PARTNERSHIP FORMATION, OPERATION, ADMISSION and RETIREMENT #0010

PROBLEM 1.

AK and BK decided to form a partnership on October 1, 2014. Their Statement of Financial Position on
this date were:

AK Bk
Cash 65,625.00 164,062.50
Accounts Receivable 1,487,500.00 896,875.00
Merchandise Inventory 875,000.00 885,937.50
Equipment 656,250.00 1,268,750.00
Total 3,084,375.00 3,215,625.00

Accounts Payable 459,375.00 1,159,375.00

AK, Capital 2,625,000.00
BK, Capital 2,056,250.00
Total 3,084,375.00 3,215,625.00

They agreed the following adjustments shall be made:

Equipment of AK is underdepreciated by P87,500 and that BK is overdepreciated by P131,250.

Allowance for doubtful accounts is to be set up amounting to P297,500 for AK and P196,875 for BK.
Inventories of P21,875 and P15,312.50 are worthless in the books of AK and BK respectively.
The partnership agreement provides for a profit and loss ratio of 70% to AK and 30% to BK.

Assuming the use of transfer of capital method, how much is the agreed capital of AK to bring the capital
balances proportionate to their profit and loss ratio.

A. P2,390,937.50 C. P2,218,125.00
B. P2,935,406.25 D. P1,024,687.50

PROBLEM 2.

On January 1, 2014, AB and QR agreed to form a partnership. The following are their assets and
liabilities:

Accounts AB QR
Cash 136,000 76,000
Accounts Receivable 88,000 48,000
Inventories 304,000 364,000
Machinery 480,000 440,000
Accounts Payable 216,000 144,000
Notes Payable 140,000 60,000

AB decided to pay off his notes payable from his personal assets. It was also agreed that QR inventories
were overstated by P24,000 and AB machinery was over depreciated by P20,000. QR is to
invest/withdraw cash in order to receive a capital credit that is 20% more than ABs total net investment
in the partnership.

How much cash will be presented in the partnerships statement of financial position?

A. P486,400 C. P450,400
B. P410,400 D. P274,400

PROBLEM 3.

On December 1, 2014, MV and CD agreed to invest equal amounts and share profits equally to form a
partnership. MV invested P3,120,000 cash and a piece of equipment. CD invested some assets which are
shown on the next page:

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PARTNERSHIP FORMATION, OPERATION, ADMISSION and RETIREMENT #0010

Book value
Accounts Receivable 400,000
Inventory 1,120,000
Machineries, net 2,240,000
Intangibles, net 920,000

The assets invested by CD are not properly valued, P32,000 of the accounts receivable are proven
uncollectible. Inventories are to be written down to P1,040,000. Included in the machineries is an
obsolete apparatus acquired for P384,000 with an accumulated depreciation balance of P336,000. Part
of the intangibles is a patent with a carrying value of P56,000 which was sued upon by a competitor. CD
unsuccessfully defended the case and the final decision of the court was released on November 29,
2014.

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

A. P1,400,000 C. P1,344,000
B. P968,000 D. P1,560,000

PROBLEM 4.

On December 1, 2014, MG and AN are combining their separate businesses to form a partnership. Cash
and noncash assets are to be contributed. The noncash assets to be contributed and the liabilities to be
assumed are as follows:
MG AN
Book value Fair value Book value Fair value
Accounts Receivable 250,000 262,500 200,000 195,000
Inventory 400,000 450,000 200,000 207,500
PPE 1,000,000 912,500 862,500 822,500
Accounts Payable 150,000 150,000 112,500 112,500

MG and AN are to invest equal amount of cash such that the contribution of MG would be 10% more
than the investment of AN.
What is the amount of cash presented on the partnerships statement of Financial Position on December
1, 2014?
A. P2,762,500 C. P5,525,000
B. P2,512,500 D. P5,025,000

PROBLEM 5.

