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ACCOUNTING FOR SPECIAL TRANSACTIONS
FIRST GRADING EXAMINATION
1. AAA and BBB are partners with capital of P60,000 and P20,000, respectively. Profits and losses
are divided in the ratio of 60:40. AAA and BBB decided to form a new partnership with CCC,
who invested land valued at P15,000 for a 20% capital interest in the new partnership. CCC’s
cost of the land was P12,000 the partnership elected to use the bonus method to record the
admission of CCC into the relationship. CCC’s capital account should be credited for
a. P12,000
c. P16,000
b. P15,000
d. P19,000
60+20+15= 95 x 20%=19
2. AAA and BBB formed partnership in 2009. The partnership agreement provides for annual
salary allowances of P55,000 for AAA and P45,000 for BBB. The partners share profits equally
and losses in a 60:40 ratio. The partnership had earnings of P80,000 for 2009 before any
allowance to partners. What amount of these earnings should be credited to each partner’s
capital account?
AAA
BBB
AAA
BBB
a. P40,000
P40,000
c. P
44,000
P
36,000
b. 43,000
37,000
d.
45,000
35,000
B
3. The partnership agreement of AAA and BBB provides that interest at 10% per year is to be
credited to each partner on the basis of weighted-average capital balances. A summary of BBB’s
capital account for the year ended December 31, 2009, is as follows:
Balance, January 1
P
140,000
Additional investment, July 1
40,000
Withdrawal, August 1
15,000
What amount of interest should be credited to BBB’s capital account for 2009?
a. P15,250
c. P16,500
b. P15,375
d. P17,250
4. AAA and BBB are partners who share profits and losses on the ratio of 6:4, respectively. On
May 1, 2009, their respective capital accounts were as follows:
AAA
P
60,000
BBB
50,000
On the date, CCC was admitted as a partner with one-third interest in capital and profits for an
investment of P40,000. The new partnership began with total capital of P150,000. Immediately
after CCC’s admission, AAA’s capital should be
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a. P50,000
b. P54,000
c. P56,667
d. P60,000
5. AA and BB formed a partnership in 20x1 and made the following investments and capital
withdrawals during the year:
AA
Investments
March 1………………P30, 000
June 1…………………………
August 1………………20, 000
December 1…………………….
Draws
BB
Investments
P 20, 000
Draws
P10, 000
P10,000
2,000
5, 000
The partnership’s profit and loss agreement provides for salary of which P30,000 was paid to each
partner for 20x1. AA is to receive a bonus of 10% on net income after salaries and bonus. The
partners are also to receive interest of 8% on average annual capital balances affected by both
investments and drawings. Any remaining profits are to be allocated equally among the partners.
Assuming the net income of P60, 000 before salaries and bonus, determine how the income would be
allocated among the partners.
a. AA, P31, 138; BB, P28, 862
b. AA, P33, 537; BB, P26, 463
D
Interest
Salaries
A
2,000
(467)
667
(33)
2,167
30,000
(1,483)
30,683
c. AA, P30, 633; BB, P29, 376
d. AA, P30, 684; BB, P29, 316
B
1,333
(467)
(67)
800
30,000
(1,483)
29,317
60,000
(2,967)
(60,000)
(2,967)
Use the following information to answer the next two questions
The following condensed balance sheet is presented for the partnership of AAA and BBB, who share
profits and losses in the ratio of 60:40, respectively:
Cash
P
45,000
Accounts payable
P
120,000
Other assets
625,000
AAA, capital
348,000
BBB, loan
30,000
BBB, capital
232,000
Total
P
700,000
Total
P
700,000
The assets and liabilities are fairly valued on the balance sheet. AAA and BBB decide to admit CCC
as a new partner with 20% interest.
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6. What amount should CCC contribute in cash or other assets?
a. P110,000
c. P140,000
b. P116,000
d. P145,000
D 348,000 + 232,000 = 580 &divide; 80% x 20% = 145,000
7. Instead of admitting a new partner, AAA and BBB decide to liquidate the partnership. If other
assets are sold for P500,000, what amount of the available cash should be distributed to AAA?
