Partnership
1. Rodrigo and Sandoval each operating a separate business agreed to join in partnership as of
January 2, 2005. The following are the given accounts:
The assets of the two partners
were carefully examined and it
was
agreed
that
certain
adjustments be made and the
Cash
P11,20
P42,00
above accounts as adjusted be
0
0
the basis on which the
partnership begins operations.
The adjustments agreed upon
Accounts Receivable
112,00
84,000
are as follows: Rodrigo’s
0
accounts receivable are to be
taken over at a book value
less 15% and Sandoval’s
accounts receivable at book
Merchandise
140,00
126,00
value less 10%. Rodrigo’s
0
0
office equipment is new and is
considered adequate for the
new business; therefore, it is
Office Equipment
35,000
42,000
decided that Sandoval dispose
of his equipment at the
highest cash price possible
Accounts Payable
35,000
56,000
and that Rodrigo bear onefourth of the loss resulting
from the sale. Sandoval’s
Notes payable
7,000
-office equipment is disposed of
at book value less 10%. It is
further agreed that Sandoval pay sufficient cash to give him one-half interest in the business
after charging to Rodrigo’s capital account his share of the loss on the sale by Sandoval of office
equipment.
Rodrigo
Sandoval
How much additional cash is to be contributed by Sandoval?
A. P16,100
C.
P11,900
B. P12,950
D.
P50,750
2. On December 1, 2004 Gonzalo, the sole proprietor of the Gonzalo Company, expands the
company and establish a partnership with Bolivar and Valdes. The partners plan to share
profits and losses as follows: Gonzalo, 50%; Bolivar, 25%; Valdes, 25%. They also agree that
the beginning capital balances of the partnership will reflect this same relationship. Gonzalo
asked Bolivar to join the partnership because his many business contacts are expected to be
valuable during the expansion. Bolivar is also contributing P84,000 cash. Valdes is
contributing P33,000 cash and marketable securities costing P126,000 to Valdes but are
currently worth P172,500. Gonzalo’s investment in the partnership is the Gonzalo Company.
He plans to pay off the notes with his personal assets. The other partners have agreed that
partnership will assume the accounts payable. The balance sheet for the Gonzalo Company
follows:
Gonzalo Company
Balance Sheet
December 1, 2004
Assets
Cash
30,000
Accounts Receivable (net)144,000
Inventory
216,000
Equipment (net of accumulated depreciation of P60,000)
210,000
Total Assets P600,000
Liabilities and Capital
Accounts Payable
P159,000
Notes payablen
186,000
Gonzalo, Capital
255,000
Total Liabilities and Capital
P600,000
The partners agree that the inventory is worth P255,000, and the equipment is worth half its
original cost, and the allowance established for doubtful accounts is correct.
The partners agree to use the goodwill method approach to record the formation, how much
is the total agreed capital of the partnership?
A. P810,000
C.
P690,000
B. P822,000
D.
P750,000
3. JJ and MM partners in the JM partnership are entitled to 40% and 60%of the profits and losses,
respectively. During 2005, JJ contributed land to the partnership that cost him P105,000, but
had a current value of P126,000. Also, during 2005, JJ had drawings of P168,000. The balance
of JJ’s capital accounts was P252,000 at the beginning of the year and P315,000 at the end of
the year.
Compute the share of MM in the partnership’s earnings (loss) for 2005:
A. P105,000
C.
P262,500
B. P157,500
D.
P94,500
4. On December 31, 2005, L and M are partners with capital balances of P180,000 and P90,000,
respectively. They share profits and losses in the ratio of 2:1. On this date N invests P81,000
cash for a 1/5 interest in the capital and profit of the new partnership. The partners agree that
the implied partnership goodwill is to be recorded simultaneously with the admission of N.
The total implied goodwill of the firm is:
A. P135,000
C.
B. P48,000
P54,000
D.
P108,000
5. The partnership agreement of DD, EE and FF provides for the division of net income as
follows:
A. EE, who manages the partnership is to receive a salary of P8,000 per month.
B. Each partner is to be allowed interest at 10% on beginning capital.
C. Remaining profits are to be divided equally.
During 2005, DD invested an additional P22,000 in the partnership. EE withdrew P27,500, and
FF withdrew P22,000. No other investments or withdrawals were made during 2005. On
January 1, 2005, the capital balances were DD, P357,500; EE, P412,500; and FF, P385,000.
Total capital at year-end was P1,386,000.
Compute the capital balance of EE at year-end:
A. P537,917
C.
P415,800
B. P152,917
D.
