Accounting for Special Transactions

PARTNERSHIP ACCOUNTING

PROBLEM 1: On July 1, 2021, Calcu and Sanji decided to form a partnership. The firm is to take over
business assets and assume liabilities, and capitals are to be based on net assets transferred after the
following adjustments:

a. Calcu and Sanji’s inventory is to be valued at 31,000 and 22,000 respectively.

b. Accounts receivable of 2,000 in Calcu’s books and 1,000 in Sanji’s books are uncollectible.
c. Accrued salaries of 4,000 for Calcu and 5,000 for Sanji are still to be recognized in the books.
d. Unused office supplies of Calcu amounted to 5,000, while that of Sanji amounted to 1,500.
e. Unrecorded patent of 7,000 and prepaid rent of 4,500 are to be recognized in the books of Calcu
and Sanji, respectively.
f. Calcu is to invest or withdraw cash necessary to have a 40% interest in the firm.

Balance sheets for Calcu and Sanji on July 1 before adjustments are given below:

Calcu Sanji
Cash 31,000.00 50,000.00
Accounts Receivable 26,000.00 20,000.00
Inventory 32,000.00 24,000.00
Office Supplies - 5,000.00
Equipment 20,000.00 24,000.00
Accumulated Depreciation - Equipment (9,000.00) (3,000.00)
Total Assets 100,000.00 120,000.00

Accounts Payable 28,000.00 20,000.00

Equity 72,000.00 100,000.00
Total Liabilities and Equity 100,000.00 120,000.00

1. The net adjustments in capital in the books of Calcu and Sanji

a. Calcu – (7,000); Sanji – 2,000
b. Calcu – (5,000); Sanji – 7,000
c. Calcu – 7,000; Sanji – (2,000)
d. Calcu – 5,000; Sanji – (7,000)

2. The adjusted capital of Calcu and Sanji in their respective books

a. Calcu – 65,000; Sanji – 102,000
b. Calcu – 63,000; Sanji – 107,000
c. Calcu – 77,000; Sanji – 98,000
d. Calcu – 77,000; Sanji – 93,000

3. The additional investment (withdrawal) made by Calcu

a. (15,000)
b. (6,666.50)
c. 3,000
d. 8,377.50
4. The total assets of the partnership after formation
a. 235,333.50
b. 230,000
c. 220,333.50
d. 212,000

5. The total liabilities of the partnership after formation

a. 57,000
b. 48,000
c. 54,000
d. 51,000

6. The total capital of the partnership after formation

a. 180,000
b. 178,333.50
c. 163,333.50
d. 155,000

7. The capital balances of Calcu and Sanji in the combined balance sheet
a. Calcu – 81,250; Sanji – 72,000
b. Calcu – 81,250; Sanji – 75,000
c. Calcu – 100,000; Sanji – 75,000
d. Calcu – 62,000; Sanji – 93,000
PROBLEM 2: Partners Sae-ro-yi and Yi-seo established a business called Itaewon Class and they want
to distribute the profits and losses that were generated at the end of the year. The capital accounts during
the year were follows:

Sae-ro-yi Yi-seo
January 1, beginning 50,000.00 70,000.00
April 1, investment 30,000.00 -
April 1, withdrawal - (20,000.00)
June 30, investment - 50,000.00
June 30, withdrawal (25,000.00) -
September 1, investment - 60,000.00
September 1, withdrawal (45,000.00) -
October 1, investment 70,000.00 -
October 1, withdrawal - (40,000.00)

The following were agreed on how to distribute the profits and losses:
• Interest on average capital balances at 8%
• Annual salaries of 25,000 for Sae-ro-yi and 35,000 for Yi-seo
• Bonus to E at 25% of net income after deducting the interest and salaries, but before deducting
the bonus
• Remainder were shared equally
• The income summary had a debit balance of 45,000

1. What is the share in the net loss of Sae-ro-yi?

a. (28,500)
b. (28,600)
c. (19,286)
d. (22,500)

2. What is the capital at the end of the year of Yi-seo?

a. 143,600
b. 103,500
c. 143,500
d. 103,600
PROBLEM 3: On December 31, 2021, the Statement of Financial Position of Thousand Sunny
Partnership shows the following data with profit or loss sharing of 1:3:6:

Cash 15,000,000 Total Liabilities 30,000,000

Noncash Asset 45,000,000 Luffy, Capital 15,000,000
Zoro, Capital 9,000,000
Sanji, Capital 6,000,000

On January 1, 2021, Jinbei will be admitted to the new partnership named by investing 12,000,000 for
30% capital interest in the new partnership which has total agreed capitalization of 60,000,000.

