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Partnership Basic Considerations and Formation
CHAPTER 1
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
1-1: a
1-2: b
1-2: c
1-3: a
1-4: b
1-5: d
Jose's capital should be credited for the market value of the computer contributed by
him.
(40,000 + 80,000) 2/3 = 180,000 x 1/3 = 60,000.
Cash
Land
Mortgage payable
P100,000
300,000
( 50,000)
Net assets (Julio, capital)
P350,000
Total Capital (P300,000/60%)

Perla's interest
P500,000
______40%
Perla's capital
Less:Non-cash asset contributed at market value
Land
P 70,000
Building
90,000
Mortgage Payable
( 40,000)
P200,000
Cash contribution
P 80,000
_120,000
- Zero, because under the bonus method, a transfer of capital is only required.
1-6: b
Reyes
Santos
Cash
Inventory
Building
Equipment
Mortgage payable
P200,000
150,000
________
P300,000
150,000
400,000
( 100,000)
Net asset (capital)
P350,000
P750,000
AA
BB
CC
P55,000
P55,000
1-7: c
Cash
Property at Market Value
Mortgage payable
Equipment at Market Value
P 50,000
_______
P 80,000
( 35,000)
_______
Capital
P 50,000
P 45,000
Chapter 1
1-8: a
1-9: c
PP
RR
SS
Cash
Computer at Market Value
P 50,000
__25,000
P 80,000
_______
P 25,000
__60,000
Capital
P 75,000
P 80,000
P 85,000
Maria
Nora
Cash
Merchandise inventory
Computer equipment
Liability
Furniture and Fixtures
P 30,000
200,000
P 90,000
160,000
( 60,000)
________
Total contribution
P230,000
P190,000
Total agreed capital (P230,000/40%)

Nora's interest
P575,000
______60%
Nora's agreed capital

Less: investment
P345,000
190,000
Cash to be invested
P155,000
1-10: d
Roy
Sam
Tim
Cash
Office Equipment
Note payable
P140,000
________
P220,000
_( 60,000)
______
Net asset invested
P140,000
P160,000
Agreed capitals, equally (P300,000/3) =
P100,000
1-11: a
Lara
Mitra
Cash
Computer equipment
Note payable
P130,000
________
P200,000
50,000
_( 10,000)
Net asset invested
P130,000
P240,000
Goodwill (P240,000 - P130,000) =
P110,000
1-12: a
Perez
Reyes
Cash
Office Equipment
Merchandise
Furniture
Notes payable
P 50,000
30,000
_______
P 70,000
110,000
100,000
( 50,000)
Net asset invested
P 80,000
P230,000
Bonus Method:
Total capital (net asset invested)
P310,000
Goodwill Method:
Net assets invested
Add: Goodwill (P230,000-P80,000)
P310,000
_150,000
Net capital
1-13: b
1-14: d
1-15: d
P460,000
Required capital of each partner (P300,000/2)

Contributed capital of Ruiz:
Total assets
P105,000
Less Liabilities
__15,000
P150,000
Cash to be contributed by Ruiz
P 60,000
Total assets:
Cash
Machinery
Building
Less: Liabilities (Mortgage payable)
P 70,000
75,000
_225,000
__90,000
P370,000
__90,000
Net assets (equal to Ferrer's capital account)

Divide by Ferrer's P & L share percentage
P280,000
____70%
Total partnership capital
P400,000
Required capital of Cruz (P400,000 X 30%)

Less Assets already contributed:
Cash
P 30,000
Machinery and equipment
25,000
Furniture and fixtures
__10,000
P120,000
Cash to be invested by Cruz
P 55,000
__65,000
Adjusted assets of C Borja

Cash
P 2,500
Accounts Receivable (P10,000-P500)
9,500
Merchandise inventory (P15,000-P3,000) 12,000
Fixtures
__20,000
Asset contributed by D. Arce:
Cash
P 20,000
Merchandise
__10,000
__30,000
Total assets of the partnership
P 74,000
P 44,000
1-16: a
Chapter 1
Cash to be invested by Mendez:

Adjusted capital of Lopez (2/3)
Unadjusted capital
Adjustments:
Prepaid expenses
Accrued expenses
Allowance for bad debts (5% X P100,000)
P158,400
17,500
( 5,000)
_( 5,000)
Adjusted capital
1-17: d
P165,900
Total partnership capital (P165,900/2/3)

Multiply by Mendez's interest
P248,850
Mendez's capital
Less Merchandise contributed
P 82,950
__50,000
Cash to be invested by Mendez
P 32,950
Total Capital:
Adjusted capital of Lopez
Contributed capital of Mendez
P165,900
__82,950
Total capital
Moran, capital (40%)
Cash
Furniture and Fixtures
Divide by Moran's P & L share percentage
P248,850
P 15,000
_100,000

Multiply by Nakar's P & L share percentage
Required capital of credit of Nakar:
Contributed capital of Nakar:
Land
Building
Total assets
Less Liabilities
Required cash investment by Nakar
1-18: c
P115,000
______40%
P287,500
______60%
P172,500
P 45,000
15,000
__65,000
P125,000
__30,000
P 95,000
P 77,500
Garcia's adjusted capital (see schedule 1)

Divide by Garcia's P & L share percentage
P40,500
______40%

Flores' P & L share percentage
P101,250
______60%
Flores' capital credit

Flores' contributed capital (see schedule 2)
P 60,750
__43,500
Additional cash to be invested by Flores
P 17,250
Schedule 1:
Garcia, capital:
Unadjusted balance
Adjustments:
Accumulated depreciation
Allowance for doubtful account
P 49,500
( 4,500)
( 4,500)
Adjusted balance
P 40,500
Schedule 2:
Flores capital:
Unadjusted balance
Adjustments:
Allowance for doubtful accounts
1-19: d
P 57,000
( 1,500)
( 12,000)
Adjusted balance
P 43,500
Ortiz
Ponce
Total
( 60%)
( 40%)
P133,000
P108,000
P241,000
Unadjusted capital balances

Adjustments:
Allowance for bad debts
Inventories
Accrued expenses
( 2,700)
3,000
_( 2,400)
Adjusted capital balances
P130,900
( 1,800)
2,000
( 1,600)
P106,000
( 4,500)
5,000
( 4,000)
P237,500
Total capital before the formation of the new partnership (see above) P237,500
Divide by the total percentage share of Ortiz and Ponce (50% + 30%) ______80%
1-20: d
Total capital of the partnership before the admission of Roxas

Multiply by Roxas' interest
P296,875
______20%
Cash to be invested by Roxas
P 59,375
Merchandise to be invested by Gomez:

Total partnership capital (P180,000/60%)
P300,000
Gomez's capital (P300,000 X 40%)

Less Cash investment
P120,000
__30,000
Merchandise to be invested by Gomez
P 90,000
Cash to be invested by Jocson:

Adjusted capital of Jocson:
Total assets (at agreed valuations)
Less Accounts payable
Required capital of Jocson
Cash to be invested by Jocson
P180,000
__48,000
P132,000
_180,000
P 48,000
1-21: b
1-22: c
1-23: a
1-24: c
1-25: c
1-26: d
Chapter 1
Unadjusted Ell, capital (P75,000 P5,000)

Accounts payable
P 70,000
( 1,000)
( 4,000)
Adjusted Ell, capital
P 65,000
Total partnership capital (P113,640/1/3)

Less David's capital
P340,920
_113,640
Cortez's capital after adjustments

Adjustments made:
Allowance for doubtful account (2% X P96,000)
Prepaid expenses
Accrued expenses
P227,280
Cortez's capital before adjustments
P211,200
1,920
( 16,000)
( 5,200)
___3,200
Total assets at fair value

Liabilities
Capital balance of Flor
P4,625,000
(1,125,000)
P3,500,000
Total capital of the partnership (P3,500,000 70%)

Eden agreed profit & loss ratio
Eden agreed capital
Eden contributed capital at fair value
Allocated cash to be invested by Eden
P5,000,000
30%
1,500,000
812,000
P 688,000
__Rey
__Sam_ __Tim
__Total_
Contributed capital (assets-liabilities)P471,000 P291,000 P195,000 P957,000
Agreed capital (profit and loss ratio) 382,800 382,800 191,400 957,000
Capital transfer (Bonus)
P 88,200 P(91,800) P 3,600
Total agreed capital (P90,000 40%)
Contributed capital of Candy (P126,000+P36,000-P12,000)
Total agreed capital (P90,000 40%)
Candy, agreed capital interest
Agreed capital of Candy
Contributed capital of Candy
Withdrawal
P225,000
150,000
225,000
60%
135,000
150,000
P 15,000

1-27: a
1-28: a
Total agreed capital (210,000 70%)

Noras interest
Agreed capital of Nora
Cash invested
Cash to be invested by Nora
P300,000
30%
P 90,000
42,000
P 48,000
Contributed capital of May (P194,000 - P56,000)

Agreed capital of May (P300,000 x 70%)
Cash to be invested by May
P138,000
210,000
P 72,000
1-29: c
Contributed capital
Agreed capital
Capital invested
__Alex_
P100,000
92,000
P( 8,000)
_Carlos_
P84,000
92,000
P 8,000
__Total__
P184,000
184,000
-
Chapter 1
SOLUTIONS TO PROBLEMS
Problem 1 1
1.
a. Books of Pedro Castro will be retained by the partnership

To adjust the assets and liabilities of Pedro Castro.
1. Pedro Castro, Capital .............................................................
Merchandise Inventory......................................................
600

Allowance for Bad Debts ..................................................
200
3. Accrued Interest Receivable ..................................................

Pedro Castro, Capital.........................................................
35
Computation:
P1,000 x 6% x 3/12 =
P2,000 x 6% x 2/12 =
600
200
35
P15
_20
Total ......................... ......P35

Accrued Interest Payable...................................................
(P4,000 x 5% x 6/12 = P100)
100

Accumulated Depreciation Furniture and Fixtures ........
800
6. Office Supplies ......................................................................

Pedro Castro, Capital.........................................................
400
100
800
400
To record the investment of Jose Bunag.

Cash.. ........................................................................................... 15,067.50
Jose Bunag, Capital ...............................................................
Computation:
Pedro Castro, Capital

(1)
P600 P31,400
(2)
200
35 (3)
(4)
100
400 (6)
(5) ___800
P1,700 P31,835
P30,135
Jose Bunag, Capital : 1/2 x P30,135 = P15,067.50
15,067.50
b.
A new set of books will be used

Books of Pedro Castro
To adjust the assets and liabilities.
See Requirement (a).
To close the books.
Notes Payable...............................................................................
Accounts Payable .........................................................................
Accrued Interest Payable..............................................................
Allowance for Bad Debts .............................................................
Accumulated Depreciation Furniture and Fixtures ...................
Pedro Castro, Capital ...................................................................
Cash .......................................................................................
Notes Receivable ...................................................................
Accounts Receivable .............................................................
Accrued Interest Receivable ..................................................
Merchandise Inventory ..........................................................
Office Supplies ......................................................................
Furniture and Fixtures............................................................
4,000
10,000
100
1,200
1,400
30,135
6,000
3,000
24,000
35
7,400
400
6,000
New Partnership Books

To record the investment of Pedro Castro.
Cash ...........................................................................................
Notes Receivable..........................................................................
Accounts Receivable ....................................................................
Accrued Interest Receivable.........................................................
Merchandise Inventory.................................................................
Office Supplies.............................................................................
Furniture and Fixtures ..................................................................
Notes Payable ........................................................................
Accounts Payable...................................................................
Accrued Interest Payable .......................................................
Allowance for Bad Debts.......................................................
Accumulated Depreciation Furniture and Fixtures.............
Pedro Castro, Capital .............................................................
6,000
3,000
24,000
35
7,400
400
6,000
4,000
10,000
100
1,200
1,400
30,135
To record the investment of Jose Bunag.

Cash.. ........................................................................................... 15,067.50
Jose Bunag, Capital ...............................................................
15,067.50
10
Chapter 1
2.
Castro and Bunag Partnership

Balance Sheet
October 1, 2008
Assets
Cash ..... ...... ... ...........................................................................................

Notes receivable ..........................................................................................
Accounts receivable .................................................................................... P 24,000
Less Allowance for bad debts...................................................................... ___1,200
Accrued interest receivable .........................................................................
Merchandise inventory ................................................................................
Office supplies ...........................................................................................
Furniture and fixtures ..................................................................................
6,000
Less Accumulated depreciation................................................................... ___1,400
Total Assets ........................................................................................
P21,067.50
3,000.00
22,800.00
35.00
7,400.00
400.00
__4,600.00
P59,302.50
Liabilities and Capital

Notes payable ...........................................................................................
Accounts payable ........................................................................................
Accrued interest payable .............................................................................
Pedro Castro, Capital...................................................................................
Jose Bunag, Capital .....................................................................................
Total Liabilities and Capital ...............................................................
Contributed Capitals:
P 4,000.00
10,000.00
100.00
30,135.00
_15,067.50
P59,302.50
Problem 1 2
Jose:
Capital before adjustment ...................................................... P 85,000

Notes Payable ........................................................................
62,000
Undervaluation of inventory..................................................
13,000
Underdepreciation.................................................................. ( 25,000)
Pedro: Cash .......................................................................................
Pablo: Cash .......................................................................................
11,000
Marketable securities ............................................................. _57,500
Total contributed capital..............................................................................
Agreed Capitals:
Bonus Method:
Jose (P231,500 x 50%)................................................................. P115,750
Pedro (P231,500 x 25%) ..............................................................
57,875
Pablo (P231,500 x 25%)............................................................... __57,875
Total . ........................................................................................... P231,500
P 135,000
28,000
___68,500
P 231,500
11
Goodwill Method. To have a goodwill, the only possible base is the capital of Pablo. The
computation is:
Contributed
Capital
Jose
Pedro
Pablo
Total
Agreed
Capital
P135,000
28,000
__68,500
P231,500
Goodwill
P137,000 (50%)
68,500 (25%)
__68,500 (25%)
274,000
2,000
40,500
_____
42,500
Total agreed capital (P68,500 25%) = 274,000

Jose, Pedro and Pablo Partnership
Balance Sheet
June 30, 2008
Assets:
Cash
Accounts receivable (net)
Marketable securities
Inventory
Equipment (net)
Goodwill
Total
Bonus Method
Goodwill Method
P 49,000
48,000
57,500
85,000
45,000
______
P284,500
P 49,000
48,000
57,500
85,000
45,000
__42,500
P327,000
P 53,000
115,750
57,875
__57,875
P284,500
P 53,000
137,000
68,500
__68,500
P327,000
Liabilities and Capital:

Accounts payable
Jose, capital (50%)
Pedro, capital (25%)
Pablo, capital (25%)
Total
Problem 1 3
1.
Books of Pepe Basco

To adjust the assets.
a. Pepe Basco, Capital......................................................................
Estimated Uncollectible Account ..........................................
3,200
b. Pepe Basco, Capital......................................................................

Accumulated Depreciation Furniture and Fixtures.............
500
3,200
500
12
Chapter 1
To close the books.

Estimated Uncollectible Account .......................................................
Accumulated Depreciation Furniture and Fixtures..........................
Accounts Payable................................................................................
Pepe Basco, Capital ............................................................................
Cash.. ...........................................................................................
Furniture and Fixtures ..................................................................
2.
4,800
1,500
3,600
31,500
400
16,000
20,000
5,000
Books of the Partnership

To record the investment of Pepe Basco.
Cash .... ... ...........................................................................................
Accounts Receivable ..........................................................................
Merchandise Inventory .......................................................................
Furniture and Fixtures.........................................................................
Estimated Uncollectible account..................................................
Accumulated Depreciation Furniture and Fixtures ...................
Pepe Basco, Capital......................................................................
400
16,000
20,000
5,000
4,800
1,500
3,600
31,500
To record the investment of Carlo Torre.

Cash .... ... ...........................................................................................
Carlo Torre, Capital .....................................................................
Computation:
Pepe Basco, capital (Base) ...........................................................
Divide by Pepe Basco's P & L ratio .............................................
Total agreed capital ......................................................................
Multiply by Carlo Torre's P & L ratio..........................................
Cash to be invested by Carlo Torre..............................................
47,250
47,250
P31,500
___40%
P78,750
___60%
P47,250
Problem 1 4
a.
Roces' books will be used by the partnership

1. Adjusting Entries
Books of Sales
(a) Sales, Capital .........................................................................

Accumulated Depreciation Fixtures...............................
3,200
(b) Goodwill ................................................................................

Sales, Capital.....................................................................
32,000
3,200
32,000
2.
13
Closing Entry
Accumulated Depreciation Delivery Equipment ......................
Accumulated Depreciation Fixtures..........................................
Notes Payable...............................................................................
Accrued Taxes..............................................................................
Sales, Capital................................................................................
Cash .......................................................................................
Accounts Inventory................................................................
Prepaid Insurance...................................................................
Delivery Equipment...............................................................
Fixtures ..................................................................................
Goodwill ................................................................................
12,800
8,000
91,200
64,000
40,000
8,000
224,000
4,800
72,000
192,000
3,200
48,000
96,000
32,000
Books of Roces (Books of the Partnership)

1.
2.
Adjusting Entries
(a) Roces, Capital ..............................................................................
1,600
(b) Accumulated Depreciation Fixtures..........................................

Roces, Capital........................................................................
16,000
(c) Merchandise Inventory.................................................................

Roces, Capital........................................................................
8,000
(d) Goodwill.......................................................................................
Roces, Capital........................................................................
40,000
1,600
16,000
8,000
40,000
To record the investment of Sales.

Cash .... ... ...........................................................................................
Prepaid Insurance................................................................................
Delivery Equipment............................................................................
Fixtures ... ...........................................................................................
Goodwill . ...........................................................................................
Notes Payable...............................................................................
Accrued Taxes..............................................................................
Sales, Capital................................................................................
4,800
72,000
192,000
3,200
48,000
96,000
32,000
12,800
8,000
91,200
64,000
40,000
8,000
224,000
14
b.
Chapter 1
Sales' books will be used by the partnership

Books of Roces
2. Closing Entry
Accrued Taxes..............................................................................
Roces, Capital ..............................................................................
Cash .......................................................................................
Accounts Receivable .............................................................
Prepaid Insurance...................................................................
Delivery Equipment...............................................................
Fixtures ..................................................................................
Goodwill ................................................................................
1,600
12,800
64,000
104,000
6,400
224,000
14,400
57,600
132,800
4,800
19,200
144,000
40,000
Books of Sales (Books of the Partnership)

1.
Adjusting Entries
2.
To record the investment of Roces.

Cash .... ... ...........................................................................................
Delivery Equipment............................................................................
Fixtures ... ...........................................................................................
Goodwill . ...........................................................................................
Accrued Taxes..............................................................................
Roces, Capital ..............................................................................
14,400
57,600
132,800
4,800
19,200
144,000
40,000
1,600
12,800
64,000
104,000
6,400
224,000
c.
15
A new set of books will be opened by the partnership

Books of Roces
2. Closing Entry
See Requirement (b).
Books of Sales
2. Closing Entry
To record the investment of Roces and Sales.
Cash .... ... ...........................................................................................
Delivery Equipment (net) ...................................................................
Fixtures (net).......................................................................................
Goodwill ...........................................................................................
Notes Payable...............................................................................
Accrued Taxes..............................................................................
Roces, Capital ..............................................................................
Sales, Capital................................................................................
19,200
129,600
324,800
8,000
46,400
84,800
72,000
14,400
168,000
40,000
14,000
224,000
224,000
16
Chapter 1
Problem 1 5
1.
To close Magno's books.

Allowance for Bad Debts....................................................................
Accounts Payable................................................................................
Notes Payable .....................................................................................
Accrued Interest Payable ....................................................................
R. Magno, Capital...............................................................................
Cash.. ...........................................................................................
Equipment ....................................................................................
Other Assets .................................................................................
2.
5,000
13,000
12,000
3,000
9,000
To adjust the books of Lagman.

Goodwill . ...........................................................................................
J. Lagman, Capital........................................................................
3.
1,000
6,000
10,000
300
24,700
8,000
210
7,790
To record the investment of Magno.

Cash .... ... ...........................................................................................
Equipment...........................................................................................
Other Assets........................................................................................
Notes Payable...............................................................................
Accrued Interest Payable..............................................................
R. Magno, Capital ........................................................................
5,000
13,000
12,000
3,000
9,000
1,000
6,000
10,000
300
24,700
To adjust the investments of the partners.

Cash .... ... ...........................................................................................
R. Magno, Capital ........................................................................
(P35,000 P24,700 = P10,300)
10,300
J. Lagman, Capital ..............................................................................

Cash.. ...........................................................................................
Accounts Payable to J. Lagman ...................................................
(P63,000 + P7,790 = P70,790 P35,000 = P35,790)
35,790
10,300
23,300
12,490
4.
17
Lagman and Magno

Balance Sheet
December 31, 2008
Assets
Cash .... ... ...........................................................................................
Accounts receivable............................................................................
Less Allowance for bad debts.............................................................
Merchandise inventory .......................................................................
Equipment...........................................................................................
Other assets.........................................................................................
Goodwill ...........................................................................................
Total Assets..................................................................................
P34,000
1,210
32,790
21,000
8,000
46,000
___8,000
P115,790

Accounts payable................................................................................
Notes payable......................................................................................
Accrued interest payable.....................................................................
Accounts payable to J. Lagman ..........................................................
J. Lagman, capital ...............................................................................
R. Magno, capital................................................................................
Total Liabilities and Capital.........................................................
P 18,000
15,000
300
12,490
35,000
__35,000
P115,790
Problem 1 6
1.
Books of Toledo
Toledo, Capital.............................................................................
Allowance for Bad Debts (15% x P32,000) ..........................
4,800
4,800
Books of Ureta
Ureta, Capital ...............................................................................
Allowance for Bad Debts (10% x P24,000) ..........................
2,400
Cash (90% x P12,000)..................................................................

Loss from Sale of Office Equipment............................................
Office Equipment...................................................................
10,800
1,200
Toledo, Capital (1/4 x P1,200) .....................................................

Ureta, Capital ...............................................................................
Loss from Sale of Office Equipment .....................................
300
900
2,400
12,000
1,200
18
2.
3.
Chapter 1

Cash.. ...........................................................................................
Merchandise .................................................................................
Office Equipment .........................................................................
Notes Payable ........................................................................
Toledo, Capital ......................................................................
To record the investment of Toledo.
3,200
32,000
40,000
10,000
Cash.. ...........................................................................................
Merchandise .................................................................................
Toledo, Capital.............................................................................
Allowable for Bad Debts .......................................................
Ureta, Capital.........................................................................
To record the investment of Ureta.
22,800
24,000
36,000
300
Cash .... ... ...........................................................................................

Ureta, Capital ...............................................................................
To record Ureta's cash contribution.
3,400
Computation:
Toledo, capital (P68,400 P300).................................................
Divide by Toledo's profit share percentage..................................
Total agreed capital of the partnership .........................................
Multiply by Ureta's profit share percentage .................................
Agreed capital of Ureta ................................................................
Ureta, capital ................................................................................
Cash contribution of Ureta ...........................................................
or
Toledo, capital (P68,400 P300).................................................
Less Ureta, capital........................................................................
Cash contribution of Ureta ...........................................................
P 68,100
____50%
P136,200
____50%
P 68,100
__64,700
P 3,400
P 68,100
__64,700
P 3,400
4,800
10,000
2,000
68,400
2,400
16,000
64,700
3,400
4.
19
Toledo and Ureta Partnership

Balance Sheet
July 1, 2008
Assets
Cash .... ... ...........................................................................................
Accounts receivable............................................................................
Less Allowance for bad debts.............................................................
Merchandise........................................................................................
Office equipment ................................................................................
Total Assets..................................................................................
P56,000
__7,200
P 29,400
48,800
76,000
__10,000
P164,200

Accounts payable................................................................................
Notes payable......................................................................................
Toledo, capital ....................................................................................
Ureta, capital.......................................................................................
Total Liabilities and Capital.........................................................
P 26,000
2,000
68,100
__68,100
P164,200
20
Chapter 2
CHAPTER 2
2-1: d
Jordan
P120,000
( 10,000)
P110,000
Annual salary
Balance, equally
Total
2-2: a
2-3: a
Bonus (.20 X P90,000)

Interest
JJ (.15 X P100,000)
KK (.15 X P200,000)
LL (.15 X P300,000)
Balance, equally
Total profit share
JJ
P18,000
KK
P15,000
P 30,000
( 6,000)
P27,000
( 6,000)
P 24,000
2-4: a
Allan
Interest
Allan - .10 X (P40,000 + 60,000 /2)
Michael - .10 X (P60,000 + 70,000/2)
Balance, equally
Total
2-5: a
Average Capital
Date
January 1
July 1
August 1
Capital
Balance
140,000
180,000
165,000
_14,000
P 19,000
Fred
P12,000
30,000
( 35,000)
P 7,000
Interest (.10 of average capital)

Salaries
Balance, equally
Total
2-6: b
P 5,000
Months
Unchanged
6
1
5
12
( 35,000)
( P29,000)
Peso
Months
P 840,000
180,000
__825,000
P1,845,000
Average capital - P1,845,000/12
P153,750
Interest
P 15,375
(P153,750 X 10%)
Greg
P 6,000
Pippen
Total
P80,000 P200,000
( 10,000) ( 20,000)
P 70,000 P180,000
LL
Total
P 18,000
)
)
P45,000)
90,000
( 6,000) ( 18,000)
P39,000 P 90,000
Michael
Total
)
P 6,500) P 11,500
_14,000 __28,000
P20,500 P 39,500
Henry
Total
P 4,000 P 22,000
20,000
50,000
( 35,000) (105,000)
(P11,000) (P 33,000)
Partnership Operations
2-7: c
Date
January 1
April 1
June 1
September 1
21
Capital
Balance
P16,000
17,600
19,200
15,200
Months
Unchanged
3
2
3
4
12
Average Capital(P201,600/12) =
2-8: a
P16,800
Net profit before bonus

Net profit after bonus (P24,000/120%)
Bonus to RJ
Balance (P24,000-P4,000)X3/5
Total profit share
2-9: a
LT
P3,200
15,000
(11,580)
P 6,620
P 24,000
__20,000
4,000
__12,000
P 16,000
AM
P 3,600
7,500
( 7,720)
P 3,380
Total
P 6,800
22,500
( 19,300)
P 10,000
Net income after salary, interest and bonus

Add back: Salary (P10,000 X 12)
P120,000
Interest (P250,000 X .05)
__12,500
Net income after bonus (80%)
Net income before bonus (P600,000/80%)
Paul's bonus
P467,500
Interest
Salaries
Balance, 3:2
Total
2-10: b
Peso
Months
P 48,000
35,200
57,600
__60,800
P201,600
2-11: b
_132,500
P600,000
_750,000
P150,000
CC
Salary
Balance
Additional profit to DD
Total
P14,000
( 1,500)
P12,500
Net income
Fees Earned
Expenses
Net Income
P90,000
_48,000
P42,000
DD
P 8,400
__2,100
P10,500
EE
Total
P 14,000 P 14,000
5,600
28,000
( 600) ______
P 19,000 P 42,000
22
Chapter 2
2-12: c
Interest
Annual Salary
Additional profit to give LL, P20,000
Additional profit to give MM, P14,000
Total
*(P9,500/50%) = P19,000
LL
P 2,000
8,500
9,500
_____
P20,000
MM
P 1,250
5,700
__7,050
P14,000
NN
P 750
3,800
_____
P 4,550
Total
P 4,000
8,500
19,000*
__7,050
P 38,550
RR
SS
TT
Total
P15,000
_47,500
P62,500
(P10,000)
_35,625
P25,625
)
)
_11,875
P11,875
P 5,000
__95,000
P100,000
BB
CC
Total
2-13: a
Excess (Deficiency)
RR (P80,000 - P95,000)
SS (P50,000 - P40,000)
Balance 4:3:1
Total
Net Income
2-14: b
2-15: a
2-16: c
(200,000 - 100,000) =
AA - 100,000 X 10%
150,000 X 20%
Remainder, 210,000
BB (60,000 X .05)
CC (60,000 X .05)
Balance, equally
Total
P100,000
AA
P 10,000
30,000
)
)
P 40,000
)
P 3,000
_68,000
P71,000
6,000
_204,000
P250,000
BJ
CJ
Total
P1,000
_6,800
P7,800
P4,000
12,000
__3,400
P19,400
P4,000
1,000
22,000
_17,000
P44,000
P 3,000
__68,000
P108,000
AJ
Bonus to CJ
Net profit before bonus
P44,000
Net profit after bonus (P44,000/110%)P40,000
Interest to BJ
Salaries
P 10,000
Balance, 4:4:2
__6,800
Total
P 16,800
_68,000
P71,000
Total profit share of Pedro

Less: Salary to Pedro
Interest
Share in the balance (40%)
P 50,000
__20,000
Net profit after salary and interest (130,000/40%)

Add: Total Salaries
Total Interest
Total Partnership Income
P150,000
__70,000
P200,000
__70,000
P130,000
P325,000
_220,000
P545,000
2-17: c
Net income before extraordinary gain and bonus (69,600-12,000)

Net income after bonus (57,600/120%)
Bonus to RR
Distribution of Net Income:
2-18: a
Bonus
Balance, equally
Net profit before extraordinary gain
Extraordinary gain
Total
P 24,000
P 24,000
__4,800
P 28,800
RR
P 9,600
24,000
P 33,600
__7,200
P 40,800
Interest
Annual Salary
Remainder 60:40
Total
Mel
P 20,000
36,000
__60,000
P116,000
Jay
P 12,000
_40,000
P 52,000
Interest on excess (Deficiency)

Remainder 5:3:2
Total
DV
P 15,000
( 36,875)
(P 21,875)
2-19: a
2-20: c
23
JJ
2-21: a
Salaries
Interest
Bonus (P360,000-P54,000)X.25
Remainder, 30:70
Total
Total
P 9,600
48,000
P 57,600
_12,000
P 69,600
Total
P 32,000
36,000
_100,000
P168,000
JE
FR
Total
P 3,750
(P 7,500) P 11,250
( 22,125) ( 14,750) ( 73,750)
(P 18,375) (P 22,250) (P 62,500)
Correction of 1998 profit:

Net income per books
Understatement of depreciation
Overstatement of inventory, December 31
Adjusted net income
Distribution of net income per book:
Equally
Distribution of adjusted net income
Equally
Required Decrease
P 57,600
_48,000
P 9,600
P 19,500
( 2,100)
( 11,400)
P 6,000
Pete
Rico
Total
P 9,750
P 9,750
P 19,500
( 3,000)
P 6,750
( 3,000) ( 6,000)
P 6,750 P 13,500
Tiger
P 64,000
24,000
76,500
__19,650
P184,150
Woods
P100,000
30,000
__45,850
P175,850
Total
P164,000
54,000
76,500
__65,500
P360,000
24
Chapter 2
2-22: a
Holly
P 20,000
32,000
30,000
__35,640
P117,640
Salaries
Commission
Interest
Bonus, schedule 1
Remainder, 60:40
Total
2-23: a
Field
P 25,000
33,600
_23,760
P 82,360
Schedule 1
Net income before salary, commission,
interest and bonus
Less: salaries
Net income before bonus
Net income after bonus (P180,000/120%)
Bonus
Total
P 20,000
25,000
65,600
30,000
__59,400
P200,000
P200,000
__20,000
P180,000
_150,000
P 30,000
Capital balance, beginning

Additional investment
Capital withdrawal
Capital balance before profit and loss distribution
Mike
P600,000
100,000
-200,000
P500,000
Tyson
Total
P400,000 P1,000,000
200,000
300,000
( 100,000) _-300,000
P500,000 P1,000,000
Net income:
Salary
Balance, 3:2
Total
Total
Drawings
Capital balance, end
P200,000
__60,000
P260,000
P760,000
( 200,000)
P560,000
P300,000 P 500,000
__40,000 __100,000
P340,000 P 600,000
P840,000 P1,600,000
( 300,000) ( 500,000)
P540,000 P1,100,000
Average Capital - King:

Date
January 1
April 1
Capital
Balance
P40,000
55,000
Average capital P615,000/12 = P51,250

Average Capital - Queen:
Date
January 1
April 1
Capital
Balance
P100,000
130,000
Average capital - P1,350,000 / 12 =P112,500
Months
Unchanged
3
9
12
Peso
Months
P120,000
_495,000
P615,000
Months
Unchanged
7
5
12
Peso
Months
P700,000
__650,000
P1,350,000
2-24: d
25
Distribution of Net Income - Schedule 1

Interest
Bonus, Schedule 2
Salaries
Residual, 50:50
Total
King
P 5,125
12,725
25,000
( 2,050)
P40,800
Queen
P11,250
30,000
_(2,050)
P39,200
Total
P16,375
12,725
55,000
_(4,100)
P80,000
Schedule 2
Net income before allocation
Less: Interest
Net income before bonus
Net income after bonus (P63,625/125%)
Bonus
Capital Balance December 31:
Capital balance, January 1
Capital balance before profit and
loss distribution
Net income (Schedule 2)
Drawings (P400 X 52)
Capital balance, December 31
2-25: d
P80,000
_16,375
P63,625
_50,900
P12,725
King
P40,000
_15,000
Queen
P100,000
__30,000
Total
P140,000
__45,000
P55,000
40,800
( 20,800)
P75,000
P130,000
39,000
( 20,800)
P148,400
P185,000
80,000
( 41,600)
P223,400
Total receipts (P1,500,000 + P1,625,000)

Expenses
Net income
Distribution to Partners
Red P1,500,000/P3,125,000 X P2,045,000 =
Blue P1,625,000/P3,125,000 X P2,045,000 =
Capital balance of Blue Dec. 31
Capital Balance, Jan. 1
Capital balance before profit and
loss distribution
Profit share
Drawings
Capital balance, Dec. 31
P3,125,000
( 1,080,000)
P2,045,000
P 981,600 (1)
_1,063,400
P2,045,000
P 374,000
___22,000
P 396,000
1,063,400
( 750,000)
P 709,400 (2)
26
Chapter 2
2-26: a
Ray
P150,000
_______
Sam
P180,000
__60,000
Total
P330,000
__60,000
150,000
240,000
390,000
15,000
51,000
20,000
34,000
35,000
85,000
66,000
54,000
120,000
Total
Salaries
216,000
_18,000
294,000
_24,000
510,000
_42,000
Total
Drawings
234,000
(18,000)
318,000
(24,000)
552,000
(42,000)
Capital balances, March 1

Additional investment, Nov. 1
Capital balances before salaries, profit and Drawings
Profit share:
Interest
Balance, 60:40
Total
Capital balances, Feb. 28
P216,000
P294,000
Capital balances, 1/1

Additional investment, 4/1
Capital withdrawals, 7/1
Susan
P150,000
8,000
_______
Tanny
P30,000
158,000
24,000
23,400
(1,725)
4,050
6,000
(1,725)
27,450
6,000
(3,450)
21,675
_8,325
30,000
179,675
(12,000)
32,325
(12,000)
212,000
(24,000)
2-27: a
Balances before profit distribution

Profit distribution:
Interest
Bonus (20% x P30,000)
Balance, equally
Total
Total
Drawings
Capital balances, 12/31
P167,675
P510,000
Total
P180,000
8,000
(6,000) _(6,000)
P20,325
182,000
P188,000
2-28: a
Capital balances, beg. 1st year
Loss distribution, 1st year:
Salaries
Interest
Balance, 5:3:2
Total
Total
Drawings
Capital balances, beg. 2nd year
Profit distribution, 2nd year:
Salaries
Interest
Balance, 5:3:2
Total
Total
Drawings
Capital balances, end of 2nd year
2-29: c
Capital balances, 1/1/06
Additional investment, 2006
Capital withdrawal, 2006
Capital balances
Profit distribution, 2006:
Interest
Salary
Balance, equally
Capital balances
Interest
Salary
Balance, equally
Capital balances
Interest
Salary
Balance, equally
Capital balances, 12/31/08 per books
Adjusted capital balances, 12/31/08
27
Sin
P110,000
Tan
P80,000
Uy
P110,000
Total
P300,000
20,000
11,000
(40,000)
( 9,000)
101,000
(10,000)
91,000
8,000
(16,000)
( 8,000)
72,000
(10,000)
62,000
10,000
11,000
(24,000)
( 3,000)
107,000
(10,000)
97,000
30,000
30,000
(80,000)
(20,000)
280,000
(30,000)
250,000
20,000
9,100
( 7,500)
21,600
112,600
_(10,000)
P102,600
6,200
( 4,500)
_1,700
63,700
(10,000)
P53,700
10,000
9,700
( 3,000)
16,700
113,700
_(10,000)
P103,700
30,000
25,000
(15,000)
40,000
290,000
_(30,000)
P260,000
Jay
P30,000
Kay
P30,000
_(5,000)
25,000
_(4,000)
26,000
Loi
P30,000
5,000
______
35,000
Total
P90,000
5,000
_(9,000)
86,000
3,000
7,000
_1,000
36,000
5,000
______
41,000
3,000
3,000
_1,000
30,000
_1,000
39,000
_(3,000)
27,000
_(8,000)
31,000
9,000
7,000
__3,000
105,000
5,000
(11,000)
99,000
3,600
7,000
_1,500
53,100
3,000
3,900
_1,500
31,500
______
53,100
_(4,000)
27,500
_1,500
36,400
6,000
_(2,000)
40,400
5,310
7,000
__3,300
P68,710
(2,000)
P66,710
3,150
3,640
__3,300
P33,950
(2,000)
P31,950
__3,300
P47,340
(2,000)
P45,340
10,500
7,000
__4,500
121,000
6,000
_(6,000)
121,000
12,100
7,000
___9,900
P150,000
(6,000)
P144,000
28
Chapter 2
2-30: a
Ken
Balances
Profit distribution, 2007 (Schedule 1)
Salary
Balance, beg. Capital ratio
P100,000
Len
P100,000
( 20,000)
_______
P300,000
40,000
( 20,000)
80,000
140,000
100,000
320,000
20,000
20,000
60,000
20,000
60,000
60,000
100,000
( 20,000)
160,000
( 40,000)
180,000
_______
440,000
( 60,000)
Balances
Salary
Balance, beg. capital ratio
80,000
120,000
180,000
380,000
__13,636
__21,818
60,000
__24,546
60,000
__60,000
P 93,636
P141,818
P264,546
P500,000
Total profit for 2 years

Net profit per year (P240,000 / 2)
2-32: d
Total
P100,000
40,000
_______
Schedule 1 Computation of net profit:

Total capital, 2008 (P647,500 P147,500)
Total capital, 2007 (P300,000 + P40,000 P80,000)
2-31: d
Mon
_Nardo_
Capital balance, 1/1/08
P280,000
96,000
Withdrawals
Cap. bal. before P/L dist.
376,000
NP: Salary (16,500 x 12)
Interest on EC (15%)
42,000
Balance 25:30:45
( 19,875 )
Total
22,125
Capital balance 12/31/08 P398,125
Sam capital, beginning
Additional investment (Land)
Drawings
Capital balance before net profit (loss)
Capital balance, end
Profit share (40%)
Net profit (P50,000 40%)
P500,000
_260,000
P240,000
P120,000
__Orly
P300,000
60,000
( 90,000 )
270,000
198,000
45,000
( 23,850 )
219,150
P 489,150
__Pedro_
P170,000
( 72,000 )
98,000
25,500
( 35,775 )
( 10,275 )
P 87,72
P120,000
60,000
( 80,000 )
100,000
150,000
50,000
P125,000
_Total_
P750,000
156,000
(162,000)
744,000
198,000
112,500
(79,500 )
231,000
P975,000
2-33: a
__Joe__
P 80,000
Net loss- 2007:
Annual salary
96,000
10% interest on beg. capital
8,000
Bal. beg. cap. ratio: 8:4
( 108,000)
Total
( 4,000)
Capital balance
76,000
Drawings
( 4,000)
72,000
Net profit- 2008:
Annual salary
96,000
10% interest on BC
7,200
Bonus to JoeNPBB
P 22000
NPAB (22000/110%)20000 2,000
Balance equally
( 67,300)
Total
37,900
Total
109,900
Drawings
(
4,000)
2-34: a
29
Decrease in capital
Drawings
Contribution
Profit share
Net income (45,000 30)
105,900
__Tom__
P 40,000
__Total__
P120,000
48,000
4,000
( 54,000)
( 2,000)
38,000
( 4,000)
34,000
144,000
12,000
( 162,000)
( 6,000)
114,000
( 8,000)
106,000
48,000
3,400
144,000
10,600
( 67,300)
( 15,900)
18,100
(
4,000)
2,000
( 134,600)
22,000
128,000
( 8,000)
14,100
120,000
P 60,000
( 130,000)
25,000
45,000
P150,000
30
Chapter 2
Problem 2 1
1.
Castro
Diaz
:
:
(P26,000/P42,500) x
(P16,500/P42,500) x
P23,800
P23,800
=
=
P14,560
__9,240
P23,800
2.
Castro
Diaz
:
:
(P31,250/P50,000) x
(P18,750/P50,000) x
P23,800
P23,800
=
=
P14,875
__8,925
P23,800
Computation of Average Capitals:

Castro:
Date
1/1 .....................................
4/10 ...................................
5/1 .....................................
8/1 .....................................
Capital
Balances
P26,000
29,000
36,000
32,000
Average capital = P375,000 12 months =

Diaz:
Date
1/1 .....................................
6/1 .....................................
9/1 .....................................
Capital
Balances
P16,500
21,500
19,500
Average capital = P225,000 12 months =

3.
Months
Unchanged
3
1
3
5
12
Peso
Months
P 78,000
29,000
108,000
_160,000
P375,000
P31,250
Months
Unchanged
5
3
4
12
Peso
Months
P 82,500
64,500
__78,000
P225,000
P18,750
Interest ........................................................
Salaries........................................................
Balance, equally..........................................
Total............................................................
Castro
P 7,500
36,000
( 24,100)
P19,400
Diaz
P4,500
24,000
(24,100)
P 4,400
Total
P12,000
60,000
( 48,200)
P23,800
Bonus (a) ....................................................

Interest (b)...................................................
Balance, 3:2 ................................................
Total............................................................
Castro
P 4,760
1,100
_10,764
P16,624
Diaz
P
_7,176
P7,176
Total
P 4,760
1,100
_17,940
P23,800
4.
31
Computations:
a. Net profit before bonus.................................................
Net profit after bonus (P23,800 125%).....................
Bonus............................................................................
b.
5.
Castro
Diaz
P23,800
_19,040
P 4,760
Average capital of Castro [(P26,000 + P32,000) 2] ...........................

Average of Diaz [(P16,500 + P18,500) 2]....... ..................................
Castro's excess..................................................... ..................................
Multiply by.......................................................... ..................................
Interest................................................................. ..................................
P29,000
_18,000
P11,000
___10%
P 1,100
:
:
P14,280
__9,520
P23,800
(P3,000/P5,000) x P23,800
(P2,000/P5,000) x P23,800
=
=
Problem 2 2
a.
Average Capital:
Robin:
Date
Jan. 1
Feb. 28
Apr. 30
Sept. 30
Balances
P135,000
95,000
175,000
195,000
Months
Unchanged
2
2
5
3
12
Peso
Months
P270,000
190,000
875,000
__585,000
P1,920,000
Months
Unchanged
3
3
2
2
2
12
Peso
Months
P420,000
600,000
300,000
440,000
__400,000
P2,160,000
Ave. Capital (P1,920,000 12) = P160,000

Hood:
Date
Balances
Jan. 1
Mar. 31
June 30
Aug. 31
Oct. 31
P140,000
200,000
150,000
220,000
200,000
Ave. Capital (P2,160,000 12) = P180,000

Profit Distribution:
Robin : P160,000 P340,000 x P510,000 =
Hood : P180,000 P340,000 x P510,000 =
P240,000
_270,000
P510,000
32
Chapter 2
b.
Robin
P 14,400
60,000
78,850
_119,775
P274,025
Hood
P 16,200
100,000
_119,775
P235,975
Total
P 30,600
160,000
79,850
_239,550
P510,000
Robin
Hood
Totals
P 6,000
249,000
255,000
P 12,000
498,000
510,000
Robin
Hood
Salaries.................................................................
P 80,000
P120,000
Bonus (see computations below) .........................
62,000
Balance, equally...................................................
_124,000
_124,000
Totals ...................................................................
P266,000
P244,000
Bonus Computations:
Net income before salaries and bonus......... ..................... .......................
Less Salaries................................................ ..................... .......................
Net income before bonus ............................ ..................... .......................
Net income after bonus (P310,000 125%)..................... .......................
Bonus .......................................................... ..................... .......................
Total
P200,000
62,000
_248,000
P510,000
Interest on ave. capital .........................................

Salaries.................................................................
Bonus (P510,000 30,600 160,000) x 25%)....
Balance, equally...................................................
Totals ...................................................................
c.
d.
Interest:
Robin (P195,000 P135,000) 10%.............
Hood (P200,000 P140,000) 10% .............
Balance, equally...................................................
Totals ...................................................................
P 6,000
249,000
255,000
P510,000
200,000
310,000
_248,000
P 62,000
Problem 2 3
a.
De Villa
P 30,000
De Vera
P 20,000
31,200
9,818
__44,182
P105,200
Salaries.................................................................
Commission (2% x P1,000,000)..........................
Interest of 8% on average capital.........................
32,800
Bonus (see computations below) .........................
9,818
Balance, equally...................................................
__44,182
Total.....................................................................
P116,800
Bonus Computations:
Income before salary, commissions, interest & bonus...... .......................
Salary and commission (P30,000 + P20,000) ................... .......................
Interest......................................................... ..................... .......................
Income before bonus................................... ..................... .......................
Income after bonus (P108,000 110%) ..... ..................... .......................
Bonus .......................................................... ..................... .......................
b.
Income Summary.................................................
De Villa, capital ..........................................
De Vera, capital...........................................
P 222,000
Total
P 30,000
20,000
64,000
19,636
__88,364
P222,000
P222,000
( 50,000)
( 64,000)
108,000
_98,182
P 9,818
116,800
105,200
33
Problem 2 4
a.
Salaries................................................
Bonus (see computation below)..........
Interest (see computation below)........
Balance, 3:3:4 .....................................
Total....................................................
East
P15,000
3,760
2,800
__3,180
P24,740
North
P20,000
West
P18,000
4,000
__3,180
P27,180
4,800
__4,240
P27,040
Bonus computations:
Net income before bonus ........... .................... ..................... .....................
Net income after bonus (P78,960 105%)..... ..................... .....................
Bonus ......................................... .................... ..................... .....................
Interest computations:
East (10% x P28,000)................. .................... ..................... .....................
North (10% x P40,000) .............. .................... ..................... .....................
West (10% x P48,000) ............... .................... ..................... .....................
Total ........................................... .................... ..................... .....................
b.
Interest (see computations below) ......
Salaries................................................
Bonus (see computations below) ........
Balance, equally..................................
Total....................................................
Interest computations:
Average capitals:
East:
Date
1/1
5/1
9/1
Balances
P30,000
36,000
28,000
East
P 3,133
24,000
( 6,056)
P 21,077
North
P 3,633
21,000
4,280
( 6,055)
P 22,858
West
P 5,200
25,000
( 6,055)
P 24,145
Months
Unchanged
4
4
4
12
Average capital (P376,000 12) ..........................................

North:
Date
1/1
3/1
7/1
9/1
Balances
P40,000
31,000
36,000
40,000
Months
Unchanged
2
4
2
4
12
Average capital (P436,000 12)...........................................
Total
P53,000
3,760
11,600
_10,600
P78,960
P78,960
_75,200
P 3,760
P 2,800
4,000
__4,800
P11,600
Total
P11,966
70,000
4,280
( 18,166)
P 68,080
Pesos
Months
P120,000
144,000
_112,000
P376,000
P 31,333
Pesos
Months
P80,000
124,000
72,000
_160,000
P436,000
P 36,333
34
Chapter 2
West:
Date
1/1
4/1
6/1
8/1
Months
Unchanged
3
2
2
5
12
Balances
P50,000
57,000
60,000
48,000
Pesos
Months
P150,000
114,000
120,000
_240,000
P624,000
Ave. capital (P624,000 12)....................................
P 52,000
Interest Computations:
East (10% x P31,333)............ ...............................................
North (10% x P36,333) ......... ...............................................
West (10% x P52,000)........... ...............................................
Total ... .................................. ...............................................
P 3,133
3,633
__5,200
P 11,966
Bonus Computations:
Net income ............................ ...............................................
Less Salary ............................ ...............................................
Net income before bonus....... ...............................................
Net income after bonus (P47,080 110%) ...........................
Bonus to North ...................... ...............................................
* To Total
c.
East
West
P 8,990
5,000
__8,237.50
P22,227.50
Total
P 8,990
39,000
12,000
_32,950
P92,940
Bonus Computations:
Net income before salaries & bonus ............... ..................... .....................
Less Salaries (P21,000 + P18,000) ................. ..................... .....................
Net income before bonus ........... .................... ..................... .....................
Net income after bonus (P53,940 120%)..... ..................... .....................
Bonus to West ............................ .................... ..................... .....................
P92,940
_39,000
P53,940
_44,950
P 8,990
Bonus (see comp. below)....................

Salaries ...........................................
Interest on beginning capital...............
Remainder, 8:7:5.................................
Total........ ...........................................
North
P 68,000
_21,000
47,080
_42,800
P 4,280
P21,000 P 18,000
3,000
4,000
_13,180 _11,532.50
P37,180 P33,532.50
Problem 2 5
a.
Schedule of Income Distribution:

Salaries.... ...........................................
Interest (see computation on p. 30).....
Balance, equally..................................
Total........ ...........................................
Maria
P12,000
7,200
__3,133
P22,333
Clara
P10,000
9,600
__3,133
P22,733
Rita
P 8,000
13,800
__3,134
P24,934
Total
P30,000
30,600
__9,410
P70,000
35
Interest on Average Capital:

Maria:
P80,000 x 8% x 6 months.. ....................
P100,000 x 5% x 6 months ....................
Clara:
P120,000 x 8% .................. ....................
Rita:
P180,000 x 8% x 9 Mos. ... ....................
P150,000 x 8% x 3 Mos. ... ....................
Total ........................................... ....................
b.
Statement of Partners Capital:

Balances, Jan. 1...................................
Additional Investment ........................
Capital Withdrawal.............................
Net Income..........................................
Drawings ...........................................
Balance, Dec. 31 .................................
Maria
P 80,000
20,000
22,333
( 10,000)
P112,333
P 3,200
__4,000
P 7,200
9,600
P10,800
__3,000
_13,800
P30,600
Clara
P120,000
22,733
( 10,000)
P132,733
Rita
P180,000
( 30,000)
24,934
( 10,000)
P164,934
Total
P380,000
20,000
( 30,000)
70,000
( 30,000)
P410,000
Benny
Celia
Total
P20,000
Problem 2 6
1.
Allocation of net loss for 2008:

Salary to Alvin....................................
Interests on average capital:
Alvin (P120,000 x 10%) ............
Benny (P200,000 x 10%) ...........
Celia (P220,000 x 10%) .............
Balance, 30:30:40 ...............................
Total........ ...........................................
2.
Statement of Partnership Capital

Year Ended December 31, 2008
Capitals, January 1, 2008....................
Additional investments .......................
Capital withdrawals ............................
Balances.. ...........................................
Net loss (see above) ............................
Balances.. ...........................................
Drawings. ...........................................
Capitals, December 31, 2008..............
Alvin
P 20,000
12,000
(29,400)
P 2,600
Alvin
P120,000
_______
120,000
__2,600
122,600
_(16,000)
P106,600
20,000
_(29,400)
P( 9,400)
22,000
_(39,200)
P(17,200)
54,000
_(98,000)
P(24,000)
Benny
P180,000
60,000
________
240,000
__(9,400)
230,600
_______
P230,600
Celia
P220,000
40,000
_(20,000)
240,000
_(17,200)
222,800
_______
P222,800
Total
P520,000
100,000
_(20,000)
600,000
_(24,000)
576,000
_(16,000)
P560,000
36
3.
Chapter 2
Correcting entry:
Celia capital ........................................
2,400
Alvin capital...............................
2,200
Benny capital .............................
200
To correct capital accounts for error in loss allocation computed as follows:
Alvin
Benny
Celia
Correct loss allocation ........................
P2,600
P(9,400) P(17,200)
Actual loss allocation..........................
__(400)
__9,600
__14,800
Adjustment..........................................
P2,200
P 200
P ( 2,400)
Problem 2 7
Dino
P45,000
_15,000
60,000
(1,800)
(17,000)
41,200
_____
41,200
10,800
(17,000)
35,000
______
35,000
56,365
(19,000)
P72,365
Nelson
P45,000
_15,000
60,000
( 1,800)
( 7,000)
51,200
_____
51,200
8,100
( 7,000)
52,300
______
52,300
42,272
( 9,000)
P86,572
Oscar
P45,000
__6,000
51,000
( 1,800)
( 3,200)
46,000
__6,000
52,000
8,100
( 3,200)
56,900
___6,000
62,900
20,363
( 3,200)
P80,063
Total
P135,000
__36,000
171,000
( 5,400)
( 27,200)
138,400
___6,000
144,400
27,000
( 27,200)
144,200
___6,000
150,200
120,000
( 31,200)
P239,000
Dino
P48,000
3,600
_* 4,765
P56,365
Nelson
P24,000
10,909
3,600
__4,763
P43,272
Oscar
P12,000
3,600
__4,763
P20,363
Total
P84,000
10,909
10,800
__14,291
P120,000
Bonus computations:
Net income before bonus ........... ................ ..................... .....................
Net income after bonus (P120,000 110%)..................... .....................
Bonus to Nelson......................... ................ ..................... .....................
P120,000
_109,091
P 10,909
Capital balances, 1/2/06...............................

Additional investment, 2006 .......................
Balances.......................................................
Net income (Loss) - 2006, equally ..............
Withdrawals, 2006.......................................
Capital balances, 12/31/06...........................
Balances.......................................................
Net income - 2007, 40: 30: 30 .....................
Withdrawals, 2007.......................................
Capital Balances, 12/31/07..........................
Balances.......................................................
Net income, 2008 (schedule 1)....................
Withdrawals, 2008.......................................
Capital balances, 12/31/08...........................
Schedule 1:
Annual salaries....................................
Bonus (see computations below) ........
Interest ................................................
Balance, equally..................................
Totals ..................................................
* To Total
37
Problem 2 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2008
Balances, beginning of year

Add: 20% of fees billed to personal clients
Green's share of fees (Exhibit A)
Remaining net income (Exhibit A)
Subtotals
Less: Withdrawals
Uncollectible accounts identified
with clients of each partner
Excess rent charged to Blue
Total deductions
Balances, end of year
Red
40,200
8,800
White
20,200
4,800
Blue
40,600
4,400
_22,800
_71,800
10,400
_22,800
_47,800
8,800
_11,400
_56,400
11,600
2,400
900
P12,800
P59,000
P 9,700
P38,100
1,800
P13,400
P43,000
Green
3,200
______
__3,200
5,000
Total
P101,000
18,000
3,200
_57,000
179,200
35,800
P 5,000
P (1,800)
3,300
1,800
P 40,900
P138,300
Red, White & Blue Partnership

Exhibit A Computation and Division of Net income
For Year Ended December 31, 2008
Total revenue from fees
Expenses, excluding depreciation and doubtful
accounts expense
Less: Excess rent charged to N ($300 x 6)
Subtotal
Add: Depreciation, computed as follows:
$26,000 x 0.10
$10,000 x 0.10 x 1/2
Total expenses, excluding doubtful accounts expense
Add: Doubtful accounts expense ($3,000 x 0.60)
Total expenses
Net income for year ended Dec. 31, Year 1
Division of net income:
Fees billed to personal clients:
Red P44,000 x 20%
White P24,000 x 2%
Blue, P22,000 x 20%
Green's share of fees:
Gross fees from new clients after April 1, Year 1
Less: Allocated expenses ($40,000 x $24,000/
$120,000)
Net income from new clients
Green's share (P16,000 x 20%)
Total divided pursuant to special agreement
Balance, divided in income-sharing ratio as follows:
To Red, 40%
To White, 40%
To Blue, 20%
Total
P120,000
P38,700
__1,800
36,900
2,600
____500
P40,000
__1,800
41,800
P 8,800
48,000
4,400
________
P 78,200
P18,000
24,000
__8,000
P16,000
P 3,200
P22,800
22,800
_11,400
P57,000
__21,200
P 57,000
38
Chapter 2
Problem 2 9
Allan, Eman and Gino Partnership
Statement of Profit Distribution
Allan
Eman
Gino
Total
Interest
Commission (P16,120 P5,000) x 10%
Balance, equally
P 4,000
__5,926
P 750
1,112
_5,925
P 250
1,112
_5,925
P 5,000
2,224
_17,776
Total
Adjustments (50% of P25,000 to Allan)
P 9,926
__2,574
P7,787
(1,287)
P7,287
(1,287)
P25,000
_____
Total
P12,500
P6,500
P6,000
P25,000
Sonny
Letty
Total
Problem 2 10
Gary, Sonny, and Letty Partnership
Statement of Partners' Capital Accounts
Gary
Additional investments
P210,000
___9,100
P180,000
_______
P 90,000
_______
P480,000
__9,100
Total
Salaries
Interest
Bonus to Gary and Sonny (Schedule 1)
Balance, equally
_219,100
_180,000
_90,000
489,100
10,640
10,800
13,680
25,920
__(9,720)
11,520
21,600
_(9,720)
_(9,720)
35,840
58,320
(29,160)
__29,880
_23,400
_11,720
_65,000
Total
Drawings
248,980
_(21,000)
203,400
101,720
554,100
(18,000) __(9,000) _(48,000)
P227,980
Total
P185,400
Schedule 1: Computation of the bonus.

