Partnership Exercises

Partnership Exercises
Partnership Formation
[1]. Emil and Pearl form a new partnership. Emil invests P300,000 in cash for her 60 percent interest in the
capital and profits of the business. Pearl 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 of P50,000 and a fair value of P90,000. The
building is subject to a P40,000 mortgage that the partnership will assume. What amount of cash
should Pearlcontribute?
a. P40,000
b. P80,000
c. P110,000
d. P15,0000
[2]. The Green and Red partnership was formed on January 2, 2011. Under the partnership agreement,
each partner has an equal initial capital balance accounted for under the goodwill method. Partnership
net income or loss is allocated 60% to Green and 40% to Red. To form the partnership, Green originally
contributed assets costing P30,000 with a fair value of P60,000 on January 2, 2011, and Red contributed
P20,000 in cash. Drawings by the partners during 2011 totaled P3,000 by Green and P9,000 by
Red. The partnership’s 2011 net income was P25,000. Red’s initial capital balance in the partnership is:
a. P20,000.
b. P25,000.
c. P40,000.
d. P60,000.
[3]. Pirante and Wilson drafted a partnership agreement that lists the following assets contributed at the
partnership’s formation:
Contributed by
Pirante Wilson
Cash P40,000 P60,000
Inventory - 30,000
Building - 80,000
Furniture and equipment 30,000 -
The building is subject to a mortgage of P20,000, which the partnership assumed. The
partnership agreement also specifies that profits and losses are to be distributed evenly. What amounts
should be recorded as capital for Pirante and Wilson at the formation of the partnership?
a. P70,000 and P170,000, respectively.
b. P70,000 and P150,000, respectively.
c. P110,000 for each partner.
d. P120,000 for each partner.
[4]. AA and Belen formed a partnership and they agreed to share initial capital equally, although AA
contributed P150,000 and Belen contributed P126,000 in identifiable assets. Under the bonus approach
to adjust the capital accounts, Belen received (gave) a bonus equal to:
a. P24,000
b. P12,000
c. (P24,000)
d. (P12,000)
[5]. AA, BB, and CC are to form a partnership. AA is to contribute cash of P100,000; BB, P10,000; and, CC,
P100,000. AA and CC are not to actively participate in the business but will refer customers, while BB will
manage the firm. BB has to give up his present job which gives her an annual income of P120,000. The
partners decided that profits and losses shall be shared equally. Upon formation, partners’ capital
balances would be:
a. P 70,000, P 70,000, and P 70,000, respectively.
b. P100,000, P10,000, and P100,000, respectively.
c. P100,000, P130,000, and P100,000, respectively.
d. P110,000, P110,000, and P110,000, respectively.
[6]. Brenda and Cathy formed a partnership and agreed to divide initial capital equally, even though Brenda
contributed P200,000 and Cathy contributed P168,000 in identifiable assets. Under the bonus approach
to record the contributions of the partners, Cathy’s capital account should be credited for
a. P200,000. c. P184,000
b. P168,000. d. P100,000
[7]. On May, 31, 2011, Allen, Belen, and Cenen formed a partnership by combining their businesses. Allen
give cash of P50,000. Belen gave a property with a carrying amount of P30,000, an original cost of
P40,000, and a fair market value of P80,000. Belen’s property, however, has a P35,000 mortgage for
which the new partnership accepted legal responsibility. Cenen gave a delivery equipment with a book
value of P30,000, an acquisition cost of P75,000, and an appraised value of P55,000. It was agreed that
profits and losses are to be shared equally. The partner with the biggest capital account balance as of
May 31, 2011, is
a. Allen
b. Belen
c. Cenen
d. Allen have equal capital balance.
[8]. Abel and Carr formed a partnership and agreed to divide initial capital outlay equally, even though Abel
contributed P100,000 and Carr contributed P84,000 in identifiable assets. Under the bonus approach to
adjust the capital accounts, Carr’s unidentifiable asset should be debited for
a. P46,000
b. P8,0000
c. P16,000
d. P-0-
[9]. On October 1, 2011, Carla and Clara joined in a partnership. Carla contributed cash while Clara
contributed merchandise worth P25,000 and a second-hand delivery truck currently valued at P50,000
but encumbered by a one-year chattel mortgage note for P15,000. If initial capital balances are to
conform to the profit-sharing ratio of 2:3, respectively, the amount of cash contributed by Carla was:
a. P24,000
b. P30,000
c. P40,000
d. P50,000
[10]. AA, BB, and CC are to form a partnership. AA is to contribute cash of P100,000; BB, P10,000, and CC,
an equipment valued at P100,000. AA and CC are not to actively participate in the business but will refer
customers, while BB will manage the firm. BB has to give up her present job which gives her an annual
income of P120,000. The partners decided that profits and losses shall be shared equally. Upon
formation, assuming a chattel mortgage of P10,000 on the equipment is assumed by the partnership, the
net assets of the partnership is equal to:
a. P210,000
b. P200,000
c. P220,000
d. P330,000
[11]. On October 1, 2011, Mel and Garri pooled their assets and form a partnership, with the firm to take over
their business assets and assume their liabilities. The partner’s capitals are to be based on net assets
transferred after the following adjustments: Garri’s inventory is to be increased by P3,000; an allowance
for bad debts of P1,000 and P1,500 are to be set up in the books of Mel and Garri, respectively; and
P4,000 of accounts payable are to be recognized in Mel’s books. The individual trial balances on October
1 show the following:
Mel Garri
Assets P113,000 P75,000
Liabilities 34,500 5,000
Capital 78,500 70,000
What is the capital balance of Mel and Garri assuming they agree to share capital equally?
a. P65,000
b. P72,500
c. P74,250
d. P80,000
[12]. Chona and Charo formed a partnership on May 31, 2011. Chona’s contribution consisted of her
proprietorship’s net assets with current fair value of P60,000. Charo contributed enough cash to secure a
one-fourth interest in the partnership. If Chona is allowed goodwill credit equal to 20% of her initial
capital, Charo’s cash contribution was:
a. P15,000
b. P20,000
c. P25,000
d. P30,000
[13]. Flores, Peralta, and Jose are forming a new partnership. Flores will invest cash of P120,000 and his
office equipment costing P144,000 but has a market value of P60,000. Peralta is to invest cash of
P192,000 and Jose is to contribute P60,000 cash and a brand new delivery truck with a market value of
P144,000 although he bought it for only P120,000. The partners will share profits and losses in the ratio
of 25:25:50 for Flores, Peralta and Jose, respectively.
The capital balances of the partners upon formation are:

