CHAPTER 1 IEW OF THE ACCOUNTING PROCESS the steps in the accounting process. tries and understand the rationale for their preparation, understand the rationale for their ‘preparation. preparing reversing entries and identify adjusting Adjusting Entries Accruals Deferrals/Prepayments Depreciation Uncollectible accounts Inventory Closing Entries Income Expenses Drawing Reversing Entries = Accruals Deferrals/Prepaymentse Chapter 1 — Review of th DEFINITION and NATURE OF ACCOUNTING Accounting is defined as a service activity. information, primarily financial in nature, about useful in making economic decisions. Its function is to is Provide qu, a be | Accountants render services by providing information measured in terms of money. These entities are eith or business enterprises) or not-for-profit entities in an entity, whether direct or indirect, are called use accounting information are grouped into two, about economic entiti ther profit-oriented (business ca ‘ nena all parties who have ime stakeholders. These g namely; pon ™ 1. External users~ they ae groups o individuals who are no / with the day-to-day operations of the entity but a ctl entity. They include creditors, investors, prospective ; government and the public. They n to the entity. Ate 2. Internal users — they are the manager entity who are responsible for the therefore, they have access to the make decisions that affect the inter ) vee Generally, the reports provided by account or money terms; these reports are called type of financial reports are the general. Framework for Financial Reporting issued (FRSC) identifies existing and Ppotentia primary users of general-purpose finanei members of thfe public other than inves are some of the users of financial infc decisions that they make. P 1. Investors — they are con by, their investments, The: they should make addi Suppliers and other enable them to d due.mers — they are intereste > €spécially when the ident on, the entity, din information about t the continuance of an y have a long-term in volvement with, or are ‘ents and their agencies — they are intereste and, therefore, the activities of entities. ion so that they can regulate the activities of Nn policies and as the basis for national income and si d in the allocation of They also require entities, determine imilar statistics, they are interested in information about the trends and recent ments in the prosperity of the entity and the range of its acti ities. ‘ROCESS efers to the procedures or series of steps undertaken to come up with ed in the financial statements. The accounting process is also cycle. information about economic transactions and the iate accounting records. A transaction is an ibility, or an equity account balance; hence, it he other hand, include business documents, ( Debit is its (double-entry system). a account, Following are theTHE ACCOUNTING CYCLE Documentation * General journal * Special journals Posting * General ledger * Subsidiary ledgers Préparation ofa trial balance Compilation of data for adjustments Key Points: "If a work sheet is not pi the financial statements. the financial Statements ¢ The| Chapter I~ Review of the Accounting Process The recording phase is composed of the following steps: 1, Documentation — this is the process of preparing or receiving appropriate b documents. Business documents are original source materiale which toon evidence of transactions. They include official receipts. sales invoices, nancna’s invoices, credit memoranda, and debit memoranda. alee this is the process of recording transactions for the first time in the called journals. This is the reason why the journals are called ul Transactions are recorded based on the documents d in number (1) above. 4 general journal and one or more special journals. The Most flexible type of journal where almost all types of ded. On the other hand, the special journals are used in IS that are usual and that occur frequently or on a repetitive mon types of special journals are the sales journal, purchases I, and cash disbursements journal. s of transferring the recorded transactions in the journal to A ledger is a group of related accounts and is called the e objective of posting is to classify the effects of transactions equity, income and expense accounts. n both a general ledger and subsidiary ledgers depending jeral ledger is the principal ledger which contains all the in the financial statements, namely: assets, liabilities, s Tt also includes contra and adjunct accounts. tablished to record deductions from related accounts ulated Depreciation (deducted from Property. Notes Payable (deducted from [Link]), and Purchases Discounts (deducted from set up to record additions to related e general ledger account balances. For ts Payable account balances are their balances are found in the ful Merchandising reports ). This total amount of in the general ledger. of them are found in theSUMMARIZING PHASE hase includes the steps necessary for the prey The summarizing pl summary reports. ving a trial balance ~ this is the process of preparing a summary After aly | 4. Chapter 1 Review ofthe Accounting Proces ea 2 aration of periods This phase includes the following steps: f the atinccs ofthe accounts in the general ledger known as the tral balance transactions are posted, the balance of each account is determined. Asset, aca and temporary capital account such as Drawing have normal debit balances. liability, equity, and income accounts have normal credit balances, : A trial balance is prepared to prove the equality of debits and credits bu ind indicate the accuracy of work done. As discussed in a previous accounting subj Not there are errors in recording that will not cause inequality in the trial balance ass example of this is debiting or crediting an incorrect account such as « orn Accounts Receivable erroneously debited to Notes Receivable. Another Rane. failure to record a eS the same transaction en iple is preparation of atrial balance i in the work sheet. The Compiling adjusting data various data necessary to company. Adj i financial statements are p and expenses will be 1 respectively; hence, adjusting data are the chapterChapter { — Nevwew of ihe Accounting Process Example 2 — DEF Company pays salaries every Friday, the end ofa five-day work week. The total salaries for the week ending January 3, 2015 is P150,000. In this case, the P150,000 salaries for the week ending January 3, 2015 is for the services rendered by employees on December 30, December 31, January 1, ‘ and January 3. Therefore, the company has accrued salaries for two of December 31, 2014. The adjusting entry to record the accrued 60,000 60,000 is income eared but not yet received or collected as of ncial position (balance sheet) date, such as accrued interest n accrued income is not yet collected but is matched current period, The adjusting entry to record accrued F XXX Xxx ny received a 3-month, 12% note dated December 1, ,000. Interest is receivable upon maturity of the note. d but not yet collected. The adjusting entry to nterest income is as follows: Mae 1,000 Si 1,000 ise paid or acquired in advance such as es are rent paid in advance and office ating to Prepaid expense at the end of thod used in recording the initial : the asset method ment or purchase isinitial payment of expense 1. To record the ‘ASSET METHOD EXPENSE METHOD Prepaid Expense XXX, Expense ras eae xxx Cash Xxx Cash >. To record adjustment at the end of the accounting period ASSET METHOD EXPENSE METHOD Expense a ‘Expense Prepaid Expense (Amount recorded ts the expired oF used portion of the " Example 4: On May 1, 30,000 covering a period of record the payment on } the two methods are pre 2014 May 1 Dee. 31 of cash is recorded,Chapter 1 ~ Review of the Accounting Process The receipt of the advance payment may be recorded using the ability method or the income method. Under the liability method, the