EXERCISE

4- 1 Allyana and Allysa are partners with capital balances of P 480, 000 and P 240, 000. Their profit
and loss agreement are 75% and 25%, respectively. They agree to admit Aldrick as a partner of
firm.

Give the following journal entries to record the admission of Aldrick under each of the following
independent cases:

1. Aldrick purchases 25% interest in the firm. Aldrick pays the partners P 180, 000 which is
divided between Allyna and Allysa in proportion to the equities given up.
Entry: DR CR
Allyana, Capital 120, 000
Allysa, Capital 60, 000
Aldrick, Capital 180, 000
By of the interest sold: Allyana 480, 000 x 25% = 120, 000

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Allysa 240, 000 x 25% = 60, 000

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TOTAL 180, 000

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2. Aldrick purchases a 1/3 intertest in the firm. Aldrick pays the partners P 360, 000. Asset

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revaluation is undertaken before Aldrick’s admission so that his 1/3 interest will be equal

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to the amount of his payment.
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New PC (360, 000/ 1/3) = 1, 080, 000 Allyana 360, 000 x 75% = 270, 000
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OP Capital 720, 000 Allysa 360, 000 x 25% = 90, 000
AR + 360, 000
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Entry DR CR
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Other Asset 360, 000

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Allyana, Capital 270, 000

Allysa, Capital 90, 000
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Allyana Allysa TOTAL

Capital Balances 480, 000 240, 000 720, 000
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+ AR share 270, 000 90, 000 360, 000

Adjusted Capital 750, 000 330, 000 1, 080, 000 New PC

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 3. Aldrick invest P 360, 000 for a 25% percent interest in the firm. Asset revaluation is
recorded on the firm books prior to the Aldrick’s admission.

AC CC +AR
75% OP 1,080,000 720,000 360,000
25% NP 360,000 360,000
1,440,000 1,080,000 360,000
Entry: DR CR
Cash 360,000
Other Assets 360,000
Aldrick, Capital 360,000
Allyna, Capital 270,000
Allysa, Capital 90,000

Allyna 360,000x75%= 270,000

Allysa 360,000x25%= 90,000

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4. Aldrick invests P 360,000 for a ½ interest in the firm. Allyna and Allysa transfer part

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of their capital to Aldrick as bonus.

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AC CC BONUS

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50% OP 540,000 720,000
50% NP
rs e 540,000 360,000 180,000
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1,080,000 1,080,000
Entry: DR CR
Cash 360,000
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Allyna, Capital 135,000

Allysa, Capital 45,000
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Aldrick, Capital 540,000

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Allyna 180,000x75%= 135,00

Allysa 180,000x25%= 45,000
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5. Aldrick invests P 480,000 in the firm. Bonus of P 120,000 is considered to partners

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Allyna and Allysa.

Entry: DR CR
Cash 480,000
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Aldrick, Capital 360,000

Allyna, Capital 90,000
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Allysa, Capital 30,000

Allyna 120,000x75%= 90,000
Allysa 120,000x25%-= 30,000
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 6. Aldrick invests P 480,000 in the firm with P 20,000 bonus allowed to Allysa and
Allyna upon his admission.
Entry: DR CR
Cash 480,000
Aldrick, Capital 460,000
Allyna, Capital 15,000
Allysa, Capital 5,000
Allyna 20,000x75%= 15,000
Allysa 20,000x25%= 5,000
7.
8.

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4-2 Partners Lakers and Celtics are considering the admission of Knicks into the partnership. Lakers
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and Celtics share profit and loss in the ratio of 2:4, respectively. Capital balances of Lakers and
Celtics are P 240, 000 and P 180, 000 respectively. OP Capital: 420, 000
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Prepare journal entries to record the admission of Knicks under each of the following
independent assumptions:
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1. Knicks acquired one- third of the interest of Lakers paying P 80, 000.
Entry: DR CR
Lakers, Capital 80,000
Knicks, Capital 80, 000
BV of the interest sold: 240, 000 x 1/3 = 80, 000

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 2. Knicks acquired one- third of the interest of Celtics paying P 35, 000.
Entry: DR CR
Celtics, Capital 60, 000
Knicks, Capital 60, 000
BV of the interest sold: 180, 000 x 1/3 = 60, 000

3. Knicks buy a 25% interest in the partnership from the old partners paying each P 63, 000.
Asset revaluation has to be considered prior to the admission of Knicks.
New PC 63, 000 x 2 = 126, 000
OP Capital 420, 000
+ AR 84, 000
OP + Capital (CR)
Lakers 84, 000 x 2/6 = 28, 000
Celtics 84, 000 x 4/6 = 56, 000

