Solution Chapter 4 - Advanced financial accounting dayag PDF

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Chapter 4 Problem I 1: Gain on Realization Fully Allocated to Capital Balances. QRS Partnership Statement of Realization and Liquidation November 1 30, 20x4 Balances before liquidation Realization and distribution of gain Balances after realization Payment of liabilities Balances after payment of li...

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Chapter 4 Problem I 1: Gain on Realization Fully Allocated to Partner’s Capital Balances. QRS Partnership Statement of Realization and Liquidation November 1 – 30, 20x4

Balances before liquidation Realization and distribution of gain Balances after realization Payment of liabilities Balances after payment of liabilities Payment to partners loan Balances after payment of partners’ loans Payment to partners capital

Q, Capital 30%)

R, Capital (50%)

S, Capital (20%)

2,400

9,600

48,000

36,000

______ 2,400

3,600 13,200

6,000 54,000

2,400 38,400

108,000

2,400

13,200

54,000

38,400

(2,400)

(2,400)

______

______

_______

13,200 (13,200 )

54,000 (54,000 )

Cash

NonCash Assets

Liabilitie s

24,000

84,000

12,000

_____ 12,000 (12,000 )

96,000 120,000

(84,000 )

(12,000)

Q, Loan

105,600 (105,600 )

38,400 (38,40 0)

2: Loss on Realization Creates a Deficit Balance in Partner’s Capital Account Requiring Transfer from Partner’s Loan Account (Right of Offset Exercised). QRS Partnership Statement of Realization and Liquidation November 1 – 30, 20x4 Cash Balances before liquidation Realization and distribution of loss Balances after realization

24,000

48,000 72,000

Payment of liabilities Balances after payment of liabilities Offset deficit versus loans

(12,000)

Balances after offsetting Payment to partners – loan Balances after payment of partners’ loans Payment to partners capital

60,000

60,000 _______

(1,200) 58,800 (58,800)

NonCash Assets

Liabilitie s

84,000

12,000

(84,000 )

____ _ 12,000 (12,000 )

Q, Loan

Q, capital (30%)

R, Capital (50%)

S, Capital (20%)

2,400

9,600

48,000

36,000

______ 2,400

(10,800 ) (1,200)

(18,000 ) 30,000

(7,200) 28,800

(1,200) 1,200

30,000 _______

28,800 _______

30,000

28,800

_______

______

30,000 (30,000 )

28,800 (28,80 0)

2,400 (1,200) 1,20 0 (1,20 0)

3: Loss on Realization Creates a Deficit Balance in Partner’s Capital Account Requiring Transfer from Partner’s Loan Account (Right of Offset Exercised and Additional Capital Investment is Required and Made). QRS Partnership Statement of Realization and Liquidation November 1 – 30, 20x4

Q, capital (30%)

R, Capital (50%)

S, Capital (20%)

9,600

48,000

36,000

(24,000 )

(9,600)

2,400

(14,400 ) ( 4,800 )

24,000

26,400

________

_______

_______

_______

( 4,800) 2,40 0

24,000

26,400

_______

_______

48,000

(2,400)

24,000

26,400

__2,400

2,400

_______

_______

24,000 (24,000 )

26,40 0 (26,40 0)

Cas h

NonCash Assets

Liabilitie s 12,000

2,400

______ __

________

Q, Loan

Balances before liquidation Realization and distribution of loss

24,000

84,000

36,000

(84,000 )

Balances after realization

60,000

Payment of liabilities Balances after payment of liabilities

(12,000) 48,000

2,400

Offset loan versus deficit – Balances after offsetting partner’s loan Additional investment by Q

_______

(2,400)

Balances after additional Investment Payment to partners capital

12,000 (12,000 )

50,400 (50,400)

4: Loss on Realization Creates a Deficit Balance in One Partner’s Capital Account Requiring Transfer Partner’s Loan Account (Right of Offset Is Exercised) and Additional Investment is Required but not Made (Personally Insolvent). QRS Partnership Statement of Realization and Liquidation November 1 – 30, 20x4 Q, capital (30%)

