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Chapter 1

Chapter 1

Problem I Problem I

Requirement 1:

Requirement 1: Assuming that A and B  Assuming that A and B agree that each partner is to receive a capitalagree that each partner is to receive a capital credit equal to the agreed values of the net assets each partner invested:

credit equal to the agreed values of the net assets each partner invested:

T

To o record record adjustmadjustments:ents: nothing to adjust since both of them have no set of books. nothing to adjust since both of them have no set of books.

T

To o close close the the books:books: nothing to close since both of them have no set of books. nothing to close since both of them have no set of books.

To record investments: To record investments:

Partnersh

Partnership ip books:books:

Cash………. 120,000 Cash………. 120,000 Inventory………. 120,000 Inventory………. 120,000 Equipment……….. 240,000 Equipment……….. 240,000  A, capital………  A, capital……….………... .. 480,000480,000 Initial

Initial investment.investment.

Cash……….. 120,000 Cash……….. 120,000 Lan……….. 240,000 Lan……….. 240,000 !uilin"………. 480,000 !uilin"………. 480,000 #ort"a"e

#ort"a"e paya$le………paya$le………. ………. 240,000240,000 !,

!, capital………capital……….. .. %00,000%00,000 Initial

Initial investment.investment. Requirement 2:

Requirement 2: Assuming that A and B  Assuming that A and B agree that each partner is to receive an equalagree that each partner is to receive an equal capital interest.

capital interest.

To record adjustments:

To record adjustments: nothing to adjust since both of them have no set of books. nothing to adjust since both of them have no set of books.

To close the books:

To close the books: nothing to close since both of them have no set of books. nothing to close since both of them have no set of books.

To record investments: To record investments:

Partnersh

Partnership ip books:books:

Bonus

Bonus Approach:Approach:

Cash……… Cash……… ……… 120,000120,000 Inventory……… 120,000 Inventory……… 120,000 Equipment………. 240,000 Equipment………. 240,000  A, capital………  A, capital……….……….. . 480,000480,000 Cash……… 120,000 Cash……… 120,000 Lan………. 240,000 Lan………. 240,000 !uilin"……… 480,000 !uilin"……… 480,000 #ort"a"e

#ort"a"e paya$le………paya$le……… ……… 240,000240,000 !, !, capital.………capital.……….……….…… …… %00,000%00,000 !, !, capital………capital……….. ….. %0,000%0,000  A, capital………  A, capital……… ……… %0,000%0,000 T

Total otal agreed agreed capital capital (P4!"!!! (P4!"!!! # # P$!!"!!!%P$!!"!!!%&.P &.P '"!!"!!!'"!!"!!! ultiplied

ultiplied b): b): *apital *apital interest interest (equal%&&&(equal%&&&... ... '+,'+, Partner-s

Partner-s individual individual capital capital interest&&&&interest&&&&&.P &.P 4!"!!!4!"!!! /ess:

/ess: A-s A-s capital capital interest&&&&interest&&&&&&&&&..&. &&&&&..&. 4!"!!!4!"!!! Bonus

Bonus to to A&&.&&&&&&&&&&A&&.&&&&&&&&&&&&&&..P &&&&..P $!"!!!$!"!!!

Revaluation

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Cash……… 120,000 Inventory……… 120,000 Equipment………. 240,000  A, capital……….. 480,000 Cash……… 120,000 Lan………. 240,000 !uilin"………... . 480,000 #ort"a"e paya$le……… 240,000 !, capital.……….…… %00,000

Assets &or "oo'ill or intan"i$le asset(………... 120,000

 A, capital………..……….. 120,000

)otal a"ree capital &*%00,000 + 1+2(………..….*1,200,000 Less )otal contri$ute capital &*480,000

-* %00,000(………....… 1,080,000 oo'ill to A………..……….* 120,000 Problem II

Agreed 0air 1alues

2nvested b) 3ohn 2nvested b) 3e 2nvested b) 3ane *ash P'!!"!!! 555 55 5 6quipment P ''!"!!! 55 5  Total assets '!!"!!! P ''!"!!! !

