Partnership Accounting

Activities
Partnership Formation

Problem 1
The balance sheet as of July 31, 2022, for the business owned by Barry. shows the following assets and
liabilities:

Cash P100,000 Fixtures P328,000

Accounts receivable 268,000 Accounts payable 57,600
Merchandise 440,000

It is estimated that 5% of the receivable will prove uncollectible. The cash balance includes 1,000 share
certificates of PNB at its cost, P8,000; the stock last sold on the market at P70.00 per share.
Merchandise includes obsolete items costing P36,000 that will probably realize only P8,000. Depreciation
has never been recorded; the fixtures are 2 years old, have an estimated life of 10 years, and would cost
P480,000 if purchased new currently. Sundry prepaid items amount to P10,000. Ava is to be admitted
as a partner upon investing P400,000 cash and P200,000 merchandise.

Required:
a. What will be the total capital after the formation of the partnership?

Problem 2
Mauro and Paeng establish a partnership to operate a used-furniture business under the name of
Montefalco Furniture. Mauro contributes furniture that cost P60,000 and has a fair value of P90,000.
Paeng contributes P30,000 cash and delivery equipment that cost P40,000 and has a fair value of
P30,000. The partners agree to share profits and losses 60% to Mauro and 40% to Paeng.

Required:
a. Calculate the peso amount of inequity that will result if the initial non-cash contributions of the
partners are recorded at cost rather than fair market value.

Problem 3
Anna and Salve are partners sharing profits 60:40. A balance sheet prepared for the partnership on April
1, 2022, shows the following:

Cash P 48,000 Accounts payable P 89,000

Accounts receivable 92,000 Anna, capital 133,000
Inventory 165,000 Salve, capital 108,000
Equipment 70,000
Accumulated depreciation (45,000) ________
P330,000 P330,000

On this date, the partners agree to admit Connie as a partner. The term of the agreement is that assets
and liabilities are to be restated as follows:
a. An allowance for possible uncollectible accounts of P4,500 is to be established.
b. Inventories are to be restated at their present replacement values of P170,000.
c. Equipment are to be restated at a value of P35,000.
d. Accrued expenses of P4,000 are to be recognized.

Anna, Salve and Connie will divide profits in the ratio of 5:3:2. Capital balances for the new partners are
to be in this ratio with Ana and Salve making cash settlement outside of the partnership for the required
capital adjustment between themselves and Connie investing cash in the partnership for her interest.
Required:
a. How much cash should Connie contribute?
b. How will you state the settlement between Anna and Salve?

Problem 4
Anna, Bea and Carol decided to form a partnership contributing the following items. Ana is to invest her
existing business in the partnership consisting of the following accounts: Cash of P20,000; accounts
receivable of P50,000; inventory of P30,000; fixtures of P40,000; payables of P12,000. Bea on the other
hand is to invest cash of P15,000 and a delivery truck costing P30,000 but is mortgaged with the bank for
P20,000. The partners agree that the receivables will have a 90% realizable value. The inventory would
be valued at P20,000. P5,000 of the payables would be paid prior to the formation of the partnership.
The delivery truck would have a 20% increase in its market value. The partnership will shoulder only
80% of the mortgage and Carol is to invest cash to be able to have a 40% interest in the partnership.

Required:
a. How much cash should Carol invest in the newly formed partnership?

Problem 5
Batman and Robin agreed to form a partnership. Batman is to contribute P135,600 cash and equipment
that has a carrying value of P135,000 and a fair value of P115,000. The equipment, however, has a
mortgage attached to it and it is agreed by the partners that they will assume it. Robin, on the other
hand, contributed P240,000 cash. They share profits and losses in the ratio 4:5. Furthermore, part of
their agreement is to bring their initial capital in conformity with their profit and loss ratio.

Required:
a. How much is the mortgage of the equipment?

Problem 6
On January 1, 2022, Rudy and Noy formed a partnership. Rudy and Noy contributed the following assets
at formation:

Rudy Noy
Cash 25,000 37,500
Inventory 18,750
Building 50,000
Equipment 18,750

The building is subject to a P12,500 mortgage, which was assumed by the partnership. They share profit
and loss in the ratio 60:40 to Rudy and Noy, respectively.