1. By what amount should the capital of Sanji change due to revaluation of an asset?
a. 3,600,000 increase
b. 10,800,000 increase
c. 7,200,000 increase
d. 3,600,000 decrease

2. By what amount should the capital of Luffy change due to transfer of capital?
a. 1,800,000 increase
b. 1,200,000 decrease
c. 600,000 increase
d. 600,000 decrease

3. What is the capital balance of Zoro upon admission of the new partner Jinbei?
a. 12,600,000
b. 16,200,000
c. 13,200,000
d. 9,000,000
PROBLEM 4: Before the retirement of Yow from TP Partnership, Yow, Cong, and Junnie have capital
balance of 42,000,000, 21,000,000, and 7,000,000, respectively. The pre-retirement capital profit or loss
ratio of partnership is 5:4:1, respectively. If the capital balance of B after the retirement of A becomes
18,000,000 and a particular partnership asset is overvalued.

1. How much is the settlement of the partnership to Yow upon his retirement?
a. 42,000,000
b. 45,750,000
c. 38,250,000
d. 34,500,000

2. Using the same information above, except from the fact that all the assets of the partnership
prior to retirement are properly valued, how much is the capital balance of Junnie immediately
after the retirement of Yow?
a. 6,250,000
b. 7,750,000
c. 7,000,000
d. 3,250,000

PROBLEM 5: On December 31, 2021, the Statement of Financial Position of Kanto Partnership with
profit or loss ratio of 5:3:2 of respective partners Bulbasaur, Charmander, and Squirtle, showed the
following information:

Cash 1,600,000 Total Liabilities 2,000,000

Noncash Assets 1,400,000 Bulbasaur, Capital 100,000
Charmander, Capital 500,000
Squirtle, Capital 400,000

On January 1, 2022, the partners decided to liquidate the partnership in installment. All partners are
legally declared to be personally insolvent.

As of January 31, 2022, the following transactions occurred:

• Noncash assets with a carrying amount of 1,000,000 were sold at a gain of 100,000.
• Liquidation expenses for the month of January amounting to 50,000 were paid.
• It is estimated that liquidation expenses amounting to 150,000 will be incurred for the month of
February 2022.
• 20% of the liabilities to third persons were settled.
• Available cash was distributed to the partners.

As of February 28, 2022, the following transactions occurred:

• Remaining noncash assets were sold at a loss of 100,000.
• The final liquidation expenses for the month of February amounted to 100,000.
• The remaining liabilities to third persons were settled.
• Remaining cash was finally distributed to the partners.
1. What is the amount of cash received by Squirtle on January 31, 2022?
a. 260,000
b. 240,000
c. 300,000
d. 350,000

2. What is the share of Charmander in the maximum possible loss on January 31, 2022?
a. 275,000
b. 110,000
c. 120,000
d. 165,000

3. What is the amount of total cash withheld on January 31, 2022?

a. 550,000
b. 1,600,000
c. 1,750,000
d. 1,700,000

4. What is the amount of cash received by Bulbasaur on February 28, 2022?

a. 0
b. 25,000
c. 195,000
d. 130,000
 SELF TEST
I. Theory of Accounts:

1. Which of the following statements regarding partnership formation is FALSE?

a. Upon formation of a partnership, the partners may agree to make their capital ratio in conformity
with their profit and loss ratio using the bonus method.
b. The non-cash contributions of the partners to form a partnership are recorded by the partnership at
their agreed value.
c. The amount of capital credited to a partner may be equal to the total assets contributed at agreed
or fair value less liabilities assumed by the partnership.
d. The capital to be credited to each partner upon formation is always the actual amount contributed
by each partner.

