PARTNERSHIP FORMATION

1. Lyra and Jhim formed a partnership. Lyra invested cash worth 85,000 and a machine. On the other
hand, Jhim contributed cash worth 55,000 and equipment which has a mortgage of 35,000 which Jhim
will pay personally. The total capital after the formation was 360,000. They also agreed to reflect 55:45
ratio as to their capital balances respectively. No other investment or withdrawal occurred other than
mentioned above to reflect their capital ratio agreement.
How much is the fair value of the machine?
How much is the fair value of the equipment?

2. A, B, and C decided to form ABC partnership. It was agreed that A will contribute equipment with
assessed value of 100,000 with historical cost of 800,000 and accumulated depreciation of 600,000. A day
after the partnership formation, the equipment was sold for 300,000. B will contribute a land and
building with carrying amount of 1,200,000 and fair value of 1,500,000. The land and building are subject
to a mortgage payable amounting to 300,000 to be assumed by the partnership. The partners agreed that
B will have 60% capital interest in the partnership. The partners also agreed that C will contribute
sufficient cash to the partnership.
Total agreed capitalization of ABC Partnership?
Amount of the investment (equipment) of A?
Amount of cash contributed by C?

3. Carlo admits David as partner in his business. Accounts in the ledger for Carlo on June 30, 2013, just
before the admission of David, show the following balances:
Cash 68,000
Accounts receivable 142,000
Merchandise Inventory 200,000
Accounts payable 80,000
Carlo, Capital 330,000
It is agreed that for purposes of establishing Carlo’s interest the following adjustments shall be made.
a. An allowance for doubtful accounts of 3% of accounts receivable is to be established
b. The merchandise inventory is to be valued at P230,000
c. Prepaid expenses of P12,260 and accrued expenses of P8,000 are to be recognized.
David is to invest sufficient cash to obtain a 1/3 interest in the partnership. How much is
the cash investment of David?

4. A admits B as a partner in business. Accounts in the ledger for A on November 30, 2019, just before the
admission of B, shows the following balances:
Cash 52,000
Accounts receivable 140,000
Merchandise inventory 360,000
Accounts payable 124,000
A, Capital 428,000
It is agreed that for the purposes of establishing A’s interest the following adjustments should be made:
a. An allowance for doubtful accounts of 5% of accounts receivable is to be established.
b. The merchandise inventory is to be valued at P250,000
c. Prepaid expenses of P10,000 and accrued liabilities of P 12,000 are to be established.

Assuming A’s capital at the time of formation is 25% more from the capital credited of B
and such that the cash invested by B is equal to the cash invested by A, what is the value of
the non-cash asset contributed by B?
5. On August 1, 2016, Ralph admits Lauren for an interest in his business. On this date, Ralph's capital
account shows a balance of P980,000. The terms and agreement of the partners before formation follow:
a. Ralph's outstanding accounts receivable were P420,000, with related allowance for uncollectible
of P20,000. An assessment of collectability of the receivables indicates that 80% of the balance is
collectible.
b. The credit balance of P24,000 in the Unearned Interest account in the books of Ralph represents
interest collected in advance for six months starting on June 1, 2016. Of this amount, P8,000 has
already been earned as of August 1, 2016.
c. A count of supplies revealed unused supplies approximating P10,000 which were not recognized
in the books of Ralph, since the entire amount of supplies purchased during the year was charged
to supplies expense.
d. Inventory valuation of Ralph should be increased by P80,000.
e. Equipment account of Ralph should be depreciated by an additional P50,000.
Lauren is to invest cash equal to 1/4 of the total partnership capital. The new capital is based on the
adjusted capital of Ralph.
What is Ralph's adjusted capital balance?
What is the total partners' equity immediately after the formation of the partnership?
How much cash did Lauren invests in the partnership?

6. On July 25, 2018 Sarah and Matteo decided to form a partnership. Below is the Statement of Financial
Position of Sarah on June 30, 2018:
Assets Liability and Equity
Cash 800,000 Accounts Payable 3,000,000
Accounts Receivable 2,400,000 Notes Payable 5,000,000
Merchandise Inventory 4,000,000 Sarah, Capital 6,400,000
Equipment 7,200,000

They agreed on the following at the date of formation:

The Accounts Receivable is 88% collectible.
The current fair value of the Merchandise Inventory is 4,800,000.
Equipment is overvalued by 600,000.
Prepaid expenses of 275,000 and accrued expenses of 125,000 are to be recognized.
Matteo will invest sufficient cash for a 20% interest in the partnership.
How much is the adjusted capital of Sarah on July 25, 2018?
How much cash will Matteo invest?
What is the total amount of cash at the date of formation?
What is total amount of assets at the date of formation?
PARTNERSHIP OPERATION

1. The partnership contract for Hanes and Jones Partnership provides that Hanes is to receive a bonus of
20% of net income (after the bonus) and that the remaining net income is to be divided equally. If the
partnership income before the bonus for the year is ₱57,600.
Hanes’ share of this pre-bonus income is:

2. A, B and Z formed a partnership on April 1, 2019 with the following investments:

A – P 500,000 B – P 600,000 C – P 700,000
During the year, the following transactions took place:
Additional investment- A – P 100,000
Withdrawals – B – P 150,000 ; C – P 100,000
The partnership has a credit balance in the income summary account of P 120,000 as of December
31,2019. The profit and loss agreement of the ABC Partnership contains the following:
• 10% interest is to be paid on that portion of a partner’s ending capital balance in excess of P500,000.
• Partner B is to receive a bonus equal to 10% of partnership income after interest and salaries.
• Annual salaries of P 24,000 and P 36,000 are to be paid to partners A and C, respectively.
• Balance is to be divided equally.
How much is the net increase/(decrease) in the capital of A during the year?
how much is the capital balance of C as of December 31,2019?

3. Cleary, Wasser, and Nolan formed a partnership on January 1, 2017, with investments of ₱100,000,
₱150,000, and ₱200,000, respectively. For division of income, they agreed to
(1) interest of 10% of the beginning capital balance each year.
(2) annual compensation of ₱10,000 to Wasser, and
(3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and
Nolan.
Net income was ₱150,000 in 2017 and ₱180,000 in 2018. Each partner withdrew ₱1,000 for personal use
every month during 2017 and 2018.

What was Wasser's share of income for 2017?

what was Wasser's share of income for 2018?

4. Yeng, Rachelle and Sarah are partners in YRS Partnership with P/L ratio 25%, 25%, and 50%,
beginning balances of 500,000, 750,000 and 1,000,000 respectively. During the current year, Income
statement shows:
Net sales 2,000,000
Operating expense (including salaries and interest) 1,250,000
Net Income 750,000
Partnership agreement includes the following:
➢ 10% interest on beginning capital balances
➢ Annual salaries of 45,000, 50,000, 96,000 to Yeng, Rachelle and Sarah respectively;
➢ Bonus of 20% to Yeng based on total partnership net income.
How much is the partnership income to be allocated to the partners?
How much is the share of partner Yeng in the partnership income?
How much is the share of partner Rachelle in the partnership income?
How much is the share of partner Sarah in the partnership income?
 PARTNERSHIP DISSOLUTION

1. Lucas, Juan, and Pablo are partners with a capital balances of P180,000, P100,000, and P120,000,
respectively. Timoteo is admitted into the partnership with a one-fourth interest upon payment of
P160,000. Before admission of Timoteo, a profit of P 20,000 is not yet distributed to the partners. If the
old partners share profits and losses in the ratio of 2/5, 2/5, and 1/5, then the capital account of Lucas
after the admission of Timoteo will show a balance of?

2. In the AD partnership, Allen's capital is ₱140,000 and Daniel's is ₱40,000 and they share income in a
3:1 ratio, respectively. They decide to admit David to the partnership. Allen and Daniel agree that some of
the inventory is obsolete. The inventory account is decreased before David is admitted. David invests
₱40,000 for a one-fifth interest. What is the amount of inventory written down?

3. A and B are partners with capital balances of 30,000 and 70,000 respectively. A has a 30% interest in
profits and losses. At this time, the partnership has decided to admit C and D as new partners. C
contributes cash of 55,000 for a 20% interest in capital and a 30% interest in profits and losses. D
contributes cash of 10,000 and equipment for a 25% interest in capital and 35% interest in profits and
losses. If bonus amounting to 18,250 is given to old partners, what is the amount debited to the
equipment contributed by D?

4. Pedro contributes P120,000 for a one-sixth interest in a partnership. The total capital balances of the
partners prior to the admission of Pedro is P360,000. If no asset revaluation is made prior to the
admission of Pedro, what amount is credited to the capital account of Pedro upon his admission?

5. The capital balances of partners Lim and Jan before the admission of Wan were P 200,000 and
P300,000, respectively. Wan invested a certain amount for a 25% interest in the partnership. As a result
of his admission, the old partners received a bonus of P 25,000. How much did Wan invest for his 25%
interest in the partnership?

