Chapter 1

Partnership – Part 1

PROBLEM 1-1: TRUE OR FALSE

1. TRUE 6. TRUE
2. TRUE 7. FALSE 1,000
3. TRUE 8. TRUE (1,000 + 1,000) x 70%
4. FALSE 700 9. TRUE
5. FALSE 10. FALSE

PROBLEM 1-2: THEORY & COMPUTATIONAL

1. A

2. D

3. Solution:
Requirement (a):
Mr. A Ms. B Totals
Cash 28,000 62,000 90,000
Accounts receivable 180,000 560,000 740,000
Inventories 114,000 193,000 307,000
Land 600,000 600,000
Building 500,000 500,000
Furniture & fixtures 50,000 35,000 85,000
Intangible assets
Total assets 972,000 1,350,000 2,322,000

Accounts payable 180,000 250,000 430,000

Other liabilities 200,000 350,000 550,000
Total liabilities 380,000 600,000 980,000

Adjusted capital balances 592,000 750,000 1,342,000

1
Requirement (b):
Cash 90,000
Accounts receivable 740,000
Inventories 307,000
Land 600,000
Building 500,000
Furniture & fixtures 85,000
Accounts payable 430,000
Other liabilities 550,000
A, Capital 592,000
B, Capital 750,000

4. Solution:
Cash 184,000
A, Capital (184,000 ÷ 2) 92,000
B, Capital (184,000 ÷ 2) 92,000

5. Solution:
Cash 184,000
A, Capital (184,000 ÷ 2) 92,000
B, Capital (184,000 ÷ 2) 92,000

The cash settlement among the partners is not recorded in the partnership’s
books because this is not a transaction of the partnership but rather a
transaction among the partners themselves.

6. Answer: None. The PFRSs permit the recognition of goodwill only when it
arises from a business combination.

2
PROBLEM 1-3: EXERCISES: COMPUTATIONAL

1. Solution:
Mr. A Ms. B
Cash 20,000 30,000
Inventory 15,000
Building 40,000
Furniture & equipment 15,000
Mortgage payable (10,000)
Adjusted capital balances 35,000 75,000

2. Solutions:
Requirement (a):
Mr. Ann Ms. Buoy Totals
Cash 50,000 120,000 170,000
Accounts receivable 300,000 760,000 1,060,000
Inventories 216,000 340,000 556,000
Land 1,080,000 1,080,000
Building 900,000 900,000
Equipment 90,000 130,000 220,000
Total assets 1,736,000 2,250,000 3,986,000

Accounts payable 436,000 450,000 886,000

Mortgage payable 180,000 180,000
Total liabilities 616,000 450,000 1,066,000

Adjusted capital balances 1,120,000 1,800,000 2,920,000

Requirement (b):
Cash 170,000
Accounts receivable 1,060,000
Inventories 556,000
Land 1,080,000
Building 900,000
Equipment 220,000
Accounts payable 886,000
Mortgage payable 180,000
Ann, Capital 1,120,000
Buoy, Capital 1,800,000

3
3. Solution:
 Mr. Angot, Capital = 18,000, the sale of the land on partnership agreement
date provides information on the land’s fair value on that date.
 M. Banglo, Capital = 40,000 cash contribution.

4. Solution:
A B C
Cash 500,000
Land 800,000
Equipment 550,000
Mortgage payable (350,000)
Adjusted capital balances 500,000 450,000 550,000

PROBLEM 1-4: CLASSROOM ACTIVITY

Solutions:
Requirement (a):
Partner 1 Partner 2 Totals
Cash 281,250 1,800,000 2,081,250
Accounts receivable 430,000 800,000 1,230,000
Land 1,500,000 1,500,000
Building 1,400,000 1,400,000
Total assets 3,611,250 2,600,000 6,211,250

Accounts payable 330,000 400,000 730,000

Notes payable 375,657 375,657
Provision for probable loss 300,000 300,000
Real property tax payable 40,000 40,000
Total assets 670,000 775,657 1,445,657

