BAUTISTA, MIKYLAH JANE R.

BSMA 1 – 9

PRACTICE EXERCISES

A. A condensed statement of financial position prepared for the AA partnership, owned by

Alma and A], on October 31, 2022, is shown below. Alma and Aj invited Alona to their
partnership. Alma and Aj have divided profits and losses in the ratio of 3:2, respectively. This
ratio will continue between the two after the admitting Alona. Then, the new partnership will
have a profit and loss ratio of Alona, 50%; Alma, 30%, and AJ, 20%.

AA Partnership
Statement of Financial Position
October 31, 2022
Current Assets P1,440,000
Property and Equipment 3,360,000
Total Assets P4,800,000
Liabilities P1,280,000
Alma, Capital 2,240,000
AJ, Capital 1,280,000
Total Equity P4,800,000

1. Alona purchases one-half equity in the partnership from Alma and AJ for P2,200,000.
Payment is to be made directly to Alma and A]. Alma and AJ each will retain one-half of
their respective equities and transfer the other half of their equities to Alona. P1,780,000

Alona purchase ½ of the equity of Alma for 2,200,000

Alma, Capital ---- 2,240,000 x 1/2 1,120,000

Alma, Capital 1,120,000

Alona, Capital 1,120,000

Alona purchase ½ of the equity of AJ for 2,200,000

 AJ, Capital ---- 1,280,000 x 1/2 640,000

AJ, Capital 640,000

Alona, Capital 640,000

2. Alona invests P4,000,000 to the partnership receiving 50% interest in the partnership.
P4,000,000

Alona invests P4,000,000 for a 50% interest

Computations:

New partner’s contribution 4,000,000

Divide by equity of the new partner 50%

Total partnership capital after the admission of the 8,000,000

new partner (Agreed capital)

Multiply by equity of new partner 50%

Capital credit of new partner upon admission 4,000,000

Less: New partner’s contribution (4,000,000)

Bonus 0

Entry to record the admission of the new partner

Cash 4,000,000

Alona, Capital 4,000,000

3. Alona invests P4,000,000 in the partnership receiving 50% interest. The amount of Alona's
investment implies that the property, plant, and equipment were carried at less than their
fair values.

Capital Credit to Alona 4,000,000

Divided by Alona’s proportionate share in equity 50%

Net assets after Alona’s admission 8,000,000

Less: Carrying value, before adjustment to its fair value 7,520,000

Undervaluation in partnership assets 480,000

Entry to record bonus to the old partners:

Alona, Capital 240,000

Alma, Capital 144,000

AJ, Capital 96,000

4. Alona invests P2,400,000 in the partnership and receives 50% interest in Capital and
income. All partnership assets and liabilities are fairly valued.

Old partner’s capital 3,520,000

Add: New partner’s contribution 2,400,00

Total partnership capital after admission 5,920,000

Multiply by interest 50%

Capital credit of the new partner 2,960,000

Less: New partner’s contribution 2,400,000

Bonus to new partner 560,000

Entry to record bonus to the new partners

Alma, Capital 336,000

AJ, Capital 224,000

Alona, Capital 560,000

5. Alona invests P2,880,000 in the partnership and receives 50% interest in Capital and profit.
The bonus to Alona will be charged against Alma and Al in the ratio of 3:2, respectively.

Old partner’s capital 3,520,000

Add: New partner’s contribution 2,880,000

Total partnership capital after admission 6,400,000

Multiply by interest 50%

Capital credit of the new partner 3,200,000

Less: New partner’s contribution 2,880,000

Bonus to new partner 320,000

Entry to record bonus to the new partners

Alma, Capital 192,000

AJ, Capital 128,000

Alona, Capital 320,000

 B. Red and White are partners who share profits and losses in the ratio of 7:3,
respectively. On June 30, 2022, their capital accounts were as follows: Red, P2,800,000;
White, P2,400,000. They agreed to admit Blue as a partner with a one-third interest in
the Capital and profits upon his investment of P2,000,000. All partnership assets and
liabilities are fairly valued.

