Basic Financial Accounting, First Year. Chapter 2 Accounting Exercises (with solutions)

CHAPTER 2
Natures and Formation of Accounting
EXERCISES
2-1 James joined a partnership by contributing the following: cash, P 20,000; accounts
receivable, P 4,000; land P 240,000 cost, P 400,000 fair value; and accounts payable, P
16,000.
What will be the initial amount recorded in James’ capital account? Give the entry
to record the investment of James.
Entry to record the investment of James.
Cash
Accounts ReceivablE
Fair Value
20,000
4,000
400,000
Accounts Payable
James, Capital
16,000
408,000
Solution for Capital:
(20,000+4,000+400,000-16,000 = 408,000)
2-2. Prepare the journal entry to record the investment of Jake Gonzales in the new
partnership assuming the following independent cases:
a. Merchandise inventory with a cost of P 200,000 with an agreed value equal to 70%
of its cost.
b. Cash of P 800,000.
c. Accounts receivable of P 430,000 with an estimated uncollectible accounts of
P50,000.
d. Office equipment with a cost of P 800,000 with an accumulated depreciation of
P200,000 after 5 years of use with no residual value. The office equipment was
accepted to have an agreed 10 year useful life.
a. Merchandise Inventory
(200,000 x 70% = 140,000)
Jake, Capital
b. Cash
P 140,000
P 140,000
800,000
Jake, Capital
800,000
c. Accounts Receivable
Allowance for Bad Debts
Jake, Capital
430,000
d. Office Equipment
400,000
Jake,Capital
(800,000 x 5/10)
50,000
380,000
400,000
2-3 The following data as of May 1, 2020 were taken from the records of Jack and Jill:
Jack and Jill agreed to form a partnership by contributing their respective assets and
equities subject to the following adjustments:
a) Inventories of P 5,500 and P 6,700 are worthless in Jack’s and Jill’s respective
books.
b) Accounts receivable of P 20,000 in Jack’s book and P 35,000 in Jill’s book
c) Other assets of P 2,000 and P 3,600 in Jack’s and Jill’s respective books are to be
written off.
1) Assuming the partnership will use the books of Jack, give the entries to adjust the
account balances of Jack and to record the investment of Jill.
To adjust the book of Jack :
a. Jack, Capital
Inventories
5,500
5,500
b. Jill, Capital
Accounts Receivable
20,000
c. Jack, Capital
Other Asset
2,000
20,000
2,000
To record the investment of Jill:
Cash
22,354
Accounts Receivable
532,890
(567,890 – 35,000)
Inventories
253,402
(260,102 – 6,700)
Building
428,267
Furniture and Fixture
34,789
Accounts Payable
243,650
Notes Payable
345,000
Jill, Capital
683,052
(728,352 – 35,000 – 6,700 – 3,600)
2) Give the entries to adjust and close the books of Jill.
a. Jill, Capital
Inventories
6,700
6,700
b. Jill, Capital
35,000
Accounts Receivable
c. Jill, Capital
Other Asset
35,000
3,600
3,600
Accounts Payable
243,650
Notes Payable
345,000
Jill Capital
683,052
Cash
Accounts Receivable
Inventories
Building
Furniture and Fixture
22,354
532,890
253,402
428,267
34,789
3) Assuming the partnership will use new set of books, give the entries to record the
investment of Jack and Jill.
Cash
11,000
Accounts Receivable
214,536
Inventories
114,535
Land
603,000
Furniture and Fixture
50,345
Accounts Payable
178,940
Notes Payable
200,000
Jack, Capital
614,476
To record the investment of Jack
Cash
22,354
Accounts Receivable
532,890
Inventories
253,402
Building
428,267
Furniture and Fixture
34,789
Accounts Payable
243,650
Notes Payable
345,000
Jill, Capital
683,052
To record the investment of Jill.
4) Prepare the statement of financial position of the new partnership.
