Partnership Accounting PROBLEM A: Conor admits Khabib as a partner in business. Just before the partnership's formation, Conor's books showed the following: Cash 2,600 Accounts receivable 12,000 Merchandise inventory 18,000 Accounts payable 6,200 Conor, capital 26,400 It was agreed that, for purposes of establishing Conor's investment in the firm, the following adjustments shall be reflected ¢ Allowance for bad debts of 2% should be set up. Merchandise inventory should be valued at P20,200. + Prepaid expenses of P3560 and accrued expenses of P400 should be recognized, 1. How much is the adjusted capital of Conor prior to admission of Khabib? A. 14,155 B. 26,400 C. 28,310 D. 28,410 How much cash should Khabib invest to secure a one-third interest in the partnership? A. 14,155 B. 26,400 C. 28,310 D. 28,410 If Khabib contributed an equipment with carrying value of P4,000 and fair value of P4,500, how much cash was contributed for a one-fifth interest in the partnership? A. 2,577.50 B. 7,077.50 C. 14,155.00 D. 35,387.50Partnership Accounting ‘Suggested solution (1.C;2.A;3.A): 1.6 (Conor Capital A=L+ CAPITAL Unadjusted 26,400. = + ine Asset or dec Liability (ABD) 240 12,000 x 2%| Inventory 2,200 20,200 - 48,000] Pre. Exp 350 increase in assets ‘Aco. Exp 400 (increase in abit) Adjusted 28,310 before formation DA ig ae (4) Tec (3) Iconor(a'3) | P 28,310 Khabib(1/3) VP 14,155} 28,310 x3/2= 42,465] 0 >? 3A TCC [Conor(4/5) — 28,310.00|Less Equipment at fy = Cash (3) ——_——_—_—_> IKhabib( 1/5) 7,077.50| - (4,500.00) = 2,577.50} [28,310 x6/4 35,387.51 iPartnership Accounting PROBLEM B: On January 1, 2020, the business assets and liabilities of John and Jones were as follows: rege a a Sea John Jones Cash P 35,000 P 90,000 Receivables 200,000 600,000 Inventories 113,000 172,000 Land, buildings, and equipment 650,000 535,000 Other assets 2,000 3,000 Accounts payable (180,000) (250,000) Notes payable (200,000) (350,000) John and Jones agreed to form a partnership by contributing their net asset subject to the following adjustments: © Receivables of P20,000 in John's books and P40,000 in Jones's books are uncollectible. ‘© Inventories of P6,000 and P7,000 in the respective books of John and Jones are worthless. © — Other assets in both books are to be written off. 4. Upon the partnership's formation, the respective capital of partners John and Jones would be? A. P592,000 and P 750,000 B. 620,000 and P 800,000 C. P592,000 and P 800,000 D. P 520,000 and P 750,000 ‘suggested solution: (A) JOHN JONES Unadjusted capital 620,000 800,000} (write-off AR) 20,000 40,000] (Write down Inventory) * 6,000 -7,000 (Write-of other assets) -2,000 -3,000 adjusted capital 592,000 750,000} ©Since the problem is silent as to the method and as to agreed capital ratio, the Net investment method shall be applied. aPartnership Accounting SS ee, 5. Under Bonus Method, if the partner agreed to have a capital ratio of 40:60 for John and Jones respectively, how much is the amount of bonus to or (from) John? ‘A. 85,200 bonus to John B. (55,200) bonus from John ; C. 79,000 bonus to John D. (79,000) bonus from Jones 6. Under Bonus Method, if the partner agreed to have a capital ratio of 40:60 for John and Jones respectively, how much is the adjusted capital of Jones? A. P 805,200 B. P750,000 C. P592,000 D. P536,800 suggested solution (6.8 and 6.4): ToC % TAC DrAGH) ] Entry: JOHN ~~ 592,000 40% ~ 636,800 55,200 | John, Capital—- 55,200 Jones, Capital-— 85,200 JONES 750,000 60% 805,200 —(55,200)| 1,342,000 1,342,000 *Since the problem is silent as to the total agreed capital, it shall be presumed that the adjusted total contributed capital (TCC) is equal to the total agreed capital (TAC). The TAC shall be multiplied by the agreed capital ratio of 40:60 to compute for the agreed capital credited to John and Jones, respectively. 