Advanced Accounting Lecture Notes

Page 1 of 46
Course ADVANCED ACCOUNTING

Lecture Notes
Title
Reference: John Larson, “Modern Advanced Accounting”
Lecturer: Qasim Jama
Hargeisa, Somaliland
For More Free courses and Lecture Notes Please visit www.somstudents.com
Page 2 of 46
Chapter 1: Partnership: Organization and Operation

1. Partnership is an association of two or more persons to carry on, as co-owners, a
business for profit
2. Liabilities under LLP.
 Individual Partner is Liable for his own actions and for the actions of
partnership employees under his supervision.
 The LLP as whole however is responsible for the actions of all partners and
employees.
3. Characteristics of a limited liability partnership

 Ease of formation
 Limited life
 Mutual agency
 Co-ownership of partnership assets and earnings
4. LLP v/s Corporation
LLP
 No Income Tax
 File Information Return
 Partners reports their share as ordinary net income and liable to pay tax.
Corporation
 Subject to Income Tax
 Distribution of Income also taxable in hands of Stockholders.
5. LLP is separate Legal Entity

 It may own property
 May enter into contracts
 Be sued or bring suit against others ( some states)
6. LLP CONTRACT
 An Agreement that will establish many issues that arise
 Disputes between partners not referenced in contract can be resolved:
- Arbitration
- In court
7. LLP contract should include

1. Date of formation and planned duration of the partnership, names of the
partners, and name and business activities of the partnership.
2. Assets to be invested by each partner and the procedures for valuing
noncash assets invested.
3. Authority of each partner and the rights and duties of each.
Page 3 of 46
4. The accounting period to be used, the nature of accounting records, and

financial statements.
5. The plan for sharing net income and losses.
6. Salaries and drawings allowed to partners and any penalties for excessive
withdrawals.
7. Insurance on the lives of partners, with the partnership or surviving partners
named as beneficiaries.
8. Provisions for arbitration of disputes.
8. Income-sharing Plans for LLP (if no explicit plan for sharing earnings, the
law requires equal division)
1. Equally, or in some other ratio.
2. In the ratio of the partners' capital account balances on a specific date,
or in the ratio of average capital account balances during the year.
3. Allowing interest on partners' capital account balances and dividing the
remaining net income or loss in a specified ratio.
4. Allowing salaries to partners and dividing the resultant net income or
loss in a stated ratio.
5. Bonus to managing partner based on income.
6. Allowing salaries and interest on capital account balances, and dividing
the remaining net income or loss in a stated ratio
9. Ledger Accounts for each partner

a. Capital Accounts
b. Drawing or Personal Accounts
c. Accounts for loans to and from Partners
Page 4 of 46
Example 1: ledger accounts for partners

Geedi and Galool established a LLP to be known as G &G LLP. Partner Geedi
invested $400,000 on January 1, 2013, and additional $100,000 on April 1. Partner
Galol invested $800,000 on January 1, 2013 and withdrew $50,000 on July 1. The
partnership contract provides that each partner may withdraw $5,000 cash on the last
day of each month; both partners did so during 2013. The partnership earned net
income of $300,000 for the year ended December 31, 2013, the first fiscal year of
operations .
Required
a) Journalize above transactions
b) Post to T account
c) Close the accounts
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 5 of 46
Example 2: Division of earnings in ratio of partners’ capital Account

Balances
Continuing the illustration of G&G LLP assume the partnership contract provides for
division of net income in the ratio of original capital investment.
Requirement
Calculate the net income allocated to each partner
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________

Balances
Continuing the illustration of G&G LLP assume that the net income of $300,000 is divided
in the ratio of capital account balances at the end of the year (before drawing and division
of net income)
Requirement
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 6 of 46

Balances
Continuing the illustration of G&G LLP assume the partnership contract provides for
division of net income in the ratio of average capital balance during the year.
Requirement
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Example 5: Division of earnings in ratio of interest on partner’s Capital

