Partnership Formation

QUIZ:

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

A B
Cash 200,000 -
Accounts receivable 100,000 -
Inventory 160,000 -
Land 100,000
Building 240,000
Total 460,000 340,000
Note payable 120,000
A, capital 340,000
B, capital 340,000
Total 460,000 340,000

Additional information:
• Included in accounts receivable is an account amounting to ₱40,000 which is deemed
uncollectible.
• The inventory has an estimated selling price of ₱200,000 and estimated costs to sell of ₱20,000.
• An unpaid mortgage of ₱20,000 on the land is assumed by the partnership.
• The building is under-depreciated by ₱50,000.
• The building also has an unpaid mortgage amounting to ₱30,000, but the mortgage is not
assumed by the partnership. B agreed to settle the mortgage using his personal funds.
• The note payable is stated at face amount. A proper valuation requires the recognition of a
₱30,000 discount on note payable.
• A and B shall share in profits and losses 60% and 40%, respectively.

Requirements:
a. Compute for the adjusted balances in the partners’ capital accounts.
b. Assume that a partner’s capital shall be increased accordingly by contributing additional cash to
bring the partners’ capital balances proportionate to their profit or loss ratio. Which partner
should provide additional cash and how much is the additional cash contribution?

2. A and B agreed to form a partnership. A shall contribute ₱80,000 cash while B shall contribute
₱200,000 cash. However due to the expertise that A will be bringing to the partnership, the
partners agreed that they should initially have an equal interest in the partnership capital.

Requirement: Using the bonus method, provide the journal entry to record the initial investments of
the partners.
3. A, B and C formed a partnership. Their contributions are as follows:
A B C
Cash 80,000 20,000 200,000
Equipment 160,000
Totals 80,000 180,000 200,000

Additional information:
• Although C has contributed the most cash to the partnership, he did not have the full amount of
₱200,000 available and was forced to borrow ₱80,000.
• The equipment contributed by B has an unpaid mortgage of ₱40,000, the repayment of which, is
assumed by the partnership.
• The partners agreed to equalize their interest. Cash settlements among the partners are to be
made outside the partnership.

Requirements:
a. Which partner(s) shall receive cash payment from the other partner(s)?
b. Provide the entry to record the contributions of the partners.

4. A and B agreed to form a partnership. The partnership agreement stipulates the following:
• Initial capital of ₱280,000.
• A 60:40 interest in the equity of the partnership.

A contributed ₱200,000 cash while B contributed ₱80,000 cash.

Requirement: Which partner should provide additional investment (or withdraw part of his
investment) in order to bring the partners’ capital credits equal to their respective interests in the
equity of the partnership?

- END –

“We entered the race not to start, but to finish.”

- Anonymous