REVIEWER IN PARTNERSHIP

1. The partners agreed to equalize their interests. Cash settlements among the partners are to be
made outside the partnership. Which of the following statements is correct?
a. A and C pay B ₱250,000 and ₱625,000, respectively.
b. A pays B ₱250,000 while B pays C ₱625,000.
c. C pays A and B ₱625,000.
d. A provides additional ₱250,000 to the partnership.

Solutions:
  A B C Partnership
Cash 750,000 1,000,000 500,000 2,250,000
Accounts receivable 875,000 875,000
Inventories 1,125,000 1,125,000
Building 1,750,000 1,750,000
Accounts payable (375,000) (375,000)
Net contribution 1,625,000 2,750,000 1,250,000 5,625,000
Equal interest 1,875,000 1, 875,000 1,875,000 5,625,000
Cash receipt (payment) (250,000) 875,000 (625,000) -

2. How much are the capital balances of partners’ A, B and C, respectively, right after the
formation of the partnership?
a. 1,875,000; 1,875,000; 1,875,000
b. 1,625,000; 2,750,000; 1,250,000
c. 1,500,000; 1,500,000; 1,500,000
d. 750,000 ; 1,000,000; 500,000

3. A and B agreed to form a partnership. The contributions of the partners are as follows:

  A B
Cash 600,000
Inventory 20,000
Land 400,000
Equipment 50,000

Additional information:
 Half of the inventory is unpaid. The partnership agreed to assume the related accounts payable.
 The land has a fair value of ₱700,000 and is subject to a mortgage of ₱100,000. However, B agreed
to settle the mortgage personally.

How much are the adjusted capital contributions of A and B, respectively?

a. 670,000; 690,000
b. 670,000; 700,000
c. 660,000; 700,000
d. 670,000; 600,000
Solution:
  A B
Cash 600,000
Inventory 20,000
Land 700,000
Equipment 50,000
Accounts payable (20,000 x ½) (10,000)
Adjusted capital balances 660,000 700,000

4. A and B formed a partnership. The following are their contributions:

  A B
Cash 400,000 -
Accounts receivable 100,000 -
Equipment 700,000
Total 500,000 700,000

A, capital 500,000
B, capital 700,000
Total 500,000 700,000

Additional information:
 The accounts receivable includes a ₱30,000 account that is deemed uncollectible.
 The equipment is over-depreciated by ₱50,000. The equipment was obtained by B through
financing. The related loan payable has an unpaid balance of ₱250,000 which the partnership
assumes on repaying.

Which partner has the higher capital credit, and how much?
a. A, ₱470,000
b. A, ₱500,000
c. B, ₱500,000
d. B, ₱400,000

5. When property other than cash is invested in a partnership, at what amount should the noncash
property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

6. A and B formed a partnership. A contributed cash of ₱500,000 while B contributed land with
carrying amount of ₱400,000 and fair value of ₱800,000. The land has an unpaid mortgage of
 ₱200,000 which is assumed by the partnership. How much is the correct valuation of B’s capital
immediately after the partnership formation?
a. 400,000
b. 500,000
c. 600,000
d. 800,000

Solution:

Partnershi
  A B p
Cash 500,000 - 500,000
Land (at fair value) 800,000 800,000
Total 500,000 800,000 1,300,000

Mortgage payable - 200,000 200,000

A, capital 500,000 500,000
B, capital (800K – 200K) 600,000 600,000
Total 500,000 800,000 1,300,000

7. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even
though Mr. A contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The
partners agree that the difference in the amount of contribution and the amount of credit to the
partner’s capital shall be treated as compensation for the expertise that the partner will be
bringing to the partnership. How much is the correct valuation of A’s capital immediately after
the partnership formation?
a. 84,000
b. 92,000
c. 100,000
d. 108,000

Solution:
Cash 184,000
A, Capital (184,000 ÷ 2) 92,000
B, Capital (184,000 ÷ 2) 92,000

8. A and B formed a partnership. The following are their contributions:

  A B
Cash 500,000 -
Accounts receivable 100,000 -
Building 700,000
Total 600,000 700,000
 A, capital 600,000
B, capital 700,000
Total 600,000 700,000
Additional information:
 The accounts receivable includes a ₱20,000 account that is deemed uncollectible.
 The building is under-depreciated by ₱50,000.
 The building has an unpaid mortgage ₱100,000, but this is not assumed by the partnership.
Partner B promised to pay for the mortgage himself.