Net profit before interest, salaries and bonus
Less:Salaries
Interest
Net profit (loss) before bonus
Therefore no bonus is to be given to Gary and Sonny.
P35,840
_58,320
P 65,000
__94,160
P(29,160)
P 92,720
P506,100
39
Problem 2 11
a. Entries to record the formation of the partnership and the events that occurred during 2008:
Cash
Inventory
Land
Equipment
Mortgage payable
Installment note payable
Kobe, capital (P600,000 + P800,000
+ P1,000,000 P200,000)
Lebron, capital (P500,000 + P1,300,000
- P500,000)
1,100,000
800,000
1,300,000
1,000,000
2,200,000
1,300,000
(1)
Inventory
Cash
Accounts payable
(2)
Mortgage payable
Interest expense
Cash
50,000
20,000

Interest expense
Cash
35,000
20,000
(3)
(4)
Accounts receivable
Cash
Sales
300,000
210,000
1,340,000
(5)
Selling and general expenses

Cash
Accrued expenses payable
340,000
(6)
Depreciation expense
60,000
(7)
Kobe, drawing
Lebron, drawing
Cash
(8)
Sales
(9)
Cost of goods sold

Inventory
P900,000 = P800,000 beginning inventory
+ 300,000 purchases
- 200,000 ending inventory
Income summary
500,000
200,000
104,000
104,000
1,550,000
900,000
240,000
60,000
70,000
55,000
1,550,000
278,000
62,000
60,000
208,000
1,550,000
900,000
40
Chapter 2
Income summary
Cost of good sold
Selling and general expenses
Interest expense
1,340,000
Income summary
Kobe, capital
Lebron, capital
210,000
Kobe, capital
Lebron, capital
Kobe, drawing
Lebron, drawing
104,000
104,000
900,000
340,000
60,000
40,000
105,000
105,000
104,000
104,000
Schedule to allocate partnership net income for 2008:

Kobe
Profit percentage
60%
Beginning capital balance
P2,200,000
Net income (P1,550,000 revenue
- P 1,340,000 expenses)
Interest on beginning capital
balances (3%)
66,000
Salaries
Residual deficit
Total
b.
Lebron
40%
P1,300,000
Total
100%
P3,500,000
210,000
39,000
120,000
120,000
(81,000)
P105,000
(54,000)
P105,000
(105,000)
P105,000
(240,000)
P(135,000)
(135,000)
-0-
Kobe-Lebron Partnership
Income Statement
For the Year Ended December 31, 2008
Sales
Less: Cost of goods sold:
Inventory, January 1
Purchases
Goods available for sale
Less: Inventory, December 31
Gross profit
Less: Selling and general expenses
Depreciation expenses
Operating income
Nonoperating expense- interest
Net income
P1,550,000
P800,000
300,000
P1,100,000
(200,000)
340,000
60,000
(900,000)
P650,000
400,000
P250,000
(40,000)
P210,000
41
Kobe-Lebron Partnership
Balance Sheet
At December 31, 2008
c.
Cash
Accounts receivable
Inventory
Land
Equipment (net)
Total assets
Liabilities:
Accounts payable
Accrued expenses payable
Mortgage payable
Total liabilities
Capital:
Kobe, capital
Lebron, capital
Total capital
Total liabilities and capital
Assets
P1,589,000
210,000
200,000
1,300,000
940,000
P4,239,000

P60,000
62,000
165,000
450,000
P737,000
P2,201,000
1,301,000
3,502,000
P4239,000
42
Chapter 3
CHAPTER 3
3-1: c
Implied capital of the partnership (P90,000/20%)

Actual value of the partnership
Goodwill
P450,000
( 420,000)
P 30,000
Capital balances before Goodwill

Goodwill to old partners
Total
Purchase by Hizon (20%)
Capital balances after admission
AQUINO
P252,000
__18,000
P270,000
( 54,000)
P216,000
LOCSIN
P126,000
___9,000
P135,000
( 27,000)
P108,000
DAVID
P42,000
__3,000
P45,000
( 9,000)
P36,000
Capital balances before admission

Purchase by Hizon (20%)
AQUINO
P252,000
( 50,400)
P201,600
LOCSIN
P126,000
( 25,200)
P100,800
DAVID
HIZON
P42,000
( 8,400) _84,000
P33,600 P 84,000
Capital transferred
Excess divided using profit and loss ratio
Cash distribution
AQUINO
P 50,400
__3,600
P 54,000
LOCSIN
P 25,200
__1,800
P 27,000
DAVID
P 8,400
___600
P 9,000
3-2: b
3-3: d
HIZON
_____
_90,000
P 90,000
TOTAL
P 84,000
__6,000
P 90,000
3-4: b
Selling price
Interest sold (444,000X1/5)
Combine gain
P132,000
( 88,800)
P 43,200
3-5: b
Implied value of the partnership (P40,000/1/4)
Actual value
Goodwill
Cash balances
Goodwill, Profit and Loss ratio
Total
Capital Transfer (1/4)
P160,000
( 140,000)
P 20,000
BERNAL
P 80,000
__12,000
P 92,000
( 23,000)
P 69,000
CUEVAS
DIAZ
P40,000 P 20,000
__6,000
__2,000
P46,000 P 22,000
( 11,500) ( 5,500)
P34,500 P 16,500
Partnership Dissolution Changes in Ownership
43
3-6: b
Capital Transfer (20%)
Excess, Profit and Loss ratio
Cash distribution
BANZON
P 16,000
__6,000
P 22,000
CORTEZ
P 4,000
__4,000
P 8,000
Capital balances beginning

Net profit, 1:2
Drawings
Capital transfer (squeeze)
Capital balances after admission 1:2
PEREZ
P 24,000
5,430
( 5,050)
P 24,380
( 5,570)
P 18,810
CADIZ
TOTAL
P 48,000 P 72,000
10,860
16,290
( 8,000) ( 13,050)
P 50,860 P 75,240
( 13,240) (18,810) (1/4)
P 37,620 P 56,430
Capital transfer
Excess, 1:2
Cash
P 5,570
__3,730
P 9,300
P 13,240
__7,460
P 20,700
3-7: d
3-8: a
Total agreed capital (P150,000/5/6)
Diana's Interest
Cash distribution
P180,000
1/6
P 30,000

Total contributed capital (80,000+40,000+36,000)
Unrecognized Goodwill
P180,000
( 156,000)
P 24,000
3-9: a
3-10: b
Old partners
New partner
Total
Contributed
Agreed
Capital
Capital
P110,000
P100,000
__40,000
__50,000
P150,000
P150,000
Increase
(Dec.)
(P 10,000)
_10,000
P
Ben, capital balance before admission

Bonus share to new partner (10,000X60%)
Ben, capital after admission
P 60,000
( 6,000)
P 54,000
Total agreed capital (P40,000+20,000+17,000)

Pete's interest
Pete's agreed capital balance
P 77,000
1/5
P 15,400
3-11: c
TOTAL
P20,000
_10,000
P30,000
P18,810
_11,190
P30,000
44
Chapter 3
3-12: b
Old partner
New partner
Total
Contributed
Capital
P 65,000
25,000 (1/3)
P 90,000
Agreed
Capital
P60,000
30,000
P90,000
Increase
(Dec.)
(P 5,000)
_5,000
P

Investment by Lory
Bonus to Lory
FRED
P 35,000
(
3,500)
P 31,500
RAUL
P30,000
( 1,500)
P28,500
LORY
25,000
__5,000
P 30,000
3-13: c
Total agreed capital (90,000+60,000+70,000)
Augusts' interest
Agreed capital
Contributed capital
Bonus to June & July
P220,000
_____1/4
P 55,000
__70,000
P 15,000
JUNE
P90,000
__7,500
P97,500

Bonus from August, equally
JULY
P 60,000
__7,500
P 67,500
3-14: a
Total agreed capital (52,000 + 88,000)/80%)
Total capital of Mira & Nina after admission
Cash paid by Elma
P175,000
( 140,000)
P 35,000

Total contributed capital (P23,000+18,600+16,000)
Goodwill to new partner, Ang
P 62,400
( 57,600)
P 4,800
3-15: a

Investment by Ang
Goodwill to August
LIM
P23,000
_____
P23,000
ONG
P 18,600
______
P 18,600
ANG
16,000
__4,800
P20,800
45
3-16: a
Capital balances before
admission
Admission by Dong:
By Purchase (1/2)
By Investment
Goodwill and Bonus
Goodwill to Old Partners (sch. 1)
Bonus to Old Partners (sch. 1)
Capital balances after
admission
Schedule 1:
Old Partners
New Partner
Total
3-17: b
admission of Alma
Admission of Alma:
Investment
Goodwill to old partner,
70:30 (sch. 1)
admission of Lorna
Admission of Lorna:
Goodwill Written off, 5:3:2
Investment
Goodwill to old partners,
5:3:2 (sch. 2)
Capital balances after
admission
ANG
BENG
CHING
DONG
TOTAL
P600,000
P 400,000
P 300,000
P1,300,000
( 300,000)
_______
_______
_______
300,000
_300,000
___300,000
P300,000
150,000
__37,500
P 400,000
150,000
__37,500
P 300,000
100,000
__25,000
P600,000
( 100,000)
P1,600,000
400,000
________
P487,500
P 587,500
P 425,000
P500,000
P2,000,000
CC
AC
P 1,000,000 P1,500,000
600,000 (25%) __500,000
P 1,600,000 P2,000,000
Inc. (Dec.)
P500,000
( 100,000) Bonus
P400,000 GW
MONA
LIZA
ALMA
LORNA
TOTAL
P150,000
P 50,000
P 200,000
80,000
80,000
__28,000
___12,000
_______
______
___40,000
P178,000
P 62,000
P 80,000
P 320,000
(P 20,000)
(P 12,000) (
P8,000)
75,000
( P40,000)
75,000
__10,000
____6,000
____4,000
______
___20,000
P168,000
P 56,000
P 76,000
P 75,000
P 375,000
Schedule 1:
Total agreed capital (80,000/25%)
Total capital contributed (200,000+80,000)
Goodwill to old partners, 70:30
P 320,000
( 280,000)
P 40,000
Schedule 2:
Total agreed capital (75,000/20%)
Total contributed capital (280,000+75,000)
Goodwill to old partners, 5:3:2
P 375,000
( 355,000)
P 20,000
46
Chapter 3
3-18: c
Unadjusted capital balances
Overvaluation of Marketable Securities
Allowance for Bad Debts
Adjusted capital balances before admission
RED
P175,000
( 12,500)
( 12,500)
P150,000
Total agreed capital (270,000/2/3)

Green's interest
Investment
P405,000
1/3
P135,000
3-19: b
admission
Capital transfer
to WW (1/6)
Balances
Equalization of capital
Balances
Net profit, equally
Drawings (2 months)
WWs Investment
3-20: a
WHITE
P100,000
( 7,500)
( 7,500)
P 85,000
BLUE
P 45,000
( 5,000)
( 5,000)
P 35,000
TOTAL
P320,000
( 25,000)
( 25,000)
P270,000
XX
YY
ZZ
WW
TOTAL
P360,000
P225,000
P135,000
P720,000
( 60,000)
P300,000
( 100,000)
P200,000
3,150
_( 1,500)
( 37,500)
P187,500
__12,500
P200,000
3,150
_( 2,000)
( 22,500)
P112,500
__87,500
P200,000
3,150
_( 1,500)
_120,000 ______
P120,000 P720,000
______ ______
P120,000 P720,000
3,150
12,600
_( 2,000) _( 7,000)
P201,650
P201,150
P201,650
P121,150
Total agreed capital (201,650+201,150+201,650)/2/3

WW's interest
Agreed capital of WW
Contributed capital (see above)
Cash to be invested
P725,600
P906,675
1/3
P302,225
_121,150
P181,075
Capital balances
Understatement of assets, P12,000
Balances before settlement to A
A
P 20,750
__3,000
P 23,750
Settlement to A
A's interest (23,750+5,000)
Partial Goodwill to A
P 30,250
_28,750
P 1,500
B
P 19,250
__3,000
P 22,250
Therefore:
1. Under partial Goodwill method the capital balances of B is P 22,250
2. Under Bonus method the capital balances of B would be:
B, capital balances before settlement to A
P 22,250
Bonus to A (1,500X25/75)
_( 500)
B, capital after retirement of A
P 21,750
C
P 45,000
__6,000
P 51,000
47
3-21: a
Capital balances
Net income, P140,000
Undervaluation of inventory, P20,000
Capital balances before settlement to Perez
Settlement to Perez
Bonus to Perez
Capital balances after retirement
Perez
P 100,000
70,000
___10,000
P 180,000
( 195,000)
___15,000
P
Capital balances
Settlement to Ely
Total Goodwill (P40,000/50%)P80,000
Capital balances after retirement of Ely
ELY
FLOR
GLOR
P 320,000 P 192,000 P 128,000
( 360,000)
__40,000 ___24,000 ___16,000

P
P 216,000 P 144,000
3-22: c
3-23: c
Capital balance 3/1/07
Net loss-2007:
Salary (10 months)
Interest (10 months)
Bal. beg. cap. ratio: 48:24
Total
Capital balance
Drawings
Net profit- 2008:
Salary
Interest
Balance, equally
Total
Capital balance
Drawings
Capital balance 12/31/08
Reyes
Suarez
P 150,000 P 200,000
42,000
28,000
____6,000 ____4,000
P 198,000 P 232,000
_( 9,000) _( 6,000)
P 189,000 P 226,000
_Alma_
480,000
_Betty_
240,000
480,000
40,000
( 544,000)
( 24,000)
456,000
( 24,000)
432,000
240,000
20,000
( 272,000)
( 12,000)
228,000
( 24,000)
204,000
720,000
60,000
( 816,000)
( 36,000)
684,000
( 48,000)
636,000
576,000
43,200
( 397,800)
221,400
653,400
( 24,000)
629,400
288,000
20,400
( 397,800)
( 89,400)
114,600
( 24,000)
90,600
864,000
63,600
( 795,600)
132,000
768,000
( 48,000)
720,000
Total contributed capital (720,000 + 400,000)

Coras interest
Coras agreed capital
Coras contributed capital
Bonus to Cora, from Alma and Betty 4:2
Therefore entry (c) is correct.
_Total_
720,000
1,120,000
40%
448,000
400,000
48,000
48
Chapter 3
3-24: a
Capital balance, beg. 2007
2007 net profit (90,000 59,000):
Interest
Compensation
Balance, 4:6
Total
Balance
Withdrawal
Repairs (charge to Pete)
_Pete_
P80,000
8,000
5,000
( 2,000)
11,000
91,000
( 8,000)
( 5,000)
78,000
1/1/08: Admission of Sammy

Total agreed capital (P117,000 +43,000)
Sammys interest
Sammys agreed capital
Sammys contributed capital
Bonus to Pete & Carlos, 4:6
Therefore entry (a) is correct.
_Carlos_
P30,000
3,000
20,000
( 3,000)
20,000
50,000
( 11,000)
39,000
_Total_
P110,000
11,000
25,000
( 5,000)
31,000
141,000
(19,000)
( 5,000)
117,000
P160,000
20%
32,000
43,000
11,000
49
(a)
Problem 3 1
1. Goodwill Method:
Total agreed capital (P75,000 25%) .....................................P300,000
Total contributed capital .......................................................... _275,000
Goodwill to old partners, P/L ratio ..........................................P 25,000
Entry
Goodwill............................................................................
Cash...................................................................................
Red, capital ...................................................................
White, capital ................................................................
Blue, capital ..................................................................
Green, capital ................................................................
25,000
75,000
5,000
10,000
10,000
75,000
2. Bonus Method:
Contributed capital of Green ....................................................P 75,000
Agreed capital of Green (P275,000 x 25%)............................... _68,750
Bonus to old partners, P/L ratio................................................P 6,250
Entry:
Cash...................................................................................
Green, capital ................................................................
Red, capital ...................................................................
White, capital ................................................................
Blue, capital ..................................................................
75,000
68,750
1,250
2,500
2,500
(b) 1. Implicit Goodwill Method:

Total Implied Capital (P75,000 25)......................................P300,000
Total existing capital................................................................ _200,000
Implied Goodwill to old partners.............................................P100,000
Entries:
Goodwill............................................................................
Red, capital ...................................................................
White, capital ................................................................
Blue, capital ..................................................................
100,000
Red, capital (25% x P80,000)............................................

White, capital (25% x p120,000).......................................
Blue, capital (25% x P100,000).........................................
Green, capital ................................................................
20,000
30,000
25,000
2. Red, capital (25% x P10,000).......................................................

White, capital (25% x P80,000) ...................................................
Blue, capital (25% x P60,000) .....................................................
Green, capital.........................................................................
15,000
20,000
15,000
20,000
40,000
40,000
75,000
50,000
50
a.
Chapter 3
Problem 3 2
(1) Bonus Method:

Contributed capital of Tomas ......................................................... ..................
Agreed capital of Tomas (P640,000 x 20%)................................... ..................
P140,000
_128,000
Bonus to old partners, P/L ratio ...................................................... ..................
P 12,000
BRUNO
MARIO
TOMAS
TOTAL
Balances before admission ....................

Admission of Tomas..............................
P200,000
___9,000
P300,000
___3,000
_128,000
P500,000
_140,000
Balances after admission .......................
P209,000
P303,000
P128,000
P640,000
(2) Goodwill Method:

Total agreed capital (P140,000 20%) . .................. .....................
Total contributed capital ........................ .................. .....................
P700,000
_640,000
Goodwill to old partners, P/L ratio ........ .................. .....................
P 60,000
BRUNO
MARIO
TOMAS
TOTAL
Balances before admission ....................

Admission of Tomas..............................
P200,000
__45,000
P300,000
__15,000
_140,000
P500,000
_200,000
Balances after admission .......................
P245,000
P315,000
P140,000
P700,000
(3) Goodwill with subsequent write-off.
BRUNO
MARIO
TOMAS
TOTAL
Balances from A-2.................................

Goodwill written off, 6:2:2 ....................
P245,000
( 36,000)
P315,000
( 12,000)
P140,000
( 12,000)
P700,000
( 60,000)
Balances.................................................
P209,000
P303,000
P128,000
P640,000
BRUNO
MARIO
TOMAS
TOTAL
Balances from A-2.................................

Goodwill written off, 4:4:2 ....................
P245,000
( 24,000)
P315,000
( 24,000)
P140,000
( 12,000)
P700,000
( 60,000)
Balances.................................................
P221,000
P291,000
P128,000
P640,000
b.
Problem 3 3
a.
b.
Total capital after admission (P76,000 + P104,000) ..................................... ..................

Total capital before admission (P60,000 + P80,000) .................................... ..................
Goodwill recorded ........................................................................................ ..................
P180,000
_140,000
P 40,000
Total capital of the partnership (P180,000 75%) ....................................... ..................

Less: Total capital of old partners plus Goodwill (P140,000 + 40,000) ....... ..................
Cash payment by Barry................................................................................. ..................
P240,000
_180,000
P 60,000
Total capital after admission (P52,000 + P68,000) ....................................... ..................

Total capital before admission ...................................................................... ..................
Bonus to Barry .............................................................................................. ..................
P120,000
_140,000
P 20,000
Agreed capital of Barry (P120,000 75%) x 25% ....................................... ..................

Less: Bonus .............................................................................................. ..................
Cash payment by Barry................................................................................. ..................
P 40,000
__20,000
P 20,000
51
Problem 3 4
a.
Total agreed capital (P60,000 20%) ..................................................P300,000

Total contributed capital (P100,000 + P40,000 + P60,000) ................. _200,000
Goodwill to old partners, P/L ratio .......................................................P100,000
Entry:
Cash.. .... ......................................................................................
Goodwill ......................................................................................
Gene, capital ..........................................................................
Nancy, capital ........................................................................
Ellen, capital ..........................................................................
b.
Cash ..... .. .... ......................................................................................

Ellen, capital.................................................................................
60,000
100,000
60,000
80,000
20,000
60,000
60,000
No Goodwill, no bonus because the total agreed capital is equal to the total contributed
capital.
c.
Gene, capital ......................................................................................

Nancy, capital .....................................................................................
Ellen, capital.................................................................................
20,000
d.
Cash .... ... .... ......................................................................................

Ellen, capital.................................................................................
32,000
8,000
28,000
32,000
Since the total agreed capital (P172,000) is equal to the total contributed capital (P172,000),
then no Goodwill or bonus is to be recorded.
e.
Total agreed capital (P140,000 80%) ................................................P175,000

Total contributed capital (P140,000 + P32,000)................................... _172,000
Goodwill to new partner .......................................................................P 3,000
Entry:
Cash.. .... ......................................................................................
Goodwill ......................................................................................
Ellen, capital ..........................................................................
32,000
3,000
35,000
Problem 3 5
a.
Cash ..... .. .... ......................................................................................

Cherry capital ...............................................................................
b.
Total agreed capital (P120,000 + P50,000) ..........................................P170,000

Cherry's interest ....................................................................................____25%
Cherry's agreed capital.............................................................................. 42,500
Contributed capital................................................................................ __50,000
Bonus to old partners, 70:30.................................................................P 7,500
40,000
40,000
52
Chapter 3
Entry:
Cash.. .... ......................................................................................
Cherry, capital .......................................................................
Helen, capital .........................................................................
Cathy, capital .........................................................................
c.
25,000
7,875
3,375
36,250
Total agreed capital (P50,000 25%) ..................................................P200,000

Total contributed capital (P120,000 + 50,000) ....................................... 170,000
Goodwill to old partners, 70:30 ............................................................P 30,000
Entry:
Cash
......................................................................................
Goodwill ......................................................................................
Cherry, capital .......................................................................
Helen, capital .........................................................................
Cathy, capital .........................................................................
e.
42,500
5,250
2,250
Total agreed capital (P120,000 + P25,000) ..........................................P145,000

Cherry's interest ....................................................................................____25%
Agreed capital of Cherry .......................................................................... 36,250
Contributed capital................................................................................ __25,000
Bonus to new partner ............................................................................P 11,250
Entry:
Cash.. .... ......................................................................................
Helen, capital................................................................................
Cathy, capital................................................................................
Cherry, capital .......................................................................
d.
50,000
50,000
30,000
50,000
21,000
9,000
Total agreed capital (P120,000 75%) ................................................P160,000

Goodwill to new partner .......................................................................P 15,000
Entry:
Cash
......................................................................................
Goodwill ......................................................................................
Cherry, capital .......................................................................
25,000
15,000
40,000
Problem 3 6
a.
Total agreed capital (P600,000 3/4) .................................................................

Santos interest......................................................................................................
Contribution of Santos.........................................................................................
P800,000
_____1/4
P200,000
b.
Total agreed capital (P630,000 3/4) .................................................................

Santos' interest .....................................................................................................
Contribution of Santos.........................................................................................
P840,000
_____1/4
P210,000

c.
d.
e.
a.
b.
c.
53
Total agreed capital (P624,000 3/4) ....................................................................... ....................

Less: Contributed capital of old partners ................................................................... ....................
P832,000
_600,000
Contributed capital of Santos .................................................................................... ....................
P232,000
Total agreed capital (P600,000 3/4) ....................................................................... ....................

Less: Goodwill ........................................................................................................ ....................
P800,000
__10,000
Contributed capital .................................................................................................... ....................

Contributed capital of old partners ............................................................................ ....................
790,000
_600,000
P190,000
Total agreed capital (Contributed)............................................................................. ....................

Less: Contributed capital of old partners ................................................................... ....................
P820,000
_600,000
P220,000
Problem 3 7
Tony, capital
........................................................................................................
Noel, capital ......................................................................................................
40,000
Cash
........................................................................................................
Noel, capital ......................................................................................................
(P180,000 2/3) x 1/3 = P90,000.
90,000
Cash....... ..... .... ........................................................................................................

Goodwill ..... .... ........................................................................................................
Noel, capital ......................................................................................................
56,000
4,000
40,000
90,000
60,000
Total agreed capital (P180,000 3/4) ....................................................................... ..... P240,000

Total contributed capital (P180,000 + P56,000)........................................................ ..... _236,000
Goodwill to new partner............................................................................................ ..... P
d.
Subas, capital
.....
Tony, capital
..
Inventory.............
4,000
14,400
9,600
Cash....... ..... .... ........................................................................................................

52,000
Noel, capital ......................................................................................................
Total agreed capital (P52,000 1/4) ......................................................................... ..... P208,000
Total capital before inventory write-down (180,000 + 52,000)................................. .....(232,000)
e.
Write-down to old partners capital ............................................................................ .....( 24,000)

Land.. 92,000
Subas, capital
Tony, capital.
Subas, capital (P155,200 x 1/4) .................................................................................
38,800
Tony, capital (P116,800 x 1/4) ..................................................................................
29,200
Noel, capital ......................................................................................................
Total resulting capital (P68,000 1/4) ...................................................................... ..... P272,000
Total capital of old partner (net assets)...................................................................... ..... _180,000
Increase in value of land............................................................................................ ..... P 92,000
Capital of old partner after revaluation of land:
Subas (P100,000 + P55,200) ............................................................................. ..... P155,200
Tony (P80,000 + P36,800) ................................................................................ ....... 116,800
24,000
52,000
55,200
36,800
68,000
54
f.
Chapter 3
Cash .... ... .... ......................................................................................

Subas, capital ......................................................................................
Tony, capital ......................................................................................
Noel, capital .................................................................................
40,000
2,400
1,600
44,000
Agreed capital of Noel (P220,000 x 1/5)...............................................P 44,000

Contributed capital of Noel .................................................................... _40,000
Bonus to Noel ........................................................................................P 4,000
g.
Cash .... ... .... ......................................................................................

Goodwill . .... ......................................................................................
Noel, capital .................................................................................
Subas, capital (P60,000 x 3/5)......................................................
Tony, capital (P60,000 x 2/5).......................................................
P60,000
60,000
P 60,000
36,000
24,000
Total agreed capital (P60,000 1/5) ....................................................P300,000

Goodwill to old partner, 3:2..................................................................P 60,000
Problem 3 8
a.
b.
c.
Conny, capital .....................................................................................

Andy, capital (P8,000 x 3/4)...............................................................
Benny, capital (P8,000 x 1/4) .............................................................
Cash.. .... ......................................................................................
40,000
6,000
2,000
Goodwill . .... ......................................................................................

Conny, capital .....................................................................................
Cash.. .... ......................................................................................
10,000
40,000
Goodwill (P5,000 1/5) .....................................................................

Conny, capital .....................................................................................
Andy, capital (P25,000 x 3/5) ......................................................
Benny, capital (P25,000 x 1/5).....................................................
Cash
......................................................................................
25,000
40,000
48,000
50,000
15,000
5,000
45,000
Problem 3 9
a.
Spade, capital......................................................................................
Jack, capital ..................................................................................
120,000
b.
Goodwill (P30,000 50%).................................................................

Ace, capital...................................................................................
Jack, capital ..................................................................................
Spade, capital ...............................................................................
60,000
Spade, capital (P120,000 + P30,000)..................................................

Jack, capital ..................................................................................
150,000
120,000
12,000
18,000
30,000
150,000
55
Problem 3-9 (Continued)
c.
d.
e.
f.
g.
Spade, capital......................................................................................
Cash.. .... ......................................................................................
180,000
Ace, capital (P60,000 x 2/5) ...............................................................

Jack, capital (P60,000 x 3/5)...............................................................
Spade, capital ...............................................................................
24,000
36,000
Land .... ... .... ......................................................................................

Ace, capital (20%)........................................................................
Jack, capital (30%) .......................................................................
Spade, capital (50%) ....................................................................
20,000
Spade, capital......................................................................................
Ace, capital (P50,000 x .40) ...............................................................
Jack, capital (P50,000 x .60)...............................................................
Cash.. .... ......................................................................................
Land.. .... ......................................................................................
130,000
20,000
30,000
Goodwill . .... ......................................................................................

Spade, capital......................................................................................
Cash.. .... ......................................................................................
30,000
120,000
Goodwill (P30,000 50%).................................................................

Spade, capital......................................................................................
Ace, capital (P60,000 x 20%).......................................................
Jack, capital (P60,000 x 30%)......................................................
Cash.. .... ......................................................................................
60,000
120,000
Land .... ... .... ......................................................................................

Ace, capital (20%)........................................................................
Jack, capital (30%) .......................................................................
Spade, capital (50%) ....................................................................
P40,000
Spade, capital (P120,000 x P20,000)..................................................

Ace, capital (P10,000 x 40%) .............................................................
Jack, capital (P10,000 x 60%) ............................................................
Land.. .... ......................................................................................
Note payable.................................................................................
140,000
4,000
6,000
180,000
60,000
4,000
6,000
10,000
60,000
120,000
150,000
12,000
18,000
150,000
8,000
12,000
20,000
100,000
50,000
56
Chapter 3
Problem 3 10
Case 1: Bonus of P10,000 to Eddy:
Eddy, capital.................................................................................
Charly, capital (P10,000 x 3/5) ....................................................
Danny, capital (P10,000 x 2/5).....................................................
Cash ......................................................................................
70,000
6,000
4,000
Case 2: Partial Goodwill to Eddy:

Goodwill ......................................................................................
Eddy, capital.................................................................................
Cash ......................................................................................
4,000
70,000
Case 3: Bonus of P5,000 to remaining partner:

Eddy, capital.................................................................................
Charly, capital (P5,000 x 3/5)................................................
Danny, capital (P5,000 x 2/5) ................................................
Cash ......................................................................................
Case 4: Total Implied Goodwill of P24,000:
Goodwill ......................................................................................
Eddy, capital.................................................................................
Charly, capital (P24,000 x 3/6)..............................................
Danny, capital (P24,000 x 2/6) ..............................................
Cash ......................................................................................
Case 5: Other assets disbursed:
Eddy, capital.................................................................................
Other assets ..................................................................................
Charly, capital (P60,000 x 3/6)..............................................
Danny, capital (P60,000 x 2/6) ..............................................
Cash ......................................................................................
Case 6: Danny purchases Eddy's capital interest:
Eddy, capital.................................................................................
Danny, capital........................................................................
70,000
24,000
70,000
70,000
20,000
70,000
80,000
74,000
3,000
2,000
65,000
12,000
8,000
74,000
30,000
20,000
40,000
70,000
57
Problem 3 11
a. 1/1/06
Building ...............................................................
Equipment............................................................
Cash ....................................................................
Santos capital ..............................................
To record initial investment.
52,000
16,000
12,000
12/31/06 Reyes capital........................................................

Santos capital ..............................................
Income summary.........................................
To record distribution of loss as follows:
22,000
1/1/07
40,000
12,000
10,000
Interest .................................................................
Additional profit ..................................................
Balance to Reyes..................................................
Santos
P 8,000
4,000
______
Reyes
P
(22,000)
Total
P 8,000
4,000
(22,000)
Total ....................................................................
P12,000
P(22,000)
(P10,000)
Cash ....................................................................
Santos capital (15%) ............................................
Reyes capital (85%).............................................
Cruz capital .................................................
15,000
300
1,700
17,000
(new investment by Cruz brings total capital to P85,000 after 2006 loss [80,000
10,000 + 15,000]. Cruz's 20% interest is P17,000 [85,000 x 20%] with the extra
P2,000 coming from the two original partners [allocated between them according
to their profit and loss ratio].)
12/31/07 Santos capital.......................................................
Reyes capital........................................................
Cruz capital..........................................................
Santos drawings ..........................................
Reyes drawings ...........................................
Cruz drawings .............................................
10,340
5,000
5,000
10,340
5,000
5,000
To close drawings accounts for the year based on distributing 20%. Of each
partner's beginning capital balances [after adjustment for Cruz's investment] or
P5,000 whichever is greater. Santos's capital Is P51,700 [40,000 + 12,000 300].)
12/31/07 Income summary .................................................
Santos capital ..............................................
Reyes capital ...............................................
Cruz capital .................................................
To allocate P44,000 income figure as computed below:
Santos
Interest (20% of P51,700).................................... P10,340
15% of P44,000 income.......................................
6,600
Balance, 60:40 .....................................................
______
Total ....................................................................
P16,940
44,000
16,940
16,236
10,824
Reyes
Cruz
P16,236
P10,824
P16,236
P10,824
58
Chapter 3
Capital balances as of December 31, 2008
1/1/08
Initial investment, 2007 .......................................

2007 profit ...........................................................
Cruz investment ...................................................
2007 drawings......................................................
2007 profit ...........................................................
Santos
P40,000
12,000
(300)
(10,340)
_16,940
Reyes
P40,000
(22,000)
(1,700)
(5,000)
_16,236
P17,000
(5,000)
_10,824
Capital, 12/31/07 .................................................
P58,300
P27,536
P22,824
Cruz capital..........................................................
Diaz capital .................................................
To transfer capital purchase from Cruz to Diaz
22,824
Cruz
22,824
12/31/08 Santos capital.......................................................

11,660
Reyes capital........................................................
5,507
Diaz capital ..........................................................
5,000
Santos drawings ..........................................
11,660
Reyes drawings ...........................................
5,507
Diaz drawings .............................................
5,000
To close drawings accounts based on 20% of beginning capital Balances (above) or
P5,0000 (whichever is greater).
12/31/08 Income summary .................................................
Santos capital ..............................................
Reyes capital ...............................................
Diaz capital .................................................
To distribute profit for 2008 computed as follows:
1/1/09
b. 1/1/06
61,000
20,810
24,114
16,076
Interest (20% of P58,300)....................................

15% of P61,000 profit..........................................
Balance, P40,190, 60:40 ......................................
Santos
P11,660
9,150
______
Reyes
Diaz
P24,114
P16,076
Total ....................................................................
P20,810
P24,114
P16,076
Diaz capital ..........................................................

33,900
Santos capital (15%) ............................................
509
Reyes capital (85%).............................................
2,881
Cash.............................................................
37,290
Diaz capital is [33,900 (P22,824 P5,000 + P16,076)]. Extra 10% is deducted
from the two remaining partners' capital accounts.
Building ...............................................................
Equipment............................................................
Cash ....................................................................
Goodwill ..............................................................
Santos capital ..............................................
Reyes capital ...............................................
To record initial investments. Reyes is credited with goodwill of
Santos investment.
52,000
16,000
12,000
80,000
80,000
80,000
P80,000 to match
59
12/31/06 Reyes capital ..............................................................

30,000
Santos capital ..............................................
20,000
Income summary.........................................
10,000
Interest of P16,000 is credited to Santos (P80,000 x 20%) along with a base of
P4,000. The remaining profit is now a P30,000 loss which is attributed entirely to
Reyes.
1/1/07
Cash ....................................................................
15,000
Goodwill ..............................................................
22,500
Cruz capital .................................................
37,500
Cash and goodwill contributed by Cruz are recorded. Goodwill is Computed
algebraically as follows:
P15,000 + goodwill =
.80 goodwill
=
goodwill
=
20% (current capital + P15,000 + goodwill)

20% (P150,000 + P15,000 + goodwill)
P33,000 + .20 goodwill
P18,000
P22,500
12/31/07 Santos capital.......................................................

20,000
Reyes capital........................................................
10,000
Cruz capital..........................................................
7,500
Santos drawings ..........................................
Reyes drawings ...........................................
Cruz drawings .............................................
To close drawings accounts based on 20% of beginning capital
Balances: Santos, p100,000; Reyes, P50,000; and Cruz, P37,500.
12/31/07 Income summary .................................................
Santos capital ..............................................
Reyes capital ...............................................
Cruz capital .................................................
To allocate P44,000 profit as follows:
44,000
20,000
10,000
7,500
26,600
10,400
6,960
Interest (20% of P100,000)..................................

15% of P44,000 profit..........................................
Balance of P17,400, 60:40...................................
Santos
P20,000
6,600
______
Reyes
Cruz
P10,440
P 6,960
Total ....................................................................
P26,600
P10,440
P 6,960
Capital balances as of December 31, 2004:
Santos
Initial investment, 2006 ....................................... P80,000
2006 profit allocation...........................................
20,000
Additional investment..........................................
2007 drawings...................................................... (20,000)
2007profit allocation............................................ __26,600
Reyes
P80,000
(30,000)
Cruz
(10,000)
_10,440
P37,500
(7,500)
__6,960
Capitals, 12/31/07................................................ P106,600
P50,440
P36,960
60
Chapter 3
1/1/08
Goodwill ......................................................................
26,588
Santos capital .....................................................
3,988
Reyes capital ......................................................
13,560
Cruz capital ........................................................
9,040
To record goodwill implied of Cruz's interest. In effect, the profit Sharing ratio is 15% to
Santos, 51% to Reyes (60% of 85% remaining after Santos's income), and 34% to Cruz
(40% of the 85% remaining after Santos' income). Diaz is paying P46,000, P9,040 in excess
of Cruz's capital (P36,960). The additional payment for this 34% income Interest indicates
total goodwill of P26,588 (P9,040/34%).
1/1/08
Cruz capital..................................................................
Diaz capital ........................................................
To transfer of capital purchase.
46,000
12/31/08 Santos capital ...............................................................

Reyes capital................................................................
Diaz capital ..................................................................
Santos drawings .................................................
Reyes drawings ..................................................
Diaz drawings ....................................................
To close drawings accounts based on 20% of beginning capitals.
22,118
12,800
9,200
12/31/08 Income summary .........................................................

Santos capital .....................................................
Reyes capital ......................................................
Diaz capital ........................................................
To allocate profit for 2008 as follows:
61,000
31,268
12,800
9,200
Santos
P22,118
9,150
______
Reyes
Diaz
P17,839
P11,893
Totals ...........................................................................
P31,268
P17,839
P11,893
Santos
P106,600
3,988
Reyes
P50,440
13,560
Diaz
(22,118)
__31,268
(12,800)
_17,839
P46,000
(9,200)
_11,893
P119,738
P69,039
P48,693
12/31/07 balances ........................................................

Goodwill ......................................................................
Capital purchased ........................................................
Drawings......................................................................
Profit allocation ...........................................................
12/31/08 balances ........................................................
1/1/09
22,118
12,800
9,200
Interest (20% of P110,588)..........................................

15% of P61,000 ...........................................................
Balance of P29,732, 60:40...........................................
1/1/09
46,000
Goodwill ......................................................................
14,321
Santos capital .....................................................
2,148
Reyes capital ......................................................
7,304
Diaz capital ........................................................
4,869
To record implied goodwill. Diaz will be paid P53,562 (110% of the capital balance for his
interest. This amount is P4,869 in excess of the capital account. Since Diaz is only entitled
to a 34% share of profits and losses, the additional P4,869 must indicate that the partnership
as a whole is undervalued by P14,321 (P4,869/34%) which is treated as goodwill.
Diaz capital ..................................................................
53,562
Cash....................................................................
53,562
To record settlement to Diaz.
61
Problem 3 12
Partnership Books Continued as Books of Corporation
Entries in the Books of the Corporation
(1) Inventories ..... .................................................................... .................
Land ...... ........ .................................................................... .................
Building. ........ .................................................................... .................
Accumulated depreciation bldg. ...................................... .................
Accumulated depreciation equipment.............................. .................
Equipment .................................................................. .................
Jack capital ................................................................ .................
Jill capital................................................................... .................
Jun capital.................................................................. .................
To adjust assets and liabilities of the partnership
to their current fair values.
26,000
40,000
20,000
20,000
30,000
(2) Cash ...... ........ .................................................................... .................

Jack capital .... .................................................................... .................
Jill capital................................................................... .................
Jun capital.................................................................. .................
To adjust capital accounts of the partners to 4:3:3 ratio.
4,000
18,000
(3) Jack capital .... .................................................................... .................

Jill capital ...... .................................................................... .................
Jun capital...... .................................................................... .................
Capital stock............................................................... .................
To record issuance of stock to the partners.
100,000
75,000
75,000
20,000
58,000
34,800
23,200
20,200
1,800
250,000
New Books Opened for the New Corporation

Entries in the Books of the Partnership
(1) Inventories ..... .................................................................... .................
Land ...... ........ .................................................................... .................
Building. ........ .................................................................... .................
Accumulated depreciation bldg. ...................................... .................
Accumulated depreciation equipment.............................. .................
Equipment .................................................................. .................
Jack capital ................................................................ .................
Jill capital................................................................... .................
Jun capital.................................................................. .................
To adjust assets and liabilities of the partnership.
26,000
40,000
20,000
20,000
30,000
(2) Cash ...... ........ .................................................................... .................

Jack capital .... .................................................................... .................
Jill capital................................................................... .................
Jun capital.................................................................. .................
To adjust capital accounts of the partners.
4,000
18,000
20,000
58,000
34,800
23,200
20,200
1,800
62
Chapter 3
(3) Stock of JJJ Corporation .................................................... .................

Accounts payable ................................................................ .................
Loans payable Jill ............................................................ .................
Cash in bank............................................................... .................
Accounts payable ....................................................... .................
Inventories.................................................................. .................
Land....... .................................................................... .................
Building. .................................................................... .................
Equipment .................................................................. .................
To record transfer of assets and liabilities to
The corporation and the receipt of capital stock
250,000
30,000
40,000
(4) Jack capital .... .................................................................... .................

Jill capital ...... .................................................................... .................
Jun capital...... .................................................................... .................
Stock of JJJ Corporation............................................ .................
To record issuance of stock to the partners.
100,000
75,000
75,000
44,000
26,000
60,000
60,000
70,000
60,000
250,000
Entries in the Books of the Corporation

(1) To record the acquisition of assets and liabilities from the partnership:
Cash in bank .. .................................................................... .................
Accounts receivable ............................................................ .................
Inventories ..... .................................................................... .................
Land ...... ........ .................................................................... .................
Building (net) . .................................................................... .................
Equipment (net)................................................................... .................
Accounts payable ....................................................... .................
Loans payable ............................................................ .................
Capital stock............................................................... .................
a. 1/1/06
12/31/06
44,000
26,000
60,000
60,000
70,000
60,000
30,000
40,000
250,000
Problem 3 13
Building
1,040,000
Equipment
320,000
Cash
240,000
Lim, capital
800,000
Sy, capital
800,000
(To record initial investment. Assets recorded at market value with two equal
capital balances.
Sy, capital
440,000
Lim, capital
240,000
Income summary
200,000
(The allocation plan specifies that Lim will receive 20% in interest [or 160,000
based on P800,000 capital balance] plus P80,000 more [since that amount is
63
greater than 15% of the profits from the period]. The remaining P440,000 loss is
assigned to Sy.)
1/1/07
Cash
300,000
Lim, capital (15%)
6,000
Sy, capital (85%)
34,000
Tan, capital
340,000
(New investment by Tan brings total capital to P1,700,000 after 2006 loss
[P1,600,000 P200,000 + P300,000]. Tans 20% interest is P340,000
[P1,700,000 x 20%] with the extra P40,000 coming from the two original
partners [allocated between them according to their profit and loss ratio].)
12/31/07
Lim, capital
206,800
Sy, capital
100,000
Tan, capital
100,000
Lim, drawings
206,800
Sy, drawings
100,000
Tan, drawings
100,000
(To close out drawings accounts for the year based on distributing 20% of each
partners beginning capital balances [after adjustment for Tans investment] or
P100,000 whichever is greater. Lims capital is P1,034,000 [P800,000 +
P240,000 P6,000])
12/31/07
Income summary
880,000
Lim, capital
Sy, capital
Tan, capital
(To allocate P880,000 income figure for 2007 as determined below.)
Interest (20% of P1,034,000

beginning capital balance)
15% of P880,000 income
60:40 split of remaining P541,200 income
Total
Initial 2006 investment
2006 profit allocation
Tans investment
2007 drawings
12/31/07 balances
1/1/08
338,800
324,720
216,480
Lim
Sy
Tan
P206,800
132,000
P338,800
324,720
P524,720
216,480
P216,480
Lim
P800,000
240,000
(6,000)
(206,800)
338,800
P1,166,000
Sy
P800,000
440,000
(34,000)
(100,000)
324,720
P550,720
Tan, capital
456,480
Ang, capital
(To reclassify balance to reflect acquisition of Tans interest.)
Tan
P340,000
(100,000)
216,480
P456,480
456,480
64
Chapter 3
12/31/08
Lim, capital
233,200
Sy, capital
110,140
Ang, capital
100,000
Lim, drawings
233,200
Sy, drawings
110,140
Ang, drawings
100,000
(To close out drawings accounts for the year based on 20% of beginning capital
balances [above] or P100,000 [whichever is greater].)
12/31/08
Income summary
1,220,000
Lim, capital
416,200
Sy, capital
482,280
Ang, capital
321,520
(To allocate profit for 2008 determined as follows)
Lim
Sy
Ang
Interest (20% of P1,166,000 beg. capital)
P233,200
15% of P1,220,000 income
183,000
60:40 split of remaining P803,800
482,280
321,520
Totals
P416,200
P482,280
P321,520
b.
1/1/09
Ang, capital
678,000
Lim, capital (15%)
10,180
Sy, capital 85%)
57,620
Cash
745,800
(Angs capital is P678,000 [P456,480 P100,000 + P321,520]. Extra 10%
payment is deducted from the two remaining partners capital accounts.)
1/1/06
Building
1,040,000
Equipment
320,000
Cash
240,000
Goodwill
1,600,000
Lim, capital
1,600,000
Sy, capital
1,600,000
(To record initial capital investments. Sy is credited with goodwill of P1,600,000
to match Lims investment.)
12/31/06
Sy, capital
600,000
Lim, capital
400,000
Income summary
200,000
(Interest of P320,000 is credited to Lim [P1,600,000 x 20%] along with a base of
P80,000. The remaining amount is now a P600,000 loss that is attributed entirely
to Sy.)
1/1/07
Cash
300,000
Goodwill
450,000
Tan, capital
750,000
(Cash and goodwill being contributed by Tan are recorded. Goodwill must be
calculated algebraically.)
65
P300,000 + Goodwill = 20% (Current capital + P300,000 + Goodwill)

P300,000 + Goodwill = 20% (P3,000,000 + P300,000 + Goodwill)
P300,000 + Goodwill = P660,000 + .2 Goodwill
.8 Goodwill = P360,000
Goodwill = P450,000
12/31/07
Lim, capital
400,000
Sy, capital
200,000
Tan, capital
150,000
Lim, drawings
400,000
Sy, drawings
200,000
Tan, drawings
150,000
balances: Lim- P2,000,000, Sy- P100,000, and Tan- P750,000.)
12/31/07
Income summary
Lim, capital
Sy, capital
Tan, capital
(To allocate P880,000 income figure as follows)
Interest (20% of P2,000,000)

15% of P880,000 income
Totals
Initial 2006 investment
2007 drawings
12/31/07 balances
1/1/08
Lim
P400,000
132,000
P532,000
880,000
Sy
532,000
208,800
139,200
Tan
P208,800
P208,800
P139,200
P139,200
Lim
P1,600,000
400,000
Sy
P1,600,000
(600,000)
Tan
(400,000)
532,000
P2,132,000
(200,000)
208,800
P1,008,800
Goodwill
531,760
Lim, capital (15%)
Sy, capital (51%)
Tan, capital (34%)
(To record goodwill indicated by purchase of Tans interest.)
P750,000
(150,000)
139,200
P739,200
79,760
271,200
180,800
In effect, profits are shared 15% to Lim, 51% to Sy (60% of the 85% remaining after Lims
income), and 34% to Tan (50% of the 85% remaining after Lims income). Ang is paying
P920,000, an amount P180,800 in excess of Tans capital (P739,200). The additional payment for
this 34% income interest indicates total goodwill of P531,760 (P180,800/34%). Since Tan is
entitled to 34% of the profits but only holds 19% of the total capital, an implied value for the
66
Chapter 3
company as a whole cannot be determined directly from the payment of P920,000. Thus,
goodwill can only be computed based on the excess payment.
1/1/08
Tan, capital
Ang, capital
(To reclassify capital balance to new partner.)
12/31/08
Lim, capital
442,360
Sy, capital
256,000
Ang, capital
184,000
Lim, drawings
442,360
Sy, drawings
256,000
Ang, drawings
184,000
balances [after adjustment for goodwill].)
12/31/08
Income summary
Lim, capital
Sy, capital
Ang, capital
12/31/07 balances
Adjustment for goodwill
Drawings
Profit allocation
12/31/08 balances
920,000
1,220,000
To allocate profit for 2008 as follows:

Lim
Interest (20% of P2,211,760
P442,360
15% of P1,220,000 income
183,000
Totals
P625,360
920,000
Lim
P2,132,000
79,760
(442,360)
625,360
P2,394,760
Sy
625,360
356,780
237,860
Ang
356,780
P356,780
237,860
P237,860
Sy
P1,008,00
271,200
( 256,000)
356,780
P1,380,780
Ang
P739,200
180,800
(184,000)
237,860
P973,860
Ang will be paid P1,071,240 (110% of the capital balance) for her interest. This amount is
P97,380 in excess of the capital account. Since Ang is only entitled to a 34% share of profits and
losses, the additional P97,380 must indicate that the partnership as a whole is undervalued by
P286,420 (P97,380/34%). Only in that circumstance would the extra payment to Ang be justified:
1/1/09
Goodwill
Lim, capital (15%)
Sy, capital (51%)
Ang, capital (34%)
(To recognize implied goodwill.)
286,420
42,960
146,080
97,380
1/1/09
Ang, capital
Cash
(To record final distribution to Ang.
67
1,071,240
1,071,240
68
Chapter 4
CHAPTER 4
4-1: a
Capital balances before realization
Loss on liquidation, P40,000
Cash distribution
PAR
P 20,000
( 20,000)
P
BOOGIE
P 16,000
( 12,000)
P 4,000
BIRDIE
P 10,000
( 8,000)
P 2,000
Capital balances before liquidation

Gain of P10,000 (150,000-140,000)
Cash distribution
PING
P 50,000
__6,000
P 56,000
PANG
P 50,000
__2,000
P 52,000
PONG
P 10,000
__2,000
P 12,000

Loss of P40,000 (P140,000-P100,000)
Cash distribution
PING
P 50,000
( 24,000)
P 26,000
PANG
P 50,000
( 8,000)
P 42,000
PONG
P 10,000
( 8,000)
P 2,000

Loss of P70,000 (P140,000-P70,000)
Balances
Absorption of Pong's deficiency, 6:2
Cash distribution
PING
P 50,000
( 42,000)
P8,000
( 3,000)
P 5,000
PANG
P 50,000
( 14,000)
P 36,000
( 1,000)
P 35,000
PONG
P 10,000
( 14,000)
( 4,000)
__4,000
COLT
MARK
Capital balances before liquidation (net of loans)P290,000 P200,000
Loss of P130,000, 4:3:3
( 52,000)
( 39,000)
Cash distribution
P238,000
P161,000
CLOCK
P220,000
( 39,000)
P181,000
4-2: c
4-3: b
4-4: a
4-5: b
4-6: c
Loss of P60,000, 40:50:10
Cash distribution
JONAS
P160,000
( 24,000)
P136,000
CARLOS
P 45,000
( 20,000)
P 25,000
TOMAS
P 55,000
( 6,000)
P 49,000
Partnership Liquidation
4-7: a
Loss of P100,000, 4:3:3
Cash distribution
4-8: b
Additional investment by Nory for
the unpaid liabilities (33,000-18,000)
Loss on realization (schedule 1)
Payment by Oscar to Nory
Schedule 1
Total capital before liquidation
Unpaid liabilities
Total loss on realization
4-9: d
Capital balances before liquidation (net)
Loss on realization (schedule 1) P27,500
Balances, cash distribution
69
ARIEL
P40,000
( 40,000)
P
BERT
P180,000
( 30,000)
P150,000
NORY
P23,000
OSCAR
P 13,500
15,000
( 30,900)
P 7,100
( 20,600)
( P7,100)
P 36,500
15,000
P 51,500
BLACK
P99,000
( 13,750)
P85,250
Schedule 1:
Capital balances of white (net)
Cash received by White
White's share of total loss (30%)
WHITE
P 91,500
( 27,500)
P 64,000
GREEN
P138,000
_( 5,500)
P132,500
P 91,500
_83,250
P 8,250
Total loss on realization (P8,250/39%)

4-10: c
CESAR
P 30,000
( 30,000)
P
P 27,500

Loss on realization, P63,600
Balances
Unrecorded liabilities, P500
Balances
Elimination of Nora's deficiency
Payment to partners
ANA
P27,000
( 25,320)
P 1,680
( 200)
P 1,480
( 1,380)
P 100
EVA
P 43,000
( 25,320)
P 17,680
( 200)
P 17,480
( 1,380)
P 16,100
NORA
P 10,000
( 12,660)
( 2,660)
( 100)
( 2,760)
__2,760
P

Loss on realization (schedule 1) P45,000
Payment to partners
ARIES
P33,500
( 22,500)
P11,000
LEO
P 49,000
( 13,500)
P 35,500
TAURUS
P 36,500
( 9,000)
P 27,500
4-11: d
70
Chapter 4
Schedule 1:
Taurus capital (net)

Payment to Taurus
Share of total loss (20%)
P36,500
( 27,500)
P 9,000
Total loss on realization (9,000/20%)
P45,000
4-12: c
Capital balances, June 11
Net loss from operation (squeeze)
Capital balances, August 30 before
liquidation (48,500-25,600)
Loss on realization (47,500-30,000)
Balances
Additional investment by Olga
Balances
Elimination of Olga's deficiency
Payment to partners
TOTAL
P32,700
( 9,800)
MONA
P15,000
( 4,200)
NORA
P13,500
( 2,800)
OLGA
P 4,200
( 2,800)
P22,900
( 17,500)
P 5,400
_1,500
P 6,900
______
P 6,900
P10,800
( 7,500)
P 3,300
_____
P 3,300
( 1,260)
P 2,040
P10,700
( 5,000)
P 5,700
_____
P 5,700
( 840)
P 4,860
P 1,400
( 5,000)
( 3,600)
_1,500
( 2,100)
_2,100
P

Operating loss, P21,000
Drawings
Loans
Balances
Absorption of Tita's deficiency
Payment to Nora
RITA
P49,000
( 3,500)
( 10,000)
( 2,000)
P33,500
__1,500
P32,000
SARA
P18,000
( 7,000)
( 15,000)
8,000
( 4,000)
P
_____
P
TITA
P10,000
( 10,500)
( 20,000)
25,000
( 6,000)
( 1,500)
_1,500
P
CLARO
P45,000
PEDRO
P27,000
ANDRO
P50,000
( 24,000)
P21,000
( 24,000)
P 3,000
( 12,000)
P38,000
TOTAL
P47,500
( 38,500)
P 9,000
MONA
P28,500
( 23,100)
P 5,400
LISA
P19,000
( 15,400)
P 3,600
4-13: b
4-14: a
Loss on realization
Accounts Receivable (P50,000 X 40%)
Investment (P30,000 - P20,000)
Equipment (P60,000-P30,000)
Total
Payment to partners
P20,000
10,000
_30,000
P60,000
4-15: c
Capital balances before liquidation (inclusive loans)
Loss on realization, (squeeze)
Capital balances - cash distribution
Cash after realization

Less Liabilities (P36,000-P7,500)
Total capital after realization
71
P 37,500
( 28,500)
P 9,000
4-16: a
FF capital before distribution of net loss
Add: share of net loss (P10,000 X 40%)
FF capital before liquidation
Cash settlement to FF
FF share of total loss on realization (40%)
P100,000
_( 4,000)
96,000
( 80,000)
P 16,000
Total loss on realization (P16,000/40%)
P 40,000
Total capital before liquidation (P260,000-P10,000)

Add: Liabilities
Total assets
Cash before liquidation
Non-cash assets
Loss on realization
Cash to be realized
P250,000
_100,000
P350,000
( 50,000)
P300,000
( 40,000)
P260,000
4-17: d
Capital balances before realization (net)
Loss on realization (squeeze)
Capital balances after realization
(liabilities-unpaid)
Elimination of CC's deficiency
Balances
Investment by DD
Payment to EE
TOTAL
P100,000
( 125,000)
CC
P 15,000
( 62,500)
DD
P22,500
( 37,500)
EE
P62,500
( 25,000)
(P 25,000)
_______
(P 25,000)
__43,500
P 18,500
( 47,500)
__47,500
______
P
( 15,000)
( 28,500)
(P43,500)
_43,500
P
P37,500
( 19,000)
P18,500
_____
P18,500
4-18: d
Total capital before liquidation
Liabilities
Total assets
Less: Cash balance before realization
Cash after payment of liabilities
payment of liabilities
Cash realized
Non-cash asset
Less: cash realized
Loss on realization
P 30,000
__1,500
P 31,500
P 11,100
1,500
( 11,600)
__1,000
P 30,500
_11,600
P 18,900
72
Chapter 4
4-19: d
Capital balances
Salary of LL (P600 X 8 months)
Loss on realization
Balances
Additional investment by NN
Payment to partners
LL
P 50,000
__4,800
P 54,800
( 44,880)
P 9,920
______
P 9,920
MM
P 20,000
_______
P 20,000
( 14,960)
P 5,040
_____
P 5,040
NN
TOTAL
P 10,000 P 80,000
_______ ___4,800
P 10,000 P 84,800
( 14,960)
(P 4,960)
__4,960
P
4-20: b
KK's total interest (P60,000-P10,000)
Less: Cash to be paid to KK
Share of total loss (1/3)
P 50,000
__10,000
P 40,000
Total loss on realization (P40,000/1/3)
P120,000
Total assets:
Total interest of the partners before liquidation:
JJ (P70,000+P30,000+P10,000)
KK (P60,000-P10,000)
LL (P30,000+P10,000)
Divide by
Total
Loss on realization
Cash to be realized
4-21: a
Capital balances, July 1
Advances to NN, August 1
OO Loan, September 1
Interest, December 31 (6%)
NN (5 mos.)
OO (4 mos.)
Compensation to PP
Cash distribution
TOTAL
P 75,000
( 10,000)
20,000
(
250)
400
__2,500
P 87,650
_56,250
P 35,000
P110,000
50,000
__40,000
NN
P 25,000
( 10,000)
250)
_______
P 14,750
( 17,550)
( 2,800)
P200,000
______50%
P400,000
_120,000
P280,000
OO
P 25,000
20,000
PP
P 25,000
400
_______ ___2,500
P 45,400 P 27,500
( 17,550) ( 17,550)
P 27,850 P 9,950
NN should pay P2,800 and this is to be divided to OO & PP equally or P1,400 each.
73
4-22: a
(unpaid liabilities)
Elimination of AS's deficiency
Cash to be absorbed
TOTAL
P 950,000
( 1,000,000)
PG
P350,000
__20,000
JR
AS
P250,000 P350,000
( 200,000) _500,000
(P 50,000)
_______
P
P 50,000
( 90,000)
(P 40,000)
P 50,000 ( 150,000)
( 60,000) P150,000
(P 10,000) P
RM
P500,000
( 490,000)
P 10,000
ST
P825,000
( 735,000)
P 90,000
TOTAL
P 27,500
__37,500
P 65,000
LT
P 20,000
_18,750
P 38,750
AM
P 5,000
__-9,375
P 14,375
AG
P 420,000
( 300,000)
P 120,000
BM
P375,000
( 300,000)
P 75,000
4-23: a
Loss on realization, P1,225,000
Payment to Partners
4-24: a
Gain on realization (squeeze)
4-25: c
Loss on realization, P1,000,000
Balances
Additional investment by DJ
4-26: a
Settlement to Uy
Uy capital before liquidation (net):
Uy capital
Receivable from Uy
Loss of Uy (50%)
Total loss on realization (P70,000 50%)
CB before liquidation
Receivable from Uy
Loan to Wi
Salary payable to Vi
Interest before realization
Loss on realization
Settlement to partners
__Uy__
553,500
(132,000)
421,500
( 70,000)
351,500
CP
DJ
P205,000 P150,000
(200,000) (200,000)
P 5,000 P(50,000)
50,000
P351,500
P553,500
( 132,000)
421,500
P 70,000
P140,000
__Vi__
452,500
135,000
587,500
( 42,000)
545,500
__Wi__
486,000
( 40,500)
445,500
( 28,000)
417,500
ZP
P 2,500
__9,375
P 11,875
__Total__
1,492,000
(132,000)
(40,500)
135,000
1,454,500
( 140,000)
1,314,500
74
Chapter 4
Problem 4 1
Case 1
Rivas and Briones
Statement of Liquidation
December 31, 2008
Assets
Rivas,
Cash
Others Liabilities
Loan
Balances before liquidation ... P 20,000 P200,000 P132,000 P 18,000
Realization of assets and
distribution of loss .......... _134,000 ( 200,000) _______ _______
Balances................................. 154,000
132,000
18,000
Payment of liabilities............. ( 132,000) ______ ( 132,000) ______
Balances.................................
22,000
18,000
Offset Rivas' loan against his
capital deficiency ............ _______ _______ _______ ( 18,000)
Balances.................................
22,000
Additional loss to Briones ..... _______ _______ _______ _______

Balances.................................
22,000
Payment to partner................. P(22,000)
Partners' Capitals
Briones, Rivas Briones
Loan
(90%)
(10%)
P 20,000 P40,000 P10,000
_______ ( 59,400) ( 6,600)
20,000 ( 19,400) 3,400
_______ _______ ______
20,000 ( 19,400) 3,400
_______ _18,000 ______
20,000 ( 1,400) 3,400
_______ __1,400 ( 1,400)
20,000
2,000
P(20,000)
P(2,000)
Case 2
Rivas and Briones
December 31, 2008
Partners' Capitals
Assets
Rivas, Briones, Rivas Briones
Cash
Others Liabilities
Loan
Loan
(70%)
(30%)
P20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000 P10,000
Balances before liquidation ...

distribution of loss .......... 134,000 ( 200,000) _______ ______ _______
Balances................................. 154,000
132,000
18,000
20,000
Payment of liabilities............. ( 132,000) _______ ( 132,000) ______ _______
Balances.................................
22,000
18,000
20,000
Offset loan against capital
deficiency........................ ________ _______ _______ ( 6,200) ( 9,800)
Balances.................................
22,000
11,800
10,200
Payment to partner................. P(22,000)
P(11,800) P(10,200)
( 46,200) ( 19,800)
( 6,200) 9,800
_______ ______
( 6,200) 9,800
__6,200 __9,800
75
Case 3
Rivas and Briones
December 31, 2008
Rivas,
Loan
P 18,000
Briones,
Loan
P20,000
Partners' Capitals
Rivas
Briones
(50%)
(50%)
P40,000 P10,000
( 200,000) _______ _______
132,000
18,000
_______ ( 132,000)
18,000
______
20,000
__
20,000
( 33,000) ( 33,000)
( 7,000) ( 23,000)
_
_______
( 7,000) ( 23,000)
Assets
Cash
Others Liabilities
P 20,000 P200,000 P132,000
Balances before liquidation ........

distribution of loss ............... _134,000
Balances .....................................
154,000
Payment of liabilities .................. ( 132,000)
Balances .....................................
22,000
Offset Briones'' loan against
his capital deficiency ........... _______
Balances .....................................
22,000
Additional loss to Rivas.............. _______
Balances .....................................
22,000
Payment to partner...................... P(22,000)
_______
_______
_______
_______
_______ ( 20,000)
18,000
_______ _______
18,000
P(18,000)
______ _20,000
7,000 ( 3,000)
( 3,000) __3,000
4,000
P( 4,000)
Journal Entries
Case 1:
Cash ..... .... ...................................................................................................
Rivas, Capital................................................................................................
Briones, Capital ............................................................................................
Other Assets...........................................................................................
Liabilities .. ...................................................................................................
Cash ... ...................................................................................................
Rivas, Loan ...................................................................................................
Rivas, Capital.........................................................................................
Briones, Capital ............................................................................................
Rivas, Capital.........................................................................................
Briones, Loan................................................................................................
Briones, Capital ............................................................................................
Cash ...................................................................................................
Case 2:
Cash ..... .... ...................................................................................................
Rivas, Capital................................................................................................
Briones, Capital ............................................................................................
Other Assets...........................................................................................
Liabilities .. ...................................................................................................
Cash ... ...................................................................................................
Rivas, Loan ...................................................................................................
Briones, Loan................................................................................................
Rivas, Capital.........................................................................................
Briones, Capital .....................................................................................
Rivas, Loan ...................................................................................................
Briones, Loan................................................................................................
Cash ... ...................................................................................................
134,000
59,400
6,600
132,000
18,000
1,400
20,000
2,000
134,000
46,200
19,800
132,000
6,200
9,800
11,800
10,200
200,000
132,000
18,000
1,400
22,000
200,000
132,000
6,200
9,800
22,000
76
Chapter 4
Case 3:
Cash .... ... ...........................................................................................
Rivas, Capital......................................................................................
Briones, Capital ..................................................................................
Other Assets .................................................................................
Liabilities ...........................................................................................
Cash.. ...........................................................................................
Briones, Loan......................................................................................
Briones, Capital............................................................................
Rivas, Capital......................................................................................
Briones, Capital............................................................................
Rivas, Loan.........................................................................................
Rivas, Capital......................................................................................
Cash.. ...........................................................................................
134,000
33,000
33,000
132,000
20,000
3,000
18,000
4,000
200,000
132,000
20,000
3,000
22,000
Problem 4 2
Blando and Castro
April 30, 2008
A s s e t s
Cash Receivables Inventory
Balances before
liquidation....................
Collection of
receivables and
distribution of loss .......
Balances............................
Realization of
inventory and
distribution of
loss...............................
Balances............................
Realization of other
assets and distribution
of loss ..........................
Others
Accounts
Payable
Blando,
Loan
Partners'
Blando
(60%)
Capitals
Castro
(40%)
P 18,000
P75,000
P90,000
P84,000
P42,000
P 24,000
P102,000
P99,000
_37,500
( 75,000)
_______ _______
_______
_______
( 22,500)
( 15,000)
84,000
42,000
24,000
79,500
84,000
( 90,000) _______
_______
_______
( 36,000)
( 24,000)
42,000
24,000
43,500
60,000
_______
_______
( 26,400)
( 17,600)
42,000
24,000
17,100
42,400
_______
_______
_______
55,500
_30,000
_______
85,500
_40,000
_______
Balances............................ 125,500
Payment of accounts
payable......................... ( 42,000)
Balances............................
83,500
Payments to partners.. P(83,500)
_______
90,000
84,000
_______ ( 84,000)
_______ _______
( 42,000)
24,000
17,100
P(24,000) P( 17,100)
42,400
P(42,400)
a.
77
Problem 4 3
Electric Company
Statement of Partnership Realization and Liquidation
June 30, 2008
Balances
Sale of
assets at a loss
Payment to
creditors
Capital Balances
Volt
Watt
30%
20%
Cash
Amp.
Loan
Noncash
Assets
Liabilities
Volt,
Loan
Amp
50%
20,000
15,000
135,000
30,000
10,000
80,000
36,000
14,000
_95,000
115,000
______
15,000
(135,000)
-0-
______
30,000
______
10,000
(20,000)
60,000
(12,000)
24,000
( 8,000)
6,000
_(30,000)
85,000
______
15,000
_______
-0-
(30,000)
-0-
______
10,000
_______
60,000
______
24,000
______
6,000
(24,000)
-0-
( 6,000)
-0-
Offset Amp,
receivable
(15,000)
Payments to partners:
Loan
(10,000)
Capitals
_(75,000) ______
_______
Balances
-0-0-0b. (1) Cash
Amp, Capital
Volt, Capital
Watt, Capital
Noncash Assets
Sell noncash assets at a loss of P40,000.
(15,000)
_______
-0-
(10,000)
______
-0-
(45,000)
-095,000
20,000
12,000
8,000
(2) Liabilities
Cash
Pay creditors.
30,000
(3) Amp, Capital

Amp, Loan
Offset receivable from Amp against his capital credit.
15,000
(4) Volt, Loan

Amp, Capital
Volt, Capital
Watt, Capital
Cash
Final lump-sum distribution to partners.
10,000
45,000
24,000
6,000
135,000
30,000
15,000
85,000
Note: All partners permitted Amp to offset his receivable against his capital credit. Alternatively, Amp
could be required to pay the partnership the P15,000 receivable; the partnership would then pay him an
additional P15,000 for his capital credit. In this case, an offset of the receivable against the capital credit is
reasonable, provided the receivable is not interest-bearing, Amp has a sufficient capital credit, Amp is
personally solvent, and the note is not secured against specific assts of Amp. The offset is not automatic,
but must be determined by the terms of the initial note, and by the partners.
78
Chapter 4
Problem 4 4
a.
b.
Bina, capital before liquidation ..................................................................... ..................

