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Solution Chapter 1 Advance Accounting
Solution Chapter 1 Advance Accounting
Problem I
Requirement 1: Assuming that A and B agree that each partner is to receive a capital
credit equal to the agreed values of the net assets each partner invested:
To record adjustments: nothing to adjust since both of them have no set of books.
To close the books: nothing to close since both of them have no set of books.
To record investments:
Partnership books:
Cash. 120,000
Inventory. 120,000
Equipment.. 240,000
A, capital...
480,000
Initial investment.
Cash.. 120,000
Land.. 240,000
Building. 480,000
Mortgage payable.
240,000
B, capital..
600,000
Initial investment.
Requirement 2: Assuming that A and B agree that each partner is to receive an equal
capital interest.
To record adjustments: nothing to adjust since both of them have no set of books.
To close the books: nothing to close since both of them have no set of books.
To record investments:
Partnership books:
Bonus Approach:
Cash 120,000
Inventory 120,000
Equipment. 240,000
A, capital..
480,000
Cash 120,000
Land. 240,000
Building 480,000
Mortgage payable
240,000
B, capital..
600,000
B, capital.. 60,000
A, capital
60,000
Total agreed capital (P480,000 + P600,000).P 1,080,000
Multiplied by: Capital interest (equal)...
1/2
Partners individual capital interest.P 540,000
Less: As capital interest...
480,000
Bonus to A...P
60,000
Cash 120,000
Inventory 120,000
Equipment. 240,000
A, capital..
480,000
Cash 120,000
Land. 240,000
Building... . 480,000
Mortgage payable
240,000
B, capital..
600,000
Assets (or goodwill or intangible asset)... 120,000
A, capital....
120,000
Total agreed capital (P600,000 / 1/2)...P1,200,000
Less: Total contributed capital (P480,000 +
P 600,000).... 1,080,000
Goodwill to A...P 120,000
Problem II
Agreed Fair Values
Cash
Equipment
Total assets
Note payable assumed by partnership
Net assets invested
1. Bonus Method
2.
Invested
by John
P100,000
100,000
--P100,000
Invested
by Jef
--P 110,000
P 110,000
30,000
P 80,000
Invested
by Jane
----0
--P
0
Cash
100,00
Equipment
110,00
Goodwill
90,000
Note Payable
Note Payable
30,00
John, Capital
John, Capital
90,00
Jef, Capital
Jef, Capital
90,00
Jane, Capital
Jane, Capital
90,00
being invested, it should not be recognized, because of a lack of justification for goodwill
in a new business.
Problem III
1. (a) Cash
Accounts Receivable
Office Supplies
Office Equipment
Accounts Payable
Tom, Capital
(b)
(c)
13,000
8,000
2,000
30,000
Cash
Accounts Receivable
Office Supplies
Land
Accounts Payable
Mortgage Payable
Julie, Capital
12,000
6,000
800
30,000
Tom, Drawing
Cash
15,000
Julie, Drawing
Cash
12,000
Income Summary
Tom, Capital P50,000 (P51,000/P76,000)
Julie, Capital P50,000 (P25,000/P76,000)
50,000
Tom, Capital
Julie, Capital
Tom, Drawing
Julie, Drawing
15,000
12,000
2.
2,000
51,000
5,000
18,800
25,000
15,000
12,000
33,553
16,447
15,000
12,000
Tom
0
51,000
33,553
P 84,553
15,000
P 69,553
Julie
0
25,000
16,447
P 41,447
12,000
P 29,447
P
Problem IV
Book of H is to be retained by the new partnership.
The following procedures are to be followed:
Individual versus Sole Proprietor
Books of
Individual
Adjusting entries
N/A
Total
0
76,000
50,000
P126,000
27,000
P99,000
P
*Books of
Sole
Proprietor
Yes
3,600
3,600
c. H, capital.. 6,000
Merchandise inventory..
6,000
Decline in the value of merchandise.
P27,000 P21,000 = P6,000.
d. H, capital.
Accumulated depreciation.
Under depreciation.
4,800
e. Prepaid expenses...
