SOLUTION TO ASSIGNMENT FOR DISCUSSION

C PROBLEM 6: FOR CLASSROOM DISCUSSION

1. Solution:
  Mr. Sun Ms. Moon Partnership
Cash 400,000 - 400,000
Accounts rec. (250K x 80%) 200,000 - 200,000
Land (at fair value) 1,000,000 1,000,000
Equipment (180K – 30K) 150,000 150,000
Total 600,000 1,150,000 1,750,000
Mortgage payable – land (250,000) (250,000)
Adjusted capital balances 600,000 900,000 1,500,000

Date Cash 400,000

Accounts receivable 200,000
Land 1,000,000
Equipment 150,000
Mortgage payable 250,000
Sun, Capital 600,000
Moon, Capital 900,000

2. Solution:
 Using Mr. Sun’s capital: 600K ÷ 50% = 1.2M x 50% interest of Ms. Moon = 600K vs. 900K Ms.
Moon’s actual contribution; Conclusion: Ms. Moon’s actual contribution is not deficient.
 Using Ms. Moon’s capital: 900K ÷ 50% = 1.8M x 50% interest of Mr. Sun = 900K vs. 600K Mr.
Sun’s actual contribution; Conclusion: Mr. Sun’s actual contribution is deficient by 300K.
 Answer: Mr. Sun should make an additional contribution of ₱300,000.

3. Solution:
Date Cash 400,000
Accounts receivable 200,000
Land 1,000,000
Equipment 150,000
Mortgage payable 250,000
Sun, Capital (1.5M x 50%) 750,000
Moon, Capital (1.5M x 50%) 750,000

4. Solutions:
Requirement (a): Compound
 Date Cash 400,000
Accounts receivable 200,000
Land 1,000,000
Equipment 150,000
Mortgage payable 250,000
Sun, Capital (1.5M x 50%) 750,000
Moon, Capital (1.5M x 50%) 750,000

  Mr. Sun Ms. Moon

Actual contributions (see #1 above) 600,000 900,000
Equal capital credits (1.5M x 50%) 750,000 750,000
Receipt (Payment) (150,000) 150,000

Mr. Sun pays Ms. Moon ₱150,000. This transaction is not recorded in the partnership books.

Requirement (b): Simple entries

Date Cash 400,000
Accounts receivable 200,000
Sun, Capital 600,000
to record the contributions of Sun
Date Land 1,000,000
Equipment 150,000
Mortgage payable 250,000
Moon, Capital 900,000
to record the contributions of Moon
Date Moon, Capital 150,000
Sun, Capital 150,000
to equalize the capital balances of the partners

5. Solution:
  Mr. Sun Ms. Moon
Actual contributions (see #1 above) 600,000 900,000
Equal capital credits (1.5M x 50%) 750,000 750,000
(Additional investment)/ Withdrawal (150,000) 150,000

 Mr. Sun shall invest an additional ₱150,000, while Ms. Moon shall withdraw ₱150,000.

Chapter 2

PROBLEM 6: FOR CLASSROOM DISCUSSION

1. Solutions:
Case 1:
  A B C Total
Amount being allocated 100,000
Allocation:
1. Salaries 12,000 8,000 20,000
2. Bonus (100K - 20K) x 10% 8,000 8,000
3. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%) 10,000 6,000 12,000 28,000
4. Allocation of remainder:
(100K - 20K - 8K - 28K) = 44K;
(44K x 40%); (44K x 30%); (44K x 30%) 17,600 13,200 13,200 44,000
As allocated 47,600 19,200 33,200 100,000

Case 2:
  A B C Total
Amount being allocated 10,000
Allocation:
1. Salaries 12,000 8,000 20,000
2. Bonus (N/A) - -
2. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%) 10,000 6,000 12,000 28,000
3. Allocation of remainder
(10K - 20K - 28K) = -38K
(-38K x 40%); (-38K x 30%); (-38K x 30%) (15,200) (11,400) (11,400) (38,000)
As allocated 6,800 (5,400) 8,600 10,000
Case 3:
  A B C Total
Amount being allocated (20,000)
Allocation:
1. Salaries 12,000 8,000 20,000
2. Bonus (N/A) - -
2. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%) 10,000 6,000 12,000 28,000
3. Allocation of remainder
(-20K - 20K - 28K) = -68K
(-68K x 40%); (-68K x 30%); (-68K x 30%) (27,200) (20,400) (20,400) (68,000)
As allocated (5,200) (14,400) (400) (20,000)

