PARTNERSHIP FORMATION AND OPERATION

EXERCISE 1

On May 1 2018, the business assets and liabilities of Ace and Jade were as follows:

Ace Jade
Cash P8,000 P62,000
Receivables 200,000 600,000
Inventories 120,000 200,000
Land, Building & Equip. 650,000 535,000
Other assets 2,000 3,000
Accounts Payable 180,000 250,000

Ace and Jade agreed to form a partnership by contributing their net assets, subject
to the following adjustments.
 Receivables of P20,000 in Ace’s books and P40,000 in Jade’s books are
uncollectible.
 Inventories of P6,000 and P7,000 in respective books of Ace and Jade are
worthless
 Other assets in both books are written off

Upon the partnership’s formation:

The respective capital of partners Ace and Jade would be ___________;_________.

The total assets of the partnership would be _____________.

EXERCISE 2

Mr. Dakasi and Mr. Gong Cha decided to form a partnership on January 3, 2018, to
be called Digong Merchandising. The following are their respective balance sheets
immediately before the formation.

Dakasi Store
Balance Sheet
December 31, 2017

Cash P130,000 Accounts Payable P125,000

Accts Receivable 100,000 Dakasi, Capital 355,000
Mercahndise Inv 200,000 Total P480,000
Furniture 50,000
Total P480,000

Gong Cha Store

Balance Sheet
December 31, 2017

Cash P15,000 Accounts Payable P15,000

A/R 40,000 Notes Payable 20,000
Less:ADA. 4,000 36,000 Gong Cha, Capital 79,500
Merchandise Inv. 50,000 TOTAL 114,500
Furniture 15,000
Less:Dep 1,500 13,500
TOTAL 114,500

The two partners agree to the following adjustments.

1. That P20,000 of Mr. Dakasi accounts receivable be written off.
2. That Mr. Dakasi furniture has a market value of P40,000.
3. That acrrued expenses of P25,000 be recognize on Mr. Dakasi‘ books.
4. Mr. Gong Cha estimate uncollectible accounts should be 5% of the outstanding
accounts receivable.
5. The fair value of Mr. Gong Cha furniture is 12,000.
6. Total partner’s equity should be P400,000 with Mr. Dakasi’s interest
representing 75%.

Prepare the balance sheet immediately after its formation.

EXERCISE 3

The balance sheet as of July 31, 2018, for the business owned by Barry, shows the
following assest and liabilities.

ADVANCED FINANCIAL ACCOUNTING 1

PARTNERSHIP FORMATION AND OPERATION
Cash P100,000
Accounts Receivable 268,000
Merchandise 440,000
Fixtures 328,000
Accounts Payable 57,600

It is estimated that 5% of the recievable will prove uncollectible. The cash balance
includes 1,000 share certificates of PNB at its cost P8,000; the stock last sold
on market at P70.00 per share. Merchandise includes obsolete items costing 36,000
that will probably realize only P8,000. Depreciation has never been recorded; the
fixtures are 2 years old, have an estimated life of 10 years, and would cost
P480,000 if purchased new currently. Sundry prepaid items amount to P10,000. Ava
is to be admitted as a partner upon investing 400,000 cash and P200,000 merchandise.

What will be the total capital after the formation of the partnership?

EXERCISE 4

On January 1, 2019, R, J and N formed a partnership with profit or loss sharing

agreement of 2:3:5.

R contributed land with and assessed value from the city assessor in the amount of
P1,000,000. The land is subject to real estate mortgage, which is annotated to the
title of the land in the amount of P800,000. The appraised value of the land is
P2,400,000. J contributed a building with a cost of P2,000,000 and accumulated
depreciation of P1,500,000. The fair value of building is P800,000. N contributed
investment in trading securities with historical cost of P6,000,000. The trading
securities had a quoted price of P3,000,000.

The partners decided to bring their capital balances in accordance with their
respective profit or loss sharing agreement. The total agreed capitalization of
partnership is P10,000,000.

Which of the following statements is correct.

A. The agreed capital of N is P500,000

B. R should contribute additional capital in the amount of P1,800,000.
C. J should contribute additional capital in the amount of 2,200,000.
D. N is entitled to withdraw in the amount of P1,000,000.