Account Balances with Remaining Net Income or Loss Divided in
specified Ratio
Again refer to G&G LLP with a net income of $300,000 for 20013. Assume that the
partnership contract allows interest on partners’ average capital account balances at 15%
with any remaining net income or loss to be divided equally
Required
a) Calculate the net income allocated to each partner
b) Calculate the net income or loss allocated to each partner by assuming that G&G
LLP had a net loss of $10,000 for the year ended December 31, 2013.
c) Close the income summary in the loss situation
d) ________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
Page 7 of 46
Example 6: Salary Allowance with Resultant Net Income or Loss

Divided In specified Ratio
By continuing illustration for G&G LLP , assume that the partnership contract provides for
an annual salary of $100,000 to Geedi and $60,000 to Galol, with resultant net income or
loss to be divided equally. The salaries are paid monthly during the year
Required
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Example 7: Bonus to Managing Partner Based on Income

Assume that G&G LLP partnership contract provides for a bonus to partner Geedi of 25%
of net income (without deduction of the bonus) and the remaining income to be divided
equally. The net income is $300,000.
Required
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
_____________________________________________________________________
Page 8 of 46
Example 8: salaries to partners with interest on capital accounts

Assume that the partnership contract for G&G LLP which earned net income of $300,000
provides for the following
1. Annual salaries of $100,000 to Gedi and $60,000 to Galol
2. Interest on average capital account balance (refer to example 5 above)
3. Remaining net income or loss divided equally
Requirement
a) Calculate amount allocated to each partner
b) By assuming that the cost of goods sold is $1,800,000 and the other operating
expenses of the partnership are $900,000 prepares the income statement for year
ended December 2013.
c) By referring above and the following information prepare statement of partners’
capital
Geedi Galol
 Original Investment $400,000 $800,000
 Additional Inve/with $100,000 ($50,000)
 Salary allowance $100,000 $60,000
 Normal Drawings $100,000 $60,000
d) By referring the following information prepare balance sheet as of 31.12.14
 Cash $50,000
 A/receivable $40,000
 Inventories $360,000
 Plan asset(net) $1,550,000
 Accounts payable $240,000
 Long term debt $370,000
e) Prepare operating cash flow (indirect method) of the partnership by adjusting the
income statement and balance sheet information ( 2013 is the first year of the
partnership operation)
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 9 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 10 of 46
Example 9: correction of partnership net income of prior periods

Assume that in 2012 the net income for G&G LLP was $300,000 and the partners shared
the net income equally. But in 2013 they changed the income sharing ratio to 60% for
Gedi and 40% for Galol. During 2013 it was determined that the inventories at end of
2012 were overstated by $100,000 because of computational errors.
Requirement
a) What is the accounting treatment for partnership errors in two periods in which
agreement is changed?
b) Journalize the adjusting entry to correct the error
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Example 10: Investment in partnership by new partner

Assume that wolk and yary, partners of W&Y LLP share net income or loss equally and
that each has capital account balance of $60,000. Wolk and Yary agreed to admit Zell to
the partnership by investment of a land. Net income and losses of the new firm are to be
shared equally. The land has current fair value of $80,000.
Requirement
Record the admission of the new partner into the partnership records
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 11 of 46
Example 11: Bonus to existing Partners

Benson and Hedges LLP, the two partners share net income and losses equally and have
capital account balances of $45,000 each. The partners agree to admit Eck to a one-third
interest in capital and one-third share in net income and losses for a cash investment of
$60,000. The net assets of the new partnership amount to $150,000
Requirement
a) Calculate the bonus to existing partners
b) Journalize the investment by the new partner and bonus credits to the existing
partners
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Example 12: Bonus to new partner

Farr and Gold LLP , who share net income and losses equally and have capital account
balances of $35,000 each., offer Hart one-third interest in net assets and one-third share
of net income and losses for and investment of $20,000 cash. The new partnership has
a net assets of $90,000
Requirement
a) Calculate the bonus to the new partner
b) Journalize the investment and bonus for the new partner
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 12 of 46
Example 13: Retirement of a partner: bonus to continuing partners

Merz, Noll and Park LLP share net income or losses equally and that each has a capital
account balance of $60,000. Noll retires from the partnership and receives $50,000.
Requirement
a) Calculate the bonus to the continuing partners
b) Journalize the retirement by partners Noll and bonus for the continuing partners
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 13 of 46
Chapter 2: Partnership liquidation and incorporation

 The LIQUIDATION of a limited liability partnership means winding up its activities,
usually by selling assets, paying liabilities, and distributing any remaining cash to
the partners.
Liquidation of Partnership
 The partnership net assets may be sold as a unit or in installments.
 The cash received must be used to pay partnership creditors.
 The accounting records of the partnership should be adjusted and closed and net
income of loss for the final period of operations entered in the capital accounts.
Meaning of Liquidation
 The liquidation usually starts with “Realization” of non-cash assets.
 Before any payments to partners, all outside creditors must be paid in full.
 An unpaid creditor may enforce collection from the personal assets of any solvent
partner whose actions caused the partnership’s insolvency.
 Partnership is treated as an entity for many purposes however, it may not use the
shield of a separate entity to protect culpable partners’ personal assets against the
claims of unpaid creditors.
Division of Loss and Gains

 Always first divide the loss / gain from the realization of non-cash assets before
distributing cash.
 As assets are realized, allocate any gains or loss to partners’ capital accounts in
the income-sharing ratio.
 All creditors must have been paid before distribution of cash.
 The final credit balances of the partners’ capital & loan ledger accounts should be
equal to the cash available for distribution.
 Payments are then made in the amounts of the partners’ respective equities in
the partnership.
Payments to Partners After All Non-cash Assets Realized

 Equity of Each Partners is Sufficient to Absorb Loss from Realization.
 Equity of One Partner is not Sufficient to Absorb that Partner’s Share of Loss from
Realization.
 Equities of Two Partners are not Sufficient to Absorb Their Shares of Loss from
Realization.
 Partnership is Insolvent but Partners are Solvent.
 General Partnership is Insolvent and Partners are Insolvent.
Page 14 of 46
Example 1: Equity of each partner is sufficient to absorb loss from

realization
Assume that Abra and Barg, who share net income and not losses equally decide to,
liquidate Abra & Barg LLP. A balance sheet on June 30, 2013 , just prior to liquidation is
as follows.
ABRA & BARG LLP
Balance Sheet
30-Jun-13
Assets Liabilities and Partners' Capital
Cash $10,000 Liabilities $20,000
Other Assets 75,000 Loan Payable to Barg 20,000
Abra Capital 40,000
Barg Capital 5,000
Total $85,000 Total 85,000
The noncash assets realized cash of $35,000, with a resultant loss of $40,000 absorbed
equally by Abra and Barg. The liquidation process will take 15 days.
Required
As the partnership’s accountant prepare statement of realization and liquidation
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 15 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 16 of 46
Example 2: equity of one partner is not sufficient to absorb partner’s

loss from realization.
Assume the balance sheet below for Diel, Ebbs & Frey LLP
DIEL, EBBS & FREY LLP
Balance Sheet
30-Jun-13
Cash $20,000 Liabilities 30,000
Other Assets 80,000 Diel Capital 40,000
Ebbs Capital 21,000
Frey Capital 9,000
Total $100,000 Total 100,000
The income-sharing ratio is Diel, 20%, Ebbs, 40%; and Frey 40%. The other assets with
a carrying amount of $80,000 realized $50,000 cash. Frey pays $3,000 to the partnership.
Required
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 17 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 18 of 46
Example 3: Equities of two partners are not sufficient to absorb their

shares of loss from realization.
Judd, Kamb, Long and Marx , partners of JKLM LLP share net income and loss 10%,
20%, 30%, and 40% respectively. Noncash asset were realized at $120,000.
JKLM LLP
Balance Sheet
30-Jun-13
Other Assets 200,000 Judd Capital 30,000
Kamb Capital 32,000
Long Capital 30,000
Marx 8,000
Total $220,000 Total 220,000
Required
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 19 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 20 of 46
Example 4: Partnership is Insolvent but Partners are Solvent

