Art.

1767 – agreement by 2 or more persons to contribute property (cash, land/AR, industry – industrial parties
to a common fund for the purpose of dividing the profits among themselves
Fair value (market value)/Agreed value – recorded to the asset and equity
Ex. Land 1M mortgage 400k contributed capital 600k – equity
1. Capital account – contributed capital
2. Drawing’s account
SEATWORK

PROBLEM 1

Contributed % Agreed
capital Ownership Capital
V 150000 60% 180,000
R 120,000 40% 120,000
270,000 100% 300,000
Goodwill 180,00o-150,000 = 30,000

PROBLEM 2

Mark capital 1430,000 Dave Capital 909,000

AR (15,000) AR (4,000)
Inventory (30,000) Inventory (10,000)
Building 150,000 (900,000-750,000)
Accounts payable 55,000
Contributed Capital 1440,000 Contributed Capital 1045,000

PROBLEM 3
Sale land 190,000 subsequent sale (account to partnership cost, selling price
Fair value (160,000) formed partnership; mortgage accounted as liab. of partnership
30,000– doesn`t affect value of land only equity, capital balance or initial contribution
Interest – average capital balances, initial contribution (percentage),
Salaries
Bonus – before / after deducting bonus, salaries, interest

PROBLEM 4

Z Y X TOTAL
SALARIES 25,000 20,000 15,000 60,000
BONUS ON NI 13,000 13,000
(130,000*10%)
REMAINDER 34,200 17,100 5,700 57,000
(57,000*60%) (57,000*30%) (57,000*10%) (60,000-13,000)
NET INCOME 72,200 37,100 20,700

PROBLEM 5

Net income – 46,750 after salaries, interest and bonus

Salary - 12,000 (1,000*12)
Interest - 1250 (25,000*5%) interest beg capital
IBSI 60,000 income before salaries and interest
Bonus / 80% (20%)
Income before bonus 75,000
20%
Bonus 15,000

X Y Z TOTAL
SALARIES 15,000 12,000 10,000 37,000
INTEREST 2,000 1,000 1,500 4,500
BONUS 3,000 2,000 1,000 6,000
1,250 750 500 (2500)
50% 30% 20% 45,000
TOTAL NI 18750 14250 12,000 45,000
47,000 – 45,000 = (2500)
WITH NET INCOME BUT INSUFFICIENT TO SATISFY THEIR STIPULATION

TOPIC: PARTNERSHIP DISSOLUTION

Partnership Dissolution
- Changes of partners in its legal sense.
1. Admission of a New partner
- by purchase – existing partners sell their interest to the new partner (Book value, Revaluation/Goodwill)
- by investment – above the book value, at book value
Ex. A and B (A- 30,000, B – 20,000, A-C 15,000 = 5,000 GAIN PERSONAL)
Revaluation Approach – with goodwill (mas malaki binabayad kesa sa book value)
Ex. 5k gain – books no excess 15k transferred from A to C
C – 20k, Book Value – 15,000 = excess 5k goodwill paghahatian sa interest of partners (rates)
To record: Assets – Goodwill
Investment – partnership funds allow other individuals to enter partnership.
Cash/ property. Assumption of mortgage
Ex. A – 20k, B 10k they admit new partner C by investing 10k for 25% interest in the partnership.
Total capital = 20+10+10 40k
Book value – 40,000 10k/25%
Entry:
Cash 10k
C, Capital 10k
Bonus to new partner
C – 10,000 interest 35%
C`s capital contributed 10k
Agreed capital 40,000*35% = 14.000
Bonus to C 4,000
Entry:
Cash 10,000
A, Cap 4,000*60% 2,400
B, Cap 4,000*40% 1,600
C Capital14,000
Bonus to old partner – mas mababa claimed capital than investment
Withdrawal/Retirement –
unadj. Capital xx
add: net income xx
less: loans (xx)
Interest retiring partner xx
- Bonus retiring at Book value – 0, Above book value – rem. Partners/ bonus to the retiring, below book
value – bonus to the remaining partner
- Existing
10,000 – 8,000 = 2,000 P/L ratio
QUIZ 1
THEORY:
1. A partnership agreement calls for allocation of profits and losses by salary allocations, a bonus allocation,
interest on capital, with any remainder to be allocated by present ratios. If a partnership has a loss to allocate,
generally which of the following procedures would be applied?
Ans: The bonus criteria would not be used
Choices: The loss would be allocated using the profit and loss ratios only, any salary allocation criteria would
not be used, any loss would be allocated equally to all partners.
2. Which of the following statements about partnership is correct?
Ans: Two capital accounts are generally maintained for each partner, a drawing account and a capital
account
Choices: The drawing account is credited with the partner`s withdrawals of cash or other assets during the
period, If a partners personal indebtedness was paid or assumed by the partnership, the drawing account
should be credited, all of the answers are correct.
3. If the partnership agreement provides a formula for the computation of a bonus to the partners, the bonus
would be computed.
Ans: In any manner agreed to by the partners
Choices: Before income tax allocation are made, after the salary and interest allocation are made, next to last,
because the first allocation is the distribution of the profit residual.
4. Which of the following would be least likely to be used as a means of allocating profits among partners who
are active in the management in the partnership?
Ans: interest on average capital balances
Choices: Bonus as a percentage of sales in excess of targeted amount, Bonus as a percentage of net income
before bonus, Salaries
5. Under the entity theory, a partnership is
Ans: Viewed as having its own existence apart from the partners
Choices: Viewed through the eyes of the partners, a separate legal and tax entity, Unable to enter into
contracts in its own name

