EXERCISES
1-1 On December 31, 2016, Lakers Company had total assets of P 320,000 and total liabilities of
P
90,000. During 2017, the company had total revenues of P 280,000 and total expenses of
P 230,000.
Also, during 2017, the owner withdrew P 30,000. On December 31, 2017, total assets were P 420,000.
320,000=90,000+Owner’s Equity
Owner’s Equity = 320,000-90,000
Owner’s Equity = 230,000
Net Income = Revenues – Expenses
Net Income = 280,00 – 230,000
Net Income = 50,000
420,000= L + (230,000 – 30,000 +280,000 -230,000)
420,000= L + 250,000
420,000 – 250,000 = L
L =170,000
Owner’s Equity = 420,000 – 170,000
Owner’s Equity = 250,000
1.
Compute the owner’s equity on December 31,
2016
Compute the net income for the year 2017.
2.
3.
Compute the total liabilities on December 31,
2017.
4.
Compute the owner’s equity on December 31,
2017
1.2 On March 1, 2017, Kobe Bryant started his business, Kobe Laundry Services, by investing cash of P
280,000. During the month, he earned service revenue on account, P 200,000. He also paid utilities
expenses amounting to P 14,000; wages of P 40,000 and rent expense for the month of P 24,000. He
later collected partially the account of customers amounting to P 60,000. At the end of the month,
he received a bill for advertising for the month of March payable in April, amounting to P 20,000.
Owner’s Equity=
280,000 Bryant, Capital
+200,000 Revenue
-14,000 Utilities Expense
-40,0000 Wage Expense
-24,000 Rent Expense
-20,000 Advertising Expense
Owner’s Equity End = 382,000
Assets =
280,000 Cash Investment
+200,000 Service Revenue on account
-14,000 Payment of Utilities
-40,000 Payment of Wages
-24,000 Payment of Rent Expense
+60,000 Collected Cash
-60,000 Collected AR
Assets = 402,000
Liabilities = 402,000 – 382,000
Liabilities = 20,000
Partnership Dissolution – Admission of a Partner
Compute the owner’s equity on March 31, 2017
5.
Compute the total assets on March 31, 2017
6.
Compute the total liabilities on March 31, 2017.
7.
Page 1
Net Income = 200,000 – (14,000+40,000+24,000+20,000)
Net Income = 200,000 – 98,000
Net Income = 102,000
8.
Compute the net income for the month of March
2017
1-3 During the current year, the assets of Clipper’s Company increased by P 232,000 and the
liabilities decreased by P 54,000. If the owner’s equity in the business is P 620,000 at the
end of the year, how much is the owner’s equity at the beginning of the year?
A = Beginning Assets
L = Beginning Liabilities
A – L = END OE
A+232,000 = (L – 54,000) + 620,000
A-L = 620,000 – 54,0000 -232,000
A-L = 334,000
1-4 The balance sheet of Miami Company shows owner’s equity of P 680,000, which is equal to
2/3 of the amount of total assets. What is the amount of total assets? Total liabilities?
680,000/(2/3) = L + 680,000
1,020,000 = L + 680,000
L = 1,020,000 - 680,000
L = 340,000
A=1,020,000; L=340,000; OE=680,000
1-5 The following data relates to Warriors Company:
Withdrawals by the owner
Total revenues during the year
Owner’s equity, January 1
Additional investments
Total expenses during the year
P 56,000
308,000
220,000
94,000
232,000
How much is the owner’s equity at the end of the year?
Owner’s equity, January 1
Additional investments
Withdrawals by the owner
Total revenues during the year
Total expenses during the year
Owner’s Equity, end
1-6
220,000
94,000
(56,000)
308,000
(232,000)
334,000
Given are the following selected data of Thunder Repair Service Company
Revenue from professional services rendered for cash
P 490,000
Revenue from professional services rendered on account
160,000
Additional investment by the owner
104,000
Cash collected from account customers
230,000
Partnership Dissolution – Admission of a Partner
Page 2
Operating expenses incurred on account
Operating expenses incurred for cash
Cash withdrawn by the owner
48,000
140,000
76,000
Compute for the net income of the company.
Revenue from professional services rendered for cash
Revenue from professional services rendered on account
Operating expenses incurred on account
Operating expenses incurred for cash
Net Income
1-7
490,000
160,000
(48,000)
(140,000)
462,000
You are given the following data:
Assets
Liabilities
December 31, 2016
P 520,000
?
December 31, 2017
P 670,000
300,000
During 2017: Net loss, P 20,000; Additional investment, P 35,000; Drawings, P 60,000
Compute for the beginning balance of liabilities.
Beginning OE = 670,000-300,000+20,000-35,000+60,000
Beginning OE = 415,000
Beginning L = 520,000-415,000
Beginning L = 105,000
1-8.
The following trial balance did not balance.
JERRY WEST, CPA
Trial Balance
December 31, 2017
Debit
Cash
Accounts receivable
Supplies
Office equipment
Accounts payable
Jerry West, Capital
Jerry West, Drawing
Professional fees
Salaries expense
Advertising expense
Rent expense
Partnership Dissolution – Admission of a Partner
Credit
28,400 +2700
22,310-2700
30,000-23400
50,000+23400
46,600+540
90,000
_8,000+5000
42,660+8010
24,000+60005000
9,100-5000
4,000
Page 3
Utilities expense
Miscellaneous expense
5,000+2500+2500
1,000
181,810
179,260
The following errors were detected:
1. Cash received from a customer on account was debited for P 4,700 and Accounts Receivable was
credited for the same amount. The actual collection was for P 7,400.
2. The purchase of a computer on account for P 23,400 was recorded as a debit to supplies for P
23,400 and a credit to Accounts payable for P 23,400.
3. Services were performed on account to a client for P 8,900. Accounts receivable was debited for P
8,900 while Professional fees was credited for P 890.
4. A debit posting to Salaries expense of P 6,000 was omitted.
5. A payment on account for P 2,060 was credited to Cash for P 2,060 but debited to Accounts payable
for P 2,600.
6. The withdrawal of P 5,000 cash by the owner for his personal use was debited Salaries expense.
7. Utilities expense of P 2,500 was posted as a credit rather than a debit.
8. The balance of Advertising expense is P 4,100 but it was listed as P 9,100 on the trial balance.
Required: Prepare a corrected trial balance.
JERRY WEST, CPA
Trial Balance
December 31, 2017
Debit
Cash
Accounts receivable
Supplies
Office equipment
Accounts payable
Jerry West, Capital
Jerry West, Drawing
Professional fees
Salaries expense
Advertising expense
Rent expense
Utilities expense
Miscellaneous expense
31,100
19,610
6,600
73,400
47,140
90,000
13,000
50,670
25,000
4,100
4,000
10,000
1,000
187,810
1-9
Credit
187,810
Given the following independent cases, answer the following:
Partnership Dissolution – Admission of a Partner
Page 4
1.
On June 1, 2017, ABC Company collected a total of P 43,200 as payment in advance of a oneyear subscription contract to a monthly magazine from a client beginning June 1, 2017. Give
the entries needed to record (a) the receipt of the subscription fees and (b) to adjust the
accounts on December 31, 2017 using the liability method and the revenue method.
Liability Method
Cash
Unearned Revenue
43,200
43,200
Adjustment
Unearned Revenue
Fees Earned
2.
3.
43,200
43,200
Adjustment
25,200
25,200
Fees Earned
Unearned Revenue
18,000
18,000
Sincere Company incurs salaries at the rate of P 12,600 per day. It pays the employees every
Saturday for a 6 day work-week. The last payday was January 27. Give the adjusting entry
on January 31.
Salaries Expense
37,800
Salaries Payable
37,800
Gonzales and Mendoza, a law firm, performed legal services in late December, 2017 for
clients. The P 42,000 of the services will be billed to the clients in January, 2018. Give the
adjusting entry that is necessary on December 31, 2017 if the financial statements are
prepared at the end of each month.
Accounts Receivable
Service Revenue
4.
Income Method
Cash
Fees Earned
42,000
42,000
Assume that a company acquires a building on January 1, 2017 at a cost of P 1,410,000. The
building has an estimated useful life of 25 years and an estimated residual value of
P
150,000. What adjusting entry is needed on December 31, 2017 to record the depreciation
for the entire year?
Depreciation Expense = (1,410,000-150,000)/(1/25)
Depreciation Expense = 50,400
Depreciation Expense
Accumulated Depreciation
5.
50,400
50,400
Give the adjusting entries needed as of December 31, the last day of the current year. Show
your computations after each entry.
(a) The balance of the supplies account is a debit of P 14,125. The inventory of supplies on
December 31 amounts to P 4,220.
Partnership Dissolution – Admission of a Partner
Page 5
(b)
(c)
(d)
(e)
(f)
(g)
Supplies Expense
9,905
Supplies
9,905
The insurance expense account has a debit balance of P 46,800 which represent a oneyear insurance premium paid in advance on October 1.
Prepaid Insurance
35,100
Insurance Expense
35,100
The balance of the prepaid rent account is a debit of P 27,000 which represent a 6-month
rent received in advance on October 15.
Rent Expense
11,250
Prepaid Rent
11,250
The taxes expense account includes a debit of P 64,800 which represent an advance
payment of taxes for one year beginning April 30.
Prepaid tax
21,600
Tax expense
21,600
The advertising expense account includes a debit of P 111,072 which represent the cost
of an advertising contract to publish the company ad in 52 consecutive issues of weekly
magazine. As of December 31, advertisements had appeared in 32 issues already.
Prepaid Advertisement
42,720
Advertising Expense
42,720
The balance of the equipment account is a debit of P 235,200 which represent the cost
of office equipment purchased at the beginning of the year. This equipment was
estimated to have a life of 15 years with a residual value of P 9,600.
Depreciation Expense – Equipment
15,040
Accumulated Depreciation – Equipment
15,040
An automobile was acquired on July 1 at a cost of P 720,000. This automobile was
estimated to have a life of 8 years with a residual value of P 90,000.
Depreciation Expense – Equipment
39,375
Accumulated Depreciation – Equipment
6.
39,375
Give the adjusting entries needed as of December 31, the end of the current fiscal year.
Show your computations after each entry.
(a) The rent revenue account showed a credit balance of P 48,000 which represent a 6month rent received in advance from a tenant on October 31.
