FA#6

Problem 4-5
Edelle Hernandez and Teresita Gementiza are partners who shared profits and loses on a 50% -
50% basis. Their respective capital accounts prior the admission of Licerio Santos showed an
equal balance of ₱150,000.
Required:
1. Santos pays ₱80,000 for 1/2 share of Hernandez interest.
Hernandez, Capital ₱75,000
Santos, Capital ₱75,000
To transfer 1/2 share of Hernandez interest to Santos.
Computation: Hernandez: 150,000 x 50% = 75,000
80,000 – 75,000 = 5,000 - Profit
2. Santos pays ₱70,000 for 3/4 share of Gementiza interest.
Gementiza, Capital ₱112,500
Santos, Capital ₱112,500
To transfer 3/4 share of Hernandez interest to Santos.
Computation: Gementiza: 150,000 x 75% (3/4) = 112,500
112,500 – 70,000 = 42,500 - Loss
3. Santos pays ₱275,000 for the entire partnership interest.
Hernandez, Capital ₱150,000
Gementiza, Capital ₱150,000
Santos, Capital ₱300,000
Computation:
Hernandez: 300,000 x 50% = 150,000
Gementiza: 300,000 x 50% = 150,000
Total transferred: = 300,000
300,000 – 275,000 = 25,000 – Loss
Problem 4-8

    Beceira Ytac
 Capital   240,000 260,000
P/L Ratio 3 5
Sarno is admitted as a new partner.
Required:
1. Sarno purchases 1/2 of the partnership's interest for ₱250,000.
Beceira, Capital ₱120,000
Ytac, Capital ₱130,000
Sarno, Capital ₱250,000
To transfer entire partnership interest to Sarno.
Computations:
Beceira: 240,000 x 50% = 120,000
Ytac: 260,000 x 50% = 130,000
Total transferred: = 250,000 – Fair Value

2. Sarno purchases 3/4 of the partnership's interest for ₱350,000.

Beceira, Capital ₱180,000
Ytac, Capital ₱195,000
Sarno, Capital ₱375,000
To transfer 3/4 of the partnership interest to Sarno.
Computations:
Beceira: 240,000 x 75% = 180,000
Ytac: 260,000 x 75% = 175,000
Total transferred: = 375,000
375,000 – 350,000 = 25,000 – Loss

3. Sarno purchases 1/5 of the partnership's interest for P120,000.

Beceira, Capital ₱48,000
 Ytac, Capital ₱52,000
Sarno, Capital ₱100,000
To transfer 1/5 of the partnership interest to Sarno.
Computations:
Beceira: 240,000 x 20% = 48,000
Ytac: 260,000 x 20% = 52,000
Total transferred: = 100,000
120,000 – 100,000 = 20,000 - Profit
4. Sarno purchases 1/4 of Beceira's interest for P60,000.
Beceira, Capital ₱60,000
Sarno, Capital ₱60,000
To transfer 1/4 of the partnership interest to Sarno.
Computations:
Beceira: 240,000 x 25% = 60,000 – Fair Value
5. Sarno purchases 1/3 of Beceira's interest for P90,000.
Beceira, Capital ₱80,000
Sarno, Capital ₱80,000
To transfer 1/3 of the partnership interest to Sarno.
Computations:
Beceira: 240,000 x 33% = 80,000
90,000 – 80,000 = 10,000 – Profit

6. Sarno purchases 1/2 of Beceira's interest for 120,000.

Beceira, Capital ₱120,000
 Sarno, Capital ₱120,000
To transfer 1/2 of the partnership interest to Sarno.
Computations:
Beceira: 240,000 x 50% = 120,000 – Fair Value

7. Sarno invests P300,000 for a 1/3 interest of the new firm.

Cash ₱300,000
Sarno, Capital ₱300,000
To record Sarno investment for 1/3 interest.
Sarno, Capital ₱33,333.33
Beceira, Capital (3/8) ₱12,500.0
Ytac, Capital (5/8) ₱20,833.33
To provide bonus to old partners.
Computation:
Beceira 240,000
Ytac 260,000
Sarno 300,000 800,000 x 1/3 = 266,666.67
800,000 300,000 - 266,666.67 = 33,333.33 – Profit

Contribute
  d Bonus Agreed
  Capital   Capital
Beceira 240,000 12,500 252,500
Ytac 260,000 20,833 280,833
Total 500,000 33,333 533,333
Sarno 300,000 -33,333.33 266,667
Total 800,000 0 800,000

8. Sarno invests P300,000 for a 1/4 interest in the new firm, with agreed capitalization equal
to contributed capital.
Cash ₱300,000
 Sarno, Capital ₱300,000
To record Sarno investment.
Sarno, Capital ₱100,000
Beceira, Capital (3/8) ₱37,500
Ytac, Capital (5/8) ₱62,500
To provide bonus to old partners.
Computation:
Beceira 240,000
Ytac 260,000
Sarno 300,000 800,000 x 1/4 = 200,000
800,000 300,000 – 200,000= 100,000 – Profit
Contribute
  d Bonus Agreed
  Capital   Capital
Beceira 240,000 37,500 277,500
Ytac 260,000 62,500 322,500
Total 500,000 100,000 600,000
Sarno 300,000 -100,000 200,000
Total 800,000 0 800,000

