PROBLEMS

1. On June 30, 20x14 Mac, the sole proprietor of Mac. Inc, expands the company and
establishes a partnership with Cap and Gap. The partners plan to share profits and
losses as follows: Mac, 50%; Cap, 25% and Gap 25%. They also agree that the
beginning capital balances of partnership will reflect this same relationship.

Mac asked Cap to join the partnership because his many business contacts are
expected to be valuable during the expansion. Cap is also contributing P40,000 and a
building that has an original cost of P520,000, book value of P420,000, tax assessment
of P310,000 and fair value of P370,000. The building is subject to a P242,000 mortgage
that the partnership will assume. Gap is contributing P66,000 and marketable securities
costing P252,000 but are currently worth P345,000.

Mac’s investment in the partnership is his business. He plans to pay off the notes with
his personal assets. The other partners have agreed that the partnership will assume
the accounts payable. The balance sheet for the Mac Inc follows:
Balance Sheet
June 30, 20x10
Assets Liabilities and Capital
Cash P60,00 Accounts payable P318,00
0 0
Accounts receivable (net) 288,00 Notes payable 372,00
0 0
Inventory 432,00 MOC, Capital 510,00
0 0
Equipment-net (dept’n, 420,00
P120k) 0
The partners agree that the inventory is worth P510,000, and the equipment is worth
half its original cost, and the allowance established for doubtful accounts is correct.

How much is the agreed capital of MOC if the partners agree to use the bonus
method to record the formation and if the partners agree to use the goodwill
approach to record the formation?
a P810,000; P822,000 c. P694,500; P822,000
.
b P694,500; P810,000 d. P810,000; P694,500
.

2. Kyrie, a sole proprietor, agreed to form a partnership with James in a business.

Accounts in the ledger for Wade on November 30, 20x10, just before the formation
show the following balances:
Cash P 26,000 Accounts P 62,000
payable
Accounts receivable 120,000 Wade, Capital 264,000
Merchandise inventory 180,000

It is agreed that for purposes of establishing Kyrie’s interest, the following adjustments
should be made:
1. An allowance for doubtful accounts of 2% of accounts receivable is to be
established.
2. The merchandise inventory is to be valued at P202,000.
3. Prepaid expenses of P6,500 and accrued liabilities of P4,000 are to be
established.
 James is to invest sufficient funds in order to receive a 1/3 interest in the partnership.
How much must James contribute?
a P 132,000 c. P 95,360
.
b P 143,050 d. P 88,000
.

3. Alpha and Delta decided to form a partnership on June 1, 20x10. The partnership will
take over their assets as well as assume their liabilities. As of June 1, 20x10, the net
assets of Alpha and Delta are P220,000 and P309,375 each respectively. Liabilities of
Alpha are 55% less than the book value of its net assets while liabilities of Delta are
40% more than the book value of its net assets. The partners agreed on a 25:75 profit
and loss ratio. Furthermore, the partners arrived on the following agreements: Alpha’s
inventory is undervalued by P11,000; an allowance for doubtful accounts is to be set up
in the books of Alpha and Delta at 10% of the accounts receivable balances (Alpha,
P27,500; Delta, P41,250). Accrued salary of P20,250 was not recognized in Delta’s
books.
What is total assets of the partnership immediately after formation if partner’s capital
interest should be equal to their profit and loss ratio through withdrawal or additional
investment with Delta’s capital to be used as the basis?
a P932,375 c. P934,125
.
b P912,125 d. P380,000
.

4. On February 14, 20x10, Matt and Jeff agreed to invest equal amounts and share profits
equally to form a partnership. Matt invested P780,000 and a piece of equipment. Jeff
invested some assets which are shown below:
Accounts receivable P100,000 Machineries, net P560,000
inventory 280,000 Intangibles, net 230,000

The assets invested by Jeff are not properly valued. P8,000 of the accounts receivable
are proven uncollectible. Inventories are to be written down to P260,000. Included in
the machineries is an obsolete apparatus acquired for P96,000 with an accumulated
depreciation balance of P84,000. Part of the intangibles is a patent with a carrying
value of P14,000 which was sued upon by a competitor. Jeff unsuccessfully defended
the case and the final decision of the court was released on February 12, 20x10.