7. Under Bonus Method, if the partner agreed to have a capital ratio of 60:40 for John and Jones respectively and they further agreed to have a total capital of P1,500,000, how much is the amount of bonus to or (from) John? A. 150,000 bonus to John B. (150,000) bonus from John C. 308,000 bonus to John D. (808,000) bonus from John 10Partnership Accounting 8. Under Bonus Method, If the partner agreed to have a capital ratio of 60:40 for John and Jones respectively, and they further agreed to have a total capital of P1,500,000, how much is the adjusted capital of John? A. P-900,000 B. P 750,000 C. P600,000 D. P592,000 ‘Suggested Solution (7.A and 8.A): JOHN JONES TCC % TAC Ori{Ch 592,000 60% ~ 900,000 = (308,000) 750,000 40% 600,000 = 150,000 “4,342,000 7,500,000 = (188,000) Entry: Asset——-——---~- 158,000 Jones, Capital --—- 150,000 John, — capital—~-308,000 *Since the problem provides for TAC of P 1,500,000, the TCC shall be used not for computing the amount of capital cr it to each partner but for purpose of computing the revaluation of asset amounting to P 158,000. The TAC shall be multiplied by the agreed capital ratio of 60:40 to compute for the agreed capital credited to John and Jones, respectively. 9. Ifthe partners agreed that John should withdraw or invest in order to have a capital ratio of 40%, how much should be the amount of additional investment or withdrawal? A. P-92,000 investment B. P92,000 withdrawal C. P296,000 investment D. P 296,000 withdrawal 10. If the partners agreed that John should withdraw or invest in order to have a capital ratio of 40%, how John and Jones? A. P592,000 and P 750,000 B. P.500,000 and P 750,000 1 much is the adjusted capital ofPartnership Accounting cc. 592,000 and P 688,000 1.888.000 and P 750,000 suggested soution (9.8 and 108): yoo % TAC _—OrNC) GaRDAD 40% F e000 > 82.000 750900 Entry: ohn, Capita 9099 Lot Cash = $204) lioesreass 750000 60% a “acer 0 = 23040 iv) recall areas gears ee teeta ee fee aercamea eae as tenes peace A pietet ere pore ppc an ned te imple or rs up TAC. thc, Jones shall be th bass bcs too now ec $11 ue ae rue ut fo atin Act io for John and Jones respectively, eee spectively, how much is the adjusted A. P 500000 8. Pse2000 ©. P780000 . P ee8000 12, the partner a ' the partner agreed to revalue assets to maintain 40:60 capil ‘aio for John and Jones respective peloton pectvely, how much is the aust A. P00 000 592.000 750,000 B © . 886000 2 artnership Accounting suggested solution: (11.8 and 120) % TAC _ornoy | Ent lon 35000 4ow—saz00H of Cashr—138.000 Jones 75000 cox eeaono 32000) one Comte 138000 "TRG = 75,000 + B= 125000 ‘Tae = 502,000 +40 = 14800 48, If the partner agreed to effect revaluation down of assets to ‘maintain 40:60 capital ratio for John and Jones respectively, how ‘much is the adjusted capital of John’? ‘A, P500.000 8, P592,000 cP 750,000 . P8e,000 414, Ifthe partner agreed to effect revaluation down of maintain 40:60 capital ratio for John and Jones respect much is the adjusted capital of Jones? ‘A. Ps00,000 8. P9200 ce, P750,000 D. 888,000 suggested solution: (13.4 and 4.0) Teo TAC Orv | Ent lion S920 sox, soa00 s2000) John Catal-82 O00 Loves _750000 eo 750000 Cash 82000 Tao “1280000 $2000) RE=TH000 + 60% = 1250000 ‘Ta = 592000 + 40% = 400000 (TAO) select ower amount this tne since the prob clear stated thatthe prints agreed a revaluation down oases BPartnership Accounting PROBLEM: — Alin, Senn and Cato, pew CPAs, ro fom a parersip, ‘Nin wil cairbute cash of P5000 and tis computor that orginaly eos 50.000 but wih @ seconthand value of P2500. Benny wil contioute 000m cash. Caro, whos family sels comps il conbut P25,00 in Partnership Accounting PROBLEM: On Norch 1, 2020, Fay and Manny decided o combine ter businesses and fom a parersp. The balance sheets of Floyd and Many on March 1 bela austnents stow the flowing Cash anda brandnew compo wth ptr ta cost hi fay contr Sed ealrsip P5000 bt wih a req sling pice of P0000. The tee age = “P a900 «B70 lostae pots and esos onal. ecu etale ‘ss00 13500 vet sooo ‘9800 15 Upon mate, cpl anes es a ae mal bs a § 6 ‘Ofice equipment net) 11,500 2750 cant _ a ee Prepaid oxerses sag _3000 ‘Ae Prs000 — PeO000 Pas. PHYO) fms = asa Bry fo.000 $0000 a8 80000 Cato e500 t0000 333475000 scents Paale P4575 ———Prgco0 a aa a Foye Ceol 53005 Nanny Capa Puasa sig Suggs Slatin) Picks Baus Copia Carbo ‘They ogee! poe TH Tor A acoso He aceon ‘Ain —50100 + 