UNIVERSITY OF SAN JOSE-RECOLETOS

CPA REVIEW CENTER

PRACTICAL ACCOUNTING 2
FLORES, CPA

MR. EDMAN P.

P2 001: PARNERSHIP ACCOUNTING

PARTNERSHIP FORMATION
Exercise Problems
Problem 1
On July 1, 2012, Carla and Carlo form a partnership, agreeing to share profits and losses in the ratio of 4:6,
respectively. Carla contributed a parcel of land that cost her P250,000, while Carlo contributed P500,000
cash. The land was sold for P500,000 on July 1, 2012 four hours after formation of the partnership. How
much should be recorded in Carlas capital account on formation of the partnership?
Ans: P500,000
Problem 2
On March 1, 2010, Junay and June formed a partnership with each contributing the following assets:
Cash
Machinery and equipment
Building
Furniture and fixtures

Junay
P30,000
25,000

10,000

June
P70,000
75,000
225,000

The building is subject to a mortgage loan of P80,000, which is to be assumed by the partnership. The
partnership agreement provides that Junay and June share profits and losses 30% and 70%, respectively.
On March 1, 2010 the balance in Junes capital account should be _________.
Ans: P290,000

Problem 3
JJ admits RR as a partner in business. Accounts in the ledger for JJ on November 30, 2012, just before the
admission of RR, show the following balances: Cash - P6,800; Accounts receivable - P14,200; Merchandise
inventory P20,000; Accounts payable - P8,000; JJ, capital - P33,000.
It is agreed that for purposes of establishing JJs interest the following adjustments shall be made: (a) 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; and (c) Prepaid salary expenses of P600 and accrued rent expense of
P800 are to be recognized.
RR is to invest sufficient cash to obtain in a 1/3 interest in the partnership.
Required:
1. What is JJs adjusted capital before the admission of RR?
(1) P35,374
2. What is the amount of cash investment by RR?
(2) P17,687
Multiple Choice Questions
1. Tonya, Tonye, and Tonyo are forming a new partnership. Tonya is to invest cash of P100,000 and
stapling equipment originally costing P120,000 but has a second-hand value in the market at P50,000.
Tonye is to invest cash of P160,000, while Tonyo, whose family is engaged in selling stapling equipment
to be used by the partnership with a regular price of P120,000 but which cost their familys business
P100,000. In addition, Tonyo invest cash amounting to P50,000. Partners agree to share profits
equally. The capital balances upon formation are:
a. Tonya, P220,000; Tonye, P160,000; and Tonyo, P150,000
b. Tonya, P150,000; Tonye, P160,000; and Tonyo, P170,000
c. Tonya, P160,000; Tonye, P160,000; and Tonyo, P160,000
d. Tonya, P176,666; Tonye, P176,666; and Tonyo, P176,668

2. On June 1, 2010, Debbie and Elaine formed a partnership. Debbie is to invest assets at fair value which
are yet to be agreed upon. She is to transfer her liabilities and is to contribute sufficient cash to bring
her capital to P210,000 which is 70% of the total capital of the partnership. Details regarding the book
values of Debbies business assets and liabilities and their corresponding valuations are:
Book Values
Accounts receivable
Allowance for doubtful accounts
Merchandise inventory
Store equipment
Accum. Dep. store equipment
Office equipment
Accum. Dep. office equipment
Accounts payable

P58,000
4,200
98,400
32,000
19,000
27,000
14,200
56,000

Agreed
Valuations
P58,000
5,000
107,000
32,000
16,400
27,000
8,600
56,000

Elaine agrees to invest cash of P42,000 and merchandise valued at current market price. The value of
the merchandise to be invested by Elaine and the cash to invested Debbie are:
a. P48,000 and P72,000, respectively
c. P90,000 and P72,000, respectively
b. P48,000 and P138,000, respectively
d. P252,000 and P138,000, respectively

PARTNERSHIP OPERATION
Exercise Problems
Problem 1
The PQ partnership has the following plan for the distribution of partnership net income (loss):
Salaries
Bonus on net income
Interest on average capital balance
Remainder (if positive)
Remainder (if negative)

P
P80,000
6%
7%
60%
50%

Q
P100,000
12%
7%
40%
50%

Required: Calculate the distribution of partnership net income (loss) for each independent situation below
(for each situation, assume the average capital balance of P is P140,000 and of Q is P240,000).
1. Partnership net income is P360,000.
2. Partnership net income is P240,000.
3. Partnership net loss is P40,000.

Problem 2
Net income for Levin-Tom partnership for 2011 was P125,000. Levin and Tom have agreed to distribute
partnership net income according to the following plan:

Interest on average capital balances

Bonus on net income before the bonus but
after interest on average capital balances
Salaries
Residual (if positive)
Residual (if negative)

Levin
7%

Tom
7%

12%
P40,000
60%
50%

P50,000
40%
50%

Additional Information for 2011 follows:

1. Levin began the year with a capital balance of P75,000.
2. Tom began the year with a capital balance of P100,000.
3. On March 1, Levin invested an additional P25,000 into the partnership.
4. On October 1, Tom invested an additional P20,000 into the partnership.
5. Throughout 2011, each partner withdrew P200 per week in anticipation of partnership net income.
The partners agreed that these withdrawals are not to be included in the computation of average
capital balances for purposes of income distributions.
Required:
1. Determine the share of each partner in the net income of the partnership.
2. Determine the capital of each partner on December 31, 2011.

Problem 3
The following account balances appear in the in the ledger of the partnership of XY Store at the end of
2012 before the profit for the year has been transferred to the partners accounts:
X, Drawings
Y, Drawings
X, Loan
X, Capital
Y, Capital
Profit and Loss Summary

P7,200
12,500
P17,500
50,000
50,000
30,250

The following information is to be considered in closing the Profit and Loss Summary and Drawings
accounts:
1. The cost of installing equipment at the beginning of 2012, P2,700, was charged to expense. The
installation relates to equipment with a 10-year life.
2. The loan to the firm was made by partner X on March 1, 2012. No entry has been made for
interest on the loan, which is 6% and is to be paid to partner X at the time the loan is repaid.
3. The partnership agreement permits X and Y to withdraw weekly sums of P150 and P225,
respectively, these amounts are to be regarded as salaries. Actual withdrawals by partners
differed from allowed amounts and are to be summarized in the drawings accounts.
4. Y, the managing partner, is entitled to a special bonus of 25% of the net profit after deduction of
all special allowances to partners (including the bonus), and any remaining profit is to be
distributed equally.
Required:
1. The adjusted net profit to be distributed to partners should be _______.
Ans: P31,805
2. What is the share of each partner in the profit of the partnership?
3. What is the capital balance of each partner at January 1, 2011?
X - P55,522

Problem 4
On January 1, 2012, A,B,C and D formed Alpha Trading Co. a partnership, with capital contributions as
follows:
A, P50,000; B, P25,000; C,P25,000 and D,P20,000. The partnership contract provided that each partner
shall receive a 5% interest on contributed capital, and that A and B shall receive salaries of P5,000 and
P3,000 respectively. The contract also provided that C shall receive a minimum of P2,500 per annum, and
D a minimum of P6,000 per annum, which is inclusive of amounts representing interest and share of
remaining profits. The balance of the profits shall be distributed to A,B,C and D in a 3:3:2:2 ratio.
Required:
1. What amount must be earned by the partnership, before any charge for interest and salaries, so
that A receive an aggregate of P12,500 including interest, salary and share of profits?
Ans: P32,333
2. What the total earnings of partner B?
Ans: P9,250
3. What the total earnings of partner C?
Ans: P4,583.33

Multiple Choice Questions

1. Alex and Carlo are partners agreeing to allow monthly salaries (P6,000 and P5,000, respectively), 6%
interest on the capital investment at the beginning of the year (P300,000 and P230,000, respectively)
and on the remaining balance, to be equally shared. The first year registered a net income of
P100,000. Partners should be entitled to:
a. Alex, P58,100 and Carlo, P41,900
c. Alex, P50,000 and Carlo, P50,000
b. Alex, P54,500 and Carlo, P45,500
d. Alex, P56,600 and Carlo, P43,400

2. In its first year of operations, Jeanette and Company, a partnership, made a net income of P20,000,
before providing for salaries of P5,000 and P3,000 per annum for Jeanette and James, respectively:
Jeanette
James
Josephine
Total

Capital
P30,000
20,000
10,000
P60,000
======

Assuming that no profit-and-loss ratios are provided in the partnership agreement and that there has
been no change in the capital contributions during the year, how much profit share would Jeanette be
entitled to received?
a. P10,000
b. P5,000
c. P11,000
d. P15,000

