1

CHAPTER 15 SUGGESTED ANSWERS

EXERCISES Exercise 15-1 Trustee's Books a. b. c. d. e. Purchases Trustee's Certificates Payable Accounts Receivable Sales Corporation Liability paid - Accounts Payable, Old Cash Trustee's Certificates Payable Cash Cash Allowance for Doubtful Accounts, Old* Accounts Receivable, Old Cash Allowance for Doubtful Accounts* Accounts Receivable Corporation Liability Paid - Notes Payable, Old Corporation Liability Paid - Accrued Interest on NP, Old Corporation - Interest Expense on NP, Old Cash Cash Accumulated Depreciation - Furniture and Fixtures Corporation - Loss on Sale of Furniture and Fixtures Furniture and Fixtures *Corporation Uncollectible Accounts Expense may also be used. 30,000 30,000 160,000 160,000 24,000 24,000 17,000 17,000 28,000 3,000 31,000 92,000 1,300 93,300 30,000 300 600 30,900 11,200 8,000 800 20,000

f.

g.

h.

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Exercise 15 - 2 It is assumed in the following solution that all expenses and losses of the debtor are to be reflected on the debtor's books. It is further assumed that the debtor recognized the liquidation of liabilities of P30,000 by the trustee at the time such debt was paid. a. b. Trustee's Books Robinson Co. - Debtor Robinson Co. - Loss on Sale of Investments Sales Cost of Goods Sold Operating Expenses Income Summary Income Summary Robinson co. - Debtor Robinson Co. - Debtor Liabilities Paid - Robinson co. Company's Books a. b. c. Loss on Sale of Investments Henry Ly, Trustee Henry Ly, Trustee Retained Earnings Income Summary Loss on Sale of Investments Interest on Mortgage Retained Earnings Income Summary 32,000 32,000 20,000 20,000 37,000 32,000 5,000 37,000 37,000 32,000 32,000 160,000 112,000 28,000 40,000 20,000 20,000 30,000 30,000

c. d.

d.

Exercise 15 - 3 a. Trustee's Books Corporation Liability Paid - Notes Payable, Old Corporation Liability Paid - Accrued Int. on NP, Old Golden City, Debtor Cash Cash Investments Golden City, Debtor Corporation Liability Paid - Bonds Payable Cash Golden City, Debtor Cash Accumulated Depreciation - Plant and Equipment 40,000 300 700 41,000 60,000 45,000 15,000 100,000 63,500 36,500 3,200 3,200

b.

c. d.

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Golden City, Debtor Plant and Equipment e. Income Summary Golden City, Debtor Golden City, Debtor Corporation Liability Paid - Notes Payable, Old Corporation Liability Paid - Accrued Int. on NP, Old Corporation Liability Paid - Bonds Payable a. Company's Books Notes Payable Accrued Interest on Notes Payable Interest Expense Trustee Trustee Gain on Sale of Investments Bonds Payable Interest Expense Trustee Gain on Bond Retirement Loss on Sale of Plant and Equipment Trustee Trustee Profit from Trusteeship Operations Gain on Sale of Investments Gain on Bond Retirement Profit from Trusteeship Operations Loss on Sale of Plant and Equipment Interest Expense Retained Earnings Exercise 15 - 4 a. Assignee's Books Corporation Liability Paid - Mortgage Note, Old Corporation - Loss on Settlement with Creditors Land and Building Corporation Liability Paid - Trade Accounts Payable Cash Corporation - Gain on Settlement with Creditors Income Summary Corporation - Gain on Settlement with Creditors Corporation - Loss on Settlement with Creditors

5,600 12,000 12,400 12,400 140,300 40,000 300 100,000 40,000 300 700 41,000 15,000 15,000 100,000 1,500 63,500 38,000 5,600 5,600 12,400 12,400 15,000 38,000 12,400 5,600 2,200 57,600

b. c.

d. e.

80,000 50,000 130,000 70,000 41,000 29,000 21,000 29,000 50,000

b. c.

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d.

Panther Co., Debtor Corporation Liability Paid - Mortgage Note, Old Corporation Liability Paid - Trade Accounts Payable Income Summary Company's Books Trade Accounts Payable Mortgage Note E. Baylor, Assignee Retained Earnings E. Baylor, Assignee Income Summary Retained Earnings Capital Stock Retained Earnings PROBLEMS

228,000 80,000 70,000 78,000 70,000 80,000 150,000 78,000 78,000 3,000 3,000 100,000 100,000

a.

b. c. d.

