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1.1 Partnership Formation Problem 1 (ReSA)

On July 1, 2019, XX and YY decided to form a partnership. The firm is to take over business assets and assume liabilities, and capitals are to be based on net assets transferred after the following adjustments: a) XX and YY’s inventory is to be valid at P31,000 and P22,000, respectively. b) Accounts receivable of P2,000 in XX’s book and P1,000 in YY’s books are uncollectible. c) Accrued salaries of P4,000 for XX and P5,000 for YY are still to be recognized in the books. d) Unused office supplies of XX amounted to P5,000, while that of YY amounted to P1,500. e) Unrecorded patent of P7,000 and prepaid rent of P4,500 are to be recognized in the books of XX and YY, respectively. f) XX is to invest or withdrew wit hdrew cash necessary necessary to have a 40% 4 0% interest in the firm. Balance sheets for XX and YY on July 1 before adjustments are given below: XX

Cash

Php

YY

31,000

Php

50,000

Accounts Accounts Receivable

26,000

20,000

Inventory Office Supplies Supplies Equipment Accumulated Accumulated Depreciation - Equipment Equipment

32,000

24,000 5,000

20,000

24,000

(9,000)

(3,000)

Total Assets

Php

100,000

Php

120,000

Accounts Payable Capitals

Php

28,000.00

Php

20,000.00

Total Liabilities and Capital

Php

72,000 100,000

100,000 Php

120,000

Determine:

1. The net adjustments – capital in the books of XX and YY: a. XX, P7,000 net debit; YY, P2,000 net credit b. XX, P5,000 net debit; YY, P7,000 net credit c. XX, P7,000 net credit; YY, P2,000 net debit d. XX, P5,000 net credit; YY, P7,000 net debit

2. The adjusted capital of XX and YY in their respective books. a. XX – P65,000; YY – P102,000 c. XX – P77,000; YY – P98,000 b. XX – P63,000; YY – P107,000 d. XX – P77,000; YY – P93,000 3. The additional investment (withdrawal) made by XX: a. P(15,000.00) c. P3,000.00 b. P( 6,666.50) d. P8,377.50

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4. The total assets of the partnership after formation: a. P235,333.50 c. P220,333.50 b. P230,000.00 d. P212,000.00

5. The total liabilities of the partnership after formation: a. P57,000.00 c. P54,000.00 b. P48,000.00 d. P51,000.00 6. The total capital of the partnership after formation: a. P180,000.00 c. P163,333.50 b. P178,333.50 d. P155,000.00 7. The capital balances of XX and YY in the combined balance sheet: a. XX, P81,250; YY, P72,000 c. XX, P100,000; YY, P75,000 b. XX, P81,250; YY, P75,000 d. XX, P 62,000; YY, P93,000

Solution 1. D

XX Capit al

Y Y Capit al

a

(1,000.00)

a

(2,000.00)

b

(2,000.00)

b

(1,000.00)

c

(4,000.00)

c

(5,000.00)

d

5,000.00

d

(3,500.00)

e

7,000.00

e

4,500.00

Net Credit

5,000.00

Net Debit

(7,000.00)

2. D XX Capit al- Unadjust ed

72,000.00

Net adjust ment Adjusted Adjusted Capital Capital

Y Y Capit al- Unadjust ed

5,000.00

Net adjust ment Adjusted Capital

77,000.00

3. A

Addtl Investment CC

AC

XX

77,000.00

62 62,000.00

YY

93,000.00

93 93,000.00

150,0 150,000 00.00 .00

155,0 155,000 00.00 .00

(Withdrawal) (15,000.00)

(15,000.00)

100,000.00 (7,000.00) 93,000.00





























4. D 5. A 6. D

From the accounting equation Asset = Liability + Capital

Total Asse t

Li abi li ty

Capital

28,00 ,000.00 .00

77,00 ,000.00 .00

20,00 ,000.00 .00

93,00 ,000.00 .00

4,00 ,000.00 .00

(15 (15,00 ,000.00 .00)

5,000.00 212,00 ,000.00

7. D

57,000.00

XX (155,000x40%) (155,000x40%)

62,000

YY (155,000x60%) (155,000x60%)

93,000

155,000.00

Problem 2 (ReSA) On December 1, 2019, AA and BB formed a partnership with contributing the following assets at fair market values:

Cash ……………………………………… Machinery and equipment ….. Land ……………………………………… Building ………………………………… ………………………………… Office Furniture ……………………. …………………….

AA

BB

P 9,000 13,500 13,500

P 18,000 90,000 27,000 -

The land and building are subject to a mortgage loan of P54,000 that the partnership will assume. The partnership agreement provides that AA and BB share profits and losses, 40% and 60%, respectively and partners agreed to bri ng their capital balances in proportion to the profit and loss ratio and using the capital balance of BB as the basis. The additional cash investment made by AA should be:

a. P18,000.00 b. P85,500.00

c. P134,000.00 d. P166,250.00





























Solutions:

AA

Cash

BB

9,000.00

Machi achinery ery & Eqmpt

18,000.00

13,50 ,500.00 .00

Land

90,000.00

Building

27,000.00

Of fic e Furnit ur ure

13,500.00

Mortgage Loan

(54,000.00) (54,000.00)

Capit al

36,000.00

CC

81,000.00

Addtl Investment (Withdrawal)

AC

AA 40%

36,000.00

54,000.00

BB 60%

81,000.00

81,000.00

117,000.00

135,000.00

18,000.00

18,000.00

Problem 3 (ReSA)

CC and DD are joining their separate business to form a partnership. Cash and non -cash assets are to be contributed for a total capital of P150,000. The non-cash assets to be contributed and liabilities to be assumed are: CC

DD

Book Value

Fair Value

Book Value

P11,250.00 11,250.00

P11,250.00 16,875.00

P30,000.00

18,750.00

15,000.00

33,750.00

5,637.50

5,625.00

3,750.00

Fair

Value Accounts Receivable … Inventories ………………..

