CHAPTER 3

EXERCISES
1. Original Partners Equity Transfer of Interest Revised Partners Equity
Artuz 25,000 25,000
Cruz 25,000 (12,500) 12,500
Vera ______ 12,500 12,500
50,000 50,000

Entry: Cruz, Capital 12,500

Vera, Capital 12,500

Original P&L Ratio Transfer P&L Ratio Revised P&L Ratio

Artuz 60% 60%
Cruz 40% (20%) 20%
Vera ____ 20% 20%
100% 100%

2. a) Original Partners Equity Transfer of Interest Revised Partners Equity

Pio 48,000 (24,000) 24,000
Basa 72,000 (36,000) 36,000
Cortez 30,000 (15,000) 15,000
Diaz _______ 75,000 75,000
150,000 150,000

b) Original Partners Equity Transfer of Interest Revised Partners Equity

Pio 48,000 (30,000)* 18,000
Basa 72,000 (45,000)* 27,000
Cortez 30,000 30,000
Diaz _______ of 150,000 75,000 75,000
150,000 150,000
* 48/120 x 75,000
72/120 x 75,000

c) Original Partners Equity Revaluation PE after Transfer of PE Revised

Revaluation Interest
Pio 48,000 30% 4,800 80,000 ( 40,000) 52,800
Basa 72,000 50% 8,000 40,000
Cortez 30,000 20% 3,200 33,200
Diaz _ _____ _____ _______ 40,000 40,000
150,000 16,000 166,000 166,000
OR
Diaz is willing to pay P40,000 for of Basas interest
Basas interest is implied to be 80,000
- per book 72,000
- share in undervaluation 8,000
Divide by 50%
Total revaluation 16,000

Entries:
a) Pio, Capital 24,000
Basa, Capital 36,000
Cortez, Capital 15,000
Diaz, Capital 75,000

b) Pio, Capital 30,000

Basa, Capital 45,000
Diaz, Capital 75,000

c) Assets 16,000
Pio, Capital 4,800
Basa, Capital 8,000
Cortez, Capital 3,200

Pio, Capital 40,000

Diaz, Capital 40,000

3. Original PE At P&L Ratio Diff. Represents cash settlement

Bella 40,000 (40%) 48,000 8,000
Carlos 50,000 (35%) 42,000 8,000
Diaz 30,000 (25%) 30,000
120,000 120,000

10
 Entry: Carlos, Capital 8,000
Bella, Capital 8,000

4. If only cash investment is involved, total agreed equity should be higher than 120,000. Trial and error:
Bella, Capital 40,000 / 40% 100,000 reject since it is lower
Carlos, Capital 50,000 / 35% 142,857 accept, higher by 2,857
Diaz, Capital 30,000 / 25% 120,000 reject, same as original PE

The lowest possible investment is P20,000.

Original PE Agreed Additional

Bella 40,000 40% 57,142.80 17,142.80
Carlos 50,000 35% 35,000.00
Diaz 30,000 25% 35,714.20 5,714.20
120,000 142,857.00 22,857.00

5. Original Partners Transfer of Revised

1) Equity Interest Partners Equity
Anson 100,000 20% (20,000) 80,000
Rustan 50,000 (10,000) 40,000
Sy _______ 30,000 30,000
150,000 0 150,000

* 150,000x20% = 300,000x100/50 = 20,000

50/150 = 10,000

2) Offer of Mr Sy 60,000
Divide by 20%
Value of Partners Equity 300,000
Original Partners Equity 150,000
Asset Revaluation 150,000

Original PE Asset Rev. PE After GW Transfer of PE After

Interest Admission
Anson 100,000 112,500 212,500 (20%) (42,500) 170,000
Rustan 50,000 37,500 87,500 (17,500) 70,000
Sy _______ _______ 60,000 60,000
150,000 150,000 300,000 0 300,000

6. a) Total PE After Adm.

Investment Bonus Agreed Equity
Anson 100,000 13,500 113,500
Rustan 50,000 4,500 54,500
Sy 60,000 (18,000) 42,000 20%
210,000 - 210,000

b) Total PE After Adm. Asset

Investment (Agreed Equity) Revaluation

Anson 100,000 167,500 67,500

Rustan 50,000 72,500 22,500
Sy 60,000 60,000 (20%) ______
210,000 300,000 90,000

Investment Agreed Equity Asset Writedown Capital after Admission

c) Anson 100,000 16,875 x = 83,125
Rustan 50,000 5,625 x = 44,375
Sy 60,000 60,000 60,000
210,000 187,500 (150,000 / 80%) 22,50 187,500
0

7.
a) Contributions Agreed
M 50,000 50,000
J 30,000 30,000
D 20,000 20,000
L ? 20% 25,000 (125,000x20%)
0 *125,000 (100,000/80%)

11
 b) Contributions Agreed Asset Rev.
M 50,000
J 30,000
D 20,000
L 50,000 50,000/20%
150,000 * 200,000 = 50,000

Asset revaluation should be for original partners. Thus new partners investment = her capital credit
1)
Cash 50,000
Luna, Capital 50,000

2)
Asset 50,000
Monzon, Capital 25,000
Javier, Capital 15,000
Dakila, Capital 10,000

c) Contributions Agreed Asset Rev.

