SURIGAO EDUCATION CENTER

CPA-REVIEW PROGRAM

ADVANCED FINANCIAL ACCOUNTING AND REPORTING Bonnie contributed the following:

Cost Fair Value
MATERIAL # 1- (PARTNERSHIP FORMATION AND OPERATION)
Building 235,000 255,000
TOPIC : PARTNERSHIP FORMATION Equipment 168,000 156,000
Straight Problem - 1. On January 1, 2016, Ernie and Bert both sole proprietors decided to form a Land 500, 000 525, 000
partnership to expand both of their businesses. According to their agreement they will Split profit and loss The building and the equipment had a mortgage of P50, 000 and P35,000, respective1y. Clyde is to
75:25 and their initial capital will also reflect that ratio. contribute P150, 000 cash and an equipment. The partners agreed that only the building mortgage will be
Ernie Proprietor, Statement of Financial Position, December 31, 2015 assumed by the partnership.
ASSETS LIABILITIES & EQUITY 4. What Is the fair value of the equipment which Clyde contributed? _______________________________
Cash 50,000 Accounts Payable 65,000 5. What is the amount of total assets of the partnership upon formation? _________________________
Accounts Receivable 100,000 Accrued Expenses 55,000
Straight Problem - 3. Conrad and Pedro agreed to form a partnership. Conrad is to contribute P135,600 cash
Inventories 75,000 Notes Payable 80,000
and an equipment with a carrying amount of P135,000 and a fair value of P 115,000. The equipment
Equipment 250,000 Ernie, Capital 90,000
however has a mortgage attached to it and it is agreed that the partners will assume the mortgage. On the
Acc Dep. - Equipment (185 000)
other hand, Pedro contributed P240900 cash.
ASSETS 290,000 TOTAL LIABILITIES & EQUITY 290,000
The partners share profit and loss in the ratio 4:5. Furthermore, part of the agreement is to bring initial
Bert Proprietor, Statement of Financial Position, December 31, 2015
capital in conformity with the profit End loss ratio.
ASSETS LIABILITIES & EQUITY
6. What is the amount of mortgage on the equipment? _________________________________
Cash 30,000 Accounts Payable 75,000
Accounts Receivable 110,000 Accrued Expenses 90,000 MULTIPLE CHOICE QUESTIONS
1 Problem 1- AK and BK decided to form a partnership on October 1, 2012. Their statement of
Inventories 85,000 Notes Payable 100,000
Equipment 300,000 Bert, Capital 160,000 financial position on this date is:
Acc Dep. - Equipment (100 000) AK BK
TOTAL ASSETS 425,000 TOTAL LIABILITIES & EQUITY 425,000 Cash 65,625.00 164,062.50
The amounts reflected in the Statement of Financial Position are already at fair value except for the Accounts Receivable 1,487,500.00 896,875.00
following accounts: Merchandise Inventory 875,000.00 885,937.50
Ernie’s Accounts Receivable should be P20,000 less than what is stated in his Statement of Financial Equipment 656,250.00 1,268,750.00
Position. Both Inventories of Ernie and Bert should be P90,000 and P70,000 respectively. Equipment for Total 3,084,375.00 3,215,625.00
Bert has an assessed value of P275,000, appraised value of P250,000 and carrying amount of P200,000. Accounts Payable 459,375.00 1,159,375.00
Additional accrued expenses are to be established in the amount of P10,000 for Bert while additional AK, Capital 2,625,000.00
accounts payable of P5,000 should be recorded for Ernie. It is also agreed that all liabilities will be assumed BK, Capital 2,056,250.00
by the partnership, except for the notes payable of Bert which will be personally paid by him. Total 3,084,375.00 3,215,625.00
1. How much is the adjusted capital balance of Betty upon formation? ____________________________________ They have agreed to have the following adjustments shall be made:
2. How much is the capital credit to Ernie upon formation? ________________________________________  Equipment of AK is under depreciated by 87,500 and that BK is over depreciated by 131,250.
 Allowance for doubtful accounts is to set up amounting to 297,500 for AK and 196,875 for BK.
3. How much should Ernie invest as additional cash to be in conformity with their initial capital agreement?
 Inventories of 21,875 and 15,312.50 are worthless in the books of AK and BK respectively.
________________________
The partnership agreement provides for a profit and loss ratio of 70% to AK and 30% to BK.
Straight Problem - 2. Bonnie and Clyde entered into a partnership agreement in which Bonnie to have 55% 7. Assuming the use of transfer of capital method, how much is the agreed capital of AK to bring the capital
interest in the partnership and 35% in the profit and loss and Clyde will have 45% interest in the balances proportionate to their profit and loss ratio.
partnership and 65% 111 the profit and loss. a. 2,390,937.50 b. 2,218,125.00 c. 2,935,406.25 d. 1,024,687.50

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CPA-REVIEW PROGRAM

Liabilities…………………………….. 5000 34,500

Problem 2- On March 15, 2012, Kung Fu Panda and Beauty Gerone formed a partnership, agreeing to
share for profits and losses in the ratio of 1:1. Kung Fu Panda invested 100,000 cash and Beauty Gerone What is the capital of AA and BB after the above adjustments?
contributed a land costing 50,000. The land has a zonal value of 75,000. However, on the same date, three a) AA, 68,750; BB, 77,250 c) AA, 65,000; BB 76,000
hours after the formation, the land was sold for 60,000. b) AA, 75,000; BB 81,000 d) AA, 65,000; BB 81,000
8. After the land was sold, what is the capital balance of Beauty Gerone? 17. CC admits DD as a Partner in business. Accounts in the ledger for CC on November 30,2012, just before
a) 50,000 b) 75,000 c. 60,000 d) none of the above the admission of DD, show the following balances:
9. On March 16, 2012, what are the total assets of the partnership provided no other transactions took place Cash………………………………………………………………….. 6,800
other than the sale of the land? Accounts Receivable………………………………………… 14,200
a. 100,000 b. 150,000 c. 175,000 d) none of the above Merchandise Inventory…………………………………… 20,000
Problem 3 - Rea Mie and Dixie formed a partnership with each contributing the following assets: Accounts Payable…………………………………………….. 8,000
Rea Mie Dixie CC capital………………………………………………………….. 33,000
It is agreed that for the purposes of establishing CC’s interest, the following adjustments shall be
Cash……………………………………… 300,000 700,000 made:
Machinery and Equipment……… 250,000 750,000  An allowance for doubtful accounts of 3% of the accounts receivable is to be established.
Building………………………………… - 2250,000  The merchandise inventory is to be valued at 23,000
Furnitures and Fixtures………… 100,000 -  Prepaid salary expenses of 600 and accrued rent expense of 800 are to be recognized.
 The Building has a historical cost of 2250,000, a zonal value of 2,000,000 but with a fair market value CC’s adjusted capital balance is:
of 3,000,000. It is also subject to a mortgage loan of 800,000, which is to be assumed by the a) 35,174 b.) 35,374 c. )36,374 d.) 28,174
partnership. 18. If DD is to invest sufficient cash to obtain a 1/3 interest in the partnership, what is the amount of cash
 The Machinery & Equipment of Rea has a book value of 250,000 and an appraised value of 400,000. investment by DD?
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 Rea Mie and Dixie agreed to share profits and Losses of 30% and 70% respectively. a) 11,971 b.) 17,687 c.) 18,487 d) 14,087

