lOMoARcPSD|6016800
Advanced Accounting Guerrero Peralta Volume 1 Solution
Manual
Internal Auditing (Far Eastern University)
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lOMoARcPSD|6016800
Partnership – Basic Considerations and Formation
1
CHAPTER 1
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
1-1:
a
1-2:
Jose's capital should be credited for the market value of the computer contributed by
him.
b
(40,000 + 80,000) ÷ 2/3 = 180,000 x 1/3 = 60,000.
1-3:
a
1-4:
Cash
Land
Mortgage payable
P100,000
300,000
( 50,000)
Net assets (Julio, capital)
P350,000
Total Capital (P300,000/60%)
Perla's interest
P500,000
______40%
Perla's capital
Less: Non-cash asset contributed at market value
Land
P 70,000
Building
90,000
Mortgage Payable
( 40,000)
P200,000
Cash contribution
P 80,000
b
_120,000
1-5:
d - Zero, because under the bonus method, a transfer of capital is only required.
1-6:
b
1-7:
Reyes
Santos
Cash
Inventory
Building
Equipment
Mortgage payable
P200,000
–
–
150,000
________
P300,000
150,000
400,000
( 100,000)
Net asset (capital)
P350,000
P750,000
AA
BB
CC
P55,000
P55,000
c
Cash
Property at Market Value
Mortgage payable
Equipment at Market Value
P 50,000
_______
P 80,000
( 35,000)
_______
Capital
P 50,000
P 45,000
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2
1-8:
1-9:
1-10:
Chapter 1
a
PP
RR
SS
Cash
Computer at Market Value
P 50,000
__25,000
P 80,000
_______
P 25,000
__60,000
Capital
P 75,000
P 80,000
P 85,000
Maria
Nora
c
Cash
Merchandise inventory
Computer equipment
Liability
Furniture and Fixtures
P 30,000
200,000
P 90,000
160,000
( 60,000)
________
Total contribution
P230,000
P190,000
Total agreed capital (P230,000/40%)
Nora's interest
P575,000
______60%
Nora's agreed capital
Less: investment
P345,000
190,000
Cash to be invested
P155,000
d
Roy
1-11:
1-12:
Sam
Tim
Cash
Office Equipment
Note payable
P140,000
–
________
–
P220,000
_( 60,000)
–
–
______
Net asset invested
P140,000
P160,000
P
Agreed capitals, equally (P300,000/3) =
P100,000
a
Lara
Mitra
Cash
Computer equipment
Note payable
P130,000
–
________
P200,000
50,000
_( 10,000)
Net asset invested
P130,000
P240,000
Goodwill (P240,000 - P130,000) =
P110,000
a
Perez
Reyes
Cash
Office Equipment
Merchandise
Furniture
Notes payable
P 50,000
30,000
–
_______
P 70,000
–
110,000
100,000
( 50,000)
Net asset invested
P 80,000
P230,000
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–
lOMoARcPSD|6016800
Partnership – Basic Considerations and Formation
3
1-12: Continued
Bonus Method:
Total capital (net asset invested)
P310,000
Goodwill Method:
Net assets invested
Add: Goodwill (P230,000-P80,000)
P310,000
_150,000
Net capital
1-13:
1-14:
b
Required capital of each partner (P300,000/2)
Contributed capital of Ruiz:
Total assets
P105,000
Less Liabilities
__15,000
P150,000
Cash to be contributed by Ruiz
P 60,000
__90,000
d
Total assets:
Cash
Machinery
Building
Less: Liabilities (Mortgage payable)
1-15:
P460,000
P 70,000
75,000
_225,000
P370,000
__90,000
Net assets (equal to Ferrer's capital account)
Divide by Ferrer's P & L share percentage
P280,000
____70%
Total partnership capital
P400,000
Required capital of Cruz (P400,000 X 30%)
Less Assets already contributed:
Cash
P 30,000
Machinery and equipment
25,000
Furniture and fixtures
__10,000
P120,000
Cash to be invested by Cruz
P 55,000
__65,000
d
Adjusted assets of C Borja
Cash
P 2,500
Accounts Receivable (P10,000-P500)
9,500
Merchandise inventory (P15,000-P3,000) 12,000
Fixtures
__20,000
Asset contributed by D. Arce:
Cash
P 20,000
Merchandise
__10,000
__30,000
Total assets of the partnership
P 74,000
P 44,000
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4
1-16:
Chapter 1
a
Cash to be invested by Mendez:
Adjusted capital of Lopez (2/3)
Unadjusted capital
Adjustments:
Prepaid expenses
Accrued expenses
Allowance for bad debts (5% X P100,000)
P158,400
17,500
( 5,000)
_( 5,000)
Adjusted capital
P165,900
Total partnership capital (P165,900/2/3)
Multiply by Mendez's interest
P248,850
⅓
Mendez's capital
Less Merchandise contributed
P 82,950
__50,000
Cash to be invested by Mendez
P 32,950
Total Capital:
Adjusted capital of Lopez
Contributed capital of Mendez
P165,900
__82,950
Total capital
1-17:
P248,850
d
Moran, capital (40%)
Cash
Furniture and Fixtures
Divide by Moran's P & L share percentage
P 15,000
_100,000
Total partnership capital
Multiply by Nakar's P & L share percentage
Required capital of credit of Nakar:
Contributed capital of Nakar:
Merchandise inventory
Land
Building
Total assets
Less Liabilities
P287,500
______60%
P172,500
P 45,000
15,000
__65,000
P125,000
__30,000
Required cash investment by Nakar
1-18:
P115,000
______40%
P 95,000
P 77,500
c
Garcia's adjusted capital (see schedule 1)
Divide by Garcia's P & L share percentage
P40,500
______40%
Total partnership capital
Flores' P & L share percentage
P101,250
______60%
Flores' capital credit
Flores' contributed capital (see schedule 2)
P 60,750
__43,500
Additional cash to be invested by Flores
P 17,250
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Partnership – Basic Considerations and Formation
5
1-18: Continued
Schedule 1:
Garcia, capital:
Unadjusted balance
Adjustments:
Accumulated depreciation
Allowance for doubtful account
P 49,500
( 4,500)
( 4,500)
Adjusted balance
P 40,500
Schedule 2:
Flores capital:
Unadjusted balance
Adjustments:
Accumulated depreciation
Allowance for doubtful accounts
P 57,000
( 1,500)
( 12,000)
Adjusted balance
1-19:
P 43,500
d
Ortiz
Ponce
Total
( 60%)
( 40%)
P133,000
P108,000
P241,000
Unadjusted capital balances
Adjustments:
Allowance for bad debts
Inventories
Accrued expenses
( 2,700)
3,000
_( 2,400)
Adjusted capital balances
P130,900
( 1,800)
2,000
( 1,600)
P106,000
( 4,500)
5,000
( 4,000)
P237,500
Total capital before the formation of the new partnership (see above) P237,500
Divide by the total percentage share of Ortiz and Ponce (50% + 30%) ______80%
1-20:
Total capital of the partnership before the admission of Roxas
Multiply by Roxas' interest
P296,875
______20%
Cash to be invested by Roxas
P 59,375
d
Merchandise to be invested by Gomez:
Total partnership capital (P180,000/60%)
P300,000
Gomez's capital (P300,000 X 40%)
Less Cash investment
P120,000
__30,000
Merchandise to be invested by Gomez
P 90,000
Cash to be invested by Jocson:
Adjusted capital of Jocson:
Total assets (at agreed valuations)
Less Accounts payable
Required capital of Jocson
P180,000
__48,000
Cash to be invested by Jocson
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P132,000
_180,000
P 48,000
lOMoARcPSD|6016800
6
Chapter 1
1-21:
b
1-22:
1-23:
1-24:
1-25:
Unadjusted Ell, capital (P75,000 – P5,000)
Allowance for doubtful accounts
Accounts payable
P 70,000
( 1,000)
( 4,000)
Adjusted Ell, capital
P 65,000
Total partnership capital (P113,640/1/3)
Less Divino's capital
P340,920
_113,640
Cortez's capital after adjustments
Adjustments made:
Allowance for doubtful account (2% X P96,000)
Merchandise inventory
Prepaid expenses
Accrued expenses
P227,280
Cortez's capital before admission of Divino
P211,200
c
a
Total assets at fair value
Liabilities
Capital balance of Flora
P4,625,000
(1,125,000)
P3,500,000
c
Total capital of the partnership (P3,500,000 ÷ 70%)
Eden agreed profit & loss ratio
Eden agreed capital
Eden contributed capital at fair value
Allocated cash to be invested by Eden
P5,000,000
30%
1,500,000
812,000
P 688,000
c
__Rey
Contributed capital (assets-liabilities)P471,000
Agreed capital (profit and loss ratio) 382,800
Capital transfer (Bonus)
P 88,200
1-26:
1,920
( 16,000)
( 5,200)
___3,200
__Sam_ __Tim
__Total_
P291,000 P195,000 P957,000
382,800 191,400 957,000
P(91,800) P 3,600
-
d
Total agreed capital (P90,000 ÷ 40%)
Contributed capital of Candy (P126,000+P36,000-P12,000)
Total agreed capital (P90,000 ÷ 40%)
Candy, agreed capital interest
Agreed capital of Candy
Contributed capital of Candy
Withdrawal of Candy
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P225,000
150,000
225,000
60%
135,000
150,000
P 15,000
lOMoARcPSD|6016800
Partnership – Basic Considerations and Formation
1-27:
1-28:
a
Total agreed capital (210,000 ÷ 70%)
Nora’s interest
Agreed capital of Nora
Cash invested
Merchandise to be invested by Nora
P300,000
30%
P 90,000
42,000
P 48,000
a
Contributed capital of May (P194,000 - P56,000)
Agreed capital of May (P300,000 x 70%)
Cash to be invested by May
P138,000
210,000
P 72,000
1-29:
d
1-30:
b
Zero, because the bonus method involves only a transfer of capital.
Cash
Accounts receivable- Net
Merchandise inventory
Computer equipment
Furniture and fixtures
Total assets at fair value
Accounts payable
Net assets invested
Agreed capital
Goodwill (withdrawal)
1-31:
Noy
10,000
92,000
216,000
24,000
18,000
360,000
(108,000)
252,000
250,000
P (2,000)
P
Bi
P 14,000
92,000
150,000
14,000
---270,000
(72,000)
198,000
200,000
P 2,000
c
Cash
Office equipment
Merchandise inventory
Notes payable
Contributed capital
Agreed capital
Bonus to Roxas
1-32:
7
Villar
P 2,205,000
630,000
( 210,000)
2,625,000
2,520,000
P( 105,000)
b
Total capital before adjustments (P210,750 + P103,000)
Allowance for doubtful accounts
Accumulated depreciation (P1,000 – P500)
Obsolete inventory
Total assets of the partnership
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Roxas
P
1,575,000
1,575,000
1,680,000
P 105,000
P313,750
( 10,000)
500
( 3,500)
P300,750
lOMoARcPSD|6016800
8
1-33:
Chapter 1
b
Cash
Accounts receivable
Merchandise inventory
Equipment
Accounts payable
Notes payable
Contributed capital
Loss on sale of equipment
Net assets
Additional investment by Edu
Agreed capital
1-34:
1-36:
Edu
P136,800
129,600
216,000
(96,000)
386,400
1,800
388,200
20,400
P408,600
Garnett
P2,443,364
( 80,000)
( 108,000)
2,255,364
2,255,364
P
-
Bryant
P3,097,528
200,000
( 140,000)
3,157,528
1,503,576*
P 1,653,952
a
Unadjusted capital
Accumulated depreciation
Accounts receivable written off
Adjusted capital contributed
Agreed capital
Capital withdrawal
1-35:
Gibo
P 19,200
163,200
240,000
60,000
(60,000)
(12,000)
410,400
(1,800)
408,600
P408,600
* Total agreed capital (P2,255,364 / 60%)
Bryant’s interest
Agreed capital of Bryant
P3,758,940
40%
P1,503,576
a
Total capital
Total liabilities
Total assets
P3,758,940
4,299,396
P8,058,336
a
Unadjusted capital
Undervaluation of inventory
Allowance for doubtful accounts
Accrued expenses
Contributed capital
Agreed capital of Gordon (P285,000/75%) x 25%
Capital withdrawal by Gordon
Gordon
P220,000
11,000
(2,750)
228,250
133,250
P 95,000
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Fernando
P309,375
( 4,125)
(20,250)
285,000
285,000
P
-
lOMoARcPSD|6016800
Partnership – Basic Considerations and Formation
9
SOLUTIONS TO PROBLEMS
Problem 1 – 1
1.
a. Books of Pedro Castro will be retained by the partnership
To adjust the assets and liabilities of Pedro Castro.
1. Pedro Castro, Capital .............................................................
Merchandise Inventory ......................................................
600
2. Pedro Castro, Capital .............................................................
Allowance for Bad Debts ..................................................
200
3. Accrued Interest Receivable ..................................................
Pedro Castro, Capital.........................................................
35
Computation:
P1,000 x 6% x 3/12 =
P2,000 x 6% x 2/12 =
600
200
35
P15
_20
Total ......................... ...... P35
4. Pedro Castro, Capital .............................................................
Accrued Interest Payable ...................................................
(P4,000 x 5% x 6/12 = P100)
100
5. Pedro Castro, Capital .............................................................
Accumulated Depreciation – Furniture and Fixtures ........
800
6. Office Supplies ......................................................................
Pedro Castro, Capital.........................................................
400
100
800
400
To record the investment of Jose Bunag.
Cash .. ........................................................................................... 15,067.50
Jose Bunag, Capital ...............................................................
Computation:
Pedro Castro, Capital
(1)
P600 P31,400
(2)
200
35 (3)
(4)
100
400 (6)
(5) ___800
P1,700 P31,835
P30,135
Jose Bunag, Capital : 1/2 x P30,135 = P15,067.50
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15,067.50
lOMoARcPSD|6016800
10
b.
Chapter 1
A new set of books will be used
Books of Pedro Castro
To adjust the assets and liabilities.
See Requirement (a).
To close the books.
Notes Payable ...............................................................................
Accounts Payable .........................................................................
Accrued Interest Payable..............................................................
Allowance for Bad Debts .............................................................
Accumulated Depreciation – Furniture and Fixtures ...................
Pedro Castro, Capital ...................................................................
Cash .......................................................................................
Notes Receivable ...................................................................
Accounts Receivable .............................................................
Accrued Interest Receivable ..................................................
Merchandise Inventory ..........................................................
Office Supplies ......................................................................
Furniture and Fixtures............................................................
4,000
10,000
100
1,200
1,400
30,135
6,000
3,000
24,000
35
7,400
400
6,000
New Partnership Books
To record the investment of Pedro Castro.
Cash ...........................................................................................
Notes Receivable ..........................................................................
Accounts Receivable ....................................................................
Accrued Interest Receivable.........................................................
Merchandise Inventory.................................................................
Office Supplies .............................................................................
Furniture and Fixtures ..................................................................
Notes Payable ........................................................................
Accounts Payable...................................................................
Accrued Interest Payable .......................................................
Allowance for Bad Debts.......................................................
Accumulated Depreciation – Furniture and Fixtures .............
Pedro Castro, Capital .............................................................
6,000
3,000
24,000
35
7,400
400
6,000
4,000
10,000
100
1,200
1,400
30,135
To record the investment of Jose Bunag.
Cash .. ........................................................................................... 15,067.50
Jose Bunag, Capital ...............................................................
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15,067.50
lOMoARcPSD|6016800
Partnership – Basic Considerations and Formation
2.
11
Castro and Bunag Partnership
Statement of Financial Position
October 1, 2011
Assets
Cash ..... ...... ... ...........................................................................................
Notes receivable ..........................................................................................
Accounts receivable .................................................................................... P 24,000
Less Allowance for bad debts...................................................................... ___1,200
Accrued interest receivable .........................................................................
Merchandise inventory ................................................................................
Office supplies ...........................................................................................
Furniture and fixtures ..................................................................................
6,000
Less Accumulated depreciation................................................................... ___1,400
Total Assets ........................................................................................
P21,067.50
3,000.00
22,800.00
35.00
7,400.00
400.00
__4,600.00
P59,302.50
Liabilities and Capital
Notes payable ...........................................................................................
Accounts payable ........................................................................................
Accrued interest payable .............................................................................
Pedro Castro, Capital ...................................................................................
Jose Bunag, Capital .....................................................................................
Total Liabilities and Capital ...............................................................
P 4,000.00
10,000.00
100.00
30,135.00
_15,067.50
P59,302.50
Problem 1 – 2
Contributed Capitals:
Jose:
Capital before adjustment ...................................................... P 85,000
Notes Payable ........................................................................
62,000
Undervaluation of inventory ..................................................
13,000
Underdepreciation.................................................................. ( 25,000)
Pedro: Cash .......................................................................................
Pablo: Cash .......................................................................................
11,000
Marketable securities ............................................................. _57,500
Total contributed capital ..............................................................................
Agreed Capitals:
Bonus Method:
Jose (P231,500 x 50%) ................................................................. P115,750
Pedro (P231,500 x 25%) ..............................................................
57,875
Pablo (P231,500 x 25%)............................................................... __57,875
Total . ........................................................................................... P231,500
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P 135,000
28,000
___68,500
P 231,500
lOMoARcPSD|6016800
12
Chapter 1
Goodwill Method. To have a goodwill, the only possible base is the capital of Pablo. The
computation is:
Contributed
Capital
Jose
Pedro
Pablo
Total
Agreed
Capital
P135,000
28,000
__68,500
P231,500
Goodwill
P137,000 (50%)
68,500 (25%)
__68,500 (25%)
274,000
2,000
40,500
_____–
42,500
Total agreed capital (P68,500 ÷ 25%) = 274,000
Jose, Pedro and Pablo Partnership
Statement of Financial Position
June 30, 2011
Assets:
Cash
Accounts receivable (net)
Marketable securities
Inventory
Equipment (net)
Goodwill
Total
Bonus Method
Goodwill Method
P 49,000
48,000
57,500
85,000
45,000
______–
P284,500
P 49,000
48,000
57,500
85,000
45,000
__42,500
P327,000
P 53,000
115,750
57,875
__57,875
P284,500
P 53,000
137,000
68,500
__68,500
P327,000
Liabilities and Capital:
Accounts payable
Jose, capital (50%)
Pedro, capital (25%)
Pablo, capital (25%)
Total
Problem 1 – 3
1.
Books of Pepe Basco
To adjust the assets.
a. Pepe Basco, Capital ......................................................................
Estimated Uncollectible Account ..........................................
3,200
b. Pepe Basco, Capital ......................................................................
Accumulated Depreciation – Furniture and Fixtures .............
500
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3,200
500
lOMoARcPSD|6016800
Partnership Basic Considerations and Formation
13
To close the books.
Estimated Uncollectible Account .......................................................
Accumulated Depreciation – Furniture and Fixtures ..........................
Accounts Payable................................................................................
Pepe Basco, Capital ............................................................................
Cash .. ...........................................................................................
Accounts Receivable ....................................................................
Merchandise Inventory.................................................................
Furniture and Fixtures ..................................................................
2.
4,800
1,500
3,600
31,500
400
16,000
20,000
5,000
Books of the Partnership
To record the investment of Pepe Basco.
Cash .... ... ...........................................................................................
Accounts Receivable ..........................................................................
Merchandise Inventory .......................................................................
Furniture and Fixtures.........................................................................
Estimated Uncollectible account ..................................................
Accumulated Depreciation – Furniture and Fixtures ...................
Accounts Payable .........................................................................
Pepe Basco, Capital ......................................................................
400
16,000
20,000
5,000
4,800
1,500
3,600
31,500
To record the investment of Carlo Torre.
Cash .... ... ...........................................................................................
Carlo Torre, Capital .....................................................................
Computation:
Pepe Basco, capital (Base) ...........................................................
Divide by Pepe Basco's P & L ratio .............................................
Total agreed capital ......................................................................
Multiply by Carlo Torre's P & L ratio ..........................................
Cash to be invested by Carlo Torre ..............................................
47,250
47,250
P31,500
___40%
P78,750
___60%
P47,250
Problem 1 – 4
a.
Roces' books will be used by the partnership
Books of Sales
1. Adjusting Entries
(a) Sales, Capital .........................................................................
Accumulated Depreciation – Fixtures ...............................
3,200
(b) Goodwill ................................................................................
Sales, Capital .....................................................................
32,000
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3,200
32,000
lOMoARcPSD|6016800
14
2.
Chapter 1
Closing Entry
Allowance for Bad Debts .............................................................
Accumulated Depreciation – Delivery Equipment ......................
Accumulated Depreciation – Fixtures ..........................................
Accounts Payable .........................................................................
Notes Payable ...............................................................................
Accrued Taxes ..............................................................................
Sales, Capital ................................................................................
Cash .......................................................................................
Accounts Inventory................................................................
Merchandise Inventory ..........................................................
Prepaid Insurance...................................................................
Delivery Equipment ...............................................................
Fixtures ..................................................................................
Goodwill ................................................................................
12,800
8,000
91,200
64,000
40,000
8,000
224,000
4,800
72,000
192,000
3,200
48,000
96,000
32,000
Books of Roces (Books of the Partnership)
1.
2.
Adjusting Entries
(a) Roces, Capital ..............................................................................
Allowance for Bad Debts.......................................................
1,600
(b) Accumulated Depreciation – Fixtures ..........................................
Roces, Capital ........................................................................
16,000
(c) Merchandise Inventory.................................................................
Roces, Capital ........................................................................
8,000
(d) Goodwill.......................................................................................
Roces, Capital ........................................................................
40,000
1,600
16,000
8,000
40,000
To record the investment of Sales.
Cash .... ... ...........................................................................................
Accounts Receivable ..........................................................................
Merchandise Inventory .......................................................................
Prepaid Insurance................................................................................
Delivery Equipment ............................................................................
Fixtures ... ...........................................................................................
Goodwill . ...........................................................................................
Allowance for Bad Debts .............................................................
Accumulated Depreciation – Delivery Equipment ......................
Accumulated Depreciation – Fixtures ..........................................
Accounts Payable .........................................................................
Notes Payable ...............................................................................
Accrued Taxes ..............................................................................
Sales, Capital ................................................................................
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4,800
72,000
192,000
3,200
48,000
96,000
32,000
12,800
8,000
91,200
64,000
40,000
8,000
224,000
lOMoARcPSD|6016800
Partnership – Basic Considerations and Formatio
b.
15
Sales' books will be used by the partnership
Books of Roces
1. Adjusting Entries
See Requirement (a).
2. Closing Entry
Allowance for Bad Debts .............................................................
Accumulated Depreciation – Delivery Equipment ......................
Accumulated Depreciation – Fixtures ..........................................
Accounts Payable .........................................................................
Accrued Taxes ..............................................................................
Roces, Capital ..............................................................................
Cash .......................................................................................
Accounts Receivable .............................................................
Merchandise Inventory ..........................................................
Prepaid Insurance...................................................................
Delivery Equipment ...............................................................
Fixtures ..................................................................................
Goodwill ................................................................................
1,600
12,800
64,000
104,000
6,400
224,000
14,400
57,600
132,800
4,800
19,200
144,000
40,000
Books of Sales (Books of the Partnership)
1.
Adjusting Entries
See Requirement (a).
2.
To record the investment of Roces.
Cash .... ... ...........................................................................................
Accounts Receivable ..........................................................................
Merchandise Inventory .......................................................................
Prepaid Insurance................................................................................
Delivery Equipment ............................................................................
Fixtures ... ...........................................................................................
Goodwill . ...........................................................................................
Allowance for Bad Debts .............................................................
Accumulated Depreciation – Delivery Equipment ......................
Accumulated Depreciation – Fixtures ..........................................
Accounts Payable .........................................................................
Accrued Taxes ..............................................................................
Roces, Capital ..............................................................................
Downloaded by Juan Miguel Luzung (phjuan1121@gmail.com)
14,400
57,600
132,800
4,800
19,200
144,000
40,000
1,600
12,800
64,000
104,000
6,400
224,000
lOMoARcPSD|6016800
16
c.
Chapter 1
A new set of books will be opened by the partnership
Books of Roces
1. Adjusting Entries
See Requirement (a).
2. Closing Entry
See Requirement (b).
Books of Sales
1. Adjusting Entries
See Requirement (a).
2. Closing Entry
See Requirement (a).
New Partnership Books
To record the investment of Roces and Sales.
Cash .... ... ...........................................................................................
Accounts Receivable ..........................................................................
Merchandise Inventory .......................................................................
Prepaid Insurance................................................................................
Delivery Equipment (net) ...................................................................
Fixtures (net).......................................................................................
Goodwill ...........................................................................................
Allowance for Bad Debts .............................................................
Accounts Payable .........................................................................
Notes Payable ...............................................................................
Accrued Taxes ..............................................................................
Roces, Capital ..............................................................................
Sales, Capital ................................................................................
Downloaded by Juan Miguel Luzung (phjuan1121@gmail.com)
19,200
129,600
324,800
8,000
46,400
84,800
72,000
14,400
168,000
40,000
14,000
224,000
224,000
lOMoARcPSD|6016800
Partnership – Basic Considerations and Formation
17
Problem 1 – 5
1.
To close Magno's books.
Allowance for Bad Debts....................................................................
Accounts Payable................................................................................
Notes Payable .....................................................................................
Accrued Interest Payable ....................................................................
R. Magno, Capital ...............................................................................
Cash .. ...........................................................................................
Accounts Receivable ....................................................................
Merchandise Inventory.................................................................
Equipment ....................................................................................
Other Assets .................................................................................
2.
5,000
13,000
12,000
3,000
9,000
To adjust the books of Lagman.
Goodwill . ...........................................................................................
Allowance for Bad Debts .............................................................
J. Lagman, Capital........................................................................
3.
1,000
6,000
10,000
300
24,700
8,000
210
7,790
To record the investment of Magno.
Cash .... ... ...........................................................................................
Accounts Receivable ..........................................................................
Merchandise Inventory .......................................................................
Equipment ...........................................................................................
Other Assets ........................................................................................
Allowance for Bad Debts .............................................................
Accounts Payable .........................................................................
Notes Payable ...............................................................................
Accrued Interest Payable..............................................................
R. Magno, Capital ........................................................................
5,000
13,000
12,000
3,000
9,000
1,000
6,000
10,000
300
24,700
To adjust the investments of the partners.
Cash .... ... ...........................................................................................
R. Magno, Capital ........................................................................
(P35,000 – P24,700 = P10,300)
10,300
J. Lagman, Capital ..............................................................................
Cash .. ...........................................................................................
Accounts Payable to J. Lagman ...................................................
(P63,000 + P7,790 = P70,790 – P35,000 = P35,790)
35,790
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10,300
23,300
12,490
lOMoARcPSD|6016800
18
Chapter 1
4.
Lagman and Magno
Statement of Financial Position
December 31, 2011
Assets
Cash .... ... ...........................................................................................
Accounts receivable ............................................................................
Less Allowance for bad debts .............................................................
Merchandise inventory .......................................................................
Equipment ...........................................................................................
Other assets .........................................................................................
Goodwill ...........................................................................................
Total Assets ..................................................................................
P
P34,000
1,210
–
32,790
21,000
8,000
46,000
___8,000
P115,790
Liabilities and Capital
Accounts payable ................................................................................
Notes payable......................................................................................
Accrued interest payable.....................................................................
Accounts payable to J. Lagman ..........................................................
J. Lagman, capital ...............................................................................
R. Magno, capital................................................................................
Total Liabilities and Capital .........................................................
P 18,000
15,000
300
12,490
35,000
__35,000
P115,790
Problem 1 – 6
1.
Books of Toledo
Toledo, Capital .............................................................................
Allowance for Bad Debts (15% x P32,000) ..........................
4,800
4,800
Books of Ureta
Ureta, Capital ...............................................................................
Allowance for Bad Debts (10% x P24,000) ..........................
2,400
Cash (90% x P12,000)..................................................................
Loss from Sale of Office Equipment............................................
Office Equipment...................................................................
10,800
1,200
Toledo, Capital (1/4 x P1,200) .....................................................
Ureta, Capital ...............................................................................
Loss from Sale of Office Equipment .....................................
300
900
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2,400
12,000
1,200
lOMoARcPSD|6016800
Partnership – Basic Considerations and Formation
2.
3.
19
New Partnership Books
Cash .. ...........................................................................................
Accounts Receivable ....................................................................
Merchandise .................................................................................
Office Equipment .........................................................................
Allowance for Bad Debts.......................................................
Accounts Payable...................................................................
Notes Payable ........................................................................
Toledo, Capital ......................................................................
To record the investment of Toledo.
3,200
32,000
40,000
10,000
Cash .. ...........................................................................................
Accounts Receivable ....................................................................
Merchandise .................................................................................
Toledo, Capital .............................................................................
Allowable for Bad Debts .......................................................
Accounts Payable...................................................................
Ureta, Capital .........................................................................
To record the investment of Ureta.
22,800
24,000
36,000
300
Cash .... ... ...........................................................................................
Ureta, Capital ...............................................................................
To record Ureta's cash contribution.
3,400
Computation:
Toledo, capital (P68,400 – P300) .................................................
Divide by Toledo's profit share percentage ..................................
Total agreed capital of the partnership .........................................
Multiply by Ureta's profit share percentage .................................
Agreed capital of Ureta ................................................................
Ureta, capital ................................................................................
Cash contribution of Ureta ...........................................................
or
Toledo, capital (P68,400 – P300) .................................................
Less Ureta, capital ........................................................................
Cash contribution of Ureta ...........................................................
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4,800
10,000
2,000
68,400
2,400
16,000
64,700
3,400
P 68,100
____50%
P136,200
____50%
P 68,100
__64,700
P 3,400
P 68,100
__64,700
P 3,400
lOMoARcPSD|6016800
20
4.
Chapter 1
Toledo and Ureta Partnership
Statement of Financial Position
July 1, 2011
Assets
Cash .... ... ...........................................................................................
Accounts receivable ............................................................................
Less Allowance for bad debts .............................................................
Merchandise........................................................................................
Office equipment ................................................................................
Total Assets ..................................................................................
P 29,400
P56,000
__7,200
48,800
76,000
__10,000
P164,200
Liabilities and Capital
Accounts payable ................................................................................
Notes payable......................................................................................
Toledo, capital ....................................................................................
Ureta, capital .......................................................................................
Total Liabilities and Capital .........................................................
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P 26,000
2,000
68,100
__68,100
P164,200
lOMoARcPSD|6016800
Partnership Operations
21
CHAPTER 2
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
2-1:
d
Jordan
P120,000
( 10,000)
P110,000
Annual salary
Balance, equally
Total
2-2:
a
2-3:
Bonus (.20 X P90,000)
Interest
JJ (.15 X P100,000)
KK (.15 X P200,000)
LL (.15 X P300,000)
Balance, equally
Total profit share
a
2-4:
a
JJ
P18,000
KK
–
P15,000
–
P 30,000
( 6,000)
P27,000
( 6,000)
P 24,000
Allan
Interest
Allan - .10 X (P40,000 + 60,000 /2)
Michael - .10 X (P60,000 + 70,000/2)
Balance, equally
Total
2-5:
P 5,000
_14,000
P 19,000
LL
–
Total
P 18,000
–)
–)
P45,000)
90,000
( 6,000) ( 18,000)
P39,000 P 90,000
Michael
Total
)
P 6,500) P 11,500
_14,000 __28,000
P20,500 P 28,000
a
Fred
P12,000
30,000
( 35,000)
P 7,000
Interest (.10 of average capital)
Salaries
Balance, equally
Total
2-6:
Pippen
Total
P80,000 P200,000
( 10,000) ( 20,000)
P 70,000 P180,000
Greg
P 6,000
( 35,000)
( P29,000)
b
Average Capital
Date
January 1
July 1
August 1
Capital
Balance
140,000
180,000
165,000
Months
Unchanged
6
1
5
12
Peso
Months
P 840,000
180,000
__825,000
P1,845,000
Average capital - P1,845,000/12
=
P153,750
Interest
=
P 15,375
(P153,750 X 10%)
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Henry
Total
P 4,000 P 22,000
20,000
50,000
( 35,000) (105,000)
(P11,000) (P 33,000)
lOMoARcPSD|6016800
22
2-7:
Chapter 2
c
Capital
Balance
P16,000
17,600
19,200
15,200
Date
January 1
April 1
June 1
September 1
Months
Unchanged
3
2
3
4
12
Average Capital(P201,600/12) =
2-8:
2-9:
2-11:
P16,800
a
Net profit before bonus
Net profit after bonus (P24,000/120%)
Bonus to RJ
Balance (P24,000-P4,000)X3/5
Total profit share
P 24,000
__20,000
4,000
__12,000
P 16,000
a
LT
P3,200
15,000
(11,580)
P 6,620
Interest
Salaries
Balance, 3:2
Total
2-10:
Peso
Months
P 48,000
35,200
57,600
__60,800
P201,600
AM
P 3,600
7,500
( 7,720)
P 3,380
Total
P 6,800
22,500
( 19,300)
P 10,000
b
Net income after salary, interest and bonus
Add back: Salary (P10,000 X 12)
P120,000
Interest (P250,000 X .05)
__12,500
Net income after bonus (80%)
Net income before bonus (P600,000/80%)
Paul's bonus
P467,500
_132,500
P600,000
_750,000
P150,000
b
CC
Salary
Balance
Additional profit to DD
Total
P14,000
( 1,500)
P12,500
Net income
Fees Earned
Expenses
Net Income
P90,000
_48,000
P42,000
DD
P 8,400
__2,100
P10,500
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EE
Total
P 14,000 P 14,000
5,600
28,000
( 600) ______–
P 19,000 P 42,000
lOMoARcPSD|6016800
Partnership Operations
2-12:
23
c
Interest
Annual Salary
Additional profit to give LL, P20,000
Additional profit to give MM, P14,000
Total
*(P9,500/50%) = P19,000
2-13:
Net Income
2-15:
MM
P 1,250
–
5,700
__7,050
P14,000
NN
P 750
–
3,800
_____–
P 4,550
Total
P 4,000
8,500
19,000*
__7,050
P 38,550
RR
SS
TT
Total
P15,000
–
_47,500
P62,500
–
(P10,000)
_35,625
P25,625
–)
–)
_11,875
P11,875
P 5,000
__95,000
P100,000
BB
CC
Total
a
Excess (Deficiency)
RR (P80,000 - P95,000)
SS (P50,000 - P40,000)
Balance 4:3:1
Total
2-14:
LL
P 2,000
8,500
9,500
_____–
P20,000
(200,000 - 100,000) =
b
AA - 100,000 X 10%
150,000 X 20%
Remainder, 210,000
BB (60,000 X .05)
CC (60,000 X .05)
Balance, equally
Total
a
P100,000
AA
P 10,000
30,000
P 40,000
)
P 3,000
_68,000
P71,000
6,000
_204,000
P250,000
BJ
CJ
Total
P1,000
–
_6,800
P7,800
P4,000
–
12,000
__3,400
P19,400
P4,000
1,000
22,000
_17,000
P44,000
P 3,000
__68,000
P108,000
AJ
Bonus to CJ
Net profit before bonus
P44,000
Net profit after bonus (P44,000/110%)P40,000 –
–
Interest to BJ
–
Salaries
P 10,000
Balance, 4:4:2
__6,800
Total
P 16,800
2-16:
)
)
_68,000
P71,000
c
Total profit share of Pedro
Less: Salary to Pedro
Interest
Share in the balance (40%)
P 50,000
__20,000
Net profit after salary and interest (130,000/40%)
Add: Total Salaries
Total Interest
Total Partnership Income
P150,000
__70,000
P200,000
__70,000
P130,000
P325,000
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_220,000
P545,000
lOMoARcPSD|6016800
24
2-17:
Chapter 2
c
Net income before extraordinary gain and bonus (69,600-12,000)
Net income after bonus (57,600/120%)
Bonus to RR
P 57,600
_48,000
P 9,600
Distribution of Net Income:
JJ
2-18:
Bonus
Balance, equally
Net profit before extraordinary gain
Extraordinary gain
Total
a
Interest
Annual Salary
Remainder 60:40
Total
2-19:
Mel
P 20,000
36,000
__60,000
P116,000
Jay
P 12,000
–
_40,000
P 52,000
Total
P 32,000
36,000
_100,000
P168,000
DV
P 15,000
( 36,875)
(P 21,875)
JE
FR
Total
P 3,750
(P 7,500) P 11,250
( 22,125) ( 14,750) ( 73,750)
(P 18,375) (P 22,250) (P 62,500)
c
Correction of 1998 profit:
Net income per books
Understatement of depreciation
Overstatement of inventory, December 31
Adjusted net income
Distribution of net income per book:
Equally
Distribution of adjusted net income
Equally
Required Decrease
2-21:
Total
P 9,600
48,000
P 57,600
_12,000
P 69,600
a
Interest on excess (Deficiency)
Remainder 5:3:2
Total
2-20:
–
P 24,000
P 24,000
__4,800
P 28,800
RR
P 9,600
24,000
P 33,600
__7,200
P 40,800
P 19,500
( 2,100)
( 11,400)
P 6,000
Pete
Rico
Total
P 9,750
P 9,750
P 19,500
( 3,000)
P 6,750
( 3,000) ( 6,000)
P 6,750 P 13,500
a
Salaries
Interest
Bonus (P360,000-P54,000)X.25
Remainder, 30:70
Total
Tiger
P 64,000
24,000
76,500
__19,650
P184,150
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Woods
P100,000
30,000
–
__45,850
P175,850
Total
P164,000
54,000
76,500
__65,500
P360,000
lOMoARcPSD|6016800
Partnership Operations
2-22:
2-23:
2-24:
25
a
Salaries
Commission
Interest
Bonus, schedule 1
Remainder, 60:40
Total
Schedule 1
Net income before salary, commission,
interest and bonus
Less: salaries
Net income before bonus
Net income after bonus (P180,000/120%)
Bonus
a
Clotty
P 20,000
–
32,000
30,000
__35,640
P117,640
Cotto
–
P 25,000
33,600
–
_23,760
P 82,360
Total
P 20,000
25,000
65,600
30,000
__59,400
P200,000
P200,000
__20,000
P180,000
_150,000
P 30,000
Capital balance, beginning
Additional investment
Capital withdrawal
Capital balance before profit and loss distribution
Mike
P600,000
100,000
-200,000
P500,000
Tyson
Total
P400,000 P1,000,000
200,000
300,000
( 100,000) _-300,000
P500,000 P1,000,000
Net income:
Salary
Balance, 3:2
Total
Total
Drawings
Capital balance, end
P200,000
__60,000
P260,000
P760,000
( 200,000)
P560,000
P300,000 P 500,000
__40,000 __100,000
P340,000 P 600,000
P840,000 P1,600,000
( 300,000) ( 500,000)
P540,000 P1,100,000
d
Average Capital - King:
Capital
Balance
P40,000
55,000
Date
January 1
April 1
Months
Unchanged
3
9
12
Peso
Months
P120,000
_495,000
P615,000
Months
Unchanged
7
5
12
Peso
Months
P700,000
__650,000
P1,350,000
Average capital – P615,000/12 = P51,250
Average Capital - Queen:
Date
January 1
April 1
Capital
Balance
P100,000
130,000
Average capital - P1,350,000 / 12 =P112,500
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lOMoARcPSD|6016800
26
2-24: Continued
Chapter 2
Distribution of Net Income - Schedule 1
Interest
Bonus, Schedule 2
Salaries
Residual, 50:50
Total
King
P 5,125
12,725
25,000
( 2,050)
P40,800
Queen
P11,250
–
30,000
_(2,050)
P39,200
Total
P16,375
12,725
55,000
_(4,100)
P80,000
Schedule 2
Net income before allocation
Less: Interest
Net income before bonus
Net income after bonus (P63,625/125%)
Bonus
P80,000
_16,375
P63,625
_50,900
P12,725
Capital Balance December 31:
Capital balance, January 1
Additional investment
Capital balance before profit and
loss distribution
Net income (Schedule 2)
Drawings (P400 X 52)
Capital balance, December 31
2-25:
King
P40,000
_15,000
P55,000
P130,000
40,800
39,000
( 20,800) ( 20,800)
P75,000
P148,400
d
Total receipts (P1,500,000 + P1,625,000)
Expenses
Net income
Distribution to Partners
Red – P1,500,000/P3,125,000 X P2,045,000 =
Blue – P1,625,000/P3,125,000 X P2,045,000 =
Capital balance of Blue Dec. 31
Capital Balance, Jan. 1
Additional investment
Capital balance before profit and
loss distribution
Profit share
Drawings
Capital balance, Dec. 31
Queen
P100,000
__30,000
Total
P140,000
__45,000
P185,000
80,000
( 41,600)
P223,400
P3,125,000
( 1,080,000)
P2,045,000
P 981,600 (1)
_1,063,400
P2,045,000
P 374,000
___22,000
P 396,000
1,063,400
( 750,000)
P 709,400 (2)
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lOMoARcPSD|6016800
Partnership Operations
2-26:
27
a
Ray
P150,000
_______
Sam
P180,000
__60,000
Total
P330,000
__60,000
150,000
240,000
390,000
15,000
51,000
20,000
34,000
35,000
85,000
66,000
54,000
120,000
Total
Salaries
216,000
_18,000
294,000
_24,000
510,000
_42,000
Total
Drawings
234,000
(18,000)
318,000
(24,000)
552,000
(42,000)
Capital balances, March 1
Additional investment, Nov. 1
Capital balances before salaries, profit and Drawings
Profit share:
Interest
Balance, 60:40
Total
2-27:
Capital balances, Feb. 28
P216,000
P294,000
P510,000
Capital balances, 1/1
Additional investment, 4/1
Capital withdrawals, 7/1
Susan
P150,000
8,000
_______
Tanny
P30,000
158,000
24,000
23,400
(1,725)
4,050
6,000
(1,725)
27,450
6,000
(3,450)
21,675
_8,325
30,000
179,675
(12,000)
32,325
(12,000)
212,000
(24,000)
a
Balances before profit distribution
Profit distribution:
Interest
Bonus (20% x P30,000)
Balance, equally
Total
Total
Drawings
Capital balances, 12/31
P167,675
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Total
P180,000
8,000
(6,000) _(6,000)
P20,325
182,000
P188,000
lOMoARcPSD|6016800
28
2-28:
Chapter 2
a
Capital balances, beg. 1st year
Loss distribution, 1st year:
Salaries
Interest
Balance, 5:3:2
Total
Total
Drawings
Capital balances, beg. 2nd year
Profit distribution, 2nd year:
Salaries
Interest
Balance, 5:3:2
Total
Total
Drawings
Capital balances, end of 2nd year
2-29:
Sin
P110,000
Tan
P80,000
Uy
P110,000
Total
P300,000
20,000
11,000
(40,000)
( 9,000)
101,000
(10,000)
91,000
8,000
(16,000)
( 8,000)
72,000
(10,000)
62,000
10,000
11,000
(24,000)
( 3,000)
107,000
(10,000)
97,000
30,000
30,000
(80,000)
(20,000)
280,000
(30,000)
250,000
20,000
9,100
( 7,500)
21,600
112,600
_(10,000)
P102,600
6,200
( 4,500)
_1,700
63,700
(10,000)
P53,700
10,000
9,700
( 3,000)
16,700
113,700
_(10,000)
P103,700
30,000
25,000
(15,000)
40,000
290,000
_(30,000)
P260,000
Jay
P30,000
Kay
P30,000
_(5,000)
25,000
_(4,000)
26,000
Loi
P30,000
5,000
______
35,000
Total
P90,000
5,000
_(9,000)
86,000
3,000
7,000
_1,000
36,000
5,000
______
41,000
3,000
3,000
_1,000
30,000
_1,000
39,000
_(3,000)
27,000
_(8,000)
31,000
9,000
7,000
__3,000
105,000
5,000
(11,000)
99,000
c
Capital balances, 1/1/06
Additional investment, 2006
Capital withdrawal, 2006
Capital balances
Profit distribution, 2006:
Interest
Salary
Balance, equally
Capital balances, 1/1/07
Additional investment, 2007
Capital withdrawal, 2002
Capital balances
Profit distribution, 2007:
Interest
Salary
Balance, equally
Capital balances, 1/1/08
Additional investment, 2008
Capital withdrawal, 2008
Capital balances
Profit distribution, 2008:
Interest
Salary
Balance, equally
Capital balances, 12/31/08 per books
Understatement of depreciation
Adjusted capital balances, 12/31/08
3,600
7,000
_1,500
53,100
3,000
3,900
_1,500
31,500
______
53,100
_(4,000)
27,500
_1,500
36,400
6,000
_(2,000)
40,400
5,310
7,000
__3,300
P68,710
(2,000)
P66,710
3,150
3,640
__3,300
P33,950
(2,000)
P31,950
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__3,300
P47,340
(2,000)
P45,340
10,500
7,000
__4,500
121,000
6,000
_(6,000)
121,000
12,100
7,000
___9,900
P150,000
(6,000)
P144,000
lOMoARcPSD|6016800
Partnership Operations
2-30:
29
a
Ken
Capital balances, 1/1/07
Additional investment, 2007
Capital withdrawal, 2007
Balances
Profit distribution, 2007 (Schedule 1)
Salary
Balance, beg. Capital ratio
Capital balances, 1/1/08
Capital withdrawal, 2008
P100,000
Len
P100,000
( 20,000)
_______
P300,000
40,000
( 20,000)
80,000
140,000
100,000
320,000
20,000
20,000
60,000
20,000
60,000
60,000
100,000
( 20,000)
160,000
( 40,000)
180,000
_______
440,000
( 60,000)
Balances
Profit distribution, 2008:
Salary
Balance, beg. capital ratio
80,000
120,000
180,000
380,000
__13,636
__21,818
60,000
__24,546
60,000
__60,000
Capital balances, 12/31/08
P 93,636
P141,818
P264,546
P500,000
P500,000
_260,000
Total profit for 2 years
Net profit per year (P240,000 / 2)
P240,000
P120,000
d
_Nardo_
Capital balance, 1/1/08
P280,000
Additional investment
96,000
Withdrawals
Cap. bal. before P/L dist.