a. P255,000
c. P327,000
b. P273,000
d. P348,000
B
A
B
45000
348,000 202,000
550,000
500,000
(75,000) (50,000) (125,000)
(120,000)
273,000 152,000
425,000
425,000 Cash
8. The following condensed balance sheet is presented for the partnership of BBB and AAA, who
share profits and losses on the ratio of 60:40, respectively:
Other assets
P
450,000
BBB loan
20,000
P
470,000
Accounts payable
P
120,000
BBB, capital
195,000
AAA, capital
155,000
Total
P
470,000
The partners have decided to liquidate the partnership. If the other assets are sold P385,000,
what amount of the available cash should be distributed to BBB?
a. P136,000
c. P159,000
b. P156,000
d. P195,000
A
A
155,000
(26,000)
129,000
B
175,000
(39,000)
136,000
385,000
175,000
(65,000)
265,000
(120,000)
265,000 Cash
9. On December 31, 1998, the partners of MNP Partnership decided to liquidate their business.
Immediately before liquidation, the following condensed balance sheet was prepared:
Cash
Noncash assets
P 50,000
900,000
Liabilities
P 375,000
Nieva, loan
80,000
Perez, loan
25,000
Munoz, capital (50%)
312,500
Nieva, capital (30%)
107,500
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____
Total
Perez, capital (20%)
P 950,000
Total
50,000
P 950,000
The noncash assets were sold for P400,000. Assuming Perez is the only solvent partner, what
amount of additional cash will be invested by Perez? (rounded to the nearest peso)
a. P 37,143
b. 25,000
c.
5,250
d.
0
B
Munoz
50%
Loan
Capital
Totals
Loss on realization (950 - 400)
312,500
312,500
(250,000)
62,500
Nieva
30%
80,000
107,500
187,500
(150,000)
37,500
Perez
20%
25,000
50,000
75,000
(100,000)
(25,000)
10. The partners of the M &amp; N Partnership started liquidating their business on July 1, 2004, at
which time the partners were sharing profits and losses 40% to M and 60% to N. The balance
sheet of the partnership appeared as follows:
M &amp; N Partnership
Balance Sheet – July 1, 2004
Assets
Cash……………………. P 8,800
Receivable……………… 22,400
Inventory…………...….. 39,400
Equipment…..P65, 200
Accumulated
depreciation 30, 80034, 400
Total…………………… P105, 000
Liabilities &amp; Capital
Accounts payable…………
P32, 400
M, capital………………… P31, 000
M, drawing…………
5,400
25, 600
N, capital………………… .P33, 200
N, drawing……………………. 200
33, 000
N, loan…………………………………… 14, 000
Total…………………………………… P105, 000
During the month of July, the partners collected P600 of the receivables with no loss. The partners
also sold during the month the entire inventory on which they realized a total of P32,400.
How much of the cash was paid to M’s capital on July 31, 2004?
a. P -0c. P5, 400
b. 25, 600
d.
320
D
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M
25,600
(2,800)
(8,720)
(13,760)
320
N
Totals
47,000
72,600
(4,200)
(7,000) Loss on inventory
(13,080)
(21,800) Possible loss on receivables
(20,640)
(34,400) Possible loss on PPE
9,080
11. After all noncash assets have been converted into cash in the liquidation of the AA and JJ
partnership, the ledger contains the following account balances:
Debit
Credit
Cash……………………………………………… P 34, 000
Accounts payable………………………………………………………… P25, 000
Loan payable to AA………………………………………………………..
9,000
AA, capital…………………………………………… 8,000
JJ, capital………………………………………………………………
8,000
Available cash should be distributed; P25,000 to accounts payable and;
a. P9, 000 loan payable to AA
b. P4, 500 each to AA and JJ
c. P1,000 to AA and P8, 000 to JJ
d. P8,000 to AA and P1, 000 to JJ
C
A
1,000
1,000
J
8,000
8,000
12. After incurring losses resulting from very unprofitable operation, the Alphabets Partnership
decided to liquidate when the partners’ capital balances were:
A, capital (40%)
B, capital (40%)
C, capital (20%)
P 80,000
130,000
96,000
The non-cash assets were sold in installment. Available cash were distributed to partners in every
sale of non-cash assets. After the second sale of non-cash assets, the partners received the same
amount of cash in the distribution. And from the third sale of non-cash assets, cash available for
distribution amounts to P 28,000, and non-cash assets has a book value of P 12,500. Using cash
priority program, what amount did C received in the third installment of cash?
a. P 11,600
b. 8,000
c. 5,600
d.
