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Partnership Exercises

Partnership Formation

[1].Emil and Pearl form a new partnership. Emil invests P300,000 in cash for her 60 percent
interest in the capital and profits of the business. Pearl contributes land that has an original
cost of P40,000 and a fair market value of P70,000, and a building that has a tax basis of
P50,000 and a fair value of P90,000. The building is subject to a P40,000 mortgage that the
partnership will assume. What amount of cash should Pearl contribute?

a. P40,000
b. P80,000
c. P110,000
d. P15,0000

[2].The Green and Red partnership was formed on January 2, 2011. Under the partnership
agreement, each partner has an equal initial capital balance accounted for under the goodwill
method. Partnership net income or loss is allocated 60% to Green and 40% to Red. To form the
partnership, Green originally contributed assets costing P30,000 with a fair value of P60,000 on
January 2, 2011, and Red contributed P20,000 in cash. Drawings by the partners during 2011
totaled P3,000 by Green and P9,000 by Red. The partnership’s 2011 net income was P25,000.
Red’s initial capital balance in the partnership is:

a. P20,000.
b. P25,000.
c. P40,000.
d. P60,000.

[3].Pirante and Wilson drafted a partnership agreement that lists the following assets contributed
at the partnership’s formation:

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Contributed by

Pirante Wilson

Cash P40,000 P60,000

Inventory - 30,000

Building - 80,000

Furniture and equipment 30,000 -

The building is subject to a mortgage of P20,000, which the partnership assumed. The
partnership agreement also specifies that profits and losses are to be distributed evenly. What
amounts should be recorded as capital for Pirante and Wilson at the formation of the
partnership?

a. P70,000 and P170,000, respectively.

b. P70,000 and P150,000, respectively.

c. P110,000 for each partner.

d. P120,000 for each partner.

[4].
AA and Belen formed a partnership and they agreed to share initial capital equally, although AA
contributed P150,000 and Belen contributed P126,000 in identifiable assets. Under the bonus
approach to adjust the capital accounts, Belen received (gave) a bonus equal to:

a. P24,000

b. P12,000

c. (P24,000)

d. (P12,000)

[5]. AA, BB, and CC are to form a partnership. AA is to contribute cash of P100,000; BB,
P10,000; and, CC, P100,000. AA and CC are not to actively participate in the business but will
refer customers, while BB will manage the firm.
BB has to give up his present job which gives her an annual income of P120,000. The partners
decided that profits and losses shall be shared equally. Upon formation, partners’ capital
balances would be:
a. P 70,000, P 70,000, and P 70,000, respectively.

b. P100,000, P10,000, and P100,000, respectively.

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c. P100,000, P130,000, and P100,000, respectively.

d. P110,000, P110,000, and P110,000, respectively.

[6]. Brenda and Cathy formed a partnership and agreed to divide initial capital equally, even
though Brenda contributed P200,000 and Cathy contributed P168,000 in identifiable assets.
Under the bonus approach to record the contributions of the partners, Cathy’s capital account
should be credited for
a. P200,000. c. P184,000

b. P168,000. d. P100,000

[7]. On May, 31, 2011, Allen, Belen, and Cenen formed a partnership by combining their
businesses. Allen give cash of P50,000. Belen gave a property with a carrying amount of
P30,000, an original cost of P40,000, and a fair market value of P80,000. Belen’s property,
however, has a P35,000 mortgage for which the new partnership accepted legal responsibility.
Cenen gave a delivery equipment with a book value of P30,000, an acquisition cost of P75,000,
and an appraised value of P55,000. It was agreed that profits and losses are to be shared
equally. The partner with the biggest capital account balance as of May 31, 2011, is

a. Allen

b. Belen

c. Cenen

d. Allen have equal capital balance.

