PRACTICAL ACCOUNTING 2

THEORY & PRACTICE

ADVANCE ACCOUNTING
PARTNERSHIP – FORMATION & ADMISSION
QUIZZER
 Partnership Formation & Admission of a
Partner
Partnership

I. Introduction
A partnership is defined as an association of two or more persons who contributes
money, property or industry to a common fund with the intention of dividing the profits
among themselves. Accounting for partnerships should comply with the legal
requirements as set forth by the Partnership Law as Well as complying with the
partnership agreement itself.

//. Partnership Formation and Capital Accounts

All assets contributed to the partnership are recorded by the partnership at their agreed
values (or fair market values, in the absence of agreed values). All liabilities that the
partnership assumes are recorded at their net present values. Thus, if a partner
contributes a noncash asset to the partnership (e.g., land or equipment) subject to
mortgage, the contributing partner's capital account is credited for the agreed value (or fair
values) of the noncash asset less the mortgage assumed by the partnership.
The capital account is an equity account similar to the shareholders' equity accounts
in a corporation. It is used to account for permanent withdrawals and additional
contributions. Other important accounts include a drawing account and loans to or
from partners. The drawing account is used to account for net income or loss and
personal or normal withdrawals, i.e., share against net income. It is closed at the end
of the period into the capital account. Loan accounts are set up for amounts intended
as loans, rather than as additional capital investments. In liquidation proceedings, a
loan to or from a partner is in essence treated as an increase or decrease in a partner's
capital account.

///.Division of Profits and Losses

As a rule profits and losses are allocated based on agreement.
Methods
Various methods
Exist for the division of partnership profits and losses including the following:
1. Equally,
2. Arbitrary ratio,
3. Capital contribution ratio:
a. Original Capital or initial investment
b. Beginning Capital of each year
c. Average Capital
d. Ending Capital of each year
4. Interest on capital balance and/or loan balances and the balance on agreed ratio,

Partnership Formation & Admission of a Partner - Page

Lecture 3
Advance Accounting
5. Salaries to partners and the balance on agreed ratio,
6. Bonus to partners and the balance on agreed ratio,

Partnership Formation & Admission of a Page

Partner 4
 a. Bonus as an "expense" in computing the bonus amount. Here, bonus is
computed based on net income after bonus.
b. Bonus as a distribution of profit. Here, the bonus is computed based on net
income before deducting the bonus.
7. Interest on capitals and/or loan balances, salaries to partners, and bonus to partner
and the balance on agreed ratio.
The method of division to be used in any given situation is generally the method specified
in the partnership agreement. This agreement must always be consulted first, since it is
legally binding on the partners. If no profit and loss sharing arrangement is specified in the
partnership agreement, the partnership requires that profits and losses be shared
according to capital contribution. Capital contribution should be interpreted to be original
capital/beginning capital of each year in the absence of original capital; similarly, if the
agreement specifies how profits are to be shared but is silent as to losses, losses are
to be shared in the same manner as profits. Notice that the profit and loss sharing
ratio is totally independent of the partners' ownership interests. Thus, two partners may
have ownership interests of 70% and 30% but share profits and losses equally.

IV. Dissolution
A. Admission of a New Partner
A new partner may be admitted to the partnership by purchasing the interest of one or
more of the existing partners or by contributing cash or other assets (i.e., investment
of additional capital). These two situations are discussed below.
1. Purchase of Interest - When a new partner enters the partnership by purchasing
the interest of an existing partner, the price paid for that interest is irrelevant to
the partnership accounting records because it is a private or personal transaction
between the buyer and seller. The assets and liabilities of the partnership are not
affected. The capital account of the new partner is recorded by merely reclassifying
the capital account of the old partner.
2. Admission by Investment of Additional Assets - A new partner may be granted
an interest in the partnership in exchange for contributed assets and/or goodwill
(e.g., business expertise, an established clientele, etc.). The admission of the new
partner and contribution of assets may be recorded on the basis of the bonus
method.
Bonus method
This method is based upon the historical cost principle. Admittance of a new partner
involves debiting cash or other assets for the FMV of the assets contributed and
crediting the new partner's capital for the agreed (i.e., purchased) percentage of total
capital. Total capital equals the book value of the net assets prior to admittance of the
new partner, plus the FMV of the assets contributed by the new partner. A difference
between the FMV of the assets contributed
 and the interest granted to the new partner results in the recognition of a bonus.
a. No bonus recognized - When an incoming partner's capital account (ownership
interest) is to be equal to his purchase price, the partnership books merely debit
cash or other assets and credit capital.
b. Bonus granted to the old partners - When the FMV of the assets contributed by
an incoming partner exceeds the amount of ownership interest to be credited to his
capital account, the old partners recognize a bonus equal to this excess. This bonus
is allocated on the basis of the same ratio used for income allocation (unless
otherwise specified in the partnership agreement). Recording involves crediting
the old partners' capital accounts by the allocated amounts.
c. Bonus granted to new partner - An incoming partner may contribute assets
having a FMV smaller than the partnership interest granted to that new partner.
Similarly, the new partner may not contribute any assets at all. The incoming partner
is therefore presumed to contribute an intangible asset, such as managerial expertise
or personal business reputation. In this case, a bonus is granted to the new partner,
and the capital accounts of the old partners are reduced on the basis of their profit
and loss ratio.
Goodwill method.
In PFRS No. 3, goodwill represents the excess of the cost of the business combination
over the fair value of the identifiable net assets obtained. Therefore, the standard
provides that goodwill attaches only to a business as a whole and is recognized only
when a business is acquired. This provision of PFRS No. 3 outlawed the use of the
goodwill method in partnership accounting particularly admission and retirement of a
partner because there is no business involved. The term "business" is defined in the
Appendix A of PFRS No. 3 as:
An integrated set of activities and assets conducted and managed for the purpose of
providing:
{a) a return to investor; or
[b) Lower costs or other economic benefits directly and proportionately to policyholders
or participants.
A business generally consists of inputs, processes applied to those inputs, and
resulting outputs that are, or will be, used to generate revenues. If goodwill is present in a
transferred set of activities and assets, the transferred set shall be presumed to be a
business.
Refer to Appendix of this chapter for further discussion and illustration.
Note to the Examinees:
According to PFRS No. 3, goodwill represents the excess of the cost of the business
combination over the fair value of the identifiable net assets obtained. Therefore, the
standard provides that goodwill attaches only to a business as a whole and is recognized
only when a business is acquired. This provision of PFRS No. 3 outlawed the use of the
goodwill method in partnership particularly admission and retirement of a partner because
there is no business involved.
 Advance Accounting

MCQ - Theory
1. Which of the following is not a characteristic of most
partnership?
a. Limited liability c. Mutual agency
b. Limited life d. Ease of formation Punzalan 2014

2. Which of the following is not a characteristic of the proprietary theory that

influences accounting for partnerships?
a. Partners' salaries are viewed as a distribution of income rather than a component of
net income.
b. A partnership is not viewed as separate entity, distinct, taxable entity.
c. A partnership is characterized by limited liability,
d. Changes in the ownership structure of a partnership result in the dissolution of
the partnership. Punzalan 2014

3. Which of the following statements is correct with respect to a limited partnership?

a. A limited partner may not be an unsecured creditor of the limited partnership.
b. A general partner may not also be limited partner at the same time.
c. A general partner may be a secured creditor of the limited partnership.
d. A limited partnership can be formed with limited liability for all partners. Punzalan
2014

4. An advantage of the partnership as a form of business organization would be

a. Partners do not pay income taxes on their share in. partnership income.
b. A partnership is bound by the act of the partners.
c. A partnership is created by mere agreements of the partners. Punzalan 2014
d. A partnership may be terminated by the death or withdrawal of a partner.

5. When property other than cash is invested in a partnership, at what amount should the
noncash property be credited to the contributing partner's capital account?
a. Fair value at the date of contribution.
b. Contributing partner's original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner's tax basis. Punzalan 2014

6. Partnership capital and drawings accounts are similar to the corporate

a. Paid in capital, retained earnings, and dividends accounts.
b. Retained earnings account.
c. Paid in capital and retained earnings accounts.
d. Preferred and common stock accounts. Punzalan 2014
Partnership Formation & Admission of a Partner MCQ Page 6
Theoy
7. The Flat and Iron partnership agreement provides for Flat to receive a 20% bonus on
profits before bonus. Remaining profits and losses are divided between Flat and Iron in
the ratio of 2:3, respectively. Which partner has a greater advantage when the partnership
has a profit or when it has a loss?

