PDF 6

Partnership – Basic Considerations and Formation 1
CHAPTER 1
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
1-1: a
Jose's capital should be credited for the market value of the computer contributed by
him.
1-2: b (40,000 + 80,000)  2/3 = 180,000 x 1/3 = 60,000.
1-2: c
1-3: a
Cash P100,000
Land 300,000
Mortgage payable ( 50,000)
Net assets (Julio, capital) P350,000
1-4: b
Total Capital (P300,000/60%) P500,000
Perla's interest ______40%
Perla's capital P200,000
Less: Non-cash asset contributed at market value
Land P 70,000
Building 90,000
Mortgage Payable ( 40,000) _120,000
Cash contribution P 80,000
1-5: d - Zero, because under the bonus method, a transfer of capital is only required.
1-6: b
Reyes Santos
Cash P200,000 P300,000
Inventory – 150,000
Building – 400,000
Equipment 150,000
Mortgage payable ________ ( 100,000)
Net asset (capital) P350,000 P750,000
1-7: c
AA BB CC
Cash P 50,000
Property at Market Value P 80,000
Mortgage payable ( 35,000)
Equipment at Market Value _______ _______ P55,000
Capital P 50,000 P 45,000 P55,000
2 Chapter 1
1-8: a
PP RR SS
Cash P 50,000 P 80,000 P 25,000
Computer at Market Value __25,000 _______ __60,000
Capital P 75,000 P 80,000 P 85,000
1-9: c
Maria Nora
Cash P 30,000
Merchandise inventory P 90,000
Computer equipment 160,000
Liability ( 60,000)
Furniture and Fixtures 200,000 ________
Total contribution P230,000 P190,000
Total agreed capital (P230,000/40%) P575,000

Nora's interest ______60%
Nora's agreed capital P345,000
Less: investment 190,000
Cash to be invested P155,000
1-10: d
Roy Sam Tim
Cash P140,000 – –
Office Equipment – P220,000 –
Note payable ________ _( 60,000) ______
Net asset invested P140,000 P160,000 P –
Agreed capitals, equally (P300,000/3) = P100,000
1-11: a
Lara Mitra
Cash P130,000 P200,000
Computer equipment – 50,000
Note payable ________ _( 10,000)
Net asset invested P130,000 P240,000
Goodwill (P240,000 - P130,000) = P110,000
1-12: a
Perez Reyes
Cash P 50,000 P 70,000
Office Equipment 30,000 –
Merchandise – 110,000
Furniture 100,000
Notes payable _______ ( 50,000)
Net asset invested P 80,000 P230,000
Bonus Method:
Total capital (net asset invested) P310,000
Goodwill Method:
Net assets invested P310,000
Add: Goodwill (P230,000-P80,000) _150,000
Net capital P460,000
1-13: b
Required capital of each partner (P300,000/2) P150,000
Contributed capital of Ruiz:
Total assets P105,000
Less Liabilities __15,000 __90,000
Cash to be contributed by Ruiz P 60,000
1-14: d
Total assets:
Cash P 70,000
Machinery 75,000
Building _225,000 P370,000
Less: Liabilities (Mortgage payable) __90,000
Net assets (equal to Ferrer's capital account) P280,000
Divide by Ferrer's P & L share percentage ____70%
Total partnership capital P400,000
Required capital of Cruz (P400,000 X 30%) P120,000

Less Assets already contributed:
Cash P 30,000
Machinery and equipment 25,000
Furniture and fixtures __10,000 __65,000
Cash to be invested by Cruz P 55,000
1-15: d
Adjusted assets of C Borja
Cash P 2,500
Accounts Receivable (P10,000-P500) 9,500
Merchandise inventory (P15,000-P3,000) 12,000
Fixtures __20,000 P 44,000
Asset contributed by D. Arce:
Cash P 20,000
Merchandise __10,000 __30,000
Total assets of the partnership P 74,000
4 Chapter 1
1-16: a
Cash to be invested by Mendez:
Adjusted capital of Lopez (2/3)
Unadjusted capital P158,400
Adjustments:
Prepaid expenses 17,500
Accrued expenses ( 5,000)
Allowance for bad debts (5% X P100,000) _( 5,000)
Adjusted capital P165,900
Total partnership capital (P165,900/2/3) P248,850

Multiply by Mendez's interest ⅓
Mendez's capital P 82,950
Less Merchandise contributed __50,000
Cash to be invested by Mendez P 32,950
Total Capital:
Adjusted capital of Lopez P165,900
Contributed capital of Mendez __82,950
Total capital P248,850
1-17: d
Moran, capital (40%)
Cash P 15,000
Furniture and Fixtures _100,000P115,000
Divide by Moran's P & L share percentage ______40%
Multiply by Nakar's P & L share percentage ______60%
Required capital of credit of Nakar: P172,500
Contributed capital of Nakar:
Merchandise inventory P 45,000
Land 15,000
Building __65,000
Less Liabilities __30,000 P 95,000
Required cash investment by Nakar P 77,500
1-18: c
Garcia's adjusted capital (see schedule 1) P40,500
Divide by Garcia's P & L share percentage ______40%
Flores' P & L share percentage ______60%
Flores' capital credit P 60,750
Flores' contributed capital (see schedule 2) __43,500
Additional cash to be invested by Flores P 17,250
Schedule 1:
Garcia, capital:
Unadjusted balance P 49,500
Adjustments:
Accumulated depreciation ( 4,500)
Allowance for doubtful account ( 4,500)
Adjusted balance P 40,500
Schedule 2:
Flores capital:
Unadjusted balance P 57,000
Adjustments:
Accumulated depreciation ( 1,500)
Allowance for doubtful accounts ( 12,000)
1-19: d
Ortiz Ponce Total
( 60%) ( 40%)
Unadjusted capital balances P133,000 P108,000 P241,000
Adjustments:
Allowance for bad debts ( 2,700) ( 1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses _( 2,400) ( 1,600) ( 4,000)
Adjusted capital balances P130,900 P106,000 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%
Total capital of the partnership before the admission of Roxas P296,875
Multiply by Roxas' interest ______20%
Cash to be invested by Roxas P 59,375
1-20: d
Merchandise to be invested by Gomez:
Total partnership capital (P180,000/60%) P300,000
Gomez's capital (P300,000 X 40%) P120,000

Less Cash investment __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) P180,000
Less Accounts payable __48,000 P132,000
Required capital of Jocson _180,000
Cash to be invested by Jocson P 48,000
6 Chapter 1
1-21: b
Unadjusted Ell, capital (P75,000 – P5,000) P 70,000
Allowance for doubtful accounts ( 1,000)
Accounts payable ( 4,000)
Adjusted Ell, capital P 65,000
1-22: c
Total partnership capital (P113,640/1/3) P340,920
Less David's capital _113,640
Cortez's capital after adjustments P227,280
Adjustments made:
Allowance for doubtful account (2% X P96,000) 1,920
Merchandise inventory ( 16,000)
Prepaid expenses ( 5,200)
Accrued expenses ___3,200
Cortez's capital before adjustments P211,200
1-23: a
Total assets at fair value P4,625,000
Liabilities (1,125,000)
Capital balance of Flor P3,500,000
1-24: c
Total capital of the partnership (P3,500,000 ÷ 70%) P5,000,000
Eden agreed profit & loss ratio 30%
Eden agreed capital 1,500,000
Eden contributed capital at fair value 812,000
Allocated cash to be invested by Eden P 688,000
1-25: c
__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 -
1-26: d
Total agreed capital (P90,000 ÷ 40%) P225,000
Contributed capital of Candy (P126,000+P36,000-P12,000) 150,000
Total agreed capital (P90,000 ÷ 40%) 225,000
Candy, agreed capital interest 60%
Agreed capital of Candy 135,000
Contributed capital of Candy 150,000
Withdrawal P 15,000
1-27: a
Total agreed capital (210,000 ÷ 70%) P300,000
Nora’s interest 30%
Agreed capital of Nora P 90,000
Cash invested 42,000
Cash to be invested by Nora P 48,000
1-28: a
Contributed capital of May (P194,000 - P56,000) P138,000
Agreed capital of May (P300,000 x 70%) 210,000
Cash to be invested by May P 72,000
1-29: c
__Alex_ _Carlos_ __Total__
Contributed capital P100,000 P84,000 P184,000
Agreed capital 92,000 92,000 184,000
Capital invested P( 8,000) P 8,000 -
8 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 ............................................................. 600

Merchandise Inventory ...................................................... 600

Allowance for Bad Debts .................................................. 200
3. Accrued Interest Receivable .................................................. 35

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

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

Accumulated Depreciation – Furniture and Fixtures ........ 800
6. Office Supplies ...................................................................... 400

Pedro Castro, Capital......................................................... 400
To record the investment of Jose Bunag.
Cash .. ........................................................................................... 15,067.50

Jose Bunag, Capital ............................................................... 15,067.50
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
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 ............................................................................... 4,000

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

Notes Receivable .......................................................................... 3,000
Accounts Receivable .................................................................... 24,000
Accrued Interest Receivable......................................................... 35
Merchandise Inventory................................................................. 7,400
Office Supplies ............................................................................. 400
Furniture and Fixtures .................................................................. 6,000
Notes Payable ........................................................................ 4,000
Accounts Payable................................................................... 10,000
Accrued Interest Payable ....................................................... 100
Allowance for Bad Debts....................................................... 1,200
Accumulated Depreciation – Furniture and Fixtures ............. 1,400
Pedro Castro, Capital ............................................................. 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 ..... ...... ... ........................................................................................... P21,067.50

Notes receivable .......................................................................................... 3,000.00
Accounts receivable .................................................................................... P 24,000
Less Allowance for bad debts...................................................................... ___1,200 22,800.00
Accrued interest receivable ......................................................................... 35.00
Merchandise inventory ................................................................................ 7,400.00
Office supplies ........................................................................................... 400.00
Furniture and fixtures .................................................................................. 6,000
Less Accumulated depreciation................................................................... ___1,400 __4,600.00
Total Assets ........................................................................................ P59,302.50
Liabilities and Capital
Notes payable ........................................................................................... P 4,000.00

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

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

Balance Sheet
June 30, 2008
Bonus Method Goodwill Method

Assets:
Cash P 49,000 P 49,000
Accounts receivable (net) 48,000 48,000
Marketable securities 57,500 57,500
Inventory 85,000 85,000
Equipment (net) 45,000 45,000
Goodwill ______– __42,500
Total P284,500 P327,000
Liabilities and Capital:
Accounts payable P 53,000 P 53,000

Jose, capital (50%) 115,750 137,000
Pedro, capital (25%) 57,875 68,500
Pablo, capital (25%) __57,875 __68,500
Total P284,500 P327,000
Problem 1 – 3
1. Books of Pepe Basco
To adjust the assets.
a. Pepe Basco, Capital ...................................................................... 3,200

Estimated Uncollectible Account .......................................... 3,200
b. Pepe Basco, Capital ...................................................................... 500

Accumulated Depreciation – Furniture and Fixtures ............. 500
12 Chapter 1
To close the books.
Estimated Uncollectible Account ....................................................... 4,800

Accumulated Depreciation – Furniture and Fixtures .......................... 1,500
Accounts Payable................................................................................ 3,600
Pepe Basco, Capital ............................................................................ 31,500
Cash .. ........................................................................................... 400
Furniture and Fixtures .................................................................. 5,000
2. Books of the Partnership
To record the investment of Pepe Basco.
Cash .... ... ........................................................................................... 400

Accounts Receivable .......................................................................... 16,000
Merchandise Inventory ....................................................................... 20,000
Furniture and Fixtures......................................................................... 5,000
Estimated Uncollectible account .................................................. 4,800
Accumulated Depreciation – Furniture and Fixtures ................... 1,500
Pepe Basco, Capital ...................................................................... 31,500
To record the investment of Carlo Torre.
Cash .... ... ........................................................................................... 47,250

Carlo Torre, Capital ..................................................................... 47,250
Computation:
Pepe Basco, capital (Base) ........................................................... P31,500
Divide by Pepe Basco's P & L ratio ............................................. ___40%
Total agreed capital ...................................................................... P78,750
Multiply by Carlo Torre's P & L ratio .......................................... ___60%
Cash to be invested by Carlo Torre .............................................. P47,250
Problem 1 – 4
a. Roces' books will be used by the partnership
Books of Sales
1. Adjusting Entries
(a) Sales, Capital ......................................................................... 3,200

Accumulated Depreciation – Fixtures ............................... 3,200
(b) Goodwill ................................................................................ 32,000

Sales, Capital ..................................................................... 32,000
2. Closing Entry

Accumulated Depreciation – Delivery Equipment ...................... 8,000
Accumulated Depreciation – Fixtures .......................................... 91,200
Notes Payable ............................................................................... 40,000
Accrued Taxes .............................................................................. 8,000
Sales, Capital ................................................................................ 224,000
Cash ....................................................................................... 4,800
Accounts Inventory................................................................ 72,000
Prepaid Insurance................................................................... 3,200
Delivery Equipment ............................................................... 48,000
Fixtures .................................................................................. 96,000
Goodwill ................................................................................ 32,000
Books of Roces (Books of the Partnership)
(a) Roces, Capital .............................................................................. 1,600

(b) Accumulated Depreciation – Fixtures .......................................... 16,000

Roces, Capital ........................................................................ 16,000
(c) Merchandise Inventory................................................................. 8,000

Roces, Capital ........................................................................ 8,000
(d) Goodwill....................................................................................... 40,000

Roces, Capital ........................................................................ 40,000
2. To record the investment of Sales.
Cash .... ... ........................................................................................... 4,800

Prepaid Insurance................................................................................ 3,200
Delivery Equipment ............................................................................ 48,000
Fixtures ... ........................................................................................... 96,000
Goodwill . ........................................................................................... 32,000
Notes Payable ............................................................................... 40,000
Accrued Taxes .............................................................................. 8,000
Sales, Capital ................................................................................ 224,000
14 Chapter 1
b. Sales' books will be used by the partnership
Books of Roces
2. Closing Entry

Accrued Taxes .............................................................................. 6,400
Roces, Capital .............................................................................. 224,000
Cash ....................................................................................... 14,400
Accounts Receivable ............................................................. 57,600
Prepaid Insurance................................................................... 4,800
Delivery Equipment ............................................................... 19,200
Fixtures .................................................................................. 144,000
Goodwill ................................................................................ 40,000
Books of Sales (Books of the Partnership)
2. To record the investment of Roces.
Cash .... ... ........................................................................................... 14,400

Delivery Equipment ............................................................................ 19,200
Fixtures ... ........................................................................................... 144,000
Goodwill . ........................................................................................... 40,000
Accrued Taxes .............................................................................. 6,400
Roces, Capital .............................................................................. 224,000
c. 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
New Partnership Books
To record the investment of Roces and Sales.
Cash .... ... ........................................................................................... 19,200

Delivery Equipment (net) ................................................................... 46,400
Fixtures (net)....................................................................................... 84,800
Goodwill ........................................................................................... 72,000
Notes Payable ............................................................................... 40,000
Accrued Taxes .............................................................................. 14,000
Roces, Capital .............................................................................. 224,000
Sales, Capital ................................................................................ 224,000
16 Chapter 1
Problem 1 – 5
1. To close Magno's books.
Allowance for Bad Debts.................................................................... 1,000

Accounts Payable................................................................................ 6,000
Notes Payable ..................................................................................... 10,000
Accrued Interest Payable .................................................................... 300
R. Magno, Capital ............................................................................... 24,700
Cash .. ........................................................................................... 5,000
Equipment .................................................................................... 3,000
Other Assets ................................................................................. 9,000
2. To adjust the books of Lagman.
Goodwill . ........................................................................................... 8,000

Allowance for Bad Debts ............................................................. 210
J. Lagman, Capital........................................................................ 7,790
3. To record the investment of Magno.
Cash .... ... ........................................................................................... 5,000

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

R. Magno, Capital ........................................................................ 10,300
(P35,000 – P24,700 = P10,300)
J. Lagman, Capital .............................................................................. 35,790

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

Balance Sheet
December 31, 2008
Assets
Cash .... ... ........................................................................................... P –

Accounts receivable ............................................................................ P34,000
Less Allowance for bad debts ............................................................. 1,210 32,790
Merchandise inventory ....................................................................... 21,000
Equipment ........................................................................................... 8,000
Other assets ......................................................................................... 46,000
Goodwill ........................................................................................... ___8,000
Total Assets .................................................................................. P115,790
Accounts payable ................................................................................ P 18,000

Notes payable...................................................................................... 15,000
Accrued interest payable..................................................................... 300
Accounts payable to J. Lagman .......................................................... 12,490
J. Lagman, capital ............................................................................... 35,000
R. Magno, capital ................................................................................ __35,000
Total Liabilities and Capital ......................................................... P115,790
Problem 1 – 6
1. Books of Toledo
Toledo, Capital ............................................................................. 4,800

Allowance for Bad Debts (15% x P32,000) .......................... 4,800
Books of Ureta
Ureta, Capital ............................................................................... 2,400

Allowance for Bad Debts (10% x P24,000) .......................... 2,400
Cash (90% x P12,000).................................................................. 10,800

Loss from Sale of Office Equipment............................................ 1,200
Office Equipment................................................................... 12,000
Toledo, Capital (1/4 x P1,200) ..................................................... 300

Ureta, Capital ............................................................................... 900
Loss from Sale of Office Equipment ..................................... 1,200
18 Chapter 1
2. New Partnership Books
Cash .. ........................................................................................... 3,200

Merchandise ................................................................................. 40,000
Office Equipment ......................................................................... 10,000
Notes Payable ........................................................................ 2,000
Toledo, Capital ...................................................................... 68,400
To record the investment of Toledo.
Cash .. ........................................................................................... 22,800

Merchandise ................................................................................. 36,000
Toledo, Capital ............................................................................. 300
Allowable for Bad Debts ....................................................... 2,400
Ureta, Capital ......................................................................... 64,700
To record the investment of Ureta.
3. Cash .... ... ........................................................................................... 3,400

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

Balance Sheet
July 1, 2008
Assets
Cash .... ... ........................................................................................... P 29,400

Accounts receivable ............................................................................ P56,000
Less Allowance for bad debts ............................................................. __7,200 48,800
Merchandise........................................................................................ 76,000
Office equipment ................................................................................ __10,000
Total Assets .................................................................................. P164,200
Accounts payable ................................................................................ P 26,000

Notes payable...................................................................................... 2,000
Toledo, capital .................................................................................... 68,100
Ureta, capital ....................................................................................... __68,100
Total Liabilities and Capital ......................................................... P164,200
20 Chapter 2
CHAPTER 2

2-1: d
Jordan Pippen Total
Annual salary P120,000 P80,000 P200,000
Balance, equally ( 10,000) ( 10,000) ( 20,000)
Total P110,000 P 70,000 P180,000
2-2: a
JJ KK LL Total
Bonus (.20 X P90,000) P18,000 – – P 18,000
Interest
JJ (.15 X P100,000) P15,000 – –)
KK (.15 X P200,000) P 30,000 –)
LL (.15 X P300,000) P45,000) 90,000
Balance, equally ( 6,000) ( 6,000) ( 6,000) ( 18,000)
Total profit share P27,000 P 24,000 P39,000 P 90,000
2-3: a
2-4: a
Allan Michael Total
Interest
Allan - .10 X (P40,000 + 60,000 /2) P 5,000 )
Michael - .10 X (P60,000 + 70,000/2) P 6,500) P 11,500
Balance, equally _14,000 _14,000 __28,000
Total P 19,000 P20,500 P 28,000
2-5: a
Fred Greg Henry Total
Interest (.10 of average capital) P12,000 P 6,000 P 4,000 P 22,000
Salaries 30,000 20,000 50,000
Balance, equally ( 35,000) ( 35,000) ( 35,000) (105,000)
Total P 7,000 ( P29,000) (P11,000) (P 33,000)
2-6: b
Average Capital
Capital Months Peso
Date Balance Unchanged Months
January 1 140,000 6 P 840,000
July 1 180,000 1 180,000
August 1 165,000 5 __825,000
12 P1,845,000
Average capital - P1,845,000/12 = P153,750
Interest (P153,750 X 10%) = P 15,375

Partnership Operations 21
2-7: c
Capital Months Peso
January 1 P16,000 3 P 48,000
April 1 17,600 2 35,200
June 1 19,200 3 57,600
September 1 15,200 4 __60,800
12 P201,600
Average Capital(P201,600/12) = P16,800
2-8: a
Net profit before bonus P 24,000
Net profit after bonus (P24,000/120%) __20,000
Bonus to RJ 4,000
Balance (P24,000-P4,000)X3/5 __12,000
Total profit share P 16,000
2-9: a
LT AM Total
Interest P3,200 P 3,600 P 6,800
Salaries 15,000 7,500 22,500
Balance, 3:2 (11,580) ( 7,720) ( 19,300)
Total P 6,620 P 3,380 P 10,000
2-10: b
Net income after salary, interest and bonus P467,500
Add back: Salary (P10,000 X 12) P120,000
Interest (P250,000 X .05) __12,500 _132,500
Net income after bonus (80%) P600,000
Net income before bonus (P600,000/80%) _750,000
Paul's bonus P150,000
2-11: b
CC DD EE Total
Salary P 14,000 P 14,000
Balance P14,000 P 8,400 5,600 28,000
Additional profit to DD ( 1,500) __2,100 ( 600) ______–
Total P12,500 P10,500 P 19,000 P 42,000
Net income
Fees Earned P90,000
Expenses _48,000
Net Income P42,000
22 Chapter 2
2-12: c
LL MM NN Total
Interest P 2,000 P 1,250 P 750 P 4,000
Annual Salary 8,500 – – 8,500
Additional profit to give LL, P20,000 9,500 5,700 3,800 19,000*
Additional profit to give MM, P14,000 _____– __7,050 _____– __7,050
Total P20,000 P14,000 P 4,550 P 38,550
*(P9,500/50%) = P19,000
2-13: a
RR SS TT Total
Excess (Deficiency)
RR (P80,000 - P95,000) P15,000 – –)
SS (P50,000 - P40,000) – (P10,000) –) P 5,000
Balance 4:3:1 _47,500 _35,625 _11,875 __95,000
Total P62,500 P25,625 P11,875 P100,000
Net Income (200,000 - 100,000) = P100,000
2-14: b AA BB CC Total
AA - 100,000 X 10% P 10,000 )
150,000 X 20% 30,000 ) P 40,000
Remainder, 210,000
BB (60,000 X .05) P 3,000 )
CC (60,000 X .05) P 3,000 6,000
Balance, equally __68,000 _68,000 _68,000 _204,000
Total P108,000 P71,000 P71,000 P250,000
2-15: a
AJ BJ CJ Total
Bonus to CJ
Net profit before bonus P44,000
Net profit after bonus (P44,000/110%)P40,000 – – P4,000 P4,000
Interest to BJ – P1,000 – 1,000
Salaries P 10,000 – 12,000 22,000
Balance, 4:4:2 __6,800 _6,800 __3,400 _17,000
Total P 16,800 P7,800 P19,400 P44,000
2-16: c
Total profit share of Pedro P200,000
Less: Salary to Pedro P 50,000
Interest __20,000 __70,000
Share in the balance (40%) P130,000
Net profit after salary and interest (130,000/40%) P325,000

Add: Total Salaries P150,000
Total Interest __70,000 _220,000
Total Partnership Income P545,000
2-17: c
Net income before extraordinary gain and bonus (69,600-12,000) P 57,600
Net income after bonus (57,600/120%) _48,000
Bonus to RR P 9,600
Distribution of Net Income:

JJ RR Total
Bonus – P 9,600 P 9,600
Balance, equally P 24,000 24,000 48,000
Net profit before extraordinary gain P 24,000 P 33,600 P 57,600
Extraordinary gain __4,800 __7,200 _12,000
Total P 28,800 P 40,800 P 69,600
2-18: a
Mel Jay Total
Interest P 20,000 P 12,000 P 32,000
Annual Salary 36,000 – 36,000
Remainder 60:40 __60,000 _40,000 _100,000
Total P116,000 P 52,000 P168,000
2-19: a
DV JE FR Total
Interest on excess (Deficiency) P 15,000 P 3,750 (P 7,500) P 11,250
Remainder 5:3:2 ( 36,875) ( 22,125) ( 14,750) ( 73,750)
Total (P 21,875) (P 18,375) (P 22,250) (P 62,500)
2-20: c
Correction of 1998 profit:
Net income per books P 19,500
Understatement of depreciation ( 2,100)
Overstatement of inventory, December 31 ( 11,400)
Adjusted net income P 6,000
Pete Rico Total

Distribution of net income per book:
Equally P 9,750 P 9,750 P 19,500
Distribution of adjusted net income
Equally ( 3,000) ( 3,000) ( 6,000)
Required Decrease P 6,750 P 6,750 P 13,500
2-21: a
Tiger Woods Total
Salaries P 64,000 P100,000 P164,000
Interest 24,000 30,000 54,000
Bonus (P360,000-P54,000)X.25 76,500 – 76,500
Remainder, 30:70 __19,650 __45,850 __65,500
Total P184,150 P175,850 P360,000
24 Chapter 2
2-22: a
Holly Field Total
Salaries P 20,000 – P 20,000
Commission – P 25,000 25,000
Interest 32,000 33,600 65,600
Bonus, schedule 1 30,000 – 30,000
Remainder, 60:40 __35,640 _23,760 __59,400
Total P117,640 P 82,360 P200,000
Schedule 1
Net income before salary, commission,
interest and bonus P200,000
Less: salaries __20,000
Net income before bonus P180,000
Net income after bonus (P180,000/120%) _150,000
Bonus P 30,000
2-23: a
Mike Tyson Total
Capital balance, beginning P600,000 P400,000 P1,000,000
Additional investment 100,000 200,000 300,000
Capital withdrawal -200,000 ( 100,000) _-300,000
Capital balance before profit and loss distribution P500,000 P500,000 P1,000,000
Net income:
Salary P200,000 P300,000 P 500,000
Balance, 3:2 __60,000 __40,000 __100,000
Total P260,000 P340,000 P 600,000
Total P760,000 P840,000 P1,600,000
Drawings ( 200,000) ( 300,000) ( 500,000)
Capital balance, end P560,000 P540,000 P1,100,000
Average Capital - King:

Capital Months Peso
January 1 P40,000 3 P120,000
April 1 55,000 9 _495,000
12 P615,000
Average capital – P615,000/12 = P51,250
Average Capital - Queen:

Capital Months Peso
January 1 P100,000 7 P700,000
April 1 130,000 5 __650,000
12 P1,350,000
Average capital - P1,350,000 / 12 =P112,500
2-24: d
Distribution of Net Income - Schedule 1
King Queen Total

Interest P 5,125 P11,250 P16,375
Bonus, Schedule 2 12,725 – 12,725
Salaries 25,000 30,000 55,000
Residual, 50:50 ( 2,050) _(2,050) _(4,100)
Total P40,800 P39,200 P80,000
Schedule 2
Net income before allocation P80,000

Less: Interest _16,375
Net income before bonus P63,625
Net income after bonus (P63,625/125%) _50,900
Bonus P12,725
Capital Balance December 31:

King Queen Total
Capital balance, January 1 P40,000 P100,000 P140,000
Additional investment _15,000 __30,000 __45,000
Capital balance before profit and
loss distribution P55,000 P130,000 P185,000
Net income (Schedule 2) 40,800 39,000 80,000
Drawings (P400 X 52) ( 20,800) ( 20,800) ( 41,600)
Capital balance, December 31 P75,000 P148,400 P223,400
2-25: d
Total receipts (P1,500,000 + P1,625,000) P3,125,000
Expenses ( 1,080,000)
Net income P2,045,000
Distribution to Partners
Red – P1,500,000/P3,125,000 X P2,045,000 = P 981,600 (1)
Blue – P1,625,000/P3,125,000 X P2,045,000 = _1,063,400
P2,045,000
Capital balance of Blue Dec. 31

Capital Balance, Jan. 1 P 374,000
Additional investment ___22,000
Capital balance before profit and
loss distribution P 396,000
Profit share 1,063,400
Drawings ( 750,000)
Capital balance, Dec. 31 P 709,400 (2)
26 Chapter 2
2-26: a
Ray Sam Total
Capital balances, March 1 P150,000 P180,000 P330,000
Additional investment, Nov. 1 _______ __60,000 __60,000
Capital balances before salaries, profit and Drawings 150,000 240,000 390,000
Profit share:
Interest 15,000 20,000 35,000
Balance, 60:40 51,000 34,000 85,000
Total 66,000 54,000 120,000
Total 216,000 294,000 510,000
Salaries _18,000 _24,000 _42,000
Total 234,000 318,000 552,000
Drawings (18,000) (24,000) (42,000)
Capital balances, Feb. 28 P216,000 P294,000 P510,000
2-27: a
Susan Tanny Total
Capital balances, 1/1 P150,000 P30,000 P180,000
Additional investment, 4/1 8,000 8,000
Capital withdrawals, 7/1 _______ (6,000) _(6,000)
Balances before profit distribution 158,000 24,000 182,000
Profit distribution:
Interest 23,400 4,050 27,450
Bonus (20% x P30,000) 6,000 6,000
Balance, equally (1,725) (1,725) (3,450)
Total 21,675 _8,325 30,000
Total 179,675 32,325 212,000
Drawings (12,000) (12,000) (24,000)
Capital balances, 12/31 P167,675 P20,325 P188,000
2-28: a
Sin Tan Uy Total
Capital balances, beg. 1st year P110,000 P80,000 P110,000 P300,000
Loss distribution, 1st year:
Salaries 20,000 10,000 30,000
Interest 11,000 8,000 11,000 30,000
Balance, 5:3:2 (40,000) (16,000) (24,000) (80,000)
Total ( 9,000) ( 8,000) ( 3,000) (20,000)
Total 101,000 72,000 107,000 280,000
Drawings (10,000) (10,000) (10,000) (30,000)
Capital balances, beg. 2nd year 91,000 62,000 97,000 250,000
Profit distribution, 2nd year:
Salaries 20,000 10,000 30,000
Interest 9,100 6,200 9,700 25,000
Balance, 5:3:2 ( 7,500) ( 4,500) ( 3,000) (15,000)
Total 21,600 _1,700 16,700 40,000
Total 112,600 63,700 113,700 290,000
Drawings _(10,000) (10,000) _(10,000) _(30,000)
Capital balances, end of 2nd year P102,600 P53,700 P103,700 P260,000
2-29: c
Jay Kay Loi Total
Capital balances, 1/1/06 P30,000 P30,000 P30,000 P90,000
Additional investment, 2006 5,000 5,000
Capital withdrawal, 2006 _(5,000) _(4,000) ______ _(9,000)
Capital balances 25,000 26,000 35,000 86,000
Profit distribution, 2006:
Interest 3,000 3,000 3,000 9,000
Salary 7,000 7,000
Balance, equally _1,000 _1,000 _1,000 __3,000
Capital balances, 1/1/07 36,000 30,000 39,000 105,000
Capital withdrawal, 2002 ______ _(3,000) _(8,000) (11,000)
Interest 3,600 3,000 3,900 10,500
Salary 7,000 7,000
Balance, equally _1,500 _1,500 _1,500 __4,500
Capital withdrawal, 2008 ______ _(4,000) _(2,000) _(6,000)
Interest 5,310 3,150 3,640 12,100
Salary 7,000 7,000
Balance, equally __3,300 __3,300 __3,300 ___9,900
Capital balances, 12/31/08 per books P68,710 P33,950 P47,340 P150,000
Understatement of depreciation (2,000) (2,000) (2,000) (6,000)
Adjusted capital balances, 12/31/08 P66,710 P31,950 P45,340 P144,000
28 Chapter 2
2-30: a
Ken Len Mon Total

Capital balances, 1/1/07 P100,000 P100,000 P100,000 P300,000
Capital withdrawal, 2007 ( 20,000)_______ _______ ( 20,000)
Balances 80,000 140,000 100,000 320,000
Profit distribution, 2007 (Schedule 1)
Salary 60,000 60,000
Balance, beg. Capital ratio 20,000 20,000 20,000 60,000
Capital withdrawal, 2008 ( 20,000) ( 40,000)_______ ( 60,000)
Balances 80,000 120,000 180,000 380,000
Salary 60,000 60,000
Balance, beg. capital ratio __13,636 __21,818 __24,546 __60,000
Capital balances, 12/31/08 P 93,636 P141,818 P264,546 P500,000
Schedule 1 – Computation of net profit:

Total capital, 2008 (P647,500 – P147,500) P500,000
Total capital, 2007 (P300,000 + P40,000 – P80,000) _260,000
Total profit for 2 years P240,000
Net profit per year (P240,000 / 2) P120,000
2-31: d
_Nardo_ __Orly __Pedro_ _Total_
Capital balance, 1/1/08 P280,000 P300,000 P170,000 P750,000
Additional investment 96,000 60,000 - 156,000
Withdrawals ( 90,000 ) ( 72,000 ) (162,000)
Cap. bal. before P/L dist. 376,000 270,000 98,000 744,000
NP: Salary (16,500 x 12) - 198,000 - 198,000
Interest on EC (15%) 42,000 45,000 25,500 112,500
Balance 25:30:45 ( 19,875 ) ( 23,850 ) ( 35,775 ) (79,500 )
Total 22,125 219,150 ( 10,275 ) 231,000
Capital balance 12/31/08 P398,125 P 489,150 P 87,72 P975,000
2-32: d
Sam capital, beginning P120,000
Additional investment (Land) 60,000
Drawings ( 80,000 )
Capital balance before net profit (loss) 100,000
Capital balance, end 150,000
Profit share (40%) 50,000
Net profit (P50,000 ÷ 40%) P125,000
2-33: a
__Joe__ __Tom__ __Total__
Capital balance, 1/2/07 P 80,000 P 40,000 P120,000
Net loss- 2007:
Annual salary 96,000 48,000 144,000
10% interest on beg. capital 8,000 4,000 12,000
Bal. beg. cap. ratio: 8:4 ( 108,000) ( 54,000) ( 162,000)
Total ( 4,000) ( 2,000) ( 6,000)
Capital balance 76,000 38,000 114,000
Drawings ( 4,000) ( 4,000) ( 8,000)
Capital balance, 12/31/07 72,000 34,000 106,000
Net profit- 2008:
Annual salary 96,000 48,000 144,000
10% interest on BC 7,200 3,400 10,600
Bonus to Joe–NPBB – P 22000
NPAB (22000/110%)20000 2,000 2,000
Balance equally ( 67,300) ( 67,300) ( 134,600)
Total 37,900 ( 15,900) 22,000
Total 109,900 18,100 128,000
Drawings ( 4,000) ( 4,000) ( 8,000)
Capital balance, 12/31/08 105,900 14,100 120,000
2-34: a
Decrease in capital P 60,000
Drawings ( 130,000)
Contribution 25,000
Profit share 45,000
Net income (45,000 ÷ 30) P150,000
30 Chapter 2
Problem 2 – 1
1. Castro : (P26,000/P42,500) x P23,800 = P14,560

Diaz : (P16,500/P42,500) x P23,800 = __9,240
P23,800
2. Castro : (P31,250/P50,000) x P23,800 = P14,875

Diaz : (P18,750/P50,000) x P23,800 = __8,925
P23,800
Computation of Average Capitals:

Castro: Capital Months Peso
Date Balances Unchanged Months
1/1 ..................................... P26,000 3 P 78,000
4/10 ................................... 29,000 1 29,000
5/1 ..................................... 36,000 3 108,000
8/1 ..................................... 32,000 5 _160,000
12 P375,000
Average capital = P375,000  12 months = P31,250
Diaz: Capital Months Peso

1/1 ..................................... P16,500 5 P 82,500
6/1 ..................................... 21,500 3 64,500
9/1 ..................................... 19,500 4 __78,000
12 P225,000
Average capital = P225,000 – 12 months = P18,750
3. Castro Diaz Total

Interest ........................................................ P 7,500 P4,500 P12,000
Salaries........................................................ 36,000 24,000 60,000
Balance, equally.......................................... ( 24,100) (24,100) ( 48,200)
Total ............................................................ P19,400 P 4,400 P23,800
4. Castro Diaz Total

Bonus (a) .................................................... P 4,760 P – P 4,760
Interest (b)................................................... 1,100 – 1,100
Balance, 3:2 ................................................ _10,764 _7,176 _17,940
Total ............................................................ P16,624 P7,176 P23,800
Computations:
a. Net profit before bonus................................................. P23,800
Net profit after bonus (P23,800  125%) ..................... _19,040
Bonus............................................................................ P 4,760
b. Average capital of Castro [(P26,000 + P32,000)  2] ........................... P29,000

Average of Diaz [(P16,500 + P18,500)  2]....... .................................. _18,000
Castro's excess ..................................................... .................................. P11,000
Multiply by .......................................................... .................................. ___10%
Interest ................................................................. .................................. P 1,100
5. Castro : (P3,000/P5,000) x P23,800 = P14,280

Diaz : (P2,000/P5,000) x P23,800 = __9,520
P23,800
Problem 2 – 2
a. Average Capital:
Robin: Date Balances Months Peso
Unchanged Months
Jan. 1 P135,000 2 P270,000
Feb. 28 95,000 2 190,000
Apr. 30 175,000 5 875,000
Sept. 30 195,000 3 __585,000
12 P1,920,000
Ave. Capital (P1,920,000  12) = P160,000
Hood: Date Balances Months Peso

Unchanged Months
Jan. 1 P140,000 3 P420,000
Mar. 31 200,000 3 600,000
June 30 150,000 2 300,000
Aug. 31 220,000 2 440,000
Oct. 31 200,000 2 __400,000
12 P2,160,000
Ave. Capital (P2,160,000  12) = P180,000
Profit Distribution:
Robin : P160,000  P340,000 x P510,000 = P240,000
Hood : P180,000  P340,000 x P510,000 = _270,000
P510,000
32 Chapter 2
b. Robin Hood Total

Interest on ave. capital ......................................... P 14,400 P 16,200 P 30,600
Salaries................................................................. 60,000 100,000 160,000
Bonus (P510,000 – 30,600 – 160,000) x 25%) .... 78,850 – 79,850
Balance, equally................................................... _119,775 _119,775 _239,550
Totals ................................................................... P274,025 P235,975 P510,000
c. Robin Hood Totals

Interest:
Robin (P195,000 – P135,000) 10%............. P 6,000
Hood (P200,000 – P140,000) 10% ............. P 6,000 P 12,000
Balance, equally................................................... 249,000 249,000 498,000
Totals ................................................................... 255,000 255,000 510,000
d. Robin Hood Total

Salaries................................................................. P 80,000 P120,000 P200,000
Bonus (see computations below) ......................... 62,000 62,000
Balance, equally................................................... _124,000 _124,000 _248,000
Totals ................................................................... P266,000 P244,000 P510,000
Bonus Computations:
Net income before salaries and bonus ......... ..................... ....................... P510,000
Less Salaries................................................ ..................... ....................... 200,000
Net income before bonus ............................ ..................... ....................... 310,000
Net income after bonus (P310,000  125%) ..................... ....................... _248,000
Bonus .......................................................... ..................... ....................... P 62,000
Problem 2 – 3
a. De Villa De Vera Total

Salaries................................................................. P 30,000 – P 30,000
Commission (2% x P1,000,000) .......................... P 20,000 20,000
Interest of 8% on average capital ......................... 32,800 31,200 64,000
Bonus (see computations below) ......................... 9,818 9,818 19,636
Balance, equally................................................... __44,182 __44,182 __88,364
Total ..................................................................... P116,800 P105,200 P222,000
Bonus Computations:
Income before salary, commissions, interest & bonus ...... ....................... P222,000
Salary and commission (P30,000 + P20,000) ................... ....................... ( 50,000)
Interest......................................................... ..................... ....................... ( 64,000)
Income before bonus ................................... ..................... ....................... 108,000
Income after bonus (P108,000  110%) ..... ..................... ....................... _98,182
Bonus .......................................................... ..................... ....................... P 9,818
b. Income Summary ................................................. P 222,000

De Villa, capital .......................................... 116,800
De Vera, capital........................................... 105,200
Problem 2 – 4
a. East North West Total

Salaries................................................ P15,000 P20,000 P18,000 P53,000
Bonus (see computation below) .......... 3,760 3,760
Interest (see computation below) ........ 2,800 4,000 4,800 11,600
Balance, 3:3:4 ..................................... __3,180 __3,180 __4,240 _10,600
Total .................................................... P24,740 P27,180 P27,040 P78,960
Bonus computations:
Net income before bonus ........... .................... ..................... ..................... P78,960
Net income after bonus (P78,960  105%) ..... ..................... ..................... _75,200
Bonus ......................................... .................... ..................... ..................... P 3,760
Interest computations:
East (10% x P28,000)................. .................... ..................... ..................... P 2,800
North (10% x P40,000) .............. .................... ..................... ..................... 4,000
West (10% x P48,000) ............... .................... ..................... ..................... __4,800
Total ........................................... .................... ..................... ..................... P11,600
b. East North West Total

Interest (see computations below) ...... P 3,133 P 3,633 P 5,200 P11,966
Salaries................................................ 24,000 21,000 25,000 70,000
Bonus (see computations below) ........ 4,280 4,280
Balance, equally.................................. ( 6,056) ( 6,055) ( 6,055) ( 18,166)
Total .................................................... P 21,077 P 22,858 P 24,145 P 68,080
Interest computations:
Average capitals:
East: Months Pesos
1/1 P30,000 4 P120,000
5/1 36,000 4 144,000
9/1 28,000 4 _112,000
12 P376,000
Average capital (P376,000  12) .......................................... P 31,333
North: Months Pesos

1/1 P40,000 2 P80,000
3/1 31,000 4 124,000
7/1 36,000 2 72,000
9/1 40,000 4 _160,000
12 P436,000
Average capital (P436,000  12) ........................................... P 36,333

34 Chapter 2
West: Months Pesos

1/1 P50,000 3 P150,000
4/1 57,000 2 114,000
6/1 60,000 2 120,000
8/1 48,000 5 _240,000
12 P624,000
Ave. capital (P624,000  12).................................... P 52,000
Interest Computations:
East (10% x P31,333) ............ ............................................... P 3,133
North (10% x P36,333) ......... ............................................... 3,633
West (10% x P52,000)........... ............................................... __5,200
Total ... .................................. ............................................... P 11,966
Bonus Computations:
Net income ............................ ............................................... P 68,000
Less Salary ............................ ............................................... _21,000
Net income before bonus ....... ............................................... 47,080
Net income after bonus (P47,080  110%) ........................... _42,800
Bonus to North ...................... ............................................... P 4,280
* To Total
c. East North West Total

Bonus (see comp. below) .................... P 8,990 P 8,990
Salaries ........................................... P21,000 P 18,000 – 39,000
Interest on beginning capital ............... 3,000 4,000 5,000 12,000
Remainder, 8:7:5................................. _13,180 _11,532.50 __8,237.50 _32,950
Total ........ ........................................... P37,180 P33,532.50 P22,227.50 P92,940
Bonus Computations:
Net income before salaries & bonus ............... ..................... ..................... P92,940
Less Salaries (P21,000 + P18,000) ................. ..................... ..................... _39,000
Net income before bonus ........... .................... ..................... ..................... P53,940
Net income after bonus (P53,940  120%) ..... ..................... ..................... _44,950
Bonus to West ............................ .................... ..................... ..................... P 8,990
Problem 2 – 5
a. Schedule of Income Distribution:

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

Maria:
P80,000 x 8% x 6 months.. .................... P 3,200
P100,000 x 5% x 6 months .................... __4,000 P 7,200
Clara:
P120,000 x 8% .................. .................... 9,600
Rita:
P180,000 x 8% x 9 Mos. ... .................... P10,800
P150,000 x 8% x 3 Mos. ... .................... __3,000 _13,800
Total ........................................... .................... P30,600
b. Statement of Partners Capital:

Maria Clara Rita Total
Balances, Jan. 1................................... P 80,000 P120,000 P180,000 P380,000
Additional Investment ........................ 20,000 – – 20,000
Capital Withdrawal ............................. – – ( 30,000) ( 30,000)
Net Income.......................................... 22,333 22,733 24,934 70,000
Drawings ........................................... ( 10,000) ( 10,000) ( 10,000) ( 30,000)
Balance, Dec. 31 ................................. P112,333 P132,733 P164,934 P410,000
Problem 2 – 6
1. Allocation of net loss for 2008:

Alvin Benny Celia Total
Salary to Alvin .................................... P 20,000 P20,000
Interests on average capital:
Alvin (P120,000 x 10%) ............ 12,000
Benny (P200,000 x 10%) ........... 20,000
Celia (P220,000 x 10%) ............. 22,000 54,000
Balance, 30:30:40 ............................... (29,400) _(29,400) _(39,200) _(98,000)
Total ........ ........................................... P 2,600 P( 9,400) P(17,200) P(24,000)
2. Statement of Partnership Capital

Year Ended December 31, 2008
Alvin Benny Celia Total
Capitals, January 1, 2008 .................... P120,000 P180,000 P220,000 P520,000
Additional investments ....................... 60,000 40,000 100,000
Capital withdrawals ............................ _______ ________ _(20,000) _(20,000)
Balances .. ........................................... 120,000 240,000 240,000 600,000
Net loss (see above) ............................ __2,600 __(9,400) _(17,200) _(24,000)
Balances .. ........................................... 122,600 230,600 222,800 576,000
Drawings . ........................................... _(16,000)_______ _______ _(16,000)
Capitals, December 31, 2008 .............. P106,600 P230,600 P222,800 P560,000
36 Chapter 2
3. 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 Nelson Oscar Total

Capital balances, 1/2/06............................... P45,000 P45,000 P45,000 P135,000
Additional investment, 2006 ....................... _15,000 _15,000 __6,000 __36,000
Balances....................................................... 60,000 60,000 51,000 171,000
Net income (Loss) - 2006, equally .............. (1,800) ( 1,800) ( 1,800) ( 5,400)
Withdrawals, 2006....................................... (17,000) ( 7,000) ( 3,200) ( 27,200)
Capital balances, 12/31/06........................... 41,200 51,200 46,000 138,400
Additional investment, 2007 ....................... _____– _____– __6,000 ___6,000
Balances....................................................... 41,200 51,200 52,000 144,400
Net income - 2007, 40: 30: 30 ..................... 10,800 8,100 8,100 27,000
Withdrawals, 2007....................................... (17,000) ( 7,000) ( 3,200) ( 27,200)
Capital Balances, 12/31/07 .......................... 35,000 52,300 56,900 144,200
Additional investment, 2008 ....................... ______– ______– ___6,000 ___6,000
Balances....................................................... 35,000 52,300 62,900 150,200
Net income, 2008 (schedule 1) .................... 56,365 42,272 20,363 120,000
Withdrawals, 2008....................................... (19,000) ( 9,000) ( 3,200) ( 31,200)
Capital balances, 12/31/08........................... P72,365 P86,572 P80,063 P239,000
Schedule 1:
Dino Nelson Oscar Total
Annual salaries.................................... P48,000 P24,000 P12,000 P84,000
Bonus (see computations below) ........ – 10,909 – 10,909
Interest ................................................ 3,600 3,600 3,600 10,800
Balance, equally.................................. _* 4,765 __4,763 __4,763 __14,291
Totals .................................................. P56,365 P43,272 P20,363 P120,000
Bonus computations:
Net income before bonus ........... ................ ..................... ..................... P120,000
Net income after bonus (P120,000  110%) ..................... ..................... _109,091
Bonus to Nelson ......................... ................ ..................... ..................... P 10,909
* To Total
Problem 2 – 8
Red, White & Blue Partnership
Statement of Partners' Capital
For Year Ended December 31, 2008
Red White Blue Green Total

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

Exhibit A – Computation and Division of Net income
For Year Ended December 31, 2008
Total revenue from fees P120,000

Expenses, excluding depreciation and doubtful
accounts expense P38,700
Less: Excess rent charged to N ($300 x 6) __1,800
Subtotal 36,900
Add: Depreciation, computed as follows:
$26,000 x 0.10 2,600
$10,000 x 0.10 x 1/2 ____500
Total expenses, excluding doubtful accounts expense P40,000
Add: Doubtful accounts expense ($3,000 x 0.60) __1,800
Total expenses 41,800 ________
Net income for year ended Dec. 31, Year 1 P 78,200
Division of net income:

Fees billed to personal clients:
Red P44,000 x 20% P 8,800
White P24,000 x 2% 48,000
Blue, P22,000 x 20% 4,400 P18,000
Green's share of fees:
Gross fees from new clients after April 1, Year 1 24,000
Less: Allocated expenses ($40,000 x $24,000/
$120,000) __8,000
Net income from new clients P16,000
Green's share (P16,000 x 20%) P 3,200
Total divided pursuant to special agreement __21,200
Balance, divided in income-sharing ratio as follows: P 57,000
To Red, 40% P22,800
To White, 40% 22,800
To Blue, 20% _11,400
Total P57,000
38 Chapter 2
Problem 2 – 9
Allan, Eman and Gino Partnership

Statement of Profit Distribution
Allan Eman Gino Total

Interest P 4,000 P 750 P 250 P 5,000
Commission (P16,120 – P5,000) x 10% – 1,112 1,112 2,224
Balance, equally __5,926 _5,925 _5,925 _17,776
Total P 9,926 P7,787 P7,287 P25,000
Adjustments (50% of P25,000 to Allan) __2,574 (1,287) (1,287)_____–
Total P12,500 P6,500 P6,000 P25,000
Problem 2 – 10
Gary, Sonny, and Letty Partnership

Statement of Partners' Capital Accounts
Gary Sonny Letty Total

Capital balances, 1/1/08 P210,000 P180,000 P 90,000 P480,000
Additional investments ___9,100_______ _______ __9,100
Total _219,100 _180,000 _90,000 489,100
Salaries 13,680 11,520 10,640 35,840
Interest 25,920 21,600 10,800 58,320
Bonus to Gary and Sonny (Schedule 1) – – –
Balance, equally __(9,720) _(9,720) _(9,720) (29,160)
Total __29,880 _23,400 _11,720 _65,000
Total 248,980 203,400 101,720 554,100
Drawings _(21,000) (18,000) __(9,000) _(48,000)
Capital balances, 12/31/08 P227,980 P185,400 P 92,720 P506,100
Schedule 1: Computation of the bonus.
Net profit before interest, salaries and bonus P 65,000

Less: Salaries P35,840
Interest _58,320 __94,160
Net profit (loss) before bonus P(29,160)
Therefore no bonus is to be given to Gary and Sonny.