collection is initially credited to a liability account; at the end of the accounting period, the earned portion of the income is transferred to an income account. Under the method, the collection is initially credited to an income account; at the ing period, the unearned portion of the income is transferred nt. The following are comparative entries to record the the adjustment at the end of the accounting period under the | receipt of cash HOD INCOME METHOD ‘XXX Cash XXX XXX Income XXX the end of the accounting period (OD INCOME METHOD Income XXX * XXX Uneamed Income XXX s the earned (Amount recorded is the unearned t) portion of the prepayment) 1, 2014, MNO Company received P240,000 fice space for one year beginning on this date. The pt of payment on September 1 and the adjusting the two methods are presented below: 240,000 80,000 80,000= ‘ Chapter 1 ~ Review of the Accounting Py we ey e Dec. 31 Rent Income 160,000 Unearned Rent 160.0, P240,000 x 8/12 = P160,000 The unearned portion is the rent for eight (8) months; that is, twelve (1g t months less the earned portion of four (4) months. e. ic property, plant and equipment and other cost alloc, aes bi ean 16 as the systematic allocation of depreciable amount of an item of property, plant and equipment over its i life. Depreciable amount is the cost of an asset, or other amounts Substitutes for cost, less its residual value, The entry to record depreciation expense is 25 follows: reciation Expense XXX * Accumulated Depreciation 2x The depreciation expense for the period is acceptable methods identified in PAS 16 balance method, and units of production will be used in the illustration and p chapters of this book. — The accounting subjects. r the expense is computed as Depreciation ey calculated, unless half-year deprec} Other cost allocation j - [Link], This | estimated residual e ©xpense in 2013 and 2014Chapter 1- Review of the Accounting Proc 2013 Dec. 31 Depreciation Expense Accumulated Depreciation (P310,000 ~ P10,000)/5 yrs. X 3/12 20 got rene Sor 2013 is for three months; that is, October 1 to tes Depreciation Expense 60,000 _ Accumulated Depreciation 60,000. _ (P310,000 ~ P 10,0005 yrs. 15,000 for 2014 is for one year or twelve (12) months. ints — these represent customers’ accounts that may no d or that may possibly become bad debts. PAS No. 39 ‘accounts receivable should be reported in the statement of ortized cost. Amortized costs is defined as the amount le is measured at the time it was first recognized minus t) for uncollectibility. | The entry to record estimated s is as follows: ial assets). Several considerations have to be be discussed thoroughly in higher accounting sion in this book, the estimated uncollectible is a contra asset account; as a deduction fromr * 4,050 ‘Accounts Expense fo “allowance for Uncollectible Accounts 6,050 a Bei tafe adjusrnent credit _2,000 balance before 0 Anektectible accounts expense for the period 4,05 i dic inventor ‘ just inventory is necessary if the perio ee cao MGs erotic invercory system, the company does nop te crccicat masvement of goods, Purchases of goods are recorded i apieate on aocal “Purchases”. The reduction in inventory resulting from es Be ete eet fh te books Thus, the balaice of the Tnventory account Bee afar Pali ead Glance represencs inventory at che beginning of ee TMi eRe Ae inintatiisting\eutries are necessary 10 relic inventory at the end of the period. There are two methods of recording adjustments related to inventories. Under the first method, two entries are prepared: (1) to transfer the beginning inventory balance to the Income Summary account and (2) to establish ending inventory balance. The entries are as follows: 1. To transfer beginning invento ry balance to Income Summary Income Summary XXX ¥ Tnventory(or Merchandise Inventory) xXx 2. To record ending inventory balance Inventory (or Merchandise Inventory) XXX Income Summary XXX, Under the second approach, a separate cost of the entry to record the adjustment is as follows. Inventory (or goods sold account is set up and Merchandise Inventory), end he Purchases Returns and Allowances Purchases Discounts Cost of Goods Sold Inventory (oy i ae (or Merchandise Inventory), beg, Freight-Inthe lar ij come statement and statement of financial columns are maintained to achieve the purpo et is prepared. The first pair of amount columns is for the ‘the second pair is for the adjustments; the third pair is for the income ‘and the fourth pair is for the statement of financial position data. In some es, another pair of column for adjusted trial balance is added following the \djustments colunins and preceding the income statement columns. Working papers are usually prepared by using a computer spreadsheet program such as Microsoft's Excel. Preparing the financial statements — after the work sheet is completed, the financial statements are prepared. The data reported in the statements are taken from the completed work sheet. However, if a work sheet is not prepared, the adjusting data must be journalized and posted before the financial statements can be prepared. This is because the data reported in the statements are taken from the updated balances of the accounts in the general ledger. The financial statements are described as the end product of the accounting process. PAS | provides that a complete set of financial statements shall consist of the following: 1, Statement of financial position (balance sheet) 2. Statement of comprehensive income 3. Statement of cash flows 4, Statement of changes in owners’ equity 5. Notes ‘An entity may prepare a single statement of comprehensive income or two separate statements — a statement of income and a statement of other comprehensive income. Other comprehensive income includes items of unrealized gains and losses that are hot reported as part of profit or loss, such as revaluation surplus arising from " teporting of plant assets at revaluéd amounts and gain (loss) from change in fair value of investments classified as available for sale. | Adjusting and closing the books — the adjustments that were recorded in the work set are now formally recorded in the general journal and posted to the accounts in general ledger. The balances of the nominal (temporary) accounts, which Gonsist of income, expense, and drawing accounts, are then closed to Income ry account. The balance of the Income Summary account is then transferred Owner's equity (capital) account. A debit balance in the Income Summary it Tepresents a loss while a credit balance represents a profit. Lastly, the1 Review of the Accounting Process ae Chapter 1 ed to owner's equity (capital) count is close’ jominal accounts will have wing ac balance of the owner's drawing accoul! Fy ag, account. When the closing process zero balances. at the end of the accounting Following are the pro-forma closing entries prepared period: 1. To close the balances of income accounts nA Revenue / Income an Income Summary To close the balance of expense accounts: Income Summary a Expenses c > z XXX 3. To close the balance of Income Summary account (credit balance) _ Income Summary Z c oe Bae OK ” Capital i. * c 4 To close the balance of Income Capital f Income Summary _ 4. To close the balance of the d Capital Drawing 9. Preparing a post-closing nominal accounts have been Therefore, a po: liabilities and equity); the accounting period. A post-c] debits and credits shel Sua . Reversing the accounts — accounting period are reve adjustments include ac expenses recorded under thChapter 1 ~ Review of the Accounting Process 1s The adjustments that will be reversed if reversiny forma reversing entries prepared at the beginnin; follows: 1. Accrued Expense Payable XXx Expense xx ig entries are prepared and the pro- ig of a new accounting period are as 2. Accrued income Income XXX Receivable XXX id expense ~ expense method Expense Prepaid Expense nition of accounting