FINANCIAL ACCOUNTING AND REPORTING PDF

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4- Aldrick purchases 25% interest in the firm. Aldrick pays the partners P 180,000 which is divided between Allyna and Allysa in proportion to the equities given up. Allyna 480,000x25% = 120, Allysa 240,000x25%= 60,Allyna Capital 120, Allysa Capital 60, Aldrick Capital 180, 2. Aldrick purchases a 1/...

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4-1 1. Aldrick purchases 25% interest in the firm. Aldrick pays the partners P 180,000 which is divided between Allyna and Allysa in proportion to the equities given up. Allyna 480,000x25% = 120,000 Allysa 240,000x25%= 60,000 Allyna Capital 120,000 Allysa Capital 60,000 Aldrick Capital 180,000 2. Aldrick purchases a 1/3 interest in the firm. Aldrick pays the partners P 360,000. Asset revaluation is undertaken before Aldrick’s admission so that his 1/3 interest will be equal to the amount of his payment. 360,000/1/3=1,080,000 360,000x75%=270,000 720,000 360,000x25%=90,000 360,000 +AR Entry for AR: Other assets 360,000 Allyna Capital 270,000 Allysa Capital 90,000

Capital before revaluation Share in AR Capital after AR Interest Purchased Capital transferred to Aldrick

Allyna 480,000 270,000 750,000 1/3 250,000

Allysa 240,000 90,000 330,000 1/3 110,000

Total 720,000 360,000 1,080,000 1/3 360,000

Entry: Cash 360,000 Other assets 360,000 Aldrick Capital 360,000 Allyna Capital 270,000 Allysa Capital 90,000 3. Aldrick invests P 360,000 for a 25% interest in the firm. Asset revaluation is recorded on the firm books prior to Aldrick’s admission. OP CAPITAL 720,000 P&L 75:25 AC (360,000/25%) = 1,440,000 AC CC 75% 1,080,000 720,000 25% 360,000 360,000 1,440,000 > 1,080,000 ENTRY: Cash 360,000 Other Assets 360,000

+AR

360,000

CAPITAL SHARING Allyna 360,000x75%=270,000 Allysa 360,000x25%=90,000

Aldrick, Capital 360,000 Allyna, Capital 240,000 Allysa, Capital 90,000 4. Aldrick invests P 360,000 for a ½ interest in the firm. Allyna and Allysa transfer part of their capital to Aldrick as bonus. OP CAPITAL 720,000 P&L 75:25 AC CC BONUS TO NP CAPITAL SHARING NAR 540,000 720,000 (180,000) ALLYNA 180,000X75%=(135,000) 540,000 360,000 180,000 ALLYSA 180,000X25%=(45,000) 1,080,000 1,080,000 ENTRY: CASH 360,000 ALLYNA, CAPITAL 135,000 ALLYSA, CAPITAL 45,000 ALDRICK, CAPITAL 540,000 5. Aldrick invests P 480,000 in the firm. Bonus of P 120,000 is considered to partners Allyna and Allysa. OP CAPITAL 720,000 P&L 75:25 BONUS SHARING: Allyna 120,000x75%=90,000 Allysa 120,000x25%=30,000 INVESTMENT 480,000 ENTRY : Dr. Cr. BONUS TO OP (120,000) Cash 480,000 Agreed Capital NP 360,000 Aldrick, Capital 360,000 Allyna, Capital 120,000 Allysa, Capital 30,000 6. Aldrick invests P 480,000 in the firm with P 20,000 bonus allowed to Allysa and Allyna upon his admission. OP CAPITAL 720,000 P&L 75:25 BONUS SHARING: Allyna 20,000x75%=15,000 Allysa 20,000x25%=5,000 INVESTMENT 480,000 ENTRY : Dr. Cr. BONUS TO OP (20,000) Cash 480,000 Agreed Capital NP 460,000 Aldrick, Capital 460,000 Allyna, Capital 15,000 Allysa, Capital 5,000 50% 50%

7. Aldrick invests P 300,000 for a ¼ interest in the firm. Total capital of the new partnership is P 1.020,000 OP CAPITAL 720,000 P&L 75:25 AC CC BONUS TO OP 3/4 OP 765,000 720,000 Allyna 45,000x75%=33,750 1/4 NP 255,000 300,000 Allysa 45,000x25%=11,250 1,020,000 1,020,000 ENTRY: Dr. Cr. *NO ASSET REVALUATION/ BONUS OP* Cash 300,000 Aldrick, Capital 300,000 Allyna, Capital 33,750 Allysa, Capital 11,250 8. Aldrick invests P 330,000 for a 25% interest in the firm. The total firm capital after his admission is P 1,320,000. OP CAPITAL 720,000 P&L 75:25

