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NAME: Date:
Professor: Section: Score:

ACCOUNTING FOR SPECIAL TRANSACTIONS

FIRST GRADING EXAMINATION

1. AAA and BBB are partners with capital of P60,000 and P20,000, respectively. Profits and losses
are divided in the ratio of 60:40. AAA and BBB decided to form a new partnership with CCC,
who invested land valued at P15,000 for a 20% capital interest in the new partnership. CCC’s
cost of the land was P12,000 the partnership elected to use the bonus method to record the
admission of CCC into the relationship. CCC’s capital account should be credited for

2. AAA and BBB formed partnership in 2009. The partnership agreement provides for annual
salary allowances of P55,000 for AAA and P45,000 for BBB. The partners share profits equally
and losses in a 60:40 ratio. The partnership had earnings of P80,000 for 2009 before any
allowance to partners. What amount of these earnings should be credited to each partner’s
capital account?

3. The partnership agreement of AAA and BBB provides that interest at 10% per year is to be
credited to each partner on the basis of weighted-average capital balances. A summary of BBB’s
capital account for the year ended December 31, 2009, is as follows:
Balance, January 1 P 140,000
Additional investment, July 1 40,000
Withdrawal, August 1 15,000

What amount of interest should be credited to BBB’s capital account for 2009?

4. AAA and BBB are partners who share profits and losses on the ratio of 6:4, respectively. On
May 1, 2009, their respective capital accounts were as follows:
AAA P 60,000
BBB 50,000

On the date, CCC was admitted as a partner with one-third interest in capital and profits for an
investment of P40,000. The new partnership began with total capital of P150,000. Immediately
after CCC’s admission, AAA’s capital should be

5. AA and BB formed a partnership in 20x1 and made the following investments and capital
withdrawals during the year:

AA BB
Investments Draws Investments Draws
March 1………………P30, 000 P 20, 000
June 1………………………… P10, 000 P10,000
August 1………………20, 000 2,000
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December 1……………………. 5, 000

The partnership’s profit and loss agreement provides for salary of which P30,000 was paid to each
partner for 20x1. AA is to receive a bonus of 10% on net income after salaries and bonus. The
partners are also to receive interest of 8% on average annual capital balances affected by both
investments and drawings. Any remaining profits are to be allocated equally among the partners.

Assuming the net income of P60, 000 before salaries and bonus, determine how the income would be
allocated among the partners.

Use the following information to answer the next two questions

The following condensed balance sheet is presented for the partnership of AAA and BBB, who share
profits and losses in the ratio of 60:40, respectively:
Cash P 45,000 Accounts payable P 120,000
Other assets 625,000 AAA, capital 348,000
BBB, loan 30,000 BBB, capital 232,000
Total P 700,000 Total P 700,000

The assets and liabilities are fairly valued on the balance sheet. AAA and BBB decide to admit CCC
as a new partner with 20% interest.

6. What amount should CCC contribute in cash or other assets?

7. AInstead of admitting a new partner, AAA and BBB decide to liquidate the partnership. If other
assets are sold for P500,000, what amount of the available cash should be distributed to AAA?

8. The following condensed balance sheet is presented for the partnership of BBB and AAA, who
share profits and losses on the ratio of 60:40, respectively:
Other assets P 450,000
BBB loan 20,000
P 470,000

Accounts payable P 120,000

BBB, capital 195,000
AAA, capital 155,000
Total P 470,000
The partners have decided to liquidate the partnership. If the other assets are sold P385,000,
what amount of the available cash should be distributed to BBB?

