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Advacc 1 - Millan 2019 - Advac 1 Special Transactions 2019

Accountancy (University of San Carlos)

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Advanced Accounting 1 – Millan

PROBLEM 1-4: EXERCISES: COMPUTATIONAL

1. Solution:
Mr. A Ms. B
Cash 20,000 30,000
Inventory 15,000
Building 40,000
Furniture & equipment 15,000
Mortgage payable (10,000)
Adjusted capital balances 35,000 75,000

2. Solutions:
Requirement (a):
Mr. Ann Ms. Buoy Totals
Cash 50,000 120,000 170,000
Accounts receivable 300,000 760,000 1,060,000
Inventories 216,000 340,000 556,000
Land 1,080,000 1,080,000
Building 900,000 900,000
Equipment 90,000 130,000 220,000
Total assets 1,736,000 2,250,000 3,986,000

Accounts payable 436,000 450,000 886,000

Mortgage payable 180,000 180,000
Total liabilities 616,000 450,000 1,066,000

Adjusted capital balances 1,120,000 1,800,000 2,920,000

Requirement (b):
Cash 170,000
Accounts receivable 1,060,000
Inventories 556,000
Land 1,080,000
Building 900,000
Equipment 220,000
Accounts payable 886,000
Mortgage payable 180,000
Ann, Capital 1,120,000
Buoy, Capital 1,800,000

3. Solution:
 Mr. Angot, Capital = 18,000, the sale of the land on partnership agreement date provides information on the
land’s fair value on that date.
 M. Banglo, Capital = 40,000 cash contribution.

4. Solution:
A B C

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Cash 500,000
Land 800,000
Equipment 550,000
Mortgage payable (350,000)
Adjusted capital balances 500,000 450,000 550,000

PROBLEM 1-5: CLASSROOM ACTIVITY

Solutions:
Requirement (a):
Partner 1 Partner 2 Totals
Cash 281,250 1,800,000 2,081,250
Accounts receivable 430,000 800,000 1,230,000
Land 1,500,000 1,500,000
Building 1,400,000 1,400,000
Total assets 3,611,250 2,600,000 6,211,250

Accounts payable 330,000 400,000 730,000

Notes payable 375,657 375,657
Provision for probable loss 300,000 300,000
Real property tax payable 40,000 40,000
Total assets 670,000 775,657 1,445,657

Adjusted capital balances 2,941,250 1,824,343 4,765,593

Requirement (b):
Cash 2,081,250
Accounts receivable 1,230,000
Land 1,500,000
Building 1,400,000
Accounts payable 730,000
Notes payable 375,657
Provision for probable loss 300,000
Real property tax payable 40,000
Partner 1, Capital 2,941,250
Partner 2, Capital 1,824,343
Variation #1:

Solutions:

Requirement (a) and (b):

Total net asset contributions 4,765,593
Divide by: 2
Equal credits to capital accounts 2,382,796

Partner 1 Partner 2
Equal credits to capital accounts 2,382,796 2,382,796
Fair value of net asset contribution 2,941,250 1,824,343
Bonus (558,454) 558,454

Answers: Partner 2 receives a bonus of ₱558,454.

Requirement (c): The bonus is treated as an adjustment to the equity accounts of the partners. Partner 1’s capital
shall be decreased while Partner 2’s capital shall be increased by the ₱558,454 bonus.

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Requirement (d):
Cash 2,081,250
Accounts receivable 1,230,000
Land 1,500,000
Building 1,400,000
Accounts payable 730,000
Notes payable 375,657
Provision for probable loss 300,000
Real property tax payable 40,000
Partner 1, Capital 2,382,796
Partner 2, Capital 2,382,796

Variation #2:

Solutions:
Requirement (a):
Total net asset contributions 4,765,593
Divide by: 2
Equal credits to capital accounts 2,382,796

Partner 1 Partner 2
Equal credits to capital accounts 2,382,796 2,382,796
Fair value of net asset contribution 2,941,250 1,824,343
(Receipt) Payment (558,454) 558,454

Answer: Partner 1 shall receive cash of ₱558,454 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 730,000
Notes payable 375,657
Provision for probable loss 300,000
Real property tax payable 40,000
Partner 1, Capital 2,382,796
Partner 2, Capital 2,382,796

Variation #3:

Solutions:
Requirements (a) and (b):
Total net asset contributions 4,765,593

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Divide by: 2
Equal credits to capital accounts 2,382,796

Using first Partner 1’s capital, let us determine if Partner 2’s capital contribution has any deficiency.

