Chapter 1 Problem I Requirement 1: Assuming that A and B agree that each partner is to receive a capital credit equal to the agreed values of the net assets each partner invested: To record adjustments: adjustm ents: nothing to adjust since both of them have no set of books. To close the books: nothing to close since both of them have no set of books. To record investments: Partnership Partnership books: Cash………………………………………………………………………………. 120,000 Inventory…………………………………………………………………………. 120,000 Equipment……………………………………………………………………….. 240,000 A, capital………………………………………………………………. capital………………………………………………………………... .. 480,000 Initial investment. Cash……………………………………………………………………………….. 120,000 Lan……………………………………………………………………………….. 240,000 !uilin"……………………………………………………………………………. 480,000 #ort"a"e paya$le……………………………………………………. paya$le……………………………………………………. 240,000 !, capital……………………………………………………………… capital……………………………………………………………….. .. %00,000 Initial investment. Requirement 2: Assuming that A and B agree that each partner is to receive an equal capital interest. To record adjustments: nothing to adjust since both of them have no set of books. To close the books: nothing to close since both of them have no set of books. To record investments: Partnership Partnership books: Bonus Approach: Cash…………………………………………………………………………… Cash………………………… ………………………………………………… 120,000 Inventory……………………………………………………………………… 120,000 Equipment……………………………………………………………………. 240,000 A, capital……………………………………………………………. capital……………………………………………………………... 480,000 Cash…………………………………………………………………………… 120,000 Lan……………………………………………………………………………. 240,000 !uilin"………………………………………………………………………… 480,000 #ort"a"e paya$le………………………………………………… paya$le………………………………………………… 240,000 !, capital.………………………………………………………. capital.……………………………………………………….…… …… %00,000 !, capital…………………………………………………………………… capital……………………………………………………………………….. ….. %0,000 A, capital……………………………………………………………… capital……………………………………………………………… %0,000
Total agreed capital (P4!"!!! # P$!!"!!!%&.P P$!!"!!!% &.P '"!!"!!! ultiplied b): *apital interest (equal%&&&... (equal%&&& ... '+, Partner-s individual capital interest&&&&&.P interest&&&& &.P 4!"!!! /ess: A-s capital interest&&&&&&&&&..&. interest&&&&&&&&&..&. 4!"!!! Bonus to A&&.&&&&&&&&&& A&&.&&&&&&&&&&&&&&..P &&&&..P $!"!!!
Revaluation !ood"ill# Approach:
Cash…………………………………………………………………………… 120,000 Inventory……………………………………………………………………… 120,000 Equipment……………………………………………………………………. 240,000 A, capital…………………………………………………………….. 480,000 Cash…………………………………………………………………………… 120,000 Lan……………………………………………………………………………. 240,000 !uilin"………………………………………………………………………... . 480,000 #ort"a"e paya$le………………………………………………… 240,000 !, capital.……………………………………………………….…… %00,000 Assets &or "oo'ill or intan"i$le asset(…………………………………... 120,000 A, capital…………………..……………………………………….. 120,000 )otal a"ree capital &*%00,000 + 1+2(………..….*1,200,000 Less )otal contri$ute capital &*480,000 * %00,000(………………………………....… 1,080,000 oo'ill to A……………..………………………….* 120,000 Problem II
Agreed 0air 1alues *ash 6quipment Total assets 7ote pa)able assumed b) partnership 7et assets invested 1$ Bonus %ethod
,.
2nvested b) 3ohn P'!!"!!! '!!"!!! 555 P'!!"!!!
2nvested b) 3e 555 P ''!"!!! P ''!"!!! 8!"!!! P !"!!!
2nvested b) 3ane 555 555 ! 555 P !
*ash
'!!"!!
2$ !ood"ill %ethod Revaluation o& Asset# *ash '!!"!!! 6quipment ''!"!!!
6quipment
''!"!!
9oodill
;!"!!!
7ote Pa)able
7ote Pa)able
8!"!!
