EXERCISES

1-1 On December 31, 2016, Lakers Company had total assets of P 320,000 and total liabilities of P
90,000. During 2017, the company had total revenues of P 280,000 and total expenses of P 230,000.
Also, during 2017, the owner withdrew P 30,000. On December 31, 2017, total assets were P 420,000.

320,000=90,000+Owner’s Equity Compute the owner’s equity on December 31,

Owner’s Equity = 320,000-90,000 1. 2016
Owner’s Equity = 230,000
Net Income = Revenues – Expenses Compute the net income for the year 2017.
Net Income = 280,00 – 230,000 2.
Net Income = 50,000
420,000= L + (230,000 – 30,000 +280,000 -230,000) Compute the total liabilities on December 31,
420,000= L + 250,000 3. 2017.
420,000 – 250,000 = L
L =170,000
Owner’s Equity = 420,000 – 170,000 Compute the owner’s equity on December 31,
Owner’s Equity = 250,000 4. 2017

1.2 On March 1, 2017, Kobe Bryant started his business, Kobe Laundry Services, by investing cash of P
280,000. During the month, he earned service revenue on account, P 200,000. He also paid utilities
expenses amounting to P 14,000; wages of P 40,000 and rent expense for the month of P 24,000. He
later collected partially the account of customers amounting to P 60,000. At the end of the month,
he received a bill for advertising for the month of March payable in April, amounting to P 20,000.

Owner’s Equity= Compute the owner’s equity on March 31, 2017

280,000 Bryant, Capital 5.
+200,000 Revenue
-14,000 Utilities Expense
-40,0000 Wage Expense
-24,000 Rent Expense
-20,000 Advertising Expense
Owner’s Equity End = 382,000
Assets = Compute the total assets on March 31, 2017
280,000 Cash Investment 6.
+200,000 Service Revenue on account
-14,000 Payment of Utilities
-40,000 Payment of Wages
-24,000 Payment of Rent Expense
+60,000 Collected Cash
-60,000 Collected AR
Assets = 402,000
Liabilities = 402,000 – 382,000 Compute the total liabilities on March 31, 2017.
Liabilities = 20,000 7.

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Net Income = 200,000 – (14,000+40,000+24,000+20,000) Compute the net income for the month of March
Net Income = 200,000 – 98,000 8. 2017
Net Income = 102,000

1-3 During the current year, the assets of Clipper’s Company increased by P 232,000 and the
liabilities decreased by P 54,000. If the owner’s equity in the business is P 620,000 at the
end of the year, how much is the owner’s equity at the beginning of the year?
A = Beginning Assets
L = Beginning Liabilities
A – L = END OE

A+232,000 = (L – 54,000) + 620,000

A-L = 620,000 – 54,0000 -232,000
A-L = 334,000

1-4 The balance sheet of Miami Company shows owner’s equity of P 680,000, which is equal to
2/3 of the amount of total assets. What is the amount of total assets? Total liabilities?

680,000/(2/3) = L + 680,000
1,020,000 = L + 680,000
L = 1,020,000 - 680,000
L = 340,000

A=1,020,000; L=340,000; OE=680,000

1-5 The following data relates to Warriors Company:

Withdrawals by the owner P 56,000

Total revenues during the year 308,000
Owner’s equity, January 1 220,000
Additional investments 94,000
Total expenses during the year 232,000

How much is the owner’s equity at the end of the year?

Owner’s equity, January 1 220,000

Additional investments 94,000
Withdrawals by the owner (56,000)
Total revenues during the year 308,000
Total expenses during the year (232,000)
Owner’s Equity, end 334,000

1-6 Given are the following selected data of Thunder Repair Service Company
Revenue from professional services rendered for cash P 490,000
Revenue from professional services rendered on account 160,000
Additional investment by the owner 104,000
Cash collected from account customers 230,000

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 Operating expenses incurred on account 48,000
Operating expenses incurred for cash 140,000
Cash withdrawn by the owner 76,000

Compute for the net income of the company.

Revenue from professional services rendered for cash 490,000
Revenue from professional services rendered on account 160,000
Operating expenses incurred on account (48,000)
Operating expenses incurred for cash (140,000)
Net Income 462,000

1-7 You are given the following data:

December 31, 2016 December 31, 2017

Assets P 520,000 P 670,000
Liabilities ? 300,000

During 2017: Net loss, P 20,000; Additional investment, P 35,000; Drawings, P 60,000

Compute for the beginning balance of liabilities.

Beginning OE = 670,000-300,000+20,000-35,000+60,000
Beginning OE = 415,000

Beginning L = 520,000-415,000
Beginning L = 105,000

1-8. The following trial balance did not balance.

JERRY WEST, CPA

Trial Balance
December 31, 2017

Debit Credit

Cash 28,400 +2700

Accounts receivable 22,310-2700
Supplies 30,000-23400
Office equipment 50,000+23400
Accounts payable 46,600+540
Jerry West, Capital 90,000
Jerry West, Drawing _8,000+5000
Professional fees 42,660+8010
Salaries expense 24,000+6000-
5000
Advertising expense 9,100-5000
Rent expense 4,000

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 Utilities expense 5,000+2500+2500
Miscellaneous expense 1,000

181,810 179,260

The following errors were detected:

1. Cash received from a customer on account was debited for P 4,700 and Accounts Receivable was
credited for the same amount. The actual collection was for P 7,400.
2. The purchase of a computer on account for P 23,400 was recorded as a debit to supplies for P
23,400 and a credit to Accounts payable for P 23,400.
3. Services were performed on account to a client for P 8,900. Accounts receivable was debited for P
8,900 while Professional fees was credited for P 890.
4. A debit posting to Salaries expense of P 6,000 was omitted.
5. A payment on account for P 2,060 was credited to Cash for P 2,060 but debited to Accounts payable
for P 2,600.
6. The withdrawal of P 5,000 cash by the owner for his personal use was debited Salaries expense.
7. Utilities expense of P 2,500 was posted as a credit rather than a debit.
8. The balance of Advertising expense is P 4,100 but it was listed as P 9,100 on the trial balance.

Required: Prepare a corrected trial balance.

JERRY WEST, CPA

Trial Balance
December 31, 2017

Debit Credit

Cash 31,100
Accounts receivable 19,610
Supplies 6,600
Office equipment 73,400
Accounts payable 47,140
Jerry West, Capital 90,000
Jerry West, Drawing 13,000
Professional fees 50,670
Salaries expense 25,000
Advertising expense 4,100
Rent expense 4,000
Utilities expense 10,000
Miscellaneous expense 1,000

187,810 187,810

1-9 Given the following independent cases, answer the following:

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1. On June 1, 2017, ABC Company collected a total of P 43,200 as payment in advance of a one-
year subscription contract to a monthly magazine from a client beginning June 1, 2017. Give
the entries needed to record (a) the receipt of the subscription fees and (b) to adjust the
accounts on December 31, 2017 using the liability method and the revenue method.

Liability Method Income Method

Cash 43,200 Cash 43,200
Unearned Revenue 43,200 Fees Earned 43,200

Adjustment Adjustment

Unearned Revenue 25,200 Fees Earned 18,000

Fees Earned 25,200 Unearned Revenue 18,000

2. Sincere Company incurs salaries at the rate of P 12,600 per day. It pays the employees every
Saturday for a 6 day work-week. The last payday was January 27. Give the adjusting entry
on January 31.
Salaries Expense 37,800
Salaries Payable 37,800
3. Gonzales and Mendoza, a law firm, performed legal services in late December, 2017 for
clients. The P 42,000 of the services will be billed to the clients in January, 2018. Give the
adjusting entry that is necessary on December 31, 2017 if the financial statements are
prepared at the end of each month.
Accounts Receivable 42,000
Service Revenue 42,000
4. Assume that a company acquires a building on January 1, 2017 at a cost of P 1,410,000. The
building has an estimated useful life of 25 years and an estimated residual value of P
150,000. What adjusting entry is needed on December 31, 2017 to record the depreciation
for the entire year?

Depreciation Expense = (1,410,000-150,000)/(1/25)

Depreciation Expense = 50,400

Depreciation Expense 50,400

Accumulated Depreciation 50,400

5. Give the adjusting entries needed as of December 31, the last day of the current year. Show
your computations after each entry.
(a) The balance of the supplies account is a debit of P 14,125. The inventory of supplies on
December 31 amounts to P 4,220.

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 Supplies Expense 9,905
Supplies 9,905
(b) The insurance expense account has a debit balance of P 46,800 which represent a one-
year insurance premium paid in advance on October 1.
Prepaid Insurance 35,100
Insurance Expense 35,100
(c) The balance of the prepaid rent account is a debit of P 27,000 which represent a 6-month
rent received in advance on October 15.
Rent Expense 11,250
Prepaid Rent 11,250
(d) The taxes expense account includes a debit of P 64,800 which represent an advance
payment of taxes for one year beginning April 30.
Prepaid tax 21,600
Tax expense 21,600
(e) The advertising expense account includes a debit of P 111,072 which represent the cost
of an advertising contract to publish the company ad in 52 consecutive issues of weekly
magazine. As of December 31, advertisements had appeared in 32 issues already.
Prepaid Advertisement 42,720
Advertising Expense 42,720
(f) The balance of the equipment account is a debit of P 235,200 which represent the cost
of office equipment purchased at the beginning of the year. This equipment was
estimated to have a life of 15 years with a residual value of P 9,600.
Depreciation Expense – Equipment 15,040
Accumulated Depreciation – Equipment 15,040
(g) An automobile was acquired on July 1 at a cost of P 720,000. This automobile was
estimated to have a life of 8 years with a residual value of P 90,000.
Depreciation Expense – Equipment 39,375
Accumulated Depreciation – Equipment 39,375
6. Give the adjusting entries needed as of December 31, the end of the current fiscal year.
Show your computations after each entry.
(a) The rent revenue account showed a credit balance of P 48,000 which represent a 6-
month rent received in advance from a tenant on October 31.
Rent Revenue 32,000
Unearned Revenue 32,000
(b) The balance of the unearned commissions account is a credit of P 35,100 which represent
commissions received in advance for selling one dozen computer sets. As of December
31, only 5 computer sets were sold.
Unearned commission 14,625
Commission 14,625
(c) Service fees of P 264,000 were collected for one year in advance on April 1. These are
credited to Unearned Service Fees when received.
Unearned Service Fees 198,000
Service Fees 198,000
(d) Subscriptions income has a credit balance of P 14,040 which represent a one-year
subscription to a monthly magazine received in advance on May 31.
Subscription Income 5,850

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 Unearned Subscription income 5,850
(e) The company pays a total of P 90,000 every Friday for a 5-day work week ending Friday.
Assume that the last day of the year falls on a Wednesday.
Wages Expense 54,000
Wages Payable 54,000
(f) The company had rendered services to a client towards the end of December. The bill
for P 14,100 will be sent in January of the following year.
Accounts Receivable 14,100
Service Revenue 14,100

1-10 Prepare the adjusting entries on December 31, 2017, the end of the annual accounting
period, on the following independent data. Show your computations after each entry.

1. The Insurance Expense account had a debit balance on December 31, 2017 of P 72,000
representing premium for a 2-year fire insurance policy effective October 1, 2017.
Prepaid Insurance 63,000
Insurance Expense 63,000
2. Rent Income was credited for P 58,500 on November 1, 2017 representing 9 months
rent collected in advance.
Rent Income 45,500
Unearned Rent Income 45,500
3. Machinery per general ledger on December 31, 2017 shows a balance of P 558,000.
Machinery acquired during the year was P 78,000 on March 1, 2017. All machinery is
to be depreciated at the rate of 25% per annum.
Depreciation Expense – Machinery 136,250
Accumulated Depreciation – Machinery 136,250
4. As of December 31, 2017, commissions already earned but not yet collected amounted
to P 18,000.
Accounts Receivable 18,000
Commission 18,000
5. Supplies costing P 18,000 bought during the period was debited to the Supplies
account. Of the amount, P 8,000 were consumed during the year.
Supplies Expense 8,000
Supplies 8,000
6. Unearned Subscriptions account showed a credit balance of P 76,000 per general ledger
on December 31. Of this, 40% had been actually earned during the period.

Unearned Subscription 30,400

Subscription Revenue 30,400

7. On December 31, 2017 a 60-day, 9% Notes Payable has a balance of P 360,000 per
general ledger. The note was issued on December 5, 2017. No interest has been taken
on this note.
Interest Expense 2,340
Interest Payable 2,340

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 8. Fees Collected in Advance has a balance of P 600,000 of which 60% has been earned.
Unearned Fees 360,000
Fees Earned 360,000
9. Notes Receivable has a balance of P 300,000 received from a customer in settlement of
an open account on November 16, 2017. The note is a 90-day, 12% note. No interest
has been taken on this note.
Interest Receivable 4,500
Interest Revenue 4,500
10. The Prepaid Insurance account has balance of P 105,000 on December 31, 2017. The
balance represented two fire insurance policies acquired during 2017. The first policy,
Policy I for P 60,000 was acquired on March 1, 2017 and the second policy, Policy II was
acquired on August 1, 2017 for P 45,000. Policy I is payment for a 2-year plan while
Policy II is for a one-year plan.
Insurance Expense 43,750
Prepaid Insurance 43,750

I-11. Compute for the missing items as indicated by a letter below.

Beginning Net Ending Cost of Gross Profit Operating Net Income

Sales Inventory Purchases Inventory Goods sold Expenses (Net Loss)
175,000 A 85,000 60,000 B 90,000 C 62,000
D 62,000 E 68,000 158,000 110,000 40,000 70,000
280,000 72,000 217,000 F G 100,000 H (51,000)
440,000 90,000 I 110,000 J K 170,000 90,000

A. 60,000 (85,000+60,000-85,000) G. 180,000 (280,000-100,000)

B. 85,000 (175,000-90,000=85,000) H. 151,000 (100,000+51,000)

C. 28,000 (90,000-62,000=28,000) I. 200,000 (180,000+110,000-90,000)

D. 268,000 (158,000+110,000) J. 180,000 (440,000-260,000)

E. 164,000 (158,000+68,000-62,000) K. 260,000 (170,000+90,000)

F. 109,000 (72,000+217,000-180,000)

1-12. Given the following data, solve for the following:

Debit Credit
Sales P 425,000
Sales returns and allowances P 14,000

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 Accounts receivable 43,000
Allowance for bad debts 760

1. If the estimate of uncollectibles is made by taking 10% of outstanding accounts receivable,

the amount of the adjustment is 3,540.

2. The following accounts were abstracted from Lakers Co.’s unadjusted trial balance at
December 31, 2017.

Debit Credit
Accounts receivable P 700,000
Allowance for bad debts 8,000
Net credit sales P 3,000,000

Lakers estimates that 1% of the gross account receivable will become uncollectible. After
adjustment at December 31, 2017, the Allowance for Bad Debts should have a credit balance of
15,000.

1-13. The following accounts were found in the ledger of Blondie Company on December 31,
2017:

Debit Credit
Accounts receivable P 356,800
Allowance for bad debts 8,760
Cash Sales P 913,800
Credit Sales 1,851,000

Instructions:

1.) Prepare the adjusting entry to take up the provision for bad debts account on the books of
Blondie Company under each of the following independent assumptions:

a) Analysis indicates that 5%of the outstanding accounts receivable will not be collected.
Required ending balance of Allowance for Doubtful Accounts P17,840
(5% x P 356,800)
Add debit balance of allowance before adjustment 8,760
Doubtful Accounts Expense for the period P26,600

Doubtful Accounts Expense 26,600

Allowance for Doubtful Accounts 26,600

b) Accounts receivable of P 40,000 will become uncollectible.

Required ending balance of Allowance for Doubtful Accounts P 40,000

Add debit balance of allowance before adjustment 8,760
Doubtful Accounts Expense for the period P 48, 760

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 Doubtful Accounts Expense 48,760
Accounts Receivable 48,760

c) Accounts receivable of P 10,000 is to be written off, and that the allowance for bad debts is
to be adjusted to 10% of the outstanding accounts receivable.

Allowance for doubtful accounts 10,000

Accounts Receivable 10,000

Required ending balance of Allowance for Doubtful Accounts P 34,680

(10% x P 346,800)
Add debit balance of allowance before adjustment 18,760
Doubtful Accounts Expense for the period P 53,440

Doubtful Accounts Expense 53,440

Allowance for Doubtful Accounts 53,440

2.) Show how the Accounts Receivable and the Allowance for Bad Debts would appear on the
December 31, 2017 Statement of Financial Position.

Debit Credit
Accounts Receivable 298,040
Allowance for Bad Debts 61,280

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 EXERCISES
2-1 Harmon joined a partnership by contributing the following: cash, P 20,000; accounts
receivable, P 4,000; land P 240,000 cost, P 400,000 fair value; and accounts payable, P
16,000.
What will be the initial amount recorded in Harmon’s capital account? Give the entry to
record the investment of Harmon.
Cash 20,000
AR 4,000
Land 400,000
AP 16,000
Harmon, Capital 408,000

Solution:
20k + 4k + 400k – 16K = 408k

2-2 Prepare the journal entry to record the investment of Mar Gonzales in the new partnership
assuming the following independent cases:
a. Merchandise inventory with a cost of P 200,000 with an agreed value equal to 70% of
its cost.
b. Cash of P 800,000.
c. Accounts receivable of P 430,000 with an estimated uncollectible accounts of P
50,000.
d. Office equipment with a cost of P 800,000 with an accumulated depreciation of P
200,000 after 5 years of use with no residual value. The office equipment was accepted
to have an agreed 10 year useful life.
Adjustments:
a) Merchandise Inventory 140,000
Gonzales, Capital 140,000
(200,000*70% = 140,000)
b) Cash 800,000
Gonzales, Capital 800,000
c) AR 430,000
Allowance for Bad Debts 50,00
Gonzales, Capital 380,000
d) Office Equipment 400,000
Gonzales, Capital 400,000
(800,000*(5/10)

Cash 800,000
AR 430,000
Merchandise Inventory 140,000
Office Equipment 400,000
Allowance for Bad Debts 50,000
Gonzales Capital 1,720,000

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2-3 The following data as of May 1, 2017 were taken from the records of Andre and Andy:
ANDRE ANDY
Cash P 11,000 P 22,354
Accounts receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture & Fixtures 50,345 34,789
Other Assets 2,000 3,600

Total Assets P1,020,916 P1,317,002

========= =========

Accounts Payable P 178,940 P 243,650

Notes Payable 200,000 345,000
Andre, Capital 641,976
Andy, Capital 728,352

Total Liabilities and Capital P1,020,916 P1,317,002

========= =========

Andre and Andy agreed to form a partnership by contributing their respective assets and
equities subject to the following adjustments:
a) Inventories of P 5,500 and P 6,700 are worthless in Andre’s and Andy’s respective
books.
b) Accounts receivable of P 20,000 in Andre’s book and P 35,000 in Andy’s book are
uncollectible.
c) Other assets of P 2,000 and P 3,600 in Andre’s and Andy’s respective books are to be
written off.

