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PACOAC Assignment

Problem 1: J. Cantada, F. Partido and K. Andrade formed JFK Partnership on January 1, 2014 agreeing to distribute profit and
losses in the ratio of original capital. Original investments were P62,000, P25,000, and P12,500 respectively. Earnings of the firm
and drawings by each partner for the period 2014 – 2016 are presented below:
Net Income/(Loss) Cantada Partido Andrade
2014 44,000 15,000 7,800 5,200
2015 18,500 15,000 7,800 5,200
2016 (10,500) 10,000 5,200 5,200

At the beginning of 2017, Cantada and Partido agreed to permit Andrade to withdraw from the firm. Since the books of the firm
had never been audited, the partners agreed to an audit in arriving at the settlement amount. In withdrawing, Andrade was
allowed to take certain furniture and was charged P1,500, although the book value was P4,500; the balance of Andrade’s
interest was paid in cash.

The items presented below were revealed in the course of the audit:
End of 2014 End of 2015 End of 2016
Understatement of accrued expense 400 500 650
Understatement of accrued revenue 250 100 150
Overstatement of inventories 1,500 2,000 2,000
Understatement of depreciation on asset still held 150 350 200

1) Prepare a statement of changes in partners equity covering the period January 1, 2014 to the time of Andrade’s
withdrawal, reporting corrected earning balances for each year and corrected capital balances for each partner. Ignore
income tax.
2) Prepare the entries that are required at the beginning of 2016 to correct the books and record the transfer of assets to
Andrade in final settlement.

Problem 2: The trial balance of LM Partnership on January 1, 2015 contains the following information:
Debit Credit
Cash 140,000 Bank Loans 90,000
Accounts Receivable 100,000 Accounts Payable 120,000
Notes Receivable 80,000 Accrued taxes 5,000
Merchandise Inventories 70,000 Notes Payable 110,000
Land 170,000 F. Lacap Capital 200,000
Building and Equipment, net 30,000 E Manansala Capital 150,000
Temporary Investment at cost 70,000
Prepaid Insurance 9,000
Office Supplies 6,000
675,000 675,000
Income and loss are shared equally by Lacap and Manansala. As of December 31, 2015, L. Nuguid purchased for P160,000 in cash
from partners Lacap and Manansala, a one-third interest in the partnership’s capital and income. Each partner agreed to transfer
one-third of their individual capital to Nuguid. Prior to Nuguid’s admission, it was decided that the following adjustments be
 A valuation allowance of P10,000 should be established with respect to temporary investments
 An allowance for uncollectible accounts should be established in the amount P20,000
 The valuation of the building and equipment should be reduced to P22,000

Income sharing of Nuguid commenced on January 1, 2016.

As of December 31, 2016, J. Osorio was admitted to the partnership for a one-fourth interest and contributed the following
assets from a business previously operated by him as a sole proprietor: Cash - P66,000; Accounts Receivable – P40,000;
Investments – P20,000. Accounts payable of the business of Osorio assumed by the partnership amounted to P41,000.

As an inducement to merge his enterprise with LMN Partnership, Osorio was admitted under goodwill method. Income is to be
shared equally by Lacap, Manansala, Nuguid and Osorio in the new firm, commencing January 1, 2017.

Additional information relating to the partnership during the years 2015 and 2016 follow:

Year Ended December 31

2015 2016
Income of the firm 38,000 54,000
Lacap 20,000 15,000
Manansala 14,000 12,000
Nuguid --- 28,000
For the purpose of simplicity, it is assumed that income for each year was realized in cash and that the balance sheet of the firm
on January 1, 2015 did not change during the two-year period, except as indicated in the problem.
1) Prepare the entry on the books of the partnership to record the admission of Nuguid on December 31, 2015. Ignore
income taxes.
2) Prepare a schedule to assist in determining the distribution of cash paid by Nuguid to Lacap and Manasala.
3) Determine the capital balances of Lacap, Manansala and Nuguid as of December 31, 2016.
4) Prepare the entry on the books of the partnership to record the admission of Osorio on December 31, 2016.

Problem 3: C. Canlas, C. David and C. Estrella, Certified Public Accountants, agreed to combine their practices as at January 1,
2016. The features presented below were contained in the partnership agreement.

a) The capital contribution of each partner was the net amount of assets and liabilities taken over by the partnership.
Partners capital contributions are presented below:
Canlas David Estrella
Cash 75,000 75,000 75,000
Accounts receivable 210,000 90,000 240,000
Furniture and Library 64,500 37,500 93,000
349,500 202,500 408,000
Accumulated Depreciation 36,000 22,500 70,500
Accounts Payable 4,500 21,000 10,500
40,500 43,500 81,000
309,000 159,000 327,000
Each partner guarantees the collectability of his receivables.
b) Estrella was leasing an office space at Carmela Building. He was bound by the lease up to June 30, 2016. His monthly
rental was P9,000. It was agreed by the partners that they will occupy Estrella’s office temporarily until the expiration of
the lease and to pay the rent. They also agreed that the monthly rental of P9,000 was too high and that the fair rental
value would be P6,750 per month. The excess rent was to be charged to Estrella at December 31, 2016. On July 1, the
partners transferred office to Lilian Building with monthly rental of P7,500.
c) Partners were not to be paid salaries. Each partner was to receive 20% of the gross fees billed to their respective clients
during the first year of the partnership. After subtracting operating expenses, the balances billed was to be credited to
the partners’ capital accounts in the following ratios: Canlas – 40% ; David – 35% ; Estrella – 25%.

Partner C. Fajardo was to be admitted to the partnership on April 1, 2016. He was to receive 20% of the fees from the new
business obtained after April 1 after deducting expenses, other than the bad debts losses, bore to the total gross fees.
The partnership’s activities in 2016 contain the following information:
1) Fees were billed as follows:
C. Canlas P 330,000
C. David 180,000
C. Estrella 165,000

New Business:
Prior to April 1 45,000
After April 1 180,000
2) Total expenses were P290,000 including the total amount paid for rent. These expenses, however, excluded
depreciation and bad debts expenses.

The depreciation was to be computed at the rate of 10% of cost (not book value). Depreciable assets purchased
during 2016, on which ½ year’s depreciation was to be taken, totaled P75,000.

3) Cash charges to partners’ account during the year were:

C. Canlas P 78,000
C. David 66,000
C. Estrella 87,000
C. Fajardo 37,500
4) Out of Canlas’ and David’s accounts receivable, the amount of P18,000 and P6,750 respectively was proven to be
uncollectible. A new client billed in March for P24,000 had been adjudged bankrupt and a settlement of P0.5 was
1) Prepare the statement of the partners’ capital accounts for the year ended December 31, 2016.
2) Show the computation of apportionment of income in good form. Disregard income tax.