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LAKERS CELTICS TOTAL

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Capital Balances 240, 000 180, 000 420, 000

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+ AR share 28, 000 56, 000 84, 000

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Adjusted Capital 268, 000 236, 000 504, 000 New PC
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4-3 Utah, Atlanta and Detroit have capital balances of P 150, 000, P 200, 000 and P 300, 000,
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respectively and they share profits and losses in the ratio of 4:3:3. Miami purchases 15% interest
in equity and profits from the partners for P 150, 000.
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a) What would be the new capital balance of Utah, Atlanta and Detroit after the admission of
Miami? OP= 15%
Utah: 150, 000 x 85% = 127, 500 Atlanta: 200, 000 x 85% = 170, 000
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Detroit: 300, 000 x 85% = 255, 000

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b) Assume that some of the assets of the partnership are undervalued, how much is the
undervaluation in assets? +AR =
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New PC: 150, 000 / 15%= 1, 000, 000

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OP Capital 650, 000

+ AR 350, 000
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 4-4 On August 1, 2020, prior to the admission of Grant, E and F Enterprises have the following
account balances:
Cash P 30, 000
Accounts Receivable 400, 000
Allowance for Bad Debts 36, 000
Merchandise Inventory 110, 000
Equipment – net 134, 000
Accounts Payable 38,
000 Erving, Capital 300,
000 Fisher, Capital 300,
000

Erving and Fisher share profit and loss in 1:1 ratio. Before the admission of Grant, the partners
agree on the following adjustments to bring the assets and liabilities to their fair values:

a. The allowances for Bad Debts should be brought to 10% of the outstanding accounts

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receivable.
b. The current market value of the merchandise inventory is P 140, 000.

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c. Accrued expenses of P 4, 000 should be recognized in the accounting records.
ERVING FISHER

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Capital
rs e P 300, 000 P 300, 000
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Allowance for BD (2, 000) (2, 000)
Merch. Inventory 15, 000 15, 000
Accrued Expense (2, 000) (2, 000)
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Adjusted Capital P 311, 000 P 311,

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000
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1. If Grant purchase 50% of Erving’s capital at its adjusted carrying value, how much is the
total assets of the partnership just after the admission of Grant?
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2. If Grant is admitted into the partnership upon his investment of P 400, 000 for 2/5
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interest in the capital and profit, what is the total capital of the partnership just after the
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admission of Grant?

4-5 Jake desires to invest P 200,000 for ¼ capital and profit and loss interest in the partnership of
Kim and Lim, who at that time had capital balances of P 200,000 and P300,000, respectively.
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Profit and loss ratio of the partners before the admission was 6:4. If a positive asset revaluation
is to be recorded, what are the capital balances of Kim, Lim and Jake?

P&L

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 KIM 200, 000 6/ 10
Lim 300, 000 4/ 10
Jake 200, 000 1/ 4

Entry: DR CR

Cash 200, 000

Other Asset 100, 000
Jake, Capital 200, 000
Kim, Capital 60, 000
Lim, Capital 40, 000

AC CC

Old Partners ¾ 600, 000 100, 000 500, 000

New Partner 1/4 200, 000 = 200, 000

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TOTAL 800, 000 > 700, 000

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AR: 800, 000 – 700, 000 = 100, 000

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Agreed Capital: 200, 000 x (1/4) = 800, 000

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Transfer of Capital Based on P & L:
rs eKim: 100, 000 x (6/10) = 60, 000
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Lim: 100, 000 x (4/10) = 40, 000

Kim: P 260, 000 Lim: P 340, 000 Jake: P 200, 000

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4-6 Pierce, Allen, and Rondo are partners with capital account balances at year-end of P90,000; P
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110,000; and P 50,000, respectively. The partnership profit for the year is P 110,000. They share
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profits and losses on a 4:4:2 ratio, after considering the following terms:

a. Interest of 10% shall be paid on that portion of a partner’s capital in excess of P100,000
b. Salaries of P 10,000 and P 12,000 shall be paid to Pierce and Rondo, respectively
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c. Rondo is to receive a bonus of 10% of profit after bonus How much is the total profit share
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of each partner?
PIERCE (40%) ALLEN (40%) RONDO (20%) TOTAL
Interest Allowance 4, 000 4, 000 2, 000 10, 000
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Salaries Allowance 10, 000 12, 000 22, 000