and identify the users of accounting is a service activity. Its function is to provide in making economic decisions. The users of accounting into external users and internal users. The users of financial and potential investors, employees, lenders, suppliers and omers, governments and their agencies, and the public. le accounting process. The accounting process is composed of ten (10) steps, two of which are two phases, namely: (1) the recording The three steps under the recording phase or receiving the appropriate documents actions, and (3) posting the recorded 4 The seven (7) steps under the ing the trial balance, (2) compiling sheet (optional), (4) preparing the ig the books, (6) preparing a post- ig entries for certain adjustingcounting Proce ind the rationale for preparing them, sd earner Peron ODES the adjusting entries and understa! ache preparation of the financig Adjustin justing entries are prepared at the end 0! balances of ces of the accounts in the general ledger PAG F Statements. This will crable ante Pirqhe financial statements to Preseny fairly the fi of the fs of an entity during a gi ly the financial post id the results of persone Biven posiod eat of opctad the elements of the financig period because all transactions ve the following: (1) accrued expense» (2) accrued income, (3) prepaid expense, (4) uncamed income, (3) depreciation and other ‘cost allocation, (6) uncollectibie accounts receivable, and (7) inventory otorded using the periodic inventory Prepare closing entries and understand the rationale for preparing them. Closing midis to reduce their balances t0 zero at the ea ‘entries are prepared for nominal acco’ i tude the following: income Of the azooumting period, Nominal accounts inc e accounts, and temporary ‘equity accounts, such as the drawin, 1a sole proprietorship form ‘of business organization. 8 of preparing the reversing entries and identify adjustin evening ene ar iprepared at the beginning of le lowing adjustments: (1) accrued expense, (2) expense recorded under the expense method a er the income method. The ian atte t preparation of the recording of ex] Ba ne pense payment and od in the usual manner. Closing amount Genera the gen statem¢ Journ special Ledge! ledger NomirChapter 1 — Review of the Accounting Process Closing entries — entries prepared at balances of nominal accounts to zero, Depreciable amount — the cost of an item of property amount substituted for cost, minus its residual value.” PM 84 eauipment, or other General journal ~ the most flexible type of journal the general journal. Alll transactions may be recorded in General ledger — principal led; c icgaeral ipal ledger that contains all the accounts reported in the financial wnals — also a” as books of original entry. They include both general journal and ‘accounts — also known as temporary accounts. ‘They are accounts whose are reduced to zero at the end of the accounting period. Nominal accounts jue or income accounts, expense accounts, and temporary equity accounts, wing account. se — expense paid or acquired in advance; expense paid or incurred but not ‘or consumed. Prepaid expense has been paid or acquired as of the statement osition date but is not matched against earnings for the current period. ‘rial balance —a trial balance prepared after closing the books. The post- alance contains real accounts only, They are accounts whose balances fe asset, liability, and its — also known as permanent accounts. Srward to the next accounting period and they includ ginning of a new accounting period to dto facilitate the recording of expense iod in the usual manner. entries prepared at the be g entries. They are prepare cipts during the new accounting peri occurring transactions. ; used to record repetitive or frequently r ts journal and cash purchases journal, cash receipt ils of a general ledger account at provides detai ledger accounts with their corresponding balances. It s and credits.Chapter 1— Review of the Accountin 1s aL! ng Prey Unearned income — also known as deferred income. This is income collected but yet eamed or realized. Unearned income is collected but is not matched against ¢: for the current period. 3 Exe DISCUSSION QUESTIONS ei |. What is accounting and what is its purpose? What is its role in decision- ie ‘making? Who are the users of accounting information and what is the relevance of information to the various types of decisions that they make? Who are the ane financial statements and what are their information needs? * accounting process? What is the impor tance of each e other steps in the process? = a its preparation is optional? aeChapter 1 Review of the Accounting Process EXERCISES Exercise 1-1 (Classifying Types of Adjustments) , Classify the following items as (a) prepaid expense, (b) unearned r revenue, or (d) accrued expense. Seperate . Cash received for services not yet rendered. . Supplies on hand. . Utilities owed to be paid the following month. |. Taxes owed but payable in the next period. . A three-year premium paid on a fire insurance policy for the buildings. ‘Cash received for use of land within the next six months. . Fees earned to be received the following month. Rent expense owed but not yet paid. Subscriptions received in advance by a magazine publisher. ). Fees earned but unbilled. 11. Salaries owed but not yet paid. Debit Accounts Expense | eeprepaid Expenses ©! Exercise 1-3 (Adjusting and Reversing Entries ~ Revenues) 4 transactions of the ABC Trading during the year 2014: 300,000 representing renga er 30, 2015. The following are selecte ‘ ived P. 4, the company rece’ 2014, the company 1 Novembs ‘od December I, 2 premium of P90,000 was paid covering a perigg a. On December 1, payments for the peri b. On March 1, 2014, an in: of one year beginning on surance this dat ting entries as of December 31, 2014 any Provide the necessary adjust 2015 assuming: Instructions: f January 1, appropriate reversing entries as 0 1, Transactions were originally recorded in asset and liability accounts. ily recorded in expense and revenue accounts. 2. Transactions were original i 1-4 (Adjusting and Reversing Entries) ing follows the policy of recording prepa i p “ yyments in revenue and e ferenes appropriating enes a the Petieeot the a records of the business show the following: ue 01 1.2014, DEF taroved P2,000000 cash from the Bank oft ae Oe payable in one year. The interest is ite I4, DEF paid insurance premi DEF id insurance premium of P72, 000 covering a period P360, Paid P360,000 representing rental for one year starting of P1,500,000 . - ang '50,000 of the id all nes ere for uncollectible €s are uncollectible, Pee The 450,000, 1 PayToll for the five-ty st 1, 2014 Or mre lounting to P120,000. 5 alance of with no residual he All Ounted t On\Dece PS. as ie 00. “During the yeat, ember 31, 2014, there art nd Unearng, be c 2 a y P Instruc! 1. P 2. FP Exercis The fol necessa Purchas Freight Purchas Invento Castro, Castro, Admini Accour The en Instruc l. Pre 2. Pre whi bal: Exerci The ac the a Pp PrepareChapter I~ Review of the Accounting Proce 21 h. DEF subleases part of its office 2014, it received rental payments Space for P30,000 per mor for six months sta This don November 1, ting on this date. Merchandise inventory on January 1 and D ee are) iy | and December 31 amounted to P180,000 and Instructions: Prepare the necessary adjusting entries on December 31, 2014. Prepare appropriate reversing entries as of January 1, 2015. 