College of Business Administration Checker:

Accounting 2

Exercise 1 – Proprietor & 1st Timer Mrs. Lucia A. Suello, CPA, MBA

Name: OLIMBA, KIM T. Course/Yr.: BSA 1 Sched: 1:30 – 3:30 MWF Date: FEB. 13, 2023

PROBLEM

Rich Asuncion owns a chain of merchandising business in Tagbilaran City. Due to her plan
of expanding her business she invites Kim Chiu whom she believed could be trusted ad could
provide the necessary capital build up.

Her post closing trial balance as of December 2010 appeared as follows:

Debit Credit
Cash P 1,050,000
Accounts receivable 65,000
Allowance for Bad Debts P5,000
Merchandise 2,350,000
Store Equipment 950,000
Accu. Depreciation 190,000
Accounts Payable 450,000
Asuncion, Capital _________ 3,770,000
Total P4,415,000 P4,415,000

They agreed the following prior to partnership formation:

a. The accounts receivable has 85% probability of collection.

b. Merchandise inventory should have a net realizable value of P2,325,000.
c. The store equipment has a fair market value of P850,000.
d. Accrued rental of P60,000 and Prepaid expense of P25,000 should be recognized.
e. Chiu will contribute sufficient cash to make her capital balance equal to Asuncion.

Required:

1. Prepare the necessary adjusting entries in the books of Asuncion

a. b.
Asuncion, Capital 4, 750 Asuncion, Capital 25, 000
Allowance for Bad Debts 4, 750 Merchandise 25, 000
 c. d.
Accumulated Depreciation 90, 000 Asuncion, Capital 60, 000
Asuncion, Capital 90, 000 Accrued Rental 60, 000

Prepaid Expense 25, 000

Asuncion, Capital 25, 000
Rich Asuncion
Adjusted Post-Closing Trial Balance

Debit Credit
Cash P 1,050,000
Accounts receivable 65,000
Prepaid Expense 25,000
Allowance for Bad Debts P 9,750
Merchandise 2,325,000
Store Equipment 950,000
Accu. Depreciation 100,000
Accounts Payable 450,000
Accrued Rental 60,000
Asuncion, Capital _________ 3,795,250
Total P4,415,000 P4,415,000

2. How much is the adjusted capital balance of Asuncion? ₱ 3,795,250

Asuncion, Capital
a. 4,750 3,770,000
b. 25,000 c. 90,000
c. 60,000 d. 25,000

89,750 3,885,000
3,795,250

3. How much is the cash contribution of Chiu? ₱ 3,795,250

4. Closing entry in the books of Asuncion.
Allowance for Bad Debts P 9,750
Accu. Depreciation 100,000
Accounts Payable 450,000
Accrued Rental 60,000
Asuncion, Capital 3,795,250
Cash 1,050,000
Accounts receivable 65,000
Prepaid Expense 25,000
Merchandise 2,325,000
Store Equipment 950,000
5. Opening journal entries in the books of the partnership.
ASUNCION CHIU

Cash P 1,050,000 Cash 3,795,250

Accounts receivable 65,000 Chiu, Capital 3,795,250
Prepaid Expense 25,000
Merchandise 2,325,000
Store Equipment 850,000
Allowance for Bad Debts P 9,750
Accounts Payable 450,000
Accrued Rental 60,000
Asuncion, Capital 3,795,250

6. How much is the total assets of the newly formed partnership? 8,110,250
Cash P 1,050,000 + 3,795,250 (Additional Investment of Chiu) 4,845,250
Accounts receivable 65,000
Prepaid Expense 25,000
Merchandise 2,325,000
Store Equipment 850,000
8,110,250

7. How much is the total liabilities of the newly formed partnership? 510,000
Accounts Payable 450,000
Accrued Rental 60,000
510,000
8. How much is the total capital of the newly formed partnership? 7,590,500
Asuncion, Capital 3,795,250
Chiu, Capital 3,795,250
7,590,500
**END**
1. On May 1, 2019, Jose and Maria formed a partnership and agreed to share
profits and losses in the ratio of 3:7, respectively. Jose contributed a computer
that cost him P50,000. Maria contributed P200,000 cash. The computer was sold
for P55,000 on May 1, 2019 immediately after the formation of the partnership.
What amount should be recorded in Jose's capital account on formation of the
partnership?
a. P55,000 -Jose's capital should be credited for the market value of the
computer
b. P51,500
c.P60,000
d.P50,000
2. Red, White, and Blue for a partnership on May 1, 2016. They agreed 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 want a one third interest in the capital and profits, he
should contribute the following of cash:

a. P40,000
b. P60,000
c. P120,000
d. P180,000

SOLUTION:
Red White Blue Partnership

Equipment P 40, 000 P80, 000 - 180,000

P 40, 00 + P80, 000= 120,000 ÷ 2/3= 180, 000 x 1/3 = P60, 000

3. Mateo and Julio formed a partnership on April 1 and contributed the following
assets:

The land was subject to a mortgage of P50,000, which was assumed by the
partnership. Under the partnership contract, Mateo and Julio will share profit and
loss in the ratio of one-third and two-thirds respectively. Julio’s capital account at
April 1 should be:

a. P350,000
 b. P300,000
c. P400,000
d. P450,000

SOLUTION:
Cash 100,000
Land 300,000
Mortgage Payable 50,000
Julio, Capital 350,000

4. Elsa and Perla form a new partnership. Elsa invests P300,000 in cash for her
60 percent interest in the capital and profits of the business. Perla contributes
land that has an original cost of P40,000 and a fair market value of P70,000,
and a building that has a tax basis ofP50,000 and a fair market value of
P90,000. The building is subject to a P40,000 mortgage that the partnership will
assume. What amount of cash should Perla contribute?

a. P40,000
b. P80,000
c.P110,000
d.P150,000

SOLUTION:
Total Capital (P300, 000/60%) P500, 000
Perla's interest 40%
Perla's capital P200, 000
Less: Non-cash asset contributed at market value
Land P 70,000
Building 90,000
Mortgage Payable (40, 000) 120,000
Cash contribution needed P80, 000

5. Anton and Buazon formed a partnership and agreed to divide the initial capital
equally, even though Anton contributed P100,000 and Buazon contributed
P84,000 in identifiable assets. Under the bonus method, to adjust the capital
accounts, Buazon's intangible assets would be debited for:
a. P46,000
b. P16,000
c. P8,000
d. Zero -because under the bonus method, a transfer of capital is only required.

6. Reyes and Santos drafted a partnership agreement that lists the following assets
contributed at the partnership formation:
 The building is subject to a mortgage of P100,000, which the partnership has
assumed. The partnership agreement also specifies the profits and losses are to
be distributed evenly. What amounts should be recorded as capital for Reyes
and Santos at the formation of the partnership?
Reyes Santos
a. P350,000 P850,000
b. P350,000 P750,000
c. P550,000 P550,000
d. P600,000 P600,000

SOLUTION:
Reyes Santos
Cash P200,000 P300,00
Inventory - 150,000
Building - 400,00
Equipment 150,000 -
Mortgage Payable - (100,000)
P350,000 P750,000
7. On September 30,2016, Lopez admits Mendez for an interest in his business. On
this date, Lopez’s capital account shows a balance of P158,400. The following
were agreed upon before the formation of the partnership:
1. Prepaid expenses of P17,500 and accrued expenses of P5,000 are to be
recognized.
2. 5% of the outstanding accounts receivable of Lopez amounting to
P100,000 is to be recognized as uncollectible.
3. Mendez is to be credited with a one-third interest in the partnership and is
to invest cash aside from the P50,000 worth of merchandise. The amount of
cash to be invested by Mendez and the total capital of the partnership
are:

A. P32,950 and P248,850 respectively.

B. P55,300 and P221,200 respectively.
C. P82,950 and P248,850 respectively.
D. P32,950 and PI71,200 respectively.

SOLUTION:
 Cash to be invested by Mendez:
Adjusted capital of Lopez (2/3)
Unadjusted capital P158,400
Adjustments:
Prepaid expenses 17,500
Accrued expenses (5,000)
Allowance for bad debts (5% X P100,000) (5,000)
Adjusted capital P165,900

Total partnership capital (P165,900/2/3) P248,850

Multiply by Mendez's interest 1/3
Mendez's capital P 82,950
Less Merchandise contributed (50,000)
Cash to be invested by Mendez P 32,950

Total Capital:
Adjusted capital of Lopez P165,900
Contributed capital of Mendez 82,950
Total capital P248,850

Lopez Adjusted Capital = P165,900 -this represent two-thirds of the total capital of
the partnership
P165,900/0.666666666= P248,850- total capital of the partnership Mendez
Capital P248,850*0.333333333= P82,950 Additional Cash Investment
P82,950-P50,000=P32,950

8. Moran and Nakar entered in to a partnership on February 1,2016 by investing

the following assets:
Moran Nakar
Cash P P15,000 ---
Merchandise Inventory --- P45,000
Land --- 15,000
Building --- 65,000
Furniture and Fixture 100,000 ---

The agreement between Moran and Nakar provides that profits and losses are to
be divided into 40% (to Moran) and 60% (to Nakar), and that the partnership is to
assume the P30,000 mortgage loan on the building.

Nakar is to receive a capital credit equal to his profit and loss ratio, how much is
cash must he invest?

A. P127,500
B. PI72,500
C. P97,500
D. P77,500
 SOLUTION:
Moran, capital (40%)
Cash P 15,000
Furniture and Fixtures 100,000 P115,000
Divide by Moran's P & L share percentage 40%
Total partnership capital P287,500
Multiply by Nakar's P & L share percentage 60%
Required capital of credit of Nakar: P172,500
Contributed capital of Nakar:
Merchandise inventory P 45,000
Land 15,000
Building 65,000
Total assets P125,000
Less Liabilities (30,000) P 95,000
Required cash investment by Nakar P 77,500

9. As of July 1,2016, Flores and Garcia decided to form a partnership. Their

statements of financial position on this date are:

The partners agreed that the machinery and equipment of Flores is under
depreciated by P1,500 and that of Garcia by P4,500. Allowance for doubtful
accounts is to be set up amounting to PI2,000 for Flores and P4,500 for Garcia.
The partnership agreement provides for a profit and loss ratio and capital interest
of 60% to Flores and 40% to Garcia. How much cash must Flores invest to bring
the partner’s capital balances proportionate to their profit and loss ratio?

A. P14,250
B. P5,250
C. PI7,250
D. P10,250

SOLUTION:
 Garcia's adjusted capital P40,500 (see display A)
Divide by Garcia's P & L share percentage 40%
Total partnership capital P101,250
Flores' P & L share percentage 60%
Flores' capital credit P 60,750
Flores' contributed capital 43,500 (see display B)
Additional cash to be invested by Flores P17,250
Display A:
Garcia, capital:
Unadjusted balance P 49,500
Adjustments:
Accumulated depreciation (4,500)
Allowance for doubtful account (4,500)
Adjusted balance P 40,500
Display B:
Flores capital:
Unadjusted balance P 57,000
Adjustments:
Accumulated depreciation (1,500)
Allowance for doubtful accounts (12,000)
Adjusted balance P 43,500

10. Ortiz and Ponce are partners sharing profits in this proportion 60:40. A statement
of financial position prepared for the partners on April1,2016:

On this date, the partners agree to admit Roxas as a partner. The terms of the
agreements are summarized below.
Assets and liabilities are to be restated as follows:
a) An allowance for possible uncollectible of P4,500 is to be established.
b) Inventories are to be restated at their present replacement value of
P170,000.
c) Accrued expenses of P4,000 are to be recognized.
Ortiz, Ponce and Roxas will divide profits in the ratio of 5:3. Capital balances of
the partners after the formation of the new partnership are to be in the
aforementioned ratio, with Ortiz and Ponce making cash settlement between
themselves outside of the partnership to adjust their capitals, and Roxas investing
cash in the partnership for his interest. How much cash is to be invested by Roxas?

A. P60,250
B. P47, 500
 C. P50, 000
D. P59,375

SOLUTION:
Ortiz Ponce Total
(60%) (40%)
Unadjusted capital balances P133,000 P108,000 P241,000
Adjustments:
Allowance for bad debts (2,700) (1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses 2,400) (1,600) (4,000)
Adjusted capital balances P130,900 P106,000 P237,500

Ortiz Ponce
(50% + 30%)= 80%
P237,500/ 80% = P296,875 x 20% = 59,375

11. On July 1 of the current year, Jocson and Gomez form a partnership. Jocson is
to invest certain business assets at values which are yet to be agreed upon. He is
to transfer his business liabilities and is to contribute sufficient cash to bring his
total capital to P180,000, which is 60% of the total capital as had been agreed
upon.

Details regarding the book values of Jocson’s Business assets and liabilities and
their corresponding valuation follow:

Gomez agrees to invest cash of P30,000 and merchandise valued at current

market price. The value of the merchandise to be invested by Gomez and the
amount of cash to be invested by Jocson are?

A. PI20,000 and P48,000 respectively.

B. P210,000 and P49,200 respectively.
C. P105,000 and P50,000 respectively.
D. P90,000 and P48,000 respectively.

SOLUTION:
 Merchandise to be invested by Gomez:
Total partnership capital (P180,000/60%)=P300,000
Gomez's capital (P300,000 X 40%) P120,000
Less Cash investment (30,000)
Merchandise to be invested by Gomez P 90,000

Cash to be invested by Jocson:

Adjusted capital of Jocson:
Total assets (at agreed valuations) P180,000
Less Accounts payable 48,000 P132,000
Required capital of Jocson 180,000
Cash to be invested by Jocson P 48,000

12. On April 1,2016, Ell and Emm pooled their assets to form a partnership, with the
firm to take over their business assets and assume the liabilities. Partner’s capitals
are to be based on net assets transferred after the following adjustment.

Emm inventory is to be increased by P3,000; an allowance for doubtful accounts

of PI,000 and PI,500 are to be set up in books of Ell and Emm, respectively and
accounts payable of P4,000 is to be recognized on Ell’s books. The individual trial
balances on April1,2016, before adjustments follow:

How much is the capital of Ell after the above adjustments to his books?

A. P70,000
B. P65,000
C. P68,500
D. P66,000

SOLUTION:
Unadjusted Ell, capital (P75,000 – P5,000) P 70,000
Allowance for doubtful accounts (1,000)
Accounts payable (4,000)
Adjusted Ell, capital P 65,000

13. Cortez admits Divino for a partnership interest in his business. The statement of
financial position of Cortez on November 30,2016 prior to the admission of Divino
shows the following:
 It is agreed that for purposes of establishing Cortez’s interest, the following
adjustments should be made:
1. An allowance for doubtful accounts of 2% of accounts receivable is to
be
established.
2. The merchandise inventory is to be valued at P160,000.
3. Prepaid expenses of P5,200 and accrued expenses of P3,200 are to be
recognized.
Divino invested cash of P113,640 to give him a one-third interest in the total
capital of the firm. What is the capital balance of Cortez before the admission of
Divino?

A. P227,280
B. P230,120
C. P211,200
D. P250,500

SOLUTION:
Total partnership capital (P113,640/1/3) P340,920
Less Divino's capital_ (113,640)
Cortez's capital after adjustments P227,280
Adjustments made:
Allowance for doubtful account (2% X P96,000) 1,920
Merchandise inventory (16,000)
Prepaid expenses (5,200)
Accrued expenses 3,200
Cortez's capital before admission of Divino P211,200

14. – 15. Items 14-23 and 14-24 are based on the following data:
On June 30,2016 Eden and Flora formed a partnership with each contributing the
following assets:

The building is subject to a mortgage loan of P1,125,000 which is to be assumed

by the partnership. The partnership agreement provides that Eden and Flora
share profits and losses in the ratio of 30% and 70% respectively. Assuming that
 the partners agreed to bring their respective capital in proportion to their profit
and loss ratio, and using Flora capital as the base:

14-23: What is capital account balance of Flora on June 30, 2016?

A. P3,500,000
B. P4,000,000
C. P3,937,500
D. P3,837,500

Total assets at fair value P4,625,000

Liabilities (1,125,000)
Capital balance of Flora P3,500,000

1-24. How much is the additional cash to be invested by Eden?

A. P2,687,500
B. P2,587,000
C. P688,000
D. P687,000

Total capital of the partnership (P3,500,000 ÷70%) P5,000,000

Eden agreed profit & loss ratio 30%
Eden agreed capital 1,500,000
Eden contributed capital at fair value 812,000
Allocated cash to be invested by Eden P 688,000

15. Rey, Sam, and Tim formed a partnership on May 31,2016, with the following
assets, measured at their fair market values, contributed by each partner:

Although Tim has contributed the most cash to the partnership, Tim did not have
the full amount of P180,000 available and was force to borrow personally
P120,000. The delivery equipment contributed by Rey has a mortgage P540,000
and the partnership is to assume the responsibility for the loan. The partners agree
to divide profits and losses 40% to Rey; 40% to Sam; and 20% to Tim.

The partners further agreed to bring their respective capital interest in proportion
to their profit and loss ratio

Using the bonus method, capital transfer among partners should be made
follows:
 A. From Rey and Tim, P87,960, and P3,480 respectively to Sam.
B. From Sam to Rey, P87,960 and to Tim, P3,480.
C. From Sam to Tim, P3,600 and from Sam to Rey, P88,200.
D. From Rey to Tim, P3,480, and from Rey to Sam, P91,440

Rey Sam Tim Total

Contributed capital (assets-liabilities P471,000 P291,000 P195,000 P957,000
Agreed capital (profit and loss ratio) 382,800 382,800 191,400 957,000
Capital transfer (Bonus) P 88,200 P (91,800) P 3,600 -

16. Candy and Dandy have just formed a partnership. Candy contributed cash of
P126,000 and computer equipment that cost P54,000. The fair value of the
computer is P36,000. Candy has a notes payable on the computer of P12,000 to
be assumed by the partnership. Candy is to have 60% capital interest in the
partnership. Dandy contributed only P90,000. The profit and loss ratio of the
partners as agreed is equally.
Candy should make an additional investment (withdrawal) of:

a. P 96,000
b. P 84,000
c. P (76,800)
d. P (15,000)

SOLUTION:
Total agreed capital (P90,000 ÷ 40%) P225,000
Candy, agreed capital interest 60%
Agreed capital of Candy 135,000
Contributed capital of Candy (P126,000+P36,000-P12,000) 150,000
Withdrawal of Candy (P 15,000)
A. From Rey and Tim, P87,960, and P3,480 respectively to Sam.
B. From Sam to Rey, P87,960 and to Tim, P3,480.
C. From Sam to Tim, P3,600 and from Sam to Rey, P88,200.
D. From Rey to Tim, P3,480, and from Rey to Sam, P91,440

Rey Sam Tim Total

Contributed capital (assets-liabilities P471,000 P291,000 P195,000 P957,000
Agreed capital (profit and loss ratio) 382,800 382,800 191,400 957,000
Capital transfer (Bonus) P 88,200 P (91,800) P 3,600 -