What is the fair value of the equipment invested by Matt?

a. P336,000 c. P390,000
b. P242,000 d. P350,000

5. Xavier and Yani decided to form a partnership on May 1, 20x10. The assets to be
contributed by the partners are:
Xavier Yani
Book Fair Value Book Fair Value
Value Value
Cash P375,00 P375,000 P875,000 P875,000
0
Merchandise inventory 95,000 125,000
Furniture and fixtures 350,000 312,500 872,500 937,500
Transportation 3,262,50 2,812,50
equipment 0 0
 The transportation equipment is subject to a mortgage loan of P1,125,000, which is to
be assumed by the partnership. The partnership agreement provides that Xavier and
Yanie share profits and losses of 30% and 70% respectively. Assuming that the
partners agreed to bring their respective capital in proportion to their profit and loss
ratio, using Yanie capital as base, how much additional cash is to be invested
(withdrawn) by Xenon?
a. (P687,500) c. P875,000
b. (P987,500) d. P687,500

PROBLEMS
1. The following information relates to Connie and Cha’s partners capital accounts for
fiscal year ending June 30:
Connie Cha
Balance July 1 P 86,400 P115,200
Add: Additional investment, Jan 1 38,400 19,200
Net Income for the year
Salaries 20,500 14,500
Interest 7,920 9,360
Bonus 3,720
Remainder 14,880 9,920
Total 171,820 168,180
Deduct: Drawings
Monthly amounts 15,070 15,060
Additional drawings, June 30 2,400 403
Balance June 30 164,350 152,717
Bonus is based on net income after salaries, interest and bonus. If the net income
remains the same the following fiscal year, and there is no change in the partnership
agreement nor any additional investment. How much will be Cha’s total share in the
net income in the following year?
a. P33,577 c. P33,454
b. P33,780 d. P33,874

2. Bully Lit partnership begins its first year of operations with the following capital
balances, Bully, P80,000; Lit, P40,000.
According to the partnership agreement, all profits will be distributed as follows:
a. Bully will be allowed a monthly salary of P8,000 with P4,000 assigned to B.
b. The partners will be allowed interest equal to 10% of the capital balance as of
the first day of the year.
c. Bully will be allowed a bonus of 10% of the net income after bonus.
d. The remainder will be divided on the basis of the beginning capital for the first
year and equally for the second year.
e. Each partner is allowed to withdraw up to P4,000 a year.

Assume that the income summary for the first year of operations has a debit balance of
P6,000 and a credit balance of P22,000 in the following year and assuming further that
each partner withdraws the maximum amount from the business each period, what is
the balance of Bully’s capital account at the end of the second year?
a. P105,900 c. P113,900
b. P 73,900 d. P 72,000

3. The following account balances appear in the ledger for the firm of A and B at the end of
2014 before the profit for the year has been transferred to the partners’ accounts:
A, drawing P 108,000
B, drawing 187,500
 A, loan P 262,500
A, capital 750,000
B, capital 453,750
Profit and loss 453,750

The following information is to be considered in closing the profit and loss account and
the drawing accounts:
1. The cost of installing equipment at the beginning of 2014, P 40,500, was charged
to expense. The installation relates to equipment with a 10-year life.
2. The loan to the firm was made by A on March 1, 2014. No entry has been made for
interest on the loan, which is 6% and is to be paid to A at the time the loan is
repaid.
3. The partnership agreement permits A and B to withdraw weekly sums of P 2,250
and P 3,375, respectively, these amounts to be regarded as salaries. Actual
withdrawals by partners differed from allowed amounts and are summarized in the
drawing accounts.
4. B, the managing partner, is entitled to a special bonus of 25% of the net profit
after deduction of all special allowances to partners (including the bonus), and any
remaining profit is to be distributed equally.

A. How much should be the share of each partner in NI?

B. How much should be the Dec. 31 ending capital balance of each partner?

4. Kimmy is trying to decide whether to accept a bonus of 25% of net income after
salaries and bonus or a salary of P97,500 plus a bonus of 10% of net income after
salaries and bonus as a means of allocating profit among partners. Salaries
traceable to the other partners are estimated to be P450,000.