PARTNERSHIP DISSOLUTION
Exercise Problems
Problem 1
Presented below is the condensed statement of financial position of the Partnership of X, Y and Z on
June 1, 2012 with their respective profit and loss ratios:
Current assets
Noncurrent assets

P300,000
344,000

Total assets

P644,000

Current liabilities
Noncurrent liabilities
X, Capital (1/2)
Y, Capital (1/3)
Z, Capital (1/6)
Total liabilities and capital

P100,000
100,000
139,200
208,800
96,000
P644,000

On June 2, 2012, W was admitted to the partnership when he purchased, for P132,000 a proportionate
interest from X and Y in the net assets and profits of the partnership. As a result of this transaction, W
acquired one-fifth interest in the net assets and profits of the firm.
Required:
1. What is the combined gain realized by X and Y?
Ans: P43,200
2. The capital balance of partner Y after Ws admission should be ________.
Ans: P155,520
3. The amount of cash paid to partner Y should be __________.
Ans: P70,560
4. The P & L ratio of partner Y after Ws admission should be ________.
Ans: 25.33%

Problem 2
A summary balance sheet for the partnership of Ivory, Jacoby and Kato on December 31, 2006 is shown
below. Partners Ivory, Jacoby and Kato allocate profit and loss in their respective ratios of 9:6:10.
Assets
Cash
P
50,000
Inventory
75,000
Marketable securities
120,000
Land
80,000
Building-net
400,000
Total assets
P
725,000
Equities
Ivory, capital
Jacoby, capital
Kato, capital
Total equities

P
P

425,000
225,000
75,000
725,000

The partners agree to admit Lange for a one-tenth interest. The fair market value for partnership land is
P180,000, and the fair market value of the inventory is P150,000.
Required:
1. Record the entry to revalue the partnership assets prior to the admission of Lange.
2. Calculate how much Lange will have to invest to acquire a 10% interest.
3. If Lange paid P200,000 to the partnership in exchange for a 10% interest, what
would be the bonus that is allocated to each partner's capital account?
Requirement 1
The assets of the partnership must be adjusted to fair market value. Land will increase by
P100,000, and Inventory by P75,000. The profit and loss ratio elements add up to 25.
Partner Ivory will then be allocated 9/25 of the P175,000, etc.
Land
Inventory
Ivory, capital
Jacoby, capital
Kato, capital

100,000
75,000
63,000
42,000
70,000

Requirement 2
The partnership's total assets after revaluation are P900,000. If Lange acquires a 10%
interest, it implies that the P900,000 represents 90% of the partnerships value after
Lange's investment. Therefore, P900,000/90% = P1,000,000, and P1,000,000 x 10% =
P100,000. The entry to record Langes investment would be:
Cash
Lange, capital

100,000
100,000

Requirement 3
Cash
Lange, capital
Ivory, capital
Jacoby, capital
Kato, capital

Problem 3

200,000
100,000
36,000
24,000
40,000

C and D are partners who share profits and losses in the ration of 7:3, respectively. On October 30,
2012, there respective capital accounts were as follow:
C, Capital
P35,000
D, Capital
30,000
On that date they agreed to admit S as a partner with one-third interest in the capital and profits
and losses, upon his investment of P25,000.
Required:
1. Immediately after Ss admission, the capital balance of partner C should be ________.
Ans: P31,500
2. The profit and loss ratio of partner C after Ss admission should be ________.
Ans: 46.67%

Problem 4
A summary balance sheet for the Vail, Wacker and Yang partnership on December 31, 2006 is
shown below. Partners Vail, Wacker, and Yang allocate profit and loss in their respective ratios of
4:5:7. The partnership agreed to pay partner Yang P227,500 for his partnership interest upon his
retirement from the partnership on January 1, 2011. Any payments exceeding Yangs capital
balance are treated as a bonus from partners Vail and Wacker.
Cash
Inventory
Marketable securities
Land
Building-net
Total assets

Vail, capital
Wacker, capital
Yang, capital
Total equities

Assets

P
Equities

P
P

75,000
87,500
60,000
90,000
150,000
462,500

212,500
112,500
137,500
462,500

Required: Prepare the journal entry to reflect Yangs retirement from the partnership.
1/1/04 Yang, capital
Vail, capital (P90,000 x 4/9)
Wacker, capital (P90,000 x 5/9)
Cash