Requirement:
a. What amount should be recorded as capital of Rudy and Noy at the formation of the partnership,
respectively?
b. Assuming Rudy will invest (withdraw) cash so that his capital balance will equal to his profit and loss
ratio, what is the total asset of the partnership after formation?

Problem 7
Moses and Joshua decided to combine their business to form partnership on October 1, 2022. They
agreed to divide profit and loss at a ratio 55:45 for Moses and Joshua, respectively. The balance sheet
for Moses and Joshua on September 31, 2022 are presented below:

Accounts Moses Joshua

 Cash 112,500 67,500
Accounts receivable 270,000 225,000
Allowance for doubtful accounts (6,000) (7,500)
Notes receivable 75,000
Merchandise inventory 240,000 180,000
Office supplies 40,500
Equipment 150,000
Accumulated depreciation-equipment (67,500) `
Furniture 180,000
Accumulated depreciation-furniture (30,000)
Total Assets 739,500 690,000

Accounts payable 199,500 150,000

Notes payable 75,000
Capital 465,000 540,000
Total Liabilities and Capital 739,500 690,000

Moses and Joshua contributed their business to the partnership with the following adjustments:
1. Uncollectible accounts of P9,000 for Moses is to be provided and a 5% allowance is to be recognized
in the books of Joshua.
2. Moses’s inventory amounting to P15,000 is considered worthless and Joshua agrees to value its
inventory to P187,500.
3. Prepaid asset of P15,000 on Moses books and Rent Payable of P12,000 on the books of Joshua
should be recognized.
4. Interest of 15% on the notes receivable dated August 1, 2022 should be accrued.
5. The unused office supplies amounted to P30,000.
6. The equipment has an agreed value of P75,000.
7. The furniture has a market value of P135,000.
8. Interest of 10% on notes payable dated July 1, 2022 should be accrued.
9. Joshua has unrecorded patent of P60,000 to be recognized in Joshua’s books.

Joshua will invest cash necessary to have 60% interest in the partnership.

Required: What is the amount of additional cash to be invested by Joshua?

Problem 8
On January 1, 2023, Len, May and Nancy decided to form a business partnership to operate supermarket.
Len and May both owned a grocery business with the statements of Financial position as of December
31, 2022:

Len May
Cash P10M P20M
Accounts receivable 20M 30M
Inventories 70M 40M
Property, Plant and Equipment 50M 10M
Accounts Payable 40M 20M
Notes Payable, (10%; 5%) 30M 50M
Capital 80M 30M

The following additional notes are provided:

a. Len and May will contribute all its assets and liabilities to the newly formed partnership.
b. The parties agree to provide 10% and 20% allowance for bad debts to the accounts receivable of
Len and May, respectively.
c. The inventories of Len and May are reported at historical cost and have net realizable value of P60M
and P45M, respectively.
d. The PPE of Len and May have not been depreciated and should be depreciated by 40% and 30%,
respectively.
e. The interest payable on both notes payable were unrecorded and unpaid since the date of contract.
Len’s note payable is dated April 1, 2022 while May’s note payable is dated June 30, 2022.
f. Nancy shall have 20% interest in the partnership upon contribution of sufficient cash.

Required:
a. What is the amount of cash to be contributed by Nancy on January 1, 2023?

Partnership Operations

Problem 1
David and Ruby organized the DR Partnership on January 1, 2022. The following entries were made in
their capital accounts during 2022:
Debit Credit
David, Capital:
January 1 P180,000
April 1 P50,000
October 1 10,000
Ruby, Capital:
January 1 P60,000
March 1 P10,000
September 1 20,000
November 1 10,000

Required:
If the partnership net income, computed before salaries, interest or bonus is P56,000 for 2022,
indicate its division between the partners under each of the following independent profit-sharing
agreements:

a. Interest of 4% is allowed on average capital investments, and the balance is divided equally.
b. A salary of P24,000 is to be credited to Ruby, 4% interest is allowed on each partner on their
ending capital balance, and the balance in the ratio of beginning capital balances.
c. Salaries allowed to David and Ruby in the amounts of P34,000 and P38,000, respectively, and
remaining profits and losses are divided in the ratio of average capital balances.
d. A bonus of 10% of partnership net income is credited to David, a salary of P16,000 is allowed to
Ruby, and remaining profits and losses are shared equally. (The bonus is regarded as an
expense for purposes of calculating the bonus amount).