AC CC +AR Capital (CR) 990,000 720,000 270,000 Allyna 270,000x75%=202,500 330,000 330,000 Allysa 270,000x25%=67,500 1,320,000 1,050,000 270,000 ENTRY: Dr. Cr. *+AR/ NO BONUS* Cash 330,000 Other Assets 270,000 Aldrick, Capital 330,000 Allyna, Capital 202,500 Allysa, Capital 67,500 75% OP 25% NP

9. Aldrick invests P 288,000 for a 1/3 interest in the firm. The total firm capital after his admission is P 1,008,000. OP CAPITAL 720,000 P&L 75:25 AC CC Bonus NP Capital(Dr.) 2/3 OP 672,000 720,000 (48,000) Allyna 48,000x75%=36,000 1/3 NP 336,000 288,000 48,000 Allysa 48,000x25%=12,000 1,008,000 1,008,000 ENTRY: Dr. Cr. *NO AR/ BONUS NP* Cash 288,000 Allyna, Capital 36,000 Allysa, Capital 12,000 Aldrick, Capital 336,000 10. Aldrick invests sufficient cash for a 1/5 interest in the firm. AC CAN BE COMPUTED BY: 1. CCNP/INTEREST SHARE 2. CCOP/INTEREST SHARE AC OP=720,000/4/5=900,000 INVESTMENT= 900,000/5=180,000 ENTRY: Dr. Cr. Cash 180,000 Aldrick, Capital 180,000

4-2

Partners Lakers and Celtics are considering the admission of Knicks into the partnership. Lakers and Celtics share profit and loss in the ratio of 2:4, respectively. Capital balances of Lakers and Celtics are P 240,000 and P 180,000 respectively. Prepare journal entries to record the admission of Knicks under each of the following independent assumptions: 1. Knicks acquired one-third of the interest of Lakers paying P 80,000. Entry Lakers, Capital Knicks, Capital P240,000x1/3=80,000

Dr.

Cr.

80,000 80,000

2. Knicks acquired one-third of the interest of Celtics paying P 35,000. Entry Dr. Cr. Celtics, Capital 60,000 Knicks, Capital 60,000 P180,000X1/3=60,000 3. Knicks buys a 25% interest in the partnership from the old partners paying each P63,000. Asset revaluation has to be considered prior to the admission of Knicks. Entry for Revaluation: Other Assets Lakers, Capital Celtics, Capital

Dr.

Cr. 84,000 28,000 56,000

New Partnership Capital= 63,000x2 /25% Old Partnership Capital Asset Revaluation

=504,000 420,000 84,000

Distribution of P84,000 to old partners (based on profit and loss ratio) Lakers P84,000 x 2/6 = P28,000 Celtics P84,000 x 4/6 = P56,000 Entry for the transfer of capital: Lakers, Capital Celtics, Capital Knicks, Capital Schedule Capital before revaluation Share in asset revaluation Capital after revaluation Interest Purchased Capital transfer to knicks Capital Balance after admission

4-3

67,000 59,000 126,000 Lakers 240,000 28,000 268,000 25% 67,000 201,000

180,000 56,000 236,000 25% 59,000 177,000

Celtics Total 420,000 84,000 504,000 25% 126,000 378,000

Utah, Atlanta and Detroit have capital balances of P 150,000, P 200,000, and P 300,000, respectively and they share profits and losses in the ration of 4:3:3. Miami purchases 15% interest in equity and profits from the partners for P 150,000. a) What would be the new capital balance of Utah, Atlanta and Detroit after the admission of Miami? Utah _____________ Atlanta ________________ Detroit ________________ Utah Capital 150,000 Transfer 150,000x15% = 22,500 Utah new Capital Balance 150,000-22,500=P127,500 Atlanta Capital 200,000 Transfer 200,000x15% = 30,000 Atlanta new Capital Balance 200,000-30,000=P170,000 Detroit Capital 300,000 Transfer 300,000x15% = 45,000 Detroit new Capital Balance 300,000-45,000=P255,000 b) Assume that some of the assets of the partnership are undervalued, how much is the undervaluation in assets? _______________________ New Partnership Capital 150,000/15% = 1,000,000 Old Partnership Capital 650,000 Asset Revaluation P350,000 Distribution of P350,000 to old partners (based on profit and loss ratio) Utah 350,000 x 4/10= 140,000 Atlanta 350,000 x 3/10 =105,000 Detroit 350,000 x 3/10 =105,000 Schedule Capital before revaluation Share in asset revaluation Capital after revaluation Interest Purchased Capital transfer to knicks