Problem 2 – 11
a. Entries to record the formation of the partnership and the events that occurred during 2008:
Cash 1,100,000
Inventory 800,000
Land 1,300,000
Equipment 1,000,000
Mortgage payable 500,000
Installment note payable 200,000
Kobe, capital (P600,000 + P800,000
+ P1,000,000 – P200,000) 2,200,000
Lebron, capital (P500,000 + P1,300,000
- P500,000) 1,300,000
(1) Inventory 300,000

Cash 240,000
Accounts payable 60,000
(2) Mortgage payable 50,000

Interest expense 20,000
Cash 70,000
(3) Installment note payable 35,000

Cash 55,000
(4) Accounts receivable 210,000

Cash 1,340,000
Sales 1,550,000
(5) Selling and general expenses 340,000

Cash 278,000
Accrued expenses payable 62,000
(6) Depreciation expense 60,000

Accumulated depreciation 60,000
(7) Kobe, drawing 104,000

Lebron, drawing 104,000
Cash 208,000
(8) Sales 1,550,000

Income summary 1,550,000
(9) Cost of goods sold 900,000

Inventory 900,000
P900,000 = P800,000 beginning inventory
+ 300,000 purchases
- 200,000 ending inventory
40 Chapter 2
Income summary 1,340,000

Cost of good sold 900,000
Selling and general expenses 340,000
Depreciation expense 60,000
Income summary 210,000

Kobe, capital 105,000
Lebron, capital 105,000
Kobe, capital 104,000

Lebron, capital 104,000
Kobe, drawing 104,000
Lebron, drawing 104,000
Schedule to allocate partnership net income for 2008:
Kobe Lebron Total

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

Liabilities:
Accounts payable P60,000
Accrued expenses payable 62,000
Installment note payable 165,000
Total liabilities P737,000
Capital:
Kobe, capital P2,201,000
Lebron, capital 1,301,000
Total capital 3,502,000
Total liabilities and capital P4239,000
42 Chapter 3
CHAPTER 3
3-1: c
Implied capital of the partnership (P90,000/20%) P450,000
Actual value of the partnership ( 420,000)
Goodwill P 30,000
AQUINO LOCSIN DAVID HIZON

Capital balances before Goodwill P252,000 P126,000 P42,000 –
Goodwill to old partners __18,000 ___9,000 __3,000 _____–
Total P270,000 P135,000 P45,000 –
Purchase by Hizon (20%) ( 54,000) ( 27,000)( 9,000) _90,000
Capital balances after admission P216,000 P108,000 P36,000 P 90,000
3-2: b
AQUINO LOCSIN DAVID HIZON
Capital balances before admission P252,000 P126,000 P42,000 –
Purchase by Hizon (20%) ( 50,400) ( 25,200) ( 8,400)_84,000
Capital balances after admission P201,600 P100,800 P33,600P 84,000
3-3: d
AQUINO LOCSIN DAVID TOTAL
Capital transferred P 50,400 P 25,200 P 8,400 P 84,000
Excess divided using profit and loss ratio __3,600 __1,800 ___600 __6,000
Cash distribution P 54,000 P 27,000 P 9,000 P 90,000
3-4: b
Selling price P132,000

Interest sold (444,000X1/5) ( 88,800)
Combine gain P 43,200
3-5: b
Implied value of the partnership (P40,000/1/4) P160,000

Actual value ( 140,000)
Goodwill P 20,000
BERNAL CUEVAS DIAZ

Cash balances P 80,000 P40,000 P 20,000
Goodwill, Profit and Loss ratio __12,000 __6,000 __2,000
Total P 92,000 P46,000 P 22,000
Capital Transfer (1/4) ( 23,000) ( 11,500) ( 5,500)
Capital balances after admission P 69,000 P34,500 P 16,500
Partnership Dissolution – Changes in Ownership 43
3-6: b
BANZON CORTEZ TOTAL
Capital Transfer (20%) P 16,000 P 4,000 P20,000
Excess, Profit and Loss ratio __6,000 __4,000 _10,000
Cash distribution P 22,000 P 8,000 P30,000
3-7: d
PEREZ CADIZ TOTAL
Capital balances beginning P 24,000 P 48,000 P 72,000
Net profit, 1:2 5,430 10,860 16,290
Drawings ( 5,050) ( 8,000) ( 13,050)
Capital balances before admission P 24,380 P 50,860 P 75,240
Capital transfer (squeeze) ( 5,570) ( 13,240) (18,810) (1/4)
Capital balances after admission 1:2 P 18,810 P 37,620 P 56,430
Capital transfer P 5,570 P 13,240 P18,810

Excess, 1:2 __3,730 __7,460 _11,190
Cash P 9,300 P 20,700 P30,000
3-8: a
Total agreed capital (P150,000/5/6) P180,000

Diana's Interest 1/6
Cash distribution P 30,000
3-9: a
Total agreed capital (P36,000/1/5) P180,000

Total contributed capital (80,000+40,000+36,000) ( 156,000)
Unrecognized Goodwill P 24,000
3-10: b Contributed Agreed Increase

Capital Capital (Dec.)
Old partners P110,000 P100,000 (P 10,000)
New partner __40,000 __50,000 _10,000
Total P150,000 P150,000 P –
Ben, capital balance before admission P 60,000

Bonus share to new partner (10,000X60%) ( 6,000)
Ben, capital after admission P 54,000
3-11: c
Total agreed capital (P40,000+20,000+17,000) P 77,000

Pete's interest 1/5
Pete's agreed capital balance P 15,400
44 Chapter 3
3-12: b Contributed Agreed Increase

Capital Capital (Dec.)
Old partner P 65,000 P60,000
(P 5,000)
New partner 25,000 (1/3) 30,000 _5,000
Total P 90,000 P90,000 P –
FRED RAUL LORY

Capital balances before admission P 35,000 P30,000 –
Investment by Lory – – 25,000
Bonus to Lory ( 3,500) ( 1,500) __5,000
Capital balances after admission P 31,500 P28,500 P 30,000
3-13: c
Total agreed capital (90,000+60,000+70,000) P220,000

Augusts' interest _____1/4
Agreed capital P 55,000
Contributed capital __70,000
Bonus to June & July P 15,000
JUNE JULY
Capital balances before admission P90,000 P 60,000
Bonus from August, equally __7,500 __7,500
Capital balances after admission P97,500 P 67,500
3-14: a
Total agreed capital (52,000 + 88,000)/80%) P175,000

Total capital of Mira & Nina after admission ( 140,000)
Cash paid by Elma P 35,000
3-15: a
Total agreed capital (P41,600/2/3) P 62,400

Total contributed capital (P23,000+18,600+16,000) ( 57,600)
Goodwill to new partner, Ang P 4,800
LIM ONG ANG

Capital balances before admission P23,000 P 18,600 –
Investment by Ang – – 16,000
Goodwill to August _____– ______– __4,800
Capital balances after admission P23,000 P 18,600 P20,800
3-16: a
ANG BENG CHING DONG TOTAL

Capital balances before
admission P600,000 P 400,000 P 300,000 – P1,300,000
Admission by Dong:
By Purchase (1/2) ( 300,000) – – 300,000 –
By Investment _______– _______– _______– _300,000 ___300,000
Goodwill and Bonus P300,000 P 400,000 P 300,000 P600,000 P1,600,000
Goodwill to Old Partners (sch. 1) 150,000 150,000 100,000 – 400,000
Bonus to Old Partners (sch. 1) __37,500 __37,500 __25,000 ( 100,000)________–
Capital balances after
admission P487,500 P 587,500 P 425,000 P500,000 P2,000,000
Schedule 1: CC AC Inc. (Dec.)

Old Partners P 1,000,000 P1,500,000P500,000
New Partner 600,000 (25%) __500,000 ( 100,000)
Bonus
Total P 1,600,000 P2,000,000P400,000
GW
3-17: b
MONA LIZA ALMA LORNA TOTAL
admission of Alma P150,000 P 50,000 – – P 200,000
Admission of Alma:
Investment – – 80,000 – 80,000
Goodwill to old partner,
70:30 (sch. 1) __28,000 ___12,000_______– ______– ___40,000
admission of Lorna P178,000 P 62,000 P 80,000 – P 320,000
Admission of Lorna:
Goodwill Written off, 5:3:2 (P 20,000) (P 12,000) ( P8,000) – ( P40,000)
Investment – – – 75,000 75,000
Goodwill to old partners,
5:3:2 (sch. 2) __10,000 ____6,000 ____4,000 ______– ___20,000
Capital balances after
admission P168,000 P 56,000 P 76,000 P 75,000 P 375,000
Schedule 1:
Total agreed capital (80,000/25%) P 320,000
Total capital contributed (200,000+80,000) ( 280,000)
Goodwill to old partners, 70:30 P 40,000
Schedule 2:
Total agreed capital (75,000/20%) P 375,000
Total contributed capital (280,000+75,000) ( 355,000)
Goodwill to old partners, 5:3:2 P 20,000
46 Chapter 3
3-18: c
RED WHITE BLUE TOTAL
Unadjusted capital balances P175,000 P100,000 P 45,000 P320,000
Overvaluation of Marketable Securities ( 12,500) ( 7,500) ( 5,000) ( 25,000)
Allowance for Bad Debts ( 12,500) ( 7,500) ( 5,000) ( 25,000)
Adjusted capital balances before admission P150,000 P 85,000 P 35,000 P270,000
Total agreed capital (270,000/2/3) P405,000

Green's interest 1/3
Investment P135,000
3-19: b
XX YY ZZ WW TOTAL
admission P360,000 P225,000 P135,000 – P720,000
Capital transfer
to WW (1/6) ( 60,000) ( 37,500) ( 22,500) _120,000______–
Balances P300,000 P187,500 P112,500 P120,000 P720,000
Equalization of capital ( 100,000) __12,500 __87,500 ______– ______–
Balances P200,000 P200,000 P200,000 P120,000 P720,000
Net profit, equally 3,150 3,150 3,150 3,150 12,600
Drawings (2 months) _( 1,500) _( 2,000) _( 1,500) _( 2,000) _( 7,000)
WWs Investment P201,650 P201,150 P201,650 P121,150 P725,600
Total agreed capital (201,650+201,150+201,650)/2/3 P906,675

WW's interest 1/3
Agreed capital of WW P302,225
Contributed capital (see above) _121,150
Cash to be invested P181,075
3-20: a
A B C
Capital balances P 20,750 P 19,250 P 45,000
Understatement of assets, P12,000 __3,000 __3,000 __6,000
Balances before settlement to A P 23,750 P 22,250 P 51,000
Settlement to A P 30,250
A's interest (23,750+5,000) _28,750
Partial Goodwill to A P 1,500
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
3-21: a
Perez Reyes Suarez
Net income, P140,000 70,000 42,000 28,000
Undervaluation of inventory, P20,000 ___10,000 ____6,000 ____4,000
Capital balances before settlement to Perez P 180,000 P 198,000 P 232,000
Settlement to Perez ( 195,000) – –
Bonus to Perez ___15,000 _( 9,000) _( 6,000)
Capital balances after retirement P – P 189,000 P 226,000
3-22: c
ELY FLOR GLOR
Settlement to Ely ( 360,000) – –
Total Goodwill (P40,000/50%)P80,000 __40,000 ___24,000 ___16,000
Capital balances after retirement of Ely P – P 216,000 P 144,000
3-23: c
_Alma_ _Betty_ _Total_
Capital balance 3/1/07 480,000 240,000 720,000
Net loss-2007:
Salary (10 months) 480,000 240,000 720,000
Interest (10 months) 40,000 20,000 60,000
Bal. beg. cap. ratio: 48:24 ( 544,000) ( 272,000) ( 816,000)
Total ( 24,000) ( 12,000) ( 36,000)
Capital balance 456,000 228,000 684,000
Drawings ( 24,000) ( 24,000) ( 48,000)
Capital balance, 12/31/07 432,000 204,000 636,000
Net profit- 2008:
Salary 576,000 288,000 864,000
Interest 43,200 20,400 63,600
Balance, equally ( 397,800) ( 397,800) ( 795,600)
Total 221,400 ( 89,400) 132,000
Capital balance 653,400 114,600 768,000
Drawings ( 24,000) ( 24,000) ( 48,000)
Capital balance 12/31/08 629,400 90,600 720,000
Total contributed capital (720,000 + 400,000) 1,120,000

Cora’s interest 40%
Cora’s agreed capital 448,000
Cora’s contributed capital 400,000
Bonus to Cora, from Alma and Betty 4:2 48,000
Therefore entry (c) is correct.
48 Chapter 3
3-24: a
_Pete_ _Carlos_ _Total_
Capital balance, beg. 2007 P80,000 P30,000 P110,000
2007 net profit (90,000 – 59,000):
Interest 8,000 3,000 11,000
Compensation 5,000 20,000 25,000
Balance, 4:6 ( 2,000) ( 3,000) ( 5,000)
Total 11,000 20,000 31,000
Balance 91,000 50,000 141,000
Withdrawal ( 8,000) ( 11,000) (19,000)
Repairs (charge to Pete) ( 5,000) - ( 5,000)
Capital balance, 12/31/07 78,000 39,000 117,000
1/1/08: Admission of Sammy

Total agreed capital (P117,000 +43,000) P160,000
Sammy’s interest 20%
Sammy’s agreed capital 32,000
Sammy’s contributed capital 43,000
Bonus to Pete & Carlos, 4:6 11,000
Therefore entry (a) is correct.
Problem 3 – 1
(a) 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 ............................................................................ 25,000
Cash ................................................................................... 75,000
Red, capital ................................................................... 5,000
White, capital ................................................................ 10,000
Blue, capital .................................................................. 10,000
Green, capital ................................................................ 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 ................................................................................... 75,000
Green, capital ................................................................ 68,750
Red, capital ................................................................... 1,250
White, capital ................................................................ 2,500
Blue, capital .................................................................. 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 ............................................................................ 100,000
Red, capital ................................................................... 20,000
White, capital ................................................................ 40,000
Blue, capital .................................................................. 40,000
Red, capital (25% x P80,000) ............................................ 20,000

White, capital (25% x p120,000)....................................... 30,000
Blue, capital (25% x P100,000)......................................... 25,000
Green, capital ................................................................ 75,000
2. Red, capital (25% x P10,000)....................................................... 15,000
White, capital (25% x P80,000) ................................................... 20,000
Blue, capital (25% x P60,000) ..................................................... 15,000
Green, capital ......................................................................... 50,000
50 Chapter 3
Problem 3 – 2
a. (1) Bonus Method:
Contributed capital of Tomas ......................................................... .................. P140,000
Agreed capital of Tomas (P640,000 x 20%) ................................... .................. _128,000
Bonus to old partners, P/L ratio ...................................................... .................. P 12,000
BRUNO MARIO TOMAS TOTAL

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

Total agreed capital (P140,000  20%) . .................. ..................... P700,000
Total contributed capital ........................ .................. ..................... _640,000
Goodwill to old partners, P/L ratio ........ .................. ..................... P 60,000

Balances before admission .................... P200,000 P300,000 P – P500,000
Admission of Tomas .............................. __45,000 __15,000 _140,000 _200,000
Balances after admission ....................... P245,000 P315,000 P140,000 P700,000
(3) Goodwill with subsequent write-off.

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

Balances from A-2 ................................. P245,000 P315,000 P140,000 P700,000
Goodwill written off, 4:4:2 .................... ( 24,000) ( 24,000) ( 12,000) ( 60,000)
Balances ................................................. P221,000 P291,000 P128,000 P640,000
Problem 3 – 3
a. Total capital after admission (P76,000 + P104,000) ..................................... .................. P180,000

Total capital before admission (P60,000 + P80,000) .................................... .................. _140,000
Goodwill recorded ........................................................................................ .................. P 40,000
Total capital of the partnership (P180,000  75%) ....................................... .................. P240,000

Less: Total capital of old partners plus Goodwill (P140,000 + 40,000) ....... .................. _180,000
Cash payment by Barry ................................................................................. .................. P 60,000
b. Total capital after admission (P52,000 + P68,000) ....................................... .................. P120,000

Total capital before admission ...................................................................... .................. _140,000
Bonus to Barry .............................................................................................. .................. P 20,000
Agreed capital of Barry (P120,000  75%) x 25% ....................................... .................. P 40,000
Less: Bonus .............................................................................................. .................. __20,000
Cash payment by Barry ................................................................................. .................. P 20,000
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 .. .... ...................................................................................... 60,000
Goodwill ...................................................................................... 100,000
Gene, capital .......................................................................... 80,000
Nancy, capital ........................................................................ 20,000
Ellen, capital .......................................................................... 60,000
b. Cash ..... .. .... ...................................................................................... 60,000

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

Nancy, capital ..................................................................................... 8,000
Ellen, capital ................................................................................. 28,000
d. Cash .... ... .... ...................................................................................... 32,000

Ellen, capital ................................................................................. 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 .. .... ...................................................................................... 32,000
Goodwill ...................................................................................... 3,000
Ellen, capital .......................................................................... 35,000
Problem 3 – 5
a. Cash ..... .. .... ...................................................................................... 40,000

Cherry capital ............................................................................... 40,000
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
52 Chapter 3
Entry:
Cash .. .... ...................................................................................... 50,000
Cherry, capital ....................................................................... 42,500
Helen, capital ......................................................................... 5,250
Cathy, capital ......................................................................... 2,250
c. 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 .. .... ...................................................................................... 25,000
Helen, capital................................................................................ 7,875
Cathy, capital................................................................................ 3,375
Cherry, capital ....................................................................... 36,250
d. 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 ...................................................................................... 50,000
Goodwill ...................................................................................... 30,000
Cherry, capital ....................................................................... 50,000
Helen, capital ......................................................................... 21,000
Cathy, capital ......................................................................... 9,000
e. Total agreed capital (P120,000  75%) ................................................ P160,000

Goodwill to new partner ....................................................................... P 15,000
Entry:
Cash ...................................................................................... 25,000
Goodwill ...................................................................................... 15,000
Cherry, capital ....................................................................... 40,000
Problem 3 – 6
a. Total agreed capital (P600,000  3/4) ................................................................. P800,000

Santos interest ...................................................................................................... _____1/4
Contribution of Santos ......................................................................................... P200,000
b. Total agreed capital (P630,000  3/4) ................................................................. P840,000
Santos' interest ..................................................................................................... _____1/4
Contribution of Santos ......................................................................................... P210,000
c. Total agreed capital (P624,000  3/4) ....................................................................... .................... P832,000

Less: Contributed capital of old partners ................................................................... .................... _600,000
Contributed capital of Santos .................................................................................... .................... P232,000
d. Total agreed capital (P600,000  3/4) ....................................................................... .................... P800,000

Less: Goodwill ........................................................................................................ .................... __10,000
Contributed capital .................................................................................................... .................... 790,000
Contributed capital of old partners ............................................................................ .................... _600,000
e. Total agreed capital (Contributed) ............................................................................. .................... P820,000

Less: Contributed capital of old partners ................................................................... .................... _600,000
Problem 3 – 7
a. Tony, capital ........................................................................................................ 40,000
Noel, capital ...................................................................................................... 40,000
b. Cash ........................................................................................................ 90,000

Noel, capital ...................................................................................................... 90,000
(P180,000  2/3) x 1/3 = P90,000.
c. Cash ....... ..... .... ........................................................................................................ 56,000

Goodwill ..... .... ........................................................................................................ 4,000
Noel, capital ...................................................................................................... 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 4,000
d. Subas, capital……………………………………………………………… ..... 14,400

Tony, capital………………………………………………………………… .. 9,600
Inventory………………………………………………………………............. 24,000
Cash ....... ..... .... ........................................................................................................ 52,000

Noel, capital ...................................................................................................... 52,000
Total agreed capital (P52,000  1/4) ......................................................................... ..... P208,000
Total capital before inventory write-down (180,000 + 52,000) ................................. ..... (232,000)
Write-down to old partners capital ............................................................................ ..... ( 24,000)
e. Land……………………………………………………………………………………….. 92,000
Subas, capital…………………………………………………………………… 55,200
Tony, capital……………………………………………………………………. 36,800
Subas, capital (P155,200 x 1/4) ................................................................................. 38,800
Tony, capital (P116,800 x 1/4) .................................................................................. 29,200
Noel, capital ...................................................................................................... 68,000
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
54 Chapter 3
f. Cash .... ... .... ...................................................................................... 40,000

Subas, capital ...................................................................................... 2,400
Tony, capital ...................................................................................... 1,600
Noel, capital ................................................................................. 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 .... ... .... ...................................................................................... P60,000

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

Goodwill to old partner, 3:2.................................................................. P 60,000
Problem 3 – 8
a. Conny, capital ..................................................................................... 40,000

Andy, capital (P8,000 x 3/4) ............................................................... 6,000
Benny, capital (P8,000 x 1/4) ............................................................. 2,000
Cash .. .... ...................................................................................... 48,000
b. Goodwill . .... ...................................................................................... 10,000

Conny, capital ..................................................................................... 40,000
Cash .. .... ...................................................................................... 50,000
c. Goodwill (P5,000  1/5) ..................................................................... 25,000

Conny, capital ..................................................................................... 40,000
Andy, capital (P25,000 x 3/5) ...................................................... 15,000
Benny, capital (P25,000 x 1/5) ..................................................... 5,000
Cash ...................................................................................... 45,000
Problem 3 – 9
a. Spade, capital ...................................................................................... 120,000

Jack, capital .................................................................................. 120,000
b. Goodwill (P30,000  50%) ................................................................. 60,000

Ace, capital ................................................................................... 12,000
Jack, capital .................................................................................. 18,000
Spade, capital ............................................................................... 30,000
Spade, capital (P120,000 + P30,000).................................................. 150,000

Jack, capital .................................................................................. 150,000
Problem 3-9 (Continued)
c. Spade, capital ...................................................................................... 180,000

Cash .. .... ...................................................................................... 180,000
Ace, capital (P60,000 x 2/5) ............................................................... 24,000

Jack, capital (P60,000 x 3/5) ............................................................... 36,000
Spade, capital ............................................................................... 60,000
d. Land .... ... .... ...................................................................................... 20,000

Ace, capital (20%) ........................................................................ 4,000
Jack, capital (30%) ....................................................................... 6,000
Spade, capital (50%) .................................................................... 10,000
Spade, capital ...................................................................................... 130,000

Ace, capital (P50,000 x .40) ............................................................... 20,000
Jack, capital (P50,000 x .60) ............................................................... 30,000
Cash .. .... ...................................................................................... 60,000
Land.. .... ...................................................................................... 120,000
e. Goodwill . .... ...................................................................................... 30,000

Spade, capital ...................................................................................... 120,000
Cash .. .... ...................................................................................... 150,000
f. Goodwill (P30,000  50%) ................................................................. 60,000

Spade, capital ...................................................................................... 120,000
Ace, capital (P60,000 x 20%)....................................................... 12,000
Jack, capital (P60,000 x 30%) ...................................................... 18,000
Cash .. .... ...................................................................................... 150,000
g. Land .... ... .... ...................................................................................... P40,000

Ace, capital (20%) ........................................................................ 8,000
Jack, capital (30%) ....................................................................... 12,000
Spade, capital (50%) .................................................................... 20,000
Spade, capital (P120,000 x P20,000) .................................................. 140,000

Ace, capital (P10,000 x 40%) ............................................................. 4,000
Jack, capital (P10,000 x 60%) ............................................................ 6,000
Land.. .... ...................................................................................... 100,000
Note payable................................................................................. 50,000
56 Chapter 3
Problem 3 – 10
Case 1: Bonus of P10,000 to Eddy:

Eddy, capital ................................................................................. 70,000
Charly, capital (P10,000 x 3/5) .................................................... 6,000
Danny, capital (P10,000 x 2/5)..................................................... 4,000
Cash ...................................................................................... 80,000
Case 2: Partial Goodwill to Eddy:

Goodwill ...................................................................................... 4,000
Eddy, capital ................................................................................. 70,000
Cash ...................................................................................... 74,000
Case 3: Bonus of P5,000 to remaining partner:

Eddy, capital ................................................................................. 70,000
Charly, capital (P5,000 x 3/5) ................................................ 3,000
Danny, capital (P5,000 x 2/5) ................................................ 2,000
Cash ...................................................................................... 65,000
Case 4: Total Implied Goodwill of P24,000:

Goodwill ...................................................................................... 24,000
Eddy, capital ................................................................................. 70,000
Charly, capital (P24,000 x 3/6) .............................................. 12,000
Danny, capital (P24,000 x 2/6) .............................................. 8,000
Cash ...................................................................................... 74,000
Case 5: Other assets disbursed:

Eddy, capital ................................................................................. 70,000
Other assets .................................................................................. 20,000
Charly, capital (P60,000 x 3/6) .............................................. 30,000
Danny, capital (P60,000 x 2/6) .............................................. 20,000
Cash ...................................................................................... 40,000
Case 6: Danny purchases Eddy's capital interest:

Eddy, capital ................................................................................. 70,000
Danny, capital ........................................................................ 70,000
Problem 3 – 11
a. 1/1/06 Building ............................................................... 52,000

Equipment ............................................................ 16,000
Cash .................................................................... 12,000
Santos capital .............................................. 40,000
To record initial investment.
12/31/06 Reyes capital ........................................................ 22,000

Santos capital .............................................. 12,000
Income summary ......................................... 10,000
To record distribution of loss as follows:
Santos Reyes Total
Interest ................................................................. P 8,000 P – P 8,000
Additional profit .................................................. 4,000 4,000
Balance to Reyes.................................................. ______ (22,000) (22,000)
Total .................................................................... P12,000 P(22,000) (P10,000)
1/1/07 Cash .................................................................... 15,000

Santos capital (15%) ............................................ 300
Reyes capital (85%) ............................................. 1,700
Cruz capital ................................................. 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 ....................................................... 10,340

Reyes capital ........................................................ 5,000
Cruz capital .......................................................... 5,000
Santos drawings .......................................... 10,340
Reyes drawings ........................................... 5,000
Cruz drawings ............................................. 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 ................................................. 44,000

Santos capital .............................................. 16,940
Reyes capital ............................................... 16,236
Cruz capital ................................................. 10,824
To allocate P44,000 income figure as computed below:
Santos Reyes Cruz
Interest (20% of P51,700) .................................... P10,340
15% of P44,000 income ....................................... 6,600
Balance, 60:40 ..................................................... ______ P16,236 P10,824
Total .................................................................... P16,940 P16,236 P10,824
58 Chapter 3
Capital balances as of December 31, 2008

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

Diaz capital ................................................. 22,824
To transfer capital purchase from Cruz to Diaz
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 ................................................. 61,000

Santos capital .............................................. 20,810
Reyes capital ............................................... 24,114
Diaz capital ................................................. 16,076
To distribute profit for 2008 computed as follows:
Santos Reyes Diaz
Interest (20% of P58,300) .................................... P11,660
15% of P61,000 profit.......................................... 9,150
Balance, P40,190, 60:40 ...................................... ______ P24,114 P16,076
Total .................................................................... P20,810 P24,114 P16,076
1/1/09 Diaz capital .......................................................... 33,900

Santos capital (15%) ............................................ 509
Reyes capital (85%) ............................................. 2,881
Cash............................................................. 37,290
Diaz capital is [33,900 (P22,824 – P5,000 + P16,076)]. Extra 10% is deducted
from the two remaining partners' capital accounts.
b. 1/1/06 Building ............................................................... 52,000

Equipment ............................................................ 16,000
Cash .................................................................... 12,000
Goodwill .............................................................. 80,000
Santos capital .............................................. 80,000
Reyes capital ............................................... 80,000
To record initial investments. Reyes is credited with goodwill of P80,000 to match
Santos investment.
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 = 20% (current capital + P15,000 + goodwill)

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

Reyes capital ........................................................ 10,000
Cruz capital .......................................................... 7,500
Santos drawings .......................................... 20,000
Reyes drawings ........................................... 10,000
Cruz drawings ............................................. 7,500
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 ................................................. 44,000

Santos capital .............................................. 26,600
Reyes capital ............................................... 10,400
Cruz capital ................................................. 6,960
To allocate P44,000 profit as follows:
Santos Reyes Cruz
Interest (20% of P100,000) .................................. P20,000
15% of P44,000 profit.......................................... 6,600
Balance of P17,400, 60:40 ................................... ______ P10,440 P 6,960
Total .................................................................... P26,600 P10,440 P 6,960
Capital balances as of December 31, 2004:

Santos Reyes Cruz
Initial investment, 2006 ....................................... P80,000 P80,000
2006 profit allocation........................................... 20,000 (30,000)
Additional investment .......................................... P37,500
2007 drawings...................................................... (20,000) (10,000) (7,500)
2007profit allocation............................................ __26,600 _10,440 __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 .................................................................. 46,000

Diaz capital ........................................................ 46,000
To transfer of capital purchase.
12/31/08 Santos capital ............................................................... 22,118

Reyes capital ................................................................ 12,800
Diaz capital .................................................................. 9,200
Santos drawings ................................................. 22,118
Reyes drawings .................................................. 12,800
Diaz drawings .................................................... 9,200
To close drawings accounts based on 20% of beginning capitals.
12/31/08 Income summary ......................................................... 61,000

Santos capital ..................................................... 31,268
Reyes capital ...................................................... 12,800
Diaz capital ........................................................ 9,200
To allocate profit for 2008 as follows:
Santos Reyes Diaz
Interest (20% of P110,588) .......................................... P22,118
15% of P61,000 ........................................................... 9,150
Balance of P29,732, 60:40 ........................................... ______ P17,839 P11,893
Totals ........................................................................... P31,268 P17,839 P11,893

Santos Reyes Diaz
12/31/07 balances ........................................................ P106,600 P50,440
Goodwill ...................................................................... 3,988 13,560
Capital purchased ........................................................ P46,000
Drawings...................................................................... (22,118) (12,800) (9,200)
Profit allocation ........................................................... __31,268 _17,839 _11,893
12/31/08 balances ........................................................ P119,738 P69,039 P48,693
1/1/09 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.
1/1/09 Diaz capital .................................................................. 53,562
Cash.................................................................... 53,562
To record settlement to Diaz.
Problem 3 – 12
Partnership Books Continued as Books of Corporation
Entries in the Books of the Corporation
(1) Inventories ..... .................................................................... ................. 26,000

Land ...... ........ .................................................................... ................. 40,000
Building. ........ .................................................................... ................. 20,000
Accumulated depreciation – bldg. ...................................... ................. 20,000
Accumulated depreciation – equipment .............................. ................. 30,000
Equipment .................................................................. ................. 20,000
Jack capital ................................................................ ................. 58,000
Jill capital................................................................... ................. 34,800
Jun capital .................................................................. ................. 23,200
To adjust assets and liabilities of the partnership
to their current fair values.
(2) Cash ...... ........ .................................................................... ................. 4,000

Jack capital .... .................................................................... ................. 18,000
Jill capital................................................................... ................. 20,200
Jun capital .................................................................. ................. 1,800
To adjust capital accounts of the partners to 4:3:3 ratio.
(3) Jack capital .... .................................................................... ................. 100,000

Jill capital ...... .................................................................... ................. 75,000
Jun capital...... .................................................................... ................. 75,000
Capital stock............................................................... ................. 250,000
To record issuance of stock to the partners.
New Books Opened for the New Corporation
Entries in the Books of the Partnership
(1) Inventories ..... .................................................................... ................. 26,000

Land ...... ........ .................................................................... ................. 40,000
Building. ........ .................................................................... ................. 20,000
Accumulated depreciation – bldg. ...................................... ................. 20,000
Accumulated depreciation – equipment .............................. ................. 30,000
Equipment .................................................................. ................. 20,000
Jack capital ................................................................ ................. 58,000
Jill capital................................................................... ................. 34,800
Jun capital .................................................................. ................. 23,200
To adjust assets and liabilities of the partnership.
(2) Cash ...... ........ .................................................................... ................. 4,000

Jack capital .... .................................................................... ................. 18,000
Jill capital................................................................... ................. 20,200
Jun capital .................................................................. ................. 1,800
To adjust capital accounts of the partners.
62 Chapter 3
(3) Stock of JJJ Corporation .................................................... ................. 250,000

Accounts payable ................................................................ ................. 30,000
Loans payable – Jill ............................................................ ................. 40,000
Cash in bank............................................................... ................. 44,000
Accounts payable ....................................................... ................. 26,000
Inventories .................................................................. ................. 60,000
Land....... .................................................................... ................. 60,000
Building . .................................................................... ................. 70,000
Equipment .................................................................. ................. 60,000
To record transfer of assets and liabilities to
The corporation and the receipt of capital stock
(4) Jack capital .... .................................................................... ................. 100,000

Jill capital ...... .................................................................... ................. 75,000
Jun capital...... .................................................................... ................. 75,000
Stock of JJJ Corporation ............................................ ................. 250,000
To record issuance of stock to the partners.
Entries in the Books of the Corporation
(1) To record the acquisition of assets and liabilities from the partnership:
Cash in bank .. .................................................................... ................. 44,000

Accounts receivable ............................................................ ................. 26,000
Inventories ..... .................................................................... ................. 60,000
Land ...... ........ .................................................................... ................. 60,000
Building (net) . .................................................................... ................. 70,000
Equipment (net)................................................................... ................. 60,000
Accounts payable ....................................................... ................. 30,000
Loans payable ............................................................ ................. 40,000
Capital stock............................................................... ................. 250,000
Problem 3 – 13
a. 1/1/06 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.
12/31/06 Sy, capital 440,000
(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
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]. Tan’s 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
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
partner’s beginning capital balances [after adjustment for Tan’s investment] or
P100,000 whichever is greater. Lim’s capital is P1,034,000 [P800,000 +
P240,000 – P6,000])
12/31/07 Income summary 880,000

Sy, capital 324,720
(To allocate P880,000 income figure for 2007 as determined below.)
Lim Sy Tan
Interest (20% of P1,034,000
beginning capital balance) P206,800
15% of P880,000 income 132,000
60:40 split of remaining P541,200 income - 324,720 216,480
Total P338,800 P524,720 P216,480

Lim Sy Tan
Initial 2006 investment P800,000 P800,000
2006 profit allocation 240,000 440,000
Tan’s investment (6,000) (34,000) P340,000
2007 drawings (206,800) (100,000) (100,000)
2007 profit allocation 338,800 324,720 216,480
12/31/07 balances P1,166,000 P550,720 P456,480
1/1/08 Tan, capital 456,480

Ang, capital 456,480
(To reclassify balance to reflect acquisition of Tan’s interest.)
64 Chapter 3
12/31/08 Lim, capital 233,200

Sy, capital 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

Sy, capital 482,280
(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
1/1/09 Ang, capital 678,000

Sy, capital 85%) 57,620
Cash 745,800
(Ang’s capital is P678,000 [P456,480 – P100,000 + P321,520]. Extra 10%
payment is deducted from the two remaining partners’ capital accounts.)
b. 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 Lim’s investment.)
12/31/06 Sy, capital 600,000

(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
(Cash and goodwill being contributed by Tan are recorded. Goodwill must be
calculated algebraically.)
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, drawings 150,000
balances: Lim- P2,000,000, Sy- P100,000, and Tan- P750,000.)
12/31/07 Income summary 880,000

Sy, capital 208,800
(To allocate P880,000 income figure as follows)
Lim Sy Tan
Interest (20% of P2,000,000)
15% of P880,000 income 132,000
60:40 split of remaining P348,000 - P208,800 P139,200
Totals P532,000 P208,800 P139,200

Lim Sy Tan
Initial 2006 investment P1,600,000 P1,600,000
2006 profit allocation 400,000 (600,000)
Additional investment P750,000
2007 drawings (400,000) (200,000) (150,000)
2007 profit allocation 532,000 208,800 139,200
12/31/07 balances P2,132,000 P1,008,800 P739,200
1/1/08 Goodwill 531,760

Sy, capital (51%) 271,200
Tan, capital (34%) 180,800
(To record goodwill indicated by purchase of Tan’s interest.)
In effect, profits are shared 15% to Lim, 51% to Sy – (60% of the 85% remaining after Lim’s
income), and 34% to Tan (50% of the 85% remaining after Lim’s income). Ang is paying
P920,000, an amount P180,800 in excess of Tan’s 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 920,000

(To reclassify capital balance to new partner.)
12/31/08 Lim, capital 442,360

Sy, capital 256,000
Ang, drawings 184,000
balances [after adjustment for goodwill].)
12/31/08 Income summary 1,220,000

Sy, capital 356,780
To allocate profit for 2008 as follows:

Lim Sy Ang
Interest (20% of P2,211,760
15% of P1,220,000 income 183,000
60:40 split of remaining P594,640 - 356,780 237,860
Totals P625,360 P356,780 P237,860

Lim Sy Ang
12/31/07 balances P2,132,000 P1,008,00 P739,200
Adjustment for goodwill 79,760 271,200 180,800
Drawings (442,360) ( 256,000) (184,000)
Profit allocation 625,360 356,780 237,860
12/31/08 balances P2,394,760 P1,380,780 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 286,420
Sy, capital (51%) 146,080
Ang, capital (34%) 97,380
(To recognize implied goodwill.)
1/1/09 Ang, capital 1,071,240

Cash 1,071,240
(To record final distribution to Ang.
68 Chapter 4
CHAPTER 4
4-1: a
PAR BOOGIE BIRDIE
Capital balances before realization P 20,000 P 16,000 P 10,000
Loss on liquidation, P40,000 ( 20,000) ( 12,000) ( 8,000)
Cash distribution P – P 4,000 P 2,000
4-2: c
PING PANG PONG
Capital balances before liquidation P 50,000 P 50,000 P 10,000
Gain of P10,000 (150,000-140,000) __6,000 __2,000 __2,000
Cash distribution P 56,000 P 52,000 P 12,000
4-3: b
PING PANG PONG
Loss of P40,000 (P140,000-P100,000) ( 24,000) ( 8,000) ( 8,000)
Cash distribution P 26,000 P 42,000 P 2,000
4-4: a
PING PANG PONG
Loss of P70,000 (P140,000-P70,000) ( 42,000) ( 14,000) ( 14,000)
Balances P8,000 P 36,000 ( 4,000)
Absorption of Pong's deficiency, 6:2 ( 3,000) ( 1,000) __4,000
Cash distribution P 5,000 P 35,000 –
4-5: b
COLT MARK CLOCK
Capital balances before liquidation (net of loans) P290,000 P200,000 P220,000
Loss of P130,000, 4:3:3 ( 52,000) ( 39,000) ( 39,000)
Cash distribution P238,000 P161,000 P181,000
4-6: c
JONAS CARLOS TOMAS
Capital balances before liquidation P160,000 P 45,000 P 55,000
Loss of P60,000, 40:50:10 ( 24,000) ( 20,000) ( 6,000)
Cash distribution P136,000 P 25,000 P 49,000
Partnership Liquidation 69
4-7: a
ARIEL BERT CESAR
Capital balances before liquidation P40,000 P180,000 P 30,000
Loss of P100,000, 4:3:3 ( 40,000) ( 30,000) ( 30,000)
Cash distribution P – P150,000 P –
4-8: b
NORY OSCAR
Capital balances before realization P23,000 P 13,500
Additional investment by Nory for
the unpaid liabilities (33,000-18,000) 15,000 –
Loss on realization (schedule 1) ( 30,900) ( 20,600)
Payment by Oscar to Nory P 7,100 ( P7,100)
Schedule 1
Total capital before liquidation P 36,500
Unpaid liabilities 15,000
Total loss on realization P 51,500
4-9: d
BLACK WHITE GREEN
Capital balances before liquidation (net) P99,000 P 91,500 P138,000
Loss on realization (schedule 1) P27,500 ( 13,750) ( 27,500) _( 5,500)
Balances, cash distribution P85,250 P 64,000 P132,500
Schedule 1:
Capital balances of white (net) P 91,500
Cash received by White _83,250
White's share of total loss (30%) P 8,250
Total loss on realization (P8,250/39%) P 27,500
4-10: c
ANA EVA NORA
Capital balances before liquidation (net) P27,000 P 43,000 P 10,000
Loss on realization, P63,600 ( 25,320) ( 25,320) ( 12,660)
Balances P 1,680 P 17,680 ( 2,660)
Unrecorded liabilities, P500 ( 200) ( 200) ( 100)
Balances P 1,480 P 17,480 ( 2,760)
Elimination of Nora's deficiency ( 1,380) ( 1,380) __2,760
Payment to partners P 100 P 16,100 P –
4-11: d
ARIES LEO TAURUS
Capital balances before liquidation (net) P33,500 P 49,000 P 36,500
Loss on realization (schedule 1) P45,000 ( 22,500) ( 13,500) ( 9,000)
Payment to partners P11,000 P 35,500 P 27,500
70 Chapter 4
Schedule 1:
Taurus capital (net) P36,500
Payment to Taurus ( 27,500)
Share of total loss (20%) P 9,000
Total loss on realization (9,000/20%) P45,000
4-12: c
TOTAL MONA NORA OLGA
Capital balances, June 11 P32,700 P15,000 P13,500 P 4,200
Net loss from operation (squeeze) ( 9,800) ( 4,200) ( 2,800) ( 2,800)
Capital balances, August 30 before
liquidation (48,500-25,600) P22,900 P10,800 P10,700 P 1,400
Loss on realization (47,500-30,000) ( 17,500) ( 7,500) ( 5,000) ( 5,000)
Balances P 5,400 P 3,300 P 5,700 ( 3,600)
Additional investment by Olga _1,500 _____– _____– _1,500
Balances P 6,900 P 3,300 P 5,700 ( 2,100)
Elimination of Olga's deficiency ______ ( 1,260) ( 840) _2,100
Payment to partners P 6,900 P 2,040 P 4,860 P –
4-13: b
RITA SARA TITA
Capital balances before liquidation P49,000 P18,000 P10,000
Operating loss, P21,000 ( 3,500) ( 7,000) ( 10,500)
Drawings ( 10,000) ( 15,000) ( 20,000)
Loans – 8,000 25,000
Balances P33,500 P – ( 1,500)
Absorption of Tita's deficiency __1,500 _____– _1,500
Payment to Nora P32,000 P – P –
4-14: a
CLARO PEDRO ANDRO
Loss on realization
Accounts Receivable (P50,000 X 40%) P20,000
Investment (P30,000 - P20,000) 10,000
Equipment (P60,000-P30,000) _30,000
Total P60,000 ( 24,000) ( 24,000) ( 12,000)
Payment to partners P21,000 P 3,000 P38,000
4-15: c
TOTAL MONA LISA
Capital balances before liquidation (inclusive loans) P47,500 P28,500 P19,000
Loss on realization, (squeeze) ( 38,500) ( 23,100) ( 15,400)
Capital balances - cash distribution P 9,000 P 5,400 P 3,600
Cash after realization P 37,500

Less Liabilities (P36,000-P7,500) ( 28,500)
Total capital after realization P 9,000
4-16: a
FF capital before distribution of net loss P100,000

Add: share of net loss (P10,000 X 40%) _( 4,000)
FF capital before liquidation 96,000
Cash settlement to FF ( 80,000)
FF share of total loss on realization (40%) P 16,000
Total loss on realization (P16,000/40%) P 40,000
Total capital before liquidation (P260,000-P10,000) P250,000

Add: Liabilities _100,000
Cash before liquidation ( 50,000)
Non-cash assets P300,000
Loss on realization ( 40,000)
Cash to be realized P260,000
4-17: d
TOTAL CC DD EE
Capital balances before realization (net) P100,000 P 15,000 P22,500 P62,500
Loss on realization (squeeze) ( 125,000) ( 62,500) ( 37,500) ( 25,000)
Capital balances after realization
(liabilities-unpaid) (P 25,000) ( 47,500) ( 15,000) P37,500
Elimination of CC's deficiency _______– __47,500 ( 28,500) ( 19,000)
Balances (P 25,000) – (P43,500) P18,500
Investment by DD __43,500 ______– _43,500 _____–
Payment to EE P 18,500 P – P – P18,500
4-18: d
Total capital before liquidation P 30,000

Liabilities __1,500
Total assets P 31,500
Less: Cash balance before realization
Cash after payment of liabilities P 11,100
payment of liabilities 1,500
Cash realized ( 11,600) __1,000
Non-cash asset P 30,500
Less: cash realized _11,600
Loss on realization P 18,900
72 Chapter 4
4-19: d
LL MM NN TOTAL
Capital balances P 50,000 P 20,000 P 10,000 P 80,000
Salary of LL (P600 X 8 months) __4,800 _______ _______ ___4,800
Capital balances before liquidation P 54,800 P 20,000 P 10,000 P 84,800
Loss on realization ( 44,880) ( 14,960) ( 14,960)
Balances P 9,920 P 5,040 (P 4,960)
Additional investment by NN ______– _____– __4,960
Payment to partners P 9,920 P 5,040 P –
4-20: b
KK's total interest (P60,000-P10,000) P 50,000

Less: Cash to be paid to KK __10,000
Share of total loss (1/3) 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) P110,000
KK (P60,000-P10,000) 50,000
LL (P30,000+P10,000) __40,000 P200,000
Divide by ______50%
Total P400,000
Loss on realization _120,000
Cash to be realized P280,000
4-21: a
TOTAL NN OO PP
Capital balances, July 1 P 75,000 P 25,000 P 25,000 P 25,000
Advances to NN, August 1 ( 10,000) ( 10,000) – –
OO Loan, September 1 20,000 – 20,000 –
Interest, December 31 (6%)
NN (5 mos.) ( 250) ( 250)
OO (4 mos.) 400 400
Compensation to PP __2,500 _______ _______ ___2,500
Capital balances before liquidation P 87,650 P 14,750 P 45,400 P 27,500
Loss on realization (squeeze) _56,250 ( 17,550) ( 17,550) ( 17,550)
Cash distribution P 35,000 ( 2,800) 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.
4-22: a
TOTAL PG JR AS
Capital balances before realization P 950,000 P350,000 P250,000 P350,000
Loss on realization (squeeze) ( 1,000,000)__20,000 ( 200,000) _500,000
Capital balances after realization
(unpaid liabilities) (P 50,000) P 50,000 P 50,000 ( 150,000)
Elimination of AS's deficiency _______– ( 90,000) ( 60,000) P150,000
Cash to be absorbed P – (P 40,000) (P 10,000)P –
4-23: a
RM ST
Capital balances before realization (net) P500,000 P825,000
Loss on realization, P1,225,000 ( 490,000) ( 735,000)
Payment to Partners P 10,000 P 90,000
4-24: a
TOTAL LT AM ZP
Capital balances before realization (net) P 27,500 P 20,000 P 5,000 P 2,500
Gain on realization (squeeze) __37,500 _18,750 __-9,375 __9,375
Capital balances after realization P 65,000 P 38,750 P 14,375 P 11,875
4-25: c
AG BM CP DJ
Capital balances before realization (net) P 420,000 P375,000P205,000 P150,000
Loss on realization, P1,000,000 ( 300,000) ( 300,000)(200,000) (200,000)
Balances P 120,000 P 75,000P 5,000 P(50,000)
Additional investment by DJ 50,000
4-26: a
Settlement to Uy P351,500
Uy capital before liquidation (net):
Uy capital P553,500
Receivable from Uy ( 132,000) 421,500
Loss of Uy (50%) P 70,000
Total loss on realization (P70,000 ÷ 50%) P140,000
__Uy__ __Vi__ __Wi__ __Total__

CB before liquidation 553,500 452,500 486,000 1,492,000
Receivable from Uy (132,000) (132,000)
Loan to Wi ( 40,500) (40,500)
Salary payable to Vi 135,000 135,000
Interest before realization 421,500 587,500 445,500 1,454,500
Loss on realization ( 70,000) ( 42,000) ( 28,000) ( 140,000)
Settlement to partners 351,500 545,500 417,500 1,314,500
74 Chapter 4
Problem 4 – 1
Case 1
Rivas and Briones
Statement of Liquidation
December 31, 2008
Partners' Capitals
Assets Rivas, Briones, Rivas Briones
Cash Others Liabilities Loan Loan (90%) (10%)
Balances before liquidation ... P 20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000
P10,000
Realization of assets and
distribution of loss .......... _134,000 ( 200,000)______________ _______ ( 59,400)
( 6,600)
Balances................................. 154,000 – 132,000 18,000 20,000 ( 19,400)
3,400
Payment of liabilities ............. ( 132,000)______– ( 132,000)______ _______ _______ ______
Balances................................. 22,000 – – 18,000 20,000 ( 19,400)
3,400
Offset Rivas' loan against his
capital deficiency ............ _______ _______ _______ ( 18,000)_______ _18,000
______
Balances................................. 22,000 – – – 20,000 ( 1,400)
3,400
Additional loss to Briones ..... _______ _______ _______ _______ _______ __1,400
( 1,400)
Balances................................. 22,000 – – – 20,000 – 2,000
Payment to partner................. P(22,000) – – – P(20,000)
– ........................................ P(2,000)
Case 2
Rivas and Briones
December 31, 2008
Partners' Capitals
Balances before liquidation ... P20,000 P200,000 P132,000 P 18,000 P 20,000 P40,000
P10,000
distribution of loss .......... 134,000 ( 200,000)_______ ______ _______ ( 46,200)
( 19,800)
Balances................................. 154,000 – 132,000 18,000 20,000 ( 6,200)
9,800
Payment of liabilities ............. ( 132,000)_______ ( 132,000)______ _______ _______ ______
Balances................................. 22,000 – – 18,000 20,000 ( 6,200)
9,800
Offset loan against capital
deficiency ........................ ________ _______ _______ ( 6,200) ( 9,800) __6,200
__9,800
Balances................................. 22,000 – – 11,800 10,200 – –
Payment to partner................. P(22,000) – – P(11,800) P(10,200)
– ........................................ –
Case 3
Rivas and Briones

