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
CashP100,000
Land300,000
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 capitalP200,000
Less:Non-cash asset contributed at market value
LandP 70,000
Building90,000
Mortgage Payable( 40,000)_120,000
Cash contributionP 80,000
1-5: d- Zero, because under the bonus method, a transfer of capital is only required.
1-6: b
ReyesSantos
CashP200,000P300,000
Inventory–150,000
Building–400,000
Equipment150,000
Mortgage payable________( 100,000)
Net asset (capital)P350,000P750,000
1-7: c
AABBCC
CashP 50,000
Property at Market ValueP 80,000
Mortgage payable( 35,000)
Equipment at Market Value______________P55,000
CapitalP 50,000P 45,000P55,000
2Chapter 1
1-8: a
PPRRSS
CashP 50,000P 80,000P 25,000
Computer at Market Value__25,000_________60,000
CapitalP 75,000P 80,000P 85,000
1-9: c
MariaNora
CashP 30,000
Merchandise inventoryP 90,000
Computer equipment160,000
Liability( 60,000)
Furniture and Fixtures 200,000________
Total contributionP230,000P190,000
Total agreed capital (P230,000/40%)P575,000
Nora’s interest______60%
Nora’s agreed capitalP345,000
Less: investment190,000
Cash to be investedP155,000
1-10: d
Roy Sam Tim
CashP140,000––
Office Equipment–P220,000–
Note payable_________( 60,000) ______
Net asset investedP140,000P160,000 P –
Agreed capitals, equally (P300,000/3) =P100,000
1-11: a
LaraMitra
CashP130,000P200,000
Computer equipment–50,000
Note payable_________( 10,000)
Net asset investedP130,000P240,000
Goodwill (P240,000 – P130,000) =P110,000
1-12: a
PerezReyes
CashP 50,000P 70,000
Office Equipment30,000–
Merchandise–110,000
Furniture100,000
Notes payable_______( 50,000)
Net asset investedP 80,000P230,000
Partnership – Basic Considerations and Formation3
Bonus Method:
Total capital (net asset invested)P310,000
Goodwill Method:
Net assets investedP310,000
Add: Goodwill (P230,000-P80,000)_150,000
Net capitalP460,000
1-13: b
Required capital of each partner (P300,000/2)P150,000
Contributed capital of Ruiz:
Total assetsP105,000
Less Liabilities__15,000__90,000
Cash to be contributed by RuizP 60,000
1-14: d
Total assets:
CashP 70,000
Machinery75,000
Building_225,000P370,000
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 capitalP400,000
Required capital of Cruz (P400,000 X 30%)P120,000
Less Assets already contributed:
CashP 30,000
Machinery and equipment25,000
Furniture and fixtures__10,000__65,000
Cash to be invested by CruzP 55,000
1-15: d
Adjusted assets of C Borja
CashP 2,500
Accounts Receivable (P10,000-P500)9,500
Merchandise inventory (P15,000-P3,000)12,000
Fixtures__20,000P 44,000
Asset contributed by D.
