Pacoac-assignment (1).docx

PACOAC Assignment Problem 1: J. Cantada, F. Partido and K. Andrade formed JFK Partnership on January 1, 2014 agreeing to distribute profit and losses in the ratio of original capital. Original investments were P62,000, P25,000, and P12,500 respectively. Earnings of the firm and drawings by each partner for the period 2014 – 2016 are presented below: Net Income/(Loss) Cantada Partido Andrade 2014 44,000 15,000 7,800 5,200 2015 18,500 15,000 7,800 5,200 2016 (10,500) 10,000 5,200 5,200 At the beginning of 2017, Cantada and Partido agreed to permit Andrade to withdraw from the firm. Since the books of the firm had never been audited, the partners agreed to an audit in arriving at the settlement amount. In withdrawing, Andrade was allowed to take certain furniture and was charged P1,500, although the book value was P4,500; the balance of Andrade’s interest was paid in cash. The items presented below were revealed in the course of the audit: End of 2014 Understatement of accrued expense 400 Understatement of accrued revenue 250 Overstatement of inventories 1,500 Understatement of depreciation on asset still held 150

End of 2015 500 100 2,000 350

End of 2016 650 150 2,000 200

Instructions: 1) Prepare a statement of changes in partners equity covering the period January 1, 2014 to the time of Andrade’s withdrawal, reporting corrected earning balances for each year and corrected capital balances for each partner. Ignore income tax. 2) Prepare the entries that are required at the beginning of 2016 to correct the books and record the transfer of assets to Andrade in final settlement. Problem 2: The trial balance of LM Partnership on January 1, 2015 contains the following information: Debit Credit Cash 140,000 Bank Loans 90,000 Accounts Receivable 100,000 Accounts Payable 120,000 Notes Receivable 80,000 Accrued taxes 5,000 Merchandise Inventories 70,000 Notes Payable 110,000 Land 170,000 F. Lacap Capital 200,000 Building and Equipment, net 30,000 E Manansala Capital 150,000 Temporary Investment at cost 70,000 Prepaid Insurance 9,000 Office Supplies 6,000 675,000 675,000 Income and loss are shared equally by Lacap and Manansala. As of December 31, 2015, L. Nuguid purchased for P160,000 in cash from partners Lacap and Manansala, a one-third interest in the partnership’s capital and income. Each partner agreed to transfer one-third of their individual capital to Nuguid. Prior to Nuguid’s admission, it was decided that the following adjustments be made:  A valuation allowance of P10,000 should be established with respect to temporary investments  An allowance for uncollectible accounts should be established in the amount P20,000  The valuation of the building and equipment should be reduced to P22,000 Income sharing of Nuguid commenced on January 1, 2016.

As of December 31, 2016, J. Osorio was admitted to the partnership for a one-fourth interest and contributed the following assets from a business previously operated by him as a sole proprietor: Cash - P66,000; Accounts Receivable – P40,000; Investments – P20,000. Accounts payable of the business of Osorio assumed by the partnership amounted to P41,000. As an inducement to merge his enterprise with LMN Partnership, Osorio was admitted under goodwill method. Income is to be shared equally by Lacap, Manansala, Nuguid and Osorio in the new firm, commencing January 1, 2017. Additional information relating to the partnership during the years 2015 and 2016 follow: Year Ended December 31 2015 2016 38,000 54,000

Income of the firm Drawings: Lacap 20,000 15,000 Manansala 14,000 12,000 Nuguid --28,000 For the purpose of simplicity, it is assumed that income for each year was realized in cash and that the balance sheet of the firm on January 1, 2015 did not change during the two-year period, except as indicated in the problem. Instructions: 1) Prepare the entry on the books of the partnership to record the admission of Nuguid on December 31, 2015. Ignore income taxes. 2) Prepare a schedule to assist in determining the distribution of cash paid by Nuguid to Lacap and Manasala. 3) Determine the capital balances of Lacap, Manansala and Nuguid as of December 31, 2016. 4) Prepare the entry on the books of the partnership to record the admission of Osorio on December 31, 2016. Problem 3: C. Canlas, C. David and C. Estrella, Certified Public Accountants, agreed to combine their practices as at January 1, 2016. The features presented below were contained in the partnership agreement. a) The capital contribution of each partner was the net amount of assets and liabilities taken over by the partnership. Partners capital contributions are presented below: Canlas David Estrella Cash 75,000 75,000 75,000 Accounts receivable 210,000 90,000 240,000 Furniture and Library 64,500 37,500 93,000 349,500 202,500 408,000 Accumulated Depreciation 36,000 22,500 70,500 Accounts Payable 4,500 21,000 10,500 40,500 43,500 81,000 309,000 159,000 327,000 Each partner guarantees the collectability of his receivables. b) Estrella was leasing an office space at Carmela Building. He was bound by the lease up to June 30, 2016. His monthly rental was P9,000. It was agreed by the partners that they will occupy Estrella’s office temporarily until the expiration of the lease and to pay the rent. They also agreed that the monthly rental of P9,000 was too high and that the fair rental value would be P6,750 per month. The excess rent was to be charged to Estrella at December 31, 2016. On July 1, the partners transferred office to Lilian Building with monthly rental of P7,500. c) Partners were not to be paid salaries. Each partner was to receive 20% of the gross fees billed to their respective clients during the first year of the partnership. After subtracting operating expenses, the balances billed was to be credited to the partners’ capital accounts in the following ratios: Canlas – 40% ; David – 35% ; Estrella – 25%. Partner C. Fajardo was to be admitted to the partnership on April 1, 2016. He was to receive 20% of the fees from the new business obtained after April 1 after deducting expenses, other than the bad debts losses, bore to the total gross fees.

The partnership’s activities in 2016 contain the following information: 1) Fees were billed as follows: C. Canlas C. David C. Estrella

P

330,000 180,000 165,000

New Business: Prior to April 1 45,000 After April 1 180,000 2) Total expenses were P290,000 including the total amount paid for rent. These expenses, however, excluded depreciation and bad debts expenses. The depreciation was to be computed at the rate of 10% of cost (not book value). Depreciable assets purchased during 2016, on which ½ year’s depreciation was to be taken, totaled P75,000. 3) Cash charges to partners’ account during the year were: C. Canlas P 78,000 C. David 66,000 C. Estrella 87,000 C. Fajardo 37,500 4) Out of Canlas’ and David’s accounts receivable, the amount of P18,000 and P6,750 respectively was proven to be uncollectible. A new client billed in March for P24,000 had been adjudged bankrupt and a settlement of P0.5 was made. Instructions: 1) Prepare the statement of the partners’ capital accounts for the year ended December 31, 2016. 2) Show the computation of apportionment of income in good form. Disregard income tax.