25000 (at second vat] = 75.00 recites and fourd Manny famtue and fies 10 be under Berry 20000 (Caro- 25,00 + 6,00 (tm ab) = 85000 “oa te poly a regard vain of non-cash ase are ln 4. Aged vale whichis oma equal othe fr are al (FA) 2. tees no agred ao, use Far Mat Vabe (FN) ‘ith no FV, use Bok Cin Vab(BV CV) 4 ithr's mo BV of CV, us Cost “rote fuer tat inenry may be vale st lamer of costar NR (at renzsle vabe) ules the Agrees, Far or Book vals ae deay eternal 4 epreiied by P0000. ‘16 If each parne’s share in equity I to be equal othe net assets Invested, the capital accounts of Fayd and Manny could be rn 3 © a adeped Foye PSEITO P5820 PSBOTO POND Me Pocos PI2945 PIL 195 _P 50,195, 51 peers Partnership Accounting uggestd Solution: (6) Partnership Accounting settee a pant ate a St Ease eons Pe orn jaoaies c. P200, 'P160,000 ‘usted capa Boro , 206,000 nd P 392,000, XOBLEME: Roque and Manaio formed pateship and hey ated iy sugbted soto: () 2 iia capil eq, tough Rog canned P150000 and Mande “woul P125 O00 nent assets [Cone Tay [aan Cn Pema —| P5000 ‘1. Under the bonus approach to aust the capital accounts, Manalss | [pase=sHonent __Pekom unidenfole assets shouldbe debited for Bal 500000 ageo Neng on Bag) 29200) & P2000 [Tova exer [Pama pang © Pan00 ‘lie tat he morgage i assumed By te panera. Hance, the D. P5000 ‘ole fhe aaced morgage should be ded fromthe val of the building. te probe islet a8 to the treatment ofthe id sorted set (4) morgage the same shal be deducted anes the paar cotbuting Te STE ene the sald set personaly assumes the morgage ue TODD som TBEDHD 12000) Reawe Capital, 00 vale 126000 &0% 198000 (12000), Mano. Contal-s2.000 7m mm Wk shows that there was = ‘us to Maal trom Roque amounting to P 12000 The rope ent iso bit ‘ue Capital nt undeniable ast of Marla Hence, the answers 260. ‘OBLEM F: Kathy and Nathan formed a partnership on Januay 1, 2018. To 1 the parrsip, Kathy tansieed cash toiling P116.000 and office sipment wih a book value of P80,000 and afar market value of PB4 000 than transfered cash of 56,00, land valued at PBE.000, and a buldng ed at 300.00. Nathan bought these at lump sum pce of P250,00. In lon, the parmrshp assumed the mariage of 232,00 on the bung 16 7Partnership Accounting ‘suggested Solution: (C) TARY Unausted capital 33,09 (wtf AR) {18500°9%)= (58) (19,500"3%)=(405} [under depreciated) adjusted canta 70 Roque and Manalo formed a partnership and they agreed to share ial capital equally, although Roque contibuted P160,000 and Manalo conrbted 126,000 in dential assets, PROBLEM E: ‘7, Under the bonus approach to adjust the capital accounts, Manalo's unidentifiable assets shouldbe debited for A PO B. P1200 ©. P2000 . Ps9.000 ‘Suggested solution: (A) Toc‘ TAC fRoqe ~0R00 sox, T3BG00 Iwano 126000 50% 136000 (12,000) Trem Tem DeNGay|]Eni ‘z0co| Roque Copta-12, 000 anal, Capital-12000, Ht shows that there was bonus to Manale fom Roque amounting to P 12,000. The proper entry i to debit Roque Capt not unidentifiable asset of Malo, Hence, the answers 270. PROBLEM F: Kathy and Nathan formed a partnership on January 1, 2018. To stat the parneship, Kathy transfered cash totaling P116,000 and ofice ‘equipment with a book valve of P90,000 and afar market value of PB4,000. Nathan transfered cash of P56,000, land valued at P36,000, and abiding valued at P300000. Nathan bought these at a lump sum price of P250,00. In addon, the partnership assured the morigage of PZ32,000 onthe bing 16 Partnership Accounting 18, The amount of capital fo be credited to Kathy and Nathan, respectively on January 1, 2018 shouldbe: ‘A. P206,000 and 60,000, B, P200,000 and P74,000, 6. P200,000andP60,000, 1D. 206,000 and P 392,000, suggested solution: (C) Contibaon Tah Nathan Cash 116000 | P 5,000 ‘Offee Equament 4.000, Land [P3600 Bulg [ P300.000 (Norgage on Bang) [1 232000) ‘TOTAL CAPITAL I ssumed by the partnership. Hence, the ‘value of the attached mortgage shouldbe deducted from the valu of the building, i the problem is slat as to the treatment of the said ‘mortgage, the same shall bo doducted unless the partner contributing the sald asset personally assumes the mortgage. v