1.1 Partnership Formation
Problem 1 (ReSA)
On July 1, 2019, XX and YY decided to form a partnership. The firm is to take over
business assets and assume liabilities, and capitals are to be based on net assets
transferred after the following adjustments:
a) XX and YY’s inventory is to be valid at P31,000 and P22,000, respectively.
b) Accounts receivable of P2,000 in XX’s book and P1,000 in YY’s books are
uncollectible.
c) Accrued salaries of P4,000 for XX and P5,000 for YY are still to be recognized in
the books.
d) Unused office supplies of XX amounted to P5,000, while that of YY amounted to
P1,500.
e) Unrecorded patent of P7,000 and prepaid rent of P4,500 are to be recognized in
the books of XX and YY, respectively.
f) XX is to invest or withdrew cash necessary to have a 40% interest in the firm.
Balance sheets for XX and YY on July 1 before adjustments are given below:
Determine:
1. The net adjustments – capital in the books of XX and YY:
a. XX, P7,000 net debit; YY, P2,000 net credit
b. XX, P5,000 net debit; YY, P7,000 net credit
c. XX, P7,000 net credit; YY, P2,000 net debit
d. XX, P5,000 net credit; YY, P7,000 net debit
2. The adjusted capital of XX and YY in their respective books.
a. XX – P65,000; YY – P102,000
c. XX – P77,000; YY – P98,000
b. XX – P63,000; YY – P107,000
d. XX – P77,000; YY – P93,000
3. The additional investment (withdrawal) made by XX:
a. P(15,000.00)
c. P3,000.00
b. P( 6,666.50)
d. P8,377.50
4. The total assets of the partnership after formation:
a. P235,333.50
c. P220,333.50
1
0
b. P230,000.00
d.
P212,000.00
5. The total liabilities of the partnership after formation:
a. P57,000.00
c. P54,000.00
b. P48,000.00
d. P51,000.00
6. The total capital of the partnership after formation:
a. P180,000.00
c. P163,333.50
b. P178,333.50
d. P155,000.00
7. The capital balances of XX and YY in the combined balance sheet:
a. XX, P81,250; YY, P72,000
c. XX, P100,000; YY, P75,000
b. XX, P81,250; YY, P75,000
d. XX, P 62,000; YY, P93,000
Solution
1. D
2. D
3. A
4. D
From the accounting equation Asset = Liability + Capital
1
0
5. A
6. D
7. D
Problem 2 (ReSA)
On December 1, 2019, AA and BB formed a partnership with contributing the following
assets at fair market values:
AA
Cash ………………………………………
Machinery and equipment …..
Land ………………………………………
Building …………………………………
Office Furniture …………………….
P 9,000
13,500
13,500
BB
P 18,000
90,000
27,000
-
The land and building are subject to a mortgage loan of P54,000 that the partnership will
assume. The partnership agreement provides that AA and BB share profits and losses,
40% and 60%, respectively and partners agreed to bring their capital balances in
proportion to the profit and loss ratio and using the capital balance of BB as the basis.
The additional cash investment made by AA should be:
a. P18,000.00
b. P85,500.00
c. P134,000.00
d. P166,250.00
Solutions:
1
0
Problem 3 (ReSA)
CC and DD are joining their separate business to form a partnership. Cash and non-cash
assets are to be contributed for a total capital of P150,000. The non-cash assets to be
contributed and liabilities to be assumed are:
CC
DD
Book Value
Fair Value
Book Value
P11,250.00
11,250.00
P11,250.00
16,875.00
P30,000.00
18,750.00
15,000.00
33,750.00
5,637.50
5,625.00
3,750.00
Fair
Value
Accounts Receivable …
Inventories ………………..
P33,750.00
Equipment …………………
35,625.00
Accounts Payable ….....
3,750.00
The partner’s capital accounts are to be equal after all contributions of assets and
assumptions of liabilities.
Determine:
1. The total assets of the partnership.
a. P159,375.00
c. P140,625.00
b. P150,000.00
d. P112,500.00
2. The amount of cash that each partner must contribute:
a. CC – P37,500; DD – P9,375
c. CC – P80,625; DD – P78,750
b. CC – P37,500; DD – P5,625
d. CC – P63,750; DD – P5,625
1
0
Solution
1. A
2. A
Problem 4 (ReSA)
On December 1, 2018, EE and FF formed a partnership agreeing to share for profits and
losses in the ration of 2:3 respectively. EE invested a parcel of land that cost him 25,000.
FF invested 30,000 cash. The land was sold for 50,000 on the same date, three hours
after formation of the partnership. How much should be the capital balance of EE right
after formation?
a. 25,000
b. 30,000
c. 60,000
d. 50,000
Solution: The contribution of noncash assets to a partnership should be recorded based
on their fair value. In this case, the fair value of the land would be measured by its sales
price on the date of sale, P50,000
Problem 5 (ReSA)
On March 1, 2018, Coco and Martin formed a partnership with each contributing the
following assets:
Coco
1
0
Martin
Cash
Machinery and Equipment
Building
Furniture and Fixtures
300,000
250,000
100,000
700,000
750,000
2,250,000
-
The building is subject to mortgage loan of 800,000 which is to be assumed by the
partnership agreement provides that Coco and Martin share profits and losses 30% and
70% respectively. On March 1, 2018 the balance in Martin’s capital account should be:
a. 3,700,000
b. 3,140,000
c. 3,050,000
d. 2,900,000
Solution:
Cash
700,000.00
Machinery and Equipment
750,000.00
Building
2,250,000.00
Total assets invested
3,700,000.00
Mortgage assumed
Capital Balance of Martin
(800,000.00)
2,900,000.00
Problem 6 (PRTC)
Baser and Michelle have just formed a partnership. Baser contributed cash of P920,000
and office equipment that costs P422,000. The equipment had been used in his sole
proprietorship and had been 70% depreciated. The current value of the equipment is
P295,000. Baser also contributed a note payable of P87,000 to be assumed by the
partnership. The partners agreed on a profit and loss ratio of 50% each. Baser is to have
a 70% interest in the partnership. Michelle contributed only a merchandise inventory
from her sole proprietorship carried at P550,000 on a first-in- first-out basis. The current
fair value of the merchandise is P525,000.
To consummate the formation of the partnership Baser should make additional
investment or (withdrawal) of:
A. P224,000
B. P(30,000)
C. P97,000
D. P(80,000)
Solution:
Michelle’s total contribution
Interest Ratio
Total Capital
Baser’s Ratio
Required capital of Baser
P 525,000
30%
P 1,750,000
70%
P 1,225,000
1
0
Total contribution of Baser
(920,000+295,000-87,000)
(1,128,000)
97,000
Problem 7 (PRTC)
In 2018, Norma and Celso agreed to form a new partnership under the following general
agreements:
Partners’ contributions will be on a %:4 ratio; (2) Profit and loss, 5:5, and (3) Capital
credits 57:43 ratio, respectively to Norma and Celso. Their respective contributions will
come from old proprietorships they owned.
Norma contributed the following items and amounts:
Cash
P 748,800
512,000
Equipment (at book value per her proprietorship records)
Celso contributed the following items at their carrying amounts in the proprietorship
records:
Accounts receivable
Inventory
Furniture and fixtures
96,000
268,800
514,560
220,800
Intangibles
All the non-cash contributions are not properly valued. The two partners have agreed
that (a) P7,680 of the accounts receivable are uncollectible; (b) the inventories are
overstated by P19,200; (c) the furniture and fixtures are understated by P11,520; and
the intangibles include a patent with a carrying value of P13,440, which must now be
derecognized upon a court order. The rest of the intangible items are fairly valued.
1. How much is the total depreciable fixed asset recorded by the partnership?
a. P1,060,080
c. P1,116,480
b. P403,200
d. P1,041,480
2. What is the capital balance of Celso after the formation of the partnership?
a. 1,036,541
b. 1,339, 225
c. 1,325,808
d. 1,071,360
Solution:
1. D
Celso’s Contribution @ BV
Net decrease to FV
Celso’s Contribution @ FV
Contribution Ratio
FV of Norma’s Contribution
Cash of Norma
P 1,100,160
(28,800)
P 1,071,360
5/4
P 1,339,200
(748,800)
1
0
FV equipment investment
FV of Furniture and Fixture
Total Fixed Assets
590,400
526,080
P 1,116,480
2. A
Partner
N
C
Total
CC
P 1,374,019
CNA
P 1,339,200
P 34,819
1,071,360
1,036,541
P 2,410,560
Difference
(34,819)
P 2,410,560
-0-
Problem 8 (PRTC)
A, B and C formed the ABC Partnership on July 1, 2018, with the following assets,
measured at book values in their respective records, contributed by each partner:
Cash
A
B
C
P 200,000
P 150,000
P 150,000
38,500
68,900
Accounts receivable
Inventory
135,000
118,000
67,000
Plant, Property and Equipment (PPE)
950,000
460,000
380,000
A part of A’s contribution, P25,000, comes from his personal borrowings. Also, the PPE of
A and B are mortgaged with the bank for P160,000 and P16,500, respectively. The
partnership is to assume responsibility for these PPE mortgages. The fair value of the
accounts receivable contributed by C is P43,000 and her PPE at this date has a fair value
P365,000. All the other assets contributed are fairly valued. The partners have agreed to
share profits and losses on a 5:3:2 ratio, to A, B and C, respectively.
How much is the contribution of each partner? Calculate their contribution ratio.
Solution:
A
B
C
Total
200,000
150,000
150,000
500,000
38,500
43,000
81,500
Inventory
135,000
118,000
67,000
320,000
PPE
950,000
460,000
365,000
1,775,000
Total Assets
1,285,000
766,500
625,000
2,676,500
Liabilities
-160,000
-16,500
Cash
Accounts Receivable
1
0
-176,500
Net Asset
1,125,000
750,000
Net Assets
Contribution
Ratio
A
1,125,000
45%
B
750,000
30%
C
Total
625,000
2,500,000
25%
100%
625,000
2,500,000
What is the capital balance for each partner at July 1, instead, if the interest ratio is
agreed at 4:3:3 to A, B and C, respectively?
Answer:
A
1,000,000
(2,500,000 x 40%)
B
C
750,000
750,000
(2,500,000 x 30%)
(2,500,000 x 30%)
Total
2,500,000
Problem 9 (PRTC)
Roberts and Smith drafted a partnership agreement that lists the following assets
contributed at the partnership’s formation:
Contributed by
Cash
Roberts
Smith
20,000
30,000
Inventory
15,000
Building
40,000
Furniture & Equipment
15,000
The building is subject to a mortgage of P 10,000, which the partnership has assumed.
The partnership agreement also specifies that profits and losses are to be distributed
evenly.
1. What amounts should be recorded as capital for Roberts and Smith at the
formation of the partnership?
Roberts
Smith
A.
35,000
85,000
B.
35,000
75,000
C.
55,000
55,000
D.
60,000
60,000
Solution:
Roberts: 20,000 + 15,000 = P35, 000
1
0
Smith: 30,000 + 15,000 + 40,000 – 10,000 = P75,000
Problem 10 (PRTC)
The Grey and Redd Partnership was formed on January 2, 2010. Under the partnership
agreement, each partner has an equal initial capital balance. Partnership net income or
loss is allocated 60% to Grey and 40% to Redd. To form the partnership, Grey originally
contributed assets costing P30,000 with a fair value of P60,000 on January 2, 2010, and
Redd contributed P20,000 cash. Drawings by the partners during 2010 totaled P3, 000 by
Grey an P9,000 by Redd. The partnership net income in 2010 was P25,000
1. Under the goodwill method, what is Redd’s initial capital balance in the partnership?
A. 20,000
C. 40,000
B. 25,000
D. 60,000
Solution:
Contributed Capital
Agreed Capital
Increase (Decrease)
Grey
60,000
60,000
Redd
20,000
60,000
40,000
Total
80,000
120,000
40,000
Problem 11 (CRC-ACE)
On May 1, 2018, the business assets and liabilities of Nathan and Janice were as follows:
Nathan
Cash
Receivables
8,000.00
Inventories
Land, Building and Equipment
Other Assets
Accounts Payable
Janice
62,000.00
200,000.00
600,000.00
120,000.00
650,000.00
200,000.00
2,000.00
535,000.00
3,000.00
(180,000.00)
(250,000.00)
Nathan and Janice agreed to from a partnership by contributing their net assets, subject
to the following adjustments:



Receivables of P20,000 in Nathan’s books and P40,000 in Janice’s books are
uncollectible.
Inventories of P6,000 and P7,000 in the respective books of Nathan and Janice are
worthless
Other assets in both books are written off
1
0
Upon the partnerships formation:
1. The respective capital of partners Nathan and Janice would be_____________;
2. The total assets of the partnership would be_____________________.
Solution:
Nathan
Cash
Janice
Receivables
Inventories
8,000.00
200,000.00
120,000.00
62,000.00
600,000.00
200,000.00
Land Building and Equipment
650,000.00
535,000.00
3,000.00
Other Assets
2,000.00
(180,000.00)
Accounts Payable
800,000.00
(20,000.00)
(6,000.00)
Uncollectible
Inventories
Written off
(2,000.00)
Total Capital
772,000.00
(250,000.00)
1,150,000.00
(40,000.00)
(7,000.00)
(3,000.00)
1,100,000.00
Problem 12 (CRC-ACE)
James admits Dani as a partner in business. Accounts in the ledger of James on June 1,
2018, just before the admission of Dani, show the following balances:
Cash
P26,000
Accounts Receivable
120,000
Merchandise Inventory 180,000
Accounts Payable
James, Capital
P264,000
62,000
It is agreed that for purposes of establishing James’s interest, the following adjustments
should be made:



An allowance for doubtful accounts of 2% of accounts receivable is to be
established
The merchandise inventory is to be valued at P202,000.
Prepaid expenses of P6,500 and accrued expenses of P4,000 are to be established
Dani is to invest sufficient funds in order to receive a 1/3 interest in the partnership.
1. How much is the adjusted capital of James?
2. How much cash should Dani invest?
3. How much is the total assets of the partnership.
1
0
Solution:
Cash
26,000.00
A/R
120,000.00
180,000.00
Merchandise Inventory
A/P
(264,000.00)
62,000.00
2% Allow. For doubtful acc.
(2,400.00)
Merch. Inventory
22,000.00
Prepaid Exp.
6,500.00
(4,000.00)
84,100.00
42,050.00
Accrued Exp.
James adjusted cap. 2/3
Dani 1/3
126,150.00
James Capital
84,100.00
Dani Capital
42,050.00
Accounts Payable
264,000.00
Accrued Expense
4,000.00
Total Assets
394,150.00
Problem 13 (CRC-ACE)
The balance sheet as of July 31, 2018, for the business owned by Ethan, shows the
following assets and liabilities:
Cash
P100,000
Accounts Receivable 268,000
Merchandise
440,000
Fixtures
Accounts Payable
P328,000
57,600
It is estimated that 5% of the receivable will prove uncollectible. The cash balance
includes 1,000 share certificates of PNB at its cost, P8,000; the stock last sold on the
market at P70.00 per share. Merchandise includes obsolete items costing P36,000 that
will probably realize only P8,000. Depreciation has never been recorded; the fixtures are
2 years old, have an estimated life of 10 years, and would cost P480,000 if purchased
new currently. Sundry prepaid items amount to P10,000. ava is to be admitted as a
partner upon investing P400,000 cash and P200,000 merchandise.
1. What will be that total capital after the formation of the partnership?
Solution:
1
0
Cash
100,000.00
A/R
268,000.00
Merchandise
Fixtures
440,000.00
328,000.00
Accts. Payable
(57,600.00)
1,078,400.00
Unadjusted Cap.
