Answered: Prepare the journal entries to record…

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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Problem #16

Admission by Investment and Division of Profits.

The condensed statement of financial position of Matuguinas and Sorima on Dec. 31, 2018, follows:

Matuguinas and Sorima

Statement of Financial Position

December 31, 2017

Assets

Current Assets P100,000

Plant Assets (net) 500,000

Total P600,000

Liabilities and Partner's Capital

Liabilities P300,000

Matuguinas, Capital 200,000

Sorima, Capital 100,000

Total P600,000

Matuguinas and Sorima shared profits or losses 40% and 60%, respectively. On Jan. 2, 2019, Pateno was admitted to the partnership by investing the net assets of her highly profitable proprietorship. The partners agreed to the following current fair values of the ust identifiable net assets of Pateno's proprietorship:

Current Assets P 70,000

Plant Assets 230,000

Total Assets P350,000

Less: Liabilities 200,000

Net Assets P100,000

Pateno's capital account was credited for P120,000. The partners agreed further that the current fair values of the net assets of Matuguinas and Sorima were equal to their carrying amounts and that the accounting records of the old partnership should be used for the new partnership.

The following partner-remuneration plan was adopted for the new partnership:

a. Salaries of P10,000 to Matuguinas, P15,000 to Sorima, and P20,000 to Pateno.

b. A bonus of 10% of income after salaries and bonus to Pateno.

c. Balance: 30% to Matuguinas, 40% to Sorima, and 30% to Pateno.

For the year ended Dec. 31, 2019, the profit of the partnership is P78,000 before salaries and bonus to Pateno.

Required: Prepare the journal entries to record the following:

1. The admission of Pateno to be partnership on Jan. 2, 2019.

2. The income distribution for the year ended Dec. 31, 2019.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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