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Concept explainers
Exercise 8
Athena and Apollo share profits and losses on 6:4 basis. They have capital balances of 110,000 and 90,000, respectively, when Titus is admitted to the
a. Titus will invest 120,000 cash for a 30% ownership interest
b. Titus will invest 75,000 cash for a 30% ownership interest
Direction.
a. Under each option, prepare the table showing the contributed capital against agreed capital. Total agreed capital should not be the same as total contributed capital.
b. Under each option, record the asset revaluation and the admission of Titus
c. Give the two reasons why the existing partners may not accept the second option
Exercise 9
Fiona and Gary are partners with capital balances of 350,000 and 250,000, respectively. They agree to accept Romy who will contribute land which costs him 250,000 but its market value is 300,000.
Direction.
a) Romy will be given a 1/3 interest in the firm. No bonus or assets revaluation should be recognized.
b) Romy will be given a 40% interest. Use the bonus capital method.
c) Romy will be given a 40% interest. Assets should first be revalued.
d) Romy will be given a 30% interest. Use the bonus capital method.
e) Romy will be given a 40% interest. Assets should first be revalued
Exercise 10
FAME partnership is owned by four partners with partners' equity as follows: Freda Capital P500,000, Alida Capital P400,000, Minda Capital P300,000, and Edna Capital P300,000, with profit-and-loss ratios of 4:3:2:1, respectively. Dissatisfied with the partnership's operation for the past five years, she informs the partners that she is leaving them. She hires an independent appraiser to value the assets. Appraisal shows that the land was undervalued by P150,000. The remaining partners give in to the wish of Edna and agree to pay her P360,000 to leave the partnership. The remaining partners agree to share profits and losses equally.
Direction:
a) Entry to record the asset revaluation.
b) What amount will each remaining partner sacrifice to remove Edna from the partnership?
c) Give the
d) Prepare the revised partners' equity of the remaining partners.
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