Flores Peralta Jose
a. P264,000 P192,000 P180,000
b. P180,000 P192,000 P204,000
c. P192,000 P192,000 P192,000
d. P212,000 P212,000 P211,200
[14]. DJ and EJ, on May 31, 2011, pooled their net assets to form a partnership, with the new firm taking over
the business assets and assuming their liabilities. The partner’s capitals are to be based on net assets
transferred after the following adjustments: allowance for doubtful accounts of P1,000 and P1,500 are to
be set up on the books of DJ and EJ, respectively; EJ’s inventory is to be increased by P3,000; and,
accounts payable of P4,000 is to be recorded on DJ’s books. The individual trial balances on this date
show:
DJ EJ
Assets P105,000 P113,000
Liabilities 35,000 34,500
Capital 70,000 78,500
What is EJ’s adjusted capital balance?
a. P77,000
b. P80,000
c. P81,500
d. P85,500
[15]. When property other than cash is invested in a partnership, at what amount should the non-cash
property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.
[16]. Pula invites Puti to join his business as a partner. The capital account of Pulahas a credit balance of
P300,000. Puti will invest cash of P120,000 and he will be given a capital credit of 30% of the total capital
after making the following adjustments in the books of Pula: (a) The accumulated depreciation of the
equipment is to be increased by P7,500; (b) Prepaid expenses are to be reduced by P2,400.
The capital account of Pula and Puti immediately after the formation of the partnership are:
a. P300,000 and P120,000, respectively;
b. P290,100 and P120,000, respectively;
c. P287,070 and P123,030, respectively;
d. P287,070 and P 40,000, respectively.
[17]. On March 1, 2011, Jhan and Feb formed a partnership with each contributing the following assets:
Jhan Feb
Cash P30,000 P70,000
Machinery and Equipment 25,000 75,000
Building - 225,000
Furniture and Fixtures 10,000 -
The building is subject to a mortgage loan of P90,000, which is to be assumed by the partnership. The
partnership agreement provides that Jhan and Feb share profits and losses 30 percent and 70 percent,
respectively.
Assuming that the partners agreed to bring their respective capital in proportion to their respective profit
and loss ratio, and using Feb’s capital as the base, how much cash is to be invested by Jhan?
a. P19,000
b. P30,000
c. P40,000
d. P55,000
[18]. Bel, Joy, and Franco, new CPAs, are to form a partnership. Bel will contribute cash of P50,000 and his
computer that originally cost P60,000 but with a second-hand value of P25,000. Joy will contribute
P80,000 in cash. Franco, whose family sells computers, will contribute P25,000 in cash and a brand new
computer with printer that cost his family’s computer dealership P50,000 but with a regular selling price of
P60,000. The three agree to share profits and losses equally. Upon formation, capital balances are:
a. Bel, P 75,000; Joy, P80,000; and, Franco, P85,000
b. Bel, P 80,000; Joy, P80,000; and, Franco, P80,000
c. Bel, P 88,333; Joy, P88,333; and, Franco, P88,334
d. Bel, P110,000; Joy, P80,000; and, Franco, P75,000
[19]. Mark admits Jimenez as a partner in the business. Balance sheet accounts of Mark just before the
admission of Jimenez show: Cash, P26,000, accounts receivable, P120,000, merchandise inventory,
P180,000, and accounts payable P62,000. It was agreed that for purposes of establishing Mark’s
interest, the following adjustments be made:
A. An allowance for doubtful accounts of 3% of accounts receivable is to be established;
B. Merchandise inventory is to be adjusted upward by P25,000; and
C. Prepaid expenses of P3,600 and accrued liabilities of P4,000 are to be recognized.
If Jimenez is to invest sufficient cash to obtain 2/5 equity in the partnership, how much would Jimenez
contribute to the new partnership?
a. P176,000
b. P190,000
c. P 95,000
d. P113,980
[20]. The balance sheet as of July 31, 2011 for the business owned by Gloriants shows the following assets
and liabilities:
Cash P 2,500
Accounts Receivable 10,000
Merchandise Inventory 15,000
Fixtures 18,000
Accounts Payable 6,000
It is estimated that 5% of the accounts receivables may prove uncollectible. Merchandise inventory
includes obsolete items costing P5,000 of which P2,000 might still be realized. Depreciation has never
been recorded for the fixtures which are already two years old. They have an estimated useful life of 10
years, and have a current fair value of P20,000. Cruzants is to be admitted as a partner upon his
investment of P20,000 cash and P10,000 worth of merchandise. What is the total assets of the
partnership?
a. 70,500
b. 48,000
c. 67,500
d. 74,000
Questions 21 and 22 are based on the following information:
Selected balance sheet accounts of Silvano on December 31, 2011 are shown below:
Cash P30,000
Accounts receivable 25,000
Inventory 45,000
Furniture 32,000
Accounts payable 8,000
The following adjustments are to be made before he agree to admit Pegasus as a partner in exchange for
his investment of P20,000 cash:
§ 3% bad debts should be provided.

§ The fair value of the furniture is P27,000.
§ P5,000 of the inventory is obsolete but can still be sold for P3,000.
[21]. After adjustment, how much capital should be reflected in the books of Silvano?
a. P115,250
b. P116,250
c. P124,000
d. P132,250
[22]. How much is the total assets of the new partnership?
a. P116,250
b. P124,000
c. P124,250
d. P144,250
[23]. On September 30, 2011, Pain admits Gain for an interest in his business. On this date, Pain’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
uncollectibles.
3. Gain is to be credited with a one-third equity in the partnership and is to invest cash aside from the
P50,000 worth of merchandise.
The amount of cash to be invested by Gain and the total capital of the partnership are:
a. 32,950 and 248,850, respectively.
b. 55,300 and 221,200, respectively.
c. 82,950 and 248,850, respectively.
d. 32,950 and 171,200, respectively.
[24]. On May 1, 2011, July and June formed a partnership and agreed to share profits and losses in the ratio
of 3:7, respectively. July contributed a computer that cost him P50,000. June contributed P200,000
cash. The computer was sold for 55,000 on May 1, 2011 immediately after the formation of the
partnership. What amount should be recorded in July’s capital account on formation of the partnership?
a. P55,000
b. P51,000
c. P60,000
d. P50,000
[25]. Yellow, Orange and Violet form a partnership on May 1, 2011. They agree that Yellow will contribute
office equipment with a total fair value of P40,000; Orangewill contribute delivery equipment with a fair
value of P80,000; and Violet will contribute cash. If Violet wants a one-third interest in the capital and
profits, how much should she invest?
a. P 40,000
b. P 60,000
c. P120,000
d. P180,000
[26]. Wilder and Nest will pool their net assets and form a partnership, which will take over the assets and
assume the liabilities. The agreed capital of the new partnership is the total net assets to be transferred
subject to the following adjustments:
§ Wilder’s inventory is to be increased by P3,000.

§ Accounts receivable of P1,000 and P1,500 for Wilder and Nest respectively, will be written off.
§ Accrued expenses of P4,000 are to be recognized in Wilder’s books.
The unadjusted capital of Wilder is P78,500 and Nest is P70,000.
What is the capital balance of each partner assuming they agree to be equal partners?
a. P65,000
b. P72,500
c. P74,250
d. P80,000
[27]. On October 1, 2011, Clara and Maria joined in a partnership. Clara contributed cash while Maria
contributed merchandise worth P25,000 and a second–hand delivery truck currently valued at P50,000
but encumbered by a one-year chattel mortgage note for P15,000. If initial capital balances are to
conform to the profit-sharing ratio of 2:3, respectively, the amount of cash contributed by Clara was:
a. P24,000
b. P30,000
c. P40,000
d. P50,000
Questions 28 and 29 are based on the following information about Aga-Mata Partnership:
Aga and Mata are planning to form a partnership. Aga will invest P20,000 for a 20% interest in the new
partnership. Mata will invest cash and his equipment with a market value of P50,000. They will share
profits and losses equally.
[28]. How much cash should Mata invest?
a. P30,000
b. P50,000
c. P60,000
d. P80,000
[29]. How much is the total cash investment of the partners?
a. P30,000
b. P50,000
c. P60,000
d. P80,000
[30]. Al and Macmod decide to form a partnership. The initial investments of the partners will include cash of
P120,000 for Al and P80,000 for Macmod. Al will transfer his office equipment with a book value of
P96,000 and a fair market value of P84,000 to the partnership. Macmod will transfer his land fairly valued
at P1,000,000 and the building thereon fairly valued at P600,000. Macmod has just bought these at a
lump sum price of P1,800,000. In addition, the partnership will assume the mortgage of P400,000 on the
building.
What will be the total capital of the partnership?
a. P1,484,000
b. P1,496,000
c. P1,684,000
d. P1,946,000
Partnership Operation
[31]. Mr. Zoom and his very close friend, Mr. Boom, formed a partnership on January 1, 2011, with Zoom
contributing P16,000 cash and Boom contributing equipment, with a book value of P6,400 and fair value
of P4,800, and inventory items, with a book value of P2,400 and fair value of P3,200. During 2011, Boom
made additional investments of P1,600 on April 1 and P1,600 on June 1, and withdrew P4,000 on
September 1. Zoom had no additional investments or withdrawals during the year. What was the average
capital balance of Mr. Boom during 2011?
a. P9,600
b. P8,800
c. P8,000
d. P7,200
[32]. Dulce Martin, a partner in a partnership that carries the name of The Sweet Shop, has a 30%
participation in partnership profits. Her capital account has a net decrease of P48,000 during 2011. In the
same year, she withdrew P104,000 (charged against her capital account) and contributed property valued
at P20,000 to the partnership. The net income of the partnership for 2011 was:
a. P 36,000
b. P120,000
c. P132,000
d. P440,000
[33]. Partners Jose, Luciano, and Placido have average capital balances of P240,000, P120,000, and
P80,000, respectively, during 2011. Each partner receives 10% interest on his average capital balance.
After deducting salaries of P60,000 for Jose and P40,000 for Placido, the residual profit or loss is divided
equally. In 2011, the partnership sustained a P66,000 loss before partners’ interests and salaries. By how
much would Placido’s capital account change?
a. P20,000 increase
b. P22,000 decrease
c. P32,000 decrease
d. P48,000 increase
[34]. On January 1, 2011, Zeep and Beep have capital balances of P20,000 and P16,000, respectively. On
July 1, 2011, Zeep invested an additional P4,000 while Beep withdrew P1,000. Profits and losses are
divided as follows: Beep is the managing partner and as such shall receive P16,000 as salary, with Zeep
receiving P7,200; both partners should receive interest of 10% based on their beginning capital balances,
to offset whatever difference in capital investments they have; and, any remainder shall be divided
equally. The net income of the partnership for 2011 was P9,600. What was Zeep’s share in net income
for 2011?
a. P9,200
b. P4,800
c. P 880
d. P 600
[35]. Red and White formed a partnership in 2011. The partnership agreement provides for annual salary
allowances of P55,000 for Red and P45,000 for White. The partners share profits equally and losses in
a 60:40 ratio. The partnership had earnings of P80,000 for 2011 before any allowance to partners. What
amount of these earnings should be credited to each partner’s capital account?
Red White
a. P40,000 P40,000
b. P43,000 P37,000
c. P44,000 P36,000
d. P45,000 P35,000
[36]. On January 2, 2011, Bueno and Perez formed a partnership with capital distributions of P175,000 and
P25,000, respectively. They agreed to share profits and losses 80% and 20%, respectively. Perez is the
general manager and works in the partnership full time. Perez is given salary of P5,000 a month; an
interest of 5% on starting capital; and a bonus of 15% of net profit before the salary, interest, and bonus.
The condensed profit and loss statement of the partnership, for the year ended December 31, 2011, is as
follows:
Net sales P875,000