9. On December 31, 1998, the partners of MNP Partnership decided to liquidate their business.
Immediately before liquidation, the following condensed balance sheet was prepared:

Cash P 50,000 Liabilities P 375,000

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Noncash assets 900,000 Nieva, loan 80,000

Perez, loan 25,000
Munoz, capital (50%) 312,500
Nieva, capital (30%) 107,500
____ Perez, capital (20%) 50,000
Total P 950,000 Total P 950,000

The noncash assets were sold for P400,000. Assuming Perez is the only solvent partner, what
amount of additional cash will be invested by Perez? (rounded to the nearest peso)

10. The partners of the M & N Partnership started liquidating their business on July 1, 2004, at
which time the partners were sharing profits and losses 40% to M and 60% to N. The balance
sheet of the partnership appeared as follows:

M & N Partnership
Balance Sheet – July 1, 2004

Assets Liabilities & Capital

Cash……………………. P 8,800 Accounts payable………… P32, 400
Receivable……………… 22,400 M, capital………………… P31, 000
Inventory…………...….. 39,400 M, drawing………… 5,400 25, 600
Equipment…..P65, 200 N, capital………………… .P33, 200
Accumulated N, drawing……………………. 200 33, 000
depreciation 30, 800 34, 400 N, loan…………………………………… 14, 000
Total…………………… P105, 000 Total…………………………………… P105, 000

During the month of July, the partners collected P600 of the receivables with no loss. The partners
also sold during the month the entire inventory on which they realized a total of P32,400.

How much of the cash was paid to M’s capital on July 31, 2004?

11. After all noncash assets have been converted into cash in the liquidation of the AA and JJ
partnership, the ledger contains the following account balances:

Debit Credit

Cash……………………………………………… P 34, 000

Accounts payable………………………………………………………… P25, 000
Loan payable to AA……………………………………………………….. 9,000
AA, capital…………………………………………… 8,000
JJ, capital……………………………………………………………… 8,000

Available cash should be distributed; P25,000 to accounts payable and;

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12. After incurring losses resulting from very unprofitable operation, the Alphabets Partnership
decided to liquidate when the partners’ capital balances were:

A, capital (40%) P 80,000

B, capital (40%) 130,000
C, capital (20%) 96,000

The non-cash assets were sold in installment. Available cash were distributed to partners in every
sale of non-cash assets. After the second sale of non-cash assets, the partners received the same
amount of cash in the distribution. And from the third sale of non-cash assets, cash available for
distribution amounts to P 28,000, and non-cash assets has a book value of P 12,500. Using cash
priority program, what amount did C received in the third installment of cash?

13. The partnership of AA, BB, and CC was dissolved on June 30, 20x1 and account balances after
non-cash assets were converted into cash on September 1, 2004 are:

Cash……………………………P50, 000 Accounts payable P120, 000

AA, capital (30%) 90, 000
BB, capital (30%) (60, 000)
CC, capital (40%) (100, 000)

Personal assets and liabilities of the partners at September 1, 20x1 are:

Personal Personal
Assets Liabilities
AA………………………………………………………….. P80, 000 P90, 000
BB………………………………………………………… 100, 000 61, 000
CC………………………………………………………… 192, 000 80, 000

If CC contributes P70, 000 to the partnership to provide cash to pay the creditors, what amount of
AA’s P90, 000 partnership equity would appear to be recoverable?

14. Partners Able, Baker, and Chapman, who share profit and loss equally, have the following
personal assets, personal liabilities, and partnership capital balances:

Able Baker__ Chapman_

Personal assets P 30,000 P 80,000 P 60,000
Personal Liabilities 25,000 50,000 72,000
Capital balances 50,000 (32,000) 70,000

After applying the doctrine of marshaling of assets, the capital balances of Able, Baker, and
Chapman, respectively, would be

15. A, B and C are partners in a textile distribution business, sharing profits and losses equally. On
December 31, 2004, the partnership capital and the partners’ drawing were as follows:
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A B C Total
Capital P100,000 P80,000 P300,000 P480,000
Drawing 60,000 40,000 20,000 120,000

The partnership was unable to collect on its trade receivables, and it was forced to liquidate. The
operating profits for 2005 amounted to P72,000, and was all exhausted including the partnership
assets. Unsettled creditors’ claim at December 31, 2005 amounted to P84,000. B and C have
substantial private resources, but A has no available free assets.

The final cash distribution to C was:

16. A, B and C are partners with capital balance of P 350,000, P 250,000 and P 350,000 and sharing
profits 30%, 20% and 50% respectively. Partners agree to dissolve the business and upon
liquidation, all of the partnership assets are sold and sufficient cash is realized to pay all the
claims except for P50,000. C is personally insolvent, but the other two partners are able to meet
any indebtedness to the firm. On the remaining claim against the partnership, A is to absorb.