10. On the date of partnership formation, what is the capital balance of Rea Mie? PARTNERSHIP OPERATIONS
a. 650,000 b) 800,000 c) 1,000,000 d) none of the above Straight Problem – 1 Alexander, Javier and Gabriel formed a partnership on January 1, 2011 with
11. On the date of Partnership formation, what is the capital balance of Dixie? initial capital contribution 450,000, 562,500 and 675,000 respectively. The partnership agreement provides
a)3,700,000 b) 3,450,000 c) 4,450,000 d) none of the above
that income be shared among the partners as follows: Salaries are to be provided for Alexander, Javier and
12. What is the capital balance of Dixie if the mortgage is not assumed by the partnership?
a) 2,900,000 b) 2,650,000 c) 4,450,000 d) none of the above Gabriel amounting to 67,500, 54,000 and 40,500 respectively. Interest of 12% on the average capital during
13. What is the total assets of the partnership if the mortgage loan stated is not assumed by the 2011 are to be given to Alexander, Javier and Gabriel. Bonus of 5% of the net income before salaries and
Partnership? interests is to be given to Alexander. Any remainder is to be divided among the partners using the ratio
a)5,250,000 b) 4,350,000 c) 5,100,000 d) 4,250,000
14. What is the total assets of the partnership if the mortgage loan stated is assumed by the Partnership? 1:2:2 respectively.
a) 5,250,000 b) 4,350,000 c) 5,100,000 d) 4,250,000 The partnership treats the partner’s salaries as part of their operating expenses. The net income reported
15. What is the Total Liabilities of the Partnership if mortgage Loan is assumed by the partnership? for the year ending December 31, 2011 amounted to 234,000. Alexander contributed additional capital of
a) 0 b) 800,000 c) 900,000 d) none of the above
67,500 on July 1 and made a withdrawal of 22,500 on October 1; Javier contributed additional capital of
16. On August 1, AA and BB pooled their assets to form a partnership, with the firm to take over their
45,000 on August 1 and made a withdrawal of 22,500 on October 1 and Gabriel made a withdrawal of
business assets and assume the liabilities. Partners capitals are to be based on net assets transferred after
the following adjustments. (Profit and Loss are allocated equally.) 67,500 on November 1.
BB’s inventory is to be increased by 4000; an allowance for doubtful accounts of 1000 and 1500
1. Compute the share of the net income of Alexander: ___________________________.
are to be set up in the books of AA and BB respectively; and accounts payable of 4,000 is to be
recognized in AA’s books. The individual trial balances on August 1, before adjustments, follow: 2. Compute the share of the net income of Javier: ___________________________.
AA BB 3. Compute the share of the net income of Gabriel: ___________________________.
Assets…………………………………. 75,000 113,000

