CHAPTER-3 Advance Accounting Solman

Partnership Dissolution – Changes in Ownership

CHAPTER 3 MULTIPLE CHOICE ANSWERS AND SOLUTIONS 3-1:

c Implied capital of the partnership (P90,000/20%) P450,000 Actual value of the partnership ( 420,000) Goodwill

30,000 HIZON Capital balances before Goodwill Goodwill to old partners _____– Total Purchase by Hizon (20%) _90,000 Capital balances after admission P 90,000 3-2:

DAVID

P252,000 __18,000

P126,000 ___9,000

P42,000 __3,000

P270,000 ( 54,000)

P135,000 ( 27,000)

P45,000 ( 9,000)

P216,000

P108,000

P36,000

AQUINO

LOCSIN

DAVID

P252,000 ( 50,400)

P126,000 ( 25,200)

P42,000 ( 8,400)

P201,600

P100,800

P33,600

AQUINO

LOCSIN

DAVID

P 50,400

P 25,200

P 8,400

__3,600

__1,800

___600

P 54,000

P 27,000

P 9,000

d TOTAL Capital transferred P 84,000 Excess divided using profit and loss ratio __6,000 Cash distribution P 90,000

3-4:

LOCSIN

b HIZON Capital balances before admission Purchase by Hizon (20%) _84,000 Capital balances after admission P 84,000

3-3:

AQUINO

b Selling price Interest sold (444,000X1/5) Combine gain

P132,000 ( 88,800) P 43,200

3-5:

b Implied value of the partnership (P40,000/1/4) P160,000 Actual value ( 140,000) Goodwill

20,000 DIAZ Cash balances P 20,000 Goodwill, Profit and Loss ratio __2,000 Total

BERNAL

CUEVAS

P 80,000

P40,000

__12,000

__6,000

P 92,000

P46,000

( 23,000)

( 11,500)

P 69,000

P34,500

BANZON

CORTEZ

P 16,000

P 4,000

__6,000

__4,000

P 22,000

P 8,000

PEREZ

CADIZ

P 24,000

P 48,000

5,430

10,860

000 Capital Transfer (1/4) ( 5,500) Capital balances after admission P 16,500 49 Chapter 3

3-6:

b TOTAL Capital Transfer (20%) P20,000 Excess, Profit and Loss ratio _10,000 Cash distribution P30,000

3-7:

d TOTAL Capital balances beginning P 72,000 Net profit, 1:2 16,290 Drawings

( 5,050)

( 8,000)

P 24,380

P 50,860

( 5,570)

( 13,240)

P 18,810

P 37,620

,050) Capital balances before admission P 75,240 Capital transfer (squeeze) (18,810) (1/4) Capital balances after admission 1:2

P 56,430 Capital transfer P18,810 Excess, 1:2 _11,190 Cash P30,000 3-8:

P 5,570

P 13,240

__3,730

__7,460

P 9,300

P 20,700

a Total agreed capital (P150,000/5/6) Diana's Interest Cash distribution

3-9:

3-10:

P180,000 1/6 P 30,000

a Total agreed capital (P36,000/1/5) Total contributed capital (80,000+40,000+36,000) Unrecognized Goodwill

P180,000 ( 156,000) P 24,000

b

Increase (Dec.) (P 10,000) _10,000 P –

Old partners New partner Total

Contributed Agreed Capital Capital P110,000 P100,000 __40,000 __50,000 P150,000 P150,000

Ben, capital balance before admission Bonus share to new partner (10,000X60%) Ben, capital after admission 3-11:

P 60,000 ( 6,000) P 54,000

c Total agreed capital (P40,000+20,000+17,000) Pete's interest Pete's agreed capital balance

P 77,000 1/5 P 15,400

Partnership Dissolution – Changes in Ownership

3-12:

b Old partner New partner Total

Capital balances before admission Investment by Lory

Contributed Capital P 65,000 25,000 (1/3) P 90,000

Agreed Capital P60,000 30,000 P90,000

Increase (Dec.) (P 5,000) _5,000 P –

FRED P 35,000 –

RAUL P30,000 –

LORY – 25,000

Bonus to Lory Capital balances after admission 3-13:

( 3,500) P 31,500

( 1,500) P28,500

c Total agreed capital (90,000+60,000+70,000) Augusts' interest Agreed capital Contributed capital Bonus to June & July

P220,000 _____1/4 P 55,000 __70,000 P 15,000 JUNE P90,000 __7,500 P97,500

Capital balances before admission Bonus from August, equally Capital balances after admission 3-14:

JULY P 60,000 __7,500 P 67,500

a Total agreed capital (52,000 + 88,000)/80%) Total capital of Mira & Nina after admission Cash paid by Elma

3-15:

__5,000 P 30,000

P175,000 ( 140,000) P 35,000

a Total agreed capital (P41,600/2/3) Total contributed capital (P23,000+18,600+16,000) Goodwill to new partner, Ang

Capital balances before admission Investment by Ang Goodwill to August Capital balances after admission

LIM P23,000 – _____– P23,000

P 62,400 ( 57,600) P 4,800 ONG P 18,600 – ______– P 18,600

ANG – 16,000 __4,800 P20,800

51 Chapter 3

3-16:

a

Capital balances before admission P1,300,000 Admission by Dong: By Purchase (1/2) By Investment ___300,000 Capital balances before

ANG

BENG

CHING

DONG

P600,000

P 400,000

P 300,000

–

( 300,000) _______–

– _______–

– _______–

300,000 _300,000

TOTAL

Goodwill and Bonus P300,000 P1,600,000 Goodwill to Old Partners (sch. 1) 150,000 Bonus to Old Partners (sch. 1) __37,500 ________– Capital balances after admission P487,500 P2,000,000 Schedule 1: Old Partners New Partner Total

P 400,000

P 300,000

P600,000

150,000 __37,500

100,000 __25,000

– ( 100,000)

P 587,500

P 425,000

CC AC P 1,000,000 P1,500,000 600,000 (25%) __500,000 P 1,600,000 P2,000,000

400,000

P500,000 Inc. (Dec.) P500,000 ( 100,000) Bonus P400,000 GW

3-17: b Capital balances before admission of Alma P 200,000 Admission of Alma: Investment Goodwill to old partner, 70:30 (sch. 1) ___40,000 Capital balances before admission of Lorna P 320,000 Admission of Lorna: Goodwill Written off, 5:3:2 ( P40,000) Investment Goodwill to old partners, 5:3:2 (sch. 2) ___20,000 Capital balances after admission P 375,000

MONA

LIZA

ALMA

LORNA

P150,000

P 50,000

–

–

–

–

80,000

–

__28,000

___12,000

_______–

______–

P178,000

P 62,000

P 80,000

–

(P 20,000)

(P 12,000) (

P8,000)

