Solutions on Accounting on Special Transactions_AFAR ACCOUNTING 1 PDF

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Chapter 1Partnership FormationPROBLEM 1: TRUE OR FALSE1. FALSE2. TRUE3. FALSE – ₱2M4. TRUE FALSE – credited for ₱ 200 FALSE - .8M TRUE (200 + 100) x 60% = 180 FALSE (200 + 100) x 40% = 120 capital credit – 100 contribution = ₱ 20 TRUE FALSE - ₱ 100 PROBLEM 2: MULTIPLE CHOICE – THEORY1. A2. C3. A4. C...

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Chapter 1 Partnership Formation PROBLEM 1: TRUE OR FALSE 1. FALSE 2. TRUE 3. FALSE – ₱2M 4. TRUE 5. FALSE – credited for ₱200 6. FALSE - .8M 7. TRUE (200 + 100) x 60% = 180 8. FALSE (200 + 100) x 40% = 120 capital credit – 100 contribution = ₱20 9. TRUE 10. FALSE - ₱100

PROBLEM 2: MULTIPLE CHOICE – THEORY 1. A 2. C 3. A 4. C 5. C

Page |2 PROBLEM 3: EXERCISES 1. Solution: Cash Accounts rec. (100K x 60%) Inventory Land Total Accounts payable Adjusted capital balances Date

Sunny Gloomy 180,000 60,000 120,000 - 600,000 360,000 600,000 (60,000) 300,000 600,000

Cash Accounts receivable Inventory Land Accounts payable Sunny, Capital Gloomy, Capital

2. Solution: Sunny’s contribution Divide by: Sunny’s P/L ratio Total Multiply by: Gloomy’s P/L ratio Minimum capital required of Gloomy Gloomy's contribution Deficiency in Gloomy's capital contribution Date

Cash Gloomy, Capital

Partnership 180,000 60,000 120,000 600,000 960,000 (60,000) 900,000

180,000 60,000 120,000 600,000 60,000 300,000 600,000

300,000 30% 1,000,000 70% 700,000 600,000 (100,000) 100,000 100,000

Page |3 3. Solutions: Requirement (a): Compound entry Date

Cash Accounts receivable Inventory Land Accounts payable Sunny, Capital (900K x 50%) Gloomy, Capital (900K x 50%)

180,000 60,000 120,000 600,000 60,000 450,000 450,000

Requirement (b): Simple entries Date

Cash Accounts receivable Inventory Accounts payable Sunny, Capital

180,000 60,000 120,000 60,000 300,000

to record the contributions of Sunny

Date

Land Gloomy, Capital

600,000 600,000

to record the contribution of Gloomy

Date

Gloomy, Capital Sunny, Capital

150,000 150,000

to equalize the capital balances of the partners

4. Solution: Actual contributions (see #1 above) Equal capital credits (1.5M x 50%) Receipt (Payment)

Sunny 300,000 450,000 (150,000)

Gloomy 600,000 450,000 150,000

Answer: Sunny pays Gloomy ₱150,000. This transaction will not be recorded in the partnership books.

Page |4 5. Solution: Actual contributions (see #1 above) Equal capital credits (1.5M x 50%) Withdrawal (Additional investment)

Sunny 300,000 450,000 (150,000)

Gloomy 600,000 450,000 150,000

Answer: Sunny invests additional ₱150,000, while Gloomy withdraws ₱150,000.

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL 1. C ➢ Twinkle = 80K ➢ Sheep = 90K ➢ Bus = 690K – 580K = 110K 2. B ➢ Using Hammer’s capital: 300K ÷ 60% = 500K x 40% interest of Nail = 200K vs. 180K Nail’s actual contribution. ❖ Conclusion: Nail’s initial contribution is deficient by 20K. 3. A (70K + 200K) = 270K x 1/3 = 90K 4. D No goodwill (‘unidentifiable asset’) is recognized under the bonus approach 5. C Solution: Agreed initial capital

300,000

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

75,000 225,000

Actual contributions Required capital balance Additional (Withdrawal)

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

B 200,000 225,000 25,000

Totals 300,000 300,000 -

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PROBLEM 5: CLASSROOM ACTIVITY Solutions: Requirement (a): Cash Accounts receivable Land Building Total assets Accounts payable Notes payable Provision for probable loss Real property tax payable Total assets Adjusted capital balances

Partner 1 Partner 2 281,250 1,800,000 430,000 800,000 1,500,000 1,400,000 3,611,250 2,600,000

