PRACTICE TESTS – PARTNERSHIP FORMATION

ACC C102 Financial Accounting & Reporting 2

PRACTICE TESTS
1-1 Harmon joined a partnership by contributing the following: cash, P 20,000; accounts
receivable, P 4,000; land P 240,000 cost, P 400,000 fair value; and accounts payable,
P 16,000.
What will be the initial amount recorded in James’ capital account? Give the entry to
record the investment of Harmon.

ANSWER:

Cash P 20,000
Accounts Receivable P 4,000
Land P 400,000
Accounts Payable P 16,000
Harmon, Capital P 408,000

1-2 Prepare the journal entry to record the investment of Mar Gonzales in the new
partnership assuming the following independent cases:
a. Merchandise inventory with a cost of P 200,000 with an agreed value equal to
70% of its cost. (200,000 x 70% = 140,000)

Merch Inv 140,000

Mar Gonzales, Capital 140,000

b. Cash of P 800,000.

Cash 800,000
Mar Gonzales, Capital 800,000

c. Accounts receivable of P 430,000 with an estimated uncollectible accounts of P

50,000.

AR 430,000
Allow. for B.D. 50,000
Mar Gonzales, Capital 380,000

d. Office equipment with a cost of P 800,000 with an accumulated depreciation of P

200,000 after 5 years of use with no residual value. The office equipment was
accepted to have an agreed 10 year useful life. (800,000 - 200,000 = 600,000)

Office Equipment 600,000

Mar Gonzales, Capital 600,000

ANSWER (IF COMBINED):

Cash P 800,000
Merchandise Inventory P 140,000
Accounts Receivable P 430,000
PRACTICE TESTS – PARTNERSHIP FORMATION
ACC C102 Financial Accounting & Reporting 2
Office Equipment P 600,000
Allowance for Bad Debts P 50,000
Mar Gonzales, Capital P 1,920,000

1-3 The following data as of May 1, 2017 were taken from the records of Andre and Andy:
ANDRE ANDY
Cash P 11,000 P 22,354
Accounts receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture & Fixtures 50,345 34,789
Other Assets 2,000 3,600

Total Assets P1,020,916 P1,317,002

========= =========

Accounts Payable P 178,940 P 243,650

Notes Payable 200,000 345,000
Andre, Capital 641,976
Andy, Capital 728,352

Total Liabilities and Capital P1,020,916 P1,317,002

========= =========

Andre and Andy agreed to form a partnership by contributing their respective assets and
equities subject to the following adjustments:
a) Inventories of P 5,500 and P 6,700 are worthless in Andre’s and Andy’s
respective books.

ANDRE:
Andre, Capital P 5,500
Inventories P 5,500

ANDY:
Andy, Capital P 6,700
Inventories P 6,700

b) Accounts receivable of P 20,000 in Andre’s book and P 35,000 in Andy’s book are
uncollectible.

ANDRE:
Andre, Capital P 20,000
Allowance for Bad Debts P 20,000

ANDY:
Andy, Capital P 35,000
Allowance for Bad Debts P 35,000
PRACTICE TESTS – PARTNERSHIP FORMATION
ACC C102 Financial Accounting & Reporting 2
c) Other assets of P 2,000 and P 3,600 in Andre’s and Andy’s respective books are
to be written off.

ANDRE:
Andre, Capital P 2,000
Other Assets P 2,000

ANDY:
Andy, Capital P 3,600
Other Assets P 3,600
PRACTICE TESTS – PARTNERSHIP FORMATION
ACC C102 Financial Accounting & Reporting 2

1) Assuming the partnership will use the books of Andre, give the entries to adjust the
account balances of Bryant (ANDRE????) and to record the investment of Andy.

JOURNAL ENTRIES TO ADJUST ACCOUNT BALANCES OF ANDRE:

a. Andre, Capital P 5,500
Inventories P 5,500
b. Andre, Capital P 20,000
Allowance for Bad Debts P 20,000
c. Andre, Capital P 2,000
Other Assets P 2,000

JOURNAL ENTRY TO RECORD THE INVESTMENT OF ANDY:

Cash P 22,354
Accounts Receivable P 567,890
Inventories P 253,402
Building P 428,267
Furniture & Fixtures P 34,789
Allowance of Bad Debts P 35,000
Accounts Payable P 243,650
Notes Payable P 345,000
Andy, Capital P 683,052

2) Give the entries to adjust and close the books of Andy.

