ST.

SCHOLASTICAS COLLEGE
Leon Guinto, Manila
ADVANCED ACCOUNTING 1 PROF. ROEL E. HERMOSILLA

PARTNERSHIP FORMATION
PROBLEMS
1. On May 1, 2018, the business assets and liabilities of Ace and Jade were as follows:

Ace Jade
Cash P 8,000 P 62,000
Receivables 200,000 600,000
Inventories 120,000 200,000
Land, Building and Equipment 650,000 535,000
Other Assets 2,000 3,000
Accounts payable (180,000) (250,000)

Ace and Jade agreed to form a partnership by contributing their net assets, subject to the following
adjustments:
 Receivables of P 20,000 in Ace’s books and P 40,000 in Jade’s books are uncollectible.
 Inventories of P 6,000 and P 7,000 in the respective books of Ace and Jade are worthless
 Other assets in both books are written off

Upon the partnership’s formation:

The respective capital of partners Ace and Jade would be ______________ ; _______________ .
The total assets of the partnership would be ________________.

2. The balance sheet as of July 31, 2018, for the business owned by Barry, shows the following assets and
liabilities:

Cash P100,000 Fixtures P328,000

Accounts Receivable 268,000 Accounts Payable 57,600
Merchandise 440,000

It is estimated that 5% of the receivable will prove uncollectible. The cash balance includes 1,000 share
certificates of PNB at its cost, P8,000; the stock last sold on the market at P70.00 per share.
Merchandise includes obsolete items costing P36,000 that will probably realize only P8,000. Depreciation
has never been recorded; the fixtures are 2 years old, have an estimated life of 10 years, and would cost
P480,000 if purchased new currently. Sundry prepaid items amount to P10,000. Ava is to be admitted as
a partner upon investing P400,000 cash and P200,000 merchandise.

What will be the total capital after the formation of the partnership?

3. Mauro and Paing establish a partnership to operate a used-furniture business under the name of Montefalco
Furniture. Mauro contributes furniture that cost P60,000 and has a fair value of P90,000. Paing contributes
P30,000 cash and delivery equipment that cost P40,000 and has a fair value of P30,000. The partners
agree to share profits and losses 60% to Mauro and 40% to Paing.

Calculate the peso amount of inequity that will result if the initial noncash contributions of the partners are
recorded at cost rather than fair market value.

4. The balance sheet of the proprietorship of Jacob as of June 30, 2018 showed the following assets and
liabilities:
Cash P 40,000
Accounts Receivable 53,600
Inventory 88,000
Equipment 65,600
Accounts Payable 63,520

The cash balance included a 200- share certificate of BW Resources common at acquisition cost of P 1,600;
the current market quotation is 70 per share. Of the accounts receivable, an estimated 5% is considered to
be doubtful of collection. Certain inventory items, booked at a cost of P 22,960, are currently worth P
16,000. Depreciation has not been recorded; the equipment, acquired two years ago, has a remaining
useful life of about eight more years. Prepaid expense of P 12,800 and accrued expense of P 6,120 have
not been properly recognized. Emily and Bert will join Jacob in a partnership. Jacob will invest the net
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assets of his business, after effecting the appropriate adjustments, and he will be allowed credit for
goodwill equal to 10% of his initial capital credit. Emily and Bert will each contribute cash to secure the
respective interests of 1/3 and 1/6, respectively.

a. Jacob’s goodwill credit would be:

b. Emily’ cash investment would be:
c. Total capital would be:
d. Total assets would be:

5. Anna and Salve are partners sharing profits 60:40. A balance sheet prepared for the partnership on April
1, 2018 shows the following:
Cash 48,000 Accounts Payable 89,000
Accounts Receivable 92,000 Anna, Capital 133,000
Inventory 165,000 Salve, Capital 108,000
Equipment 70,000
Accumulated depreciation (45,000)
330,000 330,000
On this date, the partners agree to admit Connie as a partner. The terms of the agreement is that assets
and liabilities are to be restated as follows:
a. An allowance for possible uncollectible Salve of P4,500 is to be established
b. Inventories are to be restated at their present replacement values of P170,000
c. Equipment are to be restated at a value of P35,000
d. Accrued expenses of P4,000 are to be recognized

Anna, Salve, and Connie will divide profits in the ratio of 5:3:2. Capital balances for the new partners are to
be in this ratio with Anna and Salve making cash settlement outside of the partnership for the required
capital adjustment between themselves and Connie investing cash in the partnership for his interest.

Questions: 1. How much cash Connie should contribute?

2. How will you state the settlement between Anna and Salve?

6. Ana, Bea and Carol decided to form a partnership contributing the following items. Ana is to invest her
existing business in the partnership consisting of the following accounts; cash of P20,000; accounts
receivable of P50,000; inventory P30,000; fixtures of P40,000; payables of P12,000. Bea on the other
hand is to invest cash of P15,000 and a delivery truck costing P30,000 but is mortgaged with the bank for
P20,000. The partners agree that the receivables will re have a 90% realizable value. The inventory
would be valued at P20,000. P5,000 of the payables would be paid prior to the formation of the
partnership. The delivery truck would have a 20% increase in its market value. The partnership will
shoulder only 80% of the mortgage and Carol is to invest cash to be able to have a 40% interest in the
partnership.

How much cash should Carol invest in the newly formed partnership?
A. 61,200 B. 138,000 C. 60,800 D. 102,000

7. Batman and Robin agree to form a partnership. Batman is to contribute 135,600 cash and equipment that
has a carrying value of 135,000 and a fair value of 115,000. The equipment however, has a mortgage
attached to it and it is agreed by the partners that they will assume it. Robin, on the other hand
contributed 240,000 cash. They share profits and losses in the ratio of 4:5. Furthermore, part of their
agreement is to bring their initial capital in conformity with their profit and loss ratio.

How much is the mortgage of the equipment?

A. 58,600 B. 10,600 C. 78,600 D. 34,600

8. On January 1, 2019, R, J and N formed a partnership with profit or loss sharing agreement of 2:3:5.

R contributed land with assessed value from the city assessor in the amount of P1,000,000. The land is
subject to real estate mortgage, which is annotated to the title of the land in the amount of P800,000.
The appraised value of the land is P2,400,000. J contributed a building with a cost of P2,000,000 and
accumulated depreciation of P1,500,000. The fair value of building is P800,000. N contributed
investment in trading securities with historical cost of P6,000,000. The trading securities have quoted
price in active market of P3,000,000.

The partners decided to bring their capital balances in accordance with their profit or loss sharing
agreement. The total agreed capitalization of the partnership is P10,000,000.

Which of the following statements is correct?

A. The agreed capital of N is P500,000.
B. R should contribute additional capital in the amount of P1,800,000
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C. J should contribute additional capital in the amount of P2,200,000.
D. N is entitled to withdraw in the amount of P1,000,000.
9. The partnership of BROTHER and SISTER was formed on March 31, 2018. On this date, BROTHER
invested P50,000 cash and office equipment valued at P 30,000. SISTER invested P 70,000
cash, merchandise valued at P110,000 and furniture valued at P 100,000 subject to a note payable of
P50,000 (which the partnership assumes). The partnership provides that BROTHER and SISTER share
profits and losses 25:75, respectively. The agreement further provides that partners should initially have
an equal interest in the partnership capital. Under the goodwill and the bonus method, what is the total
capital of the partners after formation?
Bonus Goodwill Method
A. P 310,000 P 460,000
B. P 360,000 P 510,000
C. P 300,000 P 410,000
D. P 350,000 P 400,000

PARTNERSHIP OPERATIONS
PROBLEMS
1. David and Ruby organized the DR Partnership on January 1, 2018. The following entries were made in
their capital accounts during 2018:
Debit Credit
David, capital:
January Ruby 1 P180,000
April 1 P50,000
October 1 10,000
Ruby, capital;
January Ruby 1 P60,000
March 1 P10,000
September 1 20,000
November 1 10,000
Required:
If the partnership net income, computed before salaries, interest or bonus is P56,000 for 2018, indicate its
division between the partners under each of the following independent profit- sharing agreements:
a. Interest at 4% is allowed on average capital investments, and the balance is divided equally.
b. A salary of P24,000 is to be credited to Ruby, 4% interest is allowed on each partner on their
ending capital balance, and the balance in the ratio of beginning capital balances.
c. Salaries allowed to David and Ruby in the amounts of P34,000 and P38,000, respectively, and
remaining profits and losses are divided in the ratio of average capital balances.
d. A bonus of 10% of partnership net income is credited to David, a salary of P16,000 is allowed to
Ruby, and remaining profits and losses are shared equally. (The bonus is regarded as an expense
for purposes of calculating the bonus amount).

2. The following account balances appear in the ledger for the firm of X and Y at the end of 2018 before the
profit for the year has been transferred to the partners’ accounts:

X, drawing P 72,000
Y, drawing 125,000
X, loan P175,000
X, capital 500,000
Y, capital 500,000
Profit and loss 302,500

The following information is to be considered in closing the profit and loss account and the drawing
accounts:
1. The cost of installing equipment at the beginning of 2018, P27,000, was charged to expense. The
installation relates to equipment with a 10-year life.
2. The loan to the firm was made by X on March 1, 2018. No entry has been made for interest on the
loan, which is 6% and is to be paid to X at the time the loan is repaid.
3. The partnership agreement permits X and Y to withdraw weekly sums of P1,500 and P2,250,
respectively, these amounts to be regarded as salaries. Actual withdrawals by partners differed from
allowed amounts and are summarized in the drawing accounts.
4. Y, the managing partner, is entitled to a special bonus of 25% of the net profit after deduction of all
special allowances to partners (including the bonus), and any remaining profit is to be distributed
equally.

How much should be the Dec. 31 ending capital balance of each partner?
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3. The following Balance Sheet for the partnership of Apple, Sam and Sophia were taken from the books on
October 1, 2018.
ASSETS LIABILITIES & CAPITAL
Cash P 100,000 Liabilities P 200,000
Other Assets 400,000 Apple, capital 120,000
Sam, capital 95,000
________ Sophia, capital 85,000
Total Assets P 500,000 Total Liabilities and 500,000
Capital

The partners agreed to distribute profits as follows:

1) Annual salaries to Apple and Sam of P 5,000 each
2) Annual interest of 5% on beginning capital
3) Bonus of 15% to Sophia based on income after salaries, interest and bonus
4) Remaining profit: 25% to Apple, 35% to Sam and 40% to Sophia

The partnership began its operations on October 1, 2018 and net income as of December 31, 2018 is P
69,500. Which of the following is true?
A. The bonus to Sophia is P 5,804
B. Net Income after salaries, interest and bonus is P 38,696.
C. Sam’s total share in the net income is P 21,688.
D. Sophia’s share on the profit after salaries, interest and bonus is P13,543.