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

300,000 40,000 670,000

775,657

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

2,941,250

1,824,343

4,765,593

330,000

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

400,000 375,657

730,000 375,657 300,000 40,000 2,941,250 1,824,343

Page |6 Variation #1: Solutions: Requirement (a) and (b): Total net asset contributions Divide by: Equal credits to capital accounts

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

4,765,593 2 2,382,7976.5 Partner 1 2,382,796.5 2,941,250 (558,453.5)

Partner 2 2,382,796.5 1,824,343 558,453.5

Answers: Partner 2 receives a bonus of ₱558,453.5. Requirement (c): The bonus is treated as an increase in Partner 2’s capital and as a decrease in Partner 1’s capital. 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 2,382,796.5 2,382,796.5

Page |7 Variation #2: Solutions: Requirement (a): Total net asset contributions Divide by: Equal credits to capital accounts

Equal credits to capital accounts Fair value of net asset contribution (Receipt) Payment

4,765,593 2 2,382,796 Partner 1

Partner 2

2,382,796.5 2,941,250 (558,453.5)

2,382,796.5 1,824,343 558,453.5

Answer: Partner 1 shall receive cash of ₱558,453.5 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 2,382,796.5 2,382,796.5

Page |8 Variation #3: 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 contribution Deficiency on Partner 2's capital contribution

2,941,250 50% 5,882,500 50% 2,941,250 1,824,343 1,116,907

Answer: Partner 2 should provide additional cash contribution of ₱1,116,907 to make his contribution proportionate to his/her interest.

Variation #4: Solution: Total net asset contributions Divide by: Equal credits to capital accounts

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

4,765,593 2 2,382,796.6 Partner 1

Partner 2

2,382,796.5 2,941,250 (558,453.5)

2,382,796.5 1,824,343 558,453.5

Answer: Partner 1 shall withdraw ₱558,453.5, while Partner 2 shall make an additional investment of ₱558,453.5.

Page |9 PROBLEM 6: FOR CLASSROOM DISCUSSION 1. Solution: Cash Accounts rec. (250K x 80%) Land (at fair value) Equipment (180K – 30K) Total Mortgage payable – land Adjusted capital balances Date

Cash Accounts receivable Land Equipment Mortgage payable Sun, Capital Moon, Capital

Mr. Sun 400,000 200,000

600,000 600,000

Ms. Moon 1,000,000 150,000 1,150,000 (250,000) 900,000

Partnership 400,000 200,000 1,000,000 150,000 1,750,000 (250,000) 1,500,000

400,000 200,000 1,000,000 150,000 250,000 600,000 900,000

2. Solution: ➢ Using Mr. Sun’s capital: 600K ÷ 50% = 1.2M x 50% interest of Ms. Moon = 600K vs. 900K Ms. Moon’s actual contribution; Conclusion: Ms. Moon’s actual contribution is not deficient. ➢ Using Ms. Moon’s capital: 900K ÷ 50% = 1.8M x 50% interest of Mr. Sun = 900K vs. 600K Mr. Sun’s actual contribution; Conclusion: Mr. Sun’s actual contribution is deficient by 300K. ❖ Answer: Mr. Sun should make an additional contribution of ₱300,000.

P a g e | 10 3. Solution: Date

Cash Accounts receivable Land Equipment Mortgage payable Sun, Capital (1.5M x 50%) Moon, Capital (1.5M x 50%)

400,000 200,000 1,000,000 150,000 250,000 750,000 750,000

4. Solutions: Requirement (a): Compound Date

Cash Accounts receivable Land Equipment Mortgage payable Sun, Capital (1.5M x 50%) Moon, Capital (1.5M x 50%)

Actual contributions (see #1 above) Equal capital credits (1.5M x 50%) Receipt (Payment)

Mr. Sun 600,000 750,000 (150,000)

400,000 200,000 1,000,000 150,000 250,000 750,000 750,000

Ms. Moon 900,000 750,000 150,000

Mr. Sun pays Ms. Moon ₱150,000. This transaction is not recorded in the partnership books. Requirement (b): Simple entries Date

Cash Accounts receivable Sun, Capital

400,000 200,000 600,000

to record the contributions of Sun

Date

Land Equipment Mortgage payable Moon, Capital to record the contributions of Moon

1,000,000 150,000 250,000 900,000

P a g e | 11 Date

Moon, Capital Sun, Capital

150,000 150,000

to equalize the capital balances of the partners

5. Solution: Actual contributions (see #1 above) Equal capital credits (1.5M x 50%) (Additional investment)/ Withdrawal

Mr. Sun 600,000 750,000 (150,000)

Ms. Moon 900,000 750,000 150,000

❖ Mr. Sun shall invest an additional ₱150,000, while Ms. Moon shall withdraw ₱150,000....