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01.1 Solutions - CM1 Partnership Formation
Electronic Circuit: devices and analysis (ECDA 223)
STI West Negros University
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BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
CM NO. 1 PARTNERSHIP FORMATION - SOLUTIONS
PROBLEM 1
On April 8, 2023, Pascua who has her own retail business and Dela Cruz, decided to form a partnership wherein they will divide profits in the ratio o f40:60, respectively. The statement of financial position is as follows: Pascua Marketing Statement of Financial Position April 8, 2023 Assets Cash 4, Accounts Receivable 160, Less: Allowance for Uncollectible Accounts 16,000 144, Inventory 200, Equipment 50, Less: Accumulated Depreciation 10,000 40, Total Assets 388, Liabilities and Capital Accounts Payable 36, Pascua, Capital 352, Total Liabilities and Capital 388, Conditions agreed upon before the formation of the partnership: a. The Accounts Receivable of Pascua is estimated to be 70% realizable. b. The Accumulated Depreciation of the equipment will be increased by P10,000. c. The Accounts Payable will be assumed by the Partnership. d. The capital of the partnership is based on the adjusted capital balance of Pascua. Dela Cruz is to contribute cash in order to make the partner’s capital balances proportionate to the profit and loss ratio. Requirement: 1. Prepare necessary journal entries in the books of Pascua. 2. Prepare the opening journal entries in the books of the Partnership. JOURNAL ENTRIES: 1 Books of Pascua Adjusting Entries: a. Pascua, Capital 32, Allowance for Uncollectible Accounts 32, #to adjust accounts receivable to 70% Net Realizable Value b. Pascua, Capital 10, Accumulated Depreciation 10, #to adjust the carrying amount of Equipment
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
Closing: c. Accounts Payable 36, Pascua, Capital 310, Allowance for Uncollectible Accounts 48, Accumulated Depreciation 20, Cash 4, Accounts Receivable 160, Inventory 200, Equipment 50, #to close books of Pascua 2 Books of Partnership a. Cash 4, Accounts Receivable 160, Inventory 200, Equipment 50, Accounts Payable 36, Allowance for Uncollectible Accounts 310, Accumulated Depreciation 48, Pascua, Capital 20, #to record investment of Pascua to the Partnership b. Cash [(310,000/40%) x 60%] 465, Dela Cruz, Capital 465, #to record investment of Dela Cruz to the Partnership PROBLEM 2 Jumao-as operated a specialty shop that sold fishing equipment and accessories. His post-closing trial balance on December 31, 2023 is as follows: Fish Post-Closing Trial Balance December 31, 2023 Debit Credit Cash 36, Accounts Receivable 150, Allowance for Uncollectible Accounts 16, Inventory 440, Equipment 135, Accumulated Depreciation 75, Accounts Payable 30, Jumao-as, Capital 640, 761,000 761, Jumaos-as plans to enter into a partnership with trusted associate, Quino, effective January 1, 2024. Profits and Losses will be shared equally. Jumaos-as is to transfer all assets and liabilities of his shop to the partnership after revaluation. Quino will invest cash equal to Jumao-as’ investment after revaluation. The agreed values are as follows: accounts receivable (net), P140,000; Inventory, P460,000; and Equipment (net), P124,000. The partnership will operate under the business name of Fish R’ Us. Requirement:
- Prepare the opening journal entries in the books of the partnership.
- Prepare the partnership’s statement of financial position as at the date of formation of the partnership.
