Solution Manual Special Transactions by Millan 2020 edition PDF

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Chapter 1Partnership FormationPROBLEM 1: TRUE OR FALSE1. TRUE 6. TRUE2. TRUE 7. FALSE 1,3. TRUE 8. TRUE (1,000 + 1,000) x 70%4. FALSE 700 9. TRUE5. FALSE 10. FALSEPROBLEM 2: FOR CLASSROOM DISCUSSION1. A2. D Solution: Requirement (a):Mr. A Ms. B TotalsCash 28,000 62,000 90,Accounts receivable 180,000...

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Chapter 1 Partnership Formation PROBLEM 1: TRUE OR FALSE 6. 1. TRUE 2. TRUE 7. 8. 3. TRUE 4. FALSE 700 9. 10. 5. FALSE

TRUE FALSE 1,000 TRUE (1,000 + 1,000) x 70% TRUE FALSE

PROBLEM 2: FOR CLASSROOM DISCUSSION 1.

A

2.

D

3. Solution: Requirement (a): Mr. A 28,000 180,000 114,000 600,000

Cash Accounts receivable Inventories Land Building Furniture & fixtures Intangible assets Total assets

Ms. B 62,000 560,000 193,000

Totals

50,000

500,000 35,000

90,000 740,000 307,000 600,000 500,000 85,000

972,000

1,350,000

2,322,000

Accounts payable Other liabilities Total liabilities

180,000 200,000 380,000

250,000 350,000 600,000

430,000 550,000 980,000

Adjusted capital balances

592,000

750,000

1,342,000

1

Requirement (b):

Cash 90,000 Accounts receivable 740,000 Inventories 307,000 Land 600,000 Building 500,000 Furniture & fixtures 85,000 Accounts payable Other liabilities A, Capital B, Capital

430,000 550,000 592,000 750,000

4. Solution: Cash A, Capital (184,000 ÷ 2) B, Capital (184,000 ÷ 2)

92,000 92,000

5. Solution: Cash A, Capital (184,000 ÷ 2) B, Capital (184,000 ÷ 2)

184,000

184,000 92,000 92,000

The cash settlement among the partners is not recorded in the partnership’s books because this is not a transaction of the partnership but rather a transaction among the partners themselves.

6.

Answer: None. The PFRSs permit the recognition of goodwill only when it arises from a business combination.

2

PROBLEM 3: EXERCISES 1.

Solution: Mr. A 20,000

Cash Inventory Building Furniture & equipment Mortgage payable Adjusted capital balances

Ms. B 30,000 15,000 40,000

15,000 35,000

(10,000) 75,000

2. Solutions: Requirement (a): Mr. Ann 50,000 300,000 216,000 1,080,000

Cash Accounts receivable Inventories Land Building Equipment Total assets

90,000 1,736,000

Accounts payable Mortgage payable Total liabilities Adjusted capital balances

Ms. Buoy 120,000 760,000 340,000 900,000 130,000 2,250,000 450,000

436,000 180,000 616,000

450,000

886,000 180,000 1,066,000

1,120,000

1,800,000

2,920,000

Requirement (b):

Cash 170,000 Accounts receivable 1,060,000 Inventories 556,000 Land 1,080,000 Building 900,000 Equipment 220,000 Accounts payable Mortgage payable Ann, Capital Buoy, Capital

886,000 180,000 1,120,000 1,800,000

3

Totals 170,000 1,060,000 556,000 1,080,000 900,000 220,000 3,986,000

3.  

Solution: Mr. Angot, Capital = 18,000, the sale of the land on partnership agreement date provides information on the land’s fair value on that date. M. Banglo, Capital = 40,000 cash contribution.

4.

Solution: A 500,000

Cash Land Equipment Mortgage payable Adjusted capital balances

B

C

800,000 550,000 500,000

(350,000) 450,000

550,000

PROBLEM 4: CLASSROOM ACTIVITY Solutions: Requirement (a): Partner 1 281,250 430,000 1,500,000 1,400,000 3,611,250

Cash Accounts receivable Land Building Total assets

330,000

Partner 2 1,800,000 800,000

2,600,000 400,000 375,657

Totals 2,081,250 1,230,000 1,500,000 1,400,000 6,211,250

Accounts payable Notes payable Provision for probable loss Real property tax payable Total assets

300,000 40,000 670,000

775,657

730,000 375,657 300,000 40,000 1,445,657

Adjusted capital balances

2,941,250

1,824,343

4,765,593

Requirement (b):

Cash 2,081,250 Accounts receivable 1,230,000 Land 1,500,000 Building 1,400,000 Accounts payable Notes payable Provision for probable loss 4

730,000 375,657 300,000

Real property tax payable Partner 1, Capital Partner 2, Capital

40,000 2,941,250 1,824,343

Variation #1: Solutions: Requirement (a) and (b): Total net asset contributions Divide by: Equal credits to capital accounts

4,765,593 2 2,382,796 Partner 1 2,382,796 2,941,250 (558,454)

Equal credits to capital accounts Fair value of net asset contribution Bonus

Partner 2 2,382,796 1,824,343 558,454

Answers: Partner 2 receives a bonus of ₱558,454. Requirement (c): The bonus is treated as an adjustment to the equity accounts of the partners. Partner 1’s capital shall be decreased while Partner 2’s capital shall be increased by the ₱558,454 bonus.