R, Capital (50%)

S, Capital (20%)

9,600

48,000

36,000

(21,000 )

(8,400)

27,000

27,600

Cash

NonCash Assets

24,000

84,000

12,000

2,400

42,000

(84,000 )

_______

________

12,000 (12,000 )

2,400

(12,600 ) ( 3,000 )

_______

_______

_______

_______

2,400 (2,400)

(3,000) 2,400 ( 600)

27,000 ______ 27,000

27,600 ______ 27,600

600

( 429)

( 171)

26,571 (26,571 )

27,429 (27,42 9)

Balances before liquidation Realization and distribution of gain Balances after realization

66,000

Payment of liabilities Balances after payment of liabilities Offset loan versus deficit Balances after offsetting Additional loss due to insolvency of Q Balances after additional , Loss Payment to partners capital

(12,000)

Liabilitie s

54,000 _______ 54,000

Q, Loan

_______ 54,000 (54,000)

5: Loss on Realization Creates a Deficit Balance in One Partner’s Capital Account Requiring Transfer Partner’s Loan Account (Right of Offset Is Exercised) and Additional Investment is Required but not Made (Personally Insolvent). QRS Partnership Statement of Realization and Liquidation November 1 – 30, 20x4 Cash

NonCash

Liabilitie s

Q, Loan

Q, capital

R, Capital

S, Capital

Assets Balances before liquidation Realization and distribution of gain

24,000

84,000

12,000

2,400

24,000

(84,000 )

_______

_______

Balances after realization

48,000

Payment of liabilities Balances after payment of liabilities

(12,000)

12,000 (12,000 )

36,000

Offset loan versus deficit

______

Balances after offsetting Additional investment by Q Balances after additional investment Additional loss due to insolvency of Q Balances after additional Loss Payment to partners capital

36,000

(30%)

(50%)

(20%)

9,600

48,000

36,000

(30,00 0)

(12,00 0)

2,400

(18,000 ) ( 8,400 )

18,000

24,000

_______

_______

_______

_______

2,400 (2,400 )

( 8,400)

18,000

24,000

2,400 (6,000) ,

______

_______

18,000

24,000

_3,600

______

_______

39,600

_ 3,600 (2,400 )

18,000

24,000

______

2,400

(1,714)

( 686)

16,286 (16,286 )

23,314 (23,31 4)

39,600 (39,600)

6: Loss on Realization Creates a Deficit Balance in Partner’s Capital Account Requiring Transfer Partner’s Loan Account (Right of Offset Is Exercised) and All Partners are Personally Solvent. QRS Partnership Statement of Realization and Liquidation November 1 – 30, 20x4

Balances before liquidation Payment of liquidation expenses Balances after payment of liquidation expenses Write-off goodwill and prepaid expenses Balances after write-offs Realization and distribution of loss Balances after realization Payment of liabilities Balances after payment of Liabilities Offset loan versus deficit Balances after offsetting Additional investment by Q and R Balances after additional Investment

Cash

NonCash Assets

24,000

84,000

12,000

(14,400)

______

________

________

(4,320)

(7,200)

(2,880)

12,000

2,400

_______

84,000 (72,000 )

5,280 (21,600 )

40,800 (36,000 )

33,120 (14,40 0)

9,60 0

12,000

12,000

1,200

(12,000 )

9,60 0

10,800 (10,800) -0______ -017,76 0 17,76 0

Q, capital (30%)

R, Capital (50%)

S, Capital (20%)

2,400

9,600

48,000

36,000

Liabilitie s

Q, Loan

_______

________ 2,400

( 2,160 )

________

_______

________

_______

2,400 (2,400)

(19,560 ) 2,400

( 600) _______

16,560 _______

(17,160 )

( 600)

16,560

17,160

600

______ 16,560

12,000 (10,800 )

2,400

_______

18,720

( 5,400 ) ( 600 )