0
C
28,000 x 20% = 5,600
Page |6
A
B
40%
80,000
200,000
40%
130,000
325,000
200,000
325,000
(125,000)
200,000
200,000
C
20%
96,000
480,000
(155,000)
325,000
(125,000)
200,000
(306,000)
A
306,000
Payments
B
C
(31,000)
(80,000)
(80,000)
(50,000)
(80,000)
(130,000)
(25,000)
(40,000)
(96,000)
13. The partnership of AA, BB, and CC was dissolved on June 30, 20x1 and account balances after
non-cash assets were converted into cash on September 1, 2004 are:
Cash……………………………P50, 000
Accounts payable
P120, 000
AA, capital (30%)
90, 000
BB, capital (30%)
(60, 000)
CC, capital (40%)
(100, 000)
Personal assets and liabilities of the partners at September 1, 20x1 are:
Personal
Assets
AA………………………………………………………….. P80, 000
BB…………………………………………………………
100, 000
CC………………………………………………………… 192, 000
Personal
Liabilities
P90, 000
61, 000
80, 000
If CC contributes P70, 000 to the partnership to provide cash to pay the creditors, what amount of
AA’s P90, 000 partnership equity would appear to be recoverable?
a. P90,000
b. 81,000
c. P79, 000
d. None
B
A
30%
90,000
B
40%
(60,000)
90,000
(60,000)
39,000
(21,000)
90,000
(9,000)
81,000
C
40%
(100,000)
70,000
(30,000)
(70,000)
(30,000)
(12,000)
(42,000)
14. Partners Able, Baker, and Chapman, who share profit and loss equally, have the following
personal assets, personal liabilities, and partnership capital balances:
Able
Personal assets
P 30,000
Personal Liabilities
25,000
Baker__
Chapman_
P 80,000
50,000
P 60,000
72,000
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Capital balances
50,000
(32,000)
70,000
After applying the doctrine of marshaling of assets, the capital balances of Able, Baker, and
Chapman, respectively, would be
a. P 50,000
P(2,000)
P 58,000
b. 48,000
0
58,000
c. 49,000
0
57,000
d. 34,000
0
54,000
C
A
B
C
Interest
50,000
(32,000)
70,000
88,000
Personal
30,000
(12,000)
50,000
(2,000)
58,000 108,000
(925.93)
2,000 (1,074.07)
(2,000)
49,074
56,926
15. A, B and C are partners in a textile distribution business, sharing profits and losses equally. On
December 31, 2004, the partnership capital and the partners’ drawing were as follows:
Capital
Drawing
A
P100,000
60,000
B
C
Total
P80,000 P300,000
P480,000
40,000
20,000
120,000
The partnership was unable to collect on its trade receivables, and it was forced to liquidate. The
operating profits for 2005 amounted to P72,000, and was all exhausted including the partnership
assets. Unsettled creditors’ claim at December 31, 2005 amounted to P84,000. B and C have
substantial private resources, but A has no available free assets.
The final cash distribution to C was:
a. P 162,000
b. P 108,000
c. P 84,000
d. P 78,000
D
A
40,000
24,000
64,000
(172,000)
(108,000)
108,000
-
B
40,000
24,000
64,000
(172,000)
(108,000)
(54,000)
(162,000)
C
280,000
24,000
304,000
(172,000)
132,000
(54,000)
78,000
A
0
72,000 Net loss
L
C (adjusted)
84,000
432,000
516,000
(516,000)
(108,000)
16. A, B and C are partners with capital balance of P 350,000, P 250,000 and P 350,000 and sharing
profits 30%, 20% and 50% respectively. Partners agree to dissolve the business and upon
liquidation, all of the partnership assets are sold and sufficient cash is realized to pay all the
Page |8
claims except for P50,000. C is personally insolvent, but the other two partners are able to meet
any indebtedness to the firm. On the remaining claim against the partnership, A is to absorb.
a. P 40,000
b. P 15,000
c. P 30,000
d. P 25,000
A
A
B
C
30%
20%
50%
350,000
250,000
350,000
(300,000) (200,000) (500,000)
50,000
50,000 (150,000)
(90,000) (60,000) 150,000
(40,000) (10,000)
-
A
950,000
(1,000,000)
Net loss
L
50,000
1,000,000
C
950,000
17. A, B, and C are partners in ABC Partnership and share profits and losses, 5:3:2, respectively. The
partners have agreed to liquidate the partnership. Prior to liquidation, the partnership balance
sheet shows the following book values.
