No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile
: 0927 283 8234
Telephone
: (043) 723 8412
Gmail
: icarecpareview@gmail.com
PARTNERHIP FORMATION AND OPERATION
FORMATION
Problem 1: On November 1, 20x1, Gene, Exo, and Levi decided to combine their business to
form a partnership. The partnership is to take over the business assets and assume the business
liabilities. They agreed to share profits and losses on a 50:30:20 ratio for Gene, Exo and Levi,
respectively. The statement of financial position of Gene and Levi separate businesses on
November 1, 20x1 are presented below:
Gene
250,000
100,000
(10,000)
200,000
150,000
5,000
300,000
Exo
500,000
220,000
(25,000)
Levi
380,000
80,000
(12,000)
300,000
90,000
8,000
200,000
Cash
Accounts receivable
Allowance for doubtful accounts
Notes receivable
Inventory
260,000
Office supplies
10,000
Equipment
400,000
Accumulated
depreciation
equipment
(30,000)
(50,000)
Machine
450,000
150,000
Accumulated depreciation - machine
(90,000)
(15,000)
Total
1,325,000 1,450,000
(40,000)
300,000
(30,000)
1,276,000
Accounts payable
Notes payable
Capital
Total
150,000
120,000
1,006,000
1,276,000
100,000
230,000
60,000
100,000
1,165,000 1,120,000
1,325,000 1,450,000
Gene, Exo and Levi contributed their business to the partnership with the following adjustments:
a. An 8% allowance is to be recognized in the books of Gene. Uncollectible account of P10,000
for Exo is to be provided. The receivable of Levi is 90% collectible.
b. Interest of 15% on the notes receivable dated April 1, 20x1 of Gene is to be accrued. Interest
of 12% on the notes receivable dated June 1, 20x1 of Levi is to be accrued.
c. Exo agree to value its inventory to P270,000 and Levi’s inventory amounting to P5,000 is
considered worthless.
d. The equipment of Gene has agreed value of P280,000. Levi’s equipment is under-depreciated
by P2,000.
e. Gene’s machine is over-depreciated by P12,000 and Levi’s machine has a market value of
P250,000.
f. Interest of 12% on the notes payable dated September 1, 20x1 of Exo should be accrued.
g. The machine of Gene has unpaid mortgage amounting to P50,000 but it is not assumed by
the partnership.
h. Levi has unrecorded patent of P100,000 to be recognized in Levi’s books.
Required: Compute the following independent scenarios:
A. What is the total capital Exo after formation of partnership?
B. What is the total cash to be withdrawn by Levi to have 20% interest in the partnership?
Problem 2: C, P, A are new CPA’s and are to form an accounting partnership. C is to contribute
cash of 150,000 and his used computer originally bought at P160,000 but has a second hand
value of P100,000. P is to contribute cash of P200,000, and tables and chairs with an appraised
value of P40,000 but acquired by P for only P36,000. A, whose family is selling computers plus
printer is to contribute cash of P80,000 and a brand new computer plus printer with regular price
at P160,000 but which cost their family’s computer dealership P140,000. Partners agree to share
profits 3:2:3.
What are the capital balances of C, P and A, respectively upon formation?
a. 310,000, 236,000 and 220,000
b. 250,000, 240,000 and 240,000
c. 250,000, 236,000 and 240,000
d. 250,000, 240,000 and 220,000
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RFERRER/RLACO/AT ANG /PDEJESUS
No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile
: 0927 283 8234
Telephone
: (043) 723 8412
Gmail
: icarecpareview@gmail.com
Problem 3: On December 1, 2012, AB invited MZ to join him in his business. MZ agreed provided
that AB will adjust the accumulated depreciation of his Equipment account to a certain amount,
and will recognize additional accrued expenses of P50,000. After that, MZ is to invest additional
pieces of equipment to make her interest equal to 45%. If the capital balances of AB before and
after adjustment were P695,000 and P605,000 respectively, what is the effect in the carrying
value of the equipment as a result of the admission of MZ?
Problem 4: On December 1, 2022, Paul and Marie agreed to invest equal amounts and share
profits equally to form a partnership. Paul invested P3,120,000 cash and a piece of equipment.
Marie invested some assets which are shown below:
Accounts
Receivable
Inventory
Machineries, net
Intangibles, net
Book Value
P 400,000
1,120,000
2,240,000
920,000
The assets invested by Marie are not properly valued. P32,000 of the accounts receivable are
proven uncollectible. Inventories are to be written down to P1,040,000. Included in the
machineries is an obsolete apparatus acquired for P384,000 with an accumulated depreciation
balance of P336,000. Part of the intangibles is a patent with a carrying value of P56,000 which
was sued upon by a competitor. Marie unsuccessfully defended the case and the final decision
of the court was released on November 29, 2022.
What is the fair value of the equipment invested by Paul?
OPERATION
Problem 5: CD partnership begins its first year of operations with the following capital balances:
C, Capital, P224,000; D, Capital, P112,000. According to the partnership agreement, all profits
will be distributed as follows: C will be allowed an salary of P268,800 and P134,400 to D. The
partners will be allowed with interest equal to 10% of the beginning capital balance of the year.
C will be allowed a bonus of 10% of the net income after bonus. The remainder will be divided
on the basis of the beginning capital for the first year and equally for the second year. Each
partner is allowed to withdraw up to P11,200 per year. Assume that the income summary has a
debit balance of P16,800 on the first year and a credit balance of P61,600 on the second year.
Assume further that each partner withdraws the maximum amount from the business each period.
What is the balance of D’s capital account at the end of the second year?
Problem 6: CC Partnership began operations on June 1, 20x1. On that date, Caloy and Chris
have capital credits of P35,000 and P48,000, respectively. The partnership has the following
profit-sharing plan:
a. 10% interest on partners’ capital balances at the end of the year
b. P12,000 and P15,000 annual salaries for Caloy and Chris, respectively
c. Remaining profit will be divided to Caloy and Chris on a 3:2 ratio, respectively
During the year, Caloy invested P30,000 worth of merchandise and withdrew P8,000 cash, while
Chris invested P24,000 cash. The partnership earned a profit of P53,275 during the year.
How much is Caloy’s capital balance at the end of 20x1?
2|P a g e
RFERRER/RLACO/AT ANG /PDEJESUS
No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile
: 0927 283 8234
Telephone
: (043) 723 8412
Gmail
: icarecpareview@gmail.com
Problem 7: Aubrey and Ann are partners who have the agreement to share profit and loss in the
following manner:
Aubrey
Annual Salaries
P 52,200
Interest on average balances
5%
Bonus (based on net income after 10%
salaries and interest)
Remainder
50%
Ann
P 51,800
10%
50%
During the year ended December 31, 20x1, the partnership generated a profit of P115,000 before
any deductions. Aubrey’s and Ann’s average capital balances for the year are P120,000 and
P60,000, respectively. Income is distributed to the partners only as far as it is available.
How much is the total share of Ann in the net income for the year ended 20x1?
Problem 8: The partnership agreement of X, Y and Z provides for the division of net income as
follows:
a.
b.
c.
Y, who manages the partnership is to receive an annual salary of P120,000.
Each partner is to be allowed interest at 10% on ending capital.
Balance is to be divided 40:25:35.
During 2006, X invested an additional P90,000 in the partnership. Y made an additional
investment of P75,000 and withdrew P110,000, and Z withdrew P60,000. No other investments
or withdrawals were made during 2006. On January 1, 2006, the capital balances were X,
P300,000; Y, P410,000; and Z, P220,000. Total capital at year-end was P600,000.
Compute the capital balance of partner Y at year-end:
Problem 9: On January 1, 20x1, Alger, Paul and Rodiel formed a partnership. The initial
investment were as follows: Alger, P1,000,000; Paul, P600,000; and Rodiel, P900,000. The profit
and loss ratio of the partners are 50:25;25. The following are the agreement of the partners:
1. Monthly salary of P10,000, P15,000 and P12,000, to Alger, Paul and Rodiel, respectively. The
salary allowance is treated as expense.
2. Bonus to Rodiel of 10% of net income after salary, interest and bonus.
3. Interest of 5% on average capital
4. The balance of net income (loss) will be divided based on the profit and loss ratio
Additional information:
The capital accounts of the partners shows the following information for 20x1:
January 1
April.14
May 1
June 20
September 1
October 10
November 18
Alger
1,000,000
Paul
600,000
50,000
(120,000)
Rodiel
800,000
30,000
120,000
30,000
(40,000)
(12,000)
The net income of the partnership for the year ended December 31, 20x1 was P860,000. The
partners made regular drawings against their shares of net income during 20x1 of P25,000 each.
A. What is the capital balance of Alger on December 31, 20x1?
B. What is the total income of Paul received from the partnership?
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RFERRER/RLACO/AT ANG /PDEJESUS