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CPA-REVIEW PROGRAM

Straight Problem 2. A, B, and C are engaged in a merchandising business. The capital accounts in the ABC
Deduct: Drawings
Partnership in 2016 are as follows:
Monthly amounts 75,350 75,300
A B C
January 1 100,000 150,000 120,000 Additional drawings, June 12,000 2,015
April 1, withdrawal 5,000 Balance, June 30 771,750 763,585
May1, investment 10,000 15,000
August1, investment 15,000 Bonus is based on net income after salaries, interest and bonus. The net income remains the same the
December 1, withdrawal 6,500 30,000 following fiscal year. There is no change in the partnership agreement. No additional investment is made by
The partners agreed on the following terms: the partners.
a. 8% interest on the average capital balances. 9. What is the total share of Don in the net income in the following year? _________________________________
b. Quarterly salaries of P75,000, P55, 000, P68, 000 A, B, C, respectively.
Comprehensive Multiple Choice Questions
c. Bonus of 5% of income before tax after his interest, his salary and bonus is given to B.
d. The remainder will be divided in the ratio 2: 3: 4. A partnership began its first year of operations with the following capital balances:
Mooney, Capital: P143,000
For the year ended, the partnership has a credit balance in the income summary account of P550,000. The
Prongs, Capital: P104,000
relevant tax rate during the year is 20%.
Padfoot, Capital: P143,000
4. How much 13 the share of partner B in the net income? ____________________________________
5. How much is the capital ba1ance of partner A on December 31,2016? ______________________________ The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Straight Problem 3. M, N, and O are partners sharing profit and loss. The combined salaries of M and 0 o Mooney was to be awarded an annual salary of P26,000 with P13,000 salary assigned to Padfoot.
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amount to P175,000 while the combined salaries of M and N total P165,000. The partners paid total interest o Each partner was to be attributed with interest equal to 10% of the capital balance as of the first
of P33,500 of which M and 0 received P21,700 in total which is P2,600 less than what M and N received in day of the year.
total. M as the managing partner received a bonus of P10,500. The partners share the remainder in the ratio o The remainder was to be assigned on a 5:2:3 bases, respectively.
25:35:40. Partner O’s share in the remainder is P10,400. Partner N received a share in the net income of
o Each partner was allowed to withdraw up to P13,000 per year.
P105,900.
6. What is the share in the net income received by partner M? _______________________________ Assume that the net loss for the first year of operations was P26,000 with net income of P52,000 in the
7. What is the net income of the partnership? _______________________________________ second year. Assume further that each partner withdrew the maximum amount from the business each
8. What is the amount of monthly salaries of the partners M, N and 0, respectively? ___________________________ year.
Straight Problem 4 - The following information relates to the capital accounts of partners Dan and Don for 10. What was Mooney's share of income or loss for the first year?
fisca1 year ending June 30: A) (P3,900) B) (P10,400) C) (P11,700) D) (P24,700)
Dan Don 11. What was Prongs's share on income or loss for the first year?
Balance, July 1 432,000 576,000 A) (P3,900) B) (P10,400) C) (P11,700) D) (P24,700)
Add: Additional investment, January 192,000 96,000 12. What was Padfoot's share of income or loss for the first year?
Net income for the year: A) (P3,900) B) (P10,400) C) (P11,700) D) (P24,700)
Salaries 102,500 72,500 13. What was the balance in Mooney's Capital account at the end of the first year?
Interest 39,600 46,800 A) P120,900. B) P126,100. C) P118,300. D) P80,600.
Bonus 18,600 - 14. What was the balance in Prongs's Capital account at the end of the first year?
Remainder 74,400 49,600 A) P120,900. B) P126,100. C) P118,300. D) P80,600.
Total 859,100 840,900 15. What was the balance in Padfoot's Capital account at the end of the first year?