December 31, 2008
Partners' Capitals
Balances before liquidation ........ P 20,000 P200,000 P132,000 P 18,000 P20,000 P40,000
P10,000
distribution of loss ............... _134,000 ( 200,000)_______ _______ ______ ( 33,000)
( 33,000)
Balances ..................................... 154,000 – 132,000 18,000 20,000 ( 7,000)
( 23,000)
Payment of liabilities .................. ( 132,000)_______ ( 132,000) __ _
_______
Balances ..................................... 22,000 – – 18,000 20,000 ( 7,000)
( 23,000)
Offset Briones'' loan against
his capital deficiency ........... _______ _______ _______ _______ ( 20,000)______ _20,000
Balances ..................................... 22,000 – – 18,000 – 7,000
( 3,000)
Additional loss to Rivas .............. _______ _______ _______ _______ _______ ( 3,000)
__3,000
Balances ..................................... 22,000 – – 18,000 – 4,000
–
Payment to partner ...................... P(22,000) – – P(18,000) – P( 4,000)
–
Journal Entries
Case 1:
Cash ..... .... ................................................................................................... 134,000
Rivas, Capital ................................................................................................ 59,400
Briones, Capital ............................................................................................ 6,600
Other Assets ........................................................................................... 200,000
Liabilities .. ................................................................................................... 132,000
Cash ... ................................................................................................... 132,000
Rivas, Loan ................................................................................................... 18,000
Rivas, Capital ......................................................................................... 18,000
Briones, Capital ............................................................................................ 1,400
Rivas, Capital ......................................................................................... 1,400
Briones, Loan ................................................................................................ 20,000
Briones, Capital ............................................................................................ 2,000
Cash ................................................................................................... 22,000
Case 2:
Cash ..... .... ................................................................................................... 134,000
Rivas, Capital ................................................................................................ 46,200
Briones, Capital ............................................................................................ 19,800
Other Assets ........................................................................................... 200,000
Liabilities .. ................................................................................................... 132,000
Cash ... ................................................................................................... 132,000
Rivas, Loan ................................................................................................... 6,200
Briones, Loan ................................................................................................ 9,800
Rivas, Capital ......................................................................................... 6,200
Briones, Capital ..................................................................................... 9,800
Rivas, Loan ................................................................................................... 11,800
Briones, Loan ................................................................................................ 10,200
Cash ... ................................................................................................... 22,000
76 Chapter 4
Case 3:
Cash .... ... ........................................................................................... 134,000
Rivas, Capital ...................................................................................... 33,000
Briones, Capital .................................................................................. 33,000
Other Assets ................................................................................. 200,000
Liabilities ........................................................................................... 132,000
Cash .. ........................................................................................... 132,000
Briones, Loan...................................................................................... 20,000
Briones, Capital ............................................................................ 20,000
Rivas, Capital ...................................................................................... 3,000
Briones, Capital ............................................................................ 3,000
Rivas, Loan ......................................................................................... 18,000
Rivas, Capital ...................................................................................... 4,000
Cash .. ........................................................................................... 22,000
Problem 4 – 2
Blando and Castro
April 30, 2008
Partners' Capitals
A s s e t s Accounts Blando, Blando Castro
Cash Receivables Inventory Others Payable Loan (60%) (40 %)
Balances before
liquidation .................... P 18,000 P75,000 P90,000 P84,000 P42,000 P 24,000 P102,000 P99,000
Collection of
receivables and
distribution of loss ....... _37,500 ( 75,000)_______ _______ _______ _______ ( 22,500)
( 15,000)
Balances ............................ 55,500 – 90,000 84,000 42,000 24,000 79,500 84,000
Realization of
inventory and
distribution of
loss............................... _30,000 _______ ( 90,000)_______ _______ _______ ( 36,000)
( 24,000)
Balances ............................ 85,500 – – 84,000 42,000 24,000 43,500 60,000
Realization of other
assets and distribution
of loss .......................... _40,000 _______ _______ ( 84,000)_______ _______ ( 26,400)
( 17,600)
Balances ............................ 125,500 – – – 42,000 24,000 17,100 42,400
Payment of accounts
payable......................... ( 42,000) _______ _______ _______ ( 42,000)_______ _______ _______
Balances ............................ 83,500 – – – – 24,000 17,100 42,400
Payments to partners….. … P(83,500) – – – – P(24,000) P( 17,100) P(42,400)
Problem 4 – 3
a. Electric Company
Statement of Partnership Realization and Liquidation
June 30, 2008
Capital Balances
Amp. Noncash Liabil- Volt, Amp Volt Watt
Cash Loan Assets ities Loan 50% 30% 20%
Balances 20,000 15,000 135,000 30,000 10,000 80,000 36,000 14,000
Sale of
assets at a loss _95,000 ______ (135,000) ______ ______ (20,000) (12,000) ( 8,000)
115,000 15,000 -0- 30,000 10,000 60,000 24,000 6,000
Payment to
creditors _(30,000)______ _______ (30,000)______ _______ ______ ______
85,000 15,000 -0- -0- 10,000 60,000 24,000 6,000
Offset Amp,
receivable (15,000) (15,000)
Payments to partners:
Loan (10,000) (10,000)
Capitals _(75,000)______ _______ _______ ______ (45,000) (24,000)
( 6,000)
Balances -0- -0- -0- -0- -0- -0- -0- -0-
b. (1) Cash 95,000
Amp, Capital 20,000
Volt, Capital 12,000
Watt, Capital 8,000
Noncash Assets 135,000
Sell noncash assets at a loss of P40,000.
(2) Liabilities 30,000

Cash 30,000
Pay creditors.
(3) Amp, Capital 15,000

Amp, Loan 15,000
Offset receivable from Amp against his capital credit.
(4) Volt, Loan 10,000

Amp, Capital 45,000
Volt, Capital 24,000
Watt, Capital 6,000
Cash 85,000
Final lump-sum distribution to partners.
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. Bina, capital before liquidation ..................................................................... .................. P320,000

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

Statement of Partnership Liquidation
January 1, 2008
Capital
Cash Other Assets Aida Bina Celia
(5) (4) (1)
Balances before liquidation . P80,000 P720,000 P320,000 P320,000 P160,000
Realization & dist. of loss ... 240,000 ( 720,000) ( 240,000) ( 192,000) ( 48,000)
Balances .... .... .................... 320,000 – 80,000 128,000 112,000
Settlement to partners ......... (320,000) _______ ( 80,000) ( 128,000) ( 112,000)
Problem 4 – 5
a. LL, capital before liquidation ........................................................................ .................. P 70,000

Settlement to LL ........................................................................................... .................. __98,000
Gain realized by LL (20%) ........................................................................... .................. P 28,000
Total gain on realization (P28,000  20%) ................................................... .................. P140,000

Other assets sold ........................................................................................... .................. _500,000
Selling price .............................................................................................. .................. P640,000
b. JJ, KK & LL
Other Capital
Cash Assets Liabilities JJ (4) KK(4) (LL(2)
Balances before liquidation ... P50,000 P500,000 P60,000 P180,000 P240,000 P70,000
Realization & Dist. of gain ... 640,000 ( 520,000)_______ __56,000 __56,000 _28,000
Balances .... .... ...................... 690,000 – 60,000 236,000 296,000 98,000
Payment of liabilities ............ ( 60,000) ( 60,000)
Payment to Partners .............. (630,000)_______ _______ ( 236,000) ( 296,000) ( 98,000)
Problem 4 – 6
a. BB ................................................... P160,000
CC ................................................... P20,000
DD................................................... P60,000
EE ................................................... P –0–
b. BB, CC, DD, & EE

C a p i t a l
Cash Liabilities BB (30%) CC (10%)DD (20%) EE (40%)
Balances before liquidation ... P 0 P60,000 P160,000 P80,000 (P120,000) P(180,000)
Advances by BB to pay liabilities ( 60,000) 60,000
Deposit by DD ...................... 60,000 ______ _______ _______ __60,000 ________
Balances .... .... ...................... 60,000 – 220,000 80,000 ( 60,000) ( 180,000)
Elimination of EE's deficiency ( 90,000) ( 30,000) ( 60,000) 180,000
Elimination of DD's deficiency ______ __( 90,000) ( 30,000) 120,000 –
Payment to partners............... 60,000 – 40,000 20,000 – –
Problem 4 – 7
Sayson and Company

–Date–
Liabilities P a r t n e r s' C a p i t a l s
Assets Accounts Notes Peña Sayson Zobel Ayala Peña
Cash Noncash Payable Payable Loan (45%) (30%) (15%) (10%)
Balances before liquidation... P 15,000 P155,250 P11,250 P9,000 P 1,500 P 75,345 P 86,498
P(14,993) ......................... P1,650
distribution of gain .......... 185,000 ( 155,250)_______ ______ ______ 17,850 11,900 ______ ______
Balances................................ 200,000 - 11,250 9,000 1,500 93,195 98,398
( 14,993) ......................... 1,650
Payment of liabilities ............ ( 20,250)________ ( 11,250) ( 9,000)______ ______ ______ _______ ______
Balances................................ 179,750 - - - 1,500 93,195 98,398
( 14,993) ......................... 1,650
Additional loss to Sayson,
Zobel and Peña;
45:30:10 .......................... _______ ________ ________ ______ ______ ( 7,937) ( 5,292) 14,993
( 1,764)
Balances................................ 179,750 - - - 1,500 85,258 93,106
- ........................................ (114)
Offset Peña's loan against
his capital deficiency ....... _______ ________ ________ ______ ( 114) ______ ______ _______ 114
Balances................................ 179,750 - - - 1,386 85,258 93,106
- ..................................
Payments to partners ............. P(179,750) P(1,386) P(85,258) P(93,106)
80 Chapter 4
Problem 4 – 8
a. Art, Bea and Cid Partnership
June 4, 2008
Assets Partners' Capital

Cash Other Liabilities Art (40%) Bea (40%) Cid (20%)
Balances before liquidation
(including Bea loan, P4,000) ...... P 6,000 P94,000 P20,000 P27,000 P43,000 P10,000
Realization of assets
at a loss of P63,300 .................. 30,000 ( 94,000) (25,320) (25,320) (12,660)
Unrecorded accounts payable ......... 500 (200) (200) (100)
Payment to creditors ....................... (20,500)______ (20,500) ______ ______ ______
Balances .... .... ................................ 16,200 - - 1,480 17,480 (2,76
Eliminate Cid's deficit ..................... ______ ______ ______ (1,380) (1,380) _2,760
Balances .... .... ................................ 16,200 - - 100 16,100
Payment to Partners ........................ (16,200) - - _( 100) ( 16,100) -
b.
2008
July 5 Cash .... .... ................................ ............. .................. .................. 30,700
Art capital (P63,300 x 40%) ....... ............. .................. .................. 25,320
Bea capital (P63,300 x 40%) ...... ............. .................. .................. 25,320
Cid capital (P63,300 x 20%) ...... ............. .................. .................. 12,660
Other assets ....................... ............. .................. .................. 94,000
To record realization of other assets at a loss of P63,300.
Art capital (P500 x 40%) ............ ............. .................. .................. 200

Bea capital (P500 x 40%) ........... ............. .................. .................. 200
Cid capital (P500 x 20%) ........... ............. .................. .................. 100
Liabilities .......................... ............. .................. .................. 500
To record trade accounts payable.
Liabilities .. ................................ ............. .................. .................. 20,500

Cash . ................................ ............. .................. .................. 20,500
To record payment of liabilities.
Art capital .. ................................ ............. .................. .................. 1,380

Bea capital . ................................ ............. .................. .................. 1,380
Cid capital ......................... ............. .................. .................. 2,760
To eliminate Cid's capital deficit.
Art capital .. ................................ ............. .................. .................. 100

Bea capital . ................................ ............. .................. .................. 4,000
Cid capital . ................................ ............. .................. .................. 12,100
Cash . ................................ ............. .................. .................. 16,200
To record payments to partners to complete liquidation.
c. 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
- Capital Balances -
Noncash G K G B
Cash Assets Liabilities Loan 20% 40% 40% -
Preliquidation balances 50,000 950,000 (480,000) (60,000) (240,000) (100,000) (120,000)
Sale of assets
and distribution
of 430,000 loss 520,000 950,000 - - 86,000 172,000 172,000
570,000 -0- (480,000) (60,000) (154,000) 72,000 52,000
Cash contributed
by B 50,000 - - - - - 50,000
620,000 -0- (480,000) (60,000) (154,000) 72,000 2,000
Distribution of deficit
of insolvent partner: (2,000)
20/60 (P2,000) 666
40/60 (P2,000) - - - - - 1,334 -
620,000 -0- (480,000) (60,000) (153,334) 73,334 -0-
Offset deficit with loan - - - 60,000 - (60,000) -
620,000 -0- (480,000) -0- (153,334) 13,334 -0-
Contribution by G 13,334 - (13,334) -
633,334 -0- (480,000) -0- (153,334) -0- -0-
Payment of creditors (480,000) - 480,000 - - - -
153,334 -0- -0- -0- (153,334) -0- -0-
Distribution to K (153,334) - - 153,334 - -
Postliquidation
balances -0- -0- -0- -0- -0- -0- -0- -
82 Chapter 4
KGB Partnership
Schedule of Distribution of Personal Assets
June 30, 2008
K G B
Personal assets, excluding partnership
capital and loan interests 500,000 600,000 700,000
Personal liabilities (460,000) (480,000) (650,000)
Personal net worth, excluding
partnership capital and loan
interests 40,000 120,000 5 0,000
Contribution to partnership (13,334)
Distribution from partnership 153,334 -0- - -0- -
Personal capacity 193,334 106,666 -0- -
Partnership Liquidation by Installment 83
CHAPTER 5
5-1: b
RJ SJ TJ
Loan balances _10,000 ______– ______–
Total interest 32,000 30,000 8,000
Possible loss (40,000+10,000) ( 25,000) ( 15,000) ( 10,000)
Balances 7,000 15,000 ( 2,000)
Additional loss to RJ & SJ, 5:3 ( 1,250) ( 750) __2,000
Cash distribution P 5,750 P14,250 P –
5-2: a
AR BR CR DR
Loan balances _1,000 _____– _____– _____–
Total interest 6,500 5,150 6,850 4,500
Possible loss (23,000-6,000) ( 6,800) ( 5,100) ( 3,400) ( 1,700)
Balances ( 300) 50 3,450 2,800
Additional loss to BR, CR, DR, 3:2:1 ___300 ( 150) ( 100) ( 50)
Balances – ( 100) 3,350 2,750
Additional loss to CR & DR, 2:1 _____– ___100 _( 67) _( 33)
Payment to partners P – P – P 3,283 P 2,717
Total liabilities P 1,000

Total Capital _22,000
Total Assets P23,000
5-3: c
BALANCES
DD EE FF GG
Capital balances P40,000 P30,000 P15,000 P25,000
Loan balances 5,000 10,000 – –
Advances _____– _____– ( 4,500) ( 2,500)
Total interest 45,000 40,000 10,500 22,500
Divided by P/L Ratio ____50% ____30% ____10% ____10%
Loss Absorption balances 90,000 133,333 105,000 225,000
PI - TO GG – _____– _____– ( 91,667) __ __–
Balances 90,000 133,333 105,000 133,333
PII - TO EE & GG, 30:10 _____– ( 28,333) _____– ( 28,333)
Balances 90,000 105,000 105,000 10,500
PIII - TO EE, FF, GG, 3:1:1 _____– (15,000) ( 15,000) ( 15,000)
Balances P90,000 P90,000 P90,000 P90,000
PIV - P/L Ratio
84 Chapter 5
CASH PAYMENT
DD EE FF GG
PI - To GG – – – P 9,167
PII - To EE (28,833 X 30%) – P 8,433 – –
GG (28,833 X 10%) – – – 2,833
PIII –To EE (15,000 X 30%) – 4,500 – –
FF (15,000 X 10%) – – 1,500 –
GG (15,000 X 10%) _____– _____– _____– __1,500
Total – P12,933 P 1,500 P13,500
PIV - P/L Ratio
DD EE FF GG
Distribution of P18,000
PI - TO GG – – – P 9,167
PII - TO EE & GG, 3:1, P8,833 _____– _6,625 _____– __2,208
Cash distribution – P 6,625 – P11,375
5-4: a
TAN LIM WAN
Capital balances before cash distribution 24,000 49,000 40,000
Possible loss, P90,000 ( 36,000) ( 36,000) ( 18,000)
Balances ( 12,000) 13,000 22,000
Additional loss to Lim & Wan, 4:2 _12,000 ( 8,000) ( 4,000)
Cash distribution P – P 5,000 P18,000
5-5: b
TAN LIM WAN
Capital balances before cash distribution P24,000 P49,000 P40,000
Possible loss (90,000+3,000) ( 37,200) ( 18,600) ( 18,600)
Balances ( 13,200) 30,400 21,400
Additional loss to Lim & Wan, 4:2 _13,200 ( 8,800) _( 4,400)
Cash distribution P – P21,600 P17,000
5-6: d
Tan (14,000 X 40%) P5,600
Lim (14,000 X 40%) P5,600
Wan (14,000 X 20%) P2,800
5-7: a
CARPIO LOBO
Capital balances before liquidation P72,000 P54,000
Goodwill written-off ( 5,000) ( 5,000)
Cash balance 67,000 49,000
Possible loss (100,000+10,000), 110,000 ( 55,000) ( 55,000)
Capital balances before liquidation 12,000 ( 6,000)
Additional loss to Carpio ( 6,000) __6,000
Cash distribution P 6,000 P –
5-8: d
JACOB SANTOS HERVAS
Loss on realization (120,000-90,000) ( 15,000) ( 9,000) ( 6,000)
Liquidation expenses, P2,000 ( 1,000) ( 600) ( 400)
Capital balances before cash distribution 24,000 62,400 63,600
Loan balances __8,000 _____– _____–
Total interest 32,000 62,400 63,600
Possible Loss (210,000-120,000) ( 45,000) 27,000 ( 18,000)
Balances ( 13,000) 35,400 45,600
Additional loss to Santos & Hervas _13,000 ( 7,800) ( 5,200)
Cash distribution P – P27,600 P40,400
5-9: d
A B C D
Capital balances before liquidation P16,200 P12,000 P37,700 P17,700
Salary payable – _____– ___160 ___240 _______
Balances 16,200 12,000 37,860 ( 17,940)
Loss on realization (P2,400) ( 600) ( 600) ( 600) ( 600)
Balances 15,600 11,400 37,260 17,340
Liquidation expenses (P600) ( 150) ( 150) ( 150) ( 150)
Balances 15,450 11,250 37,110 17,190
Loan balances 12,000 14,400 _____– __9,600
Total interest 27,450 25,650 37,110 26,790
Possible Loss (126,000-18,000) ( 27,000) ( 27,000) ( 27,000) ( 27,000)
Balances 450 ( 1,350) 10,110 ( 210)
Additional loss to A & C ( 780) __1,350 ( 780) ____210
Balances ( 330) – 9,330 –
Additional loss to C ___330 _____– ( 330) _____–
Cash distribution P – P – P 9,000 P –
5-10: a
BALANCES
DY SY LEE
Total interest P22,000 P15,500 P14,000
Profit and Loss ratio 2/4 1/4 1/4
Loan absorption balances 44,000 62,000 56,000
Priority I - to Sy _____– ( 6,000) _____–
Balances 44,000 56,000 56,000
Priority II - to Sy & Less _____– ( 12,000) ( 12,000)
Total P44,000 P44,000 P44,000
CASH PAYMENTS
DY SY LEE
Priority I - to Sy (6,000 X 1/4) – 1,500 –
Priority II - to Sy (12,000 X 1/4) – 3,000 –
to Lee (12,000 X 1/4) _____– _____– _3,000
Total P – P 4,500 P 3,000
86 Chapter 5
Further cash distribution, profit and loss ratio

Cash distribution to Dy P 6,250
Divided by Dy's Profit and Loss ratio 2/4
Amount in excess of P7,560 12,500
Total payment under priority I & II __7,500
Total cash distribution to partner P20,000
5-11: d
Cash before liquidation P12,000

Cash realized _32,000
Total 44,000
Less: Payment of liquidation expense P 1,000
Payment of liability 5,400
Payment to partners (Q 5-10) 20,000 _26,400
Cash withheld P17,600
5-12: c
Loss absorption balances:

Cena (18,000/50%) P36,000
Batista (27,000/30%) 90,000
Excess of Batista 54,000
Multiply by Batista's Profit & Loss ratio ____30%
Priority I to Batista P16,200
5-13: c BALANCES
AA BB CC
Capital balances P15,000 P30,000 P10,000
Loan balances 10,000 _5,000 10,000
Total interest 25,000 35,000 20,000
Divided by Profit and Loss Ratio 2/5 2/5 1/5
Loss Absorption balances 62,500 87,520 100,000
Priority I to CC _____– _____– ( 12,500)
Balances 62,500 87,520 100,000
Priority II to BB & CC, 2:1 _____– ( 25,000) ( 25,000)
Total interest P62,500 P62,500 P62,500
CASH PAYMENTS
AA BB CC
Priority I to CC (12,500 X 1/5) – – 2,500
Priority II to BB (25,000 X 2/5) – 10,000 –
to CC (25,000 X 1/5) ____– _____– _5,000
Total P – P10,000 P 7,500
Priority III – P/L Ratio
Cash distribution to CC:
Priority I P2,500
Priority II (12,000-2,500) X 1/3 3,167
Total cash paid to CC P5,667
5-14: c
BALANCES
JJ KK LL MM
Loan balances _18,000 _30,000 ______– ______–
Total interest _78,000 _94,500 _54,000 _30,000
Divided by Profit and Loss Ratio ____40% _____35% _____15% _____10%
Loss Absorption balances 195,000 270,000 360,000 300,000
Priority I to LL ______– ______– ( 60,000)______–
Balances 195,000 270,000 300,000 300,000
Priority II to LL, MM, 15:10 ______– ______– ( 30,000) ( 30,000)
Balances 195,000 270,000 270,000 270,000
Priority II to KK, LL, MM, 35:15:10 ______– ( 75,000) ( 75,000) ( 75,000)
Total P195,000 P195,000 P195,000 P195,000
CASH PAYMENT
JJ KK LL MM
Priority I to LL (30,000 X 15%) – – 9,000 –
Priority II to LL (30,000 X 15%) – – 4,500 –
to MM (30,000 X 10%) – – – 3,000
Priority II to KK (75,000 X 35%) – 1,750 – –
to LL (75,000 X 15%) – – 11,250 –
to MM (75,000 X 10%) ______– ______– ______– ___7,500
Total P – P 1,750 P 24,750 P 10,500
Further cash distribution, Profit and Loss ratio
Cash distribution to Partners (P38,100-9,000), P29,100
JJ KK LL MM TOTAL
Priority I to LL – – P 9,000 – P 9,000
Priority II to LL, MM, 15:10 – – 4,500 3,000 7,500
Priority II to KK, LL, MM, 35:15:10
(29,100-16,500), 12,600 _____– __7,350 ___3,150 __2,100 __12,600
Cash distribution P – P 7,350 P 16,650 P 5,100 P 29,100
5-15: a
BALANCES
ARCE BELLO CRUZ
Loan balances _10,000 ______– ______–
Total interest _32,000 _24,900 _15,000
Divided by Profit and Loss Ratio _____50% _____30% _____20%
Loss Absorption balances 64,000 83,000 75,000
Priority I to Bello ______– ( 8,000) ______–
Balances 64,000 75,000 75,000
Priority II to Bello & cruz, 3:2 ______– ( 11,000) ( 11,000)
Total P 64,000 P 64,000 P 64,000
88 Chapter 5
CASH PAYMENTS
ARCE BELLO CRUZ
P - I to Bello (8,000 X 30%) – 2,400 –
P - II to Bello (11,000 X 30%) – 3,300 –
to Cruz (11,000 X 20%) _____– _____– _2,200
Total P – 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 P2,000

Divide by Profit & Loss ratio _____5%
Amount in excess of P7,900 40,000
Add: cash paid under PI and PII _7,900
Total cash distribution to partners 47,900
Cash paid to Creditor (30,000-10,000) 20,000
Total 67,900
Less cash before realization _6,000
Cash realized from sale of asset P61,900
5-17: b
Cash distribution to Cruz P 6,200

Divide by profit and loss ratio 2/5
Cash distribution under Priority II 15,500
Multiply by Bello's Profit and Loss ratio 3/5
Cash distribution to Bello under Priority II 9,300
Cash distribution to Bello under Priority I __2,400
Total cash distribution to Bello P11,700
5-18: b
BALANCES CASH PAYMENT
MONZON NIEVA MONZON NIEVA
Total Interest P22,500 P17,500
Profit and Loss ratio _____60% _____40%
Loss absorption balances 37,500 43,750
Priority I - to Nieka ______– ( 6,250) _____– _2,500
Total P37,500 P37,500 P – 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 MONZON NIEVA
Cash distribution P12,500 – –
PI to Nieva (2,500-2,000) ( 500) – 500
Balances, 6:40 _12,000 __7,200 _4,800
Cash distribution P – P 7,200 P5,300
5-20: a
Cash before liquidation P 5,000

June: Cash realized 18,000
Payment to creditor ( 20,000)
Payment to Partners __2,000
Cash balances, June 30 1,000
July: Cash realized 12,000
Payment of liquidation expense ( 500)
Payment to Partners ( 12,500)
Cash balances, July 31 –
Aug: Cash realized _22,500
Cash distribution for August,
Profit and Loss ratio P22,500
Distribution to Partners - August

Monzon (22,500 X 60%) P13,500
Nieva (22,500 x 40%) P 9,000

90 Chapter 5
Problem 5 – 1
Suarez, Tulio and Umali
January 1 to april 31, 2008
Assets Tulio, Umali, Partners' Capitals

Cash Others Liabilities Loan Loan Suarez (40%) tulio (35%) Umali (25%)
Balances before liquidation. P 2,000.00 P46,000.00 P6,000.00 P5,000.00 P2,500.00 P14,450.00 P12,550.00
P7,500.00
January Installment:
distribution of loss .... 10,500.00 ( 12,000.00) _______ _______ ______( 600.00)( 525.00) ( 375.00)
Balances......................... 12,500.00 34,000.00 6,000.00 5,000.00 2,500.00 13,850.00 12,025.00
7,125.00
Payment of expenses of
realization and distribution
to partners ...................... ( 500.00) _______ _______ _______ _______ ( 200.00) ( 175.00) ( 125.00)
Balances......................... 12,000.00 34,000.00 6,000.00 5,000.00 2,500.00 13,650.00 11,850.00
7,000.00
Payment of liabilities ..... ( 6,000.00) _______ ( 6,000.00) _______ _______ _______
________ ............................ _______
Balances......................... 6,000.00 34,000.00 – 5,000.00 2,500.00 13,650.00 11,850.00
7,000.00
Payments to partners
(Schedule 1) ............. ( 4,000.00) _______ _______ ( 3,812.50)( 187.50) _______ _______ _______
Balances......................... 2,000.00 34,000.00 – 1,187.50 2,312.50 13,650.00 11,850.00
7,000.00
February Installment:
distribution of loss .... 6,000.00 ( 7,000.00) _______ _______ _________(400.00)( 350.00) ( 250.00)
Balances......................... 8,000.00 27,000.00 – 1,187.50 2,312.50 13,250.00 11,500.00
6,750.00
to partners ...................... ( 750.00) _______ ______ _______ _______ ( 300.00) ( 262.50) ( 187.50)
Balances......................... 7,250.00 27,000.00 – 1,187.50 2,312.50 12,950.00 11,237.50
6,562.50
Payments to partners
(Schedule 2) ............. ( 6,000.00) _____________ ( 1,187.50) ( 1,812.50) ( 1,650.00) ( 1,350.00)
_______
Balances......................... 1,250.00 27,000.00 – – 500.00 11,300.00 9,887.50
6,562.50
March Installment:
distribution of loss .... 10,000.00 ( 15,000.00)______ ______ ______ ( 2,000.00)( 1,750.00)
( 1,250.00)
Balances......................... 11,250.00 12,000.00 – – 500.00 9,300.00 8,137.50
5,312.50
to partners ...................... ( 600.00) _______ ______ ______ _______ ( 240.00) ( 210.00) ( 150.00)
Balances......................... 10,650.00 12,000.00 – – 500.00 9,060.00 7,927.50
5,162.50
Payments to partners,
P & L ratio ................ ( 10,150.00) ______ ______ ______ ( 500.00) ( 4,060.00)( 3,552.50)
( 2,037.50)
Balances......................... 500.00 12,000.00 – – – 5,000.00 4,375.00
3,125.00
April Installment:
distribution of loss .... 4,000.00 ( 12,000.00)______ ______ ______ ( 3,200.00)( 2,800.00)
( 2,000.00)
Balances......................... 4,500.00 – – – – 1,800.00 1,575.00
1,125.00
to partners ...................... _(400.00) ______ ______ ______ ______ ___(160.00) ( 140.00) ( 100.00)
Balances......................... 4,100.00 – – – – 1,640.00 1,435.00
1,025.00
Final Payments to partners P(41,100.00)_____– _____– _____– _____– P( 1,640.00)
P( 1,435.00) ................... P(1,025.00)
Schedule 1
Suarez (40%) Tulio (35%) Umali (25%)

Capital balances ...................................... P13,650.00 P11,850.00 P7,000.00
Loan balances.......................................... _____ _– __5,000.00 _2,500.00
Total interests .......................................... 13,650.00 16,850.00 9,500.00
Possible loss (P2,000 + P34,000) ........... ( 14,400.00) ( 12,600.00) ( 9,000.00)
Balances .................................................. ( 750.00) 4,250.00 500.00
Additional loss to Tulio and Umali 35:25 ___750.00 ( 437.50) ( 312.50)
Payments to partners ............................... – P 3,812.50P 187.50
Apply to loan........................................... __ __ – P 3,812.50P 187.50
Schedule 2
Suarez (40%) Tulio (35%) Umali (25%)
Capital balances ...................................... P12,950.00 P11,237.50 P6,562.50
Loan balances.......................................... – __1,187.50 _2,312.50
Total ........................................................ 12,950.00 12,425.00 8,875.00
Possible loss (P1,250 + P27,000) ........... ( 11,300.00) ( 9,887.50) ( 7,062.50)
Payments to partners ............................... P 1,650.00 P 2,537.50 P1,812.50
Apply to loan........................................... – _1,187.50 _1,812.50
Apply to capital ....................................... P 1,650.00 P 1,350.00 P –
92 Chapter 5
Problem 5 – 2
Miller and Bell Partnership

Capital
Inven- Accounts Bell Miller Bell
Cash tory Payable Loan 80% 20%
Balances 25,000 120,000 15,000 60,000 65,000 5,000
Sale of inventory 40,000 ( 60,000) (16,000) (4,000)
Payment to
creditors (10,000) ______ (10,000) ______ ______ ______
55,000 60,000 5,000 60,000 49,000 1,000
Payments to
partners
(Schedule 1) (50,000) ______ ______ (49,000) _(1,000) ______
5,000 60,000 5,000 11,000 48,000 1,000
Sale of inventory 30,000 ( 60,000) (24,000) 6,000)
Payment to
creditors ( 5,000) ______ ( 5,000) ______ ______ ______
30,000 –0– –0– 11,000 24,000 (5,000)
Offset deficit
with loan ______ ______ ______ ( 5,000) ______ (5,000)
30,000 –0– –0– 6,000 24,000 –0–
Payments to
partners:
Loan ( 6,000) ( 6,000)
Capitals (24,000) ______ ______ ______ (24,000) ______
Balances –0– –0– –0– –0– –0– –0–
Schedule 1:
Miller and Bell Partnership
Schedule of Safe Payments to Partners
Miller Bell
80% 20%
Capital and loan balances 49,000 61,000
Possible loss of 60,000 on remaining inventory (48,000) (12,000)
Safe payment 1,000 49,000
Problem 5 – 3
HORIZON PARTNERSHIP
Statement of realization and Liquidation
May – July, 2008
Partners Capital
Assets SS TT PP
Cash Other Liabilities (1/3) (1/3) (1/3)
Balances before liquidation 20,000 280,000 80,000 60,000 70,000 90,000
May – sale of assets at a loss of P30,000 75,000 (105,000) ______ (10,000) (10,000) (10,000)
Balances 95,000 175,000 80,000 50,000 60,000 80,000
Payment to creditors (80,000) ______ (80,000) ______ ______ ______
Balances 15,000 175,000 50,000 60,000 80,000
Payments to PP (Exhibit A) (15,000) ______ ______ ______ ______ (15,000)
Balances –0– 175,000 50,000 60,000 65,000
June – sale of assets at a loss of P36,000 25,000 (61,000) ______ (12,000) (12,000) (12,000)
Balances 25,000 114,000 38,000 48,000 53,000
Payment to partners (Exhibit A) (25,000) ______ ______ ______ (10,000) (15,000)
Balances –0– 114,000 38,000 38,000 38,000
July – sale of remaining assets at a loss of
P33,000 81,000 (114,000) (11,000) (11,000) (11,000)
Balances 81,000 27,000 27,000 27,000
Payment to partners (81,000) (27,000) (27,000) (27,000)
Exhibit A – Cash distributions to partners during liquidation:

SS TT PP
Capital account balances before liquidation 60,000 70,000 90,000

Income sharing ratio 1 1 1
Loss absorption balances 60,000 70,000 90,000
Required reduction to bring
capital account balance for PP
to equal the next highest balance for TT – PI. ______ ______ (20,000)
Balances 60,000 70,000 70,000
Required reduction to bring the balances for
TT and PP to equal the balance for SS – PII. ______ (10,000) (10,000)
Balances 60,000 60,000 60,000
Summary of cash distribution program:

To creditors before partners receive anything 80,000
To partners:
(1) First distribution to PP 20,000 20,000
(2) Second distribution to TT and PP equally 20,000 10,000 10,000
(3) Any amount in excess of $120,000
to the three partners in income-
sharing ratio 1/3 1/3 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.
94 Chapter 5
Problem 5 – 4
1. X, Y and Z
Cash Priority Program
January 1, 2008
Balances Cash Payments

X Y Z X (50%) Y (30%) Z (20%) Total
Capital balances .................................. P60,000 P45,000 P20,000
Loan balances ..................................... 22,5000 15,000 6,500
Total interests...................................... P82,500 P60,000 P26,500
Loss absorption balances .................... P165,000 P200,000P132,500

Priority I – to Y ................................... (35,000) – P10,500 – P10,500
Balances .............................................. 165,000 165,000 132,500
Priority II – to X and Y ....................... (32,500) (32,500)________ P16,250 9,750 – 26,000
Total .................................................... P132,500 P132,500P132,500 P16,250 P20,250 – P36,500
Any amount in excess of P36,500 ....... 50% 30% 20% 100%
2. January
Cash X Y Z
Available for distribution .............................. P 7,500
Priority I – to Y ............................................. ( 7,500) P 7,500
Payment to partner ......................................... – P 7,500 –
February ....................................................... Cash X Y Z

Available for distribution .............................. P20,000
Priority I – to Y (P10,500 – P7,500) ............. ( 3,000) P 3,000
Priority II – to X and Y; 5:3 .......................... ( 17,000) P10,625 6,375 _____
Payments to partners...................................... P10,625 P 9,375 –
March ........................................................... Cash X Y Z
Priority II – to X and Y; 5:3
(P26,000 – P17,000) ................................. ( 9,000) P 5,625 P 3,375
Excess; 5:3:2.................................................. ( 36,000) 18,000 10,800 P7,200
Payments to partners...................................... P23,625 P14,175 P7,200
April .............................................................. Cash X Y Z

Excess; 5:3:2.................................................. ( 15,000) P 7,500 P 4,500 P3,000
Payments to partners...................................... P 7,500 P 4,500 P3,000
Problem 5 – 5
AB, CD & EF Partnership
Capital
Able Other Accounts CD AB CD EF
Cash Loan Assets Payable Loan 50% 30% 20%
Balances before liquidation 18,000 30,000 307,000 53,000 20,000 118,000 90,000
74,000
January transactions:
1. Collection of accounts
receivable at loss
of 15,000 51,000 ( 66,000) ( 7,500)
( 4,500) ( 3,000)
2. Sale of inventory at
loss of 14,000 38,000 ( 52,000) ( 7,000)
( 4,200) ( 2,800)
3. Liquidation expenses paid ( 2,000) ( 1,000)
( 600) ( 400)
4. Share of credit memorandum ( 3,000) 1,500 900 600
5. Payments to creditors ( 50,000)_____ ______ (50,000)_____ ______ _____ ______
55,000 30,000 189,000 -0- 20,000 104,000 81,600
68,400
Sale payments to partners
(Schedule 1 ( 45,000) ______ _____ ______ (20,000)
______ ( 6,600) (18,400)
10,000 30,000 189,000 -0- -0- 104,000 75,000
50,000
February transactions:
6. Liquidation expenses paid ( 4,000)____________ ______ ______ ( 2,000)
( 1,200) ( 800)
6,000 30,000 189,000 -0- -0- 102,000 73,800
49,200
Safe payments to partners
(Schedule 2) -0- _____ ______ ______ ___ –0– –0– –0–
6,000 30,000 189,000 -0- -0- 102,000 73,800
49,200
March transactions:
8. Sale of mac. & equip. at a
loss of 43,000 146,000 (189,000) ( 21,500)
(12,900) ( 8,600)
9. Liquidation expenses paid ( 5,000)___________________ ______ ( 2,500)
( 1,500) ( 1,000)
147,000 30,000 -0- -0- -0- 78,000 59,400
39,600
10. Offset AB's loan
receivable against capital (30,000) ( 30,000)
Payments to partners (147,000)___________________ ______ ( 48,000)
(59,400) (39,600)
Balances at end of liquidation –0– –0– –0– –0– –0– –0– –0– –0–
96 Chapter 5
Partnership
Schedules of Safe Payments to Partners
AB CD EF
Schedule 1: January 50% 30% 20%
Capital and loan balancesa P74,000 P101,600 P68,400
Possible loss:
Other assets (189,000) and possible liquidation
costs (10,000) ( 99,500) ( 59,700) ( 39,800)
Balances ( 25,500) 41,900 28,600
Absorption of AB's potential deficit balance 25,500
CD : (25,500 x 3/5 = 15,300) ( 15,300)
EF : (25,500 x 2/5 = 10,200) ______ _______ ( 10,200)
Safe payment P -0- P 26,600 P 18,400
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 72,000 73,800 49,200
Possible loss:
Other assets (189,000) and possible liquidation
costs (6,000) ( 97,500) ( 58,500) ( 39,000)
( 25,500) 15,300 10,200
Absorption of AB's potential deficit balance 25,500
CD : (25,500 x 3/5 = 15,300) ( 15,300)
EF : (25,500 x 2/5 = 10,200) _______ ________ ( 10,200)
Safe payment –0– –0– –0–
b = (102,000) capital less 30,000 loan receivable
= (73,800) capital
= (49,200) capital
Problem 5 – 6
1. M, N, O and P
Cash Priority Program
January 1, 2008

M N O P M (3/8) N (3/8) O (1/8) P (1/8) Total
Capital balances .. P 70,000 P 70,000 P 30,000 P 20,000
Loan balances ..... 20,000 5,000 25,000 15,000
Total interests ..... P 90,000 P 75,000 P 55,000 P 35,000
Loss absorption
balances ......... P240,000 P200,000 P440,000 P280,000
Priority I – to O .. _______ _______ ( 160,000)________ – – P20,000 – P20,000
Balances ............. 240,000 200,000 280,000 280,000
Priority II – to O
and P .............. _______ _______ ( 40,000) ( 40,000) – – 5,000 P5,000 10,000
Balances ............. 240,000 200,000 240,000 240,000
Priority III – to
M, O and P ..... ( 40,000)_______ ( 40,000) ( 40,000)P15,000 – 5,000 5,000 25,000
Total ................... P200,000 P200,000 P200,000 P200,000P15,000 – P30,000 P10,000 P55,000
Any amount in excess of P55,000 3/8 3/8 1/8 1/8 8/8
2.
Schedule 1
Cash M N O P
Available for distribution .................... P25,000
Priority I – to O ................................... ( 20,000) P20,000
Priority II – to O and P; 1:1 ................. ( 5,000) ________ _______ 2,500 P2,500
Payments to partners............................ – – P22,500 2,500
Apply to loan ....................................... ( 22,500) ( 2,500)
Apply to capital ................................... – – – –
Schedule 2
Cash M N O P
Available for distribution .................... P40,000
Priority II – to O and P; 1:1 ................. ( 5,000 P 2,500 P2,500
Priority III – to M, O and P; 3:1:1 ....... ( 25,000) P15,000 5,000 5,000
Excess, 3:3:1:1..................................... ( 10,000) 3,750 P3,750 1,250
............................................................. 1,250
Payments to partners............................ 18,750 P3,750 8,750 8,750
Apply to loan ....................................... ( 18,750) ( 3,750) ( 2,500) ( 8,750)
Apply to capital – – P 6,250 –
98 Chapter 5
Problem 5 – 7
Bronze, Gold & Silver

Cash Distribution Plan
June 30, 2008
Loss Absorption Balances Capital and Loan Accounts

Bronze Gold Silver Bronze Gold Silver
Profit and loss ratio 50% 30% 20%
Pre-liquidation capital and
loan balances P55,000 P45,000 P24,000
Loss absorption balances
(Capital and loan
balances/P& L ratio) P110,000 P150,000 P120,000
Decrease highest LAB
to next highest:
Gold: (30,000 x .30) _______ ( 30,000)_______ ______ ( 9,000)______
110,000 120,000 120,000 55,000 36,000 24,000
Decrease LAB's
to next highest:
Gold: (10,000 x .30) ( 10,000) ( 3,000)
Silver: (10,000 x .20) _______ ________ ( 10,000)_______ _______ _( 2,000)
P110,000 P110,000 P110,000 P 55,000 P 33,000 P 22,000
Summary of Cash Distribution

(If Offer of P100,000 is Accepted)
Accounts Bronze Gold Silver

Payable 50% 30% 20%
Cash available P106,000
First ( 17,000) P 17,000
Next ( 9,000) P 9,000
Next ( 5,000) 3,000 P 2,000
Additional paid in P&L ratio ( 75,000)_______ P37,500 22,500
15,000
P -0- P 17,000 P37,500 P34,500 P17,000
Problem 5 – 8
Part A
North South East West North South East West
Total Interest (capital and loan
balances P120,000 P 88,000 P109,000 P 60,000
Divided by P/L ratio 30% 10% 20% 40%
Loss absorption potential P400,000 P880,000 P545,000 P150,000
Priority II – To South (335,000) ________ 33,500
Balances 400,000 545,000 545,000 150,000
Priority II – To South and East, 10:20 (145,000) (145,000) 14,500 29,000
Balances 400,000 400,000 400,000 150,000
Priority III – To North, South, and
east 30:10:20 (250,000) (250,000) (250,000)______ 75,000 25,000 50,000_____
Total 150,000 150,000 150,000 150,000 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
To records collection of receivables with losses allocated to partners.
(2) Cash 150,000

North capital (30% x P103,000) 30,900
Property and equipment 253,000
To record sale of property and equipment.
(3) 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)

Cash 74,000
To record payment of liabilities.
100 Chapter 5
(5) Cash 71,000

North capital (30% of P30,000 loss) 9,000
Inventory 101,000
To record inventory sold.

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) 3,300

Cash 11,000
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 4,160
To eliminate capital deficiency of West as computed below:
North South East West

Capital balances, beginning P120,000 P88,000 P109,000 P60,000
Loss on accounts receivable (4,920) ( 1,640) ( 3,280) ( 6,560)
Loss on property and equipment (30,900) (10,300) (20,600) (41,200)
Cash distribution (31,800) (58,600) (50,200) –0–
Liquidation expenses ( 3,300) ( 1,100) ( 2,200) ( 4,400)
Subtotal 4,580 1,527 3,053 ( 4,160)
Elimination of West deficiency ( 2,090) ( 693) ( 1,666) 4,160
Capital balances P 2,500 P 834 P 1,666 P –0–

South capital 834
East capital 1,666
Cash 5,000
To record final cash distribution.
Problem 5 – 9
DR Company
Schedule of Safe Payments to Partners
Dan Red Ben

(40%) (30%) (30%)
Capital and loan balances, August 1, 2008 (42,000) (45,000) (17,000)

Write-off of P24,000 in goodwill 9,600 7,200 7,200
Write-off of P12,000 of receivables 4,800 3,600 3,600
Gain of P6,000 on sale of P32,000 of
inventory (one-half of P64,000 book
value) (2,400) (1,800) (1,800)
Capital and loan balances, August 31, 2008 (30,000) (36,000) (8,000)
Possible loss of P16,000 for remaining
receivables and P32,000 for
remaining inventory 19,200 14,400 14,400
Possible liquidation costs of P4,000 1,600 1,200 1,200
Balances (* = deficit) (9,200) (20,400) 7,600*
Distribute Ben’s potential deficit (7,600)
To Dan: P7,600 x 40/70 4,343
To Red: P7,600 x 30/70 3,257 -
Safe payments to partners (4,857) (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 Jenny’s contribution:
Cash 40,000
Equipment 60,000
Jenny, capital 100,000
Journal entry to record Kenny’s contribution:
Cash 60,000
Inventory 10,000
Equipment 180,000
Notes payable 50,000
Kenny, capital 200,000
102 Chapter 5
(2) Capital balances of Jenny and Kenny before admission of Lenny:
Jenny Kenny
Beginning capital balance P100,000 P200,000
Interest on beginning capital balance 10,000 20,000
Annual salary 15,000 20,000
Remainder 48,000 72,000
Ending capital balance P173,000 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 110,000
Jenny, capital 26,000
Kenny, capital 39,000
Explanation:
The book value of the partnership after the income distribution in 2006 was
P485,000 (P173,000 + P312,000). After Lenny’s 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

Jenny Kenny Lenny
Capital balances P200,000 P400,000 P200,000
Partner’s loan (50,000)
Gain on realization 9,000 15,000 6,000
Possible loss (156,000) (260,000) (104,000)
Safe payments to partners P 53,000 P105,000 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
Assets per Jessica Company- balance sheet P3,550,000
Jessica’s proportionate interest in assets of JV (50%) 1,000,000
Total assets of Jessica P4550,000
6-2: a Total liabilities only of Jenny Co.
6-3: b
6-4: b
Investment of Heart P80,000
Profit share:
Sales 150,800
Cost of sales (150,800 ÷ 125%) 120,640
Gross profit 30,160
Expenses 10,000
Net Profit 20,160
Profit/loss ratio x 40% 8,064
Balance of investment in JV P88,064
6-5: a
Cash P190,000
Merchandise inventory 29,360
Total assets 370,160
Sweet Co’s, proportionate interest x 60%
Sweet Company’s share in total asset P222,096
6-6: a
Sales 7,200
Cost of sales
Purchases P10,000
Merchandise inventory, end (50% of P10,000) __5,000 _5,000
Gross profit 2,200
Expenses ___500
Net profit P 1,700
104 Chapter 6
6-7: b
Original investment (cash) P10,000
Profit share (P1,700 / 2) ___850
Balance of Investment account P10,850
6-8: a
Joint venture account before profit distribution (credit balance) P 9,000
Unsold merchandise __2,500
Joint venture profit before fee to Salas P11,500
Joint venture profit after fee to Salas (P11,500 / 115%) P10,000
6-9: b
Fee of Salas (P10,000 x 15%) P 1,500
Profit share of Salas (P10,000 x 25%) _2,500
Total P 4,000
6-10: b
Salas Salve
Balance before profit distribution P 500 (dr) P 2,000 (cr)
Profit share:Sabas (P10,000 x 40%) 4,000
Salve (P10,000 x 35%) ______ _3,500
Balance P 3,500 (cr) P 5,500
(cr)
6-11: d
Joint venture account balance before profit distribution (debit) P 6,000
Joint venture profit (P4,500 x 3) _13,500
Cost of unsold merchandise (inventory) taken by Dante P19,500
6-12: b
Edwin Capital:
Debits: Balance before profit distribution P14,000
Credits: Profit share __4,500
Due from Edwin (debit balance) P 9,500
Joint Venture 105
Settlement to Ferdie (Balance of capital account)

Debits: P –0–
Credits: Balance before profit distribution P16,000
Profit share __4,500 _20,500
Due to Ferdie (credit balance) P20,500
Settlement to Dante (balance of JV Cash account)

Debits: Balance before cash settlement P30,000
Due from Edwin __9,500 P39,500
Credits: Due to Ferdie _20,500
Balance P19,000
6-13: a
JV account balance before profit distribution (cr) P 4,600
Unsold merchandise (required dr balance after profit distribution) __2,000
Joint venture profit before fee to Jerry P 6,600
Joint venture profit after fee (P6,600 / 110%) __6,000
Fee to Jerry P 600
6-14: d
Harry Capital Isaac Capital
Balances before profit distribution (P 200) P 1,800
Harry P6,000 x 50%) 3,000
Isaac (P6,000 x 20%) 1,200
Cash settlements P 2,800 P 3,000
6-15: b
Sales P14,000
Cost of sales:
Merchandise inventory, beg (contributions) P14,000
Freight 300
Purchases __4,000
Goods available for sale P18,300
Merchandise inventory, end (P8,300/2) __4,150 14,150
Gross profit (loss) (150)
Expenses (P400 + P200) __600
Net profit (loss) P( 750)
6-16: c
Contributions to the Joint Venture (P5,000 + P8,000) P13,000
Loss share (P750 x 50%) ( 375)
Unsold merchandise taken (withdrawal) ( 4,150)
Final settlement to jack P 8,475
106 Chapter 6
Problem 6 – 1
Books of Blanco (Manager) Books of Ablan
JV Cash 100,000 Investment in JV 90,000

Joint Venture 90,000 Merchandise inventory 90,000
Cash 100,000
Ablan Capital 90,000
Joint Venture 60,000

JV cash 60,000
JV cash 20,000
JV cash 200,000
Computation of JV Profit
Total debit to JV P170,000

Total credit to JV P200,000
Credit balance (Profit) P 30,000
Distribution
Joint Venture 30,000 Investment in JV 15,000
Profit from JV 15,000 Profit from JV 15,000
Ablan capital 15,000
Ablan capital 105,000 Cash 105,000

JV cash 105,000 Investment in JV 105,000
Cash 155,000
JV cash 155,000
Joint Venture 107
Problem 6 – 2
Books of the Joint Venture
1. Computer equipment 105,000

Ella capital 60,000
Fabia capital 45,000
2. Purchases 80,000
Supplies 2,000
Diaz capital 82,000
3. Expenses 9,000
Diaz capital 9,000
4. Cash 150,000
Sales 150,000
5. Expenses 30,000
Cash 30,000
6. Merchandise inventory 20,000

Ella capital 20,000
7. Fabia capital 10,000

Cash 10,000
8. Adjusting and closing entries:
(a) Expenses 500

Supplies 500
(b) Sales 150,000


Purchases 80,000

Expenses 39,500
Distribution of profit:
Diaz capital 11,000
Ella capital 11,000
Fabia capital 11,000
108 Chapter 6
Books of Diaz
(1) Investment in Joint Venture 82,000

Cash 82,000

Cash 9,000
(3) To record profit share:
Investment in Joint Venture 11,000

Profit from Joint Venture 11,000
Books of Ella:


Books of Fabia:

(2) Cash 10,000


Joint Venture 109
Problem 6 – 3
(1) No Separate Set of Joint Venture Books is Used
Books of Duran (Manager)
May 1: Joint Venture 12,500

Castro capital 12,000
Cash 500
7: JV cash 10,000
Bueno capital 10,000
26: Joint Venture 9,500
JV cash 9,500
30: JV accounts receivable 16,000

June 30: JV cash 15,000

JV accounts receivable 15,000
27: JV cash 9,000

Joint Venture 9,000
30: To record unsold merchandise taken by Duran:

Joint Venture 3,000
To record profit distribution:
Joint Venture 6,000

Profit from JV 2,000
Bueno capital 2,000
To record settlements:

JV cash 24,500
Cash 1,500

JV accounts receivable 1,000
110 Chapter 6
Books of Bueno
May 7: Investment in Joint Venture 10,000

Cash 10,000
June 30: Investment in Joint Venture 2,000

Cash 12,000
Books of Castro
May 1: Investment in Joint Venture 12,000

Cash 14,000
(2) A Separate Set of Books is used:
Books of the Joint Venture
May 1: Merchandise inventory 12,500

Duran capital 500
7: Cash 10,000
26: Purchases 9,500

Cash 9,500
30: Accounts receivable 16,000

Sales 16,000
June 20: Cash 15,000

27: Cash 9,000

Sales 9,000
Joint Venture 111
June 30: Closing entries:
Sales 25,000

Merchandise inventory, end 3,000
Purchases 9,500
Distribution of profit:

Bueno capital 2,000
Duran capital 2,000
Settlements to Venturers:

Duran capital 2,500
Cash 24,500
Books of Duran (Manager/Operator)
May 1: Investment in Joint Venture 500

Cash 500

Cash 2,500
Books of Bueno and Castro (Same as in No. 1 requirement)
112 Chapter 6
Problem 6 – 4
(1) Books of Seiko (Manager/Operator)
April 1: JV Cash 102,000

Notes payable – PNB 34,000
Roles capital 34,000
Timex capital 34,000
May: Joint venture 64,100

Cash 16,300
Rolex capital 7,800
June: Rolex capital 30,000

JV cash 30,000
Joint venture 111,400

Cash 37,400
Rolex capital 64,700
Timex capital 9,300
July: Cash 40,000

JV cash 65,000

Cash 13,970
August: Cash 45,000

JV cash 125,500

Cash 9,730
Timex capital 4,310
To record sales:
JV cash (P421,000 x 96%) 404,160

Joint Venture 113
To record payment of loan to PNB:

Joint venture (Interest expense) 8,000
JV cash 110,000
To record distribution of profit:

Gain from JV (30%) 40,287
Rolex capital (60%) 80,574
Timex capital (10%) 13,429
Computed as follows:
Total debits tot he JV account P269,870