Problem 2
The following account balances appear in the ledger for the firm of X and Y at the end of 2022 before the
profit for the year has been transferred to the partners’ accounts:
X, Drawing P72,000
Y, Drawing 125,000
 X, Loan P175,000
X, Capital 500,000
Y, Capital 500,000
Profit and loss 302,500

The following information is to be considered in closing the profit and loss account and the drawing
accounts:

1) The cost of installing equipment at the beginning of 2022, P27,000, was charged to expense. The
installation relates to equipment with a 10-year life.
2) The loan to the firm was made by X on March 1, 2022. No entry has been made for interest on the
loan, which is 6% and is to be paid to X at the time the loan is repaid.
3) The partnership agreement permits X and Y to withdraw weekly sums of P1,500 and P2,250,
respectively. These amounts to be regarded as salaries. Actual withdrawals by partners differed
from allowed amounts and are summarized in the drawing accounts.
4) Y, the managing manager, is entitled to a special bonus of 25% of the net profit after deduction of all
special allowances to partners (including the bonus), and any remaining profit is to be distributed
equally.

Requirement:
a. How much should be the December 31 ending capital balance of each partner?

Problem 3
The following balance sheet for the partnership of Apple, Sam and Sophia were taken from the books on
October 1, 2022:
ASSETS LIABILITIES AND CAPITAL
Cash P100,000 Liabilities P200,000
Other assets 400,000 Apple, Capital 120,000
Sam, Capital 95,000
________ Sophia, Capital 85,000
Total Assets P500,000 Total Liabilities and Capital P500,000

The partners agreed to distribute profits as follows:

1) Annual salaries to Apple and Sam of P5,000 each.

2) Annual interest of 5% on beginning capital.
3) Bonus of 15% to Sophia based on income after salaries, interest and bonus.
4) Remaining profit: 25% to Apple, 35% to Sam and 40% to Sophia.

The partnership began its operations on October 1, 2021 and net income as of December 31, 2022 is
P69,500. Which of the following is true?

a. The bonus to Sophia is P5,804.

b. The income after salaries, interest and bonus is P38,696.
c. Sam’s total share in the net income is P21,688.
d. Sophia’s share on the profit after salaries, interest and bonus is P13,543.
Problem 4
X, Y and Z, doctors, agree to form a partnership and to share profits in the ratio 5:3:2. They also agreed
that Z is to be allowed a salary of P140,000 and that Y is to be guaranteed P105,000 as his share of the
profits. During the first year of operations, income from fees are P900,000, while expenses total
P480,000.

Required:
a. How much of the profit should be credited to X? to Y? to Z?

Problem 5
NEGOSYO TO Company, a partnership was formed on January 1, 2022, with four partners C, P, A, and
S. Capital contributions were as follows: C-P1,000,000; P- P500,000; A-P500,000; S-P400,000. The
partnership agreement provides that each partner shall receive 5% on the amount of his capital
contribution. In addition, C is to receive a salary of P100,000 and P a salary of P60,000, which are to eb
charged as expenses of the business. The agreement further provides that A shall receive a minimum of
P50,000 per annum from the partnership and S a minimum of P120,000 per annum, both including
amounts allowed as interest on capital and their respective shares of profits. The balance of the profits to
be shared in the following proportions: C-30%; P30%; A-20%; and S-20%.

Requirement:

a. Calculate the amount that must be earned by the partnership during 2022, before any charge for
interest on capital or partner’s salaries, in order that C may receive an aggregate of P250,000,
including interest, salary and share of profits.

Problem 6

The income statement of Analiza-Carmela Partnership for the year ended December 31, 2022 appear
below:

Sales P600,000
Less: Cost of goods sold 380,000
Gross profit 220,000
Less: Operating expenses 20,000
Net income P160,000

Additional information:

1) Analiza and Carmela began the year with a capital balance of P81,600 and P224,000,
respectively.
2) On April 1, Analiza invested an additional P30,000 into the partnership and on August 1,
Carmela invested an additional P40,000 into the partnership.
3) Throughout 2022, each partner withdrew P800 per week in anticipation partnership net income.
The partners agreed that these withdrawals are to not to be included in the computation of
average capital balances for purposes of income distributions.

