Chapter I

PARTNERSHIP - FORMATION AND OPERATION

PROBLEM 1-1

(1)

December 31, 20x7

Merchandise Inventory 36,500

Profit and Loss 36,500

31
Supplies 1,250
Prepaid Expenses 475
Accrued Expenses 775
Operating Expenses 950

31
Operating Expenses 3,750
Allowance for Depreciation 3,750
Depreciation: 10/12 (20% of P 22,500), or P 3,750.

31
Sales 116,500
Returns and Allowances 2,500
Profit and Loss 114,000

31
Profit and Loss 130,800
Purchases 98,000
Operating Expenses 32,800

31
Alba, Drawing 10,000
Baylon, Drawing 15,000
Drawings 25,000

Profit and Loss 12,500

Alba, Drawing 12,500
Salary to Alba: 10/12 of P15,000, or P12,500.

31
Profit and Loss 720
Alba, Drawing 720
Bonus to Alba: 10% of P7,200 (P19,700-P12,500), or P720

31
Profit and Loss 6,480
Alba, Drawing 4,050
Baylon,, Drawing 2,430
Alba’s share of profits after salary and bonus : 62,500/100,000
x P 6,480, or P4,050.
Baylon’s share of profits after salary and bonus: 37,500/100,000

1
 x P 6,480, or P2,430.

31

Alba, Drawing 7,270

Baylon, Capital 12,570
Alba, Capital 7,270
Baylon, Drawing 12.570

(2)

ALBA AND BAYLON

Income Statement
For Ten Months Ended December 31, 20x7

Sales P 116,500
Less returns and allowances 2,500
Net Sales P 114,000
Cost of goods sold:
Purchases 98,000
Deduct merchandise inventory, December 31, 19x7 36,500 61,500
Gross Profit on sales P 52,500
Operating expenses 32,800
Net income P 19,700

ALBA AND BAYLON

Balance Sheet
December 31, 20x7

Assets Liabilities and Capital

Cash P 35,000 Payables P 30,000
Receivables 33,500 Accrued Expenses 775
Merchandise inventory 36,500 Alba, capital 69,770
Supplies 1,250 Baylon, capital 24,930
Prepaid expenses 475
Fixture P 22,500
Less allowance for
depreciation 3,750 18,750
Total Assets P 125,475 Total liabilities and capital P 125,475

ALBA AND BAYLON

Statement of Changes in Partners’ Capital Account
For Ten Months Ended December 31, 20x7

Alba Baylon Total

Capitals, January 1, 19x7 P 62,500 P 37,500 P 100,000
Distribution of net income of P 19,700 for 19x7:
Salary to alba 12,500 12,500
Bonus to Alba 720 720
Balance divided in ratio of original capitals 4,050 2,430 6,480
P 79,770 P 39,930 P 119,700
Less drawings 10,000 15,000 25,000
Capitals, December 31, 20x7 P 69,770 P 24,930 P 94,700

2
 PROBLEM 1-2

(1)
July 1, 20x7
Basa, Capital 1,800
Allowance for Bad Debts 1,800
Allowance for Bad Debts: 10% of P 18,000, or P 1,800

Basa, Capital 800

Accrued Expenses 800

Allowance for Bad Debts 1,800

Allowance for Depreciation 4,500
Creditors 13,800
Accrued Expenses 800
Basa, Capital 30,600
Cash 7,500
Customer 18,000
Inventory 16,000
Equipment 10,000

(2)
July 1, 20x7
Inventory 2,000
Caro, Capital 2,000

1
Caro, Capital 1,500
Allowance for Bad Debts: 10% of P 15,000, or P 1,500. 1,500

1
Goodwill 10,000
Caro, Capital 10,000

1
Cash 7,500
Customers 18,000
Inventory 16,000
Equipment 10,000
Allowance for Bad Debts 1,800
Allowance for Depreciation 4,500
Creditors 13,800
Accrued Expenses 800
Basa, Capital 30,600

1
Cash 3,400
Caro, Capital 3,400
Basa, Capital P 30,600= 40 % of total capital of new firm.
Total capital, then = P 30,600 / .40, or P 76,500.