7ote pa)able assumed b) partnership 5 5 5 8!"!!! 5 5 5

7et assets invested P'!!"!!! P !"!!! P !

1$ Bonus %ethod 2$ !ood"ill %ethod Revaluation o& Asset#

*ash '!!"!!!

*ash '!!"!! 6quipment ''!"!!!

6quipment ''!"!! 9oodill ;!"!!!

7ote Pa)able 7ote Pa)able 8!"!!

 3ohn" *apital 3ohn" *apital ;!"!!

 3e"*apital 3e" *apital ;!"!!

 3ane" *apital 3ane" *apital ;!"!!

,. The bonus method is used hen

 3ohn and 3e recogni<e that 3ane is bringing something of value to the =rm other than a tangible asset" but the) do not ant to recogni<e an intangible asset. To equali<e the capital accounts" P4!"!!! is transferred from 3ohn>s capital account and P,!"!!! is transferred from 3e>s capital account.

 The goodill method is used hen the partners recogni<e the intangible nature of the skills 3ane is bringing to the partnership. ?oever" the capital accounts are equali<ed b) recogni<ing an intangible asset and a corresponding increase in the capital accounts of the partners. @nless the intangible asset can be speci=call) identi=ed" such as a patent

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being invested" it should not be recogni<ed" because of a lack of justi=cation for goodill in a ne business. Problem III '. (a% *ash '8"!!! Accounts eceivable "!!! Cce Dupplies ,"!!! Cce6quipment 8!"!!! AccountsPa)able ,"!!!  Tom" *apital '"!!! *ash ',"!!! Accounts eceivable $"!!! Cce Dupplies !! /and 8!"!!! AccountsPa)able "!!! ortgagePa)able '"!!  3ulie" *apital ,"!!! (b% Tom" Eraing '"!!! *ash '"!!!  3ulie" Eraing ',"!!! *ash ',"!!! (c% 2ncome Dummar) !"!!!  Tom" *apital P!"!!! × (P'"!!!+PF$"!!!% 88"8  3ulie" *apital P!"!!!× (P,"!!!+PF$"!!!% '$"44F  Tom" *apital '"!!!  3ulie" *apital ',"!!!  Tom" Eraing '"!!!  3ulie" Eraing ',"!!! ,.  T A7E 3@/26 PAT76D?2P

Dtatement of *hanges in Partners> *apital 0or the Gear 6nded Eecember 8'" ,!H4

Tom 3ulie Total

*apital balances" 3an. ' P ! P ! P !

Add: Additional investments '"!!! ,"!!! F$"!!! 7et income allocation 88"8 '$"44F !"!!!

 Totals P 4"8 P 4'"44F P',$"!!!

/ess: Iithdraals '"!!! ',"!!! ,F"!!!

*apital balances" Eec. 8' P $;"8 P ,;"44F P;;"!!!

Problem I'

Book o& ( is to be retained b) the ne" partnership.  The folloing procedures are to be folloed:

2ndividual versus Dole Proprietor

Books of  2ndividual

JBooks of Dole Proprietor

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*losing entries (real accounts% 7+A 7o

2nvestments GesJJ

Balance Dheet Ges

J Books of ?K Partnership books

JJ 2nvestments of individualK additional investments or ithdraals of sole proprietor.

1. Books of Sole Proprietor (H): a$ To record adjustments:

a. /, capital……… 1,800

 Allo'ance or ou$tul accounts………. 1,800 Aitional provision compute as ollo's

 equire allo'ance 10 3 *48,000  * 4,800 Less *revious $alance……… 5,000  Aitional provision……… * 1,800

$. Interest receiva$le or accrue interest income………. 5,%00

/, capital……… 5,%00

Interest income or nine months compute as ollo's *%0,000 3 8 3 6+12  *5,000.

c. /, capital……….. %,000

#erchanise inventory……….. %,000 7ecline in the value o merchanise.

*2,000 9 *21,000  *%,000. . /, capital………. 4,800  Accumulate epreciation………. 4,800 :ner epreciation. e. *repai e3penses………... 2,400 /, capital……… 2,400

E3penses pai in avance.