4. X, Y, and Z, doctors, agree to form a partnership and to share profits in the ratio 5:3:2. They also agreed
that Z is to be allowed a salary of P140,000 and that Y is to be guaranteed P105,000 as his share of the
profits. During the first year of operations, income from fees are P900,000, while expenses total P480,000.
How much of the profit should be credited to X?, to Y?, to Z?

5. NEGOSYO TO Company a partnership was formed on January 1, 2018, with four partners, C, P, A, and S.
Capital contributions were as follows: C- P1,000,000; P- P500,000; A- P500,000; and S-
P400,000. The partnership agreement provides that each partner shall receive 5%interest on the amount
of his capital contribution. In addition, C is to receive a salary of P100,000 and P a salary of P60,000,
which are to be charged as expenses of the business. The agreement further provides that A shall receive a
minimum of P50,000 per annum from the partnership and S a minimum of P120,000 per annum, both
including amounts allowed as interest on capital and their respective shares of profits. The balance of the
profits to be shared in the following proportions: C- 30%; P- 30%; A- 20%; and S- 20%.

Calculate the amount that must be earned by the partnership during 2018, before any charge for interest
on capital or partners’ salaries, in order that C may receive an aggregate of P250,000, including interest,
salary and share of profits.

6. The income statement of Analiza-Carmela Partnership for the year ended Dec. 31, 2018 appear below:

Sales P600,000
Less: Cost of goods sold 380,000
Gross profit 220,000
Less: Operating expenses 60,000
Net income P160,000
Additional information:
1. Analiza and Carmela began the year with a capital balance of P81,600 and P224,000, respectively.
2. On April 1, Analiza invested an additional P30,000 into the partnership and on August 1, Carmela
invested an additional P40,000 into the partnership.
3. Throughout 2018, each partner withdrew P800 per week in anticipation of partnership net income. The
partners agreed that these withdrawals are not to be included in the computation of average capital
balances for purposes of income distributions.

Analiza and Carmela have agreed to distribute partnership net income according to the following:
Analiza Carmela
1. Interest on average capital balances 6% 6%
2. Bonus on net income before the bonus but after
interest on average capital balances 10%
3. Salaries P 50,000 P 60,000
4. Residual (if positive) 70% 30%
5. Residual (if negative) 50% 50%
a. The share of Analiza and Carmela on the net income:
b. The ending capital balance of Analiza and Carmela:
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7. Lino is trying to decide whether to accept a bonus of 25% of net income after salaries and bonus or a
salary of P97,500 plus a bonus of 10% of net income after salaries and bonus as a means of allocating
profit among partners. Salaries traceable to the other partners are estimated to be P450,000.

What amount of income would be necessary so that Lino would consider the choices equal?

8. The partnership of EL, OOH, ARE and DEE reflected capital balances before the distribution of the net
income amounting to P125,000; P100,000, P175,000 and P150,000. The partners are to divide profits and
losses among themselves based on the following stipulations that they agreed on:
A) Salary of P30,000 to EL, OOH and DEE.
B) 10% interest on the capital balance before the distribution of income to the partners.
C) A 20% bonus after bonus and interest to AREis to be given to ARE.
D) The balance is to be divided on a 3:4:2:1 ratio.

If OOH receives P70,000 from the partnership results of operations, what is the net income of the
partnership?
a. 300,625 b. 260,500 c. 270,625 d. 277,500

9. Princess and Lora are partners operating a small chain of convenience stores. Their business has grown
substantially over the last six years and they amended their partnership agreement to provide the following
distribution of profits and losses:
Princess Lora
Salaries 49,000 None
Commission on gross sales None 4%
Interest on average capital balances 7% 9%
Bonus to Princess is 10% of net income after salary,
commissions, interest and bonus.
Remainder 40 60

Gross sales for 2016 was 3,000,000. Income after deducting salaries, commissions and interest was
132,000. Average capital balances were 720,000 and 540,000 for Princess and Lora.

How much profit share will Princess receive?

a. 158,920 b. 152,800 c. 159,400 d. 152,500

10. A and B formed a partnership to operate a retail store of various merchandise. They agreed on the
following distribution of profits and losses.
A B
Salaries 400,000 350,000
Interest on ending balances before distribution of 25% 30%
profit/(loss)
Bonus on net income after salaries and interest but 15% 12%
before bonuses
Remainder 40% 60%

Only 80% of the partners’ share in net income is distributed. The remaining 20% is retained as partners’
capital. Partnership’s net income amounted to P2,500,000 at the end of the year. A’s and B’s ending
capital balances prior to distribution of profit/(loss) amounted to P1,250,000 and P1,100,000, respectively.

A) How much is B’s share in the partnership net income?

