Solutions

 

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NAME: Professor:

Section:

Date: Score:

ACCOUNTING FOR SPECIAL TRANSACTIONS FIRST GRADING EXAMINATION EXAMINATION

1. AAA AAA and BBB are partner partners s wi with th capita capitall of P60,0 P60,000 00 and P20,000 P20,000,, res respec pectiv tively ely.. Prots and losses are divided in the ratio of 60:40. 60:40. AAA and BBB BBB decided to form a new partnership with CCC, who invested land valued at P15,000 for a 20% capital inter int eres estt in the new new part partne ners rship hip.. CCC’ CCC’s s cost cost of th the e land land was was P1 P12, 2,00 000 0 th the e partnershi partn ership p elected elected to use the bonus method to record the admissio admission n of CCC into the relationship. CCC’s cap capital ital account should should be credited for for a. P12,000 c. P16,000 b. P15,000 d. P19,000 60+20+15= 95 x 20%=19 2. AAA and BBB BBB formed partners partnership hip in 2009. The partners partnership hip agreement agreement provides provides for annual salary allowances allowances of P55,000 P55,000 for AAA and P45,000 P45,000 for BBB. BBB. The partners share prots equally and and losses in a 60:40 ratio. The partnership had earnings earnings of  P80,000 for 2009 2009 before any allowance allowance to partners. What amount of these earnings earnings should be credited to each partner’s capital account?   AAA BBB AAA BBB a. P40,000 P40,000 c. P 44,000 P 36,000 b. 43,000 37,000 d. 45,000 35,000 B 3. The partnersh partnership ip agreement agreement of AAA and and BBB provides provides that that intere interest st at 10% per year 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, investment, July 1 40,000 Withdrawal, August 1 15,000 What amount of interest should be credited to BBB’s capital account for 2009? a. P15,250 c. P16,500 b. P15,375 d. P17,250 4. AAA AAA and and BBB are part partne ners rs who who sh shar are e pr pro ots ts an and d lo loss sses es on th the e ra rati tio o of 6: 6:4, 4, respectively respecti vely.. On May 1, 2009, their respective respecti ve 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 prots for an investment of P40,000. P40,000. The new partnership began began with total capital of P150,000. Immediately after CCC’s admission, AAA’s AAA’s capital should be a b.. P P5 50 4,,0 00 00 0

c d.. P P5 66 0,,6 06 07 0

 

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

AA Investments March 1………………P30, 000  June 1………………………… 1………………………… P10,000  August 1………………20, 1………………20, 000 2,000 December 1…………………….

BB Investments P 20, 000

Draws

Draws

P10, 000

5, 000

The partnership’s prot 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 aected by both investments and drawings. Any remaining prots are to be allocated equally among the partners.  Assuming the net income of P60, P60, 000 before before salaries and and bonus, determine how the income would be allocated among the partners. a. AA, P31, 138; BB, P28, 862 b. AA, P33, 537; BB, P26, 463 D

c. AA, P30, 633; BB, P29, 376 d. AA, P30, 684; BB, P29, 316

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 prots 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 To Total P 700,000

The assets and liabilities liabilities are fairly valued on the bala balance nce sheet. AAA and BBB BBB decide to admit CCC as a new partner with 20% interest. 6. What amount amount should should CCC CCC contrib contribute ute in cash cash or other other assets? assets? a. P110,000 c. P140,000 b. P116,000

d. P145,000

D 348,000 + 232,000 = 580 ÷ 80% x 20% = 145,000

 

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7. Instead of admitting a new partner partner, AAA and BBB 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? a. P255,000 c. P327,000 b. P273,000 d. P348,000 B

8. The following following condensed condensed balance balance sheet is presented for the partnership of of BBB BBB and  AAA, who share share prots and losses losses on the ratio of 60:40, re respectively: spectively: Other assets P 450,000 BBB loan 20,000 P 47 470 0,000  Accounts payable payable P BBB, capital  AAA, capital capital Total P The partners have decided decided to liquidate liquidate the partnership. If the other