Arce:
CashP 20,000
Merchandise__10,000__30,000
Total assets of the partnershipP 74,000
4 Chapter 1
1-16: a
Cash to be invested by Mendez:
Adjusted capital of Lopez (2/3)
Unadjusted capitalP158,400
Adjustments:
Prepaid expenses17,500
Accrued expenses( 5,000)
Allowance for bad debts (5% X P100,000)_( 5,000)
Adjusted capitalP165,900
Total partnership capital (P165,900/2/3)P248,850
Multiply by Mendez’s interest ⅓
Mendez’s capitalP 82,950
Less Merchandise contributed__50,000
Cash to be invested by MendezP 32,950
Total Capital:
Adjusted capital of LopezP165,900
Contributed capital of Mendez__82,950
Total capitalP248,850
1-17: d
Moran, capital (40%)
CashP 15,000
Furniture and Fixtures_100,000P115,000
Divide by Moran’s P & L share percentage______40%
Total partnership capitalP287,500
Multiply by Nakar’s P & L share percentage______60%
Required capital of credit of Nakar:P172,500
Contributed capital of Nakar:
Merchandise inventoryP 45,000
Land15,000
Building__65,000
Total assetsP125,000
Less Liabilities__30,000P 95,000
Required cash investment by NakarP 77,500
1-18: c
Garcia’s adjusted capital (see schedule 1)P40,500
Divide by Garcia’s P & L share percentage______40%
Total partnership capitalP101,250
Flores’ P & L share percentage______60%
Flores’ capital creditP 60,750
Flores’ contributed capital (see schedule 2)__43,500
Additional cash to be invested by FloresP 17,250
Partnership – Basic Considerations and Formation 5
Schedule 1:
Garcia, capital:
Unadjusted balanceP 49,500
Adjustments:
Accumulated depreciation( 4,500)
Allowance for doubtful account( 4,500)
Adjusted balanceP 40,500
Schedule 2:
Flores capital:
Unadjusted balanceP 57,000
Adjustments:
Accumulated depreciation ( 1,500)
Allowance for doubtful accounts( 12,000)
Adjusted balanceP 43,500
1-19: d
OrtizPonceTotal
( 60%)( 40%)
Unadjusted capital balancesP133,000P108,000P241,000
Adjustments:
Allowance for bad debts( 2,700)( 1,800)( 4,500)
Inventories3,0002,0005,000
Accrued expenses_( 2,400)( 1,600)( 4,000)
Adjusted capital balancesP130,900 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 RoxasP296,875
Multiply by Roxas’ interest______20%
Cash to be invested by RoxasP 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 GomezP 90,000
Cash to be invested by Jocson:
Adjusted capital of Jocson:
Total assets (at agreed valuations)P180,000
Less Accounts payable__48,000P132,000
Required capital of Jocson_180,000
Cash to be invested by JocsonP 48,000
6Chapter 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, capitalP 65,000
1-22: c
Total partnership capital (P113,640/1/3)P340,920
Less David’s capital_113,640
Cortez’s capital after adjustmentsP227,280
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 adjustmentsP211,200
1-23: a
Total assets at fair value P4,625,000
Liabilities (1,125,000)
Capital balance of FlorP3,500,000
1-24: c
Total capital of the partnership (P3,500,000 ÷ 70%)P5,000,000
Eden agreed profit & loss ratio30%
Eden agreed capital 1,500,000
Eden contributed capital at fair value 812,000
Allocated cash to be invested by EdenP 688,000
1-25: c
__Rey __Sam_ __Tim __Total_
Contributed capital (assets-liabilities)P471,000 P291,000 P195,000 P957,000Agreed 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
WithdrawalP 15,000
Partnership – Basic Considerations and Formation 7
1-27: a
Total agreed capital (210,000 ÷ 70%) P300,000
Nora’s interest 30%
Agreed capital of NoraP 90,000
Cash invested 42,000
Cash to be invested by NoraP 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 capitalP100,000P84,000P184,000
Agreed capital 92,000 92,000 184,000
Capital investedP( 8,000)P 8,000 –
8Chapter 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, Capital600
Merchandise Inventory600
2.Pedro Castro, Capital200
Allowance for Bad Debts200
3.Accrued Interest Receivable35
Pedro Castro, Capital35
Computation:
P1,000 x 6% x 3/12=P15
P2,000 x 6% x 2/12=_20
TotalP35
4.Pedro Castro, Capital100
Accrued Interest Payable100
(P4,000 x 5% x 6/12 = P100)
5.Pedro Castro, Capital800
Accumulated Depreciation – Furniture and Fixtures800
6.Office Supplies400
Pedro Castro, Capital400
To record the investment of Jose Bunag.