Total credits to the JV account _404,160
Gain (credit balance) P134,290
To record settlement:
Cash 32,687
Times capital 14,099
JV cash 175,660
Computations:
Settlement to Rolex - Balance of capital account:
Debits: June P30,000

July 15,000
August 67,000
Payment of note payable _34,000 P146,000
Credits: April 1 P34,000

May 47,800
June 64,700
July 31,240
August 16,560
Profit share _80,574 __274,874
Credit balance P 128,874
114 Chapter 6
Settlement to timex – Balance of capital account
Debits: July P 10,000

August 13,500
Payment of loan __34,000 P 57,500
Credits: April 1 P 34,000

June 9,300
July 10,560
August 4,310
Profit share __13,429 _71,599
Credit balance P 14,099

Settlement to Seiko – Balance of JV cash account
Debits: April 1 P102,000

Loan proceeds _404,160 P506,160
Credits: June P 30,000

July 65,000
August 125,500
Payment of loan _110,000 _330,500
Balance of JV cash 175,660
Less: Settlement to Rolex P128,874
Settlement to Timex __14,099 _142,973
Settlement to Seiko P 32,687
(2) Partial Balance Sheet

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

April 1 P102,000 P30,000 June May P 64,100
Balance P 72,000 June _111,400
Balance P175,500
Notes Payable Rolex capital

P34,000 April June P 30,000 P 34,000 April 1
47,800 May
_______ __64,700 June
P 30,000 P146,500
P116,500
Timex capital
P34,000 April
__9,000 June
P43,300
Problem 6 – 5
Consolidated Balance Sheet
Cash P 61,000
Receivables 122,000
Inventory 102,500
Other assets __40,500
Accounts payable P 61,000

Other liabilities 96,500
Capital stock 50,000
Retained earnings _118,500
Total liabilities and stockholders' equity P326,000
Consolidated Income Statement
Sales P246,750
Cost of sales _124,750
Gross profit 122,000
Operating expenses __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

MacDo 1,000,000
Initial contribution at 6%
July 1: Land 2,400,000

Mortgage payable 1,650,000
Cash 750,000
Purchased land for cash and 6% mortgage.
Aug 1: Cash 1,100,000

MacDo 1,100,000
Additional contribution at 6%.
Land 950,000
Cash 950,000
Paid for improvements.
Sept 30: Mortgage payable 250,000

Interest expense- Mortgage 3,750
Cash 253,750
Reduced mortgage and paid interest.
Oct 31: Mortgage payable 400,000

Cash 408,000
Nov 30: Mortgage payable 300,000

Cash 307,500
Dec 31: Mortgage payable 200,000

Cash 221,000
Reduced mortgage and make semi-annual
interest payment.
Joint Venture 117
31: Cash 2,600,000

Sales 2,600,000
Sales to date.
31: Commissions 130,000

Cash 130,000
P2,600,000 x 5%
31: Expenses 628,100

Cash 628,100
Paid expenses
31: Interest expense- Venturer 60,000

MacDo 60,000
6% on P1,000,000 from June 15 to
December 31, and on P1,100,000
from August 1 to December 31.
31: Sales 2,600,000

Land (cost of land sold) 1,145,000
Expenses 628,100
Commissions 130,000
Interest expense- mortgage 40,250
Interest- venturer 60,000
To close income and expense accounts.
31: Income summary 596,650

MacDo 596,650
MacEn 238,660
To divide gain, 60:40.
31: MacDo 801,650

Cash 801,650
Payment on account.
(b) Journal entries on MacDo’s books:
June 15: Investment in Joint Venture 1,000,000

Cash 1,000,000
Initial contribution.
Aug 1: Investment in Joint Venture 1,100,000

Cash 1,100,000
Additional contribution.
118 Chapter 6
Dec 31: Investment in Joint Venture 60,000

Interest income 60,000
Interest earned on cash advanced.
31: Investment in Joint Venture 357,990

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

Repayment in part of advances.
(c) MacDo and MacEn Joint Venture

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

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

Mortgage payable P 500,000
MacDo 1,716,340
MacEn 238,660
Total liabilities and equity P2,455,000
Joint Venture 119
Venturers equity (interest)

MacDo MacEn Total
Invested P2,100,000 P2,100,000
Shares:
Gain P 357,990 P238,660 P 596,650
Interest on advances 60,000 60,000
Commissions 130,000 130,000
Total 417,990 368,660 786,650
Balances 2,517,990 368,660 2,886,650
Withdrawn (801,650) (130,000) (931,650)
Equity (interests) P1,716,340 P238,660 P1,955,000
120 Chapter 7
CHAPTER 7
7-1: c
Amount realized secured by inventory P 30,000

Unsecured claim (P10,000 x 25%) __2,500
Total amount received P 32,500
7-2: d
Amount realized secured by inventory P120,000
Unsecured claim (P88,000 x 75%) __66,000
Total amount received P186,000
7-3: d (P15,000,000 + P200,000)
7-4: a
Realizable value:
Current assets P 50,000
Land and building P240,000
Less mortgage payable _200,000__40,000
Total 90,000
Less accounts payable _160,000
Estimated deficiency to unsecured creditors P 70,000
7-5: c
Total realizable value to unsecured creditors (P90,000)/total unsecured
Claims (P160,000) = 56.25%
7-6: a
Free assets:
Buildings and equipment _110,000
Total P143,000
Liabilities with priority:

Administrative expenses P 20,000
Salary payable 6,000
Income taxes __8,000
Total P 34,000
Corporation in Financial Difficulty – Liquidation 121
Free assets after payment of liabilities with priority:

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

Value of security (land) P 90,000
60% of remaining P30,000 __18,000
Total collected P108,000
7-7: c
Free assets:
Other assets P 80,000
Excess from assets pledged with secured
Creditors (P116,000 – P70,000) __46,000
Total P126,000
Liabilities with priority P 42,000

Free assets after payment of liabilities with priority
(P126,000 – P42,000) P 84,000
Unsecured liabilities:
Excess of partially secured liabilities over pledge
Assets (P130,000 – P50,000) P 80,000
Unsecured creditors _200,000
Total P280,000
Recovery percentage: P84,000 / P280,000 = 30%
Payment of partially secured debt:

Value of pledged assets P 50,000
30% of remaining P80,000 __24,000
Total collected P 74,000
122 Chapter 7
7-8: a
The holder of Debt Two will receive P100,000 from the sale of the pledged
asset. Since the holder wants to receive P142,000 out of the total debt of
P170,000, the company must be able to generate enough cash to pay off
60% of the unsecured liabilities (P42,000/P70,000) after paying 100% of
the liabilities with priority (P110,000).
Unsecured liabilities:
Unsecured creditors P230,000
Excess liability of Debt One in excess of pledged
Asset (P210,000 – P180,000) 30,000
Excess liability of Debt Two in excess of pledged
Asset (P170,000 – P100,000) __70,000
Total unsecured liabilities P330,000
Necessary percentage ____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) P 15,000
Loss on realization (P100,000 – P75,000) ( 25,000)
Unrecorded liabilities:
Interest expense P 250
Administrative expense 4,000 (
4,250)
Estate deficit P( 14,250)
7-10: c
Total assets at net realizable value P 75,000
Fully secured liabilities (40,000)
Estimated administrative expense _( 4,000)
Estimated amount available P 31,000
Unsecured claims (P45,000 + P250) (45,250)
Estimated deficiency to unsecured creditors P 14,250
7-11: b
Assets pledged with fully secured creditors P185,000
Fully secured creditors _130,000 55,000
Free assets _160,000
Total free assets 215,000
Less: Liabilities with priority __35,000
Available to unsecured non-priority claims P180,000
7-12: b
Machinery P 10,000
Recoveries of unsecured claims (50,000 - 10,000) X .50 __20,000
Amount to be realized P 30,000
7-13: b
Notes Payable P 23,940
Less: Inventories _ 19,200
Unsecured Liabilities 4,740
% of recovery ____78%
Recovery 3,697
Add: Inventories _19,200
Amount to be received by Wood P 22,897
7-14: a - P7,000
7-15: a - P30,000
7-16: b - P57,200 [52,000 + (8,000 X .65)]
7-17: d - P72,800 (112,000 X .65)
7-18: d
Estimated loss:
Account Receivable P 8,160
Inventories (28,000 - 18,500) 9,500
Building (59,000 - 22,000) 3 7,000
Equipment (5,600 - 2,000) 3,600
Goodwill 5,650
Prepaid expenses ___430 P 64,340
Less: Stockholder's equity
Common stock P 72,000
Deficit ( 16,660) _55,340
Estimated deficiency P 9,000
124 Chapter 7
7-19: d
Accounts Receivable (39,350 - 16, 110) P 23,240
Notes Receivable (18,500 - 12,500) 600
Inventories (87,850 - 45,100) 42,750
Prepaid expenses 950
Equipment (48,800 - 9,000) __39,800
Total estimated loss P112,740
7-20: b P33,750 (95,000 - 61,250) on Land and Building
7-21: d
Total Free Assets:
Balance of Assets Pledged to
Fully Secured Creditor (95,000 - 90,000) P 5,000
Free Assets:
Cash P 2,700
Accounts Receivable 16,110
Inventories 45,100
Equipment __9,000__72,910
Total 77,910
Less: Unsecured liabilities with priority (1,850 + 4,650) ___6,500
Net Free Assets P 71,410
Divide by Unsecured creditors:
Balance of Partially Secured Creditor
Notes Payable - PNB P 15,000
Notes Receivable __12,500 2,500
Accounts Payable 52,500
Notes Payable __51,250 103,750 ÷ P106,250
Estimated recovery % 67%
7-22: d
Fully secured (Notes Payable) P 90,000
Partially secured:
Notes Payable - PNB P12,500
Add (2,500 X 67%) __1,675 14,175
Unsecured Creditor with Priority 6,500
Unsecured Creditor without Priority (103,750 X 67%) __69,513
Total P180,188
7-23: a
Unsecured creditors without priority P1,102,500
Estimated deficiency to unsecured creditors:
Loss on realization 551,250
Estimated liquidation expenses 55,125
Total 606,375
Stockholders’ equity 441,000 165,375
Net free assets 937,125
Liabilities with priority 122,500
Free assets P 1,059,625
7-24: a
Estimated net gain (loss) on realization:
Gain on realization 78,750
Loss on realization (336,700) (257,950)
Estimated claims ( 43,750)
Total (301,700)
Stockholders equity 295,750
Estimated deficiency P( 5,950)
7-25: b
Notes payable (175,000 – 140,000) P 35,000
Unsecured liabilities (420,000 – 52,500) 367,500
Total 402,500
Free assets (157,500 + 210,000) 367,500
Estimated deficiency 35,000
7-26: a
Old receivable (net) P 38,000
Marketable securities 12,000
Old inventory 60,000
Depreciable assets- net 96,000
Total assets to be realized P206,000
7-27: a
Old receivable P 21,000
New receivable 47,000
Marketable securities 10,500
Sales of inventory 75,000
Total asset realized P153,500
7-28: a
Gain on sale of inventory (P75,000 – 60,000) 15,000
Loss on realization:
Marketable securities (12,000 – 10,500) 1,500
Trustee’s expenses 4,300
Depreciation 16,000 (21,800)
Net loss P( 6,800)
126 Chapter 7
Problem 7 – 1
(A) Laguna Company
Statement of Affairs
October 31, 2008
Book Estimated
Value Assets Realizable Value Free Assets
Assets pledge for fully secured creditors:
P107,000 ... Plant assets .................................................. P67,400
Less; Fully secured liabilities ...................... _ 50,400 P17,000
Assets pledged for partially secured creditors:
39,000 . ... Inventories................................................... P18,000
Free Assets:
4,000 .. ... Cash............................................................. P 4,000
46,000 .. ... Accounts, receivable ................................... 46,000
2,000 .. ... Supplies ....................................................... __1,500 _51,500
Total free assets ............................................... P68,500
Less: Unsecured liabilities with priority.......... __7,000
Net Free Assets................................................ P61,500
Estimated deficiency to unsecured creditors (to balance) _20,500
P198,000 P82,000
Book Creditors' Unsecured
Value Liabilities & Stockholders' Equity Claim Liabilities
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 P 3,000
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 ........................................ 60,000
19,000 ... ... Notes payable .............................................. 19,000
Stockholders' Equity........................................ _____–
P198,000 P82,000
(B) Creditor Group Amount of Amount to Percentage
Claim be Paid to be paid
Unsecured liabilities with priority .................................... P7,000 P7,000 100.0%
Fully secured creditors ...................................................... 50,400 50,400 100.0%
Partially secured creditors................................................. 21,000 20,250 * 96.4%
Unsecured creditors without priority ................................ 79,000 59,250 75.0%
* P18,000 + (P3,000 X 0.75) = P20,250
(C) See statement of affairs in requirement (A)
Problem 7 – 2
VC Corporation
Statement of Realization and Liquidation
Month Ended January 31, 2008
Assets to be realized: Assets realized:

Land ....................... P10,000 land.............................. P 0
Building ................. 43,000 Building ...................... 0
Equipment .............. 28,000 Equipment ................... 8,800
Patents .................... __4,400 P85,400 Patents ......................... _12,000 P20,800
Assets Acquired .............. 0 Assets not realized:
Land ............................ P10,000
Building ...................... 43,000
Equipment ................... _13,000 66,000
Liabilities Liquidated: Liabilities to be Liquidated:

Account payable .... P14,000 Accounts payable ........ P80,000
Loans payable ........ __7,000 21,000 Loans payable ............. _40,000 120,000
Liabilities not Liquidated:

Accounts payable ... 66,000
Loans payable ........ 33,000 99,000
Gain on realization ......... ............... ___7,600 Loss on realization ...... .............. ___6,200
Total ............................... ............... P213,000 Total ............................ .............. P213,000
VC Corporation
Balance Sheet
January 31, 2008
Cash ............................................... P 6,700 Accounts payable ......................... P 66,000

Land ............................................... 10,000 Loans payable .............................. 33,000
Building .......................................... 43,000 Estate deficit ................................. ( 26,300)
Equipment ...................................... _13,000
Total ............................................... P 72,700 P 72,700
VC Corporation
Estate Deficit
January 31, 2008
Gain on realization .................................................................... P 7,600

Loss in realization .................................................................... ( 6,200)
Trustee's expenses .................................................................... ( 1,300)
Net gain on realization............................................................... P 100
Estate deficit, January 1, 2008 ................................................... ( 26,400)
Estate deficit, January 31, 2008 ................................................. P(26,300)
128 Chapter 7
Problem 7 – 3
Rizal Corporation
Book Estimated Free
Values Assets Realizable Value Assets
Assets pledged to fully secured creditors:
P 80,000 ...... .... Land and building .............................................. P102,000
Less: Mortgage payable ..................................... 43,000 P 59,000
50,000 ...... .... Finished Goods .................................................. P 55,000
Less: Loan payable ............................................. 50,000 5,000
Assets pledged to partially secured creditors:

32,000 ...... .... Accounts receivable (80% x 30,000) ................. 24,000
12,000 ...... .... Trucks ................................................................ 3,500
Totals.................................................................. 27,500
Free Assets:
4,000 ...... .... Cash.................................................................... 4,000
8,000 ...... .... AR (20% x 30,000) ............................................ 6,000
36,000 ...... .... Inventory – Materials ......................................... 27,000
1,000 ...... .... Prepaid expense .................................................. 0
8,000 ...... .... Trucks ................................................................ 2,500
45,000 ...... .... Equipment .......................................................... 25,000
16,000 ...... .... Intangible ........................................................... _______ 64,500
Total Free Assets .................................................... P128,500
Less: Unsecured liability with priority (12,000 + 8,000) 20,000
Net free assets ......................................................... 108,500
________ Estimated deficiency to unsecured creditors (to Balance) 81,000
P 292,000 ...... .... Total unsecured liabilities ....................................... P189,500
Book Creditors' Unsecured

Values Liabilities and Equity Claim Liabilities
Fully secured creditors:
P 43,000 ...... .... Mortgage payable ............................................... 94,000
50,000 ...... .... Loans payable .................................................... 50,000
Total ................................................................... 144,000
Partially secured creditors':

25,000 ...... .... Bank Loan .......................................................... 25,000
Less: Receivable (80% x 30,000) ....................... 24,000 P 1,000
5,000 ...... .... Truck Loan ......................................................... 5,000
Less: trucks ........................................................ 3,500 1,500
Unsecured creditors with Priority:
12,000 ...... .... Wages payable ................................................... 12,000
8,000 ...... .... Taxes payable ..................................................... 8,000
Totals.................................................................. 20,000
Unsecured creditors:
77,000 ...... .... Accounts payable ............................................... 77,000
110,000 ...... .... Stockholder Loan ............................................... 110,000 187,000
( 38,000) ...... .... Stockholder Equity ................................................. –
P 292,000 Total ........................................................................ P189,500
Problem 7 – 4
Mapayapa Corporation
November 1
Book Estimated Free

Value Assets Realizable Value Assets
Assets pledged to fully secured creditors:
P60,000.... ... Investments ................................................. P 69,000
180,000.... ... Accounts receivable .................................... 171,000
Total ............................................................ 240,000
Less: Note payable ...................................... 210,000 P 30,000
Free assets:
66,000.... ... Cash............................................................. P 66,000
248,000.... ... Accounts receivable .................................... 193,500
291,000.... ... Merchandise inventory................................ 180,000
870,000.... ... Plant & equipment ...................................... 330,000
114,000.... ... Notes receivable .......................................... 108,300
–.... ... Patent........................................................... __12,000 _889,800
Total free assets........................................... 919,800
Less: Unsecured liabilities with priority.......... __13,800
Net free asset ............................................... 906,000
_________ Estimated deficiency (to balance) ................... 60,300
P1,839,000 Total ................................................................ P966,300
Book Creditor's Unsecured

Value Liabilities & Equity Claim Liabilities
Fully secured creditors:
P 210,000.... ... Notes payable .............................................. P210,000
Unsecured creditor with priority:
Accrued wages ............................................ P 7,200
Accrued property tax................................... ___6,600
Total ............................................................ P 13,800
Unsecured creditor:
960,000.... ...Account payable.......................................... P960,000
Accrued expenses........................................ 6,300
300,000.... ... Capital stock
__369,000.... ... Retained earnings ............................................ _______
P1,839,000 Total ................................................................ P966,300
130 Chapter 7
Problem 7 – 5
a. Total fair value of assets (estimated proceeds) .......................... P471,000

Less: Fully and partially secured creditors claim:
Notes payable, interest (secured by receivable and
inventory) ................................................................... 125,000
Bonds payable (secured by land & building) .................... 231,000 356,000
Available to unsecured creditors................................................ 115,000
Less: Unsecured creditors with priority:
Wages payable .................................................................. P 9,500
Taxes payable.................................................................... __14,000 __23,500
Amount available to unsecured creditors................................... P 91,500
b. Unsecured portion of notes payable and interests (P195-P125) P 70,000

Accounts payable ....................................................................... __95,000
Total claims of unsecured creditors ........................................... P165,000
P91,500
––––––– = 55.45%
P165,000
c. Distribution of P471,000:
Percent Total
Creditors Amount Realized Payment
Accounts payable P 95,000 .... 55.45% P 52,678
Wages payable 9,500 .... 100% 9,500
Taxes payable 14,000..... 100% 14,000
Notes payable & interests 125,000 .... 100% 125,000
70,000 55.45% 38,815
Bonds payable & interests 231,000 .... 100% _231,000
Total estimated payment ........................................ P470,993
Problem 7 – 6
1. Evergreen Company
June 30, 2008
Estimated Available for
Book Realizable Unsecured
Values ASSETS Values Creditors
Pledged with fully secured creditors:
P460,000 Land and building ............................ P340,000
Less: Mortgage payable (including accrued interest) (330,000) P 10,000
Free Assets:
80,000 Cash.................................................. ................... P 80,000
140,000 Accounts receivable – net ................ 126,000
100,000 Inventories........................................ 84,000
120,000 Machinery – net ............................... 40,000
100,000 Goodwill .......................................... _ _____0_ 330,000
Total free assets ........................................ ................... 340,000
Less: liabilities with priority ..................... ................... _140,000
Net free assets .......................................... ................... 200,000
Estimated deficiency (Squeeze figure) ..... ................... _130,000
P1,000,000
LIABILITIES AND STOCKHOLDERS' EQUITY

Secured & Unsecured
Priority Non-priority
Claims Liabilities
Liabilities with priority
P120,000 Wages payable ................................. P120,000
20,000 Property taxes payable ..................... __20,000
Total ......................................................... P140,000
Fully secured creditors
300,000 Mortgage payable............................. 300,000
30,000 Interest on mortgage payable ........... __30,000
Total ......................................................... P330,000
Unsecured creditors
220,000 Accounts payable ............................. ................... P220,000
100,000 Note payable-unsecured ................... ................... 100,000
10,000 Interest payable-unsecured............... ................... 10,000
Stockholders' Equity
400,000 Capital stock..................................... ___
(200,000) Retained earnings (deficit) ............... ................... 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.
132 ____ Chapter 7
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 .................... ................... P100,000
Note payable............................ ................... 80,000
Deferred revenue ..................... ................... 2,000
Wages payable......................... ................... 6,000
Mortgage payable .................... ................... 160,000
Estate equity ............................ ................... 40,000
To record custody of Kimerald Corporation.
March 1 to 31: Cash ............................................... ........ 15,200

Estate equity................................... ............. 800
Accounts receivable-net .......... ................... 16,000
To record collection of receivables and recognize loss.
Cash ............................................... ........ 38,800

Estate equity................................... ........ 33,200
Inventories ............................... ................... 72,000
To record sale of inventories at a loss.
Cash ............................................... ...... 180,000

Estate equity................................... ........ 60,000
Land......................................... ................... 40,000
Buildings-net ........................... ................... 200,000
To record sale of land and buildings at a loss.
Estate equity................................... ........ 52,000

Intangible assets ...................... ................... 52,000
To write off intangible assets.
Estate equity ........................................ ......... 16,400

Administrative expenses payable . .................... 16,400
To accrue trustee expenses.
2. Financial Statements
Kimerald Corporation in Trusteeship
Balance Sheet
March 31, 2008
Assets
Cash ..................... ................................................. ................... P242,000
Liabilities and Deficit

Accounts payable . ................................................. ................... P100,000
Note payable-unsecured......................................... ................... 80,000
Revenue received in advance ................................. ................... 2,000
Wages payable ..... ................................................. ................... 6,000
Mortgage payable ................................................. ................... 160,000
Administrative expense payable-new .................... ................... __16,400
Total liabilities ..... ................................................. ................... P364,400
Less: Estate deficit ................................................. ................... _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 ................................. ................... P 8,000

Add: Cash receipts
Collections of receivables ............................. ..... P 15,200
Sale of inventories......................................... ........ 38,800
Sale of land and buildings ............................. ...... 180,000 _234,000
Total ..................... ................................................. ................... 242,000
Less: Cash disbursements ...................................... ................... ____–0–
Cash balance, March 31, 2008 ............................... ................... P242,000

Statement of Changes in Estate Equity
March 1 to 31, 2008
Estate equity, March 1 ........................................... ................... P 40,000

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 _162,400
Estate deficit, March 31 ......................................... ................... P122,400
134 Chapter 7
3. Entries on trustee's books:

2008
April: Mortgage payable ..................................... ...... 160,000
Cash.................................................. ................... 160,000
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.................................................. ................... 24,400
To record payment of priority liabilities.
Accounts payable ...................................... ........ 32,000

Note payable-unsecured............................ ........ 25,600
Cash.................................................. ................... 57,600
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 ..................................... ................... 122,400
To write-off remaining liabilities and
close trustee's records.
Reorganization and Troubled Debt Restructuring 135
CHAPTER 8
8-1: a
Trade accounts payable (P52,000 + P62,700) P114,700
12% preferred stock (5,000 x P1) P 5,000
Paid in capital in excess of par (5,000 x P9) 45,000
Cash (P62,700 x P0.80) _50,160 _100,160
Gain from discharge of indebtedness P 14,540
8-2: c
8-3: c
8-4: b
Carrying value of the note payable:
Principal P600,000
Interest __60,000 P660,000
Restructured value:
Principal P400,000
Interest _110,000 _510,000
Gain on debt restructuring P150,000
8-5: d
Other income:
Fair value of land P450,000
Books value of land _360,000
Other income P 90,000
Extraordinary gain:
Book value of note payable
Principal P500,000
Interest __60,000 P560,000
Fair value of land _450,000
Extraordinary gain P110,000
8-6: a
Book value of bonds payable P500,000
Par value of preferred stock (5,000 shares x P100) _500,000
No gain no loss P –0–
136 Chapter 8
8-7: a
Book value of notes payable:

Principal P 2,500
Interest ___500 P 3,000
Par value of common stock issued (200 shares x P5) __1,000
Additional paid in capital P 2,000
Add gain on payment of accounts payable:
Book value P 10,000
Payment __8,000 __2,000
Total gain on debt discharge P 4,000
8-8: a
Carrying value of debt:
Note payable P100,000
Interest payable __12,000 P112,000
Fair value machinery _(36,000)
Balance of debt P 76,000
Restructured debt:
Note payable P 50,000
Interest (P50,000 x .08 x 2) ___8,000 __58,000
Restructuring difference (gain) P 18,000
8-9: d
Principal P300,000
Interest payable (300,000 x 10%) __30,000
Carrying value P330,000
8-10: c
Should be P310,600
Restructured principal of note payable P260,000
Interest payable:
On book value (P300,000 x 10% 30%) P 9,000
On restructured (P260,000 x 8% x 2) _41,600 __50,600
Future cash flows to liquidate the debt P310,600
8-11: d
8-12: d
Loss on transfer of land:
Original cost P290,000
Market value _270,000 P 20,000
Gain on restructuring of debt:

Carrying value of debt P300,000
Market value of land _270,000 P 30,000
8-13: a
Transfer gain (loss):
Carrying amount of equipment P80,000
Fair value of equipment 75,000
Transfer loss P(5,000)
Restructuring gain:
Carrying amount of the debt P100,000
Fair value of equipment transferred 75,000
Restructuring gain P 25,000
8-14: d
Carrying amount of real estate transferred P100,000
Fair value of real estate 90, 000
Loss on restructuring of payables P(10,000)
8-15: d
Carrying amount of liability P150,000
Fair value of real estate transferred 90,000
Restructuring gain P 60,000
8-16: c
Gain on revaluation of land (120,000 – 85,000) P 35,000
Gain on the extinguishment of debt (185,000 – 120,000) 65,000
Total gain P100,000
8-17: a
Carrying value of debt (P800,000 + 80,000) P880,000
Total future payments (P700,000 + 80,000) 780,000
Restructuring gain P100,000
8-18: a
First determine the expected future cash flows as follows:
70,000 x .79719 = P55,803
5,600 x 1.69005 = 9,464
Present value of future cash flow P65,267
The interest revenue can be computed using the effective interest method
as follows:
Present value at 12/31/06 P65,267
Interest income at 12/31/07 (65,267 x 12%) 7,832
Interest receivable at 12/31/07 (70,000 x 8%) 5,600 2,232
Present value at 12/31/07 P67,499
Interest income at 12/31/08 (67,499 x 12%) P 8,100
138 Chapter 8
Problem 8 – 1
Journal entries for company emerging from bankruptcy using fresh start
accounting:
– Receivables .... ..... ..............................................................................10,000
Inventory . ...... ..... ..............................................................................10,000
Building .. ...... ..... 100,000
Reorganization value in excess of amount
Allocable to tangible assets ..........................................................60,000
Additional paid in capital....................................................... 180,000
To adjust accounts to market value as part of fresh start accounting. Since the company has
a reorganization value of P760,000 but the assets have a market value of only P700,000
(P90,000 + P210,000 + P400,000), and account entitled Reorganization Value in Excess of
Amount Allocable to Tangible Assets must be recorded for P60,000.
Liabilities ....... .... 300,000

Common stock (P330,000 x 80%) ............................................... 264,000
Gain on debt discharge ................................................................. 36,000
To record settlement of liabilities.
Problem 8 – 2
2008
July 14: Costs of reorganization.................................................................50,000
Cash with escrow agent ......................................................... 50,000
Common stock 580,000

Common stock (60,000 x P1) ................................................ 60,000
Additional paid in capital....................................................... 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) ........................................................... 80,000
Gain on debt discharge .......................................................... 20,000
Additional paid in capital 290,000

Gain on debt discharge 20,000
Retained earnings................................................................... 260,000
Costs of reorganization .......................................................... 50,000
Problem 8 – 3
Jade Corporation
Balance Sheet
December 31, 2008
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 P260,000
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. ...... ..... ........................................................ 605,000
Stockholders' Equity
Common stock . ...... ..... ........................................................ 200,000
Retained earnings (deficit) .................................................... (223,000) _(23,000)
Total liabilities and stockholders' equity (deficit) ................. P582,000
Problem 8 – 4
Preliminary computations:
Book values prior to reorganization:
Total assets (P100,000 + P112,000 + P420,000 + P78,000) .............. P710,000
Total liabilities (P80,000 + p35,000 + P100,000 + P200,000 +
P185,000 + P200,000) .................................................................. P800,000
Common stock (given) ....................................................................... P240,000
Deficit (given) .............................................................................. P330,000
140 Chapter 8
Book values after reorganization:

Total assets (reorganization value) ............................................................... P780,000
Total liabilities (P5,000 + P4,000 + P100,000 + P50,000 +
P71,000 + P110,000) ............................................................................. P340,000
Common stock (returned shares are reissued)............................................... P240,000
Deficit (eliminated) ..................................................................................... –0–
Additional paid in capital (squeeze) .............................................................. 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 ........................................................................ 20,000
Inventory ..................................................................................... 22,000
Equipment ..................................................................................... 13,000
Additional paid in capital ................................................................ 70,000
To adjust accounts to market value as part of fresh start accounting.
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 .... ..................................................................................... 5,000
Common stock, P8 par value ................................................................. 8,000
Additional paid in capital (P6.66 per share) .......................................... 6,666
Gain on debt discharge .......................................................................... 60,334
To record settlement of accounts payable.
4. Accrued expenses.... ..................................................................................... 35,000

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

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

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

Note payable.. .............................................................................. 110,000
Gain on debt discharge ................................................................. 90,000
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.
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 P129,000
Property and equipment
Land and buildings . ..... .............................................................................. 278,000
Machinery.... ... ...... ..... .............................................................................. _121,000 399,000
Intangible assets
Patents ...... ... ...... ..... .............................................................................. 125,000
Reorganization value in excess of amount allocable To identifiable assets _147,000 _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 _185,000
Total liabilities. ...... ..... .............................................................................. P282,000
Stockholders' Equity:
Common stock . ...... ..... .............................................................................. P500,000
Additional paid in capital (squeeze) ............................................................ __18,000 _518,000
Total liabilities and stockholders' equity ................................................................ P800,000
142 Chapter 9
CHAPTER 9

9-1: d
Deferred gross profit, Dec. 31 (before adjustment) P1,050,000
Less: Deferred gross profit, Dec. 31 (after adjustment)
Installment accounts receivable, Dec. 31 P1,500,000
Gross profit rate ____ 25% __375,000
Realized gross profit, 2008 P 675,000
OR
Installment Sales (P1,050,000  25%) P4,200,000
Less: Installment account receivable, Dec. 31 __1,500,00
Collection P2,700,000
Gross profit rate ___X 25%
Realized gross profit, 2008 P 675,000
9-2: a
2006 2007 2008
Deferred gross profit, before adjustment P7,230 P 60,750 P 120,150
Deferred gross profit, end
2006 (6,000 X 35%) 2,100
2007 (61,500 X 33%) 20,295
2008 (195,000 X 30%) ___58,500
Realized gross profit, December 31, 2008 P5,130 P 40,455 P 61,650
(Total – P107,235)
9-3: c
Deferred gross profit balance, end P 202,000

Divide by Gross profit rate based on sales (25%  125%) ____ 20%
Installment Accounts Receivable, end P1,010,000
Collection ___440,000
Installment Sales P1,450,000
9-4: b
Sales P1,000,000
Cost of installment sales __700,000
Deferred gross profit P 300,000
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000) P 600,000
Gross profit rate (300,000  1,000,000) ___X 30% __180,000
Realized gross profit P 120,000
Operating expenses ___80,000
Operating income 40,000
Interest and financing charges __100,000
Net income P 140,000
Installment Sales 143
9-5: a
Market value of repossessed merchandise P 30,000
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000) P 50,000
Less: Deferred gross profit (50,000X20%) ___10,000__40,000
Loss on repossession (P 10,000)
9-6: a
Installment sales P1,000,000
Less: collection on installment sales __200,000
Installment account receivables, 12/31/08 800,000
Gross profit rate (500,000  1,000,000) ___X 50%
Deferred gross profit, 12/31/08 P 400,000
OR
Deferred gross profit (1,000,000-500,000) P500,000

Less: Realized Gross Profit (200,000 X 50%) _100,000
Deferred gross profit, 12/31/08 P400,000
9-7: d
Fair value of repossessed merchandise P120,000
Unpaid balance P 200,000
Less: Deferred gross profit (200,000 X 32.5%) ___65,000_135,000
9-8: b
Realized gross profit:
Collections:
Downpayment P 35,000
Installment received (205,000-200,000) ___5,000
Total 40,000
Gross Profit Rate (150,000  240,000) _X 62.5%
Realized gross profit P 25,000
Gain (loss) on repossession:

Appraised value of repossessed merchandise P165,000
unpaid balance P 200,000
less: deferred gross profit (200,000 X 62.5%) __125,000__75,000
Gain on repossession P 90,000
144 Chapter 9
9-9: b
Sch.1
Applying Applying Balance
to to of
Date Collection Interest principal principal
Apr-1 P7,000.00
Apr-1 750 750.00 6,250.00
May-1 625 125.00 500.00 5,750.00
Jun-1 625 115.00 510.00 5,240.00
Jul-1 625 104.80 520.20 4,719.80
Aug-1 625 __94.40 ___530.60 4,189.00
P439.20 P2,810.80
Gain (loss) on repossession:

Market value of repossessed merchandise P 1,875
unpaid balance of principal (sch. 1) P 4,189
less: deferred gross profit (4,189 X 35%) __1,466___2,723
Loss on repossession (rounded) (P 848)

Collection applying to principal (sch. 1) P2,810.80
Gross profit rate __X 35%
Realized gross profit P 983.78
9-10: c
Year of Sales
2007 2008
Deferred gross profit (Sales X Gross Profit Rate)
2007 (P300,000 X 30%) P 90,000
2008 (P450,000 X 40%) P 180,000
2007: Accounts written-off (P25,000 X 30%) ( 7,500)
Realized gross profit (P100,000 X 30%) ( 30,000)
2008: Accounts written-off, 2007 (P75,000 X 30%) ( 22,500)
Accounts written-off, 2008 (P50,000 X 40%) ( 60,000)
Realized gross profit, 2007 (P50,000 X 30%) ( 15,000)
Realized gross profit, 2008 (P150,000 X 40%) ________ ( 60,000)
Deferred gross profit, 12/31/08 (P75,000) P 15,000P 60,000
9-11: a
Deferred gross profit, 2007 (P1,050,000 - 735,000) P 315,000
Deferred gross profit, 12/31/07 270,000
Realized gross profit, 2008 (P390,000-90,000) X 30% ( 90,000)
Deferred gross profit, 12/31/08 P 180,000
9-12: a
2007 2008
Deferred gross profit (Sales - Cost of Installment Sales) P 480,000 P450,000
Realized gross profit, 2008 (P900,000 X 30%) _______ ( 270,000)
Deferred gross profit, 12/31/08 (P228,000) P 48,000 P180,000
9-13: c
Trade-in value P 30,000
Less: Actual value
Estimated selling price P 25,000
Less: reconditioning cost P 1,250
normal gross profit (25,000 X 15%) __3,750 ___5,000 __20,000
Overallowance P 10,000
Collection:
Downpayment P 5,000
Actual value of merchandise-Trade In 20,000
Installment collected (5,000 X 3) _15,000 P 40,000
Gross Profit Rate:

Sales P 85,000
Overallowance ( 10,000)
Net Sales P 75,000
Cost of Installment Sales _60,000
Gross Profit P 15,000
Gross Profit Rate (15,000  75,000) _X 20%
Realized Gross Profit P 8,000
9-14: c
Collection excluding interest (P900,000-P300,000) P 600,000
Gross profit rate (P1,200,000  P3,600,000) X 33 1/3%
Realized Gross Profit, December 31, 2008 200,000
Add Interests __300,000
Total Revenue P 500,000
9-15: a
Wholesale value of repossessed merchandise P 4,000
Unpaid balance:
Sales, 10/1/07 P 24,000
Collection, 2007 (6,000  2,000) ( 8,000)
Collection, 2008 (1,000 X 7) ( 7,000) P 9,000
Deferred gross profit (9,000 X 25%) __2,250 ___6,750
146 Chapter 9
9-16: a
Trade-in Value (P300 X 6) P 1,800
Less: Actual value
Estimated selling price (P315 X 6) P 1,890
Less: Reconditioning cost (P25 X 6) P150
Gross Profit (P1,890 X 10%) _189 ___339 ___1,551
Over-allowance P 249
9-17: a
Deferred gross profit, before adjustment P 76,000
Deferred gross profit, end
2007: P32,500 X (30%  130%) P 7,500
2008: P180,000 X (33 1/3%  133 1/3%) _45,000__52,500
Realized gross profit on installment sales P 23,500
9-18: d
Unpaid balance (P27,000 - P16,000) P 11,000
Multiply by gross profit rate (P734,400  P2,160,000) ___X 34%
Deferred gross profit to be cancelled on repossession P 3,740
9-19: b
Collection:
2007 Downpayment P 600,000
2008 Installment collection 600,000
Interest __540,000
Total 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
Regular Sales P 187,500
Cost of regular sales __112,500
Gross profit on regular sales P 75,000
Add: Realized gross profit on installment sales
2007 (25,000 X 50%) P12,500
2008 (62,500 X 55%) _34,375__46,875
Total realized gross profit 121,875
Operating expenses ___31,250
Net income, 12/31/08 P 90,625
9-21: a
Installment sales – 2007 P785,000
Collections:
Down payment (20% x 785,000) P157,000
Installment (40% x 628,000) 251,200 408,200
Installment accounts receivable 2007, 12/31/07 376,800
Gross profit rate on sales 35/135
Deferred gross profit- 2007, 12/31/07 P 97,689
9-22: a
Regular sales P1,575,000
Cost of regular sales 1,050,000
Gross profit on regular sales 525,000
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%) 2,625,000
Installment accounts receivable-12/31/08 1,575,000
Collections 1,050,000
Gross profit on rate on sales 140/240 612,500
Total realized gross profit 1,137,500
Operating expenses (1,137,500 x 70%) 796,250
9-23: a
Regular sales P375,000
Cost of regular sales 215,000
Gross profit on regular sales 160,000
Realized gross profit on installment sales:
Collections excluding Interest (312,000 – 24,000)288,000
Gross profit rate (270,000/900,000) 30% 86,400
Total realized gross profit 246,400
Loss on repossession
Fair value of repossessed merchandise 54,000
Less: Unrecovered cost (100,000 x 70%) 70,000 ( 16,000)
Total realized GP after loss on repossession 230,400
Less: Operating expenses 72,000
Installment accounts written-off (44,000 x .70) 30,800 102,800
Net operating income 127,600
Interest income 24,000
Net income P151,600
148_ Chapter 9
Problem 9 – 1
Journal Entries:
2006 2007 2008
Installment A/R–2006 ............... 104,000 – –
Installment A/R–2007 ............... – 116,000 –
Installment A/R–2008 ............... – – 121,000
Installment Sales ................. 104,000 116,000 121,000
Cost of Installment Sales ........... 64,480 68,440 73,810
Inventory ............................. 64,480 68,440 73,810
Cash ........................................... 66,980 125,520 145,460

Installment A/R–2006 57,200 29,120 15,000
Installment A/R–2007 ......... – 71,920 26,680
Installment A/R–2008 ......... - _ 76,230
Interest Revenue ................. 9,780 24,480 27,550
Installment Sales........................ 104,000 116,000 121,000

Cost of Installment Sales .... 64,480 68,440 73,810
Deferred Gross Profit–2006 39,520 – –
Deferred Gross Profit–2007 – 47,560 –
Deferred Gross Profit–2008 – – 47,190
Deferred Gross Profit–2006 ...... 21,736 11,066 5,700

Deferred Gross Profit–2007 ...... – 29,487 10,939
Deferred Gross Profit–2008 ...... – – 29,730
Realized Gross Profit .......... 21,736 40,553 46,369
Computations:
2006: P57,200 X .38 = P21,736
2007: P29,120 X .38 = P11,066

P71,920 X .41 = 29,987
Total RGP P40,553
2008: P15,000 X .38 = P 5,700

P26,680 X .41 = 10,939
P76,230 X .39 = 29,730
Total RGP P46,369
Problem 9 – 2
2007: Inventory ................................................................................................ 45,200
Cash ................................................................................................ 45,200
Notes Receivable 2007 (P32,000 + P62,000 + 3,600) ........................... 97,600
Unearned Interest Revenue (P7,167 + P3,600) ............................... 10,767
Installment Sales ............................................................................. 86,833
Cost of Installment Sales (P45,200 – P2,000 inventory increase) ......... 43,200
Inventory......................................................................................... 43,200
Cash ... ................................................................................................... 35,600
Notes Receivable 2007 ................................................................... 35,600
Unearned Interest Revenue 2007 ........................................................... 3,600
Interest Revenue ............................................................................. 3,600
Installment Sales .................................................................................... 86,833
Cost of Installment Sales ................................................................ 43,200
Deferred Gross Profit on Installment Sales–2007........................... 43,633
Deferred Gross Profit on Installment Sales–2007 .................................. 16,080*
Realized Gross Profit on Installment Sales ..................................... 16,080
*Gross profit percentage: 50.25% (P43,633  P86,833)
.5025 x 32,000 = P16,080
2008: Inventory ................................................................................................ 52,020
Cash ................................................................................................ 52,020
Notes Receivable–2008 ......................................................................... 89,5001
Unearned Interest Revenue ............................................................. 11,9552
Installment Sales ............................................................................. 77,545
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......................................................................................... 44,020
Cash ... ................................................................................................... 55,500
Notes Receivable–2007 (P62,000 – P36,000) ................................ 26,000
Notes Receivable–2008 .................................................................. 29,500*
* P89,500 – P60,000 = P29,500
Discount on Notes Receivable–2007 ..................................................... 1,588
Discount on Notes Receivable–2008 ..................................................... 3,912
Interest Revenue ............................................................................. 5,500
Cost of Installment Sales ................................................................ 44,020
Deferred Gross Profit on Installment Sales–2008........................... 33,525
Deferred Gross Profit on Installment Sales–2007 (P26,000
– P1,538 = P24,412; P24,412 x .5025) .................................................. 12,267
Deferred Gross Profit on Installment Sales–2008 .................................. 11,062*
Realized Gross Profit on Installment Sales ..................................... 23,329 p
.4323 x (P29,500 – P3,912) = P11,062
150 Chapter 9
Problem 9 – 3
Deferred gross profit, 1/1 P24,000

1. 2006: Gross profit rate = ––––––––––––––––––––– = ––––––– = 40%
Install. contracts rec'l, 1/1 P60,000
Deferred gross profit, 1/1 P24,000

2007: Gross profit rate = ––––––––––––––––––––– = ––––––– = 42%
Install. contracts rec'l, 1/1 P140,000

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

Cost of sales:
Merchandise inventory, January 1 ......................................................... P240,000
Purchases ............................................................................................... 476,000
Cost of goods available for sale ............................................................. 716,000
Less Shipments on installment sales ...................................................... 114,000
Cost of goods available for regular sales ............................................... 602,000
Less Merchandise inventory, December 31 ........................................... 260,000 342,000
Gross profit on regular sales ......................................................................... 258,000
Add Realized gross profit on installment sales (Schedule 1) ........................ 96,900
Total realized gross profit ............................................................................. 354,900
Operating expenses:
Selling expenses..................................................................................... 210,000
Doubtful accounts expense .................................................................... 1,500 211,500
Net income ................................................................................................... P143,400
Schedule 1
Years of Installment Sales
2006 2007 2008 Total
Collections .......................................... P40,000 P80,000 P110,000
Multiply by Gross profit rate ............... 40% 42% 43%
Realized gross profit ............................ P16,000 P33,600 P 47,300 P 96,900
4. Good Buy Mart

Balance Sheet
December 31, 2008
A s s e t s
Cash ..... .... ................................................................................................... P144,000
Merchandise inventory.................................................................................. 260,000
Accounts receivable ...................................................................................... P 62,000
Allowance for doubtful accounts .................................................................. 3,500 58,500
Installment contracts receivable – 2006 ........................................................ 20,000
Other assets ................................................................................................... 200,000
Total Assets ........................................................................................... P832,500
Liabilities and Equity
Liabilities:
Accounts payable ................................................................................... P 60,000
Deferred gross profit on installment sales – 2006 .................................. 8,000
Total Liabilities ...................................................................................... 131,900
Equity:
Capital stock .......................................................................................... P406,000
Retained earnings ................................................................................... 294,600 700,600
Total Liabilities and Equity ................................................................... P832,500
152 Chapter 9
Problem 9 – 4
Deferred gross profit, 1/1 = P21,600 + P1,200 = P22,800

1. 2007: GP rate = ––––––––––––––––––––– = –––––––––––––––– = ––––––– = 30%
Install. contracts rec'l, 1/1 P24,000 + P52,000 P76,000
Gross profit P150,000 – P97,500 P52,500

2008: GP rate = –––––––––––––– = –––––––––––––––– = –––––––– = 35%
Installment sales P150,000 P150,000
2. Installment Sales ........................................................................................... 150,000

Cost of Installment Sales ....................................................................... 97,500
Deferred Gross Profit, 2008 ................................................................... 52,500
Deferred Gross profit, 2007 .......................................................................... 14,400
Deferred Gross Profit, 2008 .......................................................................... 25,900
Realized Gross Profit ............................................................................. 40,300
Computation:
2007 2008
Sales Sales Total
Installment contracts receivable, 1/1 .................... P76,000 P150,000
Less Installment contracts receivable, 12/31 ....... 24,000 76,000
Total credit for the period .................................... 52,000 74,000
Less Credit representing repossession ................. 4,000 –
Credit representing collections ............................ P48,000 P 74,000
Multiply by Gross profit rate ............................... 30% 35%
Realized gross profit ............................................ P14,400 P 25,900 P 40,300
Sales ..... .... ................................................................................................... 212,000

Realized Gross Profit .................................................................................... 40,300
Loss on Repossession ............................................................................ 400
Cost of Sales .......................................................................................... 165,000
Selling and Administrative Expenses .................................................... 66,000
Income Summary ................................................................................... 20,900
Income Summary .......................................................................................... 20,900
Retained Earnings .................................................................................. 20,900
3. Apple Company
Income Statement
Sales ..... .... ................................................................................................... .................. P212,000

Cost of sales .................................................................................................. .................. 165,000
Gross profit on regular sales ......................................................................... .................. 47,000
Add Realized gross profit on installment sales (Schedule 1) ........................ .................. 40,300
Total realized gross profit ............................................................................. .................. 87,300
Less Loss on repossession............................................................................. .................. 400
Total realized gross profit after adjustment for loss on repossession ............ .................. 86,900
Selling and administrative expenses ............................................................. .................. 66,000
Net income ................................................................................................... .................. P 20,900
Problem 9 – 4
Schedule 1
2007 2008
Sales Sales Total
Installment contracts receivable, 1/1 ....................... P76 000 P150,000
Less Installment contracts receivable, 12/31 ........... 24,000 76,000
Total credit for the period ........................................ 52,000 74,000
Less Credit representing repossession ..................... 4,000 –
Credit representing collections ................................ P48,000 P 74,000
Multiply by Gross profit rate ................................... 30% 35%
Realized gross profit ................................................ P14,400 P 25,900 P40,300
Problem 9 – 5
1. Cost of Installment Sales .................................................................... 54,400

Shipments on Installment Sales.................................................... 54,400
Installment Sales ................................................................................. 80,000

Cost of Installment Sales .............................................................. 54,400
Deferred Gross Profit, 2008 ......................................................... 25,600
Gross profit = P25,600  P80,000 = 32%
Deferred Gross Profit, 2007 ................................................................ 14,000
Deferred Gross Profit, 2008 ................................................................ 8,000
Realized Gross Profit ................................................................... 22,000
Computation:
2007 2008
Sales Sales Total
Installment contracts receivable, 1/1 ............. P82,000 P 80,000
Less Installment contracts receivable, 12/31. _ 36,000 _55,000
Total credit for the period.............................. 46,000 25,000
Less Credit representing repossession........... __6,000 ___ –
Credit representing collections ...................... P40,000 P 25,000
Multiply by Gross profit rate ......................... __35%* ___32%
Realized gross profit ..................................... P14,000 P 8,000 P 22,000
DGP, 1/1 P28,700 (26,600 + 2,100)

*2007 Gross profit rate= ––––––– = ––––––– = 35%
ICR, 1/1 P82,000 (36,000 + 40,000 + 6,000)
154 Chapter 9
Sales .... ... ........................................................................................... 200,000

Merchandise Inventory, December 31 ................................................ 52,000
Shipments on Installment Sales .......................................................... 54,400
Merchandise Inventory, January 1 ............................................... 60,000
Purchases ...................................................................................... 180,000
Repossessed Merchandise ............................................................ 3,000
Loss on Repossession ................................................................... 900
Operating Expenses ...................................................................... 53,000
Income Summary ......................................................................... 9,500
Realized Gross Profit .......................................................................... 22,000

Income Summary ......................................................................... 22,000
Income Summary ................................................................................ 31,500

Retained Earnings ........................................................................ 31,500
2. PPG Discount Center, Inc.

