Partnership Formation And Operation-exercise 391um

PARTNERSHIP FORMATION AND OPERATION I. On 1 November, 2013, Ken Langer and Ann Walters formed a partnership. Langer contributed some business assets and the liabilities assumed by the partnership, which are listed below at both fair value and carrying amount. Fair Value Carrying Amount Cash at bank 52,800 52,800 Marketable securities 47,520 36,960 s receivable 54,000 56,760 Inventory 135,960 132,000 Equipment 342,000 33,000 payable 105,600 105,600 Walters contributed a building worth P 396,000, land worth P 138,000 and a P 330,000 mortgage was taken over by the partnership. They agreed to share profits and losses in the ratio of 6:4. During the first year of the partnership, Langer invested P 66,000 in the business and withdrew P 45,600. Walters invested P 96,000 and withdrew P 14,400. The partnership had a net profit of P 81,600. Retained profits s are not used. Required: 1. Prepare the journal entries to record the initial investment of both partners. 2. Prepare a statement of financial position as at 1 November, 2013. 3. Prepare a statement of partner’s equity for the year ended 31, October 2014. II. Selected s from the trial balance as at 30, June 2013 of the partnership of W. Earp, J. Earp and D. Holiday are as follows: Debit

Credit 13,050

Loan – State Finance Ltd. Profit & Loss Summary (after usual adjusting and closing entries for net profit determination) 41,925 Salary, J. Earp 7,500 W. Earp, Capital 49,500 W. Earp, Retained profits 1,050 J. Earp, Capital 24,750 J. Earp, Retained profits 525 D. Holiday, Capital 16,500 D. Holiday, Retained profits 675 Advance, D. Holiday (repayable in October 2014) 6,600 Further adjustments for the financial year ended 30 June, 2013 have yet to be made as follows: a. Interest accrued to State Finance Ltd. – P 1,100. b. The partnership ant has duly paid J. Earp’s agreed salary as part-time manager (P 7,500 per annum) but was uncertain how to charge it. c. Partners have agreed to:  6% per annum interest on fixed capitals.  7% interest on total drawings for the year which were: W. Earps – P 12,000; J. Earps – P 6,750 and D. Holiday – P 8,250.  6% per annum interest on advance from Holiday.  Profit/losses to be shared ½, 1/3, 1/6 to W. Earp, J. Earp and D. Holiday, respectively.

Required: 1. Complete the Profit and Loss Summary . 2. Prepare Profit Distribution . 3. Complete each partner’s Retained Profits after all adjustments. III. Brown, Ball and Black are in partnership sharing profits and losses in the proportion of a half, one-third and one-sixth, respectively. Their capitals at July 1, 2013, the date of commencement of business, were Brown P 84,000, Ball P 70,000 and Black P 35,000, all contributed in cash. The partners did not keep a complete set of ing records and at June 30, 2013 their assets and liabilities were valued as follows before adjustments (a) to (d) below: Inventory P 115,500; s Receivable P 49,560; Bills Receivable P 17,920; Plant and Equipment P 40,320; Premises P 64,400; Bills Payable P 8.400; Payable P 34, 160; Bank Overdraft P 18,620. Drawings made by the partners in anticipation of profits for the year ended June 30, 2012 amounted to Brown P 7,000, Ball P 5,600 and Black P 4,200. Brown paid in an additional P 16,800 on January 1, 2013. Required: 1. Prepare a statement of distribution of profit for the year to each partner after making the following adjustments: a. depreciation on plant and equipment, 10% and on business premises, 2% (use straight line method) b. allowance for doubtful debts equal to 4% of s receivable and bills receivable c. interest on drawings: Brown P 168; Ball P 154; Black P 140 d. interest on capital at 6% per annum 2. Prepare a statement of financial position for the partnership as at June 30, 2014. IV. Able, Babel and Cable are in a hardware business trading as ABC Co. The partnership agreement includes the following provisions: a. Interest on capital is to be allowed at 6% per annum. b. Salaries are to be allowed: Able, nil; Babel, P 8,000; Cable, P 6,000. c. Interest is to be allowed on advances by partners at 8% per annum. A trial balance at June 30, 2013, after the activities of the preceding year had been recorded but before the stock take, is shown below: ABC Company Trial Balance as of June 30, 2013 Cost of goods sold Cash at bank s receivable Allowance for doubtful debts Inventory Furniture, plant and equipment Accumulated depreciation – furniture, plant and equipment Prepaid insurance Prepaid rent payable Advance from Able (due for payment on April 15, 2012)

Debit P 300,000 6,000 120,000

Credit

P 3,000 225,000 200,000 125,000 2,500 4,000 100,000 80,000

Able, Capital Babel, Capital Cabel, Capital Able, Retained profits Babel, Retained profits Cabel, Retained profits Sales revenue Selling and general expenses Discount received Proceeds from sale of motor vehicle Carrying amount of motor vehicle sold

80,000 40,000 40,000 2,000 13, 000 10,000 440,000 75,00 500 12,000 13,000 P 945,500

P 945,500 Additional information: a. Merchandise o P 400 purchased on credit was received on June 30, 2013, but had not been recorded in the s; nevertheless, it had been included in the physical stock take of P 223,000. b. Insurance and rents to be expenses were assessed at P 1,200 and P 2,200, respectively. c. Depreciation expense to be brought to , P 8,700. d. Wages owed but not paid amounted to P 3,600. e. Partners Babel’s and Cabel’s salaries had not been brought to . f. Interest on Able’s advance had not been brought to . g. Verification of s receivable revealed that the balance of the allowance for doubtful debts should be increased to P 3,600. The increase is related to sales revenue recognized in the current period. Required: 1. Prepare the statement of financial performance for the period ended June 30, 2013. 2. Prepare a Profit Distribution for the same period. 3. Set out the statement of financial position as at June 30, 2013, properly classified. V. On January 2, 2010, Dave and Don formed a general partnership. Below were the movements of their capital balances during the year: Investment, January 2 Additional investment, October 30 Withdrawals, December 1

Dave 450,000 25,500 (12,000)

Investment, January 2 Withdrawals, July 1

Don 550,000 (100,000)

Prepare a Schedule of Profit or Loss under the following independent assumptions: 1. Net income is P 125,000. The partnership is silent as to the sharing of net income or loss. 2. Net income is P 310,000. They agreed to provide for : 10% interest on average capital balances; monthly salary of P500 and P800 to Dave and Don respectively; 20% bonus based on income after interest, salaries and bonus to partners (shared equally); remaining profit is given at 1:4 to Dave and Don, respectively. 3. Net loss is P 100,000. They agreed to provide for 15% interest on ending capital balances; salary to Don of P 100,000; 10% bonus based on net income after salaries and interests (shared equally); any balance is distributed in the ratio of beginning capital. 4. Net income is P 124,000. Monthly salary is P 1,000 each to the partners; 10% interest on beginning capital balances; 15% bonus based on income after salaries and interests (shared equally); any balance is divided equally. 5. Taxable income is P 54,000. Tax rate is 32%. Bonus to Dave is treated as part of operating expenses and calculated at 20% on net income after bonus but before taxes. Remaining profit is distributed equally. 6. Taxable income is P 84,000. Tax rate is 32%. Bonus is treated as part of operating expenses and calculated at 30% on net income after deduction for bonus and taxes (shared equally). Remaining profit is distributed equally.