Caro, Capital = 60 % of P 76,500 or P 45,900

Caro, Capital, prior to additional investment 42,500
P 3,400

3
 Caro, Capital
1,500 Beg. 32,000
12,000
3,400
End 45,900

(3)

BASA AND CARO

Balance sheet
July 1, 20x7
Assets

Current assets
Cash P 15,400
Customers P 33,000
Less allowance for bad debts 3,300 29,700
Inventory 30,000
Total current assets P 75,100
Equipment P 22,000
Less allowance for depreciation 6,000 16,000
Intangible assets:
Goodwill 10,000
Total assets 101,100

Liabilities and Capital

Liabilities
Current Liabilities:
Creditors P 23,800
Accrued expenses 800
Total current liabilities P 24,600

Capital
Basa, capital P 30,600
Caro, capital 45,900
Total capital 76,500
Total liabilities and capital 101,100

4
 PROBLEM 1-3

(Assuming that the articles of co-partnership will be amended the journal entries follow:)

(1)

Profit and Loss 30,000

Crosses, Capital 19,500
Demi, Capital 10,500
Crosses’ share of profits: 65 % of P 30,000, or P 19,500.
Demi’s share of profits: 35 % of P 30,000, or P 10,500.

(2)
Profit and Loss 30,000
Crosses, Capital 17,500
Demi, Capital 12,500
Crosses’ share of profits: 35, 000/60,000 x P 30,000, or P 17,500.
Demi’s share of profits: 25,000/60,000 x P 30,000, or P 12,500

(3)
Profit and Loss 30,000
Croses, Capital 20,000
Demi, Capital 10,000

Investment No.of Mo. Months x Month

Unchanged Investment Pesos
Crosses: P 35,000 4 P 140,000
50,000 5 250,000
40,000 3 120,000 P 510,000
Demi: 25,000 3 P 75,000
20,000 9 180,000 255,000
P 765,000

Crosses’ share of profits: 510,000/765,000 x P 30,000, or P 20,000.

Demi’s share of profits: 255,000/765,000 x P 30,000, or P 10,000.

(4)

Profit and Loss 5,100

Crosses, Capital 3,400
Demi, Capital 1,700
Croses’ interest on capital : 8 % of P 42,500
( P 510,000 / 12), or P 3,400.
Demi’s interest on capital: 8 % of P 21,250
( P 255,000 /12), or P 1,700.

Profit and Loss 24,900

Croses’ Capital 12,450
Demi, Capital 12,450

Note: The two entries given may be summarized by means of a

single
entry as follows:

5
Profit and Loss 30,000
Croses’ Capital 15,850
Demi, Capital 14,150

(5)

Profit and Loss 36,000

Croses’ Capital 20,000
Demi, Capital 16,000
Croses, Capital 4,000
Demi, Capital 2,000
Profit and Loss 6,000

Croses’ share of loss after salaries: 40,000/60,000

x P 6,000, or P 4,000.
Demi’s share of loss after salaries : 20,000/60,000
x P 6,000, or P 2,000.

Note: The two entries given may be summarized by means of a single

entry as follows:

Profit and Loss 30,000

Croses, Capital 16,000
Demi, Capital 14,000

(6)

Profit and Loss 7,500

Croses’ Capital 7,500

Calculation of Bonus to Croses:

1 1/3x = P 30,000 (Profit and Bonus)
x = P 22,500 (Profit)
1/3x = P 7,500 (Bonus)

Profit and Loss 22,500

Croses, Capital 13,125
Demi, Capital 9,375
Croses’ share of profits: 35,000/60,000 x P 22,500, or P 13,125.
Demi’s share of profits: 25,000/60,000 x P 22,500, or P 9,375.

Note: The two entries given may be summarized by means of a

single
entry as follows:

Profit and Loss 30,000

Croses, Capital 20,625
Demi, Capital 9,375

6
 PROBLEM 1-4

(1)

Profit and Loss 23,800

Claro, Capital 14,560
Dobson, Capital 9,240
Claro’s share of profits; 26,000/42,500 x P 23,800, or P 14,560.
Dobson’s share of profits: 16,500/42,500 x P 23,800, or P 9,240.

(2)

Profit and Loss 23,800

Claro, Capital 14,875
Dobson, Capital 8,925

Investment No. of Months x Month

Unchanged Investment Pesos
Claro: P 26,000 3 P 78,000
29,000 1 29,000
36,000 3 108,000
32,000 5 160,000 P 375,000

Dobson: P 16,500 5 P 82,500

21,500 3 64,500
19,500 4 78,000 P 225,000
P 600,000

Claro’s share of profits: 375,000/600,000 x P 23,800, or P 14,875.

Dobson’s share of profits: 225,000/600,000 x P 23,800, or P 8,925.

(3)

Profit and Loss 3,000

Claro, Capital 1,875
Dobson, Capital 1,125
Claro’s interest on capital: 6% of P 31,250
(P 375,000/ 12), or P 1,875.
Dobson’s interest on capital: 6% of P 18,750
(P 225,000/ 12), or P 1,125.

Profit and Loss 25,000

Claro, Capital 15,000
Dobson, Capital 10,000

Claro, Capital 2,100

Dobson, Capital 2,100
Profit and Loss 4,200

7
Loss, P 4,200 after allowance of interest and salaries, dividedequally.
Note: The three entries given may be summarized by means of a
single entry as follows:

Profit and Loss 23,800

Claro, Capital 14,775
Dobson, Capital 9,025

(4)

Profit and Loss 4,760

Claro, Capital 4,760
Calculation of bonus to Claro:
1.25 x = P 23,800 (Profit + Bonus)
x = P 19,040 ( Profit)
.25 x = P 4,760 (Bonus)

Profit and Loss 750

Claro, Capital 750
Interest to Claro (see part 3): P 1,875- P 1,125 = P 750.

Profit and Loss 18,290

Claro, Capital 10,974
Dobson, Capital 7,316
Claro’s share of profit after bonus and interest: 60% of P 18,290, or P 10,974.
Dobson’s share of profit after bonus and interest:40 % of P 18,290, or P 7,316

Note: The three entries given may be summarized as follows:

Profit and Loss 23,800

Claro, Capital 16,484
Dobson, Capital 7,316

(5)

Profit and Loss 23,800

Claro’s, Capital 14,280
Dobson, Capital 9,520
Claro’s share of profit: 1,500/2,500 x P23,800, or P 14,280.
Dobson’s share of profit: 1,000/2,500 x P 23,800, or P 9,520.

PROBLEM 1-5

(1)

December 31, 20x7

Equipment 2,700
Allowance for Depreciation of Equipment 270
Profit and Loss 2,430

8
Depreciation of equipment: 10% of P 2,700, or P270

31
Profit and Loss 875
Accrued Interest Payable 875
Accrued interest: 6% of P 17,500 for 10 months, or P 875.

31
Profit and Loss 19,500
Eva, Drawing 7,800
Galo, Drawing 11,700
Allowance of salaries:
Eva: P 150 per week for 52 weeks.
Galo: P 225 per week for 52 weeks.

31
Profit and Loss 2,461
Galo, Drawing 2,461
Calculation of bonus to Galo:
Net profit before the adjustments P 30,250
Add: Asset charged off as expense 2,430
P 32,680
Deduct: Interest charge P 875
Partners’ salaries 19,500 20,375
Net profit before bonus P 12,305
1.25 x = P 12,305 ( Profit + Bonus)
x = P 9,844 ( Profit)
.25 x = P 2,461 (Bonus)
31
Profit and Loss 9,844
Eva, Drawing 4,922
Galo, Drawing 4,922
31
If the articles of co-partnership will not be amended the following entry is not required.
Eva, Drawing 5,522
Galo, Drawing 6,583
Eva, Capital 5,522
Galo, Capital 6,583

(2)
EVA AND GALO
Statement of Changes in Partners’ Capital Account
For the year Ended December 31, 20x7
Eva Galo Total
Capitals, January 1, 19x7 P 50,000 P 50,000 P 100,000
Distribution of profit of P 31,805 for 19x7:
Salaries allowed to partners 7,800 11,700 19,500
Bonus to Galo as manager 2,461 2,461
Balance divided equally 4,922 4,922 9,844
P 69,722 P 69,083 P 131,805
Less drawings 7,200 12,500 19,700
Capitals, December 31, 19x7 P 55,522 P 56,583 P 112,105

9
 PROBLEM 1-6

MISA, NERO, AND OTIS

Statement of Changes in Partners’ Capital Accounts
For The Three Year Period, 20x5 to 20x7
Misa Nero Otis Total
Capitals, January 1, 20x5 40,000 24,000 20,000 84,000
Interest on capital for 20X5 2,400 1,440 1,200 5,040
42,400 25,440 21,200 89,040
Salaries allowed for 20X5 4,800 6,000 6,000 16,800
47,200 31,440 27,200 105,840
Loss for 20x5 after interest & salaries
(see Schedule A) 8,200 8,200 8,200 24,600
39,000 23,240 19,000 81,240
Personal withdrawals, 20x5 6,000 7,240 8,000 21,240
Capitals, December 31, 20x5 33,000 16,000 11,000 60,000
Interest on capital for 20X6 1,980 960 660 3,600
Salaries allowed for 20x6 4,800 6,000 6,000 16,800
39,780 22,960 17,660 80,400
Loss for 20x6 after interest & salaries
(see Schedule B) 2,800 2,800 2,800 8,400
36,980 20,160 14,860 72,000
Personal withdrawals, 20x6 6,980 8,160 8,860 24,000
Capitals, December 31, 20x6 30,000 12,000 6,000 48,000
Interest on capital for 20x7 1,800 720 360 2,880
Salaries allowed for 20x7 4,800 6,000 6,000 16,800
36,600 18,720 12,360 67,680
Bonus to Misa for 20x7 (see Schedule C) 1,620 1,620
Profits for 20x7 after interest, salaries, 2,700 2,700 2,700 8,100
and bonus (see Schedule D)
40,920 21,420 15,060 77,400
Personal withdrawals, 20x7 10,200 12,000 10,600 32,800
Capitals, December 31, 20x7 30,720 9,420 4,460 44,600

Schedule A:
Calculation of loss for 20x5 assigned to each partner after interest and salaries:
Loss before interest and salaries 2,760
Interest allowed to partners 5,040
Salaries allowed to partners 16,800
Loss for 20x5 24,600
Each partner shares equally: 24,600 /3 or 8,200

Schedule B:
Calculation of loss for 20x6 assigned to each partner after interest and
salaries:
Profit before interest and salaries 12,000
Interest allowed to partners (5,040)
Salaries allowed to partners (16,800)
Loss for 20x6 8,400
Each partner shares equally: 8,400/3, or 2,800

10
Schedule C:
Calculation of bonus to Misa for 20x7:
Profit after interest and salaries to partners = 19,400 - 2,880 - 16,800 = 9,720
1.2x = 9,720 (profit plus bonus)
x = 8,100 profit
.20x = 1,620 bonus

Schedule D:
Calculation of profit for 20x7 assigned to each partner after interest,
salaries and bonus:
Profit before interest, salaries, and bonus 29,400
Interest allowed to partners 2,880
Salaries allowed to partners 16,800
Bonus allowed to managing partner 1,620 21,300
8,100
Each partner shares equally: 8,100/3 = 2,700

PROBLEM 1-7

BENGZON AND DROZA

Statement of Changes in Partners’ Capital Accounts
For The Period January 1, 20x5 to September 1, 20x7
Bengzon, Droza, Capital Total
Capital
Balances, January 1, 20x5 40,000 60,000 100,000
Profit for 20x5 (Schedule A) 15,800 19,200 35,000
55,800 79,200 135,000
Drawings, 20x5 8,800 14,200 23,000
Balances, January 1, 20x6 47,000 65,000 112,000
Profit for 20x6 (Schedule B) 10,350 13,650 24,000
57,350 78,650 136,000
Drawings, 20x6 6,500 8,000 14,500
Balances, January 1,20x7 50,850 70,650 121,500
Profit to September 1, 20x7 (Schedule C) 3,120 5,380 8,500
53,970 76,030 130,000
Drawings, January 1 to September 1, 20x7 4,000 5,500 9,500
Balances before sale of assets, Sept. 1,20x7 49,970 70,530 120,500
Loss on sale of assets:
Owners total interest as above 120,500
Cash available to owners 90,000
Loss, distributed equally 30,500 15,250 15,250 30,500
Balances, September 1, 20x7 34,720 55,280 90,000
Distribution of cash in final settlement 34,720 55,280 90,000

Schedule A:
Net income before salaries and interest 35,000
Net income divided as follows: Bengzon Droza Total
Amount allowed as salaries 9,600 12,000 21,600
Amount allowed as interest 2,000 3,000 5,000
Balance distributed equally 4,200 4,200 8,400
15,800 19,200 35,000

Schedule B:

11
Net income before salaries and interest 24,000
Net income divided as follows:
Amount allowed as salaries 9,600 12,000 21,600
Amount allowed as interest 2,350 3,250 5,600
11,950 15,250 27,200
Less reductions made equally for amount by
which partners’ salaries and interest exceed net
income 1,600 1,600 3,200
Profit distribution for 20x6 10,350 13,650 24,000

Schedule C:
Net income before salaries and interest 8,500
Net income divided as follows:
Amount allowed as salaries 7,200 8,800 16,000
Amount allowed as interest 1,695 2,355 4,050
8,895 11,155 20,050
Less reductions made equally for amount by
which partners’ salaries and interest exceed net
income 5,775 5,775 11,550
Profit distribution, January 1 to Sept. 1, 20x7 3,120 5,380 8,500

PROBLEM 1-8

M, N, and O
Statement of Changes in Partner’s Capital and Loan Accounts
For The Period January 1 to November 1, 20x7
M, Capital N, Capital O, Capital M, Loan Total
Balance, January 1, 20x7 20,000 20,000 20,000 60,000
Loan to firm by M, April 1, 20x7 15,000 15,000
Equipment withdrawn by O (4,000) (4,000)
20,000 20,000 16,000 15,000 71,000
Loss, Jan. 1 to Nov.1
Loss on asset realization:-
Owners’ equity as above 71,000
Cash available 20,000
Loss on realization 51,000
Salary to O Mar.1 -Nov.1 6,000 6,000 6,000
Interest to M, 6% for
7 months on 15,000 525 525 525
Loss distributed equally 57,525 (19,175) (19,175) (19,175) (57,525)
Balances, November 1, 20x7 1,350 825 2,825 15,000 20,000
Distribution of cash in final
settlement 1,350 825 2,825 15,000 20,000

12
 PROBLEM 1-9

Nunez, Capital…………………………………………..512.50
Olin, Capital……………………………………………..166.67
Pasa, Capital…………………………………………….170.83
Marse, Capital……………………………………….. 850.00

Marse(40%) Nunez(30%) Olin(20%) Pasa (10%)

Charges for insurance in accordance with
agreement:
Premium on Marse, P3,500 charge to remain-
ing partners 30:20:10 1,750 1,166.67 583.33
Premium on Nunez,P1,400, charge to
remaining partners - 40:20:10 800.00 400,00 200.00
Premium on Olin, P2,300, charge to remain-
ing partners: 40:30:10 1,150.00 862.50 287.50
Premium on Pasa, P1,800, charge to remain-
ing partners: 40:30:20 800.00 600.00 400.00
2,758.00 3,212.50 1,966.67 1,070.83
Charges for insurance in profit and loss ratio 3,600.00 2,700.00 1,800.00 900.00
Undercharge or overcharge* 850.00* 512.50 166.67 170.83

13
 PROBLEM 1-10

THE TRADING COMPANY

Earnings Required To Provide
Minimum Income of P25,000 to Partner D
For The Year Ending, December 31,20x7
D (30%) E (30%) F (20%) G (20%) Total
Earnings requirement:
Interest allowed to partners on capi-
tal contributions 5,000 2,500 2,500 2,000 12,000
Salaries allowed to D and E 10,000 6,000 16,000
Additional profit required to bring
D’s share to P25,000 minimum 10,000 10,000 6,666.67 6,666.67 33,333.34
Additional profit required to bring
G’s share to P12,000 minimum 3,333.33 3,333.33
Total to partners 25,000 18,500 9,166.67 12,000.00 64,666.67

