PRACTICAL ACCOUNTING 2 REVIEW

PRELIMINARY EXAMINATION

Instruction: Encircle ONLY your final answers to each requirement of every problem. Support all your answers with
solutions in good accounting form. No solution, no point. (5 points each)

1. On April 30, 2008, X, Y and Z formed a partnership by combining their separate business proprietorship. X
contributed cash of P75,000. Y contributed property with a P54,000 carrying amount, a P60,000 original cost, and
P120,000 fair value. The partnership accepted responsibility for the P52,500 mortgage attached to the property. Z
contributed equipment with a P45,000 carrying amount, a P112,500 original cost, and P82,500 fair value. The
partnership agreement specifies that profits and losses are to be shared equally but is silent regarding capital
contributions. Which partner has the largest April 30, 2008 capital balance and by how much?
Solution:
X Y Z
Cash 75,000.00
Property (FV) 120,000.00
Mortgage on Property (52,500.00)
Equipment (FV) 82,500.00
Total 75,000.00 67,500.00 82,500.00

2. Lheo and Randy are partners with capital balances of P60,000 and P20,000, respectively. Profits and losses are
divided in the ratio of 60:40. Lheo and Randy decided to form a new partnership with Rivson, who invested land
valued at P15,000 for a 20% capital interest in the new partnership. The cost of land was P12,000. The partnership
elected to use the bonus method to record the admission of Rivson into the partnership. How much should be
credited to Rivson’s capital account?
Total Contributed capital (60,000 + 20,000 + 15,000) P95,000

X by the capital interest of S 20%

Agreed capital of S P19,000

3. Pedro contributed P24,000 and Peter contributed P48,000 to form partnership, and they agreed to share profits in
the ratio of their original capital contributions. During the first year of operations, they made a profit of P16,920;
Pedro withdrew P5,050 and Peter P8,000. At the start of the following year, they agreed to admit Pedring into the
partnership. He was to receive a one-fourth interest in the capital and profits upon payment of P34,250 to Pedro
and Peter, whose capital accounts were to be reduced by transfers to Pedring’s capital account of amounts sufficient
to bring them back to their original capital ratio. How much should the personal cash contribution of Pedro?
Solution:
 PRACTICAL ACCOUNTING 2 REVIEW
PRELIMINARY EXAMINATION

Preppy Groggy Total

Capital balances before net income 24,000.00 48,000.00 72,000.00
Net Income 5,640.00 11,280.00 16,920.00
Drawings (5,050.00) (8,000.00) (13,050.00)
Capital balances before admission 24,590.00 51,280.00 75,870.00

Amount paid 34,250.00

Book value of interest acquired (P75,870 x 1/4) (18,967.50)
Gain on Preppy and Groggy 15,282.50

Therefore, the P34,250 cash should be allocated as follows:

Preppy Groggy Total

Capital balances before admission 24,590.00 51,280.00 75,870.00
Required capital balances
(P & L ratio - 1/3; 2/3 of P56,902.50) (18,967.50) (37,935.00) (56,902.50)
Transfer of capital needed to bring
back to original capital ratio 5,622.50 13,345.00 18,967.50
Personal gain (1/3 and 2/3) 5,094.17 10,188.33 15,282.50
Personal cash distribution 10,716.67 23,533.33 34,250.00

4. A Statement of Financial Position for the partnership of Athos, Porthos and Aramis, who share profits in the ratio of
23%, 36% and 41%, respectively, shows the following balances just before liquidation:

Cash P 12,000 Liabilities P 20,000

Other Assets 59,500 Athos, Capital 22,000
Porthos, Capital 15,500
Aramis, Capital 14,000
P 71,500 P 71,500
On the first month of the liquidation, certain assets are sold P32,000. Liquidation expenses of P1,000 are paid, and
additional liquidation expenses are anticipated. Liabilities are paid amounting to P5,400, and sufficient cash is
retained to insure payment to creditors before making payments to partners. On the first payment to partners,
Aramis receives P6,250. The total cash distributed to the partners in the first installment is?
Solution:
 PRACTICAL ACCOUNTING 2 REVIEW
PRELIMINARY EXAMINATION