Rent Revenue
32,000
Unearned Revenue
32,000
(b) The balance of the unearned commissions account is a credit of P 35,100 which represent
commissions received in advance for selling one dozen computer sets. As of December
31, only 5 computer sets were sold.
Unearned commission
14,625
Commission
14,625
(c) Service fees of P 264,000 were collected for one year in advance on April 1. These are
credited to Unearned Service Fees when received.
Unearned Service Fees
198,000
Service Fees
198,000
(d) Subscriptions income has a credit balance of P 14,040 which represent a one-year
subscription to a monthly magazine received in advance on May 31.
Subscription Income
5,850
Partnership Dissolution – Admission of a Partner
Page 6
(e)
(f)
1-10
1.
Unearned Subscription income
5,850
The company pays a total of P 90,000 every Friday for a 5-day work week ending Friday.
Assume that the last day of the year falls on a Wednesday.
Wages Expense
54,000
Wages Payable
54,000
The company had rendered services to a client towards the end of December. The bill
for P 14,100 will be sent in January of the following year.
Accounts Receivable
14,100
Service Revenue
14,100
Prepare the adjusting entries on December 31, 2017, the end of the annual accounting
period, on the following independent data. Show your computations after each entry.
The Insurance Expense account had a debit balance on December 31, 2017 of P 72,000
representing premium for a 2-year fire insurance policy effective October 1, 2017.
Prepaid Insurance
Insurance Expense
2.
63,000
63,000
Rent Income was credited for P 58,500 on November 1, 2017 representing 9 months
rent collected in advance.
Rent Income
45,500
Unearned Rent Income
45,500
3.
Machinery per general ledger on December 31, 2017 shows a balance of P 558,000.
Machinery acquired during the year was P 78,000 on March 1, 2017. All machinery is
to be depreciated at the rate of 25% per annum.
Depreciation Expense – Machinery
Accumulated Depreciation – Machinery
4.
18,000
18,000
Supplies costing P 18,000 bought during the period was debited to the Supplies
account. Of the amount, P 8,000 were consumed during the year.
Supplies Expense
Supplies
6.
8,000
8,000
Unearned Subscriptions account showed a credit balance of P 76,000 per general ledger
on December 31. Of this, 40% had been actually earned during the period.
Unearned Subscription
Subscription Revenue
7.
136,250
As of December 31, 2017, commissions already earned but not yet collected amounted
to P 18,000.
Accounts Receivable
Commission
5.
136,250
30,400
30,400
On December 31, 2017 a 60-day, 9% Notes Payable has a balance of P 360,000 per
general ledger. The note was issued on December 5, 2017. No interest has been taken
on this note.
Interest Expense
Interest Payable
2,340
2,340
Partnership Dissolution – Admission of a Partner
Page 7
8.
Fees Collected in Advance has a balance of P 600,000 of which 60% has been earned.
Unearned Fees
Fees Earned
9.
360,000
360,000
Notes Receivable has a balance of P 300,000 received from a customer in settlement of
an open account on November 16, 2017. The note is a 90-day, 12% note. No interest
has been taken on this note.
Interest Receivable
Interest Revenue
10.
4,500
4,500
The Prepaid Insurance account has balance of P 105,000 on December 31, 2017. The
balance represented two fire insurance policies acquired during 2017. The first policy,
Policy I for P 60,000 was acquired on March 1, 2017 and the second policy, Policy II was
acquired on August 1, 2017 for P 45,000. Policy I is payment for a 2-year plan while
Policy II is for a one-year plan.
Insurance Expense
43,750
Prepaid Insurance
43,750
I-11. Compute for the missing items as indicated by a letter below.
Sales
175,000
D
280,000
440,000
Beginning
Inventory
A
62,000
72,000
90,000
Net
Purchases
85,000
E
217,000
I
Ending
Inventory
60,000
68,000
F
110,000
Cost of
Goods sold
B
158,000
G
J
Gross Profit
90,000
110,000
100,000
K
Operating
Expenses
C
40,000
H
170,000
A. 60,000 (85,000+60,000-85,000)
G. 180,000 (280,000-100,000)
B. 85,000 (175,000-90,000=85,000)
H. 151,000 (100,000+51,000)
C. 28,000 (90,000-62,000=28,000)
I. 200,000 (180,000+110,000-90,000)
D. 268,000 (158,000+110,000)
J. 180,000 (440,000-260,000)
E. 164,000 (158,000+68,000-62,000)
K. 260,000 (170,000+90,000)
Net Income
(Net Loss)
62,000
70,000
(51,000)
90,000
F. 109,000 (72,000+217,000-180,000)
1-12. Given the following data, solve for the following:
Debit
Sales
Sales returns and allowances
Partnership Dissolution – Admission of a Partner
Credit
P 425,000
P 14,000
Page 8
Accounts receivable
Allowance for bad debts
43,000
760
1. If the estimate of uncollectibles is made by taking 10% of outstanding accounts receivable,
the amount of the adjustment is 3,540.
2. The following accounts were abstracted from Lakers Co.’s unadjusted trial balance at
December 31, 2017.
Accounts receivable
Allowance for bad debts
Net credit sales
Debit
P 700,000
8,000
Credit
P 3,000,000
Lakers estimates that 1% of the gross account receivable will become uncollectible. After
adjustment at December 31, 2017, the Allowance for Bad Debts should have a credit balance of
15,000.
1-13.
The following accounts were found in the ledger of Blondie Company on December 31,
2017:
Accounts receivable
Allowance for bad debts
Cash Sales
Credit Sales
Debit
P 356,800
8,760
Credit
P 913,800
1,851,000
Instructions:
1.) Prepare the adjusting entry to take up the provision for bad debts account on the books of
Blondie Company under each of the following independent assumptions:
a) Analysis indicates that 5%of the outstanding accounts receivable will not be collected.
Required ending balance of Allowance for Doubtful Accounts
P17,840
(5% x P 356,800)
Add debit balance of allowance before adjustment
8,760
Doubtful Accounts Expense for the period
P26,600
Doubtful Accounts Expense
Allowance for Doubtful Accounts
26,600
26,600
b) Accounts receivable of P 40,000 will become uncollectible.
Required ending balance of Allowance for Doubtful Accounts
Add debit balance of allowance before adjustment
Doubtful Accounts Expense for the period
Partnership Dissolution – Admission of a Partner
P 40,000
8,760
P 48, 760
Page 9
Doubtful Accounts Expense
Accounts Receivable
48,760
48,760
c) Accounts receivable of P 10,000 is to be written off, and that the allowance for bad debts is
to be adjusted to 10% of the outstanding accounts receivable.
Allowance for doubtful accounts
Accounts Receivable
10,000
10,000
Required ending balance of Allowance for Doubtful Accounts
(10% x P 346,800)
Add debit balance of allowance before adjustment
Doubtful Accounts Expense for the period
Doubtful Accounts Expense
Allowance for Doubtful Accounts
P 34,680
18,760
P 53,440
53,440
53,440
2.) Show how the Accounts Receivable and the Allowance for Bad Debts would appear on the
December 31, 2017 Statement of Financial Position.
Accounts Receivable
Allowance for Bad Debts
Debit
298,040
Partnership Dissolution – Admission of a Partner
Credit
61,280
Page 10
EXERCISES
2-1
Harmon joined a partnership by contributing the following: cash, P 20,000; accounts
receivable, P 4,000; land P 240,000 cost, P 400,000 fair value; and accounts payable,
P
16,000.
What will be the initial amount recorded in Harmon’s capital account? Give the entry to
record the investment of Harmon.
Cash
20,000
AR
4,000
Land
400,000
AP
16,000
Harmon, Capital
408,000
Solution:
20k + 4k + 400k – 16K = 408k
2-2
Prepare the journal entry to record the investment of Mar Gonzales in the new partnership
assuming the following independent cases:
a. Merchandise inventory with a cost of P 200,000 with an agreed value equal to 70% of
its cost.
b. Cash of P 800,000.
c. Accounts receivable of P 430,000 with an estimated uncollectible accounts of
P
50,000.
d. Office equipment with a cost of P 800,000 with an accumulated depreciation of
P
200,000 after 5 years of use with no residual value. The office equipment was accepted
to have an agreed 10 year useful life.
Adjustments:
a) Merchandise Inventory
140,000
Gonzales, Capital
140,000
(200,000*70% = 140,000)
b) Cash
800,000
Gonzales, Capital
800,000
c) AR
430,000
Allowance for Bad Debts
50,00
Gonzales, Capital
380,000
d) Office Equipment
400,000
Gonzales, Capital
400,000
(800,000*(5/10)
Cash
AR
Merchandise Inventory
Office Equipment
Allowance for Bad Debts
Gonzales Capital
800,000
430,000
140,000
400,000
Partnership Dissolution – Admission of a Partner
50,000
1,720,000
Page 11
2-3
The following data as of May 1, 2017 were taken from the records of Andre and Andy:
ANDRE
ANDY
Cash
P 11,000
P 22,354
Accounts receivable
234,536
567,890
Inventories
120,035
260,102
Land
603,000
Building
428,267
Furniture & Fixtures
50,345
34,789
Other Assets
2,000
3,600
Total Assets
P1,020,916
=========
P1,317,002
=========
Accounts Payable
Notes Payable
Andre, Capital
Andy, Capital
P 178,940
200,000
641,976
P 243,650
345,000
Total Liabilities and Capital
P1,020,916
=========
728,352
P1,317,002
=========
Andre and Andy agreed to form a partnership by contributing their respective assets and
equities subject to the following adjustments:
a) Inventories of P 5,500 and P 6,700 are worthless in Andre’s and Andy’s respective
books.
b) Accounts receivable of P 20,000 in Andre’s book and P 35,000 in Andy’s book are
uncollectible.
c) Other assets of P 2,000 and P 3,600 in Andre’s and Andy’s respective books are to be
written off.
1)
Assuming the partnership will use the books of Andre, give the entries to adjust the account
balances of Andre and to record the investment of Andy.