H, capital
Expenses paid in advance.
4,800
2,400
2,400
H, capital 7,200
Accrued expenses.
7,200
Unrecorded expenses.
Note: All adjustment that reflects nominal accounts should be coursed
through the capital account, since all nominal accounts are already closed at
the time of formation.
b. To close the books: nothing to close since the books of H will be retained.
c. To record investment:
Cash. 116,100
I, capital
116,100
Initial investment computed as follows:
Unadjusted capital of HP 246,000
Add (deduct): adjustments:
a. Doubtful accounts......( 1,800)
b. Interest income..
3,600
c. Decline in the value of merchandise.( 6,000)
d. Under-depreciation.( 4,800)
e. Prepaid expenses..
2,400
Accrued expenses...( 7,200)
P 236,100
P 48,000
4,800
43,200
60,000
3,600
21,000
2,400
P 72,000
10,800
61,200
P 427,500
7,200
12,000
60,000
P 79,200
P 232,200
116,10
0
P 348,300
Capital..................................................................
Total Liabilities and
Capital..........................................
P 427,500
Problem V
New set of books. The following procedures are to be followed:
Sole Proprietor versus Sole Proprietor
Adjusting entries
Closing entries (real
accounts)
Investments
Balance Sheet
Books of
Sole
Proprietor
(Baker)
Yes
Yes
Books of
Sole
Proprietor
(Carter)
Yes
Yes
*New Set of
Books
Yes**
Yes
* Partnership books
** Additional investments or withdrawals of sole proprietors.
1. Books of Sole Proprietor
a. To record adjustments:
Books of J
a. J, capital12,000
Merchandise Inventory
12,000
Worthless inventory.
b. J, capital 7,200
Allowance for doubtful
Accounts..
7,200
Worthless accounts.
c. Rent receivable12,000
J, capital.
12,000
Income earned.
e. J, capital 8,400
Office supplies.
8,400
Expired office supplies.
Books of K
a. Merchandise Inventory 6,000
K, capital
6,000
Upward revaluation.
b. K, capital.. 3,000
Allowance for doubtful
accounts.
3,000
Additional provision.
Required allowance:
5% x P180,000.. P9,000
Less: Previous
Balance.. 6,000
Additional
Provision....P3,000
c. K, capital. 9,600
Salaries payable.
9,600
Unpaid salaries.
d. Interest receivable1,200
K, capital..................
1,200
Interest income from August
17 to October 1.
P60,000 x 16% x 45/360
f. J, capital 6,000
Accumulated depreciation
- equipment
6,000
Under-depreciated.
g. K, capital12,000
Accumulated depreciationFurniture and fixtures
12,000
Under-depreciated.
h. J, capital. 1,800
Interest payable.
1,800
Interest expense from
July 1 to October 1.
P60,000 x 12% x 3/12
i. Patent. 48,000
K, capital..
48,000
Unrecorded patent.
Unadjusted capital of K..
...P432,000
Add(deduct): adjustments:
a. Merchandise revaluation..
6,000
b. Worthless accounts.
( 3,000)
c. Salaries....
( 9,600)
d. Interest income..
1,200
g. Additional depreciation
( 12,000)
h. Patent...
48,000
Adjusted capital of K.
..P462,600
Books of K
Allowance for doubtful
accounts................................. 9,000
Accumulated depreciation
furniture and fixtures . 36,000
Accounts payable. 120,000
Salaries payable.
9,600
K, capital.. 462,600
Cash.
54,000
Accounts receivable..
180,000
Notes receivable.
60,000
Interest receivable...
1,200
24,000
Equipment.
120,000
Rent receivable...
12,000
Close the books of J.
Merchandise inventory..
150,000
Furniture and fixtures...
144,000
Patent..
48,000
Close the books of K..
90,000
216,00
0
180,00
0
24,000
60,000
12,000
12,000
39,600
60,000
1,800
468,60
0
54,000
180,00
0
60,000
1,200
150,00
0
108,00
0
48,000
9,000
120,00
0
9,600
462,60
0
3.