120,000 195,000 155,000 470,000 assets are are sold

P385,000, what amount of the available cash should be distributed to BBB? P385,000, a. P136,000 c. P159,000 b. P156,000 d. P195,000  A 

9. On December December 31, 1998, 1998, the partners partners of MNP MNP Partnership Partnership decided decided to liquidate liquidate their business. Immediately before liquidation, the following condensed balance sheet was prepared: Cash P 50,000 Noncash assets 900,000

  ____ ___ _ Total

Liabilities P 375,000 Nieva, loan 80,000 Perez, loan 25,000 Munoz, capital (50%) 312,500 Nieva, capital (30%) 107,500 Perez, capital capi tal (20%) 50,000 50,00 0 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) a. P 37,143 b. 25,000 c. 5,250 d. 0 B

 

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10.The 10. The partners of the M & N Partnership started liquidating their business on July 1, 2004, at which time the partners were sharing prots 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 Cash……………………. P 8,800 400 Receivable……………… 22,400 Inventory…………...….. 39,400 600 Equipment…..P65, 200  Accumulated depreciation 30, 80034, 400 Total…………………… P105, 000

Liabilities & Capital Accounts payable…………

P32,

M, capital………………… P31, 000 M, drawing………… 5,400

25,

N, capital………………… .P33, 200 N, drawing……………………. drawing……………………. 200 33, 000 N, loan…………………………………… 14, 000 Total…………………………………… P105, 000

During the month of July, 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? a. P --0 0c. P5, 400 b. 25, 600 d. 320 D

11.After 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:  De  Debit

Credit

Cash……………………………………………… P 34, 000  Accounts payable……………… payable………………………………………… ………………………………………… ……………… Loa Lo an pay aya able to AA………… ………………… …………… ………… ………………… …………… ………… ………….. …..  AA,capital……………… capital…………………………………………… capital………………………… ………………… 8,000 8,000  JJ, capital……………………………………… ……………………………………………… ………………………

P25, 000 9,00 ,000 8,000

 Available  Ava ilable cash should should be distributed; P25,000 P25,000 to a accounts ccounts payable payable and;

 

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a. P9, 000 loan payable to AA b. P4, 500 each to AA and JJ

c. P1,000 to AA and P8, 000 to JJ d. P8,000 to AA and P1, 000 to JJ

C

12.After 12. After incurring losses resulting from very unprotable operation, the Alphabets Partnership Partnersh ip decided to liquidate when the partners’ capital balances were:  A, capital (40%) B, capital (40%) C, capital (20%)

P 80,000 130,000 96,000

The non-cash assets were sold in installment. Available 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? a. P 11,600 b. 8,000 c. 5,600 d. 0 C 28,000 x 20% = 5,600

13.The 13. The partnership of AA, BB, and CC was dissolved on June 30, 20x1 and ac account count balances after non-cash assets were converted into cash on September 1, 2004 are: Cash……………………………P50, 000

Accounts payable  AA, capital capital (30%) BB,, capi BB capita tall (3 (30% 0%)) CC,, cap CC capital ital (4 (40% 0%))

P120, 000 90, 000 (60, (6 0, 00 000) 0) (100 (1 00,, 00 000) 0)

Personal Perso nal assets and liabilities of the partners at September 1, 20x1 are:  Personal   Asse Assets ts  AA………………………………………  AA……………… ………………………………………….. ………………….. P80, 000 BB………………………………………………………… 100, 000 CC………………………………………………………… 192, 000

Personal Liabili Lia bilities ties P90, 000 61, 000 80, 000

 

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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? a. P90,000 b. 81,000

c. P79, 000 d. None

B

14.Partners Able, Baker, and Chapman, who share prot and loss equally, have the following personal assets, personal liabilities, and partnership capital balances:   Personal assets Personal Liabilities Capital balances