2. Which of the following statements concerning the formation of partnership business is correct?
a. PFRS allows recognition of goodwill arising from the formation of partnership.
b. The juridical personality of the partnership arises from the issuance of certification of registration.
c. The parties may become partners only upon contribution of money or property but not of industry
or service.
d. The capital to be credited to each partner upon formation may not be the amount actually
contributed by each partner.

3. Under the generally accepted accounting principles in the Philippines, what is the acceptable
reason when the amount credited to a partner is greater than the amount actually contributed by such
partner during partnership formation?
a. Recognition of goodwill by virtue of special skills or reputation of said partner.
b. Receipt or transfer of capital from other partner by virtue of partner’s agreement resulting to bonus
to the said partner.
c. Recognition of impairment loss on the property contributed by said partner.
d. When there is bonus given by said partner to the other partners.

4. Which of the following statements regarding partnership operation is TRUE?

a. When the result of the partnership operation is a net income then it is always assured that bonus
will be given to a partner(s).
b. In the division of profit or loss, it is always true that there is no bonus in case net loss is to be
divided among the partners.
c. In dividing the profit or loss to the partners, all types of withdrawals made by a partner affects the
computation of the average capital balance used as a basis in providing an allowance as to interest.
d. In dividing the profit or loss, there is no salary to be provided in case of a debit income summary
balance.

5. Which of the following transactions shall not affect the capital balance of a partner?
a. Share of a partner in the partnership’s net loss.
b. Receipt of bonus by a partner from another partner based on the agreement.
c. Advances made by the partnership to a partner.
d. Additional investment by a partner to the partnership.
6. Which of the following will decrease the capital balance of a partner?
a. Share in partnership profit.
b. Receipt of share in revaluation surplus from a partnership property, plant and equipment.
c. Drawing made by a partner.
d. Advances made by a partner to the partnership.

7. Which of the following statements regarding partnership dissolution is TRUE?

a. In admission of a new partner by purchase of interest, the old partners capital account is increased
when the new partner paid more than the interest he acquired.
b. The assets of the partnership increases, when a new partner is admitted to the partnership by
purchasing more than book value the interest of one or more partner(s).
c. If a new partner purchases 1/5 interest from an old partner, the only entry on the partnership books
is a credit to the purchaser’s capital account with a debit to the capital account of the selling partner
equal only to the interest being acquired.
d. When a new partner is admitted to an existing partnership by purchasing a portion of a capital
interest of an existing partner, it will result to revaluation or impairment of existing assets of the
partnership.

8. Which of the following will not result to the dissolution of a partnership?

a. Insolvency of the partnership
b. Admission of a new partner in an existing partnership
c. Assignment of an existing partner’s interest to a third person
d. Retirement of a partner

9. If a partner who retired from the partnership receives less than the capital balance before retirement
which also resulted to decrease in the capital balance of remaining assets, which is correct?
a. The retiring partner receives bonus from the remaining partner
b. An impairment loss is recognized before the retirement
c. Revaluation surplus is recognized before the retirement
d. The retiring partner gives bonus to the remaining partner.

10. Which of the following statements regarding partnership liquidation is TRUE?

a. In a partnership liquidation, all cash withheld is part of maximum possible loss under the safe
payment to partners.
b. In a partnership liquidation, with more than one deficient partner, partner(s) with personal
liabilities lower than his personal assets are the first to be eliminated in the distribution of cash.
c. In a partnership liquidation, a partner who is insolvent may still receive a distribution of cash from
the partnership.
d. In an installment liquidation, a partner with a debit balance pre-liquidation interest is a non-priority
partner and shall not receive any distribution from the partnership.
II. Problem Solving

1. Boom admits Pao as a partner in business. Just before the formation, Boom’s books showed the
following:

Cash 2,600
Accounts Receivable 12,000
Merchandise Inventory 18,000
Accounts Payable 6,200
Boom, Capital 26,400

It was agreed that, for purposes of establishing Boom’s investment in the firm, the following
adjustments shall be reflected:
• Allowance for bad debts of 2% should be set up.
• Merchandise inventory should be valued at 20,200.
• Prepaid Expenses of 350 and accrued expenses of 400 should be recognized.

