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ReSA The Review School of Accountancy R. Papa Cor. S. H. Loyola Sts. Sampaloc, Manila & Tel Nos, 7243989 & 7359007/cel, No. 09152303213 Aone Reena i 7 _____ dayag/eaiga/ngina ‘Advanced Financial Accounting and Reporting Partnership Formation 1 On July 1, 2019, XX and YY decided to forn a partnership. The firm is to lake over business assels and assume liabililies and assume abilities. and capita are to be based on net assets, hransterred ater the following adjustments 2. XX and YY's inventory is to be vaived ai 1,000 and P22,000, respectively. ©. Accounts receivable of P2000 in XX"s books and PI,000 in YY's books ore uncollectible. ¢. Accrued salaries of P4.000 for XX and P5.000 for YY are stil to be recognized in the books. 4. Unused office supplies of Xx amounted to P5,000, while that of YY amounted to P1500. @. Unrecorded patent of P7,000 and prepaid rent of P4,5U0 are fo be recognized in the ‘books Xx and YY, respectively. 1. XXis to invest or withdrew cash necessary 10 have a 4% interest in the frm, Equpment mulated Gepreciaiion — equipment Total Assets ‘Accounts Payable Capitals - otal Liabilies and Capital, Determine: 1. The net adjustments - capital in the books of XX and YY 2. XX, P7,000 net debit; YY. P2,000 ne! credit b. XX, P5,000 net debit: YY, P7,000 net credit . XX, P7,000 net credil: YY, P2,000 net debit 4. XX. P5,000 net credit: YY. P7,000 nel debit 2. The adjusted capital of XX and YY in their respective books. «a. XX ~ P65,000; YY ~ P102,000 ‘© XX P77.000; ¥¥ - P98,000 'b. XX ~ P63,000; YY ~ P107,000 d. XX ~ 177.000: YY - 93,000 3, The additional investment (withdrawal made by 1X . ‘@. P{15,000.00) ‘c. P3,000.00 b.Pl 6,666.50) 6. F8,377.50 4.The lolal assets of the partnership atter formation: (0. 235,333.50 ‘c. P220,333.50 'b. P230,000.00 3.°212,000.00 5. The total liabilities of the partnership ater formation: 2. P57,000.00 ‘© 54,000.00 'b. P48,000.00 d.P51,000.00 6. The lotal capital of the partnership after formation: . P180,000.00 c. P163.333.50 b.P178,333.50 .P155,000.00, 7. The capital balances of XX and YY in the combined balance sheet «a. XX, P81,250; YY, P72,000 ©. X%, P100,000; YY, P75,000 1b. XX. P8I.250: YY. P75.000 <4. XX, P62,000: YY. P93,000 4 (On December 1. 2019. AA and BB formed a partnership with contributing the following assets, Ot fair market valves: AA BB Cash i 9.000 18,000 Machinery and equipment... 13,500 Land 90,000 Building : 27.000 Office Furniture . . 13,500 AFAR-01 Advanced Financial Accounting & Reporting Page 2 The land and bulking are subject Io G mortgage loan of P54,000 that the partnership will assume. The partnership agreement nrovicies thal AA Gnd BB share profits and losses. 40% and 508 respectwely and partners agreed to bring their capital balances in proportion to the ott and Joss fatio Gnd Using the capital balance of BB as the basis. The additional cash westment made by AA should be 2 P18,000.00 ©. P¥34,100.00 1b, P85, 500.00 «1. 166,250.00 u CE and DD are joining theit separate business to form a partnership. Cash and non-cash assets, Gre to be contibuted for a lola: Capital of P150,000. The non-cash assets to be contributed liabilities to be assumed are: ce pp Book Valve FairValue Book Vale Fair Value Accounts Recewable. P11250.00 11,250.00 inventories. 150,00 14,875.00 30,000.00 P33,750.00 Equipment. 13,750.00 15,000.00 3375000 35,625.00 Accounts Payable. 5697.50 5.62500 3,750.00 3.75000 he partner's capital accounts are te be equal after all contributions of assets and assumptions of liabilities, Determine: 1. The total assets of the partnershio, 2. P189.375.00 c. P140,625.00 b. P150,000.00 4. P112,500.00 2. The amount of cash thal each pariner must contribute: a. CC ~ P37,500; DD ~ P9.375 c. CC ~ P80.625: DD - P78.750 b. CC ~ P37.500: DD - P5.625 c. CC ~ P83,750; DD - P5.625 1V- with Solution (00 ond PP are pariners sharing erattis ir this proportion ~ 60:40. A balance sheet prepared for the partners on Aptil i : cea >a) | Accounts Receivable 00, copie! 