15 (Adjusting Entries for Inventories and Closing Entries) 1 lowing balances are found in the general ledger of GHI Sales after recording the ary adjusting entries, except for inventories, in the year 2014: 2,100,000 Sales 5,000,000 10,000 Sales Returns 5,000 20,000 Sales Discounts 10,000 50,000 . Interest Revenue 25,000 2,000,000 Selling Expense 450,000 500,000 Interest Expense 15,000 500,000 Accounts Payable 300,000 1,500,000 inventory based on physical count is P140,000. wired adjusting entries for inventory under the two approaches. fred closing entries as of December 31, 2014 using the approach in ‘cost of goods sold account is set up in adjusting the inventory ji i djusting entries to had just completed posting all the adj t a wishes to close the ledger balances inFor each of the accounts listed below, indictte whether the balance should by ser ed forward to the next accounting period, () closed by crediting the accoun (c) closed by debiting the account. @ 7 Accounts Payable . Merchandise Inventory, be ‘Accounts Receivable . Merchandise Inventory, en ‘Accumulated Depreciation . Notes Receivable ‘ash |. Prepaid Insurance Freight-in . Purchases Discounts Income Summary . Purchases . Salaries Payable Sales Interest Payable Sales Discounts Sales Returns and Allowances Sits gue. Seer aveuychapter 1 ~ Review o a Review of the Accounting Proces Instructions: 1. Prepare the necessary adjusting entries as of Di fecember 31, 2014 2. Prepare the appropriate Teversing entries as of. January 1, 2015, lem 1-2 (Closing Entries) sheet prepared at the PQR Retail Store for the & year ended Decemby § the information presented below caged Income Statement of Statement Financial Position Debit Credit Debit Credit 120,000 150,000 150,000 720,000 180,000 5,700,000 150,000 3,000,000 120,000 90,000 18,000 27,000 540,000 24,000 150,000 & formation given above, prepare the necessary closing entries as its ‘books at the end of each month. On October 31, d to record: AA srued during October i fi ber fence been billed yet to customer 3g ZA for the month of October et By i ed in October Be a atrwce wart was eared in October ‘of employees at the end of OctobermM Chapter 1 Review of the Accounting Proce Indicate the effect of each of the adjusting entries upon the major element, financial position and income statement. The company record, t and liability accounts. OTB40t7 your answers in tabular form, Using n and the symbols (4 for increases, (-) for decreases, and (Nf) (a) is provided as an example. ) Tncome Statement Instructions: of the statement of prepayments in asset the column headings give! feet, The answer for adjusting entry f Financial [___[_Statement ol [case Assets | Liabittes | [NE aoe for nocoer. leview of oof the Accounting Proc ts ie tions: ae... ee 1g r 1. From the comparative trial 7 balances pr ) made. The difference between the amoung tr pare the Se¥EN (7) a adjusting entries : a kenounadl and the amounts in the “After Adjustments" sctwey eo entries. re Adjustments” columns ‘olumins are the result of seve Ins are the result of seven adjustin ing, 2. Prepare the necessary closing entries as of December 31 2014. _ Determine the amount of profit. oe 1-5 (Adjusting Entries) Realty operates with an annual accounting pe balan inting period that ends on De ice of the company at the end of the current year 2014 follows: oi nts Receivable Pe 50,000 750,000 150,000 1,300,000 260,000 110,000 120,000 840,000 350,000 3,600,000 450,000 100,000 150,000 30,000, 50,000 5,080,000 5,080,000 ‘amounted to P30,000. Me office equipment the year: ’ ment fees represents advance payments for 2014. — P75,000; automobile — yr SIX beginning October |, 4. é a five-month advertisin: es, ‘usting entries as of December 31, 2014Chapter 1 ~ Review of the Accounting Proc,, yr gee. MULTIPLE CHOICE QUESTIONS mech 26 MC Adjusting entries normally involve ; a. real accounts only c. real and nominal accounts 4. neither real nor nominal aco, b. nominal accounts only MC 1-2 The balance in an unearned income account represents an amount mci Earned Collected k a. Yes Yes t b, Yes No E © No No [ a. MC 1-3 MC 1-4 MCI-5 MCI-6 MC1-7 MC1-8oLthe Accounting Process unadjusted trial balance Post-closing trial balance worksheet trial bal sheet trial balance Insurance Expense account has a balance of P108, 000 before adjust 5. re adjustment, cP 72,000 d. P108,000 000 purchases on account was paid after the expiration of the 2° Ht period. The entry to record the payment would include to accounts payable for PS0,000 to accounts payable for P49,000 to purchases discount for P1,000 ‘to cash for P49,000 iments, Supplies Expense account has a balance of P13,500. data gathered shows that supplies inventory on hand at year-end c. P 8,000 d. P13,S00 it has a credit balance of P240,000 composed of the ree months ending March 31, 2014, P45,000 i representing advance rental payment for one year c. P191,250 d. P195,000of the Accounting Proces 3 for uncollectible accou unco ints ‘any adjustment. At the wterprises before vable of P800,000, 3% of | Me adjusting enty requred y MC 1-14. The Giveaway En! of P16,000 (credit) at end of the year, the ‘mated 10 be which is December 31,2014 would be ©.chapter 1— Review of the Accounting Process qest Material No. 1 Date _ Professor TRUE or FALSE : Encircle the letter T if the statement is true and the letter F if the Accounting is a service act . unting ivity whose function is to provide ‘quantitative information about economic entities. Tecords used for the initial recording of business transactions he mules for debit and credit and the normal balance of liabilities ae same as for Capital. ial journals are used to record usual and frequent transactions. includes all accounts appearing in the financial “subsidiary ledgers provide details in support of. ledger balances. st balance in an account as a credit will cause the of balance by an amount that is divisible bypepe of te SE eee Re cuapier an example of & a tion expense T F 12. The entry ei ee depres if reversing entries are made, adjustment that 4p entry’s debit ft _ Test ar compoun als ang | Name _ Year al It is somet credit totals t0 be unequal. the statem wel Re used to prepare 14, The ol balance is eso ent of comprehensj, the statemen 4 Instruc T F tT. 75 Tae Tf ee TAS ge Teo Ryo TF 20. Ta Fis, Pate Mah aie a Ty aR aeapogee aA Date Year and Section Professor _ come for the period the balances of asset accounts the balances of liability accounts edit balance Matches that of its companion account the balance of its companion account the balance of its companion account (book value) of an item of property, plant and equipment is eciation expense during the period from the original balance account balance to the original balance: of the asset account mitra account balance from the original balance of the asset paid asset account e account nue is required because cash is received ;Chapter 1 nw of the ACCOUNtINE Proce, An adjusting e ccrued expense is required because cash is paid a. before the expense is incurred b. after the expense is incurred ¢. as the expense is incurred d. after the balance sheet date and a credit to an asset accouny s An entry requiring a debit to an expense acount an example of an adjusting entry classified as a. accrued expense o b. Depreciation 4. prepaid expense uncollectible accounts their useful life jeof plan assets a THPs Pps angpep BOTP HM BOTPO gnorerZ pore eyA debit column total is gre; greater than the cr dit c« ol in arenes worksheet. This means that. °°1"™® tl inthe income statemen, a. mistakes were made in the prepara, b. the company had'e grat PePatstion ofthe adjusted rial balance ¢. the company had a loss d. the Income Summa ry account Will have a credit balanc ee redit balance after the nominal Fentties are journalized and posted before lancial statements are prepared g entries are journalized and posted losing trial balance is prepared . is completed entries are entered on the work sheet ince debit and credit column totals are not equal ince account balances do not reflect updated balances trial balance must be completed statements are prepared g items is not found in the work sheet? c Income statement d. Statement of Financial Position items has no effect on owner’s equity? “ c. Revenue d. Withdrawals s all of the following steps except adjusting entries closing entries