P522,250
6. OO and PP form a new partnership. OO invests P360,000 in cash for his 60% interest in the
capital and profits of the business. PP contributes land that has an original cost of P48,000
and a fair market value of P84,000, and a building that has a tax basis of P60,000 and a fair
value of P108,000. The building is subject to a P48,000 mortgage that the partnership will
assume. What amount of cash should PP contribute?
A. P48,000
C.
P90,600
B. P96,000
D.
P90,000
7. X, Y and Z are partners in a wholesale business. On January 1, 2005 the total capital and
drawings presented as follows:
X
Capital
Drawing – Credit
P 375,000
P36,000
Y
550,000
24,000
Z
1,125,000
17,000
Partners agree that profit and loss ratio are shared equally. Because of the failure of some
debtors to pay their outstanding accounts, the partnership lose heavily and are compelled to
liquidate. The operating loss in 2005 is P252,000. After exhausting the partnership assets
may still owe P207,000 to creditors on December 31, 2005. Y has no personal assets but the
others are well off.
How much was absorbed by Z to eliminate the capital deficiency of Y?
A. P100,333
C.
P102,000
B. P103,000
D.
P204,000
8. The following information is provided in connection with the liquidation of a partnership: A
advances the amount to pay the partnership creditors.
Partn
er
P&L
Ratio
Partnership
Capital
Personal
Assets
Personal
Liabilities
Balance (Dr) Cr
A
30%
P520,000
P650,00
0
P440,0
00
B
10
260,000
390,000
325,00
0
C
20
(390,000)
520,000
485,00
0
D
40
(585,000)
260,000
390,00
0
What amount of cash did A received in the final settlement?
A. P10,000
C.
B. P0
P20,000
D.
P30,000
9. On December 31, 2005, the accounting records of U, V and W Partnership (a general
partnership) included the following ledger account balances:
Receivable
from U
Loan to W
Salary payable
to V
P132,000 U, capital
P553,500
40,500 V, capital
452,500
135,000 W, capital
486,000
Total assets includes cash amounting to P234,500 and liabilities totaled P670,000. The
partnership was liquidated on December 31, 2005, and U received P438,000 cash pursuant to
the liquidation. U, V, and W shared net income and losses in a 5:3:2 ratio, respectively.
How much cash was distributed to all the partners?
A. P1,923,000 C.
P1,487,500
B. P1,847,500 D.
P1,500,000
10.The accounts of the partnership of A, B and C at the end of its fiscal year on October 31, 2005
are as follows:
Cash
P78,75 Loan from C
0
P52,50
0
682,50 A, Capital (30%)
0
236,25
0
Loan to B
26,250 B, Capital (50%)
157,50
0
Liabilities
262,50 C, Capital (20%)
0
78,750
Other
Assets
Non-Cash
If B received a total of P15,000 as a result of the liquidation, what was the total amount
realized from the sale of the non-cash assets?
A. P450,000
C.
P45,000
B. P133,125
D.
P250,000
11.The XYZ partnership has ceased operations and is in the process of liquidation. The remaining
accounts and the profit and loss sharing ratios are summarized as follows:
Cash
P50,000 X,
capital
(25%)
P50,000
Other
assets
150,000 Y,
capital
(50%)
100,000
Z,
capital
(25%)
50,000
Total
assets
P200,000 Total equities
P200,000
Under an installment liquidation of the XYZ partnership:
A. A safe payment schedule must be prepared before each cash distribution to avoid
excessive payments to partners.
B. A cash distribution program must be prepared so that each partner will know when he or
she will be included in the cash distribution.
C. Cash will be distributed in the profit and loss sharing ratio as it becomes available.
D. No cash should be distributed until all noncash assets are converted into cash.
12.At the end of its fiscal year on August 31, 2004, the Billy, Johnny, and Marky partnership had
account balances as follows:
Cash
Accounts
receivable
P35,000 Accounts
payable
52,500 Loan
Johnny
P61,250
from
43,750
Inventories
122,500 Billy,
(20%)
capital
122,500
Plant asset – net
105,000 Johnny, capital
87,500
(30%)
Loan to Billy
52,500 Marky,
(50%)
capital
P367,500
52,500
P367,500
The percentages shown are the residual profit sharing ratios. Marky also gets a P21,000
annual salary allowance. The partners dissolved the partnership on September 1, 2004 and
began the liquidation process. During September, the following events occurred:
 Receivables of P26,250 were collected
 The inventory was sold for P35,000
 All available cash was discussed on September 30, except for P17,500 of expected
expenses.
The amount of cash Johnny should receive on September 30, 2004
A. P35,000
C.