Requirement (d):

Cash 2,081,250 Accounts receivable 1,230,000 Land 1,500,000 Building 1,400,000 Accounts payable Notes payable Provision for probable loss Real property tax payable Partner 1, Capital Partner 2, Capital

730,000 375,657 300,000 40,000 2,382,796 2,382,796

Variation #2: Solutions: Requirement (a): Total net asset contributions Divide by: Equal credits to capital accounts

4,765,593 2 2,382,796

5

Partner 1 Equal credits to capital accounts Fair value of net asset contribution

Partner 2 2,382,796 1,824,343 558,454

2,382,796 2,941,250 (558,454)

(Receipt) Payment

Answer: Partner 1 shall receive cash of ₱558,454 from Partner 2. Requirement (b): The cash receipt and cash payment are not recorded in the partnership books. Requirement (c):

Cash 2,081,250 Accounts receivable 1,230,000 Land 1,500,000 Building 1,400,000 Accounts payable Notes payable Provision for probable loss Real property tax payable Partner 1, Capital Partner 2, Capital

730,000 375,657 300,000 40,000 2,382,796 2,382,796

Variation #3: Solutions: Requirements (a) and (b): Total net asset contributions Divide by: Equal credits to capital accounts

4,765,593 2 2,382,796

Using first Partner 1’s capital, let us determine if Partner 2’s capital contribution has any deficiency. Partner 1, Capital Divide by: Partner 1’s equity interest Total Multiply by: Partner 2's interest Minimum capital required of Partner 2 Partner 2's capital 6

2,941,250 50% 5,882,500 50% 2,941,250 1,824,343

Deficiency on Partner 2's capital contribution

1,116,907

Answer: Partner 2 should provide additional cash contribution of ₱1,116,907 to make his contribution proportionate to his/her interest. Using Partner 2’s capital, let us determine if Partner 1’s capital contribution has any deficiency. Partner 2, Capital 1,824,343 Divide by: Partner 2’s equity interest 50% Total Multiply by: Partner 1's interest Minimum capital required of Partner 1 Partner 1's capital Deficiency on Partner 1's capital contribution

3,648,685 50% 1,824,343 2,941,250 -

Conclusion: Partner 1’s contribution is not deficient. Variation #4: Solution: Total net asset contributions Divide by: Equal credits to capital accounts

4,765,593 2 2,382,796

Equal credits to capital accounts Fair value of net asset contribution (Withdrawal) Additional investment

Partner 1 2,382,796 2,941,250 (558,454)

Partner 2 2,382,796 1,824,343 558,454

Answer: Partner 1 shall withdraw ₱558,454 while Partner 2 shall make an additional investment of ₱558,454.

7

PROBLEM 5: MULTIPLE CHOICE - THEORY 1. A 2.

A

3.

A

4.

A

5.

A

6.

C

7.

B

8.

D

9.

C

10.

D

PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL 1. B (20K + 15K) = 35,000; (30K + 15K + 40K – 10K) = 75,000 2. C Algee = 50K; Beldger 80K – 35K = 45K; Ceda = 55K 3. B AAA 50K; BBB 80K-35= 45K; CCC = 55K 4. C XX 75K; YY 68K; ZZ 82.5K 5. D No goodwill (‘unidentifiable asset’) is recognized under the bonus approach 6. 7. 8.

A (100,000 + 200,000) = 300,000 C (100,000 + 200,000) x 20% = 60,000 B Cash 200,000 B, capital (300,000 x 20%) A, capital (squeeze)

60,000 140,000

9. D Solution: A 50,000

B 40,000 150,000

50,000 120,000 Equal interest (210 ÷ 3) Cash receipt (payment) (70,000)

190,000 120,000 70,000

Cash Equipment Loan payable (40K x ½)

10. C Solution: Agreed initial capital

C Partnership 140,000 230,000 150,000 (20,000) (20,000) 120,000 360,000 120,000 360,000 -

300,000 8

A's required capital balance (300K x 25%) B's required capital balance (300K x 75%)

Actual contributions Required capital balance Additional (Withdrawal)

A 100,000 75,000 (25,000)

9

75,000 225,000 B 200,000 225,000 25,000

Totals 300,000 300,000 -

Chapter 2 Partnership Operations

PROBLEM 1: TRUE OR FALSE 1. 2.