M 50,000
J 30,000
D 20,000
L 30,000 30,000/25% ______
130,000 120,000 10,000

Cash 50,000
Luna, Capital 50,000
Monzon, Capital 5,000
Javier, Capital 3,000
Dakila, Capital 3,000
Assets 10,000

d) Contributions Agreed Bonus Asset Rev.

M 50,000 (2,500) 12,500
J 30,000 (1,500) 7,500
D 20,000 (1,000) 5,000
L 32,000 30,000 5,000 ______
125,000 150,000 0 25,000

Cash 25,000
Monzon, Capital 2,500
Javier, Capital 1,500
Dakila, Capital 1,000
Luna, Capital 30,000

Assets 25,000
M, Capital 12,500
J, Capital 7,500
D, Capital 5,000

8. a) Table 6/30
Cap. Bal. NI 6/30 Agreed Eqty Asset Rev. Transfer of Int PE
Luis 50,000 22,500 (2,500) 70,000
Lani 30,000 11,250 (1,250) (13,333) 26,667
Fely 40,000 11,250 (1,250) 50,000
Vilma 13,333 13,333
Cathy 40,000 _____ 40,000 20% ______ _______ 40,000
160,000 45,000 200,000 (5,000) 0 200,000

b) Table 12/31

PE as of 6/30 NI Drawings PE 12/31

Luis 70,000 40% 22,000 (10,0000 82,000
Lani 26,667 16% 8,800 (5,000) 30,467
Fely 50,000 16% 8,800 58,800
Vilma 13,333 8% 4,400 17,733
Cathy 40,000 20% 11,000 ______ 51,000
200,000 55,000 (15,000) 240,000

9. a) Cont. of Ortiz and Ponce (482,000 9,000 10,000 8,000) 455,000

Divide by P&L ratio 80%
Total partners contribution as adjusted 568,750
x Chans P&L ratio 20%
Cash investment of Chan 113,750 a)
Agreed Equity:
12
 Ortiz (30% x 568,750) 170,625
Ponce (50% x 568,750) 284,375

b) TCC Bonus TAC

Ortiz 255,875 (85,250) 170,625
Ponce 199,125 85,250 284,375
Chan 113,750 - 113,750
568,750 568,750

c) Ortiz Ponce Total

178,125 296,875 475,000
263,375 211,625
( 85,250) 85,250

10. a) Share of Lane in Net Income (120,000 x 7/12 x 1/10) 7,000

Lane, Capital Beg. 42,000
Lane, Drawing ( 2,000)
Lane, Capital July 31 47,000

Income Summary 7,000

Lane, Capital 5,000
Lane, Drawing 2,000

b) Lane, Capital 47,000

Clark, Capital 47,000

Revised PE
Kane a) 252,000
Clark 173,000
425,000
c) Lane, Capital 47,000
Loan Payable to Lane 10,000
Kane, Capital 3,111
Clark, Capital 3,889
Cash 50,000

Profit share is 240,000-7,000 share of Lane = 233,000 x 4/9 and 5/9

Revised PE
Kane (252,000 + 3,111 + 103,556)= P358,667
Clark (126,000 + 3,889 + 129,444)= 259,333
Total P618,000

11. a) 50,000 47,000 = 3,000 revaluation share

Total revaluation = 30,000
Entries
1. Assets 30,000
Kane 12,000
Clark 15,000
Lane 3,000
2.
Lane, Capital 50,000
Cash 50,000
11. b)
Income Summary 237,000
Kane 103,555
Clark 129,444
Partners Equity
Kane (252,000,+12,000+103,556)
Clarck (126,000+15,000+129,444)
12. 6/1 Assets 46,000
Cely, Capital 9,200
Madel, Capital 9,200
Josh, Capital 27,600
Income & Expense Summary 10,000
Cely, Capital (120,000 x 5/12 x .2) 10,000
Cely, Capital 70,200
Madel, Capital 50
Josh, Capital 150
Cely, Loan 10,000

13
 Cash 60,000
12/31 Income Summary 190,000
Madel, Drawings 47,500
Josh, Drawings 142,500
Revised PE: Madel 40,000-1,000+9,200+50+47,500 P95,750
Josh 90,000 + 27,600+ 150+ 142,500 260,250

13. A. Original Transfer Investment Revised

Cobb 60,000 60,000
Davis 90,000 1/3 (30,000) 60,000 190,000 / 80%
Eddy 70,000 70,000 = 237,500 x 20%
Fay 30,000 17,500 47,500 = 47,500
220,000 - 17,500 237,500 Fay Capital Investment

