Partnership Accounting With Ans

ARTS CPA Review
2F & 3F Crème Building, Abella St., Naga City

Tel No. (054) 472-9104; E-mail: artscparev@yahoo.com
PARTNESHIP ACCOUNTING
PRACTICAL ACCOUNTING PROBLEMS II MICHAEL B. BONGALONTA,CPA,MICB,MBA
Problem 1(Adapted):
On January 1, 2010, Enriquez and Flores formed a partnership with a capital contributions
of P1,000,000 and P1,500,000, respectively. The partners agreed that profits and losses
would be allocated as follows: P120,000 salary to each partner, 3% interest on initial capital
contributions, the remainder divided in the ratio of 3:2 to Enriquez and Flores, respectively.
As of January 1, 2012, the partnership agreement was amended so that profits and losses
would be allocated as follows: 8% interest on initial capital contributions, the remainder
divided equally.
During 2012, the following partnership errors were discovered
1. At the beginning of 2012, a purchase of equipment costing P200,000 was

charged to expense. The equipment has an estimated useful life of ten years with
equal service potential each year.
2. On December 31, 2011, inventory was understated by P16,000.
3. On December 31, 2012, inventory was overstated by P24,000.
The partnership agreement specifies that errors of the preceding year are to be treated as
prior period adjustments. Net profit of the partnership for the year 2012 was P400,000.
Instructions:
1. Prepare a schedule showing the adjustments needed to the capital account of each
partner as a result of the errors. Income tax rate is 30%.
2. Prepare the necessary correcting entry or entries on the books of the partnership
relating to the errors.
ANSWER:
Enriquez and Flores

Schedule Showing Adjustments in Capital
For the Year Ended December 31, 2012
Reported net profit P400,000

Adjustments:
Equipment purchased charged to expense P200,000
Depreciation on equipment ( 20,000)
Overstatement of 2012 ending inventory ( 24,000)
P156,000
x 70% 109,200
Corrected net profit P509,200
Distribution of 2012 net profit

Enriquez Flores Total
Salaries P120,000 P120,000 P240,000
Interest 30,000 45,000 75,000
Balance 51,000 34,000 85,000
P201,000 P199,000 P400,000
Distribution of 2012 corrected net profit

Salaries P120,000 P120,000 P240,000
Interest 30,000 45,000 75,000
Balance 116,520 77,680 194,200
P266,520 P242,680 P509,200
Adjustments P 65,520 P 43,680 P109,200
2. Equipment 200,000
Enriquez, Capital 65,520
Flores, Capital 43,680
Accumulated Depreciation 20,000
Inventory 24,000
Income Tax Payable 46,800
Problem 2(Adapted):
The statement of financial position of Ruiz as of December 1, 2012 is presented below.
Ruiz Company
Statement of Financial Position
1-Dec-12
Assets
Cash P 240,000
Notes Receivable 150,000
Accounts Receivable P900,000

Less: Allowance for Doubtful Accounts 60,000 840,000
Merchandise Inventory 240,000
Furniture and Fixtures P720,000
Less: Accumulated Depreciation 180,000 540,000
Total Assets P2,010,000
Liabilities and Capital

Notes Payable P 300,000
Accounts Payable 630,000
Ruiz, Capital 1,080,000
Total Liabilities and Capital
P2,010,000
Santos offers to invest cash to give him a three fifths capital credit in the new partnership.
Ruiz accepted the offer. Adjustments to be made on the books of Ruiz follows:
a. The merchandise is to be valued at P300,000.

b. The allowance for Uncollectible Accounts should be adjusted to P90,000.
c. Interest accrued on Notes Receivable should be reflected. The note is dated
October 1 and bears interest at 6%.
d. Interest accrued at 10% annually from September 1, 2011 on the Notes Payable
should be recorded.
e. The furniture and fixtures are one-third depreciated.
f. Office supplies on hand, which have been charged to expense amounted to
P5,000. These are to be used by the partnership.
Instructions:
1. Prepare journal entries on the books of Ruiz to give effect to the partnership
formation.
2. Prepare a statement of financial position for the new partnership.
Solutions
1. a. Merchandise, Inventory 60,000
Ruiz, Capital 60,000
b. Ruiz, Capital 30,000
Allowance for Uncollectible Accounts 30,000
c. Interest Receivable 1,500
Ruiz, Capital 1,500
P150,000 x 6% x 2/12 = P1,500
d. Ruiz, Capital 7,500

Interest Payable 7,500
P300,000 x 10% x 3/12 = P7,500
(date of note is Sept. 1, 2012)
e. Accumulated Depreciation 180,000
Ruiz, Capital 60,000
Furniture and Fixtures 240,000
f. Office Supplies 5,000

Ruiz, Capital 5,000
g. Cash 1,573,500
Santos, Capital 1,573,500
Ruiz and Santos

December 1, 2012
Assets
Cash P 1,813,500
Notes Receivable 150,000
Less Allowance for Uncollectible Accounts 90,000 810,000
Interest Receivable 1,500
Merchandise Inventory 300,000
Office Supplies 5,000
Furniture and Fixtures 480,000
Total Assets P3,560,000
Liabilities and Capital

Notes Payable P300,000
Interest Payable 7,500
Total Liabilities P 937,500
Ruiz, Capital P1,049,000
Santos, Capital 1,573,500
Total Capital 2,622,500
Total Liabilities and Capital P3,560,000
Problem 3(Adapted):
Bernabe and Burgos formed a partnership on January 1, 2011. The changes in their
respective capital balances during the year ended December 31, 2011 are presented on
below. During the year, the partnership earned a profit of P700,000.
Bernabe, Capital
31-Oct
1/1
360,00
60,000 0
5/31
100,000
Burgos, Capital
1/1
30-Jun 80,000 440,000
10/31
140,000

Instructions: Prepare the entry to record the allocation of the partnership profit to
individual capital accounts under each of the following assumptions:
1. Each partner receives 8% interest on beginning-of-the-year capital balances and the

remainder is divided between Bernabe and Burgos in the ratio of 5:1, respectively.
2. Bernabe and Burgos are given annual salaries of P140,000 and P260,000,
respectively, 12% interest on the end-of-year capital balances, and the remainder is
divided 25%, 75%.
3. Bernabe and Burgos are given salaries of P90,000 and P170,000, respectively, 12%
interest on average capital balances, and the remainder divided in the ratio of
1/3:2/3.
4. Bernabe and Burgos are given salaries of P100,000 and P200,000, respectively, 10%
interest on average capital balances , and the remainder divided equally.
5. Each partner receives 8% interest on beginning-of-the-year capital balances and a
salary of P100,000, Bernabe receives a bonus of 10% of profit after deducting
interest and salaries, and the reainder is divided in the ratio of 2:3.
Solutions
1. Income Summary 700,000

Bernabe, Capital 558,800
Burgos, Capital 141,200
Bernabe Burgos Total
Interest on beg. capital P 28,800 P 35,200 P 64,000
Balance – 5:1 530,000 106,000 636,000
Net Profit P 558,800 P 141,200 P700 000

Salaries P 140,000 P 260,000 P400,000
Interest on end capital 48,000 60,000 P108,000
Balance – 25%,75% 48,000 144,000 192,000
Net Profit P 236,000 P 464,000 P700 000


Salaries P 90,000 P 170,000 P260,000
Interest on average. Cap 49,000 50,800 99,800
Balance – 1/3;2/3 113,400 226,800 340,200
Net Profit P 252,400 P 447,600 P700 000
Bernabe:
Jan. 1 – May 31 P360,000 x 5 P1,800,000
June 1 – Oct. 31 460,000 x 5 2,300,000
Nov, 1 – Dec. 31 400,000 x 2 800,000
P4,900,000/12 P408,333
Burgos:
Jan. 1 – June 30 P440,000 x 6 P2,640,000
July 1 – Oct. 31 360,000 x 4 1,440,000
Nov.1 – Dec. 31 500,000 x 2 1,000,000
P5,080,000/12 P423,333


Salaries P 100,000 P 200,000 P300,000
Interest on average. cap 40,833 42,333 83,166
Balance – Equally 158,417 158,417 316,834
Net Profit P 299,250 P 400,750 P700 000


Salaries P 100,000 P 100,000 P220,000
Interest on beg. cap 28,800 35,200 64,000
Bonus 43,600 43,600
Balance – 2:3 156,960 235,440 392,400
Net Profit P329,360 P 370,640 P700 000
B = 10%(NI –S – I)
Problem 4(Adapted):
Statement of financial position data for the firm of Chavez, Roman, and Valdez as of
January 1, 2012, follows:
Assets P490,000 Liabilities P250,000

Chavez, Capital P80,000
Roman, Capital P80,000
Valdez, Capital P80,000
P490,000 P490,000
Partners share profits equally after of a salary to Valdez, the managing partner, of P3,000
monthly.
As a result of the operating losses sustained at the beginning of 2012, Chavez advanced
P60,000 to the firm on April 1; it was agreed that he would be allowed interest at 65. With
continued losses, the members decided to liquidate. Valdez agreed to take over partnership
equipment in part settlement of his interest, the transfer being made at an agreed value of
P16,000. On November 1, P80,000 cash was available for distribution to partners after sale
of remaining assets and the payment of the partnership obligations to outsiders. Valdez had
withdrawn his salary for January and February but had not received his salary for the period
march 1 to November 1; no other cash payments had been made to partners. Available
cash was distributed on November 1 and the firm was declared dissolved.
Instructions: Prepare a statement of partners, equity showing partners’ capital and loan
balances together with all of the changes in such balances that took place during 2012.
Solutions
Chavez, Roman, and Valdez
Statement of Changes in Partners’ Capital
January 1 to November 1, 2012
Chavez,Chavez, Roman, Valdez, Total

Loan Capital Capital Capital
Beginning balances P 80,000 P 80,000 P 80,000 P240,000
Loan from Chavez P 60,000 60,000
Transfer of equipment to Valdez ( 16,000) ( 16,000)
Balances P 60,000 P 80,000 P 80,000 P 64,000 P284,000
Distribution of loss on
realization*
Salary to Valdez 24,000 24,000
Int. to Chavez for 7 months 2,100 2,100
Balance divided equally* ( 76,700) ( 76,700) ( 76,700) ( 230,100)
Balances P 60,000 P 5,400 P 3,300 P 11,300 P 80,000

Dist. of cash in final settlement 60,000 5,400 3,300 11,300 80,000
*Total partners’ equity as shown above P284,000

Less Cash available for distribution 80,000
Loss on realization P204,000
Less Salary and interest 26,100
Total loss to be divided equally P230,100
Problem 5(Adapted):
Locsin and Montes are partners with capitals of P240,000 and P120,000 respectively. They share profits
in the ratio 3:1. The partners agree to admit Nava as a member of the firm.
Required: Prepare the journal entries on the firm books to record the admission of Nava under each of
the following assumptions:
1. Nava purchases a 1/4 interest in the firm. One-fourth of each partner's capital is to be transferred
to the new partner. Nava pays the partners P90,000 which is divided between them in proportion
to the equities given up.
2. Nava purchases a 1/3 interest in the firm. One-third of partners' capital is to be transferred to the
new partner. Nava pays the partners P96,000 which is divided between them in proportion to the
equities given up.
3. Nava purchases a 1/3 interest in the firm. One-third of partners' capital is to be transferred to the
new partner. Nava pays the partners P180,000 which is divided between them in proportion to the
equities given up. Before Nava's admission, however, asset revaluation is recorded on the firm
books resulting to Nava's 1/3 interest being equal to the amount of the payment.
4. Nava invests P180,000 for a 1/2 interest in the firm. Locsin and Montes transfer part of their
capital to that of Nava as a bonus.
5. Nava invests P180,000 for a 1/4 interest in the firm. Asset revaluation is recorded on the firm
books prior to Nava's admission.
6. Nava invests P240,000 in the firm. P60,000 is considered a bonus to partners Locsin and Montes.
7. Nava invests P240,000 in the firm and is given a credit of P72,000 as bonus upon admission.
8. Nava invests P150,000 for a 1/4 interest in the firm. The total firm capital is to be P510,000.
Solutions:
1. Locsin, Capital (P240,000 x 1/4) 60,000

Montes, Capital (P120,000 x 1/4) 30,000
Nava, Capital 90,000
2. Locsin, Capital (P240,000 x 1/3) 80,000

3. Other Assets 180,000
Locsin, Capital (P180,000 x 3/4) 135,000
P540,000 – P360,000 = P180,000
Locsin, Capital [(P240,000 + P135,000) 1/3] 125,000

Montes, Capital [(P120,000 + P45,000) 1/3] 55,000
4. Cash 180,000
AC CC Bonus
old (1/2) 270,000 360,000 (90,000)
new (1/2) 270,000 180,000 90,000
540,000 540,000 -----
5. Cash 180,000
Other Assets 180,000
AC CC Asset Rev
old (3/4) 540,000 360,000 180,000
new (1/4) 180,000 180,000 -----
720,000* 540,000 180,000
*180,000 ÷ 1/4 = 720,000
6. Cash 240,000
7. Cash 240,000
Locsin, Capital 54,000
Montes, Capital 18,000
8. Cash 150,000
Nava, Capital (P510,000 x 1/4) 127,500
9. Cash 165,000
Other Assetsl (P660,000 – P525,000) 135,000
Nava, Capital (P660,000 x 1/4) 165,000
10. Cash 144,000

Nava, Capital (P504,000 x 1/3) 168,000
Problem 6(Adapted):
A condensed statement of financial position for the Ponce, Salva, and Victa partnership at December 31,
2011 and their profit and loss sharing percentages on that date are presented below.
Assets Liabilities and capital

Cash P60,000 Liabilities P200,000
Other assets 740,000 Ponce, Capital (50%) 300,000
Salva, Capital (30%) 200,000
. Victa, Capital (20%) 100,000
Total assets 800,000 . Total liabilities & capital 800,000
On January 1, 2012, the partners decided to bring Anton into the partnership for a one-fourth interest in
the capital and profits of the partnership. The following proposals for Anton's admittance into the
partnership were considered:
 Anton would purchase one-half of Ponce's capital and right to future profits directly from Ponce
for P240,000.
 Anton would purchase one-fourth of each partner's capital and right to future profits by paying a
total of P180,000 directly to the partners.
 Anton would invest P220,000 cash in the partnership for a 25% interest in capital. Future profits
would be divided 37.5%, 22.5%, 15% and 25% for Ponce, Salva, Victa and Anton, respectively.
Required: Prepare journal entries with supporting computations to show Anton's admission into the
partnership under each of the above proposals assuming that:
1. Partnership net assets are not to be revalued.
2. Partnership net assets are to be revalued.
Solutions:
1. a. Ponce, Capital (P300,000 x ½) 150,000
Anton, Capital 150,000
b. Ponce, Capital (P300,000 x ¼) 75,000

Salva, Capital (P200,000 x ¼) 50,000
Victa, Capital (P100,000 x ¼) 25,000
c. Cash 220,000
Ponce, Capital 7,500
Salva, Capital 4,500
Victa, Capital 3,000
AC CC Bonus
Ponce P307,500 P300,000 P 7,500
Salva 204,500 200,000 4,500
Victa 103,000 100,000 3,000
Anton 205,000 220,000 (15,000)
P820,000 P820,000 ------
2. a. Other Assets 360,000
P240,000/25% = P960,000 – P600,000 = P360,000
b. Other Assets 120,000

P180,000/ 25% = P720,000 – P600,000 = P120,000

c. Other Assets 60,000

P220,000/ 25% = P880,000 – P820,000 = P60,000
Cash 220,000
Problem 7 (Adapted):
The following are the capital accounts of the partners in the C3 Store on June 30,2012:
Capital P&L ratio

Cabral P324,000 5/10
Corpus 216,000 4/10
Carlos 135,000 1/10
On July 1, 2012, Camus invests P90,000 in the business for a one-eight interest in net assets. Profits are
to be shared equally after the admission.
Required:
1. Give two alternative solutions, in journal entry form, to record Camus' admission to the firm.
Which method/solution will be preferred be Carlos?
2. Give two alternative journal entries to record Camus' admission, if instead of investing, he
purchases a one-eight interest ratably from all partners.
Solutions:
1.a Cash 90,000
Cabral, Capital 22,500
Corpus, Capital 18,000
Carlos, Capital 4,500
Other Assets 45,000
Camus, Capital 90,000
AC CC Asset Rev
old (3/4) 630,000 675,000 (45,000)
new (1/4) 90,000 90,000 -----
720,000* 765,000 (45,000)
b. Cash 90,000
Carlos, Capital 562
AC CC Bonus
old (1/2) 669,375 675,000 (5,625)
new (1/2) 95,625 90,000 5,625
765,000 765,000 -----
2.a Cabral, Capital 40,500

b. Other Assets 45,000

P90,000/ 1/8 = P720,000 – P675,000 = P45,000

Concio and Domino wish to acquire the partnership interest of their partner Montero, on July 1, 2012.
Partnership assets are to be used to acquire Montero's partnership interest. The statement of financial
position on that date is as follows:

Accounts receivable(net) 72,000 Concio, capital 240,000
Equipment (net) 270,000 Domino, capital 120,000
Other assets 60,000 Montero, capital 100,000
550,000 550,000
Concio, Domino and Monters share earnings in the ratio of 3:2:1.
Required: Record the withdrawal of Montero under each of the following assumptions:
1. Montero is paid P108,000 and the excess payment is recorded as a bonus to Montero from Concio
and Domino.
2. Montero is paid P90,000 and the difference is recorded as a bonus to Concio and Domino from
Montero.
3. Montero is paid P90,000 and asset revaluation of the partnership is undertaken.
4. Montero accepts cash of P81,000 and an equipment with a current fair value of P18,000. The
equipment costs P60,000, is 60% depreciated and has no residual value. Record any gain or loss
on the disposal of the equipment directly to the partners' capital accounts.
Solutions:
1. Montero, Capital 100,000
Concio, Capital (P8,000 x 3/5) 4,800
Domino, Capital (P8,000 x 2/5) 3,200
Cash 108,000

Cash 90,000

Cash 90,000
Other Assets (P10,000 ÷ 1/6) 60,000
4. Montero, Capital (P6,000 x 1/6) 1,000

Equipment [(P60,000 x 40%) – P18,000] 6,000
Montero, Capital (P100,000 – P1,000) 99,000

Equipment 18,000
Cash 81,000
Problem 9(Adapted):
Partners Damaso, Dadula and Datu have capital balances of P120,000, P70,000, and P80,000 respectively
on December 31, 2011. The partners share profits and losses in the ratio of 3:2:5, respectively. During the
calendar year 2012, the partnership suffered a loss of P32,000 and each partner had withdrawn P24,000 in
cash from the partnership. Dadula is unhappy with the operations of the partnership and has decided to
withdraw as of December 31,2012.
Required:
1. Determine the balance of the partners' capital accounts prior to the withdrawal of Dadula.
2. Dadula will accept P30,000 for his interest from the partnership. Prepare the journal entry for the
withdrawal of Dadula if the reason for Dadula being willing to accept less than his capital balance is that
the inventory of the partnership is overvalued.
3. the partners agree to the partnership buying Dadula's interest for P48,000. Prepare journal entries for
the withdrawal of Dadula under each of the following independent assumptions:
a. Asset revaluation prior to retirement.
b. Dadula is receiving a bonus.
Solutions:
1. Damaso Dutala Datu
Capital, January 1, 2012 P120,000 P 70,000 P 80,000
Share in net loss ( 9,600) ( 6,400) ( 16,000)
Drawings ( 24,000) ( 24,000) ( 24,000)
Capital balances,
December 31, 2012 P 86,400 P 39,600 P 40,000
2. Dutala, Capital 39,600

Damaso, Capital 14,400
Datu, Capital 24,000
Cash 30,000
Inventory 48,000
P39,600 – P30,000 = P9,600 / 20% = P48,000
3. a Other Assets 42,000

Dutala, Capital 39,600
Cash 48,000
Datu, Capital 21,000
P48,000 – P39,600 = P8,400/ 20% = P42,000
b. Dutala, Capital 39,600

Datu, Capital 5,250
Cash 48,000
On January 1,2012, partners Julian, Lagman and Magno decided to liquidate their partnership. Prior to the
liquidation, tha partners had cash of P12,000, non-cash assets of P146,000, liabilities to outsiders of
P36,000 and a note payable to partner Magno of P14,000. The capital balances of the partners were :
Julian - P36,000; Lagman - P54,000; Magno - P18,000. The partners share profits and losses in the ratio
of 3:3:4 respectively.
During January 2012, the partnership received cash of P30,000 from the sale of assets with a book value
of P38,000 and paid P3,600 of liquidation expenses. During February, the partnership realized P44,000
from the sale of assets with a book value of P35,000 and paid liquidation expenses of P8,400. During
March, the remaining assets were sold for P36,000. The partners agreed to distribute cash at the end of
each month.
Required:
1. Prepare a cash priority program.
2. Prepare a statement of liquidation.
3. Prepare the necessary journal entries to record the liquidation process.
Solutions:
Julian, Lagman and Magno
Cash Priority Program
January 1, 2012
PAYMENTS
Julian Lagman Magno Julian Lagma Magno
Capital balances before liquidation P 36,000 P 54,000 P18,000
Add Note payable to Magno 14,000
Total partners’ interest P 36,000 P 54,000 P 32,000
Profit and loss ratio 3/10 3/10 4/10
Loss absorption balances P120,000 P180,000 P80,000
Allocation I – Cash to Lagman reducing
LAB to an amount reported for Julian
(P60,000 x 3/10) (60,000) P18,000
Balances P120,000 P120,000 P80,000
Allocation II – Cash to Julian & Lagman
reducing LAB to an amount reported for
Magno (P40,000 x 3/10)
( 40,000) (40,000) P12,000 12,000
Balances P80,000 P80,000 P80,000 P12,000 P20,000 -
Allocation III – Further cash distributions
may be made in the P & L ratio
2. Julian, Lagman and Magno

Statement of Liquidation
January to March, 2012
Other NP to CAPITAL
Cash Assets Liabilities Magno Julian Lagman Magno
Balances before liquidation P12,000 P146,000 P36,000 P14,000 P36,000 P54,000 P18,000
January:
Sale of assets and
distribution of loss 30,000 ( 38,000) ( 2,400) ( 2,400) ( 3,200)
Payment of liquidation expenses ( 3,600) ( 1,080) (1,080) (1,440)
Payment of liabilities ( 36,000) (36,000)
Distribution of cash to
partners (sch. 1) ( 2,400) (2,400)
Balances P108,000 P14,000 P32,520 P48,120 P13,360
February:
Sale of assets and
distribution of gain 44,000 (35,000) 2,700 2,700 3,600
Payment of liquidation
Expenses (8,400) (2,520) (2,520) (3,360)
Distribution of cash to
partners (sch. 2) (35,600) (10,000) (25,600)
Balances P73,000 P14,000 P22,700 P22,700 P13,600
March:
Sale of assets and
distribution of loss 36,000 (73,000) (11,100) (11,100) (14,800)
Balances P36,000 P14,000 P11,600 P11,600 P(1,200)
Offset of loan against
Deficiency ( 1,200) 1,200
Final payment to partners (P36,000) (P12,800) (P11,600) (P11,600)
Schedule 1
Installment Liquidation
January 31, 2012
Amount Julian Lagman Mango

Cash available P2,400
Allocation I – Payable to Lagman P2,400 P2,400
Schedule 2
Installment Liquidation
February 28, 2012
Amount Julian Lagman Mango

Cash available P35,600
Allocation I – Balance
Payable to Lagman 18,000-2,400 15,600 P15,600
Allocation II – Payable to Julian and
Lagman P20,000 P10,000 10,000
P10,000 P25,600 -
10,000 25,600
3. Journal entries
January Cash 30,000
Julian, Capital 2,400
Lagman, Capital 2,400
Magno, Capital 3,200
Other Asset 38,000

Cash 3,600
Liabilities 36,000
Cash 36,000
Cash 2,400
February Cash 44,000

Other assets 35,000

Cash 8,400
Julian. Capital 10,000

Cash 35,600
March Cash 36,000

Other assets 73,000
Note Payable to Magno 1,200

Note Payable to Magno 12,800

Cash 36,000
The statement of financial position for Belen and Bagnes, prepared on March 31, is shown below.
Partners share earnings and losses in the ratio of 3:1, respectively.
Belen and Bagnes

March 31, 2012
Assets
Cash P42,000
Less Allowance for uncollectible accounts 12,000 112,000
Inventories 206,000
Equipment 600,000
Less accumulated depreciation 160,000440,000
Goodwill 100,000
Total assets P900,000
Liabilities and Owners' Equity
Accounts payable P104,000

Belen, capital 394,000
Bagnes, capital 402,000
Total liabilities and owners' equity P900,000
An appraisal of the assets discloses the following current values:

Inventories P296,000
Equipment 520,000
Belen and Bagnes, together with other three friends, decided to incorporate as Colored Co. with 50,000
authorized shares of P50 par Ordinary Share Capital. The three other incorporators acquired 10,000
shares at P70. Belen and Bagnes received 14,000 shares in exchange for the net assets of the partnership
except cash. On this date, the market value of stock is P70 per share. Belen agrees to take 7,500 shares
and Bagnes, 6,500 shares. The partnership cash is then appropriately divided between the partners.
Required: Give the entries to record the foregoing on the books of the partnership and on the new book
of the corporation.
Solutions:
Partnership Books
1. Inventories 90,000
Capital Adjustment Account 90,000
2. Accumulated Depreciation 160,000

Equipment 80,000
3. Goodwill 56,000
P980,000 – P924,000 = P56,000
4. Capital Adjustment Account 226,000

Belen, Capital (3/4) 169,500
Bgnes, Capital (1/4) 56,500
5. Colored Co. Share Capital 980,000

Allowance for Uncollectible Accounts 12,000
Accounts Receivable 124,000
Inventories 296,000
Equipment 520,000
Goodwill 156,000
6. Belen, Capital 563,500

Bagnes, Capital 458,500
Cash 42,000
Colored Co. Share Capital 980,000
New Corporation’s Books

1. Authorized to issue 50,000 shares of P50 par value Ordinary Share Capital.
2. Cash 700,000
Ordinary Share Capital 500,000
PIC in Excess of Par 200,000
3. Accounts Receivable 124,000

Inventories 296,000
Equipment 520,000
Goodwill 156,000
Allowance for Doubtful Accounts 12,000
Ordinary Share Capital 700,000
PIC in Excess of Par 280,000
Calma, Daza and Esteban, who share profit and losses in the ratio 2:2:1, decided to liquidate their
partnership on December 31,2012. Below is the condensed statement of financial position prepared just
prior to liquidation.
Assets Liabilities and capital

Other assets 340,000 Daza, loan 5,000
Esteban, loan 8,000
Calma, capital 95,000
Daza, capital 60,000
. . Esteban, capital 80,000
Total assets P360,000 Total Liabilities and capital P360,000
Required: For each of the cases listed, prepare a statement of liquidation assuming that cash is realized
for the other assets as indicated in each case, and that all available cash is immediately distributed to
proper parties.
Assume also that the deficient partners invest additional cash and such cash is distributed as additional
payment of the proper parties.
Case 1 P250,000 Case 4 P125,000
Case 2 P185,000 Case 5 P 90,000
Case 3 P170,000
Solutions:
Case 1
Calma, Daza and Esteban
January, 2013
Other LOAN CAPITAL

Cash Assets Liabilities Daza Esteban Calma Daza Esteban
(2/5) (2/5) (1/5)
Balances before liquidation P20,000 340,000 112,000 5,000 8,000 95,000 60,000 80,000
Sale of assets &
distribution of loss 250,000(340,000) (36,000)(36,000)(18,000)
Balances P270,000 - 112,000 5,000 8,000 59,000 24,000 62,000
Payment to partners P 158,000 - - 5,000 8,000 59,000 24,000 62,000
Case 2
January, 2013
Other LOAN CAPITAL

(2/5) (2/5) (1/5)
Sale of assets &
Balances P 205,000 - 112,000 5,000 8,000 33,000 ( 2,000) 49,000
Balances P 93,000 - - 5,000 8,000 33,000 ( 2,000) 49,000
Offset of loan against debit
balance in the
capital account (2,000) 2,000
Payment to partners P 93,000 - - 3,000 8,000 33,000 - 49,000
Case 3

