PROBLEM 1.

On June 1, 2013 DM, the sole proprietor of the VMX Company, expands the company and establish a
partnership with BQ and LK. The partners plan to share profits and losses as follows: DM, 40%; BQ, 35%
and LK, 25%. DM asked BQ to join the partnership because his image and reputation are expected to be
valuable during the formation. BQ is also contributing P420,000 cash and Building that was acquired for
P4,040,000, with carrying amount of P3,480,000, and a fair market value of P1,960,000. The building is
subject to a P792,000 mortgage that the partnership did not assume. LK is contributing 848,000 cash and
marketable securities costing P1,344,000 to LK but are currently worth 1,900,000. DM’s investment in
the partnership is the VMX company. The Statement of Financial Position for the VMX Company follows:

VMX Company
Statement of Financial Position
June 1, 2013
Assets Liabilities and Capital
Cash P 1,560,000 Accounts Payable P1,748,000
Accounts Receivable 1,824,000 Notes Payable 2,368,000
Merchandise Inventory 1,576,000 DM, Capital 3,316,000
Equipment, Net 2,472,000 __________
Total Assets P 7,432,000 Total Liabilities and Capital P 7,432,000

The partners agree that 35% of the inventory is considered worthless, the equipment is worth ¾ of its
carrying amount, and 85% of the accounts receivable is collectible. DM plans to pay off the accounts
payable with his personal assets. The other partners agreed that their capital balances upon formation
will be in conformity with their profit and loss ratio.

Which of the following statements is false?

A. Assuming the partners will either invest or withdraw cash, using DM as the base, BQ and LK will
both invest cash with a total amount of P303,200.
B. Assuming the partners either invest or withdraw cash, using BQ as the base, DM and LK both
withdraw cash with a total amount of P1,948,800.
C. Assuming the partners will either invest or withdraw cash, using LK as the base, DM and BQ will
both invest cash with a total amount of P2,243,200.
D. If the transfer of capital method is used, the capital accounts of DM and LK will be debited in the
amount of P121,280 and P560,800, respectively.
PROBLEM 2.
On June 1, 2013, MP and CV agreed to invest equal amounts and share profits equally to form a
partnership. MP invested P195,000 cash and a piece of equipment. CV invested some assets which are
shown below:
Assets Book Value
Accounts Receivable P 25,000
Inventory P 70,000
Machineries, net P140,000
Intangibles, net P 57,500
The assets by CV are not properly valued. P2,000 of the accounts receivable are proven uncollectible.
Inventories are to be written down to P65,000. Included in the machineries is an obsolete apparatus
acquired for P24,000 with an accumulated depreciation balance of P21,000. Part of the intangibles is a
patent with carrying value of P3,500 which sued upon by a competitor. CV unsuccessfully defended the
case and the final decision of the court was released on May 29, 2013.
What is the fair value of the equipment invested by MP?
A. P84,000
B. P87,500
C. P60,500
D. P97,500
PROBLEM 3.
On March 1, 2011, Obmochaeva and Kosheleva formed a partnership with each contributing the
following assets:
 Obmochaeva Kosheleva
Cash P 30,000 P 70,000
Machinery and Equipment 25,000 75,000
Building 225,000
Furniture and Fixtures 10,000

The Building is subject to a mortgage loan of P90,000 which is to be assumed by the partnership. The
partnership agreement provides that Obmochaeva and Kosheleva share profits and losses 30% and 70%,
respectively.
Assuming that the partners agreed to bring their respective capital in proportion to their respective
profit and loss ratio, and using Kosheleva’s capital as the base, how much cash is to be invested by
Obmochaeva?
A. P19,000
B. P30,000
C. P40,000
D. P55,000
PROBLEM 4.
Nancy admits Peter for a partnership interest in his business. The statement of financial position of
Nancy on November 30, 2011 prior to admission of Peter shows the following:
Debit Credit
Cash P ?
Accounts Receivable 96,000
Merchandise Inventory 144,000
Accounts Payable P49,600
Nancy, Capital ?

It is agreed that for the purposes of establishing Nancy’s interest, the following adjustments should be
made:
1. An allowance for doubtful accounts of 2% of accounts receivable is to be established.
2. The merchandise inventory is to be valued at P160,000.
3. Prepaid expenses of P5,200 and accrued expenses of P3,200 are to be recognized.
Peter invested cash of P113,640 to give him a 1/3 interest in the total capital of the firm. What is the
capital balance of Nancy before the admission of Peter?
A. P227,280
B. P230,120
C. P211,200
D. P250,500
PROBLEM 5.
Alonzo and Romero decide to combine their businesses and form a partnership on July 1, 2011. The
following are their assets and liabilities on July 1, 2011 before formation:
Alonzo Romero
Assets P210,000 P103,000
Liabilities 91,500 36,000

