Partnership

Formation:
1. On December 1, 20x5, EE and FF formed a partnership, agreeing to
share
for profits and losses in the ratio of 2:3, respectively. EE invested a parcel or land that
cost him P25,000. FF invested P30,000 cash. The land was sold for P50,000 on the
same date, three hours after formation of the partnership. How much should be
the capital balance of EE right after formation?
a. P25,000
c. P60,000 b.
30,000
d. 50,000
(AICPA)
2. On March 1, 20x5, II and JJ formed a partnership with each
contributing
the following
assets:

90o

P300,000
250,000
Cash Machinery and equipment
.... Building... Furniture and
fixtures .........
P 700,000
750,000 2,250,000
100,000
 The building is subject to mortgage loan of P800,000, which is
to be assumed by the partnership agreement provides that ll and JJ share
profits and losses 30% and 70%, respectively. On March 1, 20x5 the
balance in JJ's capital account should be:
a. P3,700,000
c. P3,050,000 b.
3,140,000
d.: 2,900,000 (AICPA)

3. The same information in Number 2, except that the mortgage loan is not
assumed by the partnership. On March 1, 20x5 the balance in JJ's
capital account should be:
a. P3,700,000
C. P3,050,000
b. 3,140,000
d. 2,900,000 (Adapted)

4. As of July 1, 20x5, FF and GG decided to form a partnership.

Their balance
sheets on this date are:
FF GG Cash
P.15,000 P 37,500
Accounts receivable
540,000 225,000
Merchandise Inventory
202,500
Machinery and equipment .......
 -
150,000
270,000 Total
.............
P705,000 P735,000
............

P135,000
570,000
P240,00
0
Accounts Payable .....
FF, capital ..... GG,
capital... Total ..
495,000 P735,000
P705,000

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The partners agreed that the machinery and equipment of FF is

underdepreciated by P15,000 and that of GG by P45,000. Allowance for
doubtful accounts is to be set up amounting to P120,000 for FF and
P45,000 for GG. The partnership agreement provides for a profit and
loss ratio and capital interest of 60% to FF and 40% to GG. How much
cash must FF invest to bring the partners' capital balances
 proportionate to their profit and loss ratio?
a. P52,560
C. P142,560
b. 102,500
d. 172,500
(A
dapted) 5. On August 1, AA and BB pooled their assets to form a
partnership, with the
firm to take over their business assets and assume the liabilities.
Partners capitals are to be based on net assets transferred after the
following adjustments. (Profit and loss are allocated equally.)

BB's inventory is to be increased by P4,000; an allowance for

doubtful accounts of P1,000 and P1,500 are to be set up in the books of
AA and BB, respectively; and accounts payable of P4,000 is to be
recognized in AA's books. The individual trial balances on August 1,
before adjustments, follow:
AA
BB

Assets
P75,000 P113,000
Liabilities ....
5,000
34,500

What is the capital of AA and BB after the above

adjustments?
 a. AA, P68,750; BB, P77,250
c. AA, P65,000; BB, P76,000
b. AA, P75,000; BB, P81,000 d. AA, P65,000; BB, P81,000
(Adapt
ed) CC admits DD as a partner in business. Accounts in the
ledger for CC on November 30, 20x5, just before the admission of
DD, show the following balances:
Cash ...............
P 6,800
14,200
Accounts receivable ....
20,000
Merchandise inventory ....
8.000
Accounts payable ...............
33,000
CC, capital
Aventon
...............*

It is agreed that for purposes of establishing CC's interest, the

following adjustments shall be made:
la) An allowance for doubtful accounts of 3% of accounts
receivable is to be established.
(b)
The merchandise inventory is to be valued at P23,000. Prepaid
salary expenses of P600 and accrued rent expense of
P800 are to be recognized.
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DD is to invest sufficient cash to obtain a 1/3 interest in the