What amount of income would be necessary so that Kimmywould consider the

choices equal?
a. P1,100,000 c. P1,262,500
b. P 650,000 d. P1,197,500

PROBLEMS
1. Marc and Oliver are partners with capital balances of P30,000 and P40,000 and sharing
profits and losses 40% and 60%, respectively. If Castañeda is admitted as partner
paying P20,000 in exchange for 50% of Marc’s equity. How much is the interest of Marc
and Oliver after admission of Castañeda, respectively?
a. P15,000 and P40,000 c. P15,000 and P20,000
b. P20,000 and P40,000 d. P20,000 and P20,000

2. Cross and Chanda are partners with profit and loss ratios of 75:25 and capital balances
of P100,000 and P50,000 respectively. Julia is to be admitted into the partnership by
purchasing a 20% interest in the capital, profits and losses for P60,000.

A) Assuming that no assets revaluation is to be made, the capital balances of Cross

and Chanda, respectively, after admission of Julia is:
a. P112,000 and P38,000 c. P120,000 and P60,000
b. P100,000 and P50,000 d. P80,000 and P40,000

B) Assuming that equipment of the partnership is undervalued, the capital balances of

Cross, Chanda and Julia, respectively after the admission would be:
a. P100,000; P50,000; c. P170,000; P70,000; P60,000
 P60,000
b. P192,500; P77,500; d. P800,000; P40,000; P30,000
P30,000

3. George contributed P24,000 and Kay contributed P48,000 to form a partnership and
they agreed to share profits in the ratio of their original capital contributions. During
the first year of operations, they made a profit of P16,290; George withdrew P5,050 and
Kay P8,000. At the start of the following year, they agreed to admit Romeo into the
partnership. Romeo was to receive a one fourth interest in the capital and profits upon
payment of P30,000 to George and Kay, whose capital accounts were to be reduced by
transfers of Romeo’s capital account of amounts sufficient to bring them back to their
original capital ratio.

How should the P30,000 paid by Romeo be divided between George and Kay?
a. P9,825; P20,175 c. P10,000; P20,000
b. P15,000; P15,000 d. P9,300 P20,700

4. Marian and Nina are partners having capital balances of P75,000 and P90,000 each
respectively and sharing profits and losses equally. The admit Osang for a 1/3 interest
in the partnership capital and profits for an investment of P97,500.

A) If the goodwill method is used in recording the admission of Osang, which is

correct?
a. Goodwill will be ap22,500 c. Osang capital will be
P87,500
b. Total capital will be d. Nina capital will be
P262,500 P105,000

B) Assuming the bonus method is used in recording the admission of Osang to the
partnership, which is correct?
a. Marian receives a bonus of c. Total capital will be
P5,000 P292,500
b. Osang capital will be P97,500 d. Nina capital will be
P105,000

PROBLEMS
1. On December 31, 20x13 It Is Over partners It, Is and Over have capital balances of
P252,000; P368,000 and P305,000 respectively. The partnership has P275,000
liabilities including a loan from Is amounting to P20,000 and cash of P175,000.

On June 1, 20x14, the partnership decided to liquidate. Its net income from January to
June 1 amounted to P348,000. The partnership’s profit and loss distribution calls for
annual salaries of P134,400; P158,400 and P115,200 for It, Is and Over respectively.
Any remainder will be distributed as follows: 25% to It, 25% to Is and 50% to Over. The
partnership’s cash as of this date amounted to P250,000 and its total liabilities
amounted to P307,000 excluding the loan from Is.

For the month of June, noncash assets with a book value of P400,000 were sold for a
certain amount. The partnership paid P67,000 of its liabilities to outside creditors.
Liquidation expenses amounting to P44,000 were paid and cash will be withheld for the
payment of its remaining liabilities to outsiders.
 A) How much were the noncash assets sold for in order for Is to receive the amount of
priority due to him and an additional P7,500?
a P540,000 c. P520,000
.
b P519,000 d. P419,000
.