1) Assuming the partnership will use the books of Andre, give the entries to adjust the account
balances of Andre and to record the investment of Andy.
Adjust the books of Andre
a) Andre, Capital 5,500
Inventories 5,500
b) Andre, Capital 20,000
Accounts Receivable 20,000
c) Andre, Capital 2,000
Other assets 2,000

Record the investment of Andy

Cash 22,354
Accounts Receivable 532,890
(567,890-35,000)
Inventories 253,402

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 (260,102-6,700=253,402)
Building 428,267
Furniture &Fixtures 34,789
Accounts Payable 243,650
Notes Payable 345,000
Andy, Capital 683,052
2) Give the entries to adjust and close the books of Andy.
a) Andy Capital 6,700
Inventories 6,700
b) Andy, Capital 35,000
Accounts Receivable 35,000
c) Andy, Capital 3,600
Other Asset 3,600

Accounts Payable 243,650

Notes Payable 345,000
Andy Capital 683,052
Cash 22,354
Accounts Receivable 532,890
Inventories 253,402
(260,102-6,700=253,402)
Building 428,267
Furnitures &Fixtures 34,789
3) Assuming the partnership will use new set of books, give the entries to record the investment
of Andre and Andy.
Cash 22,354
Accounts Receivable 532,890
Inventories 253,402
Building 428,267
Furnitures &Fixtures 34,789
Accounts Payable 243,650
Notes Payable 345,000
Andy, Capital 683,052
To record the investment of Andy

Cash 11,000
Accounts Receivable 214,536
Inventories 114,535
(120,035 – 5,500 = 114,535)
Land 603,000
Furnitures &Fixtures 50,345
Accounts Payable 178,940
Notes Payable 200,000
Andy, Capital 614,476
To record the investment of Andre

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4) Prepare the statement of financial position of the new partnership.
Andre and Andy
Statement of Financial Position
May 1, 2017

Current Assets
Cash 33,354
Accounts receivable 747,426
Inventories 367,937

Non-Current Assets
Land 603,000
Building 428,267
Furniture & Fixtures 85,134
Total Assets 2,265,118

Accounts Payable 422,590

Notes Payable 545,000
Andre, Capital 614,476
Andy, Capital 683,052

Total Liabilities &Capital 2,265,118

2-4 On July 1, 2017. Ding and Dong agreed to invest equal amounts and share profits and losses
equally in a partnership with Ding investing P 110,000 cash and merchandise valued at P
140,000. Dong will also invest a total of P 250,000, including cash, and the agreed values of
various items as shown below:
INVESTMENT BY DONG
BOOK VALUE FAIR MARKET
VALUE
Accounts Receivable P 195,000 P 195,000
Allowance for Bad Debts 8,750 12,500
Merchandise Inventory 23,250 26,250
Equipment, net 30,000 20,000
Accounts Payable 75,000 75,000

1. What amount of cash should Dong invest upon the formation of the partnership?

Accounts Receivable 195,000

Merchandise Inventory 26,250
Equipment 20,000
Allowance for Bad Debt 12,500
Accounts Payable 75,000
Dong, Capital 153,750
To record the Investment of Dong

Cash 110,000

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 Merchandise Inventory 140,000
Ding, Capital 250,000
To record the investment of Ding

Solution:
195K+26,250+20K-12500-75K = 153, 750

250K(Ding’s Cap) – 153,750 = 96,250

Dong should invest an additional cash of 96,250.

2. Give the required entries assuming the partnership will use new set of books.

Cash 96,250
Accounts Receivable 195,000
Merchandise Inventory 26,250
Equipment 20,000
Allowance for Bad Debt 12,500
Accounts Payable 75,000
Dong, Capital 250,000
To record the Investment of Dong

Cash 110,000
Merchandise Inventory 140,000
Ding, Capital 250,000
To record the investment of Ding

2-5 King invites Ace to join him in his business. Ace agreed to join King provided that the following
adjustments are taken up in the books of King:
• Prepaid expenses of P 10,000 and accrued expenses of P 6,000 are to be recognized.
• Accumulated Depreciation on King’s equipment will be increased by P 10,000.
King’s capital before adjustment for the above items was 405,000. Ace will invest enough cash
to make his interest equal to 40%.
1) How much is King’s adjusted capital balance?
Adjustments on King’s books

a) Prepaid Expenses 10,000

King, Capital 10,000
King, Capital 6,000
Accrued Expenses 6,000
b) King, Capital 10,000
Accumulated Depreciation 10,000

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 King, Capital
Acrrued Exp. 6,000 405,000 Capital, beg.
Accu Dep. 10,000 10,000 Prepaid Exp.
399,000 Adjusted Capital
2) How much should Ace invest to give him a 40% equity in the firm?

Required total partnership capital using adjusted P 665,000

King, Capital as the base: ( P 399,000/60% )
Ace share is 40% ( P 665,000 x 40% ) P 266,000

2-6 On June 1, 2017, Calvin and Klein formed a partnership with each contributing the
following assets:

CALVIN KLEIN
Merchandise Inventory P 500,000 P 900,000
Building - 2,450,000
Machinery and Equipment 450,000 950,000
Furniture and Fixtures 300,000

The building is subject to a mortgage loan of P 1,300,000, which is to be assumed by the

partnership. The partnership agreement provides that Calvin and Klein share profits and
losses 40% and 60%, respectively.

1) What is the adjusted capital of each partner on June 1, 2017?

Merchandise Inventory 500,000
Machinery Equipment 450,000
Furniture and Fixtures 300,000
Calvin, Capital 1,250,000
To record the investment of Calvin

Solution:
500k+450k+300k = 1,250,000

Merchandise Inventory 900,000

Building 2,450,000
Machinery Equipment 950,000
Mortgage Payable 1,300,000
Klein, Capital 3,000,000
To record the investment of Klein

Solution
(900k+2,450,000+950K)-1.3M = 3M

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2) Assuming that the partners agreed to bring their respective capital in proportion to their
respective profit and loss ratio, and using Klein’s capital as the base, how much cash is to
be invested by Calvin?

Required total partnership capital using adjusted P 5,000,000

Klein, Capital as the base: ( P 3,000,000/60% )
Calvin share is 40% ( P 5,000,000 x 40% ) P 2,000,000

2,000,000 – 1,250,000 = 750,000

Calvin needs to invest an additional 750,000 cash to have a 40% share to capital.

2-7 Polo and Loco entered into a partnership on August 1, 2017 by investing the following assets:
POLO LOCO
Cash P 400,000 ---
Merchandise inventory --- P 500,000
Land --- 1,150,000
Building --- 750,000
Equipment 650,000 ---

The agreement between Polo and Loco provides that profits and losses are to be divided
into 30% (to Polo) and 70% (to Loco), and that the partnership is to assume the P 350,000
mortgage loan on the building.
1) If Loco is to receive a capital credit equal to his profit and loss ratio, how much cash must he
invest?
Merchandise Inventory 500,000
Land 1,150,000
Building 750,000
Mortgage Payable 350,000
Loco, Capital 2,050,000
To record the Investment of Loco

Cash 400,000
Equipment 650,000
Polo, Capital 1,050,000
To record the investment of Polo

Required total partnership capital using adjusted P 3,500,000

Polo, Capital as the base: ( P 1,050,000/30% )
Loco share is 70% ( P 3,500,000 x 70% ) P 2,450,000

2,450,000 – 2,050,000 = 400,000

Loco must invest an additional 400,000 cash to have a 70% capital share.
2) Assuming that Loco invests P 600,000 cash and each partner is to be credited for the full
amount of the net assets invested, how much is the total capital of the partnership?

Partnership Dissolution – Admission of a Partner Page 17

 Assets

Current
Cash 1,000,000 (400k – Polo +600k – Loco)
Merchandise Inventory 500,000

Non-current
Land 1,150,000
Equipment 650,000
Building 750,000
Total Assets 4,050,000

Liability
Mortgage Payable 350,000

Partnership Capital
Loco, Capital 2,650,000
Polo, Capital 1,050,000
Total Liabilities &Capital 4,050,000

Solution:

1,050,000+2,050,000+600,000 = 3,700,000
3) Using the data in number 2, how much is the total assets of the partnership?

Solution:
400k+650k+500k+1,150,000+750k+600k = 4,050,000

2-8 Curry and Thompson are combining their businesses to form a partnership. Cash and non-
cash assets are to be contributed. The non-cash assets to be contributed and the liabilities
to be assumed are:

CURRY THOMPSON
Book Fair Value Book Fair Value
Value Value
Accounts Receivable, net P 50,000 P 40,000 P 100,000 P 90,000
Merchandise Inventory 200,000 240,000 160,000 150,000
Property and Equipment, net 400,000 320,000
Accounts payable 280,000 280,000 40,000 40,000

After the above adjustments, Curry and Thompson are to contribute or to withdraw cash to
bring their respective capital to P 350,000 each. Based on the above information, answer
the following:

Partnership Dissolution – Admission of a Partner Page 18

1) How much is the capital of Thompson after giving effect to the above adjustments but
before the cash investment or withdrawal as the case may be?
Accounts Receivable 90,000
Merchandise Inventory 150,000
Accounts Payable 40,000
Thompson, Capital 200,000

Solution:
90K+150K-40K = 200,000
2) How much is the capital of Curry after giving effect to the above adjustments but before the
cash investment or withdrawal as the case may be?
Accounts Receivable 40,000
Merchandise Inventory 240,000
PPE 320,000
Accounts Payable 280,000
Curry, Capital 320,000

Solution:
40k+240k+320k-280k = 320,000
3) How much is the cash investment or withdrawal of Curry? Indicate whether investments
or withdrawal
Required Capital 350,000
Curry, Capital 320,000
Additional Cash Investment 30,000
4) How much is the cash investment or withdrawal of Thompson? Indicate whether
investments or withdrawal
Required Capital 350,000
Thompson, Capital 200,000
Additional Cash Investment 150,000
5) How much is the total currents assets of the partnership immediately after its formation?
Cash 180,00
Accounts Receivable 130,000
Merchandise Inventory 390,000
Total current assets 700,000
6) How much is the total assets of the partnership immediately after its formation?
Cash 180,000
(30K + 150k)
Accounts Receivable 130,000
Merchandise Inventory 390,000
PPE 320,000
Total assets 1,020,000

2-9 Nash invested in a partnership a parcel of land which cost his father P 2,000,000. The land
had a market value of P 3,000,000 when Nash inherited it three years ago. Currently, the
land is independently appraised at P 5,000,000 even though Nash insisted that he “would
not take P 9,000,000 for it.”

Partnership Dissolution – Admission of a Partner Page 19

 What is the amount that should be recorded in the accounts of the partnership for the
parcel of Land?
5,000,000
(Appraised value will be recorded if there’s no indicated current market or fair value)

EXERCISES

3-1 The capital accounts of Jose and Andres at the end of the calendar of 2019 are as follows:
Jose, Capital
January 1 Balance P 63,000
May 1 Investment 27,000
October 1 Withdrawal P 18,000

Partnership Dissolution – Admission of a Partner Page 20

 Andres, Capital
January 1 Balance P 45,000
April 1 Withdrawal P 9,000

The partnership profit for the year ended December 31, 2019 is P 90,000.