17. A, B, and C are partners in ABC Partnership and share profits and losses, 5:3:2, respectively. The
partners have agreed to liquidate the partnership. Prior to liquidation, the partnership balance
sheet shows the following book values.

Cash P 25,200
Non-cash 297,600
Notes, payable to C 38,400
Other liabilities 184,800
A, capital 72,000
B, capital (12,000)
C, capital 39,600

Liquidation expenses of P 16,800 are paid. Non-cash assets with a book value of P 240,000 are sold
for P 216,000.

How much cash should C receive?

18. Partners Bee, Cee, Dee and Gee who share profits 5:3:1:1, respectively, decide to liquidate their
partnership. Capital balances before liquidation are:

Bee P 60,000
Cee 40,000
Dee 30,000
Gee 10,000
The partners agree to the following:
(1) Partnership’s computer equipment with a book value of P12,000 is to be taken over by partner
Bee at a price of P15,000.
(2) Partnership’s liabilities are to be paid off and the balance of cash on hand, P30,000 is to be
divided in a manner that will avoid the need for any possible recovery of cash from a partner.
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How much of the P30,000 cash be distributed to Partner Cee?

19. A and B decided to liquidate their partnership business on June 1, 2005, under lump-sum
liquidation. The partners had been sharing profits and losses on a 60:40 ratio. The balance sheet
prepared on the day of liquidation began was as follows:

Assets Liabilities and Capital

Cash P 18,000 Accounts payable P 42,000
Receivables 75,000 A, loan 24,000
Inventory 90,000 A, capital 102,000
Other 84,000 B, capital 99,000
Total P267,000 Total P267,000

During June, one-third of the receivables was collected; P45,000 of inventory was sold at an average
of 70% of book value; other assets were sold for P36,000.

How much should A and B receive upon liquidation?

20. A, B, and C, who divide profits and losses 50%, 30%, and 20%, respectively, have the following
December 31, 20x1 account balances:

A, drawing (Dr.)………………………………………………………… P 12, 000

C, drawing (Cr.)………………………………………………………..… 4,800
Accounts receivable- A……………………………………………….… 7, 200
Loans payable- B…………………………………………………………... 14, 400
A, capital…………………………………………………………………. 59, 400
B, capital……………………………………………………………………. 44, 400
C, capital………………………………………………………………..… 39, 000

On this data, the partnership’s assets are P211,200 (including cash of P64, 200).The partnership is
liquidated and C receives P33,000 in final settlement. How much is the total loss on realization?

21. A and B share partnership profits and losses in a 7:3 ratio. Their post-closing trial balance on
January 31 show before liquidation:

Cash………………………………………P 30, 000

Accounts receivable, net………….……... 380, 000
Inventory……………………………… 260, 000
Furniture, net…………………………… 120, 000
Accounts payable…………………………………………………P165, 000
A, capital…………………………………………………………...350, 000
B, capital………………………………………………………. 275, 000

C offered to buy for P760,000 the partnership assets including liabilities but excluding cash and after
certain assets are to be restated at their fair values as follows:
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Accounts receivable ……………………………………………….. P350,000

Inventory ……………………………………………………………… 250,000
Furniture ……………………………………………………………… 135,000

How much will A and B receive as final settlement of their partnership interest?

22. AAA and BBB partnership’s balance sheet at December 31, 2009, reported the following:
Total Assets P 100,000
Total liabilities 20,000
AAA, capital 40,000
BBB, capital 40,000

On January 2, 2010, AAA and BBB dissolved their partnership and transferred all assets and
liabilities to a newly formed corporation. At the date of incorporation, the fair value of the net
assets was P12,000 more than the carrying amount in the partnership’s books, which was
assigned to tangible assets. AAA and BBB were each issued 5,000 shares of the corporation’s P1
par value common stock. Immediately following incorporation, additional paid-in capital in
excess of par should be credited for

23. When property other than cash is invested in a partnership, at what amount should the noncash
property be credited to the contributing partner’s capital account?