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
The partners agreed to share profits and losses equally and decided to invest an equal amount in the partnership. Lucena and Mulles agreed that Lucena’s land is worth P500,000 and his building P1,450,000. Lucena is to contribute cash in an amount sufficient to make his capital account balance equal to Mulles. An agreement is reached by the two partners on the following items: a. The accounts receivable are to be valued at P1,799,000 and the allowance for uncollectible accounts will be eliminated. b. Inventory is to be decreased by P112,500. c. The prepaid rent is for the warehouse used by Mulles. All merchandise will be transferred to Lucena’s building. No refund will be received on the unused rent paid in advance. d. The store equipment has a fair value of P300,000. e. All the other assets and liabilities are to be transferred at their book values. Requirement: Prepare the necessary journal entries in the books of Mulles. Also, record the formation of the partnership in a new set of books. JOURNAL ENTRIES: a. Books of Mulles Mulles, Capital 187, Allowance for Uncollectible Accounts 187, # to adjust Net Realizable Value of Accounts Receivable Mulles, Capital 112, Inventory 112, #to adjust Inventory to its Net Realizable Value Mulles, Capital 29, Prepaid Rent 29, #to adjust unrecoverable prepaid rent Accumulated Depreciation 7, Mulles, Capital 7, #to record gain from revaluation of PPE Closing Books of Mulles Allowance for Uncollectible Accounts 304, Accumulated Depreciation 90, Notes Payable 330, Accounts Payable 505, Mulles, Capital 2,393, Cash 229, Accounts Receivable 2,103, Inventory 900, Store Equipment 390, #to close the books of Mulles
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
Books of Partnership Cash 229, Accounts Receivable 2,103, Inventory 900, Store Equipment 390, Allowance for Uncollectible Accounts 304, Accumulated Depreciation 90, Notes Payable 300, Accounts Payable 505, Mulles, Capital 2,393, #to record investment of Mulles to the Partnership Land 500, Building 1,450, Cash 443, Lucena, Capital 2,393, #to record investment of Lucena to the Partnership PROBLEM 4 The business assets of Cabulay and Liggayu appear below: Cabulay Liggayu Cash 11,000 22, Accounts Receivable 234,536 567, Inventories 120,035 260, Land 603,000 - Building - 428, Furniture and Fixtures 50 ,345 34, Other Assets 2,000 3, Total 1,020,916 1,317, Accounts Payable 178,940 243, Notes Payable 200,000 345, Cabulay, Capital 641,976 - Liggayu, Capital - 728, Total 1,020,916 1,317, Cabulay and Liggayu agreed to form a partnership contributing their assets and equities subject to the following requirements: a. Accounts receivable of P20,000 in Cabulay’s books and P35,000 in Liggayu’s are uncollectible. b. Inventories of P5,500 and P6,700 are worthless in Cabulay’s and Liggayu’s respective books. c. Other assets of P2,000 for Cabulay and P3,600 for Liggayu are to be written off. Requirement: Prepare journal entries for the formation of the partnership as at July 1. JOURNAL ENTRIES: Books of Cabulay Adjusting Entries a. Cabulay, Capital 20, Allowance for Uncollectible Accounts 20, #to record uncollectible accounts b. Cabulay, Capital 5, Inventory 5, #to record worthless inventory
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
Cash 22, Accounts Receivable 567, Inventories 253, Building 428, Furniture and Fixtures 34, Allowance for Uncollectible Accounts 35, Accounts Payable 243, Notes Payable 345, Cabulay, Capital 683, #to record investment of Liggayu PROBLEM 5 On October 31, 2023 , Lopez and Cendana agreed to combine their proprietorships as a partnership. Their statements of financial position are as follows: Lopez’s Business Cendana’s Business Assets Book Value Market Value Book Value Market Value Cash 37,000 37,000 80,000 80, Accounts Receivable (net) 220,000 202,000 80,000 63, Inventory 510,000 460,000 340,000 351, Property and Equipment (net) 1,218,000 1,235,000 535,000 574, Total 1,985,000? 1,035,000? Liabilities and Capital Accounts Payable 236,000 236,000 91,000 91, Accrued Expenses 22,000 22,000 14,000 14, Notes Payable 750,000 750,000 - - Lopez, Capital 977,000? -? Cendana, Capital -? 930,000? Total 1,985,000? 1,035,000? Requirement:
- Record the partnership formation.