Able P 30,000 25,000 50,000

Baker_ ker__ _

Chap hapman_ P 80,000 50,000 (32,000)

P 60,000 72,000 70,000

 After applying applying the doctrine of marshaling of of assets, the capital capital balances balances of Able, Baker Baker,, and Chapman, respectively, would be a. P 50,000 P(2,000) P 58,000 b. 48,000 0 58,000 c. 49,000 0 57,000 d. 34,000 0 54,000 C

15.A, 15. A, B and C are partners in a textile distribution business, sharing prots and losses equally. On December 31, 2004, the partnership capital and the partners’ drawing were as follows:   Capital Dra raw wing ing

A

B P100,000 P80,000 60 60,,000 40,000 000

C

Total P300,000 P480,000 20,0 0,000 120,0 0,000

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

 

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The nal cash distribution to C was: a. P 162,000 b. P 108,000 c. P 84,000 d. P 78,000 D

16.A, 16. A, B and C are partners with capital balance of P 350,000, P 250,000 and P 350,000 and sharing prots 30%, 20% and 50% respectively. Partners agree to dissolve the business and upon liquidation, all of the partnership assets are sold and sucient 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 rm. On the remaining claim against the partnership, A is to absorb. a. P 40,000 b. P 15,000 c. P 30,000 d. P 25,000  A 

17.A, 17. A, B, and C are partners in ABC Partnership and share prots and losses, 5:3:2, respectively.. The partners have agreed to liquidate the partnership. Prior to respectively liquidation, the partnership balance sheet shows the following book values. Cash Non-cash Notes, payable to C Other liabilities  A, capital B, capital C, capital

P 25,200 297,600 38,400 184,800 72,000 (12,000) 39,600

Liquidation P 16,800 are paid. Non-cash assets with a book value of P 240,000 areexpenses sold for Pof216,000. How much cash should C receive?

 

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a. P 74,571 b. P 46,458 c. P 39,600 d. P 37,600 C

18.Partners 18. Partners Bee, Cee, Dee and Gee who share prots 5:3:1:1, respectively, 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 Partnership’s computer equipment equipment with a book value of P12 P12,000 ,000 is to be taken over by partner Bee at a price of P15,000. (2) Partnership’s liabilities are to be paid o 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. How much of the P30,000 cash be distributed to Partner Partner Cee? a. P 10,000 b. P 20,000 0 c. P d. P 15,000  A 

 

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19.A 19. A and B decided to liquidate their partnership business on June 1, 2005, under lump-sum liquidation. The partners had been sharing prots and losses on a 60:40 ratio. The balance sheet prepared on the day of liquidation began was as follows:  As  Assets Cash P 18,000 Receivables 75,000 Inventory 90,000 Other 84,000 Total P267,000

Liabilities and Capital Accounts payable P 42,000 A, loan 24,000 A, capital 102,000 B, capital 99,000 Total P267,000

During June, one-third of the receivables was collected; P45,0 P45,000 00 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?   A a. P3 P32,100 b. P 8,1 8,100 c. P40,200 d. P59,100

B P36,400 P27,400 P41,800 P54,400

 A  Carrying amount of non-cash (75 + 90 + 84) 249  Amount realized realized from sale (1/3 (1/3 x 75) + (70% x 45) 45) + 36 (92.5)  Loss on realization

(156.5)

Cash 18 + 92.5 = 110.5 – 42 = 68.5 cash available to partners less capital balance 225K = (156.5)

20.A, 20. A, B, and C, who divide prots and losses 50%, 30%, and 20%, respectively, respectively, have the following December 31, 20x1 account balances:  A, drawing (Dr (Dr.)……………… .)………………………………………… ………………………………………… ……………… P 12, 000 000 C, drawing (Cr.)…………………………………… (Cr.)………………………………………………………..… …………………..… 4,800  Accounts receivablereceivable- A………… A…………………………………… …………………………………….… ………….… 7, 200 Loan Lo ans s paya payabl blee- B……… B…………… ………… ………… ………… ………… ………… ………… ………… ………… ………. …... .. 14, 14, 40 400 0  A, capital…………………………… capital……………………………………………………… ……………………………………. …………. 59, 400

