PARTNERSHIP
PARTNERSHIP FORMATION:
Problem 1:
On December 31, 2019, Oppa and Gangnam decided to pool their resources and put up a partnership. After
the formation, the partners agreed to share in the profits and losses in the ratio of 60:40 for Oppa and
Gangnam, respectively. Their trial balances on December 31 are as follows:
DEBITS
Cash
Accounts receivable
Notes receivable
Inventory
Prepaid insurance
Equipment
Furniture & Fixtures (F&F)
Cost of goods sold
Operating expenses
CREDITS
Allowance for bad debts
Accumulated Depreciation –
Equipment
Accumulated Depreciation – F&F
Accounts payable
Deferred rent revenue
Notes payable
Capital
Sales
Oppa
180,000
2,000,000
600,000
1,200,000
2,500,000
2,400,000
1,000,000
9,880,880
Gangnam
220,000
1,600,000
900,000
65,000
500,000
3,040,000
800,000
7,125,000
120,000
500,000
55,000
-
1,699,000
59,000
3,502,000
4,000,000
9,880,000
125,000
310,500
465,750
2,368,750
3,800,000
7,125,000
The partnership is to take over business assets and assume business liabilities. Capitals are to be based on
assets transferred after the following adjustments:
(a) 5% of the accounts receivable of Oppa and Gangnam are estimated to be uncollectible.
(b) A 90-day, 12% note was received last November 16, 2019. No interest has been accrued yet. (Interest
is computed on a daily basis)
(c) Interest at 8% on note issued should be accrued. The note is dated October 1, 2019. (Interest is
computed on a monthly-basis)
(d) The inventory of Gangnam should be valued at 1,200,000 while 10% of Oppa’s inventory is to be
considered obsolete and worthless.
(e) Only 25% of the prepaid insurance is unexpired.
(f) The equipment should be 35% depreciated.
(g) The furniture and fixtures was over-depreciated by P10,000.
(h) 60% of the deferred rent revenue is earned.
(i) Accrued expense of P40,000 is to be recognized in the books of Oppa.
1. What are the capital balances of the partners after the above adjustments?
Oppa
Gangnam
A.
3,591,400
2,605,685
B.
3,579,600
2,638,185
C.
3,631,400
2,555,685
D
2,555,685
3,631,400
CASE 1: After effecting the adjustments, Gangnam will either withdraw or invest additional cash to make his
capital balance in proportionate to his profit and loss ratio.
2. How much is the cash to be invested/withdrawn by Gangnam to make his capital balance
proportionate to their profit and loss ratio?
A. 134,752 invest
B. 134,752 withdraw C. 217,252 invest
D. 217,252 withdraw
3. What are the capital balances of the partners immediately after the formation?
A.
B.
C.
D
Oppa
3,631,400
2,420,933
3,591,400
2,394,267
Gangnam
2,420,933
3,631,400
2,394,267
3,591,400
4. How much is the total assets of the newly formed partnerships?
A. 8,600,498
B. 8,735,250
C. 8,830,248
D. 8,965,000
CASE 2: After effecting the adjustments, the partners will adjust their capital balances by the use of transfer of
capital to make their capital balances proportionate to their profit and loss ratio.
5. How much is the total assets of the newly formed partnerships?
A. 8,600,498
B. 8,735,250
C. 8,830,248
D. 8,965,000
6. How much capital was transferred between the partners?
A. 80,851
B. 134,752
C. 217,252
D. 146,351
7. What are the capital balances of the partners immediately after the formation?
Oppa
Gangnam
A.
3,631,400
2,420,933
B.
2,420,933
3,631,400
C.
3,712,251
2,474,834
D
2,474,834
3,712,251
Problem 2:
The partnership of Jack and Rose was formed on February 28, 2016. On this date, Jack invested P100,000
cash and an office equipment valued at P175,000. Rose invested P80,000 cash; merchandise valued at
P120,000 and Building valued at P340,000 subject to a mortgage of P40,000 which the partnership will
assume. The partnership provides that Jack and Rose share profits and losses in the ratio of 2:3, respectively.