De Gollo Santos Lengwa

Total Interest 22,000.00 15,500.00 14,000.00
Profit and loss ratio 23% 36% 41%
Loss absorption balances 95,652.17 43,055.56 34,146.34
Priority I - De Gollo (52,596.62)
Balances 43,055.56 43,055.56 34,146.34
Priority II - De Gollo & Santos (8,909.21) (8,909.21)
Total 34,146.34 34,146.34 34,146.34

Cash Payments:
De Gollo Santos Lengwa Total
Priority I - De Gollo (6,000 x 23%) 12,097.22 - - 12,097.22
Priority II - De Gollo (8,909.21 x 23%) 2,049.12 - - 2,049.12
Priority II - Santos (8,909.21 x 36%) - 3,207.32 - 3,207.32
Total 14,146.34 3,207.32 - 17,353.66

Further cash distribution, P & L ratio:

Cash distribution to Lengwa 6,250.00
Divide by De Gollo's P & L ratio 41%
Amount in excess of P17,353.66 15,243.90
Total payment under Priority I and II 17,353.66
Total cash distribution to partner 32,597.56

5. Carlos, Peter and Ariel, accountants, agree to form a partnership and to share profits in the ratio of 5:3:2. They also
agreed that Ariel is to be allowed a salary of P28,000 and that Peter is to be guaranteed P21,000 as his share of the
profits. During the first year of operation, income from fees are P180,000, while expenses total P96,000. What
amount of net income should be credited to each partners’ capital account?
Solution:
CC PP AA Total
Salary 28,000.00 28,000.00
Balance (P84,000 - P28,000), 5:3:2 28,000.00 16,800.00 11,200.00 56,000.00
Additional profit to PP (P21,000 - P16,800) (3,000.00) 4,200.00 (1,200.00) -
25,000.00 21,000.00 38,000.00 84,000.00

Fees 180,000.00
Expenses (96,000.00)
Net income 84,000.00

6. The firm Juan, Kim, Lulu and Manny decides to liquidate. Partners share profits and losses as follows: Juan, 21%;
Kim, 22%; Lulu, 23%; and Manny, 34%. The partnership trial balance on October 1, 2019, the date on which
liquidation begins, follows:
Cash P 10,000 Accounts Payable P 9,000
Other Assets 255,500 Juan, Loan 18,000
Kim, Loan 30,000
Juan, Capital 60,000
Kim, Capital 64,500
Lulu, Capital 54,000
Manny, Capital 30,000
P 265,500 P 265,500
Cash of P38,100 is available at the end of October. How much cash is distributed to Juan?
Solution:
 PRACTICAL ACCOUNTING 2 REVIEW
PRELIMINARY EXAMINATION

Jua na ta s Ki l ong Lul u Ma gl a ya

Ca pi ta l ba la nces 60,000.00 64,500.00 54,000.00 30,000.00
Loa n ba l a nces 18,000.00 30,000.00 - -
Tota l i nteres t 78,000.00 94,500.00 54,000.00 30,000.00
Divi de by P a nd L ra ti o 21% 22% 23% 34%
Los s a bs orpti on ba la nces 371,428.57 429,545.45 234,782.61 88,235.29
Priori ty I - Ki l ong - (58,116.88) - -
Ba l a nces 371,428.57 371,428.57 234,782.61 88,235.29
Priori ty II - Jua na ta s & Ki l ong (136,645.96) (136,645.96) - -
Ba l a nces 234,782.61 234,782.61 234,782.61 88,235.29
Priori ty III - Jua na ta s, Ki l ong & Lulu (146,547.31) (146,547.31) (146,547.31) -
Ba l a nces 88,235.29 88,235.29 88,235.29 88,235.29

Ca s h pa yment: Jua na ta s Ki l ong Lul u Ma gl a ya Tota l

Priori ty I - Ki l ong (P58,116.88 x 22%) - 12,785.71 - - 12,785.71
Priori ty II - Jua na ta s (P136,645.96 x 21%) 28,695.65 - - - 28,695.65
Priori ty II - Ki l ong (P136,645.96 x 22%) - 30,062.11 - - 30,062.11
Priori ty III - Jua na ta s (P146,547.31 x 21%) 30,774.94 - - - 30,774.94
Priori ty III - Ki l ong (P146,547.31 x 22%) - 32,240.41 - - 32,240.41
Priori ty III - Lul u (P146,547.31 x 23%) - - 33,705.88 - 33,705.88
Tota l 59,470.59 75,088.24 33,705.88 - 168,264.71