376,000
NP: Salary (16,500 x 12)
Interest on EC (15%)
42,000
Balance 25:30:45
( 19,875 )
Total
22,125
Capital balance 12/31/08 P398,125
2-32:
Total
P100,000
40,000
_______
Schedule 1 – Computation of net profit:
Total capital, 2008 (P647,500 – P147,500)
Total capital, 2007 (P300,000 + P40,000 – P80,000)
2-31:
Mon
d
Sam capital, beginning
Additional investment (Land)
Drawings
Capital balance before net profit (loss)
Capital balance, end
Profit share (40%)
Net profit (P50,000 ÷ 40%)
__Orly
P300,000
60,000
( 90,000 )
270,000
198,000
45,000
( 23,850 )
219,150
P 489,150
__Pedro_
P170,000
( 72,000 )
98,000
25,500
( 35,775 )
( 10,275 )
P 87,725
P120,000
60,000
( 80,000 )
100,000
150,000
50,000
P125,000
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_Total_
P750,000
156,000
(162,000)
744,000
198,000
112,500
(79,500 )
231,000
P975,000
lOMoARcPSD|6016800
30
2-33:
Chapter 2
a
__Joe__
Capital balance, 1/2/07
P 80,000
Net loss- 2007:
Annual salary
96,000
10% interest on beg. capital
8,000
Bal. beg. cap. ratio: 8:4
( 108,000)
Total
( 4,000)
Capital balance
76,000
Drawings
( 4,000)
Capital balance, 12/31/07
72,000
Net profit- 2008:
Annual salary
96,000
10% interest on BC
7,200
Bonus to Joe–NPBB –
P 22000
NPAB (22000/110%)20000 2,000
Balance equally
( 67,300)
Total
37,900
Total
109,900
Drawings
(
4,000)
Capital balance, 12/31/08
2-34:
2-35:
105,900
__Tom__
P 40,000
__Total__
P120,000
48,000
4,000
( 54,000)
( 2,000)
38,000
( 4,000)
34,000
144,000
12,000
( 162,000)
( 6,000)
114,000
( 8,000)
106,000
48,000
3,400
144,000
10,600
( 67,300)
( 15,900)
18,100
(
4,000)
2,000
( 134,600)
22,000
128,000
( 8,000)
14,100
120,000
a
Decrease in capital
Drawings
Contribution
Profit share
Net income (45,000 ÷ 30)
P 60,000
( 130,000)
25,000
45,000
P150,000
b
2009:
Original profit allocation
Salaries
Balance of profit
Total
Cris
P 80,000
100,000
P180,000
Paul
P 60,000
100,000
P160,000
Bryan
P 60,000
100,000
P160,000
Total
P200,000
300,000
P500,000
Revised profit allocation
Salaries
Interest on capital (Sch. A)
Balance of profit
Total
P 80,000
7,500
91,200
P178,799
P 60,000
13,200
91,200
P164,400
P 60,000
5,700
91,200
P156,900
P200,000
26,400
273,600
P500,000
Difference in total
P
P (4,400)
P
P
1,300
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3,100
0
lOMoARcPSD|6016800
Partnership Operations
31
2-35: Continued
2010
Original profit allocation:
Salaries
Balance of profit
Total
Cris
P 80,000
70,000
P150,000
Paul
P 60,000
70,000
P130,000
Bryan
P 60,000
70,000
P130,000
Total
P200,000
210,000
P410,000
Revised allocation:
Salaries
Interest on capital (Sch. B)
Balance of profit
Total
P 80,000
3,944
66,700
P150,644
P 60,000
2,428
P 66,700
P129,128
P 60,000
3,528
P 66,700
P130,228
P200,000
9,900
P200,000
P410,000
Difference in totals
Total of differences
P
P
P
872
P (3,528)
(644)
656
P
P
(228)
2,872
P
P
0
0
Therefore Paul capital should be increased by P3,528
Schedule A: Revised Computation of Interest on Average Capital
Partner
Cris
Date
January 1
March 31
September 30
Capital
Balance
P180,000
30,000
10,000
Fraction of
Year Unchanged
3/12
6/12
3/12
Average
Capital
P45,000
15,000
2,500
P62,500
Paul
January 1
March 31
September 30
P250,000
80,000
30,000
3/12
6/12
3/12
P62,500
40,000
7,500
P110,000
Bryan
January 1
September 30
P60,000
10,000
9/12
3/12
P45,000
2,500
P47,500
Interest at 12%:
Cris:
Paul:
Bryan:
P62,500 x 12% =
P110,000 x 12%=
P47,500 x 12% =
P7,500
P13,200
P5,700
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lOMoARcPSD|6016800
32
Chapter 2
2-35: Continued
Schedule B: Revised Computation of Interest on Average Capital
Partner
Cris
Capital
Balance
P188,700
18,700
Date
January 1
March 31
Fraction of
Year Unchanged
1/12
11/12
Average
Capital
P15,725
17,142
P32,867
Paul
January 1
March 31
P194,400
4,400
1/12
11/12
P16,200
4,033
P20,233
Bryan
January 1
September 30
P166,900
16,900
1/12
11/12
P13,908
15,492
P29,400
Interest at 12%:
Cris:
Paul:
Bryan:
2-36:
P32,867 x 12% =
P20,233 x 12%=
P29,400 x 12% =
P3,944
P2,428
P3,528
a
Salaries
Bonus (Sch. A)
Interest on capital (Sch. B)
Remainder of profit
Total
Gabriel
P35,000
12,000
11,467
11,280
P69,747
Harry
P40,000
5,333
16,920
P62,253
Cumulative Total
P 75,000
87,000
103,800
132,000
Schedule A: Computation of Bonus to Gabriel
Bonus = 10% (net income – Bonus)
110% Bonus = 10% (net income)
110% Bonus = P13,200
Bonus = P12,000
Schedule B: Calculation of average capital balances:
Partner
Gabriel
Date
January 1
April 1
November 1
November 1
Capital Balance
P120,000
140,000
170,000
160,000
Fraction
3/12
512
2/12
2/12
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Average Capital
P 30,000
58,333
28,333
26,667
P143,333
lOMoARcPSD|6016800
Partnership Operations
2-36: Continued:
Partner
Harry
33
Date
January 1
November 1
Capital Balance
60,000
100,000
Interest therefore:
Gabriel:
P143,333 x 8% =
Harry:
P66,667 x 8% =
2-37:
Fraction
10/12
2/12
Average Capital
P50,000
16,667
P66,667
P11,467
P5,333
a
Adjustments to Income:
Amortization of business name
Prepaid expenses, 2009
Accrued expenses, 2009
Fees billed in 2010
Inventory overstatement
Accrued expenses, 2010
Accrued income, 2010
Adjustments to income
2009
P(5,000)
3,000
(2,000)
8,400
P 4,400
2010
P (5,000)
(3,000)
2,000
(8,400)
4,000
(8,600)
(3,000)
P(22,000)
Computations of Adjusted Capital Balances:
Unadjusted balances, December 31, 2010
Bonus to Cory on change in 2009 income (Sch. 1)
Allocation of remaining adjustments to 2009 income
Bonus to Cory on change in 2010 income (Sch. 2)
Allocation of remaining adjustments to 2010 income
Correction of capital withdrawal
Adjusted capital balances, December 31, 2010
Cory
P25,000
400
1,200
(2,000)
(7,000)
(5,000)
P12,600
Schedule 1:
Bonus = 10% (1 - Bonus)
Bonus = 10% (P4,400 – Bonus)
110% Bonus = P440
Bonus = P400
Schedule 2:
Bonus = 10% )1 – Bonus)
Bonus = 10% (P22,000 – Bonus)
110% Bonus = (P2,200)
Bonus = (P2,000)
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Dory
P30,000
Eva
P28,000
1,200
1,600
(7,000)
(6,000)
P24,200)
P23,600
lOMoARcPSD|6016800
34
2-38:
Chapter 2
b
Old Partners Capital Balances before Admission of New Partner:
Capital balances, March 1, 2009
2009 net loss:
Salaries (10 months)
Interest on beginning capital balances
Balance, beginning capital ratio
Total
Total
Drawings
Capital balances, 1/1/2010
2010 net profit:
Salaries
Interest on beginning capital balances
Balance, equally
Total
Total
Drawings
Capital balances, 12/31/010
Alma
P480,000
Betty
P240,000
Total
P720,000
480,000
48,000
(552,000)
(24,000)
456,000
(24,000)
432,000
240,000
24,000
(276,000)
(12,000)
228,000
(24,000)
204,000
720,000
72,000
(828,000)
(36,000)
684,000
(48,000)
636,000
576,000
43,200
(397,800)
221,400
653,400
(24,000)
P629,400
288,000
20,400
(397,800)
(89,400)
114,600
(24,000)
P90,600
864,000
63,600
(795,600)
132,000
768,000
(48,000)
P720,000
Contributed capital of new partner Cora
Agreed capital of Cora (P720,000 + P400,000) x 40%
Bonus from Alma and Betty, original capital ratio(reduction from capital)
Therefore entry a is correct.
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P400,000
448,000
P 48,000
lOMoARcPSD|6016800
Partnership Operations
35
SOLUTIONS TO PROBLEMS
Problem 2 – 1
1.
Castro
Diaz
:
:
(P26,000/P42,500) x
(P16,500/P42,500) x
P23,800
P23,800
=
=
P14,560
__9,240
P23,800
2.
Castro
Diaz
:
:
(P31,250/P50,000) x
(P18,750/P50,000) x
P23,800
P23,800
=
=
P14,875
__8,925
P23,800
Computation of Average Capitals:
Castro:
Date
1/1 .....................................
4/10 ...................................
5/1 .....................................
8/1 .....................................
Capital
Balances
P26,000
29,000
36,000
32,000
Average capital = P375,000 ÷ 12 months =
Diaz:
Date
1/1 .....................................
6/1 .....................................
9/1 .....................................
Capital
Balances
P16,500
21,500
19,500
Average capital = P225,000 – 12 months =
3.
Months
Unchanged
3
1
3
5
12
Peso
Months
P 78,000
29,000
108,000
_160,000
P375,000
P31,250
Months
Unchanged
5
3
4
12
Peso
Months
P 82,500
64,500
__78,000
P225,000
P18,750
Interest ........................................................
Salaries........................................................
Balance, equally..........................................
Total ............................................................
Castro
P 7,500
36,000
( 24,100)
P19,400
Diaz
P4,500
24,000
(24,100)
P 4,400
Total
P12,000
60,000
( 48,200)
P23,800
Bonus (a) ....................................................
Interest (b)...................................................
Balance, 3:2 ................................................
Total ............................................................
Castro
P 4,760
1,100
_10,764
P16,624
Diaz
P –
–
_7,176
P7,176
Total
P 4,760
1,100
_17,940
P23,800
4.
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lOMoARcPSD|6016800
36
Chapter 2
Computations:
a. Net profit before bonus.................................................
Net profit after bonus (P23,800 ÷ 125%) .....................
Bonus............................................................................
b.
5.
Castro
Diaz
P23,800
_19,040
P 4,760
Average capital of Castro [(P26,000 + P32,000) ÷ 2] ...........................
Average of Diaz [(P16,500 + P18,500) ÷ 2]....... ..................................
Castro's excess ..................................................... ..................................
Multiply by .......................................................... ..................................
Interest ................................................................. ..................................
P29,000
_18,000
P11,000
___10%
P 1,100
:
:
P14,280
__9,520
P23,800
(P3,000/P5,000) x P23,800
(P2,000/P5,000) x P23,800
=
=
Problem 2 – 2
a.
Average Capital:
Robin:
Date
Jan. 1
Feb. 28
Apr. 30
Sept. 30
Balances
P135,000
95,000
175,000
195,000
Months
Unchanged
2
2
5
3
12
Peso
Months
P270,000
190,000
875,000
__585,000
P1,920,000
Months
Unchanged
3
3
2
2
2
12
Peso
Months
P420,000
600,000
300,000
440,000
__400,000
P2,160,000
Ave. Capital (P1,920,000 ÷ 12) = P160,000
Hood:
Date
Balances
Jan. 1
Mar. 31
June 30
Aug. 31
Oct. 31
P140,000
200,000
150,000
220,000
200,000
Ave. Capital (P2,160,000 ÷ 12) = P180,000
Profit Distribution:
Robin : P160,000 ÷ P340,000 x P510,000 =
Hood : P180,000 ÷ P340,000 x P510,000 =
P240,000
_270,000
P510,000
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lOMoARcPSD|6016800
Partnership Operations
37
b.
Interest on ave. capital .........................................
Salaries.................................................................
Bonus (P510,000 – 30,600 – 160,000) x 25%) ....
Balance, equally...................................................
Totals ...................................................................
c.
Interest:
Robin (P195,000 – P135,000) 10%.............
Hood (P200,000 – P140,000) 10% .............
Balance, equally...................................................
Totals ...................................................................
d.
Robin
P 14,400
60,000
78,850
_119,775
P274,025
Hood
P 16,200
100,000
–
_119,775
P235,975
Total
P 30,600
160,000
79,850
_239,550
P510,000
Robin
Hood
Totals
P 6,000
249,000
255,000
P 12,000
498,000
510,000
Hood
P120,000
Total
P200,000
62,000
_248,000
P510,000
P 6,000
249,000
255,000
Robin
P 80,000
62,000
_124,000
P266,000
Salaries.................................................................
Bonus (see computations below) .........................
Balance, equally...................................................
_124,000
Totals ...................................................................
P244,000
Bonus Computations:
Net income before salaries and bonus......... ..................... .......................
Less Salaries................................................ ..................... .......................
Net income before bonus ............................ ..................... .......................
Net income after bonus (P310,000 ÷ 125%) ..................... .......................
Bonus .......................................................... ..................... .......................
P510,000
200,000
310,000
_248,000
P 62,000
Problem 2 – 3
a.
De Villa
P 30,000
De Vera
–
P 20,000
31,200
9,818
__44,182
P105,200
Salaries.................................................................
Commission (2% x P1,000,000) ..........................
Interest of 8% on average capital.........................
32,800
Bonus (see computations below) .........................
9,818
Balance, equally...................................................
__44,182
Total .....................................................................
P116,800
Bonus Computations:
Income before salary, commissions, interest & bonus ...... .......................
Salary and commission (P30,000 + P20,000) ................... .......................
Interest......................................................... ..................... .......................
Income before bonus ................................... ..................... .......................
Income after bonus (P108,000 ÷ 110%) ..... ..................... .......................
Bonus .......................................................... ..................... .......................
b.
Income Summary .................................................
De Villa, capital ..........................................
De Vera, capital...........................................
Total
P 30,000
20,000
64,000
19,636
__88,364
P222,000
P222,000
( 50,000)
( 64,000)
108,000
_98,182
P 9,818
P 222,000
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116,800
105,200
lOMoARcPSD|6016800
38
Chapter 2
Problem 2 – 4
a.
Salaries................................................
Bonus (see computation below)..........
Interest (see computation below) ........
Balance, 3:3:4 .....................................
Total ....................................................
East
P15,000
3,760
2,800
__3,180
P24,740
North
P20,000
West
P18,000
4,000
__3,180
P27,180
4,800
__4,240
P27,040
Bonus computations:
Net income before bonus ........... .................... ..................... .....................
Net income after bonus (P78,960 ÷ 105%) ..... ..................... .....................
Bonus ......................................... .................... ..................... .....................
Interest computations:
East (10% x P28,000)................. .................... ..................... .....................
North (10% x P40,000) .............. .................... ..................... .....................
West (10% x P48,000) ............... .................... ..................... .....................
Total ........................................... .................... ..................... .....................
b.
Interest (see computations below) ......
Salaries................................................
Bonus (see computations below) ........
Balance, equally..................................
Total ....................................................
Interest computations:
Average capitals:
East:
Date
1/1
5/1
9/1
Balances
P30,000
36,000
28,000
East
P 3,133
24,000
( 6,056)
P 21,077
North
P 3,633
21,000
4,280
( 6,055)
P 22,858
West
P 5,200
25,000
( 6,055)
P 24,145
Months
Unchanged
4
4
4
12
Total
P53,000
3,760
11,600
_10,600
P78,960
P78,960
_75,200
P 3,760
P 2,800
4,000
__4,800
P11,600
Total
P11,966
70,000
4,280
( 18,166)
P 68,080
Pesos
Months
P120,000
144,000
_112,000
P376,000
Average capital (P376,000 ÷ 12) ..........................................
P 31,333
North:
Pesos
Months
P80,000
124,000
72,000
_160,000
P436,000
Date
1/1
3/1
7/1
9/1
Balances
P40,000
31,000
36,000
40,000
Months
Unchanged
2
4
2
4
12
Average capital (P436,000 ÷ 12) ...........................................
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P 36,333
lOMoARcPSD|6016800
Partnership Operations
39
West:
Date
1/1
4/1
6/1
8/1
Months
Unchanged
3
2
2
5
12
Balances
P50,000
57,000
60,000
48,000
Pesos
Months
P150,000
114,000
120,000
_240,000
P624,000
Ave. capital (P624,000 ÷ 12)....................................
P 52,000
Interest Computations:
East (10% x P31,333) ............ ...............................................
North (10% x P36,333) ......... ...............................................
West (10% x P52,000)........... ...............................................
Total ... .................................. ...............................................
P 3,133
3,633
__5,200
P 11,966
Bonus Computations:
Net income ............................ ...............................................
Less Salary ............................ ...............................................
Net income before bonus....... ...............................................
Net income after bonus (P47,080 ÷ 110%) ...........................
Bonus to North ...................... ...............................................
* To Total
c.
East
West
P 8,990
–
5,000
__8,237.50
P22,227.50
Total
P 8,990
39,000
12,000
_32,950
P92,940
Bonus Computations:
Net income before salaries & bonus ............... ..................... .....................
Less Salaries (P21,000 + P18,000) ................. ..................... .....................
Net income before bonus ........... .................... ..................... .....................
Net income after bonus (P53,940 ÷ 120%) ..... ..................... .....................
Bonus to West ............................ .................... ..................... .....................
P92,940
_39,000
P53,940
_44,950
P 8,990
Bonus (see comp. below) ....................
Salaries ...........................................
Interest on beginning capital ...............
Remainder, 8:7:5.................................
Total ........ ...........................................
North
P 68,000
_21,000
47,080
_42,800
P 4,280
P21,000 P 18,000
3,000
4,000
_13,180 _11,532.50
P37,180 P33,532.50
Problem 2 – 5
a.
Schedule of Income Distribution:
Salaries.... ...........................................
Interest (see computation on p. 30).....
Balance, equally..................................
Total ........ ...........................................
Maria
P12,000
7,200
__3,133
P22,333
Clara
P10,000
9,600
__3,133
P22,733
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Rita
P 8,000
13,800
__3,134
P24,934
Total
P30,000
30,600
__9,410
P70,000
lOMoARcPSD|6016800
40
Chapter 2
Problem 2-5: Continued
Interest on Average Capital:
Maria:
P80,000 x 8% x 6 months.. ....................
P100,000 x 5% x 6 months ....................
Clara:
P120,000 x 8% .................. ....................
Rita:
P180,000 x 8% x 9 Mos. ... ....................
P150,000 x 8% x 3 Mos. ... ....................
Total ........................................... ....................
b.
P 3,200
__4,000
P 7,200
9,600
P10,800
__3,000
_13,800
P30,600
Statement of Partners Capital:
Balances, Jan. 1...................................
Additional Investment ........................
Capital Withdrawal .............................
Net Income..........................................
Drawings ...........................................
Balance, Dec. 31 .................................
Maria
P 80,000
20,000
–
22,333
( 10,000)
P112,333
Clara
P120,000
–
–
22,733
( 10,000)
P132,733
Rita
P180,000
–
( 30,000)
24,934
( 10,000)
P164,934
Total
P380,000
20,000
( 30,000)
70,000
( 30,000)
P410,000
Benny
Celia
Total
P20,000
Problem 2 – 6
1.
Allocation of net loss for 2011:
Salary to Alvin ....................................
Interests on average capital:
Alvin (P120,000 x 10%) ............
Benny (P200,000 x 10%) ...........
Celia (P220,000 x 10%) .............
Balance, 30:30:40 ...............................
Total ........ ...........................................
2.
Alvin
P 20,000
12,000
20,000
(29,400)
P 2,600
_(29,400)
P( 9,400)
22,000
_(39,200)
P(17,200)
54,000
_(98,000)
P(24,000)
Benny
P180,000
60,000
________
240,000
__(9,400)
230,600
_______
P230,600
Celia
P220,000
40,000
_(20,000)
240,000
_(17,200)
222,800
_______
P222,800
Total
P520,000
100,000
_(20,000)
600,000
_(24,000)
576,000
_(16,000)
P560,000
Statement of Partnership Capital
Year Ended December 31, 2011
Capitals, January 1, 2011 ....................
Additional investments .......................
Capital withdrawals ............................
Balances .. ...........................................
Net loss (see above) ............................
Balances .. ...........................................
Drawings . ...........................................
Capitals, December 31, 2011 ..............
Alvin
P120,000
_______
120,000
__2,600
122,600
_(16,000)
P106,600
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Partnership Operations .....................................
Problem 2-6: Continued
3.
41
Correcting entry:
Celia capital ........................................
2,400
Alvin capital ...............................
2,200
Benny capital .............................
200
To correct capital accounts for error in loss allocation computed as follows:
Alvin
Benny
Celia
Correct loss allocation ........................
P2,600
P(9,400) P(17,200)
Actual loss allocation..........................
__(400)
__9,600
__14,800
Adjustment..........................................
P2,200
P 200
P ( 2,400)
Problem 2 – 7
Dino
P45,000
_15,000
60,000
(1,800)
(17,000)
41,200
_____–
41,200
10,800
(17,000)
35,000
______–
35,000
56,365
(19,000)
P72,365
Nelson
P45,000
_15,000
60,000
( 1,800)
( 7,000)
51,200
_____–
51,200
8,100
( 7,000)
52,300
______–
52,300
42,272
( 9,000)
P86,572
Oscar
P45,000
__6,000
51,000
( 1,800)
( 3,200)
46,000
__6,000
52,000
8,100
( 3,200)
56,900
___6,000
62,900
20,363
( 3,200)
P80,063
Total
P135,000
__36,000
171,000
( 5,400)
( 27,200)
138,400
___6,000
144,400
27,000
( 27,200)
144,200
___6,000
150,200
120,000
( 31,200)
P239,000
Dino
P48,000
–
3,600
_* 4,765
P56,365
Nelson
P24,000
10,909
3,600
__4,763
P43,272
Oscar
P12,000
–
3,600
__4,763
P20,363
Total
P84,000
10,909
10,800
__14,291
P120,000
Bonus computations:
Net income before bonus ........... ................ ..................... .....................
Net income after bonus (P120,000 ÷ 110%) ..................... .....................
Bonus to Nelson ......................... ................ ..................... .....................
P120,000
_109,091
P 10,909
Capital balances, 1/2/09...............................
Additional investment, 2009 .......................
Balances.......................................................
Net income (Loss) - 2009, equally ..............
Withdrawals, 2009.......................................
Capital balances, 12/31/09...........................
Additional investment, 2010 .......................
Balances.......................................................
Net income - 2010, 40: 30: 30 .....................
Withdrawals, 2010.......................................
Capital Balances, 12/31/010 ........................
Additional investment, 2011 .......................
Balances.......................................................
Net income, 2011 (schedule 1) ....................
Withdrawals, 2011.......................................
Capital balances, 12/31/011.........................
Schedule 1:
Annual salaries....................................
Bonus (see computations below) ........
Interest ................................................
Balance, equally..................................
Totals ..................................................
* To Total
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42
Chapter 2
Problem 2 – 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2011
Balances, beginning of year
Add: 20% of fees billed to personal clients
Green's share of fees (Exhibit A)
Remaining net income (Exhibit A)
Subtotals
Less: Withdrawals
Uncollectible accounts identified
with clients of each partner
Excess rent charged to Blue
Total deductions
Balances, end of year
Red
40,200
8,800
White
20,200
4,800
Blue
40,600
4,400
_22,800
_71,800
10,400
_22,800
_47,800
8,800
_11,400
_56,400
11,600
2,400
900
P12,800
P59,000
P 9,700
P38,100
1,800
P13,400
P43,000
Green
3,200
______
__3,200
5,000
Total
P101,000
18,000
3,200
_57,000
179,200
35,800
P 5,000
P (1,800)
3,300
1,800
P 40,900
P138,300
Red, White & Blue Partnership
Exhibit A – Computation and Division of Net income
For Year Ended December 31, 2011
Total revenue from fees
Expenses, excluding depreciation and doubtful
accounts expense
Less: Excess rent charged to N ($300 x 6)
Subtotal
Add: Depreciation, computed as follows:
$26,000 x 0.10
$10,000 x 0.10 x 1/2
Total expenses, excluding doubtful accounts expense
Add: Doubtful accounts expense ($3,000 x 0.60)
Total expenses
Net income for year ended Dec. 31
Division of net income:
Fees billed to personal clients:
Red P44,000 x 20%
White P24,000 x 2%
Blue, P22,000 x 20%
Green's share of fees:
Gross fees from new clients after April 1, Year 1
Less: Allocated expenses ($40,000 x $24,000/
$120,000)
Net income from new clients
Green's share (P16,000 x 20%)
Total divided pursuant to special agreement
Balance, divided in income-sharing ratio as follows:
To Red, 40%
To White, 40%
To Blue, 20%
Total
P120,000
P38,700
__1,800
36,900
2,600
____500
P40,000
__1,800
41,800
P 78,200
P 8,800
48,000
4,400
P18,000
24,000
__8,000
P16,000
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P 3,200
__21,200
P 57,000
P22,800
22,800
_11,400
P57,000
lOMoARcPSD|6016800
Partnership Operations
43
Problem 2 – 9
Allan, Eman and Gino Partnership
Statement of Profit Distribution
Year Ended December 31, 2011
Allan
Eman
Gino
Total
Interest
Commission (P16,120 – P5,000) x 10%
Balance, equally
P 4,000
–
__5,926
P 750
1,112
_5,925
P 250
1,112
_5,925
P 5,000
2,224
_17,776
Total
Adjustments (50% of P25,000 to Allan)
P 9,926
__2,574
P7,787
(1,287)
P7,287
(1,287)
P25,000
_____–
Total
P12,500
P6,500
P6,000
P25,000
Sonny
Letty
Total
Problem 2 – 10
Gary, Sonny, and Letty Partnership
Statement of Partners' Capital Accounts
Year Ended December 31, 2011
Gary
Capital balances, 1/1/08
Additional investments
P210,000
___9,100
P180,000
_______
P 90,000
_______
P480,000
__9,100
Total
Profit distribution:
Salaries
Interest
Bonus to Gary and Sonny (Schedule 1)
Balance, equally
_219,100
_180,000
_90,000
489,100
10,640
10,800
13,680
25,920
–
__(9,720)
11,520
21,600
–
_(9,720)
_(9,720)
35,840
58,320
–
(29,160)
__29,880
_23,400
_11,720
_65,000
Total
Drawings
248,980
_(21,000)
203,400
101,720
554,100
(18,000) __(9,000) _(48,000)
Capital balances, 12/31/08
P227,980
Total
P185,400
Schedule 1: Computation of the bonus.
Net profit before interest, salaries and bonus
Less: Salaries
Interest
Net profit (loss) before bonus
P 65,000
P35,840
_58,320
__94,160
P(29,160)
Therefore no bonus is to be given to Gary and Sonny.
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P 92,720
P506,100
lOMoARcPSD|6016800
44
Chapter 2
Problem 2 – 11
a. Entries to record the formation of the partnership and the events that occurred during 2008:
Cash
Inventory
Land
Equipment
Mortgage payable
Installment note payable
Kobe, capital (P600,000 + P800,000
+ P1,000,000 – P200,000)
Lebron, capital (P500,000 + P1,300,000
- P500,000)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Inventory
Cash
Accounts payable
1,100,000
800,000
1,300,000
1,000,000
500,000
200,000
2,200,000
1,300,000
300,000
240,000
60,000
Mortgage payable
Interest expense
Cash
50,000
20,000
Installment note payable
Interest expense
Cash
35,000
20,000
70,000
Accounts receivable
Cash
Sales
55,000
210,000
1,340,000
1,550,000
Selling and general expenses
Cash
Accrued expenses payable
340,000
Depreciation expense
Accumulated depreciation
60,000
Kobe, drawing
Lebron, drawing
Cash
278,000
62,000
60,000
104,000
104,000
208,000
Sales
1,550,000
Income summary
(9)
Cost of goods sold
Inventory
P900,000 = P800,000 + P300,000 – P200,000
1,550,000
900,000
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900,000
lOMoARcPSD|6016800
Partnership Operations
45
Problem 2-11: Continued
Income summary
Cost of good sold
Selling and general expenses
Depreciation expense
Interest expense
1,340,000
900,000
340,000
60,000
40,000
Income summary
Kobe, capital
Lebron, capital
210,000
Kobe, capital
Lebron, capital
Kobe, drawing
Lebron, drawing
104,000
104,000
105,000
105,000
104,000
104,000
Schedule to allocate partnership net income for 2008:
Kobe
Profit percentage
60%
Beginning capital balance
P2,200,000
Net income (P1,550,000 revenue
- P 1,340,000 expenses)
Interest on beginning capital
balances (3%)
66,000
Salaries
Residual deficit
Total
b.
Lebron
40%
P1,300,000
Total
100%
P3,500,000
210,000
39,000
120,000
120,000
(81,000)
P105,000
(54,000)
P105,000
(105,000)
P105,000
(240,000)
P(135,000)
(135,000)
-0-
Kobe-Lebron Partnership
Statement of Comprehensive Income
For the Year Ended December 31, 2011
Sales
Less: Cost of goods sold:
Inventory, January 1
Purchases
Goods available for sale
Less: Inventory, December 31
Gross profit
Less: Selling and general expenses
Depreciation expenses
Operating income
Nonoperating expense- interest
Net income
P1,550,000
P800,000
300,000
P1,100,000
(200,000)
340,000
60,000
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(900,000)
P650,000
400,000
P250,000
(40,000)
P210,000
lOMoARcPSD|6016800
46
Chapter 2
c.
Kobe-Lebron Partnership
Statement of Financial Position
At December 31, 2011
Assets
Cash
Accounts receivable
Inventory
Land
Equipment (net)
Total assets
P1,589,000
210,000
200,000
1,300,000
940,000
P4,239,000
Liabilities and Capital
Liabilities:
Accounts payable
Accrued expenses payable
Installment note payable
Mortgage payable
Total liabilities
Capital:
Kobe, capital
Lebron, capital
Total capital
Total liabilities and capital
P60,000
62,000
165,000
450,000
P737,000
P2,201,000
1,301,000
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3,502,000
P4239,000
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership
47
CHAPTER 3
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
3-1:
c
Implied capital of the partnership (P90,000/20%)
Actual value of the partnership
Goodwill
Capital balances before Goodwill
Goodwill to old partners
Total
Purchase by Hizon (20%)
Capital balances after admission
3-2:
LOCSIN
P126,000
___9,000
P135,000
( 27,000)
P108,000
DAVID
P42,000
__3,000
P45,000
( 9,000)
P36,000
AQUINO
P252,000
( 50,400)
P201,600
LOCSIN
P126,000
( 25,200)
P100,800
DAVID
HIZON
P42,000
–
( 8,400) _84,000
P33,600 P 84,000
AQUINO
P 50,400
__3,600
P 54,000
LOCSIN
P 25,200
__1,800
P 27,000
DAVID
P 8,400
___600
P 9,000
TOTAL
P 84,000
__6,000
P 90,000
b
Selling price
Interest sold (444,000X1/5)
Combine gain
3-5:
HIZON
–
_____–
–
_90,000
P 90,000
d
Capital transferred
Excess divided using profit and loss ratio
Cash distribution
3-4:
AQUINO
P252,000
__18,000
P270,000
( 54,000)
P216,000
b
Capital balances before admission
Purchase by Hizon (20%)
Capital balances after admission
3-3:
P450,000
( 420,000)
P 30,000
P132,000
( 88,800)
P 43,200
b
Implied value of the partnership (P40,000/1/4)
Actual value
Goodwill
Cash balances
Goodwill, Profit and Loss ratio
Total
Capital Transfer (1/4)
Capital balances after admission
P160,000
( 140,000)
P 20,000
BERNAL
P 80,000
__12,000
P 92,000
( 23,000)
P 69,000
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CUEVAS
DIAZ
P40,000 P 20,000
__6,000
__2,000
P46,000 P 22,000
( 11,500) ( 5,500)
P34,500 P 16,500
lOMoARcPSD|6016800
48
3-6:
Chapter 3
b
BANZON
P 16,000
__6,000
P 22,000
CORTEZ
P 4,000
__4,000
P 8,000
Capital balances beginning
Net profit, 1:2
Drawings
Capital balances before admission
Capital transfer (squeeze)
Capital balances after admission 1:2
PEREZ
P 24,000
5,430
( 5,050)
P 24,380
( 5,570)
P 18,810
CADIZ
TOTAL
P 48,000 P 72,000
10,860
16,290
( 8,000) ( 13,050)
P 50,860 P 75,240
( 13,240) (18,810) (1/4)
P 37,620 P 56,430
Capital transfer
Excess, 1:2
Cash
P 5,570
__3,730
P 9,300
P 13,240
__7,460
P 20,700
Capital Transfer (20%)
Excess, Profit and Loss ratio
Cash distribution
3-7:
3-8:
d
a
Total agreed capital (P150,000/5/6)
Diana's Interest
Cash distribution
3-9:
3-10:
P180,000
1/6
P 30,000
a
Total agreed capital (P36,000/1/5)
Total contributed capital (80,000+40,000+36,000)
Unrecognized Goodwill
P180,000
( 156,000)
P 24,000
b
Increase
(Dec.)