FALSE TRUE

3. 4. 5.

TRUE TRUE FALSE (10 – 2) x 50% = 4

6.

TRUE (20 x 10%) + (20 x

7. 8.

FALSE (20 X 50%) = 10 FALSE [50 + (100 – 50 –

90% x 50%) = 11

30) x 50%]

9. 10.

FALSE TRUE

PROBLEM 2: FOR CLASSROOM DISCUSSION 1.

C

2.

C

3.

D

4.

D

5.

D

6.

Solutions:

Case #1: A Amount being allocated Allocation: 1. Salaries 2. Bonus (100K - 20K) x 10% 3. Interest on cap.

B

C

Total 100,000

12,000 8,000

(100K x 10%);(60K x 10%);(120K x 10%) 10,000

8,000

20,000 8,000

6,000

12,000

28,000

4. Allocation of remainder: (100K - 20K - 8K - 28K) = 44K; (44K x 40%); (44K x 30%); (44K x 30%)

17,600

13,200

13,200

44,000

As allocated

47,600

19,200

33,200

100,000

1

Case #2: A Amount being allocated Allocation: 1. Salaries 2. Bonus (N/A) 2. Interest on cap.

B

C

Total 10,000

12,000 -

(100K x 10%);(60K x 10%);(120K x 10%)

10,000

6,000

8,000

20,000 -

12,000

28,000

3. Allocation of remainder (10K - 20K - 28K) = -38K (-38K x 40%); (- 38K x 30%); (-38K x 30%) (15,200) (11,400)

As allocated

6,800

(5,400)

A

B

(11,400) (38,000) 8,600

10,000

Case #3: Amount being allocated Allocation: 1. Salaries 2. Bonus (N/A) 2. Interest on cap.

C

Total (20,000)

12,000 -

(100K x 10%);(60K x 10%);(120K x 10%)

10,000

6,000

8,000

20,000 -

12,000

28,000

3. Allocation of remainder (-20K - 20K - 28K) = -68K (-68K x 40%); (-68K x 30%); (-68K x 30%) (27,200) (20,400)

As allocated

7. Solution: Balance, Jan. 1, 20x1 Additional investment, July 1 Withdrawal, August 1

(5,200)

252,000 72,000 (27,000)

Weighted average capital

(14 ,400)

12/12 6/12 5/12

(20,400) (68,000) (400)

(20,000)

252,000 36,000 (11,250) 276,750

Multiply by:

10%

Interest

27,675

2

PROBLEM 3: EXERCISES 1.

Solutions:

Case #1: A Amount being allocated Allocation: 1. Bonus (10% x 100,000) 2. Interest on cap.

B

C

Total 100,000

10,000

(80K x 6%); (50K x 6%); (30K x 6%)

10,000

4,800

3,000

1,800

9,600

26,800 41,600

26,800 29,800

26,800 28,600

80,400 100,000

A

B

C

Total

3. Allocation of remainder (100K - 10K - 9.6K) = 80.4K ÷ 3

As allocated

Case #2: Amount being allocated

(20,000)

Allocation: 1. Bonus (none) 2. Interest on cap.

-

(80K x 6%); (50K x 6%); (30K x 6%)

-

4,800

3,000

1,800

9,600

(9,867) (5,067)

(9,867) (6,867)

(9,867) (8,067)

(29,600) (20,000)

3. Allocation of remainder (-20K - 9.6K) = -29.6K ÷ 3

As allocated

2. Solution: Balance, Mar. 1, 20x1 Additional investment, June 1 Withdrawal, Sept. 1 (15K - 10K) Weighted average capital Multiply by: Interest on capital

50,000 20,000 (5,000)

10/12 7/12 4/12

41,666.67 11,666.67 (1,666.67) 51,667 12% 6,200

3. Solutions: Case #1: Partner A: Balance, Jan. 1, 20x1 Withdrawal, May 1 Additional investment, Aug. 1 Withdrawal, Oct. 1

120,000 (20,000) 10,000 (10,000)

3

12/12 8/12 5/12 3/12

120,000 (13,333) 4,167 (2,500)

Weighted Ave. Capital Partner B: Balance, Jan. 1, 20x1 Withdrawal, May 1 Additional investment, July 1 Withdrawal, Oct. 1 Weighted Ave. Capital

Partners A B Total

108,333

80,000 (10,000) 20,000 (5,000)

12/12 8/12 6/12 3/12

A

B

80,000 (6,667) 10,000 (1,250) 82,083

Wtd. Ave. Cap. 108,333 82,083 190,417

Total 240,000

Amount being allocated Allocation: (240K x 108,333/190,417); (240K x 82,083/190,417) As allocated