Cost of sales 700,000
Gross profit on sales P175,000
Expenses (including salary, interest and bonus) 143,000
Net profit P 32,000
The bonus in 2011 is
a. P13,304.35
b. P18,000.00
c. P15,300.00
d. P20,700.00
Questions 37 & 38 are based on the following information:
Herm, Marc, and Alex formed a partnership on January 1, 2011, and contributed P150,000, P200,000,
and P250,000, respectively. The articles of co-partnership provides that the operating income be shared
among the partners as follows: as salary, P24,000 for Herm, P18,000 for Marc, and P12,000 for Alex;
interest of 12% on the average capital during 2011 of the three partners; and, the remainder in the ratio of
2:4:4, respectively.
The operating income for the year ending December 31, 2011 amounted to P176,000. Herm contributed
additional capital of P30,000 on July 1 and made a drawing of P10,000 on October 1; Marc contributes
additional capital of P20,000 on August 1 and made a drawing of P10,000 on October 1; and, Alex made
a drawing of P30,000 on November 1.
[37]. The division of the P176,000 operating income is:

a. Herm, P53,760; Marc, P62,520; and, Alex, P59,720
b. Herm, P35,200; Marc, P70,400; and, Alex, P70,400
c. Herm, P48,400; Marc, P66,800; and, Alex, P60,800
d. Herm, P53,180; Marc, P62,060; and, Alex, P60,760
[38]. The partners’ capital balances on December 31, 2011 are:

a. Herm, P179,680; Marc, P229,360; and, Alex, P239,360
b. Herm, P179,760; Marc, P229,520; and, Alex, P239,520
c. Herm, P189,680; Marc, P239,360; and, Alex, P269,360
d. Herm, P223,180; Marc, P272,060; and, Alex, P280,760
[39]. The partnership agreement of Bing and Bong provides that Bing is to receive a 20% bonus on profits
before the bonus. Remaining profits and losses are divided in the respective ratio of 2:3. Which partner
has a greater advantage when the partnership realizes a profit or when it sustains a loss?
Profit Loss
a. Bing Bong
b. Bing Bing
c. Bong Bing
d. Bong Bong
[40]. Michelle, an active partner in the Michelle-Esme Partnership, receives an annual bonus of 25% of the
partnership income after deducting the bonus. For the year ended December 31, 2011, the partnership
income before bonus amounted to P240,000. The bonus of Michelle for the year 2011 is
a. P45,000
b. P48,000
c. P60,000
d. P80,000
Partnership Dissolution – Admission of Partner
[41]. Mark and Valerie are partners with capitals P200,000 and P100,000 and sharing profits and losses at
3:1, respectively. They decided to admit Nora as a new partner with a 50% interest in the firm. Nora
invested cash of P150,000, and Mark and Valerie transferred portions of their capitals as a bonus to
Nora. After Nora’s admission, Valerie’s capital would be:
a. P 37,500 c. P 81,250
b. P 56,250 d. P100,000
[42]. Tito and Vic, partners sharing profits and losses equally, have capital balances of P90,000 each. Joey
is admitted as a new partner, making cash investment of P120,000, to a one-third interest in both capital
and earnings. If Joey is credited in full for the amount of his investment, the new capital of the
partnership would be:
a. P240,000.
b. P300,000.
c. P360,000.
d. P420,000.
[43]. Moonbits Partnership had a net income of P8,000 for the month ended September 30, 2011. Sunshine
purchased an interest in Moonbits Partnership of Liz and Dick by paying Liz P32,000 for half of her capital
and half of her 50% profit-sharing interest on October 1, 2011. At this time, Liz’s capital balance was
P24,000 and Dick’s capital was P56,000. Sunshine should receive capital credit equal to:
a. P12,000
b. P16,000
c. P20,000
d. P26,667
[44]. Sarah is admitted into the firm of Joy, AA and Pilar. The old partners agreed to sell to Sarah one-fourth
of their respective equities and profit share. Sarah paid a total price of P1,000,000. Before Sarah’s
admission, Joy, AA and Pilar have capital balances of P2,000,000, P1,000,000 and P500,000 and they
share profits at the ratio of 6:3:1. Partnership assets are fairly stated and implied goodwill is to be
recognized prior to Sarah’s admission.
The new capital of the partnership is:
a. P3.5M
b. P4M
c. P5M
d. P4.5M
Questions 45 & 46 are based on the following information:
Mitz, Marc and Mert are partners sharing profit in a 5:3:2 ratio, and with capital balances of P95,000,
P80,000, and P60,000, respectively, on December 31, 2011. The partners decided to admit Vince as a
new partner on January 1, 2011. Vince will contribute cash of P80,000 to the partnership and also pay
P15,000 for 15% of Marc’s share. Vince is to have a 20% share in profits. After the admission of Vince,
the total capital will be P330,000 and Vince’s capital will be P70,000.
[45]. Upon the admission of Vince, the total amount of “goodwill” for the old partners would be:
a. P 7,000
b. P15,000
c. P22,000
d. P37,000
[46]. After the admission of Vince, Marc’s capital balance would be:
a. P72,600
b. P74,600
c. P79,100
d. P81,100
[47]. The admission of a new partner to a 20% interest for an investment of P18,000, with a total agreed
capital of P75,000, will result in:
a. Goodwill to the old partners.

