Problems

partnership formation 2
partnership operation 2
partnership dissolution 2
partnership liquidation 2
Incorporation 1
Joint Arrangements 2
Joint Venture 4
Joint Operation 4
Revenue 4
Consignment Sales 4
Construction Contracts 6
Installment Sales 6
Franchise 6
45

Acc 110 – CFE

Partnership Formation:

1. Aldo, Bert, and Chris formed a partnership on April 30, with the following assets, measured
at their fair market values, contributed by each partner:
Aldo Bert Chris
Cash P10,000 P12,000 P30,000
Delivery trucks 150,000 28,000 -
Computers 8,500 5,100 -
Office furniture 3,500 2,500
Totals P168,500 P48,600 P32,500
Although Chris has contributed the most cash to the partnership, he did not have the full
amount of P30,000 available and was forced to borrow P20,000. The delivery truck contributed
by Aldo has mortgage of P90,000 and the partnership is to assume responsibility for the loan.
If the profit and loss sharing agreement is 40%, 40% and 20%, respectively, for Aldo, Bert,
and Chris what is the total capital investment of all the partners at the opening of business on
April 30?
A. P249,600
B. P159,600
C. P139,600
D. P166,400

(B) Aldo (168,500-90,000) P 78,500

Bert 48,600
Chris 32,500
Total investment P 159,600
2. The partnership of A, B, C, and D has agreed to combine with the partnership of X and Y.
The individual capital accounts and profit and loss sharing percentage of each partner
follow:
P &L Sharing %
Capital Accounts Now Proposed
A P 50,000 40 28
B 35,000 30 21
C 40,000 20 14
D 25,000 10 7
150,000 100 70
X P 60,000 50 15
Y 40,000 50 15
P100,000 100 30
A, B, C, and D's partnership has undervalued tangible assets of P20.000, and X and Y
partnership has undervalued tangible assets of P8,000. All the partners agree that:
(a) the partnership of A, B, C, and D possesses goodwill of P30,000 and
(b) the partnership of X and Y possesses goodwill of P10,000.
The combined businesses will continue to use the general ledger of A, B, C, and D.
Assume that tangible assets are to be revalued and goodwill is to be recorded. Compute the
capital balances of A and X respectively:
a. A, P70,000; X, P69.000 c. A, P58,000; X, P64,000
b. A, P62,000; X, P65,000 d. A, P50,000; X, P60,000

(a)
A X
Unadjusted capital balances P50.000 P60,000
Undervalued tangible assets:
A: P20,000 x 40% 8,000
X: P8.000 x 50% 4,000
Goodwill:
A: P30,000 x 40% 12,000
X: P10,000x50% 5,000
Adjusted capital balances P70,000 P69,000
Partnership Operation:

3. KFC, CPK and UCC formed a partnership on january 1, 2009, with each partner contributing
P600,000 cash. The partnership agreement provided that UCC receive a salary of P30,000 per
month for managing the partnership business. UCC has never withdrawn any money from the
partnership. KFC withdrew P120,000 in each of the years 2009 and 2010, and CPK invested an
additional P240,000 in 2009 and withdrew P240,000 during 2010. Due to an oversight, the
partnership has not maintained formal accounting records, but the following data as of
December 31, 2010 is available.

Cash P 855,000 Accounts payable P 570,000

Accounts receivable 600,000 Notes payable 315,000
Merchandise 1,200,000
inventopry
Computer equipment, 1,110,000
net
Prepaid expenses 120,000
P 3,855,000 P 885,000

Additional data:
1. The partners agree that income for 2010 was about half of the total income for the
first two years of operations.
2. The partnership agreement provides that profits, after allowance for UCC’s salary,
are to be divided each year on the basis of beginning of the year capital balances.