–

–

75,000

__10,000

____6,000

____4,000

______–

P168,000

P 56,000

P 76,000

P 75,000

Schedule 2: Total agreed capital (75,000/20%) P 375,000 Total contributed capital (280,000+75,000)

80,000

–

–

Schedule 1: Total agreed capital (80,000/25%) P 320,000 Total capital contributed (200,000+80,000) ( 280,000) Goodwill to old partners, 70:30 40,000

TOTAL

75,000

( 355,000) Goodwill to old partners, 5:3:2

P

20,000 Partnership Dissolution – Changes in Ownership

3-18:

c

TOTAL Unadjusted capital balances P320,000 Overvaluation of Marketable Securities ( 25,000) Allowance for Bad Debts ( 25,000) Adjusted capital balances before admission P270,000 Total agreed capital (270,000/2/3) Green's interest Investment 3-19:

RED

WHITE

BLUE

P175,000

P100,000

P 45,000

( 12,500)

( 7,500)

( 5,000)

( 12,500)

( 7,500)

( 5,000)

P150,000

P 85,000

P 35,000

P405,000 1/3 P135,000

b

TOTAL Capital balances before admission P720,000 Capital transfer to WW (1/6) ______– Balances P720,000 Equalization of capital ______– Balances P720,000 Net profit, equally 12,600 Drawings (2 months) _( 7,000) Capital balances before WWs Investment P725,600

XX

YY

ZZ

WW

P360,000

P225,000

P135,000

–

( 60,000)

( 37,500)

( 22,500)

_120,000

P300,000

P187,500

P112,500

P120,000

( 100,000)

__12,500

__87,500

______–

P200,000

P200,000

P200,000

P120,000

3,150

3,150

3,150

3,150

_( 1,500)

_( 2,000)

_( 1,500)

_( 2,000)

P201,650

P201,150

P201,650

P121,150

Total agreed capital (201,650+201,150+201,650)/2/3 WW's interest Agreed capital of WW Contributed capital (see above)

P906,675 1/3 P302,225 _121,150

3-20:

Cash to be invested a

P181,075

Capital balances P 45,000 Understatement of assets, P12,000 __6,000 Balances before settlement to A P 51,000 Settlement to A A's interest (23,750+5,000) Partial Goodwill to A

A P 20,750

B P 19,250

__3,000

__3,000

P 23,750

P 22,250

P 30,250 _28,750 P 1,500

Therefore: 1. Under partial Goodwill method the capital balances of B is P 22,250 2. Under Bonus method the capital balances of B would be: B, capital balances before settlement to A P 22,250 Bonus to A (1,500X25/75) _( 500) B, capital after retirement of A P 21,750 53 Chapter 3

3-21:

a Perez Suarez Capital balances P 200,000 Net income, P140,000 28,000 Undervaluation of inventory, P20,000 ____4,000 Capital balances before settlement to Perez P 232,000 Settlement to Perez Bonus to Perez _( 6,000) Capital balances after retirement P 226,000

3-22:

Reyes

P 100,000

P 150,000

70,000

42,000

___10,000

____6,000

P 180,000

P 198,000

( 195,000) ___15,000

_(

P

–

P 189,000

ELY

FLOR

P 320,000

P 192,000

– 9,000)

c GLOR Capital balances P 128,000 Settlement to Ely Total Goodwill (P40,000/50%)P80,000 ___16,000 Capital balances after retirement of Ely

( 360,000) – __40,000 ___24,000 P

–

P 216,000

P 144,000 3-23:

c Capital balance 3/1/011 Net loss-2011: Salary (10 months) Interest (10 months) Bal. beg. cap. ratio: 48:24 Total Capital balance Drawings Capital balance, 12/31/011 Net profit- 2012: Salary Interest Balance, equally Total Capital balance Drawings Capital balance 12/31/12

_Alma_ 480,000

_Betty_ 240,000

480,000 40,000 ( 544,000) ( 24,000) 456,000 ( 24,000) 432,000

240,000 20,000 ( 272,000) ( 12,000) 228,000 ( 24,000) 204,000

720,000 60,000 ( 816,000) ( 36,000) 684,000 ( 48,000) 636,000

576,000 43,200 ( 397,800) 221,400 653,400 ( 24,000) 629,400

288,000 20,400 ( 397,800) ( 89,400) 114,600 ( 24,000) 90,600

864,000 63,600 ( 795,600) 132,000 768,000 ( 48,000) 720,000

Admission of Cora on Jan. 2, 2013: Total contributed capital (720,000 + 400,000) Cora’s interest Cora’s agreed capital Cora’s contributed capital Bonus to Cora, from Alma and Betty 4:2 Therefore entry (c) is correct.

_Total_ 720,000

1,120,000 40% 448,000 400,000 48,000

Partnership Dissolution – Changes in Ownership

3-24:

a Capital balance, beg. 2013 2013 net profit (90,000 – 59,000): Interest Compensation Balance, 4:6 Total

Balance Withdrawal Repairs (charge to Pete) Capital balance, 12/31/013

_Pete_ P80,000 8,000 5,000 ( 2,000) 11,000

91,000 ( 8,000) ( 5,000) 78,000

1/1/013: Admission of Sammy Total agreed capital (P117,000 +43,000) Sammy’s interest

_Carlos_ P30,000

_Total_ P110,000

3,000 20,000 ( 3,000) 20,000

50,000 ( 11,000) 39,000

11,000 25,000 ( 5,000) 31,000

141,000 (19,000) ( 5,000) 117,000 P160,000 20%

Sammy’s agreed capital Sammy’s contributed capital Bonus to Pete & Carlos, 4:6 Therefore entry (a) is correct. 3-25:

32,000 43,000 11,000

d

Capital balances, 8/1/012 Capital withdrawal Balances before P/L distribution Net income, 12/31, P100,000: Interest Salary to Maria Balance, equally Balances, 12/31/012 Capital withdrawal Balances before P/L distribution Net income, 7/1/013, P150,000: Interest Salary to Mara Balance, 60:40 Balances before admission of Paz Admission of Paz: Cash investment Goodwill to Maria and Ana,6:4 Balances, 7/1/013

Maria P300,000 (25,000) 275,000

Ana P1,500,000 (25,000) 1,475,000

6,250 40,000 11,250 332,500 (30,000) 302,500

31,250 11,250 1,517,500 (30,000) 1,487,500

37,500 40,000 22,500 1,850,000 (60,000) 1,790,000

8,312.5 48,000 33,450 392,262.5

37,937.5 22,300 1,547,737.5

46,250 48,000 55,750 1,940,000

276,000 668,262.5

184,000 1,731,737.5

* Total agreed capital (P800,000/25%) Total contributed capital (P1,940,000 + P800,000) Goodwill to Maria and Ana, 6:4

