Republic of the Philippines

College of Business and Accountancy

Tarlac State University
Tarlac City
AFAR: Partnership
Integration 2020

Problem #1: Partnership Formation

Mandy and Melody each operating a separate business agreed to join a partnership as of July 1, 2020. The balance
sheet data presented as of this date were as follows;

Mandy
Balance Sheet
Cash P19,200 Accounts Payable P60,000
Accounts receivable 192,000 Notes payable 12,000
Merchandise Inventory 240,000 Mandy, Capital 439,200
Office Equipment 60,000
Total 511,200 Total 511,200

Melody
Balance Sheet
Cash P 72,000 Accounts Payable P96,000
Accounts receivable 144,000
Merchandise Inventory 216,000 Melody, Capital 408,000
Office Equipment 72,000
Total 540,000 Total 504,000

The assets of the two partners were carefully examined and it was agreed that certain adjustments be made and
the above balance sheets as adjusted be the basis on which the partnership begins operation. The following
adjustments were agreed upon:
Mandy’s accounts receivable are to be taken over at book value less 15% and Melody’s account receivable at book
value less 10%.. Mandy’s office equipment is new and is considered adequate for the new business, therefore, it is
decided that Melody will dispose of his equipment at the highest cash price possible and that Mandy bear one-
fourth of the loss resulting from the sale. Melody’s office equipment is disposed of at book value less 10%. It is
further agreed that Melody pay sufficient cash to give him a one-half interest in the business after charging to
Mandy’s’ capital account his share of the loss on the sale by Melody’s of Office equipment.
How much cash must Melody invest?

Problem #2: Partnership Formation

On December 1, 2020 MV and CD agreed to invest equal amounts and share profits equally to form a partnership.
MV invested P3,120,000 cash and a piece of equipment. CD invested some assets which are shown below:

Book Value
Accounts Receivable P400,000
Inventory 1,120,000
Machineries, net 2,240,000
Intangibles, net 920,000

The assets invested by CD are not properly valued. P32,000 of the account receivables are proven uncollectible.
Inventories are to be written down to P1,040,000. Included in the machineries is an obsolete apparatus acquired
for P384,000 with an accumulated depreciation balance of P336,000. Part of the intangibles is a patent with a
carrying value of P56,000 which was sued upon by a competitor. CD unsuccessfully defended the case and the final
decision of the court was released on November 29, 2020 . What is the fair value of the equipment invested by
MV?

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Problem #3: Partnership Formation

The partnership of PP and RR was formed on 03-31-14. At that date , PP invested P50,000 cash and office
equipment valued at P30,000. RR invested P70,000 cash, merchandise valued at P110,000 and furniture valued at
P100,000, subject to a notes payable of P50,000 (which the partnership assumes). The partnership provides that
PP and RR shares profit and losses 25:75 respectively. The agreement further provides that the partners should
initially have, an equal interest in the partnership capital. Under the bonus and goodwill method, what is the total
capital of the partners after the formation?

Problem #4: Partnership Operations

JJ and KK partners of JJKK Partnership submit the following information for calendar year ending December 31,
2020: Initial Investment on January 2020 P 172,800 and P230,400 respectively. After 6 months of operation they
decided to make additional investment to sustain the operation. JJ invested P76,800 in cash while KK invested
P38,400 in other assets. At the end of the year JJ receives and aggregate amount of P94,040 which is composed of
P41,000 salaries; Bonus of P7440 which is based on net income after salaries, interest and bonus; an Interest on
capital in the amount of PP15,840 and the balance which has been divided between the partners on an agreed
ratio. On the other hand KK receives a total of P67,560 as share in partnership profit for the year, the breakdown
of which are: salaries P29,000, Interest on capital P18,720 and P19,840 as share on the remaining profit. The books
showed that JJ and KK regular drawings amounted to P30,140 and P30,120 respectively , and additional withdrawal
on December 31 are P4800 for JJ and PP806 for KK.
In the following year how much will be the expected share of JJ and KK on the net income of the partnership,
assuming the net income remains the same the following calendar year, and the partnership agreement remains
the same and partners will not make any additional investment.