- Prepare the partnership’s statement of financial position as at December 31, 2023. JOURNAL ENTRIES: Books of Lopez Adjusting Entries Lopez, Capital 18, Allowance for Uncollectible Accounts 18,
#to record accounts receivable to its current market value Lopez, Capital 50, Inventory 50, #to record inventory to its current market value Property and Equipment 17, Lopez, Capital 17, #to record revaluation of Property and Equipment
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
Closing Allowance for Uncollectible Accounts 18, Accounts Payable 236, Accrued Expenses 22, Notes Payable 750, Lopez, Capital 926, Cash 37, Accounts Receivable 220, Inventory 460, Property and Equipment 1,235, #to close the books of Lopez Books of Cendana Adjusting Entries Cendana, Capital 17, Allowance for Uncollectible Accounts 17, #to record accounts receivable to its current market value Inventory 11, Cendana, Capital 11, #to record inventory to its current market value Property and Equipment 39, Cendana, Capital 39, #to record revaluation of Property and Equipment Closing Allowance for Uncollectible Accounts 17, Accounts Payable 91, Accrued Expenses 14, Cendana, Capital 963, Cash 80, Accounts Receivable 80, Inventory 351, Property and Equipment 574, #to close the books of Cendana Books of Partnership Cash 37, Accounts Receivable 220, Inventory 460, Property and Equipment 1,235, Allowance for Uncollectible Accounts 18, Accounts Payable 236, Accrued Expenses 22, Notes Payable 750, Lopez, Capital 926, #to record investment of Lopez
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
Requirement: 1. Prepare the entries to adjust and close the books of Arzadon and Escano 2. Prepare opening entries in the books of the Partnership. 3. Prepare the statement of financial position as at June 13, 2023. JOURNAL ENTRIES: Books of Arzadon Adjusting Entries a. No Entry b. Arzadon, Capital 9, Allowance for Uncollectible Accounts 9, #to record 5% Allowance on Accounts Receivable c. Arzadon, Capital 8, Accrued Payable 8, #to record Accounts Payable in Arzadon d. No Entry Closing Entries Allowance for Uncollectible Accounts 9, Accumulated Depreciation 45, Accounts Payable 138, Accrued Payables 8, Arzadon, Capital 315, Cash 75, Accounts Receivable 180, Inventory 160, Property and Equipment 100, #to close the books of Arzadon Books of Escano Adjusting Entries a. Inventory 20, Escano, Capital 20, #to adjust inventory to its Net Realizable Value b. Escano, Capital 7, Allowance for Uncollectible Accounts 7, #to record 5% Allowance on Accounts Receivable c. No Entry d. No Entry Closing Entries Allowance for Uncollectible Accounts 7, Accumulated Depreciation 15, Accounts Payable 100, Escano, Capital 332, Cash 45, Accounts Receivable 150, Inventory 140, Property and Equipment 120, #to close books of Escano
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
Books of Partnership Cash 75, Accounts Receivable 180, Inventory 160, Property and Equipment 100, Allowance for Uncollectible Accounts 9, Accumulated Depreciation 45, Accounts Payable 138, Accrued Payables 8, Arzadon, Capital 315, #to record investment of Arzadon to the Partnership Cash 45, Accounts Receivable 150, Inventory 140, Property and Equipment 120, Allowance for Uncollectible Accounts 7, Accumulated Depreciation 15, Accounts Payable 100, Escano, Capital 332, #to record investment of Arzadon to the Partnership Goodwill 100, Escano, Capital 100, #to record goodwill from partnership Cash* 40, Escano, Capital 40, #to record additional cash investment to have a 60% interest in the Partnership * Arzadon, Capital 315, Divided by: 40% interest in their Partnership 40% Total Agreed Capital 787, Less: Arzadon, Capital (315,000) Agreed Investment of Escano 472, Less: Initial Investments (332,500) Allowed Goodwill (100,000) Additional Cash to be invested 40, Arzadon and Escano Statement of Financial Position June 13, 2023 Cash 160, Accounts Receivable 330, Less: Allowance for Uncollectible Accounts (16,500) 313, Inventory 300, Goodwill 100, Property and Equipment 220, Less: Accumulated Depreciation (60,000) 160, Total 1,033, Accounts Payable 238, Accrued Liabilities 8, Arzadon, Capital 315, Escano, Capital 472, Total 1,033,