3ohn" *apital
3ohn" *apital
;!"!!
3e" *apital
3e" *apital
;!"!!
3ane" *apital
3ane" *apital
;!"!!
The bonus method is used hen 3ohn and 3e recognis capital account and P,!"!!! is transferred from 3e>s capital account. The goodill method is used hen the partners recogni
being invested" it should not be recogni
(b%
(c%
'8"!!! "!!! ,"!!! 8!"!!! ,"!!! '"!!!
*ash Accounts eceivable Cce Dupplies /and Accounts Pa)able ortgage Pa)able 3ulie" *apital
',"!!! $"!!! !! 8!"!!!
Tom" Eraing *ash
'"!!!
3ulie" Eraing *ash
',"!!!
"!!! '"!! ,"!!! '"!!! ',"!!!
2ncome Dummar) Tom" *apital P!"!!! × (P'"!!!+PF$"!!!% 3ulie" *apital P!"!!! × (P,"!!!+PF$"!!!%
!"!!! 88"8 '$"44F
Tom" *apital 3ulie" *apital Tom" Eraing 3ulie" Eraing ,.
'"!!! ',"!!! '"!!! ',"!!!
T A7E 3@/26 PAT76D?2P Dtatement of *hanges in Partners> *apital 0or the Gear 6nded Eecember 8'" ,!H4 *apital balances" 3an. ' Add: Additional investments 7et income allocation Totals /ess: Iithdraals *apital balances" Eec. 8'
Tom P ! '"!!! 88"8 P 4"8 '"!!! P $;"8
3ulie P ! ,"!!! '$"44F P 4'"44F ',"!!! P ,;"44F
Problem I' Book o& ( is to be retained b) the ne" partnership . The folloing procedures are to be folloed: 2ndividual versus Dole Proprietor Books of 2ndividual
Adjusting entries
7+A
Total P ! F$"!!! !"!!! P',$"!!! ,F"!!! P;;"!!!
JBooks of Dole Proprietor Ges
*losing entries (real accounts% 7+A 7o 2nvestments GesJJ Balance Dheet Ges J Books of ?K Partnership books JJ 2nvestments of individualK additional investments or ithdraals of sole proprietor. 1. Books of Sole Proprietor (H): a$ To record adjustments: a. /, capital………………………………………………………………… 1,800 Allo'ance or ou$tul accounts……………………………. 1,800 Aitional provision compute as ollo's equire allo'ance 10 3 *48,000 * 4,800 Less *revious $alance………………… 5,000 Aitional provision…………………… * 1,800 $. Interest receiva$le or accrue interest income…………………. 5,%00 /, capital…………………………………………………………… 5,%00 Interest income or nine months compute as ollo's *%0,000 3 8 3 6+12 *5,000. c. /, capital………………………………………………………………….. %,000 #erchanise inventory………………………………………….. %,000 7ecline in the value o merchanise. *2,000 9 *21,000 *%,000. . /, capital…………………………………………………………………. Accumulate epreciation……………………………………. :ner epreciation. e. *repai e3penses………………………………………………………... /, capital…………………………………………………………… E3penses pai in avance.
4,800 4,800
2,400 2,400
/, capital…………………………………………………………………… ,200 Accrue e3penses…………………………………………………. ,200 :nrecore e3penses. *ote: All adjustment that reLects nominal accounts should be coursed through the capital account" since all nominal accounts are alread) closed at the time of formation. b$ To close the books: nothing to close since the books of ? ill be retained. c$ To record investment: Cash……………………………………………………………………………. 11%,100 I, capital……………………………………………………………… 11%,100 Initial investment compute as ollo's :na;uste capital o /………………………………* 24%,000 A &euct( a;ustments a. 7ou$tul accounts...……………………...& 1,800( $. Interest income…………………………….. 5,%00 c. 7ecline in the value o merchanise….& %,000( . :ner<epreciation……………………….& 4,800( e. *repai e3penses………………………….. 2,400 Accrue e3penses………………………...& ,200(
A;uste capital $alance o /……………..……...* 252,200 7ivie $y Capital interest o /…………………… 2+5 )otal a"ree capital…………………………….…….* 548,500 #ultiplie $y Capital interest o I……………..…… 1+5 Investment o I…………………………………………* 11%,100 *ote: The initial investment of ? is alread) recorded since his books are alread) retained. 7o further entr) is required since there are no additional investments or ithdraals made b) ?.