137,500
40,000
50,000

227,500

Multiple Choice Questions

1. The capital accounts for the partnership of L and M at October 31, 2010 are as follow:
L, Capital
P80,000
M, Capital
40,000
The partners share profits and losses in the ratio of 6:4, respectively. The partnership is in desperate
need of cash, and the partners agree to admit P as a partner with one-third interest in the capital and
profits and losses upon his investment of P40,000.
The capital balance of Partner L after Ps admission should be:
a. P32,000
b. P40,000
c. P68,000

d. P80,000

2. Aga and Angel are partners with capital balances of P60,000 and P20,000, respectively. Profits and
losses are divided in the ratio of 60:40. Aga and Angel decided to admit Jane as a new partner. Jane
invested land valued at P15,000 for a 20% capital interest in the new partnership. The cost of the land
was P12,000. The partnership elected to use the bonus method to record the admission of Jane into
the partnership. Janes capital account should be credited for
a. P12,000
b. P15,000
c. P16,000
d. P19,000

PARTNERSHIP LIQUIDATION
Problem 1
On March 1, 2011, the ABC partnership decides to complete a lump-sum liquidation as soon as possible.
The partnership balance sheet prepared on March 1 appears below:
ABC Partnership
Statement of Financial Position
March 1, 2011
Cash
Accounts Receivable
Inventory
Investments
Plant and Equipment Net
Total Assets

P50,000
60,000
100,000
40,000
650,000
P900,000

Accounts Payable
Due to Partner A
A, Capital (30%)
B, Capital (40%)
C, Capital (30%)
Total Liabilities and Capital

P200,000
30,000
350,000
80,000
240,000
P900,000

The partners share profits and losses in the ratio of 3:4:3. Partner B is personally insolvent, but partners A
and C have sufficient personal assets to satisfy any capital deficits. On March 15, 2011, the non-cash
assets are sold for P550,000. Lump sum payments are made to the partners on March 16, immediately
after the creditors have been paid.
Required: Determine the amount of cash received by A, B and C, respectively.
Problem 2
The partnership of Rachel, Adams, and Nixon has the following trial balance on September 30, 2011:

Cash
Accounts receivable net
Inventory
Plant and equipment net
Accounts payable
Rachel, Capital
Adams, Capital
Nixon, Capital

Debit
P20,000
30,000
35,000
215,000

P300,000

Credit

P40,000
120,000
90,000
50,000
P300,000

The partners share profits and losses as follows: Rachel, 50 percent; Adams, 30 percent; and Nixon, 20
percent. The partners have decided to liquidate their partnership by installments. Cash is distributed to the
partners at the end of each month. A summary of the liquidation transactions follows:
October
1. P25,000 is collected on accounts receivable; balance is uncollectible.
2. P20,000 received for the entire inventory.
3. P1,500 liquidation expense paid.
4. P40,000 paid to creditors.
5. P10,000 cash retained in the business at the end of the month.
November
6. P2,000 in liquidation expenses paid.
7. As part payment of his capital, Nixon accepted an item of special equipment that he developed, which
had a book value of P8,000. The partners agreed that a value of P12,000 should be placed on this item for
liquidation purposes.
8. P4,000 cash retained in the business at the end of the month.
December
9. P150,000 received on sale of remaining plant and equipment.
10. P1,000 liquidation expenses paid. No cash retained in the business.
Required:
1. Determine the amount of cash received by each partner in October.
2. Determine the amount of cash received by each partner in November.
3. Determine the amount of cash received by each partner in December.

Problem 3
The condensed balance sheet of Alex, Jay and John, as of March 31, 2012, follows: Cash - P28,000; Other
assets P265,000; Liabilities - P48,000; Alex, capital - P95,000; Jay, capital - P80,000; John, capital - P70,000. The
income and loss ratio is 50:25:25, respectively. The partners voted to dissolve their partnership and
liquidate by selling the other assets in installments. The amount of P70,000 was realized on the first cash
sale of other assets with a book value of P150,000. After settlement with creditors, all cash available was
distributed to the partners. How much was received by each partner in the cash distribution?

