LYCEUM OF ALABANG

College of Business Management Education

Bachelor of Science in Accountancy

Prof. Joshua S. Umali

Partnership Accounting
Partnership Formation

Problem 1 (Adapted)

On July 1, 2017, Kim and Dom decided to form a partnership. The partnership’s name is “Ingo 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. Kim and Dom’s inventory is to be valued at 62,000 and 44,000, respectively.

b. Accounts receivable of 4,000 in Kim’s books and 2,000 in Dom’s books are uncollectible.
c. Accrued salaries of 8,000 for Kim and 10,000 for Dom are still to be recognized in the books.
d. Unused office supplies of Kim amounted to 10,000 while that of Dom amounted to 3,000.
e. Unrecorded patent of 14,000 and prepaid rent of 9,000 are to be recognized in the books of Kim and
Dom, respectively.
f. Kim is to invest or withdrew cash necessary to have a 40% interest in the firm.

Balance sheets for Kim and Dom on July 1 before adjustments are given below:

Kim Dom
Cash 62,000 100,000
Accounts Receivable 52,000 40,000
Inventory 64,000 48,000
Office Supplies - 10,000
Equipment 40,000 48,000
Accumulated Depreciation – equipment (18,000) (6,000)
Total Assets 200,000 240,000

Accounts Payable 56,000 40,000

Capitals 144,000 200,000
Total Liabilities and Capital 200,000 240,000
Determine:

1. The net adjustments – capital in the books of Kim and Dom:

a. Kim, 14,000 net debit; Dom, 4,000 net credit
b. Kim, 10,000 net debit; Dom, 14,000 net credit
c. Kim, 14,000 net credit; Dom, 4,000 net debit
d. Kim, 10,000 net credit; Dom, 14,000 net debit
2. The adjusted capital of Kim and Dom in their respective books:
a. Kim – 130,000; Dom – 204,000 c. Kim – 154,000; Dom – 196,000
b. Kim – 126,000; Dom – 214,000 d. Kim – 154,000; Dom – 186,000

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 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali

3. The additional investment (withdrawal) made by Kim:

a. (30,000) c. 6,000
b. (13,334) d. 16,667
4. The total assets of partnership after formation:
a. 470,667 c. 440,667
b. 460,000 d. 424,000
5. The capital balances of Kim and Dom in the combined balance sheet:
a. Kim, 162,500; Dom, 144,000 c. Kim, 200,000; Dom, 150,000
b. Kim, 162,500; Dom, 150,000 d. Kim, 124,000; Dom, 186,000

Problem 2: (Adapted)

On May 1, 2017, the business asset and liabilities of June and July were as follows:

June July
Cash 28,000 62,000
Receivables 200,000 600,000
Inventories 120,000 200,000
Land, Buildings and Equipment 650,000 535,000
Other assets 2,000 3,000
Accounts Payable (180,000) (250,000)
Notes Payable (200,000) (350,000)
June and July agreed to form a partnership by contributing their net assets, subject to the following
adjustments:

- Receivables of 20,000 in June’s books and 40,000 in July’s books are uncollectible.
- Inventories of 6,000 and 7,000 in the respective books of June and July are worthless.
- Other assets in both books are to be written off.
- Notes payable of June increased by 20,000 while the accounts payable of July increased to 272,000

(Net Investment Method)

1. Upon the partnership’s formation, the respective capital of partners June and July would be
a. 620,000; 800,000 c. 572,000; 728,000
b. 572,000; 800,000 d. 612,000; 772,000

(Bonus Method)

Additional info: If the partner agreed to have a capital ratio of 40:60 for june and july respectively;

1. How much is the amount of bonus to or (from) June?

a. 52,000 c. 58,400
b. (52,000) d. (58,400)

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 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali

2. How much is the adjusted capital of June and July?

a. 520,000; 780,000 c. 553,600; 830,400
b. 780,000; 520,000 d. 830,400; 553,600

(Withdrawal/Investment)

Additional info: If the partners agreed that June should withdraw or invest in order to have a capital ratio of
35%;

1. How much should be the amount of additional investment or (withdrawal)?

a. 117,000 c. (180,000)
b. (117,000) d. 180,000
2. How much is the adjusted capital of June and July?
a. 455,000; 845,000 c. 572,000; 308,000
b. 392,000; 728,000 d. 572,000; 728,000

Problem 3 (Adapted)

On December 1, 2017, Aps and Bals formed a partnership with each contributing the following assets at FMV:

Aps Bals
Cash 18,000 36,000
Machinery 27,000 -
Land - 180,000
Building - 54,000
Office furniture 27,000 -

The land and building are subject to a mortgage loan of 108,000 that the partnership agreement provides
that Aps and Bals share profits and losses, 40% and 60%, respectively and partners agreed to bring their
capital balances in proportion to the profits and loss ratio using the capital balance of Bals as the basis. The
additional cash investment made by Aps should be:

a. 36,000 c. 268,200
b. 171,000 d. 332,500

Problem 4 (Adapted)

Obli and Con are joining their separate business to form a partnership. Cash and non-cash assets are to be
contributed for a total capital of 300,000. The non-cash assets to be contributed and liabilities to be assumed
are:

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 LYCEUM OF ALABANG
College of Business Management Education
Bachelor of Science in Accountancy

Prof. Joshua S. Umali

Obli Con
Book Value Fair Value Book Value Fair Value
Accounts Receivable 22,500 22,500
Inventories 22,500 33,750 60,000 67,500
Equipment 37,500 30,000 67,500 71,250
Accounts Payable 11,275 11,250 7,500 7,500
The partner’s capital accounts are to be equal after all contributions of assets and assumptions of liabilities.

Determine:

1. The total assets of the partnership:

a. 318,750 c. 281,250
b. 300,000 d. 225,000
2. The amount of cash that each partner must contribute:
a. Obli – 75,000; Con – 18,750 c. Obli – 161,250; Con – 157,500
b. Obli – 75,000; Con – 11,250 d. Obli – 127,500; Con – 11,250

THE END

“The greatest mistake you can make is to continually fear making mistakes.”