Income Statement
Regular Installment Total

Sales .... ... ................................................... P200,000 P80,000 P280,000
Cost of sales:
Inventory, January 1 ............................. P 60,000
Purchases .............................................. 180,000
Repossessed merchandise .................... __3,000
Cost of goods available for sale ........... 243,000
Less Shipments on installment sales .... _54,400
Cost of goods available for regular sales 188,600
Less Inventory, December 31............... _52,000 _136,600 54,400 191,000
Gross profit ................................................. P 63,400 25,600 89,000
Less Deferred gross profit on installment
sales, 2008 ............................................ 17,600 17,600
Realized gross profit, 2008 ......................... 8,000 71,400
Add Realized gross profit on 2007
installment sales ................................... 14,000 14,000
Total realized gross profit ........................... 22,000 85,400
Less Loss on repossession .......................... ___900 __900
Total realized gross profit after adjustment
for loss on repossession ........................ P21,100 84,500
Operating expenses ..................................... _53,000
Net income .................................................. P31,500

Problem 9 – 6
1. London Products
Schedule of Cost of Goods Sold
Merchandise inventory, January 1 ................................................................ .................. P 48,000

Purchases ................................................................................................... .................. 238,000
Freight-in ................................................................................................... .................. 12,000
Repossessed merchandise ............................................................................. .................. 14,000
Cost of goods available for sale .................................................................... .................. 312,000
Less Merchandise inventory, December 31 .................................................. .................. 52,000
Cost of goods sold ......................................................................................... .................. P260,000
2. London Products
Schedule of Allocation of Cost of Goods Sold
On Cash Ratio to Allocated

Amount Price Basis Total Cost
Cash sales .................. P60,000 P 60,000 60/400 P 39,000
Charge sales ................. 120,000  120% 100,000 100/400 65,000
Installment sales ........... 300,000  125% 240,000 240/400 156,000
P 400,000 P260,000
3. London Products
Income Statement
Installment Charge Cash

Total Sales Sales Sales
Sales ..... .... ....................................... P480,000 P 300,000 P120,000 P 60,000
Cost of goods sold ............................. 260,000 156,000 65,000 39,000
Gross profit ....................................... P 220,000 P 144,000 P 55,000 P 21,000
Less Unrealized gross profit:
On installment contracts
receivable,12/31 (192,000 x 144/300) 92,160 92,160
Realized gross profit ......................... 127,840 51,840
Add Realized gross profit on
prior years' sales (Schedule 1):
2006 .................................... 19,200
2007 .................................... 14,700 33,900 33,900
Total realized gross profit ................. 161,740 85,740
Less Loss on repossession
(Schedule 2) ............................... 10,200 10,200
Total realized gross profit after
adjustment for loss on
repossession ............................... 151,540 P 75,540
Less Operating expenses ................... 93,000
Net income ....................................... P 58,540
156 Chapter 9
Schedule 1
2006 2007
Installment contracts receivable, January 1:
2006 – P32,000  40% ................................................................. P80,000
2007 – P56,000  35% ................................................................. P160,000
Less Installment contracts receivable, December 31 .......................... _22,000 __90,000
Total credits ........................................................................................ 58,000 70,000
Less Credit representing repossession ................................................ _10,000 28,000
Total collections.................................................................................. P48,000 P 42,000
Multiply by Gross profit rate .............................................................. ___40% ___35%
Realized gross profit ........................................................................... P19,200 P 14,700
Schedule 2
2006 2007 Total

Fair market value of repossessed merchandise .... P 2,000 P12,000 P 14,000
Less Unrecovered cost:
Unpaid balance .............................................. 10,000 28,000 38,000
Less Unrealized profit –
2006 – P10,000 x40%............................. 4,000
2007 – P28,000 x35%............................. 9,800 13,800
Balances ............................................................ __6,000 18,200 __24,200
Gain (loss) on repossession ................................. P(4,000) P( 6,200) P( 10,200)
Problem 9 – 7
1. 2007 2008
2007
2007 installment sales (P400,000 x 42%*) .................................. P 168,000
2008:
2007 installment sales (P173,000 x 42%) .................................... P 72,660
2008 installment sales (P560,000 x 38.5%*) ............................... ________ __215,600
Deferred gross profit ........................................................................... P 168,000 P 288,260
*Computation of Gross profit percentages (see next page)

2007 2008
Installment sales..................................................................................P2,210,000 P3,100,000
Less Trade-in allowances (P226,000 – P158,000).............................. _______– ____68,000
Adjusted installment sales .................................................................. 2,210,000 _3,032,000
Cost of sales:
Inventories, January 1 (new) ........................................................ – 420,000
Purchases (new) ........................................................................... 1,701,800 1,767,000
Repossessed merchandise ............................................................ – _83,000*
Cost of goods available for sale ................................................... 1,701,800 2,270,000
Less: Inventories, December 31 –

New merchandise................................................................... 420,000 358,820
Repossessed merchandise ...................................................... _______– ____46,500
Total ....................................................................................... 420,000 405,320
Cost of sales ................................................................................. 1,281,800 _1,864,680
Gross profit ......................................................................................... P 928,200 P1,167,320
Gross profit percentages ..................................................................... 42% 38.5%

*2007 : P195,000 x 20% =P39,000
2008 : P110,000 x 40% =_44,000
P83,000
Uncollectible installment contracts expense, per books P 99,000

Correct Uncollectible installment contracts expense:
Fair market value of repossessed merchandise –
2007 sales (P195,000 x 20%) ........................... P 39,000
2008 sales (P110,000 x 40%) ........................... __44,000 P 83,000
Unrecovered cost –
2007 sales [P105,000 x (100% – 42%)] ........... 60,900
2008 sales [P82,000 x (100% – 38.5%)] .......... __50,430 __111,330 __28,330
Adjustment to Uncollectible installment contracts expense P 70,670
Fortune Sales Corporation

Income Statement
Cash Installment Total

Sales Sales Sales
Sales ...................................................................... P205,000 P3,032,000 P3,237,000
Cost of sales ................................................................... _158,000 _1,864,680 _2,022,680
Gross profit .................................................................... P 47,000 1,167,320 1,214,320
Less Unrealized gross profit on 2005 installment
sales (Schedule 1) .................................................... __247,170 __247,170
Realized gross profit on 2008 sales ............................... 920,150 967,150
Add Realized gross profit on 2007 installment
sales (Schedule 2) .................................................... ___51,240 ___51,240
Total realized gross profit .............................................. 971,390 1,018,390
Less Uncollectible installment contracts expense.......... ___28,330 ___28,330
Total realized gross profit after adjustment ................... P 943,060 990,060
Operating expenses ........................................................ __592,960
Net income ..................................................................... P 397,100
158 Chapter 9
Schedule 1
Installment contracts receivable 2008, December 31 ....... ............ P 560,000

Installment contracts receivable 2008 defaulted ............... ............ ___82,000
Total .... ... ......................................................................... ............ P 642,000
Multiply by 2008 gross profit percentage ......................... ............ ___38.5%
Unrealized gross profit on 2008 installment sales ............ ............ P 247,170
Schedule 2
Installment contracts receivable 2007, January 1 ............................... P 400,000
Less Installment contracts receivable 2007, December 31 ................. __173,000
Total credits for the period ................................................................. 227,000
Less Installment contracts receivable 2007 defaulted ........................ __105,000
Total collections.................................................................................. P 122,000
Multiply by 2007 gross profit percentage ........................................... _____42%
Realized gross profit on 2007 installment sales.................................. P 51,240
1. Apportionment of cost (P600,000) to Lots 1, 2 and 3:
Lot 1 : 2/3 x P360,000.................................... P 240,000

Lot 2 : 2/3 x P240,000.................................... 160,000
Lot 3 : 1/3 ....................................................... P120,000
1/3 x P240,000 ........................................ __80,000 __200,000
Total cost ....................................................... P 600,000
Journal Entries for 2007

March 31
Cash .... ... ...................................................................................... 36,000.00
Notes Receivable (Lot 2) ............................................................... 364,000.00
Lot 2 ...................................................................................... 160,000.00
Deferred gain on Sale of Land ................................................ 240,000.00
June 30
Cash .... ... ...................................................................................... 120,000.00
Lot 3 . ...................................................................................... 200,000.00
Deferred Gain on Sale of Land ............................................... 640,000.00
Cash .... ... ...................................................................................... 16,000.00
Interest Income (P364,000 x 12% x 3/12) ............................... 10,920.00
Notes Receivable (Lot 2)......................................................... 5,080.00
September 30
Cash .... ... ...................................................................................... 16,000.00
Interest Income (P358,920 x 12% x 3/12) ............................... 10,767.60
October 31
Cash .... ... ...................................................................................... 72,000.00
Lot 1 . ...................................................................................... 240,000.00
Deferred Gain on Sale of Land ............................................... 120,000.00
December 31
Cash .... ... ...................................................................................... 78,000.00
Interest Income ........................................................................ 59,570.63
Computation:
Total Lot 1 Lot 2 Lot 3
Collections ....................................... P78,000.00 P12,000.00 P16,000.00 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) ............................................... 26,080.00

Deferred Gain on Sale of Land (Lot 2) ............................................... 31,021.06
Deferred Gain on Sale of Land (Lot 3) ............................................... 96,368.00
Realized Gain on Sale of Land ..................................................... 153,469.06
Computation:
Lot 1 Lot 2 Lot 3
Collections applied to principal ....... P78,240.00 P51,701.77 P126,800.00
Multiply by Gross profit rates:
Lot 1 – P120,000  P360,000 ..... 33.33%
Lot 2 – P240,000  P400,000 ..... 60%
Lot 3 – P640,000  P840,000 ..... _________ _________ _____76%
Realized gain ................................... P26,080.00 P31,021.06 P96,368.00
3. Lot 3 (80% x P200,000)......................................................................160,000.00

Deferred Gain on Sale of Land (Lot 3) (P640,000 – P96,368) ..........543,632.00
Loss on Repossession ......................................................................... 9,568.00
Notes Receivable (Lot 3) (P720,000 – P6,800) ........................... 713,200.00
160 Chapter 9
Problem 9 – 9
Galaxy Investment Company

Income Statement
Sales Schedule 1) ................................................................................................... P 8,060,000

Cost of sales (Schedule 2)....................................................................................... 1,612,000
Gross profit .... .... ................................................................................................... 6,448,000
Less Sales commissions ......................................................................................... 221,000
Gross profit .... .... ................................................................................................... 6,227,000
Less Deferred gross profit
Installment Notes Balance P5,370,000
––––––––––––––––––––– =–––––––––– =67% x P6,227,000 4,172,090
Installment Sales P8,060,000
Realized gross profit ............................................................................................... 2,054,910
Expenses:
Advertising and promotion ........................................................................... P 730,000
Sales manager's salary................................................................................... 120,000
General office expenses (1/4 x P236,000) .................................................... 59,000 909,000
Net profit ...... .... ................................................................................................... P 1,145,910
Schedule 1
Total Cash Installment
Sales Price Received Notes Balance
A lots : 26 @ P150,000 ............................................... P3,900,000 P1,650,000 P 2,250,000
B lots : 32 @ P100,000 ................................................ 3,200,000 800,000 2,400,000
C lots : 12 @ P80,000 .................................................. 960,000 240,000 720,000
........................................................ P8,060,000 P2,690,000 P 5,370,000
Schedule 2
Number of Unit Total
Class Lots Price Sales Value
A ... ...... .... ........................................................ 80 P150,000 P12,000,000
B .... ...... .... ........................................................ 100 100,000 10,000,000
C .... ...... .... ........................................................ 120 80,000 9,600,000
Total ... ........................................................ 300 P31,600,000
Cost of tract:
Cost of land ................................................................................................... P 4,800,000
Legal fees, etc. .............................................................................................. 600,000
Grading contract............................................................................................ 225,000
Water and sewerage system contract ............................................................ 184,900
Paving contract ............................................................................................. 266,300
General office expenses (3/4 x P236,000) .................................................... 177,000
Total ..... .... ................................................................................................... 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)] ........................................... P103,000

Cost of goods sold on installment (schedule 1) ........................................... __79,310
Gross profit .. ... ........................................................................................... 23,690
Less Deferred gross profit on 19x8 sales
(P103,000 – P21,000 = P82,000 x 23%*) .......................................... __18,860
Realized gross profit on 2008 sales ............................................................. 4,830
Add Realized gross profit on prior years' sales –
2006 : P60,000 x 33-1/3*.................................................................... P20,000
2007 : P115,000 x 35%* ..................................................................... _40,250 __60,250
Total realized gross profit............................................................................ 65,080
Less Loss on repossession (Schedule 4) ...................................................... __33,100
Total realized gross profit after adjustment ................................................. 31,980
General and administrative expenses .......................................................... __50,000
Net income (loss)......................................................................................... P(18,020)
*See Schedule 3
Schedule 1
Purchases (P10,500 x 8) .............................................................................. P 84,000

Repossessed merchandise............................................................................ ___2,520
Cost of goods available for sale................................................................... 86,520
Less Inventory, December 31 –
Number of units on hand .................................................................... 1
Multiply by average unit cost (Schedule 2) ........................................ P 7,210 ___7,210
Cost of goods sold on installment ............................................................... P 79,310
Schedule 2
Purchases during 2008 (P10,500 x 8) .......................................................... P 84,000

Add Repossessed merchandise .................................................................... ___2,520
Total ..... ...... ... ........................................................................................... P 86,520
divide by Number of units (8 + 4)............................................................... _____12
Average unit cost ......................................................................................... P 7,210
162 Chapter 9
Schedule 3
........................................................ 2006 2007 2008

Sales –
2006 : P15,000 x 10 ....................................... P150,000
2007 : P14,000 x 20 ....................................... P280,000
2008 : P14,300 x 7 ......................................... 100,100
P725 x 4 .............................................. _______ _______ __2,900
Sales ........................................................ 150,000 280,000 103,000
Cost of goods sold:
Inventory, January 1 ........................................ – 20,000 –
Purchases ........................................................ 120,000 162,000 84,000
Repossessed merchandise ................................ _____– _____– _2,520
Cost of goods available for sale ....................... 120,000 182,000 86,520
Less Inventory, December 31 .......................... _20,000 _____– _7,210
Cost of goods sold ........................................... 100,000 182,000 79,310
Gross profit .. ... ........................................................ P 50,000 P 98,000 P23,690
Gross profit rates ...................................................... 33-1/3% 35% 23%
Schedule 4
Fair market value of repossessed merchandise............................................ P 2,520

Less Unrecovered cost –
Unpaid balance:
Original sales amount (P14,000 x 4) ............................................ P 56,000
Collections prior to repossession.................................................. __1,200
Total . ........................................................................................... 54,800
Less Unrealized profit (P54,800 x 35%) ............................................ _19,180 _35,620
Loss on repossession ................................................................................... P33,100
Long-Term Construction Contracts 163
CHAPTER 10
10-1: a
Percentage of Completion Method:
Contract Price P1,000,000
Less: Total estimated cost
Cost incurred P 200,000
Estimated remaining cost _400,000 __600,000
Gross profit estimated 400,000
% of completion (200,000/600,000) __33 1/3%
Gross profit to be recognized P 133,333
Zero Profit Method: 0
10-2: a P100,000
2007 2008
Contract Price P9,000,000 P9,000,000
Less: Total estimated cost _7,800,000 _8,100,000
Estimated gross profit 1,200,000 900,000
% of completion:
2007 (3,900,000/7,800,000) 50%
2008(6,300,000/8,100,000) _________ ______78%
Gross profit earned to date 600,000 700,000
Less: Gross profit earned in prior year ________– ___600,000
Gross profit earned each year P 600,000 P 100,000
10-3: a
Less: Total estimated cost (3,600,000 + 1,200,000) _4,800,000
Estimated gross profit 1,200,000
% of completion (3,600,000/4,800,000) _____75%
Gross profit earned to date 900,000
Less: Gross profit earned in 2007 __600,000
Gross profit earned in 2008 P 300,000
10-4: b
Less: Total estimated cost (930,000 + 2,170,000) _3,100,000
Loss (P 100,000)
164 Chapter 10
10-5: b
Total cost to date, 2008 (4,800,000 X 60%) P2,880,000
Less: Cost incurred in 2007 (4,500,000 X 20%) __900,000
Cost incurred in 2008 P1,980,000
10-6: a
Less: Total estimated cost (900,000/1,800,000) _2,700,000
Estimated gross profit 300,000
% of completion (900,000/2,700,000) ___33.33%
Gross profit recognized, 2007 100,000
Add: Cost Incurred ___900,000
Construction in Progress - 2007 P 1,000,000
Zero Profit Method:

Cost incurred to Construction in Progress - 2007 P 900,000
10-7: a
2007 2008
P4,200,000
Less: Total estimated cost _3,000,000
_3,750,000
Estimated gross profit 1,200,000450,000
% of completion _____20% ____100%
Gross Profit earned to date 240,000 450,000
Gross Profit earned in prior year _______– __240,000
Gross Profit earned this year P 240,000P 210,000
10-8: b
Collections:
Contract Billings P 47,000
Less: Accounts receivable ___15,000
Collections P 32,000
Initial Gross Profit:

Contract Price P 800,000
Gross Profit rate:
Income recognized 10,000
Divide by Construction in Progress 50,000 =_____20%
Initial Gross Profit P 160,000
10-9: a
Gross profit (loss) earned in 2008 (P 20,000)

Gross profit earned in prior years _180,000
Gross profit earned to date - 2008 160,000
Divide by percentage of completion - 2008 ___100%
Estimated gross profit - 2008 160,000
Less: Contract price 2,000,000
Total estimated cost 1,840,000
Less: Cost incurred - 2008 _820,000
Cost incurred to date - 2007 1,020,000
Less: Cost incurred - 2006 __360,000
Cost incurred in 2007 P 660,000
10-10: b
Gross profit earned to date - 2007 (P40,000 + P140,000) P 180,000

Divide by estimated gross profit - 2007:
Contract price P2,000,000
Gross profit rate [180,000/(1,020,000 + 180,000)] ___X 15% __300,000
Percentage of completion - 2007 60%
10-11: a, Refer to Q 10-10 solutions.
10-12: d

Estimated gross profit - 2007 (Refer to Q 10-10) __300,000
Total estimated cost 1,700,000
Less: Cost incurred to date - 2007 (refer to Q 10-9) 1,020,000
Estimated cost to complete - 2007 P 680,000
10-13: d
2007: Construction in progress P 244,000

Less: Construction costs __210,000
Gross profit recognized - 2007 P 34,000
2008: Construction in progress (P728,000-P244,000) P 484,000

Less: Construction costs __384,000
Gross profit recognized - 2008 P 100,000
166 Chapter 10
10-14: d
Project 1 Project 2
Contract price P 420,000 P 300,000
Cost incurred to date - 2008 P 240,000 P 280,000
Estimated cost to complete __120,000 ___70,000
Total __360,000 __350,000
Estimated gross profit (Loss) 60,000 (50,000)
Percentage of completion __66.67% _______–
Profit (loss) to be recognized P 40,000 (P 50,000)
Total is (P10,000)
Zero Profit Method - The loss (P50,000) for project 2 only.
10-15: a
2006 2007 2008
Contract price (cost X 120%) P3,744,000
P3,744,000 P3,744,000
Less: Total estimated costs
(1) Cost incurred to date 546,0001,544,400 3,120,000
Estimated cost to complete _2,054,000
_1,315,000 ________–
(2) Total _2,600,000
_2,860,000 _3,120,000
Estimated gross profit 1,144,000884,000 624,000
Percentage of completion (1  2) _____20% _____54% ____100%
Gross profit earned to date 240,240 477,360 624,000
Gross profit earned in prior years _______– __240,240 __477,360
Gross profit earned this year P 240,240P 237,120P 146,640
10-16: d
2007 2008
Contract price P6,300,000 P6,300,000
Cost incurred to date 1,425,000 3,040,000
Estimated cost to complete _4,075,000 _1,960,000
Total P5,500,000 P5,000,000
Estimated gross profit 800,000 1,300,000
Percentage of completion:
2007 (1,425,000 - 50,000)  5,500,000 25%
2008 (3,040,000 - 50,000)  5,000,000 ________– __59.80%
Profit earned to date 200,000 777,400
Less: Gross profit earned in prior year ________– __200,000
Gross profit earned this year P 200,000 P 577,400
10-17: a
Cash collections:
Progress billings P1,500,000
Less: Accounts receivable, end __500,000
Collection P1,000,000
Cost incurred to date:

Construction in Progress P1,600,000
Less: Gross profit earned __200,000
Cost incurred to date P1,400,000
10-18: d

Apartment A Apartment B
2007 2008 2007 2008
Contract price 1,620,000 1,620,0002,520,0002,520,000
Less: Total Estimated Costs
(1) Cost incurred to date P 600,000 P1,200,000
P1,560,000 P2,310,000
Estimated cost to complete 840,000 240,000 690,000 –
(2) Total estimated cost 1,440,000 1,440,0002,250,0002,310,000
Estimated Gross Profit 180,000 180,000 270,000 210,000
Percentage of completion (1  2) _41.67% _83.33% _69.33% _100.00%
Gross profit earned to date 75,000 150,000 187,200 210,000
Less: Gross profit earned in Prior years _______– ___75,000_______– __187,200
Gross Profit earned this year P 75,000 P 75,000P 187,000P 22,800
Total Gross Profit 20 (P75,000 + P22,800) P97,800
Zero Profit Method - P210,000 gross profit earned in 2008 for Apartment B.
10-19: d
2007 2008
Contract price:
2007 P6,000,000
2008 (P6,000,000-P50,000) _________ P5,950,000
(1) Cost incurred to date 2,340,000 2,650,000
Estimated cost to complete 260,000 –
(2) Total estimated cost 2,600,000 2,650,000
Estimated Gross Profit 3,400,000 3,300,000
Percentage of completion (1  2) ____90% ___100%
Gross profit earned to date 3,060,000 3,300,000
Less: Gross profit earned in Prior year _______– 3,060,000
Gross Profit earned this year P3,060,000 P 240,000
168 Chapter 10
10-20: a
2006 2007 2008
(1) Cost incurred to date P3,400,000 P5,950,000 P6,150,000
(2) Estimated cost to complete 1,600,000 150,000 –
(3) Total Estimated Costs 5,000,000 6,100,000 6,150,000
Percentage of completion (1  3) 68% 98% 100%
Contract price P6,000,000 P6,000,000 P6,000,000

Less: Total estimated cost 5,000,000 6,100,000 6,150,000
Estimated Gross Profit 1,000,000 (100,000) (150,000)
Percentage of completion 68% 100% 100%
Gross profit earned (loss) to date 680,000 (100,000) (150,000)
Add: Cost incurred to date 3,400,000 5,950,000 6,150,000
Construction in Progress 4,080,000 5,850,000 6,000,000
Less: Contract billings 3,200,000 5,200,000 6,000,000
Balance P 880,000 P 650,000 –
10-21: c
Construction in Progress:
Cost incurred to date, 2007 P2,625,000
Gross profit earned, 2007 (Schedule 1) 100,000 P2,725,000
Less: Contract billings, 2006 (P3,250,000 x 75%) 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
Contract price P3,250,000 P3,250,000
Total estimated cost:
Cost to date 1,075,000 2,625,000
Estimated cost to complete 1,612,500 750,000
Total 2,687,500 3,375,000
Estimated gross profit (loss) 562,500 (125,000)
% of completion 40% –
Gross profit (loss) to date 225,000 (125,000)
Gross profit earned in prior years – 225,000
10-22: a
2005 2006 2007
Contract price P2,800,000 P2,800,000 P2,800,000
Estimated cost:
Cost to date 1,300,000 1,960,000 2,440,000
Estimated costs to complete 1,360,000 780,000 380,000
Total 2,660,000 2,740,000 2,820,000
Estimated gross profit 140,000 60,000 (20,000)
% of completion 48.87% 71.53% –

10-23: b
2007 Project A Project B Project C
Contract price P2,900,000 P3,400,000 P 1,700,000
Estimated costs:
Cost to date 1,680,000 1,440,000 320,000
Estimated cost to complete 1,120,000 1,760,000 960,000
Total 2,800,000 3,200,000 1,280,000
Estimated gross profit 100,000 200,000 420,000
% of completion 60% 45% 25%
Gross profit earned this year (P255,000) P 60,000 P 90,000 P 105,000
2008 Project A Project B Project C Project D

Contract price P2,900,000P3,400,000P1,700,000 P 2,000,000
Estimated costs
Cost to date 2,640,000 2,120,0001,183,000 560,000
Estimated costs to complete –0– 1,360,000 117,000 1,040,000
Total 2,640,000 3,480,000 1,300,000
1,600,000
Estimated gross profit (loss) 260,000 (80,000) 400,000 400,000
% of completion 100% – 91% 35%
Gross profit (loss) to date 260,000 (80,000) 364,000 140,000
Gross profit earned in prior year 60,000 90,000 105,000 –0–
Gross profit earned this year(P609,000) P 200,000 P 10,000 P 259,000
P 140,000
2007 2008
Gross profit earned P 255,000 P 609,000
General and administrative expenses 120,000 120,000
Net income P 135,000 P 489,000
10-24: c
Gross profit earned to date, 2008 (P900,000 – P100,000) 800,000
Total cost to date, 2008 9,200,000
Less: cost incurred in 2008 4,100,000
Cost to date, 2007 P 5,100,000
Gross profit earned to date P 900,000

Divided by % of completion:
(P5,100,000 + P900,000) / P10,000,000 60%
Estimated gross profit, 2007 P 1,500,000
10-25: d
Construction in progress:
Cost incurred to date P 440,000
Gross profit earned to date (P2,500,000 – P2,000,000) 110,000
Total 550,000
Less: Contract billings (P2,500,000 x 30%) 750,000
Excess of contract billings over construction in progress (CL) P( 200,000)
170 Chapter 10
10-26: a
Cost incurred to date:
Site labor cost 10,000,000
Cost of construction materials 30,000,000
Depreciation of special plant & equip 5,000,000
Total 45,000,000
Estimated cost to complete 55,000,000 100,000,000
Percentage of completion (45/100) 45%
Gross profit to be recognized P 9,000,000
10-27: a
Cost incurred to date- 2007
Total estimated cost (8,000,000 / 40%) 20,000,000
Estimated cost to complete 8,000,000 P12,000,000
Cost incurred in 2007 3,700,000
Cost incurred in 2006 8,300,000
Estimated cost at completion- 2006 12,450,000
Total estimated cost- 2006 P20,750,000
Percentage of completion- 2006 (8,300,000/ 20,750,000) = 40%
10-28: a
2007
Contract 1 Contract 2 CIP-2007
Contract price P600,000 P450,000
Cost incurred to date 150,000 87,500 P237,500
Estimated cost to complete 150,000 162,500
Total estimated cost 300,000 250,000
Estimated gross profit 300,000 200,000
Percentage of completion 50% 35%
Gross profit recognized P150,000 P70,000 P220,000
2008
Contract 1 Contract 2 Contract 3
Contract price 600,000 450,000 900,000
Total estimated cost 350,000 300,000 500,000
Gross profit earned to date 200,000 90,000 144,000
Gross profit earned in 2007 150,000 70,000 -
Gross profit earned this year 50,000 20,000 144,000
10-29: a
Bicol Davao Aklan Total
Contract price P875,000 P1,225,000 P437,500
Total estimated cost
Cost incurred 656,250 175,000 175,000 1,006,250
Est. cost to complete - 700,000 175,000
Total estimated cost 656,250 875,000 350,000
Gross profit earned P218,750 P 70,000 P43,750 332,500
Percentage of completion Zero Profit

Total cost incurred 1,006,250 1,006,250
Total gross profit earned 332,500 218,750
Construction in progress 1,338,750 1,225,000
Less: Billings 1,312,500 1,312,500
Due from (to) 26,250 (87,500)
10-30: a
Cost incurred 8,475,000
Estimated cost to complete 28,400,000 36,875,000
Percentage of completion 22.983%
Gross profit recognized P 907,830
172 Chapter 10
Problem 10 – 1
(a) 2007 2008
Contract Price P 450,000 P 450,000
(1) Cost incurred to date 200,000 320,000
Estimated costs to complete __100,000 _______–
(2) Total __300,000 _320,000
Estimated gross profit 150,000 130,000
Percentage of completion (1  2) ______2/3 ___100%
Estimated gross profit to date 100,000 130,000
Less: Gross profit earned in prior year _______– __100,000
(b) Contract Price P 450,000

Less: Total cost incurred __320,000
Gross profit P 130,000
(c) 2007: Construction in Progress 100,000

Cost of construction 200,000
Construction Revenue 300,000
2008: Construction in Progress 30,000
Cost of Construction 320,000
Construction Revenue 350,000
Problem 10 – 2
(a) Construction Revenue P1,250,000

Less: Cost incurred _1,250,000
Gross profit – 2008 P –0–
Construction in Progress (cost incurred) P1,250,000

Less: Contract billings (P5,800,000 x 30%) _1,740,000
Billings in excess of related costs P(490,000)
(b) Contract price P5,800,000

Cost incurred to date P1,250,000
Estimated costs to complete 3,740,000 5,000,000
Estimated gross profit 800,000
Percentage of Completion (P1,250,000  500,000) _____25%
Construction on Progress (P1,250,000 + P200,000) P1,450,000

Less: Contract billings _1,740,000
Billings in excess of related costs P(290,000)
Problem 10 – 3
(a) 2005 2006 2007 2008
Contract Price P55,000,000 P55,000,000 P55,000,000 P55,000,000
(1) Cost incurred to date 15,000,000 25,000,000 35,000,000 50,000,000
Estimated costs to complete _35,000,000 25,000,000 15,000,000 ________–
(2) Total _50,000,000 50,000,000 50,000,000 50,000,000
Estimated gross profit 5,000,000 5,000,000 5,000,000 5,120,000
Percentage of completion (1  2) ______30% _____50% _____70% ____100%
Gross profit earned to date 1,500,000 2,500,000 3,500,000 5,000,000
Gross profit earned in prior yr(s) ________– _1,500,000 _2,500,000 _3,500,000
Gross profit earned the year P 1,500,000 P 1,000,000 P 1,000,000 P 1,500,000
(b) 2007 2008

(1) Construction in Progress 15,000,000 15,000,000
Cash or Payable 15,000,000 15,000,000
(2) Accounts Receivable 15,000,000 20,000,000

Contract Billings 15,000,000 20,000,000
(3) Cash 12,000,000 25,000,000

Accounts Receivable 12,000,000 25,000,000
(4) Construction in Progress 1,000,000 1,500,000

Cost of Construction 15,000,000 15,000,000
Construction Revenue 16,000,000 16,500,000
Problem 10 – 4
(a) 2006 2007 2008

Cost incurred to date P 1,000,000 P 5,500,000 P10,000,000
Divide by total estimated cost P 9,000,000 P11,000,000 _12,000,000
Percentage of Completion 11.11% 50% 83.33%
2006 2007 2008

(b) Contract Price P15,000,000 P15,000,000 P15,000,000
Less: Total Estimated Cost
Cost incurred to date 1,000,000 5,500,000 10,000,000
Estimated costs to complete __8,000,000 __5,500,000 __2,000,000
Total __9,000,000 _11,000,000 _12,000,000
Estimated gross profit 6,000,000 4,000,000 3,000,000
Percentage of completion ___11.11% ______50% ___83.33%
Gross profit earned to date 666,600 2000,000 9,500,000
Less: Gross profit earned in prior yrs. ________– ___666,600 _2,000,000
Gross profit earned this year P 666,600 P 1,333,400 P 500,000
174 Chapter 10
(c) (1) Construction in progress (cost incurred) 1,000,000

Cash 1,000,000
(2) Accounts Receivable 1,325,000

Contract Billings 1,325,000
(3) Cash 1,200,000

Accounts Receivable 1,200,000
(4) Construction in progress (gross profit) 666,600

Cost of construction 1,000,000
Construction Revenue 1,666,600
Problem 10 – 5
(1) 2005 2006 2007 2008

Contract Price P14,000,000 P14,000,000 P14,000,000 P14,000,000
Cost incurred to date 6,500,000 9,800,000 12,200,000 13,900,000
Estimated cost to complete __6,800,000 _3,900,000 _1,900,000 ________–
Total _13,300,000 13,700,000 14,100,000 13,900,000
Estimated gross profit 700,000 300,000 ( 100,000) 100,000
Percentage of completion ___48.87% ___71.53% _____100% ____100%
Gross profit (loss) to date 342,090 214,590 ( 100,000) 100,000
Less: Gross profit (loss) in prior yrs. ________– ___342,090 ___214,590 ( 100,000)
Gross profit (loss) this year P 342,090 P( 127,500) P( 314,590) P 200,000
(2) 2005 2006 2007 2008

Cost of construction 6,500,000 3,300,000 2,400,000 1,700,000
Construction in progress 342,090 127,500 314,590 200,000
Construction Revenue 6,842,090 3,172,500 2,085,410 1,900,000
Problem 10 – 6
(1) 2005 2006 2007

Contract Price P 6,000,000 P 6,000,000 P 6,000,000
Estimated costs to complete _2,100,000 ___150,000 ________–
Total _5,500,000 _6,100,000 _6,150,000
Estimated gross profit 500,000 ( 100,000) ( 150,000)
Percentage of completion ___61.82% _______– ________–
Gross profit (loss) to date 309,100 ( 100,000) ( 150,000)
Gross profit (loss) in prior yrs. ________– __309,100 ( 100,000)
Gross profit (loss) this year P 309,100 P 409,100 P 50,000
(2) 2005 2006 2007

Cost of construction 3,400,000 2,550,000 200,000
Construction in progress 309,100 409,100 50,000
Construction Revenue 3,709,100 2,140,900 150,000
(3) Cash 400,000

Accounts Receivable 400,000
Contract Billings 6,000,000

Construction in progress 6,000,000
Problem 10 – 7
(1) 2006 2007 2008

Contract Price P16,000,000 P16,000,000 P16,000,000
Estimated costs to complete __9,640,000 __5,100,000 _________–
Total _14,240,000 _14,200,000 _14,350,000
Estimated gross profit 1,760,000 1,800,000 1,650,000
Engineer's estimate of comp. ______31% ______58% _____100%
Gross profit to date 545,600 1,044,000 1,650,000
Less: Gross profit earned in prior yrs. ________– __545,600 _1,044,000
Gross profit earned this yr. P 545,600 P 498,410 P 606,000
(2) 2006 2007 2008

(a) Construction on progress 4,600,000 4,500,000 5,250,000
Cash 4,600,000 4,500,000 5,250,000
(b) Accounts receivable 5,000,000 6,000,000 5,000,000

Contract billings 5,000,000 6,000,000 5,000,000
(c) Cash 4,500,000 5,400,000 6,100,000

Accounts receivable 4,500,000 5,400,000 6,100,000
(d) Cost of constructions 4,600,000 4,500,000 5,250,000

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 5,250,000
Cash / accounts payable 5,250,000
(b) Accounts receivable 5,000,000

Contract billings 5,000,000
176 Chapter 10
(c) Cash 6,100,000

Accounts receivable 6,100,000
(d) Cost of construction 5,250,000

Construction revenue 6,900,000
(e) Contract billings 16,000,000

(4) The following entry would be the only one different from (2).
2006 2007 2008

* Cost of construction 4,414,400 3,821,600 6,114,000
Construction revenue 4,960,000 4,320,000 6,720,000
* Total estimated costs x estimated percentage of completion.
Problem 10 – 8
(1) 2006 2007 2008

Contract Price P6,500,000 P6,500,000 P6,500,000
Less: Total Estimated Costs
Estimated costs to complete _3,850,000 _1,500,000 ________–
Total _6,000,000 _6,750,000 _6,850,000
Estimated gross profit (loss) 500,000 (250,000) (350,000)
Less: Gross profit (loss) in prior yrs. ________– ___520,000 _(250,000)
Gross profit (loss) this years P 520,000 P( 250,000) P( 600,000)
(2) In 2008 when the project is completed.

Franchise Accounting 177
CHAPTER 11
11-1: b
No revenue is to be reported. Because the franchisor fails to render substantial
services to the franchisee as of December 31, 2008.
11-2: c
Initial franchise fee P5,000,000
Less: Cost of franchise ____50,000
11-3: a
The total initial franchise fee of P500,000 is to be recognized as earned because the
collectibility of the note for the balance is reasonably assured.
11-4: b
Cash downpayment P 100,000
Collection of note applying to principal __200,000
Revenue from initial franchise fee P 300,000
11-5: a
Cash downpayment, January 2, 2008 P2,000,000
Collection applying to principal, December 31, 2008 _1,000,000
Total Collection 3,000,000
Gross profit rate [(5,000,000-500,000)  5,000,000] _____90%
Realized gross profit, December 31, 2008 P2,700,000
11-6: b
Face value of the note (P1,200,000 - P400,000) P 800,000
Present value of the note (P200,000 X 2.91) __582,000
Unearned interest income, July 1, 2008 P 218,000
11-7: d
Less: unearned interest income __218,000
Deferred revenue from franchise fee P 982,000
11-8: d
Initial franchise fee P 500,000
Continuing franchise fee (P400,000 X .05) ___20,000
Total revenue 520,000
Cost ___10,000
178 Chapter 11
11-9: b
Deferred Revenue from franchise fee:
Downpayment P6,000,000
Present value of the note (P1,000,000 X 2.91) 2,910,000 P8,910,000
Less: Cost of franchise fee _2,000,000
Deferred gross profit P6,910,000
Gross profit rate (6,910,000  8,910,000) 77.55%
Downpayment (collection during 2008) P6,000,000

Gross profit rate ___77.55%
Realized gross profit from initial franchise fee P4,653,000
Add: Continuing franchise fee (5,000,000 X .05) __250,000
Total P4,903,000
Less: Franchise expense ___50,000
Operating income P4,853,000
Interest income, 12/31/05 (P2,910,000 X 14%) X 6/12 __203,700
11-10: b
Face value of the note receivable P1,800,000
Present value of the note receivable 1,263,900
Unearned interest income P 536,100

Less: Unearned interest income __ 536,100
Deferred revenue from franchise fee P2,463,900
11-11: a
Revenues from:
Continuing franchise fee (P2,000,000 X .05) 100,000
Total revenue from franchise fees P1,100,000
11-12: d
Realized gross profit from initial franchise fee [(350,000 + 90,000) x 37%] P 162,800
Continuing franchise fee (P121,000 + P147,500) x 5% ___13,425
Expenses ___42,900
Net operating profit 133,325
Interest income (P900,000 x 15%) x 6/12 ___67,500
11-13: c
Cash down-payment P 95,000
Present of the note (P40,000 x 3.0374) __121,496
Total P 216,496
11-14: a
Initial franchise fee P 50,000
Continuing franchise fee (P400,000 x 5%) __20,000
Total revenue P 70,000
11-15: c
Should be P80,000
Initial franchise fee – down-payment (P100,000 / 5) P 20,000
Continuing franchise fee (P500,000 x 12%) __60,000
Total earned franchise fee P 80,000
11-16: a
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
Cora (P100,000 + P500,000) P 600,000
Dora (P100,000 + P500,000) 600,000
Total P1,200,000
11-18:
Down payment (3,125,000 x 40%) P1,250,000
Present value of notes receivable ( 1,875,000/4) 468,750 x 3.04 1,425,000
Adjusted sales value of initial franchise fee 2,675,000
Direct cost of services 802,500
Gross profit rate (1,872,500 ÷ 2,675,000) 70%

180 Chapter 11
Date Collection Interest Principal Balance of PV of NR

1/1 P1,425,000
6/30 468,750 171,000 297,750 1,127,250
12/30 468,750 135,270 333,480 793,770
Total collection applying to principal 631,230
Down payment 1,250,000
Total collection 1,881,230
Gross profit rate 70%
Realized gross profit on
initial franchise fee 1,316,861
11-19: c
Problem 11 – 1
a. The collectibility of the note is reasonably assured.
Jan. 2: Cash ..... ..............................................................................12,000,000

Notes receivable................................................................. 8,000,000
Deferred Revenue from IFF. ........................................ 20,000,000
July 31: Deferred cost of Franchises................................................ 2,000,000

Cash .............................................................................. 2,000,000
Nov. 30: Cash/AR ............................................................................ 29,000

Revenue from continuing franchise fee (CFF) .............. 29,000
Dec. 31: Cash / AR .......................................................................... 36,000

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

Notes receivable ............................................................ 2,000,000
Interest income (P8,000,000 x 10%) ............................. 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 ................................................... 20,000,000
To recognize revenue from the initial franchise fee.
b. 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) To defer gross profit:

Deferred Revenue from IFF ........................................20,000,000
Cost of Franchise Revenue ................................... 2,000,000
Deferred gross profit – Franchises ....................... 18,000,000
GPR = P18,000  P20,000,000 = 90%
(2) To recognize gross profit:
Deferred gross profit – Franchises ..............................12,600,000
Realized gross profit............................................. 12,600,000
(P14,000,000 X 90%)
182 Chapter 11
Problem 11 – 2
a. Collection of the note is reasonably assured.
Jan. 5: Cash .. ..... .............................................................................. 600,000
Notes Receivable ................................................................... 1,000,000
Unearned interest income .................................................. 401,880
Deferred revenue from F.F. ............................................... 1,198,120
Face value of NR ............................................................................ 1,000,000
Present value (P200,000 x P2,9906) ............................................... __598,120
Unearned interest ............................................................................ 401,880
Nov. 25: Deferred cost of Franchise ................................................ 179,718

Cash .............................................................................. 179,718
Dec. 31: Cash / AR .......................................................................... 4,000

Revenue from CFF ........................................................ 4,000
(P80,000 X 5%)
Cash .... .............................................................................. 200,000

Notes Receivable ........................................................... 200,000
Adjusting Entries:
1) Unearned interest income .................................................. 119,624
Interest income............................................................ 119,624
P598,120 x 20%
2) Cost of Franchise ............................................................... 179,718

Deferred cost of Franchise .......................................... 179,718
3) Deferred revenue from FF ................................................. 1,198,120

Revenue from FF ........................................................ 1,198,120
b. 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 ........................................................... 119,624
2) Cost of franchise................................................................ 179,718

Deferred cost of franchise ........................................... 179,718
3) Deferred revenue from FF ................................................. 1,198,120

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

Realized gross profit – Franchise................................ 578,319.60
(P600,000 + P200,000- P119,624) x 85%
Problem 11 – 3
2007
July 1: Cash .. ...... ..... .............................................................................. 120,000
Notes Receivable .......................................................................... 320,000
Unearned interest income ...................................................... 66,408
Deferred revenue from FF ..................................................... 373,592
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 ............................................................ 80,000
Cash .. ..... .............................................................................. 80,000
(P50,000 + P30,000)
Dec. 31: Adjusting Entry:

Unearned interest income ............................................................. 12,680
Interest income ...................................................................... 12,680
(P253,592 x 10% x 1/2)
2008
Jan. 10: Deferred cost of franchise ............................................................ 50,000
Cash .. ..... .............................................................................. 50,000
July 1: Cash .. ...... ..... .............................................................................. 80,000

Note receivable ...................................................................... 80,000
Dec. 31: Adjusting Entries:

(1) Cost of franchise .................................................................... 130,000
Deferred cost of franchise ................................................. 130,000
(2) Deferred revenue from FF ..................................................... 373,592

Revenue from FF ............................................................... 373,592
(3) Unearned interest income ...................................................... 25,360

Interest income .................................................................. 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 ................................................................... 4,000,000
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 .............................................................. 180,000

Cash / Accounts payable ................................................... 180,000
(b) Deferred revenue from FF ..................................................... 200,000

Revenue from CFF ............................................................ 200,000
(P180,000  90%)
Problem 11 – 5
a) Adjusted initial franchise fee:
Total initial F.F............................................................................. P4,500,000
Less: Face Market value of kitchen equipment ............................ _1,800,000
Adjusted initial FF........................................................................ P2,700,000
Revenues:
Initial FF .. ..... .............................................................................. P2,700,000
Sale of kitchen equipment ............................................................ 1,800,000
Continuing F.F. (P2,000,000 x 2%) ............................................. ___40,000
Total . ...... ..... .............................................................................. 4,540,000
Expenses:
Initial expenses ............................................................................. P 500,000
Cost of kitchen equipment............................................................ 1,500,000 _2,000,000
Net income ..... ..... .............................................................................. P2,540,000
b) Journal Entries:
Jan. 2: Cash .. ..... .............................................................................. 1,500,000
Notes receivable..................................................................... 3,000,000
Deferred revenue from FF (adjusted SV) .......................... 2,700,000
Revenue from FF (Market value of equipment) ................ 1,800,000
Cost of kitchen equipment ..................................................... 1,500,000
Kitchen equipment ............................................................ 1,500,000
Jan. 18: Franchise expense ........................................................................ 500,000

Cash .... .............................................................................. 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 ............................................................ 40,000

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

Revenue from FF ............................................................... 2,700,000
Problem 11 – 6
Recognition of initial franchise fee (IFF) (6 mos. after opening)

Revenue from initial FF:
Total initial FF ..... ..............................................................................P2,500,000
Less: Deficiency in continuing FF (Sch. 1) ........................................ 160,000 2,340,000
Expense (costs of initial services) ............................................................... __700,000
Net income .. ... ...... ..... .............................................................................. P1,640,000
Schedule 1 – Estimated deficiency in CFF

(1) (2)
Yr. of Estimated Market Value (Excess of 2 over 1)
Contract Continuing FF of Continuing Services Deficiency
1 P220,000 P250,000 P 30,000
2 220,000 250,000 30,000
3 220,000 250,000 30,000
4 220,000 125,000 –
5 220,000 125,000 –
6 150,000 125,000 –
7 150,000 125,000 –
8 150,000 125,000 –
9 90,000 125,000 35,000
10 90,000 125,000 __35,000
P160,000
Recognition of revenue from CFF and costs:

Years 1-3 Years 4-5 Years 6-8 Years 9-10
Revenue from CFF ........................ P250,000 P220,000 P150,000 P125,000
Expenses . ...... ..... ......................... _200,000 _100,000 _100,000 _100,000
Net income ..... ..... ......................... P 50,000 P120,000 P 50,000 P 25,000
186 Chapter 11
Problem 11 – 7
1/12/2008 6/1/2008 7/1/2008 6/30/2009

Revenues:
Initial FF (Sch. 1) – – 287,200 –
Interest income – – – 45,490*
Continuing FF – – – 48,000
Others 62,500 80,000 – –
Expenses:
Initial expenses – – ( 70,000) –
Continuing expense – – – ( 36,000)
Others ( 50,000) ( 68,000) – –
Net Income P 12,500 P 12,000 P217,200 P 57,490
* P454,900 x 10% = P45,490
Schedule 1: Computation of initial FF to the recognized:

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

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

Equipment Inventory Total
Sales Price . ...... .......................................... P62,500 P80,000 P142,500
Cost .... ...... ...... .......................................... 50,000 68,000 118,000
Net income ...... .......................................... P12,500 P12,000 P 24,500
C. Analysis of Continuing costs:

Market value of costs is P4,000/Mo. or P48,000 / yr.
Continuing Fees:
Years 1-4 Years 5-16 Years 17-20
Gross revenues .......................................... P330,000/mo. P450,000/mo. P500,000/mo.
Gross fees per month .................................. P 2,475/mo. P 3,375/mo. P 3,750/mo.
Gross fees per year ...................................... P 29,700 P 40,500 P 45,000

Market value of continuing costs ................ ( 48,000) ( 48,000) ( 48,000)
Deficiency per year ..................................... ( 18,300) ( 7,500) ( 3,000)
Number of years ......................................... x4 x 12 x4
Deficiency .......................................... P( 73,200) P( 90,000) P( 12,000)
Total deficiency for 20 years is P175,200

Dates of Revenue Recognition: ..................................................... Types of Revenue

January 12, 2008 ............................................................ Sale of equipment
June 1, 2008 ................................................................... Sale of inventory
July 1, 2008 .................................................................... Initial FF (as adjusted0
June 30, 2009 ................................................................. 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 P 700,000
Cost of goods sold:
Purchases P800,000
Merchandise inventory, end 180,000 620,000
Expenses 198,000
Net income (loss) P (118,000)
12-3: b
Sales P 70,000
Cost of goods sold (P70,000 / 140%) 50,000
Less: Samples (P8,000 – P6,000) P 2,000
Expenses 2,800 4,800
Net income P 15,200
12-4: a
Sales P 100,000
Cost of goods sold 72,000
Expenses (P9,000 + P4,500) 13,500
Net income P 14,500
12-5: a
12-6: a
12-7: c
12-8 a
Shipment of merchandise to home office P 80,000

Equipment sent to home office 50,000
Expenses assigned to branch by the home office 8,000
Cash remittance to home office (40,000)
Home office account balance 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
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 Jan. 1, 2009
Petty cash fund P 6,000 P 6,000
Accounts receivable 86,000 98,000
Inventory 74,000 82,000
Home Office account balance P166,000 P186,000
12-12: d
(Branch Books) (Home Office Books)

Home Office Investment in Branch
Unadjusted balances, Dec. 31 P 21,320 P 38,600
Remittance in transit (10,400)
Shipment in transit 7,280
Cash collections of home office ( 400)
Adjusted balances, Dec. 31 P 28,200 P 28,200
12-13: a
Unadjusted balance – Investment in Branch account, 12/31 P430,000

Charge for advances by president (5,500)
Erroneous entry for merchandise allowance ( 600)
Share in advertising expense (9,000)
Unadjusted balance – Home Office account, 12/31 P414,900
12-14: a
Unadjusted balances, 12/31 P 97,350 P 84,000
Collection of HO A/R by branch 25,000
Error in recording of branch profit 900
Returns of merchandise in transit ( 6,400)
Adjusted balances, 12/31 P103,500 P103,500
12-15: a
Unadjusted balances P25,550 P27,350
Error in recording shipment to Cavity branch (12,000)
Error in recording shipment to Tagaytay branch 15,000
Branch AR collected by home office (3,000)
Merchandise returns in transit ( 1,200)
Error in recording branch profit ( 3,600)
Adjusted balances P23,750 P23,750
12-16: c
Unadjusted balance- Investment in Branch account P 85,000
Shipment in transit (20,000)
Expenses allocated ( 5,000)
Error in recording remittance 3,000
Error in recording shipments ( 9,000)
Unadjusted balance – Home Office account P 44,000
( Branch Books) (HomeOffice Books)

Unadjusted balances, P 44,000 P 85,000
Expenses allocated 5,000
Unrecorded HO collection of AR (3,000)
Error in recording shipments 9,000
Adjusted balances P 75,000 P 75,000
12-17 a
Unadjusted balances P 440,000 P 496,000
Branch AR collected by Home Office ( 8,000)
Shipments in transit 32,000
Acquisition of furniture (12,000)
Merchandise returns (15,000)
Cash remittance in transit ( 5,000)
Adjusted balances P 464,000 P 464,000
PROBLEMS
Problem 12-1
Home Office Books Branch Books
1. Investment in branch 30,000 Cash 30,000

Cash 30,000 Home office 30,000
2. Investment in branch 75,000 Shipment from home office 75,000

Shipment to branch 75,000 Home office 75,000
3. No entry Purchases 10,000

4. No entry Accounts receivable 125,000

Sales 125,000
5. Shipment to branch 2,000 Home office 2,000

Investment in branch 2,000 Shipment from home office 2,000
6. No entry Cash 105,000

7. No entry Accounts payable 7,000

Cash 7,000
8. No entry Salaries 10,000

Rent 5,000
Utilities 2,000
Other operating expenses 12,000
Cash 29,500
9. Investment in branch 7,500 Depreciation 1,500

Accumulated dep’n 7,500 Rent 5,000
Insurance 1,000
Home office 7,500
10. Cash 65,000 Home office 65,000

Investment in branch 65,000 Cash 65,000
11. Cash 3,000 Home office 3,000
Investment in branch 3,000 Accounts receivable 3,000
12. Investment in branch 10,000 Sales 125,000

Branch income 10,000 Inventory, end 5,000
Shipment from HO 73,000
Purchases 10,000
Salaries 10,000
Rent 10,000
Utilities 2,000
Other operating expenses 12,500
Home office 10,000
Problem 12-2
a. Books of the Branch
1. Cash 200,000
Home office 550,000
2. Merchandise inventory 400,000

3. Accounts receivable 650,000

Sales 650,000

Cash 600,000
4. Advertising expense 40,000

Sales commission 65,000
Other expense 45,000
Cash 150,000
5. Accounts payable 370,000

Home office 120,000
Cash 490,000
b. Manila Sales – Naga Branch

Income Statement
Sales P650,000
Expenses:
Advertising expense P40,000
Sales commissions 65,000
Other expenses 45,000 150,000
Net income P 75,000
c. Manila Sales – Naga Branch

Balance Sheet
December 31, 2008
Cash P160,000 Accounts payable P 30,000

Accounts receivable 50,000 Home office 505,000
Total assets P535,000 Total liabilities and capital P535,000
Problem 12-3

(1) Adjusting Entries
a. Investment in branch 63,750 Cash 63,750

b. Investment in branch 75,300 Shipment from HO 75,300

Shipment to branch 73,300 Home office 75,300
c. Accounts receivable 157,500 Accounts receivable 99,000

