Partnership – Basic Considerations and Formation CHAPTER MULTIPLE CHOICE ANSWERS AND SOLUTIONS 1-1: a 1-2: b 1-2: c Jose's capital should be credited for the market value of the computer contributed by him (40,000 + 80,000) ÷ 2/3 = 180,000 x 1/3 = 60,000 1-3: a Cash Land Mortgage payable P100,000 300,000 ( 50,000) Net assets (Julio, capital) P350,000 Total Capital (P300,000/60%) Perla's interest P500,000 40% Perla's capital Less:Non-cash asset contributed at market value Land P 70,000 Building 90,000 Mortgage Payable ( 40,000) P200,000 Cash contribution P 80,000 1-4: b 1-5: d _120,000 - Zero, because under the bonus method, a transfer of capital is only required 1-6: b Reyes Santos P200,000 – – Cash Inventory Building Equipment Mortgage payable P300,000 150,000 400,000 150,000 ( 100,000) Net asset (capital) P350,000 P750,000 AA BB CC P55,000 P55,000 1-7: c Cash Property at Market Value Mortgage payable Equipment at Market Value P 50,000 _ P 80,000 ( 35,000) _ Capital P 50,000 P 45,000 Chapter 1-8: a PP RR SS Cash Computer at Market Value P 50,000 25,000 P 80,000 _ P 25,000 60,000 Capital P 75,000 P 80,000 P 85,000 Maria Nora 1-9: c Cash Merchandise inventory Computer equipment Liability Furniture and Fixtures P 30,000 200,000 P 90,000 160,000 ( 60,000) Total contribution P230,000 P190,000 Total agreed capital (P230,000/40%) Nora's interest P575,000 60% Nora's agreed capital Less: investment P345,000 190,000 Cash to be invested P155,000 1-10: d Roy Sam Tim Cash Office Equipment Note payable P140,000 – – P220,000 _( 60,000) – – Net asset invested P140,000 P160,000 P Agreed capitals, equally (P300,000/3) = P100,000 1-11: a Lara Mitra Cash Computer equipment Note payable P130,000 – P200,000 50,000 _( 10,000) Net asset invested P130,000 P240,000 Goodwill (P240,000 - P130,000) = P110,000 1-12: a Perez Cash Office Equipment Merchandise Furniture Notes payable P 50,000 30,000 – _ Reyes P 70,000 – 110,000 100,000 ( 50,000) – Net asset invested Partnership – Basic Considerations and Formation P 80,000 P230,000 Bonus Method: Total capital (net asset invested) P310,000 Goodwill Method: Net assets invested Add: Goodwill (P230,000-P80,000) P310,000 _150,000 Net capital P460,000 1-13: b Required capital of each partner (P300,000/2) Contributed capital of Ruiz: Total assets P105,000 Less Liabilities 15,000 P150,000 Cash to be contributed by Ruiz P 60,000 90,000 1-14: d Total assets: Cash Machinery Building Less: Liabilities (Mortgage payable) P 70,000 75,000 _225,000 P370,000 90,000 Net assets (equal to Ferrer's capital account) Divide by Ferrer's P & L share percentage P280,000 70% Total partnership capital P400,000 Required capital of Cruz (P400,000 X 30%) Less Assets already contributed: Cash P 30,000 Machinery and equipment 25,000 Furniture and fixtures 10,000 P120,000 Cash to be invested by Cruz P 55,000 65,000 1-15: d Adjusted assets of C Borja Cash P 2,500 Accounts Receivable (P10,000-P500) 9,500 Merchandise inventory (P15,000-P3,000) 12,000 Fixtures 20,000 Asset contributed by D Arce: Cash P 20,000 Merchandise 10,000 30,000 Total assets of the partnership P 74,000 P 44,000 Chapter 1-16: a Cash to be invested by Mendez: Adjusted capital of Lopez (2/3) Unadjusted capital Adjustments: Prepaid expenses Accrued expenses Allowance for bad debts (5% X P100,000) P158,400 17,500 ( 5,000) _( 5,000) Adjusted capital P165,900 Total partnership capital (P165,900/2/3) Multiply by Mendez's interest P248,850 ⅓ Mendez's capital Less Merchandise contributed P 82,950 50,000 Cash to be invested by Mendez P 32,950 Total Capital: Adjusted capital of Lopez Contributed capital of Mendez P165,900 82,950 Total capital P248,850 1-17: d Moran, capital (40%) Cash Furniture and Fixtures Divide by Moran's P & L share percentage P 15,000 _100,000 Total partnership