Sis ions in the journal to the accounts in theVest Material No, 3 eating Name Dae Year and Section rata MULTIPLE CHOICE ~ Problems : Presents ; Instructions: Encircle the leer that corresponds 0 your answer, Presen Wpporing sheet, computations in good form in a separate work sheet ial balance were P240,000 and an Additiong, 1, I the debit and eredit ae the purchase of P10,000 of office supp oe ie isco si Bede debit and credit totals for the trial balance aftr 4° entry is made ; . P245,000 1 . Peake 4 250.000 purchase of P10,009 : ‘was omitted from the original journal entries. After fae tae transaction, the new debit and credit totals for, bey c. 245,000 i 4. P250,000 4 illed P1,200,000 for services to clients ‘on account and Account. unt. Accounts receivable had a beginning g balance of P80,000, How much cash did ble and what type of entry to accounts 6 P1,240,000; debit P1,240,000; credit ‘of rent in advance, at a rate of P5000 ‘Account two months later would be 100,000 of P45,000. At the end of the Accumulated Depreciation had é iod balance of P45,000. The ts resulted’ in total expenses of P45,000 ase of PS1,000 chapleChapter 1— Review of the Accounting Process ath pa 6, Carlos Company paid four P80,000. On August31, Carlos should.» MENS | A” debited Rent Expense for a. debit Prepaid Rent for P20,000 b. credit Prepaid Rent for P20,000 ¢. _ credit Rent Expense for P20,000 4. _ credit Rent Expense for P60,000 Dagohoy Organizers purchased an equipment costing P100,000 on July 1, 2014 ent has an estimated useful life of 10 years with an estimated residual 10,000. _ The balance of the Accumulated Depreciation account on ber 31, 2015 is x c. P13,500 d. P15,000 ice Revenue account shows an adjusted end-of-year balance of ting entry to Unearned Service Revenue indicated P400,000 ‘Was earned during the accounting period. What was the d Service Revenue account before the adjusting entry was c. P700,000 credit d. — P700,000 debit $ a P180,000, 10%, 90-day note receivable outstanding at ote is dated December 1, 2014. The appropriate adjusting d accrued interest on the note at year-end. What is the January | of the following year? : ue and credit Interest Receivable, P1,500 ivable and credit Interest Revenue, P1,500 nue and credit Interest Receivable, P4,500 ible and credit Interest Revenue, P4,500 ¢ Statement debit column equals P700,000 and the 0, Which of the following statements is correct? profit ‘of P100,000 and it must be added to the column and the Statement of Financial Position he work sheet. ss of P100,000 and it must be subtracted from the umn and the Statement of Financial Position work sheet. Sof P100,000 and it must be added to the and the Statement of Financial Position 00,000 and it must be subtracted from added to the Statement of Financial36. hi caplet The balances of the following acco Sum 2 Sum sr aces OF TM nse, P50,000 debit; Cost of Goods Sold, P80,000 dete Uulity Expense, P25,000 debit; Sales, P200,000 credit. The amount and the g vit 17 to cloce Income Summary to the Capital account would be try a. P45,000 credit to the Income Summary account b. P45,000 debit to the Income Sun ry account ©. 155,000 debit to the Income Summary account d P200,000 credit to the Income Summary account 12. If the Income Summary Account has a credit balance of P150,000 before A inf 1 balance is closed to the Capital account, you know that a. revenues exceeded expenses by P50,000 b. the company had a loss of P100,000 ©. the company had a profit of P150,000 4d. the owner invested an additional P150,000 in the business The cost of goods available for sale is P1,300,000. The gross profit is P300,00),_ 13. net sales ,000, net purchases are P1,100,000, ‘and operatin, esicntorled oftiacompeny?. c. P300,000 profit ee. d. P300,000 loss 4, :: e 4. ny paid P36,000 in advance for a one-yex | debited Insurance Expense anj ai : appropriate adjusting entry a i saty aif 16. : : : I 0 and ending inventory D account at the en! ‘before and att br i IR 0.rr I~ Review oj ing Ghapter I~ Review of the Aecountn, Process _ 17. Prepaid Insurance has an endin, eects i balance of P46,900, uring aaa toe BHOUNE oF P24,000 expired The Bare eee a. Prepaid insurance for P22,000 5 __b. insurance expense for P22,000 Prepaid insurance for P24,000 insurance expense for P24,000 ars eccived cash of P300,000 in advance for service that wil be provided Tecorded by a debit to Cash and a credit to Uneamed ind of the period, P110,000 is still unearned. ‘The iate adjusting entry is lebit Uneamed Income and credit Income for P 190,000 *bit Uneared Income and credit Income for P1 10,000 debit Income and credit Uneamed Income for P190.000 >it Income and credit Unearned Income for P110,000 . justed trial balance of BLP Company shows the following balances: = Debit Credit P500,000 100,000 150,000 sted Depreciation P Bae Buayeble 250,000 50,000 630,000 100,000 40,000 30,000 *P970,000 970,000 Se { the total assets of the company? 750,000 a eriod was P30 Fed and debited to Ped supplies at the end od is Q Hand account balance at the peat rin sed durin; es og cal Seas 'P40,000 of unused sup Supls ou Ha Le co ting journal entry atte end ofthe pe Supplies on Hand. eae et oft period tae ind and credit Supplies Exner fer SEO ee swe es and credit Supplies on Hand for , he Supplies 10,000 i it ies Expense for P110, iebit Supplies credit Supplies 110,000 e spit Supplies on Hand ore credit Supplies on Hand for = it lies 3 d. debit Supp! r aJOP ac Gt Oe Chapter 1 Review of the Accounting Proces, cna November 1, 2014 by giving the, 21 ue of P200,000. The December 3, Silang Company purchased equipment 0m supplier a one-year, 12% note with @ face val adjusting entry related to the note is a. debit Interest Expense and credit Cash for P4,000 b. debit Interest Expense and credit Interest Payable for P4,000 5 debit Interest Expense and credit Interest Payable for P6,000 debit Interest Expense and credit Interest Payable for P24,000 Merchandising Freight-inlew of the Accounting Process fees,” No, 23, the adjusting entry Fequired to record ending it to Income Summary, P578,000 come Summary, P578,000 ‘0 Inventory, P578,000 c. 3only d. both 2 and3 Be wis ation in No. 23, the correct entry to close the accounts with debit ¢ Summary account is mary, P1,732,000 » P1,732,000 P 1,170,000Rating | Test Material No. 4 | De | Name Professor =a Year and Section ___—_— Instructions: Indicate witha Yes or No whether or not each of the following sme ps Ine normally requit res Soe ound nthe balance of OMS Compan fe — Pe ROS BA mMmntno ba PLOMPADAAR PNESSmPIaMAYN sDate _ Professor MATCHING TYPE Depreciation Financial statements General ledger Income summary Nominal accounts Post-closing trial balance Posting Prepaid expenses Real accounts Reversing entries Special journals Subsidiary ledger Worksheet N. 0. P. Q R s. fr: U. v. Ww. Ke Y. a that corresponds to the best answer. product of the accounting process. incurred but not yet paid and recorded at the end of iod. f it balance which is deducted from an asset st of an item of property, plant and by the use of the asset.Chapter 1 Review of the Accounting Pro ae cen | irchases. i ¢ inventory beginning plus Pu 9. Merchandis¢ ina tabular fashion to accommodate the recor, ing : 10, Journals designed i a of specific types of similar transactions. p 11, A book of accounts that include all asset, liability, equity, i and expense accounts. quity, Meome, | dei | uu 12. nae of ee and grouping similar transactions jon account transferrin; 2 ieee ry ig amounts from the journals to the i. 13. A postponement of the recogniti : recognition of revenues already received in adi : an expense already paid, o; * 2) 14, Entries that reduce all nomi 3. nominal accounts to < ul its to a zero balance at the eng b of each aecounting period.CHAPTER 2 N. ATURE AND FORMATION OF A PARTNERSHIP cuss the nature of a partnership — its characteristics, advantages and ant