Problem 15 1 a. Cash Notes Receivable, Old Accounts Receivable, Old Accrued Interest on Notes Receivable, Old Merchandise Inventory Furniture and Fixtures Dick Corp. Stock Allowance for Doubtful Accounts, Old Accumulated Depreciation Furniture and Fixtures Rabbit Corp., Debtor Accounts Receivable Sales Purchases Accounts Payable Cash Sales Returns and Allowances Sales Discount Accounts Receivable Cash Corporation - Loss on Notes Receivable, Old Corporation - Loss on Accrued Int. on NR, Old Notes Receivable, Old Accrued Interest on Notes Receivable, Old Interest Income 11,500 50,000 130,000 800 80,000 30,000 30,000 2,600 7,500 322,200 280,000 280,000 160,000 160,000 156,000 6,000 8,000 170,000 49,120 2,000 200 50,000 800 520

b1 b2. b3.

b4.

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b5.

Cash Allowance for Doubtful Accounts, Old Corporation - Loss from Doubtful Accounts, Old Accounts Receivable, Old Cash Dick corp. Stock (1,000 shares x P20) Corporation - Gain on Sale of Dick Corp. Stock Accounts Payable Cash Notes Payable Purchase Returns and Allowances Purchase Discounts Corporation Liability Paid- Notes Payable, Old Corporation Liability Paid - Accrued Int. on NP, Old Corporation - Interest Expense on Notes, Old Cash Corporation Liability Paid - Accounts Payable, Old Cash Selling Expenses General Expenses Cash Income Summary Merchandise Inventory Merchandise Inventory Income Summary Uncollectible Accounts Expense (P110,000 x 2%) Allowance for Doubtful Accounts Depreciation - Furniture and Fixtures Accumulated Depreciation - Furniture and Fixtures (P30,000 x 10% x 8/12) Selling Expenses General Expenses Accrued Selling Expenses Accrued General Expenses Corporation - Interest Expense on Notes, Old Accrued Interest on Notes Payable Interest Expense Accrued Interest on Notes Payable Sales Purchase Returns and Allowances

110,000 2,600 17,400 130,000 24,000 20,000 4,000 66,000 25,000 36,000 4,000 1,000 50,000 2,100 700 52,800 130,000 130,000 37,000 46,600 83,600 80,000 80,000 66,500 66,500 2,200 2,200 2,000 2,000 500 600 500 600 300 300 400 400 280,000 4,000

b6.

b7.

b8.

b9. b10.

c1. c2. c3. c4.

c5.

c6. c7. c8.

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Purchase Discount Interest Income Purchases Sales Returns and Allowances Sales Discount Selling Expenses General Expenses Uncollectible Accounts Expense Depreciation - Furniture and Fixtures Interest Expense Income Summary c9. Income Summary Corporation - Gain on Sale of Dick Corp. Stock Corporation - Interest Expense on Notes, Old Corporation - Loss on Notes Receivable, Old Corporation - Loss on Accrued Int. on NR, Old Corporation - Loss from Doubtful Accounts, Old Rabbit Corp., Debtor Income Summary Rabbit Corp., Debtor Corporation Liability Paid - Notes Payable, Old Corporation Liability Paid - Accrued Int. on NP, Old Corporation Liability Paid - Accounts Payable, Old Rabbit Corp., Debtor Allowance for Doubtful Accounts Accumulated Depreciation - Furniture and Fixtures Notes Payable Accounts Payable Accrued Selling Expenses Accrued General Expenses Accrued Interest on Notes Payable Cash Accounts Receivable Merchandise Inventory Furniture and Fixtures Dick Corp. Stock (500 shares)

1,000 520 160,000 6,000 8,000 37,500 47,200 2,200 2,000 400 22,220 16,600 4,000 1,000 2,000 200 17,400 7,880 7,880 182,100 50,000 2,100 130,000 132,220 2,200 9,500 36,000 94,000 500 600 700 59,220 110,000 66,500 30,000 10,000

c10. c11.

d.