JOURNAL ENTRIES TO ADJUST ACCOUNT BALANCES OF ANDY:

a. Andy, Capital P 6,700
Inventories P 6,700
b. Andy, Capital P 35,000
Allowance for Bad Debts P 35,000
c. Andy, Capital P 3,600
Other Assets P 3,600

JOURNAL ENTRIES TO CLOSE THE BOOKS OF ANDY:

Allowance of Bad Debts P 35,000

Accounts Payable P 243,650
Notes Payable P 345,000
Andy, Capital P 683,052
Cash P 22,354
Accounts Receivable P 567,890
Inventories P 253,402
Building P 428,267
Furniture & Fixtures P 34,789
PRACTICE TESTS – PARTNERSHIP FORMATION
ACC C102 Financial Accounting & Reporting 2
3) Assuming the partnership will use new set of books, give the entries to record the
investment of Andre and Andy. (EXTRA: ANDRE AND ANDY’S BOOKS SHOULD BE
CLOSED FOR FORMALITY)

JOURNAL ENTRIES TO RECORD THE INVESTMENT OF ANDRE:

Cash P 11,000
Accounts Receivable P 234,536
Inventories P 114,535
Land P 603,000
Furniture & Fixtures P 50,345
Allowance of Bad Debts P 20,000
Accounts Payable P 178,940
Notes Payable P 200,000
Andre, Capital P 614,476

JOURNAL ENTRY TO RECORD THE INVESTMENT OF ANDY:

Cash P 22,354
Accounts Receivable P 567,890
Inventories P 253,402
Building P 428,267
Furniture & Fixtures P 34,789
Allowance of Bad Debts P 35,000
Accounts Payable P 243,650
Notes Payable P 345,000
Andy, Capital P 683,052

4) Prepare the statement of financial position of the new partnership.

ANDRE AND ANDY

STATEMENT OF FINANCIAL POSITION
MAY 1, 2017

ASSETS
Cash P 33,354
Accounts Receivable P 802,426
Less: Allowance for B.D. P 55,000 P 747,426
Inventories P 367,937
Land P 603,000
Building P 428,267
Furniture & Fixtures P 85,134
TOTAL ASSETS P 2,265,118

LIABILITIES AND EQUITY

Accounts Payable P 422,590
Notes Payable P 545,000
Andre, Capital P 614,476
Andy, Capital P 683,052
TOTAL LIABILITIES AND EQUITY P 2,265,118
PRACTICE TESTS – PARTNERSHIP FORMATION
ACC C102 Financial Accounting & Reporting 2

1-4 On July 1, 2017. Ding and Dong agreed to invest equal amounts and share profits and
losses equally in a partnership with Ding investing P 110,000 cash and merchandise
valued at P 140,000. Dong will also invest a total of P 250,000, including cash, and the
agreed values of various items as shown below:
INVESTMENT BY DONG
BOOK VALUE FAIR MARKET
VALUE
Accounts Receivable P 195,000 P 195,000
Allowance for Bad Debts 8,750 12,500
Merchandise Inventory 23,250 26,250
Equipment, net 30,000 20,000
Accounts Payable 75,000 75,000

1. What amount of cash should Dong invest upon the formation of the partnership?
195,ooo-12,500+26250+20,000-75000 = 153,750
250,000 - 153,750 = 96,250
CASH = P 96,250

2. Give the required entries assuming the partnership will use new set of books.

JOURNAL ENTRIES TO RECORD DING’S INVESTMENT

Cash P 110,000
Merchandise Inv. P 140,000
Ding, Capital P 250,000

JOURNAL ENTRIES TO RECORD DONG’S INVESTMENT

Cash P 96,250
Accounts Receivable P 195,000
Merchandise Inventory P 26,250
Equipment P 20,000
Allow. for B.D. P 12,500
Dong, Capital P 250,000

1-5 King invites Ace to join him in his business. Ace agreed to join King provided that the
following adjustments are taken up in the books of King:
• Prepaid expenses of P 10,000 and accrued expenses of P 6,000 are to be
recognized.
• Accumulated Depreciation on King’s equipment will be increased by P 10,000.
Capital 10k (hindi accum dep kasi tinaasan accum dep so walang balance
accum dep, nadagdagan lang)
Equipment 10k

King’s capital before adjustment for the above items was P 405,000. Ace will
invest enough cash to make his interest equal to 40%.

1) How much is King’s adjusted capital balance?