capital Multiply by Nakar's P & L share percentage Required capital of credit of Nakar: Contributed capital of Nakar: Merchandise inventory Land Building Total assets Less Liabilities Required cash investment by Nakar P115,000 40% P287,500 60% P172,500 P 45,000 15,000 65,000 P125,000 30,000 P 95,000 P 77,500 1-18: c Garcia's adjusted capital (see schedule 1) Divide by Garcia's P & L share percentage P40,500 40% Total partnership capital Flores' P & L share percentage P101,250 60% Flores' capital credit P 60,750 Flores' contributed capital (see schedule 2) 43,500 Additional cash to be invested by Flores P 17,250 Partnership – Basic Considerations and Formation Schedule 1: Garcia, capital: Unadjusted balance Adjustments: Accumulated depreciation Allowance for doubtful account P 49,500 ( 4,500) ( 4,500) Adjusted balance P 40,500 Schedule 2: Flores capital: Unadjusted balance Adjustments: Accumulated depreciation Allowance for doubtful accounts P 57,000 ( 1,500) ( 12,000) Adjusted balance P 43,500 1-19: d Ortiz Ponce Total ( 60%) ( 40%) P133,000 P108,000 P241,000 Unadjusted capital balances Adjustments: Allowance for bad debts Inventories Accrued expenses ( 2,700) 3,000 _( 2,400) Adjusted capital balances P130,900 ( 1,800) 2,000 ( 1,600) P106,000 ( 4,500) 5,000 ( 4,000) P237,500 Total capital before the formation of the new partnership (see above) P237,500 Divide by the total percentage share of Ortiz and Ponce (50% + 30%) 80% Total capital of the partnership before the admission of Roxas Multiply by Roxas' interest P296,875 20% Cash to be invested by Roxas P 59,375 1-20: d Merchandise to be invested by Gomez: Total partnership capital (P180,000/60%) P300,000 Gomez's capital (P300,000 X 40%) Less Cash investment P120,000 30,000 Merchandise to be invested by Gomez P 90,000 Cash to be invested by Jocson: Adjusted capital of Jocson: Total assets (at agreed valuations) Less Accounts payable P180,000 48,000 P132,000 Required capital of Jocson _180,000 Cash to be invested by Jocson P 48,000 Chapter 1-21: b Unadjusted Ell, capital (P75,000 – P5,000) Allowance for doubtful accounts Accounts payable P 70,000 ( 1,000) ( 4,000) Adjusted Ell, capital P 65,000 Total partnership capital (P113,640/1/3) Less David's capital P340,920 _113,640 Cortez's capital after adjustments Adjustments made: Allowance for doubtful account (2% X P96,000) Merchandise inventory Prepaid expenses Accrued expenses P227,280 Cortez's capital before adjustments P211,200 1-22: c 1,920 ( 16,000) ( 5,200) _3,200 1-23: a Total assets at fair value Liabilities Capital balance of Flor P4,625,000 (1,125,000) P3,500,000 Total capital of the partnership (P3,500,000 ÷ 70%) Eden agreed profit & loss ratio Eden agreed capital Eden contributed capital at fair value Allocated cash to be invested by Eden P5,000,000 30% 1,500,000 812,000 P 688,000 1-24: c 1-25: c Rey Contributed capital (assets-liabilities)P471,000 Agreed capital (profit and loss ratio) 382,800 Capital transfer (Bonus) P 88,200 Sam_ Tim Total_ P291,000 P195,000 P957,000 382,800 191,400 957,000 P(91,800) P 3,600 - 1-26: d Total agreed capital (P90,000 ÷ 40%) Contributed capital of Candy (P126,000+P36,000-P12,000) Total agreed capital (P90,000 ÷ 40%) Candy, agreed capital interest Agreed capital of Candy Contributed capital of Candy Withdrawal P225,000 150,000 225,000 60% 135,000 150,000 P 15,000 Partnership – Basic Considerations and Formation 1-27: a Total agreed capital (210,000 ÷ 70%) Nora’s interest Agreed capital of Nora Cash invested Cash to be invested by Nora P300,000 30% P 90,000 42,000 P 48,000 Contributed capital of May (P194,000 - P56,000) Agreed capital of May (P300,000 x 70%) Cash to be invested by May P138,000 210,000 P 72,000 1-28: a 1-29: c Contributed capital Agreed capital Capital invested Alex_ P100,000 92,000 P( 8,000) _Carlos_ P84,000 92,000 P 8,000 Total P184,000 184,000 - Chapter SOLUTIONS TO PROBLEMS Problem – 1 a Books of Pedro Castro will be retained by the partnership To adjust the assets and liabilities of Pedro Castro Pedro Castro, Capital Merchandise Inventory 600 Pedro Castro, Capital Allowance for Bad Debts 200 Accrued Interest Receivable Pedro Castro, Capital 35 Computation: P1,000 x 6% x 3/12 = P2,000 x 6% x 2/12 = 600 200 P15 _20 Total .P35 Pedro Castro, Capital Accrued Interest Payable (P4,000 x 5% x 6/12 = P100) 100 Pedro Castro, Capital Accumulated Depreciation – Furniture and Fixtures 800 Office Supplies Pedro Castro, Capital 400 100 800 400 To record the investment of Jose Bunag Cash 15,067.50 Jose Bunag, Capital Computation: Pedro Castro, Capital (1) P600 P31,400 (2) 200 35 (3) (4) 100 400 (6) (5) _800 P1,700 P31,835 15,067.50 P30,135 Jose Bunag, Capital : 1/2 x P30,135 = P15,067.50 Partnership – Basic Considerations and Formation b A new set of books will be used Books of Pedro Castro To adjust the assets and liabilities See Requirement (a) To close the books Notes Payable Accounts Payable Accrued Interest Payable Allowance for Bad Debts Accumulated Depreciation – Furniture and Fixtures Pedro Castro, Capital Cash Notes Receivable Accounts Receivable Accrued Interest Receivable Merchandise Inventory Office Supplies Furniture and Fixtures 4,000 10,000 100 1,200 1,400 30,135 6,000 3,000 24,000 7,400 400 6,000 New Partnership Books To record the investment of Pedro Castro Cash Notes Receivable Accounts Receivable Accrued Interest Receivable Merchandise Inventory Office Supplies Furniture and Fixtures Notes Payable Accounts Payable Accrued Interest Payable Allowance for Bad Debts Accumulated Depreciation – Furniture and Fixtures Pedro Castro, Capital To record the investment of Jose Bunag 6,000 3,000 24,000 35 7,400 400 6,000 4,000 10,000 100 1,200 1,400 30,135 Cash 15,067.50 Jose Bunag, Capital 15,067.50 10 Chapter Castro and Bunag Partnership Balance Sheet October 1, 2008 Assets Cash Notes receivable Accounts receivable P 24,000 Less Allowance for bad debts _1,200 Accrued interest receivable Merchandise inventory Office supplies Furniture and fixtures 6,000 Less Accumulated depreciation _1,400 Total Assets P21,067.50 3,000.00 22,800.00 35.00 7,400.00 400.00 4,600.00 P59,302.50 Liabilities and Capital Notes payable Accounts payable Accrued interest payable Pedro Castro, Capital Jose Bunag, Capital Total Liabilities and Capital P 4,000.00 10,000.00 100.00 30,135.00 _15,067.50 P59,302.50 Problem – Contributed Capitals: Jose: Capital before adjustment P 85,000 Notes Payable 62,000 Undervaluation of inventory 13,000 Underdepreciation ( 25,000) Pedro: Cash Pablo: Cash 11,000 Marketable securities _57,500 Total contributed capital Agreed Capitals: Bonus Method: Jose (P231,500 x 50%) P115,750 P 135,000 28,000 _68,500 P 231,500 Pedro (P231,500 x 25%) 57,875 Pablo (P231,500 x 25%) 57,875 Total P231,500 Partnership – Basic Considerations and Formation Goodwill Method To have a goodwill, the only possible base is the capital of Pablo The computation is: Contributed Capital Jose Pedro Pablo Total Agreed Capital P135,000 28,000 68,500 P231,500 Goodwill P137,000 (50%) 68,500 (25%) 68,500 (25%) 274,000 2,000 40,500 _– 42,500 Total agreed capital (P68,500 ÷ 25%) = 274,000 Jose, Pedro and Pablo Partnership Balance Sheet June 30, 2008 Assets: Cash Accounts receivable (net) Marketable securities Inventory Equipment (net) Goodwill Total Bonus Method Goodwill Method P 49,000 48,000 57,500 85,000 45,000 – P284,500 P 49,000 48,000 57,500 85,000 45,000 42,500 P327,000 P 53,000 115,750 57,875 57,875 P284,500 P 53,000 137,000 68,500 68,500 P327,000 Liabilities and Capital: Accounts payable Jose, capital (50%) Pedro, capital (25%) Pablo, capital (25%) Total Problem – Books of Pepe Basco To adjust the assets a Pepe Basco, Capital 3,200 Estimated Uncollectible Account b Pepe Basco, Capital Accumulated Depreciation – Furniture and Fixtures 3,200 500 500 12 Chapter To close the books Estimated Uncollectible Account Accumulated Depreciation – Furniture and Fixtures Accounts Payable Pepe Basco, Capital Cash Accounts Receivable Merchandise Inventory Furniture and Fixtures 4,800 1,500 3,600 31,500 400 16,000 20,000 5,000 Books of the Partnership To record the investment of Pepe Basco Cash Accounts Receivable Merchandise Inventory Furniture and Fixtures Estimated Uncollectible account Accumulated Depreciation – Furniture and Fixtures Accounts Payable Pepe Basco, Capital 400 16,000 20,000 5,000 4,800 1,500 3,600 31,500 To record the investment of Carlo Torre Cash Carlo Torre, Capital Computation: Pepe Basco, capital (Base) Divide by Pepe Basco's P & L ratio Total agreed capital Multiply by Carlo Torre's P & L ratio Cash to be invested by Carlo Torre Problem – a Roces' books will be used by the partnership Books of Sales Adjusting Entries 47,250 47,250 P31,500 _40% P78,750 _60% P47,250 (a) Sales, Capital Accumulated Depreciation – Fixtures 3,200 (b) Goodwill Sales, Capital 32,000 3,200 32,000 Partnership – Basic Considerations and Formation Closing Entry Allowance for Bad Debts Accumulated Depreciation – Delivery Equipment Accumulated Depreciation – Fixtures Accounts Payable Notes Payable Accrued Taxes Sales, Capital Cash Accounts Inventory Merchandise Inventory Prepaid Insurance Delivery Equipment Fixtures Goodwill 12,800 8,000 91,200 64,000 40,000 8,000 224,000 4,800 72,000 192,000 3,200 48,000 96,000 32,000 Books of Roces (Books of the Partnership) Adjusting Entries (a) Roces, Capital Allowance for Bad Debts 1,600 (b) Accumulated Depreciation – Fixtures Roces, Capital 16,000 (c) Merchandise Inventory Roces, Capital 8,000 (d) Goodwill Roces, Capital 40,000 1,600 16,000 8,000 40,000 To record the investment of Sales Cash Accounts Receivable Merchandise Inventory Prepaid Insurance Delivery Equipment Fixtures Goodwill Allowance for Bad Debts Accumulated Depreciation – Delivery Equipment 4,800 72,000 192,000 3,200 48,000 96,000 32,000 12,800 8,000 Accumulated Depreciation – Fixtures Accounts Payable Notes Payable Accrued Taxes Sales, Capital 91,200 64,000 40,000 8,000 224,000 14 Chapter b Sales' books will be used by the partnership Books of Roces Adjusting Entries See Requirement (a) Closing Entry Allowance for Bad Debts Accumulated Depreciation – Delivery Equipment Accumulated Depreciation – Fixtures Accounts Payable Accrued Taxes Roces, Capital Cash Accounts Receivable Merchandise Inventory Prepaid Insurance Delivery Equipment Fixtures Goodwill 1,600 12,800 64,000 104,000 6,400 224,000 14,400 57,600 132,800 4,800 19,200 144,000 40,000 Books of Sales (Books of the Partnership) Adjusting Entries See Requirement (a) To record the investment of Roces Cash Accounts Receivable Merchandise Inventory Prepaid Insurance Delivery Equipment Fixtures Goodwill Allowance for Bad Debts Accumulated Depreciation – Delivery Equipment Accumulated Depreciation – Fixtures Accounts Payable 14,400 57,600 132,800 4,800 19,200 144,000 40,000 1,600 12,800 64,000 104,000 Accrued Taxes Roces, Capital 6,400 224,000 Partnership – Basic Considerations and Formation c A new set of books will be opened by the partnership Books of Roces Adjusting Entries See Requirement (a) Closing Entry See Requirement (b) Books of Sales Adjusting Entries See Requirement (a) Closing Entry See Requirement (a) New Partnership Books To record the investment of Roces and Sales Cash Accounts Receivable Merchandise Inventory Prepaid Insurance Delivery Equipment (net) Fixtures (net) Goodwill Allowance for Bad