I: PARTNERSHIP FORMATION

TRUE OR FALSE

1. You and I formed a partnership. You contributed P100 cash, while

I contributed a stapler which I bought 10 years ago for Pl,000.
If we sell the stapler currently, we would probably sell it for
only P2. My capital account should be credited for Pl,000.

2. The assets contributed to (and related liabilities assumed by)

the partnership are -measured in the partnership books at
carrying amount or cost to the contributing partner.

3. Mr. A contributed equipment with historical cost of P1,000,000

and fair value of P800,000 to a partnership. If no bonus is
given to any partner, Mr. A's capital account will be credited
for P800,000.

4. A bonus exists when the capital account of a partner is credited

for an amount greater than or less than the total fair value of
his net contributions.

5. A bonus given to a partner is treated as an adjustment to the

capital accounts of the other partners.

Use the following information for the next two questions:

You and I formed a partnership. We both contributed P100 cash.
However, we agreed that because you have special skills which you
will be bringing into the partnership, you should receive an
initial capital credit of P140.

6. Your bonus is P140.

7. After recording our contributions, my equity account in the

partnership books would have a balance of P60.

Use the following information for the nextfour questions:

You and I formed a partnership. You contributed P150 cash while I

contributed a machine with fair value of P50. We agreed that we
should have equal interests in the partnership. Our initial capital
credits should reflect this agreement. No bonus shall be given to
any of us.

8. If we agreed that the initial partnership capital should remain

at P200, you should pay me 950.
9. Continuing #8 above, your initial capital credit would be P100
instead of P150.

10. If we agreed that the initial partnership capital should be

P300, I should provide additional cash of P100 to the business.

PROBLEMS:

1. On January 1, 2020, Mr. A and Ms. B formed a partnership. Mr. A

contributed cash of ₱500,000 while Ms. B contributed a building
with carrying amount of ₱400,000 and fair value of ₱800,000.
The building has an unpaid mortgage of ₱200,000 which is not
assumed by the partnership.

Requirement: Provide the journal entry to record the

contributions of the partners.

2. A and B formed a partnership. The following are their

contributions:

A B

Cash 500,000 -
Accounts
receivable 100,000 -
Building 700,000

Total 600,000 700,000

A, capital 600,000
B, capital 700,000

Total 600,000 700,000

Additional information:
• The accounts receivable includes a ₱20,000 account that is
deemed uncollectible.
• The building is over-depreciated by ₱50,000.
• The building has an unpaid mortgage ₱100,000, which is assumed
by the partnership.

Requirement: Provide the journal entry to record the contributions

of the partners in the partnership books.
3. A and B agreed to form a partnership. A contributed ₱40,000 cash
while B contributed equipment with fair value of ₱100,000.
However due to the expertise that A will be bringing to the
partnership, the partners agreed that they should initially have
a 60:40 in the partnership capital.

II: PARTNERSHIP OPERATION

True or False- Answers beside the number. If false, correct

the statement by crossing the wrong word(s) or amounts(s) and place
your correction above it.

_____1. Partner’s regular cash withdrawal is credited to a

separate withdrawal account.

_____2. In closing the accounts at the end of a period, the

partners' capital accounts are credited for their share of
the partnership loss or debited for their share of the
partnership net income

_____3. The statement of changes in partners' equity shows the

beginning balance only in the capital accounts if the
accountant uses the fixed capital method.

_____4. The statement of changes in partners’ equity should present

regular salary drawings as a reduction from equity whether
salary allowances withdrawn are of the same amount or not as
agreed in their profit sharing agreement.

_____5. If partners devote their time and services to their

partnership, their salaries should be presented as expenses.

_____6. An industrial partner may receive salary allowance but not

interest profit.

_____7. A limited partner may receive interest profit and salary

allowance.

_____8. Reggie is a partner in Time To Sleep. An analysis of her

capital account indicates that during the year, her residual
share was a loss of P16,000 after a salary allowance of
P20,000 which she withdrew during the year. Her total loss
share for the year was P36,000.
_____9. Refer to. No. 8. If Reggie’s capital account at the end of
the year reached P150,000 after she made an additional mid
year contribution of P10,000, her capital balance at the
start of the year must have been P144,000 including beginning
drawing balance.