[8]. Abel and Carr formed a partnership and agreed to divide initial capital outlay equally,
even though Abel contributed P100,000 and Carr contributed P84,000 in identifiable assets.
Under the bonus approach to adjust the capital accounts, Carr’s unidentifiable asset should be
debited for

a. P46,000

b. P8,0000

c. P16,000

d. P-0-

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[9]. On October 1, 2011, Carla and Clara joined in a partnership. Carla contributed cash
while Clara contributed merchandise worth P25,000 and a second- hand delivery truck currently
valued at P50,000 but encumbered by a one-year chattel mortgage note for P15,000. If initial
capital balances are to conform to the profit-sharing ratio of 2:3, respectively, the amount of cash
contributed by Carla was:

a. P24,000

b. P30,000

c. P40,000

d. P50,000

[10]. AA, BB, and CC are to form a partnership. AA is to contribute cash of P100,000; BB,
P10,000, and CC, an equipment valued at P100,000. AA and CC are not to actively participate in
the business but will refer customers, while BB will manage the firm. BB has to give up her
present job which gives her an annual income of P120,000. The partners decided that profits
and losses shall be shared equally. Upon formation, assuming a chattel mortgage of P10,000 on
the equipment is assumed by the partnership, the net assets of the partnership is equal to:

a. P210,000

b. P200,000

c. P220,000

d. P330,000

[11]. On October 1, 2011, Mel and Garri pooled their assets and form a partnership, with the
firm to take over their business assets and assume their liabilities. The partner’s capitals are to
be based on net assets transferred after the following adjustments: Garri’s inventory is to be
increased by P3,000; an allowance for bad debts of P1,000 and P1,500 are to be set up in the
books of Mel and Garri, respectively; and P4,000 of accounts payable are to be recognized in
Mel’s books. The individual trial balances on October 1 show the following:

Mel Garri
Assets P113,000 P75,000

Liabilities 34,500 5,000

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Capital 78,500 70,000

What is the capital balance of Mel and Garri assuming they agree to share capital equally?

a. P65,000

b. P72,500

c. P74,250

d. P80,000

[12]. Chona and Charo formed a partnership on May 31, 2011. Chona’s contribution consisted of
her proprietorship’s net assets with current fair value of P60,000. Charo contributed enough cash to
secure a one-fourth interest in the partnership. If Chona is allowed goodwill credit equal to 20% of her
initial capital, Charo’s cash contribution was:

a. P15,000

b. P20,000

c. P25,000

d. P30,000

[13]. Flores, Peralta, and Jose are forming a new partnership. Flores will invest cash of P120,000 and
his office equipment costing P144,000 but has a market value of P60,000. Peralta is to invest cash of
P192,000 and Jose is to contribute P60,000 cash and a brand new delivery truck with a market value of
P144,000 although he bought it for only P120,000. The partners will share profits and losses in the ratio
of 25:25:50 for Flores, Peralta and Jose, respectively.

The capital balances of the partners upon formation are:

Flores Peralta Jose

a. P264,000 P192,000 P180,000

b. P180,000 P192,000 P204,000

c. P192,000 P192,000 P192,000

d. P212,000 P212,000 P211,200

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[14]. DJ and EJ, on May 31, 2011, pooled their net assets to form a partnership, with the new firm
taking over the business assets and assuming their liabilities. The partner’s capitals are to be based on
net assets transferred after the following adjustments: allowance for doubtful accounts of P1,000 and
P1,500 are to be set up on the books of DJ and EJ, respectively; EJ’s inventory is to be increased by
P3,000; and, accounts payable of P4,000

is to be recorded on DJ’s books. The individual trial balances on this date show:
DJ EJ
Assets P105,000 P113,000

Liabilities 35,000 34,500

Capital 70,000 78,500

What is EJ’s adjusted capital balance?

a. P77,000

b. P80,000

c. P81,500

d. P85,500

[15]. When property other than cash is invested in a partnership, at what amount should the non-
cash property be credited to the contributing partner’s capital account? a. Fair value at the date of
contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.

d. Contributing partner’s tax basis.

[16]. Pula invites Puti to join his business as a partner. The capital account of Pula has a credit
balance of P300,000. Puti will invest cash of P120,000 and he will be given a capital credit of 30% of the
total capital after making the following adjustments in the books of Pula:
(a) The accumulated depreciation of the equipment is to be increased by P7,500; (b) Prepaid
expenses are to be reduced by P2,400.

The capital account of Pula and Puti immediately after the formation of the partnership are:

a. P300,000 and P120,000, respectively;

b. P290,100 and P120,000, respectively;

c. P287,070 and P123,030, respectively;

d. P287,070 and P 40,000, respectively.

