Problem 1

On June 1, 2019, Clavis and Cularlus formed a partnership. Clavis is to invest assets at a fair value which are yet to be agreed
upon. She is to transfer her liabilities and is to contribute sufficient cash to bring her total capital to P210 000 which is 70%
of the total capital of the partnership. Details regarding the book values of Clavis’ business assets and liabilities and their
corresponding valuations are:

Cularlus agrees to invest cash of P42,000 and merchandise valued at current market price. The value of the merchandise to
be invested by Cularlus and the cash to be invested by Clavis are:

Problem 2

On July 1, 2020, OO and PP decided to form a partnership. The firm is to take over business assets and assume liabilities,
and capitals are to be based on net assets transferred after the following adjustments:

a. OO and PP’s inventory is to be valued at P31,000 and P22,000, respectively.

b. Accounts receivable of P2,000 in OO books and P1,000 in PP’s books are uncollectible.
c. Accrued salaries of P4,000 for OO and P5,000 for BB are still to be recognized.
d. Unused office supplies of OO amounted to P5,000 while that of PP amounted to P1,500.
e. Unrecorded patent of P7,000 and prepaid rent of P4,500 are to be recognized in the books of OO and PP, respectively.

f. OO is to invest or withdraw cash necessary to have a 40% interest in the firm.

Balance sheets for OO and PP on July 1, 2020 before adjustments are given below:
Requirements:
a. Prepare all necessary entries if new sets of books will be used

b. Determine:
1. Net adjustments- capital in the books of OO and PP
OO PP
Capital after Adjustment 77,000 93,000
Capital before Adjustment 72,000 100,000
Net adjustment - Increase/(Decrease) 5,000 - 7,000

2. Adjusted capital of OO and PP in their respective books

OO PP
Adjusted Capital - -

3. Additional investment or withdrawal made by OO

PP, Capital 93,000

Divided by: 60% / 60%
Total Agreed Capital of the partnership 155,000
Multiply by: 40% x 40%
Total Agreed Capital of OO 62,000
Unadjusted Capital of OO 77,000
Withdrawal made by OO 15,000

4. Total assets of the partnership after formation -

5. Total liabilities of the partnership after formation -

Problem 3
XX and YY decided to form a partnership on May 1, 2019. The assets contributed by the partners are:
XX YY
Book Value Fair Value Book Value Fair Value
Cash 375,000 375,000 875,000 875,000
Merchandise Inventory 95,000 125,000
Furniture and Fixtures 350,000 312,500 872,500 937,500
Transportation equipment 3,262,500 2,812,500

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 XX and YY 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 YY capital as base, how much additional cash is to be
invested (withdrawn) by XX?
30% and 70% respectively. Assuming that the partners agreed to bring their respective capital in
proportion to their profit and loss ratio, using YY capital as base, how much additional cash is to be
invested (withdrawn) by XX?

Problem 4

On February 14, 2019, Matt and Jeff agreed to invest equal amounts and share profits euqally to
form a partnership. Matt invested P780,000 and a piece of equipment. Jeff invested some assets
which are shown below:

Accounts Receivable 100,000 Machineries, net 560,000

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 unsucessfully defended the case and the final decision of the court was released
on February 12, 2019.

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

Problem 5 1)

On June 30, 2019, Maria, the sole proprietor of Maria Enterprises, expands the company and
establishes a partnership with Cherry and Grace. The partners plan to share profits and losses as
follows: Maria, 50%; Cherry, 25%; and Grace, 25%. They also agree that the beginning capital
balances of partnership will reflect this same relationship.

Cherry is to contribute 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. Grace is contributing P66,000 and 2)
marketable securities costing P252,000 but are currently worth P345,000.

Maria's investment in the partnership is her business. She plans to pay off the notes with her
personal assets. The other partners have agreed that the partnership will assume the accounts
payable. The balance sheet for the Maria Enterprises follows:

Balance Sheet
June 30, 2019
Assets Liabilities
Cash 60,000 Accounts payable 318,000
Accounts receivable (net) 288,000 Notes payable 372,000
Inventory 432,000 Maria, Capital 510,000
Equipment-net (dep'n, P120k) 420,000

The partners agree that the inventory is worth P510,000, and the equipment is worth half of its
original cost, and the allowance established for doubtful accounts is correct.

Required:
1. How much is the agreed capital of Maria if the partners agree to use the bonus
method to record the formation?
2. How much is the agreed capital of Cherry if the partners agree to use the goodwill
approach to record the formation?
 Clavis (70%) Cularlus (30%)
Accounts Receivable 58,000
hich are yet to be agreed AFDA - 5,000
P210 000 which is 70% Merchandise Inventory 107,000 48,000
d liabilities and their Store equipment 32,000
Acc. Dep'n - Store Eqpt. - 16,400
Office Eqpt. 27,000
Acc. Dep'n - Office Eqpt. - 8,600
Accounts Payable - 56,000
Unadjusted Balance 138,000
Cash invested 72,000 42,000

Adjusted 210,000 90,000 *(210,000/70% x 30%)

300,000

Clavis (70%) Cularlus (30%)

Beg. 138,000 42,000
e of the merchandise to
Cash investment 72,000
Mdse. 48,000
Adjusted Balance 210,000 90,000

Requirement A:
nd assume liabilities,
Books of OO: Books of PP:

and PP, respectively.

 XX (30%) YY (70%)
Cash 375,000 875,000
Merchandise Inventory 125,000
Furniture and Fixtures 312,500 937,500
Transporation Equipment 2,812,500
Mortgage Payable 1,125,000
Capital 812,500 3,500,000
Additional Cash Investment 687,500
Total Capital 1,500,000 3,500,000

To compute for Total Agreed Capital: (3,500,000 ÷ 70%) 5,000,000

 Matt Jeff
Beginning 780,000 1,170,000
AR - 8,000
Inventory - 20,000
Machineries 336,000 - 12,000
Intangibles - 14,000
Adjusted Capital 1,116,000 1,116,000

Jeff, Capital 8,000 Jeff, Capital 14,000

AR 8,000 Intangibles, net 14,000

Jeff, Capital 20,000

Inventory 20,000

Jeff, Capital 12,000

Machineries, net 12,000

Bonus Method: (Contributed Capital = Agreed Capital)

Maria (50%) Cherry (25%) Grace (25%) Total
Beginning 510,000 168,000 411,000 1,089,000
Notes Payable 372,000 372,000
Inventory 78,000 78,000
Equipment - 150,000 - 150,000
Adjusted 810,000 168,000 411,000 1,389,000
Distribution of Bonus - 115,500 179,250 - 63,750 -
Agreed capital 694,500 347,250 347,250 1,389,000
M, Capital 115,500
G, Capital 63,750
C, Capital 179,250
Goodwill Method: (Contributed Capital < Agreed Capital)
Maria (50%) Cherry (25%) Grace (25%) Total
Beginning 510,000 168,000 411,000 1,089,000
Notes Payable 372,000 372,000
Inventory 78,000 78,000
Equipment - 150,000 - 150,000
Adjusted 810,000 168,000 411,000 1,389,000
Adjustment 12,000 243,000 - 255,000
Agreed capital 822,000 411,000 411,000 1,644,000

Computation of Total Agreed Capital:

Maria, Capital (810,000 / 50%) 1,620,000

Cherry, Capital (168,000/25%) 672,000
Grace, Capital (411,000/25%) 1,644,000

Assets = Liabilities + Capital

1,200,000 690,000 510,000

- 372,000 +372000

372,000 372,000
- 372,000 - 372,000

Assets 255,000
M, Capital 12,000
C, Capital 243,000
Books of PP: