Advanced Accounting SOLMAN

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SOLUTION MANUAL
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  Chapter 1 Problem 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………………………………………………………………………………. 120,000 Inventory…………………………………………………………………………. 120,000 Equipment……………………………………………………………………….. 240,000  A, capital………………………………………………………………... 480,000  Initial investment.Cash……………………………………………………………………………….. 120,000 Lan……………………………………………………………………………….. 240,000 !uilin ……………………………………………………………………………. 480,000 #ort a e paya$le……………………………………………………. 240,000 !, capital……………………………………………………………….. %00,000  Initial investment. Requirement 2:  Assuming that A and B agree that each partner is to receive an equal capital interest. To record adjustments:  nothing to adjust since both of them have no set of books. To close the books:  nothing to close since both of them have no set of books. To record investments:  Partnership books:  Bonus Approach:  Cash…………………………………………………………………………… 120,000 Inventory……………………………………………………………………… 120,000 Equipment……………………………………………………………………. 240,000  A, capital…………………………………………………………….. 480,000 Cash…………………………………………………………………………… 120,000 Lan……………………………………………………………………………. 240,000 !uilin ………………………………………………………………………… 480,000 #ort a e paya$le………………………………………………… 240,000 !, capital.……………………………………………………….…… %00,000  !, capital……………………………………………………………………….. %0,000  A, capital……………………………………………………………… %0,000   Total 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 $! !!!  Revaluation !ood ill# Approach: Cash…………………………………………………………………………… 120,000 Inventory……………………………………………………………………… 120,000 Equipment……………………………………………………………………. 240,000  A, capital…………………………………………………………….. 480,000   Cash…………………………………………………………………………… 120,000 Lan……………………………………………………………………………. 240,000 !uilin ………………………………………………………………………... . 480,000 #ort a e paya$le………………………………………………… 240,000 !, capital.……………………………………………………….…… %00,000  Assets &or oo'ill or intan i$le asset(…………………………………... 120,000  A, capital…………………..……………………………………….. 120,000 )otal a ree capital &*%00,000 + 1+2(………..….*1,200,000 Less )otal contri$ute capital &*480,000 -* %00,000(………………………………....… 1,080,000 oo'ill to A……………..………………………….* 120,000  Problem II Agreed 0air 1alues 2nvested b) 3ohn2nvested b) 3eff 2nvested b) 3ane *ash P'!! !!!    5quipment P ''! !!!   Total assets '!! !!!P ''! !!! !6ote pa)able assumed b) partnership    7! !!!   6et assets invested P'!! !!!P ! !!!P ! 1$ Bonus %ethod2$ !ood ill %ethod Revaluation o& Asset# *ash'!! !!!*ash'!! !!!5quipment''! !!!5quipment''! !!!8ood9ill! !!!6ote Pa)able7! !!!6ote Pa)able7! !!!3ohn *apital$! !!!3ohn *apital! !!! 3eff *apital$! !!!3eff *apital! !!!3ane *apital$! !!!3ane *apital! !!! ,. The bonus method is used 9hen 3ohn and 3eff recogni;e that 3ane is bringing something of value to the firm other than a tangible asset but the) do not 9ant to recogni;e an intangible asset. To equali;e the capital accounts P4! !!! is transferred from 3ohn<s capital account and P,! !!! is transferred from 3eff<s capital account.The good9ill method is used 9hen the partners recogni;e the intangible nature of the skills 3ane is bringing to the partnership. =o9ever the capital accounts are equali;ed b) recogni;ing an intangible asset and a corresponding increase in the capital accounts of the partners. >nless the intangible asset canbe specificall) identified such as a patent being invested it should not be recogni;ed because of a lack of justification for good9ill in a ne9 business. Problem III '. (a%*ash'7 !!!Accounts ?eceivable !!!