kinds of partnerships and the classes of partners. ements in the formation of a partnership. for partners’ initial investments in a partnership. PARTNERSHIP (Nature and Formation) Accounting for Partners’ Initial Investments = Cash contributions = Non-cash asset contributions = Contribution of industry 3 , Civil Code of the Philippines as or elves to contribute money, property, or ‘dividing profits among themselves.”7 * conducting j, 5 eh creRISTICS Cua pA agent of the partnershiP in 1. Mutual agency: A” partner 89 act aS affairs. i 2 «cot assets 08 COT, ibuted tothe partnership 2. Unlimiea Habiit re ty asset ners eacors’ claims UPC acreage any par aoe ae iy yo settle the rahi lites to outsiders: it parmership asset Limited life. 4 partnership may be dissolved at any time by action of the partners 9, by operation of 1aW. Mutual pa ‘A partner has the right to share in partnershi profits ship eparate and distinct from that of 5. Legal entity. A has pe each ofthe a Ad s i st ributed ‘to the partnership are Co-own o owned by the pores co 1.Chapter 2 Nature and F, Lhapler 2_Natiere and Formation of a Part mation of a Partnership DISADVANTAGES OF A PARTNERSHIP 1. The personal liability wrt ofa ee Partner for firm debts deters many from 1 investing capital in may be subj ili ss ject to personal liability for the Wrongful acts or omissions of = one whose main activity is the manufacture and sale or le of goods. ip - one which is organized forthe purpose of rendering all present property — one in which the partners ‘of the constitution of the partnership, all the Y belong to each of them into a common fund with same among themselves as well as the profits partnership and subsequent acquisitions = one which comprises all that the e existence of the or work during th novable or immovable property which ss at the time of the institution of the es ry < assets consist of assets acquired during the life of the usufruct or use of assets contributed at the time of ‘The original movable oF immovable property do not become common partnership assets. partnership éontributed¢ for its object determinate things, th, ereise of a profession «. | Particular partnership — one which use or fruits, or a spe ng or the vocation, } undertal ng of general partners who are liable of partners parate property for Partnership General co-partnership ~ one consi ata and sometimes solidarily with their s Limited partnership one or more general partners and one orm 5. Aa torepreseatatiogt to. Ordinary part considered ‘as one one precluded to deny. a. Lone ‘partnersh NP — one | not made known to the pu bichapter 2-Natture and Formation b. Open partnership atone made known to th her ein the exi sn e Public by 4 stence of certain persons as partners is the members of the firm, CLASSES OF PARTNERS Aste ntribution She who contributes capital in cash (money) or property ¢ who contributes industry, labor, skill, talent or service, le Whose liability to third persons is limited only to the ibution to the partnership. charge of the winding up of partnership “really a partner, not being a party to the liable as a partner for the protection of ement of the business d or unknown to the \ not known tLR) gegen Oper PARTNERSHIP CONTRACT i nerships an” A Partnership is created by an oral or a written agreement. ae Peaiaiss aed jg med to be registered with the Office of the Securities and ExcHENEE gs it 8 Recessary that the agreement be in wri In this case, misunderstand a disputes among the partners relative to the nature and terms oa ee 8voided or minimized, The written agreement between or among, Me Pact {hin the formation, operation and dissolution of the partnership is referre of Co-Partnership. The Articles of Co-Partnership contains the following information: Th partnersh % 2. The saa) ei addresses of the partners, classes of partners, stating whether the partner is a general or a limited partner; . The effective date of the contract; ° . rpose urposes and eofthe business; : The Sil an pe p ating the contributions of individual partners, thei, description and agreed = he 5 .. The rights and duties . The manner of divicPo Requirements for aa aceeimemee | Lia Certificates sued — urea offntermal Revenue | Sic Regi ial et gistration BIR Registration No, | Partnership's Tax Identi Number (TIN) Registration of books, invoices, and official receipts Articles of Co-p, artnership fication | SSS Certificate of Membership | SSS Employer ID Number Filled SSS Application form List of employees ee | SEC Registration PhilHealth Employer Number Employer Data Record or (PEN) and the Certificate of ERI Form Registration Business Permit or License _| PhilHealth Identification | Number (PIN) and Member Data Record (MDR) for concerned employees | HMDF Certificate of | Membership HMDF Employer ID Number iG ACCOUNTS.’ Accounting for a partnership anizations with regard to capital accounts. Ina ital accounts and as many drawing accounts as nt and one drawing account is maintained formay be credit) operations 5 the partner’s capita, _ directly account) loss from debited capital 2. Share in partyership operations (this may be directly to the partner's account) OPENING ENTRIES to the partnership. Appropriate ass. | and partners" capital accounts are crediteyyp 2-Nattere and Forman, sre and Formari coapter 2 Nate 4 Riese Sat Aa ed ary a: st The entry to record the il © Contributions of the partners foll Cash a Inventories 800,00 Equipment 20109 bony Capital eat fon, Capital 700,00 700,000 ‘ontributions in the for fg 5 Xm |Partners) Of Cash, Non-cash Assets, and Industry (Capit and d Adela for P300, nee a ener. Alma contributed P600,000 cash, p Hes es -equipment valued at P450,000; Adela is an F special skills and talents to the partnership. 900,000 450,000 600,000 750,000 artner Adela follows: py is already engaged in business prior to the , the partner may transfer his / her assets and ‘agreed values or at fair market values if there y either: (1) use the books of the sole ‘books are opened for any new srtner or by any one of the partners, s for adjustments to the recorded ount, The capital account isure and Formation ofa Prtneny, ncyuited for increases in the value of net assets and is debited for decreases in the Vale gy net asset fe user balance » 4 Capital Adjustment Account may also be used. The balance ler eco! is transferred to recording all the necessary adjustments, is transfe accounts. f thi the capitg i ned a partnership wherein Aguilar a conn ESR a Rete ne tad poultice (net assets) of his 5. Ac t \s follows ; ae en Debit Credit 300,000 450,000 240,000 90,000 900,000 al interest in the Partnership. sole proprietor for this type of formation: ners. However, # sferred to the capitalOO — eS 2-Nature and Forman a era rae per ry Soy ae se follOWiNE TUES Will be hetpey ebit asset a D ind cred Necessary adjusting entries, " credit as, ses in asset values m in liability balances of contra asset accounts, th, the Contra asset account an} cigs Tues shall apply ind credit contra Pee SOnithe Partnership of Aguilar and Angeles will be accounted for Credit capital for increases in asset values ‘asset account for decreases in asset values f the sole proprietor Angeles to agreed values 22,000 neollectible Accounts 22,000 ‘ 30,000 30,000 12,000 5,000 7,000 les after the three adjusting entries are posted 915,000 1a new set of ‘books bE i required on the new 1 a : Be at Ee yalues. The a ‘at given in Illustrative Problem00'08F d 00'097't oog'eLz ‘OTe squnosoy 2141991109001 10} 00'00e & “unemoY alqnS9j}09u7 09 aottEASONLY = a1quaroy §= bs Chapter id Formation of a Partner = ee Formation of 6 Pertteriy Wy gpter 2 The pa Eo Partners agreed on the following conditions: gjusting 1. Partners? adi 2. Adj rs” capital in the partnership shall be equal to the adjusted net assets transfetr, store Adjustments are to be made as follows: s| Ante a. Allowance for Uncollectible Accounts shall Be 7,200 and P30,000, respectively. b. Inventories are to be valued at 120% of their recorded values. ¢. Both store and delivery equipment are 57% depreciated. Me Assumption 1 — The partnership will use the books of one of the sole proprietors | The procedures to be followed under his assumption are similar to the proc di ; i a Procedure, All cussed under Formation B — Assumption 1. Thus, if the books of Albano Trading wi ‘AC i the following procedures will be followed: i Me Nn ei ; A to bring the balances of accounts t0 agrex Assun When the it partn: ay"ey ajvsting and. closin, e ais & entries are prepared an: om the separate books of Antonio V Antonio, Capital a Allowance for Uneott we y lectible Acco - 7,200 = Po pag eats Accouns 1.200 ». Merchandise Inventory Antonio, Capital vn P330,000 x 20% ~ P6é,000 nes ~. Allowance ene stible Accounts 7,200 Kecum iati i Depreciation ~ Store Equipment 30,000 a 132,000 1,018,800 600,000, ‘ip will use a new set of books ‘Opened for the partnership, entries are prepared to record TS at agreed values. The opening entries on the new ita given in Illustrative Problem B are shown below 120,000 72,000 396,000 570,000 7.200 132,000. 