For the month of July, noncash assets were sold for P432,000 resulting to a loss of
P18,000. Remaining liabilities to outsiders were paid and P425,000 were distributed to
the partners. P5,000 were paid for liquidation expenses.

B) What is Over’s share in the maximum possible loss after the July sale of noncash
assets?
a 231,000 c. 250,000
.
b 251,000 d. 225,000
.

C) What is It’s capital balance after the second cash distribution?

a. 125,500 c. 101,250
b. 106,250 d. 85,000

2. Moving On partnership provided you with the following account balances as of

December 31, 2014:
Cash 390,000 Liabilities 310,000
Noncash assets 1,100,000 Loan from Ey 25,000
Loan to See 10,000 Ey Capital (20) 450,000
Bee Capitla (20) 325,000
See Capital(60) 390,000
On December 31, 20x14Bee decides to leave the partnership and he got paid 80% of his
balance.

After four months of an attempt to carry on with the partnership, Ey and See decided to
liquidate. A net loss amounting to P124,000 was realized. In connection with this,
P84,000 was the net cash inflow during the first four months of 2011 and the
partnership’s liabilities increased by P40,000. Half of the noncash assets were sold at a
loss of P120,000.

Liquidation expenses of P35,000 are expected to be incurred in due course of

liquidating the partnership. P275,000 of the total liabilities to outside creditors were
paid. Available cash was distributed to partners.

How much is Ey’s total interest after the first cash distribution?
a P279,250 c. P364,250
.
b P255,250 d. P125,250
.

3. Following is the Statement of Financial Position of QRST Partnership at March 31, 20x14
when the partnership is to be liquidated:
 Assets Liabilities and Capital
Cash P41,250.00 Liabilities P85,250.00
Other Assets 866,250.00 Q, Loan 82,500.00
R, Loan 99,000.00
T, Loan 66,000.00
Q, Capital 111,375.00
(25%)
R, Capital 82,500.00
(25%)
S, Capital 259,187.50
(25%)
T, Capital 121,687.50
(25%)

During the month of April, 20x14, assets having a book value of 123,750 are sold at a
loss of P16,500. Liquidation expenses of P4,125 are paid as well as P49,500 of the
liabilities. Of the liabilities shown in the statement of financial position, P1,650
represents salaries payable to T and P1,100 represents salaries payable to S.

The cash to be distributed to Q, R, S and T would be:

a. P0; P0; P0; P13,406.25 c. P13,406.25 for each
partner
b. P0; P0; P61,875; P0 d. P0; P0; P0; P61,875

4. M,O and C are partners who share profits and losses in the ratio of 35:25:40 to M, O and
C respectively. The statement of Financial Position of the partnership on December 31,
20x14 is as follows:
ASSETS LIABILITIES AND CAPITAL
Cash P8,000 Liabilities P18,000
Noncash assets 110,000 Loan from O 2,000
M, Capital 32,700
O, Capital 23,500
C, Capital 41,800

On January 1, 20x15, the partners decided to liquidate. For the month of January, some
assets were sold for a loss of P2,000. Payment to Partners M, O and C from the initial
sale of assets were P150, P2,250 and P4,600 respectively. Cash withheld for possible
liquidation expenses and unrecognized liabilities amounted to P1,258.

What was the book/carrying value of the noncash assets sold in January?
a. P18,258 c. P19,000
b. P20,258 d. P28,258

5. Cora, Bina and Tina are partners who share profits and losses in the ratio of 35:25:40 to
Cora, Bina and Tina respectively. The statement of Financial Position of the partnership
as of December 31, 20x14 is given as follows:

Assets Liabilities and Equity

Cash P 120,000 Liabilities P1,050,000
Noncash Assets 1,650,000 Loan from Cora 41,400
Cora, Capital 257,700
Bina, Capital 90,000
Tina, Capital 330,900
On January 10, 20x15, the partners decided to liquidate. All the partners are solvent. If
after the sale of noncash assets but before additional investment to cover the capital
deficiency of any partner, Bina’s capital balance was a debit of P45,000, total amount to
be received by Cora is:
a. 68,700 c. 90,900
b. 47,700 d. 110,100