P33,750.00 Equipment ………………… …………………

35,625.00 Accounts Payable ….....

3,750.00 The partner’s capital accounts are to be e qual after all contributions of assets and

assumptions of liabilities.





























a. CC – P37,500; DD – P9,375 b. CC – P37,500; DD – P5,625

c. CC – P80,625; DD – P78,750 d. CC – P63,750; DD – P5,625

Solution 1. A

A s se t

Li abi l i ty

Capi tal

5,625.00

150,000.00

3,750.00 159,375.00

9,375.00

150,000.00

CC

2. A Cash

DD

37,5 37,500 00.0 .00 0

9,3 9,375.0 75.00 0

Ac co count s Rec ei eivable

11,250.00

0.00

Invent ories

16,875.00

33,750.00

Equipment

15,000.00 35,625.00

T ot al Asset s

80,625.00

78,750.00

5,625.00

3,750.00

Capit al

75,000.00

75,000.00

Total Liabi Liabili lities ties and Capital Capital

80,62 80,625.0 5.00 0

78,75 78,750.0 0.00 0

Ac co count s Payable

Problem 4 (ReSA)

On December 1, 2018, EE and FF formed a partnership agreeing to share for profits and losses in the ration of 2:3 respectively. EE invested a parcel of land that cost him 25,000. FF invested 30,000 cash. The land was sold for 50,000 on the same date, three hours after formation of the partnership. How much should be the capital balance of EE right after formation? a. 25,000 b. 30,000

c. 60,000 d. 50,000

Solution: The contribution of noncash assets to a partnership should be recorded based





























Problem 5 (ReSA)

On March 1, 2018, Coco and Martin formed a partnership with each contributing the following assets: Cash Machinery and Equipment Building Furniture and Fixtures

Coco 300,000 250,000 100,000

Martin 700,000 750,000 2,250,000 -

The building is subject to mortgage loan of 800,000 which is to be assumed by the partnership agreement provides that Coco and Martin share profits and losses 30% and 70% respectively. On March 1, 2018 the balance in Martin’s capital account should be: a. 3,700,000 b. 3,140,000

c. 3,050,000 d. 2,900,000

Solution: Cash Machinery and Equipment Building

700,000.00 750,000.00 2,250,000.00

Total assets invested

3,700,000.00

Mortgage assumed

(800,000.00)

Capital Balance of Martin

2,900,000.00

Problem 6 (PRTC)

Baser and Michelle have just formed a partnership. Baser contributed cash of P920,000 and office equipment that costs P422,000. The equipment had been used in his sole proprietorship and had been 70% depreciated. The current value of the equipment is P295,000. Baser also contributed a note payable of P87,000 to be assumed by the partnership. The partners agreed on a profit and loss ratio of 50% each. Baser is to have a 70% interest in the partnership. Michelle contributed only a merchandise inventory from her sole proprietorship carried at P550,000 on a first-in- first-out basis. The current fair value of the merchandise is P525,000. To consummate the formation of the partnership Baser should make additional investment or (withdrawal) of:































Solution: Michelle’s total contribution

Interest Ratio Total Capital Baser’s Ratio Required capital of Baser Total contribution of Baser (920,000+295,000-87,000)

P 525,000 30% P 1,750,000 70% P 1,225,000 (1,128,000) 97,000

Problem 7 (PRTC)

In 2018, Norma and Celso agreed to form a new partnership under the following general agreements: Partners’ contributions will be on a %:4 ratio; (2) Profit and loss, 5:5, and (3) Capital

credits 57:43 ratio, respectively to Norma and Celso. Their respective contributions will come from old proprietorships they owned. Norma contributed the following items and amounts: Cash

P 748,800 512,000

Equipment (at book value per her proprietorship records) Celso contributed the following items at their carrying amounts in the proprietorship records: Accounts receivable Inventory Furniture and fixtures Intangibles

96,000 268,800 514,560 220,800





























Solution: 1. D P 1,100,160 (28,800) P 1,071,360 5/4 P 1,339,200 (748,800) 590,400 526,080

Celso’s Contribution @ BV

Net decrease to FV Celso’s Contribution @ FV Contribution Ratio FV of Norma’s Contribution

Cash of Norma FV equipment investment FV of Furniture and Fixture Total Fixed Assets

P 1,116,480

2. A Partner N C Total

CC P 1,374,019 1,036,541

P 2,410,560

CNA

Difference

P 1,339,200

P 34,819

1,071,360

(34,819)

P 2,410,560

-0-

Problem 8 (PRTC)

A, B and C formed the ABC Partnership on July 1, 2018, with the following assets, measured at book values in their respective records, contributed by each partner:

Cash Accounts receivable

A

B

C

P 200,000

P 150,000

P 150,000

38,500

68,900





























Solution:

135,000 950,000

B 150,000 38,500 118,000 460,000

C 150,000 43,000 67,000 365,000

Total 500,000 81,500 320,000 1,775,000

Total Assets Liabilities

1,285,000 -160,000

766,500 -16,500

625,000

2,676,500 -176,500

Net Asset

1,125,000

750,000

625,000

2,500,000

Net Assets

Contribution Ratio

A B C

1,125,000

45%

750,000

30%

625,000

25%

Total

2,500,000

100%

Cash Accounts Receivable Inventory PPE

A 200,000

What is the capital balance for each partner at July 1, instead, if the interest ratio is agreed at 4:3:3 to A, B and C, respectively? Answer:

A B C Total

1,000,000 750,000 750,000

(2,500,000 x 40%) (2,500,000 x 30%) (2,500,000 x 30%)

2,500,000

Problem 9 (PRTC)

Roberts and Smith drafted a partnership agreement that lists the following assets





























A.