Analiza and Carmela have agreed to distribute partnership net income according to the following:
 Analiza Carmela

1) Interest on average capital balances 6% 6%

2) Bonus on net income before the bonus but
after interest on average capital balances 10%

3) Salaries P50,000 P60,000

4) Residual (if positive) 70% 30%
5) Residual (if negative) 50% 50%

Requirement:
a. The share of Analiza and Carmela on the net income.
b. The ending capital balance of Analiza and Carmela

Problem 7
Lino is trying to decide whether to accept a bonus of 25% of net income after salaries and bonus or a
salary of P97,500 plus a bonus of 10% of net income after salaries and bonus as a means of allocating
profit among partners. Salaries traceable to the other parties are estimated to be P450,000.

Requirement: What amount of income would be necessary to that Lino would consider the choices
equal?

Problem 8
The partnership of A, B, C and D reflected capital balances before the distribution of the net income
amounting to P125,000; P100,000; P175,000 and P150,000. The partners are to divide profits and losses
among themselves based on the following stipulations that they agreed on:
a. Salary of P30,000 to A, B and D.
b. 10% interest on the capital balance before the distribution of income to the partners.
c. A 20% bonus after bonus and interest is to be given to C.
d. The balance is to be divided on a 3:4:2:1 ratio.

Required:
a. If B receives P70,000 from the partnership results of operations, what is the net income of the
partnership?

Problem 9
Princess and Lora are partners operating a small chain of convenience stores. Their business has grown
substantially over the last six years and they amended their partnership agreement to provide the
following distribution of profits and losses:
Princess Lora
Salaries P49,000 None
Commission on gross sales None 4%
Interest on average capital balances 7% 9%
Bonus of 10% of net income after salary, commissions,
interest and bonus 10%
Remainder 40% 60%
 Gross sales for 2022 was P3,000,000. Income after deducting salaries, commissions and interest was
P132,000. Average capital balances were P720,000 and P540,000 for Princess and Lora.

How much profit will Princess receive?

Problem 10
A and B formed a partnership to operate a retail store of various merchandise. They agreed on the
following distribution of profits and losses:
A B
Salaries P400,000 P350,000
Interest on ending balances before distribution of profit/(loss) 25% 30%
Bonus on net income after salaries and interest but before 15% 12%
bonus
Remainder 40% 60%

Only 805 of the partners’ share in net income is distributed. The remaining 205 is retained as
partners’ capital. Partnership’s net income amounted to P2,500,000 at the end of the year. A’s and
B’s ending capital balances prior to distribution of profit/(loss) amounted to P1,250,000 and
P1,100,000, respectively.

Requirement:
a. How much is B’s share in the partnership net income?
b. How much is B’s ending capital after the distribution of the net income?

Problem 11
On January 1, 2021, Ana, Bea and Cara formed a partnership with original capital contribution ratio of
4:5:1 for a total agreed capitalization of P5,000,000. The profit or loss ratio agreement provides that
profits shall be distributed in the ratio of 3:2:5 while losses shall be distributed in the ratio of 6:1:3.

During 2021, the partnership reported net income of P2,000,000 with Anna and Bea withdrawing
P500,000 and P300,000, respectively. During 2022, the partnership reported net loss of P1,000,000 with
Bea and Cara withdrawing P200,000 and P400,000, respectively.

Required
a. What is the capital of Bea on December 31, 2022?

Problem 12
The partnership agreement of Adam, Marc and Vic provides for the year-end allocation of net income in
the following order:
 First, Adam is to receive 105 of net income up to P200,000 and 20% over P200,000.
 Second, Marc and Vic each are to receive 5% of the remaining income over P300,000.
 The balance of income is to be allocated equally among the three partners.

The partnership’s 2022 net income was P500,000 before nay allocations to partners.

Required:
a. What amount should be allocated to Adam?