b. Goodwill to the new partner.
c. Bonus to the old partners.
d. Bonus to the new partner.
[48]. Black and White are partners who have capital balances of P600,000 and P480,000, and sharing profits
in the ratio of 3:2. Blue is admitted as a partner upon investing P220,000 for a 25% interest in the firm,
and profits are to be shared equally. Given the choice between goodwill and bonus methods, Blue would:
a. Prefer bonus method due to Blue’s gain of P105,000
b. Prefer bonus method due to Blue’s gain of P140,000.
c. Prefer goodwill method due to Blue’s gain of P140,000.
d. Be indifferent for goodwill and bonus methods are the same.
Questions 49 and 50 are based on the following information:
Terry and Timmy entered into a partnership on May 31, 2011, contributing cash of P48,000 and P32,000,
respectively, and agreeing to divide earnings in the ratio of their initial investments after allowing annual
salary allowance of P12,000 each. On December 31, 2011, the income summary account had a credit
balance of P34,000, while drawing accounts showed debit balances of P14,000 for Terry and P10,000 for
Timmy.
At the beginning of the next year, Tommy was admitted into the firm as a new partner with a 33-1/3%
interest for a capital credit equal to his cash investment of P60,000. Terry and Timmy then effected a
private cash settlement between themselves in order to make the capital balances conform to a new
profit-sharing ratio of 4:2:3, respectively, with salary allowances scrapped.
[49]. How much was the amount of goodwill, if any, that was recognized in connection with the admission of
the new partner?
a. P20,000
b. P24,000
c. P30,000
d. P36,000
[50]. How much was the amount of the private cash settlement effected between the old partners?
a. P5,000 c. P12,000
b. P9,000 d. P15,000
Partnership Dissolution – Retirement of Partner

[51]. When Nena retired from the partnership of Nena, Nina, and Nona, the final settlement of Nena’s interest
exceeded her capital balance. Under the bonus method, the excess is:
a. Recorded as goodwill.
b. Recorded as an expense.
c. Of no effect to the capital accounts of Nina and Nona.
d. Deducted from the capital account balances of Nina and Nona.
[52]. Luz, Vi, and Minda are partners with capital balances, as of December 31, 2011, of P300,000, P300,000
and P200,000, respectively, and who share profits and losses equally. Minda wishes to withdraw, and it
is agreed that she is to take certain furniture items, with second hand value of P50,000 and a note for the
balance of her interest. The furniture items are carried in the books at P65,000; brand new, however,
they would cost P80,000. the value of the note that Minda would get is:
a. P120,000. c. P145,000
b. P135,000. d. P150,000
[53]. Juan, Pedro, and Pablo are partners who share profits and losses in a 5:3:2 ratio and, on January 1,
2011, have capital balances of P90,000, P160,000, and P200,000, respectively. Pablo withdrew from the
partnership on July 1, 2011 and the partners agreed that, as of this date, certain inventory items would
have to be revalued at P70,000 from their recorded cost of P50,000. For the six-month period ending
June 30, 2011, the partnership realized a net income of P130,000. The partners decided that Pablo
should be paid P245,000 for his interest and the remaining partners’ capital accounts should be adjusted
for any goodwill resulting from the settlement. The payment to Pablo included goodwill of:
a. P15,000.
b. P25,000.
c. P42,500.
d. P50,000.
[54]. Paco, Quin, and Romy are partners with capital balances on June 30, 2011 of P300,000, P300,000 and
P200,000, respectively, and sharing profits and losses equally. Romy is to retire, and it is agreed that he
is to take certain furniture (with second-hand value of P50,000) and a note for his interest. The furniture is
carried in the books at P65,000, but brand new would cost P80,000. Romy’s acquisition of the furniture
would result in:
a. Reduction in capital of P5,000 each for Raco, Quin and Romy
b. Reduction in capital of P7,500 each for Paco and Quin
c. Reduction in capital of P15,000 for Romy
d. Reduction in capital of P55,000 for Romy.
[55]. Luz, Vi, and Minda are partners with capital balances, as of December 31, 2011, of P300,000,
P300,000, and P200,000, respectively, and who share profits and losses equally. Minda wishes to
withdraw, and it is agreed that she is to take certain furniture items, with a second-hand value of P50,000,
and a note for the balance of her interest. The furniture items are carried in the books at P65,000; brand
new, however, they would cost P80,000. The value of the note that Minda would get is:
a. P120,000 c. P145,000
b. P135,000 d. P150,000
[56]. The condensed balance sheet of the partnership of Tic, Tac and Toe as
Net assets P 400,000
Tic, capital (50%) P 200,000

Tac, capital (30%) 120,000
Toe, capital (20%) 80,000
Total capital P 400,000
As of said date, Tic retired from the partnership. Per agreement, Tic was paid P225,000 for his interest
and the goodwill implied from the settlement was recorded. After Tic’s retirement, the partnership’s “net
assets” was:
a. P175,000
b. P200,000
c. P225,000
d. P250,000
[57]. Juan, Pedro, and Pablo are partners who share profits and losses in a 5:3:2 ratio and, on January 1,
2011, have capital balances of P90,000, P160,000, and P200,000, respectively. Pablo withdrew from the
partnership on July 1, 2011 and the partners agreed that, as of this date, certain inventory items would
have to be revalued at P70,000 from their recorded cost of P50,000. For the sixth month period ending
June 30, 2011, the partnership realized a net income of P130,000. The partners decided that Pablo
should be paid P145,000 for his interest and the remaining partners’ capital accounts should be adjusted
for any goodwill resulting from the settlement. The payment to Pablo included goodwill of:
a. P15,000 c. P42,500
b. P25,000 d. P50,000
[58]. Hugo, Ivan, and Juni are partners sharing profits and losses in the respective ratio of 3:3:4. Juni is given
permission to retire effective May 31, 2011, and it was agreed that settlement is to be made by the
remaining partners making payments from their personal funds. The capital balances o this date
are P30,000, P25,000 and P45,000 for Hugo, Ivan, and Juni, respectively. If Juni received P45,000, how
much did Hugo pay Juni?
a. P13,500
b. P18,000
c. P22,500
d. P45,000
[59]. Karen, Karmi, and Kathy are partners sharing profits in the respective ratio of 2:3:5. On May 31, 2011,
Kathy opted to retire. The capital account balances, at this time, are P95,000, P140,000, and P135,000,
respectively. Assuming that Kathy is paid P132,000, Karen would be credited:
a. P 600
b. P 857
c. P1,200
d. P1,800
[60]. ANA, MAE, and RAE share partnership profits and losses in the ratio of 2:3:5, respectively. On October
31, 2011, RAE was permitted to withdraw from the partnership at which time their capital balances were:
Ana, capital P25,000

Mae, capital 40,000
Rae, capital 35,000
If RAE is paid P39,000 in full payment of her interest, the capital of ANA immediately after RAE’s
withdrawal would be:
a. P22,600
b. P23,000
c. P23,400
d. P26,600
Incorporation of Partnership
[61]. The condensed balance sheet of the partnership of Ken Sy and Ben Ty as of December 31, 2011
showed the following:
Total assets P200,000

Total liabilities 40,000
Ken Sy, capital 80,000
Ben Ty, capital 80,000
On this date, the partnership was dissolved and its net assets were transferred to a newly-formed
corporation. The fair value of the assets was P24,000 more than the carrying value of the firm’s books.
Each of the partners was issued 10,000 shares of the corporation’s P1 par common stock. Immediately
after effecting the transfer of the net assets, and the issuance of stock, the corporation’s additional paid in
capital account would be credited for:
a. P136,000
b. P140,000
c. P154,000
d. P164,000
[62]. Mac, Kuh, and Nat, partners sharing profits and losses equally, decided to form a corporation. They
have capital balances, respectively, ofP100,000, P100,000, and P200,000, and all of their assets and
liabilities will be transferred to the corporation. Their net assets will be revalued from P400,000 to
P550,000, with the substantial revaluation due to land which was originally contributed by Nat at
P100,000. At P10 par value, the partners are to receive shares of stock as follows:
a. 10,000, 10,000, and 35,000, respectively
b. 12,500, 12,500, and 30,000, respectively
c. 15,000, 15,000, and 25,000, respectively
d. 18,333, 18,333, and 18,334, respectively
[63]. Partners Rob and Roy, who share equally in profits and loses, have the following balance sheet as of
December 31, 2011:
Cash P120,000 A/Payable P172,000