2. Solutions:

Case 1
  A B Total
Amount being allocated 90,000
Allocation:
1. Salaries (4,000 x 12 mos.) 48,000 - 48,000
2. Bonus (a) 7,000 - 7,000
3. Interest on weighted ave. capital (b) - 4,140 4,140
4. Allocation of remaining profit
(90K – 48K - 7K – 4,140) = 30,860
15,430 15,430 30,860
(30,860 x 50%); (30,860 x 50%)
As allocated 70,430 19,570 90,000

(a)
(90,000 – 48,000) = 42,000;
Bonus = 42,000 – (42,000 ÷ 120%) = 7,000

(b)

Months outstanding ÷ Weighted

  Balances Total months in a year average
Beg. balance 30,000 12/12 30,000
July 1 additional investment 10,000 6/12 5,000
Oct. 1 withdrawal (4,000) 3/12 (1,000)
Nov. 30 additional investment 6,000 1/12 500
Weighted average capital balance 34,500
Multiply by: 12%
Interest on weighted average capital balance 4,140

Year-end Income summary 90,000

entry A, Capital 70,430
B, Capital 19,570

Case 2:
   A B Total
Amount being allocated 90,000
Allocation:
1. Salaries (4,000 x 8 mos.) 32,000 - 32,000
2. Bonus (a) 9,667 - 9,667
3. Interest on weighted ave. capital (b) - 2,940 2,940
4. Allocation of remaining profit
(90K – 32K – 9,667 – 2,940) = 45,393
22,696.50 22,696.50 45,393
(45,393 x 50%); (45,393 x 50%)
As allocated 64,363.50 25,636.50 90,000

(a)
(90,000 – 32,000) = 58,000;
Bonus = 58,000 – (58,000 ÷ 120%) = 9,667
(b)

Months outstanding ÷ Weighted

  Balances Total months in a year average
Beg. balance (May 1, 20x1) 30,000 8/12 20,000
July 1 additional investment 10,000 6/12 5,000
Oct. 1 withdrawal (4,000) 3/12 (1,000)
Nov. 30 additional investment 6,000 1/12 500
Weighted average capital balance 24,500
Multiply by: 12%
Interest on weighted average capital balance 2,940

Year-end Income summary 90,000

entry A, Capital 64,363.50
B, Capital 25,636.50

3. Solutions:

Step 1: Prepare a pro-forma allocation table.

  A B Total
Amount being allocated ?
Allocation:
1. Salaries 20,000 - 20,000
2. Bonus ? - ?
3. Allocation of remaining profit ? 32,000 ?
As allocated ? 32,000 ?

Step 2: ‘Squeeze’ for A’s share in remaining profit.

  A B Total
Amount being allocated ?
Allocation:
1. Salaries 20,000 - 20,000
2. Bonus ? - ?
 3. Allocation of remaining profit
(32K ÷ 40%) = 48,000
48,000 32,000 ?
As allocated ? 32,000 ?

Step 3: Compute for the bonus.

  A B Total
Amount being allocated ?
Allocation:
1. Salaries 20,000 - 20,000
2. Bonus (a) 8,000 - 8,000
3. Allocation of remaining profit
(32K ÷ 40%) = 48,000
48,000 32,000 ?
As allocated ? 32,000 ?

(a)
Profit after salary and bonus (48K + 32K (see ‘3.’ above)) 80,000
Multiply by: Bonus rate ('bonus after bonus' scheme) 10%
Bonus to A 8,000

Step 4: ‘Squeeze’ the other missing amounts.

