAP to next highest
level:
Decrease S by P175,000
Cash distribution: P175,000 x .
30)
Decrease V by P175,000
Cash distribution: P175,000 x .
20)
1.
V
91,667
(200,00
0)
Decrease LAPs by distributing
cash in the P/L sharing ratio
(466,66
7)
S
100%
V
(40,000
)
lOMoARcPSD|9418122
2.
3.
4.
5.
Next P10,000
Next P27,500
Next P87,500
in the partners' prot
and loss ratio
100%
50%
100%
60%
40%
30%
20%
b. Conrmation of cash distribution plan
DSV Partnership
Capital Account Balances
June 30, 20x4, through September 30, 20x4
Prot and loss ratio
Preliquidation balances, June 30
July loss of P120,000 on disposal of assets
and P2,500 paid in liquidation costs
D
S
V
50%
(100,000)
30%
(140,000)
20%
(75,000)
61,250
(38,750)
36,750
(103,250)
24,500
(50,500)
(38,750)
22,500
(80,750)
(50,500)
7,750
(31,000)
4,650
(76,100)
3,100
(47,400)
July 31 distribution of P22,500 of
available cash to partners (Sch. 1)
First P22,500 of P27,500 layer:
100% to S
August loss of P13,000 on disposal of
assets and P2,500 paid in
liquidation costs
August 31 distribution of P19,500 of
available cash to partners (Sch. 2)
Remaining P5,000 of P27,500 layer
of which P22,500 paid on July 31:
100% to S
Next \$14,500 of P87,500 layer:
60% to S
40% to V
September loss of P70,000 on disposal of
assets and P2,500 paid in liquidation
Costs
Distribution of D's decit
September 30 distribution of P62,500 of
available cash to partners (Sch. 3)
Next P62,500 of P87,500 layer of which
P14,500 paid on August 31:
60% to S
40% to V
Postliquidation balances
5,000
8,700
(31,000)
(62,400)
5,800
(41,600)
36,250
5,250
(5,250)
-0-
21,750
(40,650)
3,150
(37,500)
14,500
(27,100)
2,100
(25,000)
37,500
-0-
-0-
25,000
-0-
Schedule 1, July 31, 20x4: Computation of P22,500 of cash available to be distributed to
partners on July 31, 20x4:
Cash balance, July 1, 20x4
P 50,000
Cash from sale of noncash assets
390,000
Less: Payment of actual liquidation expenses
(2,500)
Less: Payments to creditors
(405,000)
Less: Amount held for possible
future liquidation expenses
(10,000)
Cash available to partners, July 31, 20x4
P 22,500
lOMoARcPSD|9418122
Schedule 2, August 31, 20x4: Computation of P19,500 of cash available to be distributed to
partners on August 31, 20x4:
Cash balance, August 1, 20x4
Cash from sale of noncash assets
Less: Payment of actual liquidation expenses
Less: Amount held for possible
future liquidation expenses
Cash available to partners, August 31, 20x4
P10,000
22,000
(2,500)
(10,000)
P 19,500
Schedule 3, September 30, 20x4: Computation of P62,500 of cash available to be distributed to
partners on September 30, 20x4:
Cash balance, September 1, 20x4
Cash received from sale of noncash assets
Less: Payment of actual liquidation expenses
Cash available to partners, September 30, 20x4
P10,000
55,000
(2,500)
P62,500
Problem VII
Cash distribution program:
First
Next
Next
All over
Creditors Ames
Beard
Craig
P 50,000
100%
34,000
100%
48,000
33 1/3% 66 2/3%
P132,000
40%
20%
40%
Working paper for cash distributions to partners during liquidation (not required):
Ames
Beard Craig
Capital balances before liquidation
P60,000 P80,000 P92,000
Income-sharing ratio
4 4
2
Capital per unit of income sharing
P15,000 P40,000 P23,000
Reduce Beard's capital to next highest capital for Craig______ (17,000)______
Capital per unit of income sharing
P15,000 P23,000 P23,000
Reduce Beard's and Craig's capital to Ames's capital______
(8,000) (8,000)
Capital per unit of income sharing
P15,000 P15,000 P15,000
Problem VIII
Cash
Quanto, Capital
Rollo, Capital
Simms, Capital
Assets
To record realization of assets at a loss of \$10,000, divided
amount Quanto, Rollo, and Simms in 5:3:2 ratio, respectively.
Liabilities
60,000
5,000
3,000
2,000
70,000
30,000
Cash
To record payment to creditors.
Loan Payable to Quanto
Rollo, Capital
Simms, Capital
Cash
To record payment to partners, computed as follows:
30,000
9,500
10,500
5,000
25,000
lOMoARcPSD|9418122
Quanto
Rollo
Capital (including Quanto's
loan of P10,000)
before liquidation
Loss on realization of assets
Balances
Maximum potential
loss (P5,000 +
P50,000 = P55,000)
divided in 5:3:2 ratio
Cash payments
Simms
P42,000
(5,000)
P37,000
P30,000
(3,000)
P27,000
P18,000
(2,000)
P16,000
(27,500)
P 9,500
(16,500)
P10,500
(11,000)
P 5,000
Multiple Choice Problems
1. c
JJ
CC
TT
Total
Prot ratio
40%
50%
10%
100%
Prior capital
Loss on sale
of inventory
(160,000)
(45,000)
(55,000)
(260,000)
24,000
(136,000)
30,000
(15,000)
6,000
(49,000)
60,000
(200,000)
2. a
Capital balances
Loss on sale of assets
(475,000 – 600,000) – 4:4:2
Possible loss for unrealized
assets
P1,000,000 – P600,000 =
400,000
Peter
300,000
Paul
350,000
Mary
400,000
Total
1,050,000
(50,000)
(25,000)
(125,000)
( 50,000
)
250,000
300,000
375,000
925,000
160,000
160,000
80,000
400,000
140,000
295,000
525,000
(90,000
3.
4.
d
d
AA
37,000
Capital balances
BB
CC
65,000
48,000
Divided by: Prot and loss ratio
40%
40%
20%
Loss absorption power
92,500
162,500
240,000
Loss to reduce CC to BB:
(77,500 x .20 = 15,500)
Balances
77,500
92,500
162,500
162,500
Loss to reduce BB &amp; CC to AA:
(B:70,000 x .40 = 28,000)
(C:70,000 x .20 = 14,000)
Balances
70,000
70,000
92,500
92,500
92,500
lOMoARcPSD|9418122
Cash of P20,000 after settlement of liabilities: CC receives rst P15,500;
remaining P4,500 split 2/3 to BB and 1/3 to CC
5.
d Cash of P17,000: CC receives rst P15,500; remaining P1,500 split 2/3 to BB
and 1/3 to CC.
6.
a If all partners received cash after the second sale, then the remaining
12,000 is distributed in the loss ratio.
7.
b
A
Total
Capital before realization
B
C
65,000
37,000
Loss on sale (2:2:1); [90 – 50]
(16,000)
21,000
Possible loss P90,000, unrealized
NCA
( 16,000)
49,000
48,000
( 8,000)
150,000
(40,000)
40,000
(18,000)
110,000
90,000
(36,000)
(36,000)
(15,000)
13,000
20,000
Possible insolvency loss (2:1)
15,000
22,000
(10,000)
( 5,000)
0
3,000
8.
17,000
b
A
Total
Capital before realization
B
C
65,000
37,000
Loss on sale (2:2:1); [90 – 50]
(16,000)
21,000
Possible loss P90,000, unrealized
NCA
plus P3,000 = P93,000
17,000
Possible insolvency loss (2:1)
( 16,000)
49,000
48,000
( 8,000)
150,000
(40,000)
40,000
110,000
(37,200)
(18,600)
93,000
(37,200)
(16,200)
11,800
21,400
16,200
(10,800)
( 5,400)
0
1,000
9.
a
Prot and loss ratio
Capital balances
Loss of P100,000
Remaining equities
AE
40%
(40,000)
40,000
-0-
BT
30%
(180,000)
30,000
(150,000)
AE will receive nothing; the entire P150,000 will be paid to BT.
10.
11.
12.
13.
c
d
d
c
14.
a
16,000
KT
30%
(30,000)
30,000
-0-
17,000
lOMoARcPSD|9418122
Prot and loss ratio
Beginning capital
CC
5/10
80,000
DD
3/10
90,000
Actual loss on assets (5:3:2)
(15,000)
(9,000)
(6,000)
65,000
( 50,000
)
15,000
81,000
(30,000)
64,000
(20,000)
51,000
44,000
Possible loss – unrealized NCA
Safe payments
15.
EE
2/10
70,000
Total
10/10
240,000
( 30,000
)
210,000
( 20,000
)
190,000
c
X
Capital before realization
Divided by:
Loss absorption abilities
130,000
Y
130,000
100,000
20%
50%
260,000
Z
30%
260,000
500,000
16. a
The loan payable to AA has the same legal status as the partnership’s
other liabilities. After payment of the loan, then any available cash can
be distributed to the partners using the safe payments computations.
17. a
D
R
N
J
32,000
20%
52,000
24,000
20%
20%
260,000
120,000
Capital balances
72,000
Divided by: Prot and loss
ratio
Loss absorption power
40%
180,000
160,000
Loss to reduce N to D:
(80,000 x .20 = 16,000)
80,000
____0
18. d – Harding, P6,107; Jones, P12,275
H
J
S
Total
Capital balances
20,000
Potential loss from Sandy
decit
22,000
(4,118)
(10,000)
10,000
0
(5,882)
17,882
14,118
Loss to reduce H and J:
(50:35)
Balances
32,000
(8,011)
0
32,000
(5,607)
12,275
6,107
(13,618)
13,382
Note:
1. Regardless there is a forthcoming contribution to be made by Sandy, it is assumed that the P10,000 decit may
not be recovered for purposes of distribution of cash.
2. The P13,382 cannot be distributed in accordance with prot and loss ratio for reason that the capital balances of
Harding and Jones is not the same with the P&amp;L ratio (H: 20/42 =48%; J: 22/42 = 52%)
or, alternatively: Using Cash Payment Priority Program
lOMoARcPSD|9418122
H
J
S
20,000
22,000
0
Capital balances
(10,000)
10,000
0
Capital balances
22,000
20,000
50/85
Divided by: Prot and loss ratio
Loss absorption power
35/85
53,429
34,000
Loss to reduce JJ to HH:
(19,428 x 35/85 = 8,000)
Balances
19,428
34,000
34,000
Cash available
P18,382
Less: Priority I to Jones (P19,428 x 35/85)
8,000
P10,382
Less: P&amp; L (50:35)
(10,382)
P6,107
P 8,000
P 6,107
4,275
P 12,275
19. c
20. b
21. c
A
Total
Capital before realization
B
C
30,000
70,000
20,000
Loan
Total interests
______
90,000
50,000
______
150,000
50,000
20,000
170,000
(15,000)
(45,000)
35,000
125,000
30,000
Loss on sale (240,000 – 195,000)
(15,000)
75,000
( 15,000)
15,000
22. b –liabilities should be paid rst, then the balance of P30,000 should be given to Able since he
is the one entitled to the rst priority.