Uncollectible
(13,000.00)
Share
62,000.00
Obsolete Merchandise
(28,000.00)
10,000.00
Prepaid Items
Depreciation
56,000.00
Investment
600,000.00
Adjusted Capital
1,765,400.00
Problem 14 (CRC-ACE)
Harold and Cherry are partners sharing profits 60:40. A balance sheet prepared for the
partnership on April 1, 2018 shows the following:
Cash
Accounts Receivable
Inventory
Equipment
Accumulated
Depreciation
Total Assets
48,000.00
Accounts Payable
92,000.00
Harold, capital
133,000
89,000
165,000.00
Cherry, capital
108,000
70,000.00
(45,000.00)
330,000.00
330,000.00
On this date, the partners afree to admit lucas as a partner. The terms of the agreement
is that assets and liabilities are to be restated as follows:




An allowance for possible uncollectible of P4,500 is to be established.
Inventories are to be restated at their present replacement values of P170,000
Equipment are to be restated at a value of P35,000
Accrued expenses of P4,000 are to be recognized.
Harold, Cherry, and Lucas will divide profits in the ratio of 5:3:2. Capital balances for the
new partners are to be in this ratio with Harold and Cherry making cash settlement
outside of the partnership for the required capital adjustment between themselves and
Lucas investing cash in the partnership for his interest.
Questions:
1. How much cash Lucas should contribute?
1
0
Solution:
H
136,900
C
110,600
L
61,875
309,375
17,787.5
(17,787.5)
0
154,687.5
92,812.5
61,875
309,375
Problem 15 (CRC-ACE)
Ferdinand and Daniel establish a partnership to operate a used-furniture business under
the name of F and D Furniture. Ferdinand contributes furniture that cost P60,000 and has
a fair value of P90,000. Daniel contributes P30,000 cash and delivery equipment that
cost P40,000 and has a fair value of P30,000. the partners agree to share profits and
losses 60% to Ferdinand and 40% to Daniel.
1. Calculate the peso amount of inequity that will result if the initial noncash
contributions of the partners are recorded at cost rather than fair market value.
Solution:
F
90,000
60,000
30,000
(12,000)
18,000
Should be
Recovered
U&D
Oshi
D
60,000
70,000
10,000
(8,000)
18,000
T
150,000
130,000
20,000
(20,000)
-0-
1.2 Partnership Operations
Problem 1 (ReSA)
Left and Right are partners. Their capital accounts during 2019 were as follows:
Left, Capital
8/23
P 3,000
1/1
4/3
10/31
Right, Capital
P15,000
4,000
3,000
3/5
P4,500
1/1
7/6
10/7
P 25,000
3,500
2,500
Partnership net income is P25,000 for the year. The partnership agreement provides for
the division of net income as follows:



Each partner is credited 10 percent interest on his or her average capital
(rounded to the nearest month)
Because of prior work experience of, Left is entitled to an annual salary of P6,000
and Right is credited with P4,000
Any remainder income or loss is to be allocated based on the beginning capital
1
0
How much of the partnership net income for 2019 should be assigned to Left and Right?
a. Left, P11,833.33; Right, P13,166.50 c. Left, P13,194; Right, P11,806
b. Left, P9,375; Right, P15,625
d. Left, P12,500; Right, P12,500
Solution:
Left
Right
Total
Interest
1,750.00
2,362.50
4,112.50
Salaries
6,000.00
4,000.00
10,000.00
Balance
4,083.00
6,804.00
10,887.50
11,833.00
13,166.50
25,000.00
Left
Right
15,000 x 3
45,000.00
25,000 x 2
50,000.00
19,000 x 5
95,000.00
20,500 x 4
82,000.00
16,000 x 2
32,000.00
24,000 x 3
72,000.00
19,000 x 2
38,000.00
26,500 x 3
79,500.00
210,000.00
Divide:
Average
Capital
283,500.00
12
12
Average
Capital
17,500.00
23,625.00
Problem 2 (ReSA)
Hunt, Rob, Turman and Kelly own a publishing company that they operate as a
partnership. The partnership agreement includes the following:



Hunt receives a salary of P10,000 and a bonus of 3% of income after all bonuses.
Rob receives a salary of P5,000 and a bonus of 2% of income after all bonuses.
All partners are to receive 10% interest on their average capital balances.
The average capital balances are Hunt, P25,000; Rob, P22,500; Turman, P10,000 and
Kelly, P23,500. Any remaining profit and losses are to be allocated among the partners.
a.
b.
c.
d.
Hunt, P20,725; Rob, P14,975; Turman, P7,725; Kelly, P9,075
Hunt, P14,000; Rob, P8,250; Turman, P1,000; Kelly, P2,350
Hunt, P19,850; Rob, P14,600; Turman, P8,350; Kelly, P9,700
Cannot be determined.
Solution:
Hunt
Rob
1
Turman
0
Kelly
Total
Salary
10,000.00
5,000.00
1,000.00
-
15,000.00
10% Interest
2,500.00
2,250.00
Bonus
Balance :
Equally
1,500.00
1,000.00
2,350.00
6,725.00
6,725.00
6,725.00
6,725.00
20,725.00
14,975.00
7,725.00
9,075.00
-
8,100.00
-
2,500.00
26,900.00
52,500.00
Problem 3 (ReSA)
PP and QQ are partners operating a chain of retail stores. The partnership agreement
provides for the following:
PP
QQ
Salaries …………………………………………………
P5,000
P2,500
Interest on capital balances …………………
10%
Bonus ……………………………………………………
20% of net income
before interest but
after bonus & salaries
Remainder …………………………………………….
30%
10%
70%
The income summary account for year 2019 shows a credit balance of P25,000 before
any deductions. Average capital balances for PP and QQ are P25,000 and P37,500,
respectively. The share of PP and QQ in the P25,500 net income would be:
a. PP, P12,031.25; QQ, P13,468.75
b. PP, P13,275.75; QQ, P12,229.25
c. PP, P11,750; QQ, P13,750
d. PP, P13,125; QQ, P12,375
Solution:
Salaries
PP
5,000.00
QQ
2,500.00
Total
7,500.00
10% Interest
2,500.00
3,750.00
6,250.00
Bonus
Balance 30%,
70%
3,000.00
-
3,000.00
2,625.00
6,125.00
8,750.00
13,125.00
12,375.00
25,500.00
Problem 4 (ReSA)
XX and YY formed a partnership on January 2, 2019 and agreed to share profits and loss
in the ratio of 90% and 10%, respectively. XX contributed capital of P6,250. YY
1
0
contributed no capital but has a specialized expertise and manages the firm full time.
There were no withdrawals during the year. The partnership agreement provides for the
following:
Capital accounts are to be credited annually with interest at 5% of the beginning
capital
YY is to be paid a salary of P250 a month
YY is to receive a bonus of 20% of net income calculated before deducting his
salary and interest on both capital accounts
Bonus, interest, and YY’s salary are to be considered as partnership expenses




The partnership’s income statement for 2019 follows:
Revenues ……………………………………………………………………………
P24,112.50
Less: Expenses (including salary, interest, and bonus)……
12,425.00
Net Income …………………………………………………………………………
11,687.50
1. What is YY’s 2019 bonus?
a. P2,922.00
c. P3,750.00
b. P3,000.00
d. P3,934.50
2. How much is the total share of YY on the 2019 partnership net income?
a. P7,084.50
c. P7,918.75
b. P7,162.50
d. P8,097.00
Solution:
1. C
Net Income after salaries interest and
bonus
11,687.50
Salaries
3,000.00
Interest
312.50
Net income after bonus
15,000.00
Divide
80%
Net income before salaries, interest and bonus
18,750.00
Bonus
3,750.00
20%
2. C
1
0
XX
5% Interest
YY
312.50
Total
-
312.50
Salaries
-
3,000.00
3,000.00
Bonus
-
3,750.00
3,750.00
10,518.25
1,168.75
11,687.00
10,830.75
7,918.75
18,749.50
Balance 9:1
Share in Net
Income
Problem 5 (ReSA)
The Trading Company, a partnership, was formed on January 1, 2019, with four partners,
DD, EE, FF, and GG. Capital contributions were as follows: DD, P25,000; EE, P12,500; FF,
P12,500; GG, P10,000. The partnership agreement provides that partners shall receive
5% interest in the amounts of their capital contributions. In addition, DD is to receive a
salary of P2,500 and EE a salary of P1,500. The agreement further provides that FF shall
receive a minimum of P1,250 per annum from the partnership and GG a minimum of
P3,000 per annum, both including amounts allowed as interest on capital and their
respective shares of profits. The balance of the profits is to be shared in the following
proportions: DD, 30%; EE, 30%; FF, 20%; and GG, 20%. Calculate the amount that must
be earned by the partnership during 2019, before any charges for interest on capital or
partners’ salaries, in order that DD may receive an aggregate of P6,250 including
interest, salaries and share of profits.
a. P 8,333.33
b. P 15,000.00
c. P15,333.33
d. P16,166.67
Solution:
DD
Salaries
EE
2,500.00
FF
1,500.00
GG
0.00
0.00
Total
4,000.00
Interest
1,250.00
625.00
625.00
500.00
3,000.00
Balance 3:3:2:2
2,500.00
2,500.00
1,666.00
1,667.00
8,333.00
6,250.00
4,625.00
2,291.00
2,167.00
15,333.00
833.00
833.00
3,000.00
16,166.00
Problem 6 (CRC-ACE)
David and Ruby organized the DR Partnership on January 1, 2018. the following entries
were made in their capital accounts during 2018:
Debit
David, capital:
1
0
Credit
January 1
180,000.00
April 1
50,000.00
October 1
10,000.00
Ruby, capital
January 1
March 1
September
November 1
60,000.00
10,000.00
20,000.00
10,000.00
Required:
If the partnership net income, computed before salaries, interest and bonus is P56,000
for 2018, indicate its division between the partners under each of the following
independent profit-sharing agreements:
a. Interest at 4% is allowed on average capital investments, and the balance is
divided equally.
b. A salary of P24,000 is to be credited to Ruby, 4% interest is allowed on each
partner on their ending capital balance, and the balance in the ratio of beginning
capital balances.
c. Salaries allowed to David and Ruby in the amounts of P34,000 and P38,000.
respectively, and remaining profits ad losses are divided in the ratio of average
capital balances.
d. A bonus of 10% of partnership net income is credited to David, a salary of
P16,000 is allowed to Ruby, and remaining profits and losses are shared equally.
(The bonus is regarded as an expense for purposes of calculating the bonus
amount).
DAVID
RUBY
43,101
180,000
*12/12
180,000
43,101
60,000
*12/12
60,000
43,191
(50,000)
*9/12
(37,500)
43,160
(10,000)
*10/12
8,333
43,374
(10,000)
*3/12
(2,500)
43,344
20,000
*4/12
6,667
140,000
43,405
10,000
1,666
80,000
*2/12
AVE.
CAP
DAVID
RUBY
TOTAL
120,000
A.
DAVID
RUBY
TOTAL
C.
60,000
INTEREST
5,600
2,400
8,000
SALARIES
34,000
38,000
72,000
BALANCE
24,000
24,000
48,000
BALANCE
(11,200)
(4,800)
(16,000)
29,600
26,400
56,000
22,800
33,200
56,000
DAVID
RUBY
TOTAL
D.
1
0
B.
DAVID
SALARIES
RUBY
TOTAL
SALARY
24,000
24,000
BONUS
5,091
BALANCE
17,455
17,455
34,909
22,546
33,455
56,000
INTEREST
4,800
3,200
8,000
BALANCE
18,000
6,000
24,000
16,000
16,000
5,091
56
,000
Problem 7 (CRC-ACE)
X,Y and Z, doctors, agree to form a partnership and to share profits in the ratio 5:3:2.
they also agreed that Z is to be allowed a salary of P140,000 and that Y is to be
guaranteed P105,000 higher as his share of the profits. During the first year of
operations, income from fees are P900,000, while expenses total P480,000.
How much of the profits should be credited to X?, to Y? to Z?
Solution:
X
Y
Z
SALARY
BALANC
E
PROFIT
TOTAL
140,000
140,000
140,000
84,000
56,000
280,000
140,000
84,000
196,000
420,000
(15,000)
21,000
(6,000)
125,000
105,000
190,000
420,000
Problem 8 (CRC-ACE)
Partners L and M share profits 3:1 after annual salary allowances of P400,000 and
P60,000, respectively; however, if profits are not adequate to meet the salary
1
0
Cash
A/R
Merchandise
100,000.00
268,000.00
440,000.00
328,000.00
(57,600.00)
1,078,400.00
Fixtures
Accts. Payable
Unadjusted Cap.
Uncollectible
(13,000.00)
Share
Obsolete Merchandise
62,000.00
(28,000.00)
10,000.00
56,000.00
600,000.00
Prepaid Items
Depreciation
Investment
Adjusted Capital
1,765,400.00
Problem 14 (CRC-ACE)
Harold and Cherry are partners sharing profits 60:40. A balance sheet prepared for the
partnership on April 1, 2018 shows the following:
Cash
Accounts Receivable
Inventory
Equipment
48,000.00
1
92,000.00
165,000.00
70,000.00
0
Accounts Payable
Harold, capital
Cherry, capital
89,000
133,000
108,000
Accumulated
Depreciation
Total Assets
(45,000.00)
330,000.00
330,000.00
On this date, the partners afree to admit lucas as a partner. The terms of the agreement
is that assets and liabilities are to be restated as follows:




An allowance for possible uncollectible of P4,500 is to be established.
Inventories are to be restated at their present replacement values of P170,000
Equipment are to be restated at a value of P35,000
Accrued expenses of P4,000 are to be recognized.
Harold, Cherry, and Lucas will divide profits in the ratio of 5:3:2. Capital balances for the
new partners are to be in this ratio with Harold and Cherry making cash settlement
outside of the partnership for the required capital adjustment between themselves and
Lucas investing cash in the partnership for his interest.
Questions:
1. How much cash Lucas should contribute?
1
0
Solution:
H
136,900
C
110,600
L
61,875
309,375
17,787.5
(17,787.5)
-
154,687.5
92,812.5
61,875
309,375
0
Problem 15 (CRC-ACE)
Ferdinand and Daniel establish a partnership to operate a used-furniture business under
the name of F and D Furniture. Ferdinand contributes furniture that cost P60,000 and has
a fair value of P90,000. Daniel contributes P30,000 cash and delivery equipment that
cost P40,000 and has a fair value of P30,000. the partners agree to share profits and
losses 60% to Ferdinand and 40% to Daniel.
1. Calculate the peso amount of inequity that will result if the initial noncash
contributions of the partners are recorded at cost rather than fair market value.
Solution:
F
90,000
60,000
30,000
(12,000)
18,000
Should be
Recovered
U&D
Oshi
D
60,000
70,000
10,000
(8,000)
18,000
T
150,000
130,000
20,000
(20,000)
-0-
1.2 Partnership Operations
Problem 1 (ReSA)
Left and Right are partners. Their capital accounts during 2019 were as follows:
Left, Capital
8/23
P 3,000
1/1
4/3
10/31
Right, Capital
P15,000
4,000
3,000
1
3/5
0
P4,500
1/1
7/6
10/7
P 25,000
3,500
2,500
Partnership net income is P25,000 for the year. The partnership agreement provides for
the division of net income as follows:



Each partner is credited 10 percent interest on his or her average capital
(rounded to the nearest month)
Because of prior work experience of, Left is entitled to an annual salary of P6,000
and Right is credited with P4,000
Any remainder income or loss is to be allocated based on the beginning capital
1
0
How much of the partnership net income for 2019 should be assigned to Left and Right?
a. Left, P11,833.33; Right, P13,166.50 c. Left, P13,194; Right, P11,806
b. Left, P9,375; Right, P15,625
d. Left, P12,500; Right, P12,500
Solution:
Left
1,750.00
6,000.00
4,083.00
11,833.00
Interest
Salaries
Balance
Left
15,000 x 3
19,000 x 5
16,000 x 2
19,000 x 2
Right
2,362.50
4,000.00
6,804.00
13,166.50
45,000.00
95,000.00
32,000.00
Right
25,000 x 2
20,500 x 4
24,000 x 3
50,000.00
82,000.00
72,000.00
38,000.00
26,500 x 3
79,500.00
210,000.00
Divide:
Average
Capital
Total
4,112.50
10,000.00
10,887.50
25,000.00
283,500.00
12
17,500.00
12
Average
Capital
23,625.00
Problem 2 (ReSA)
Hunt, Rob, Turman and Kelly own a publishing company that they operate as a
partnership. The partnership agreement includes the following:



Hunt receives a salary of P10,000 and a bonus of 3% of income after all bonuses.
