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

2. Pedro Castro, Capital....................................................................... 200

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

4. Pedro Castro, Capital....................................................................... 100

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

5. Pedro Castro, Capital....................................................................... 800

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

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

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
Accounts Receivable.............................................................................. 16,000
Merchandise Inventory........................................................................... 20,000
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
Accounts Payable.................................................................................... 3,600
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

Allowance for Bad Debts........................................................................ 12,800

Accumulated Depreciation Delivery Equipment................................. 8,000
Accumulated Depreciation Fixtures.................................................... 91,200
Accounts Payable.................................................................................... 64,000
Notes Payable......................................................................................... 40,000
Accrued Taxes......................................................................................... 8,000
Sales, Capital.......................................................................................... 224,000
Cash................................................................................................. 4,800
Accounts Inventory......................................................................... 72,000
Merchandise Inventory.................................................................... 192,000
Prepaid Insurance............................................................................ 3,200
Delivery Equipment......................................................................... 48,000
Fixtures............................................................................................ 96,000
 Goodwill.......................................................................................... 32,000

Books of Roces (Books of the Partnership)

1. Adjusting Entries

(a) Roces, Capital......................................................................................... 1,600

Allowance for Bad Debts................................................................ 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
Accounts Receivable...................................................................................... 72,000
Merchandise Inventory.................................................................................. 192,000
Prepaid Insurance........................................................................................... 3,200
Delivery Equipment....................................................................................... 48,000
Fixtures ........................................................................................................96,000
Goodwill........................................................................................................ 32,000
Allowance for Bad Debts........................................................................ 12,800
Accumulated Depreciation Delivery Equipment................................. 8,000
Accumulated Depreciation Fixtures.................................................... 91,200
Accounts Payable.................................................................................... 64,000
Notes Payable......................................................................................... 40,000
Accrued Taxes......................................................................................... 8,000
Sales, Capital.......................................................................................... 224,000

b. Sales' books will be used by the partnership

Books of Roces

1. Adjusting Entries

See Requirement (a).

2. Closing Entry

Allowance for Bad Debts........................................................................ 1,600

Accumulated Depreciation Delivery Equipment................................. 12,800
Accumulated Depreciation Fixtures.................................................... 64,000
Accounts Payable.................................................................................... 104,000
Accrued Taxes......................................................................................... 6,400
Roces, Capital......................................................................................... 224,000
 Cash................................................................................................. 14,400
Accounts Receivable....................................................................... 57,600
Merchandise Inventory.................................................................... 132,800
Prepaid Insurance............................................................................ 4,800
Delivery Equipment......................................................................... 19,200
Fixtures............................................................................................ 144,000
Goodwill.......................................................................................... 40,000

Books of Sales (Books of the Partnership)

1. Adjusting Entries

See Requirement (a).

2. To record the investment of Roces.

Cash.............................................................................................................. 14,400
Accounts Receivable...................................................................................... 57,600
Merchandise Inventory.................................................................................. 132,800
Prepaid Insurance........................................................................................... 4,800
Delivery Equipment....................................................................................... 19,200
Fixtures ........................................................................................................144,000
Goodwill........................................................................................................ 40,000
Allowance for Bad Debts........................................................................ 1,600
Accumulated Depreciation Delivery Equipment................................. 12,800
Accumulated Depreciation Fixtures.................................................... 64,000
Accounts Payable.................................................................................... 104,000
Accrued Taxes......................................................................................... 6,400
Roces, Capital......................................................................................... 224,000

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.

Cash.............................................................................................................. 19,200
Accounts Receivable...................................................................................... 129,600
Merchandise Inventory.................................................................................. 324,800
Prepaid Insurance........................................................................................... 8,000
Delivery Equipment (net).............................................................................. 46,400
Fixtures (net).................................................................................................. 84,800
Goodwill .................................................................................................... 72,000
Allowance for Bad Debts........................................................................ 14,400
Accounts Payable.................................................................................... 168,000
Notes Payable......................................................................................... 40,000
Accrued Taxes......................................................................................... 14,000
Roces, Capital......................................................................................... 224,000
Sales, Capital.......................................................................................... 224,000

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
Accounts Receivable.............................................................................. 13,000
Merchandise Inventory........................................................................... 12,000
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
Accounts Receivable...................................................................................... 13,000
Merchandise Inventory.................................................................................. 12,000
Equipment ....................................................................................................3,000
 Other Assets................................................................................................... 9,000
Allowance for Bad Debts........................................................................ 1,000
Accounts Payable.................................................................................... 6,000
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

Liabilities and Capital

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

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

2. New Partnership Books

Cash........................................................................................................ 3,200
Accounts Receivable.............................................................................. 32,000
Merchandise............................................................................................ 40,000
Office Equipment.................................................................................... 10,000
Allowance for Bad Debts................................................................ 4,800
Accounts Payable............................................................................ 10,000
Notes Payable.................................................................................. 2,000
Toledo, Capital................................................................................. 68,400
To record the investment of Toledo.

Cash........................................................................................................ 22,800
Accounts Receivable.............................................................................. 24,000
Merchandise............................................................................................ 36,000
Toledo, Capital........................................................................................ 300
Allowable for Bad Debts................................................................. 2,400
Accounts Payable............................................................................ 16,000
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

Liabilities and Capital

Accounts payable........................................................................................... P 26,000

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