Payment to Bina............................................................................................ ..................
P320,000
_128,000
Loss absorbed by Bina (40%) ....................................................................... ..................
P192,000
Loss on realization (P192,000 40%).......................................................... ..................
P480,000
AIDA, BINA & CELIA

Statement of Partnership Liquidation
January 1, 2008
P720,000
( 720,000)
Aida
(5)
P320,000
( 240,000)
Capital
Bina
(4)
P320,000
( 192,000)
Celia
(1)
P160,000
( 48,000)
_______
80,000
( 80,000)
128,000
( 128,000)
112,000
( 112,000)
Cash
Other Assets
Balances before liquidation.

Realization & dist. of loss ...
P80,000
240,000
Balances .... .... ....................

Settlement to partners .........
320,000
(320,000)
Problem 4 5
a.
b.
LL, capital before liquidation........................................................................ ..................

Settlement to LL ........................................................................................... ..................
P 70,000
__98,000
Gain realized by LL (20%) ........................................................................... ..................
P 28,000
Total gain on realization (P28,000 20%) ................................................... ..................

Other assets sold ........................................................................................... ..................
P140,000
_500,000
Selling price
P640,000
.............................................................................................. ..................
JJ, KK & LL
Cash
Balances before liquidation...
Realization & Dist. of gain ...
P50,000
640,000
Balances .... .... ...................... 690,000

Payment of liabilities ............ ( 60,000)
Payment to Partners .............. (630,000)
Other
Assets
Liabilities
P500,000 P60,000
( 520,000) _______
_______
JJ (4)
P180,000
__56,000
60,000
236,000
( 60,000)
_______ ( 236,000)
Capital
KK(4)
(LL(2)
P240,000
__56,000
P70,000
_28,000
296,000
98,000
( 296,000)
( 98,000)
79
Problem 4 6
a.
BB ................................................... P160,000
CC ................................................... P20,000
DD................................................... P60,000
EE ...................................................
P 0
b.
BB, CC, DD, & EE

Cash
P
0
Advances by BB to pay liabilities
Deposit by DD ......................
60,000
Balances .... .... ......................
60,000
Elimination of EE's deficiency
Elimination of DD's deficiency
Payment to partners...............
Liabilities
C a p i t
CC (10%)DD (20%)
BB (30%)
P60,000 P160,000
( 60,000)
60,000
______ _______
P80,000
220,000
( 90,000)
______ __( 90,000)
60,000
l
EE (40%)
(P120,000) P(180,000)
_______
__60,000
80,000
( 30,000)
( 30,000)
( 60,000) ( 180,000)
( 60,000)
180,000
120,000
40,000
20,000
________
Problem 4 7
Sayson and Company
Date
Assets
Cash Noncash
Liabilities
Accounts
Notes
Payable Payable
Pea
Loan
P a r t n e r s' C a p i t a l s
Sayson
Zobel
Ayala
(45%)
(30%)
(15%)

distribution of gain ..........
P 15,000
P155,250
P11,250
P9,000
P 1,500
P 75,345
185,000
( 155,250)
_______
______
______
17,850
11,900
Balances................................
Payment of liabilities ............
200,000
( 20,250) ________
11,250
( 11,250)
9,000
( 9,000)
1,500
______
93,195
______
98,398 ( 14,993)
______ _______
1,650
______
1,500
93,195
98,398 ( 14,993)
1,650
Balances................................
Additional loss to Sayson,
Zobel and Pea;
45:30:10 ..........................
179,750
_______ ________ ________
Balances................................
Offset Pea's loan against
his capital deficiency.......
179,750
_______ ________ ________
Balances................................
179,750
Payments to partners.............
P(179,750)
______
______
P 86,498 P(14,993)
Pea
(10%)
______
( 7,937)
( 5,292)
14,993
1,500
85,258
93,106
______
( 114)
______
______
1,386
85,258
93,106
P(1,386) P(85,258) P(93,106)
_______
-
P1,650
______
( 1,764)
(114)
114
80
Chapter 4
Problem 4 8
a.
Art, Bea and Cid Partnership

June 4, 2008
Balances before liquidation

(including Bea loan, P4,000)......
Realization of assets
at a loss of P63,300 ..................
Unrecorded accounts payable .........
Payment to creditors .......................
Balances .... .... ................................
Eliminate Cid's deficit.....................
Balances .... .... ................................
Payment to Partners ........................
b.
2008
July 5
c.
Cash
Assets
Other
Liabilities
Partners' Capital
Art (40%) Bea (40%) Cid (20%)
P 6,000
P94,000
P20,000
P27,000
P43,000
30,000
( 94,000)
(20,500)
16,200
______
16,200
(16,200)
______
______
-
(25,320)
500
(20,500)
______
-
(25,320)
(200)
______
1,480
(1,380)
100
_( 100)
(12,660)
(200)
______
17,480
(1,380)
16,100
( 16,100)
Cash .... .... ................................ ............. .................. ..................

Art capital (P63,300 x 40%)....... ............. .................. ..................
Bea capital (P63,300 x 40%)...... ............. .................. ..................
Cid capital (P63,300 x 20%) ...... ............. .................. ..................
Other assets....................... ............. .................. ..................
To record realization of other assets at a loss of P63,300.
30,700
25,320
25,320
12,660
Art capital (P500 x 40%)............ ............. .................. ..................

Bea capital (P500 x 40%)........... ............. .................. ..................
Cid capital (P500 x 20%) ........... ............. .................. ..................
Liabilities .......................... ............. .................. ..................
To record trade accounts payable.
200
200
100
Liabilities .. ................................ ............. .................. ..................

Cash . ................................ ............. .................. ..................
To record payment of liabilities.
20,500
Art capital.. ................................ ............. .................. ..................

Bea capital. ................................ ............. .................. ..................
Cid capital......................... ............. .................. ..................
To eliminate Cid's capital deficit.
1,380
1,380
Art capital.. ................................ ............. .................. ..................

Bea capital. ................................ ............. .................. ..................
Cid capital . ................................ ............. .................. ..................
Cash . ................................ ............. .................. ..................
To record payments to partners to complete liquidation.
100
4,000
12,100
P10,000
(100)
______
(2,760)
_2,760
94,000
500
20,500
2,760
16,200
Cid's loss must be limited to P5,000, or P25,000 for the partnership (P5,000 / 20% = P25,000).
Because the liquidation of liabilities results in a loss of P500, only P24,500 may be lost on the
realization of other assets. This requires that other assets realize P69,500 (P94,000 24,500) to
enable Cid to receive P5,000 from the partnership to pay personal creditors in full.
Problem 4 9
KGB Partnership
Statement of Realization and Liquidation
Lump-sum Liquidation on June 30, 2008
Preliquidation balances
Sale of assets
and distribution
of 430,000 loss
Cash contributed
by B
Distribution of deficit
of insolvent partner:
20/60 (P2,000)
40/60 (P2,000)
Offset deficit with loan
Contribution by G
Payment of creditors
Distribution to K
Postliquidation
balances
Capital Balances
K
G
20%
40%
(240,000) (100,000)
B
40% (120,000)
Cash
50,000
Noncash
Assets
950,000
Liabilities
(480,000)
G
Loan
(60,000)
520,000
570,000
950,000
-0-
(480,000)
(60,000)
86,000
(154,000)
172,000
72,000
172,000
52,000
(480,000)
(60,000)
(154,000)
72,000
50,000
2,000
50,000
620,000
620,000
620,000
13,334
633,334
(480,000)
153,334
(153,334)
-0-
-0-
-0-0-0-0-
-0-
666
(480,000)
(480,000)
(60,000)
60,000
-0-
(153,334)
(153,334)
(480,000)
480,000
-0-
-0-
(153,334)
(153,334)
153,334
-0-
-0-
-0-
-0-
(2,000)
1,334
73,334
(60,000)
13,334
(13,334)
-0-0-
-0-
-0-0-
-0-0-
-0-
82
Chapter 4
KGB Partnership
Schedule of Distribution of Personal Assets
June 30, 2008
Personal assets, excluding partnership
capital and loan interests
Personal liabilities
Personal net worth, excluding
partnership capital and loan
interests
Contribution to partnership
Distribution from partnership
Personal capacity
500,000
(460,000)
600,000
(480,000)
700,000
(650,000)
40,000
120,000
(13,334)
-0- 106,666
50,000
153,334
193,334
-0- -0- -
Partnership Liquidation by Installment
83
CHAPTER 5
5-1: b
Loan balances
Total interest
Possible loss (40,000+10,000)
Balances
Additional loss to RJ & SJ, 5:3
Cash distribution
RJ
P22,000
_10,000
32,000
( 25,000)
7,000
( 1,250)
P 5,750
SJ
P30,000
______
30,000
( 15,000)
15,000
( 750)
P14,250
TJ
P 8,000
______
8,000
( 10,000)
( 2,000)
__2,000
P
Capital balances
Loan balances
Total interest
Possible loss (23,000-6,000)
Balances
Additional loss to BR, CR, DR, 3:2:1
Balances
Additional loss to CR & DR, 2:1
Payment to partners
AR
P 5,500
_1,000
6,500
( 6,800)
( 300)
___300
_____
P
BR
P 5,150
_____
5,150
( 5,100)
50
( 150)
( 100)
___100
P
CR
P 6,850
_____
6,850
( 3,400)
3,450
( 100)
3,350
_( 67)
P 3,283
Total liabilities
Total Capital
Total Assets
P 1,000
_22,000
P23,000
5-2: a
5-3: c
Capital balances
Loan balances
Advances
Total interest
Divided by P/L Ratio
Loss Absorption balances
PI - TO GG
Balances
PII - TO EE & GG, 30:10
Balances
PIII - TO EE, FF, GG, 3:1:1
Balances
PIV - P/L Ratio
DD
P40,000
5,000
_____
45,000
____50%
90,000
_____
90,000
_____
90,000
_____
P90,000
BALANCES
EE
FF
P30,000
P15,000
10,000
_____
( 4,500)
40,000
10,500
____30%
____10%
133,333
105,000
_____
( 91,667)
133,333
105,000
( 28,333)
_____
105,000
105,000
(15,000)
( 15,000)
P90,000
P90,000
DR
P 4,500
_____
4,500
( 1,700)
2,800
( 50)
2,750
_( 33)
P 2,717
GG
P25,000
( 2,500)
22,500
____10%
225,000
__ __
133,333
( 28,333)
10,500
( 15,000)
P90,000
Chapter 5
84
DD
PI - To GG
PII - To EE (28,833 X 30%)
GG (28,833 X 10%)
PIII To EE (15,000 X 30%)
FF (15,000 X 10%)
GG (15,000 X 10%)
_____
Total
PIV - P/L Ratio
Distribution of P18,000
PI - TO GG
PII - TO EE & GG, 3:1, P8,833
Cash distribution
5-4: a
DD
GG
P 9,167
2,833
__1,500
P12,933
P 1,500
P13,500
EE
FF
GG
_____
_6,625
_____
P 9,167
__2,208
P 6,625
P11,375

Capital balances before cash distribution
Possible loss, P90,000
Balances
Additional loss to Lim & Wan, 4:2
Cash distribution
TAN
P40,000
( 16,000)
24,000
( 36,000)
( 12,000)
_12,000
P
LIM
P65,000
( 16,000)
49,000
( 36,000)
13,000
( 8,000)
P 5,000
WAN
P48,000
( 8,000)
40,000
( 18,000)
22,000
( 4,000)
P18,000

Possible loss (90,000+3,000)
Balances
Additional loss to Lim & Wan, 4:2
Cash distribution
TAN
P24,000
( 37,200)
( 13,200)
_13,200
P
LIM
P49,000
( 18,600)
30,400
( 8,800)
P21,600
WAN
P40,000
( 18,600)
21,400
_( 4,400)
P17,000
CARPIO
P72,000
( 5,000)
67,000
( 55,000)
12,000
( 6,000)
P 6,000
LOBO
P54,000
( 5,000)
49,000
( 55,000)
( 6,000)
__6,000
P
5-5: b
5-6: d
CASH PAYMENT
EE
FF
P 8,433
4,500
1,500
_____
_____
Tan (14,000 X 40%)

Lim (14,000 X 40%)
Wan (14,000 X 20%)
5-7: a
Goodwill written-off
Cash balance
Possible loss (100,000+10,000), 110,000
Additional loss to Carpio
Cash distribution
P5,600
P5,600
P2,800
85
5-8: d
JACOB
P40,000
( 15,000)
( 1,000)
24,000
__8,000
32,000
( 45,000)
( 13,000)
_13,000
P
SANTOS
P72,000
( 9,000)
( 600)
62,400
_____
62,400
27,000
35,400
( 7,800)
P27,600
HERVAS
P 7,000
( 6,000)
( 400)
63,600
_____
63,600
( 18,000)
45,600
( 5,200)
P40,400
A
P16,200
_____
16,200
( 600)
15,600
( 150)
15,450
12,000
27,450
( 27,000)
450
( 780)
( 330)
___330
P
B
P12,000
___160
12,000
( 600)
11,400
( 150)
11,250
14,400
25,650
( 27,000)
( 1,350)
__1,350
_____
P
C
P37,700
___240
37,860
( 600)
37,260
( 150)
37,110
_____
37,110
( 27,000)
10,110
( 780)
9,330
( 330)
P 9,000
D
P17,700
_______
( 17,940)
( 600)
17,340
( 150)
17,190
__9,600
26,790
( 27,000)
( 210)
____210
_____
P
DY
P22,000
2/4
44,000
_____
44,000
_____
P44,000
BALANCES
SY
P15,500
1/4
62,000
( 6,000)
56,000
( 12,000)
P44,000
LEE
P14,000
1/4
56,000
_____
56,000
( 12,000)
P44,000

Loss on realization (120,000-90,000)
Liquidation expenses, P2,000
Loan balances
Total interest
Possible Loss (210,000-120,000)
Balances
Additional loss to Santos & Hervas
Cash distribution
5-9: d
Salary payable
Balances
Loss on realization (P2,400)
Balances
Liquidation expenses (P600)
Balances
Loan balances
Total interest
Possible Loss (126,000-18,000)
Balances
Additional loss to A & C
Balances
Additional loss to C
Cash distribution
5-10: a
Total interest
Profit and Loss ratio
Loan absorption balances
Priority I - to Sy
Balances
Priority II - to Sy & Less
Total
DY
Priority I - to Sy (6,000 X 1/4)
Priority II - to Sy (12,000 X 1/4)
to Lee (12,000 X 1/4)
Total
_____
P
CASH PAYMENTS
SY
LEE
1,500
3,000
_____
_3,000
P 4,500
P 3,000
Chapter 5
86
Further cash distribution, profit and loss ratio
Cash distribution to Dy
Divided by Dy's Profit and Loss ratio
Amount in excess of P7,560
Total payment under priority I & II
Total cash distribution to partner
P 6,250
2/4
12,500
__7,500
P20,000
5-11: d
Cash realized
Total
Less:
Payment of liquidation expense
Payment of liability
Payment to partners (Q 5-10)
Cash withheld
P 1,000
5,400
20,000
P12,000
_32,000
44,000
_26,400
P17,600
5-12: c
Loss absorption balances:
Cena (18,000/50%)
Batista (27,000/30%)
Excess of Batista
Multiply by Batista's Profit & Loss ratio
Priority I to Batista
P36,000
90,000
54,000
____30%
P16,200
5-13: c
Capital balances
Loan balances
Total interest
Divided by Profit and Loss Ratio
Priority I to CC
Balances
Priority II to BB & CC, 2:1
Total interest
AA
P15,000
10,000
25,000
2/5
62,500
_____
62,500
_____
P62,500
AA
Priority I to CC (12,500 X 1/5)

Priority II to BB (25,000 X 2/5)
to CC (25,000 X 1/5)
Total
Priority III P/L Ratio
Cash distribution to CC:
Priority I
Priority II (12,000-2,500) X 1/3
Total cash paid to CC
____
P
BALANCES
BB
P30,000
_5,000
35,000
2/5
87,520
_____
87,520
( 25,000)
P62,500
CC
P10,000
10,000
20,000
1/5
100,000
( 12,500)
100,000
( 25,000)
P62,500
CASH PAYMENTS
BB
CC
2,500
10,000
_____
_5,000
P10,000
P 7,500
P2,500
3,167
P5,667
87
5-14: c
JJ
P 60,000
_18,000
_78,000
____40%
195,000
______
195,000
______
195,000
______
P195,000
Capital balances
Loan balances
Total interest
Priority I to LL
Balances
Priority II to LL, MM, 15:10
Balances
Priority II to KK, LL, MM, 35:15:10
Total
JJ
Priority I to LL (30,000 X 15%)
Priority II to LL (30,000 X 15%)
to MM (30,000 X 10%)
Priority II to KK (75,000 X 35%)
to LL (75,000 X 15%)
to MM (75,000 X 10%)
Total
______
P
BALANCES
KK
LL
MM
P 64,500
P 54,000
P 30,000
_30,000
______
______
_94,500
_54,000
_30,000
_____35%
_____15% _____10%
270,000
360,000
300,000
______
( 60,000)
______
270,000
300,000
300,000
______
( 30,000) ( 30,000)
270,000
270,000
270,000
( 75,000)
( 75,000) ( 75,000)
P195,000
P195,000
P195,000
CASH PAYMENT
KK
LL
9,000
4,500
1,750
11,250
______
______
P 1,750
P 24,750
MM
3,000
___7,500
P 10,500
Further cash distribution, Profit and Loss ratio

Cash distribution to Partners (P38,100-9,000), P29,100
Priority I to LL
Priority II to LL, MM, 15:10
Priority II to KK, LL, MM, 35:15:10
(29,100-16,500), 12,600
Cash distribution
JJ
_____
P
KK
MM
LL
P 9,000
4,500
3,000
TOTAL
P 9,000
7,500
__7,350
P 7,350
___3,150
P 16,650
__2,100
P 5,100
__12,600
P 29,100
ARCE
P 20,000
_10,000
_32,000
_____50%
64,000
______
64,000
______
P 64,000
BALANCES
BELLO
P 24,900
______
_24,900
_____30%
83,000
( 8,000)
75,000
( 11,000)
P 64,000
CRUZ
P 15,000
______
_15,000
_____20%
75,000
______
75,000
( 11,000)
P 64,000
5-15: a
Capital balances
Loan balances
Total interest
Priority I to Bello
Balances
Priority II to Bello & cruz, 3:2
Total
Chapter 5
88
CASH PAYMENTS
ARCE
BELLO
CRUZ
P - I to Bello (8,000 X 30%)

P - II to Bello (11,000 X 30%)
to Cruz (11,000 X 20%)
_____
2,400
3,300
_____
_2,200
Total
P 5,700
P2,200
Further Cash distribution, Profit and Loss ratio

Based on the above cash priority program, the P2,000 is only a partial payment to Bello who
is entitled to a maximum of P2,400 under Priority I. Only after satisfying Priority I, Cruz will
receive payment and only after P7,900 has been distributed to Bello and Cruz will Arce receive
payment. Therefore no payments are made to Arce and Cruz.
5-16: a
Cash paid to Arce
Divide by Profit & Loss ratio
P2,000
_____5%
Amount in excess of P7,900

Add: cash paid under PI and PII
40,000
_7,900
Total cash distribution to partners

Cash paid to Creditor (30,000-10,000)
47,900
20,000
Total
Less cash before realization
67,900
_6,000
Cash realized from sale of asset
P61,900
5-17: b
Cash distribution to Cruz
Divide by profit and loss ratio
P 6,200
2/5
Cash distribution under Priority II

Multiply by Bello's Profit and Loss ratio
15,500
3/5
Cash distribution to Bello under Priority II

Cash distribution to Bello under Priority I
9,300
__2,400
Total cash distribution to Bello
P11,700
5-18: b
BALANCES
MONZON
NIEVA
Total Interest
P22,500
P17,500
_____60%
_____40%
Loss absorption balances

Priority I - to Nieka
37,500
______
Total
P37,500
CASH PAYMENT
MONZON
NIEVA
43,750
( 6,250)
_____
_2,500
P37,500
P2,500
Further cash distribution - Profit and Loss ratio

All the P2,000 should be paid Nieva, since she is entitled to P2,500 under Priority I
5-19: b
Cash distribution
PI to Nieva (2,500-2,000)
Balances, 6:40
Cash distribution
89
CASH MONZON
P12,500
( 500)
_12,000
__7,200
P
P 7,200
5-20: a
June: Cash realized
Payment to creditor
Payment to Partners
Cash balances, June 30
July: Cash realized
Payment of liquidation expense
Payment to Partners
Cash balances, July 31
Aug: Cash realized
Cash distribution for August,
Distribution to Partners - August
Monzon (22,500 X 60%)
Nieva (22,500 x 40%)
P 5,000
18,000
( 20,000)
__2,000
1,000
12,000
( 500)
( 12,500)
_22,500
P22,500
P13,500
P 9,000
NIEVA
500
_4,800
P5,300
Chapter 5
90
Problem 5 1
Suarez, Tulio and Umali
January 1 to april 31, 2008
Assets
Cash
Others Liabilities
Balances before liquidation.P 2,000.00 P46,000.00 P6,000.00
January Installment:
distribution of loss .... 10,500.00 ( 12,000.00) _______
Balances......................... 12,500.00 34,000.00 6,000.00
Payment of expenses of
realization and distribution
to partners ...................... ( 500.00) _______ _______
Balances......................... 12,000.00 34,000.00 6,000.00
Payment of liabilities ..... ( 6,000.00) _______ ( 6,000.00)
Balances......................... 6,000.00 34,000.00
Payments to partners
(Schedule 1) ............. ( 4,000.00) _______ _______
Balances......................... 2,000.00 34,000.00
February Installment:
distribution of loss .... 6,000.00 ( 7,000.00) _______
Balances......................... 8,000.00 27,000.00
to partners ...................... ( 750.00) _______ ______
Balances......................... 7,250.00 27,000.00
(Schedule 2) ............. ( 6,000.00) _______ ______
Balances......................... 1,250.00 27,000.00
March Installment:
distribution of loss .... 10,000.00 ( 15,000.00)______
Balances......................... 11,250.00 12,000.00
to partners ...................... ( 600.00) _______ ______
Balances......................... 10,650.00 12,000.00
Payments to partners,
P & L ratio................( 10,150.00) ______
______
Balances.........................
500.00 12,000.00
April Installment:
distribution of loss .... 4,000.00 ( 12,000.00)______
Balances......................... 4,500.00
to partners ...................... _(400.00) ______
______
Balances......................... 4,100.00
Final Payments to partnersP(41,100.00)_____

_____
Tulio,
Umali,
Partners' Capitals
Loan
Loan Suarez (40%) tulio (35%)Umali (25%)
P5,000.00 P2,500.00 P14,450.00 P12,550.00 P7,500.00
_______
______
5,000.00 2,500.00
( 600.00) ( 525.00)
13,850.00 12,025.00
( 375.00)
7,125.00
_______ _______
5,000.00 2,500.00
_______ _______
5,000.00 2,500.00
( 200.00)
13,650.00
_______
13,650.00
( 175.00)
11,850.00
________
11,850.00
( 125.00)
7,000.00
_______
7,000.00
( 3,812.50) ( 187.50)
1,187.50 2,312.50
_______
13,650.00
_______
11,850.00
_______
7,000.00
_______ _______
1,187.50 2,312.50
_______
1,187.50
_______
2,312.50
__(400.00) ( 350.00)
13,250.00 11,500.00
( 250.00)
6,750.00
( 300.00) ( 262.50)
12,950.00 11,237.50
( 187.50)
6,562.50
( 1,187.50) ( 1,812.50) ( 1,650.00) ( 1,350.00)
500.00
11,300.00
9,887.50
_______
6,562.50
______
______
500.00
( 2,000.00) ( 1,750.00) ( 1,250.00)

9,300.00
8,137.50
5,312.50
______
_______
500.00
______
( 500.00) ( 4,060.00) ( 3,552.50) ( 2,037.50)
5,000.00
4,375.00
3,125.00
( 240.00) ( 210.00)
9,060.00
7,927.50
( 150.00)
5,162.50
______
______
( 3,200.00) ( 2,800.00) ( 2,000.00)

1,800.00
1,575.00
1,125.00
______
_____
______
_____
___(160.00) ( 140.00) ( 100.00)

1,640.00
1,435.00
1,025.00
P( 1,640.00) P( 1,435.00) P(1,025.00)
91
Schedule 1
Suarez (40%)
Capital balances ......................................
P13,650.00
Loan balances..........................................
_____ _
Total interests..........................................
13,650.00
Possible loss (P2,000 + P34,000)...........
( 14,400.00)
Balances ..................................................
( 750.00)
Additional loss to Tulio and Umali 35:25
___750.00
Payments to partners ...............................
Apply to loan...........................................
__ __
Schedule 2
Capital balances ......................................
Loan balances..........................................
Total ........................................................
Possible loss (P1,250 + P27,000)...........
Payments to partners ...............................
Apply to loan...........................................
Apply to capital.......................................
Suarez (40%)
P12,950.00
12,950.00
( 11,300.00)
P 1,650.00
P 1,650.00
Tulio (35%) Umali (25%)

P11,850.00
P7,000.00
__5,000.00
_2,500.00
16,850.00
9,500.00
( 12,600.00)
( 9,000.00)
4,250.00
500.00
( 437.50)
( 312.50)
P 3,812.50
P 187.50
P 3,812.50
P 187.50
Tulio (35%) Umali (25%)
P11,237.50
P6,562.50
__1,187.50
_2,312.50
12,425.00
8,875.00
( 9,887.50)
( 7,062.50)
P 2,537.50
P1,812.50
_1,187.50
_1,812.50
P 1,350.00
P
Chapter 5
92
Problem 5 2
Miller and Bell Partnership
Cash
25,000
40,000
Balances
Sale of inventory
Payment to
creditors
(10,000)
55,000
Payments to
partners
(Schedule 1)
(50,000)
5,000
Sale of inventory 30,000
Payment to
creditors
( 5,000)
30,000
Offset deficit
with loan
______
30,000
Payments to
partners:
Loan
( 6,000)
Capitals
(24,000)
Balances
0
Inventory
120,000
( 60,000)
Accounts
Payable
15,000
Bell
Loan
60,000
Capital
Miller
Bell
80%
20%
65,000
5,000
(16,000)
(4,000)
______
60,000
(10,000)
5,000
______
60,000
______
49,000
______
1,000
______
60,000
( 60,000)
______
5,000
(49,000)
11,000
_(1,000)
48,000
(24,000)
______
1,000
6,000)
______
0
( 5,000)
0
______
11,000
______
24,000
______
(5,000)
______
0
______
0
( 5,000)
6,000
______
24,000
(5,000)
0
______
0
______
0
( 6,000)
______
0
(24,000)
0
______
0
Schedule 1:
Miller and Bell Partnership
Schedule of Safe Payments to Partners
Capital and loan balances

Possible loss of 60,000 on remaining inventory
Safe payment
Miller
80%
49,000
(48,000)
1,000
Bell
20%
61,000
(12,000)
49,000
HORIZON PARTNERSHIP
Statement of realization and Liquidation
May July, 2008
93
Problem 5 3
Partners Capital
TT
(1/3)
Other
Liabilities
SS
(1/3)
20,000
75,000
280,000
(105,000)
80,000
______
60,000
(10,000)
70,000
(10,000)
90,000
(10,000)
Balances
Payment to creditors
95,000
(80,000)
175,000
______
80,000
(80,000)
50,000
______
60,000
______
80,000
______
Balances
Payments to PP (Exhibit A)
15,000
(15,000)
175,000
______
______
50,000
______
60,000
______
80,000
(15,000)
0
25,000
175,000
(61,000)
______
50,000
(12,000)
60,000
(12,000)
65,000
(12,000)
25,000
(25,000)
114,000
______
______
38,000
______
48,000
(10,000)
53,000
(15,000)
114,000
38,000
38,000
38,000
(114,000)
(11,000)
(11,000)
(11,000)
27,000
(27,000)
27,000
(27,000)
27,000
(27,000)
SS
TT
PP
60,000
1
60,000
70,000
1
70,000
90,000
1
90,000
______
______
(20,000)
Cash
May sale of assets at a loss of P30,000
Balances
June sale of assets at a loss of P36,000
Balances
Payment to partners (Exhibit A)
Balances
July sale of remaining assets at a loss of
P33,000
Balances
Payment to partners
Assets
81,000
81,000
(81,000)
Exhibit A Cash distributions to partners during liquidation:

Capital account balances before liquidation
Income sharing ratio
Required reduction to bring
capital account balance for PP
to equal the next highest balance for TT PI.
PP
(1/3)
Balances
Required reduction to bring the balances for
TT and PP to equal the balance for SS PII.
60,000
70,000
70,000
______
(10,000)
(10,000)
Balances
60,000
60,000
60,000
10,000
20,000
10,000
1/3
1/3
Summary of cash distribution program:

To creditors before partners receive anything
To partners:
(1) First distribution to PP
(2) Second distribution to TT and PP equally
(3) Any amount in excess of $120,000
to the three partners in incomesharing ratio
80,000
20,000
20,000
1/3
b. After the cash distribution in June, the partners capital accounts had balances corresponding to the income-sharing
ratio (38,000 each). From this point on any cash payments to partners may be made in the income-sharing ratio or
equally in this problem. In other words, after the creditors are paid and TT and PP receive 10,000 and 30,000,
respective, any additional cash that becomes available may be paid to the three partners equally.
Chapter 5
94
Problem 5 4
1. X, Y and Z
Cash Priority Program
January 1, 2008
X
Balances
Y
Capital balances ..................................

Loan balances .....................................
P60,000
22,5000
P45,000
15,000
P20,000
6,500
Total interests......................................
P82,500
P60,000
P26,500
P200,000
(35,000)
P132,500
Loss absorption balances .................... P165,000

Priority I to Y...................................
Balances..............................................
Priority II to X and Y .......................
165,000
(32,500)
Total.................................................... P132,500
165,000
132,500
(32,500) ________
P132,500
P132,500
Any amount in excess of P36,500.......
X (50%)
Cash Payments
Y (30%) Z (20%)
Total
P10,500
P10,500
P16,250
9,750
26,000
P16,250
P20,250
P36,500
50%
30%
20%
100%
2. January
Cash
Available for distribution ..............................
Priority I to Y .............................................
Payment to partner.........................................
February.......................................................
Priority I to Y (P10,500 P7,500) .............
Priority II to X and Y; 5:3 ..........................
Cash
P20,000
( 3,000)
( 17,000)
Payments to partners......................................
March ...........................................................
Priority II to X and Y; 5:3
(P26,000 P17,000).................................
Excess; 5:3:2..................................................
Cash
P45,000
( 9,000)
( 36,000)
April..............................................................
Excess; 5:3:2..................................................
P 7,500
( 7,500)
Cash
P15,000
( 15,000)
P 7,500
P 7,500
P10,625
P 3,000
6,375
_____
P10,625
P 9,375
P 5,625
18,000
P 3,375
10,800
P7,200
P23,625
P14,175
P7,200
P 7,500
P 4,500
P3,000
P 7,500
P 4,500
P3,000
95
Problem 5 5
AB, CD & EF Partnership

Capital
Able
Other Accounts CD
AB
CD
Cash
Loan
Assets Payable Loan
50%
30%
18,000 30,000 307,000 53,000 20,000 118,000 90,000

January transactions:
1. Collection of accounts
receivable at loss
of 15,000
51,000
( 66,000)
2. Sale of inventory at
loss of 14,000
38,000
( 52,000)
3. Liquidation expenses paid ( 2,000)
4. Share of credit memorandum
5. Payments to creditors
( 50,000) _____ ______
55,000 30,000 189,000
Sale payments to partners
(Schedule 1
( 45,000) ______ _____
10,000 30,000 189,000
February transactions:
6. Liquidation expenses paid ( 4,000) ______ ______
6,000 30,000 189,000
Safe payments to partners
(Schedule 2)
-0- _____ ______
6,000 30,000 189,000
March transactions:
8. Sale of mac. & equip. at a
loss of 43,000
146,000
(189,000)
9. Liquidation expenses paid ( 5,000) ______ _______
147,000 30,000
-010. Offset AB's loan
receivable against capital
(30,000)
(147,000) ______ _______
Balances at end of liquidation
0
0
0
EF
20%
74,000
( 7,500) ( 4,500) ( 3,000)

( 7,000) ( 4,200)
( 1,000) ( 600)
( 3,000)
1,500
900
(50,000) _____ ______ _____
-0- 20,000 104,000 81,600
( 2,800)
( 400)
600
______
68,400
______ (20,000) ______ ( 6,600) (18,400)

-0-0- 104,000 75,000 50,000
______ ______ ( 2,000) ( 1,200) ( 800)
-0-0- 102,000 73,800 49,200
______ ___
0
-0-0- 102,000
0
73,800
0
49,200
( 21,500) (12,900) ( 8,600)

______ ______ ( 2,500) ( 1,500) ( 1,000)
-0-0- 78,000 59,400 39,600
( 30,000)
______ ______ ( 48,000) (59,400) (39,600)
0
0
0
0
0
Chapter 5
96
Partnership
Schedules of Safe Payments to Partners
Schedule 1: January
Capital and loan balancesa
Possible loss:
Other assets (189,000) and possible liquidation
costs (10,000)
Balances
Absorption of AB's potential deficit balance
CD : (25,500 x 3/5 = 15,300)
EF : (25,500 x 2/5 = 10,200)
Safe payment
a = (104,000) capital less 30,000 loan receivable
= (81,600) capital plus 20,000 loan payable
= (68,400) capital
Schedule 2: February
Capital and loan balancesb
Possible loss:
Other assets (189,000) and possible liquidation
costs (6,000)
Absorption of AB's potential deficit balance
CD : (25,500 x 3/5 = 15,300)
EF : (25,500 x 2/5 = 10,200)
Safe payment
b = (102,000) capital less 30,000 loan receivable
= (73,800) capital
= (49,200) capital
AB
50%
CD
30%
EF
20%
P74,000
P101,600
P68,400
( 99,500)
( 25,500)
25,500
( 59,700)
41,900
( 39,800)
28,600
( 15,300)
_______
P 26,600
( 10,200)
P 18,400
______
P
-0-
72,000
( 97,500)
( 25,500)
25,500
_______
0
73,800
49,200
( 58,500)
15,300
( 39,000)
10,200
( 15,300)
________
0
( 10,200)
0
97
Problem 5 6
1.
M, N, O and P
Cash Priority Program
January 1, 2008
M
Capital balances.. P 70,000
Loan balances ..... 20,000
Total interests ..... P 90,000
Loss absorption
balances .........P240,000
Priority I to O .. _______
Balances ............. 240,000
Priority II to O
and P .............. _______
Balances ............. 240,000
Priority III to
M, O and P.....( 40,000)
Total ...................P200,000
Balances
N
O
P 70,000 P 30,000
5,000
25,000
P 75,000 P 55,000
P
P 20,000
15,000
P 35,000
Cash Payments
M (3/8) N (3/8) O (1/8)
P (1/8)
P200,000 P440,000 P280,000

_______ ( 160,000) ________
200,000 280,000
280,000
_______ ( 40,000) ( 40,000)
200,000 240,000
240,000
P20,000
5,000
_______ ( 40,000) ( 40,000) P15,000

P200,000 P200,000 P200,000 P15,000
Any amount in excess of P55,000
3/8
5,000
P30,000
3/8
Total
P20,000
P5,000
10,000
5,000 25,000
P10,000 P55,000
1/8
1/8
8/8
2.
Schedule 1
Available for distribution ....................

Priority I to O ...................................
Priority II to O and P; 1:1 .................
Cash
P25,000
( 20,000)
( 5,000)
________
_______
P20,000
2,500
P2,500
P22,500
( 22,500)
2,500
( 2,500)
P15,000
3,750
P3,750
P 2,500
5,000
1,250
P2,500
5,000
1,250
18,750
( 18,750)
P3,750
( 3,750)
8,750
( 2,500)
P 6,250
8,750
( 8,750)
Payments to partners............................
Apply to loan .......................................
Apply to capital ...................................
Schedule 2
Cash
Available for distribution ....................
Priority II to O and P; 1:1 .................
Priority III to M, O and P; 3:1:1 .......
Excess, 3:3:1:1.....................................
Payments to partners............................
Apply to loan .......................................
Apply to capital
P40,000
( 5,000
( 25,000)
( 10,000)
Chapter 5
98
Problem 5 7
Bronze, Gold & Silver

Cash Distribution Plan
June 30, 2008
Loss Absorption Balances
Bronze
Gold
Silver
Profit and loss ratio

Pre-liquidation capital and
loan balances
(Capital and loan
balances/P& L ratio)
P110,000
Decrease highest LAB
to next highest:
Gold: (30,000 x .30) _______
110,000
Decrease LAB's
to next highest:
Gold: (10,000 x .30)
Silver: (10,000 x .20) _______
P110,000
Capital and Loan Accounts

Bronze
Gold
Silver
50%
30%
20%
P55,000
P45,000
P24,000
( 9,000)
36,000
______
24,000
P150,000
P120,000
( 30,000)
120,000
_______
120,000
______
55,000
( 10,000)
________
P110,000
( 10,000)
P110,000
_______
P 55,000
Accounts
Payable
Bronze
50%
Gold
30%
P37,500
P37,500
P 9,000
3,000
22,500
P34,500
( 3,000)
_______ _( 2,000)
P 33,000 P 22,000
Summary of Cash Distribution

(If Offer of P100,000 is Accepted)
Cash available
First
Next
Next
Additional paid in P&L ratio
P106,000
( 17,000)
( 9,000)
( 5,000)
( 75,000)
P
-0-
P 17,000
_______
P 17,000
Silver
20%
P 2,000
15,000
P17,000
99
Problem 5 8
Part A
North
Balances
South
East
Total Interest (capital and loan

balances
P120,000
P 88,000
Divided by P/L ratio
30%
10%
Loss absorption potential
P400,000 P880,000
Priority II To South
(335,000)
Balances
400,000
545,000
Priority II To South and East, 10:20
(145,000)
Balances
400,000
400,000
Priority III To North, South, and
east 30:10:20
(250,000) (250,000)
Total
150,000
150,000
West
North
P109,000 P 60,000
20%
40%
P545,000 P150,000
________
545,000
150,000
(145,000)
400,000
150,000
(250,000)
150,000
______
150,000
Cash Payments
South
East
33,500
14,500 29,000
75,000 25,000 50,000 _____
75,000 73,000 79,000
Further cash distribution P/L ratio

Part B
(1) Cash
65,600
North capital (30% of P16,400 loss)
4,920
South capital (10%)
1,640
East capital (20%)
3,280
West capital (40%)
6,560
Accounts receivable
To records collection of receivables with losses allocated to partners.
(2)
(3)
Cash
North capital (30% x P103,000)
South capital (10%)
East capital (20%)
West capital (40%)
Property and equipment
To record sale of property and equipment.
150,000
30,900
10,300
20,600
41,200
82,000
253,000
North capital
31,800
South capital
58,600
East capital
35,000
West capital
15,200
Cash
140,600
To record cash installment to partners of P230,600 based on the cash distribution plan in Part A.
First P90,000 is held to pay liabilities (P74,000) and estimated liquidation expenses of P16,000.
Next P33,500 goes entirely to South.
Next P43,500 is split between to South (P14,500) and East (P29,000).
Remaining P63,600 is allocated to North (P31,800), South (P10,600) and East (P21,200)
(4)
Liabilities
Cash
To record payment of liabilities.
74,000
West
74,000
Chapter 5
100
(5)
Cash
North capital (30% of P30,000 loss)
South capital (10%)
East capital (20%)
West capital (40%)
Inventory
To record inventory sold.
71,000
9,000
3,000
6,000
12,000
101,000
(6)
North capital
35,500
South capital
11,833
East capital
23,667
Cash
71,000
To record distribution of cash according to cash distribution plan. Although P87,000 cash
is being held, P16,000 must be retained to pay liquidation expenses. The Remaining
P71,000 is divided among North, South, and East on a 30:20 basis.
(7)
North capital (30% of expenses)

South capital (10%)
East capital (20%)
West capital (40%)
Cash
To record liquidation expenses paid.
(8)
North capital (30/60 of deficit)

2,080
South capital (10/60)
693
East capital (10/60)
1,387
West capital
To eliminate capital deficiency of West as computed below:
Capital balances, beginning

Loss on accounts receivable
Loss on property and equipment
Cash distribution
Liquidation expenses
Subtotal
Elimination of West deficiency
Capital balances
(9)
3,300
1,100
2,200
4,400
North capital
South capital
East capital
Cash
To record final cash distribution.
11,000
4,160
North
P120,000
(4,920)
(30,900)
(31,800)
( 3,300)
South
P88,000
( 1,640)
(10,300)
(58,600)
( 1,100)
East
P109,000
( 3,280)
(20,600)
(50,200)
( 2,200)
West
P60,000
( 6,560)
(41,200)
0
( 4,400)
4,580
( 2,090)
1,527
( 693)
3,053
( 1,666)
( 4,160)
4,160
P 2,500
P 834
2,500
834
1,666
P 1,666
5,000
P 0
101
Problem 5 9
DR Company
Schedule of Safe Payments to Partners
Capital and loan balances, August 1, 2008

Write-off of P24,000 in goodwill
Write-off of P12,000 of receivables
Gain of P6,000 on sale of P32,000 of
inventory (one-half of P64,000 book
value)
Capital and loan balances, August 31, 2008
Possible loss of P16,000 for remaining
receivables and P32,000 for
remaining inventory
Possible liquidation costs of P4,000
Balances (* = deficit)
Distribute Bens potential deficit
To Dan: P7,600 x 40/70
To Red: P7,600 x 30/70
Dan
(40%)
Red
(30%)
Ben
(30%)
(42,000)
9,600
4,800
(45,000)
7,200
3,600
(17,000)
7,200
3,600
(2,400)
(30,000)
(1,800)
(36,000)
(1,800)
(8,000)
19,200
1,600
(9,200)
14,400
1,200
(20,400)
14,400
1,200
7,600*
(7,600)
4,343
(4,857)
3,257
(17,143)
-0-
Of the P84,000 in cash at the end of August, P58,000 will be required to liquidate the debts to
outside creditors, and P4,000 must be held in reserve to pay possible liquidation costs. Thus, a
total of P22,000 in cash can be safely distributed to partners as of August 31, 2008.
Problem 5 10
(1)
Journal entry to record Jennys contribution:

Cash
Equipment
Jenny, capital
40,000
60,000
100,000
Journal entry to record Kennys contribution:

Cash
Inventory
Equipment
Notes payable
Kenny, capital
60,000
10,000
180,000
50,000
200,000
Chapter 5
102
(2)
Capital balances of Jenny and Kenny before admission of Lenny:

Beginning capital balance
Interest on beginning capital balance
Annual salary
Remainder
Ending capital balance
Jenny
P100,000
10,000
15,000
48,000
P173,000
Kenny
P200,000
20,000
20,000
72,000
P312,000
Explanation:
Each partner receives 10% on beginning capital balance. Each partner receives
her respective income (P15,000 to Jenny and P20,000 to Kenny). The amount distributed
thus far is P65,000. The remainder to be distributed is P120,000 (P185,000 30,000
35,000). Two-fifths of this remainder of P129,000 (48,000) is allocated to Jenny; 3/5 x
P120,000 (72,000) is allocated to Kenny. The total income allocated to Jenny and Kenny
is P73,000 and P112,000 respectively.
The admission of Lenny can now be recorded by the following entry:
Cash
175,000
Lenny, capital
Jenny, capital
Kenny, capital
110,000
26,000
39,000
Explanation:
The book value of the partnership after the income distribution in 2006 was
P485,000 (P173,000 + P312,000). After Lennys contribution, the value of the
partnership is P485,000 + P175,000 = P660,000. A one-sixth interest in the partnership is
P660,000 x 1/6 = P110,000. Using the bonus method, we compute a bonus of P175,000
P110,000 = P65,000. Using the 2:3 profit sharing ratio, the amount allocated to Jenny is
P26,000 (2/5 x P65,000) and the amount allocated to Kenny is P39,000 (3/5 x P65,000).
(3)
Schedule of Safe Payments

Capital balances
Partners loan
Gain on realization
Possible loss
Jenny
P200,000
9,000
(156,000)
P 53,000
Kenny
P400,000
(50,000)
15,000
(260,000)
P105,000
Lenny
P200,000
6,000
(104,000)
P102,000
Explanation:
The sale of assets realized a gain of P30,000 (P210,000 P180,000) which is
distributed to the partners on the new profit sharing ratio: 30% to Jenny, 50% to Kenny,
and 20% to Lenny. Liabilities are paid. A possible loss on the unsold assets (P520,000) is
distributed to partners in their profit and loss ratio of 30:50:20 to Jenny, Kenny and
Lenny respectively.
Joint Venture
103
CHAPTER 6
SOLUTIONS TO MULTIPLE CHOICES
6-1: a
6-2: a
Assets per Jessica Company- balance sheet

Jessicas proportionate interest in assets of JV (50%)
Total assets of Jessica
P3,550,000
1,000,000
P4550,000
Total liabilities only of Jenny Co.
6-3: b
6-4: b
6-5: a
6-6: a
Investment of Heart
Profit share:
Sales
Cost of sales (150,800 125%)
Gross profit
Expenses
Net Profit
Profit/loss ratio
Balance of investment in JV
P80,000
150,800
120,640
30,160
10,000
20,160
x 40%
8,064
P88,064
Cash
Accounts receivable
Total assets
Sweet Cos, proportionate interest
Sweet Companys share in total asset
Sales
Cost of sales
Purchases
Merchandise inventory, end (50% of P10,000)
P190,000
29,360
150,800
370,160
x 60%
P222,096
7,200
P10,000
__5,000
_5,000
Gross profit
Expenses
2,200
___500
Net profit
P 1,700
104
6-7: b
6-8: a
6-9: b
Chapter 6
Original investment (cash)

Profit share (P1,700 / 2)
P10,000
___850
Balance of Investment account
P10,850
Joint venture account before profit distribution (credit balance)

Unsold merchandise
P 9,000
__2,500
Joint venture profit before fee to Salas
P11,500
Joint venture profit after fee to Salas (P11,500 / 115%)
P10,000
Fee of Salas (P10,000 x 15%)

Profit share of Salas (P10,000 x 25%)
P 1,500
_2,500
Total
P 4,000
6-10: b
6-11: d
6-12: b
Salas
Salve
Balance before profit distribution

Profit share:Sabas (P10,000 x 40%)
Salve (P10,000 x 35%)
P 500 (dr) P 2,000 (cr)

4,000
______
_3,500
Balance
P 3,500 (cr) P 5,500 (cr)
Joint venture account balance before profit distribution (debit)

Joint venture profit (P4,500 x 3)
P 6,000
_13,500
Cost of unsold merchandise (inventory) taken by Dante
P19,500
Edwin Capital:
Debits: Balance before profit distribution
Credits: Profit share
P14,000
__4,500
Due from Edwin (debit balance)
P 9,500
Joint Venture
105
Settlement to Ferdie (Balance of capital account)

Debits:
Credits: Balance before profit distribution
Profit share
P16,000
__4,500
Due to Ferdie (credit balance)

P30,000
__9,500
Balance
P19,000
P 4,600
__2,000
Joint venture profit before fee to Jerry

Joint venture profit after fee (P6,600 / 110%)
Fee to Jerry
P 6,600
__6,000
P 600
Harry Capital
Balances before profit distribution
Harry P6,000 x 50%)
Isaac (P6,000 x 20%)
(P 200)
Cash settlements
P 2,800
Isaac Capital
P 1,800
3,000
1,200
P 3,000
Sales
Cost of sales:
Merchandise inventory, beg (contributions)
Freight
Purchases
P14,000
300
__4,000

Merchandise inventory, end (P8,300/2)
P18,300
__4,150
Gross profit (loss)

Expenses (P400 + P200)
6-16: c
P39,500
_20,500
JV account balance before profit distribution (cr)

Unsold merchandise (required dr balance after profit distribution)
6-14: d
6-15: b
_20,500
P20,500
Settlement to Dante (balance of JV Cash account)

Debits: Balance before cash settlement
Due from Edwin
Credits: Due to Ferdie
6-13: a
P 0
Net profit (loss)
P14,000
14,150
(150)
__600
P( 750)
Contributions to the Joint Venture (P5,000 + P8,000)

Loss share (P750 x 50%)
Unsold merchandise taken (withdrawal)
P13,000
( 375)
( 4,150)
Final settlement to jack
P 8,475
106
Chapter 6
Problem 6 1
Books of Blanco (Manager)
JV Cash
Joint Venture
Cash
Ablan Capital
100,000
90,000
Joint Venture
JV cash
60,000
Joint Venture
JV cash
20,000
JV cash
Joint Venture
200,000
Books of Ablan
100,000
90,000
Investment in JV
90,000
Investment in JV
Profit from JV
15,000
90,000
60,000
20,000
200,000
Computation of JV Profit
Total debit to JV
Total credit to JV
P170,000
P200,000
Credit balance (Profit)
P 30,000
Distribution
Joint Venture
Profit from JV
Ablan capital
Ablan capital
JV cash
Cash
JV cash
30,000
105,000
155,000
15,000
15,000
105,000
155,000
Cash
Investment in JV
105,000
15,000
105,000
Joint Venture
107
Problem 6 2
Books of the Joint Venture
1.
Computer equipment
Ella capital
Fabia capital
2.
Purchases
Supplies
Diaz capital
80,000
2,000
3.
Expenses
Diaz capital
9,000
4.
Cash
5.
Expenses
Cash
30,000
6.
Ella capital
20,000
7.
Fabia capital
Cash
10,000
8.
Adjusting and closing entries:
105,000
150,000
Sales
(a)
Expenses
Supplies
(b)
Sales
Income summary
500
150,000
Income summary
Purchases
77,500
2,500
Income summary
Expenses
39,500
Distribution of profit:
Income summary
Diaz capital
Ella capital
Fabia capital
33,000
60,000
45,000
82,000
9,000
150,000
30,000
20,000
10,000
500
150,000
80,000
39,500
11,000
11,000
11,000
108
Chapter 6
Books of Diaz
(1)
Investment in Joint Venture

Cash
82,000
(2)

Cash
9,000
(3)
To record profit share:

Profit from Joint Venture
11,000
82,000
9,000
11,000
Books of Ella:
(1)

Computer equipment
60,000
(2)

20,000
(3)

11,000
60,000
20,000
11,000
Books of Fabia:
(1)

Computer equipment
45,000
(2)
Cash
10,000
(3)

11,000
45,000
10,000
11,000
Joint Venture
109
Problem 6 3
(1)
No Separate Set of Joint Venture Books is Used
Books of Duran (Manager)

May 1:
Joint Venture
Castro capital
Cash
12,500
7:
JV cash
Bueno capital
10,000
26: Joint Venture

JV cash
9,500
30: JV accounts receivable

Joint Venture
16,000
June 30: JV cash

JV accounts receivable
15,000
27: JV cash
Joint Venture
9,000
12,000
500
10,000
9,500
16,000
15,000
9,000
30: To record unsold merchandise taken by Duran:

Joint Venture
3,000
3,000
To record profit distribution:

Joint Venture
Profit from JV
Bueno capital
Castro capital
6,000
2,000
2,000
2,000
To record settlements:
Bueno capital
Castro capital
JV cash
Cash
Accounts receivable
JV accounts receivable
12,000
14,000
1,000
24,500
1,500
1,000
110
Chapter 6
Books of Bueno
May 7:

Cash
June 30: Investment in Joint Venture

Cash
10,000
2,000
12,000
10,000
2,000
12,000
Books of Castro
May 1:


Cash
(2)
12,000
2,000
14,000
12,000
2,000
14,000
A Separate Set of Books is used:
Books of the Joint Venture

May 1:
7:
Castro capital
Duran capital
12,500
Cash
10,000
Bueno capital
26: Purchases
Cash
30: Accounts receivable
Sales
June 20: Cash
27: Cash
Accounts receivable
Sales
9,500
16,000
15,000
9,000
12,000
500
10,000
9,500
16,000
15,000
9,000
Joint Venture
111
June 30: Closing entries:

Sales
Income summary
Income summary
Merchandise inventory, end
Purchases
25,000
19,000
3,000
25,000
12,500
9,500
Distribution of profit:
Income summary
Bueno capital
Castro capital
Duran capital
6,000
2,000
2,000
2,000
Settlements to Venturers:
Bueno capital
Castro capital
Duran capital
Accounts receivable
Cash
12,000
14,000
2,500
3,000
1,000
24,500
Books of Duran (Manager/Operator)

May 1:

Cash

Cash
Books of Bueno and Castro (Same as in No. 1 requirement)
500
2,000
2,500
500
2,000
2,500
112
Chapter 6
Problem 6 4
(1)
Books of Seiko (Manager/Operator)
April1:
JV Cash
Notes payable PNB
Roles capital
Timex capital
May:
Joint venture
Cash
Rolex capital
64,100
June:
Rolex capital
JV cash
30,000
Joint venture
Cash
Rolex capital
Timex capital
July:
August:
102,000
111,400
Cash
Rolex capital
Timex capital
JV cash
40,000
15,000
10,000
Joint venture
Cash
Rolex capital
Timex capital
55,770
Cash
Rolex capital
Timex capital
JV cash
45,000
67,000
13,500
Joint venture
Cash
Rolex capital
Timex capital
30,600
34,000
34,000
34,000
16,300
7,800
30,000
37,400
64,700
9,300
65,000
13,970
31,240
10,560
125,500
9,730
16,560
4,310
To record sales:
JV cash (P421,000 x 96%)
Joint venture
404,160
404,160
Joint Venture
113
To record payment of loan to PNB:

Notes payable PNB
Rolex capital
Timex capital
Joint venture (Interest expense)
JV cash
34,000
34,000
34,000
8,000
110,000
To record distribution of profit:

Joint venture
Gain from JV (30%)
Rolex capital (60%)
Timex capital (10%)
134,290
40,287
80,574
13,429
Computed as follows:
Total debits tot he JV account
Total credits to the JV account
P269,870
_404,160
Gain (credit balance)
P134,290
To record settlement:
Cash
Rolex capital
Times capital
JV cash
32,687
128,874
14,099
175,660
Computations:
Settlement to Rolex - Balance of capital account:
Debits: June
July
August
Payment of note payable
P30,000
15,000
67,000
_34,000
P146,000
Credits: April 1
May
June
July
August
Profit share
P34,000
47,800
64,700
31,240
16,560
_80,574
__274,874
Credit balance
P 128,874
114
Chapter 6
Settlement to timex Balance of capital account