(P 10,000)
_10,000
P
–
Contributed
Agreed
Capital
Capital
P110,000
P100,000
__40,000
__50,000
P150,000
P150,000
Old partners
New partner
Total
Ben, capital balance before admission
Bonus share to new partner (10,000X60%)
Ben, capital after admission
3-11:
TOTAL
P20,000
_10,000
P30,000
P 60,000
( 6,000)
P 54,000
c
Total agreed capital (P40,000+20,000+17,000)
Pete's interest
Pete's agreed capital balance
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P 77,000
1/5
P 15,400
P18,810
_11,190
P30,000
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership
3-12:
3-13:
b
49
Old partner
New partner
Total
Contributed
Capital
P 65,000
25,000 (1/3)
P 90,000
Agreed
Capital
P60,000
30,000
P90,000
Increase
(Dec.)
(P 5,000)
_5,000
P
–
Capital balances before admission
Investment by Lory
Bonus to Lory
Capital balances after admission
FRED
P 35,000
–
(
3,500)
P 31,500
RAUL
P30,000
–
( 1,500)
P28,500
LORY
–
25,000
__5,000
P 30,000
c
Total agreed capital (90,000+60,000+70,000)
Augusts' interest
Agreed capital
Contributed capital
Bonus to June & July
P220,000
_____1/4
P 55,000
__70,000
P 15,000
JUNE
P90,000
__7,500
P97,500
Capital balances before admission
Bonus from August, equally
Capital balances after admission
3-14:
a
Total agreed capital (52,000 + 88,000)/80%)
Total capital of Mira & Nina after admission
Cash paid by Elma
3-15:
JULY
P 60,000
__7,500
P 67,500
P175,000
( 140,000)
P 35,000
a
Total agreed capital (P41,600/2/3)
Total contributed capital (P23,000+18,600+16,000)
Goodwill to new partner, Ang
Capital balances before admission
Investment by Ang
Goodwill to August
Capital balances after admission
LIM
P23,000
–
_____–
P23,000
P 62,400
( 57,600)
P 4,800
ONG
P 18,600
–
______–
P 18,600
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ANG
–
16,000
__4,800
P20,800
lOMoARcPSD|6016800
50
3-16:
Chapter 3
a
Capital balances before
admission
Admission by Dong:
By Purchase (1/2)
By Investment
Capital balances before
Goodwill and Bonus
Goodwill to Old Partners (sch. 1)
Bonus to Old Partners (sch. 1)
Capital balances after
admission
ANG
BENG
CHING
DONG
TOTAL
P600,000
P 400,000
P 300,000
–
P1,300,000
( 300,000)
_______–
–
_______–
–
_______–
300,000
_300,000
–
___300,000
P300,000
150,000
__37,500
P 400,000
150,000
__37,500
P 300,000
100,000
__25,000
P600,000
–
( 100,000)
P1,600,000
400,000
________–
P487,500
P 587,500
P 425,000
P500,000
P2,000,000
Schedule 1:
Old Partners
New Partner
Total
CC
AC
P 1,000,000 P1,500,000
600,000 (25%) __500,000
P 1,600,000 P2,000,000
Inc. (Dec.)
P500,000
( 100,000) Bonus
P400,000 GW
3-17: b
Capital balances before
admission of Alma
Admission of Alma:
Investment
Goodwill to old partner,
70:30 (sch. 1)
Capital balances before
admission of Lorna
Admission of Lorna:
Goodwill Written off, 5:3:2
Investment
Goodwill to old partners,
5:3:2 (sch. 2)
Capital balances after
admission
MONA
LIZA
ALMA
LORNA
TOTAL
P150,000
P 50,000
–
–
P 200,000
–
–
80,000
–
80,000
__28,000
___12,000
_______–
______–
___40,000
P178,000
P 62,000
P 80,000
–
P 320,000
(P 20,000)
–
(P 12,000) (
–
P8,000)
–
–
75,000
( P40,000)
75,000
__10,000
____6,000
____4,000
______–
___20,000
P168,000
P 56,000
P 76,000
P 75,000
P 375,000
Schedule 1:
Total agreed capital (80,000/25%)
Total capital contributed (200,000+80,000)
Goodwill to old partners, 70:30
P 320,000
( 280,000)
P 40,000
Schedule 2:
Total agreed capital (75,000/20%)
Total contributed capital (280,000+75,000)
Goodwill to old partners, 5:3:2
P 375,000
( 355,000)
P 20,000
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lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership
3-18:
51
c
Unadjusted capital balances
Overvaluation of Marketable Securities
Allowance for Bad Debts
Adjusted capital balances before admission
RED
P175,000
( 12,500)
( 12,500)
P150,000
Total agreed capital (270,000/2/3)
Green's interest
Investment
P405,000
1/3
P135,000
3-19:
BLUE
P 45,000
( 5,000)
( 5,000)
P 35,000
TOTAL
P320,000
( 25,000)
( 25,000)
P270,000
b
Capital balances before
admission
Capital transfer
to WW (1/6)
Balances
Equalization of capital
Balances
Net profit, equally
Drawings (2 months)
Capital balances before
WWs Investment
3-20:
WHITE
P100,000
( 7,500)
( 7,500)
P 85,000
XX
YY
ZZ
WW
TOTAL
P360,000
P225,000
P135,000
–
P720,000
( 60,000)
P300,000
( 100,000)
P200,000
3,150
_( 1,500)
( 37,500)
P187,500
__12,500
P200,000
3,150
_( 2,000)
( 22,500)
P112,500
__87,500
P200,000
3,150
_( 1,500)
_120,000 ______–
P120,000 P720,000
______– ______–
P120,000 P720,000
3,150
12,600
_( 2,000) _( 7,000)
P201,650
P201,150
P201,650
P121,150
Total agreed capital (201,650+201,150+201,650)/2/3
WW's interest
Agreed capital of WW
Contributed capital (see above)
Cash to be invested
a
P725,600
P906,675
1/3
P302,225
_121,150
P181,075
Capital balances
Understatement of assets, P12,000
Balances before settlement to A
A
P 20,750
__3,000
P 23,750
Settlement to A
A's interest (23,750+5,000)
Partial Goodwill to A
P 30,250
_28,750
P 1,500
B
P 19,250
__3,000
P 22,250
Therefore:
1. Under partial Goodwill method the capital balances of B is P 22,250
2. Under Bonus method the capital balances of B would be:
B, capital balances before settlement to A
P 22,250
Bonus to A (1,500X25/75)
_( 500)
B, capital after retirement of A
P 21,750
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C
P 45,000
__6,000
P 51,000
lOMoARcPSD|6016800
52
3-21:
Chapter 3
a
Capital balances
Net income, P140,000
Undervaluation of inventory, P20,000
Capital balances before settlement to Perez
Settlement to Perez
Bonus to Perez
Capital balances after retirement
3-22:
Reyes
Suarez
P 150,000 P 200,000
42,000
28,000
____6,000 ____4,000
P 198,000 P 232,000
–
–
_( 9,000) _( 6,000)
P 189,000 P 226,000
c
Capital balances
Settlement to Ely
Total Goodwill (P40,000/50%)P80,000
Capital balances after retirement of Ely
3-23:
Perez
P 100,000
70,000
___10,000
P 180,000
( 195,000)
___15,000
P
–
ELY
FLOR
GLOR
P 320,000 P 192,000 P 128,000
( 360,000)
–
–
__40,000 ___24,000 ___16,000
P
– P 216,000 P 144,000
c
Capital balance 3/1/07
Net loss-2007:
Salary (10 months)
Interest (10 months)
Bal. beg. cap. ratio: 48:24
Total
Capital balance
Drawings
Capital balance, 12/31/07
Net profit- 2008:
Salary
Interest
Balance, equally
Total
Capital balance
Drawings
Capital balance 12/31/08
_Alma_
480,000
_Betty_
240,000
480,000
40,000
( 544,000)
( 24,000)
456,000
( 24,000)
432,000
240,000
20,000
( 272,000)
( 12,000)
228,000
( 24,000)
204,000
720,000
60,000
( 816,000)
( 36,000)
684,000
( 48,000)
636,000
576,000
43,200
( 397,800)
221,400
653,400
( 24,000)
629,400
288,000
20,400
( 397,800)
( 89,400)
114,600
( 24,000)
90,600
864,000
63,600
( 795,600)
132,000
768,000
( 48,000)
720,000
Total contributed capital (720,000 + 400,000)
Cora’s interest
Cora’s agreed capital
Cora’s contributed capital
Bonus to Cora, from Alma and Betty 4:2
Therefore entry (c) is correct.
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_Total_
720,000
1,120,000
40%
448,000
400,000
48,000
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership
3-24:
53
a
Capital balance, beg. 2007
2007 net profit (90,000 – 59,000):
Interest
Compensation
Balance, 4:6
Total
_Pete_
P80,000
8,000
5,000
( 2,000)
11,000
Balance
Withdrawal
Repairs (charge to Pete)
Capital balance, 12/31/07
91,000
( 8,000)
( 5,000)
78,000
_Carlos_
P30,000
_Total_
P110,000
3,000
20,000
( 3,000)
11,000
25,000
( 5,000)
20,000
31,000
50,000
( 11,000)
39,000
141,000
(19,000)
( 5,000)
117,000
1/1/08: Admission of Sammy
Total agreed capital (P117,000 +43,000)
Sammy’s interest
Sammy’s agreed capital
Sammy’s contributed capital
Bonus to Pete & Carlos, 4:6
Therefore entry (a) is correct.
3-25:
P160,000
20%
32,000
43,000
11,000
d, Should be P700,269.5
Capital balances, 8/1/010
Capital withdrawal
Balances before P/L distribution
Net income, 12/31, P100,000:
Interest
Salary to Maria
Balance, equally
Balances, 12/31/010
Capital withdrawal
Balances before P/L distribution
Net income, 7/1/011, P150,000:
Interest
Salary to Mara
Balance, 60:40
Balances before admission of Paz
Admission of Paz:
Cash investment
Goodwill to Maria and Ana,6:4
Balances, 7/1/011
Maria
P300,000
(25,000)
275,000
Ana
P1,500,000
(25,000)
1,475,000
6,250
40,000
11,250
332,500
(30,000)
302,500
31,250
11,250
1,517,500
(30,000)
1,487,500
37,500
40,000
22,500
1,850,000
(60,000)
1,790,000
8,312.5
48,000
33,450
392,262.5
37,937.5
22,300
1,547,737.5
46,250
48,000
55,750
1,940,000
276,000
668,262.5
184,000
1,731,737.5
* Total agreed capital (P800,000/25%)
Total contributed capital (P1,940,000 + P800,000)
Goodwill to Maria and Ana, 6:4
Paz
-
P
800,000
800,000
P3,200,000
2,740,000
P460,000
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Total
P1,800,000
(50,000)
1,750,000
800,000
460,000*
3,200,000
lOMoARcPSD|6016800
54
Chapter 3
3-25: Continued
Balances after admission of Paz
Capital withdrawal
Balance before P/L distribution
Net income 12/31/011, P150,000:
Interest
Salaries
Balance, 45:30:25
Capital balance, 12/31/011
3-26:
Maria
P668,262.5
(12,000)
656,262.5
Ana
P1,731,737.5
(12,000)
1,719,737.5
Paz
P800,000
(12,000)
788,000
Total
P3,200,000
(36,000)
3,164,000
16,707
12,000
15,300
P700,269.5
43,293
12,000
10,200
P1,785,230.5
20,000
12,000
8,500
P828,500
80,000
36,000
34,000
P3,314,000
a
Total agreed capital of the new partnership (P84,000 / 30%)
Total contributed capital:
Old partners (P45,000 + P65,000) + P30,000
P140,000
New partner
84,000
Goodwill
P 280,000
224,000
P 56,000
If the P56,000 goodwill proved to be worthless, Warren would be charged 35% of
P56,000, or P19,600. However, the real harm to Warren would be that of having paid
more to enter the partnership than he should have. If the goodwill did not exist, then the
adjusted assets of the previous partners would have been P140,0000, which represents
70% of the total partnership value of P200,000. In that case, Warren would have only
paid P60,000 for a 30% interest in capital. Therefore, Warren would have paid extra
P24,000 (P84.000 against P60,000) for the goodwill that proved to be worthless.
3-27:
c
Allocation of profits under the original partnership’s agreement:
Salaries
Bonus to Amor*
Remaining profits
Total
Amor
P30,000
12,000
10,000
P52,000
Bea
P30,000
Cora
P40,000
4,000
P34,000
6,000
P46,000
*Bonus = 10% (Net income – Bonus)
110% Bonus = 10% (Net income)
110% Bonus = P13,200
Bonus = P12,000
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Total
P100,000
12,000
20,000
P132,000
lOMoARcPSD|6016800
Partnership Dissolution – Changs in Ownership Interest
55
3-27, Continued
Allocation of new partnership profits necessary to satisfy Bea:
Salaries
Remaining profits (Sch. 1)
Bonus to Dina, (Sch. 2)
Total
Amor
P30,000
42,000
Bea
P30,000
14,000
Cora
P40,000
42,000
P72,000
P44,000
P82,000
Dina
P30,000
42,000
20,000
P92,000
Total
P130,000
140,000
20,000
P290,000
Sch. 1:
In order for Bea to increase his allocation by P10,000, she would need to received a P14,000 allocation
based on the profit ratio. Therefore, the total amount of profit subject to this allocation would be P140,000
(P14,000 / 10%).
Sch. 2:
If the cumulative total of income allocated before the bonus to Dina is P270,000, then Dina would be
entitled to the P20,000 bonus under the revised agreement.
3-28:
a
Total capital of the new partnership (P56,000 / 70%)
Total fair value of the net assets of the original partnership :
(P530,000 – P474,000)
Dina should pay
3-29:
P80,000
56,000
P24,000
a.
Fair value of the original partnership:
Value of recorded net assets
Value of goodwill
Total fair value
P268,000
40,000
P308,000
Total agreed capital of new partnership (P308,000 / 70%)
Total capital of the original partnership
Total contribution needed from Carlos
Fair value of recorded assets contributed
Fair value of intangible contributed
Necessary cash contribution
P440,000
308,000
132,000
(90,000)
(20,000)
P 22,000
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56
3-30:
Chapter 3
1. b
Net income per books
Adjustments:
Accrued expenses
Inventory overstated
Unrecorded purchases
Income received in advance
Supplies
Corrected net income
2,400
(6,200)
(4,000)
3,000
1,800
P47,000
Lina’s new P/L ratio (50% x 80%)
Lina’s share
40%
P18,800
2.
b
3.
b
4.
d
P50,000
Computations:
Capital balances
Admission of Olga
Bonus to Olga (Sch. 1)
Balances, 1/1/010
Division of profit
Balances, 12/31/010
Sale of interest of L to M
Division of profit
Drawings
Balances, 12/31/011
Division of profit
Inventory overvalued
Balances before retirement
Settlement to Mina
Total goodwill
Balances, 12/31/012
Lina
P150,000
Mina
P90,000
Nina
P60,000
(14,000)
136,000
18,800
154,800
(154,800)
8,400)
81,600
11,280
92,880
154,800
100,000
(20,000)
327,680
65,000
(5,000)
387,680
(425,360)
37,680
(5,600)
54,400
7,520
61,920
40,000
28,000
68,000
9,400
77,400
100,000
(10,000)
151,920
65,000
(5,000)
211,920
100,000
(5,000)
172,400
65,000
(5,000)
232,400
37,680
249,600
37,680
270,080
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Olga
Total
P340,000
40,000
340,000
47,000
387,000
300,000
(35,000)
652,000
195,000
(15,000)
832,000
(425,360)
113,040
P519,680
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership Interest
3-31:
57
a
Correction in the problem:
Interest to be acquired by new partner in Partnership AA should be 30%.
Partnership
Fair value of original partnership:
Assets at book value
Liabilities at book and fair value
(a) Book value of original partnership
assets appreciation (depreciation)
(b) Net assets
AA
BB
CC
P500,000
(369,500)
130,500
(50,000)
80,500
P600,000
(410,000)
190,000
125,000
315,000
P800,000
(558,000)
242,000
50,000
292,000
30%
70%
25%
75%
20%
80%
P115,000
80,500
P420,000
315,000
P365.000
292,000
P34,500
P105,000
P73,000
Percent of new partnership represented by:
(c) Investment of new partner
(d) Fair value of the original partnership
(e) Fair value of new partnership
suggested by the fair value of the
original partnership (b / d)
(f) Fair value of original partnership
(g) Fair value of consideration that should
be conveyed by the Darna (e-f)
3-32:
1.a
2.a
3.b
4.b
Computations:
Maya
Rita
2008:
Balances, 12/31/07
Allocation of profit, sch. 1
Distributions
Balances, 12/31/08
P54,000
127,000
(100,000)
P81,600
P76,000
102,400
(100,000)
P78,400
2009:
Balances, 1/1/09
Admission of Hara *
Allocation of profit,sch. 1
Distributions
Balances, 12/31/09
P81,600
30,000
145,250
(80,000)
P176,850
P78,400
20,000
98,875
(80,000)
P117,275
Hara
Perla
Total
P130,000
230,000
(200,000)
P160,000
P
-
P
-
P
-
P
-
P
-
P
-
P 70,000
85,875
(80,000)
P 75,875
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P160,000
120,000
330,000
(240,000)
P370,000
lOMoARcPSD|6016800
58
Chapter 3
3-32, Continued
2010:
Balances, 12/31/010
Sale of interest to Rita
Allocation of profit, sch. 1
Distributions
Balances, 12/31/08
2011:
Balances, 1/1/011
Adjustment of net assets
Recognition of goodwill**
Sale of interest by Rita
Subtotal
Admission of Perla***
Balances, 12/31/011
Maya
Rita
Hara
P176,850
(176,850)
P
-
P117,272
176,850
100,000
(60,000)
P334,125
P75,875
100,000
(80,000)
P95,875
P
-
P
-
P334,125
(5,000)
20,875
(350,000)
P
-
P
-
P
-
P95,875
(5,000)
P90,875
21,625
P112,500
Perla
Total
P
-
P
-
P370,000
200,000
(140,000)
P430,000
P
-
P
75,000
P 75,000
P430,000
(10,000)
20,875
(350,000)
P90,875
96,625
P187,500
Schedule 1:
2008 Allocation of profit:
Maya
40%
P80,000
46,000
1,600
P127,600
Profit and loss ratio
Salary
Bonus (see schedule 2)
Balance
Total
Rita
60%
P100,000
2,400
P102,400
Total
P180,000
46,000
4,000
P230,000
2009 Allocation of profit:
Profit and loss ratio
Salary
Bonus (see schedule 2)
Balance
Total
Schedule 2:
2008 Bonus:
Maya (P230,000 x 20%)
2009 Bonus:
Maya (P330,000 x 20%)
Hara (P330,000 x 20%)
Maya
30%
P80,000
66,000
(750)
P145,250
Rita
45%
P100,000
(1,125)
P98,875
P46,000
P66,000
16,500
P82,500
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Hara
25%
P70,000
16,500
(625)
P85,875
Total
P250,000
82,500
(2,500)
P330,000
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership
59
3-32, Continued
* Admission of Hara:
Total agreed capital of new partnership (P70,000 / 25%)
Total contributed capital (P160,000 + P70,000)
Goodwill to old partners
P280,000
230,000
P 50,000
** Sale of interest by Rita:
Settlement to Rita
Rita’s adjusted capital balance
Goodwill traceable to Rita
P350,000
329,125
P 20,875
*** Admission of Perla:
Total agreed capital of the new partnership (P75,000 / 40%)
Total contributed capital of all the partners (P90,875 + P75,000)
Goodwill to Hara
P187,500
165,875
P 21,625
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lOMoARcPSD|6016800
60
Chapter 3
SOLUTIONS TO PROBLEMS
(a)
Problem 3 – 1
1. Revaluation of Assets:
Total agreed capital (P75,000 ÷ 25%) ..................................... P300,000
Total contributed capital .......................................................... _275,000
Upward revaluation of assets, P/L ratio ................................... P 25,000
Entry
Assets ................................................................................
Cash ...................................................................................
Red, capital ...................................................................
White, capital ................................................................
Blue, capital ..................................................................
Green, capital ................................................................
25,000
75,000
5,000
10,000
10,000
75,000
2. Bonus Method:
Contributed capital of Green .................................................... P 75,000
Agreed capital of Green (P275,000 x 25%)............................... _68,750
Bonus to old partners, P/L ratio ................................................ P 6,250
Entry:
Cash ...................................................................................
Green, capital ................................................................
Red, capital ...................................................................
White, capital ................................................................
Blue, capital ..................................................................
75,000
68,750
1,250
2,500
2,500
(b) 1. Implicit Goodwill Method:
Total Implied Capital (P75,000 ÷ 25) ...................................... P300,000
Total existing capital................................................................ _200,000
Implied Goodwill to old partners ............................................. P100,000
Entries:
Goodwill ............................................................................
Red, capital ...................................................................
White, capital ................................................................
Blue, capital ..................................................................
100,000
20,000
40,000
40,000
Red, capital (25% x P80,000) ............................................
White, capital (25% x p120,000).......................................
Blue, capital (25% x P100,000).........................................
Green, capital ................................................................
20,000
30,000
25,000
2. Red, capital (25% x P10,000).......................................................
White, capital (25% x P80,000) ...................................................
Blue, capital (25% x P60,000) .....................................................
Green, capital .........................................................................
15,000
20,000
15,000
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75,000
50,000
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership Interest
61
Problem 3 – 2
a.
(1) Bonus Method:
Contributed capital of Tomas ......................................................... ..................
Agreed capital of Tomas (P640,000 x 20%) ................................... ..................
P140,000
_128,000
Bonus to old partners, P/L ratio ...................................................... ..................
BRUNO
MARIO
TOMAS
P 12,000
TOTAL
Balances before admission ....................
Admission of Tomas ..............................
P200,000
___9,000
P300,000
___3,000
–
_128,000
P500,000
_140,000
Balances after admission .......................
P209,000
P303,000
P128,000
P640,000
(2) Goodwill Method:
Total agreed capital (P140,000 ÷ 20%) . .................. .....................
Total contributed capital ........................ .................. .....................
P700,000
_640,000
Goodwill to old partners, P/L ratio ........ .................. .....................
BRUNO
MARIO
P 60,000
TOMAS
TOTAL
Balances before admission ....................
Admission of Tomas ..............................
P200,000
__45,000
P300,000
__15,000
P
–
_140,000
P500,000
_200,000
Balances after admission .......................
P245,000
P315,000
P140,000
P700,000
(3) Goodwill with subsequent write-off.
BRUNO
MARIO
TOMAS
TOTAL
Balances from A-2 .................................
Goodwill written off, 6:2:2 ....................
P245,000
( 36,000)
P315,000
( 12,000)
P140,000
( 12,000)
P700,000
( 60,000)
Balances .................................................
P209,000
BRUNO
P303,000
MARIO
P128,000
TOMAS
P640,000
TOTAL
Balances from A-2 .................................
Goodwill written off, 4:4:2 ....................
P245,000
( 24,000)
P315,000
( 24,000)
P140,000
( 12,000)
P700,000
( 60,000)
Balances .................................................
P221,000
P291,000
P128,000
P640,000
b.
Problem 3 – 3
a.
b.
Total capital after admission (P76,000 + P104,000) ..................................... ..................
Total capital before admission (P60,000 + P80,000) .................................... ..................
Goodwill recorded ........................................................................................ ..................
P180,000
_140,000
P 40,000
Total capital of the partnership (P180,000 ÷ 75%) ....................................... ..................
Less: Total capital of old partners plus Goodwill (P140,000 + 40,000) ....... ..................
Cash payment by Barry ................................................................................. ..................
P240,000
_180,000
P 60,000
Total capital after admission (P52,000 + P68,000) ....................................... ..................
Total capital before admission ...................................................................... ..................
Bonus to Barry .............................................................................................. ..................
P120,000
_140,000
P 20,000
Agreed capital of Barry (P120,000 ÷ 75%) x 25% ....................................... ..................
Less: Bonus .............................................................................................. ..................
Cash payment by Barry ................................................................................. ..................
P 40,000
__20,000
P 20,000
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lOMoARcPSD|6016800
62
Chapter 3
Problem 3 – 4
a.
Total agreed capital (P60,000 ÷ 20%) .................................................. P300,000
Total contributed capital (P100,000 + P40,000 + P60,000) ................. _200,000
Goodwill to old partners, P/L ratio ....................................................... P100,000
Entry:
Cash .. .... ......................................................................................
Goodwill ......................................................................................
Gene, capital ..........................................................................
Nancy, capital ........................................................................
Ellen, capital ..........................................................................
b.
Cash ..... .. .... ......................................................................................
Ellen, capital.................................................................................
60,000
100,000
80,000
20,000
60,000
60,000
60,000
No Goodwill, no bonus because the total agreed capital is equal to the total contributed
capital.
c.
d.
Gene, capital ......................................................................................
Nancy, capital .....................................................................................
Ellen, capital.................................................................................
20,000
Cash .... ... .... ......................................................................................
Ellen, capital.................................................................................
32,000
8,000
28,000
32,000
Since the total agreed capital (P172,000) is equal to the total contributed capital (P172,000),
then no Goodwill or bonus is to be recorded.
e.
Total agreed capital (P140,000 ÷ 80%) ................................................ P175,000
Total contributed capital (P140,000 + P32,000) ................................... _172,000
Goodwill to new partner ....................................................................... P 3,000
Entry:
Cash .. .... ......................................................................................
Goodwill ......................................................................................
Ellen, capital ..........................................................................
32,000
3,000
35,000
Problem 3 – 5
a.
b.
Cash ..... .. .... ......................................................................................
Cherry capital ...............................................................................
40,000
Total agreed capital (P120,000 + P50,000) .......................................... P170,000
Cherry's interest .................................................................................... ____25%
Cherry's agreed capital.............................................................................. 42,500
Contributed capital................................................................................ __50,000
Bonus to old partners, 70:30 ................................................................. P 7,500
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40,000
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership Interest
Problem 3-5, continued:
Entry:
Cash .. .... ......................................................................................
Cherry, capital .......................................................................
Helen, capital .........................................................................
Cathy, capital .........................................................................
c.
42,500
5,250
2,250
25,000
7,875
3,375
36,250
Total agreed capital (P50,000 ÷ 25%) .................................................. P200,000
Total contributed capital (P120,000 + 50,000) ....................................... 170,000
Goodwill to old partners, 70:30 ............................................................ P 30,000
Entry:
Cash
......................................................................................
Goodwill ......................................................................................
Cherry, capital .......................................................................
Helen, capital .........................................................................
Cathy, capital .........................................................................
e.
50,000
Total agreed capital (P120,000 + P25,000) .......................................... P145,000
Cherry's interest .................................................................................... ____25%
Agreed capital of Cherry .......................................................................... 36,250
Contributed capital................................................................................ __25,000
Bonus to new partner ............................................................................ P 11,250
Entry:
Cash .. .... ......................................................................................
Helen, capital................................................................................
Cathy, capital................................................................................
Cherry, capital .......................................................................
d.
63
50,000
30,000
50,000
21,000
9,000
Total agreed capital (P120,000 ÷ 75%) ................................................ P160,000
Total contributed capital (P120,000 + P25,000) ................................... _145,000
Goodwill to new partner ....................................................................... P 15,000
Entry:
Cash
......................................................................................
Goodwill ......................................................................................
Cherry, capital .......................................................................
25,000
15,000
40,000
Problem 3 – 6
a.
Total agreed capital (P600,000 ÷ 3/4) .................................................................
Santos interest ......................................................................................................
Contribution of Santos .........................................................................................
P800,000
_____1/4
P200,000
b.
Total agreed capital (P630,000 ÷ 3/4) .................................................................
Santos' interest .....................................................................................................
Contribution of Santos .........................................................................................
P840,000
_____1/4
P210,000
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lOMoARcPSD|6016800
64
Problem 3-6, continued:
c.
d.
e.
Chapter 3
Total agreed capital (P624,000 ÷ 3/4) ....................................................................... ....................
Less: Contributed capital of old partners ................................................................... ....................
P832,000
_600,000
Contributed capital of Santos .................................................................................... ....................
P232,000
Total agreed capital (P600,000 ÷ 3/4) ....................................................................... ....................
Less: Goodwill ........................................................................................................ ....................
P800,000
__10,000
Contributed capital .................................................................................................... ....................
Contributed capital of old partners ............................................................................ ....................
790,000
_600,000
Contributed capital of Santos .................................................................................... ....................
P190,000
Total agreed capital (Contributed)............................................................................. ....................
Less: Contributed capital of old partners ................................................................... ....................
P820,000
_600,000
Contributed capital of Santos .................................................................................... ....................
P220,000
Problem 3 – 7
a.
b.
c.
Tony, capital
........................................................................................................
Noel, capital ......................................................................................................
40,000
Cash
........................................................................................................
Noel, capital ......................................................................................................
(P180,000 ÷ 2/3) x 1/3 = P90,000.
90,000
Cash ....... ..... .... ........................................................................................................
Goodwill ..... .... ........................................................................................................
Noel, capital ......................................................................................................
56,000
4,000
40,000
90,000
60,000
Total agreed capital (P180,000 ÷ 3/4) ....................................................................... ..... P240,000
Total contributed capital (P180,000 + P56,000) ........................................................ ..... _236,000
Goodwill to new partner ............................................................................................ ..... P
d.
Subas, capital………………………………………………………………
.....
Tony, capital…………………………………………………………………
..
Inventory……………………………………………………………….............
4,000
14,400
9,600
Cash ....... ..... .... ........................................................................................................
52,000
Noel, capital ......................................................................................................
Total agreed capital (P52,000 ÷ 1/4) ......................................................................... ..... P208,000
Total capital before inventory write-down (180,000 + 52,000) ................................. ..... (232,000)
e.
Write-down to old partners capital ............................................................................ ..... ( 24,000)
Land……………………………………………………………………………………….. 92,000
Subas, capital……………………………………………………………………
Tony, capital…………………………………………………………………….
Subas, capital (P155,200 x 1/4) .................................................................................
38,800
Tony, capital (P116,800 x 1/4) ..................................................................................
29,200
Noel, capital ......................................................................................................
Total resulting capital (P68,000 ÷ 1/4) ...................................................................... ..... P272,000
Total capital of old partner (net assets)...................................................................... ..... _180,000
Increase in value of land ............................................................................................ ..... P 92,000
Capital of old partner after revaluation of land:
Subas (P100,000 + P55,200) ............................................................................. ..... P155,200
Tony (P80,000 + P36,800) ................................................................................ ....... 116,800
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24,000
52,000
55,200
36,800
68,000
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership Interest
Problem 3-7, continued:
f.
Cash .... ... .... ......................................................................................
Subas, capital ......................................................................................
Tony, capital ......................................................................................
Noel, capital .................................................................................
65
40,000
2,400
1,600
44,000
Agreed capital of Noel (P220,000 x 1/5) ............................................... P 44,000
Contributed capital of Noel .................................................................... _40,000
Bonus to Noel ........................................................................................ P 4,000
g.
Cash .... ... .... ......................................................................................
Goodwill . .... ......................................................................................
Noel, capital .................................................................................
Subas, capital (P60,000 x 3/5)......................................................
Tony, capital (P60,000 x 2/5) .......................................................
P60,000
60,000
P 60,000
36,000
24,000
Total agreed capital (P60,000 ÷ 1/5) .................................................... P300,000
Total contributed capital (P180,000 + P60,000) ................................... _240,000
Goodwill to old partner, 3:2.................................................................. P 60,000
Problem 3 – 8
a.
b.
c.
Conny, capital .....................................................................................
Andy, capital (P8,000 x 3/4) ...............................................................
Benny, capital (P8,000 x 1/4) .............................................................
Cash .. .... ......................................................................................
40,000
6,000
2,000
Goodwill . .... ......................................................................................
Conny, capital .....................................................................................
Cash .. .... ......................................................................................
10,000
40,000
Goodwill (P5,000 ÷ 1/5) .....................................................................
Conny, capital .....................................................................................
Andy, capital (P25,000 x 3/5) ......................................................
Benny, capital (P25,000 x 1/5) .....................................................
Cash
......................................................................................
25,000
40,000
48,000
50,000
15,000
5,000
45,000
Problem 3 – 9
a.
b.
Spade, capital ......................................................................................
Jack, capital ..................................................................................
120,000
Goodwill (P30,000 ÷ 50%) .................................................................
Ace, capital...................................................................................
Jack, capital ..................................................................................
Spade, capital ...............................................................................
60,000
Spade, capital (P120,000 + P30,000)..................................................
Jack, capital ..................................................................................
150,000
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120,000
12,000
18,000
30,000
150,000
lOMoARcPSD|6016800
66
Chapter 3
Problem 3-9 (Continued)
c.
d.
e.
f.
g.
Spade, capital ......................................................................................
Cash .. .... ......................................................................................
180,000
Ace, capital (P60,000 x 2/5) ...............................................................
Jack, capital (P60,000 x 3/5)...............................................................
Spade, capital ...............................................................................
24,000
36,000
Land .... ... .... ......................................................................................
Ace, capital (20%) ........................................................................
Jack, capital (30%) .......................................................................
Spade, capital (50%) ....................................................................
20,000
Spade, capital ......................................................................................
Ace, capital (P50,000 x .40) ...............................................................
Jack, capital (P50,000 x .60) ...............................................................
Cash .. .... ......................................................................................
Land.. .... ......................................................................................
130,000
20,000
30,000
Goodwill . .... ......................................................................................
Spade, capital ......................................................................................
Cash .. .... ......................................................................................
30,000
120,000
Goodwill (P30,000 ÷ 50%) .................................................................
Spade, capital ......................................................................................
Ace, capital (P60,000 x 20%).......................................................
Jack, capital (P60,000 x 30%) ......................................................
Cash .. .... ......................................................................................
60,000
120,000
Land .... ... .... ......................................................................................
Ace, capital (20%) ........................................................................
Jack, capital (30%) .......................................................................
Spade, capital (50%) ....................................................................
P40,000
Spade, capital (P120,000 + P20,000)..................................................
Ace, capital (P10,000 x 40%) .............................................................
Jack, capital (P10,000 x 60%) ............................................................
Land.. .... ......................................................................................
Note payable.................................................................................
140,000
4,000
6,000
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180,000
60,000
4,000
6,000
10,000
60,000
120,000
150,000
12,000
18,000
150,000
8,000
12,000
20,000
100,000
50,000
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership Interest
67
Problem 3 – 10
Case 1: Bonus of P10,000 to Eddy:
Eddy, capital.................................................................................
Charly, capital (P10,000 x 3/5) ....................................................
Danny, capital (P10,000 x 2/5).....................................................
Cash ......................................................................................
70,000
6,000
4,000
Case 2: Partial Goodwill to Eddy:
Goodwill ......................................................................................
Eddy, capital.................................................................................
Cash ......................................................................................
4,000
70,000
Case 3: Bonus of P5,000 to remaining partner:
Eddy, capital.................................................................................
Charly, capital (P5,000 x 3/5) ................................................
Danny, capital (P5,000 x 2/5) ................................................
Cash ......................................................................................
Case 4: Total Implied Goodwill of P24,000:
Goodwill ......................................................................................
Eddy, capital.................................................................................
Charly, capital (P24,000 x 3/6) ..............................................
Danny, capital (P24,000 x 2/6) ..............................................
Cash ......................................................................................
Case 5: Other assets disbursed:
Eddy, capital.................................................................................
Other assets ..................................................................................
Charly, capital (P60,000 x 3/6) ..............................................
Danny, capital (P60,000 x 2/6) ..............................................
Cash ......................................................................................
Case 6: Danny purchases Eddy's capital interest:
Eddy, capital.................................................................................
Danny, capital ........................................................................
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80,000
74,000
70,000
3,000
2,000
65,000
24,000
70,000
12,000
8,000
74,000
70,000
20,000
30,000
20,000
40,000
70,000
70,000
lOMoARcPSD|6016800
68
Chapter 3
Problem 3 – 11
a. 1/1/08
Building ...............................................................
Equipment ............................................................
Cash ....................................................................
Santos capital ..............................................
To record initial investment.
52,000
16,000
12,000
12/31/08Reyes capital .........................................................
Santos capital ..............................................
Income summary .........................................
To record distribution of loss as follows:
22,000
1/1/09
40,000
12,000
10,000
Interest .................................................................
Additional profit ..................................................
Balance to Reyes..................................................
Santos
P 8,000
4,000
______
Reyes
P
–
(22,000)
Total
P 8,000
4,000
(22,000)
Total ....................................................................
P12,000
P(22,000)
(P10,000)
Cash ....................................................................
Santos capital (15%) ............................................
Reyes capital (85%) .............................................
Cruz capital .................................................
15,000
300
1,700
17,000
(new investment by Cruz brings total capital to P85,000 after 2006 loss [80,000 –
10,000 + 15,000]. Cruz's 20% interest is P17,000 [85,000 x 20%] with the extra
P2,000 coming from the two original partners [allocated between them according
to their profit and loss ratio].)
12/31/09 Santos capital .......................................................
Reyes capital ........................................................
Cruz capital ..........................................................
Santos drawings ..........................................
Reyes drawings ...........................................
Cruz drawings .............................................
10,340
5,000
5,000
10,340
5,000
5,000
To close drawings accounts for the year based on distributing 20%. Of each
partner's beginning capital balances [after adjustment for Cruz's investment] or
P5,000 whichever is greater. Santos's capital Is P51,700 [40,000 + 12,000 – 300].)