Cash
Non-cash
Notes, payable to C
Other liabilities
A, capital
B, capital
C, capital
P 25,200
297,600
38,400
184,800
72,000
(12,000)
39,600
Liquidation expenses of P 16,800 are paid. Non-cash assets with a book value of P 240,000 are sold
for P 216,000.
How much cash should C receive?
a. P 74,571
b. P 46,458
c. P 39,600
d. P 37,600
C
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A (50%)
72,000
B (30%)
(12,000)
Note
72,000
(8,400)
(12,000)
51,600
(28,800)
22,800
(29,657)
(6,857)
6,857
(0)
(12,000)
(5,040)
(7,200)
(24,240)
(17,280)
(41,520)
41,520
-
C (20%)
39,600
38,400
78,000
(3,360)
(4,800)
69,840
(11,520)
58,320
(11,863)
46,457
(6,857)
39,600
A
L
C
-
138,000
(16,800) Liquidation expenses
(24,000) Loss on sale
(57,600) Possible loss on unsold assets
18. Partners Bee, Cee, Dee and Gee who share profits 5:3:1:1, respectively, decide to liquidate their
partnership. Capital balances before liquidation are:
Bee
P 60,000
Cee
40,000
Dee
30,000
Gee
10,000
The partners agree to the following:
(1) Partnership’s computer equipment with a book value of P12,000 is to be taken over by partner
Bee at a price of P15,000.
(2) Partnership’s liabilities are to be paid off and the balance of cash on hand, P30,000 is to be
divided in a manner that will avoid the need for any possible recovery of cash from a partner.
How much of the P30,000 cash be distributed to Partner Cee?
a. P 10,000
b. P
0
c. P 20,000
d. P 15,000
A
A
Cash
Equipment
Others (squeeze)
30,000
12,000
98,000
140,000
L
-
C
140,000
140,000
P a g e | 10
B
C
50%
60,000
1,500
(15,000)
46,500
(49,000)
(2,500)
2,500
-
D
G
30%
40,000
900
10%
30,000
300
10%
10,000
300
140,000
3,000
40,900
(29,400)
11,500
(1,500)
10,000
30,300
(9,800)
20,500
(500)
20,000
10,300
(9,800)
500
(500)
-
128,000
(98,000) Possible loss on unsold assets
30,000
30,000
19. A and B decided to liquidate their partnership business on June 1, 2005, under lump-sum
liquidation. The partners had been sharing profits and losses on a 60:40 ratio. The balance sheet
prepared on the day of liquidation began was as follows:
Assets
Cash
P 18,000
Receivables
75,000
Inventory
90,000
Other
84,000
Total P267,000
Liabilities and Capital
Accounts payable
P 42,000
A, loan
24,000
A, capital
102,000
B, capital
99,000
Total
P267,000
During June, one-third of the receivables was collected; P45,000 of inventory was sold at an average
of 70% of book value; other assets were sold for P36,000.
How much should A and B receive upon liquidation?
A
a. P32,100
b. P 8,100
c. P40,200
d. P59,100
B
P36,400
P27,400
P41,800
P54,400
A
Carrying amount of non-cash (75 + 90 + 84)
249
Amount realized from sale (1/3 x 75) + (70% x 45) + 36 (92.5)
Loss on realization
(156.5)
Cash 18 + 92.5 = 110.5 – 42 = 68.5 cash available to partners less capital balance 225K = (156.5)
A
B
60%
40%
126,000
99,000
225,000
(93,900) (62,600) (156,500)
32,100
36,400
68,500
20. A, B, and C, who divide profits and losses 50%, 30%, and 20%, respectively, have the following
December 31, 20x1 account balances:
P a g e | 11
A, drawing (Dr.)………………………………………………………… P 12, 000
C, drawing (Cr.)………………………………………………………..…
4,800
Accounts receivable- A……………………………………………….…
7, 200
Loans payable- B…………………………………………………………... 14, 400
A, capital………………………………………………………………….