________

1,200

4,80 0

( 3,240 ) ( 19,560 )

_______

1,200 _______

(16,320 )

16,560

1,200 Payment of liabilities Balances after payment of Liabilities Payment to partners Capital

(1,200) 16,56 0

(1,200)

_______ 16,560 (16,56 0)

(16,560)

7: Loss on Realization Creates a Deficit Balance in Partner’s Capital Account Requiring Transfer Partner’s Loan Account (Right of Offset Is Exercised) with Revaluation of Assets. QRS Partnership Statement of Realization and Liquidation November 1 – 30, 20x4 NonCash Assets

Cash Balances before liquidation Increase in equipment Decrease in furniture Balances after revaluation Refund of prepaid expenses Balances after refunds

24,000 ______ 24,000 _6,960 30,960

Liabilitie s

Q, Loan

Q, capital (30%)

R, Capital (50%)

S, Capital (20%)

48,000 600 (300) 48,300

36,000 240 (120) 36,120

84,000 1,200 (600) 84,600

12,000

2,400

_______ 12,000

______ 2,400

9,600 360 _(180) 9,780

_______ 12,000

______ 2,400

_(432) 9,348

(720) 47,580

(288) 35,832

_______

______

_____

(7,200)

(3,000)

9,34 8

40,380

32,832

( 10,08 0) ( 732 )

( 16,800 )

( 8,064 )

23,580

26,112

_______ ( 732 ) 732

_______

_______

23,580 ______

26,112 ______

23,580

26,112

______

_______

Received noncash assets

______

(8,400) 76,200 (10,200 )

Balances after receipt of noncash assets Realization and distribution of loss

30,96 0

66,000

32,400

(66,000 )

Balances after realization

63,360

Payment of liabilities Balances after payment of liabilities Offset loan versus deficit

(12,000)

12,000

2,400

_______

______

12,000 (12,000 )

2,400 _______

51,360 _______

2,400 ( 732)

Balances after offsetting

51,360

1,668

Payment to partners loan

(1,668)

Balances after payment of loans

49,692

23,580

26,112

(49,692)

(23,580 )

(26,11 2)

Payment to partnerscapitals

(1,668)

Problem II DISCOUNT PARTNERSHIP Schedule of Partnership Liquidation January 14, 20x4 Explanation

Cash

Other Liabilities Assets

Capital Balances Dawso Feeney Hardin n

Balances before realization

P25,000

P120,000

P(40,000

P(31,000

P(9,000) P(65,000

Sales of noncash assets

60,000

Balances

85,000

Payment of liabilities Balances Allocation of Hardin's debit balance Balances

_____ 24,000 (120,000) 18,000 0 (40,000) (13,000) (41,000)

(40,000) 45,000

__________ 0

______ 45,000

40,000 0

__________

________ ________ (13,000) (41,000)

______ 3,857 0 (9,143)

18,000 9,000 ________ 9,000

5,143 (9,000) (35,857) 0

0 Distribution of cash to partners Balances

(45,000) P 0

__________ P 0

P

______ 0

9,143 P 0

35,857 P 0

________ P 0

Problem III 1. CDG Partnership Statement of Realization and Liquidation Lump-sum Liquidation on December 10, 20X6

Cash

Noncash Assets

Preliquidation balances

25,000

475,000

Sale of assets and distribution of P215,000 loss

260,000

(475,000 )

285,000 Cash contributed by Gail to extent of positive net worth

-0-

Liabilitie s (270,00 0)

(270,00 0)

(120,00 0)

43,000 (77,000)

(50,000)

(60,000)

86,000

86,000

36,000

26,000

(25,000) -0-

(270,00 0)

Distribution of deficit of insolvent partner: 20/60(P1,000) 40/60(P1,000)

(77,000)

36,000

1,000

(1,000) 333 667 310,000

-0-

(270,00 0)

(76,667)

36,667 346,667

Payment to creditors

Capital Balances Dan Gail 40% 40%

25,000 310,000

Contribution by Dan to remedy deficit

Carlos 20%

(270,000

36,667

-0-

(36,667) -0-

(270,00 0)

