Rev 1 - Prelim Examination - From Partnership Formation to Joint Arrangeme

June 7, 2019 | Author: CM Lance | Category: Debits And Credits, Book Value, Partnership, Investing, Financial Accounting
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Ramon Magsaysay Memorial Colleges Bachelor of Science in Customs Administration Pioneer Ave., General Santos City Tel. No. 552-3348 Name: ______________________________ Subject : REV 1 –  1 –  PRACTICAL  PRACTICAL ACCTG2 Instructor: Mrs. Marivic B. Peñaflor, CPA, MBA

Date: ___________ Score: _____________

Prelim Examination AY: 2016-2017 1st Semester

General Instruction: Write your final answer on the answer sheet.

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N, X, and Y are partners sharing profits and losses in the ratio of 5:2:3, respectively. The condensed balance sheet of NXY partnership as of December 31, 2016 is: Cash 50,000 Liabilities 40,000 Other assets 130,000 N, capital 60,000 X, capital 40,000 Y, capital 40,000 Total 180,000 Total 180,000 ======= ====== All the partners agree to admit Z as a 1/4 partner in the partnership. After Z’s admission Y received a bonus of P 15,000. How cash should Z invest in the partnership. Refer to no. 1, 1 , One year after Z’s admission, N decided to retire from the partnership and by mutual agreement the assets are to be adjusted to their fair value of P 290,000. It was also agreed that the partnership would have to pay N P 110,000 cash for N’s interest. After N’s retirement, what are the capital balances of X, Y and Y and Z in the partnership partnership book, What is the journal entry upon N’s Retirement? Refer to no. 1 and 2, the ZXY Partnership is dissolved and liquidated by installments. The first realization of P 50,000 cash is on the sale of other assets with a book value of P 80,000. After payment payment of the liabilities, P 38,000 cash is distributed to X,Yand Z , respectively as follows: What is the journal entry to record the liquidation process ? The partners’ capital ( Income – sharing sharing ratio in parentheses) of NN, OO, PP and QQ on May 31,2014, were as follows: NN ( 20%) P60,000 OO (20%) 80,000 PP (20%) 80,000 QQ ( 40%) 40,000 Total P 260,000 On May 31.2014, with the consent of NN, OO and QQ: a. PP retired from the partnership and was paid P 100,000 cash in full settlement of his interest in the partnership. a) LL was admitted to the partnership with a P 30,000 cash investment for a 12% interest i n the net assets of NN,OO and QQ. The capital balances of NN, OO, QQ and LL after LL’s LL’ s admission would be? JJ, RR and MM, who divide profits and losses 40%, 3 0%, and 30% respectively, have the f ollowing October 31,2014 account balances: JJ, Drawing ( Dr) P 15,000 MM, Drawing ( Cr) 5,000 Accounts receivable- JJ 7,000 Loans payable- RR 16,000 JJ, capital 60,000 RR, capital 45,000 MM, capital 40,000 The partnership has a total liability of P 90,000 and a cash of P 50,000. The partnership is liquidated and MM receives P 32,000 in final settlement.(1) How much is the capital balances of JJ and RR after realization of assets and before final settlement and (2) how much cash realized from the sale of the noncash assets? Lotis and Vergel formed a partnership on July 1, 2014 to oper ate two stores to be managed by each of them. They invested P 40,000 and P 30,000 and agreed to share earnings 60% and 40%, respectively. All their transactions were for cash , and all their subsequent transactions were handled through their respective bank accounts as summarized below: Cash receipts Cash disbursements

9.

80,000 63,000

68,000 72,000

On October 31,2014, all r emaining noncash assets in the two stores were sold for cash of P 75,000. The partnership was dissolved and cash settlement was affected. In the distribution of the P 75,000 cash , Lotis and Vergel received: RR and PP share profits after the provision of annual salary allowances of P 18,000 and P 16,000, respectively in the ratio of 6:4. However , if partnership’s partnership’s net income is insufficient insufficient to provide for said allowances in f ull amount the net income shall be divided e qually between partners. In 2014, the following errors were discovered: Depreciation is overstated by P 13,000 and the inventory on December 31, 2014 is understated by P 4,000. The partnership net income for 2014 was reported to be P 41,000.