INTERESTS
PAYMENTS______
A
B
C
A
B
C
Total
Balances before realization
Loans………………….. P 20,000
Capital………………...
70,000 P 30,000 P 50,000
Total interests………... P 90,000 P 30,000 P 50,000
Divided by: P&amp;L ratio…………
1/3
1/3
1/3
Loss absorption ability……….. P270,000 P 90,000 P150,000
Priority I…………………………. 120,000
_______ P40,000
P40,000
P150,000 P90,000 P150,000
Priority II…………………………
60,000
0
60,000 20,000
0 P20,000
40,000
P 90,000 P90,000 P 90,000 P60,000 P
0 P20,000 P80,000
23. d
A
Total
Capital before realization
B
30,000
C
lOMoARcPSD|9418122
70,000
20,000
Loan
Total interests
50,000
______
______
90,000
150,000
20,000
170,000
50,000
30,000
Loss on sale (240,000 – 195,000)
(15,000)
75,000
Payment of loans to partner
(20,000)
55,000
______
Payment to partners after payment of loan 55,000
(15,000)
(45,000)
( 15,000)
15,000
35,000
125,000
______
_____
(20,000)
15,000
35,000
105,000
______
(30,000)
(30,000)
15,000
5,000
75,000
Note: The requirement is payment to partners after outside creditors and loans to partners had been paid, therefore,
the payment to partners is in so far as capital is concerned.
24. a
D
Capital balances
E
F
90,000
(35,000)
30,000
______
55,000
1/3
30,000
165,000
90,000
(45,000)
____0
120,000
90,000
40,000
Less: Machine, at fair value
Capital balances
______
40,000
Divided by: Prot and loss
ratio
Loss absorption power
1/3
120,000
Loss to reduce E to D:
(45,000 x 1/3 = 15,000)
Balances
120,000
1/3
25. c
K
M
B
J
59,000
39,000
30%
34,000
34,000
10%
20%
340,000
170,000
170,000
____0
170,000
170,000
Capital balances
Divided by: Prot and loss
ratio
Loss absorption power
40%
147,500
130,000
Loss to reduce CC to BB:
(170,000 x .10 = 17,000)
Balances
147,500
130,000
C
P
60,000
27,000
30%
26. c
H
M
Capital balances
Divided by: Prot and loss
ratio
Loss absorption power
40%
20,000
20%
10%
215,000
200,000
15,000
____0
90,000
150,000
Loss to reduce CC to BB:
(15,000 x .20 = 3,000)
Balances
43,000
90,000
lOMoARcPSD|9418122
150,000
200,000
200,000
27. c - the P16,000 available cash can be distributed but should be done under the assumption
that all decit balances will be total losses. After osetting JJ loan, the two decits total P4,000.
FF and RR, the two partners with positive capital balances, share prots in a 30:20 relationship
(the equivalent of a 60%:40% ratio). FF would absorb P2,400 of the potential loss with RR
being allocated P1,600. The remaining capital balances (P10,600 and P5,400) are safe capital
balances and those amounts can be immediately distributed.
or, alternatively:
W
J
F
R
Capital balances
7,000
(2,000)
______
(2,000)
2,000
Loan
Total interests
Potential insolvency loss (3:2)
(5,000)
3,000
(2,000)
2,000
13,000
_______
13,000
( 2,400)
10,600
__
7,000
(1,600)
5,400
28. b
A
B
C
Capital balances
Total
18,000
Potential loss from A decit (5:3)
(5,000)
5,000
6,000
19,000
(3,125)
0
(1,875)
4,125
14,875
19,000
Loss to reduce H and J:
(5:3)
(8,750)
6,125
Possible insolvency loss
(14,000)
(5,250)
(1,125)
(1,125)
5,000
1,125
0
5,000
29. a – installment liquidation (refer for more problems in Chapter 5)
P
INTERESTS
Q
R
P
PAYMENTS
___
R
Total
Q
Balances before realization
Totall interests………... P 70,000 P 50,000 P100,000
Divided by: P&amp;L ratio…………
20%
40%
40%
Loss absorption abilities……….. P350,000 P125,000 P250,000
Priority I………………………….
(100,000)
0 P20,000
P250,000 P125,000 P250,000
Priority II…………………………
(125,000)
(125,000)
25,000
P125,000 P125,000 P125,000 P75,000
P20,000
P 4,500
Cash, beginning
Liquidation expenses paid
Payment of liabilities
Proceeds from sale of assets
(?)
Payment to partner before payment to Renquist (priority I only)
P50,000 75,000
P50,000 P95,000
P 90,000
( 8,000)
(170,000)
108,000
P 20,000
30. d – Justice P15,533
J
Z
Capital balances
D
Total
lOMoARcPSD|9418122
interest (P500,000 + P30,000 – P150,000)
Accounts payable
Total claims ofunsecured creditors
Dividend to Unsecured Creditors
P410,000 &divide; P640,000 = 64.1%
3.
P380,000
260,000
P640,000
Unsecured portion of notes payable and
Interest
Dividend on unsecured amount
Amount received on unsecured portion
Proceeds from receivables and inventory
P380,000
64.1%
P243,580
150,000
P393,580

Dividend to note holders: P393,580 &divide; P530,000 = 74.3%
Problem VIII
1.
WILBUR CORPORATION
STATEMENT OF AFFAIRS
DECEMBER 31, 20x4
Assets
Estimated
Current
Values
Book Value
P 40,000
50,000
110,000
(1) Assets pledged with fully
secured
creditors:
Accounts receivable (net)
Less: 10% note payable and
interest
Land
Plant and equipment (net)
Less: Mortgages payable and
interest
20,000
35,000
4,000
35,000
55,000
6,000
140,000
48,000
(2) Assets pledged with partially
secured creditors:
Marketable securities
Less: 10% note payable and
interest
Inventory
Less: Accounts payable
(3) Free assets:
Cash
Accounts receivable (net)
Inventory
Prepaid insurance
Plant and equipment (net)
Franchises
Estimated
Amount
Available to
Unsecured
Claims
Estimated
Gain
(Loss) on
Realizatio
n
P 40,000
38,500
P 1,500
P 65,000
100,000
P165,000
(157,500)
P 15,000
(10,000)
7,500
P 16,000
(4,000)
(20,800)
P 32,000
(60,000)
P 4,000
35,000
50,000
1,000
60,000
15,000
Estimated amount available
(3,000)
4,000
35,000
50,000
1,000
60,000
15,000
P 174,000
(5,000)
(5,000)
(80,000)
(33,000)
lOMoARcPSD|9418122
Less: Creditors with priority
Net available to unsecured creditors
Estimated deciency
(43,000)
P 131,000
45,000
P 543,000
(P
125,000)
Total unsecured debt
P 176,000
2. Percentage to unsecured creditors: P131,000/P176,000 = 74.43%
Problem IX
Assets to be realized
50,000
Marketable Securities
20,000
Old Inventory
72,000
Depreciable Assets, net
120,000
Smith Company
Statement of Realization and Liquidation
Assets
Assets Realized
P
Old Receivbles
28,000
New Receivbles
65,000
Marketable Securities
15,000
Sales of Inventory
100,000
Assets Acquired
Assets Not Realized
New Receivables
100,000
Old Receivables, net
22,000
New Receivables, net
35,000
Depreciable Assets
96,000
Supplementary Charges
Old Current Payables
31,000
Supplementary Items
Supplementary Credits
P
Net Loss
7,000
P
Liabilities Not Liquidated
Old Current Payables
34,000
P
Liabilities
Liabilities to be Liquidated
Liabilities Liquidated
Old Current Payables
31,000
P
Old Current Payables
P
65,000
Liabilities Incurred
P
_____
___
P43
3,000
Problem X
Mallory Corporation
Statement of Realization and Liquidation
For the Three Months Ended July 31, 20x5
P
433,000
lOMoARcPSD|9418122
Assets
Assets
Beginning balances assigned 5/1/x5
Cash Receipts:
Collection of Accounts Receivable
Sale of inventory
Sale of land and building
Sale of machinery
Cash Disbursements:
Payment of salaries payable
Partial payment of accounts pay.
Partial payment of bank loan
Ending balance
Assets
Beginning balances assigned
Cash Receipts:
Collection of Accounts
Sale of inventory
Sale of land and building
Sale of machinery
Cash Disbursements:
Payment of salaries payable
Partial payment of accounts
Partial payment of bank loan
Ending balance
Cash
P 4,000
Fully
Secured
P240,00
Non-Cash
P720,000
60,000
170,000
20,000
70,000
(70,000)
(200,000)
(340,000)
(100,000)
(60,000)
(170,000)
(70,000)
P24,000
P10,000
Liabilities
Unsecured
Partially
With
Without
Owner's
Secured Priority Priority
Equity
P270,00 P94,000
P 0 P120,000
(10,000)
(30,000)
(80,000)
(30,000)
(240,00
(60,000
________
P
(180,00
10,000
(90,000) ________
20,000
P P34,000 P30,000
________
P
Multiple Choice Problems
1. d – since there is parent and subsidiary relationship, any intercompany accounts are eliminated
from consolidated point of view.
2. a - [P90,000 + P36,000 + P10,000 – P45,000 = P91,000 total estimated amount available;
P91,000 – (P4,500 + P10,000) = P76,500 estimated amount available for unsecured, nonpriority creditors; P76,500 &divide; P90,000 = 0.85]
3. c – it is a partially secured liability
4. d – [(P1,110,000 – P780,000) + P960,000] – P210,000 = P1,080,000
5. b – P25,000 + [.30 x (P75,000 – P25,000)] = P40,000
6. d – (P555,000 – P390,000) + P480,000 = P645,000 – P105,000 = P540,000
7. b – P30,000 + [.30 x (P90,000 – P30,000)] = P48,000
8. c – [ P110,000 + (P150,000 – P110,000) x 40%] = P128,000
9. d
10. c – P60,000 + [(P120,000 + P6,000) – (P30,000 + P35,000) = P121,000
11. b - P20,000 + P80,000 + [P170,000 – (P150,000 + P7,000)] = P113,000 – (P10,000 +
P10,000)
lOMoARcPSD|9418122
= P93,000
12. c – P93,000/P121,000 = 77% rounded.
