PROBLEM 1

Heisenberg and Jesse formed MET Company. Heisenberg and Jesse contributed their business
in the partnership. Heisenberg and Jesse agreed on 6:4 profit and loss ratio, respectively.

Heisenberg Jesse
Cash 350,000
Accounts Receivable 175,000
Inventory 280,000
Land 175,000
Building 420,000
Total 805,000 595,000

Notes Payable 210,000

Mortgage Payable - Land 35,000
Heisenberg, capital 595,000
Jesse, capital 560,000
805,000 595,000

Additional Information:
a. The accounts receivable amounting to P25,000 is written-off.
b. The inventory has a net realizable value of 270,000.
c. The unpaid mortgage of the land is assumed by the partnership.
d. The building is over-depreciated by P52,500
e. The building has an unpaid mortgage of P20,000, the mortgage is assumed by the
partnership.
f. Recognition of discount on note payable amounting to P10,000.

Required:
1. Compute the adjusted capital of the partners.
2. Using the capital balance of partner Heisenberg, how much is the additional cash
contribution/withdrawal of Jesse to bring the partners’ capital in conformity to their profit and
loss ratio?
3. How much is the Total Assets?
4. Using bonus method and using their profit and loss ratio to bring the partners’ capital in
conformity to their profit and loss ratio, how much is the capital of Heisenberg after
formation?
PROBLEM 2
On June 30, 2030 TONY, the sole proprietor of the TONY Company, expands the company and
establish a partnership with STEVE and BRUCE. The partners plan to share profits and losses as
follows: TONY, 50%; STEVE, 25% and BRUCE, 25%. They also agree that the beginning capital
balances of the partnership will reflect this same relationship.
TONY asked STEVE to join the partnership because his many business contacts are expected to
be valuable during the expansion. STEVE is also contributing P70,000 cash and a building that has
an original cost of P910,000, book value of P735,000, tax basis of P542,500 and a fair market
value of P647,500. The building is subject to a P423,500 mortgage that the partnership will
assume. BRUCE is contributing P115,500 cash and marketable securities costing P441,000 to
BRUCE but are currently worth P603,750.

TONY’s investment in the partnership is the TONY Company. He plans to pay off the notes with
his personal assets. The other partners have agreed that partnership will assume the accounts
payable. The balance sheet for the TONY Company follows:

TONY Company
Statement of Financial Position
June 30, 2030

Assets Liabilities and Capital

Cash 105,000 Accounts payable 556,500
Accounts receivable, net 504,000 Notes payable 651,000
Inventory 756,000 TONY, capital 892,500
Equipment * 735,000
Total Assets 2,100,000 Total Liabilities and Capital 1,200,000

*net of accumulated depreciation of P210,000

The partners agree that the inventory is worth P892,500, and the equipment is worth half its
original cost, and the allowance established for doubtful accounts is correct.

1. How much is the agreed capital of TONY if the partners agree to use the bonus method to
record the formation?
2. If the partners agree to use the revaluation to record the formation?
PROBLEM 3
Ryan and Kelly formed a partnership on April 1, 2020. Ryan invested P500,000 and
Kelly invested P300,000. On September 10, 2020, Ryan invested additional cash of
P100,000. The partnership has the following agreements:
- Monthly salary allowance of P5,000 and P15,000 to Ryan and Kelly, respectively.
The salary allowance is recognized as an expense.
- 25% bonus on income before salaries and interest but after bonus to Kelly.
- 10% interest on beginning capital of Ryan.
- Balance equally

The partnership had net sales of P1,000,000 and cost of sales of P400,000 and operating
expense of 200,000. The partners’ salaries had been recorded as part of the operating
expense.

1. How much is the total share of Ryan in the net income?

PROBLEM 4
The capital accounts of Jim and Pam shows the following information for the year 2020:
Jim Pam
January 1 520,000 330,000
March 14 30,000
March (temporary) 20 (15,000)
April 30 24,000
May 25 (permanent) (22,500) (12,000)
July 1 5,000
September 10 (temporary) (15,000)
October 1 30,000

The income summary account shows a credit balance of P450,000 on December 31, 2020.
The profit and loss of the partnership shall be distributed in the following manner:
- Salary allowance of P200,000 to Jim and P230,000 to Pam.
- Interest allowance of 12% on average capitals
- Bonus of 10% on net income after salary and interest but before bonus to Pam.
- Balance divided equally.

1. Compute the ending capital of the partners.

PROBLEM 5
ABC Partnership has net income of P50,000 for the year. Partner A contributed
P90,000 and partner B contributed P60,000. The partners agree to share profits and
losses as follows:
- Salary allowance of P15,000 and P30,000 to A and B, respectively.
- Interest allowance of 10% based on average capital.
- Bonus of 10% based on net income to be given to A.
- Balance equally.

The net income is allocated up to the extent of earnings only by giving first priority to
salary, then interest and then to bonus.

1. Compute the share of A and B in the net income.

2. Assume that the net income is P60,000. Compute the share of A and B in the net
income.
PROBLEM 6
Partners P and Q had capital balances of P358,500 and P300,000 respectively before
admitting R. P and Q share profit and loss in the ratio 6:4. R paid P225,000 in
exchange for 30% interest in the partnership as well as the profit and loss.

1. How much is the capital of partner P after admission of R?

2. How will P and Q distribute the amount received from the R?
3. If equipment is undervalued, how much would be the capital balance of partner Q
after admission of R?
PROBLEM 7
X and Y have capital balances of P150,000 and P180,000, respectively. Z is to
invest P60,000 for 15% in the partnership interest and also in the profit and loss.
There is an undistributed net income in the amount of P80,000. Partners X and Y
share profit and loss 65:35.

1. How much is the bonus to partner X from partner Z?

2. If equipment is overvalued, how much is the share of partner Y in the
overvaluation of the equipment?
PROBLEM 8
Michael, Holly and Jan are partners with capital balances of P67,200, P108,000 and
P38,000 respectively, sharing profits and losses in the ratio of 2:5:1. Ryan is admitted
as a new partner bringing with him expertise and is to invest cash for a 15% interest in
the partnership considering the transfer of capital from him of P18,000 upon his
admission.

1. The capital account of Jan will be credited in the amount of?

2. The total agreed capital of the old partners is greater than the contributed capital
by how much?
3. The capital balance of Holly amounted to?
4. Cash will be debited in the amount of?