Unadjusted capital (refer to 1a)
H
P372,000
I
P432,000
348,600
(P 23,400)
462,600
P 30,600
J and K Partnership
Balance Sheet
October 1, 20x4
Assets
Cash.....................................................................
..........
Accounts
receivables .................................................
Less: Allowance for doubtful
accounts.........
Notes
receivable...................................................
Interest
receivable..................................
Rent
receivable.......................................
Merchandise
Inventory................................................
Office
supplies...............................................................
Equipment (net)
.............................................
Furniture and fixtures (net)
.................
Patent..........................................
.....
Total
Assets...................................................................
.
Liabilities and Capital
Liabilities
Salaries
payable...................................
Accounts
payable..................................................
Notes
payable..........................................
Interest
payable....................................
Total
Liabilities..............................................................
P 144,000
P396,000
21,000
375,000
60,000
1,200
12,000
330,000
24,000
60,000
108,000
48,00
0
P1,162,20
0
9,600
159,600
60,000
1,800
P 231,000
.
Capital
J,
capital..................................
K,
capital.........................................
Total
Capital..................................................................
Total Liabilities and
Capital..........................................
P 468,600
462,600
P 931,200
P1,162,20
0
Problem VI
1. Total assets P1,094,000, at fair value
2. Total liabilities - P540,000, at fair value
3. Total capital - P554,000 (P1,094,000 P540,000)
Balance Sheet
January 1, 2009
Assets
Cash
Liabilities and
Capital
Liabilities
P
70,000
108,000
Merchandise Inventory
208,000
Mortgage Payable
Building (net)
600,000
Total Liabilities
108,000
Capital:
L, Capital
Mortgage Payable
Total Assets
Accounts Payable
M, Capital
_________
_
P1,094,0
00
Total Capital
Total Liabilities and
Capital
P
190,000
__350,00
0
P
540,000
P
260,000
___294,0
00
P
554,000
P
1,094,00
0
..................
Assets, fair value (P20,000 + P60,000 + P15,000)P 95,000
Less: Liabilities assumed.. 30,000
Bill, capital.. P 65,000
8
.
9. c
Unadjusted capital
Add (deduct) adjustments:
Allowance
Depreciation
Adjusted capital
Evan
59,625
Helen
33,500
( 555)
______
59,070
(
405)
(
900)
32,195
14. d
Total assets:
Cash
Machinery
Building
Less Liabilities (Mortgage payable)
Net assets (equal to FFs capital account)
P 70,000
75,000
225,000
P 370,000
90,000
P 280,000
P
70%
P 400,000
P 120,000
P 30,000
25,000
10,000
Invested
by John
100,000
Cash
Equipment
Total assets
Note payable assumed by partnership
100,000
---
100,000
Invested
by Jef
--110,0
00
110,000
30,000
80,000
Bonus Method
65,000
P 55,000
Invested
by Jane
----0
--0
Goodwill Method
Cash
100,0
Cash
100,00
Equipment
110,0
Equipment
110,00
Goodwill
90,00
Note Payable
Note Payable
30,00
John, Capital
John, Capital
90,00
Jef, Capital
Jef, Capital
90,00
Jane, Capital
Jane, Capital
90,00
Note:
The bonus method is used when John and Jeff recognize that Jane is bringing something of
value to the firm other than a tangible asset, but they do not want to recognize an intangible
asset. To equalize the capital accounts, P40,000 is transferred from John's capital account
and P20,000 is transferred from Jeff's capital account.
The goodwill method is used when the partners recognize the intangible nature of the skills
Jane is bringing to the partnership. However, the capital accounts are equalized by
recognizing an intangible asset and a corresponding increase in the capital accounts of the
partners. Unless the intangible asset can be specifically identified, such as a patent being
invested, it should not be recognized, because of a lack of justification for goodwill in a new
business.
