Accounting for Partnership (70 points)The partnership of Red and

White admits Blue as a partner on January 1, 20CY. The

partnership has the following balances on December 31, 20PY.

Red and White Partnership

Balance Sheet
December 31,20PY
Assets Liabilities and Owner’s
Equity

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Cash ₱ 450,000 Accounts Payable ₱ 2,500,000

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Other Assets 5,500,000 Red, Capital 2,250,000

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White, Capital 1,200,000

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Total Assets 5,950,000 Total Liabilities and 5,950,000
rs e Owner’s Equity
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Profits and losses for Red is 60% and 40% for White, respectively.
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Requirements:
1. Suppose Blue pays White P 1,500,000 to buy out White. Red approves Blue as a
partner.
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A. Record the transfer of equity on the partnership books on January 1, 20CY. (2

points: 1 point for each correct account and amount used)
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Date Particulars Debit Credit

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Jan. 01, 20CY White, Capital ₱ 1,200,000

Blue, Capital ₱ 1,200,000
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B. Prepare the partnership balance sheet immediately after Blue is admitted as a

partner. (25 points)
Red and Blue Partnership

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 Balance Sheet
January 01, 20CY
Assets Liabilities and Owner’s
Equity
Cash ₱ 450,000 Accounts Payable ₱ 2,500,000
Other Assets 5,500,000 Red, Capital 2,250,000
Blue, Capital 1,200,000
Total Assets 5,950,000 Total Liabilities and 5,950,000
Owner’s Equity

2. Suppose Blue becomes a partner by investing P 1,550,000 cash on January 1,

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20CY to acquire a 1/4 interest in the business.

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A. Compute Blue’s capital balance, and determine whether there’s any bonus.
If so, who gets the bonus? (5 points)

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rs e
Partnership Capital before Blue admitted (2,250,000 + 1,200,000) - ₱
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3,450,000
Blue Investment -₱
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1,550,000
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Partnership Capital after Blue is admitted -₱

5,000,000
Blue Capital in the partnership (5,000,000 x ¼) - ₱
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1,250,000
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Bonus to Old partners (1,550,000 – 1,250,000) -₱

300,000
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 In the effect, Blue had to buy into the partnership at a price of 1,550,000
above the book value of his/her ¼ interest (1,250,000). Blue’s higher than
the Book Value investment create a bonus for Red and White. Assuming
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that Red and White original partnership agreement had those 60% and
40% sharing profit and losses respectively.

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 B. Journalize Blue’s investment in the business. (4 points: 1 point for each correct
account and amount used)

The entry to record the receipt of Blue’s investments is as follows:

Date Particulars Debit Credit
Jan. 01, 20CY Cash ₱ 1,550,000
Blue, Capital ₱ 1,250,000
Red, Capital 180,000
White, Capital 120,000

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 Blue’s capital account got credited for his/her ¼ interest in the new

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partnership. The bonus was allocated to Red and White based on their

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original profit and losses sharing ratio (60%, 40% respectively).

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C. Prepare the partnership balance sheet immediately after Blue is admitted as a
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partner. Include the heading. (25 points)
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Red, White and Blue Partnerships

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Balance sheet
Jan. 02,20CY
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Assets Liabilities and Owner’s

Equity
Cash (450,000 + 1,550,000) ₱ 2,000,000 Accounts Payable ₱ 2,500,000
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Other Assets 5,500,000 Red, Capital 2,250,000

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White, Capital 1,200,000

Blue, Capital 1,550,000
Total Assets 7,500,000 Total Liabilities and 7,500,000
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Owner’s Equity

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 3. Assume that Red and White partnership liquidates by selling its other assets for
P 5,000,000. Prepare the entries to liquidate the partnership on January 1, 20CY. (9
points: 1 point for each correct account and amount used).

Sales of non-cash assets

Date Particulars Debit Credit
Jan. 01, 20CY Cash ₱ 5,000,000
Loss on sale 500,000
Non- cash assets ₱ 5,500,000

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Allocation of loss on sale

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Date Particulars Debit Credit

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Jan. 01, 20CY Red, Capital (60%) ₱ 300,000

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White, Capital (40%) ₱ 200,000
Loss on sale rs e ₱ 500,000
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Payment of liabilities
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Date Particulars Debit Credit

Jan. 01, 20CY Accounts Payable ₱ 2,500,000
Cash ₱ 2,500,000
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Distribution of cash to the partner

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Date Particulars Debit Credit

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Jan. 01, 20CY Red, Capital ₱ 1,950,000

White, Capital ₱ 1,000,000
Cash ₱ 2,950,000
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