  A B Total
Amount being allocated 108,000
Allocation:
1. Salaries 20,000 - 20,000
2. Bonus 8,000 - 8,000
3. Allocation of remaining profit 48,000 32,000 80,000
As allocated 76,000 32,000 108,000

Chapter 3
PROBLEM 6: FOR CLASSROOM DISCUSSION
1. Solutions:

Case 1:
  Carrying amts. Fair values Increase (Decrease)
Cash 30,000 30,000 -
Accounts receivable 140,000 120,000 (20,000)
Inventory 200,000 160,000 (40,000)
Equipment 500,000 450,000 (50,000)
Accounts payable (80,000) (80,000) -
Accrued liabilities (20,000) (20,000)
Net assets 790,000 660,000 (130,000)
   Apple Banana Carrot Total
Capital, beg. 515,000 275,000 790,000
Revaluation decrease (78,000) (52,000) (130,000)
Adjusted, before admission 437,000 223,000 660,000
Sale from Banana to Carrot (111,500) 111,500 -
Capital after admission 437,000 111,500 111,500 660,000

Date Banana, Capital (223,00 x 1/2) 111,500

Carrot, Capital (223,00 x 1/2) 111,500

Before Admission of
Partner  admission Carrot After admission
Apple 60% 60%
Banana 40% -20% 20%
Carrot 20% 20%
100% 100%

Case 2:
Date Apple, Capital (437K adj. cap. see above x 20%) 87,400
Banana, Capital (223K adj. cap. x 20%) 44,600
Carrot, Capital 132,000

  Apple Banana Carrot Totals

Adjusted cap. 437,000 223,000 660,000
(Debit) Credit (87,400) (44,600) 132,000 -
Capital, end. 349,600 178,400 132,000 660,000

Case 3:
Adjusted capital before admission 660,000
Divide by: (100% - 20%) 80%
Grossed-up amount 825,000
Multiply by: 20%
Amount of investment 165,000

Before Admission of
Partner  admission Carrot After admission
A 60% (100% - 20%) x 60% 48%
B 40% (100% - 20%) x 40% 32%
C 20% 20%
100% 100%

Case 4:
 Adjusted net assets before admission 660,000
Investment of Carrot 100,000
Net assets after admission 760,000
Carrot's interest in net assets 20%
Carrot’s capital credit 152,000
Investment of Carrot 100,000
Bonus to Carrot 52,000

Date Cash 100,000

Apple, Capital (152K – 100K) x 60% 31,200
Banana, Capital (152K – 100K) x 40% 20,800
Carrot, Capital (660K + 100K) x 20% 152,000

  Apple Banana Carrot Total

Adj. cap., before admission 437,000 223,000 660,000
Investment of Carrot 100,000 100,000
Bonus to Carrot (31,200) (20,800) 52,000 -
Capital, after admission 405,800 202,200 152,000 760,000
Case 5:
Adjusted net assets before admission 660,000
Investment of Carrot 180,000
Net assets after admission 840,000
Carrot's interest in net assets 20%
Carrot’s capital credit 168,000
Investment of Carrot 180,000
Bonus to Apple and Banana (12,000)

Date Cash 180,000

Carrot, Capital (660K + 180K) x 20% 168,000
Apple, Capital (12K x 60%) 7,200
Banana, Capital (12K x 40%) 4,800

  Apple Banana Carrot Total

Adj. cap., before admission 437,000 223,000 660,000
Investment of Carrot 180,000 180,000
Bonus to old partners 7,200 4,800 (12,000) -
Capital, after admission 444,200 227,800 168,000 840,000

2. Solutions:
Case 1:
  A B C Total
Capital - Jan. 1, 20x1 320,000 192,000 128,000 640,000
Profit 400,000 240,000 160,000 800,000
Drawings (40,000) (60,000) (30,000) (130,000)
Capital - before retirement 680,000 372,000 258,000 1,310,000

Sept. 1, A, Capital 680,000

20x1
B, Capital 680,000
   A B C Total
Capital - before retirement 680,000 372,000 258,000 1,310,000
Sale from A to B (680,000) 680,000 - -
Capital - after retirement - 1,052,000 258,000 1,310,000

P/L ratio after A’s retirement:

Before
Partner  retirement Retirement of A After retirement
A 50% -50% -
B 30% 30% + 50% 80%
C 20% - 20%
100% 100%

Case 2:
Sept. 1, A, Capital 680,000
20x1
B, Capital (700K – 680K) x 30%/50% 12,000
C, Capital (700K – 680K) x 20%/50% 8,000
Cash 700,000