Nehr, Ordo and page LLP whose partners share net income and losses equally had the
following balance sheet prior to liquidation on March 2014.
NOP LLP
Balance Sheet
31-March-13
Other Assets 85,000 Nehr, Capital 18,000
Ordo, Capital 10,000
Page, Capital 7,000
Total $100,000 Total 100,000
On April 10, 2014, the other assets with a carrying amount of $85,000 realize $40,000.
On May 31, 2014 Ordo and page pay in the amounts of their deficiencies.
Required
As the partnership’s last accountant prepare statement of realization and liquidation
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 21 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 22 of 46
Example 5: General partnership is insolvent and partners are insolvent

Rich, Sand & Toll LLP whose partners share net income and losses equally, has the
partnership balance sheet prior to liquidation on November 30, 2013.
JKLM LLP
Balance Sheet
30-Nov-13
Liabilities and Partners'
Assets Capital
Other
Assets 100,000 Rich, Capital 5,000
Sand, Capital 15,000
Toll, Capital 30,000
Total $110,000 Total 110,000
Assume also that on November 30, 2013, the partners’ have the following assets and
liabilities other than their equities in the partnership.
Partners Personal Assets Personal Liabilities
Rich $100,000 $25,000
Sand $50,000 $50,000
Toll $5,000 $60,000
The realization of other assets of the partnership results in a loss of $60,000

Required
As the partnership’s last accountant prepare statement of realization and liquidation
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 23 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 24 of 46
Chapter 3: Accounting for Branches; Combined Financial

Statements
Scope of Chapter
 Accounting and reporting for segments of a business enterprise, primarily
branches and divisions.
 Branches are not separate legal entities but they are separate economic and
accounting entities.
 Accounting procedures tailored for the special features such as reciprocal ledger
accounts.
Branches & Divisions
 Branch is a business unit located at some distance from Home Office.

 Unit carries merchandise obtained from the home office, makes sales, approves
customers’ credit, and makes collections from its customers.
 A branch may obtain merchandise solely from the home office.
 Cash receipts of the branch may be deposited in a bank account belonging to the
home office.
 Branch expenses are paid from an imprest cash fund or bank account provided
by home office.
 Branch must submit a list of cash payments supported with vouchers in order to
get replenishment from home office.
 Use of imprest cash fund gives the home office considerable control over the
cash transactions of the branch.
 Common practice for a large branch to maintain its own bank accounts.
 Extent of autonomy and responsibility of a branch varies, even among different
branches of the same business enterprise.
Start-up Costs of Opening New Branches

 Some businesses would capitalize and amortize such start-up costs on the
grounds that such costs are necessary to successful operation at a new location.
 Most enterprises recognized start-up costs in connection with the opening of a
branch as expenses of the accounting period in which the costs are incurred.
 Decision should be based on the principle that net income is measured by
matching expired costs with realized revenue.
 Costs that benefit future accounting periods are deferred and allocated to those
periods.
 Seldom is there complete certainty that a new branch will achieve a profitable
level of operations in later years.
 In 1998 the AICPA Accounting Standards Executive Committee
issued Statement of Position 98-5 (SOP 98-5), “Reporting on the Costs of
Page 25 of 46
Start-Up Activities,” which required expensing of all start-up costs, including

those associated with organizing a new entity such as a branch or division.
Accounting System For A Branch

