University of Santo Tomas

Alfredo M. Velayo College of Accountancy

Junior Philippine Institute of Accountants
Accounting for Partnership and Corporation (Acctg 2a&b)

Partnership Formation
1. On August 1, X and Y 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.)

Y’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 X and Y respectively; and accounts payable of P4,000 is to
be recognized in X’s books. The individual trial balances on August 1, before adjustments, follow:

X Y
Assets…………………………………………….P 75,000 P 113,000
Liabilities………………………………………….. 5,000 34,500

What is the capital of X and Y after the above adjustments?

(Adapted)

2. As of July 1, 2013, AA and BB decided to form a partnership. Their balance sheets on this date
are:

AA BB
Cash……………………………………………....P 15,000 P 37,500
Accounts Receivable……………………………. 540,000 225,000
Merchandise Inventory………………………….. - 202,500
Property, Plant and Equipment………………….150,,000 270,000
Total………………………………………P705,000 P735,000

The partners agreed that the property, plant and equipment of AA is under-depreciated by P15,000
and that of BB by P45,000. Allowance for bad debts is to be set up in the amount of P120,000 of
AA and P45,000 for BB. The partnership agreement provides for a profit and loss ratio and capital
interest of 60% and 40% respectively. How much cash must AA invest to bring the partners’
capital balances proportionate to their profit and loss ratio?
(Adapted)

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 3. On April 21, 2013, RR and SS decide to combine their businesses and form a partnership. Their
balance sheets on April 21, before the following, are as follows:

RR SS
Cash…………………………………………… P 9,000 P 3,750
Accounts Receivable………………………… 18,500 13,500
Inventories…………………………………….. 30,000 19,500
Furniture and Fixtures………………………... 30,000 9,000
Office Equipment……………………………… 11,500 2,750
Prepaid Expenses…………………………….. 6,375 3,000
Total…………………………………………….. P105,375 P51,500

They agreed to have the following items recorded in their books:

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

1. Compute the net (debit) credit adjustment for RR and SS.

2. Compute the total liabilities after the formation.
3. Compute the total assets after the formation.
(Adapted)

Partnership Operations

1. AJ and Careey are considering forming a partnership whereby profits will be allocated through the
use of salaries and bonuses. Bonuses will be 10% of net income after total salaries and bonuses.
AJ will receive a salary of P30,000 and a bonus. Careey has the option of receiving a salary of
P40,000 and a 10% bonus or simply receiving a salary of P52,000. Both partners will receive the
same amount of bonus.

Determine the level of net income that would be necessary so that Careey would be
indifferent to the profit sharing option selected.
(Adapted: Dayag)

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 2. The partnership agreement of AA, BB, and CC provides for the year-end allocation of net income in
the following priority:

 AA is to receive 10% of net income up to P200,000 and 20% over P200,000.

 BB and CC each are to receive 5% of the remaining income over P300,000.
 The balance of income is to be allocated equally among the three partners.

The partnership’s 2013 net income was P500,000 before any allocations to partners. What
amount should be allocated to AA?
(AICPA)

3. AJ, Bench, and Jax are partners with average capital balances during 2013 of P360,000,
P180,000, and P120,000, respectively. Partners receive 10% interest on their average capital
balances. After deducting salaries of P90,000 to AJ and P60,000 to Jax the residual profit or loss is
divided equally. In 2013 the partnership sustained a P99,000 loss before interest and salaries to
partners. By what amount should AJ’s capital account change?
(AICPA)

4. Maya and Chief formed a partnership in 2013 and made the following investments and capital
withdrawals during the year:
Maya Chief
Investments Draws Investments Draws
March 1…………………..P 30,000 P20,000
June 1……………………. 10,000 10,000
August 1…………………. 20,000 2,000
December 1……………… 5,000

The partnership’s profit and loss agreement provides for a salary of which P30,000 was paid to
each partner for 2011. Maya is to receive a bonus of 10% of net income after salaries and bonus.
The partners are also to receive interest of 8% on average annual capital balances affected by
both investments and drawings. Any remaining profits are to be allocated equally among the
partners.

Assuming net income of P60,000 before salaries and bonus, determine how the income for:
(1) Maya
(2) Chief
(Adapted: Fischer & Taylor)

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 5. PP, RR and CC are partners with average capital balances during 2013 of P472,500, P238,650,
and P162,350, respectively. The partners receive 10% interest on their average capital balances;
after deducting salaries of P122,325 to PP and CC, the residual profits or loss is divided equally.

In 2011, the partnership had a net loss of P125,624 before interest and salaries to partners.

By what amount should PP’s and CC’s capital account change? Indicate whether increase of
(decrease).

6. Using the same information in no.5, except the partnership had a loss of 125,624 after the interest
and salaries to partners, by what amount should RR’s capital account change? Indicate
whether increase of (decrease).
(PhilCPA)

Partnership Dissolution: Admission of a New Partner – Purchase or Investment

1. The capital accounts for the partnership of AA and CC at Feb 28, 2013 are as follows:

AA, capital………………………………………………………. P 80,000

CC, capital………………………………………………………. 40,000

The partners share profit and losses in the ration of 3:2 respectively.

The partnership is in desperate need of cash, and the partners agree to admit JJ as a partner with
one-third in the capital and profits and losses upon his investment of P30,000. Immediately after
NN’s admission, what should be the capital balances of AA, JJ and CC respectively,
assuming bonus is to be recognized?

(AICPA)

Retirement of Withdrawal of a Partner

1. On June 30, 2013, the balance sheet for the partnership of CC, PP, and AA, together with their
respective profit and loss ratios, were as follows:

Asset, at cost…………………………………………………………….. P180,000

CC, loan…………………………………………………………………... 9,000
CC, capital(20%)..………………………………………………………… 42,000
PP, capital(20%)..………………………………………………………… 39,000
AA, capital(60%)…………………………………………………………. 90,000
Total……………………………………………………………………….. P180,000

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 CC decided to retire from the partnership. By mutual agreement, the assets are to be adjusted to
their fair value of P216,000 at June 30, 2013. It was agreed that the partnership would pay CC
P61,200 cash for CC’s partnership interest, including CC’s loan which is to be repaid in full. No
goodwill is to be recorded. After CC’s retirement, what is the balance of PP’s capital account?
(AICPA)

Assignment of Interest to a Third Party

1. Capital balances and profit and loss sharing ratios of the partners in the 4a5 & Associates are as
follows:

AJ, capital (50%)……………………………………………………………………….. P140,000

Roxanie, capital (30%)…………………………………………………………………. 160,000
Louise, capital (20%)…………………………………………………………………… 100,000
Total……………………………………………………………………………………… P400,000

AJ need money and agrees to assign half of his interest in the partnership to Carina for P90,000
cash. Carina pays directly to AJ with a smile. Carina does not become a partner.

What is the total capital of the 4a5 & Associates immediately after the assignment of the
interest to Carina?
(Adapted)

“Your failure is not God’s rejection, its God’s redirection.”

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