,. The balance sheet for both cases presented above is as follos: ?2 Partnership Balance Dheet 7ovember '" ,!H4 Assets *ash Accounts receivables /ess: Alloance for doubtful accounts&&&........... 7otes receivable&&................................................... 2nterest receivable&&&&&&.................................. erchandise 2nventor)................................................ Prepaid eHpenses&&&&.......................................... 6quipment (net% &&&&............................................. /ess: Accumulated depreciation&&&&&&........ Total Assets................................................................... . /iabilities and *apital /iabilities Accrued eHpenses&&.. ....................................... Accounts pa)able................................................... 7otes pa)able&&&&........................................... Total /iabilities.............................................................. .. *apital.................................................................. ......... ?" capital&&&&&&&&&.................................. 2" capital&&&&&&&........................................... Total
P ,8$"'!! P 4"!!! 4"!!
48",!! $!"!!! 8"$!! ,'"!!! ,"4!!
P F,"!!! '!"!!
$'",!! P 4,F"!!
P
F",!! ',"!!!
$!"!!!
P F;",!!
P ,8,",!!
''$"'! ! P 84"8!!
*apital.................................................................. Total /iabilities and *apital..........................................
P 4,F"!!
Problem ' *e" set o& books . The folloing procedures are to be folloed:
Dole Proprietor versus Dole Proprietor
Adjusting entries *losing entries (real accounts% 2nvestments Balance Dheet
Books of Dole Proprietor (Baker% Ges Ges
Books of Dole Proprietor (*arter% Ges Ges
J7e Det of Books
GesJJ Ges
J Partnership books JJ Additional investments or ithdraals of sole proprietors. 1. Books of Sole Proprietor a$ To record adjustments: Books o& + a. 3" capital&&&&&&&&&&',"!!! erchandise 2nventor)&& ',"!!! Iorthless inventor). b. 3" capital&&&&&&&&&& F",!! Alloance for doubtful Accounts&&&&&&&.. F",!! Iorthless accounts.
c. ent receivable&&&&&&&',"!!! 3" capital&&&&&&&&. ',"!!! 2ncome earned.
e. 3" capital&&&&&&&&&& "4!! Cce supplies&&&&&&. "4!! 6Hpired oCce supplies.
Books o& , a. erchandise 2nventor)&&&& $"!!! M" capital&&&&&&&&& $"!!! @pard revaluation. b. M" capital&&&.&&&&&&&. 8"!!! Alloance for doubtful accounts&&&&&&&&. 8"!!! Additional provision. equired alloance: N H P'!"!!!&&.. P;"!!! /ess: Previous Balance&&&.. $"!!! Additional Provision....&&&&P8"!!! c. M" capital&&&&&&&&&&&. ;"$!! Dalaries pa)able&&&&&&. ;"$!! @npaid salaries. d. 2nterest receivable&&&&&&&'",!! M" capital&&&&.................. '",!! 2nterest income from August 'F to ctober '. P$!"!!! H '$N H 4+8$!