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A) P120,900. B) P126,100. C) P118,300. D) P80,600. 1. If the capital balances of AB before and after adjustment were 695,000 and 605,000 respectively, what is
16. What was Mooney's share of income or loss for the second year? the effect in the carrying value of the equipment as a result of the admission of MZ?
A) P17,160 income. B) P28,080 income. a. 495,000 b. (40,000) c. 455,000 d. (405,000)
2. On December 1,2012, EE and FF fomed a partnership, agreeing to share for profits and losses in the
C) P4,160 income. D) P17,290 income
ration 2:3 respectively. EE invested a parcel of land that cost him 25,000. FF invested 30,000 cash. The
17. What was Prongs's share of income or loss for the second year?
land was sold for 50,000 on the same date, three hours after formation of the partnership. How much
A) P17,160 income. B) P19,760 income. should be the capital balance of EE right after formation?
C) P4,160 income. D) P17,290 income. a. 25,000 b) 60,000 c. 30,000 d) 50,000
18. What was Padfoot's share of income or loss for the second year? 3. On March 1, 2012, II and JJ formed a partnership with each contributing the following assets:
A) P17,160 income. B) P19,760 income II JJ
C) P4,160 income. D) P17,290 income.
Cash……………………………………………… 300,000 700,000
19. What was the balance in Mooney's Capital account at the end of the second year?
Machinery and Equipment………….. 250,000 750,000
A) P133,380. B) P105,690. C) P84,760. D) P132,860. Building………………………………………… - 2,250,000
20. What was the balance in Prongs's Capital account at the end of the second year? Furnitures and Fixtures………………. 100,000 -
A) P133,380. B) P71,760. C) P84,760. D) P132,860.
21. What was the balance in Padfoot's Capital account at the end of the second year? The building is subject to mortgage loan of 800,000, which is to be assumed by the partnership
A) P133,380. B) P105,690 C) P84,760. D) P132,860. agreement provides that II and JJ share profits and losses 30% and 70%, respectively. On march 1,
The partnership agreement of ROGER, REGGIE and BOBBY provides for the division of net income as 2012, the balance in JJ’s capital account should be:
a) 3700,000 b) 3,050,000 c) 3140,000 d) 2,900,000
follows:
4. The same information in previous number, except that the mortgage loan is not assumed by the
 REGGIE, who manages the partnership is to receive a salary of P3S,200 per year.
4 partnership. On March 1, 2012, the balance in JJ’s capital account should be:
 Each partner is to be allowed interest. at 20% on beginning capital. a) 3,700,000 b) 3,050,000 c) 3,140,000 d) 2,900,000
 Remaining profits are to be divided equally. Problem 2 - Albert and Bryan have just formed a partnership. Albert contributed cash of P2,346,000 and
During 2017, ROGER invested an additional P12,800 in the partnership. REGGIE and BOBBY had permanent office equipment that cost P1,170,000. The equipment had been used in the sole proprietorship and had
capital withdrawals of P16,000, and P12,800, respectiveiy. REQGIE had a temporary drawing of P4,500. No been 80% depreciated. The current fair value of the equipment is P756,000. An unpaid mortgage loan on
other investments or withdrawals were made during 2017. On January 1, 2017, the capital balances were the equipment of P252,000 will be assumed by the partnership. Albert is to have a 60% interest in the
ROGER, P208,000; REGGIE, P240,000; and BOBBY, P224,000. Total capital at year-end was P806,400. partnership net assets.
22. Compute the capital balance of partner Roger at year-end: Bryan is to contribute, only, merchandise with a fair value of P1,890,000. Both partners agreed on a profit
a. P257,000 b. 258,300 c. 250,665 d. 257,500 and loss ratio of 55% to Albert and the balance to Bryan.
23. Compute the capital balance of partner Reggie at year-end: 5. To finalize the partnership agreement, Albert should make additional investment (withdrawal) of cash in
a. P297,000 b. 297,800 c. 292,800 d. 302,300 the amount of.
24. Compute the capital balance of partner Bobby at year-end:
a. P251,100 b. 258,300 c. 244,266 d. 258,300 a. P (36,000) b. P(S40,000) c. P264,000
25. Compute the income earned by the partnership for the year
a. P134,400 b. 150,400 c. 169,600 d. 154,900
DO-IT-YOURSELF DRILLS
Problem 1- On December 1, 2012, AB invited MZ to join him in his business. MZ agreed provided that
AB will adjust the accumulated depreciation of his equipment account to a certain amount and recognize s d. P (15,000)
additional accrued expenses of 50,000. After that, MZ is to invest additional pieces of equipment to make
The YES Partnership started operations on January 2, 2017 with the following capital balances:
her interest equal to 45%.
YVES P 88,000

