ACTIVITY: REVIEW PROBLEMS

Please answer the following problems. Use black ballpen and double rule your final answer. Except for
journal entries.

PROBLEM 1: PARTNERSHIP FORMATION

Use the following information for the next two questions:

A and B formed a partnership. The following are their contributions:

A B

Cash 200,000 -

Accounts receivable 150,000 -

Inventory 100,000 -

Land 500,000

Building 620,000

1,120,00
Total 450,000 0

Note payable 220,000

A, capital 230,000

1,120,00
B, capital 0

1,120,00
Total 450,000 0

Additional information:
 The accounts receivable has a recoverable amount of ₱120,000.
 The inventory has an estimated selling price of ₱110,000 and estimated costs to sell of ₱20,000.
 The land has a fair value of ₱500,000 and an unpaid mortgage of ₱120,000. The partners agreed that
B shall settle the mortgage using his personal funds.
 The building is over-depreciated by ₱30,000.
 The building also has an unpaid mortgage amounting to ₱550,000. The partners agreed that the
partnership shall assume repayment of the mortgage.
 The note payable has a fair value of ₱210,000.
 A and B shall share in profits and losses 40% and 60%, respectively.

How much are the adjusted capital balances of A and B, respectively?

PROBLEM 2: PARTNERSHIP OPERATION

A and B formed a partnership. The partnership agreement stipulates the following:
 Annual salary allowance of ₱40,000 for A.
 Interest of 10% on the weighted average capital balance of B.
 The partners share profits and losses in a 80:20 ratio.

During the period the partnership earned profit of ₱100,000.

The movements in B’s capital account are as follows:

B, Capital

60,000 beg.

Aug. 1 withdrawal 30,000 20,000 Mar. 31 additional investment

 40,000 Oct. 1 additional investment

10,000 Dec. 1 additional investment

100,00
end. 0

How much is the share of A in the partnership profit?

PROBLEM 3: PARTNERSHIP DISSOLUTION

A and B are partners with the following capital balances and profit-sharing percentages: A (40%)
₱750,000 and B (60%) ₱1,050,000. A and B admitted C into the partnership when C purchased 20% of
the capital interests of A and B for ₱400,000. The partnership’s net assets on C’s admission date were
fairly valued. How much is the total equity of the partnership immediately after the admission of C?

A and B decided to liquidate their partnership. The partnership’s records show the following information:

Cash -

Non-cash assets 80,000

80,00
Total assets 0

Liabilities 15,000

Loan payable to Partner A 10,000

Loan payable to Partner B 17,000

A, capital (80%) 20,000

B, capital (20%) 18,000

80,00
Total liabilities and equity
0

The non-cash assets are to be sold in installments and the partners’ claims are to be settled as cash
becomes available. Both partners are insolvent. In the first sale, half of the non-cash assets were sold for
₱15,000. How much did A and B receive in the first cash distribution?

PROBLEM 4: PARTNERSHIP LIQUIDATION

ABC Co. is undergoing liquidation. Information on ABC Co.’s assets and liabilities is shown below:

ASSETS Book value Realizable value

Assets pledged to fully secured creditors 360,000 480,000

Assets pledged to partially secured creditors 208,000 192,000

Free assets 600,000 576,000

1,168,000 1,248,000

LIABILITIES

Unsecured liabilities with priority 288,000 288,000

Fully secured creditors 384,000 384,000

Partially secured creditors 240,000 240,000

 Unsecured creditors without priority 432,000 432,000

1,344,000 1,344,000

If the assets are sold at realizable values, how much cash is available to pay unsecured creditors without
priority?
How much can the partially secured creditors expect to recover from their claims?

PROBLEM 5: JOINT ARRANGEMENTS

On January 1, 20x1, PST Co. entered into a joint arrangement classified as a joint venture. For an
investment of ₱2,000,000, PST Co. obtained 30% interest in HIJ Joint Venture, Inc. During the year, HIJ
Joint Venture, Inc. reported profit of ₱4,000,000 and other comprehensive income of ₱800,000, i.e., a
total comprehensive income of ₱4,800,000. HIJ Joint Venture, Inc. declared dividends of ₱2,400,000. At
the end of the year the value of the investment is 1,900,000.

How much is the carrying amount of the investment in joint venture on December 31, 20x1 using equity
method?
How much is the carrying amount of the investment in joint venture on December 31, 20x1 using cost
method?
How much is the carrying amount of the investment in joint venture on December 31, 20x1 using fair
value method?

PROBLEM 6: FRANCHISE
Use the following information for the next three questions:
On January 1, 20x1, SB Co. enters into a contract with a customer to transfer a license.
 The initial franchise fee is ₱100,000 payable as follows: 20% cash down payment upon signing of the
contract and the balance is payable in 4 equal annual installments starting December 31, 20x1. The
appropriate discount rate is 12%.
 The contract states that the initial franchise fee consists of ₱30,000 consideration for the equipment
that SB Co. will transfer to the customer and the ₱70,000 balance for the franchise rights.
 SB Co. regularly sells the equipment and the license separately. The stand-alone selling prices are
₱40,000 for the equipment and ₱38,000 for the license.
 The license provides the customer the “right to use” SB’s intellectual property as it exists at the point
in time at which the license is granted.
 The equipment is transferred to the customer on January 15, 20x1, while the license is transferred to
the customer on February 1, 20x1.

What is the journal entry on Jan. 1, 20x1? (Sunbathe Co. uses ’Unearned interest income’ account.)

What is the journal entry on Jan. 15, 20x1? (Sunbathe Co. recognizes interest income only at year-end.)

What is the journal entry on Feb. 1, 20x1?

PROBLEM 7: CONSIGNMENT
On December 1, 20x1, AMB Department Store received 505 sweaters on consignment from Todd. Todd’s
cost for the sweaters was ₱80 each, and they were priced to sell at ₱100 each. AMB’s commission on
consigned goods is 10%. At December 31, 20x1, 5 sweaters remained. In its December 31, 20x1 balance
sheet, what amount should AMB report as payable for consigned goods?

PROBLEM 8: CONSIGNMENT
ABC, Inc. consigned ten one-horsepower air conditioning units to XYZ Trading and paid ₱2,000 for the
freight. The consignee is allowed a commission of 5% on sales. XYZ Trading submitted the following
report at the end of the period:

Sales (6 units) 72,000

Less: Advances to ABC, Inc. 10,000

Selling expenses 800

Installation and delivery 1,200

Commission 7,200 19,200

Net remittance 52,800

The selling expenses and the installation and delivery costs are chargeable to ABC. ABC consistently
marks-up its inventories at a 12.50% gross profit rate based on sales price. This does not reflect any
freight. How much was ABC’s profit or loss on the consignment?