Debits: July
August
Payment of loan
P 10,000
13,500
__34,000
P 57,500
Credits: April 1
June
July
August
Profit share
P 34,000
9,300
10,560
4,310
__13,429
_71,599
Credit balance
P 14,099
Settlement to Seiko Balance of JV cash account

Debits: April 1
Loan proceeds
P102,000
_404,160
P506,160
Credits: June
July
August
Payment of loan
P 30,000
65,000
125,500
_110,000
_330,500
Balance of JV cash
Less:Settlement to Rolex
Settlement to Timex
P128,874
__14,099
Settlement to Seiko
(2)
175,660
_142,973
P 32,687
Partial Balance Sheet

June 30, 2008
Books of Seiko (Manager/operator)
Current assets:
Investment in joint Venture:
Joint Venture assets:
Cash
Joint Venture
Less:Equity of other venturers
(P116,500 + P43,300)
Current liabilities:
Notes payable PNB
P 72,000
_175,500
P247,500
_159,800
87,700
34,000
Joint Venture
115
Computation of balances as of June 30, 2008:

JV Cash
April 1 P102,000
Balance P 72,000
P30,000
Joint Venture
June
May
June
P 64,100
_111,400
Balance P175,500
Notes Payable
P34,000
Rolex capital
April
June
P 30,000
_______
P 34,000
47,800
__64,700
P 30,000
P146,500
April 1
May
June
P116,500
Timex capital
P34,000
__9,000
April
June
P43,300
Problem 6 5
Consolidated Balance Sheet
Cash
Receivables
Inventory
Other assets
P 61,000
122,000
102,500
__40,500
Total assets
P326,000
Accounts payable
Other liabilities
Capital stock
Retained earnings
P 61,000
96,500
50,000
_118,500
Total liabilities and stockholders' equity
P326,000
Consolidated Income Statement

Sales
Cost of sales
P246,750
_124,750
Gross profit
Operating expenses
122,000
__58,250
Consolidated net income
P 63,750
116
Chapter 6
Problem 6 6
(a)
Journal entries on venture books

June 15:
Cash
1,000,000
July 1:
Land
2,400,000
Aug 1:
Cash
1,100,000
Land
950,000
Mortgage payable
Interest expense- Mortgage
Cash
Reduced mortgage and paid interest.
250,000
3,750
Mortgage payable
Cash
400,000
8,000
Mortgage payable
Cash
300,000
7,500
MacDo
Initial contribution at 6%
Mortgage payable
Cash
Purchased land for cash and 6% mortgage.
MacDo
Additional contribution at 6%.
Cash
Paid for improvements.
Sept 30:
Oct 31:
Nov 30:
Dec 31:
Mortgage payable
200,000
21,000
Cash
Reduced mortgage and make semi-annual
interest payment.
1,000,000
1,650,000
750,000
1,100,000
950,000
253,750
408,000
307,500
221,000
Joint Venture
(b)
117
31:
Cash
31:
Commissions
Cash
P2,600,000 x 5%
130,000
31:
Expenses
Cash
Paid expenses
628,100
31:
Interest expense- Venturer

MacDo
6% on P1,000,000 from June 15 to
December 31, and on P1,100,000
from August 1 to December 31.
31:
Sales
31:
Income summary
MacDo
MacEn
To divide gain, 60:40.
596,650
31:
MacDo
801,650
Sales
Sales to date.
Land (cost of land sold)

Expenses
Commissions
Interest expense- mortgage
Interest- venturer
Income summary
To close income and expense accounts.
Cash
Payment on account.
2,600,000
60,000
2,600,000
2,600,000
130,000
628,100
60,000
1,145,000
628,100
130,000
40,250
60,000
596,650
596,650
238,660
801,650
Journal entries on MacDos books:

June 15:

Cash
Initial contribution.
1,000,000
Aug 1:

Cash
Additional contribution.
1,100,000
1,000,000
1,100,000
118
Chapter 6
Dec 31:
(c)

Interest income
Interest earned on cash advanced.
60,000
31:

Gain on Joint Venture
60% of gain on venture.
357,990
31:
Cash
801,650

Repayment in part of advances.
60,000
357,990
801,650
MacDo and MacEn Joint Venture

Income Statement
For the period from June 15 to December 31, 2008
Sales
Cost of land sold:
Land
Improvements
Total
Unsold land
Gross profit
Expenses:
Advertising and office expenses
Interest on mortgage
Interest on advances
Commissions
Net gain
Distributions:
MacDo (P596,650 x 60%)
MacEn (P596,650 x 40%)
P2,600,000
P2,400,000
950,000
P3,350,000
2,205,000
P 628,100
40,250
60,000
130,000
1,145,000
1,455,000
858,350
P 596,650
P 357,990
238,660
Mac Do and MacEn Joint Venture

Balance Sheet
December 31, 2008
Assets
Cash
Land
Total Assets
P 250,000
2,205,000
P2,455,000
Liabilities and equity:

Mortgage payable
MacDo
MacEn
Total liabilities and equity
P 500,000
1,716,340
238,660
P2,455,000
Joint Venture
Venturers equity (interest)

Invested
Shares:
Gain
Interest on advances
Commissions
Total
Balances
Withdrawn
Equity (interests)
119
MacDo
P2,100,000
MacEn
Total
P2,100,000
P 357,990
60,000
P238,660
P 596,650
60,000
130,000
786,650
2,886,650
(931,650)
P1,955,000
417,990
2,517,990
(801,650)
P1,716,340
130,000
368,660
368,660
(130,000)
P238,660
120
Chapter 7
CHAPTER 7
7-1: c
7-2: d
7-3: d
7-4: a
7-5: c
7-6: a
Amount realized secured by inventory

Unsecured claim (P10,000 x 25%)
P 30,000
__2,500
Total amount received
P 32,500
Amount realized secured by inventory

Unsecured claim (P88,000 x 75%)
P120,000
__66,000
Total amount received
P186,000
(P15,000,000 + P200,000)
Realizable value:
Current assets
Land and building
Less mortgage payable
P240,000
_200,000
P 50,000
__40,000
Total
Less accounts payable
90,000
_160,000
Estimated deficiency to unsecured creditors
P 70,000
Total realizable value to unsecured creditors (P90,000)/total unsecured

Claims (P160,000) = 56.25%
Free assets:
Current assets
Buildings and equipment
Total
Liabilities with priority:
Administrative expenses
Salary payable
Income taxes
Total
P 33,000
_110,000
P143,000
P 20,000
6,000
__8,000
P 34,000
Corporation in Financial Difficulty Liquidation
Free assets after payment of liabilities with priority:

(P143,000 P34,000)
Unsecured liabilities
Notes payable
Accounts payable
Bonds payable
Total
121
P109,000
P 30,000
83,000
__70,000
P183,000
Percentage of Unsecured liabilities to be paid: P109,000 / P183,000 = 60%

Payment of notes payable:
Value of security (land)
60% of remaining P30,000
Total collected
7-7: c
Free assets:
Other assets
Excess from assets pledged with secured
Creditors (P116,000 P70,000)
Total
Liabilities with priority
Free assets after payment of liabilities with priority
(P126,000 P42,000)
Unsecured liabilities:
Excess of partially secured liabilities over pledge
Assets (P130,000 P50,000)
Unsecured creditors
Total
P 90,000
__18,000
P108,000
P 80,000
__46,000
P126,000
P 42,000
P 84,000
P 80,000
_200,000
P280,000
Recovery percentage: P84,000 / P280,000 = 30%

Payment of partially secured debt:
Value of pledged assets
30% of remaining P80,000
Total collected
P 50,000
__24,000
P 74,000
122
7-8: a
Chapter 7
The holder of Debt Two will receive P100,000 from the sale of the pledged
asset. Since the holder wants to receive P142,000 out of the total debt of
P170,000, the company must be able to generate enough cash to pay off
60% of the unsecured liabilities (P42,000/P70,000) after paying 100% of
the liabilities with priority (P110,000).
Unsecured liabilities:
Unsecured creditors
Excess liability of Debt One in excess of pledged
Asset (P210,000 P180,000)
Excess liability of Debt Two in excess of pledged
Asset (P170,000 P100,000)
P230,000
30,000
__70,000
Total unsecured liabilities

Necessary percentage
P330,000
____60%
Cash needed for these liabilities
P198,000
In order for the holder of Debt Two to received exactly P142,000, the other free assets
must be sold for P308,000. With that much money, the liabilities with priority
(P110,000) can be paid with the remaining P198,000 going to the unsecured debts of
P330,000. This 60% figure would insure that the holder of Debt Two would get
P100,000 from the pledged asset and P42,000 (P70,000 x 60%) from the free assets.
7-9: c
Estate equity, beg. (P100,000 P85,000)

Loss on realization (P100,000 P75,000)
Unrecorded liabilities:
Interest expense
Administrative expense
Estate deficit
7-10: c
P 15,000
( 25,000)
P
250
4,000
4,250)
P( 14,250)
Total assets at net realizable value

Fully secured liabilities
Estimated administrative expense
P 75,000
(40,000)
_( 4,000)
Estimated amount available

Unsecured claims (P45,000 + P250)
P 31,000
(45,250)
Estimated deficiency to unsecured creditors
P 14,250
7-11: b
7-12: b
7-13: b
7-14: a
7-15: a
7-16: b
7-17: d
7-18: d
123
Assets pledged with fully secured creditors

Fully secured creditors
Free assets
Total free assets
Less: Liabilities with priority
Available to unsecured non-priority claims
P185,000
_130,000
Machinery
Recoveries of unsecured claims (50,000 - 10,000) X .50
Amount to be realized
Notes Payable
Less: Inventories
Unsecured Liabilities
% of recovery
Recovery
Add: Inventories
Amount to be received by Wood
55,000
_160,000
215,000
__35,000
P180,000
P 10,000
__20,000
P 30,000
P 23,940
19,200
4,740
____78%
3,697
_19,200
P 22,897
- P7,000
- P30,000
- P57,200 [52,000 + (8,000 X .65)]
- P72,800 (112,000 X .65)
Estimated loss:
Account Receivable
Inventories (28,000 - 18,500)
Building (59,000 - 22,000)
Equipment (5,600 - 2,000)
Goodwill
Prepaid expenses
Less: Stockholder's equity
Common stock
Deficit
Estimated deficiency
P 8,160
9,500
7,000
3,600
5,650
___430
P 72,000
( 16,660)
P 64,340
_55,340
P 9,000
124
7-19: d
Chapter 7
Accounts Receivable (39,350 - 16, 110)

Notes Receivable (18,500 - 12,500)
Inventories (87,850 - 45,100)
Prepaid expenses
Equipment (48,800 - 9,000)
Total estimated loss
P 23,240
600
42,750
950
__39,800
P112,740
7-20: b P33,750 (95,000 - 61,250) on Land and Building

7-21: d
7-22: d
Total Free Assets:

Balance of Assets Pledged to
Fully Secured Creditor (95,000 - 90,000)
Free Assets:
Cash
Accounts Receivable
Inventories
Equipment
Total
Less: Unsecured liabilities with priority (1,850 + 4,650)
Net Free Assets
Divide by Unsecured creditors:
Balance of Partially Secured Creditor
Notes Payable - PNB
P 15,000
Notes Receivable
__12,500
Accounts Payable
52,500
Notes Payable
__51,250
Estimated recovery %
Fully secured (Notes Payable)
Partially secured:
Notes Payable - PNB
Add (2,500 X 67%)
Unsecured Creditor with Priority
Unsecured Creditor without Priority (103,750 X 67%)
Total
P 5,000
P 2,700
16,110
45,100
__9,000
__72,910
77,910
___6,500
P 71,410
2,500
103,750 P106,250
67%
P 90,000
P12,500
__1,675
14,175
6,500
__69,513
P180,188
7-23: a
7-24: a
7-25: b
7-26: a
7-27: a
7-28: a
Unsecured creditors without priority

Estimated deficiency to unsecured creditors:
Loss on realization
Estimated liquidation expenses
Total
Stockholders equity
Net free assets
Free assets
Estimated net gain (loss) on realization:
Gain on realization
Loss on realization
Estimated claims
Total
Stockholders equity
125
P1,102,500
551,250
55,125
606,375
441,000
78,750
(336,700)
Notes payable (175,000 140,000)

Unsecured liabilities (420,000 52,500)
Total
Free assets (157,500 + 210,000)
165,375
937,125
122,500
P 1,059,625
(257,950)
( 43,750)
(301,700)
295,750
P( 5,950)
P 35,000
367,500
402,500
367,500
35,000
Old receivable (net)

Old inventory
Depreciable assets- net
Total assets to be realized
P 38,000
12,000
60,000
96,000
P206,000
Old receivable
New receivable
Sales of inventory
Total asset realized
P 21,000
47,000
10,500
75,000
P153,500
Gain on sale of inventory (P75,000 60,000)

Loss on realization:
Marketable securities (12,000 10,500)
Trustees expenses
Depreciation
Net loss
15,000
1,500
4,300
16,000
(21,800)
P( 6,800)
126
(A)
Laguna Company
Statement of Affairs
October 31, 2008
Problem 7 1
Book
Value
Estimated
Assets
Realizable Value
Assets pledge for fully secured creditors:
P107,000 ... Plant assets .................................................. P67,400
Less; Fully secured liabilities...................... _ 50,400
Assets pledged for partially secured creditors:
39,000 . ... Inventories................................................... P18,000
4,000 .. ...
46,000 .. ...
2,000 .. ...
P198,000
Book
Value
Chapter 7
Free Assets:
Cash............................................................. P 4,000
Accounts, receivable ...................................
46,000
Supplies....................................................... __1,500
Total free assets...............................................
Less: Unsecured liabilities with priority..........
Net Free Assets................................................
Estimated deficiency to unsecured creditors (to balance)
Creditors'
Liabilities & Stockholders' Equity
Claim
Fully secured liabilities:
P50,400... ... Mortgage payable (including interest, P400) P50,400
Partially secured liabilities:
21,000... ... Notes payable..............................................
P21,000
Less: Inventory............................................
_18,000
Unsecured creditors with priority:
5,800... ... Wages payable
P 5,800
1,200... ... Property taxes payable ................................
_1,200
Total ............................................................
P 7,000
Unsecured creditors without priority:
60,000... ... Accounts payable ........................................
19,000... ... Notes payable..............................................
Stockholders' Equity........................................
P198,000
(B)
Creditor Group
Amount of
Claim
Unsecured liabilities with priority ....................................
P7,000
Fully secured creditors......................................................
50,400
Partially secured creditors.................................................
21,000
Unsecured creditors without priority ................................
79,000
* P18,000 + (P3,000 X 0.75) = P20,250
(C) See statement of affairs in requirement (A)
Free Assets
P17,000
_51,500
P68,500
__7,000
P61,500
_20,500
P82,000
Unsecured
Liabilities
P 3,000
60,000
19,000
_____
P82,000
Amount to
be Paid
P7,000
50,400
20,250 *
59,250
Percentage
to be paid
100.0%
100.0%
96.4%
75.0%
127
Problem 7 2
VC Corporation
Statement of Realization and Liquidation
Month Ended January 31, 2008
Assets to be realized:
Land ....................... P10,000
Building ................. 43,000
Equipment.............. 28,000
Patents.................... __4,400
Assets Acquired..............
P85,400
0
Liabilities Liquidated:
Account payable .... P14,000
Loans payable ........ __7,000
21,000
Liabilities not Liquidated:

Accounts payable... 66,000
Loans payable ........ 33,000
99,000
Gain on realization ......... ............... ___7,600

Total ............................... ............... P213,000
Assets realized:
land.............................. P
0
Building ......................
0
Equipment ...................
8,800
Patents......................... _12,000
Assets not realized:
Land ............................ P10,000
Building ...................... 43,000
Equipment ................... _13,000
P20,800
66,000
Liabilities to be Liquidated:
Accounts payable ........ P80,000
Loans payable ............. _40,000
120,000
Loss on realization ...... ..............

Total ............................ ..............
___6,200
P213,000
Accounts payable .........................

Loans payable ..............................
Estate deficit.................................
P 66,000
33,000
( 26,300)
VC Corporation
Balance Sheet
January 31, 2008
Cash ............................................... P 6,700
Land ...............................................
10,000
Building..........................................
43,000
Equipment ...................................... _13,000
Total ............................................... P 72,700
P 72,700
VC Corporation
Estate Deficit
January 31, 2008
Gain on realization ....................................................................
Loss in realization ....................................................................
Trustee's expenses ....................................................................
Net gain on realization...............................................................
Estate deficit, January 1, 2008...................................................
Estate deficit, January 31, 2008.................................................
P 7,600
( 6,200)
( 1,300)
P 100
( 26,400)
P(26,300)
128
Chapter 7
Problem 7 3
Rizal Corporation
Book
Values
Assets
Assets pledged to fully secured creditors:
P 80,000 ...... .... Land and building ..............................................
Less: Mortgage payable .....................................
50,000 ...... .... Finished Goods ..................................................
Less: Loan payable.............................................
32,000 ...... ....
12,000 ...... ....
Assets pledged to partially secured creditors:

Accounts receivable (80% x 30,000) .................
Trucks ................................................................
Totals..................................................................
Free Assets:
Cash....................................................................
AR (20% x 30,000) ............................................
Inventory Materials .........................................
Prepaid expense..................................................
Trucks ................................................................
Equipment ..........................................................
Intangible ...........................................................
Total Free Assets ....................................................
Less: Unsecured liability with priority (12,000 + 8,000)
Net free assets .........................................................
________
Estimated deficiency to unsecured creditors (to Balance)
P 292,000 ...... ....Total unsecured liabilities .......................................
4,000 ...... ....
8,000 ...... ....
36,000 ...... ....
1,000 ...... ....
8,000 ...... ....
45,000 ...... ....
16,000 ...... ....
Book
Values
Liabilities and Equity

Fully secured creditors:
P 43,000 ...... .... Mortgage payable...............................................
50,000 ...... .... Loans payable ....................................................
Total ...................................................................
Estimated
Realizable Value
P102,000
43,000
P 55,000
50,000
4,000
6,000
27,000
0
2,500
25,000
_______
Creditors'
Claim
Unsecured creditors with Priority:

Wages payable ...................................................
Taxes payable.....................................................
Totals..................................................................
12,000
8,000
20,000
Unsecured creditors:
77,000 ...... .... Accounts payable ...............................................
110,000 ...... .... Stockholder Loan ...............................................
( 38,000) ...... ....Stockholder Equity .................................................
P 292,000
Total........................................................................
5,000
64,500
P128,500
20,000
108,500
81,000
P189,500
Unsecured
Liabilities
94,000
50,000
144,000
25,000
24,000
5,000
3,500
12,000 ...... ....

8,000 ...... ....
P 59,000
24,000
3,500
27,500
Partially secured creditors':

Bank Loan ..........................................................
Less: Receivable (80% x 30,000) .......................
5,000 ...... .... Truck Loan.........................................................
Less: trucks ........................................................
25,000 ...... ....
Free
Assets
77,000
110,000
P 1,000
1,500
187,000
P189,500
129
Problem 7 4
Mapayapa Corporation
November 1
Book
Value
Assets
Assets pledged to fully secured creditors:
P60,000.... ... Investments .................................................
180,000.... ... Accounts receivable ....................................
Total ............................................................
Less: Note payable......................................
66,000.... ...
248,000.... ...
291,000.... ...
870,000.... ...
114,000.... ...
.... ...
_________
P1,839,000
Free
Assets
P 69,000
171,000
240,000
210,000
P 30,000
Free assets:
Cash............................................................. P 66,000
Accounts receivable .................................... 193,500
Merchandise inventory................................ 180,000
Plant & equipment ...................................... 330,000
Notes receivable.......................................... 108,300
Patent........................................................... __12,000
Total free assets...........................................
Less: Unsecured liabilities with priority..........
Net free asset...............................................
Estimated deficiency (to balance) ...................
Total ................................................................
_889,800
919,800
__13,800
906,000
60,300
P966,300
Creditor's
Claim
Unsecured
Liabilities
Book
Value
Liabilities & Equity

Fully secured creditors:
P 210,000.... ... Notes payable..............................................
Unsecured creditor with priority:
Accrued wages ............................................
Accrued property tax...................................
Total ............................................................
Unsecured creditor:
Account payable..........................................
Accrued expenses........................................
300,000.... ... Capital stock
__369,000.... ... Retained earnings ............................................
P1,839,000
Total ................................................................
960,000.... ...
Estimated
Realizable Value
P210,000
P 7,200
___6,600
P 13,800
P960,000
6,300
_______
P966,300
130
Chapter 7
Problem 7 5
a.
b.
Total fair value of assets (estimated proceeds) ..........................

Less:Fully and partially secured creditors claim:
Notes payable, interest (secured by receivable and
inventory) ................................................................... 125,000
Bonds payable (secured by land & building).................... 231,000
Available to unsecured creditors................................................
Less:Unsecured creditors with priority:
Wages payable ..................................................................P 9,500
Taxes payable....................................................................__14,000
Amount available to unsecured creditors...................................
P471,000
__23,500
P 91,500
Unsecured portion of notes payable and interests (P195-P125)

Accounts payable.......................................................................
Total claims of unsecured creditors ...........................................
P 70,000
__95,000
P165,000
356,000
115,000
P91,500
= 55.45%
P165,000
c.
Distribution of P471,000:
Creditors
Accounts payable
Wages payable
Taxes payable
Notes payable & interests
Amount
P 95,000....
9,500 ....
14,000.....
125,000 ....
70,000
Bonds payable & interests
231,000 ....
Total estimated payment........................................
Percent
Realized
55.45%
100%
100%
100%
55.45%
100%
Total
Payment
P 52,678
9,500
14,000
125,000
38,815
_231,000
P470,993
1.
Evergreen Company
June 30, 2008
Book
Values
P460,000
80,000
140,000
100,000
120,000
100,000
131
Problem 7 6
Estimated
Realizable
Values
ASSETS
Pledged with fully secured creditors:
Land and building.....................................
P340,000
Less: Mortgage payable (including accrued interest)
(330,000)
Free Assets:
Cash .........................................................
P 80,000
Accounts receivable net.........................
126,000
Inventories ................................................
84,000
Machinery net ........................................
40,000
Goodwill ...................................................
_ _____0_
Available for
Unsecured
Creditors
P 10,000
330,000
Total free assets ........................................ ...................

Less: liabilities with priority..................... ...................
340,000
_140,000
Net free assets .......................................... ...................

Estimated deficiency (Squeeze figure) ..... ...................
200,000
_130,000
P1,000,000
P330,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured &
Priority
Claims
P120,000
20,000

Wages payable ..........................................
Property taxes payable..............................
300,000
30,000
Total .........................................................
Fully secured creditors
Mortgage payable .....................................
Interest on mortgage payable....................
220,000
100,000
10,000
Total .........................................................
P330,000
Unsecured creditors
Accounts payable...................................... ...................
Note payable-unsecured............................ ...................
Interest payable-unsecured ....................... ...................
Stockholders' Equity
400,000 Capital stock .............................................
(200,000) Retained earnings (deficit)........................ ...................
Unsecured
Non-priority
Liabilities
P120,000
__20,000
P140,000
300,000
__30,000
P220,000
100,000
10,000
___
P330,000
P1,000,000
2.
Settlement per peso of unsecured creditors is P.6250 (P200,000/P320,000). No payment is

made for the P10,000 unsecured interest claim.
Chapter 7
132 ____
Problem 7 7
1.
Entries on trustee's books.

2008
March 1:
Cash ............................................... ........P8,000
Accounts receivable net .............. ........16,000
Inventories ..................................... ........72,000
Land ............................................... ........40,000
Buildings net ............................... ......200,000
Intangible assets............................. ........52,000
Accounts payable .................... ...................
Note payable............................ ...................
Deferred revenue ..................... ...................
Wages payable......................... ...................
Mortgage payable.................... ...................
Estate equity ............................ ...................
To record custody of Kimerald Corporation.
March 1 to 31:Cash ............................................... ........15,200
Estate equity................................... .............800
Accounts receivable-net .......... ...................
To record collection of receivables and recognize loss.
Cash ............................................... ........38,800
Estate equity................................... ........33,200
Inventories............................... ...................
To record sale of inventories at a loss.
Cash ............................................... ......180,000
Estate equity................................... ........60,000
Land......................................... ...................
Buildings-net ........................... ...................
To record sale of land and buildings at a loss.
Estate equity................................... ........52,000
Intangible assets ...................... ...................
To write off intangible assets.
Estate equity ........................................ ......... 16,400
Administrative expenses payable . ....................
To accrue trustee expenses.
P100,000
80,000
2,000
6,000
160,000
40,000
16,000
72,000
40,000
200,000
52,000
16,400
2.
133
Financial Statements
Kimerald Corporation in Trusteeship
Balance Sheet
March 31, 2008
Assets
Cash ..................... ................................................. ...................
P242,000
Liabilities and Deficit

Accounts payable. ................................................. ...................
Note payable-unsecured......................................... ...................
Revenue received in advance................................. ...................
Wages payable ..... ................................................. ...................
Mortgage payable ................................................. ...................
Administrative expense payable-new .................... ...................
P100,000
80,000
2,000
6,000
160,000
__16,400
Total liabilities ..... ................................................. ...................

Less: Estate deficit................................................. ...................
P364,400
_122,400
Total liabilities net of deficit.................................. ...................
P242,000

Statement of Cash Receipts and Disbursements
March 1 to 31, 2008
Cash balance, March 1, 2008................................. ...................
Add: Cash receipts
Collections of receivables ............................. .....P 15,200
Sale of inventories......................................... ........38,800
Sale of land and buildings............................. ......180,000
P 8,000
Total..................... ................................................. ...................

Less: Cash disbursements ...................................... ...................
242,000
____0
Cash balance, March 31, 2008............................... ...................
P242,000
_234,000

Statement of Changes in Estate Equity
March 1 to 31, 2008
Estate equity, March 1 ........................................... ...................
Less:Loss on uncollectible receivables.................. .......P 800
Loss on sale of inventories............................ ........33,200
Loss on sale of land and buildings ................ ........60,000
Loss on write off of intangibles .................... ........52,000
Administrative expenses ............................... ......_16,400
P 40,000
Estate deficit, March 31......................................... ...................
P122,400
_162,400
134
3.
Chapter 7
Entries on trustee's books:

2008
April: Mortgage payable ..................................... ......160,000
Cash.................................................. ...................
To record payment of secured creditors from
proceeds from sale of Land and buildings.
Administrative expenses payable-new...... ........16,400
Deferred revenue ...................................... ..........2,000
Wages payable .......................................... ..........6,000
Cash.................................................. ...................
To record payment of priority liabilities.
Accounts payable...................................... ........32,000
Note payable-unsecured............................ ........25,600
Cash.................................................. ...................
To record payment of P.32 per peso to unsecured
creditors (available Cash of P57,600 divided by
unsecured claims of P180,000).
Accounts payable...................................... ........68,000
Note payable-unsecured............................ ........54,400
Estate equity..................................... ...................
To write-off remaining liabilities and
close trustee's records.
160,000
24,400
57,600
122,400
CHAPTER 8
Reorganization and Troubled Debt Restructuring
8-1: a
Trade accounts payable (P52,000 + P62,700)

12% preferred stock (5,000 x P1)
Paid in capital in excess of par (5,000 x P9)
Cash (P62,700 x P0.80)
Gain from discharge of indebtedness
P 5,000
45,000
_50,160
P114,700
_100,160
P 14,540
8-2: c
8-3: c
8-4: b
8-5: d
8-6: a
8-7: a
8-8: a
Carrying value of the note payable:

Principal
Interest
Restructured value:
Principal
Interest
Gain on debt restructuring
P600,000
__60,000
P400,000
_110,000
P150,000
Other income:
Fair value of land
Books value of land
Other income
P450,000
_360,000
Extraordinary gain:
Book value of note payable
Principal
Interest
Fair value of land
Extraordinary gain
P500,000
__60,000
Book value of bonds payable

Par value of preferred stock (5,000 shares x P100)
No gain no loss
Book value of notes payable:
Principal
Interest
Par value of common stock issued (200 shares x P5)
Additional paid in capital
Add gain on payment of accounts payable:
Book value
Payment
Total gain on debt discharge
Carrying value of debt:
Note payable
Interest payable
Fair value machinery
Balance of debt
Restructured debt:
Note payable
P660,000
_510,000
P 90,000
P560,000
_450,000
P110,000
P500,000
_500,000
P
0
P 2,500
___500
P 10,000
__8,000
P100,000
__12,000
P 50,000
P 3,000
__1,000
P 2,000
__2,000
P 4,000
P112,000
_(36,000)
P 76,000
Interest (P50,000 x .08 x 2)

Restructuring difference (gain)
8-9: d
8-10: c
___8,000
Principal
Interest payable (300,000 x 10%)
Carrying value
__58,000
P 18,000
P300,000
__30,000
P330,000
Should be P310,600
Restructured principal of note payable
Interest payable:
On book value (P300,000 x 10% 30%)
On restructured (P260,000 x 8% x 2)
Future cash flows to liquidate the debt
P260,000
P 9,000
_41,600
__50,600
P310,600
8-11: d
8-12: d
Loss on transfer of land:

Original cost
Market value
Gain on restructuring of debt:
Carrying value of debt
Market value of land
8-13: a
8-14: d
8-15: d
8-16: c
8-17: a
8-18: a
P290,000
_270,000
P300,000
_270,000
Transfer gain (loss):

Carrying amount of equipment
Fair value of equipment
Transfer loss
P80,000
75,000
P(5,000)
Restructuring gain:
Carrying amount of the debt
Fair value of equipment transferred
Restructuring gain
P100,000
75,000
P 25,000
Carrying amount of real estate transferred

Fair value of real estate
Loss on restructuring of payables
P100,000
90, 000
P(10,000)
Carrying amount of liability

Fair value of real estate transferred
Restructuring gain
150,000
90,000
P 60,000
Gain on revaluation of land (120,000 85,000)

Gain on the extinguishment of debt (185,000 120,000)
Total gain
P 35,000
65,000
P100,000
Carrying value of debt (P800,000 + 80,000)

Total future payments (P700,000 + 80,000)
Restructuring gain
P880,000
780,000
P100,000
First determine the expected future cash flows as follows:

70,000 x .79719 =
P55,803
5,600 x 1.69005 =
9,464
P 30,000
P 20,000
Present value of future cash flow
P65,267
The interest revenue can be computed using the effective interest method
as follows:
Present value at 12/31/06
P65,267
Interest income at 12/31/07 (65,267 x 12%)
7,832
Interest receivable at 12/31/07 (70,000 x 8%)
5,600
2,232
Present value at 12/31/07
P67,499
Interest income at 12/31/08 (67,499 x 12%)
P 8,100
Problem 8 1
Journal entries for com pany em erging from bankruptcy using fresh start accounting:
Receivables . ....... ...... .............................................................................................. 10,000

Inventory ..... ....... ...... .............................................................................................. 10,000
Building ..... ....... ...... . ... ........................................................................ 100,000
Reorganization value in excess of amount
Allocable to tangible assets ............................................................................... 60,000
Additional paid in capital ..........................................................................
180,000
To adjust accounts to market value as part of fresh start accounting. Since the company has a reorganization value of
P760,000 but the assets have a market value of only P700,000 (P90,000 + P210,000 + P400,000), and account entitled
Reorganization Value in Excess of Amount Allocable to Tangible Assets must be recorded for P60,000.
Liabilities .... ........ .....
300,000
Common stock (P330,000 x 80%).....................................................................
Gain on debt discharge ......................................................................................
To record settlement of liabilities.
2008
July 14:
264,000
36,000
Problem 8 2
Costs of reorganization...................................................................................... 50,000
Cash with escrow agent .............................................................................
50,000
Common stock .............................................................................................. 580,000

Common stock (60,000 x P1) ....................................................................
60,000
520,000
Note payable 10% ........................................................................................ 120,000

Interest payable (P120,000 x 10% x 3/12)......................................................... 3,000
Note payable 12%...................................................................................
123,000
Trade accounts payable .................................................................................... 100,000

Cash P100,000 x 0.80)...............................................................................
Gain on debt discharge ..............................................................................
80,000
20,000
Additional paid in capital ................................................................................. 290,000

Gain on debt discharge ...................................................................................... 20,000
Retained earnings ......................................................................................
260,000
Costs of reorganization..............................................................................
50,000
Jade Corporation
Balance Sheet
December 31, 2008
Problem 8 3
ASSETS
Current assets:
Cash .............. ..... ....... ...... ....................................................................P 23,000
Inventory.......... ..... ....... ...... ....................................................................__45,000 P 68,000
Property and equipment:
Land .............. ..... ....... ...... ....................................................................140,000
Buildings.......... ..... ....... ...... ....................................................................220,000
Equipment........ ..... ....... ...... ...................................................................._154,000_514,000
Total assets ...... ..... ....... ...... ....................................................................
P582,000
Liabilities not subject to compromise
Accounts payable... ....... ...... ....................................................................P 60,000
Long-term liabilities:
Note payable (2006)....... ...... P100,000
Note payable (2003)....... ...... _100,000..................................................... 200,000
Liabilities subject of compromise
Accounts payable... ....... ...... ....................................................................123,000
Accrued expenses .. ....... ...... .................................................................... 30,000
Income taxes payable..... ...... .................................................................... 22,000
Note payable (due 2008) ...... _170,000..................................................... 345,000
Total liabilities . ..... ....... ...... ....................................................................
Stockholders' Equity
Common stock . ..... ....... ...... ....................................................................200,000
Retained earnings (deficit).... .................................................................... (223,000)
Total liabilities and stockholders' equity (deficit) ......................................
Problem 8 4
Preliminary computations:
Book values prior to reorganization:
Total assets (P100,000 + P112,000 + P420,000 + P78,000)......................................
Total liabilities (P80,000 + p35,000 + P100,000 + P200,000 +
P185,000 + P200,000).......................................................................................
Common stock (given) ..............................................................................................
Deficit (given)
..............................................................................................
Book values after reorganization:
Total assets (reorganization value) ............................................................................
Total liabilities (P5,000 + P4,000 + P100,000 + P50,000 +
P71,000 + P110,000).........................................................................................
Common stock (returned shares are reissued) ...........................................................
Deficit (eliminated) ..............................................................................................
Additional paid in capital (squeeze) ..........................................................................
P260,000
605,000
(23,000)
P582,000
P710,000
P800,000
P240,000
P330,000
P780,000
P340,000
P240,000
0
P200,000
Since the company will have 30,000 shares outstanding after the reorganization, the additional paid in capital equals P6.66 per
share.
Because the company has a reorganization value of P780,000 but the assets have a market value of only P735,000, an account
entitled Reorganization Value in Excess of Amount allocable to Tangible Assets must be recognized for P45,000.
JOURNAL ENTRIES:
1.
Land and buildings
.............................................................................................. 80,000
Reorganization Value in excess of amount
allocable to tangible assets ................................................................................ 45,000
Accounts receivable...................................................................................
Inventory ..............................................................................................
Equipment ..............................................................................................
To adjust accounts to market value as part of fresh start accounting.
20,000
22,000
13,000
70,000
2.
Common stock .... ...... .............................................................................................. 144,000

Additional paid in capital ..................................................................................
144,000
To record shares turned in to the company by the owners as part of the reorganization plan. 18,000 shares at P8 par
value.
3.
Accounts payable ...... ............................................................................................ 80,000

Note payable ...... ..............................................................................................
Common stock, P8 par value.............................................................................
Additional paid in capital (P6.66 per share) ......................................................
To record settlement of accounts payable.
5,000
8,000
6,666
60,334
4.
Accrued expenses ...... .............................................................................................. 35,000

Note payable ...... ..............................................................................................
To record settlement of accrued expenses.
4,000
31,000
5.
Note payable ....... ...... .............................................................................................. 200,000

Note payable ...... ..............................................................................................
Additional paid in capital (P6.66 per share) ......................................................
To record settlement of note payable due in 2007
50,000
80,000
66,667
3,333
6.
Note payable ....... ...... .............................................................................................. 185,000

Note payable ...... ..............................................................................................
Additional paid in capital, P6.66 per share........................................................
71,000
56,000
46,667
11,333
Problem 8 5
7.
Note payable ....... ...... .............................................................................................. 200,000

Note payable ...... ..............................................................................................
8.
Additional paid in capital (P334,000 P200,000)..................................................... 134,000

Gain on debt discharge .............................................................................................. 196,000
Retained earnings (deficit) ................................................................................
330,000
To adjust additional paid in capital to appropriate balance, close out gain, and eliminate deficit balance as part of fresh
start accounting.
110,000
90,000
Since the Company has a reorganization value of P800,000 but only P653,000 can be assigned to specific assets based on market
value, the remaining P147,000 is reported as a Reorganization Value in Excess of Amount Allocable to Identifiable Assets.
Sun Corporation
Balance Sheet Fresh Start Accounting
December 31, 2008
ASSETS
Current assets
Accounts receivable....... ...... .............................................................................................. P 18,000
Inventory ....... ..... ....... ...... .............................................................................................. _111,000
Land and buildings ....... ...... .............................................................................................. 278,000
Machinery ....... ..... ....... ...... .............................................................................................. 121,000
Intangible assets
Patents
....... ..... ....... ...... .............................................................................................. 125,000
Reorganization value in excess of amount allocable To identifiable assets ......................... _147,000
P129,000
399,000
_272,000
Total assets ...... ..... ....... ...... ..............................................................................................
P800,000

Current liabilities
Accounts payable... ....... ...... .............................................................................................. P 97,000
Long-term liabilities
Note payable (due in 2 years) .............................................................................................. P 35,000
Note payable (due in 5 years) .............................................................................................. 50,000
Note payable (due in 8 years) .............................................................................................. 100,000
Total liabilities . ..... ....... ...... ..............................................................................................
_185,000
P282,000
Stockholders' Equity:
Common stock . ..... ....... ...... .............................................................................................. P500,000
Additional paid in capital (squeeze)..................................................................................... __18,000
Total liabilities and stockholders' equity..............................................................................
_518,000
P800,000
CHAPTER 9
Installment Sales
9-1: d

Deferred gross profit, Dec. 31 (before adjustment)
Less:
Deferred gross profit, Dec. 31 (after adjustment)
Installment accounts receivable, Dec. 31
Gross profit rate
Realized gross profit, 2008
OR
Installment Sales (P1,050,000
Less: Installment account receivable, Dec. 31
Collection
Gross profit rate
Realized gross profit, 2008
9-2: a
9-3: c
9-4: b
9-5: a
9-6: a
Deferred gross profit, before adjustment

Deferred gross profit, end
2006 (6,000 X 35%)
2007 (61,500 X 33%)
2008 (195,000 X 30%)
Realized gross profit, December 31, 2008
(Total P107,235)
P1,050,000
P1,500,000
____
__375,000
P 675,000
P4,200,000
__1,500,00
P2,700,000
___X 25%
P 675,000
2006
P7,230
2,100
P5,130
2007
P 60,750
20,295
P 40,455
2008
P 120,150
___58,500
P 61,650
Deferred gross profit balance, end

Divide by Gross profit rate based on sales (25%
Installment Accounts Receivable, end
Collection
Installment Sales
P 202,000
____
P1,010,000
___440,000
P1,450,000
Sales
Cost of installment sales
Deferred gross profit
Less:
Installment accounts receivables, 12/31
(1,000,000-400,000)
Gross profit rate (300,000
Realized gross profit
Operating expenses
Operating income
Interest and financing charges
Net income
P1,000,000
__700,000
P 300,000
Market value of repossessed merchandise

(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000)
Less: Deferred gross profit (50,000X20%)
Loss on repossession
Installment sales
Less: collection on installment sales
Installment account receivables, 12/31/08
Gross profit rate (500,000
Deferred gross profit, 12/31/08
P 600,000
___X 30%
__180,000
P 120,000
___80,000
40,000
__100,000
P 140,000
P 30,000
P 50,000
___10,000
__40,000
(P 10,000)
P1,000,000
__200,000
800,000
___X 50%
P 400,000
OR
9-7: d
9-8: b
Deferred gross profit (1,000,000-500,000)

Less: Realized Gross Profit (200,000 X 50%)
P500,000
_100,000
P400,000
Fair value of repossessed merchandise

Less:
unrecovered cost
Unpaid balance
Less: Deferred gross profit (200,000 X 32.5%)
P120,000
Realized gross profit:

Collections:
Downpayment
Installment received (205,000-200,000)
Total
Gross Profit Rate (150,000
Gain (loss) on repossession:
Appraised value of repossessed merchandise
unpaid balance
less: deferred gross profit (200,000 X 62.5%)
Gain on repossession
9-9: b
P 200,000
___65,000
Sch.1
Date
Apr-1
Apr-1
May-1
Jun-1
Jul-1
Aug-1
Collection
P 35,000
___5,000
40,000
_X 62.5%
P 25,000
P165,000
P 200,000
__125,000
Applying
to
Interest
Applying
to
principal
125.00
115.00
104.80
__94.40
P439.20
750.00
500.00
510.00
520.20
___530.60
P2,810.80
750
625
625
625
625
Gain (loss) on repossession:

Market value of repossessed merchandise
unpaid balance of principal (sch. 1)
less: deferred gross profit (4,189 X 35%)
Loss on repossession (rounded)
Deferred gross profit (Sales X Gross Profit Rate)

2007
(P300,000 X 30%)
2008
(P450,000 X 40%)
2007:
Accounts written-off (P25,000 X 30%)
Realized gross profit (P100,000 X 30%)
__75,000
P 90,000
Balance
of
principal
P7,000.00
6,250.00
5,750.00
5,240.00
4,719.80
4,189.00
P 1,875
P 4,189
__1,466

Collection applying to principal (sch. 1)
Gross profit rate
9-10: c
_135,000
(P 15,000)
___2,723
(P 848)
P2,810.80
__X 35%
P 983.78
Year of Sales
2007
P 90,000
( 7,500)
( 30,000)
2008
P 180,000
2008:
Accounts written-off, 2007 (P75,000 X 30%)

Accounts written-off, 2008 (P50,000 X 40%)
Realized gross profit, 2007 (P50,000 X 30%)
Deferred gross profit, 12/31/08 (P75,000)
9-11: a
( 22,500)
( 15,000)
________
P 15,000
Deferred gross profit, 2007 (P1,050,000 - 735,000)

Realized gross profit, 2008 (P390,000-90,000) X 30%
2007
P 480,000
( 252,000)
( 180,000)
_______
P 48,000
Deferred gross profit (Sales - Cost of Installment Sales)

Deferred gross profit, 12/31/08 (P228,000)
Trade-in value
Less:
Actual value
Estimated selling price
Less: reconditioning cost
normal gross profit (25,000 X 15%)
Overallowance
Collection:
Downpayment
Actual value of merchandise-Trade In
Installment collected (5,000 X 3)
9-15: a
P 1,250
__3,750
9-16: a
( 270,000)
P180,000
P 25,000
___5,000
P 5,000
20,000
_15,000
__20,000
P 10,000
P 40,000
P 85,000
( 10,000)
P 75,000
_60,000
P 15,000
___X 20%
P 8,000
Collection excluding interest (P900,000-P300,000)

Gross profit rate (P1,200,000
00,000)
Realized Gross Profit, December 31, 2008
Add Interests
Total Revenue
Wholesale value of repossessed merchandise
Less:
unrecovered cost
Unpaid balance:
Sales, 10/1/07
Collection, 2007 (6,000
Collection, 2008 (1,000 X 7)
Deferred gross profit (9,000 X 25%)
2008
P450,000
P 30,000
Gross Profit Rate:

Sales
Overallowance
Net Sales
Cost of Installment Sales
Gross Profit
Gross Profit Rate (15,000
Realized Gross Profit
9-14: c
( 60,000)
P 60,000
P 315,000
( 45,000)
270,000
( 90,000)
P 180,000
9-12: a
9-13: c
( 60,000)
P 600,000
X 33 1/3%
200,000
__300,000
P 500,000
P
P 24,000
( 8,000)
( 7,000)
P 9,000
__2,250
4,000
___6,750
(P 2,750)
Trade-in Value (P300 X 6)

Less:
Actual value
Estimated selling price (P315 X 6)
Less: Reconditioning cost (P25 X 6)
Gross Profit (P1,890 X 10%)
Over-allowance
9-17: a
9-18: d
9-19: b
Deferred gross profit, before adjustment

2007: P32,500 X (30%
2008: P180,000 X (33 1/3%
Realized gross profit on installment sales
P
P150
_189
1,800
P 1,890
___339
___1,551
P
249
P 76,000
P 7,500
_45,000
__52,500
P 23,500
Unpaid balance (P27,000 - P16,000)

Multiply by gross profit rate (P734,400
Deferred gross profit to be cancelled on repossession
P 11,000
___X 34%
P 3,740
Collection:
2007
Downpayment
2008
Installment collection
Interest
Total
P 600,000
600,000
__540,000
P1,740,000
Cost to be recovered
P4,000,000
Since cost is not yet fully recovered, then no gross profit is to be recognized in 2008.
9-20: d
9-21: a
9-22: a
Regular Sales
Cost of regular sales
Gross profit on regular sales
Add: Realized gross profit on installment sales
2007 (25,000 X 50%)
2008 (62,500 X 55%)
Total realized gross profit
Operating expenses
Net income, 12/31/08
Installment sales 2007
Collections:
Down payment (20% x 785,000)
Installment (40% x 628,000)
Installment accounts receivable 2007, 12/31/07
Gross profit rate on sales
Deferred gross profit- 2007, 12/31/07
Regular sales
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%)
Installment accounts receivable-12/31/08
Collections
Gross profit on rate on sales
P 187,500
__112,500
P 75,000
P12,500
_34,375
__46,875
121,875
___31,250
P 90,625
P785,000
P157,000
251,200 408,200
376,800
35/135
P 97,689
P1,575,000
1,050,000
525,000
2,625,000
1,575,000
1,050,000
140/240
612,500
9-23: a

Operating expenses (1,137,500 x 70%)
Net income
1,137,500
796,250
P 341,250
Regular sales
Realized gross profit on installment sales:
Collections excluding Interest (312,000 24,000)
Gross profit rate (270,000/900,000)
Fair value of repossessed merchandise
Less: Unrecovered cost (100,000 x 70%)
Total realized GP after loss on repossession
Less: Operating expenses
Installment accounts written-off (44,000 x .70)
Net operating income
Interest income
Net income
P375,000
215,000
160,000
288,000
30%
86,400
246,400
54,000
70,000
( 16,000)
230,400
72,000
30,800
102,800
127,600
24,000
P151,600
Problem 9 1
Journal Entries:
Installment A/R2006...........................
Installment A/R2007
Installment A/R2008...........................
Installment Sales ...........................
2006
104,000
104,000
2007
116,000
116,000
2008
121,000
121,000
Cost of Installment Sales ......................

Inventory.......................................
64,480
64,480
68,440
68,440
73,810
73,810
Cash ......................................................
Installment A/R2006
Installment A/R2007...................
Installment A/R2008...................
Interest Revenue ...........................
66,980
57,200
9,780
125,520
29,120
71,920
_
24,480
145,460
15,000
26,680
76,230
27,550
Installment Sales ...................................

Cost of Installment Sales ..............
Deferred Gross Profit2006 ..........
104,000
64,480
39,520
116,000
68,440
47,560
121,000
73,810
47,190
Deferred Gross Profit2006..................

Realized Gross Profit ....................
Computations:
2006:
P57,200 X .38
21,736
21,736
P21,736
2007:
P29,120 X .38
P71,920 X .41
Total RGP
=
=
P11,066
29,987
P40,553
2008:
P15,000 X .38
P26,680 X .41
=
=
P 5,700
10,939
11,066
29,487
40,553
5,700
10,939
29,730
46,369
P76,230 X .39
Total RGP
2007:
2008:
29,730
P46,369
Problem 9 2
Inventory ........................................................................................................... 45,200
Cash...........................................................................................................
Notes Receivable 2007 (P32,000 + P62,000 + 3,600) ....................................... 97,600
Unearned Interest Revenue (P7,167 + P3,600)..........................................
Installment Sales........................................................................................
Cost of Installment Sales (P45,200 P2,000 inventory increase) ..................... 43,200
Inventory ...................................................................................................
Cash..... ............................................................................................................. 35,600
Notes Receivable 2007 ..............................................................................
Unearned Interest Revenue 2007....................................................................... 3,600
Interest Revenue ........................................................................................
Installment Sales ............................................................................................... 86,833
Cost of Installment Sales ...........................................................................
Deferred Gross Profit on Installment Sales2007......................................
Deferred Gross Profit on Installment Sales2007 ............................................. 16,080*
Realized Gross Profit on Installment Sales................................................
*Gross profit percentage: 50.25% (P43,633
3)
.5025 x 32,000 = P16,080
Inventory ........................................................................................................... 52,020
Cash...........................................................................................................
Notes Receivable2008 ..................................................................................... 89,5001
Unearned Interest Revenue........................................................................
Installment Sales........................................................................................
160,000 + (P50,000 + P5,500) P26,000* = 89,500
*2007 Notes receivable collected in 2008
2Interest revenue from 2007 notes: P7,167 P5,579 = P1,588
Interest revenue from 2008 notes: P5,500 P1,588 = P3,912
Discount on notes receivable at end of 2008 ..................................................... P 8,043
Interest revenue from 2008 notes (see above) ................................................... 3,912
Total discount at time of sale............................................................................. P11,955
Cost of Installment Sales (P52,020 P8,000) ................................................... 44,020
Inventory ...................................................................................................
Cash..... ............................................................................................................. 55,500
Notes Receivable2007 (P62,000 P36,000) ...........................................
Notes Receivable2008 .............................................................................
* P89,500 P60,000 = P29,500
Discount on Notes Receivable2007................................................................. 1,588
Discount on Notes Receivable2008................................................................. 3,912
Interest Revenue ........................................................................................
Installment Sales ............................................................................................... 77,545
Cost of Installment Sales ...........................................................................
Deferred Gross Profit on Installment Sales2008......................................
Deferred Gross Profit on Installment Sales2007 (P26,000
P1,538 = P24,412; P24,412 x .5025) .............................................................. 12,267
Deferred Gross Profit on Installment Sales2008 ............................................. 11,062*
Realized Gross Profit on Installment Sales................................................
profit percentage: 43.23% (P33,525 P77,545)
.4323 x (P29,500 P3,912) = P11,062
1.
2006:
Gross profit rate
2007:
Gross profit rate
Deferred gross profit, 1/1
Install. contracts rec'l, 1/1

P24,000
P60,000
P24,000
40%
42%
45,200
10,767
86,833
43,200
35,600
3,600
43,200
43,633
16,080
52,020
11,9552
77,545
44,020
26,000
29,500*
5,500
44,020
33,525
23,329

2008:
2.
Gross profit rate
Gross profit
=
=
Installment sales
P140,000
P86,000
=
P200,000
Journal Entries:
Accounts Receivable .................................................................................................
Sales .... .............................................................................................................
Installment Contracts Receivable 2008 ..................................................................
Installment Sales ...............................................................................................
Cost of Installment Sales...........................................................................................
Shipments on Installment Sales.........................................................................
Purchases..... .............................................................................................................
Cash..... .............................................................................................................
Selling Expenses .......................................................................................................
Cash..... .............................................................................................................
Cash....... ..... .............................................................................................................
Accounts Receivable .........................................................................................
Installment Contracts Receivable 2006 ..........................................................
Adjusting Entries:
Installment Sales .......................................................................................................
Cost of Installment Sales ...................................................................................
Deferred Gross Profit on Installment sales 2008 ............................................
Deferred Gross Profit 2006 (P40,000 x 40%).........................................................
Deferred Gross Profit 2007 (P80,000 x 42%).........................................................
Deferred Gross Profit 2008 (P110,000 x 43%).......................................................
Realized Gross Profit.........................................................................................
Doubtful Accounts Expense (1/4 x 1% x P600,000) .................................................
Allowance for Doubtful Accounts.....................................................................
Closing Entries:
Sales ...... ..... .............................................................................................................
Merchandise Inventory, December 31.......................................................................
Shipments on Installment Sales.................................................................................
Merchandise Inventory, January 1.....................................................................
Purchases...........................................................................................................
Selling Expenses ...............................................................................................
Doubtful Accounts Expense ..............................................................................
Income Summary ..............................................................................................
Realized Gross profit.................................................................................................
Income Summary ..............................................................................................
Income Summary ......................................................................................................
Retained Earnings .............................................................................................
3.
43%
600,000
200,000
114,000
476,000
210,000
790,000
200,000
16,000
33,600
47,300
1,500
600,000
260,000
114,000
96,900
143,400
600,000
200,000
114,000
476,000
210,000
560,000
40,000
80,000
110,000
114,000
86,000
96,900
1,500
240,000
476,000
210,000
1,500
46,500
96,900
143,400
Good Buy Mart

Income Statement
Sales ...... ..... .............................................................................................................
Cost of sales:
Merchandise inventory, January 1.....................................................................
Purchases...........................................................................................................
Cost of goods available for sale.........................................................................
Less Shipments on installment sales..................................................................
Cost of goods available for regular sales ...........................................................
Less Merchandise inventory, December 31.......................................................
Gross profit on regular sales......................................................................................
Add Realized gross profit on installment sales (Schedule 1).....................................
Total realized gross profit..........................................................................................
P600,000
P240,000
476,000
716,000
114,000
602,000
260,000
342,000
258,000
96,900
354,900
Operating expenses:
Selling expenses ................................................................................................
Doubtful accounts expense................................................................................
Net income .............................................................................................................
Schedule 1
Collections ..............................................
Multiply by Gross profit rate......................
Realized gross profit...................................
4.
2006
P40,000
40%
P16,000
210,000
1,500
Years of Installment Sales

2007
2008
P80,000
P110,000
42%
43%
P33,600
P 47,300
Good Buy Mart

Balance Sheet
December 31, 2008
A s s e t s
Cash....... ..... .............................................................................................................
Merchandise inventory..............................................................................................
Accounts receivable ..................................................................................................
Allowance for doubtful accounts...............................................................................
Installment contracts receivable 2006 ....................................................................
Other assets .............................................................................................................
Total Assets .......................................................................................................
Liabilities and Equity
Liabilities:
Accounts payable ..............................................................................................
Deferred gross profit on installment sales 2006 .............................................
Total Liabilities .................................................................................................
Equity:
Capital stock......................................................................................................
Retained earnings ..............................................................................................
Total Liabilities and Equity ...............................................................................
P 62,000
3,500
200,000
211,500
P143,400
Total
P 96,900
P144,000
260,000
58,500
20,000
60,000
90,000
P832,500
P 60,000
8,000
25,200
38,700
131,900
P406,000
294,600
700,600
P832,500
Problem 9 4
1.
2.
2007: GP rate
2008: GP rate
Gross profit
Installment sales
=
=
P21,600 + P1,200
P24,000 + P52,000
P150,000 P97,500
P150,000

Deferred Gross Profit, 2008 ..............................................................................
Deferred Gross profit, 2007.......................................................................................
Deferred Gross Profit, 2008 ......................................................................................
Computation:
Installment contracts receivable, 1/1 ............................
Less Installment contracts receivable, 12/31 ................
Total credit for the period.............................................
Less Credit representing repossession ..........................
Credit representing collections .....................................
2007
Sales
P76,000
24,000
52,000
4,000
P48,000
=
=
P22,800
P76,000
30%
P52,500
P150,000
35%
150,000
14,400
25,900
2008
Sales
P150,000
76,000
74,000
P 74,000
97,500
52,500
40,300
Total
Multiply by Gross profit rate ........................................

Realized gross profit.....................................................
30%
P14,400
35%
P 25,900
Sales ...... ..... .............................................................................................................

Realized Gross Profit ................................................................................................
Loss on Repossession........................................................................................
Cost of Sales......................................................................................................
Selling and Administrative Expenses ................................................................
Income Summary ..............................................................................................
Income Summary ......................................................................................................
3.
212,000
40,300
20,900
P 40,300
400
165,000
66,000
20,900
20,900
Apple Company
Income Statement
Sales ...... ..... ............................................................................................................. ....................
Cost of sales ............................................................................................................. ....................
Gross profit on regular sales...................................................................................... ....................
Add Realized gross profit on installment sales (Schedule 1)..................................... ....................
Total realized gross profit.......................................................................................... ....................
Less Loss on repossession......................................................................................... ....................
Total realized gross profit after adjustment for loss on repossession ........................ ....................
Selling and administrative expenses.......................................................................... ....................
Net income .. ............................................................................................................. ....................
P212,000
165,000
47,000
40,300
87,300
400
86,900
66,000
P 20,900
Problem 9 4
Schedule 1
2007
Sales
P76 000
24,000
52,000
4,000
P48,000
30%
P14,400
Installment contracts receivable, 1/1 ..........................................

Less Installment contracts receivable, 12/31 ..............................
Total credit for the period...........................................................
Less Credit representing repossession ........................................
Credit representing collections ...................................................
Multiply by Gross profit rate......................................................
Realized gross profit...................................................................
2008
Sales
P150,000
76,000
74,000
P 74,000
35%
P 25,900
Total
P40,300
Problem 9 5
1.
Cost of Installment Sales...........................................................................................

Shipments on Installment Sales.........................................................................
54,400

Deferred Gross Profit, 2008 ..............................................................................
Gross profit = P25,600
32%
80,000
Computation:
Installment contracts receivable, 1/1 ............................
Less Installment contracts receivable, 12/31 ................
Total credit for the period.............................................
Less Credit representing repossession ..........................
Credit representing collections .....................................
2007
Sales
P82,000
_ 36,000
46,000
__6,000
P40,000
14,000
8,000
2008
Sales
P 80,000
_55,000
25,000
___
P 25,000
54,400
54,400
25,600
22,000
Total
Multiply by Gross profit rate ........................................

Realized gross profit.....................................................
*2007 Gross profit rate=
2.
DGP, 1/1
ICR, 1/1
__35%*
P14,000
___32%
P 8,000
P 22,000
P28,700 (26,600 + 2,100)
=
35%
P82,000 (36,000 + 40,000 + 6,000)
Sales ...... ..... .............................................................................................................

Merchandise Inventory, December 31.......................................................................
Shipments on Installment Sales.................................................................................
Merchandise Inventory, January 1.....................................................................
Purchases...........................................................................................................
Repossessed Merchandise .................................................................................
Loss on Repossession........................................................................................
Operating Expenses...........................................................................................
Income Summary ..............................................................................................
200,000
52,000
54,400
Realized Gross Profit ................................................................................................

Income Summary ..............................................................................................
22,000
Income Summary ......................................................................................................

31,500
60,000
180,000
3,000
900
53,000
9,500
22,000
31,500
PPG Discount Center, Inc.

Income Statement
Sales ...... ..... ..............................................................
Cost of sales:
Inventory, January 1 ...........................................
Purchases............................................................
Repossessed merchandise...................................
Cost of goods available for sale..........................
Less Shipments on installment sales...................
Cost of goods available for regular sales ............
Less Inventory, December 31.............................
Gross profit ..............................................................
Less Deferred gross profit on installment
sales, 2008 ..........................................................
Realized gross profit, 2008.........................................
Add Realized gross profit on 2007
installment sales .................................................
Total realized gross profit...........................................
Less Loss on repossession..........................................
Total realized gross profit after adjustment
for loss on repossession......................................
Operating expenses ....................................................
Net income ..............................................................
P 60,000
180,000
__3,000
243,000
_54,400
188,600
_52,000
Regular
P200,000
Installment
P80,000
Total
P280,000
_136,600
P 63,400
54,400
25,600
191,000
89,000
17,600
8,000
17,600
71,400
14,000
22,000
___900
14,000
85,400
__900
P21,100
84,500
_53,000
P31,500
Problem 9 6
1.
London Products
Schedule of Cost of Goods Sold
Merchandise inventory, January 1............................................................................. ....................
Purchases
............................................................................................................. ....................
Freight-in
............................................................................................................. ....................
Repossessed merchandise.......................................................................................... ....................
Cost of goods available for sale................................................................................. ....................
P 48,000
238,000
12,000
14,000
312,000
Less Merchandise inventory, December 31............................................................... ....................

Cost of goods sold..................................................................................................... ....................
2.
London Products
Schedule of Allocation of Cost of Goods Sold
Amount
Cash sales ....................
P60,000
Charge sales ....................120,000
Installment sales ...............
300,000
3.
52,000
P260,000
On Cash
Price Basis
P 60,000
100,000
240,000
P 400,000
120%
125%
Ratio to
Total
60/400
100/400
240/400
Allocated
Cost
P 39,000
65,000
156,000
P260,000
London Products
Income Statement
Sales ...... ..... ...........................................

