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 adjustment 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 AB’s total net investment in the partnership.

How much cash will be presented in the partnership’s 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:

Book Value
Accounts Receivable 400,000
Inventory 1,120,000
Machineries, net 2,240,000
Intangibles, net 920,000
PARTNERSHIP FORMATION, OPERATION, ADMISSION and RETIREMENT #0010

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 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. P1,334,000
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 partnership’s 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 CY’s capital balance at the end of 2014?

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

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. AY’s
and AN’s 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
PARTNERSHIP FORMATION, OPERATION, ADMISSION and RETIREMENT #0010

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 Lance’s 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 TD’s 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 Vera’s
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

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.

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?

PARTNERSHIP FORMATION, OPERATION, ADMISSION and RETIREMENT #0010

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

PROBLEM 12.

TD decided to withdraw from his partnership with SM and MR. Before his withdrawal, TD’s capital balance was P101,500,
while SM’s was P112,000 and MR’s was P134,750. Also, the partnership’s 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 TD’s withdrawal?

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

PROBLEM 13.

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 of 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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