136,543

103,457

240,000

136,543

103,457

240,000

Case #2: A Amount being allocated Allocation: 1. Interest on cap. (see computations below) 2. Allocation of remainder (240K - 37K) = 203K ÷ 2 As allocated

20,000

17,000

37,000

101,500

101,500

203,000

121,500

118,500

240,000

10,000 (10,000) 100,000 0 20,000

4

Total 240,000

Partner A 120,000 (20,000)

Balance, Jan. 1, 20x1 Withdrawal, May 1 Additional investment, July 1 Additional investment, Aug. 1 Withdrawal, Oct. 1 Ending balances Multiply by: Interest on ending balance

B

Partner B 80,000 (10,000) 20,000 (5,000) 85,000 0 17,000

4.

Solutions:

Case #1: A Amount being allocated Allocation: 1. Salary 2. Bonus (see computation below) 3. Allocation of remainder (480K – 120K - 60K) = 300K ÷ 2 As allocated

B

Total 480,000

60,000 60,000

60,000

120,000 60,000

150,000

150,000

300,000

270,000

210,000

480,000

The bonus is computed as follows: Profit before salaries and before bonus Salaries (60K x 2) Profit after salaries but before bonus

B

=

P

-

480,000 (120,000) 360,000

P 1 + Br

Where: B = bonus P = profit before bonus and tax but after salaries Br = bonus rate or bonus percentage

B

=

360,000

-

B B

= 360,000 = 60,000

-

360,000 1 + 20% 300,000

Case #2: A

B

Total 480,000(a)

Amount being allocated Allocation: 1. Salary 2. Bonus 3. Allocation of remainder (480K – 120K - 60K) = 300K ÷ 2 As allocated

60,000 60,000(b)

(a)

60,000

120,000 60,000

150,000

150,000

300,000

27 0,000

210,000

360,000

Profit before salaries and bonus is computed as follows: Profit after salaries but before bonus 360,000 Salaries (60K x 2) 120,000 Profit before salaries and bonus 480,000

5

(b) The

B

bonus is computed as follows:

=

P

-

P 1 + Br

Where: B = bonus P = profit before bonus and tax but after salaries Br = bonus rate or bonus percentage

360,000(c)

B

=

B B

= 360,000 = 60,000

(c)

-

360,000 1 + 20% 300,000

This is amount of profit given in the problem.

Case #3: A

B

Allocation: 1. Salary 2. Bonus 3. Allocation of remainder (480K – 120K - 60K) = 300K ÷ 2 As allocated

60,000 60,000(b)

(a)

Profit before salaries and bonus Salaries (60K x 2) Bonus (see computation below) Profit after salaries and bonus

(b) The



5.

Total 480,000(a)

Amount being allocated 60,000

120,000 60,000

150,000

150,000

300,000

27 0,000

210,000

360,000

480,000 (120,000) (60,000) 300,000

(squeeze)

(start)

bonus is computed as follows: The problem states that the bonus is computed based on “Profit after salaries and after bonus.” The “Profit after salaries and after bonus” is actually the ₱300,000 amount given in the problem. Thus, to compute for the bonus, the ₱300,000 amount is simply multiplied by the 20% bonus percentage, i.e., (300,000 x 20%) = ₱60,000.

Answer: 0

6

PROBLEM 4: CLASSROOM ACTIVITY The answers vary depending on the assumptions made by the students.

PROBLEM 5: MULTIPLE CHOICE - THEORY 1. A 2.

D

3.

D

4.

A

5.

A

PROBLEM 6: MULTIPLE CHOICE – COMPUTATIONAL 1. B Solution: Red White Amount being allocated Allocation: 1. Salaries 55,000 45,000 2. Allocation of remaining profit (80K profit – 100K salaries) = -20K (-20 x 60%); (-20K x 40%)

(12,000) 43,000

As allocated

(8,000) 37,000

Total 80,000 100,000 (20,000) 80,000

2. A Solution: Fox Amount being allocated Allocation: 1. Salaries 2. Interest on capital 3. Allocation of balance (-33K – 50K - 22K) = -105K / 3

As allocated

Greg

Howe

Total (33,000)

30,000 12,000

6,000

(35,000) (35,000) 7,000 (29,000)

20,000 4,000

50,000 22,000

(35,000) (105,000) (11,000) (33,000)

3. C Solution: Axel Amount being allocated

Berg

Cobb

Total 250,000

Allocation:

7

1. Bonus to A First 100K (100K x 10%) Over 100K [(250K - 100K) x 20%] 2. Bonus to Berg and Cobb (250K - 10K - 30K - 150K) x 5% 3. Allocation of bal. (204K / 3) As allocated

10,000 30,000

68,000 108,000

10,000 30,000 3,000 68,000 71,000

3,000 68,000 71,000

6,000 ...