ACCO 30103

2ND SEMESTER, AY 2021-2022

PARTNERSHIP FORMATION AND OPERATION

Problems

Charles admits Murphy as a partner in business. Accounts in the ledger for Charles on April 1, 2022, just before
the admission of Murphy, show the following balances:
Cash P 26,000 Accounts Payable P 62,000
Accounts Receivable 120,000 Charles, Capital 264,000
Inventory 180,000 _________
Total P326,000 Total P326,000

For purposes of establishing Charles’ interest the following adjustments should be made:
a. An allowance for doubtful accounts of 2% of accounts receivable is to be established.
b. The Inventory is to be valued at P202,000.
c. Prepaid expenses of P6,500 and accrued liabilities of P4,000 are to be established.

1. If Murphy is to invest sufficient funds in order to receive a 1/3 interest in the partnership, how much
must Murphy contributes?

Mia admits Paolo for a partnership in her business. The balance sheet accounts of Mia on April 2, 2022 prior to
the admission of Paolo are as follows:
Debit Credit
Cash ?
Accounts Receivable 480,000
Merchandise Inventory 720,000
Accounts Payable 248,000
Mia, Capital ?
It was agreed that for purposes of establishing Mia’s interest, the following adjustment should be made:
 An allowance for doubtful accounts of 2% of accounts receivable is to be established.
 The merchandise inventory is to be valued at P800,000.
 Prepaid expenses of P10,000 is to be recognized.
Paolo invested cash of P568,640 to give him a one-third interest in the total capital of the firm.

2. Determine the total capital of Mia before the admission of Paolo.

On August 1, 2021, Demi & Kiara decided to combine their businesses and form a partnership. Their balance
sheets on this date before adjustments follow:
Demi Kiara

Cash P18,000 P7,500

Accounts Receivable 37,000 27,000
Inventories 60,000 39,000
Furniture & Fixtures (net) 60,000 18,000
Office equipment 23,000 5,500
Prepaid expenses 12,750 6,000
Total P210,750 P103,000

Accounts Payable P91,500 P36,000

Capital 119,250 67,000
Total liabilities & capital P210,750 P103,000

The parties agreed that profit and loss be shared 60:40, and that the following adjustments should be considered
prior to formation.
1. Provide 5% allowance for doubtful accounts on each Accounts Receivable.
2. Inventories should be recognized only at 80% of their book values.

1
 3. Furniture and fixtures of Demi is undervalued by P25,000 while the Equipment of Kiara is
undervalued by P3,500.
4. Accrued expenses of 5,000 for Demi and P3,000 for Kiara is to be recorded.

The first 5-months of operation was successful and each partner withdrew P20,000 on December 1, 2021 in
anticipation for profit. The operation resulted to a profit of P100,000.

3. Determine the adjusted capital of Demi and Kiara after the formation.
4. Journalize the entries to record the formation of the partnership if the required capital credit of the
partners are based on the profit and loss ratio.

Bong and Kris entered into partnership on March 1, 2021 with the following investments: Bong, P250,000 and Kris
P150,000. Bong is the managing partner and he is to receive salary of P24,000 per year plus bonus equal to 10% of
net profit. The partners also agreed to give 10% interest on their beginning capital. On December 31, 2021 , the
trial balance of the partnership is as follows:

Debit Credit
Cash P 140,000
Accounts Receivable 134,000
Prepaid Insurance 24,000
Office Supplies 5,000
Furniture and Fixtures 45,000
Store Equipment 200,000
Purchases 390,000
Purchase Returns P 26,000
Sales 562,000
Sales Returns 15,000
Operating Expenses 115,000
Accounts Payable 120,000
Bong, Capital 210,000
Kris, Capital       150,000
Total P 1,068,000 P 1,068,000
Data for adjustments:

a) Inventories on December 31, 2021 were: Merchandise, P75,000 and Office Supplies on hand was P2,800
only.
b) The prepaid insurance is for one year from March 1, 2021.
c) Accrued utilities of P6,200 is to be recognized.
d) All depreciable assets have 5 years estimated life from March 1, 2021. Straight line method is used.
Income tax rate of 30% is to be considered.

5. Determine the net income of the partnership.

6. Distribute the net income to the partners.

Edgar, Geri and Marvin, formed a partnership on July 1, 2021, with the following investments: P400,000; P600,000
and P900,000. The partnership agreement stated that profits and losses are to be shared equally by the partners
after consideration for the following:
a. Annual salaries to the partners: P120,000 for Edgar; P96,000 for Geri and P72,000 for Marvin.
b. 10% interest on the average capital
c. 10% of the net profit after salaries and interest as bonus to Edgar as the managing partner.
On October 1, 2020, Edgar made an additional investment of P120,000. Marvin invested P60,000 on December 1,
2021.

7. Distribute the net income of the partnership among the partners if each partner received P60,000 on
the residual profit after salaries, interest and bonus.

2
The following balance sheet for the partnership of Alvin, Nora, and James were taken from the books on
September 30, 2021:
Assets Liabilities & Capital
Cash P 400,000 Liabilities P1,000,000
Other assets 3,600,000 Alvin, Capital 740,000
Nora, Capital 1,300,000
James, Capital 960,000
Total assets 4,000,000 Total Liab & Cap 4,000,000

The partners agreed to distribute the profits as follows:

a. Annual salaries to Alvin and Nora of P30,000 each;
b. Allow interest of 6% on beginning capital;
c. Allow a bonus of 10% to Nora, the bonus to be treated as an expense after salaries and interest;
d. Remaining, 40% to Alvin, 40% to Nora, and 20% to James.

8. If the net income of the partnership was P610,000 during the three months period ending December 31,
2021, determine the total share of each partner in the net income.

On December 31, 2020, Anne and Kate have capital balances of P400,000 and P320,000, respectively. On April 1,
2021, Anne invested an additional P400,000 while she withdrew P100,000 at the beginning of the 4 th quarter.
Kate also made an additional investment of P300,000 and withdrew P20,000 on May 1. Anne is the managing
partner and will receive a bonus equal to 10% of reported net income. Both partners shall receive 10% interest on
their beginning capital, after which, any remainder shall be divided in the ratio of capital at the end of the period.
The net income of the partnership for 2021 is P600,000.

9. How much is the share of Anne in the net income of the partnership?
10. How much is the ending capital of Kate in the partnership?