Roberts 35,000

Smith 85,000

B.

35,000

75,000

C. D.

55,000 60,000

55,000 60,000

Solution:

Roberts: 20,000 + 15,000 = P35, 000 Smith: 30,000 + 15,000 + 40,000 – 10,000 = P75,000

Problem 10 (PRTC)

The Grey and Redd Partnership was formed on January 2, 2010. Under the partnership agreement, each partner has an equal initial capital balance. Partnership net income or loss is allocated 60% to Grey and 40% to Redd. To form the partnership, Grey originally contributed assets costing P30,000 with a fair value of P60,000 on January 2, 2010, and Redd contributed P20,000 cash. Drawings by the partners during 2010 totaled P3, 000 by Grey an P9,000 by Redd. The partnership net income in 2010 was P25,000 1. Under the goodwill method, what is Redd’s initial capital balance in the partnership? A. 20,000 C. 40,000 B. 25,000 D. 60,000 Solution:

Contributed Capital

Agreed Capital

Increase (Decrease)

Grey

60,000

60,000

Redd

20,000

60,000

40,000

Total

80,000

120,000

40,000





























Nathan and Janice agreed to from a partnership by contributing their net assets, subject to the following adjustments: 





Receivables of P20,000 in Nathan’s books and P40,000 in Janice’s books are uncollectible. Inventories of P6,000 and P7,000 in the respective books of Nathan and Janice are worthless Other assets in both books are written off

Upon the partnerships formation: 1. The respective capital of partners Nathan and Janice would be_____________; 2. The total assets of the partnership would be_____________________.

Solution: Nathan Cash Receivables Inventories Land Building and Equipment Other Assets Accounts Payable

Janice

8,000.00 200,000.00 120,000.00

62,000.00 600,000.00 200,000.00

650,000.00 2,000.00 (180,000.00)

535,000.00 3,000.00 (250,000.00)

Uncollectible Inventories Written off

800,000.00 (20,000.00) (6,000.00) (2,000.00)

1,150,000.00 (40,000.00) (7,000.00) (3,000.00)

Total Capital

772,000.00

1,100,000.00































 

The merchandise inventory is to be valued at P202,000. Prepaid expenses of P6,500 and accrued expenses of P4,000 are to be established

Dani is to invest sufficient funds in order to receive a 1/3 interest in the partnership. 1. How much is the adjusted capital of James? 2. How much cash should Dani invest? 3. How much is the total assets of the partnership.

Solution: Cash A/R Merchandise Inventory A/P 2% Allow. For doubtful acc. Merch. Inventory Prepaid Exp.

26,000.00 120,000.00 180,000.00 (264,000.00) 62,000.00 (2,400.00) 22,000.00 6,500.00































It is estimated that 5% of the receivable will prove uncollectible. The cash balance includes 1,000 share certificates of PNB at its cost, P8,000; the stock last sold on the market at P70.00 per share. Merchandise includes obsolete items costing P36,000 that will probably realize only P8,000. Depreciation has never been recorded; the fixtures are 2 years old, have an estimated life of 10 years, and would cost P480,000 if purchased new currently. Sundry prepaid items amount to P10,000. ava is to be admitted as a partner upon investing P400,000 cash and P200,000 merchandise.

1. What will be that total capital after the formation of the partnership?

Solution: Cash A/R Merchandise Fixtures Accts. Payable Unadjusted Cap. Uncollectible

100,000.00 268,000.00 440,000.00 328,000.00 (57,600.00) 1,078,400.00 (13,000.00)































On this date, the partners afree to admit lucas as a partner. The terms of the agreement is that assets and liabilities are to be restated as follows:    

An allowance for possible uncollectible of P4,500 is to be established. Inventories are to be restated at their present replacement values of P170,000 Equipment are to be restated at a value val ue of P35,000 Accrued expenses of P4,000 are to be recognized.

Harold, Cherry, and Lucas will divide profits in the ratio of 5:3:2. Capital balances for the new partners are to be in this ratio with Harold and Cherry making cash settlement outside of the partnership for the required capital adjustment between themselves and Lucas investing cash in the partnership for his interest.

Questions: 1. How much cash Lucas Lucas should contribute? Solution: H 136,900 C 110,600 L 61,875 309,375

17,787.5 (17,787.5) 0

154,687.5 92,812.5 61,875 309,375































1.2 Partnership Operations Problem 1 (ReSA)

Left and Right are partners. Their capital accounts during 2019 were as foll ows: Left, Capital

8/23

P 3,000

1/1 P15,000 4/3 4,000 10/31 3,000

Right, Capital

3/5

P4,500

1/1 7/6 10/7

P 25,000 3,500 2,500

Partnership net income is P25,000 for the year. The partnership agreement provides for the division of net income as follows: 





Each partner is credited 10 percent interest on his or her average capital (rounded to the nearest month) Because of prior work experience of, Left is entitled entitl ed to an annual salary of P6,000 and Right is credited with P4,000 Any remainder income or loss is to be allocated all ocated based on the beginning capital

How much of the partnership net income for 2019 should be assigned to Left and Right? a. Left, P11,833.33; Right, P13,166.50 b. Left, P9,375; Right, P15,625

c. Left, P13,194; Right, P11,806 d. Left, P12,500; Right, P12,500































Problem 2 (ReSA)

Hunt, Rob, Turman and Kelly own a publishing company that they operate as a partnership. The partnership agreement includes the following:   

Hunt receives a salary of P10,000 and a bonus of 3 % of income after all bonuses. Rob receives a salary of P5,000 and a bonus of 2% of income after all bonuses. All partners are to receive 10% interest on their average capital balances.