How much is the correct valuation of A’s capital immediately after the partnership formation?
a. 460,000
b. 580,000
c. 650,000
d. 720,000

Solution:
Partnershi
  A B p
Cash 500,000 - 500,000
Accounts receivable
(100K – 20K) 80,000 - 80,000
Building (700K – 50K) 650,000 650,000
Total 580,000 650,000 1,230,000

A, capital 580,000 580,000

B, capital 650,000 650,000
Total 580,000 650,000 1,230,000

9. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even
though Mr. A contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The
partners agree that the difference in the amount of contribution and the amount of credit to the
partner’s capital shall be treated as cash settlement between the partners. The compound entry
to record the partners’ contributions includes a credit to B’s capital account in the amount of
a. 84,000.
b. 92,000.
c. 100,000.
d. 108,000.

Solution:
Cash 184,000
A, Capital (184,000 ÷ 2) 92,000
B, Capital (184,000 ÷ 2) 92,000

The cash settlement among the partners is not recorded in the partnership’s books because this is not
a transaction of the partnership but rather a transaction among the partners themselves.
10. account has a net increase of ₱50,000. Partner A made contributions of ₱10,000 and capital
withdrawals of ₱60,000 during the year. How much was the share of B in the partnership profit
for the year?
a. 100,000
b. 150,000
c. 200,000
d. 180,000

Solution:

Step 1:
A, Capital
- beg.
Withdrawal
s 60,000 10,000 Additional investment
? Share in profit
end. 50,000

Step 2:
A, Capital
- beg.
Withdrawals 60,000 10,000 Additional investment
100,000 Share in profit (squeeze)
end. 50,000

Step 3: 100,000 ÷ 40% = 250,000 partnership profit

Step 4: B’s share: 250,000 x 60% = 150,000

11. The partnership agreement of A, B and C stipulates the following:

 Partners A and C shall receive annual salaries of ₱12,000 and ₱8,000, respectively.
 A bonus of 10% of profit after salaries but before deduction of bonus shall be given to
Partner A, the managing partner.
 Each partner shall receive 10% interest on average capital investments.
 Any remaining profit or loss shall be shared as follows: 40% to A and 30% each to B and C.
The average capital investments of partners during the year are as follows:
A ₱100,000
B 60,000
C 120,000
The partnership earns profit of ₱100,000.
How much is the share of Partner C in the partnership profit?
a. 47,600
b. 32,200
c. 19,200
d. 33,200

Solution:
  A B C Total
Amount being allocated 100,000
Allocation:
1. Salaries 12,000 8,000 20,000
2. Bonus (100K - 20K) x 10% 8,000 8,000
3. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%) 10,000 6,000 12,000 28,000
4. Allocation of remainder:
(100K - 20K - 8K - 28K) = 44K;
(44K x 40%); (44K x 30%); (44K x 30%) 17,600 13,200 13,200 44,000
As allocated 47,600 19,200 33,200 100,000

12. The partnership agreement of A and B provides that interest at 10% per year is to be credited to
each partner on the basis of weighted-average capital balances. A summary of B’s capital
account for the year ended December 31, 20x1 is as follows:

Balance, Jan. 1, 20x1 252,000

Additional investment, July
1 72,000
Withdrawal, August 1 (27,000)
Balance, Dec. 31, 20x1 297,000

How much is the interest on B’s weighted average capital?

a. 27,675
b. 33,633
c. 37,214
d. 23,322

Solution:
Balance, Jan. 1, 20x1 252,000 12/12 252,000
Additional investment, July 1 72,000 6/12 36,000
Withdrawal, August 1 (27,000) 5/12 (11,250)
Weighted average capital 276,750
Multiply by: 10%
Interest 27,675

13. Red and White formed a partnership in 2003. The partnership agreement provides for annual
salary allowances of ₱55,000 for Red and ₱45,000 for White. The partners share profits equally
 and losses in a 60/40 ratio. The partnership had earnings of ₱80,000 for 2003 before any
allowance to partners. What amount of these earnings should be credited to each partner’s
capital account?
Red White
a. 40,000 40,000
b. 43,000 37,000
c. 44,000 36,000
d. 45,000 35,000

Solution:
  Red White Total
Amount being allocated     80,000
Allocation:
1. Salaries 55,000 45,000 100,000
2. Allocation of remaining profit
(80K profit – 100K salaries) = -20K
(-20 x 60%); (-20K x 40%) (12,000) (8,000) (20,000)
As allocated 43,000 37,000 80,000

14. Fox, Greg, and Howe are partners with average capital balances during 2002 of ₱120,000,
₱60,000, and ₱40,000, respectively. Partners receive 10% interest on their average capital
balances. After deducting salaries of ₱30,000 to Fox and ₱20,000 to Howe, the residual profit or
loss is divided equally. In 2003 the partnership sustained a ₱33,000 loss before interest and
salaries to partners. By what amount should Fox’s capital account change?
a. 7,000 increase.
b. 11,000 decrease.
c. 35,000 decrease.
d. 42,000 increase.