Profit Loss Profit Loss

a. Flat Iron c. Iron Flat
b. Flat Flat d. Iron Iron Punzalan 2014

8. If the partnership agreement does not specify how income is to be allocated, profits and
loss should be allocated
a. Equally.
b. In proportion to the weighted average of capital invested during the period.
c. Equitably so that partners are compensated for the time and effort expended on
behalf of the partnership.
d. In accordance with their capital contribution. Punzalan 2014

9. Which of the following is not a component of the formula used to distribute income?
a. Salary allocation to those partners working.
b. After all other allocation, the remainder divided according to the profit and loss
sharing ratio.
c. Interest on the average capital investments,
d. Interest on notes to partners. Punzalan 2014

10. Which of the following is not considered a legitimate expense of a partnership?

a. Interest paid to partners based on the amount of invested capital.
b. Depreciation on assets contributed to the partnership by partners.
c. Salaries for management hired to run the business.
d. Supplies used in the partners' offices. Punzalan 2014

11. The fact that salaries paid to partners are not a component of partnership income is
indicative of
a. A departure from generally accepted accounting principles.
b. Being characteristic of the entity theory.
c. Being characteristic of the proprietary theory.
d. Why partnerships are characterized by unlimited liability. Punzalan 2014
12. If a new partner acquires a partnership interest directly from the partners rather than from
the partnership itself,
a. No entry is required.
b. The partnership assets should be revalued.
c. The existing partners' capital accounts should be reduced and the new partner's
account increased.
d. The partnership has undergone a quasi-reorganization. Punzalan 2014

13. Which of the following results in dissolution of a partnership?

a. The contribution of additional assets to the partnership by an existing partner.
b. The receipt of a draw by an existing partner.
c. The winding up of the partnership and the distribution of remaining assets to
the partners.
d. The withdrawal of a partner from a partnership. Punzalan 2014

14. When a new partner is admitted to a partnership, an original partner's capital account
may be adjusted for
a. A proportionate share of the incoming partner's investment.
b. His or her share of previously unrecorded intangible assets traceable to the
original partners.
c. His or her share of previously unrecorded intangible assets traceable to the
incoming partner.
d. None of the above. Punzalan 2014

15. Which of the following best characterizes the bonus method of recording a new
partner's investment in a partnership?
a. Net assets of the previous partnership are not revalued.
b. The new partner's initial capital balance is equal to his or her investment.
c. Assuming that recorded assets are properly valued, the book value of the new
partnership is equal to the book value of the previous partnership and the investment
of the new partner. Punzalan 2014
d. The bonus always results in an increase to the previous partners capital balances.

16. If goodwill is traceable to the previous partners, it is

a. Allocated among the previous partners according to their interest in capital.
b. Allocated among the previous partners only if there are not other assets to be
revalued.
c. Allocated among the previous partners according to their original profit and loss
sharing percentages.
d. Not possible for goodwill to also be traceable to the incoming partner. Punzalan 2014
17. The goodwill and the bonus methods are two means of adjusting for differences between
the net book value and the fair market value of partnership when new partners are
admitted. Which of the following statements about these methods is correct?
a. The bonus method does not revalue assets to market values.
b. The bonus method revalues assets to market values.
c. Both methods result in the same balances in the partner capital accounts.
d. Both methods result in the same total value of partner capital account, but the
individual capital account vary. Punzalan 2014

18. The following is the priority sequence in which liquidation proceeds will be distributed
for a partnership:

a. Partnership drawings, partnership liabilities, partnership loans, partnership capital

balances
b. Partnership liabilities, partnership loans, partnership capital balances.
c. Partnership liabilities, partnership loans, partnership drawings, partnership capital
balances. Punzalan 2014
d. Partnership liabilities, partnership capital balances, partnership loans.

19. The doctrine of marshaling of assets

a. Is applicable only if the partnership is insolvent.
b. Allows partners to first contribute personal assets to unsatisfied partnership creditors.
c. Is applicable if either the partnership is insolvent or individual partners are insolvent.
d. Amount owed to personal creditors and to the partnership for debit capital balances
are shared proportionately from the personal assets of the partners. Punzalan 2014

20. In the liquidation of a partnership it is necessary to (1.) distribute cash to the partners; (2.)
sell non-cash assets; (3.) allocate any gain or loss on realization to the partners; and
(4.) pay liabilities. These steps should be performed in the following order:
a. (2),(3),(4),(1)
b. (2), (3), (1), (4)
c. (3), (2), (1), (4)
d. (3), (2), (4), (T) Punzalan 2014
21. In the AA-BB partnership, AA and BB had a capital ratio of 3:1 and a profit and loss
ratio of 2:1, respectively. The bonus method was used to record CC's admittance as a
new partner. What ratio would be used to allocate, to AA and BB, the excess of CC's
contribution over the amount credited to CC's capital account?
a. AA and BB's new relative ratio.
b. AA and BB's new relative profit and loss ratio.
c. AA and BB's old capital ratio.
d. AA and BB's old profit and loss ratio. Dayag 2013

22. The FF and II partnership agreement provides for FF to receive a 20% bonus on
profits before the bonus. Remaining profits and losses are divided between FF and II in
the ratio of 2 to 3, respectively. Which partner has a greater advantage when the
partnership has a profit or when it has a loss?
Profit Loss
a. FF II
b. FF FF
c. II FF
d. II II Dayag 2013
 Partnership Formation & Admission of a
Partner
MCQ - Problems
FORMATION
No Bonus, No Revaluation
Cash Contributed by Partner
23. As of July 1, 2012, 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

Accounts Payable P135,000 P240,000

FF, capital 570,000
GG, capital - 495,000
Total P705,000 P735,000
The partners agreed that the machinery and equipment of FF is under depreciated 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. 142,500 c. 172,500
b. 52,500 d. 102,500 Dayag 2013

24. Mary admits Jane as a partner in the business. Balance sheet accounts of Mary just
before the admission of Jane show: Cash, P26,000, Accounts receivable, PI20,000,
Merchandise inventory, PI80,000, and Accounts payable, P62,000. It' was agreed
that for purposes of establishing Mary's interest, the following adjustments be made: 1.)
an allowance for doubtful accounts of 3% of accounts receivable is to be established; 2.)
merchandise inventory is to be adjusted upward by P25,000; and 3.) prepaid expenses of
P3,600 and accrued liabilities of P4,000 are to be recognized.

If Jane is to invest sufficient cash to obtain 2/5 interest in the partnership, how much
would Jane contribute to the new partnership?
a. 176,000 c. 95,000
b. 190,000 d. 113,980 Punzalan 2014

Partnership Formation & Admission of a Partner MCQ Page

Problems 11
25. Red, White, and Blue form a partnership on May 1,2013. They agree that Red will contribute
office equipment with a total fair value of P40,000; White will contribute delivery
equipment with a fair value of P80,000; and Blue will contribute cash. If Blue wants a
one third interest in the capital and profits, he should contribute cash of:
a. P 40,000 c. P60,000
b. P120,000 d. P180,000 Guerrero 2013

Noncash Contribution
26. On December 1, 2012, EE and FF formed a partnership, agreeing to share for profits
and losses in the ratio of 2:3, respectively. EE invested a parcel of 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. 25,000 c. 60,000
b. 30,000 d. 50,000 Dayag 2013

27. On May 1, 2010, Cobb and Mott formed a partnership and agreed to share profits and
losses in the ratio of 3:7, respectively. Cobb contributed a parcel of land that cost him
PI0,000. Mott contributed P40,000 cash. The land was sold for PI8,000 on May 1, 2010,
immediately after formation of the partnership. What amount should be recorded in Cobb's
capital account on formation of the partnership?
a. 18,000 c. 15,000
b. 17,400 d. 10,000 Punzalan 2014