B. Invest Bonus Revised C. Original Transfer Revised

C 60,000 (5,000) 55,000 C 60,000 60,000
D 90,000 (3,000) 87,000 /80% D 90,000 (24,750) 65,250
E 70,000 (2,000) 68,000 E 70,000 (19,250) 50,750
F 42,500 10,000 52,500 F _______ 44,000 44,000
262,500 262,500 220,000 220,000

D. Original Goodwill Revised E. C 60,000

C 60,000 60,000 D 90,000
D 90,000 90,000 /80% E 70,000
E 70,000 70,000 F 60,000 60,000 (20%)
F 44,000 11,000 55,000 280,000 300,000 No GW to old
264,000 11,000 275,000 partners
F. Properties 40,000
Cobb, Capital 20,000
Darvis, Capital 12,000
Eddy, Capital 8,000

Cobb, Loan 20,000

Cobb, Capital 80,000
Cash 100,000

Revised PE: Davis, Capital 102,000

Eddy, Capital 78,000
Total 180,000

14. Oct 2, 2009 Naty, Capital 60,000

Payable to Natys Estate 60,000

Dec. 31, 2009 Income & Expense Summary 4,890

Payable to Natys Estate 4,890
40000 x 10% x 9/12 =3,000
63,000 x 12% x 3/12 =1,890

Income & Expense Summary 35,110

Lucy, Drawing (4/9) 15,604.44
May, Drawing (5/9) 19,505.56
(40,000 4,890 = 35,110)
Oct. 2010 Payable to Natys Estate 64,890
Interest Expense (63,000 x 12% x 9/12) 5,670
Cash 70,560

15. Equipment 150,000 Partners Capital 1,300,000

Current Assets (350,000) Adjustment, net ( 200,000)
Total Adjustment (200,000) Adjusted cont. 1,100,000
PV 2,000 share @ P500 1,000,000
APIC 100,000
Capital Adjustment 350,000
Current Asset 350,000

Equipment 150,000
Capital Adjustment 150,000

Mison, Capital 123,077

14
 Estrera, Capital 76,923
Capital Adjustment 200,000

Liabilities 100,000
Mison, Capital 696,923
Estrera, Capital 423,077
Current Asset 900,000
Equipment 300,000
Balance Sheet
Current Assets P1, 900,000 Current Asset 900,000
Equipment 300,000 Equipment 300,000
Total Assets 1,200,000 Liabilities 100,000
Liabilities 100,000 Share Capital 1,000,000
Share Capital 2,000,000 Share Premium 100,000
Share Premium 100,000
Total Liab & Equity P2,200,000 Cash 1,000,000
Share Capital 1,000,000
MULTIPLE CHOICE
1. Total contributions of P150,000 is also total agreed equity
Contributions of Evans 30,000
Agreed Equity of Evans (1/3) 50,000
Bonus to Evans 20,000

Cox 80,000 60% of 20,000 68,000

Browning 40,000 40% of 20,000 32,000 Answer: A
2. PE Before Goodwill PE After GW PE After Adm.
Norly 80,000 + 60% (20,000) 92,000 x 75% 69,000
George 40,000 + 30% (20,000) 46,000 34,500
Dick 20,000 + 10% (20,000) 22,000 16,500
140,000 160,000 120,000

Total Inferred Assets (40,000 / 25%) 160,000

Total partners equity 140,000
Goodwill 20,000 Answer: B
3. Capital, Jan. 1 30,000
Share in Net Income (48,000 x 20% x 6/12) 4,800
Drawings ( 1,500)
Investment 5,000
1) 38,300 Answer: E
Goodwill 30,000 x 20% 6,000
2) 44,300 Answer: E
4. Contribution Purchase Investment Total Agreed Goodwill Bonus Revised
Mitz 95,000 95,000
Marc 80,000 (12,000) 68,000 4,500 6,600 79,100
Mart 60,000 60,000
Vince 12,000 80,000 92,000 70,000 (22,000)
315,000 330,000 15,000
1)Answer: B
2)Answer: C
5. Answer: D
6. Answer: C
7. Net assets at fair value 92,000
Capital Stock 10,000
APIC 82,000
Answer: D

8. Old partners interest 140,000

Divide by their interest ratio 4/5
Total agreed interest 175,000
Multiply by Zs interest 1/5
35,000
Answer: C

9. Total partners equity 105,000

Remaining partners equity 80,000
Withdrawing partners equity 25,000
Cash Payment 37,000
Share in Goodwill 12,000
Divide by his P&L ratio 20%
Total implied goodwill 60,000
15
 Answer: A

10. Net Income P 120,000

Add accrued income of 2007 7,000
Unearned income of 2006 9,800
Less Prepaid expense of 2006 (11,200)
Accrued expense of 2007 (8,400)
Net income as corrected 117,200
Share of Jack at 15% P17,580
Answer B

11. 310,000+200,000+190,000 = 700,000/80%

Total Agreed = 87,500x20%
Share & investment of F = 175,000
Answer C

16