Cost of goods sold...................................
Gross profit ...........................................
Less Unrealized gross profit:
On installment contracts
receivable,12/31 (192,000 x 144/300)
Realized gross profit................................
Add Realized gross profit on
prior years' sales (Schedule 1):
2006.........................................
19,200
2007.........................................
14,700
Total realized gross profit........................
Less Loss on repossession
(Schedule 2) ....................................
Total realized gross profit after
adjustment for loss on
repossession.....................................
Less Operating expenses .........................
Net income ...........................................
Installment
Total
Sales
P480,000
P 300,000
260,000
156,000
P 220,000 P 144,000
92,160
127,840
92,160
51,840
33,900
161,740
33,900
85,740
10,200
10,200
151,540
93,000
P 58,540
P 75,540
Schedule 1
Installment contracts receivable, January 1:
2006 P32,000
.....................................................................................
2007 P56,000
.....................................................................................
Less Installment contracts receivable, December 31 .................................................
Total credits .............................................................................................................
Less Credit representing repossession .......................................................................
Total collections ........................................................................................................
Multiply by Gross profit rate.....................................................................................
Realized gross profit..................................................................................................
Schedule 2
Fair market value of repossessed merchandise.....................
Less Unrecovered cost:
Unpaid balance.............................................................
Less Unrealized profit
2006 P10,000 x
40% ....................................
2007 P28,000 x
35% ....................................
Balances
........................................................................
Gain (loss) on repossession ..................................................
Charge
Sales
P120,000
65,000
P 55,000
2006
P80,000
Cash
Sales
P 60,000
39,000
P 21,000
2007
_22,000
58,000
_10,000
P48,000
___40%
P19,200
P160,000
__90,000
70,000
28,000
P 42,000
___35%
P 14,700
2006
P 2,000
2007
P12,000
Total
P 14,000
10,000
28,000
38,000
4,000
__6,000
P(4,000)
9,800
18,200
P( 6,200)
13,800
__24,200
P( 10,200)
1.
Problem 9 7
2007
2007 installment sales (P400,000 x 42%*)........................................................
2008:
2007 installment sales (P173,000 x 42%)..........................................................
2008 installment sales (P560,000 x 38.5%*).....................................................
Deferred gross profit .................................................................................................
2007
P 168,000
________
P 168,000
*Computation of Gross profit percentages (see next page)
2007
Installment sales ........................................................................................................ P2,210,000
Less Trade-in allowances (P226,000 P158,000) ....................................................
_______
Adjusted installment sales .........................................................................................
2,210,000
Cost of sales:
Inventories, January 1 (new) .............................................................................
Purchases (new).................................................................................................
1,701,800
Repossessed merchandise..................................................................................
Cost of goods available for sale.........................................................................

1,701,800
Less: Inventories, December 31
New merchandise ......................................................................................
Repossessed merchandise..........................................................................
Total ..........................................................................................................
Cost of sales ......................................................................................................
Gross profit .............................................................................................................
Gross profit percentages............................................................................................
*2007 : P195,000 x 20%
=P39,000
2008 : P110,000 x 40%
=_44,000
P83,000
Uncollectible installment contracts expense, per books ...................
Correct Uncollectible installment contracts expense:
Fair market value of repossessed merchandise
2007 sales (P195,000 x 20%) ...........................................
2008 sales (P110,000 x 40%) ...........................................
Unrecovered cost
2007 sales [P105,000 x (100% 42%)] ...........................
2008 sales [P82,000 x (100% 38.5%)] ..........................
Adjustment to Uncollectible installment contracts expense .............
2008
P 72,660
__215,600
P 288,260
2008
P3,100,000
____68,000
_3,032,000
420,000
1,767,000
_83,000*
2,270,000
420,000
_______
420,000
1,281,800
P 928,200
358,820
____46,500
405,320
_1,864,680
P1,167,320
42%
38.5%
P 99,000
P 39,000
__44,000
P 83,000
60,900
__50,430
__111,330
__28,330
P 70,670
Installment
Sales
P3,032,000
1,864,680
1,167,320
Total
Sales
P3,237,000
_2,022,680
1,214,320
__247,170
920,150
__247,170
967,150
___51,240
971,390
___28,330
P 943,060
___51,240
1,018,390
___28,330
990,060
__592,960
P 397,100
Fortune Sales Corporation

Income Statement
Cash
Sales
Sales
.................................................................................... P205,000
Cost of sales .................................................................................... _158,000_
Gross profit .................................................................................... P 47,000
Less Unrealized gross profit on 2005 installment
sales (Schedule 1) .....................................................................
Realized gross profit on 2008 sales ..................................................
Add Realized gross profit on 2007 installment
sales (Schedule 2) .....................................................................
Total realized gross profit.................................................................
Less Uncollectible installment contracts expense ............................
Total realized gross profit after adjustment ......................................
Operating expenses ..........................................................................
Net income ....................................................................................
Schedule 1
Installment contracts receivable 2008, December 31 ........................... ...............
Installment contracts receivable 2008 defaulted................................... ...............
Total ...... ..... ........................................................................................ ...............
Multiply by 2008 gross profit percentage............................................. ...............
Unrealized gross profit on 2008 installment sales ................................ ...............
P 560,000
___82,000
P 642,000
___38.5%
P 247,170
Schedule 2
Installment contracts receivable 2007, January 1 ......................................................
Less Installment contracts receivable 2007, December 31 ........................................
Total credits for the period ........................................................................................
Less Installment contracts receivable 2007 defaulted ...............................................
Total collections ........................................................................................................
Multiply by 2007 gross profit percentage..................................................................
Realized gross profit on 2007 installment sales.........................................................
1.
P 400,000
__173,000
227,000
__105,000
P 122,000
_____42%
P 51,240
Apportionment of cost (P600,000) to Lots 1, 2 and 3:

Lot 1 : 2/3 x P360,000 ................................................
Lot 2 : 2/3 x P240,000 ................................................
Lot 3 : 1/3 ...................................................................
1/3 x P240,000......................................................
Total cost......................................................................
P120,000
__80,000
Journal Entries for 2007

March 31
Cash....... ..... ........................................................................................................
Notes Receivable (Lot 2)......................................................................................
Lot 2 ........................................................................................................
Deferred gain on Sale of Land......................................................................
June 30
Cash....... ..... ........................................................................................................
Lot 3 .... ........................................................................................................
Deferred Gain on Sale of Land.....................................................................
Cash....... ..... ........................................................................................................
Interest Income (P364,000 x 12% x 3/12) ....................................................
Notes Receivable (Lot 2)..............................................................................
September 30
Cash....... ..... ........................................................................................................
Interest Income (P358,920 x 12% x 3/12) ....................................................
October 31
Cash....... ..... ........................................................................................................
Lot 1 .... ........................................................................................................
Deferred Gain on Sale of Land.....................................................................
December 31
Cash....... ..... ........................................................................................................
Interest Income.............................................................................................
Computation:
Collections ...................................................
Total
P78,000.00
Lot 1
P12,000.00
P 240,000
160,000
__200,000
P 600,000
36,000.00
364,000.00
120,000.00
720,000.00
16,000.00
16,000.00
72,000.00
288,000.00
78,000.00
Lot 2
P16,000.00
160,000.00
240,000.00
200,000.00
640,000.00
10,920.00
5,080.00
10,767.60
5,232.40
240,000.00
120,000.00
6,240.00
5,389.37
6,800.00
59,570.63
Lot 3
P50,000.00
Apply to interest:
Lot 1 P288,000.00 x 12% x 2/12..........
5,760.00
Lot 2 P353,687.60 x 12% x 3/12..........
59,570.63
10,610.63
Lot 3 P720,000.00 x 12% x 6/12..........______________________________________________ _43,200.00
Apply to principal ........................................
P18,429.37
P 6,240.00
P 5,389.37
P 6,800.00
2.
Deferred Gain on Sale of Land (Lot 1)......................................................................

Realized Gain on Sale of Land ..........................................................................
Computation:
Lot 1
P78,240.00
Collections applied to principal ...................

Multiply by Gross profit rates:
Lot 1 P120,000
................
Lot 2 P240,000
................
Lot 3 P640,000
................
Realized gain................................................
3.
33.33%
_________
P26,080.00
Lot 3 (80% x P200,000) ............................................................................................

Deferred Gain on Sale of Land (Lot 3) (P640,000 P96,368)..................................
Loss on Repossession................................................................................................
Notes Receivable (Lot 3) (P720,000 P6,800).................................................
Galaxy Investment Company

Income Statement
26,080.00
31,021.06
96,368.00
153,469.06
Lot 2
P51,701.77
Lot 3
P126,800.00
60%
_________
P31,021.06
_____76%
P96,368.00
160,000.00
543,632.00
9,568.00
713,200.00
Problem 9 9
Sales Schedule 1) .............................................................................................................

Cost of sales (Schedule 2)....................................................................................................
Gross profit ...... ..... .............................................................................................................
Less Sales commissions.......................................................................................................
Gross profit ...... ..... .............................................................................................................
Less Deferred gross profit
Installment Notes Balance
P5,370,000
=
=67% x P6,227,000
Installment Sales
P8,060,000
Realized gross profit ............................................................................................................
Expenses:
Advertising and promotion........................................................................................
Sales manager's salary...............................................................................................
General office expenses (1/4 x P236,000).................................................................
Net profit ....... ..... .............................................................................................................
Schedule 1
A lots : 26 @ P150,000.........................................................
B lots : 32 @ P100,000 .........................................................
C lots : 12 @ P80,000 ...........................................................
..............................................................
Schedule 2
Class
A............ ..... ..............................................................
B............ ..... ..............................................................
C............ ..... ..............................................................
Total .... ..............................................................
Total
Sales Price
P3,900,000
3,200,000
960,000
P8,060,000
Number of
Lots
80
100
120
300
P 8,060,000
1,612,000
6,448,000
221,000
6,227,000
4,172,090
2,054,910
P 730,000
120,000
59,000
909,000
P 1,145,910
Cash
Received
P1,650,000
800,000
240,000
P2,690,000
Installment
Notes Balance
P 2,250,000
2,400,000
720,000
P 5,370,000
Unit
Price
P150,000
100,000
80,000
Total
Sales Value
P12,000,000
10,000,000
9,600,000
P31,600,000
Cost of tract:
Cost of land .............................................................................................................
Legal fees, etc............................................................................................................
Grading contract........................................................................................................
Water and sewerage system contract.........................................................................
Paving contract..........................................................................................................
General office expenses (3/4 x P236,000).................................................................
Total ...... ..... .............................................................................................................
P 4,800,000
600,000
225,000
184,900
266,300
177,000
P 6,253,200
P6,253,200
Cost rate : = 20% (rounded off)
P31,600,000
Cost of sales (P8,060,000 x 20%) ...................................................................................... P 1,612,000
Problem 9 10
Rizal Company
Income Statement
Installment sales [(P14,300 x 7) + (P725 x 4)] ....................................................................
Cost of goods sold on installment (schedule 1)....................................................................
Gross profit ...... ..... .............................................................................................................
Less Deferred gross profit on 19x8 sales
(P103,000 P21,000 = P82,000 x 23%*) ................................................................
Realized gross profit on 2008 sales......................................................................................
Add Realized gross profit on prior years' sales
2006 : P60,000 x 33-1/3* ..........................................................................................
2007 : P115,000 x 35%* ...........................................................................................
Total realized gross profit ....................................................................................................
Less Loss on repossession (Schedule 4)...............................................................................
Total realized gross profit after adjustment..........................................................................
General and administrative expenses ...................................................................................
Net income (loss) .............................................................................................................
P103,000
__79,310
23,690
__18,860
4,830
P20,000
_40,250
__60,250
65,080
__33,100
31,980
__50,000
P(18,020)
*See Schedule 3
Schedule 1
Purchases (P10,500 x 8).......................................................................................................
Repossessed merchandise ....................................................................................................
Cost of goods available for sale ...........................................................................................
Less Inventory, December 31
Number of units on hand ...........................................................................................
Multiply by average unit cost (Schedule 2) ...............................................................
Cost of goods sold on installment ........................................................................................
P 84,000
___2,520
86,520
1
P 7,210
___7,210
P 79,310
Schedule 2
Purchases during 2008 (P10,500 x 8) ..................................................................................
Add Repossessed merchandise ............................................................................................
Total .............. ..... .............................................................................................................
divide by Number of units (8 + 4) .......................................................................................
Average unit cost .............................................................................................................
Schedule 3
Sales
2006 :
2007 :
2008 :
...................................................................
P15,000 x 10....................................................
P14,000 x 20....................................................
P14,300 x 7......................................................
2006
P150,000
P 84,000
___2,520
P 86,520
_____12
P 7,210
2007
P280,000
2008
100,100
P725 x 4...........................................................
...................................................................
_______
150,000
_______
280,000
__2,900
103,000
Cost of goods sold:

Inventory, January 1 ........................................................
Purchases
...................................................................
Repossessed merchandise................................................
Cost of goods available for sale.......................................
Less Inventory, December 31..........................................
Cost of goods sold...........................................................
Gross profit ...... ..... ...................................................................
Gross profit rates.... ...................................................................
120,000
_____
120,000
_20,000
100,000
P 50,000
33-1/3%
20,000
162,000
_____
182,000
_____
182,000
P 98,000
35%
84,000
_2,520
86,520
_7,210
79,310
P23,690
23%
Sales
Schedule 4
Fair market value of repossessed merchandise ....................................................................
Less Unrecovered cost
Unpaid balance:
Original sales amount (P14,000 x 4) .................................................................
Collections prior to repossession .......................................................................
Total .... .............................................................................................................
Less Unrealized profit (P54,800 x 35%) ...................................................................
Loss on repossession............................................................................................................
P 2,520
P 56,000
__1,200
54,800
_19,180
_35,620
P33,100
Long-Term Construction Contracts
163
CHAPTER 10
10-1: a
Percentage of Completion Method:

Contract Price
Less:Total estimated cost
Cost incurred
Estimated remaining cost
Gross profit estimated
% of completion (200,000/600,000)
Gross profit to be recognized
Zero Profit Method:
10-2: a P100,000
Contract Price
Less: Total estimated cost
Estimated gross profit
% of completion:
2007 (3,900,000/7,800,000)
2008(6,300,000/8,100,000)
Gross profit earned to date
Less: Gross profit earned in prior year
Gross profit earned each year
10-3: a
10-4: b
P1,000,000
P 200,000
_400,000
__600,000
400,000
__33 1/3%
P 133,333
0
2007
2008
P9,000,000 P9,000,000
_7,800,000 _8,100,000
1,200,000
900,000
50%
_________ ______78%
600,000
700,000
________ ___600,000
P 600,000 P 100,000
Contract Price
Less: Total estimated cost (3,600,000 + 1,200,000)
% of completion (3,600,000/4,800,000)
Less: Gross profit earned in 2007
Gross profit earned in 2008
P6,000,000
_4,800,000
1,200,000
_____75%
900,000
__600,000
P 300,000
Contract Price
Less: Total estimated cost (930,000 + 2,170,000)
Loss
P3,000,000
_3,100,000
(P 100,000)
164
10-5: b
10-6: a
Chapter 10
Total cost to date, 2008 (4,800,000 X 60%)

Less: Cost incurred in 2007 (4,500,000 X 20%)
Cost incurred in 2008
P2,880,000
__900,000
P1,980,000

Contract Price
Less: Total estimated cost (900,000/1,800,000)
% of completion (900,000/2,700,000)
Gross profit recognized, 2007
Add: Cost Incurred
Construction in Progress - 2007
P3,000,000
_2,700,000
300,000
___33.33%
100,000
___900,000
P 1,000,000
Zero Profit Method:

Cost incurred to Construction in Progress - 2007
P 900,000
10-7: a
Contract Price
% of completion
Gross Profit earned to date
Gross Profit earned in prior year
Gross Profit earned this year
10-8: b
Collections:
Contract Billings
Less: Accounts receivable
Collections
Initial Gross Profit:
Contract Price
Gross Profit rate:
Income recognized
Divide by Construction in Progress
Initial Gross Profit
2007
2008
P4,200,000 P4,200,000
_3,000,000 _3,750,000
1,200,000
450,000
_____20% ____100%
240,000
450,000
_______ __240,000
P 240,000 P 210,000
P 47,000
___15,000
P 32,000
P 800,000
10,000
50,000 =_____20%
P 160,000
165
10-9: a
Gross profit (loss) earned in 2008
Gross profit earned in prior years
Gross profit earned to date - 2008
Divide by percentage of completion - 2008
Estimated gross profit - 2008
Less: Contract price
Total estimated cost
Less: Cost incurred - 2008
Cost incurred to date - 2007
Less: Cost incurred - 2006
(P 20,000)
_180,000
160,000
___100%
160,000
2,000,000
1,840,000
_820,000
1,020,000
__360,000
P 660,000
Gross profit earned to date - 2007 (P40,000 + P140,000)

Divide by estimated gross profit - 2007:
Contract price
P2,000,000
Gross profit rate [180,000/(1,020,000 + 180,000)]
___X 15%
Percentage of completion - 2007
P 180,000
10-10: b
__300,000
60%
10-11: a, Refer to Q 10-10 solutions.

10-12: d
Contract price
Estimated gross profit - 2007 (Refer to Q 10-10)
Less: Cost incurred to date - 2007 (refer to Q 10-9)
Estimated cost to complete - 2007
P2,000,000
__300,000
1,700,000
1,020,000
P 680,000
2007: Construction in progress

Less: Construction costs
Gross profit recognized - 2007
P 244,000
__210,000
P 34,000
2008: Construction in progress (P728,000-P244,000)

Less: Construction costs
Gross profit recognized - 2008
P 484,000
__384,000
P 100,000
10-13: d
166
Chapter 10
10-14: d
Project 1

Contract price
Cost incurred to date - 2008
Estimated cost to complete
Total
Estimated gross profit (Loss)
Percentage of completion
Profit (loss) to be recognized
Total is (P10,000)
Project 2
P 420,000 P 300,000
P 240,000
__120,000
__360,000
60,000
__66.67%
P 40,000
P 280,000
___70,000
__350,000
(50,000)
_______
(P 50,000)
Zero Profit Method - The loss (P50,000) for project 2 only.

10-15: a
Contract price (cost X 120%)
Less: Total estimated costs
(1) Cost incurred to date
(2) Total
Percentage of completion (1 2)
Gross profit earned this year
10-16: d
Contract price
Cost incurred to date
Total
Percentage of completion:
2007 (1,425,000 - 50,000) 5,500,000
2008 (3,040,000 - 50,000) 5,000,000
Profit earned to date
2006
2007
2008
P3,744,000 P3,744,000 P3,744,000
546,000 1,544,400 3,120,000
_2,054,000 _1,315,000 ________
_2,600,000 _2,860,000 _3,120,000
1,144,000
884,000
624,000
_____20% _____54% ____100%
240,240
477,360
624,000
_______ __240,240 __477,360
P 240,240 P 237,120 P 146,640
2007
2008
P6,300,000 P6,300,000
1,425,000
_4,075,000
P5,500,000
800,000
3,040,000
_1,960,000
P5,000,000
1,300,000
25%
________ __59.80%
200,000
777,400
________ __200,000
P 200,000 P 577,400
167
10-17: a
Cash collections:
Progress billings
Less: Accounts receivable, end
Collection
P1,500,000
__500,000
P1,000,000
Cost incurred to date:

Construction in Progress
Less: Gross profit earned
P1,600,000
__200,000
P1,400,000
10-18: d
Apartment A
2007
2008
1,620,000 1,620,000
Contract price
Less: Total Estimated Costs
(1)
(2)
Estimated Gross Profit
Less: Gross profit earned in Prior years
Total Gross Profit 20 (P75,000 + P22,800)
Apartment B
2007
2008
2,520,000 2,520,000
P 600,000 P1,200,000 P1,560,000 P2,310,000

840,000
240,000
690,000
1,440,000 1,440,000 2,250,000 2,310,000

180,000
180,000
270,000
210,000
_41.67%
_83.33%
_69.33% _100.00%
75,000
150,000
187,200
210,000
_______ ___75,000 _______ __187,200
P 75,000 P 75,000 P 187,000 P 22,800
P97,800
Zero Profit Method - P210,000 gross profit earned in 2008 for Apartment B.
10-19: d
Contract price:
2007
2008 (P6,000,000-P50,000)
(2) Total estimated cost
Less: Gross profit earned in Prior year
2007
2008
P6,000,000
_________ P5,950,000
2,340,000
260,000
2,600,000
3,400,000
____90%
3,060,000
_______
P3,060,000
2,650,000
2,650,000
3,300,000
___100%
3,300,000
3,060,000
P 240,000
168
Chapter 10
10-20: a
(1)Cost incurred to date
(2)Estimated cost to complete
(3)Total Estimated Costs
10-21: c
2006
P3,400,000
1,600,000
5,000,000
68%
Contract price
Gross profit earned (loss) to date
Add: Cost incurred to date
Construction in Progress
Less: Contract billings
Balance
P6,000,000
5,000,000
1,000,000
68%
680,000
3,400,000
4,080,000
3,200,000
P 880,000
Construction in Progress:
Cost incurred to date, 2007
Gross profit earned, 2007 (Schedule 1)
Less: Contract billings, 2006 (P3,250,000 x 75%)
2007
2008
P5,950,000 P6,150,000
150,000
6,100,000 6,150,000
98%
100%
P6,000,000 P6,000,000
6,100,000 6,150,000
(100,000) (150,000)
100%
100%
(100,000) (150,000)
5,950,000 6,150,000
5,850,000 6,000,000
5,200,000 6,000,000
P 650,000
P2,625,000
100,000 P2,725,000
2,437,500
Excess of Construction in Progress over Contract Billings (CA)
P 287,500
Schedule 1 Computation of gross profit earned, 2006
2006
2007
P3,250,000 P3,250,000
Contract price
Total estimated cost:
Cost to date
1,075,000
1,612,500
2,625,000
750,000
2,687,500
3,375,000
Estimated gross profit (loss)

% of completion
562,500
40%
(125,000)
Gross profit (loss) to date

225,000
(125,000)
225,000
P 225,000
P 100,000
Total
10-22: a
Contract price
Estimated cost:
Cost to date
Estimated costs to complete
2005
P2,800,000
2006
2007
P2,800,000 P2,800,000
1,300,000
1,360,000
1,960,000
780,000
2,440,000
380,000
2,660,000
2,740,000
2,820,000
140,000
60,000
(20,000)
% of completion
48.87%
71.53%
Total
10-23: b
169
2007
Contract price
Estimated costs:
Cost to date
Project A
P2,900,000
Project B
P3,400,000
Project C
P 1,700,000
1,680,000
1,120,000
1,440,000
1,760,000
320,000
960,000
2,800,000
3,200,000
1,280,000
100,000
60%
200,000
45%
420,000
25%
P 60,000
P 90,000
P 105,000
Project B
P3,400,000
Project C
P1,700,000
Project D
P 2,000,000
2,120,000
0
1,183,000
1,360,000
560,000
117,000
1,040,000
2,640,000
3,480,000
1,300,000
1,600,000
Total
% of completion
Gross profit earned this year (P255,000)
2008
Contract price
Estimated costs
Cost to date2,640,000
Total
Project A
P2,900,000

% of completion
260,000
100%
(80,000)
400,000
91%
400,000
35%

Gross profit earned in prior year
260,000
60,000
(80,000)
90,000
364,000
105,000
140,000
0
P 200,000
P 10,000
P 259,000
P 140,000
2007
P 255,000
120,000
2008
P 609,000
120,000
Gross profit earned this year(P609,000)

Gross profit earned
General and administrative expenses
Net income
10-24: c
P 135,000
Contract price
Gross profit earned to date, 2008 (P900,000 P100,000)
P 489,000
P10,000,000
800,000
Total cost to date, 2008

Less: cost incurred in 2008
10-25: d
9,200,000
4,100,000
Cost to date, 2007
P 5,100,000

Divided by % of completion:
(P5,100,000 + P900,000) / P10,000,000
Estimated gross profit, 2007
P 1,500,000
Construction in progress:
Gross profit earned to date (P2,500,000 P2,000,000)
Total
Less: Contract billings (P2,500,000 x 30%)
Excess of contract billings over construction in progress (CL)
900,000
60%
P 440,000
110,000
550,000
750,000
P( 200,000)
170
10-26: a
10-27: a
Chapter 10
Contract price
Cost incurred to date:
Site labor cost
Cost of construction materials
Depreciation of special plant & equip
Total
Percentage of completion (45/100)
Gross profit to be recognized
Cost incurred to date- 2007
Total estimated cost (8,000,000 / 40%)
Estimated cost at completion- 2006
Total estimated cost- 2006
P120,000,000
10,000,000
30,000,000
5,000,000
45,000,000
55,000,000
20,000,000
8,000,000
100,000,000
20,000,000
45%
P 9,000,000
P12,000,000
3,700,000
8,300,000
12,450,000
P20,750,000
Percentage of completion- 2006 (8,300,000/ 20,750,000) = 40%

10-28: a
Contract price
Gross profit recognized
Contract price
Gross profit earned in 2007
2007
Contract 1
Contract 2
P600,000
P450,000
150,000
150,000
300,000
300,000
50%
P150,000
Contract 1
600,000
350,000
250,000
80%
200,000
150,000
50,000
87,500
162,500
250,000
200,000
35%
P70,000
2008
Contract 2
450,000
300,000
150,000
60%
90,000
70,000
20,000
CIP-2007
P237,500
P220,000
Contract 3
900,000
500,000
400,000
36%
144,000
144,000
10-29: a
Bicol
Contract price
P875,000
Cost incurred
656,250
Est. cost to complete
656,250
218,750
100%
Gross profit earned
P218,750
Total cost incurred
Total gross profit earned
Construction in progress
Less: Billings
Due from (to)
10-30: a
171
Davao
Aklan
P1,225,000 P437,500
175,000
700,000
875,000
350,000
20%
P 70,000
1,006,250
332,500
1,338,750
1,312,500
26,250
Contract price
Cost incurred
Gross profit recognized
175,000
175,000
350,000
87,500
50%
P43,750
Total
1,006,250
332,500
Zero Profit
1,006,250
218,750
1,225,000
1,312,500
(87,500)
P40,825,000
8,475,000
28,400,000
36,875,000
3,950,000
22.983%
P 907,830
172
Chapter 10
Problem 10 1
(a)
Contract Price
(2) Total
Estimated gross profit to date
(b)
Contract Price
Less: Total cost incurred
Gross profit
(c)
2007: Construction in Progress

Cost of construction
Construction Revenue
2008: Construction in Progress
Cost of Construction
(a)
(b)
2007
P 450,000
2008
P 450,000
200,000
__100,000
__300,000
150,000
______2/3
100,000
_______
P 100,000
320,000
_______
_320,000
130,000
___100%
130,000
__100,000
P 30,000
P 450,000
__320,000
P 130,000
100,000
200,000
30,000
320,000
Problem 10 2
300,000
350,000
Less: Cost incurred
Gross profit 2008
P1,250,000
_1,250,000
P
0
Construction in Progress (cost incurred)

Less: Contract billings (P5,800,000 x 30%)
Billings in excess of related costs
P1,250,000
_1,740,000
P(490,000)
Contract price
Percentage of Completion (P1,250,000 500,000)
Gross profit
P5,800,000
Construction on Progress (P1,250,000 + P200,000)

Less: Contract billings
Billings in excess of related costs
P1,250,000
3,740,000
5,000,000
800,000
_____25%
P 200,000
P1,450,000
_1,740,000
P(290,000)
173
Problem 10 3
2005
2006
P55,000,000 P55,000,000
(a)
Contract Price
(2) Total
Gross profit earned in prior yr(s)
Gross profit earned the year
15,000,000
_35,000,000
_50,000,000
5,000,000
______30%
1,500,000
________
P 1,500,000
25,000,000
25,000,000
50,000,000
5,000,000
_____50%
2,500,000
_1,500,000
P 1,000,000
2007
(b)
(1) Construction in Progress
Cash or Payable
15,000,000
(2) Accounts Receivable

Contract Billings
15,000,000
(3) Cash
Accounts Receivable
12,000,000
(4) Construction in Progress

Cost of Construction
1,000,000
15,000,000
15,000,000
15,000,000
12,000,000
16,000,000
2007
2008
P55,000,000 P55,000,000
35,000,000
15,000,000
50,000,000
5,000,000
_____70%
3,500,000
_2,500,000
P 1,000,000
50,000,000
________
50,000,000
5,120,000
____100%
5,000,000
_3,500,000
P 1,500,000
2008
15,000,000
15,000,000
20,000,000
25,000,000
1,500,000
15,000,000
20,000,000
25,000,000
16,500,000
Problem 10 4
(a)
Divide by total estimated cost
Percentage of Completion
(b)
Contract Price
Less: Total Estimated Cost
Total
Less: Gross profit earned in prior yrs.
2006
P 1,000,000
P 9,000,000
11.11%
2007
2008
P 5,500,000 P10,000,000
P11,000,000 _12,000,000
50%
83.33%
2006
P15,000,000
2007
2008
P15,000,000 P15,000,000
1,000,000
__8,000,000
__9,000,000
6,000,000
___11.11%
666,600
________
P 666,600
5,500,000 10,000,000
__5,500,000 __2,000,000
_11,000,000 _12,000,000
4,000,000
3,000,000
______50% ___83.33%
2000,000
9,500,000
___666,600 _2,000,000
P 1,333,400 P 500,000
174
(c)
Chapter 10
(1) Construction in progress (cost incurred)

Cash
1,000,000
(2) Accounts Receivable

Contract Billings
1,325,000
(3) Cash
Accounts Receivable
1,200,000
(4) Construction in progress (gross profit)

666,600
1,000,000
1,000,000
1,325,000
1,200,000
1,666,600
Problem 10 5
2005
P14,000,000
(1)
Contract Price
Less: Total Estimated Cost
6,500,000
__6,800,000
Total
_13,300,000
700,000
___48.87%
342,090
Less: Gross profit (loss) in prior yrs. ________
Gross profit (loss) this year
P 342,090
(2)
2005
2006
P14,000,000
2007
2008
P14,000,000 P14,000,000
9,800,000
_3,900,000
13,700,000
300,000
___71.53%
214,590
___342,090
P( 127,500)
12,200,000
_1,900,000
14,100,000
( 100,000)
_____100%
( 100,000)
___214,590
P( 314,590)
2006
2007
13,900,000
________
13,900,000
100,000
____100%
100,000
( 100,000)
P 200,000
2008
6,500,000
3,300,000
2,400,000
1,700,000
Construction in progress 342,090
127,500
314,590
200,000
6,842,090
3,172,500
2,085,410
1,900,000
Problem 10 6
(1)
Contract Price
Total
Gross profit (loss) in prior yrs.
Gross profit (loss) this year
2005
P 6,000,000
2006
P 6,000,000
2007
P 6,000,000
3,400,000
_2,100,000
_5,500,000
500,000
___61.82%
309,100
________
P 309,100
5,950,000
___150,000
_6,100,000
( 100,000)
_______
( 100,000)
__309,100
P 409,100
6,150,000
________
_6,150,000
( 150,000)
________
( 150,000)
( 100,000)
P 50,000
(2)
(3)
175
2005
2006
3,400,000
2,550,000
309,100
409,100
3,709,100
2,140,900
Cash
Accounts Receivable
Contract Billings
400,000
6,000,000
2007
200,000
50,000
150,000
400,000
6,000,000
Problem 10 7
2006
P16,000,000
(1)
Contract Price
Less:Total Estimated Cost
4,600,000
__9,640,000
Total
_14,240,000
1,760,000
Engineer's estimate of comp.
______31%
Gross profit to date
545,600
Less: Gross profit earned in prior yrs. ________
Gross profit earned this yr.
P 545,600
(2)
(a) Construction on progress

Cash
2006
4,600,000
(b) Accounts receivable

Contract billings
5,000,000
(c) Cash
Accounts receivable
4,500,000
2007
P16,000,000
2008
P16,000,000
9,100,000
__5,100,000
_14,200,000
1,800,000
______58%
1,044,000
__545,600
P 498,410
14,350,000
_________
_14,350,000
1,650,000
_____100%
1,650,000
_1,044,000
P 606,000
4,600,000
5,000,000
4,500,000
2007
4,500,000
6,000,000
5,400,000
4,500,000
6,000,000
5,400,000
2008
5,250,000
5,000,000
6,100,000
5,250,000
5,000,000
6,100,000
(d) Cost of constructions

4,600,000
4,500,000
5,250,000
545,600
498,400
606,000
Construction revenue
5,145,600
4,998,400
5,856,000
(e) Contract billings
16,000,000
Construction on progress
16,000,000
(3)
Zero Profit Method: 2008 Entres

(a) Construction in progress
Cash / accounts payable
(b) Accounts receivable
Contract billings
5,250,000
5,000,000
5,250,000
5,000,000
176
Chapter 10
(c) Cash
Accounts receivable
6,100,000
(d) Cost of construction

5,250,000
1,650,000
(e) Contract billings

(4)
16,000,000
6,100,000
6,900,000
16,000,000
The following entry would be the only one different from (2).
2006
2007
2008
4,414,400
3,821,600
6,114,000
545,600
498,400
606,000
4,960,000
4,320,000
6,720,000
Total estimated costs x estimated percentage of completion.

Problem 10 8
(1)
Contract Price
Less:Total Estimated Costs
Total
Less: Gross profit (loss) in prior yrs.
Gross profit (loss) this years
(2)
In 2008 when the project is completed.
2006
P6,500,000
2007
P6,500,000
2008
P6,500,000
2,150,000
_3,850,000
_6,000,000
500,000
________
P 520,000
5,250,000
_1,500,000
_6,750,000
(250,000)
___520,000
P( 250,000)
6,850,000
________
_6,850,000
(350,000)
_(250,000)
P( 600,000)
Franchise Accounting
177
CHAPTER 11
11-1: b
11-2: c
11-3: a
11-4: b
11-5: a
11-6: b
11-7: d
11-8: d
No revenue is to be reported. Because the franchisor fails to render substantial

services to the franchisee as of December 31, 2008.
Initial franchise fee
Less: Cost of franchise
Net income
P5,000,000
____50,000
P4,950,000
The total initial franchise fee of P500,000 is to be recognized as earned because the
collectibility of the note for the balance is reasonably assured.
Cash downpayment
Collection of note applying to principal
Revenue from initial franchise fee
P 100,000
__200,000
P 300,000
Cash downpayment, January 2, 2008

Collection applying to principal, December 31, 2008
Total Collection
Gross profit rate [(5,000,000-500,000) 5,000,000]
Realized gross profit, December 31, 2008
P2,000,000
_1,000,000
3,000,000
_____90%
P2,700,000
Face value of the note (P1,200,000 - P400,000)

Present value of the note (P200,000 X 2.91)
Unearned interest income, July 1, 2008
P 800,000
__582,000
P 218,000

Less: unearned interest income
Deferred revenue from franchise fee
P1,200,000
__218,000
P 982,000

Continuing franchise fee (P400,000 X .05)
Total revenue
Cost
Net income
P 500,000
___20,000
520,000
___10,000
P 510,000
178
11-9: b
Chapter 11
Deferred Revenue from franchise fee:

Downpayment
Present value of the note (P1,000,000 X 2.91)
Less: Cost of franchise fee
P6,000,000
2,910,000
Deferred gross profit

Gross profit rate (6,910,000 8,910,000)
11-10: b
11-11: a
11-12: d
P8,910,000
_2,000,000
P6,910,000
77.55%
Downpayment (collection during 2008)

Gross profit rate
P6,000,000
___77.55%
Realized gross profit from initial franchise fee

Add: Continuing franchise fee (5,000,000 X .05)
P4,653,000
__250,000
Total
Less: Franchise expense
Operating income
Interest income, 12/31/05 (P2,910,000 X 14%) X 6/12
Net income
P4,903,000
___50,000
P4,853,000
__203,700
P5,056,700
Face value of the note receivable

Present value of the note receivable
P1,800,000
1,263,900
Unearned interest income
P 536,100

Less: Unearned interest income
P3,000,000
__ 536,100
Deferred revenue from franchise fee
P2,463,900
Revenues from:
Continuing franchise fee (P2,000,000 X .05)
Total revenue from franchise fees
P1,000,000
100,000
P1,100,000
Realized gross profit from initial franchise fee [(350,000 + 90,000) x 37%]
Continuing franchise fee (P121,000 + P147,500) x 5%
P 162,800
___13,425
Total revenue
Expenses
176,225
___42,900
Net operating profit

Interest income (P900,000 x 15%) x 6/12
133,325
___67,500
Net income
P 200,825
11-13: c
11-14: a
11-15: c
11-16: a
179
Cash down-payment
Present of the note (P40,000 x 3.0374)
P 95,000
__121,496
Total
P 216,496

Continuing franchise fee (P400,000 x 5%)
P 50,000
__20,000
Total revenue
P 70,000
Should be P80,000
Initial franchise fee down-payment (P100,000 / 5)
Continuing franchise fee (P500,000 x 12%)
P 20,000
__60,000
Total earned franchise fee
P 80,000
The unearned interest credited is the difference between the face value and the
present value of the notes receivable (900,000 720000).
The down payment of P600,000 is recognized as revenue since it is a fair
measure of the services already performed by the franchisor.
11-17: b
11-18:
Cora (P100,000 + P500,000)

Dora (P100,000 + P500,000)
Total
P 600,000
600,000
P1,200,000
Down payment (3,125,000 x 40%)

Present value of notes receivable ( 1,875,000/4) 468,750 x 3.04
Adjusted sales value of initial franchise fee
Direct cost of services
Gross profit
P1,250,000
1,425,000
2,675,000
802,500
1,872,500
Gross profit rate (1,872,500 2,675,000)
70%
180
Chapter 11
Date
Collection
Interest
1/1
6/30
468,750
171,000
12/30
468,750
135,270
Total collection applying to principal
Down payment
Total collection
Gross profit rate
Realized gross profit on
initial franchise fee
11-19: c
Principal
297,750
333,480
631,230
1,250,000
1,881,230
70%
1,316,861
Balance of PV of NR
P1,425,000
1,127,250
793,770
181
Problem 11 1
a.
The collectibility of the note is reasonably assured.

Jan. 2:
July 31:
Cash ..... ..............................................................................12,000,000

Notes receivable................................................................. 8,000,000
Deferred Revenue from IFF. ........................................
20,000,000
Deferred cost of Franchises................................................ 2,000,000

Cash ..............................................................................
2,000,000
Nov. 30: Cash/AR ............................................................................

Revenue from continuing franchise fee (CFF)..............
29,000
Dec. 31: Cash / AR ..........................................................................

Revenue from CFF ........................................................
36,000
36,000
Cash .... .............................................................................. 2,800,000

Notes receivable ............................................................
Interest income (P8,000,000 x 10%) .............................
2,000,000
800,000
Adjusting Entries:
(1)
Cost of franchise revenue ........................................... 2,000,000
Deferred cost of franchises...................................
2,000,000
(2)
Deferred revenue from IFF .........................................20,000,000

Revenue from IFF...................................................
To recognize revenue from the initial franchise fee.
b.
29,000
20,000,000
The collectibility of the note is not reasonably assured.

Jan. 2 to Dec. 31 = Refer to assumption a.
Adjusting entry: to recognized revenue from the initial franchise fee (installment method)
(1)
(2)
To defer gross profit:

Deferred Revenue from IFF........................................20,000,000
Cost of Franchise Revenue...................................
Deferred gross profit Franchises .......................
GPR = P18,000 P20,000,000 = 90%
To recognize gross profit:
Deferred gross profit Franchises..............................12,600,000
Realized gross profit.............................................
(P14,000,000 X 90%)
2,000,000
18,000,000
12,600,000
182
a.
Chapter 11
Problem 11 2
Collection of the note is reasonably assured.
Jan. 5: Cash .. ..... .............................................................................. 600,000
Notes Receivable ................................................................... 1,000,000
Unearned interest income..................................................
Deferred revenue from F.F................................................
Face value of NR ............................................................................
Present value (P200,000 x P2,9906)...............................................
Unearned interest ............................................................................
179,718
Dec. 31: Cash / AR ..........................................................................

Revenue from CFF ........................................................
(P80,000 X 5%)
4,000
Cash .... ..............................................................................

Notes Receivable...........................................................
200,000
Adjusting Entries:
1) Unearned interest income .................................................. 119,624
Interest income............................................................
P598,120 x 20%
b.
179,718
3) Deferred revenue from FF................................................. 1,198,120

Revenue from FF ........................................................
Collection of the note is not reasonably assured.
Jan. 5 to Dec. 31 before adjusting entries Refer to Assumption a.
Dec. 31: Adjusting Entries:
1) Unearned interest income ................................................. 119,624
Interest income ...........................................................
2) Cost of franchise................................................................
Deferred cost of franchise...........................................
1,000,000
__598,120
401,880
Nov. 25: Deferred cost of Franchise ................................................

Cash ..............................................................................
2) Cost of Franchise...............................................................
Deferred cost of Franchise..........................................
401,880
1,198,120
179,718
179,718
4,000
200,000
119,624
179,718
1,198,120
119,624
179,718
3) Deferred revenue from FF................................................. 1,198,120

Cost of Franchise ........................................................
Deferred gross profit Franchise ...............................
GPR = 1,018,402 1,198,120 = 85%)
179,718
1,018,402
4) Deferred gross profit Franchise......................................578,319.60

Realized gross profit Franchise................................
(P600,000 + P200,000- P119,624) x 85%
578,319.60
183
Problem 11 3
2007
July 1:
Cash.. ...... ..... .............................................................................. 120,000

Notes Receivable.......................................................................... 320,000
Unearned interest income ......................................................
Deferred revenue from FF .....................................................
Face value of NR.......................................................................... P320,000
Present value (P80,000 x 3.1699)................................................. _253,592
Unearned interest income............................................................. P 66,408
Sept. 1 to
Nov. 15: Deferred cost of franchise ............................................................
Cash .. ..... ..............................................................................
(P50,000 + P30,000)
Dec. 31: Adjusting Entry:
Unearned interest income.............................................................
Interest income ......................................................................
(P253,592 x 10% x 1/2)
80,000
12,680
2008
Jan. 10: Deferred cost of franchise ............................................................
Cash .. ..... ..............................................................................
50,000
July 1:
80,000
Cash.. ...... ..... ..............................................................................

Note receivable ......................................................................
Dec. 31: Adjusting Entries:

(1) Cost of franchise ....................................................................
Deferred cost of franchise .................................................
130,000
(2) Deferred revenue from FF .....................................................

Revenue from FF...............................................................
373,592
(3) Unearned interest income ......................................................

Interest income ..................................................................
25,360
66,408
373,592
80,000
12,680
50,000
80,000
130,000
373,592
25,360
184
Chapter 11
Problem 11 4
2008
Jan. 10: Cash.. ...... ..... .............................................................................. 6,000,000
Deferred revenue from FF. ....................................................
6,000,000
Jan. 10 to
July 15: Franchise expense ........................................................................ 2,250,000
Cash .. ..... ..............................................................................
2,250,000
Deferred revenue from FF............................................................ 4,000,000

Revenue from FF ...................................................................
Initial Franchise fee .....................................................................P6,000,000
Deficiency
Market value of costs (P180,000 90%) x 10 yrs.................( 2,000,000)
Adjusted initial fee (revenue) .......................................................P4,000,000
July 15: (a) Continuing expenses..............................................................
Cash / Accounts payable ...................................................
a)
b)
180,000
(b) Deferred revenue from FF ..................................................... 200,000

Revenue from CFF ............................................................
(P180,000 90%)
Problem 11 5
Adjusted initial franchise fee:
Total initial F.F.............................................................................
Less: Face Market value of kitchen equipment............................
Adjusted initial FF........................................................................
Revenues:
Initial FF.. ..... ..............................................................................
Sale of kitchen equipment ............................................................
Continuing F.F. (P2,000,000 x 2%) .............................................
Total . ...... ..... ..............................................................................
Expenses:
Initial expenses.............................................................................P 500,000
Cost of kitchen equipment............................................................ 1,500,000
Net income..... ..... ..............................................................................
4,000,000
180,000
200,000
P4,500,000
_1,800,000
P2,700,000
P2,700,000
1,800,000
___40,000
4,540,000
_2,000,000
P2,540,000
Journal Entries:
Jan. 2: Cash .. ..... .............................................................................. 1,500,000
Notes receivable..................................................................... 3,000,000
Deferred revenue from FF (adjusted SV)..........................
Revenue from FF (Market value of equipment)................
2,700,000
1,800,000
Cost of kitchen equipment ..................................................... 1,500,000

Kitchen equipment ............................................................
1,500,000
185
Jan. 18: Franchise expense ........................................................................

Cash.... ..............................................................................
500,000
500,000
April 1: Cash ...... ..... ..............................................................................2,000,000

Notes receivable ................................................................
2,000,000
Dec. 31: Cash ...... ..... ..............................................................................1,000,000

Notes receivable ................................................................
1,000,000
Cash / Account receivable............................................................

Revenue from continuing FF.............................................
40,000
Deferred revenue from FF............................................................ 2,700,000

Revenue from FF...............................................................
40,000
2,700,000
Problem 11 6
Recognition of initial franchise fee (IFF) (6 mos. after opening)
Revenue from initial FF:
Total initial FF ..... ..............................................................................P2,500,000
Less: Deficiency in continuing FF (Sch. 1) ........................................ 160,000
Expense (costs of initial services) ...............................................................
Net income .. ... ...... ..... ..............................................................................
Schedule 1 Estimated deficiency in CFF
(1)
Yr. of
Estimated
Contract
Continuing FF
1
P220,000
2
220,000
3
220,000
4
220,000
5
220,000
6
150,000
7
150,000
8
150,000
9
90,000
10
90,000
(2)
Market Value
of Continuing Services
P250,000
250,000
250,000
125,000
125,000
125,000
125,000
125,000
125,000
125,000
2,340,000
__700,000
P1,640,000
(Excess of 2 over 1)
Deficiency
P 30,000
30,000
30,000
35,000
__35,000
P160,000
Recognition of revenue from CFF and costs:

Years 1-3
Revenue from CFF ........................ P250,000
Expenses . ...... ..... ......................... _200,000
Net income..... ..... ......................... P 50,000
Years 4-5
P220,000
_100,000
P120,000
Years 6-8
P150,000
_100,000
P 50,000
Years 9-10
P125,000
_100,000
P 25,000
186
Chapter 11
Problem 11 7
Revenues:
Initial FF (Sch. 1)
Interest income
Continuing FF
Others
Expenses:
Initial expenses
Continuing expense
Others
Net Income
1/12/2008
6/1/2008
7/1/2008
6/30/2009
62,500
80,000
287,200
45,490*
48,000
( 50,000)
P 12,500
( 68,000)
P 12,000
( 70,000)
P217,200
( 36,000)
P 57,490
* P454,900 x 10% = P45,490

Schedule 1: Computation of initial FF to the recognized:
Total initial fee ...... ...................................................................................................
Less:
Interest unearned on the note ........................................................................
Market value of inventory ............................................................................
Market value of equipment ...........................................................................
Deficiency in continuing costs......................................................................
Adjusted initial FF .. ...................................................................................................
A.
B.
P750,000
( 145,100)
( 80,000)
( 62,500
( 175,200)
P287,200
A
B
B
C
Unearned Interest:
Face value of the note ..........................................................................................
Present value (120,000 x 3.7908) ........................................................................
Unearned interest .................................................................................................
P600,000
454,900
P145,100
rounded
Market value of equipment and inventory:

Equipment (P50,000 80%)................................................................................
Inventory... ...... ...................................................................................................
P 62,500
80,000
Income from Sales:

Sales Price. ...... ..........................................
Cost.... ...... ...... ..........................................
Net income ...... ..........................................
C.
Equipment
P62,500
50,000
P12,500
Analysis of Continuing costs:

Market value of costs is P4,000/Mo. or P48,000 / yr.
Continuing Fees:
Years 1-4
Gross revenues ..........................................
P330,000/mo.
Gross fees per month ..................................
P 2,475/mo.
Gross fees per year......................................
Market value of continuing costs ................
Deficiency per year .....................................
Number of years .........................................
Deficiency
..........................................
Total deficiency for 20 years is P175,200
P 29,700
( 48,000)
( 18,300)
x4
P( 73,200)
Inventory
P80,000
68,000
P12,000
Total
P142,500
118,000
P 24,500
Years 5-16
P450,000/mo.
P 3,375/mo.
Years 17-20
P500,000/mo.
P 3,750/mo.
P 40,500
( 48,000)
(
7,500)
x 12
P( 90,000)
P 45,000
( 48,000)
(
3,000)
x4
P( 12,000)
Dates of Revenue Recognition: .....................................................

January 12, 2008 ............................................................
June 1, 2008 ...................................................................
July 1, 2008 ....................................................................
June 30, 2009 .................................................................
187
Types of Revenue
Sale of equipment
Sale of inventory
Initial FF (as adjusted0
Interest income and
continuing revenue.
CHAPTER 12
MULTIPLE CHOICE
12-1:
d. This is recorded when the working fund is replenished.
12-2:
c.
Sales
Cost of goods sold:
Purchases
Merchandise inventory, end
Gross profit
Expenses
Net income (loss)
12-3:
P800,000
180,000
620,000
P 80,000
198,000
P (118,000)
b
Sales
Cost of goods sold (P70,000 / 140%)
Gross profit
Less: Samples (P8,000 P6,000)
Expenses
Net income
12-4:
P 700,000
P 2,000
2,800
P 70,000
50,000
P 20,000
4,800
P 15,200
a
Sales
Cost of goods sold
Gross profit
Expenses (P9,000 + P4,500)
Net income
12-5:
12-6:
12-7:
12-8
a
Shipment of merchandise to home office
Equipment sent to home office
Expenses assigned to branch by the home office
Cash remittance to home office
Home office account balance
P 100,000
72,000
P 28,000
13,500
P 14,500
P 80,000
50,000
8,000
(40,000)
P 98,000
12-9: d
12-10: a
Home Office account balance before closing, Dec. 32, 1008
P 35,000
Net income (loss)
Sales
P147,000
Cost of cost goods sold
Shipment to branch
P135,000
Inventory, 12/31
18,500 116,500
Gross profit
P 30,500
Expenses
13,500
17,000
Home Office account balance (Investment in Branch account balance) P 52,000
Shipment to Branch account has no beginning balance, because this was closed at the end
of 2008.
12-11: b
Jan. 1, 2008
P 6,000
86,000
74,000
P166,000
Petty cash fund

Accounts receivable
Inventory
Home Office account balance
Jan. 1, 2009
P 6,000
98,000
82,000
P186,000
12-12: d
Unadjusted balances, Dec. 31

Remittance in transit
Shipment in transit
Cash collections of home office
Adjusted balances, Dec. 31
(Branch Books)
Home Office
P 21,320
7,280
400)
P 28,200
(
(Home Office Books)

Investment in Branch
P 38,600
(10,400)
P 28,200
12-13: a
Unadjusted balance Investment in Branch account, 12/31
Charge for advances by president
Erroneous entry for merchandise allowance
Share in advertising expense
Unadjusted balance Home Office account, 12/31
P430,000
(5,500)
( 600)
(9,000)
P414,900
12-14: a
Unadjusted balances, 12/31
Shipment in transit
Collection of HO A/R by branch
Error in recording of branch profit
Returns of merchandise in transit
Adjusted balances, 12/31
(Branch Books)
Home Office
P 97,350
6,150
P103,500
12-15: a
(Branch Books)
Home Office
Unadjusted balances
P25,550
Error in recording shipment to Cavity branch
(12,000)
Error in recording shipment to Tagaytay branch 15,000
Branch AR collected by home office
Merchandise returns in transit
( 1,200)
Error in recording branch profit
( 3,600)
Adjusted balances
P23,750
12-16: c
Unadjusted balance- Investment in Branch account
Shipment in transit
Expenses allocated
Error in recording remittance
Error in recording shipments
Unadjusted balance Home Office account
Unadjusted balances,
Shipment in transit
Expenses allocated
Unrecorded HO collection of AR
Error in recording shipments
Adjusted balances
12-17 a
Unadjusted balances
Branch AR collected by Home Office
Shipments in transit
Acquisition of furniture
Merchandise returns
Cash remittance in transit
Adjusted balances
( Branch Books)
Home Office
P 44,000
20,000
5,000
(3,000)
9,000
P 75,000
(Branch Books)
Home Office
P 440,000
( 8,000)
32,000
P 464,000
(Home Office Books)

P 84,000
25,000
900
( 6,400)
P103,500
(Home Office Books)
P27,350
(3,000)
P23,750
P 85,000
(10,000)
(20,000)
( 5,000)
3,000
( 9,000)
P 44,000
(HomeOffice Books)
P 85,000
(10,000)
P 75,000
(Home Office Books)
P 496,000
(12,000)
(15,000)
( 5,000)
P 464,000
PROBLEMS
Problem 12-1
Home Office Books
1. Investment in branch
Cash
30,000
Shipment to branch
75,000
Branch Books
30,000
Cash
Home office
30,000
Shipment from home office

Home office
75,000
3. No entry
Purchases
Accounts payable
10,000
4. No entry
Accounts receivable
Sales
5. Shipment to branch
Investment in branch
2,000
75,000
2,000
Home office
2,000
6. No entry
Cash
7. No entry
Accounts payable
Cash
8. No entry
Salaries
Rent
Utilities
Other operating expenses
Cash
Accumulated depn
10. Cash
11. Cash

Branch income
7,500
65,000
3,000
10,000
7,500
65,000
3,000
10,000
125,000
Accounts receivable
Depreciation
Rent
Insurance
Home office
Home office
Cash
Home office
Accounts receivable
105,000
7,000
10,000
5,000
2,000
12,000
1,500
5,000
1,000
65,000
3,000
Sales
125,000
Inventory, end
5,000
Shipment from HO
Purchases
Salaries
Rent
Utilities
Other operating expenses
Home office
30,000
75,000
10,000
125,000
2,000
105,000
7,000
29,500
7,500
65,000
3,000
73,000
10,000
10,000
10,000
2,000
12,500
10,000
Problem 12-2
a.
Books of the Branch

1.
Cash
Home office
200,000
350,000
2.
Accounts payable
400,000
3.
Accounts receivable
Sales
650,000
Cost of goods sold

425,000
Cash
600,000
4.
5.
b.
Accounts receivable
Advertising expense
Sales commission
Other expense
Cash
400,000
650,000
425,000
600,000
40,000
65,000
45,000
Accounts payable
Home office
Cash
150,000
370,000
120,000
490,000
Manila Sales Naga Branch

Income Statement
Sales
Cost of goods sold
Gross profit
Expenses:
Advertising expense
Sales commissions
Other expenses
Net income
c.
550,000
P650,000
425,000
225,000
P40,000
65,000
45,000
150,000
P 75,000
Manila Sales Naga Branch

Balance Sheet
December 31, 2008
Cash
Accounts receivable
Total assets
P160,000
50,000
325,000
P535,000
Accounts payable
Home office
30,000
505,000
P535,000
Problem 12-3
Home Office Books
(1) Adjusting Entries
a. Investment in branch
Cash
63,750
b. Investment in branch
Shipment to branch
75,300
c. Accounts receivable
Sales
157,500
d. Purchases
Accounts payable
183,750
e. Cash
170,400
Accounts receivable
f. Accounts payable
Cash
g. Expenses
Cash
Furniture & fixtures branch
h. Cash
63,750
12,000
80,100
15,000
63,750
75,300
157,500
Accounts receivable
Sales
99,000
183,750
Purchases
33,750
Accounts payable
33,750
39,900
12,000
80,100
Cash
80,100
Accounts receivable
Home office
Cash
80,100
Accounts payable
Cash
18,375
75,300
99,000
80,100
80,100
18,375
Home office
Cash
12,000
12,000
Expenses
Cash
i. Retained earnings
Cash
63,750
Shipment from HO
Home office
186,000
39,900
Home office
73,300
170,400
186,000
Cash
Branch Books
27,000
27,000
15.000
(2) Adjusting Entries

j. Expenses
Acc. Depreciation
1,750
k. Investment in branch
Acc. Depn Br. F & F
975
l. Prepaid expenses
Expenses
375
m. Expenses
Accrued expenses
150
1,750
975
Expenses
Home office
375
Prepaid expenses
Expenses
150
Expenses
Accrued expenses
975
1,125
450
975
1,125
450
Home Office Books

n. Sales
Shipments to branch
Merchandise inv., 12/31
Merchandise inv. 1/1
Purchases
Expenses
Income summary
157,500
75,300
72,750
o. Branch loss
2,100
p. Income summary
Branch loss
2,100
q. Income summary
Retained earnings
3.
Closing Entries
60,180
183,750
41,445
20,175
18,075
2,100
Branch Books
Sales
99,000
Merchandise inv., 12/31 35,250
Income summary
2,100
Purchases
33,750
Shipment from HO
75,300
Expenses
27,300
Home office
2,100
Income summary
2,100
2,100
18,075
Individual Financial Statements

Cebu Company Home Office
Income Statement
Sales
Cost of sales
Merchandise inventory, 1/1
Purchases
Shipment to branch
Goods available for own sale
Gross profit
Expenses
Net operating income
Branch income (loss)
Net income
P157,500
P 60,180
183,750
P243,930
( 75,300)
P168,630
( 72,750)
95,880
P 61,620
41,445
P 20,175
( 2,100)
P 18,075
Cebu Company Branch

Income Statement
Sales
Cost of sales
Purchases
Shipments from home office
Gross profit
Expenses
Net income (loss)
P 99,000
P 33,750
75,300
P109,050
35,250
73,800
P 25,200
27,300
P( 2,100)
Cebu Company Home Office

Balance Sheet
December 31, 2008
Assets
Cash
Accounts receivable
Prepaid expenses
Less: Accumulated depreciation
Branch furniture and fixtures
Total assets
Liabilities and Stockholders Equity
Liabilities
Accrued expenses
Accounts payable
Total liabilities
Stockholders Equity
Capital stock
Retained earnings
Total liabilities and stockholders equity
P30,000
8,370
P12,000
975
P 34,800
28,575
72,750
3,075
21,630
11,025
45,825
P217,680
P 2,025
31,950
P 33,975
P 75,000
108,705
183,705
P217,680
Cebu Company Branch

Balance Sheet
December 31, 2008
Assets
Cash
Accounts receivable
Prepaid expenses
Total assets
P 6,375
18,000
35,250
1,125
P61,650

Accounts payable
Home office
P 450
15,375
P61,650
4.
Combined Financial Statements

Cebu Company
Combined Income Statement
Sales
Cost of sales
Purchases
Gross profit
Expenses
Combined net income
P256,500
P 60,180
217,500
P277,680
108,000
169,680
P 86,820
68,745
P 18,075
Cebu Company
Balance Sheet
December 31, 2008
Assets
Cash
Accounts receivable
Prepaid expenses
Less: accumulated depreciation
Total assets
P 41,175
47,475
108,000
4,200
P42,000
9,345
32,655
P233,505

Accrued expenses
Accounts payable
Capital stock
Retained earnings
2,475
47,325
75,000
108,705
P233,505
Problem 12-4
Branch Books
Sales
145,000
Inventory, 12/31
60,000
Inventory, 1/1
Shipments from HO
Expenses
Income summary
Income summary
Home office
22,000
(a) and (b) Closing Entries
18,000
145,000
20,000
23,000
22,000
Home Office Books
Sales
560,000
Inventory, 12/31
90,000
Shipments to branch
145,000
Inventory, 1/1
Purchases
Expenses
Income summary
Branch income
22,000
45,000
540,000
90,000
120,000
22,000
Branch income
22,000
Income summary
22,000
Income summary
142,000
Retained earnings
142,000
CG Corporation
Combined Statement Working Paper
Eliminations
Debits
Cash
Accounts receivable
Inventory, 1/1
Equipment (net)
Purchases
Shipments from HO
Expenses
Total debits
Home
Office
36,000
54,000
45,000
70,000
95,000
540,000
90,000
930,000
Branch
Debit
7,000
29,000
18,000
Credit
(2) 70,000
145,000
20,000
219,000
(1)145,000
Income
Statement
Dr (Cr)
63,000
540,000
95,000
150,000
371,000
Credits
Accounts payable
Home Office
Capital stock
Retained earnings, 1/1
Sales
Shipments to branch
Total credits
54,000
144,000
560,000
145,000
930,000
145,000
Inventory, 12/31 (IS)
90,000
60,000
27,000
4,000
70,000
219,000
31,000
(2) 70,000
(705,000)
(1)145,000
215,000
Total liabilities & equity