Jack and Jill
Statement of Financial Position
May 1,2017
Current Asset
Cash
Accounts Receivable
Inventories
33,354
747,426
367,937
Non-current Asset
Land
Building
Furniture and Fixtures
Total Assets
603,000
428,267
85,134
2,265,118
Accounts Payable
Notes Payable
Jack, Capital
Jill, Capital
Total Liabilities & Capital
442,590
545,000
614,476
683,052
2,265,118
2-4 On July 1, 2020. Jhing and Jhong agreed to invest equal amounts and share profits
and losses equally in a partnership with Jhing investing P 110,000 cash and merchandise
valued at P 140,000. Jhong will also invest a total of P 250,000, including cash, and the
agreed values of various items as shown below:
1.) Investment of Jhong
Accounts Receivable
Merchandise Inventory
Equipment
195,000
26,250
20,000
Allowance for Bad Debts
Accounts Payable
Jhong, Capital
12,500
75,000
153,750
Solution:
195,000 + 26,250 + 20,000 – 12,500 – 75,000 = 153, 750
250,000 (Jhong’s Capital) – 153,750 = 96, 250
Jhong should invest a total of ₱ 96,250 cash
2. Give the required entries assuming the partnership will use new set of books.
Cash
96,250
Accounts Receivable
195,000
Merchandise Inventory
26,250
Equipment
20,000
Allowance for Bad Debts
Accounts Payable
Jhong,Capital
To record the investment of Jhong
Cash
110,000
Merchandise Inventory
140,000
Jhing,Capital
To record the investment of Jhing
12,500
75,000
250,000
250,000
2-5 Jojo invites Jam to join him in his business. Jam agreed to join Jojo provided
that the following adjustments are taken up in the books of Jojo:
• Prepaid expenses of P 10,000 and accrued expenses of P 6,000 are to be
recognized.
• Accumulated Depreciation on Jojo’s equipment will be increased by P 10,000.
Jojo’s capital before adjustment for the above items wasp 405,000. Jam will invest
enough cash to make his interest equal to 40%.
1) How much is Jojo’s adjusted capital balance?
• Prepaid Expense
Jojo, Capital
Jojo, Capital
Accrued Expenses
• Jojo, Capital
10,000
10,000
6,000
10,000
Accumulated Depreciation
6,000
10,000
2) How much should Jam invest to give him a 40% equity in the firm?
Required total partnership capital using adjusted
Jojo, Capital as the base: ( P 399,000/60% )
₱ 665,000
Jam share is 40% (P 665,000 × 40% )
₱ 266,000
2-6 On June 1, 2020, Karl and Kent formed a partnership with each contributing the
following assets:
The building is subject to a mortgage loan of P 1,300,000, which is to be assumed by
the partnership. The partnership agreement provides that Karl and Kent share
profits and losses 40% and 60%, respectively.
1) What is the adjusted capital of each partner on June 1, 2020
Merchandise Inventory
500,000
Machinery and Equipment
450,000
Furniture and Fixtures
300,000
Karl,Capital
To record the investment of Karl
Solution:
500,000 + 450,000 + 300,000 = 1,250,000
1,250,000
Merchandise Inventory
900,000
Building
2,450,000
Machinery and Equipment
950,000
Mortgage Payable
1,300,000
Kent,Capital
To record the investment of Kent
3,000,000
Solution:
900,000 + 2,450,000+ 950,000 – 1,300,000 = 3,000,000
2) Assuming that the partners agreed to bring their respective capital in proportion
to their respective profit and loss ratio, and using Kent’s capital as the base, how
much cash is to be invested by Karl?
Required total partnership capital using adjusted Kent, Capital as the
base: ( P 3,000,000 / 60% )
Karl share is 40% ( P 5,000,000 × 40% )
₱ 5,000,000
₱ 2,000,000
Solution:
2,000,000 – ( 500,000 + 450,000 + 300,000 )
2,000,000 – 1, 250,000 = ₱ 750,000
Karl should invest an additional ₱ 750,000 cash to have 40% share to the capital.
2-7 Jolo and Joko entered into a partnership on August 1, 2020 by investing the
following assets:
1) If Joko is to receive a capital credit equal to his profit and loss ratio, how much
cash must he invest?
