No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

PARTNERSHIP FORMATION
Problem 1: On January 1, 20x1, Rody and Noy formed a partnership. Rody and Noy contributed the
following assets at formation:

Rody Noy
Cash 25,000 37,500
Inventory 18,750
Building 50,000
Equipment 18,750

The building is subject to a P12,500 mortgage, which was assumed by the partnership. They share profit
and loss in the ratio of 60:40 to Rody and Noy, respectively.

Req. 1: What amount should be recorded as capital of Rody and Noy at the formation of the partnership,
respectively?

Req. 2: Assuming Rody will invest (withdraw) cash so that his capital balance will equal to his profit and
loss ratio, what is the total asset of the partnership after formation?

Problem 2: Moses and Joshua decided to combine their business to form partnership on October 1, 20x1.
They agreed to divide profit and loss at a ratio of 55:45 for Moses and Joshua, respectively. The balance
sheet for Moses and Joshua on September 30, 20x1 are presented below:

Accounts Moses Joshua

Cash 112,500 67,500
Accounts Receivable 270,000 225,000
Allowance for doubtful accounts (6,000) (7,500)
Notes Receivable 75,000
Merchandise Inventory 240,000 180,000
Office supplies 40,500
Equipment 150,000
Accumulated Depreciation - equipment (67,500)
Furniture 180,000
Accumulated depreciation - furniture (30,000)
Total Assets 739,500 690,000

Accounts Payable 199,500 150,000

Notes Payable 75,000
Capital 465,000 540,000
Total Liabilities and Capital 739,500 690,000

Moses and Joshua contributed their business to the partnership with the following adjustments:
1. Uncollectible accounts of P9,000 for Moses is to be provided and a 5% allowance is to be recognized
in the books of Joshua.
2. Moses’s inventory amounting to P15,000 is considered worthless and Joshua’s agree to value its
inventory to P187,500.
3. Prepaid asset of P15,000 on Moses books and Rent payable of P12,000 on the books of Joshua should
be recognized.-
4. Interest of 15% on the notes receivable dated August 1, 20x1 should be accrued.
5. The unused office supplies amounted to P30,000
6. The equipment has an agreed value of 75,000
7. The furniture has a market value of P135,000
8. Interest of 10% on notes payable dated July 1, 20x1 should be accrued.
9. Joshua has unrecorded patent of 60,000 to be recognized in Joshua’s books.

Joshua will invest cash necessary to have 60% interest in the partnership.

What is the amount of addition cash of investment of Joshua?

1|P a g e RFERRER/RLACO/AT ANG /PDEJESUS

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

Problem 3: On June 30, 20x1, J, the sole proprietor of J Co,, expands the company and establish a
partnership, with P and D. The partners plan to share profits and losses as follows: J 50%; P 25% and D
25%. They also agree that the beginning capital balances of the partnership will reflect the same
relationship.

J asked P to join the partnership because his many business contracts are expected to be valuable during
the expansion. P is also contributing P28,000 cash. D is contributing P11,000 cash and marketable securities
costing P42,000 to D but are currently worth P57,500.

J’s investment in the partnership is the J Co. he plans to pay off the notes with his personal assets. The other
partners have agreed that partnership will assume the accounts payable. The statement of financial position
for the J Co follows:

J Company
Balance Sheet
June. 30, 20x1

Assets
Cash 10,000
Accounts Receivable 48,000
Inventory 72,000
Equipment (net of accumulated depreciation of P20,000) 70,000
Total Assets 200,000

Liabilities and Capital

Accounts Payable 53,000
Notes Payable 62,000
J, capital 85,000
Total Liabilities and Capital 200,000

The partners agree that the inventory is worth P85,000, and the equipment is worth half its original cost,
and the allowance established for doubtful accounts is correct.
Req. 1: What is the capital of J after formation of the partnership using bonus method?

Req. 2: What is the capital of P after formation of the partnership using revaluation method?

PARTNERSHIP OPERATION
Problem 1: Pam and Drix formed a partnership in 20x1 to operate a bookkeeping services. Pam contributed
the initial capital while Drix managed the business. With the assistance of their consultants, they have
arrived at the following agreement:
1. Each partner is allowed to withdraw P1,000 in cash from business every month. Any withdrawal in
excess of that figure will be accounted for as a direct reduction to the partners’ capital balance.

2. Partnership profits and losses will be allocated each year according to the following plan:
- Interest of 15% will be accrued by each partner based on the monthly average capital balance for
the year.
- As the managing partner, Drix is to receive credit for a bonus equal to 20% of the year’s net income.
- Any remaining profit or loss will be divided equally between the two partners.

Pam and Drix begin the year of 20x1 with capital balances of P150,000 and P30,000, respectively. On April
1 of the year, Pam invested additional P8,000 cash in the business, while on July 1, Drix withdraws P6,000
in excess of the specified drawing allowance. The partnership reports net income of P30,000 for 20x1.

The amount of capital balances of Pam and Drix on December 31, 20x1 will be:

Problem 2: Marie and Paz are partners in manufacturing business located in Manila. Their profit and loss
agreement contains the following provisions:
1. Salaries of P35,000 and P40,000 for Marie and Paz, respectively.
2. A bonus to Marie equal to 10% of net income after the bonus
3. Interest on weighted average capital at the rate of 8%. Annual drawings in excess of P20,000 are
considered to be a reduction of capital for purposes of this calculation.
4. Profit and loss percentages of 40% and 60% for Marie and Paz, respectively

2|P a g e RFERRER/RLACO/AT ANG /PDEJESUS

 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

Capital and drawing activity of the partners for the year 20x1 are as follows:

Marie Paz
Beginning balance 120,000 60,000
April 1. 20,000
June 1. (15,000) (20,000)
Sept 1. 30,000
Nov 1. (15,000) 40,000

Assuming net income for 20x1 of P132,000, how much profit should be allocated to each partner?

Problem 3: Marie, Paz and Love formed partnership on January 1, 20x1. The contribution of the partners
are as follows: Marie P300,000; Paz P250,000 and Love P450,000. The following are the agreements of
the partners:

- Monthly salary to Marie, Paz and Love of P5,000 each.

- Bonus to Marie of 10% of net income after interest and bonus
- Interest of 5% based on the capital contribution. The interest is treated as expense as per
agreement of the partners.

The net income of the partnership in year 20x1 is P264,000. What is the total income of Marie received
from the partnership?

Problem 4: John and Earl formed a partnership on May 1, 20x1. John invested P350,000 cash while Earl
invested equipment’s with book value of P600,000 and fair value of P450,000. On September 1, 20x1, John
invested additional cash of P50,000. On October 31, 20x1, Earl withdrew cash against his capital amounting
to P20,000. The partners agree on the following:
 Monthly salary allowances of P2,500 and P3,000 to John and Earl, respectively. The salary allowance
is treated as expense
 12% interest based on beginning capital.
 25% bonus on profit after bonus to partner John.

The interest allowance is withdrawn by the partners in anticipation of profit share. The income summary
has a credit balance amounting to P125,000.

Req. 1: The total share in net income of partner Earl in the partnership is:
Req. 2: What is the capital balance of partner John on December 31, 20x1?

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