1.
2.
43,000
83,000
110,000
Inventory 12/31 (BS)

Total assets
Net income
Balance
Sheet
215,000
54,000
144,000
(150,000)
142,000
142,000
371,000
To eliminate shipments to branch and shipments from HO

To eliminate reciprocal accounts.
10
Problem 12-5
(1)
Oro Company
Working Paper for Combined Statements
Debits
Cash
Notes receivable
Inventories
Furniture & fixtures (net)
Cost of goods sold
Operating expenses
Totals
Credits
Accounts payable
Common stock
Retained earnings
Home Office
Sales
Totals
Home
Office
Branch
63,000
10,500
120,600
143,700
72,150
124,050
300,750
104,250
128,700
32,850
939,000
275,700
Income
Statements
Dr (CR)
21,900
55,950
36,300
61,500
300,000
37,500
124,050
151,650
540,000
939,000
Eliminations
Debit
Credit
275,700
84,900
10,500
176,550
45,000
72,150
(2)135,000
(2)135,000
(1)124,050
Balance
Sheet
564,050
137,100
389,100
61,500
300,000
37,500
(1)124,050
289,050
(691,650)
289,050
Net Income
9,900
(1) To eliminate shipments

(2) To eliminate reciprocal accounts.
(9,900)
389,100
Closing Entries
2.
Branch Books
Sales
Income Summary
Cost of goods sold
Operating expenses
Home Office
Income summary
3. Home Office Books

151,650
9,900
9,900
128,700
32,850
9,900
Branch loss
9,900
9,900
Income summary
Branch loss
9,900
9,900
11
Problem 12-6
a.
b.
Investment in Branch account (Home Office Books)

Unadjusted balance
Error in recording cash transfer, April 8
Cash transfer recorded in subsequent year, Dec. 31
Error in recording allocated depreciation, Dec. 31
Adjusted balance
P138,200
( 45,000)
( 15,000)
6,000
P 84,200
Home Office account (Branch Books)

Unadjusted balance
Error in recording salary allocation, April 5
Error in recording inventory transfer, July 6
Unrecorded allocated depreciation, Dec. 31
Adjusted balance
P(93,000)
( 200)
12,000
( 3,000)
P(84,200)
Adjusting Entries
Home Office Books
Other income
Rizal
45,000
Cash
15,000
Investment in branchRizal
Accumulated depn
Branch Books
45,000
15,000
6,000
6,000
Salary expense
Home office
200
200
Home office
12,000
Shipments from HO
12,000
Home office
3,000
3,000
Problem 12-7
a.
b.
Investment in Branch account (Home Office Books)

Unadjusted balance, Dec. 31
Cash remittance in transit
Merchandise returns in transit
Adjusted balance, Dec. 31
P166,400
(30,000)
(12,000)
P124,400
Home Office account (Branch Books)

Unadjusted balance, Dec. 31
Error in recording expense
Shipment in transit
Supplies charged to branch
Collection of branch receivable
Adjusted balance, Dec. 31
P103,200
7,200
24,000
8,000
( 18,000)
P124,400
Adjusting Entries
Home Office Books

Cash
30,000
Shipment to branch
12,000
42,000
Branch Books
Shipment from HO
24,000
Supplies
8,000
Expenses
7,200
Accounts receivable
18,000
Home office
21,200
12
Problem 12-8
(1)
Reconciliation Statement
(Home Office Books) (Branch Books)

Home Office

Advertising charged to branch
Home office AR collected by branch
Shipment in transit
Error in recording receipt of merchandise
Remittance in transit, 1/31
(2)
P59,720
600
( 432)
(12,800)
P47,088
P 43,268
480
(
180)
P 47,088
Adjusting Entries
Home Office Books
Retained earnings
Cash
Accounts receivable
432
12,800
Branch Books
Advertising
480
Shipments from HO
3,520
600
Shipment from HO
12,632
Home office
180
3,820
Problem 12-9
(1)
Branch Books
Adjusting Entries
Operating expenses (P4,200 + P3,900)
Home office
57,600
8,100
65,700
Closing Entries
Sales
Inventory, 12/31 (P64,580 + P57,600)
Inventory, 1/1
Shipment from HO (P623,200 + P57,600)
Operating expenses
Income summary
778,200
122,180
Income summary
Home office
116,990
47,800
680,800
54,790
116,990
116,900
13
(2)
Home Office Books

Accounts receivable
Cash (P20,000 + P19,200)
470
330
Branch income
(3)
116,990
800
116,900

Error in recording remittance to branch
Shipment in transit
Expenses charged to branch
Branch net income
Freight erroneously charged to branch
Cash remittance in transit to HO
Home Office Books

Branch Books
(Investment in Branch) (Home Office)
P 206,344
P 140,974
20,000
57,600
8,100
116,990
116,990
(
470)
( 19,200)
P 323,664
P 323,664
Problem 12-1111
a.
P 2,000
Sales (P 27,000 + P 33,000 + P 26,000) .
Cost of Goods Sold (P 36,000 + P 18,000) .
Gross Profit
Rent Expense ..
Property Tax Expense
Depreciation Expense
Miscellaneous Expense .
General Corporate Expense
Net Income
b.
P 86,000
(54,000)
P 32,000
P 4,000
5,000
4,000
11,000
6,000 (30,000)
P 2,000
P 180,000
Initial Transfers .
June Inventory Shipment ..
Property Tax Payment ..
September Inventory Shipment
Expense Allocation ..
Cash Transfer ...
Balance in Home Office/Branch Accounts (correct) ..
P 188,000
18,000
5,000
26,000
6,000
(63,000)
P 180,000
14
c.
Journal Entries Tarlac Branch

1/10/08
1/20/08
2/1/08
4/1/08
5/1/08
6/5/08
7/6/08
9/9/08
10/1/08
Cash .
Inventory .
Equipment
Home Office
Rent Expense
Cash .
Cash ..
Sales
Cost of Goods Sold ..
Inventory .
Cash .
Sales ...
Cost of Goods Sold .
Inventory
Miscellaneous Expenses .
Cash ...
Inventory .
Home office ...
Property Tax Expense .
Home Office ..
Inventory
Home Office .
Cash
Sales .
Cost of Goods Sold ..
Inventory ..
11/1/08
Miscellaneous Expenses ...
Cash .
12/22/08 Home Office
Cash .
12/31/08 Depreciation Expense .
Accumulated depreciation ..
12/31/08 General Corporate Expenses
Home Office ..
30,000
36,000
122,000
4,000
27,000
18,000
33,000
18,000
7,000
18,000
5,000
26,000
26,000
18,000
4,000
63,000
4,000
6,000
188,000
4,000
27,000
18,000
33,000
18,000
7,000
18,000
5,000
26,000
26,000
18,000
4,000
63,000
4,000
6,000
15
d.
TARLAC BRANCH
Balance Sheet
December 31, 2008
Assets
Cash .
Inventory .
Equipment ...
Accumulated Depreciation .
Total Assets
Equity
Home Office* ..
P 122,000
(4,000)
P 38,000
26,000
118,000
P 182,000
P 182,000
*Home office balance is P 180,000 as computed in Part b plus the P 2,000 net
income for the period.
16
CHAPTER 13
MULTIPLE CHOICE
13-1:
13-2:
a
Goods available for sale:
At billed price (P30,000 + P180,000)
At cost (P210,000 / 120%)
Balance of Allowance for Overvaluation account before adjustment
13-3:
c
Inter-company inventory profit (IIP) before closing
Less: IIP from shipment from home office
Billed price
Cost (P300,000 / 120%)
IIP from beginning inventory at billed price
Divided by
Cost of branchs beginning inventory
13-4:
P300,000
250,000
Billed Price
P15,000
110,000
%
150%
150%
Cost
P10,000
73,333
5,000
150%
3,333
50,000
P 16,000
20%
P 80,000
Overvaluation
P 5,000
36,667
P41.667
1,667
P40,000
b
Shipment to branch, at billed price
Shipping cost
Total cost
Sold (50%)
Inventory
13-6:
P 66,000
a
Beginning inventory from HO
Shipments
Balance before adjustment
Ending inventory from HO
Required adjustments
13-5:
P210,000
175,000
P 35,000
P375,000
2,000
P377,000
188,500
P188,500
a
Shipment to branch, at cost
Shipping cost
Billed price
Sold (50%)
Inventory, at billed price
P312,500
2,000
P314,500
157,250
P157,250
17
13-7:
c
Home office account balance after closing branch profit
Less: branch profit
Investment in branch account balance before closing branch profit
13-8:
d
Branch ending inventory, at billed price
Acquired from home office, at billed price:
Cost (P6,000 / 20%)
Mark-up
Purchased from outsiders
13-9:
P765,000
130,000
P635,000
P 50,000
P30,000
6,000
36,000
P 14,000
b
Cost of goods sold Home office
Cost of goods sold Branch:
Billed price
Less: overvaluation (P110,000 P90,000)
Combined cost of goods sold
P590,000
P300,000
20,000
280,000
P870,000
13-10: c
13-11: d
Overvaluation of branch ending inventory acquired from HO:
Billed price
Cost (P28,600 / 130%)
Adjusted balance of allowance for overvaluation account
P 28,600
22,000
P 6,600
13-12: b
Expenses
Cash remittance to home office
Home Office account balance before closing
P 90,000
17,000
(70,000)
P 37.000
13-13: b
Shipment to branch, at cost
Ending inventory, at cost (P70,000 / 30%)
Cost of goods sold
Freight (P6,000 x P50,400/P72,000)
Total
P 72,000
( 21,600)
P 50,400
4,200
P 54,600
13-14: b (20% of P30,000)

13-15: b (P151,200 / 140%)
18
13-16: c
Sales
Cost of goods sold
Shipments from home office (P151,200/140%) P108,000
Inventory, 1/1 (P28,350 / 140%)
20,250
Inventory, 12/31 (P25,200 / 140%)
( 18,000)
Gross profit
Expenses
Branch profit as far as the home office is concerned
P270,000
110,250
P159,750
90,000
P 69,750
13-17: c
Unsold merchandise
Less: Merchandise acquired from home office, at billed price
Merchandise acquired from outsiders
Merchandise acquired from home, at cost (P7,500 / 20%)
Branch inventory at cost, 12/31
P 60,000
45,000
P 15,000
37,500
P 52,500
13-18: a
Branch inventory, 1/1
Acquired from home office at billed price:
Overvaluation [P99,900 (P390,000 P300,000)]
Cost (P9,900 / 30%)
Purchases from outsiders
P 54,600
P 9,900
33,000
42,900
P 11,700
13-19: c
Acquired from home office [(P60,000 x 80%) 120%]
Acquired from outsiders (P60,000 x 20%)
Branch inventory, 12/31 at cost
P 40,000
12,000
P 52,000
13-20: b
Sales (P148,000 + P144,000)
Cost of sales at cost to home office:
Shipment from home office (P108,000 / 120%) P90,000
Purchases
52,000
Inventory, 12/31 (no. 19 above)
(52,000)
Gross profit
Expenses (P76,000 + P24,000)
Branch net income (actual)
P192,000
90,000
P102,000
100,000
P 2,000
13-21: b
Allowance for overvaluation account balance
Overvaluation on the shipment (P200,000 x 25%)
Overvaluation on the branch beginning inventory
Cost of branch beginning inventory (P7,500 / 25%)
Branch beginning inventory at billed price
P 57,500
50,000
P 7,500
30,000
P 37,500
19
13-22: b
Sales
Cost of goods sold cost to home office
Beginning inventory
P 30,000
200,000
Ending inventory (P40,000 / 125%)
( 32,000)
Gross profit
Expenses
Branch net income as far as the home office is concerned
P400,000
198,000
P202,000
100,000
P102,000
13-23: b
Branch inventory, 1/1
Acquired from home- at billed price
Overvaluation [P24,000 (P80,000 P60,000)] P 4,000
At cost [(P4,000 (P20,000 / P60,000)]
12,000
Acquired from outsiders
P 20,000
16,000
P 4,000
13-24: a
Sales
Cost of sales (at cost to home office)
Inventory, 1/1 (P12,000 + P4,000)
P16,000
60,000
Purchases
30,000
Inventory, 12/31 [(P20,000133 1/3%) +P6,000] (21,000)
Gross profit
Expenses
Branch net income (actual)
P200,000
85,000
P115,000
60,000
P 55,000
13-25: a
Inventory, 1/1
Overvaluation
Cost of goods available for sale
Percentage of mark-up (P72,500 / P362,500)
P 75,000
360,000
( 72,500)
P362,500
20%
13-26: b
20
13-27: a
Billing percentage above cost (P20,000 / P80,000)
Branch inventory, 6/1 at cost (P12,000 / 125%)
Home office inventory, 6/1
Purchases
Inventory, 6/30 at cost:
Branch (P10,000 / 125%)
Home office
Combined cost of goods sold
25%
P 9,600
40,000
160,000
P209,600
P 8,000
60,000
68,000
P141.600
13-28: d
Sales
Cost of goods sold
Gross profit
Expenses
Combined net income
P450,000
141,600
P308,400
150,000
P158,400
13-29: d
Sales
Cost of goods sold:
Inventory, 1/1: Home office
P57,500
Branch (P22,250 / 125%) 17,800 P 75,300
Purchases
410,000
P 485,300
Inventory, 12/31: Home office
P71,250
Branch (P29,250/120%) 24,375
95,625
Gross profit
Expenses
Combined net income
P687,500
389,675
P297,825
241,750
P 56,075
13-30: a
Sales
Cost of goods sold:
Inventory, 1/1:
Home office
Branch [P15,000 + (P49,000 / 122.5%)]
Purchases
Inventory, 12/31:
Home office
Branch [P11,000 + (P52,000 / 133 1/3%)]
Gross profit
Expenses
Combined net income
P669,000
P160,000
55,000
P110,000
50,000
P215,000
460,000
P675,000
160,000
515,000
P154,000
145,000
P 9,000
21
13-31: a
The entries made by the branch to record the interbranch transfer of merchandise are:
Books of Branch 1:
Home office
19,500
Freight in
3,500
16,000
Books of Branch 3:
16,000
Freight in
4,000
Cash
2,500
Home office
17,500
Therefore the home office would make the following entry:
Investment in Branch 3
17,500
Excess freight
2,000
Investment in Branch 1
13-32: a
Unadjusted balances
Error in recording shipment
Error in recording expense
Unrecorded cash remittance
Adjusted balances
(Home office books)

77,000
(31,000)
46,000
19,500
(Branch books)
Home office
61,000
(10,000)
5,000
46,000
13-33: c
13-34: a
Home office books
Inv in Bacolod 25,000
Inv in Cebu
25,000
Cebu branch books

Home office 25,000
Cash
25,000

Inv in Cebu
34,300
Home office 34,300

SD
700
AR
35,000

Home office 212,500
Expenses
150,000
Expenses
37,500
Inv in Cebu
212,500
Cash
250,000
Bacolod branch books

Cash
25,000
Home office 25,000
Cash
34,300
Home office 34,300
Expenses
62,500
Home office
62,500
Inv in Cebu 253,000

Freight in
3,000
S to branch
200,000 S from HO 250,000
Allowance
50,000
Home office
253,000
Cash
3,000
Home office 253,000
Excess freight
300
S from H
253,000
Inv in Cebu
253,000
22
(Home office books)

Investment in Cebu Branch
25,000
34,300
212,500
253,000
253,000 524,800
271,800
(Bacolod branch books)

Home Office
25,000
34,300
62,500
252,700
374,500
23
PROBLEMS
Problem 13-1
(a)
Journal Entries
Home Office Books
Branch Books
(1) Investment in branch

Cash
18,000

Cash
3,000

Shipment to branch
Allowance for overValuation
(4)
100,000
18,000
Equipment
Home office
18,000
3,000
Rent expense
Home office
3,000
80,000
Shipment from HO
Home office
100,000
No entry
Operating expenses
Cash
(b)
3,000
100,000
20,000
Cash
(5) Cash
18,000
60,000
60,000
Sales
Home office
Cash
11,000
105,000
60,000
11,000
105,000
60,000
Working Paper Elimination Entries

(1)
Home office
61,000
To eliminate reciprocal accounts computed
as follows:
Equipment purchased
P 18,000
Rent paid
3,000
Inventory shipped
100,000
Cash transfer
( 60,000)
Balance
P 61,000
(2)
Shipment to branch
Allowance for overvaluation of branch inventory
To eliminate inter-company shipments
(3)
Inventory, 12/31 (Income statement)

Inventory, 12/31 (Balance Sheet)
To reduce inventory, 12/31 to cost.
80,000
20,000
5,000
61,000
100,000
5,000
24
(c)
Closing Entries Branch Books

Sales
Inventory, 12/31
Rent expense
Operating expenses
Income summary
Income summary
Home office
105,000
25,000
16,000
3,000
100,000
11,000
16,000
16,000
Problem 13-2
a.
Branch Books
Equipment
Cash
Home office
50,000
60,000
10,000
Purchases
Cash or accounts payable
30,000
Prepaid rent
Home office
10,000
Cash
Accounts receivable
Sales
40,000
50,000
Advertising expense
Salary expense
Cash
8,000
5,000
Home office
Cash
10,000
Home office
Accounts receivable
3,000
Rent expense
Prepaid rent
5,000
120,000
30,000
10,000
90,000
13,000
10,000
3,000
5,000
25
Home Office Books

-
120,000
Equipment
Shipment to branch
Allowance for overvaluation of branch inventory
Cash
To record assets sent to branch
50,000
40,000
20,000
10,000
Cash
To record rent expense of the branch
10,000
10,000
Cash
10,000
Cash
3,000
b.
Income Statement
To record cash remittance from branch
To record collection of branch receivable.
Sales
Cost of goods sold
Shipment from home office at cost
Purchases
Ending inventory:
From home office (1/3)
From outsiders (1/4)
Gross profit
Expenses:
Advertising expense
Salary expense
Rent expense
Net income
10,000
3,000
P90,000
P40,000
30,000
70,000
P13,333
7,500
(20,833)
P 8,000
5,000
5,000
49,167
P40,833
18,000
P22,833
Problem 13-3
a.
Investment in Branch account beginning balance

Cash transfer
Inventory transfer
Rent allocated
Expenses allocated
Inventory transfer
Transportation allocated
Unadjusted balance Investment in Branch account
P 86,000
( 32,000)
34,500
1,000
3,000
46,000
3,000
P141,500
26
b.
Home Office account beginning balance

Inventory transfer
Rent allocated
Expenses allocated
Inventory transfer (error made)
Cash transfer
Home Office account unadjusted balance
c.
Unrecorded cash transfer
Error in recording transfer (overstated)
Expense allocation not recorded
P 54,000
34,500
1,000
3,000
64,000
( 74,000)
P 82,500
P141,500
( 74,000)
P 67,500
Home Office
P 82,500
18,000
( 3,000)
P 67,500
Problem 13-4
a.
b.
Books of Branch X
Freight-in
Home office
5,000
300
Home office
Shipment from office
5,800
5,800
Books of Branch Y
Freight-in
Home office
c.
5,300
5,000
600
5,600
Books of the Home Office

Investment in branch X
Shipment to branch X
Cash
5,300
Investment in branch Y
Inter-branch freight expense
Investment in branch X
5,000
600
Shipment to branch X
Shipment to branch Y
5,000
5,000
300
5,600
5,000
27
Malakas Company
Combination Worksheet
Debits
Cash
Accounts receivable
Inventory, 12/31
Land, bldg, and equipment
Shipment from office
Purchases
Advertising expense
Rent expense
Miscellaneous expense
Inventory, 1/1
Total debits
Malakas
Davao
25,000
108,000
209,000
207,000
340,000
348,000
25,000
36,000
12,000
40,000
175,000
1,525,000
18,000
25,000
42,000
112,000
96,000
8,000
15,000
5,000
20,000
35,000
376,000
Credits
Accounts payable
Notes payable
Home office
80,000
37,000
220,000
-
16,000
15,000
176,000
Common stock
Sales
Shipment to branch
Inventory, 12/31
100,000
240,000
529,000
110,000
209,000
127,000
42,000
Adjustments and
Eliminations
Debit
Credit
(4) 14,000
(5) 16,000
(7)207,000
(3) 14,000
(6)110,000
(1) 9,000
(1) 6,000
(1) 2,000
(7)207,000
(2) 10,000
452,000
348,000
33,000
60,000
23,000
62,000
200,000
877,000
96,000
52,000
220,000
-
(655,000)
(4) 14,000
Combined net income
(230,000)
(179,000)
(409,000)
1,525,000
376,000
388,000
100,000
(249,000)
(179,000)
Combined retained earnings

Totals
43,000
133,000
249,000
(1) 17,000
(3) 14,000
(2) 10,000
(6)110,000
(5) 16,000
Income
Retained
Statement Earnings Balance
Dr (Cr)
Dr (Cr)
Sheet
388,000
(409,000)
877,000
Adjustments and Elimination Entries

(1)
Advertising expense
Rent expense
Miscellaneous expenses
Home office
Unrecorded expenses allocated to the branch
9,000
6,000
2,000
17,000
(2)

10,000
Inventory, 1-1
To eliminate unrealized inventory profit of preceding year
10,000
(3)

Home office
Unrecorded shipments
14,000
14,000
28
(4)
Inventory, 12/31 (debits)

Inventory (credits)
Shipment not yet received by the branch
14,000
(5)
Inventory, 12/31 (debits)

Inventory (credits)
To reduce ending inventory to cost
16,000
(6)
Shipment to branch
To eliminate inter-company shipments
110,000
(7)
Home office
To eliminate reciprocal accounts
207,000
14,000
16,000
110,000
207,000
Problem 13-6
a.
Eliminating Entries
(1)
Home office
Investment in branch Silver
395,000
(2)
Home office
Investment in branch Opal
260,000
(3)
Unrealized intra-company profit Silver

Unrealized intra-company profit Opal
Inventory from home office
20,000
16,000
(4)
Inventory
90,000
(5)
Unrealized intra-company profit Silver

Equipment
40,000
395,000
260,000
36,000
90,000
40,000
29
Ginto Company
Balance Sheet Working Paper
December 31, 2008
Cash
Accounts receivable
Inventory
Land
Investment in branch Silver
Investment in branch Opal
Total debits
Accounts payable
Bonds payable
Common stock
Retained earnings
Home office
Unrealized intra-company profit
Silver
Opal
Total credits
b.
Home
Office
81,000
100,000
260,000
Silver
Branch
20,000
40,000
50,000
70,000
Opal
Branch
15,000
25,000
44,000
56,000
70,000
700,000
395,000
260,000
1,866,000
30,000
350,000
20,000
200,000
560,000
360,000
280,000
110,000
400,000
300,000
700,000
-
120,000
45,000
80,000
20,000
395,000
260,000
60,000
16,000
1,866,000
560,000
360,000
Eliminations
Debit
Credit
(4) 90,000
( 3) 36,000
(4) 90,000
(5) 40,000
(1)395,000
(2)260,000
120,000
1,210,000
2,055,000
480,000
175,000
400,000
300,000
700,000
(1)395,000
(2)260,000
(3) 20,000
(5) 40,000
(3) 16,000
821,000
Combined
116,000
165,000
444,000
821,000
2,055,000
Ginto Company
Combined Balance Sheet
December 31, 2008
Assets
Cash
Accounts receivable
Inventory
Land
Total assets
Liabilities
Accounts payable
Bonds payable
Total liabilities
Stockholders Equity
Common stock
Retained earnings
P1,210,000
480,000
P 116,000
165,000
444,000
120,000
730,000
P1,575,000
P 175,000
400,000
P 575,000
P 300,000
700,000
1,000,000
P1,575,000
30
Problem 13-7
a.
b.
Books of Branch P
Freight-in
Home office
8,000
50
Home office
Freight-in
Cash
8,120
8,000
50
70
Books of Branch Q
Freight-in
Home office
c.
8,050
8,000
80
8,080
Books of Home Office

Investment in branch P
Shipment to branch P
Cash
8,050
Investment in branch Q
Inter-branch freight expense
Investment in branch P
8,080
40
Shipment to branch - P
Shipment to branch Q
8,000
8,000
50
8,120
8,000
Problem 13-8
Debits:
Cash = P36,000 (add the book values and include the P9,000 transfer in transit)
Accounts receivable = P118,000
Inventory, 12/31 = P151,000 (branch balance would be P81,000 when the shipment in transit is
included. This balance must be adjusted to cost of P54,000
(P81,000 150%) and then add to home office balance of P97,000.
Investment in branch = 0 (eliminated)
Land, buildings and equipment = P460,000
Shipment from home office = 0 (eliminated)
Purchases = P429,000
Depreciation expense = P28,000 (add the two book values and the year-end allocation)
Advertising expense = P58,000 (add the two book values and the year-end allocation)
Rent expense = P30,000 (add the two book values and the year-end allocation)
Miscellaneous expense = P100,000 (add the two book values and the year-end allocation)
Inventory, 1/1 = P145,000 (branch balance is adjusted to cost of P24,000 (P36,000 / 150%),
and then added to home office balance.
Total debits = P1,555,000 (add the above totals)
31
Credits
Accumulated depreciation = P108,000
Accounts payable = P104,000
Notes payable = P180,000
Home office = 0 (eliminated)
Common stock = P60,000 (home office balance)
Retained earnings, 1/1 = P248,000 (home office balance after reduction of P12,000 unrealized
profit in beginning inventory of branch. Cost is P24,000
(P36,000 / 150%) which indicates the P12,000 unrealized.
Sales = P704,000
Shipment to branch = 0 (eliminated)
Inventory, 12/31 = P151,000
Total credits = P1,555,000 (add the above totals)
Investment in Branch account balance (Home office books)
Unrecorded cash transfer
Adjusted balance
P177,000
( 9,000)
P168,000
Home Office account balance (Branch books)

Inventory transfer in transit
Expense allocated not yet recorded
Adjusted balance
P123,000
21,000
24,000
P168,000
Problem 13-9
Home Office Books
Shipment to branch
Unrealized inventory profit
(2) Cash
Closing entries:
(3) Sales
Inventory, 12/31
Shipment to branch
Purchases
Expenses
Income summary
Branch income summary
Case A
60,000
61,200
130,000
8,000
60,000
13,000
60,000
61,200
150,000
17,200
30,800
13,000

Income summary
Income summary
Retained earnings
Case B
75,000
61,200
130,000
8,000
60,000
500
13,500
43,800
43,800
43,800
60,000
15,000
61,200
150,000
17,200
30,800
500
500
13,000
43,800
Case C
90,000
61,200
130,000
8,000
60,000
14,000
27,000
43,800
60,000
30,000
61,200
150,000
17,200
30,800
14,000
14,000
13,000
43,800
32
Ilocos Branch Books

Case A
(1) Shipment from home office
Home office
60,000
(2) Accounts receivable

Sales
81,000
(3) Cash
64,000
Accounts receivable
(4) Expenses
Cash
14,000
(5) Home office

Cash
61,200
60,000
81,000
64,000
14,000
61,200
Case B
75,000
81,000
64,000
14,000
61,200
Case C
75,000
81,000
64,000
14,000
61,200
90,000
81,000
64,000
14,000
61,200
90,000
81,000
64,000
14,000
61,200
Closing entries
(6) Sales
Inventory 12/31
Shipment from HO
Expenses
Income summary
81,000
6,000
(7) Income summary

Home office
13,000
Home office
Income summary
60,000
14,000
13,000
81,000
7,500
500
75,000
14,000
81,000
9,000
14,000
90,000
14,000
13,000
500
500
14,000
14,000
33
Working Paper for Combined Financial Statements

December 31, 2008
Income Statement
Sales
Shipment to branch
Total credits
Purchases
Expenses
Total debits
Net income(loss) carried forward
Retained Earnings Statement
Net income (loss) from above
Retained earnings, 12/31 Carried forward
Balance Sheet
Cash (overdraft)
Accounts receivable
Total debits
Accounts payable
Capital stock
Retained earnings, from above
Home office
Total credits
Home Office
130,000
8,000
60,000
198,000
Branch
81,000
9,000
90,000
Eliminations
Debit
Credit
211,000
14,000
225,000
(3) 3,000
(2) 60,000
150,000
17,200
167,200
30,800
14,000
104,000
(14,000)
150,000
31,200
181,200
43,800
30,800
(14,000)
43,800
30,800
(14,000)
43,800
39,000
45,000
8,000
28,800
120,800
(11,200)
17,000
9,000
27,800
62,000
14,000
103,800
20,000
30,000
40,000
30,800
120,800
90,000
Combined
(2) 90,000
(3) 3,000
(1) 28,800
14,800
(2) 30,000
(14,000)
28,800
14,800
(1) 28,800
121,800
121,800
20,000
40,000
43,800
103,800
34
Problem 13-10
(1)
Consolidated Working Paper
Debits
Cash
Inventories
Home
Office
Branch A
Branch B
33,000
70,000
22,000
21,000
13,000
15,000
Other current assets

Investment in Branch A
Investment in Branch B
Cost of sales *
50,000
45,000
42,000
80,000
25,000
23,000
57,000
45,000
Expenses
90,000
410,000
25,000
150,000
20,000
116,000
40,000
100,000
50,000
15,000
11,000
45,000
30,000
Credits
Current liabilities
Capital stock
Retained earnings, Jan. 1
Home Office
Allow. for overvaluation of
Branch inv. Branch A
Allow. for overvaluation of
Branch inv. Branch B
Sales
Net income
13,000
12,000
195,000
410,000
Adj. & Elim.

(dr) Cr
Income
Statement
68,000
A (12,000)
B 8,000
D 45,000
D 42,000
B (8,000)
C 25,000
Balance
Sheet
110,000
98,000
(165,000)
(135,000)
276,000
66,000
100,000
50,000
A 12,000
D (87,000)
C (13,000)
90,000
150,000
75,000
116,000
C (12,000)
360,000
60,000
60,000
276,000
Book value of cost of sales from home office and branches
Home Office
Inventory, January 1,
Purchases
Shipment to branch
Inventory, Dec. 31
Cost of sales
P 80,000
160,000
( 90,000)
P150,000
( 70,000)
P 80,000
Investment in
Branch A
Investment in
Branch B
P 18,000
P24,000
60,000
P 78,000
( 21,000)
P 57,000
36,000
P 60,000
(15,000)
P 45,000
35
(2) Reconciliation of Home Office and Investment in Branch accounts.
Unadjusted balances, Dec.31
Books of Home Office

Investment
Investment
In Branch A In Branch B
P 45,000
P 42,000
Books of
Books of
Branch A
Branch B
Home Office Home Office
P 45,000
P 30,000
Shipments in transit to Branch B

Branch Profit (Schedule 1)
Adjusted balances, December 31
12,000
8,000
P 53,000
10,000
P 52,000
8,000
10,000
P 53,000
P 52,000
Schedule 1:
Sales
Cost of sales:
Beginning inventory
Ending inventory
Cost of sales
Gross profit
Expenses
Net profit
Branch A
P90,000
Branch B
P75,000
P18,000
60,000
78,000
21,000
57,000
33,000
25,000
P 8,000
P24,000
48,000
72,000
27,000
45,000
30,000
20,000
P10,000
36
CHAPTER 14
MULTIPLE CHOICE
14-1:
a
Purchase price (8,000 shares x P30)
Direct acquisition cost
Contingent consideration
Acquisition cost
14-2:
P240,000
4,000
5,000
P249,000
a
Purchase price
Acquisition cost
Less: Fair value of net assets acquired
Goodwill
14-3:
P250,000
50,000
P300,000
180,000
P120,000
c
Acquisition cost
14-4:
14-5:
P3,600,000
100,000
20,000
P3,720,000
b
Acquisition cost
Less: goodwill recorded
Fair value of net assets acquired
P30,000,000
300,000
P30,300,000
6,120,000
P24,180,000
Capital stock issued (at par)
P30,000,000
c
Purchase price
Legal fees
Acquisition cost
Current assets
Plant assets
Liabilities
Income from acquisition
P2,550,000
25,000
P2,575,000
P1,100,000
2,200,000
( 300,000)
3,000,000
P( 425,000)
37
14-6:
a (at fair value at date of acquisition)
14-7:
d
Abel net income, January to December (P80,000 + P1,320,000) P1,400,000
Cain net income, April to December
400,000
Total net income
P1,800,000
14-8:
a
Acquisition cost
Cash
Inventory
Property, plant and equipment
Liabilities
14-9
P 800,000
P 160,000
380,000
1,120,000
( 360,000)
1,300,000
P (500,000)
a
Acquisition cost
Less: Fair value of net assets acquired (P600,000 P188,000)
Goodwill
Avons assets
Bells assets at fair value
Total assets
P 700,000
412,000
P 288,000
2,000,000
600,000
P2,888,000
14-10: b
Debit to Investment in Stock
Brokers fee
Pre-acquisition audit fee
Legal fees for the combination
Total
P 50,000
40,000
32,000
P 122,000
Debit to expenses:
General administrative costs
Other indirect costs
Total
P 15,000
6,000
P 21,000
Debit to APIC
Audit fee for SEC registration of stock issue
SEC registration fee for stock issue
Total
P 46,000
5,000
P 51,000
38
14-11: d
Acquisition costs:
Cash
Stocks issued at fair value
Contingent liabilities
Total
Less: fair value of net assets acquired:
Cash
Inventories
Plant assets (net)
Current liabilities
Other liabilities
Goodwill
P200,000
330,000
70,000
P600,000
P40,000
100,000
20,000
180,000
(30,000)
(40,000)
Total assets after combination:

Total assets before combination
Cash paid
Registration and issuance costs of shares issued
Polos assets after combination
Assets acquired at fair values
Goodwill
Total assets after combination
270,000
P330,000
P 760,000
(200,000)
( 30,000)
P 530,000
340,000
330,000
P1,200,000
14-12: d
Acquisition cost
Less: Fair value net assets acquired
Goodwill
P1,400,000
1,350,000
P 50,000
14-13: a
Acquisition cost
Less: Fair value of net identifiable assets acquired:
Current assets
P 80,000
Non-current assets
120,000
Liabilities
( 20,000)
P160,000
Non- current assets
P120,000
180,000
P(20,000)
14-14: c
Acquisition cost
Less: Fair value of identifiable assets acquired:
Cash
P 60,000
142,500
Plant assets (net)
420,000
Liabilities
(135,000)
Goodwill
P600,000
487,500
P112,500
39
14-15: b
Acquisition cost
Less: Fair value of identifiable assets acquired
Goodwill
MMs net assets at book value
PPs net assets at fair value
P1,000,000
800,000
P 200,000
1,200,000
800,000
P2,200,000
14-16: c, Under the purchase method assets are recorded at their fair values (P225.000)
14-17: d
Capital stock issued at par (10,000 shares x P10)
APIC (10,000 shares x P40)
Total
P100,000
400,000
P500,000
14-18: d, net assets are recorded at their fair values.

14-19: a
Fair value of net assets acquired P2,000,000 P400,000)
Acquisition cost
P 100,000
1,600,000
1,500,000
Shares to be issued (P1,500,000 P40)
37,500 shares
14-20: d
14-21:
Goodwill
Fair value of net assets acquired
Acquisition cost
P 200,000
1,600,000
P1,800,000
Shares to be issued (P1,800,000 P40)
45,000 shares
Total assets of Pablo before acquisition at book value

Total assets acquired from Siso at fair value (100,000 +440,000)
Total assets
Less: cash paid (15,000 + 25,000)
Total assets after cash payment
Goodwill to be recognized (Sched 1)
P 700,000
540,000
1,240,000
40,000
1,200,000
195,000
1,395,000
Sched 1: Acquisition cost:

Purchase price (30,000 shares x P20) 600,000
Direct cost
25,000
50,000
Fair value of net assets acquired (540,000 60,000)
Goodwill
675,000
480,000
195,000
40
14-22:
Stockholders equity before acquisition

APIC (50,000 +300,000) 15,000
Stockholders equity after acquisition
14-23: a
Acquisition cost
Less: fair value of net assets acquired
Goodwill
650,000
300,000
335,000
1,285,000
B Company
P4,400,000
4,150,000
P 250,000
Total goodwill recorded (250,000 + 268,000)

14-24: a
A Company
B Company
C Company
Cash paid for combination expenses
Goodwill (see 14-23)
14-25: a
Stockholders equity before acquisition
Additional paid-in-capital [(229,000 x 12) 10,000]
Indirect cost (reduction from retained earnings)
Stockholders equity after acquisition
C Company
P638,000
370,000
P268,000
518,000
5,250,000
6,800,000
900,000
(30,000)
518,000
13,438,000
P1,300,000
2,290,000
2,738,000
(20,000)
6,308,000
41
PROBLEMS
Problem 14-1
1.
Books of Big Corporation

Accounts receivable
Inventories
Current liabilities
Cash
To record acquisition of net assets of Small.
120,000
140,000
300,000
Computation of Income from Acquisition:

Acquisition cost (P500,000 + P5,000)
Less: Fair value of net identifiable assets acquired:
Accounts receivable
P120,000
Inventories
140,000
300,000
Current liabilities
( 50,000)
2.
50,000
5,000
505,000
P505,000
510,000
P( 5,000)
Books of Small Corporation

Cash
Current liabilities
Accounts receivable
Inventories
Retained earnings
To record sale of net assets to Big.
500,000
50,000
Common stock
Retained earnings
Cash
To record liquidation of the corporation.
200,000
300,000
120,000
100,000
280,000
50,000
500,000
42
Problem 14-2
Cash
Inventory
Building and equipment net
Patent
Accounts payable
Cash
To record acquisition of the net assets at fair values.
50,000
150,000
300,000
200,000
Computation of Income from Acquisition

Less: Fair value of net identifiable assets acquired
Total assets
P700,000
Accounts payable
( 30,000)
30,000
570,000
100,000
P570,000
670,000
P(100,000)
Problem 14-3
Cash and receivables
Inventory
Building and equipment
Goodwill
Accounts payable
Common stock, P10 par value
Additional paid-in capital
Cash
To record acquisition of net assets acquired.
50,000
200,000
300,000
65,000
Computation of Goodwill
Acquisition cost
Less: fair value of net identifiable assets acquired
Total assets
P550,000
Accounts payable
( 50,000)
Goodwill
50,000
60,000
480,000
25,000
P540,000
25,000
P565,000
500,000
P 65,000
43
Problem 14-4
(1)
Cash
Accounts receivable
Inventory
Land
Bond discount
Goodwill
Accounts payable
Bonds payable
Common stock, P10 par value
Cash (P10,000 + P3,000)
To record purchase of net assets of Tan.
60,000
100,000
115,000
70,000
350,000
20,000
108,000
Professional fees (P10,000 + P3,000)
Acquisition cost
Total assets
P695,000
Total liabilities
( 190,000)
Goodwill
10,000
200,000
120,000
480,000
13,000
P600,000
13,000
P613,000
505,000
P108,000
(2)

6,000
Cash
To record costs of issuing and registering of shares issued
(P5,000 + P1,000)
(3)
Expenses
Cash
To record indirect acquisition costs.
6,000
9,000
9,000
Problem 14-5
1.
2.
3.
4.
5.
6.
7.
Common stock:: P200,000 + (8,000 shares x P10)

Cash and receivables: P150,000 + P40,000
Land: P100,000 + P85,000
Building and equipment net: P300,000 + P230,000
Goodwill: (8,000 shares x P50) - P355,000
APIC: P20,000 + (8,000 shares x P40)
Retained earnings
P280,000
190,000
185,000
530,000
45,000
340,000
330,000
44
Problem 14-6
After acquisition
Inventory
Goodwill
Total assets
Accounts payable
Bonds payable
Common stock P10 Par value
Retained earnings(including income from acquisition)
Based on P40/share Based on P20/share

P 350,000
P 350,000
645,000
645,000
1,050,000
1,050,000
(200,000)
(200,000)
180,000
P2,025,000
P1,845,000
P 140,000
485,000
450,000
550,000
400,000
P2,025,000
Computation of Goodwill Based on P40 per share:

Acquisition cost (15,000 shares x P40)
Less: Fair value of net identifiable assets (P545,000 P125,000)
Goodwill
Computation of Income from Acquisition Based on P20 per share:
Acquisition cost (15,000 shares x P20)
Less: Fair value of net identifiable assets
Income from acquisition (added to retained earnings of Red)
P 140,000
485,000
450,000
250,000
520,000
P1,845,000
P600,000
420,000
P180,000
P300,000
420,000
P(120,000)
Problem 14-7
(a)

January 1, 2008
ASSETS
Inventory
Land
Plant and equipment
Goodwill
Total assets
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Capital stock, P20 par value
Capital in excess of par
Retained earnings
P540,000
150,000
P 110,000
142,000
115,000
390,000
13,000
P 770,000
P 100,000
214,000
216,000
240,000
P 770,000
45
Acquisition cost
(P217,000 P20,000)
Goodwill
(b)
P210,000
197,000
P 13,000
Stockholders Equity section

(1) With 1,100 shares issued
Capital stock: P200,000 + (1,100 shares x P20)
Capital in excess of par: P20,000 + (1,100 x P280)
Retained earnings
Total
P222,000
328,000
240,000
P790,000

Retained earnings
Total
P 236,000
524,000
240,000
P1,000,000

Retained earnings
Total
P260,000
860,000
240,000
P1,360,000
Problem 14-8
Revenue
Net income
Earnings per share
(a)
(b)
(c)
(d)
(e)
2007 (a)
P1,400,000
500,000
P 5.00
2008
P1,800,000 (b)
545,000
P 4.84 (d)
2009
P2,100,000
700,000
P 5.60 (e)
Separate figures for Dollar Transport only.

P2,000,000 P200,000
P620,000 - P55,000
P545,000 / 112,000 shares (100,000 + 125,000) 2
P700,000 / 125 shares
46
Problem 14-9
a.
Books of Peter Industries

Cash
28,000
Accounts receivable
258,000
Inventory
395,000
Long-term investments
175,000
Land
100,000
Rolling stock
63,000
Plant and equipment
2,500,000
Patents
500,000
Special licenses
100,000
Discount on equipment trust notes
5,000
Discount on debentures
50,000
Goodwill
244,700
Current payables
Mortgage payables
Premium on mortgage payable
Equipment trust notes
Debenture payable
Common stock
APIC common
Cash (direct acquisition cost)
To record acquisition of assets and liabilities at fair values.
Acquisition cost
Less: fair value of net identifiable assets acquired
Total assets
P4,112,500
Total liabilities
(1,702,200)
Goodwill
Expenses
Cash
To record indirect cost.
42,000
6,500
137,200
500,000
20,000
100,000
1,000,000
180,000
2,298,000
135,000
P2,520,000
135,000
P2,655,000
2,410,300
P 244,700
42,000
47
b.
Books of HCC:
Common stock
APIC Common
Treasury stock
To record retirement of treasury stock.
P7,500 = P5 x 1,500 shares
P4,500 = P12,000 P7,500
Investment in stock - Peter
Current payable
Mortgage payable
Equipment trust notes
Debentures payable
Discount on bonds payable
Cash
Accounts receivable
Inventory
Land
Rolling stock
Plant and equipment
Patents
Special licenses
Gain on sale of assets and liabilities
To record sale of assets and liabilities to Peter.
7,500
4,500
2,520,000
6,500
614,000
137,200
500,000
100,000
1,000,000
Common stock
592,500
APIC Common
495,500
APIC Retirement of preferred
22,000
Retained earnings
1,410,000
Investment in stock Peter
To record retirement of HCC stock and distribution of
Peter Industries stock:
P592,500 = P600,000 - P7,500
P495,500 = P500,000 P4,500
P1,410,000 = P220,000 + P1,189,900
12,000
40,000
28,000
258,000
381,000
150,000
55,000
130,000
2,425,000
125,000
95,800
1,189,900
2,520,000
48
Problem 14-10
a.
Increase in capital stock (P240,00 P200,000)

Increase in APIC (P420,000 P60,000)
Value of shares issued
P 40,000
360,000
P 400,000
b.

Total assets of Subic before combination
Total fair value of assets of Clark before combination
P1,130,000
650,000
P 480,000
Total liabilities after combination

P220,000
Total liabilities of Subic before combination
(140,000)
Fair value of Clarks net assets (including goodwill)
Less: Goodwill
Fair value of Clarks net assets before combination
( 80,000)
P 400,000
55,000
P 345,000
c.
Par value of common stock after combination

Par value of common stock before combination
Increase in par value
Divided by par value per share
Number of shares issued
P 240,000
200,000
P 40,000
P5
8,000 shares
d.
Value of shares computed in (a)

Number of shares issued computed in
Market price per share
P 400,000
8,000
P
50
Problem 14-11
a.
Inventory reported by Son at date of combination was P70,000

(325,000 P20,000 P55,000 P140,000 P40,000)
b.
Fair value of total assets reported by Son:

Fair value of cash
Fair value of accounts receivable
Fair value of inventory
Buildings and equipment reported following purchase
Buildings and equipment reported by Papa
Fair value of Sons total assets
c.
P570,000
(350,000)
P 20,000
55,000
110,000
220,000
P405,000
Market value of Sons bond:

Book value reported by Son
Bond premium reported following purchase
Market value of bond
P100,000
5,000
P105,000
49
d.
Shares issued by Papa Corporation:

Par value of stock following acquisition
Par value of stock before acquisition
Increase in par value of shares outstanding
Divide by par value per share
Number of shares issued
e.
f.
P190,000
(120,000)
P 70,000
P5
14,000
Market price per share of stock issued by Papa Corporation

Par value of stock following acquisition
Additional paid-in capital following acquisition
P190,000
262,000
Par value of stock before acquisition

Additional paid-in capital before acquisition
Market value of shares issued in acquisition
Divide by number of shares issued
Market price per share
P120,000
10,000
P452,000
(130,000)
P322,000
14,000
P 23.00
Goodwill reported following the business combination:

Market value of shares issued by Papa
Fair value of Sons assets
Fair value of Sons liabilities:
Accounts payable
P 30,000
Bond payable
105,000
Fair value of liabilities
Fair value of Sons net assets
Goodwill recorded in business combination
Goodwill previously on the books of Papa
Goodwill reported
P405,000
(135,000)
g.
Retained earnings reported by Son at date of combination was P90,000

(P325,000 P30,000 P100,000 P50,000 P55,000)
h.
Papas retained earnings of P120,000 will be reported.
i.
1.
Investment account
Cash
17,000
9,800
P322,000
(270,000)
P 52,000
30,000
P 82,000
26,800
2.
Goodwill previously computed

Merger costs added to investment account
Total goodwill reported
P82,000
17,000
P99,000
3.
Additional paid-in capital reported following combination

Stock issue costs
Total additional paid-in capital reported
P262,000
(9,800)
P252,200
50
CHAPTER 15
MULTIPLE CHOICE
15-1:
a
Acquisition cost
Less: Book value of interest acquired (100%)
Difference
Allocation:
Other assets
Long-term debt
Goodwill
15-2:
P4,000,000
3,200,000
800,000
P(750,000)
150,000
(200,000)
c
Acquisition cost
Less: Book value of interest acquired (P280,000 x 90%)
Difference
Allocation to plant assets (P40,000 x 90%)
Goodwill
15-3:
P 350,000
252,000
98,000
(36,000)
P 62,000
c
Plant assets Pall Company
Plant assets Mall Company
Consolidated
15-4:
( 800,000)
P -0-
P 220,000
180,000
P 400,000
a
Acquisition cost
Less: Book value of interest acquired (P560,000 P70,000)
Difference
Allocation:
Inventory
P 25,000
( 35,000)
P495,000
490,000
5,000
(10,000)
P( 5,000)
51
15-5:
b
Acquisition cost
Difference
Allocation:
Inventory (P20,000 x 80%)
P(16,000)
Land (P10,000 x 80%)
8,000
Mortgage payable (P5,000 x 80%)
( 4,000)
Goodwill
15-6:
15-7:
15-8:
( 12,000)
P 67,000
a
Inventory (P360,000 + P130,000)
P490,000
Plant and equipment (P500,000 + P420,000)
P920,000
a
Building
P180,000
Land
P 90,000
d
Sons stockholders equity
Minority interest proportionate share
Minority interest in net assets of subsidiary
15-9:
P355,000
256,000
P 79,000
P400,000
20%
P 80,000
d
Acquisition cost
Difference
Allocation to accounts payable (P5,000 x 75%)
Goodwill
P160,000
108,750
51,250
3,750
P 55,000
Therefore:
Total assets (P800,000 + P300,000 + P55,000)
Total liabilities (P250,000 + P15,000 + P160,000 + P5,000)
P1,155,000
570,000
15-10: b (P900,000 x 1%)
52
15-11: a
Controlling (Parent) interest:
Shares acquired (P120,000 / P120)
Divided shares outstanding (P125,000 /P100)
Parents interest
1,000 shares
1,250
80%
Minority interest in net assets of subsidiary (P200,000 x 20%) P40,000

15-12: a
Goodwill
Book value of interest acquired (P100,000 / 20%) x 80%
Investment cost
P250,000
400,000
P650,000
15-13: b
Net assets on the date of acquisition (P247,095 + P43,605)
Adjustments of assets excluding goodwill:
Inventories
P6,630
Plant and equipment
48,450
Patent
7,650
Net assets at fair value
P290,700
62,730
P353,430
15-14: d (P500,000 + P300,000)

15-15: b
Acquisition cost
Difference
Allocated to plant and equipment (P50,000 x 80%)
Goodwill
P260,000
200,000
60,000
(40,000)
P 20,000
15-16: a (The retained earnings of the parent only).

15-17: a (The stockholders equity of the parent only).
15-18: b (P50,000 + P10,000)
15-19: d (P380,000 + P150,000)
53
15-20: d
Cash and cash equivalent (P70,000 + P90,000)
Inventory (P100,000 + P60,000)
Property and equipment (P500,000 + P300,000)
Goodwill
Total assets
P 160,000
160,000
800,000
20,000
P1,140,000
15-21: d
Fair value of the reporting unit
Fair value of net assets (excluding goodwill)
Implied goodwill
Carrying value of goodwill (P450,000 P390,000)
Impairment loss
P 485,000
440,000
45,000
60,000
P 15,000
15-22: b
Fair value of the reporting unit
Fair value of the net assets (P590,000 P100,000)
Implied goodwill to be recorded
Carrying value of goodwill
Impairment loss
P 540,000
490,000
50,000
150,000
P 100,000
15-23: a
The amount reported is equal to Primos retained earnings of P567,000
15-24: a
100% [P138, 000 (P320, 000 P140, 000)]
15-25: a
(340,000- 200,000)
15-26: b
Cash
Accounts receivable
Inventories (see 15-25)
Equipment (800,000 - 500,000)
Accounts payable
Fair value of net assets
40,000
20,000
140,000
300,000
(40,000)
460,000
15-27: a
Net asset acquired (320,000 x 70%)
Differential allocated to inventory
Differential allocated to equipment
Differential allocation to goodwill
Minority interest (140,000 x30%)
Amount paid by Parent
224,000
40,000
100,000
10,000
(42,000)
332,000
54
PROBLEMS
Problem 15-1
a.
Investment in Solo Company stock

Cash
To record acquisition of 90% (90,000 / 100,000)
of the outstanding shares of Solo.
b.
Working paper elimination entries:

(1)
(2)
1,080,000
Common stock Solo

400,000
Retained earnings Solo
500,000
Investment in Solo company stock
To eliminate Solos equity accounts at date of acquisition.
Inventories
30,000
Plant assets
60,000
Goodwill
189,000
Investment in Solo company stock
To allocate difference
Computation and allocation of difference:
Acquisition cost
Less: Book value of interest acquired
Common stock (P400,000 x90%)
Retained earnings (P500,000 x 90%)
Difference
Allocation:
Inventories
Plant assets
Total
Minority interest (P90,000 x10%)
Goodwill
1,080,000
810,000
90,000
270,000
9,000
P1,080,000
P360,000
450,000
(30,000)
(60,000)
(90,000)
9,000
810,000
P 270,000
( 81,000)
P 189,000
55
Problem 15-2
a.
Investment in Straw stock

Cash
To record acquisition of 100% of Straw stock.
b.
Acquisition cost
Difference
Allocation (100%:
Inventories
Land
Building
Equipment
Patents
Goodwill
c.
600,000
600,000
P600,000
420,000
180,000
P( 40,000)
( 80,000)
150,000
( 20,000)
( 20,000)
( 10,000)
P170,000

(1)
(2)
Common stock Straw

Retained earnings Straw
To eliminate equity accounts of Straw at
date of acquisition.
100,000
320,000
Inventories
Land
Equipment
Patents
Goodwill
Buildings
To allocate difference.
40,000
80,000
20,000
20,000
170,000
420,000
150,000
180,000
56
Problem 15-3
a.
Investment in Soto stock

Cash
To record acquisition of 90% stock of Sotto.
b.
Acquisition cost
Difference
Allocation:
Current assets
P 50,000
(100,000)
Long-term debt
( 40,000)
Total
P( 90,000)
Minority interest (10% thereof)
9,000
Goodwill
c.
950,000
950,000
P950,000
810,000
140,000
(81,000)
P 59,000

(1)
(2)
Common stock Sotto

100,000
APIC Sotto
200,000
Retained earnings Sotto
600,000
Investment in Sotto stock
To eliminate equity accounts of Sotto at date of
acquisition.
100,000
Goodwill
59,000
Long-term debt
40,000
Current assets
Investment in Sotto stock
810,000
90,000
45,000
140,000
14,000
57
Problem 15-4
Paco Company and Subsidiary
January 2, 2008
Current assets
Other assets
Total assets
P475,000
285,000
70,000
P830,000
Current liabilities
Mortgage payable
Common stock
Retained earnings (including income from subsidiary of P20,000)
P280,000
85,000
200,000
65,000
200,000
P830,000
Computation of income from acquisition:

Investment cost (20,000 shares x P6)
Common stock
Retained earnings
Difference
Allocated to property and equipment
P120,000
P35,000
80,000
115,000
P 5,000
(25,000)
P(20,000)
Problem 15-5
Under the purchase method, the investment cost is equal to the fair value of stock issued by Palo
(P250,000) plus direct acquisition cost (P10,000) or a total of P260,000. The P20,000 stock issue
cost is treated as a reduction from the additional paid-in capital. The entry to record the
acquisition of stock is as follows:
Investment in Solo stock
Common stock, at par
Cash (direct acquisition cost)
Cash
260,000
20,000
100,000
150,000
10,000
20,000
58
Palo Company and Subsidiary

December 31, 2008
Cash
Receivables
Inventory
Property and equipment net
Goodwill
Total assets
P 70,000
120,000
170,000
340,000
30,000
P730,000
Current liabilities
Common stock
P 30,000
120,000
210,000
150,000
220,000
P730,000
Computation of goodwill:
Acquisition cost
Less: Book value of interest acquired (P90,000 + P100,000)
Difference
Allocated to equipment
Goodwill
P260,000
190,000
70,000
(40,000)
P 30,000
Problem 15-6
a.
Investment in Seed Company stock
Cash
To record acquisition of 100% of Seed company stock.
Allocation schedule:
Acquisition cost
Difference
Allocation:
Inventory
Plant assets
b.
Working paper elimination entries

(1)
Common stock Seed
Additional paid-in capital Seed
Retained earnings Seed
Investment in Seed stock
To eliminate equity accounts of Seed at
date of acquisition.
(2)
350,000
350,000
P350,000
320,000
30,000
P(20,000)
(80,000)
40,000
(60,000)
P930,000)
100,000
40,000
180,000
Inventory
20,000
Plant assets
80,000
Long-term debt
Investment in Seed stock
Retained earnings Pill (income from acquisition)
320,000
40,000
30,000
30,000
59
Pill Corporation and Subsidiary

May 31, 2008 Date of Acquisition
Assets
Cash
Accounts receivable
Inventories
Investment in Seed company
Plant assets
Total
Liabilities & Stockholders
Equity
Current liabilities
Long-term debt
Common stock:
Pill
Seed
Pill
Seed
Retained earnings
Pill
Seed
Total
Pill
Corporation
Seed
Company
200,000
700,000
1,400,000
350,000
10,000
60,000
120,000
2,850,000
5,500,000
610,000
800,000
500,000
1,000,000
80,000
400,000
1,500,000
1,200,000
1,300,000
5,500,000
Eliminations
Debit
(2) 20,000
(2) 80,000
& adjustment
Credit
(1)320,000
(2) 30,000
(2) 40,000
100,000
(1)100,000
40,000
(1) 40,000
180,000
800,000
(1)180,000
420,000
Consolidated
210,000
760,000
1,540,000
3,540,000
6,050,000
580,000
1,440,000
1,500,000
1,200,000
(2) 30,000
1,330,000
420,000
6,050,000
Problem 15-7
a.
Accounts Receivable
Cash
b.
Investment in Sea Company stock

Common stock ((30,000 shares x P20)
Investment in Sea Company stock
Common stock
Current liabilities
70,000
600,000
40,000
30,000
70,000
600,000
70,000
60
Pop Corporation and Subsidiary

Working Paper for Consolidated Balance Sheet
April 30, 2008 Date of acquisition
Assets
Cash
Accounts receivable net
Inventories
Investment in Sea Company
Plant assets
Goodwill
Total
Equity
Current liabilities
Long-term debt
Common stock
Pop
Sea
Retained earnings
Pop
Sea
Minority interest in net assets
Of subsidiary
Total
Pop
Corporation
Sea
Company
50,000
230,000
400,000
640,000
80,000
270,000
350,000
1,300,000
560,000
2,620,000
1,260,000
380,000
800,000
250,000
600,000
(3) 70,000
100,000
360,000
(1)100,000
(1)360,000
1,070,000
370,000
2,620,000
Adjustments
Debit
(2) 90,000
(2)220,000
(2) 80,000
& Eliminatio
Credit
(3) 70,000
(1)328,000
(2)312,000
(2) 20,000
130,000
430,000
840,000
2,080,000
80,000
3,560,000
560,000
1,420,000
1,070,000
(50,000)
(1) 50,000
1,260,000
(1) 82,000
(2) 58,000
920,000
920,000
Consolidated
370,000
140,000
3,560,000
(1) To eliminate equity accounts of Sea Company on the date of acquisition.

(2) To allocate difference, computed as follows:
Acquisition cost
Difference
Allocation:
Inventories
P( 90,000)
Plant assets
(220,000)
Long-term debt
20,000
Total
P(290,000)
Minority interest (20%
58,000
Goodwill
(3) To eliminate intercompany receivables and payables.
P640,000
328,000
312,000
232,000
P 80,000
61
Problem 15-8
1. Acquisition cost
Common stock
APIC
Retained earnings
Difference
Allocation:
Inventory
Land
Building
Equipment
Bonds payable
P500,000
P100,000
200,000
230,000
P( 20,000)
( 10,000)
50,000
60,000
( 50,000)
530,000
( 30,000)
30,000
2. P Company and Subsidiary

January 1, 2008 Date of acquisition
Debits
Cash
Accounts receivable
Inventory
Land
Building
Equipment
Investment in S Company
Total
Credits
Accounts payable
Bonds payable
Common stock P Company
Common stock S Company
APIC S Company
Retained earnings P Co.
Retained earnings S Co.
Total
P
Company
S
Company
Adjustments
& Eliminations
Debit
Credit
300,000
200,000
200,000
100,000
600,000
800,000
500,000
2,700,000
50,000
100,000
80,000
50,000
400,000
200,000
150,000
60,000
290,000
(2) 50,000
100,000
200,000
(1)100,000
(1)200,000
230,000
880,000
(1)230,000
640,000
1,500,000
1,050,000
2,700,000
880,000
(2) 20,000
(2) 10,000
(2) 30,000
(2) 50,000
(2) 60,000
(1)530,000
Consolidated
350,000
300,000
300,000
160,000
950,000
940,000
3,000,000
210,000
240,000
1,500,000
640,000
1,050,000
3,000,000
(1) To eliminate equity accounts of S Company.