Utah 150,000 140,000 290,000 15% 43,500

Atlanta 200,000 105,000 305,000 15% 45,750

Detroit 300,000 105,000 405,000 15% 60,750

Total 650,000 350,000 1,000,000 15% 150,000

4-4 On August 1, 2020, prior to the admission of Grant, E and F Enterprises have the following account balances: Cash Accounts Receivable Allowance for Bad Debts Merchandise Inventory Equipment - net Accounts Payable Erving, Capital Fisher, Capital

P 30,000 400,000 36,000 110,000 134,000 38,000 300,000 300,000

Erving and Fisher share profit and loss on 1:1 ratio. Before the admission of Grant, the partners agree on the following adjustments to bring the assets and liabilities to their fair values: a.

The allowance for Bad Debts should be brought to 10% of the outstanding accounts receivable.

b.

The current market value of the merchandise inventory is P 140,000.

c.

Accrued expenses of P 4,000 should be recognized in the accounting records.

CAPITAL ALLOWANCE FOR BAD DEBTS MERCHANDISE INVENTORY ACRCRUED EXPENSE ADJUSTED CAPITAL 1.

ERVING P 300, 000 (2, 000) 15, 000 (2, 000) P 311, 000

FISHER P 300, 000 (2, 000) 15, 000 (2, 000) P 311, 000

If Grant purchases 50% of Erving’s capital at its adjusted carrying value, how much is the total assets of the partnership just after the admission of Grant? ____________________

CASH ACCOUNTS RECEIVABLE ALLOWANCE FOR BAD DEBTS MERCHANDISE INVENTORY EQUIPMENT TOTAL ASSETS OF PARTNERSHIP

P 30, 000 400, 000 (40, 000) 140, 000 134, 000 P 664, 000

2. If Grant is admitted into the partnership upon his investment of P 400,000 for 2/5 interest in capital and profit, what is the total capital of the partnership just after the admission of Grant? ERVING FISHER GRANT TOTAL CAPITAL OF THE PARTNERSHIPS:

P 311, 000 311, 000 400, 000 P 1, 022, 000

4-5

Jake desires to invest P 200,000 for ¼ capital and profit and loss interest in the partnership of Kim and Lim, who at that time had capital balances of P 200,000 and P300,000, respectively. Profit and loss ratio of the partners before the admission was 6:4. If a positive asset revaluation is to be recorded, what are the capital balances of Kim, Lim and Jake? P AND L KIM 200,000 6/10 LIM 300,000 4/10 JAKE 200,000 1/4 CASH OTHER ASSETS JAKE CAPITAL KIM CAPITAL LIM CAPITAL

OLD PARTNERS NEW PARTNER TOTAL

P 200, 000 P 100, 000 P 200, 000 P 60, 000 P 40, 000

3/4

AC 600, 000

1/4

200, 000

100, 000

800, 000

= >

CC 500, 000 200, 000 700, 000

REVALUATION OF ASSETS: P 800,000-P 700, 000 = P 100,000 AGREED CAPITAL: P 200, 000 x (1/4) = P 800, 000 TRANSFER OF CAPITAL BASED ON P/L: KIM: P 100, 000 x (6/10) = P 60, 000 LIM: P 100, 000 x (4/10) = P 40, 000 Kim: P 260, 000 Lim: P 340, 000 Jake: P 200, 000

4-6

Pierce, Allen, and Rondo are partners with capital account balances at year-end of P90,000; P 110,000; and P 50,000, respectively. The partnership profit for the year is P 110,000. They share profits and losses on a 4:4:2 ratio, after considering the following terms:

a. Interest of 10% shall be paid on that portion of a partner’s capital in excess of P100,000 b.Salaries of P 10,000 and P 12,000 shall be paid to Pierce and Rondo, respectively c. Rondo is to receive a bonus of 10% of profit after bonus