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[17]. On March 1, 2011, Jhan and Feb formed a partnership with each contributing the following
assets:

Jhan
Feb

Cash

P30,000 P70,000
Machinery and
Equipment 25,000

75,000

Building

225,000
Furniture and

Fixtures 10,000

The building is subject to a mortgage loan of P90,000, which is to be assumed by the partnership. The
partnership agreement provides that Jhan and Feb share profits and losses 30 percent and 70 percent,
respectively.

Assuming that the partners agreed to bring their respective capital in proportion to their respective profit
and loss ratio, and using Feb’s capital as the base, how much cash is to be invested by Jhan?

a. P19,000
b. P30,000
c. P40,000
d. P55,000

[18]. Bel, Joy, and Franco, new CPAs, are to form a partnership. Bel will contribute cash of P50,000
and his computer that originally cost P60,000 but with a second-hand value of P25,000. Joy will
contribute P80,000 in cash. Franco, whose family sells computers, will contribute P25,000 in cash and a
brand new computer with printer that cost his family’s computer dealership P50,000 but with a regular

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selling price of P60,000. The three agree to share profits and losses equally. Upon formation, capital
balances are: a. Bel, P 75,000; Joy, P80,000; and, Franco, P85,000

b. Bel, P 80,000; Joy, P80,000; and, Franco, P80,000

c. Bel, P 88,333; Joy, P88,333; and, Franco, P88,334

d. Bel, P110,000; Joy, P80,000; and, Franco, P75,000

[19]. Mark admits Jimenez as a partner in the business. Balance sheet accounts of
Mark just before the admission of Jimenez show: Cash, P26,000, accounts receivable, P120,000,
merchandise inventory, P180,000, and accounts payable P62,000. It was agreed that for purposes of
establishing Mark’s interest, the following adjustments be made:
A. An allowance for doubtful accounts of 3% of accounts receivable is to be established;

B. Merchandise inventory is to be adjusted upward by P25,000; and

C. Prepaid expenses of P3,600 and accrued liabilities of P4,000 are to be recognized.

If Jimenez is to invest sufficient cash to obtain 2/5 equity in the partnership, how much would Jimenez
contribute to the new partnership?

a. P176,000
b. P190,000
c. P 95,000
d. P113,980

[20]. The balance sheet as of July 31, 2011 for the business owned by Gloriants shows the following
assets and liabilities:

Cash

P 2,500

Accounts
Receivable 10,000

Merchandise

Inventory 15,000
Fixture s
18,000

Accounts Payable

6,000

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It is estimated that 5% of the accounts receivables may prove uncollectible. Merchandise inventory
includes obsolete items costing P5,000 of which P2,000 might still be realized. Depreciation has never
been recorded for the fixtures which are already two years old. They have an estimated useful life of 10
years, and have a current fair value of P20,000. Cruzants is to be admitted as a partner upon his
investment of P20,000 cash and P10,000 worth of merchandise. What is the total assets of the
partnership?

a. 70,500
b. 48,000
c. 67,500
d. 74,000

Questions 21 and 22 are based on the following information:

Selected balance sheet accounts of Silvano on December 31, 2011 are shown below:

Cash P30,000
25,000
Accounts receivable

Inventory 45,000

Furniture 32,000

Accounts payable 8,000

The following adjustments are to be made before he agree to admit Pegasus as a partner in exchange for
his investment of P20,000 cash:

§ 3% bad debts should be provided.

§ The fair value of the furniture is P27,000.

§ P5,000 of the inventory is obsolete but can still be sold for P3,000.

[21]. After adjustment, how much capital should be reflected in the books of Silvano? a.
P115,250
b. P116,250
c. P124,000

d. P132,250

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[22]. How much is the total assets of the new partnership?

a. P116,250
b. P124,000
c. P124,250
d. P144,250

[23]. On September 30, 2011, Pain admits Gain for an interest in his business. On this date, Pain’s
capital account shows a balance of P158,400. The following were agreed upon before the formation of
the partnership:

1. Prepaid expenses of P17,500 and accrued expenses of P5,000 are to be recognized.

2. 5% of the outstanding accounts receivable of Lopez amounting to P100,000 is to be recognized

as uncollectibles.