_____10. The accountant briefly explained this entry as cash

investment of Helen with bonus given by the other
partners:

Cash 900,000
Ben Chan, Capital 50,000

Rose Jocson, Capital 50,000

Helen Reyes, Capital 800,000

PROBLEMS

I. The JR Asia Consultancy Firm which is owned and managed by two

CPAS, Joffre and Ric started operation on March 31, 2015. Initial
investments of the partners are: Mat P800,000 and Stella P400,000.
Profit agreement as shown in the articles of co-partnership
follows:

Distribute profit by giving partners a 6.75% interest on

contributions, a 10% bonus treated as a distribution of profit
to Mat, remaining profit divided equally as both are CPAs.

1. If profit at the end of Dec 31 is reported as P200,000, how

much will be Mat’s profit share?

2. If Stella earns a total profit share of P69,750 at the

end of 2015, how much will Mat earn?

3. Stella was not satisfied with the agreement. She wants

the bonus to be 10% after interest and bonus. If Stella earns
P69,750, how much will the bonus be?
II. Beth, Luz and Ana established an internet shop and agreed to
divide profit and loss in the ratio of 2:1:1 respectively, after
giving a monthly salary of P10,000 to each partner and bonus of
20% to Beth. What is the profit share of Beth based on the
following independent situations?

4. Net taxable income earned is P480,000 and 20% bonus is

based on net income before salaries but after bonus and the
tax rate is 30%.

5. Net income after salaries but before tax and bonus is P480,000.
20% bonus is based on net income after tax, salaries and bonus.

6. Net income is P480,000 including salaries and bonus. 20% Bonus

is based on net income before salaries but after bonus.

7. Net income is P480,000 before salaries bonus and tax.

Bonus is based on net income after salaries, bonus and tax.
Salaries and bonus are treated as deductible expenses . Tax
rate is 30%.

PARTNERSHIP DISSOLUTION

Problem 1. Assume that A and B share profits and losses equally.

C is to be as a partner by contributing cash to the firm. The
capital balances of A and B before the admission of C are as
follows:

A, Capital P32,000

B. Capital 40,000

Total P72,000

Required: Prepare a table showing the equity structure under each

of the following cases:
Case 1. Bonus to old partners. C invests P48, 000 for a one-third
interest in the partnership. The total agreed capital of the new
firm is P120, 000.

Case 2. Bonus to new partner. C invests P24, 000 for a one-third

interest in the partnership. The total agreed capital of the new
firm is P96, 000.

Problem 2. Assume that A and B share profits and losses 60:40. C

is to be as a partner by contributing cash to the firm. The capital
balances of A and B before the admission of C are as follows:

A, Capital P26,000

B. Capital 10,000

Total P36,000

Required: Prepare a table showing the equity structure under each

of the following cases:

Case 1. Bonus to new partner. C invests P10, 000 for a one-fourth

interest in the new partnership.

Case 2. Bonus to old partners. C invests P10, 000 for a 20% interest
in the new partnership.

Problem 3. Ferraro, Castillo, and Franco have equities in a

partnership of P500,000, P800,000, and P700,000, respectively, and
share profits and losses in a ratio of 5:3:2, respectively. The
partners have agreed to admit Retada to the partnership.

Required: Calculate the capital balances of each of the partner

after admission of the new partner.
Problem 4. After intangible assets have been adjusted to fair
values, the capital accounts of Rey Refozar and Rogelio Ceradoy
have balances of P75,000 and P125,000, respectively. Elmer
Dimayuga is to be admitted to the partnership, contributing P50,000
cash to the partnership, for which he is to receive an equity of
P65,000. All partners share equally in profit.

Required: Calculate the capital balances of each of the partner

after admission of the new partner.

Problem 5. The partnership of Angel Investors began operations on

January 1, 2020, with contributions from two partners as follows:

Angel Samson P1,200,000

Jr.

Amalia Dela
Cruz 800,000

The following additional partner transactions took place during

the year:

1. In early January, Renante Balocating is admitted to the

partnership by contributing P500,000 cash for a 20% interest.
2. Profit of P2,500,000 was earned in 2020. In addition, Angel
Samson Jr. received a salary allowance of P450,000 for the
 year. The three partners agreed to an income-sharing ratio
equal to their capital balances after admitting Balocating.
3. The partners’ withdrawals are equal to half of the increase
in their capital balances from salary allowances and profit.
Required: Prepare a statement of changes in partners’s equity for
the year ended December 31, 2020.