QUIZ 2

Problem 1
K, I, and M are partners with capital balances on December 31. 2019 of 300,000, 300,000 and 200,000
respectively. Profits are shared equally. M wishes to withdraw, and it is agreed that M is to take certain
equipment with second-hand value of 50,000 and a note for the balance of M’s interest. The equipment
are carried on the books at 65,000. Brand new equipment may cost 80,000.
Compute for:
a. M’s acquisition of the second-hand equipment will result to reduction in capital
b. The value of the note that will M get from the partnership’s liquidation.

Problem 2
AS of July 1 2020, C and M decided to form a partnership. Their balance sheets on this date are:
C M
Cash 15,000 37,500
Accounts Receivable 540,000 225,000
Merchandise Inventory - 202,500
Machinery and Equipment 150,000 270,000
Accounts Payable 135,000 240,000
C, Capital 570,000
M, Capital 495,000
The partners agreed that the machinery and equipment of C is underpredicted by 15,000 and that of M
y 45,000. Allowance for doubtful accounts is to be set up amounting to 120,000 for C and 45,000 for M.
The partnership agreement provides for a profit and loss ratio and capital interest of 60% to I and 40%
to M. How much cash must C invest to bring the partners’ capital balances proportionate to their profit
and loss ratio?
Solution:
C M
Cash P15,000.00 P37,500.00
Accounts Receivable 540,000.00 225,000.00
Allowance for Dobtful accounts (120,000.00) (45.000.00)
Merchandise Inventpory - 202,500.00
Machinery and equipment 165,000.00 315,000.00
Accounts Payable 135,000.00 240,000.00
C, Capital 465,000.00
M, Capital 495,000.00
M’s Capital P495,000.00
Divided by 40%
Total capital P1,237,500.00
Problem 3Less: M’s capital (495,000.00)
C’s Capital (465,000.00)
Cash C must invest P277,500.00

PROBLEM 3
C M
Cash 11,000 22,354
Accounts Receivable 234,536 567,890
Merchandise Inventory 120,035 260,102
Land 603,000 -
Building - 428,267
Furniture and Fixtures 50,345 34,789
Other Assets 2,000 3,600
Accounts Payable 178,940 243,650
Notes Payable 200,000 345,000
C, Capital 641,976
M, Capital 728,352
C and M agreed to form a partnership by contributing their respective assets and equities subject to the
following adjustments:
a. Accounts receivable of 20,000 in C’s books and 35,000 in M’s are uncollectible
b. Inventories of 5,500 and 6,700 are worthless in C’s and M’s respective books.
c. Other assets of 2,000 and 3,600 in C’s and M’s respective books are to be written off.
Compute for
a.) The capital account of the partners after the adjustments
Solution:
C M
Capital before adjustment P64,976.00 P728,352.00
Uncollectible A/R (20,000.00) (35,000.00)
Inventory Worthless (5,500.00) (6,700.00)
Other Assets Written off (2,000.00) (3,600.00)
Capital after the adjustment P614,476.00 P638,052.00

b.) How much total assets does the partnership have after formation?
Accounts Receivable 234,536 567,890
Merchandise Inventory 120,035 260,102
Land 603,000 -
Building - 428,267
Furniture and Fixtures 50,345 34,789

C M
Capital after the P614,476.00 P638,052.00
adjustment
Accounts Payable 178,940.00 243,650.00
Notes payable 200,000.00 345,000.00
Total assets of P993,416.00 P1,271,702.00 P2,265,118.00
partnership

Problem 4
Irene is trying to decide whether to accept a salary of 40,000 or a salary of 25,000 plus a bonus of 10% of
net income after salary and bonus as a means of allocating profit among the partners. Salaries traceable
to other partners are estimated to be 100,000. What amount of income would be necessary so that
Irene would consider the choices to be equal?
Solution:
P15,000=10% (profit-Bonus-Salaries)
P15,000=10%P-15,000-125,000
P15,000=10%P-1,500-12,500=10%P
P29,000=10%
P29,000/10%=10%P/10%
= P290,000