(76,667)

-0-

-0-

) 76,667 Payment to partner

270,000 -0-

-0-

(76,667)

-0-

-0-

(76,667 )

Post-liquidation balances

76,667 -0-

-0-

-

-0-

-0-

-0-

02. CDG Partnership Net Worth of Partners December 10, 20X6 Carlos Personal assets, excluding partnership capital interests Personal liabilities Personal net worth, excluding partnership capital interests, Dec. 1, 20X6 Contribution to partnership Liquidating distribution from partnership Net worth, December 10, 20X6

Dan

Gail

250,000 (230,000)

300,000 (240,000)

350,000 (325,000)

20,000

60,000 (36,667) -023,333

25,000 (25,000) -0-0-

76,667 96,667

This computation assumes that no other events occurred in the 10-day period that changed any of the partners’ personal assets and personal liabilities. In practice, the accountant must be sure that a computation of net worth is current and timely. The table shows the effects of the transactions between the partnership and each partner. A presumption of this table is that the personal creditors of Dan or Gail would not seek court action to block the settlement transactions with the partnership. Upon winding up and liquidation, the partnership does not have any priority to the partner’s personal assets. Thus, the personal creditors may seek to block the transactions with the partnership in order to provide more resources from which they can be paid. A partner who fails to remedy his or her deficit can be sued by the other partners who had to make additional contributions or even by a partnership creditor if the failed partner is liable to the partnership creditor. But those claims are not superior to the other claims to the partner’s individual assets. When accountants provide professional services to partnerships and to its partners, the accountant should expect, at some time, legal suits involving the partnership and/or individual partners. A strong and thorough understanding of the legal and accounting foundations of partnerships will be very important to that accountant. Problem IV Cash Beginning balances Liquidation expense Sale of non-cash assets Payment of liabilities Contribution by Flowers Allocation of Flower's Distribution to partners Ending balances Problem V

P (20,000) 160,000 (165,00 10,00 (10,000) 0

Noncash Assets Liabilitie P200,00

P165,00

(200,00

Capital and Loan Balances Merz Dechter Flowers P P30,000 (8,000) (8,000) (16,000 (16,000

P(10,00 (4,000) (8,000)

(6,000) (10,000 0

10,000 12,000 0 0

(165,00

0

0

(6,000) 0 0

Beginning: Payment of liabilities Cramer/Bower pay in from personal worth to cover deficit balances: Payment of liabilities Allocation of deficit balances: Able paid:

Cash P20,000 (20,000) P 0

Liabilities P(30,000) 20,000 P(10,000)

Able P(10,000)

Bower P5,000

Cramer P15,000

P(10,000)

P5,000

P15,000

12,000 P12,000 (10,000) P 2,000

________ P(10,000) 10,000 P 0

________ P(10,000)

(2,000) P3,000

(10,000) P 5,000

P(10,000)

P3,000

P 5,000

P

________ 0

(3,000) P 0

P

(5,000) 0

P

0

8,000 P (2,000) 2,000 P 0

P

P

0

______ P 2,000 (2,000) P 0

Problem VI Answer: Cash 70,000 Arthur, Capital 6,000 Baker, Capital 15,000 Casey, Capital 9,000 Other Assets To record realization of assets at a loss of $30,000, divided among Arthur, Baker, and Casey in 2:5:3 ratio, respectively. Trade Accounts Payable Cash To record payment of liabilities.

65,000

Arthur, Capital Loan Receivable from Arthur To offset Arthur's loan account against Arthur's capital account.

20,000

Arthur, Capital Loan Payable to Baker Casey, Capital Cash To record payments to partners, computed as follows:

14,000 20,000 1,000

Capital account balances Add: Loan payable to Baker Less: Loan receivable from Arthur Loss on realization of assets, P30,000 Balances Maximum potential additional loss of P150,000 (P250,000 – P100,000 = P150,000) divided in 2:...