 

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B, capital……………………………………………………… capital…………… ………………………………………………………. ……………. C, capital………………………………… capital………………………………………………………… ……………………………..… ……..…

44, 400 39, 000

On this data, the partnership’s assets are P211,200 P211,200 (including cash of P64, 200).The partnership is liquidated and C receives P33,000 in nal settlement. How much is the total loss on realization? a.P10,800 b. 31,200

c. P54,000 d. 64,200

C

21.A 21. A and B share partnership prots and losses in a 7:3 ratio. Their post-closing trial balance on January 31 show before liquidation: Cash………………………………………P 30, 000  Accounts receivable, receivable, net…………. net………….……... ……... 380, 000 Inventory……………………………… Invento ry……………………………… 260, 000 Furniture, net…………………………… net…………………………… 120, 000  Accounts payable……………… payable………………………………………… …………………………………P165, ………P165, 000  A, capital…………………………… capital……………………………………………………… ……………………………...350, …...350, 000 B, capital……………………………………………………… capital…………… ………………………………………….. 275, 000 C oered 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:  Accounts receivable receivable ……………… ………………………………………… ……………………………….. …….. P350,000 Inventory ……………………………………………………………… 250,000 Furniture Furnitu re ………………………………………… ……………………………………………………………… …………………… 135,000 1 35,000 How much will A and B receive as nal settlement of their partnership interest? a. P 570, 000 b. 760, 000

c. P790, 000 d. 625, 000

C

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

 

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On January January 2, 2010, AAA and BBB dissolved dissolved their partnersh partnership ip and transfe transferred rred all assets and liabilities liabilities to a newly formed formed corporation. At the date of incorporation, incorporation, the fair value of the net assets was P12,000 more than the carrying amount in the partnershi partn ership’s p’s books, books, which was assigned assigned to tangible assets. assets. AAA and BBB were were each each issu issued ed 5, 5,00 000 0 sh shar ares es of th the e corp corpor orat atio ion’ n’s s P1 par par valu value e comm common on stoc stock. k. Immediate Imme diately ly followin following g incorpora incorporation, tion, additional additional paid paid-in -in capital capital in excess excess of par should be credited for a. P68,000 c. P77,000 b. P70,000 d. P82,000 D 80K + 12K = 92K – 10K = 82K  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? a. Fair value value at the date date of of contrib contribution ution.. b. Contributin Contributing g partner’s partner’s original original cost. c. Assessed Assessed valuation valuation for proper property ty tax tax purpose purposes. s. d. Contri Contribut buting ing pa partn rtner’ er’s s tax basis basis.. 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 unpai d mortgage mortgage of ₱200,000 ₱200,000 which which is assumed by the partnership. partnership. How much is the correct valuation of B’s capital immediately after the partnership formation? a. 400,000 b. 500,000 c. 600,000 d. 800,000 Solution:

  Cash Land (at fair value)  Total

 A 500,000

B -

500, 50 0,00 000 0

800,000 800, 80 0,00 000 0

Mortgage payable  A, capital 500,000 B, capital (800K – 200K) Total   50 500, 0,00 000 0

 Partners hip 500,000 800,000

1,30 1, 300, 0,00 000 0

200,000 200,000 500,000 600,000 600,000 800, 80 0,00 000 0

1,30 1, 300, 0,00 000 0

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 iden identi tia abl ble e as asse sets ts.. Th The e part partne ners rs agre agree e th that at th the e die diere renc nce e in th the e amou amount nt 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? a. 84,000 b. 92,000

 

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c. 100,000 d. 108,000 Solution: Cash 184,000  A, Capital (184,000 ÷ 2) B, Capital (184,000 ÷ 2)

92,000 92,000

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

 A

Cash  Accounts receivable receivable

500,000   100,000

-

600,000

  700,00 0   700,00 0

Building

Total

 A, capital

-

  600,000

B, capital

Total

B

  600,000

  700,00 0   700,00 0

 Additional information: The accounts receivable includes a ₱20,000 account that is deemed uncollectible. The building is under-depreciated by ₱50,000.  