(2) To allocate difference.
62
Problem 15-9
1.
2.
Acquisition cost
Common stock (P100,000 x 80%)
APIC (P200,000 x 80%)
Difference
Allocation
Inventory
Land
Building
Equipment
Bonds payable
Total
Minority interest (20%)
Goodwill
P500,000
P 80,000
160,000
184,000
P (20,000)
(10,000)
50,000
60,000
(50,000)
P 30,000
( 6,000)
424,000
P 76,000
24,000
P100,000
P Company and Subsidiary

Debits
Cash
Accounts receivable
Inventory
Land
Building
Equipment
Goodwill
Total
Credits
Accounts payable
Bonds payable
Common stock P Co.
Common stock S Co.
APIC S Co.
Minority interest in net
Assets of subsidiary
Total
P
Company
S
Company
300,000
200,000
200,000
100,000
600,000
800,000
500,000
50,000
100,000
80,000
50,000
400,000
200,000
2,700,000
880,000
150,000
60,000
290,000
(2) 50,000
100,000
200,000
(1)100,000
(1)200,000
230,000
(1)230,000
880,000
(2) 6,000
716,000
1,500,000
1,050,000
2,700,000
(1) To eliminate equity accounts of S Company

(2) To allocate difference
Adjustments
& Eliminations
Debit
Credit
(2) 20,000
(2) 10,000
(2)100,000
(2) 50,000
(2) 60,000
(1)424,000
(2) 76,000
Consolidated
350,000
300,000
300,000
160,000
950,000
940,000
100,000
3,100,000
210,000
240,000
1,500,000
1,050,000
(1)106,000
716,000
100,000
3,100,000
63
Problem 15-10
1.
2.
Acquisition cost
Difference
Allocation
Inventory
Land
Equipment
Long-term investment in MS
P542,000
670,000
(128,000)
P (10,000)
(40,000)
20,000
(15,000)
( 45,000)
P(173,000)

Assets
Cash
Accounts receivable
Inventory
Land
Equipment
Long-term investment in MS
Total
Equity
Accounts payable
Common Stock P Co.
Common Stock S Co.
APIC P Co.
Total
P
Company
S
Company
100,000
200,000
150,000
50,000
300,000
542,000
100,000
1,442,000
100,000
150,000
130,000
80,000
200,000
175,000
400,000
115,000
200,000
667,000
1,442,000
125,000
785,000
200,000
470,000
785,000
Adjustments
& Eliminations
Debit
Credit
(2) 10,000
(2) 40,000
(2)128,000
(2) 15,000
(2) 20,000
(1)670,000
200,000
350,000
290,000
170,000
480,000
240,000
1,730,000
290,000
400,000
(1)200,000
(1)470,000
863,000
Consolidated
(2)173,000
200,000
840,000
863,000
1,730,000
(1) To eliminate equity accounts of S Company.

(2) To allocate difference
64
CHAPTER 16
MULTIPLE CHOICE
16-1:
d, because no impairment of goodwill is recognized.
16-2:
d, consolidated net income will decrease due to amortization of the allocated difference
which is not the goodwill (P60,000 / 10 years).
16-3:
d, computed as follows:
Subsidiarys net income
Amortization of the allocated difference
Minority interest in net income of subsidiary
16-4:
16-5:
P150,000
( 20,000)
P130,000
c
Difference
P540,000
480,000
P 60,000
Cost Method
Acquisition cost
P540,000
Parents share of subsidiarys net income
Dividends received from subsidiary
Amortization of allocated difference (P60,000/20) Investment account balance, Dec. 31, 2008
P540,000
Equity Method
P540,000
120,000
( 48,000)
( 3,000)
P609,000
a
Net assets of Sol, January 2, 2008
Increase in earnings:
Net income
Dividends paid (P60,000 / 75%)
Net assets of Sol, Dec. 31, 2008
P300,000
P160,000
80,000
80,000
P380,000
Minority interest in net assets of subsidiary (P380,000 x 25%) P 95,000

16-6:
a
Punos net income
Dividend income (P40,000 x 90%)
Salas net income
P145,000
(36,000)
120,000
P229,000
65
16-7:
d
Peters net income from own operation
Peters share of Sellers net income
MINIS (P200,000 x 25%)
Consolidated net income attributable to parent
16-8:
a
Investment in Son, Jan. 1
Pops share of Sons net income (100%)
Dividends received (100%)
Amortization of allocated difference to
Equipment (P38,000 / 10)
Investment in Son, Dec. 31
16-9:
P1,000,000
200,000
( 50,000)
P1,150,000
2006
P310,000
150,000
( 60,000)
2007
P396,200
180,000
(60,000)
( 3,800)
P396,200
( 3,800)
P512,400
2008
P512,400
200,000
( 60,000)
( 3,800)
P648,600
a
Sys net income
Amortization of allocated difference
Adjusted net income of Sy
P300,000
( 60,000)
P240,000
Minority interest in net income of subsidiary (P240,000 x 10%) P 24,000

16-10: a. Under the equity method consolidated retained earnings is equal to the retained
earnings of the parent company.
16-11: c
Retained earnings, Jan. 2, 2008 Puzon
Consolidated net income attributable to parent:
Net income Puzon
P200,000
Net income Suarez
40,000
(16,000)
MINIS (P40,000 x 20%)
( 8,000)
Dividends paid Puzon
Consolidated retained earnings, Dec. 31, 2008
P500,000
216,000
( 50,000)
P666,000
16-12: c
Acquisition cost
Difference
Allocation due to undervaluation of net assets
Goodwill ( not impaired)
P1,700,000
1,260,000
P 440,000
( 40,000)
P 400,000
66
16-13: d
Net assets of Suazon, Jan. 2, 2008
Increase in earnings (P190,000 P125,000)
Net assets of Suazon, Dec. 31, 2008
Unamortized difference to plant assets (P100,000 P10,000)
Adjusted net assets of Suazon, Dec. 31, 2008
P1,000,000
65,000
P1,065,000
90,000
P1,175,000
Minority interest in net assets of subsidiary (1,175,000 x 20%) P 231,000

16-14: b
Prestos net income from own operations
Prestos share of Storks net income (P80,000 P23,000)
MINIS (P57,000 x 10%)
P140,000
57,000
( 5,700)
P191,300
16-15: b
Investment in Siso stock (at acquisition cost)
P600,000
P 1,500
16-16 d
Consolidated net income:
Pepes net income from own operations
Sisons adjusted net income:
Net income -2008
Amortization of allocated difference
to equipment (P20,000 / 5)
P210,000
P67,000
4,000
Consolidated retained earnings:

Pepes retained earnings, Jan.2, 2007
Consolidated net income attributable to parent 2007
Pepes NI from own operations
P185,000
Sisons adjusted NI;
Net income 2007
P40,000
Amortization -2007
4,000 36,000
MINIS (P36,000 x 30%)
(10,800)
Dividends paid ,2007 - Pepe
Pepes retained earnings, Jan. 2, 2008
Consolidated net income attributable to parent 2008:
Consolidated net income (see above)
P273,000
MINIS (P63,000 x 30%)
( 18,900)
Dividends paid, 2008 Pepe
63,000
P273,000
P701,000
210,200
( 50,000)
P861,200
254,100
( 60,000)
P1,055,300
67
16-17: b
Acquisition cost
Allocated to building
Consolidated retained earnings
Retained earnings, Jan. 1, 2008 Pepe
Net income Precy
Adjusted net income of Susy:
Net income of Susy
P100,000
Amortization (P70,000 / 10) 2
( 3,500)
MINIS (P96,500 x 30%)
Dividends paid Precy
P700,000
630,000
P 70,000
P550,000
P275,000
96,500
(28,950)
342,550
( 70,000)
P822,550

Stockholders equity of Susy, June 30, 2008
Increase in earnings- net income (7/1 to 12/31)
Stockholders equity, Dec. 31, 2008
Unamortized difference (P70,000 P3,500)
Adjusted net assets of Susy, Dec. 31, 2008
P 900,000
100,000
P1,000,000
66,500
P1,066,500
Minority interest in net assets of subsidiary (P1,066,500 x 30%)
P 319,950
16-18: a
Goodwill
Acquisition cost
Less: Book value of interest acquired (P1,320,000 P320,000)
Goodwill (not impaired)
P1,200,000
1,000,000
P 200,000
Consolidated retained earnings under the equity method is equal to the retained
earnings of the parent company, P1,240,000.
16-19: b
Net income Pablo
Sitos net income
MINIS (P70,000 x 30%)
P130,000
(28,000)
70,000
(21,000)
P151,000
68
16-20: c
Consolidated net income 2008
Net income Ponce
Solis net income
MINIS (P40,000 x 40%)
Consolidated retained earnings 2008
Retained earnings, Jan. 2, 2007- Ponce
Consolidated net income attributable to parent 2007:
Net income Ponce
Solis net income
MINIS (P35,000 x 40%)
Dividends paid, 2007 Ponce
Dividends paid. 2008 Ponce
16-21 a
P 90,000
(9,000)
40,000
(16,000)
P105,000
P 400,000
P70,000
(18,000)
35,000
( 14,000)
Acquisition cost
Less: Book value of interest acquired (220,000 x 80%)
Difference
Allocated to:
Depreciable assets (30,000 80%)
(37,500)
Minority interest ( 37,500 x 20%)
7,500
Goodwill
P216,000
176,000
40,000
Polo net income from own corporation

Seed net income from own operation:
Net income
Amortization (37,500 10%)
Total
Goodwill impairment lost
P 95,000
16-22: a
Retained earnings 1/1/08 Polo
Consolidated net income attributed to parent:
MINI (35,000 3,750) x 20%
Total
Dividends paid- Polo
Consolidated retained earnings 12/31/08
16-23: a
35,000
(3,750)
75,000
(25,000)
P450,000
105,000
(30,000)
P525,000
(30,000) = 80%
10,000
31,250
126,250
(8,000)
118,250
P520,000
118,250
6,250
112,000
632,000
(46,000)
586,000
(35,000 3750) x 20%
69
16-24: a
Seed stockholders equity, January 2, 2008 (80,000 + 140,000)
Undistributed earnings 2008 (35,000 15,000)
Unamortized difference (37,500 - 3750)
Seed stockholders equity (net asset), December 31, 2008
MINAS (273,750 20%)
16-25: a
220,000
20,000
33,750
273,750
54,750
(see no. 16-22)
16-26: a
Acquisition cost
Less: Book value of interest acquired (280,000 x 70%)
Difference
Allocation:
to depreciable assets
(50,000)
MINAS (30%)
15,000
Retained earnings, 1/1/08-Sisa company
Retained earnings, 1/1/07-Sisa company (squeeze)
Increase
Amortization- prior years (50,000 10 years)
Adjusted increase in earnings of Sisa (21,000/30% )
16-27: a
Retained earnings 1/1/08- Pepe
Retained earnings 1/1/08- Sisa
230,000
Adjustment and elimination:
Date of acquisition
(155,000)
Undistributed earnings to MINAS
(21,000)
Amortization- prior year
(5,000)
16-28: a
Pepe company net income
Sisa company net income
Dividend income (10,000 x 70%)
Amortization- 2008
16-29: a
Consolidated retained earnings 1/1/08(see 16 27)
Consolidated net income (see 16-28)
133,000
MINIS (25,000 5,000) 30%
(6,000)
Dividend paid- Pepe company
231,000
196,000
35,000
35,000
230,000
155,000
75,000
(5,000)
70,000
520,000
49,000
569,000
120,000
25,000
(7,000)
(5,000)
133,000
569,000
127,000
(50,000)
646,000
70
PROBLEMS
Problem 16-1
a.
Since Pasig paid more than the P240,000 fair value of Sibols net assets, all allocations
are based on fair value with the excess of P10,000 assigned to goodwill. The
amortizations of the allocated difference are as follows:
Annual
Allocated to
Allocation
Life
Amortization
Building
Equipment
P 50,000
(20,000)
10 years
5 years
P 5,000
(4,000)
Building:
Allocation, Jan. 1, 2004
Amortization during past years -2004 to 2005 (P5,000 x 2)
Amortization for the current year 2006
Allocation, Dec. 31, 2006
P 50,000
(10,000)
( 5,000)
P 35,000
Equipment
Allocation, Jan. 1, 2004
Amortization during past years 2004 to 2005 (P4,000 x 2)
Amortization for the current year 2006
Allocation, Dec. 31, 2006
P(20,000)
8,000
4,000
P( 8,000)
b.
Since Pasig paid P20,000 less than the P240,000 fair value of Sibols net assets, a
negative difference arises. Under PFRS 3 (Business combination), the allocation of the
negative difference to the non-current assets, excluding long-term investments in
marketable securities is no longer permitted. The negative difference is immediately
amortized in profit or loss (income from acquisition). Therefore, the allocation assigned
to building and equipment is the same as in (a) above.
c.
Same as in (a) above. Except that the negative goodwill amortized to income is P60,000.
d.
Neither allocations nor amortization are found in a pooling of interests.
Problem 16-2
a.
No entry is to be recorded by Holly during 2005 under the cost method.

Allocation schedule Date of acquisition
Difference
Allocation:
Inventory
Land
Equipment
Discount on notes payable
Total
P240,000
P ( 5,000)
(75,000)
(60,000)
(50,000)
P(190,000)
19,000
171,000
P 69,000
71
Amortization of differential:
Inventory sold
Land sold
Equipment (P60,000/15 years)
Total
b.
P 5,000
75,000
4,000
7,500
P91,500
Working paper elimination entries

(1)
(2)
(3)
(4)
Common stock State

500,000
Premium on common stock State
100,000
Retained earnings State
120,000
Investment in State stock
To eliminate equity accounts of State on the date
of acquisition.
Inventory
5,000
Land
75,000
Equipment
60,000
50,000
Goodwill
69,000
Investment in State stock
648,000
72,000
240,000
19,000
Cost of goods sold

5,000
Gain on sale of land
75,000
Operating expenses (depreciation)
4,000
Interest expense
7,500
Inventory
5,000
Land
75,000
Equipment
4,000
7,500
To amortize allocated difference.
Minority interest in net asset of subsidiary
2,350
2,350
To recognize minority share in the net income (loss)
of State.
Net income
P 68,000
Adjustments for total amortization
91,500
Adjusted net income (loss)
P(23,500)
Minority interest share (P23,500 x 10%)
P 2,350
72
Problem 16-3
a.
Consolidated Buildings
Profit Company (at book value)
Simon Corporation (at fair value)
Amortization of differential (P120,000 / 6 years)
Total
P 900,000
560,000
( 20,000)
P1,440,000
b.
Consolidated Retained Earnings, Dec. 31, 2008

Retained earnings, Jan. 1 Profit Company
Consolidated net income (per c below)
Dividends paid Profit Company
Total
P 600,000
380,000
(80,000)
P 900,000
c.
Consolidated net income, Dec. 31, 2008

Total revenues (P700,000 + P400,000)
Total expenses (P400,000 + P300,000)
Amortization
Total
P1,100,000
(700,000)
( 20,000)
P 380,000
d.
Consolidated Goodwill [(P680,000 P480,000)- P120,000]
80,000
Problem 16-4
Allocation Schedule
Acquisition cost
Difference
Allocation:
Equipment
Buildings
P206,000
140,000
P 66,000
P(40,000)
10,000
(30,000)
P 36,000
a.
Investment in Stag Company 12/31/06 (at acquisition cost)
P 206,000
b.
Minority Interest in Net Assets of Subsidiary (MINAS)
P -0-
c.
Consolidated Net Income

Net income from own operations Pony (P310,000 P198,000) P 112,000
Net income from own operations Stag (P104,000 P74,000)
30,000
Amortization
( 4,500)
Total
P 137,500
d.
Consolidated Equipment
Total book value (P320,000 + P50,000)
Allocation
Amortization (P5,000 x 3 years
Total
P 370,000
40,000
(15,000)
P 395,000
73
e.
Consolidated Buildings
Total book value
Allocation
Amortization (P500 x 3 years)
Total
P 288,000
( 10,000)
1,500
P 279,500
f.
Consolidated Goodwill (not impaired)
g.
Consolidated Common Stock (Pony)
P 290,000
h.
Consolidated Retained Earnings

Retained earning, Dec. 31, 2008 Pony
P 410,000
Add: Ponys share of Stags adjusted increase in earnings
Net earnings 2008 (P30,000 P20,000)
P10,000
Amortization
( 4,500)
5,500
Total
P 415,500
36,000
Problem 16-5
a.
Retained Earnings, Dec. 31, 2008 Sison

Stockholders equity, Dec. 31, 2008 Sison (P232,000/40%)
Stockholders equity, Jan. 1, 2005 Sison
Increase in earnings
Retained earnings, Jan. 1, 2005 Sison
Retained earnings, Dec. 31, 2008 Sison
b.
Consolidated Retained Earnings Dec. 31, 2008

Retained earnings, Jan. 1, 2005 - Perez
Net income 2005 to 2008
Dividends paid 2005 to 2008
Retained earnings, Dec. 31, 2008
Add: Perez share of adjusted net increase in Sisons
Retained earnings
P80,000
Amortization (P8,333 x 4)
(33,332)
Adjusted
P46,668
Perez interest
60%
Total
Allocation Schedule
Acquisition cost
Difference
Allocation:
Depreciable assets (P50,000 / 60%)
P(83,333)
33,333
Amortization per year (P83,333/10 years)
P 580,000
(500,000)
P 80,000
200,000
P 280,000
P 600,000
100,000
( 45,000)
P 655,000
28,000
P 683,000
P350,000
300,000
P 50,000
(50,000
P 8,333
74
Problem 16-6
a.
Working Paper Elimination Entries, Dec. 31, 2008

(1)
Dividend income
Dividends declared Short
To eliminate intercompany dividends.
10,000
(2)
Common stock Short

Retained earnings Short
Investment in Short Company
To eliminate equity accounts of Short at
date of acquisition
100,000
50,000
(3)
Depreciable asset
(4)
Depreciable asset
To amortize allocated difference
30,000
5,000
10,000
150,000
30,000
5,000
75
b.
Pony Corporation and Subsidiary

Consolidation Working Paper
December 31, 2008
Pony
Corporation
Short
Company
200,000
10,000
210,000
25,000
105,000
130,000
80,000
120,000
120,000
15,000
75,000
90,000
30,000
230,000
80,000
310,000
40,000
50,000
30,000
80,000
10,000
270,000
70,000
285,000
Balance Sheet
Cash
Accounts receivable
Inventory
Depreciable asset (net)
Investment in Short stock
15,000
30,000
70,000
325,000
180,000
5,000
40,000
60,000
225,000
20,000
70,000
130,000
575,000
-
Total
620,000
330,000
Accounts payable
Notes payable
Common stock
Pony
Short
Retained earnings, Dec. 31
From above
Total
50,000
100,000
40,000
120,000
Income Statement
Sales
Dividend income
Total
Depreciation
Other expenses
Total
Net income carried forward
Retained Earnings
Net income from above
Total
Dividends declared
Carried forward
200,000
270,000
620,000
Adjustments
& Eliminations
Debit
Credit
320,000
320,000
45,000
180,000
225,000
95,000
(1) 10,000
(3)
5,000
(2) 50,000
(1) 10,000
(3) 30,000
Consolidated
(4) 5,000
(2)150,000
(3) 30,000
230,000
95,000
325,000
40,000
795,000
90,000
220,000
100,000
(2)100,000
70,000
330,000
195,000
200,000
195,000
285,000
795,000
Problem 16-7
a.

(1)
(2)
(3)
Dividend income
Dividends declared Sisa
8,000
2,000
Common stock Sisa

100,000
Retained earnings Sisa
50,000
Investment in Sisa stock
6,000
10,000
120,000
30,000
6,000
76
b.
Popo Corporation and Subsidiary

December 31, 2008
Popo
Corporation
Income Statement
Sales
200,000
Dividend income
8,000
Total revenue
208,000
25,000
Other expenses
105,000
Total expenses
130,000
Net income
78,000
MI in net income of Sub.
78,000
Retained Earnings
Total
Dividends declared
Carried forward
Sisa
Company
120,000
120,000
15,000
75,000
90,000
30,000
30,000
Adjustments
& Eliminations
Debit
Credit
(1)
8,000
(3)
6,000
Consolidated
320,000
320,000
40,000
180,000
220,000
100,000
( 6,000)
94,000
230,000
78,000
308,000
40,000
50,000
30,000
80,000
10,000
268,000
70,000
284,000
173,000
500,000
120,000
793,000
105,000
300,000
278,000
800,000
1,078,000
Current liabilities
Long-term debt
Common stock
Retained earnings , 12/31
From above
MI in net assets of Subsidiary
175,000
50,000
100,000
200,000
75,000
40,000
120,000
100,000
268,000
70,000
Total
793,000
405,000
Balance Sheet
Current assets
Depreciable assets
Investment in Sisa stock
Total
(2) 50,000
(1) 10,000
(2)120,000
405,000
250,000
90,000
220,000
200,000
(2)100,000
(1)
2,000
166,000
230,000
94,000
324,000
40,000
(2) 30,000
(3) 6,000
166,000
284,000
34,000
1,078,000
77
c.
Consolidated Financial Statements

December 31, 2008
Assets
Current assets
Depreciable assets
Total assets
Current liabilities
Long-term debt
Total liabilities
Stockholders Equity
Common stock
P800,000
250,000
P278,000
550,000
P828,000
P 90,000
220,000
P310,000
P200,000
284,000
34,000
518,000
P828,000

Sales
Expenses:
Other expenses
P320,000
P 40,000
180,000
220,000
P100,000
6,000
P 94,000

Retained earnings, Jan. 1 Popo
Total
Dividends paid Popo
Consolidated retained earnings, Dec. 31
P230,000
94,000
P324,000
40,000
P284,000
78
Problem 16-8
a.
Palo Corporation and Subsidiary

December 31, 2008
Palo
Corporation
Sebo
Company
300,000
19,000
319,000
210,000
25,000
23,000
258,000
61,000
150,000
230,000
61,000
291,000
20,000
50,000
20,000
70,000
10,000
271,000
60,000
272,000
Balance Sheet
Cash
Accounts receivable
Inventory
Investment in Sebo stock
37,000
50,000
70,000
300,000
229,000
20,000
30,000
60,000
240,000
57,000
80,000
130,000
540,000
-
Goodwill
Total
686,000
350,000
105,000
40,000
70,000
200,000
65,000
20,000
55,000
150,000
(2)150,000
271,000
686,000
60,000
350,000
239,000
Income Statement
Sales
Investment Income
Total revenues
Cost of goods sold
Other expenses
Total cost and expenses
Retained Earnings
Total
Dividends declared
carried forward
Accounts payable
Taxes payable
Common stock
from above
Total
150,000
85,000
20,000
25,000
130,000
20,000
Adjustments
& Eliminations
Debit
Credit
450,000
450,000
295,000
45,000
48,000
388,000
62,000
(1) 19,000
(2) 50,000
(1) 10,000
(3) 20,000
Consolidated
(1) 9,000
(2)200,000
(3) 20,000
230,000
62,000
292,000
20,000
20,000
827,000
170,000
60,000
125,000
200,000
239,000
272,000
827,000
79
b.

Sales
Cost of goods sold
Gross profit
Expenses:
Other expenses
P450,000
295,000
155,000
P45,000
48,000
93,000
P 62,000

Retained earnings, January 1 Palo
Total
Dividends paid Palo
Retained earnings, December 31
P230,000
62,000
292,000
20,000
P272,000

December 31, 2008
Assets
Cash
Accounts receivable
Inventory
Goodwill
Total
Accounts payable
Taxes payable
Common stock
Total
P540,000
170,000
P 57,000
80,000
130,000
370,000
20,000
P657,000
P 60,000
125,000
200,000
272,000
P657,000
80
Problem 16-9
1.
Acquisition cost
Common stock (P300,000 x 80%)
Difference
Allocation:
Inventories
Land
Building
Equipment
Patents
Total
P756,000
P240,000
320,000
P( 30,000)
( 50,000)
(100,000)
75,000
( 40,000)
P(145,000)
29,000
560,000
P196,000
(116,000)
P 80,000
Working Paper Elimination Entries - December 31, 2006(not required)

(1)
(2)
(3)
(4)
Investment income
Dividends declared S
50,000
54,800
Common stock S
300,000
Retained earnings, Jan. 1 S
400,000
Investment in S Co.
560,000
140,000
Inventories
30,000
Land
50,000
Building
100,000
Patents
40,000
Goodwill
80,000
Equipment
75,000
196,000
29,000
Cost of goods sold

Inventory
Equipment (P75,000 / 10)
Expenses (amortization)
Buildings (P100,000 / 20)
Patents (P40,000 / 10)
(5)
94,800
10,000
30,000
7,500
1,500

23,700
To established minority share in subsidiary net income.
Net income S Co.
P150,000
Amortization
31,500
Adjusted net income
P118,500
30,000
5,000
4,000
23,700
81
MINIS (P118,500 x 20%)

2.

Income Statement
Sales
Cost of sales
Gross profit
Expenses
Operating income
Investment income
Net /consolidated income
MI interest in net income of
Subsidiary
Retained earnings
Total
Dividends declared
Carried forward
Balance Sheet
Cash
Accounts receivable
Inventories
Land
Buildings (net)
Equipment (net)
Patent
Investment in S Co. stock
Goodwill
Total
Accounts payable
Common stock
from above
MI in net assets of subsidiary
Total
P 23,700
P
Company
S
Company
1,000,000
400,000
600,000
360,000
240,000
94,800
334,800
500,000
150,000
350,000
200,000
150,000
150,000
334,800
150,000
600,000
334,800
934,800
100,000
400,000
150,000
550,000
50,000
834,800
500,000
834,800
200,000
150,000
100,000
100,000
50,000
40,000
150,000
200,000
450,000
-
300,000
200,000
140,000
200,000
295,000
680,500
36,000
-
298,000
810,800
1,558,800
1,090,000
124,000
200,000
400,000
190,000
300,000
-
834,800
500,000
1,558,800
1,090,000
Adjustments
& Eliminations
Debit
Credit
1,500,000
580,000
920,000
561,500
358,500
358,500
(4) 30,000
(4)
Consolidated
1,500
(1) 94,800
(5) 23,700
(23,700)
334,800
(2)400,000
600,000
334,800
934,800
100,000
(1) 50,000
(3) 30,000
(3) 50,000
(3)100,000
(4) 7,500
(3) 40,000
(3) 80,000
(4) 30,000
(4) 5,000
(3) 75,000
(4) 4,000
(1) 54,800
(2)560,000
(3)196,000
314,000
200,000
400,000
(2)300,000
(1) 10,000
466,200
80,000
1,931,500
(2)140,000
(3) 29,000
(5) 23,700
466,200
834,800
182,700
1,931,500
82
Problem 16-10
a.
Investment in Sally Products Co.

Cash
To record acquisition of 80% stock of Sally.
Cash
160,000
Dividend income
To record dividends received from Sally (P10,000 x 80%)
b.
8,000
160,000
8,000
Working Paper Eliminating Entries Dec. 31, 2008

Allocation schedule:
Acquisition cost
Difference
Allocated to building and equipment
P (50,000)
10,000
(1)
(2)
Dividend income
Dividends declared Sally
8,000
2,000
P160,000
120,000
40,000
(40,000)
10,000
Common stock Sally

100,000
Retained earnings, 1/1 Sally
50,000
Investment in Sally Products
120,000
30,000
(3)

50,000
Investment in Sally Products
40,000
10,000
(4)
Accumulated depreciation Bldg
(5)
Accounts payables
(6)

5,000
Net income Sally
P30,000
Amortization
(5,000)
Adjusted net income
P25,000
MINIS (P25,000 x 20%)
P 5,000
5,000
10,000
5,000
10,000
5,000
83
c.
Pilar Corporation and Subsidiary

December 31, 2008
Income Statement
Sales
Dividend income
Total revenue
Cost of goods sold
Inventory losses
Net /consolidated income
Pilar
Corporation
Sally Wood
Products
200,000
8,000
208,000
100,000
120,000
25,000
15,000
160,000
48,000
50,000
15,000
5,000
70,000
30,000
100,000
MI interest in net income of

subsidiary (MINIS
Retained earnings statement

Total
Dividends declared
carried forward
Balance Sheet
Inventory
Land
Investment in Sally
Total
Accounts payable
Notes payable
Common stock
Retained earnings from above
MI in net assets if subsidiary
Total
48,000
30,000
298,000
48,000
346,000
30,000
90,000
30,000
120,000
10,000
316,000
110,000
81,000
260,000
80,000
500,000
160,000
65,000
90,000
80,000
150,000
1,081,000
385,000
205,000
60,000
200,000
300,000
316,000
105,000
20,000
50,000
100,000
110,000
1,081,000
385,000
Adjustments
& Eliminations
Debit
Credit
(1)
8,000
(4)
5,000
(6)
5,000
Consolidated
300,000
300,000
170,000
45,000
20,000
235,000
65,000
(5,000)
60,000
(2) 50,000
(1) 10,000
338,000
60,000
398,000
30,000
368,000
(5) 10,000
(3) 50,000
(5) 10,000
(2)120,000
(3) 40,000
(4)
5,000
(2)100,000
(1)
2,000
230,000
(2) 30,000
(3) 10,000
(6) 5,000
230,000
136,000
350,000
160,000
700,000
1,346,000
315,000
70,000
250,000
300,000
368,000
43,000
1,346,000
84
Problem 16-11
a.
Eliminating entries:
E(1)
Dividend Income
Dividends Declared
Eliminate dividend income from subsidiary.
20,000
E(2)
Common Stock Star Company

Retained Earnings, January 1
Differential
Investment in Star Company Stock
Eliminate investment balance at date
of acquisition.
150,000
50,000
20,000
E(3)
Goodwill
Retained Earnings, January 1
Differential
Assign differential at beginning of year
20,000
220,000
8,000
12,000
20,000
Porno Corporation and Star Company

Consolidated Workingpaper
December 31, 2008
_____Item_____
Income Statement
Sales
Dividend income
Credits
Cost of goods sold
Other expenses
Debits
Net income, carry forward
Net income, from above
Dividends declared
Retained earnings, Dec. 31,
carry forward
Light
Corporation
Star
Company
200,000
Eliminations
Debit
Credit
350,000
20,000
370,000
270,000
25,000
21,000
(316,000)
54,000
200,000
135,000
20,000
10,000
(165,000)
35,000
262,000
60,000
54,000
316,000
(20,000)
35,000
95,000
(20,000)
296,000
75,000
(1) 20,000
__
20,000
____
Consolidated
550,000
_______
550,000
405,000
45,000
31,000
(481,000)
69,000
(2) 50,000
(3) 12,000
20,000
___
(1) 20,000
82,000
20,000
260,000
69,000
329,000
(20,000)
309,000
85
Balance Sheet
Cash
Accounts receivable
Inventory
Investment in Star Company
stock
Differential
Goodwill
Debits
Accounts payable`
Taxes payable
Common stock
Light Corporation
Star Company
Retained earnings, from above
Credits
46,000
55,000
75,000
300,000
30,000
40,000
65,000
240,000
76,000
95,000
140,000
540,000
220,000
696,000
130,000
20,000
50,000
200,000
296,000
696,000
375,000
(2)220,000
(2) 20,000 (3) 20,000
(3) 8,000
85,000
30,000
35,000
150,000
75,000
375,000
8,000
859,000
215,000
50,000
85,000
(2)150,000
82,000
260,000
200,000
20,000
260,000
309,000
859,000
86
87
CHAPTER 17
17-1:
MULTIPLE CHOICE
Consolidated sales
Sales Papa
Sales San
Elimination of inter-company sales
Consolidated sales
Consolidated cost of goods sold
Cost of goods sold Papa
Cost of goods sold San
Eliminations:
Realized profit in beginning inventory
Unrealized profit in ending inventory
Intercompany purchases
17-2:
4,000)
10,000
( 50,000)
P 636,000
60,000
( 10,000)
P
50,000
20%
P 10,000
d
Net income from own operation Pat
Pats share of adjusted net income of Susan:
Net income Susan
P200,000
(P112,000 x 50%/150%)
37,500
(P33,000 x 50%/150%)
(11,000)
Attributable to minority interest (P226,500 x 30%)
Attributable to parent
17-4:
P 490,000
190,000
c
Net income Sisa
Unrealized profit in ending inventory upstream
Adjusted net income Sisa
17-3:
P 900,000
500,000
( 50,000)
P 1,350,000
P 200,000
226,500
P 426,500
67,950
P 358,550
b
Net income from own operations- Patton
Unrealized profit in ending inventory DS (P200,000 x .25)
Realized income
Solis net loss
P 300,000
(50,000)
250,000
(150,000)
P 100,000
87
17-5:
d
Pardos share of Santos net income (P300,000 x 75%)
Unrealized profit in ending inventory Upstream
(P200,000 x 25%/125%) x 75%
Realized profit in beginning inventory Upstream
(P150,000 x 25%/125%) x 75%
Investment income account balance, Dec. 31, 2008
17-6:
17-7:
d
Net income from own operation Puzon
Suazons adjusted net income:
Net income
Unrealized profit in ending inventoryUpstream (P25,000 x 40%)
MINIS (P100,000 x 25%)
b
Net income from own operation Pat
Unrealized profit in ending inventory:
2008 (P20,000 x .40)
2009 (P30,000 x .50)
Realized income
Sun net income
17-8:
( 30,000)
22,500
P 217,500
P 200,000
P110,000
( 10,000)
100,000
P 300,000
(25.000)
P 275,000
2008
P 500,000
2009
P 550,000
(8,000)
492,000
200,000
P 692,000
(15,000)
8,000
543,000
225,000
P 768,000
a
Net income from own operation Pip
Adjusted net income of Sol:
Net income
P 250,000
Realized profit in beginning inventoryUpstream (P40,000 x 40%)
16,000
( 21,000)
Consolidated net income - 2008
17-9:
P 225,000
a
Net income from own operations Popo
Unrealized profit in ending inventory Downstream
Realized separate net income Popo
Popos share of Sottos adjusted net income:
Net income
P 360,000
Realized profit in beginning inventoryUpstream
10,000
MINIS (P370,000 x 5%)
P 400,000
245,000
P 645,000
P 500,000
( 15,000)
P 485,000
370,000
( 18,500)
P 836,500
88
17-10: a
Stockholders equity Sands, Dec. 31, 2008
P5,500,000
Unamortized difference (P1,000,000 P200,000)
800,000
Adjusted stockholders equity (net assets) Sands
P6,300,000
Minority interest in net assets of subsidiary (P6,300,000 x 40%)P2,520,000
17-11: d
Gross profit rate Short (P110,000 / P200,000)
55%
Inventories
Inventory from outsiders Power
Inventory from outsiders Short
Powers inventory acquired from Short at cost:
[P5,000 (P5,000 x 55%)}
Consolidated ending inventories
Investment income
Powers share of Shorts net income (P50,000 x 75%)
Unrealized profit in ending inventory upstream
(P5,000 x 55%) x 75%
Realized profit in beginning inventory upstream
(P10,000 x 55%) x 75%
Investment income, Dec. 31, 2008
P 5,000
25,000
2,250
P 32,250
P 37,500
( 2,063)
4,125
P 39,562

Acquisition cost (P80,000 x 80%)
Investment in Short Company, Dec. 31, 2008
P 60,000
( 2,063)
4,125
P 62,062

Stockholders equity, Dec. 31, 2006 Short
Realized profit in beginning inventory (P10,000 x 55%)
Unrealized profit in ending inventory (P5,000 x 55%)
Adjusted net assets of Short, Dec. 31, 2006
Minority interest
MINAS
P 80,000
5,500
( 2,750)
P 82,750
25%
P 20,687.50
17-12: b
Gross profit rate of Sit (P200,000 / P500,000)
Net income from own operations Pit
Adjusted net income of Sit:
Net income
P 75,000
Realized profit in beginning inventoryUpstream (P40,000 x 40%)
16,000
( 10,000)
MINIS (P281,000 x 10%)
40%
P 200,000
81,000
P 281,000
( 8,100)
P 272,900
89
17-13: b
Gross profit of Sir (P120,000 / P400,000)
30%
Consolidated cost of sales

Cost of sales Pig
Cost of sales Sir
Eliminations:
Realized profit in beginning inventory (P70,000 x 30%)
Unrealized profit in ending inventory (P60,000 x 30%)
Net income from own operations Pig
Pigs share of Sirs adjusted net income:
Net income
MINIS (P83,000 x 10%)
( 21,000)
18,000
(200,000)
P 677,000
P 200,000
P 80,000
21,000
(18,000)
17-14: a
2006
Pal Corp net income
150,000
Intercompany profit in ending inventory:
2006
(14,000)
2007
2008
Pal net income from own operation
136,000
Solo net income from own operation
100,000
236,000
MINIS:
2006(100,000 14,000) x 40%
34,400
2007(90,000 +14,000 21,000) 40%
2008(160,000 + 21,000 24,000) 40%
Consolidated NI attributable to Parent 201,600
17-15: a
Acquisition cost
Less: book value of interest acquired (400,000 x 60%)
Difference
Allocated to Equipment
( 20,000)
MINAS (40%)
8,000
Total sales
Intercompany sales (30,000 + 80,000)
Consolidated sales
P 600,000
280,000
83,000
283,000
(8,300)
P 274,700
2007
240,000
14,000
(21,000)
233,000
90,000
323,000
33,200
289,800
2008
300,000
21,000
( 24,000)
297,000
160,000
427,000
62,800
394,200
252,000
240,000
12,000
(12,000)
600,000
(110,000)
490,000
90
17-16: c
Total cost of goods sold (250,000 +120,000)
370,000
Adjustments due to intercompany sale:
COGS charged for intercompany sale (20,000 + 50,000) 70,000
COGS charged by: Star (30,000 6,000)
24,000
Polo (80,000 20,000)
60,000
Total
154,000
Cost of goods sold for consolidated entity:
20,000 x (24,000/30,000)
(16,000)
50,000 x (60,000/80,000)
(37,500) (100,500)
269,500
17-17: c
Polo Corp. net income from own operation (105,000 25,000)
Unrealized profit in ending inventory-DS (6,000 x 10/30)
Adjusted Polo Corp. net income from own operation
Star Corp. net income from own operation:
Net income
45,000
Unrealized profit in EI-US (20,000 x 30/80)
(7,500)
Amortization (20,000/10 years)
(2,000)
MINIS (35,500 x 40%)
Attributable to Parent
17-18: a
Pepsi net income from own operation
Sarsi net income
90,000
Unrealized profit in EI (45,000 x 60/180)
(15,000)
MINIS (75,000 x 30%)
Consolidated net income attributable to Parent-2007
17-19: a
Inventory-Pepsi
P 30,000
Less: unrealized profit in books of Sarsi:
(135,000 90,000) x (30,000/135,000)
(10,000)
Inventory-Sarsi
P110,000
Less: unrealized profit in books of Pepsi:
(280,000 140,000) x (110,000/280,000)
(55,000)
Consolidated inventory 12/31/08
17-20: a
Cost of goods sold on sale of inventory on hand-1/1/08:
[45,000 x (120,000/180,000)]
Cost of goods sold on purchases from Sarsi- 2008
[(135,000 30,000) x (90,000/135,000)]
Cost of goods sold on purchases from Pepsi- 2008
[(280,000 110,000) x (140,000/280,000)]
Consolidated cost of goods sold-2008
80,000
(2,000)
78,000
35,500
113,500
(14,200)
99,300
160,000
75,000
235,000
(22,500)
212,500
20,000
55,000
75,000
30,000
70,000
85,000
185,000
91
17-21: b
Pepsi net income
Sarsi net income
Realized profit in beginning inventory - 2008
Unrealized profit in ending inventory- Sarsi
Unrealized profit in ending inventory- Pepsi
220,000
85,000
15,000
(10,000)
(55,000)
255,000
92
PROBLEMS
Problem 17-1
a.
b.

Net income from own operations P Company
S Co. adjusted net income:
Net income S
Upstream (P9,000 x 50/150)
Realized profit in beginning inventoryUpstream (P6,000 x 50/150)
P200,000
P30,000
(3,000)
2,000
Minority Interest in Net Income of Subsidiary

Adjusted net income - S Co.
Minority interest
29,000
P229,000
P 29,000
x 30%
P 8,700
Problem 17-2
a.

Net income from own operations P Co.
Realized profit in beginning inventory Downstream
(P10,500 x 40/140)
Adjusted net income
S Company adjusted net income:
Net income S
P100,000
3,000
P103,000
P90,000
(2,000)
88,000
P191,000
b.

Adjusted net income S Co.
Minority interest
MINIS
P88,000
x 20%
P17,600
c.
Minority Interest in Net Assets of Subsidiary

Stockholders equity , Jan. 1, 2008 S Company
Increase in earnings 2008 (P90,000 P35,000)
Stockholders equity, Dec. 31, 2008 S Company
Minority interest
MINAS
P350,000
55,000
(2,000)
P403,000
x 20%
P 80,600
93
Problem 17-3
a.
b.
Net Assets, Dec. 31, 2008 S Co.

Minority interest per consolidated balance sheet, 12/31
(P36,000 x 25/125) x 20%
Minority interest per books S Co.
Divided by
Net assets- S Co.
Price Paid
Net assets S Co., Dec. 31, 2008
Net income S Co.
Net assets S Co., Jan. 1, 2008
Parents interest
Book value of interest acquired
Difference
Price paid
P158,560
1,440
P160,000
20%
P800,000
P800,000
(160,000)
P640,000
x 80%
P512,000
20,000
P532,000
Problem 17-4
The computation of the selected consolidation balances are affected by the inter-company profit
in downstream intercompany sales as computed below:
Unrealized profit in ending inventory, Dec. 31, 2007 Downstream
Intercompany profit (P120,000 P72,000)
Inventory left at year end
Unrealized profit, Dec. 31, 20057
P 48,000
x 30%
P 14,400
Unrealized profit in ending inventory, Dec. 31, 2008 Downstream

Intercompany profit (P250,000 P200,000)
P 50,000
Inventory left at year end
x 20%
Unrealized profit, Dec. 31, 2008
P 10,000
a.
b.
c.
Consolidated Sales
Apo
Bicol
Intercompany sales 2008
Total
Cost of goods sold
Apos book value
Bicols book value
Intercompany sales-2008
Realized profit in beginning inventory 2008
Unrealized profit in ending inventory 2008
Operating expenses
Apo
Bicol
Total
P800,000
600,000
(250,000)
P1,150,000
P 535,000
400,000
(250,000)
( 14,400)
10,000
P 680,600
P 100,000
100,000
P 200,000
94
d.
Dividend Income 0 (eliminated)
e.
Minority Interest in Net Income of Subsidiary (P100,000 x 30%)
f.
Inventory
Apo
Bicol
Unrealized profit in ending inventory, Dec. 31, 2008
Consolidated inventory
Stockholders equity , Jan. 1, 2008 Bicol
Increase in earnings in 2008 (P100,000 P50,000)
Stockholders equity, Dec. 31, 2008 Bicol
Minority interest
MINAS
g.
P 30,000
P 298,000
700,000
(10,000)
P 988,000
P 950,000
50,000
P1,000,000
x 30%
P 300,000
Problem 17-5
Sales (P2,000,000 + P1,000,000 P600,000)
Cost of goods sold (Schedule 1)
Gross profit
Expenses
Income before income tax
Provision for income tax
Consolidated net income after income tax
Attributable to minority interest (Schedule 2)
P2,400,000
704,000
1,696,000
600,000
1,096,000
440,000
656,000
44,000
P 612,000
Schedule 1:
Cost of sales P Company
Purchases from S Company
Intercompany profit in beginning inventory (P60,000 x 25%)
Intercompany profit in ending inventory (P76,000 x 25%)
Total
Cost of sales S Company
P 800,000
(600,000)
( 15,000)
19,000
P 204,000
500,000
P 704,000
Schedule 2:
Net income S Company
Adjusted net income
Minority interest
MINIS
P 180,000
15,000
(19,000)
P 176,000
x 25%
P 44,000
95
Problem 17-6
a.
Working Paper Eliminating Entries

(1)
(2)
(3)
Dividend income
Minority interest in net assets of subsidiary (20%)
Dividends declared- D (P32,000 / 80%)
32,000
8,000
Common stock S
90,000
Retained earnings S
220,000
Investment in S Co. stock
To eliminate equity accounts of S on the date of
acquisition.
Cost of goods sold
To eliminate realized profit in beginning inventory
4,000
16,000
(4)
Sales
150,000
(5)

To establish minority interest in net income of S Co.
computed as follows:
Sales
Cost and expenses (P140,000 +P20,000)
Net income
Adjusted net income
Minority interest
MINIS
Cost of goods sold

Inventory, Dec. 31 (P45,000 x 33.33%)
To eliminated intercompany sales and unrealized
profit in ending inventory.
40,000
248,000
62,000
20,000
135,000
15,000
8,000
8,000
P200,000
160,000
40,000
20,000
(15,000)
P 45,000
x 20%
P 9,000
b.

Net income from own operations (P250,000 P205,000)
S Company adjusted net income
P 45,000
45,000
P 90,000
c.
Minority Interest in Net Assets of Subsidiary (MINAS)

Adjusted net income 2008
Adjusted net assets, Dec. 31, 2008 S Co.
Minority interest
MINAS
P 310,000
45,000
P 355,000
x 20%
P 71,000
96
Problem 17-7
a.
Consolidated Sales
Reported total sales (P600,000 + P510,000)
Intercompany sales (P140,000 + P240,000)
Consolidated sales
P1,170,000
(380,000)
P 790,000
b.
Consolidated Cost of Goods Sold

Cost of goods sold:
Pato (P660,000 / 140%)
Sales (P510,000 / 120%
Amount to be eliminated (P128,000 + P232,000) see entry below
Total
P 471,429
425,000
( 360,000)
P 536,429
Elimination of intercompany sales and intercompany profit in inventory:

Downstream Sales
Sales
Inventory (P42,000 x 40/140)
Cost of goods sold
Upstream Sales
Sales
Inventory (P48,000 x 20/120)
Cost of goods sold
c.
d.
140,000
240,000

Net income from own operations Pato
Adjusted net income Pato
Add: Adjusted net income of Sales Co.
Net income
P20,000
Unrealized profit in ending inventory Upstream (8,000)
Consolidated Inventory, Dec. 31, 2008
Inventory reported Pato
Inventory reported Sales
Unrealized profit in ending inventory (P8,000 + P12,000)
12,000
128,000
8,000
232,000
P 70,000
(12,000)
P 58,000
12,000
P 70,000
P 48,000
42,000
(20,000)
P 70,000
97
Problem 17-8
a.
b.
c.
Unrealized Profit in Beginning Inventory

Beginning inventory - Downstream
Gross profit rate (P240,000/ P400,000)
Unrealized profit in beginning inventory
P 100,000
x 60%
P 60,000
Unrealized Profit in Ending Inventory

Ending inventory Downstream (P200,000 x 80%)
Gross profit rate
P 160,000
x 60%
P 96,000
Intercompany Sales
Sales P Company
Sales S Company
Intercompany sales 2008
Consolidated sales
P2,000,000
1,000,000
(400,000)
P2,600,000
Intercompany Cost of Sales

Cost of sales P Company
Cost of sales S Company
Intercompany profit in beginning inventory
Intercompany profit in ending inventory
P 800,000
600,000
(400,000)
( 60,000)
96,000
P1,036,000
Parents interest (40,000 shares / 50,000 shares)

P Company Entries 2008:
(1)
Investment in S Company stock
Income from subsidiary
To record Ps share of S Co. income
(P120,000 x 80%)
80%
96,000
(2)
Cash
(2)

36,000
To adjust income from subsidiary for intercompany
profit in :
Ending inventory
(96,000)
Beginning inventory
60,000
Net adjustment
( 36,000)

To record dividends received from S
(P60,000 x 80%)
48,000
96,000
48,000
36,000
98
d.
Working Paper Eliminating Entries:
(1)

(P60,000 x 20%)
Dividends declared S
(2)
e.
60,000
12,000
Common stock S Co.

500,000
860,000
To eliminate equity accounts of S Company as of
beginning of year.
(3)
Goodwill
To allocate difference to goodwill.
(4)
Retained earnings Jan. 1

60,000
Cost of sales
To eliminate realized profit in beginning inventoryDownstream.
(5)
Cost of sales
96,000
Inventories
To eliminate unrealized profit in ending inventoryDownstream.
(6)
Sales
(7)
Accounts payable
50,000
Accounts receivable
To eliminate intercompany payables and receivables.
(8)

24,000
To establish minority share of S net income
(P120,000 x 20%)
Cost of sales
To eliminate intercompany sales.
60,000
400,000

Net Income from own operations P Company (P480,000 P60,000)
Adjusted net income P Compay
S Company net income
60,000
12,000
1,088,000
272,000
60,000
60,000
96,000
400,000
50,000
24,000
P420,000
60,000
( 96,000)
P384,000
120,000
P504,000
99
CHAPTER 18
MULTIPLE CHOICE
18-1:
a
Equipment at original cost
Accumulated depreciation:
Time of sale
Current depreciation based on
Original cost (P500,000/10 years
18-2:
P500,000
P250,000
50,000
b
Net income Sol
Unrealized gain on sale of computer, Dec. 31
Adjusted net income
Minority interest in net income of subsidiary (MINIS)
18-3:
b
Net income from own operations Prime
Unrealized gain Downstream
Realized net income Prime
Second Company net income
18-4:
P300,000
P100,000
( 30,000)
P 70,000
30%
P 21,000
2005
P200,000
(30,000)
P170,000
100,000
P270,000
2006
P250,000
__P250,000
150,000
P400,000
c
Net income Saw
Unrealized loss-Upstream
Realized loss ((P12,000 / 5) x 6/12
Adjusted net income Saw
P100,000
12,000
( 1,200)
P110,800
Minority interest in net income of subsidiary (P110,800 x 25%) P 27,700

18-5:
c
Equipment at original cost
Accumulated depreciation:
Time of sale
Current depreciation (P900,000/10)
P1,000,000
P360,000
90,000
P 450,000
100
18-6:
a
Adjusted net income Susie (P12,000 / 40%)
Add back: Unrealized gain Upstream
Net income of Susie 2008
18-7:
a
Original cost
Amount debited to Truck account
Selling price of the truck Amount paid
18-8:
P100,000
(48,000)
P 52,000
c
Net income Po
Unrealized gain, Dec. 31 DS
Net income from own operation Po
Net income of So
MINIS (P180,000 x 20%)
18-9:
P 30,000
90,000
P120,000
P200,000
(30,000)
270,000
180,000
P350,000
(36,000)
P314,000
b
Stockholders equity, Jan. 1, 2008 Sy
Stockholders equity, Dec. 31, 2008 Sy
P1,000,000
35,000
P1,035,000
Minority interest in net assets of subsidiary (P1,035,000 x 20%)P 207,000

18-10: b
Net income Pink
Unrealized gain, July 1- Downstream
Realized gain, Dec. 31 (P50,000 / 10) x 6/12
Realized net income Pink
Sodas adjusted net loss:
Net loss
P(40,000)
Unrealized loss, 1/1 Upstream
15,000
Realized loss, 12/31 (P15,000/5)
( 3,000)
MI in net loss of subsidiary (P28,000 x 20%)
P300,000
( 50,000)
2,500
P252,500
(28,000)
P224,500
5,600
P230,100
101

Net assets, Jan. 1, 2008 (P1,240,000 / 80%)
Decrease in earnings:
Net loss
Dividends paid
Net assets, Dec. 31, 2008
Unrealized loss, Dec. 31 (Upstream)
Adjusted net assets, Dec. 31, 2008
P1,550,000
P40,000
30,000
( 70,000)
P1,480,000
( 12,000)
P1,468,000
Minority interest in net assets of subsidiary (P1,468,000 x 20%)P 293,600

18-11: a
Minority interest, Dec. 31, 2008
Add: MI share of unrealized profit in ending inventory -Upstream
(P36,000 x 20%) x 20%
MI share of unrealized gain on sale of equipment- Upstream
(P60,000 x 20%) (P12,000 / 5)
Minority interest before adjustment
Net assets Steve, Dec.31, 2008 (P200,000 / 20%)
Investment in Steve Company stock Equity method
Acquisition cost:
Less: net income steve
MINIS
P36,960
MI share of unrealized profit in ending
Inventory Upstream
1,440
MI share of unrealized gain on sale of
Equipment Upstream
9,600
MINIS per book
P48,000
Divided by
20%
Net assets, Jan. 1, 2008
Parents proportionate share
Book value of interest acquired
Add: difference
Purchase price (acquisition cost)
Add: Investment income
Peters share of Steve net income (P240,000 x 80%)
(P24,000 x 20%/120%) x 100%
Unrealized profit in beginning inventory Upstream
(P36,000 x 25/125%) x 80%
Unrealized gain on sale of equipment Upstream
(P48,000 9,600)
Investment in Steve Company, Dec. 31, 2008
P188,960
1,440
9,600
P200,000
P1,000,000
P1,000,000
240,000
P 760,000
x 80%
P 608,000
20,000
P 628,000
P 192,000
( 4,000)
( 5,760)
( 38,400)
P 771,840
102
18-12: a
Net income from own operations Pipe
Pipes share of Smokers adjusted net income:
Net income
Unrealized gain, July 1, 2008 Upstream
Realized gain, Dec. 31, 2008 (P50,000/5)x
18-13: d
Net income from operations Parent
Parents share of adjusted net income of Sub:
Net income
Unrealized gain Upstream
Realized gain: 2007 (P9,000/3) x
2008 (P9,000/3)
Adjusted net income
MINIS
P400,000
P100,000
(50,000)
5,000
55,000
P455,000
2007
P100,000
2008
P120,000
P 60,000
( 9,000)
750
P 51,750
P151,750
(10,350)
P141,400
P 75,000
3,000
P 78,000
P198,000
(15,600)
P182,400
18-14: d
Investment in Sili Company stock Equity method
Acquisition cost
Investment income net of dividends 2005 to 2007:
Increase in earnings (P500,000 P200,000) x 75%
Investment income, Dec. 31, 2007:
Share of Silis net income (P60,000 x 75%)
45,000
Unrealized gain on sale of land Downstream
(15,000)
Unrealized loss on sale of building Downstream
10,000
Realized loss on sale of building (P10,000 / 5) x 75% ( 1,500)
Investment income, Dec. 31, 2008:
Share of Silis net income (P70,000 x 75%)
52,500
Realized loss (P10,000 / 5)
(2,000)
Dividends received:
2007: (P10,000 x 75%)
7,500
2008: (P20,000 x 75%)
15,000
Investment in Sili Company stock, Dec. 31, 2008
P500,000
225,000
38,500
50,500
(22,500)
P791,500
103
18-15: a
Investment in Saw Company stock, Dec. 31, 2008
Acquisition cost
Investment income 2002 to 2006:
Increase in earnings (P500,000 P300,000) x 90%
Investment income 2007 (see above)
Investment income 2008:
Powers share of Saws net income (P120,000 x 90%) P108,000
Realized loss on sale of warehouse (P20,000/2) x 90%
(9,000)
Dividends received:
2007: ( P20,000 x 90%)
P 18,000
2008: ( P30,000 x 90%)
27,000
Investment in Saw Company stock account balance 12/31/08
P550,000
180,000
101,250
99,000
(45,000)
P885,250
104
PROBLEMS
Problem 18-1
Computation of the missing amounts in the working paper eliminations for P Corporation and S
Company:
(1)
P640 (P3,200 x 20%)
(2)
P2,560 (P3,200 x 80%)
(3)
P1,600 (P800 x 2)
(4)
P320 (P1,600 x 20%)
(5)
P1,280 (P1,600 x 80%)
(6)
P3,200 (P800 x 4)
Problem 18-2
a.
Unrealized gain on sale of equipment, Dec. 31 Downstream
Adjusted net income P Co,
S Company net income
P200,000
(30,000)
P170,000
180,000
P350,000
b.
Minority interest in net income of subsidiary (P180,000 x 20%)
P 36,000
c.
Minority Interest in Net Assets of Subsidiary:

Stockholders equity, Jan. 1, 2008 S Company
Minority interest
P 900,000
120,000
P1,020,000
x 20%
P 204,000
Problem 18-3
Pony Corporation and Subsidiary
Sales (P500,000 + P300,000)
Gain on sale of machinery (schedule 1)
Total revenue
Cost of sales P200,000 + P130,000)
Gross profit
Expenses:
Depreciation (P50,000 +P30,000 P5,000)
P 75,000
Other expenses (P80,000 + P140,000)
220,000
Attributable to minority interest (P190,000 + P5,000) +10,000) x 25%
P800,000
20,000
820,000
330,000
490,000
295,000
785,000
(28,750)
P266,250
105
Schedule 1:
Selling price Dec. 28, 2008
Book value (P65,000 5) x3
Gain on sale
Unrealized gain (P25,000 P15,000)
Total gain
P36,000
26,000
10,000
10,000
P20,000
Problem 18-4
a.
b.

Adjusted net income of S Company:
Net income S
Unrealized gain, 4/1/08 - Upstream
Realized gain, 12/31/08 (P30,000/5) x 9/12
MINIS (P124,500 x 20%)
Stockholders equity , Jan. 1, 2008 S Company
Increase in adjusted earnings 2008:
Net earnings (P150,000 P50,000)
Unrealized gain 12/31 (P30,000 P4.500)
Stockholders equity, Dec. 31, 2008
Minority interest
MINAS
P300,000
P150,000
( 30,000)
4,500
124,500
424,500
(24,900)
P399,600
P800,000
P100,000
(25,500)
74,500
P874,500
x 20%
P114,900
Problem 18-5
a.
b.
Consolidated Net Income - 2008

Net income from own operations BJ
Gain on sale of machine, July 1 - Downstream
Realized gain, Dec. 31 (P50,000 / 10) x 6/12
Adjusted net income BJ
Net income (loss) of DK:
Net income (loss) DK
Loss on sale of truck , Jan. 1 - Upstream
Realized loss, Dec. 31 (P15,000 / 5)
Net loss from own operations DK
Upstream loss on sale of truck
Realized loss on sale of truck
Adjusted net loss
Minority interest
MI in net loss of subsidiary
P300,000
(50,000)
2,500
P252,500
P(40,000)
15,000
( 3,000)
(28,000)
P224,500
P (40,000)
15,000
( 3,000)
P ( 28,000)
x 20%
P ( 5,600)
106
c.

Net assets, Jan. 1, 2006 (P1,240,000 / 80%)
Increase in earnings (loss) -2006 (P40,000 + P30,000)
Unrealized loss Upstream (P15,000 P3,000)
Adjusted net assets
Minority interest
MINAS
P1,550,000
(70,000)
P1,480,000
12,000
P1,492,000
x 20%
P 298,400
Problem 18-6
Texas Company and Subsidiary
Sales
Cost of goods sold
Gross profit
Expenses (P200,000 + P100,000 P8,000 )
Attributable to minority interest (P150,000 x 25%)
P1,500,000
650,000
850,000
292,000
P 558,000
37,500
P 520,500
Adjustment for expenses (depreciation) = P40,000 / 5 years.