Corporation's Books (The transactions on the corporation's books are numbered to correspond with the transactions on the trustee's books) a. A. Maxwell, Trustee Allowance for Doubtful Accounts Accumulated Depreciation - Furniture and Fixtures Cash Notes Receivable Accounts Receivable 322,200 2,600 7,500 11,500 50,000 130,000

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Accrued Interest on Notes Receivable Merchandise Inventory Furniture and Fixtures Dick Corp. Stock b8. Notes Payable Accrued Interest on Notes Payable A. Maxwell, Trustee Accounts Payable A. Maxwell, Trustee Retained Earnings A. Maxwell, Trustee Cash Accounts Receivable Merchandise Inventory Furniture and Fixtures Dick Corp. Stock (500 shares) Allowance for Doubtful Accounts Accumulated Depreciation - Furniture and Fixtures Notes Payable Accounts Payable Accrued Selling Expenses Accrued General Expenses Accrued Interest on Notes Payable A. Maxwell, Trustee 50,000 2,100

800 80,000 30,000 30,000

52,100 130,000 130,000 7,880 7,880 59,220 110,000 66,500 30,000 10,000 2,200 9,500 36,000 94,000 500 600 700 132,220

b9. c10. d.

Problem 15 -1 Requirement 2 (a) Rabbit Corporation, Debtor A. Maxwell, Trustee Balance Sheet December 31, 2008 Assets Current assets: Cash Accounts receivable Less Allowance for doubtful accounts P59,220 P110,000 2,200 107,800

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Merchandise inventory Furniture and fixtures Less Accumulated depreciation Investments: Dick Corporation stock Total assets Liabilities and Stockholders' Equity Current liabilities: Notes payable Accounts payable Accrued selling expenses Accrued general expenses Accrued interest on notes payable Stockholders' equity: Capital stock Retained earnings (P20,100 - P7,880) Total stockholders' equity

66,500 P30,000 9,500

P233,520 20,500 10,000 P264,020

P56,000 94,000 500 600 700 P100,000 12,220

P151,800

112,220 P264,020

Problem 15 -1 Requirement 2(b) Rabbit Corporation, Debtor A. Maxwell, Trustee Income Statement For the Period May 1 to December 31, 2008 Gross sales Less: Sales returns and allowances Sales discount Net sales Cost of goods sold: Merchandise inventory, May 1 Purchases Less: Purchase returns and allow. P4,000 P280,000 P 6,000 8,000 14,000 P266,000

P 80,000 P160,000

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Purchase discount 1,000 Merchandise available for sale Less Merchandise inventory, December 31 Gross profit Operating expenses: Selling expenses General expenses Uncollectible accounts expense Depreciation - furniture and fixtures Operating income Other revenue and expense items: Interest income Interest expense Income from trustee's operations Corporation revenue and expense items: Corporation expenses: Interest expense on notes, old Uncollectible accounts expense Corporation losses: Loss on notes receivable, old Loss on accrued int. on NR, old Total corporation expenses and losses Less corporation gains: Gain on sale of Dick Corp. stock Net corporation loss Decrease in retained earnings

5,000

155,000 P235,000 66,500 P 37,500 47,200 2,200 2,000 P 520 400

168,500 P 97,500

88,900 P 8,600 120 P 8,720

P 1,000 17,400 P2,000 200

P 18,400 2,200 P20,600 4,000 16,600 P 7,880

Problem 15 -2 Requirement 1 a. Trustee's Books Cash Notes Receivable, Old Accounts Receivable, Old Merchandise Inventory Furniture and Fixtures Cash Surrender Value of Life Insurance Accumulated Depreciation - Furniture and Fixtures Cory and Fidel, Debtors Accounts Receivable Pledged Accounts Receivable, Old Cash Interest and Finance Charges 8,000 7,500 56,900 35,200 3,600 9,400 600 120,000 40,000 40,000 28,800 1,200

b1. b2

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10

Loan from Acro Finance Company Loan: P28,800/(100% - 4%) = P30,000 b3. Partnership Liability Paid - Notes Payable, Old Partnership Liability Paid - Accrued Int. on NP Partnership - Interest Expense on Notes, Old Cash Cash Partnership - Uncollectible Accounts Expense Accounts Receivable, Old (P56,900 - P40,000 pledged) Cash Partnership - Uncollectible Accounts Expense Notes Receivable, Old Partnership Liability Paid - Accounts Payable, Old Cash Installment Notes Payable Cash Accounts Receivable Pledged Loan from Acro Finance Company Interest and Finance Charges Cash Interest = P30,000 x 6% x 2/12 = P300. Purchases Accounts Payable Accounts Receivable Sales Operating Expenses Cash Installment Notes Payable (P3,200 x 11) Partnership - Interest Expense on Installment Notes Cash FV of installment notes = P38,400/12 = P3,200 Interest = P3,200 x 5% [1/12(1+2+3+4+5+6+7+8+ 9+10+11)] = P880 Trustee's Expenses and Fees Cash Due to Ferdie, Trustee Cash Accounts Receivable Accounts Payable 15,000 600 100