Sales 157,500 Sales 99,000
d. Purchases 183,750 Purchases 33,750

Accounts payable 183,750 Accounts payable 33,750
e. Cash 170,400 Cash 80,100

Accounts receivable 170,400 Accounts receivable 80,100
Home office 80,100

Cash 80,100
f. Accounts payable 186,000 Accounts payable 18,375

Cash 186,000 Cash 18,375
g. Expenses 39,900 -
Cash 39,900
Furniture & fixtures – branch 12,000 Home office 12,000

Investment in branch 12,000 Cash 12,000
h. Cash 80,100 -
Investment in branch 80,100
Expenses 27,000
Cash 27,000
i. Retained earnings 15,000

Cash 15.000

j. Expenses 1,750
Acc. Depreciation 1,750
k. Investment in branch 975 Expenses 975

Acc. Dep’n – Br. F & F 975 Home office 975
l. Prepaid expenses 375 Prepaid expenses 1,125

Expenses 375 Expenses 1,125
m. Expenses 150 Expenses 450

Accrued expenses 150 Accrued expenses 450
Closing Entries
n. Sales 157,500 Sales 99,000

Shipments to branch 75,300 Merchandise inv., 12/31 35,250
Merchandise inv., 12/31 72,750 Income summary 2,100
Merchandise inv. 1/1 60,180 Purchases 33,750
Purchases 183,750 Shipment from HO 75,300
Expenses 41,445 Expenses 27,300
o. Branch loss 2,100 Home office 2,100

Investment in branch 2,100 Income summary 2,100
p. Income summary 2,100

Branch loss 2,100
q. Income summary 18,075

Retained earnings 18,075
3. Individual Financial Statements
Cebu Company – Home Office

Income Statement
Sales P157,500
Cost of sales
Merchandise inventory, 1/1 P 60,180
Purchases 183,750
Shipment to branch ( 75,300)
Goods available for own sale P168,630
Merchandise inventory, 12/31 ( 72,750) 95,880
Expenses 41,445
Net operating income P 20,175
Branch income (loss) ( 2,100)
Net income P 18,075
Cebu Company – Branch

Income Statement
Sales P 99,000
Cost of sales
Purchases P 33,750
Shipments from home office 75,300
Merchandise inventory, 12/31 35,250 73,800
Expenses 27,300
Net income (loss) P( 2,100)
Cebu Company – Home Office

Balance Sheet
December 31, 2008
Assets
Cash P 34,800
Merchandise inventory, 12/31 72,750
Furniture and fixtures P30,000
Less: Accumulated depreciation 8,370 21,630
Branch furniture and fixtures P12,000
Less: Accumulated depreciation 975 11,025
Liabilities and Stockholders’ Equity

Liabilities
Accrued expenses P 2,025
Stockholders’ Equity
Capital stock P 75,000
Retained earnings 108,705 183,705
Total liabilities and stockholders’ equity P217,680
Cebu Company – Branch

Balance Sheet
December 31, 2008
Assets
Cash P 6,375
Merchandise inventory, 12/31 35,250

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

Cebu Company
Combined Income Statement
Sales P256,500
Cost of sales
Merchandise inventory, 1/1 P 60,180
Purchases 217,500
Merchandise inventory, 12/31 108,000 169,680
Expenses 68,745
Combined net income P 18,075
Cebu Company
Balance Sheet
December 31, 2008
Assets
Cash P 41,175
Furniture and fixtures P42,000
Less: accumulated depreciation 9,345 32,655

Accrued expenses P 2,475
Capital stock 75,000
Problem 12-4
Branch Books Home Office Books

(a) and (b) Closing Entries
Sales 145,000 Sales 560,000

Inventory, 12/31 60,000 Inventory, 12/31 90,000
Inventory, 1/1 18,000 Shipments to branch 145,000
Shipments from HO 145,000 Inventory, 1/1 45,000
Expenses 20,000 Purchases 540,000
Income summary 23,000 Expenses 90,000
Income summary 22,000 Investment in branch 22,000

Home office 22,000 Branch income 22,000
Branch income 22,000


© CG Corporation
Combined Statement Working Paper
Eliminations
Income
Home Statement Balance
Office Branch Debit Credit Dr (Cr) Sheet
Debits
Cash 36,000 7,000 43,000
Accounts receivable 54,000 29,000 83,000
Inventory, 1/1 45,000 18,000 63,000
Investment in branch 70,000 (2) 70,000
Equipment (net) 95,000 95,000
Purchases 540,000 540,000
Shipments from HO 145,000 (1)145,000
Expenses 90,000 20,000 110,000
Total debits 930,000 219,000
Inventory 12/31 (BS) 150,000

Total assets 371,000
Credits
Accounts payable 27,000 4,000 31,000
Home Office 70,000 (2) 70,000
Capital stock 54,000 54,000
Retained earnings, 1/1 144,000 144,000
Sales 560,000 145,000 (705,000)
Shipments to branch 145,000 (1)145,000
Total credits 930,000 219,000
Inventory, 12/31 (IS) 90,000 60,000 (150,000)

215,000 215,000
Net income 142,000 142,000
Total liabilities & equity 371,000
1. To eliminate shipments to branch and shipments from HO

2. To eliminate reciprocal accounts.
Problem 12-5
(1) Oro Company

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

389,100
(1) To eliminate shipments
(2) To eliminate reciprocal accounts.
Closing Entries
2. Branch Books 3. Home Office Books
Sales 151,650
Income Summary 9,900
Operating expenses 32,850
Home Office 9,900 Branch loss 9,900

Income summary 9,900 Investment in Branch 9,900

Branch loss 9,900
Problem 12-6
a. Investment in Branch account (Home Office Books)

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

Unadjusted balance P(93,000)
Error in recording salary allocation, April 5 ( 200)
Error in recording inventory transfer, July 6 12,000
Unrecorded allocated depreciation, Dec. 31 ( 3,000)
Adjusted balance P(84,200)
b. Adjusting Entries

Other income 45,000 Salary expense 200
Investment in branch – Home office 200
Rizal 45,000

Investment in branch- Shipments from HO 12,000
Rizal 15,000
Investment in branch 6,000 Depreciation expense 3,000

Accumulated dep’n 6,000 Home office 3,000
Problem 12-7
a. Investment in Branch account (Home Office Books)

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

Unadjusted balance, Dec. 31 P103,200
Error in recording expense 7,200
Supplies charged to branch 8,000
Collection of branch receivable ( 18,000)
Adjusted balance, Dec. 31 P124,400
b. Adjusting Entries
Cash 30,000 Shipment from HO 24,000
Shipment to branch 12,000 Supplies 8,000
Investment in branch 42,000 Expenses 7,200
Home office 21,200
Problem 12-8
(1) Reconciliation Statement

(Home Office Books) (Branch Books)
Investment in Branch Home Office
Unadjusted balances, 1/31 P59,720 P 43,268

Advertising charged to branch 480
Home office AR collected by branch 600
Shipment in transit ( 180)
Error in recording receipt of merchandise ( 432)
Understatement of depreciation (12,800)
Remittance in transit, 1/31 P47,088 P 47,088

Retained earnings 432 Advertising 480
Cash 12,800 Shipments from HO 3,520
Accounts receivable 600 Shipment from HO 180
Investment in branch 12,632 Home office 3,820
Problem 12-9
(1) Branch Books
Adjusting Entries
Shipment from home office 57,600

Operating expenses (P4,200 + P3,900) 8,100
Home office 65,700
Closing Entries
Sales 778,200
Inventory, 12/31 (P64,580 + P57,600) 122,180
Inventory, 1/1 47,800
Shipment from HO (P623,200 + P57,600) 680,800

Home office 116,900
(2) Home Office Books
Accounts receivable 470

Investment in branch 330
Cash (P20,000 + P19,200) 800

Branch income 116,900
(3) Reconciliation Statement

(Investment in Branch) (Home Office)
Unadjusted balances, 12/31 P 206,344 P 140,974
Error in recording remittance to branch 20,000
Expenses charged to branch 8,100
Branch net income 116,990 116,990
Freight erroneously charged to branch ( 470)
Cash remittance in transit to HO ( 19,200)
Adjusted balances, 12/31 P 323,664 P 323,664
Problem 12-1111
a. P 2,000
Sales (P 27,000 + P 33,000 + P 26,000) …………………. P 86,000

Cost of Goods Sold (P 36,000 + P 18,000) ………………. (54,000)
Gross Profit ……………………………………………… P 32,000
Rent Expense …………………………………………….. P 4,000
Property Tax Expense …………………………………… 5,000
Depreciation Expense …………………………………… 4,000
Miscellaneous Expense …………………………………. 11,000
General Corporate Expense ……………………………… 6,000 (30,000)
Net Income ……………………………………………… P 2,000
b. P 180,000
Initial Transfers …………………………………………. P 188,000
June Inventory Shipment ……………………………….. 18,000
Property Tax Payment ………………………………….. 5,000
September Inventory Shipment ………………………… 26,000
Expense Allocation …………………………………….. 6,000
Cash Transfer …………………………………………... (63,000)
Balance in Home Office/Branch Accounts (correct) ….. P 180,000
c. Journal Entries – Tarlac Branch
1/10/08 Cash …………………………………. 30,000

Inventory ……………………………. 36,000
Equipment …………………………… 122,000
Home Office …………………… 188,000
1/20/08 Rent Expense ………………………… 4,000
Cash ……………………………. 4,000
2/1/08 Cash ………………………………….. 27,000
Sales …………………………… 27,000
Cost of Goods Sold ………………….. 18,000
Inventory ………………………. 18,000
4/1/08 Cash …………………………………. 33,000
Sales …………………………... 33,000
Cost of Goods Sold …………………. 18,000
Inventory ……………………… 18,000
5/1/08 Miscellaneous Expenses ……………. 7,000
Cash …………………………... 7,000
6/5/08 Inventory ……………………………. 18,000
Home office …………………... 18,000
7/6/08 Property Tax Expense ………………. 5,000
Home Office ………………….. 5,000
9/9/08 Inventory …………………………… 26,000
Home Office …………………. 26,000
10/1/08 Cash ………………………………… 26,000

Sales …………………………. 26,000
Cost of Goods Sold ……………….. 18,000
Inventory …………………….. 18,000
11/1/08 Miscellaneous Expenses …………... 4,000
Cash …………………………. 4,000
12/22/08 Home Office ……………………… 63,000
Cash …………………………. 63,000
12/31/08 Depreciation Expense ……………. 4,000
Accumulated depreciation ….. 4,000
12/31/08 General Corporate Expenses ……… 6,000
Home Office ………………….. 6,000
d. TARLAC BRANCH
Balance Sheet
December 31, 2008
Assets
Cash ……………………………………………. P 38,000
Inventory ………………………………………. 26,000
Equipment ……………………………………... P 122,000
Accumulated Depreciation ……………………. (4,000) 118,000
Total Assets …………………………… P 182,000
Equity
Home Office* ………………………………….. 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.
CHAPTER 13
MULTIPLE CHOICE
13-1: c
13-2: a
Goods available for sale:

At billed price (P30,000 + P180,000) P210,000
At cost (P210,000 / 120%) 175,000
Balance of Allowance for Overvaluation account before adjustment P 35,000
13-3: c
Inter-company inventory profit (IIP) before closing P 66,000

Less: IIP from shipment from home office
Billed price P300,000
Cost (P300,000 / 120%) 250,000 50,000
IIP from beginning inventory at billed price P 16,000
Divided by ÷ 20%
Cost of branch’s beginning inventory P 80,000
13-4: a
Billed Price % Cost Overvaluation

Beginning inventory from HO P15,000 150% P10,000
P 5,000
Shipments 110,000 150% 73,333
36,667
Balance before adjustment
P41.667
Ending inventory from HO 5,000 150% 3,333
1,667
Required adjustments P40,000
13-5: b
Shipment to branch, at billed price P375,000

Shipping cost 2,000
Total cost P377,000
Sold (50%) 188,500
Inventory P188,500
13-6: a
Shipment to branch, at cost P312,500

Shipping cost 2,000
Sold (50%) 157,250
Inventory, at billed price P157,250
13-7: c
Home office account balance after closing branch profit P765,000

Less: branch profit 130,000
Investment in branch account balance before closing branch profit P635,000
13-8: d
Branch ending inventory, at billed price P 50,000

Acquired from home office, at billed price:
Cost (P6,000 / 20%) P30,000
Mark-up 6,000 36,000
Purchased from outsiders P 14,000
13-9: b
Cost of goods sold – Home office P590,000

Cost of goods sold – Branch:
Less: overvaluation (P110,000 – P90,000) 20,000 280,000
Combined cost of goods sold P870,000
13-10: c
13-11: d
Overvaluation of branch ending inventory acquired from HO:

Billed price P 28,600
Cost (P28,600 / 130%) 22,000
Adjusted balance of allowance for overvaluation account P 6,600
13-12: b
Shipment from home office P 90,000
Expenses 17,000
Cash remittance to home office (70,000)
Home Office account balance before closing P 37.000
13-13: b
Shipment to branch, at cost P 72,000

Ending inventory, at cost (P70,000 / 30%) ( 21,600)
Cost of goods sold P 50,400
Freight (P6,000 x P50,400/P72,000) 4,200
Total P 54,600
13-14: b (20% of P30,000)
13-15: b (P151,200 / 140%)
13-16: c
Sales P270,000
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) 110,250
Expenses 90,000
Branch profit as far as the home office is concerned P 69,750
13-17: c
Unsold merchandise P 60,000

Less: Merchandise acquired from home office, at billed price 45,000
Merchandise acquired from outsiders P 15,000
Merchandise acquired from home, at cost (P7,500 / 20%) 37,500
Branch inventory at cost, 12/31 P 52,500
13-18: a
Branch inventory, 1/1 P 54,600

Acquired from home office – at billed price:
Overvaluation [P99,900 – (P390,000 – P300,000)] P 9,900
Cost (P9,900 / 30%) 33,000 42,900
Purchases from outsiders P 11,700
13-19: c
Acquired from home office [(P60,000 x 80%) ÷ 120%] P 40,000

Acquired from outsiders (P60,000 x 20%) 12,000
Branch inventory, 12/31 – at cost P 52,000
13-20: b
Sales (P148,000 + P144,000) P192,000

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) 90,000
Expenses (P76,000 + P24,000) 100,000
Branch net income (actual) P 2,000
13-21: b
Allowance for overvaluation account balance P 57,500

Overvaluation on the shipment (P200,000 x 25%) 50,000
Overvaluation on the branch beginning inventory P 7,500
Cost of branch beginning inventory (P7,500 / 25%) 30,000
Branch beginning inventory – at billed price P 37,500
13-22: b
Sales P400,000
Cost of goods sold – cost to home office
Beginning inventory P 30,000
Ending inventory (P40,000 / 125%) ( 32,000) 198,000
Expenses 100,000
Branch net income as far as the home office is concerned P102,000
13-23: b
Branch inventory, 1/1 P 20,000

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 16,000
Acquired from outsiders P 4,000
13-24: a
Sales P200,000
Cost of sales (at cost to home office)
Inventory, 1/1 (P12,000 + P4,000) P16,000
Purchases 30,000
Inventory, 12/31 [(P20,000÷133 1/3%) +P6,000] (21,000) 85,000
Expenses 60,000
Branch net income (actual) P 55,000
13-25: a
Inventory, 1/1 P 75,000
Overvaluation ( 72,500)
Cost of goods available for sale P362,500
Percentage of mark-up (P72,500 / P362,500) 20%
13-26: b
13-27: a
Billing percentage above cost (P20,000 / P80,000) 25%
Branch inventory, 6/1 – at cost (P12,000 / 125%) P 9,600

Home office inventory, 6/1 40,000
Purchases 160,000
Inventory, 6/30 – at cost:
Branch (P10,000 / 125%) P 8,000
Home office 60,000 68,000
Combined cost of goods sold P141.600
13-28: d
Sales P450,000
Expenses 150,000
Combined net income P158,400
13-29: d
Sales P687,500
Cost of goods sold:
Inventory, 1/1: Home office P57,500
Branch (P22,250 / 125%) 17,800 P 75,300
Purchases 410,000
Goods available for sale P 485,300
Inventory, 12/31: Home office P71,250
Branch (P29,250/120%) 24,375 95,625 389,675
Expenses 241,750
Combined net income P 56,075
13-30: a
Sales P669,000
Cost of goods sold:
Inventory, 1/1:
Home office P160,000
Branch [P15,000 + (P49,000 / 122.5%)] 55,000 P215,000
Purchases 460,000
Inventory, 12/31:
Home office P110,000
Branch [P11,000 + (P52,000 / 133 1/3%)] 50,000 160,000
515,000
Expenses 145,000
Combined net income P
9,000
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
Books of Branch 3:
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 19,500
13-32: a
(Home office books) (Branch books)
Investment in branch Home office
Unadjusted balances 77,000 61,000
Error in recording shipment (10,000)
Error in recording expense 5,000
Unrecorded cash remittance (31,000) -
Adjusted balances 46,000 46,000
13-33: c
13-34: a
Home office books Cebu branch books Bacolod branch

books
Inv in Bacolod 25,000 Home office 25,000 Cash
25,000
Inv in Cebu 25,000 Cash 25,000 Home office
25,000
Inv in Bacolod 34,300 Home office 34,300 Cash

34,300
Inv in Cebu 34,300 SD 700 Home office
34,300
AR 35,000
Inv in Bacolod 62,500 Home office 212,500

Expenses 62,500
Expenses 150,000 Expenses 37,500
Home office 62,500
Inv in Cebu 212,500 Cash 250,000
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
Inv in Bacolod 252,700 Home office 253,000

Excess freight 300 S from H 253,000
Inv in Cebu 253,000
(Home office books) (Bacolod branch books)

Investment in Cebu Branch Home Office
25,000 25,000
34,300 34,300
212,500 62,500
253,000 252,700
253,000 524,800 374,500
271,800
PROBLEMS
Problem 13-1
(a) Journal Entries
(1) Investment in branch 18,000 Equipment

18,000
Cash 18,000 Home office
18,000
(2) Investment in branch 3,000 Rent expense
3,000
Cash 3,000 Home office
3,000
(3) Investment in branch 100,000 Shipment from HO

100,000
Shipment to branch 80,000 Home office
100,000
Allowance for over-
Valuation 20,000
(4) No entry Operating expenses

11,000
Cash 11,000
Cash 105,000
Sales
105,000
(5) Cash 60,000 Home office

60,000
Investment in branch 60,000 Cash
60,000
(b) 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 80,000

Allowance for overvaluation of branch inventory 20,000
To eliminate inter-company shipments
(3) Inventory, 12/31 (Income statement) 5,000

Inventory, 12/31 (Balance Sheet)
5,000
To reduce inventory, 12/31 to cost.
(c) Closing Entries – Branch Books
Sales 105,000
Inventory, 12/31 25,000
Rent expense 3,000

Home office 16,000
Problem 13-2
a. Branch Books
- Equipment 50,000
Cash 10,000
Home office 120,000
- Purchases 30,000
Cash or accounts payable 30,000
- Prepaid rent 10,000

Home office 10,000
- Cash 40,000
Sales 90,000
- Advertising expense 8,000

Salary expense 5,000
Cash 13,000
- Home office 10,000

Cash 10,000
- Home office 3,000

- Rent expense 5,000

Prepaid rent 5,000
Home Office Books
- Investment in branch 120,000

Equipment 50,000
Shipment to branch 40,000
Allowance for overvaluation of branch inventory 20,000
Cash 10,000
To record assets sent to branch
- Investment in branch 10,000

Cash 10,000
To record rent expense of the branch
- Cash 10,000
To record cash remittance from branch
- Cash 3,000
To record collection of branch receivable.
b. Income Statement
Sales P90,000
Cost of goods sold
Shipment from home office – at cost P40,000
Purchases 30,000
Goods available for sale 70,000
Ending inventory:
From home office (1/3) P13,333
From outsiders (1/4) 7,500 (20,833) 49,167
Expenses:
Advertising expense P 8,000
Salary expense 5,000
Rent expense 5,000 18,000
Net income P22,833
Problem 13-3
a. Investment in Branch account – beginning balance P 86,000

Inventory transfer 34,500
Rent allocated 1,000
Transportation allocated 3,000
Unadjusted balance – Investment in Branch account P141,500
b. Home Office account – beginning balance P 54,000

Rent allocated 1,000
Inventory transfer (error made) 64,000
Home Office account – unadjusted balance P 82,500
c. Reconciliation Statement
Investment in Branch Home Office
Unadjusted balances, 1/31 P141,500 P 82,500
Unrecorded cash transfer ( 74,000)
Error in recording transfer (overstated) 18,000
Expense allocation not recorded ( 3,000)
Adjusted balances, 1/31 P 67,500 P 67,500
Problem 13-4
a. Books of Branch X

Freight-in 300
Home office 5,300
Home office 5,800

Shipment from office 5,800
b. Books of Branch Y

Freight-in 600
Home office 5,600
c. Books of the Home Office
Investment in branch – X 5,300

Shipment to branch – X 5,000
Cash 300
Investment in branch – Y 5,000

Inter-branch freight expense 600
Investment in branch – X 5,600
Shipment to branch – X 5,000

Shipment to branch – Y 5,000
Malakas Company
Combination Worksheet
Adjustments and Income Retained

Eliminations Statement Earnings Balance
Malakas Davao Debit Credit Dr (Cr) Dr (Cr) Sheet
Debits
Cash 25,000 18,000 43,000
Inventory, 12/31 209,000 42,000 (4) 14,000 (5) 16,000 249,000
Investment in branch 207,000 - (7)207,000
Land, bldg, and equipment 340,000 112,000 452,000
Shipment from office - 96,000 (3) 14,000 (6)110,000
Purchases 348,000 - 348,000
Depreciation expense 25,000 8,000 33,000
Advertising expense 36,000 15,000 (1) 9,000 60,000
Rent expense 12,000 5,000 (1) 6,000 23,000
Miscellaneous expense 40,000 20,000 (1) 2,000 62,000
Inventory, 1/1 175,000 35,000 (2) 10,000 200,000
Total debits 1,525,000 376,000 877,000
Credits
Accumulated depreciation 80,000 16,000 96,000
Notes payable 220,000 - 220,000
Home office - 176,000 (7)207,000 (1) 17,000 -
(3) 14,000
Common stock 100,000 - 100,000
Retained earnings, 1/1 240,000 - (2) 10,000 (230,000)
Sales 529,000 127,000 (655,000)
Shipment to branch 110,000 - (6)110,000
Inventory, 12/31 209,000 42,000 (5) 16,000 (4) 14,000 (249,000)
Combined net income (179,000) (179,000)
Combined retained earnings (409,000) (409,000)
Totals 1,525,000 376,000 388,000 388,000 877,000
Adjustments and Elimination Entries
(1) Advertising expense 9,000

Rent expense 6,000
Miscellaneous expenses 2,000
Home office 17,000
Unrecorded expenses allocated to the branch
(2) Retained earnings, 1/1 10,000

Inventory, 1-1 10,000
To eliminate unrealized inventory profit of preceding year
(3) Shipment from home office 14,000

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

Inventory (credits) 14,000
Shipment not yet received by the branch
(5) Inventory, 12/31 (debits) 16,000

Inventory (credits) 16,000
To reduce ending inventory to cost
(6) Shipment to branch 110,000

To eliminate inter-company shipments

To eliminate reciprocal accounts
Problem 13-6
a. Eliminating Entries

Investment in branch – Silver 395,000

Investment in branch – Opal 260,000
(3) Unrealized intra-company profit – Silver 20,000

Unrealized intra-company profit – Opal 16,000
Inventory – from home office 36,000

Inventory – from home office 90,000
(5) Unrealized intra-company profit – Silver 40,000

Equipment 40,000
Ginto Company
Balance Sheet Working Paper
December 31, 2008
Home Silver Opal Eliminations

Office Branch Branch Debit Credit Combined
Cash 81,000 20,000 15,000 116,000
Accounts receivable 100,000 40,000 25,000 165,000
Inventory 260,000 50,000 44,000 (4) 90,000 444,000
Inventory – from home office 70,000 56,000 ( 3) 36,000
(4) 90,000
Land 70,000 30,000 20,000 120,000
Buildings and equipment 700,000 350,000 200,000 (5) 40,000 1,210,000
Investment in branch – Silver 395,000 (1)395,000
Investment in branch – Opal 260,000 (2)260,000
Total debits 1,866,000 560,000 360,000 2,055,000
Accumulated depreciation 280,000 120,000 80,000 480,000

Accounts payable 110,000 45,000 20,000 175,000
Bonds payable 400,000 400,000
Common stock 300,000 300,000
Home office - 395,000 260,000 (1)395,000
(2)260,000
Unrealized intra-company profit
Silver 60,000 (3) 20,000
(5) 40,000
Opal 16,000 (3) 16,000
Total credits 1,866,000 560,000 360,000 821,000 821,000 2,055,000
b. Ginto Company
Combined Balance Sheet
December 31, 2008
Assets
Cash P 116,000
Inventory 444,000
Land 120,000
Buildings and equipment P1,210,000
Less: Accumulated depreciation 480,000
730,000

Liabilities
Accounts payable P
175,000
Bonds payable 400,000
Total liabilities P
575,000
1,000,000
Total liabilities and stockholders’ equity
P1,575,000
Problem 13-7
a. Books of Branch P

Freight-in 50
Home office 8,050
Home office 8,120

Freight-in 50
Cash 70
b. Books of Branch Q

Freight-in 80
Home office 8,080
c. Books of Home Office
Investment in branch – P 8,050

Shipment to branch – P 8,000
Cash 50
Investment in branch – Q 8,080

Inter-branch freight expense 40
Investment in branch – P 8,120
Shipment to branch - P 8,000

Shipment to branch – Q 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)
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)
Reconciliation Statement
Investment in Branch account balance (Home office books) P177,000
Unrecorded cash transfer ( 9,000)
Adjusted balance P168,000
Home Office account balance (Branch books) P123,000

Inventory transfer in transit 21,000
Expense allocated not yet recorded 24,000
Adjusted balance P168,000
Problem 13-9
Home Office Books

Case A Case B Case
C
(1) Investment in 60,000 75,000 90,000
branch 60,000 60,000 60,000
Shipment to - 15,000 30,000
branch
Unrealized 61,200 61,200 61,200
inventory profit 61,200 61,200 61,200
(2) Cash 130,000 130,000 130,000

Investment in 8,000 8,000 8,000
branch 60,000 60,000 60,000
Closing entries: 150,000 150,000 150,000
(3) Sales 17,200 17,200 17,200
Inventory, 12/31 30,800 30,800 30,800
Shipment to branch 13,000
Purchases 13,000
Expenses 500 14,000
Income 500 14,000
summary
(4) Investment in 13,500 27,000
branch 500 14,000
Branch income 13,000 13,000
summary
Branch income 43,800 43,800 43,800
summary 43,800 43,800 43,800
Investment in
branch
Unrealized
inventory profit
Branch income
summary
Income
summary
Income summary
Retained
earnings
Ilocos Branch Books
Case A Case B Case

C
(1) Shipment from home 60,000 75,000 90,000

office 60,000 75,000 90,000
Home office
81,000 81,000 81,000
(2) Accounts receivable 81,000 81,000 81,000
Sales
64,000 64,000 64,000
(3) Cash 64,000 64,000 64,000
Accounts
receivable 14,000 14,000 14,000
14,000 14,000 14,000
(4) Expenses
Cash 61,200 61,200 61,200
61,200 61,200 61,200
(5) Home office
Cash
Closing entries 81,000 81,000 81,000

6,000 7,500 9,000
(6) Sales 60,000 75,000 90,000
Inventory 12/31 14,000 14,000 14,000
Shipment from 13,000 500 14,000
HO
Expenses 13,000
Income 13,000
summary
500 14,000
(7) Income summary 500 14,000
Home office
Home office
Income
summary
Working Paper for Combined Financial Statements
December 31, 2008
Eliminations
Home Branch Debit Credit Combined
Office
Income Statement
Sales 130,000 81,000 211,000
Merchandise inventory, 8,000 9,000 (3) 14,000
12/31 3,000
Shipment to branch 60,000 (2) -
60,000
Total credits 198,000 90,000 225,000
Shipment from home 90,000 (2) -

office 90,000
Purchases 150,000 150,000
Expenses 17,200 14,000 31,200
Total debits 167,200 104,000 181,200
Net income(loss) carried 30,800 (14,000) 43,800
forward
Retained Earnings
Statement
Net income (loss) from 30,800 (14,000) 43,800
above
Retained earnings, 12/31 -
Carried forward 30,800 (14,000) 43,800
Balance Sheet
Cash (overdraft) 39,000 (11,200) 27,800
Merchandise inventory, 8,000 9,000 (3) 14,000
12/31 3,000
Investment in branch 28,800 (1) -
28,800
Total debits 120,800 14,800 103,800
Accounts payable 20,000 20,000

Unrealized inventory 30,000 (2) -
profit 30,000
Retained earnings, from 30,800 (14,000) 43,800
above
Home office 28,800 (1) -
28,800
Total credits 120,800 14,800 103,800
121,800 121,800
Problem 13-10
(1) Consolidated Working Paper
Home Adj. & Elim. Income Balance

Office Branch A Branch B (dr) Cr Statement Sheet
Debits
Cash 33,000 22,000 13,000 68,000
Inventories 70,000 21,000 15,000 A (12,000)
B 8,000 110,000
Other current assets 50,000 25,000 23,000 98,000
Investment in Branch A 45,000 D 45,000
Investment in Branch B 42,000 D 42,000
Cost of sales * 80,000 57,000 45,000 B (8,000) (165,000)
C 25,000
Expenses 90,000 25,000 20,000 (135,000)
410,000 150,000 116,000 276,000
Credits
Current liabilities 40,000 15,000 11,000 66,000
Retained earnings, Jan. 1 50,000 50,000
Home Office 45,000 30,000 A 12,000
D (87,000)
Allow. for overvaluation of
Branch inv. – Branch A 13,000 C (13,000)
Allow. for overvaluation of
Branch inv. – Branch B 12,000 C (12,000)
Sales 195,000 90,000 75,000 360,000
410,000 150,000 116,000
Net income 60,000 60,000
276,000
 Book value of cost of sales from home office and branches
Investment in Investment in
Home Office Branch A Branch B
Inventory, January 1, P 80,000 P 18,000 P24,000

Purchases 160,000
Shipment to branch ( 90,000)
Shipment from home office 60,000 36,000
Goods available for sale P150,000 P 78,000 P 60,000
Inventory, Dec. 31 ( 70,000) ( 21,000) (15,000)
Cost of sales P 80,000 P 57,000 P 45,000
(2) Reconciliation of Home Office and Investment in Branch accounts.
Books of Home Office Books of

Books of
Investment Investment Branch A Branch B
In Branch In Branch Home Home
A B Office Office
Unadjusted balances, Dec.31 P 45,000 P 42,000 P 45,000 P 30,000
Shipments in transit to Branch B 12,000
Branch Profit (Schedule 1) 8,000 10,000 8,000 10,000
Adjusted balances, December 31 P 53,000 P 52,000 P 53,000 P 52,000
Schedule 1:
Branch A Branch B
Sales P90,000 P75,000
Cost of sales:
Beginning inventory P18,000 P24,000
Shipment from home office 60,000 48,000
Goods available for sale 78,000 72,000
Ending inventory 21,000 27,000
Cost of sales 57,000 45,000
Gross profit 33,000 30,000
Expenses 25,000 20,000
Net profit P 8,000 P10,000
CHAPTER 14
MULTIPLE CHOICE
14-1: a
Purchase price (8,000 shares x P30) P240,000

Direct acquisition cost 4,000
Contingent consideration 5,000
Acquisition cost P249,000
14-2: a
Purchase price P250,000

Less: Fair value of net assets acquired 180,000
Goodwill P120,000
14-3: c
Purchase price (100,000 shares x P36) P3,600,000

Contingent consideration 20,000
Acquisition cost P3,720,000
14-4: b

Less: goodwill recorded 6,120,000
Fair value of net assets acquired P24,180,000
Capital stock issued (at par) P30,000,000
14-5: c
Purchase price P2,550,000

Legal fees 25,000
Less: Fair value of net assets acquired
Current assets P1,100,000
Plant assets 2,200,000
Liabilities ( 300,000) 3,000,000
Income from acquisition P( 425,000)
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 P 800,000

Less: Fair value of net assets acquired
Cash P 160,000
Inventory 380,000
Property, plant and equipment 1,120,000
Liabilities ( 360,000) 1,300,000
Income from acquisition P (500,000)
14-9 a

Less: Fair value of net assets acquired (P600,000 – P188,000) 412,000
Goodwill P 288,000
Avon’s assets 2,000,000
Bell’s assets at fair value 600,000
14-10: b
Debit to Investment in Stock

Broker’s fee P 50,000
Pre-acquisition audit fee 40,000
Legal fees for the combination 32,000
Total P 122,000
Debit to expenses:
General administrative costs P 15,000
Other indirect costs 6,000
Total P 21,000
Debit to APIC
Audit fee for SEC registration of stock issue P 46,000
SEC registration fee for stock issue 5,000
Total P 51,000
14-11: d
Acquisition costs:
Cash P200,000
Stocks issued at fair value 330,000
Contingent liabilities 70,000
Total P600,000
Less: fair value of net assets acquired:
Cash P40,000
Inventories 100,000
Other current assets 20,000
Plant assets (net) 180,000
Current liabilities (30,000)
Other liabilities (40,000) 270,000
Goodwill P330,000
Total assets after combination:

Total assets before combination P 760,000
Cash paid (200,000)
Registration and issuance costs of shares issued ( 30,000)
Polo’s assets after combination P 530,000
Assets acquired at fair values 340,000
Goodwill 330,000
Total assets after combination P1,200,000
14-12: d

Less: Fair value net assets acquired 1,350,000
Goodwill P 50,000
14-13: a

Less: Fair value of net identifiable assets acquired:
Non-current assets 120,000
Liabilities ( 20,000) 180,000
Income from acquisition P(20,000)
Non- current assets P120,000

14-14: c

Less: Fair value of identifiable assets acquired:
Cash P 60,000
Liabilities (135,000) 487,500
Goodwill P112,500
14-15: b

Less: Fair value of identifiable assets acquired 800,000
Goodwill P 200,000
MM’s net assets at book value 1,200,000
PP’s net assets at fair value 800,000
Total assets after combination 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) P100,000

APIC (10,000 shares x P40) 400,000
Total P500,000
14-18: d, net assets are recorded at their fair values.
14-19: a
Income from acquisition P 100,000

Fair value of net assets acquired P2,000,000 – P400,000) 1,600,000
Acquisition cost 1,500,000
Shares to be issued (P1,500,000 ÷ P40) 37,500 shares
14-20: d
Goodwill P 200,000
Fair value of net assets acquired 1,600,000
Shares to be issued (P1,800,000 ÷ P40) 45,000 shares
14-21:
Total assets of Pablo before acquisition at book value P 700,000
Total assets acquired from Siso at fair value (100,000 +440,000) 540,000
Total assets 1,240,000
Less: cash paid (15,000 + 25,000) 40,000
Total assets after cash payment 1,200,000
Goodwill to be recognized (Sched 1) 195,000
Total assets after combination 1,395,000
Sched 1: Acquisition cost:

Purchase price (30,000 shares x P20) 600,000
Direct cost 25,000
Contingent consideration 50,000 675,000
Fair value of net assets acquired (540,000 – 60,000) 480,000
Goodwill 195,000
14-22:
Stockholders equity before acquisition 650,000
Capital stock issued at par (30,000 shares x P10) 300,000
APIC (50,000 +300,000) – 15,000 335,000
Stockholders equity after acquisition 1,285,000
14-23: a
B Company C Company
Acquisition cost P4,400,000 P638,000
Less: fair value of net assets acquired 4,150,000 370,000
Goodwill P 250,000 P268,000
Total goodwill recorded (250,000 + 268,000) 518,000
14-24: a
A Company 5,250,000
B Company 6,800,000
C Company 900,000
Cash paid for combination expenses (30,000)
Goodwill (see 14-23) 518,000
Total assets after combination 13,438,000
14-25: a
Stockholders equity before acquisition P1,300,000
Capital stock issued at par (229,000 shares x P10) 2,290,000
Additional paid-in-capital [(229,000 x 12) – 10,000] 2,738,000
Indirect cost (reduction from retained earnings) (20,000)
Stockholders equity after acquisition 6,308,000
PROBLEMS
Problem 14-1
1. Books of Big Corporation

Inventories 140,000
Property, plant and equipment 300,000
Current liabilities 50,000
Income from acquisition 5,000
Cash 505,000
To record acquisition of net assets of Small.
Computation of Income from Acquisition:

Acquisition cost (P500,000 + P5,000) P505,000
Less: Fair value of net identifiable assets acquired:
Accounts receivable P120,000
Inventories 140,000
Current liabilities ( 50,000) 510,000
2. Books of Small Corporation
Cash 500,000
Inventories 100,000
To record sale of net assets to Big.

Cash 500,000
To record liquidation of the corporation.
Problem 14-2
Cash 50,000
Inventory 150,000
Building and equipment – net 300,000
Patent 200,000
Cash 570,000
Income from acquisition 100,000
To record acquisition of the net assets at fair values.
Computation of Income from Acquisition

Less: Fair value of net identifiable assets acquired
Accounts payable ( 30,000) 670,000
Problem 14-3
Cash and receivables 50,000

Inventory 200,000
Building and equipment 300,000
Goodwill 65,000
Common stock, P10 par value 60,000
Additional paid-in capital 480,000
Cash 25,000
To record acquisition of net assets acquired.
Computation of Goodwill
Less: fair value of net identifiable assets acquired
Accounts payable ( 50,000) 500,000
Goodwill P 65,000
Problem 14-4
(1) Cash 60,000

Inventory 115,000
Land 70,000
Bond discount 20,000
Goodwill 108,000
Common stock, P10 par value 120,000
Cash (P10,000 + P3,000) 13,000
To record purchase of net assets of Tan.
Professional fees (P10,000 + P3,000) 13,000
Total liabilities ( 190,000) 505,000
Goodwill P108,000
(2) Additional paid-in capital 6,000

Cash 6,000
To record costs of issuing and registering of shares issued
(P5,000 + P1,000)
(3) Expenses 9,000

Cash 9,000
To record indirect acquisition costs.
Problem 14-5
1. Common stock:: P200,000 + (8,000 shares x P10) P280,000

2. Cash and receivables: P150,000 + P40,000 190,000
3. Land: P100,000 + P85,000 185,000
4. Building and equipment – net: P300,000 + P230,000 530,000
5. Goodwill: (8,000 shares x P50) - P355,000 45,000
6. APIC: P20,000 + (8,000 shares x P40) 340,000
7. Retained earnings 330,000
Problem 14-6
Combined Balance Sheet

After acquisition
Based on P40/share Based on P20/share

Cash and receivables P 350,000 P 350,000
Inventory 645,000 645,000
Building and equipment 1,050,000 1,050,000
Accumulated depreciation (200,000) (200,000)
Goodwill 180,000 -
Total assets P2,025,000 P1,845,000
Accounts payable P 140,000 P 140,000

Bonds payable 485,000 485,000
Common stock P10 Par value 450,000 450,000
Additional paid-in capital 550,000 250,000
Retained earnings(including income from acquisition) 400,000 520,000
Total liabilities and stockholders’ equity P2,025,000 P1,845,000
Computation of Goodwill – Based on P40 per share:

Acquisition cost (15,000 shares x P40) P600,000
Less: Fair value of net identifiable assets (P545,000 – P125,000) 420,000
Goodwill P180,000
Computation of Income from Acquisition – Based on P20 per share:

Acquisition cost (15,000 shares x P20) P300,000
Less: Fair value of net identifiable assets 420,000
Income from acquisition (added to retained earnings of Red) P(120,000)
Problem 14-7
(a) Combined Balance Sheet

January 1, 2008
ASSETS
Cash and receivables P 110,000
Inventory 142,000
Land 115,000
Plant and equipment P540,000
Goodwill 13,000
Total assets P 770,000
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities P 100,000
Capital stock, P20 par value 214,000
Capital in excess of par 216,000
Total liabilities and stockholders’ equity P 770,000
(P217,000 – P20,000) 197,000
Goodwill P 13,000
(b) Stockholders’ Equity section
(1) With 1,100 shares issued
Capital stock: P200,000 + (1,100 shares x P20) P222,000

Capital in excess of par: P20,000 + (1,100 x P280) 328,000
Total P790,000
Capital stock: P200,000 + (1,800 shares x P20) P 236,000

Total P1,000,000
Capital stock: P200,000 + (3,000 shares x P20) P260,000

Total P1,360,000
Problem 14-8
2007 (a) 2008 2009

Revenue P1,400,000 P1,800,000 (b) P2,100,000
Net income 500,000 545,000 © 700,000
Earnings per share P 5.00 P 4.84 (d) P 5.60 (e)
(a) Separate figures for Dollar Transport only.

(b) P2,000,000 – P200,000
(c) P620,000 - P55,000
(d) P545,000 / 112,000 shares (100,000 + 125,000) ÷ 2
(e) P700,000 / 125 shares
Problem 14-9
a. Books of Peter Industries
Cash 28,000
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
Allowance for bad debts 6,500
Current payables 137,200
Mortgage payables 500,000
Premium on mortgage payable 20,000
Equipment trust notes 100,000
Debenture payable 1,000,000
APIC – common 2,298,000
Cash (direct acquisition cost) 135,000
To record acquisition of assets and liabilities at fair values.
Less: fair value of net identifiable assets acquired
Total liabilities (1,702,200) 2,410,300
Goodwill P 244,700
Expenses 42,000
Cash 42,000
To record indirect cost.
b. Books of HCC:
Common stock 7,500

APIC – Common 4,500
Treasury stock 12,000
To record retirement of treasury stock.
P7,500 = P5 x 1,500 shares
P4,500 = P12,000 – P7,500
Investment in stock - Peter 2,520,000

Allowance for bad debts 6,500
Current payable 137,200
Equipment trust notes 100,000
Debentures payable 1,000,000
Discount on bonds payable 40,000
Cash 28,000
Inventory 381,000
Land 55,000
Rolling stock 130,000
Plant and equipment 2,425,000
Patents 125,000
Special licenses 95,800
Gain on sale of assets and liabilities 1,189,900
To record sale of assets and liabilities to Peter.

APIC – Common 495,500
APIC – Retirement of preferred 22,000
Retained earnings 1,410,000
Investment in stock – Peter 2,520,000
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
Problem 14-10
a. Increase in capital stock (P240,00 – P200,000) P 40,000

Increase in APIC (P420,000 – P60,000) 360,000
Value of shares issued P 400,000
b. Total assets after combination P1,130,000

Total assets of Subic before combination 650,000
Total fair value of assets of Clark before combination P 480,000
Total liabilities after combination P220,000

Total liabilities of Subic before combination (140,000) ( 80,000)
Fair value of Clark’s net assets (including goodwill) P 400,000
Less: Goodwill 55,000
Fair value of Clark’s net assets before combination P 345,000
c. Par value of common stock after combination P 240,000

Par value of common stock before combination 200,000
Increase in par value P 40,000
Divided by par value per share ÷ P5
Number of shares issued 8,000 shares
d. Value of shares computed in (a) P 400,000

Number of shares issued computed in © ÷ 8,000
Market price per share 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 P 20,000

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

Book value reported by Son P100,000
Bond premium reported following purchase 5,000
Market value of bond P105,000
d. Shares issued by Papa Corporation:
Par value of stock following acquisition P190,000

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

Additional paid-in capital following acquisition 262,000 P452,000
Par value of stock before acquisition P120,000

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

Fair value of Son’s assets P405,000
Fair value of Son’s liabilities:
Bond payable 105,000
Fair value of liabilities (135,000)
Fair value of Son’s net assets (270,000)
Goodwill recorded in business combination P 52,000
Goodwill previously on the books of Papa 30,000
Goodwill reported P 82,000
g. Retained earnings reported by Son at date of combination was P90,000

(P325,000 – P30,000 – P100,000 – P50,000 – P55,000)
h. Papa’s retained earnings of P120,000 will be reported.
i. 1. Investment account 17,000

Cash 26,800
2. Goodwill previously computed P82,000

Merger costs added to investment account 17,000
Total goodwill reported P99,000
3. Additional paid-in capital reported following combination P262,000

Stock issue costs (9,800)
Total additional paid-in capital reported P252,200
CHAPTER 15
MULTIPLE CHOICE
15-1: a

Less: Book value of interest acquired (100%) 3,200,000
Difference 800,000
Allocation:
Property and equipment P(750,000)
Other assets 150,000
Long-term debt (200,000) ( 800,000)
Goodwill P -0-
15-2: c

Less: Book value of interest acquired (P280,000 x 90%) 252,000
Difference 98,000
Allocation to plant assets (P40,000 x 90%) (36,000)
Goodwill P 62,000
15-3: c
Plant assets – Pall Company P 220,000

Plant assets – Mall Company 180,000
Consolidated P 400,000
15-4: a

Less: Book value of interest acquired (P560,000 – P70,000) 490,000
Difference 5,000
Allocation:
Inventory P 25,000
Property and equipment ( 35,000) (10,000)
15-5: b

Difference P 79,000
Allocation:
Inventory (P20,000 x 80%) P(16,000)
Land (P10,000 x 80%) 8,000
Mortgage payable (P5,000 x 80%) ( 4,000) ( 12,000)
Goodwill P 67,000
15-6: a
Inventory (P360,000 + P130,000) P490,000
Plant and equipment (P500,000 + P420,000) P920,000
15-7: a
Building P180,000
Land P 90,000
15-8: d
Son’s stockholders’ equity P400,000

Minority interest proportionate share 20%
Minority interest in net assets of subsidiary P 80,000
15-9: d

Difference 51,250
Allocation to accounts payable (P5,000 x 75%) 3,750
Goodwill P 55,000
Therefore:
Total assets (P800,000 + P300,000 + P55,000) P1,155,000
Total liabilities (P250,000 + P15,000 + P160,000 + P5,000) 570,000
15-10: b (P900,000 x 1%)

15-11: a
Controlling (Parent) interest:

Shares acquired (P120,000 / P120) 1,000 shares
Divided shares outstanding (P125,000 /P100) ÷1,250
Parent’s interest 80%
Minority interest in net assets of subsidiary (P200,000 x 20%) P40,000
15-12: a
Goodwill P250,000
Book value of interest acquired (P100,000 / 20%) x 80% 400,000
Investment cost P650,000
15-13: b
Net assets on the date of acquisition (P247,095 + P43,605) P290,700

Adjustments of assets excluding goodwill:
Inventories P6,630
Plant and equipment 48,450
Patent 7,650 62,730
Net assets at fair value P353,430
15-14: d (P500,000 + P300,000)
15-15: b

Difference 60,000
Allocated to plant and equipment (P50,000 x 80%) (40,000)
Goodwill 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)

15-20: d
Cash and cash equivalent (P70,000 + P90,000) P 160,000

Inventory (P100,000 + P60,000) 160,000
Property and equipment (P500,000 + P300,000) 800,000
Goodwill 20,000
15-21: d
Fair value of the reporting unit P 485,000

Fair value of net assets (excluding goodwill) 440,000
Implied goodwill 45,000
Carrying value of goodwill (P450,000 – P390,000) 60,000
Impairment loss P 15,000
15-22: b
Fair value of the reporting unit P 540,000

Fair value of the net assets (P590,000 – P100,000) 490,000
Implied goodwill to be recorded 50,000
Carrying value of goodwill 150,000
Impairment loss P 100,000
15-23: a The amount reported is equal to Primo’s 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 40,000
Inventories (see 15-25) 140,000
Equipment (800,000 - 500,000) 300,000
Accounts payable (40,000)
Fair value of net assets 460,000
15-27: a
Net asset acquired (320,000 x 70%) 224,000
Differential allocated to inventory 40,000
Differential allocated to equipment 100,000
Differential allocation to goodwill 10,000
Minority interest (140,000 x30%) (42,000)
Amount paid by Parent 332,000
PROBLEMS
Problem 15-1
a. Investment in Solo Company stock 1,080,000

Cash 1,080,000
To record acquisition of 90% (90,000 / 100,000)
of the outstanding shares of Solo.
b. Working paper elimination entries:
(1) Common stock – Solo 400,000

Retained earnings – Solo 500,000
Investment in Solo company stock 810,000
Minority interest in net assets of subsidiary 90,000
To eliminate Solo’s equity accounts at date of acquisition.
(2) Inventories 30,000

Plant assets 60,000
Goodwill 189,000
Investment in Solo company stock 270,000
To allocate difference
Computation and allocation of difference:

Less: Book value of interest acquired
Common stock (P400,000 x90%) P360,000
Retained earnings (P500,000 x 90%) 450,000 810,000
Difference P 270,000
Allocation:
Inventories (30,000)
Plant assets (60,000)
Total (90,000)
Minority interest (P90,000 x10%) 9,000 ( 81,000)
Goodwill P 189,000
Problem 15-2
a. Investment in Straw stock 600,000

Cash 600,000
To record acquisition of 100% of Straw stock.
b. Acquisition cost P600,000

Less: Book value of interest acquired (100%) 420,000
Difference 180,000
Allocation (100%:
Inventories P( 40,000)
Land ( 80,000)
Building 150,000
Equipment ( 20,000)
Patents ( 20,000) ( 10,000)
Goodwill P170,000
c. Working paper elimination entries:
(1) Common stock – Straw 100,000

Retained earnings – Straw 320,000
Investment in Straw stock 420,000
To eliminate equity accounts of Straw at
date of acquisition.

Land 80,000
Equipment 20,000
Patents 20,000
Goodwill 170,000
Buildings 150,000
Investment in Straw stock 180,000
To allocate difference.
Problem 15-3
a. Investment in Soto stock 950,000

Cash 950,000
To record acquisition of 90% stock of Sotto.
b. Acquisition cost P950,000

Difference 140,000
Allocation:
Property and equipment (100,000)
Long-term debt ( 40,000)
Total P( 90,000)
Minority interest (10% thereof) 9,000 (81,000)
Goodwill P 59,000
c. Working paper elimination entries:
(1) Common stock – Sotto 100,000

APIC – Sotto 200,000
Retained earnings – Sotto 600,000
Investment in Sotto stock 810,000
To eliminate equity accounts of Sotto at date of
acquisition.
(2) Property, plant and equipment 100,000

Goodwill 59,000
Long-term debt 40,000
Current assets 45,000
Investment in Sotto stock 140,000
Problem 15-4
Paco Company and Subsidiary

January 2, 2008
Current assets P475,000

Other assets 70,000
Current liabilities P280,000

Retained earnings (including income from subsidiary of P20,000) 200,000
Computation of income from acquisition:

Investment cost (20,000 shares x P6) P120,000
Common stock P35,000
Difference P 5,000
Allocated to property and equipment (25,000)
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 260,000

Common stock, at par 100,000
Cash (direct acquisition cost) 10,000

Cash 20,000
Palo Company and Subsidiary
December 31, 2008
Cash P 70,000
Receivables 120,000
Inventory 170,000
Property and equipment – net 340,000
Goodwill 30,000

Long-term liabilities 120,000
Retained earnings, 12/31 220,000
Computation of goodwill:
Less: Book value of interest acquired (P90,000 + P100,000) 190,000
Difference 70,000
Allocated to equipment (40,000)
Goodwill P 30,000
Problem 15-6
a. Investment in Seed Company stock 350,000
Cash 350,000
To record acquisition of 100% of Seed company stock.
Allocation schedule:
Less: Book value of interest acquired 320,000
Difference 30,000
Allocation:
Inventory P(20,000)
Long-term liabilities 40,000 (60,000)
Income from acquisition P930,000)
b. Working paper elimination entries

(1) Common stock – Seed 100,000
Additional paid-in capital – Seed 40,000
Retained earnings – Seed 180,000
Investment in Seed stock 320,000
To eliminate equity accounts of Seed at
date of acquisition.

