Income summary shows a credit balance of 1,800,000 at the end of the first year of operations.1. By what amount will the capital balance of MAR182 be credited on January 1, 2018?2. By what amount will the capital balance of MAR186 be credited on January 1, 2018?3. How much is the total assets of the partnership at the date of formation?4. What is the net effect of the adjustments made on January 1 to MAR186 capital balance?5. What is the weighted average capital of MAR182 in 2018?6. How much is the bonus given to MAR186?7. How much is the share of MAR182 in the partnership net income?8. How much is the share of MAR186 in the partnership net income?9. What is the ending adjusted capital balance of MAR182?10. What is the ending adjusted capital balance of MAR186? Accounts Payable6,000,0003,780,000MAR182 Capital9,200,000MAR186 Capital3,600,00015,200,0007,380,000The partners agreed on making the necessary adjustments below:> Provide 5% allowance for doubtful accounts on each accounts receivable;> Inventories should be recognized at 80% of their book values;> Office equipment of MAR182 is overvalued by 800,000 while office equipment of MAR186 is overvalued by 250,000;> Additional prepaid expenses of 60,000 for MAR182 and 20,000 for MAR186 are to be recognized;Accrued expenses of 30,000 for MAR182 and 10,000 for MAR186 are to be recorded.After the adjustments made above on the capital balances of both partners on January 1, 2018, below is the summary of capital balancesof MAR182 and MAR186 for the year ended 2018:MAR182MAR186DebitCreditDebitCreditJanuary 1??April 30240,000360,000June 1840,000210,000August 31600,000480,000October 1150,000300,000Profit and loss is to be shared 70:30 after providing the following:> Interest at 5% shll be allowed on weighted average capital balances;> Quarterly salaries of 45,000 to both partners;> Bonus to MAR186 is to be given at the rate of 10% of net income after deducting salaries and interest. PROBLEM IIOn January 1, 2018, MAR182 and MAR186 decided to combine their businesses (MAR368 Partnership). Statements of Financial Positionon this date are presented below:MAR182MAR186Cash1,800,000600,000Accounts Receivable2,000,0001,200,000Inventories6,000,0002,400,000Office Equipment5,000,0003,000,000Prepaid Expenses400,000180,00015,200,0007,380,000

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Income summary shows a credit balance of 1,800,000 at the end of the first year of operations.
1. By what amount will the capital balance of MAR182 be credited on January 1, 2018?
2. By what amount will the capital balance of MAR186 be credited on January 1, 2018?
3. How much is the total assets of the partnership at the date of formation?
4. What is the net effect of the adjustments made on January 1 to MAR186 capital balance?
5. What is the weighted average capital of MAR182 in 2018?
6. How much is the bonus given to MAR186?
7. How much is the share of MAR182 in the partnership net income?
8. How much is the share of MAR186 in the partnership net income?
9. What is the ending adjusted capital balance of MAR182?
10. What is the ending adjusted capital balance of MAR186?

Accounts Payable
6,000,000
3,780,000
MAR182 Capital
9,200,000
MAR186 Capital
3,600,000
15,200,000
7,380,000
The partners agreed on making the necessary adjustments below:
> Provide 5% allowance for doubtful accounts on each accounts receivable;
> Inventories should be recognized at 80% of their book values;
> Office equipment of MAR182 is overvalued by 800,000 while office equipment of MAR186 is overvalued by 250,000;
> Additional prepaid expenses of 60,000 for MAR182 and 20,000 for MAR186 are to be recognized;
Accrued expenses of 30,000 for MAR182 and 10,000 for MAR186 are to be recorded.
After the adjustments made above on the capital balances of both partners on January 1, 2018, below is the summary of capital balances
of MAR182 and MAR186 for the year ended 2018:
MAR182
MAR186
Debit
Credit
Debit
Credit
January 1
?
?
April 30
240,000
360,000
June 1
840,000
210,000
August 31
600,000
480,000
October 1
150,000
300,000
Profit and loss is to be shared 70:30 after providing the following:
> Interest at 5% shll be allowed on weighted average capital balances;
> Quarterly salaries of 45,000 to both partners;
> Bonus to MAR186 is to be given at the rate of 10% of net income after deducting salaries and interest.

PROBLEM II
On January 1, 2018, MAR182 and MAR186 decided to combine their businesses (MAR368 Partnership). Statements of Financial Position
on this date are presented below:
MAR182
MAR186
Cash
1,800,000
600,000
Accounts Receivable
2,000,000
1,200,000
Inventories
6,000,000
2,400,000
Office Equipment
5,000,000
3,000,000
Prepaid Expenses
400,000
180,000
15,200,000
7,380,000

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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