Minimum earnings if D is to receive

a P25,000 share in earnings 64.666.67

Proof: Earnings required 64,666.67

Amount allowed as interest:
D 5,000.00
E 2,500.00
F 2,500.00
G 2,000.00 12,000.00
52,666.67
Amount allowed as
salaries:
D 10,000.00
E 6,000.00 16,000.00
36,666.67

Amount allowed in
meeting guarantee to G of P12,000;
(12,000 - 2,000) 10,000.00
26,666.67
Balance of earnings divided among
D, E, and F: 30:30:20
D 10,000.00
E 10,000.00
F 6,666.67 26,666.67

14
 PROBLEM 1-11

X, Y, and Z
Statement of Changes in Partners’ Capital Accounts
For the Year Ended December 31, 20x7
X (60%) Y (30%) Z (10%) Total
Capitals, December 31, 20x7 60,000 (1,000) 10,000 69,000
Additions:
Net profit 75,000
Interest at 12% on ave. capitals 12,000 10,800 360 840 12,000
63,000
Allowed drawings: 22,000 10,000 7,000 5,000 22,000
Balance divided in P/L ratio 41,000 24,600 12,300 4,100 41,000
Capitals after distribution of net
income 105,400 18,660 19,940 144,000
Cash distribution to reduce capital
to P/L ratio (68,080) (13,720) (81,800)
37,320 18,660 6,220 62,200

Determination of Cash Distribution

Partners” equivalent capital balances:
X 105,400/ .60 = 175,666.67
Y 18,660/ .3 = 62,200
Z 19,940// .10 = 199,400
Y has the lowest equivalent capital balance.
X’s equivalent capital exceeds that of Y P113,466.67 (175,666.67 - 62,200)
Therefore, cash distribution is made to X of P68,080 (113,466.67 x .60).
Z’s equivalent capital exceeds that of Y by P137,200 (199,400 - 62,200)
Therefore, cash is made to Z of P13,720 (137,200 x .10)

15
 PROBLEM 1-12

B, C, AND D
Statement of changes in Partners’ Capitals
And Distribution of Cash
For Six Months Ended June 30, 20X7
B C D Total
Balances, January 1, 20x7 (Schedule A) 5,290 5,290 5,290 15,870
Net income, Jan 1 to June 30, 20x7
(Schedule B) 16,926 16,926 16,926 50,778
22,216 22,216 22,216 66,648
Cash withdrawals, Jan1 to June 30, 20x7 9,000 10,000 12,000 31,000
13,216 12,216 10,216 35,648
Distribution of assets other than cash, June
30
Office furniture & fixtures (1,500 - 525) 325 325 325 975
Books to B (900 - 225) 675 675
Automobile to B (2,000 - 800) 1,200 1,200
Automobile to C (1,000 - 300) 700 700
Automobile to D (3,000 - 900) 2,100 2,100
(2,200) (1,025) (2,425) (5,650)
Balances, June 30, 20x7 11,016 11,191 7,791 29,998
Distribution of cash in final settlement (11,016) (11,191) (7,791) (29,998)

Schedule A - Partners” capitals, January 1, 20X7:

Cash:
Cash in bank, June 30 29,998
Cash increase, Jan1 - June 30 -
Receipts 60,000
Disbursements 39,502 20,498
Cash balance, January 1, 20x7 9,500
Book value of assets other than cash 6,370
Total assets 15,870
Capitals: B, C, and D 5,290
Schedule B - Net income, Jan. 1 to June 30, 20X7:
Income (cash receipts) 60,000
Expenses
Rent 1,400
Wages and salaries 2,102
Entertainment 4,000
Automobile and miscellaneous 1,000
Depreciation - office furniture and fixtures 75
5%x1,500
Depreciation - books 5% 0f 900 45
Depreciation - autos 10% of 6,000 600 9,222
Net income (divided equally) 50,778