59, 400
B, capital……………………………………………………………………. 44, 400
C, capital………………………………………………………………..…
39, 000
On this data, the partnership’s assets are P211,200 (including cash of P64, 200).The partnership is
liquidated and C receives P33,000 in final settlement. How much is the total loss on realization?
a.P10,800
b. 31,200
c. P54,000
d. 64,200
C
C
20%
43,800
(10,800)
33,000
(54,000)
21. A and B share partnership profits and losses in a 7:3 ratio. Their post-closing trial balance on
January 31 show before liquidation:
Cash………………………………………P 30, 000
Accounts receivable, net………….……... 380, 000
Inventory……………………………… 260, 000
Furniture, net…………………………… 120, 000
Accounts payable…………………………………………………P165, 000
A, capital…………………………………………………………...350, 000
B, capital………………………………………………………. 275, 000
C offered to buy for P760,000 the partnership assets including liabilities but excluding cash and after
certain assets are to be restated at their fair values as follows:
Accounts receivable ……………………………………………….. P350,000
Inventory ……………………………………………………………… 250,000
Furniture ……………………………………………………………… 135,000
How much will A and B receive as final settlement of their partnership interest?
a. P 570, 000
b. 760, 000
C
c. P790, 000
d. 625, 000
P a g e | 12
A
70%
350,000
115,500
465,500
B
30%
275,000
49,500
324,500
165,000
790,000
22. AAA and BBB partnership’s balance sheet at December 31, 2009, reported the following:
Total Assets
P
100,000
Total liabilities
20,000
AAA, capital
40,000
BBB, capital
40,000
On January 2, 2010, AAA and BBB dissolved their partnership and transferred all assets and
liabilities to a newly formed corporation. At the date of incorporation, the fair value of the net
assets was P12,000 more than the carrying amount in the partnership’s books, which was
assigned to tangible assets. AAA and BBB were each issued 5,000 shares of the corporation’s P1
par value common stock. Immediately following incorporation, additional paid-in capital in
excess of par should be credited for
a. P68,000
c. P77,000
b. P70,000
d. P82,000
D 80K + 12K = 92K – 10K = 82K
23. When property other than cash is invested in a partnership, at what amount should the noncash
property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.
24. A and B formed a partnership. A contributed cash of ₱500,000 while B contributed land with
carrying amount of ₱400,000 and fair value of ₱800,000. The land has an unpaid mortgage of
₱200,000 which is assumed by the partnership. How much is the correct valuation of B’s capital
immediately after the partnership formation?
a. 400,000
b. 500,000
c. 600,000
d. 800,000
Solution:
Cash
Land (at fair value)
Total
A
500,000
500,000
B
800,000
800,000
Partnership
500,000
800,000
1,300,000
P a g e | 13
Mortgage payable
A, capital
B, capital (800K –
200K)
Total
500,000
500,000
200,000
600,000
800,000
200,000
500,000
600,000
1,300,000
25. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even
though Mr. A contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The
partners agree that the difference in the amount of contribution and the amount of credit to the
partner’s capital shall be treated as compensation for the expertise that the partner will be
bringing to the partnership. How much is the correct valuation of A’s capital immediately after
the partnership formation?
a. 84,000
b. 92,000
c. 100,000
d. 108,000
Solution:
Cash
184,000
A, Capital (184,000 &divide; 2)
B, Capital (184,000 &divide; 2)
92,000
92,000
26. A and B formed a partnership. The following are their contributions:
Cash
Accounts receivable
Building
Total
A, capital
B, capital
Total
A
500,000
100,000
600,000
B
700,000
700,000
600,000
600,000
700,000
700,000
Additional information:
 The accounts receivable includes a ₱20,000 account that is deemed uncollectible.
 The building is under-depreciated by ₱50,000.
 The building has an unpaid mortgage ₱100,000, but this is not assumed by the partnership.
Partner B promised to pay for the mortgage himself.
How much is the correct valuation of A’s capital immediately after the partnership formation?
a. 460,000
b. 580,000
P a g e | 14
c. 650,000
d. 720,000
Solution:
Cash
Accounts receivable
(100K – 20K)
Building (700K –
50K)
Total
A, capital
B, capital
Total
A
500,000
B
-
Partnership
500,000
80,000
-
80,000
650,000
580,000
650,000
650,000
1,230,000
650,000
650,000
580,000
650,000
1,230,000
580,000
580,000
27. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even
though Mr. A contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The
partners agree that the difference in the amount of contribution and the amount of credit to the
partner’s capital shall be treated as cash settlement between the partners. The compound entry
to record the partners’ contributions includes a credit to B’s capital account in the amount of
a. 84,000
b. 92,000
c. 100,000
d. 108,000
Solution:
Cash
184,000
A, Capital (184,000 &divide; 2)
B, Capital (184,000 &divide; 2)
92,000
92,000
The cash settlement among the partners is not recorded in the partnership’s books because this is
not a transaction of the partnership but rather a transaction among the partners themselves.