6. B1 and B2 are partners in a retail business and divide profits 60% to B1 and 40% to B2. Their capital
balances at December 31,2018 are as follows:
B1 – P180,000
B2 - P180,000
Total – P360,000
The partners agree to admit B3 into the partnership on January 2,2019. B3 purchases 1/3 interest in the
partnership capital and profits directly from B1 and B2 for P 150,000.
Assuming the assets of the partnership are not fairly valued, determine the capital balance of B1
immediately after admission of B3.
7. E and C have capital balances of P200,000 and P220,000 respectively before the admission of 2020
Miss Universe, J. The profits and loss agreement was 35:65. J was to be admitted for 40% interest in the
Mamshies Partnership and 20% in the profits and losses by contributing a used machine which had a cost
of P205,000 and an appraised value of P180,000. After admission of J, E and C agreed to share profits and
losses equally. At the end of the year, the new partnership generated net income of P130,000.
How much is the capital balance of C after the admission of J?

8. Pal and Mall are partners with capitals P400,000 and P200,000 sharing profits and losses 3:1,
respectively. They agree to admit Kent as partner. Kent invest P300,000 for a 50% interest in the firm. Pal
and Mall transfer part of their capitals to Kent as a bonus. What is the capital balance of the partner Mall
after Kent’s admission is?

9. On December 31, 2018, ABC partnership’s Balance Sheet shows that A, B and C have capital balances of
500,000, 300,000 and 200,000 with profit or loss ratio of 1:3:6. On January 1, 2-19, C retired from the
partnership and received 350,000. At the time of C’s retirement, an asset of the partnership is
undervalued. What is the capital balance of A after the retirement of C?

10. Andres and Santiago form a partnership and have capital balances of P100,000 and P200,000,
respectively. If they agree to admit Felipe into the partnership, how much will he have to invest to have a
one-third interest?
PARTNERSHIP LIQUIDATION

1. Andres, Tomas and Moises are partners of ATM partnership. They decided to liquidate on March
31 of the current year. On this date, they have non- cash assets of P530,000 and liabilities of P250,
000, including loan payable to Moises of P50,000. Andres, Tomas and Moises have capital balances
of P80,000, P130,000 and P90,000, respectively. Profits and loss are shared 3:3:4 for Andres, Tomas
and Moises. All partners are solvent. Determine the total loss on realization if Moises received
P25,000 in final settlement.

2. Partners A, B and C have capital balances of 300,000, 400,000 and 500,000 , respectively before
liquidation and they share in the profits/ losses equally. The partnership has a loan payable to A of
15,000. The non-cash assets has a book value of 1,100,000.
Assuming the proceeds received from the realization is 50,000 and all the partners are not
insolvent, how much will A receive in final distribution of remaining cash?

Assuming the proceeds received from the realization is 50,000 and all the partners not
solvent, how much will B receive in final distribution of remaining cash?

3. On June 30,2019, ABC partnership shows that A, B and C have capital balances after profit or loss of
500,000, 300,000 and 200,000 with profit or loss ratio of 1:3:6. Loss incurred from January 1- June 30,
2019 is P 150,000. Before liquidation, the partnership has P 150,000 of total liabilities. The partnership
has a payable to B of P 30,000 and C of 10,000. The cash balance before liquidation is 20% of the
proceeds received from the realization of the non-cash assets. A and B are insolvent while C is personally
solvent.
If the cash balance after realization of the non-cash assets is P 600,000, how much did B
received in settlement of his total interest?

If the cash balance after realization of the non-cash assets is P 600,000, how much is the
share of C in the loss on realization?

If the cash balance after realization of the non-cash assets is P 600,000, how much did A
receive in the final distribution of his interest?

4. The partnership of Capricorn ended its operations and is now in the process of liquidation. All assets
except some pieces have been sold. The general ledger balance are as follows:
Debit Credit
Cash 216,000
Equipment, net 883,200
Liabilities 292,800
Francis, Capital (30%) 345,600
Janus, Capital (50%) 268,800
Lester, Capital (20%) 192,000
How much should Francis receive in the final settlement of his equity?

How much should Janus receive, if included in the liabilities is P48,000 loan payable to
Janus?

Assume that Francis was insolvent and that the equipment was sold for only 20% of its
carrying value. How much How much cash did Lester receive in the final settlement of his
equity?