Adjust the books of Andre
a) Andre, Capital
5,500
Inventories
5,500
b) Andre, Capital
20,000
Accounts Receivable
20,000
c) Andre, Capital
2,000
Other assets
2,000
Record the investment of Andy
Cash
Accounts Receivable
(567,890-35,000)
Inventories
22,354
532,890
253,402
Partnership Dissolution – Admission of a Partner
Page 12
2)
3)
(260,102-6,700=253,402)
Building
428,267
Furniture &Fixtures
34,789
Accounts Payable
243,650
Notes Payable
345,000
Andy, Capital
683,052
Give the entries to adjust and close the books of Andy.
a) Andy Capital
6,700
Inventories
6,700
b) Andy, Capital
35,000
Accounts Receivable
35,000
c) Andy, Capital
3,600
Other Asset
3,600
Accounts Payable
243,650
Notes Payable
345,000
Andy Capital
683,052
Cash
22,354
Accounts Receivable
532,890
Inventories
253,402
(260,102-6,700=253,402)
Building
428,267
Furnitures &Fixtures
34,789
Assuming the partnership will use new set of books, give the entries to record the investment
of Andre and Andy.
Cash
22,354
Accounts Receivable
532,890
Inventories
253,402
Building
428,267
Furnitures &Fixtures
34,789
Accounts Payable
243,650
Notes Payable
345,000
Andy, Capital
683,052
To record the investment of Andy
Cash
Accounts Receivable
Inventories
(120,035 – 5,500 = 114,535)
Land
Furnitures &Fixtures
Accounts Payable
Notes Payable
Andy, Capital
To record the investment of Andre
11,000
214,536
114,535
603,000
50,345
Partnership Dissolution – Admission of a Partner
178,940
200,000
614,476
Page 13
4)
Prepare the statement of financial position of the new partnership.
Andre and Andy
Statement of Financial Position
May 1, 2017
Current Assets
Cash
Accounts receivable
Inventories
33,354
747,426
367,937
Non-Current Assets
Land
Building
Furniture & Fixtures
Total Assets
603,000
428,267
85,134
2,265,118
Accounts Payable
Notes Payable
Andre, Capital
Andy, Capital
422,590
545,000
614,476
683,052
Total Liabilities &Capital
2,265,118
2-4
On July 1, 2017. Ding and Dong agreed to invest equal amounts and share profits and losses
equally in a partnership with Ding investing P 110,000 cash and merchandise valued at P
140,000. Dong will also invest a total of P 250,000, including cash, and the agreed values of
various items as shown below:
INVESTMENT BY DONG
BOOK VALUE
FAIR
MARKET
VALUE
Accounts Receivable
P 195,000
P 195,000
Allowance for Bad Debts
8,750
12,500
Merchandise Inventory
23,250
26,250
Equipment, net
30,000
20,000
Accounts Payable
75,000
75,000
1.
What amount of cash should Dong invest upon the formation of the partnership?
Accounts Receivable
Merchandise Inventory
Equipment
Allowance for Bad Debt
Accounts Payable
Dong, Capital
To record the Investment of Dong
Cash
Partnership Dissolution – Admission of a Partner
195,000
26,250
20,000
12,500
75,000
153,750
110,000
Page 14
Merchandise Inventory
Ding, Capital
To record the investment of Ding
140,000
250,000
Solution:
195K+26,250+20K-12500-75K = 153, 750
250K(Ding’s Cap) – 153,750 = 96,250
Dong should invest an additional cash of 96,250.
2.
Give the required entries assuming the partnership will use new set of books.
Cash
Accounts Receivable
Merchandise Inventory
Equipment
Allowance for Bad Debt
Accounts Payable
Dong, Capital
To record the Investment of Dong
Cash
Merchandise Inventory
Ding, Capital
To record the investment of Ding
2-5
1)
96,250
195,000
26,250
20,000
12,500
75,000
250,000
110,000
140,000
250,000
King invites Ace to join him in his business. Ace agreed to join King provided that the following
adjustments are taken up in the books of King:
• Prepaid expenses of P 10,000 and accrued expenses of P 6,000 are to be recognized.
• Accumulated Depreciation on King’s equipment will be increased by P 10,000.
King’s capital before adjustment for the above items was 405,000. Ace will invest enough cash
to make his interest equal to 40%.
How much is King’s adjusted capital balance?
Adjustments on King’s books
a) Prepaid Expenses
10,000
King, Capital
10,000
King, Capital
6,000
Accrued Expenses
6,000
b) King, Capital
10,000
Accumulated Depreciation
10,000
Partnership Dissolution – Admission of a Partner
Page 15
Acrrued Exp.
Accu Dep.
2)
King, Capital
6,000
405,000
10,000 10,000
399,000
Capital, beg.
Prepaid Exp.
Adjusted Capital
How much should Ace invest to give him a 40% equity in the firm?
Required total partnership capital using adjusted
King, Capital as the base: ( P 399,000/60% )
Ace share is 40% ( P 665,000 x 40% )
2-6
P 665,000
P 266,000
On June 1, 2017, Calvin and Klein formed a partnership with each contributing the
following assets:
Merchandise Inventory
Building
Machinery and Equipment
Furniture and Fixtures
CALVIN
P 500,000
450,000
300,000
KLEIN
P 900,000
2,450,000
950,000
The building is subject to a mortgage loan of P 1,300,000, which is to be assumed by the
partnership. The partnership agreement provides that Calvin and Klein share profits and
losses 40% and 60%, respectively.
1)
What is the adjusted capital of each partner on June 1, 2017?
Merchandise Inventory
500,000
Machinery Equipment
450,000
Furniture and Fixtures
300,000
Calvin, Capital
1,250,000
To record the investment of Calvin
Solution:
500k+450k+300k = 1,250,000
Merchandise Inventory
Building
Machinery Equipment
Mortgage Payable
Klein, Capital
To record the investment of Klein
900,000
2,450,000
950,000
1,300,000
3,000,000
Solution
(900k+2,450,000+950K)-1.3M = 3M
Partnership Dissolution – Admission of a Partner
Page 16
2)
Assuming that the partners agreed to bring their respective capital in proportion to their
respective profit and loss ratio, and using Klein’s capital as the base, how much cash is to
be invested by Calvin?
Required total partnership capital using adjusted
Klein, Capital as the base: ( P 3,000,000/60% )
Calvin share is 40% ( P 5,000,000 x 40% )
P 5,000,000
P 2,000,000
2,000,000 – 1,250,000 = 750,000
Calvin needs to invest an additional 750,000 cash to have a 40% share to capital.
2-7
1)
Polo and Loco entered into a partnership on August 1, 2017 by investing the following assets:
POLO
LOCO
Cash
P 400,000
--Merchandise inventory
--P 500,000
Land
--1,150,000
Building
--750,000
Equipment
650,000
--The agreement between Polo and Loco provides that profits and losses are to be divided
into 30% (to Polo) and 70% (to Loco), and that the partnership is to assume the P 350,000
mortgage loan on the building.
If Loco is to receive a capital credit equal to his profit and loss ratio, how much cash must he
invest?
Merchandise Inventory
500,000
Land
1,150,000
Building
750,000
Mortgage Payable
350,000
Loco, Capital
2,050,000
To record the Investment of Loco
Cash
Equipment
Polo, Capital
To record the investment of Polo
400,000
650,000
1,050,000
Required total partnership capital using adjusted
Polo, Capital as the base: ( P 1,050,000/30% )
Loco share is 70% ( P 3,500,000 x 70% )
2)
P 3,500,000
P 2,450,000
2,450,000 – 2,050,000 = 400,000
Loco must invest an additional 400,000 cash to have a 70% capital share.
Assuming that Loco invests P 600,000 cash and each partner is to be credited for the full
amount of the net assets invested, how much is the total capital of the partnership?
Partnership Dissolution – Admission of a Partner
Page 17
Assets
Current
Cash
Merchandise Inventory
1,000,000 (400k – Polo +600k – Loco)
500,000
Non-current
Land
Equipment
Building
Total Assets
1,150,000
650,000
750,000
4,050,000
Liability
Mortgage Payable
Partnership Capital
Loco, Capital
Polo, Capital
Total Liabilities &Capital
350,000
2,650,000
1,050,000
4,050,000
Solution:
3)
1,050,000+2,050,000+600,000 = 3,700,000
Using the data in number 2, how much is the total assets of the partnership?
Solution:
400k+650k+500k+1,150,000+750k+600k = 4,050,000
2-8
Curry and Thompson are combining their businesses to form a partnership. Cash and noncash assets are to be contributed. The non-cash assets to be contributed and the liabilities
to be assumed are:
Accounts Receivable, net
Merchandise Inventory
Property and Equipment, net
Accounts payable
CURRY
Book
Value
P 50,000
200,000
400,000
280,000
Fair Value
P 40,000
240,000
320,000
280,000
THOMPSON
Book
Fair Value
Value
P 100,000
P 90,000
160,000
150,000
40,000
40,000
After the above adjustments, Curry and Thompson are to contribute or to withdraw cash to
bring their respective capital to P 350,000 each. Based on the above information, answer
the following:
Partnership Dissolution – Admission of a Partner
Page 18
1)
2)
3)
4)
5)
6)
2-9
How much is the capital of Thompson after giving effect to the above adjustments but
before the cash investment or withdrawal as the case may be?
Accounts Receivable
90,000
Merchandise Inventory
150,000
Accounts Payable
40,000
Thompson, Capital
200,000
Solution:
90K+150K-40K = 200,000
How much is the capital of Curry after giving effect to the above adjustments but before the
cash investment or withdrawal as the case may be?
Accounts Receivable
40,000
Merchandise Inventory
240,000
PPE
320,000
Accounts Payable
280,000
Curry, Capital
320,000
Solution:
40k+240k+320k-280k = 320,000
How much is the cash investment or withdrawal of Curry? Indicate whether investments
or withdrawal
Required Capital
350,000
Curry, Capital
320,000
Additional Cash Investment
30,000
How much is the cash investment or withdrawal of Thompson?
Indicate whether
investments or withdrawal
Required Capital
350,000
Thompson, Capital
200,000
Additional Cash Investment
150,000
How much is the total currents assets of the partnership immediately after its formation?
Cash
180,00
Accounts Receivable
130,000
Merchandise Inventory
390,000
Total current assets
700,000
How much is the total assets of the partnership immediately after its formation?
Cash
180,000
(30K + 150k)
Accounts Receivable
130,000
Merchandise Inventory
390,000
PPE
320,000
Total assets
1,020,000
Nash invested in a partnership a parcel of land which cost his father P 2,000,000. The land
had a market value of P 3,000,000 when Nash inherited it three years ago. Currently, the
land is independently appraised at P 5,000,000 even though Nash insisted that he “would
not take P 9,000,000 for it.”