   

The building building has an unpaid unpaid mortgage mortgage ₱100,000 ₱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? a. 460,000 b. 580,000 c. 650,000 d. 720,000 Solution:

  Cash  Accounts receivable (100K – 20K) Bui uild ldiing (700 00K K–

 A 500,000

80,000

B -

 Partners hip 500,000

650 65 0,0 ,00 00

80,000 650,0 650 ,00 00

 

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50K)  Total

580, 58 0,00 000 0

650, 65 0,00 000 0

1,23 1, 230, 0,00 000 0

650,000 650, 65 0,00 000 0

580,000 650,000 1,23 1, 230, 0,00 000 0

  580,000

 A, capital B, capital Total

  58 580, 0,00 000 0

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 iden identi tia abl ble e as asse sets ts.. Th The e part partne ners rs agre agree e th that at th the e die diere renc nce e in th the e amou amount nt 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  a. 84,000 b. 92,000 c. 100,000 d. 108,000 Solution: Cash 184,000  A, Capital (184,000 ÷ 2) B, Capital (184,000 ÷ 2)

92,000 92,000

The cash settlement settlement among the partners partners is not recorded in the partnership’s books because this is not a transaction of the partnership but rather a transaction among the partners themselves. 28.If 28. If the partnership agreement does not specify how income is to be allocated, prots and loss should be allocated a. Equ Equally ally. b. In proportion proportion to the the weighted weighted average average of capita capitall invested invested during during the period. period. c. Equitably Equitably so so that partners partners are are compensat compensated ed for the time time and eort eort expended expended on behalf of the partnership. d. In accord accordance ance with with their their capital capital contri contributio butions. ns. 29.A and B share in partnership prots and losses on a 40:60 ratio. During the year, A’s capital capit al account has a net increase of ₱50,000. ₱50,000. Partner Partner A made contributio contributions ns of  ₱10,000 ₱10, 000 and capital capital withdrawals withdrawals of ₱60,000 ₱60,000 during the year year.. How much was the share of B in the partnership prot for the year? a. 100,000 b. 150,000 c. 200,000 d. 180,000 Solution: Step 1:  A, Capital -

Withdrawa ls

60,00 0

end.

50,00

10,00 0 ? 

beg. Additional investment  Share in prot

 

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0 Step 2:  A, Capital -

Withdrawa ls

60,0 60 ,000 00 10 10,0 ,000 00 100,0 00

end.

beg. Addi Ad diti tion onal al in inve vest stme ment nt  Share in prot  (squeeze)

50,000

Step 3: 100,000 ÷ 40% = 250,000 partnership proft Step 4: B’s share: 250,000 x 60% = 150,000

30.The 30. The partnership agreement of A, B and C stipulates the following: Par artn tner ers s A and C sh shal alll rece receiv ive e annua nnuall sala salari ries es of ₱12, ₱12,00 000 0 and and ₱8 ₱8,0 ,000 00,, respectively.  A bonus of 10% of prot 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 prot 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 prot of ₱100,000. ₱100,000. How much is the share of Partner C in the partnership prot? a. 47,600 b. 32,200 c. 19,200 d. 33,200 Solution:  

A

B

C

 Amount being allocated allocated  Allocation: 1. Salaries 2. Bonus (100K - 20K) x 10% 3. Interest on cap. (100K x 10%);(60K x 10%);(120K x 10%)  4. Allocation of remainder: (100K - 20K - 8K - 28K) = 44K; (44K x 40%); (44K x 30%); (44K x 30%)  As allocated