/, capital……… ,200

 Accrue e3penses………. ,200

:nrecore e3penses.

*ote: All adjustment that reLects nominal accounts should be coursed

through the capital account" since all nominal accounts are alread) closed at the time of formation.

b$ To close the books: nothing to close since the books of ? ill be retained.

c$ To record investment:

Cash………. 11%,100

I, capital……… 11%,100

Initial investment compute as ollo's

:na;uste capital o /………* 24%,000  A &euct( a;ustments

a. 7ou$tul accounts...………...& 1,800( $. Interest income……….. 5,%00 c. 7ecline in the value o merchanise….& %,000( . :ner<epreciation……….& 4,800( e. *repai e3penses……….. 2,400 Accrue e3penses………...& ,200(

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 A;uste capital $alance o /………..……...* 252,200 7ivie $y Capital interest o /……… 2+5 )otal a"ree capital……….…….* 548,500 #ultiplie $y Capital interest o I………..…… 1+5 Investment o I………* 11%,100

*ote: The initial investment of ? is alread) recorded since his books are alread) retained. 7o further entr) is required since there are no additional investments or ithdraals made b) ?.

,. The balance sheet for both cases presented above is as follos: ?2 Partnership Balance Dheet 7ovember '" ,!H4 Assets *ash P ,8$"'!! Accounts receivables P 4"!!!

/ess: Alloance for doubtful accounts&&&...   4"!! 48",!! 7otes receivable&&... $!"!!! 2nterest receivable&&&&&&... 8"$!! erchandise 2nventor)... ,'"!!! Prepaid eHpenses&&&&... ,"4!! 6quipment (net% &&&&... P F,"!!!

/ess: Accumulated depreciation&&&&&&... '!"!! $'",!!  Total

Assets... .

P 4,F"!!

/iabilities and *apital /iabilities   Accrued eHpenses&&.. ... P F",!!   Accounts pa)able...   ',"!!!   7otes pa)able&&&&...   $!"!!!  Total /iabilities... .. P F;",!! *apital... ... ?" capital&&&&&&&&&... P ,8,",!! 2" capital&&&&&&&...   ''$"'! !  Total P 84"8!!

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*apital...  Total /iabilities and

*apital...

P 4,F"!!

Problem '

*e" set o& books. The folloing procedures are to be folloed: Dole Proprietor versus Dole Proprietor

Books of  Dole Proprietor (Baker% Books of Dole Proprietor (*arter%

J7e Det of  Books

Adjusting entries Ges Ges

*losing entries (real accounts%

Ges Ges

2nvestments GesJJ

Balance Dheet Ges

J Partnership books

JJ Additional investments or ithdraals of sole proprietors.

1. Books of Sole Proprietor  a$ To record adjustments:

Books o& + Books o& ,  

a. 3" capital&&&&&&&&&&',"!!! erchandise 2nventor)&& ',"!!! Iorthless inventor). a. erchandise 2nventor)&&&& $"!!! M" capital&&&&&&&&& $"!!! @pard revaluation. b. 3" capital&&&&&&&&&& F",!!

Alloance for doubtful   Accounts&&&&&&&.. F",!!

Iorthless accounts.

b. M" capital&&&.&&&&&&&. 8"!!! Alloance for doubtful

accounts&&&&&&&&. 8"!!! Additional provision. equired alloance: N H P'!"!!!&&.. P;"!!! /ess: Previous Balance&&&.. $"!!!   Additional Provision....&&&&P8"!!! c. ent receivable&&&&&&&',"!!! 3" capital&&&&&&&&. ',"!!! 2ncome earned. c. M" capital&&&&&&&&&&&. ;"$!! Dalaries pa)able&&&&&&. ;"$!! @npaid salaries. d. 2nterest receivable&&&&&&&'",!! M" capital&&&&... '",!!

2nterest income from August 'F to ctober '.

P$!"!!! H '$N H 4+8$! e. 3" capital&&&&&&&&&& "4!!

Cce supplies&&&&&&. "4!!