@ffice upplies , !!!@ffice 5quipment7! !!!Accounts Pa)able, !!!Tom *apital' !!!  *ash', !!!Accounts ?eceivable$ !!!@ffice upplies !!/and7! !!!Accounts Pa)able !!!ortgage Pa)able' !!3ulie *apital, !!!(b%Tom ra9ing' !!!*ash' !!!3ulie ra9ing', !!!*ash', !!!(c%2ncome ummar)! !!!Tom *apital P! !!!   (P' !!!+PC$ !!!% 77 73ulie *apital P! !!!   (P, !!!+PC$ !!!% '$ 44CTom *apital' !!!3ulie *apital', !!!Tom ra9ing' !!!3ulie ra9ing', !!!,.   T@ A6 3>/25 PA?T65?=2Ptatement of *hanges in Partners< *apital0or the Dear 5nded ecember 7' ,!E4 Tom 3ulie Total *apital balances 3an. 'P ! P !P !Add: Additional investments' !!!, !!! C$ !!!6et income allocation 77 7 '$ 44C ! !!!TotalsP 4 7P 4' 44CP',$ !!!/ess: Fithdra9als ' !!! ', !!! ,C !!!*apital balances ec. 7'P $ 7 P , 44C P !!! Problem I'Book o& ( is to be retained b) the ne partnership . The follo9ing procedures are to be follo9ed:2ndividual versus ole ProprietorBooks of2ndividualGBooks of ole ProprietorAdjusting entries 6+A Des*losing entries (real accounts% 6+A 6o2nvestments DesGGBalance heet Des G Books of =H Partnership books GG 2nvestments of individualH additional investments or 9ithdra9als of sole proprietor. 1. Books of Sole Proprietor (H):  a$ To record adjustments: a. /, capital………………………………………………………………… 1,800  Allo'ance or ou$tul accounts……………………………. 1,800  Aitional provision compute as ollo's equire allo'ance 10 3 *48,000  * 4,800 Less *revious $alance………………… 5,000  Aitional provision…………………… * 1,800   $. Interest receiva$le or accrue interest income…………………. 5,%00 /, capital…………………………………………………………… 5,%00  Interest income or nine months compute as ollo's*%0,000 3 8 3 6+12  *5,000. c. /, capital………………………………………………………………….. %,000 #erchanise inventory………………………………………….. %,000  7ecline in the value o merchanise. *2,000 9 *21,000  *%,000.. /, capital…………………………………………………………………. 4,800  Accumulate epreciation……………………………………. 4,800  :ner epreciation. e. *repai e3penses………………………………………………………... 2,400 /, capital…………………………………………………………… 2,400  E3penses pai in avance. /, capital…………………………………………………………………… ,200  Accrue e3penses…………………………………………………. ,200  :nrecore e3penses. *ote:  All adjustment that reflects nominal accounts should be coursed through the capital account since all nominal accounts are alread) closed at the time of formation. b$ To close the books:  nothing to close since the books of = 9ill be retained. c$ To record investment: Cash……………………………………………………………………………. 11%,100 I, capital……………………………………………………………… 11%,100  Initial investment compute as ollo's:na;uste capital o /………………………………* 24%,000  A &euct( a;ustmentsa. 7ou$tul accounts...……………………...& 1,800($. Interest income…………………………….. 5,%00 c. 7ecline in the value o merchanise….& %,000(. :ner<epreciation……………………….& 4,800(e. *repai e3penses………………………….. 2,400  Accrue e3penses………………………...& ,200(  A;uste capital $alance o /……………..……...* 252,200 7ivie $y Capital interest o /…………………… 2+5)otal a ree capital…………………………….…….* 548,500 #ultiplie $y Capital interest o I……………..…… 1+5Investment o I…………………………………………* 11%,100  *ote:  The initial investment of = is alread) recorded since his books are alread) retained. 6o further entr) is required since there are no additional investments or 9ithdra9als made b) =.,. The balance sheet for both cases presented above is as follo9s:=2 PartnershipBalance heet6ovember ' ,!E4Assets*ashP ,7$ '!!Accounts receivables P 4 !!!
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