The average capital balances are Hunt, P25,000; Rob, P22,500; Turman, P10,000 and Kelly, P23,500. Any remaining profit and losses are to be allocated among the partners. a. Hunt, P20,725; Rob, P14,975; Turman, P7,725; Kelly, P9,075

b. Hunt, P14,000; Rob, P8,250; Turman, P1,000; Kelly, P2,350 c. Hunt, P19,850; Rob, P14,600; Turman, P8,350; Kelly, P9,700 d. Cannot be determined.

Solution:

Salary 10% Interest Bonus Balance : Equally

Hunt 10,000.00 2,500.00 1,500.00

Rob 5,000.00 2,250.00 1,000.00

6,725.00

6,725.00

Turman

Kelly

1,000.00 -

2,350.00 -

Total 15,000.00 8,100.00 2,500.00

6,725.00

6,725.00

26,900.00

































Solution:

Salaries 10% Interest Bonus Balance 30%, 70%

PP

QQ

Total

5,000.00 2,500.00 3,000.00

2,500.00 3,750.00 -

7,500.00 6,250.00 3,000.00

2,625.00

6,125.00

8,750.00

13,125.00

12,375.00

25,500.00

































Solution: 1. C Net Income after salaries interest and bonus Salaries Interest

11,687.50 3,000.00 312.50

Net income after bonus

15,000.00

Divide Net income before salaries, interest and bonus

80% 18,750.00

































Solution:

Salaries Interest Balance 3:3:2:2

DD 2,500.00 1,250.00 2,500.00

EE 1,500.00 625.00 2,500.00

0.00 625.00 1,666.00

0.00 500.00 1,667.00

Total 4,000.00 3,000.00 8,333.00

6,250.00

4,625.00

2,291.00

2,167.00 833.00

15,333.00 833.00

3,000.00

16,166.00

Problem 6 (CRC-ACE)

FF

GG

































DAVID

RUBY

43,101

180,000

*12/12

180,000

43,101

60,000

*12/12

60,000

43,191

(50,000)

*9/12

(37,500)

43,160

(10,000)

*10/12

8,333

43,374

(10,000)

*3/12

(2,500)

43,344

20,000

*4/12

6,667

140,000

43,405

10,000

1,666

C.

80,000 DAVID

*2/12 AVE. CAP RUBY

120,000

A.

DAVID

RUBY

TOTAL

60,000 TOTAL

































Solution: X

Y

SALARY BALANCE

PROFIT

Z

TOTAL

140,000

140,000

140,000

84,000

56,000

280,000

140,000

84,000

196,000

420,000

(15,000)

21,000

(6,000)

125,000

105,000

190,000

420,000



































Problem 9 (CRC-ACE)

NEGOSYO TO Company a partnership was formed on January 1, 2018, with four



































The following information is to be considered in closing the profit and loss account and the drawing accounts: The cost of installing equipment at the beginning of 2018, P27,000, was charged 



































1. In the reported new income of P25,000 for the year 2018, Linda would have A. P21,900 B. P17,100 B. P0 D. P12,500 Solution: 2018 income to allocate (25,000-4000=21,000)



































Solution:



































Problem 15 (PRTC)

Partners Joyce and Marie share profits 3:1 after annual salary allowances of P4,000 and P6,000 respectively; however, if profits are not adequate to meet the salary allowances, the entire profit is to be divided in the salary ratio. Profits of P9,000 were reported for

































































































































































































































































































































































































































































































































































































































































































































































































































































































































































Notes payable

160,000

Accrued Interest notes Mortgage payable, secured by land and building

400,000

Capital Stock

800,000

Addtl Paid in Capital

5,000

80,000

Deficit

(297,000)

Total Liab.& Equity

1,821,400

Additional information: a. Patents completely written off the books in past years but with a realizable value of P10,000 b. The books do not show the following accruals (unrecorded expenses/additional liabilities): Taxes Interest on Mortgage

16,400 10,000

c. The investment have been pledged as security for holder of the notes payable d. The trustee fees and other costs of liquidating the estate are estimated to be P60,000

Determine: 1. The total free assets should be: a. 1,831,400 b. 1,821,400

c. 717,800

2. The net free assets should be: a. 717,800 b. 698,000

c. 638,000

d. 638,000

d. 628,000

3. The estimated deficiency to unsecured creditors should be: a. 87,000 c. 27,000 b. 47,800 d. 7,200





























Solution: 1. Assets pledged to fully secured creditors: Land and Buildings Less:

Mortgage Payable Interest Payable

500,000 400,000 10,000

410,000

90,000

Free Assets: Cash Accounts Rec. (250,000x85%) Inventories (340,000-50,000) Prepaid Expenses Machinery & Equipment Goodwill Additional Assets/unrecorded assets: Patent

61,400 212,500 290,000 53,900 10,000

Total Free Assets

717,800

2. Total Free Assets Unsecured creditors w/ priority Taxes payable Administrative expenses

717,800 3,400 16,400 60,000

Net Free Assets

79,800 638,000

3 Secured Creditors: Investments Less: Notes Payable Interest payable Unsecured Creditors w/out priority: Accounts payable Total Unsecured creditor w/out priority

110,000 160,000 5,000

165,000

55,000 670,000 725,000





























PROBLEM 6(PRTC)

