The partnership of King, Queen and Prince engaged you to audit its accounting records. Some accounts...

  

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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 trial balance that appears below. Cash Accounts receivable Inventory Land King, Queen and Prince GENERAL LEDGER TRIAL BALANCE December 31, 2007 Buildings Accumulated depreciation-buildings Equipment Accumulated depreciation- equipment Goodwill Accounts payable Allowance for future inventory losses King, capital Queen, capital Prince, capital Totals Debit P 100,000 400,000 260,000 90,000 500,000 560,000 50,000 P1,960.000 December 31 2007 P7,000 2,000 Credit P 20,000 60,000 550,000 30,000 600,000 400,000 300,000 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 profit and loss ratio: King, 50%, Queen, 30%; and Prince, 20%. The amended partnership 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 2006 P 6,500 11,000 4,500 Prepaid insurance Advances from customers Accrued interest expense 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 depreciates its capitalized equipment under the straight-line depreciation method. 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: 2007 accounts 2006 accounts 2. The capital balance of King on January 1, 2007 before adjustment is: a. P100,000 b. P125,000 c. P300,000 2007 P 8,000 10,000 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: 1. The net income of the partnership in 2007, before adjustment is: a. P1,000,000 b. P980,000 c. P950,000 3. The capital balance of Queen on December 31, 2007 before adjustment is: a. P410,860 b. P374,140 c. P385,000 5. What is the carrying value of equipment on December 31, 2007? a. P600,000 b. P540,000 c. P544,000 Accounts Written Off in 8. The adjusted net income in 2007 is: a. P1,086,200 d. P400,000 4. What is the effect on 2007 net income of the omission of prepaid insurance, advances from customers, and accrued interest expenses in 2006 and 2007? a. P9,000 understated b. P9,000 overstated c. P5,000 understated d.P14,000 understated b. P1,027,200 2006 2,500 c. P1,008,200 9. What should be the capital balance of Prince at December 31, 2007? a. P310,240 b. P300,240 c. P317,240 d. P604,000 6. What should be the balance of the allowance for uncollectible accounts at December 31, 2007? a. P9,800 b. P12,000 c. P15,800 d. P14,500 d. P920,000 7. How much is the uncollectible account expense that should have been recognized in 2006? a. P24,500 b. P14,500 c. P12,000 d. P9,500 10. What is the adjusted capital balance of Queen on January 1, 2007? a. P107,000 b. P89,667 c. P93,000 d. P600,000 d. P1,036,200 d. P307,240 d. P79,000 11. By how much would the 2006 net income be misstated, if no adjustments were made for the above errors? a. P31,000 overstated b.P31,000 understated c. P21,000 overstated d.P21,000 understated 12. The adjusted partners' equity on December 31, 2007 is: a. P1,315,200 b. P1,336,200 c. P1,306,200 d. P1,365,200 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 trial balance that appears below. Cash Accounts receivable Inventory Land King, Queen and Prince GENERAL LEDGER TRIAL BALANCE December 31, 2007 Buildings Accumulated depreciation-buildings Equipment Accumulated depreciation- equipment Goodwill Accounts payable Allowance for future inventory losses King, capital Queen, capital Prince, capital Totals Debit P 100,000 400,000 260,000 90,000 500,000 560,000 50,000 P1,960.000 December 31 2007 P7,000 2,000 Credit P 20,000 60,000 550,000 30,000 600,000 400,000 300,000 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 profit and loss ratio: King, 50%, Queen, 30%; and Prince, 20%. The amended partnership 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 2006 P 6,500 11,000 4,500 Prepaid insurance Advances from customers Accrued interest expense 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 depreciates its capitalized equipment under the straight-line depreciation method. 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: 2007 accounts 2006 accounts 2. The capital balance of King on January 1, 2007 before adjustment is: a. P100,000 b. P125,000 c. P300,000 2007 P 8,000 10,000 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: 1. The net income of the partnership in 2007, before adjustment is: a. P1,000,000 b. P980,000 c. P950,000 3. The capital balance of Queen on December 31, 2007 before adjustment is: a. P410,860 b. P374,140 c. P385,000 5. What is the carrying value of equipment on December 31, 2007? a. P600,000 b. P540,000 c. P544,000 Accounts Written Off in 8. The adjusted net income in 2007 is: a. P1,086,200 d. P400,000 4. What is the effect on 2007 net income of the omission of prepaid insurance, advances from customers, and accrued interest expenses in 2006 and 2007? a. P9,000 understated b. P9,000 overstated c. P5,000 understated d.P14,000 understated b. P1,027,200 2006 2,500 c. P1,008,200 9. What should be the capital balance of Prince at December 31, 2007? a. P310,240 b. P300,240 c. P317,240 d. P604,000 6. What should be the balance of the allowance for uncollectible accounts at December 31, 2007? a. P9,800 b. P12,000 c. P15,800 d. P14,500 d. P920,000 7. How much is the uncollectible account expense that should have been recognized in 2006? a. P24,500 b. P14,500 c. P12,000 d. P9,500 10. What is the adjusted capital balance of Queen on January 1, 2007? a. P107,000 b. P89,667 c. P93,000 d. P600,000 d. P1,036,200 d. P307,240 d. P79,000 11. By how much would the 2006 net income be misstated, if no adjustments were made for the above errors? a. P31,000 overstated b.P31,000 understated c. P21,000 overstated d.P21,000 understated 12. The adjusted partners' equity on December 31, 2007 is: a. P1,315,200 b. P1,336,200 c. P1,306,200 d. P1,365,200

Answer rating: 100% (QA)

1 The net income of the partnership in 2007 before adjustment is Calculation Net income Total revenue Total expenses Total revenue P1000000 Total expenses P980000 Therefore net income before adjustmen... View the full answer