Rob receives a salary of P5,000 and a bonus of 2% of income after all bonuses.
All partners are to receive 10% interest on their average capital balances.
The average capital balances are Hunt, P25,000; Rob, P22,500; Turman, P10,000 and
Kelly, P23,500. Any remaining profit and losses are to be allocated among the partners.
a.
b.
c.
d.
Hunt, P20,725; Rob, P14,975; Turman, P7,725; Kelly, P9,075
Hunt, P14,000; Rob, P8,250; Turman, P1,000; Kelly, P2,350
Hunt, P19,850; Rob, P14,600; Turman, P8,350; Kelly, P9,700
Cannot be determined.
Solution:
Hunt
Rob
1
0
Turman
Kelly
Total
Salary
10% Interest
Bonus
Balance :
Equally
10,000.00
2,500.00
1,500.00
5,000.00
2,250.00
1,000.00
1,000.00
-
2,350.00
-
15,000.0
8,100.0
2,500.0
6,725.00
6,725.00
6,725.00
6,725.00
20,725.00
14,975.00
7,725.00
9,075.00
26,900.0
52,500.0
Problem 3 (ReSA)
PP and QQ are partners operating a chain of retail stores. The partnership agreement
provides for the following:
PP
1
0
Salaries …………………………………………………
P2,500
Interest on capital balances …………………
QQ
P5,000
10%
10%
Bonus ……………………………………………………
20% of net income
before interest but
after bonus & salaries
Remainder …………………………………………….
30%
70%
The income summary account for year 2019 shows a credit balance of P25,000 before
any deductions. Average capital balances for PP and QQ are P25,000 and P37,500,
respectively. The share of PP and QQ in the P25,500 net income would be:
a. PP, P12,031.25; QQ, P13,468.75
b. PP, P13,275.75; QQ, P12,229.25
c. PP, P11,750; QQ, P13,750
d. PP, P13,125; QQ, P12,375
Solution:
Salaries
10% Interest
Bonus
Balance 30%,
70%
PP
5,000.00
2,500.00
3,000.00
QQ
2,500.00
3,750.00
-
Total
7,500.00
6,250.00
3,000.00
2,625.00
6,125.00
8,750.00
13,125.00
12,375.00
25,500.00
Problem 4 (ReSA)
XX and YY formed a partnership on January 2, 2019 and agreed to share profits and loss
in the ratio of 90% and 10%, respectively. XX contributed capital of P6,250. YY
1
0
contributed no capital but has a specialized expertise and manages the firm full time.
There were no withdrawals during the year. The partnership agreement provides for the
following:




Capital accounts are to be credited annually with interest at 5% of the beginning
capital
YY is to be paid a salary of P250 a month
YY is to receive a bonus of 20% of net income calculated before deducting his
salary and interest on both capital accounts
Bonus, interest, and YY’s salary are to be considered as partnership expenses
The partnership’s income statement for 2019 follows:
Revenues ……………………………………………………………………………
P24,112.50
Less: Expenses (including salary, interest, and bonus)……
12,425.00
Net Income …………………………………………………………………………
11,687.50
1. What is YY’s 2019 bonus?
a. P2,922.00
c. P3,750.00
b. P3,000.00
d. P3,934.50
2. How much is the total share of YY on the 2019 partnership net income?
a. P7,084.50
c. P7,918.75
b. P7,162.50
d. P8,097.00
Solution:
1
1. C
0
Net Income after salaries interest and
bonus
Salaries
Interest
11,687.50
3,000.00
312.50
Net income after bonus
15,000.00
Divide
Net income before salaries, interest and bonus
80%
18,750.00
20%
Bonus
3,750.00
2. C
1
0
XX
312.50
5% Interest
Salaries
Bonus
Balance 9:1
Share in Net
Income
YY
Total
312.50
-
10,518.25
3,000.00
3,750.00
1,168.75
3,000.00
3,750.00
11,687.00
10,830.75
7,918.75
18,749.50
Problem 5 (ReSA)
The Trading Company, a partnership, was formed on January 1, 2019, with four partners,
DD, EE, FF, and GG. Capital contributions were as follows: DD, P25,000; EE, P12,500; FF,
P12,500; GG, P10,000. The partnership agreement provides that partners shall receive
5% interest in the amounts of their capital contributions. In addition, DD is to receive a
salary of P2,500 and EE a salary of P1,500. The agreement further provides that FF shall
receive a minimum of P1,250 per annum from the partnership and GG a minimum of
P3,000 per annum, both including amounts allowed as interest on capital and their
respective shares of profits. The balance of the profits is to be shared in the following
proportions: DD, 30%; EE, 30%; FF, 20%; and GG, 20%. Calculate the amount that must
be earned by the partnership during 2019, before any charges for interest on capital or
partners’ salaries, in order that DD may receive an aggregate of P6,250 including
interest, salaries and share of profits.
a. P 8,333.33
b. P 15,000.00
c. P15,333.33
d. P16,166.67
Solution:
Salaries
DD
2,500.00
EE
1,500.00
Interest
1,250.00
Balance 3:3:2:2
2,500.00
6,250.00
FF
0.00
GG
0.00
Total
4,000.00
625.00
625.00
500.00
3,000.00
2,500.00
4,625.00
1,666.00
2,291.00
1,667.00
2,167.00
833.00
3,000.00
8,333.00
15,333.00
833.00
16,166.00
Problem 6 (CRC-ACE)
David and Ruby organized the DR Partnership on January 1, 2018. the following entries
were made in their capital accounts during 2018:
Debit
David, capital:
1
0
Credit
January 1
180,000.00
50,000.00
10,000.00
April 1
October 1
Ruby, capital
January 1
March 1
September1
November 1
60,000.00
10,000.00
0
20,000.00
10,000.00
Required:
If the partnership net income, computed before salaries, interest and bonus is P56,000
for 2018, indicate its division between the partners under each of the following
independent profit-sharing agreements:
a. Interest at 4% is allowed on average capital investments, and the balance is
divided equally.
b. A salary of P24,000 is to be credited to Ruby, 4% interest is allowed on each
partner on their ending capital balance, and the balance in the ratio of beginning
capital balances.
c. Salaries allowed to David and Ruby in the amounts of P34,000 and P38,000.
respectively, and remaining profits ad losses are divided in the ratio of average
capital balances.
d. A bonus of 10% of partnership net income is credited to David, a salary of
P16,000 is allowed to Ruby, and remaining profits and losses are shared equally.
(The bonus is regarded as an expense for purposes of calculating the bonus
amount).
DAVID
RUBY
43,101
180,000
*12/12
180,000
43,101
60,000
*12/12
60,000
43,191
(50,000)
*9/12
(37,500)
43,160
(10,000)
*10/12
8,333
43,374
(10,000)
*3/12
(2,500)
43,344
20,000
*4/12
6,667
140,000
43,405
10,000
1,666
80,000
DAVID
*2/12
AVE.
CAP
RUBY
120,000
A.
DAVID
RUBY
TOTAL
C.
60,000
TOTAL
INTEREST
5,600
2,400
8,000
SALARIES
34,000
38,000
72,000
BALANCE
24,000
24,000
48,000
BALANCE
(11,200)
(4,800)
(16,000
29,600
26,400
56,000
22,800
33,200
DAVID
RUBY
56,000
TOTAL
D.
1
0
B.
DAVID
SALARIES
RUBY
TOTAL
SALARY
24,000
24,000
BONUS
5,091
BALANCE
17,455
17,455
34,909
22,546
33,455
56,000
INTEREST
4,800
3,200
8,000
BALANCE
18,000
6,000
24,000
16,000
16,000
5,091
56
,000
Problem 7 (CRC-ACE)
X,Y and Z, doctors, agree to form a partnership and to share profits in the ratio 5:3:2.
they also agreed that Z is to be allowed a salary of P140,000 and that Y is to be
guaranteed P105,000 higher as his share of the profits. During the first year of
operations, income from fees are P900,000, while expenses total P480,000.
How much of the profits should be credited to X?, to Y? to Z?
1
0
Solution:
X
Y
SALARY
BALANC
E
PROFIT
Z
TOTAL
140,000
140,000
140,000
84,000
56,000
280,000
140,000
84,000
196,000
420,000
(15,000)
21,000
(6,000)
125,000
105,000
190,000
420,000
Problem 8 (CRC-ACE)
Partners L and M share profits 3:1 after annual salary allowances of P400,000 and
P60,000, respectively; however, if profits are not adequate to meet the salary
1
0
allowances, the entire profit is to be divided in the salary ratio. Profits of P90,000 were
reported for the year 2018. in 2019 it is ascertained that in calculating net income for
the year ended December 31, 2018, depreciation was overstated by P36,000 and ending
inventory was understated by P80,000.
What adjustments should be made on the capital of L and M?
Adjusting entry needed to correct the partner’s capital balances.
Solution:
L
M
TOTAL
40,000
60,000
100,000
25,500
8,500
34,000
SHOULD BE
65,500
68,500
134,000
MADE
(36,000)
(54,000)
(90,000)
ADJUSTMENTS
29,500
14,500
44,000
ENTRIES:
MDSE
8,000
AD
36,000
L
29,500
M
14,500
Problem 9 (CRC-ACE)
NEGOSYO TO Company a partnership was formed on January 1, 2018, with four partners,
C, P, A and S. Capital contributions were as follows: C- P1,000,000; P-P500,000; AP500,000; and S- P400,000. the partnership agreement provides that each partner shall
receive 5%interest on the amount of his capital contribution. In addition, C is to receive a
salary of P100,000 and P a salary of P60,000 which are to be charged as expenses of the
business. The agreement provides that A shall receive a minimum of P50,000 per annum
from the partnership and S a minimum of P120,000 per annum, both including amounts
allowed as interest on capital and their respective shares of profits. The balance of the
profits to be shared in the following proportions: C- 30%; P- 30% A- 20% and S-20%.
Calculate the amount that must be earned by the partnership during 2018, before any
charge for interest on capital or partners ‘ salaries, in order that C may receive an
aggregate of P250,000, including interest, salary and share of profits.
1
Solution:
0
C
P
INTERES
T
50,000
125,000
0
SALARIE
S
100,000
60,000
A
25,000
S
20,000
TOTAL
120,000
160,000
S
100,000
60,000
160,000
BALANCE
100,000
100,000
66,667
66,666
333,333
250,000
185,000
91,667
86,666
613,333
33,334
33,334
250,000
185,000
91,667
120,000
646,667
50,000
25,000
25,000
20,000
120,000
Problem 10 (CRC-ACE)
The following account balances appear in the ledger for the firm of X and Y at the end of
2018 before the profit for the year has been transferred to the partner’s accounts:
The following information is to be considered in closing the profit and loss account and
the drawing accounts:
 The cost of installing equipment at the beginning of 2018, P27,000, was charged
to expense. The installation relates to equipment with a 10-year life.
 The loan to the firm was made by X on March 1, 2018. No entry has been made
for interest on the loan, which is 6% and is to be paid to X at the time the loan is
prepaid.
The partnership agreement permits X and Y to withdraw weekly sums of P1,500 and
P2,250, respectively, these amounts to be regarded as salaries. Actual withdrawals by
partners differed from allowed amounts and are summarized in the drawing accounts.
Y, the managing partner, is entitled to special bonus of 25% of the net profit after
deduction of all special allowances to partners (including the bonus), and any remaining
profit is to be distributed equally.
1. How much should be the Dec. 31 ending capital balance of each partner?
Solution:
X
Y
TOTAL
1
0
PROFIT AND LOSS
302,5
00
SALARIE
S
78
,000
117
,000
195
,000
24
B
BALANC
E
DRAWIN
G
CAPITAL
,610
49
INSTALLATION
24
,610
49
ACCUP. DEP.
98
,220
,220
,440
127
,220
72,000
55
,220
500
,000
55
5,220
318
198
,050
,830
125,000
65
,830
500
,000
56
5,830
INTEREST
ADJUSTED PROFIT
27,0
00
2,700
326,8
00
8,750
318,0
50
Problem 11 (PRTC)
Linda and Mario created a partnership to own and operate a health-food store. The
partnership agreement provided that Linda receives an annual salary of P10,000 and
Mario a salary of P5,000 to recognize
their
relative time spent in operating the store.
1
0
Remaining profits and losses were divided 60:40 to Linda and Mario, respectively. Income
of P13,000 for 2017, the first year of operations, was allocated P8,800 to Linda and
P4,200 to Mario. On January 1, 2018, the partnership agreement was changed to reflect
P4,200 to Mario. On January 1, 2018, the partnership agreement was changed to reflect
the fact that Mario could no longer devote any time to the store’s operations. The new
agreement allows Linda a salary of P18,000, and the remaining profits and losses are
divided equally. In 2018, an error was discovered such that 2017 reported income was
understated by P4,000. The partnership income of P25,000 for 2018 included this P4,000
related to 2017.
1. In the reported new income of P25,000 for the year 2018, Linda would have
A. P21,900
B. P17,100
B. P0
D. P12,500
Solution:
2018 income to allocate (25,000-4000=21,000)
Salary
Remainder to divide
income
2017
understatement
Linda
18,000
Mario
Total
18,000
1,500
1,500
3,000
2,400
1,600
4,000
21,900
3,100
Problem 12 (PRTC)
Derha, a senior partner in a law firm, has a 30% participation in the firm’s profit and
losses. During 2018, Derha withdrew P130,000 against her capital but contributed
property with a fair value of P25,000. Derha’s capital increased by P15,000 during 2018.
2. The net income of the partnership for 2018 is
A. P150,000
C. P.350,000
B. P400,000
D. P550,000
1
0
Solution:
Increase in Capital
P 15,000
Contributed Property
(25,000)
Withdrawal
130,000
Share in Net Income
120,000
Ratio
30%
Net Income of Partnership
400,000
Problem 13 (PRTC)
Elmo, Fred and Greg invest P40,000, P30,000 and P25,000 respectively, in a partnership
on June 30, 2017. They agree to divide net income or loss as follows:
A. Interest at 10% on beginning capital account balances
B. Salaries of P10,000, P8,000 and P6,000, respectively to Elmo, Fred and Greg,
respectively.
C. Remaining net income or loss is divided equally
D. A minimum of P18,000 of income is guaranteed to Greg regardless of the result of
operations.
3. If the net income for the year ended June 30, 2018 before interest and salaries
allowances to partners was P44,000, the amount of the net income credited to
Elmo is:
A. P21,875
B. P20,000
C. P18,334
D. P14,500
Solution:
Interest
Salaries
Unallocated
Unadjusted
share
Guarantee
Greg
Elmo
4,000
10,000
3,500
to
Fred
3,000
8,000
3,500
17,500
1 14,500
0
(3,000)
(3,000)
Greg
2,500
6,000
3,500
Total
9,500
24,000
10,500
12,000
44,000
6,000
-
Net Income
11,500
14,500
18,000
44,000
Problem 14 (PRTC)
X, Y and Z are partners with average capital balances during 2018 of P120,000, P60,000
and P40,000, respectively. Partners receive 10% interest on their average capital
balances. After deducting salaries of P30,000 to X and P20,000 to Y, the residual profit or
1
0
loss is divided equally. In 2018 the partnership sustained a P33,000 loss before interest
and salaries to partners.