The following data were taken from the statement of affairs of MIRIAM CORPORATION: Assets pledged for fully secured liabilities (current fair value, P93,750) P112,500 Assets pledged for partially secured liabilities (current fair value P65,000) 92,500 Free assets (current fair value, P50,000) 87,500 Unsecured liabilities with priority 18,750 Fully secured liabilities 37,500 Partially secured liabilities 75,000 Unsecured liabilities without priority 140,000 1. The amount that will be paid to creditors with priority is: A. P8,750 C. P9,375 B. P7,500 D. P7,750 2. The amount to be paid fully secured creditors is: A. P37,500 C. P25,000 B. P40,000 D. P43,750 3. The amount to be paid to partially secured creditors is: A. P65,875 C. P70,250 B. P71,500 D. P71,250 3. The amount to be paid to unsecured creditors is: A. P97,750 C. P90,000 B. P88,500 D. P91,000 Solution:

Cash available (93,750+65,50,000) Prioritized Claims Fully secured Partially secured liabilities (secured) W/ Priority Net Cash Unsecured Amount Partially secured liabilities (unsecured) W/out Priority

208,750 37,500

65,000 8,750

(111,250) 97,500

10,000 140,000

150,000 52,500

ERR = 97,500/150,000 Partially secured Secured Portion Unsecured Portion

65% 75,000 65,000 10,000

100% 65%

65,000 6,500





























PROBLEM 7 (PRTC)

The Statement of Affairs for CANDY CORPORATION shows that approximately P0.78 on the peso probably will be paid to unsecured creditors without priority. The corporation owes TOY COMPANY P28,750 on a promissory note, plus accrued interest of P1,175.. Inventories with a current fair value of P24,000 collateralize the note payable. Compute the amount that the TOY COMPANY would receive from CANDY CORPORATION assuming that the actual payments to unsecured creditors without priority consist of 78% of total claims. Round all amounts to the nearest peso. A. P24,000

C. P42,483.75

B. P28,612.50

D. P65,250

Solution:

Partially secured (28,750 + 1,175) Secured Portion Unsecured Portion

29,925 24,000 5,925

100% 78%

24,000 4,621.50 28,621.50

PROBLEM 8 (PRTC)

The statement of affairs of ADAMSON CORPORATION shows the following: Estimated gains on realization of assets P1,600,000 Estimated losses on realization of assets 2,805,000 Contingent assets 1,250,000 Contingent liabilities 375,000 Capital stock 2,500,000 Deficit 11,125,000 The pro-rata payment on the peso, to stockholders, is: A. P0.78 C. P0.76 B. P0.43 D. P0.75 Solution:

Est. gross loss (2,805,000 + 375,000) Gain Contingent asset (1,600,000+1,250,000) Est. loss (net) BV of SHE (2,500,000 - 1,125,000) Est. amt. recoverable by stockholders / Pro rata payment

3,180,000 (2,850,000) (330,000) 1,375,000 1,045,000 1,375,000 76%





























PROBLEM 9 (PRTC)

When NATIONAL COMPANY filed for liquidation with Securities and Exchange Commission, it prepared following balance sheet. Current assets, net realizable value, P137,500 P100,000 Land and buildings, fair value, P225,000 250,000 Goodwill, fair value, PO 50,000 Total assets P400,000 Accounts payable P200,000 Mortgage payable, secured by land and building 250,000 Common stock 125,000 Retained earnings, deficit (175,000) Total equities P320,000 1. How much would the holders of the mortgage payable likely to get? A. 75,000 C. 240,000 B. 450,000 D. 301,250 2. What is the estimated deficiency to unsecured amounts? A. 87,500 C. 240,000 B. 112,500 D. 175,000

Solution:

Cash available (137,500+225,000) Prioritized Claim - MNP (Secured) Net Cash Unsecured Amount MNP (unsecured) A/P

362,500 (225,000) 137,500 25,000 200,000

Estimated deficiency ERR = 137,500/225,000 MNP (Total BV) Unsecured Portion Unsecured Portion Balance

225,000 (87,500)

61.11% 250,000 225,000 25,000

100% 61.11%

225,000 15,278 240,278































PROBLEM 10 (PRTC)

BENILDE ENTERPRISES. has been forced into bankruptcy and liquidated. Unsecured claims will be paid at the rate of P0.70 on the peso. LETRAN ENTERPRISES holds a noninterest bearing note receivable from BENILDE in the amount of P75,000 collateralized by machinery with a liquidation value of P12,500. The total amount to be realized by LETRAN on this note receivable is: A. P56,250 C. P31,250 B. P37,500 D. P12,500

Solution:

Partially Secured Claims Secured Portion Unsecured Portion

75,000 12,500 62,500

100% 70.00%

12,500 43,750 56,250

PROBLEM 11 (CRC-ACE)

The following information is available on June 1, 2018 to Samsung Company, which is having difficulty in paying its liabilities liabiliti es as they come due: Carrying amount cash accounts receivable, net, fair value equal to carrying amount inventories, current fair value, P40,320 pledged on P47,040 of

8,960 103,040 87,360

notes payable machinery and equipment, net, current fair value of P150,976

239,680

pledged on mortgage note payable office supplies, current fair value of P5,600

4,480





























REQUIRED :

a) compute the estimated recoverable amounts to the different types of creditors in the event of liquidation. b) prepare statement of deficiency to unsecured creditors ANSWER:

Asset @ FV Cash A/R Inventory PPE Supplies Delivery van

Secured

Unsecured

40,320 112,896

6,720

Total Free asset Total free asset unsecured liabilities w/ priority wages payable 12,992 taxes payable 2,688 trustee 58,240 net free asset w/o priority Accounts payable Notes payable Partially secured liab. Estimated deficiency

Free Asset 8,960 103,040 38,080 5,600 56,000 211,680

211,860

73,920 137,760

134,400 42,560 6,720

183680 45,920


SMDC Corp. a closely-held corporation was undergoing liquidation. The total cash value of SMDC’s bankruptcy estate after the sale of all assets and payment of administrative expenses is P100,000.





