24. A and B formed a partnership. A contributed cash of ₱500,000 while B contributed land with
carrying amount of ₱400,000 and fair value of ₱800,000. The land has an unpaid mortgage of
₱200,000 which is assumed by the partnership. How much is the correct valuation of B’s capital
immediately after the partnership formation?

25. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even
though Mr. A contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The
partners agree that the difference in the amount of contribution and the amount of credit to the
partner’s capital shall be treated as compensation for the expertise that the partner will be
bringing to the partnership. How much is the correct valuation of A’s capital immediately after
the partnership formation?

26. A and B formed a partnership. The following are their contributions:

A B
Cash 500,000 -
Accounts receivable 100,000 -
Building 700,000
Total 600,000 700,000

A, capital 600,000
B, capital 700,000
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Total 600,000 700,000

Additional information:
 The accounts receivable includes a ₱20,000 account that is deemed uncollectible.
 The building is under-depreciated by ₱50,000.
 The building has an unpaid mortgage ₱100,000, but this is not assumed by the partnership.
Partner B promised to pay for the mortgage himself.

How much is the correct valuation of A’s capital immediately after the partnership formation?

27. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even
though Mr. A contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The
partners agree that the difference in the amount of contribution and the amount of credit to the
partner’s capital shall be treated as cash settlement between the partners. The compound entry
to record the partners’ contributions includes a credit to B’s capital account in the amount of

28. If the partnership agreement does not specify how income is to be allocated, profits and loss
should be allocated

29. A and B share in partnership profits and losses on a 40:60 ratio. During the year, A’s capital
account has a net increase of ₱50,000. Partner A made contributions of ₱10,000 and capital
withdrawals of ₱60,000 during the year. How much was the share of B in the partnership profit
for the year?

30. The partnership agreement of A, B and C stipulates the following:

 Partners A and C shall receive annual salaries of ₱12,000 and ₱8,000, respectively.
 A bonus of 10% of profit after salaries but before deduction of bonus shall be given to
Partner A, the managing partner.
 Each partner shall receive 10% interest on average capital investments.
 Any remaining profit or loss shall be shared as follows: 40% to A and 30% each to B and C.

The average capital investments of partners during the year are as follows:
A ₱100,000
B 60,000
C 120,000

The partnership earns profit of ₱100,000.

How much is the share of Partner C in the partnership profit?

31. The partnership agreement of A and B provides that interest at 10% per year is to be credited to
each partner on the basis of weighted-average capital balances. A summary of B’s capital
account for the year ended December 31, 20x1 is as follows:

Balance, Jan. 1, 20x1 252,000

Additional investment, July 1 72,000
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Withdrawal, August 1 (27,000)

Balance, Dec. 31, 20x1 297,000

How much is the interest on B’s weighted average capital?

32. Red and White formed a partnership in 2003. The partnership agreement provides for annual
salary allowances of ₱55,000 for Red and ₱45,000 for White. The partners share profits equally
and losses in a 60/40 ratio. The partnership had earnings of ₱80,000 for 2003 before any
allowance to partners. What amount of these earnings should be credited to each partner’s
capital account?

33. Fox, Greg, and Howe are partners with average capital balances during 2002 of ₱120,000,
₱60,000, and ₱40,000, respectively. Partners receive 10% interest on their average capital
balances. After deducting salaries of ₱30,000 to Fox and ₱20,000 to Howe, the residual profit or
loss is divided equally. In 2003 the partnership sustained a ₱33,000 loss before interest and
salaries to partners. By what amount should Fox’s capital account change?

34. The partnership agreement of Axel, Berg & Cobb provides for the year-end allocation of net
income in the following order:
 First, Axel is to receive 10% of net income up to ₱100,000 and 20% over ₱100,000.
 Second, Berg and Cobb each are to receive 5% of the remaining income over ₱150,000.
 The balance of income is to be allocated equally among the three partners.

The partnership’s 2003 net income was ₱250,000 before any allocations to partners. What amount
should be allocated to Axel?