Plant assets 80,000
Investment in Seed stock 30,000
Retained earnings – Pill (income from acquisition) 30,000
Pill Corporation and Subsidiary
Consolidated Working Paper
May 31, 2008 – Date of Acquisition
Pill Seed Eliminations & adjustment Conso-

Corporation Company Debit Credit lidated
Assets
Cash 200,000 10,000 210,000
Inventories 1,400,000 120,000 (2) 20,000 1,540,000
Investment in Seed company 350,000 (1)320,000 -
(2) 30,000
Plant assets 2,850,000 610,000 (2) 80,000 3,540,000
Total 5,500,000 800,000 6,050,000
Liabilities & Stockholders’

Equity
Current liabilities 500,000 80,000 580,000
Long-term debt 1,000,000 400,000 (2) 40,000 1,440,000
Common stock:
Pill 1,500,000 1,500,000
Seed 100,000 (1)100,000
Additional paid-in capital
Pill 1,200,000 1,200,000
Seed 40,000 (1) 40,000
Retained earnings
Pill 1,300,000 (2) 30,000 1,330,000
Seed 180,000 (1)180,000
Total 5,500,000 800,000 420,000 420,000 6,050,000
Problem 15-7
a. Accounts Receivable 70,000

Cash 70,000
b. Investment in Sea Company stock 600,000

Common stock ((30,000 shares x P20) 600,000
Investment in Sea Company stock 40,000

Common stock 30,000
Pop Corporation and Subsidiary
Working Paper for Consolidated Balance Sheet
April 30, 2008 – Date of acquisition
Pop Sea Adjustments & Eliminatio Consoli-

Corporation Company Debit Credit dated
Assets
Cash 50,000 80,000 130,000
Accounts receivable – net 230,000 270,000 (3) 70,000 430,000
Inventories 400,000 350,000 (2) 90,000 840,000
Investment in Sea Company 640,000 (1)328,000 -
(2)312,000
Plant assets 1,300,000 560,000 (2)220,000 2,080,000
Goodwill (2) 80,000 80,000
Total 2,620,000 1,260,000 3,560,000

Equity
Current liabilities 380,000 250,000 (3) 70,000 560,000
Long-term debt 800,000 600,000 (2) 20,000 1,420,000
Common stock
Pop 1,070,000 1,070,000
Sea 100,000 (1)100,000
Additional paid-in capital 360,000 (1)360,000
Retained earnings
Pop 370,000 370,000
Sea (50,000) (1) 50,000
Minority interest in net assets
Of subsidiary (1) 82,000 140,000
(2) 58,000
Total 2,620,000 1,260,000 920,000 920,000 3,560,000
(1) To eliminate equity accounts of Sea Company on the date of acquisition .

(2) To allocate difference, computed as follows:
Difference 312,000
Allocation:
Total P(290,000)
Minority interest (20% 58,000 232,000
Goodwill P 80,000
(3) To eliminate intercompany receivables and payables.
Problem 15-8
1. Acquisition cost P500,000

APIC 200,000
Difference ( 30,000)
Allocation:
Inventory P( 20,000)
Land ( 10,000)
Building 50,000
Equipment 60,000
Bonds payable ( 50,000) 30,000
2. P Company and Subsidiary

January 1, 2008 – Date of acquisition
P S Adjustments & Eliminations Consoli-

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

(2) To allocate difference.
Problem 15-9

Common stock (P100,000 x 80%) P 80,000
APIC (P200,000 x 80%) 160,000
Difference P 76,000
Allocation
Inventory P (20,000)
Land (10,000)
Building 50,000
Equipment 60,000
Bonds payable (50,000)
Total P 30,000
Minority interest (20%) ( 6,000) 24,000
Goodwill P100,000


Debits
Cash 300,000 50,000 350,000
Inventory 200,000 80,000 (2) 20,000 300,000
Land 100,000 50,000 (2) 10,000 160,000
Building 600,000 400,000 (2) 50,000 950,000
Equipment 800,000 200,000 (2) 60,000 940,000
Investment in S Company 500,000 (1)424,000 -
(2) 76,000
Goodwill (2)100,000 100,000
Total 2,700,000 880,000 3,100,000
Credits
Bonds payable 290,000 (2) 50,000 240,000
Common stock – P Co. 1,500,000 1,500,000
Common stock – S Co. 100,000 (1)100,000
APIC – S Co. 200,000 (1)200,000
Retained earnings – P Co. 1,050,000 1,050,000
Retained earnings – S Co. 230,000 (1)230,000
Minority interest in net
Assets of subsidiary (2) 6,000 (1)106,000 100,000
Total 2,700,000 880,000 716,000 716,000 3,100,000
(1) To eliminate equity accounts of S Company
(2) To allocate difference
Problem 15-10

Less: Book value of interest acquired (100%) 670,000
Difference (128,000)
Allocation
Inventory P (10,000)
Land (40,000)
Equipment 20,000
Long-term investment in MS (15,000) ( 45,000)


Assets
Cash 100,000 100,000 200,000
Inventory 150,000 130,000 (2) 10,000 290,000
Land 50,000 80,000 (2) 40,000 170,000
Equipment 300,000 200,000 (2) 20,000 480,000
Investment in S Company 542,000 (2)128,000 (1)670,000 -
Long-term investment in MS 100,000 125,000 (2) 15,000 240,000
Total 1,442,000 785,000 1,730,000

Equity
Common Stock – P Co. 400,000 400,000
Common Stock – S Co. 200,000 (1)200,000
APIC – P Co. 200,000 200,000
Retained earnings – P Co. 667,000 (2)173,000 840,000
Retained earnings – S Co. 470,000 (1)470,000
Total 1,442,000 785,000 863,000 863,000 1,730,000
(1) To eliminate equity accounts of S Company.

(2) To allocate difference
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:
Subsidiary’s net income P150,000

Amortization of the allocated difference ( 20,000)
Minority interest in net income of subsidiary P130,000
16-4: c

Difference P 60,000
Cost Method Equity Method

Acquisition cost P540,000 P540,000
Parent’s share of subsidiary’s net income - 120,000
Dividends received from subsidiary - ( 48,000)
Amortization of allocated difference (P60,000/20) - ( 3,000)
Investment account balance, Dec. 31, 2008 P540,000 P609,000
16-5: a
Net assets of Sol, January 2, 2008 P300,000

Increase in earnings:
Net income P160,000
Dividends paid (P60,000 / 75%) 80,000 80,000
Net assets of Sol, Dec. 31, 2008 P380,000
Minority interest in net assets of subsidiary (P380,000 x 25%) P 95,000
16-6: a
Puno’s net income P145,000

Dividend income (P40,000 x 90%) (36,000)
Salas’ net income 120,000
Consolidated net income P229,000
16-7: d
Peter’s net income from own operation P1,000,000

Peter’s share of Seller’s net income 200,000
MINIS (P200,000 x 25%) ( 50,000)
Consolidated net income attributable to parent P1,150,000
16-8: a
2006 2007 2008

Investment in Son, Jan. 1 P310,000 P396,200 P512,400
Pop’s share of Son’s net income (100%) 150,000 180,000 200,000
Dividends received (100%) ( 60,000) (60,000) ( 60,000)
Amortization of allocated difference to
Equipment (P38,000 / 10) ( 3,800) ( 3,800) ( 3,800)
Investment in Son, Dec. 31 P396,200 P512,400 P648,600
16-9: a
Sy’s net income P300,000

Amortization of allocated difference ( 60,000)
Adjusted net income of Sy 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 P500,000

Consolidated net income attributable to parent:
Net income – Puzon P200,000
Net income – Suarez 40,000
MINIS (P40,000 x 20%) ( 8,000) 216,000
Dividends paid – Puzon ( 50,000)
Consolidated retained earnings, Dec. 31, 2008 P666,000
16-12: c

Less: Book value of interest acquired 1,260,000
Allocation due to undervaluation of net assets ( 40,000)
Goodwill ( not impaired) P 400,000
16-13: d
Net assets of Suazon, Jan. 2, 2008 P1,000,000

Increase in earnings (P190,000 – P125,000) 65,000
Net assets of Suazon, Dec. 31, 2008 P1,065,000
Unamortized difference to plant assets (P100,000 – P10,000) 90,000
Adjusted net assets of Suazon, Dec. 31, 2008 P1,175,000
Minority interest in net assets of subsidiary (1,175,000 x 20%) P 231,000
16-14: b
Presto’s net income from own operations P140,000

Presto’s share of Stork’s net income (P80,000 – P23,000) 57,000
MINIS (P57,000 x 10%) ( 5,700)
Consolidated net income attributable to parent P191,300
16-15: b
Investment in Siso stock (at acquisition cost) P600,000
Dividend income (P30,000 x 5%) P 1,500
16-16 d
Consolidated net income:

Pepe’s net income from own operations P210,000
Sison’s adjusted net income:
Net income -2008 P67,000
Amortization of allocated difference
to equipment (P20,000 / 5) 4,000 63,000
Consolidated retained earnings:

Pepe’s retained earnings, Jan.2, 2007 P701,000
Consolidated net income attributable to parent– 2007
Pepe’s NI from own operations P185,000
Sison’s adjusted NI;
Net income – 2007 P40,000
Amortization -2007 4,000 36,000
MINIS (P36,000 x 30%) (10,800) 210,200
Dividends paid ,2007 - Pepe ( 50,000)
Pepe’s retained earnings, Jan. 2, 2008 P861,200
Consolidated net income attributable to parent– 2008:
Consolidated net income (see above) P273,000
MINIS (P63,000 x 30%) ( 18,900) 254,100
Dividends paid, 2008 – Pepe ( 60,000)
Consolidated retained earnings, Dec. 31, 2008 P1,055,300
16-17: b

Allocated to building P 70,000
Consolidated retained earnings

Retained earnings, Jan. 1, 2008 – Pepe P550,000
Net income – Precy P275,000
Adjusted net income of Susy:
Net income of Susy P100,000
Amortization (P70,000 / 10) ÷ 2 ( 3,500) 96,500
MINIS (P96,500 x 30%) (28,950) 342,550
Dividends paid – Precy ( 70,000)
Minority interest in net assets of subsidiary

Stockholders’ equity of Susy, June 30, 2008 P 900,000
Increase in earnings- net income (7/1 to 12/31) 100,000
Stockholders’ equity, Dec. 31, 2008 P1,000,000
Unamortized difference (P70,000 – P3,500) 66,500
Adjusted net assets of Susy, Dec. 31, 2008 P1,066,500
Minority interest in net assets of subsidiary (P1,066,500 x 30%) P 319,950
16-18: a
Goodwill
Less: Book value of interest acquired (P1,320,000 – P320,000) 1,000,000
Goodwill (not impaired) 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 P130,000

Sito’s net income 70,000
MINIS (P70,000 x 30%) (21,000)
Consolidated net income attributable to parent P151,000
16-20: c
Consolidated net income – 2008

Net income – Ponce P 90,000
Solis’ net income 40,000
MINIS (P40,000 x 40%) (16,000)
Consolidated net income attributable to parent – 2008 P105,000
Consolidated retained earnings – 2008

Retained earnings, Jan. 2, 2007- Ponce P 400,000
Consolidated net income attributable to parent– 2007:
Net income – Ponce P70,000
Solis’ net income 35,000
MINIS (P35,000 x 40%) ( 14,000) 75,000
Dividends paid, 2007– Ponce (25,000)
Consolidated net income attributable to parent– 2008 105,000
Dividends paid. 2008 – Ponce (30,000)
16-21 a
Less: Book value of interest acquired (220,000 x 80%) 176,000
Difference 40,000
Allocated to:
Depreciable assets (30,000 ÷ 80%) (37,500)
Minority interest ( 37,500 x 20%) 7,500 (30,000) = 80%
Goodwill 10,000
Polo net income from own corporation P 95,000

Seed net income from own operation:
Net income 35,000
Amortization (37,500 ÷ 10%) (3,750) 31,250
Total 126,250
Goodwill impairment lost (8,000)
Consolidated net income 118,250
16-22: a
Retained earnings 1/1/08 – Polo P520,000
Consolidated net income attributed to parent:
MINI (35,000 – 3,750) x 20% 6,250 112,000
Total 632,000
Dividends paid- Polo (46,000)
Consolidated retained earnings 12/31/08 586,000
16-23: a (35,000 – 3750) x 20%
16-24: a
Seed stockholders equity, January 2, 2008 (80,000 + 140,000) 220,000
Undistributed earnings – 2008 (35,000 – 15,000) 20,000
Unamortized difference (37,500 - 3750) 33,750
Seed stockholders equity (net asset), December 31, 2008 273,750
MINAS (273,750 × 20%) 54,750
16-25: a (see no. 16-22)
16-26: a
Acquisition cost 231,000
Less: Book value of interest acquired (280,000 x 70%) 196,000
Difference 35,000
Allocation:
to depreciable assets (50,000)
MINAS (30%) 15,000 35,000
Retained earnings, 1/1/08-Sisa company 230,000

Retained earnings, 1/1/07-Sisa company (squeeze) 155,000
Increase 75,000
Amortization- prior years (50,000 ÷ 10 years) (5,000)
Adjusted increase in earnings of Sisa (21,000/30% ) 70,000
16-27: a
Retained earnings 1/1/08- Pepe 520,000
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) 49,000
16-28: a
Pepe company net income 120,000
Sisa company net income 25,000
Dividend income (10,000 x 70%) (7,000)
Amortization- 2008 (5,000)
16-29: a
Consolidated retained earnings 1/1/08(see 16 – 27) 569,000
Consolidated net income (see 16-28) 133,000
MINIS (25,000 – 5,000) 30% (6,000) 127,000
Dividend paid- Pepe company (50,000)
PROBLEMS
Problem 16-1
a. Since Pasig paid more than the P240,000 fair value of Sibol’s 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 P 50,000 10 years P 5,000

Equipment (20,000) 5 years (4,000)
Building:
Allocation, Jan. 1, 2004 P 50,000
Amortization during past years -2004 to 2005 (P5,000 x 2) (10,000)
Amortization for the current year – 2006 ( 5,000)
Allocation, Dec. 31, 2006 P 35,000
Equipment
Allocation, Jan. 1, 2004 P(20,000)
Amortization during past years – 2004 to 2005 (P4,000 x 2) 8,000
Amortization for the current year – 2006 4,000
Allocation, Dec. 31, 2006 P( 8,000)
b. Since Pasig paid P20,000 less than the P240,000 fair value of Sibol’s 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 P240,000
Allocation:
Inventory P ( 5,000)
Land (75,000)
Equipment (60,000)
Discount on notes payable (50,000)
Total P(190,000)
Minority interest (10%) 19,000 171,000
Amortization of differential:
Inventory sold P 5,000
Land sold 75,000
Equipment (P60,000/15 years) 4,000
Discount on notes payable 7,500
Total P91,500
b. Working paper elimination entries
(1) Common stock – State 500,000

Premium on common stock – State 100,000
Retained earnings – State 120,000
Investment in State stock 648,000
To eliminate equity accounts of State on the date
of acquisition.
(2) Inventory 5,000

Land 75,000
Equipment 60,000
Goodwill 69,000
Investment in State stock 240,000

Gain on sale of land 75,000
Operating expenses (depreciation) 4,000
Inventory 5,000
Land 75,000
Equipment 4,000
To amortize allocated difference.
(4) Minority interest in net asset of subsidiary 2,350
Minority interest in net income of subsidiary 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

Problem 16-3
a. Consolidated Buildings
Profit Company (at book value) P 900,000
Simon Corporation (at fair value) 560,000
Amortization of differential (P120,000 / 6 years) ( 20,000)
Total P1,440,000
b. Consolidated Retained Earnings, Dec. 31, 2008

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

Total revenues (P700,000 + P400,000) P1,100,000
Total expenses (P400,000 + P300,000) (700,000)
Amortization ( 20,000)
Total P 380,000
d. Consolidated Goodwill [(P680,000 – P480,000)- P120,000] P 80,000
Problem 16-4
Allocation Schedule
Difference P 66,000
Allocation:
Equipment P(40,000)
Buildings 10,000 (30,000)
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) P 370,000
Allocation 40,000
Amortization (P5,000 x 3 years (15,000)
Total P 395,000
e. Consolidated Buildings
Total book value P 288,000
Allocation ( 10,000)
Amortization (P500 x 3 years) 1,500
Total P 279,500
f. Consolidated Goodwill (not impaired) P 36,000
g. Consolidated Common Stock (Pony) P 290,000
h. Consolidated Retained Earnings

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

Stockholders’ equity, Dec. 31, 2008 – Sison (P232,000/40%) P 580,000
Stockholders’ equity, Jan. 1, 2005 – Sison (500,000)
Increase in earnings P 80,000
Retained earnings, Jan. 1, 2005 – Sison 200,000
Retained earnings, Dec. 31, 2008 – Sison P 280,000
b. Consolidated Retained Earnings – Dec. 31, 2008

Retained earnings, Jan. 1, 2005 - Perez P 600,000
Net income – 2005 to 2008 100,000
Dividends paid – 2005 to 2008 ( 45,000)
Retained earnings, Dec. 31, 2008 P 655,000
Add: Perez share of adjusted net increase in Sison’s
Retained earnings P80,000
Amortization (P8,333 x 4) (33,332)
Adjusted P46,668
Perez interest 60% 28,000
Total P 683,000
Allocation Schedule
Difference P 50,000
Allocation:
Depreciable assets (P50,000 / 60%) P(83,333)
Minority interest (40%) 33,333 (50,000
Amortization per year (P83,333/10 years) P 8,333
Problem 16-6
a. Working Paper Elimination Entries, Dec. 31, 2008
(1) Dividend income 10,000

Dividends declared – Short 10,000
To eliminate intercompany dividends.
(2) Common stock – Short 100,000

Retained earnings – Short 50,000
Investment in Short Company 150,000
To eliminate equity accounts of Short at
date of acquisition
(3) Depreciable asset 30,000

Investment in Short Company 30,000

Depreciable asset 5,000
To amortize allocated difference
b. Pony Corporation and Subsidiary
Consolidation Working Paper
December 31, 2008
Pony Short Adjustments & Eliminations Consoli-

Income Statement
Sales 200,000 120,000 320,000
Dividend income 10,000 (1) 10,000 -
Total 210,000 120,000 320,000
Depreciation 25,000 15,000 (3) 5,000 45,000
Other expenses 105,000 75,000 180,000
Total 130,000 90,000 225,000
Net income carried forward 80,000 30,000 95,000
Retained Earnings
Retained earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000
Net income from above 80,000 30,000 95,000
Total 310,000 80,000 325,000
Dividends declared 40,000 10,000 (1) 10,000 40,000
Retained earnings, Dec. 31
Carried forward 270,000 70,000 285,000
Balance Sheet
Cash 15,000 5,000 20,000
Inventory 70,000 60,000 130,000
Depreciable asset (net) 325,000 225,000 (3) 30,000 (4) 5,000 575,000
Investment in Short stock 180,000 (2)150,000 -
(3) 30,000
Total 620,000 330,000 795,000

Notes payable 100,000 120,000 220,000
Common stock
Pony 200,000 200,000
Short 100,000 (2)100,000
From above 270,000 70,000 285,000
Total 620,000 330,000 195,000 195,000 795,000
Problem 16-7
a. Working Paper Elimination Entries

Dividends declared – Sisa 10,000
(2) Common stock – Sisa 100,000

Retained earnings – Sisa 50,000
Investment in Sisa stock 120,000
(3) Minority interest in net income of subsidiary 6,000

b. Popo Corporation and Subsidiary

December 31, 2008
Popo Sisa Adjustments & Eliminations Consoli-
Income Statement
Sales 200,000 120,000 320,000
Total revenue 208,000 120,000 320,000
Other expenses 105,000 75,000 180,000
Total expenses 130,000 90,000 220,000
Net income 78,000 30,000 100,000
MI in net income of Sub. (3) 6,000 ( 6,000)
Retained Earnings
Retained earnings, 1/1 230,000 50,000 (2) 50,000 230,000
Total 308,000 80,000 324,000
Retained earnings, 12/31
Carried forward 268,000 70,000 284,000
Balance Sheet
Current assets 173,000 105,000 278,000
Depreciable assets 500,000 300,000 800,000
Investment in Sisa stock 120,000 (2)120,000 -
Total 793,000 405,000 1,078,000

Current liabilities 50,000 40,000 90,000
Long-term debt 100,000 120,000 220,000
Common stock 200,000 100,000 (2)100,000 200,000
Retained earnings , 12/31
From above 268,000 70,000 284,000
MI in net assets of Subsidiary (1) 2,000 (2) 30,000 34,000
(3) 6,000
Total 793,000 405,000 166,000 166,000 1,078,000
c. Consolidated Financial Statements
Popo Corporation and Subsidiary

December 31, 2008
Assets
Current assets P278,000
Depreciable assets P800,000

Total liabilities P310,000
Retained earnings, 12/31 284,000
Minority interest in net assets of subsidiary 34,000 518,000

Sales P320,000
Expenses:
Depreciation expense P 40,000
Minority interest in net income of subsidiary 6,000
Consolidated net income attributable to parent P 94,000

Consolidated Retained Earnings
Retained earnings, Jan. 1 – Popo P230,000

Consolidated net income attributable to parent 94,000
Total P324,000
Dividends paid – Popo 40,000
Consolidated retained earnings, Dec. 31 P284,000
Problem 16-8
a. Palo Corporation and Subsidiary

December 31, 2008
Palo Sebo Adjustments & Eliminations Consoli-

Income Statement
Sales 300,000 150,000 450,000
Investment Income 19,000 (1) 19,000 -
Total revenues 319,000 150,000 450,000
Cost of goods sold 210,000 85,000 295,000
Other expenses 23,000 25,000 48,000
Total cost and expenses 258,000 130,000 388,000
Retained Earnings
Retained earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000
Total 291,000 70,000 292,000
carried forward 271,000 60,000 272,000
Balance Sheet
Cash 37,000 20,000 57,000
Inventory 70,000 60,000 130,000
Buildings and equipment 300,000 240,000 540,000
Investment in Sebo stock 229,000 (1) 9,000 -
(2)200,000
(3) 20,000
Goodwill (3) 20,000 20,000
Total 686,000 350,000 827,000

Taxes payable 70,000 55,000 125,000
Common stock 200,000 150,000 (2)150,000 200,000
from above 271,000 60,000 272,000
Total 686,000 350,000 239,000 239,000 827,000
b. Consolidated Financial Statements
Palo Corporation and Subsidiary

Sales P450,000
Expenses:
Depreciation expenses P45,000

Retained earnings, January 1 – Palo P230,000

Total 292,000
Dividends paid – Palo 20,000
Retained earnings, December 31 P272,000

December 31, 2008
Assets
Cash P 57,000
Inventory 130,000
Buildings and equipment P540,000
Goodwill 20,000
Total P657,000

Taxes payable 125,000
Retained earnings, Dec. 31 272,000
Total P657,000
Problem 16-9

Less: Book value of interest acquired (80%)
Common stock (P300,000 x 80%) P240,000
Difference P196,000
Allocation:
Land ( 50,000)
Building (100,000)
Equipment 75,000
Patents ( 40,000)
Total P(145,000)
Minority interest (20%) 29,000 (116,000)
Working Paper Elimination Entries - December 31, 2006(not required)
(1) Investment income 94,800

Dividends declared – S 50,000
Investment in S Company 54,800
(2) Common stock – S 300,000

Retained earnings, Jan. 1 – S 400,000
Investment in S Co. 560,000

Land 50,000
Building 100,000
Patents 40,000
Goodwill 80,000
Equipment 75,000
Investment in S Company 196,000

Inventory 30,000
Equipment (P75,000 / 10) 7,500

Expenses (amortization) 1,500
Buildings (P100,000 / 20) 5,000
Patents (P40,000 / 10) 4,000

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


Income Statement
Sales 1,000,000 500,000 1,500,000
Cost of sales 400,000 150,000 (4) 30,000 580,000
Gross profit 600,000 350,000 920,000
Expenses 360,000 200,000 (4) 1,500 561,500
Operating income 240,000 150,000 358,500
Investment income 94,800 - (1) 94,800 -
Net /consolidated income 334,800 150,000 358,500
MI interest in net income of
Subsidiary (5) 23,700 (23,700)
Retained earnings
Retained earnings, 1/1 600,000 400,000 (2)400,000 600,000
Total 934,800 550,000 934,800
Carried forward 834,800 500,000 834,800
Balance Sheet
Cash 200,000 100,000 300,000
Inventories 100,000 40,000 (3) 30,000 (4) 30,000 140,000
Land 150,000 (3) 50,000 200,000
Buildings (net) 200,000 (3)100,000 (4) 5,000 295,000
Equipment (net) 298,000 450,000 (4) 7,500 (3) 75,000 680,500
Patent - - (3) 40,000 (4) 4,000 36,000
Investment in S Co. stock 810,800 (1) 54,800 -
(2)560,000
(3)196,000
Goodwill (3) 80,000 80,000
Total 1,558,800 1,090,000 1,931,500

Common stock 200,000 300,000 (2)300,000 200,000
Additional paid-in capital 400,000 - 400,000
from above 834,800 500,000 834,800
MI in net assets of subsidiary (1) 10,000 (2)140,000 182,700
(3) 29,000
(5) 23,700
Total 1,558,800 1,090,000 466,200 466,200 1,931,500
Problem 16-10
a. Investment in Sally Products Co. 160,000

Cash 160,000
To record acquisition of 80% stock of Sally.
Cash 8,000
Dividend income 8,000
To record dividends received from Sally (P10,000 x 80%)
b. Working Paper Eliminating Entries – Dec. 31, 2008
Allocation schedule:
Difference 40,000
Allocated to building and equipment P (50,000)
Minority interest (20%) 10,000 (40,000)

Dividends declared – Sally 10,000
(2) Common stock – Sally 100,000

Retained earnings, 1/1 –Sally 50,000
Investment in Sally Products 120,000
(3) Building and equipment 50,000

Investment in Sally Products 40,000

Accumulated depreciation – Bldg 5,000
(5) Accounts payables 10,000

Cash and receivables 10,000

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

December 31, 2008
Pilar Sally Wood Adjustments & Eliminations Consoli-

Corporation Products Debit Credit dated
Income Statement
Sales 200,000 100,000 300,000
Total revenue 208,000 100,000 300,000

Depreciation expense 25,000 15,000 (4) 5,000 45,000
Inventory losses 15,000 5,000 20,000
Net /consolidated income 48,000 30,000 65,000
MI interest in net income of

subsidiary (MINIS (6) 5,000 (5,000)
Retained earnings statement

Retained earnings, 1/1 298,000 90,000 (2) 50,000 338,000
Total 346,000 120,000 398,000
carried forward 316,000 110,000 368,000
Balance Sheet
Cash and receivables 81,000 65,000 (5) 10,000 136,000
Inventory 260,000 90,000 350,000
Land 80,000 80,000 160,000
Buildings and equipment 500,000 150,000 (3) 50,000 700,000
Investment in Sally 160,000 (2)120,000 -
(3) 40,000
Total 1,081,000 385,000 1,346,000
Accumulated depreciation 205,000 105,000 (4) 5,000 315,000

Accounts payable 60,000 20,000 (5) 10,000 70,000
Notes payable 200,000 50,000 250,000
Common stock 300,000 100,000 (2)100,000 300,000
Retained earnings from above 316,000 110,000 368,000
MI in net assets if subsidiary (1) 2,000 (2) 30,000 43,000
(3) 10,000
(6) 5,000
Total 1,081,000 385,000 230,000 230,000 1,346,000

Problem 16-11
a. Eliminating entries:
E(1) Dividend Income 20,000

Dividends Declared 20,000
Eliminate dividend income from subsidiary.
E(2) Common Stock – Star Company 150,000

Retained Earnings, January 1 50,000
Differential 20,000
Investment in Star Company Stock 220,000
Eliminate investment balance at date
of acquisition.
E(3) Goodwill 8,000

Retained Earnings, January 1 12,000
Differential 20,000
Assign differential at beginning of year
Porno Corporation and Star Company

Consolidated Workingpaper
December 31, 2008
Light Star Eliminations

_____Item_____ Corporation Company Debit Credit Consolidated
Income Statement
Sales 350,000 200,000 550,000
Dividend income 20,000 - (1) 20,000 _______
Credits 370,000 200,000 550,000
Other expenses 21,000 10,000 31,000
Debits (316,000) (165,000) __ - ____ (481,000)
Net income, carry forward 54,000 35,000 20,000 - 69,000
Retained Earnings Statement

Retained earnings, Jan. 1 262,000 60,000 (2) 50,000
(3) 12,000 260,000
Net income, from above 54,000 35,000 20,000 69,000
316,000 95,000 329,000
Dividends declared (20,000) (20,000) ___ - (1) 20,000 (20,000)
Retained earnings, Dec. 31,
carry forward 296,000 75,000 82,000 20,000 309,000
Balance Sheet
Cash 46,000 30,000 76,000
Inventory 75,000 65,000 140,000
Buildings and equipment 300,000 240,000 540,000
Investment in Star Company
stock 220,000 (2)220,000
Differential (2) 20,000 (3) 20,000
Goodwill - - (3) 8,000 8,000
Debits 696,000 375,000 859,000

Accounts payable ` 20,000 30,000 50,000
Taxes payable 50,000 35,000 85,000
Common stock
Light Corporation 200,000 200,000
Star Company 150,000 (2)150,000
Retained earnings, from above 296,000 75,000 82,000 20,000 309,000
Credits 696,000 375,000 260,000 260,000 859,000
CHAPTER 17
MULTIPLE CHOICE
17-1: B
Consolidated sales
Sales – Papa P 900,000
Sales – San 500,000
Elimination of inter-company sales ( 50,000)
Consolidated sales P 1,350,000
Consolidated cost of goods sold

Cost of goods sold – Papa P 490,000
Cost of goods sold – San 190,000
Eliminations:
Realized profit in beginning inventory (4,000)
Unrealized profit in ending inventory 10,000
Intercompany purchases ( 50,000)
Consolidated cost of goods sold P 636,000
17-2: c
Net income – Sisa P 60,000

Unrealized profit in ending inventory – upstream ( 10,000)
Adjusted net income – Sisa P 50,000
Minority interest in net income of subsidiary P 10,000
17-3: d
Net income from own operation – Pat P 200,000

Pat’s share of adjusted net income of Susan:
Net income – Susan P200,000
Realized profit in beginning inventory
(P112,000 x 50%/150%) 37,500
Unrealized profit in ending inventory
(P33,000 x 50%/150%) (11,000) 226,500
Attributable to minority interest (P226,500 x 30%) 67,950
Attributable to parent P 358,550
17-4: b
Net income from own operations- Patton P 300,000

Unrealized profit in ending inventory – DS (P200,000 x .25) (50,000)
Realized income 250,000
Solis net loss (150,000)
17-5: d
Pardo’s share of Santos’ net income (P300,000 x 75%) P 225,000

Unrealized profit in ending inventory – Upstream
(P200,000 x 25%/125%) x 75% ( 30,000)
Realized profit in beginning inventory – Upstream
(P150,000 x 25%/125%) x 75% 22,500
Investment income account balance, Dec. 31, 2008 P 217,500
17-6: d
Net income from own operation – Puzon P 200,000
Suazon’s adjusted net income:
Net income P110,000
Unrealized profit in ending inventory-
Upstream (P25,000 x 40%) ( 10,000) 100,000
MINIS (P100,000 x 25%) (25.000)
17-7: b
2008 2009
Net income from own operation – Pat P 500,000 P 550,000
Unrealized profit in ending inventory:
2008 (P20,000 x .40) (8,000)
2009 (P30,000 x .50) (15,000)
Realized profit in beginning inventory 8,000
Realized income 492,000 543,000
Sun net income 200,000 225,000
Consolidated net income P 692,000 P 768,000
17-8: a
Net income from own operation – Pip P 400,000

Adjusted net income of Sol:
Realized profit in beginning inventory-
Upstream (P40,000 x 40%) 16,000
Upstream (P70,000 x 30%) ( 21,000) 245,000
Consolidated net income - 2008 P 645,000
17-9: a
Net income from own operations – Popo P 500,000
Unrealized profit in ending inventory – Downstream ( 15,000)
Realized separate net income – Popo P 485,000
Popo’s share of Sotto’s adjusted net income:
Upstream 10,000 370,000
MINIS (P370,000 x 5%) ( 18,500)
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 P 5,000
Inventory from outsiders – Short 25,000
Power’s inventory acquired from Short – at cost:
[P5,000 – (P5,000 x 55%)} 2,250
Consolidated ending inventories P 32,250
Investment income
Power’s share of Short’s net income (P50,000 x 75%) P 37,500
Unrealized profit in ending inventory – upstream
(P5,000 x 55%) x 75% ( 2,063)
Realized profit in beginning inventory – upstream
(P10,000 x 55%) x 75% 4,125
Investment income, Dec. 31, 2008 P 39,562
Investment in Short Company

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

Stockholders’ equity, Dec. 31, 2006 – Short P 80,000
Realized profit in beginning inventory (P10,000 x 55%) 5,500
Unrealized profit in ending inventory (P5,000 x 55%) ( 2,750)
Adjusted net assets of Short, Dec. 31, 2006 P 82,750
Minority interest 25%
MINAS P 20,687.50
17-12: b
Gross profit rate of Sit (P200,000 / P500,000) 40%
Net income from own operations – Pit P 200,000
Adjusted net income of Sit:
Net income P 75,000
Upstream (P40,000 x 40%) 16,000
Upstream (P25,000 x 40%) ( 10,000) 81,000
MINIS (P281,000 x 10%) ( 8,100)
17-13: b
Gross profit of Sir (P120,000 / P400,000) 30%
Consolidated cost of sales

Cost of sales – Pig P 600,000
Cost of sales – Sir 280,000
Eliminations:
Realized profit in beginning inventory (P70,000 x 30%) ( 21,000)
Unrealized profit in ending inventory (P60,000 x 30%) 18,000
Intercompany purchases (200,000)
Consolidated cost of sales P 677,000
Consolidated net income

Net income from own operations – Pig P 200,000
Pig’s share of Sir’s adjusted net income:
Net income P 80,000
Unrealized profit in ending inventory (18,000) 83,000
MINIS (P83,000 x 10%) (8,300)
17-14: a
2006 2007 2008
Pal Corp net income 150,000 240,000 300,000
Intercompany profit in ending inventory:
2006 (14,000) 14,000
2007 (21,000) 21,000
2008 ( 24,000)
Pal net income from own operation 136,000 233,000 297,000
Solo net income from own operation 100,000 90,000 160,000
Consolidated net income 236,000 323,000 427,000
MINIS:
2006(100,000 – 14,000) x 40% 34,400
2007(90,000 +14,000 – 21,000) 40% 33,200
2008(160,000 + 21,000 – 24,000) 40% 62,800
Consolidated NI attributable to Parent 201,600 289,800 394,200
17-15: a
Acquisition cost 252,000
Less: book value of interest acquired (400,000 x 60%) 240,000
Difference 12,000
Allocated to Equipment ( 20,000)
MINAS (40%) 8,000 (12,000)
Total sales 600,000

Intercompany sales (30,000 + 80,000) (110,000)
Consolidated sales 490,000
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)
Consolidated cost of goods sold 269,500
17-17: c
Polo Corp. net income from own operation (105,000 – 25,000) 80,000
Unrealized profit in ending inventory-DS (6,000 x 10/30) (2,000)
Adjusted Polo Corp. net income from own operation 78,000
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) 35,500
MINIS (35,500 x 40%) (14,200)
Attributable to Parent 99,300
17-18: a
Pepsi net income from own operation 160,000
Sarsi net income 90,000
Unrealized profit in EI (45,000 x 60/180) (15,000) 75,000
MINIS (75,000 x 30%) (22,500)
Consolidated net income attributable to Parent-2007 212,500
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) 20,000
Inventory-Sarsi P110,000
Less: unrealized profit in books of Pepsi:
(280,000 – 140,000) x (110,000/280,000) (55,000) 55,000
Consolidated inventory 12/31/08 75,000
17-20: a
Cost of goods sold on sale of inventory on hand-1/1/08:
[45,000 x (120,000/180,000)] 30,000
Cost of goods sold on purchases from Sarsi- 2008
[(135,000 – 30,000) x (90,000/135,000)] 70,000
Cost of goods sold on purchases from Pepsi- 2008
[(280,000 – 110,000) x (140,000/280,000)] 85,000
Consolidated cost of goods sold-2008 185,000
17-21: b
Pepsi net income 220,000
Sarsi net income 85,000
Realized profit in beginning inventory - 2008 15,000
Unrealized profit in ending inventory- Sarsi (10,000)
Unrealized profit in ending inventory- Pepsi (55,000)
PROBLEMS
Problem 17-1
a. Consolidated Net Income

Net income from own operations – P Company P200,000
S Co. adjusted net income:
Net income – S P30,000
Unrealized profit in ending inventory –
Upstream (P9,000 x 50/150) (3,000)
Upstream (P6,000 x 50/150) 2,000 29,000
b. Minority Interest in Net Income of Subsidiary

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

Net income from own operations – P Co. P100,000
Realized profit in beginning inventory – Downstream
(P10,500 x 40/140) 3,000
S Company adjusted net income:
Upstream (P8,000 x 25%) (2,000) 88,000

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

Stockholder’s equity , Jan. 1, 2008 – S Company P350,000
Increase in earnings – 2008 (P90,000 – P35,000) 55,000
Unrealized profit in ending inventory – Upstream (2,000)
Stockholder’s equity, Dec. 31, 2008 – S Company P403,000
MINAS P 80,600
Problem 17-3
a. Net Assets, Dec. 31, 2008 – S Co.

Minority interest per consolidated balance sheet, 12/31 P158,560
Unrealized profit in ending inventory – Upstream
(P36,000 x 25/125) x 20% 1,440
Minority interest per books – S Co. P160,000
Divided by ÷ 20%
Net assets- S Co. P800,000
b. Price Paid
Net assets – S Co., Dec. 31, 2008 P800,000
Net income – S Co. (160,000)
Net assets – S Co., Jan. 1, 2008 P640,000
Parent’s interest x 80%
Book value of interest acquired P512,000
Difference 20,000
Price paid 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) P 48,000
Inventory left at year end x 30%
Unrealized profit, Dec. 31, 20057 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. Consolidated Sales
Apo P800,000
Bicol 600,000
Intercompany sales – 2008 (250,000)
Total P1,150,000
b. Cost of goods sold
Apo’s book value P 535,000
Bicol’s book value 400,000
Intercompany sales-2008 (250,000)
Realized profit in beginning inventory – 2008 ( 14,400)
Unrealized profit in ending inventory – 2008 10,000
Consolidated cost of goods sold P 680,600
c. Operating expenses
Apo P 100,000
Bicol 100,000
Total P 200,000
d. Dividend Income – 0 (eliminated)
e. Minority Interest in Net Income of Subsidiary (P100,000 x 30%) P 30,000
f. Inventory
Apo P 298,000
Bicol 700,000
Unrealized profit in ending inventory, Dec. 31, 2008 (10,000)
Consolidated inventory P 988,000
g. Minority Interest in Net Assets of Subsidiary
Stockholders’ equity , Jan. 1, 2008 – Bicol P 950,000
Increase in earnings in 2008 (P100,000 – P50,000) 50,000
Stockholders’ equity, Dec. 31, 2008 – Bicol P1,000,000
MINAS P 300,000
Problem 17-5
P Company and Subsidiary

Sales (P2,000,000 + P1,000,000 – P600,000) P2,400,000

Cost of goods sold (Schedule 1) 704,000
Expenses 600,000
Income before income tax 1,096,000
Provision for income tax 440,000
Consolidated net income after income tax 656,000
Attributable to minority interest (Schedule 2) 44,000
Schedule 1:
Cost of sales – P Company P 800,000
Purchases from S Company (600,000)
Intercompany profit in beginning inventory (P60,000 x 25%) ( 15,000)
Intercompany profit in ending inventory (P76,000 x 25%) 19,000
Total P 204,000
Cost of sales – S Company 500,000
Consolidated cost of sales P 704,000
Schedule 2:
Net income – S Company P 180,000
Realized profit in beginning inventory – Upstream 15,000
MINIS P 44,000
Problem 17-6
a. Working Paper Eliminating Entries

Minority interest in net assets of subsidiary (20%) 8,000
Dividends declared- D (P32,000 / 80%) 40,000
(2) Common stock – S 90,000

Retained earnings – S 220,000
Investment in S Co. stock 248,000
To eliminate equity accounts of S on the date of
acquisition.
(3) Minority interest in net assets of subsidiary 4,000

Retained earnings, Jan. 1 16,000
To eliminate realized profit in beginning inventory
(4) Sales 150,000

Inventory, Dec. 31 (P45,000 x 33.33%) 15,000
To eliminated intercompany sales and unrealized
profit in ending inventory.

To establish minority interest in net income of S Co.
computed as follows:
Sales P200,000
Cost and expenses (P140,000 +P20,000) 160,000
Net income 40,000
MINIS P 9,000
b. Consolidated Net Income

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

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

Cost of goods sold:
Pato (P660,000 / 140%) P 471,429
Sales (P510,000 / 120% 425,000
Amount to be eliminated (P128,000 + P232,000) see entry below ( 360,000)
Total P 536,429
Elimination of intercompany sales and intercompany profit in inventory:
Downstream Sales
Sales 140,000
Inventory (P42,000 x 40/140) 12,000
Upstream Sales
Sales 240,000
Inventory (P48,000 x 20/120) 8,000

Net income from own operations – Pato P 70,000
Unrealized profit in ending inventory – Downstream (12,000)
Adjusted net income – Pato P 58,000
Add: Adjusted net income of Sales Co.
Net income P20,000
Unrealized profit in ending inventory – Upstream (8,000) 12,000
d. Consolidated Inventory, Dec. 31, 2008

Inventory reported – Pato P 48,000
Inventory reported – Sales 42,000
Unrealized profit in ending inventory (P8,000 + P12,000) (20,000)
Problem 17-8
a. Unrealized Profit in Beginning Inventory

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

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

Cost of sales – P Company P 800,000
Cost of sales – S Company 600,000
Intercompany purchases (400,000)
Intercompany profit in beginning inventory ( 60,000)
Intercompany profit in ending inventory 96,000
Consolidated cost of sales P1,036,000
c. Parent’s interest (40,000 shares / 50,000 shares) 80%
P Company Entries – 2008:

(1) Investment in S Company stock 96,000
Income from subsidiary 96,000
To record P’s share of S Co. income
(P120,000 x 80%)
(2) Cash 48,000

Investment in S Company stock 48,000
To record dividends received from S
(P60,000 x 80%)
(2) Income from subsidiary 36,000

To adjust income from subsidiary for intercompany
profit in :
Ending inventory (96,000)
Beginning inventory 60,000
Net adjustment ( 36,000)
d. Working Paper Eliminating Entries:
(1) Income from subsidiary 60,000

(P60,000 x 20%) 12,000
Dividends declared – S 60,000
(2) Common stock – S Co. 500,000

Retained earnings – S Co. 860,000
Investment in S Company stock 1,088,000
To eliminate equity accounts of S Company as of
beginning of year.
(3) Goodwill 60,000

To allocate difference to goodwill.
(4) Retained earnings – Jan. 1 60,000

Cost of sales 60,000
To eliminate realized profit in beginning inventory-
Downstream.
(5) Cost of sales 96,000

Inventories 96,000
To eliminate unrealized profit in ending inventory-
Downstream.
(6) Sales 400,000

Cost of sales 400,000
To eliminate intercompany sales.
(7) Accounts payable 50,000

To eliminate intercompany payables and receivables.

To establish minority share of S net income
(P120,000 x 20%)
e. Consolidated Net Income

Net Income from own operations – P Company (P480,000 – P60,000) P420,000
Unrealized profit in ending inventory ( 96,000)
Adjusted net income – P Compay P384,000
S Company net income 120,000
CHAPTER 18
MULTIPLE CHOICE
18-1: a
Equipment – at original cost P500,000
Accumulated depreciation:
Time of sale P250,000
Current depreciation based on
Original cost (P500,000/10 years 50,000 P300,000
18-2: b
Net income – Sol P100,000

Unrealized gain on sale of computer, Dec. 31 ( 30,000)
Minority interest in net income of subsidiary (MINIS) P 21,000
18-3: b
2005 2006
Net income from own operations – Prime P200,000 P250,000
Unrealized gain – Downstream (30,000) __-
Realized net income – Prime P170,000 P250,000
Second Company net income 100,000 150,000
Consolidated net income P270,000 P400,000
18-4: c
Net income – Saw P100,000

Unrealized loss-Upstream 12,000
Realized loss ((P12,000 / 5) x 6/12 ( 1,200)
Adjusted net income – Saw P110,800
Minority interest in net income of subsidiary (P110,800 x 25%) P 27,700
18-5: c
Equipment – at original cost P1,000,000
Accumulated depreciation:
Time of sale P360,000
Current depreciation (P900,000/10) 90,000 P 450,000
18-6: a
Adjusted net income – Susie (P12,000 / 40%) P 30,000

Add back: Unrealized gain – Upstream 90,000
Net income of Susie – 2008 P120,000
18-7: a
Original cost P100,000

Amount debited to Truck account (48,000)
Selling price of the truck – Amount paid P 52,000
18-8: c
Net income – Po P200,000

Unrealized gain, Dec. 31 – DS (30,000)
Net income from own operation – Po 270,000
Net income of So 180,000
Consolidated net income, Dec. 31, 2008 P350,000
MINIS (P180,000 x 20%) (36,000)
Attributable to parent P314,000
18-9: b
Stockholders’ equity, Jan. 1, 2008 – Sy P1,000,000

Stockholders’ equity, Dec. 31, 2008 – Sy P1,035,000
18-10: b

Net income – Pink P300,000
Unrealized gain, July 1- Downstream ( 50,000)
Realized gain, Dec. 31 (P50,000 / 10) x 6/12 2,500
Realized net income – Pink P252,500
Soda’s adjusted net loss:
Net loss P(40,000)
Unrealized loss, 1/1 – Upstream 15,000
Realized loss, 12/31 (P15,000/5) ( 3,000) (28,000)
MI in net loss of subsidiary (P28,000 x 20%) 5,600
Net assets, Jan. 1, 2008 (P1,240,000 / 80%) P1,550,000
Decrease in earnings:
Net loss P40,000
Dividends paid 30,000 ( 70,000)
Net assets, Dec. 31, 2008 P1,480,000
Unrealized loss, Dec. 31 (Upstream) ( 12,000)
Adjusted net assets, Dec. 31, 2008 P1,468,000
18-11: a
Net assets, Dec. 31, 2008

Minority interest, Dec. 31, 2008 P188,960
Add: MI share of unrealized profit in ending inventory -Upstream
(P36,000 x 20%) x 20% 1,440
MI share of unrealized gain on sale of equipment- Upstream
(P60,000 x 20%) – (P12,000 / 5) 9,600
Minority interest before adjustment P200,000
Net assets – Steve, Dec.31, 2008 (P200,000 / 20%) P1,000,000
Investment in Steve Company stock – Equity method

Acquisition cost:
Net assets, Dec. 31, 2008 P1,000,000
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% 240,000
Net assets, Jan. 1, 2008 P 760,000
Parent’s proportionate share x 80%
Book value of interest acquired P 608,000
Add: difference 20,000
Purchase price (acquisition cost) P 628,000
Add: Investment income
Peter’s share of Steve net income (P240,000 x 80%) P 192,000
Unrealized profit in ending inventory – Downstream
(P24,000 x 20%/120%) x 100% ( 4,000)
Unrealized profit in beginning inventory – Upstream
(P36,000 x 25/125%) x 80% ( 5,760)
Unrealized gain on sale of equipment – Upstream
(P48,000 – 9,600) ( 38,400)
Investment in Steve Company, Dec. 31, 2008 P 771,840
18-12: a
Net income from own operations – Pipe P400,000

Pipe’s share of Smoker’s adjusted net income:
Net income P100,000
Unrealized gain, July 1, 2008 – Upstream (50,000)
Realized gain, Dec. 31, 2008 (P50,000/5)x ½ 5,000 55,000
18-13: d
2007 2008
Net income from operations – Parent P100,000 P120,000
Parent’s share of adjusted net income of Sub:
Net income P 60,000 P 75,000
Unrealized gain – Upstream ( 9,000) -
Realized gain: 2007 (P9,000/3) x ¼ 750
2008 (P9,000/3) - 3,000
Adjusted net income P 51,750 P 78,000
Consolidated net income P151,750 P198,000
MINIS (10,350) (15,600)
Attributable to parent P141,400 P182,400
18-14: d
Investment in Sili Company stock – Equity method

Investment income net of dividends – 2005 to 2007:
Increase in earnings (P500,000 – P200,000) x 75% 225,000
Investment income, Dec. 31, 2007:
Share of Sili’s 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) 38,500
Investment income, Dec. 31, 2008:
Share of Sili’s net income (P70,000 x 75%) 52,500
Realized loss (P10,000 / 5) (2,000) 50,500
Dividends received:
2007: (P10,000 x 75%) 7,500
2008: (P20,000 x 75%) 15,000 (22,500)
Investment in Sili Company stock, Dec. 31, 2008 P791,500
18-15: a
Investment in Saw Company stock, Dec. 31, 2008

Investment income – 2002 to 2006:
Increase in earnings (P500,000 – P300,000) x 90% 180,000
Investment income – 2007 (see above) 101,250
Investment income – 2008:
Power’s share of Saw’s net income (P120,000 x 90%) P108,000
Realized loss on sale of warehouse (P20,000/2) x 90% (9,000) 99,000
Dividends received:
2007: ( P20,000 x 90%) P 18,000
2008: ( P30,000 x 90%) 27,000 (45,000)
Investment in Saw Company stock account balance 12/31/08 P885,250
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
Unrealized gain on sale of equipment, Dec. 31 – Downstream (30,000)
Adjusted net income – P Co, P170,000
S Company net income 180,000
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 P 900,000
Stockholders’ equity, Dec. 31, 2008 – S Company P1,020,000
Problem 18-3
Pony Corporation and Subsidiary

Sales (P500,000 + P300,000) P800,000

Gain on sale of machinery (schedule 1) 20,000
Cost of sales P200,000 + P130,000) 330,000
Expenses:
Depreciation (P50,000 +P30,000 – P5,000) P 75,000
Other expenses (P80,000 + P140,000) 220,000 295,000
Attributable to minority interest (P190,000 + P5,000) +10,000) x 25% (28,750)
Schedule 1:
Selling price – Dec. 28, 2008 P36,000
Book value (P65,000 ÷ 5) x3 26,000
Gain on sale 10,000
Unrealized gain (P25,000 – P15,000) 10,000
Total gain P20,000
Problem 18-4

Adjusted net income of S Company:
Unrealized gain, 4/1/08 - Upstream ( 30,000)
Realized gain, 12/31/08 (P30,000/5) x 9/12 4,500 124,500
MINIS (P124,500 x 20%) (24,900)
b. Minority Interest in Net Assets of Subsidiary

Stockholders’ equity , Jan. 1, 2008 – S Company P800,000
Increase in adjusted earnings – 2008:
Net earnings (P150,000 – P50,000) P100,000
Unrealized gain – 12/31 (P30,000 – P4.500) (25,500) 74,500
Stockholders’ equity, Dec. 31, 2008 P874,500
MINAS P114,900
Problem 18-5
a. Consolidated Net Income - 2008

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

Net loss from own operations – DK P (40,000)
Upstream loss on sale of truck 15,000
Realized loss on sale of truck ( 3,000)
Adjusted net loss P ( 28,000)
MI in net loss of subsidiary P ( 5,600)
Net assets, Jan. 1, 2006 (P1,240,000 / 80%) P1,550,000
Increase in earnings (loss) -2006 (P40,000 + P30,000) (70,000)
Net assets, Dec. 31, 2006 P1,480,000
Unrealized loss – Upstream (P15,000 – P3,000) 12,000
Adjusted net assets P1,492,000
MINAS P 298,400
Problem 18-6
Texas Company and Subsidiary

Sales P1,500,000
Expenses (P200,000 + P100,000 – P8,000 ) 292,000
Attributable to minority interest (P150,000 x 25%) 37,500
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 Taurus Adjustments & Eliminations Consoli-

Company Corporation Debit Credit dated
Cash and receivables 101,000 20,000 121.000
Inventory 80,000 40,000 120,000
Land 150,000 90,000 (2) 10,000 250,000
Building and equipment 400,000 300,000 (3) 9,000 709,000
Investment in stock –Taurus 141,000 (3) 15,000 (1)150,000 -
(2) 6,000
Total debits 872,000 450,000 1,200,000
Accumulated depreciation 135,000 85,000 (3) 24,000 244,000

Notes payable 200,000 90,000 290,000
Common stock 100,000 200,000 (1)200,000 100,000
Retained earnings 347,000 50,000 (1) 50,000 347,000
MI in net assets in Subsidiary (1)100,000 104,000

(2) 4,000
Total 872,000 450,000 1,200,000
(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
Cash and receivables P121,000

Inventory 120,000
Land 250,000
Building and equipment P709,000
Accounts payable P115,000

Notes payable 290,000
Common stock stock 100,000
Total liabilities and equity P956,000
Problem 18-8
a. Working Paper Elimination Entries – Dec. 31, 2008

Dividends declared – Jupiter 5,000
To eliminate intercompany dividends
(2) Common stock – Jupiter 100,000

Retained earnings – Jupiter 50,000
Investment in Jupiter stock 120,000
To eliminate equity accounts of Jupiter as of the
date of acquisition
(3) Goodwill 40,000

Investment in Jupiter Stock 40,000
To allocate difference to goodwill

Land 10,000
To eliminate unrealized gain on sale of land – Upstream.
(5) Gain on sale of equipment 20,000

To eliminate gain on sale of equipment
(6) Accumulated depreciation 2,000

Depreciation 2,000
To adjust excess depreciation
(7) Accounts payable 7,000

To eliminate intercompany payables and receivables.

