Answered: 8. Bruce and Rachel agree to form a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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8. Bruce and Rachel agree to form a partnership on July 1. Bruce, who has been trading as a sole proprietor, will invest certain business assets at agreed valuations, transfer his business liabilities and contribute sufficient cash to bring his total contribution to a 60% interest over the new business. Details of Bruce's assets and liabilities are given below.

(see attached image, please answer it based on your knowledge, thank you!)

(NOTE: you already answered the first 3: a-c, so please answer it again for letters d to e. Thank you again!!)

Rachel agrees to bring in inventory with a value of P146,500 and P93,500 in cash for a 40% interest in the partnership.

The partners have agreed on the following:

a) capital accounts will remain fixed;

b) 12% interest profit computed on capital;

c) salaries of P30,000 each for 2019 but will be twice this amount next year and thereafter;

d)10% interest charge on partners' drawings made beyond the agreed salaries; and

e) remaining profits are to be shared equally.

Direction:

d. Set up the general ledger (T Accounts) accounts to show each partner's equity.

e. Prepare a statement of changes in partners equitv.

8. Bruce and Rachel agree to form a partnership on July 1. Bruce, who has been trading as a
sole proprietor, will invest certain business assets at agreed valuations, transfer his
business liabilities and contribute sufficient cash to bring his total contribution to a 60%
interest over the new business. Details of Bruce's assets and liabilities are given below.
Agreed value
P 30,000
138,000
240,000
200,000
14,000
Book value
P32,000
Accounts Receivable
Inventory
Equipment
Accounts Payable
Notes Payable
240,000
322,000
200,000
14,000
Rachel agrees to bring in inventory with a value of P146,500 and P93,500 in cash for a
40% interest in the partnership.
The partners have agreed on the following:
a) capital accounts will remain fixed;
b) 12% interest profit computed on capital;
c) salaries of P30,000 each for 2019 but will be twice this amount next year and thereafter;
d) 10% interest charge on partners' drawings made beyond the agreed salaries; and
e) remaining profits are to be shared equally.
AD
Direction:
a. Prepare two journal entries to set up the partnership.
D. Prepare a statement of financial position for the partnership as at July 1 just after formation.
C. Profit (before interest and salaries) on Dec. 31 was P120,500. Cash withdrawals
made by Bruce and Rachel amounted to P30,000 and P40,000, respectively. Prepare
a profit distribution table and one entry to record the distribution.
the
d. Set
up
general ledger (T Accounts) accounts to show each partner's equity.
Prepare a statement of changes in partners' eauitv.

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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