ANSWER:

Partially secured liability

72,000 9,500 81,500


A Company that was to be liquidated li quidated had the following liabilities: Income Taxes

10,000

Notes Payable secured by land

100,000

Accounts Payable

251,050

Salaries Payable

12,950

Administrative expenses or liquidation

20,000

The Company had the following assets: Current assets Land Building

Book Value

Fair Value

100,000

95,000

50,000

75,000

150,000

200,000

Determine the following: 1. Total free assets Current Asset FV

95,000

Building FV

200,000

Total assets

295,000






























The following data were taken from the statement of realization and liquidation of CRASHED CO.

Assets to be realized

1,375,000

Assets acquired

750,000

Supplementary credits

2,800,000

Assets realized

1,200,000

Liabilities to be liquidated

2,250,000

Liabilities assumed

1,625,000

Supplementary charges

3,125,000

Assets not realized

1,375,000

Liabilities liquidated

1,875,000

Liabilities not liquidated

1,700,000

The ending balance of capital stock and retained earnings are P1,500,000 and P238,000, respectively. A net loss of P738,000 was reported for the period. 1. What is the net gain/(loss) for the three-month period? a. (325,000) c. 425,000 b. 250,000 d. 750,000

Solution: Supplementary credits

2,800,000


2,250,000

Assets realized

1,200,000

Liabilities assumed

1,625,000

Assets not realized

1,375,000 9,250,000






























The following data were taken from the statement of realization and liquidation of Bagsak Corporation for the three month period ended December 31, 2018:

Assets to be realized

55,000

Assets acquired

60,000

Assets realized

70,000

Assets not realized

25,000


90,000

Liabilities assumed

30,000

Liabilities liquidated

60,000


75,000

Supplementary credits

85,000

Supplementary charges

78,000

What is the net income (loss) for the period?

ANSWER: Assets to be realized

55,000

Assets aquired

60,000


75,000































3.0 Joint Arrangements Arrangements

Problem 1 (ReSA)

The joint operation accounts in the books of the operators, X, Y and Z, show the balances below, upon termination of the joint arrangement and distribution of profits: Accounts With

X Dr. (Cr.)

X Y Z

4,000 (6,500)

Y Dr. (Cr.) 2,500 (6,500)

Final settlement of joint operations will require payments as follows: a. X pays 2,500 to Z and Y pays 4,000 to Z

b. Z pays 2,500 to X and 4,000 to Y c. Y pays 6,500 to X and Z pays 2,500 to Y d. None of these Solution: Joint Operations - X

Joint Operation - Y

Z Dr. (Cr.) 2,500 4,500 -































Debit Investment in Joint Arrangement Santos Salazar

Credit 9,000 500 2,000

The joint operations has still some undisposed merchandise, which Soriente agreed to purchase at its costs of P2,500. The bonus of Soriente has not yet taken up. 1. The net profit of the joint arrangement, after bonuss of Soriente is: a. 1,500 b. 9,000 c. 10,000 d. 11,500 2. The share of Santos in the joint arrangement is: a. 3,500 b. 3,600 c. 4,000 d. 4,600

Solution: 1.

Joint Operations Operations 9,000 2,500 11,500 (1,500) 10,000































1. What is the Investment in Basket Company balance (equity method) in Ace’s financial records as of December 31? a. 504,000 b. 507,600 c. 513,900 d. 516,000 2. The income form Investment in Basket Company in Ace’s financial records as of December 31? a. 36,000 b. 19,600 c. 12,000 d. 7,600

Solution: 1. Investment 500,000 Net Income (90,000x40%)

Invesment Balance

36,000

12,000 16,400

536,000

28,400

507,600

(30,000x40%) Dividends Amortization*































Problem 4 (ReSA)

K and L form a joint arrangement for the sale of certain merchandise. The joint operators agree to the following: K shall be allowed a commission of 10% on his net purchases, the joint operators shall be allowed commissions of 25% on their respective sales, and K and L shall divide the profit or loss 60% and 40% respectively. Joint arrangements transactions follow: Dec. 1: K make cash purchase of P57,000 Dec 3: L pays joint arrangement expenses of P9,000 Dec 5: Sales are as follows: K, P48,000; L, P36,000. The operators keep their own cash receipts Dec 7: K returns unsold merchandise and receives P15,000 cash Dec 15: The operators make cash settlement. 1. In the distribution of the balance bal ance in net profit of the joint arrangement, the shares of K and L: a. K, 4,260; L, 3,230 c. K, 4,820; L, 3,430 b. K, 4,680; L, 3,120 d. K, 4,840; L, 4,230 2. In the final cash settlement, L would pay K the amount of: a. 14,100 b. 14,880 c. 15,100 Solution: 1.

d. 15,890































Problem 5 (ReSA)

Panner Inc. owns 30% of Watkins and applies the equity method. During the current year, Panner buys inventory costing P54,000 and then sells its Watkins for P90,000. At the end of the year, Watkins still holds only P20,000 of merchandise. What amount of unrealized gross profit must Panner defer in reporting this investment using the equity method? a. 2,400 b. 4,800

c. 8,000 d. 10,800

Solution: Gross Profit Mark-up: 36,000/90,000 = 40% Inventory Remaining at year end x: Markup Unrealized profit in ending inventory x: Ownership Intercompany Unrealized profit in ending inventory

PROBLEM 6 (PRTC)