CC Partnership began operations on June 1, 2014. On that date, CY and CR have capital credits of
P175,000 and P240,000, respectively. The partnership has the following profit-sharing plan:

a.) 10% interest on partners capital balances at the end of the year
b.) P60,000 and P75,000 annual salaries for CY and CR, respectively.
c.) Remaining profit will be divided to CY and CR on a 3:2 ratio, respectively.

During the year, CY invested P150,000 worth of merchandise and withdrew P40,000 cash, while CR
invested P120,000 cash. The partnership earned a profit of P266,375 during the year.

How much is CYs capital balance at the end of 2014?

A. P422,375 C. P426,625
B. P444,825 D. P413,625

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PARTNERSHIP FORMATION, OPERATION, ADMISSION and RETIREMENT #0010

PROBLEM 6.

AY and AN are partners who have the agreement to share profit and loss in the following manner:

AY AN
Annual salaries 261,000 259,000
Interest on average balances 5% 10%
Bonus (based on net income after salaries and interest) 10%
Remainder 50% 50%

During the year ended December 31, 2014, the partnership generated a profit of P575,000 before any
deductions. AYs and ANs average capital balances for the year are P600,000 and P300,000,
respectively. Income is distributed to the partners only as far as it is available.

How much is the total share of AN in the net income for the year ended 2014?
A. P286,500 C. P288,500
B. P287,500 D. P295,665

PROBLEM 7.

Hans, Lance, Arthur and Sidd own a publishing company that they operate as a partnership. Their
agreement includes the following:

Hans will receive a salary of P20,000 and a bonus of 3% of income after all the bonuses.
Lance will receive a salary of P10,000 and a bonus of 2% of income after all the bonuses.
All the partners are to receive the following: Hans P5,000; Lance P4,500; Arthur P2,000; and
Sidd P4,700, representing 10% interest on their average capital balances.
Any remaining profits are to be divided equally among the partners
Partnership reports a profit of P40,000

How much is Lances share in the profit if profit is distributed in the following order of priority: interest
on invested capital, then bonuses, then salary and then according to profit and loss percentage?

A. P12,560 C. P12,433
B. P13,235.75 D. P12,830.75

PROBLEM 8.

Partners PG, SX and TD have average capital balances of P96,000, P48,000 and P32,000, respectively,
during 2014. Each partner receives 10% interest on his capital balance. After deducting salaries of
P24,000 for PG and P16,000 for TD, the residual profit or loss is divided equally. In 2014, the partnership
sustained a P26,400 net loss before partners interests and salaries.

By how much would TDs capital account change?

a. P12,800 decrease c. P8,800 decrease

b. P19,200 increase d. P8,000 increase

PROBLEM 9.

Vida, Vina and Vita, sharing profits and losses 50%, 30% and 20%, have capital credit balances of
P400,000, P300,000 and P200,000 respectively. They decided to admit a new partner, Vera to a 30%
interest in the partnership upon Veras investment of an amount equal to five-sixths of her capital credit
with no asset adjustment recognized.

Immediately after the admission of Vera, the capital credit balance of Vina will be:

a. P300,000 c. P330,000
b. P318,000 d. P282,000

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PROBLEM 10.

SG, AP and TS are partners with capital balances of P784,000, P2,730,000 and P1,190,000 respectively,
sharing profits and losses in the ratio of 3:2:1. DJ is admitted as a new partner bringing with him
expertise and is to invest cash for a 25% interest in the partnership which includes a credit of P735,000
for bonus upon his admission.

How much cash should DJ contribute?

A. P1,323,000 C. P2,100,000
B. P1,575,000 D. P588,000

PROBLEM 11.

PV, BK and TF were partners in Omaha Investments Corp. Their profit ratio is 5:3:2 while their original
capital interest ratio is 4:4:2. On July 1, 2014, JP was admitted by the partnership for 20% interest in
capital and 25% in profits by contributing P87,500 cash, and the old partners agree to bring their interest
to their original capital and profit interest sharing ratio. JP is the recipient of the transfer of capital of
P280,000 from the existing partners. The partnership had net income of P210,000 before admission of
JP and the partners agree to revalue its overvalued equipment by P35,000. Capital balance of BK
increased by P10,500 as a result of the admission of JP while the capital balance of TF at the start of the
year is P700,000.