28. If the partnership agreement does not specify how income is to be allocated, profits and loss
should be allocated
a. Equally.
b. In proportion to the weighted average of capital invested during the period.
c. Equitably so that partners are compensated for the time and effort expended on behalf of the
partnership.
d. In accordance with their capital contributions.
29. A and B share in partnership profits and losses on a 40:60 ratio. During the year, A’s capital
account has a net increase of ₱50,000. Partner A made contributions of ₱10,000 and capital
P a g e | 15
withdrawals of ₱60,000 during the year. How much was the share of B in the partnership profit
for the year?
a. 100,000
b. 150,000
c. 200,000
d. 180,000
Solution:
Step 1:
Withdrawals
end.
A, Capital
60,000
10,000
?
50,000
beg.
Additional investment
Share in profit
A, Capital
60,000
10,000
100,000
50,000
beg.
Additional investment
Share in profit (squeeze)
Step 2:
Withdrawals
end.
Step 3: 100,000 &divide; 40% = 250,000 partnership profit
Step 4: B’s share: 250,000 x 60% = 150,000
30. The partnership agreement of A, B and C stipulates the following:
 Partners A and C shall receive annual salaries of ₱12,000 and ₱8,000, respectively.
 A bonus of 10% of profit after salaries but before deduction of bonus shall be given to
Partner A, the managing partner.
 Each partner shall receive 10% interest on average capital investments.
 Any remaining profit or loss shall be shared as follows: 40% to A and 30% each to B and C.
The average capital investments of partners during the year are as follows:
A
₱100,000
B
60,000
C
120,000
The partnership earns profit of ₱100,000.
How much is the share of Partner C in the partnership profit?
a. 47,600
b. 32,200
c. 19,200
d. 33,200
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Solution:
A
Amount being allocated
Allocation:
1. Salaries
2. Bonus (100K - 20K) x 10%
3. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%)
4. Allocation of remainder:
(100K - 20K - 8K - 28K) = 44K;
(44K x 40%); (44K x 30%); (44K x 30%)
As allocated
B
C
12,000
8,000
Total
100,000
8,000
20,000
8,000
10,000
6,000
12,000
28,000
17,600
47,600
13,200
19,200
13,200
33,200
44,000
100,000
31. The partnership agreement of A and B provides that interest at 10% per year is to be credited to
each partner on the basis of weighted-average capital balances. A summary of B’s capital
account for the year ended December 31, 20x1 is as follows:
Balance, Jan. 1, 20x1
Additional investment, July 1
Withdrawal, August 1
Balance, Dec. 31, 20x1
252,000
72,000
(27,000)
297,000
How much is the interest on B’s weighted average capital?
a. 27,675
b. 33,633
c. 37,214
d. 23,322
Solution:
Balance, Jan. 1, 20x1
Additional investment, July 1
Withdrawal, August 1
Weighted average capital
Multiply by:
Interest
252,000
72,000
(27,000)
12/12
6/12
5/12
252,000
36,000
(11,250)
276,750
10%
27,675
32. Red and White formed a partnership in 2003. The partnership agreement provides for annual
salary allowances of ₱55,000 for Red and ₱45,000 for White. The partners share profits equally
and losses in a 60/40 ratio. The partnership had earnings of ₱80,000 for 2003 before any
allowance to partners. What amount of these earnings should be credited to each partner’s
capital account?
P a g e | 17
a.
b.
c.
d.
Red
40,000
43,000
44,000
45,000
White
40,000
37,000
36,000
35,000
Solution:
Red
Amount being allocated
Allocation:
1. Salaries
2. Allocation of remaining profit
(80K profit – 100K salaries) = -20K
(-20 x 60%); (-20K x 40%)
As allocated
White
Total
80,000
55,000
45,000
100,000
(12,000)
43,000
(8,000)
37,000
(20,000)
80,000
33. Fox, Greg, and Howe are partners with average capital balances during 2002 of ₱120,000,
₱60,000, and ₱40,000, respectively. Partners receive 10% interest on their average capital
balances. After deducting salaries of ₱30,000 to Fox and ₱20,000 to Howe, the residual profit or
loss is divided equally. In 2003 the partnership sustained a ₱33,000 loss before interest and
salaries to partners. By what amount should Fox’s capital account change?
a. 7,000 increase.
b. 11,000 decrease.
c. 35,000 decrease.
d. 42,000 increase.