The following agreements are made to adjust assets and liabilities:

a. Both partners will provide P5,000 allowance for doubtful accounts.
b. Alonzo’s fixed assets were over-depreciated by P1,000 and Romero’s fixed assets were under-
depreciated by P500.
c. Accrued expenses are to be recognized in the books of Alonzo and Romero in the amounts of
P1,200 and P1,000, respectively.
d. Obsolete inventory to be written off by Alonzo amounts to P3,500.
e. Alonzo and Romero also agreed to share profits and Losses equally.
What is the total assets of the partnership after the formation?
 A. P297,550
B. P300,750
C. P303,550
D. P298,550
PROBLEM 6.
Joseph, Peter and John formed a partnership on April 30, with the following assets, measured at their
fair market values, contributed by each partner:
Joseph Peter John
Cash P 100,00 P 120,000 P 300,000
Automobile 85,000
Delivery Trucks 280,000
Computer and Printer 51,000
Office Furniture 35,000 25,000
Land and Building 1,500,000
Total P 1,685,000 P 486,000 P 325,000
Although John has contributed the most cash to the partnership, he did not have the full amount of
P300,000 available and was forced to borrow P200,000. The land and building contributed by Joseph has
a mortgage of P900,000 and the partnership is to assume responsibility of the loan. If the profit and loss
sharing agreement is 40%, 40% and 20%, respectively, for Joseph, Peter and John, what is the total
capital investment of all the partners at the opening of business on April 30?
A. P2,496,000
B. P1,596,000
C. P1,396,000
D. P1,664,000
PROBLEM 7.
On September 1, 2011 the business assets and liabilities of Loida and Anabelle are as follows:
LOIDA ANABELLE
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
Cash P 56,000 P 56,000 P 124,000 P 124,000
Accounts Receivable 400,000 360,000 1,200,000 1,120,000
Inventories 240,000 228,000 400,000 386,000
Land 1,200,000 1,300,000
Building 1,000,000 1,040,000
Furniture and Fixtures 100,000 90,000 70,000 66,000
Other Assets 4,000 6,000
Accounts Payable 360,000 360,000 500,000 500,000
Notes Payable 400,000 400,000 700,000 700,000

Loida and Anabelle agreed to form a partnership and to share profits based on their capital contribution.
The capital amount to be recorded for Loida and Anabelle, respectively are:
A. P1,536,000 and P1,274,000
B. P1,274,000 and P1,536,000
C. P1,240,000 and P1,600,000
D. P1,282,000 and P1,536,000
PROBLEM 8.
Gordon and Fernando sole proprietorships decided to form a partnership on June 1, 2011, The
partnership will take over their assets and assume their liabilities. As of June 1, 2011, the net assets of
Gordon and Fernando are P220,000 and P309,375, respectively. The partners agreed on a 25:75 profit
and loss ratio. Furthermore, the partners arrive on the following agreements to revalue their assets and
liabilities:
a. Gordon’s inventory is undervalued by P11,000.
b. An allowance for doubtful accounts is to be set up in the books of Gordon and Fernando in the
amount of P2,750 and P4,125, respectively.
c. Accrued expenses of P20,250 was not recognized in Fernando’s books.
How much cash should Gordon invest (withdraw) to their capital interest would be equal to their profit
and loss ratio?
A. P(133,250)
B. P( 95,000)
C. P 133,250
D. P 95,000
PROBLEM 9.
AA, BB, and CC are forming a new partnership each contributing cash of P200,000 and their respective
office equipment and supplies valued at P100,000, P200,000 and P300,000, respectively. A’s noncash
contribution is his own developed audit software valued at cost which he could sell for trice the amount.
Partners agree to admit his software at market value and they share profits equally. The capital balances
of AA, BB, CC, respectively, are:
A. P300,000; P400,000 and P500,000
B. P400,000; P400,000 and P400,000
C. P500,000; P400,000 and P500,000
D. P466,666; P466,666 and P466,667
PROBLEM 10.
The balance sheet as of July 31, 2011, for the business owned by Ces, shows the following assets and
liabilities:
Cash 50,000 Furniture and Fixtures 164,000
Accounts Receivable 134,000 Accounts Payable 28,800
Merchandise Inventory 220,000

It is estimated that 5% of the receivables will prove uncollectible. The cash balance includes a 1,000
shares marketable equity securities recorded at its cost P4,000. The stock last sold on the market at
P17.50 per share. Merchandise inventory includes obsolete items costing P18,000 that will probably
realized only P4,000. Depreciation has never been recorded; however, the furniture and fixtures are two
years old, have an estimated total life of 10 years, and would cost P240,000 if purchased new. Prepaid
items amount to P5,000. Ton is to admitted as a partner upon investing P200,000 cash and P100,000
merchandise. How much capital is to be credited to Ces upon formation of partnership?
A. P539,200
B. P613,000
C. P565,000
D. P606,000
PROBLEM 11.
Jayson admits Sam as a partner in business. Accounts in the ledger Jayson on June 1, 2011, just before
the admission of Sam, shows the following balances:
Cash P 26,000 Accounts Payable P 264,000
Accounts Receivable 120,000 Jayson, Capital 62,000
Merchandise Inventory 180,000

It is agreed that for purposes of establishing Jayson’s interest, the following adjustments should be
made:
a. An allowance for doubtful accounts of 2% of accounts receivable is to be established.
b. The merchandise inventory is to be valued at P202,000.
c. Prepaid expenses of P6,500 and accrued expenses of P4,000 are to be established.
Sam is to invest sufficient funds in order to receive a 1/3 interest in the partnership.
a. How much is the adjusted capital of Jayson?
b. How much cash should Sam invest?
c. How much is the total assets of the partnership?
PROBLEM 12.
On June 1, 2011, May and Nora formed a partnership. May is to invest assets at fair values. She is to
transfer her liabilities and is to contribute sufficient cash to bring her total capital to P210,000 which is
70% of the total capital of the partnership. Details regarding the book values of May’s business assets
and liabilities and their corresponding fair values are:
BOOK VALUES FAIR VALUES
Accounts Receivable 53,800 53,000
Inventory 98,400 107,000
Equipment 25,800 34,000
Notes Payable 56,000 56,000

Nora agrees to invest cash of P42,000 and merchandise valued at current market price.
a. What is the value of merchandise to be invested by Nora?
b. What is the amount of cash to be invested by May?