Debts Accounts Payable Notes Payable Accrued Taxes Roces, Capital Sales, Capital 19,200 129,600 324,800 8,000 46,400 84,800 72,000 14,400 168,000 40,000 14,000 224,000 224,000 16 Chapter Problem – To close Magno's books Allowance for Bad Debts Accounts Payable Notes Payable Accrued Interest Payable R Magno, Capital Cash Accounts Receivable Merchandise Inventory Equipment Other Assets 5,000 13,000 12,000 3,000 9,000 To adjust the books of Lagman Goodwill Allowance for Bad Debts J Lagman, Capital 1,000 6,000 10,000 300 24,700 8,000 210 7,790 To record the investment of Magno Cash Accounts Receivable Merchandise Inventory Equipment Other Assets Allowance for Bad Debts Accounts Payable Notes Payable Accrued Interest Payable R Magno, Capital 5,000 13,000 12,000 3,000 9,000 1,000 6,000 10,000 300 24,700 To adjust the investments of the partners Cash R Magno, Capital (P35,000 – P24,700 = P10,300) 10,300 10,300 J Lagman, Capital Cash Accounts Payable to J Lagman (P63,000 + P7,790 = P70,790 – P35,000 = P35,790) 35,790 23,300 12,490 Partnership – Basic Considerations and Formation Lagman and Magno Balance Sheet December 31, 2008 Assets Cash Accounts receivable Less Allowance for bad debts Merchandise inventory Equipment Other assets Goodwill Total Assets P P34,000 1,210 32,790 21,000 8,000 46,000 _8,000 P115,790 Liabilities and Capital Accounts payable Notes payable Accrued interest payable Accounts payable to J Lagman J Lagman, capital R Magno, capital Total Liabilities and Capital P 18,000 15,000 300 12,490 35,000 35,000 P115,790 Problem – Books of Toledo Toledo, Capital Allowance for Bad Debts (15% x P32,000) 4,800 4,800 Books of Ureta Ureta, Capital Allowance for Bad Debts (10% x P24,000) 2,400 Cash (90% x P12,000) Loss from Sale of Office Equipment Office Equipment 10,800 1,200 2,400 12,000 Toledo, Capital (1/4 x P1,200) Ureta, Capital Loss from Sale of Office Equipment 300 900 1,200 18 Chapter New Partnership Books Cash Accounts Receivable Merchandise Office Equipment Allowance for Bad Debts Accounts Payable Notes Payable Toledo, Capital To record the investment of Toledo 3,200 32,000 40,000 10,000 Cash Accounts Receivable Merchandise Toledo, Capital Allowable for Bad Debts Accounts Payable Ureta, Capital To record the investment of Ureta 22,800 24,000 36,000 300 Cash Ureta, Capital To record Ureta's cash contribution 3,400 Computation: Toledo, capital (P68,400 – P300) Divide by Toledo's profit share percentage Total agreed capital of the partnership Multiply by Ureta's profit share percentage Agreed capital of Ureta Ureta, capital Cash contribution of Ureta or Toledo, capital (P68,400 – P300) Less Ureta, capital Cash contribution of Ureta 4,800 10,000 2,000 68,400 2,400 16,000 64,700 3,400 P 68,100 50% P136,200 50% P 68,100 64,700 P 3,400 P 68,100 64,700 P 3,400 Partnership – Basic Considerations and Formation Toledo and Ureta Partnership Balance Sheet July 1, 2008 Assets Cash Accounts receivable Less Allowance for bad debts Merchandise Office equipment Total Assets P 29,400 P56,000 7,200 48,800 76,000 10,000 P164,200 Liabilities and Capital Accounts payable Notes payable Toledo, capital Ureta, capital Total Liabilities and Capital P 26,000 2,000 68,100 68,100 P164,200 ... Divide by Pepe Basco's P & L ratio Total agreed capital Multiply by Carlo Torre's P & L ratio Cash to be invested by Carlo Torre Problem – a Roces' books will be used by. .. capital (40%) Cash Furniture and Fixtures Divide by Moran's P & L share percentage P 15,000 _100,000 Total partnership capital Multiply by Nakar's P & L share percentage Required capital of credit... investment by Nakar P115,000 40% P287,500 60% P172,500 P 45,000 15,000 65,000 P125,000 30,000 P 95,000 P 77,500 1-18: c Garcia's adjusted capital (see schedule 1) Divide by Garcia's P & L share