EXERCISES

Exercise 1

Jacob, Job and Joseph are partners sharing profits in the ratio of 3:2:1
respectively. Capital accounts are P40,000, P24,000 and P16,000 on October 31, 2020
when Joseph decided to withdraw. It is agreed to pay Joseph P24,000 for his interest.
Profits after the withdrawal of Joseph are to be shared equally.

Required: Record the withdrawal of Joseph.

Exercise 2

Nadab and Baasha wish to purchase the partnership interest of their partner
Oniel at Nov. 1, 2020. Partnership assets are to be used to purchase Oniel’s partnership
interest. The statement of financial position for the partnership on this date shows the
following:

NBZ Partnership
Statement of Financial Position
November 1, 2020

Assets Liabilities and Capital

Cash P 43,200 Liabilities P 36,000
Receivable (net) 28,800 Nadab, Capital 96,000
Equipment (net) 108,000 Baasha, Capital 48,000
Other Assets 24,000 Oniel, Capital 24,000
------------ -------------
Total Assets P 204,000 Total Liabilities & Capital P 204,000
======= ========
The partners share earnings in the ratio of 6:4:2.

Required: Prepare the entry to record the retirement of Oniel under each of the
following assumptions:
1. Oniel is paid P32,000.
2. Oniel is paid P21,600, half is in cash and the remaining payable within one year.

DATE ACCOUNT TITLE DEBIT CREDIT

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Problem 1

Eli is to retire from the partnership of E and Associates as of Dec. 31, 2020.
After closing the books, the capital balances of the partners are as follows: Eli,
P640,000; Elijah P480,000; and Elisha, P400,000. They have shared net income and
losses in the ratio of 2:1:1. The partners agree that the merchandise inventory be
increased by P56,000 and allowance for bad debts be reduced by P8,000. Eli agrees to
accept an interest bearing note for P400,000 in partial settlement of his ownership
equity. The remainder of his claim is to be paid in cash. Elijah and Elisha are to share
equally in the profits and losses of the new partnership.

Required: Prepare the entries in general journal form to record.

1. The adjustments of the assets to bring them into agreement with current fair
price.
2. The withdrawal of Eli.

Problem 2

Sarah, Rebekah and Rachel share profits in the ratio of 5:3:2. Rachel is
permitted to withdraw from the firm on Dec. 31, 2020. The partnership’s statement of
financial position on this date is as follows:

Assets Liabilities & Capital

Due from Rachel P 4,000 Liabilities P 32,000
Goodwill 32,000 Due to Rebekah 12,000
Other Assets 76,000 Sarah, Capital 28,000
Rebekah, Capital 24,000
Rachel, Capital 16,000
------------ ------------
Total P112,000 Total P112,000
======= =======

Required: Prepare entries assuming that:

1. Rachel is paid P16,000 in full settlement of the capital interest.
2. Rachel is paid P9,600 in full settlement.

Problem 3

Genesis, Exodus and Leviticus have been partners in the kingdom building for
20 years. Exodus has decided to retire and wishes to withdraw from the partnership.
To facilitate Exodus retirement, the partnership closed its books and prepared the
following statement of financial position:

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 Assets Liabilities & Capital
Cash P 424,000 Accounts Payable P 80,000
Accounts Receivable (net) 96,000 Genesis, Capital 200,000
Books 160,000 Exodus, Capital 320,000
Other Assets 120,000 Leviticus, Capital 200,000
------------ ------------
Total P800,000 Total P800,000
======= =======

Genesis, Exodus and Leviticus share profits and losses in the ratio of 4:4:2.

Required: Prepare the necessary journal entries on the books of the partnership to
record the withdrawal of Exodus in each of the following situations:
1. The partnership agrees that the books and other assets are undervalued by
P48,000 and P32,000 respectively. Exodus is to receive a lump sum cash
payment.
2. Exodus is to receive P160,000 now and P144,000 in monthly installment of
P16,000 each.
3. Exodus is to receive P240,000 now and P24,000 at the end of each of the next 6
months.

Problem 4
Assume that Joshua, Gideon and Samuel decided to incorporate their JUDGES
partnership on October 1, 2020. The books have already been closed on this date,
however the partners agree that there has to be adjustments on certain asset values.
They have also decided to invite David and Solomon as incorporators. The statement of
financial position of the partnership are as follows:
Assets Liabilities & Capital
Cash P 28,000 Liabilities P 70,000
Accounts Receivable 42,000 Joshua, Capital (50%) 46,000
Allow. For bad debts ( 5,000) Gideon, Capital (30%) 34,000
Merchandise Inventory 50,000 Samuel, Capital (20%) 20,000
Furniture & Fixtures 60,000
Accum. Depreciation ( 5,000)
------------ ------------
Total P170,000 Total P170,000
======= =======
The partners agreed that allowance for bad debts should be increased by P1,000;
fair market value of merchandise inventory is P55,000 and accumulated depreciation
rate is 10%.
The KINGS CORP has been authorized to issue 100,000 ordinary shares with a
par value of P100 each. The partners are issued the number of shares commensurate to
their capital balances.
David and Solomon will invest P50,000 each to the corporation.

