IMUS INSTITUTE

SY 2015- 2016

ADVANCE ACCOUNTING I PARTNERSHIP – CHANGES IN OWNERSHIP INTEREST

PROBLEM 1

Jack, Jill and Jun are partners with profit and loss ratio of 5:3:2. They decided to incorporate as at January 01, 2013. On that date the partnership’s trial balance was as follows:

Capital stock in the amount of P250,000 is to be issued in the ratio of 4:3:3 for Jack, Jill and Jun. The partners are either to receive cash or to pay amounts of cash into the partnership sufficient to bring their capital accounts into the ratio of 4:3:3 for a total capital of P250,000 after any required revaluation of assets.

Required:

1. Prepare journal entries to record the incorporation if the partnership books are to be continued.2. Prepare the journal entry/ies to record the incorporation if the corporation is to start a new set

of books.

ADVAC 1 – ATEST 02 1

PROBLEM 2.

Maya and Rita have been partners for several years and critical values related to their partnership are:

In 2010, the partnership reported a net income of P230,000 and each partner received a P100,000 distribution at year-end. On January 01, 2011, Hara was admitted as a partner by investing P70,000 for a 25% interest in capital. The profit sharing agreement method was modified to also include a salary of P70,000 and a bonus of 5% of net income for Hara. The profit and loss percentages were also revised to 30%, 45% and 25% for Maya, Rita and Hara, respectively.

During 2011, the partnership recognized income of P330,000 and distributed P80,000 to each partner during the year. On January 01, 2012, Maya sold her interest in the partnership to Rita for P200,000. The year 2012 was a transition year for the partnership, and Rita and Hara agreed to share annual profits of P200,000 equally between themselves. During 2012, Rita and Hara withdrew P60,000 and P80,000, respectively, from the partnership.

At the beginning of 2013, Rita decided to sell its interest to the partnership for P350,000. It was agreed that net assets with a book value of P415,000 would be adjusted to reflect their fair value of P405,000.

Immediately after Rita’s retirement, Perla purchased a 40% interest in the partnership by contributing P75,000 cash.

Note that if net income is not sufficient to satisfy all provisions of the profit agreement, the profit and loss percentages are to be used to absorb any deficiencies.

Required:

1. Prepare all necessary journal entries.2. Answer the following questions:

a. What is the capital balance of Maya on December 31, 2010?b. What is the capital balance of Rita on December 31, 2011?c. What is the capital balance of Hara on December 31, 2012?d. What is the total capital of partnership after the admission of Perla?

ADVAC 1 – ATEST 02 2