Solution:
  Fox Greg Howe Total
Amount being allocated (33,000)
Allocation:
1. Salaries 30,000 - 20,000 50,000
2. Interest on capital 12,000 6,000 4,000 22,000
3. Allocation of balance
(-33K – 50K - 22K) = -105K / 3 (35,000) (35,000) (35,000) (105,000)
As allocated 7,000 (29,000) (11,000) (33,000)

15. The partnership agreement of Axel, Berg & Cobb provides for the year-end allocation of net
income in the following order:
 First, Axel is to receive 10% of net income up to ₱100,000 and 20% over ₱100,000.
 Second, Berg and Cobb each are to receive 5% of the remaining income over ₱150,000.
 The balance of income is to be allocated equally among the three partners.
The partnership’s 2003 net income was ₱250,000 before any allocations to partners. What amount
should be allocated to Axel?
a. 101,000
b. 103,000
c. 108,000
d. 110,000
Solution:
  Axel Berg Cobb Total
Amount being allocated       250,000
Allocation:
1. Bonus to A
First 100K (100K x 10%) 10,000 10,000
Over 100K [(250K - 100K) x 20%] 30,000 30,000
2. Bonus to Berg and Cobb
(250K - 10K - 30K - 150K) x 5% 3,000 3,000 6,000
3. Allocation of bal. (204K / 3) 68,000 68,000 68,000 204,000
As allocated 108,000 71,000 71,000 250,000

16. The partnership agreement of Reid and Simm provides that interest at 10% per year is to be
credited to each partner on the basis of weighted-average capital balances. A summary of
Simm’s capital account for the year ended December 31, 2003, is as follows:

Balance, January 1 140,000

Additional investment, July
1 40,000
Withdrawal, August 1 (15,000)
Balance, December 31 165,000

What amount of interest should be credited to Simm’s capital account for 2003?
a. 15,250
b. 15,375
c. 16,500
d. 17,250

B [140K + (40K x 6/12) – (15K x 5/12) = 153.75K x 10% = 15,375

17. Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May
1, 2003, their respective capital accounts were as follows:

Blau 60,000
Rubi 50,000

On that date, Lind was admitted as a partner with a one-third interest in capital and profits for an
investment of ₱40,000. The new partnership began with total capital of ₱150,000. Lind’s capital
account was credited equal to her proportionate share in the partnership net assets. Immediately
after Lind’s admission, Blau’s capital should be
a. 50,000
b. 54,000
c. 56,667
d. 60,000

Solution:
Total capital after admission 150,000
Multiply by: Interest of Lind 1/3
Capital credit to Lind 50,000
Contribution of Lind (40,000)
Bonus to Lind 10,000
Multiply by: Old P/L ratio of Blau 60%
Deduction to Blau's capital 6,000

Interest of Blau before admission of Lind 60,000

Deduction to Blau's capital (6,000)
Adjusted capital of Blau after admission 54,000

18. Kern and Pate are partners with capital balances of ₱60,000 and ₱20,000, respectively. Profits and
losses are divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with
Grant, who invested land valued at ₱15,000 for a 20% capital interest in the new partnership.
Grant’s cost of the land was ₱12,000. The partnership elected to use the bonus method to record
the admission of Grant into the partnership. Grant’s capital account should be credited for
a. 12,000
b. 15,000
c. 16,000
d. 19,000

Solution: (60K + 20K + 15K) = 95K total capital after admission x 20% = 19,000

Use the following information for the next two questions:

On June 30, 2003, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm,
together with their respective profit and loss sharing percentages were as follows:

320,00
Assets, net of liabilities
0

Eddy, capital (50%) 160,000

Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
320,00
0
19. Eddy decided to retire from the partnership and by mutual agreement is to be paid ₱180,000 out
of partnership funds for his interest. No goodwill is to be recorded. After Eddy’s retirement,
what are the capital balances of the other partners?
Fox Grimm
a. 84,000 56,000
b. 102,000 68,000
c. 108,000 72,000
d. 120,000 80,000

Solution:
Payment to Eddy 180,000
Capital balance of Eddy 160,000
Excess payment to Eddy 20,000

Fox Grimm
Capital balances before retirement 96,000 64,000
Share in excess payment to Eddy (12,000) (8,000)
Capital balances after retirement 84,000 56,000

20. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new
partner with a 25% interest in the capital of the new partnership for a cash payment of ₱140,000.
The bonus method shall be used to record the admission of Hamm. Immediately after
admission of Hamm, Eddy’s capital account balance should be
a. 280,000
b. 172,500
c. 160,000
d. 140,000

Solution:
Eddy, capital 160,000
Fox, capital 96,000
Grimm, capital 64,000
Investment of Hamm 140,000
Total partnership capital after admission 460,000
Multiply by: Interest of Hamm 25%
Capital credit to Hamm 115,000
Investment of Hamm 140,000
Bonus to old partners (25,000)