Partnership Dissolution – Admission of a Partner
Page 19
What is the amount that should be recorded in the accounts of the partnership for the
parcel of Land?
5,000,000
(Appraised value will be recorded if there’s no indicated current market or fair value)
EXERCISES
3-1
The capital accounts of Jose and Andres at the end of the calendar of 2019 are as follows:
Jose, Capital
January 1
Balance
P 63,000
May
1
Investment
27,000
October 1
Withdrawal
P 18,000
Partnership Dissolution – Admission of a Partner
Page 20
Andres, Capital
January 1
April
1
Balance
Withdrawal
P 45,000
P 9,000
The partnership profit for the year ended December 31, 2019 is P 90,000.
Instructions: Give the journal entries to record the sharing of the partnership income under each of the
following independent cases:
1.
Profit is divided 2:1 to Jose and Andres respectively.
Date
Dec. 31, 2019
2.
P/R
Debit
90,000.00
Credit
60,000.00
30,000.00
Profit is divided in the ratio of capital balances at the beginning of the period.
Date
Dec. 31, 2019
3.
Description
Income Summary
Jose, Capital
Andres, Capital
Jose = 90,000 x 2/3 = 30,000
Andres = 90,000 x 1/3 = 60,000
Description
Income Summary
Jose, Capital
Andres, Capital
Jose = 90,000 x 63/108 =
52,500
Andres = 90,000 x 45/108 =
37,500
P/R
Debit
90,000.00
Credit
52,500.00
37,500.00
Profit is divided in the ratio of average capital.
Partnership Dissolution – Admission of a Partner
Page 21
Date
Dec. 31, 2019
Description
Income Summary
Jose, Capital
Andres, Capital
P/R
Debit
90,000.00
Credit
60,000.00
30,000.00
Computation:
Jose, Capital
Date
Capital
Balance
(B)
Jan. 1, 2016
May 1, 2016
Oct 1, 2016
63,000.00
90,000.00
72,000.00
Number of
Months
Unchanged
(C)
4
5
3
12
Peso Months
(Col. B x C)
Average Capital
252,000.00
450,000.00
216,000.00
918,000.00
76,500.00
Andres, Capital
Date
Capital
Balance
(B)
Jan. 1, 2016
April 1, 2016
45,000.00
36,000.00
Number of
Months
Unchanged
(C)
3
9
12
TOTAL
Peso Months
(Col. B x C)
Average Capital
135,000.00
324,000.00
459,000.00
1,377,000
38,250
114,750
Using Peso Months
Jose share in profits: (918/1377) x 90,000 =
60,000
Andres share in profits: (459/1377) x 90,000 =
30,000 90,000
Using Average Capital
Jose share in profits: (76,500/114,750) x90,000
=
60,000
Andres share in profits: (38,250/114,750) x 90,000 =
30,000 90,000
4.
Interest of 8% is allowed on average capital and the balance of profit divided equally.
Partnership Dissolution – Admission of a Partner
Page 22
Date
Dec. 31, 2019
Description
Income Summary
Jose, Capital
Andres, Capital
P/R
Debit
90,000.00
Credit
46,530.00
43,470.00
Computation:
Interest Allowance
76,500*.08
38,250*.08
Remainder to be divided equally
90,000-9,180 = 80,820
80,820/2
80,820/2
TOTAL
5.
Jose,
Capital
P 6,120.00
Andres,
Capital
Total
P 9,180.00
3,060.00
40,410.00
P46,530.00
40,410.00
P43,470.00
80,820.00
P90,000.00
Salaries of P 24,000 and P 19,000 are allowed to Jose and Andres, respectively, the balance of
profit is divided in the ratio of capital balances at the end of the period.
Date
Dec. 31, 2019
Description
Income Summary
Jose, Capital
Andres, Capital
P/R
Debit
90,000.00
Credit
55.333
34,667
Computation:
Salary Allowance
Remainder:
90k-43k = 47k
47,000*72/108;
47,000 *36/108
TOTAL
Jose
P24,000.00
Andres
P19,000.00
Total
P43,000.00
47,000.00
31,333
P55.333
Partnership Dissolution – Admission of a Partner
15,667
P34,667
P90,000.00
Page 23
6.
Andres is allowed a bonus of 20% of profit after bonus, the balance of the profit divided in the
ratio of the average capital.
Date
Dec. 31, 2019
Description
Income Summary
Jose, Capital
Andres, Capital
P/R
Debit
90,000.00
Credit
50,000.00
40,000.00
Computation:
Jose
Bonus to Andres
90K*.20/1.20
Remainder:
90k-15k = 75k
75,000*76,500/114,750
75,000*38,250/114,750
TOTAL
3-2
Andres
P15,000.00
Total
P15,000.00
75,000.00
50,000
25,000
P40,000.00
P50,000.00
P90,000.00
The partnership agreement of Justin and Kyle provides that interest at 10% per annum is to be
credited to each partner on the basis of average capital balances. A summary of Kyle’s capital
accounts for the year ended December 31, 2019 is as follows:
Balance, January 1
Additional investment, June 30
Withdrawal, July 31
Balance, December 31
1.
P 280,000
80,000
30,000
330,000
How much is the average capital of Kyle?
307,500
Computation:
Date
Jan. 1,
2019
June 30,
2016
July 31,
2019
dec3
Capital
Balance
(B)
Number of
Months
Unchanged
(C)
280,000.00
6
1,680,000
360,000.00
1
360,000.00
330,000.00
5
1,650,000
12
3,690,000.00
Partnership Dissolution – Admission of a Partner
Peso Months
(Col. B x C)
Average
Capital
307,500
Page 24
2.
What amount of interest should be credited to Kyle for the year 2019?
30,750
Computation:
307,500*10% = 30,750
3-3
The partnership agreement of Malik, Michael and Marco provides for the year-end allocations of
profit in the following manner:
• First, Malik is to receive bonus of 10% of profit for the first P 100,000, and 20% of profit in
excess of P 100,000;
• Second, Michael and Marco each will receive 5% of remaining profit after the above bonus
to Malik;
• Balance of profit to be divided equally.
The partnership’s 2019 profit was P 360,000 before any allocation to partners.
Computation:
Malik
Amount being Allocated
Allocation:
1. Bonus to Malik
First 100k: 100k*10%
Over 100k: (360k-100k)*20%
2. 5% to Michael and Marco
5%(360k-62k)
3. Allocation of remaining
profit
(360k-10k-52k-29,800)/3
As Allocated
62,000
1.
Michael
Marco
10,000
52,000
Total
360,000
10,000
52,000
14,900
14,900
29,800
89,400
89,400
89,400
268,200
151,400
104,300
104,300
360,000
How much is the bonus of Malik?
Computation:
First 100k: 100k*10% = 10,000
Over 100k: (360k-100k)*20% = 52,000
151,400
10k+52k = 62,000
2. How much is the share of Malik in the partnership profit?
Computation:
62,000 – bonus
+89,400 – share in the remaining profit
= 151,400
Partnership Dissolution – Admission of a Partner
Page 25
104,300
3.
How much is the share of Michael in the partnership profit?
Computation:
14,900 – Bonus
+89,400 – share in the remaining profit
=104,300
104,300
4.
How much is the share of Marco in the partnership profit?
Computation:
14,900 – Bonus
+89,400 – share in the remaining profit
=104,300
3-4
Daquis and Dionela are partners who share profits and losses in the ratio of 60% and 40%,
respectively. Daquis’ salary is P 60,000 and P 30,000 for Dionela. The partners are also paid
interest on their average capital balances. In 2019, Daquis received P 30,000 of interest and
Dionela, P 12,000. The profit and loss allocation is determined after deductions for the salary and
interest payments. Dionela’s share in the residual income (balance after deducting salaries and
interest) was P 78,000 in 2019.
327,000
1. What was the total partnership profit?
Computation:
78K/40% = 195,000
195K*60% (Daqui’s share in residual income) = 117,000
60k – Daqui’s Salay
30k – Dionela’s Salary
30k – Daqui’s interest
12k – Dionela’s interest
78k – Dionela’s share in residual income
117K - Daqui’s share in residual income
327,000
Partnership Dissolution – Admission of a Partner
Page 26
3-5
Carter, Vince and Wayne are partners with beginning capital balances of P 100,000, P 200,000
and P 300,000, respectively. The partnership agreement provides for the following division of
profits and losses:
a. Salaries to Carter, Vince and Wayne amounting to P 30,000, P 40,000 and P 50,000,
respectively;
b. 10% interest on beginning capital balances;
c. Partner Carter is to receive a bonus of 20% of profit after deducting salaries, interest, and
bonus;
d. Any remainder of profit is divided equally.
If the profit before deducting salaries, interest, and bonus amounted to P 300,000, how much is
the share of each partner in the partnership profit?
Computation:
Amount being Allocated
Allocation:
1. Salaries
2. 10% Interest to beg. capital
3. Bonus to Carter
(300k-180k)*20%/1.20
1. Allocation of remaining
profit
(300k-120k-60k-20k)/3
As Allocated
Carter 93,333
3-6
Carter
Vince
Wayne
Total
300,000
30,000
40,000
50,000
120,000
10,000
20,000
30,000
60,000
20,000
20,000
33,333
33,333
33,334
100,000
93,333
93,333
113,334
300,000
Vince 93,333
Wayne 113,334
Using the same profit and loss agreement as in exercise 3-5, assume the profit after deducting
salaries, interest, and bonus is P 200,000, how much is the share of each partner in the
partnership profit? (take note that salaries, interest, and bonus are not operating expenses but
used only as part of profit distribution)
Computation:
200k+(10K+20k+30k: 10% interest to beg. Capital) + (30k+40k+50k) + 20K = 400k
Carter
Vince
Wayne
Amount being Allocated
Allocation:
1. Salaries
30,000
40,000
50,000
2. 10% Interest to beg. capital
3. Bonus to Carter
(420k-180k)*20%/1.20
10,000
40,000
Partnership Dissolution – Admission of a Partner
20,000
30,000
Total
420,000
120,000
60,000
40,000
Page 27
4. Allocation of remaining
profit
200k/3
As Allocated
Carter
146,666
3-7
66,666
66,667
66,667
200,000
146,666
126,667
146,667
420,000
Vince
126,667
Wayne
146,667
Still using the same profit and loss agreement as in exercise 3-5, assume that the residual profit
after deducting salaries and interest is a loss or negative figure of P 100,000, how much is the
partnership profit for the period? ____________________________
Computation:
120,000 – salaries
60,0000 – Interest
(100,000) – Remaining
80,000
3-8
As of December 31, 2019, King, Jolly and Donald Partnership has the following data before
effecting distribution of income summary account with a debit balance of P 300,000 from
operation beginning January 1, 2019.
ASSETS
Cash
P 400,000
Non-Cash Assets
?
LIABILITIES
Accounts Payable
P 100,000
King, Loan
500,000
CAPITAL
King, Capital
P 500,000
Jolly, Capital
500,000
Donald, Capital
500,000
The partners have the following profit and loss agreement:
a. All partners shall have a monthly salary of P 10,000;
b. Mr. King shall have a 10% bonus on the profit before salary, interest and bonus;
c. Interest on beginning capital would be 6% annually; and
d. Balance divided equally.
Upon distribution of P 300,000 debit balance of income summary account:
Partnership Dissolution – Admission of a Partner
Page 28
King
Jolly
Donald
Total
(300,000)
120,000
120,000
120,000
360,000
30,000
30,000
30,000
90,000
(250,000)
(250,000)
(250,000)
(750,000)
(100,000)
(100,000)
(100,000)
(300,000)
Amount being Allocated
Allocation:
a. Salaries
b. Interest on Beg. Capital (6%)
500k*6%
c. Allocation of remaining
profit
(300,000) – (360k+90k) = (750k)/3
As Allocated
1.
By how much will the capital balance of Mr. King increased
(decreased)?
2.
How much is the adjusted capital of Mr. Jolly after distributing their
respective share?
3.
How much is the total partnership assets after distribution of the
income summary account?
Mr. King’s Capital
will be decreased by
100,000
400,000
Computation:
500k-100k=400k
1,800,000
Computation:
Assets before distribution:
A= L + 0E
A = 600k liability + 1.5M capital
A = 2.1M
Assets after distribution:
2.1M -300,000 = 1,800,000
Partnership Dissolution – Admission of a Partner
Page 29
3-9
The partnership has the following accounting amounts: Sales, P 70,000; Cost of Sales, P 40,000;
Operating expenses, P 10,000; Salary allocations to partners, P 13,000; Partners’ withdrawals, P
8,000. What was the profit (net loss) of the partnership? 33,000
Computation:
Sales
70,000
Cost of Sales
(40,000)
Gross Profit
30,000
Operating expenses (10,000)
Net Profit
20,000
3-10
Noel, Burkes and Ariza are partners of NBA Partnership. During 2019, their average capital
balances are as follows: Noel – P 280,000; Burkes – P 200,000; Ariza – P 120,000
The partnership agreement includes the following:
1.
2.
3.
6% interest is allowed on average capital balances.
Salary allowances to Burkes and Ariza are P 48,000 and P 40,000, respectively.
Burkes is the managing partner and is to receive a bonus of 25% of profit in excess of
P
72,000 after partners’ interest and salary allowances.
4.
Remaining profit or loss will be divided in the ratio of 5:3:2
Required: Prepare schedules showing how profit or loss will be distributed among the three
partners under each of the following independent assumptions.
1) P 25,000 loss
1. (25,000)
Amount being Allocated
Allocation:
1. Interest in average cap
bal (6%)
Computation: 280k*6%; 200k*6%;
120k*6%
2. Salary to Burkes&Ariza
3. Allocation of remaining
profit (5:3:2)
(25k)-36k-88k= (149k)
(149k)*5/10
(36k)*3/10
(36k)*2/10
As Allocated
b) P 60,000 profit
c) P 250,000 profit
Noel
Burkes
Ariza
Total
(25,000)
16,800
12,000
7,200
36,000
48,000
40,000
88,000
(29,800)
17,400
(149,000)
(25,000)
(74,500)
(44,700)
(57,700)
Partnership Dissolution – Admission of a Partner
15,300
Page 30
2. 60,000
Amount being Allocated
Allocation:
1. Interest in average cap
bal (6%)
Computation: 280k*6%; 200k*6%;
120k*6%
2. Salary to Burkes&Ariza
3. Allocation of remaining
profit (5:3:2)
60k-36k-88k= (64k)
(64k)*5/10
(36k)*3/10
(36k)*2/10
As Allocated
Noel
Burkes
Ariza
Total
60,000
16,800
12,000
7,200
36,000
48,000
40,000
88,000
(32,000)
(19,200)
(15,200)
40,800
(12,800)
34,400
(64,000)
60,000
Noel
Burkes
Ariza
Total
250,000
16,800
12,000
7,200
36,000
48,000
40,000
88,000
3. 250,000
Amount being Allocated
Allocation:
1. Interest in average cap
bal (6%)
Computation: 280k*6%; 200k*6%;
120k*6%
2. Salary to Burkes&Ariza
3. Bonus to Burkes (25%)
250k-36k-88k = 126,000
126k-72k = 54k*25% = 13,500
4. Allocation of remaining
profit (5:3:2)
250k-36k-88k-13,500 = 112,500
112,500*5/10
(36k)*3/10
(36k)*2/10
As Allocated
13,500
13,500
56,250
33,750
73,050
Partnership Dissolution – Admission of a Partner
107,250
22,500
69,700
112,500
250,000
Page 31
3-11
Dick, Jane, Jack and Jill formed a partnership with the following profit or loss agreement:
1.
2.
3.
4.
Dick receives a salary of P 400,000 and a bonus of 3% of profit after all bonuses;
Jane receives a salary of P 200,000 and a bonus of 2% of profit after all bonuses;
All partners are to receive a 10% interest on their beginning capital balances. The partners’
beginning capital balances are as follows: Dick – P 1,000,000; Jane – P 900,000; Jack – P 400,000;
and Jill – P 940,000;
Any remaining profits or losses are to be divided equally among the partners.
Required: Prepare schedules showing how profit or loss will be distributed among the three
partners under each of the following independent assumptions.
1.
Prepare a schedule how a profit of P 2,100,000 would be allocated among the partners.
Dick
Jane
400,000
200,000
Jack
Jill
Amount being Allocated
Allocation:
1. Salary to Dick&Jane
2. Bonus to Dick&Jane
(3%;2%)
2.1M*5%/1.05 = 100K
100K*3/5
100K*2/5
3. Interest on beg, cap
(10%)
1M*10%; 900K*10%;
400K810%; 940k*10%
4. Allocation of
remaining profit
2.1M – (600K+100K+324K) =
1,076,000/4
As Allocated
Total
2,100,0
00
600,000
100,000
60,000
40,000
100,000
90,000
40,000
94,000
324,000
269,000
269,000
269,000
269,000
829,000
599,000
309,000
363,000
1,076,0
00
2,100,0
00
Partnership Dissolution – Admission of a Partner
Page 32
2.
Prepare a schedule how a loss of P 800,000 would be allocated among the partners.
Dick
Jane
Jack
Jill
400,000
200,000
100,000
90,000
40,000
94,000
324,000
(431,000)
(431,000)
(431,000)
(431,000)
69,000
(141,000)
(391,000)
(337,000)
(1,724,0
00)
(800,00
0)
Amount being Allocated
Allocation:
1. Salary to
Dick&Jane
2. Interest on beg,
cap (10%)
1M*10%; 900K*10%;
400K810%; 940k*10%
3. Allocation of
remaining profit
(800,000) – (600K+324K) =
(1,724,000)/4
As Allocated
3.
Total
(800,00
0)
600,000
Prepare a schedule how a profit of P 800,000 would be allocated among the partners assuming the
following priority system. Profit should be allocated by first giving priority to interest on beginning
capital balances, then bonuses, then salary, and then according to the profit or loss percentages.
Amount being Allocated
Allocation:
1. Interest on beg, cap
(10%)
1M*10%; 900K*10%;
400K810%; 940k*10%
2. Bonus to Dick&Jane
800K*5%/1.05 = 38,095
38,095*3/5
38,095*2/5
3. Salary to Dick&Jane
800k-324k-38,095 = 437,905
437,905*4/6
437,905*2/6
As Allocated
Dick
Jane
Jack
Jill
Total
800,000
100,000
90,000
40,000
94,000
324,000
22,857
15,238
38,095
291,937
414,794
Partnership Dissolution – Admission of a Partner
145,968
251,206
40,000
94,000
437,905
800,000
Page 33
3-12
Stew and Peed entered into a partnership on March 1, 2019 investing P 2,000,000 and
P
1,000,000 respectively. They agreed that Stew is the managing partner and is to receive a salary
allowance of P 240,000 per year and a bonus of 10% of the net profit after deducting salary but
before bonus. The balance is to be divided in the ratio of their original capital.
Selected ledger account balances as of December 31, 2019 before adjustments showed the
following:
Stew, Capital
Stew, Drawing
Peed, Capital
Peed, Drawing
Sales
Sales returns and allowances
Purchases
Operating expenses
P 2,000,000
200,000
1,000,000
100,000
3,000,000
30,000
1,800,000
480,000
Inventories on December 31, 2019 were as follows: Office supplies, P 8,100; merchandise,
P
500,000. Prepaid insurance of P 12,000 and accrued expenses of P 4,000 were recognized.
Depreciation expense of P 40,000 was also provided.
Required:
1.
Determine the profit or loss of the partnership. Assuming 30% income tax rate.
Net Sales
Sales
Sales R&A
Cost of Goods Sold
Purchases
Merchandise Inv End
Gross Profit
Less Expenses:
Operating Expenses
Accrued Expense
Depreciation Expense
Less: Office Supplies
Prepaid Insurance
Profit before Income Tax
Income Tax (30%)
Net Profit
3,000,000
(30,000)
2,970,000
1,800,000
(500,000)
480,000
4,000
40,000
(8,100)
(12,000)
Partnership Dissolution – Admission of a Partner
1,300,000
1,670,000
(503,900)
1,116,100
(349,830)
816,270
Page 34
2.
Prepare a schedule showing the distribution of partnership profit or loss.
Stew
Amount being Allocated
Allocation:
1. Salary to Stew
240K*10/12
(March 1- Dec 31 = 10
months)
2. Bonus to Stew (10%)
816,270-200,000= 616,270
616,270*10%
3. Allocation of remaining
profit
816,270-200,000-61,627= 554,643
554,643*2/3
554,643*1/3
As Allocated
3.