28. On July 1,2013, Monuz and Pardo form a partnership, agreeing to share profits and
losses in the ratio of 4:6, respectively. Monuz contributed a parcel of land that cost him
P25,000. Pardo contributed P50,000 cash. The land was sold for P50,000 on July
1,2013 four hours after formation of the partnership. How much should be recorded in
Monuz capital account on formation of the partnership?
a. PI0,000 c. P25,000
b. P20,000 d. P50,000 Guerrero 2013
Cash, noncash contribution
29. Jones and Smith formed a partnership with each partner contributing the following
items:
Jones Smith
Cash P 80,000 P40,000
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
B. P260,O00 PI 80,000
C. P360,O00 P260,000
D. P500,000 P300,000
a. Option A c. Option C
b. Option B d. Option D Dayag 2013

Questions 1 & 2 are based on the following: Dayag 2013

30. On March 1, 2012, II and JJ formed a partnership with each contributing the following
assets:
II JJ
Cash P300,000 P700,000
Machinery and equipment 250,000 750,000
Building - 2,250,000
Furniture and fixtures 100,000
The building is subject to mortgage loan of P800,000, which is to be assumed by the
partnership agreement provides that II and JJ share profits and losses 30% and
70%, respectively. On March 1, 2012 the balance in JJ's capital account should be:
a. 3,700,000 c. 3,050,000
b. 3,140,000 d. 2,900,000

31. The same information in Number 2, except that the mortgage loan is not assumed by
the partnership. On March 1, 2012 the balance in JJ's capital account should be:
a. 3,700,000 c. 3,050,000
b. 3,140,000 d. 2,900,000
32. On January 2, 2010, Abel, Cain, and Josuah formed a partnership. Abel contributed cash
of PI00,000 and a delivery equipment that originally costs him PI20,000, but with a second
hand value of P50,000. Cain contributed PI60,000 in cash. Josuah, whose family
sells office equipment, contributed P50,000 in cash and office equipment that cost his
family's dealership PI00,000 but with a regular selling price of PI20,000. In 2010, the
partnership reported net income of P 120,000. On December 31, 2010, what would
be the capital balance of the partners?
Abel Cain Josuah
a. 257,500 200,000 192,500
b. 190,000 200,000 210,000
c. 260,000 200,000 190,000
d. 187,500 200,000 212,500 Punzalan 2014

33. Roberts and Smith drafted a partnership agreement that lists the following assets
contributed at the partnership's formation:

Contributed by
Roberts Smith
Cash P20,000 P30,000
Inventory 15,000
Building 40,000
Furniture & equipment 15,000

The building is subject to a mortgage of PI0,000, which the partnership has assumed.
The partnership agreement also specifies that profits and losses are to be distributed
evenly. What amounts should be recorded as capital for Roberts and Smith at the
formation of the partnership?
Roberts Smith
a. 35,000 85,000
b. 35,000 75,000
c. 55,000 55,000
d. 60,000 60,000 Punzalan 2014

34. Ben, Joe and Fortune are new CPA's and are to form a partnership. Ben is to contribute
cash of P50,000 and his computer originally costing P60,000 but has a second hand value of
P25,000. Joe is to contribute cash of P80,000. Fortune, whose family is selling computers, is to
contribute cash of P25,000 and a brand new computer plus printer with regular price at
P60,000 but which cost their family's computer dealership, P50,000. Partners agree to
share profits equally.
 The capital balances upon formation are:
a. Ben, P 75,000; Joe, P80,000; and Fortune, P85,000.
b. Ben, P110,000; Joe, P80,000; and Fortune, P75,000.
c. Ben, P 80,000; Joe, P80,000; and Fortune, P80,000.
d. Ben, P 88,333; Joe, P88,333; and Fortune, P88,335. Guerrero 2013

Cash, noncash contribution, assumption of debt

35. On April 30, 2010, Alex, Benjie, and Cesar formed a partnership by combining their
separate business proprietorships. Alex contributed cash of P500,000. Benjie contributed
property with a P360,000 carrying amount, a P400,000 original cost, and P800,000 fair
market value. The partnership accepted responsibility for the P3 50,000 mortgage attached
to the property. Cesar contributed equipment with a P300,000 carrying amount, a P750,000
original cost, and P5 50,000 fair value. The partnership agreement specifies that profits and
losses are to be shared equally but is silent regarding capital contributions. What are
partners
the capitalatbalances
April 30,of2010?
the
Alex Benjie Cesar
a. 500,000 800,000 550,000
b. 500,000 450,000 550,000
c. 500,000 360,000 300,000
d. 500,000 400,000 750,000 Punzalan 2014

On March 1,2013, Santos and Pablo formed a partnership with each contributing the following
36. assets.
Santos Pablo
Cash P30,000 P70,000
Machinery and equipment 25,000 75,000
Building - 225,000
Furniture and fixtures 10,000 -
The building is subject to a mortgage loan of P80,000, which is to be assumed by the
partnership. The partnership agreement provides that Santos and Pablo share profits and
losses 30% and 70%, respectively. On March 1, 2013 the balance in Pablo's capital
account should be:
a. P290,000 c. P314,000
b. P305,000 d. P370,000 Guerrero 2013

Partner with biggest capital balance

37. On April 30, 2012, XX, YY and ZZ formed a partnership by combining their separate
business proprietorships. XX contributed cash of P75.000. YY contributed property with a
P54.000 carrying amount, a P60,000 original cost, and PI20,000 fair value. The
partnership accepted responsibility for the P52.500 mortgage attached to the property. ZZ
contributed equipment with a P45.000 carrying amount, a PI 12,500 original cost, and
P82.500 fair value.
 The partnership agreement specifies that profits and losses are to be shared equally but is
silent regarding capital contributions. Which partner has the largest April 30, 2012, capital
balance?
a. XX c. ZZ Dayag 2013
b. YY d. All capital account balances are equal

38. On April 30, 2010, Al, Ben, and Ces formed a partnership by combining their separate
business proprietorships. Al contributed cash of P50,000. Ben contributed property with a
P36,000 carrying amount, a P40,000 original cost, and P80,000 fair value. The
partnership accepted responsibility for the P35,000 mortgage attached to the property.
Ces contributed equipment with a P3 0,000 carrying amount, a P75,000 original cost,
and P55,000 fair value. The partnership agreement specifies that profits and losses are
to be shared equally but is silent regarding capital contributions.

Which partner has the largest capital account balance at April 30, 2010?
a. Ai c. Ces Punzalan 2014
b. Ben d. All capital balances are equal

Bonus Method
Adjustment to Unidentifiable Net Assets
39. RR and XX formed a partnership and agreed to divide initial capital equally, even though
RR contributed P25,000 and XX contributed P21,000 in identifiable assets. Under the
bonus approach to adjust the capital accounts. XX's unidentifiable assets should be
debited for:
a. 11,500 c. 2,000
b. 4,000 d. 0 Dayag 2013

Cash Settlement
40. Aldo, Bert, and Chris formed a partnership on April 30, with the following assets, measured at
their fair values, contributed by each partner:
Aldo Bert Chris
Cash PI 0,000 PI2,000 P30.000
Delivery trucks 150,000 28,000
Computers 8,500 5,100
Office furniture 3,500 2,500
Totals PI 68,500 P48,600 P32,500
Although Chris has contributed the most cash to the partnership, he did not have the full
amount of P30,000 available and was forced to borrow P20,000. The delivery truck
contributed by Aldo has a mortgage of P90,000 and the partnership is to assume
responsibility for the loan.
The partners agreed to equalize their interest.
 Cash settlement among the partners are to be made outside the partnership. Using the Bonus
Method:
a. Bert and Chris should pay Aldo, P4,600 and P20,700 respectively.
b. Aldo should pay Bert and Chris, P25,300.
c. Bert should pay Aldo, P2.5,300 and Chris, P20,700.
d. Chris should pay Aldo, P25,300 and Bert, P4,600. Guerrero 2013

Revaluation
Net adjustments to partners' capital
41. On March 1,2013, Jose and Kiko decides to combine their businesses to form a
partnership. Statement of financial position on March 1 before the formation,
showed the following:

Jose Kiko
Cash P9,000 P3,750
Accounts receivable 18,500 13,500
Inventories 30,000 19,500
Furniture and fixture (net) 30,000 9,000
Office equipment (net) 11,500 2,750
Prepaid expenses 6,375 3,000
Total PI 05,375 P51,500
Accounts payable P45/750 P18,000
Capital 59,625 33,500
Total PI 05,375 P51,500
They agreed to following adjustments before the formation:
a. Provide 2% allowance for doubtful accounts.
b. Jose's furniture should be valued at P31,000, while Kiko's office equipment is
underdepreciated by P250.
c. Rent expense incurred previously by Jose was not yet recorded amounting to P1,000,
while salary expense incurred by Kiko was not also recorded amounting to P800.
d. The fair value of inventories amounted to P29,500 for Jose and P21,000 for Kiko.