12/31/09 Income summary .................................................
Santos capital ..............................................
Reyes capital ...............................................
Cruz capital .................................................
To allocate P44,000 income figure as computed below:
Santos
Interest (20% of P51,700) .................................... P10,340
15% of P44,000 income .......................................
6,600
Balance, 60:40 .....................................................
______
Total ....................................................................
P16,940
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44,000
16,940
16,236
10,824
Reyes
Cruz
P16,236
P10,824
P16,236
P10,824
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership Interest
Problem 3-11, continued:
69
Capital balances as of December 31, 2009
Initial investment, 2008 .......................................
2008 profit ...........................................................
Cruz investment ...................................................
2009 drawings......................................................
2009 profit ...........................................................
Santos
P40,000
12,000
(300)
(10,340)
_16,940
Reyes
P40,000
(22,000)
(1,700)
(5,000)
_16,236
P17,000
(5,000)
_10,824
Capital, 12/31/09 .................................................
P58,300
P27,536
P22,824
1/1/010 Cruz capital ..........................................................
Diaz capital .................................................
To transfer capital purchase from Cruz to Diaz
Cruz
22,824
22,824
12/31/010
Santos capital .......................................................
11,660
Reyes capital ........................................................
5,507
Diaz capital ..........................................................
5,000
Santos drawings ..........................................
11,660
Reyes drawings ...........................................
5,507
Diaz drawings .............................................
5,000
To close drawings accounts based on 20% of beginning capital Balances (above) or
P5,0000 (whichever is greater).
12/31/010
Income summary .................................................
Santos capital ..............................................
Reyes capital ...............................................
Diaz capital .................................................
To distribute profit for 2008 computed as follows:
61,000
20,810
24,114
16,076
Santos
P11,660
9,150
______
Reyes
Diaz
Interest (20% of P58,300) ....................................
15% of P61,000 profit..........................................
Balance, P40,190, 60:40 ......................................
P24,114
P16,076
Total ....................................................................
P20,810
P24,114
P16,076
1/1/011 Diaz capital ..........................................................
33,900
Santos capital (15%) ............................................
509
Reyes capital (85%) .............................................
2,881
Cash.............................................................
37,290
Diaz capital is [33,900 (P22,824 – P5,000 + P16,076)]. Extra 10% is deducted
from the two remaining partners' capital accounts.
b. 1/1/08
Building ...............................................................
Equipment ............................................................
Cash ....................................................................
Goodwill ..............................................................
Santos capital ..............................................
Reyes capital ...............................................
To record initial investments. Reyes is credited with goodwill of
Santos investment.
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52,000
16,000
12,000
80,000
80,000
80,000
P80,000 to match
lOMoARcPSD|6016800
70
Chapter 3
Problem 3-11, continued:
12/31/08 Reyes capital ..............................................................
30,000
Santos capital ..............................................
20,000
Income summary .........................................
10,000
Interest of P16,000 is credited to Santos (P80,000 x 20%) along with a base of
P4,000. The remaining profit is now a P30,000 loss which is attributed entirely to
Reyes.
1/1/09
Cash ....................................................................
15,000
Goodwill ..............................................................
22,500
Cruz capital .................................................
37,500
Cash and goodwill contributed by Cruz are recorded. Goodwill is Computed
algebraically as follows:
P15,000 + goodwill =
P15,000 + goodwill =
P15,000 + goodwill =
.80 goodwill
=
goodwill
=
20% (current capital + P15,000 + goodwill)
20% (P150,000 + P15,000 + goodwill)
P33,000 + .20 goodwill
P18,000
P22,500
12/31/09 Santos capital .......................................................
20,000
Reyes capital ........................................................
10,000
Cruz capital ..........................................................
7,500
Santos drawings ..........................................
Reyes drawings ...........................................
Cruz drawings .............................................
To close drawings accounts based on 20% of beginning capital
Balances: Santos, p100,000; Reyes, P50,000; and Cruz, P37,500.
12/31/09 Income summary .................................................
Santos capital ..............................................
Reyes capital ...............................................
Cruz capital .................................................
To allocate P44,000 profit as follows:
20,000
10,000
7,500
44,000
26,600
10,400
6,960
Santos
P20,000
6,600
______
Reyes
Cruz
Interest (20% of P100,000) ..................................
15% of P44,000 profit..........................................
Balance of P17,400, 60:40 ...................................
P10,440
P 6,960
Total ....................................................................
P26,600
P10,440
P 6,960
Capital balances as of December 31, 2009:
Santos
Initial investment, 2008 ....................................... P80,000
2008 profit allocation...........................................
20,000
Additional investment..........................................
2009 drawings...................................................... (20,000)
2009profit allocation............................................ __26,600
Reyes
P80,000
(30,000)
(10,000)
_10,440
P37,500
(7,500)
__6,960
Capitals, 12/31/09 ................................................ P106,600
P50,440
P36,960
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Cruz
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership Interest
71
Problem 3-11, continued:
1/1/010 Goodwill ......................................................................
26,588
Santos capital .....................................................
3,988
Reyes capital ......................................................
13,560
Cruz capital ........................................................
9,040
To record goodwill implied of Cruz's interest. In effect, the profit Sharing ratio is 15% to
Santos, 51% to Reyes (60% of 85% remaining after Santos's income), and 34% to Cruz
(40% of the 85% remaining after Santos' income). Diaz is paying P46,000, P9,040 in excess
of Cruz's capital (P36,960). The additional payment for this 34% income Interest indicates
total goodwill of P26,588 (P9,040/34%).
1/1/010
Cruz capital ..................................................................
Diaz capital ........................................................
To transfer of capital purchase.
46,000
12/31/010 Santos capital ...............................................................
Reyes capital ................................................................
Diaz capital ..................................................................
Santos drawings .................................................
Reyes drawings ..................................................
Diaz drawings ....................................................
To close drawings accounts based on 20% of beginning capitals.
22,118
12,800
9,200
12/31/010 Income summary .........................................................
Santos capital .....................................................
Reyes capital ......................................................
Diaz capital ........................................................
To allocate profit for 2008 as follows:
61,000
46,000
22,118
12,800
9,200
31,268
12,800
9,200
Santos
P22,118
9,150
______
Reyes
Diaz
Interest (20% of P110,588) ..........................................
15% of P61,000 ...........................................................
Balance of P29,732, 60:40 ...........................................
P17,839
P11,893
Totals ...........................................................................
P31,268
P17,839
P11,893
Santos
P106,600
3,988
Reyes
P50,440
13,560
Diaz
(22,118)
__31,268
(12,800)
_17,839
P46,000
(9,200)
_11,893
P119,738
P69,039
P48,693
Capital balances as of December 31, 2010:
12/31/07 balances ........................................................
Goodwill ......................................................................
Capital purchased ........................................................
Drawings......................................................................
Profit allocation ...........................................................
12/31/08 balances ........................................................
1/1/011
1/1/011
Goodwill ......................................................................
14,321
Santos capital .....................................................
2,148
Reyes capital ......................................................
7,304
Diaz capital ........................................................
4,869
To record implied goodwill. Diaz will be paid P53,562 (110% of the capital balance for his
interest. This amount is P4,869 in excess of the capital account. Since Diaz is only entitled
to a 34% share of profits and losses, the additional P4,869 must indicate that the partnership
as a whole is undervalued by P14,321 (P4,869/34%) which is treated as goodwill.
Diaz capital ..................................................................
53,562
Cash....................................................................
53,562
To record settlement to Diaz.
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72
Chapter 3
Problem 3 – 12
Partnership Books Continued as Books of Corporation
Entries in the Books of the Corporation
(1) Inventories ..... .................................................................... .................
Land ...... ........ .................................................................... .................
Building. ........ .................................................................... .................
Accumulated depreciation – bldg. ...................................... .................
Accumulated depreciation – equipment .............................. .................
Equipment .................................................................. .................
Jack capital ................................................................ .................
Jill capital................................................................... .................
Jun capital .................................................................. .................
To adjust assets and liabilities of the partnership
to their current fair values.
26,000
40,000
20,000
20,000
30,000
(2) Cash ...... ........ .................................................................... .................
Jack capital .... .................................................................... .................
Jill capital................................................................... .................
Jun capital .................................................................. .................
To adjust capital accounts of the partners to 4:3:3 ratio.
4,000
18,000
(3) Jack capital .... .................................................................... .................
Jill capital ...... .................................................................... .................
Jun capital...... .................................................................... .................
Capital stock............................................................... .................
To record issuance of stock to the partners.
100,000
75,000
75,000
20,000
58,000
34,800
23,200
20,200
1,800
250,000
New Books Opened for the New Corporation
Entries in the Books of the Partnership
(1) Inventories ..... .................................................................... .................
Land ...... ........ .................................................................... .................
Building. ........ .................................................................... .................
Accumulated depreciation – bldg. ...................................... .................
Accumulated depreciation – equipment .............................. .................
Equipment .................................................................. .................
Jack capital ................................................................ .................
Jill capital................................................................... .................
Jun capital .................................................................. .................
To adjust assets and liabilities of the partnership.
26,000
40,000
20,000
20,000
30,000
(2) Cash ...... ........ .................................................................... .................
Jack capital .... .................................................................... .................
Jill capital................................................................... .................
Jun capital .................................................................. .................
To adjust capital accounts of the partners.
4,000
18,000
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20,000
58,000
34,800
23,200
20,200
1,800
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Partnership Dissolution – Changes in Ownership Interest
Problem 3-12, continued:
73
(3) Stock of JJJ Corporation .................................................... .................
Accounts payable ................................................................ .................
Loans payable – Jill ............................................................ .................
Cash in bank............................................................... .................
Accounts payable ....................................................... .................
Inventories .................................................................. .................
Land....... .................................................................... .................
Building . .................................................................... .................
Equipment .................................................................. .................
To record transfer of assets and liabilities to
The corporation and the receipt of capital stock
250,000
30,000
40,000
(4) Jack capital .... .................................................................... .................
Jill capital ...... .................................................................... .................
Jun capital...... .................................................................... .................
Stock of JJJ Corporation ............................................ .................
To record issuance of stock to the partners.
100,000
75,000
75,000
44,000
26,000
60,000
60,000
70,000
60,000
250,000
Entries in the Books of the Corporation
(1) To record the acquisition of assets and liabilities from the partnership:
Cash in bank .. .................................................................... .................
Accounts receivable ............................................................ .................
Inventories ..... .................................................................... .................
Land ...... ........ .................................................................... .................
Building (net) . .................................................................... .................
Equipment (net)................................................................... .................
Accounts payable ....................................................... .................
Loans payable ............................................................ .................
Capital stock............................................................... .................
44,000
26,000
60,000
60,000
70,000
60,000
30,000
40,000
250,000
Problem 3 – 13
1.
a.
Bonus Method
2010 journal entries
Jan. 1: Cash
Inventory
Equipment
Notes payable
Aquino, capital (50%)
Binay, capital (50%)
To record initial investments at fair value along with equal
capital balances.
40,000
12,000
48,000
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10,000
45,000
45,000
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74
Chapter 3
Problem 3-13: Continued
Oct. 1: Cash
12,000
Aquino, capital
To record additional investment of Aquino.
12,000
Dec. 31: Computation of the bonus:
Net profit before bonus
Net profit after bonus (P33,000 / 110%)
Bonus
P33,000
30,000
P 3,000
Computation of interest on average capital:
Aquino: Beginning capital: P45,000 x 9 months =
New balance :
P57,000 x 3 months =
Total
P405,000
171,000
P576,000
Average capital: P576,000 / 12 =
Interest rate
Interest credited to Aquino
P 48,000
10%
P 4,800
P45,000 x 10% =
P
Binay:
4,500
Allocation of P33,000 profit:
Bonus
Interest
Balance of income
Total
Aquino
P 3,000
4,800
12,420
P20,220
Closing Entry:
Aquino, Capital
Binay, capital
Aquino, drawing
Binay, drawing
To close P800 per month drawing accounts for the year.
Income summary
Aquino, capital
Binay, capital
To close profit for the year.
Binay
P4,500
8,280
P12,780
Total
P 3,000
9,300
20,700
P33,000
9,600
9,600
9,600
9,600
33,000
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20,220
12,780
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Partnership Dissolution – Changes in Ownership Interest
75
Problem 3-13, continued:
b.
Statement of Changes in Partner’s Equity
Capital balances, beginning
Additional investments
Net income
Drawings
Capital balances, end
Aquino
P45,000
12,000
20,220
(9,600)
P67,620
Binay
P45,000
12,780
(9,600)
P48,180
2011 journal entries:
Jan. 1: Admission of Roxas.
Total agreed capital of the new partnership (P115,800 + P66,000)
Roxas’ interest
Roxas’ agreed capital
Roxas’ contributed capital
Bonus to Aquino and Binay, 60:40
Cash
Total
P 90,000
12,000
33,000
(19,200)
P115,800
P181,800
1/3
P 60,600
66,000
P 5,400
66,000
Roxas, capital
Aquino, capital
Binay, capital
To record admission of Roxas with bonus to original partners.
60,600
3,240
2,160
Several Withdrawal of Binay:
Years Binay capital balance
Later
Settlement
Bonus to Binay, from Aquino and Roxas
Binay, capital
Aquino, capital
Roxas, capital
Cash
To record withdrawal of Binay with bonus from the
Remaining partners split equally.
2.
a.
Goodwill Method:
2010 Journal Entries:
Jan. 1: Cash
Inventory
Equipment
Goodwill
Note payable
Aquino, capital
Binay, capital
To record investments of the partners with goodwill
attributed to Aquino.
P78,000
90,000
P12,000
78,000
6,000
6,000
90,000
40,000
12,000
48,000
14,000
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10,000
52,000
52,000
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76
Chapter 3
Problem 3-13: Continued
Oct. 1: Cash
12,000
Aquino, capital
To record additional investment of Aquino.
12,000
De. 31: Bonus to Aquino (the same)
Interest on average capital:
Aquino: Beginning capital:
New balance:
Average capital
Interest rate
Interest
Binay:
P52,000 x 10%
P3,000
P52,000 x 9/12 =
P64,000 x 3/12 =
P39,000
16,000
P55,000
x 10%
P 5,500
=
P 5,200
Allocation of income of P33,000:
Bonus
Interest
Balance of income
Total
Aquino
P 3,000
5,500
11,580
P20,080
Closing Entries:
Aquino, Capital
Binay, capital
Aquino, drawing
Binay, drawing
To close out drawing accounts for the year.
Total
P 3,000
10,200
19,300
P33,000
9,600
9,600
9,600
9,600
Income summary
Aquino, capital
Binay, capital
To allocate profits computed above.
b.
Binay
P5,200
7,720
P12,920
33,000
20,080
12,920
Statement of Changes in Partners’ Equity
Capital balances, beginning
Additional investments
Net income
Drawings
Capital balances, end
Aquino
P52,000
12,000
20,080
(9,600)
P74,480
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Binay
P52,000
12,920
(9,600)
P55,320
Total
P104,000
12,000
33,000
(19,200)
P129,800
lOMoARcPSD|6016800
Partnership Dissolution – Changes in Ownership Interest
77
Problem 3-13, continued:
2011 Journal Entries:
Jan. 1: Admission of Roxas
Total agreed capital of the new partnership (P66,000 / 1/3)
Total contributed capital (P129,800 + P66,000)
Goodwill to old partners
P198,000
195,800
P 2,200
Goodwill
Aquino, capital (60%)
Binay, capital (40%)
To recognize goodwill based on Roxas investment.
2,200
Cash
66,000
1,320
880
Roxas, capital
To record admission of Roxas.
Several: Withdrawal of Binay
Years Binay capital balance
Later: Settlement
Goodwill to Binay (20%)
66,000
P78,000
90,000
P12,000
Total goodwill (P12,000/20%)
P60,000
Goodwill
Aquino, capital (40%)
Binay, capital (20%)
Roxas, capital (20%)
To recognize total goodwill.
60,000
Binay, capital
Cash
To record cash settlement to Binay.
90,000
24,000
12,000
12,000
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90,000
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78
Chapter 4
CHAPTER 4
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
4-1:
a
PAR
P 20,000
( 20,000)
P
–
BOOGIE
P 16,000
( 12,000)
P 4,000
BIRDIE
P 10,000
( 8,000)
P 2,000
PING
P 50,000
__6,000
P 56,000
PANG
P 50,000
__2,000
P 52,000
PONG
P 10,000
__2,000
P 12,000
PING
P 50,000
( 24,000)
P 26,000
PANG
P 50,000
( 8,000)
P 42,000
PONG
P 10,000
( 8,000)
P 2,000
PING
P 50,000
( 42,000)
P8,000
( 3,000)
P 5,000
PANG
P 50,000
( 14,000)
P 36,000
( 1,000)
P 35,000
PONG
P 10,000
( 14,000)
( 4,000)
__4,000
–
COLT
MARK
Capital balances before liquidation (net of loans)P290,000 P200,000
Loss of P130,000, 4:3:3
( 52,000)
( 39,000)
Cash distribution
P238,000
P161,000
CLOCK
P220,000
( 39,000)
P181,000
Capital balances before realization
Loss on liquidation, P40,000
Cash distribution
4-2:
c
Capital balances before liquidation
Gain of P10,000 (150,000-140,000)
Cash distribution
4-3:
b
Capital balances before liquidation
Loss of P40,000 (P140,000-P100,000)
Cash distribution
4-4:
a
Capital balances before liquidation
Loss of P70,000 (P140,000-P70,000)
Balances
Absorption of Pong's deficiency, 6:2
Cash distribution
4-5:
4-6:
b
c
Capital balances before liquidation
Loss of P60,000, 40:50:10
Cash distribution
JONAS
P160,000
( 24,000)
P136,000
CARLOS
P 45,000
( 20,000)
P 25,000
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TOMAS
P 55,000
( 6,000)
P 49,000
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Partnership Liquidation
4-7:
79
a
Capital balances before liquidation
Loss of P100,000, 4:3:3
Cash distribution
4-8:
BERT
P180,000
( 30,000)
P150,000
NORY
P23,000
OSCAR
P 13,500
15,000
( 30,900)
P 7,100
–
( 20,600)
( P7,100)
P 36,500
15,000
P 51,500
d
Capital balances before liquidation (net)
Loss on realization (schedule 1) P27,500
Balances, cash distribution
BLACK
P99,000
( 13,750)
P85,250
Schedule 1:
Capital balances of white (net)
Cash received by White
White's share of total loss (30%)
GREEN
P138,000
_( 5,500)
P132,500
P 27,500
c
Capital balances before liquidation (net)
Loss on realization, P63,600
Balances
Unrecorded liabilities, P500
Balances
Elimination of Nora's deficiency
Payment to partners
4-11:
WHITE
P 91,500
( 27,500)
P 64,000
P 91,500
_83,250
P 8,250
Total loss on realization (P8,250/39%)
4-10:
CESAR
P 30,000
( 30,000)
P
–
b
Capital balances before realization
Additional investment by Nory for
the unpaid liabilities (33,000-18,000)
Loss on realization (schedule 1)
Payment by Oscar to Nory
Schedule 1
Total capital before liquidation
Unpaid liabilities
Total loss on realization
4-9:
ARIEL
P40,000
( 40,000)
P
–
ANA
P27,000
( 25,320)
P 1,680
( 200)
P 1,480
( 1,380)
P 100
EVA
P 43,000
( 25,320)
P 17,680
( 200)
P 17,480
( 1,380)
P 16,100
NORA
P 10,000
( 12,660)
( 2,660)
( 100)
( 2,760)
__2,760
P
–
ARIES
P33,500
( 22,500)
P11,000
LEO
P 49,000
( 13,500)
P 35,500
TAURUS
P 36,500
( 9,000)
P 27,500
d
Capital balances before liquidation (net)
Loss on realization (schedule 1) P45,000
Payment to partners
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80
Chapter 4
4-11, continued:
Schedule 1:
Taurus capital (net)
Payment to Taurus
Share of total loss (20%)
P36,500
( 27,500)
P 9,000
Total loss on realization (9,000/20%)
4-12:
c
Capital balances, June 11
Net loss from operation (squeeze)
Capital balances, August 30 before
liquidation (48,500-25,600)
Loss on realization (47,500-30,000)
Balances
Additional investment by Olga
Balances
Elimination of Olga's deficiency
Payment to partners
4-13:
MOLY
P15,000
( 4,200)
NORA
P13,500
( 2,800)
OLGA
P 4,200
( 2,800)
P22,900
( 17,500)
P 5,400
_1,500
P 6,900
______
P 6,900
P10,800
( 7,500)
P 3,300
_____–
P 3,300
( 1,260)
P 2,040
P10,700
( 5,000)
P 5,700
_____–
P 5,700
( 840)
P 4,860
P 1,400
( 5,000)
( 3,600)
_1,500
( 2,100)
_2,100
P
–
RITA
P49,000
( 3,500)
( 10,000)
–
( 2,000)
P33,500
__1,500
P32,000
SARA
P18,000
( 7,000)
( 15,000)
8,000
( 4,000)
P
–
_____–
P
–
TITA
P10,000
( 10,500)
( 20,000)
25,000
( 6,000)
( 1,500)
_1,500
P
–
CLARO
P45,000
PEDRO
P27,000
ANDRO
P50,000
( 24,000)
P21,000
( 24,000)
P 3,000
( 12,000)
P38,000
TOTAL
P47,500
( 38,500)
P 9,000
MONA
P28,500
( 23,100)
P 5,400
LISA
P19,000
( 15,400)
P 3,600
a
Capital balances before liquidation
Loss on realization
Accounts Receivable (P50,000 X 40%)
Investment (P30,000 - P20,000)
Equipment (P60,000-P30,000)
Total
Payment to partners
4-15:
TOTAL
P32,700
( 9,800)
b
Capital balances before liquidation
Operating loss, P21,000
Drawings
Loans
Loss on realization, P12,000
Balances
Absorption of Tita's deficiency
Payment to Nora
4-14:
P45,000
P20,000
10,000
_30,000
P60,000
c
Capital balances before liquidation (inclusive loans)
Loss on realization, (squeeze)
Capital balances - cash distribution
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Partnership Liquidation
4-15, continued:
Cash after realization
Less Liabilities (P36,000-P7,500)
Total capital after realization
4-16:
4-17:
P 37,500
( 28,500)
P 9,000
a
FF capital before distribution of net loss
Add: share of net loss (P10,000 X 40%)
FF capital before liquidation
Cash settlement to FF
FF share of total loss on realization (40%)
P100,000
_( 4,000)
96,000
( 80,000)
P 16,000
Total loss on realization (P16,000/40%)
P 40,000
Total capital before liquidation (P260,000-P10,000)
Add: Liabilities
Total assets
Cash before liquidation
Non-cash assets
Loss on realization
Cash to be realized
P250,000
_100,000
P350,000
( 50,000)
P300,000
( 40,000)
P260,000
d
Capital balances before realization (net)
Loss on realization (squeeze)
Capital balances after realization
(liabilities-unpaid)
Elimination of CC's deficiency
Balances
Investment by DD
Payment to EE
4-18:
81
TOTAL
P100,000
( 125,000)
CC
P 15,000
( 62,500)
DD
P22,500
( 37,500)
EE
P62,500
( 25,000)
(P 25,000)
_______–
(P 25,000)
__43,500
P 18,500
( 47,500)
__47,500
–
______–
P
–
( 15,000)
( 28,500)
(P43,500)
_43,500
P
–
P37,500
( 19,000)
P18,500
_____–
P18,500
d
Total capital before liquidation
Liabilities
Total assets
Less: Cash balance before realization
Cash after payment of liabilities
payment of liabilities
Cash realized
Non-cash asset
Less: cash realized
Loss on realization
P 30,000
__1,500
P 31,500
P 11,100
1,500
( 11,600)
__1,000
P 30,500
_11,600
P 18,900
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82
4-19:
Chapter 4
d
Capital balances
Salary of LL (P600 X 8 months)
Capital balances before liquidation
Loss on realization
Balances
Additional investment by NN
Payment to partners
4-20:
LL
P 50,000
__4,800
P 54,800
( 44,880)
P 9,920
______–
P 9,920
NN
TOTAL
P 10,000 P 80,000
_______ ___4,800
P 10,000 P 84,800
( 14,960)
(P 4,960)
__4,960
P
–
b
KK's total interest (P60,000-P10,000)
Less: Cash to be paid to KK
Share of total loss (1/3)
P 50,000
__10,000
P 40,000
Total loss on realization (P40,000/1/3)
P120,000
Total assets:
Total interest of the partners before liquidation:
JJ (P70,000+P30,000+P10,000)
KK (P60,000-P10,000)
LL (P30,000+P10,000)
Divide by
Total
Loss on realization
Cash to be realized
4-21:
MM
P 20,000
_______
P 20,000
( 14,960)
P 5,040
_____–
P 5,040
P110,000
50,000
__40,000
P200,000
______50%
P400,000
_120,000
P280,000
a
Capital balances, July 1
Advances to NN, August 1
OO Loan, September 1
Interest, December 31 (6%)
NN (5 mos.)
OO (4 mos.)
Compensation to PP
Capital balances before liquidation
Loss on realization (squeeze)
Cash distribution
TOTAL
P 75,000
( 10,000)
20,000
(
250)
400
__2,500
P 87,650
_56,250
P 35,000
NN
P 25,000
( 10,000)
–
(
OO
P 25,000
–
20,000
250)
_______
P 14,750
( 17,550)
( 2,800)
400
_______ ___2,500
P 45,400 P 27,500
( 17,550) ( 17,550)
P 27,850 P 9,950
NN should pay P2,800 and this is to be divided to OO & PP equally or P1,400 each.
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PP
P 25,000
–
–
lOMoARcPSD|6016800
Partnership Liquidation
4-22:
83
a
Capital balances before realization
Loss on realization (squeeze)
Capital balances after realization
(unpaid liabilities)
Elimination of AS's deficiency
Cash to be absorbed
4-23:
TOTAL
P 950,000
( 1,000,000)
PG
P350,000
__20,000
JR
AS
P250,000 P350,000
( 200,000) _500,000
(P 50,000)
_______–
P
–
P 50,000
( 90,000)
(P 40,000)
P 50,000 ( 150,000)
( 60,000) P150,000
(P 10,000) P
–
RM
P500,000
( 490,000)
P 10,000
ST
P825,000
( 735,000)
P 90,000
TOTAL
P 27,500
__37,500
P 65,000
LT
P 20,000
_18,750
P 38,750
AM
P 5,000
__-9,375
P 14,375
AG
P 420,000
( 300,000)
P 120,000
BM
P375,000
( 300,000)
P 75,000
a
Capital balances before realization (net)
Loss on realization, P1,225,000
Payment to Partners
4-24:
a
Capital balances before realization (net)
Gain on realization (squeeze)
Capital balances after realization
4-25:
c
Capital balances before realization (net)
Loss on realization, P1,000,000
Balances
Additional investment by DJ
4-26:
ZP
P 2,500
__9,375
P 11,875
a
Settlement to Uy
Uy capital before liquidation (net):
Uy capital
Receivable from Uy
Loss of Uy (50%)
P351,500
P553,500
( 132,000)
Total loss on realization (P70,000 ÷ 50%)
CB before liquidation
Receivable from Uy
Loan to Wi
Salary payable to Vi
Interest before realization
Loss on realization
Settlement to partners
__Uy__
553,500
(132,000)
421,500
P 70,000
P140,000
__Vi__
452,500
__Wi__
486,000
( 40,500)
421,500
( 70,000)
351,500
CP
DJ
P205,000 P150,000
(200,000) (200,000)
P 5,000 P(50,000)
50,000
135,000
587,500
( 42,000)
545,500
445,500
( 28,000)
417,500
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__Total__
1,492,000
(132,000)
(40,500)
135,000
1,454,500
( 140,000)
1,314,500
lOMoARcPSD|6016800
84
Chapter 4
SOLUTIONS TO PROBLEMS
Problem 4 – 1
Case 1
Rivas and Briones
Statement of Liquidation
December 31, 2011
Assets
Rivas,
Cash
Others Liabilities
Loan
Balances before liquidation ... P 20,000 P200,000 P132,000 P 18,000
Realization of assets and
distribution of loss .......... _134,000 ( 200,000) _______ _______
Balances................................. 154,000
– 132,000
18,000
Payment of liabilities ............. ( 132,000) ______– ( 132,000) ______
Balances.................................
22,000
–
–
18,000
Offset Rivas' loan against his
capital deficiency ............ _______ _______ _______ ( 18,000)
Balances.................................
22,000
–
–
–
Additional loss to Briones ..... _______ _______ _______ _______
Balances.................................
22,000
–
–
–
Payment to partner................. P(22,000)
–
–
–
Partners' Capitals
Briones, Rivas Briones
Loan
(90%)
(10%)
P 20,000 P40,000 P10,000
_______ ( 59,400) ( 6,600)
20,000 ( 19,400) 3,400
_______ _______ ______
20,000 ( 19,400) 3,400
_______ _18,000 ______
20,000 ( 1,400) 3,400
_______ __1,400 ( 1,400)
20,000
–
2,000
P(20,000)
– P(2,000)
Case 2
Rivas and Briones
Statement of Liquidation
December 31, 2011
Partners' Capitals
Assets
Rivas, Briones, Rivas Briones
Cash
Others Liabilities
Loan
Loan
(70%)
(30%)
P20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000 P10,000
Balances before liquidation ...
Realization of assets and
distribution of loss .......... 134,000 ( 200,000) _______ ______ _______
Balances................................. 154,000
– 132,000
18,000
20,000
Payment of liabilities ............. ( 132,000) _______ ( 132,000) ______ _______
Balances.................................
22,000
–
–
18,000
20,000
Offset loan against capital
deficiency ........................ ________ _______ _______ ( 6,200) ( 9,800)
Balances.................................
22,000
–
–
11,800
10,200
Payment to partner................. P(22,000)
–
– P(11,800) P(10,200)
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( 46,200) ( 19,800)
( 6,200) 9,800
_______ ______
( 6,200) 9,800
__6,200 __9,800
–
–
–
–
lOMoARcPSD|6016800
Partnership Liquidation
Problem 4-1, continued:
Case 3
85
Rivas and Briones
Statement of Liquidation
December 31, 2011
Rivas,
Loan
P 18,000
Briones,
Loan
P20,000
Partners' Capitals
Rivas
Briones
(50%)
(50%)
P40,000 P10,000
( 200,000) _______ _______
–
132,000
18,000
_______ ( 132,000)
–
–
18,000
______
20,000
__
20,000
( 33,000) ( 33,000)
( 7,000) ( 23,000)
_______
_
( 7,000) ( 23,000)
Assets
Cash
Others Liabilities
P 20,000 P200,000 P132,000
Balances before liquidation ........
Realization of assets and
distribution of loss ............... _134,000
Balances .....................................
154,000
Payment of liabilities .................. ( 132,000)
Balances .....................................
22,000
Offset Briones'' loan against
his capital deficiency ........... _______
Balances .....................................
22,000
Additional loss to Rivas.............. _______
Balances .....................................
22,000
Payment to partner...................... P(22,000)
_______
–
_______
–
–
_______
–
_______
–
–
_______ ( 20,000)
18,000
–
_______ _______
18,000
–
P(18,000)
–
______ _20,000
7,000 ( 3,000)
( 3,000) __3,000
4,000
–
P( 4,000)
–
Journal Entries
Case 1:
Cash ..... .... ...................................................................................................
Rivas, Capital................................................................................................
Briones, Capital ............................................................................................
Other Assets ...........................................................................................
Liabilities .. ...................................................................................................
Cash ... ...................................................................................................
Rivas, Loan ...................................................................................................
Rivas, Capital ........................................................................................
Briones, Capital ............................................................................................
Rivas, Capital ........................................................................................
Briones, Loan ................................................................................................
Briones, Capital ............................................................................................
Cash ...................................................................................................
Case 2:
Cash ..... .... ...................................................................................................
Rivas, Capital................................................................................................
Briones, Capital ............................................................................................
Other Assets ...........................................................................................
Liabilities .. ...................................................................................................
Cash ... ...................................................................................................
Rivas, Loan ...................................................................................................
Briones, Loan ................................................................................................
Rivas, Capital ........................................................................................
Briones, Capital .....................................................................................
Rivas, Loan ...................................................................................................
Briones, Loan ................................................................................................
Cash ... ...................................................................................................
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134,000
59,400
6,600
200,000
132,000
132,000
18,000
18,000
1,400
1,400
20,000
2,000
22,000
134,000
46,200
19,800
200,000
132,000
132,000
6,200
9,800
6,200
9,800
11,800
10,200
22,000
lOMoARcPSD|6016800
86
Chapter 4
Problem 4-1, continued:
Case 3:
Cash .... ... ...........................................................................................
Rivas, Capital .....................................................................................
Briones, Capital ..................................................................................
Other Assets .................................................................................
Liabilities ...........................................................................................
Cash.. ...........................................................................................
Briones, Loan......................................................................................
Briones, Capital ...........................................................................
Rivas, Capital .....................................................................................
Briones, Capital ...........................................................................
Rivas, Loan .........................................................................................
Rivas, Capital .....................................................................................
Cash.. ...........................................................................................
134,000
33,000
33,000
200,000
132,000
132,000
20,000
20,000
3,000
3,000
18,000
4,000
22,000
Problem 4 – 2
Blando and Castro
Statement of Liquidation
April 30, 2011
A s s e t s
Cash Receivables Inventory
Balances before
liquidation ....................
Collection of
receivables and
distribution of loss .......
Balances ............................
Realization of
inventory and
distribution of
loss...............................
Balances ............................
Realization of other
assets and distribution
of loss ..........................
Others
Accounts
Payable
Blando,
Loan
Partners'
Blando
(60%)
Capitals
Castro
(40%)
P 18,000
P75,000
P90,000
P84,000
P42,000
P 24,000
P102,000
P99,000
_37,500
( 75,000)
_______ _______
_______
_______
( 22,500)
( 15,000)
84,000
42,000
24,000
79,500
84,000
( 90,000) _______
_______
_______
( 36,000)
( 24,000)
42,000
24,000
43,500
60,000
_______
_______
( 26,400)
( 17,600)
42,000
24,000
17,100
42,400
_______
_______
_______
55,500
–
_30,000
_______
85,500
–
_40,000
_______
Balances ............................ 125,500
Payment of accounts
payable......................... ( 42,000)
Balances ............................
83,500
Payments to partners….. … P(83,500)
–
_______
90,000
–
84,000
_______ ( 84,000)
–
–
_______ _______
( 42,000)
–
–
–
–
–
–
–
–
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24,000
17,100
P(24,000) P( 17,100)
42,400
P(42,400)
lOMoARcPSD|6016800
Partnership Liquidation
87
Problem 4 – 3
a.
Electric Company
Statement of Partnership Realization and Liquidation
June 30, 2011
Balances
Sale of
assets at a loss
Payment to
creditors
Capital Balances
Volt
Watt
30%
20%
Cash
Amp.
Loan
Noncash
Assets
Liabilities
Volt,
Loan
Amp
50%
20,000
15,000
135,000
30,000
10,000
80,000
36,000
14,000
_95,000
115,000
______
15,000
(135,000)
-0-
______
30,000
______
10,000
(20,000)
60,000
(12,000)
24,000
( 8,000)
6,000
_(30,000)
85,000
______
15,000
_______
-0-
(30,000)
-0-
______
10,000
_______
60,000
______
24,000
______
6,000
(24,000)
-0-
( 6,000)
-0-
Offset Amp,
receivable
(15,000)
Payments to partners:
Loan
(10,000)
Capitals
_(75,000) ______
_______
Balances
-0-0-0b. (1) Cash
Amp, Capital
Volt, Capital
Watt, Capital
Noncash Assets
Sell noncash assets at a loss of P40,000.
(15,000)
_______
-0-
(10,000)
______
-0-
(45,000)
-095,000
20,000
12,000
8,000
135,000
(2) Liabilities
Cash
Pay creditors.
30,000
(3) Amp, Capital
Amp, Loan
Offset receivable from Amp against his capital credit.
15,000
(4) Volt, Loan
Amp, Capital
Volt, Capital
Watt, Capital
Cash
Final lump-sum distribution to partners.
10,000
45,000
24,000
6,000
30,000
15,000
85,000
Note: All partners permitted Amp to offset his receivable against his capital credit. Alternatively, Amp
could be required to pay the partnership the P15,000 receivable; the partnership would then pay him an
additional P15,000 for his capital credit. In this case, an offset of the receivable against the capital credit is
reasonable, provided the receivable is not interest-bearing, Amp has a sufficient capital credit, Amp is
personally solvent, and the note is not secured against specific assts of Amp. The offset is not automatic,
but must be determined by the terms of the initial note, and by the partners.
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lOMoARcPSD|6016800
88
Chapter 4
Problem 4 – 4
a.
b.
Bina, capital before liquidation ..................................................................... ..................
Payment to Bina ............................................................................................ ..................
P320,000
_128,000
Loss absorbed by Bina (40%) ....................................................................... ..................
P192,000
Loss on realization (P192,000 ÷ 40%) .......................................................... ..................
P480,000
AIDA, BINA & CELIA
Statement of Partnership Liquidation
January 1, 2011
P720,000
( 720,000)
Aida
(5)
P320,000
( 240,000)
Capital
Bina
(4)
P320,000
( 192,000)
Celia
(1)
P160,000
( 48,000)
–
_______
80,000
( 80,000)
128,000
( 128,000)
112,000
( 112,000)
Cash
Other Assets
Balances before liquidation .
Realization & dist. of loss ...
P80,000
240,000
Balances .... .... ....................
Settlement to partners .........
320,000
(320,000)
Problem 4 – 5
a.
b.
LL, capital before liquidation........................................................................ ..................
Settlement to LL ........................................................................................... ..................
P 70,000
__98,000
Gain realized by LL (20%) ........................................................................... ..................
P 28,000
Total gain on realization (P28,000 ÷ 20%) ................................................... ..................
Other assets sold ........................................................................................... ..................
P140,000
_500,000
Selling price
P640,000
.............................................................................................. ..................
JJ, KK & LL
Statement of Liquidation
Cash
Balances before liquidation ...
Realization & Dist. of gain ...
P50,000
640,000
Balances .... .... ...................... 690,000
Payment of liabilities ............ ( 60,000)
Payment to Partners .............. (630,000)
Other
Assets
Liabilities
P500,000 P60,000
( 520,000) _______
–
_______
JJ (4)
P180,000
__56,000
60,000
236,000
( 60,000)
_______ ( 236,000)
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Capital
KK(4)
(LL(2)
P240,000
__56,000
P70,000
_28,000
296,000
98,000
( 296,000)
( 98,000)
lOMoARcPSD|6016800
Partnership Liquidation
89
Problem 4 – 6
a.
BB ................................................... P160,000
CC ................................................... P20,000
DD................................................... P60,000
EE ...................................................
P –0–
b.
BB, CC, DD, & EE
Statement of Liquidation
Cash
Balances before liquidation ...
P
0
Advances by BB to pay liabilities
Deposit by DD ......................
60,000
Balances .... .... ......................
60,000
Elimination of EE's deficiency
Elimination of DD's deficiency
Payment to partners...............
