BA 99.

2 WFW/WFX

Partnership: Formation and Operation

1.) On January 1, 2020, Jake and Amy decided to combine their respective sole proprietorships to form
the partnership business “Brooklyn Nine-Nine”. On the said date, the respective financial
statements of Jake and Amy have assets as follows:

Jake Amy
In PHP Book value Fair value Book value Fair value
Cash 100,000 100,000 75,000 75,000
Accounts Receivable 400,000 400,000
Allowance for Doubtful (40,000) (62,500)
Accounts
Equipment 350,000 175,000
Accumulated (125,000)
Depreciation

a.) What is the journal entry to record the investment of Amy in the partnership books?
b.) What is the balance of Jake’s Capital Account on January 1, 2020?

2.) For the year 2020, Brooklyn Nine-Nine Partnership was able to generate a net income of P250,000.
a.) Assuming the articles of partnership specify that the net income is to be divided using a
fixed ratio of 70% for Jake and 30% for Amy, how much is Jake’s share in the net income?
b.) Instead of a P250,000 net income, the partnership suffered a P100,000 net loss. Assuming
the same facts in (a), how much is Jake’s share in the net loss?
c.) Assuming the articles of partnership does not stipulate how the P250,000 net income is to
be shared, how much is Amy’s share in the net income?
d.) Assuming the articles of partnership provides for: (1) salary allowance of P100,000/annum
to Jake as the managing partner, (2) interest allowances of 10% on capital balances at the
beginning of the year, and (3) the remainder to be divided equally. How much is Jake’s
share in the net income?
e.) Assuming the same facts in (d) except that the company’s net income for the year is only
P150,000. How much is Amy’s share in the net income?
3.) Sheldon and Amy are owners of the partnership named “The Big Bang Theory”. Presented below
is the pre-closing trial balance of the company on December 31, 2019:

The Big Bang Theory

Trial Balance
December 31, 2019
In PHP Debit Credit
Cash 125,000
Accounts Receivable 250,000
Allowance for Doubtful 30,000
Accounts
Inventories 50,000
Prepaid Expenses 10,000
Property, Plant and Equipment 850,000
Accumulated Depreciation 150,000
Accounts Payable 175,000
Notes Payable 200,000
Sheldon, Capital 385,000
Amy, Capital 274,500
Sales 1,250,000
Cost of Goods Sold 750,000
Salaries and Wages Expense 125,000
Rent Expense 50,000
Advertising Expense 65,000
Bad Debt Expense 5,000
Depreciation 25,000
Interest Expense 20,000
Income Taxes 67,200
Sheldon, Drawings 72,300
TOTAL 2,464,500 2,464,500

The partnership agreement specifies the following:

i. Amy is to receive a salary allowance of P90,000.

ii. Interest allowance of 20% on capital balances at the beginning of the year is provided for
Sheldon.
iii. Any excess is to be divided equally among the partners, while any deficit is to be shared based
on a 4:6 fixed ratio for Sheldon and Amy, respectively.

Prepare the closing entries for The Big Bang Theory on December 31, 2019.