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f. 3" capital&&&&&&&&&& $"!!! Accumulated depreciation 5 equipment&&&&&& $"!!!   @nder5depreciated. g. M" capital&&&&&&&&&&&',"!!! Accumulated depreciation5

0urniture and =Htures&&& ',"!!!

  @nder5depreciated. h. 3" capital&&&&&&&&&&. '"!!

2nterest pa)able&&&&&. '"!!

2nterest eHpense from  3ul) ' to ctober '. P$!"!!! H ',N H 8+', i. Patent&&&&&&&&&&&&. 4"!!! M" capital&&&&&&&&.. 4"!!! @nrecorded patent. @nadjusted capital of 3&&.&&&.P

8F,"!!! Add(deduct%: adjustments: a. Iorthless merchandise&&.. ( ',"!!!% b. Iorthless accounts&&&&. ( F",!!% c. ent income&&&&&&.&. ',"!!!

e. Cce supplies eHpense&&. ( "4!!%

f. Additional depreciation&& ( $"!!!%

h. 2nterest eHpense&&&&&& ( '"!!%

Adjusted capital of 3&&&&&&& P84"$!! @nadjusted capital of M.. &&&&&...P48,"!!! Add(deduct%: adjustments: a. erchandise revaluation&&.. $"!!! b. Iorthless accounts&&&&&. ( 8"!!!% c. Dalaries&&&&&.&&.&&&.. ( ;"$!!% d. 2nterest income&&&&&&&.. '",!! g. Additional depreciation&&& ( ',"!!!% h. Patent&&&&.&&&.&&&&. 4"!!!

Adjusted capital of M&. &&&&&&..P4$,"$!!

b$ To close the books:

Books o& + Books o& , 

Alloance for doubtful

accounts... ',"!!! Accumulated depreciation O equipment&&&&&&&& $!"!!! Accounts pa)able&&&&&';"$!! 7otes pa)able&&&&&&& $!"!!! 2nterest pa)able&&&&&&. '"!!  3" capital&&.&&&&&&&. 84"$!!   *ash&&&&&&&&&& ;!"!!! Accounts receivable&&. ,'$"!!! erchandise inventor)&. '!"!!! Cce supplies&&&&&.

Alloance for doubtful

accounts... ;"!!! Accumulated depreciation O

furniture and =Htures &&&. 8$"!!! Accounts pa)able&&&&&. ',!"!!! Dalaries pa)able&&&&&&. ;"$!! M" capital&&.&&&&&&&. 4$,"$!! *ash&&&&&&&&&&. 4"!!! Accounts receivable&&.. '!"!!! 7otes receivable&&&&. $!"!!! 2nterest receivable&&&... '",!!

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,4"!!!

  6quipment&&&&&&&. ',!"!!!

ent receivable&&&&... ',"!!!

*lose the books of 3.

erchandise inventor)&.. '!"!!!

0urniture and =Htures.&&.. '44"!!!

  Patent&&&&.&&&&&. 4"!!!

*lose the books of M..

2$ *e" -et o& Books . To record investments: *ash&&&&&&&&&&&&&&&&&&&&&&&&. ;!"!!! Accounts receivable&&&&&&&&&&&&&&&&.. ,'$"!! ! erchandise inventor)&&&&&&&&&&&&&&&.. '!"!! ! Cce supplies&&&&&&&&&&&&&&&&&&&.. ,4"!!! 6quipment (net% &&&&&&&&&&&&&&&&&&... $!"!!! ent eceivable&&&&&&&&&&&&&&&&&&.. ',"!!!

Alloance for doubtful accounts&&&&&&&&. ',"!!!   Accounts pa)able&&&&&&&&&&&&&&&.. 8;"$!!   7otes pa)able&&&&&&&&&&&&&&&&&. $!"!!!   2nterest pa)able&&&&&&&&&&&&&&&&.. '"!! 3" capital&&&&&&&&&&&&&&&&&&&& 4$"$! ! *ash&&&&&&&&&&&&&&&&&&&&&&&&. 4"!!! Accounts receivable&&&&&&&&&&&&&&&&.. '!"!! ! 7otes receivable&&&&&&&&&&&&&&&&&&. $!"!!! 2nterest receivable&&&&&&&&&&&&&&&&&.. '",!! erchandise inventor)&&&&&&&&&&&&&&&.. '!"!! ! 0urniture and =Htures (net%&..