Liabilities
C a p i t
CC (10%)DD (20%)
BB (30%)
P60,000 P160,000
( 60,000)
60,000
______ _______
–
P80,000
220,000
( 90,000)
______ __( 90,000)
60,000
–
a
l
EE (40%)
(P120,000) P(180,000)
________
_______
__60,000
80,000
( 30,000)
( 30,000)
( 60,000) ( 180,000)
( 60,000)
180,000
–
120,000
40,000
20,000
–
–
Problem 4 – 7
Sayson and Company
Statement of Liquidation
–Date–
Assets
Cash Noncash
Liabilities
Accounts
Notes
Payable Payable
Peña
Loan
P a r t n e r s' C a p i t a l s
Sayson
Zobel
Ayala
(45%)
(30%)
(15%)
Balances before liquidation...
Realization of assets and
distribution of gain ..........
P 15,000
P155,250
P11,250
P9,000
P 1,500
185,000
( 155,250)
_______
______
______
17,850
11,900
Balances................................
Payment of liabilities ............
200,000
( 20,250) ________
11,250
( 11,250)
9,000
( 9,000)
1,500
______
93,195
______
98,398 ( 14,993)
______ _______
1,650
______
-
-
1,500
93,195
98,398 ( 14,993)
1,650
Balances................................
Additional loss to Sayson,
Zobel and Peña;
45:30:10 ..........................
179,750
-
_______ ________ ________
Balances................................
Offset Peña's loan against
his capital deficiency .......
179,750
-
_______ ________ ________
Balances................................
179,750
Payments to partners .............
P(179,750)
-
-
-
______
______
P 75,345
P 86,498 P(14,993)
Peña
(10%)
______
( 7,937)
( 5,292)
14,993
-
1,500
85,258
93,106
-
______
( 114)
______
______
-
1,386
85,258
93,106
P(1,386) P(85,258) P(93,106)
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_______
-
P1,650
______
( 1,764)
(114)
114
lOMoARcPSD|6016800
90
Chapter 4
Problem 4 – 8
a.
Art, Bea and Cid Partnership
Statement of Liquidation
June 4, 2011
Balances before liquidation
(including Bea loan, P4,000) ......
Realization of assets
at a loss of P63,300 ..................
Unrecorded accounts payable .........
Payment to creditors .......................
Balances .... .... ................................
Eliminate Cid's deficit .....................
Balances .... .... ................................
Payment to Partners ........................
b.
2011
July 5
c.
Cash
Assets
Other
Liabilities
Partners' Capital
Art (40%) Bea (40%) Cid (20%)
P 6,000
P94,000
P20,000
P27,000
P43,000
30,000
( 94,000)
(20,500)
16,200
______
16,200
(16,200)
______
______
-
(25,320)
500
(20,500)
______
-
(25,320)
(200)
______
1,480
(1,380)
100
_( 100)
(12,660)
(200)
______
17,480
(1,380)
16,100
( 16,100)
Cash .... .... ................................ ............. .................. ..................
Art capital (P63,300 x 40%) ...... ............. .................. ..................
Bea capital (P63,300 x 40%) ..... ............. .................. ..................
Cid capital (P63,300 x 20%) ...... ............. .................. ..................
Other assets ...................... ............. .................. ..................
To record realization of other assets at a loss of P63,300.
30,700
25,320
25,320
12,660
Art capital (P500 x 40%) ........... ............. .................. ..................
Bea capital (P500 x 40%) .......... ............. .................. ..................
Cid capital (P500 x 20%) ........... ............. .................. ..................
Liabilities .......................... ............. .................. ..................
To record trade accounts payable.
200
200
100
Liabilities .. ................................ ............. .................. ..................
Cash . ................................ ............. .................. ..................
To record payment of liabilities.
20,500
Art capital . ................................ ............. .................. ..................
Bea capital ................................ ............. .................. ..................
Cid capital ........................ ............. .................. ..................
To eliminate Cid's capital deficit.
1,380
1,380
Art capital . ................................ ............. .................. ..................
Bea capital ................................ ............. .................. ..................
Cid capital . ................................ ............. .................. ..................
Cash . ................................ ............. .................. ..................
To record payments to partners to complete liquidation.
100
4,000
12,100
P10,000
(100)
______
(2,760)
_2,760
94,000
500
20,500
2,760
16,200
Cid's loss must be limited to P5,000, or P25,000 for the partnership (P5,000 / 20% = P25,000).
Because the liquidation of liabilities results in a loss of P500, only P24,500 may be lost on the
realization of other assets. This requires that other assets realize P69,500 (P94,000 – 24,500) to
enable Cid to receive P5,000 from the partnership to pay personal creditors in full.
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-
lOMoARcPSD|6016800
Problem 4 –9
KGB Partnership
Statement of Realization and Liquidation
Lump-sum Liquidation on June 30, 2011
-
Preliquidation balances
Sale of assets
and distribution
of 430,000 loss
Cash contributed
by B
Distribution of deficit
of insolvent partner:
20/60 (P2,000)
40/60 (P2,000)
Offset deficit with loan
Contribution by G
Payment of creditors
Distribution to K
Postliquidation
balances
Capital Balances
K
G
20%
40%
(240,000) (100,000)
B
40% (120,000)
(60,000)
86,000
(154,000)
172,000
72,000
172,000
52,000
(60,000)
(154,000)
72,000
50,000
2,000
Cash
50,000
Noncash
Assets
950,000
Liabilities
(480,000)
G
Loan
(60,000)
520,000
570,000
950,000
-0-
(480,000)
-
(480,000)
50,000
620,000
-0-
(2,000)
666
620,000
620,000
13,334
633,334
(480,000)
153,334
(153,334)
-0-
-0-0-
(480,000)
(480,000)
(60,000)
60,000
-0-
(153,334)
(153,334)
(480,000)
480,000
-0-
-0-
(153,334)
(153,334)
153,334
-0-0-
-0-
-0-
-0-
-0-
-0-
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-
1,334
73,334
(60,000)
13,334
(13,334)
-0-
-0-0-0-
-0-
-0-
-
-0-
-0-
-
lOMoARcPSD|6016800
92
Chapter 4
Problem 4-9, continued:
KGB Partnership
Schedule of Distribution of Personal Assets
June 30, 2011
Personal assets, excluding partnership
capital and loan interests
Personal liabilities
Personal net worth, excluding
partnership capital and loan
interests
Contribution to partnership
Distribution from partnership
Personal capacity
K
G
B
500,000
(460,000)
600,000
(480,000)
700,000
(650,000)
40,000
120,000
(13,334)
-0- 106,666
50,000
153,334
193,334
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-0- -0- -
lOMoARcPSD|6016800
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Joint Venture
113
CHAPTER 6
SOLUTIONS TO MULTIPLE CHOICES
6-1:
a
Assets per Jessica Company- balance sheet
Jessica’s proportionate interest in assets of JV (50%)
Total assets of Jessica
6-2:
a
6-3:
b
6-4:
b
Investment of Heart
Profit share:
Sales
Cost of sales (150,800 ÷ 125%)
Gross profit
Expenses
Net Profit
Profit/loss ratio
Balance of investment in JV
6-5:
6-6:
P3,550,000
1,000,000
P4550,000
Total liabilities only of Jenny Co.
P80,000
150,800
120,640
30,160
10,000
20,160
x 40%
8,064
P88,064
a
Cash
Merchandise inventory
Accounts receivable
Total assets
Sweet Co’s, proportionate interest
Sweet Company’s share in total asset
a
Sales
Cost of sales
Purchases
Merchandise inventory, end (50% of P10,000)
P190,000
29,360
150,800
370,160
x 60%
P222,096
7,200
P10,000
__5,000
_5,000
Gross profit
Expenses
2,200
___500
Net profit
P 1,700
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114
6-7:
6-8:
6-9:
6-10:
Chapter 6
b
Original investment (cash)
Profit share (P1,700 / 2)
P10,000
___850
Balance of Investment account
P10,850
a
Joint venture account before profit distribution (credit balance)
Unsold merchandise
P 9,000
__2,500
Joint venture profit before fee to Salas
P11,500
Joint venture profit after fee to Salas (P11,500 / 115%)
P10,000
b
Fee of Salas (P10,000 x 15%)
Profit share of Salas (P10,000 x 25%)
P 1,500
_2,500
Total
P 4,000
b
Salas
6-11:
6-12:
Salve
Balance before profit distribution
Profit share:Sabas (P10,000 x 40%)
Salve (P10,000 x 35%)
P 500 (dr) P 2,000 (cr)
4,000
______
_3,500
Balance
P 3,500 (cr) P 5,500 (cr)
d
Joint venture account balance before profit distribution (debit)
Joint venture profit (P4,500 x 3)
P 6,000
_13,500
Cost of unsold merchandise (inventory) taken by Dante
P19,500
b
Edwin Capital:
Debits: Balance before profit distribution
Credits: Profit share
P14,000
__4,500
Due from Edwin (debit balance)
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P 9,500
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6-12, continued
115
Settlement to Ferdie (Balance of capital account)
Debits:
Credits: Balance before profit distribution
Profit share
P –0–
P16,000
__4,500
Due to Ferdie (credit balance)
P20,500
Settlement to Dante (balance of JV Cash account)
Debits: Balance before cash settlement
Due from Edwin
Credits: Due to Ferdie
P30,000
__9,500
Balance
6-13:
6-14:
a
JV account balance before profit distribution (cr)
Unsold merchandise (required dr balance after profit distribution)
P 4,600
__2,000
Joint venture profit before fee to Jerry
Joint venture profit after fee (P6,600 / 110%)
Fee to Jerry
P 6,600
__6,000
P 600
d
Balances before profit distribution
Profit distribution:
Harry P6,000 x 50%)
Isaac (P6,000 x 20%)
(P 200)
Cash settlements
P 2,800
Isaac Capital
P 1,800
3,000
1,200
P 3,000
b
Sales
Cost of sales:
Merchandise inventory, beg (contributions)
Freight
Purchases
P14,000
300
__4,000
Goods available for sale
Merchandise inventory, end (P8,300/2)
P18,300
__4,150
P14,000
Gross profit (loss)
Expenses (P400 + P200)
6-16:
P39,500
_20,500
P19,000
Harry Capital
6-15:
_20,500
14,150
(150)
__600
Net profit (loss)
c
Contributions to the Joint Venture (P5,000 + P8,000)
Loss share (P750 x 50%)
Unsold merchandise taken (withdrawal)
P13,000
( 375)
( 4,150)
Final settlement to jack
P 8,475
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P( 750)
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Chapter 6
SOLUTIONS TO PROBLEMS
Problem 6 – 1
Books of Blanco (Manager)
JV Cash
Joint Venture
Cash
Ablan Capital
100,000
90,000
Investment in JV
Merchandise inventory
90,000
Investment in JV
Profit from JV
15,000
90,000
100,000
90,000
Joint Venture
JV cash
60,000
Joint Venture
JV cash
20,000
JV cash
Joint Venture
Books of Ablan
60,000
20,000
200,000
200,000
Computation of JV Profit
Total debit to JV
Total credit to JV
P170,000
P200,000
Credit balance (Profit)
P 30,000
Distribution of Profit:
Joint Venture
Profit from JV
Ablan capital
Ablan capital
JV cash
Cash
JV cash
30,000
15,000
15,000
105,000
105,000
Cash
Investment in JV
155,000
155,000
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15,000
105,000
105,000
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Problem 6 – 2
Requirement (1) - Books of the Joint Venture
1.
2.
3.
4.
Computer equipment
Ella capital
Fabia capital
105,000
60,000
45,000
Purchases
Supplies
Diaz capital
80,000
2,000
Expenses
Diaz capital
9,000
82,000
9,000
Cash
150,000
Sales
5.
6.
7.
8.
150,000
Expenses
Cash
30,000
Merchandise inventory
Ella capital
20,000
Fabia capital
Cash
10,000
30,000
20,000
10,000
Adjusting and closing entries:
(a)
(b)
Expense
Supplies
Sales
1,500
1,500
150,000
Income summary
150,000
Income summary
Merchandise inventory
Merchandise inventory, beg (Investment of Ella)
Purchases
97,500
2,500
Income summary
Expenses
40,500
Distribution of profit:
Income summary
Diaz capital
Ella capital
Fabia capital
20,000
80,000
40,500
12,000
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4,000
4,000
4,000
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Problem 6-2, continued:
Chapter 6
Requirement #2
Books of Diaz
Investment in JV
91,000
Cash
91,000
Books of Ella
Investment in JV
80,000
Comp. Equip.
60,000
MI
20,000
Books of Fabia
Investment in JV
45,000
Comp. Equip.
45,000
Cash
Investment in JV
Investment in JV
Inv. Income
4,000
4,000
Investment in JV
Inv. Income
4,000
4,000
Investment in JV
Inv. Income
10,000
10,000
4,000
4,000
Cash (110,000 x 44%) 48,000*
C.E (105,000 x 44%)
46,000*
MI (2,500 x 44%)
1,100
Supplies (500 x 44%)
200*
COS (97,500 x 44%) 42,900
Expense (40,500 x44%) 17,800
Inv. Income
4,000
Sales (150,000x44%)
66,000
Investment in JV
95,000
Cash (110,000x38.5%) 42,350
CE (105,000 x38.5%) 40,000*
MI (2,500 x 38.5%)
960*
Supplies (500 x 38.5%)
190*
COS (97,500 x 38.5%) 37.500*
Exp (40,500 x 38.5%) 16,000*
Inv. Income
4,000
Sales (150,000 x 38.5%) 57,000*
Investment in JV
84,000
Cash (110,000 x 17.5%) 19,000
CE (105,000 x 17.5%) 18,000
MI (2,500 x 17.5%)
400
Supplies (500 x 17.5%)
90
COS (97,500 x 17.5%) 17,000
Exp (40,500 x 17.5%)
7,000
Inv. Income
4,000
Sales (150,000 x 17.5%) 26,000
Investment in JV
39,000
*rounded to balance
*rounded to balance
Diff. of P490 due to rounding of the
amounts.
Note. Under the proportionate consolidation method, difference will exist in the journal entry
(see above) because the profit and loss ratio (equally) is not equal to the venturer’s capital
interest as computed below:
Computation of capital interest:
Investments
Withdrawal
Profit share
Venturer’s capital
Interest in the Joint Venture
Diaz (P95,000/P218,000)
Ella (P84,000/P218,000)
Favia (P39,000/P218,000)
Diaz
P91,000
Ella
P80,000
4,000
P95,000
4,000
P84,000
Favia
P45,000
(10,000)
4,000
P39,000
Total
P196,000
(10,000)
12,000
P218,000
44%
38.5%
17.5%
It may be concluded that the proportionate consolidation method can be properly applied only if
the profit and loss ratio and the venturer’s capital interest are equal.
In US GAAP there is an exposure draft to eliminate the proportionate consolidation method. US
GAAP favor the use of the equity method contrary to IFRS No. 31 which favors the use of the
proportionate consolidation method
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Problem 6 – 3
(1)
No Separate Set of Joint Venture Books is Used
Books of Duran (Manager)
May 1:
7:
Joint Venture
Castro capital
Cash
12,500
JV cash
Bueno capital
10,000
26: Joint Venture
JV cash
12,000
500
10,000
9,500
9,500
30: JV accounts receivable
Joint Venture
16,000
June 30: JV cash
JV accounts receivable
15,000
27: JV cash
Joint Venture
16,000
15,000
9,000
9,000
30: To record unsold merchandise taken by Duran:
Merchandise inventory
Joint Venture
3,000
3,000
To record profit distribution:
Joint Venture
Profit from JV
Bueno capital
Castro capital
6,000
2,000
2,000
2,000
To record settlements:
Bueno capital
Castro capital
JV cash
Cash
Accounts receivable
JV accounts receivable
12,000
14,000
24,500
1,500
1,000
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1,000
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120
Chapter 6
Problem 6-3, continued:
Books of Bueno
May 7:
Investment in Joint Venture
Cash
June 30: Investment in Joint Venture
Profit from Joint Venture
Cash
10,000
10,000
2,000
2,000
12,000
Investment in Joint Venture
12,000
Books of Castro
May 1:
Investment in Joint Venture
Merchandise inventory
June 30: Investment in Joint Venture
Profit from Joint Venture
Cash
12,000
12,000
2,000
2,000
14,000
Investment in Joint Venture
(2)
14,000
A Separate Set of Books is used:
Books of the Joint Venture
May 1:
7:
Merchandise inventory
Castro capital
Duran capital
12,500
Cash
10,000
12,000
500
Bueno capital
26: Purchases
Cash
10,000
9,500
9,500
30: Accounts receivable
Sales
June 20: Cash
16,000
16,000
15,000
Accounts receivable
27: Cash
15,000
9,000
Sales
9,000
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Problem 6-3, continued:
June 30: Closing entries:
Sales
25,000
Income summary
Income summary
Merchandise inventory, end
Merchandise inventory
Purchases
25,000
19,000
3,000
12,500
9,500
Distribution of profit:
Income summary
Bueno capital
Castro capital
Duran capital
6,000
2,000
2,000
2,000
Settlements to Venturers:
Bueno capital
Castro capital
Duran capital
Merchandise inventory
Accounts receivable
Cash
12,000
14,000
2,500
3,000
1,000
24,500
Books of Duran (Manager/Operator)
May 1:
Investment in Joint Venture
Cash
June 30: Investment in Joint Venture
Profit from Joint Venture
Cash
500
500
2,000
2,000
2,500
Investment in Joint Venture
Books of Bueno and Castro (Same as in No. 1 requirement)
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2,500
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Chapter 6
Problem 6 – 4
(1)
Books of Seiko (Manager/Operator)
April 1:
May:
June:
JV Cash
Notes payable – PNB
Roles capital
Timex capital
August:
34,000
34,000
34,000
Joint venture
Cash
Rolex capital
64,100
Rolex capital
JV cash
30,000
Joint venture
Cash
Rolex capital
Timex capital
July:
102,000
16,300
7,800
30,000
111,400
37,400
64,700
9,300
Cash
Rolex capital
Timex capital
JV cash
40,000
15,000
10,000
Joint venture
Cash
Rolex capital
Timex capital
55,770
Cash
Rolex capital
Timex capital
JV cash
45,000
67,000
13,500
Joint venture
Cash
Rolex capital
Timex capital
30,600
65,000
13,970
31,240
10,560
125,500
9,730
16,560
4,310
To record sales:
JV cash (P421,000 x 96%)
Joint venture
404,160
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404,160
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Joint Venture
Problem 6-4, continued:
123
To record payment of loan to PNB:
Notes payable – PNB
Rolex capital
Timex capital
Joint venture (Interest expense)
JV cash
34,000
34,000
34,000
8,000
110,000
To record distribution of profit:
Joint venture
Gain from JV (30%)
Rolex capital (60%)
Timex capital (10%)
134,290
40,287
80,574
13,429
Computed as follows:
Total debits tot he JV account
Total credits to the JV account
P269,870
_404,160
Gain (credit balance)
P134,290
To record settlement:
Cash
Rolex capital
Times capital
JV cash
32,687
128,874
14,099
175,660
Computations:
Settlement to Rolex - Balance of capital account:
Debits: June
July
August
Payment of note payable
P30,000
15,000
67,000
_34,000
P146,000
Credits: April 1
May
June
July
August
Profit share
P34,000
47,800
64,700
31,240
16,560
_80,574
__274,874
Credit balance
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P 128,874
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124
Problem 6-4, continued:
Chapter 6
Settlement to timex – Balance of capital account
Debits: July
August
Payment of loan
P 10,000
13,500
__34,000
P 57,500
Credits: April 1
June
July
August
Profit share
P 34,000
9,300
10,560
4,310
__13,429
_71,599
Credit balance
P 14,099
Settlement to Seiko – Balance of JV cash account
Debits: April 1
Loan proceeds
P102,000
_404,160
P506,160
Credits: June
July
August
Payment of loan
P 30,000
65,000
125,500
_110,000
_330,500
Balance of JV cash
Less: Settlement to Rolex
Settlement to Timex
P128,874
__14,099
175,660
Settlement to Seiko
(2)
_142,973
P 32,687
Partial Statement of Financial Position
June 30, 2011
Books of Seiko (Manager/operator)
Current assets:
Investment in joint Venture:
Joint Venture assets:
Cash
Joint Venture
Less: Equity of other venturers
(P116,500 + P43,300)
P 72,000
_175,500
Current liabilities:
Notes payable – PNB
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P247,500
_159,800
87,700
34,000
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Joint Venture
Problem 6-4, continued:
125
Computation of balances as of June 30, 2011:
JV Cash
April 1 P102,000
Balance P 72,000
P30,000
Joint Venture
June
May
June
P 64,100
_111,400
Balance P175,500
Notes Payable
P34,000
Rolex capital
April
June
P 30,000
_______
P 34,000
47,800
__64,700
P 30,000
P146,500
April 1
May
June
P116,500
Timex capital
P34,000
__9,000
April
June
P43,300
Problem 6 – 5
Consolidated Statement of Financial Position
Cash
Receivables
Inventory
Other assets
P 61,000
122,000
102,500
__40,500
Total assets
P326,000
Accounts payable
Other liabilities
Capital stock
Retained earnings
P 61,000
96,500
50,000
_118,500
Total liabilities and stockholders' equity
P326,000
Consolidated Income Statement
Sales
Cost of sales
P246,750
_124,750
Gross profit
Operating expenses
122,000
__58,250
Consolidated net income
P 63,750
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Chapter 6
Problem 6 –6
(a)
Journal entries on venture books
June 15:
Cash
1,000,000
MacDo
Initial contribution at 6%
July 1:
Land
1,000,000
2,400,000
Mortgage payable
Cash
Purchased land for cash and 6% mortgage.
Aug 1:
Cash
1,100,000
MacDo
Additional contribution at 6%.
Land
1,100,000
950,000
Cash
Paid for improvements.
Sept 30:
Oct 31:
Nov 30:
Dec 31:
1,650,000
750,000
950,000
Mortgage payable
Interest expense- Mortgage
Cash
Reduced mortgage and paid interest.
250,000
3,750
Mortgage payable
Interest expense- Mortgage
Cash
Reduced mortgage and paid interest.
400,000
8,000
Mortgage payable
Interest expense- Mortgage
Cash
Reduced mortgage and paid interest.
300,000
7,500
253,750
408,000
Mortgage payable
200,000
Interest expense- Mortgage
21,000
Cash
Reduced mortgage and make semi-annual
interest payment.
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307,500
221,000
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Problem 6-6, continued:
31:
127
Cash
2,600,000
Sales
Sales to date.
31:
31:
31:
31:
2,600,000
Commissions
Cash
P2,600,000 x 5%
130,000
Expenses
Cash
Paid expenses
628,100
Interest expense- Venturer
MacDo
6% on P1,000,000 from June 15 to
December 31, and on P1,100,000
from August 1 to December 31.
Sales
130,000
628,100
60,000
60,000
2,600,000
Land (cost of land sold)
Expenses
Commissions
Interest expense- mortgage
Interest- venturer
Income summary
To close income and expense accounts.
31:
31:
1,145,000
628,100
130,000
40,250
60,000
596,650
Income summary
MacDo
MacEn
To divide gain, 60:40.
596,650
MacDo
801,650
596,650
238,660
Cash
Payment on account.
(b)
801,650
Journal entries on MacDo’s books:
June 15:
Aug 1:
Investment in Joint Venture
Cash
Initial contribution.
1,000,000
Investment in Joint Venture
Cash
Additional contribution.
1,100,000
1,000,000
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1,100,000
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Problem 6-6, continued:
Dec 31:
31:
31:
Chapter 6
Investment in Joint Venture
Interest income
Interest earned on cash advanced.
60,000
60,000
Investment in Joint Venture
Gain on Joint Venture
60% of gain on venture.
357,990
Cash
801,650
357,990
Investment in Joint Venture
Repayment in part of advances.
(c)
801,650
MacDo and MacEn Joint Venture
Income Statement
For the period from June 15 to December 31, 2011
Sales
Cost of land sold:
Land
Improvements
Total
Unsold land
Gross profit
Expenses:
Advertising and office expenses
Interest on mortgage
Interest on advances
Commissions
Net gain
P2,600,000
P2,400,000
950,000
P3,350,000
2,205,000
P 628,100
40,250
60,000
130,000
Distributions:
MacDo (P596,650 x 60%)
MacEn (P596,650 x 40%)
1,145,000
1,455,000
858,350
P 596,650
P 357,990
238,660
Mac Do and MacEn Joint Venture
Statement of Financial Position
December 31, 2011
Assets
Cash
Land
Total Assets
P 250,000
2,205,000
P2,455,000
Liabilities and equity:
Mortgage payable
MacDo
MacEn
Total liabilities and equity
P 500,000
1,716,340
238,660
P2,455,000
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129
Problem 6-6, continued:
Venturers equity (interest)
Invested
Shares:
Gain
Interest on advances
Commissions
Total
Balances
Withdrawn
Equity (interests)
MacDo
P2,100,000
MacEn
Total
P2,100,000
P 357,990
60,000
P238,660
P 596,650
60,000
130,000
786,650
2,886,650
(931,650)
P1,955,000
417,990
2,517,990
(801,650)
P1,716,340
130,000
368,660
368,660
(130,000)
P238,660
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Chapter 7
CHAPTER 7
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
7-1:
7-2:
c
Amount realized secured by inventory
Unsecured claim (P10,000 x 25%)
P 30,000
__2,500
Total amount received
P 32,500
d
Amount realized secured by inventory
Unsecured claim (P88,000 x 75%)
P120,000
__66,000
Total amount received
P186,000
7-3:
d (P15,000,000 + P200,000)
7-4:
a
Realizable value:
Current assets
Land and building
Less mortgage payable
P 50,000
P240,000
_200,000
__40,000
Total
Less accounts payable
90,000
_160,000
Estimated deficiency to unsecured creditors
P 70,000
7-5:
c
Total realizable value to unsecured creditors (P90,000)/total unsecured
Claims (P160,000) = 56.25%
7-6:
a
Free assets:
Current assets
Buildings and equipment
Total
P 33,000
_110,000
P143,000
Liabilities with priority:
Administrative expenses
Salary payable
Income taxes
Total
P 20,000
6,000
__8,000
P 34,000
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Corporation in Financial Difficulty – Liquidation
7-6, continued:
Free assets after payment of liabilities with priority:
(P143,000 – P34,000)
Unsecured liabilities
Notes payable
Accounts payable
Bonds payable
Total
131
P109,000
P 30,000
83,000
__70,000
P183,000
Percentage of Unsecured liabilities to be paid: P109,000 / P183,000 = 60%
Payment of notes payable:
Value of security (land)
60% of remaining P30,000
Total collected
7-7:
c
Free assets:
Other assets
Excess from assets pledged with secured
Creditors (P116,000 – P70,000)
Total
P 90,000
__18,000
P108,000
P 80,000
__46,000
P126,000
Liabilities with priority
Free assets after payment of liabilities with priority
(P126,000 – P42,000)
Unsecured liabilities:
Excess of partially secured liabilities over pledge
Assets (P130,000 – P50,000)
Unsecured creditors
Total
P 42,000
P 84,000
P 80,000
_200,000
P280,000
Recovery percentage: P84,000 / P280,000 = 30%
Payment of partially secured debt:
Value of pledged assets
30% of remaining P80,000
Total collected
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P 50,000
__24,000
P 74,000
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7-8:
Chapter 7
a
The holder of Debt Two will receive P100,000 from the sale of the pledged
asset. Since the holder wants to receive P142,000 out of the total debt of
P170,000, the company must be able to generate enough cash to pay off
60% of the unsecured liabilities (P42,000/P70,000) after paying 100% of
the liabilities with priority (P110,000).
Unsecured liabilities:
Unsecured creditors
Excess liability of Debt One in excess of pledged
Asset (P210,000 – P180,000)
Excess liability of Debt Two in excess of pledged
Asset (P170,000 – P100,000)
P230,000
30,000
__70,000
Total unsecured liabilities
Necessary percentage
P330,000
____60%
Cash needed for these liabilities
P198,000
In order for the holder of Debt Two to received exactly P142,000, the other free assets
must be sold for P308,000. With that much money, the liabilities with priority
(P110,000) can be paid with the remaining P198,000 going to the unsecured debts of
P330,000. This 60% figure would insure that the holder of Debt Two would get
P100,000 from the pledged asset and P42,000 (P70,000 x 60%) from the free assets.
7-9:
a
Estate equity, beg. (P100,000 – P85,000)
Loss on realization (P100,000 – P75,000)
Unrecorded liabilities:
Interest expense
Administrative expense
P 15,000
( 25,000)
P
250
4,000
Estate deficit
7-10:
(
4,250)
P( 14,250)
c
Total assets at net realizable value
Fully secured liabilities
Estimated administrative expense
P 75,000
(40,000)
_( 4,000)
Estimated amount available
Unsecured claims (P45,000 + P250)
P 31,000
(45,250)
Estimated deficiency to unsecured creditors
P 14,250
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lOMoARcPSD|6016800
Corporation in Financial Difficulty – Liquidation
7-11:
7-12:
7-13:
133
b
Assets pledged with fully secured creditors
Fully secured creditors
Free assets
Total free assets
Less: Liabilities with priority
Available to unsecured non-priority claims
P185,000
_130,000
b
Machinery
Recoveries of unsecured claims (50,000 - 10,000) X .50
Amount to be realized
55,000
_160,000
215,000
__35,000
P180,000
P 10,000
__20,000
P 30,000
b
Notes Payable
Less: Inventories
Unsecured Liabilities
% of recovery
Recovery
Add: Inventories
Amount to be received by Wood
_
P 23,940
19,200
4,740
____78%
3,697
_19,200
P 22,897
- P7,000
- P30,000
- P57,200 [52,000 + (8,000 X .65)]
- P72,800 (112,000 X .65)
7-14:
7-15:
7-16:
7-17:
a
a
b
d
7-18:
d
Estimated loss:
Account Receivable
Inventories (28,000 - 18,500)
Building (59,000 - 22,000)
Equipment (5,600 - 2,000)
Goodwill
Prepaid expenses
Less: Stockholder's equity
Common stock
Deficit
Estimated deficiency
3
P 8,160
9,500
7,000
3,600
5,650
___430
P 72,000
( 16,660)
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P 64,340
_55,340
P 9,000
lOMoARcPSD|6016800
134
7-19:
Chapter 7
d
Accounts Receivable (39,350 - 16, 110)
Notes Receivable (18,500 - 12,500)
Inventories (87,850 - 45,100)
Prepaid expenses
Equipment (48,800 - 9,000)
Total estimated loss
7-20:
b P33,750 (95,000 - 61,250) on Land and Building
7-21:
d
Total Free Assets:
Balance of Assets Pledged to
Fully Secured Creditor (95,000 - 90,000)
Free Assets:
Cash
Accounts Receivable
Inventories
Equipment
Total
Less: Unsecured liabilities with priority (1,850 + 4,650)
Net Free Assets
Divide by Unsecured creditors:
Balance of Partially Secured Creditor
Notes Payable - PNB
P 15,000
Notes Receivable
__12,500
Accounts Payable
52,500
Notes Payable
__51,250
Estimated recovery %
7-22:
d
Fully secured (Notes Payable)
Partially secured:
Notes Payable - PNB
Add (2,500 X 67%)
Unsecured Creditor with Priority
Unsecured Creditor without Priority (103,750 X 67%)
Total
P 23,240
600
42,750
950
__39,800
P112,740
P 5,000
P 2,700
16,110
45,100
__9,000
__72,910
77,910
___6,500
P 71,410
2,500
103,750 ÷ P106,250
67%
P 90,000
P12,500
__1,675
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14,175
6,500
__69,513
P180,188
lOMoARcPSD|6016800
Corporation in Financial Difficulty – Liquidation
7-23:
7-24:
7-25:
7-26:
7-27:
7-28:
a
Unsecured creditors without priority
Estimated deficiency to unsecured creditors:
Loss on realization
Estimated liquidation expenses
Total
Stockholders’ equity
Net free assets
Liabilities with priority
Free assets
a
Estimated net gain (loss) on realization:
Gain on realization
Loss on realization
Estimated claims
Total
Stockholders equity
Estimated deficiency
135
P1,102,500
551,250
55,125
606,375
441,000
78,750
(336,700)
a
Notes payable (175,000 – 140,000)
Unsecured liabilities (420,000 – 52,500)
Total
Net free assets (157,500 + 210,000) – P52,500
Estimated deficiency
165,375
937,125
122,500
P 1,059,625
(257,950)
( 43,750)
(301,700)
295,750
P( 5,950)
P 35,000
367,500
402,500
315,000
87,500
a
Old receivable (net)
Marketable securities
Old inventory
Depreciable assets- net
Total assets to be realized
P 38,000
12,000
60,000
96,000
P206,000
a
Old receivable
New receivable
Marketable securities
Sales of inventory
Total asset realized
P 21,000
47,000
10,500
75,000
P153,500
a
Gain on sale of inventory (P75,000 – 60,000)
Loss on realization:
Marketable securities (12,000 – 10,500)
Trustee’s expenses
Depreciation
Net loss
15,000
1,500
4,300
16,000
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(21,800)
P( 6,800)
lOMoARcPSD|6016800
136
7-29:
Chapter 7
Correction of the problem: The book value of the Mortgage Payable should be P440,000.
1.
c
Net free assets:
Cash
Inventory
Property and equipment (P560,000 – P440,000)
Total free assets
Less liabilities with priority
Amount available for unsecured claims without priority
2.
P 40,000
140,000
120,000
P300,000
160,000
P140,000
a
Net free assets / Unsecured creditors without priority
P140,000 / (P50,000 + P300,000) = 40%
3.
a
Unsecured liabilities with priority
Fully secured liabilities (Mortgage payable)
Partially secured liabilities (Note payable):
Secured by accounts receivable
Unsecured (P50,000 x 40%)
Unsecured liabilities without priority
Total estimated payment to creditors
7-30:
1.
P160,000
440,000
P150,000
20,000
170,000
120,000
P890,000
a
Debits:
Assets to be realized
Assets acquired
Liabilities liquidated
Liabilities not liquidated
Supplementary charges
Total
P 330,000
360,000
360,000
450,000
468,000
P1,968,000
Credits:
Assets realized
Assets not realized
Liabilities to be liquidated
Liabilities assumed
Supplementary credits
Net loss
P 420,000
150,000
540,000
180,000
P1,800,000
P 168,000
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Corporation in Financial Difficulty – Liquidation
137
7-3-, continued:
2.
a
Capital stock
Retained earnings
Liabilities not liquidated
Total assets
Less assets not realized
Cash balance
7-31:
P300,000
120,000
450,000
P870,000
150,000
P720,000
1.
a
2.
a
3.
a
4.
d
Supporting computations:
Fully
Secured
P130,000
Liabilities
Accounts payable
Note payable – A
Note payable – B
Mortgage payable
Accrued interest
Other liabilities
Total
Assets to be applied:
Inventory
Inventory
Receivables
Equipment
Equipment
Land
Cash
Other assets
Total
Recovery
Partially
Secured
Unsecured
W/Priority
Unsecured
W/O Prio.
P150,000
40,000
200,000
P10,000
P10,000
14,000
P404,000
P560,000
300,000
180,000
12,000
P322,000
Realizable
Value
P 150,000
200,000
360,000
300,000
60,000
260,000
60,000
45,000
P1,435,000
P860,000
P130,000
P 20,000
P200,000
360,000
300,000
P322,000
P860,000
P10,000
60,000
68,000
50,000
45,000
P243,000
100%
100%
100%
60.15%
192,000
P10,000
5.
d
Total consideration to be received by Note B:
Partially secured portion
Unsecured portion (P200,000 x 60.15%)
Total consideration received
P300,000
120,300
P420,300
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Total
P 280,000
600,000
500,000
180,000
12,000
24,000
P1,596,000
P 150,000
200,000
360,000
300,000
60,000
260,000
60,000
45,000
P1,435,000
lOMoARcPSD|6016800
138
Chapter 7
SOLUTIONS TO PROBLEMS
Problem 7 – 1
(A)
Laguna Company
Statement of Affairs
October 31, 2011
Book
Value
Estimated
Assets
Realizable Value
Assets pledge for fully secured creditors:
P107,000 ... Plant assets .................................................. P67,400
Less; Fully secured liabilities...................... _ 50,400
Assets pledged for partially secured creditors:
39,000 . ... Inventories................................................... P18,000
4,000 .. ...
46,000 .. ...
2,000 .. ...
Free Assets:
Cash............................................................. P 4,000
Accounts, receivable ...................................
46,000
Supplies ....................................................... __1,500
Total free assets ...............................................
Less: Unsecured liabilities with priority..........
Net Free Assets................................................
Estimated deficiency to unsecured creditors (to balance)
P198,000
Book
Value
Creditors'
Liabilities & Stockholders' Equity
Claim
Fully secured liabilities:
P50,400 ... ... Mortgage payable (including interest, P400) P50,400
Partially secured liabilities:
21,000 ... ... Notes payable ..............................................
P21,000
Less: Inventory............................................
_18,000
Unsecured creditors with priority:
5,800 ... ... Wages payable
P 5,800
1,200 ... ... Property taxes payable ................................
_1,200
Total ............................................................
P 7,000
Unsecured creditors without priority:
60,000 ... ... Accounts payable ........................................
19,000 ... ... Notes payable ..............................................
Stockholders' Equity........................................
P198,000
(B)
Creditor Group
Amount of
Claim
Unsecured liabilities with priority ....................................
P7,000
Fully secured creditors ......................................................
50,400
Partially secured creditors.................................................
21,000
Unsecured creditors without priority ................................
79,000
* P18,000 + (P3,000 X 0.75) = P20,250
(C) See statement of affairs in requirement (A)
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Free Assets
P17,000
_51,500
P68,500
__7,000
P61,500
_20,500
P82,000
Unsecured
Liabilities
P 3,000
60,000
19,000
_____–
P82,000
Amount to
be Paid
P7,000
50,400
20,250 *
59,250
Percentage
to be paid
100.0%
100.0%
96.4%
75.0%
lOMoARcPSD|6016800
Corporation in Financial Difficulty – Liquidation
139
Problem 7 – 2
VC Corporation
Statement of Realization and Liquidation
Month Ended January 31, 2011
Assets to be realized:
Land ....................... P10,000
Building ................. 43,000
Equipment .............. 28,000
Patents .................... __4,400
Assets Acquired ..............
P85,400
0
Liabilities liquidated:
Account payable .... P14,000
Loans payable ........ __7,000
21,000
Liabilities not liquidated:
Account payable ....
Loans payable ........
99,000
66,000
33,000
Gain on realization ......... ............... ___7,600
Total ............................... ............... P213,000
Assets realized:
land.............................. P
0
Building ......................
0
Equipment ...................
8,800
Patents ......................... _12,000
Assets not realized:
Land ............................ P10,000
Building ...................... 43,000
Equipment ................... _13,000
P20,800
66,000
Liabilities to be liquidated:
Accounts payable ........ P80,000
Loans payable ............. _40,000
120,000
Loss on realization ...... ..............
Total ............................ ..............
___6,200
P213,000
Accounts payable .........................
Loans payable ..............................
Estate deficit .................................