Adjusted capital balances 2,941,250 1,824,343 4,765,593

Requirement (b):
Cash 2,081,250
Accounts receivable 1,230,000
Land 1,500,000
Building 1,400,000
Accounts payable 730,000
Notes payable 375,657
Provision for probable loss 300,000
Real property tax payable 40,000

4
 Partner 1, Capital 2,941,250
Partner 2, Capital 1,824,343
Variation #1:

Solutions:

Requirement (a) and (b):

Total net asset contributions 4,765,593
Divide by: 2
Equal credits to capital accounts 2,382,796

Partner 1 Partner 2
Equal credits to capital accounts 2,382,796 2,382,796
Fair value of net asset contribution 2,941,250 1,824,343
Bonus (558,454) 558,454

Answers: Partner 2 receives a bonus of ₱558,454.

Requirement (c): The bonus is treated as an adjustment to the equity

accounts of the partners. Partner 1’s capital shall be decreased while Partner
2’s capital shall be increased by the ₱558,454 bonus.

Requirement (d):
Cash 2,081,250
Accounts receivable 1,230,000
Land 1,500,000
Building 1,400,000
Accounts payable 730,000
Notes payable 375,657
Provision for probable loss 300,000
Real property tax payable 40,000
Partner 1, Capital 2,382,796
Partner 2, Capital 2,382,796

Variation #2:

Solutions:
Requirement (a):
Total net asset contributions 4,765,593
Divide by: 2
Equal credits to capital accounts 2,382,796

5
 Partner 1 Partner 2
Equal credits to capital accounts 2,382,796 2,382,796
Fair value of net asset contribution 2,941,250 1,824,343
(Receipt) Payment (558,454) 558,454

Answer: Partner 1 shall receive cash of ₱558,454 from Partner 2.

Requirement (b):
The cash receipt and cash payment are not recorded in the partnership books.

Requirement (c):
Cash 2,081,250
Accounts receivable 1,230,000
Land 1,500,000
Building 1,400,000
Accounts payable 730,000
Notes payable 375,657
Provision for probable loss 300,000
Real property tax payable 40,000
Partner 1, Capital 2,382,796
Partner 2, Capital 2,382,796

Variation #3:

Solutions:
Requirements (a) and (b):
Total net asset contributions 4,765,593
Divide by: 2
Equal credits to capital accounts 2,382,796

Using first Partner 1’s capital, let us determine if Partner 2’s capital
contribution has any deficiency.

Partner 1, Capital 2,941,250

Divide by: Partner 1’s equity interest 50%
Total 5,882,500
Multiply by: Partner 2's interest 50%
Minimum capital required of Partner 2 2,941,250

6
 Partner 2's capital 1,824,343
Deficiency on Partner 2's capital contribution 1,116,907

Answer: Partner 2 should provide additional cash contribution of

₱1,116,907 to make his contribution proportionate to his/her interest.

Using Partner 2’s capital, let us determine if Partner 1’s capital

contribution has any deficiency.
Partner 2, Capital 1,824,343
Divide by: Partner 2’s equity interest 50%
Total 3,648,685
Multiply by: Partner 1's interest 50%
Minimum capital required of Partner 1 1,824,343
Partner 1's capital 2,941,250
Deficiency on Partner 1's capital contribution -

Conclusion: Partner 1’s contribution is not deficient.

Variation #4:

Solution:
Total net asset contributions 4,765,593
Divide by: 2
Equal credits to capital accounts 2,382,796

Partner 1 Partner 2
Equal credits to capital accounts 2,382,796 2,382,796
Fair value of net asset contribution 2,941,250 1,824,343
(Withdrawal) Additional investment (558,454) 558,454

Answer:
Partner 1 shall withdraw ₱558,454 while Partner 2 shall make an additional
investment of ₱558,454.