16
 PROBLEM 1-13
(1)
HOMER - IZA - JONI PARTNERSHIP
Schedule to Convert Net Income
From Accrual Basis to Cash Basis
Net income for 20x7 on accrual basis 14,000
Add: Net decrease in inventory 2,000
Net decrease in prepaid expenses 200
Net increase in accrued wages 2,000 4,200
18,200
Deduct: Net increase in net receivables 980
Net decrease in payables 3,000
Net decrease in deferred income 5,900 9,880
Net income for 20x7 on cash basis 8,320

(2)
HOMER-IZA-JONI PARTNERSHIP
Statement of Distribution of Net Income
For Year Ended December 31, 20x7
Homer Iza Joni Total
Interest 8,000 1,250 750 10,000
Balance, P14,000 less interest, equally 1,333 1,333 1,333 4,000
Net Income Distribution 9,333 2,583 2,084 14,000

PROBLEM 1-14

A, B, C, and D
Statement of Changes in Partners’ Capital Accounts
For Year Ending December 31, 20x7
Total A B C D
Balances, January 1, 20x7 53,000 20,600 10,600 21.800 -
Add: Fees - 20% of fees billed to
respective clients 9,000 4,400 2,400 2,200
20% of fees from new business 2,400 2,400
Balances to A, B, and C, 40:35:25 48,600 19,440 17,010 12,150
113,000 44,440 30,010 36,150 2,400
Deduct: Expenses - 20% of 4,000 800 800
Balance of expenses to A, B, C,
40:35:25 20,000 8,000 7,000 5,000
Excess rent chargeable to C 900 900
Uncollectible accounts, 1/1/20x7 1,650 1,200 450
Total expenses 23,350 9,200 7,450 5,900 800
Drawings 17,900 5,200 4,400 5,800 2,500
Balances, December 31, 20x7 71,750 30,040 18,160 24,450 (900)

Calculation of expenses:
Amount paid, excluding depreciation and bad debts 19,350
Add: depreciation on assets acquired from A, B, and C, 10% of P13,000 1,300
depreciation on assets acquired in 20x7, ½ of 10% of P5,000 250
20,900
Deduct excess rent to be charged to C 900
Total expenses before charges for bad debts 20,000
Bad debts 800
Total expenses 20,800

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 PROBLEM 1-15

1. If the total agreed new capitalization of the partnership is equal to

total contributions, the entry to record David’s admissions
follows:
Cash 18,000
David, Capital 18,000

Burgos, Capital 600

Carpio, Capital 900
David, Capital 1,500
Total credit to David is ¼ of P78,000 or P19,500; therefore he is given bonus of P1,500.

2. If the total agreed new capitalization of the partnership is based on David’s investment which is ¼,
then
the new capital is P72,000; therefore there is overvaluation of assets of P6,000. The entries are:
Burgos, Capital 2,400
Carpio, Capital 3,600
Assets or Allowance for Overvaluation of
Assets 6,000

Cash 18,000
David, Capital 18,000
The capital balance after David’s admission
Burgos 20,000 - 2,400 P17,600
Carpio 40,000 - 3,600 36,400
David 18,000
Total P72,000
3. If David’s interest is ¼, then the combined interests of Burgos and
Carpio is ¾. 60,000/ ¾ = P80,000 which is the agreed capital. A
goodwill will be recorded in favor of David.
Goodwill 2,000
Cash 18,000
David, Capital 20,000

PROBLEM 1-16
(a)

a)
Partners
A B C D Total
Capital balances before D’s admission 15,000 18,000 30,000 63,000
1/6 of B’s interest transferred to D (3,000) 3,000
D’s contribution 15,000 15,000
Goodwill to old partners (80,000 -
78,000) 30:30:40 600 600 800 2,000
Bonus to old partners (18,000- 16,000)
2,000 30:30:40 600 600 800 (2,.000)
Capital Balances after D’s admission 16,200 16,200 31,600 16,000 80,000

b) Profit and loss ration before D 30.0% 30.0% 40.0% 100%

D’s interest ( 7.5%) ( 7.5%) (10.0%) 25%
Profit/loss ration after D’s admission 22.5% 22.5% 30% 25% 100%