P 66,000
33,000
( 26,300)
VC Corporation
Statement of Financial Position
January 31, 2011
Cash ............................................... P 6,700
Land ...............................................
10,000
Building ..........................................
43,000
Equipment ...................................... _13,000
Total ............................................... P 72,700
P 72,700
VC Corporation
Estate Deficit
January 31, 2011
Gain on realization ....................................................................
Loss in realization ....................................................................
Trustee's expenses ....................................................................
Net gain on realization...............................................................
Estate deficit, January 1, 2011 ...................................................
Estate deficit, January 31, 2011 .................................................
P 7,600
( 6,200)
( 1,300)
P 100
( 26,400)
P(26,300)
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lOMoARcPSD|6016800
140
Chapter 7
Problem 7 – 3
Rizal Corporation
Statement of Affairs
Book
Values
Assets
Assets pledged to fully secured creditors:
P 80,000 ...... .... Land and building ..............................................
Less: Mortgage payable .....................................
50,000 ...... .... Finished Goods ..................................................
Less: Loan payable .............................................
32,000 ...... ....
12,000 ...... ....
Estimated
Realizable Value
P102,000
43,000
P 55,000
50,000
Assets pledged to partially secured creditors:
Accounts receivable (80% x 30,000) .................
Trucks ................................................................
Totals..................................................................
Free Assets:
Cash....................................................................
AR (20% x 30,000) ............................................
Inventory – Materials .........................................
Prepaid expense..................................................
Trucks ................................................................
Equipment ..........................................................
Intangible ...........................................................
Total Free Assets ....................................................
Less: Unsecured liability with priority (12,000 + 8,000)
Net free assets .........................................................
________
Estimated deficiency to unsecured creditors (to Balance)
P 292,000 ...... .... Total unsecured liabilities .......................................
4,000 ...... ....
8,000 ...... ....
36,000 ...... ....
1,000 ...... ....
8,000 ...... ....
45,000 ...... ....
16,000 ...... ....
Book
Values
Liabilities and Equity
Fully secured creditors:
P 43,000 ...... .... Mortgage payable ...............................................
50,000 ...... .... Loans payable ....................................................
Total ...................................................................
P 59,000
5,000
24,000
3,500
27,500
4,000
6,000
27,000
0
2,500
25,000
_______
Creditors'
Claim
25,000
24,000
5,000
3,500
Unsecured creditors with Priority:
Wages payable ...................................................
Taxes payable .....................................................
Totals..................................................................
12,000
8,000
20,000
Unsecured creditors:
77,000 ...... .... Accounts payable ...............................................
110,000 ...... .... Stockholder Loan ...............................................
( 38,000) ...... .... Stockholder Equity .................................................
P 292,000
Total ........................................................................
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64,500
P128,500
20,000
108,500
81,000
P189,500
Unsecured
Liabilities
94,000
50,000
144,000
Partially secured creditors':
Bank Loan ..........................................................
Less: Receivable (80% x 30,000) .......................
5,000 ...... .... Truck Loan .........................................................
Less: trucks ........................................................
25,000 ...... ....
12,000 ...... ....
8,000 ...... ....
Free
Assets
77,000
110,000
P 1,000
1,500
187,000
–
P189,500
lOMoARcPSD|6016800
Corporation in Financial Difficulty – Liquidation
141
Problem 7 – 4
Mapayapa Corporation
Statement of Affairs
November 1
Book
Value
Estimated
Assets
Realizable Value
Assets pledged to fully secured creditors:
P60,000.... ... Investments ................................................. P 69,000
180,000.... ... Accounts receivable ....................................
171,000
Total ............................................................
240,000
Less: Note payable ......................................
210,000
66,000.... ...
258,000.... ...
291,000.... ...
870,000.... ...
114,000.... ...
–.... ...
_________
P1,839,000
Free
Assets
P 30,000
Free assets:
Cash............................................................. P 66,000
Accounts receivable .................................... 193,500
Merchandise inventory................................ 180,000
Plant & equipment ...................................... 330,000
Notes receivable .......................................... 108,300
Patent........................................................... __12,000
Total free assets...........................................
Less: Unsecured liabilities with priority..........
Net free asset ...............................................
Estimated deficiency (to balance) ...................
Total ................................................................
_889,800
919,800
__13,800
906,000
60,300
P966,300
Creditor's
Claim
Unsecured
Liabilities
Book
Value
Liabilities & Equity
Fully secured creditors:
P 210,000.... ... Notes payable ..............................................
Unsecured creditor with priority:
Accrued wages ............................................
Accrued property tax...................................
Total ............................................................
P210,000
P 7,200
___6,600
P 13,800
Unsecured creditor:
Account payable..........................................
Accrued expenses........................................
300,000.... ... Capital stock
__369,000.... ... Retained earnings ............................................
P1,839,000
Total ................................................................
960,000.... ...
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P960,000
6,300
_______
P966,300
lOMoARcPSD|6016800
142
Chapter 7
Problem 7 – 5
a.
b.
Total fair value of assets (estimated proceeds) ..........................
Less: Fully and partially secured creditors claim:
Notes payable, interest (secured by receivable and
inventory) ................................................................... 125,000
Bonds payable (secured by land & building) .................... 231,000
Available to unsecured creditors................................................
Less: Unsecured creditors with priority:
Wages payable .................................................................. P 9,500
Taxes payable.................................................................... __14,000
Amount available to unsecured creditors...................................
P471,000
__23,500
P 91,500
Unsecured portion of notes payable and interests (P195-P125)
Accounts payable .......................................................................
Total claims of unsecured creditors ...........................................
P 70,000
__95,000
P165,000
356,000
115,000
P91,500
––––––– = 55.45%
P165,000
c.
Distribution of P471,000:
Creditors
Accounts payable
Wages payable
Taxes payable
Notes payable & interests
Amount
P 95,000 ....
9,500 ....
14,000.....
125,000 ....
70,000
Bonds payable & interests
231,000 ....
Total estimated payment ........................................
Percent
Realized
55.45%
100%
100%
100%
55.45%
100%
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Total
Payment
P 52,678
9,500
14,000
125,000
38,815
_231,000
P470,993
lOMoARcPSD|6016800
Corporation in Financial Difficulty – Liquidation
143
Problem 7 – 6
1.
Evergreen Company
Statement of Affairs
June 30, 2011
Book
Values
P460,000
80,000
140,000
100,000
120,000
100,000
Estimated
Realizable
Values
ASSETS
Pledged with fully secured creditors:
Land and building .....................................
P340,000
Less: Mortgage payable (including accrued interest)
(330,000)
Free Assets:
Cash .........................................................
P 80,000
Accounts receivable – net .........................
126,000
Inventories ................................................
84,000
Machinery – net ........................................
40,000
Goodwill ...................................................
_ _____0_
Available for
Unsecured
Creditors
P 10,000
330,000
Total free assets ........................................ ...................
Less: liabilities with priority ..................... ...................
340,000
_140,000
Net free assets .......................................... ...................
Estimated deficiency (Squeeze figure) ..... ...................
200,000
_130,000
P1,000,000
P330,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured &
Priority
Claims
P120,000
20,000
Liabilities with priority
Wages payable ..........................................
Property taxes payable ..............................
300,000
30,000
Total .........................................................
Fully secured creditors
Mortgage payable .....................................
Interest on mortgage payable ....................
220,000
100,000
10,000
Total .........................................................
P330,000
Unsecured creditors
Accounts payable ...................................... ...................
Note payable-unsecured............................ ...................
Interest payable-unsecured ....................... ...................
Unsecured
Non-priority
Liabilities
P120,000
__20,000
P140,000
300,000
__30,000
Stockholders' Equity
400,000 Capital stock .............................................
(200,000) Retained earnings (deficit) ........................ ...................
P220,000
100,000
10,000
___
P330,000
P1,000,000
2.
Settlement per peso of unsecured creditors is P.6250 (P200,000/P320,000). No payment is
made for the P10,000 unsecured interest claim.
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lOMoARcPSD|6016800
144 ____
Chapter 7
Problem 7 – 7
1.
Entries on trustee's books.
2011
March 1:
Cash ............................................... ....... P8,000
Accounts receivable – net .............. ........ 16,000
Inventories ..................................... ........ 72,000
Land ............................................... ........ 40,000
Buildings – net ............................... ...... 200,000
Intangible assets ............................ ........ 52,000
Accounts payable..................... ...................
Note payable............................ ...................
Deferred revenue ..................... ...................
Wages payable......................... ...................
Mortgage payable ................... ...................
Estate equity ............................ ...................
To record custody of Kimerald Corporation.
March 1 to 31: Cash ............................................... ........ 15,200
Estate equity................................... ............. 800
Accounts receivable-net .......... ...................
To record collection of receivables and recognize loss.
Cash ............................................... ........ 38,800
Estate equity................................... ........ 33,200
Inventories ............................... ...................
To record sale of inventories at a loss.
Cash ............................................... ...... 180,000
Estate equity................................... ........ 60,000
Land......................................... ...................
Buildings-net ........................... ...................
To record sale of land and buildings at a loss.
Estate equity................................... ........ 52,000
Intangible assets ...................... ...................
To write off intangible assets.
Estate equity ........................................ ......... 16,400
Administrative expenses payable .. ....................
To accrue trustee expenses.
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P100,000
80,000
2,000
6,000
160,000
40,000
16,000
72,000
40,000
200,000
52,000
16,400
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Corporation in Financial Difficulty – Liquidation
145
Problem 7-7, continued:
2.
Financial Statements
Kimerald Corporation in Trusteeship
Statement of Financial Position
March 31, 2011
Assets
Cash ..................... ................................................. ...................
P242,000
Liabilities and Deficit
Accounts payable . ................................................. ...................
Note payable-unsecured......................................... ...................
Revenue received in advance................................. ...................
Wages payable ..... ................................................. ...................
Mortgage payable ................................................. ...................
Administrative expense payable-new .................... ...................
P100,000
80,000
2,000
6,000
160,000
__16,400
Total liabilities ..... ................................................. ...................
Less: Estate deficit ................................................. ...................
P364,400
_122,400
Total liabilities net of deficit.................................. ...................
P242,000
Kimerald Corporation in Trusteeship
Statement of Cash Receipts and Disbursements
March 1 to 31, 2011
Cash balance, March 1, 2011 ................................. ...................
Add: Cash receipts
Collections of receivables ............................. ..... P 15,200
Sale of inventories......................................... ........ 38,800
Sale of land and buildings ............................. ...... 180,000
P 8,000
Total ..................... ................................................. ...................
Less: Cash disbursements ...................................... ...................
242,000
____–0–
Cash balance, March 31, 2011 ............................... ...................
P242,000
_234,000
Kimerald Corporation in Trusteeship
Statement of Changes in Estate Equity
March 1 to 31, 2011
Estate equity, March 1 ........................................... ...................
Less: Loss on uncollectible receivables.................. ....... P 800
Loss on sale of inventories ............................ ........ 33,200
Loss on sale of land and buildings ................ ........ 60,000
Loss on write off of intangibles .................... ........ 52,000
Administrative expenses ............................... ...... _16,400
P 40,000
Estate deficit, March 31 ......................................... ...................
P122,400
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_162,400
lOMoARcPSD|6016800
146
Chapter 7
Problem 7-7, continued:
3.
Entries on trustee's books:
2011
April: Mortgage payable ..................................... ...... 160,000
Cash.................................................. ...................
To record payment of secured creditors from
proceeds from sale of Land and buildings.
Administrative expenses payable-new...... ........ 16,400
Deferred revenue ...................................... .......... 2,000
Wages payable .......................................... .......... 6,000
Cash.................................................. ...................
To record payment of priority liabilities.
Accounts payable ...................................... ........ 32,000
Note payable-unsecured............................ ........ 25,600
Cash.................................................. ...................
To record payment of P.32 per peso to unsecured
creditors (available Cash of P57,600 divided by
unsecured claims of P180,000).
Accounts payable ...................................... ........ 68,000
Note payable-unsecured............................ ........ 54,400
Estate equity ..................................... ...................
To write-off remaining liabilities and
close trustee's records.
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160,000
24,400
57,600
122,400
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147
CHAPTER 8
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
8-1:
a
Trade accounts payable (P52,000 + P62,700)
12% preferred stock (5,000 x P1)
Paid in capital in excess of par (5,000 x P9)
Cash (P62,700 x P0.80)
P114,700
P 5,000
45,000
_50,160
Gain from discharge of indebtedness
8-2:
c
8-3:
c
8-4:
b
Carrying value of the note payable:
Principal
Interest
Restructured value:
Principal
Interest
8-5:
P 14,540
P600,000
__60,000
P660,000
P400,000
_110,000
_510,000
Gain on debt restructuring
P150,000
d
Other income:
Fair value of land
Books value of land
P450,000
_360,000
Other income
Extraordinary gain:
Book value of note payable
Principal
Interest
Fair value of land
Extraordinary gain
8-6:
_100,160
P 90,000
P500,000
__60,000
P560,000
_450,000
P110,000
a
Book value of bonds payable
Par value of preferred stock (5,000 shares x P100)
P500,000
_500,000
No gain no loss
P
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–0–
lOMoARcPSD|6016800
148
8-7:
Chapter 8
a
Book value of notes payable:
Principal
Interest
Par value of common stock issued (200 shares x P5)
Additional paid in capital
Add gain on payment of accounts payable:
Book value
Payment
P 2,500
___500
P 2,000
P 10,000
__8,000
Total gain on debt discharge
8-8:
a
Carrying value of debt:
Note payable
Interest payable
Fair value machinery
Balance of debt
Restructured debt:
Note payable
Interest (P50,000 x .08 x 2)
8-9:
8-10:
P 3,000
__1,000
__2,000
P 4,000
P100,000
__12,000
P112,000
_(36,000)
P 76,000
P 50,000
___8,000
__58,000
Restructuring difference (gain)
P 18,000
c
Principal
Interest payable (300,000 x 10%)
P300,000
__30,000
Carrying value
P330,000
c
Correction: Should be P310,600
Restructured principal of note payable
Interest payable:
On book value (P300,000 x 10% 30%)
On restructured (P260,000 x 8% x 2)
P260,000
P 9,000
_41,600
Future cash flows to liquidate the debt
__50,600
P310,600
8-11:
d
8-12:
d
Loss on transfer of land:
Original cost
Market value
P290,000
_270,000
P 20,000
Gain on restructuring of debt:
Carrying value of debt
Market value of land
P300,000
_270,000
P 30,000
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lOMoARcPSD|6016800
Reorganization and Troubled Debt Restructuring
8-13:
8-14:
8-15:
8-16:
8-17:
8-18:
149
a
Transfer gain (loss):
Carrying amount of equipment
Fair value of equipment
Transfer loss
P80,000
75,000
P(5,000)
Restructuring gain:
Carrying amount of the debt
Fair value of equipment transferred
Restructuring gain
P100,000
75,000
P 25,000
d
Carrying amount of real estate transferred
Fair value of real estate
Loss on restructuring of payables
P100,000
90, 000
P(10,000)
d
Carrying amount of liability
Fair value of real estate transferred
Restructuring gain
P150,000
90,000
P 60,000
c
Gain on revaluation of land (120,000 – 85,000)
Gain on the extinguishment of debt (185,000 – 120,000)
Total gain
P 35,000
65,000
P100,000
a
Carrying value of debt (P800,000 + 80,000)
Total future payments (P700,000 + 80,000)
Restructuring gain
P880,000
780,000
P100,000
a
First determine the expected future cash flows as follows:
70,000 x .79719
=
P55,803
5,600 x 1.69005
=
9,464
Present value of future cash flow
P65,267
The interest revenue can be computed using the effective interest method
as follows:
Present value at 12/31/06
P65,267
Interest income at 12/31/07 (65,267 x 12%)
7,832
Interest receivable at 12/31/07 (70,000 x 8%)
5,600
2,232
Present value at 12/31/07
P67,499
Interest income at 12/31/08 (67,499 x 12%)
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P 8,100
lOMoARcPSD|6016800
150
Chapter 8
8-19:
1.
2.
b
a
Supporting computations:
Gain on restructuring
Interest expenses
Increase (decrease)
Effect on Net Income
Alternative 1
Alternative 2
P30,000 (a)
P 0 (b)
(55,000) (c)
P30,000 (d)
P(55,000)
(a) P620,000 – (P350,000 + P120,000 + P120,000)
(b) There is no gain because the sum of the payments (5 x P135,000) exceeds the book value
of the debt (P620,000).
(c) (5 x P135,000) – P620,000.
(d) If the gain of the disposition of the land were included, this alternative would have
an even larger effect on in come. However, the land gain could also be realized
under Alternative 2 if management elected to dispose this property.
8-20:
b
Exchange of preferred stock for debt (P5,100,000 of preferred stock, at
Market value in exchange for P5,500 of debt)
Exchange of land for debt (3,000,000 of land at book value in
Exchange for P4,500,000 of debt
Restructuring of remaining debt of P10,875,000 with semiannual
Payments of P818,016. The sum of the payments is P16,360,320
(20 x P818,016). Since the sum of the payments exceeds the
unpaid balance, no gain is recognized on the restructuring
Total effect on net income (increase)
Retained earnings before restructuring
Adjusted retained earnings
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P 400,000
1,500,000
0
P1,900,000
(3,400,000)
P1,500,000
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Reorganization and Troubled Debt Restructuring
151
SOLUTIONS TO PROBLEMS
Problem 8 – 1
Journal entries for company emerging from bankruptcy using fresh start
accounting:
–
Receivables
10,000
Inventory
10,000
Building
100,000
Reorganization value in excess of amount
Allocable to tangible assets
60,000
Additional paid in capital
180,000
To adjust accounts to market value as part of fresh start accounting. Since the company has
a reorganization value of P760,000 but the assets have a market value of only P700,000
(P90,000 + P210,000 + P400,000), and account entitled Reorganization Value in Excess of
Amount Allocable to Tangible Assets must be recorded for P60,000.
Liabilities
Common stock (P330,000 x 80%)
Gain on debt discharge
To record settlement of liabilities
300,000
264,000
36,000
Problem 8 – 2
2011
July 24: Costs of reorganization
Cash with escrow agent
50,000
50,000
Common stock
Common stock (60,000 x P1)
Additional paid in capital
580,000
Note payable – 10%
Interest payable (P120,000 x 10% x 3/12)
Note payable – 12%
120,000
3,000
Trade accounts payable
Cash P100,000 x 0.80)
Gain on debt discharge
100,000
Additional paid in capital
Gain on debt discharge
Retained earnings
Costs of reorganization
290,000
20,000
60,000
520,000
123,000
80,000
20,000
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260,000
50,000
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152
Chapter 8
Problem 8 – 3
Jade Corporation
Statement of Financial Position
December 31, 2011
ASSETS
Current assets:
Cash
Inventory
Property and equipment:
Land
Buildings
Equipment
P 23,000
45,000
P 68,000
140,000
220,000
154,000
514,000
Total asset
P582,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities not subject to compromise
Current liabilities:
Accounts payable
Long-term liabilities:
Note payable (2006)
P100,000
Note payable (2003)
_100,000
Liabilities subject of compromise
Accounts payable
Accrued expenses
Income taxes payable
Note payable (due 2011)
P 60,000
200,000
P260,000
123,000
30,000
22,000
170,000
345,000
Total liabilities
605,000
Stockholders' Equity
Common stock
Retained earnings (deficit )
200,000
(223,000)
Total liabilities and stockholders' equity (deficit)
(23,000)
P582,000
Problem 8 – 4
Preliminary computations:
Book values prior to reorganization:
Total assets (P100,000 + P112,000 + P420,000 + P78,000) ..............
Total liabilities (P80,000 + p35,000 + P100,000 + P200,000 +
P185,000 + P200,000) ..................................................................
Common stock (given) .......................................................................
Deficit (given)
..............................................................................
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P710,000
P800,000
P240,000
P330,000
lOMoARcPSD|6016800
Reorganization and Troubled Debt Restructuring
Problem 8-4, continued:
Book values after reorganization:
Total assets (reorganization value) ...............................................................
Total liabilities (P5,000 + P4,000 + P100,000 + P50,000 +
P71,000 + P110,000) .............................................................................
Common stock (returned shares are reissued)...............................................
Deficit (eliminated) .....................................................................................
Additional paid in capital (squeeze)..............................................................
153
P780,000
P340,000
P240,000
–0–
P200,000
Since the company will have 30,000 shares outstanding after the reorganization, the additional paid in
capital equals P6.66 per share.
Because the company has a reorganization value of P780,000 but the assets have a market value of only
P735,000, an account entitled Reorganization Value in Excess of Amount allocable to Tangible Assets
must be recognized for P45,000.
JOURNAL ENTRIES:
1.
Land and buildings ..................................................................................... 80,000
Reorganization Value in excess of amount
allocable to tangible assets .................................................................... 45,000
Accounts receivable ........................................................................
Inventory .....................................................................................
Equipment .....................................................................................
Additional paid in capital ...............................................................
To adjust accounts to market value as part of fresh start accounting.
20,000
22,000
13,000
70,000
2.
Common stock .. ...... ..................................................................................... 144,000
Additional paid in capital ......................................................................
144,000
To record shares turned in to the company by the owners as part of the reorganization plan. 18,000
shares at P8 par value.
3.
Accounts payable .... ..................................................................................... 80,000
Note payable .... .....................................................................................
Common stock, P8 par value .................................................................
Additional paid in capital (P6.66 per share) .........................................
Gain on debt discharge ..........................................................................
To record settlement of accounts payable.
5,000
8,000
6,666
60,334
Accrued expenses .... ..................................................................................... 35,000
Note payable .... .....................................................................................
Gain on debt discharge ..........................................................................
To record settlement of accrued expenses.
4,000
31,000
Note payable .... ......
200,000
Note payable .... .....................................................................................
Common stock, P8 par value .................................................................
Additional paid in capital (P6.66 per share) .........................................
Gain on debt discharge ..........................................................................
To record settlement of note payable due in 2007
50,000
80,000
66,667
3,333
Note payable .... ......
185,000
Note payable .... .....................................................................................
Common stock, P8 par value .................................................................
Additional paid in capital, P6.66 per share ...........................................
Gain on debt discharge ..........................................................................
To record settlement of note payable due in 2008
71,000
56,000
46,667
11,333
4.
5.
6.
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154
Chapter 8
Problem 8 – 5
7.
8.
Note payable .. ..... ..............................................................................200,000
Note payable.. ..............................................................................
Gain on debt discharge ................................................................
To record settlement of note payable due in 2009
110,000
90,000
Additional paid in capital (P334,000 – P200,000) .............................134,000
Gain on debt discharge .......................................................................196,000
Retained earnings (deficit) ...........................................................
330,000
To adjust additional paid in capital to appropriate balance, close out gain, and eliminate
deficit balance as part of fresh start accounting.
Since the Company has a reorganization value of P800,000 but only P653,000 can be assigned to
specific assets based on market value, the remaining P147,000 is reported as a Reorganization
Value in Excess of Amount Allocable to Identifiable Assets.
Sun Corporation
Statement of Financial Position – Fresh Start Accounting
December 31, 2011
ASSETS
Current assets
Accounts receivable
Inventory
Property and equipment
Land and building
Machinery
Intangible assets
Patents
Reorganization value in excess of amount allocable to identifiable assets
P 18,000
111,000
P129,000
278,000
121,000
399,000
125,000
147,000
272,000
Total assets
P800,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
Long-term liabilities
Note payable (due in 2 years)
Note payable (due in 5 years)
Note payable (due in 8 years)
Total liabilities
P 97,000
P 35,000
50,000
100,000
185,000
P282,000
Stockholders' Equity:
Common stock
Additional paid in capital (squeeze)
Total liabilities and stockholders' equity
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P500,000
18,000 518,000
P800,000
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Installment Sales
155
CHAPTER 9
9-1:
9-2:
9-3:
9-4:
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
d
Deferred gross profit, Dec. 31 (before adjustment)
Less: Deferred gross profit, Dec. 31 (after adjustment)
Installment accounts receivable, Dec. 31
P1,500,000
Gross profit rate
____÷ 25%
Realized gross profit, 2008
OR
Installment Sales (P1,050,000 ÷ 25%)
Less: Installment account receivable, Dec. 31
Collection
Gross profit rate
Realized gross profit, 2008
P1,050,000
__375,000
P 675,000
P4,200,000
__1,500,00
P2,700,000
___X 25%
P 675,000
a
Deferred gross profit, before adjustment
Deferred gross profit, end
2009 (6,000 X 35%)
2010 (61,500 X 33%)
2011 (195,000 X 30%)
Realized gross profit, December 31, 2011
(Total – P107,235)
c
2009
P7,230
2010
P 60,750
2011
P 120,150
2,100
20,295
P5,130
P 40,455
___58,500
P 61,650
Deferred gross profit balance, end
P 202,000
Divide by Gross profit rate based on sales (25% ÷ 125%)
Installment Accounts Receivable, end
Collection
Installment Sales
____÷ 20%
P1,010,000
___440,000
P1,450,000
b
Sales
Cost of installment sales
Deferred gross profit
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000)
Gross profit rate (300,000 ÷ 1,000,000)
Realized gross profit
Operating expenses
Operating income
Interest and financing charges
Net income
P1,000,000
__700,000
P 300,000
P 600,000
___X 30%
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__180,000
P 120,000
___80,000
40,000
__100,000
P 140,000
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156
9-5:
9-6:
Chapter 9
a
Market value of repossessed merchandise
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000)
Less: Deferred gross profit (50,000X20%)
Loss on repossession
P 30,000
P 50,000
___10,000
a
Installment sales
Less: collection on installment sales
Installment account receivables, 12/31/08
Gross profit rate (500,000 ÷ 1,000,000)
Deferred gross profit, 12/31/011
__40,000
(P 10,000)
P1,000,000
__200,000
800,000
___X 50%
P 400,000
OR
Deferred gross profit (1,000,000-500,000)
Less: Realized Gross Profit (200,000 X 50%)
Deferred gross profit, 12/31/011
9-7:
9-8:
d
Fair value of repossessed merchandise
Less: unrecovered cost
Unpaid balance
Less: Deferred gross profit (200,000 X 32.5%)
Loss on repossession
P500,000
_100,000
P400,000
P120,000
P 200,000
___65,000
b
Realized gross profit:
Collections:
Downpayment
Installment received (205,000-200,000)
Total
Gross Profit Rate (150,000 ÷ 240,000)
Realized gross profit
Gain (loss) on repossession:
Appraised value of repossessed merchandise
Less: unrecovered cost
unpaid balance
less: deferred gross profit (200,000 X 62.5%)
Gain on repossession
_135,000
(P 15,000)
P 35,000
___5,000
40,000
_X 62.5%
P 25,000
P165,000
P 200,000
__125,000
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__75,000
P 90,000
lOMoARcPSD|6016800
Installment Sales
9-9:
157
b
Sch.1
Date
Apr-1
Apr-1
May-1
Jun-1
Jul-1
Aug-1
Collection
750
625
625
625
625
Applying
to
Interest
Applying
to
principal
125.00
115.00
104.80
__94.40
P439.20
750.00
500.00
510.00
520.20
___530.60
P2,810.80
Gain (loss) on repossession:
Market value of repossessed merchandise
Less: unrecovered cost
unpaid balance of principal (sch. 1)
less: deferred gross profit (4,189 X 35%)
Loss on repossession (rounded)
Balance
of
principal
P7,000.00
6,250.00
5,750.00
5,240.00
4,719.80
4,189.00
P 1,875
P 4,189
__1,466
Realized gross profit:
Collection applying to principal (sch. 1)
Gross profit rate
Realized gross profit
9-10:
___2,723
(P 848)
P2,810.80
__X 35%
P 983.78
c
Year of Sales
2010
2011
Deferred gross profit (Sales X Gross Profit Rate)
2010 (P300,000 X 30%)
2011 (P450,000 X 40%)
2010: Accounts written-off (P25,000 X 30%)
Realized gross profit (P100,000 X 30%)
2011: Accounts written-off, 2010 (P75,000 X 30%)
Accounts written-off, 2011 (P50,000 X 40%)
Realized gross profit, 2010 (P50,000 X 30%)
Realized gross profit, 2011 (P150,000 X 40%)
Deferred gross profit, 12/31/011 (P75,000)
9-11:
P 90,000
P 180,000
( 7,500)
( 30,000)
( 22,500)
( 60,000)
( 15,000)
________
P 15,000
a
Deferred gross profit, 2010 (P1,050,000 - 735,000)
Realized gross profit, 2010 (P150,000 X 30%)
Deferred gross profit, 12/31/010
Realized gross profit, 2011 (P390,000-90,000) X 30%
Deferred gross profit, 12/31/011
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( 60,000)
P 60,000
P 315,000
( 45,000)
270,000
( 90,000)
P 180,000
lOMoARcPSD|6016800
158
9-12:
Chapter 9
b
Deferred gross profit (Sales - Cost of Installment Sales)
Realized gross profit, 2010 (P630,000 X 40%)
Realized gross profit, 2010 (P450,000 X 40%)
Repossession (P2,400 x .40)
Realized gross profit, 2011 (P900,000 X 30%)
Deferred gross profit, 12/31/011 (P218,400)
2010
P 480,000
( 252,000)
( 180,000)
(9,600)
_______
P 38,400
2011
P450,000
( 270,000)
P180,000
9-13: 1c
Trade-in value
Less: Actual value
Estimated selling price
Less: reconditioning cost
normal gross profit (25,000 X 15%)
Overallowance
Realized gross profit:
Collection:
Downpayment
Actual value of merchandise-Trade In
Installment collected (5,000 X 3)
P 30,000
P 25,000
P 1,250
__3,750
___5,000
P 5,000
20,000
_15,000
Gross Profit Rate:
Sales
Overallowance
Net Sales
Cost of Installment Sales
Gross Profit
Gross Profit Rate (15,000 ÷ 75,000)
Realized Gross Profit
__20,000
P 10,000
P 40,000
P 85,000
( 10,000)
P 75,000
_60,000
P 15,000
_X 20%
P 8,000
9-14: c
Collection excluding interest (P900,000-P300,000)
Gross profit rate (P1,200,000 ÷ P3,600,000)
Realized Gross Profit, December 31, 2011
Add Interests
Total Revenue
P 600,000
X 33 1/3%
200,000
__300,000
P 500,000
9-15: a
Wholesale value of repossessed merchandise
Less: unrecovered cost
Unpaid balance:
Sales, 10/1/010
P 24,000
Collection, 2010 (6,000 ÷ 2,000)
( 8,000)
Collection, 2011 (1,000 X 7)
( 7,000)
Deferred gross profit (9,000 X 25%)
Loss on repossession
P
P 9,000
__2,250
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4,000
___6,750
(P 2,750)
lOMoARcPSD|6016800
Installment Sales
9-16:
9-17:
9-18:
9-19:
159
a
Trade-in Value (P300 X 6)
Less: Actual value
Estimated selling price (P315 X 6)
Less: Reconditioning cost (P25 X 6)
Gross Profit (P1,890 X 10%)
Over-allowance
P 1,800
P 1,890
P150
_189
a
Deferred gross profit, before adjustment
Deferred gross profit, end
2010: P32,500 X (30% ÷ 130%)
2011: P180,000 X (33 1/3% ÷ 133 1/3%)
Realized gross profit on installment sales
___339
___1,551
P
249
P 76,000
P 7,500
_45,000
__52,500
P 23,500
d
Unpaid balance (P27,000 - P16,000)
Multiply by gross profit rate (P734,400 ÷ P2,160,000)
Deferred gross profit to be cancelled on repossession
P 11,000
___X 34%
P 3,740
b
Collection:
2010 Downpayment
2011 Installment collection
Interest
Total
P 600,000
600,000
__540,000
P1,740,000
Cost to be recovered
P4,000,000
Since cost is not yet fully recovered, then no gross profit is to be recognized in 2011.
9-20:
d
Regular Sales
Cost of regular sales
Gross profit on regular sales
Add: Realized gross profit on installment sales
2010 (25,000 X 50%)
2011 (62,500 X 55%)
Total realized gross profit
Operating expenses
Net income, 12/31/011
P 187,500
__112,500
P 75,000
P12,500
_34,375
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__46,875
121,875
___31,250
P 90,625
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160
9-21:
9-22:
9-23:
9-24:
Chapter 9
a
Installment sales – 2010
Collections:
Down payment (20% x 785,000)
Installment (40% x 628,000)
Installment accounts receivable 2010, 12/31/010
Gross profit rate on sales
Deferred gross profit- 2010, 12/31/010
a
Regular sales
Cost of regular sales
Gross profit on regular sales
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%)
Installment accounts receivable-12/31/011
Collections
Gross profit on rate on sales
Total realized gross profit
Operating expenses (1,137,500 x 70%)
Net income, 12/31/011
P785,000
P157,000
251,200
408,200
376,800
35/135
P 97,689
P1,575,000
1,050,000
525,000
2,625,000
1,575,000
1,050,000
140/240
a
Regular sales
Cost of regular sales
Gross profit on regular sales
Realized gross profit on installment sales:
Collections excluding Interest (312,000 – 24,000)288,000
Gross profit rate (270,000/900,000)
30%
Total realized gross profit
Loss on repossession
Fair value of repossessed merchandise
54,000
Less: Unrecovered cost (100,000 x 70%)
70,000
Total realized GP after loss on repossession
Less: Operating expenses
72,000
Installment accounts written-off (44,000 x .70) 30,800
Net operating income
Interest income
Net income
1.
a
Fair value of repossessed air conditioners (5 x P4,000)
Less unrecovered cost (P25,600 x 65%)
Loss on repossession
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612,500
1,137,500
796,250
P 341,250
P375,000
215,000
160,000
86,400
246,400
( 16,000)
230,400
102,800
127,600
24,000
P151,600
P20,000
16,640
P 3,360
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9-24, continued:
2.
9-25:
a
Sales price (P100,000 x 90%)
Add underallowance (P12,000 – P10,000)
Adjusted sales value
Less cost of sales
Gross profit
P90,000
2,000
P92,000
59,800
P32,200
Sales price
Less fair value of merchandise traded in
Balance
P90,000
10,000
P80,000
Fair value of merchandise traded in
Down payment (P80,000 x 20%)
Installment collected (P6,400 x 6)
Total collection
Gross profit rate (P32,200/92,000)
Realized gross profit
P12,000
16,000
38,400
P66,400
35%
P23,240
1.
a
Sales price
Add underallowance on trade in (P97,500 – P80,000)
Adjusted sales price
Cost of sales
Gross profit
Gross profit rate (P216,875 / P867,500)
P850,000
17,500
867,500
650,625
P216,875
25%
Sales price
Less trade in value of merchandise traded in
Balance
Cash downpayment (25% of P850,000)
Installment accounts receivable
P850,000
80,000
770,000
212,500
P557,500
Date
July
July
August
September
Total
Collection
Interest income
Principal
P30,000
30,000
30,000
P5,575
5,331
5,084
P15,990
P24,425
24,669
24,916
P74,010
Fair value of repossessed merchandise
Unrecovered cost (P483,490 x 75%)
Loss on repossession
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Balance
P557,500
533,075
508,506
483,490
P300,000
362.617.5
P(62,617.5)
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Chapter 9
9-24, continued:
2.
a
Fair value of merchandise traded in
Cash downpayment
Installment collected applying to principal (see table)
Total collections
Gross profit rate
Realized gross profit
9-25.
9-26:
P 97,500
212,500
74,010
384,010
25%
P 96,003
c
Fair value of repossessed merchandise
Loss on repossessions
Unrecovered cost
Divided by account defaulted
Cost ratio (P126,000 / P180,000)
P112,500
13,500
126,000
180,000
70%
Installment sales (P525,000 / 70%)
Installment accounts receivable, 12/31 (P108,000 / 30%)
Collections during the year
P750,000
360,000
P390,000
1.
a
Trade in value of merchandise traded in
Less fair value:
Estimated sales price
P160,200
Reconditioning cost
(7,660)
Normal gross profit (20% x P160,200)
(32,040)
Overallowance on merchandise traded in
P128,000
Net sales price (P525,000 – P7,500)
Cost of installment sales
Gross profit
Gross profit rate (P103,500 / P517,500)
P517,500
414,000
P103,500
20%
120,500
P 7,500
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163
9-26, continued:
Fair value of merchandise traded in (downpayment)
Installment collected (517,500 – P120,500) / 10 x 6
Total collections
Gross profit rate
Realized gross profit – Mew merchandise
Realized gross profit – Repossessed merchandise:
Sales price
Cost of repossessed merchandise
Total realized gross profit
2.
P120,500
238,200
P358,700
20%
P 71,740
P128,750
103,000
25,750
P 97,490
a
Realized gross profit
Loss on repossession:
Fair value of repossessed merchandise
P 93,750
Unrecovered cost (P397,000 x 4/10 x 80%) 127,040
Net income
P 97,490
(33,290)
P 64,200
9-27: b
Installment sales (Cost of sales / Cost ratio)
Total collections
Accounts written off
Repossessed accounts
Installment accounts receivable, 12/31
Gross profit rates
Deferred gross profit, 12/31 (P440,404)
9-28
1.
2.
2009
P828,000
(617,000)
(7,200)
2010
P980,000
(578,000)
2011
P1,250,000
(425,000)
P203,800
28%
P57,064
(4,200)
P397,800
30%
P119,340
P825,000
32%
P264,000
2009
P180,000
P180,000
2010
P625,000
125,000
P500,000
2011
P900,000
650,000
P250,000
a
a
Supporting computations:
Installment accounts receivable, 1/1/011
Installment accounts receivable, 12/31/011
Collections (P930,000)
Installment accounts receivable, 1/1/011:
2009 sales
(P45,000 / 25%)
2010 sales
(P150,000 / 24%)
Installment accounts receivable, 12/31/011:
2010 sales
(P30,000 / 24%)
2011 sales
(P195,000 / 30%)
Total
P180,000
P625,000
P125,000
650,000
P775,000
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Chapter 9
SOLUTIONS TO PROBLEMS
Problem 9 – 1
Journal Entries:
2009
Installment A/R–2009 ............... 104,000
Installment A/R–2010 ...............
–
Installment A/R–2011 ...............
–
Installment Sales .................
104,000
Cost of Installment Sales ...........
Inventory .............................
64,480
Cash ...........................................
Installment A/R–2009
Installment A/R–2010 .........
Installment A/R–2011 .........
Interest Revenue .................
66,980
–
116,000
–
116,000
64,480
Computations:
2009: P57,200 X .38 =
P21,736
2010: P29,120 X .38 =
P71,920 X .41 =
Total RGP
P11,066
29,987
P40,553
2011: P15,000 X .38 =
P26,680 X .41 =
P76,230 X .39 =
Total RGP
P 5,700
10,939
29,730
P46,369
73,810
125,520
–
–
21,736
121,000
68,440
57,200
–
9,780
21,736
2011
–
–
121,000
68,440
Installment Sales........................ 104,000
Cost of Installment Sales ....
64,480
Deferred Gross Profit–2009
39,520
Deferred Gross Profit–2010
–
Deferred Gross Profit–2011
–
Deferred Gross Profit–2009 ......
Deferred Gross Profit–2010 ......
