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ADVANCED ACCOUNTING TEST 1 20158 1. A, B and C form a partnership and agree to share prots and losses in the ratio of 5 to 3 to 2, with capital balances of $500,000, $400,000 and $300,000 respectively. They will receive interest of 10% on their capital balances, salaries of $20,000. $30,000 and $40,000 respectively with any remaining excess or decit to be split in their protsharing ratio. Determine their share of income or loss under each of the following: A. Income of $3 10,000. B. Income of $200,000. C. Loss of $90,000 2. Same information as in Problem 1 above, before considering any income or loss. Give the appropriate journal entries for each situation. Show all calculations. A. D will acquire a 1/4 interest in the company. if no bonus is given and no goodwill created, how much should D pay? I B. D will pay A $400,000 for his share of the company. C. D will buy a 1/4 interest in the company for $500,000. Use the goodwill method. D. D will buy a 1/4 interest in the company for $500,000. Use the bonus method. 3. Same information as in Problem 1 above, before considering any income or loss. Give the appropriate journal entries for each situation. Show all calculations. A. A retires and receives $600,000 for his interest in the business. Use goodwill method. B. A retires and receives $600000 for his interest in the business. Use bonus method. C. A retires and receives $400,000 for his interest in the business. Use goodwill method. . D A retires and receives $400,000 for his interest in the business. Use bonus method. 4. The partnership of A, B, and C has the following account balances: cash, $40,090,;n/r from B, $10,000; other assets $50,000; 11/1) to C, $20,000; other liabilities, $20,000; A capital, $30,000; B capital,$50,000; C capital, ($20,000). If partners are to receive cash in installments, as it becomes available, how should the cash be distributed at this time? Give any necessary journal entries and show all calculations. 5. The partnership of A, B, and C has the following account balances: cash $40,000, n/r from B, $40,000, liabilities, $50,000; A capital, $10,000; B capital,$10,000; and C capital, $10,000. A. has personal liabilities which are $20,000 greater than his personal assets, B has personal liabilities which are $30,000 greater than his personal assets and C has personal assets of $120,000. A, B and C share prots and losses in the ratio of 2 to 5 to 3. Give any necessary entries for the liquidation of the business. Show all calculations. 6. Able Co. is considering purchasing Baker Co. and will estimate goodwill in determining a fair price for the acquisition. Able makes the following assumptions: Baker's identiable assets have a fair market value of $8,000,000 and total liabilities of $3,000,000. The assets include buildings with a fair value 40% above book value, land with a fair value 20% below book value, and equipment with fair value equal to book value. Baker's pretax income was $2,000,000 in 2012, $1,500,000 in 2013, and $2,5000,000 in 2014. The average of these three years is expected to be indicative of future earning for the next ve years. Income included the following items, among others: annual depreciation on buildings $ 50,000 annual depreciation on equipment 20,000 extraordinary loss 120,000 loss on discontinued operations 60,000 gain on sale of discontinued operations 90,000 The normal rate of return for the industry is 12% on net assets. Able requires a return of 10% on its investment and will base its estimate of goodwill on the present value of excess income over the industry norm over the next ve years. Compute the value of the goodwill and indicate the price that Able determines is a fair one for the purchase of Baker. Answer Problem 1 and any other 4 questions. Label all answers. SHOW ALL CALCULATIONS. TABLE 1 m) PENODS 1...; catacoqmmgzuaMh-a 11 12 13 14 15 16 1? 