MOdule 11- FAR Answeres PDF

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Block : BSAcc-1AUNIT 11: Partnership FormationValuation of contributions of partners. Mr. A and Ms. B agreed to form a partnership. The contributions of the partners are as follows: Mr. A Ms. B Cash 20,000 30, Inventory 20, Building 40, Furniture and fixtures 40,The building has a fair value of P60,...

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Block: BSAcc-1A UNIT 11: Partnership Formation Valuation of contributions of partners. 1. Mr. A and Ms. B agreed to form a partnership. The contributions of the partners are as follows: Mr. A 20,000

Cash Inventory Building Furniture and fixtures

Ms. B 30,000 20,000 40,000

40,000

The building has a fair value of P60,000 and is subject to a mortgage of P10,000, which the partnership has assumed. The partnership agreement also specified that profits and losses are to be distributed evenly. Requirement: Provide the entry to record the contributions of the partners in the partnership books. Mr. A Cash Inventory Building Furniture and fixture Mortgage TOTAL

Ms. B 20 000

Partnership 30 000 20 000 60 000

50 000 20 000 60 000 40 000 (10 000) 160 000

40 000 60 000

(10 000) 100 000

Journal Entry:

Date

Account Titles

Debit

Cash Inventory Building Furniture and Fixture Mortgage Payables Mr.A, Capital Ms. B, CApital

50 000 20 000 60 000 40 000

Credit

10 000 60 000 100 000

Bonus method 2. A and B agreed to form a partnership. A contributed cash of P600,000, while B contributed equipment costing but with fair value of P500,000. The partners agreed that since B will be bringing his expertise and experience into the business, A and B shall have a 40:60 interest, respectively. Their initial capital credits shall reflect this agreement. Requirement: Provide the journal entry to record the initial investments of the partners.

A Cash Inventories

B

600 00 500 00

Actual Contributions

Bonus Method

600 000 (1 100 000 x 40%) 500 000 (1 100 000 x 60%) 1 100 000

A B TOTAL

440 000 660 000 1 100 000

JOURNAL ENTRY:

Date

Account Titles Cash Inventories A, Capital B, Capital

DEBIT

CREDIT

600 000 500 000 440 000 660 000

Bonus given to A , 600 000 – 440 000 = 160 000

Variations to Bonus Method A, B and C formed a partnership. Their contributions are as follows: A B C Cash 500,000 200,000 100,000 Accounts 900,000 Inventories 1,000,000 Equipment 2,800,000 Totals 1,400,000 3,000,000 1,100,000 Additional information:  Only P700,000 of the accounts receivable are deemed collectible.  The inventories have a net realizable value of P900,000  The equipment has a fair value of P2,000,000 and an unpaid mortgage of P800,000, which the partnership assumes on repaying. Case 1: Cash settlements among partners 3. The partners agreed to equalize their interests. Cash settlements among the partners are to be made outside the partnership. Requirements: a. Which partner shall pay another partner in order to effect the equalization of the partners' interests? b. Provide the entry to record the contributions of the partners.

Cash Account Receivable Inventories Equipment Mortgage Payable Net Contribution Equal Interest

A 500 000 700 000

B 200 000

1 200 000 1 200 000

2 000 000 (800 000) 1 400 000 1 200 000

-

200 000

C PARTNERSHIP 100 000 800 000 700 000 900 000 900 000 2 000 000 (800 000) 1 000 000 3 600 000 1 200 000

(3.1M/ 3)

Cash Receipt

(200 000)

a. B shall receive P 333 333.33 from A and P 33 333.33 from C b. JOURNAL ENTRY Date

Account Titles Cash Account Receivable Inventories Equipment Mortgage Payable A capital B Capital C Capital

DEBIT 800 000 700 000 900 000 2 000 000

CREDIT

800 000 1 200 000 1 200 000 1 200 000

Case 2: Additional investment/ Withdrawal of investment 1. The partners agreed to equalize their interests. Partners shall provide additional investments or withdraw part of their investments in order to effect the equalization of interests. Requirement: Which partner should provide additional investment (or withdraw part of his investment) in order to bring the partners’ capital credits equal to their respective interest in the equity of the partnership?

