Compute the Capital of each partner

Assignment Help Accounting Basics

Reference no: EM132821617

Question - On July 1, 2020, Royal and Blue decided to pool their assets and form a partnership. After the formation, the partners will participate in the profits and loss ratio of 55% and 45% for Royal and Blue, respectively. Their balance sheets on June 30, 2020, before the required fair value adjustments, were as follows:

	Royal	Blue
Cash	13,200	21,120
Accounts receivable	86,400	96,000
Allowance for doubtful accounts	(2,160)	(2,400)
Notes receivable	24,000
Inventories	7,680	7,200
Prepaid insurance		2,400
Machinery	48,000
Accumulated depreciation	(4,800)
Fixed and fixtures	38,400
Accumulated depreciation		(2,880)
Total Assets	172,320	159,840
Accounts payable	2,400	2,880
Notes payable		24,000
Capital	169,920	132,960
Total Liabilities and Capital	172,320	159,840

The firm is to take over the business assets and assume business liabilities. Capitals are to be added based on net assets transferred after the following adjustments:

a. The accounts receivable of Royal and Blue are both fairly valued.

b. Interest at 12% on notes receivable dated June 11, 2020 should be accrued. (Use 360 days)

c. The inventory of Royal should be valued at 7,200, while that of Blue is 6,400.

d. The prepaid insurance of Blue still amounted to 640.

e. The machinery is under-depreciated by 960.

f. The furniture and fixture is overstated by 1,280.

g. Interest at 15% on notes payable dated May 17, 2020 should be accrued. (Use 360 days)

h. Accrued rent receivable of 1,200 is to be recognized in the books of Blue.

Required - Compute the Capital of each partner under the following:

I. Net Investment Method

II. Bonus Method (Assume that capital interest ratio is 60:40 to Royal and Blue, respectively).

Reference no: EM132821617

Questions Cloud

Calculate a effective interest schedule : Calculate a effective interest schedule and distinguish between the allocation of interest payments and interest expense for each reporting period

Developing a behaviour support plan : Describe the steps involved in developing a Behaviour Support Plan for a child who has a behaviour of concern in an education and care service?

What is the role of him professional in consumer education : What is the role of the HIM professional in consumer education and advocacy? How will the HIM professional fit in with a facility or healthcare organization's.

Identify the behaviours or operations attributable : Identify the behaviours or operations attributable to this organisation, either currently or in the past, that could be regarded as contentious.

Compute the Capital of each partner : Interest at 15% on notes payable dated May 17, 2020 should be accrued. (Use 360 days). Compute the Capital of each partner

Cyber security planning and management : Explain what the following terms mean to you as they apply to information security and safe computing: Confidentiality, Integrity, and Availability.

Why is it important to know the book of genesis : Why is it important to know the book of Genesis. how was it established? How is it a foundation for the churches today . why do we need to know about this book.

Why do you think the strategy worked : Provide at least one example of an effective SEI strategy utilized in one of the classrooms that you have observed. Why do you think this strategy worked?

Effective persuasive communication in personal : Describing effective persuasive communication in personal, professional, and academic contexts.

User Account

All Pages