Deferred Gross Profit–2011 ......
Realized Gross Profit ..........
2010
73,810
145,460
29,120
71,920
_
24,480
116,000
15,000
26,680
76,230
27,550
121,000
68,440
–
47,560
–
11,066
29,487
–
40,553
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73,810
–
–
47,190
5,700
10,939
29,730
46,369
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2010:
2011:
165
Problem 9 – 2
Inventory ................................................................................................ 45,200
Cash ................................................................................................
Notes Receivable 2010 (P32,000 + P62,000 + 3,600) .......................... 97,600
Unearned Interest Revenue (P7,167 + P3,600)..............................
Installment Sales .............................................................................
Cost of Installment Sales (P45,200 – P2,000 inventory increase) ......... 43,200
Inventory .........................................................................................
Cash ... ................................................................................................... 35,600
Notes Receivable 2010....................................................................
Unearned Interest Revenue 2010 ........................................................... 3,600
Interest Revenue .............................................................................
Installment Sales .................................................................................... 86,833
Cost of Installment Sales ................................................................
Deferred Gross Profit on Installment Sales–2010 ..........................
Deferred Gross Profit on Installment Sales–2010 ................................. 16,080*
Realized Gross Profit on Installment Sales ....................................
16,080
*Gross profit percentage: 50.25% (P43,633 ÷ P86,833)
.5025 x 32,000 = P16,080
Inventory ................................................................................................ 52,020
Cash ................................................................................................
52,020
Notes Receivable–2008 .......................................................................... 89,5001
Unearned Interest Revenue.............................................................
Installment Sales .............................................................................
160,000 + (P50,000 + P5,500) – P26,000* = 89,500
*2010 Notes receivable collected in 2008
2Interest revenue from 2010 notes: P7,167 – P5,579 = P1,588
Interest revenue from 2011 notes: P5,500 – P1,588 = P3,912
Discount on notes receivable at end of 2011 ......................................... P 8,043
Interest revenue from 20011notes (see above)....................................... 3,912
Total discount at time of sale ................................................................. P11,955
Cost of Installment Sales (P52,020 – P8,000) ....................................... 44,020
Inventory .........................................................................................
Cash ... ................................................................................................... 55,500
Notes Receivable–2010 (P62,000 – P36,000) ................................
Notes Receivable–2011...................................................................
* P89,500 – P60,000 = P29,500
Discount on Notes Receivable–2010...................................................... 1,588
Discount on Notes Receivable–2011...................................................... 3,912
Interest Revenue .............................................................................
Installment Sales .................................................................................... 77,545
Cost of Installment Sales ................................................................
Deferred Gross Profit on Installment Sales–2011 ..........................
Deferred Gross Profit on Installment Sales–2010 (P26,000
– P1,538 = P24,412; P24,412 x .5025) ................................................. 12,267
Deferred Gross Profit on Installment Sales–2011 ................................. 11,062*
Realized Gross Profit on Installment Sales ....................................
.4323 x (P29,500 – P3,912) = P11,062
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45,200
10,767
86,833
43,200
35,600
3,600
43,200
43,633
11,9552
77,545
44,020
26,000
29,500*
5,500
44,020
33,525
23,329
p
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Chapter 9
Problem 9 – 3
1.
2.
2009: Gross profit rate
=
Deferred gross profit, 1/1
––––––––––––––––––––– =
Install. contracts rec'l, 1/1
P24,000
––––––– =
P60,000
40%
2010: Gross profit rate
=
Deferred gross profit, 1/1
P24,000
––––––––––––––––––––– = ––––––– =
Install. contracts rec'l, 1/1
P140,000
42%
2011: Gross profit rate
Gross profit
=–––––––––––––
Installment sales
=
P86,000
––––––––––=
P200,000
Journal Entries:
Accounts Receivable .....................................................................................
Sales ... ...................................................................................................
Installment Contracts Receivable – 2011 .....................................................
Installment Sales ....................................................................................
Cost of Installment Sales ...............................................................................
Shipments on Installment Sales ..............................................................
Purchases .. ...................................................................................................
Cash ... ...................................................................................................
Selling Expenses............................................................................................
Cash ... ...................................................................................................
Cash ..... .... ...................................................................................................
Accounts Receivable ..............................................................................
Installment Contracts Receivable – 2009 ..............................................
Installment Contracts Receivable – 2010 ..............................................
Installment Contracts Receivable – 2011 ..............................................
Adjusting Entries:
Installment Sales ...........................................................................................
Cost of Installment Sales........................................................................
Deferred Gross Profit on Installment sales – 2011 ...............................
Deferred Gross Profit – 2009 (P40,000 x 40%) ...........................................
Deferred Gross Profit – 2010 (P80,000 x 42%) ...........................................
Deferred Gross Profit – 2011 (P110,000 x 43%) .........................................
Realized Gross Profit .............................................................................
Doubtful Accounts Expense (1/4 x 1% x P600,000)......................................
Allowance for Doubtful Accounts ..........................................................
Closing Entries:
Sales ..... .... ...................................................................................................
Merchandise Inventory, December 31 ..........................................................
Shipments on Installment Sales .....................................................................
Merchandise Inventory, January 1 ........................................................
Purchases...............................................................................................
Selling Expenses ....................................................................................
Doubtful Accounts Expense ...................................................................
Income Summary ...................................................................................
Realized Gross profit ....................................................................................
Income Summary ...................................................................................
Income Summary...........................................................................................
Retained Earnings .................................................................................
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43%
600,000
600,000
200,000
200,000
114,000
114,000
476,000
476,000
210,000
210,000
790,000
560,000
40,000
80,000
110,000
200,000
114,000
86,000
16,000
33,600
47,300
96,900
1,500
1,500
600,000
260,000
114,000
240,000
476,000
210,000
1,500
46,500
96,900
96,900
143,400
143,400
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Problem 9-3, continued:
3.
Good Buy Mart
Statement of Comprehensive Income
Year Ended December 31, 2011
Sales ..... .... ...................................................................................................
Cost of sales:
Merchandise inventory, January 1 ......................................................... P240,000
476,000
Purchases ...............................................................................................
Cost of goods available for sale .............................................................
716,000
114,000
Less Shipments on installment sales ......................................................
Cost of goods available for regular sales ...............................................
602,000
Less Merchandise inventory, December 31 ...........................................
260,000
Gross profit on regular sales .........................................................................
Add Realized gross profit on installment sales (Schedule 1) ........................
Total realized gross profit .............................................................................
Operating expenses:
Selling expenses.....................................................................................
210,000
Doubtful accounts expense ....................................................................
1,500
Net income ...................................................................................................
Schedule 1:
Years of Installment Sales
2006
2007
2008
Collections ..........................................
P40,000
P80,000
P110,000
43%
Multiply by Gross profit rate ...............
40%
42%
Realized gross profit ............................
P16,000
P33,600
P 47,300
4.
P600,000
342,000
258,000
96,900
354,900
211,500
P143,400
Total
P 96,900
Good Buy Mart
Statement of Financial Position
December 31, 2011
A s s e t s
Cash ..... .... ...................................................................................................
Merchandise inventory..................................................................................
Accounts receivable ......................................................................................
Allowance for doubtful accounts ..................................................................
Installment contracts receivable – 2009 ........................................................
Installment contracts receivable – 2010 ........................................................
Installment contracts receivable – 2011 ........................................................
Other assets ...................................................................................................
Total Assets ...........................................................................................
P144,000
260,000
P 62,000
3,500
58,500
20,000
60,000
90,000
200,000
P832,500
Liabilities and Equity
Liabilities:
Accounts payable ...................................................................................
Deferred gross profit on installment sales – 2009 ..................................
Deferred gross profit on installment sales – 2010 ..................................
Deferred gross profit on installment sales – 2011 ..................................
Total Liabilities ......................................................................................
Equity:
Capital stock ..........................................................................................
Retained earnings ...................................................................................
Total Liabilities and Equity ...................................................................
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P 60,000
8,000
25,200
38,700
131,900
P406,000
294,600
700,600
P832,500
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Chapter 9
Problem 9 – 4
1.
2.
2010: GP rate =
Deferred gross profit, 1/1
–––––––––––––––––––––
Install. contracts rec'l, 1/1
2011: GP rate =
Gross profit
––––––––––––––
Installment sales
=
=
=
P21,600 + P1,200
––––––––––––––––
P24,000 + P52,000
P150,000 – P97,500
––––––––––––––––
P150,000
Installment Sales ...........................................................................................
Cost of Installment Sales........................................................................
Deferred Gross Profit, 2011 ..................................................................
Deferred Gross profit, 2010 ..........................................................................
Deferred Gross Profit, 2011 .........................................................................
Realized Gross Profit .............................................................................
=
=
=
P22,800
–––––––
P76,000
=
30%
P52,500
––––––––
P150,000
=
35%
150,000
97,500
52,500
14,400
25,900
40,300
Computation:
2010
Sales
2011
Sales
Installment contracts receivable, 1/1....................
Less Installment contracts receivable, 12/31 .......
P76,000
24,000
P150,000
76,000
Total credit for the period ....................................
Less Credit representing repossession .................
52,000
4,000
74,000
–
Credit representing collections ............................
Multiply by Gross profit rate ...............................
P48,000
30%
P 74,000
35%
Realized gross profit ............................................
P14,400
P 25,900
Sales ..... .... ...................................................................................................
Realized Gross Profit ....................................................................................
Loss on Repossession .............................................................................
Cost of Sales ..........................................................................................
Selling and Administrative Expenses .....................................................
Income Summary ...................................................................................
Income Summary...........................................................................................
Retained Earnings .................................................................................
3.
Total
P 40,300
212,000
40,300
400
165,000
66,000
20,900
20,900
20,900
Apple Company
Statement of Comprehensive Income
Year Ended December 31, 2011
Sales ..... .... ................................................................................................... ..................
Cost of sales .................................................................................................. ..................
P212,000
165,000
Gross profit on regular sales ......................................................................... ..................
Add Realized gross profit on installment sales (Schedule 1) ........................ ....
47,000
40,300
Total realized gross profit ............................................................................. ..................
Less Loss on repossession............................................................................. ....
87,300
400
Total realized gross profit after adjustment for loss on repossession ............ ..................
Selling and administrative expenses ............................................................. ..................
86,900
66,000
Net income ................................................................................................... ..................
P 20,900
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Installment Sales
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Problem 9-4, continued:
Schedule 1
Installment contracts receivable, 1/1 .......................
Less Installment contracts receivable, 12/31 ...........
Total credit for the period ........................................
Less Credit representing repossession .....................
Credit representing collections ................................
Multiply by Gross profit rate ...................................
Realized gross profit ................................................
2010
Sales
P76 000
24,000
52,000
4,000
P48,000
30%
P14,400
2011
Sales
P150,000
76,000
74,000
–
P 74,000
35%
P 25,900
Total
P40,300
Problem 9 – 5
1.
Cost of Installment Sales ....................................................................
Shipments on Installment Sales ....................................................
54,400
Installment Sales .................................................................................
Cost of Installment Sales ..............................................................
Deferred Gross Profit, 2011.........................................................
80,000
54,400
54,400
25,600
Gross profit = P25,600 ÷ P80,000 = 32%
Deferred Gross Profit, 2010 ...............................................................
Deferred Gross Profit, 2011 ...............................................................
Realized Gross Profit ...................................................................
14,000
8,000
22,000
Computation:
Installment contracts receivable, 1/1 .............
Less Installment contracts receivable, 12/31.
Total credit for the period..............................
Less Credit representing repossession...........
Credit representing collections ......................
Multiply by Gross profit rate.........................
Realized gross profit .....................................
2010
Sales
P82,000
_ 36,000
46,000
__6,000
P40,000
__35%*
P14,000
2011
Sales
P 80,000
_55,000
25,000
___ –
P 25,000
___32%
P 8,000
DGP, 1/1
P28,700 (26,600 + 2,100)
*2010 Gross profit rate= ––––––– = –––––––
=
ICR, 1/1
P82,000 (36,000 + 40,000 + 6,000)
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Total
P 22,000
35%
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170
2.
Chapter 9
Sales .... ... ...........................................................................................
Merchandise Inventory, December 31 ................................................
Shipments on Installment Sales ..........................................................
Merchandise Inventory, January 1...............................................
Purchases .....................................................................................
Repossessed Merchandise ............................................................
Loss on Repossession ...................................................................
Operating Expenses .....................................................................
Income Summary ..........................................................................
200,000
52,000
54,400
Realized Gross Profit ..........................................................................
Income Summary ..........................................................................
22,000
Income Summary ................................................................................
Retained Earnings ........................................................................
31,500
60,000
180,000
3,000
900
53,000
9,500
22,000
31,500
PPG Discount Center, Inc.
Statement of Comprehensive Income
Year Ended December 31, 2011
Sales .... ... ...................................................
Cost of sales:
Inventory, January 1 ............................. P 60,000
Purchases .............................................. 180,000
Repossessed merchandise .................... __3,000
Cost of goods available for sale ........... 243,000
Less Shipments on installment sales .... _54,400
Cost of goods available for regular sales
Less Inventory, December 31............... _52,000
Gross profit .................................................
Less Deferred gross profit on installment
sales, 2011 ............................................
Realized gross profit, 2011 .........................
Add Realized gross profit on 2010
installment sales ...................................
Total realized gross profit ...........................
Less Loss on repossession ..........................
Total realized gross profit after adjustment
for loss on repossession ........................
Operating expenses .....................................
Net income ..................................................
Regular
P200,000
Installment
P80,000
Total
P280,000
188,600
_136,600
P 63,400
54,400
25,600
191,000
89,000
17,600
8,000
17,600
71,400
14,000
22,000
___900
14,000
85,400
__900
P21,100
84,500
_53,000
P31,500
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Problem 9 – 6
1.
London Products
Schedule of Cost of Goods Sold
Year Ended December 31, 2011
Merchandise inventory, January 1 ................................................................ ..................
Purchases ................................................................................................... ..................
Freight-in ................................................................................................... ..................
Repossessed merchandise ............................................................................. .....
Cost of goods available for sale .................................................................... ..................
Less Merchandise inventory, December 31 .................................................. ..................
Cost of goods sold ......................................................................................... ..................
2.
London Products
Schedule of Allocation of Cost of Goods Sold
Year Ended December 31, 2011
Cash sales ..................
Charge sales .................
Installment sales ...........
3.
P 48,000
238,000
12,000
14,000
312,000
52,000
P260,000
Amount
P60,000
120,000
300,000
÷ 120%
÷ 125%
On Cash
Price Basis
P 60,000
100,000
240,000
P 400,000
Ratio to
Total
60/400
100/400
240/400
Allocated
Cost
P 39,000
65,000
156,000
P260,000
London Products
Statement of Comprehensive Income
Year Ended December 31, 2011
Sales ..... .... .......................................
Cost of goods sold.............................
Gross profit .......................................
Less Unrealized gross profit:
On installment contracts
receivable,12/31 (192,000 x 144/300)
Realized gross profit .........................
Add Realized gross profit on
prior years' sales (Schedule 1):
2009 ....................................
19,200
2010 ....................................
14,700
Total realized gross profit .................
Less Loss on repossession
(Schedule 2) ...............................
Total realized gross profit after
adjustment for loss on
repossession ...............................
Less Operating expenses ...................
Net income .......................................
Total
P480,000
260,000
P 220,000
Installment
Sales
P 300,000
156,000
P 144,000
92,160
127,840
92,160
51,840
33,900
161,740
33,900
85,740
10,200
10,200
151,540
93,000
P 58,540
P 75,540
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Charge
Sales
P120,000
65,000
P 55,000
Cash
Sales
P 60,000
39,000
P 21,000
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172
Chapter 9
Problem 9-6, continued:
Schedule 1
2009
Installment contracts receivable, January 1:
2009 – P32,000 ÷ 40% .................................................................
2010 – P56,000 ÷ 35% .................................................................
Less Installment contracts receivable, December 31 ..........................
Total credits ........................................................................................
Less Credit representing repossession ................................................
Total collections..................................................................................
Multiply by Gross profit rate ..............................................................
Realized gross profit ...........................................................................
2010
P80,000
_22,000
58,000
_10,000
P48,000
___40%
P19,200
P160,000
__90,000
70,000
28,000
P 42,000
___35%
P 14,700
2009
P 2,000
2010
P12,000
Total
P 14,000
10,000
28,000
38,000
Schedule 2
Fair market value of repossessed merchandise ....
Less Unrecovered cost:
Unpaid balance ..............................................
Less Unrealized profit –
2009 – P10,000 x40%.............................
2010 – P28,000 x35%.............................
Balances ............................................................
Gain (loss) on repossession .................................
4,000
__6,000
P(4,000)
9,800
18,200
P( 6,200)
13,800
__24,200
P( 10,200)
Problem 9 – 7
1.
2010
2010
2010 installment sales (P400,000 x 42%*) .................................. P 168,000
2011:
2010 installment sales (P173,000 x 42%) ....................................
2011 installment sales (P560,000 x 38.5%*) ............................... ________
Deferred gross profit ........................................................................... P 168,000
2011
P 72,660
__215,600
P 288,260
*Computation of Gross profit percentages (see next page)
2010
Installment sales..................................................................................P2,210,000
Less Trade-in allowances (P226,000 – P158,000).............................. _______–
Adjusted installment sales .................................................................. 2,210,000
Cost of sales:
Inventories, January 1 (new) ........................................................
–
Purchases (new) ........................................................................... 1,701,800
Repossessed merchandise ............................................................
–
Cost of goods available for sale ................................................... 1,701,800
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2011
P3,100,000
____68,000
_3,032,000
420,000
1,767,000
_83,000*
2,270,000
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Problem 9-7, continued:
Less: Inventories, December 31 –
New merchandise................................................................... 420,000
Repossessed merchandise ...................................................... _______–
Total ....................................................................................... 420,000
Cost of sales ................................................................................. 1,281,800
Gross profit ......................................................................................... P 928,200
Gross profit percentages .....................................................................
*2010 : P195,000 x 20% =P39,000
2011 : P110,000 x 40% =_44,000
P83,000
2.
3
42%
Uncollectible installment contracts expense, per books
Correct Uncollectible installment contracts expense:
Fair market value of repossessed merchandise –
2010 sales (P195,000 x 20%) ........................... P 39,000
2011 sales (P110,000 x 40%) ........................... __44,000
Unrecovered cost –
2010 sales [P105,000 x (100% – 42%)] ........... 60,900
20011 sales [P82,000 x (100% – 38.5%)] ........ __50,430__
Adjustment to Uncollectible installment contracts expense
358,820
____46,500
405,320
_1,864,680
P1,167,320
38.5%
P 99,000
83,000
111,330
28,330
P 70,670
Fortune Sales Corporation
Statement of Comprehensive Income
Year Ended December 31, 2011
Cash
Sales
Sales
...................................................................... P205,000
Cost of sales ................................................................... _158,000
Gross profit .................................................................... P 47,000
Less Unrealized gross profit on 2011 installment
sales (Schedule 1) ....................................................
Realized gross profit on 2011 sales ...............................
Add Realized gross profit on 2010 installment
sales (Schedule 2) ....................................................
Total realized gross profit ..............................................
Less Uncollectible installment contracts expense..........
Total realized gross profit after adjustment ...................
Operating expenses ........................................................
Net income .....................................................................
Installment
Sales
P3,032,000
_1,864,680
1,167,320
Total
Sales
P3,237,000
_2,022,680
1,214,320
__247,170
920,150
__247,170
967,150
___51,240
971,390
___28,330
P 943,060
___51,240
1,018,390
___28,330
990,060
__592,960
P 397,100
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Chapter 9
Schedule 1
Installment contracts receivable 2011, December 31 ....... ............
Installment contracts receivable 2011 defaulted ............... ............
Total .... ... ......................................................................... ............
Multiply by 2011 gross profit percentage ......................... ............
Unrealized gross profit on 2011 installment sales ............ ............
P 560,000
___82,000
P 642,000
___38.5%
P 247,170
Schedule 2
Installment contracts receivable 2010, January 1 ...............................
Less Installment contracts receivable 2010, December 31 .................
Total credits for the period .................................................................
Less Installment contracts receivable 2010 defaulted ........................
Total collections..................................................................................
Multiply by 2010 gross profit percentage ...........................................
Realized gross profit on 2010 installment sales..................................
1.
Apportionment of cost (P600,000) to Lots 1, 2 and 3:
Lot 1 : 2/3 x P360,000....................................
Lot 2 : 2/3 x P240,000....................................
Lot 3 : 1/3 .......................................................
P120,000
1/3 x P240,000 ........................................
__80,000
Total cost .......................................................
Journal Entries for 2010
March 31
Cash .... ... ......................................................................................
Notes Receivable (Lot 2) ................................................................
Lot 2 ......................................................................................
Deferred gain on Sale of Land ................................................
June 30
Cash .... ... ......................................................................................
Notes Receivable (Lot 3) ................................................................
Lot 3 . ......................................................................................
Deferred Gain on Sale of Land ...............................................
Cash .... ... ......................................................................................
Interest Income (P364,000 x 12% x 3/12) ...............................
Notes Receivable (Lot 2) .........................................................
P 400,000
__173,000
227,000
__105,000
P 122,000
_____42%
P 51,240
P 240,000
160,000
__200,000
P 600,000
36,000.00
364,000.00
160,000.00
240,000.00
120,000.00
720,000.00
September 30
Cash .... ... ......................................................................................
Interest Income (P358,920 x 12% x 3/12) ...............................
Notes Receivable (Lot 2) .........................................................
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200,000.00
640,000.00
16,000.00
10,920.00
5,080.00
16,000.00
10,767.60
5,232.40
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Problem 9-8, continued:
October 31
Cash .... ... ......................................................................................
Notes Receivable (Lot 1) ................................................................
Lot 1 . ......................................................................................
Deferred Gain on Sale of Land ...............................................
72,000.00
288,000.00
December 31
Cash .... ... ......................................................................................
Notes Receivable (Lot 1) .........................................................
Notes Receivable (Lot 2) .........................................................
Notes Receivable (Lot 3) .........................................................
Interest Income ........................................................................
240,000.00
120,000.00
78,000.00
6,240.00
5,389.37
6,800.00
59,570.63
Computation:
Total
Collections ....................................... P78,000.00
Apply to interest:
Lot 1 – P288,000.00 x 12% x 2/12
Lot 2 – P353,687.60 x 12% x 3/12 59,570.63
Lot 3 – P720,000.00 x 12% x 6/12 _________
Apply to principal............................ P18,429.37
2.
Lot 1
P12,000.00
Lot 2
P16,000.00
Lot 3
P50,000.00
10,610.63
_________
P 5,389.37
_43,200.00
P 6,800.00
5,760.00
_________
P 6,240.00
Deferred Gain on Sale of Land (Lot 1) ............................................... 26,080.00
Deferred Gain on Sale of Land (Lot 2) ............................................... 31,021.06
Deferred Gain on Sale of Land (Lot 3) ............................................... 96,368.00
Realized Gain on Sale of Land .....................................................
153,469.06
Computation:
Collections applied to principal .......
Multiply by Gross profit rates:
Lot 1 – P120,000 ÷ P360,000 .....
Lot 2 – P240,000 ÷ P400,000 .....
Lot 3 – P640,000 ÷ P840,000 .....
Realized gain ...................................
3.
Lot 1
P78,240.00
Lot 2
Lot 3
P51,701.77 P126,800.00
33.33%
_________
P26,080.00
60%
_________
P31,021.06
Lot 3 (80% x P200,000) ......................................................................160,000.00
Deferred Gain on Sale of Land (Lot 3) (P640,000 – P96,368) ..........543,632.00
Loss on Repossession.......................................................................... 9,568.00
Notes Receivable (Lot 3) (P720,000 – P6,800) ............................
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_____76%
P96,368.00
713,200.00
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Chapter 9
Problem 9 – 9
Galaxy Investment Company
Income Statement
Year Ended December 31, 2011
Sales Schedule 1) ...................................................................................................
Cost of sales (Schedule 2).......................................................................................
Gross profit .... .... ...................................................................................................
Less Sales commissions .........................................................................................
Gross profit .... .... ...................................................................................................
Less Deferred gross profit
Installment Notes Balance P5,370,000
––––––––––––––––––––– =––––––––––
Installment Sales
P8,060,000
P 8,060,000
1,612,000
6,448,000
221,000
6,227,000
4,172,090
=67% x P6,227,000
Realized gross profit ...............................................................................................
Expenses:
Advertising and promotion ........................................................................... P 730,000
Sales manager's salary...................................................................................
120,000
General office expenses (1/4 x P236,000) ....................................................
59,000
Net profit ...... .... ...................................................................................................
2,054,910
909,000
P 1,145,910
Schedule 1
A lots : 26 @ P150,000 ...............................................
B lots : 32 @ P100,000................................................
C lots : 12 @ P80,000..................................................
........................................................
Total
Sales Price
P3,900,000
3,200,000
960,000
P8,060,000
Cash
Received
P1,650,000
800,000
240,000
P2,690,000
Installment
Notes Balance
P 2,250,000
2,400,000
720,000
P 5,370,000
Unit
Price
P150,000
100,000
80,000
Total
Sales Value
P12,000,000
10,000,000
9,600,000
P31,600,000
Schedule 2
Class
A ... ...... .... ........................................................
B .... ...... .... ........................................................
C .... ...... .... ........................................................
Total ... ........................................................
Number of
Lots
80
100
120
300
Cost of tract:
Cost of land ...................................................................................................
Legal fees, etc. ..............................................................................................
Grading contract............................................................................................
Water and sewerage system contract ............................................................
Paving contract .............................................................................................
General office expenses (3/4 x P236,000) ....................................................
Total ..... .... ...................................................................................................
P 4,800,000
600,000
225,000
184,900
266,300
177,000
P 6,253,200
P6,253,200
Cost rate : –––––––––––– = 20% (rounded off)
P31,600,000
Cost of sales (P8,060,000 x 20%)...........................................................................
P 1,612,000
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Problem 9 – 10
Rizal Company
Statement of Comprehensive Income
Year Ended December 31, 2011
Installment sales [(P14,300 x 7) + (P725 x 4)] ...........................................
Cost of goods sold on installment (schedule 1) ...........................................
Gross profit .. ... ...........................................................................................
Less Deferred gross profit on 2011 sales
(P103,000 – P21,000 = P82,000 x 23%*) ..........................................
Realized gross profit on 2011 sales .............................................................
Add Realized gross profit on prior years' sales –
2009 : P60,000 x 33-1/3*....................................................................
2010 : P115,000 x 35%* .....................................................................
Total realized gross profit............................................................................
Less Loss on repossession (Schedule 4) ......................................................
Total realized gross profit after adjustment .................................................
General and administrative expenses ..........................................................
Net income (loss).........................................................................................
P103,000
__79,310
23,690
__18,860
4,830
P20,000
_40,250
__60,250
65,080
__33,100
31,980
__50,000
P(18,020)
*See Schedule 3
Schedule 1
Purchases (P10,500 x 8) ..............................................................................
Repossessed merchandise............................................................................
Cost of goods available for sale...................................................................
Less Inventory, December 31 –
Number of units on hand ....................................................................
Multiply by average unit cost (Schedule 2) ........................................
Cost of goods sold on installment ...............................................................
P 84,000
___2,520
86,520
1
P 7,210
___7,210
P 79,310
Schedule 2
Purchases during 2008 (P10,500 x 8) ..........................................................
Add Repossessed merchandise ....................................................................
Total ..... ...... ... ...........................................................................................
divide by Number of units (8 + 4)...............................................................
Average unit cost .........................................................................................
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P 84,000
___2,520
P 86,520
_____12
P 7,210
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Chapter 9
Problem 9-10, continued:
Schedule 3
2009
Sales –
2009 : P15,000 x 10 .......................................
2010 : P14,000 x 20 .......................................
2011 : P14,300 x 7 .........................................
P725 x 4 ..............................................
Sales
........................................................
Cost of goods sold:
Inventory, January 1 ........................................
Purchases ........................................................
Repossessed merchandise ................................
Cost of goods available for sale .......................
Less Inventory, December 31 ..........................
Cost of goods sold ...........................................
Gross profit .. ... ........................................................
Gross profit rates ......................................................
2010
2011
P150,000
P280,000
_______
150,000
_______
280,000
100,100
__2,900
103,000
–
120,000
_____–
120,000
_20,000
100,000
P 50,000
33-1/3%
20,000
162,000
_____–
182,000
_____–
182,000
P 98,000
35%
–
84,000
_2,520
86,520
_7,210
79,310
P23,690
23%
Schedule 4
Fair market value of repossessed merchandise............................................
Less Unrecovered cost –
Unpaid balance:
Original sales amount (P14,000 x 4) ............................................ P 56,000
Collections prior to repossession.................................................. __1,200
Total . ...........................................................................................
54,800
Less Unrealized profit (P54,800 x 35%) ............................................ _19,180
Loss on repossession ...................................................................................
P 2,520
_35,620
P33,100
Problem 9-11
The key to this solution is solving the gross profit rate for 2009 (3)
1. P39,000 (P50,000 – P11,000)
2. P11,000 (P60,000 x 0.22)
3. 22%: 2010 realized gross profit on 2010 cash collections, P5,000 (P20,000 x .25)
2010 realized gross profit on 2009 cash collections, P5,500 (P10,500 – P5,000)
Gross profit rate – 2009, 22% (P5,500 / P25,000 cash collections)
4. P5,000 (P1,100 / .22)
5. P60,000 (P80,000 – P20,000)
6. P20,000 (P80,000 x .25)
7. P120,000 (P91,000 + P28,200)
8. 23.5% (P28,200 / P120,000)
9. P25,275:
2011 realized gross profit on 2009 collections, (P10,000 x .22)
2011 realized gross profit on 2010 collections, (P50,000 x .25)
2011 realized gross profit on 2011 collections, (P45,000 x .235)
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179
Problem 9-12
2009
P92,000
58,880 (b)
36%
Installment sales
Cost of installment sales
Gross profit rates
Cash collections:
2009 sales
2010 sales
2011 sales
Realized gross profit
27,200
0 (e)
2010
P103,000
62,830
39% (c)
48,300
36,600
16,620 (f)
2011
P115,000 (a)
74,750
35%
12,200
33,280 (d)
43,450
19,250 (g)
Computations:
(a) P74,750 / .66 = P115,000
(b) P92,000 x .64 = P58,880
(c) 1 - (P62,830 / P103,000) = 39%
(d) Gross profit recognized in 2011
All costs from 2009 sales are recovered.
Cash collections equals gross profit
Cash collected goes to recover costs – gross profit
Gross profit reported in 2011 from 2010 sales
Cost of 2010 sales
Costs recovered in 2010
Costs to be recovered in 2011
Cash collected related to 2010 sales
P19,250
(12,200)
0
P 7,050
P62,830
36,660
26,230
P33,280
(e) Cash collections in 2009 do not exceed cost of sales:
Realized gross profit in 2009 = P0
(f)
Cash collections for 2009 sales (P27,200 + P48,300)
Cost of 2009 sales
Realized gross profit in 2010
(g)
Cash collections for 2009 sales
Cash collections for 2010 sales (P36,600 + P33,280)
Cost of 2010 sales
Realized gross profit in 2011
P75,500
58,880
P16,620
P12,200
P69,880
62,830
7,050
P19,250
Problem 9-13
1.
Repossessed Inventory
2010 repossessi0ns (P37,500 x 20%)
2011 repossessions (P24,000 x 50%)
Trade-In inventory:
Fair value
Sold
Total inventory
P 7,500
12,000
P40,875
27,000
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P19,500
13,875
P33,375
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Chapter 9
Problem 9-13, continued:
2.
3.
Repossessed Inventory
19,500
Loss on repossession or Allowance for bad debts
13,900
Accounts receivable
To record repossessions on defaulted contracts.
Note: No deferred gross profit is cancelled because no
Ggoss profit rate on installment sales is given.
Sales (P64,035 – P40,875)
23,160
Cost of trade-Ins
sold
27,000
Trade-In inventory
Loss on trade-in inventory
Sales-trade-ins
To reduce trade-in inventory to wholesale market value
And to reflect this in lower sales and losses.
To reflect sales and cost of sales for trade-ins in separate accounts.
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33,400
11,160
12,000
27,000
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CHAPTER 10
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
10-1:
a
Percentage of Completion Method:
Contract Price
Less: Total estimated cost
Cost incurred
Estimated remaining cost
Gross profit estimated
% of completion (200,000/600,000)
Gross profit to be recognized
P1,000,000
P 200,000
_400,000
Zero Profit Method:
10-2:
10-4:
0
a P100,000
Contract Price
Less: Total estimated cost
Estimated gross profit
% of completion:
2007 (3,900,000/7,800,000)
2008(6,300,000/8,100,000)
Gross profit earned to date
Less: Gross profit earned in prior year
Gross profit earned each year
10-3:
__600,000
400,000
__33 1/3%
P 133,333
2007
2008
P9,000,000 P9,000,000
_7,800,000 _8,100,000
1,200,000
900,000
50%
_________ ______78%
600,000
700,000
________– ___600,000
P 600,000 P 100,000
a
Contract Price
Less: Total estimated cost (3,600,000 + 1,200,000)
Estimated gross profit
% of completion (3,600,000/4,800,000)
Gross profit earned to date
Less: Gross profit earned in 2007
Gross profit earned in 2008
P6,000,000
_4,800,000
1,200,000
_____75%
900,000
__600,000
P 300,000
b
Contract Price
Less: Total estimated cost (930,000 + 2,170,000)
Loss
P3,000,000
_3,100,000
(P 100,000)
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10-5:
10-6:
10-7:
Chapter 10
b
Total cost to date, 2011 (4,800,000 X 60%)
Less: Cost incurred in 2010 (4,500,000 X 20%)
Cost incurred in 2011
P2,880,000
__900,000
P1,980,000
a
Percentage of Completion Method:
Contract Price
Less: Total estimated cost (900,000/1,800,000)
Estimated gross profit
% of completion (900,000/2,700,000)
Gross profit recognized, 2010
Add: Cost Incurred
Construction in Progress - 2010
P3,000,000
_2,700,000
300,000
___33.33%
100,000
___900,000
P 1,000,000
Zero Profit Method:
Cost incurred to Construction in Progress - 2010
P 900,000
a
Contract Price
Less: Total estimated cost
Estimated gross profit
% of completion
Gross Profit earned to date
Gross Profit earned in prior year
Gross Profit earned this year
10-8:
2010
2011
P4,200,000 P4,200,000
_3,000,000 _3,750,000
1,200,000
450,000
_____20% ____100%
240,000
450,000
_______– __240,000
P 240,000 P 210,000
b
Collections:
Contract Billings
Less: Accounts receivable
Collections
Initial Gross Profit:
Contract Price
Gross Profit rate:
Income recognized
Divide by Construction in Progress
Initial Gross Profit
P 47,000
___15,000
P 32,000
P 800,000
10,000
50,000 = _____20%
P 160,000
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Long-Term Construction Contracts
10-9:
183
a
Gross profit (loss) earned in 2011
Gross profit earned in prior years
Gross profit earned to date - 2011
Divide by percentage of completion - 2011
Estimated gross profit - 2011
Less: Contract price
Total estimated cost
Less: Cost incurred - 2011
Cost incurred to date - 2010
Less: Cost incurred - 2009
Cost incurred in 2010
(P 20,000)
_180,000
160,000
___100%
160,000
2,000,000
1,840,000
_820,000
1,020,000
__360,000
P 660,000
10-10: b
Gross profit earned to date - 2010 (P40,000 + P140,000)
Divide by estimated gross profit - 2010:
Contract price
P2,000,000
Gross profit rate [180,000/(1,020,000 + 180,000)]
___X 15%
Percentage of completion - 2010
P 180,000
__300,000
60%
10-11: a, Refer to Q 10-10 solutions.
10-12: d
Contract price
Estimated gross profit - 2010 (Refer to Q 10-10)
Total estimated cost
Less: Cost incurred to date - 2010 (refer to Q 10-9)
Estimated cost to complete - 2010
P2,000,000
__300,000
1,700,000
1,020,000
P 680,000
10-13: d
2010: Construction in progress
Less: Construction costs
Gross profit recognized - 2010
P 244,000
__210,000
P 34,000
2011: Construction in progress (P728,000-P244,000)
Less: Construction costs
Gross profit recognized - 2011
P 484,000
__384,000
P 100,000
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184
10-14:
Chapter 10
d
Project 1
Percentage of Completion Method:
Contract price
Less: Total estimated cost
Cost incurred to date - 2011
Estimated cost to complete
Total
Estimated gross profit (Loss)
Percentage of completion
Profit (loss) to be recognized
Total is (P10,000)
Project 2
P 420,000 P 300,000
P 240,000
__120,000
__360,000
60,000
__66.67%
P 40,000
P 280,000
___70,000
__350,000
(50,000)
_______–
(P 50,000)
Zero Profit Method - The loss (P50,000) for project 2 only.
10-15: a
Contract price (cost X 120%)
Less: Total estimated costs
(1) Cost incurred to date
Estimated cost to complete
(2) Total
Estimated gross profit
Percentage of completion (1 ÷ 2)
Gross profit earned to date
Gross profit earned in prior years
Gross profit earned this year
2009
2010
2011
P3,744,000 P3,744,000 P3,744,000
546,000 1,544,400 3,120,000
_2,054,000 _1,315,000 ________–
_2,600,000 _2,860,000 _3,120,000
1,144,000
884,000
624,000
_____20% _____54% ____100%
240,240
477,360
624,000
_______– __240,240 __477,360
P 240,240 P 237,120 P 146,640
10-16: d
Contract price
Less: Total estimated cost
Cost incurred to date
Estimated cost to complete
Total
Estimated gross profit
Percentage of completion:
2010 (1,425,000 - 50,000) ÷ 5,500,000
2011 (3,040,000 - 50,000) ÷ 5,000,000
Profit earned to date
Less: Gross profit earned in prior year
Gross profit earned this year
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2010
2011
P6,300,000 P6,300,000
1,425,000
_4,075,000
P5,500,000
800,000
3,040,000
_1,960,000
P5,000,000
1,300,000
25%
________– __59.80%
200,000
777,400
________– __200,000
P 200,000 P 577,400
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10-17:
185
a
Cash collections:
Progress billings
Less: Accounts receivable, end
Collection
P1,500,000
__500,000
P1,000,000
Cost incurred to date:
Construction in Progress
Less: Gross profit earned
Cost incurred to date
10-18: d
Percentage of Completion Method:
Contract price
Less: Total Estimated Costs
(1)
Cost incurred to date
Estimated cost to complete
(2)
Total estimated cost
Estimated Gross Profit
Percentage of completion (1 ÷ 2)
Gross profit earned to date
Less: Gross profit earned in Prior years
Gross Profit earned this year
Total Gross Profit 20 11 (P75,000 + P22,800)
P1,600,000
__200,000
P1,400,000
Apartment A
2010
2011
1,620,000 1,620,000
Apartment B
2010
2011
2,520,000 2,520,000
P 600,000 P1,200,000 P1,560,000 P2,310,000
840,000
240,000
690,000
–
1,440,000 1,440,000 2,250,000 2,310,000
180,000
180,000
270,000
210,000
_41.67%
_83.33%
_69.33% _100.00%
75,000
150,000
187,200
210,000
_______– ___75,000 _______– __187,200
P 75,000 P 75,000 P 187,000 P 22,800
P97,800
Zero Profit Method : P210,000 gross profit earned in 2011 for Apartment B.