13. a
Net Free Assets:
(P700,000 – P300,000) + P70,000 + P230,000 = P700,000 – P140,000 = P560,000
Total Unsecured Creditors without priority:
(P400,000 – P300,000) + P600,000 = P700,000
14. c - Pension P10,000 + Salaries P35,000 (= P10,600 + P10,950 + P10,950 + P2,500) + Taxes
P80,000 + Liq. expenses P40,000 = P165,000.
15. c
Statement of Realization and Liquidation
Assets to be Realized………….
Assets Acquired………………..
Liabilities Liquidated………….
Liabilities Not Liquidated…….
Supplementary charges/
debits………………………
P 1,375,000
750,000
1,875,000
1,700,000
Assets Realized…………………..P 1,200,000
Assets Not Realized…………… 1,375,000
Liabilities to be Liquidated….
2,250,000
Liabilities Assumed…………..
1,625,000
Supplementary credits………
2,800,000
3,125,000
P 8,825,000
P 9,250,000
Net Gain……………………….. P 425,000
16. No requirement
17. c
Total Liabilities (refer to Liabilities not liquidated–No. 14)…………………… P1,700,000
+: Stockholders’ Equity (P1,500,000 – P500,000)………………………………… 1,000,000
Total LSHE = Total Assets…………………………………………………………… P 2,700,000
-: Noncash assets (refer to Assets not realized-No. 14)……….……………… 1,375,000
Cash balance, ending………………………………………………………………P1,325,000
18. P440,000
Total Free Assets:
Fully secured:
Land and building: P650,000 – (P300,000 + P20,000) = P 330,000
Free assets:
Cash
10,000
Equipment
100,000
P440,000
Or,
Total estimated proceeds
P910,000
Less asset proceeds claimed by secured
creditors:
Notes payable and interest (from
proceeds of receivables and inventory)
P150,000
Mortgage payable and interest (from
proceeds of land and building)
320,000
470,000
Total available to unsecured claimants/total free
P440,000
19. P410,000
Total available to unsecured claimants/total free
Less distributions to unsecured claims
with priority:
Wages payable
Taxes payable
P440,000
P 10,000
20,000
30,000
lOMoARcPSD|9418122
Amount available for unsecured
claims/net free assets
P410,000
20. P640,000 = P260,000 + [(P50,000 + P100,000) – (P500,000 + 30,000), or
Unsecured portion of notes payable and
interest (P500,000 + P30,000 – P150,000)
P380,000
Accounts payable
260,000
Total claims of unsecured creditors
P640,000
21. 64.1%
Dividend to unsecured creditors
P410,000 &divide; P640,000 = 64.1%
22. P320,000 = P300,000 + P20,000
23. P393,580
Unsecured portion of notes payable and
interest
Dividend on unsecured amount
Amount received on unsecured portion
Proceeds from receivables and inventory
P380,000
x
64.1%
P243,580
150,000
P393,580
Dividend to note holders: P393,580 &divide; P530,000 = 74.3%
24. P30,000
25. P166,666 = P260,000 x 64.1
26. P910,247 = P320,000 + P393,580 + P30,000 + P166,666 (discrepancy of P247 due to
rounding-o)
27. P230,000
Net free assets (No. 19)
P410,000
Less: Unsecured creditors without priority (No. 20)
640,000
P230,000
28. P340,000 = P910,000 – P1,250,000
29. P340,000, same with No. 28, since there are no unrecorded expenses liabilities)
30. P60,675 – you may the same procedure in Nos. 18 to 29 to solve this problem, the following is
the formal presentation of statement of aairs
Estimated
Net
Realizable
Value
Book
Value Assets
Assets pledged with fully secured
creditors:
98,500
Land and Bldg
92,800
5,800
Investment in Calandir
15,000
Total
107,800
Assets pledged with partially
secured creditors:
41,000
Inventory
20,000
43,000
Equipment
8,000
Free Assets:
1,850
Cash
1,850
21,200
Accounts Rec
17,000
15,000
Note Rec
15,000
Estimated Amount Avail for unsecured creditors
with and without priority
Estimated Amt
Avail for
Unsecured
Creditors
22,200
4,625
Estimated
Gain or
(Loss)on
Liquidation
(5,700)
9,200
(21,000)
(35,000)
1,850
17,000
15,000
60,675
0
(4,200)
0
lOMoARcPSD|9418122
Less unsecured creditors with priority
Estimated amounts for unsecured creditors
without priority (Net Free Assets):
Net Realizable Amount Avail
_______
Deciency
_______
226,350
169,650
Book Liabilities
Value and Owners Equity
Fully Secured Creditors:
600
Accrued Mtg Interest
70,000
Mortgage Payable
375
Accrued N/P Interest
10,000
Note Payable
Total
Partially Secured
Creditors:
50,000
Accounts Payable
Unsecured Creditors with
Priority:
3,775
Accrued Payroll
Unsecured creditors without
Priority:
40,625
Accounts Payable
10,00
Other Accrued Liabilities
0
185,375
Totals
40,975
Owner Equity
226,350
31.
32.
33.
34.
35.
36.
37.
38.
Estimated
Secured
Amount
(3,775)
56,900
15,725
72,625
_______
(56,700)
Estimated Unsecured Amount
With
Without
Priority
Priority
600
70,000
375
10,000
80,975
28,000
22,000
3,775
40,625
10,000
_______
108,975
3,775
72,625
P56,900 – refer to No. 30 for computation
P72,625 – refer to No. for computation
Dividend - P56,900/P72,625 = P.78 – refer to No. 30 for further computation
P80,975 – refer to No. 30 for computation
P45,160 = P28,000 + (P22,000 x 78%)
P3,775
P39,487.50 = 78% x (P40,625 + P10,000)
P169,397.50
No. 34……………..P 80.975
No. 35…………….. 45,160
No. 36……………..
3,775
No. 37…………….. 39,487.50
P169,397.50 (discrepancy around P250 plus due to rounding-o)
39. P15,725 – refer to No. 30 or P56,700, estimated net loss – P40,975, owners’ equity
40. P56,700 – refer to No. 30 or P169,650 – P226,350
41. P56,700 (same with No. 40 since there are no unrecorded expenses liabilities)
42. P22,475
Liabilities
Unsecured
Assets
Fully
Partial
With Without Owners'
Cash Noncash Secured Secured Priority Priority
Equity
6/1/x5 Balances:
1,850 224,500 80,975
50,000
3,775
50,625 40,975
Cash
Receipts:
Securities
Sale
N/R Collected
16,000
(5,800)
10,200
15,000
(15,000)
0
lOMoARcPSD|9418122
Equipment
7,000 (43,000)
Sale
Inventory
22,000 (41,000)
Sale
Cash Disbursements:
Bank Loan
(10,375
)
Part Pyt-A/P
(29,000
---------)
6/30 Balance
22,475 119,700
(36,000
)
(19,000
)
(10,375
)
--------70,600
(50,000
)
0
-------
21,000
----------
3,775
71,625
(3,825)
43. P119,700 – refer to No. 42
44. P70,600 – refer to No. 42
45. None – refer to No. 42
46. P3,775 – refer to No. 42
47. P71,625 – refer to No. 42
48. (P3,825) decit – refer to No. 42
49. P150,900
Book
Value
57,000
174,000
6,000
900
90,000
327,900
Estimated
Net
Realizable
Assets
Value
Assets pledged with fully secured creditors:
Accounts receivable (net)
45,000
Land, plant and equipment (net)
150,000
Total
195,000
Free assets:
Notes receivable
6,000
Accrued interest receivable
900
Inventories (90,000 x 60%)
54,000
Estimated amount available for
unsecured creditors with and
without priority
Less unsecured creditors with priority
Estimated amounts for unsecured
creditors without priority:
Net realizable amount available
Deciency
Totals
255,900
Estimated
Secured
Amount
Book
Value Liabilities and Owners' Equity
Fully secured creditors:
3,600
Accrued interest
69,000
Note payable
2,400
Accrued interest
30,000
Note payable
Total
Unsecured creditors with priority:
24,900
Wages payable
0 accountant’s fee
Unsecured creditors without priority:
0
Accrued interest
18,000
Cash overdraft
6,000
Notes payable
Estimated
Amount
Available
for
Unsecured
Creditor
Estimated
Gain or
(Loss) on
Liquidation
12,600
77,400
(12,000)
(24,000)
6,000
900
54,000
0
0
(36,000)
150,900
(26,900)
124,000
26,000
150,000
(72,000)
Estimated Unsecured
Amount
With Priority
Without
Priority
3,600
69,000
2,400
30,000
105,000
24,900
2,000
0
18,000
6,000
lOMoARcPSD|9418122
126,000
Accounts payable
-------279,900
Totals
105,000
48,000 Owners' equity--see Note A
327,900
Note A: Includes the eect of the P2,000 professional fee.
-------26,900
126,000
150,000
50. P124,000 – refer to No. 49
51. P150,000–
52. 82.67% = P124,000/P150,000
53. P105,000
54. None
55. P26,900
56. P124,005 = P150,000 x 82.67%
57. P255,900 = P72,000 + P26,900 + P124,005 (discrepancy of P5)
58. P26,000 = (P72,000 + P2,000 unrecorded ) – P48,000 or P150,000 – P124,000
59. P72,000 – refer to No. 49
60. P74,000 = P72,000, loss of realization of assets + P2,000 unrecorded expenses
Quiz - VI
1. P96,000
Claims of partially secured creditors..................................................
Current value of assets pledged with these creditors............................
Deciency that is unsecured..................................................................
Claims of other unsecured creditors....................................................
Total unsecured creditors claims........................................................
P 120,000
(80,000)
P
40,000
360,000
P 400,000
Amount available to unsecured creditors:
Excess left over after paying ully secured creditors
(P195,000 – P150,000)........................................................................
Current value of free assets (net of P45,000 to
creditors with priority)...................................................................
Amount available to unsecured creditors..........................................
Settlement to unsecured claims per dollar (P160,000/P400,000)..........
Total distribution to partially secured creditors:
Current value of assets pledged..........................................................
Deciency of P40,000 &times; P.40...............................................................
P 45,000
115,000
P160,000
P
.40
P 80,000
16,000
P 96 ,000
2. P144,000 = P360,000 x 40%
3. P56,000
Claims of partially secured creditors..................................................
Current value of assets pledged with these creditors............................
Deciency that is unsecured..................................................................
Claims of other unsecured creditors....................................................
Total unsecured creditors claims........................................................
Amount available to unsecured creditors:
Excess left over after paying ully secured creditors
(P300,000 – P250,000)........................................................................
Current value of free assets (net of P60,000 to
creditors with priority)...................................................................
Amount available to unsecured creditors..........................................
