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Tutorial Solution Week 07

The document contains questions and answers related to partnership accounting. It also includes sample journal entries for forming partnerships and sample financial statements for partnerships.

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itmansaigon
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283 views

Tutorial Solution Week 07

The document contains questions and answers related to partnership accounting. It also includes sample journal entries for forming partnerships and sample financial statements for partnerships.

Uploaded by

itmansaigon
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PDF, TXT or read online on Scribd
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ACCY112 Spring 2013-Week 7

4.

Questions: DQ15.4; DQ15.5; EQ15.1; EQ15.2; PQ15.2 Liam sold his partnership interest to Jason even though his other partners were unaware that Liam intended to do so. Does Jason have the right to be a partner? Does Jason have the right to take over Liams position as manager of the business? Would Jason be entitled to share in the partnership profits, and if so, how much? Yes, Jason is entitled to be a partner in the firm No, because Jason does not have the right to participate in the management of the firm unless he is accepted by all partners. Old partners, and only they, may decide to allow Jason to assume a managerial role. Yes, Jason is entitled to a share in the profits which Liam would have received. The accounting treatment of a partners drawings differs when separate Retained Earnings accounts are kept for each partner as opposed to not having Retained Earnings accounts. Choice of method is immaterial. Discuss. If each partners capital account is used to reflect his or her share of profits or losses, and no retained earnings account is kept (Method 1 as in the book), any withdrawals are recorded by debiting the drawings account of the partner concerned and crediting cash at bank . The drawings account is then closed to capital at the end of the period. Under Method 2 (as in the book), which consists of capital accounts with fixed balances and retained earnings accounts, after the initial capital contribution very few entries are made to the fixed capital account. Withdrawals in anticipation of profits are debited to the drawings account which is eventually closed off to the retained earnings account. Only withdrawals of capital are debited to the capital account. Method 2 closely follows company accounting procedures and is in line with relevant accounting standards. The choice of accounting treatment is influenced by how partners want equity and changes in equity recorded and disclosed and, particularly, whether they wish to maintain fixed capital accounts which only reflect capital invested unaffected by profit share, interest on capital, drawings, and salary arrangements for partners. However, although there is greater disclosure under Method 2, the total of each partners equity interest is ultimately the same under either method.

5.

Exercise 15 .1 Partnership formation: SUDJAI AND SUTRIN Required: A. Assuming that Sudjai and Sutrin agree that their capitals should be equal to the fair value of the net assets contributed, prepare general journal entries to record the formation of the partnership. B. If Sudjai and Sutrin agree that their respective capitals should be $220 000, show the general journal entries to establish the partnership. A. 2012 July 1 Cash at Bank $80 000 Accounts Receivable 12 000 Inventory 45 000 Plant and Equipment 90 000 Accounts Payable 12 500 Sudjai, Capital 214 500 Cash at Bank Accounts Receivable Inventory Plant and Equipment Accounts Payable Sutrin, Capital Page 1 of 4 90 000 7 500 40 000 70 000

8 000 199 500

B. 2012 July 1

Cash at Bank Accounts Receivable Inventory Plant and Equipment Goodwill Accounts Payable Sudjai, Capital Cash at Bank Accounts Receivable Inventory Plant and Equipment Goodwill Accounts Payable Sutrin, Capital

$80 000 12 000 45 000 90 000 5 500

12 500 220 000

90 000 7 500 40 000 70 000 20 500

8 000 220 000

Exercise 15 .2

Partnership formation: BECKER AND DICKSON

Required: Prepare separate journal entries to record the initial investment of each partner, assuming assets are recorded by the business to reflect their purchase price, and the arrangement is GST-free. Cash at Bank Accounts Receivable Inventory Equipment Accounts Payable Becker, Capital Cash at Bank Accounts Receivable Inventory Equipment Accounts Payable Dickson, Capital $6 200 12 800 21 500 48 000

13 400 75 100

5 800 11 400 18 300 32 000

12 800 54 700

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Problem 15.2 Partnership formation: CHAN AND PAPADOPOULOS Required: A. Prepare the journal entries to record each partners initial investment. B. Prepare the partnerships balance sheet as at 1 January 2012. C. Prepare a statement of changes in partners equity for the year ended 31 December 2012, using method 1 for recording partners equity accounts.

A.

Cash at Bank Plant and Equipment Chan, Capital Cash at Bank Accounts Receivable Inventory Buildings Accounts Payable Bank Loan Papadopoulos, Capital

$80 000 120 000 12 600 22 500 30 400 480 000

200 000

18 500 180 000 347 000

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B. CHAN AND PAPODOPOULOS Balance Sheet As at 1 January 2012 $ 92 600 22 500 30 400 $145 500 $120 000 480 000 600 000 $745 500

CURRENT ASSETS Cash at Bank Accounts receivable Inventory TOTAL CURRENT ASSETS NON-CURRENT ASSETS Plant and Equipment Building TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Accounts payable Bank Loan TOTAL CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Capital, C Chan Capital, P Papadopoulos TOTAL EQUITY

$18 500 180 000 $198 500 $198 500 $547 000 $200 000 347 000 $547 000

C.

CHAN AND PAPODOPOULOS Statement of Changes in Partners Equity 31 December 2012 Chan Papodopoulos Capital balances 1 January 2012 Add: Additional investment Profit allocation Less: Drawings Balances 31/12/2012 $200 000 24 000 48 000 (16 000) $256 000 $347 000 48 000 (18 000) $377 000

Total $547 000 24 000 96 000 (34 000) $633 000

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