Paz -

P

800,000 800,000

Total P1,800,000 (50,000) 1,750,000

800,000 460,000* 3,200,000

P3,200,000 2,740,000 P460,000

55 Chapter 3 3-25: Continued

Balances after admission of Paz Capital withdrawal Balance before P/L distribution Net income 12/31/013, P150,000: Interest Salaries Balance, 45:30:25 Capital balance, 12/31/013

3-26:

a

Maria P668,262.5 (12,000) 656,262.5

Ana P1,731,737.5 (12,000) 1,719,737.5

Paz P800,000 (12,000) 788,000

Total P3,200,000 (36,000) 3,164,000

16,707 12,000 15,300 P700,269.5

43,293 12,000 10,200 P1,785,230.5

20,000 12,000 8,500 P828,500

80,000 36,000 34,000 P3,314,000

Total agreed capital of the new partnership (P84,000 / 30%) Total contributed capital: Old partners (P45,000 + P65,000) + P30,000 P140,000 New partner 84,000 Goodwill

P 280,000 224,000 P 56,000

If the P56,000 goodwill proved to be worthless, Warren would be charged 35% of P56,000, or P19,600. However, the real harm to Warren would be that of having paid more to enter the partnership than he should have. If the goodwill did not exist, then the adjusted assets of the previous partners would have been P140,0000, which represents 70% of the total partnership value of P200,000. In that case, Warren would have only paid P60,000 for a 30% interest in capital. Therefore, Warren would have paid extra P24,000 (P84.000 against P60,000) for the goodwill that proved to be worthless. 3-27:

c Allocation of profits under the original partnership’s agreement: Amor P30,000 12,000 10,000 P52,000

Salaries Bonus to Amor* Remaining profits Total

Bea P30,000

Cora P40,000

4,000 P34,000

6,000 P46,000

Total P100,000 12,000 20,000 P132,000

*Bonus = 10% (Net income – Bonus) 110% Bonus = 10% (Net income) 110% Bonus = P13,200 Bonus = P12,000

Partnership Dissolution – Changes in Ownership Interest

56

3-27, Continued

Allocation of new partnership profits necessary to satisfy Bea:

Salaries Remaining profits (Sch. 1) Bonus to Dina, (Sch. 2) Total

Amor P30,000 42,000

Bea P30,000 14,000

Cora P40,000 42,000

P72,000

P44,000

P82,000

Dina P30,000 42,000 20,000 P92,000

Total P130,000 140,000 20,000 P290,000

Sch. 1: In order for Bea to increase his allocation by P10,000, she would need to received a P14,000 allocation based on the profit ratio. Therefore, the total amount of profit subject to this allocation would be P140,000 (P14,000 / 10%).

Sch. 2: If the cumulative total of income allocated before the bonus to Dina is P270,000, then Dina would be entitled to the P20,000 bonus under the revised agreement. 3-28:

a

Total capital of the new partnership (P56,000 / 70%) Total fair value of the net assets of the original partnership : (P530,000 – P474,000) Dina should pay 3-29:

P80,000 56,000 P24,000

a. Fair value of the original partnership: Value of recorded net assets Value of goodwill Total fair value

P268,000 40,000 P308,000

Total agreed capital of new partnership (P308,000 / 70%) Total capital of the original partnership Total contribution needed from Carlos Fair value of recorded assets contributed Fair value of intangible contributed Necessary cash contribution

P440,000 308,000 132,000 (90,000) (20,000) P 22,000

57 Chapter 3

3-30:

1. b Net income per books Adjustments: Accrued expenses Inventory overstated Unrecorded purchases Income received in advance Supplies Corrected net income

P50,000 2,400 (6,200) (4,000) 3,000 1,800 P47,000

Lina’s new P/L ratio (50% x 80%) Lina’s share 2.

b

3.

b

4.

d

40% P18,800

Computations: Capital balances bef. Adm. Admission of Olga Bonus to Olga (Sch. 1) Balances, 1/1/012 Division of profit Balances, 12/31/012 Sale of interest of L to M Division of profit Drawings Balances, 12/31/013 Division of profit Inventory overvalued Balances before retirement Settlement to Mina Total goodwill Balances, 12/31/014

Lina P150,000

Mina P90,000

Nina P60,000

Olga

(14,000) 136,000 18,800 154,800 (154,800)

8,400) 81,600 11,280 92,880 154,800 100,000 (20,000) 327,680 65,000 (5,000) 387,680 (425,360) 37,680

(5,600) 54,400 7,520 61,920

40,000 28,000 68,000 9,400 77,400

100,000 (10,000) 151,920 65,000 (5,000) 211,920

100,000 (5,000) 172,400 65,000 (5,000) 232,400

37,680 249,600

37,680 270,080

Partnership Dissolution – Changes in Ownership Interest

3-31:

Total P340,000 40,000 340,000 47,000 387,000 300,000 (35,000) 652,000 195,000 (15,000) 832,000 (425,360) 113,040 P519,680

58

a Partnership Fair value of original partnership: Assets at book value Liabilities at book and fair value (a) Book value of original partnership assets appreciation (depreciation) (b) Net assets

AA

BB

CC

P500,000 (369,500) 130,500 (50,000) 80,500

P600,000 (410,000) 190,000 125,000 315,000

P800,000 (558,000) 242,000 50,000 292,000

Percent of new partnership represented by: (c) Investment of new partner (d) Fair value of the original partnership (e) Fair value of new partnership suggested by the fair value of the original partnership (b / d) (f) Fair value of original partnership (g) Fair value of consideration that should be conveyed by the Darna (e-f)

3-32:

30% 70%

25% 75%

20% 80%

P115,000 80,500

P420,000 315,000

P365.000 292,000

P34,500

P105,000

P73,000

1.a 2.a 3.b 4.b Computations: Maya

Rita

2010: Balances, 1/1/10 Allocation of profit, sch. 1 Distributions Balances, 12/31/10

P54,000 127,000 (100,000) P81,600

P76,000 102,400 (100,000) P78,400

2011: Balances, 1/1/11 Admission of Hara * Allocation of profit,sch. 1 Distributions Balances, 12/31/11

P81,600 30,000 145,250 (80,000) P176,850

P78,400 20,000 98,875 (80,000) P117,275

Hara

Perla

Total P130,000 230,000 (200,000) P160,000

P

-

P

-

P

-

P

-

P

-

P

-

P 70,000 85,875 (80,000) P 75,875

59

P160,000 120,000 330,000 (240,000) P370,000

Chapter 3

3-32, Continued

2012: Balances, 1/1/012 Sale of interest to Rita Allocation of profit, sch. 1 Distributions Balances, 12/31/012 2013: Balances, 1/1/013 Adjustment of net assets

Maya

Rita

Hara

P176,850 (176,850) P -

P117,272 176,850 100,000 (60,000) P334,125

P75,875 100,000 (80,000) P95,875

P334,125 (5,000)