P 90,000
(50,000)
P 40,000
200,000
P 240,000
P 50,000
(14,000)
P 36,000
lOMoARcPSD|9418122
Less: Gross Prot (Loss) in prior year
Recognized Gross Prot (Loss) in current year
_________
P
(240,000)
(240,000)
P
(480,000)
% of Completion / Cost Recovery Method:
Construction in Progress
CI
CI
4,920,000
4,680,000
3,720,000
Progress Billings
240,000 loss
5,280,000
5,280,000
3,420,000
480,000 loss
7,920,000
8,700,000
due to customers
P780,000
Note: If there is an anticipated loss, the Construction-in-Progress for both methods will
exactly be the same in the year the loss was incurred.
48. d
Percentage o Completion:
Contract price…………………………..
Cost incurred each year……………….
Add: Cost incurred in prior year………
Costs incurred to date…………………
Add: Estimated costs to compute…….
Total estimated costs………………….
Estimated gross prot…………………
Multiply by: percentage of completion.
Recognized gross prot to date………
Less: Recognized gross prot in prior
years
Recognized gross prot each year….
Cost
Project 6
P500,000
P375,000
_________
P375,000
________
P375,000
P125,000
100
%
P125,000
_________
Project 7
P700,000
P100,000
________
P100,000
400,000
P500,000
P200,000
20
%
P 40,000
_________
Project 8
P250,000
P100,000
________
P100,000
100,000
P200,000
P 50,000
50%
P125,000
P 40,000
P 25,000
Project 7
P100,000
Project 8
P100,000
100,000
100,000
P 25,000
_________
Recovery Method of Construction Accounting:
Recognized Revenue………..………..
Project 6
P500,000
*
Less: Costs of long-term construction
contract……………………………..
Recognized gross prot each year….
375,000
P125,000
P
0
P
0
* Since the contract is completed then the full amount of P500,000 contract price should be recognized
as revenue.
Percentage of Completion
Cost Recovery Method of
Construction
Construction in Progress
Pr. 6 - Cl.
375,000 Pr.
125,000
Pr. 7 – Cl.
100,000
500,000 Pr. 6
Construction in Progress
Pr. 6 - Cl.
375,000
Pr.
125,000
Pr. 7 – CI
100,000
500,000 Pr. 6
500,000
lOMoARcPSD|9418122
Pr.
Pr. 8. Cl
Pr.
12/31
265,000
40,000
100,000
100,000
765,000
Pr. 8 – CI
12/31
100,000
700,000
200,000
(d)
500,000
(d)
49. a
Input Measures: Efforts-Expended Method - using timbers laid
Timers laid Each Year
Add: Timbers laid in Prior Years
Timbers laid to date
Add: Additional support timbers to be laid
Total Estimated Timbers
Percentage-of-Completion
x: CONTRACT PRICE
Recognized Revenue to Date
Recognized Revenue in Prior Years
Recognized Revenue in Current Yr.
Year 2
300
150
450
520
970
45/97
P 800,000
P 371,134
Year 3
500
450
950
-0950
100%
P 800,000
P 800,000
371,134
P
428,866
Year 2
7,500
3,000
10,500
8,200
18,700
105/187
P 800,000
P 449,198
Year 3
8,000
10,500
18,500
___-018,500
100%
P 800,000
P 800,000
449,198
P
350,802
Output Measures – Number of trail feet
Trail feet Each Year
Add: Trail fees in Prior Years
Trail feet to date
Add: Additional trail feet to be constructed
Total Estimated Trail feet
Percentage-of-Completion
x: CONTRACT PRICE
Recognized Revenue to Date
Recognized Revenue in Prior Years
Recognized Revenue in Current Yr.
50. b
Contract p rice…………………………..
2006
P5,000,00
0
2007
P5,000,00
0
Cost incurred each year……………….
Add: Cost incurred in prior year………
Costs incurred to date…………………
P
900,000
Add: Estimated costs to complete
Total estimated costs………………….
Estimated gross prot…………………
Multiply by: percentage of completion.
Recognized gross prot to date………
P
100,000
900,000
P2,550,00
0
1,700,00
0
P4,250,00
0
P
750,000
60
%
P
450,000
2008
P5,000,000
P2,050,00
0
2,550,000
P4,600,000
-0P4,600,000
P 400,000
100
%
P 400,000
lOMoARcPSD|9418122
Less: Recognized gross prot in prior
years
Recognized gross prot each year….
-0-
100,000
450,000
P
100,000
P
350,000
P( 50,000)
51. d – refer to No. 50
52. c
Contract Price………………………………………………
P60,000,000
Less: Total Estimated Costs
Cost Incurred to Date……………………………… P26,000,000
Add: Estimated Costs to Complete……………… 25,000,000
51,000,000
Estimated Gross Prot…………………………………….
P 9,000,000
Multiplied by: % of completion………………………….
30%
Recognized gross prot to date………………………..
P 2,700,000
Less: RGP in prior years……………………………………
_________0
Recognized gross prot in current year………………
P 2,700,000
Construction-in-progress Account:
Costs incurred to date…………………………………..
GP in the current year……………………………………
Less: Progress billings……………………………………..
Due from customer (net)……………………………….
P 26,000,000
2,700,000
P 28,700,000
5,000,000
P 23,700,000
53. c
Contract Price
Multiplied by: Gross Prot Rate
Estimated Gross Prot of the entire contract
Multiplied by: Percentage of Completion for rst year
Gross Prot realized for current year
P100,000,000
_________25%
P 25,000,000
_________50%
P 12,500,000
54. c
Contract Price
x: Mobilization Fee
Collection in 20x4
Note: Billings for 20x4 will be collected in January 20x5.
P120,000,000
10%
P 12,000,000
55. a
Mobilization Fee: 5% x P10M
P 5.0 M
Collection on Billings:
Contract price
P 100 M
x: Progress billings, net of 10% and 8% (50% - 10% - 8%)
32%
Progress billings
P 32 M
x: Collections net of contract retention of 10%
90%
28.8 M
Collections in 20x4
P 33.8 M
56. b – cost recovery method is used.
At the end of 20x4 the contractor must recognized only to the extent of recoverable contract
costs incurred (i.e., P5,000 contract revenue and P5,000 construction costs/expenses).
Quiz- VIII
1. P100,000 = [P900,000 &divide; (P900,000 + P1,800,000)] &times; P3,000,000 = P1,000,000
P1,000,000 – P900,000 = P100,000.
2. P150,000
Contract price
4,500,000
lOMoARcPSD|9418122
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Prot (loss)
Multiply by: % of completion
Recognized Gross Prot (Loss) to date
Less: Gross Prot (Loss) in prior year
Recognized Gross Prot (Loss) in current year
1,350,000
_2,700,000
4,050,000
450,000
1,350/4,050
150,000
____-0150,000
3. P150,000
Contract price
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Prot (loss)
Multiplied by: % of completion
Recognized Gross Prot (Loss) to date
Less: Gross Prot (Loss) in prior year
Recognized Gross Prot (Loss) in current year
20x5
3,000,000
2,250,000
750,000
300,000
20x6
3,000,000
1,800,000
_600,000
2,400,000
600,000
1,800/2,400
450,000
_300,000
150,000
4. P80,000
20x5
1,600,000
240,000
_960,000
1,200,000
400,000
240/1,200
80,000
______0
80,000
Contract price
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Prot (loss)
Multiplied by: % of completion
Recognized Gross Prot (Loss) to date
Less: Gross Prot (Loss) in prior year
Recognized Gross Prot (Loss) in current year
5. P20,000
Contract price
Costs incurred each year
Add: Cost incurred in prior years
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Prot (loss)
Multiplied by: % of completion
Recognized Gross Prot (Loss) to date
Less: Gross Prot (Loss) in prior year
Recognized Gross Prot (Loss) in current year
20x5
1,400,000
400,000
_____-0400,000
_400,000
800,000
600,000
400/800
300,000
______0
300,000
20x6
1,400,000
400,000
400,000
800,000
200,000
1,000,000
400,000
800/1,000
320,000
300.000
20,000
6. P-0- , Under the cost recovery method, record equal amounts of revenue and cost until cost
recovered, and then record gross prot
7.P240,000 Profit
Contract price
Costs incurred each year
Add: Cost incurred in prior years
20x5
4,000,000
960,000
_______0
lOMoARcPSD|9418122
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Prot (loss)
Multiplied by: % of completion
Recognized Gross Prot (Loss) to date
Less: Gross Prot (Loss) in prior year
Recognized Gross Prot (Loss) in current year
960,000
3,200,000
800,000
960/3,200
240,000
_______0
240,000
8. P102,000
20x5
850,000
238,000
_______0
238,000
357,000
595,000
255,000
238/595
102,000
_______0
102,000
Contract price
Costs incurred each year
Add: Cost incurred in prior years
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Prot (loss)
Multiplied by: % of completion
Recognized Gross Prot (Loss) to date
Less: Gross Prot (Loss) in prior year
Recognized Gross Prot (Loss) in current year
9. P990,000
Contract price
Costs incurred each year
Add: Cost incurred in prior years
Costs incurred to date*
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Prot (loss)
Multiplied by: % of completion
Recognized Gross Prot (Loss) to date
Less: Gross Prot (Loss) in prior year
Recognized Gross Prot (Loss) in current year
20x5
3,000,000
450,000
20x6
3,000,000
990,000
450,000
1,440,000
2,250,000
750,000
____20%
150,000
______0
150,000
2,400,000
600,000
_____60%
360,000
150.000
210,000
* total estimated costs x % o completion
10. P50,000
Contract price
Costs incurred each year
Add: Cost incurred in prior years
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Prot (loss)
Multiplied by: % of completion
Recognized Gross Prot (Loss) to date
Less: Gross Prot (Loss) in prior year
20x5
1,500,000
465,000
_______0
465,000
1,085,000
1,550,000
( 50,000)
100%
( 50,000)
_______0
lOMoARcPSD|9418122
Recognized Gross Prot (Loss) in current year
( 50,000)
11. P625,000
Contract price
Costs incurred each year
Add: Cost incurred in prior years
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Prot (loss)
Multiplied by: % of completion
Recognized Gross Prot (Loss) to date
Less: Gross Prot (Loss) in prior year
Recognized Gross Prot (Loss) in current year
20x5
3,500,000
1,350,000
-01,350,000
1,350,000
2,700,000
800,000
-0-0-
20x6
3,500,000
1,525,000
1,350,000
2,875,000
_______0
2,875,000
625,000
___100%
625,000
_______0
625,000
12. P550
Costs
Incurred……………………………………………………………………….
Contract price……………………………………….
Cost incurred each year…………………………..
Add: Cost incurred in prior year………………….