35. The partnership agreement of Reid and Simm provides that interest at 10% per year is to be
credited to each partner on the basis of weighted-average capital balances. A summary of
Simm’s capital account for the year ended December 31, 2003, is as follows:

Balance, January 1 140,000

Additional investment, July 1 40,000
Withdrawal, August 1 (15,000)
Balance, December 31 165,000

What amount of interest should be credited to Simm’s capital account for 2003?

36. Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May
1, 2003, their respective capital accounts were as follows:

Blau 60,000
Rubi 50,000

On that date, Lind was admitted as a partner with a one-third interest in capital and profits for an
investment of ₱40,000. The new partnership began with total capital of ₱150,000. Immediately after
Lind’s admission, Blau’s capital should be
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37. Kern and Pate are partners with capital balances of ₱60,000 and ₱20,000, respectively. Profits and
losses are divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with
Grant, who invested land valued at ₱15,000 for a 20% capital interest in the new partnership.
Grant’s cost of the land was ₱12,000. The partnership elected to use the bonus method to record
the admission of Grant into the partnership. Grant’s capital account should be credited for

Use the following information for the next two questions:

On June 30, 2003, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm,
together with their respective profit and loss sharing percentages were as follows:

Assets, net of liabilities 320,000

Eddy, capital (50%) 160,000

Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
320,000

38. Eddy decided to retire from the partnership and by mutual agreement is to be paid ₱180,000 out
of partnership funds for his interest. No goodwill is to be recorded. After Eddy’s retirement,
what are the capital balances of the other partners?

39. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new
partner with a 25% interest in the capital of the new partnership for a cash payment of ₱140,000.
The bonus method shall be used to record the admission of Hamm. Immediately after
admission of Hamm, Eddy’s capital account balance should be

The next two items are based on the following information:

The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share
profits and losses in the ratio of 60:40, respectively:
Cash 45,000
Other assets 625,000
Beda, loan 30,000
700,000

Accounts payable 120,000

Alfa, capital 348,000
Beda, capital 232,000
700,000

40. The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit
Capp as a new partner with 20% interest. No goodwill or bonus is to be recorded. What amount
should Capp contribute in cash or other assets?
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41. Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the
other assets are sold for ₱500,000, what amount of the available cash should be distributed to
Alfa?

42. The statement of financial position of the partnership of A, B and C shows the following
information:

Cash 22,400
Other assets 212,000
Total assets 234,400

Liabilities 38,400
A, capital (50%) 76,000
B, capital (25%) 64,000
C, capital (25%) 56,000
Total liabilities and equity 234,400

The partners realized ₱56,000 from the first installment sale of non-cash assets with total carrying
amount of ₱120,000. How much did B receive from the partial liquidation?

43. The statement of financial position of the partnership of A, B and C shows the following
information:

Cash 40,000
Other assets 720,000
Total assets 760,000

Liabilities 300,000
B, loan 64,000
C, loan 20,000
A, capital (50%) 250,000
B, capital (30%) 86,000
C, capital (20%) 40,000
Total liabilities and equity 760,000

The non-cash assets are sold for ₱320,000. Partner C is the only solvent partner. In the settlement of
the partners’ claims, how much additional contribution is required of Partner C?

44. A, B and C are partners. Their respective personal assets, personal liabilities and partnership
capital balances are as follows:

A B C
Personal assets 90,000 240,000 180,000
Personal liabilities 75,000 150,000 216,000
Capital balances 150,000 (96,000) 210,000
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Which of the partners is personally insolvent?

45. The equity section of the statement of financial position of the partnership of A, B and C shows
the following information:

A, capital (40%) 64,000

B, capital (40%) 104,000
C, capital (20%) 76,800
Total liabilities and equity 244,800

Non-cash assets are sold in installment. Cash distributions are made to the partners as cash becomes
available. In the second sale of non-cash assets, the partners received the same amount of cash in the
distribution. In the third sale of non-cash assets, the amount of cash available for distribution is
₱100,000. The carrying amount of the remaining non-cash assets is ₱260,000. Under the cash priority
program, how much cash is distributed to B in the third installment payment?

“It is the Lord who goes before you. He will be with you; he will not fail you or
forsake you. Do not fear or be dismayed.” – (Deuteronomy 31:8)

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