30,000

15,700 15,000 1,900 16,900 5,000 2,500 7,500 69,400 31,000 38,400 40,000 40,000 30,000 300 30,300 80,000 80,000 150,000 150,000 25,000 25,000 35,200 880 36,080

b4.

b5.

b6.

b7. b8.

b9. b10. b11. b12.

b13.

13,000 7,000 6,000 122,800 122,800 56,000

b14. b15.

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Cash c1. c2. c3. c4. c5. Operating Expenses Accrued Operating Expenses Income Summary Merchandise Inventory Merchandise Inventory Income Summary Depreciation - Furniture and Fixtures Accumulated Depreciation - Furniture and Fixtures Uncollectible Accounts Expense Allowance for Doubtful Accounts P27,200 x 5% = P1,360 Partnership - Interest Expense on Installment Notes Accrued Interest on Notes Payable P3,200 x 5% = P160 1,520

56,000 1,520 35,200 35,200 33,000 33,000 360 360 1,360 1,360 160 160

c6.

c7.

Sales Purchases Operating Expenses Trustee's Expenses and Fees Depreciation - Furniture and Fixtures Uncollectible Accounts Expense Interest and Finance Charges Income Summary Income Summary Partnership - Interest Expense on Notes, Old Partnership - Uncollectible Accounts Expense Partnership - Interest on Installment Notes Income Summary Cory and Fidel, Debtor Cory and Fidel, Debtor Partnership Liability Paid - Notes Payable, Old Partnership Liability Paid - Accrued Int. on NP Partnership Liability Paid - Accounts Payable, Old Cory and Fidel, Debtor

150,000 80,000 26,520 13,000 360 1,360 1,500 27,260 5,540 100 4,400 1,040 19,520 19,520 85,000 15,000 600 69,400 54,520

c8.

c9. c10.

d.

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Accounts Payable Installment Notes Payable Accrued Interest on Installment Notes Accrued Operating Expenses Due to Ferdie, Trustee Allowance for Doubtful Accounts Accumulated Depreciation - Furniture and Fixtures Cash Accounts Receivable Merchandise Inventory Furniture and Fixtures Cash Surrender Value of Life Insurance

24,000 3,200 160 1,520 6,000 1,360 960 18,520 27,200 33,000 3,600 9,400

a.

Partnership Books (The transactions on the partnership books are numbered to correspond with the transactions on the trustee's books) Ferdie, Trustee 120,000 Accumulated Depreciation - Furniture and Fixtures 600 Cash 8,000 Notes Receivable 7,500 Accounts Receivable 56,900 Merchandise Inventory 35,200 Furniture and Fixtures 3,600 Cash Surrender Value of Life Insurance 9,400 Notes Payable Accrued Interest on Notes Payable Ferdie, Trustee Accounts Payable Ferdie, Trustee 15,000 600 15,600 69,400 69,400

b3.

b6.

c.

Ferdie, Trustee Cory, Capital (P19,520 x 20/35) Fidel, Capital (P19,520 x 15/35) Cash Accounts Receivable Merchandise Inventory Furniture and Fixtures Cash Surrender Value of Life Insurance Allowance for Doubtful Accounts Accumulated Depreciation - Furniture and Fixtures Accounts Payable Installment Notes Payable Accrued Interest on Installment Notes Accrued Operating Expenses Due to Ferdie, Trustee Ferdie, Trustee

19,520 11,154 8,366 18,520 27,200 33,000 3,600 9,400 1,360 960 24,000 3,200 160 1,520 6,000 54,520

d.