Actual contributions Required capital balance Additional (withdrawal)

Actual contributions Required capital balance Additional (withdrawal)

A

B

C

1 400 000 1833 333.33 (433 333) Additional investment

3 000 000 1 833 333.33 1 166 666.67 Additional withdrawal

1 100 000 1 833 333.33 (733 333.33) Additional investment

A 1 200 000 1 200 000 -

B 1 400 000 1 200 000 2000 000

C 1 000 000 1 200 000 (200 000)

Additional withdrawal

Additional investment

TRUE OR FALSE 1. You and I formed a partnership. You contributed P100 cash, while I contributed a stapler which I bought 10 years ago for Pl,000. If we sell the stapler currently, we would probably sell it for only P2. My capital account should be credited for Pl,000. 2. The assets contributed to (and related liabilities assumed by) the partnership are -measured in the partnership books at carrying amount or cost to the contributing partner. 3. Mr. A contributed equipment with historical cost of P1,000,000 and fair value of P800,000 to a partnership. If no bonus is given to any partner, Mr. A's capital account will be credited for P800,000. 4. A bonus exists when the capital account of a partner is credited for an amount greater than or less than the total fair value of his net contributions. 5. A bonus given to a partner is treated as an adjustment to the capital accounts of the other partners. Use the following information for the next two questions: You and I formed a partnership. We both contributed P100 cash. However, we agreed that because you have special skills which you will be bringing into the partnership, you should receive an initial capital credit of P140. 6. Your bonus is P140. 7. After recording our contributions, my equity account in the partnership books would have a balance of P60. Use the following information for the next four questions: You and I formed a partnership. You contributed P150 cash while I contributed a machine with fair value of P50. We agreed that we should have equal interests in the partnership. Our initial capital credits should reflect this agreement. No bonus shall be given to any of us. 8. If we agreed that the initial partnership capital should remain at P200, you should pay me 950. 9. Continuing #8 above, your initial capital credit would be P100 instead of P150. 10. If we agreed that the initial partnership capital should be P300, I should provide additional cash of P100 to the business. ANSWERS: 1. 2. 3. 4. 5.

F F T T F

6. 7. 8. 9. 10.

F T F F T

PROBLEMS: 1. On January 1, 2020, Mr. A and Ms. B formed a partnership. Mr. A contributed cash of ₱ 500,000 while Ms. B contributed a building with carrying amount of ₱400,000 and fair value of ₱ 800,000. The building has an unpaid mortgage of ₱200,000 which is not assumed by the partnership. Requirement: Provide the journal entry to record the contributions of the partners. A B C Cash 500 000 500 000 Building (at pair 800 000 800 000 value) Total 500 000 800 000 1 300 000 A, Capital 500 000 B, Capital 800 000 Total 500 000 800 000 1 300 000 JOURNAL ENTRY: Date ACCOUNT TITLE Cash Building A, Capital B, Capital

DEBIT 500 000 800 000

CREDIT

500 000 800 000

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

Cash Accounts receivable Building Total A, capital B, capital Total

A 500,000 100,000 600,000 600,000 600,000

B 700,000 700,000 700,000 700,000

Additional information:  The accounts receivable includes a ₱ 20,000 account that is deemed uncollectible.  The building is over-depreciated by ₱50,000.  The building has an unpaid mortgage ₱ 100,000, which is assumed by the partnership. Requirement: Provide the journal entry to record the contributions of the partners in the partnership books.

A Cash Account Receivable

B

500 000 (100 000- 20 000) 80 000

Building Mortgage Payable TOTAL A, Capital B, Capital TOTAL Date

PARTRNERSHIP 500 000 80 000

580 000 580 000

(100 000) 1 230 000

650 000 650 000

1 230 000

580 000

Account Titles Cash Account Receivable Building Mortgage Capital A, Capital B, Capital

750 000

(700 000 + 50 000) 750 000 (100 000) 650 000

DEBIT

CREDIT 500 000 80 000 750 000 100 000 580 000 650 000

3. A and B agreed to form a partnership. A contributed ₱ 40,000 cash while B contributed equipment with fair value of ₱ 100,000. However due to the expertise that A will be bringing to the partnership, the partners agreed that they should initially have a 60:40 in the partnership capital. Requirement: Provide the journal entry to record the initial investments of the partners. A Cash Equipment TOTAL