Problem 18-7
a.
Leo Company and Subsidiary

Consolidated Balance Sheet Working Paper
December 31, 2007
Leo
Company
101,000
80,000
150,000
400,000
141,000
Taurus
Corporation
20,000
40,000
90,000
300,000
Total debits
872,000
450,000
Accounts payable
Notes payable
Common stock
Retained earnings
135,000
90,000
200,000
100,000
347,000
85,000
25,000
90,000
200,000
50,000

Inventory
Land
Investment in stock Taurus
MI in net assets in Subsidiary

Total
872,000
450,000
Adjustments
& Eliminations
Debit
Credit
(2) 10,000
(3) 9,000
(3) 15,000
(1)150,000
(2) 6,000
Consolidated
121.000
120,000
250,000
709,000
1,200,000
(3) 24,000
244,000
115,000
290,000
100,000
347,000
(1)100,000
(2) 4,000
104,000
(1)200,000
(1) 50,000
1,200,000
107
(1) To eliminate equity accounts of subsidiary

(2) To intercompany gain on sale of land.
(3) To eliminate intercompany gain on sale of equipment debited to Investment account and restore equipment to
its original book value.
b.
Leo Company and Subsidiary

December 31, 2008
Inventory
Land
Total assets
P121,000
120,000
250,000
P709,000
244,000
465,000
P956,000
Accounts payable
Notes payable
Common stock stock
Retained earnings
P115,000
290,000
100,000
347,000
104,000
P956,000
Problem 18-8
a.
Working Paper Elimination Entries Dec. 31, 2008

(1)
(2)
Dividend income
Dividends declared Jupiter
To eliminate intercompany dividends
4,000
1,000
Common stock Jupiter

100,000
Retained earnings Jupiter
50,000
Investment in Jupiter stock
To eliminate equity accounts of Jupiter as of the
date of acquisition
(3)
Goodwill
Investment in Jupiter Stock
To allocate difference to goodwill
40,000
(4)

8,000
2,000
Land
To eliminate unrealized gain on sale of land Upstream.
5,000
120,000
30,000
40,000
10,000
108
(5)
Gain on sale of equipment

To eliminate gain on sale of equipment
20,000
5,000
2,000
25,000
(6)
Depreciation
To adjust excess depreciation
(7)
Accounts payable
7,000
Accounts receivable
To eliminate intercompany payables and receivables.
7,000
(8)

6,000
(P40,000 10,000) x 20%
6,000
2,000
109
b.
Vincent Company and Subsidiary

December 31, 2008
Income Statement
Sales
Gain on sale of equipment
Dividend income
Total revenues
Cost of goods sold
Depreciation
Other expenses
Net/consolidated income
MI in net income of subsidiary
Retained earnings, Jan.1
Total
Dividends declared
Carried forward
Balance Sheet
Inventory
Land
Investment in Jupiter stock
Goodwill
Total
Accounts payable
Bonds payable
Common stock
MI in net assets of subsidiary
Total
Vincent
Company
Jupiter
Company
240,000
20,000
4,000
264,000
140,000
25,000
15,000
180,000
84,000
120,000
84,000
40,000
294,000
105,000
84,000
378,000
30,000
40,000
145,000
5,000
348,000
140,000
113,000
260,000
80,000
500,000
160,000
35,000
90,000
80,000
150,000
1,113,000
355,000
205,000
60,000
200,000
300,000
348,000
45,000
20,000
50,000
100,000
140,000
1,113,000
355,000
120,000
60,000
15,000
5,000
80,000
40,000
Adjustments
& Eliminations
Debit
Credit
(5) 20,000
(1) 4,000
(6)
(8)
2,000
6,000
(2) 50,000
(4) 8,000
Consolidated
360,000
360,000
200,000
38,000
20,000
258,000
102,000
(6,000)
96,000
341,000
(1)
5,000
96,000
437,000
30,000
407,000
(7)
(5)
5,000
(3) 40,000
(6)
(7)
2,000
7,000
7,000
(4) 10,000
(2)120,000
(3) 40,000
(5) 25,000
(2)100,000
(1)
(4)
1,000
2,000
(2) 30,000
(8) 6,000
245,000
245,000
141,000
350,000
150,000
655,000
40,000
1,336,000
273,000
73,000
250,000
300,000
407,000
33,000
1,336,000
110
c.

December 31, 2008
Assets
Inventory
Land
Goodwill
Total assets
Liabilities and Stockholders equity
Liabilities
Accounts payable
Bonds payable
Total liabilities
Stockholders Equity
Common stock
Retained earnings
P655,000
273,000
P 141,000
350,000
150,000
382,000
40,000
P1,063,000
73,000
250,000
P 323,000
P300,000
407,000
33,000
740,000
P1,063,000

Sales
Cost of goods sold
Gross profit
Expenses: Depreciation
Other expenses
Attributable to minority interest
P 38,000
20,000
P 360,000
200,000
160,000
58,000
102,000
6,000
P 96,000

Retained earnings, Jan. 1 Vincent
Retained earnings, Jan. 1 Jupiter
Total
Dividends declared Vincent
P 294,000
47,000
341,000
96,000
( 30,000)
P 407,000
111
Problem 18-9
(a)
P100,000 (the common stock of Phantom only)
(b)
P140,000
P250,000 (P593,000 P343,000)
(d)
P100,000 (P126,000 P35,000) + [(P25,000 + P85,000) - P101,000]
(e)
(f)
Purchase price, Jan. 1, 2008

Undistributed earnings from 1/1/05 to 1/1/08:
(P80,000 P30,000) x 60%
Undistributed income for 2008 (P30,000 P20,000) x 60%
Total
Adjustments:
Unrealized gain on sale of land Downstream (g)
Unrealized gain on sale of equipment Upstream
(P9,000 P3,000) x 60%
Adjusted Investment account balance, Dec. 31, 2008
(g)
P7,000 (P70,000 + P90,000) P153,000
(h)
(i)
P510,000 [P345,000 + P150,000 + (P60,000 P45,000)]
(j)
P278,000 = P180,000 + P80,000 + [(P60,000/5) x 4 ]

Less [(P45,000 / 3) x 2 years]
(k)
Retained earnings, Dec. 31, 2008

Less: Share of unrealized profit on sale of equipment:
Gain record [P45,000 (P60,000 x 3/5)]
Realized in 2008 (P9,000 / 3)
Unrealized
Phantoms interest
(l)
P105,000
30,000
6,000
P141,000
(7,000)
(3,600)
P 70,400
P380,000
P9,000
3,000
P6,000
x 60%
Net income Shadow, 2008 (P250,000 P220,000)

Realized gain on sale of building c Dec. 31, 2006 Upstream
Adjusted net income
Minority interest
3,600
P376,400
P 30,000
3,000
P 33,000
x 40%
P 13,200
112
Problem 18-10
Supporting computations
(1)
Allocation schedule (purchase price)

Difference
Allocated to patents (P120,000 x 60%)
Goodwill
P 372,000
210,000
P 162,000
( 72,000)
P 90,000
Amortization of patents (P120,000 / 12)
P 10,000
(2)
Unrealized gain on intercompany sale of building Upstream, Jan. 1, 2006:

Unrealized gain at date of sale (P80,000 P30,000)
P 50,000
Realized gain (P50,000 / 5) x 2 years
(20,000)
Unrealized gain as of Jan. 1, 2008
P 30,000
(3)
Realized profit from intercompany sale of inventory Downstream, 1/1/08:

Remaining inventory as of Dec. 31, 2007
P 50,000
Gross profit rate on sales 2007 (P30,000 / P150,000)
x 20%
Realized profit as of Jan. 1, 2008
P 10,000
(4)
Unrealized profit from intercompany sale of inventory Downstream, 12/31/08

Remaining inventory as of Dec. 31, 2008
P 40,000
Gross profit rate on sales 2008 (P48,000 / P160,000)
x 30%
Unrealized profit as of Dec. 31, 2008
P 12,000
Consolidated balances 2008

a.
Cost of goods Sold

Cost of goods sold Apex
Cost of goods sold Small
Intercompany sale of inventory 2008
Realized profit on beginning inventory
Unrealized profit on ending inventory
Consolidated
P 460,000
205,000
(160,000)
( 10,000)
12,000)
P 507,000
b.
Operating Expenses
Operating expenses Apex
Operating expenses Small
Amortization (No. 1 above)
Excess depreciation (P50,000 / 5 years)
Consolidated
P 170,000
70,000
10,000
(10,000)
P 240,000
113
c.

Sales (after elimination of intercompany sales)
Cost of goods sold (a)
Operating expenses (b)
Minority interest in net income of subsidiary:
Net income Small
Realized gain on sale of building Upstream
Adjusted net income
Minority interest
P 840,000
(507,000)
(240,000)
P25,000
10,000
P35,000
x 40%
( 14,000)
P 79,000
d.
Consolidated Retained Earnings, Jan. 1, 2008

Retained earnings, Jan. 1, 2008 Apes
P 690,000
Amortization of patents 2002 to 2007 (P10,000 x 6)
(60,000)
Unrealized profit on inventory, 2007 Downstream
(10,000)
Unrealized gain on sale of building, 1/1/08 - Upstream (P30,000 x 60%) (18,000)
Consolidated retained earnings, Jan. 1, 2008
P 602,000
e.
Consolidated Inventory
Inventory Apex
Inventory Small
Unrealized profit in inventory Dec. 31, 2008
P 233,000
229,000
( 12,000)
P 450,000
f.
Consolidated Building
Buildings Apex
Buildings Small
Unrealized gain, Jan. 1, 2006
Realized gain, 2006 2008 (P10,000 x 3 )
Consolidated buildings
P 308,000
202,000
(50,000)
30,000
P 490,000
g.
Consolidated Patents
Patents Small
Allocation
Amortization, 2002 2008 (P10,000 x 7)
Consolidated patents (net)
P 20,000
120,000
( 70,000)
P 70,000
h.
Consolidated Common Stock = P300,000 (Apex common stock)
i.

Stockholders equity Small, Dec. 31, 2008 (P100,000 + P420,000)
Unrealized gain on sale of building, Dec. 31,2008 Upstream
Adjusted net assets, Dec. 31, 2008
Minority interest
P 520,000
(20,000)
P 500,000
x 40%
P 200,000
114
Problem 18-11
a.

(1)

Investment in Duke
To adjust Investment account for unrealized profit
in inventory on Dec. 31, 2005 (P10,000 x 60%)
6,000
(2)
Income from Duke Company

Dividends declared Duke
Investment in Duke
84,000
24,000
(3)
Common stock Duke

320,000
APIC Duke
90,000
Retained earnings, 1/1 Duke
620,000
Investment in Duke (60%)
Minority interest in net assets of subsidiary (40%)
To eliminate equity accounts of Duke as of beginning of year.
(4)
Goodwill
Investment in Duke
To allocate difference
(5)
Impairment loss
Goodwill
To reduce goodwill for impairment.
(6)
Sales
(7)
Investment in Duke
6,000
4,000
Cost of goods sold
To eliminate realized profit in beginning inventory Upstream
Cost of goods sold

To eliminated intercompany sales
100,000
5,000
200,000
6,000
60,000
48,000
618,000
412,000
100,000
5,000
200,000
10,000
(8)
Cost of goods sold

12,000
Inventory
To eliminate unrealized profit in ending inventory Upstream
12,000
(9)
Investment in Duke
Land
To eliminate gain on sale of land Downstream
40,000
40,000
(10)
Liabilities
Accounts receivable
To eliminate intercompany debt.
40,000
(11)

(P140,000 + 10,000 P12,000 P5,000) x 40%
53,200
40,000
53,200
115
b.

Net income Duke
Impairment loss
Adjusted net income Duke
Minority interest
MINIS
c.

Stockholders equity, 1/1/08 Duke (P320,000 + P90,000 + 620,000)
P80,000
(12,000)
10,000
Goodwill impairment loss
( 5,000)
Adjusted net assets, 12/31/08
Minority interest
MINAS
d.
P140,000
10,000
( 12,000)
( 5,000)
P133,000
x 40%
P 53,200

Net income from own operations Baron (P284,000 P84,000)
Unrealized gain on sale of land
Adjusted net income- Baron
Adjusted net income of Duke (P133,000 x 60%)
P1,030,000
73,000
P1,103,000
x 40%
P 441,200
P 200,000
(10,000)
P 190,000
133,000
P 323,000
Problem 18 12
Pluto Corporation and Subsidiary Star Corporation
Comparative Consolidated Income Statement
Years Ended December 31, 2007 and 2008
.
.
Sales
Cost of goods sold
Gross profit
Operation expenses
Attributable to equity holders of Pluto
Supporting computations:
.
.
Consolidated sales:
Combined sales
Less: intercompany sales
Consolidated sales
2008
P800,000
442,000
358,000
178,000
180,000
10,000
P170,000
December 31
2008
P850,000
(50,000)
P800,000
2007
P660,000
368,000
292,000
138,000
154,000
10,000
P144,000
2007
P700,000
(40,000)
P660,000
.
.
.
.
.
.
.
.
.
.
116
Consolidated cost of goods sold:

Combined costs of good sold
Intercompany sales
Unrealized profit in beginning inventory
P490,000
(50,000)
10,000
(8,000)
P442,000
P400,000
(40,000)
8,000
P368,000
.
.
Consolidated operating expenses

Combined operating expenses
Realized gain on sale of equipment (P10,000/.2)
Consolidated operating expenses
P180,000
(2,000)
P178,000
P140,000
(2,000)
P138,000
.
.

Star Companys reported net income
Gain on upstream sale of land
Unrealized gain in upstream, inventory sales
Realized net income
Minority interest
P65,000
(5,000)
(10,000)
P50,000
20%
P10,000
P50,000
P50,000
20%
P10,000
.
.
.
117
CHAPTER 19
Multiple Choice
19-1:
d.
Direct exchange rate:
December 1
December 31
Decrease in forex rate
1 2.22 yen =
1 2.70 yen =
P
P
Forex gain (200,000 yen x P0.08)
19-2:
19-3:
16,000
c.
Forex rate, December 1
Increase in forex rate
Forex gain (1,500,000 yen x P0.02)
0.45
0.47
0.02
30,000
d.
September 30:
Forex rate, September 1
Forex rate, September 30
P
P
Forex gain (200,000 hkg.$ x P0.02)
December 31:
Forex rate, October 1
Increase in forex rate
Forex loss (200,000 hkg.$ x P0.03)
19-4:
0.45
0.37
0.08
5.61
5.59
0.02
4,000
5.59
5.62
0.03
(6,000)
c.
Forex loss on importation of merchandise:
Peso equivalent, January 10, 2004
Peso equivalent, April 20, 2004
Forex loss (increase)
Forex loss on notes payable:
Peso equivalent, September 1, 2004
Peso equivalent, December 31, 2004
Forex loss on principal
Add: Forex loss on interest
Based on P 3,2000,000
Based on P 300,000,000 (P3,000,000x10%x4/12)
Forex loss
Total forex loss (P 8,000 + P220,000)
P
P
600,000
608,000
(8,000)
P 3,000,000
3,200,000
P (200,000)
P 120,000
100,000
20,000
P (220,000)
P (228,000)
118
19-5:
a.
Direct forex rate Transaction date (P 1 $0.018)
Direct forex rate Balance sheet date (P 1 $0.017)
Direct forex rate Settlement date (P 1 $0.020)
Forex gain (loss), 2004
Transaction date ($10,000 x P55.5555)
Balance sheet ($10,000 x P 58.8235)
Forex loss (increase)
Forex gain (loss), 2005
Balance sheet date ($10,000 x P58.8235)
Settlement data ($10,000 x P 50.00)
Forex gain (decrease)
19-6:
55.5555
58.8235
50.0000
555,555
588,235
P ( 32,680)
P
P
588,235
500,000
88,235
b.
Adjusted value of accounts receivable, 6/30
Peso equivalent, 7/27
Forex loss
19-7:
P
P
315,000
300,000
(15,000)
a.
2004
Forex rate, 11/5/04
Forex rate, 12/31/04
Payable in foreign currency
Forex gain
2005
Forex rate, 12/31/04
Forex rate, 1/15/05
Payable in foreign currency
Forex loss
19-8:
a. (1000,000 FC x P 0.85)
19-9:
c. (50,000 FC x P 0.6498)
P
P
P
P
P
P
0.4295
0.4245
0.0050
50,000
250
0.4245
0.4345
0.0100
50,000
(500)
19-10: b
Forward rate, 3/31/04
Selling spot rate, 4/30/04
Decrease
Forward contract receivable
Forex loss
0.25
0.22
P
0.03
100,000 FC
P
3,000
119
19-11: d. forex gain (loss) on purchase commitments is based on the changes in the forward rates.
Forward rates December 31, 2004
90-day forward rate
.0055
.0055
On December 31, 2004, no changes in forward rates occurred, so no forex gains (losses) are to be
recognized on December 31, 2004 under both transactions.
19-12: b.
Forward contract receivable (P100,000 Baht x P1.650)
Spot rate (100,000 Baht x P1.600)
Forex loss
165,000
160,000
P
(5,000)
19-13: d.
Import transaction Based on spot rates:
12/31/04: Forex loss [1,000,000 Francs x (P6.01 P6.16)]
Forward Contract Based on forward rates:
12/31/04: Forex gain [1,000,000 Francs x (P6.06 P6.07)]
P (150,000)
P
Net forex loss
10,000
P (140,000)
19-14: b.
12/31/04: Forex gain [$5,000 x (P56.50 P56.60)]
3/31/04 : Forex loss:
Forward contract receivable ($5,000 x P56.60)
Settlement at spot rate ($5,000 x P56.32)
P
P 283,000
281,600
Net forex loss
500
(1,400)
(900)
7,800
8,200
(400)
19-15: a.
Increase in forward rates:
Forward contract receivable, 11/1/04 (10,000 fc x P.78)
Forward contract receivable, 12/31/04 (10,000 fc x P82)
Forex loss
19-16: b. Increase in forward rates [100,000 x (P.90 P.93)]

19-17: c
Gain from increase in intrinsic value of put option
Loss from decrease in fair value of available for sale securities
Loss from decrease in time value of the option
Net loss on hedging activity 12/31/07
100
(100)
(60)
(60)
19-18: a
120
19-19: a
12/01/08:
12/31/08:
A$ 70,000/P42,000= 1.667 A$ to P1.00

A$ 70,000/P41,700= 1.679 A$ to P1.00
19-20: a, A$70,000 x P.57 (December 31 forward rate)

19-21: a, The balance will not change, because it is denominated in Philippine peso.
19-22: a
P82,000/KRW 400,000 = P.205
The P82,000 is the amount of the peso payable to bank. This amount is computed
using the forward rate.
121
Problems
Problem 19-1
Accounts
Receivable
Case 1
NA
Case 2
Accounts
Payable
P 160,000 (a)
P 38,000
NA
Foreign
Currency
Transactions
Exchange Loss
Foreign
Currency
Transactions
Exchange Gain
NA
P 20,000 (b)
NA
P 2,000 (d)
Case 3
NA
P 13,500 (e)
P 1,500 (f)
NA
Case 4
P 6,250 (g)
NA
P 1,250 (h)
NA
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
$40,000 x P4.00
$40,000 x (P4.00 P4.50)
$20,000 x P1.90
$20,000 x (P1.90 P1.80)
$30,000 x P.45
$30,000 x (P.45 P.40)
$2,500,000 x P.0025
$2,500,000 x (P.0025 P.003)
Problem 19-2
a.
May 1
Inventory (or purchases)

Accounts payable
Foreign purchases denominated in
Philippine pesos.
800,000
June 20
Accounts payable
Cash
Settlement.
800,000
July 1
Accounts receivable
Sales
Foreign sales denominated in
Philippine pesos.
500,000
August 10
Cash
Accounts receivable
Collections.
500,000
800,000
800,000
500,000
500,000
122
b.
May 1
Inventory (or purchases)

800,000
Accounts payable
Foreign purchases denominated in yen:
P800,000 / P.40 = 2,000,000 yen
June 20
Foreign currency transaction loss

Accounts payable
P900,000 = 2,000,000 yen x P.45
800,000 = 2,000,000 yen x P.40
P100,000
100,000
Accounts payable
Cash or foreign currency
Settlement denominated in yen.
900,000
July 1
Accounts receivable
500,000
Sales
Foreign sale denominated in Hongkong $
P500,000 / P5.20 = 96,154 Hkg $
August 10
Accounts receivable
Foreign currency transaction gain
P501,924 = 96,154 Hkg. $ x P 5.22
500,000 = 96,154 Hkg. $ x P 5.20
P 1,924
Cash or foreign currency
Accounts receivable
Collections
1,924
501,924
800,000
100,000
900,000
500,000
1,924
501,924
Problem 19-3
a.
No net exposure between November 1 and March 1. Michael, Inc. has hedged its foreign currency
purchase commitment with a forward contract to receive an equal number of foreign currency
units.
b.
November 1:

3,076,800
Forward contract payable
To record forward contract at forward rate:
240,000 Ringgit x P12.82
December 31:
Forex loss
4,800
To record forex loss for the decrease in
forward rate, P240,000 x P.02
3,076,800
4,800
123
December 31:
Firm commitment for merchandise

4,800
Forex gain
To record increase in fair value of the
Purchase commitment, and resultant
gain or the decrease in the forward rate.
March 1:

3,076,800
Cash
To record settlement of forward contract.
3,076,800
Cash (240,000 x P12.86)

3,086,400
Forex loss (240,000 x P.02)
4,800
To record receipt of 240,000 Ringgit when
the spot rate is P12.86.
3,091,200

Forex gain
To record change in value of the firm
commitment.
4,800
Purchases (240,000 x P12.82)

3,076,800
Cash
To record purchases of merchandise.
4,800
4,800
9,600
3,086,400
Problem 19-4
June 1:
Purchases
460,000
Accounts payable
To record purchases ( 1,000,000 x P.46).
Forward contract receivable (fc)
480,000
To record purchase of 1,000,000 for delivery
in 60 days at forward rate of P.48.
June 30:
Forex loss
20,000
Accounts payable
To record forex loss for the increase in spot
rate, 1,000,000 x (P.46 P.48)
20,000
Forex gain
To record forex gain for the increase
in forward rate, 1,000,000 x (P.48 P.50).
460,000
480,000
20,000
20,000
124
August 1:
Accounts payable
Forex loss ( 1,000,000 x P.03)
Cash ( 1,000,000 x P.51)
To record settlement.
480,000
30,000
510,000
Cash ( 1,000,000 x P.51)

510,000
Forex gain
To record receipt of 1,000,000 at spot rate
10,000
500,000

480,000
Cash
480,000
Accounts receivable
1,280,000
Sales
To record sale (100,000 Rial x P12.80).
1,280,000
Problem 19-5
December 1:

1,240,000
Forward contract payable (fc)
To record forward contract to sell 100,000 Rial
at a 90-day forward rate of P12.40.
December 31:
Forex loss
10,000
Accounts receivable
To adjust receivable for the decrease in spot rate
and record forex loss, 100,000 Rial x (P12.80 P 12.70).
Forex loss
20,000
Forward contract payable (FC)
To record forex gain for the increase in forward rate,
100,000 Rial x (P12.40 P12.60).
March 1:
Cash
1,290,000
Forex gain(100,000 Rial x P.20)
Accounts receivable
To record collection of accounts receivable at spot rate.
Forward contract payable (FC)
Forex loss
Cash (100,000 Rial x P12.60)
To record delivery of 100,000 Rial.
1,260,000
30,000
Cash
1,240,000
To record collection for forward contract.
1,240,000
10,000
20,000
20,000
1,270,000
1,290,000
1,240,000
125
Problem 19-6
October 1:

(15,000 Baht x P1.16)
17,400
December 31:
Forex loss
15,000 Baht x (P1.16 P1.17).
150
Firm commitment for materials

Forex gain
To record increase in fair value of sales
commitment.
150
April 1:
Cash
17,400
To record collection of forward contract.
17,550
Forex gain
Cash /fc (15,000 Baht x P1.16)
To record delivery of 15,000 Baht at forward rate
of P1.16.
Forex loss
Firm commitment for materials
Cash/fc (15,000 Baht x P1.18)
Sales
To record sales.
150
17,700
17,400
150
150
17,400
150
17,400
150
17,700
Problem 19-7
Contract 1:
October 1:

160,000
To record forward contract to buy 400,000 at P40.
December 31:

4,000
Forex gain
To record forex gain for the increase in forward
rate of P.01.
April 1:
Cash ( 400,000 x P.43)

172,000
Forex gain
To record receipt of 400,000 at spot rate of
P.43.
160,000
Cash
To record payment of forward contract.
160,000
4,000
164,000
2,000
160,000
Contract 2:
126
December 1:

9,200
To record forward contract to sell 2 million Rupiah
at P.0046.
December 31:

200
Forex gain
To record forex gain for the decrease in forward
Rate by P.0001.
March 1:
Cash
9,200
9,200

9,000
Forex loss
800
Cash
To record payment of 2 million Rupiah at spot
rate of P.0049.
9,800
9,200
200
Problem 19-8
1.
Investment in Siam
Cash
To record purchase of 40% of Siam Company.
1,920,000
Cash
123,200
Investment in Siam
To record dividends from Siam for 20 x 1 (P308,000 x 40%)
1,920,000
123,200
Investment in Siam
243,200
Other comprehensive income-translation adjustment 128,800
Income from Siam
372,000
To record income from Siam for 20x1 computed as follows:
Share of reported income (P930,000 x 40%)
P 372,000
Share of equity adjustment (P322,000 x 40%)
128,800
2a.
Cash (fc)
b.
Loan payable (fc)

60,000
Other comprehensive income-translation adjustment
To adjust loan to current rate (P1.55 P1.50) x 1,200,000.
c.
Interest expense
91,500
Interest payable (fc)
Forex gain
To accrue interest expense (1,200,000 x 10% x year x P1.525)
And record interest payable (1,200,000 x 10% x year x P 1.50).
Loans payable (fc)

To record loan of 1,200,000 NT dollar at P1.55.
1,860,000
1,860,000
60,000
90,000
1,500
127
Problem 19-9
1.
Cash (fc)
168,000
Accounts receivable (fc)
Forex gain
To record collection of 100,000 Baht from Queens Company.
167,000
1,000

167,000
Forex loss
1,000
Cash (fc)
To record delivery of 100,000 Baht in settlement of the
forward contract denominated in Baht.
168,000
Cash

To record receipt of Phil. Pesos in settlement of the
forward contract receivable.
2.
164,000

Cash
To record payment of forward contract payable.
76,000
Cash (fc)
Forex loss
75,000
500

To record collection of forward contract receivable:
(10,000,000 Rupiah x P.00750)
Accounts payable (fc)

75,500
Cash (fc)
Forex gain
To record payment of accounts payable to Indon Co.
(1,000,000 Rupiah x P.00750)
164,000
76,000
75,500
75,000
500
Problem 19-10
1.
Schedule of forward contract items at December 31, 2004 balance sheet.

Current assets:
Forward contract receivable (Siam hedge: in Phil. pesos)
Forward contract receivable (Indon hedge: 10,000,000 x P.0077)
Forward contract receivable (Speculation in Yen: 200,000 x P.670)
Change in value of firm commitment
P 168,000
77,000
134,000
1,000
Accounts payable (Indon account: 10,000,000 x P.0077)
P 77,000
Forward contract payable (Siam hedge: 100,000 Baht x P1.690)
169,000
Forward contract payable (Speculation in Yen: payable in Phil. pesos)
130,000
128
2.
Forex gain or loss for 2004:

Indon:
P2,000 loss on account payable offset by P2,000 gain on

Siam:
Forex loss is offset by the change in the value of firm

commitment
Speculation: The speculation is accounted for at the forward rate

throughout the life of the contract. Therefore, the forward
contract receivable is adjusted to P 134,000 (the rate for
60-day futures at December 31 and the P4,000 gain is
recognized).
Forex gain for 2004 in the income statement
4,000
P 4,000
Problem 19-11
a. Entry to record the purchase of the call options on November 30, 2007
November 30, 2007
Call Options
Cash
Purchase call options for 10,000 barrels
of oil at a premium of P2 per barrel for
March 1, 2008. The options are at the money
of P30 per barrel; therefore, the entire
P20,000 is time value
20,000
20,000
b. Adjusting entry on December 31, 2007:

December 31, 2007
Loss on hedge activity
Call options
Record the decrease in the time value
of the options to current earnings.
Call options
Other comprehensive income
Record the increase in the intrinsic value
of the options to other comprehensive income.
14,000
10,000
14,000
10,000
c. Entries to record March 1, 2008, expiration of options, the sales of option, and the purchase
of oil.
March 1, 2008
Loss on hedge activity
Call options
Record the decrease in the time value
of the options to current earnings.
The options have expired.
6,000
6,000
129
Call options
Other comprehensive income
Record the increase in the intrinsic value
of the options to other comprehensive income.
20,000
Cash
Call options
Record the sale of the call options.
30,000
Oil inventory
Cash
Record the purchase of 10,000 barrels
of oil at the spot price of P33 per barrel.
330,000
20,000
30,000
330,000
d. June 1, 2008, entries to record the sale of the oil and other entries:
June 1, 2008
Cash
Sales
Record the sale of 10,000 barrels
of oil at P34 per barrel
340,000
Cost of goods sold

Oil inventory
Recognize the cost of the oil sold.
330,000
Other comprehensive income- reclassification

Cost of goods sold
Reclassify into earnings the other
comprehensive income from the cash flow hedge.
30,000
340,000
330,000
30,000
130
CHAPTER 20
MULTIPLE CHOICE
20-1:
b
Bad debt expense (S$ 6,000 x P28.20)
P169,200
Amortization of patents (S$ 4,000 x P28.20)
112,800
Rent expense (S$ 10,000 x P28.20)
282,000
Total
P564,000
Average rate (P28.20) is used to translate all expenses since this is a reasonable
estimation.
20-2:
b
Machinery [(24,000 Ringgit 10) x P10.42]
Equipment [(12,000 Ringgit 10) x P10.42]
Total depreciation
20-3:
d
Accounts receivable
Prepaid expenses
Property and equipment (net)
Total
20-4:
P 25,008
12,504
P 37,512
P120,000
55,000
275,000
P450,000
a
Depreciation expense (H$ 12,000 x P5.80)
Bad debts (H$ 8,000 x P5.80)
Rent (H$ 20,000 x P5.80)
Total
P 69,600
46,400
116,000
P232,000
Average rate for the year is used in translating depreciation expense because this is more
reasonable estimation than the rate when the related asset was acquired (P4.80).
20-5:
d
[25,000 LCU x (1 2)]
20-6:
20-7:
d
Long-term receivable: [1,500,000 LCU x (1 1.5 LCU)]
P1,000,000
Long-term debt: [2,400,000 LCU x (1 1.5 LCU)]
P1,600,000
b (NT Dollar 10,000 x P1.70)
131
20-8:
20-9:
b
Beginning inventory
Purchases
Ending inventory
Cost of goods sold
40,000 Rupee
300,000
340,000
30,000
310,000 Rupee
Translated cost of goods sold (310,000 Rupee x P.5745)
P178,095
c
NZ Dollar
20,000
Net assets, 1/1/05

Increase in net assets:
Net income, 2005 (30,000 20,000) 10,000
Net assets 12/31/05
30,000
Net assets at current rate
30,000
Translation adjustment, 2005 (positive)
Rate
P15
Phil Peso
P300,000
P19
190,000
P490,000
630,000
P140,000
P21
20-10: b
Equipment [800,000 x (1 50)]
P16,000
Accumulated depreciation [560,000 x (1 50)]
P11,200
Depreciation [80,000 x (1 50)]
P 1,600
20-11: a (25,000 Rupee x P1.24)

20-12: d (5,000 Rupee x P1.30)
20-13: c
Investment cost, Jan. 1, 2005
Less: Book and fair value of net assets acquired
(300,000 Rp x P1.20)
Goodwill
Goodwill
Impairment
Balance
Pesos
P42,000
4,340 (3,500 Rp x P1.24)
P37,660
Translated balance (31,500 Rp x P1.32)

Less: umimpaired goodwill
Translation adjustment
P402,000
360,000
P 42,000
Rupee
35.000 (P42,000 / P1.20)
3,500
31,500
P41,580
37,660
P 3,920
132
20-14: b
Translation adjustment from translating the trial balance
Translation adjustment from translating goodwill (per 20-13)
Total translation adjustment
P12,000 Cr
3,920 Cr
P15,920
20-15: b
Investment in Subsidiary account, Jan. 1, 2005
Share in subsidiary net income [(800,000 yen x 70%) x P.57]
Translation adjustment (P25,000 x 70%)
Share of subsidiary dividends [(50,000 yen x 70%) x P.59]
Investment in Subsidiary account, December 31, 2005
P1,600,000
319,200
17,500
(
20,650)
P1,916,050
20-16: d
20-17: a
Initial inventory transfer date:
Selling price
Cost
Profit
Balance sheet date (75,000 x 1.70)
20-18: a
Phil Peso
Thailand Baht
P120,0001.60
(80,000)
40,000
75,000 B
127,500
(P127,500 40,000)
20-19: a
Net asset beginning
Net income
Net asset translated at rate:
During the year
At end of year
Yen
200,000
200,000
400,000
400,000
Exchange Rate
.44
.46
.48
Translation adjustment (credit)

20-20: a
75,000 B
Phil Peso
88,000
92,000
180,000
192,000
(12,000)
(70,000 rupee x P1.50)
20-21: c
Investment cost
Book value of interest acquired (1,100,000 x 1.10) x .80
Goodwill
P1,210,000
968,000
242,000
133
PROBLEMS
Problem 20-1
a.
Pilipino Company
Translation Working Paper
December 31, 2005
Cash
Accounts receivable
Inventory
Plant and equipment
Cost of sales
Operating expenses
Total
Accumulated Other Comprehensive Income Translation Adjustment
Total debits
Accounts payable
Common stock
Sales
Total credits
Yen
40,000
120,000
100,000
700,000
360,000
140,000
60,000
1,520,000
Exchange Rate
.40 CR
.40 CR
.40 CR
.40 CR
.425 AR
.425 AR
.425 AR
Phil. Pesos
16,000
48,000
40,000
280,000
153,000
59,500
25,500
622,000
25,000
647,000
240,000
80,000
200,000
400,000
600,000
1,5200,000
.40
.40
.44
.44
.425
CR
CR
HR
HR
AR
P96,000
32,000
88,000
176,000
255,000
647,000
CR Current Rate
AR Average Rate
HR Historical Rate
b. Proof of Translation Adjustment

Net assets at beginning of year
Adjustment for changes in net assets
Position during year
Net income for the year
Net assets translated at rates in effect
For those items
Net assets at end of year
Change in translation adjustment during year
(to OCI) net decrease (debit)
Yen
600,000
Translation Rate
.44
Phil. Pesos
264,000
40,000
.425
17,000
640,000
.40
281,000
256,000
25,000
Accumulated OCI translation adjustment,1/1
-0-
Accumulated OCI translation adjustment,

Dec. 31 (debit)
25,000
134
Problem 20-2
(1)
Trial Balance Translation
Thailand
Baht
7,000
20,000
5,000
25,000
100,000
70,000
10,000
30,000
15,000
282,000
Cash
Receivable from Davao
Inventory
Plant and equipment
Cost of goods sold
Operating expenses
Dividends paid
Total debits
Accounts payable
Bonds payable
Common stock
Sales
Total
Accumulated other comprehensive
Income Translation adj. (credit)
Total credits
Translation
Rate
1.60 CR
1.60 CR
1.60 CR
1.60 CR
1.60 CR
1.50 AR
1.50 AR
1.50 AR
1.54 HR
10,000
12,000
50,000
60,000
150,000
282,.000
1.60
1.60
1.80
1.46
1.50
Philippine
Pesos
11,200
32,000
8,000
40,000
160,000
105,000
15,000
45,000
23,000
439,300
CR
CR
CR
HR
AR
16,000
19,200
80,000
87,600
225,000
427,800
11,500
439,300
CR Current Rate
AR Average Rate
HR Historical Rate
(2)
Proof of Translation Adjustment

Adjustments for changes in net
asset position during year:
Net income for year (sch. 1)
Dividends paid
Net assets translated at:
Rates during year
Rates at end of year
Change in OCI translation adj.
during year Net increase
Accumulated OCI translation
adjustment Jan. 1
Change in OCI translation
adjustment, Dec. 31 (credit)
Thailand
Baht
60,000
Translation
Rate
1.46
Philippine
Pesos
87,600
40,000
(15,000)
1.50
1.54
60,000
(23,100)
85,000
1.60
124,500
136,000
11,500
-011,500
135
Schedule 1:
Sales
Cost of goods sold
Operating expenses
Net income
150,000 Thailand Baht

( 70,000)
( 10,000)
( 30,000)
40,000 Thailand Baht
(b)
The change in the translation adjustment of P11,500 is included as a credit in the other
comprehensive income on the Statement of Comprehensive Income. The other comprehensive
income is then accumulated and reported in the stockholders equity section of the consolidated
balance sheet as presented below:
Net assets
P136,000
Common stock
Accumulated Other Comprehensive Income
Total
P 87,600
36,900
11,500
P136,000
Problem 20-3
a.
Translation Work paper
Cash
Accounts receivable
Inventory
Plant and equipment
Cost of sales
Operating expenses
Dividends
Total debits
Accounts payable
Common stock
Sales
Total
Accumulated OCI Translation
Adjustment
Total credits
Brunei $
1.600
2,500
4,000
35,000
17,000
7,000
3,000
1,500
71,600
9,000
2,600
20,000
10,000
30,000
71,600
Exchange
Rate
33 CR
33 CR
33 CR
33 CR
31 AR
31 AR
31 AR
32 HR
Philippine
Pesos
52,800
82,500
132,500
1,155,000
527,000
217,000
93,000
48,000
2,307,300
AR
CR
HR
HR
AR
297,000
85,800
600,000
300,000
930,000
2,212,800
31
33
30
30
31
94,500
2,307,300
136
Proof of Translation Adjustment (not required)

Adjustment for net assets position
during the year:
Net income
Dividends paid
Net assets translated at rates
in effect for those items
Net assets at end of year
Change in translation adjustment during
Year to OCI net increase (credit)
Accumulated OCI translation adj. 1/1
Accumulated OCI translation
Adjustment 12/31 (credit)
b.
Brunei $
30,000
Translation
rate Philippine Pesos
30
900,000
3,000
(1,500)
31
32
93,000
(48,000)
31,500
33
945,000
1,039,500
94,500
-094,500
Parent Company entries affecting Investment in Moslem Co. (equity method)
Jan. 2:
Investment in Moslem Co.

Cash
To record investment cost.
Oct. 15:
Cash
48,000
Dec. 31:

Investment income
To record equity in income of Moslem
93,000

Other Comprehensive Income Translation
adjustment
To record parents share of change in translation
Adjustment
94,500

To record dividends received
900,000
900,000
48,000
93,000
94,500
137
Problem 20-4
UK Company
Translation Working Paper
Income Statement
Sales
Cost of sales
Other expenses
Balance, 1/1
Balance, 12/31
Balance Sheet
Cash
Accounts receivable
Inventories, at cost
Prepaid expenses
Property, plant and equipment (net)
Total assets
Accounts payable
Current portion of long-term debt
Long-term debt
Capital stock
Total
Cumulative translation adjustment:
Balance, 1/1
Current translation adjustment
Balance, 12/31
In Pounds
90,000
(80,000)
(1,500)
(5,750)
2,750
Exchange
Rate
P67.50
67.50
67.50
67.50
2,500
2,750
5,250
In
Phil. Pesos
(A)
(A)
(A)
(A)
6,075,000
(5,400,000)
(101,250)
(388,125)
185,625
B
F
119,500
185,625
305,125
2,500
4,000
5,500
750
9,000
21,750
67.60
67.60
67.60
67.60
67.60
(C)
(C)
(C)
(C)
(C)
169,000
270,400
371,800
50,700
608,400
1,470,300
3,500
500
7,500
5,000
5,250
67.60
67.60
67.60
67.20
(C)
(C)
(C)
(H)
236,600
33,800
507,000
336,000
1,418,525
G
21,750
50,000
1,775
51,775
1,470,300
Translation Code:
C = Current rate
H = Historical rate
A = Average rate
B = Balance in Philippine pesos at the beginning of the year.
F = Per Income Statement
138
Problem 20-5
Goodluck Corporation
Foreign Exchange Translation Worksheet
Cash
Accounts receivable
Inventories
Property, plant and equip-net
Cost of goods sold
Other expenses
Totals
Trial
Balance
(In Pounds)
15,000
25,000
60,000
80,000
420,000
150,000
40,000
10,000
800,000
Accounts payable
Current portion of LT debt
Long-term debt
Sales
Other revenues
Capital stock
FC translation adjustment
Balance, 1/1
Current year
Net income
50,000
40,000
120,000
200,000
50,000
250,000
90,000
Totals
800,000
Exchange
Rate
0.95 C
0.95 C
0.95 C
0.95 C
0.95 C
0.90 A
0.90 A
0.90 A
0.95
0.95
0.95
0.90
0.90
0,87
G
C
C
C
A
A
H
G
B
B
Trial
Balance
(In Pesos)
14,250
23,750
57,000
76,000
399,000
135,000
36,000
9,000
750,000
Income
Statement
(In Pesos)
47,500
38,000
114,000
180,000
45,000
217,500
70,000
1,500
36,500
750,000
135,000
36,000
9,000
180,000
180,000
45,000
Balance
Sheet
(In Pesos)
14,250
23,750
57,000
76,000
399,000
570,000
47,500
38,000
114,000
217,500
70,000
(45,000)
1,500
36,500
45,000
180,000
570,000
Translation Code:
A = Average rate
B = Current rate
H = Historical rate
G = Given
B = Balancing amount
Problem 20-6
a. Direct and indirect exchange rates
January 1, 2007
December 31, 2007
December 31, 2008
Direct A$
P.03333=1
P.02857=1
P .025=1
Indirect
A$30=P1
A$35=P1
A$40=P1
The peso strengthened during 2007 because the number of A$ one Phil. Peso could acquire
at the end of the year (35) is greater than the number of A$ that could be acquired at the
139
beginning of the year (30); therefore, the value of the peso has increased relative to the A$
during 2007. The peso continued to strengthen during 2008.
b. Translated December 31, 2007, balance sheet:
Subsidiarys
Trial Balance
_ (in A$)__
A$ 100,000
400,000
680,000
1,000,000
R 2,230,000
Cash
Receivables
Inventory
Fixed assets
Total
Accumulated other
comprehensive income
translated adjustment (debit)
Total debits
Current payables
Long-term debt
Common stock
Retained earnings
Total credits
A$ 260,000
1,250,000
500,000
220,000
A$2,230,000
Direct
Exchange
Rate
P.02857
P.02857
P.02857
P.02857
Translated
Trial Balance
( in $)___
P 2,857
12,857
19,428
28,570
P 63,712
2,903
P 66,615
P.02857
P.02857
P.03333
P.03333
P 7,428
35,713
16,665
6,809
P 66,615
P.03333= average of beginning and ending exchange rates, rounded to 4 decimal points:
P.030945= [(P.03333 + P.02856) /2]
(Not required: Proof of translation adjustment (debit) of P 2,903)
___A$___
A$ 500,000
Net assets, 1/1/07

Adjustment for changes in
net assets during year:
Net income
220,000
Rates during year
Rates at end of year
A$ 720,000
Change in translation
Adjustment during year (debit)
Translation
_ Rate_
P.03333
P.03095
P.02857
_Dollars_
P 16,665
6,809
P 23,474
(20,570)
P 2,904*
*Difference of P1 (P 2,904 P 2,903) due to rounding of exchange rates.
140
c. Translated December 31, 2008, balance sheet:
Cash
Receivables
Inventory
Fixed assets
Accumulated other
comprehensive incometranslation adjustment (debit)
Total debits
Subsidiarys
Trial Balance
(in A$)
A$
80,000
550,000
720,000
900,000
A$ 2,250,000
Direct
Exchange
__Rate
P.025
P.025
P.025
P.025
Translated
Trial Balance
(in P)__
P 2,000
13,750
18,000
22,500__
P56,250
5,635___
P61,885
(a)The retained earnings in pesos would begin with the December 31, 2007, peso
balance (P6,809) that would be carried forward. To this would be added 2008s net income
of A$90,000, which is the change in retained earnings in A$ multiplied by the 2008
exchange rate of P.02679 [(P.02857 + P.025/2)] which equals P2, 411. Therefore, translated
retained earnings on December 31, 2008, is P9, 220 (P9, 220= P6, 809 + P2, 411)
(Not required: Proof of translation adjustment (debit) of P5, 635)
Australian
Dollar
A$ 720,000
Net assets, 1/1/08

Adjustment for changes in
net assets during year:
Net income
90,000
rates during year
Other comprehensive incomerate at end of year
A$ 810,000
Change in other comprehensive
income- translation
adjustment during year (debit)
income- translation adjustment, 1/1/08
income- translation adjustment, 12/31/08 (debit)
d.
Translation
_ Rate
P.02857
P.02679
Pesos___
P20, 570
2,411___
P22, 981
P.025
(20,250)__
P2, 731
2,904___
P5, 635
The P2, 731 change in the accumulated other comprehensive income- translation
adjustment during 2008 would be reported as a component of other comprehensive
income on 2008 statement of other comprehensive income.
141
CHAPTER 21
MULTIPLE CHOICE
21-1
21-2
21-3
21-4
21-5
21-6
21-7
21-8
21-9
21-10 c
21-11 d
21-12 b
21-13 b
21-14 a
21-15 a
Excess of income over expenses
Depreciation
Increase in due from national government agencies
Increase in prepaid rent
Increase in accounts payable
Cash provided by operating activities
P 200
70
( 10)
( 15)
30
P 275
142
Problem 21-1
PROBLEMS
1.
Memo entry in the RAOPS, RAOMO, RAOCO and RAOFE.
2.
Cash National Treasury MDS

Subsidy Income from National Government
3.
Memo entry in the RAOPS, RAOMO, RAOCO and RAOFE.
4.
Office equipment
Accounts payable
50,000
5.
Cash Disbursing Officer

40,000
6.
Salaries and wages Regular

Personal economic relief allowance (PERA)
Additional compensation
Due to BIR
Due to GSIS
Due to Pag-ibig
Due to Philhealth
44,000
3,000
3,000
Due to GSIS
Due to Pag-ibig
Due to Philhealth
5,500
400
600
Life and retirement contribution

Pag-ibig contribution
Philhealth contribution
5,500
400
600
Electricity
Telephone expense Landline
Accounts payable
Due to BIR
5,000
4,000
50,000
10.
Due to BIR
Subsidy income from national government
4,500
11.
Cash Collecting Officer

Sales revenue
Permit fees
Miscellaneous income
90,000
12.
Cash in Bank Local currency Current account

90,000
7.
8.
9.
2,000,000
2,000,000
50,000
40,000
3,500
5,500
400
600
40,000
6,500
6,500
5,000
54,000
4,500
40,000
30,000
20,000
90,000
143
Problem 21-2
Building
1.
Memo entry in RAOCO.
2.
Advances to contractor
240
3.
Construction in progress Other Public Infrastructure

Advances to contractor
Accounts payable
400
4.
Accounts payable
Due to BIR
160
5.

Accounts payable
400
6.
Accounts payable
Due to BIR
Cash National Treasury
400
7.
Due to BIR
8.
Office Building
Construction in progress OPI
80
800
240
240
160
40
120
400
40
360
80
800
Repairs of Building
1.
Memo entry in RAOCO.
2.
Construction materials inventory

Accounts payable
70
3.
Accounts payable
Due to BIR
70
4.

Construction materials inventory
60
5.
Memo entry in the RAOCO
70
7
63
60
144
6.

36
7.

Due to BIR
40
8.
Due to BIR
47
9.
Office building
Construction in progress OPI
100
36
4
36
47
100
Land:
1.
Memo entry in the RAOCO, P100.
2.
Land
3.
Accounts payable
Due to BIR
Accounts payable
100
100
100
10
90
145
Problem 21-3
(a)
Journal Entries:
1.
Memo entry in the Registry of Obligations and Allotments.
2.

3.
Memo entry in Registry of Obligations and Allotments.
4.
Office equipment
Accounts payable
120
5.
IT equipment and software

Accounts payable
30
6.
Prepaid rent
60
7.
Electricity expense
50
8.
Telephone expense Landline

40
9.
Petty cash fund

45
10.
Accounts payable
Due to BIR
120
11.
Accounts payable
30
12.
Due to BIR
12
13.

Other service income
Sales revenue
50
14.
Cash in bank LCCA

50
2,500
2,500
120
30
60
50
40
45
12
108
30
12
10
40
50
146
(b)
Pre-closing Trial Balance
Petty cash fund

Cash in Bank Local Currency Current Account
Prepaid rent
Office equipment
Sales revenue
Electricity expense
Telephone expense landline
Total
45
2,167
50
60
120
30
50
40
2,562
10
40
2,512
2,562
Adjusting Entries
(1)
(2)
Depreciation Office equipment & software

Depreciation IT equipment
Accumulated depreciation Office equipment
Accumulated depreciation IT equip & software
20
5
Rent expense
Prepaid rent
30
20
5
30
Closing Entries:
(1)
Unused National Clearing Account (NCA)

NCA received during the year
Less: MDS check issued
Unused NCA
(2)
(3)
Income accounts:
Sales revenue
Income and expense summary
Expense accounts:
Electricity expense
2,167
2,500
333
2,167
10
40
345
90
(4)

Retained operating surplus
305
(5)
Retained operating surplus
305
Government equity
2,167
395
50
40
305
305
147
Problem 21-4
Agency VV
Statement of Income and Expenses
Income:

Less: Reversion of unused NCA
P1,700
800
Less: Expenses
Salaries and wages Regular
Personnel Economic Relief Allowance
Additional compensation
Life and retirement insurance contribution
Pag-ibig contribution
Philhealth contgribution
Traveling expense Local
Office supplies expense
Electricity expense
Janitorial services
Security services
Repairs and maintenance Office building
Depreciation Office building
Depreciation office equipment
Depreciation furniture and fixtures
Depreciation IT equipment and software
Net income over expenses
P 320
40
40
60
10
10
35
60
75
45
30
35
65
15
10
5
5
P900
860
P 40
148
Agency VV
Balance Sheet
As of December 31, 2008
ASSETS
Current Assets
Cash:
Cash in vault
Cash collecting officer
Cash disbursing officer
Petty cash fund
Cash in bank LCCA
Receivables:
Accounts receivable
Less: Allowance for doubtful accounts
Inventories:
Office supplies inventory
Long-term investment:
Investment in stock
Property, Plant and Equipment:
Land
Office building
Office equipment
Total assets
LIABILITIES AND EQUITY
Liabilities
Current liabilities
Accounts payable
Due to BIR
Due to GSIS
Due to Pag-ibig
Due to Philhealth
Other payables
Equity:
Government equity
P 200
500
1,000
150
350
P2,200
P 120
20
100
30
15
400
650
50
250
20
110
10
190
25
600
600
230
100
165
185
50
30
25
25
15
1,695
4,440
330
4,110
4,440
149
CHAPTER 22
Multiple Choice
22-1:
b.
22-2:
d.
(P500,000 P300,000)
The total tuition fees for educational and general purposes.

22-3:
d. (P1,240,000 P160,000)
22-4:
a.
Unrestricted cash contribution received from donors are to be reported as increase in net cash
provided by operation.
22-5:
d.
The remaining contribution of P5,000 on December 31, 2004.
22-6:
b.
Unregistered pledges from donors are treated as revenues at the time of the pledge.
22-7:
d.
Patient revenues
Nursing services
Professional services
Total revenues
Less:
Staff discounts
Allowances
Third party payors
Net revenues
P50,000
230,000
800,000
P 5,000,000
1,000,000
500,000
P 6,500,000
1,080,000
P 5,420,000
Bad debts are treated in the usual manner as expense.

22-8:
a.
As of July 31, 2004, all of the funds are properly includible in the Plan Funds, for a total of
P900,000.
22-9:
c. (P800,000 P110,000)
22-10: d.
Patient revenues (net of charity care)
Less: contractual adjustments
Net patient service revenues
P 600,000
200,000
P 400,000
22-11: c.
150
22-12: c.
The contributed services are debited to Salary Expense account and credited to Contribution
Revenue account.
22-13: c.
The net effect on unrestricted net assets of spending P10,000 on research is zero.
22-14: b. (P5,000,000 + P50,000)
The P1,000,000 contribution from the donor, who stipulated that the contribution be invested
Indefinitely, should be reported as permanently restricted revenue.
22-15: c.
22-16: b.
Both are treated as a financing activity on the statement of cash flows.
22-17: a.
Cash flows from operating activities would include both the cash received from patient service
Revenue of P300,000 and the cash received from gift shop sales of P25,000.
22-18: b.
Cash received from patient revenue (collection of receivables) and from tuition revenue are both
included in the amount reported for cash flows from operating activities. The other cash receipts
would be reported as increases in cash flows provided by financing activities.
22-19: b.
Expirations of donor restrictions on temporarily restricted net assets should be reported on the
Statement of operations as net assets released from restrictions.
22-20: c.
Current funds revenues include (1) all unrestricted gifts and other unrestricted resources earned
during the reporting period, and (2) restricted current funds to the extent that such funds were
expended for current operating purpose. Therefore, the amount that should be included in current
funds revenue is:
Unrestricted gifts received:
Expended
Not expended
Restricted gifts received
Expended
Total
P600,000
75,000
100,000
P775,000
151
Problems
Problem 22-1
1.
Pledges receivable
Allowance for uncollectible pledges
Contribution revenue
300,000
2.
Cash
260,000
3.
Cash
Fund raising expense
Fund raising revenue
40,000
5,000
4.
Investment
35,000
5.
Cash
6.
Salaries
Employee fringe benefits
Payroll taxes
Supplies
Telephone
Utilities
Rent
Conference, conventions and meetings
Cost of sales to public
Miscellaneous
Cash
7.
8.
Utilities
Salaries
Pledges receivable
Cash
Sales public revenue
Accounts payable or accrued expense payable
Fund Balance - Unrestricted

Fund balance Restricted to purchases
of new equipment.
5,000
90,000
15,000
16,000
7,000
1,500
6,000
10,000
5,000
1,000
3,000
1,000
5,000
10,000
270,000
260,000
45,000
35,000
5,000
154,500
6,000
10,000
10,000
152
Problem 22-2
(1)
Accounts receivable
Patient service revenues
To record gross patient service revenue for the month
at full rates.
80,000
Accounts receivable
Patient service revenues
To record receivable from Social Medicare.
2,500
Contractual adjustments
Accounts receivable
To record contractual adjustments allowed.
6,000
Doubtful accounts
To provide allowances for doubtful accounts.
8,000
(2)
Salaries expense
Contribution revenues
To record donated services (10,000 200).
9,800
(3)
Pledges receivable
To record pledges received from donors.
5,000
Cash
3,500
Pledges receivable
To record pledges collected.
Provisions for doubtful pledges
Allowance for doubtful pledges
To provide doubtful pledges.
(4)
800
Cash
3,000
Plant assets
Cash
To record acquisition of new surgical equipment.
3,000
Fund balance
To record receipt of cash from restricted fund.
80,000
2,500
6,000
8,000
9,800
5,000
3,500
800
3,000
3,000
153
Problem 22-3
Plant Fund Ledger Account:
(1)
Equivalent
(2)
Buildings
Fund Balance
To record acquisitions of computers from unrestricted fund.
Cash
Mortgage notes payable
To record construction of new building financed in
part by 5% mortgage note payable.
50,000
2,000,000
50,000
250,000
1,750,000
Quasi-Endowment Fund Ledger Account:

(3)
Cash
Investments
Payable to Unrestricted fund
To record sale of investments at a gain, the use of
which is unrestricted.
110,000
100,000
10,000
Unrestricted Fund Ledger Account:

(1)
Undesignated fund balance

Cash
To record acquisitions of computers to be carried in
Plant Fund.
(2)
Cash
(3)
Receivable from quasi-endowment fund

Investment income
To record investment gain receivable.
To record receipt of unrestricted gift.
50,000
2,000,000
10,000
50,000
2,000,000
10,000
154
Problem 22-4
Nonprofit Trade Association
Statement of Activities
Year Ended June 30, 2004
Revenues and Gains:
Membership dues
Conferences and meetings
Publications and advertising sales
Special assessments
Investment income, including net gains
Total
Expenses:
Member services
Conferences and meetings
Technical services
Communications
General administration
Membership development
Increase in unrestricted net assets
Net assets, beginning of year
Net assets, end of year
P184,000
321,000
143,000
50,000
11,000
P709,000
P 56,000
166,000
218,000
61,000
154,000
27,000
682,000
27,000
285,000
P312,000
Nonprofit Trade Association

Statement of Financial Position
June 30, 2004
ASSETS
Current assets
Cash
Short-term investments
Publications inventory
Total current assets
Plant assets (net)
Other assets
Total assets
P 7,000
217,000
25,000
61,000
310,000
120,000
33,000
28,000
P491,000
LIABILITIES AND NET ASSETS

Current liabilities
Accounts payable and accrued liabilities
Deferred membership dues
Total current liabilities
Net assets (unrestricted)
Total liabilities and net assets
P 48,000
131,000
179,000
312,000
P491,000
155
Problem 22-5
Children Association
Statement of Activities
Changes in unrestricted net assets:
Revenues and gains:
Contributions
Membership dues
Program service fees
Investment income
Total unrestricted revenues and gains
Expenses:
Programs
Management and general expenses
Fund raising
Increase in unrestricted net assets
Changes in temporarily restricted net assets:
Contributions
Expenses:
Management and general expenses
Fund raising expenses
Increase in temporarily restricted net assets
Increase in net assets
Net assets, beginning of year (P12,000 + P26,000 + P3,000)
Net assets, end of year
P320,000
25,000
30,000
10,000
P385,000
P270,000
47,000
8,000
325,000
P 60,000
P 15,000
P 4,000
1,000
5,000
P 10,000
P 70,000
41,000
P111,000
Children Association
December 31, 2004
ASSETS
Cash (P40,000 + P9,000)
Bequest and interest receivable (P5,000 + P1,000)
Pledges receivable (net) (P12,000 P3,000)
Investments, at cost
Total assets
Liabilities
Accounts payable and accrued liabilities (P50,000 + P1,000)
Deferred revenues
Total liabilities
Net assets:
Unrestricted (P38,000 + P60,000)
Temporarily restricted (P3,000 + P10,000)
Total net assets
P 40,000
6,000
9,000
100,000
P164,000
P 51,000
2,000
P 53,000
P 98,000
13,000
P111,000
P164,000
156
Problem 22-6
San Pedro Hospital
June 30, 2004
ASSETS
Current assets
Cash
Accounts receivable (net of allowance of P5,000)
Inventories
Prepaid expenses
Total current assets
Investments
Property, plant and equipment (net of accumulated depreciation of P140,000)
Total assets
LIABILITIES
Accounts payable
Accrued expenses
Deferred revenues
Current portion of long-term debt
Total current liabilities
Mortgage payable
Total liabilities
NET ASSETS
Unrestricted
Temporarily restricted
Permanently restricted
Total net assets
P 222,000
20,000
50,000
10,000
P 302,000
660,000
160,000
P1,122,000
45,000
17,000
11,000
24,000
P 97,000
125,000
P 222,000
P 148,000
232,000
520,000
P 900,000
P1,122,000
157

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Partnership Basic Considerations and Formation

Net assets (Julio, capital)

Total Capital (P300,000/60%)

Net asset (capital)

Total agreed capital (P230,000/40%)

Nora's agreed capital

Net asset invested

Agreed capitals, equally (P300,000/3) =

Net asset invested

Goodwill (P240,000 - P130,000) =

Net asset invested

Partnership Basic Considerations and Formation

Required capital of each partner (P300,000/2)

Cash to be contributed by Ruiz

Net assets (equal to Ferrer's capital account)

Total partnership capital

Required capital of Cruz (P400,000 X 30%)

Cash to be invested by Cruz

Adjusted assets of C Borja

Total assets of the partnership

Cash to be invested by Mendez:

Total partnership capital (P165,900/2/3)

Cash to be invested by Mendez

Total partnership capital

Garcia's adjusted capital (see schedule 1)

Total partnership capital

Flores' capital credit

Additional cash to be invested by Flores

Partnership Basic Considerations and Formation

Unadjusted capital balances

Adjusted capital balances

Total capital of the partnership before the admission of Roxas

Cash to be invested by Roxas

Merchandise to be invested by Gomez:

Gomez's capital (P300,000 X 40%)

Merchandise to be invested by Gomez

Cash to be invested by Jocson:

Unadjusted Ell, capital (P75,000 P5,000)

Adjusted Ell, capital

Total partnership capital (P113,640/1/3)

Cortez's capital after adjustments

Cortez's capital before adjustments

Total assets at fair value

Total capital of the partnership (P3,500,000 70%)

Partnership Basic Considerations and Formation

Total agreed capital (210,000 70%)

Contributed capital of May (P194,000 - P56,000)

a. Books of Pedro Castro will be retained by the partnership

2. Pedro Castro, Capital .............................................................

3. Accrued Interest Receivable ..................................................

Total ......................... ......P35

5. Pedro Castro, Capital .............................................................

6. Office Supplies ......................................................................

To record the investment of Jose Bunag.

Pedro Castro, Capital

Partnership Basic Considerations and Formation

A new set of books will be used

New Partnership Books

To record the investment of Jose Bunag.

Castro and Bunag Partnership

Cash ..... ...... ... ...........................................................................................

Liabilities and Capital