A. 1,018,985 B. 950,000 C. 1,297,985 D. 997,985

B) How much is B’s ending capital after the distribution of the net income?
A. 1,359,597 B. 2,418,985 C. 1,600,000 D. 2,397,985

11. On January 1, 2017, Anna, Bea, and Cara formed a partnership with original capital contribution ratio of
4:5:1 for a total agreed capitalization of P5,000,000. The profit or loss ratio agreement provides that
profits shall be distributed in the ratio of 3:2:5 while losses shall be distributed in the ratio of 6:1:3.

During 2017, the partnership reported net income of P2,000,000 with Anna and Bea withdrawing
P500,000 and P300,000, respectively. During 2018, the partnership reported net loss of P1,000,000 with
Bea and Cara withdrawing P200,000 and P400,000 respectively.
What is the capital of Bea on December 31, 2018?
A. 2,600,000 B. 2,500,000 C. 2,300,000 D. 2,400,000
Advanced Accounting 1 Page 6

12. The partnership agreement of ADAM, MARC, and VIC provides for the year – end allocation of net income
in the following order:
 First, ADAM is to receive 10% of net income up to P200,000 and 20% over P200,000.
 Second, MARC and VIC each are to receive 5% of the remaining income over P300,000.
 The balance of income is to be allocated equally among the three partners.

The partnership’s 2019 net income was P500,000 before any allocations to partners. What amount should
be allocated to ADAM?
A. P216,000 B. P222,000 C. 202,000 D. 206,000

CHANGES IN PARTNERSHIP
PROBLEMS
1. A condensed balance sheet for the AA, BB and CC partnership at December 31, 2018, and their profit and
loss sharing percentages on that date are as follows:
Cash P 15,000 Liabilities P50,000
Other assets 185,000 AA, Capital (50%) 75,000
BB, Capital (30%) 50,000
CC, Capital (20%) 25,000
P200,000 P200,000

On January 1, 2019 the partners decided to bring DD into the partnership under the following independent
assumptions:
Questions:
a. Assuming that DD would purchase one-half of AA's capital and right to future profits directly from AA
for P60,000, how much capital is to be credited to DD?
b. Assuming that DD would purchase one-fourth of each of the partner's capital and rights to future
profits by paying a total of P45,000 directly to the partners, the partnership net assets are to be
revalued. How much will be the capital balance of BB after DD's admission?
c. Assuming that DD would invest P55,000 cash in the partnership for a 25 percent interest in capital.
Future profits would be divided 37-1/2 percent, 22-1/2 percent, 15 percent and 25 percent for AA, BB,
CC and DD respectively. Partnership net assets are not to be revalued. How much capital is to be
credited to DD?

2. Capital balances and profit sharing percentages for the partnership of Aaron, Nimrod, and Elijah on
January 1, 2018 are as follows:
Aaron (36%) P140,000
Nimrod (24%) 100,000
Elijah (40%) 160,000
On January 3, 2018 the partners agree to admit Ruth into the partnership for a 25% interest in capital
and earnings for her investment in the partnership of P120,000. Partnership assets are not to be
revalued.

a. The capital balances of Aaron, Nimrod , Elijah and Ruth, immediately after the admission of Ruth
would be:
b. What will be new profit and loss ratio for Aaron, Nimrod, Elijah and Ruth, if old partners will share
profits using the old ratio?

3. The balance sheet of the Dylan and Samuel Partnership at December 31, 2018, appears below:
Assets: Liabilities and Capital:
Cash P 15,000 Accounts Payable P 35,000
Accounts Receivable (net) 45,000 Notes Payable 25,000
Inventories 75,000 Accrued Liabilities 40,000
Property, Plant, and Mortgage Payable 110,000
Equipment, (net) 225,000 Dylan, Capital 60,000
Samuel, Capital 90,000
P360,000 P360,000
Determine the capital balances of partners immediately after the admission of Sebastian under the
following independent situations:
a. Sebastian acquired a 25 percent interest in partnership capital directly from Dylan and Samuel for
P50,000. Sebastian paid P18,750 directly to Dylan and P31,250 directly to Samuel. Total assets of the
Advanced Accounting 1 Page 7
partnership after the admission of Sebastian were P360,000. How much must be the capital balance
of Dylan immediately after the admission of Sebastian?

b. Assume the same facts as in a except that total assets of the partnership were P410,000 after the
admission of Sebastian. At January 1, 2019, inventories had a fair value of P85,000, while property,
plant, and equipment (net) had a fair value of P265,000. Both Dylan and Samuel decided to revalue
the partnership’s assets before the admission of Sebastian. Determine the capital balance of Samuel
immediately after the admission of Sebastian.

c. Sebastian acquired a 25 percent interest in capital by investing P50,000 of cash into the partnership.
Total capital of the Dylan-Samuel-Sebastian Partnership on January 1, 2019, amounted to P200,000.
Determine the capital balance of Sebastian immediately after his admission.

d. Sebastian acquired 25 percent interest in capital by investing P80,000 of cash into the partnership.
Total capital of the Dylan-Samuel-Sebastian Partnership after Sebastian’s admission amounted to
P320,000. The fair value of the inventories was P85,000 and the fair value of the property, plant, and
equipment (net) was P305,000 on January 1, 2019. Determine the capital balance of Dylan, Samuel
and Sebastian immediately after Sebastian’s admission.

