Problem 1

The following are the capital account balances and profit and loss ratios of the partners in AB Partnership as of July 1, 20x1:

Capital accounts

Profit or loss ratios

A, Capital 250,000 40%

B, Capital350,000 60%

On July 1, 20x1, C was admitted to the partnership when he purchased a proportionate interest from A and B representing 20% interest in the net assets and profits of the firm for 100,000. The net assets of the firm as of this date approximate their fair values.

1.How much is the total equity of the partnership immediately after the admission of C?

2.How much is the adjusted capital balance of B after the admission of C?

3.How much is the gain or loss to be recognized in the partnership books?

4.How much is the gain (loss) recognized by A from the sale of his interest to C?

Problem 2

On January 1, 20x1, A and B decided to liquidate their partnership. As of this date, their capital balances were 400,000 and 800,000, respectively. The partners share profits and losses on a 60:40 ratio. Before liquidation, the partnership has an 80,000 balance in its cash and a 120,000 balance in liabilities. The partnership incurred loss of 480,000 on the sale of non-cash assets. A is solvent but B is insolvent.

1.How much was the carrying amount of the non-cash assets?

2.How much was the net proceeds from the sale of non-cash assets?

3.How much did A receive from the settlement of his capital balance?

Problem 3

JOCUND MERRY Co. uses the installment method. JOCUND Co. has the following collection policy on its installment sales:

20% down payment

Balance collectible as follows: 50% in the year of sale, 30% in the second year, and 20% in the third year.

Installment sales during 20x1, 20x2 and 20x3 were 4,800,000, 6,000,000 and 7,200,000,

respectively.

Gross profit rate throughout the three years was 40% based on sales.

4.How much is the total realized gross profit in 20x1?

5.How much is the total realized gross profit in 20x2?

6.How much is the total realized gross profit in 20x3?