P17,500
B. P253,750
D.
P0
13.The balance sheet for J and K Partnership on January 1, 2005 before liquidation is as follows:
Assets
Cash
Other
Assets
Total
Assets
Liabilities and Capital
P157,500 Liabilities
P393,750
798,750 J,
Capital
(60%)
315,000
K,
Capital
(40%)
247,500
P956,250 Total Equity
P956,250
In January, assets with a book value of P382,500 are sold for P326,250, creditors are paid 80%
of the amount owing to them, liquidation expenses of 6,500 is paid, unrecorded liabilities of
P4,750 is paid.
For the month of January, how much cash is available for distribution to the partners?
A. P157,500
C.
P33,750
B. P78,750
D.
P0
Answer Key
1. C
11. C
2. B
12. C
3. B
13. B
4. C
5. A
6. B
7. C
8. A
9. C
10. A
Partnerships
.
1. The inexperienced accountant for Jack, Benjie, and Rey Partnership prepared the following
journal entries during the year ended August 31, 2004.
2003
September 1Cash
50,000
Goodwill 150,000
Jack, capital (P150,000 x 0.25)
37,500
Benjie, capital (P150,000 x 0.75)
112,500
Rey, capital 50,000
To record admission of Rey for a 20% interest in net assets, with goodwill credited to Jack and Benjie in
their former income sharing ratio. Goodwill is computed as follows:
Implied total capital based on Rey’s investment (P50,000 x P5)
Less: net assets prior to Rey’s admission
100,000
Goodwill
P150,000
P250,000
2004
August 31
Income Summary
30,000
Jack, capital (P30,000 x .20)
6,000
Benjie, capital (P30,000 x .60)
18,000
Rey, capital (P30,000 x .20)
6,000
To divide net income for the year in the residual income-sharing ratio of Jack, 20%, Benjie,
60%, and Rey, 20%. Provision in partnership contract requiring P40,000 annual salary
allowance to Rey is disregarded because income before salary is only P30,000.
What should be the adjusted Capital balances of old and new partner (s), respectively, at August 31, 2004.
A. P192,000 & P88,000
B. P174,000 & P56,000
.
C.
D.
P192,000 & P56,000
P174,000 & P88,000
2. A summary balance sheet for Alba, Buba and Cela appears below. Alba, Buba, and Cela
share profits and losses in a ratio of 2:3:5, respectively.
Assets
Equities
Cash P 100,000 Alba, capital P425,000
Inventory
125,000
Buba, capital
400,000
Marketable Securities
200,000
Cela, capital 200,000
Land 100,000
Building – net
500,000
The partners agreed to admit Diva for a one-fifth interest. The fair market value of the land is appraised at P200,000 and
the market value of the marketable securities is P250,000. The assets are to be revalued prior to the admission of Diva
and there is P30,000 goodwill that attaches to the old partnership.
How much in cash will Diva have to invest to acquire a (1) one-fifth interest? Or a (2) four-fifth interest?
A. (1) P301,250; (2) P4,820,000 C.
B. (1) P205,000; (2) P1,205,000 D.
.
(1) P241,000; (2) P2,410,000
(1) P300,000; (2) P1,506,250
3. MM, NN, and OO have a partnership. Their capital balances are P90,000, P130,000, and
P170,000, respectively. They share profits and losses 30%, 30% and 40%, respectively. PP
wants to become a partner with a 25% share in partnership capital. Appraisal of the
partnership reveals that the fair value of the partnership net assets (i.e. capital of MM, NN,
and OO after PP’s admission) is P450,000.
Calculate how much PP should be asked to contribute, assuming the bonus method is to be used.
A. P150,000
C.
P210,000
B. P250,000
.
D.
P70,000
4. On June 30, 2004 the balance sheet for the Partnership of Willy, Bruno and Louie, together
with their respective profit and loss ratios is summarized as follows:
Assets, at costs
P300,000
Willy, loan P 15,000
Willy, capital (20%) 70,000
Bruno, capital (20%)
65,000
Louie, capital (60%)
150,000
Total P300,000
Willy decided to retire from the partnership, and by mutual agreement the assets are to be adjusted to their fair value of
P360,000 at June 30, 2004. It is agreed that the partnership will pay Willy P117,000 cash for his partnership interest.
Goodwill is to be recorded in this transaction, as implied by the excess payment to Willy.
After Willy’s retirement, what are the capital account balances of Bruno and Louie, respectively?
A. P65,000 and P150,000
B. P97,000 and P246,000
.
C.
D.