A/receivable 100,000 Accum. Dep’n. 8,000
M/Inventory 140,000 Rob, capital 140,000
Equipment 80,000 Roy, capital 120,000
Total P440,000 Total equities P440,000
They agreed to incorporate their partnership, with the new corporation absorbing the net assets
after the following adjustments: provision of allowance for bad debts of P10,000; statement of the
inventory at its current fair value of P160,000; and, recognition of further depreciation on the equipment of
P3,000. The corporation’s capital stock is to have a par value of P100, and the partners are to be issued
corresponding total shares equivalent to their adjusted capital balances.
The total par value of the shares of capital stock that were issued to partners Rob and Roy was:
a. P260,000
b. P267,000
c. P273,000
d. P280,000
[64]. Mac, Kuh, and Nat, partners sharing profits and losses equally, decided to form a corporation. They
have capital balances, respectively, of P100,000, P100,000, and P200,000, and all of their assets and
liabilities will be transferred to the corporation. Their net assets will be revalued from P400,000 to
P550,000, with the substantial revaluation due to land which was originally contributed by Nat at
P100,000. At P10 par value, the partners are to receive shares of stock as follows:
a. 10,000, 10,000, and 35,000, respectively.
b. 12,500, 12,500, and 30,000, respectively.
c. 15,000, 15,000, and 25,000, respectively.
d. 18,333, 18,333, and 18,334, respectively.
Partnership Liquidation (Lump-sum & Installment)
[65]. Gardo and Gordo formed a partnership on July 1, 2011 to operate two stores to be managed by each of
them. They invested P30,000 and P20,000 and agreed to share earnings 60% and 40% respectively. All
their transactions were for cash, and all their subsequent transactions were handled through their
respective bank accounts as summarized below:
Gardo Gordo
Cash receipts P79,100 P65,245
Cash disbursements 62,275 70,695
On October 31, 2011, all remaining noncash assets in the two stores were sold for cash of P60,000. The
partnership was dissolved, and cash settlement was effected. In the distribution of the P60,000 cash,
Gardo received
a. P24,000
b. P26,000
c. P34,000
d. P36,000
[66]. The partner AA, Bida, Cita, and Dina, who share profits and losses in the respective ratio of 3:3:2:2,
decided to liquidate their partnership. Just prior to liquidation, they prepared the following summary
balance sheet:
Cash P 100,000 Liabilities P 750,000

Other assets 1,800,000 Bida, loan 160,000
Dina, loan 50,000
AA, capital 420,000
Bida, capital 215,000
Cita, capital 205,000
Dina, capital 100,000
Total P1,900,000 Total P1,900,000
The noncash assets realized P800,000. If all the partners are personally solvent, deficiency/deficiencies,
resulting from the liquidation process, will require additional cash from:
a. Bida at P85,000 and Dina at P100,000
b. Bida at P85,000
c. Dina at P50,000
d. None of the above
[67]. The balance sheet of the partnership of Salve, Gilda, and Nora, who share profits and losses in the
respective ratio of 5:3:2, follows:
Assets Liabilities and Capital

Other assets 320,000 Salve, capital 80,000
Gilda, capital 115,000
Nora, capital 05,000
Total P350,000 P350,000
The partners agreed to liquidate the partnership by installments. Immediately there was a realization of
P100,000 cash from selling other assets with a book value of P150,000. Of the cash available, the priority
is the payment of the liabilities and the balance is to be distributed to the partners.
How should the remaining cash be distributed.
a. Salve, P50,000; Gilda, P30,000; and, Nora, P20,000.
b. Salve, P40,000; Gilda, P24,000; and, Nora, P16,000.
c. Salve, P---0---; Gilda, P31,000; and, Nora, P49,000.
d. Salve, P---0---; Gilda, P48,000; and, Nora, P32,000.
Questions 68 through 70 are based on the following data from the records of ABC Partnership:
ABC Partnership
Balance Sheet
December 31, 2010
Assets
Cash P 2,000
Other Noncash Assets 28,000
Total P 30,000
Liabilities & Net Worth
Liabilities P 5,000
A, loan 2,500
A, capital 12,500
B, capital 7,000
C, capital 3,000
Total P 30,000
Profit and loss ratio is 3:2:1 for A, B, and C, respectively. The other non-cash assets were realized as
follows:
Date Cash Received Book Value

Jan. , 2011 P 6,000 P 9,000
Feb., 2011 3,500 7,700
Mar., 2011 12,500 11,300
Cash is distributed as assets are realized.
[68]. The total loss to A is

a. P3,000
b. P2,000
c. P1,000
d. P0
[69]. The total cash received by B is:

a. P2,200
b. P0
c. P5,000
d. P1,500
[70]. Cash received by C in January is:

a. P 200
b. P1,000
c. P 500
d. P0
[71]. X, Y and Z have capital balances of P40,000, P50,000, and P18,000 and a profit-sharing ratio of 4:2:1,
respectively. If X received P8,000 upon liquidation of the partnership, the total amount received by all the
partners was:
a. P108,000
b. P 56,000
c. P 52,000
d. P 24,000
[72]. Assume the same facts above, except that X received P26,000 as a result of the liquidation. Z received,
as part of the liquidation, the amount of:
a. P26,000
b. P14,500
c. P18,000
d. P14,000
[73]. Sanchez and Tan are partners sharing profits equally and with capital balances, respectively, of
P750,000 and P500,000. The firm owes Tan P200,000, as evidenced by a promissory note. Upon
liquidation, cash of P300,000 becomes available for distribution to the partners. In the final cash
distribution, the respective shares of Sanchez and Tan will be:
a. P150,000 and P150,000
b. P175,000 and P125,000
c. P200,000 and P100,000
d. P275,000 and P 25,000
[74]. After operating for five years, the partnership of Remy and Martin, who share profits and loses equally,
had balances as follows:
Net assets P130,000

Remy, capital 85,000
Martin, capital 45,000
If liquidation takes place at this time and the assets are realized at book value, Remy and Martin would be
entitled to receive:
a. P65,000 and P65,000, respectively.
b. P85,000 and P45,000, respectively.
c. P90,000 and P40,000, respectively.
d. P97,500 and P32,500, respectively.
[75]. The condensed balance sheet of Alex, Jay and John, as of March 31, 2011 follows:

Other assets 265,000 Alex, capital 95,000
Jay, capital 80,000
John, capital 70,000
Total assets P293,000 Total equities P293,000
The income and loss ratio is 50:25:25, respectively. The partners voted to dissolve their partnership and
liquidate by selling the other assets in installments. The amount of P70,000 was realized to the first cash
sale of other assets with a book value of P150,000. After settlement with creditors all cash available was
distributed to the partners. How much was received by John in the cash distribution?
a. P30,000 c. P21,250
b. P20,000 d. P31,250
[76]. Jo, Lee, and Vi are partners sharing profits 30%, 20%, and 50%, and with capital balances of P350,000,
P250,000, and P350,000, respectively. The partners agreed to dissolve their partnership and, upon
liquidation, all of the partnership’s assets are sold and sufficient cash is realized to pay all claims except
one for P50,000. Vi is personally insolvent, but the other two partners are capable of meeting any
indebtedness of the firm. Of the remaining claim against the firm, Jo is to absorb:
a. P15,000
b. P25,000
c. P30,000
d. P40,000
[77]. On October 31, 2011, Ivy, Irma, and Irene, who share earnings 5:3:2 respectively, decided to liquidate
their partnership at which time their condensed balance sheet was as follows:

Other assets 250,000 Ivy, capital 80,000
Irma, capital 90,000
Irene, capital 70,000
Total assets P300,000 Total equities P300,000
If the first cash sale of assets booked at P150,000 resulted in net realization of P120,000, the amount to
be distributed to Irene would be:
a. P15,000
b. P44,000
c. P51,000
d. P60,000
[lxxviii]. Dan, Ely, and Fil decided to dissolve their partnership on May 31, 2011. On this date, their capital
balances and profit-sharing per cents were as follows:
Dan P50,000 40%

