PRACTICE SETS 3 & 4: ACCOUNTING FOR PARTNERSHIP

General Instructions:
 Students can opt to answer this practice set using MS Excel; make sure to properly
number and show solutions. Once done, submit through elearn or email.
 Those who opt not to use MS Excel, answer this practice sheet in a clean sheet of
paper; make sure your handwriting and answers are comprehensible. Once done, follow
my instructions re- CAMSCANNER.
 DEADLINE: 5PM, FRIDAY.

C: PARTNERSHIP DISSOLUTION

1. C is admitted to A & B Partnership under the bonus method. C contributes cash of

P20,000 and non-cash assets with a market value of P30,000 and book value of P15,000 in
exchange for a 20% ownership interest in the new partnership. Prior to the admission of C,
the capital of the existing partnership was P130,000 and an appraisal showed the
partnership net assets were fairly stated. A & B shared profits and losses at a ratio of
80/20, respectively.

How much is the bonus amount to be recorded for each partner?

2. A, B, and C are partners with present capital balances of P40,000, P50,000, and
P20,000, respectively. The partners share profits and losses according to the following
percentages: 60% for A, 30% for B, and 10% for C. D is to join the partnership upon
contributing P40,000 to the partnership in exchange for a 25% interest in capital and a
20% interest in profits and losses. An appraisal of the existing partnerships' assets
reveals the following:

Accounts Receivable P20,000 overvalued

Inventory P10,000 overvalued
Land P10,000 undervalued
Building P15,000 undervalued

Calculate the capital balances for each individual in the new partnership assuming use of
the bonus method.

3. On March 1, 2016, A and B invested in its first year of operations the following cash:
A, P480,000 and B, P240,000.

The partners agree to allocate profits and losses as follows:

 A and B will be allowed a monthly salary of P48,000 and P24,000, respectively.
 The partners will be allowed with interest of 10% of their capital balances at the
beginning of each year.
 The remainder will be divided on the bases of their beginning capital for the first
year of operation and equally for the subsequent years.
 Each partner is allowed to withdraw up to P24,000 a year. Any withdrawal in excess
will be treated as a direct reduction from their capital balances.

In 2016, the partnership suffered a net loss of P36,000. But in 2017 they earned a net
profit of P132,000. The partners withdrew the maximum amount from the partnership each
year. On January 1, 2018, a new partner, C was admitted in the partnership for an
investment of P400,000 for a 40% interest. No revaluation of assets is to be recorded.
After the admission of C, the partners agreed to divide profits and losses, 4:2:4, to A, B
and C respectively.

On January 1, 2018, what is the entry to record the admission of C?

4. On August 1, 2016, A and B formed a partnership. A contributed inventory of P500,000,

with a fair value of P300,000 while B contributed cash of P250,000 and a land that cost
her P900,000 and a fair value of P1,250,000. The partnership did not assume the mortgage
attached to the property worth P250,000.

The partners agree to allocate profits and losses as follows:

 Each partner shall receive 5% interest on their beginning capital balance.
 A will receive a salary of P8,000 per month for managing the business.
 The remainder will be divided equally on the first year of operation and 60% and 40%
on subsequent years.
 A and B is allowed to withdraw P5,000 per month. Any withdrawal is treated as direct
reduction of capital.
In 2016, the partnership has a net income of P100,000. On July 1, 2017, C was admitted in
the partnership by investing P800,000 for a 25% interest. No revaluation of assets is to
be recorded.

After the admission of C, the partners agreed to divide profits, as follows:

 Each partner shall receive 5% interest on the amount of her beginning capital
 All partners will receive a salary of P2,000 per month.
 The balance to be divided 45% to A, 30% to B and 25% to C.
 Each partner is allowed to withdraw P2,000 per month. Any withdrawal is treated as a
direct reduction of capital.

In 2017, the partnership earned a profit of P300,000 evenly throughout the year.

How much is the capital balance of A, B and C at December 31, 2017?

5. A, B and C were partners with capital balances on January 1, 2016 of P300,000, P200,000
and P100,000, respectively. On July 1, 2016, A retires from the partnership. On the date
of retirement, the partnership net loss is P60,000 and the partners agreed that certain
asset is to be revalued at P80,000 from its original cost of P50,000. The partners agreed
further to pay A P225,000 in settlement of his interest. The remaining partners continue
to operate under a new partnership.

What is the total capital of the new partnership, after the retirement of A?