Further ca s h di s tri buti on: P & L ra ti o

Ca s h di s tri buti on to pa rtners (P38,100 - P9,000) 29,100.00

Ca s h pa yment: Jua na ta s Ki l ong Lul u Ma gl a ya Tota l

Priori ty I - Ki l ong (P58,116.88 x 22%) - 12,785.71 - - 12,785.71
Priori ty II - Ki l ong & Jua na ta s (21:22) 7,967.44 8,346.84 - - 16,314.29
Tota l 7,967.44 21,132.56 - - 29,100.00

Jua na ta s Ki l ong Lul u Ma gl a ya

Ca s h di s tri buti on 7,967.44 21,132.56 - -

7. Lheo, Randy and Rivson are partners in an accounting firm. Their capital account balances at year-end were Lheo-
P90,000; Randy-P110,000 and Rivson –P50,000. They share profits and losses in the ratio of 4:4:2, respectively, after
considering the following terms:
a. Rivson is to receive a bonus of 10% of net income.
b. Interest of 10% is to be given to the partners on that portion of a partner’s capital in excess of P100,000.
c. Salaries of P10,000 to be given to Lheo.
If the net income during the year is P50,000, how much is the share of Randy? [A] P13,600. [B] P14,600. [C] P10,000.
[D] P19,000.

Lheo Rivson Randy Total

Bonus 5,000 5,000
Interest 1,000 1,000
Salaries 10,000 10,000
Excess-4:4;2 13,600 34,000
Total 14,600 50,000

8. The capital accounts of Ana, Maria and Elizabeth are presented below with their respective profit and loss ratio: Ana
– P139,000 (40%); Maria-P209,000 (30%) and Elizabeth – P96,000 (30%). Theresa was admitted to the partnership
when she purchased directly, for P120,000 a proportionate interest from Ana and Maria in the net assets and profits
 PRACTICAL ACCOUNTING 2 REVIEW
PRELIMINARY EXAMINATION

of the partnership. As a result, Theresa acquired 25% interest in the net assets and profits of the firm. What is the
combined gain realized by Ana and Maria upon the sale of a portion of their interests in the partnership to Theresa?

P9,000
Total Capital 444,000
mulitply by % purchased 25%
Cost purchased 111,000
Selling Price 120,000
Gain of old partners 9,000

9. Ruvi, Kris, and Jeremy formed a joint venture during 2019 to sell beauty products. Ruvi is assigned to manage the
venture. The three of them agreed to divide profits and losses equally. After seven months, the joint venture was
terminated and there were unsold beauty products. Ruvi’s trial balance contains the following:
Dr(Cr)
Joint Venture cash P 34,000
Joint Venture 15,000
Kris, Capital 9,000
Jeremy, Capital (21,000)
Jeremy received P22,200 as settlement for her interest in the venture while Ruvi agreed to be charged for the unsold
products. What is the cost of the unsold merchandise at the termination of the venture?

SOLUTION:
Jeremy’s capital balance before share in profit 21,000
Cash received by Jeremy (22,200)
Share in profit 1,200

Joint Venture
Balance before adjustment 15,000 18600 Cost of unsold merchandise
Joint venture profit (1200*3) 3,600

10. Alyzza and Bravo formed a merchandising joint venture. The following transactions occurred during 2019:

Cash investment by the venturers:

Alyzza (55%) P135,000
Bravo (45%) 65,000
Sales on account (70% was not yet collected, GP rate = 30%) 312,000
Purchases of merchandise on account 250,000
Expenses paid 31,000
Under the proportionate method, how much is the proportionate share of Alyzza in the joint venture’s assets?

SOLUTION:
Cash (135000 + 65000 + 93600 – 31000) P262,600
AR (312000*70%) 218,400
Merchandise (250000 – 218400) 31,600
Total assets 512,600
Alyzza’s share in the total assets (512600*55%) P281,930