Cash15,067.50
Jose Bunag, Capital15,067.50
Computation:
Pedro Castro, Capital
(1)P600P31,400
(2)20035(3)
(4)100400(6)
(5)___800
P1,700P31,835
P30,135
Jose Bunag, Capital:1/2 x P30,135 = P15,067.50
Partnership – Basic Considerations and Formation 9
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 Payable4,000
Accounts Payable10,000
Accrued Interest Payable100
Allowance for Bad Debts1,200
Accumulated Depreciation – Furniture and Fixtures1,400
Pedro Castro, Capital30,135
Cash6,000
Notes Receivable3,000
Accounts Receivable24,000
Accrued Interest Receivable35
Merchandise Inventory7,400
Office Supplies400
Furniture and Fixtures6,000
New Partnership Books
To record the investment of Pedro Castro.
Cash6,000
Notes Receivable3,000
Accounts Receivable24,000
Accrued Interest Receivable35
Merchandise Inventory7,400
Office Supplies400
Furniture and Fixtures6,000
Notes Payable4,000
Accounts Payable10,000
Accrued Interest Payable100
Allowance for Bad Debts1,200
Accumulated Depreciation – Furniture and Fixtures1,400
Pedro Castro, Capital30,135
To record the investment of Jose Bunag.
Cash15,067.50
Jose Bunag, Capital15,067.50
10Chapter 1
2. Castro and Bunag Partnership
Balance Sheet
October 1, 2008
A s s e t s
CashP21,067.50
Notes receivable3,000.00
Accounts receivableP 24,000
Less Allowance for bad debts___1,20022,800.00
Accrued interest receivable35.00
Merchandise inventory7,400.00
Office supplies400.00
Furniture and fixtures6,000
Less Accumulated depreciation___1,400__4,600.00
Total AssetsP59,302.50
Liabilities and Capital
Notes payableP 4,000.00
Accounts payable10,000.00
Accrued interest payable100.00
Pedro Castro, Capital30,135.00
Jose Bunag, Capital_15,067.50
Total Liabilities and CapitalP59,302.50
Problem 1 – 2
Contributed Capitals:
Jose:Capital before adjustmentP 85,000
Notes Payable62,000
Undervaluation of inventory13,000
Underdepreciation( 25,000)P 135,000
Pedro:Cash28,000
Pablo:Cash11,000
Marketable securities_57,500___68,500
Total contributed capitalP 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
TotalP231,500
Partnership – Basic Considerations and Formation 11
Goodwill Method. To have a goodwill, the only possible base is the capital of Pablo. The computation is:
ContributedAgreed
CapitalCapitalGoodwill
JoseP135,000P137,000 (50%)2,000
Pedro28,00068,500 (25%)40,500
Pablo__68,500__68,500 (25%)_____–
TotalP231,500274,00042,500
Total agreed capital (P68,500 25%) = 274,000
Jose, Pedro and Pablo Partnership
Balance Sheet
June 30, 2008
Bonus MethodGoodwill Method
Assets:
CashP 49,000P 49,000
Accounts receivable (net)48,00048,000
Marketable securities57,50057,500
Inventory85,00085,000
Equipment (net)45,00045,000
Goodwill______–__42,500
TotalP284,500P327,000
Liabilities and Capital:
Accounts payableP 53,000P 53,000
Jose, capital (50%)115,750137,000
Pedro, capital (25%)57,87568,500
Pablo, capital (25%)__57,875__68,500
TotalP284,500P327,000
Problem 1 – 3
1.Books of Pepe Basco
To adjust the assets.
a.Pepe Basco, Capital3,200
Estimated Uncollectible Account3,200
b.Pepe Basco, Capital500
Accumulated Depreciation – Furniture and Fixtures500 12Chapter 1
To close the books.
Estimated Uncollectible Account4,800
Accumulated Depreciation – Furniture and Fixtures1,500
Accounts Payable3,600
Pepe Basco, Capital31,500
Cash400
Accounts Receivable16,000
Merchandise Inventory20,000
Furniture and Fixtures5,000
2.Books of the Partnership
To record the investment of Pepe Basco.