f. 3" capital&&&&&&&&&& $"!!! Accumulated depreciation 5 equipment&&&&&& $"!!! @nder5depreciated. g. M" capital&&&&&&&&&&&',"!!! Accumulated depreciation5 0urniture and =Htures&&& ',"!!! @nder5depreciated. h. 3" capital&&&&&&&&&&. '"!! 2nterest pa)able&&&&&. '"!! 2nterest eHpense from 3ul) ' to ctober '. P$!"!!! H ',N H 8+',
@nadjusted capital of 3&&.&&&.P 8F,"!!! Add(deduct%: adjustments: a. Iorthless merchandise&&.. ( ',"!!!% b. Iorthless accounts&&&&. ( F",!!% c. ent income&&&&&&.&. ',"!!! e. Cce supplies eHpense&&. ( "4!!% f. Additional depreciation&& ( $"!!!% h. 2nterest eHpense&&&&&& ( '"!!% Adjusted capital of 3&&&&&&& P84"$!! b$ To close the books: Books o& + Alloance for doubtful accounts................................. ',"!!! Accumulated depreciation O equipment&&&&&&&& $!"!!! Accounts pa)able&&&&&';"$!! 7otes pa)able&&&&&&& $!"!!! 2nterest pa)able&&&&&&. '"!! 3" capital&&.&&&&&&&. 84"$!! *ash&&&&&&&&&& ;!"!!! Accounts receivable&&. ,'$"!!! erchandise inventor)&. '!"!!! Cce supplies&&&&&.
i. Patent&&&&&&&&&&&&. 4"!!! M" capital&&&&&&&&.. 4"!!! @nrecorded patent. @nadjusted capital of M.. &&&&&...P48,"!!! Add(deduct%: adjustments: a. erchandise revaluation&&.. $"!!! b. Iorthless accounts&&&&&. ( 8"!!!% c. Dalaries&&&&&.&&.&&&.. ( ;"$!!% d. 2nterest income&&&&&&&.. '",!! g. Additional depreciation&&& ( ',"!!!% h. Patent&&&&.&&&.&&&&. 4"!!! Adjusted capital of M&. &&&&&&..P4$,"$!!
Books o& , Alloance for doubtful accounts................................. ;"!!! Accumulated depreciation O furniture and =Htures &&&. 8$"!!! Accounts pa)able&&&&&. ',!"!!! Dalaries pa)able&&&&&&. ;"$!! M" capital&&.&&&&&&&. 4$,"$!! *ash&&&&&&&&&&. 4"!!! Accounts receivable&&.. '!"!!! 7otes receivable&&&&. $!"!!! 2nterest receivable&&&... '",!!
,4"!!! 6quipment&&&&&&&. ',!"!!! ent receivable&&&&... ',"!!! *lose the books of 3.
erchandise inventor)&.. '!"!!! 0urniture and =Htures.&&.. '44"!!! Patent&&&&.&&&&&. 4"!!! *lose the books of M..
2$ *e" -et o& Books . To record investments: *ash&&&&&&&&&&&&&&&&&&&&&&&&. Accounts receivable&&&&&&&&&&&&&&&&..
erchandise inventor)&&&&&&&&&&&&&&&.. Cce supplies&&&&&&&&&&&&&&&&&&&.. 6quipment (net% &&&&&&&&&&&&&&&&&&... ent eceivable&&&&&&&&&&&&&&&&&&.. Alloance for doubtful accounts&&&&&&&&. Accounts pa)able&&&&&&&&&&&&&&&.. 7otes pa)able&&&&&&&&&&&&&&&&&. 2nterest pa)able&&&&&&&&&&&&&&&&.. 3" capital&&&&&&&&&&&&&&&&&&&& *ash&&&&&&&&&&&&&&&&&&&&&&&&. Accounts receivable&&&&&&&&&&&&&&&&.. 7otes receivable&&&&&&&&&&&&&&&&&&. 2nterest receivable&&&&&&&&&&&&&&&&&.. erchandise inventor)&&&&&&&&&&&&&&&.. 0urniture and =Htures (net%&.. &&&&&&&&&&&&.. Patent&&&&..&&&&&&&&&&&&&&&&&&... Alloance for doubtful accounts&&&&&&&&. Accounts pa)able&&&&&&&&&&&&&&&.. Dalaries pa)able&. &&&&&&&&&&&&&&&. M" capital&&&&&&&&&&&&&&&&&&&&
;!"!!! ,'$"!! ! '!"!! ! ,4"!!! $!"!!! ',"!!! ',"!!! 8;"$!! $!"!!! '"!! 4$"$! ! 4"!!! '!"!! ! $!"!!! '",!! '!"!! ! '!"!! ! 4"!!! ;"!!! ',!"!! ! ;"$!! 4$,"$! !