For the year ended December 31, 2010, the capital balances of the partners are:
KFC CPK UCC
a. P600,000 P960,000 P1,080,000
b. P561,818 P850,909 P1,587,273
c. P480,000 P720,000 P1,080,000
d. P561,818 P720,000 P1,587,273

Answer: B
4. Gigi is trying to decide whether to accept a salary of P40,000 or a salary of P25,000 plus a
bonus of 10% of net income after salaries and bonus as a means of allocating profit among the
partners. Salaries traceable to the other partners are estimated to be P100,000. What amount
of income would be necessary so that Gigi would consider the choices to be equal?
A. P165,000
B. P290,000
C. P265,000
D. P305,000

Answer B
40,000 – 25,000=15,000
40,000 = [25,000 + 10% (X - 125,000 - 15,000)]
40,000 = 25,000+1X-12,500-1,500
1X = 40,000-11,000
X = 290,000

Partnership Dissolution:

Quincy has decided to retire from the partnership of Quincy, Robert, and Sam. The partnership
will pay Quincy 400,000. Total partnership capital should be revalued based on the excess
payment to Quincy. (Assume the book values of the assets listed below equals fair values.) A
summary balance sheet for the Quincy, Robert, and Sam partnership appears below. Quincy,
Robert, and Sam share profits and losses in a ratio of 1:1:3, respectively.

Assets
Cash 150,000
Marketable securities 76,000
Inventory 164,000
Land 300,000
Building-net 510,000
Total assets 1,200,000

Equities
Quincy, capital 320,000
Robert, capital 280,000
Sam, capital 600,000
Total equities 1,200,000

5. What partnership capital will Robert have after Quincy retires?

A) 200,000
B) 280,000
C) 360,000
D) 440,000
Answer: C
Explanation: C) The 400,000 of implied goodwill is allocated to the partner accounts, with 1/5
(80,000) being added to Robert's account

Quincy will receive a return of his capital (320,000) plus an additional 80,000, for a total
payment of 400,000. The excess payment of 80,000 for his 20% share implies a total goodwill
of 80,000 / 20% = 400,000.

6. Partners Almac, Booba and Conrad share profits and losses 5:3:2, respectively. The balance
sheet at April 30, 2004 follows:
Cash P40,000 Accounts payable P100,000
Noncash assets 360,000 Almac, capital 74,000
Booba, capital 130,000
Conrad, capital 96,000
Total assets P400,000 Total equities P400,000
The assets and liabilities are recorded and presented at their respective fair values. Ging is to
be admitted as a new partner with a 20% capital interest and a 20% share of profits and losses
in exchange for a cash contribution.
If no bonus nor goodwill is to be recorded, how much cash must Ging contribute?
A. P60,000
B. P72,000
C. P75,000
D. P80,000

C Contributions /capital of old Ps P300,000

Divide by interest share /old Ps 80%
Total contribution/agreed capital P375,000
Multiply by new Ps share of capital 20%
Ging's Contr. & capt Credit P75,000

Partnership Liquidation:
7) Que, Rae, and Sye are in the process of liquidating their partnership. Sye has agreed to
accept the inventory, which has a fair value of 60,000, as part of her settlement. A balance
sheet and the residual profit and loss sharing percentages are as follows:

Cash 248,000 Accounts payable 180,000

Inventory 100,000 Que, capital (40%) 98,000
Plant assets 280,000 Rae, capital (40%) 175,000
Sye, capital (20%) 175,000
Total assets 628,000 Total liab./equity 628,000

If the partners then distribute the available cash using a safe payments schedule, Sye will
receive
A) 41,000 cash.
B) 51,000 cash.
C) 107,000 cash.
D) 175,000 cash.
Answer: A
Explanation: A)
40% 40% 20%
Que Rae Sye
Equities 98,000 175,000 175,000
Distribute inventory to Sye (60,000)
and:
recognize 40,000 loss (16,000) (16,000) (8,000)
Possible losses on plant (112,000) (112,000) (56,000)
Subtotal (30,000) 47,000 51,000
Eliminate Que's debit
balance to Rae & Sye 30,000 (20,000) (10,000)
Balance 0 27,000 41,000
Objective: LO3
Difficulty: Moderate

8. Lola, Melvin, and Nettie are in the process of liquidating their partnership. Since it may take
several months to convert the other assets into cash, the partners agree to distribute all
available cash immediately, except for 12,000 that is set aside for contingent expenses. The
balance sheet and residual profit and loss sharing percentages are as follows:

Cash 500,000 Accounts payable 225,000

Other assets 225,000 Lola, capital (20%) 168,000
Melvin, capital (30%) 270,000
Nettie, capital (50%) 62,000
Total assets 725,000 Total liab./equity $ 725,000