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 55 34 35 35 37 38 39 40 1040 APPENDIX PV: TABLES OF PRESENT VALUES Present Vaiue of 1 2% .98039 .9611? .94232 .92385 .90573 .8879? .87056 .85349 .83676 .82035 .80426 .78849 .77303 .75788 .74301 .72845 .71416 .70016 .68643 .6729? .55978 .64684 .63416 .62172 .60953 .59758 .58586- .57437 .55311 .55207 .54125 .53063 .52023 .51003 .50003 .49022 .48061 .47119 '.46195 .45289 .9756] .95181 .92860 .90595 .88385 .86250 .8412? .82075 .80073 .78120 .76214 .74356 .72542 .70773 .6901? .67362 .65720 .6411? .62553 .6102? .59539 .58086 .56670 .55288 .53939 .52623 .51340 .50088 .48866 .47674 .4651] .45377,, 1427:0311? .43191 .4213? .41109 .4010? .39128 .38174 .37243 2.5% 3% .9708? .94260 .91514 .88849 .86261 .83748 .81309 .7894} .75542 .74400 .72242 .70138 .68095 .66112 .64186 .62317 .60502 .53739 .57029 .55568 .53755 .52189 .50669 .49193 .47761 .46369 .45019 .43703 .42435 .41199 .39999 .33834 0-7703 .36004 .35530 .34503 .33493 .32523 .31575 .30656 4% .96154 .92456 .88900 .85480 .82193 .79031 .75992 .73069 .70259 .67556 .64958 .62460 .6005? .57748 .55526 .53391 .5133? .49363 .47464 .45639 .43883 .42195 .40573 .39012 .37512 .35069 .34682 .33348 .32065 .30832 .29646 .28506 .27409 .26355 .2534? .2436? .23450 .22529 .21562 .20829 '1 {1+ 1')" 5% .95238 .90703 .85384 .82270 .78353 .74622 .71068 .67684 .64461 .61391 .58468 .55684 .53052 .5050? .48102 .45811 .43630 .41552 .39573 .37689 .35894 .34185 .3255? .3100? .29530 .28124 .26785 .25509 .24295 .23158 .22036 .2098? .1998? .19035 .18129 .17266 .16444 .15661 .14915 .14205 {7+ if\" 5% 8% .94340 .92593 .89000 .85734 .83962 .79333 .79209 .73503 .74726 .58058 .70496 .6301? .66506 .58349 .62741 .5402? .59190 .50025 .55839 .46319 .52679 .42888 .4969? 139711 .46884 .36770 .44230 .34045 .4172? .31524 .39365 .29189 .37136 .2702? .35054 .25025 .33051 .2317] .31180 .21455 .29416 .19866 .27751 .18394 .26180 .17032 .24698 .15770 .23300 .14602 .21981 .13520 .2073? .12519 .19563 .11591 .18456 .10733 .17411 .09938 .16425 .09202 .15496 .08520 .14619 .07889 .13791 .07305 .13011 .06763 .12274 .06262 .11579 .05799 .10924 .05369 .10306 .0497] .09722 .04603 9% .91743 .84168 .77218 .70843 .64993 .5962? .54703 .5013? .46043 .42241 .38753 .35554 .32518 .29925 .27454 .2518? .2310? .21199 .19449 .17843 .16370 .15018 .13773 .12541 .1159? .10639 .09761 .08955 .08216 .0753? .06915 .06344 .05820 .05340 .04899 .04494 .04123 .03783 .08470 .03184 10% .90909 .82645 .75132 .58301 .52092 .56447 .51316 .45551 .42410 .38554 .35049 .31863 .28966 .26333 .23939 .21763 .19785 .17986 .16351 .14864 .13513 .12285 .11168 .10153 .09230 .08391 .07523 .05934 .06304 .05731 .05210 .04736 .04305 .03914 .03558 .03235 .02941 .02674 .02430 .02210 12% .89286 .79719 .71178 .53552 .55743 .50663 .45235 .40388 .36061 .32197 .28748 .25668 .22917 .20462 .18270 .16312 .14554 .13004 11511 .1036? .09256 .08264 .07379 .06588 .05882 .05252 .04689 .0418? .03738 .03338 .02980 .02661 .02376 .02121 ,01894 .01691 .01510 .01348 .01204 .01075 15% .8695? .75514 .65752 .57175 .49713 .43233 .37594 .32690 .28426 .24719 .21494 A .18601 .16253 .14133 .12289 .1068? .09293 .0808] .07027 .05110 .05313 .04620 .0401? .03493 .03038 .02042 .02297 .01997 .01737 .01510 .01313 .01142 .00993 .00864 .00751 .00553 .00568 .00494 .00420 .00373