3. Gain is to be credited with a one-third equity in the partnership and is to invest cash aside from
the P50,000 worth of merchandise.

The amount of cash to be invested by Gain and the total capital of the partnership are:

a. 32,950 and 248,850, respectively.

b. 55,300 and 221,200, respectively.
c. 82,950 and 248,850, respectively.
d. 32,950 and 171,200, respectively.
[24]. On May 1, 2011, July and June formed a partnership and agreed to share profits and losses in
the ratio of 3:7, respectively. July contributed a computer that cost him P50,000. June contributed
P200,000 cash. The computer was sold for 55,000 on May 1, 2011 immediately after the formation of the
partnership. What amount should be recorded in July’s capital account on formation of the partnership?

a. P55,000

b. P51,000

c. P60,000

d. P50,000

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[25]. Yellow, Orange and Violet form a partnership on May 1, 2011. They agree that Yellow will
contribute office equipment with a total fair value of P40,000; Orange will contribute delivery equipment
with a fair value of P80,000; and Violet will contribute cash. If Violet wants a one-third interest in the
capital and profits, how much should she invest? a. P 40,000
b. P 60,000
c. P120,000
d. P180,000

[26]. Wilder and Nest will pool their net assets and form a partnership, which will take over the assets
and assume the liabilities. The agreed capital of the new partnership is the total net assets to be
transferred subject to the following adjustments:

§ Wilder’s inventory is to be increased by P3,000.

§ Accounts receivable of P1,000 and P1,500 for Wilder and Nest respectively, will be written off.
§ Accrued expenses of P4,000 are to be recognized in Wilder’s books.

The unadjusted capital of Wilder is P78,500 and Nest is P70,000.

What is the capital balance of each partner assuming they agree to be equal partners?
a. P65,000
b. P72,500
c. P74,250

d. P80,000

[27]. On October 1, 2011, Clara and Maria joined in a partnership. Clara contributed cash while Maria
contributed merchandise worth P25,000 and a second– hand delivery truck currently valued at P50,000
but encumbered by a one-year chattel mortgage note for P15,000. If initial capital balances are to
conform to the profit-sharing ratio of 2:3, respectively, the amount of cash contributed by Clara was:

a. P24,000
b. P30,000

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c. P40,000
d. P50,000
Questions 28 and 29 are based on the following information about Aga-Mata Partnership:

Aga and Mata are planning to form a partnership. Aga will invest P20,000 for a 20% interest in the new
partnership. Mata will invest cash and his equipment with a market value of P50,000. They will share
profits and losses equally.

[28]. How much cash should Mata invest?

a. P30,000
b. P50,000
c. P60,000
d. P80,000

[29]. How much is the total cash investment of the partners?

a. P30,000
b. P50,000
c. P60,000
d. P80,000

[30]. Al and Macmod decide to form a partnership. The initial investments of the partners will include
cash of P120,000 for Al and P80,000 for Macmod. Al will transfer his office equipment with a book value
of P96,000 and a fair market value of P84,000 to the partnership. Macmod will transfer his land fairly

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valued at P1,000,000 and the building thereon fairly valued at P600,000. Macmod has just bought these
at a lump sum price of P1,800,000. In addition, the partnership will assume the mortgage of P400,000 on
the building.
What will be the total capital of the partnership?

a. P1,484,000
b. P1,496,000
c. P1,684,000
d. P1,946,000

ANSWERS

[1]. Letter “B” is the correct answer.

The problem implies that the contribution of Emil is already adequate to entitle him to a 60% share in the
total agreed capital of the partnership. Hence, the total agreed capitalization shall be based on his
contribution of P300,000 or P500,000 (P300,000 ÷ 60%). The agreed capital of Pearl is 40% of P500,000
or P200,000 and her cash contribution shall be equal to the difference between this amount (P200,000)
and the net fair value of the noncash assets she invested. The net fair value of the other assets
contributed by Pearl is equal to P120,000, (P70,000 + P90,000 – P40,000). Therefore, her cash
contribution should be equal to P80,000 (P200,000 – P120,000).

[2]. Letter “D” is the correct answer.