P95,875 (5,000)

P

-

Perla

Total

P

-

P

-

P370,000 200,000 (140,000) P430,000

P

-

P430,000 (10,000)

Recognition of goodwill** Sale of interest by Rita Subtotal Admission of Perla*** Balances, 12/31/013

P

-

20,875 (350,000) P -

P

-

P

-

P90,875 21,625 P112,500

P

75,000 P 75,000

20,875 (350,000) P90,875 96,625 P187,500

Schedule 1: 2010 Allocation of profit: Maya 40% P80,000 46,000 1,600 P127,600

Profit and loss ratio Salary Bonus (see schedule 2) Balance Total

Rita 60% P100,000 2,400 P102,400

Total P180,000 46,000 4,000 P230,000

2011Allocation of profit: Profit and loss ratio Salary Bonus (see schedule 2) Balance Total

Maya 30% P80,000 66,000 (750) P145,250

Schedule 2: 2010 Bonus: Maya (P230,000 x 20%) 20011Bonus: Maya (P330,000 x 20%) Hara (P330,000 x 20%)

Rita 45% P100,000 (1,125) P98,875

Hara 25% P70,000 16,500 (625) P85,875

Total P250,000 82,500 (2,500) P330,000

P46,000 P66,000 16,500 P82,500

Partnership Dissolution – Changes in Ownership 3-32, Continued * Admission of Hara: Total agreed capital of new partnership (P70,000 / 25%) Total contributed capital (P160,000 + P70,000) Goodwill to old partners

P280,000 230,000 P 50,000

** Sale of interest by Rita: Settlement to Rita Rita’s adjusted capital balance Goodwill traceable to Rita

P350,000 329,125 P 20,875

*** Admission of Perla:

Total agreed capital of the new partnership (P75,000 / 40%) Total contributed capital of all the partners (P90,875 + P75,000) Goodwill to Hara

P187,500 165,875 P 21,625

61

Chapter 3

SOLUTIONS TO PROBLEMS (a)

Problem 3 – 1 1. Revaluation of Assets: Total agreed capital (P75,000  25%).....................................P300,000 Total contributed capital........................................................ ._275,000 Upward revaluation of assets, P/L ratio..................................P 25,000 Entry Assets................................................................................ Cash................................................................................. Red, capital.................................................................. White, capital...............................................................

25,000 75,000 5,000 10,000

Blue, capital................................................................. Green, capital...............................................................

10,000 75,000

2. Bonus Method: Contributed capital of Green....................................................P 75,000 Agreed capital of Green (P275,000 x 25%).............................._68,750 Bonus to old partners, P/L ratio...............................................P 6,250 Entry: Cash................................................................................. Green, capital............................................................... Red, capital.................................................................. White, capital............................................................... Blue, capital.................................................................

75,000 68,750 1,250 2,500 2,500

(b) 1. Implicit Goodwill Method: Total Implied Capital (P75,000  25)......................................P300,000 Total existing capital.............................................................. ._200,000 Implied Goodwill to old partners............................................P100,000 Entries: Goodwill........................................................................... Red, capital.................................................................. White, capital............................................................... Blue, capital.................................................................

100,000 20,000 40,000 40,000

Red, capital (25% x P80,000)........................................... White, capital (25% x p120,000)...................................... Blue, capital (25% x P100,000)........................................ Green, capital...............................................................

20,000 30,000 25,000

2. Red, capital (25% x P10,000)...................................................... White, capital (25% x P80,000).................................................. Blue, capital (25% x P60,000).................................................... Green, capital.......................................................................

15,000 20,000 15,000

75,000

50,000

Partnership Dissolution – Changes in Ownership Interest

Problem 3 – 2 a.

(1) Bonus Method: Contributed capital of Tomas............................................................................. Agreed capital of Tomas (P640,000 x 20%)....................................................... Bonus to old partners, P/L ratio.......................................................................... BRUNO MARIO TOMAS Balances before admission..................... P200,000 P300,000 – Admission of Tomas............................... ___9,000 ___3,000 _128,000 Balances after admission........................ P209,000 P303,000 P128,000 (2) Goodwill Method: Total agreed capital (P140,000  20%). ......................................... Total contributed capital.................................................................

P700,000 _640,000

P140,000 _128,000 P 12,000 TOTAL P500,000 _140,000 P640,000

Goodwill to old partners, P/L ratio................................................. BRUNO MARIO Balances before admission..................... P200,000 P300,000 Admission of Tomas............................... __45,000 __15,000 Balances after admission........................ P245,000 P315,000

P 60,000 TOMAS P – _140,000 P140,000

TOTAL P500,000 _200,000 P700,000

(3) Goodwill with subsequent write-off. Balances from A-2.................................. Goodwill written off, 6:2:2..................... Balances.................................................. b. Balances from A-2.................................. Goodwill written off, 4:4:2..................... Balances..................................................

BRUNO P245,000 ( 36,000) P209,000 BRUNO P245,000 ( 24,000) P221,000

MARIO P315,000 ( 12,000) P303,000 MARIO P315,000 ( 24,000) P291,000

TOMAS TOTAL P140,000 P700,000 ( 12,000) ( 60,000) P128,000 P640,000 TOMAS TOTAL P140,000 P700,000 ( 12,000) ( 60,000) P128,000 P640,000

Problem 3 – 3 a.

b.

Total capital after admission (P76,000 + P104,000)......................................................... Total capital before admission (P60,000 + P80,000)........................................................ Goodwill recorded............................................................................................................

P180,000 _140,000 P 40,000

Total capital of the partnership (P180,000  75%)........................................................... Less: Total capital of old partners plus Goodwill (P140,000 + 40,000)........................... Cash payment by Barry.....................................................................................................

P240,000 _180,000 P 60,000

Total capital after admission (P52,000 + P68,000)........................................................... Total capital before admission.......................................................................................... Bonus to Barry..................................................................................................................

P120,000 _140,000 P 20,000

Agreed capital of Barry (P120,000  75%) x 25%........................................................... Less: Bonus ................................................................................................................... Cash payment by Barry.....................................................................................................

P 40,000 __20,000 P 20,000

.

Chapter 3

63

Problem 3 – 4 a.

Total agreed capital (P60,000  20%)..................................................P300,000 Total contributed capital (P100,000 + P40,000 + P60,000)................ ._200,000 Goodwill to old partners, P/L ratio......................................................P100,000 Entry: Cash. .......................................................................................... Goodwill..................................................................................... Gene, capital......................................................................... Nancy, capital....................................................................... Ellen, capital.........................................................................

60,000 100,000 80,000 20,000 60,000

b.

Cash................................................................................................. Ellen, capital...............................................................................

60,000 60,000

No Goodwill, no bonus because the total agreed capital is equal to the total contributed capital. c.

d.