A B TOTAL

B 40 000 40 000

100 000 100 000

Actual Contributions 40 000 (140 000 x 60%) 100 000 (140 000 x 40%) 140 000

PARTRNERSHIP 40 000 100 000 140 000 Bonus Method 84 000 56 000 140 000

JOURNAL ENTRY: Date

Account Title Cash Equipment A, Capital B, Capital

DEBIT 40 000 100 000

CREDIT

84 000 56 000

MODULE XII TITLE: PARTNERSHIP OPERATIONS Application: Division of profits and losses A and B formed a partnership. The partnership agreement stipulates the following:  Annual salary allowance of P100,000 for A, the managing partner.  10% bonus to A after salaries but before deduction for the bonus.  The partners share in profits and losses equally. Case 1: With profit The partnership earned profit of P 1,000,000 before salary allowance. Requirements: a. Compute for the respective shares of the partners in the profit. A

B

TOTAL P 1 000 000

100 000 90 000

-

100 000 90 000

405 000

405 000

810 000

595 000

405 000

1 000 000

Amount being allocated: Allocation: 1. Salary of A 2. Bonus to A 3. Allocation of remaining profit ( 1M- 100K-90K) = 810 000 810K x 50% (50:50) As allocated:

b. Prepare the journal entry to close the Income summary account to the partners' respective equity accounts. DATE Income Summary A, Capital B, Capital

Case 2: With loss

Dr 1 000 000

Cr 595 000 405 000

The partnership incurred a loss of P80,000 before salary allowance. Requirements: a. Compute for the respective shares of the partners in the loss. A B Amount being allocated: Allocation: 1. Salaries 2. Bonus 3. Allocation of remaining profit

100 000 -

-

(90 000)

(90 000)

10 000

(90 000)

TOTAL (P 80 000)

100 000 -

(180 000)

( -80k-100k) = (180k) (-180k x 50%) (50:50) As allocated:

(80 000)

b. Provide the journal entry to close the Income summary account to the partners' respective equity accounts. DATE B, Capital A, Capital Income Summary

Dr 90 000

Cr 10 000 80 000

Case 3: Interest on capital A and B formed a partnership. The partnership- agreement stipulates the following:  Annual salary allowance of P100,000 for A, the managing partner.  10% bonus to A after salaries but before deductions for bonus and interest.  12% interest on the weighted average capital balance of B.  The partners share in profits and losses equally. The partnership earned profit of P1,000,000. The movements in B's capital account are as follows:

B, Capital 200,000 July 31, With.

500,000 Beg. 100,000 April 1 Add. 400,000 Sept.1 Add. 300,000 Dec. 1 Add

1,100,000 Requirement: Compute for the respective shares of the partners in the profit.

BALANCES

Beg. Balance April 1, investment July 31, withdrawal Sept. 1, investment Dec. 1, investment

Mos. Outstanding TOTAL MONTHS

500 000 100 000 (200 000) 400 000 300 000

12/12 9/12 5/12 4/12 1/12

Weighted ave. capital bal.

Multiply by: Interest rate Interest on weighted average capital balance

2. Bonus

500 000 75 000 (83 333.33) 133 333.33 25 000 650 000 12% 78 000

A

B

100 000 90 000

78 000

100 000 90 000 78 000

366 000

366 000

732 000

556 000

444 000

1 000 000

Amount being allocated: Allocations: 1. Salary

Weighted average

TOTAL P 1 000 000

3. Interest weighted Ave. Cap 4. Allocation of remaining profit ( 1M- 100K-90K) = 810 000 810K x 50% (50:50) As allocated:

MULTIPLE CHOICE 1. The partners share in partnership profits or losses in accordance with their partnership agreement. If there is no stipulation on how the partners should share in the profits or losses of the partnership, a. they should share equally. b. they should let one of the partners decide unilaterally on how the profits should be divided among the partners. c their respective shares would be in proportion to their contributions. d.they should not share at all but donate their profits to the world. 2

A and B formed a partnership. The partnership agreement stipulates the following:  Annual salary allowances of P80,000 for A and for B.  partners share in profits and losses equally.

Partnership earned profit of P100,000. How much is the share of B?

a. 70,0000 b. 30,000

c. 48,000 d. 52,000

3. A and B formed a partnership. The partnership agreement stipulates the following:   

Annual salary allowances of P10,000 for A and P40,000 for B. bonus to A of 10% of the profit after partner's salaries but before bonus. The partners share profits and losses on a 60:40 ratio.