&&&&&&&&&&&&..

'!"!! ! Patent&&&&..&&&&&&&&&&&&&&&&&&... 4"!!!

Alloance for doubtful accounts&&&&&&&&. ;"!!!   Accounts pa)able&&&&&&&&&&&&&&&.. ',!"!! ! Dalaries pa)able&. &&&&&&&&&&&&&&&. ;"$!! M" capital&&&&&&&&&&&&&&&&&&&& 4$,"$! ! 8. ( I

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Adjusted capital (refer to 'b% 84"$!! 4$,"$!! 7et adjustments (debit%+credit (P ,8"4!!% P 8!"$!! 4. The balance sheet after formation is as follos:

 3 and M Partnership  Balance Dheet  ctober '" ,!H4 Assets *ash... ... P '44"!!! Accounts receivables ... P8;$"!!! /ess: Alloance for doubtful

accounts&&&...   ,'"!!! 8F"!!! 7otes receivable&&... $!"!!! 2nterest receivable&&&&&&... '",!! ent receivable&&&&&&... ',"!!! erchandise 2nventor)... 88!"!!! Cce supplies... ,4"!!! 6quipment (net% &&&&... $!"!!! 0urniture and =Htures (net%

&&&&&&&... '!"!!! Patent&&&&&&&&... ...   4"!! !  Total Assets... . P'"'$,",! !

/iabilities and *apital /iabilities   Dalaries pa)able&&&&&... P ;"$!!   Accounts pa)able...   ';"$!!   7otes pa)able&&&&... $!"!!!   2nterest pa)able&&&&&...   '"!!  Total /iabilities... P ,8'"!!!

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. *apital 3" capital&&&&&&&&&... P 4$"$!! M" capital&&&&&&&...   4$,"$!!  Total *apital... P ;8'",!!  Total /iabilities and

*apital...

P'"'$,",! !

Problem 'I

'. Total assets O P'"!;4"!!!" at fair value ,. Total liabilities 5 P4!"!!!" at fair value

8. Total capital 5 P4"!!! (P'"!;4"!!! O P4!"!!!%

Balance Dheet

 3anuar) '" ,!!;

Assets /iabilities and

Capital

*ash

P

F!"!!!

/iabilities

Account eceivable (net%

'!"!!!

Accounts Pa)able

P

';!"!!!

erchandise 2nventor)

,!"!!!

ortgage Pa)able

8!"!!

!

Building (net%

$!!"!!!

Total /iabilities

P

4!"!!!

0urniture and 0iHture (net%

'!"!!!

*apital:

Accounts

Pa)able

/"

*apital

P

,$!"!!!

ortgage

Pa)able

"

*apital

,;4"!

!!

  

  

 Total *apital

P

4"!!!

 Total

Assets

P'"!;4"!

!!

 Total /iabilities and

*apital

P

'"!;4"!!

!

%ultiple Choice Problems

'. c O P4"!!!

,. d O the prevailing selling price hich is also the fair market value.

8. b 5 (P4!!"!!! 5 P';!"!!!% # QP,F!"!!! 5 (P4!!"!!! 5 P';!"!!!%R+8 S P,8!"!!! 4. c

. b 5 P$!"!!! # P!"!!! # P'!!"!!! S P,4!"!!!

$. c 5 P8!"!!! # P!"!!! # P,"!!! S P'!"!!!+8 S P8"!!! 5 P8!"!!! S P"!!! F. a

 Total Agreed *apital (P!"!!!+4!N% &&&&&&&&&&...

P',"!!! /ess: Total *ontributed *apital (P$"!!! # P!"!!!%

&&...

''"!!!

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&&&&&&&...

Assets" fair value (P,!"!!! # P$!"!!! # P'"!!!%&&&&&&&&&&P ;"!!! /ess: /iabilities assumed&&&&&&&&&&&&&&&&&&&..& 8!"!!! Bill" capital..&&&&&&&&&&&&&&&&&&&&&&&&&& P $"!!!

.

b The capital balances of Iilliam (II% and artha (% at the

date of partnership formation are determined as follos:

Iilliam

artha

*ash

P,!"!!!

P

8!"!!!

2nventor)

5

'"!!!

Building

5

4!"!!!

0urniture and equipment

'"!!!

5

 Total

P8"!!!

P "!!!

/ess mortgage assumed

b)

partnership

('!"!!!%

Amounts credited to capital

P8"!!!

P F"!!!

;. c

6van

?elen

@nadjusted

capital

;"$,

88"!!

Add (deduct% adjustments:

Alloance

( %

( 4!%

Eepreciation



( ;!!%

Adjusted

capital

;"!F!

8,"';

'!. c: 3ones O P!"!!! # P4!!"!!! O P',!"!! S P8$!"!!! Dmith O P4!"!!! # P,!"!!! O P$!"!!! S P,$!"!!! ''. c O P8"8F4 O refer to 7o. ', ',. c O P'F"$F

@nadjusted capital of **&&&&&&&&&&&&&&&&&&&&&&&&&.P 88"!!! Add (deduct%: adjustments5

Alloance for doubtful accounts (8N H P'4",!!%&&&&&&&&&&&&...( 4,$% 2ncrease in merchandise inventor) (P,8"!!! O P,!"!!!%&&&&&&&&&& 8"!!! Prepaid salar)&&&&&&&&&&&&&&&&&&&&&&&&&&&&.... $!! Accrued rent eHpense&&&&&&&&&&&&&&&&&&&&&&&&&( !!% Adjusted capital balance of **&&&&&&&&&&&&&&&&&&&&&&P 8"8F4 Eivided b): *apital interest of **&&&&&&&&&&&&&&&&&&&&.... ,+8  Total capital of the partnership&&&&&&&&&&&&&&&&&&&&&&&P 8"!$'

/ess: Adjusted capital balance of **&&&&&&&&&&&&&&&&&&&.. 8"8F4 *apital balance of EE&&&&&&&&&&&&&&&&&&&&&&&&&&.. P 'F"$F '8. a

 Total assets:

*ash PF!"!!!

achiner) F"!!!

Building ,,"!!! P 8F!"!!!

/ess /iabilities (ortgage pa)able% ;!"!!!

7et assets (equal to 00-s capital account% P ,!"!!! '4. d

00" capital (see no.'8% P

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Eivide b) 00-s P  / share percentage F!N

 Total partnership capital P 4!!"!!!

equired capital of ** (P4!!"!!! H 8!N% P ',!"!!!

/ess: Assets alread) contributed:

*ash P8!"!!!

achiner) and equipment ,"!!!

0urniture and =Htures '!"!!! $"!!!

*ash to be invested b) ** P "!!!

'. a

Agreed 0air 1alues 2nvested

b) 3ohn 2nvested b) 3e 2nvested b) 3ane *ash '!!"!!! 5 55 555 6quipment ''!"! !! 5 5 5  Total assets '!!"!!! ''!"!!! !

7ote pa)able assumed b) partnership 5 5 5

8!"!!! 5 5 5

7et assets invested '!!"!!! !"!!! !

Bonus ethod 9oodill ethod

*ash '!!"!

*ash '!!"!! 6quipment ''!"!

6quipment ''!"!! 9oodill ;!"!!

7ote Pa)able 7ote Pa)able 8!"!!

 3ohn" *apital 3ohn" *apital ;!"!!

 3e" *apital 3e" *apital ;!"!!

 3ane" *apital 3ane" *apital ;!"!!

  Note:

)he $onus metho is use 'hen =ohn an =e> reco"ni?e that =ane is $rin"in" somethin" o value to the @rm other than a tan"i$le asset, $ut they o not 'ant to reco"ni?e an intan"i$le asset. )o equali?e the capital accounts, *40,000 is transerre rom =ohns capital account an *20,000 is transerre rom =e>s capital account.