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
JOURNAL ENTRIES:
Books of Alvaro Adjusitng Entries a. Alvaro, Capital 105, Merchandise Inventory 105, #to adjust inventory in accordance to the agreement b. Land 68, Alvaro, Capital 68, #to adjust land in accordance to the agreement Building 96, Alvaro, Capital 96, #to adjust building in accordance to the agreement Alvaro, Capital 2, Accumulated Depreciation 2, #to adjust office equipment in accordance to the agreement Accumulated Depreciation 20, Alvaro, Capital 20, #to adjust repair equipment in accordance to the agreement c. Notes Payable 60, Alvaro, Capital 60, #to adjust accounts payable in accordance to the agreement d. No Entry Closing Entries Allowance for Uncollectible Accounts 22, Accumulated Depreciation – Building 32, Accumulated Depreciation – Office Equipment 8, Accumulated Depreciation – Repair Equipment 48, Notes Payable 60, Accounts Payable 170, Mortgage Payable 200, Alvaro, Capital 805, Cash 42, Accounts Receivable 389, Merchandise Inventory 356, Office Supplies 30, Land 108, Building 224, Office Equipment 24, Repair Equipment 172, #to close the books of Alvaro
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
Books of Dizon Adjusting Entries a. Merchandise Inventory 7, Dizon, Capital 7, #to adjust inventory in accordance to the agreement b. Dizon, Capital 8, Accumulated Depreciation – Office Equipment 8, #to adjust office equipment in accordance to the agreement c. No Entry d. No Entry Closing Entries Allowance for Uncollectible Accounts 14, Accumulated Depreciation 22, Accounts Payable 111, Dizon, Capital 431, Cash 30, Accounts Receivable 169, Merchandise Inventory 308, Prepaid Rent 6, Office Supplies 4, Office Equipment 62, #to close the books of Dizon Books of Partnership Cash 42, Accounts Receivable 389, Merchandise Inventory 356, Office Supplies 30, Land 108, Building 224, Office Equipment 24, Repair Equipment 172, Allowance for Uncollectible Accounts 22, Accumulated Depreciation – Building 32, Accumulated Depreciation – Office Equipment 8, Accumulated Depreciation – Repair Equipment 48, Notes Payable 60, Accounts Payable 170, Mortgage Payable 200, Alvaro, Capital 805, #to record investment of Alvaro to the Partnership Cash 30, Accounts Receivable 169, Merchandise Inventory 308, Prepaid Rent 6, Office Supplies 4, Office Equipment 62, Allowance for Uncollectible Accounts 14, Accumulated Depreciation – Office Equipment 22, Accounts Payable 111, Dizon, Capital 431, #to record investment of Dizon to the Partnership
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
The June 30, 2026 post-closing trial balance of the partnership follows: Castro and Santos Matuguinas and Dedumo Debit Credit Debit Credit Cash 200,000 150, Accounts Receivable 1,000,000 1,500, Allowance for Doubtful Accounts 20,000 60, Merchandise Inventory 1,750,000 1,190, Land 250,000 350, Buildings and Equipment 800,000 1,250, Accumulated Depreciation 240,000 610, Prepaid Expenses 50,000 70, Accounts Payable 400,000 600, Notes Payable 700,000 750, Accrued Expenses 300,000 450, L. Castro, Capital 950, S. Santos, Capital 1,440, J. Matuguinas, Capital 650, E. Dedumo, Capital 1,390, Total???? Requirement: 1. Prepare journal entries to record the initial capital contributions. 2. Prepare opening entries in the books of the Partnership. 3. Prepare the statement of financial position as at Jul 1, 2026. 