1,018,800 30,000 300,000. 1,512,000 10 eyes 90,000 333,000. 1,935,000 ach partner's contribution as 3 for ¢ fe ent iputions of al the partners. “the contributionsrormation of Partierny coapte E ag net of depreciation, Ty, aT a sant asst are record My books. The nee cAPit { vey Pames tn the opening entry PAC carried on the Dat assets to the Partners), Por af Key Points. deprecation The cost of HE EIDY ihe partnershiP- On ge | POT account accumu] vale, FEPTSST re depreciation vance for uncollectge | must fs any such amount becomes asis esponding for uncollectible accouye capital = ical rans me aging secu Tce Ie ee off and removed permanently from, formation of oportic : nancial position prepared immediately after the on to Poaus on A statement sono anc Albano is BOM below. trat partnership of Antoni Be Antonio and Albano E- 500,00 ‘statement of Financial Position arners July 1, 2014 7 ie Assets: P 150, S i P 372,000 nS Accounts Receivable “af ess Allowance for Uncollectible Accounts 37,200 peas Merchandise Inventory : 908,000 : Store Equipment 2 2 570,000 et Delivery Equipment 456,000 part 0 Total Assets [Link] | intanil Accounts Payable 2: ] Astor Conia P 465000 Albano, Capital ,018,800 Total Liabilities and Capital marie 418,800 3.418.800. Goodwill Resulting from the Aequisi ee acquisition of a sole proprieto cn . d a sole proprietorshi oa ; a involve the recognition of ey : additio Base! immed aia the agree, ; h isiti Loan | 1m the sole proprietorsh i 3 i ii posit; 4 ?prictorship, the % Sitio oodwil a, i & ll increases the Capital of the. : On th Withdr Partne Due § asset,the individual : al partner set contributions but also on thas cach of ally, the capital However, in *¢ to a division of cs that is not » This situation will give rise to provision of Alfonso and Afable formed a partnership by contributing 0, res} i Pectively. Journal entries to record the investment of the les are as follows: 1,100,000 500,000 600,000 ave equal capital in the partnership, it is presumed that ble is given as bonus to Alfonso in exchange for the 9 will be bringing to the partnership. 1,100,000 550,000 550,000 ‘the form of loan when the business is in ' to the partnership, which are pay ually with interest, are recorded in the account account is reported in the statement of financial ther than ance money to partners, ot! aevaiich are payable immediately by the Med in the account Loan Receivable ot i in the statement of financial position as antics, advantages, CH o Te persons bing for mmon fund with the | hhas the following Z Jimited life; (4) mutual |, of contributed assets, and fy Bie crore covitl _ i LE ae In participation "ome taX. sreditor ee ervision of all subject to in close sup' > arr le on ability of th ao a successful operation, Pi because oF ease of the direct divided authority among the |, its act partnership is less stable al agency, @ partner may at Bier i a dition, because of ions of his associates. : te subject to personal liability for = Be Scr Ss partners. Ips 2. Identify the different kinds of ticular; (3) general or Fe are classified as (1) trading or no f i y or ership by limited; (4) partnership at will " partn Ny estoppel; (6) de jure or de facto; capitalist, industrial or capitalt silent; and (4) liquidating, 3. Discuss the requirements in th organized by an oral or written Partnership. A new partner by the different government a 4. Discuss accounting for part may contribute cash, non. Contribution is credited to a contribution is recorded at a agreed value; and a Cont t means of memorandum entrywritten lution of : On, and disso} ‘greement among the partners which governs the the Partnership. partner whi ‘ ital i i 0 Contributes capital in the form of money or Property. Partner — @ partner who contributes capital in the form of money ‘Who contributes industry, labor, skill, talent or service. two or more persons bind themselves to contribute @ common fund with the intention of dividing profits statement that reports the assets, liabilities, and its financial position or condition at a given date. It6. DISCUSSION QUESTIONS What is a partnership? es How does a partnership differ from a sole proprietorship? or fo Explain the meaning of unlimited liability of a partner for anes ii an advantage or a disadvantage on the part of the partnership? Bi s or investments of partners in 1 b. What is the basis for measuring the contribution: form of non-cash assets? Why is it preferable to have a written contract of partnership? What are the conten ofa typical partnership contract? \ What is the major difference between a general and a limited partners) How d they be distinguished? When a partnership is a limited partnership, d characteristic of “unlimited liability” still apply? Why or why not? Why are capital accounts and drawing accounts opened for each partner? E What are the steps to be followed in recording the formation of a: EE books of one of the previous sole proprietors vu be used? A Why would a partnership decide to use the banks of one of the previc proprietors instead of opening new set of books? Why is the Accumulated Depreciation : account not carried over to the new the partnership?ture and Fon | exercise 2— 1 (Cash and Non-cash Contributions) Give the entry to record the investment of Alonzo into the sollowing independent assumptions: partnership under each of the a Cash of P400,000. Accounts recei N oe ivable of P500,000 with an allowance for uncollectible accounts of I it i ae that cost P300,000 using the moving average method accepted by the partnership at its FIFO value of 80% of average cost. 4 eh that cost P900,000 with a book value of P300,000 after four years of use ve boa value. The equipment should have been depreciated over a 10-year life. Exercise 2-2 (Cash and Net Asset Contributions) Aquino and Asuncion have decided to form a partnership. Aquino invests the assets presented below at their agreed valuation, and also transfers his liabilities to the new firm, Ledger Agreed Balances Valuation: Cash 450,000 P 450,000 Accounts Receivable 180,000 180,000 ‘Allowance for Uncollectible Accounts 15,000 Ir008 Merchandise Inventory’ 300,000 270,0 Equipment 180,000 125,000 ‘Accumulated Depreciation 30,000 ie Accounts Payable 105,000 105, 90,000 90,000 Notes Payable — Asuncion agrees to invest cash fora one-third interest in the firm. Instructions: Prepare the fae to investments of Aquino and Asuncion in the partnership's new set of bool hs adjust and close the balances of accounts in the books of Aquino. Prepare the entries toFOE Si pee sage een mation of Pa 64 Chapter 2 Nature end Formation of Ki i ietor) Exercise 23 (An Individual and a Previous Sole Propri gust ness, Accounts in the a in his busi ae Amores admits