Instructions: Give the journal entries to record the sharing of the partnership income under each of the
following independent cases:

1. Profit is divided 2:1 to Jose and Andres respectively.

Date Description P/R Debit Credit

Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 60,000.00
Andres, Capital 30,000.00
Jose = 90,000 x 2/3 = 30,000
Andres = 90,000 x 1/3 = 60,000

2. Profit is divided in the ratio of capital balances at the beginning of the period.

Date Description P/R Debit Credit

Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 52,500.00
Andres, Capital 37,500.00
Jose = 90,000 x 63/108 =
52,500
Andres = 90,000 x 45/108 =
37,500

3. Profit is divided in the ratio of average capital.

Partnership Dissolution – Admission of a Partner Page 21

 Date Description P/R Debit Credit
Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 60,000.00
Andres, Capital 30,000.00

Computation:

Jose, Capital

Number of
Capital Months
Peso Months
Date Balance Unchanged Average Capital
(Col. B x C)
(B) (C)
Jan. 1, 2016 63,000.00 4 252,000.00
May 1, 2016 90,000.00 5 450,000.00
Oct 1, 2016 72,000.00 3 216,000.00
12 918,000.00 76,500.00

Andres, Capital
Number of
Capital Months
Peso Months
Date Balance Unchanged Average Capital
(Col. B x C)
(B) (C)
Jan. 1, 2016 45,000.00 3 135,000.00
April 1, 2016 36,000.00 9 324,000.00
12 459,000.00 38,250
TOTAL 1,377,000 114,750

Using Peso Months

Jose share in profits: (918/1377) x 90,000 = 60,000
Andres share in profits: (459/1377) x 90,000 = 30,000 90,000
Using Average Capital
Jose share in profits: (76,500/114,750) x90,000 = 60,000
Andres share in profits: (38,250/114,750) x 90,000 = 30,000 90,000

4. Interest of 8% is allowed on average capital and the balance of profit divided equally.

Partnership Dissolution – Admission of a Partner Page 22

 Date Description P/R Debit Credit
Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 46,530.00
Andres, Capital 43,470.00

Computation:
Jose, Andres,
Capital Capital Total
Interest Allowance P 6,120.00 P 9,180.00
76,500*.08 3,060.00
38,250*.08
Remainder to be divided equally
90,000-9,180 = 80,820
80,820/2 40,410.00
80,820/2 40,410.00 80,820.00
TOTAL P46,530.00 P43,470.00 P90,000.00

5. Salaries of P 24,000 and P 19,000 are allowed to Jose and Andres, respectively, the balance of
profit is divided in the ratio of capital balances at the end of the period.

Date Description P/R Debit Credit

Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 55.333
Andres, Capital 34,667

Computation:
Jose Andres Total
Salary Allowance P24,000.00 P19,000.00 P43,000.00
Remainder: 47,000.00
90k-43k = 47k
47,000*72/108; 31,333
47,000 *36/108 15,667
TOTAL P55.333 P34,667 P90,000.00

Partnership Dissolution – Admission of a Partner Page 23

6. Andres is allowed a bonus of 20% of profit after bonus, the balance of the profit divided in the
ratio of the average capital.

Date Description P/R Debit Credit

Dec. 31, 2019 Income Summary 90,000.00
Jose, Capital 50,000.00
Andres, Capital 40,000.00

Computation:

Jose Andres Total

Bonus to Andres P15,000.00 P15,000.00
90K*.20/1.20
Remainder: 75,000.00
90k-15k = 75k
75,000*76,500/114,750 50,000
75,000*38,250/114,750 25,000
TOTAL P50,000.00 P40,000.00 P90,000.00

3-2 The partnership agreement of Justin and Kyle provides that interest at 10% per annum is to be
credited to each partner on the basis of average capital balances. A summary of Kyle’s capital
accounts for the year ended December 31, 2019 is as follows:

Balance, January 1 P 280,000

Additional investment, June 30 80,000
Withdrawal, July 31 30,000
Balance, December 31 330,000

1. How much is the average capital of Kyle?

307,500
Computation:
Number of
Capital Months
Peso Months Average
Date Balance Unchanged
(Col. B x C) Capital
(B) (C)
Jan. 1,
280,000.00 6 1,680,000
2019
June 30,
360,000.00 1 360,000.00
2016
July 31,
330,000.00 5 1,650,000
2019
dec3 12 3,690,000.00 307,500

Partnership Dissolution – Admission of a Partner Page 24

 2. What amount of interest should be credited to Kyle for the year 2019?
30,750
Computation:
307,500*10% = 30,750

3-3 The partnership agreement of Malik, Michael and Marco provides for the year-end allocations of
profit in the following manner:
• First, Malik is to receive bonus of 10% of profit for the first P 100,000, and 20% of profit in
excess of P 100,000;
• Second, Michael and Marco each will receive 5% of remaining profit after the above bonus
to Malik;
• Balance of profit to be divided equally.

The partnership’s 2019 profit was P 360,000 before any allocation to partners.

Computation:

Malik Michael Marco Total

Amount being Allocated 360,000
Allocation:
1. Bonus to Malik
First 100k: 100k*10% 10,000 10,000
Over 100k: (360k-100k)*20% 52,000 52,000

2. 5% to Michael and Marco 14,900 14,900 29,800

5%(360k-62k)
3. Allocation of remaining 89,400 89,400 89,400 268,200
profit
(360k-10k-52k-29,800)/3
As Allocated 151,400 104,300 104,300 360,000

62,000 1. How much is the bonus of Malik?

Computation:
First 100k: 100k*10% = 10,000
Over 100k: (360k-100k)*20% = 52,000

10k+52k = 62,000
151,400 2. How much is the share of Malik in the partnership profit?

Computation:
62,000 – bonus
+89,400 – share in the remaining profit
= 151,400

Partnership Dissolution – Admission of a Partner Page 25

 104,300 3. How much is the share of Michael in the partnership profit?

Computation:
14,900 – Bonus
+89,400 – share in the remaining profit
=104,300

104,300 4. How much is the share of Marco in the partnership profit?

Computation:
14,900 – Bonus
+89,400 – share in the remaining profit
=104,300

3-4 Daquis and Dionela are partners who share profits and losses in the ratio of 60% and 40%,
respectively. Daquis’ salary is P 60,000 and P 30,000 for Dionela. The partners are also paid
interest on their average capital balances. In 2019, Daquis received P 30,000 of interest and
Dionela, P 12,000. The profit and loss allocation is determined after deductions for the salary and
interest payments. Dionela’s share in the residual income (balance after deducting salaries and
interest) was P 78,000 in 2019.

327,000 1. What was the total partnership profit?

Computation:
78K/40% = 195,000
195K*60% (Daqui’s share in residual income) = 117,000

60k – Daqui’s Salay

30k – Dionela’s Salary
30k – Daqui’s interest
12k – Dionela’s interest
78k – Dionela’s share in residual income
117K - Daqui’s share in residual income
327,000

Partnership Dissolution – Admission of a Partner Page 26

3-5 Carter, Vince and Wayne are partners with beginning capital balances of P 100,000, P 200,000
and P 300,000, respectively. The partnership agreement provides for the following division of
profits and losses:
a. Salaries to Carter, Vince and Wayne amounting to P 30,000, P 40,000 and P 50,000,
respectively;
b. 10% interest on beginning capital balances;
c. Partner Carter is to receive a bonus of 20% of profit after deducting salaries, interest, and
bonus;
d. Any remainder of profit is divided equally.

If the profit before deducting salaries, interest, and bonus amounted to P 300,000, how much is
the share of each partner in the partnership profit?

Computation:
Carter Vince Wayne Total
Amount being Allocated 300,000
Allocation:
1. Salaries 30,000 40,000 50,000 120,000

2. 10% Interest to beg. capital 10,000 20,000 30,000 60,000

3. Bonus to Carter
(300k-180k)*20%/1.20 20,000 20,000
1. Allocation of remaining
profit 33,333 33,333 33,334 100,000
(300k-120k-60k-20k)/3
As Allocated 93,333 93,333 113,334 300,000

Carter 93,333 Vince 93,333 Wayne 113,334

3-6 Using the same profit and loss agreement as in exercise 3-5, assume the profit after deducting
salaries, interest, and bonus is P 200,000, how much is the share of each partner in the
partnership profit? (take note that salaries, interest, and bonus are not operating expenses but
used only as part of profit distribution)

Computation:

200k+(10K+20k+30k: 10% interest to beg. Capital) + (30k+40k+50k) + 20K = 400k

Carter Vince Wayne Total
Amount being Allocated 420,000
Allocation:
1. Salaries 30,000 40,000 50,000 120,000

2. 10% Interest to beg. capital 10,000 20,000 30,000 60,000

3. Bonus to Carter
(420k-180k)*20%/1.20 40,000 40,000

Partnership Dissolution – Admission of a Partner Page 27

 4. Allocation of remaining
profit 66,666 66,667 66,667 200,000
200k/3
As Allocated 146,666 126,667 146,667 420,000

Carter Vince Wayne

146,666 126,667 146,667

3-7 Still using the same profit and loss agreement as in exercise 3-5, assume that the residual profit
after deducting salaries and interest is a loss or negative figure of P 100,000, how much is the
partnership profit for the period? ____________________________
Computation:

120,000 – salaries
60,0000 – Interest
(100,000) – Remaining
80,000

3-8 As of December 31, 2019, King, Jolly and Donald Partnership has the following data before
effecting distribution of income summary account with a debit balance of P 300,000 from
operation beginning January 1, 2019.

ASSETS LIABILITIES CAPITAL

Cash P 400,000 Accounts Payable P 100,000 King, Capital P 500,000
Non-Cash Assets ? King, Loan 500,000 Jolly, Capital 500,000
Donald, Capital 500,000

The partners have the following profit and loss agreement:

a. All partners shall have a monthly salary of P 10,000;
b. Mr. King shall have a 10% bonus on the profit before salary, interest and bonus;
c. Interest on beginning capital would be 6% annually; and
d. Balance divided equally.