EXERCISE 5

The partnership of Brother and Sister was formed on March 31, 2018. On this date,
Brother invested P50,000 cash and office equipment valued at P30,000. Sister
invested P70,000 cash, merchandise valued at P110,000 and furniture valued at
P100,000 subject to a note payable of P50,000 (which the partnership assumes). The
partnership provides that Brother and Sister share profits and losses 25:75,
respectively. The agreement further provides that partners should initially have
an equal interest in the partnership capital. Under the goodwill and bonus method,
what is the total capital of the partners after formation?

EXERCISE 6

David and Ruby organized the DR Partnership on January 1, 2018. The following
entries were made in their capital accounts during 2018:

Debit Credit
David, capital
January 1 180,000
April 1 50,000
October 1 10,000
Ruby, capital 60,000
March 1 10,000
September 1 20,000
November 1 10,000

If the partnership net income, computed before salaries, interest or bonus is

P56,000 for 2018, indicate its division between partners under each of the following
independent profit sharing agreements:
ADVANCED FINANCIAL ACCOUNTING 2
PARTNERSHIP FORMATION AND OPERATION
A. Interest at 4% is allowed on average capital investments, and the balance is
divided equally.
B. A salary of P24,000 is to be credited to Ruby, 4% interest is allowed on each
partner on their ending capital balance, and the balance in the ratio of
beginning capital balances.
C. Salaries allowed to David and Ruby in the amounts of P34,000 and P38,000,
respectively, and the remaining profits and losses are divided in the ratio
of average capital balances.
D. A bonus of 10% of partnership net income is credited to David, a salary of
P16,000 is allowed to Ruby, and remaining profits or losses are shared equally.
The bonus is regarded as an expense for purposes of calculating the bonus
amount.

EXERCISE 7

The income statement of Analiza-Carmela Partnership for the year ended December 31,
2018 appear below.

Sales 600,000
Less:COS 380,000
Gross Profit 220,000
Less:Opex 60,000
Net Income 160,000

Additional information
1. Analiza and Carmela began the year with a capital balance of P81,600 and
P224,000 respectively.
2. On April 1. Analiza invested an additional P30,000 into the partnership and
on August 1, Carmela invested an additional P40,000 into the partnership.
3. Throughout 2018, each partner withdrew P800 per week in anticipation of
partnership net income. The partners agreed that these withdrawals are not to
be included in the computation of of average capital balances for purposes of
income distributions.

Analiza and Carmela have agreed to distribute partnership net income according to
the following:
Analiza Carmela
1. Interest in average capital balances 6% 6%
2. Bonus on net income before the bonus
but after interest on average capital
balances. 10%
3. Salaries 50,000 50,000
4. Residual if positive 70% 30%
5. Residual if negative 50% 50%

The share of Analiza and Carmela on the net income:

The ending capital balance of Analiza and Carmela:

EXERCISE 8

The partnership of EL, OOH, ARE and DEE reflected capital balances before
distribution of net income amounting to P125,000; P100,000, P175,000 and P150,000.
The partners are to divide profits and losses amount themselves based on the
following stipulations that they agreed on:

A. Salary of EL, OOH and DEE.

B. 10% interest on the capital balances before the distribution of income to the
partners.
C. A 20% bonus after bonus and interest to be given to ARE.
D. The balance is to be divided on a 3:4:2:1 ratio.

If OOH receives 70,000 from the partnership results of operations, what is the net
income of the partnership?

EXERCISE 9

On January 1,2017, Anna, Bea and Cara formed a partnership with original capital
contribution ratio of 4:5:1 for a total agreed capitalization of P5,000,000. The
profit or loss ratio agreement provides that the profits shall be distributed in
the ratio of 3:2:5 while losses shall be distributed in the ratio of 6:3:1.

ADVANCED FINANCIAL ACCOUNTING 3

PARTNERSHIP FORMATION AND OPERATION
During 2017, the partnership reported net income of P2,000,000 with Anna and Bea
withdrawing P500,000 and P300,000 respectively. During 2018, the partnership
reported net loss of P1,000,000 with Bea and Cara withdrawing P200,000 and P400,000
respectively.

What is the capital of Bea in December 31, 2018?

EXERCISE 10

The partnership agreement of Adam, Marc and Vic provides for the year end allocation
of net income in the following order.

 First Adam is to receive 10% of net income up to P200,000 and 20% over
P200,000.
 Second, Marc and Vic each are to receive 5% of the remaining income over
P300,000.
 The balance of income is to be allocated equally among the three partners.

The partnership’s net income was P500,000 before any allocations to partners. What
amount should be allocated to Adam.

ADVANCED FINANCIAL ACCOUNTING 4