Exercises

I. Multiple Choice. Choose the letter of your best answer. Write it on the space provided.

B 1. The partnership contract provides that “in the absence of the agreement, net
income or losses are to be distributed in accordance with capital contribution.” The
appropriate interpretation of this provision is that net income or losses should be
distributed in the ratio of:
A. Beginning Capital Account Balances C. Ending Capital Account Balances
B. Original Capital Account Balances D. Average Capital Account Balances

C 2. Partners Glenn and Sab share profits and losses equally after each has been credited
in all circumstances with annual salary allowances of ₱50,000 and ₱40,000
respectively. Under this agreement, in which of the following circumstances will
Glenn benefit by ₱10,000 more than Sab?
A. Only if the partnership has net income of ₱90,000 or more for the year.
B. Only if the partnership does not incur a loss for the year.
C. In all income or loss situation.
D. Only if the partnership has earnings of at least ₱10,000 for the year.

D 3. Arrange the hierarchy of valuation in partnership.

I. Fair Market Value
II. Agreed Value
III. Cost/Book Value
A. I, II, and III C. II, III, and I
B. III, II, and I D. II, I, and III

C 4. If A = Total Capital of the partnership before the admission of a new partner, B is the
total capital of the partnership after the investment of a new partner, C is the
amount of the new partners investment, D is the amount of capital credit to the new
partner, then there is
A. A bonus to the new partner if B=A+C and D<C
B. Revaluation to the new partners if B>(A+C) and D<C
C. Revaluation to the old partners if B>(A+C) and D=C
D. Neither bonus nor revaluation if B=A-CD>C
E. None of the Above

B 5. Statement 1: Assuming the there was no profit-sharing scheme agreed, partnership

profit must be allocated to the partners on the basis of start-up capital of the
partners.
Statement 2: If the agreement specifies only how profits are shared but silent as to
division of losses, the losses are to be divided on the ratio of capital contribution.
A. True, True C. False, True
B. True, False D. False, False
D 6. Two individuals who were previously sole proprietors formed a partnership.
Property other than cash which is part of the initial investment in the partnership
would be recorded for financial accounting purposes at the
A. Proprietors book value or the fair value of the property at the date of the
investment, whoever is higher.
B. Proprietors book value or the fair value of the property at the date of the
investment, whoever is lower.
C. Proprietors book value of the property at the date of the investment.
D. Fair value of the property at the date of investment.
E. None of the Above

C 7. Which of the following will not result to the dissolution of a partnership?

A. Insolvency of the partnership.
B. Admission of a new partner in an existing partnership.
C. Assignment of an existing partners interest to a third person.
D. Retirement of a partner.
E. None of the Above.

D 8. If the partners have not drawn up any agreement, then they must share profits
and losses
A. equally
B. by any means that will save taxes.
C. by any appropriate ratio.
D. according to capital contributions
E. None of the Above.

C 9. If the total contributed capital exceeds the agreed capital with the new partners
investment is the same as his capital credit, then the admission of the new partner
involved a
A. Bonus to new partner C. Negative Asset Revaluation
B. Bonus to old partner D. Positive Asset Revaluation

B 10. A partner’s interest includes

A. Capital Balance C. A and B
B. Partners loan to the partnership D. None of the choices.

C 11. In the liquidation transaction, the remaining cash is distributed to the partners. The
partners share in the cash is according to their
A. Profit and Loss Ratio C. Capital Balances
B. Withdrawals D. Cash Balance

D 12. In a partnership liquidation, a loss from sale of non-cash assets is allocated to the
A. partners with the lowest capital balance.
B. partnership liabilities.
C. partners based on their capital balances.
D. partners based on the profit and loss sharing ratio
II. Problems. Write the answer on the space provided.

On June 01, 2019, Rimuru and Veldora decided to form the Tempest Partnership, with Rimuru transferring
its net assets excluding cash and Veldora contributing cash in an amount equal to three-fourth of the
investment of Rimuru after adjustments agreed by the parties. The parties also agreed to divide profits
and losses equally. The statement of financial position of Rimuru is as follows:

Cash 400,000 Accounts Payable 600,000

Accounts Receivable 500,000 Notes Payable 400,000
Inventory 1,000,000 Rimuru, Capital 1,140,000
Furniture and Fixture 70,000
Store Equipment 120,000
Office Equipment 50,000
Total Assets 2,140,000 Total Liabilities and Equity 2,140,000

Data for adjustments:

• Provision for uncollectible accounts equal to 10% of the AR is to be established.
• 20% of the inventories is worthless
• The fair value of the fixed assets on the date of formation is 80% of the carrying value.
• Accrued expenses of ₱15,000 are to be recorded.

₱320,250 13. How much is the investment of Veldora?

₱1,762,250 14. How much is the total assets immediately after the formation?