9. Sarno invests P300,000 for a 40% interest in the new partnership.

Cash ₱300,000
Sarno, Capital ₱300,000
To record Sarno investment.
Beceira, Capital (3/8) ₱7,500
Ytac, Capital (5/8) ₱12,500
Sarno, Capital ₱20,000
To provide bonus to Sarno.
Computation: Beceira 240,000
Ytac 260,000
Sarno 300,000 800,000 x 40% = 320,000
 800,000 300,000 – 320,000= -20,000 – Loss

Contribute
  d Bonus Agreed
  Capital   Capital
Beceira 240,000 -7,500 232,500
Ytac 260,000 -12,500 247,500
Total 500,000 -20,000 480,000
Sarno 300,000 20,000 320,000
Total 800,000 0 800,000

10. Sarno invests P300,000 for a 30% interest in the new firm.
Cash ₱300,000
Sarno, Capital ₱300,000
To record Sarno investment.
Sarno, Capital ₱95,000
Beceira, Capital (3/8) ₱35,625
Ytac, Capital (5/8) ₱59,375
To provide bonus to old partners.
Computation:
Beceira 240,000
Ytac 260,000
Sarno 300,000 800,000 x 30% = 255,000
800,000 350,000 – 255,000= 95,000 - Profit

Contribute
  d Bonus Agreed
  Capital   Capital
Beceira 240,000 35,625 275,625
Ytac 260,000 59,375 319,375
Total 500,000 -95,000 405,000
Sarno 350,000 95,000 445,000
Total 850,000 0 850,000

Problem 4-11
Partners Harry Cacdac and Jaime Lopez have agreed to admit Maria Cruz as a new
partner in their business venture.
Post-Closing Trial Balance:

        Debit Credit
Cash in Bank ₱ 40,000  
Accounts Receivable 50,000  
Allowance for Doubtful Accounts   ₱ 4,000
Merchandise 70,000  
Store Equipment 80,000  
Accumulated Depreciation   16,000
Accounts Payable   40,000
H. Cacdac, Capital (40%)   100,000
J. Lopez, Capital (60%)     80,000
Adjustments:
1. Accounts receivable should have an estimated realizable value of P40,000.
2. 10% of the recorded value of merchandise should be provided for damages and obsolescence.
3. Store equipment should have a carrying value of P60,000.

Required:
a. Prepare adjusting entries to update the balances of some of the partnership accounts.
Use "Capital Adjustment" account.
Capital Adjustment ₱10,000
Accounts Receivable ₱10,000

Capital Adjustment ₱7,000

Merchandise ₱7,000

Capital Adjustment ₱20,000

Store Equipment ₱20,000

Posting:

Merchandise
70,000 7,000
63,000  
 Capital Adjustment Accounts Receivable
(1) 10,000   50,000 10,000
(2) 7,000   40,000  
(3)Store
20,000  
Equipment
37,000
80,000  
20,000
60,000  

Adjusted Balances:

    Debit Credit
Accounts Recivable 40,000  
Merchandise 63,000  
Store Equipment 60,000  

Closing the Capital Adjustment:

P37,000 x 40% = 14,800
P37,000 x 60% = 22,200
H. Cacdac, Capital ₱14,800
J. Lopez, Capital ₱22,200
Capital Adjustment ₱37,000
To close capital adjustment by distributing the balance 40% to Cacdac and 60% to
Lopez.

Capital Account Balances:

H. Cacdac, Capital J. Lopez, Capital

  100,000   80,000
14,800   22,200  
  85,200   57,800

After the adjustment, the capital of H. Cacdac is P85,200 while the capital of J. Lopez is
P57,800.
b. Prepare a post-closing trial balance after above adjustments have been made.
Post-Closing Trial Balance:

        Debit Credit
Cash in Bank ₱ 40,000  
 Accounts Receivable 40,000  
Allowance for Doubtful Accounts   ₱ 4,000
Merchandise 63,000  
Store Equipment 60,000  
Accumulated Depreciation   16,000
Accounts Payable   40,000
H. Cacdac, Capital (40%)   85,200
J. Lopez, Capital
(60%)       57,800

c. If Maria Cruz will be admitted by purchasing 1/4 of the adjusted partners interest, how
much is she going to pay and what is the journal entry to record her admission if the
purchase is at book value.
H. Cacdac, Capital ₱21,300
J. Lopez, Capital ₱14,450
Maria Cruz, Capital ₱35,750
To transfer 1/4 of adjusted partners interest to Maria Cruz.
Computation:
H. Cacdac, Capital 85,200 x 1/4 = 21,300
J. Lopez, Capital 57,800 x 1/4 = 14,450