[AFAR][EX 03] - Partnership Accounting PDF

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UNIVERSITY OF MINDANAO

COLLEGE OF ACCOUNTING EDUCATION

COMPETENCY APPRAISAL COURSE

Problem 1

Additional investments of capital: July 3 October 2

LEBRON admits ANTHONY as a partner in business. Just before the partnership’s formation, LEBRON’s books showed the following: Cash 2,600 Accounts Receivable 12,000 Merchandise Inventory 18,000 Accounts Payable 6,200 LEBRON, Capital 26,400

REQUIRED: 1. What is the weighted-average capital for JOKIC and MURRAY in 2020? 2. If the average capital for JOKIC and MURRAY from the above information is P 224,000 and P 238,000 respectively, what will be the total amount of profit allocated to salary and interest distributions? 3. If the average capital balances for JOKIC and MURRAY are P 200,000 and P 240,000, what will be the total partnership profit allocations be for JOKIC and MURRAY in 2020?

It was agreed that, for purposes of establishing LEBRON’s investment in the firm, the following adjustments shall be reflected: • Allowance for bad debts of 2% should be set-up • Merchandise inventory should be valued at P 20,200 • Prepaid expenses of P 350 and accrued expenses of P 400 should be recognized

Problem 3

PARTNERSHIP ACCOUNTING

REQUIRED: 1. How much is the adjusted capital of LEBRON prior to admission of ANTHONY? 2. How much cash should ANTHONY invest to secure a one-third interest in the partnership? 3. If ANTHONY contributed an equipment with carrying value of P 4,000 and fair value of P 4,500, how much cash was contributed for a one-fifth interest in the partnership? Problem 2 JOKIC and MURRAY share profits and losses equally after salary and interest allowances. JOKIC and MURRAY receive salary allowances of P 40,000 and P 60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners’ drawings of P 3,000 per month are not used in determining the average capital balances. Total net income for 2020 is P 240,000

January 1 Capital Balances Yearly drawings (P 3,000 per month) Permanent withdrawals of capital: June 3 May 2

ADVANCED FINANCIAL ACCOUNTING & REPORTING

JOKIC 200,000 36,000

MURRAY 240,000 36,000

24,000 30,000

80,000 100,000

RAPTORS, CELTICS, and HEAT are partners sharing profits and losses of 40%, 40% and 20%, respectively. The December 31, 2020 balance sheet of the partnership before any profit allocation was summarized as follows: ASSETS LIABILITIES & CAPITAL Cash 90,000 Accounts Payable 7,500 Inventories 60,000 CELTICS, Loan 5,000 Equipment 75,000 RAPTORS, Capital 100,000 Trademark 22,500 HEAT, Capital 90,000 CELTICS, Capital 45,000 Total Assets 247,500 Total Liabilities & Capital 247,500 The income summary account has a credit balance of P 25,000 for the year 2020. On January 1, 2021, a partner has decided to retire from the partnership and by mutual agreement among partners; the following have been arrived at: • Inventories amounting to P 10,000 is considered obsolete and must be written off • Equipment should be adjusted to their current value of P 50,000 • Trademarks are to be written-off immediately before the retirement. It was agreed that the partnership will pay the retiring partner for his interest in the partnership inclusive of loan balance. REQUIRED: 1. If CELTICS retired and received P 38,500 as a retirement price, how much will be the bonus to or (from) HEAT? 2. If CELTICS retired and received P 38,500 as a retirement price, how much will be the adjusted capital of RAPTORS under bonus method?

CEDRIC IAN CARLO E. PETALCORIN, CPA, MBA

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UNIVERSITY OF MINDANAO

COLLEGE OF ACCOUNTING EDUCATION

COMPETENCY APPRAISAL COURSE

3. If CELTICS retired and received P 43,500, by how much will the adjusted capital of RAPTORS under revaluation of asset method traceable to entire entity (full revaluation)? 4. If CELTICS retired and received P 41,000, by how much will the adjusted capital of HEAT be higher or (lower) than RAPTORS under specific revaluation of asset method (specific revaluation)? 5. If CELTICS retired and received P 41,000, by how much will the adjusted capital of RAPTORS under specific revaluation of asset method (specific revaluation)? Problem 4 LEONARD, GEORGE, and DOC are in the process of liquidating their partnership. Since it may take several months to convert the other assets into cash, the partners agree to distribute all available cash immediately, except for P 12,000 that is set aside for contingent expenses. The balance sheet and residual profit and loss sharing percentages are as follows: Cash Other assets

P 500,000 225,000

Total assets

P 725,000

Accounts Payable LEONARD, Capital (20%) GEORGE, Capital (30%) DOC, Capital (50%) Total liabilities and equity

P 225,000 168,000 270,000 62,000 P 725,000

REQUIRED: 1. Using a safe payments schedule, how much cash should GEORGE receive in the first distribution? 2. Using a safe payment schedule, how much cash should LEONARD receive in the first distribution?

ADVANCED FINANCIAL ACCOUNTING & REPORTING

CEDRIC IAN CARLO E. PETALCORIN, CPA, MBA

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