Gene, capital..................................................................................... Nancy, capital.................................................................................... Ellen, capital...............................................................................

20,000

Cash................................................................................................. Ellen, capital...............................................................................

32,000

8,000 28,000 32,000

Since the total agreed capital (P172,000) is equal to the total contributed capital (P172,000), then no Goodwill or bonus is to be recorded. e.

Total agreed capital (P140,000  80%)................................................P175,000 Total contributed capital (P140,000 + P32,000).................................. ._172,000 Goodwill to new partner......................................................................P 3,000 Entry: Cash. .......................................................................................... Goodwill..................................................................................... Ellen, capital.........................................................................

32,000 3,000 35,000

Problem 3 – 5 a. b.

Cash................................................................................................. Cherry capital.............................................................................

40,000 40,000

Total agreed capital (P120,000 + P50,000)..........................................P170,000 Cherry's interest...................................................................................____25% Cherry's agreed capital.............................................................................42,500 Contributed capital............................................................................. .__50,000 Bonus to old partners, 70:30................................................................P 7,500

Partnership Dissolution – Changes in Ownership Interest Problem 3-5, continued:

Entry: Cash. .......................................................................................... Cherry, capital...................................................................... Helen, capital........................................................................ Cathy, capital........................................................................ c.

50,000

Total agreed capital (P120,000 + P25,000)..........................................P145,000 Cherry's interest...................................................................................____25% Agreed capital of Cherry.........................................................................36,250 Contributed capital............................................................................. .__25,000 Bonus to new partner.......................................................................... .P 11,250

42,500 5,250 2,250

Entry: Cash. .......................................................................................... Helen, capital.............................................................................. Cathy, capital.............................................................................. Cherry, capital...................................................................... d.

36,250

Total agreed capital (P50,000  25%)..................................................P200,000 Total contributed capital (P120,000 + 50,000).......................................170,000 Goodwill to old partners, 70:30...........................................................P 30,000 Entry: Cash ..................................................................................... Goodwill..................................................................................... Cherry, capital...................................................................... Helen, capital........................................................................ Cathy, capital........................................................................

e.

25,000 7,875 3,375

50,000 30,000 50,000 21,000 9,000

Total agreed capital (P120,000  75%)................................................P160,000 Total contributed capital (P120,000 + P25,000).................................. ._145,000 Goodwill to new partner......................................................................P 15,000 Entry: Cash ..................................................................................... Goodwill..................................................................................... Cherry, capital......................................................................

25,000 15,000 40,000

Problem 3 – 6 a.

Total agreed capital (P600,000  3/4)................................................................. Santos interest..................................................................................................... Contribution of Santos........................................................................................

P800,000 _____1/4 P200,000

b.

Total agreed capital (P630,000  3/4)................................................................. Santos' interest.................................................................................................... Contribution of Santos........................................................................................

P840,000 _____1/4 P210,000

65 Problem 3-6, continued: c.

d.

e.

Chapter 3

Total agreed capital (P624,000  3/4)............................................................................................ Less: Contributed capital of old partners.......................................................................................

P832,000 _600,000

Contributed capital of Santos........................................................................................................

P232,000

Total agreed capital (P600,000  3/4)............................................................................................ Less: Goodwill ............................................................................................................................

P800,000 __10,000

Contributed capital........................................................................................................................ Contributed capital of old partners................................................................................................

790,000 _600,000

Contributed capital of Santos........................................................................................................

P190,000

Total agreed capital (Contributed)................................................................................................. Less: Contributed capital of old partners.......................................................................................

P820,000 _600,000

Contributed capital of Santos........................................................................................................

P220,000

Problem 3 – 7 a.

b.

c.

Tony, capital ........................................................................................................ Noel, capital......................................................................................................

40,000

Cash ........................................................................................................ Noel, capital...................................................................................................... (P180,000  2/3) x 1/3 = P90,000.

90,000

Cash......................................................................................................................... Goodwill................................................................................................................... Noel, capital......................................................................................................

56,000 4,000

40,000

90,000

60,000

Total agreed capital (P180,000  3/4).............................................................................P240,000 Total contributed capital (P180,000 + P56,000).............................................................._236,000 Goodwill to new partner.................................................................................................P 4,000 d.

Subas, capital……………………………………………………………… ............... Tony, capital………………………………………………………………… .............. Inventory………………………………………………………………........................ 24,000

14,400 9,600

Cash......................................................................................................................... 52,000 Noel, capital...................................................................................................... 52,000 Total agreed capital (P52,000  1/4)...............................................................................P208,000 Total capital before inventory write-down (180,000 + 52,000)......................................(232,000) e.

Write-down to old partners capital.................................................................................( 24,000) Land……………………………………………………………………………………….. .... 92,000 Subas, capital…………………………………………………………………….......... Tony, capital……………………………………………………………………. Subas, capital (P155,200 x 1/4)................................................................................ 38,800 Tony, capital (P116,800 x 1/4)................................................................................... 29,200 Noel, capital...................................................................................................... Total resulting capital (P68,000  1/4)...........................................................................P272,000 Total capital of old partner (net assets)............................................................................_180,000 Increase in value of land.................................................................................................P 92,000 Capital of old partner after revaluation of land: Subas (P100,000 + P55,200)..................................................................................P155,200 Tony (P80,000 + P36,800).........................................................................................116,800

55,200 36,800

68,000

Partnership Dissolution – Changes in Ownership Interest Problem 3-7, continued:

f.

Cash................................................................................................. Subas, capital.................................................................................... Tony, capital ..................................................................................... Noel, capital................................................................................

40,000 2,400 1,600

Agreed capital of Noel (P220,000 x 1/5)..............................................P 44,000 Contributed capital of Noel...................................................................._40,000 Bonus to Noel.......................................................................................P 4,000 g.

Cash................................................................................................. P60,000

44,000

Goodwill. .......................................................................................... Noel, capital................................................................................ Subas, capital (P60,000 x 3/5).................................................... Tony, capital (P60,000 x 2/5).......................................................

60,000 P 60,000 36,000 24,000

Total agreed capital (P60,000  1/5)....................................................P300,000 Total contributed capital (P180,000 + P60,000).................................. ._240,000 Goodwill to old partner, 3:2.................................................................P 60,000 Problem 3 – 8 a.

b.

c.

Conny, capital.................................................................................... Andy, capital (P8,000 x 3/4).............................................................. Benny, capital (P8,000 x 1/4)............................................................. Cash. ..........................................................................................

40,000 6,000 2,000

Goodwill. .......................................................................................... Conny, capital.................................................................................... Cash. ..........................................................................................

10,000 40,000

Goodwill (P5,000  1/5).................................................................... Conny, capital.................................................................................... Andy, capital (P25,000 x 3/5)...................................................... Benny, capital (P25,000 x 1/5).................................................... Cash .....................................................................................