Peed
Total
816,270
200,000
200,000
61,627
61,627
369,762
631,389
184,881
184,881
554,643
816,270
Prepare a Statement of Changes in Partners’ Equity for the period ended December 31,
2019.
Partnership Dissolution – Admission of a Partner
Page 35
EXERCISES
4-1
Allyna and Allysa are partners with capital balances of P 480,000 and P 240,000. Their
profit and loss agreement is 75% and 25%, respectively. They agree to admit Aldrick as a partner of
firm.
Give the required journal entries to record the admission of Aldrick under each of the following
independent cases:
1.
Aldrick purchases 25% interest in the firm. Aldrick pays the partners P 180,000 which is
divided between Allyna and Allysa in proportion to the equities given up.
Allyna, Capital
Allysa, Capital
Aldrick, Capital
120,000
60,000
180,000
Computation:
Allyna, Capital
480,000*25% = 120,000
Allysa, Capital 240,000*25% = 60,000
Total Book Value
= 180,000
2.
Aldrick purchases a 1/3 interest in the firm. Aldrick pays the partners P 360,000. Asset
revaluation is undertaken before Aldrick’s admission so that his 1/3 interest will be equal
to the amount of his payment.
Entry for the Revaluation of Asset
Other Assets
Allyna, Capital
Allysa, Capital
360,000
270,000
90,000
New Partnership Capital
Old Partners Capital
Positive Asset Revaluation
= P360,000 ÷ 1/3 =
P 1,080,000
720,000
P 3 6 0,000
Distribution of P360,000 to old partners (based on profit and loss ratio)
Allyna
P360,000 x 75% =
P270,000
Allysa
P360,000 x 25% =
P90,000
Entry for the transfer of capital
Allyana, Capital
Allysa, Capital
Aldrick, Capital
Partnership Dissolution – Admission of a Partner
250,000
110,000
360,000
Page 36
Capital balances before revaluation
Share in asset revaluation
Capital balances after revaluation
Interest purchased
Capital transferred to Aldrick
Capital balances after revaluation
Capital transferred to Alrick
Capital balance after admission
3.
P750,000
250,000
P500,000
Allysa
Total
P240,000 P720,000
90,000
360,000
P330,000 P1,080,000
1/3
1/3
P110,000 P360,000
P330,000 P1,080,000
110,000
360,000
P 220,000 P720,000
Aldrick invests P 360,000 for a 25% interest in the firm. Asset revaluation is recorded on
the firm books prior to Aldrick’s admission.
Cash
Other Assets
Allyna, Capital
Allysa, Capital
Aldrick, Capital
Old (75%)
New (25%)
Allyna
P480,000
270,000
P750,000
1/3
P250,000
360,000
360,000
270,000
90,000
360,000
AC
1,080,000
360,000
1,440,000
CC
720,000
360,000
1,080,000
+ Revaluation
360,000
360,000
Computation:
AC = 360,000/25%
Allyna’s Share in Asset Revaluation 360,000*75
Allysa’s Share in Asset Revaluation 360,000*25
=
=
Partnership Dissolution – Admission of a Partner
270,000
90,000
Page 37
4.
Aldrick invests P 360,000 for a ½ interest in the firm. Allyna and Allysa transfer part of
their capital to Aldrick as bonus.
Cash
Allyana, Capital
Allysa, Capital
Aldrick, Capital
360,000
135,000
45,000
540,000
AC
540,000
540,000
1,080,000
Old (50%)
New (50%)
CC
720,000
360,000
1,080,000
Bonus
(180,000)
180,000
-
Computation:
New PC = CC
Allyna’s Share in Bonus to Aldrick 180,000*75%
Allysa’s Share in Bonus to Aldrick 180,000*25%
5.
135,000
45,000
Aldrick invests P 480,000 in the firm. Bonus of P 120,000 is considered to partners Allyna
and Allysa.
Cash
Allyana, Capital
Allysa, Capital
Aldrick, Capital
Old (70%)
New (30%)
=
=
480,000
90,000
30,000
360,000
AC
840,000
360,000
1,200,000
CC
720,000
480,000
1,200,000
Bonus
120,000
(120,000)
-
Computation:
Old AC = 720,000 CC + 120,000 Bonus
New AC = 480,000 – 120,000
Allyna’s Share in Bonus 120,000*75%
Allysa’s Share in Bonus 120,000*25%
=
=
Partnership Dissolution – Admission of a Partner
90,000
30,000
Page 38
6.
Aldrick invests P 480,000 in the firm with P 20,000 bonus allowed to Allysa and Allyna
upon his admission.
Cash
Allyana, Capital
Allysa, Capital
Aldrick, Capital
Old (61.66%)
New (38.33%)
480,000
15,000
5,000
460,000
AC
740,000
460,000
1,200,000
CC
720,000
480,000
1,200,000
Bonus
20,000
(20,000)
-
Computation:
Old AC = 720,000 CC + 20,000 Bonus
New AC = 480,000 – 20,000
Allyna’s Share in Bonus 20,000*75
Allysa’s Share in Bonus 20,000*25
7.
15,000
5,000
Aldrick invests P 300,000 for a ¼ interest in the firm. Total capital of the new partnership
is P 1,020,000.
Cash
Other Assets
Allyna, Capital
Allysa, Capital
Aldrick, Capital
Old (3/4)
New (1/4)
=
=
300,000
45,000
33,750
11,250
300,000
AC
765,000
255,000
1,020,000
CC
720,000
300,000
1,020,000
Bonus
45,000
(45,000)
-
Computation:
Old AC = 1,020,000 Total AC x 3/4
Allyna’s Share in Bonus 45,000*75
=
33,750
Allysa’s Share in Bonus 45,000*25
=
11,250
Partnership Dissolution – Admission of a Partner
Page 39
8.
Aldrick invests P 330,000 for a 25% interest in the firm. The total firm capital after his
admission is P 1,320,000.
Cash
Other Assets
Allyna, Capital
Allysa, Capital
Aldrick, Capital
Old (75%)
New (25%)
330,000
270,000
202,500
67,500
330,000
AC
990,000
330,000
1,320,000
CC
720,000
330,000
1,050,000
+ Asset Revaluation
270,000
270,000
Computation:
Old AC = 1,320,000 Total AC x 3/4
9.
Allyna’s Share in Asset Revaluation 270,000*75%
=
202,500
Allysa’s Share in Asset Revaluation 270,000*25%
=
67,500
Aldrick invests P 288,000 for a 1/3 interest in the firm. The total firm capital after his
admission is P 1,008,000.
Cash
288,000
Allyna, Capital
36,000
Allysa, Capital
12,000
Aldrick, Capital
Old (2/3)
New (1/3)
336,000
AC
672,000
336,000
1,008,000
CC
720,000
288,000
1,008,000
Bonus
(48,000)
48,000
Computation:
Old AC = 1,008,000 Total AC x 3/4
Allyna’s Share in Bonus 48,000*75
Allysa’s Share in Bonus 48,000*25
Partnership Dissolution – Admission of a Partner
=
=
36,000
12,000
Page 40
10.
Aldrick invests sufficient cash for a 1/5 interest in the firm.
Cash
Aldrick, Capital
180,000
180,000
Computation:
Total AC = 720,000/ (4/5) = 900,000
New CC = 900,000*1/5 = 180,000
Partnership Dissolution – Admission of a Partner
Page 41
4-2
Partners Lakers and Celtics are considering the admission of Knicks into the partnership.
Lakers and Celtics share profit and loss in the ratio of 2:4, respectively. Capital balances
of Lakers and Celtics are P 240,000 and P 180,000 respectively.
Prepare journal entries to record the admission of Knicks under each of the following
independent assumptions:
1.
Knicks acquired one-third of the interest of Lakers paying P 80,000.
Laker, Capital
80,000
Kinicks, Capital
80,000
Computation:
240,000*1/3 = 80,000
2.
Knicks acquired one-third of the interest of Celtics paying P 35,000.
Celtics, Capital
60,000
Kinicks, Capital
60,000
Computation:
180,000*1/3 = 60,000
3.
Knicks buys a 25% interest in the partnership from the old partners paying each
P63,000. Asset revaluation has to be considered prior to the admission of Knicks.
Other Assets 84,000
Lakers, Capital
Celtics, Capital
28,000
56,000
Lakers, Capital
Celtics, Capital
Knicks, Capital
67,000
59,000
126,000
Computation:
Purchase Price 63,000 x 2 = 126,000
New PC = 126,000/25% = 504,000
OP Capital
420,000
+AR
84,000
Lakers, Capital
Knicks, Capital
84,000*2/6 = 28,000
84,000*2/6 = 56,000
Partnership Dissolution – Admission of a Partner
Page 42
Capital balances before revaluation
Share in asset revaluation
Capital balances after revaluation
Interest purchased
Capital transferred to Aldrick
4-3
Celtics
P240,000
28,000
P268,000
25%
P67,000
Lakers
P180,000
56,000
P236,000
25%
P59,000
Total
P420,000
84,000
P 504,000
25%
P126,000
Utah, Atlanta and Detroit have capital balances of P 150,000, P 200,000, and P 300,000,
respectively and they share profits and losses in the ration of 4:3:3. Miami purchases 15%
interest in equity and profits from the partners for P 150,000.
a) What would be the new capital balance of Utah, Atlanta and Detroit after the
admission of Miami?
Utah = 127,500
Atlanta = 170,000
Detroit = 255,000
Computation:
Utah, Capital
150,000*15% = 22,500
Atlanta, Capital 200,000*15% = 30,000
Detroit, Capital 300,000*15% = 45,000
Total Book Value
= 97,5000
Utah, New Capital
150,000 - 22,500 = 127,500
Atlanta, New Capital 200,000 - 30,000 = 170,000
Detroit, New Capital 300,000 - 45,000 = 255,000
Alternative
Utah 150,000*85% = 127,500
Atlanta 200,000*85% = 170,000
Detroit 300,000*85% = 255,000
b) Assume that some of the assets of the partnership are undervalued, how much is
the undervaluation in assets? 350,000
Computation:
New Partnership Capital
Old Partners Capital
Positive Asset Revaluation
= P150,000 ÷ 15% =
Partnership Dissolution – Admission of a Partner
P 1,000,000
650,000
P 3 5 0,000
Page 43
4-4
On August 1, 2020, prior to the admission of Grant, E and F Enterprises have the
following account balances:
Cash
Accounts Receivable
Allowance for Bad Debts
Merchandise Inventory
Equipment - net
Accounts Payable
Erving, Capital
Fisher, Capital
Partnership Dissolution – Admission of a Partner
P 30,000
400,000
36,000
110,000
134,000
38,000
300,000
300,000
Page 44
Erving and Fisher share profit and loss on 1:1 ratio. Before the admission of Grant, the
partners agree on the following adjustments to bring the assets and liabilities to their fair
values:
a.