)he "oo'ill metho is use 'hen the partners reco"ni?e the intan"i$le nature o the sBills  =ane is $rin"in" to the partnership. /o'ever, the capital accounts are equali?e $y

reco"ni?in" an intan"i$le asset an a corresponin" increase in the capital accounts o the  partners. :nless the intan"i$le asset can $e speci@cally ienti@e, such as a patent $ein"

investe, it shoul not $e reco"ni?e, $ecause o a lacB o ;usti@cation or "oo'ill in a ne' $usiness.

'$. c O refer to 7o. ' for computation. 'F. a

00" capital:

@nadjusted balance P F"!!!

  Adjustments:

Accumulated depreciation ( '"!!%

(13)

Adjusted balance P 48"!! 99" capital:

@nadjusted balance P 4;"!!

  Adjustments:

Accumulated depreciation ( 4"!!%

Alloance for doubtful account ( 4"!!%

Adjusted balance P 4!"!!

'. c

99-s adjusted capital (see no. 'F% P 4!"!!

Eivide b) 99-s P  / share percentage 4!N

 Total partnership capital P '!'",!

ultipl) b) 00-s P  / share percentage $!N

00-s capitalcredit $!"F!

00-s contributed capital (see no. '% 48"!!

Additional cash to be invested b) 00 P

'F",! ';. d

 Total capital of the ne partnership (see no. ,!% P ,;$"F

ultipl) b) -s interest ,!N

*ash to be invested b)  P ;"8F

,!. (a%

 PP Total

($!N% (4!N%

@nadjusted capital balances P'88"!!! P'!"!!!

P,4'"!!!

Adjustments:

Alloance for bad debts ( ,"F!!% ( '"!!% ( 4"!!%

2nventories 8"!!! ,"!!!

"!!!

Accrued eHpenses ( ,"4!!% ( '"$!!%

( 4"!!!%

Adjusted capital balances P'8!";!! P'!$"$!! P,8F"!!

 Total capital before the formation of the ne partnership (see above% P ,8F"!! Eivide b) the total percentage share of  and PP (!N # 8!N% !N  Total capital of the partnership after the admission of  P ,;$"F

,'. a

Agreed *apital *ontributed *apital Dettlement

 P'4"48F.! (!N H P,;$"F% P '8!";!! P 'F"8F.!

PP ;"!$,.! (8!N H P,;$"F% '!$"$!! ('F"8F.!%

 Therefore"  ill pa) PP P'F"8F.! ,,. c

(14)

 Total partnership capital (P''8"$4!+'+8% P 84!";,!

/ess EE-scapital ''8"$4!

**-s capital after adjustments P ,,F",!

Adjustments made:

Alloance for doubtful account (,N H P;$"!!!% '";,!

erchandise inventor) ( '$"!!!%

PrepaideHpenses ( ",!!%

AccruedeHpenses 8",!!

**-s capital before adjustments P ,''",!!

,8. a

Assets invested b) **:

  *ash:

*apital P,''",!!

Add Accounts pa)able 4;"$!!

 Total assets (eHcluding cash% ,$!"!!

/ess 7oncash assets (;$"!!! # P'44"!!!% ,4!"!!! P,!"!! Accounts receivable (;$"!!! O P'";,!% ;4"!!

erchandise inventor) '$!"!!!

Prepaid eHpenses ",!! P

,!"!!

*ash invested b) EE ''8"$4!

 Total assets of the partnership P

8;8"F,! ,4. d

Total partnership capital (P'!"!!!+$!N% P 8!!"!!!

99-s *apital (P8!!"!!! H 4!N% P ',!"!!!

/ess *ash investment 8!"!!!

erchandise to be invested b) 99 P ;!"!!!

,. a

Adjusted capital of 33:

 Total assets (at agreed valuations% P '!"!!!

/ess Accounts pa)able 4"!!! P '8,"!!!

equired capital of33 '!"!!!

*ash tobe invested b) 33 P 4"!!!