During the period the partnership incurred a loss of P20,000 before deduction for salaries. By what amount did B's capital account change? a. Increased by P12,000 b. Decreased by P12,000

c. Increased by P32,000 d. Decreased by P32,000

SOLUTION: A

B

10 000 90 000

40 000 78 000

100 000 90 000 78 000

366 000

366 000

732 000

556 000

444 000

1 000 000

Amount being allocated: Allocations: 1. Salary 2. Bonus

TOTAL (P 20 000)

3. Interest weighted Ave. Cap 4. Allocation of remaining profit ( 1M- 100K-90K) = 810 000 810K x 50% (50:50) As allocated:

4. A and B formed a partnership. The partnership agreement stipulates the following:  Annual salary allowances of P10,000 for A and for B.  Bonus to A of 10% of the profit after partners’ salaries but before bonus and interest.  Interest of 12% on the beginning capital balance of B.  The partners share profits and losses on a 60:40 ratio. During the period the partnership earned profit of before deduction for salaries. B's beginning capital balance was P60,000. How much is the share of A in the profit? a. 101,680 c. 110,820

b, 98,320

d. 96,720

5. A and B formed a partnership. The partnership agreement stipulates the following  First, A shall receive 2% of profit up to and 5% over P200,000.  Second, B shall receive 1% of the remaining profit over  Any remainder shall be shared equally. During the year, the partnership earned profit of P500,000. How much is the share of A in the profit? a. 258,095 c. 241,095 b. 268,885

d. 241,905

6. A, B and C formed a partnership. The partnership agreement stipulates the following:

  

Annual salary allowances of P100,000 for A and P20,000 for B. 10% interest on the beginning capital balance of C. The partners share in profits and losses on a 40:40:20 ratio.

The partnership earned profit of P500,000. C's capital account had a beginning balance of P300,000. The difference between the amounts received by A and B is a. 160,000. c. 80,000. b. 240,000. d. 60,000. A

B

100 000

20 000

C

Amount being allocated: Allocations: 1. Salary

30 000

2. Interest weighted Ave. Cap

TOTAL P 500 000

120 000 30 000

(300k x 10%) 3. Allocation of remaining profit ( 500k-100k-20k30k) =350 000

140 000

140 000

70 000

350 000

( 350K x 40%) ( 350K x 40%) ( 350K x 20%) As allocated: 240 000 160 000 P 240 000 – 160 000= 80 000

100 000

500 000

7.A and B formed a partnership. The partnership agreement stipulates the following:  

Annual salary allowances of P80,000 for A and P40,000 for B. The partners share in profits and losses equally.

The partnership earned profit of P100,000 after salaries. How much is the share of B? a. 70,000 b. 30,000

c. 130,000 d. 90,000 A

B

Amount being allocated: Allocations: 1. Salary 2. Allocation of remaining profit

TOTAL (P 20 000)

80 000

40 000

120 000

(10 000)

(10 000)

(20 000)

70 000

30 000

100 000

( 100k-80k-40k) = (20k) (-20k x 50%) (50:50) As allocated:

8. A and B formed a partnership. The partnership agreement stipulates the following:  Monthly salary allowances of P 10,000 for A and P4,000 for B. The salaries are recognized as expenses.  The partners share equally in profits and losses. The partnership earned profit of P360,000. How much is the share of A? a. 300,000 c. 148,000 b. 228,000 d. 128,000 Profit (after deduction of salaries) Add back: Salaries (120k=48k) Profit before salaries (Amount to be allocated) A Amount being allocated:

360 000 168 000 528 000

B

TOTAL P 528 000

Allocations: 1. Salary 2. Allocation of remaining profit

120 000

48 000

168 000

180 000

180 000

360 000

300 000

228 000

(528k-168k) = 360k (-360k x 50%) (50:50) As allocated:

528 000

9. A and B share equally in partnership profits and losses. During the year, A's capital account has a net increase P50,000. Partner A made contributions of P10,000 and capital withdrawals of P60,000 during the year. How much was the partnership profit for the year? a. 180,000 c. 210,000 b. 200,000 d. 480,000

A, Capital

B, Capital -

Beg.

P 60 000

10. A

P 10 000

Beg.

P 60 000 P 10 000

and B formed a

? ? End. P 50 000 End. P 50 000 partnership. The partnership agreement stipulates the following:  Annual salary allowance of P100,000 for A, the managing partner.  10% bonus to A after salaries but before deduction for the bonus.  The partners share in profits and losses equally. The share of A in the partnership profit during the period was P595,000, including a bonus of P90,000. How much was the share of B? a. 386,000 c. 405,000 b. 398,000 d. 504,000...