Solution:
Amount being allocated
Allocation:
1. Salaries
2. Interest on capital
3. Allocation of balance
(-33K – 50K - 22K) = -105K / 3
As allocated
Fox
Greg
Howe
Total
(33,000)
30,000
12,000
6,000
20,000
4,000
50,000
22,000
(35,000)
7,000
(35,000)
(29,000)
(35,000)
(11,000)
(105,000)
(33,000)
34. The partnership agreement of Axel, Berg &amp; Cobb provides for the year-end allocation of net
income in the following order:
 First, Axel is to receive 10% of net income up to ₱100,000 and 20% over ₱100,000.
 Second, Berg and Cobb each are to receive 5% of the remaining income over ₱150,000.
 The balance of income is to be allocated equally among the three partners.
The partnership’s 2003 net income was ₱250,000 before any allocations to partners. What amount
should be allocated to Axel?
P a g e | 18
a.
b.
c.
d.
101,000
103,000
108,000
110,000
Solution:
Axel
Amount being allocated
Allocation:
1. Bonus to A
First 100K (100K x 10%)
Over 100K [(250K - 100K) x 20%]
2. Bonus to Berg and Cobb
(250K - 10K - 30K - 150K) x 5%
3. Allocation of bal. (204K / 3)
As allocated
Berg
Cobb
10,000
30,000
68,000
108,000
Total
250,000
10,000
30,000
3,000
68,000
71,000
3,000
68,000
71,000
6,000
204,000
250,000
35. The partnership agreement of Reid and Simm provides that interest at 10% per year is to be
credited to each partner on the basis of weighted-average capital balances. A summary of
Simm’s capital account for the year ended December 31, 2003, is as follows:
Balance, January 1
Additional investment, July 1
Withdrawal, August 1
Balance, December 31
140,000
40,000
(15,000)
165,000
What amount of interest should be credited to Simm’s capital account for 2003?
a. 15,250
b. 15,375
c. 16,500
d. 17,250
B [140K + (40K x 6/12) – (15K x 5/12) = 153.75K x 10% = 15,375
36. Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May
1, 2003, their respective capital accounts were as follows:
Blau
Rubi
60,000
50,000
On that date, Lind was admitted as a partner with a one-third interest in capital and profits for an
investment of ₱40,000. The new partnership began with total capital of ₱150,000. Immediately after
Lind’s admission, Blau’s capital should be
a. 50,000
b. 54,000
P a g e | 19
c. 56,667
d. 60,000
Solution:
Total capital after admission
Multiply by: Interest of Lind
Capital credit to Lind
Contribution of Lind
Bonus to Lind
Multiply by: Old P/L ratio of Blau
Deduction to Blau's capital
150,000
1/3
50,000
(40,000)
10,000
60%
6,000
Interest of Blau before admission of Lind
Deduction to Blau's capital
Adjusted capital of Blau after admission
60,000
(6,000)
54,000
37. Kern and Pate are partners with capital balances of ₱60,000 and ₱20,000, respectively. Profits and
losses are divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with
Grant, who invested land valued at ₱15,000 for a 20% capital interest in the new partnership.
Grant’s cost of the land was ₱12,000. The partnership elected to use the bonus method to record
the admission of Grant into the partnership. Grant’s capital account should be credited for
a. 12,000
b. 15,000
c. 16,000
d. 19,000
Solution: (60K + 20K + 15K) = 95K total capital after admission x 20% = 19,000
Use the following information for the next two questions:
On June 30, 2003, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm,
together with their respective profit and loss sharing percentages were as follows:
Assets, net of liabilities
320,000
Eddy, capital (50%)
Fox, capital (30%)
Grimm, capital (20%)
160,000
96,000
64,000
320,000
38. Eddy decided to retire from the partnership and by mutual agreement is to be paid ₱180,000 out
of partnership funds for his interest. No goodwill is to be recorded. After Eddy’s retirement,
what are the capital balances of the other partners?
Fox
Grimm
a. 84,000
56,000
P a g e | 20
b. 102,000
c. 108,000
d. 120,000
68,000
72,000
80,000
Solution:
Payment to Eddy
Capital balance of Eddy
Excess payment to Eddy
Capital balances before retirement
Share in excess payment to Eddy
Capital balances after retirement
180,000
160,000
20,000
Fox
96,000
(12,000)
84,000
Grimm
64,000
(8,000)
56,000
39. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new
partner with a 25% interest in the capital of the new partnership for a cash payment of ₱140,000.