Problem #5: Partnership Operations

On January 1, 2020 PAPA, SAH, and MHE formed PSM Partnership with original contribution of P4,000,000,
P1,000,000. and P5,000,000 respectively. The articles of co-partnership provides that the profit or loss shall be
distributed under the following terms:
 PAPA , SAH and MHE shall be entitled to monthly salary of P10,000 P20,000 and P30,000 respectively
 10% interest on the original capital contribution.
 As managing partner, SAH shall receive a bonus equal to 10% of net income after salaries and interest but
before bonus.
 The remainder shall be distributed on the basis of original capital contribution ratio.
During 2020, the partners regularly withdraw ¼ of their monthly salary. The December 31, 2020 Statement of
Financial Position of the partnership shows that the capital balance of PAPA is P5,310,800. On January 1, 2021
MHE decided to retire from the partnership and it was agreed that MHE shall receive P6,000,000. the retiring
agreement provides that any bonus shall be distributed on the basis of original capital contribution ratio.
1. What is the net income of the partnership for the year ended December 31, 2020?
2. What is the capital balance of SAH after the retirement of MHE on January 1, 2021?

Problem #6: Partnership Dissolution

TT, NN and KK formed a partnership on January 1 2020, agreeing to distribute profits and losses in the ratio of
original capital. Original investments were P62,500, P25,000 and P12,500 respectively. Earnings of the firm and
drawings by each partner for the period 2020-2022 are presented below:

Net Income(loss TT NN KK
2020 44,000 15,000 7,800 5,200
2021 18,500 15,000 7,800 5,200
2022 (10,500) 10,000 5,200 5,200

At the beginning of 2023, TT ,NN and KK agreed to permit KK to withdraw from the firm. Since the books of the
firm had never been audited, the partners agreed to an audit at the settlement amount. In withdrawing, KK was
allowed to take certain furniture and was charged P1,500, although the book value was P4,500 and P500 in cash.
The items presented below were revealed in the courses of audit:

END OF
2020 2021 2022

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Understatement of accrued expenses 400 500 650
Understatement of accrued revenue 250 100 150
Overstatement OF Inventories 1500 2000 2000
Understatement of depr. Exp on assets still held 150 350 200

The capital balances of TT after the retirement of KK is

Problem #7: Partnership Dissolution

On January 1, partners C , D and E who share profits and losses in the ration of 5:3: 2, respectively, decided to
dissolve their partnership. On this date, part of the partnership condensed balance sheet was as follow:

Liabilities and Partner’s Equity

Liabilities 60,000
C, Loan 20,000
C, Capital 60,000
D, Capital 90,000
E, Capital 70,000
300,000
You are given the following independent cases:
A) The partners decided to admit Fay under the following conditions:
1. 1/3 of D interest was to be purchased by F for P50,000,
2. F makes additional contribution to make her total capital credit 20%, and
3. No bonus is to be recognized.
How much should be invested by F?
What is the revised partner’s equity?
B) A new partner, F will be admitted to the partnership for a 20% interest and a P10,000 bonus.
How much should F invest?
What is the revised Partner’s equity?
C) F is admitted for a 20% interest in the partnership by paying P50,000 to D&E Interest is
transferred in proportion to their capital balances.
How much is the revised partner’s equity?
D) F wishes to invest cash for 20% interest based on old partner’s equity.
How much would F capital credit .
E) F, a new partner, will pay the partnership P60,000 for a 20% interest in the partnership. Old
partners agreed to recognize assets revaluation for the new partner.
Given the above information, is the agreement valid? Prove it.
F) C wants to retire from the partnership. The partner decided to give her P100,000 for all her
interest knowing that the fair value of the real estate of the company has appreciated with the
opening of foreign investments in the area.
What would be the partner’s equity after C’s retirement?

Problem #8: Partnership Liquidation

X, Y and Z are partners in a wholesale business. On January 1, 2020 the total capital and drawings are presented as
follows

Capital Drawing
X P375,000 P36,000
Y 550,000 24,000
Z 1,125,000 17.000

Partners agree that profit and loss ratio are shared equally. Because of the failure of some debtors to pay their
outstanding accounts, the partnership loses heavily and compelled to liquidate. The operating loss in 2020 is
P252,000. After exhausting the partnership assets they still owe P207,000 to creditors on December 31, 2020 Y has
no personal assets but the others are well off.