P73,000 and P174,000
P77,000 and P186,000
5. On December 31, 2004, the accounting records of Ambo, Berto, and Carlo Partnership
included the following information:
Ambo, drawing (debit balance) P (24,000)
Carlo, drawing (debit balance)
( 9,000)
Berto, Loan 30,000
Ambo, capital
123,000
Berto, capital
100,500
Carlo, capital
108,000
Total assets amounted to P478,500, including P52,500 cash, and liabilities totaled P150,000. The partnership was
liquidated on December 31, 2004 and Carlo received P83,250 cash pursuant to the liquidation. Ambo, Berto, and
Carlo share net income and losses in a 5:3:2, respectively.
How much will Ambo receive upon the partnership’s liquidation?
A. P59,000
C. P59,625
.
B.
D.
P65,625
P83,250
6. Able, Baker, and Charlie are in the process of liquidating their partnership. Charlie has
agreed to accept the inventories as part of his settlement. The inventories have a fair value
of P60,000 and a book value of P80,000. Account balances and profit and loss sharing ratios
are summarized as follows:
Cash P198,000
Accounts Payable P149,000
Inventories
80,000 Able, capital (40%)
79,000
Plant assets 230,000 Baker, capital (40%)
140,000
________
Charlie, capital (20%)
140,000
P508,000
P508,000
If the partners agree to distribute the available cash:
A. Charlie will receive P23,000 of the cash distribution.
B. Baker will receive P40,667 of the cash distribution.
C. Immediately after the distribution of cash and inventory items, Charlie’s capital account
balance will be P59,000.
D. Immediately after the distribution of cash and inventory items, Charlie’s capital account
balance will be P30,000.
.
7. The following balance sheet summary, together with residual profit-sharing ratios, was
developed on April 1, 2004, when the Dido, Kiko and Pido partnership began its liquidation.
Cash P140,000
Liabilities
P 60,000
Accounts receivable
60,000 Loan from Kiko
20,000
Inventories
85,000 Dido, capital (20%)
75,000
Plant assets – net
200,000 Kiko, capital (40%) 200,000
Loan to Dido
25,000 Pido, capital (40%) 155,000
P510,000
P510,000
If available cash except for P5,000 contingency fund is distributed immediately, Dido, Kiko and Pido, respectively, should
receive:
A. P0,
P80,000, and P15,000 C.
B. P16,000, P32,000, and P32,000 D.
.
P0, P70,000 and P5,000
P0, P72,500 and P7,500
8. Tim and Tom entered into a partnership on March 1, 2004 by investing P125,000 and
P75,000 respectively. They agreed that Tim, as the managing partner, is to receive a salary
of P30,000 per year and a bonus computed at 10% of the net profit after adjustment for the
salary; the balance of the profit was to be distributed in the ratio of their original capital
balances. On December 31, 2004, account balances were as follows:
Cash P 70,000
Accounts payable P 60,000
Accounts receivable
67,000 Tim, capital
125,000
Furniture and fixtures
45,000 Tom, capital
75,000
Sales returns and allowances
5,000 Tim, drawing
(20,000)
Net purchases
196,000 Tom, drawing
(30,000)
Operating expenses
60,000 Sales
233,000
Inventories on December 31, 2004 were as follows: supplies, P2,500; merchandise, P73,000. Prepaid insurance was
P950 while accrued expenses were P1,550. Depreciation rate was 20% per year.
The partner’s capital balances on December 31, 2004, after closing the net profit and drawing
accounts were:
A.
B.
C.
D.
Tim
P142,350
P135,940
P139,540
P139,680
Tom
P47,670
P47,960
P49,860
P48,680
.
9. Enrico and Ramon decided to liquidate their partnership business on July 31, 2004, under a
lump-sum liquidation. The partners had been sharing profits and losses on a 60:40 ratio. The
balance sheet prepared on the day of liquidation began was as follows:
Enrico and Ramon
Balance Sheet
July 31, 2004
Assets
Liabilities and Capital
Cash P 18,000 Accounts payable P 42,000
Receivables 75,000
Enrico, loan 24,000
Inventory
90,000
Enrico, capital
102,000
Other Assets 84,000
Ramon, capital
90,000
_________
Ramon, drawing
9,000
Total Assets P 267,000 Total Liabilities and Capital
P 267,000
During July, one-third of the receivables was collected; P45,000 of inventory was sold at an
average of 70% of book value; other assets were sold for P36,000.
How much should Enrico and Ramon receive upon liquidation of the partnership?
Enrico
Ramon
A.
P32,100
36,400
B.
P 8,100
27,400
C.
P40,200
41,800
D.