Andrada to a partnership interest in his bi panier sitar i de, Amores on January 1, 2014, before the admission Andrade, : 1 Debit Credit P 208,000 2. Cash 460,000 Accounts Receivable 000 = Merchandise Inventory 1,440, P 496,000 Accounts Payable 1,612,000 Amores, Capital ishit i lores, € It is agreed that for the purpose, of establishing the interest of Am hy adjustments shall be made: a is iblished. a. Anallowance for uncollectible accounts of P25,000 is to be estal b. The merchandise is to be valued at P1,600,000. é ©. Prepaid expenses of P72,000 and unrecorded liability of P102,000 recognized. Andrade is to invest sufficient cash for an equal interest in the partnership. Instructions: 1 Assuming the new partnership will use the books of Amores, give adjust the account balances of Amores and to record the investm« rent of Anc 2 Assuming the new partership will open new set of books, give the entries the investment of Amores and Andrade, i ia 3: Prepare a statement of financial position for the new partn Exercise 2~ 4 (Cash and Non-cash Contributio Aguirre and Arana i ‘ 1,000,000 ant 'S have decided to form Aran; a 1 a partn building with a en a contributes land with a fair, et ire se ago for P750,000 8° of eet, Value ofthe building is Péog be assumed by the 900,000. The p e : 3:25 Tespectively, Partnership. The Partnchapter 2 -Natere and Formar, z = ematon ef p instructions: Prepare the j cach of the following indep, Journal entri ies to record the formation of the eadent ase to mation of the partnership under 1, Each partner is credit dited for the full Amount of net assets invested Each partner initia tially is to have qual interest in partnership capital PROBLEMS Problem 2— 1 (Cash and Net Assets Contributions) statement of financial position of Acosta as of December 1, 2014 is as follows: Acosta Company Statement of Financial Position December 1, 2014 . Assets Cash 2 P 600,000 Notes Receivable 375,000 Accounts Receivable P 2,250,000 Less Allowance for Uncollectible Accounts 150,000 2,100,000 Merchandise Inventory 600,000 Furniture and Equipment P 1,800,000 Less Accumulated Depreciation Total Assets Liabilities and Capital iS Notes Payable bah P : pagans Accounts Payable — i a Acosta, Capital tn Total Liabilities and pital give him an equity credit equal to one-half of the equity of s below. Acosta accepted the offer. vable should be reflected. The note is dated rat 6%‘ormation of a Partner a Ks Chapter 2-Natare and Formation 1 * OA oo sper 2 5 December 1, 25.) d. Interest accrued on notes payable for the period Senemives Ito 20, “ should be recognized. The interest rate on the note 15 0°" ustrcti 1 €. The furniture and equipment are one-third depreciated. = amounted to PI 2. f. Office supplies on hand, which have been charged to expense, amor 5.0) pe ‘These supplies will be used by the new partnership. b, e Instructions: i the ‘ 1. Prepare journal entries on the books of Acosta to give effect to Partners formation. Prepare the statement of financial position for the new partnership. ship: Books of one of the z Problem 2 ~ 2 (Two Sole Proprietors Form a Partner Proprietors to be used by the Partnership) On October 1, 2014, April and Arias decided to pool their assets and form a pa The firm is to take over business assets and assume business liabilities; equities are based on net assets transferred after the following adjustments: Arias’ inventory is to be valued at P350,000., {.n allowance for uncollectible accounts of P9,000 and P7,500, respectively sh set up.AB, ADA. ALBANO. Book A Ag greed Book eu Value Value Value Valu ; alue Accounts Receivabl aa i . 50,000 P 70,00 r ; ,000 P 70,000 llowance for Uncollectible ree ora ome owen 0,000 40,000 40,000 50,000 Merchandise In ventory, 900,000 950,000 720,000 700,000 Equipment a Ll Accumulated Depreciation Sesto gan if 000 Furniture and Fixtures 0 120,000 Accumulated Depreciation 24,000 men Accounts Payable 540,000 540,000 360,000 — 360,000 structions: Give the journal entries to record the partnership formation under each of the lowing independent assumptions: ‘A new set of books are to be opened for the partnership The books of Abada are to be used by the partnership loblem 2 - 4 (Cash, Non-cash and Net ‘Assets Contributions; Books of the Sole oprietor to be Used by the Partnership) ded to form a partnership. Abante, Abante, Arevalo, and Almonte decided Be Bree Gash Ary x January 1, 2014, vartnership his net asse 4 A the p . ole proprietor, will transfer to da half tim ea age to one and a ha! 1 contribute cash in an amount equal to n agreed value 0! Ea to d with a 5 of fi jonte To Be ceed by the parinerstip. Tbe statement of fin rigage of P: is as shown on the next page. ition of Abante es the investment of Abante. £ 1,800,000 subject to @ ancialFormation of a Pavin Accounts Payable Abante, Cap) ait oe ieee co Abante Company Statement of Financial Position January 1, 2014 Assets % P 360,00 Cash 000 Accounts Receivable P 840,000 Less Allowance for Uncollectible Accounts 90,000 750,000 Merchandise Inventory 1,200,000 Furniture and Equipment P 1,050,000 ynst Less Accumulated Depreciation 210,000 840,000 ‘i eee 840.000 Total Assets “ P3,150,009° | 1: ki 150,009" Liabilities and Capital t P 450,009 | 2: : 2,700,000 3,150,000" ——tt Prol - folle t by P240,000, ital of P2,000,000. The excess sisted is to be recognized as The part and Inst assy ~Chapter 2 ~Nature an Chapter 2 “Nature id Format Balances on Accounts R, Auaas eceiva li Allow. For Uncut’ ee, n Reco Inventory Hlectible Accounty 1792.00 ; 76,800 peice Equipment (ner) 192,000 unts Payable 256,000 576,000 ctions: t ing statement of above transfers to the firm. of fii hip of Agana and Ayesa was formed on September 1, 2014. At that date, the ‘ere invested: Agana yet P- 200,000 P- 80,000 x 440,000. 200,000 600,000 920,000 ct aby the ect td ‘of P240,000, which is to be assumed by the Ship Se ide that Agana and Ayesa share earnings 40% " mint of Ayesa’s capital accov mnt at September 1, 2014 amount ye agreement provides that: int of net assets invested. the full amou ership capital, ¢ interest in the partn' an equal intere: have a snared pro portionate {0 the partners’ pro) loss. i artners’ profit and-1 Which of the following best des ributes of a partnersh a ity of partners ofpartners Limited life of the busines and limited liability ind unlimited liability of partners a. b. Limited life of the busine: c. Unlimited life of the busine: 4. Unlimited life of the business a! raws cash or other assets, ~ debited the drawing account is and credited account except ership net income or loss of the partnerAster and Cash Accounts R, Merchandise ¢¥ble pasty Ale Furie ge 24 P- 30,000 Prema’ and Bigg OY 180,000 108.000 Tepaid Exp, atures 240,000 136,000 Accounts pas’ 330,000 25 Aster, ts Payable D 102,000 Stet, Capita, 63,000 21,000 Amie, Capital 366.000 144,000, 9,000 273,000 Tecognize Uncollectible I accounts of P7,500 and P5,400 at the ee miture and fixtures of Amie are let's share in equity is to be equal ints of Aster and Amie would be ach party cae vee, Mie Capital accoun : Piabt.s00 and P276 609 cr Fest s00 and P2s8 609, respectively 000 and P417 999, Tespectively and Antonia decided to contribute cash twice the : The assets contributed by ‘Appeared as follows in the Statement of financial position of her = Cash, P9,000; accounts receivable, P189,000 with allowance for tible accounts of P6,000; merchandise inventory, P420,000; and tent, P150,000 with accumulated depreciation of P15,000. ir value ¢ and should be P12,000. They also agreed that the fair val ie a P460,000 and for the store equipment is P140,000. The into the partnership was c. P 1,572,000 d. P1,576,000 i ness to form a ‘combini jeir separate business “ ees fare to be contributed for a taut Bey acs to be contributed and the liabilities as Asistio Se BV FMV P 30,000 P 80,000 P 40,000 90,000 30,000 120,000 100,000 20,000 30,000 20,000 ee eee