4. Prepare a schedule computing the cash contributed or withdrawn by each partner to bring the initial capital account balances into the profit and loss sharing ratio. JOURNAL ENTRIES: Books of Casto and Santos Adjusting Entries a. No Entry b. No Entry c. Castro, Capital 12, Santos, Capital 18, Allowance for Doubtful Accounts 30, #to record uncollectible accouts in the accounts receivable d. No Entry e. Land 50, Castro, Capital 20, Santos, Capital 30, #to adjust land in accordance with the agreement f. Accumulated Depreciation 80, Castro, Capital 32, Santos, Capital 48, #to adjust property and equipment in accordance with the agreement g. No Entry h. No Entry
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
Closing Allowance for Doubtful Accounts 50, Accumulated Depreciation 160, Accounts Payable 400, Notes Payable 700, Accrued Expenses 300, Castro, Capital 990, Santos, Capital 1,500, Cash 200, Accounts Receivable 1,000, Merchandise Inventory 1,750, Land 300, Building and Equipment 800, Prepaid Expenses 50, #to close the books of Castro and Santos Books of Matuguinas and Dedumo Adjusting Entries a. No Entry b. No Entry c. Matuguinas, Capital 27, Dedumo, Capital 63, Allowance for Doubtful Accounts 90, #to record uncollectible accouts in the accounts receivable d. Matuguinas, Capital 53, Dedumo, Capital 124, Merchandise Inventory 178, #to adjust inventory to its net realizable value e. Land 70, Matuguinas, Capital 21, Dedumo, Capital 49, #to adjust value of land in accordance with the agreement f. Accumulated Depreciation 360, Matuguinas, Capital 108, Dedumo, Capital 252, #to adjust value of land in accordance with the agreement g. Matuguinas, Capital 12, Dedumo, Capital 28, Accounts Payable 40, #to adjust accounts payable in accordance with the agreement h. Matuguinas, Capital 3, Dedumo, Capital 7, Accrued Expenses 10, #to adjust accrued expenses in accordance with the agreement
BUSINESS AND MANAGEMENT
ACCOUNTING FOR SPECIAL TRANSACTIONS
BADVAC2X | RCA CPA MBA 2023
*Profit or Loss Ratio from own Partnerships 40% 60% 30% 70% L. Castro S. Santos J. Matuguinas E. Dedumo Initial Capital Balances 950,000 1,440,000 650,000 1,390, Adjustments: Increase in Allowance for Doubtful Accounts (12,000) (18,000) (27,000) (63,000) Decrease in Net Realizable Value of Inventory - - (53,550) (124,950) Increase in the Value of Land 20,000 30,000 21,000 49, Decrease in Accumulated Depreciation 32,000 48,000 108,000 252, Increase in Accounts Payable - - (12,000) (28,000) Increase in Accrued Expenses - - (3,000) (7,000) Capital Balances after Adjustment 990,000 1,500,000 683,450 1,468, Divided by the New P/L Ratio in the New Partnership 20% 30% 15% 35% Theoretical Agreed Capital 4,950,00 0 5,000,000 4,556,333 4,194, *The Highest Theoretical Agreed Capital Balance will be the New Partnership's Total Capital Balance Total Agreed Capital 5,000,000 5,000,000 5,000,000 5,000, Multiplied by the New P/L Ratio in the New Partnership 20% 30% 15% 35% Committed Capital 1,000,000 1,500,000 750,000 1,750, Less: Initial Capital Contributed (990,000) (1,500,000) (683,450) (1,468,050) Additional Cash Contribution 10,000 - 66,550 281, CSMD Partnership Statement of Financial Position June 30, 2026 Assets Cash 708, Accounts Receivable 2,500, Less: Allowance for Doubtful Accounts (200,000) 2,300, Merchandise Inventory 2,761, Land 720, Building and Equipment 2,050, Less: Accumulated Depreciation (410,000) 1,640, Prepaid Expenses 120, Total Assets 8,250, Liabilities and Capital Accounts Payable 1,040, Notes Payable 1,450, Accrued Expenses 760, L. Castro, Capital 1,000, S. Santos, Capital 1,500, J. Matuguinas, Capital 750, E. Dedumo, Capital 1,750, Total Liabilities and Owners’ Equity 8,250, END
01.1 Solutions - CM1 Partnership Formation
Course: Electronic Circuit: devices and analysis (ECDA 223)
University: STI West Negros University
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