Under the goodwill method, the total agreed capital should be more than the total contributed capital.
Total agreed capital will be more than the total contributed capital only if the contribution of Green is used
as the basis of the total agreed capitalization. Since the fair value of the contribution of Green amounts

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to P60,000, then the total agreed capital must be P120,000 (P60,000 ¸ 50%). The initial capital of Red
therefore amounted to P60,000 or 50% of P120,000 as agreed by the partners.

[3]. Letter “B” is the correct answer.

The amount to be recorded as capital of the partners should be based on the fair value of the net asset
(total assets – total liabilities) contributed by each of them. Hence, the capital balances for Pirante and
Wilson should be P70,000 and P150,000, respectively. These amounts are computed as follows:

Pirante Wilson

Assets contributed:

Cash P40,000 P 60,000

Inventory - 30,000

Building - 80,000

Furniture and Equipment 30,000 -

Total P70,000 P170,000

Less mortgage assumed - 20,000

Net assets contributed P70,000

P150,000

[4]. Letter “B” is the correct answer.

Under the bonus method, a portion of the capital of one partner is transferred to another partner. In this
case, the total agreed capital is assumed to be equal to the total contributed capital, P276,000 (P150,000
+ P126,000), and each partner shall be credited one-half (according to agreement) or P138,000. The
partner who contributed more than his agreed capital credit is the one who gave a bonus while the one
who contributed capital less than his agreed capital credit is the one who received it. Belen contributed
P126,000 but received P138,000 (50% x P276,000) capital credit, hence, he received bonus equal to
P12,000 (P138,000-P126,000) from AA who contributed P150,000 but received only P138,000 capital
credit.

[5]. Letter “B” is the correct answer.

The partners’ capital balances upon formation would be P100,000, P10,000, and P100,000,
respectively.

[6]. Letter “C” is the correct answer.

Kathy’s capital account should be credited for the 50% of the total agreed capital which is assumed to
be equal to the actual capital contributed by the partners or P184,000 [50% x (P200,000 + P168,000)]

[7]. Letter “C” is the correct answer.

The partner with the biggest capital account balance as of May 31, 2011 is Cip, computed as follows:

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Allen Belen Cenen

Cash P50,000 P - P-

Non cash asset - 80,000 55,000

Mortgage - (35,000) -

Capital account balances P50,000 P45,000 P55,000

Each partner values his contribution at is fair value, reduced by the amount of any liability
assumed by the partnership.

[8]. Letter “D” is the correct answer.

Under the bonus method, goodwill is not recognized; thus, there would be no unidentifiable asset
to be recorded.

[9]. Letter “C” is the correct answer.

The amount of cash contributed by Carla, if initial balances are to conform to the profit-sharing
ratio of 2:3, respectively was P40,000, computed as follows:

Capital contributed by Clara:

Merchandise at fair value P 25,000

Delivery truck at fair value 50,000

Mortgage note payable assumed ( 15,000)

Clara’s contribution P 60,000

Divided by profit share of Clara 3/5

Total agreed capital P100,000

Multiplied by Carla’s profit share ratio 2/5

Carla’s cash contribution P40,000

[10]. Letter “B” is the correct answer.

Upon formation, the net assets of the partnership is equal to the total fair value of the assets
contributed less any amount of liabilities assumed by the partnership, hence the net assets of the
partnership is equal to P, computed as follows:

Assets contributed by:

AA P100,000

BB 10,000

CC 100,000

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Total P210,000

Less liabilities assumed 10,000

Net assets contributed by the partners P200,000

[11]. Letter “B” is the correct answer.

The capital balance of Mel and Garri assuming they agree to share their capital equally would
be P72,500, computed as follows:

Unadjusted capital (P78,500 + P70,000) P148,500

Inventory write-up 3,000

Allow. for bad debts (P1,000 + P1,500) ( 2,500)

Increase in accounts payable (4,000)

Adjusted capital P145,000

Divide by 2

Capital balance of each partner P72,500

[12]. Letter “C” is the correct answer.

If Chona is allowed goodwill credit equal to 20% of her initial capital, Charo’s cash contribution was
P25,000, computed as follows:

Chona’s initial capital (P60,000/80%) P 75,000

Divided by Chona’s capital share ¾ or 75%
Total agreed capital of the partners P100,000

Multiplied by Chona’s capital share ¼ or 25%

Charo’s cash contribution P 25,000

Chona’s initial capital is equal to her net assets contribution which is 80% plus her goodwill credit of 20%.
Charo’s cash contribution is equal to one-fourth (¼) of total partnership capital or 1/3 of Chona’s capital.