Ely 60,000 30%
Fil 20,000 30%
The net income from January 1 to May 31, 2011 was P44,000. Also on May 31, 2011, the partnership’s
cash and liabilities, respectively were P40,000 and P90,000. For Dan to receive P55,200 in full settlement
of his interest in the partnership, how much must be realized from the sale of the partnership’s non-cash
assets?
a. P177,000
b. P187,000
c. P190,000
d. P193,000
[lxxix]. Bach, Lizst, and Strauss, sharing profits and losses 4:4:2, decided to liquidate their partnership. Just
prior to liquidation, the partnership’s condensed balance sheet was as follows:
Cash P100,000 Liabilities P140,000

Other assets 400,000 Bach, loan 10,000
Bach, capital 45,000
Lizst, capital 105,000
Strauss, capital 200,000
Total P500,000 Total P500,000
The other assets were sold for P247,500, and the partners agreed to make additional cash contributions
to answer for any capital deficiency. Identify the deficient partner, and indicate his additional cash
contribution to finally liquidate the partnership:
a. Bach, P 6,000
b. Bach, P16,000
c. Lizst, P30,500
d. Strauss, P44,000
[lxxx]. Tom, Umi and Vic decided to dissolve their partnership on May 31, 2011. On this date, their capital
balances were as follows:
Tom P50,000 40%

Umi 60,000 30%
Vic 20,000 30%
The net income from January 1 to May 31, 2011 was P44,000. Also on May 31, 2011, the partnership’s
cash and liabilities, respectively were P40,000 and P90,000. What was the book value of the
partnership’s non-cash assets on May 31, 2011?
a. P180,000
b. P190,000
c. P220,000
d. P224,000
-END-
[1]. Letter “B” is the correct answer.

The problem implies that the contribution of Emil is already adequate to entitle him to a 60% share in the
total agreed capital of the partnership. Hence, the total agreed capitalization shall be based on his
contribution of P300,000 or P500,000 (P300,000 ÷ 60%). The agreed capital of Pearl is 40% of P500,000
or P200,000 and her cash contribution shall be equal to the difference between this amount (P200,000)
and the net fair value of the noncash assets she invested. The net fair value of the other assets
contributed by Pearl is equal to P120,000, (P70,000 + P90,000 – P40,000). Therefore, her cash
contribution should be equal to P80,000 (P200,000 – P120,000).
[2]. Letter “D” is the correct answer.

Under the goodwill method, the total agreed capital should be more than the total contributed
capital. Total agreed capital will be more than the total contributed capital only if the contribution of Green
is used as the basis of the total agreed capitalization. Since the fair value of the contribution of Green
amounts to P60,000, then the total agreed capital must be P120,000 (P60,000 ¸ 50%). The initial capital
of Red therefore amounted to P60,000 or 50% of P120,000 as agreed by the partners.

The amount to be recorded as capital of the partners should be based on the fair value of the net asset
(total assets – total liabilities) contributed by each of them. Hence, the capital balances for Pirante and
Wilson should be P70,000 and P150,000, respectively. These amounts are computed as follows:
Pirante Wilson
Assets contributed:
Cash P40,000 P 60,000
Inventory - 30,000
Building - 80,000
Furniture and Equipment 30,000 -
Total P70,000 P170,000
Less mortgage assumed - 20,000
Net assets contributed P70,000 P150,000

Under the bonus method, a portion of the capital of one partner is transferred to another partner. In this
case, the total agreed capital is assumed to be equal to the total contributed capital, P276,000 (P150,000
+ P126,000), and each partner shall be credited one-half (according to agreement) or P138,000. The
partner who contributed more than his agreed capital credit is the one who gave a bonus while the one
who contributed capital less than his agreed capital credit is the one who received it. Belen contributed
P126,000 but received P138,000 (50% x P276,000) capital credit, hence, he received bonus equal to
P12,000 (P138,000-P126,000) from AA who contributed P150,000 but received only P138,000 capital
credit.

The partners’ capital balances upon formation would be P100,000, P10,000, and P100,000,
respectively.
[6]. Letter “C” is the correct answer.

Kathy’s capital account should be credited for the 50% of the total agreed capital which is assumed to be
equal to the actual capital contributed by the partners or P184,000 [50% x (P200,000 + P168,000)]

The partner with the biggest capital account balance as of May 31, 2011 is Cip, computed as follows:
Allen Belen Cenen

Cash P50,000 P - P -
Non cash asset - 80,000 55,000
Mortgage - (35,000) -
Capital account balances P50,000 P45,000 P55,000
Each partner values his contribution at is fair value, reduced by the amount of any liability
assumed by the partnership.

Under the bonus method, goodwill is not recognized; thus, there would be no unidentifiable asset
to be recorded.

The amount of cash contributed by Carla, if initial balances are to conform to the profit-sharing
ratio of 2:3, respectively was P40,000, computed as follows:
Capital contributed by Clara:

Merchandise at fair value P 25,000
Delivery truck at fair value 50,000
Mortgage note payable assumed ( 15,000)
Clara’s contribution P 60,000
Divided by profit share of Clara 3/5
Total agreed capital P100,000
Multiplied by Carla’s profit share ratio 2/5
Carla’s cash contribution P40,000

Upon formation, the net assets of the partnership is equal to the total fair value of the assets contributed
less any amount of liabilities assumed by the partnership, hence the net assets of the partnership is equal
to P, computed as follows:
Assets contributed by:

AA P100,000
BB 10,000
CC 100,000
Total P210,000
Less liabilities assumed 10,000
Net assets contributed by the partners P200,000

The capital balance of Mel and Garri assuming they agree to share their capital equally would be
P72,500, computed as follows:
Unadjusted capital (P78,500 + P70,000) P148,500

Inventory write-up 3,000
Allow. for bad debts (P1,000 + P1,500) ( 2,500)
Increase in accounts payable (4,000)
Adjusted capital P145,000
Divide by 2
Capital balance of each partner P72,500

If Chona is allowed goodwill credit equal to 20% of her initial capital, Charo’s cash contribution was
Chona’s initial capital (P60,000/80%) P 75,000

Divided by Chona’s capital share ¾ or 75%
Total agreed capital of the partners P100,000
Multiplied by Chona’s capital share ¼ or 25%
Charo’s cash contribution P 25,000
Chona’s initial capital is equal to her net assets contribution which is 80% plus her goodwill credit of 20%.
Charo’s cash contribution is equal to one-fourth (¼) of total partnership capital or 1/3 of Chona’s capital.

The capital balances of the partners upon formation are P180,000, P192,000, and P204,000, respectively,
computed as follows:
Investments: Flores Peralta Jose

Cash P120,000 P192,000 P 60,000
Equipment 60,000
Truck 144,000
Capital balances P180,000 P192,000 P204,000

EJ’s adjusted capital balance is P80,000 computed as follows:
EJ’s capital before adjustment (given) P78,500

Add (deduct) adjustment for:
Allowance for doubtful accounts P(1,500)
Inventory increase 3,000
Net adjustment 1,500
EJ’s adjusted capital balance P80,000
[15]. Letter “A” is the correct answer.

Non-cash assets contributed to an entity should be recorded at fair market value at the date of
contribution. The creation of a new entity creates a new accountability for these assets.
The capital account of Pula and Puti immediately after the formation of the partnership would have
balances equal to P287,070 and P123,030, respectively. These amounts were computed as follows:
Capital of Pula before adjustments P300,000

Add (deduct) adjustments:
Increase in depreciation (7,500)
Reduction in prepaid expenses (2,400)
Adjusted capital of Pula P290,100
Add cash contributed by Puti 120,000
Share of Pula (70% x P410,100) P287,070
Share of Puti (30% x P410,100) P123,030

The capital contributed by Feb is P280,000 (P70,000 + P75,000 + P225,000 – P90,000), the total agreed
capital is therefore equal to P400,000 (P280,000/70%), 30% of which or P120,000 should be credited to
Jhan. Since his initial capital contribution is P65,000 (P30,000 + P25,000 + 10,000) only, he needs to
invest P55,000 more (P120,000-P65,000).