8. @nadjusted capital (refer to 'a%
( P8F,"!!!
I P48,"!!!
Adjusted capital (refer to 'b% 7et adjustments (debit%+credit
84"$!! (P ,8"4!!%
4$,"$!! P 8!"$!!
4. The balance sheet after formation is as follos:
3 and M Partnership Balance Dheet ctober '" ,!H4
Assets *ash..................................................................... .......... Accounts receivables ................................................. /ess: Alloance for doubtful accounts&&&......... 7otes receivable&&................................................... 2nterest receivable&&&&&&.................................. ent receivable&&&&&&....................................... erchandise 2nventor)................................................ Cce supplies............................................................... 6quipment (net% &&&&............................................. 0urniture and =Htures (net% &&&&&&&................. Patent&&&&&&&&.......................................... ..... Total Assets................................................................... . /iabilities and *apital /iabilities Dalaries pa)able&&&&&................................... Accounts pa)able.................................................. 7otes pa)able&&&&.......................................... 2nterest pa)able&&&&&.................................... Total /iabilities..............................................................
P '44"!!! P8;$"!!! ,'"!!!
8F"!!! $!"!!! '",!! ',"!!! 88!"!!! ,4"!!! $!"!!! '!"!!!
4"!! ! P'"'$,",! !
P
;"$!!
';"$!! $!"!!!
'"!!
P ,8'"!!!
. *apital 3" capital&&&&&&&&&.................................. M" capital&&&&&&&......................................... Total *apital.................................................................. Total /iabilities and *apital..........................................
P 4$"$!! 4$,"$!! P ;8'",!! P'"'$,",! !
Problem 'I '. Total assets O P'"!;4"!!!" at fair value ,. Total liabilities 5 P4!"!!!" at fair value 8. Total capital 5 P4"!!! (P'"!;4"!!! O P4!"!!!%
Balance Dheet 3anuar) '" ,!!; Assets *ash
/iabilities and Capital /iabilities
Account eceivable (net%
P F!"!!! '!"!!!
Accounts Pa)able
erchandise 2nventor)
,!"!!!
ortgage Pa)able
Building (net%
$!!"!!!
Total /iabilities
0urniture and 0iHture (net% Accounts Pa)able
'!"!!!
*apital: /" *apital
ortgage Pa)able
Total Assets
" *apital Total *apital P'"!;4"! Total /iabilities and !! *apital
P ';!"!!! 8!"!! ! P 4!"!!! P ,$!"!!! ,;4"! !! P 4"!!! P '"!;4"!! !
%ultiple Choice Problems '. c O P4"!!! ,. d O the prevailing selling price hich is also the fair market value. 8. b 5 (P4!!"!!! 5 P';!"!!!% # QP,F!"!!! 5 (P4!!"!!! 5 P';!"!!!%R+8 S P,8!"!!! 4. c . b 5 P$!"!!! # P!"!!! # P'!!"!!! S P,4!"!!! $. c 5 P8!"!!! # P!"!!! # P,"!!! S P'!"!!!+8 S P8"!!! 5 P8!"!!! S P"!!! F. a Total Agreed *apital (P!"!!!+4!N% P',"!!! &&&&&&&&&&............... /ess: Total *ontributed *apital (P$"!!! # P!"!!!% ''"!!! &&.................. 9oodill (revaluation of assets upard% P '!"!!!
&&&&&&&.................. Assets" fair value (P,!"!!! # P$!"!!! # P'"!!!%&&&&&&&&&&P ;"!!! /ess: /iabilities assumed&&&&&&&&&&&&&&&&&&&..& 8!"!!! Bill" capital..&&&&&&&&&&&&&&&&&&&&&&&&&& P $"!!!