PROBLEM 6 AND 7

PROBLEM 6 and 7      
Agreed
Contributed capital capital Bonus
Rolly 60,000 60,000 0
Molly 20,000 60,000 40,000
80,000 120,000 40,000

Agreed
Contributed capital capital Bonus
Rolly 60,000 40,000 20,000
Molly 20,000 40,000 20,000
80,000 80,000 0
PROBLEM 8

PROBLEM 8      
Capital balances before 556,000
Capital balances after 484,000
Accrued expenses   40,000
Carrying value 32,000

PROBLEM 9

PROBLEM 9      
Agreed capital 300000
R Capital 60%
Capital balance 180000

PROBLEM 10 - 12
PROBLEM 10 and 11      
LALA THEA
728,35
Capital 641,976 2
Accounts
Receivable -20,000 -35,000
Inventories -5,500 -6,700
Other assets -2,000 -3,600
683,05
Total 614,476 2

Problem 12      

PROBLEM 13-15
Problem 13 and 14 Peter James  
Allowance for doubtful
accounts
Peter -370
James -270
Furniture and fixture 1000
Office Equipment -250
Accrued rent expense -1000
Accrued salary expense -800
Inventory adjustments -500 1500
Net adjustments -870 180

Problem 15
Unadjusted total liabilities 63750
Add: adjustments
Accrued rent expense 1,000
Accrued salary expense   800
Adjusted total liabilities after formation 65550

QUIZ 1 AND PRACTICE SET 1

PROBLEM 6 and
7      
Contributed Agreed
capital capital Bonus
Rolly 60,000 60,000 0
Molly 20,000 60,000 40,000
80,000 120,000 40,000

Contributed Agreed
capital capital Bonus
Rolly 60,000 40,000 20,000
Molly 20,000 40,000 20,000
80,000 80,000 0

PROBLEM 8      
Capital balances 516,00 484,00 55 32,00
before 556,000 LJ 0 0 % 0
Capital balances 396,00
after 484,000 880000 0
55
Accrued expenses   40,000 32,000 lj 40,000 %
-
364,00 364,00 396,00 32,00
Carrying value 32,000 0 AD 0 0   0
880,00 88000
0 0
PROBLEM 9      
Agreed capital 300000
R Capital 60%
Capital balance 180000

PROBLEM 10
and 11      
LALA THEA
Capital 641,976 728,352
Accounts
Receivable -20,000 -35,000
Inventories -5,500 -6,700
Other
assets -2,000 -3,600
Total 614,476 683,052
Problem 12      
LALA AND THEA
2,337,91 (1020,916+1,317,00
Total assets 8 2)
Bad debts -55,000 ((-20,000+-35,000)
Worthless
invetory -12,200 (-5500+-6700)
Other
assets -5,600 (-2000+-3600)
2,265,11
8
Problem 13 and
14 Peter James
Allowance for
doubtful accounts
Peter -370
James -270
Furniture and
fixture 1000
Office Equipment -250
Accrued rent
expense -1000
Accrued salary
expense -800
Inventory
adjustments -500 1500
Net adjustments -870 180

Problem 15    
Unadjusted total
liabilities 63750
Add: adjustments
Accrued rent
expense 1,000
Accrued salary
expense   800
Adjusted total liabilities after
formation 65550

PRACTICE SET 25% 75%

PROBLEM 1 BERT ERNIE
assets 425,000 290,000
ADJUSTMENTS
AR -20,000
INVENTORY -15,000 -15,000
EQUIPMENT 50,000  
Adjusted capital m 460,000 255,000
LESS: LIAB
-75,000 -65,000
-90,000 -55,000
-10,000 -80,000
  -5,000
285,000 -80,000 365,000
  273750
193,750

PROBLEM 3
3.2
CC 40,000
AC 44,000
BONUS TO NEW
PARTNER 4,000

CASH 40,000
J, CAPITAL 3,000
N, CAPITAL 1,000
M CAPITAL 44,000

3.1
AC 200000
CC 220000
INVENTORY
DECREASED -20000

3.3
AC 250000
CC 230,000
GOODWILL 20,000