1. How much was absorbed by Z to eliminate the capital deficiency of Y

2. How much should X invest to eliminate his capital deficiency?

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Problem #9: Partnership Liquidation
BANG, KHA and ROTE decided to liquidate the partnership on July 31, 2020. Their capital balances and profits ratio
on this date follow:
Cap. Balances P&L
BANG 56,000 45%
KHA 72,000 25%
ROTE 32,000 30%
The net income from January 1 to July 31, 2020 is P12,000. Also on this date, cash and liabilities are P42,000 and
P58,000 respectively.
If ROTE received P41, 600 in full settlement of his interest in the firm, which of the following is TRUE?
a) The proceeds from sale of non-cash assets is P192,000
b) KHA’s share in the loss/gain on realization is P5,000
c) The total amount distributed to outsiders and partners was P208,000
d) BANG received P70,400 in full settlement of his interest

Problem #10: Partnership Liquidation

ABC Partnership provided you with the following account balances as of 12-31-20 just before the retirement of L

DR CR
Cash P1,950,000 Liabilities P1,550,000
Non-cash assets 5,500,000 Loan from A 125,000
Loan to C 50,000 A Capital (20%) 2,250,000
B Capital (20%) 1,625,000
C, Capital (60%) 1,950,000

On 12-31-20 B decided to leave the partnership and he got 80% of his capital balance.

After four months of attempt to carry on with the partnership, A and C decided to enter into liquidation. A net loss
amounting to P620,000 was realized. In connection with this, P420,000 was the net cash inflow during the first
four months of 2013 and the partnership’s liabilities increased by P200,000. Half of the non-cash assets were sold
at a loss of P600,000. Liquidation expenses of P175,000 are expected to be incurred in due course of liquidating
the partnership. P1,375,000 of the total liabilities to outside creditors were paid. Available cash was distributed to
the partners.
How much is A’s total interest after the first cash distribution?

Problem #11: Partnership Liquidation

The accounts of partnership of A, B and C at the end of its fiscal year on October 31, 2020 are as follows:
Cash P78,750 Loan from C P52,500
Non-cash Assets 682,500 A, Capital (30%) 236,250
Loan to B 26,250 B, Capital (50%) 157,500
Liabilities 262,500 C, Capital (20%) 78,750

Required: compute for the following independent cases using the cash priority program.
1. If 90,000 is available for distribution to partners after all non-partner liabilities are paid. A should receive?
2. If in the first distribution, B received P6,250. C should receive?
3. If in the first distribution, A received P172,500 B should receive?
4. if in the first distribution, C received P37,500, how much is the total cash distributed
5. . if in the first distribution ,A received P73,500, C should receive?
6. If received a total of P15,000 as a result of the liquidation. What was the total amount realized from the sale of
the non-cash assets?

Problem #12: Comprehensive

GTV and GMA formed a partnership on January 1, 2020. QTV invests P90,000 cash as well inventory costing
P33,750, but with a current appraised value of only P27,000. GMA contributes a building with a P90,000 book
value and a P108,000 fair market value. The partnership also accepts responsibility for a P22,500 notes payable
owed in connection with this building. The partners agree to begin operations with equal capital balances. The
articles of Partnership also provide that at the end of each year, profits and losses are allocated as follows:

 For managing the business, QTV is credited a bonus of 10% of partnership income after the
bonus.

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  Both partners are entitled to interest equal to 10% of the average monthly capital balances for
the year without regard for the income of drawings of that year.
 any remaining profit or loss is divided 60% to QTV and 40% to GMA.
 Each partner is allowed to withdrew P1,800 per month in cash from the business.

On October 1, 2020, QTV invest additional P27,000 cash in the business. For 2020 the partnership reports income
of P74,250. Each partner withdrew the amount allowable to them for the year.

CBN, an employee, is allowed to join the partnership on January 1, 2021. The new partner invests P148,500
directly in the business for a one-third interest in the partnership property. The revised partnership agreement still
allow for both the bonus to QTV and the 10% interest, but all remaining profits and losses are now split 40% each
to QTV and CBN with the remaining 20% to GMA. CBN is also entitled to P1,800 per month in drawings.

