27. The capital balance of King on January 1, 2007 before adjustment is:
The partnership of King, Queen and Prince engaged you to audit its accounting records. Some accounts are on the
accrual basis and others are on the cash basis. The partnership’s books were closed at December 31, 2007 by the
bookkeeper who prepared the general ledger
King, Queen and Prince
GENERAL LEDGER TRIAL BALANCE
December 31, 2007
Debit Credit
Cash P 100,000
Inventory 260,000
Land 90,000B
Buildings500,000
Equipment 560,000
Accumulated depreciation- equipment 60,000
Accounts payable 550,000
Allowance for future inventory losses 30,000
King, capital 600,000
Queen, capital 400,000
Prince, capital . 300,000
Totals P1,960,000 P1,960,000
Your inquiries disclosed the following:
1. The partnership was organized on January 1, 2006 with the partners making equal amount of
contributions. The initial partnership agreement calls for an equal distribution of profit or loss among the
partners. The partnership agreement was amended effective January 1, 2007 to provide for the
following
agreement also stated that the accounting records were to be maintained on the accrual basis and that
any adjustments necessary for 2006 should be allocated according to the 2006 distribution of profits.
2. The following amounts were not recorded:
December 31 2007 December 31 2006
Prepaid insurance P7,000 P 6,500
Advances from customers 2,000 11,000
Accrued interest expense 4,500
The advances from customers were recorded as sales in the year the cash was received.
3. In 2007 the Partnership recorded a provision of P30,000 for anticipated declines in inventory prices.
You convinced the partners that the provision was unnecessary and should be removed from the books.
4. The partnership charged equipment purchased for P44,000 on January 3, 2007 to expense. This
equipment has an estimated life of ten years and an estimated salvage value of P4,000. The
partnership
5. The partners agreed to establish an allowance for doubtful accounts at two percent of
current accounts receivable and five percent of past due accounts. At December 31,
2006 the partnership had P540,000 of accounts receivable, of which only P40,000
was past due. At December 31, 2007 fifteen percent of accounts receivable was past
due, of which P40,000 represented sales made in 2006, and was generally considered
collectible. The partnership had written off uncollectible accounts in the year the
accounts became worthless as follows:
Accounts Written Off in
2007 2006
2007 accounts P 8,000
2006 accounts 10,000 2,500
6. Goodwill was recorded on the books in 2007 and credited to the partners’ capital accounts in the profit
and loss ratio in recognition of an increase in the value of the business resulting from improved sales
volume.
7. No other capital transactions took place in 2006 and 2007.
8. Ignore tax implications.
Based on the above information, answer the following:
26. The net income of the partnership in 2007, before adjustment is:
a. P1,000,000 b. P980,000 c. P950,000 d. P920,000
27. The capital balance of King on January 1, 2007 before adjustment is:
a. P100,000 b. P125,000 c. P300,000 d. P600,00
28. The capital balance of Queen on December 31, 2007 before adjustment is:
a. P410,860 b. P374,140 c. P385,000 d. P400,000
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