The net (debit) credit adjustment to partner's capital accounts are:

Jose Kiko
a. (P2,870) (P2,820)
b. P1,870 P2,820
c. P 870 (P180)
d. (P870) P 180 Guerrero 2013
Withdrawal by a partner
42. Cong and Dong have just formed a partnership. Cong contributed cash of P126,000 and
computer equipment that cost P54,000. The computer had been used in his sole
proprietorship and had been depreciated to P24,000. The fair value of the equipment is
P36,000. Cong also contributed a note payable of PI2,000 to be assumed by the
partnership. Cong is to have 60% interest in the partnership. Dong contributed only
P90,000 cash.
Cong should make an additional investment (withdrawal) of:
a. P96,000 c. (P 7 6,800)
b. 84,000 d. (P15,000) Guerrero 2013

Partners’ Contribution
43. On June 1, 2013, May and Nora formed a partnership. May 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 total capital to P210,000 which is 70% of the total capital of the
partnership.
Details regarding the book values of May's business assets and liabilities and their
corresponding valuations are:

Book Agreed
values valuations
Accounts receivable P58,000 P58,000
Allowance for doubtful accounts 4,200 5,000
Merchandise inventory 98,400 107,000
Store equipment 32,000 32,000
Accumulated depreciation - Store equipment 19,000 16,400
Office equipment 27,000 27,000
Accumulated depreciation - Office equipment 14,200 8,600
Accounts payable 56,000 56,000

Nora agrees to invest cash of P42,000 and merchandise valued at current market price. The
value of the merchandise to be invested by Nora and the cash to be invested by May
are:
a. P 90,000 and P 62,000 respectively
b. P 252,000 and PI38,000 respectively
c. P 48,000 and PI38,000 respectively
d. P 48,000 and P 62,000 respectively Guerrero 2013
Partner's adjusted capital balances
44. 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 PI 13,000
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,P8i;000 d. AA, P65,000; BB, P81.000 Dayag 2013

45. On January 1, 2010, Atta and Boy agreed to form a partnership contributing their
respective assets and equities subject to adjustments. On that date, the following
were provided;

Atta Boy
Cash P28,000 P62,000
Accounts receivable 200,000 600,000
Inventories 120,000 200,000
Land 600,000
Building 500,000
Furniture & fixtures 50,000 35,000
Intangible assets 2,000 3,000
Accounts payable 180,000 250,000
Other liabilities 200,000 350,000
Capital 620,000 800,000

The following adjustments were agreed upon:

a. Accounts receivable of P20.000 and P40,000 are uncollectible in A's and B's
respective books.
b. Inventories of P6,000 and P7,000 are worthless in A's and B's respective books.
c. Intangible assets are to be written off in both books.
What will be the capital balances of the partners after adjustments?
Atta Boy
a. 592,000 750,000
b. 600,000 700,000
c. 592,000 756,300
d. 600,000 750,000 Punzalan 2014

46. The business assets and liabilities of John and Paul appear below:
John Paul
Cash PI 1,000 P22,354
Accounts receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building - 428,267
Furniture and fixtures 50,345 34,789
Other Assets 2,000 3,600
Total , PI,020,916 P 1,317,002

Accounts payable 178,940 243,6050

Notes payable 200,000 345,000
John, capital 641,976
Paul, capital - 728,352
Total P 1,020,916 1,317,002
John and Paul agreed to form a partnership contributing their respective assets and equities
subject to the following adjustments:
a. Accounts receivable of P20,000 in John's books and P35,000 in Paul's are
uncollectible.
b. Inventories of P5,500 and P6,700 are worthless in John's and Paul's respective
books.
c. Other assets of P2,000 and P3,600 in John's and Paul's respective books are to be
written off.
The capital account of the partners after the adjustments will be:
a. John's P614,476
Paul's 683,052
b. John's P615,942
Paul's 717,894
c. John's P 649,876
Paul's 712,345
d. John's P613,576
Paul's 683,350
Guerrero 2013
47. On March 1,2013, Eva and Helen decides to combine their businesses and form a
partnership. Statement of financial position on March 1, before adjustments, showed the
following:

Eva Helen
Cash P9,000 P3,750
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 6375 3,000
Total P105375 P51,500
Accounts payable 45,750 18,000
Capital 59,625 33,500
Total P105375 P51,500
They agreed to provide 3% for doubtful accounts receivable, and also agree that Helen's
furniture and fixture are underdepreciated by P900.
If each partner's share in equity is to be equal to the net assets invested, the capital accounts
of Eva and Helen would be:
a. PI04,820 and P50,195, respectively
b. P59,070 and P32,195, respectively
c. P58,320 and P32,945, respectively
d. P58,170 and P33,095, respectively Guerrero 2013

Goodwil
48. On September 1,2013, the business assets and liabilities of Amor and Bhea were as
follows:

Amor Bhea
Cash P28,000 P62,000
Accounts receivable 200,000 600,000
Inventories 120,000 200,000
Land 600,000
Building - 500,000
Furniture and fixtures 50,000 35,000
Other assets 2,000 3,000
Accounts payable 180,000 250,000
Notes payable 200,000 350,000
 Amor and Bhea agreed to form a partnership contributing, their respective assets and
liabilities subject to the following agreements:
a. Accounts receivable of P20,000 in Amor's books and P40,000 in Bhea's books are
uncollectible.
b. Inventories of P6,000 and P7,000 are obsolete in Amor's and Bhea's respective
books.
c. Other assets of P2,000 and P3,000 in Amor's and Bhea's rspective books are to be
written off.
d. Accrued expenses of P2,000 and P5,000 in Amor's and Bhea's books are to be
recognized.
e. Goodwill is to be recognized to equalize their capital accounts after the above
adjustments. The amount of goodwill-to be recognized is:
a. P155,000 c. P151,000
b. P158,000 d. P159,000. Guerrero 2013

Comprehensive
Questions 1 thru 4 are based on the following: Dayag 2013
49. The partnership of A, B, C, and D has agreed to combine with the partnership of X and
Y. The individual capital accounts and profit and loss sharing percentage of each partner
follow:
P &L Sharing
% Capital Accounts Now Proposed
A P 50,000 40 28
B 35,000 30 21
C 40,000 20 14
D 25,000 10 7
150,000 100 70
X P 60,000 50 15
Y 40,000 50 15
P100,000 100 30
A, B, C, and D's partnership has undervalued tangible assets of P20.000, and X and Y
partnership has undervalued tangible assets of P8,000. All the partners agree that:
(a)the partnership of A, B, C, and D possesses goodwill of P30,000 and
(b)the partnership of X and Y possesses goodwill of P10,000.
The combined businesses will continue to use the general ledger of A, B, C, and D.
Assume that tangible assets are to be revalued and goodwill is to be recorded. Compute
the amount of goodwill recognized in the partnership books:
a. Zero c. 40.000
b. 30,000 d. 68,000
50. Using the same information in No. 49, compute the capital balances of A and X
respectively: a. A, P70,000; X, P69.000 c. A,
P58,000; X, P64,000
b. A, P62,000; X, P65,000 d. A, P50,000; X, P60,000

51. Using the same information in No. 49 except that bonus method is to be used with
respect to undervalued assets and goodwill. Compute the amount of goodwill recognized
in the books:
a. Zero c. 40,000
b. P30,000 d. 68,000

52. Using the same information in No. 49 except that bonus method is to be used with
respect to undervalued assets and goodwill. Compute the capital balances of A and X,
respectively:
a. A, P70,000; X, P69.000 c. A, P58.000; X, P64,000
b. A, P50.000; X, P60.000 d. A, P50,960; X, P58,800