Eddy, capital (before admission) 160,000

Share in bonus to old partners (25K x 50%) 12,500
Eddy, capital (after admission) 172,500
The next two items are based on the following information:
The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share
profits and losses in the ratio of 60:40, respectively:
Cash 45,000
Other assets 625,000
Beda, loan 30,000
700,000

Accounts payable 120,000

Alfa, capital 348,000
Beda, capital 232,000
700,000

21. The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit
Capp as a new partner with 20% interest. No goodwill or bonus is to be recorded. What amount
should Capp contribute in cash or other assets?
a. 110,000
b. 116,000
c. 140,000
d. 145,000

D (348K + 232K) = 580K ÷ 80% = 725K capital after admission x 20% = 145,000

22. Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the
other assets are sold for ₱500,000, what amount of the available cash should be distributed to
Alfa?
a. 255,000
b. 273,000
c. 327,000
d. 348,000

Solution:
The total loss on the sale is computed as follows:
Sale of other assets 500,000
Carrying amount of other assets (625,000)
Total loss on sale (125,000)

The partial settlement to partners is computed as follows:

  Alpha Beda Totals
Capital balances before liquidation 348,000 232,000 580,000
Receivable from Beda (20,000) (20,000)
Total 348,000 212,000 560,000
Allocation of loss
[125K x (60% & 40%)] (75,000) (50,000) (125,000)
Amounts received by the partners 273,000 162,000 435,000
23. The statement of financial position of the partnership of A, B and C shows the following
information:

Cash 22,400
Other assets 212,000
Total assets 234,400

Liabilities 38,400
A, capital (50%) 76,000
B, capital (25%) 64,000
C, capital (25%) 56,000
Total liabilities and
equity 234,400

The partners realized ₱56,000 from the first installment sale of non-cash assets with total carrying
amount of ₱120,000. How much did B receive from the partial liquidation?
a. 25,000
b. 24,000
c. 16,000
d. 0

Solution:
  A (50%) B (25%) C (25%) Totals
Cap. bal. before liquidation 76,000 64,000 56,000 196,000
Allocation of loss (78,000) (39,000) (39,000) (156,000)
Total (2,000) 25,000 17,000 40,000
Allocation of deficiency 2,000 (1,000) (1,000) -
Total - 24,000 16,000

24. The statement of financial position of the partnership of A, B and C shows the following
information:

Cash 40,000
Other assets 720,000
Total assets 760,000

Liabilities 300,000
B, loan 64,000
C, loan 20,000
A, capital (50%) 250,000
B, capital (30%) 86,000
C, capital (20%) 40,000
Total liabilities and 760,000
 equity

The non-cash assets are sold for ₱320,000. Partner C is the only solvent partner. In the settlement of
the partners’ claims, how much additional contribution is required of Partner C?
a. 50,000
b. 30,000
c. 20,000
d. None

Solution:
Net proceeds 320,000
Carrying amount of all other assets (720,000)
(400,000
Loss )

  A (50%) B (30%) C (20%) Totals

Cap. bal. before liquidation 250,000 86,000 40,000 376,000
Payable to partners 64,000 20,000 84,000
Total 250,000 150,000 60,000 460,000
Allocation of loss (200,000) (120,000) (80,000) (400,000)
Total 50,000 30,000 (20,000) 520,000
Additional contribution 20,000 20,000
Total 50,000 30,000 - 540,000

25. A, B and C are partners. Their respective personal assets, personal liabilities and partnership
capital balances are as follows:

  A B C
Personal assets 90,000 240,000 180,000
Personal
liabilities 75,000 150,000 216,000
Capital balances 150,000 (96,000) 210,000

Which of the partners is personally insolvent?

a. A
b. B
c. C
d. B & C

Solution:
  A B C
Personal assets 90,000 240,000 180,000
Personal (150,000
liabilities (75,000) ) (216,000)
 (36,000
Net free assets 15,000 90,000 )

26. The equity section of the statement of financial position of the partnership of A, B and C shows
the following information:

A, capital (40%) 64,000

B, capital (40%) 104,000
C, capital (20%) 76,800
Total liabilities and equity 244,800

Non-cash assets are sold in installment. Cash distributions are made to the partners as cash becomes
available. In the second sale of non-cash assets, the partners received the same amount of cash in the
distribution. In the third sale of non-cash assets, the amount of cash available for distribution is
₱100,000. The carrying amount of the remaining non-cash assets is ₱260,000. Under the cash priority
program, how much cash is distributed to B in the third installment payment?
a. 40,000
b. 38,400
c. 28,200
d. 0

Solution: (100,000 x 40%) = 40,000

.