Chapter 1Problem IRequirement 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. 120,000Inventory. 120,000Equipment.. 240,000A, capital... 480,000Initial investment.Cash..120,000Lan..240,000!uilin".480,000#ort"a"e paya$le.240,000 !, capital..%00,000Initial investment.Requirement 2: Assuming that A and B agree that each partner is to receive an equal capital interest. To record adjustments: nothing to adjust since both of them have no set of books. To close the books: nothing to close since both of them have no set of books. To record investments:Partnership books: Bonus Approach:Cash120,000Inventory120,000Equipment.... 240,000A, capital..480,000Cash. 120,000Lan. . 240,000!uilin" . 480,000#ort"a"e paya$le240,000 !, capital.. %00,000!, capital....%0,000A, capital%0,000Total agreed capital (P4!"!!! # P$!!"!!!%&.P '"!!"!!!(ultiplied b): *apital interest (equal%&&&.......'+,Partner-s individual capital interest&&&&&.P .4!"!!!/ess: A-s capital interest&&&&&&&&&..&.4!"!!!Bonus to A&&.&&&&&&&&&&&&&&..P$!"!!! Revaluation !ood"ill# Approach:Cash120,000Inventory120,000Equipment.240,000A, capital..480,000Cash 120,000Lan.240,000!uilin"... .480,000#ort"a"e paya$le240,000 !, capital.. %00,000 Assets &or "oo'ill or intan"i$le asset(... 120,000A, capital.... 120,000)otal a"ree capital &*%00,000 + 1+2(...*1,200,000Less, )otal contri$ute capital &*480,000 -* %00,000(....1,080,000.oo'ill to A...* 120,000Problem IIAgreed 0air 1alues 2nvested b) 3ohn2nvestedb) 3e4 2nvested b) 3ane *ashP'!!"!!! 5 5 5 5 5 56quipmentP ''!"!!!5 5 5Total assets'!!"!!! P''!"!!!!7ote pa)able assumed b) partnership 5 5 5 8!"!!!5 5 57et assets invested P'!!"!!! P!"!!! P !1$ Bonus %ethod 2$ !ood"ill %ethod Revaluation o& Asset#*ash '!!"!!!*ash '!!"!! 6quipment ''!"!!!6quipment ''!"!! 9ood:ill ;!"!!!7ote Pa)able 7ote Pa)able 8!"!!3ohn" *apital 3ohn" *apital ;!"!! 3e4" *apital 3e4" *apital ;!"!!3ane" *apital 3ane" *apital ;!"!! ,. The bonus method is used :hen 3ohn and 3e4 recognis capital account.The good:ill method is used :hen the partners recogni *apital0or the Gear 6nded Eecember 8'" ,!H4Tom3ulieTotal *apital balances" 3an. ' P! P! P !Add: Additional investments .'"!!! ,."!!!F$"!!!7et income allocation88"..8 '$"44F.!"!!!Totals P 4"..8 P 4'"44F P',$"!!!/ess: Iithdra:als'."!!!',"!!! ,F"!!!*apital balances" Eec. 8' P $;"..8P ,;"44FP;;"!!!Problem I'Book o& ( is to be retained b) the ne" partnership. The follo:ing procedures are to be follo:ed:2ndividual versus Dole ProprietorBooks of2ndividualJBooks of DoleProprietorAdjusting entries 7+AGes*losing entries (real accounts% 7+A7o2nvestmentsGesJJBalance DheetGes J Books of ?K Partnership books JJ 2nvestments of individualK additional investments or :ithdra:als of sole proprietor.1. Books of Sole Proprietor (H):

a$ To record adjustments: a. /, capital 1,800Allo'ance 0or ou$t0ul accounts.1,800 Aitional provision compute as 0ollo's, 1equire allo'ance, 102 3 *48,000 4 * 4,800Less, *revious $alance 5,000Aitional provision * 1,800$. Interest receiva$le or accrue interest income.5,%00/, capital5,%00 Interest income 0or nine months compute as 0ollo's,*%0,000 3 82 3 6+12 4 *5,000.c. /, capital.. %,000#erchanise inventory..%,000 7ecline in the value o0 merchanise.*28,000 9 *21,000 4 *%,000.. /, capital.4,800Accumulate epreciation.4,800 :ner epreciation.e. *repai e3penses...2,400/, capital2,400E3penses pai in avance.