20,000 40% 8,000 30% 2,400

































2. Determine the net amount JJJ will show the Equipment in JO account in its balance sheet at December 31, 2018. A. P45,000 C. P60,000 B. P55,500 D. P58,500 Solution:

JJJ's Share in Current carrying value (200,000 * 90%) x 1/3

60,000

Unamortized deffered gain (5,000 * 90%) Equipment in JJJ's books, 12/31/18

(4,500) 55,500

3. Determine the net amount HHH (or III) will show the Equipment in JO account in its balance sheet at December 31, 2018. A. P45,000 C. P60,000

































PROBLEM 8 (PRTC)

TRINA and BELLA in a joint venture, contributed P30,000 each in order to purchase merchandise which were sold in lots at a closing-out sale. They agreed to divide their profits equally and each shall record her purchases, sales, and expenses in her own books. After almost all merchandise had been sold, they wind up their venture. The following are the venture transactions: Purchases of merchandise

TRINA P30,000

BELLA P30,000

Expenses paid from Jt Venture 3,000 Cash 3,900 Jt venture credit balances (24,000) (21,000) Undisposed merchandise upon termination of JV 900 1,400 All transactions for the joint venture are in cash. The venturers are to take over the unsold merchandise at cost.

































Cash on hand (57,000 - 3,000)

(54000)

(54,900 - 3,900) Cash paid/received

(51000) (1,250)

1,250

PROBLEM 9 (PRTC)

JRU CORPORATION, a joint venturer with a 50% equity in Joint Venture ABC INCORPORATED, prepared the following draft of its combined financial statements at December 31, 2018 before the year-end adjustments under the equity method. Revenues P10,800,000 Expenses 9,280,000 Profit 1,520,000 Ordinary shares 3,000,000

































Solution:

Share Capital

3,000,000

RE, 1/1

920,000

Profit Share from own operations

152,000

Profit share from JV

57,500

Shareholder's Equity

2,497,500 5,497,500

PROBLEM 10 (PRTC) 

On January 1, 2018 SME JV acquired a 35% equity of Z CORPORATION for

































3. What is the investment balance using the fair value model? A. P 52,325 B. P 57,575 4. What is the investment balance using the equity model? A. P38,850 B. P42,525

of SME JV at the end of the year in Z CORPORATION C. P49,000

D. P 47,075 of SME JV at the end of the year in Z CORPORATION C. P 34,125 D. P 36,750

Solution:

Investment Cost Transaction Cost Dividend Income Share of Profit (18,000 x 35%) Carrying Value, 12/31

37,000 1,850 -8,400 6,300 36,750



































ANSWER:

Barnes

Carter

Joint venture Cash

9,500

Joint venture 9,500

Barnes

9,500 9,500




































On March 1, 2018 entities A and B each acquired 30% of the ordinary shares that carry voting rights at a general meeting of shareholders of entity Z for P300,000. Entities A and B immediately agreed to share control over entity Z.




































On January 1, 2018 entities A and B each acquired 30% of ordinary shares that carry voting rights at a general meeting of shareholders of entity M for P100,000. The purchase price is equal to the fair value of 30% of entity M’s identifiable assts less 30%



































4.1 Revenue from Contracts with Customers Problem 1 (ReSA)

Hold Industries received a P2,000 prepayment from the Ramirez Company for the sale of new office furniture. Holt will bill Ramirez an additional P3,000 upon delivery of the



































Ownership of equipment installed remains with the City of San Fernando. The contract costs that should be capitalized is a. 460,000 b. 410,000

c. 360,000 d. 370,000

































































































































































































































































































































































































































































































































































































































































































































































































































































































































































Solution:

Remittance Charges: Advertising Delivery

3,165 120 75

195

Total proceeds from sales, net of 20% commission

3,360 /80%

Total sales price of the 7 handbags

4,200

2. The inventory of unsold handbags at September 30, 2015 was valued at A. P900 C. P891 B. P949 D. P1,120 Solution:

Cost (3xP300)

900

Freight (3/10 x P150)

45

Advertising (3/10 x P120)

36

Inventory of unsold handbags

981

PROBLEM 10 (PRTC)

The CCN Interior Designers and Manufacturers Corporation consigned 10 sala set to a furniture dealer. Manufacturing cost is P4,000 per set. Consignment profits are not recorded separately by the company. At the end of one month, the dealer reported the sale or 4 sets at P7,000 each and remitted the net sales proceeds after deducting the following: 20% commission on sets sold and P1,600 freight paid upon receipt of the 10 sets. 1. The entry on the books of CCN Interiors to record the shipment assuming consignment profits are calculated separately includes: A. a debit to Consignment Out of P70,000 B. a debit to Consignment In of P40,000 C. a credit to Merchandise Shipment on Consignment of P 40,000

D. a credit to Merchandise Inventory of P70,000 2. Cash remitted to the consignor was A. P20,000 C. P21,600 B. P20,800 D. P22,400 Solution: Sales (4 x P7,000) Charges: Commission (20% x P28,000) Freight Remittance

28,000 5,600 1,600

7,200 P20,800





























Solution:

Cost (6 x P4,000)

24,000

Freight (6/10 x P1,600)

960

Balance of Merchandise on Consignment account

24,960

4. Net profit on consignment sales was A. P4,160 C. P5,120 B. P4,800 D. P5,760 Solution:

Sales (4 x P7,000) Cost (4 x P4,000) Less: Commission Freight (4/10 x P1,600) Net profit on consignment

28,000 16,000 5,600 640

6,240 5,760

PROBLEM PROBLEM 11 (CRC-ACE )

On November 30, Northup Company consigned 90% freezers to Watson Company for sale at P1,600 each and paid P1,200 in transportation costs. A report of sales was received on December 30 from Watson reporting the Sale of 20 freezers, together with a remittance of the P27,200 balance due. The remittance was net of the agreed 15% commission. How much, and in what month, should Northup recognize as consignment sales revenue? November

December

a. P0

32,000

b. P0 c. P144,000 d. P142,800

27,200 0 0

ANSWER

A sole takes place when there Is a transfer of ownership of goods. A consignment does not transfer ownership of the goods to another person who is to sell the goods but the owner retains title to such goods until the consignee makes a bona fide sole. Since the soles of twenty (20) freezers were mode in December by the consignee (Watson). (Watso n). therefore, the soles revenue equivalent to th e number of freezers sold (i.e.. 20 freezers x P1,600 = P32.000) by the consignee should be recognized by the consignor.






