P59,100
54,400
Corporate Liquidation
10.
follows:
ABC Corporation has become insolvent and a statement of affairs is being prepared. The following figures on a statement of affairs are condensed as
Assets
Pledged with fully
secured creditors
Liabilities
Partially secured
With priority
P71,0
00
P
20,000
P
3,000
Pledged with partially
secured creditors
Fully secured
60,000
12,50
0
Free
11,00 Unsecured without 18,000
0 priority
The estimated deficiency to unsecured creditors (without priority) is:
A. P5,000
B.
P12,500
C. P15,500
D.
P6,500
.
1. A Total Agreed Capital (P50,000 ÷ 20%) 250,000
Multiply by
20%
Rey's interest
50,000
Add: Rey's share in profit: [P40,000 - (10,000 x 20%)
Rey, Capital, 8/31/04
88,000
Total Agreed Capital
250,000
Add: Profit during the year
30,000
Total 280,000
Less: Rey's interest 88,000
Old partners capital
192,000
.
2. A Unadjusted total net asset
Adjustment
Land
100,000
M/S
50,000
GW
30,000
180,000
Revalued net assets
1,205,000
Divide by
80%
Agreed new capital 1,506,250
Multiply by
20%
Cash contribution for a 1/5 interest
Revalued net assets
1,205,500
Divide by
20%
Agreed new capital 6,025,000
Multiply by
80%
Cash contribution for a 4/5 interest
1,025,000
301,250
4,820,000
38,000
.
3. C Total agreed capital (P450,000 ÷ 75%)
Less: old partners' in investment
390,000
Required contribution of new partner 210,000
Note: capital credit will be:
Old partners: (P390,000 + 60,000) 450,000
New partner: (P210,000 - 60,000) 150,000
Total
600,000
.
4. B
Per books
Asset
revaluation
Adjusted
balances
Payment to Willy
Goodwill
Balances
600,000
20%
Willy
85,000
12,000
20%
Bruno
65,000
12,000
60%
Louie
150,000
36,000
97,000
77,000
186,000
360,000
60,000
246,000
(117,000
)
100,000
343,000
(117,00
0)
20,000
97,000
20,000
.
5. C Carlo's interest
99,000
Less: payment to Carlo
83,250
Carlo's share of loss
15,750
Divide by Carlo's P/L ratio
20%
Total loss in realization
78,750
Multiply by Ambo's P/L ratio
50%
Ambo's share of loss
39,375
Ambo's interest
99,000
Less: Ambo's share of loss
39,375
Ambo's final cash settlements 59,625
.
6. A
40%
Baker
40%
100%
Total
300,000
60,000
20%
Charlie
Able
Total interest
Transfer of inventory
Loss on transfer
Theoretical loss of
P230,000
Balances
Add'l loss
Balances
.
79,000
140,000
(8,000)
(92,000)
(8,000)
(92,000)
140,000
(60,000)
(4,000)
(46,000)
(21,000)
21,000
0
40,000
(14,000)
26,000
30,000
(7,000)
23,000
7. C
Net interest
20%
Dido
50,000
40%
Kiko
220,000
40%
Pido
155,000
TPL
(P350,000)
Balances
Allocate deficit
Balances
(70,000)
(140,000)
(140,000)
(20,000)
20,000
0
80,000
(10,000)
70,000
15,000
(10,000)
5,000
.
8.. C
NI: 233,000 - 5,000 - 196,000 + 73,000 - 60,000 + 2,500 + 950 – 1,550 - 7,500 = 39,400
Tim
Tom
Total
Salary
25,000
25,000
Bonus
1,440
1,440
Balances
8,100
4,860
12,960
TOTAL
34,540
4,860
39,400
Add:
105,000
45,000
150,000
Investment
Capital
139,540
49,860
189,400
balances
Bonus = 10% (39,400 - 25,000) = 10% (14,400) = 1,440
.
9. A
Total interest
Less: loss on
sale
Payments
60%
Enrico
126,000
(93,900)
40%
Ramon
99,000
(62,600)
32,100
36,400
Where: Total loss on sale is:
BV of NC assets 249,000
Less: Total cash proceeds
Loss on sale
156,500
.
100%
Total
225,000
156,500
68,500
92,500
10. D
Total cash available (71,000 + 12,500 + 11,000)
94,500
Less: Prioritized payments
Fully secured
60,000
With Priority
3,000
PSC (secured portion)
12,500
75,500
Est. net amount available
19,000
Less: Unsecured amount
PSC (Unsecured portion) 7,500
Unsecured w/o priority
18,000
25,500
Estimated deficit to UC w/o priority
(6,500)