Their statement of financial position on that date was as follows:
Non-current assets
S
Building
900,000
Equipment
480,000
Goodwill
340,000
1,720,000
Current assets
Inventory
300,000
Accounts receivable
122,000
Cash at bank
580,000
1,002,000
Total assets
Current liabilities
Accounts payable
282,000
Loan from Chan
30,000
312,000
Capital accounts
Lee
1,230,000
Kong
260,000
Chan
920,000
2,410,000
Equity and liabilities
2,722,000
2,722,000
Question 1 (70 marks)
Lee, Kong and Chan, who share profits and losses in the ratio of 1:3:4, decided to terminate their
partnership as at 31 December 2018. Any deficiency in capital after realization will be shared by other
partners according to the profit or loss sharing ratio.
Additional Information:
1. The building and equipment were sold at 50 percent and 60 percent of their book value,
respectively.
2. Lee took over the inventory at 50 percent of its book value. He agreed to pay off the
accounts payable personally.
3. Chan collected the accounts receivable on behalf of the partnership. He was entitled to
the commission of 10 percent on the total amount received. $2,000 of accounts
receivable were uncollectible. Cash collected from accounts receivable has not been
deposited in the cash at bank account of the partnership.
4. The partnership paid dissolution expenses of $2,000.
Required:
a. Prepare the realization account.
20 marks
b. Prepare the capital accounts.
25 marks
c. Prepare the cash at bank account.
10 marks
d. "When bonds price is computed using discounted present value method,
future cash flow of the bonds should be discounted using coupon
interest rate". Explain whether you agree or disagree with this
15 marks
statement.
$