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The capital accounts of the partners should be i ncreased ( decreased) by: 10. Tim and Tom entered into a partnership on March 30, 2014 by investing P125, 000 and P75, 000, respectively. They agreed that Tim, as the managing partner, is to receive a salary of P30, 000 per year and a bonus computed at 8% of the net profit after adjustment for the salary; the balance of the profit was to be distributed in the ration of their original capital balances. On December 31, 2014, account balances were as follows: Cash

P 77, 000

Accounts payable

P

60, 000

Accounts receivable

67, 000

Tim, capital

125, 000

Furniture and fixtures

45, 000

Tom, capital

75, 000

5, 000

Tim, drawing

(20, 000)

Tom, drawing

(30, 000)

Sales returns and allowances Net Purchases Operating expenses

196, 000 60 000

Sales

240,000

Inventories on December 31, 2014 were as follows: supplies, P3, 500 merchandise, P74, 000. Prepaid insurance was P750 while accrued expenses were P1, 550. Depreciation rate was 12% per year. The partners capital balances on December 31, 2014, after closing the net profit and drawing accounts were: 11. Na lugi Corporation is insolvent and i ts statement of affairs shows the following Estimated gains on realization of assets P 1,500,000 Estimated losses on realization of assets 2,050,000 Additional assets 1,100,000 Capital stock 2.200,000 Deficit 1,300,000 The pro-rate payment on the peso to stockholders ( estimated amount to be recovered by stockholders) is: 12. Zero Na Corp. has been undergoing liquidation since January 1, as of March 31, its considered statement of realization and liquidation is presented below: Assets: Assets to be realized P1, 375, 000 Assets acquired P750, 000 Assets realized P1, 200, 000 Assets not realized P1, 375, 000 Liabilities: Liabilities liquidated P1, 875, 000 Liabilities not liquidated P1, 700, 000 Liabilities to be liquidated P2, 250, 000 Liabilities assumed P1, 625, 000 Revenues and expenses: Supplementary charges P3, 125, 000 Supplementary credits P2, 800, 000 (1) The net gain (loss) for the three-month period ending March 31 and the ending cash balance assuming that common stock and deficits are P 1,550,000 and P 508,000. 13. The following data were taken from the statement of affairs of Malakas Company:

Assets Cash Accounts receivable Inventories Land Building (net) Equipment (net) Liabilities Accounts payable Wages payable ( all have priority Taxes payable Notes payable ( secured by receivables and inventory Interest on notes payable Bonds payable ( secured by land and building Interest on bonds payable

Book value

Fair value

P 6,000 60,000 90,000 100,000 320,000 250,000

P 6,000 65,000 65,000 80,000 360,000 200,000

P 95,000 9,500 14,000 190,000 8,000 220,000 13,000

(1) what is the estimated deficiency to unsecured creditors ? (2) what is the amount to be paid to partially secured creditors 14. On March 1, 2011 entities A and B each acquired 30% of the ordinary shares that carry voting rights at a general meeting of shareholders of entity Z for P 300,000. Entities A and B immediately agreed to share control over entity Z. On December 31,2011 entity Z declared a dividend of P 100,000 for the year 2011. Entity Z reported a profit of P 60,000 for the year ended December 31,2011. AT December 31,2011 the recoverable amount of each venturer’s investment in Prelim Examination

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equity Z is P 292,000 ( fair value of P 295,000 less cost to sell of P 3,000 ). Entities A and B uses equity method to account for its investment in entity Z. However, there is no published price quotation for entity Z. On December 31,2011, entities A and B much each report its investment in entity Z at : 15. On January 1, 2013, Wilkins, Inc. and Xylo, Inc. (the parties) agreed to combine their business by establishing a separate vehicle (Bremm, Inc.). Both parties expect the arrangement to benefit them in different ways. Wilkins believes that the arrangement could enable it to achieve its strategic plans to increase its size, offering an opportunity to exploit its full potential for organic growth through an enlarged offering of products and services. Xylo expects the arrangement to reinforce its business opportunities by marketing more products. As a result, Wilkins, Inc. acquired 21% of the outstanding common stock of Bremm, Inc. for P600,000. This investment gave Wilkins the joint control over Bremm. Bremm’s assets on that date were recorded at P3,900,000 with liabilities of P900,000. Any excess of book value over cost of the investment was attributed to patent having a remaining useful life of 10 years.

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17. 18. 19. 20.