25,000 40,000

48,000

50,000

15,000 5,000 45,000

Problem 3 – 9 a. b.

Spade, capital.................................................................................... Jack, capital................................................................................

120,000

Goodwill (P30,000  50%)................................................................ Ace, capital................................................................................. Jack, capital................................................................................ Spade, capital..............................................................................

60,000

Spade, capital (P120,000 + P30,000)................................................ Jack, capital................................................................................

150,000

120,000

12,000 18,000 30,000 150,000

67

Chapter 3

Problem 3-9 (Continued)

c.

Spade, capital.................................................................................... Cash. ..........................................................................................

180,000

Ace, capital (P60,000 x 2/5).............................................................. Jack, capital (P60,000 x 3/5)............................................................. Spade, capital..............................................................................

24,000 36,000

180,000

60,000

d.

e.

f.

g.

Land................................................................................................. Ace, capital (20%)....................................................................... Jack, capital (30%)..................................................................... Spade, capital (50%)...................................................................

20,000

Spade, capital.................................................................................... Ace, capital (P50,000 x .40).............................................................. Jack, capital (P50,000 x .60)............................................................. Cash. .......................................................................................... Land. ..........................................................................................

130,000 20,000 30,000

Goodwill. .......................................................................................... Spade, capital.................................................................................... Cash. ..........................................................................................

30,000 120,000

Goodwill (P30,000  50%)................................................................ Spade, capital.................................................................................... Ace, capital (P60,000 x 20%)...................................................... Jack, capital (P60,000 x 30%).................................................... Cash. ..........................................................................................

60,000 120,000

4,000 6,000 10,000

60,000 120,000

150,000

12,000 18,000 150,000

Land................................................................................................. P40,000 Ace, capital (20%)....................................................................... Jack, capital (30%)..................................................................... Spade, capital (50%)................................................................... Spade, capital (P120,000 + P20,000)................................................ Ace, capital (P10,000 x 40%)............................................................ Jack, capital (P10,000 x 60%)........................................................... Land. .......................................................................................... Note payable...............................................................................

8,000 12,000 20,000

140,000 4,000 6,000 100,000 50,000

Partnership Dissolution – Changes in Ownership Interest

Problem 3 – 10 Case 1: Bonus of P10,000 to Eddy: Eddy, capital............................................................................... Charly, capital (P10,000 x 3/5)................................................... Danny, capital (P10,000 x 2/5).................................................... Cash ..................................................................................... Case 2: Partial Goodwill to Eddy:

70,000 6,000 4,000 80,000

Goodwill..................................................................................... Eddy, capital............................................................................... Cash ..................................................................................... Case 3: Bonus of P5,000 to remaining partner: Eddy, capital............................................................................... Charly, capital (P5,000 x 3/5)............................................... Danny, capital (P5,000 x 2/5)............................................... Cash ..................................................................................... Case 4: Total Implied Goodwill of P24,000: Goodwill..................................................................................... Eddy, capital............................................................................... Charly, capital (P24,000 x 3/6)............................................. Danny, capital (P24,000 x 2/6)............................................. Cash ..................................................................................... Case 5: Other assets disbursed: Eddy, capital............................................................................... Other assets................................................................................. Charly, capital (P60,000 x 3/6)............................................. Danny, capital (P60,000 x 2/6)............................................. Cash ..................................................................................... Case 6: Danny purchases Eddy's capital interest: Eddy, capital............................................................................... Danny, capital.......................................................................

4,000 70,000 74,000 70,000 3,000 2,000 65,000 24,000 70,000 12,000 8,000 74,000 70,000 20,000 30,000 20,000 40,000 70,000 70,000

69

Chapter 3

Problem 3 – 11 a. 1/1/10

Building............................................................... Equipment............................................................ Cash .................................................................... Santos capital.............................................. To record initial investment.

52,000 16,000 12,000

12/31/10Reyes capital......................................................... Santos capital..............................................

22,000

40,000

12,000

Income summary......................................... To record distribution of loss as follows:

1/1/11

10,000

Interest................................................................. Additional profit.................................................. Balance to Reyes.................................................

Santos P 8,000 4,000 ______

Reyes P – (22,000)

Total P 8,000 4,000 (22,000

Total ....................................................................

P12,000

P(22,000)

(P10,000)

Cash .................................................................... Santos capital (15%)........................................... Reyes capital (85%)............................................. Cruz capital.................................................

15,000 300 1,700 17,000

(new investment by Cruz brings total capital to P85,000 after 2006 loss [80,000 – 10,000 + 15,000]. Cruz's 20% interest is P17,000 [85,000 x 20%] with the extra P2,000 coming from the two original partners [allocated between them according to their profit and loss ratio].) 12/31/11Santos capital....................................................... Reyes capital........................................................ Cruz capital......................................................... Santos drawings.......................................... Reyes drawings........................................... Cruz drawings.............................................

10,340 5,000 5,000 10,340 5,000 5,000

To close drawings accounts for the year based on distributing 20%. Of each partner's beginning capital balances [after adjustment for Cruz's investment] or P5,000 whichever is greater. Santos's capital Is P51,700 [40,000 + 12,000 – 300].) 12/31/11 Income summary.................................................. Santos capital.............................................. Reyes capital............................................... Cruz capital................................................. To allocate P44,000 income figure as computed below: Santos Interest (20% of P51,700).................................... P10,340 15% of P44,000 income....................................... 6,600 Balance, 60:40..................................................... ______

44,000

Reyes

Cruz

P16,236

P10,824

Total ....................................................................

P16,940

P16,236

P10,824

Initial investment, 2010....................................... 2010 loss.............................................................. Cruz investment................................................... 2011 drawings...................................................... 2011 profit...........................................................

Santos P40,000 12,000 (300) (10,340) _16,940

Reyes P40,000 (22,000) (1,700) (5,000) _16,236

Capital, 12/31/11..................................................

P58,300

P27,536

16,940 16,236 10,824

Partnership Dissolution – Changes in Ownership Interest Problem 3-11, continued:

Capital balances as of December 31, 2011 Cruz P17,000 (5,000) _10,824 P22,824

1/1/012 Cruz capital......................................................... Diaz capital................................................. To transfer capital purchase from Cruz to Diaz

22,824 22,824

12/31/012

Santos capital...................................................... 11,660 Reyes capital........................................................ 5,507 Diaz capital......................................................... 5,000 Santos drawings.......................................... 11,660 Reyes drawings........................................... 5,507 Diaz drawings............................................. 5,000 To close drawings accounts based on 20% of beginning capital Balances (above) or P5,000 (whichever is greater).