How much cash should Pao invest to secure a one-third interest in the partnership?
a. 14,155
b. 26,400
c. 28,310
d. 42,465

2. Charlie and Delta formed a partnership. Charlie invested cash worth 85,000 and a machine. On the
other hand, Delta contributed cash worth 55,000 and an equipment which has a mortgage of 35,000
which Delta will pay personally. The total capital after formation was 360,000. They also further
agreed to reflect 55:45 ratio as to their capital balances respectively. No other investment or
withdrawal occurred other than mentioned to reflect their capital ratio agreement.

How much is the value of the equipment and the machine?

a. 115,000 and 105,000
b. 107,000 and 113,000
c. 150,000 and 107,000
d. 142,000 and 115,000

3. On January 2, 2021, Bruno and Mars formed a partnership with capital contributions of 175,000
and 25,000 respectively. They agreed to share profits and losses 80% and 20% respectively. Mars is
the general manager and works in the partnership full-time. Mars is given a salary of 5,000 a month;
an interest of 5% on starting capital; and a bonus of 15% of net profit before salary, interest and
bonus. The condensed profit and loss statement of the partnership, for the year ended December 31,
2021, is as follows:
 Net Sales 875,000
Cost of Sales (700,000)
Gross Profit 175,000
Expenses (including salary, interest, and bonus) (143,000)
Net Profit 32,000

The bonus of Mars in 2021 is

a. 13,304.35
b. 18,000
c. 15,300
d. 20,700

4. Hunt, Rob, Turman and Kelly own a manga publishing company that they operate as a partnership.
The partnership agreement includes the following:
• Hunt receives a salary of 10,000 and a bonus of 3% of income after all bonuses.
• Rob receives a salary of 5,000 and a bonus of 2% of income after all bonuses.
• All partners are to receive 10% interest on their average capital balances.
The average capital balances are Hunt, 25,000; Rob, 22,500; Turman, 10,000; and Kelly, 23,500.
Any remaining profits and losses are to be allocated equally among the partners.

Determine how a profit of 52,500 would be allocated among the partners.

a. Hunt – 20,725; Rob – 14,975; Turman – 7,275; Kelly – 9,075
b. Hunt – 14,000; Rob – 8,250; Turman – 1,000; Kelly – 2,350
c. Hunt – 19,850; Rob – 14,600; Turman – 8,350; Kelly – 9,700
d. Cannot be determined.

5. Alger and Bert’s capital are 600,000 and 480,000 respectively. Profit share ratio is 7:3. Jett directly
purchased 1/3 interest by paying Alger 195,000 and Bert 250,000. The land account is increased by
180,000 before Jett is accepted.

What is the capital of Alger and Bert after admitting Jett?

a. 726,000; 534,000
b. 531,000; 284,000
c. 400,000; 320,000
d. 484,000; 356,000

6. On November 30, 2021,the statement of financial position of Whitebeard Partnership has the
following balances: Total Assets, 900,000; Whitebeard, Loan , 50,000; Whitebeard, Capital, 207,500;
Marco, Capital, 192,500; Ace, Capital, 450,000. The partners share profit and losses 25:25:50
respectively. It was agreed that Whitebeard will retire from the partnership and will be paid 217,000.

However, the following were certain transactions that needed to be accounted for before
Whitebeard’s retirement:
• Partnership assets have a fair value of 1,020,000.
 • Partnership has a income summary debit balance in the amount of 300,000 at the end of the
year, which have not yet distributed among the partners.

What is the capital balance of Ace after the retirement of Whitebeard?

a. 360,000
b. 357,000
c. 363,000
d. 447,000

7. On December 31, 2021, the Statement of Financial Position of Dressrosa Partnership provided the
following data with profit or loss ratio of 5:1:4:

Current Assets 1,500,000 Total Liabilities 500,000

Noncurrent Assets 2,000,000 Doflamingo, Capital 1,100,000
Treble, Capital 1,200,000
Pica, Capital 700,000

On January 1, 2022, Diamante is admitted to the partnership by investing 500,000 to the partnership
for 20% capital interest. The total agreed capitalization of the new partnership is 2,800,000.