/, capital 8,200Accrue e3penses.8,200:nrecore e3penses.*ote: All adjustment that reLects nominal accounts should be coursed through the capital account" since all nominal accounts are alread) closed atthe time of formation. b$ To close the books: nothing to close since the books of ? :ill be retained.c$To record investment:Cash. 11%,100 I, capital11%,100 Initial investment compute as 0ollo's,:na;uste capital o0 /* 24%,000A &euct(, a;ustments,a. 7ou$t0ul accounts......&1,800($. Interest income.. 5,%00c. 7ecline in the value o0 merchanise.&%,000(. :nerAs capital account.)he "oo'ill metho is use 'hen the partners reco"ni?e the intan"i$le nature o0 the sBills =ane is $rin"in" to the partnership. /o'ever, the capital accounts are equali?e $y reco"ni?in" an intan"i$le asset an a corresponin" increase in the capital accounts o0 the partners. :nless the intan"i$le asset can $e speci@cally ienti@e, such as a patent $ein" investe, it shoul not $e reco"ni?e, $ecause o0 a lacB o0 ;usti@cation 0or "oo'ill in a ne' $usiness.'$.c O refer to 7o. '. for computation.'F.a 00" capital: @nadjusted balance P.F"!!! Adjustments:Accumulated depreciation ('".!!%Allo:ance for doubtful account(',"!!!%Adjusted balanceP 48".!!

99" capital: @nadjusted balance P4;".!!Adjustments:Accumulated depreciation (4".!!%Allo:ance for doubtful account(4".!!%Adjusted balanceP 4!".!!'.c 99-s adjusted capital (see no. 'F% P 4!".!!Eivide b) 99-s P T / share percentage4!NTotal partnership capital P '!'",.!(ultipl) b) 00-s P T / share percentage$!N00-s capital credit$!"F.!00-s contributed capital (see no. '%48".!!Additional cash to be invested b) 00 P 'F",.!';.dTotal capital of the ne: partnership (see no. ,!%P ,;$"F.(ultipl) b) AA-s interest,!N*ash to be invested b) AA P .;"8F.,!. (a% BB PP Total ($!N%(4!N% @nadjusted capital balancesP'88"!!!P'!"!!!P,4'"!!!Adjustments:Allo:ance for bad debts ( ,"F!!%( '"!!% ( 4".!!%2nventories 8"!!!,"!!! ."!!!Accrued eHpenses ( ,"4!!% ( '"$!!% ( 4"!!!%Adjusted capital balancesP'8!";!!P'!$"$!! P,8F".!!Total capital before the formation of the ne: partnership (see above% P ,8F".!!Eivide b) the total percentage share of BB and PP (.!N # 8!N%!NTotal capital of the partnership after the admission of AA P ,;$"F.,'.aAgreed *apital *ontributed *apitalDettlementBB P'4"48F..! (.!N H P,;$"F.%P '8!";!!P 'F".8F..!PP ;"!$,..! (8!N H P,;$"F.% '!$"$!!('F".8F..!%Therefore" BB :ill pa) PP P'F".8F..!,,.cTotal partnership capital (P''8"$4!+'+8% P 84!";,!/ess EE-s capital''8"$4!**-s capital after adjustments P ,,F",!Adjustments made:Allo:ance for doubtful account (,N H P;$"!!!%'";,!(erchandise inventor)( '$"!!!%Prepaid eHpenses( .",!!%Accrued eHpenses 8",!!**-s capital before adjustmentsP ,''",!!,8.aAssets invested b) **: *ash:*apitalP,''",!!Add Accounts pa)able 4;"$!!Total assets (eHcluding cash% ,$!"!!/ess 7oncash assets (;$"!!! # P'44"!!!% ,4!"!!!P,!"!! Accounts receivable (;$"!!! O P'";,!% ;4"!! (erchandise inventor) '$!"!!! Prepaid eHpenses .",!! P ,!"!!*ash invested b) EE''8"$4!Total assets of the partnership P 8;8"F,!,4.dTotal partnership capital (P'!"!!!+$!N% P 8!!"!!!99-s *apital (P8!!"!!! H 4!N% P ',!"!!!/ess *ash investment8!"!!!(erchandise to be invested b) 99 P ;!"