INTEREST ALLOWANCE SALARIES ALLOWANCE BONUS B= 10%(P 110, 000-B B= P 11, 000 .1B 1.1B= P 11,000 B= P 10,000 REMAINDER IN RATIO TOTAL

PIERCE (40%) P 4, 000

ALLEN (40%) 4, 000

10, 000

RONDO (20%) 2, 000

TOTAL

12, 000

22, 000

10, 000

10, 000

P 10, 000

27, 200

27, 200

13, 600

P68, 000

P 41, 200

P 31, 200

P 37, 600

P 110, 000

How much is the total profit share of each partner? Pierce P 41, 200 Allen P 31, 200 Rondo P 37, 600

4-7 Anton, Barkley and Charles, partners of ABC Enterprises, have agreed on a profit and loss ratio of 3:3:4, respectively. On December 31, 2019, the partnership books showed the following capital balances: Anton – P 450,000; Barkley – P 540,000; Charles – P 900,000 On January 1, 2020, Derek was admitted as a new partner under the following terms and conditions: a.

Derek will share ¼ in the profit and loss ratio, while the ratio of the original partners will remain proportionately the same as before Derek’s admission.

b.

Derek will purchase 1/6 of Barkley’s interest paying him P 75,000.

c.

Derek will contribute P 450,000 in cash to the partnership.

d.

Total partnership capital after Derek’s admission will be P 2,400,000 of which Derek’s capital interest will be P 480,000.

Instructions:

1.

Using the format below, prepare a schedule showing the capital of each partner before and after the admission of Derek. Anton

Barkley

Charles

Derek

Total

P 450,000

P 540,000

P 900,000

-

P 1,890,000

Capital balances before the admission of Derek Interest Purchased

1/6

Capital Transferred to Derek

P 90, 000

P 90, 000

P 90, 000

Derek Cash Contribution

P 450, 000 P 450, 000

Bonus to Derek

P150, 000

AR Capital Balances After

(27, 000)

(27, 000)

(36, 000)

P423, 000

P423, 000

P864, 000 P690,000 P2,400,000

Admission of Derek

ANTON= 90, 000 x 0.3 = P27, 000 BARKLEY= 90, 000 x 0.3 = P27, 000 CHARLES= 90, 000 x 0.4 = P36, 000

OLD PARTNERS NEW PARTNER TOTAL:

INTEREST PURCHASED AC CC AR (+-) ¾ P 1, 800, 000 < P 1, 890, 000 (90, 000) ¼ 600, 000 > 450, 000 150, 000 -------------------------------------------------------------------------------------------P 2, 400, 000 > P 2, 340, 000

2. What is the profit and loss ratio of all the partners after Derek’s admission? OP ¾ OR 75% NP ¼ OR 25% + 1/6 = 28. 75% ANTON BARKLEY CHARLES DEREK

P150, 000

75% x 30% = 22.5% 75%v x 30% = 22.5% x 1/6 = 3.75% - 22.5% = 18. 75% 75% x 40% = 30% 28.75%

(90, 000)

4-8

The CFM Partnership shows the following profit and loss ratios and capital balances: Carter – 60% P 252,000;

Fisher – 30% P 126,000;

Malone – P 10% P 42,000

The partners decide to sell Shaq 20% of their respective capital and profit and loss interests for a total payment P 90,000. Shaq will pay the money directly to the partners. 1. If the partners agree that asset revaluation is to be recorded prior to the admission of Shaq, what are the capital balances of the partners after Shaq’s admission?

NEW PARTNERSHIP OLD PARTNERSHIP ASSET REVALUATION

P450, 000 420, 000 P 30, 000 (POSITIVE)

Capital Balance before Revaluation Shared in Asset Revaluation Capital Balance after Revaluation Interest Purchased Capital Transferred to Shaq

CARTER P 252, 000 18, 000 P 270, 000 20% P 54, 000

FISHER 126, 000 9, 000 135, 000 20% 27, 000

MALONE 42, 000 3, 000 45, 000 20% 9, 000

TOTAL P 420, 000 P 30, 000 P 450, 000 20% P 90, 000

Capital Balance After Revaluation Capital Transferred to Shaq Capital Balance after Admission

P 270, 000 54, 000 P216, 000

135, 000 27, 000 108, 000

45, 000 9, 000 36, 000

P450, 000 P 90, 000 P360, 000

Carter P216, 000 Fisher P108, 000 Malone P36, 000

Shaq P 90, 000

4-9 On January 1, 2020, Kevin Garnett and Steve Nash have capital balances of P 174,600 and P 110,400, respectively. On this date, Karl Malone is admitted as a partner upon his investment of P 120,000 in the firm. Kevin and Steve, sharing profits and losses in the ratio of 65:35, gave a bonus to Karl so that Karl may have a 40% interest in the firm.