The allowance for Bad Debts should be brought to 10% of the outstanding accounts
receivable.
Capital Adjustment Account
Allowance for Bad Debts
4,000
4,000
Computation:
400,000 AR*10% - 36,000 = 4,000
b.
The current market value of the merchandise inventory is P 140,000.
Merchandise Inventory
Capital Adjustment Account
30,000
30,000
Computation:
140,000 – 110,000 Merchandise Inventory = 30,000
c.
Accrued expenses of P 4,000 should be recognized in the accounting records.
Capital Adjustment Account
Accrued Expenses
4,000
4,000
Capital Adjustment Account
Erving, Capital
Fisher, Capital
1.
22,000
11,000
11,000
If Grant purchases 50% of Erving’s capital at its adjusted carrying value, how
much is the total assets of the partnership just after the admission of Grant?
Erving’s Adjusted Capital
300,000 + 11,000 = 311,000
311,000*50% = 155,500 – Grant’s Purchase
Erving’s Adjusted Capital after Grant’s Purchase
311,000 – 155,500 = 155,500
Fisher’s Adjusted Capital
300,000 + 11,000 = 311,000
A = L + OE
A = 38,000 AP + 4,000 Accrued Expenses + 311,000 + 155,500 + 155,500
A = 664,000
Partnership Dissolution – Admission of a Partner
Page 45
2.
If Grant is admitted into the partnership upon his investment of P 400,000 for 2/5 interest
in capital and profit, what is the total capital of the partnership just after the admission of
Grant?
1,000,000
Old Partnership Capital 600,000 + New Partner’s Investment 400,000
4-5
Jake desires to invest P 200,000 for ¼ capital and profit and loss interest in the
partnership of Kim and Lim, who at that time had capital balances of P 200,000 and
P300,000, respectively. Profit and loss ratio of the partners before the admission was 6:4.
If a positive asset revaluation is to be recorded, what are the capital balances of Kim, Lim
and Jake?
Kim 260,000
Lim 340,000
Jake 200,000
Computation:
Old (75%)
New (25%)
AC
600,000
200,000
800,000
CC
500,000
200,000
700,000
Revaluation
100,000
100,000
Computation:
AC = 200,000/ (1/4)
Kim’s Share in Asset Revaluation 100,000*6/10
Lin’s Share in Asset Revaluation 100,000*4/10
=
=
60,000
40,000
Kim, Capital 200,000 + 60,000
Lim, Capital 300,000 + 40,000
4-6
Pierce, Allen, and Rondo are partners with capital account balances at year-end of
P90,000; P 110,000; and P 50,000, respectively. The partnership profit for the year is P 110,000.
They share profits and losses on a 4:4:2 ratio, after considering the following terms:
a.
Interest of 10% shall be paid on that portion of a partner’s capital in excess of
P100,000
b.
Salaries of P 10,000 and P 12,000 shall be paid to Pierce and Rondo, respectively
Partnership Dissolution – Admission of a Partner
Page 46
c.
Rondo is to receive a bonus of 10% of profit after bonus
How much is the total profit share of each partner?
Pierce
40,800
Allen
31,800
Rondo
Pierce
Amount being Allocated
Allocation:
4. Interest
110,000 – 100,000 = 10,000
10,000*10% = 1,000
Allen
Rondo
1,000
10,000
6. Bonus
110,000*10%/1.10
7. Allocation of remaining profit
110,000 – 1,000 – 22,000 – 10,000 =
77,000
4-7
Total
110,000
1,000
5. Salaries
77,000*4/10
77,000*4/10
77,000*2/10
As Allocated
37,400
12,000
22,000
10,000
10,000
15,400
37,400
77,000
110,000
30,800
30,800
40,800
31,800
Anton, Barkley and Charles, partners of ABC Enterprises, have agreed on a profit and loss ratio
of 3:3:4, respectively. On December 31, 2019, the partnership books showed the following
capital balances:
Anton – P 450,000;
Barkley – P 540,000;
Charles – P 900,000
On January 1, 2020, Derek was admitted as a new partner under the following terms and
conditions:
a.
b.
c.
d.
Derek will share ¼ in the profit and loss ratio, while the ratio of the original partners will
remain proportionately the same as before Derek’s admission.
Derek will purchase 1/6 of Barkley’s interest paying him P 75,000.
Derek will contribute P 450,000 in cash to the partnership.
Total partnership capital after Derek’s admission will be P 2,400,000 of which Derek’s
capital interest will be P 480,000.
Partnership Dissolution – Admission of a Partner
Page 47
Instructions:
1.
Using the format below, prepare a schedule showing the capital of each partner before
and after the admission of Derek.
Capital balances before the
admission of Derek
Derek’s1/6 purchase of Barkley’s
Capital
Anton
Barkley
Charles
Derek
Total
P 450,000
P 540,000
P 900,000
-
P 1,890,000
(90,000)
90,000
Derek’s Investment
Bonus to Old Partners
Share in +Asset Revaluation
(2,400,000 – 2,340,000 = 60,000)
Capital balances after the
admission of Derek
450,000
18,000
18,000
24,000
(60,000)
18,000
18,000
24,000
-
486,000
486,000
948,000
480,000*
P 2,400,000*
AC
CC
+AR
Bonus to OP
OP 1,920,000*
1,800,000 60,000 60,000 = +120,000
NP 480,000*
< 540,000
(60,000)
2,400,000* > 2,340,000 60,000
+AR
Allen 60,000 3/10 = 18,000
Barkley 60,000 x 3/10 = 18,000
Charles 60,000 x 4/10 = 24,000
Same sharing for Bonus to OP
New Total Capital of OP ( 486,000 + 486,000 + 948,000) = 1,920,000*
2.
What is the profit and loss ratio of all the partners after Derek’s admission?
Anton = ¾ x 3/10
22.5%
Barkley = ¾ x 3/10
22.5%
Charles = ¾ x 4/10
30%
Derek = ¼
25%
Total =
100%
Partnership Dissolution – Admission of a Partner
Page 48
4-8
The CFM Partnership shows the following profit and loss ratios and capital balances:
Carter – 60% P 252,000;
Fisher – 30% P 126,000;
Malone – P 10% P 42,000
The partners decide to sell Shaq 20% of their respective capital and profit and loss interests for a
total payment P 90,000. Shaq will pay the money directly to the partners.
1.
If the partners agree that asset revaluation is to be recorded prior to the admission of
Shaq, what are the capital balances of the partners after Shaq’s admission?
Carter
216,000
Fisher 108,000
Malone 36,000
Shaq 90,000
Computation:
New Partnership Capital
Old Partners Capital
Positive Asset Revaluation
= P90,000 ÷ 20% =
P 450,000
420,000
P 3 0,000
Distribution of P 30,000 to old partners (based on profit and loss ratio)
Carter
Fisher
Malone
P 30,000 x 60% =
P 30,000 x 30% =
P 30,000 x 10% =
P 18,000
P 9,000
P 3,000
252,000 +18,000 = 270,000
126,000 + 9,000 = 135,000
42,000 + 3,000 = 45,000
Capital balances before revaluation
Share in asset revaluation
Capital balances after revaluation
Interest purchased
Capital transferred to Aldrick
CARTER
P252,000
18,000
P270,000
20%
P54,000
Fisher
P126,000
9,000
P135,000
20%
P27,000
Capital balances after revaluation
Capital transferred to Alrick
Capital balance after admission
P270,000
54,000
P216,000
P135,000 P45,000
27,000
9,000
P 108,000
P 36,000
Partnership Dissolution – Admission of a Partner
Malone
P42,000
3,000
P45,000
20%
P 9,000
Total
P720,000
360,000
P 450,000
20%
P90,000
Page 49
4-9
On January 1, 2020, Kevin Garnett and Steve Nash have capital balances of P 174,600 and
P 110,400, respectively. On this date, Karl Malone is admitted as a partner upon his
investment of P 120,000 in the firm. Kevin and Steve, sharing profits and losses in the ratio
of 65:35, gave a bonus to Karl so that Karl may have a 40% interest in the firm.
How much is the decrease in Steve’s capital balance?
Steve’s capital balance will be decreased by 14,700
AC
243,000
162,000
405,000
Old
New
CC
285,000
120,000
405,000
Bonus
(42,000)
42,000
-
Computation:
Kevin’s Share in Bonus to Aldrick 42,000*65/100
Steve’s Share in Bonus to Aldrick 42,000*35/100
4-10
=
=
27,300
14,700
Jason and Kidd are partners who share profits and losses in the ratio of 3:1, respectively.
On August 1, 2020, their capital balances were: Jason – P 200,000 and Kidd – P 100,000.
On this date, Scottie invests 80,000 in the firm and is given a capital credit of P 50,000 which
is to be 1/8 of the capital of the new partnership.
1.
What is the agreed capital of the new partnership? 400,000
50,000/ (1/8)
2.
What is the new capital balance of Jason after the admission of Scottie?
AC
CC
Bonus
Revaluation
Old
350,000
300,000
30,000
20,000
New
50,000
80,000
( 30,000)
400,000
380,000
20,000
Jason, Capital
50,000*3/4
=
37,500
200,000 + 37,500= 237,500
4-11
Terence and Romeo are partners who share profits and losses 60% and 40%, respectively.
Their capital accounts on July 1, 2020 were as follows: Terence – P 280,000; Romeo –
P240,000. On this date, they agree to admit Arwind as a new partner.
1.
If Arwind purchased ¼ of the equity of Terence for P 100,000, how much would be
the
total
partnership
capital
after
Arwind’s
admission?
520,000
2.
If Arwind invested P 180,000 for a ¼ interest in the firm and that the assets of the
partnership are fairly valued, what would be the capital of Terence after Arwind’s
admission?
283,000
Computation:
AC
525,000
175,000
700,000
Teren’s Share in Bonus 5,000*60%
=
CC
520,000
180,000
700,000
3,000
Old (75%)
New (25%)
Bonus
5,000
(5,000)
-
280,000 + 3,000 = 283,000
3.