partnership. Compute for: (1) CC's adjusted capital before the
admission of DD; and (2) the amount of cash investment by DD:
a. (1) P35,347; (2) P11,971 C. (1) P35,374; (2) P17,687 b. (1)
36,374; (2) 18,487 d. ili 28,174; (2) 14,087
(Adapted)
7. MM, NN, and OR are partners with capital balances on December 31,
20x5 of P300,000, P300,000 and P200,000, respectively. Profits are shared
equally. O wishes to withdraw and it is agreed that oo is to take certain equipment
with second-hand value of P50,000 and a note for the balance of OO's interest.
The equipment are carried on the books at P65,000. Brand new equipment may
cost P80,000. Compute for: (1) OO's acquisition of the
second-hand
equipment will result to reduction in capital; (2) the value of the
note that will oo get from the partnership's liquidation..
a. (1) P15,000 each for MM and NN,
(2) P150,000. b.
(1) P5,000 each for MM, NN and Oo, · (2) P145,000. C. (1)
P5,000 each for MM, NN and OO, (2) P195,000.
(1) P7,500 each for MM and
NN,
(2)
P145,000.
(Adapted)

8. Jones and Smith formed a partnership with each partner

contributing the
following items:
Jones Smith Cash,
P 80,000 P 40,000
Building - cost to Jones ...
300,000 - fair
value ...............
400,000
Inventory - cost to Smith
200,000 - fair
value
280,000
Mortgage payable ...
120,000
Accounts payable ...
60,000
..........

Assume that for tax purposes Jones and Smith agree to share
equally in the liabilities assumed by the Jones and Smith
partnership. What is the balance in each partner's capital account
for financial accounting purposes?
Jones
Smith A.
P350,000 P270,000
P260,000 P180,000 C.
P360,000 P260,000 D.
 P500,000 P300,000
B.

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.....

9. The business assets of LL and MM appear

below:
LL
MM

Cash.
P 11,000 P 22,354
Accounts receivable ..........
234,536 567,890
Inventories.
120,035 260,102
Land
603,000
Building ..........
428,267
Furniture and fixture ...........
 50,345 34,789 Other
assets...
2,000 3,600 Total
P1,020,916
P1,317,002

Accounts payable
.........
P 178,940 .P 243,650
Notes payable ..
200,000 345,000 LL,
capital ....
641,976
MM, capital .......
728,352
Total ...............
P1,020,916
P1,317,002
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.

LL and MM agreed to form a partnership by contributing their

respective assets and equities subject to the following adjustments:
 a. Accounts receivable of P20,000 in LL's books and P35,000
in MM's
are uncollectible. b. Inventories of P5,500 and P6,700 are
worthless in LL's and MM's
respective books. Other assets of P2,000 and P3,600 in
LL's and MM's respective books are to be written off.
C.

The capital account of the partners after the adjustments will

be:
a. LL, P615,942; MM, P717,894 ċ. LL, P640,876; MM,
P683,050 b. LL, P640,876; MM, P712,345 d. LL,
P614,476; MM, P683,052
(PhilCPA
)

10. The same information in Number 9, how much total assets

does the
partnership have after
formation?
a. P2,337,918
C. P2,265,118 b.
2,237,918
d. 2,365,218
(PhilCPA)
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Cash......
11. On March 1, 20x5, PP and QQ decide to combine their
businesses and
form a partnership. Their balance sheets on March 1, before
adjustments, showed the following:
LPP
QQ
P 9,000 P 3,750
Accounts receivable.
18.500 13,500
Inventories
30,000 19,500
Furniture and fixtures (net) ....
30,000
9,000
Office equipment (net) ........
11,500
2,750
Prepaid expenses ....
6,375
3,000 P105,375 P51,500
 Total
00

Accounts
payable Capital
......
P 45,750
59,625 P105,375
·
P18,000
33,500 P51,500
Total
-

They agreed to have the following items recorded in their

books:
Provide 2% allowance for doubtful accounts. 2.
PP's furniture and
fixtures should be P31,000, while QQ's office
equipment is under-depreciated by P250. 3. Rent expense incurred
previously by PP was not yet recorded
amounting to P1,000, while salary expense incurred by QQ was not also
recorded amounting to P800. The fair market value of inventory
amounted to:
For PP..
...............................................
P29,500 For QQ..
21,000

Compute the net (debit) credit adjustment for PP

and QQ:
PP : QQ
 PP QQ a.
P 2,870 P 2,820
C. P(870) P 180 b. (2,870) (2,820) d. 870 (180) (Adapted)
12. The same information in Number 11, compute the total
liabilities after
formation:
a. P61,950
P65,550 b.
63,750
d. 63,950 The same
information in Number 11, compute the total assets after
formation:
a. P157,985
c. P160,765
156,875
d. 152,985

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