Assignment 1.

1 - Partnership Formation and Operation

1. The business assets and liabilities of John and Paul appear below:
 John  Paul
Cash 11,000.00 22,354.00
Accounts Receivable 234,536.00 567,890.00
Inventories 120,035.00 260,102.00
Land 603,000.00  -
Building  - 428,267.00
Furniture and fixtures 50,345.00 34,789.00
Other Assets 2,000.00 3,600.00
Total 1,020,916.00 1,317,002.00

Accounts Payable 178,940.00 243,650.00

Notes Payable 200,000.00 345,000.00
John, Capital 641,976.00  -
Paul, Capital  - 728,352.00
Total 1,020,916.00 1,317,002.00

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:
ANSWER:
John Paul Partnership
Cash 11,000.00 22,354.00 33,354.00
Accounts Receivable 214,536.00 532,890.00 747,426.00
Inventories 114,535.00 253,402.00 367,937.00
Land 603,000.00 - 603,000.00
Building - 428,267.00 428,267.00
Furniture and fixtures 50,345.00 34,789.00 85,134.00
Other Assets - - -
TOTAL 993,416.00 1,271,702.00 2,265,118.00

Accounts Payable 178,940.00 243,650.00 422,590.00

Notes Payable 200,000.00 345,000.00 545,000.00
Adjusted Capital Balances 614,476.00 683,052.00 1,297,528.00

OR
John Paul

Capital balances before adjustments 641,976.00 728,352.00

Adjustments:
a. Uncollectible Accounts (20,000.00) (35,000.00)
b. Inventories written-off (5,500.00) (6,700.00)
c. Other assets written-off (2,000.00) (3,600.00)
Capital balance after adjustments 614,476.00 683,052.00
2. 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 10,000.00 12,000.00 30,000.00
Delivery trucks 150,000.00 28,000.00 -
Computers 8,500.00 5,100.00 -
Office furniture - 3,500.00   2,500.00
168,500.00 48,600.00 32,500.00

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 of 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, choose the correct answer and show
your solution.

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, P25,300 and Chris, P20,700.
d. Chris should pay Aldo, P25,300 and Bert, P4,600.
ANSWER:
Aldo Bert Chris Partnership
Cash 10,000.00 12,000.00 30,000.00 52,000.00
Delivery trucks 150,000.00 28,000.00 - 178,000.00
Computers 8,500.00 5,100.00 - 13,600.00
Office furniture - 3,500.00 2,500.00 6,000.00
Mortgage Payable (90,000.00) (90,000.00)
Net Contribution 78,500.00 48,600.00 32,500.00 159,600.00
Equal Interests 53,200.00 53,200.00 53,200.00 (159,600.00)
Cash receipt (payment) 25,300.00 (4,600.00) (20,700.00) 319,200.00

a. Bert and Chris should pay Aldo, P4,600 and P20,700 respectively.
 ANSWER:
3. Cong and Viy have just formed a partnership. Cong contributed cash of
Cong (60%)
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. Cash
The fair value of the equipment is P36,000. Cong also contributed a note Equipment
payable of P12,000 to be assumed by the partnership. Cong is to have 60% Note Payable
interest in the partnership. Viy contributed only P90,000 cash. TOTAL

Cong should make an additional investment (withdrawal) of: Cong, Capital

Divide by:
TOTAL
Multiply by:
Minimum Capital
Requirement of Viy
Viy's Capital
Additional
investment by Viy
Cong (60%) Viy (40%)
126,000.00 90,000.00
36,000.00 -
(12,000.00) -
150,000.00 90,000.00

150,000.00 Viy, Capital 90,000.00

60% Divide by: 40%
250,000.00 TOTAL 225,000.00
40% Multiply by: 60%
Minimum Capital
100,000.00 Requirement of Cong 135,000.00
90,000.00 Cong's Capital 150,000.00
Additional
10,000.00 (withdrawal) by Cong (15,000.00)
4. JJ and KK are partners who share profits and losses in the ratio of 60%:
40%, respectively. JJ's salary is P60,000 and P30,000 for KK. The partners
are also paid interest on their average capital balances. In 2019, JJ
received P30,000 of interest and KK, P12,000. The profit and loss
allocation is determined after deductions for the salary and interest
payments. If KK's share in the residual income (income after deducting
salaries and interest) was P60,000 in 2019, what was the total partnership
income?
ANSWER:
JJ KK Total
Salary 60,000.00 30,000.00 90,000.00
Interest on Capital 30,000.00 12,000.00 42,000.00
Share in Residual Income/Profit ? 60,000.00 150,000.00
Total Partnership Income 282,000.00