Upon distribution of P 300,000 debit balance of income summary account:

Partnership Dissolution – Admission of a Partner Page 28

 King Jolly Donald Total
Amount being Allocated (300,000)
Allocation:
a. Salaries 120,000 120,000 120,000 360,000

b. Interest on Beg. Capital (6%)

500k*6% 30,000 30,000 30,000 90,000
c. Allocation of remaining
profit (250,000) (250,000) (250,000) (750,000)
(300,000) – (360k+90k) = (750k)/3
As Allocated (100,000) (100,000) (100,000) (300,000)

1. By how much will the capital balance of Mr. King increased

Mr. King’s Capital (decreased)?
will be decreased by
100,000

400,000 2. How much is the adjusted capital of Mr. Jolly after distributing their
respective share?
Computation:
500k-100k=400k

3. How much is the total partnership assets after distribution of the

income summary account?
1,800,000
Computation:

Assets before distribution:

A= L + 0E
A = 600k liability + 1.5M capital
A = 2.1M

Assets after distribution:

2.1M -300,000 = 1,800,000

Partnership Dissolution – Admission of a Partner Page 29

3-9 The partnership has the following accounting amounts: Sales, P 70,000; Cost of Sales, P 40,000;
Operating expenses, P 10,000; Salary allocations to partners, P 13,000; Partners’ withdrawals, P
8,000. What was the profit (net loss) of the partnership? 33,000

Computation:
Sales 70,000
Cost of Sales (40,000)
Gross Profit 30,000
Operating expenses (10,000)
Net Profit 20,000

3-10 Noel, Burkes and Ariza are partners of NBA Partnership. During 2019, their average capital
balances are as follows: Noel – P 280,000; Burkes – P 200,000; Ariza – P 120,000
The partnership agreement includes the following:

1. 6% interest is allowed on average capital balances.

2. Salary allowances to Burkes and Ariza are P 48,000 and P 40,000, respectively.
3. Burkes is the managing partner and is to receive a bonus of 25% of profit in excess of P
72,000 after partners’ interest and salary allowances.
4. Remaining profit or loss will be divided in the ratio of 5:3:2
Required: Prepare schedules showing how profit or loss will be distributed among the three
partners under each of the following independent assumptions.

1) P 25,000 loss b) P 60,000 profit c) P 250,000 profit

1. (25,000)

Noel Burkes Ariza Total

Amount being Allocated (25,000)
Allocation:
1. Interest in average cap 16,800 12,000 7,200 36,000
bal (6%)
Computation: 280k*6%; 200k*6%;
120k*6%
2. Salary to Burkes&Ariza 48,000 40,000 88,000
3. Allocation of remaining
profit (5:3:2)
(25k)-36k-88k= (149k)
(149k)*5/10 (74,500)
(36k)*3/10 (44,700)
(36k)*2/10 (29,800) (149,000)
As Allocated (57,700) 15,300 17,400 (25,000)

Partnership Dissolution – Admission of a Partner Page 30

 2. 60,000

Noel Burkes Ariza Total

Amount being Allocated 60,000
Allocation:
1. Interest in average cap 16,800 12,000 7,200 36,000
bal (6%)
Computation: 280k*6%; 200k*6%;
120k*6%
2. Salary to Burkes&Ariza 48,000 40,000 88,000
3. Allocation of remaining
profit (5:3:2)
60k-36k-88k= (64k)
(64k)*5/10 (32,000)
(36k)*3/10 (19,200)
(36k)*2/10 (12,800) (64,000)
As Allocated (15,200) 40,800 34,400 60,000

3. 250,000

Noel Burkes Ariza Total

Amount being Allocated 250,000
Allocation:
1. Interest in average cap 16,800 12,000 7,200 36,000
bal (6%)
Computation: 280k*6%; 200k*6%;
120k*6%
2. Salary to Burkes&Ariza 48,000 40,000 88,000
3. Bonus to Burkes (25%)
250k-36k-88k = 126,000 13,500 13,500
126k-72k = 54k*25% = 13,500
4. Allocation of remaining
profit (5:3:2)
250k-36k-88k-13,500 = 112,500
112,500*5/10 56,250
(36k)*3/10 33,750
(36k)*2/10 22,500 112,500
As Allocated 73,050 107,250 69,700 250,000

Partnership Dissolution – Admission of a Partner Page 31

3-11 Dick, Jane, Jack and Jill formed a partnership with the following profit or loss agreement:

1. Dick receives a salary of P 400,000 and a bonus of 3% of profit after all bonuses;
2. Jane receives a salary of P 200,000 and a bonus of 2% of profit after all bonuses;
3. All partners are to receive a 10% interest on their beginning capital balances. The partners’
beginning capital balances are as follows: Dick – P 1,000,000; Jane – P 900,000; Jack – P 400,000;
and Jill – P 940,000;
4. Any remaining profits or losses are to be divided equally among the partners.

Required: Prepare schedules showing how profit or loss will be distributed among the three
partners under each of the following independent assumptions.

1. Prepare a schedule how a profit of P 2,100,000 would be allocated among the partners.

Dick Jane Jack Jill Total

Amount being Allocated 2,100,0
00
Allocation:
1. Salary to Dick&Jane 400,000 200,000 600,000

2. Bonus to Dick&Jane
(3%;2%)
2.1M*5%/1.05 = 100K 100,000
100K*3/5 60,000
100K*2/5 40,000
3. Interest on beg, cap
(10%) 100,000 90,000 40,000 94,000 324,000
1M*10%; 900K*10%;
400K810%; 940k*10%
4. Allocation of
remaining profit
2.1M – (600K+100K+324K) = 269,000 269,000 269,000 269,000 1,076,0
1,076,000/4 00
As Allocated 829,000 599,000 309,000 363,000 2,100,0
00

Partnership Dissolution – Admission of a Partner Page 32

 2. Prepare a schedule how a loss of P 800,000 would be allocated among the partners.
Dick Jane Jack Jill Total
Amount being Allocated (800,00
0)
Allocation:
1. Salary to 400,000 200,000 600,000
Dick&Jane
2. Interest on beg,
cap (10%) 100,000 90,000 40,000 94,000 324,000
1M*10%; 900K*10%;
400K810%; 940k*10%
3. Allocation of
remaining profit
(800,000) – (600K+324K) = (431,000) (431,000) (431,000) (431,000) (1,724,0
(1,724,000)/4 00)
As Allocated 69,000 (141,000) (391,000) (337,000) (800,00
0)

3. Prepare a schedule how a profit of P 800,000 would be allocated among the partners assuming the
following priority system. Profit should be allocated by first giving priority to interest on beginning
capital balances, then bonuses, then salary, and then according to the profit or loss percentages.
Dick Jane Jack Jill Total
Amount being Allocated 800,000
Allocation:
1. Interest on beg, cap 100,000 90,000 40,000 94,000 324,000
(10%)
1M*10%; 900K*10%;
400K810%; 940k*10%
2. Bonus to Dick&Jane
800K*5%/1.05 = 38,095
38,095*3/5 22,857 15,238 38,095
38,095*2/5
3. Salary to Dick&Jane
800k-324k-38,095 = 437,905
437,905*4/6 291,937
437,905*2/6 145,968 437,905
As Allocated 414,794 251,206 40,000 94,000 800,000

Partnership Dissolution – Admission of a Partner Page 33

3-12 Stew and Peed entered into a partnership on March 1, 2019 investing P 2,000,000 and P
1,000,000 respectively. They agreed that Stew is the managing partner and is to receive a salary
allowance of P 240,000 per year and a bonus of 10% of the net profit after deducting salary but
before bonus. The balance is to be divided in the ratio of their original capital.

Selected ledger account balances as of December 31, 2019 before adjustments showed the
following:

Stew, Capital P 2,000,000

Stew, Drawing 200,000
Peed, Capital 1,000,000
Peed, Drawing 100,000
Sales 3,000,000
Sales returns and allowances 30,000
Purchases 1,800,000
Operating expenses 480,000

Inventories on December 31, 2019 were as follows: Office supplies, P 8,100; merchandise, P
500,000. Prepaid insurance of P 12,000 and accrued expenses of P 4,000 were recognized.
Depreciation expense of P 40,000 was also provided.

Required:

1. Determine the profit or loss of the partnership. Assuming 30% income tax rate.

Net Sales
Sales 3,000,000
Sales R&A (30,000) 2,970,000

Cost of Goods Sold

Purchases 1,800,000
Merchandise Inv End (500,000) 1,300,000
Gross Profit 1,670,000

Less Expenses:
Operating Expenses 480,000
Accrued Expense 4,000
Depreciation Expense 40,000
Less: Office Supplies (8,100)
Prepaid Insurance (12,000) (503,900)
Profit before Income Tax 1,116,100
Income Tax (30%) (349,830)
Net Profit 816,270

Partnership Dissolution – Admission of a Partner Page 34

 2. Prepare a schedule showing the distribution of partnership profit or loss.

Stew Peed Total

Amount being Allocated 816,270
Allocation:
1. Salary to Stew 200,000 200,000
240K*10/12
(March 1- Dec 31 = 10
months)
2. Bonus to Stew (10%)
816,270-200,000= 616,270
616,270*10% 61,627 61,627
3. Allocation of remaining
profit
816,270-200,000-61,627= 554,643
554,643*2/3 369,762
554,643*1/3 184,881 554,643
As Allocated 631,389 184,881 816,270

3. Prepare a Statement of Changes in Partners’ Equity for the period ended December 31,
2019.

Partnership Dissolution – Admission of a Partner Page 35

 EXERCISES

4-1 Allyna and Allysa are partners with capital balances of P 480,000 and P 240,000. Their
profit and loss agreement is 75% and 25%, respectively. They agree to admit Aldrick as a partner of
firm.

Give the required journal entries to record the admission of Aldrick under each of the following
independent cases:

1. Aldrick purchases 25% interest in the firm. Aldrick pays the partners P 180,000 which is
divided between Allyna and Allysa in proportion to the equities given up.