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ERNIE 64,000 on September 1, he withdrew P4,000. Zoom had neither additional investments nor withdrawals during the
SERGE 90,000 year. The average capital balance at the end of 2013 for Mr. Boom is:
Their profit and loss -agreement has the following provisions: A. 9, 600 B. 8, 000 C. 8, 800 D. 7, 200
 YVES will be given an annual salary of P16,000 and SERGE P8,000. 13. Luz, Vi, and Minda are partners when the partnership earned a profit of P30,000. Their agreement
 All partners will be given 10% interest on beginning capital balances every year. provides the following regarding the allocation of profits and losses:
 The balance of the profit, or the loss, will be divided on a 5:213 to YVES, ERNIE, and SERGE, I. 8% interest on partner’s ending capital in excess of P75,000.
respectively. II. Salaries of P20,000 for Luz and P30,000 for Vi.
III. Any balance is to be distributed 2:1:1 for Luz, Vi, and Minda, respectively.
 Each partner is allowed to withdraw up to P8,000 every year
Assume ending capital balances of P60,000, P80,000, and P100,000 for partners Luz, Vi, and Minda,
In 2017, partnership operations resulted In. a net loss of P16,000, while in 2018, it was a net profit of
respectively. What is the amount of profit allocated for Minda, if each provision of the profit and loss
P32,000. All partners withdrew the maximum amount of P8,000 each year. agreement is satisfied to whatever extent possible using the priority order shown above?
6. Calculate the balance of YVES’ capital at the end of 2017 A. (3, 600) B. 3,000 C. (2,000) D. 2,000
a. P 72,700 b. P 77,600 c.P49,600 d.P64,900
14. Maxwell is trying to decide whether to accept a salary of P40,000 or salary of P25,000 plus a bonus of
7. Calculate the balance of Ernie’s capital at the end of 2018.
10% of net income after salaries and bonus as a means of allocating profit among partners. Salaries
a. P 82,080 b. P 44,076 c. P81,760 d. P77,600 traceable to the other partners are estimated to be P100,000. What amount of income would be necessary
8. Calculate the balance of Serge capital at the end of 2017 so that Maxwell would consider choices to be equal?
a. P84,054 b. P81,760 c. P77,600 d. P79,740 A. 165,000 B. 290,000 C. 265,000 D. 305,000
9. Compute the total interest received by the partners in 2018
15. Roy and Sam was organized and began operations on March 1, 2018. On that date, Roy invested
a. P24,200 b. P12,200 c. P24,000 d. P20,200 P150,000 and Sam invested computer equipment with current fair value of P180,000. Because of shortage
5 A, B, C, a partnership formed on January 1, 2013 had the following initial investment: of cash, on November 1, 2018 Sam invested additional cash of P60,000 in the partnership. The partnership
contract includes the following remuneration plan:
A ……………………………………… 100,000
Roy Sam
B ……………………………………… 150,000
Monthly salary (recognized as expense) P10,000 P20, 000
C ……………………………………… 225,000
Annual interests on beginning capital 12% 12%
The partnership agreement states that the profits and losses are to be shared equally by the partners after
Bonus on the net profit before salaries 20%
consideration is made for the following:
and interest but after bonus
Salaries allowed to partners: 60,000 for A, 48,000 for B and 36,000 for C.
Balance equally
Average partner’s capital balances during the year shall be allowed 10%
Additional Information: The salary was to be withdrawn by each partner in monthly instalments. The partnership net profit for
On June 30, 2013, A invested an additional capital of 60,000. 2013 is P120, 000. What are the capital balances of the partners on December 31, 2018?
C withdrew 70,000 from the partnership on September 30, 2013.
They agreed to share the remaining partnership profit was 5,000 for each partner. Roy Sam Roy Sam
10. Interest on average capital balances of the partners totaled: A. P243,500 P266, 500 B. P136, 000 P350; 000
a. 48,750 b. 53,750 c. 57,625 d. 60,625 C. P86,000 P154, 000 D. P7, 000 P155, 000
11. Partnership net profit at December 31, 2013 before salaries, interests and partner’s share on the
remainder was: Score on 1st Try: __________ Score on 2nd Try: __________ Score on 3rd Try: __________
a. 199,750 b. 207,750 c. 211,625 d. 222, 750
12. Mr. Zoom and his very friend Mr. Boom formed a partnership on January 1, 2018 with Zoom Answers:
contributing P16, 000 cash and Boom contributing equipment with a book value of P6,400 and a fair value 1. 6. 11. 16.
of P8,000. During 2018, Boom made additional investments of P1,600 on April 1 and P1,600 on June 1, and
2. 7. 12. 17.

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3. 8. 13. 18.
4. 9. 14. 19.
5. 10. 15. 20.

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