Merchandise Inventory
500,000
Land
1,150,000
Building
750,000
Mortgage Payable
350,000
Joko, Capital
2,050,000
To record the investment of Joko
Cash
Equipment
400,000
650,000
Jolo, Capital
1,050,000
To record the investment of Jolo
Required Total partnership capital using adjusted Jolo, Capital as the
base: ( ₱ 1,050,000 / 30%)
Joko Shares is 70% (P3,050,000x 70%)
₱ 3,500,000
₱ 2,450,000
Solution:
2,450,000 – 2,050,000 = ₱ 400,000
Joko must invest an additional ₱ 400,000 cash to have a 70% capital shares.
2) Assuming that Joko invests P 600,000 cash and each partner is to be credited for the
full amount of the net assets invested, how much is the total capital of the
partnership?
Assets
Current
Cash (400,000 – Jolo + 600,000 – Joko)
Merchandise Inventory
₱1,000,000
500,000
Non-Current
Land
Equipment
Building
Total Asset
1,150,000
650,000
750,000
₱ 4,050,000
Liability
Mortgage payable
350,000
Partnership Capital
Joko, Capital
Jolo, Capital
Total Liabilities & Capital
2,650,000
1,050,000
₱ 4,050,000
Solution:
1,050,000 + 2,050,000 + 600,000 = 3,070,000
3) Using the data in number 2, how much is the total assets of the partnership?
Assets
Current
Cash
Merchandise Inventory
₱ 1,000,000
500,000
Non-Current
Land
Equipment
Building
Total Asset
1,150,000
650,000
750,000
₱ 4,050,000
2-8. Jerry and Jason are combining their businesses to form a partnership. Cash
and non-cash assets are to be contributed. The non-cash assets to be contributed
and the liabilities to be assumed are:
After the above adjustments, Jerry and Jason are to contribute or to withdraw
cash to bring their respective capital to P 350,000 each. Based on the above
information, answer the following:
1) How much is the capital of Jason after giving effect to the above adjustments
but before the cash investment or withdrawal as the case may be?
Accounts Receivable
Merchandise Inventory
Accounts Payable
Jason, Capital
90,000
150,000
40,000
200,000
Solution:
90,000 + 150,000 – 40,000
2) How much is the capital of Jerry after giving effect to the above adjustments
but before the cash investment or withdrawal as the case may be?
Accounts Receivable
Merchandise Inventory
PPE
Accounts Payable
Curry, Capital
40,000
240,000
320,000
280,000
320,000
Solution:
40,000 + 240,000 + 320,000 – 280,000
3) How much is the cash investment or withdrawal of Jerry? Indicate whether
investments or withdrawal
Required Capital
Jerry, Capital
₱ 350,000
₱ 320,000
Additional Investment ₱ 30,000
Solution: 350,000 – 320,000 = 30,000
4) How much is the cash investment or withdrawal of Jason? Indicate whether
investments or withdrawal.
Required Capital
Jason, Capital
₱ 350,000
₱ 200,000
Additional Cash Investment ₱ 150,000
Solution: 350,000 – 200,000 = 150,000
5) How much is the total currents assets of the partnership immediately after its
formation?
Cash
Accounts Receivable
Merchandise Inventory
Total current assets
180,000
130,000
390,000
₱ 700,000
Solution:
Cash (30,000 + 150,000 = 180,000)
Accounts Receivables (90,000+40,000 = 130,000)
Merchandise Inventory (150,000+240,000=390,000)
6) How much is the total assets of the partnership immediately after its
formation?
Cash
Accounts Receivable
Merchandise Inventory
PPE
Total assets
180,000
130,000
390,000
320,000
₱ 1,020,000
2-9 John invested in a partnership a parcel of land which cost his father P 2,000,000.
The land had a market value of P 3,000,000 when John inherited it three years ago.
Currently, the land is independently appraised at P 5,000,000 even though John
insisted that he “would not take P 9,000,000 for it.”
What is the amount that should be recorded in the accounts of the partnership for
the parcel of Land?
P 5,000,000 (Appraised value will be recorded if there’s no indicated current market or
fair value).
Name:
Description:
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