21. 22.

In 2013, Bremm reported net i ncome of P190,000. In 2014, Br emm reported net income of P210,000. Dividends of 70,000 were paid in each of these two years. In 2013 Wilkins sells goods for P 120,000 to Bremm. On December 31, 2013, one fourth of the goods purchased from Wilkins had been sold by Bremm at 45% above cost). Wikins sells goods at a 45 per cent mark-up on cost. The balance of Xylo’s Investment in Bremm, I nc. at December 31, 2013? The balance of Wilkin’s Investment in Bremm, Inc. at December 31, 2013? Wilkins recognize income from jointly controlled entity for the year ended December 31, 2013 amounted to: Xylo Wilkins recognize income from jointly controlled entity for the year ended Dec ember 31, 2013 amounted to Ace Company purchases 40% of Basket Company on January 1 for P500,000 that carry voting rights at a general meeting of shareholders of Basket Company. Ace Company and Blake Company immediately agreed to share control (wherein unanimous consent is needed to all the parties involved) over the Basket Company. Basket reports assets on that date of P1,400,000 with liabilities of P500,000. One building with a seven-year life is undervalued on Basket’s books by P140,000. Also Basket’s book value for its trademark (10-year life) is undervalued by P220,000. During the year, Basket reports net income of P94,000, while paying dividends of P35,000. What is the i nvestment in Basket Company balance (equity method) in Ace’s financial records as of December 31? Using the same information in No. 20, the Income from Investment in Basket Company in Ace’s financial records as of December 31? Goldman Company reports net income of P145,000 each year and pays an annual cash dividend of P60,000. The company holds net assets of P1,200,000 on January 1, 2013. On that date, Wallace Company purchases 40 percent of the outstanding stock for P620,000, which gives it the ability to have joint control with Zimmerman Company over Goldman. At the purchase date, the e xcess of Wallace’s cost over its proportionate share of Goldman’s book value was assigned to goodwill. On December 31, 2015, what is the investment in Goldman Company balance (equity method) in Wallace’s financial records?

23. RR and PP are combining their se parate business to form a partnership. Cash and noncash assets are to be contributed for a total capital of P 400,000. The noncash assets to be contributed and the liabilities to be assumed are:

RR Accounts Receivable Inventories Equipment Accounts Payable

Book value P 20,000 30,000 60,000 15,000

PP Fair value P 20,000 50,000 45,000 15,000

Book value 20,000 40,000 10,000

Fair value 25,000 10,000 10,000

The partner’s capital accounts should be equal after all the contribution of assets and the assumption of liabilities. How much cash is to be contributed by RR? 24. MM and NN entered into a partnership on March 1 , 2011 by investing the following assets: MM NN Cash 30,000 Merchandise Inventory 90,000 Computer Equipment 160,000 Furniture and Fixtures 200,000 The agreement between MM and NN provides that profits and losses are to be divided into 40% to MM and 60% to NN, and that the partnership is to assume a li ability on the computer equipment of P 50,000. The partners further agree that NN is to receive a capital credit equal to her profit and loss ratio. How much cash is to be invested by NN? 25. The partnership of PP and RR was formed on March 31,2016. At that date, PP i nvested P 50,000 cash and office equipment valued at P 30,000. RR invested P 70,000 cash, merchandise valued P 110,000 and furnitures valued at P 100,000, subject to a notes payable of P 50,000 ( which the partnership assumes). The partnership provides that PP and RR share profits and losses 25:75, r espectively. The agreement further provides that the partners should initially have an equal interest in the partnership capital. Under goodwill and the bonus method, what is the total capital of the partnership after the formation? 26. On March 1,2016, CC and FF formed a partnership with each contributing the following assets: CC Cash 40,000 Machinery and equipment 35,000 Building Furniture and Fixtures 10,000 Prelim Examination

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FF 80,000 78,000 225,000 Page 3