Costs incurred to date……………………………..
Add: Estimated costs to complete………………
Total estimated costs……………………………….
Estimated gross prot (loss)………….…………….
Multiplied by: percentage of completion………..
Construction In Progress account – inventory
account……………………
400
P2,750
P 400
___-0P 400
_1,600
P2,000
P 750
400/2,000
150
550
13. P1,200,000
The term “completed” should be “cost recovery”
Costs Incurred
Contract price……………………………………….
Cost incurred each year…………………………..
Add: Cost incurred in prior year………………….
Costs incurred to date……………………………..
Add: Estimated costs to complete………………
Total estimated costs……………………………….
Estimated gross prot (loss)………….…………….
Multiplied by: percentage of completion………..
Construction In Progress account – inventory account
700,000
P2,000,000
P 700,000
______-0P 700,000
__800,000
P1,500,000
P 500,000
________0
_______0
700,000
20x5
Costs incurred
Contract price……………………………………….
Cost incurred each year…………………………..
Add: Cost incurred in prior year………………….
Costs incurred to date……………………………..
Add: Estimated costs to complete………………
Total estimated costs……………………………….
600,000
P2,000,000
P 600,000
_700,000
P1,300,000
)
__800,000
P(2,100,00
lOMoARcPSD|9418122
Estimated gross prot (loss)………….…………….
Multiplied by: percentage of completion………..
0)
P
(100,000)
________0
Construction In Progress account – inventory account
_(100,00
0)
1,200,00
0
14. P32,000 = P47,000 – P15,000
15. P782,000
20x5
Costs Incurred
Contract price……………………………………….
Cost incurred each year…………………………..
Add: Cost incurred in prior year………………….
Costs incurred to date……………………………..
Add: Estimated costs to complete………………
Total estimated costs……………………………….
Estimated gross prot (loss)………….…………….
Multiplied by: percentage of completion………..
Construction In Progress account – inventory account
238,000
P850,000
P238,000
______-0P238,000
_357,000
P595,000
P255,000
_238/595
102,000
340,000
20x6
Costs incurred
Contract price……………………………………….
Cost incurred each year…………………………..
Add: Cost incurred in prior year………………….
Costs incurred to date……………………………..
Add: Estimated costs to complete………………
Total estimated costs……………………………….
Estimated gross prot (loss)………….…………….
Multiplied by: percentage of completion………..
Construction In Progress account – inventory account
Less: Progress billings (P260,000 + P210,000)
Construction In Progress account (net) – Due from
customers
319,600
P850,000
P319,600
_238,000
P557,600
_139,400
P697,000
P153,000
_557.6/697
16. P312,000
17. same with no.16 – P312,000
18. (P9,000,000 – P8,250,000) &times; (P3,795,000 &divide; P8,250,000) = P345,000.
19.P3,795,000 + P345,000 = P4,140,000.
20. P2,750,000
_122,400
782,000
470,000
312,000
lOMoARcPSD|9418122
P1,650,000
————— &times; P5,000,000 = P2,750,000
P3,000,000
21.
22.
Accounts Receivable................................................................. 1,650,000
Billings on Construction in Process ................................
1,650,000
Construction Expenses.............................................................. 1,650,000
Construction in Process............................................................. 1,100,000
Revenue from Long-Term Contracts................................
2,750,000
23. P875,000
Revenue
Costs
Total gross prot
Recognized in 20x5
Recognized in 20x6
Or
Total revenue
Recognized in 20x5
Recognized in 20x6
Costs in 20x6
Gross prot in 20x6
24.
25.
26.
20x5
20x6
20x7
P5,000,000
3,025,000
1,975,000
(1,100,000)
P 875,000
P5,000,000
(2,750,000)
2,250,000
(1,375,000)
P 875,000
Percentage-of-Completion
Gross Prot
P750,000a
P210,000b
P440,000c
20x5
20x6
20x7
Completed-Contract
Gross Prot
—
—
P1,400,000d
a
P1,500,000
————— &times; P2,000,000 = P750,000
P4,000,000
b
P2,640,000
————— &times; P1,600,000 = P960,000
P4,400,000
Less 20x5 gross prot
20x6 gross prot
c
Total revenue
Total costs
Total gross prot
Recognized to date
20x7 gross prot
d
Total revenue
Total costs
Total gross prot
(750,000)
P210,000
P6,000,000
4,600,000
1,400,000
(960,000)
P 440,000
P6,000,000
4,600,000
P1,400,000
27. P312,500
Revenue
= [P250,000/(P250,000 + P750,000)]
P1,250,000
= P312,500
Gross prot = P312,500  P250,000 = P62,500
Construction in progress = P250,000 + P62,500 = P312,500

lOMoARcPSD|9418122
Less: Reasonable prot on sale of
Equipment P15,000 – P12,000)………………………………………….…
3,000
65,234
P 90,234
Incidentally, the entries would be:
Upon receipt of IFF:
Cash………………………………………………………………………… 25,000
Notes Receivable………………………………………………………… 90,000
Unearned Interest Income (P90,000 – P68,234)………….
21,766
Franchise Revenue…………………………………………….
90,234
Unearned Franchise Revenue……………………………….
3,000
If equipment was sold:
Cash or Accounts Receivable………………………………………… 12,000
Unearned Franchise Revenue………………………………………… 3,000
Franchise Revenue – Equipment……………………………
15,000
Cost of Sales – equipment……………………………………………… 12,000
Equipment Inventory…………………………………………..
12,000
22. b
Cash
No
No
Services
Period of Refund
Collectibility
P25,000
Status
Liability
Notes Receivable
No
No
Reasonably Assured
PV - P39,623
FV – P50,000
UII/Disct. P10,377
Liability
Theories
1
.
2
.
3
.
4
.
5
.
True
6.
True
11.
a
False
7.
True
12.
b
False
8.
True
13.
a
False
9.
b
14.
d
True
10
,
d
15,
lOMoARcPSD|9418122
Chapter 10
Problem I
1. The journal entries shown below would be made on the consignor’s and consignee’s books
(assume the use of perpetual inventory):
Transactions
Shipment of goods
on consignment.
2. Payment of
expenses by
consignor.
3. Payment of
expenses
by consignee.
Consignor
Entries on Consignor’s Books
(Herbalife Supplier)
Inventory on
Consigment……
60,00
Finished
0
Goods
60,00
Inventory*....
0
Entries on Consignee’s Books
Inventory on
Consignment…..
Cash……..
No entry
Inventory on
Consignment……
Consignee
Payable………
Cash………
Consignee…..
Sale of merchandise
No entry.
6. Notication of sale
to consignor and
payment of cash
due.
Commission:
10% x P48,000 =
P4,800
Commission
expense
Consignee……
Cash…….
Consignee
Payable
Consignment
Sales
Revenue..
No entry
(memorandum
entry only)
600
600
Consignor
Receivable
2,400
2,400
Cash…………….
2,400
3,360
3,360
4,800
3,360
37,44
0
2,400
48,00
0
Consignor
Cash
Cash
Consignor
payable
Consignor
Payable..
Commission
Revenue……..
Consignor
Receivable
…..
Cash………
from
Consignee……
7. To record cost of
goods sold and
related costs.
** (P60,000 + P600
+
P2,400) x &frac12; =
P31,500
Cost of goods
sold**
Inventory on
Consignment
2,400
3,360
3,360
48,00
0
48,00
0
48,00
0
4,800
2,400
37,44
0
3,360
31,50
0
31,50
0
*if periodic method is used, the credit should be “consignment shipments” account treated as
reduction in the Costs of goods available for sale to arrive at Cost of Goods Sold Available for
Regular Sale.
2. The remittance amounting to P37,440 can be determined by preparing the Account Sales as
follows:
Sold for the Account of:
Jingka Juice
Sales (60 sachets of herbal goods)
Charges:
P48,000
lOMoARcPSD|9418122
Finishing costs……………………..
Commission (P48,000 x 10%)………………..
Due to Consignor…………………………….
Balance…………………………
Remittance Enclosed………………
Balance Due……………
Items on Hand (50 sachets of herbal goods): P60,000 x
50%
P 2,400
4,800
P30,000
Problem II
1. The account sales:
Sold for the Account of:
AA Company
Sales (8 sets @ P24,000)………………
Charges:
Freight-in……………
Deliveries and installation expenses
Repairs expense – on units sold..
7200
P40,800
3,360
P37,440
37,440
P
0
P
192,000
P 6,000
2,400
9,600
4,800
Commissions, 25% of sales
Due to Consignor…………………………….
Balance…………………………
Remittance Enclosed………………
Balance Due……………
Items on Hand…………
Items Returned (defective)….…….
48,000
70,80
0
P121,200
0
P121,200
30,000
P 91,200
15 sets
2 sets
2. The inventory on consignment amounted to P189,000 computed as:
Charge Analysis
Sales
Inventor
Total
(8 sets)
y
(25 sets)
(15 sets)
Charges by consignor:
Cost of consigned goods
(@P12,000/set)
P 96,000 P180,000 P 300,000
Freight-out (P9,000/25 sets = P360 per
3,600*
5,400
9,000
set)
Charges by consignee:
Freight-in (P6,000/25 sets =P240 per
2,400*
3,600
6,000
set)
2,400
0
2,400
Delivery and installation
9,600
0
9,600
Repairs expense……………
4,800
0
4,800
Commissions [25% of sales (8 sets x
P24,000 per set]
48,000
0 ___48,000
Total
P166,800 P189,000
P379,800
* Freight on sets returned is charged against sales of the period.
** Normally, the term “freight-out” is synonymous to “delivery expense” which is classied
as selling expenses if we are dealing with a third party. But, for consignment accounting
where the transfer of merchandise if from consignor to consignee, the usage of the term
“freight-out” does not construed to be a selling expense but still an inventoriable cost (which
is part of freight-in).
lOMoARcPSD|9418122
The consignment net income amounted to P25,200 computed as:
Consignment Sales (8 sets x P24,000 per set)
Less: Costs and expenses:
Charges by Consignor:
Cost of consigned goods @P12,000/set)
P
Freight-out (P9,000/25 sets = P360 per set)
Charges by consignee:
Freight-in (P6,000/25 sets =P240 per set)
P
Delivery and installation
Repairs expense……………
Commissions [25% of sales (8 sets x P24,000 per set]
Net Income
Problem III
Summit Electronics Company
Inventory on Consignment (800 @ P570)
Finished Goods Inventory
P 192,000
96,000
3,600*
2,400*
2,400
9,600
4,800
48,000
99,600
67,200
P 25,200
456,000
456,000
Consignment Expense (P368,000 x 30%)
Accounts Receivable--Consignee Sales
Sales Revenue—Consignment (P920 x 400)
110,400
257,600
Cost of Consigned Goods Sold (P570 x 400)
Inventory on Consignment
228,000
Cash [(P920 x 70%) x 380]
Accounts Receivable--Consignee Sales
244,720
368,000
228,000
244,720
Farley Hardware
No entry upon receipt of consigned merchandise.