!!!,..aAdjusted capital of 33:Total assets (at agreed valuations% P '!"!!!/ess Accounts pa)able4"!!! P '8,"!!!Aequired capital of 33'!"!!!*ash to be invested b) 33 P 4"!!!0ui1.I'.P,F$"!!! S (P4!"!!! O P,,"!!!% # QP8,4"!!! 5 (P4!"!!! O P,,"!!!%R+8 ,.Philip" P'!!"!!!K Aa)" P'!!"!!! and Darah" P;!"!!! (P8!!"!!! O P,'!"!!!%8. P88!"!!!P88!"!!! S P.!"!!! # (P8'!"!!! 5 P8!"!!!%4.c The capital balances of each partner are determined as follo:s:Apple Blue *ro:n*ash P.!"!!!Propert) P !"!!!(ortgage assumed (8."!!!%6quipment P .."!!!Amount credited tocapital accounts P.!"!!!P 4."!!! P .."!!!.. P'."!!!(P';!"!!! O P'$!"!!!% H '+, S P'."!!!$. P'"!!! O the prevailing selling price :hich is also the fair market value.F.. P'."!!! P8!"!!! # P.!"!!! # P,."!!! S P'!."!!!+8 S P8."!!! P.!"!!! 5 P8."!!! S P'."!!! ;. P4."!!!'!.P,,."!!!''.P8F."!!! S P4!!"!!! O P,."!!! ',.P.!"!!! '8.P,!"!!!Pane -ills*ash.................................................................................. P4!"!!! P8!"!!!(achiner) and equipment................................................. '!!"!!!Building............................................................................. 8.!"!!! Dubtotal......................................................................... P'4!"!!! P8!"!!!/ess: /iabilit) assumed b) the partnership.......................('!!"!!!%*apital balances" F+'+!$.................................................... P'4!"!!! P,!"!!!'4.dAdjusted capital of //P '$.";!!*ontributed capital of ((,";.!Total capital P ,4".!'..a00" capital: @nadjusted balance P.F"!!! Adjustments: Accumulated depreciation ('".!!% Allo:ance for doubtful account(',"!!!%Adjusted balanceP 48".!! 99" capital: @nadjusted balance P4;".!! Adjustments: Accumulated depreciation (4".!!% Allo:ance for doubtful account(4".!!%Adjusted balanceP 4!".!!T(23RI2-Completion statements: '. accounting ,. 9AAP 8. a. cash $asis instead of accrual $asisb. prior period adjustmentsc. use of 0air &or current( values instead of historical costd. recognition of good:ill in situations not involving business combinations 4. dra:ings .. fair (or current% values $. achieving equity among the partners F. capital balances . professional corporationTrue or 4alse; 0alse '4.True ';.0alse ,4.0alse ,;.0alse'!.True '..0alse ,!.True ,..True 8!.True''.0alse '$.0alse ,'.0alse ,$.0alse',.True 'F.0alse ,,.True ,F.True'8.0alse '.True ,8.0alse ,.TrueNote for the following numbers:17.Indiidu!ls" p!rtnerships" !nd #orpor!tions !re !llowed to be p!rtners in ! p!rtnership.1$.%ll of the gener!l p!rtners !re li!ble for !ll the p!rtnership&s debts.'1.(ost sm!ll p!rtnerships m!int!in their )n!n#i!l inform!tion using the t!* b!sis.'+." ,hile the p!rtnership does not p!- in#ome t!*es" it is responsible for other t!*es su#h !s p!-roll t!*es !nd fr!n#hise t!*es.'../he propriet!r- theor- is b!sed on the notion th!t the business entit- is !n !ggreg!tion of the owners'0./his is !n e*!mple of the propriet!r- theor- of e1uit-.'2. %n- b!sis (i.e." #!rr-ing !lue" t!* b!sis" or m!rket !lue) #!n be used to !lue non#!sh !ssets #ontributed to ! p!rtnership%5/TIP/2.C(3IC2 052-TI3*-8'.a 8$.d 4'.c 4$.a .'.d8,.B 8F.b 4,.c 4F.c .,.b88.a 8.c 48.a 4.b .8.b84.e 8;.a 44.d 4;.b8..d 4!.a 4..b .!.c