133.000 | inventories PP, copstal "0.000 | | Equipment | | Les Acc. depreciation Total Assets Totat tiapisties & Capital 2 390,099 | On this dote, ihe pariners agree to carn = The lesms of the agreement ore summarized Below. Rett ond obtes ore to be rested a oto: eae ior posible ncotec be of °400'5 0 be estab sh oon ce os Pe lglg at tar revenveplacement veue FF170,000, rere puponves of acto te bo Recoamed ee ils pots in he rao of $32. Caio balances of Ihe pare ate he formation 0, FP and RR wi vide Bs sioementoned ao, Hh 00 and PP rmaking cosh sotemert Of he ne Dar orm a oo or opis and Rk weting cain he Donesp for isinterest ae TP The cash to be invested by RR is ©. 760,250 Ps,000 b. P4700 ¢ PS375 2. The total capitol of ine porinesship ater the adrmision of RRs: o. P296875, P237.500 b. P301.250 4 P2B6.850 3, Cash settlement between OO and PP sot poy eP P17 537 0 00 willinvestP17537.50 pp witpoy 00 P17 587.90 S_prewhcrow 617537 50 ‘Answers/Solution (0) ret copitat of he new porineship eter 19 NO. 2) 296875 eT « rt robe ives - pe 20. fe Talal i (oe) (40) unadiusted capital bounces #igado0 ——-Pra0n0 —_—F241,000 austments : ne ‘wonce for bas debts (2700) 1.800) 4500) fronts 3000 oon Se mn tao. 1.400) i se eravounee? Yio = Figeau 237.50 Acjusied coptatboonces AFAR-01 Advanced Financial Accounting & Reporting Page 3 Toto} capital betore Oivide by the fotos Total capital of the the formation of the new partrenstip [swe above) 237,500 Percentage shve of OO ana PP (50% + 30%) a0 Daxinerip ater ne gamaion of fe P2675 a ‘Contributed Capito Contnbyted Copitat Settlement 20 Pom 7148 437 0 (0% xP296875) FSH 50 99.062.0 (0K xP29687 Therefore, OO wil pay PP P17,537 5). : Gilat ae Partnership Operations v Lett ond Right ore partners. Ther capitol accounls during 2019 were os folows: Left. Copital ‘Right, Capital 87s PAO Pisa a8 PaO 1434000 716 3.500 Hoyt 3.000 107 2,500 Partnership net income is P25.000 for the year. The partnership agreement provides for the division of net income as follows: * Fach partner is credited 10 percent interest on his or her average capital {rounded to the nearest month) * Because of prior work experience, Left is entitled fo an annual salary of P6,000 and Right is credited with P4,000 ‘+ Any remainder income or lossis to be allocated based on beginning copital How much of the partnership net income for 2019 should be assigned fo Left and Right? 9. elt, P11,833; Right. P3167 Let, P13.194: Right PI 806 Left P9.375; Right, P15.625 4. Lell,P12.500; Right, P12.500 vi } Hunt. Rob, Turman and Kelly own a publishing company that they operate os a partnership. ‘The partnership agreement includes the following, + Hunt receives a solary of P10.000 and a bonus of 3% of income atter ail bonuses. + Rob receives a salary of PS.000 and a bonus of 2% of income after all bonuses. + Allpariners are to receive 10% interes! on their average capital balances. The average copital balances are Huni, 25,000; Rob, P22,500: Turman, P10,000 and Kelly, 23,500. Any remaining profits and losses are to be allocated equally among the partners Determine how a profil of P52.500 would be allocated among the pariners. ‘a. Hunt, P20,725: Rob. P14.975; Turman, P7.725: Kelly, P9.075 'b, Hunt, P4000; Rob. P8,250: Turman, P.000; Kelly, P2,350 . Hunt, P19,850: Rob, 14,600; Turan, P8350: Kelly, P9,700 4. Cannot be determined, vit PP and QQ are partners operating c chain of retail stores. The partnership agreement provides {or the following re sq Solar. oe ee 5,000 2,500 Interest on average capital balances 10% 10% Bonus 7 os 20% of net income belore interest but cater Bonus slanes Remainder. 0% 70% Ihe income summary account for year 2019 shows a credit Botonce of P2500 betore any Geductions. average capil balances tr PP ond Q ore P2500 ond 37.500 expecta, The shore of 9 and QO in the P25 500 ret Income would be oP. P12031-25: GQ, P3468 75 © PP. PII.750: 0, PI3.750 ©. PP, P13.27075: GG, P2229 25 PP. 13.125: 00, P1275 Vill- Bonus at a catibution of prof 10.ond YY formed @ parinenhip on January 2.2019 ond agreed to share profs ond loss inthe ‘oll of 30% and 10%. respectively. XX contibuled copill ol P:250. VY conkibuted no copa buthas o specialized expert and manages the fn ful ime. There wore no waihrawO ring ne year. The parinersnip agreement proves cr the folowing, 2 Copia! accounts are te be ciected nrwaly wih ineret at 5% of the beginning capital + 11's 0 be poido salary of P250.0 month AFAR-O1