[13]. Letter “B” is the correct answer.

The capital balances of the partners upon formation are P180,000, P192,000, and P204,000,
respectively, computed as follows:

Investments: Flores Peralta Jose

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Cash P120,000 P192,000 P 60,000

Equipment 60,000

Truck 144,000

Capital balances P180,000 P192,000 P204,000

[14]. Letter “B” is the correct answer.

EJ’s adjusted capital balance is P80,000 computed as follows:

EJ’s capital before adjustment (given) P78,500

Add (deduct) adjustment for:

Allowance for doubtful accounts P(1,500)

Inventory increase 3,000

Net adjustment 1,500

EJ’s adjusted capital balance P80,000

[15]. Letter “A” is the correct answer.
Non-cash assets contributed to an entity should be recorded at fair market value at the date of
contribution. The creation of a new entity creates a new accountability for these assets.
[16]. Letter “C” is the correct answer.
The capital account of Pula and Puti immediately after the formation of the partnership would have
balances equal to P287,070 and P123,030, respectively. These amounts were computed as follows:

Capital of Pula before adjustments P300,000

Add (deduct) adjustments:

Increase in depreciation (7,500)

Reduction in prepaid expenses (2,400)

Adjusted capital of Pula P290,100

Add cash contributed by Puti 120,000

Total agreed capital P410,100

Share of Pula (70% x P410,100) P287,070

Share of Puti (30% x P410,100) P123,030

[17]. Letter “D” is the correct answer.

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The capital contributed by Feb is P280,000 (P70,000 + P75,000 + P225,000 – P90,000), the total
agreed capital is therefore equal to P400,000 (P280,000/70%), 30% of which or P120,000 should be
credited to Jhan. Since his initial capital contribution is P65,000 (P30,000 + P25,000 + 10,000) only, he
needs to invest P55,000 more (P120,000-P65,000). [18]. Letter “A” is the correct answer.
Partners’ capital balances upon formation are Bel, P75,000; Joy, P80,000, and Franco, P85,000,
respectively, computed as follows:

Bel

Joy

Franco

Cash

P50,000
P80,000
P25,000 Non-
cash assets
25,000
- - - - - --

60,000

Initial capital balances

P75,000

P80,000

P85,000

[19]. Letter “B” is the correct answer.

If Jimenez is to invest cash for a 2/5 interest in the partnership, it means that the adjusted capital of Mark
is 3/5 of the total agreed capital. The adjusted capital of Mark is computed as follows:

Capital before adjustments (Sub-computation a) P264,000

Add net adjustments (Sub-computation b) 21,000

Adjusted Capital of Mark P285,000

Sub-computation a:

Cash P 26,000

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Accounts receivable 120,000

Inventory 180,000

Accounts payable (62,000)

Unadjusted Capital of Mark P264,000

Sub-computation b:

Allowance for doubtful accounts [3% x P120,000] (P 3,600)

Increase in merchandise inventory 25,000

Recognition of Prepaid expenses 3,600

Recording of accrued expenses (4,000)

Net adjustment to capital of Mark P21,000

Total agreed capital is therefore equal to P475,000 (P285,000 ÷ 3/5), 2/5 of this or P190,000 (P475,000
x 2/5) belongs to Jimenez which he agreed to provide for in cash.

[20]. Letter “D” is the correct answer.

The total assets of the partnership is equal to P74,000, computed as
follows: Cash (P2,500 + P20,000) P22,500
Accounts receivable (P10,000 – P500) Merchandise 9,500
Inventory:

(P15,000 – P3,000 + P10,000) 22,000

Fixtures (fair market value) 20,000

Total assets P74,000

21]. Letter “B” is the correct answer.
The adjusted capital of Silvano is P116,250, computed as follows: Total
Assets (computation a) P132,000
Less accounts payable (given) 8,000

Capital before adjustments P124,000

Less net adjustments (computation b) 7,750

Adjusted capital of Silvano P116,250

Computation a:

Cash P 30,000

Accounts receivable 25,000

Inventory 45,000

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Furniture 32,000

Total assets P132,000

Computation b:

Provision for bad debts (3% x P25,000) P 750

Reduction in the value of furniture:

(P32,000 – 27,000) 5,000

Decrease in the value of inventory:
(P5,000 – 3,000) 2,000
Net adjustments P7,750

[22]. Letter “D” is the correct answer.