BONUS PROBLEM

Cesar and Damon share partnership profits and losses at 60% and 40%, respectively. The
partners agree to admit Egan into the partnership for a 50% interest in capital and
earnings. Capital accounts immediately before the admission of Egan are:

Cesar (60%) P 300,000

Damon (40%) 300,000
Total 600,000

Required:

1. Prepare the journal entry(s) for the admission of Egan to the partnership assuming
Egan invested P400,000 for the ownership interest. Egan paid the money directly to
Cesar and to Damon for 50% of each of their respective capital interests. The
partnership records goodwill.
2. Prepare the journal entry(s) for the admission of Egan to the partnership assuming
Egan invested P500,000 for the ownership interest. Egan paid the money to the
partnership for a 50% interest in capital and earnings. The partnership records
goodwill.
3. Prepare the journal entry(s) for the admission of Egan to the partnership assuming
Egan invested P700,000 for the ownership interest. Egan paid the money to the
partnership for a 50% interest in capital and earnings. The partnership records
goodwill.

D: PARTNERSHIP LIQUIDATION

1. The A, B and C partnership has total assets of P260,000. Capital balances for partners
A, B, and C are P59,000, P30,000 and P50,000, respectively. The profit/loss percentages
for partners A, B, and C are 30%, 40%, and 30%, respectively. Included in the liabilities
is a P9,000 loan payable to A.

The partnership has elected to liquidate over the next several months. Liquidation
expenses are estimated to be P15,000.

Assuming assets with a book value of P80,000 were sold for P60,000 and that P160,000 cash
is available, how should the available cash be distributed?

2. The ABC Partnership has not been successful. The partners have determined they must
liquidate their partnership. The partners have agreed to liquidate the partnership and
anticipate that liquidation expenses will total P1,000. Prior to the liquidation, the
partnership balance sheet reflects the following book values:

Cash P18,000
Noncash assets 51,000
Note receivable – A 3,000
Other liabilities 20,000
Capital, A 6,000
Capital, B 30,000
Capital, C 16,000

Profits and losses are shared 45% to A, 35% to B and 20% to C. A review of the individual
partner’s personal net worth reveals the following:
 Assets Liabilities
A P165,000 P162,000
B 200,000 110,000
C 185,000 90,000

The following transactions occur:

 Assets having a book value of P40,000 were sold for P22,000 cash
 Liabilities are paid, where possible
 Expected liquidation expense amounted to P1,000
 Partners contribute from their personal net worth

Prepare a liquidation schedule and determine how the available assets will be distributed
using a schedule of safe payments.

3. On June 30, 2021, the A, B and C partnership had the following fiscal year- end balance
sheet (in Philippine peso):

The percentages shown are the residual profit and loss sharing ratios. The partners
terminated the partnership on July I, 2021 and began the liquidation process.

During July, the following events occurred:

 Receivables of P3,000 were collected

 The inventory was sold for P4,000
 All available cash was distributed on July 31, except for P2,000 that was set aside
for contingent expenses

Questions:

A. The book value of the partnership equity (i.e., total equity of the partners) on
June 30, 2021 is
B. The cash available for distribution to the partners on July 31, 2021 is
C. How much cash would B receive from the cash that is available for distribution on
July 31?

4. The year- end balance sheet and residual profit and loss sharing percentages for the
ABC Partnership on December 31, 2016, are as follows:

Cash P30,000 Accounts payable P200,000

Loan to A 40,000 Loan from B 50,000
Other assets 480,000 A, capital (25%) 70,000
B, capital (25%) 80,000
C, capital (50%) 150,000
Total assets P550,000 Total liabilities and equity P550,000

The partners agree to liquidate the business and distribute cash when it becomes
available. A cash distribution plan for the ABC Partnership will show that cash available,
after outside creditors are paid, will initially go to?

5. A, B, C and D are partners who share profits and losses 30%, 20%, 35% and 15%,
respectively. The partnership will be liquidated gradually over several months beginning
January 1, 2018. The partnership trial balance as of December 31, 2017 is as follows:

Debits Credits
Cash P 3,000
Accounts receivable 10,000
Inventory 25,000
Loan to B 4,000
Furniture 15,000
Equipment 18,000
Goodwill 10,000
Accounts payable P12,000
Note payable 30,000
Loan from C 6,000
A, capital (30%) 12,000
B, capital (20%) 9,000
C, capital (35%) 12,000
D, capital (15%) 4,000

Prepare a cash distribution plan for January 1, 2018, showing how cash installments will
be distributed among the partners as it becomes available.