Allyna, Capital 120,000

Allysa, Capital 60,000
Aldrick, Capital 180,000

Computation:
Allyna, Capital 480,000*25% = 120,000
Allysa, Capital 240,000*25% = 60,000
Total Book Value = 180,000

2. Aldrick purchases a 1/3 interest in the firm. Aldrick pays the partners P 360,000. Asset
revaluation is undertaken before Aldrick’s admission so that his 1/3 interest will be equal
to the amount of his payment.
Entry for the Revaluation of Asset

Other Assets 360,000

Allyna, Capital 270,000
Allysa, Capital 90,000

New Partnership Capital = P360,000 ÷ 1/3 = P 1,080,000

Old Partners Capital 720,000
Positive Asset Revaluation P 3 6 0,000

Distribution of P360,000 to old partners (based on profit and loss ratio)

Allyna P360,000 x 75% = P270,000
Allysa P360,000 x 25% = P90,000

Entry for the transfer of capital

Allyana, Capital 250,000

Allysa, Capital 110,000
Aldrick, Capital 360,000

Partnership Dissolution – Admission of a Partner Page 36

 Allyna Allysa Total
Capital balances before revaluation P480,000 P240,000 P720,000
Share in asset revaluation 270,000 90,000 360,000
Capital balances after revaluation P750,000 P330,000 P1,080,000
Interest purchased 1/3 1/3 1/3
Capital transferred to Aldrick P250,000 P110,000 P360,000

Capital balances after revaluation P750,000 P330,000 P1,080,000

Capital transferred to Alrick 250,000 110,000 360,000
Capital balance after admission P500,000 P 220,000 P720,000

3. Aldrick invests P 360,000 for a 25% interest in the firm. Asset revaluation is recorded on
the firm books prior to Aldrick’s admission.

Cash 360,000
Other Assets 360,000
Allyna, Capital 270,000
Allysa, Capital 90,000
Aldrick, Capital 360,000

AC CC + Revaluation
Old (75%) 1,080,000 720,000 360,000
New (25%) 360,000 360,000 -
1,440,000 1,080,000 360,000
Computation:
AC = 360,000/25%
Allyna’s Share in Asset Revaluation 360,000*75 = 270,000
Allysa’s Share in Asset Revaluation 360,000*25 = 90,000

Partnership Dissolution – Admission of a Partner Page 37

 4. Aldrick invests P 360,000 for a ½ interest in the firm. Allyna and Allysa transfer part of
their capital to Aldrick as bonus.

Cash 360,000
Allyana, Capital 135,000
Allysa, Capital 45,000
Aldrick, Capital 540,000

AC CC Bonus
Old (50%) 540,000 720,000 (180,000)
New (50%) 540,000 360,000 180,000
1,080,000 1,080,000 -
Computation:
New PC = CC
Allyna’s Share in Bonus to Aldrick 180,000*75% = 135,000
Allysa’s Share in Bonus to Aldrick 180,000*25% = 45,000

5. Aldrick invests P 480,000 in the firm. Bonus of P 120,000 is considered to partners Allyna
and Allysa.

Cash 480,000
Allyana, Capital 90,000
Allysa, Capital 30,000
Aldrick, Capital 360,000

AC CC Bonus
Old (70%) 840,000 720,000 120,000
New (30%) 360,000 480,000 (120,000)
1,200,000 1,200,000 -

Computation:
Old AC = 720,000 CC + 120,000 Bonus
New AC = 480,000 – 120,000

Allyna’s Share in Bonus 120,000*75% = 90,000

Allysa’s Share in Bonus 120,000*25% = 30,000

Partnership Dissolution – Admission of a Partner Page 38

 6. Aldrick invests P 480,000 in the firm with P 20,000 bonus allowed to Allysa and Allyna
upon his admission.

Cash 480,000
Allyana, Capital 15,000
Allysa, Capital 5,000
Aldrick, Capital 460,000

AC CC Bonus
Old (61.66%) 740,000 720,000 20,000
New (38.33%) 460,000 480,000 (20,000)
1,200,000 1,200,000 -

Computation:

Old AC = 720,000 CC + 20,000 Bonus

New AC = 480,000 – 20,000

Allyna’s Share in Bonus 20,000*75 = 15,000

Allysa’s Share in Bonus 20,000*25 = 5,000

7. Aldrick invests P 300,000 for a ¼ interest in the firm. Total capital of the new partnership
is P 1,020,000.
Cash 300,000
Other Assets 45,000
Allyna, Capital 33,750
Allysa, Capital 11,250
Aldrick, Capital 300,000

AC CC Bonus
Old (3/4) 765,000 720,000 45,000
New (1/4) 255,000 300,000 (45,000)
1,020,000 1,020,000 -

Computation:

Old AC = 1,020,000 Total AC x 3/4

Allyna’s Share in Bonus 45,000*75 = 33,750

Allysa’s Share in Bonus 45,000*25 = 11,250

Partnership Dissolution – Admission of a Partner Page 39

 8. Aldrick invests P 330,000 for a 25% interest in the firm. The total firm capital after his
admission is P 1,320,000.
Cash 330,000
Other Assets 270,000
Allyna, Capital 202,500
Allysa, Capital 67,500
Aldrick, Capital 330,000

AC CC + Asset Revaluation
Old (75%) 990,000 720,000 270,000
New (25%) 330,000 330,000 -
1,320,000 1,050,000 270,000

Computation:

Old AC = 1,320,000 Total AC x 3/4

Allyna’s Share in Asset Revaluation 270,000*75% = 202,500

Allysa’s Share in Asset Revaluation 270,000*25% = 67,500

9. Aldrick invests P 288,000 for a 1/3 interest in the firm. The total firm capital after his
admission is P 1,008,000.

Cash 288,000
Allyna, Capital 36,000
Allysa, Capital 12,000
Aldrick, Capital 336,000

AC CC Bonus
Old (2/3) 672,000 720,000 (48,000)
New (1/3) 336,000 288,000 48,000
1,008,000 1,008,000

Computation:

Old AC = 1,008,000 Total AC x 3/4

Allyna’s Share in Bonus 48,000*75 = 36,000

Allysa’s Share in Bonus 48,000*25 = 12,000

Partnership Dissolution – Admission of a Partner Page 40

 10. Aldrick invests sufficient cash for a 1/5 interest in the firm.

Cash 180,000
Aldrick, Capital 180,000

Computation:

Total AC = 720,000/ (4/5) = 900,000

New CC = 900,000*1/5 = 180,000

Partnership Dissolution – Admission of a Partner Page 41

4-2 Partners Lakers and Celtics are considering the admission of Knicks into the partnership.
Lakers and Celtics share profit and loss in the ratio of 2:4, respectively. Capital balances
of Lakers and Celtics are P 240,000 and P 180,000 respectively.

Prepare journal entries to record the admission of Knicks under each of the following
independent assumptions:

1. Knicks acquired one-third of the interest of Lakers paying P 80,000.

Laker, Capital 80,000

Kinicks, Capital 80,000
Computation:
240,000*1/3 = 80,000
2. Knicks acquired one-third of the interest of Celtics paying P 35,000.

Celtics, Capital 60,000

Kinicks, Capital 60,000
Computation:
180,000*1/3 = 60,000
3. Knicks buys a 25% interest in the partnership from the old partners paying each
P63,000. Asset revaluation has to be considered prior to the admission of Knicks.
Other Assets 84,000
Lakers, Capital 28,000
Celtics, Capital 56,000

Lakers, Capital 67,000

Celtics, Capital 59,000
Knicks, Capital 126,000

Computation:
Purchase Price 63,000 x 2 = 126,000
New PC = 126,000/25% = 504,000
OP Capital 420,000
+AR 84,000

Lakers, Capital 84,000*2/6 = 28,000

Knicks, Capital 84,000*2/6 = 56,000

Partnership Dissolution – Admission of a Partner Page 42

 Celtics Lakers Total
Capital balances before revaluation P240,000 P180,000 P420,000
Share in asset revaluation 28,000 56,000 84,000
Capital balances after revaluation P268,000 P236,000 P 504,000
Interest purchased 25% 25% 25%
Capital transferred to Aldrick P67,000 P59,000 P126,000

4-3 Utah, Atlanta and Detroit have capital balances of P 150,000, P 200,000, and P 300,000,
respectively and they share profits and losses in the ration of 4:3:3. Miami purchases 15%
interest in equity and profits from the partners for P 150,000.

a) What would be the new capital balance of Utah, Atlanta and Detroit after the
admission of Miami?

Utah = 127,500 Atlanta = 170,000 Detroit = 255,000

Computation:
Utah, Capital 150,000*15% = 22,500
Atlanta, Capital 200,000*15% = 30,000
Detroit, Capital 300,000*15% = 45,000
Total Book Value = 97,5000

Utah, New Capital 150,000 - 22,500 = 127,500

Atlanta, New Capital 200,000 - 30,000 = 170,000
Detroit, New Capital 300,000 - 45,000 = 255,000

Alternative
Utah 150,000*85% = 127,500
Atlanta 200,000*85% = 170,000
Detroit 300,000*85% = 255,000

b) Assume that some of the assets of the partnership are undervalued, how much is
the undervaluation in assets? 350,000

Computation:
New Partnership Capital = P150,000 ÷ 15% = P 1,000,000
Old Partners Capital 650,000
Positive Asset Revaluation P 3 5 0,000

Partnership Dissolution – Admission of a Partner Page 43

4-4 On August 1, 2020, prior to the admission of Grant, E and F Enterprises have the
following account balances:

Cash P 30,000
Accounts Receivable 400,000
Allowance for Bad Debts 36,000
Merchandise Inventory 110,000
Equipment - net 134,000
Accounts Payable 38,000
Erving, Capital 300,000
Fisher, Capital 300,000

Partnership Dissolution – Admission of a Partner Page 44

Erving and Fisher share profit and loss on 1:1 ratio. Before the admission of Grant, the
partners agree on the following adjustments to bring the assets and liabilities to their fair
values:

a. The allowance for Bad Debts should be brought to 10% of the outstanding accounts
receivable.
Capital Adjustment Account 4,000
Allowance for Bad Debts 4,000
Computation:
400,000 AR*10% - 36,000 = 4,000
b. The current market value of the merchandise inventory is P 140,000.
Merchandise Inventory 30,000
Capital Adjustment Account 30,000
Computation:
140,000 – 110,000 Merchandise Inventory = 30,000

c. Accrued expenses of P 4,000 should be recognized in the accounting records.