Using a safe payments schedule, how much cash should Melvin receive in the first distribution?
A) 81,000
B) 165,000
C) 168,600
D) 202,500
Answer: B
Explanation: B)
20% 30% 50%
Lola Melvin Nettie
Equities 168,000 270,000 62,000
Possible loss on
remaining assets (225,000)(45,000) (67,500) (112,500)
Contingencies (12,000) (2,400) (3,600) (6,000)
Subtotals 120,600 198,900 (56,500)

Eliminate Nettie's
debit balance (22,600) (33,900) 56,500

Safe payments 98,000 165,000 0

Objective: LO3
Difficulty: Difficult

Incorporation of Partnership:
9. Partners Alex and Zander, who share profits and losses at 60% and 40%, respectively, have
the following balances at December 31, 2014.
Cash P 96,000 Accounts payable P137,600
Accounts receivable 80,000 Accumulated depreciation6,400
Merchandise inventory 112,000 Alex, capital 112,240
Equipment 64,000 Zander, capital 95,760
Total P352,000 Total P352,000
They agreed to incorporate their partnership, with the new corporation absorbing the net
assets after the following adjustments to reflect their fair values: (All shares are to be
issued at P100 par value per share.)
a. Additional allowance for bad debts P8,000
b. Understatement of merchandise inventory 16,000
c. Additional depreciation on the equipment 2,400
The number of shares received by Zander from the corporation is
A. 980 shares
B. 1,165 shares
 C. 1,156 shares
D. 1,615 shares

Answer is (A).
Zander's adjusted net assets [P95,760 + (P16,000 - P8,000 - P2,400) x 40%] P
98,000
Divide by the par value per share P 100
Number of shares to be received by Zander 980 shares

Corporate Liquidation:

11.The ELI Corporation is undergoing liquidation and its statement of financial position as of
January 2, 2013 is as follows:
ELI Corporation
Statement of Financial Position
As of January 2, 2013
Assets Liabilities and Equity
Cash P 124,200 Accounts Payable P 118,500
Receivables, net 340,800 Salaries Payable 50,000
Inventory 70,000 Bank Loan Payable 222,000
Prepaid Expenses 22,500 Note Payable 80,000
Building, net 360,000 Bonds Payable 450,000
Goodwill 82,000 Ordinary Shares 120,000
Capital Deficit (41,000)
Total Assets P 999,500 Total Liabilities and Equity P 999,500

The inventory has a realizable value of P53,000. Of the accounts payable, P60,000 is secured by
1/4 of the receivable which is 30% not collectible. The balance in the book value of the
receivables which has a realizable value of P235,000 is used to secure the bank loan payable.
The bonds payable is secured by the building having a book value of P360,000 and a realizable
value of P375,000.
Unrecognized liabilities as of Jan. 2, 2013 are as follows: accrued interest on bonds payable and
taxes amounting to P4,000 each, and trustee’s salary amounting to P9,500. (Use two decimal
places for the recovery percentage)
How much will be paid to the partially secured creditors of ELI corporation?
A. P477,595
B. P479,102
C. P478,349
D. P480,669

ANS: D
> Fully secured Partially secured Unsecured
Cash P124,200 P222,000 P 59,640 P360
Inventory 53,000 375,000 79,000
Receivable 13,000
Less: Unsecured
with priority
Trustee’s salary (9,500) 58,500
Salaries payable (50,000) 80,000
Taxes (4,000)
Net free assets 126,700
Total unsecured 217,860
without priority

Recovery percentage: 126,700/217,860 = 58%

Partially secured: 434,640 + 79,360(58%) = P480,669

12. The following data are taken from the statement of realization and liquidation:
Assets to be realized P234.000
Assets realized 215,000
Increase in assets 45,000
Assets not realized 64,000
Liabilities to be paid 178,000
Increase in liabilities 23,400
Liabilities paid 145,000
Liabilities not paid ?
Supplementary charges 35,000
Supplementary credits 78,000
How much is the net gain or loss?
A. (99,800)
B. (43,000)
C. 43,000
D. 99,300

ANS: C
REF: CPAR 1510
TOP: Receivership, Liquidation & Realization Account, Net Gain/Loss

Joint Arrangements:

13. Two entities structured a joint arrangement in an incorporated entity. The two entities each
have a 50% ownership interest. The purpose of the arrangement is for the incorporated entity
ot manufacture parts for the two parties. The arrangement ensures that the two parties operate
the facility that produces the parts to their specifications. The parties agreed to purchase all the
output produced by the two parties in the ratio of their ownership percentage. The incorporated
entity may not sell its output to third parties unless this is approved by the two parties. The
arrangement is intended to operated at a break even level because the selling price is set by
both parties and deigned to cover the costs of production and administrative expenses incurred
by the incorporated entity. How should the two parties account for their investment?

