PARTNERSHIP: BASIC CONSIDERATION AND FORMATION

PRACTICE PROBLEMS

Problem 1

Leopoldo Medina contributed land, inventory, and P280,000 cash to partnership. The land has a
book value of P650,000 and a market value of P1,350,000. The inventory has a book value of
P600,000 and a market value of P510,000. The partnership also assumed a P350,000 note
payable owed by Medina that was used to purchase the land. Lenore Loqueloque agreed to put
up cash equivalent to Medina’s net investment.

Required: Prepare journal entry to record Medina’s and Loqueloque’s investment in the
partnership.

Problem 2

Calaguas and Dela Cruz formed a partnership and invested the following assets and liabilities
Fair Market Value Carrying Value
Calaguas:
Cash P300,000 P300,000
Land 450,000 280,000

Dela Cruz:
Cash 100,000 100,000
Building 600,000 520,000
Mortgage Payable (400,000) (400,000)

The partners will share profits and losses equally

Required: Prepare the opening journal entry in the books of the partnership
Problem 3

Espanol operated a specialty shop that sold fishing equipment and accessories. Her post-closing
trial balance on Dec 31, 2019 is as follows:

Fish
Post-Closing Trial Balance
Dec. 31, 2019

Debit Credit

Cash P36,000
Accounts Receivable 150,000
Allowance for Uncollectible Accounts P16,000
Inventory 440,000
Equipment 135,000
Accumulated Depreciation 75,000
Accounts Payable 30,000
Espanol, Capital 640,000
P761,000 P761,000

Espanol plans to enter into a partnership with trusted associate, Quino, effective January 1, 2020.
Profits or losses will be shared equally. Espanol is to transfer all assets and liabilities of her shop
to the partnership after revaluation.

Quino will invest cash equal to Espanol’s investment after revaluation. The agreed values are as
follows: accounts receivable (net), P140,000 ; inventory, P460,000; and equipment
(net),P124,000. The partnership will operate under the business name of Fish R’ Us.

Required:
1. Prepare the opening journal entries in the books of the partnership
2. Prepare the partnership’s statement of financial position as at the date of formation of the
partnership.
Problem 4

On Apr 8, 2019, Tolentino who has her own retail business and Tan, decided to form a partnership
wherein they will divide profits in the ratio f 40:60, respectively. The statement of financial
position of Tolentino is as follows:

Tolentino Marketing
Statement of Financial Position
April 8, 2019

Assets

Cash P 4,000
Accounts Receivable P160,000
Less: Allowance for Uncollectible Accounts (16,000) 144,000
Inventory 200,000
Equipment P50,000
Less: Accumulated Depreciation (10,000) 40,000
Total Assets P388,000

Liabilities and Capital

Accounts Payable P36,000

Tolentino Capital 352,000
Total Liabilities and Capital P388,000

Conditions agreed upon before the formation of the partnership:

a. The accounts receivable of Tolentino is estimated to be 70% realizable

b. The accumulated depreciation of the equipment will be increased by P10,000
c. The accounts payable will be assumed by the partnership
d. The capital of the partnership is based on the adjusted capital balance of Tolentino. Tan is to
contribute cash in order to make the partner’s capital balances proportionate to the profit and
loss ratio

Required:
1. Prepare the necessary journal entries in the books of Tolentino
2. Prepare the opening journal entries in the books of the partnership
Problem 5

Mulles, the owner of a successful fertilizer business, felt that it is time to expand
operations.Mulles offered to form a partnership with Lucena, the owner of a nearby warehouse.
The partnership would be called Mulles & Lucena Storage and Sales. Lucena accepted Mulles’
offer and the partnership was formed on July 1, 2019.

Presented below is the trial balance for Mulles Fertilizer Supply on June 30,2019:

Cash P229,500
Accounts Receivable 2,103,000
Allowance for Uncollectible Accounts P117,000
Inventory 1,012,500
Prepaid Rent 29,250
Store Equipment 390,000
Accumulated Depreciation 97,500
Notes Payable 330,000
Accounts Payable 505,500
Mulles, Capital 2,714,250
Totals P3,764,250 P3,764,250

The partners agreed to share profits and losses equally and decided to invest an equal amount in
the partnership. Lucena and Mulles agreed that Lucena’s land is worth P500,000 and his building
P1,450,000. Lucena is to contribute cash in an amount sufficient to make his capital account
balance equal to Mulles.

An agreement is reached by the two partners on the following items:

a. The accounts receivable are to be valued at P1,799,000 and the allowance for uncollectible
accounts will be eliminated.
b. Inventory is to be decreased by P112,500
c. The prepaid rent is for the warehouse used by Mulles. All merchandise will be transferred to
Lucena’s building. No refund will be received on the unused rent paid in advance.
d. The store equipment has a fair value of P300,000
e. All the other assets and liabilities are to be transferred at their book values.

Required:

Prepare the necessary journal entries in the boos of Mulles. Also, record the formation of the
partnership in a new set of books.
Problem 6

Debbie Adriano and Helenita Ruiz decided to form a partnership by combining the assets of their
separate businesses. Adriano contributed the following assets to the partnership: cash, P150,000
; accounts receivable with a face amount of P1,590,000 and an allowance for uncollectible
accounts of P97,000; merchandise inventory with a cost of P1,000,000; and equipment with a
cost of P1,550,000 and accumulated depreciation of P1,000,000.

The partners agreed on the following:

a. That P60,000 of the acc ounts receivable are completely worthless and are not to be accepted
by the partnership,
b. That P114,000 is a reasonable allowance for the uncollectibility of the remaining accounts
c. That the merchandise inventory is to be recorded at the net realizable value of P914,500 ; and
d. That the equipment is to be valued at P625,000

Required:

Prepare the journal entry to record Adriano’s investment in the partnership