Capital Adjustment Account 4,000
Accrued Expenses 4,000

Capital Adjustment Account 22,000

Erving, Capital 11,000
Fisher, Capital 11,000

1. If Grant purchases 50% of Erving’s capital at its adjusted carrying value, how
much is the total assets of the partnership just after the admission of Grant?

Erving’s Adjusted Capital

300,000 + 11,000 = 311,000
311,000*50% = 155,500 – Grant’s Purchase

Erving’s Adjusted Capital after Grant’s Purchase

311,000 – 155,500 = 155,500

Fisher’s Adjusted Capital

300,000 + 11,000 = 311,000

A = L + OE
A = 38,000 AP + 4,000 Accrued Expenses + 311,000 + 155,500 + 155,500
A = 664,000

Partnership Dissolution – Admission of a Partner Page 45

2. If Grant is admitted into the partnership upon his investment of P 400,000 for 2/5 interest
in capital and profit, what is the total capital of the partnership just after the admission of
Grant?

1,000,000

Old Partnership Capital 600,000 + New Partner’s Investment 400,000

4-5 Jake desires to invest P 200,000 for ¼ capital and profit and loss interest in the
partnership of Kim and Lim, who at that time had capital balances of P 200,000 and
P300,000, respectively. Profit and loss ratio of the partners before the admission was 6:4.
If a positive asset revaluation is to be recorded, what are the capital balances of Kim, Lim
and Jake?

Kim 260,000
Lim 340,000
Jake 200,000

Computation:

AC CC Revaluation
Old (75%) 600,000 500,000 100,000
New (25%) 200,000 200,000 -
800,000 700,000 100,000
Computation:
AC = 200,000/ (1/4)
Kim’s Share in Asset Revaluation 100,000*6/10 = 60,000
Lin’s Share in Asset Revaluation 100,000*4/10 = 40,000

Kim, Capital 200,000 + 60,000

Lim, Capital 300,000 + 40,000

4-6 Pierce, Allen, and Rondo are partners with capital account balances at year-end of
P90,000; P 110,000; and P 50,000, respectively. The partnership profit for the year is P 110,000.
They share profits and losses on a 4:4:2 ratio, after considering the following terms:

a. Interest of 10% shall be paid on that portion of a partner’s capital in excess of

P100,000

b. Salaries of P 10,000 and P 12,000 shall be paid to Pierce and Rondo, respectively

Partnership Dissolution – Admission of a Partner Page 46

 c. Rondo is to receive a bonus of 10% of profit after bonus

How much is the total profit share of each partner?

Pierce 40,800 Allen 31,800 Rondo 37,400

Pierce Allen Rondo Total

Amount being Allocated 110,000
Allocation:
4. Interest
110,000 – 100,000 = 10,000
10,000*10% = 1,000 1,000 1,000
5. Salaries 10,000 12,000 22,000
6. Bonus
110,000*10%/1.10 10,000 10,000
7. Allocation of remaining profit
110,000 – 1,000 – 22,000 – 10,000 =
77,000

77,000*4/10 30,800
77,000*4/10 30,800
77,000*2/10 15,400 77,000
As Allocated 40,800 31,800 37,400 110,000

4-7 Anton, Barkley and Charles, partners of ABC Enterprises, have agreed on a profit and loss ratio
of 3:3:4, respectively. On December 31, 2019, the partnership books showed the following
capital balances:

Anton – P 450,000; Barkley – P 540,000; Charles – P 900,000

On January 1, 2020, Derek was admitted as a new partner under the following terms and
conditions:

a. Derek will share ¼ in the profit and loss ratio, while the ratio of the original partners will
remain proportionately the same as before Derek’s admission.
Derek will purchase 1/6 of Barkley’s interest paying him P 75,000.
b.
Derek will contribute P 450,000 in cash to the partnership.
c.

d. Total partnership capital after Derek’s admission will be P 2,400,000 of which Derek’s
capital interest will be P 480,000.

Partnership Dissolution – Admission of a Partner Page 47

 Instructions:

1. Using the format below, prepare a schedule showing the capital of each partner before
and after the admission of Derek.

Anton Barkley Charles Derek Total

Capital balances before the
admission of Derek P 450,000 P 540,000 P 900,000 - P 1,890,000
Derek’s1/6 purchase of Barkley’s
Capital (90,000) 90,000

Derek’s Investment 450,000

Bonus to Old Partners 18,000 18,000 24,000 (60,000)

Share in +Asset Revaluation
(2,400,000 – 2,340,000 = 60,000) 18,000 18,000 24,000 -
Capital balances after the
admission of Derek 486,000 486,000 948,000 480,000* P 2,400,000*

AC CC +AR Bonus to OP
OP 1,920,000* 1,800,000 60,000 60,000 = +120,000
NP 480,000* < 540,000 (60,000)
2,400,000* > 2,340,000 60,000

+AR
Allen 60,000 3/10 = 18,000
Barkley 60,000 x 3/10 = 18,000
Charles 60,000 x 4/10 = 24,000
Same sharing for Bonus to OP
New Total Capital of OP ( 486,000 + 486,000 + 948,000) = 1,920,000*

2. What is the profit and loss ratio of all the partners after Derek’s admission?
Anton = ¾ x 3/10 22.5%
Barkley = ¾ x 3/10 22.5%
Charles = ¾ x 4/10 30%
Derek = ¼ 25%
Total = 100%

Partnership Dissolution – Admission of a Partner Page 48

4-8 The CFM Partnership shows the following profit and loss ratios and capital balances:

Carter – 60% P 252,000; Fisher – 30% P 126,000; Malone – P 10% P 42,000

The partners decide to sell Shaq 20% of their respective capital and profit and loss interests for a
total payment P 90,000. Shaq will pay the money directly to the partners.

1. If the partners agree that asset revaluation is to be recorded prior to the admission of
Shaq, what are the capital balances of the partners after Shaq’s admission?

Carter 216,000 Fisher 108,000 Malone 36,000 Shaq 90,000

Computation:

New Partnership Capital = P90,000 ÷ 20% = P 450,000

Old Partners Capital 420,000
Positive Asset Revaluation P 3 0,000

Distribution of P 30,000 to old partners (based on profit and loss ratio)

Carter P 30,000 x 60% = P 18,000
Fisher P 30,000 x 30% = P 9,000
Malone P 30,000 x 10% = P 3,000

252,000 +18,000 = 270,000

126,000 + 9,000 = 135,000
42,000 + 3,000 = 45,000
CARTER Fisher Malone Total
Capital balances before revaluation P252,000 P126,000 P42,000 P720,000
Share in asset revaluation 18,000 9,000 3,000 360,000
Capital balances after revaluation P270,000 P135,000 P45,000 P 450,000
Interest purchased 20% 20% 20% 20%
Capital transferred to Aldrick P54,000 P27,000 P 9,000 P90,000

Capital balances after revaluation P270,000 P135,000 P45,000

Capital transferred to Alrick 54,000 27,000 9,000
Capital balance after admission P216,000 P 108,000 P 36,000

Partnership Dissolution – Admission of a Partner Page 49

4-9 On January 1, 2020, Kevin Garnett and Steve Nash have capital balances of P 174,600 and
P 110,400, respectively. On this date, Karl Malone is admitted as a partner upon his
investment of P 120,000 in the firm. Kevin and Steve, sharing profits and losses in the ratio
of 65:35, gave a bonus to Karl so that Karl may have a 40% interest in the firm.

How much is the decrease in Steve’s capital balance?

Steve’s capital balance will be decreased by 14,700

AC CC Bonus
Old 243,000 285,000 (42,000)
New 162,000 120,000 42,000
405,000 405,000 -
Computation:

Kevin’s Share in Bonus to Aldrick 42,000*65/100 = 27,300

Steve’s Share in Bonus to Aldrick 42,000*35/100 = 14,700

4-10 Jason and Kidd are partners who share profits and losses in the ratio of 3:1, respectively.
On August 1, 2020, their capital balances were: Jason – P 200,000 and Kidd – P 100,000.
On this date, Scottie invests 80,000 in the firm and is given a capital credit of P 50,000 which
is to be 1/8 of the capital of the new partnership.

1. What is the agreed capital of the new partnership? 400,000

50,000/ (1/8)
2. What is the new capital balance of Jason after the admission of Scottie?
AC CC Bonus Revaluation
Old 350,000 300,000 30,000 20,000
New 50,000 80,000 ( 30,000)
400,000 380,000 - 20,000

Jason, Capital
50,000*3/4 = 37,500
200,000 + 37,500= 237,500
4-11 Terence and Romeo are partners who share profits and losses 60% and 40%, respectively.
Their capital accounts on July 1, 2020 were as follows: Terence – P 280,000; Romeo –
P240,000. On this date, they agree to admit Arwind as a new partner.

1. If Arwind purchased ¼ of the equity of Terence for P 100,000, how much would be
the total partnership capital after Arwind’s admission?

520,000

2. If Arwind invested P 180,000 for a ¼ interest in the firm and that the assets of the
partnership are fairly valued, what would be the capital of Terence after Arwind’s
admission?

283,000
Computation:

AC CC Bonus
Old (75%) 525,000 520,000 5,000
New (25%) 175,000 180,000 (5,000)
700,000 700,000 -
Teren’s Share in Bonus 5,000*60% = 3,000
280,000 + 3,000 = 283,000
3. If Arwind invested P 130,000 for a 25% interest in the firm and that the assets of the
partnership are fairly valued, what would be the capital of Romeo after the admission
of Arwind?