The total assets of the new partnership is equal to P144,250, computed as follows: Adjusted
capital of Silvano P116,250
Add accounts payable 8,000

Total adjusted assets P124,250

Add cash investment of Pegasus 20,000

Total assets of the new partnership P144,250

[23]. Letter “A” is the correct answer.

Because gain is to invest cash aside from P50,000 worth of merchandise it is assumed that the adjusted
capital of Pain is equal to his 2/3 capital share ( 1 less 1/3 agreed share of Gain). Hence, to compute the
total agreed capital of the partnership as well as the cash to be invested by Gain, Pain’s adjusted capital
should be computed first. The adjusted capital of

Pain is equal to P165,900, computed as follows:

Capital before adjustments (given) P158,400

Add net adjustment (computation a) 7,500

Adjusted capital of Pain P165,900

Computation a:

Increase in capital due to rec. of prepaid exp. P17,500

Decrease in capital due to rec. of accrual (5,000)

Decrease in capital due to provisions for bad debts (5,000)

Net adjustment to capital of Pain P 7,500

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The total agreed capital of the partnership is P248,850 (P165,900 ÷ 2/3), and the capital share of gain is
P82,950 (P248,850 x 1/3), hence, the cash to be invested by Gain is equal to P32,950 (P82,950 –
P50,000).

[24]. Letter “A” is the correct answer.

Non-cash assets contributed to the partnership should be recorded at fair market value at the date of
contribution. The fact that the computer was sold for P55,000 immediately after the formation of the
partnership indicates that it is its fair market value on the date of the formation of the partnership.

[25]. Letter “B” is the correct answer.

The amount of assets to be contributed by Violet to have a one-third interest in capital and profit should
be equal to one-half of the combined contribution of Yellow and Orange. The total contribution of Yellow
and Orange is P120,000 (P40,000 + P80,000), therefore, to have one-third interest in the partnership,
Violet should contribute P60,000 or one-third of a total capitalization of P180,000 (P120,000 + P60,000).

[26]. Letter “B” is the correct answer.

The capital balance of each partner shall be equal to P, computed as follows:

Wilder Nest
Capital before adjustments P78,50 P70,000
0
Add (deduct) adjustments: Increase in
inventory

3,000

Receivables written off (1,000) (1,500)

Accrued expenses recorded (4,000)

Adjusted capital balance P76,50 P68,500
0

Total capital (P76,500 + P68,500) P145,000

Divided by 2

Capital balance of each partner P 72,500

[27]. Letter “C” is the correct answer.
The amount of cash to be contributed by Clara is equivalent to 2/5 of the total agreed capital of the
partnership which is to be based on the contribution of Maria. The capital contributed by Maria is P60,000
(P25,000 + P50,000 – P15,000), the total agreed capital is P100,000 (P60,000 ÷ 3/5), hence Clara should
contribute cash equal to P40,000 (2/5 x P100,000).
[28]. Letter “A” is the correct answer.
If Aga invests P20,000 for a 20% interest, then total partnership capital must be based on

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Aga’s investment or P100,000 (P20,000/20%) and the capital to be credited to Mata is P80,000
(P100,000 – P20,000). If Mata contributes an equipment worth P50,000, then he should invest additional
cash amounting to P30,000 (P80,000 – P50,000).

[29]. Letter “B” is the correct answer.

The cash invested by the partners is equal to P20,000 contributed by Aga and the P30,000 invested by
Mata or a total of P50,000.

[30]. Letter “A” is the correct answer.

The capital of Al and Macmod shall be equal to P, and P, respectively. These amounts are computed as
follows:

Al Macmod Total

Cash P120,000 P 80,000 P 200,000

Office equipment 84,000 84,000

Land 1,000,000 1,000,000

Building 600,000 600,000

Mortgage on building (400,000) ( 400,000)

Capital P204,000 P1,280,000 P1,484,000

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