 Business enterprise with branches may provide for a complete set of accounting
records at each branch.
 Branch may maintain a complete set of accounting records consisting of:
1. Journals
2. Ledgers
3. Chart of account
 Similar to those of an independent business enterprise.
 Branches may keep all accounting records in the home office and have the branch
submit daily reports and business documents to the home office,
 Home office would then enter all transactions by branches in computerized
accounting records.
 In this case, home office may not even conduct operations of its own; it may serve
only as an accounting and control center for the branches
 Financial statements are prepared by branch accountant and forwarded to home
office.
 The home office usually establish policy such as - Number and types of ledger
accounts
- The internal control structure
- Form and content of the financial statements
- Accounting policies
 Transactions recorded by a branch should include all controllable expenses and
revenue initiated by the branch
 If the branch manager has responsibility over all branch assets, liabilities, revenue
and expenses, the branch accounting records should reflect this responsibility.
 Expenses such as depreciation often are not subject to control by a branch manager.
 Branch plant assets and the related depreciation ledger accounts generally are
maintained by the home office.
 Reciprocal Ledger Accounts /(Home office/Investment in Branch)
 Expenses Incurred By Home Office And Allocated To Branches
 Alternative Method Of Billing Merchandise Shipments To Branches
 Separate Financial Statements For Branch And For Home Office
 Combined Financial Statements For Home Office and Branch
 Journal Entries For Operations Of A Branch
 Working Paper For Combined Financial Statements
 Treatment of Beginning Inventories Priced Above Cost
 Reconciliation Of Reciprocal Ledger Accounts
 Transaction Between Branches
Page 26 of 46
Reciprocal Ledger Accounts
 Accounting records maintained by a branch include a Home Office ledger account

.This account reflects all activity between the branch and home office
 Home office is credited for all merchandise, cash or other assets provided by the
home office;
 Home office is debited for all cash, merchandise, or other assets sent by the branch
to the home office or the other branches.
 Home office account is a quasi-ownership equity account that shows the net
investment by the Home Office in the branch. At End of an accounting period when
the branch closes its accounting records, the Income Summary account is closed
to the Home Office account.
 Net income increases the credit balance of the Home Office account; a net loss
decreases (debit) this balance.
 In the home office accounting records, a reciprocal ledger account with a title
such as Investment in Branch is maintained.
 Investment in Branch is non-current asset account
 Debited for cash merchandise, and services provided to the branch, and for the
net income reported by the branch.
 Credited for the cash or other assets received from the branch, and for net losses
reported by the branch.
Page 27 of 46
Example 1: Illustrative Journal Entries for Operations of a Branch

Smaldino Company bills merchandise to Mason Branch at Home Office Cost and that
Mason Branch maintains complete accounting records and prepares financial
statements. Both the Home Office and Mason Branch use perpetual inventory system.
Equipment used at the branch is carried at the home office accounting records, certain
expenses such as advertising and insurance incurred by the home office on behalf of the
branch are billed to the branch. Transactions and events during the first year(2013) of
operations of Mason Branch are summarized below (start-up costs are disregarded).
1) Cash of $1,000 was forwarded by the home office to Mason Branch

2) Merchandise with home office cost of $60,000 was shipped by home office to
Mason Branch
3) Equipment was acquired by Mason Branch for $500, to be carried in the home
office accounting records. (Other plant assets for Mason Branch generally are
acquired by the home office)
4) Credit sales by Mason Branch amounted to $80,000; the branch’s cost of
merchandise sold was $45,000.
5) Collections of trade accounts receivable by Mason Branch amounted to $62,000
6) Payments for operating expenses by Mason Branch totaled $20,000
7) Cash of $37,500 was remitted by Mason Branch to the Home Office
8) Operating expenses incurred by the Home Office and Charged to Mason Branch
totaled to $3,000
Requirements and Instructions
a) Journalize entries of the above transactions for both the Home Office and
Mason Branch
b) post Investment in Mason Branch Account and update all accounting records
of Mason Branch
c) prepare income statement , statement of retained earnings and balance sheet
of the Mason branch
Page 28 of 46
d) prepare combined financial statements for Smaldino and Mason Branch.

The financial statement for Smaldino Company ONLY is as follows
Income Statement
Sales $400,000
COGS $235,000
Operating expenses $90,000
Net Income $75,000
Statement of Retained earnings

Beginning retained earning $70,000
Net Income $75,000
Dividend declared $40,000
Ending retained earnings $105,000
Balance Sheet
Assets
Cash $25,000
Accounts receivable $39,000
Inventories $45,000
Investment in Branch $26,000
Equipment $150,000
Acc.dep-Equimpent ($10,000)
Total assets $275,000
Liabilities
Accounts payable $20,000
Common Stock 150,000
Retained earnings $105,000
Total $275,000
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 29 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 30 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 31 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 32 of 46
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
_____________________________________________________________________
Page 33 of 46
Chapter 4: Business Combinations