227,000
Computation:

AC CC Bonus
Old (75%) 487,500 520,000 (32,500)
New (25%) 162,500 130,000 32,500
650,000 650,000 -
Romeo’s Share in Bonus 32,500*40% = 13,000
240,000 - 13,000 = 227,000
4. If Arwind purchased 25% of the respective capital and profits and losses of Terence
and Romeo for P 150,000, how much is the share of Terence in the asset adjustment?

80,000 x 60% = 40,800 Terrence’s share in Asset Revaluation

Computation:
New PC 150,000/25% = 600,000
Old PC = 520,000
Asset Revaluation = 80,000
 EXERCISES

5.1 Maria, Leonora and Teresa are partners with adjusted capital balances of P165,000, P150,000 and
P180,000 respectively and divide profit and loss equally. At the end of the year, Maria decides to
withdraw from the partnership. Maria will receive cash settlement of P150,000
Instruction: Give the entry to record the withdrawal of Maria assuming –

a. Bonus Method is used

Maria, Capital 165,000

Leonora, Capital 7,500
Teresa, Capital 7,500
Cash 150,000
P15,000/2 = P 7,500
P15,000/2 = P 7,500

b. Revaluation of Asset method is used

Maria, Capital 165,000

Leonora, Capital 15,000
Teresa, Capital 15,000
Other Assets 45,000
Cash 150,000
Revaluation P15,000 ÷ 1/3 = P 45,000
P45,000 x 1/3 = P15,000
P45,000 x 1/3 = P15,000
P45,000 x 1/3 = P15,000

5.2 Mercedes, Melinda and Julieta are partners sharing profit and loss 40%, 30% and 30%
respectively. Capital balances of the partners before the retirement of Mercedes were at
P450,000, P425,000 and P400,000. The company sustained a net loss of P45,000 during the year.
The partners were allowed to withdraw P10,000 each.
Instruction: Give the entry to record the retirement of Mercedes, assuming no Bonus or
Revaluation will be recorded

Mercedes, Melinda, Julieta, Total

Capital Capital Capital Capital
Profit and Loss ratio 40% 30% 30%
Capital Balance before P450,000 P425,000 P400,000 P
retirement 1,275,000
Share in Net Loss (18,000) (13,500) (13,500) (45,000)
Withdrawals
(10,000) (10,000) (10,000) (10,000)
Total P422,000 P401,500 P 376,500 P
1,220,000
 Mercedes, Capital 422,000
Cash 422,000

5.3 Santino is to withdraw from Mariposa Partnership, owned by partners Macario, Policarpio and
Santino, with capital balances of P200,000, P250,000 and P100,000. Macario purchased 60% of
Santino’s interest for P65,000 while Policarpio paid Santino P50,000 for the remainder.
Instruction: Give the entry to record the withdrawal of Santino from the Partnership.

Santino, Capital 100,000

Macario, Capital 60,000
Policarpio, Capital 40,000

5.4 After closing the books of the partnership of Mutya and Associates, Lakambini announced his
retirement of from the partnership. Shown below are the partners’ capital balances and the profit
and loss ratio:
Capital Balance P/L ratio
LamAng, Capital P 50,000 30%
Lakandula, Capital 65,000 25%
Lakambini, Capital 40,000 23%
LaLuna, Capital 45,000 22%

The partners agreed to the following before the cash settlement to Lakambini.
a. The merchandise inventory will be increased by P4,500
b. Allowance for bad debts will be decreased by P2,100
c. Prepaid insurance worth P1,200 have expired.

Instruction: Give the entries to record the following:

1) Adjustments in the books of the partnership

a. Merchandise Inventory 4,500

LamAng, Capital 1,350
Lakandula, Capital 1,125
Lakambini, Capital 1,035
LaLuna, Capital 990

LamAng 4,500*30% = 1,350; Lakndula 4,500*25% = 1,125;

Lakambini 4,500*23% = 1,035; LaLuna 4,500*22% = 990

b. Allowance for Bad Debts 2,100

LamAng, Capital 630
Lakandula, Capital 525
Lakambini, Capital 483
LaLuna, Capital 462
 LamAng 2,100*30% = 630; Lakndula 2,100*25% = 525;
Lakambini 2,100*23% = 483; LaLuna 2,100*22% = 462

c. LamAng, Capital 360

Lakandula, Capital 300
Lakambini, Capital 276
LaLuna, Capital 264
Prepaid Insurance 1,200

LamAng 1,200*30% = 360; Lakndula 1,200*25% = 300;

Lakambini 1,200*23% = 276; LaLuna 1,200*22% = 264

Summary:
Capital Adjustment Account 5,400
LamAng, Capital 1,620
Lakandula, Capital 1,350
Lakambini, Capital 1,242
LaLuna, Capital 1,188

2) Withdrawal of Lakambini from the Partnership assuming the remaining partners will give
Lakambini a bonus of P10,000.

40,000 + 1,242 = 41,242

41,242+ 10,000 = 51,242

Lakambini, Capital 41,242

LamAng, Capital 3,896
Lakandula, Capital 3,247
LaLuna, Capital 2,857
Cash 51,242

10,000*30/77 = 3,896
10,000*25/77= 3,247
10,000*22/77= 2,857

3) Withdrawal of Lakambini from the partnership assuming Lakambini receives P5,000 share
in asset revaluation.

Lakambini, Capital 41,242

Other Assets 21,739
Cash 46,242
LamAng, Capital 6,522
Lakandula, Capital 5,435
LaLuna, Capital 4,782

Computation:
 5,000/23% = 21,739
LamAng = 21,739*30% = 6,522
Lakandula = 21,739*25% = 5,435
Lakambini = 21,739*23% = 5,000
LaLuna = 21,739*22% = 4,782

5.5 The partners Macopa, Sineguelas and Ashitaba have capital balances of P300,000, P450,000 and
P200,000 respectively, while profit and loss was divided in the ratio 4:4:2.

On December 1, 2017, Macopa announced his intention to leave the partnership at the
end of the year. During the year the partnership gained a Net Income of P250,000 which was
distributed as follows: 5% interest on their individual capital, salaries of P6,000 to Partners
Sineguelas and Ashitaba, 4% Bonus on Net income after salaries and interest on capital was
allowed to partner Macopa.

Instruction:
1) Compute for the distribution of Net Income at the end of the year.

Macopa Siniguelas Ashitaba Total

Amount being Allocated 250,000
Allocation:
8. Interest on Capital
300,000*5% 15,000
450,000*5% 22,500
200,000 *5% 10,000 47,500
9. Salaries 6,000 6,000 12,000
10. Bonus
250,000-47,500-12,000 = 190,500
190,500*4% 7,620 7,620
11. Allocation of remaining
profit
250,000-47,500-12,000-7,620 =
182,880

182,880*4/10 73,152
182,880*4/10 73,152
182,880*2/10 36,576 182,880
As Allocated 95,772 101,652 52,576 250,000

2) Give the entry to record the withdrawal of Macopa at the end of the year assuming
 Macopa, Siniguelas, Ashitaba, Total
Capital Capital Capital Capital
Profit and Loss ratio 40% 40% 20%
Capital Balance before P300,000 P450,000 P200,000 P 950,000
retirement
Share in Net Income 95,772 101,652 52,576 250,000
Total P395,772 P551,652 P 252,576 P
1,200,000

a) Macopa cash settlement was P20,000 less than her capital interest and the bonus method
was used.
Macopa, Capital 395,772
Siniguelas, Capital 13,333
Ashitaba, Capital 6,667
Cash 375,772
P20,000 x 4/6 = P 13,333
P20,000 x 2/6 = P 6,667

b) Macopa’s cash settlement was P10,000 more than her capital interest and the asset
revaluation method was used

Other Assets 25,000

Macopa Capital 395,772
Siniguelas, Capital 10,000
Ashitaba, Capital 5,000
Cash 405,772

Revaluation P10,000 ÷ 40% = P25,000

P25,000 x 4/10 = P10,000
P25,000 x 4/10 = P10,000
P25,000 x 2/10 = P 5,000

c) Macopa’s cash settlement was equal to her capital interest.

Macopa, Capital 395,772

Cash 395,772

5.6 The following information was taken from the books of SAMPALOC and SONS PARTNERSHIP.
Capital Balance Profit & Loss Ratio
Sampaloc, Capital P5,000,000 35%
 Kamatchili, Capital 2,500,000 33%
Kaimito, Capital 1,500,000 32%

Kaimito is to withdrew from the partnership by selling 30% of his capital interest to
Sampaloc at 2% more than his capital interest, and will sell 70% of his capital to Kamatchili at book
value. After the withdrawal of Kaimito, the remaining partners will divide their profit and loss
equally.

Instruction:
1. Give the entry to record the retirement of Kaimito.

Kaimito, Capital 1,500,000

Sampaloc, Capital 450,000
Kamatchili, Capital 1,050,000

2. If the remaining partners were to have equal capital interest and share in profit and loss,
how much additional cash should one of the partners invest?

Kamatchili should invest an additional cash of 950,000

Computation:
Adjusted Capital Balances
Sampaloc, Capital 5,000,000 + 450,000 = 5,450,000
Kamatchili, Capital 2,500,000 + 1,050,000 = 3,550,000
Total 9,000,000

Equal interest
(9,000,000/2) 4,500,000 4,500,000
Add’l investment (950,000) 950,000

5.7 Nilupak, Biko and Maja Blanca are partners with capital balances of P324,300, P207,000 and
P158,700. After being a partner for 30 years, Biko decided to withdraw from the partnership.
Upon his withdrawal, assets were revaluated, and Biko’s share was debited for P27,000.

Instruction:
1. Give the entry to record the revaluation of the other assets

Nilupak, Capital 42,300

Biko, Capital 27,000
Maja Blanca, Capital 20,700
Other Assets 90,000

Revaluation P27,000 ÷ 207,000/690,000 = P90,000

P90,000 x 324,300/690,000= P42,300
P90,000 x 207,000/690,000= P 27,000
 P90,000 x 158,700/690,000= P 20,700

2. Give the entry to record the withdrawal of Biko from the partnership.

Biko, Capital 180,000

Cash 180,000