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 PROBLEM 1-17

(a) To determine the adjusted profit of the partnership for the years 20x4, 20x5, and 20x6
20x4 20x5 20x6
Profit per books 60,000 60,000 141,000
Items omitted at year end:
Accrued expenses, 20x5 2,000 2,000
20x6 6,000
Accrued income, 20x4 7,000 7,000
-20x5 5,000 5,000
Prepaid expenses, 20x4 4,000 4,000
20x5 6,000 6,000
Goods in transit omitted from
ending invty but included in 15,000 15,000
purchases
Bad debts allowance for
20x5 accounts 1,000
20x6 accounts 9,000
Accounts written off
20x4 accounts in 20x5 6,000 6,000
20x5 accounts in 20x6 3,000 3,000
Adjusted Profit 65,000 75,000 105,000
Totals 71,000 71,000 92,000 92,000 146,000 146,000

b) To determine contributions to or withdrawals by partners upon admission of Ramirez

Reyes Castro Cruz or Total
Ramirez
Original contributions 100,000 100,000 200,000
Cruz’s admission 160,000 160,000
Balances after Cruz admission 100,000 100,000 160,000 360,000
Adjustment to give Reyes, Castro and
Cruz equal interest 20,000 20,000 (40,000) -
Capital balances after adjustment 120,000 120,000 120,000 360,000
Add: Adjusted Profit:
20x4 32,500 32,500 65,000
20x5 37,500 37,500 75,000
20x6 35,000 35,000 35,000 105,000
225,000 225,000 155,000 605,000
Total capital 35:35:30 157,500 157,500 135,000 450,000
Partners’ withdrawal of cash 67,500 67,500 20,000 155,000

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 PROBLEM 1-18
(1)
(a) Statement of partners’ capital accounts for year ended December 31, 20x7:
Total X Y Z P
Capital balances, Jan.1, 20x7 79,500 30,900.00 15,900.00 32,700.00 -
Add-Share in net income (see “b”) 55,000 19,823.40 15,802.20 16,973.40 2,401
Total 134,500 50,723.40 31,702.20 49,673.40 2,401
Less- Drawings 26,850 7,800.00 6,600.00 8,700.00 3,750.00
Capital balances, Dec. 31, 20x7 107,650 42,923.40 25,102.20 40,973.40 ( 1,349)

(b)
Apportionment of net income for 20x7:
Fees billed 90,000
Less Expenses:
Total paid 29,000
Depreciation: 19,500 x 10% 1,950
7,500 x 10% x ½ 375
Bad debts: on accounts of X 1,800
on accounts of Y 675
on new business before Apr. 1 1,200 6,000 35,000
Net income 55,000
Apportionment of fees billed:

Total X Y Z P
20% of fees billed to respective
clients 13,500 6,600 3,600 3,300
20% of fees billed from new
business
after April 1 3,600 3,600
Balance to X, Y, and Z in the ratio
of 35:30:35 72,900 25,515 21,870 25,515
Total income 90,000 32,115 25,470 28,515 3,600
Apportionment of expenses:
Excess rent chargeable to Z 1,350 1,350
Bad debts:
Chargeable to X 1,800 1,800
Chargeable to Y 675 675
Chargeable to X, Y, and Z in the
ratio of 35:30:35 1,200 420 360 420
Balance of expenses:
Chargeable to P
20% of (18/90 x 29,975) 1,199 1,199
Balance chargeable to X, Y, and
Z in the ratio of 35:30:35 28,776 10,071.60 8,632.80 1,071.60
Total expenses 35,000 12,291.60 9,667.80 11,841.60 1,199
Apportionment of net income 55,000 19,823.40 15,802.20 16,973.40 2,401

20
 PROBLEM 1-19

1. c See computations.
2. d
3. d

1. Interest Salary Total

Asis 10,000 18,000 28,000
Basa 6,000 14,000 20,000
16,000 32,000 48,000
Remainder
2. Asis 10,000 18,000 3,000 31,000
Remainder 3,000 =3/5 ; therefore
remainder of profit is P5,000.
Basa 6,000 2,000 20,000
51,000
3. Asis 10,000 18,000 2,000 30,000
Basa 6,000 20,000
Total 16,000 50,000

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