12,000 8,000

Tota otall 100,00 0

8,000

20,000 8,000

10,000

6,000

12,000

28,000

17,600

13,200

13,200

44,000

 47,60 0

19,200

33,200

100,00 0

 

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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: 252,0  Balance, Jan. 1, 20x1 00  Additional investment,  July 1 00 Withdrawal, August 1  Balance, Dec. 31, 20x1

72,0

(27,0 00)  297,0 00

How much is the interest on B’s weighted average capital? a. 27,675 b. 33,633 c. 37,214 d. 23,322 Solution:

 Balance, Jan. 1, 20x1  Additional investment, investment, July 1 Withdrawal, August 1

252,000

12/12 6/12

72,000 (27,000)

 5/12

 Weighted average capital

252,000 36,000 (11,250)  276,750 10%

Multiply by:  Interest

 27,675

32.Red and White formed a partnership in000 2003. agreement for for an annu nual al sa sala lary ry al allo lowa wanc nces es of ₱55, ₱55,00 0 fo forrThe Red Repartnership d and and ₱4 ₱45, 5,00 000 0 fo forr Whit Whprovides ite. e. Th The e partners share prots equally and losses in a 60/40 ratio. The partnership had earnings earni ngs of ₱80,000 ₱80,000 for 2003 2003 before before any allowance allowance to partners. partners. What amount of  these earnings should be credited to each partner’s capital account?   Red White a. 40,0 40,000 00 40,0 40,000 00 b. 43,0 43,000 00 37,0 37,000 00 c. 44,0 44,000 00 36,0 36,000 00 d. 45,0 45,000 00 35,0 35,000 00 Solution:  Red

White

Total 80,000

55,000

45,000

100,000

(12, (1 2,00 000) 0)

(8,0 (8 ,000 00))

(20, (2 0,00 000) 0)

 Amount being allocated  Allocation: 1. Salaries  2. Allocation of remaining prot (80K (8 0K pr pro ott – 10 100K 0K sa sala lari ries es)) = -2 -20K 0K

 

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  (-20 x 60%); (-20K x 40%)  As allocated

43,000

37,000

80,000

33.Fox, Greg, and Howe are partners with average capital balances during 2002 of  ₱120,000 ₱120 ,000,, ₱60,000, ₱60,000, and ₱40,000, ₱40,000, respective respectively ly.. Partners artners rece receive ive 10% interest interest on their the ir averag average e capita capitall bala balance nces. s. Af After ter deduct deducting ing salari salaries es of ₱30,0 ₱30,000 00 to Fox and ₱20, ₱2 0,00 000 0 to Howe Howe,, th the e resi residu dual al pr pro ott or lo loss ss is divi divide ded d eq equa uall lly y. In 2003 2003 th the e partnershi partn ership p sustained susta ined a ₱33,000 ₱33, 000 account loss before befo re inter interest est and salarie salaries s to partners. partners. By what amount should Fox’s capital change? a. 7,00 7,000 0 in incr crea ease se.. b. 11,0 11,000 00 decr decrea ease se.. c. 35,0 35,000 00 dec decre reas ase. e. d. 42,0 42,000 00 incr increa ease se.. Solution:    Amount being allocated   Allocation: 1. Salaries 2. Interest on capital   3. Allocation Allocation of balance balance

(-33K – 50K - 22K) = -105K / 3   As allocated

Fox

Greg

Howe

Total (33,000)) (33,000

30,000 12,000

6,000

20,000 4,000

50,000 22,000

(35,000) 7,000

(35,000) (29,000)

(35,000) (11,000)

(105,000) (33,000)

34.. The 34 The part partne ners rshi hip p agre agreem emen entt of Axel Axel,, Berg Berg & Cobb Cobb pr prov ovid ides es fo forr th the e year year-e -end nd allocation of net income in the following order: Firs First, t, Axel Axel is to rece receiv ive e 10 10% % of net net inco income me up to ₱100 ₱100,0 ,000 00 and and 20% 20% ov over er ₱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? a b.. c. d.