Cash (P920 x 400)
Consignor Payable
Commission Revenue
368,000
Consignor Payable
Cash
244,720
257,600
110,400
244,720
49. Seahawks, Inc. had the following consignment transactions during December:
Inventory shipped on consignment to Ashe Company
Freight paid by Seahawks
Inventory received on consignment from Fenn Company
Freight paid by Fenn
Multiple Choice Problem
1. c – P1,200
Commission = 25% x Sales price
P400 = 25% x Sales price
Sales price = P400 &divide; 25% = P1,600
P18,000
900
12,000
500
lOMoARcPSD|9418122
Number of units sold = Selling price
= __P1,600__
Price per tape
P200 per tape
= 8 tapes
Sales ……………………………………………………………….. P1,600
Less Commission of consignee………………………………...
400
Amount remitted by Beta View Store………………………...P1,200
2. a – P 370
Total
Charges
(25)
Consignor’s charges:
Cost
Freight-out
Consignee’s charge - Commission
Total
Sales price
Consignment prot
P2,500
75
__400__
P2,975
Charges Related to
Consignment
Inventory on
Sales
Consignment
(8)
(15)
P800
30
__400__
1,230
_1,600_
_P370_
P1,500
45
_______
_P1,545_
3. a – P1,545 (refer to No. 2 for computation)
4. b
Sales (P2,250 / 15%)
Divided by: Selling price per unit
Number of units sold
P15,000
P 1,000
15 units
Sales
Less Charges:
Commission
Delivery expense
Due to Consignor
Value of note – sight draft: (100 beds x P600 per bed) x
60%
Multiplied by: Proportional number of beds sold
Amount remitted
P15,000
5. c
P 2,250
1,500
___750
P36,000
15/100
6. d – P1,500
Sales
Less Charges:
Consignor’s charge:
Cost of beds (P600 per bed x 15 beds)
Consignee’s charges:
Commission
Delivery expense
Consignment net income
7. a – no items were sold in November;
Sales (unknown)
Less Charges:
Commission
__4,500
P10,500
__5,400
P 5,100
P15,000
9,000
P2,250
1,500
___750
P
x
15% x
__4,500
P1,500
lOMoARcPSD|9418122
Remittance
P 27,200
x – 15%x = P27,200
85%x = P27,200
x = P32,000
8. c – P16,800
Sales (unknown)
Less Charges:
Delivery and installation
charges
Commission (unknown)
Remittance
x
P500
100
20%x
_______
P 12,840
x – (P500 + P100 + 20%x) = P 12,840
x – 20%x = P12,840 + P600
80%x = P13,440
x = P16,800
9. b- P6,080
Cost (P150 per unit x 40 units)
Freight on shipment (P200 x 40/100)
Cost of inventory on consignment
P6,000
80
P6,080
10. c - 6
Sales (unknown)
Less Charges:
Commission (unknown)
Delivery and installation
Cartage on consigned goods
Remittance
x
20%x
P1,000
600
500
P21,900
x – (20%x + P1,000 + P600 + P500) = P21,900
x – 20%x = P21,900 + P2,100
80%x = P24,000
x = P30,000
Number of units sold = _P30,000_
=6
P5,000 per set
11. b – P2,300
Total
Charges
(10)
Consignor’s charges:
Cost
Freight-out
Consignee’s charges:
Commission (20% x P30,000)
Delivery and installation
Cartage
Total
Charges Related to
Consignment
Inventory on
Sales
Consignment
(6)
(3)
P30,000
2,500
P18,000
1,750
P9,000
750
6,000
1,000
600
__500__
P40,600
6,000
1,000
600
__350__
27,700
__150__
_P9,900_
lOMoARcPSD|9418122
Sales price
Prot on Consignment
_30,000_
__P2,300__
12. d – None of the above (P9,900) – refer to No. 11 for computation.
13. No answer available - P17,625
Sales – (Sales x 20%) – P600 – P390 – P210 = P12,900
.8 Sales = P14,100
Sales = P17,625.
14. a (P270 x 50) + [(P600 &divide; 80) x 50] = P13,875.
AA Sales - Nos. 15 to 17:
15. a
Gross collection (P15,000 x 70% x 80%)
P
8,400
__168
P 8,232
Less: Cash discount taken by customer (P8,400 x 2%)
Net collection
Less Charges:
Expenses
Commission (P8,400 x 15%)
Due to Consignor
Amount remitted
P 800
_1,260
__2,060
P 6,172
_6,000
P 172
16. b
Total
Charges
(100%)
Consignor’s charges:
Cost
Freight
Consignee’s charges:
Expenses
Commission (15% x P10,500)
Cash discount (P10,500 x 80% x
2%)
Total
Sales price (70% x P15,000)
Prot on Consignment
Charges Related to
Consignment
Inventory on
Sales
Consignment
(70%)
(30%)
P10,000
120
P 7,000
84
800
1,575
168
800
1,575
168
P12,663
P 3,000
36
P 9,627
_10,500_
P
873
_P9,900_
17. b – refer to No. 16 for computation
RR Products Company – Nos. 16 to 18
16. c
Collection made pertaining to:
May sale
Down payment (3 x P50)
Monthly payment thereafter (3 x P10)
June sale
Down payment (1 x P50)
Total
Less: Commission (P230 x 20%)
Amount remitted
P 150
30
P 180
___50
P 230
___46
P 184
lOMoARcPSD|9418122
17. d – P140
Total
Charges
(5)
Consignor’s charges:
Cost
Freight
Consignee’s charges:
Commission
Total
Sales price (4 units x P250/unit)
Prot on Consignment
Charges Related to
Consignment
Inventory on
Sales
Consignment
(4)
(1
P 775
50
P 620
40
P 155
10
200
P1,025
200
P 860
_ 1,000
P 140
____
P165
18. b – refer to No. 17 for computation
19. b
Cash sale (P1,500 x 2)
Credit sale (P1,800 x 25%)
Total
Less: Charges
Freight
Commission [(P3,000 + P1,800) x 15%]
Amount remitted
P 3,000
___450
P3,450
P 320
__720
__1,040
P 2,410
20. a
Total
Charges
(5)
Consignor’s charges:
Cost
Freight
Consignee’s charges:
Freight
Commission
Total
Sales price
Prot on Consignment
P4,000
200
Charges Related to
Consignment
Inventory on
Sales
Consignment
(3)
(2)
P 2,400
120
320
720
P5,240
P 1,600
80
192
720
P 3,432
4,800
P 1,368
128
______
P1,808
21. b – P1,808 – refer to No. 20 for computation
22. d – 244,600
Sales on credit (14,000 per unit x 12 units) + (13,000 x 10)
Less: Sales allowance granted
Commission [2% x (P298,000 – P2,000)]
Amount still due from BB, Inc
P298,000
P 2,000
7,000
_44,400
__53,400
P
244,600
23. d – P67,280
Total
Charges
Charges Related to
Consignment
Inventory on
Sales
Consignment
lOMoARcPSD|9418122
Allocation of costs to work-in-process
• Transfer of Work-in-Process to Finished Goods Inventory.
Finished goods
Work-in-process
Allocation to nished goods
216,000
216,000
• Transfer of Finished Goods Inventory to Joint Operators throughout the year
KK Company
96,000
DD Company
96,000
Finished goods
192,000
Delivery of output to joint operators.
2.
Cash
Contribution – Drei
Work-in-Process
180,000
Labor
Contribution – Cerise
86,400
180,000
Materials
Bank loan
57,600
60,000
Factory Overhead – heat, etc.
156,000
Factory
– depreciation
Balance,
12/31/x4
9,600
57,600
Balance, 12/31/x4
93,600
60,000
Machinery and equipment
216,000Labor
to Finished Goods
84,000
12,000
Machinery and equipment
50,400 Accounts payable
156,000 Factory overhead control
b. KK’s investment, P84,000
c. DD’s investment, P84,000
December 31, 20x4
Assets
Current Assets
Cash
Finished goods inventory
Work-in-Process inventory
Materials inventory
Total current assets
Non-current Assets
Equipment
Less: Accumulated depreciation
Total Assets
Liabilities and Net Assets
Current Liabilities
Accrued payroll
Accounts payable
Non-current Liabilities
Bank loan payable
Loan payable – machinery and equipment
Total Liabilities
Net Assets
Total Liabilities and Net Assets
Joint Operator’s Equity
KK Company: Contributions – January 1, 20x4
Cost of inventory distributed
P 57,600
24,000
93,600
20,400
P 195,600
P 96,000
9,600
P
2,400
27,600
P 60,000
24,000
P 180,000
( 96,000)
86,400
P282,000
P 30,000
__84,000
P 114,000
168,000
P282,000
P 84,000
3.
a.
Total
lOMoARcPSD|9418122
DD Company: Contributions – January 1, 20x4
Cost of inventory distributed
Total Joint Operator’s Equity
P 180,000
( 96,000)
P 84,000
P168,000
Problem II
1. Ayala Corp. shall account for its interest in the joint operation as follows:
Current assets (50% x P720,000)
Property, plant and equipment (60% x P1,200,000)
Expenses (60% x 720,000)
Liabilities (75% x P960,000)
Revenue (55% x P1,200,000)
Interests in Joint Operation
To recognize the share of Entity A in the assets, liabilities,
revenues and expenses as follows:
360,000
720,000
432,000
720,000
660,000
132,000
2. The assets, liabilities, revenue and expenses are recognized and combined with those of
Ayala’s own nancial statements. The interest in joint operations at the end of the reporting
period is reduced to P228,000, computed as follows:
Interests in Joint Operation
Less: Share in assets, liabilities, revenues and expenses
Interest in operation, ending balance
P 360,000
132,000
P 228,000
Problem III
1. The joint operator, Entity A account for their interests in the joint operation as follows:
Entity X—in 20x4
Prot or loss (construction costs)
To recognize the construction costs incurred in 20x4
4,800,000
Cash
Prot or loss (construction revenue)
To recognize the construction costs incurred in 20x4
8,400,000
4,800,000
8,400,000
Entity Y—in 20x4
Prot or loss (construction costs)
To recognize the construction costs incurred in 20x4
7,200,000
Cash
Prot or loss (construction revenue)
To recognize the construction costs incurred in 20x4
8,400,000
7,200,000
8,400,000
Problem IV
The joint operator, Entity K account for their interests in the joint operation as follows:
January 1, 20x4 (P12,000,000 / 5 = P2,400,000)
Property, plant and equipment (interest in an aircraft)
Cash
To recognize the purchase of an ownership-interest in a
jointly controlled aircraft.
