Advanced Accounting Chapter 1 Exam

I. Problems

Problem 1: Joyce, Koi and Ben form a partnership. They agree that Joyce will
contribute an equipment with a book value of P75,000 and cash; Koi will
contribute a small lot with a fair value of P125,000; and Ben will contribute a
delivery truck with a fair value of P325,000.
Required: Treat each question INDEPENDENTLY.
1. If Joyce wants a one-fourth interest in the capital, she should contribute how much cash?
Prepare for the necessary journal entries of the new partnership books.
2. Disregarding number (1), If Joyce contributed P100,000 in addition to the equipment what is
percentage share in profit for each partner?
3. If the small lot contributed by Koi has an existing mortgage liability of P50,000 which will be
assumed by the partnership, how much is the capital balance of Koi after recording his
contribution? Prepare for the journal entry of Kois contribution.
4. Assume that Joyce contributed cash worth P50,000. If the fair value of the equipment is
P50,000 and its accumulated depreciation is P25,000, how much is the historical cost of the
equipment? How much is the capital balance of Joyce upon partnership formation? Prepare for
the journal entry of her contribution.
5. Assume that Joyce contributed cash worth P60,000 and the partners agreed that Joyce will
have one-fourth interest in the partnership capital. Under the bonus method, how much will be
the capital balances of each partner after formation? Prepare for the journal entries for the
contribution of each partner and the adjusting entries in effect of the bonus.
6. A day after the partnership formation, the partners agreed to sell the small lot in order to buy
a bigger one with a better location. Mrs. Jeong, a billionaire who is believed to have a crush on
Koi, agreed to buy the lot for P1,000,000. All the partners agreed to sell the lot to Mrs. Jeong.
How much is the partnership gain after the sale? If the partners declined the offer of Mrs.
Jeong, how much should the value of the land in the books of the partnership?
7. Assume that Joyce contributed P500,000 cash. If the partners agreed that Ben should have
half the interest of the partnership, how much is the total capital of the partnership under the
bonus method? Under goodwill method? Using the bonus method, what are the capital
balances of the partners after formation?
8. Assume that Joyce contributed P10,000 cash. The partners agreed that the profits and losses
are to be divided into 20% to Joyce, 30% to Koi and 50% to Ben. The partnership is to assume
the P25,000 mortgage loan on the small lot. If Koi is to receive a capital credit equal to his
profit and loss ratio, how much cash must he invest?

Problem 2: Bill Reagan, George Obama and Abraham Kennedy agreed to form a
partnership. Bill and George have their own separate businesses already while
Abraham had just graduated from business school. The following cash and
noncash assets are to be contributed by Bill and George from their old
businesses:

Cash
Accounts Receivable (net)
Merchandise Inventory

Bill
Book Value
50,000
.00
25,000
.00
100,000

Fair Value

George
Book Value
200,000
.00
20,000
.00
30,000

Fair Value

28,00

.00

.00
20,000

Investments
Plant,
Property
Equipment

.00
and

.00
300,000

.00

180,000

.00

50,000
.00

(100,000.
Accumulated Depreciation

00)

(2,000

.00

5,000
.00

20,000
Notes Payable

30,00
0.00

.00)
50,000

Accounts Payable

0.00

30,000

.00

30,000
.00

100,000
Mortgage Payable

.00

225,000

263,000

Capital
.00
.00
Abraham offers to invest cash to give him a capital credit equal to of the partnerships total
capital after giving effect to the adjustment of the following items and after considering the
fair values of the assets given on the table:
1. The accounts receivable gross amount of Bill is P30,000. It is estimated to be 80% collectible.
2. It is believed that only P15,000 of Georges accounts receivable will be collected. The gross
amount of his receivable is P25,000.
3. The inventory of Bill is to be valued at P80,000.
4. Unrecorded interest of Georges Notes Payable is P2,000.
5. Unrecorded interest of Bills Mortgage Payable is P5,000.
Required:
1. Prepare the necessary journal entries for the adjustments in the books of Bill Reagan.
2. Prepare the necessary journal entries for the adjustments in the books of George Obama.
3. Prepare the journal entries to close the books of Bill Reagan.
4. Prepare the journal entries to close the books of George Obama.
5. Prepare the journal entries to record the investment of Bill using the new books of the
partnership.
6. Prepare the journal entries to record the investment of George using the new books of the
partnership.
7. Prepare the journal entries to record the investment of Abraham using the new books of the
partnership.
8. WITHOUT REGARD TO THE ENTRIES MADE FROM 1-7, if the partners agreed to retain and
use the books of Bill Reagan, prepare for ALL the necessary journal entries in ALL THE
BOOKS to record the formation of the partnership.
II. Theory
1. A partners withdrawal of assets from a partnership that is considered permanent reduction in
the partners equity is debited to what account?
2. True or False. A partners drawing account is not closed and is retained at the end of the
accounting period.
3. Give the normal balance of the following:
a) Capital account
b) Accumulated depreciation

c)
d)
e)
f)
g)
h)
i)

Depreciation Expense
Allowance for Bad debts
Bad Debts Expense
Income and Expense Summary
Drawing Account
Mortgage Receivable
Investments

j) Prior-Year Adjustments
k) Gain on sale
l) Interest Expense
m) Interest Income
n)
o)

p) 4. Differentiate Real Account from Nominal Account.

q) 5. What is your Advanced Accounting Teachers full name? (I doubt you know )
r) 6. If a bank gives you a debit memorandum, is it an increase or decrease of your cash in
bank account?
s)
t)
u)
v) ~NOTHING FOLLOWS~