The agreement further provides that Jack and Rose should initially have an equal interest in the partnership
capital.
8. Assuming the use of the transfer of capital method, the journal entry to record the transfer of
capital between the partners includes
A. A debit to Jack’s capital of P112,500
B. A debit to Rose’s capital of P112,500
C. A credit to Jack’s capital of P132,500
D. A credit to Rose’s capital of P132,500
PARTNERSHIP OPERATIONS:
Problem 1:
Cassie, a partner in the CSI Partnership, has a 25% participation in partnership profits and losses. Cassie’s
capital account had a net increase of P30,000 during 2018. Cassie permanently withdrew P50,000 and
contributed a property with a carrying value of P100,000, with a fair value of P90,000, and an agreed value of
P97,500, to the partnership during 2018.
1. What is the net income or loss of the CSI Partnership for the year ended 2018?
A. 40,000 net income
B. 40,000 net loss
C. 70,000 net income
D. 70,000 net loss
Problem 2:
B, G, and C put up a partnership on April 1, 2017. The following capital balances were taken from the books on
December 31, 2017, before closing net income:
B, Capital
G, Capital
C, Capital
P84,000
114,000
92,000
During the year, B permanently withdrew P10,000 cash while C invested a property with a fair value of
P22,000.
The partners agreed to distribute profits for the first year as follows:
• Annual salary of P30,000 to G and P25,000 to C.
• Allow a 5% interest to each partner on their capital at the inception of the partnership.
• Allow a 20% bonus to B based on net income after salaries, interests, and bonus.
• Any remaining undistributed profit or loss will be distributed in the following manner:
➢ In the ratio 2:3:5, if under-allocated
➢ Equally, if over-allocated
Case 1: The net income of the partnership is P100,000 during the year 2017.
2. How much is the bonus given to B?
A. 7,475
B. 7,979
C. 8,054
D. 7,375
3. How much is the share of each partner in the 2017 net income?
A.
B.
C.
D.
B
19,650
19,108
19,633
18,950
G
39,413
38,744
38,856
39,263
C
40,937
42,148
41,511
41,787
Case 2: The net income of the partnership is P45,000 during the year 2017.
4. How much is the share of each partner in the 2017 net income?
A.
B.
C.
D.
B
1,300
1,317
775
2,190
G
24,550
24,817
24,400
24,773
C
19,150
18,866
19,825
18,037
Problem 3:
TIMOTHY and RYAN formed a partnership on March 1, 2018 and agreed to share profit 80% and 20%,
respectively. TIMOTHY invested cash of P150,000. RYAN invested no assets but has a specialized expertise
and manages the firm full time. There were no other investments nor withdrawals during the year. The
partnership contract provides for the following:
▪
▪
▪
▪
Capital accounts are to be credited annually with interest at 10% of original capital contribution.
RYAN is to be paid a monthly salary of P3,000.
RYAN is to receive a bonus of 20% of profit before deducting interest on capital, salary, and the bonus.
Bonus, interest, and salary are to be considered as expenses of the partnership.
The 2018 condensed income statement for the partnership includes the following:
Revenues
Expenses (including salary, interest, and
bonus)
Net income
P 550,000
(375,000)
175,000
5. How much is the bonus given to RYAN in 2018?
A. 22,083
B. 35,000
C. 36,250
D. 54,375
6. How much net income was realized by the partnership for the year 2018?
A. 175,000
B. 253,750
C. 271,875
D. 252,000
7. How much is RYAN’s profit share for 2018?
A. 35,000
B. 119,375
C. 100,000
D. 101,250
PARTNERSHIP DISSOLUTION:
ADMISSION BY PURCHASE OF INTEREST
Problem 1:
X and Y are partners sharing profits and losses on a 40:60 ratio and have the following capital balances:
P100,000 and P200,000, respectively. Z directly purchased a 30% interest in the partnership by paying X
P40,000 and Y P60,000.