Required: Record the incorporation of the partnership.

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 MULTIPLE CHOICE

4-1. Nathan, Micah, and Elisha are partners sharing profits in the ratio of 3:2:1. On
Dec. 31, 2020, Nathan decides to withdraw from the partnership. The capital
balances of Nathan, Micah and Elisha on this date are P69,200; P42,600; and
P26,600 respectively. It is agreed that Nathan should be paid P80,000 for his
interest. How much is the capital balances of Micah and Elisha after Nathan’s
withdrawal using the bonus method?

a) P 37,200 and P 21,200 respectively

b) P 42,600 and P 26,600 respectively
c) P 35,400 and P 23,000 respectively
d) P 35,400 and P26,400 respectively

4-2. The statement of financial position as of Dec. 31, 2020 for the partnership of
Thal, Zed, Jecon shows the following information:

Total Assets (at cost) P360,000

=======

Payable to Thal P 20,000

Thal, Capital 83,000
Zed, Capital 77,000
Jecon, Capital 180,000
-----------
Total P360,000
=======

Profit and loss ratio is 25%, 25%, and 50% respectively for Thal, Zed,
Jecon.
It was agreed among the partners that Thal retires from the partnership
and the company’s assets be adjusted to their fair value of P408,000 as of Dec.
31, 2020. The partnership would pay Thal P121,000 for his equity in the firm.

What is the capital balance of Zed after the retirement of Thal?

a) P 120,000 c) P 360,000
b) P 180,000 d) None of the above

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4-3. The partnership of James, John and Judas have capital balances as follows:
James, P140,000; John, P200,000; Judas, P160,000. Their profit and loss ratios
are 30%, 50% and 20% respectively. With the consent of James and John, Judas
sold his interest to Jesus. Judas was paid P184,000 cash.

The new capital balances would be:

James John Jesus

a) P140,000 P200,000 P184,000
b) 147,200 212,000 164,800
c) 140,000 200,000 160,000
d) answer not given

4-4. Dorcas, Bernice and Eunice share partnership profits in the ratio of 2:3:5. On
November 30, 2020, Eunice opted to retire from the partnership. The capital
balances on this date follow:

Dorcas, Capital P 50,000

Bernice, Capital 80,000
Eunice, Capital 70,000

How much is to be debited from Dorcas, assuming Eunice is paid

P78,000 in the settlement of her partnership interest?

a) P 4,800 c) P 6,000
b) P 8,000 d) none of the above

4-5. On July 31, 2020 the statement of financial position for the partnership Ham,
Seth, and Japhet together with their respective profit and loss ratio were as
follows:

Assets, at cost P 360,000

=======

Ham, loan P 18,000

Ham, capital (20%) 84,000
Seth, capital (20%) 78,000
Japhet, capital (60%) 180,000
------------
P 360,000
=======

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 Ham had decided to retire from the partnership. By mutual agreement,
the assets are to be adjusted to their fair value of P432,000 at July 31, 2020. It
was agreed further that the partnership will pay Ham P122,400 cash for his
interest, including Ham’s loan which is to be repaid in full. After Ham’s
retirement, what is the balance of Seth’s capital account?

a) P 72,900 c) P 90,900
b) P 78,000 d) none of the above

4-6. Isaiah, Elisha and Elijah were partners with capital balances on January 1, 2020
of P600,000, P400,000, and P200,000 respectively. On July 1, 2020, Isaiah
retired from the partnership. On the date of retirement, the partnership has a net
loss of P120,000 and the partners agreed that a certain asset is to be revalued at
P160,000 from its original cost of P100,000. The partners agreed further to pay
Isaiah P450,000 in settlement of his interest. The remaining partners will
continue to operate under the new partnership known as Prophets Partnership.

What is the total capital of Prophets Partnership?

a) P 690,000 c) P 680,000
b) P 570,000 d) none of the above

4-7. Esther, Ruth and Micah are partners with capital balances of P120,000,
P120,000, and P80,000 respectively. Profits and loss are shared equally. Micah
withdraws from the partnership. The partners agree that Micah is to take certain
furniture at their second hand value of P4,800 and cash for the balance of his
interest. The furniture is carried on the books as fully depreciated.

The amount of cash to be paid to Micah and the capital balances of the
remaining partners after the retirement of Micah are:

Cash Esther, Capital Ruth, Capital

a) P 80,000 P 120,000 P 120,000
b) P 75,200 P 122,400 P 122,400
c) P 76,800 P 121,600 P 121,600
d) answer not given

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