.
b The capital balances of Iilliam (II% and artha (% at the date of partnership formation are determined as follos: Iilliam artha *ash P,!"!!! P 8!"!!! 2nventor) 5 '"!!! Building 5 4!"!!! 0urniture and equipment '"!!! 5 Total P8"!!! P "!!! /ess mortgage assumed b) partnership ('!"!!!% Amounts credited to capital P8"!!! P F"!!!
;. c
@nadjusted capital Add (deduct% adjustments: Alloance Eepreciation Adjusted capital
6van ;"$,
?elen 88"!!
( % ;"!F!
( 4!% ( ;!!% 8,"';
'!. c: 3ones O P!"!!! # P4!!"!!! O P',!"!! S P8$!"!!! Dmith O P4!"!!! # P,!"!!! O P$!"!!! S P,$!"!!! ''. c O P8"8F4 O refer to 7o. ', ',. c O P'F"$F @nadjusted capital of **&&&&&&&&&&&&&&&&&&&&&&&&&.P 88"!!! Add (deduct%: adjustments5 Alloance for doubtful accounts (8N H P'4",!!%&&&&&&&&&&&&...( 4,$% 2ncrease in merchandise inventor) (P,8"!!! O P,!"!!!%&&&&&&&&&& 8"!!! Prepaid salar)&&&&&&&&&&&&&&&&&&&&&&&&&&&&.... $!! Accrued rent eHpense&&&&&&&&&&&&&&&&&&&&&&&&&( !!% Adjusted capital balance of **&&&&&&&&&&&&&&&&&&&&&&P 8"8F4 Eivided b): *apital interest of **&&&&&&&&&&&&&&&&&&&&.... ,+8 Total capital of the partnership&&&&&&&&&&&&&&&&&&&&&&&P 8"!$' /ess: Adjusted capital balance of **&&&&&&&&&&&&&&&&&&&.. 8"8F4 *apital balance of EE&&&&&&&&&&&&&&&&&&&&&&&&&&.. P 'F"$F '8. a Total assets: *ash achiner) Building /ess /iabilities (ortgage pa)able% 7et assets (equal to 00-s capital account%
P F!"!!! F"!!! ,,"!!!
P 8F!"!!! ;!"!!! P ,!"!!!
'4. d 00" capital (see no.'8% ,!"!!!
P
Eivide b) 00-s P / share percentage Total partnership capital equired capital of ** (P4!!"!!! H 8!N% /ess: Assets alread) contributed: *ash achiner) and equipment 0urniture and =Htures *ash to be invested b) **
F!N P 4!!"!!! P ',!"!!! P 8!"!!! ,"!!! '!"!!!
$"!!! P "!!!
'. a Agreed 0air 1alues
2nvested b) 3ohn '!!"!!!
*ash 6quipment Total assets 7ote pa)able assumed b) partnership 7et assets invested
2nvested b) 3e 555 ''!"! !! ''!"!!!
'!!"!!! 555
! 555
8!"!!! !"!!!
'!!"!!!
Bonus ethod
2nvested b) 3ane 555 555
!
9oodill ethod *ash
'!!"!
*ash
'!!"!!
6quipment
''!"!
6quipment
''!"!!
9oodill
;!"!!
7ote Pa)able
7ote Pa)able
8!"!!
3ohn" *apital
3ohn" *apital
;!"!!
3e" *apital
3e" *apital
;!"!!
3ane" *apital
3ane" *apital
;!"!!