4. A, B and C have capital balances of P112,000, P130,000 and P58,000, respectively, and share profits in the
ratio 3:2:1. D invest cash in the partnership for a one-fourth interest.

A) D receives a one-fourth interest in the assets of the partnership, which includes credit for 25,000 of
goodwill that is recognized upon admission. How much cash D invest?

B) D receives a one-fourth interest in the assets of the partnership and B is credited with P15,000 of the
bonus from D, how much cash D invest?

5. I and H are partners who have capitals of P60,000 and P48,000 and who share profits in the ratio of 3:2. I
is admitted as a partner upon investing cash of P50,000 with profits to be shared equally.
Questions:
a. Assume that I is allowed a 25 percent interest in the firm, which method (goodwill or bonus) will
benefit I, and how much?
b. Assume that I is allowed a 40 percent interest in the firm, which method (goodwill or bonus) will
benefit I, and how much?

6. O, P and Q share profits in the ratio of 5:3:2. S is permitted to withdraw from the firm on December 31,
2018. Profits after the withdrawal of Q are to be shared 3:2. The partnership balance sheet on this date is
as follows:
Receivable from Q P10,000 Liabilities P80,000
Goodwill 80,000 Payable to P 30,000
Other assets 190,000 O, capital 70,000
P, capital 60,000
Q, capital 40,000
P280,000 P280,000
Questions:
a. Assuming that Q is paid P44,000 in full settlement of the capital interest and P10,000 claim balance,
using the bonus method of recording the withdrawal of Q, how much are the capital balances of O and
P after Q's withdrawal?
b. Using the data in question A, using the goodwill method of recording Q's withdrawal, how much are
the capital balances of O and P after Q's retirement?
c. In relation to A & B, which method is preferred by GAAP in recording Q's withdrawal and why?
d. Assuming that Q is paid P24,000 in full settlement of the capital interest and P10,000 claim balance,
using the bonus method, how much are the capital balances of O and P after withdrawal of Q?
e. Using the data in question d, using the goodwill method, how much are the capital balances of O and
P after Q's withdrawal?
f. In relation to D and E, which method is preferable by GAAP?
And why?

7. Philip, of Philip and Romy, partners sharing profits in the ratio of 60% and 40% wants to retire. The
partners agree that the fixed assets are undervalued by P20,000, that goodwill is worth P15,000, and
that Philip’s share of these increases shall be recorded and creditable to his capital account. Since the
working capital is only P70,000, it is decided that Philip shall receive only one-third of his adjusted
capital credit in cash. For the remainder, he accepts securities, which have been carried as other assets
at their book value and market value of P12,000, and a six-month note payable.

The balance sheet, which is then prepared, appears as follows:

Advanced Accounting 1 Page 8
Current assets P 53,000 Current liabilities P 52,000
Other assets 3,000 Romy, capital 50,000
Fixed assets 37,000
Goodwill 9,000 -
P102,000 P102,000
Questions:
a. Current assets before Philip’s retirement must be:
b. Current liabilities before Philip’s retirement must be:
c. Fixed assets before Philip’s retirement must be:
d. Other assets before Philip’s retirement must be:
e. Philip’s adjusted capital balance must be:

8. The balance sheet of R and S, a partnership appears as follows:

R AND S PARTNERSHIP
Balance Sheet
October 31, 2018
ASSETS
Current Assets:
Cash P 41,100
Accounts Receivable P212,160
Allowance for bad debts 8,000 204,160
Inventories 241,100
Prepaid expenses 10,140
P496,500
Plant Assets:
Furniture and Fixtures P 241,000
Accumulated Depreciation 68,200 172,000
Total assets P669,300

LIABILITIES AND CAPITAL

Current Liabilities:
Accounts payable P161,400
Accrued expenses 20,000 P182,200
Partner’s capital:
R, capital P260,350
S, capital 226,750 487,100
Total Liabilities and capital P669,300

R and S share profits and losses equally.

The partners incorporate as H & G Corporation with an authorized capital of 5,000 shares at P100 par
stock, of which 4,400 are issued to the partners in exchange for their interest in the net assets of R and S,
and the remainder are issued at P120 per share for cash. The partners agree that the following adjustment
should be recorded:

Allowance for bad debts decreased by P 4,000

Inventories increased by 12,000
Accumulated depreciation decreased by 6,200

Goodwill is to be recognized in an amount which will cause the net assets of the partnership to equal the
cash issuance price of the shares to be issued therefore.
Questions:
a. How much is the additional paid-capital contributed by R and S to
the new corp.?
b. How much goodwill is to be recognized in the corporation’s
books?
c. How many shares R will receive?

9. The partnership of T, U and V is being absorbed by ACE Corp. The latter will issue 19,000 shares of P100
par value capital stock in exchange for the net assets of the partnership. As of this date, the net assets of
the partnership amount to P1,500,000 and the capital balances of T, U and V are proportionate to their
profit sharing ratio of 5:3:2. It has been agreed upon by all parties that the merchandise inventory of the
partnership should be adjusted upwards by P150,000.
Questions:
A) How much is the partnership goodwill as implied in the above
transactions?
B) How much are the capital account balances of T, U and V, respectively, immediately before the
turnover of the net assets to the corporation?
Advanced Accounting 1 Page 9

10. Partners King and Queen have capital balances of 358,500 and 300,000 respectively before admitting
Jack. King and Queen share profits and losses in the ratio of 6:4. Jack paid 225,000 in exchange for
30% interest in the partnership as well as the profits and losses.

A) How much is the capital of partner King after the admission of Jack?
a. 250,950 c. 279,480
b. 250,590 d. 269,580

B) How much is debited from the capital of partner Queen upon Jack’s admission?
a. 120,000 c. 79,020
b. 90,000 d. 105,360

C) Assume that an equipment is undervalued, how much is the undervaluation of the equipment and the
capital balance of partner Queen after admission of Jack respectively?
a. 85,000 and 336,600 c. 91,500 and 336,600
b. 100,980 and 235,620 d. 91,500 and 235,620

11. NOEL and CHRISTIAN have capital balances of 150,000 and 180,000 respectively. GRACE is to invest
60,000 for 15% in the partnership interest and also in the profits and losses. There is an undistributed
net income in the amount of 80,000. Partners NOEL and CHRISTIAN share profits and losses 65:35.

A) How much is the capital credit of GRACE after her admission?

a. 60,000 c. 72,000
b. 61,500 d. 70,500

B) How much is the bonus to partner NOEL from partner GRACE?

a. 10,500 c. 3,675
b. 6,825 d. 0

C) Assume that an equipment is overvalued, how much is the share of partner CHRISTIAN in the
overvaluation of the equipment?
a. 24,500 c. 10,500
b. 45,500 d. 28,000

12. Partners E, F and G have capital balances of 120,000, 155,000 and 115,000 respectively. The partnership
generated net loss of 140,000 during the year. They share profits and losses 2:5:1 respectively. Due to
internal problems, F wants out of the partnership. Before retirement, the value of their inventory
increased from 85,000 to 97,000. The partners decided to pay partner F 70,000 upon retirement.

A) How much is the capital balances of partners E and G after the retirement of partner F?
a. 84,667 and 97,333 c. 91,333 and 100,667
b. 89,000 and 99,500 d. 87,000 and 98,500

B) Assume that another asset, an equipment, is overvalued, how much is the overvaluation of the
equipment and the capital balances of partners E and G after retirement of partner F?
a. 5,000, 91,333 and 100,667
b. 8,000, 89,000 and 99,500
c. 5,000, 84,667 and 97,333
d. 8,000, 86,000 and 98,000

13. On January 1, 2017, Lana, Bina and Mara formed LBM Partnership with original contribution of
P4,000,000; P1,000,000 and P5,000,000, respectively. The articles of co-partnership provides that profit
or loss shall be distributed under the following terms:
 Lana, Bina and Mara shall be entitled to monthly salary of P10,000, P20,000 and P30,000,
respectively.
 10% interest on original capital contribution.
 As managing partner, Bina shall receive bonus equal to 10% of net income after salaries and
interest but before bonus.
 The remainder shall be distributed on the basis of original capital contribution ratio.

During 2017, the partners regularly withdrew ¼ of their monthly salary. The December 31, 2017
Statement of Financial Position of LBM Partnership shows that the capital of Lana is P5,310,800. On
January 1, 2018, Mara decided to retire from the partnership and it was agreed that Mara shall receive
P6,000,000. The retiring agreement provides that any bonus shall be distributed on the basis of original
capital contribution.

What is the net income of the partnership for the year ended December 31, 2017?
Advanced Accounting 1 Page 10
a. 3,772,000 c. 2,872,000
b. 1,720,000 d. 4,000,000
What is the capital balance of Bina after the retirement of Mara on January 1, 2018?
a. 1,872,400 c. 1,890,400
b. 1,932,400 d. 1,854,400

PARTNERSHIP LIQUIDATION

PROBLEMS
1. A, B, and C are partners sharing profits in the ratio of 5:3:2, respectively. A balance sheet prepared just
prior to partnership liquidation shows the following:
A B C
Capital Balances P122,000 P 72,000 P 47,000
Loan Balances 43,000 48,000 6,000
Assets are sold and cash is distributed to partners in monthly installments during the course of liquidation
as follows:
January P20,000
February 50,000
March 80,000
April (final distribution) 20,000
Required:
a. Prepare a program to show how cash is to be distributed during the entire course of
liquidation.
b. Using the program developed above, prepare a schedule summarizing the payments to be
made to partners at the end of each month.

2. D, E and F are partners sharing profits in the ratio of 40:35:25, respectively. On December 31, 2018, they
agree to liquidate. A balance sheet prepared on this date follows:

DEF Partnership
Balance Sheet
As of December 31, 2018
Cash P 2,000 Liabilities P 6,000
Other Assets 46,000 E, Loan 5,000
F, Loan 2,500
D, Capital 14,450
E, Capital 12,550
F, Capital 7,500
P48,000 P48,000

The results of liquidation are summarized below:

Book Cash Expenses of Cash W/held at end of month Liability
Value Realized Realization for estd. Future exps. paid
Realizations
January P12,000 P10,500 P500 P2,000 P4,000
February 7,000 6,000 750 1,250 2,000
March 15,000 10,000 600 500 ---
April 12,000 4,000 400 ---

All cash available, except the amount withheld for future expenses, is distributed at the end of each month.
Required: Determine the share of each partner every month of distribution.

3. The balance sheet of J, K and L Partnership shows the following information as of December 31, 2018:
Cash P 2,000 Liabilities P 5,000
Other Assets 28,000 J, Loan 2,500
J, Capital 12,500 K, Capital 7,000
L, Capital 3,000
P30,000 P30,000
Profit and loss ratio is 3:2:1,respectively, for J, K, and L. Other assets were realized as follows:
Date Cash Received Book Value
January, 2018 P 8,000 P 9,000
Advanced Accounting 1 Page 11
February, 2018 3,500 7,700
March, 2018 12,500 11,300

Cash is distributed as assets are realized.

a. How much is the total loss to J?
b. How much is the total cash received by K?
c. How much cash does L receive in January?

4. Partners Fredo, Lino, Marvin, and Joaquin have been operating FLMJ Partnership for ten years. Due to a
significant reduction in the demand for their product over recent years, the partners have agreed to
liquidate the partnership. At the time of liquidation, balance sheet accounts consisted of cash, P103,500;
noncash assets, P300,000; liabilities to outsiders, P60,000; capital credit balances for partners Fredo, Lino,
and Marvin, P90,000, P150,000, and P120,000, respectively; and a debit capital balance for partner Joaquin
of P16,500.

Partners share equally in income and loss. It is estimated that the administrative cost of liquidation will
total P4,500. While preparing for liquidation, an unrecorded liability of P7,500 was discovered.

a) Assuming the available cash of P103,500 was distributed, how much must be the share of partner Lino?
b) In order for partner Joaquin to receive at least P5,000, how much should the non cash assets be sold
for?

5. Balance sheet data for the firm of W, X, and Y as of January 1, 2018, follow:
Assets P1,225,000 Liabilities P 675,000
W, capital 200,000
_________ X, capital 200,000
P1,225,000 Y, capital ___200,000
P1,225,000
Partners share profits equally after the allowance of a salary to Y, the managing partner, of P7,500
monthly. As a result of operation losses sustained at the beginning of 2018, W advanced P150,000 to the
firm on April 1; it was agreed that he would be allowed interest at 6%. With continued losses, the
members decided to liquidate. Y agreed to take over partnership equipment in part settlement of his
interest, the transfer being made at an agreed value of P40,000. On November 1, P200,000 cash was
available for distribution to partners after sale of remaining assets and payment of partnership obligations
to outsiders. Y had withdrawn his salary for January and February but had not received his salary for the
period March 1 to November 1; no other cash payments had been made to partners. Available cash was
distributed on November 1 and the firm was declared dissolved.

How much cash should W received in the distribution of P200,000 cash available?

6. The accounts of the partnership of Lora, Rosa and Joaquin at the end of its fiscal year on November 30,
2018 are as follows:
Cash P 103,750 Loan from Rosa P 20,000
Other Non cash assets 707,500 Lora, capital (30%) 266,250
Loan to Lora 15,000 Rosa, capital (50%) 136,250
Liabilities 262,500 Joaquin, Capital (20%) 141,250
If in the first distribution, Rosa received P 50,000, which of the following is incorrect?
A. Total amount distributed to partners is P 336,250
B. Total amount paid to creditors is P 262,500
C. Total amount realized from the non – cash assets is P 598,750.
D. Lora received an amount equal to P 187,500.

7. The partnership of B, O and Y was dissolved on October 30, 2018, and the account balances after all
noncash assets are converted to cash on November 1, 2018, along with residual profit and loss sharing
ratios, are:
Cash P 50,000
Accounts payable P120,000
B, capital (30%) 90,000
O, capital (30%) (60,000)
Y, capital (40%) (100,000)
Personal assets and liabilities of the partners at November 1, 2018 are:
Personal assets Personal liabilities
B P 80,000 P 90,000
O 100,000 61,000
Y 100,000 80,000
If Y contributed P70,000 to the partnership to provide cash to pay the creditors, what amount of R’s
P90,000 partnership equity would appear to be recoverable?
Advanced Accounting 1 Page 12
8. The partnership of Daniel, Keith, and Ross is to be liquidated as soon as possible after December 31, 2018,
and all cash on hand except for P20,000 contingency balance is to be distributed at the end of each month
until the liquidation is complete. Profits and losses are shared 50%, 30%, and 20% to Daniel, Keith, and
Ross, respectively.
A balance sheet of the partnership at December 31, 2018 contains the following accounts and balances:
Cash P 240,000 Accounts Payable P 300,000
Accounts Receivable 280,000 Notes Payable 200,000
Loan to Ross 40,000 Loan from Keith 20,000
Inventories 400,000 Daniel, Capital 340,000
Land 100,000 Keith, Capital 340,000
Equipment (net) 300,000 Ross, Capital 200,000
Goodwill 40,000
P1,400,000 P 1,400,000

In January, 2019, the loan to Ross was offset against his capital balance and the goodwill is written off.
P200,000 is collected on account, inventory items that cost P160,000 are sold for P200,000, and cash is
distributed.

a. If available cash is distributed on January 31, 2019, Daniel, Keith, and Ross, respectively, should
receive:

b. If a cash distribution plan is developed as of January 1, 2019, the vulnerability ranks (1 is most
vulnerable) for Daniel, Keith, and Ross is:

9. After all partnership assets were converted into cash and all available cash were distributed to creditors,
the following were determined:
Ledger Balances Personal Assets Personal Liabilities
Accounts Payable P 20,000
Rose, Capital (30%) 10,000 P 50,000 P 45,000
Sol, Capital (30%) 60,000 50,000 40,000
Taz, Capital (40%) (90,000) 100,000 40,000
The partnership creditors proceed against Taz for recovery of their claims, and the partners settle their
claims against each other. The amount recovered by Sol from Taz is:
a. P 55,000 b. P45,000 c. P40,000 d. P60,000

10. Elizabeth, Diana, Anthony, and Scarlett were partners who decided to liquidate the affairs of the
partnership. Prior to dissolution, the condensed balance sheet together with the profit and loss sharing
ratio was derived as follows:
Cash P 100,000 Liabilities P 750,000
Other assets 1,800,000 Diana, loan 60,000
Scarlett, loan 50,000
Elizabeth, capital (30%) 420,000
Diana, capital (30%) 315,000
Anthony, capital (20%) 205,000
Scarlett, capital (20%) 100,000
P1,900,000 P1,900,000

The other assets were sold for P1,200,000. Payments were made to creditors and final distributions of
cash were made to partners.
a. The partner who got paid the most was:
b. The cash received by Scarlett will be applied:

11. Capital balances of partners Q, R and S are the following before liquidation: 87,000, 95,500 and 106,250
each respectively. The partnership has a loan from partner Q in the amount of 8,000; loan to partner R in
the amount of 4,500, advances to partner S in the amount of 6,500. The partners’ profit and loss ratio is
25:40:35 each respectively.
A) In the first installment sale, the total cash paid to partners is 57,000, how much did partner S receive?
A. 0 C. 13,854
B. 19,396 D. 20,125

B) If partner Q received 20,000 in the first installment and partner S received 12,396 in the second
installment, how much is received by partner Q as of the second installment and how much is the total
cash paid to the partners in the second installment?
A. 12,604 and 25,000 C. 23,750 and 30,000
B. 8,854 and 30,000 D. 32,604 and 25,000

12. The following is the Financial Position of IKR Partnership as of December 31, 2016.
Advanced Accounting 1 Page 13
Assets Liabilities & Equity
Cash 15,000 Loan from K 6,000
Non-Cash 95,000 Liabilities 20,000
Receivable from I 5,000 I, Capital (15%) 33,000
Loan to R 4,000 K, Capital (55%) 25,000
R, Capital (30%) 35,000
Total Assets 119,000 Total Liabilities & Equities 119,000
A) If 40,000 of the book value of the non-cash assets are sold for 18,000, additional liquidation expenses
of 2,500 are incurred and paid, cash withheld is 5,400, and all of the outside creditors are paid, how
much is the total cash paid to partners during the first installment?
A. 15,265 C. 5,100
B. 5,530 D. 10,500

B) During the first installment the following data are relevant: 56,000 of the book value of the non-cash
assets are sold for 38,000; additional liquidation expenses of 12,000 are incurred and paid; all of the
outside creditors are also paid. If I received 11,000 during the first installment, how much is the cash
withheld?
A. 8,500 C. 9,500
B. 10,000 D. 10,500

13. The balance sheet of the partnership of Nah, Lih and Toh are shown below:
NLT Partnership
Balance Sheet
December 31, 2015
Cash 50,000 Liabilities 80,000
Non-Cash 250,000 Nah, Capital (50) 100,000
Lih, Capital (25) 75,000
Toh, Capital (25) 45,000
Total 300,000 Total 300,000
On January 2016, certain non-cash assets were sold for a certain amount. Liquidation expenses and
liabilities of 4,000 and 25,000 were paid. Future liquidating expenses of 5,000 are anticipated. Lih
received 42,750 from the first distribution of available cash.

A) How much is the cash received from the realization of the NCAs?
A. 120,000 C. 130,000
B. 140,000 D. 75,000
B) Assuming that on February 2016, the remaining non-cash assets were sold for 75,000 and liquidating
expenses of 5,000 are paid, how much is the total cash received by Nah from the two distributions of
cash?
A. 37,500 C. 75,000
B. 73,000 D. 74,000

14. On December 31, 2017, the Statement of Financial Position of IWP Partnership shows the following data
with profit or loss sharing of 2:3:5.
Cash 15,000,000 Liabilities 20,000,000
Other Noncash assets 40,000,000 I, Capital 15,000,000
K, Capital 12,500,000
R, Capital 7,500,000

On January 1, 2018, the partners decided to wind up the partnership affairs. During the winding up,
liquidation expenses amounting to P2,000,000 were paid. Non-cash assets with book value of
P30,000,000 were sold during January. 40% of total liabilities were also paid during January. P3,000,000
cash was withheld during January for future liquidation expenses. On January 31, 2018, partner I
received P10,000,000.
A) What is the amount received by partner K on January 31, 2018?
A. 2,500,000 C. 5,000,000
B. 7,500,000 D. 3,000,000

B) What is the net proceeds from the sale of non-cash assets during January 1, 2018?
A. 25,000,000 C. 22,000,000
B. 20,000,000 D. 23,000,000

/reh