KK's share in residual income 60,000.00

Divide by: 40%
Partnership profit after salaries
and interests 150,000.00

OR

60,000 = 40% * (Pxx - 90,000 - 42,000)

60,000/40% = Pxx - 132,000
150,000 = Pxx - 132,000
Pxx = 150,000 + 132,000
Pxx = 282,000
5. HH, MM, and AA formed a partnership on January 1, 2020, and contributed
P150,000, P200,000, and P250,000, respectively. Their articles of co-partnership
provide that the operating income be shared among the partners as follows: salary,
P24,000 for HH, P18,000 for MM, and P12,000 for AA; interest of 12% on the
average capital during 2020 of the three partners; and the remainder in the ratio of
2:4:4, respectively.

The operating income for the year ending December 31, 2020 amounted to
P176,000. HH contributed additional capital of P30,000 on July 1 and made a
drawing of P10,000 on October1; MM contributed additional capital of P20,000 on
August 1 and made a drawing of P10,000 on October 1; and AA made a drawing of
P30,000 on November 1.

The partners' capital balances on December 31, 2020 are:

ANSWER:
HH MM AA Total
Amount being allocated 176,000.00
Salaries 24,000.00 18,000.00 12,000.00 54,000.00
Interest 19,500.00 24,700.00 29,400.00 73,600.00
Remaining Profit 9,680.00 19,360.00 19,360.00 48,400.00
As allocated 53,180.00 62,060.00 60,760.00 176,000.00
Capital, beginning 150,000.00 200,000.00 250,000.00
Additional capital 30,000.00 20,000.00
Withdrawal (10,000.00) (10,000.00) (30,000.00)
Capital, ending 223,180.00 272,060.00 280,760.00

Weighted Average:
Capital, beginning 150,000.00 200,000.00 250,000.00
Additional capital 15,000.00 8,333.33
Withdrawal (2,500.00) (2,500.00) (5,000.00)
TOTAL 162,500.00 205,833.33 245,000.00
6. On January 2, 2020, Berlin and Oslo formed a partnership. Berlin contributed
capital of P175,000 and Oslo, P25,000. They agreed to share profits and losses 80%
and 20%, respectively. Oslo is the general manager and works in the partnership full
time and is given a salary of P5,000 a month; an interest of 5% of the beginning
capital (of both partner) and a bonus of 15% of net income before the salary, interest
and the bonus.

The profit and loss statement of the partnership for the year ended December 31,
2020 is as follows:

Net Sales        875,000.00

Cost of goods sold -      700,000.00
Gross profit        175,000.00
Expenses (including the salary,
-      143,000.00
interest and the bonus)
Net Income          32,000.00

The amount of bonus to Oslo in 2020 amounted to:

ANSWER:
Net income 32,000.00
Add back: Salary 60,000.00
Add back: Interest 10,000.00
Profit before salary and interest 102,000.00

Profit before salary and interest 102,000.00

Divide by: 85%
Profit before salary, interest and bonus 120,000.00
Multiply by Bonus Rate: 15%
Bonus 18,000.00

OR

Bonus = 15% * (NI before salaries, interest and bonus)

B = 15% * (32,000 + salaries + interest + B)
B = 15% * (32,000 + 60,000 + 10,000 + B)
B = 15% * (102,000 + B)
B = 15,300 + 15%B
0.85B = 15,300
B = 18,000
7. Ay, Bee, and Ci are partners in an accounting firm. Their capital account balances
at year-end were Ay P90,000; Bee P110,000; and Ci P50,000. They share profits and
losses on a 4:4:2 ratio, after the following special terms:

1. Partner Ci is to receive a bonus of 10% of net income after the bonus.

2. Interests of 10% shall be paid on that portion of a partner's capital in excess of P100,000.
3. Salaries of P10,000 and P12,000 shall be paid to partners Ay & Ci respectively.

Assuming a net income of P44,000 for the year, the total profit share of Partner Ci was:
ANSWER:
Ay Bee Ci Total
1. Bonus - - 4,000.00 4,000.00
2. Interest - 1,000.00 - 1,000.00
3. Salaries 10,000.00 - 12,000.00 22,000.00
Share in Remaining Profit 6,800.00 6,800.00 3,400.00 17,000.00
Net Income 16,800.00 7,800.00 19,400.00 44,000.00

Bonus = 10% * (NI - Bonus)

B = 10% * (44,000 - B)
B = 4,400 - 10%B
1.10B = 4,400
B = 4,000