4. By what amount should X’s capital account change?
A. P7,000 increase
C. P11,000 decrease
B. P35,000 decrease
D. P42,000 increase
Solution:
Interest
Salaries
Unallocated
Total
X
12,000
30,000
(35,000)
7,000
Y
6,000
20,000
(35,000)
(9,000)
Z
4,000
(35,000)
(31,000)
Total
22,000
50,000
(105,000)
(33,000)
Problem 15 (PRTC)
Partners Joyce and Marie share profits 3:1 after annual salary allowances of P4,000 and
P6,000 respectively; however, if profits are not adequate to meet the salary allowances,
the entire profit is to be divided in the salary ratio. Profits of P9,000 were reported for the
year 2017. in 2018, it is ascertained that in calculating net income for the year ended
December 31, 2017, depreciation was overstated by P3,600 and the ending inventory
was understated by P800.
5. The amount of the net adjustments in the books of Joyce and Marie are:
Joyce
Marie
A
P(3,699)
P(1,813)
B
P2,950
P1,450
C
P8,188
P8,563
D
P2,300
P3,475
Solution:
2017 Net Income = 9,000
Joyce
4:6 Ratio
3,600
1
Marie
5,400
0
Total
9,000
2017 corrected Net Income = 9,000 + 3,600 + 800 = 13,400
Salaries
4,000
6,000
10,000
Unallocated (3:1)
2,550
850
3,400
Total
6,550
6,850
13,400
Ratio
(3600.00)
(5400.00)
Distribution
2,950
1,450
1
0
1.3 Partnership Dissolution
Problem 1 (ReSA)
A partnership had the following condensed balance sheet:
Assets
Cash
Noncash Assets
2,500.00
32,500.00
Liabilities and Capital
Liabilities
7,500.00
XX Capital (80%)
20,000.00
XX Loan
2,500.00
YY Capital (20%)
Total
37,500.00
10,000.00
37,500.00
The percentages in parentheses after the partner's capital balances represent their
respective interests in profits and losses. The partners agree admit ZZ as a member of
the firm.
1. ZZ purchases a ¼ interest in the firm. One fourth of each partner's capital is to
be transferred to the new partner. ZZ pays the partners which
is
divided
between them in proportion to the equities given up. The capital balances of XX,
YY, and ZZ after should be:
a.
b.
XX
YY
ZZ
15,000 7,500 9,375
12,500 12,500 12,500
1
XX
YY
ZZ
c. 15,000 7,500 7,500
d. 10,000 10,000 10,000
0
Solution:
X
X
YY
Z
Z
(20,000 x 3/4)
(10,000 x 3/4)
15,000.00
7,500.00
(30,000 x 1/4)
7,500.00
30,000.00
Problem 2 (ReSA)
WW desires to purchase a one-fourth capital and profit and loss interest in the
partnership of EE, GG, DD. The three partners agree to sell WW a one fourth of their
respective capital and profit and loss interest in exchange for a total payment of 40,000.
The capital accounts and the respective percentage interest in profits and losses
immediately before the sale to WW are:
EE, capital (60%)
GG, capital (30%)
DD, capital (10%)
80,000.00
40,000.00
20,000.00
Total
140,000.00
All other assets and liabilities are fairly valued and with no adjustments is to be recorded
prior to the acquisition by WW immediately after WW’s acquisition, what would be the
capital balances of EE, GG and DD respectively?
a. 60,000; 30,000; 15,000
b. 69,000; 34,500; 16,500
Solution:
1
0
c. 77,000; 38,500; 19,500
d. 92,000; 46,000; 22,000
EE
G
G
D
D
(80,000 x 3/4)
60,000.00
(40,000 x 3/4)
30,000.00
(20,000 x 3/4)
15,000.00
105,000.00
Problem 3 (ReSA)
The following condensed balance sheet is presented for the partnership of AA and BB
who share profit and losses in the ratio of 6:4 respectively:
1
0
Cash
Other Asset
BB, loan
33,750.00
468,750.00
22,500.00
525,000.00
Accounts Payable
AA, capital
BB, capital
90,000.00
261,000.00
174,000.00
525,000.00
The assets and liabilities are fairly valued on the balance sheet. AA and BB decide to
admit CC as a new partner with 20% interest. No bonus or goodwill is to be recorded.
What amount should CC contribute or invest in cash and other assets?
a. 82,500
b. 87,000
c. 105,000
d. 108,750
Solution:
AA, capital
BB, capital
Total
Divide:
Total Agreed Capital
CC's interest
261,000.00
174,000.00
435,000.00
80%
543,750.00
20%
108,750.00
Problem 4 (ReSA)
XX and YY are partners who have capital balances of 300,000 and 240,000 sharing
profits in the ratio of 3:2. ZZ is admitted as a partner upon investing 250,000 for a 25%
interest in the firm, profits are to be allocated equally. Given the choice between goodwill
and bonus method, ZZ will:
a.
b.
c.
d.
Prefer bonus method due to ZZ’s gain of 17,500
Prefer bonus method due to ZZ’s gain of 70,000
Prefer goodwill method due to ZZ’s gain of 70,000
Be indifferent for the goodwill and bonus methods are the same
1
0
Solution:
Bonus Method:
CC
X
X
YY
1
300,000.00
240,000.00
AC
Bonus
331,500.00
261,000.00
31,500.00
21,000.00
0
3/5
2/5
Z
Z
540,000.00
592,500.00
52,500.00
250,000.00
790,000.00
197,500.00
790,000.00
(52,500.00)
-
Goodwill Method:
XX
YY
ZZ
CC
300,000.00
240,000.00
540,000.00
250,000.00
790,000.00
AC
426,000.00
324,000.00
750,000.00
250,000.00
1,000,000.00
Goodwill
126,000.00
84,000.00
210,000.00
210,000.00
For purposes of comparing bonus and goodwill, goodwill is assumed not realized and it
should be written off outright as a loss, therefore:
XX
YY
ZZ
Capital balance if Goodwill method is
used
426,000.00
324,000.00
250,000.00
Less: write off of Goodwill (equally)
Capital balance after write off of goodwill
Capital balance of Bonus method is used
(70,000.00)
356,000.00
331,500.00
(70,000.00)
254,000.00
261,000.00
(70,000.00)
180,000.00
197,500.00
(7,000.00)
17,500.00
Gain (loss) if Bonus method is used
24,500.00
Problem 5 (ReSA)
DD, EE and FF are partners sharing profits and losses of 50%, 30% and 20% respectively.
The December 31, 2019 balance sheet of the partnership before any profit allocation was
summarized as follows:
ASSETS
LIABILITES AND CAPITAL
Cash
Inventories
Furn. & Fixt (net)
60,000.00
40,000.00
50,000.00
Accounts Payable
FF, loan
DD, capital
4,000.0
3,000.0
70,000.0
Patent
15,000.00
EE, capital
FF, capital
60,000.0
30,000.00
1
0
Total Assets
165,000.00
FF, drawings
Total Liabilities and Capital
(2,000.00
165,000.0
The partnership net income for the year amounted to 30,000. On January 1, 2020, FF has
decided to retire from the partnership and by mutual agreement among partners; the
following have been arrived at:
a. Inventories amounting to 5,000 is considered obsolete and must be written off
b. Furniture and fixtures should be adjusted to their current value of 65,000
c. Patents are considered worthless and must be written off immediately before the
retirement of FF
It was agreed that the partners will pay FF for his interest in the partnership inclusive of
loan balance
1. The interest of FF immediately before his retirement amounted to:
a. 37,000
c. 35,000
b. 36,000
d. 24,000
2. FF retires by receiving 36,000 cash payment at book value, the capital balances
of DD and EE after the retirement of FF:
a. DD, 82,500; EE, 67,500
c. DD, 67,500; EE, 58,500
1
0
b. DD, 85,000; EE, 69,000
d. DD, 57,500’ EE, 52,500
3. FF retires by receiving 38,000 cash (payment at more than book value), using
bonus method, the capital balances of DD and EE after the retirement of FF:
a. DD, 81,250; EE, 66,750
c. DD, 81,875; EE, 67,125
b. DD, 83,750; EE, 68,250
d. DD, 82,500; EE, 67,500
4. FF retires by receiving 38,000 cash (payment at more than book value), using
total implied goodwill method, the capital balances of DD and EE after the
retirement of FF:
a. DD, 87,500; EE, 70,500
c. DD, 81,875; EE, 67,125
b. DD, 83,750; EE, 68,250
d. DD, 82,500; EE, 67,500
Solution:
1. B
2. A
DD
EE
Unadjusted Capital
Share in Net Income
Total
70,000.00
15,000.00
85,000.00
60,000.00
9,000.00
69,000.00
Inventories written off
(2,500.00)
(1,500.00)
1
0
FF
30,000.00
6,000.00
36,000.00
(1,000.00)
Furniture and Fixtures
Patent
Adjusted Capital
7,500.00
(7,500.00)
82,500.00
4,500.00
(4,500.00)
67,500.00
3,000.00
(3,000.00)
35,000.00
3. A
Bonus Method (38,000-36,000) 2,000
DD
Capital
(2,000 x 5/8)
(2,000 x 3/8)
Capital Balances
82,500.00
(1,250.00)
EE
67,500.00
(750.00)
81,250.00
66,750.00
DD
82,500.00
5,000.00
EE
67,500.00
4. A
Capital
(10,000 x 50%)
(10,000 x 30%)
Capital Balances
3,000.00
87,500.00
70,500.00
Problem 6 (PRTC)
The capital accounts of the Sarah and Opel partnership on January 1, 2018 were:
Sarah, Capital (75% profit percentage)
P 140,000
Opel, Capital (25% profit percentge)
60,000
Total Capital
P 200,000
On October 1, Tina was admitted for a 40% interest in the partnership when she
purchased 40% of each existing partner’s capital for P100,000, paid directly to Sarah and
Opel. The partnership’s net income
1 for 0the year is P82,500 and 2/3 of it was earned in
the last quarter of the year.
1. What are the capital balances of Sarah, Opel and Tina after Tina s admission to the
partnership?
A. P105,000; P45,000; P100,000
B. P135,875; P55,313; P127,500
C. P96,375; P40,125; P91,000
D. P112,500; P50,000; P87,500
Solution:
1
0
Beginning
Balance
Net
Income
(27,500)
Adjusted
Net
Income
Purchase Interest
Ending Balance
Sarah
Opel
Tina
Total
140,000
60,000
200,000
20,625
6,875
27,500
160,625
66,875
227,500
(64,250)
(26,750)
91,000
96,375
40,125
91,000
227,500
2. How much will Sarah receive from the above transaction?
A. P71,000
C. P86,250
B. P92,500
D. P118,750
Solution:
Sarah
64,250
6,750
71,000
Opel
26,750
2,250
29,000
Total
91,000
9,000
100,000
3. Assume Tina is admitted by investing the P100,000 into the partnership for a 40%
interest, how much is the ending capital balance of Opel after admission and the
bonus (given)/received to/from Tina?
A. P68,750; (P6,250)
B. P79,063; (P13,125)
C. P89,063; P5,313
D. P59,125;(P7,750)
Solution:
Interest Ratio
40%
Partner
TAC
CAN
Sarah
137,375
160,625
Opel
Tina
Total
59,125
131,000
3,275,000
66,875
100,000
327,500
Difference
(23,250)
(7,750)
31,000
0
Problem 7 (PRTC)
The balance sheet at December 31, 2018, for the Beth, Daisy and Maya partnership is
summarized as follows:
1
0
Daisy is retiring from the partnership. The partners agreed that the partnership assets,
Assets
Loan to Daisy
Total
P 1,000,000
125,000
P 1,125,000
Liabilities
P 250,000
Beth Capital (50%)
375,000
Daisy Capital (40%)
375,000
Maya Capital (10%)
125,000
Total
P 1,1125,000
excluding Daisy’s loan, should be adjusted to their fair market value of P1,250,000 and
that Daisy should receive P380,000 for her capital balance net of the P125,000 loan.
How much is the capital balance of Beth and Maya immediately after Daisy’s retirement.
A. P475,000; P145,000
B. P500,000; P150,000
1
0
C. P481,250; P146,250
D. P385,416; P127,084
Solution:
Beg. Balance
Adjusment
Adjusted interest
Total Cash paid to
Daisy
Bonus
End. Balance
Beth
375,000
125,000
500,000
Daisy
375,000
100,000
475,000
-25,000
475,000
-505,000
30,000
0
Maya
125,000
25,000
150,000
Total
875,000
250,000
1,125,000
-5,000
145,000
-505,000
0
620,000
Problem 8 (PRTC)
On January 2, 2018, Lexy and Ace dissolve their partnership and transfer all assets and
liabilities to a newly formed corporation. At the date of incorporation, the fair value of the
net assets was P22,500 more than the carrying amount on the partnership’s books. Of
which P12,500 was assigned to tangible assets and P10,000 was assigned to patent.
Lexy and Ace were each issued 5,000 shares of the corporations P12.50 par common
stock.
5. Immediately following incorporation, additional paid-in capital in excess of par should
be credited for
A. P160,000
C. P25,000
B. P47,500
D. P137,500
Solution:
1
0
FV of Net Assets
PV of shares issued
(150,000+22,500
)
(10,000x12.5)
APIC
172,500
(125,000)
47,500
Problem 9 (PRTC)
On June 30, 2017, the balance sheet for the partnership of D, E and F, together with their
respective profit and loss ratios, is summarized as follows:
Assets, at cost
P 375,000
D, Loan
P 18,750
D, Capital (20%)
87,500
E, Capital (20%)
81,250
F, Capital (60%)
187,500
Total
P 375,000
D has decided to retire from the partnership, and by mutual agreement the assets are to
be adjusted to their fair value of P450,000 at June 30, 2018. It is agreed that the
partnership will pay D P127,500 cash for his partnership interest exclusive of his loan,
which is to be repaid in full.
1. After D’s retirement, what are the capital account balances of partners E and F,
respectively?
A. P81,250 and P187,500
B. P90,000 and P213,750
C. P121,250 and P307,500
D. P96,250 and P232,500
Solution:
1
Beg. Balance
D0
87,500
E
81,250
F
187,500
Total
356,250
Adjustment
Adjusted Balance
Cash Paid
Bonus
15,000
15,000
45,000
75,000
102,500
96,250
232,500
431,250
(127,500)
25,000
(127,500)
(6,250)
(18,750)
90,000
213,750
303,750
Problem 10 (PRTC)
Partners Boba and Tess, who share profits and losses equally, have decided to
incorporate the partnership at December 31, 2018. The partnership net assets after the
1
0
following adjustments will be contributed in exchange for share of stocks from the
corporation.
I. Provision of allowance for doubtful accounts, P6,250.
II. Adjustment of overstated equipment by P2,500
III. Adjustment of understated inventory by P13,750 and
IV. Recognition of additional depreciation of P5,000.
The corporation’s ordinary share is to have a par value of P250 each and the partners are
to be issued corresponding shares equivalent to 80% of their adjusted capital balances.
The partnership balance sheet at December 31, 2018 follows:
Cash
Accounts Receivable
Inventory
Equipment
Total
P 112,500
62,500
87,500
50,000
P 312,500
Liabilities
Accounts Payable
Boba, Capital
Tess, Capital
Total
P 107,500
5,000
106,250
93,750
P 312,500
1. Determine the total credit to APIC upon incorporation of partnership
A. P61,875
C. P40,000
B. P144,375
D. P140,000
Solution:
BV of Net Asset (106,250 + 93, 750)
Net Adjustment
FV
PV of Shares (200,000 x 80%)
Total credit of APIC for the excess of credits
200,000
200,000
(160,000)
40,000
2. The number of ordinary shares issued to Partner Tess is
A. 210
C. 238
B. 300
D. 217
Solution:
Tess' FV contribution
93,750
80%
PV of share issued to Tess
75,000
/250
Number of shares received by Tess
300
Problem 11 (CRC-ACE)
Capital balances and profit sharing percentages for the partnership of Aaron, Nimrod,
and Elijah on January 1,2018 are as follows:
Aaron (36%)
P140,000
1
0
Nimrod (24%) 100,000
Elijah (40%)
160,000
On January 2,2018 the partners agree to admit Ruth in the partnership for a 25%
interest in capital and earnings for her investment in the partnership of P120,000.