405,000 + 10,000 - 6,000 - 10,000 = 399,000
PRACTICE TESTS – PARTNERSHIP FORMATION
ACC C102 Financial Accounting & Reporting 2

2) How much should Ace invest to give him a 40% equity in the firm?
King = 399,000 (60%)
399,000/60% = 665,000 (100%)
665,000 - 399,000 = 266,000
Ace should invest 266,000

1-6 On June 1, 2017, Calvin and Klein formed a partnership with each contributing the
following assets:

CALVIN KLEIN
Merchandise Inventory P 500,000 P900,000
Building - 2,450,000
Machinery and Equipment 450,000 950,000
Furniture and Fixtures 300,000

The building is subject to a mortgage loan of P 1,300,000, which is to be assumed by the

partnership. The partnership agreement provides that Calvin and Klein share profits and
losses 40% and 60%, respectively.

1) What is the adjusted capital of each partner on June 1, 2017?

CALVIN, CAPITAL = P 1,250,000

KLEIN, CAPITAL = P 3,000,000

2) Assuming that the partners agreed to bring their respective capital in proportion to their
respective profit and loss ratio, and using Klein’s capital as the base, how much cash is to
be invested by Calvin?

KLEIN, CAPITAL = 3,000,000 (60%)

3,000,000/60% = 5,000,000 (100%)
5,000,000 x 40% = 2,000,000 (40%)
2,000,000 - 1,250,000 = 750,000
CALVIN SHOULD INVEST P 750,000 CASH
PRACTICE TESTS – PARTNERSHIP FORMATION
ACC C102 Financial Accounting & Reporting 2

1-7 Polo and Loco entered into a partnership on August 1, 2017 by investing the following
assets:
POLO LOCO
Cash P 400,000 ---
Merchandise inventory --- P 500,000
Land --- 1,150,000
Building --- 750,000
Equipment 650,000 ---

The agreement between Polo and Loco provides that profits and losses are to be divided
into 30% (to Polo) and 70% (to Loco), and that the partnership is to assume the P
350,000 mortgage loan on the building.

1) If Loco is to receive a capital credit equal to his profit and loss ratio, how much cash must
he invest?

Total Capital (100%) = 3,500,000 (1,050,000 / 30%)

Polo, Capital 1,050,000 (30%)
Loco Capital should be = 2,450,000

500,000+1,150,000+750,000-350,000 = 2,050,000
2,450,000 - 2,050,000 = 400,000
Loco should invest P 400,000

2) Assuming that Loco invests P 600,000 cash and each partner is to be credited for the full
amount of the net assets invested, how much is the total capital of the partnership?

Polo, Capital = 1,050,000

Loco, Capital = 2,650,000
Total Capital = 3,700,000

3) Using the data in number 2, how much is the total assets of the partnership?

TOTAL ASSETS: P 4,050,000

Cash P1,000,000
Merch Inv P500,000
Land P1,150,000
Building P750,000
Equipment P650,000

or simply: 3,700,000 + 350,000 (A = L + E)

PRACTICE TESTS – PARTNERSHIP FORMATION
ACC C102 Financial Accounting & Reporting 2

1-8 Curry and Thompson are combining their businesses to form a partnership. Cash and
non- cash assets are to be contributed. The non-cash assets to be contributed and the
liabilities to be assumed are:

After the above adjustments, Curry and Thompson are to contribute or to withdraw cash
to bring their respective capital to P 350,000 each. Based on the above
information, answer the following:

1) How much is the capital of Thompson after giving effect to the above adjustments but
before the cash investment or withdrawal as the case may be?
Thompson, Capital P 210,000

2) How much is the capital of Curry after giving effect to the above adjustments but before
the cash investment or withdrawal as the case may be?
Curry, Capital P320,000

3) How much is the cash investment or withdrawal of Curry? Indicate whether

investments or withdrawal
Curry should invest P 30,000

4) How much is the cash investment or withdrawal of Thompson? Indicate whether

investments or withdrawal
Thompson should invest P 140,000

5) How much is the total currents assets of the partnership immediately after its formation?
Current Assets - 530,000
Current Assets after investments - 700,000

6) How much is the total assets of the partnership immediately after its formation?
Total Assets - 850,000
Total assets after investments - 1,020,000

1-9 Nash invested in a partnership a parcel of land which cost his father P 2,000,000. The
land had a market value of P 3,000,000 when Nash inherited it three years ago.
Currently, the land is independently appraised at P 5,000,000 even though Nash insisted
that he “would not take P 9,000,000 for it.”
PRACTICE TESTS – PARTNERSHIP FORMATION
ACC C102 Financial Accounting & Reporting 2

What is the amount that should be recorded in the accounts of the partnership for the
parcel of Land?

P 5,000,000