1. Vexana invited Valentina as a partner in a business.
Vexana and Valentina agreed to have a profit/loss
ratio of 6:9 respectively. Accounts in the ledger for Vexana on February 1, 2023 just before the
admission of Valentina showed the following balances:
Debit Credit
Cash P 56,000
Accounts Receivable 120,000
Allowance for doubtful accounts 9,600
Equipment 232,800
Accu. Dep’n – Eqpt 46,560
Accounts Payable 180,000
Vexana, capital 172,640
Total P 408,800 P 408,800
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It was agreed that for purposes of establishing Vexana’s interest, the following adjustments shall be made:
a. The net realizable value of the accounts receivable is P 118,000. Allowance for doubtful account is
eliminated.
b. The following equipment has a fair value of P 180,000.
c. All liabilities are assumed except for the 10% of Accounts payable which will be paid by Vexana’s
personal assets.
Valentina (aside from her inventory contribution of P 180,000) is to contribute cash in an amount sufficient to make
her capital balance equivalent to her P/L ratio.
On December 31, 2023, the partnership reported the following:
Sales P 100,000
Sales discount 2,000
Gross Profit 38,000
Selling expenses 20,000
Administrative expenses 4,000
Tax rate 25%
Profit scheme of the partners include the following:
a. A monthly salary of P 1,500 and an 20% bonus based on profit before salaries but after bonus shall
be given to Vexana
b. Each partner shall be given a 5% interest on their respective start-up capital balances
c. Any balance shall be divided based on their agreed profit and loss ratio above.
After operating for more than five years, the partners thought of inviting a new partner and on April 1, 2028 they
invited Valir to join the partnership. Valir purchased 20% from each of the partners and paid P 200,000 to the
partners. Prior to his admission the partnership had the following balances:
Cash 125,600 Accounts payable 40,000
Accounts Receivable 280.000 Notes Payable 80,000
Allowance for D.A. (5,600) Mortgage Payable 110,000
Inventory 280,000 Interest Payable 4,000
Equipment 200,000 Vexana, capital 218,400
A/D – Eqpt (100,000) Valentina, capital 327,600
Totals 780,000 Totals 780,000
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It was agreed that inventory should reflect its current market value at P 310,000. Further equipment had a fair
value of P 120,000. Moreover, interest payable was waived by the creditor and the partners will no longer pay such
amount. All other liabilities were reflected based on their net present values except for the Mortgage payable which
was 3,000 overly stated. After adjusting the books of Vexana and Valentina Partnership Valir was admitted to the
partnership.
In consideration of the new partnership, the partners decided to restructure their profit and loss scheme as follows:
Vexana Valentina Valir
Monthly salary 2,000 1,000 1,500
Interest based on the first P 100,000 of 8% 10% 15%
each partner’s capital balance
Bonus based on Profit after salaries, 25% - -
interest and bonus
Allocation for any remainder 40% 40% 20%
profit/loss
It was determined that the new partnership of Vexana, Valentina and Valir had an average annual profit of P
300,000.
On January 1, 2029, Vexana decided to retire from the partnership. The capital of Valir after the retirement of
Vexana amounted to P 165,840. Vexana accepted an equipment with a net book value of P 12,000 and cash in
exchange for her capital interest in the partnership. The remaining partners decided to restructure again their profit
and loss sharing plan as follows:
a. First, Valentina is to receive 12% of profit up to P260,000 and 20% over P 120,000
b. Second, Valir is to receive 8% of the remaining profit over P 110,000.
c. The balance is to be allocated equally between Valentina and Valir.
On December 31, 2029, the partnership earned total profit of P 350,000.
After two years, the partners decided to incorporate their partnership. On January 1, 2032 the balance sheet of
Valentina and Valir is presented below showing the net assets at fair values:
Debit Credit
Cash P 560,000
Accounts Receivable 420,000
Allowance for doubtful accounts 21,000
Inventory 340,000
Property and Equipment, net 800,000
Accounts Payable 580,000
Valentina, capital 887,000
Valir, capital 632,000
Total P 2,120,000 P 2,120,000
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. The new corporation issued 60,000 ordinary shares to each partner having a par value of P 8 per share. In
addition, the corporation issued 30,000 ordinary shares to other shareholders in the amount of P 400,000.
Required:
1. Compute the amount of cash to be invested by Valentina on February 1, 2023.
2. Compute the total assets of the partnership as of February 1, 2023.
3. Prepare the opening entry in the books of the partnership on February 1, 2023.
4. Compute the bonus given to Vexana on December 31, 2023.
5. Prepare the closing of income summary on December 31, 2023.
6. Compute the capital account balance of Valentina after closing the income summary on December 31,
2023.
7. Prepare the entries to adjust the books of Vexana and Valentina prior to the admission of Valir on April
1, 2028.
8. Compute the amount to be credited to Valir upon his admission on April 1, 2023.
9. Compute the amount of cash to be received by each partner for the interest purchased by Valir on April
1, 2028.
10. Compute the bonus given to Vexana on December 31, 2028.
11. Prepare the division of profit and loss matrix of Vexana, Valentina and Valir partnership on December
31, 2028.
12. Compute the capital of Valentina after closing the income summary account on December 31, 2028.
13. Compute the amount of cash received by Vexana on January 1, 2029 as part of the payment by the
partnership for her interest.
14. Compute the capital account balance of Valentina after retirement of Vexana on January 1, 2029.
15. Compute the share of profit to be given to Valir on December 31, 2029
16. Prepare the division of profit on December 31, 2029
17. Prepare the entry to close the income summary on December 31, 2029.
18. Prepare the entry to record the incorporation of the partnership on January 1, 2032.
19. Compute the amount of share premium.
20. Compute the shareholders’ equity of the newly formed corporation.
-end-
“Today’s students can put dope in their veins or hope in their
brains. If they can conceive it and believe it, they can achieve
it. They must know it is not their aptitude but their attitude that
will determine their altitude.” —Jesse Jackson