1. Mr. Eric and Ms. Erin agreed to form a partnership.

The contributions of the partners are as

follows:

A B
Cash 20,000 30,000
Inventory 20,000
Building 40,000
Furniture & Fixtures 40,000

The building has a fair value of P60,000 and is subject to a mortgage of P10,000, which the
partnership has assumed. The partnership agreement also specified that profits and losses are to
be distributed evenly.

Requirement: Provide the entry to record the contributions of the partners in the partnership
books.

Solution:

A B Partnership
Cash 20,000 30,000 50,000
Inventory 20,000 20,000
Building 60,000 60,000
Furniture & Fixtures 40,000 40,000
Total Assets 60,000 110,000 170,000
Less: Liabilities
Mortgage Payable - 10,000 - 10,000
Adjusted capital balances 60,000 100,000 160,000
Entry:

Date Cash 50,000

Inventory 20,000
Building 60,000
Furniture & Fixtures 40,000
Mortgage Payable 10,000
Mr. Eric, capital 60,000
Ms. Erin, capital 100,000
To record the contributions of the partners
Bonus Method

2. X and Y agreed to form a partnership. A contributed cash of P600,000, while B contributed

equipment costing P700,000 but with fair value of P500,000. The partners agreed that since B
will be bringing his expertise and experience into the business, X and Y shall have a 40:60
interest, respectively. Their initial capital credits shall reflect this agreement.

Requirement: Provide the journal entry to record the initial investment of the partners.
Solution:

Actual contributions Bonus Method

X 600,000 (1,100,000 x 40%) 440,000
Y 500,000 (1,100,000 x 60%) 660,000
Total Assets 1,100,000 1,100,000

Entry:

Date Cash 600,000

Equipment 500,000
X, capital 440,000
Y, capital 660,000
To record the initial investment of the partners

Variations to Bonus method

Fact pattern

A, B, and C formed a partnership. Their contributions are as follows:

A B C
Cash 500,000.00 200,000.00 100,000.00
Accounts Receivable 900,000.00
Inventories 1,000,000.00
Equipment 2,800,000.00
Totals 1,400,000.00 3,000,000.00 1,100,000.00

Additional information:

 Only P700,000 of the accounts receivable are deemed collectible.

 The inventories have a net realizable value of P900,000
 The equipment has a fair value of P2,000,000 and an unpaid mortgage of P800,000,
which the partnership assumes on repaying.

Case 1: Cash settlements among patterns

3. The partners agreed to equalize their interests. Cash settlements among the partners are to be
made outside the partnership.

Requirements:

a. Which partner shall pay another partner in order to effect the equalization of the partners’
interests?
b. Provide the entry to record the contributions of the partners.

Answer:

a) B shall pay P200,000 to C

Solution:

A B C Partnership
Cash 500,000.00 200,000.00 100,000.00 800,000.00
Accounts Receivable 700,000.00 700,000.00
Inventories 900,000.00 900,000.00
Equipment 2,000,000.00 2,000,000.00
Total Assets 1,200,000.00 2,200,000.00 1,000,000.00 4,400,000.00
Less: Liabilities
Mortgage Payable - 800,000.00 - 800,000.00
Totals 1,200,000.00 1,400,000.00 1,000,000.00 3,600,000.00

b) Entry:

Date Cash 800,000

Accounts Receivable 700,000
Inventories 900,000
Equipment 2,000,000
Mortgage Payable 800,000
A, capital 1,200,000
B, capital 1,200,000
C, capital 1,200,000
To record the contributions of the partners

Case 2: Additional investment/ Withdrawal of investment

4. The partners agreed to equalize their interests. Partners shall provide additional investments or
withdraw part of their investments in order to effect the equalization of interests.

Requirement: Which partner should provide additional investment (or withdraw part of his
investment) in order to bring the partners’ capital credits equal to their respective interests in the
equity of the partnership?

Answer:

C must have an additional investment of P200,000, and B shall withdraw P200,000.