Problem 4
X, Y and Z are partners in a merchandising business, sharing profits and losses equally. On December 31,
2011, the partnership capital and the partners drawings were:

Capital
Drawing

X
P100,00
0
60,000

Y
P80,00
0
40,000

Z
P300,00
0
20,000

Total
P480,00
0
120,000

The partnership was unable to collect on its Trade A/R, and it was forced to liquidate. The operating profit
for 2012 was P72,000, and was all exhausted including the partnership assets. Unsettled creditors claims
at December 31, 2012 amounted to P84,000. Y and Z have substantial private resources, but X has no
available free assets.
Required:
The final cash payment to each partner should be:
X __________
Y __________
Z __________ P78,000

Multiple Choice Questions

Questions 1 through 4 are based on the following information.
Partners Dennis and Lilly have decided to liquidate their business. The following information is available:
Cash
P100,000 Accounts payable
P100,000
Inventory
200,000 Dennis, Capital
120,000
Lilly, Capital
80,000
P300,000
P300,000

Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of liquidation, half the
inventory is sold for P60,000, and P60,000 of the accounts payable is paid. During the second month, the
rest of the inventory is sold for P45,000, and the remaining accounts payable are paid. Cash is distributed
at the end of each month, and the liquidation is completed at the end of the second month.
1. Refer to the information provided above. Using a safe payments schedule, how much cash will be
distributed to Dennis at the end of the first month?
A. P64,000
B. P60,000
C. P24,000
D. P36,000
2. Refer to the information provided above. Using a safe payments schedule, how much cash will be
distributed to Lilly at the end of the first month?
A. P24,000
B. P40,000
C. P16,000
D. P64,000
3. Refer to the information provided above. Using a safe payments schedule, how much cash will be
distributed to Dennis at the end of the second month?
A. P18,000
B. P27,000
C. P36,000
D. P60,000
4. Refer to the information provided above. Using a safe payments schedule, how much cash will be
distributed to Lilly at the end of the second month?
A. P27,000
B. P36,000
C. P18,000
D. P0
5. The capital balances, prior to the liquidation of the XYZ partnership, were as follows:
X, Capital
P130,000
Y, Capital
130,000
Z, Capital
100,000
X, Y, and Z share profits and losses in the ratio of 5:3:2. As a result of a loan, the partnership owes Y
P80,000. Using the information above, which partner has the highest Loss Absorption Power (LAP) prior
to liquidation?
A. X
B. Y
C. Z
D. Both X and Y

6. Carla, Carlo and Karen are partners with capital balance of P350,000, P250,000 and P350,000 and
sharing profits 30%, 20% and 50% respectively. Partners agree to dissolve the business and upon
liquidation, all the partnership assets are sold and sufficient cash is realized to pay all the claims except
one for P50,000. Karen is personally insolvent, but the other two partners are able to meet any
indebtedness to the firm. On the remaining claim against the partnership, Carla is to absorb.
a. P40,000
b. P15,000
c. P30,000
d. P25,000

INCORPORATION OF A PARTNERSHIP
Problem 1
When Disney and Charles decided to incorporate their partnership, the trial balance was as follows:
Cash
Accounts receivable net
Inventory
Equipment net
Accounts payable
Disney, Capital
Charles, Capital
Total

Debit
P50,000
25,000
55,000
120,000

P250,000

Credit

P40,000
140,000
70,000
P250,00
0

The partnership's books will be closed, and new books will be used for D & C Corporation. The following
additional information is available:
1. The estimated fair values of the assets follow:
Accounts receivable
Inventory
Equipment

P22,000
48,000
95,000

2. All assets and liabilities are transferred to the corporation.

3. The ordinary share is P5 par. Alice and Betty receive a total of 24,000 shares.
4. Disney and Charles share profits and losses in the ratio 6:4.
Required
1. Prepare the entries on the partnership's books to record
a. the revaluation of assets,
b. the transfer of the assets to the D & C Corporation and the receipt of the ordinary shares,
and
c. the closing of the books.
2. Prepare the entries on D & C Corporation's books to record the assets and the issuance of the
ordinary shares.

Problem 2
The condensed balance sheet of the partnership of Korea and Japan as of December 31, 2011 showed the
following: Total assets - P200,000; Total liabilities - P40,000; Korea, Capital - P80,000; Japan - P80,000. On
this date, the partnership was dissolved and its net assets were transferred to a newly-formed corporation.
The fair value of the assets was P24,000 more than the carrying value on the firms books. Each of the
partners was issued 10,000 shares of the corporations P1 par ordinary share. Immediately after effecting
the transfer of the net assets, and the issuance of share, the corporations share premium account would
be credited for _________.
Ans: P164,000