Example 1: Statutory Merger, with Goodwill
On December 31, 2013 Telecom company (the Combinee) was merged into Somtel
Corporation (the combiner or the survivor). Both companies used the same accounting
principles for assets, liabilities, revenue and expenses and both had a December 31 fiscal
year. Somtel Issued 150,000 shares of its $10 par common stock (current fair value $25
a share) to Telecom’s stockholders for all 100,000 issued and outstanding shares of
Telecom’s no-par, $10 stated value common stock. In addition Somtel paid the following
out-of-pocket costs associated with the business combination.
Accounting fees:
For investigation of Telecom Company as prospective Combinee $5,000
For SEC registration statement for Somtel common stock $60,000
Legal Fees:
For the business combination $10,000
For SEC registration statement for Somtel common stock $50,000
Finder’s fee $51,250
Printer’s charges for printing securities and SEC registration Statement $23,000
SEC registration Statement $750
Immediately prior to merger Telecom Company’s condensed balance sheet was as

follows
Telecom Company (Combinee)
Balance sheet
December 31, 2013
Assets
Current assets $1,000,000
Plant assets (net) $3,000,000
Other assets $600,000
Total assets $4,600,000
Liabilities and Stockholders’ Equity

Current liabilities $500,000
Long term debt $1,000,000
Common stock no par, $10 stated value $1,000,000
Additional paid in capital $700,000
Retained earnings $1,400,000
Total liabilities and stockholders’ equity $4,600,000
Page 34 of 46
The current fair values of Telecom Company’s identifiable assets and liabilities are as
follows.
Current assets $1,150,000
Plant assets $3,400,000
Other assets $600,000
Current liabilities ($500,000)
Long term debt (present value) (950,000)
Identifiable net assets of the Combinee $3,700,000
Requirement and Instructions
Prepare the journal entries to record the merger with Telecom Company on December
31, 2013, as a business combination as follows
a) Record the merger with Telecom company as a Somtel accountant
b) Record payment of out-of-pocket costs incurred with merger with Telecom
Company
c) Calculate goodwill
d) Record allocated total cost of liquidated Telecom Company to identifiable assets
and liabilities of Somtel Company
e) As a Telecom accountant record the liquidation of company in conjunction with
merger with Somtel Company.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 35 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 36 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 37 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 38 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
_____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
_____________________________________________________________________
Page 39 of 46
Example 2: Acquisition of net assets, with Bargain-Purchase Excess

On December 31, 2013, Davis Corporation acquired all the net assets of Fairmont
Corporation directly from Fairmont for $400,000 cash, in a business combination. Davis
paid legal fees of $40,000 in connection with the combination.
The condensed balance sheet of Fairmont prior to business combination with related
current fair values data is presented below.
Fairmont Corporation (Combinee)
Balance Sheet
December 31, 2013
Carrying Amounts Current Fair Values
Assets
Current assets $190,000 $200,000
Investment in Marketable security 50,000 60,000
Plant assets (net) 870,000 900,000
Intangible assets (net) 90,000 100,000
Total Assets $1,200,000 $1,260,000
Current liabilities $240,000 $240,000
Long term debt 500,000 520,000
Total Liabilities $740,000 $760,000
Common Stock 600,000
Deficit (140,000)
Total Stockholder Equity $460,000
Total Liability and Equity $1,200,000
Davis paid a legal fees of $40,000 for the business combination
No part of any bargain-purchase excess is allocated to current assets or to the

investment in marketable security.
a) Record acquisition of net assets of Fairmont Corporation as a Davis Accountant
b) Record payment of legal fees
c) Record the allocation of net assets acquired to identifiable net asset, with the
excess of current fair value of net assets over the cost prorated to NCA other
than CA and IMS
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 40 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
_____________________________________________________________________
Page 41 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 42 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
___________________________________________________________________
Page 43 of 46
Example 3: Statutory Consolidation

The following balance sheet of the constituent companies involved in a statutory
consolidation on December 31, 2013.
Lamson Corporation and Donald Company
Separate Balance Sheets
December 31,2013
Lamson Corporation Donald Company