Partner 1, Capital 2,941,250

Divide by: Partner 1’s equity interest 50%
Total 5,882,500
Multiply by: Partner 2's interest 50%
Minimum capital required of Partner 2 2,941,250
Partner 2's capital 1,824,343
Deficiency on Partner 2's capital contribution 1,116,907

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

Using Partner 2’s capital, let us determine if Partner 1’s capital contribution has any deficiency.
Partner 2, Capital 1,824,343
Divide by: Partner 2’s equity interest 50%
Total 3,648,685
Multiply by: Partner 1's interest 50%
Minimum capital required of Partner 1 1,824,343
Partner 1's capital 2,941,250
Deficiency on Partner 1's capital contribution -

Conclusion: Partner 1’s contribution is not deficient.

Variation #4:

Solution:
Total net asset contributions 4,765,593
Divide by: 2
Equal credits to capital accounts 2,382,796

Partner 1 Partner 2
Equal credits to capital accounts 2,382,796 2,382,796
Fair value of net asset contribution 2,941,250 1,824,343
(Withdrawal) Additional investment (558,454) 558,454

Answer:
Partner 1 shall withdraw ₱558,454 while Partner 2 shall make an additional investment of ₱558,454.

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PROBLEM 2-4: EXERCISES – COMPUTATIONAL

1. Solutions:

Case #1:
A B C Total
Amount being allocated 100,000
Allocation:
1. Bonus (10% x 100,000) 10,000 10,000
2. Interest on cap.
(80K x 6%); (50K x 6%); (30K x 6%) 4,800 3,000 1,800 9,600
3. Allocation of remainder
(100K - 10K - 9.6K) = 80.4K ÷ 3 26,800 26,800 26,800 80,400
As allocated 41,600 29,800 28,600 100,000

Case #2:
A B C Total
Amount being allocated (20,000)
Allocation:
1. Bonus (none) - -
2. Interest on cap.
(80K x 6%); (50K x 6%); (30K x 6%) 4,800 3,000 1,800 9,600
3. Allocation of remainder
(-20K - 9.6K) = -29.6K ÷ 3 (9,867) (9,867) (9,867) (29,600)
As allocated (5,067) (6,867) (8,067) (20,000)

2. Solution:
Balance, Mar. 1, 20x1 50,000 10/12 41,666.67
Additional investment, June 1 20,000 7/12 11,666.67
Withdrawal, Sept. 1 (15K - 10K) (5,000) 4/12 (1,666.67)
Weighted average capital 51,667
Multiply by: 12%
Interest on capital 6,200

3. Solutions:
Case #1:

Partner A:
Balance, Jan. 1, 20x1 120,000 12/12 120,000
Withdrawal, May 1 (20,000) 8/12 (13,333)
Additional investment, Aug. 1 10,000 5/12 4,167
Withdrawal, Oct. 1 (10,000) 3/12 (2,500)
Weighted Ave. Capital 108,333

Partner B:
Balance, Jan. 1, 20x1 80,000 12/12 80,000
Withdrawal, May 1 (10,000) 8/12 (6,667)
Additional investment, July 1 20,000 6/12 10,000
Withdrawal, Oct. 1 (5,000) 3/12 (1,250)
Weighted Ave. Capital 82,083

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Partners Wtd. Ave. Cap.

A 108,333
B 82,083
Total 190,417

A B Total
Amount being allocated 240,000
Allocation:
(240K x 108,333/190,417);
136,543 103,457 240,000
(240K x 82,083/190,417)
As allocated 136,543 103,457 240,000

Case #2:
A B Total
Amount being allocated 240,000
Allocation:
1. Interest on cap. (see computations below) 20,000 17,000 37,000
2. Allocation of remainder
101,500 101,500 203,000
(240K - 37K) = 203K ÷ 2
As allocated 121,500 118,500 240,000

Partner A Partner B
Balance, Jan. 1, 20x1 120,000 80,000
Withdrawal, May 1 (20,000) (10,000)
Additional investment, July 1 20,000
Additional investment, Aug. 1 10,000
Withdrawal, Oct. 1 (10,000) (5,000)
Ending balances 100,000 85,000
Multiply by: 0 0
Interest on ending balance 20,000 17,000

4. Solutions:

Case #1:
A B Total
Amount being allocated 480,000
Allocation:
1. Salary 60,000 60,000 120,000
2. Bonus (see computation below) 60,000 60,000
3. Allocation of remainder
(480K – 120K - 60K) = 300K ÷ 2 150,000 150,000 300,000
As allocated 270,000 210,000 480,000

The bonus is computed as follows:

Profit before salaries and before bonus 480,000

Salaries (60K x 2) (120,000)
Profit after salaries but before bonus 360,000
B = P - P

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1 + Br
Where: B = bonus
P = profit before bonus and tax but after salaries
Br = bonus rate or bonus percentage

360,000
B = 360,000 -
1 + 20%
B = 360,000 - 300,000
B = 60,000

Case #2:
A B Total
Amount being allocated 480,000(a)
Allocation:
1. Salary 60,000 60,000 120,000
2. Bonus 60,000(b) 60,000
3. Allocation of remainder
(480K – 120K - 60K) = 300K ÷ 2 150,000 150,000 300,000
As allocated 270,000 210,000 360,000

(a)
Profit before salaries and bonus is computed as follows:
Profit after salaries but before bonus 360,000
Salaries (60K x 2) 120,000
Profit before salaries and bonus 480,000

(b)
The bonus is computed as follows:
P
B = P -
1 + Br
Where: B = bonus
P = profit before bonus and tax but after salaries
Br = bonus rate or bonus percentage

360,000
B = 360,000(c) -
1 + 20%
B = 360,000 - 300,000
B = 60,000
(c)
This is amount of profit given in the problem.

Case #3:
A B Total
Amount being allocated 480,000(a)
Allocation:
1. Salary 60,000 60,000 120,000
2. Bonus 60,000(b) 60,000
3. Allocation of remainder
(480K – 120K - 60K) = 300K ÷ 2 150,000 150,000 300,000
As allocated 270,000 210,000 360,000

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(a)
Profit before salaries and bonus 480,000 (squeeze)
Salaries (60K x 2) (120,000)
Bonus (see computation below) (60,000)
Profit after salaries and bonus 300,000 (start)

(b)
The bonus is computed as follows:
 The problem states that the bonus is computed based on “Profit after salaries and after bonus.” The “Profit after
salaries and after bonus” is actually the ₱300,000 amount given in the problem. Thus, to compute for the bonus,
the ₱300,000 amount is simply multiplied by the 20% bonus percentage, i.e., (300,000 x 20%) = ₱60,000.

5. Answer: 0

PROBLEM 3-3: MULTIPLE CHOICE - COMPUTATIONAL

1. B
Solution:
Total capital after admission 150,000
Multiply by: Interest of Lind 1/3
Capital credit to Lind 50,000
Contribution of Lind (40,000)
Bonus to Lind 10,000
Multiply by: Old P/L ratio of Blau 60%
Deduction to Blau's capital 6,000

Interest of Blau before admission of Lind 60,000

Deduction to Blau's capital (6,000)
Adjusted capital of Blau after admission 54,000

2. D (60K + 20K + 15K) = 95K total capital after admission x 20% = 19,000

3. A Recognition of goodwill from non-business combination transactions is prohibited under PFRSs.

4. A
Solution:
Payment to Eddy 180,000
Capital balance of Eddy 160,000
Excess payment to Eddy 20,000

Fox Grimm
Capital balances before retirement 96,000 64,000
Share in excess payment to Eddy (12,000) (8,000)
Capital balances after retirement 84,000 56,000

5. B
Solution:
Eddy, capital 160,000
Fox, capital 96,000

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Grimm, capital 64,000

Investment of Hamm 140,000
Total partnership capital after admission 460,000
Multiply by: Interest of Hamm 25%
Capital credit to Hamm 115,000
Investment of Hamm 140,000
Bonus to old partners (25,000)

Eddy, capital (before admission) 160,000

Share in bonus to old partners (25K x 50%) 12,500
Eddy, capital (after admission) 172,500

6. C
Solution:
Coll (20%) Maduro (30%) Prieto (50%) Total
Unadjusted capital balance 42,000 39,000 90,000 171,000
Share in revaluation gain
[(216K – 180) x
(20%; 20% & 50%)] 7,200 7,200 21,600 36,000
Adjusted capital balance 49,200 46,200 111,600 207,000

The entry to record the settlement of Coll’s interest is as follows:

July 1, Coll, loan 9,000
20x1
Coll, Capital 49,200
Maduro, Capital (sh. in excess payment) (3K x 2/8) 750
Prieto, Capital (sh. in excess payment) (3K x 6/8) 2,250
Cash 61,200
Adjusted capital of Maduro before retirement 46,200
Share in excess payment to Coll (750)
Adjusted capital of Maduro after retirement 45,450

7. D (40K + 40K + 12K) = 92K fair value of net assets – [(5,000 x 2) x 1 = 10,000 aggregate par value of
shares issued] = 82,000 credit to share premium

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