Partnership are not to be revalued.
a. The capital balance of Aaron, Nimrod, Elijah and Ruth, immediately after the
1
0
admission of Ruth would be:
b. What will be new profit and loss ratio for Aaron, Nimrod, Elijah, and Ruth, if old
partners will share profits using the old ratio?
Solution:
TAC
B
A
140,000
(36,000)
136,400
27%
N
100,000
(2,400)
97,600
18%
E
160,000
(4,000)
156,000
30%
R
120,000
(10,000)
130,000
25%
T
520,000
0
520,000
100%
Problem 12 (CRC-ACE)
The balance sheet of Dylan and Samuel Partnership at December 31, 218, appears
below:
Assets:
Cash
P35,000
Accounts Receivable (net)
25,000
Inventories
40,000
PPE (net)
110,000
P15,000
Liabilities:
Accounts Payable
45,000
Notes Payable
75,000
Accrued Liabilities
225,000
Mortgage Payable
Dylan, Capital
60,000
Samuel. Capital
90,000
P360,000
P360,000
Determine the capital balances of partners immediately after the admission of
Sebastian under the ff. independent situations:
1
0
a. Sebastian acquired 25% interest in the partnership capital directly from Dylan
and Samuel for P50,000. Sebastian paid P18,750 directly from Dylan and
P31,250 directly to Samuel. Total Assets of the partnership after the admission
of Sebastian were P360,000. How much must be the capital balance of Dylan
immediately after the admission of Sebastian.
b. Assume the same facts as in a except that total assets of the partnership were
P410,000 after the admission of Sebastian. At January 1,2019, inventories had
a fair value of P85,000, while PPE (net) had a fair value of P265,000. Both
Dylan and Samuel decided to revalue the partnership’s assets before the
admission of Sebastian. Determine the capital balance of Samuel immediately
after the admission of Sebastian
c. Sebastian acquired a 25% interest in capital by investing P50,000 of cash into
the partnership. Total capital of the Dylan-Samuel-Sebastian Partnership on
January 1,2019, amounted to P200,000. Determine the capital balance of
Sebastian immediately after his admission
d. Sebastian acquired 25% interest in capital by investing P80,000 of cash into
the partnership. Total capital of the Dylan-Samuel-Sebastian Partnership after
Sebastian’s admission amounted to P320,000. The fair value of the
inventories was P85,000 and the fair value of the PPE (net) was P305,000 on
January 1,2019. Determine the capital balance of Dylan, Samuel and
Sebastian immediately after Sebastian’s admission.
Solution:
B
D
60,000
1
0 3,750
15,000
S
90,000
22,500
8,750
S
50,000
200,00
0
A.
CAPITAL SOLD
GAIN/BONUS
SELLING PRICE
D
S
TOTAL
13,750 23,750 37,500
5,000
7,500 12,500
18,750 31,250 50,000
60,000+3,750= 46,250
B.
SEB.CA
P
REVAL. TAC
TCB
VAL.
50,000
200,00
0
150,00
0
1
D
D
60,000
90,000
0
20,000
30,000
120,00
0
0
80,000
0
SEB
TOTAL
0
150,00
0
50,000
200,00
0
400,00
0
18,750
61,250
31,250
50,00
0
200,00
0
C.
D
S
S
TCC
60,000
90,000
50,000
200,00
0
60,000
90,000
50,000
200,00
0
BONUS METHOD
D.
D
60,000
36,000
S
S
90,000
80,000
230,00
0
54,000
90,000
96,000
144,00
0
80,000
320,00
0
Problem 13 (CRC-ACE)
1. A, B and C have capital balances of P112,000, P130,000 and P58,000,
respectively and share profits in the ratio 3:2:1. D invest cash in the partnership
for a ¼ interest.
a. D receives a ¼ interest in the assets of the partnership, which includes credit
for 25,000 of goodwill that is recognized upon admission. How much cash D
invest?
b. D receives a ¼ interest in the assets of the partnership and B is credited with
P15,000 of the bonus from D, how much cash D invest?
Solution:
A.
A
B
C
D
TCC
112,00
0
130,00
0
58,000
1 75,000
0
375,00
0
25,00
0
25,00
0
300,000
100,00
0
400,000
B.
A
1
B
112,00
22,50
0
0
130,00
0
0
15,00
0
C
58,000
160,00
0
460,00
0
D
7,500
45,00
0
115,00
0
0
460,000
Problem 14 (CRC-ACE)
L, M and M are partners sharing profits in the ratio of 3:2:1, respectively. Capital accounts
are P500,000. P300,000 and P200,000 on December 31,2018, when N decides to
withdraw. It is agreed to pay P300,000 for N’s interest. Profits after the withdrawal of N
are to be shared equally.
Questions:
a. Using the bonus approach, how much are the capital balances of L and M after
N’s withdrawal?
b. Using the goodwill approach, how much are the capital balances of L and M
after N’s withdrawal?
Solution:
A.
L
CAP
440,0
00
N CAP.
L
M
200,00
0
60,000
40,000
CASH
M
260,0
00
300,00
0
B.
VALUATION
600,0
00
1
L
800,0
00
0
M
500,0
00
600,00
0
ASSET
CL
M
N
300,00
0
200,00
0
100,00
0
Problem 15 (CRC-ACE)
O, P and Q share profits in the ratio of 5:3:2, Q is permitted to withdraw from the firm on
December 31, 2018. Profits after withdrawal
of Q are to be shared 3:2. The partnership
1
0
balance sheet on this date is as follows:
Receivable from Q
P10,000
Liabilities
P80,000
Receivable from Q
Goodwill
Other Assets
P10,000
80,000
190,000
280,000
Liabilities
Payable to P
O, capital
P, capital
Q, capital
P80,000
30,000
70,000
60,000
40,000
280,000
a. Assuming that Q is paid P44,000 in full settlement of the capital interest and
P10,000 claim balance, using the bonus method of recording the withdrawal of
Q, how much are the capital balances of O and P after Q’s withdrawal?
b. Using the data in question A, using the goodwill method of recording the
withdrawal of Q, how much are the capital balances of O and P after Q’s
withdrawal?
Solution:
A.
PAID
44,000
1
0
CAP.
BONUS
-30,000
14,000
14,000*5/8 8,750-70,000= 61,250
5,250-60,000= 54,750
Q CAP
O CAP
P CAP
B.
40,000
8,750
5,250
R'BLE OF Q
CASH
O
P
10,000
10,000
44,000
-30,000
14,000 SHARE OF Q IN VALUATION
/2
70,000
1
0
1.4 Partnership Liquidation
Problem 1 (ReSA)
On December 31, 2019, the accounting record of MM, NN, OO Partnership (a general
partnership) included the following ledger account balances:
(Dr.) Cr.
(15,000.00)
(5,625.00)
18,750.00
MM, drawing
OO, drawing
NN, loan
1
0
MM, capital
NN, capital
OO, capital
76,875.00
62,812.50
67,500.00
Total assets of the partnership amounted to P299,062.50 including P32,812.50 cash and
partnership liabilities totalled, P93,750. The partnership was liquidated on December 31,
2019 and OO received P52,031.25 cash pursuant to the liquidation. MM, NN and OO
shared net income and losses in a 5:3:2 ratio, respectively.
1. The loss on realization
a. 9,843.75
c.
b. 15,468.75
d.
2. The amount realized from sale of non-cash assets?
a. 160,781.25
c.
b. 188,906.25
d.
3. The cash balance after payment of liabilities?
a. 156,093.75
c.
b. 193,593.75
c.
49,218.75
77,343.50
217,031.25
266,250.00
221,718.75
249,843.75
Solution:
1. C
2. C
3. A
Cash Proceeds
Book Value of Asset
(49,218.75)
Cash
2
)
Other Asset
32,812.50
266,250.00
217,031.25
249,843.75
266,250.00
-
Liabilities
93,750.00
MM
NN
OO
61,875.00
81,562.50
61,875.00
9,843.75
52,031.25
93,750.00
(93,750.00)
3
)
217,031.25
(266,250.00)
(93,750.00)
-
156,093.75
Problem 2 (ReSA)
Fleming, Durano and Mart are partners in a wholesale business. On January 1, 2019 the
total capital was P30,00 and drawings presented as follows:
Capitals
6,250.00
5,000.00
18,750.00
Fleming
Durano
Mart
1
0
Drawings
3,750.00
2,500.00
1,250.00
Partners agree that profit and loss ratio are shared equally. Because of the failure of
some debtors to pay their outstanding accounts, the partnership loses heavily and is
compelled to liquidate. After exhausting the partnership assets, including those arising
from an operating profit of P4,500 in 2019, they still owe P5,250 to creditors on
December 31, 2019. Fleming has no personal but the others are well off.
1. The partnership liquidation loss:
a. None
c. 27,750
b. 10,000
d. 32,250
2. The amount to be received by Mart as a result of the liquidation:
a. 818.75
c. 7,125
1
0
b. 4,875
d. 9,750
Solution:
Asset
Liabilities
5,250.00
Profit
Liquidation
Loss
Capital
22,500.00
4,500.00
5,250.00
32,250.00
Fleming
6,250.00
(3,750.00)
Capital
Drawings
Profit
Loss on Realization
27,000.00
Durano
5,000.00
(2,500.00)
Mart
18,750.00
(1,250.00)
2,500.00
2,500.00
17,500.00
1,500.00
1,500.00
1,500.00
(10,750.00)
(6,750.00)
6,750.00
-
(10,750.00)
(6,750.00)
(3,375.00)
(10,750.00)
8,250.00
(3,375.00)
(10,125.00)
4,875.00
Problem 3 (ReSA)
Following is the balance sheet of DD, EE and FF partnership (a general partnership) on
June 4, 2019 immediately prior to its liquidation:
Assets
Cash
Other Asset
Liabilities and Capital
6,000.00
94,000.00
1
0
Liabilities
EE, loan
DD, capital
EE, capital
FF, capital
20,000.00
4,000.00
27,000.00
39,000.00
10,000.00
100,000.00
Total
100,000.00
The partners shared net income and losses as follows: DD, 40%; EE, 40% and FF, 20%.
On June 4, 2019, the other cash were realized at P30,700 and P20,500 had to be paid to
liquidate the liabilities because of an unrecorded trade accounts payable of P500. DD
and EE were solvent, but FF’s personal liabilities exceeded personal assets by P5,000.
How much would each partner receive?
a.
b.
c.
d.
DD, 1,680; EE, 17,680; FF, 0
DD, 1,480; EE, 17,480; FF, 0
DD, 100; EE, 12,100; FF, 0
DD, 100; EE, 16,100; FF, 0
Solution:
40%
DD
27,000.00
(25,520.00)
1,480.00
(1,380.00)
100.00
40%
EE
43,000.00
(25,520.00)
17,480.00
(1,380.00)
16,100.00
Cash Beg.1
20%
FF
10,000.00
(12,760.00)
(2,760.00)
2,760.00
-
0
Proceeds
Payment of Liabilities
6,000.00
30,700.00
(20,500.00)
Total
80,000.00
63,800.00
16,200.00
Payment to Partners
16,200.00
Problem 4 (ReSA)
When Ray and Conniff, general partners of the Ray Conniff partnership who shared net
income and losses in a 4:6 ratio were incapacitated in an accident, a liquidator was
appointed to raise up the partnership. The partnership’s balance sheet showed the
following:
Assets
Cash
Other Asset
Goodwill
17,500.00
50,000.00
5,000.00
Liabilities and Capital
Liabilities
10,000.00
Ray, capital
35,500.00
Conniff, capital
27,000.00
72,500.00
Total
1
0
72,500.00
Liquidation expenses paid P2,500 for advertising, rent, travel, etc. and in the process of
liquidating the partnership an overlooked bill for landscaping of P1,000 is discovered and
in addition, partners agree to keep a P1,500 contingent fun. Determine the amount of
cash that should be paid to each partner:
a. Ray, 11,500; Conniff, 0
b. Ray, 2,500; Conniff, 0
c. Ray, 7500; Conniff, 0
d. Ray, 5,000; Conniff, 0
Solution:
40%
Ray
60%
Conniff
35,500.00
(24,000.00)
11,500.00
(9,000.00)
Total
27,000.00
(36,000.00)
(9,000.00)
9,000.00
-
2,500.00
62,500.00
60,000.00
2,500.00
2,500.00
Cash beg
17,500.00
Liquidation Expenses
Payment of Liability
Unrecorded
Cash Withheld
(2,500.00)
(10,000.00)
(1,000.00)
(1,500.00)
Payment to Partners
2,500.00
Problem 5 (ReSA)
The partnership of JJ, KK, LL and MM is preparing to liquidate. Profit and loss sharing
ratios are shown is the summarized balance sheet at December 31, 2019 as follows:
Assets
Cash
Inventories
Loan to KK
Other Assets
100,000.00
100,000.00
10,000.00
255,000.00
1
Total
0
465,000.00
Liabilities and Capital
Other Liabilities
50,000.00
JJ, loan
50,000.00
JJ, capital (40%)
100,000.00
KK, capital (20%)
160,000.00
LL, capital (20%)
50,000.00
MM, capital (20%)
55,000.00
Total
465,000.00
During January 2020, the inventories are sold for P42,500, the others liabilities are paid
and P25,000 is set-aside for contingencies
1
0
Compute the total cash payment to partners:
a.
b.
c.
Payment to
Partners
97,500.00
102,500.00
72,500.00
d.
67,500.00
Solution:
Cash beg.
100,000.00
Proceeds
Payment of Liability
Cash Withheld
Payment to Partners
42,500.00
(50,000.00)
(25,000.00)
67,500.00
Problem 6 (PRTC)
Partners Edong, Sally and Zarah decided to liquidate their partnership on November 30,
2017. Their capital balances and profit and loss are as follows:
Capitals
P&L ratio
Edong
P 600,000
40%
Sally
784,000
40%
Zarah
240,000
20%
The net income from January 1, 2017 to November 30, 2017 is P656,000. On November
30, 2017, the cash balance is P520,000, and that of liabilities is P1,160,000.
Edong is to receive P706,560 in the settlement of his interest.
1. Calculate: (1) The loss on realization, and (2) the amount to be realized from the
sale of non-cash assets?
A. (1) P 389,600 (2) P2,530,400
B. (1) P 248,000 (2) P5,100,000
C. (1) P 620,000 (2) P3,860,000
D. (1) P 522,000 (2) P3,860,000
Solution:
Beg. Balance
Edong
600,000
Sally
784,000
Zarah
240,000
Total
1,624,000
Net Income
262,400
262,400
131,200
656,000
1
0
Adjusted Balance
Cumulative Loss
Cash Payment
Book Value of NCA
Loss on Realization
Proceeds
862,400
(155,840)
706,560
(1,160,000
520,000)
1,046,400
(155,840)
890,560
+
2,280,000
371,200
(77,920)
293,280
2,280,000
(389,600)
1,890,400
2,920,000
(389,600)
2,530,400
Problem 7 (PRTC)
The partnership of Mikee and Rosa is in the process of liquidation. On January 1, 2017,
the ledger shows account balances as follows:
Cash
P 8,000
Accounts Payable
P 12,000
Accounts Receivable
20,000
Mikee, Capital
32,000
Lumber Inventory
32,000
Rosa, Capital
16,000
On January 10, 2017, the lumber inventory is sold for P20,000, and during January,
accounts receivable of P16,800 is 1collected.
0 No further collections on the receivables are
expected and the partners have incurred P3,200 of liquidation expenses. Profits are
shared 60% for Mikee and 40% for Rosa.
2. How much cash will partner Mikee and Rosa receive upon liquidation?
A. P22,800; P9,920
B. P37,600; P18,400
C. P20,960; P8,640
D. P20,500; P20,500
Solution:
Beg. Balance
Cumulative Loss
Mikee
32,000
(11,040)
Rosa
16,000
(7,360)
Total
48,000
(18,400)
Cash Payments
20,960
8,640
29,600
Problem 8 (PRTC)
The partnership ABC is currently liquidating and on February 15, 2017, their balances in
capital and their profit and loss ratios are shown below:
Apple, Capital (P&L 40%)
P 22,000
Bryan, Capital (P&L 20%)
14,000
Cecile, Capital (P&L 40%)
-12,000
Assume non-cash assets have been all disposed and Cecile has promised to pay his
deficiency in a week’s time.