PROBLEM 2: JOURNAL ENTRIES

1. A and B agreed to form a partnership. The contribution of the partners are as follows:

A B
Cash 500,000.00 30,000.00
Inventory 20,000.00
Land 400,000.00
Equipment 50,000.00

Additional information:

 The inventory has a net realizable value of P10,000.

 The land has a fair value of P600,000 and is subject to a mortgage of P100,000, which the
partnership has assumed.
 The equipment has a fair value of P600,000.

Requirement: Provide the entry to record the contributions of the partners in the partnership
books.

Solution:

A B Partnership
Cash 500,000.00 30,000.00 530,000.00
Inventory 10,000.00 10,000.00
Land 600,000.00 600,000.00
Equipment 600,000.00 600,000.00
Total Assets 1,100,000.00 640,000.00 1,740,000.00
Less: Liabilities
Mortgage Payable - 100,000.00 - 100,000.00
Totals 1,100,000.00 540,000.00 1,640,000.00

Entry:

Date Cash 530,000

Inventory 10,000
Land 600,000
Equipment 600,000
Mortgage Payable 100,000
A, capital 1,100,000
B, capital 540,000
To record the contributions of the partners
2. A and B agreed to form a partnership. A contributed cash of P600,000, while B contributed a
machine costing P800,000 but with a current fair value of P400,000. The partners agreed that
since B will be bringing in his expertise and experience to the business, A and B shall have a
30:70 interest, respectively. The initial credits to the partners’ respective capital accounts shall
reflect this agreement.

Requirement: Provide the journal entry to record the initial investments of the partners.

Actual contributions Bonus Method

A 600,000 (1,000,000 x 30%) 300,000
B 400,000 (1,000,000 x 70%) 700,000
Total Assets 1,000,000 1,000,000

Entry:

Date Cash 600,000

Machine 400,000
A, capital 300,000
B, capital 700,000
To record the initial investment of the partners

Fact pattern

AB and C formed a partnership. Their contributions are as follows:

A B C
Cash 600,000.00 800,000.00 400,000.00
Accounts Receivable 1,200,000.00
Inventories 1,000,000.00
Building 1,500,000.00
Totals 1,800,000.00 2,300,000.00 1,400,000.00

Additional information:

 Only P700,000 of the accounts receivable are deemed collectible.

 The inventories have a net realizable value of P900,000 and related accounts payable of
P300,000 which the partnership assumes to repay.
 The building is under-depreciated by P100,000.

3. The partners agreed to equalize their interests. Cash settlements among the partners are to be
made outside the partnership.
Requirements:

a. Which partner shall pay another partner in order to effect the equalization of the partners’
interests?

b. Provide the entry to record the contributions of the partners.

Answer:

a) B shall pay A P200,000, and P500,000 to C

Solution:

A B C Partnership
Cash 600,000.00 800,000.00 400,000.00 1,800,000.00
Accounts Receivable 700,000.00 700,000.00
Inventories 900,000.00 900,000.00
Building 1,400,000.00 1,400,000.00
Total Assets 1,300,000.00 2,200,000.00 1,300,000.00 4,800,000.00
Less: Liabilities
Accounts Payable - 300,000.00 - 300,000.00
Totals 1,300,000.00 2,200,000.00 1,000,000.00 4,500,000.00

Entry:

Date Cash 1,800,000

Accounts Receivable 700,000
Inventories 900,000
Building 1,400,000
Accounts Payable 300,000
A, capital 1,500,000
B, capital 1,500,000
C, capital 1,500,000
To record the contributions of the partners

4. The partners agreed to equalize the interests. Partners shall provide additional investments of
withdraw part of their investments in order to effect the equalization of interests.

Requirement: Which partner should provide additional investment (or withdraw part of his
investment) in order to bring the partners’ capital credits equal to their respective interests in the
equity of the partnership?

Answer:
A and C must have an additional investment of P200,000 and P500,000. While B shall have a
withdrawal of P700,000.