Partners’ capital balances upon formation are Bel, P75,000; Joy, P80,000, and Franco, P85,000,
respectively, computed as follows:
Bel Joy Franco
Cash P50,000 P80,000 P25,000
Non-cash assets 25,000 - - - - - -- 60,000
Initial capital balances P75,000 P80,000 P85,000

If Jimenez is to invest cash for a 2/5 interest in the partnership, it means that the adjusted capital of Mark
is 3/5 of the total agreed capital. The adjusted capital of Mark is computed as follows:
Capital before adjustments (Sub-computation a) P264,000

Add net adjustments (Sub-computation b) 21,000
Adjusted Capital of Mark P285,000
Sub-computation a:
Cash P 26,000
Inventory 180,000
Accounts payable (62,000)
Unadjusted Capital of Mark P264,000
Sub-computation b:
Allowance for doubtful accounts [3% x P120,000] (P 3,600)
Increase in merchandise inventory 25,000
Recognition of Prepaid expenses 3,600
Recording of accrued expenses (4,000)
Net adjustment to capital of Mark P21,000
Total agreed capital is therefore equal to P475,000 (P285,000 ÷ 3/5), 2/5 of this or P190,000 (P475,000 x
2/5) belongs to Jimenez which he agreed to provide for in cash.

The total assets of the partnership is equal to P74,000, computed as follows:
Cash (P2,500 + P20,000) P22,500
Accounts receivable (P10,000 – P500) 9,500
Merchandise Inventory:
(P15,000 – P3,000 + P10,000) 22,000
Fixtures (fair market value) 20,000
The adjusted capital of Silvano is P116,250, computed as follows:
Total Assets (computation a) P132,000
Less accounts payable (given) 8,000
Capital before adjustments P124,000
Less net adjustments (computation b) 7,750
Adjusted capital of Silvano P116,250
Computation a:
Cash P 30,000
Inventory 45,000
Furniture 32,000
Computation b:
Provision for bad debts (3% x P25,000) P 750
Reduction in the value of furniture:
(P32,000 – 27,000) 5,000
Decrease in the value of inventory:
(P5,000 – 3,000) 2,000
Net adjustments P7,750

The total assets of the new partnership is equal to P144,250, computed as follows:
Adjusted capital of Silvano P116,250
Add accounts payable 8,000
Total adjusted assets P124,250
Add cash investment of Pegasus 20,000
Total assets of the new partnership P144,250

Because gain is to invest cash aside from P50,000 worth of merchandise it is assumed that the adjusted
capital of Pain is equal to his 2/3 capital share ( 1 less 1/3 agreed share of Gain). Hence, to compute the
total agreed capital of the partnership as well as the cash to be invested by Gain, Pain’s adjusted capital
should be computed first. The adjusted capital of Pain is equal to P165,900, computed as follows:
Capital before adjustments (given) P158,400

Add net adjustment (computation a) 7,500
Adjusted capital of Pain P165,900
Computation a:
Increase in capital due to rec. of prepaid exp. P17,500

Decrease in capital due to rec. of accrual (5,000)
Decrease in capital due to provisions for bad debts (5,000)
Net adjustment to capital of Pain P 7,500
The total agreed capital of the partnership is P248,850 (P165,900 ÷ 2/3), and the capital share of gain is
P82,950 (P248,850 x 1/3), hence, the cash to be invested by Gain is equal to P32,950(P82,950 –
P50,000).

Non-cash assets contributed to the partnership should be recorded at fair market value at the date of
contribution. The fact that the computer was sold for P55,000 immediately after the formation of the
partnership indicates that it is its fair market value on the date of the formation of the partnership.

The amount of assets to be contributed by Violet to have a one-third interest in capital and profit should
be equal to one-half of the combined contribution of Yellow and Orange. The total contribution of Yellow
and Orange is P120,000 (P40,000 + P80,000), therefore, to have one-third interest in the partnership,
Violet should contribute P60,000 or one-third of a total capitalization of P180,000 (P120,000 + P60,000).

The capital balance of each partner shall be equal to P, computed as follows:
Wilder Nest
Capital before adjustments P78,500 P70,000
Increase in inventory 3,000
Receivables written off (1,000) (1,500)
Accrued expenses recorded (4,000)
Adjusted capital balance P76,500 P68,500
Total capital (P76,500 + P68,500) P145,000

Divided by 2
Capital balance of each partner P 72,500

The amount of cash to be contributed by Clara is equivalent to 2/5 of the total agreed capital of the
partnership which is to be based on the contribution of Maria. The capital contributed by Maria is
P60,000 (P25,000 + P50,000 – P15,000), the total agreed capital is P100,000 (P60,000 ÷ 3/5), hence
Clara should contribute cash equal to P40,000 (2/5 x P100,000).
If Aga invests P20,000 for a 20% interest, then total partnership capital must be based on Aga’s
investment or P100,000 (P20,000/20%) and the capital to be credited to Mata is P80,000 (P100,000 –
P20,000). If Mata contributes an equipment worth P50,000, then he should invest additional cash
amounting to P30,000 (P80,000 – P50,000).

The cash invested by the partners is equal to P20,000 contributed by Aga and the P30,000 invested by
Mata or a total of P50,000.

The capital of Al and Macmod shall be equal to P, and P, respectively. These amounts are computed as
follows:
Al Macmod Total
Cash P120,000 P 80,000 P 200,000
Office equipment 84,000 84,000
Land 1,000,000 1,000,000
Building 600,000 600,000
Mortgage on building (400,000) ( 400,000)
Capital P204,000 P1,280,000 P1,484,000

The average capital balance of Mr. Boom during 2011, is P8,800, computed as follows:
January 1 Investment: P8,000 x 12/12 P8,000
April 1 Investment 1,600 x 9/12 1,200
June 1 Investment 1,600 x 7/12 933
Sept. 1 Investment (4,000) x 4/12 (1,333)
Mr. Boom’s average capital balance during 2011 P 8,800

The net income of the partnership for 2011 was P120,000, computed as follows:
Withdrawal P104,000
Additional investment ( 20,000)
Net decrease in capital ( 48,000)
Dulce’s share in net income P 36,000
Divide by Dulce’s P&L ratio 30%
Partnership’s net income for the year 2011 P120,000

Placido’s capital account balance would decrease in the amount of P22,000, computed as follows:
Total Placido
Interests:
P440,000 x 10% ; P80,000 x 10% P 44,000 P 8,000
Salaries 100,000 40,000
Balance (deficiency), equally ( 210,000) (70,000)
Net profit (loss) P(66,000) P(22,000)

Zeep’s share in net income for 2011 is P600, computed as follows:
Beep Zeep Total

Salary P16,000 P7,200 P23,200
10% interest on beg. cap. 1,600 2,000 3,600
Remainder: equally (8,600) (8,600) (17,200)
Net income P 9,000 P 600 P 9,600

The amount of earnings that should be credited to each partner’s account are P43,000 and
P37,000, for Red and White, respectively, computed as follows:
Red White Total

es P55,000 P45,000 P100,000
ances (60:40) ( 12,000) ( 8,000) ( 20,000)
ed to partners P43,000 P37,000 P 80,000

The bonus to Perez in 2011 is P18,000, computed as follows:
Net profit after salary, interest, and bonus P 32,000

Salary of Perez (P5,000 x 12) 60,000
Interest on starting capitals (P200,000 x 5%) 10,000
Net profit before salary and interest,
but before bonus P102,000
Divide by 85%
Net profit before salary, interest, and bonus P120,000
Bonus of Perez in 2011 (P120,000 x 15%) P 18,000

The P176,000 operating income is divided as Herm, P53,180; Marc, P62,060; and Alex, P60,760,
Herm: P150,000 x 12/12 P150,000

30,000 x 6/12 15,000
(10,000) x 3/12 (2,500)
Average Capital P162,500
Marc: P200,000 x 12/12 P200,000

20,000 x 5/12 8,333
(10,000) x 3/12 (2,500)
Average capital P205,833
Alex: P250,000 x 12/12 P250,000
(30,000) x 2/12 (5,500)
Average capital P245,000
Herm Marc Alex Total

Salary allowances P24,000 P18,000 P12,000 P54,000
12% interest on
average capital 19,500 24,700 29,400 73,600
Remainder, 2:4:4 9,680 19,360 19,360 48,400
Division of ope. inc. P53,180 P60,670 P176,000
62,060

The partners’ capital balances on December 31, 2011 are Herm, P223,180; Marc, P272,060; and
Alex, P280,760, respectively, computed as follows:
Herm Marc Alex
Capital balances, Jan. 1 P150,000 P200,000 P250,000
Additional contributions 30,000 20,000 -
Drawings (10,000) (10,000) (30,000)
Share in operating income (6) 53,180 62,060 60,760
Capital balances, Dec. 31, 2011 P223,180 P272,060 P280,760

In case of a profit, Bing’s share will be 20% plus 40% of the remaining 80%, or a total of 52%; in case of a
loss, Bing’s share will only be 40%.