6. Immediately after Blue's admission, what are the capital balances of Red, White, and Blue,
respectively?

Old partner’s capital 5,200,000

Add: New partner’s contribution 2,000,000

Total partnership capital after admission 7,200,000

Multiply by interest of the new partner 1/3

Capital credit of the new partner 2,400,000

Less: New partner’s contribution 2,000,000

Bonus to new partner 400,000

Entry to record bonus to the new partners

Red, Capital 280,000

White, Capital 120,000

Blue, Capital 400,000

 C. Daisy wishes to purchase one-fourth interest in the Capital and profits in the
partnership of Mickey, Minnie, and Donald. The three partners agreed to sell one-fourth
of their respective capital and profit and loss interests for a total payment of
P1,600,000. The capital accounts and the individual percentage interests in the profits
and losses immediately before the sale to Daisy follow:

Capital Share in Profit or Loss

Mickey P3,200,000 40%

Minnie 1,600,000 30%

Donald 800,000 30%

7. What should be the capital balance of Mickey, Minnie, Donald, and Daisy, immediately
after Daisy's admission?

Mickey capital ---- 3,200,000 x 1/4 = 800,000

Minnie capital ----- 1,600,000 x 1/4 = 400,000
Donald capital ------- 800,000 x 1/4 = 200,000
Capital to be transferred to Daisy---- = 1,400,000
Purchase price --------------------------- P1,600,000

The difference of 200,000 is personal gain of Mickey, Minnie, and Donald.

The entry to record the transfer of capital from Mickey, Minnie, and Donald to Daisy is:
Mickey, Capital 800,000

Minnie, Capital 400,000

Donald, Capital 200,000

Daisy, Capital 1,400,000

The capital balances after the admission of Daisy to the partnership

Mickey ------------ 2,400,000

Minnie ------------ 1,200,000

Donald ----------- 600,000

Daisy ------------- 1,400,000

Total: 5,600,000

8. What is the new profit and loss ratio between Mickey, Minnie, Daisy, and Donald?

Mickey ------------ 30% (40% x 25% = 30%)

Minnie ------------ 22.5% (30% x 25% = 22.5%)

Donald------------ 22.5% (30% x 25% = 22.5%)

Daisy ------------- 25% (5,600,000 x 25% = 1,400,000)

Total -------------- 100%

D. A partnership admitted Bobot, who invested P1,600,000 cash for a 25% interest.

9. If the total Capital of the partnership is P5,600,000 before admitting Bobot, how much is
the bonus to Bobot? P200,000

Old partner’s capital 5,600,000

Add: New partner’s contribution 1,600,000

Total partnership capital after admission 7,200,000

Multiply by interest of the new partner 25%

Capital credit of the new partner 1,800,000

Less: New partner’s contribution 1,600,000

Bonus to new partner 200,000

 E. Jack and Poy are partners who share profits and losses in the ratio of 60:40,
respectively. On December 31, 2022, the capital balances of Jack and Poy were
P3,200,000 and P2,800,000, respectively. On that date, they agree to admit Hoy as a
partner with a 30% capital interest.

10. If Hoy invests P2,000,000 in the partnership, what is Jack's capital balance immediately
after Hoy's admission?

Old partner’s capital 6,000,000

Add: New partner’s contribution 2,000,000

Total partnership capital after admission 8,000,000

Multiply by interest of the new partner 30%

Capital credit of the new partner 2,400,000

Less: New partner’s contribution 2,000,000

Bonus to new partner 400,000

Entry to record bonus to the new partners

Jack, Capital 240,000

Poy, Capital 160,000

Hoy, Capital 400,000

3,200,000 - 240,000 = P2,960,000

11. If Hoy invests P3,200,000 in the partnership, how much is Poy's capital balance
immediately after Hoy's admission?

Old partner’s capital 6,000,000

Add: New partner’s contribution 3,200,000

Total partnership capital after admission 9,200,000

Multiply by interest of the new partner 30%

Capital credit of the new partner 2,760,000

Less: New partner’s contribution 3,200,000

Bonus to new partner (440,000)