CASE 1: Net assets are fairly valued prior to Z’s admission.
1. What are the capital balances of the partners immediately after Z’s admission?
X
Y
Z
A.
70,000
140,000
90,000
B.
73,920
145,880
100,200
C.
64,800
84,800
170,400
D.
75,600
148,400
96,000
CASE 2: Assets are undervalued by P20,000 prior to Z’s admission.
2. How much is the gain or loss that will be recognized in the partnership books upon purchase of interest
by Z?
A. 0
B. 4,000 gain
C. 4,000 loss
D. 16,000 gain
3. What are the capital balances of thr partners immediately after Z’s admission?
A.
B.
C.
D.
X
70,000
73,920
64,800
75,600
Y
140,000
145,880
84,800
148,400
Z
90,000
100,200
170,400
96,000
CASE 3: Assets are overvalued by P30,000 prior to Z’s admission.
4. How much is the gain or loss that will be recognized in the partnership books upon purchase of interest
by Z?
A. 0
B. 1,000 gain
C. 1,000 loss
D. 19,000 gain
5. What are the capital balances of the partners immediately after Z’s admission?
A.
B.
C.
D.
X
70,000
78,400
61,600
75,600
Y
140,000
152,600
127,400
148,400
Z
90,000
99,000
81,000
96,000
ADMISSION BY INVESTMENT
Problem 1:
L, E, and A are partners with capital balances of P787,500, P945,000, and P315,000, respectively. The
partners share profits and losses in the ratio of 45:25:30, respectively. D is to join the partnership upon
contributing P315,000 cash plus an equipment with fair value of P630,000 to the partnership in exchange for
20% interest in the capital and 25% interest in the profits and losses. After admission, the original partners will
share profits and losses equally.
6. How much is bonus to or from D assuming (1) the assets and liabilities of the partnership are fairly
valued, (2) the existing assets of the original partnership are overvalued by P192,500 and (3) the
existing assets of the original partnership are undervalued by P180,000?
A.
B.
C.
D.
196,875 bonus from D; (2) 245,000 bonus from D; (3) 382,500 bonus from D
346,500 bonus from D; (2) 385,000 bonus from D; (3) 310,500 bonus from D
196,875 bonus to D; (2) 196,875 bonus to D; (3) 382,500 bonus to D
346,500 bonus to D; (2) 385,000 bonus to D; (3) 310,500 bonus to D
7. Assuming the assets and liabilities of the partnership are fairly valued, what are the capital balances of
the partners after the admission of D?
L
E
A
D
A.
787,500
945,000
315,000
945,000
B.
631,575
858,375
211,050
598,500
C.
943,425
1,031,625
418,950
598,500
D.
903,000
1,060,500
430,500
598,500
8. Assuming the existing assets of the original partnership are overvalued by P192,500, what are the
capital balances of the partners after the admission of D?
L
E
A
D
A.
700,875
896,875
257,250
945,000
B.
874,125
993,125
372,750
560,000
C.
811,125
958,125
330,750
700,000
D.
851,667
1,009,167
379,167
560,000
9. Assuming the existing assets of the original partnership are overvalued by P180,000, what are the
capital balances of the partners after the admission of D?
L
E
A
D
A.
1,008,525
1,067,625
462,150
634,500
B.
878,625
995,625
375,750
562,500
C.
943,425
1,031,625
418,950
598,500
D.
874,125
993,125
372,750
560,000
Problem 2:
L, E, and A are partners with capital balances of P362,000, P293,000, and P285,000, respectively, sharing
profits and losses equally. D was admitted as a new partner bringing with him expertise and is to invest cash
for a 30% interest in the partnership which includes a credit of P100,000 for bonus upon his admission.