Problem 5
The partnership of D and B was formed and commenced operations on March 1 2020, with D
contributing 30,000 cash and B investing cash of 10,000 and equipment with an agreed upon valuation
of 20,000. On July 1 2020, B invested an additional 10,000 in the partnership. D made a capital
withdrawal of 4,000 on May 2 2020 but reinvested the 4,000 on Oct 1 2020. During 2020, D withdrew P
800 per month and B, the managing partner, withdrew 1,000 per month. These drawings were charged
to salary expense. A preclosing trial balance taken at December 31, 2020:
Debit Credit
Cash 9,000
Receivable – net 15,000
Equipment – net 50,000
Other assets 19,000
Liabilities 17,000
D, Capital 30,000
B, Capital 40,000
Service Revenue 50,000
Supplies Expense 17,000
Utilities expense 4,000
Salaries to partners 18,000
Other miscellaneous exp 5,000
Total 137,000 137,000

Compute for the share of D and B in the partnership income assuming monthly salary allowances of P
800 and P 1,000 for D and B respectively; interest allowance at a 12% annual rate on average capital
balances ad remaining profits allocated equally.

Problem 6
Jennie, Lisa, Jisoo and Rosie own a publishing company that they operate as a partnership. The
partnership agreement includes the following:
- Jennie receives a salary of 20,000 and a bonus of 3% of income after all bonuses.
- Lisa receives a salary of 10,000 and a bonus of 2% of income after all bonuses.
- All partners are to receive 10% interest on their average capital balances.
The average capital balances are as follows: Jennie 50,000, Lisa 45,000, Jisoo 20,000 and Rosie 47,000.
Any remaining profit and loss are to be divided equally among the partners. Determine how a profit of
105,000 would be allocated among the partners.
ANSWER:
Jennie=P41,450
Lisa=P29,950
Jisoo=P15,450
Rosie=P15,150

Problem 7
Irene and Mae are partners sharing profits 60% and 40% respectively. The average profits for the part 2
years are to be capitalized at 20% per year (for purposes of admitting a new partner) in determining the
aggregate capital of Irene and Mae, after adjusting the profits for the following items omitted from the
books:

Omissions at year-end 2019 2020

Prepaid Expense 1,600
Accrued Expense 1,,200
Deferred Income 1400
Accrued Income 1,000
Other pertinent information are as follows:
2019 2020
Net income of partnership 14,400 13,600
Capital accounts; end of the year:
Irene 45,400 54,000
Mae 45,000 55,000

Compute for the aggregate capital of Irene and Mae after capitalizing the average profits at 20% per
annum.

Problem 8
C and L are in partnership, sharing profits equally and preparing their accounts to 31 December each
year. On July 1 2020, B joined in the partnership and form that date profits are shared 40%, 40% and
20%. In the year ended 31 December 2020 profits were: 6 months to 31 June 2020 is 200,000 and on 6
months to 31 December 2020 is 300,000. It was agreed that C and L only should bear equally the
expenses for a bad debt of 40,000 written-off in the six months to 31 December 2020 in arriving at the
profit of 300,000. How much is the share of C, L and B in the profit for the year?
Solution:
6 months to June 30,2020 20x5 (50% x 200,000) P100,000.00
6 months to December 20x5(40% x 340,000) 136,000.00
Balance 236,00.00
Less: Irrecoverable Debt (50% X 40,000) 20,000.00
C’s profit share P216,000.00

6 months to June 30, 2020 20x5 (50% x 200,000) P100,000.00

6 months to December 20x5(40% x 340,000) 136,000.00
Balance 236,00.00
Less: Irrecoverable Debt (50% X 40,000) 20,000.00
L’s profit share P216,000.00

6 Months to 31 December 2020 (20%x 340,000) P68,000.00

B’s Profit share P68,000.00