Entry to record bonus to the new partners

Jack, Capital 264,000

Poy, Capital 176,000

Hoy, Capital 440,000

2,800,000 + 176,000 = P2,976,000

F. B, C, and Dare partners sharing profits and losses in the ratio of 3:2:1, respectively. On
December 31, B decided to withdraw from the partnership. The capital balances on
this date after dividing profit for the year are B, P346,000; C, P213,000; and D, P133,000.
The partners agreed that B should receive P400,000 for his interest.

12. Assume that the partnership recognized the excess amount paid to B as a bonus. What
would be the capital balances of C and D after B's retirement?

- C’s Capital = 177,000

- D’s Capital = 115,000
 Capital Contribution Bonus Agreed Capital

B 346,000 (346,000) 0

C 213,000 (36,000) 177,000

D 133,000 (18,000) 115,000

Total 692,000 (400,000) 292,000

C D

Equity of Retiring Partner 346,000 346,000

Less: Retirement Price (400,000) (400,000)

Bonus to remaining partner (54,000) (54,000)

Profit and Loss ratio (2:1) 2/3 1/3

Bonus to remaining partner (36,000) (18,000)

13. Assume that the partnership assets are fairly valued and that B received P310,000. What
would be the capital balances of C and D immediately after B's retirement?

- C’s Capital = 237,000

- D’s Capital = 145,000

Capital Contribution Bonus Agreed Capital

B 346,000 (346,000) 0

C 213,000 24,000 177,000

D 133,000 12,000 115,000

Total 692,000 310,000 292,000

C D

Equity of Retiring Partner 346,000 346,000

Less: Retirement Price 310,000 310,000

Bonus to remaining partner 36,000 36,000

Profit and Loss ratio (2:1) 2/3 1/3

Bonus to remaining partner 24,000 12,000

G. Howard and Ivan are partners with capital balances of P300,000 and P250,000, sharing
profits and losses 3:1, respectively. They agreed to admit Jasper as a partner. Jasper
invests P150,000 for a 40% interest in the firm.

Howard and Ivan transfer part of their capital to Jasper as a bonus.

14. What would be the capital balances of the partners after Jasper's admission?

Old partner’s capital 550,000

Add: New partner’s contribution 150,000

Total partnership capital after admission 700,000

Multiply by interest of the new partner 40%

Capital credit of the new partner 280,000

Less: New partner’s contribution 150,000

Bonus to new partner 130,000

Entry to record bonus to the new partners

Howard, Capital 97,500

Ivan, Capital 32,500

Jasper, Capital 130,000

Howard capital: 300,000 – 97,500 = P202,500

Ivan capital: 250,000 – 32,500 = P217,500

Jasper capital = P280,000

 H. Cordova and Decena are partners who share profits and losses equally. The capital
accounts of Cordova and Decena are P90,000 and P60,000, respectively. Eleria joined
the firm and invested P70,000 for a ¼ interest in the firm's Capital.

15. What should be the balances in the capital - accounts of Cordova and Decena after
Eleria's admission?

Old partner’s capital 150,000

Add: New partner’s contribution 70,000

Total partnership capital after admission 220,000

Multiply by interest of the new partner 1/4

Capital credit of the new partner 55,000

Less: New partner’s contribution 70,000

Bonus to new partner (15,000)

Entry to record bonus to the new partners

Cordova, Capital 7,500

Decena, Capital 7,500

Eleria, Capital 15,000

Cordova capital: 90,000 + 7,500 = P97,500

Decena capital: 60,000 + 7,500 = P67,500

Eleria capital = P55,000