January, 2013
Other LOAN CAPITAL

(2/5) (2/5) (1/5)
Sale of assets &
Balances P190,000 - 112,000 5,000 8,000 27,000 ( 8,000) 46,000
Balances P 78,000 - - 5,000 8,000 27,000 ( 8,000) 46,000
debit balance in the
Balances P 78,000 - - - 8,000 27,000 (3,000) 46,000
Payment to partners ( 78,000) ( 8,000(25,000) (45,000)
Balances - - - - - 2,000 (3,000) 1,000
Additional investment
by Daza 3,000 3,000
Payment to partners P 3,000 - - - - 2,000 - 1,000
Case 4

January, 2013
Other LOAN CAPITAL

(2/5) (2/5) (1/5)
Sale of assets &
Balances P 145,000 - 112,000 5,000 8,000 9,000 (26,000) 37,000
Balances P 33,000 - - 5,000 8,000 9,000 (26,000) 37,000
Balances P 33,000 - - - 8,000 9,000 (21,000) 37,000
Payment to partners ( 33,000) ( 8,000) (25,000)
Balances - - - - - P9,000 (21,000) 12,000
Additional investment
by Daza 21,000 21,000
Payment to partners P 21,000 - - - - 9,000 - 12,000
Case 5
January, 2013
Other LOAN CAPITAL

(2/5) (2/5) (1/5)
Sale of assets &
Balances P110,000 - 112,000 5,000 8,000 ( 5,000) (40,000) 30,000
Balances - - 2,000 5,000 8,000 ( 5,000) (40,000) 30,000
Balances - - P 2,000 - 8,000 ( 5,000) (35,000) 30,000
Additional investment by
Calma and Daza 40,000 5,000 35,000
Payment of liabilities,
loan and capital P 40,000 - P 2,000 - P8,000 - - P 30,000

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ARTS CPA Review

2F & 3F Crème Building, Abella St., Naga City

During 2012, the following partnership errors were discovered

1. At the beginning of 2012, a purchase of equipment costing P200,000 was

Enriquez and Flores

Reported net profit P400,000

Distribution of 2012 net profit

Distribution of 2012 corrected net profit

The statement of financial position of Ruiz as of December 1, 2012 is presented below.

Accounts Receivable P900,000

Liabilities and Capital

a. The merchandise is to be valued at P300,000.

d. Ruiz, Capital 7,500

f. Office Supplies 5,000

Ruiz and Santos

Liabilities and Capital

1. Each partner receives 8% interest on beginning-of-the-year capital balances and the

1. Income Summary 700,000

2. Income Summary 700,000

3. Income Summary 700,000

Bernabe Burgos Total

4. Income Summary 700,000

Bernabe Burgos Total

5. Income Summary 700,000

Bernabe Burgos Total

Assets P490,000 Liabilities P250,000

Chavez,Chavez, Roman, Valdez, Total

Balances P 60,000 P 5,400 P 3,300 P 11,300 P 80,000

*Total partners’ equity as shown above P284,000

1. Locsin, Capital (P240,000 x 1/4) 60,000

2. Locsin, Capital (P240,000 x 1/3) 80,000

Locsin, Capital [(P240,000 + P135,000) 1/3] 125,000

10. Cash 144,000

Assets Liabilities and capital

b. Ponce, Capital (P300,000 x ¼) 75,000

b. Other Assets 120,000

Ponce, Capital 90,000

c. Other Assets 60,000

Capital P&L ratio

2.a Cabral, Capital 40,500

b. Other Assets 45,000

Cabral, Capital 43,312

Cash P148,000 Liabilities P90,000

2. Montero, Capital 100,000

3. Montero, Capital 100,000

4. Montero, Capital (P6,000 x 1/6) 1,000

Montero, Capital (P100,000 – P1,000) 99,000

2. Dutala, Capital 39,600

3. a Other Assets 42,000

b. Dutala, Capital 39,600

2. Julian, Lagman and Magno

Amount Julian Lagman Mango

Amount Julian Lagman Mango

Julian, Capital 1,080

February Cash 44,000

Julian, Capital 2,520

Julian. Capital 10,000

March Cash 36,000

Note Payable to Magno 1,200

Note Payable to Magno 12,800

Belen and Bagnes

Liabilities and Owners' Equity

Accounts payable P104,000

An appraisal of the assets discloses the following current values: