BCSVillaluz
INTEGRATED REVIEW IN ADVANCED FINANCIAL ACCOUNTING AND REPORTING
HAND-OUT NO. 1: Partnership Accounting
PARTNERSHIP FORMATION
Problem A:
Hope admits Josh as a partner in business. Prior to the formation of the partnership, Hope’s books showed the following balances:
Cash
Accounts receivable
Merchandise inventory
Accounts payable
Hope, capital
Debit
P5,200
24,000
36,000
Credit
12,400
52,800
It was agreed that, for purposes of establishing Hope’s investment in the partnership, the following adjustments shall be made:
• Allowance for doubtful accounts equal to 2% of accounts receivable shall be set up.
• Merchandise inventory shall be valued at P40,400.
• Prepaid expenses of P700 and accrued expenses of P800 shall be recognized.
1.
How much is the adjusted capital of Hope prior to the admission of Josh?
A. 28,310
C. 56,620
B. 52,800
D. 56,820
2.
How much cash should Josh invest to secure a one-third interest in the partnership?
A. 28,310
C. 56,620
B. 52,800
D. 56,820
3.
If Josh contributed an equipment with carrying value of P8,000 and fair value of P9,000, how much cash was
contributed for a one-fifth interest in the partnership?
A. 5,155
C. 28,310
B. 14,155
D. 70,775
Problem B:
On December 31, 2022, the business assets and liabilities of Sam and Carly are as follows:
Sam
Carly
Cash
P56,000
P124,000
Receivables
400,000
1,200,000
Inventories
240,000
400,000
Land, buildings, and equipment
1,300,000
1,070,000
Other assets
4,000
6,000
Accounts payable
360,000
500,000
Notes payable
400,000
700,000
Sam and Carly agreed to form a partnership by contributing their net assets, subject to the following adjustments:
• Receivables of P40,000 in Sam’s books and P80,000 in Carly’s books are uncollectible and should be written off.
• Inventories of P12,000 and P14,000 in the respective books of Sam and Carly are worthless.
• Other assets in both books are to be written off.
1.
Upon formation of the partnership, the respective capital of Sam and Carly would be
Sam
Carly
A.
P1,184,000
P1,500,000
B.
P1,240,000
P1,600,000
C.
P1,184,000
P1,600,000
D.
1,040,000
1,500,000
2.
Under the bonus (or transfer of capital) method, assuming the partners agreed to have a capital ratio of 40:60 for Sam
and Carly, respectively, how much is the adjusted capital of Sam?
A. 1,073,600
C. 1,500,000
B. 1,184,000
D. 1,610,400
3.
Under the bonus (or transfer of capital) method, assuming the partners agreed to have a capital ratio of 40:60 for Sam
and Carly, respectively, how much is the amount of bonus to (from) Sam?
A. 110,400
C. 158,000
B. (110,400)
D. (158,000)
____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA, MBA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Page 1 of 10
BCSVillaluz
4.
If the partners agreed that Sam should withdraw or invest in order to have a capital ratio of 40%, how much should be
the amount of additional investment or withdrawal?
A. 184,000 investment
C. 592,000 investment
B. 184,000 withdrawal
D. 592,000 withdrawal
5.
If the partners agreed that Sam should withdraw or invest in order to have a capital ratio of 40%, how much is the
adjusted capital of Sam and Carly?
Sam
Carly
A.
1,184,000
1,500,000
B.
1,000,000
1,500,000
C.
1,184,000
1,776,000
D.
1,776,000
1,500,000
PARTNERSHIP OPERATIONS
Problem A:
AB Partnership began its first year of operations with A, capital of P320,000 and B, capital of P160,000. According to the articles of
co-partnership, all profits will be distributed as follows:
• A will be allowed a monthly salary of P20,000.
• Both partners will be allowed with interest equal to 10% of their capital balances on the first day of the year.
• A will be allowed a bonus equal to 10% of profit after salaries.
• The remainder will be divided on the basis of 60:40 for the first year and 50:50 for the second year.
The partnership generated net income of P640,000 for the first year and P400,000 for the second year.
1.
What is the share of B in the profit for the first year?
A. 140,800
C. 499,200
B. 300,800
D. 819,200
2.
What is the share of A in the profit for the first year?
A. 140,800
C. 499,200
B. 300,800
D. 819,200
3.
What is the share of B in the profit for the second year?
A. 46,080
C. 819,200
B. 346,880
D. 1,173,120
4.
What is the share of A in the profit for the second year?
A. 46,080
C. 353,920
B. 346,880
D. 1,173,120
Problem B:
The capital balances of BCV and ALVR in 2022 are as follows:
BCV, Capital
10,000
1/1
7/31
9/30
12/1
4/1
76,000
20,000
10,000
8,000
9/1
10/1
ALVR, Capital
6,000
1/1
2,000
6/1
11/30
30,000
20,000
10,000
•
•
•
•
ALVR and BCV receive annual salaries of P48,000 and P24,000, respectively.
Interest is equivalent to 5% of their average capital balances.
BCV receives 20% bonus based on net income after salaries and interest but before bonus.
The remainder shall be distributed based on ending capital balances if over-allocated or shall be based on average capital
balances if under-allocated (use two decimal places).
1.
What is the average capital balance of ALVR?
A. 40,000
C. 82,532
B. 80,000
D. 117,466
2.
What is the average capital balance of BCV?
A. 40,000
C. 82,532
B. 80,000
D. 117,466
3.
If the partnership reports income of P200,000 in 2022 before salaries, interest and bonus, what is the share of BCV in
the 2022 income?
A. 82,532
C. 161,000
B. 117,467
D. 188,600
____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA, MBA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Page 2 of 10
BCSVillaluz
PARTNERSHIP DISSOLUTION
Problem A: (Admission by Purchase of Interest)
Uno and Dos’ capital balances are P1,200,000 and P960,000, respectively. Profit or loss ratio is 7:3, respectively. Tres directly purchased
one-third interest in the partnership by paying Uno P390,000 and Dos P450,000. The land account is increased by P360,000 prior to the
admission of Tres.
1.
What is the capital balance of Uno after Tres’ admission into the partnership?
A. 600,000
C. 840,000
B. 712,000
D. 968,000
2.
What is the capital balance of Dos after Tres’ admission into the partnership?
A. 600,000
C. 840,000
B. 712,000
D. 968,000
3.
What is the capital balance of Tres after his admission into the partnership?
A. 600,000
C. 840,000
B. 712,000
D. 968,000
Problem B: (Admission by Investment)
Aaron and Butch’s capital balances are P960,000 and P1,040,000, respectively. Profit or loss ratio is 4:6. Caine invested P1,000,000 for
a 30% interest in the partnership.
1.
What is the capital balance of Aaron after Caine’s admission?
A. 960,000
C. 1,040,000
B. 1,000,000
D. 1,100,000
2.
What is the capital balance of Butch after Caine’s admission?
A. 960,000
C. 1,040,000
B. 1,000,000
D. 1,100,000
3.
What is the capital balance of Caine after his admission?
A. 900,000
C. 1,040,000
B. 1,000,000
D. 1,100,000
Assume that the partners agreed to have a total capital of P5,000,000 after Caine’s admission.
4.
What is the capital balance of Aaron after Caine’s admission?
A. 960,000
C. 1,040,000
B. 1,000,000
D. 1,560,000
5.
What is the capital balance of Butch after Caine’s admission?
A. 960,000
C. 1,040,000
B. 1,000,000
D. 1,940,000
6.
What is the capital balance of Caine after his admission?
A. 900,000
C. 1,040,000
B. 1,000,000
D. 1,500,000
Problem C: (Admission by Investment)
A, B, and C are partners with capital balances of P896,000, P3,120,000 and 1,360,000, respectively, sharing profit and losses of 6:4:2.
D is admitted as a new partner bringing with him expertise and is to invest cash for a 25% interest in the partnership, which includes a
credit of P840,000 bonus upon his admission.
1.
How much should be credited to D’s capital?
A. 672,000
C. 1,512,000
B. 840,000
D. 6,048,000
2.
How much cash should D invest?
A. 672,000
B. 840,000
C.
D.
1,512,000
6,048,000
____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA, MBA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Page 3 of 10
BCSVillaluz
Problem D: (Retirement)
X, Y, and Z are partners sharing profits and losses of 40%, 40%, 20%, respectively. The December 31, 2022 balance sheet of the
partnership before any profit allocation are summarized as follows:
ASSETS
Cash
Inventories
Equipment
Trademark
P180,000
120,000
150,000
45,000
Total assets
495,000
LIABILITIES AND EQUITY
Accounts payable
Z, loan
X, capital
Y, capital
Z, capital
Total
P15,000
10,000
200,000
180,000
90,000
495,000
The income summary account has a credit balance of P50,000 for the year 2022. On January 1, 2023, a partner has decided to retire
from the partnership and by mutual agreement, the following have been arrived at:
• Inventories amounting to P20,000 is considered obsolete and must be written off.
• Equipment should be adjusted to their current value of P100,000.
• Trademark is to be written off immediately prior to the retirement.
It was agreed that the partnership will pay the retiring partner for his interest in the partnership inclusive of loan balance.
1.
If Z retired and received P90,000 as a retirement price, how much will be the bonus to (from) Y?
A. (1,500)
C. 2,000
B. 1,500
D. (2,000)
2.
If Z retired and received P90,000 as a retirement price, how much will be the adjusted capital of X under the bonus
method?
A. 152,500
C. 174,000
B. 172,500
D. 200,000
3.
If Z retired and received P100,000, how much is the adjusted capital of Y under the revaluation method?
A. 154,000
C. 160,500
B. 174,000
D. 180,000
Problem E: (Withdrawal)
The total capital of the partners before recognition of asset revaluation in preparation for the withdrawal of a partner whose percentage
P/L sharing ratio is 25%, amounted to P770,000. He was paid P196,000 by the firm in the final settlement for his interest. The remaining
partner’s capital account, excluding their share of asset revaluation totaled P630,000.
1.
How much is the full revaluation of the firm as agreed by the partners?
A. 56,000
C. 140,000
B. 168,000
D. 224,000
2.
How much is the total adjusted capital of the remaining partners?
A. 770,000
C. 798,000
B. 994,000
D. 1,000,000
Problem F: (Incorporation of a Partnership)
X and Y, partners of XY Partnership (who share profit and loss in 80:20 ratio) organized XY Corporation to take over the net assets of
the partnership. The balance sheet of the partnership on September 30, 2022, the date of incorporation, contains the following accounts:
Cash
Accounts receivable (net)
Inventory
Equipment (net)
Accounts payable
X, capital
Y, capital
P14,400
33,000
30,600
40,800
42,000
57,588
19,212
After an appraisal of the equipment and an audit of the partnership’s financial statements, the partners agree that the following
adjustments are required to restate the net assets of the partnership to current fair value:
▪ Increase the allowance for doubtful accounts by P480.
▪ Increase the inventories to current replacement cost of P36,000.
▪ Increase the equipment to its current fair value of P47,400.
▪ Recognize accrued liabilities of P1,320.
▪ Recognize prepaid expenses of P12,000.
XY Corporation is authorized to issue 12,000 shares of P10 par common stock. It issues 9,000 shares of common stock valued at P11 a
share to the partnership in exchange for the net assets of the partnership.
____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA, MBA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Page 4 of 10
BCSVillaluz
1.
How many shares of common stocks were issued to X and Y, respectively, upon incorporation?
A. 2,150; 6,850
C. 2,365; 7,535
B. 6,850; 2,150
D. 7,535; 2,365
2.
Immediately after effecting the transfer of the net assets, and the issuance of common stocks, XY Corporation’s
additional paid-in capital account would be credited for what amount?
A. Zero
C. 90,000
B. 9,000
D. 99,000
PARTNERSHIP LIQUIDATION
Problem A: (Lump Sum Liquidation)
The statement of financial position of XYZ Partnership prior to liquidation is as follows:
ASSETS
Cash
Other assets
Loan – Z
P75,000
210,000
15,000
Total assets
300,000
LIABILITIES AND CAPITAL
Liabilities to outsiders
Loan – X
X, Capital
Y, Capital
Z, Capital
Total
P105,000
30,000
45,000
75,000
45,000
300,000
The partners share profits and losses in the ratio of 5:3:2, respectively. X and Y are personally insolvent.
Situation no. 1: Other assets are sold for P225,000, all liabilities are paid, and liquidation expenses of P7,500 are paid.
How much cash should X, Y, and Z receive?
A. 75,000; 75,000; 30,000
B. 78,750; 77,250; 31,500
C. 77,250; 78,000; 30,000
D. 77,250; 78,750; 31,500
Situation no. 2: Other assets are sold for P75,000, liquidation expense of P7,500 and all liabilities are paid.
How much cash should X, Y, and Z receive?
A. 75,000; 75,000; 30,000
B. 3,750; 32,250; 1,500
C. 1,500; 3,750; 32,250
D. 2,250; 32,250; 3,000
Situation 3: Other assets are sold for P80,000, liquidation expense of P25,000 and all liabilities are paid.
How much cash should Y?
A.
Zero
B.
7,500
C.
D.
20,000
27,500
Situation 4: Z received a total of P16,000.
1.
How much is the amount of gain (loss) on realization of other assets?
A. 70,000
C. (70,000)
B. 160,000
D. (160,000)
2.
How much cash should X receive?
A. 24,000
B. 40,000
C.
D.
64,000
100,000
Situation 5: Y received a total of P70,000 and liquidation expenses of P10,000 were paid.
1.
2.
How much cash should Z receive?
A. 20,000
B. 50,000
C.
D.
70,000
100,000
How much is the amount of gain (loss) on realization of other assets?
A. 10,000
C. 150,000
B. (40,000)
D. 190,000
____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA, MBA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Page 5 of 10
BCSVillaluz
3.
How much is the total proceeds on sale of other assets?
A. 10,000
C. 150,000
B. 90,000
D. 170,000
Problem B: (Installment Liquidation)
X, Y, and Z are partners who share profits and losses in the ratio of 4:3:3, respectively. On January 1, 2022, they decided to liquidate
the partnership and the statement of financial position was prepared as follows:
ASSETS
Cash
Non-cash assets
P40,000
130,000
LIABILITIES AND CAPITAL
Outside liabilities
Y, loan
Z, loan
X, capital
Y, capital
Z, capital
P80,000
10,000
15,000
20,000
20,000
25,000
Total
170,000
170,000
In January, noncash assets with book value of P70,000 was sold for P60,000 to a buyer; liquidation expense of P10,000 was paid and
only 40% of the outstanding liabilities were paid in January. The partnership withholds cash of P5,000 for next month’s liquidation
expenses.
In February, noncash asset with book value of P30,000 was sold to a buyer and the company recorded a loss on realization of P6,000 on
this transaction. Liquidation expense of P5,500 was paid and only P20,000 recorded liabilities were paid during the month. The
partnership withholds cash of P4,000 for next month’s liquidation expenses and P5,500 in anticipation for unrecorded liabilities.
In March, the remaining noncash assets were sold to a buyer for P25,000. Liquidation expense of P11,000 was paid. The remaining
recorded liabilities plus P4,000 unrecorded liabilities were paid during the month to end the liquidation process.
Case 1: Determine the following using the Schedule of Safe Payments–
1. How much is the maximum possible loss in January?
A. 30,000
C. 60,000
B. 39,500
D. 65,000
2.
How much should Y and Z receive in the month of January?
A. None.
C. 5,200 and 28,900
B. Zero and P5,000
D. 5,000 and 5,200
3.
How much is the cash balance on January 31?
A. 5,000
C. 37,500
B. 9,500
D. 53,000
4.
How much is the maximum possible loss in February?
A. 30,000
C. 60,000
B. 39,500
D. 65,000
5.
How much should X and Z receive in February?
A. Zero and P4,500
C. 4,500 and Zero
B. Zero and P9,500
D. 4,500 and P9,500
6.
How much is the cash balance on February 28?
A. 5,000
C. 37,500
B. 9,500
D. 53,000
7.
How much should X, Y, and Z receive in March?
A. 7,800; 5,850; 5,850
C. 0; 9,750; 9,750
B. 5,850; 7,800; 5,850
D. 9,750; 0; 9,750
Case 2: Determine the following using the Cash Priority Program–
1.
How much total cash should the partnership distribute in order to apply the profit or loss ratio of all partners in
distribution?
A. 10,000
C. 30,000
B. 25,000
D. 40,000
2.
How much is the cash available for distribution in January?
A. Zero
C. 14,000
B. 5,000
D. 19,500
____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA, MBA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Page 6 of 10
BCSVillaluz
3.
How much is the cash available for distribution in February?
A. Zero
C. 14,000
B. 5,000
D. 19,500
4.
How much is the cash available for distribution in March?
A. Zero
C. 14,000
B. 5,000
D. 19,500
5.
How much should Y and Z receive in the month of January?
A. None.
C. 5,200 and 28,900
B. Zero and P5,000
D. 5,000 and 5,200
6.
How much should X and Z receive in February?
A. Zero and P4,500
C. 4,500 and Zero
B. Zero and P9,500
D. 4,500 and P9,500
7.
How much should X, Y, and Z receive in March?
A. 7,800; 5,850; 5,850
C. 0; 9,750; 9,750
B. 5,850; 7,800; 5,850
D. 9,750; 0; 9,750
-END OF HANDOUT-
____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA, MBA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Page 7 of 10
BCSVillaluz
____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA, MBA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Page 8 of 10
BCSVillaluz
____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA, MBA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Page 9 of 10
BCSVillaluz
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____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA, MBA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
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