Cash400
Accounts Receivable16,000
Merchandise Inventory20,000
Furniture and Fixtures5,000
Estimated Uncollectible account4,800
Accumulated Depreciation – Furniture and Fixtures1,500
Accounts Payable3,600
Pepe Basco, Capital31,500
To record the investment of Carlo Torre.
Cash47,250
Carlo Torre, Capital47,250
Computation:
Pepe Basco, capital (Base)P31,500
Divide by Pepe Basco’s P & L ratio___40%
Total agreed capitalP78,750
Multiply by Carlo Torre’s P & L ratio___60%
Cash to be invested by Carlo TorreP47,250
Problem 1 – 4
a.Roces’ books will be used by the partnership
Books of Sales
1.Adjusting Entries
(a)Sales, Capital3,200
Accumulated Depreciation – Fixtures3,200
(b)Goodwill32,000
Sales, Capital32,000
Partnership – Basic Considerations and Formation 13
2.Closing Entry
Allowance for Bad Debts12,800
Accumulated Depreciation – Delivery Equipment8,000
Accumulated Depreciation – Fixtures91,200
Accounts Payable64,000
Notes Payable40,000
Accrued Taxes8,000
Sales, Capital224,000
Cash4,800
Accounts Inventory72,000
Merchandise Inventory192,000
Prepaid Insurance3,200
Delivery Equipment48,000
Fixtures96,000
Goodwill32,000
Books of Roces (Books of the Partnership)
1.Adjusting Entries
(a)Roces, Capital1,600
Allowance for Bad Debts1,600
(b)Accumulated Depreciation – Fixtures16,000
Roces, Capital16,000
(c)Merchandise Inventory8,000
Roces, Capital8,000
(d)Goodwill40,000
Roces, Capital40,000
2.To record the investment of Sales.
Cash4,800
Accounts Receivable72,000
Merchandise Inventory192,000
Prepaid Insurance3,200
Delivery Equipment48,000
Fixtures96,000
Goodwill32,000
Allowance for Bad Debts12,800
Accumulated Depreciation – Delivery Equipment8,000
Accumulated Depreciation – Fixtures91,200
Accounts Payable64,000
Notes Payable40,000
Accrued Taxes8,000
Sales, Capital224,000
14Chapter 1
b.Sales’ books will be used by the partnership
Books of Roces
1.Adjusting Entries
See Requirement (a).
2.Closing Entry
Allowance for Bad Debts1,600
Accumulated Depreciation – Delivery Equipment12,800
Accumulated Depreciation – Fixtures64,000
Accounts Payable104,000
Accrued Taxes6,400
Roces, Capital224,000
Cash14,400
Accounts Receivable57,600
Merchandise Inventory132,800
Prepaid Insurance4,800
Delivery Equipment19,200
Fixtures144,000
Goodwill40,000
Books of Sales (Books of the Partnership)
1.Adjusting Entries
See Requirement (a).
2.To record the investment of Roces.
Cash14,400
Accounts Receivable57,600
Merchandise Inventory132,800
Prepaid Insurance4,800
Delivery Equipment19,200
Fixtures144,000
Goodwill40,000
Allowance for Bad Debts1,600
Accumulated Depreciation – Delivery Equipment12,800
Accumulated Depreciation – Fixtures64,000
Accounts Payable104,000
Accrued Taxes6,400
Roces, Capital224,000
Partnership – Basic Considerations and Formation 15
c.A new set of books will be opened by the partnership
Books of Roces
1.Adjusting Entries
See Requirement (a).
2.Closing Entry
See Requirement (b).
Books of Sales
1.Adjusting Entries
See Requirement (a).
2.Closing Entry
See Requirement (a).
New Partnership Books
To record the investment of Roces and Sales.