12/31/012

Income summary.................................................. Santos capital.............................................. Reyes capital............................................... Diaz capital................................................. To distribute profit for 2012 computed as follows:

61,000 20,810 24,114 16,076 Santos P11,660 9,150 ______

Reyes

Diaz

Interest (20% of P58,300).................................... 15% of P61,000 profit.......................................... Balance, P40,190, 60:40......................................

P24,114

P16,076

Total ....................................................................

P20,810

P24,114

P16,076

1/1/013 Diaz capital......................................................... 33,900 Santos capital (15%)........................................... 509 Reyes capital (85%)............................................. 2,881 Cash............................................................ 37,290 Diaz capital is [33,900 (P22,824 – P5,000 +P16,076)]. Extra 10% is deducted from the two remaining partners' capital accounts. b. 1/1/10

Building............................................................... Equipment............................................................ Cash .................................................................... Goodwill.............................................................. Santos capital.............................................. Reyes capital............................................... To record initial investments. Reyes is credited with goodwill of Santos investment.

52,000 16,000 12,000 80,000 80,000 80,000 P80,000 to match

71

Chapter 3

Problem 3-11, continued:

12/31/19

1/1/11

Reyes capital........................................................ 30,000 Santos capital.............................................. 20,000 Income summary......................................... 10,000 Interest of P16,000 is credited to Santos (P80,000 x 20%) along with a base of P4,000. The remaining profit is now a P30,000 loss which is attributed entirely to Reyes. Cash ....................................................................

15,000

Goodwill.............................................................. 22,500 Cruz capital................................................. 37,500 Cash and goodwill contributed by Cruz are recorded. Goodwill is Computed algebraically as follows: P15,000 + goodwill = P15,000 + goodwill = P15,000 + goodwill = .80 goodwill = goodwill =

20% (current capital + P15,000 + goodwill) 20% (P150,000 + P15,000 + goodwill) P33,000 + .20 goodwill P18,000 P22,500

12/31/11 Santos capital...................................................... 20,000 Reyes capital........................................................ 10,000 Cruz capital......................................................... 7,500 Santos drawings.......................................... Reyes drawings........................................... Cruz drawings............................................. To close drawings accounts based on 20% of beginning capital Balances: Santos, p100,000; Reyes, P50,000; and Cruz, P37,500. 12/31/11 Income summary.................................................. Santos capital.............................................. Reyes capital............................................... Cruz capital................................................. To allocate P44,000 profit as follows:

20,000 10,000 7,500

44,000 26,600 10,400 6,960 Santos P20,000 6,600 ______

Reyes

Cruz

Interest (20% of P100,000).................................. 15% of P44,000 profit.......................................... Balance of P17,400, 60:40...................................

P10,440

P 6,960

Total ....................................................................

P26,600

P10,440

P 6,960

Capital balances as of December 31, 2009: Santos Initial investment, 2010....................................... P80,000 2010 profit allocation........................................... 20,000 Additional investment.......................................... 2011 drawings...................................................... (20,000) 2011 profit allocation........................................... __26,600

Reyes P80,000 (30,000)

Capitals, 12/31/11................................................ P106,600

P50,440

(10,000) _10,440

Cruz P37,500 (7,500) __6,960 P36,960

Partnership Dissolution – Changes in Ownership Interest Problem 3-11, continued: 1/1/012 Goodwill....................................................................... 26,588 Santos capital...................................................... 3,988 Reyes capital....................................................... 13,560 Cruz capital........................................................ 9,040 To record goodwill implied of Cruz's interest. In effect, the profit Sharing ratio is 15% to Santos, 51% to Reyes (60% of 85% remaining after Santos's income), and 34% to Cruz (40% of the 85% remaining after Santos' income). Diaz is paying P46,000, P9,040 in excess of Cruz's capital (P36,960). The additional payment for this 34% income Interest indicates total goodwill of P26,588 (P9,040/34%).

1/1/012

Cruz capital.................................................................. Diaz capital......................................................... To transfer of capital purchase.

46,000

12/31/012Santos capital................................................................ Reyes capital................................................................ Diaz capital.................................................................. Santos drawings.................................................. Reyes drawings................................................... Diaz drawings..................................................... To close drawings accounts based on 20% of beginning capitals.

22,118 12,800 9,200

12/31/012 Income summary.......................................................... Santos capital...................................................... Reyes capital....................................................... Diaz capital......................................................... To allocate profit for 2008 as follows:

61,000

46,000

22,118 12,800 9,200

31,268 12,800 9,200 Santos P22,118 9,150 ______

Reyes

Diaz

Interest (20% of P110,588)........................................... 15% of P61,000............................................................ Balance of P29,732, 60:40...........................................

P17,839

P11,893

Totals............................................................................

P31,268

P17,839

P11,893

Santos P106,600 3,988

Reyes P50,440 13,560

Diaz

(22,118) __31,268

(12,800) _17,839

P119,738

P69,039

Capital balances as of December 31, 2010: 12/31/07 balances......................................................... Goodwill....................................................................... Capital purchased......................................................... Drawings...................................................................... Profit allocation............................................................ 12/31/08 balances......................................................... 1/1/013

1/1/013 73

P46,000 (9,200) _11,893 P48,693

Goodwill....................................................................... 14,321 Santos capital...................................................... 2,148 Reyes capital....................................................... 7,304 Diaz capital......................................................... 4,869 To record implied goodwill. Diaz will be paid P53,562 (110% of the capital balance for his interest. This amount is P4,869 in excess of the capital account. Since Diaz is only entitled to a 34% share of profits and losses, the additional P4,869 must indicate that the partnership as a whole is undervalued by P14,321 (P4,869/34%) which is treated as goodwill. Diaz capital.................................................................. 53,562 Cash.................................................................... 53,562 To record settlement to Diaz. Chapter 3

Problem 3 – 12 Partnership Books Continued as Books of Corporation Entries in the Books of the Corporation (1) Inventories.......................................................................................... Land ................................................................................................... Building. ............................................................................................. Accumulated depreciation – bldg.........................................................

26,000 40,000 20,000 20,000

Accumulated depreciation – equipment............................................... Equipment................................................................................... Jack capital................................................................................. Jill capital................................................................................... Jun capital................................................................................... To adjust assets and liabilities of the partnership to their current fair values.

30,000

(2) Cash ................................................................................................... Jack capital......................................................................................... Jill capital................................................................................... Jun capital................................................................................... To adjust capital accounts of the partners to 4:3:3 ratio.

4,000 18,000

(3) Jack capital......................................................................................... Jill capital........................................................................................... Jun capital........................................................................................... Capital stock............................................................................... To record issuance of stock to the partners.

100,000 75,000 75,000

20,000 58,000 34,800 23,200

20,200 1,800

250,000

New Books Opened for the New Corporation Entries in the Books of the Partnership (1) Inventories.......................................................................................... Land ................................................................................................... Building. ............................................................................................. Accumulated depreciation – bldg......................................................... Accumulated depreciation – equipment............................................... Equipment................................................................................... Jack capital................................................................................. Jill capital................................................................................... Jun capital................................................................................... To adjust assets and liabilities of the partnership.