The building is subject to a mortgage loan of P 80,000, which is to be assumed by the partnership. The partnership agreement provides that CC and FF share profits and losses 30 and 70 percent, respectively. Assuming that the partners agreed to bring their respective c apital in proportion to their respective profit and loss ratio. How much cash is to be invested by CC? 27. CC admits DD for a partnership interest in his business. The statement of financial position of CC on November 30,2016 prior to the admission of DD shows the following : DEBIT CREDIT Cash P? Accounts Receivable 96,000 Merchandise inventory 144,000 Accounts payable 49,600 CC, capital ? It is agreed that for purposes of establishing CC’s interest, the following adjustments should be made: a. An allowance for doubtful accounts of 2% of accounts receivable is to be established. b. The merchandise inventory is to be valued at P 160,000 c. Prepaid expenses of P 5,200 and accrued expenses of P 3,200 are to be recognized. DD invested cash of P 113,640 to give him a one-third interest in the total capital of the firm. What is the capital balance of CC before the admission of DD? 28. MM is trying to decide whether to accept a salary of P40, 000 or a salary of P28, 000 plus a bonus of 10% of net income after salaries and bonus as a means of allocating profit among the partners. Salaries traceable to the other partners are estimated to be P120, 000. What amount of income would be necessary so that MM would consider the choices to be equal? 29. Adam and Eve are CPA’s who have been operating their own separate practices as sole proprietors. They decided to combine the two firms as a partnership on January 5, 2015. The following assets were contributed by each:

Cash Accounts receivables Furniture and equipment

Adam P100, 000

Eve P100, 000

225, 000 35, 000

190, 000 38, 000

Computer equipment

46, 000

The partners agreed to split profits on the basis of gross cash collections from billing generated from clients. During 2015, Adam’s clients paid the firm a total of P1, 600, 000 and Eve’s clients paid P1, 800, 000. Expenses for the year were P1, 080, 000 of which P480, 000 were attributable to Adam and P600, 000 to Eve. During 2015 Eve withdrew P750, 000 cash for personal needs and contributed an additional computer valued at P25, 000. What is the capital balance of Eve of December 31, 2015? 30. JJ and KK are partners sharing profits 60% and 40%respectively. The average profits f or the past two years are to be capitalized at 20% per year (for purposes of admitting a new partner) in determining the aggregate capital of JJ and KK after adjusting the profits for the ff. items omitted from the books: Omissions at year end Prepaid expense Accrued expense Deferred income Accrued income

2011 P 1, 600 1, 200 -

2012

2011 P14, 400

2012 P13, 600

2011 P800 700 -

2012 P600 500

P1, 400 1, 000

Other pertinent are as follows: Net income of partnership Capital accounts end of the year JJ 45, 400 54, 000 KK 45, 000 55, 000 The aggregate capital of JJ and KK after capitalizing the average profits at 20% per annum is: 31. MM, NN and OO partners, share profit 5:3:2 ratio. On January 1, 2012 PP admitted into the partnership with a 10% share in profits. The old partners continue to participate in profits in their original ratio. For the year 2012, the net income of the partnership was reported as P15, 500. However, i t was discovered that the following items were omitted in the firm’s books: Unrecorded at the year Prepaid expense Accrued expense Unearned income Accrued income

What are the new profit and loss ratio for N, and the share of OO in the 2012 net i ncome 32. Jaime Dizon, a partner in an accounting firm, decided to withdraw from the partnership. Dizon’s share of the partnership profits and losses was 20%. Upon withdrawing from the partnership he was paid P74, 000 in final settlement for his interest. The total of the partners’ capital accounts before recognition of partnership goodwill prior to Dizon’s

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withdrawal was P210, 000. After his withdrawal the remaining partners’ capital accounts, exc luding their share of goodwill, totaled P170, 000. the i mplied goodwill of the firm was: 33. Cina, Doy and Eli shared profit and losses based on 5:3:2. Eli was allowed to withdraw from the partnership on 31 December 2015 with P600, 000 cash as full settlement. The condensed balance sheet of the partnership as of that date was as follows: Assets Due from Eli

P250, 000

Goodwill Other assets

2, 000, 000 4, 750, 000

Total assets

P7, 000, 000

Liabilities and Capital Liabilities Due to Doy

P2, 000, 000 750, 000

Cina, capital Doy, capital

1, 750, 000 1, 500, 000

Eli, capital Total liabilities and capital

1, 000, 000 P7, 000, 000

Using the goodwill method, the new capital balances of the remaining partners after Eli’s withdrawal are: 34. Pastor, Ramon and Sendong were partners with capital balances as of January 1, 2015, of P100, 000, P150, 000 and P200, 000 respectively, sharing profit and losses on a 5:3:2 ratio. On July 1, 2015 Pastor withdraw form the partnership. Partners agreed that at the time of withdrawal, certain inventories had to be revalued at P70, 000 from its cost of P50, 000. for the 6 month period ending June 30, 2015, the partnership generated a net income of P140, 000. further, partners agreed to pay Pastor P195, 000 for his interest and that the remaining partners’ capital accounts, would be adjusted for whatever goodwill the settlement would generate. The payment to Pastor included a goodwill of: 35. The condensed balance sheet of the partnership of Edong, Fredo and Godo with corresponding profit and loss sharing percentage as of June 30, 2015 was as follows: Net assets