Cash19,200
Accounts Receivable129,600
Merchandise Inventory324,800
Prepaid Insurance8,000
Delivery Equipment (net)46,400
Fixtures (net)84,800
Goodwill72,000
Allowance for Bad Debts14,400
Accounts Payable168,000
Notes Payable40,000
Accrued Taxes14,000
Roces, Capital224,000
Sales, Capital224,000
16Chapter 1
Problem 1 – 5
1.To close Magno’s books.
Allowance for Bad Debts1,000
Accounts Payable6,000
Notes Payable10,000
Accrued Interest Payable300
R. Magno, Capital24,700
Cash5,000
Accounts Receivable13,000
Merchandise Inventory12,000
Equipment3,000
Other Assets9,000
2.To adjust the books of Lagman.
Goodwill8,000
Allowance for Bad Debts210
J. Lagman, Capital7,790
3.To record the investment of Magno.
Cash5,000
Accounts Receivable13,000
Merchandise Inventory12,000
Equipment3,000
Other Assets9,000
Allowance for Bad Debts1,000
Accounts Payable6,000
Notes Payable10,000
Accrued Interest Payable300
R. Magno, Capital24,700
To adjust the investments of the partners.
Cash10,300
R. Magno, Capital10,300
(P35,000 – P24,700 = P10,300)
J. Lagman, Capital35,790
Cash23,300
Accounts Payable to J. Lagman12,490
(P63,000 + P7,790 = P70,790 – P35,000 = P35,790)
Partnership – Basic Considerations and Formation 17
4. Lagman and Magno
Balance Sheet
December 31, 2008
A s s e t s
CashP –
Accounts receivableP34,000
Less Allowance for bad debts1,21032,790
Merchandise inventory21,000
Equipment8,000
Other assets46,000
Goodwill___8,000
Total AssetsP115,790
Liabilities and Capital
Accounts payableP 18,000
Notes payable15,000
Accrued interest payable300
Accounts payable to J. Lagman12,490
J. Lagman, capital35,000
R. Magno, capital__35,000
Total Liabilities and CapitalP115,790
Problem 1 – 6
1.Books of Toledo
Toledo, Capital4,800
Allowance for Bad Debts (15% x P32,000)4,800
Books of Ureta
Ureta, Capital2,400
Allowance for Bad Debts (10% x P24,000)2,400
Cash (90% x P12,000)10,800
Loss from Sale of Office Equipment1,200
Office Equipment12,000
Toledo, Capital (1/4 x P1,200)300
Ureta, Capital900
Loss from Sale of Office Equipment1,200
18Chapter 1
2.New Partnership Books
Cash3,200
Accounts Receivable32,000
Merchandise40,000
Office Equipment10,000
Allowance for Bad Debts4,800
Accounts Payable10,000
Notes Payable2,000
Toledo, Capital68,400
To record the investment of Toledo.
Cash22,800
Accounts Receivable24,000
Merchandise36,000
Toledo, Capital300
Allowable for Bad Debts2,400
Accounts Payable16,000
Ureta, Capital64,700
To record the investment of Ureta.
3.Cash3,400
Ureta, Capital3,400
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 partnershipP136,200
Multiply by Ureta’s profit share percentage____50%
Agreed capital of UretaP 68,100
Ureta, capital__64,700
Cash contribution of UretaP 3,400
or
Toledo, capital (P68,400 – P300)P 68,100
Less Ureta, capital__64,700
Cash contribution of UretaP 3,400
Partnership – Basic Considerations and Formation 19
4. Toledo and Ureta Partnership
Balance Sheet
July 1, 2008
A s s e t s
CashP 29,400
Accounts receivableP56,000
Less Allowance for bad debts__7,20048,800
Merchandise76,000
Office equipment__10,000
Total AssetsP164,200
Liabilities and Capital
Accounts payableP 26,000
Notes payable2,000
Toledo, capital68,100
Ureta, capital__68,100
Total Liabilities and CapitalP164,200
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