1
0
3. Calculate the amount to be received by one of the partners if cash is paid immediately
on February 15, 2017.
A. Apple, P22,000
B. Bryan, P12,000
C. Bryan, P10,000
D. Apple, P12,000
Solution:
Balance
Apple
22,000
Bryan
14,000
Cecile
12,000
APL
-8,000
-4,000
-12,000
Free Interest
14,000
10,000
0
Problem 9 (PRTC)
The balance sheet for Chester, Joana and John partnership, who share profits and losses
in the ratio of 50%, 25% and 25%, respectively, shows the following balances just before
liquidation.
Cash
P 24,000
Other Assets
119,000
Liabilities
40,000
Chester, Capital
Joana, Capital
44,000
31,000
John, Capital
28,000
On the first month of liquidation, certain assets are sold for P64,000. Liquidation expense
of P2,000 are paid, and additional liquidation expenses are anticipated. Liabilities are
paid amounting to P10,800 and sufficient cash is retained to insure the payment to
creditors before making payments to partners. On the first payment to the partners,
Chester receives P12,500
4. Determine the amount of cash withheld for anticipated liquidation expenses.
A. P35,200
B. P29,200
C. P33,200
D. P6,000
Solution:
Chester
Beg.
44,000
1
0
Joana
John
Total
31,000
28,000
103,000
Balance
Loss
Cash
Payment
(31,500)
(15,750)
(15,750)
(63,000)
12,500
15,250
12,250
40,000
24,000 + 64,000 - 40,000 - 2,000 40,000
1
0
6,000
Problem 10 (PRTC)
A condensed balance sheet with profit sharing percentages for the E, F and G partnership
on January 1, 2017, shows the following:
Cash
Other Assets
P 100,000
500,000
Total
P 600,000
Liabilities
E, Capital (40%)
F, Capital (40%)
G, Capital (20%)
Total
P 80,000
100,000
250,000
170,000
P 600,000
On January 2, 2017, the partners decided to liquidate the business, and during January
they sell assets with a book value of P300,000 for P170,000.
5. How much cash will the partners receive if all available cash, except for a P10,000
contingency fund, is distributed immediately after the sale
A. All partners will receive P60,000
B. Partners F and G will both receive P90,000
C. Partner F will receive P96,667 and Partner G will receive P93,333
D. Partner F will receive P190,000
Solution:
Beg. Balance
E
100,000
F
250,000
G
170,000
Cumulative Loss
(136,000)
(136,000)
(68,000)
Balance
-36,000
114,000
102,000
Absorption
36,000
(24,000)
(12,000)
Cash
0
90,000
90,000
Problem 11 (CRC-ACE)
A, B, and C are partners sharing profits in the ratio of 5:3:2, respectively. A balance sheet
prepared just prior to partnership liquidation shows the following:
A
B
C
Capital Balances
P 122,000
P 72,000
P47,000
Loan Balances
P 43,000
P 48,000
P 6,000
Assets are sold and cash is distributed to partners in monthly instalments during the
course of liquidation as follows:
January
P 20,000
February
50,000
March
80,000
1
0
April (final distribution)
20,000
Required:
a. Prepare a program to show how cash is to be distributed during the entire course
of liquidation.
b. Using the program developed above, prepare a schedule summarizing the
payments to be made to partners at the end of each month.
Solution:
1
A.
CCP/ACDP
A
165,00
0
B
120,00
C
153,00
TOTAL EQUITY
0
/ P&L
0
1
330,00
0
P1
65,000
265,00
0
0
0.2
0.3
400,00 265,00
0
0
70,000
65,000
265,00 265,00
0
0
B.
T
JANUAR
Y
P1
FEBRUARY
P1
P2
MARCH
P2
TOTA
L
20,00
0
20,00
0
50,00
0
1,000
49,00
0
50,00
0
80,00
0
3,000
A
B
20,000
1,000
30,625
18,375
30,625
19,375
1,875
1,125
1
0
C
CASH
DISTRIBUTION
A
32,50
0
B
21,00
0
19,50
0
C
TOTAL
21,00
0
52,00
0
ANY CASH IN EXCESS OF 73,000
IS ALLOCATED AT P/L
P/L
APRIL
77,00
0
80,00
0
20,00
0
38,500
23,100
15,400
40,375
24,225
15,400
10,000
6,000
4,000
Problem 12 (CRC-ACE)
Elizabeth, Diana, Anthony, and Scarlett were partners who decided to liquidate the
affairs of the partnership. Prior to dissolution, the condensed balance sheet together with
the profit and loss sharing ratio was derived as follows:
Cash
Other Assets
P
100,000
1,800,000
Liabilities
Diana, Loan
Scarlett, Loan
Elizabeth,Capital (30%)
Diana, Capital (30%)
Anthony, Capital (20%)
Scarlett, Capital (20%)
P
1,900,000
P
750,000
60,000
50,000
420,000
315,000
205,000
100,000
P
1,900,000
The other assets were sold for P 1,200,000. Payments were made to creditors and final
distributions of cash were made to partners.
a. The partner who got paid the most was:
b. The cash received by Scarlett will be applied:
1
0
Solution:
E
420,00
0
180,00
0
240,00
0
D
A
S
375,00 205,00 150,00
0
0
0
180,00 120,00 120,00
0
0
0
195,00
0 85,000 30,000
1
0
TOTAL
1,150,0
00
600,000
550,000
A. E
B.
LOAN
Problem 13 (CRC-ACE)
D, E, and F are partners sharing profits in the ratio of 40:35:25, respectively. On
December 31, 2018, they agree to liquidate. A balance sheet prepared on this date
follows:
DEF Partnership
Balance Sheet
As of December 31, 2018
Cash
P 2,000
Liabilities
Other Assets
46,000
E, Loan
F, Loan
D, Capital
E, Capital
F, Capital
P 48,000
The results of liquidation are summarized below:
Realization
s
Book
Value
Cash
Realized
Expenses
of
Realization
January
P 12,000
P 10,500
P 500
February
7,000
6,000
750
March
15,000
10,000
600
April
12,000
4,000
400
All cash available, except the amount withheld for
at the end of each month.
P 6,000
5,000
2,500
14,450
12,550
7,500
P 48,000
Cash Withheld
at end of month Liability
Paid
for estimated
future expenses
P 2,000
P 4,000
1,250
2,000
500
future expenses, is distributed
Required: Determine the share of each partner every month of distribution.
Solution:
JAN.
1
FEB.
0
MARCH
APRIL
BEGINNING
PROCEEDS
EXPENS
E
LIABILITIES
CASH WITHELD
CAFD
2,000
10,500
4,000
6,000
1,250
10,000
500
4,000
-500
-6,000
-2,000
1 4,000
0
-750
-2,000
-1,250
6,000
-600
-400
-500
10,150
4,100
JANUAR
Y
D
14,450
-15,200
-750
750
0
17,550
-13,200
4,250
-440
3,812.50
F
10,000
-9,500
500
-312.5
187.5
14,450
13,737.5
0
9,812.5
0
38,000
(12,800)
(11,200)
(8,000)
(32,000)
1,650
2,540
1,813
6,000
MARCH
4,060
3,553
2,540
10,150
APRIL
1,640
1,435
1,025
4,100
TOTAL EQUITY
CAFD
FEBRUARY
E
Problem 14 (CRC-ACE)
1
0
TOTAL
42,000
-38,000
4,000
4,000
The balance sheet of J, K, and L Partnership shows the following information as of
December 31, 2018:
Cash
Other
Assets
P
2,000
Liabilities
28,000
J, Loan
J, Capital
K, Capital
L, Capital
P 30,000
P
5,000
2,500
12,500
7,000
3,000
P 30,000
Profit and loss ratio is 3:2:1, respectively, for J, K, and L. Other assets were
realized as follows:
Date
Cash Received
January, 2018
February, 2018
March, 2018
Cash is distributed as assets
1 are realized.
0
a. How much is the total loss to J?
Book Value
P 8,000
P 9,000
3,500
7,700
12,500
11,300
b. How much is the total cash received by K?
c. How much cash does L receive in January?
Solution:
J
TOTAL EQUITY
JANUARY
K
L
TOTAL
15,000
7,000
3,000
25,000
(2,000)
(1,333)
(667)
4,000
13,000
5,667
2,333
21,000
15,000
7,000
3,000
25,000
(10,000)
(6,667)
(3,333)
20,000
5,000
333
(333)
5,000
1
0
A
2,000
B
5,667
C
-0-
(200)
(133)
333
4,800
200
-
5,000
Problem 15 (CRC-ACE)
Balance sheet data for the firm of W, X, and Y as of January 1, 2018, follow:
Assets
P 1,225,000
Liabilities
P 1,225,000
P 675,000
W, Capital
X, Capital
200,000
200,000
Y, Capital
200,000
P 1,225,000
Partners share profits equally after allowance of a salary to Y, the managing partner, of
P7,500 monthly. As a result of operation losses sustained at the beginning of 2018, W
advanced P 150,000 to the firm on April 1; it was agreed that he would be allowed
interest at 6%. With continued losses, the members decided to liquidate. Y agreed to
take over partnership equipment in part of settlement of his interest, the transfer being
made at an agreed value of P 40,000. On November1, P 200,000 cash was available for
distribution to partners after the sale of remaining assets and payment of partnership
obligations to outsiders. Y had withdrawn his salary for January and February but had not
received his salary for the period of March 1 to November 1; no other cash payments had
been made to partners. Available cash was distributed on November 1 and the firm was
declared dissolved.
How much cash should W received in the distribution of P 200,000 cash available?
1
0
Solution:
W
1
X
0
Y
TOTAL
200,000
200,000
200,000
600,000
(1,750)
(1,750)
(5,250)
(40,000)
(40,000)
60,000
60,000
150,000
5,250
(1,750)
353,500
198,250
218,250
770,000
(190,000)
(190,000)
(190,000)
(570,000)
163,500
8,250
28,250
200,000
2.0 Corporate Liquidation
Problem 1 (ReSA)
The following data were taken from the statement of affairs for Liquo Company:
Asset pledged for fully secured liabilities
(fair value, P75,000)
Asset pledged for partially secured liabilities
(fair value, P52,000)
Free Assets (fair value, P40,000)
Unsecured Liabilities with priority
Fully secured liabilities
Partially secured liabilities
Unsecured liabilities without priority
90,000.00
74,000.00
70,000.00
7,000.00
30,000.00
60,000.00
112,000.00
1. Total estimated deficiency to unsecured creditors amounted to:
a. 27,000
c. 35,000
b. 34,000
d. 42,000
1
0
2. The expected recovery per peso of unsecured claims amounted to:
a. 0.35
c. 0.70
b. 0.65
d. 0.71
Solution:
Free assets on assets pledged to fully secured assets (75,000-30,000)
45,00
Free assets on assets pledged to fully secured assets (75,000-30,000)
40,00
Total Free assets
Less: Unsecured creditors w/ priority
Net free assets
Unsecured Creditors:
Partially secured creditors (60,000-52,000)
Unsecured creditors without priority
85,00
(7,00
78,00
8,000
112,000
Estimated deficiency to unsecured creditors
1
120,000
42,000
0
Expected recovery per peso of unsecured creditors
Net free assets / Total unsecured creditors
78,000/120,000
0.65
Problem 2 (ReSA)
Zero Na Corp. has been undergoing liquidation since January 1. As of March 31, its
condensed statement of realization and liquidation is presented below:
Assets:
Assets to be realized
Assets acquired
Assets realized
Assets not realized
Liabilities
Liabilities liquidated
Liabilities not liquidated
Liabilties to be liquidated
Liabilities assumed
Revenue and Expenses:
Sales on account
Purchases
Payment of expenses of trustee
1
0
95,000
5,000
30,000
42,000
35,000
31,850
65,000
1,500
5,000
1,500
7,500
Sales for cash
Interest on marketable securities
25,000
150
The net gain (loss) for the three-month period ending March 31 is:
a. 7,200
b. (7,200)
c. 49,500
d. (17,500)
Solution:
Statement of Realization and Liquidation
95,000
5,000
35,000
31,850
30,000
42,000
65,000
1,500
1,500
7,500
5,000
25,000
150
175,850
168,650
7,200
Problem 3 (ReSA)
Orville Company recently petitioned for bankruptcy and is now in the process of
preparing a statement of affairs. The carrying values and estimated fair values of the
assets or Orville Company are as follows:
Carrying Value
Cash
Accounts Receivable
Inventory
1
0
20,000
45,000
60,000
Fair Value
20,000
30,000
35,000
Land
Building (net)
Equipment (net)
Total
75,000
180,000
170,000
70,000
100,000
80,000
550,000
335,000
Debts of Orville are as follows:
Accounts payable
Wages payable (all have priority)
1
0
60,000.00
10,000.00
Taxes payable
Notes payable (secured by receivable and inventory)
Interest on Notes Payable
Bonds Payable (secured by land and building)
Interest on Bonds payable
Total
10,000.00
120,000.00
6,000.00
150,000.00
7,000.00
363,000.00
1. What is the total amounts of unsecured claims
a. 93,000
c. 121,000
b. 113,000
d. 126,000
2. What is the estimated amount will be available for general unsecured creditors
upon liquidation?
a. 28,000
c. 113,000
b. 93,000
d. 121,000
3. What is the estimated dividend percentage?
a. 23%
c. 77%
b. 93%
d. 68%
Solution:
1. 60,000 + [(120,000+)] – (30,000) + (35,000) = 121,000
2. 20,000+80,000+[170,000-(150,000+7,0000]=113,000–(10,000+10,000)=
93,000
3. 93,000/121,000= 77%
Problem 4 (ReSA)
Kareindeer Corporation filed a voluntary petition for bankruptcy on January 2016. On
March 31, 2016, the trustee provided the following information about the corporation’s
financial affairs:
Assets
Book Value
Cash
Accounts receivable- net
Inventories
Plant assets - net
Total Assets
40,000
200,000
300,000
500,000
1,040,000
Liabilities
Liabilities for priority claims
Accounts payable - unsecured
Notes payable, secured by accounts
receivable
Mortgage payable, secured by all plant
1
160,000
300,000
200,000
440,000
0
Est. Realizable
Value
40,000
150,000
140,000
560,000
a. Zero
b. 64,402
c. 66,402
d. 75,000
Solution:
1.
April 1, 2015
Cas
h
Notes Receivable (75k-25k)
25,000
50,000
Unearned Interest Income
8,598
Unearned Service Revenue (training)
2,000
Unearned Service Revenue (franchise)
(25,000+41,402-2,000)
64,402
2.
July 1, 2015
Unearned Service Revenue (training)
2,000
Unearned Service Revenue (franchise)
Franchise Revenue
64,402
64,402
Service Revenue (training)
2,000
Problem 2 (ReSA)
Wynne Inc. charges an initial franchise fee of P1,840,000 with P400,000 paid when the
agreement is signed and the balance in five annual payments. The present value of the
future payments, discounted at 10% is P1,091,744. The franchisee has the option to
purchase P240,000 of equipment for P192,000. Wynne has substantially provided all
initial services required and collectability of the payments is reasonably assured. The
amount of revenue from franchise fees:
a. 400,000
b. 1,443,744
c. 1,491,744
d. 1,840,000
Solution:
(400,000+1,091,744-(240,000-192,000) = 1,443,744
Problem 3 (ReSA)
1
0
Pasta Inn charges an initial franchise fee of P1,600,000 for a franchise, with P320,000
paid when the agreement is signed and the balance in four equal annual payments. The
present value of the annual payments, discounted at 10% is P1,014,000. The franchisee
has the right to purchase P60,000 of kitchen equipment and supplies for P50,000. An
additional part of the initial fee is for advertising to be provided by Pasta Inn during the
next five years. The value of advertising is P1,000 a month. Collectability of the
payments is reasonably assured and Pasta Inn has performed all the initial services
required by the contract. How much revenue from franchise fee to be recognized when
the agreement is signed?
a. Zero
b. 1,264,000
c. 1,590,000
d. 1,600,000
Solution:
Total Franchise Fee
1,600,000
Less: Unearned Interest Income
Amount due
Less: Present value of payments
1,280,000
1,014,000
Bargain purchase option (60,000-50,000)
(266,000)
(10,000)
Advertising (1,000x60 months)
(60,000)
Revenue from Franchise Fee
1,264,000
Problem 4 (ReSA)
Pacific Crossburgers Inc. charges an initial franchise fee of P70,000. Upon the signing of
the agreement (which covers 3 years), a payment of P28,000 is due. Thereafter, three
annual payments of P14,000 is required. The credit rating of the franchisee is such that it
would have to pay interest at 10% to borrow money. The franchise agreement signed on
May 1, 2015 and the franchise commences operation on July 1, 2015.
