Problem 1

On December 1, 2020, Demi and Kiara decided to combine their businesses and form a partnership.
Their balance on this date before adjustments follow:

Demi Kiara
Cash P18,000 P7,500
Accounts Receivable 37,000 27,000
Inventories 60,000 39,000
Furniture and Fixtures (net) 60,000 18,000
Office equipment 23,000 5,500
Prepaid expenses 12,750 6,000
Total P210,000 P103,000

Accounts payable P91,500 P36,000

Capital 119,250 67,000
Total liabilities & capital P210,750 P103,000

The parties agreed that profit and loss be shared 60:40, and that the following adjustments should be
considered prior to formation.

1.) Provide 5% allowance for doubtful accounts on each Accounts Receivable.

2.) Inventories should be recognized only at 80% of their book values.
3.) Furniture and fixtures of Demi is undervalued by P25,000 while the equipment of Kiara is
undervalued by P3,500.
4.) Accrued expenses of 5,000 for Demi and P3,000 for Kiara is to be recorded.

The first 5-months of operations was successful, and each partner withdrew P20,000 on December
1,2020 in anticipation for profit. The operation resulted to a profit of P100,000.

1.) Determine the adjusted capital of Demi and Kiara after the formation.
2.) Journalize the entries to record the formation of the partnership if the required capital credit
of the partners are based on the profit and loss ratio.

Problem 2

Edgar, Geri and Marvin, formed a partnership on July 1,2020, with the following investments: P400,000;
P600,000 and P900,000. The partnership agreement stated that profits and losses are to be shared
equally by the partners after consideration for the following:

a) Annual salaries to the partners: P120,000 for Edgar; P96,000 for Geri and P72,000 for Marvin.
b) 10% interest on the average capital
c) 10% of the net profit after salaries and interest as bonus to Edgar as the managing partner.

On October 1, 2020, Edgar made an additional investment of P120,000. Marvin invested P60,000 on
December 1, 2020.
 1.) Distribute the net income of the partnership among the partners if each partner received
P60,000 on the residual profit after salaries, interest, and bonus.
2.) Determine the ending capital of the partners.

Problem 3

The partners also agreed to give 10% interest on their beginning capital. On December 31, 2020, the trial
balance of the partnership is as follows:

Debit Credit
Cash P140000
Accounts Receivable 134000
Prepaid Insurance 24000
Office supplies 5000
Furniture and Fixtures 45000
Store equipment 200000
Purchases 390000
Purchase returns P26000
Sales 562000
Sales returns 15000
Operating expenses 115000
Accounts payable 120000
Bong, Capital 210000
Kris, Capital 150000
Total P1068000 P1068000

Data for adjustments:

a) Inventories on December 31, 2020 were: Merchandise, P75,000 and office supplies on hand was
P2,800 only.
b) The prepaid insurance is for one year from March 1,2020.
c) Accrued utilities of P6,200 is to be recognized.
d) All depreciable assets have 5 years estimated life from March 1, 2020. Straight line method is
used. Income tax rate of 30% is to be considered.