2,400,000
In 20x4
Cash
2,400,000
12,000
lOMoARcPSD|9418122
Prot or loss (rental income)
To recognize income earned in renting to others the use
of the aircraft in 20x4.
12,000
Prot or loss (aircraft operating expenses)
Cash
To recognize the costs of running an aircraft in 20x4.
180,000
Prot or loss (depreciation expense)
Accumulated depreciation (interest in an aircraft
To recognize depreciation of an ownership-interest in a
jointly controlled aircraft in 20x4: P12,000,000/20 years
= P600,000/5 operators = P120,000
share for each joint operator.
120,000
180,000
120,000
Problem V
1. The following are the summaries of the above transactions for a joint operation in the form of a
partnership:
Event
a.
b.
c.
d.
e.
Investment in
Joint Operation
Dr.
Cr.
P 12,000
120,000
AA
Dr.
BB
Cr.
P12,000
120,000
CC
Dr.
Cr.
Dr.
Cr.
P
6,000
6,000
180,000
120,000
P588,000
P204,000
3,600
P60,000
P312,000
3,600
___3,000
________
________
______
P72,000
3,600
6,000
_______
10,800
f. *
________
6,000
___3,000
NI**
P318,000
_297,000
P597,000
P597,000
________
P597,000
P210,600
________
P210,600
P252,000
__112,200
P364,200
P315,600
________
P315,600
P 60,000
_147,000
P195,000
P81,600
_______
P81,600
_______
P
16,800
31,800
P48,600
_______
P597,000
________
P597,000
_153,600
P364,200
________
P364,200
________
P315,600
_120,600
P315,600
_______
P81,600
_33,000
P81,600
Cash**
*
Settlement
Totals
* purchases, P300,000; cost of goods sold, P294,000; ending inventory P6,000 x 50% =
P3,000.
**NI – Net Income Allocation
AA
Allowance for cleaning-up operations
Commission:
Aljon: 40% of P204,000
Elerie: 40% of P312,000
Mac: 40% of P72,000
BB
CC
P
3,000
P81,600
Total
P
3,000
81,600
P124,80
0
28,800
10,20
30,600
0 _______
P112,2 P135,00 P31,80
Total
00
0
0
**Total credits of P597,000 – Total debits of P318,000 = P279,000, net income.
Balance (75%: 25%)
124,800
28,800
40,80
0
P279,00
0
lOMoARcPSD|9418122
2. The cash settlement entry (refer to No. 1 for the computation of settlement) would be as
follows:
AA, capital
153,600
BB, capital
120,600
CC, capital
33,000
Therefore, BB will pay P120,600 and CC will pay, P33,000 to AA as nal settlement for the joint
operations.
Problem VI
Schedule of Determination and Allocation of Excess
Date of Acquisition – January 1, 20x4
Cost of investment
Consideration transferred
Less: Book value of stockholders’ equity of Son:
Common stock (P3,600,000 x 30%)
Retained earnings (P1,080,000 x 30%)
Allocated excess (excess of cost over book value)
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P240,000 x 30%)
Increase in land (P960,000 x 30%)
Increase in building (P600,000 x 30%)
Decrease in equipment (P840,000 x 30%)
Increase in bonds payable (P120,000 x 30%)
P2,016,000
P 1,080,000
324,000
P
72,000
288,000
180,000
( 252,000)
( 360,000)
1,404,000
612,000
P
Positive excess: Goodwill (excess of cost over fair value)
252,000
P 360,000
The over/under valuation of assets and liabilities are summarized as follows:
Anton Co.
Anton Co.
(Over) Under
Book value
Fair value
Valuation
Inventories (sold in 20x4)
P1,200,000
P1,440,000
P 240,000
Land
1,080,000
2,040,000
960,000
Buildings – net ( 10 year remaining life)
1,800,000
2,400,000
600,000
Equipment – net ( 7 year remaining life)
1,440,000
600,000
( 840,000)
(1,320,000
Bonds payable (due January 1, 20x9)
( 1,200,000)
)
( 120,000)
Net
P4,320,000
P5,160,000
P 840,000
A summary or depreciation and amortization adjustments is as follows:
Over/
30%
Account Adjustments to be amortized
Under
thereof
Life
P
Inventories (sold in 20x4)
240,000 P 72,000
1
Land
960,000
288,000
Buildings – net ( 10 year remaining life)
600,000
180,000
10
( 840,000 ( 252,000
Equipment – net ( 7 year remaining life)
)
)
7
( 120,00 ( 36,000
Bonds payable (due January 1, 20x9)
0)
)
5
P
Net
840,000 P 252,000
Current
Year(20x4)
P 72,000
18,000
(36,000)
( 7,200)
P 46,800
The following are entries recorded by the parent in 20x4 in relation to its investment in joint
venture:
January 1, 20x4:
(1) Investment in DD Company
2,016,000
Cash
2,016,000
lOMoARcPSD|9418122
Acquired 30% joint control in DD Company.
January 1, 20x4 – December 31, 20x4:
(2) Cash
Investment in DD Company (P720,000 x 30%)
Record dividends from DD Company.
December 31, 20x4:
(3) Investment in DD Company
Investment income (P1,440,000 x 30%)
Record share in net income of DD Company.
216,000
216,000
432,000
432,000
December 31, 20x4:
(4) Investment income
Investment in DD Company…………………….
Record amortization of allocated excess of inventory,
equipment, buildings and bonds payable.
46,800
46,800
Thus, the investment balance and investment income in the books of TT Company is as follows:
Investment in Joint Venture (DD Company)
Cost, 1/1/x4
2,016,000
NI of Anton
(1,440,000 x 30%)
432,000
Balance, 12/31/x4
2,185,200
216,000
80%)
46,800
Investment Income
Amortization
46,800
Dividends – Son (720,000x
Amortization
NI of Son
432,000
385,200
(P1,440,000 x 30%)
Balance, 12/31/x4
To check the balance of Investment in Joint Venture (DD Company):
DD Company’s Stockholders’ Equity, 12/31/20x4:
P3,600,00
0
Common stock
Retained earnings
P
1,080,000
1,440,000
Retained earnings,1/1/20x4
Net income – 20x4
Dividends – 20x4
Book value of stockholders’ equity of DD
Company,12/31/20x4
Multiplied by: Interest in Joint Venture
( 720,000)
Book value of Interest in Joint Venture
Add: Unamortized allocated excess – 30% thereof
P252,000 – P46,800, amortization)
Goodwill
Investment in Joint Venture (DD Company) – equity method
Multiple Choice Problems
1,800,00
0
P5,400,00
0
30%
P1,620,00
0
205,200
360,00
0
P2,185,20
0
lOMoARcPSD|9418122
1. a
Books of X
Inv. in JO
4,000
X, capital
6,500
Journal entry for settlement should be:
Z , capital……………………….. 6,500
X , capital……………………
2,500
2,500
2,500
Y , capital……………………
4,000
Books of Y
Inv. in JO
2,500
4,000
Y. capital
6,500
4,000
Books of Z
Inv. in JO
Z, capital
2,500
4,000
6,500
6,500
2.
Total credits - Investment in Joint Operations…………………………………P 25,810
Total debits - Investment in Joint Operations…………………………………. 19,750
Net income or total gain (credit balance)…………………………………….P 6,060
3. d
Jose, capital
8,500 investment
1,212 share in net income (P6,060 x
2/10)
9,712
4. a – The 20,000 shares should be valued at market value, thus, P800,000 (20,000 shares x P40
per share)
5. b
20,000 shares at P40/share
P800,000
Expenses
3,000
Jose, capital
P 198,000 (4,500 x P44) – Sales
125,000 (5,000 x P25)
13,600* (13,600 x P1) - Cash dividend
4,700
Joint operation loss
37,100
P807,700
P
168,000 (6,000 x P28) - Sales
266,000 (7,600 x P35)
P 770,600
*
9/30 Shares issued (6,000 + 10,000 + 4,000)
10/20 Sold
11/ 1 Stock dividend (20,000 – 4,500) x 20%
20,000
(4,500)
3,100
lOMoARcPSD|9418122
11/15 Sold
Balance of shares outstanding before cash dividend
(5,000)
13,600
Therefore, Roxas share would be P11,130 (P37,100 x 6,000/20,000 shares)
6. c
Investment in Joint Operations
P400,000 Investment (10,000 shares x
P40)
Share in net loss
P37,100 x (10,000/20,000)
P18,550
P381,450
7. b
Unrealized loss due to decline in the value of shares at the time of
investment
(P62 – P40) x 4,000 shares
Share in joint operation (P37,100 x 4/20)
Reduction of loss by cash dividend (P13,600 x 4/20)
P68,000
__7,420
P98,140
8. a
before net income or loss
Investment in Joint Operations
15,000
25,000 ending inventory
10,000 net income
9. a (A- P10,000 x 50% = P5,000; B – P10,000 x 30% = P3,000; C – P10,000 x 20%)
10. a
Purchases
Contr/Invest
Prot(50%)
Expenses
Joint Operations
20,000
77,000 Sales (?)
20,000
Anson, Capital
Unsold merchandise 600 20,000
18,600
800
1,800
42,600
600
77,000
38,600
38,000 to
Alas
34,400 (P16,000+
P18,400)
2,800 (P600 + P2,200)
Unsold merchandise
37,200 Net prot
11. c – refer to No. 10 computation.
12. a
Purchases
10,000
Freight-in
240
Freight-out
260
Investment in Joint Operations
7,200 sales
Santo, capital
10,000 Contribution/Invest
5,120 unsold
910 Share in NI
(P10,000 + P240) x
10,
1/2
12,320
10,910
500
1,820
13. a – refer to No. 12 for computation
lOMoARcPSD|9418122
14. c
Investment in Joint Operations
3,500 Sales
before sale
6,500
Net loss
3,000
N, capital
1,
14,500
O, capital
1,
6,500
100
100
13,400
5,400
M
300
(1,100)
P ( 900)
Salary
Balance, equally
P
N
O
P
(1,100)
P(1,100)
P
(1,100)
P(1,100)
Total
P
300
(3,300)
P(3,000)
15. a – refer to No. 14 for computation
16. a
Investment in Joint Operations
48,700 Sales
Purchases
45,000
16,800
18,000
Interest expense
80
40 Dividend
100
50
6
65,640
3,130
2,510 Net income
2,510
17. a
refer
No
for
McKee, capital
48,7 45,000
Nelson, capital
16,
18,000
00
800
80
1,225 share in NI
40
50
1,225 share in NI
2,405
100
2,40
5
Nelson, capital
McKee
2,405
2,405
18. b
Investment in Joint Operations
800 sales
Purchases
950
Expenses
150
600
1,400
1,100
300 Net income
–
to
16
lOMoARcPSD|9418122
N, capital
Cash
P, capital
2,000
3,000
5,000
P’s books: it shows P2,000 payable to N and P3,000 payable to O; thus, in nal settlement, P
should pay a total of P5,000; P2,000 and P3,000 to N and O, respectively:
respectively:
N, capital
2,000
O, capital
3,000
Cash
5,000
24.