1. The amount of franchise revenue on May 1, 2015 assuming no future services are
required by the franchisor once the franchise starts operations:
a. Zero
c. 62,816
b. 28,000
d. 70,000
2. In relation to No. 2, the amount of franchise revenue on July 1, 2015:
a. Zero
c. 62,816
b. 28,000
d. 70,000
Solution:
1
0
1. May 1, 2015
Cash
28,000
Notes Receivable
42,000
Discount on notes receivable
7,184
Unearned Franchise Revenue
62,416
2.
July 1, 2015
Unearned Franchise Revenue
62,816
Franchise Revenue
62,816
Cash Payment
28,000
Present Value (14,000x2.48685)
34,816
Franchise Revenue
62,816
Problem 5 (ReSA)
TopChop sells hairstyling franchises. TopChop receives a P50,000 from a new franchisee
for providing initial training, equipment and furnishings that have a stand-alone selling
price of P50,000. TopChop also receives P30,000 per year for use of the TopChop name
and for ongoing consulting services (starting on the date of the franchise is purchased).
Carlos became a TopChop franchisee on July 1, 2016 and on August 1, 2016, had
completed training and was open for business. How much revenue in 2016 will TopChop
recognize for its arrangement with Carlos?
a. Zero
b. 10,000
c. 65,000
d. 70,000
Solution:
Yearly Fee (30,000x6/12)
15,000
Cash received
50,000
65,000
PROBLEM 6 (PRTC)
1
0
On January 1, 2018, MAXX SERVICES, INC. signed an agreement authorizing LALLA
COMPANY to operate as a franchisee over a 20-year period for an initial franchise fee of
P137,500 received when the agreement was signed. LALLA commenced operations on
August 1, 2018, at which date all of the initial services required of MAXX SERVICES had
been performed. The agreement also provides that LALLA must pay annually to MAXX a
continuing franchise fee equal to 5% of the revenue from the franchise. LALLA
COMPANY's franchise revenue for 2018 was P1,100,000.
For the year ended December 31, 2018, how much should MAXX SERVICES record as
revenue fror franchise fees with respect to the LALLA account?
C. P123,750
D. P 60,500
A. P192,500
B. P137,500
Solution:
FR-IFF
137,500
FR-CFF
55,000
Total FR
192,500
PROBLEM 7 (PRTC)
HARRYNAWA PRODUCTIONS has created a franchise based on the hit movie LORD OF
PRA NINGS. Many jumped on the LOPN bandwagon, and several franchise agreements
have been signed. At December 31, 2018 the following franchisees have open accounts
with HARRYNAWA:
YELLOW
GREEN
BLACK
BEIGE
125,000
125,000
125,000
125,000
437,500
250,000
568,750
343,750
25%
10%
94%
100%
Paid in:
Cash
Notes (face 750k), unpaid
Franchise services completed
Probability of collection
Likely
Unlikely
Likely
Likely
Continuing franchise fee
1% of NI
1% of NI
1% of NI
1% of NI
Period of refund
1/31/2019
2/28/2019
12/31/2018
1. Initial franchise fees earned from these four accounts aggregated at Dec. 31, 2018.
A. P 750,000
C. P1,162,500
B. P 1,200,000
D. P1,750,000
Solution:
1
0
12/31/200
No revenue shall be recognized for entities Yellow and Green since:
a. There is no substantial performance of initial services having completed 25% and 10%
for Yellow and Green, respectively.
b. Period of refund has not yet expired for both entities, thus amount paid is still
refundable.
Harrynawa Productions can recognize revenue for Black and Beige using ACCRUAL
Method since it is LIKELY that the balance will be collected. Recognition is computed as
follows:
DP
Notes
Total
Black
125,000
750,000
875,000
Beige
125,000
750,000
875,000
Total revenue for initial revenue
1,750,000
PROBLEM 8 (PRTC)
On January 2, 2018, JELLYFISH, INC. entered into a franchise agreement with KOOKIE
COMPANY to sell their products. The agreement provides for an initial franchise fee of
P3,515,625 payable as follows: P984,375 cash to be paid upon signing of the contract
and the balance in five equal annual payments every December 31, starting December
31, 2018. JELLYFISH signs a 15% interestbearing-note for the balance. The agreement
further provides that the franchisee must pay a continuing franchise fee equal to 3% of
its monthly gross sales. On October 31 the KOOKIE COMPANY completed the initial
services required in the contract at a cost of P1,125,000 and incurred indirect costs of
P225,000. The franchise commenced business operations on November 30, 2018. The
gross sales reported to the franchisor are November sales, P115,312 and December
sales, P133,594. The first installment payment was made on due date. Assume collection
of the note is not reasonably assured.
1. In its income statement for the year ended December 31, 2018, how much is the net
income recognized by KOOKIE COMPANY?
A. P1,216,069
C. P1,059,258
B. P 801,070
D. P 1,175,780
Solution:
DP 984,375
3,515,625
=
1
0
Note 2,531,250/5= 50,625
FR-IFF (984,375 + 2,531,250)
3,515,625
Franchise Cost
-1,125,000
DGP - Franchises
2,390,625
GRP (2,390,625/3,515,625)
68%
RGP (984,375 + 506,250) x 68%
1,013,625
FR-IFF (248,906 x 3%)
7,467
Interest Revenue (2,531,250 x 15%)
379,688
Expenses
-225,000
Net Income
1,175,780
PROBLEM 9 (PRTC)
On January 2, 2018, EXTREME COMPANY signed an agreement to operate as a franchisee
of BASIC PRODUCTS, INC., for an initial franchise fee of P2,500,000 for 10 years. Of this
amount, 40% was paid when the agreement was signed and the balance payable in four
semi-annual payments beginning on June 30, 2018. EXTREME signed a non-interestbearing note for the balance. EXTREME's rating indicates that it can borrow money at
24% on a loan of this type. Assume that substantial services amounting to P617,500 had
already been rendered by BASIC PRODUCTS, INC.
1. If the collection of the note is not reasonably assured, the realized gross profit to
be reported by BASIC for the year ended December 31, 2018 is:
A. P1,057,076
B. P855,225
C. P880,856
D. P1,070,646
Solution:
DP 1,000,000
2,500,000
=
Note 1,500,000/4= 375,000
Down payment
1,000,000
PV (375,000 x 3.04)
1,140,000
1
0
FR-IFF
2,140,000
Franchise Cost
DGP - Franchises
-617,500
1,522,500
GPR (1,522,500/2,140,000)
71.14%
RGP (1,000,000 + 238,200 + 266,784) x 71.14%) x 68%
1,070,646
PROBLEM 10 (PRTC)
On January 2, 2018 NAIKEE COMPANY signed an agreement to operate as a franchisee of
CONVERSE PRODUCTS, INC., for an initial franchise fee of P12,500,000 for 10 years. Of
this amount, P2,500,00 was paid when the agreement was signed and the balance
payable in four annual payments beginning on December 30, 2018. NAIKEE signed a
non-interest bearing note for the balance
NAIKEE's rating indicates that it can borrow money at 24% the loan of this type. Present
value of an annuity of 1 for 4 periods at 24% is 2.40.
Assume that substantial services amounting to P1,275,00 had already been rendered by
CONVERSE PRODUCIS. Indirect franchise cost paid amounted to P340,000.
1. Calculate the realized gross profit for 2018 assuming (1) collection of note is
reasonably assured or (2) collection of the note is not reasonably assured
A. (1) P 6,885,000; (2) P4,050,000
B. (1) P 7,225,000; (2) P3,026,000
C. (1) P11,225,000; (2) P4,250,000
D. (1) P 4,725,000; (2) P2,883,600
Solution:
DP 1,600,000
2,500,000
=
Note 6,400,000/4= 1,600,000
FR-IFF DP
1,600,000
NR @ PV (1,600,000 x 2.4)
3,840,000
Total
5,440,000
1
0
Franchise Cost
Gross Profit
-816,000
4,624,000
GPR (4,624,000/25,440,000)
85.00%
RGP (1,600,000 + (1,600,000 - 921,600) x 71.14%) x 85%
Discount
1,936,640
= PV xDR
= 3,840,000 x 24%
= 921600
PROBLEM 11 (CRC-ACE)
On January 1, 2018, Starbucks Company signed an agreement to operate as a franchisee
of perfect Pizza, Inc. for an initial franchise fee of P1,600,000 for a period of (10) years.
Of this amount P600,000 was paid when the agreement was signed and the balance
payable in five annual payments of P200,000 beginning December 31, 2018. Starbucks
signed a non interest bearing note for the balance. Starbucks rating indicates that it can
borrow money at 20% for a loan of this type. In return for the initial fee, the franchisor
agrees to make a market studies, find a location, train the employees, and perform other
related services. The following transactions describe the relationship with perfect pizza, a
franchisee:
2018
Jan. 1:
Entered into a franchise agreement.
April 1: completed a market study at a cost of P59,436 indirect cost of
services (general expenses), P5,000.
May 15:
found suitable location. Service cost P280,000.
Nov. 15:
completed training program for employees, cost P20,000.
Dec. 20
franchise outlet opened and business operations started.
Dec. 30:
received the first annual payment.
Required: prepare all entries on the books of the franchisor for 2018, assuming
the collection of the note is reasonably assured.
ANSWER:
1
0
Down payment
600,000
Notes receivable
598,000
Total franchise fee
(pv2.99x200,0000)
1,198,000
JOURNAL ENTRIES
Jan. 1
Cash
600,000
N/r
1,000,000
Unearned franchise fee
Discount
1,198,000
402,000
Apr-01
Deferred franchise cost
59,436
Expense
5,000
Cash
64,436
May-15
Deferred franchise cost
280,000
Cash
280,000
Nov. 15
Deferred franchise cost
20,000
Cash
20,000
Dec. 20 NO ENTRY
Dec. 31
Collection:
cash
200,000
N/r
200,000
Disc. On N/r
119,600
Int.
income.
119,600
PROBLEM 12 (CRC-ACE)
On September 1, 2018, Goldilocks Company entered into franchise agreements with
three franchisees. The agreement required an initial fee payment of P70,000 plus four (4)
1
0
P30,000 payments due every 4 months, the first payment due December 31, 2018. The
interest rate is 12%. The initial deposit is refundable until substantial performance has
been completed. The following describes each agreement.
Service performed
by Franchiser at
Franchise
Probability
Full
collection
Total cost incurred
Dec. 31, 2018
to Dec. 31, 2018
A
Likely
Substantially
70,000
B
Doubtful
25%
20,000
C
Doubtful
Substantially
100,000
For each franchisee, identify the revenue recognition method that you would recommend
considering the circumstances. Prepare the journal entries on the books of Goldilocks
Company to account the franchise. Assume P100,000 was received from each franchisee
during the year.
ANSWER:
A.
Deferred franchise cost
70,000
Cash
70,000
B.
Deferred franchise cost
20,000
Cash
20,000
C.
Deferred franchise cost
100,000
Cash
100,000
Collection:
Cash
30,000
N/R
30,000
Interest:
Discount
4,356(4% x 108,900)
Interest income
Cash
70,000
Collection
30,000
Interest
(4,356)
4,356
25,644
x 44.1%
42,179
1
0
PROBLEM 13 (CRC-ACE)
On January 2, 2018, REH signed an agreement to operate as a franchisee to
SAMGYUPSALAMAT Corp. for an initial franchise fee of P937,500 for 10 years. Of this
amount P187,500 was paid when the agreement was signed, and the balance was
payable in three annual payments beginning on December 31, 2018. REH signed a noninterest bearing not for the balance. REH’s rating indicates that h can borrow money at
18% for a loan of this type. Assume that substantial services amounting to P292,000 had
already been rendered by SAGYUMPSALAMAT and that indirect franchise cost of P25,500
was also incurred. PV is 2.17.
If the collection of the note is not reasonably assured, the net income for the year ended
December 31, 2018 is
ANSWER:
Down payment
187,500
Notes Receivable
542,500
Total Franchise Fee
730,000
Installment
Cash
187,500
Collection
250,000
Interest
(97,650)
-18% x 542,500
399,850
60%
Realized Gross Profit
203,910
Operating Exp
(35,500)
Net Income
276,060
PROBLEM 14 (CRC-ACE)
Each of Potter Pie Co’s. 21 new franchisees contracted to pay an initial franchise fee of
P30,000. By December 31, 2017, each franchise had paid a non-refundable P10,000 fee
and signed a note to pay P10,000 principal plus the market rate of interest on December
31,2018 and 2019. Experience indicates that one franchise will default on the additional
payments. Services for the initial fee will be performed in 2017. What amount of net
unearned franchise fees would Potter report at Dec. 31,2019?
ANSWER:
1
0
Down payment
(21 x 30,000)
630,000.00
Less: Default
(2 additional payments)
Unearned Franchise Fee
December 31, 2016
20,000.00
610,000.00
PROBLEM 15 (CRC-ACE)
At the beginning o the year, Zita Eat Haus got the franchise of Max, known steak house
of upscale patronage. The franchise agreement required a P500,000 franchise fee
payable P100,000 upon signing of the franchise and the balance in four annual
installments starting the end of the current year. At present value using 12% as discount
rate, the four installments would approximate P303,735. The fees once paid are not
refundable. The franchise may be canceled subject to the provisions of the agreement.
Should there be unpaid franchise fee attributed to the balance of main fee (P500,000),
the same would become due and demandable upon cancellation. Further, the franchiser
is entitled to a 5% fee on gross sales payable monthly within the first ten days of the
following month. The credit investigation bureau rated Zita as AAA credit rating. The
balance of the franchise fee was guaranteed by a commercial bank. The first year of
operations yielded gross sales of P9 million. Max’s earned franchise fees from Zita for the
first year of operation, amounted:
ANSWER:
Franchise
fees
during the year:
Initial
earned:
Franchise
earned
fee
Down payment
100,000
Installments
303,735
Continuing Franchise fee
(5% x 9 million)
1
0
450,000
853,735
4.4 Consignment Sales
Problem 1 (ReSA)
On June 1, DD Company shipped twenty five DVD to BB View Store on consignment. The
DVD is to be sold at an advertise price of P200 per item. The cost of each DVD to the
consignor is P100. The consignor paid P75 to ship the merchandise. Commission is to be
25% of sales price. During the month, two DVD were retuned.
On June 30, BB View Store remitted the amount due to consignor after deducting
commission of P400.
1. The amount remitted by BB View Store is:
a. 1,100
c. 1,200
b. 1,600
d. 2,000
2. The consignment profit is:
a. 370
b. 415
c. 720
d. 800
3. The cost of the inventory on consignment amounted to:
a. 1,400
c. 1,545
b. 1,550
d. 1,500
Solution:
1.
Sales price (400/25%)
1,600
Commission 25%
(400)
1,200
2.
Consignment Sales
1,600
Consignor's charges:
1
0
*Cost (8 units x P100)
800
Freight out (75/25units x 10)
30
Commission
400
Consignment Profit
(1,230)
370
1,600
* # of Units Sold
P200 per tape
8 tapes
3.