What is the capital balance of Diamante after his admission to the partnership and the capital
balance of Pica after the admission of Diamante to the partnership?
a. 500,000; 444,000
b. 560,000; 396,000
c. 700,000; 1,136,000
d. 600,000; 780,000

8. Mentos, Carding, and Datwo are partners who share profits and losses in the ratio of 5:2:3,
respectively. On January 1, 2022, they decided to liquidate the partnership and the statement of
financial position was prepared as follows:

Cash 5,000 Liabilities 6,000

Noncash Assets 50,000 Carding, Loan 7,000
Datwo, Loan 2,500
Mentos, Capital 17,450
Carding,Capital 12,550
Datwo, Capital 9,500

The following transactions occurred as a result of the liquidation process:

BV of Assets Proceeds Payment of Payment to Cash

Sold Liquidation Expenses creditors Withheld
January 12,000 10,500 500 6,000 2,000
February 7,000 6,000 750 1,000
March 15,000 10,000 1,000 2,500
April 2,000 5,000 5,000
I. How much total cash should the partnership distribute in order to apply the profit or loss
ratio of all partners in distribution?
a. 11,550
b. 14,100
c. 20,750
d. 22,540

II. How much is the amount to be received by Mentos, Carding, and Datwo for the month of
January?
a. 0; 3,500; 3,500
b. 3,500; 1,400; 2,100
c. 0; 7,000; 0
d. 7,000; 0; 0

III. How much is the amount to be received by Mentos, Carding, and Datwo for the month of
February?
a. 0; 3,125; 3,125
b. 3,125; 1,250; 1,875
c. 0; 1,020; 5,230
d. 0; 5,230; 1,020

IV. How much is the amount to be received by Mentos, Carding, and Datwo for the month of
March?
a. 0; 3,750; 3,750
b. 3,750; 1,500; 2,250
c. 3,325; 1,670; 2,505
d. 2,505; 1,670; 3,325

V. How much is the amount to be received by Mentos, Carding, and Datwo for the month of
April?
a. 1,250; 1,250; 0
b. 1,250; 500; 750
c. 1,250; 1,250; 0
d. 2,500; 0; 0
9. Blast, Tornado, and Silverfang are partners who share profits and losses as follows: Blast 35%,
Tornado 25%, and Silverfang 40%. The Statement of Financial Position of the partnership as of
December 31, 2021 is given below:

Hero Company
Statement of Financial Position
As of December 31, 2021

Cash 40,000 Liabilities 90,000

Noncash 550,000 Loan from B 10,000
Blast, Capital 163,500
Tornado, Capital 117,500
Silverfang, Capital 209,000

On January 1, 2022, the partners decided to liquidate. For the month of January, assets with book
value of 101,290 were sold. At the end of January, payment to partners Blast, Tornado, and Silverfang
were 750, 11,250, and 23,000 respectively. Cash withheld for possible liquidation expenses and
unrecognized liabilities amounted to 6,290.

What is the amount of cash realized from the sale of the noncash assets?
a. 91,290
b. 95,000
c. 141,290
d. 0

10. After a long dispute, TAX, MAS, and AUD decided to liquidate their partnership. Their total
interest as of January 1, 2021 are:

TAX (25%) 375,000 MAS (40%) 450,000 AUD (35%) 280,000

Partnership’s total assets include cash of 125,000, receivable from TAX amounting to 25,000, and a
noncash asset. Total liabilities of 340,000 including a loan from AUD in the amount of 20,000. At
the end of liquidation, MAS received 75,000.

What is the amount of the total book value of the noncash assets?
a. 1,300,000
b. 1,250,000
c. 1,280,000
d. 1,295,000

What is the amount realized for sale of the noncash assets?

a. 405,625
b. 362,500
c. 410,625
d. 312,500
What is the amount received by TAX at the end of liquidation?
a. 152,656
b. 140,625
c. 164,688
d. 375,000

“Sometimes you need to get hit in the head to realize that you’re in a fight.”
Michael Jordan