0ui.I

'. P,F$"!!! S (P4!"!!! O P,,"!!!% # QP8,4"!!! 5 (P4!"!!! O P,,"!!!%R+8 ,. Philip" P'!!"!!!K a)" P'!!"!!! and Darah" P;!"!!! (P8!!"!!! O P,'!"!!!% 8. P88!"!!!

P88!"!!! S P!"!!! # (P8'!"!!! 5 P8!"!!!%

4

.

c

The capital balances of each partner are determined as

follos:

(15)

*ash

P!"!

!!

Propert)

P

!"!!!

ortgage assumed

(8"!!!%

6quipment

P

"!!!

Amount credited to

capital accounts

P!"!

!!

P 4"!!!

P "!!!

. P'"!!! (P';!"!!! O P'$!"!!!% H '+, S P'"!!!

$. P'"!!! O the prevailing selling price hich is also the fair market value. F. . P'"!!! P8!"!!! # P!"!!! # P,"!!! S P'!"!!!+8 S P8"!!!  P!"!!! 5 P8"!!! S P'"!!! ;. P4"!!! '!. P,,"!!! ''. P8F"!!! S P4!!"!!! O P,"!!! ',. P!"!!! '8. P,!"!!! Pane -ills *ash... P 4!"!!! P 8!"!!! achiner) and equipment... '!!"!!!

Building... 8!"!!! Dubtotal... P'4!"!!! P8!"!!! /ess: /iabilit) assumed b) the partnership... ('!!"!!!% *apital balances" F+'+!$... P'4!"!!! P,!"!!! '4. d Adjusted capital of // P '$";!! *ontributed capital of  ,";!  Total capital P ,4"! '. a 00" capital: @nadjusted balance P F"!!!   Adjustments: Accumulated depreciation ( '"!!%

Alloance for doubtful account (',"!!!%

Adjusted balance P 48"!!

99" capital:

@nadjusted balance P 4;"!!

  Adjustments:

Accumulated depreciation ( 4"!!%

Alloance for doubtful account ( 4"!!%

Adjusted balance P 4!"!!

T(3RI-Completion statements:

 '. accounting  ,. 9AAP

(16)

b. prior period adjustments

c. use ofair &or current( values instead of historical cost 

d. recognition of goodill in situations not  involving business combinations  4. draings

 . fair (or current% values

$. achieving equity  among the partners F. capital balances . professional corporation True or 4alse

;

0alse

'

4.

 True

';

.

0alse

,4

.

0alse

,;

.

0alse

'

!.

 True

'

.

0alse

,!

.

 True

,

.

 True

8!

.

 True

'

'.

0alse

'

$.

0alse

,'

.

0alse

,$

.

0alse

'

,.

 True

'

F.

0alse

,,

.

 True

,F

.

 True

'

8.

0alse

'

.

 True

,8

.

0alse

,

.

 True

Note for the following numbers:

17. Indiidu!ls" p!rtnerships" !nd #orpor!tions !re !llowed to be p!rtners in ! p!rtnership. 1$. %ll of the gener!l p!rtners !re li!ble for !ll the p!rtnership&s debts.

'1. ost sm!ll p!rtnerships m!int!in their n!n#i!l inform!tion using the t!* b!sis.

'+." ,hile the p!rtnership does not p!- in#ome t!*es" it is responsible for other t!*es su#h !s p!-roll t!*es !nd fr!n#hise t!*es.

'. /he propriet!r- theor- is b!sed on the notion th!t the business entit- is !n !ggreg!tion of the owners

'0. /his is !n e*!mple of the propriet!r- theor- of euit-.

'2. %n- b!sis (i.e." #!rr-ing !lue" t!* b!sis" or m!rket !lue) #!n be used to !lue non#!sh !ssets #ontributed to ! p!rtnership

%5/TIP/.C(3IC

05-TI3*-8

'.

a

8

$.

d

4'

.

c

4$

.

a

'

.

d

8

,.

B

8

F.

b

4,

.

c

4F

.

c

,

.

b

8

8.

a

8

.

c

48

.

a

4

.

b

8

.

b

8

4.

e

8

;.

a

44

.

d

4;

.

b

8

.

d

4

!.

a

4

.

b

!

.

c

References

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