P 57,000
( 1,500)
(12,000)
Adjusted balance
GG, capital:
Unadjusted balance
Adjustments:
Accumulated depreciation
Allowance for doubtful account
Adjusted balance
P 43,500
P 49,500
( 4,500)
( 4,500)
P 40,500
18. c
17,250
P 40,500
40%
P 101,250
60%
60,750
43,500
P
P 296,875
20%
P 59,375
19. d
20. (a)
Unadjusted capital balances
P241,000
Adjustments:
Allowance for bad debts
( 4,500)
Inventories
5,000
Accrued expenses
( 4,000)
Adjusted capital balances
P237,500
OO
(60%)
P133,000
PP
Total
(40%)
P108,000
( 2,700)
( 1,800)
3,000
2,000
( 2,400)
( 1,600)
P130,900
P106,600
Total capital before the formation of the new partnership (see above)
Divide by the total percentage share of OO and PP (50% + 30%)
Total capital of the partnership after the admission of RR
21. a
Agreed Capital
OO
P148,437.50 (50% x P296,875)
P 17,537.50
PP
89,062.50 (30% x P296,875)
(17,537.50)
Therefore, OO will pay PP P17,537.50
22. c
Contributed Capital
P 130,900
106,600
P 237,500
80%
P 296,875
Settlement
P 340,920
113,640
P 227,280
1,920
( 16,000)
( 5,200)
3,200
P 211,200
P211,200
49,600
260,800
240,000
P20,800
94,080
160,000
5,200
113,640
P
24. d
Total partnership capital (P180,000/60%)
P 300,000
P 120,000
P 90,000
P 180,000
48,000
Quiz-I
1. P276,000 = (P480,000 P228,000) + [P324,000 - (P480,000 P228,000)]/3
2. Philip, P100,000; Ray, P100,000 and Sarah, P90,000 (P300,000 P210,000)
3. P330,000
P330,000 = P50,000 + (P310,000 - P30,000)
4 c
.
P 132,000
180,000
P 48,000
Cash
Property
Mortgage assumed
Equipment
Amount credited to
capital accounts
P50,0
00
P50,0
00
P 80,000
(35,000)
P 45,000
P 55,000
P 55,000
5. P15,000
(P190,000 P160,000) x 1/2 = P15,000
6. P18,000 the prevailing selling price which is also the fair market value.
7.
8. P15,000
P30,000 + P50,000 + P25,000 = P105,000/3 = P35,000
P50,000 - P35,000 = P15,000
9. P45,000
10. P225,000
11. P375,000 = P400,000 P25,000
12. P50,000
13. P280,000
Pane
Cash.................................................................................. P 40,000
Machinery and equipment.................................................
100,000
Building.............................................................................
Subtotal......................................................................... P140,000
Less: Liability assumed by the partnership.......................
Capital balances, 7/1/06.................................................... P140,000
Sills
P 30,000
350,000
P380,000
(100,000)
P280,000
14. d
Adjusted capital of LL
Contributed capital of MM
Total capital
15. a
FF, capital:
Unadjusted balance
Adjustments:
Accumulated depreciation
Allowance for doubtful account
Adjusted balance
GG, capital:
Unadjusted balance
Adjustments:
Accumulated depreciation
Allowance for doubtful account
Adjusted balance
THEORIES
Completion statements:
1. accounting
2. GAAP
3. a. cash basis instead of accrual basis
P 165,900
82,950
P 248,850
P 57,000
( 1,500)
(12,000)
P 43,500
P 49,500
( 4,500)
( 4,500)
P 40,500
4.
5.
6.
7.
8.
True or False
False
1
0.
1
1.
1
2.
1
3.
True
False
True
False
1
4.
1
5.
1
6.
1
7.
1
8.
True
False
False
False
True
19
.
20
.
21
.
22
.
23
.
False
True
False
True
False
24
.
25
.
26
.
27
.
28
.
False
True
29
.
30
.
False
True
False
True
True
MULTIPLE-CHOICE QUESTIONS
3
1.
3
2.
3
3.
3
4.
3
5.
a
B
a
e
d
3
6.
3
7.
3
8.
3
9.
4
0.
d
b
c
a
a
41
.
42
.
43
.
44
.
45
.
c
c
a
d
b
46
.
47
.
48
.
49
.
50
.
a
c
b
b
c
51
.
52
.
53
.
d
b
b