Quizzes Chapter-13 FAR PDF

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Chapter 13Partnership DissolutionNAME: Date: Professor: Section: Score:QUIZ:Use the following information for the next three cases: Carrots joins the partnership of Apple and Banana. Before the admission of Carrots,the partnership statement of financial position shows the following information:Cash ...

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Chapter 13 Partnership Dissolution NAME: Professor:

Section:

Date: Score:

QUIZ: Use the following information for the next three cases: Carrots joins the partnership of Apple and Banana. Before the admission of Carrots, the partnership statement of financial position shows the following information: Cash Accounts receivable Inventory Equipment Total assets

30,000 140,000 200,000 500,000 870,000

Accounts payable Apple, Capital (60%) Banana, Capital (40%) Total liabilities and equity

80,000 515,000 275,000 870,000

The following adjustments are determined: a. The recoverable amount of the accounts receivable is ₱120,000. b. The inventory has a net realizable value of ₱160,000. c. The equipment has a fair value of ₱450,000. d. Unrecorded liabilities amount to ₱20,000.

Case #1: Carrots acquires half of Banana’s interest for ₱800,000. Requirements: a. Provide the entry to record the admission of Carrots. b. Determine the balances of the partners’ capital accounts after the admission of Carrots. c. Determine the profit or loss sharing ratio of the partners after the admission of Carrots.

Case #2: Carrots invests ₱165,000 cash to the partnership in exchange for a 20% interest. Requirements: a. Provide the journal entry to record the admission of Carrots. b. Compute for the capital balances of the partners following the admission of Carrots. c. Determine the profit or loss sharing ratio of the partners after the admission of Carrots.

Case #3: If Carrots is to invest sufficient cash to obtain 2/5 interest in the partnership, how much should Carrots contribute to the new partnership? “The name of the Lord is a strong tower; the righteous run to it and are safe.” (Proverbs 18:10)

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SOLUTIONS: CASE #1 Requirement (a): The capital balances of the existing partners are adjusted as follows: Carrying Increase Fair values (Decrease) amts. Cash 30,000 30,000 Accounts receivable 140,000 120,000 (20,000) Inventory 200,000 160,000 (40,000) Equipment 500,000 450,000 (50,000) Accounts payable (80,000) (80,000) Accrued liabilities (20,000) (20,000) Net assets 790,000 660,000 (130,000) Unadjusted Apple, Capital (60%)

515,000

Banana, Capital (40%)

275,000

Adjustment -130K x 60% = -78K -130K x 40% = -52K

Adjusted 437,000 223,000 660,000

790,000 Date

B, Capital (223,00 x 1/2) C, Capital (223,00 x 1/2) to record the admission of C to the partnership

111,500 111,500

Requirement (b):

A, Capital B, Capital C, Capital

Before admission 437,000 223,000 660,000

Admission of C (111,500) 111,500 -

After admission 437,000 111,500 111,500 660,000

Requirement (c): Partner A B C

Before admission 60% 40%

Admission of C -20% 20%

100%

2

After admission 60% 20% 20% 100%

CASE #2 Solutions: Requirement (a): The fair value of the 20% interest acquired by C is computed as follows: Adjusted net assets before admission of C Divide by: Interest of old partners (100% - 20%) Grossed-up fair value Multiply by: Interest of C Fair value of C's interest

Date

Cash C, Capital to record the admission of C to the partnership

660,000 80% 825,000 20% 165,000

165,000 165,000

Requirement (b): Before admission 437,000 223,000 660,000

A, Capital B, Capital C, Capital

Admission of C

165,000 165,000

After admission 437,000 223,000 165,000 825,000

Requirement (c): Partner

Before admission

A

60%

B C

40%

Admission of C (100% - 20%) x 60% (100% - 20%) x 40% 20%

100%

CASE #3: Solution: Adjusted net assets Divide by: Existing partners' interest Total net assets after investment by Carrots Multiply by: Carrots’ interest Amt. of contribution by Carrots

3

After admission 48% 32% 20% 100%

660,000 3/5 1,100,000 2/5 440,000...