  A B C Total
Capital - before retirement 680,000 372,000 258,000 1,310,000
Payment to A (700,000) (700,000)
Bonus to A 20,000 (12,000) (8,000) -
Capital - after retirement - 360,000 250,000 610,000

Partner  P/L ratio

A -
B 30% / (30% + 20%) 60%
C 20% / (30% + 20%) 40%
100%

Case 3:
Sept. 1, A, Capital 680,000
20x1
Cash 650,000
B, Capital (680K – 650K) x 30%/50% 18,000
C, Capital (680K – 650K) x 20%/50% 12,000
to record the retirement of A from the partnership

  A B C Total
 Capital - before retirement 680,000 372,000 258,000 1,310,000
Payment to A (650,000) (650,000)
Bonus to B and C (30,000) 18,000 12,000 -
Capital - after retirement - 390,000 270,000 660,000

3. Solution:
  A B C Total
Adjusted capital (see #2 - Case
1) 680,000 372,000 258,000 1,310,000
(200,000
Less: PS (1,000 x ₱200 par) (200,000) ) (200,000) (600,000)
Remaining interest 480,000 172,000 58,000 710,000
Divide by: Par val. per OS 50 50 50 50
No. of ordinary sh. issued 9,600 3,440 1,160 14,200

  A B C Total
Preference shares issued 1,000 1,000 1,000 3,000
Ordinary shares issued 9,600 3,440 1,160 14,200
Total shares issued 10,600 4,440 2,160 17,200

Chapter 4

PROBLEM 6: FOR CLASSROOM DISCUSSION

1. Solutions:

Case 1: Lump-sum liquidation

Collection from accounts receivable (60K x 70%) 42,000
Sale of inventory 20,000
Sale of equipment 310,000
Liquidation expenses (12,000)
Net proceeds 360,000
Carrying amt. of all non-cash assets,
except Receivable from A (60K + 120K +290K) (470,000)
Loss (110,000)

  A (60%) B (40%) Totals

Capital balance 250,000 200,000 450,000
Payable to (Receivable from) partner (10,000) 20,000 10,000
Total 240,000 220,000 460,000
Allocation of loss -110K x 60% & 40% (66,000) (44,000) (110,000)
Amounts received by the partners 174,000 176,000 350,000
Checking:
Cash (20K on hand + 360K from sale) 380,000
Outside creditors (30,000)
Cash available for distribution to partners 350,000

Case 2: Installment liquidation

Collection from accounts receivable (60K x 1/2) 30,000
Sale of inventory (120K x 75% x 80%) 72,000
Sale of equipment 185,000
Liquidation expenses (12,000)
Estimated future liquidation costs (5,000)
Net proceeds 270,000
Carrying amt. of all non-cash assets, except Receivable from A (470,000)
Loss (200,000)

  A (60%) B (40%) Totals

Capital balance 250,000 200,000 450,000
Payable to (Receivable from) partner (10,000) 20,000 10,000
Total 240,000 220,000 460,000
Allocation of loss -200K x 60% & 40% (120,000) (80,000) (200,000)
Amount received by partners 120,000 140,000 260,000

Checking:
Cash (20K on hand + 270K from sale, net) 290,000
Outside creditors (30,000)
Cash available for distribution to partners 260,000

Case 3: Gain on settlement of liability

Sale of non-cash assets 250,000
Carrying amt. of all non-cash assets, except Receivable from A (470,000)
Loss on sale of assets (220,000)
Gain on settlement of liability (24K payment – 30K carrying amt.) 6,000
Net loss (214,000)

  A (60%) B (40%) Totals

Capital balance 250,000 200,000 450,000
Payable to (Receivable from) partner (10,000) 20,000 10,000
Total 240,000 220,000 460,000
Allocation of loss -214K x 60% & 40% (128,400) (85,600) (214,000)
Amount received by partners 111,600 134,400 246,000

Checking:
 Cash (20K on hand + 250K from sale) 270,000
Outside creditors (30K – 6K rebate) (24,000)
Cash available for distribution to partners 246,000

Case 4: Marshalling of assets

Sale of non-cash assets 65,000
Carrying amt. of all non-cash assets, except Receivable from A (470,000)
Loss (405,000)

A B
Personal assets 200,000 380,000
Personal liabilities (440,000) (240,000)
Free assets - 140,000

 A is insolvent.