Bonus
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B= 10%(P 110, 000-B

B= P 11, 000 - .1B
1.1B= P 11,000
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B= P 10,000 10, 000 10, 000

Remainder In Ratio 27, 200 27, 200 13, 600 68, 000
TOTAL P 41, 200 P 31, 200 P 37, 600 P 110, 000

Pierce: P 41, 200 Allen: P 31, 200 Rondo: P 37, 600

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 4-7 Anton, Barkley and Charles, partners of ABC Enterprises, have agreed on a profit and loss ratio of
3:3:4, respectively. On December 31, 2019, the partnership books showed the following capital
balances:

Anton – P 450,000; Barkley – P 540,000; Charles – P 900,000

On January 1, 2020, Derek was admitted as a new partner under the following terms and
conditions:

a. Derek will share ¼ in the profit and loss ratio, while the ratio of the original partners will
remain proportionately the same as before Derek’s admission.
b. Derek will purchase 1/6 of Barkley’s interest paying him P 75,000.
c. Derek will contribute P 450,000 in cash to the partnership.
d. Total partnership capital after Derek’s admission will be P 2,400,000 of which Derek’s
capital interest will be P 480,000.

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Instructions:

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1. Using the format below, prepare a schedule showing the capital of each partner
before and after the admission of Derek.

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rs e Anton Barkley Charles Derek Total
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Capital balances before the
admission of Derek P 450,000 P 540,000 P 900,000 - P 1,890,000
Interest Purx
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2. What is the profit and loss ratio of all the partners after Derek’s admission?
4-8 The CFM Partnership shows the following profit and loss ratios and capital balances:
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Carter – 60% P 252,000; Fisher – 30% P 126,000; Malone – P 10% P 42,000

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The partners decide to sell Shaq 20% of their respective capital and profit and loss interests for a
total payment P 90,000. Shaq will pay the money directly to the partners.
1. If the partners agree that asset revaluation is to be recorded prior to the
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admission of Shaq, what are the capital balances of the partners after Shaq’s
admission?
Carter _________ Fisher _________ Malone __________ Shaq ___________
4-9 On January 1, 2020, Kevin Garnett and Steve Nash have capital balances of P 174,600 and P
110,400, respectively. On this date, Karl Malone is admitted as a partner upon his investment of

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 P 120,000 in the firm. Kevin and Steve, sharing profits and losses in the ratio of 65:35, gave a
bonus to Karl so that Karl may have a 40% interest in the firm.
How much is the decrease in Steve’s capital balance? _________________________
4-10 Jason and Kidd are partners who share profits and losses in the ratio of 3:1, respectively. On
August 1, 2020, their capital balances were: Jason – P 200,000 and Kidd – P 100,000. On this
date, Scottie invests 80,000 in the firm and is given a capital credit of P 50,000 which is to be 1/8
of the capital of the new partnership.
1. What is the agreed capital of the new partnership? _______________________
2. What is the new capital balance of Jason after the admission of Scottie?
______________
4-11 Terence and Romeo are partners who share profits and losses 60% and 40%, respectively. Their
capital accounts on July 1, 2020 were as follows: Terence – P 280,000; Romeo – P240,000. On
this date, they agree to admit Arwind as a new partner.

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1. If Arwind purchased ¼ of the equity of Terence for P 100,000, how much would be the

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total partnership capital after Arwind’s admission?

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280, 000 x ¼ = 70, 000

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Terence (280, 000 – 70,000) 210, 000
rs e Romeo 240, 000
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Arwind 25, 000
TOTAL 520, 000
2. If Arwind invested P 180,000 for a ¼ interest in the firm and that the assets of the
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partnership are fairly valued, what would be the capital of Terence after Arwind’s
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admission?
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PARTNERS TOTAL AC NEW PARTNERSHIP CAPITAL

Old Partneres 520, 000 520, 000
New Partner (Arwind) 180, 000 180, 000
Total Capital 700, 000 700, 000
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180, 000 x 60% = 108, 000

Terence, Capital: 280, 000 + 108, 000 = 388, 000
3. If Arwind invested P 130,000 for a 25% interest in the firm and that the assets of the
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partnership are fairly valued, what would be the capital of Romeo after the admission of
Arwind?
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130, 000 x 40% = 52, 000

Romeo, Capital: 240, 000 + 52, 000 = 292, 000
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4. If Arwind purchased 25% of the respective capital and profits and losses of Terence and
Romeo for P 150,000, how much is the share of Terence in the asset adjustment?

5.

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