If Arwind invested P 130,000 for a 25% interest in the firm and that the assets of the
partnership are fairly valued, what would be the capital of Romeo after the admission
of Arwind?
227,000
Computation:
AC
Old (75%)
487,500
New (25%)
162,500
650,000
Romeo’s Share in Bonus 32,500*40%
=
CC
520,000
130,000
650,000
13,000
Bonus
(32,500)
32,500
-
240,000 - 13,000 = 227,000
4.
If Arwind purchased 25% of the respective capital and profits and losses of Terence
and Romeo for P 150,000, how much is the share of Terence in the asset adjustment?
80,000 x 60% = 40,800 Terrence’s share in Asset Revaluation
Computation:
New PC
150,000/25% = 600,000
Old PC
= 520,000
Asset Revaluation
= 80,000
EXERCISES
5.1
Maria, Leonora and Teresa are partners with adjusted capital balances of P165,000, P150,000 and
P180,000 respectively and divide profit and loss equally. At the end of the year, Maria decides to
withdraw from the partnership. Maria will receive cash settlement of P150,000
Instruction: Give the entry to record the withdrawal of Maria assuming –
a. Bonus Method is used
Maria, Capital
165,000
Leonora, Capital
Teresa, Capital
Cash
P15,000/2 = P 7,500
P15,000/2 = P 7,500
7,500
7,500
150,000
b. Revaluation of Asset method is used
Maria, Capital
165,000
Leonora, Capital
15,000
Teresa, Capital
15,000
Other Assets
45,000
Cash
150,000
Revaluation P15,000 ÷ 1/3 = P 45,000
P45,000 x 1/3 = P15,000
P45,000 x 1/3 = P15,000
P45,000 x 1/3 = P15,000
5.2
Mercedes, Melinda and Julieta are partners sharing profit and loss 40%, 30% and 30%
respectively. Capital balances of the partners before the retirement of Mercedes were at
P450,000, P425,000 and P400,000. The company sustained a net loss of P45,000 during the year.
The partners were allowed to withdraw P10,000 each.
Instruction: Give the entry to record the retirement of Mercedes, assuming no Bonus or
Revaluation will be recorded
Profit and Loss ratio
Capital
Balance
retirement
Share in Net Loss
Withdrawals
Total
before
Mercedes,
Capital
Melinda,
Capital
Julieta,
Capital
40%
30%
30%
P450,000
P425,000
P400,000
(18,000)
(13,500)
(13,500)
(10,000)
P422,000
(10,000)
P401,500
(10,000)
P 376,500
Total
Capital
P
1,275,000
(45,000)
(10,000)
P
1,220,000
Mercedes, Capital
Cash
5.3
422,000
Santino is to withdraw from Mariposa Partnership, owned by partners Macario, Policarpio and
Santino, with capital balances of P200,000, P250,000 and P100,000. Macario purchased 60% of
Santino’s interest for P65,000 while Policarpio paid Santino P50,000 for the remainder.
Instruction: Give the entry to record the withdrawal of Santino from the Partnership.
Santino, Capital
Macario, Capital
Policarpio, Capital
5.4
422,000
100,000
60,000
40,000
After closing the books of the partnership of Mutya and Associates, Lakambini announced his
retirement of from the partnership. Shown below are the partners’ capital balances and the profit
and loss ratio:
Capital Balance
LamAng, Capital
Lakandula, Capital
Lakambini, Capital
LaLuna, Capital
P 50,000
65,000
40,000
45,000
P/L ratio
30%
25%
23%
22%
The partners agreed to the following before the cash settlement to Lakambini.
a. The merchandise inventory will be increased by P4,500
b. Allowance for bad debts will be decreased by P2,100
c. Prepaid insurance worth P1,200 have expired.
Instruction: Give the entries to record the following:
1) Adjustments in the books of the partnership
a. Merchandise Inventory
LamAng, Capital
Lakandula, Capital
Lakambini, Capital
LaLuna, Capital
4,500
1,350
1,125
1,035
990
LamAng 4,500*30% = 1,350; Lakndula 4,500*25% = 1,125;
Lakambini 4,500*23% = 1,035; LaLuna 4,500*22% = 990
b. Allowance for Bad Debts
LamAng, Capital
Lakandula, Capital
Lakambini, Capital
LaLuna, Capital
2,100
630
525
483
462
LamAng 2,100*30% = 630; Lakndula 2,100*25% = 525;
Lakambini 2,100*23% = 483; LaLuna 2,100*22% = 462
c. LamAng, Capital
Lakandula, Capital
Lakambini, Capital
LaLuna, Capital
Prepaid Insurance
360
300
276
264
1,200
LamAng 1,200*30% = 360; Lakndula 1,200*25% = 300;
Lakambini 1,200*23% = 276; LaLuna 1,200*22% = 264
Summary:
Capital Adjustment Account
LamAng, Capital
Lakandula, Capital
Lakambini, Capital
LaLuna, Capital
5,400
1,620
1,350
1,242
1,188
2) Withdrawal of Lakambini from the Partnership assuming the remaining partners will give
Lakambini a bonus of P10,000.
40,000 + 1,242 = 41,242
41,242+ 10,000 = 51,242
Lakambini, Capital
LamAng, Capital
Lakandula, Capital
LaLuna, Capital
Cash
41,242
3,896
3,247
2,857
51,242
10,000*30/77 = 3,896
10,000*25/77= 3,247
10,000*22/77= 2,857
3) Withdrawal of Lakambini from the partnership assuming Lakambini receives P5,000 share
in asset revaluation.
Lakambini, Capital
Other Assets
Cash
LamAng, Capital
Lakandula, Capital
LaLuna, Capital
Computation:
41,242
21,739
46,242
6,522
5,435
4,782
5,000/23% = 21,739
LamAng = 21,739*30% = 6,522
Lakandula = 21,739*25% = 5,435
Lakambini = 21,739*23% = 5,000
LaLuna = 21,739*22% = 4,782
5.5
The partners Macopa, Sineguelas and Ashitaba have capital balances of P300,000, P450,000 and
P200,000 respectively, while profit and loss was divided in the ratio 4:4:2.
On December 1, 2017, Macopa announced his intention to leave the partnership at the
end of the year. During the year the partnership gained a Net Income of P250,000 which was
distributed as follows: 5% interest on their individual capital, salaries of P6,000 to Partners
Sineguelas and Ashitaba, 4% Bonus on Net income after salaries and interest on capital was
allowed to partner Macopa.
Instruction:
1) Compute for the distribution of Net Income at the end of the year.
Macopa
Amount being Allocated
Allocation:
8. Interest on Capital
300,000*5%
450,000*5%
200,000 *5%
9. Salaries
10. Bonus
250,000-47,500-12,000 = 190,500
190,500*4%
Siniguelas
Ashitaba
Total
250,000
10,000
6,000
47,500
12,000
15,000
22,500
6,000
7,620
7,620
11. Allocation of remaining
profit
250,000-47,500-12,000-7,620 =
182,880
182,880*4/10
182,880*4/10
182,880*2/10
As Allocated
73,152
73,152
95,772
101,652
36,576
52,576
182,880
250,000
2) Give the entry to record the withdrawal of Macopa at the end of the year assuming
Profit and Loss ratio
Capital
Balance
retirement
Share in Net Income
Total
before
Macopa,
Capital
Siniguelas,
Capital
Ashitaba,
Capital
40%
40%
20%
Total
Capital
P300,000
P450,000
P200,000
P 950,000
95,772
P395,772
101,652
P551,652
52,576
P 252,576
250,000
P
1,200,000
a) Macopa cash settlement was P20,000 less than her capital interest and the bonus method
was used.
Macopa, Capital
395,772
Siniguelas, Capital
13,333
Ashitaba, Capital
6,667
Cash
375,772
P20,000 x 4/6 = P 13,333
P20,000 x 2/6 = P 6,667
b) Macopa’s cash settlement was P10,000 more than her capital interest and the asset
revaluation method was used
Other Assets
Macopa Capital
Siniguelas, Capital
Ashitaba, Capital
Cash
25,000
395,772
10,000
5,000
405,772
Revaluation P10,000 ÷ 40% = P25,000
P25,000 x 4/10 = P10,000
P25,000 x 4/10 = P10,000
P25,000 x 2/10 = P 5,000
c) Macopa’s cash settlement was equal to her capital interest.
Macopa, Capital
Cash
5.6
395,772
395,772
The following information was taken from the books of SAMPALOC and SONS PARTNERSHIP.
Capital Balance Profit & Loss Ratio
Sampaloc, Capital
P5,000,000
35%
Kamatchili, Capital
Kaimito, Capital
2,500,000
1,500,000
33%
32%
Kaimito is to withdrew from the partnership by selling 30% of his capital interest to
Sampaloc at 2% more than his capital interest, and will sell 70% of his capital to Kamatchili at book
value. After the withdrawal of Kaimito, the remaining partners will divide their profit and loss
equally.
Instruction:
1. Give the entry to record the retirement of Kaimito.
Kaimito, Capital
Sampaloc, Capital
Kamatchili, Capital
1,500,000
450,000
1,050,000
2. If the remaining partners were to have equal capital interest and share in profit and loss,
how much additional cash should one of the partners invest?
Kamatchili should invest an additional cash of 950,000
Computation:
Adjusted Capital Balances
Sampaloc, Capital
Kamatchili, Capital
Total
Equal interest
(9,000,000/2)
Add’l investment
5.7
4,500,000
(950,000)
5,000,000 + 450,000 = 5,450,000
2,500,000 + 1,050,000 = 3,550,000
9,000,000
4,500,000
950,000
Nilupak, Biko and Maja Blanca are partners with capital balances of P324,300, P207,000 and
P158,700. After being a partner for 30 years, Biko decided to withdraw from the partnership.
Upon his withdrawal, assets were revaluated, and Biko’s share was debited for P27,000.
Instruction:
1. Give the entry to record the revaluation of the other assets
Nilupak, Capital
Biko, Capital
Maja Blanca, Capital
Other Assets
42,300
27,000
20,700
90,000
Revaluation P27,000 ÷ 207,000/690,000 = P90,000
P90,000 x 324,300/690,000= P42,300
P90,000 x 207,000/690,000= P 27,000
P90,000 x 158,700/690,000= P 20,700
2. Give the entry to record the withdrawal of Biko from the partnership.
Biko, Capital
Cash
180,000
180,000