Note: )he $onus metho is use 'hen =ohn an =e> reco"ni?e that =ane is $rin"in" somethin" o value to the @rm other than a tan"i$le asset, $ut they o not 'ant to reco"ni?e an intan"i$le asset. )o equali?e the capital accounts, *40,000 is transerre rom =ohns capital account an *20,000 is transerre rom =e>s capital account. )he "oo'ill metho is use 'hen the partners reco"ni?e the intan"i$le nature o the sBills =ane is $rin"in" to the partnership. /o'ever, the capital accounts are equali?e $y reco"ni?in" an intan"i$le asset an a corresponin" increase in the capital accounts o the partners. :nless the intan"i$le asset can $e speci@cally ienti@e, such as a patent $ein" investe, it shoul not $e reco"ni?e, $ecause o a lacB o ;usti@cation or "oo'ill in a ne' $usiness.
'$. c O refer to 7o. ' for computation. 'F. a 00" capital: @nadjusted balance Adjustments: Accumulated depreciation Alloance for doubtful account
P F"!!! ( '"!!% (',"!!!%
Adjusted balance 99" capital: @nadjusted balance Adjustments: Accumulated depreciation Alloance for doubtful account Adjusted balance
P 48"!! P 4;"!! ( 4"!!% ( 4"!!% P 4!"!!
'. c 99-s adjusted capital (see no. 'F% Eivide b) 99-s P / share percentage Total partnership capital ultipl) b) 00-s P / share percentage 00-s capital credit 00-s contributed capital (see no. '% Additional cash to be invested b) 00 'F",!
P 4!"!! 4!N P '!'",! $!N $!"F! 48"!! P
';. d Total capital of the ne partnership (see no. ,!% ultipl) b) -s interest *ash to be invested b)
P ,;$"F ,!N P ;"8F
,!. (a% @nadjusted capital balances P,4'"!!! Adjustments: Alloance for bad debts ( 4"!!% 2nventories "!!! Accrued eHpenses ( 4"!!!% Adjusted capital balances P,8F"!!
($!N% P'88"!!!
PP
Total
(4!N% P'!"!!!
( ,"F!!%
( '"!!%
8"!!!
,"!!!
( ,"4!!%
( '"$!!%
P'8!";!!
P'!$"$!!
Total capital before the formation of the ne partnership (see above% Eivide b) the total percentage share of and PP (!N # 8!N% Total capital of the partnership after the admission of
P ,8F"!! !N P ,;$"F
,'. a Agreed *apital P'4"48F.! (!N H P,;$"F% P 'F"8F.! PP ;"!$,.! (8!N H P,;$"F% ('F"8F.!% Therefore" ill pa) PP P'F"8F.! ,,. c
*ontributed *apital P '8!";!! '!$"$!!
Dettlement
Total partnership capital (P''8"$4!+'+8% /ess EE-s capital **-s capital after adjustments Adjustments made: Alloance for doubtful account (,N H P;$"!!!% erchandise inventor) Prepaid eHpenses Accrued eHpenses **-s capital before adjustments ,8. a Assets invested b) **: *ash: *apital Add Accounts pa)able Total assets (eHcluding cash% /ess 7oncash assets (;$"!!! # P'44"!!!% Accounts receivable (;$"!!! O P'";,!% erchandise inventor) Prepaid eHpenses ,!"!! *ash invested b) EE Total assets of the partnership 8;8"F,!
P 84!";,! ''8"$4! P ,,F",! '";,! ( '$"!!!% ( ",!!% 8",!! P ,''",!!
P,''",!! 4;"$!! ,$!"!! ,4!"!!!
P,!"!! ;4"!! '$!"!!! ",!!
''8"$4! P
,4. d Total partnership capital (P'!"!!!+$!N%
P 8!!"!!!
99-s *apital (P8!!"!!! H 4!N% /ess *ash investment 8!"!!! erchandise to be invested b) 99 ,. a Adjusted capital of 33: Total assets (at agreed valuations% /ess Accounts pa)able equired capital of 33 *ash to be invested b) 33
P ',!"!!! P ;!"!!!
P '!"!!! 4"!!!