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Problem 15 -2 Requirement 2(a) Cory and Fidel, Debtor Ferdie, Trustee Balance Sheet June 30, 2008 Assets Current assets: Cash Accounts receivable Less Allowance for doubtful accounts Merchandise inventory Long-term investment: Cash surrender value of life insurance Furniture and fixtures Less Accumulated depreciation Total assets P 18,520 P27,200 1,360 25.840 33,000 P 3,600 960 P 77,360 9,400 2,640 P 89,400

Liabilities and Partners' Capital Liabilities: Accounts payable Installment on notes payable Accrued interest on installment notes Due to Ferdie, Trustee Total liabilities Partners' capital: Cory, capital Fidel, capital Total partners' capital Total liabilities and partners' capital Problem 15 - 2 (Req. 2b) Cory and Fidel, Debtor Ferdie, Trustee Income Statement For the Fiscal Year Ended June 30, 2008 Sales Cost of goods sold: Merchandise inventory, July 1, 2007 Purchases Merchandise available for sale Less Merchandise inventory, June 30, 2008

P 24,000 3,200 160 6,000 P 34,880 P 31,154 23,366 54,520 P 89,400

P150,000 P 35,200 80,000 P115,200 33,000

82,200

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Gross profit Operating expenses Operating income Other expenses: Interest and finance charges Income from trustee's operations Partnership revenue and expense items: Uncollectible accounts expense Interest expense on notes, old Interest expense on installment notes Increase in partners' capital

P67,800 41,240 P26,560 1,500 P25,060 P 4,400 100 1,040

5,540 P19,520

Problem 15 - 3 DEF Stores, Inc. Debtor ABC, Trustee Income Statement For Six Months Ended December 31, 2008 Sales Cost of goods sold: Merchandise inventory, July 1 Purchases Merchandise available for sale Less Merchandise inventory, December 31 Gross profit Operating expenses: Selling expenses General expenses Depreciation Trustee's expenses Income from trustee's operations Corporation revenue and expense items: Corporation expenses: Interest expense Uncollectible accounts expense Total corporation expenses Increase in retained earnings DEF Stores, Inc., Debtor ABC, Trustee P401,000 P 50,600 252,800 P303,400 41,500 P 45,600 28,220 10,980 3,000

261,900 P139,100

87,800 P 51,300

P 8,000 15,000 23,000 P 28,300

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Balance Sheet December 31, 2008 Assets Current assets: Cash Accounts receivable, old Accounts receivable, new Merchandise inventory Fixtures Less Accumulated depreciation Intangible asset: Trademark Total assets Liabilities Accounts payable, new Mortgage payable Total liabilities P 39,200 100,000 P139,200 P 56,840 75,600 79,360 41,500 P183,000 35,000

P253,300 148,000 25,000 P426,300

Stockholders' Equity Capital stock Less Deficit Total stockholders' equity Total liabilities and stockholders' equity Problem 15 -4 Universal Company, Debtor P. Cesar, Trustee Balance Sheet November 20, 2008 Assets Cash Accounts receivable Less Allowance for doubtful accounts Total assets Liabilities Bank overdraft Accounts Payable Bank loans Poker, Inc. Acceptances Total liabilities Stockholders' Equity (Deficiency) Contributed capital: Capital stock, preferred

P300,000 12,900 287,100 P426,300

P268,400 P800 800 -----P268,400

2,000 226,000 210,000 60,000 46,000 P544,000

P200,000

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Capital stock, common Total contributed capital Retained earnings - deficit Total stockholders' equity (deficiency) Total liabilities and stockholders' equity

200,000 P400,000 675,600 (275,600) P268,400

Universal Company, Debtor P. Cesar, Trustee Income Statement For the Period April 28 to November 20, 2008 Sales Cost of goods sold Gross profit Operating and general expenses (including materials and supplies used, P18,000) Operating loss Other revenue: Rental income Unclaimed wages Interest income Loss from trustee's operations Corporation revenue and expense items: Corporation losses: Loss on cancellation of insurance Loss on realization of goods and supplies Loss on sale of machinery and equipment Interest on city taxes Corporation expenses: Interest on mortgage Uncollectible accounts expense Less Corporation gains: Proceeds from surrender of insurance policy on life of manager Gain from reduction of accounts payable Gain on machinery lease settlement P150,000 120,000 P 30,000 140,000 P110,000 P 2,000 1,000 400

3,400 P106,600

1,400 42,000 540,000 800 P584,200 4,000 800 P589,000

P2,000 14,000 4,000

20,000

569,000

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Decrease in retained earnings

P675,600