GMA chooses to withdrew from the partnership a few years later, after negotiations all parties agree that GMA
should be paid P202,500 settlement. The capital balances on that date were: QTV Capital P198,000 ; GMA Capital
P175,500 and CBN, Capital P162,000.

A. Assuming the bonus method is used exclusively by this partnership

1. What are the capital balances of QTV and GMA at the end of 2020?
2. How much is the agreed capital of CBN?

B. Assuming that the goodwill method is used exclusively by this partnership

1. What are the capital balances of QTV and GMA at the end of 2020?
2. After the retirement of GMA, How much is the capital balance of CBN? (Assume partial goodwill is not used)

Problem #13: Comprehensive

You have been engaged to prepare the financial statements for the partnership of RR, DD and JJ as of June 30,
2019. You obtained the following information from the partnership agreement as amended and from the
accounting records.
 The partnership was formed originally by RR and DD on July 1, 2020. At that date DD contributed
P400,000 cash.
 RR contributed land, building and equipment with a fair values of P110,000, P520,000 and P185,000,
respectively. The land and building were subject to a mortgage securing an 8% per annum note(interest
rate of similar notes at July 1, 2020). The note is due in quarterly payments of P5,000 plus interest on
January1, April1, July 1, and October 1 of each year. RR made the July 1, 2020, principal and interest
payment personally. The partnership then assumed the obligation for the remaining P300,000 balance.
 The agreement further provided that RR had contributed a certain intangible benefits to the partnership
due to his many years of business activity in the area to be served by the new partnership. The assigned
value of these intangible assets plus the net tangible assets he contributed gave RR a 60% initial interest
in the partnership. RR was designated the only active partner with an annual salary of P24,000 plus an
annual bonus of 4% of net income after deducting his salary but, before deducting interest on partner’s
capital investments.
 Each partner is to receive a 6% return on his average investment. All remaining profits or losses are to be
shared equally.
 On October 1, 2018 DD sold his partnership interest and rights as of July 1, 2020 to JJ for P370,000. RR
agreed to accept Jason as a partner if he would contribute sufficient cash to meet the October 1, 2020
principal and interest payment on the mortgage note. JJ made the payment from personal funds.
 On January 1, 2021 RR and JJ admitted a new partner, KK. KK invested P150,000 cash for a 10% percent
capital interest based on the initial investment at July 1, 2020 of RR and DD. At January 1, 2021 the book
value of the partnership‘s assets and liabilities approximated their market values. KK contributed no
intangible benefit to the partnership.
 Similar to the other partners, KK is to receive a 6% return on his average capital investment. His
investment also entitled him to 20% of the remaining partnership’s profit or losses. However, for the year
ended June 30, 2021. KK would receive one half of his pro rata share of the profits and losses.
 The accounting records show that on February 1, 2021, Other miscellaneous Expenses had been charged
P3,600 in payment of hospital expenses incurred by RR’s eight year old daughter.
 All salary payments to RR have been charged to his drawing account. On June 1, 2021, JJ made a P33,000
withdrawal. These are the only transactions recorded in the partner’s drawing accounts.

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  Presented below is the partnership’s Trial Balance as of June 30, 2021. The general ledger has not been
closed.
DEBIT CREDIT
Current Assets 307,000
Property, Plant and Equipment 1,285,800
Current Liabilities 157,000
8% mortgage Note Payable 290,000
RR, Capital 515,000
KK, Capital 150,000
JJ, Capital 400,000
RR Drawing 24,000
JJ, Drawing 33,000
KK, Drawing 0

Sales 872,600
Cost of Sales 695,000
Administrative expenses 16,900
Other Miscellaneous Expenses 11,100
Interest Expenses 11,700
 No Goodwill is to be recognized in the books.

1. What is the correct capital to be credited to RR at the time of the formation July 1, 2020?
2. How much must be the correct capital of JJ on October 1, 2020?
3. How much capital must be credited to KK on January 1, 2021?
4. Determine the correct net income of the partnership for the year ending June 30, 2021.

END.