Name: Kimberly Anne P.

Caballes
Year and Course: BSA - 3RD YEAR

PROBLEM 1
The following items are being invested by A and B to form AB Partnership:
Agreed Values
Investment by A Investment by B
Cash ……………………………………………………………. P 120,000 P 120,000
Inventory ……………………………………………………… 120,000 -
Land ……………………………………………………………. - 240,000
Building ………………………………………………………. - P 480,000
Equipment ………………………………………………….. 240,000 _______-
Totals ………………………………………………………….. P 480,000 P 840,000
Mortgage on building assumed by the partnership. _______- 240,000
P 480,000 ________
P 600,000
Required:
1. Prepare entries to record the formation of partnership assuming that A and B agree that each partner
is to receive a capital equal to the agreed values of the net assets each partner invested.
2. Prepare entries to record the formation of partnership assuming that A and B agree that each partner
is to receive an equal capital interest.

ANSWERS (Problem 1):

#1:
Dr Cr
Cash 120,000
Inventory 120,000
Equipment 240,000
A, Capital 480,000
Initial Investment of partner A

Cash 120,000
Land 240,000
Building 480,000
Mortgage Payable 240,000
B, Capital 600,000
Initial Investment of partner B with
assumption of a liability
#2
BONUS APPROACH

Dr Cr

Cash 120,000
Inventory 120,000
Equipment 240,000
A, Capital 480,000
Initial Investment of Partner A

Cash 120,000
Land 240,000
Building 480,000
Mortgage Payable 240,000
B, Capital 600,000
Initial Investment of Partner B that
Assumes liability

B, Capital 60,000
A, Capital 60,000

Total Agreed Capital:

(480,000 + 600,000) = 1,080,000
Multiplied by ½
Partners Individual
Capital interest 540,000
Less: A’s Capital Interest 480,000
Bonus to A 60,000

REVALUATION APPROACH

Dr Cr

Cash 120,000
Inventory 120,000
Equipment 240,000
A, Capital 480,000
Initial Investment of Partner A

Cash 120,000
Land 240,000
Building 480,000
Mortgage Payable 240,000
B, Capital 600,000
Initial Investment of Partner B that
Assumes liability

Assets (Goodwill) 120,000

A, Capital 120,000

Total Agreed Capital (600,000 /2) 1,200,000

Less: Total Contributed Capital
(480,000 + 600,000) 1,080,000
Goodwill to A 120,000
PROBLEM 2
Tom and Julie formed a management consulting partnership on January 1, 20x4. The fair value of the net
assets invested by each partner follows:
Tom Julie
Cash ………………………………………………………………….. P 13,000 P 12,000
Accounts receivable ………………………………………… 8,000 6,000
Office supplies ………………………………………………… 2,000 800
Office equipment ……………………………………………… 30,000 -
Land …………………………………………………………………. - 30,000
Accounts payable …………………………………………….. 2,000 5,000
Mortgage payable …………………………………………….. - 18,800

During the year, Tom withdrew P15,000 and Julie withdrew P12,000 in anticipation of operating profits.
Net profit for 20x4 was P50,000, which is to be allocated based on the original net capital investment.
Required:
1. Prepare journal entries to:
a. Record the initial investment in the partnership.
b. Record the withdrawals.
c. Close the Income Summary and Drawing accounts.
2. Prepare a statement of changes in partners’ capital for the year ended December 31, 20x4

ANSWERS (Problem 2):

#1:

a.)
Dr Cr
Cash 13,000
Accounts Receivable 8,000
Office Supplies 2,000
Office Equipment 30,000
Accounts Payable 2,000
Tom’s, Capital 51,000
Initial Investment of Tom with
assumption of liability

Cash 12,000
Accounts Receivable 6,000
Office Supplies 800
Land 30,000
Accounts Payable 5,000
Mortgage Payable 18,800
Julie, Capital 25,000
Initial Investment of Julie with
assumption of liability
 b.)

