Reference no: EM132782474
Question - On June 30, 2019, Bull and Dog formed a partnership. Bull invested P 150,000 cash and a land that was acquired at a cost of P 200,000 last two years, with book value of P 350,000 and a fair market value of P 450,000 as of June 30. Dog will invest sufficient cash in order for him to have a 40% interest in capital and profits and losses of the partnership.
On September 1, Dog invested additional P 50,000 cash and withdrew P 15,000 on November 30. On October 1, Bull invested an additional P 20,000 cash and merchandise inventory with current market value of P 25,000 and withdrew P 10,000 cash on December 1. According to their partnership agreement, profit or loss will be divided between the partners as follows:
The partners will be paid monthly salaries of P 12,000 and P 15,000 to Bull and Dog, respectively.
The partners will be allowed with 8% interest on their capital balances at the end of the year before closing the income summary account and any distribution against net income.
Bull would be given a bonus of 10% net income after deducting his salary and bonus.
Bull and Dog will share any remaining profits and losses in the ratio 6:4, respectively.
In 2019, the partnership generated a net income of P 172,500 and each partner had drawings of P 30,000 against share net income distributed at year-end.
On January 1, 2020, Cat was admitted as a partner by purchasing 20% interest of Dog by paying him the amount of P 110,000. Cat also invested a total of P 85,500 for a total interest of 20% in capital and profits and losses of the partnership.
After Cat's admission, the partners revised their partnership contract.
The following provisions are stated in the revised partnership agreement:
1. Profit or loss for the year of Cat's admission will be divided among the partners as follows: The partners will be paid monthly salaries of P 12,000, P 15,000 and P 15,000 to Bull, Dog, and Cat respectively.
The partners will be allowed with 8% annual interest on their capital balances at the end of the year before closing the income summary account and any distribution against net income.
Bull would be given a bonus of 10% of net income after deducting his salary and bonus.
Bull and Dog will share any remaining profit and losses proportionate to their original ratio, while Cat's share in the remaining profits and losses will be 20%.
2. Profit or losses in subsequent years will be divided among the partners based on their profit or loss ratio only no interest, salaries and bonus.
3. The partners' capital accounts are to be adjusted by transfers of capital at the end of each year after closing the income summary account and any distribution against net income so that their capital balances would be proportionate to their profit or loss ratio.
On July 1, Bull invested an additional P 35,000 cash. On August 31, Cat invested P 20,000 cash and withdrew P 5,000 cash on November 1.
In 2020, the partnership generated net income which is higher by 40% than that of last year. Each partner had drawings of P 15,000 against share in net income distributed at year - end.
On March 1, 2021, Bull while on his way to the business place, met an accident and died. The partners have not expressly agreed on whether to settle a deceased partner's interest using partnership funds or the remaining partners' personal funds. On account of this, the partnership; Dog and Cat, decided to settle Bull's total interest for a total amount of P 820,000. On March 31, the remaining partners determined that the land originally invested by Bull was understated by P 100,000 and decided to recognize this revaluation for fair valuation of the net assets of the partnership.
After settlement of interest, the remaining partners agreed to draft a new partnership agreement. According to the new agreement starting April 2021, profit or loss will be shared equally and that partners' capital accounts are to be adjusted by transfers of capital at the end of each year starting 2021 after closing the net income summary account so that their capital balances would be proportionate with their profit or loss ratio. For the year 2021, the partnership earned net income of P 150,000 of which 25% earned during the first quarter for the year. There were no additional investments nor withdrawals for the year 2021.
Required -
1. What is Bull's capital balance immediately after Cat's admission?
2. What is Dog's capital balance immediately after Cat's admission?
3. What is Bull's capital balance after transfers of capital among partners on December 31, 2020?
4. What is Dog's capital balance after transfers of capital among partners on December 31, 2020?
5. What is Cat's capital balance before transfers of capital among partners on December 31, 2020?
6. What is Dog's capital balance immediately after the purchase of Bull's total interest?
7. What is Cat's capital balance immediately after the purchase of Bull's total interest?
8. How much is Dog's total profit share for the year 2021?
9. What is Dog's capital balance on December 31, 2021 before transfer of capital?
10. What is Cat's capital balance on December 31, 2021 after capital transfer?