1 10 01 3,,0 00 00 0 108,000 110,000

Solution:    Amount being allocated   Allocation: 1. Bonus to A First 100K (100K x 10%) Over 100K [(250K - 100K) x 20%]   2. Bonus to Berg and Cobb

(250K - 10K - 30K - 150K) x 5%   3. Allocation of bal. (204K / 3)   As allocated

Axel

Berg

Cobb

Total 250,000

10,000

10,000

30,000

30,000

68,000 108,000

3,000 68,000 71,000

3,000 68,000 71,000

6,000 204,000 250,000

 

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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: 140,00  Balance, January 1 0  Additional investment, 40,00  July 1 0 (15,0 Withdrawal, August 1 00) 165,00  Balance, December 31 0 What amount of interest should be credited to Simm’s capital account for 2003? a. 15,250 b. 15,375 c. 16,500 d. 17,250 B [140K + (40K x 6/12) – (15K x 5/12) = 153.75K x 10% = 15,375 36.. Bl 36 Blau au and and Rubi Rubi ar are e part partne ners rs who who sh shar are e pr pro ots ts an and d lo loss sses es in th the e rati ratio o of 6: 6:4, 4, respectively. On May 1, 2003, their respective capital accounts were as follows: Blau Rubi

60,000 50,000

On that date, Lind was admitted as a partner with a one-third interest in capital and prots 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 ₱150,000 a. 50,000 b. 54,000 c. 56,667 d. 60,000 Solution: Total capital after admission Multiply by: Interest of Lind Capital credit to Lind Contribution of Lind Bonus to Lind Multiply by: Old P/L ratio of Blau Deduction to Blau's capital

Interest of Blau before admission of Lind Deduction to Blau's capital  Adjusted capital capital of Blau after admission admission

   

 

150,000 1/3 50,000 (40,000) 10,000 60% 6,000 60,000 (6,000) 54,000

37.. Kern 37 ern and and Pate ate ar are e part partne ners rs wi with th capi capita tall bala balanc nces es of ₱60, ₱60,00 000 0 and and ₱20, ₱20,00 000, 0, respectively. Prots and losses are divided in the ratio of 60:40. Kern and Pate

 

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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 a. 12,000 b. 15,000 c. 16,000 d. 19,000 Solution: (60K + 20K + 15K) = 95K total capital after admission x 20% = 19,000 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 prot and loss sharing percentages were as follows:

 Assets, net of liabilities liabilities Eddy, capital (50%) Fox, capital (30%) Grimm, capital (20%)

320,0 00 160,0 00 96,00 0 64,00 0 320,0 00

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, retirement, what are the capital balances balances of the other other partners?   Fox Grimm a. 84,000 56,000 b. 102,000 68,000 c. 108,000 72,000 d. 120,000 80,000 Solution: Payment to Eddy Capital balance of Eddy Excess payment to Eddy

Capital balances before retirement Share in excess payment to Eddy Capital balances after retirement

 

 

 Fox 96,000 (12,000) 84,000

180,000 160,000 20,000 Grimm 64,000 (8,000) 56,000

39.Assume 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 ₱140,000. The bonus method be, Eddy’s used to capital recordl the admission of  Hamm.. of Hamm Immediat Imme diately ely after admissio admission n of shall Hamm, Hamm capita account balance balance should be a. 280,000

 

P a g e  | 19

b. 172,500 c. 160,000 d. 140,000 Solution: Eddy,, capital Eddy Fox, capital

160,000 96,000

Grimm, capital Investme nt of Hamm Total partnership capital after admission Multiply by: Interest of Hamm Capital credit to Hamm Investment of Hamm Bonus to old partners

64,000 14 0,000 460,000 25% 115,000 140,000 (25,000)