Dr Cr
Tom, Drawing 15,000
Cash 15,000
To record withdrawal of Tom

Julie, Drawing 12,000

Cash 12,000
To record withdrawal of Julie

c.)
Dr Cr
Income and Expense Summary 50,000
Tom, Capital 33,553
Julie, Capital 16,447
To transfer net income to
partner’s capital accounts

Tom - 51,000 / 76,000 x 50,000 = 33,553

Julie - 25,000 / 76,000 x 50,000 = 16,447
76,000

Tom, Capital 15,000

Tom, Drawing 15,000
To close drawing accounts of Tom
to capital accounts

Julie, Capital 12,000

Julie, Drawing 12,000
To close drawing accounts of Julie
to capital accounts

#2:

TOM & JULIE PARTNERSHIP

Statement of Changes in Partners’ Capital
For the Year ended Dec 31, 20x4

Tom Julie Total

Capital balance, Jan 1 P 0 P 0 P 0
Add: Additional Investment 51,000 25,000 76,000
Net Income Allocation 33,553 16,447 50,000
Total 84,553 41,447 126,000
Less: Withdrawals 15,000 12,000 27,000
Capital balance, Dec 31 69,553 29,447 99,000
PROBLEM 3
The balance sheet of H on November 30, 20x4 before accepting I as his partner to form HI
Partnership is presented below:
H
Balance Sheet
November 30, 20x4
Assets
Cash ……………………………………………………………………… P 120,000
Accounts receivable ……………………………………………… P 48,000
Less: Allowance for doubtful accounts ………………….. 3,000 45,000
Notes receivable …………………………………………………… 60,000
Merchandise inventory ………………………………………… 27,000
Equipment …………………………………………………………….. P 72,000
Less: Accumulated depreciation ………………………………. 6,000 66,000
___________
Total assets ……………………………………………………………….. P 318,000

Liabilities and Capital

Accounts payable ………………………………………………………. P 12,000
Notes payable ……………………………………………………………. 60,000
H, capital ……………………………………………………………………. 246,000
___________
Total liabilities and capital …………………………………………. P 318,000
It is agreed that for purposes of establishing H’s interest the following adjustments shall be made:
a. The accounts receivable is estimated to be 90% realizable.
b. Interest at 8% on notes receivable dated March 1, 20x4 is to be accrued.
c. The merchandise inventory is to be valued at P21,000.
d. The equipment is under-depreciated by P4,800.
e. Prepaid expenses of P2,400 and accrued expenses of P7,200 are to be recognized.
I is to invest cash to obtain a one-third interest in the partnership.

Required:
1. Prepare the following entries in the books of H, as to:
a. Adjustments
b. Closing
c. Investments
2. Prepare the balance sheet after the formation of the partnership.

ANSWERS (Problem 3):

#1:
A.) (Books of Sole Proprietor H)

To record Adjustments:

Dr Cr
a.) H, Capital 1,800
Allowance for Doubtful Accounts 1,800
To record an Additional Provision

Accounts Receivable 48,000

Multiply by 90%
Required Provision 43,200
Recorded Provision (45,000)
Additional Provision 1,800
 b.) Accrued Interest Receivable 3,600
H, Capital 3,600
To record interest income for 9 months
(60,000 x 8% x 9/12)

c.) H, Capital 6,000

Merchandise Inventory 6,000
To record decline value of merchandise
(27,000 - 21,000)

d.) H, Capital 4,800

Accumulated Depreciation - Equipment 4,800
To record under depreciation

e.) Prepaid Expenses 2,400

H, Capital 2,400
To record expense paid in advance

H, Capital 7,200
Accrued Expenses 7,200
To record unrecorded expenses

B.)

Nothing to close since the book of H will be retained

C.)

Dr Cr
Cash 116,100
I, Capital 116,100
To transfer ⅓ of H respective interest to I

232,200 divided by ⅔ P348,300

Multiply by ⅓
Total 116,100

Initial investment computed as follows:

Unadjusted capital of H………………………………P 246,000
Add (deduct): adjustments:
a. Doubtful accounts...……………………... ( 1,800)
b. Interest income…………………………….. 3,600
c. Decline in the value of merchandise…. ( 6,000)
d. Under-depreciation………………………. ( 4,800)
e. Prepaid expenses………………………….. 2,400
Accrued expenses………………………... ( 7,200)
Adjusted capital balance of H……………..……...P 232,200
#2:

HI PARTNERSHIP
Statement of Financial Position
For the month ended Nov 30, 20x4

Current Assets:
Cash (116,100 + 120,000) P 236,100
Accounts Receivable P48,000
Less: Allowance for Doubtful Accounts 4,800 43,200
Notes Receivable 60,000
Merchandise Inventory 21,000
Accrued Interest Receivable 3,600
Prepaid Expenses 2,400
Total Current Assets P 366,300

Non-current Assets:
Equipment P 72,000
Less: Accumulated Depreciation 10,800
Total Noncurrent Asset 61,200
TOTAL ASSETS P427,500