10. How much cash should D contribute?
A. 302,857
B. 360,000
C. 260,000
D. 402,857
RETIREMENT
The balance sheet as of July 31, 2018 for the partnership of X, Y, and Z show the following information:
Total assets (at
cost)
Loan from X
X, Capital
Y, Capital
Z, Capital
P450,000
25,000
108,000
113,000
204,000
It was agreed among partners that X retires from the partnership and it was further agreed that the assets be
adjusted to their fair values of P392,000 as of July 31,2018. The partnership would pay X P100,000 cash plus
a non-cash asset with a fair value of P12,000 for X’s partnership interests. No goodwill is to be recorded. X, Y,
and Z share profits and losses: 20%, 20%, and 60%, respectively.
11. How much is the bonus to or from X?
A. 15,600 bonus from X
B. 15,600 bonus to X
C. 9,400 bonus from X
D. 9,400 bonus to X
12. What are the capital balances of Y and Z after X retires from the partnership?
A. 103,750; 176,250
B. 99,050; 162,150
C. 105,300; 180,900
D. 97,500; 157,500
PARTNERSHIP LIQUIDATION
LUMP SUM LIQUIDATION
On December 31, 2018 , A, B, and C decided to liquidate their partnership. The statement of financial position
accounts consisted of the following prior to liquidation:
Cash – P100,000
Loan to B – P25,000
Other assets – P1,075,000
Liabilities to outsiders – P603,000
Due to C – P32,000
A, Capital – P216,000
B, Capital – P187,000
C, Capital – P162,000
A, B, and C share profits and losses in the ratio of 4:4:2, respectively.
CASE 1: The partnership was able to sell all the other assets for P1,120,000 and paid liquidation expenses of
P10,000.
1. How much cash should A, B, and C receive?
A.
B.
C.
D.
A
230,000
220,000
230,000
220,000
B
176,000
191,000
176,000
191,000
C
169,000
196,000
201,000
164,000
CASE 2: The partnership was able to sell all the other assets for P500,000 and paid liquidation expenses of
P5,000. A and C are personally solvent while B is personally insolvent.
2. How much cash should C receive?
A. 78,000
B. 54,667
C. 22,667
D.46,000
CASE 3: B received a total of P161,000 and liquidation expenses of P10,000 were paid.
3. How much is the amount of gain or loss on realization of other assets?
A. 2,500 gain
B. 2,500 loss
C. 7,500 gain
D. 7,500 loss
4. How much is the total proceeds from sale of other assets?
A. 1,077,500
B. 1,072,500
C. 1,067,500
5. How much cash did A and C received?
A. 215,000; 193,500
C. 215,000; 161,500
D. 1,082,500
B. 193,500; 215,000
D. 161,500; 215,000
CASE 4: A received a total of P26,000 and liquidation expenses of P2,000 were paid. Assume all partners are
insolvent.
6. How much is the loss on liquidation?
A. 475,000
B. 447,000
C. 445,000
D. 473,000
7. How much is the total proceeds from sale of other assets?
A. 628,000
B. 600,000
C. 630,000
D. 602,000
8. How much cash did C received?
A. 99,000
B.104,600
D. 0
C. 67,000
CASE 5: A received a total of P26,000 and liquidation expenses of P2,000 were paid. Assume all partners are
solvent.
9. How much is the loss on liquidation?
A. 475,000
B. 447,000
PARTNERSHIP
FORMATION
1. C
2. B
3. A
4. A
5. B
6. A
7. C
8. B
C. 445,000
D. 473,000
SUGGESTED ANSWERS
PARTNERSHIP
PARTNERSHIP
OPERATIONS
DISSOLUTION
1. D
1. A
2. C
2. A
3. C
3. D
4. A
4. A
5. D
5. C
6. C
6. B
7. B
7. C
8. B
9. A
10. C
11. C
12. A
PARTNERSHIP
LIQUIDATION
1. C
2. B
3. C
4. D
5. A
6. B
7. C
8. A
9. A