4-4 On August 1, 2020, prior to the admission of Grant, E and F Enterprises have the following

account balances:

Cash P 30,000
Accounts Receivable 400,000
Allowance for Bad Debts 36,000
Merchandise Inventory 110,000
Equipment - net 134,000
Accounts Payable 38,000
Erving, Capital 300,000
Fisher, Capital 300,000

Erving and Fisher share profit and loss on 1:1 ratio. Before the admission of Grant, the
partners agree on the following adjustments to bring the assets and liabilities to their
fair values:

a. The allowance for Bad Debts should be brought to 10% of the outstanding accounts
receivable.

Erving, Capital 2,000

Fisher, Capital 2,000
Allowance for Bad Debts 4,000

b. The current market value of the merchandise inventory is P 140,000.

Inventory 30,000
Erving, Capital 15,000
Fisher, Capital 15,000

c. Accrued expenses of P 4,000 should be recognized in the accounting records.

Erving, Capital 2,000

Fisher, Capital 2,000
Accrued Expenses 4,000
Adjusted Capital of Erving Adjusted Capital of Fisher
Erving, Capital Fisher, Capital
2,000 300,000 2,000 300,000
2,000 15,000 2,000 15,000
4,000 315,000 4,000 315,000
311,000 311,000

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 1. If Grant purchases 50% of Erving’s capital at its adjusted carrying value, how much is the
total assets of the partnership just after the admission of Grant? _____704,000______
Computation:
311,500 x 50% = 155, 500 (Grant, Capital)
311,500 – 155,500 = 155,500 (Erving, Capital)
311,000 (Fisher, Capital)
Total Assets = Liabilities = Capital
Total Assets = 40,000 + 38,000 + 4,000 (Liabilities) + 155,500 + 311,000 + 155,500 (Capital)
Total Assets = 704,000

2. If Grant is admitted into the partnership upon his investment of P 400,000 for 2/5 interest
in capital and profit, what is the total capital of the partnership just after the admission of
Grant? ______1,000,000_______

Computation: 400,000 / 2/5 = 1,000,000

4-5 Jake desires to invest P 200,000 for ¼ capital and profit and loss interest in the
partnership of Kim and Lim, who at that time had capital balances of P 200,000
and P300,000 , respectively. Profit and loss ratio of the partners before the
admission was 6:4. If a positive asset revaluation is to be recorded, what are the
capital balances of Kim, Lim and Jake?

Kim _____260,000______ Lim ____340,000_____ Jake ______200,000_____

Computation:
OP = 500,000 P&L ratio = 6:4
AC CC
OP 3/4 600,000 500,000
NP 1/4 200,000 = 200,000
800,000 > 700,000
+AR: NO BONUS Capital Balances:
AR = 100,000 Kim: 200,000 + 60,000 = 260,000
Kim: 100,000 X 60% = 60,000 Lim: 300,000 + 40,000 = 340,000
Lim: 100,000 X 40% = 40,000 Jake: 200,000

4-6 Pierce, Allen, and Rondo are partners with capital account balances at year-end
of P90,000; P 110,000; and P 50,000, respectively. The partnership profit for
the year is P 110,000. They share profits and losses on a 4:4:2 ratio, after
considering the following terms:

a. Interest of 10% shall be paid on that portion of a partner’s capital in excess of P100,000

b. Salaries of P 10,000 and P 12,000 shall be paid to Pierce and Rondo, respectively

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 c. Rondo is to receive a bonus of 10% of profit after bonus

How much is the total profit share of each partner?

Pierce ____40,800____ Allen ____31,800____ Rondo ___37,400___

Computation:
Pierce Allen Rondo Total
a. Interest:
110,000 – 100,000 = 10,000
10,000 X 10% = 1,000 1,000 1,000
b. Salaries 10,000 12,000 22,000
c. Bonus 10,000 10,000
Remainder / 4:4:2 30,800 30,800 15,400 77,000
77,000 X 40%
77,000 X 40%
77,000 X 20% _________________________________________________
Total 40,800 31,800 37,400 110,000
Computing Bonus:
B= 10% (110,000 – B)
B= 11,000 – .10B
B + .10B = 11,000
1.10B = 11,000
1.10 1.10
B = 10,000

4-7 Anton, Barkley and Charles, partners of ABC Enterprises, have agreed on a profit and loss ratio of
3:3:4, respectively. On December 31, 2019, the partnership books showed the following capital
balances:
Anton – P 450,000; Barkley – P 540,000; Charles – P 900,000

On January 1, 2020, Derek was admitted as a new partner under the following terms and
conditions:

a. Derek will share ¼ in the profit and loss ratio, while the ratio of the original partners will remain
proportionately the same as before Derek’s admission.

b. Derek will purchase 1/6 of Barkley’s interest paying him P 75,000.

c. Derek will contribute P 450,000 in cash to the partnership.

d. Total partnership capital after Derek’s admission will be P 2,400,000 of which Derek’s capital
interest will be P 480,000.

Instructions:

1. Using the format below, prepare a schedule showing the capital of each partner before and after
the admission of Derek.

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 OP = 1,890,000 P&L Ratio: 3:3:4
AC CC
OP 3/4 1,920,000 1,890,000 +AR : BONUS TO NP
NP 1/4 480,000 > 450,000
2,400,000 > 2,340,000

Anton Barkley Charles Derek Total

Capital balances before the
Admission of Derek P 450,000 P 540,000 P 900,000 - P 1,890,000
Interest Purchased
from Barkley: 1/6 (90,000) 90,000 -

Share of +AR: 60,000

60,000 / 3:3:4 18,000 18,000 24,000 - 60,000
Bonus to NP: 30,000 (9,000) (9,000) (12,000) 30,000 -
30,000 / 3:3:4
Cash contributed of NP 450,000 450,000
Capital balances after the 459,000 459,000 912,000 570,000 2,400,000
Admission of Derek

2. What is the profit and loss ratio of all the partners after Derek’s admission?
Computation:
Derek: 25%
Anton: 75% X 30% = 22.5%
Barkley: 75% X 30% = 22.5%
Charles: 75% X 40% = 30%

4-8 The CFM Partnership shows the following profit and loss ratios and capital balances:

Carter – 60% P 252,000; Fisher – 30% P 126,000; Malone – P 10% P 42,000

The partners decide to sell Shaq 20% of their respective capital and profit and loss interests for a
total payment P 90,000. Shaq will pay the money directly to the partners.

1. If the partners agree that asset revaluation is to be recorded prior to the admission of Shaq, what are
the capital balances of the partners after Shaq’s admission?

Carter__216,000___ Fisher ___108,000___ Malone ___36,000___ Shaq ___90,000___

Computation:
OP = 420,000 P&L Ratio: 60:30:10
NP = 90,000 / 20% = 450,000 Share in AR:
OP = - 420,000 Carter: 30,000 X 60% = 18,000
Positive AR = 30,000 Fisher: 30,000 X 30% = 9,000
Malone: 30,000 X 10% = 3,000

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 Carter Fisher Malone Shaq Total
Capital balances before the
Admission of Shaq P 252,000 P 126,000 P 42,000 - P 420,000
Share in +AR: 18,000 9,000 3,000 - 30,000
Adjusted Capital Balances 270,000 135,000 45,000 450,000
Interest purchased by Shaq 20% 20% 20% - 20%
Capital transferred to Shaq 54,000 27,000 9,000 - 90,000
Capital balance after admission 216,000 108,000 36,000 90,000 450,000
of Shaq

4-9 On January 1, 2020, Kevin Garnett and Steve Nash have capital balances of P 174,600 and P
110,400, respectively. On this date, Karl Malone is admitted as a partner upon his
investment of P 120,000 in the firm. Kevin and Steve, sharing profits and losses in the ratio
of 65:35, gave a bonus to Karl so that Karl may have a 40% interest in the firm.

How much is the decrease in Steve’s capital balance? _________14,700_________

Computation:
OP = 285,000
AC CC NO AR: BONUS TO NP
OP 60% 243,000 285,000
NP 40% 162,000 > 120,000 Bonus: 42,000
405,000 = 405,000
Kevin: 42,000 X 65% = 27,300
Steve: 42,000 X 35% = 14,700 – decrease in Steve’s Capital Balance

4-10 Jason and Kidd are partners who share profits and losses in the ratio of 3:1, respectively. On
August 1, 2020, their capital balances were: Jason – P 200,000 and Kidd – P 100,000. On
this date, Scottie invests 80,000 in the firm and is given a capital credit of P 50,000 which is
to be 1/8 of the capital of the new partnership.

1. What is the agreed capital of the new partnership?___400,000____

2. What is the new capital balance of Jason after the admission of Scottie? ___237,500__
Computation:
OP = 300,000 P&L RATIO: 3:1
AC = 50,000 / 1/8 = 400,000
AC CC +AR : BONUS TO OP
OP 7/8 OR 87.5% 350,000 300,000 Bonus: 30,000
NP 1/8 OR 12.5% 50,000 < 80,000
400,000 > 380,000
+AR = 20,000
BONUS = 30,000
Jason: 50,000 X 3/4 = 37,500

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 Kidd: 50,000 X 1/4 = 12,500
200,000 (Jason’s CC) + 37,500 = 237,500

4-11 Terence and Romeo are partners who share profits and losses 60% and 40%, respectively.
Their capital accounts on July 1, 2020 were as follows: Terence – P 280,000; Romeo –
P240,000. On this date, they agree to admit Arwind as a new partner.

1. If Arwind purchased ¼ of the equity of Terence for P 100,000, how much would be the total
partnership capital after Arwind’s admission? _____520,000____

Computation:
OP = 520,000 P&L RATIO: 60:40
280,000 X 1/4 = 70,000 (book value) 100,000 (purchase price, personal gain to OP)

Terence, Capital (280,000 – 70,000) = 210,000

Romeo, Capital = 240,000
Arwind, Capital = 70,000
520,000
2. If Arwind invested P 180,000 for a ¼ interest in the firm and that the assets of the
partnership are fairly valued, what would be the capital of Terence after Arwind’s admission?
___283,000___

Computation:
NP = 180,000 / ¼ = 720,000
AC CC NO AR: BONUS TO OP
OP 3/4 545,000 520,000 Bonus: 5,000
NP 1/4 175,000 > 180,000
700,000 = 700,000
BONUS = 5,000
Terence: 5,000 X 60% = 3,000
Romeo: 5,000 X 40% = 2,000
280,000 (Terence’s Capital) + 3,000 = 283,000

3. If Arwind invested P 130,000 for a 25% interest in the firm and that the assets of the
partnership are fairly valued, what would be the capital of Romeo after the admission of
Arwind? ___253,000___

Computation:
NP/ AC = 130,000 / 25% = 520,000
AC CC NO AR: BONUS TO NP
OP 75% 390,000 520,000
NP 25% 162,500 > 130,000 Bonus: 32,500
650,000 = 650,000

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 Terence: 32,500 X 60% = 19,500
Romeo: 32,000 X 40% = 13,000
240,000 (Romeo’s Capital) – 13,000 = 253,000

4. If Arwind purchased 25% of the respective capital and profits and losses of Terence and
Romeo for P 150,000, how much is the share of Terence in the asset adjustment?
___48,000___

Computation:
520,000 X 25% = 130,000 (book value)
150,000 (purchased price)
NP = 150,000 / 25% = 600,000
OP = 520,000
Positive AR = 80,000

Terence: 80,000 X 60% = 48,000

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