a. Financial asset at fair value other comprehensive income

b. Joint venture
c. Joint operation
d. Financial asset at fair value profit or loss

Answer: C

14. Two entities established a joint arrangement in an incorporated entity. The assets and
liabilities of the entity will be in the name of the incorporated entity. The activities of the
arrangement will be decided by its own board of directors. The rights of the two parties are
limited only to the net assets of incorporated entity. How should the two parties account for
their investment?

a. Financial asset at amortized cost

b. Joint venture
c. Joint operation
d. Investment in trading securities

Answer: B

Joint Operation:

15. J and P formed a joint operation to purchase and sell a special type of merchandise. The
operators agreed to contribute cash of P135,000 each to be used in purchasing the
merchandise, and to share profits and losses equally. They also agreed that each shall record
his purchases, sales, and expenses in thier own books.

Upon termination of the joint venture, the following data are made available:

J P
Joint Operation P117,000 CR P105,300 CR
Inventory Taken 3,600 11,250
Expenses paid from JO Cash 5,400 9,900

How much cash is to be received by J in the final settlement?

a. P237,750 c. P253,575
b. P249,975 d. P254,475

Answer: B

Joint Operation
Purchases 270,000 (135,000x2) 507,600 Sales (Squeezed)
Expenses 15,300(5,400+9,900)

Profit (Completed) 222,300 (117,000 + 105,300)

Ending Inventory 14,850 (3,600 +11,250)
Profit (Completed) 237,150
Share in profit J = 237,150 x 50% = 118,575
Less: Inventory Taken instead of cash receipt (3,600)
Add: Initial Investment 135,000
Final Cash Settlement 249,975

16. R, S and T formed a joint venture on May 1, 2010 R was designated as the manager and
was to record the joint venture’s transactions in his own books. As manager, R was to be
allowed a salary of P9,000; the remaining profit or loss was to be divided equally. The following
balances appeared at the end of 2010 before adjustment for venture inventory and profit:

Debit Credit
Joint venture cash P36,000 -
Joint venture - P11,250
S, capital 750 -
T, capital - 20,250

Unsold merchandise amounts to P7,875, which was taken by T.

In the final settlement to ventures, how much did T receive?

a. P23,625 c. P20,250
b. P15,750 d. P7,875

Answer: B

17. On January 1, 2014, companies AA, BB, and CC established a "joint operation" to
manufacture a product they each need in their respective operations. They will contribute
equal amounts and agreed to share on the production output equally. AA contributed cash
of P200,000; BB contributed equipment with a carrying cost of P215,000; and CC
contributed machinery with a carrying cost of P185,000. Both non-monetary contributions
had a fair value of P200,000 each. The equipment will be depreciated over 5 years and the
machinery over 10 years.
Compute the net amount of plant assets (equipment & machinery) CCC will show in its own
balance sheet at December 31, 2014.
A. P 55,500
B. P108,833
C. P 58,500
D. P 160,333

Answer is (C).
On the equipment (P200,000 x 80%)/3 P 53,333
On the machinery [(P200,000 x 90%)/3] - P4.500 55,500
Net amount of plant assets in CCC's balance sheet P108,833
17. A, B and C formed a joint venture. The contractual arrangement provides that A is to manage
the venture and is to receive a fee of P20% of the profit after deduction of the fee as an
expense of the venture. The net profit after the fee, has been agreed to be divided as follows:
A, 30% B, 50% and C, 20%. After three months, the joint venture is terminated. The trial
balance prepared by A show the following balances:

Dr Cr
Joint venture P16,200
B, Capital P900
C, Capital P3,600

The venture has still some unsold merchandise worth P4,500. A agreed to purchase such at
cost. The fee of A has not yet been taken up.

What is the total income earned by A? Before the cash settlement is made, the
balance of the investment in Joint Venture account in the books of B and C are:

a. P8,625; (B)P7,725; (C)P7,050 c. P4,875; (B)P8,625; (C)P3,450

b. P5,175; (B)P7,725; (C)P7,050 d. P8,625; (B)P8,625; (C)P3,450

Answer: C