The bonus method shall be used to record the admission of Hamm. Immediately after
admission of Hamm, Eddy’s capital account balance should be
a. 280,000
b. 172,500
c. 160,000
d. 140,000
Solution:
Eddy, capital
Fox, capital
Grimm, capital
Investment of Hamm
Total partnership capital after admission
Multiply by: Interest of Hamm
Capital credit to Hamm
Investment of Hamm
Bonus to old partners
Eddy, capital (before admission)
Share in bonus to old partners (25K x 50%)
Eddy, capital (after admission)
160,000
96,000
64,000
140,000
460,000
25%
115,000
140,000
(25,000)
160,000
12,500
172,500
The next two items are based on the following information:
The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share
profits and losses in the ratio of 60:40, respectively:
Cash
45,000
Other assets
625,000
Beda, loan
30,000
P a g e | 21
700,000
Accounts payable
Alfa, capital
Beda, capital
120,000
348,000
232,000
700,000
40. The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit
Capp as a new partner with 20% interest. No goodwill or bonus is to be recorded. What amount
should Capp contribute in cash or other assets?
a. 110,000
b. 116,000
c. 140,000
d. 145,000
D (348K + 232K) = 580K &divide; 80% = 725K capital after admission x 20% = 145,000
41. Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the
other assets are sold for ₱500,000, what amount of the available cash should be distributed to
Alfa?
a. 255,000
b. 273,000
c. 327,000
d. 348,000
Solution:
The total loss on the sale is computed as follows:
Sale of other assets
Carrying amount of other assets
Total loss on sale
The partial settlement to partners is computed as follows:
Alpha
Capital balances before liquidation
348,000
Receivable from Beda
Total
348,000
Allocation of loss
[125K x (60% &amp; 40%)]
(75,000)
Amounts received by the partners
273,000
500,000
(625,000)
(125,000)
Beda
232,000
(20,000)
212,000
Totals
580,000
(20,000)
560,000
(50,000)
162,000
(125,000)
435,000
42. The statement of financial position of the partnership of A, B and C shows the following
information:
Cash
22,400
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Other assets
Total assets
212,000
234,400
Liabilities
A, capital (50%)
B, capital (25%)
C, capital (25%)
Total liabilities and equity
38,400
76,000
64,000
56,000
234,400
The partners realized ₱56,000 from the first installment sale of non-cash assets with total carrying
amount of ₱120,000. How much did B receive from the partial liquidation?
a. 25,000
b. 24,000
c. 16,000
d. 0
Solution:
A (50%)
76,000
(78,000)
(2,000)
2,000
-
Cap. bal. before liquidation
Allocation of loss
Total
Allocation of deficiency
Total
B (25%)
64,000
(39,000)
25,000
(1,000)
24,000
C (25%)
56,000
(39,000)
17,000
(1,000)
16,000
Totals
196,000
(156,000)
40,000
-
43. The statement of financial position of the partnership of A, B and C shows the following
information:
Cash
Other assets
Total assets
40,000
720,000
760,000
Liabilities
B, loan
C, loan
A, capital (50%)
B, capital (30%)
C, capital (20%)
Total liabilities and equity
300,000
64,000
20,000
250,000
86,000
40,000
760,000
The non-cash assets are sold for ₱320,000. Partner C is the only solvent partner. In the settlement of
the partners’ claims, how much additional contribution is required of Partner C?
a. 50,000
b. 30,000
c. 20,000
d. None
P a g e | 23
Solution:
Net proceeds
Carrying amount of all other assets
Loss
Cap. bal. before liquidation
Payable to partners
Total
Allocation of loss
Total
Additional contribution
Total
320,000
(720,000)
(400,000)
A (50%)
250,000
250,000
(200,000)
50,000
B (30%)
86,000
64,000
150,000
(120,000)
30,000
50,000
30,000
C (20%)
40,000
20,000
60,000
(80,000)
(20,000)
20,000
-
Totals
376,000
84,000
460,000
(400,000)
520,000
20,000
540,000
“It is the Lord who goes before you. He will be with you; he will not fail you or
forsake you. Do not fear or be dismayed.”– (Deuteronomy 31:8)
- END -
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