Rimuru, Capital 1,140,000 Total Assets 2,140,000

Cash (400,000) Cash (400,000)
Total 740,000 Cash Contribution of Veldora 320,250
Uncollectible Accounts (50,000) Uncollectible Accounts (50,000)
Worthless Inventories (200,000) Worthless Inventories (200,000)
Impairment of Fixed Assets (48,000) Impairment of Fixed Assets (48,000)
Accrued Expenses (15,000) Total Assets after Formation 1,762,250
Adjusted Capital of Rimuru 427,000
Multiply: Fraction of Veldora’s Interest 3/4
Cash Contribution of Veldora 320,250
Harry, Hermione and Ron are partners in Ollivanders Partnership. They have the following beginning
balances: Harry- ₱270,000; Hermione- ₱210,000; and Ron- ₱280,000 They agreed to receive weekly
salaries of ₱800, ₱925, and ₱775 respectively. 10% interest on average capital shall be allowed to each
partner. There will be bonus of 4 ¼% on net income (before bonus) that is to be given to Harry. Residual
(remaining) income equal to 20% of which Ron is to receive 40% and the balance will be equally divided
to Harry and Hermione.

Harry had additional investment of ₱62,000 on June 30 and withdrawal of ₱12,000 on December 01.
Hermione withdrew amounting to ₱24,000 on July 31 while Ron invested additional ₱48,000 on August
01.

₱277,227.72 15. Compute the required Net Income that would comply with the conditions given.
(Round off your answer to 2 decimal places)
₱100,015.84 16. How much is the share of Harry in the net income?

Harry Hermione Ron Total

Salaries
800*52 41,600
925*52 48,100
775*52 40,300 130,000
Interest on Average Capital
300,000*10% 30,000
200,000*10% 20,000
300,000*10% 30,000 80,000
Bonus 11,782.18 11,782.18
Remainder:
277,227.72-(130,000+80,000+11,782.18) =55,445.54
55,445.54*40% 22,178.22
55,445.54-22,178.22=33,267.32
33,267.32/2 16,633.66 16,633.66 55,445.54
100,015.84 84,733.66 92,478.22 277,227.72

Harry
Jan 01 270,000*12/12 270,000
Jun 30 62,000*6/12 31,000
Dec 01 12,000*1/12 (1,000) 300,000

Hermione
Jan 01 210,000*12/12 210,000
Jul 31 24,000*5/12 (10,000) 200,000

Ron
Jan 01 280,000*12/12 280,000
Aug 01 48,000*5/12 20,000 300,000
800,000
 Total Salaries 130,000 Net Income 277,227.72
Total Average Capital 80,000 Multiply: Percentage of Bonus 4 ¼%
Total 210,000 Amount of Bonus 11,782.18
Divide: 100%-4 ¼%-20% .7575
Net Income 277,227.72

Shanne and Carl are partners with P/L ratio of 75:25 and capital balances of ₱35,000 and ₱17,500
respectively. Norie is to be admitted into the partnership by purchasing a 20% interest in the capital,
profits and losses for ₱21,000.

₱14,000 17. How much is the capital balance of Carl after admission?

Capital Balance of Carl 17,500

Multiply: Remaining Capital of Carl 80%
Capital balance of Carl after admission 14,000

Guy and Chloe are partners with capital balances of ₱980,000 and ₱525,000 respectively. They decided to
admit Velzado into the partnership by investing sufficient cash in order to have 25% interest. Guy and
Chloe share profits 3:1 respectively. After the admission of Velzado, the capital balance of Chloe is
₱589,750.

₱588,000 18. How much is the capital credit to Velzado?

Partners AC CC Bonus
Old 75% 1,764,000 1,505,000 259,000
New 25% 588,000 847,000 (259,000)
Total 2,352,000 2,352,000 0

Ending Capital Balance of Chloe 589,750

Beginning Capital Balance of Chloe (525,000)
Share in Bonus of Chloe 64,750
Divide: P/L Ratio of Chloe 1/4
Bonus to Old Partners 259,000

After a long dispute, Aang, Katara and Toph decided to liquidate their partnership. Their total interest as
of January 02, 2019 and their P&L ratio are: Aang (25%)- ₱375,000; Katara (40%)- ₱450,000; and Toph
(35%)- ₱280,000. Partnership total assets on this date include ₱125,000 cash and a receivable from Aang
amounting ₱25,000. Total liabilities to outside creditors are ₱320,000 and the partnership still owes Toph
an amount of ₱20,000. At the end of the liquidation, Katara received ₱400,000.

₱1,175,000 19. How much is the proceeds on the sale of non-cash assets?
₱236,250 20. How much is the amount received by Toph in the liquidation?
 Aang 25% Katara 40% Toph 35%
Capital Interest 375,000 450,000 280,000
Gain (Loss) on Realization (31,250) (50,000) (43,750)
Liquidation Expenses - - -
Absorption of
Deficiency/Additional - - -
Investment
Total 343,750 400,000 236,250

Capital interest of Katara 450,000 Total Liabilities and Equity 1,425,000

Amount received of Katara in liquidation 400,000 Cash (125,000)
Share in loss on realization 50,000 Non-current Assets (NCA) 1,300,000
Divide: P/L ratio of Katara 40% Total Loss on Realization (125,000)
Total Loss on Realization 125,000 Proceeds on Sale of NCA 1,175,000