Eddy, capital (before admission) Share in bonus to old partners (25K x 50%)  Eddy,, capital (ater admission)  Eddy

   

 

160,000 12,500 172,500

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 prots and losses in the ratio of 60:40, respectively: 45,0 Cash 00 625,0 Other assets 00 30,0 Beda, loan 00 700,0 00 120,0  Accounts payable payable 00 348,0  Alfa, capital capital 00 232,0 Beda, capital 00 700,0 00

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? a. 110,000 b. 116,000 c. 140,000 d. 145,000 D (348K + 232K) = 580K ÷ 80% = 725K capital after admission x 20% = 145,000 41.. In 41 Inst stea ead d of admi admitt ttin ing g a new new part partne nerr, Al Alfa fa and and Beda Beda deci decide de to liqu liquid idat ate e th the e partnership. If the other assets are sold for ₱500,000, ₱500,000, what amount of the available cash should be distributed to Alfa? a. 255,000

 

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b. 273,000 c. 327,000 d. 348,000 Solution: The total loss on the sale is computed as follows:  Sa  S ale of other assets  Carrying amount of other assets  Total loss on sale

500,000 (625,000)) (625,000 (125,000)) (125,000

The partial settlement to partners is computed as follows:    Alpha Beda Capital balances before liquidation 348,000 232,000 Receivable from Beda (20,000) Total 348,000 212,000  Allocation of of loss [125K x (60% & 40%)] (75,000) (50,000)  273,000  Amounts received by the partners partners 162,000

Totals 580,000 (20,000) 560,000

(125,000) 435,000

42.The statement of nancial position of the partnership of A, B and C shows the following information:  Cash Other assets Total assets

Liabilities  A, capital capital (50%) B, capital (25%) C, capital (25%) Total liabilitie liabilities s and equity

22, 400 212, 000  234,  400 38, 400 76, 000 64, 000 56, 000  234,  400

The partners realized realized ₱56,000 ₱56,000 from the rst installment installment sale of non-cash assets with to tota tall carr carryi ying ng amou amount nt of ₱120 ₱120,0 ,000 00.. How How much much did did B rece receiv ive e fr from om th the e part partia iall liquidation? a. 25,000 b. 24,000 c. 16,000 d. 0 Solution:

  Cap. bal. before liquidation  Allocation of of loss

 A (50%) 76,000 (78,000)

 B (25%) 64,000 (39,000)

C (25%) 56,000 (39,000)

Totals 196,000 (156,000

 

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Total  Allocation of of deciency Total

(2,000) 2,000 -

25,000 (1,000)  24,000

17,000 (1,000) 16,000

) 40,000 -

43.The statement of nancial position of the partnership of A, B and C shows the following information:  Cash Other assets Total assets

Liabilities B, loan C, loan  A, capital capital (50%) B, capital (30%) C, capital (20%) Total liabilitie liabilities s and equity

40, 000 720, 000 760, 000 300, 000 64, 000 20, 000 250, 000 86, 000 40, 000 760, 000

The non-cash assets are sold for ₱320,000. Partner C is the only solvent partner. partner. In the settlement of the partners’ claims, how much additional contribution is required of  Partner C? a. 50,000 b. 30,000 c. 20,000 d. None Solution:

 Net proceeds Carrying amount of all other assets  Loss

  Cap. bal. before liquidation Payable to partners Total  Allocation of of loss Total

320, 000 (720,0 00) (400,0 00)  A (50%) 250,000

 B (30%)

C (20%)

Totals

250,000

86,000 64,000 150,000

40,000 20,000 60,000

(200,000) (200,00 0)

(120,000) (120,00 0)

(80,000)

50,000

30,000

(20,000)

376,000 84,000 460,000 (400,000 ) 520,000

 

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 Additional c contribution ontribution Total

50,000

30,000

 20,000 -

 20,000 540,000

“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) - END -