Cost (15 units x P100)
1,500
Freigh out (75/25unitsx15)
45
1,545
Problem 2 (ReSA)
On August 5, 2015, Famous Furniture shipped 20 dining sets on consignment to Furniture
Outlet Inc. The cost of each dining was P350. The cost of shipping the dining sets
amounted to P1,800 and was paid for by Famous Furniture. On December 30, 2014, the
consignee reported the sale of 15 dining sets at P850 each. The consignee remitted
payment for the amount due after deducting a 6% commission, advertising expense of
P300 and installation and set up costs of P390. The amount of cash received by Famous
Furniture is
a. 12,750
b. 11,985
c. 11,295
d. 11,685
Solution:
(15x P850) – (12,750x 6%) – 300- 390 = P11,295
Problem 3 (ReSA)
On August 5, 2015, Famous Furniture shipped 20 dining sets on consignment to Furniture
Outlet Inc. The cost of each dining was P350. The cost of shipping the dining sets
amounted to P1,800 and was paid for by Famous Furniture. On December 30, 2014, the
consignee reported the sale of 15 dining sets at P850 each. The consignee remitted
payment for the amount due after deducting a 6% commission, advertising expense of
P300 and installation and set up costs of P390. The total profit on units sold for the
consignor is
a. 11,295
b. 4,695
c. 6,045
d. 9,945
Solution:
1
0
P11,295 – (15 x P350) = P6,045
Problem 4 (ReSA)
TS Trading consigned 100 beds costing P600 each to PP Company. The advertised selling
price is P1,000 each bed. The consignment agreement provides that the consignee is to
be allowed a commission of 15% on the selling price. Furthermore, PP Company has to
draw sight draft for 60% of the cost of the beds; the advanced is to be recovered
periodically by monthly deductions (in proportion to units sold) from the remittance
which accompany the account sales. All expenses of consignee are to be deducted
monthly as incurred.
At the end of the first month, the consignee rendered an account sales showing among
others the following charges: Commission, P2,250; Advertising, P1,500; and Delivery
expense, P750.
1. The number of units sold by PP Co. is:
a. 10
b. 15
c. 20
d. 25
2. The amount remitted to TS Co. for the month is:
a. 1,500
c. 5,100
b. 4,500
d. 5,500
3. The consignment profit (loss) of TS Co. is?
a. 1,500
c. 3,412.50
b. 2,137.50
d. None of the above
Solution:
1.
Sales (2,250/15%)
15,000
Divided by: Selling price per unit
1,000
No. of units sold
15 units
2.
Sale
s
15,000
Less: Charges
Commission
2,250
Advertising
1,500
1
0
Delivery expense
750
Due to consignor
(4,500)
10,500
Less: Advances
Value of note (100 beds xP600) x 60%
36,000
Multiplied by: Proportional number of beds sold
Amount remitted
15/100
(5,400)
5,100
3.
Sale
s
15,000
Less: Charges
Cost of beds (600 per bed x 15 beds)
(9,000)
Commission
2,250
Advertising
1,500
Delivery expense
750
Consignment net income
(4,500)
1,500
Problem 5 (ReSA)
On October 1, 2014, the NN Company consigned one hundred wall clocks to P&G Retailer
Inc. Each wall clock had a cost of P150. Freight on the shipment was paid by NN
Company for P200. On December 1, 2014, P&G submitted on account sales stating that
it had sold sixty pieces and it was remitting the P12,480 balance due. The remittance
was net of the following deductions from the sales price of the wall clocks sold:
Commission (20% of sales price)
?
Advertising
500
Delivery and installation charges
100
1. What was the total sales price of the wall clocks sold by P&G Retailers Inc.?
a. 13,440
c. 16,800
1
0
b. 15,000
d. 17,000
2. What was the cost of the inventory on consignment?
a. 6,000
c. 6,280
b. 6,080
d. 6,320
Solution:
1.
Sales (unknown)
x
Less Charges:
Advertising
Delivery and installation
charges
500
Commission (unknown)
20%
100
Remittance
12,840
x- (P500 + P100 + 20%x) = 12,480
x - 20%x = 12,480 + 600
80%x = 13, 440
x = 16,800
2.
Cost (P150 per unit x 40 units)
6,000
Freight on shipment (P200x40/100)
Cost of inventory on consignment
80
6,080
PROBLEM 6 (PRTC)
Passionate Enterprises consigned 15 dozens of fine men's suits with a cost of P800 a suit
to Fashion Treats Company. Passionate incurred freight cost of P35 per dozen. As required
by the agreement, Fashion Treats reported sales of 8 dozens at P1,200 a suit and
reimbursable expenses of P2,500. Fashion Treats remitted the proceeds to Passionate,
net of the agreed 15% commissions on sale.
1. How much cash was remitted by Fashion Treats to Passionate Enterprises?
A. P139,800
C. P 95,420
B. P142,500
D. P142,800
1
0
Solution:
Sales (8x12x1,200)
Reimbursable exp.
115,200
2,500
Commissions (115,200x15%)
17,280
Amount remitted
(19,780)
95,420
2. How much was the consignment profit to Passionate Enterprises?
A. P 55,590
C. P 18,430
B. P 58,590
D. P 18,340
Solution:
Orig Cost
Cap. Cost
15x12x800
15x35
144,000
525
Sales (8x12x1,200)
115,200
COS (144,000x525)8/15
-77,080
Gross Profit
38,120
Reimburses exp
2500
Commisions
17280
Net Income
-19780
18,340
PROBLEM 7 (PRTC)
Jessie Corporation consigned 400 dresses to Anne Fashions at a suggested retail price of
P500 each. Jessie paid freight charges of P2,000 on the shipment on consignment. Anne
paid delivery charges of P2,100 for units sold, subject to subsequent settlement. Jessie
and Anne agreed that any sales in excess of the suggested retail price will accrue to the
latter. Anne submitted an account sales on the sale of 215 dresses, 40% of which was
sold at P580 each and the rest at P640 each, All these sales were paid in cash. Jessie's
cost is P375 each dress, before any deferred costs on consignment are taken into
account.
1. How much should Anne remit to Bryan for the aforementioned sales to customers?
A. P105,400
C. P107,500
B. P130,340
D. P132,440
Solution:
Sales (215x500)
Delivery Exp.
107,500
-2,100
105,40
0
Remittance by Anne
2. How much is the commission earned by Anne from sales of the consigned goods?
A. P 13, 236
C. P 24,940
B. P 49,800
D. P 82,560
1
0
Solution:
215 Dresses
40%
86 @ 580
60%
129 @ 640
49,880
82,560
Cash Proceeds
Sug. Retail price
132,440
(107,500)
24,940
PROBLEM 8 (PRTC)
Aircon, Inc, consigned 10 one-horse power air conditioner units to Argy Trading and paid
P2,000 freight out. Gross margin is 12.5% of sales. The consignee is allowed a
commission of 5% on sales. Argy Trading submitted an account sales on December 31,
2017 as follows:
Sales
P 72,000
P 10,000
Less: Advances to consignor
Selling expenses
800
Delivery and
1,200
Installation cost
3,600
Commission
Net remittance
15,600
P56,400
1. How much is the net profit or loss of Aircon, Inc. in the consignment?
A. P1,400 profit
C. P2,200 profit
B. P8,800 loss
D. P720 loss
Solution:
Orig Cost (72,000 x 87.5%)
Cap. Cost
63,000
2,000
Total Cost
65,000
Sales
72,000
COS
(65,000)
GP
7,000
OPEX (800 +1200+3600)
(5600)
Net Income
1,400
PROBLEM 9 (PRTC)
On August 31, 2015, CTC Company consigned to Lovely Company ten ladies handbags
which cost CTC P300 each. CTC paid freight charge of P150 on the shipment.
1
0
On September 30, 2015, Lovely Company submitted an account sales reporting that it
sold for cash seven handbags for which it remitted P3,165 representing the net proceeds
after deductions as follows:
20% of selling price
Commission
P120
Advertising placed upon receipt of shipment
Delivery of units sold
1. The consignee sold the seven handbags for a total of
A. P3,956.25
C. P4,200.00
B. P4,087.50
D. P4,387.50
Solution:
75
Remittance
3,165
Charges: Advertising
120
Delivery
75
Total proceeds from sales, net of 20% commission
195
3,360
/80%
Total sales price of the 7 handbags
4,200
2. The inventory of unsold handbags at September 30, 2015 was valued at
A. P900
C. P891
B. P949
D. P1,120
Solution:
Cost (3xP300)
Freight (3/10 x P150)
900
45
Advertising (3/10 x P120)
36
Inventory of unsold handbags
981
PROBLEM 10 (PRTC)
The CCN Interior Designers and Manufacturers Corporation consigned 10 sala set to a
furniture dealer. Manufacturing cost is P4,000 per set. Consignment profits are not
recorded separately by the company. At the end of one month, the dealer reported the
sale or 4 sets at P7,000 each and remitted the net sales proceeds after deducting the
following: 20% commission on sets sold and P1,600 freight paid upon receipt of the 10
sets.
1. The entry on the books of CCN Interiors to record the shipment assuming consignment
profits are calculated separately includes:
A. a debit to Consignment Out of P70,000
B. a debit to Consignment In of P40,000
C. a credit to Merchandise Shipment on Consignment of P40,000
D. a credit to Merchandise Inventory of P70,000
2. Cash remitted to the consignor was
A. P20,000
C. P21,600
B. P20,800
D. P22,400
Solution:
Sales (4 x P7,000)
28,000
Charges: Commission (20% x P28,000)
1
5,600
0
Freight
1,600
Remittance
7,200
P20,800
3. The balance of the consignor's inventory relative to consigned goods is
A. P19,200
C. P24,640
B. P24,000
D. P24,960
Solution:
Cost (6 x P4,000)
24,000
Freight (6/10 x P1,600)
960
Balance of Merchandise on Consignment account
24,960
4. Net profit on consignment sales was
A. P4,160
C. P5,120
B. P4,800
D. P5,760
Solution:
Sales (4 x P7,000)
Cost (4 x P4,000)
28,000
16,000
Less: Commission
Freight (4/10 x P1,600)
5,600
640
Net profit on consignment
6,240
5,760
PROBLEM 11 (CRC-ACE)
On November 30, Northup Company consigned 90% freezers to Watson Company for
sale at P1,600 each and paid P1,200 in transportation costs. A report of sales was
received on December 30 from Watson reporting the Sale of 20 freezers, together with
a remittance of the P27,200 balance due. The remittance was net of the agreed 15%
commission. How much, and in what month, should Northup recognize as
consignment sales revenue?
November
a. P0
b. P0
c. P144,000
d. P142,800
December
32,000
27,200
0
0
ANSWER
A sole takes place when there Is a transfer of ownership of goods. A consignment does
not transfer ownership of the goods to another person who is to sell the goods but the
owner retains title to such goods until the consignee makes a bona fide sole.
Since the soles of twenty (20) freezers were mode in December by the consignee
(Watson). therefore, the soles revenue equivalent to the number of freezers sold (i.e..
20 freezers x P1,600 = P32.000) by the consignee should be recognized by the
consignor.
1
0
PROBLEM 12 (CRC-ACE)
On August . I 2016, JBD. Inc. consigned to Mags store 10 ladies handbags costing P3,000
each, paying freight charge of P3,000. At the end of the month, Mags Store reported
sales of 6 handbags at P6,000 each and expenses incurred of 2,500, and remitted the
net proceeds due to JBD after deducting a 20% commission.
How much net income did JBD realize in August on the consignment?
a. 7,500 net income
b. 6,500 net income
c. 6,700 net loss
d. 6,500 net loss
ANSWER
Consignment Soles: P6,000 x 6……………………………………. P36,000
Less: Applicable costs and expenses related to consignment soles:
Consigner:
Cost of goods sold: P3.000 x 6 ................ P16,000
Freight: P3,030 x 6/10 …………………..……….. P 1,800
Consignee:
Ex p e ns e s … …… … …… … … …… … …… … … …… . P 2 ,5 0 0
Commission …………………………………………..... P 7,200
P29,500
Net Income ………………………………………………………………………… P6,500
PROBLEM 13 (CRC-ACE)
On November 1, 2016, the Western Appliance Center ships five (5) of its appliances
to the ABC Store on consignment. Each unit is to be sold 'at- P25,000 payable
P5,000 in the month of purchase and PI,000 per month thereafter. The consignee is
to be entitled to, 20% of all amounts collected on consignment sales. ABC Store sells
three (3) appliances in November and one (1) on December. Regular monthly
collections are made by the consignee, and appropriate cash remittances are
made to the consignor at the end of each month. The cost of the a ppliances
shipped by the consignor was P15,500 per unit. The consignor paid shipping costs to
the consignee totaling P5,000.
The cost of inventory on consignment on December 31, 2016?
a.
b.
c.
d.
15,500
16,500
19,600
24,500
1
0
ANSWER
The inventory on consignment amounted to P16,500 computed as follows:
Charges Analysis
Sales
Inventory
4 sets
1 set
Charges by consignor
Cost
of
consigned
goods
(@ P15,500/set)
P62,000
P15,500
Shipping cost
4,000
1,000
Charges by consignee:
Commissions
(20% of sales (25,030 x 4)] P20,000
Total
P86,000
0
P16,500
Total
5 units
P77,500
5,000
20,000
P102,500
PROBLEM 14 (CRC-ACE)
On June 1 Bruce Company shipped 25 television sets to Lee Inc on consignment. The
sets are to be sold at an advertised price of P20,000. The cost of each set to the
consignor was 10,000. The cost of shipment paid by the consignor was P7,500. The
consignor agreed to absorb the consignee’s expenditure for freight and also to allow
consignee P1,000 for delivery and installation of each set. Commission is to be 25%
of the sales price. On June 30, Lee submitted the following summary of consignment
sales:
Sets received
25
Sets sold
8
Sets returned to consignor (defective)
2
Sets on hand
10
15
June 3-30 Sales, 8 sets at P20,000
Charges:
Freight – In
P 5,000
Deliveries and initiation expenses
P 8,000
Commissions 25% of sales
P 40,000
53,000
107,000
Remittances enclosed
Balances owned collections fr. customers not yet made
Compute the inventory value of the units unsold in the hands of
the consignee.
a. 150,000
b. 153,000
c. 154,500
d. 157,500
1
0
25,000
82,000
ANSWER
Charges Analysis
Sales
Inventory
Total
8 sets
15 sets
25 sets
Charges by consignor
Cost of consigned goods
(@ P10,000/set)
80,000
Freight Out
150,000
3,000
230,000
4,500
7,500
Sales
Charges Analysis
Inventory
Total
8 sets
15 sets
25 sets
Charges by consignor
Cost of consigned goods
(@ P10,000/set)
80,000
Freight Out
150,000
230,000
3,000
4,500
7,500
2,000
8,000
3,000
5,000
0
8,000
(25% of sales (20,000 x 8)]
40,000
0
40,000
Total
133,000
157,500
290,500
Charges by consignee:
Freight In (200 per set)
2,000
Delivery & Installation
Commissions
PROBLEM 15 (CRC-ACE)
In 2015, CCA Wholesales transferred goods to a retailer on consignment. The goods cost
P90,000 and normally are sold at a 30% markup. In 2014, merchandise costing P24,000
was sold by the consignee at the normal markup, and the balance of the merchandise
was returned to CCA Wholesalers. The consignee withheld a 10% commission from
payment
Prepare journal entries to record the transfer of merchandise to the consignee, the sale
of goods by the consignee and the remittance of the amount due the consignor.
1
0
ANSWER
Inventory on Consignment
90,000
Merchandise Inventory
90,000
To record transfer of merchandise to consignee
Consignee Receivable (P24,000 x 130%)
31,2000
Consignment Sales Revenue
31,200
To record consignment sales
Cost of Consignment Goods Sold
24,000
Inventory on Consignment
24,000
To record cost of goods sold
66,000
M erch a nd ise In ven to ry
66,000
Inventory on Consignment
To record return of consigned goods
Commission Expense (P31.200 x 10%)
3,120
Cash
28,080
Consignee Reed able
31,200
1
0
1
0