Current assets $600,000 $400,000
Plant assets (net) 1,800,000 1,200,000
Other assets 400,000 300,000
Total assets $2,800,000 $1,900,000

Current Liabilities $400,000 $300,000
Long term debt 500,000 200,000
Common Stock at $10 par 430,000 620,000
Additional Paid-in Capital 300,000 400,000
Retained Earnings 1,170,000 380,000
Total Liability and Stockholders’ Equity 2,800,000 1,900,000
The current fair values of both companies’ liabilities were equal to carrying amounts.
Current fair values of identifiable assets were as follows for Lamson and Donald,
respectively. Current assets $800,000 and $500,000; plant assets. $2,000,000 and
$1,400,000; other assets, $500,000 and $400,000.
LamDon Corporation issued 74,000 shares with an agreed value of $60. LamDon paid
$200,000 cash for the business combination of which $110,000 are accounting, legal
and finder’s fee.
a) Record Consolidation of Lamson Corporation and Donald Corporation as LamDon
Accountant
b) Record payment of costs incurred in Consolidation
c) Record the allocation of total cost of investment to identifiable assets and liabilities
of LamDon Corporation
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 44 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
_____________________________________________________________________
Page 45 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Page 46 of 46
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________

Advanced Accounting Lecture Notes

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Advanced Accounting Lecture Notes

Uploaded by

Copyright:

Available Formats

Page 1 of 46

Course ADVANCED ACCOUNTING

Lecturer: Qasim Jama

Chapter 1: Partnership: Organization and Operation

3. Characteristics of a limited liability partnership

5. LLP is separate Legal Entity

7. LLP contract should include

4. The accounting period to be used, the nature of accounting records, and

9. Ledger Accounts for each partner

Example 1: ledger accounts for partners

Example 2: Division of earnings in ratio of partners’ capital Account

Example 3: Division of earnings in ratio of partners’ capital Account

Example 4: Division of earnings in ratio of partners’ capital Account

Example 5: Division of earnings in ratio of interest on partner’s Capital

Example 6: Salary Allowance with Resultant Net Income or Loss

Example 7: Bonus to Managing Partner Based on Income

Example 8: salaries to partners with interest on capital accounts

Example 9: correction of partnership net income of prior periods

Example 10: Investment in partnership by new partner

Example 11: Bonus to existing Partners

Example 12: Bonus to new partner

Example 13: Retirement of a partner: bonus to continuing partners

Chapter 2: Partnership liquidation and incorporation

Division of Loss and Gains

Payments to Partners After All Non-cash Assets Realized

Example 1: Equity of each partner is sufficient to absorb loss from

Example 2: equity of one partner is not sufficient to absorb partner’s

Example 3: Equities of two partners are not sufficient to absorb their

Example 4: Partnership is Insolvent but Partners are Solvent

Example 5: General partnership is insolvent and partners are insolvent

The realization of other assets of the partnership results in a loss of $60,000

Chapter 3: Accounting for Branches; Combined Financial

Branches & Divisions

 Branch is a business unit located at some distance from Home Office.

Start-up Costs of Opening New Branches

Start-Up Activities,” which required expensing of all start-up costs, including

Accounting System For A Branch

Reciprocal Ledger Accounts

 Accounting records maintained by a branch include a Home Office ledger account

Example 1: Illustrative Journal Entries for Operations of a Branch

1) Cash of $1,000 was forwarded by the home office to Mason Branch

d) prepare combined financial statements for Smaldino and Mason Branch.

Statement of Retained earnings

Chapter 4: Business Combinations

Immediately prior to merger Telecom Company’s condensed balance sheet was as

Liabilities and Stockholders’ Equity

Example 2: Acquisition of net assets, with Bargain-Purchase Excess

Davis paid a legal fees of $40,000 for the business combination

No part of any bargain-purchase excess is allocated to current assets or to the

Example 3: Statutory Consolidation

Lamson Corporation Donald Company

Liabilities and Stockholders’ Equity

You might also like