Questions 1 thru 3 are based on the following: Dayag 2013

53. On March 1, 2012, PP and QQ decide to combine their businesses and form a
partnership. Their balance sheets on March 1, before adjustments, showed the following:
PP QQ
Cash 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
Total P105,375 P51.500

Accounts payable P 45,750 P18,000

Capital 59,625 33,500
Total P105.375 P51.50
They agreed to have the following items recorded in their books:
1. 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
PI,000, while salary expense incurred by QQ was not also recorded
amounting to P800.
4. 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. 2,870 2,820 c. (870) 180
b. (2,870) (2,820) d. 870 (180)

54. The same information in Number 11, compute the total liabilities after
information: a. 61,950 c. 65,550
b. 63,750 d. 63,950
55. The same information in Number 11, compute the total assets after
information: a. 157,985 c. 160,765
b. 156,875 d. 152,985

Questions 1 & 2 are based on the following: Dayag 2013

56. The business assets of LL and MM appear below:
LL MM
Cash P11,000 P22,354
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 P178,940 P243,650
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 P6700 are worthless in LL's and MM's respective books.
c. Other assets of P2.000 and P3.600 in LL's and MM's respective books are to be
written off.
The capital account of the partners after the adjustments will be:
a. LL, P615,942; MM, P717,894 c. LL, P640.876; MM, P683,050
b. LL,P640,876; MM, P712,345 d. LL, P614,476; MM, P683,052
57. The same information in Number 56, how much total assets does the partnership have
after formation?
a. 2,337,918 c. 2,265,118
b. 2,237,918 d. 2,365,218

58. MM, NN, and OO are partners with capital balances on December 31, 2012 of
P300,000, P300,000 and P200,000, respectively. Profits are shared equally. OO 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) P5,000eachforMM, NN and OO, (2) P145,000.
c. (1) P5,000 each for MM, NN and OO, (2) P195,000.
d. (1) P7,500eachforMMandNN, (2) P145,000. Dayag 2013

59. CC admits DD as a partner in business. Accounts in the ledger for CC on November

30, 2012, just before the admission of DD, show the following balances:
Cash P 6,800
Accounts receivable 14,200
Merchandise inventory 20,000
Accounts payable 8,000
CC, capital 33,000
It is agreed that for purposes of establishing CC's 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.
(c) Prepaid salary expenses of P600 and accrued rent expense of P800 are to
be recognized.
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) PI 1,971 c. (1) P35,374; (2) P17,687
b. (1) 36,374; (2) 18,487 d. (1) 28,174; (2) 14,087 Dayag 2013
Questions 1 & 2 are based on the following: Punzalan 2014
The Grey and Redd Partnership was formed on January 2, 2010, Under the partnership
agreement, each partner has an equal initial capital balance. Partnership net income or loss is
allocated 60% to Grey and 40% to Redd. To form the partnership, Grey originally contributed
assets costing P3 0,000 with a fair value of P60,000 on January 2, 2010, and Redd contributed
P20,000 cash. Drawings by the partners during 2010 totaled P3,000 by Grey and P9,000 by
Redd. The partnership net income in 2010 was P25,000.

60. Under the goodwill method, what is Redd's initial capital balance in the
partnership? a. 20,000 c. 40,000
b. 25,000 d. 60,000

61. Under the bonus method, what is the amount of bonus?

a. 20,000 bonus to Grey c. 40,000 bonus to Grey
b. 20,000 bonus to Redd d. 40,000 bonus to Redd

62. The partnership of Perez and Reyes was formed on March 31,2013. On this date,
Perez invested P50,000 cash and office equipment valued at P30,000. Reyes in¬
vested P70.000 cash, merchandise valued at PI 10,000, and furniture valued at P100,000,
subject to a notes payable of P50,000 (which the partnership assumes). The partnership
provides that Perez and Reyes share profits and losses 25:75, respectively. The
agreement further provides that the partners should initially have, an equal interest in the
partnership capital. Under the goodwill and the bonus method, what is the total capital of the
partners after the formation?
Bonus Goodwill Method
a. P310,000 P4 60,000
b. P360,000 P510,000
c. P3 00,000 P410,000
d. P3 50,000 P 400,000 Guerrero 2013

ADMISSION
Assignment of Interest
63. Capital balances and profit and loss sharing ratios of the partners in the BIG
Entertainment Gallery are as follows:
Betty, capital (50%) P140.000
Iggy, capital (30%) 160,000
Grabby, capital (20%) 100,000
Total P400,000
 Betty needs money and agrees to assign half of her interest in the partnership to
Yessir for P90,000 cash. Yessir pays directly to Betty. Yessir does not become a
partner. What is the total capital of the BIG Partnership immediately after the assignment
of the interest to Yessir? a. 310,000 c. 490,000
b. 200,000 d. 400,000 Dayag 2013

By Purchase
New partner's capital balance
No Revaluation of Assets
64. Ranken purchases 50% of Lark's capital interest in the K and L partnership for P22,000. If
the capital balances of Kim and Lark are P40.000 and P30,000, respectively, Ranken's
capital balance following the purchase is
a. 22,000 c. 20,000
b. 35,000 d. 15,000 Punzalan 2014

Bonus Method
65. On June 30, 2012, the balance sheet of Western Marketing, a partnership, is
summarized as follows:
Sundry assets P150,000
West, capital 90,000
Tern, capital 60,000
West and Tern share profit and losses at a 60:40 ratio, respectively. They agreed to
take in Cuba as a new partner, who purchases 1/8 interest of West and Tern for P25,000.
What is the amount of Cuba's capital to be taken up in the partnership books if book value
method is used? a. 12,500 c. 25,000
b. 18,750 d. 31,250 Dayag 2013

66. Partners Andy, Boy and Ken sharing profit and loss based on 4:3:2 ratio have the
following condensed statement of financial position:
Total assets P1,880,000

Liabilities P480,000
Andy, capital 620,000
Boy, capital 400,000
Ken, capital 380,000
Total liabilities and capital P1,880,000
 Dondon will be admitted as a new partner for 20% interest after he pays the three partners
with a minimum of 10%. Thus, the old partner will have to transfer to Dondon 20% of
their interest.
a. P376,000 c. P350,000
b. P280,000 d. P200,000 Guerrero 2013

67. Moonbits partnership had a net income of P8,000.00 for the month ended September
30,2013. Sunshine purchased an interest in the Moonbits partnership of Liz and Dick
by paying Liz P32,000 for half of her capital and half of her 50% percent profit sharing
interest on October 1,2013. At this time Liz capital balance was P24,000 and Dick capital
balance was P56,000. Liz should receive a debit to her capital account of:
a. P12,000 c. P16,000
b. P20,000 d. P26,667 Guerrero 2013

Realized gains of old partners

68. The capital accounts of the partnership of NN, VV, and JJ on June 1, 2011 are
presented below with their respective profit and loss ratios:
NN P139,200 1/2
W 208,800 1/3
JJ 96,000 1/6
On June 1, 2011, LL is admitted to the partnership when LL purchased, for PI32,000,
a proportionate interest from NN and JJ in the net assets and profits of the
partnership. As a result of a transaction LL acquired a one fifth interest in the net
assets and profits of the firm. What is the combined gain realized by NN and JJ upon the
sale of a portion of their interest in the partnership to LL?
a. 0 c. 62,400
b. 43,200 d. 82,000 Dayag 2013

Partner's balance after admission of new partner

69. Presented below is the condensed balance sheet of the partnership of KK,
LL and MM who share profits and losses in the ratio of 6:3:1, respectively:
Cash P 85,000 Liabilities P80,000
Other assets 415,000 KK, capital 252,000
LL, capital 126,000
MM, capital 42,000
Total P500,000 Total P500,000
The partner agree to sell NN 20% of their respective capital and profit and loss interests for a
total payment of P90,000. The payment by NN is to be made directly to the individual partners.
The capital balances of KK, LL and MM, respectively after admission of NN are:
a. P198,000; P 99,000: P33,000.
b. P201,600; P100,800; P33.600.
c. P216,000; P108,000; P36,000.
d. P255,600; P127,800; P42,600. Dayag 2013

70. Presented below is the condensed statement of financial position of the partnership of Go,
Lee and Mao who share profits and losses in the ratio of 6:3:1, respectively:

Cash P85,000 Liabilities P80,000

Other assets 415,000 Go, capital 252,000
Lee, capital 126,000
Mao, capital 42,000
Total P500,000 Total P500,000

The partner agree to sell Gaw 20% of their respective capital and profit and loss interest for a total
payment of P90,000. The payment by Gaw is to be made directly to the individual partners. The
partners agree that implied goodwill is to be recorded prior to-the acquisition by Gaw. The capital
balance of Go, Lee, and Mao respectively after admission of Gaw are:
a. PI98.000; P 99,000 P33,000.
b. P201,600; PI 00,800 P33,600.
c. P216,000; PI08,000 P3 6,000.
d. P255,600; PI26,799 P42,000. Guerrero 2013

71. A, B and C are partners who share profits and losses in the ratio of 5:3:2,
respectively. They agree to sell D 25% of their respective capital and profits and
losses ratio for a total payment directly to the partners in the amount of P140,000,00.
They agree that goodwill of P60,000.00 is to be recorded prior to admission of D. The
condensed statement of financial position of the ABC Partnership is presented in the
next page.

Cash P 60,000 Liabilities PI00,000

Non-cash assets 540,000 A, Capital 250,000
B, Capital 150,000
C, Capital 100,000
Total P600,000 Total P600,000
The capital of A, B and C, respectively after the payment and admission of D are:
A B C
a. P187,500; PU2,500; P 75,000;
b. P210,000; PI26,000; P 84,000;
c. P280,000; PI68,000; P112,000;
d. P250,000; PI50,000; PI00,000; Guerrero 2013

Payment to Old Partners

72. PP contributed P24.000 and CC contributed P48.000 to form a partnership, and they
agreed to share profits in the ratio of their original capital contributions. During the
first year of operations, they made a profit of PI 6,290; PP withdrew P5,050 and CC
P8,000. At the start of the following year, they agreed to admit GG into the partnership.
He was to receive a one- fourth interest in the capital and profits upon payment of
P30.000 to PP and CC, whose capital accounts were to be reduced by transfers to
GG's capital account of amounts sufficient to bring them back to their original capital
ratio.

How should the P30.000 paid by GG be divided between PP and CC? Dayag
2013 a. PP,P 9,825; CC, P20,175. c.
PP,P10,000; CC, P20,000.
b. PP.P15,000; CC, PI5,000 d. PP,P 9,300; CC, P20,700

73. The following information pertains to ABC Partnership of Amor, Bing,

and Cora:
Amor, capital (20%) P200,000
Bing, capital (30%) 200,000
Cora, capital (50%) 300,000
On this date, the partners agreed to admit Dolly into the partnership.

Assuming Dolly purchased fifty percent of the partners capital and pays P500,000 to the old
partners, how would this amount be distributed to them?
a. 100,000 150,000 250,000
b. 130,000 145,000 225,000
c. 166,667 166,667 166,666
d. 150,000 150,000 200,000 Punzalan 2014
By Investment
Interest/Capital Ratio
74. Partnership A has an existing capital of P70,000. Two partners currently own the
partnership and split profits 50/50. A new partner is to be admitted and will contribute net
assets with a fair value of P90,000. For no goodwill or bonus (depending on whichever
method is used) to be recognized, what is the interest in the partnership granted the
new partner?
a. 33.33% c. 56.25%
b. 50.00% d. 75.00% Punzalan 2014

Cash contribution of new partner

75. The following condensed balance sheet is presented for the partnership of LL, PP, and
QQ, who share profits and losses in the ratio of 4:3:3, respectively:

Cash P 90,000
Other assets 830,000
LL, loan 20,000
P940,000

Accounts payable P210,000

QQ, loan 30,000
LL, capital 310,000
PP, capital 200,000
QQ, capital 190,000
P940.000

Assume that the assets and liabilities are fairly valued on the balance sheet and that
the partnership decides to admit FF as a new partner, with a 20% interest. No goodwill or
bonus is to be recorded. How much should FF contribute in cash or other assets?
a. 140,000 c. 175,000
b. 142,000 d. 177,500 Dayag 2013
76. Partners AA, BB, and CC divide profits and losses 5:3:2, respectively, and their
balance sheet on September 30, 2012 is as follows:

ABC Partnership
Balance Sheet
September 30,2012

Cash P 80,000
Other assets 720,000
Total assets P800,000

Accounts payable P200,000

AA, capital 148,000
BB, capital 260,000
CC, capital 192,000
Total liabilities and capital P800,000

The assets and liabilities are recorded at approximate current fair values. DD is to be
admitted as a new partner with a 20% interest in capital and earnings in exchange for a
cash investment. Goodwill or bonus will not be considered. How much cash should
DD contribute?
a. 120,000 c. 150,000
b. 144,000 d. 160,000 Dayag 2013

77. The following balance sheet is presented for the partnership of A, B, and C, who share
profits and losses in the respectively ratio of 5:3:2.

Assets Liabilities and Capital

Cash 120,000 Liabilities 280,000
Other assets 1,080,000 A, capital 560,000
B, capital 320,000
C, capital 40,000
Total 1,200,000 Total 1,200,000

Assume that the assets and liabilities are fairly valued on the balance sheet, and the
partnership decided to admit D as a new partner with a one-fifth interest and no
goodwill or bonus is to be recorded. How much should D contribute in cash or other
assets?
a. 147,200 c. 230,000
b. 184,000 d. 240,000 Punzalan 2014
78. A condensed statement of financial position for Alba, Barba, and Clara appears below. Alba, Barba,
and Clara share profits and losses in a ratio of 2:3:5, respectively.
Assets
Cash P100,000
Inventory 125,000
Marketable Securities 200,000
Land 100,000
Building-net 500,000
Equities
Alba, capital P425,000
Barba, capital 400,000
Clara, capital 200,000
The partners agreed to admit Darna. The fair market value of the land is appraised at
P200,000 and the market value of the marketable securities is P250,000. The assets are to
be revalued prior to the admission of Darna and there is P30,000 goodwill that
attaches to the old partnership.
How much cash will Darna have to invest to acquire a (1) one-fifth interest? or a (2) four-fifth
interest?
a. (1) P301,250; (2) P4,820,000
b. (I) P205,000; (2) PI,205,000
c. (I) P241,000; (2) P2,410,000
d. (1) P300,000; (2) Pl,506,250 Guerrero 2013

79. The following is the condensed statement of financial position of the partnership Jo, Li
and Bi who share profits and losses in the ratio of 4:3:3.

Cash P 180,000 Accounts, payable P 420,000

Other assets 1,660,000 Bi,Loan 60,000
Jo, receivable 40,000 Jo, Capital 620,000
Li, Capital 400,000
Bi, Capital 380,000
Total P1,880,000 Total P1,880,000

Assume that the assets and liabilities are fairly valued on the balance sheet and the
partnership decides to admit Mac as a new partner, with a 20% interest. No goodwill or
bonus is to be recorded. How much Mac should contribute in cash or other assets?
a. P350,000 c. 355,000
b. P280,000 d. P284,000 Guerrero 2013
80. Partners Alba, Basco, and Castro share profits and losses 50: 30:20, respectively.
The statement of financial position at April 30,2013 follows:

Cash P40,000 Accounts payable PI00,000

Other assets 360,000 Alba, capital 74,000
Basco, capital 130,000
Castro, capital 96,000
Total P400,000 Total P400,000

The assets and liabilities arc recorded and presented at their respective fair values, Jocson is
to be admitted as a new partner with a 20% capital interest and a 20% share of profits
and losses in exchange for a cash contribution. No goodwill or bonus is to be recorded.
How much cash should Jocson contribute?
a. P60,000 c. P75,000
b. P72,000 d. P80,000 Guerrero 2013

Goodwill
81. Dunn and Grey are partners with capital account balances of P60,000 and P90,000,
respectively. They agree to admit Zorn as a partner with one-third interest in capital and
profits, for an investment of P100,000, after revaluing the assets of Dunn and Grey.
Goodwill to the original partners should be
a. 0 c. 50,000
b. 33,333 d. 66,667 Punzalan 2014

Bonus to incoming partner

New Partner’s Capital Balance
82. OO and TT are partners with capital balances P60.000 and P20,000, respectively. Profits
and losses are divided in the ratio of 60:40. OO and TT decided to form a new
partnership with GG, who invested land valued at PI 5,000 for a 20% capital interest
in the new partnership. GG's cost of the land was PI2,000. The partnership elected
to use the bonus method to record the admission of GG into the partnership. GG's
capital account should be credited for: a. 12,000 c. 16,000
b. 15,000 d. 19,000 Dayag 2013
83. On January 31, 2011, partners of Lon, Mac & Nan, LLP, had the following loan and
capital account balances (after closing entries for January):

Loan receivable from Lon P 20,000 dr.

Loan payable to Nan 60,000 cr.
Lon, capital 30,000 dr.
Mac, capital 120,000 cr.
Nan, capital 70,000 cr.

The partnership's income sharing ratio was Lon, 50%; Mac, 20%, and Nan, 30%. On
January 31, 2011, Ole was admitted to the partnership for a 20% interest in total
capital of the partnership in exchange for an investment of P40,000 cash. Prior to
Ole's admission, the existing partners agreed to increase the carrying amount of the
partnership's inventories to current fair value, a P60,000 increase. The capital account
to be credited to Ole:
a. P60,000 c. P52,000
b. P40,000 d. P46.000 Dayag 2013

Original partner's capital balances

84. Blau and Rubi are partners who share profits and losses in the ratio of 6:4,
respectively. On May 1, 2010, their respective capital accounts were as follows:

Blau P60,000
Rubi 50,000

On that date, Lind was admitted as a partner with one-third interest in capital, and profits for
an investment of P40,000. The new partnership began with total capital of PI 50,000.
Immediately after Lind's admission, Blau's capital should
be a. 50,000 c.
56,667
b. 54,000 d. 60,000 Punzalan 2014

85. The partnership of Cat and Dog provides for 3:2 sharing in profits and losses. Prior to
the admission of a third partner Elf, the capital accounts are Cat, PI 20,000 and Dog,
P80,000. Elf invests P50,000 for a P75,000 interest and partners agreed that the net
assets of the new partnership would be P300,000.

How much is Dog's capital in the new partnership?

a. P105,000 c. P110,000
b. P90,000 d. P136,000 Guerrero 2013
86. Partners Chito and Ditas share profits in the ratio of 6:4 respectively. On December 31,
2013 their respective capital balances were Chito, P120,000 and Ditas, P100,000.
On that date Meng was admitted as partner with a one-third interest in capital and profits
for an investment of P80,000. The new partnership began in 2011 with total capital of
P300,000. Immediately after Meng's admission, Chito's capital should be:
a. P120,000 c. P100,000
b. P108,000 d. P160,000 Guerrero 2013

87. Ell and Emm are partners sharing profits 60% and 40%, respectively. On January 1,
Ell and Emm decided to admit Enn as a new partner upon his investment of P8,000. On
this date, their interests in the partnership are as follows: Ell, P11,500; Emm,P9,300.
Assuming that the new partner is given a 1/3 interest in the firm, with bonus being allowed the
new partner, the new capital balances of Ell, Emm and Enn, respectively, would be:
a. P11,500, P9,300, and P8,000
b. P12,480, P8,320, and P8,000
c. P11,520, P7,680, and P9,600
d. P 10,540, P8,660, and P9,600. Guerrero 2013

88. The capital account for the partnership of Lucas and Mateo at October 31, 2013
are as follows:

Lucas, capital P 80,000

Mateo, 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 Naron
as a partner with one-third in the capital and profits and losses upon his investment of P3
0,000. Immediately after Naron's admission, what should be the capital balance of Lucas,
Mateo and Naron respectively, assuming goodwill is not to be recognized?
a. P50,000; P50,000 P50,000.
b. P60,000; P60,000; P50,000.
c. P66,667; P33,333; P50,000.
d. P68,000; P32,000; P50,000. Guerrero 2013
 89. Carlos and Deo are partners who share profits and losses in the ratio of 7:3,
respectively. On October 5, 2013, their respective capital accounts were as
follows:
Carlos P35,000
Deo 30,000
On that date they agreed to admit Sotto as a partner with a one-third interest in the capital
and profits and losses, and upon his investment of P25,000. The new partnership will begin with
a total capital of P90,000. Immediately after Sotto's admission, what are the capital
balances of Carlos, Deo, and Sotto, respectively?
a. P30,000 P30,000; P30,000
b. P31,500 P28,500; P30,000
c. P31,667, P28,333; P3 0,000
d. P35,000 P3 0,000 P25,000 Guerrero 2013

Capital balance of all partners

90. The capital accounts for the partnership of LL and MM at October 31,2012 are as
follows:

LL, capital P 80,000

MM, capital 40,000
P120,000
The partners share profits and losses in the ratio of 3:2 respectively.
The partnership is in desperate need of cash, and the partners agree to admit NN 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 LL, MM and
NN respectively, assuming bonus is to be recognized?
Dayag 2013 a. P50.000; P50.000; P50,000. c. P66.667;
P33,333; P50,000.
b. P60.000; P60,000; P60,000. d. P68.000; P3Z000; P50,000.

91. CC and DD are partners who share profits and losses in the ratio of 7:3, respectively.
On October 21,2012, their respective capital accounts were as follows:

CC P35,000
DD 30,000
P65,000
On that date they agreed to admit EE as a partner with a one-third interest in the
capital and profits and losses, and upon his investment of P25,000. The new partnership
will begin with a total capital of P90.000. Immediately after EE's admission, what are the
capital balance of CC, DD, and EE, respectively? Dayag
2013
a. P30,000; P30,000; P30,000; c. P31.667; P28.333; P30.000;
b. P31,500; P28,500; P30,000; d. P35,000; P30,000; P25,000;
92. Pal and Mall are partners with capitals of P200,000 and P100,000 and sharing profits
and losses 3:1 respectively. They agree to admit Kent as partner, Kent invests P150,000
for a 50% interest in the firm. Pal and Mall transfer part of their capitals to Kent as a
bonus.

The capital balances of the partners after Kent's admission are:

a. Pal, P168,750; Mall, P56,250; and Kent, P225,000.

b. Pal, P112,500; Mall, P 37,500; and Kent, P150,000.
c. Pal, P200,000; Mall, P100,000; and Kent, P150,000.
d. Pal, P143,750; Mall, P 81,250; and Kent, P225,000 Guerrero 2013

Bonus to Original Partners

Capital balance of original partner
93. Mitz, Marc and Mart are partners sharing earnings in the ratio of 5:3:2 respectively.
As of December 31, 2010, their capital balance showed P95,000 for Mitz, P80,000 for
Marc, and P60,000 for Mart.
On January 1,2013 the partnership admitted Vince as a new partner and according to
the partnership agreement, Vince will contribute P80,000 in cash to the partnership and will also
pay PI 0,000.00 for 15% of Marc's share. Vince will share 20% in the earnings while the ratio
of the original partners will remain proportionately the same as before Vince admission.
After Vince' admission, the total capital of the partnership will be P330,000 while Vince'
capital account will be P70,000.

The balance of Marc's capital account after the admission of Vince would
be: a. P81,100 c. P74,600
b. P79,100 d. P72,600 Guerrero 2013

Bonus given to original

94. The capital balances in DEA Partnership are: D, capital P60,000; E, capital P50,000; and
A, capital P40,000 and income ratios are: 5:3:2, respectively. The DEAR Partnership is
formed by admitting R to the firm with cash investment of P60,000 for a 25% interest
in capital. What is the amount of bonus to be credited to A capital in admitting R?
a. 10,000 c. 3,750
b. 7,500 d. 1,500 Punzalan 2014

Capital balance of all partners

95. Pol and Loc are partners with capitals of P200,000 and PI00,000 and sharing profits
and losses 3:1 respectively. They agree to admit Chic as partner. Chic invests P125,000
for a 25% interest in the firm. Parties agree that the total firm capital after Chic's
admission is to be P425,000.
 The capital balance of the partners after Chic's admission are:
a. Pol, P214,062.50; Loc, P104,687.50; and Chic, P106,250.00
b. Pol, P200,000.00; Loc, P100,000.00; and Chic, P125,000.00
c. Pol, P239,062.50; Loc, P 79,687.50; and Chic, P125,000.00
d. Pol, P250,000.00; Loc, P125,000.00; and Chic, P100,000.00 Guerrero 2013

Revaluation
Original partner's capital balance
96. Gerber, Williams, and George are partners with present capital balances of P50,000,
P60,000, and P20,000, respectively. The partners share profit and losses according to the
following percentages: 60% for Gerber, 20% for Williams, and 20% for George.
Larsen is to join the partnership upon contributing P60,000 to the partnership in
exchange for a 25% interest in capital and a 20% interest in profits and losses. The
existing assets of the original partnership are undervalued by P22,000. The original
partners will share the balance of profits and losses in proportion to their original
percentages. What would be the capital balances of the old partners in the new
partnership using the goodwill method?
Gerber Williams George
a. 63,200 64,400 24,400
b. 93,200 74,400 34,400
c. 76,800 65,600 25,600
d. 80,000 70,000 30,000 Punzalan 2014

97. Rio, Sol, and Tom have a partnership. Their capital balances are P96,000, P72,000, and
P54,000, respectively. They split profits equally. They are considering on what basis to
admit Vic, a prospective new partner. Based on appraisal analysis, the net assets of the
partnership are worth P240,000. Vic is willing to put up cash of P24,000, plus a
computer with a fair value of P42,000.
Calculate the capital balances if the existing partners recognize the difference between the
fair value and book value of the partnership's net assets as goodwill.
a. Rio, P102,000; Sol, P78,000; Tom, P60,000; Vic, P66,000
b. Rio, 96,000; Sol, 72,000; Tom, 54,000; Vic, 66,000
c. Rio, 102,000; Sol, 78,000; Tom, 54,000; Vic, 66,000
d. Rio, 96,000; Sol, 78,000; Tom, 60,000; Vic, 66,000 Guerrero 2013
Capital balance of all partners
98. NN, OO, and PP are partners with present capital balances of P50,000, P60,000, and
P20,000, respectively. The partners share profits and losses according to the following
percentages; 60% for NN, 20% for OO, and 20% for PP, QQ is to join the partnership
upon contributing P20,000 cash, plus a machine with a fair market value of P40,000 to
the partnership in exchange for a 25% interest in the capital and a 20% interest in the
profits and losses. The existing assets of the original partnership are undervalued by
P22,000. The original partners will share the balance of profits and losses in their original
ratios.
Calculate the capital balances of each partner in the new partnership using goodwill
method.
NN OO PP QQ
a. P67,400; P65,800; P25,800; P53,000
b. P50,000; P60,000; P20,000; P60,000
c. P80,000; P70,000; P20,000; P20,000
d. P80,000; P70,000; P30,000; P60,000 Guerrero 2013

Comprehensive
Questions 1 thru 3 are based on the following: Dayag 2013
99. In the AD partnership, Allen's capital is P140,000 and Daniel's is P40,000 and they
share income in a 3:1 ratio, respectively. They decide to admit David to the partnership.
Each of the following questions is independent of the others.
Allen and Daniel agree that some of the inventory is obsolete. The inventory account
is decreased before David is admitted. David invests P40.000 for a one-fifth interest. What
is the amount of inventory written down?
a. P 4,000 c. P15,000
b. P10,000 d. P20,000

100. Using the same information in No. 99, David directly purchases a one-fifth interest by
paying Allen P34,000 and Daniel P10,000. The land account is increased before David is
admitted. By what amount is the land account increased?
a. P40.000 c. P20.000
b. P36.000 d. PI 0,000

101. Using the same information in No. 99, David invests P40.000 for a one-fifth interest in
the total capital of P220,000. The journal to record David's admission into the
partnership will include:
a. A credit to Cash for P40.000.
b. A debit to Allen, Capital for P3,000.
c. A credit to David, Capital for P40.000.
d. A credit to Daniel, Capital for P1,000
Questions 1 & 2 are based on the following: Punzalan 2014
Fernando and Jose are partners with capital balances of P30,000 and P70,000,
respectively. Fernando has a 30% interest in profits and losses. All assets of the
partnership are at fair market value except equipment with book value of P300,000 and fair
market value of P320,000. At this time, the partnership has decided to admit Rosa and Linda as
new partners. Rosa contributes cash of P55,000 for a 20% interest in capital and a 30% interest
in profits and losses. Linda contributes cash of P10,000 and an equipment with a fair market
value of P50,000 for a 25% interest in capital and a 35% interest in profits and losses. Linda is
also bringing special expertise and clients contact into the new partnership.
102. Using the bonus method, what is the amount of
bonus? a. 24,750
c. 14,000
b. 18,250 d. 7,500

103 Using the goodwill method, what is the amount of goodwill traceable to the original
partners? a. 60,000 c. 31,250
b. 40,000 d. 28,750

Questions 1 & 2 are based on the following: Punzalan 2014

Mitz, Marc, and Mart are partners sharing profits in the ratio of 5:3:2, respectively. As of
December 31, 2009, their capital balances were P95,000 for Mitz, P80,000 for Marc, and
P60,000 for Mart.
On January 1, 2010, the partners admitted Vince as a new partner and according to their
agreement, Vince will contribute P80,000 in cash to the partnership and also pay P10,000 for
15% of

Marc's share. Vince will be given a 20% share in profits, while the original partners' share
will be proportionately the same as before. After the admission of Vince, the total capital
will be P330,000 and Vince's capital will be P70,000.

104. The total amount of goodwill to the old partners, upon the admission of Vince would
be: a. 7,000 c. 22,000
b. 15,000 d. 37,000

105 The balance of Marc's capital, after the admission of Vince would
be: a. 72,600 . c.
79,100
b. 74,600 d. 81,100
106. Ace, Boy and Cid are partners sharing profits in the ratio of 3:3:2. On July 31, their
capital balances are as follows:
Ace P700,000
Boy 500,000
Cid 400,000

The partners agree to admit Deo on the following agreement:

1. Deo is to pay Ace P500,000 for 1/2 interest of Ace's interest.

2. Deo is also to invest P400,000 in the partnership.
3. The total capital of the partnership is to be P2,400,000, of which Dco's interest is to be
25% What are the capital balances of the partners after the admission of Deo?
Ace Boy Cid
a. P206,250 P206,250 PI 3 7,500
b. 350,000 500,000 400,000
c. 556,250 706,250 537,500
d. 500,000 400,000 350,000 Guerrero 2013

107. Partners Jay and Kay share profits in the ratio of 6:4, respectively. On December 31, 2010,
their respective accounts were Jay, P120,000 and Kay, P100,000. On that date, Loi was
admitted as partner with 1/3 interest in capital and profits for an investment of P80,000. The
new partnership began in 2013 with a total capital of P360,000. Immediately after Loi's
admission:

Amount of goodwill to Jay's capital account

be credited to Loi would be
a. P 40,000 PI 08,000
b. 20,000 120,000
c. 40,000 132,000
d. 60,000 132,000 Guerrero
2013
 Partnership Formation & Admission of a
Partner
ANSWER SHEET
1.A 26.D 51.A 76.C 101.B
2.C 27.A 52.D 77.C 102.B
3.C 28.D 53.C 78.A 103.C
4.C 29.C 54.C 79.A 104.B
5.A 30.D 55.A 80.C 105.C
6.A 31.A 56.D 81.C 106.C
7.B 32.D 57.C 82.D 107.C
8.D 33.B 58.B 83.C
9.D 34.A 59.C 84.B
10.A 35.B 60.B 85.B
11.C 36.A 61.D 86.B
12.C 37.C 62.A 87.D
13.D 38.C 63.D 88.D
14.C 39.D 64.D 89.B
15.C 40.A 65.B 90.D
16.C 41.D 66.B 91.B
17.A 42.D 67.A 92.D
18.B 43.D 68.B 93.B
19.C 44.D 69.B 94.D
20.A 45.A 70.C 95.A
21.D 46.A 71.B 96.D
22.B 47.B 72.D 97.A
23.C 48.A 73.B 98.D
24.B 49.C 74.B 99.D
25.C 50.A 75.C 100.A

ANSWER Page
KEY 43