OP NP TOTAL

INTEREST PURCHASED 60% 40%

AC 243, 000 162, 000 P 405, 000

CC (42, 000) 42, 000 =

BONUS TO BE DIVIDED TO THE P/L OF OP – 65:35 KEVIN: 42, 000 x 65% = P 27, 300 STEVE: 42, 000 x 35% = P 14, 700 DEDUCTION ON STEVE CAPITAL BALANCE

285, 000 120, 000 P 405, 000

4-10 Jason and Kidd are partners who share profits and losses in the ratio of 3:1, respectively. On August 1, 2020, their capital balances were: Jason – P 200,000 and Kidd – P 100,000. On this date, Scottie invests 80,000 in the firm and is given a capital credit of P 50,000 which is to be 1/8 of the capital of the new partnership. AGREED CAPITAL: 50, 000/ 1/8 = P 400, 000 TOTAL CAPITAL: 200, 000 + 100, 000 + 50, 000 = P 350, 000 BONUS TO OLD PARTNERS: 400, 000 – 350, 000 = P 50, 000 BONUS TO OLD PARTNERS: JASON: 50, 000 x (3/4) = P37, 500 +200,000 AFTER ADMISSION = P 237, 500 KIDD: 50, 000 x (1/4) = P12, 500 +100, 000 AFTER ADMISSION = P 112, 500 SCOTTIE: = P 50, 000

1.

What is the agreed capital of the new partnership? P 400, 000

2.

What is the new capital balance of Jason after the admission of Scottie? P 237, 500

4-11 Terence and Romeo are partners who share profits and losses 60% and 40%, respectively. Their capital accounts on July 1, 2020 were as follows: Terence – P 280,000; Romeo – P240,000. On this date, they agree to admit Arwind as a new partner. 1.

If Arwind purchased ¼ of the equity of Terence for P 100,000, how much would be the total partnership capital after Arwind’s admission?

280, 000 x ¼ = 70, 000 Terrence ( 280, 000 – 70, 000 ) = P 210, 000 Romeo = P 240, 000 Arwind = P 70, 000 TOTAL PARTNERSHIP CAPITAL = P 520, 000

2.

If Arwind invested P 180,000 for a ¼ interest in the firm and that the assets of the partnership are fairly valued, what would be the capital of Terence after Arwind’s admission? 180, 000/ ¼ = P 720, 000

OP NP TOTAL

INTEREST PURCHASED ¾ ¼

TERRENCE: 20, 000x.60 = P 12, 000 ROMEO: 20, 000x.40 = P 8, 000 3.

AC 540, 000 180, 000 720, 000

CC 20, 000 = >

520, 000 180, 000 700, 000

TOTAL CAPITAL OF TERRENCE: 280, 000+12, 000 = P 292, 000

If Arwind invested P 130,000 for a 25% interest in the firm and that the assets of the partnership are fairly valued, what would be the capital of Romeo after the admission of Arwind? 130, 000/ 25% = P520, 000

OP NP TOTAL

INTEREST PURCHASED ¾ ¼

TERRENCE: 130, 000 x .60 = (78, 000) ROMEO: 130, 000 x .40 = (52, 000)

4.

AC 390, 000 130, 000 520, 000

CC (130, 000) = <

520, 000 130, 000 650, 000

CAPITAL OF ROMEO: 240, 000 – 52, 000 = P 188, 000 AFTER ADMISSION OF ARWIND

If Arwind purchased 25% of the respective capital and profits and losses of Terence and Romeo for P 150,000, how much is the share of Terence in the asset adjustment?

150, 000/ 25% = P600, 000

OP NP TOTAL

INTEREST PURCHASED ¾ ¼

TERRENCE: 70, 000 x .60 = (42, 000) ROMEO: 70, 000 x .40 = (28, 000)

AC 450, 000 150, 000 600, 000

CC (70, 000) = <

SHARE OF TERRENCE: P 42, 000 IN THE ASSET ADJUSTMENT

520, 000 150, 000 670, 000...