The capital balance of PV at the start of the year is:

a. P577,500 c. P354,200
b. P350,000 d. P441,000

PROBLEM 12.

PV, BK and TF were partners with capital balances on January 2, 2014 of P350,000, P525,000 and
P700,000, respectively. Their profit ratio is 5:3:2 while their capital interest ratio is 4:4:2. On July 1,
2014, JP was admitted by the partnership for 20% interest in capital and 25% in profits by contributing
P87,500 cash, and the old partners agree to bring their interest to their old capital and profit interest
sharing ratio. The partnership had net income of P210,000 before admission of JP and the partners
agree to revalue its overvalued equipment by P35,000.

The capital balance of PV after admission of JP is:

a. P297,500 c. P588,000
b. P354,200 d. P470,400

PROBLEM 13.

On December 30, 2014, the Statement of Financial Position of DG Co. has the following balances: Total
assets P2,250,000; VL loan P125,000; VL Capital P518,750; MD Capital P481,250; and LV capital
P1,125,000. The partners share profits and losses in the ratio of 25% to VL, 25% to MD, and 50% to LV. It
was agreed among the partners that VL retires from the partnership and the partnership assets be
adjusted to their fair value of P2,550,000 as of December 31, 2014. The partnership also suffered net
loss of P750,000. The partnership would pay VL the amount of P542,500 cash for his total interest in the
partnership.

What is the total capital of MD after retirement of VL?

a. P383,750 c. P365,000
b. P368,750 d. P380,000

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PARTNERSHIP FORMATION, OPERATION, ADMISSION and RETIREMENT #0010

PROBLEM 14.

TD decided to withdraw from his partnership with SM and MR. Before his withdrawal, TDs capital
balance was P101,500, while SMs was P112,000 and MRs was P134,750. Also, the partnerships total
assets amounted to P787,500, but the partners agreed that a fixed asset was under depreciated by
P26,250. TD, SM and MR share profits and losses in the ration of 2:4:4, respectively. If TD was paid
P93,100 upon his retirement, how much is the remaining partnership net assets after TDs withdrawal?

a. P228,900 c. P346,150
b. P319,900 d. P281,400

PROBLEM 15.

Ester, Judith and Martha were partners with capital balances on January 2, 2014 of P70,000, P84,000
and P56,000, respectively. Their loss sharing ratio is 3:5:2. On July 1, 2014, Ester retires from the
partnership. On the date of retirement the partnership net profit from operations is P48,000. The
partners agreed further to pay Ester P76,560 in settlement of her interest.

How much will be the capital of Judith after retirement of Ester?

a. P103,200 c. P108,864
b. P114,743 d. P107,904

PROBLEM 16.

On January 1, 2014, L, M, and N formed a partnership with capital contributions of P625,000; P750,000;
and P937,500, respectively. The partners agreed that profit and loss would be allocated as follows:
P75,000 salary to each partner, 3% interest on initial capital contributions, the remainder divided in the
ratio 2:4:4, respectively to L, M, and N. The partnership generated income amounting to P375,000 for
the year 2014. During 2014, the following partnership errors were discovered before the distribution of
profit:

In 2014, a purchase of piece of equipment costing P50,000 was expensed. The equipment has an
estimated life of ten years with equal service potential each year.
On December 31, 2014, ending inventory was understated by P50,000.

On January 1, 2015, N decided to retire from the partnership.

If the balance of the capital of L after retirement amounts to P770,000, how much is the settlement to N
for his retirement?

a. P1,120,000 c. P1,085,000
b. P1,062,500 d. P1,110,875

If the balance of the capital of M after retirement amounts to P890,000, how much is the settlement to
N for his retirement?

a. P1,127,500 c. P1,231,500
b. P1,090,500 d. P1,152,500

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