0ui.I '. P,F$"!!! S (P4!"!!! O P,,"!!!% # QP8,4"!!! 5 (P4!"!!! O P,,"!!!%R+8 ,. Philip" P'!!"!!!K a)" P'!!"!!! and Darah" P;!"!!! (P8!!"!!! O P,'!"!!!% 8. P88!"!!! P88!"!!! S P!"!!! # (P8'!"!!! 5 P8!"!!!%
4 c .
P
The capital balances of each partner are determined as follos: Apple Blue *ron
P '8,"!!! '!"!!! P 4"!!!
*ash Propert) ortgage assumed 6quipment Amount credited to capital accounts
P!"! !! P !"!!! (8"!!!% P "!!! P!"! !!
P 4"!!!
P "!!!
. P'"!!! (P';!"!!! O P'$!"!!!% H '+, S P'"!!! $. P'"!!! O the prevailing selling price hich is also the fair market value. F. . P'"!!! P8!"!!! # P!"!!! # P,"!!! S P'!"!!!+8 S P8"!!! P!"!!! 5 P8"!!! S P'"!!! ;. P4"!!! '!. P,,"!!! ''. P8F"!!! S P4!!"!!! O P,"!!! ',. P!"!!! '8. P,!"!!! Pane *ash.................................................................................. P 4!"!!! achiner) and equipment................................................. '!!"!!! Building............................................................................. Dubtotal......................................................................... P'4!"!!! /ess: /iabilit) assumed b) the partnership....................... *apital balances" F+'+!$.................................................... P'4!"!!!
-ills P 8!"!!!
8!"!!! P8!"!!! ('!!"!!!% P,!"!!!
'4. d Adjusted capital of // *ontributed capital of Total capital
P '$";!! ,";! P ,4"!
'. a
00" capital: @nadjusted balance Adjustments: Accumulated depreciation Alloance for doubtful account Adjusted balance 99" capital: @nadjusted balance Adjustments: Accumulated depreciation Alloance for doubtful account Adjusted balance
T(3RICompletion statements: '. accounting ,. 9AAP 8. a. cash $asis instead of accrual $asis
P F"!!! ( '"!!% (',"!!!% P 48"!! P 4;"!! ( 4"!!% ( 4"!!% P 4!"!!
b. prior period adjustments c. use of air &or current( values instead of historical cost d. recognition of goodill in situations not involving business combinations 4. draings . fair (or current% values $. achieving equity among the partners F. capital balances . professional corporation True or 4alse
;
0alse
' True !. ' 0alse '. ' True ,. ' 0alse 8.
' True 4. ' 0alse . ' 0alse $. ' 0alse F. ' True .
'; 0alse . ,! True . ,' 0alse . ,, True . ,8 0alse .
,4 0alse . , True . ,$ 0alse . ,F True . , True .
,; 0alse . 8! True .
Note for the following numbers: 17. Indiidu!ls" p!rtnerships" !nd #orpor!tions !re !llowed to be p!rtners in ! p!rtnership. 1$. %ll of the gener!l p!rtners !re li!ble for !ll the p!rtnership&s debts. '1. ost sm!ll p!rtnerships m!int!in their n!n#i!l inform!tion using the t!* b!sis. '+." ,hile the p!rtnership does not p!- in#ome t!*es" it is responsible for other t!*es su#h !s p!-roll t!*es !nd fr!n#hise t!*es. '. /he propriet!r- theor- is b!sed on the notion th!t the business entit- is !n !ggreg!tion of the owners '0. /his is !n e*!mple of the propriet!r- theor- of euit-. '2. %n- b!sis (i.e." #!rr-ing !lue" t!* b!sis" or m!rket !lue) #!n be used to !lue non#!sh !ssets #ontributed to ! p!rtnership
%5/TIP/.C(3IC 05-TI3*8 '. 8 ,. 8 8. 8 4. 8 .
a B a e d
8 $. 8 F. 8 . 8 ;. 4 !.
d b c a a
4' . 4, . 48 . 44 . 4 .
c c a d b
4$ . 4F . 4 . 4; . ! .
a c b b c
' . , . 8 .
d b b