The Investment in Basket
Basket Co. as of December 31 is as follows:
follows:
Acquisition cost, January 1, 2013
Share in net income (P90,000 x 40%]
Share in dividends (P30,000 x 40%)
Amortization of allocated excess
excess
Investment balance on December 31
P 500,000
36,000
( 12,000)
( 16,400)
16,400 )
P 507,600
Cost of investment
P 500,000
Less: Book value
value of interest acquired [40% x (P1,400,000 – P500,000)]
P500,000)] 360,000
Allocated excess
P 140,000
Less: Over/undervaluation
Over/undervaluation of assets and liabilities:
liabilities:
Increase in building (P140,000 x 40%)
56,000
Increase in trademark (P210,000 x 40)
84,000
Amortization of allocated excess:
excess:
Building: P56,000 / 7 years
Trademark: P84,000 / 10 years
P
8,000
8,400
25. b
The joint arrangement is a joint venture because it needs unanimous consent to all parties
involv
involved.
ed. The parti
parties
es recog
recogniz
nize
e their
their rights
rights to the net asset
assets
s of Harris
Harrison
on Compan
Company
y as
investments and account for them using the equity method.
The Investment in Basket Co. as of December 31 is as follows:
Acquisition cost, January 1, 2013
Share in net income (P90,000 x 40%]
Share in dividends (P30,000 x 40%)
Amortization of allocated excess
excess
Investment balance on December 31
P 500,000
36,000
( 12,000)
( 16,400)
P 507,600
Cost of investment
P 500,000
Less: Book value
value of interest acquired [40% x (P1,400,000 – P500,000)]
P500,000)] 360,000
Allocated excess
P 140,000
Less: Over/undervaluation
Over/undervaluation of assets and liabilities:
liabilities:
Increase in building (P140,000 x 40%)
56,000
Increase in trademark (P210,000 x 40)
84,000
Amortization of allocated excess:
excess:
Building: P56,000 / 7 years
Trademark: P84,000 / 10 years
Total
Total
P
8,000
8,400
P 16,400
lOMoARcPSD|9418122
26. b – refer to No. 25 for further
further discussion.
The Income from Investment in Basket
Basket Co. on December 31 is as follows:
Share in net income (P90,000 x 40%]
P 36
36,000
Amortization of allocated excess
excess
( 16,400)
Income from Investment on December 31
P 19,600
27. d
The joint arrangement is a joint venture because it needs unanimous consent to all parties
invo
involv
lved
ed.. The
The parti
parties
es reco
recogn
gniz
ize
e thei
theirr righ
rights
ts to the
the net
net asse
assets
ts of Harr
Harris
ison
on Co
Comp
mpan
any
y as
investments and account for them using the equity method.
The Investment in Goldman Co. as of December 31, 2015 is as follows:
Acquisition cost, January 1, 2013
Share in net income [(P140,000 x 3 years) x 40%]
Share in dividends [(P50,000 x 3 years) x 40%]
Amortization of allocated excess
Investment balance on December 31
Cost of investment
Less: Book value of interest acquired (40% x P1,200,000)
Allocated excessP 120,000
Less: Over/undervaluation of assets and liabilities
Goodwill
P 600,000
168,000
(60,000)
(
0)
P 708,000
P 600,000
480,000
0
P 120,000
There is no indication as to impairment
impairment of goodwill.
goodwill.
28. d
To
To determine whether a contractual arrangement gives parties control of an arrangement
collectively, it is necessary rst to identify the relevant activities of that arrangement. That is,
what are the activities that signicantly aect the returns of the arrangement?
When identifying the relevant activities, consideration should be given to the purpose and
design of the arrangement. In particular, consideration should be given to the risks to which
the joint
joint arran
arrangem
gement
ent was
was design
designed
ed to be expos
exposed,
ed, the risks
risks the joint
joint arran
arrangem
gement
ent was
designed to pass on to the parties involved with the joint arrangement, and whether the
parties are exposed to some or all of those risks.
In many cases, directing the strategic operating and nancial policies of the arrangement
arrangement will
be the activity that most signicantly aects returns. Often, the arrangement requires the
parties to agree on both of these policies. However, in some cases, unanimous consent may be
required to direct the operating policies, but not the nancial policies (or vice versa). In such
cases, since the activities are directed by dierent parties, the parties would need to assess
which of those two activities (operating or nancing) most signicantly aects returns, and
whether there is joint control over that activity.
activity. This would be the case whenever there is more
than one activity that signicantly aects returns of the arrangements,
arrangements, and those activities are
directed by dierent parties.
Based on the ownership structure, even though Wallace can block any decision, Wallace does
not control the arrangement,
arrangement, because Wallace needs Zimmerman to agree — therefore joint
control
control between
between Wallace
Wallace and Zimmerma
Zimmerman
n (since
(since their
together
meet the require
requirement
ment).
). Because
Because they are the only combination
combination of parties
parties that collectivel
collectively
y
control the arrangement, it is clear that Wallace and Zimmerman must unanimously agree.
The appropriate method for the joint venture is the equity method.
Investment in Gold Co. on December 31, 2015 is as follows:
Share in net income (P140,000 x 40%)
The Income from
P 56,000
lOMoARcPSD|9418122
Amortization of allocated excess
Income from Investment on December 31, 2015
(
0)
P 56
56,000
29. d
No joint control
control — multiple
multiple combination
combinations
s of parties
parties could be used to reach
reach agreement
agreement and
collectively control the arrangement (i.e., Wallace and Zimmerman or Wallace and American
could vote together to meet the requirement). Since there are multiple combinations, and the
contra
contractu
ctual
al agreem
agreement
ent does
does not speci
specify
fy which
which partie
parties
s must
must agree,
agree, there
there is no unanim
unanimous
ous
consent.
It should
should be noted that since
since there
there is no joint control
control as indicate
indicated
d per problem
problem and the
presence of 50% ownership holding is presumed to give signicant inuence of Wallace over
Goldman, unless it can be clearly demonstrated that this is not the case. Therefore, Goldman
Company is considered as an associate instead of a joint venture.
The appropriate
appropriate method for Investment
Investment in Associates
Associates is the equity method.
method. The Income from
from
Investment in Gold Co. on December 31, 2015 is as follows:
Share in net income (P140,000 x 40%)
P 56,000
Amortization of allocated excess
(
0)
Income from Investment on December 31, 2015
P 56,000
30. d
No joint control – multiple combinations could be used to reach agreement.
agreement.
It should be noted that since there is no joint control as indicated per problem and the
presence of 35% ownership holding is presumed to give signicant inuence of Wallace over
Goldman, unless it can be clearly demonstrated that this is not the case. Therefore, Goldman
Company is considered as an associate instead of a joint venture.
The appropriate
appropriate method for Investment
Investment in Associates
Associates is the equity method.
method. The Income from
from
Investment in Gold Co. on December 31, 2015 is as follows:
Share in net income (P140,000 x 40%)
P 56
56,000
Amortization of allocated excess
(
0)
Income from Investment on December 31, 2015
P 56,000
31. a – downstream transaction
transaction (refer also to consolidation for corollary
corollary analysis)
Gross Prot Markup: P36,000/P90,000 =
40%
Invent
Inventory
ory Remaini
emaining
ng at Year-En
ear-End
d
P20,00
P20,000
0
x: Markup
40%
Unrealized
Unrealized prot in ending inventory
P 8,000
x: Ownership
30%
Intercompany Unrealized prot in ending
inventory
P 2,400
Multiple Choice Problems – SME or Joint Ventures
1. a
2. a
3. a
4. a
5. c
6. a
7. a
8. a
9. c
10. a
11. a
12. c
13. a
lOMoARcPSD|9418122
14. a
15. b
16. c
Cost of investment in entity Z:
Purchase price……………………………………………………………………..
P 28,000
Add: Transaction costs (1% x P28,000)………………………………………
280
Costs………………………………………………………………………………….
P 28,280
Less: Fair value on December 31, 20x4……………………......
20x4……………………..............
..................
..................
........P
P 15,000
Less: Costs to sell (5% x P15,000)……………………………………………..
750
14,250
Impairment loss………………………………………………………………………..
P 14,030
17. d
No entry required only the decrease or increase in fair value is recognized to prot and loss.
18. a
Cost of investment in entity Z:
Purchase price……………………………………………………………………..
P 28,000
Add: Transaction costs (1% x P28,000)………………………………………
280
Initial costs…………………………………………………………………………..
P 28,280
Less:
Less: SME A’s share
share of entity
entity Z’s loss
loss for the year (25% x P20,000)…
P20,000)……...
…......
...
5,000
Costs of investment,
investment , December 31, 20x4…………………………………….
P23,280
Less: Fair value on December 31, 20x4…………………….................................P 15,000
Less: Costs to sell (5% x P15,000)……………………………………………..
750 14,250
Impairment loss………………………………………………………………………..
P 9,030
19. b
Cost of investment in entity Z………………. ……………………………………………… ..P 28,000
Less: Fair value on December 31, 20x4………………….......
20x4…………………............................
........................................
.........................
...... 15,000
Decrease in fair value on December 31, 20x4……………………………………………P 13,000
20. a
Entity X:
Cost of investment in
in entity X………………. …………………………………………… P 10,000
Less: Fair value on December 31, 20x4…………………......
20x4…………………..............
.................
.................
.................
................
....... 13,000
Increase in fair value on December 31, 20x4………………………………………… P 13,000
Entity
Enti ty Y:
Cost of investment in
in entity Y………………. …………………………………………… P 15,000
Less: Fair value on December 31, 20x4…………………......
20x4…………………..............
.................
.................
.................
................
....... 29,000
Increase in fair value on December 31, 20x4………………………………………… P 14,000
21. d – refer to paragraphs PFRSs for SMEs paragraphs 15.10 and 15.11
20x4: P101,000 because recoverable amount – fair value less costs to sell of P98,000 is less
than the cost of P101,000.
20x5: P101,000 because it is less than recoverable amount.
20x6: P86,000 because recoverable amount of P86,000 is less than cost of P101,000.
22. e – PFRSs for SMEs paragraphs 15.12, 15.14 and 15.15