26,000 40,000 20,000 20,000 30,000

(2) Cash ................................................................................................... Jack capital......................................................................................... Jill capital................................................................................... Jun capital................................................................................... To adjust capital accounts of the partners.

4,000 18,000

20,000 58,000 34,800 23,200

20,200 1,800

Partnership Dissolution – Changes in Ownership Interest Problem 3-12, continued:

(3) Stock of JJJ Corporation..................................................................... Accounts payable................................................................................. Loans payable – Jill............................................................................. Cash in bank............................................................................... Accounts payable........................................................................ Inventories.................................................................................. Land........................................................................................... Building. ..................................................................................... Equipment...................................................................................

250,000 30,000 40,000 44,000 26,000 60,000 60,000 70,000 60,000

To record transfer of assets and liabilities to The corporation and the receipt of capital stock (4) Jack capital......................................................................................... Jill capital........................................................................................... Jun capital........................................................................................... Stock of JJJ Corporation............................................................. To record issuance of stock to the partners.

100,000 75,000 75,000 250,000

Entries in the Books of the Corporation (1) To record the acquisition of assets and liabilities from the partnership: Cash in bank. ...................................................................................... Accounts receivable............................................................................. Inventories.......................................................................................... Land ................................................................................................... Building (net). ..................................................................................... Equipment (net)................................................................................... Accounts payable........................................................................ Loans payable............................................................................. Capital stock...............................................................................

44,000 26,000 60,000 60,000 70,000 60,000 30,000 40,000 250,000

Problem 3 – 13 1. a.

Bonus Method 2012 journal entries Jan. 1: Cash Inventory Equipment Notes payable Aquino, capital (50%) Binay, capital (50%) To record initial investments at fair value along with equal capital balances.

40,000 12,000 48,000 10,000 45,000 45,000

75

Chapter 3

Problem 3-13: Continued Oct. 1: Cash

12,000

Aquino, capital To record additional investment of Aquino. Dec. 31: Computation of the bonus: Net profit before bonus Net profit after bonus (P33,000 / 110%) Bonus

12,000

P33,000 30,000 P 3,000

Computation of interest on average capital: Aquino: Beginning capital: P45,000 x 9 months = New balance : P57,000 x 3 months = Total

P405,000 171,000 P576,000

Average capital: P576,000 / 12 = Interest rate Interest credited to Aquino

P 48,000 10% P 4,800

P45,000 x 10% =

P 4,500

Binay:

Allocation of P33,000 profit:

Bonus Interest Balance of income Total

Aquino P 3,000 4,800 12,420 P20,220

Closing Entry: Aquino, Capital Binay, capital Aquino, drawing Binay, drawing To close P800 per month drawing accounts for the year. Income summary Aquino, capital Binay, capital To close profit for the year.

Binay P4,500 8,280 P12,780

Total P 3,000 9,300 20,700 P33,000

9,600 9,600 9,600 9,600 33,000 20,220 12,780

Partnership Dissolution – Changes in Ownership Interest

76

Problem 3-13, continued: b.

Statement of Changes in Partner’s Equity

Capital balances, beginning Additional investments Net income Drawings Capital balances, end

Aquino P45,000 12,000 20,220 (9,600) P67,620

Binay P45,000 12,780 (9,600) P48,180

Total P 90,000 12,000 33,000 (19,200) P115,800

2013 journal entries: Jan. 1: Admission of Roxas. Total agreed capital of the new partnership (P115,800 + P66,000) Roxas’ interest Roxas’ agreed capital Roxas’ contributed capital Bonus to Aquino and Binay, 60:40 Cash

P181,800 1/3 P 60,600 66,000 P 5,400

66,000

Roxas, capital Aquino, capital Binay, capital To record admission of Roxas with bonus to original partners.

60,600 3,240 2,160

Several Withdrawal of Binay: Years Binay capital balance Later Settlement Bonus to Binay, from Aquino and Roxas Binay, capital Aquino, capital Roxas, capital Cash To record withdrawal of Binay with bonus from the Remaining partners split equally. 2. a.

Goodwill Method: 2012 Journal Entries: Jan. 1: Cash Inventory Equipment Goodwill Note payable Aquino, capital Binay, capital To record investments of the partners with goodwill attributed to Aquino.

P78,000 90,000 P12,000 78,000 6,000 6,000 90,000

40,000 12,000 48,000 14,000 10,000 52,000 52,000

77

Chapter 3

Problem 3-13: Continued Oct. 1: Cash

12,000

Aquino, capital To record additional investment of Aquino. De. 31: Bonus to Aquino (the same) Interest on average capital:

12,000 P3,000

Aquino: Beginning capital: New balance: Average capital Interest rate Interest

P52,000 x 9/12 = P64,000 x 3/12 =

P39,000 16,000 P55,000 x 10% P 5,500

Binay:

=

P 5,200

P52,000 x 10%

Allocation of income of P33,000:

Bonus Interest Balance of income Total

Aquino P 3,000 5,500 11,580 P20,080

Closing Entries: Aquino, Capital Binay, capital Aquino, drawing Binay, drawing To close out drawing accounts for the year.

Total P 3,000 10,200 19,300 P33,000

9,600 9,600 9,600 9,600

Income summary Aquino, capital Binay, capital To allocate profits computed above. b.

Binay P5,200 7,720 P12,920

33,000 20,080 12,920

Statement of Changes in Partners’ Equity

Capital balances, beginning Additional investments Net income Drawings Capital balances, end

Aquino P52,000 12,000 20,080 (9,600) P74,480

Binay P52,000 12,920 (9,600) P55,320

Total P104,000 12,000 33,000 (19,200) P129,800

Partnership Dissolution – Changes in Ownership Interest

78

Problem 3-13, continued: 2013 Journal Entries: Jan. 1: Admission of Roxas Total agreed capital of the new partnership (P66,000 / 1/3) Total contributed capital (P129,800 + P66,000) Goodwill to old partners Goodwill

P198,000 195,800 P 2,200 2,200

Aquino, capital (60%) Binay, capital (40%) To recognize goodwill based on Roxas investment. Cash

1,320 880 66,000

Roxas, capital To record admission of Roxas. Several: Withdrawal of Binay Years Binay capital balance Later: Settlement Goodwill to Binay (20%)

66,000

P78,000 90,000 P12,000

Total goodwill (P12,000/20%)

P60,000

Goodwill Aquino, capital (40%) Binay, capital (20%) Roxas, capital (20%) To recognize total goodwill.

60,000

Binay, capital Cash To record cash settlement to Binay.

90,000

24,000 12,000 12,000

90,000