10-19: d
2010
Contract price:
2010
2011 (P6,000,000-P50,000)
Less: Total estimated costs
(1) Cost incurred to date
Estimated cost to complete
(2) Total estimated cost
Estimated Gross Profit
Percentage of completion (1 ÷ 2)
Gross profit earned to date
Less: Gross profit earned in Prior year
Gross Profit earned this year
186
2011
P6,000,000
_________ P5,950,000
2,340,000
260,000
2,600,000
3,400,000
____90%
3,060,000
_______–
P3,060,000
2,650,000
–
2,650,000
3,300,000
___100%
3,300,000
3,060,000
P 240,000
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10-20:
a
(1)Cost incurred to date
(2)Estimated cost to complete
(3)Total Estimated Costs
2009
P3,400,000
1,600,000
5,000,000
Percentage of completion (1 ÷ 3)
68%
Contract price
Less: Total estimated cost
Estimated Gross Profit
Percentage of completion
Gross profit earned (loss) to date
Add: Cost incurred to date
Construction in Progress
Less: Contract billings
Balance
P6,000,000
5,000,000
1,000,000
68%
680,000
3,400,000
4,080,000
3,200,000
P 880,000
2010
2011
P5,950,000 P6,150,000
–
150,000
6,100,000 6,150,000
98%
100%
P6,000,000 P6,000,000
6,100,000 6,150,000
(100,000) (150,000)
100%
100%
(100,000) (150,000)
5,950,000 6,150,000
5,850,000 6,000,000
5,200,000 6,000,000
P 650,000
–
10-21: d
Construction in Progress:
Cost incurred to date, 2010
Gross profit (loss), 2010 (Schedule 1)
Less: Contract billings, 2009 (P3,250,000 x 75%)
P2,625,000
(125,000) P2,500,000
2,437,500
Excess of Construction in Progress over Contract Billings (CA)
P 62,500
Schedule 1 – Computation of gross profit earned:
2009
2010
P3,250,000 P3,250,000
Contract price
Total estimated cost:
Cost to date
Estimated cost to complete
1,075,000
1,612,500
2,625,000
750,000
2,687,500
3,375,000
Estimated gross profit (loss)
% of completion
562,500
40%
(125,000)
–
Gross profit (loss) to date
Gross profit earned in prior years
225,000
–
(125,000)
225,000
Total
Gross profit earned this year
P 225,000 P(350,000)
10-22: b
Contract price
Estimated cost:
Cost to date
Estimated costs to complete
Total
Estimated gross profit
% of completion
RGP to date
RGP in prior years
RGP each year
2008
P2,800,000
2009
2010
P2,800,000 P2,800,000
1,300,000
1,360,000
1,960,000
780,000
2,440,000
380,000
2,660,000
2,740,000
2,820,000
140,000
48.87%
68,418
68,418
60,000
71.53%
42,918
68,418
(25,500)
(20,000)
–
(20,000)
42,918
(62,918)
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Long-Term Construction Contracts
10-23:
187
a
2010
Contract price
Estimated costs:
Cost to date
Estimated cost to complete
Project A
P2,900,000
Project B
P3,400,000
Project C
P 1,700,000
1,680,000
1,120,000
1,440,000
1,760,000
320,000
960,000
2,800,000
3,200,000
1,280,000
100,000
60%
200,000
45%
420,000
25%
P 60,000
P 90,000
P 105,000
Project B
P3,400,000
Project C
P1,700,000
Project D
P 2,000,000
2,120,000
–0–
1,183,000
1,360,000
560,000
117,000
1,040,000
2,640,000
3,480,000
1,300,000
1,600,000
Total
Estimated gross profit
% of completion
Gross profit earned this year (P255,000)
2011
Contract price
Estimated costs
Cost to date2,640,000
Estimated costs to complete
Total
Project A
P2,900,000
Estimated gross profit (loss)
% of completion
260,000
100%
(80,000)
–
400,000
91%
400,000
35%
Gross profit (loss) to date
Gross profit earned in prior year
260,000
60,000
(80,000)
90,000
364,000
105,000
140,000
–0–
P 200,000
P(170,000)
P 259,000
P 140,000
Gross profit earned
General and administrative expenses
2010
P 255,000
120,000
2011
P 429,000
120,000
Net income
P 135,000
P 309,000
Gross profit earned this year(P429,000)
10-24: c
Contract price
Gross profit earned to date, 2008 (P900,000 – P100,000)
P10,000,000
800,000
Total cost to date, 2011
Less: cost incurred in 2011
9,200,000
4,100,000
Cost to date, 2010
P 5,100,000
Gross profit earned to date
Divided by % of completion:
(P5,100,000 + P900,000) / P10,000,000
P
Estimated gross profit, 2107
P 1,500,000
900,000
60%
10-25: d
Construction in progress:
Cost incurred to date
Gross profit earned to date (P2,500,000 – P2,000,000)
Total
Less: Contract billings (P2,500,000 x 30%)
Excess of contract billings over construction in progress (CL)
188
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P 440,000
110,000
550,000
750,000
P( 200,000)
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10-26:
10-27:
a
Contract price
Total estimated cost:
Cost incurred to date:
Site labor cost
Cost of construction materials
Depreciation of special plant & equip
Total
Estimated cost to complete
Estimated gross profit
Percentage of completion (45/100)
Gross profit to be recognized
a
Cost incurred to date- 2010
Total estimated cost (8,000,000 / 40%)
Estimated cost to complete
Cost incurred in 2010
Cost incurred in 2009
Estimated cost at completion- 2009
Total estimated cost- 2009
P120,000,000
10,000,000
30,000,000
5,000,000
45,000,000
55,000,000
20,000,000
8,000,000
100,000,000
20,000,000
45%
P 9,000,000
P12,000,000
3,700,000
8,300,000
12,450,000
P20,750,000
Percentage of completion- 2009 (8,300,000/ 20,750,000) = 40%
10-28:
a
2010
Contract price
Total estimated cost:
Cost incurred to date
Estimated cost to complete
Total estimated cost
Estimated gross profit
Percentage of completion
Gross profit recognized
Contract 1
P600,000
150,000
150,000
300,000
300,000
50%
P150,000
Contract 2
P450,000
87,500
162,500
250,000
200,000
35%
P70,000
2011
Contract price
Total estimated cost
Estimated gross profit
Percentage of completion
Gross profit earned to date
Gross profit earned in 2007
Gross profit earned this year
Contract 1
600,000
350,000
250,000
80%
200,000
150,000
50,000
Contract 2
450,000
300,000
150,000
60%
90,000
70,000
20,000
Actual cost incurred to date
Gross profit earned to date (P220,000 P214,000)
Construction in Progress, 12/31/011
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Contract 3
900,000
500,000
400,000
36%
144,000
144,000
P 640,000
434,000
P1,074,000
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10-29:
a
Bicol
Contract price
P875,000
Total estimated cost
Cost incurred
656,250
Est. cost to complete
Total estimated cost
656,250
Estimated gross profit
218,750
Percentage of completion
100%
Gross profit earned
P218,750
Total cost incurred
Total gross profit earned
Construction in progress
Less: Billings
Due from (to)
10-30:
10-31:
Davao
Aklan
P1,225,000 P437,500
175,000
700,000
875,000
350,000
20%
P 70,000
175,000
175,000
350,000
87,500
50%
P43,750
Percentage of completion
1,006,250
332,500
1,338,750
1,312,500
26,250
a
Contract price
Total estimated cost:
Cost incurred
Estimated cost to complete
Estimated gross profit
Percentage of completion
Gross profit recognized
Total
1,006,250
332,500
Zero Profit
1,006,250
218,750
1,225,000
1,312,500
(87,500)
P40,825,000
8,475,000
28,400,000
36,875,000
3,950,000
22.983%
P 907,830
a
Cost of direct materials used
Cost of direct labor, including supervision
Cost of indirect materials used
Depreciation of plant and equipment used on the contract
Payroll of design and technical department
Insurance costs
Costs of contracted research and development activities
General and administrative expenses
Borrowing costs
Total cost incurred to date
P220,000
150,000
55,000
120,000
80,000
60,000
105,000
30,000
130,000
P930,000
Estimated gross profit (P2,950,000 – P2,600,000)
% of completion (P930,000 / P2,600,000)
Realized gross profit
P350,000
35.77%
P125,195
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10-32: 1.
a
Project 1
P420,000
180,000
240,000
Contract price
Less total estimated costs
Estimated gross profit (loss)
% of completion:
Project 1 (P120,000 / P180,000)
Project 2
Realized gross profit (loss)
Expenses
Net income (loss), Dec. 31, 2011, P120,000
2.
Project 2
P150,000
175,000
(25,000)
66.67%
160,000
10,000
P150,000
100%
(25,000)
5,000
P(30,000)
a, Project 2 only.
10-33: a
Contract price
Total estimated costs
Estimated gross profit
% of completion *
Realized gross profit
AA
P384,000,000
350,240,000
33,760,000
5%
P1,688,000
BB
P35,000,000
30,552,000
4,448,000
75%
P3,336,000
CC
P175,000,000
143,640,000
31,360,000
75%
P23,520,000
DD
P99,400,000
91,200,000
8,200,000
50%
P4,100,000
* Actual cost incurred / Total estimated cost.
Total realized gross profit
P 32,644,000
Total cost incurred to date
193,756,000
Construction in progress
226,400,000
Billings:
Contract signing (P693,400,000 x 20%)
P 138,680,000
AA: P384,000,000 – (384,000 x 20%) x 5%
15,360,000
BB: P35,000,000 – (35,000,000 x 20%) x 75%
21,000,000
CC: P175,000,000 – (P175,000 x 20%) x 75% 105,000,000
DD: P99,400 - (P99,400 x 20%) x 50%
39,760,000 319,800,000
Due to
P 93,400,000
10-34:
b (P1.2 Billion x 10%)
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10-35:
Supporting Computation:
Contract price
Reduction due to delay
Net contract price
Less total estimated cost:
Cost incurred to date
Estimated costs to complete
Total
Estimated gross profit
% of completion (CITD / TEC)
Realized gross profit to date
Realized gross profit in prior years
Realized gross profit (loss) this year
1.
2.
3.
2009
P6,600,000
2010
P6,600,000
6,600,000
6,600,000
2011
P6,600,000
90,000
5,910,000
1,782,000
3,618,000
5,400,000
5,400,000
33%
396,000
P396,000
3,850,000
1,650,000
5,500,000
5,500,000
70%
770,000
396,000
P374,000
5,500,000
5,500,000
5,500,000
100%
410,000
770,000
P(360,000)
a
Realized gross profit
Operating expenses
Net income
P374,000
90,000
P284,000
a
Construction in progress (P770,000 + P3,850,000)
Contract billings
Balance
P4,620,000
3,100,000
P1,520,000
a
Construction in progress
Contract billings
Balance
P2,850,000
3,100,000
750,000
192
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SOLUTIONS TO PROBLEMS
Problem 10 – 1
(a)
Contract Price
Less: Total estimated cost
(1) Cost incurred to date
Estimated costs to complete
(2) Total
Estimated gross profit
Percentage of completion (1 ÷ 2)
Estimated gross profit to date
Less: Gross profit earned in prior year
Gross profit earned this year
(b)
Contract Price
Less: Total cost incurred
Gross profit
(c)
2010: Construction in Progress
Cost of construction
Construction Revenue
2011: Construction in Progress
Cost of Construction
Construction Revenue
2010
P 450,000
2011
P 450,000
200,000
__100,000
__300,000
150,000
______2/3
100,000
_______–
P 100,000
320,000
_______–
_320,000
130,000
___100%
130,000
__100,000
P 30,000
P 450,000
__320,000
P 130,000
100,000
200,000
300,000
30,000
320,000
350,000
Problem 10 – 2
(a)
(b)
Construction Revenue
Less: Cost incurred
Gross profit – 2011
P1,250,000
_1,250,000
P
–0–
Construction in Progress (cost incurred)
Less: Contract billings (P5,800,000 x 30%)
Billings in excess of related costs
P1,250,000
_1,740,000
P(490,000)
Contract price
Less: Total estimated costs
Cost incurred to date
Estimated costs to complete
Estimated gross profit
Percentage of Completion (P1,250,000 ÷ 500,000)
Gross profit
P5,800,000
Construction on Progress (P1,250,000 + P200,000)
Less: Contract billings
Billings in excess of related costs
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P1,250,000
3,740,000
5,000,000
800,000
_____25%
P 200,000
P1,450,000
_1,740,000
P(290,000)
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Problem 10 – 3
2008
2009
P55,000,000 P55,000,000
(a)
Contract Price
Less: Total estimated costs
(1) Cost incurred to date
Estimated costs to complete
(2) Total
Estimated gross profit
Percentage of completion (1 ÷ 2)
Gross profit earned to date
Gross profit earned in prior yr(s)
Gross profit earned the year
15,000,000
_35,000,000
_50,000,000
5,000,000
______30%
1,500,000
________–
P 1,500,000
(b)
25,000,000
25,000,000
50,000,000
5,000,000
_____50%
2,500,000
_1,500,000
P 1,000,000
2010
(1) Construction in Progress
Cash or Payable
15,000,000
(2) Accounts Receivable
Contract Billings
15,000,000
(3) Cash
Accounts Receivable
12,000,000
(4) Construction in Progress
Cost of Construction
Construction Revenue
1,000,000
15,000,000
15,000,000
2010
2011
P55,000,000 P55,000,000
35,000,000
15,000,000
50,000,000
5,000,000
_____70%
3,500,000
_2,500,000
P 1,000,000
50,000,000
________–
50,000,000
5,120,000
____100%
5,000,000
_3,500,000
P 1,500,000
2011
15,000,000
15,000,000
20,000,000
15,000,000
20,000,000
25,000,000
12,000,000
25,000,000
1,500,000
15,000,000
16,000,000
16,500,000
2009
P 1,000,000
P 9,000,000
11.11%
2010
2011
P 5,500,000 P10,000,000
P11,000,000 _12,000,000
50%
83.33%
2009
P15,000,000
2010
2011
P15,000,000 P15,000,000
1,000,000
__8,000,000
__9,000,000
6,000,000
___11.11%
666,600
________–
P 666,600
5,500,000 10,000,000
__5,500,000 __2,000,000
_11,000,000 _12,000,000
4,000,000
3,000,000
______50% ___83.33%
2000,000
9,500,000
___666,600 _2,000,000
P 1,333,400 P 500,000
Problem 10 – 4
(a)
Cost incurred to date
Divide by total estimated cost
Percentage of Completion
(b)
Contract Price
Less: Total Estimated Cost
Cost incurred to date
Estimated costs to complete
Total
Estimated gross profit
Percentage of completion
Gross profit earned to date
Less: Gross profit earned in prior yrs.
Gross profit earned this year
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Problem 10-4, continued:
(c)
(1) Construction in progress (cost incurred)
Cash
1,000,000
(2) Accounts Receivable
Contract Billings
1,325,000
(3) Cash
Accounts Receivable
1,200,000
(4) Construction in progress (gross profit)
Cost of construction
Construction Revenue
666,600
1,000,000
1,000,000
1,325,000
1,200,000
1,666,600
Problem 10 – 5
(1)
2008
P14,000,000
Contract Price
Less: Total Estimated Cost
Cost incurred to date
6,500,000
Estimated cost to complete
__6,800,000
Total
_13,300,000
Estimated gross profit
700,000
Percentage of completion
___48.87%
Gross profit (loss) to date
342,090
Less: Gross profit (loss) in prior yrs. ________–
Gross profit (loss) this year
P 342,090
(2)
2008
2009
P14,000,000
2010
2011
P14,000,000 P14,000,000
9,800,000
_3,900,000
13,700,000
300,000
___71.53%
214,590
___342,090
P( 127,500)
12,200,000
_1,900,000
14,100,000
( 100,000)
_____100%
( 100,000)
___214,590
P( 314,590)
2009
2010
13,900,000
________–
13,900,000
100,000
____100%
100,000
( 100,000)
P 200,000
2011
Cost of construction
6,500,000
3,300,000
2,400,000
1,700,000
Construction in progress 342,090
127,500
314,590
200,000
Construction Revenue
6,842,090
3,172,500
2,085,410
1,900,000
Problem 10 – 6
(1)
2008
Contract Price
P 6,000,000
Less: Total estimated costs
Cost incurred to date
3,400,000
Estimated costs to complete _2,100,000
Total
_5,500,000
Estimated gross profit
500,000
Percentage of completion
___61.82%
Gross profit (loss) to date
309,100
Gross profit (loss) in prior yrs.
________–
Gross profit (loss) this year
P 309,100
2009
P 6,000,000
2010
P 6,000,000
5,950,000
___150,000
_6,100,000
( 100,000)
_______–
( 100,000)
__309,100
P 409,100
6,150,000
________–
_6,150,000
( 150,000)
________–
( 150,000)
( 100,000)
P 50,000
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(2)
Cost of construction
Construction in progress
Construction Revenue
(3)
2008
2009
3,400,000
2,550,000
309,100
409,100
3,709,100
2,140,900
Cash
Accounts Receivable
Contract Billings
Construction in progress
2010
200,000
50,000
150,000
400,000
400,000
6,000,000
6,000,000
Problem 10 – 7
(1)
2009
P16,000,000
Contract Price
Less: Total Estimated Cost
Cost incurred to date
4,600,000
Estimated costs to complete
__9,640,000
Total
_14,240,000
Estimated gross profit
1,760,000
Engineer's estimate of comp.
______31%
Gross profit to date
545,600
Less: Gross profit earned in prior yrs. ________–
Gross profit earned this yr.
P 545,600
(2)
(a) Construction on progress
Cash
2010
P16,000,000
2011
P16,000,000
9,100,000
__5,100,000
_14,200,000
1,800,000
______58%
1,044,000
__545,600
P 498,410
14,350,000
_________–
_14,350,000
1,650,000
_____100%
1,650,000
_1,044,000
P 606,000
2009
4,600,000
2010
4,500,000
4,600,000
(b) Accounts receivable
Contract billings
5,000,000
(c) Cash
Accounts receivable
4,500,000
2011
5,250,000
4,500,000
6,000,000
5,000,000
5,000,000
6,000,000
5,400,000
4,500,000
5,250,000
5,000,000
6,100,000
5,400,000
6,100,000
(d) Cost of constructions
4,600,000
4,500,000
5,250,000
Construction in progress
545,600
498,400
606,000
Construction revenue
5,145,600
4,998,400
5,856,000
(e) Contract billings
16,000,000
Construction on progress
16,000,000
(3)
Zero Profit Method: 2011 Entries
(a) Construction in progress
Cash / accounts payable
(b) Accounts receivable
Contract billings
5,250,000
5,250,000
5,000,000
196
5,000,000
Chapter 10
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Problem 10-7, continued:
(c) Cash
Accounts receivable
6,100,000
(d) Cost of construction
Construction in progress
Construction revenue
5,250,000
1,650,000
6,100,000
6,900,000
(e) Contract billings
Construction in progress
(4)
16,000,000
16,000,000
The following entry would be the only one different from (2).
2009
2010
2011
4,414,400
3,821,600
6,114,000
545,600
498,400
606,000
4,960,000
4,320,000
6,720,000
*
Cost of construction
Construction in progress
Construction revenue
*
Total estimated costs x estimated percentage of completion.
Problem 10 – 8
(1)
Contract Price
Less: Total Estimated Costs
Cost incurred to date
Estimated costs to complete
Total
Estimated gross profit (loss)
Less: Gross profit (loss) in prior yrs.
Gross profit (loss) this years
(2)
2009
P6,500,000
2010
P6,500,000
2011
P6,500,000
2,150,000
_3,850,000
_6,000,000
500,000
________–
P 520,000
5,250,000
_1,500,000
_6,750,000
(250,000)
___520,000
P( 250,000)
6,850,000
________–
_6,850,000
(350,000)
_(250,000)
P( 600,000)
In 2011 when the project is completed.
Problem 10-9
1.
2.
3.
4.
5.
6.
P20,000 (P220,000 – P200,000)
P260,000 (P250,000 + P10,000)
P370,000 [P850,000 – (P220,000 + P260,000)]
P380,000 (P370,000 + PP10,000)
P830,000 (P200,000 + P250,000 + P380,000)
P86,095:
2011: 450/640 = 0.7031 x P850,000 = P597,635
Less cost to date
450,000
Gross profit to date
147,635
2010: 200/650 = 0.3077 x P200,000 =
(61,540)
RGP - 2011
P86,095
Long-Term Construction Contracts
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Problem 10-10
Building 1
a. Contract price
b. Cost to date
c. ECTC
d. TEC
e. Est. GP
a-d
f. % of comp.
b/d
g. RGP to date
axf
h RGP-prior yr
i RGP this yr
j CITD (b)
k CITD prior yr.
l CITD this yr.
m GP (loss)
Prior
To 2011
P4,000,000
2,070,000
1,380,000
3,450,000
Building 2
2011
P4,000,000
3,000,000
750,000
3,750,000
Prior
To 2011
P9,000,000
6,318,0000
1,782,000
8,100,000
550,000
250,000
60%
2,400,000
2,400,000
2,070,000
2,070,000
P330,000
Building 3
Bldg. 4
2011
P9,000,000
8,118,000
9,118,000
Prior
To 2011
P13,150,000
3,000,000
9,000,000
12,000,000
2011
P13,150,000
10,400,000
2,800,000
13,200,000
2011
P2,500,000
800,000
1,200,000
2,000,000
900,000
882,000
1,150,000
(50,000)
500,000
80%
78%
100%
25%
78.79%
40%
3,200,000
2,400,000
800,000
3,000,000
2,070,000
930,000
P(130,000)
7,020,000
7,020,000
6,318,000
6,318,000
P702,000
9,000,000
7,020,000
1,980,000
8,118,000
6,318,000
1,800,000
P180,000
3,287,500
3,287,500
3,000,000
3,000,000
P287,500
10,360,885
3,287,500
7,073,385
10,410,885*
3,000,000
7,410,885
P(337,500)
1,000,000
1,000,000
800,000
800,000
P200,000
*P10,360,885 + P50,000 = P10,410,885
1
Total revenue all buildings
Total costs – all buildings
Total gross profit – all buildings
2.
Revenue – Building 2
Cost – Building 2
Gross profit
Less anticipated loss on Building 3
Gross profit
Prior to 2011
P12,707,500
11,388,000
P1,319,500
2011
P10,853,385
10,940,885
P (87,500)
P9,000,000
8,118,000
P 882,000
( 50,000)
P 832,000
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198
Chapter 11
CHAPTER 11
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
11-1:
b
No revenue is to be reported. Because the franchisor fails to render substantial
services to the franchisee as of December 31, 2011.
11-2:
c
Initial franchise fee
Less: Cost of franchise
Net income
P5,000,000
____50,000
P4,950,000
11-3:
a
The total initial franchise fee of P500,000 is to be recognized as earned because the
collectibility of the note for the balance is reasonably assured.
11-4:
b
Cash downpayment
Collection of note applying to principal
Revenue from initial franchise fee
P 100,000
__200,000
P 300,000
a
Cash downpayment, January 2, 2008
Collection applying to principal, December 31, 2008
Total Collection
Gross profit rate [(5,000,000-500,000) ÷ 5,000,000]
Realized gross profit, December 31, 2008
P2,000,000
_1,000,000
3,000,000
_____90%
P2,700,000
b
Face value of the note (P1,200,000 - P400,000)
Present value of the note (P200,000 X 2.91)
Unearned interest income, July 1, 2008
P 800,000
__582,000
P 218,000
d
Initial franchise fee
Less: unearned interest income
Deferred revenue from franchise fee
P1,200,000
__218,000
P 982,000
d
Initial franchise fee
Continuing franchise fee (P400,000 X .05)
Total revenue
Cost
Net income
P 500,000
___20,000
520,000
___10,000
P 510,000
11-5:
11-6:
11-7:
11-8:
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11-9:
199
b
Deferred Revenue from franchise fee:
Downpayment
Present value of the note (P1,000,000 X 2.91)
Less: Cost of franchise fee
P6,000,000
2,910,000
Deferred gross profit
Gross profit rate (6,910,000 ÷ 8,910,000)
P8,910,000
_2,000,000
P6,910,000
77.55%
Downpayment (collection during 2008)
Gross profit rate
P6,000,000
___77.55%
Realized gross profit from initial franchise fee
Add: Continuing franchise fee (5,000,000 X .05)
P4,653,000
__250,000
Total
Less: Franchise expense
Operating income
Interest income, 12/31/05 (P2,910,000 X 14%) X 6/12
Net income
P4,903,000
___50,000
P4,853,000
__203,700
P5,056,700
11-10: b
Face value of the note receivable
Present value of the note receivable
P1,800,000
1,263,900
Unearned interest income
P 536,100
Initial franchise fee
Less: Unearned interest income
P3,000,000
__ 536,100
Deferred revenue from franchise fee
P2,463,900
11-11: b
Revenues from:
Adjusted sales value of IFF (P1,000,000 – 282,260)
Continuing franchise fee (P2,000,000 X .05)
Total revenue from franchise fees
P 717,740
100,000
P817,740
11-12: a
Realized gross profit from initial franchise fee [(350,000 + 180,000) x 37%]
Continuing franchise fee (P121,000 + P147,500) x 5%
P 196,100
___13,425
Total revenue
Expenses
209,525
___42,900
Net operating profit
Interest income (P900,000 x 15%) x 6/12
166,625
___67,500
Net income
P 234,125
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11-13:
Chapter 11
c
Cash down-payment
Present of the note (P40,000 x 3.0374)
P 95,000
__121,496
Total
P 216,496
11-14: a
Initial franchise fee
Continuing franchise fee (P400,000 x 5%)
P 50,000
__20,000
Total revenue
P 70,000
11-15: b
Initial franchise fee – down-payment (P100,000 / 5)
Continuing franchise fee (P500,000 x 1%)
P 20,000
__5,000
Total earned franchise fee
11-16:
P 25,000
a
The unearned interest to be credited is P180,000, the difference between the face
value and the present value of the notes receivable (900,000 – 720,000).
The non-refundable down payment of P600,000 is recognized as revenue since
it is a fair measure of the services already performed by the franchisor.
11-17:
11-18:
b
Cora (P100,000 + P500,000)
Dora (P100,000 + P500,000)
Total
P 600,000
600,000
P1,200,000
c
Down payment (3,125,000 x 40%)
Present value of notes receivable ( 1,875,000/4) 468,750 x 3.04
Adjusted sales value of initial franchise fee
Direct cost of services
Gross profit
P1,250,000
1,425,000
2,675,000
802,500
1,872,500
Gross profit rate (1,872,500 ÷ 2,675,000)
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70%
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Date
Collection
Interest
1/1
6/30
468,750
171,000
12/30
468,750
135,270
Total collection applying to principal
Down payment
Total collection
Gross profit rate
Realized gross profit on
initial franchise fee
11-19:
c
11-20:
d, The total initial franchise fee.
11-21:
a.
Initial franchise fee
Continuing franchise fee (9M x 5%)
Earned franchise fee
Principal
297,750
333,480
631,230
1,250,000
1,881,230
70%
Balance of PV of NR
P1,425,000
1,127,250
793,770
1,316,861
P500,000
450,000
P950,000
11-22:
b, because the collectivity of the note is reasonable assured, therefore all the initial
franchise fee is considered earned at December 31, 2011.
11-23:
a, should be P11,137.50 the interest income on December 31, 2011.
Interest income (P1,209,375 – P590,625) / 5 x 9/12 =P11,137.50.
No income is recognized in the initial franchise fee since the collectability of the note
Issued by Ms. Manalo is doubtful.
No continuing franchise fee is also recognize since no monthly sales is given.
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202
Chapter 11
SOLUTIONS TO PROBLEMS
Problem 11 – 1
a.
The collectibility of the note is reasonably assured.
Jan. 2:
Cash ..... ..............................................................................12,000,000
Notes receivable................................................................. 8,000,000
Deferred Revenue from IFF. ........................................
20,000,000
July 31: Deferred cost of Franchises ............................................... 2,000,000
Cash ..............................................................................
2,000,000
Nov. 30: Cash/AR.............................................................................
Revenue from continuing franchise fee (CFF) ..............
29,000
Dec. 31: Cash / AR...........................................................................
Revenue from CFF ........................................................
36,000
29,000
36,000
Cash .... .............................................................................. 2,800,000
Notes receivable ............................................................
Interest income (P8,000,000 x 10%) .............................
2,000,000
800,000
Adjusting Entries:
(1)
Cost of franchise revenue ........................................... 2,000,000
Deferred cost of franchises ..................................
2,000,000
(2)
Deferred revenue from IFF.........................................20,000,000
Revenue from IFF ...................................................
To recognize revenue from the initial franchise fee.
b.
20,000,000
The collectibility of the note is not reasonably assured.
Jan. 2 to Dec. 31 = Refer to assumption a.
Adjusting entry: to recognized revenue from the initial franchise fee (installment method)
(1)
(2)
To defer gross profit:
Deferred Revenue from IFF ........................................20,000,000
Cost of Franchise Revenue ...................................
Deferred gross profit – Franchises ......................
GPR = P18,000 ÷ P20,000,000 = 90%
To recognize gross profit:
Deferred gross profit – Franchises .............................12,600,000
Realized gross profit.............................................
(P14,000,000 X 90%)
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2,000,000
18,000,000
12,600,000
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Franchise Accounting
a.
203
Problem 11 – 2
Collection of the note is reasonably assured.
Jan. 5: Cash .. ..... .............................................................................. 600,000
Notes Receivable.................................................................... 1,000,000
Unearned interest income .................................................
Deferred revenue from F.F. ..............................................
Face value of NR ............................................................................
Present value (P200,000 x P2,9906) ..............................................
1,000,000
__598,120
Unearned interest ...........................................................................
401,880
Nov. 25: Deferred cost of Franchise ................................................
Cash ..............................................................................
179,718
Dec. 31: Cash / AR...........................................................................
Revenue from CFF ........................................................
(P80,000 X 5%)
4,000
Cash .... ..............................................................................
Notes Receivable ...........................................................
200,000
179,718
4,000
200,000
Adjusting Entries:
1) Unearned interest income ................................................. 119,624
Interest income............................................................
P598,120 x 20%
2) Cost of Franchise ..............................................................
Deferred cost of Franchise .........................................
b.
401,880
1,198,120
179,718
179,718
3) Deferred revenue from FF ................................................ 1,198,120
Revenue from FF ........................................................
Collection of the note is not reasonably assured.
Jan. 5 to Dec. 31 before adjusting entries – Refer to Assumption a.
Dec. 31: Adjusting Entries:
1) Unearned interest income ................................................. 119,624
Interest income ...........................................................
2) Cost of franchise................................................................
Deferred cost of franchise...........................................
119,624
1,198,120
119,624
179,718
179,718
3) Deferred revenue from FF ................................................ 1,198,120
Cost of Franchise ........................................................
Deferred gross profit – Franchise ..............................
GPR = 1,018,402 ÷ 1,198,120 = 85%)
179,718
1,018,402
4) Deferred gross profit – Franchise .....................................578,319.60
Realized gross profit – Franchise ...............................
(P600,000 + P200,000- P119,624) x 85%
578,319.60
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Chapter 11
Problem 11 – 3
2010
July 1:
Cash.. ...... ..... .............................................................................. 120,000
Notes Receivable .......................................................................... 320,000
Unearned interest income ......................................................
Deferred revenue from FF .....................................................
Face value of NR .......................................................................... P320,000
Present value (P80,000 x 3.1699) ................................................ _253,592
Unearned interest income ............................................................ P 66,408
Sept. 1 to
Nov. 15: Deferred cost of franchise ............................................................
Cash .. ..... ..............................................................................
(P50,000 + P30,000)
Dec. 31: Adjusting Entry:
Unearned interest income ............................................................
Interest income ......................................................................
(P253,592 x 10% x 1/2)
80,000
80,000
12,680
12,680
2011
Jan. 10: Deferred cost of franchise ............................................................
Cash .. ..... ..............................................................................
50,000
July 1:
80,000
Cash.. ...... ..... ..............................................................................
Note receivable ......................................................................
Dec. 31: Adjusting Entries:
(1) Cost of franchise ....................................................................
Deferred cost of franchise .................................................
50,000
80,000
130,000
130,000
(2) Deferred revenue from FF .....................................................
Revenue from FF ...............................................................
373,592
(3) Unearned interest income ......................................................
Interest income ..................................................................
25,360
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66,408
373,592
373,592
25,360
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Problem 11 – 4
2011
Jan. 10: Cash.. ...... ..... .............................................................................. 6,000,000
Deferred revenue from FF. ....................................................
6,000,000
Jan. 10 to
July 15: Franchise expense ........................................................................ 2,250,000
Cash .. ..... ..............................................................................
2,250,000
Deferred revenue from FF ........................................................... 4,000,000
Revenue from FF ...................................................................
Initial Franchise fee .....................................................................P6,000,000
Deficiency
Market value of costs (P180,000 ÷ 90%) x 10 yrs. ................( 2,000,000)
Adjusted initial fee (revenue) .......................................................P4,000,000
July 15: (a) Continuing expenses ..............................................................
Cash / Accounts payable ...................................................
a)
b)
4,000,000
180,000
(b) Deferred revenue from FF ..................................................... 200,000
Revenue from CFF ............................................................
(P180,000 ÷ 90%)
Problem 11 – 5
Adjusted initial franchise fee:
Total initial F.F.............................................................................
Less: Face Market value of kitchen equipment ............................
Adjusted initial FF........................................................................
Revenues:
Initial FF .. ..... ..............................................................................
Sale of kitchen equipment ............................................................
Continuing F.F. (P2,000,000 x 2%) .............................................
Total . ...... ..... ..............................................................................
Expenses:
Initial expenses ............................................................................. P 500,000
Cost of kitchen equipment............................................................ 1,500,000
Net income ..... ..... ..............................................................................
180,000
200,000
P4,500,000
_1,800,000
P2,700,000
P2,700,000
1,800,000
___40,000
4,540,000
_2,000,000
P2,540,000
Journal Entries:
Jan. 2: Cash .. ..... .............................................................................. 1,500,000
Notes receivable..................................................................... 3,000,000
Deferred revenue from FF (adjusted SV) ..........................
Revenue from FF (Market value of equipment) ................
2,700,000
1,800,000
Cost of kitchen equipment...................................................... 1,500,000
Kitchen equipment .............................................................
1,500,000
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206
Problem 11-5, continued:
Chapter 11
Jan. 18: Franchise expense ........................................................................
Cash.... ..............................................................................
500,000
500,000
April 1: Cash ...... ..... ..............................................................................2,000,000
Notes receivable ................................................................
2,000,000
Dec. 31: Cash ...... ..... ..............................................................................1,000,000
Notes receivable ................................................................
1,000,000
Cash / Account receivable ............................................................
Revenue from continuing FF .............................................
40,000
40,000
Deferred revenue from FF ........................................................... 2,700,000
Revenue from FF ...............................................................
2,700,000
Problem 11 – 6
Recognition of initial franchise fee (IFF) (6 mos. after opening)
Revenue from initial FF:
Total initial FF ..... ..............................................................................P2,500,000
Less: Deficiency in continuing FF (Sch. 1) ........................................ 160,000
Expense (costs of initial services) ...............................................................
Net income .. ... ...... ..... ..............................................................................
Schedule 1 – Estimated deficiency in CFF
(1)
Yr. of
Estimated
Contract
Continuing FF
1
P220,000
2
220,000
3
220,000
4
220,000
5
220,000
6
150,000
7
150,000
8
150,000
9
90,000
10
90,000
(2)
Market Value
of Continuing Services
P250,000
250,000
250,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
2,340,000
__700,000
P1,640,000
(Excess of 2 over 1)
Deficiency
P 30,000
30,000
30,000
–
–
–
–
–
35,000
__35,000
P160,000
Recognition of revenue from CFF and costs:
Years 1-3
Revenue from CFF ........................ P250,000
Expenses . ...... ..... ......................... _200,000
Net income ..... ..... ......................... P 50,000
Years 4-5
P220,000
_100,000
P120,000
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Years 6-8
P150,000
_100,000
P 50,000
Years 9-10
P125,000
_100,000
P 25,000
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Problem 11 – 7
1/12/2011
Revenue
Initial FF (Sch. 1)
Interest income –
Continuing FF –
Others
Expenses:
Initial expenses –
Continuing expense
Others
Net Income
6/1/2011
7/1/2011
6/30/2011
–
–
–
80,000
287,200
–
–
45,490*
48,000
–
–
–
–
( 50,000) ( 68,000)
P 12,500
P 12,000
( 70,000)
–
–
P217,200
–
( 36,000)
–
P 57,490
–
–
–
62,500
* P454,900 x 10% = P45,490
Schedule 1: Computation of initial FF to the recognized:
Total initial fee ...... ...................................................................................................
Less:
Interest unearned on the note ........................................................................
Market value of inventory ............................................................................
Market value of equipment ...........................................................................
Deficiency in continuing costs ......................................................................
Adjusted initial FF .. ...................................................................................................
A.
B.
P750,000
( 145,100)
( 80,000)
( 62,500
( 175,200)
P287,200
A
B
B
C
Unearned Interest:
Face value of the note ..........................................................................................
Present value (120,000 x 3.7908) ........................................................................
Unearned interest .................................................................................................
P600,000
454,900
P145,100
rounded
Market value of equipment and inventory:
Equipment (P50,000 ÷ 80%)................................................................................
Inventory ... ...... ...................................................................................................
P 62,500
80,000
Income from Sales:
Sales Price. ...... ..........................................
Cost .... ...... ...... ..........................................
Net income ...... ..........................................
C.
Equipment
P62,500
50,000
P12,500
Analysis of Continuing costs:
Market value of costs is P4,000/Mo. or P48,000 / yr.
Continuing Fees:
Years 1-4
Gross revenues ..........................................
P330,000/mo.
Gross fees per month ..................................
P 2,475/mo.
Gross fees per year ......................................
Market value of continuing costs ................
Deficiency per year .....................................
Number of years .........................................
Deficiency
..........................................
P 29,700
( 48,000)
( 18,300)
x4
P( 73,200)
Inventory
P80,000
68,000
P12,000
Total
P142,500
118,000
P 24,500
Years 5-16
P450,000/mo.
P 3,375/mo.
Years 17-20
P500,000/mo.
P 3,750/mo.
P 40,500
( 48,000)
(
7,500)
x 12
P( 90,000)
P 45,000
( 48,000)
(
3,000)
x4
P( 12,000)
Total deficiency for 20 years is P175,200
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208
Chapter 11
Problem 11-7, continued:
Dates of Revenue Recognition: .....................................................
January 12, 2011 ............................................................
June 1, 2011 ...................................................................
July 1, 2011 ....................................................................
June 30, 2012 .................................................................
Types of Revenue
Sale of equipment
Sale of inventory
Initial FF (as adjusted0
Interest income and
continuing revenue.
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