Current Liabilities
Accounts Payable P 12,000
Notes Payable 60,000
Accrued Expenses 7,200
Total Liabilities 79,200

Partner’s Capital
H, Capital P 232,200
I, Capital 116,100
Total Partners Capital 348,300
TOTAL LIABILITIES AND PARTNERS EQUITY P 427,500
PROBLEM 4
On October 1, 20x4, J and K decided to pool their assets and form a partnership. They allocate profit and
loss in the ratio of 44:56 for J and K, respectively. The firm is to take over business assets and assume
business liabilities, and capitals are to be based on net assets transferred after the following
adjustments:
a. J’s inventory amounting to P12,000 is worthless, while K’s agreed value of inventory amounted to
P150,000.
b. Uncollectible accounts of P7,200 for J is to be provided; a 5% allowance is to be recognized in the
books of K.
c. Accrued rent income of P12,000 on J, and accrued salaries of P9,600 on K should be recognized on
their respective books.
d. Interest at 16% on Notes Receivable dated August 17, 20x4 should be accrued.
e. The office supplies unused amounted to P24,000.
f. The equipment’s agreed value amounted to P60,000.
g. The furniture and fixtures has a fair market value of P108,000.
h. Interest at 12% on Notes Payable dated July 1,20x4 should be accrued.
i. K has an unrecorded patent amounting to P48,000 and is to invest the additional cash necessary to
have a 60% interest in the new firm.
In cases, where in days are considered, use 360 days as the basis
Balance sheets for J and K on October 1, 20x4 before adjustments are given below:

Accounts J K
Cash ……………………………………………………………….. P 90,000 P 54,000
Accounts Receivable ………………………………………… 216,000 180,000
Allowance for doubtful accounts ………………………. ( 4,800 ) ( 6,000 )
Notes Receivable ………………………………………………. 60,000
Merchandise Inventory ……………………………………… 192,000 144,000
Office Supplies ……………………………………………………. 32,400
Equipment …………………………………………………………….. 120,000
Accumulated depreciation- equipment ………………….. ( 54,000 )
Furniture and Fixtures …………………………………………….. 144,000
Accumulated depreciation- furniture and fixtures …. ________ ( 24,000 )
________
Total Assets …………………………………………………………….. P 591,600 P 552,000
Accounts Payable …………………………………………………….. P 159,600 P 120,000
Notes Payable ………………………………………………………….. 60,000 -0-
Capitals ………………………………………………………………….. 372,000 432,000
________ ________
Total Liabilities and Capital ……………………………………… P 591,600 P 552,000
Required:
1. Prepare the following entries in the books J and K:
a. adjusting
b. Closing
2. Prepare the following entries in the new set of book, as to the investments (or withdrawal, if any)
made by respective partners
3. Determine the following:
a. Net adjustments in the books of J and K (identify net debit or net credit adjustments).
b. The adjusted capital of J and K in their respective books.
c. The additional investment made by K.
4. Prepare the balance sheet after the formation of the partnership.
ANSWERS (Problem 4):
#1:

A.) (Books of Sole Proprietor J and K)

To record adjustments:

Books of J Books of K

a.) J, Capital 12,000 a.) Merchandise Inventory 6,000

Merchandise Inventory 12,000 K, Capital 6,000
To record worthless inventory To record upward revaluation
(150,000 - 144,000)

b.) J, Capital 7,200 b.) K, Capital 3,000

Allowance for Doubtful Accnts. 7,200 Allowance for Doubtful Accnts. 3,000
To record worthless accounts To record additional provision

Accounts Receivable 180,000

Multiply by 5%
Required Provision 9,000
Recorded Provision (6,000)
Total 3,000

c.) Accrued Rent Receivable 12,000 c.) K, Capital 9,600

J, Capital 12,000 Accrued Salaries Payable 9,600
To record income earned To record unpaid salaries

d.) Accrued Interest Receivable 1,200

K, Capital 1,200
To record interest income
(60,000 x 16% x 45/360)

e.) J, Capital 8,400

Office Supplies 8,400
To record expired office supplies

f.) J, Capital 6,000

Accumulated Dep.-Equip 6,000
To record under-depreciation

Equipment - 120,000
Accu Dep. - 54,000
Total 66,000 - 60,000 = 6,000

g.) K, Capital 12,000

Accumulated Dep. – F & F 12,000
To record under-depreciation

Furniture and Fixtures - 144,000

Accumulated Dep. (24,000)
Total 120,000
Required 108,000
Total 12,000

h.) J, Capital 1,800

Accrued Interest Payable 1,800
 To record interest expense
(60,000 x 12% x 3/12)

I.) Patent 48,000

K, Capital 48,000
To record unrecorded patent

B.)
BOOKS OF J

Dr Cr
Allowance for Doubtful Accounts 12,000
Accumulated Dep. -equipment 60,000
Accounts Payable 159,600
Notes Payable 60,000
Accrued Interest Payable 1,800
J, Capital 348,600
Cash 90,000
Accounts Receivable 216,000
Merchandise Inventory 180,000
Office Supplies 24,000
Equipment 120,000
Accrued Rent Receivable 12,000
To close the books of J

BOOKS OF K

Dr Cr

Allowance for Doubtful Accounts 9,000

Accumulated Dep. -furniture and fixtures 36,000
Accounts Payable 120,000
Accrued Salaries Payable 9,600
K, Capital 462,600
Cash 54,000
Accounts Receivable 180,000
Notes Receivable 60,000
Accrued Interest Receivable 1,200
Merchandise Inventory 150,000
Furniture and Fixtures 144,000
Patent 48,000
To close the books of K

#2: (New Set of Books)

To record Investments:
 October 1

Dr Cr
Cash 90,000
Accounts Receivable 216,000
Merchandise Inventory 180,000
Office Supplies 24,000
Equipment (net) 60,000
Accrued Rent Receivable 12,000
Allowance for Doubtful Accounts 12,000
Accounts Payable 39,600
Notes Payable 60,000
Accrued Interest Payable 1,800
J, Capital 468,600
To record initial investment of J
in the J&K Partnership

Cash 54,000
Accounts Receivable 180,000
Notes Receivable 60,000
Accrued Interest Receivable 1,200
Merchandise Inventory 150,000
Furniture and Fixtures (net) 108,000
Patent 48,000
Allowance for Doubtful Accounts 9,000
Accounts Payable 120,000
Accrued Salaries Payable 9,600
K, Capital 462,600
To record initial investment of K
in the J&K Partnership

#3:

A.)

J K
Unadjusted Capital (refer to 1a) P372,000 P432,000
Adjusted Capital (refer to 3b) 348,600 462,600
Net Adjustments (debit)/credit (P23,400) P30,600

B.)

ADJUSTED CAPITAL OF J ADJUSTED CAPITAL OF K

Unadjusted capital of J…….………. P 372,000 Unadjusted capital of K..……………...P432,000
Add(deduct): adjustments: Add(deduct): adjustments:
a. Worthless merchandise……. .( 12,000) a. Merchandise revaluation…….. 6,000
b. Worthless accounts…………. ( 7,200) b. Worthless accounts…………… .( 3,000)
c. Rent income……………….…. 12,000 c. Salaries…………….…….……….. ( 9,600)
e. Office supplies expense……. ( 8,400) d. Interest income………………….. 1,200
f. Additional depreciation…… ( 6,000) g. Additional depreciation……… ( 12,000)
h. Interest expense……………… ( 1,800) h. Patent………….……….…………. 48,000
Adjusted capital of J………………… P348,600 Adjusted capital of K….……………….. P462,600
C.)
Dr Cr
Accounts Payable 120,000
 J, Capital 120,000
To record additional investment

#4:
JK PARTNERSHIP
Statement of Financial Position
For the month ended Oct 1, 20x4
ASSETS

Current Assets:
Cash P 144 ,000
Accounts Receivable P 396,000
Allowance for Doubtful Accounts (21,000) 375,000
Accrued Interest Receivable 1,200
Accrued Rent Receivable 12,000
Notes Receivable 60,000
Merchandise Inventory 330,000
Office Supplies 24,000
Total Current Asset 946,200

Noncurrent Assets:
Equipment P 120,000
Accumulated Depreciation - Equipment (60,000) P 60,000
Furniture and Fixtures 144,000
Accumulated Depreciation - F & F (36,000) 108,000
Patent 48,000
Total Noncurrent Asset 216,000

TOTAL ASSETS P1,162,200

LIABILITIES AND PARTNER’S EQUITY

Current Liabilities
Accounts Payable P 159,600
Accrued Salaries Payable 9,600
Notes Payable 60,000
Accrued Interest Payable 1,800
Total Liabilities 231,000

Partner’s Equity
J, Capital P 468,600
K, Capital P 462,600
Total Partner’s Equity 931,200

TOTAL LIABILITIES AND PARTNER’S EQUITY P1,162,200