PROBLEMS: THEORY

1. A
2. A
3. C
4. D
5. B
6. C
7. D

PROBLEM: COMPUTATION

PROBLEM 3-4
x
Case 1
Requirement (a):

Carrying amount Fair value Increase/Decrease

Cash 30,000 30,000 0 Apple, Capital (60%)
Accounts receivable inventory 140,000 120,000 -20,000 Banana, Capital (40%)
Equipment 200,000 160,000 -40,000
Inventory 500,000 450,000 -50,000
A/P -80,000 -80,000 0
Accrued liabilities 790,000 -20,000 20,000
Net assets 660,000 -130,000

Journal entry:
Banana, Capital (223,000 x 1/2) 111,500
Carrots, Capital (223,000 x 1/2) 111,500

Requirement (b)
Before admission Admission of Carrots After admission
Apple, Capital 437,000 437,000
Banana, Capital 223,000 -111,500 111,500
Carrot, Capital 0 111,500 115,000
660,000 660,000

Requirement ©
Partner Before admission Admission of Carrots After admission
Apple 60% 60%
Banana 40% 20% 20%
Carrots 20% 20%
100% 100%

CASE 2

Requirement (a)
FV of 20% interest acquired by Carrots:
Adjusted net assets before admission of Carrots 660,000
Interest of old partners 80%
Gross FV 825,000
interest of Carrots 20%
FV of Carrots' interest 165,000

Journal entry:
Cash 165,000
Carrots, Capital 165,000

Requirement (b)
Before admission Admission of Carrot After Admission
Apple, Capita; 437,000 437,000
Banana, Capital 223,000 223,000
Carrots, Capital 165,000 165,000
660,000 165,000 825,000

Requirement ©
Partner Before admission Admission of Carrot After Admission
Apple 60% (100%-20%) x 60% 48%
Banana 40% (100%- 20%) x 40% 32%
Carrots 20% 20%
100% 100%

CASE 3

Requirement (a)
Cash 100,000
Apple Capital 39,000
Banana, Capital 26,00
Carrots, Capital 165,000

Requirement (b)
Before admission Admission of Carrot After Admission
Apple, Capital 437,000 -39,000 398,000
Banana, Capital 223,000 -26,000 197,000
Carrots, Capital 165,000 165,000
660,000 100,000 760,000

CASE 4

Requirement (a)
Cash 165,000
Apple, Capital 24,000
Banana, Capital 16,000
Carrot, Capital 125,000

Requirement (b)
Before admission Admission of Carrot After Admission
Apple, Capital 437,000 24,000 461,000
Banana, Capital 223,000 16,000 239,000
Carrots, Capital 125,000 125,000
660,000 165,000 825,000

CASE 5

Adjusted net assets 660,000

Existing partners' interest 3/5
Total net assets 1,100,000
Carrots' interets 2/5
Amount of contribution of Carrots 440,000

NUMBER 2
A(50%) B(30%) C(20%)
1-Jan 320,000 192,000 128,000
Shares in profit 400,000 240,000 160,000
Drawings -40,000 -60,000 -30,000
1-Sep 680,000 372,000 258,000

Requirement (a)
A, Capital 680,000
B, Capital (700,000- 680,000) x 30%/50% 12,000
C, Capital (700,000- 680,000) x 20%/50% 8,000
Cash 700,000

Requirement (b)
Before retirement Retirement of A After retirement
A, Capital 689,000 -680,000 0
B, Capital 372,000 -12,000 360,000
C, Capital 258,000 -8,000 250,000
1,310,000 -700,000 610,000
Requirement ©
Partner Before retirement Retirement of A After retirement
A 50% -50%
B 30% 30%/(30%+20%) 60%
C 20% 20%/(30%+20%) 40%
100% 100%

CASE 2

Requirement (a)
A, Capital 680,000
Cash 650,000
B, Capital (680,000-650,000) x 30%/50% 18,000
C, Capital (680,000-650,000) x 20%/50% 12,000

Requirement (b)
Before retirement Retirement of A After retirement
A, Capital 680,000 -680,000
B, Capital 372,000 18,000 390,000
C, Capital 258,000 12,000 270,000
1,310,000 650,000 660,000

NUMBER 3
A B C Total
Cash 100,000 160,000 260,000
Equipment 50,000 120,000 170,000
Total 150,000 160,000 120,000 430,000
Share in profit 41,860 44,651 33,488 120,000
Capital balances 191,860 204,651 153,488 550,000
Profit: 120,000

NUMBER 4 A B

550,000 x 20% [191,860/ ( 191,860 + 204,651)] -53,226

550,000 x 20% [ 204,651/ (191,860 + 204,651)] -56,774

1-Jan A, Capital 53,226

B, Capital 56,774
D, Capital (550,000 x 20%) 110,000

Requirement (b)
A B C D Total
Before admission 191860 204651 153488 549999
Admission of D -53,226 -56,774 110,000 0
After admission 138,634 147,877 153,488 110,000 549,999

NUMBER 5

Requirement (a)
31-Dec B, Capital 204,651
Cash 164,000
A, Capital (204,651- 164,000) x 40%/60% 27,101
B, Capital (204,651- 164,000) x 20%/60% 13,550

Requirement (b)
A B C Total
Before withdrawal 191860 204651 153488 550,000
Withdrawal of B 27,101 -204,651 13,550 -164,000
After withdrawal 218,961 0 167,038 386,000

Requirement ©
Partner Before Retirement of A After
A 40% 40%/(40%=20%) 66.67%
B 40% -40%
C 20% 20%/(40%+20%) 33.33%
100% 100%

NUMBER 6
Requirements (a) and (b)
A B Totals
Cash 11,000 22,354 33,354
A/R 214,536 532,890 747,426
Inventory 114,535 253,402 367,937
Land 603,000 603,000
Building 428,267 428,267
Equipment 50,345 34,789 85,134
Other assets
Total assets 993,416 1,271,702 2,265,118
A/P -178,940 -243,650 -422,590
N/P -200,000 -345,000 -545,000
Net assets 614,476 683,052 1,297,528

Requirement ©
Adjusted net assets 1297528
(100%-20%) 80%
Gross FV 1,621,910
C's interest 20%
Amount of need contribution 324,382
Requirement (d)
A B C Total
FV of net asset contribution 614,476 683,052 324,382 1,621,910
Required balance
1,621,910 x 40%
1,621,910 x 40%
1,621,910 x 20% 638,764 638764 324,382 1,621,910
Cash settlement payment/ receipt -34,288 34,288

requirement (e)
A B C
Adjusted capital balances Jan 1 638,764 638764 324,382
Share in profit 130,000 130,000 65,000
Drawings -50,000 -65,000 -28,000
Capital balances, Dec 31 728,764 713,764 361,382

NUMBER 7
A B C Total
Before requirement 600,000 600,000 400,000 1,600,000
Revaluation of equipment 8,000 8,000 8,000 24,000
608,000 608,000 1,624,000
Adjusted 0 0 408,000 0
Retirement of C -408,000 -408,000
After retirement 608,000 608,000 1,216,000
 -130,000 -130,000
60% x 40%
78,000 52,000

Unadjusted Adjustment Adjusted

Apple, Capital (60%) 515,000 78,000 437,000
Banana, Capital (40%) 275,000 53,000 223,000
790,000 660,000