(P40,000 – 10,000) x 20%
b. Vincent Company and Subsidiary
December 31, 2008
Vincent Jupiter Adjustments & Eliminations Consoli-

Income Statement
Sales 240,000 120,000 360,000
Gain on sale of equipment 20,000 (5) 20,000 -
Total revenues 264,000 120,000 360,000
Depreciation 25,000 15,000 (6) 2,000 38,000
Other expenses 15,000 5,000 20,000
Net/consolidated income 84,000 40,000 102,000
MI in net income of subsidiary (8) 6,000 (6,000)

Retained earnings, Jan.1 294,000 105,000 (2) 50,000 341,000
(4) 8,000
Total 378,000 145,000 437,000
Carried forward 348,000 140,000 407,000
Balance Sheet
Cash and receivables 113,000 35,000 (7) 7,000 141,000
Inventory 260,000 90,000 350,000
Land 80,000 80,000 (4) 10,000 150,000
Buildings and equipment 500,000 150,000 (5) 5,000 655,000
Investment in Jupiter stock 160,000 (2)120,000 -
(3) 40,000
Goodwill (3) 40,000 40,000
Total 1,113,000 355,000 1,336,000
Accumulated depreciation 205,000 45,000 (6) 2,000 (5) 25,000 273,000

Accounts payable 60,000 20,000 (7) 7,000 73,000
Bonds payable 200,000 50,000 250,000
Common stock 300,000 100,000 (2)100,000 300,000
Retained earnings from above 348,000 140,000 407,000
MI in net assets of subsidiary (1) 1,000 (2) 30,000 33,000
(4) 2,000 (8) 6,000
Total 1,113,000 355,000 245,000 245,000 1,336,000

.
c. Consolidated Financial Statements
Vincent Company and Subsidiary

December 31, 2008
Assets
Cash and receivables P 141,000
Inventory 350,000
Land 150,000
Buildings and equipment P655,000
Goodwill 40,000
Liabilities and Stockholders’ equity

Liabilities
Minority interest in net assets of subsidiary 33,000 740,000
Total liabilities and stockholders’ equity P1,063,000

Sales P 360,000
Expenses: Depreciation P 38,000
Attributable to minority interest 6,000

Retained earnings, Jan. 1 – Vincent P 294,000

Retained earnings, Jan. 1 – Jupiter 47,000
Total 341,000
Consolidated net income attributable to parent 96,000
Dividends declared – Vincent ( 30,000)
Consolidated retained earnings P 407,000
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) 0
(f) Purchase price, Jan. 1, 2008 P105,000

Undistributed earnings from 1/1/05 to 1/1/08:
(P80,000 – P30,000) x 60% 30,000
Undistributed income for 2008 (P30,000 – P20,000) x 60% 6,000
Total P141,000
Adjustments:
Unrealized gain on sale of land – Downstream (g) (7,000)
Unrealized gain on sale of equipment – Upstream
(P9,000 – P3,000) x 60% (3,600)
Adjusted Investment account balance, Dec. 31, 2008 P 70,400
(g) P7,000 (P70,000 + P90,000) – P153,000
(h) 0
(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 P380,000

Less: Share of unrealized profit on sale of equipment:
Gain record [P45,000 – (P60,000 x 3/5)] P9,000
Realized in 2008 (P9,000 / 3) 3,000
Unrealized P6,000
Phantoms’ interest x 60% 3,600
Consolidated retained earnings P376,400
(l) Net income – Shadow, 2008 (P250,000 – P220,000) P 30,000

Realized gain on sale of building c Dec. 31, 2006 – Upstream 3,000
Problem 18-10
Supporting computations
(1) Allocation schedule (purchase price) P 372,000

Allocated to patents (P120,000 x 60%) ( 72,000)
Goodwill 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 P 460,000
Cost of goods sold – Small 205,000
Intercompany sale of inventory – 2008 (160,000)
Realized profit on beginning inventory ( 10,000)
Unrealized profit on ending inventory 12,000)
b. Operating Expenses
Operating expenses – Apex P 170,000
Operating expenses – Small 70,000
Amortization (No. 1 above) 10,000
Excess depreciation (P50,000 / 5 years) (10,000)
Sales (after elimination of intercompany sales) P 840,000
Cost of goods sold (a) (507,000)
Operating expenses (b) (240,000)
Minority interest in net income of subsidiary:
Net income – Small P25,000
Realized gain on sale of building – Upstream 10,000
Minority interest x 40% ( 14,000)
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 P 233,000
Inventory – Small 229,000
Unrealized profit in inventory – Dec. 31, 2008 ( 12,000)
f. Consolidated Building
Buildings – Apex P 308,000
Buildings – Small 202,000
Unrealized gain, Jan. 1, 2006 (50,000)
Realized gain, 2006 – 2008 (P10,000 x 3 ) 30,000
Consolidated buildings P 490,000
g. Consolidated Patents
Patents – Small P 20,000
Allocation 120,000
Amortization, 2002 – 2008 (P10,000 x 7) ( 70,000)
Consolidated patents (net) P 70,000
h. Consolidated Common Stock = P300,000 (Apex common stock)
i. Minority Interest in Net Assets of Subsidiary

Stockholders’ equity – Small, Dec. 31, 2008 (P100,000 + P420,000) P 520,000
Unrealized gain on sale of building, Dec. 31,2008 – Upstream (20,000)
Adjusted net assets, Dec. 31, 2008 P 500,000
Problem 18-11
a. Working Paper Elimination Entries

Investment in Duke 6,000
To adjust Investment account for unrealized profit
in inventory on Dec. 31, 2005 (P10,000 x 60%)
(2) Income from Duke Company 84,000

Dividends declared – Duke 60,000
(3) Common stock – Duke 320,000

APIC – Duke 90,000
Retained earnings, 1/1 – Duke 620,000
Investment in Duke (60%) 618,000
Minority interest in net assets of subsidiary (40%) 412,000
To eliminate equity accounts of Duke as of beginning of year.
(4) Goodwill 100,000

To allocate difference
(5) Impairment loss 5,000

Goodwill 5,000
To reduce goodwill for impairment.
(6) Sales 200,000

To eliminated intercompany sales
(7) Investment in Duke 6,000

To eliminate realized profit in beginning inventory – Upstream

Inventory 12,000
To eliminate unrealized profit in ending inventory – Upstream
(9) Investment in Duke 40,000

Land 40,000
To eliminate gain on sale of land – Downstream

To eliminate intercompany debt.

(P140,000 + 10,000 – P12,000 – P5,000) x 40%

Net income – Duke P140,000
Unrealized profit in ending inventory – Upstream ( 12,000)
Impairment loss ( 5,000)
Adjusted net income – Duke P133,000
MINIS P 53,200

Stockholders’ equity, 1/1/08 – Duke (P320,000 + P90,000 + 620,000) P1,030,000
Increase in earnings – 2008 (P140,000 – P60,000) P80,000
Unrealized profit in ending inventory (12,000)
Goodwill impairment loss ( 5,000) 73,000
Adjusted net assets, 12/31/08 P1,103,000
MINAS P 441,200
d. Consolidated Net Income

Net income from own operations – Baron (P284,000 – P84,000) P 200,000
Unrealized gain on sale of land (10,000)
Adjusted net income- Baron P 190,000
Adjusted net income of Duke (P133,000 x 60%) 133,000
Problem 18 – 12
Pluto Corporation and Subsidiary Star Corporation

Comparative Consolidated Income Statement
Years Ended December 31, 2007 and 2008
. December 31 .
. 2008 2007 .
Sales P800,000 P660,000
Cost of goods sold 442,000 368,000 .
Gross profit 358,000 292,000
Operation expenses 178,000 138,000 .
Consolidated net income 180,000 154,000
Minority interest in net income of subsidiary 10,000 10,000 .
Attributable to equity holders of Pluto P170,000 P144,000 .
Supporting computations:
. .
. 2008 2007 .
Consolidated sales:
Combined sales P850,000 P700,000
Less: intercompany sales (50,000) (40,000) .
Consolidated sales P800,000 P660,000 .
Consolidated cost of goods sold:

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

Combined operating expenses P180,000 P140,000
Realized gain on sale of equipment (P10,000/.2) (2,000) (2,000) .
Consolidated operating expenses P178,000 P138,000 .
Minority interest in net income of subsidiary

Star Company’s reported net income P65,000 P50,000
Gain on upstream sale of land (5,000)
Unrealized gain in upstream, inventory sales (10,000) .
Realized net income P50,000 P50,000
Minority interest 20% 20% .
Minority interest in net income of subsidiary P10,000 P10,000 .
CHAPTER 19
Multiple Choice
19-1: d.
Direct exchange rate:

December 1 1 ÷ 2.22 yen = P 0.45
December 31 1 ÷ 2.70 yen = 0.37
Decrease in forex rate P 0.08
Forex gain (200,000 yen x P0.08) P 16,000
19-2: c.
Forex rate, December 1 P 0.45

Forex rate, December 31 0.47
Increase in forex rate P 0.02
Forex gain (1,500,000 yen x P0.02) P 30,000
19-3: d.
September 30:
Forex rate, September 1 P 5.61
Forex rate, September 30 5.59
Forex gain (200,000 hkg.$ x P0.02) P 4,000
December 31:
Forex rate, October 1 P 5.59
Forex rate, December 30 5.62
Increase in forex rate P 0.03
Forex loss (200,000 hkg.$ x P0.03) P (6,000)
19-4: c.
Forex loss on importation of merchandise:

Peso equivalent, January 10, 2004 P 600,000
Peso equivalent, April 20, 2004 608,000
Forex loss (increase) P (8,000)
Forex loss on notes payable:

Peso equivalent, September 1, 2004 P 3,000,000
Peso equivalent, December 31, 2004 3,200,000
Forex loss on principal P (200,000)
Add: Forex loss on interest
Based on P 3,2000,000 P 120,000
Based on P 300,000,000 (P3,000,000x10%x4/12) 100,000 20,000
Forex loss P (220,000)
Total forex loss (P 8,000 + P220,000) P (228,000)
19-5: a.
Direct forex rate – Transaction date (P 1 ÷ $0.018) P 55.5555

Direct forex rate – Balance sheet date (P 1 ÷ $0.017) 58.8235
Direct forex rate – Settlement date (P 1 ÷ $0.020) 50.0000
Forex gain (loss), 2004

Transaction date ($10,000 x P55.5555) P 555,555
Balance sheet ($10,000 x P 58.8235) 588,235
Forex loss (increase) P ( 32,680)
Forex gain (loss), 2005

Balance sheet date ($10,000 x P58.8235) P 588,235
Settlement data ($10,000 x P 50.00) 500,000
Forex gain (decrease) P 88,235
19-6: b.
Adjusted value of accounts receivable, 6/30 P 315,000

Peso equivalent, 7/27 300,000
19-7: a.
2004
Forex rate, 11/5/04 P 0.4295
Forex rate, 12/31/04 0.4245
Payable in foreign currency 50,000
Forex gain P 250
2005
Forex rate, 12/31/04 P 0.4245
Forex rate, 1/15/05 0.4345
Payable in foreign currency 50,000
Forex loss P (500)
19-8: a. (1000,000 FC x P 0.85)
19-9: c. (50,000 FC x P 0.6498)
19-10: b
Forward rate, 3/31/04 P 0.25

Selling spot rate, 4/30/04 0.22
Decrease P 0.03
Forward contract receivable 100,000 FC
Forex loss P 3,000
19-11: d. forex gain (loss) on purchase commitments is based on the changes in the forward rates.
Forward rates – December 31, 2004 P .0055

90-day forward rate .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) P 165,000

Spot rate (100,000 Baht x P1.600) 160,000
19-13: d.
Import transaction – Based on spot rates:

12/31/04: Forex loss [1,000,000 Francs x (P6.01 – P6.16)] P (150,000)
Forward Contract – Based on forward rates:
12/31/04: Forex gain [1,000,000 Francs x (P6.06 – P6.07)] P 10,000
Net forex loss P (140,000)
19-14: b.
12/31/04: Forex gain [$5,000 x (P56.50 – P56.60)] P 500

3/31/04 : Forex loss:
Forward contract receivable ($5,000 x P56.60) P 283,000
Settlement at spot rate ($5,000 x P56.32) 281,600 (1,400)
Net forex loss P (900)
19-15: a.
Increase in forward rates:

Forward contract receivable, 11/1/04 (10,000 fc x P.78) P 7,800
Forward contract receivable, 12/31/04 (10,000 fc x P82) 8,200
Forex loss P (400)
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 100
Loss from decrease in fair value of available for sale securities (100)
Loss from decrease in time value of the option (60)
Net loss on hedging activity 12/31/07 (60)
19-18: a
19-19: a
12/01/08: A$ 70,000/P42,000= 1.667 A$ to P1.00
12/31/08: 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.
Problems
Problem 19-1
Foreign Foreign
Currency Currency
Accounts Accounts Transactions Transactions
Receivable Payable Exchange Loss Exchange Gain
Case 1 NA P 160,000 (a) NA P 20,000 (b)
Case 2 P 38,000 © NA 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) $40,000 x P4.00

(b) $40,000 x (P4.00 – P4.50)
(c) $20,000 x P1.90
(d) $20,000 x (P1.90 – P1.80)
(e) $30,000 x P.45
(f) $30,000 x (P.45 – P.40)
(g) $2,500,000 x P.0025
(h) $2,500,000 x (P.0025 – P.003)
Problem 19-2
a. May 1 Inventory (or purchases) 800,000

Foreign purchases denominated in
Philippine pesos.
June 20 Accounts payable 800,000

Cash 800,000
Settlement.
July 1 Accounts receivable 500,000

Sales 500,000
Foreign sales denominated in
Philippine pesos.
August 10 Cash 500,000

Collections.
b. May 1 Inventory (or purchases) 800,000

Foreign purchases denominated in yen:
P800,000 / P.40 = 2,000,000 yen
June 20 Foreign currency transaction loss 100,000

P900,000 = 2,000,000 yen x P.45
800,000 = 2,000,000 yen x P.40
P100,000

Cash or foreign currency 900,000
Settlement denominated in yen.
July 1 Accounts receivable 500,000

Sales 500,000
Foreign sale denominated in Hongkong $
P500,000 / P5.20 = 96,154 Hkg $
August 10 Accounts receivable 1,924

Foreign currency transaction gain 1,924
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 501,924

Collections
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: Forward contract receivable 3,076,800

Forward contract payable 3,076,800
To record forward contract at forward rate:
240,000 Ringgit x P12.82
December 31: Forex loss 4,800

Forward contract receivable 4,800
To record forex loss for the decrease in
forward rate, P240,000 x P.02
December 31: Firm commitment for merchandise 4,800
Forex gain 4,800
To record increase in fair value of the
Purchase commitment, and resultant
gain or the decrease in the forward rate.
March 1: Forward contract payable 3,076,800

Cash 3,076,800
To record settlement of forward contract.
Cash (240,000 x P12.86) 3,086,400

Forex loss (240,000 x P.02) 4,800
Forward contract receivable 3,091,200
To record receipt of 240,000 Ringgit when
the spot rate is P12.86.
Firm commitment for merchandise 4,800

Forex gain 4,800
To record change in value of the firm
commitment.
Purchases (240,000 x P12.82) 3,076,800

Firm commitment for merchandise 9,600
Cash 3,086,400
To record purchases of merchandise.
Problem 19-4
June 1: Purchases 460,000

To record purchases (¥ 1,000,000 x P.46).
Forward contract receivable (fc) 480,000

Forward contract payable 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

To record forex loss for the increase in spot
rate, ¥ 1,000,000 x (P.46 – P.48)

Forex gain 20,000
To record forex gain for the increase
in forward rate, ¥ 1,000,000 x (P.48 – P.50).
August 1: Accounts payable 480,000
Forex loss (¥ 1,000,000 x P.03) 30,000
Cash (¥ 1,000,000 x P.51) 510,000
To record settlement.
Cash (¥ 1,000,000 x P.51) 510,000

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

Cash 480,000
Problem 19-5
December 1: Accounts receivable 1,280,000

Sales 1,280,000
To record sale (100,000 Rial x P12.80).

Forward contract payable (fc) 1,240,000
To record forward contract to sell 100,000 Rial
at a 90-day forward rate of P12.40.
December 31: Forex loss 10,000

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) 20,000
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) 20,000
Accounts receivable 1,270,000
To record collection of accounts receivable at spot rate.
Forward contract payable (FC) 1,260,000

Forex loss 30,000
Cash (100,000 Rial x P12.60) 1,290,000
To record delivery of 100,000 Rial.
Cash 1,240,000
To record collection for forward contract.
Problem 19-6
October 1: Forward contract receivable 17,400

Forward contract payable (fc) 17,400
(15,000 Baht x P1.16)
December 31: Forex loss 150

Forward contract payable (fc) 150
15,000 Baht x (P1.16 – P1.17).
Firm commitment for materials 150

Forex gain 150
To record increase in fair value of sales
commitment.
April 1: Cash 17,400

To record collection of forward contract.

Forex gain 150
Cash /fc (15,000 Baht x P1.16) 17,400
To record delivery of 15,000 Baht at forward rate
of P1.16.
Forex loss 150

Firm commitment for materials 150
Cash/fc (15,000 Baht x P1.18) 17,700

Sales 17,700
To record sales.
Problem 19-7
Contract 1:
October 1: Forward contract receivable (fc) 160,000

To record forward contract to buy ¥400,000 at P40.
December 31: Forward contract receivable (fc) 4,000

Forex gain 4,000
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 2,000
To record receipt of ¥400,000 at spot rate of
P.43.

Cash 160,000
To record payment of forward contract.
Contract 2:
December 1: Forward contract receivable 9,200

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

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


Forex loss 800
Cash 9,800
To record payment of 2 million Rupiah at spot
rate of P.0049.
Problem 19-8
1. Investment in Siam 1,920,000

Cash 1,920,000
To record purchase of 40% of Siam Company.
Cash 123,200
Investment in Siam 123,200
To record dividends from Siam for 20 x 1 (P308,000 x 40%)
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) 1,860,000

Loans payable (fc) 1,860,000
To record loan of 1,200,000 NT dollar at P1.55.
b. Loan payable (fc) 60,000

Other comprehensive income-translation adjustment 60,000
To adjust loan to current rate (P1.55 – P1.50) x 1,200,000.
c. Interest expense 91,500

Interest payable (fc) 90,000
Forex gain 1,500
To accrue interest expense (1,200,000 x 10% x ½ year x P1.525)
And record interest payable (1,200,000 x 10% x ½ year x P 1.50).
Problem 19-9
1. Cash (fc) 168,000

Accounts receivable (fc) 167,000
Forex gain 1,000
To record collection of 100,000 Baht from Queens Company.

Forex loss 1,000
Cash (fc) 168,000
To record delivery of 100,000 Baht in settlement of the
forward contract denominated in Baht.
Cash 164,000
To record receipt of Phil. Pesos in settlement of the
forward contract receivable.
2. Forward contract payable 76,000

Cash 76,000
To record payment of forward contract payable.
Cash (fc) 75,000

Forex loss 500
To record collection of forward contract receivable:
(10,000,000 Rupiah x P.00750)
Accounts payable (fc) 75,500

Cash (fc) 75,000
Forex gain 500
To record payment of accounts payable to Indon Co.
(1,000,000 Rupiah x P.00750)
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) P 168,000
Forward contract receivable (Indon hedge: 10,000,000 x P.0077) 77,000
Forward contract receivable (Speculation in Yen: 200,000 x P.670) 134,000
Change in value of firm commitment 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
2. Forex gain or loss for 2004:
Indon: P2,000 loss on account payable offset by P2,000 gain on

Forward contract receivable P -
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). 4,000
Forex gain for 2004 in the income statement 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 20,000
Cash 20,000
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
b. Adjusting entry on December 31, 2007:
December 31, 2007

Loss on hedge activity 14,000
Call options 14,000
Record the decrease in the time value
of the options to current earnings.
Call options 10,000

Other comprehensive income 10,000
Record the increase in the intrinsic value
of the options to other comprehensive income.
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 6,000

Call options 6,000
Record the decrease in the time value
of the options to current earnings.
The options have expired.
Call options 20,000
Other comprehensive income 20,000
Record the increase in the intrinsic value
of the options to other comprehensive income.
Cash 30,000
Call options 30,000
Record the sale of the call options.
Oil inventory 330,000

Cash 330,000
Record the purchase of 10,000 barrels
of oil at the spot price of P33 per barrel.
d. June 1, 2008, entries to record the sale of the oil and other entries:
June 1, 2008
Cash 340,000
Sales 340,000
Record the sale of 10,000 barrels
of oil at P34 per barrel

Oil inventory 330,000
Recognize the cost of the oil sold.
Other comprehensive income- reclassification 30,000

Reclassify into earnings the other
comprehensive income from the cash flow hedge.
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] P 25,008

Equipment [(12,000 Ringgit ÷ 10) x P10.42] 12,504
Total depreciation P 37,512
20-3: d
Accounts receivable P120,000

Property and equipment (net) 275,000
Total P450,000
20-4: a
Depreciation expense (H$ 12,000 x P5.80) P 69,600

Bad debts (H$ 8,000 x P5.80) 46,400
Rent (H$ 20,000 x P5.80) 116,000
Total 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: 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
20-7: b (NT Dollar 10,000 x P1.70)
20-8: b
Beginning inventory 40,000 Rupee

Purchases 300,000
Goods available for sale 340,000
Ending inventory 30,000
Cost of goods sold 310,000 Rupee
Translated cost of goods sold (310,000 Rupee x P.5745) P178,095
20-9: c
NZ Dollar Rate Phil Peso

Net assets, 1/1/05 20,000 P15 P300,000
Increase in net assets:
Net income, 2005 (30,000 – 20,000) 10,000 P19 190,000
Net assets 12/31/05 30,000 P490,000
Net assets at current rate 30,000 P21 630,000
Translation adjustment, 2005 (positive) P140,000
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 P402,000

Less: Book and fair value of net assets acquired
(300,000 Rp x P1.20) 360,000
Goodwill P 42,000
Pesos Rupee
Goodwill P42,000 35.000 (P42,000 / P1.20)
Impairment 4,340 (3,500 Rp x P1.24) 3,500
Balance P37,660 31,500
Translated balance (31,500 Rp x P1.32) P41,580

Less: umimpaired goodwill 37,660
Translation adjustment P 3,920
20-14: b
Translation adjustment from translating the trial balance P12,000 Cr

Translation adjustment from translating goodwill (per 20-13) 3,920 Cr
Total translation adjustment P15,920
20-15: b
Investment in Subsidiary account, Jan. 1, 2005 P1,600,000

Share in subsidiary net income [(800,000 yen x 70%) x P.57] 319,200
Translation adjustment (P25,000 x 70%) 17,500
Share of subsidiary dividends [(50,000 yen x 70%) x P.59] ( 20,650)
Investment in Subsidiary account, December 31, 2005 P1,916,050
20-16: d
20-17: a
Phil Peso Thailand Baht
Initial inventory transfer date:
Selling price P120,000÷1.60 75,000 B
Cost (80,000)
Profit 40,000
Balance sheet date (75,000 x 1.70) 127,500 75,000 B
20-18: a (P127,500 – 40,000)
20-19: a
Yen Exchange Rate Phil Peso
Net asset beginning 200,000 .44 88,000
Net income 200,000 .46 92,000
Net asset translated at rate:
During the year 400,000 180,000
At end of year 400,000 .48 192,000
Translation adjustment (credit) (12,000)
20-20: a (70,000 rupee x P1.50)
20-21: c
Investment cost P1,210,000
Book value of interest acquired (1,100,000 x 1.10) x .80 968,000
Goodwill 242,000
PROBLEMS
Problem 20-1
a.
Pilipino Company
Translation Working Paper
December 31, 2005
Yen Exchange Rate Phil. Pesos

Cash 40,000 .40 CR 16,000
Accounts receivable 120,000 .40 CR 48,000
Inventory 100,000 .40 CR 40,000
Plant and equipment 700,000 .40 CR 280,000
Cost of sales 360,000 .425 AR 153,000
Operating expenses 140,000 .425 AR 59,500
Depreciation expenses 60,000 .425 AR 25,500
Total 1,520,000 622,000
Accumulated Other Comprehensive Income -
Translation Adjustment 25,000
Total debits 647,000
Accumulated depreciation 240,000 .40 CR P96,000

Accounts payable 80,000 .40 CR 32,000
Common stock 200,000 .44 HR 88,000
Retained earnings, Jan. 1 400,000 .44 HR 176,000
Sales 600,000 .425 AR 255,000
Total credits 1,5200,000 647,000
CR – Current Rate
AR – Average Rate
HR – Historical Rate
b. Proof of Translation Adjustment
Yen Translation Rate Phil. Pesos

Net assets at beginning of year 600,000 .44 264,000
Adjustment for changes in net assets
Position during year
Net income for the year 40,000 .425 17,000
Net assets translated at rates in effect
For those items 281,000
Net assets at end of year 640,000 .40 256,000
Change in translation adjustment during year
(to OCI) – net decrease (debit) 25,000
Accumulated OCI – translation adjustment,1/1 -0-

Accumulated OCI – translation adjustment,
Dec. 31 (debit) 25,000
Problem 20-2
(1) Trial Balance Translation

Thailand Translation Philippine
Baht Rate Pesos
Cash 7,000 1.60 CR 11,200
Accounts receivable (net) 20,000 1.60 CR 32,000
Receivable from Davao 5,000 1.60 CR 8,000
Inventory 25,000 1.60 CR 40,000
Plant and equipment 100,000 1.60 CR 160,000
Cost of goods sold 70,000 1.50 AR 105,000
Depreciation expense 10,000 1.50 AR 15,000
Operating expenses 30,000 1.50 AR 45,000
Dividends paid 15,000 1.54 HR 23,000
Total debits 282,000 439,300
Accumulated depreciation 10,000 1.60 CR 16,000

Accounts payable 12,000 1.60 CR 19,200
Bonds payable 50,000 1.80 CR 80,000
Common stock 60,000 1.46 HR 87,600
Sales 150,000 1.50 AR 225,000
Total 282,.000 427,800
Accumulated other comprehensive
Income – Translation adj. (credit) 11,500
Total credits 439,300
CR – Current Rate
AR – Average Rate
HR – Historical Rate
(2) Proof of Translation Adjustment
Thailand Translation Philippine

Baht Rate Pesos
Net assets at beginning of year 60,000 1.46 87,600
Adjustments for changes in net
asset position during year:
Net income for year (sch. 1) 40,000 1.50 60,000
Dividends paid (15,000) 1.54 (23,100)
Net assets translated at:
Rates during year 124,500
Rates at end of year 85,000 1.60 136,000
Change in OCI – translation adj.
during year – Net increase 11,500
Accumulated OCI – translation
adjustment – Jan. 1 -0-
Change in OCI – translation
adjustment, Dec. 31 (credit) 11,500
Schedule 1:
Sales 150,000 Thailand Baht

Cost of goods sold ( 70,000)
Depreciation expense ( 10,000)
Operating expenses ( 30,000)
Net income 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

Retained earnings, Dec. 31 36,900
Accumulated Other Comprehensive Income 11,500
Total P136,000
Problem 20-3
a. Translation Work paper
Exchange Philippine
Brunei $ Rate Pesos
Cash 1.600 33 CR 52,800
Accounts receivable 2,500 33 CR 82,500
Inventory 4,000 33 CR 132,500
Plant and equipment 35,000 33 CR 1,155,000
Cost of sales 17,000 31 AR 527,000
Operating expenses 7,000 31 AR 217,000
Depreciation expense 3,000 31 AR 93,000
Dividends 1,500 32 HR 48,000
Total debits 71,600 2,307,300
Accumulated depreciation 9,000 31 AR 297,000

Accounts payable 2,600 33 CR 85,800
Common stock 20,000 30 HR 600,000
Retained earnings, Jan. 1 10,000 30 HR 300,000
Sales 30,000 31 AR 930,000
Total 71,600 2,212,800
Accumulated OCI – Translation
Adjustment 94,500
Total credits 2,307,300
Proof of Translation Adjustment (not required)
Translation
Brunei $ rate Philippine Pesos
Net assets at beginning of year 30,000 30 900,000
Adjustment for net assets position
during the year:
Net income 3,000 31 93,000
Dividends paid (1,500) 32 (48,000)
Net assets translated at rates
in effect for those items 945,000
Net assets at end of year 31,500 33 1,039,500
Change in translation adjustment during
Year to OCI – net increase (credit) 94,500
Accumulated OCI – translation adj. 1/1 -0-
Accumulated OCI – translation
Adjustment – 12/31 (credit) 94,500
b. Parent Company entries affecting Investment in Moslem Co. (equity method)
Jan. 2: Investment in Moslem Co. 900,000

Cash 900,000
To record investment cost.
Oct. 15: Cash 48,000

Investment in Moslem Co. 48,000
To record dividends received
Dec. 31: Investment in Moslem Co. 93,000

Investment income 93,000
To record equity in income of Moslem
Investment in Moslem Co. 94,500

Other Comprehensive Income – Translation
adjustment 94,500
To record parent’s share of change in translation
Adjustment
Problem 20-4
UK Company
Translation Working Paper
Exchange In
In Pounds Rate Phil. Pesos
Income Statement
Sales 90,000 P67.50 (A) 6,075,000
Cost of sales (80,000) 67.50 (A) (5,400,000)
Depreciation expense (1,500) 67.50 (A) (101,250)
Other expenses (5,750) 67.50 (A) (388,125)
Net income carried forward 2,750 185,625

Balance, 1/1 2,500 B 119,500
Net income from above 2,750 F 185,625
Balance, 12/31 5,250 305,125
Balance Sheet
Cash 2,500 67.60 (C) 169,000
Accounts receivable 4,000 67.60 (C) 270,400
Inventories, at cost 5,500 67.60 (C) 371,800
Prepaid expenses 750 67.60 (C) 50,700
Property, plant and equipment (net) 9,000 67.60 (C) 608,400
Total assets 21,750 1,470,300
Accounts payable 3,500 67.60 (C) 236,600

Current portion of long-term debt 500 67.60 (C) 33,800
Long-term debt 7,500 67.60 (C) 507,000
Capital stock 5,000 67.20 (H) 336,000
Retained earnings from above 5,250 1,418,525
Total
Cumulative translation adjustment:
Balance, 1/1 50,000
Current translation adjustment G 1,775
Balance, 12/31 51,775
Total liabilities and stockholders’ equity 21,750 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
Problem 20-5
Goodluck Corporation
Foreign Exchange Translation Worksheet
Trial Trial Income Balance

Balance Exchange Balance Statement Sheet
(In Pounds) Rate (In Pesos) (In Pesos) (In Pesos)
Cash 15,000 0.95 C 14,250 14,250
Marketable securities 25,000 0.95 C 23,750 23,750
Accounts receivable 60,000 0.95 C 57,000 57,000
Inventories 80,000 0.95 C 76,000 76,000
Property, plant and equip-net 420,000 0.95 C 399,000 399,000
Cost of goods sold 150,000 0.90 A 135,000 135,000
Depreciation expense 40,000 0.90 A 36,000 36,000
Other expenses 10,000 0.90 A 9,000 9,000
Totals 800,000 750,000 180,000 570,000
Accounts payable 50,000 0.95 C 47,500 47,500

Current portion of LT debt 40,000 0.95 C 38,000 38,000
Long-term debt 120,000 0.95 C 114,000 114,000
Sales 200,000 0.90 A 180,000 180,000
Other revenues 50,000 0.90 A 45,000 45,000
Capital stock 250,000 0,87 H 217,500 217,500
Retained earnings, 1/1 90,000 G 70,000 70,000
FC translation adjustment
Balance, 1/1 G 1,500 1,500
Current year B 36,500 36,500
Net income B (45,000) 45,000
Totals 800,000 750,000 180,000 570,000
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
Direct A$ Indirect
January 1, 2007 P.03333=1 A$30=P1
December 31, 2007 P.02857=1 A$35=P1
December 31, 2008 P .025=1 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
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:
Subsidiary’s Direct Translated

Trial Balance Exchange Trial Balance
_ (in A$)__ Rate ( in $)___
Cash A$ 100,000 P.02857 P 2,857
Receivables 400,000 P.02857 12,857
Inventory 680,000 P.02857 19,428
Fixed assets 1,000,000 P.02857 28,570
Total R 2,230,000 P 63,712
Accumulated other
comprehensive income –
translated adjustment (debit)
Total debits 2,903
P 66,615
Current payables A$ 260,000 P.02857 P 7,428

Long-term debt 1,250,000 P.02857 35,713
Common stock 500,000 P.03333 16,665
Retained earnings 220,000 P.03333 6,809
Total credits A$2,230,000 P 66,615
P.03333= average of beginning and ending exchange rates, rounded to 4 decimal points:
P.030945= [(P.03333 + P.02856) /2]
(Not required: Proof of translation adjustment (debit) of P 2,903)
Translation
___A$___ _ Rate_ _Dollars_
Net assets, 1/1/07 A$ 500,000 P.03333 P 16,665
Adjustment for changes in
net assets during year:
Net income 220,000 P.03095 6,809
Rates during year P 23,474
Rates at end of year A$ 720,000 P.02857 (20,570)
Change in translation
Adjustment during year (debit) P 2,904*
*Difference of P1 (P 2,904 – P 2,903) due to rounding of exchange rates.

c. Translated December 31, 2008, balance sheet:
Subsidiary’s Direct Translated

Trial Balance Exchange Trial Balance
(in A$) __Rate (in P)__
Cash A$ 80,000 P.025 P 2,000
Receivables 550,000 P.025 13,750
Inventory 720,000 P.025 18,000
Fixed assets 900,000 P.025 22,500__
Accumulated other A$ 2,250,000 P56,250
comprehensive income-
translation adjustment (debit) 5,635___
Total debits 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 2008’s 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 Translation
Dollar _ Rate Pesos___
Net assets, 1/1/08 A$ 720,000 P.02857 P20, 570
Adjustment for changes in
net assets during year:
Net income 90,000 P.02679 2,411___
rates during year P22, 981
Other comprehensive income-
rate at end of year A$ 810,000 P.025 (20,250)__
Change in other comprehensive
income- translation
adjustment during year (debit) P2, 731
income- translation adjustment, 1/1/08 2,904___
income- translation adjustment, 12/31/08 (debit) P5, 635
d. 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.
CHAPTER 21
MULTIPLE CHOICE
21-1 b
21-2 a
21-3 a
21-4 b
21-5 b
21-6 a
21-7 c
21-8 a
21-9 a
21-10 c
21-11 d
21-12 b
21-13 b
21-14 a
21-15 a
Excess of income over expenses P 200

Depreciation 70
Increase in due from national government agencies ( 10)
Increase in prepaid rent ( 15)
Increase in accounts payable 30
Cash provided by operating activities P 275
PROBLEMS
Problem 21-1
1. Memo entry in the RAOPS, RAOMO, RAOCO and RAOFE.
2. Cash – National Treasury – MDS 2,000,000

Subsidy Income from National Government 2,000,000
3. Memo entry in the RAOPS, RAOMO, RAOCO and RAOFE.
4. Office equipment 50,000

5. Cash – Disbursing Officer 40,000

Cash – National Treasury – MDS 40,000
6. Salaries and wages – Regular 44,000

Personal economic relief allowance (PERA) 3,000
Additional compensation 3,000
Due to BIR 3,500
Due to GSIS 5,500
Due to Pag-ibig 400
Due to Philhealth 600
Cash – Disbursing Officer 40,000
7. Due to GSIS 5,500

Due to Pag-ibig 400
8. Life and retirement contribution 5,500

Pag-ibig contribution 400
Philhealth contribution 600
9. Electricity 5,000
Telephone expense – Landline 4,000
Due to BIR 5,000
10. Due to BIR 4,500

Subsidy income from national government 4,500
11. Cash – Collecting Officer 90,000

Sales revenue 40,000
Permit fees 30,000
Miscellaneous income 20,000
12. Cash in Bank – Local currency – Current account 90,000

Cash – Collecting Officer 90,000
Problem 21-2
Building
1. Memo entry in RAOCO.
2. Advances to contractor 240

Cash – National Treasury – MDS 240
3. Construction in progress – Other Public Infrastructure 400

Advances to contractor 240
Accounts payable 160
4. Accounts payable 160

Due to BIR 40


Due to BIR 40
Cash – National Treasury 360
7. Due to BIR 80
Subsidy income from national government 80
8. Office Building 800

Construction in progress – OPI 800
Repairs of Building
1. Memo entry in RAOCO.
2. Construction materials inventory 70

Accounts payable 70
Due to BIR 7

Construction materials inventory 60
5. Memo entry in the RAOCO

6. Cash – Disbursing Officer 36

Due to BIR 4
Cash – Disbursing Officer 36
8. Due to BIR 47
9. Office building 100

Construction in progress – OPI 100
Land:
1. Memo entry in the RAOCO, P100.
2. Land 100

Due to BIR 10
Problem 21-3
(a) Journal Entries:
1. Memo entry in the Registry of Obligations and Allotments.
2. Cash – National Treasury – MDS 2,500

3. Memo entry in Registry of Obligations and Allotments.
4. Office equipment 120

5. IT equipment and software 30

Accounts payable 30
6. Prepaid rent 60
7. Electricity expense 50
8. Telephone expense – Landline 40

9. Petty cash fund 45


Due to BIR 12

12. Due to BIR 12

13. Cash – Collecting Officer 50

Other service income 10
Sales revenue 40
14. Cash in bank – LCCA 50

Cash – Collecting Officer 50
(b) Pre-closing Trial Balance
Petty cash fund 45

Cash in Bank – Local Currency – Current Account 50
Prepaid rent 60
Office equipment 120
IT equipment and software 30
Sales revenue 40
Electricity expense 50
Telephone expense – landline 40
Total 2,562 2,562
© Adjusting Entries
(1) Depreciation – Office equipment & software 20

Depreciation – IT equipment 5
Accumulated depreciation – Office equipment 20
Accumulated depreciation – IT equip & software 5
(2) Rent expense 30

Prepaid rent 30
Closing Entries:
(1) Unused National Clearing Account (NCA)

NCA received during the year 2,500

Less: MDS check issued 333
Unused NCA 2,167
(2) Income accounts:

Sales revenue 40
Income and expense summary 395
(3) Expense accounts:

Income and expense summary 90
(4) Income and expense summary 305

Retained operating surplus 305
(5) Retained operating surplus 305
Government equity 305
Problem 21-4
Agency VV
Statement of Income and Expenses
Income:
Subsidy income from national government P1,700
Less: Reversion of unused NCA 800 P900
Less: Expenses
Salaries and wages – Regular P 320
Personnel Economic Relief Allowance 40
Additional compensation 40
Life and retirement insurance contribution 60
Pag-ibig contribution 10
Philhealth contgribution 10
Traveling expense – Local 35
Office supplies expense 60
Janitorial services 30
Security services 35
Repairs and maintenance – Office building 65
Depreciation – Office building 15
Depreciation – office equipment 10
Depreciation – furniture and fixtures 5
Depreciation – IT equipment and software 5 860
Net income over expenses P 40
Agency VV
Balance Sheet
As of December 31, 2008
ASSETS
Current Assets
Cash:
Cash in vault P 200
Cash – collecting officer 500
Cash – disbursing officer 1,000
Petty cash fund 150
Cash in bank – LCCA 350 P2,200
Receivables:
Accounts receivable P 120
Less: Allowance for doubtful accounts 20 100
Inventories:
Office supplies inventory 30
Other current assets 15
Long-term investment:
Investment in stock 400
Property, Plant and Equipment:
Land 600
Office building 650
Less: accumulated depreciation 50 600
Office equipment 250
Furniture and fixtures 110
IT equipment and software 190
Less: accumulated depreciation 25 165 1,695
Total assets 4,440
LIABILITIES AND EQUITY

Liabilities
Current liabilities
Due to BIR 50
Due to GSIS 30
Due to Pag-ibig 25
Other payables 15 330
Equity:
Government equity 4,110
Total liabilities and equity 4,440
CHAPTER 22
Multiple Choice
22-1: b. (P500,000 – P300,000)
22-2: d.
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 P 5,000,000

Nursing services 1,000,000
Professional services 500,000
Total revenues P 6,500,000
Less: Staff discounts P50,000
Allowances 230,000
Third party payors 800,000 1,080,000
Net revenues 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) P 600,000

Less: contractual adjustments 200,000
Net patient service revenues P 400,000
22-11: c.
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 P600,000
Not expended 75,000
Restricted gifts received
Expended 100,000
Total P775,000
Problems
Problem 22-1
1. Pledges receivable 300,000

Allowance for uncollectible pledges 10,000
Contribution revenue 270,000
2. Cash 260,000
Pledges receivable 260,000
3. Cash 40,000
Fund raising expense 5,000
Fund raising revenue 45,000
4. Investment 35,000
Cash 35,000
5. Cash 5,000
Sales – public revenue 5,000
6. Salaries 90,000
Employee fringe benefits 15,000
Payroll taxes 16,000
Supplies 7,000
Telephone 1,500
Utilities 6,000
Rent 10,000
Conference, conventions and meetings 5,000
Cost of sales to public 1,000
Miscellaneous 3,000
Cash 154,500
7. Utilities 1,000
Salaries 5,000
Accounts payable or accrued expense payable 6,000
8. Fund Balance - Unrestricted 10,000

Fund balance – Restricted to purchases
of new equipment. 10,000
Problem 22-2
(1) Accounts receivable 80,000

Patient service revenues 80,000
To record gross patient service revenue for the month
at full rates.

Patient service revenues 2,500
To record receivable from Social Medicare.
Contractual adjustments 6,000

To record contractual adjustments allowed.
Doubtful accounts 8,000

Allowance for doubtful accounts 8,000
To provide allowances for doubtful accounts.
(2) Salaries expense 9,800

Contribution revenues 9,800
To record donated services (10,000 – 200).
(3) Pledges receivable 5,000

Contribution revenues 5,000
To record pledges received from donors.
Cash 3,500
Pledges receivable 3,500
To record pledges collected.
Provisions for doubtful pledges 800

Allowance for doubtful pledges 800
To provide doubtful pledges.
(4) Cash 3,000

Fund balance 3,000
To record receipt of cash from restricted fund.
Plant assets 3,000

Cash 3,000
To record acquisition of new surgical equipment.
Problem 22-3
Plant Fund Ledger Account:
(1) Equivalent 50,000

Fund Balance 50,000
To record acquisitions of computers from unrestricted fund.
(2) Buildings 2,000,000

Cash 250,000
Mortgage notes payable 1,750,000
To record construction of new building financed in
part by 5% mortgage note payable.
Quasi-Endowment Fund Ledger Account:
(3) Cash 110,000

Investments 100,000
Payable to Unrestricted fund 10,000
To record sale of investments at a gain, the use of
which is unrestricted.
Unrestricted Fund Ledger Account:
(1) Undesignated fund balance 50,000

Cash 50,000
To record acquisitions of computers to be carried in
Plant Fund.
(2) Cash 2,000,000

Contribution revenues 2,000,000
To record receipt of unrestricted gift.
(3) Receivable from quasi-endowment fund 10,000

To record investment gain receivable.
Problem 22-4
Nonprofit Trade Association

Statement of Activities
Year Ended June 30, 2004
Revenues and Gains:

Membership dues P184,000
Conferences and meetings 321,000
Publications and advertising sales 143,000
Special assessments 50,000
Investment income, including net gains 11,000
Total P709,000
Expenses:
Member services P 56,000
Conferences and meetings 166,000
Technical services 218,000
Communications 61,000
General administration 154,000
Membership development 27,000 682,000
Increase in unrestricted net assets 27,000
Net assets, beginning of year 285,000
Net assets, end of year P312,000
Nonprofit Trade Association

Statement of Financial Position
June 30, 2004
ASSETS
Current assets
Cash P 7,000
Short-term investments 217,000
Accounts receivable (net) 25,000
Publications inventory 61,000
Total current assets 310,000
Other assets 28,000
LIABILITIES AND NET ASSETS

Current liabilities
Accounts payable and accrued liabilities P 48,000
Deferred membership dues 131,000
Total current liabilities 179,000
Net assets (unrestricted) 312,000
Total liabilities and net assets P491,000
Problem 22-5
Children Association
Statement of Activities
Changes in unrestricted net assets:

Revenues and gains:
Contributions P320,000
Membership dues 25,000
Program service fees 30,000
Total unrestricted revenues and gains P385,000
Expenses:
Programs P270,000
Management and general expenses 47,000
Fund raising 8,000 325,000
Increase in unrestricted net assets P 60,000
Changes in temporarily restricted net assets:
Contributions P 15,000
Expenses:
Management and general expenses P 4,000
Fund raising expenses 1,000 5,000
Increase in temporarily restricted net assets P 10,000
Increase in net assets P 70,000
Net assets, beginning of year (P12,000 + P26,000 + P3,000) 41,000
Net assets, end of year P111,000
Children Association
December 31, 2004
ASSETS
Cash (P40,000 + P9,000) P 40,000
Bequest and interest receivable (P5,000 + P1,000) 6,000
Pledges receivable (net) (P12,000 – P3,000) 9,000
Investments, at cost 100,000

Liabilities P 51,000
Accounts payable and accrued liabilities (P50,000 + P1,000) 2,000
Deferred revenues P 53,000
Total liabilities
Net assets:
Unrestricted (P38,000 + P60,000) P 98,000
Temporarily restricted (P3,000 + P10,000) 13,000
Total net assets P111,000
Total liabilities and net assets P164,000
Problem 22-6
San Pedro Hospital

June 30, 2004
ASSETS
Current assets
Cash P 222,000
Accounts receivable (net of allowance of P5,000) 20,000
Inventories 50,000
Total current assets P 302,000
Investments 660,000
Property, plant and equipment (net of accumulated depreciation of P140,000) 160,000

LIABILITIES
Accrued expenses 17,000
Deferred revenues 11,000
Current portion of long-term debt 24,000
Total current liabilities P 97,000
NET ASSETS
Unrestricted P 148,000
Temporarily restricted 232,000
Permanently restricted 520,000
Total net assets P 900,000
Total liabilities and net assets P1,122,000

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Partnership – Basic Considerations and Formation 1

MULTIPLE CHOICE ANSWERS AND SOLUTIONS

Total agreed capital (P230,000/40%) P575,000

Agreed capitals, equally (P300,000/3) = P100,000

Goodwill (P240,000 - P130,000) = P110,000

Required capital of Cruz (P400,000 X 30%) P120,000

Total partnership capital (P165,900/2/3) P248,850

Gomez's capital (P300,000 X 40%) P120,000

Cash to be invested by Jocson:

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 ............................................................. 600

2. Pedro Castro, Capital ............................................................. 200

3. Accrued Interest Receivable .................................................. 35

4. Pedro Castro, Capital ............................................................. 100

5. Pedro Castro, Capital ............................................................. 800

6. Office Supplies ...................................................................... 400

To record the investment of Jose Bunag.

Cash .. ........................................................................................... 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 ............................................................................... 4,000

New Partnership Books

To record the investment of Pedro Castro.

Cash ........................................................................................... 6,000

To record the investment of Jose Bunag.

Cash .. ........................................................................................... 15,067.50

2. Castro and Bunag Partnership

Cash ..... ...... ... ........................................................................................... P21,067.50

Liabilities and Capital

Notes payable ........................................................................................... P 4,000.00

Jose: Capital before adjustment ...................................................... P 85,000

Total agreed capital (P68,500  25%) = 274,000

Jose, Pedro and Pablo Partnership

Bonus Method Goodwill Method

Liabilities and Capital:

Accounts payable P 53,000 P 53,000

1. Books of Pepe Basco

To adjust the assets.

a. Pepe Basco, Capital ...................................................................... 3,200

b. Pepe Basco, Capital ...................................................................... 500

To close the books.

Estimated Uncollectible Account ....................................................... 4,800

2. Books of the Partnership

To record the investment of Pepe Basco.

Cash .... ... ........................................................................................... 400

To record the investment of Carlo Torre.

Cash .... ... ........................................................................................... 47,250

a. Roces' books will be used by the partnership

(a) Sales, Capital ......................................................................... 3,200

(b) Goodwill ................................................................................ 32,000

Allowance for Bad Debts ............................................................. 12,800

Books of Roces (Books of the Partnership)

(a) Roces, Capital .............................................................................. 1,600

(b) Accumulated Depreciation – Fixtures .......................................... 16,000