On August . I 2016, JBD. Inc. consigned to Mags store 10 ladies handbags costing P3,000 each, paying freight charge of P3,000. At the end of the month, Mags Store reported sales of 6 handbags at P6,000 each and expenses incurred of 2,500, and remitted the net proceeds due to JBD after deducting a 20% commission. How much net income did JBD realize in August on the consignment? a. 7,500 net income b. 6,500 net income

c. 6,700 net loss d. 6,500 net loss ANSWER Consignment Soles: P6,000 x 6……………………………………. P36,000

Less: Applicable costs and expenses related to consignment soles: Consigner: Cost of goods sold: P3.000 x 6 ................ P16,000 Freight: P3,030 x 6/10 …………………..……….. P 1,800

Consignee: E x p e n s e s … … … … … … … … …… …… … … … … … … … . P 2 , 5 0 0 Commission …………………………………………. .... P 7,200 P29,500 Net Income ………………………………………………………………………… P6,500


On November 1, 2016, the Western Appliance Center ships five (5) of its appliances to the ABC Store on consignment. Each unit is to be sold 'at-P25,000 payable P5,000 in the month of purchase and PI,000 per month thereafter. The consignee is to be entitled to, 20% of all amounts collected on consignment sales. ABC Store sells three (3) appliances in November and one (1) on December. Regular monthly collections are made by the consignee, and appropriate cash remittances are made to the consignor at the end of each month. The cost of the appliances shipped by the consignor was P15,500 per unit. The consignor consignor paid shipping costs to the consignee totaling P5,000. The cost of inventory on consignment on December 31, 2016? a. 15,500 b. 16,500

c. 19,600 d. 24,500





























ANSWER

The inventory on consignment amounted to P16,500 computed as follows: Charges Analysis Sales Inventory 4 sets 1 set Charges by consignor Cost of consigned (@ P15,500/set) P62,000 P15,500 Shipping cost 4,000 1,000 Charges by consignee: Commissions (20% of sales (25,030 x 4)] P20,000 Total P86,000

0 P16,500

Total 5 units goods P77,500 5,000

20,000 P102,500


On June 1 Bruce Company shipped 25 television sets to Lee Inc on consignment. The sets are to be sold at an advertised price of P20,000. The cost of each set to the consignor was 10,000. The cost of shipment paid by the consignor was P7,500. The consignor agreed to absorb the consignee’s expenditure for freight and also to

allow consignee P1,000 for delivery and installation of each set. Commission is to be 25% of the sales price. On June 30, Lee submitted the following summary of consignment sales: Sets received 25 Sets sold Sets returned to consignor (defective) Sets on hand June 3-30 Sales, 8 sets at P20,000 Charges: Freight – In Deliveries and initiation expenses Commissions Commis sions 25% of sales

8 2

10 15

P 5,000 P 8,000 8,000 P 40,000 40,000

Remitt ances enclosed enclose d Balances owned collections fr. customers not yet made Compute the inventory value of the units unsold in the hands of the consignee. a. 150,000 b. 153,000

53,000 53,000 107,000 25,000 25,000

82,000





























ANSWER

Charges by consignor Cost of consigned goods (@ P10,000/set) P10,000/set) Freight Freigh t Out

Sales 8 sets

Charges Analysis Inventory 15 sets

Total 25 sets

80,000 3,000

150,000 4,500

230,000 7,500

Charges by consignor Cost of consigned goods (@ P10,000/set) P10,000/set) Freight Freigh t Out Charges by consignee: Freight In (200 per set) 2,000 Delivery & Installation Installati on Commissions (25% of sales (20,000 x 8)] Total

Sales 8 sets

Charges Analysis Inventory 15 sets

Total 25 sets

80,000 3,000

150,000 4,500

230,000 7,500

2,000 8,000

3,000 0

5,000 8,000

40,000 133,000

0

40,000

157,500

290,500


In 2015, CCA Wholesales transferred goods to a retailer on consignment. The goods cost P90,000 and normally are sold at a 30% markup. In 2014, merchandise costing P24,000 was sold by the consignee at the normal markup, and the balance of the merchandise was returned to CCA Wholesalers. The consignee withheld a 10% commission from payment

Prepare journal entries to record the transfer of merchandise to the consignee, the sale of goods by the consignee and the remittance of the amount due the consignor.































ANSWER

Inventory on Consignment

90,000

Merchandise Inventory

90,000

To record transfer of merchandise to consignee

Consignee Receivable (P24,000 x 130%)

31,2000

Consignment Sales Revenue

31,200

To record consignment sales

Cost of

Consignment Goods Sold

24,000

Inventory on Consignment

24,000

To record cost of goods sold

66,000

Merchandise Inventory

66,000

Inventory on Consignment To record return of consigned goods

Commission Expense (P31.200 x 10%) Cash

3,120 3,12 0 28,080

Consignee Reed able

31,200





























Afar

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