  A (60%) B (40%) Totals

Capital balance 250,000 200,000 450,000
Payable to (Receivable from) partner (10,000) 20,000 10,000
Total 240,000 220,000 460,000
Allocation of loss -405K x 60% & 40% (243,000) (162,000) (405,000)
Total (3,000) 58,000 55,000
Allocation of deficiency 3,000 (3,000) -
Amount received by partners - 55,000 55,000

Checking:
Cash (20K on hand + 65K from sale) 85,000
Outside creditors (30,000)
Cash available for distribution to partners 55,000

Case 5: Reconstruction of information

Step 1: Prepare pro-forma distribution table
  A (60%) B (40%) Totals
Capital balance 250,000 200,000 450,000
Payable to (Receivable from) partner (10,000) 20,000 10,000
Total 240,000 220,000 460,000
Allocation of loss ? ? ?
Amount received by partners ? 140,000 ?

Step 2: Squeeze
   A (60%) B (40%) Totals
Capital balance 250,000 200,000 450,000
Payable to (Receivable from) (10,000) 20,000 10,000
Total 240,000 220,000 460,000
Allocation of loss (120,000) (3) (80,000)(1) (200,000) (2)
Amount received by partners 120,000(4) 140,000 260,000 (5)
(1)
140K – 220K = -80,000 allocation of loss to B
(2)
80K allocation of loss to B ÷ 40% = -200,000 loss (requirement ‘a’)
(3)
-200K loss x 60% = -120,000 allocation of loss to A
(4)
240K – 120K = 120,000 cash distribution to A (requirement ‘b’)
(5)
260,000 cash available to the partners (requirement ‘c’)

Net proceeds (squeeze) – requirement ‘d’ 270,000

Carrying amt. of all non-cash assets, except Receivable from A (470,000)
Loss – see requirement ‘a’ (200,000)

Checking:
Cash (20K on hand + 270K from sale, net) 290,000
Outside creditors (30,000)
Cash available for distribution to partners 260,000

Case 6: Non-cash asset used as payment for claim

  A (60%) B (40%) Totals
Capital balance 250,000 200,000 450,000
Payable to (Receivable from) partner (10,000) 20,000 10,000
Total 240,000 220,000 460,000
Allocation of loss -405K(a) x 60% & 40% (243,000) (162,000) (405,000)
Total (3,000) 58,000 55,000
Payment in equipment - (20,000) (20,000)
Total (3,000) 38,000 35,000
Allocation of deficiency 3,000 (3,000) -
Payment in cash - 35,000 35,000

(a)
The loss is computed as follows:
  Assets = Liabilities + Equity
Cash (remaining) 35,000 - 460,000*
Equipment (@ settlement price) 20,000 -
Totals 55,000 = - + 460,000
* Inclusive of the payable to, and receivable from, the partner.

Total loss (balancing figure) = 55,000 – 460,000 = -405,000

 Answer to requirement:
Payment in equipment 20,000
 Payment in cash 35,000
Total payment to B 55,000

Case 7: Cash priority program

  A (60%) B (40%)
Capital balance 250,000 200,000
Payable to (Receivable from) partner (10,000) 20,000
Total 240,000 220,000
Divide by: P/L ratio 60% 40%
MLAC 400,000 550,000

Rank of payment 2nd 1st

  A (60%) B (40%)
Rank of payment 2nd 1st
Maximum loss absorption capacity 400,000 550,000
Difference between 1st and 2nd (150,000)
Equal balance of MLAC 400,000 400,000

 Cash priority program: A (20%) B (30%)

Rank of payment 2nd 1st
1st priority (150,000 x 40%) 60,000

Cash 20,000
Collection from accounts receivable (60K x 1/2) 30,000
Sale of inventory (120K x 75% x 80%) 72,000
Sale of equipment 185,000
Liquidation expenses (12,000)
Estimated future liquidation costs (5,000)
Payment for accounts payable (30,000)
Cash available to the partners 260,000

  A (60%) B (40%) Total

Cash available to the partners 260,000
Allocation:
1st priority 60,000 (60,000)
Balance 200,000
Payment after priorities
200K x 60%; & 40% 120,000 80,000 (200,000)
First cash distribution 120,000 140,000 -