P400, 000

Edong, capital (50%)

P200, 000

Fredo, capital (30%) Godo, capital (20%)

120, 000 80, 000 P400, 000

As of said date, Edong retired from the partnership. By mutual agreement, he was paid P210, 000 for his interest in the partnership. The total implied goodwill was to be recorded. After Edong’s retirement, the total net assets of the partnership was:

36. Lina, Mina and Nina were partners with capital balances on January 2, 2015 of P300, 000, P200, 000 and P100, 000, respectively. On July 1, 2015 Lina retires from the partnership. On the date of retirement the partnership net loss is P60, 000 and the partners agreed that certain asset is to be revalued at P90, 000 from its original cost of P50, 000. The partners agreed further to pay Lina P190, 000 in settlement of her interest. The remaining partners continue to operate under a new partnership, MN partnership. What is the total capital of MN partnership? 37. Rita, Sisa and Tina are partners with capital balances on June 30, 2015 of P60, 000, P60, 000 and P40, 000, respectively. Profits and losses are shared equally. Tina withdraws from the partnership. The partners agree that Tina is to take certain furniture at their second hand value of P2, 800 and cash for the balance of her interest. The furniture is carried on the books as fully depreciated. The amount of cash to be paid to Tina and the capital balances of the remaining partners after the retirement of Tina are: Cash Rita capital Sisa capital 38. Capital balances and profit and loss sharing ratios of the partners in the BIG Entertainment Gallery are as follows: Betty, capital (50%) Iggy, capital (30%) Grabby, capital (20%) Total

P140, 000 160, 000 100, 000 P400, 000

Betty needs money and agrees to assigned half of her interest in the partnership to Yessir for P120, 000 cash. Yessir pays directly to Betty. Yessir does not become a partner. What is the total capital of the BIG Entertainment immediately after the assignment of the interest to Yessir? Prelim Examination

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39. The partnership of AA, BB, and CC was dissolved on June 30, 2011 and account balances after non-cash assets were converted into cash on September 1, 2011 are: Assets

Liabilities and Equity

Cash

P60, 000

Accounts payable AA, capital (30%)

P120, 000 100, 000

BB, capital (30%) CC, capital (40%)

(60, 000) (100, 000)

Personal assets and liabilities of the partners at September 1, 2011 are: Personal Assets

Personal Liabilities

AA BB

P80, 000 100, 000

P90, 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 P100, 000 partnership equity would appear to be recoverable? 40. After all partnership assets were converted into cash and all available cash was distributed to creditors, the ledger of the Daniela, Erika, and Fredline partnership showed the following balances: Debit

Credit

Accounts payable Daniela, capital (40%)

P20, 000 10, 000

Erika, capital (30%) Fredline, capital (30%)

P100, 000

70, 000 ________

P100, 000

P100, 000

Percentages indicated are residual profit and loss sharing ratios. Personal assets and li abilities of the partners are as follows:

Personal assets Personal liabilities

Daniela P50, 000

Erika P50, 000

Fredline P100, 000

45, 000

40, 000

40, 000

The partnership creditors proceed against Fredline for recovery of their claims, and the partners settle their claims against each other. How much would Erika receive? 41. The August, Albert, and Gerry partnership became insolvent on January 1, 2011, and the partnership is being liquidated as soon as practicable. In this respect the following information for the partners has been marshaled:

August Albert Gerry Total

Capital Balances

Personal Assets

Personal Liabilities

P70, 000 (60, 000)

P80, 000 30, 000

P50, 000 50, 000

(30, 000) P(20, 000)

70, 000

30, 000

Assume that residual profits and losses are shared equally among the three partners. Based on this information, calculate the maximum amount that August can expect to receive from the partnership liquidation is:

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