The bonus of Michelle for the year 2011 is P48,000, computed as follows:
Michelle’s bonus (P240,000 ¸ 125%) x 25% P48,000
Mark Valerie Nora Total

Contributed capital P200,000 P100,000 P150,000 P450,000
Bonus (3:1)
Nora’s AC P225,000
Nora’s CC 150,000
P 75,000
From Mark x¾ (56,250) 56,250
From Valerie x ¼ ( 18,750) 18,750
Agreed capital P143,750 P 81,250 P225,000 P450,000
Contribution of Joey P120,000

Agreed capital ratio 1/3
Capital of Liz P24,000
Interest purchased 1/2
Capital credit of Sunshine P12,000

Sarah’s contribution P1,000,000
Divided by interest bought one-fourth
Total agreed capital P4,000,000

The total amount of “goodwill” for the old partners is P15,000, computed as follows:
Total agreed capital upon Vince’s admission P330,000

Less: Net Assets after Vince’s investment:
Total old partners capital P235,000
Vince’s cash investment 80,000
Total net assets 315,000
Total “goodwill” for the old partners P 15,000

Marc’s capital balance, after Vince admission is P79,100, computed as follows:
*Marc’s interest purchased
by Vince (P80,000 x 15%) P 12,000
Vince’s cash investment 80,000
Vince capital credit ( 70,000)
Bonus to old partners P 22,000
Marc’s capital (before Vince admission) P80,000

Interest purchased by Vince ( 12,000)
Share in goodwill (P15,000 x 30%) 4,500
Share in bonus (*P22,000 x 30%) 6,600
Marc’s capital (after Vince admission) P79,100

The admission of a new partner to a 20% interest in a partnership for an investment of P18,000,
with total agreed capital to be P75,000 resulted to a bonus to old partners of P3,000 computed as follows:
New partner’s investment P18,000

Less: New partner’s capital credit (P75,000 x 20%) 15,000
Bonus to old partners P 3,000

Given the choice between goodwill and bonus methods, Blue will prefer bonus method due to
Blue’s gain of P105,000, computed as follows:
G-Method B-Method
Blue’s capital credit:
(P1,080,000¸75%) x 25% P360,000
(P1,080,000¸P220,000) x 25% P325,000
Less: Blue’s investment 220,000 220,000
Goodwill/Bonus for Blue P140,000 P105,000
Less: Share in subsequent GW
write-off (1/3) 46,667 -
Blue’s gain P 93,333 P105,000
Note that if the only immediate effect is considered, the “goodwill” method would be preferable; but since
goodwill, by itself, is non-realizable, the over-all effect would favor the “bonus” method.

The amount of goodwill that was recognized in connection with the admission of the new partner was
New capital implied from new partner’s investment:

P60,000/ 33 1/3% P180,000
Less: Resulting assets after new partner’s investment:
Original partners’ investment P80,000
Net income 34,000
Drawings ( 24,000)
New partner’s investment 60,000 150,000
Implied goodwill (for original partners) P 30,000

The amount of the private cash settlement effected between the old partners was P9,000,
Total Terry Timmy Tommy

May 31 investments P 80,000 P48,000 P32,000 P -
Net income:
Salaries 14,000 7,000 7,000 -
Balance at 3:2 20,000 12,000 8,000 -
Drawings ( 24,000) ( 14,000) (10,000) -
December 31 balances P 90,000 P53,000 P37,000 P -
Investment 60,000 - - 60,000
Implied goodwill 30,000 18,000 12,000 -
Balances after
admission of new
partner P180,000 P71,000 P49,000 P60,000
Desired balances, 4:3:2 180,000 80,000 40,000 60,000
Private settlement P 9,000 P( 9,000)
Timmy will transfer P9,000 of his capital to Terry.

Conceptual question.

Capital of Minda P200,000
Loss on furniture impairment:
Book value P65,000
Fair value 50,000
Minda’s share (1/3) P15,000 5,000
Less fair value of furniture 50,000
Value of note issued to Minda P145,000
Capital of Pablo P200,000

Add share on revaluation of inventory:
Book value P50,000
Fair value 70,000
P20,000
x 20% 4,000
Total P204,000
Add share in net income:
P130,000 x 20% 26,000
Payment made to Pablo 245,000
Goodwill included in the payment P 15,000
Romy’s acquisition of the furniture would result in Romy’s reduction in capital of P55,000, computed as
follows:
Paco Quin Romy
Charge for furniture taken,
at second-hand value P P P50,000
Share in realization loss,
P65,000 – P50,000 5,000 5,000 5,000
Reduction in capital incident to
Romy’s acquisition of the
Furniture P5,000 P5,000 P55,000

The value of the note that Minda would get is P145,000, computed as follows:
Minda’s capital P200,000
Less: Charges for:
Second-hand value of asset taken P50,000
Share of loss on asset taken:
(P65,000 – P50,000) x 1/3 5,000
Total charges against Minda’s capital 55,000
Value of the note to be issued to Minda P145,000

After Tic’s retirement, the partnership’s “net assets” was P225,000, computed as follows:
Net assets, before Tic’s retirement P400,000

Implied goodwill:
(P225,000 – P200,000) / 50% 50,000
Adjusted net assets P450,000
Less: Payment to Tic 225,000
Net assets, after Tic’s retirement P225,000

The payment to Pablo included a goodwill of P15,000, computed as follows:
Payment for Pablo’s interest P245,000

Less: Pablo’s interest just his withdrawal:
January 1 Capital P200,000
Add: Share in:
Inventory write-up: P20,000 x 20% 4,000
Net income to 6/30: 130,000 x 20% 26,000
July 1 capital just before withdrawal 230,000
Goodwill included in payment to Pablo P 15,000

If Juni received P45,000, Hugo pay Juni the amount of P22,500, computed as follows:
(P45,000 x ½) P22,500

Assuming the Kathy is paid P132,000, Karen would be credited in the amount of P1,200,
(P135,000 –P132,000) x 2/5 P1,200

If Rae is paid P39,000 in full payment of her interest, the capital of Ana immediately after Rae’s
withdrawal would be P23,400, computed as follows:
Amount paid to Rae P39,000

Less: Rae’s capital balance 35,000
Bonus to Rae from Ana and Mae P 4,000
Ana’s capital balance before Rae’s retirement P25,000
Less: Share in bonus to Rae (P4,000 x2/5) 1,600
Ana’s capital balance after Rae’s retirement P23,400

Immediately after effecting the transfer of the net assets, and the issuance of stock, the
corporation’s additional paid-in capital account would be credited for P164,000, computed as follows:
Fair value of partnership’s net assets:
P224,000 – P40,000 P184,000
Less: Par value of stock issued to partners:
(10,000 x P1) x 2 20,000
Additional paid-in capital in excess of par P164,000

The partners are to receive shares of stock, at P10 par value, equal to 15,000, 15,000, and 25,000,
Mac Kuh Nat
Reported capital balances P100,000 P100,000 P200,000
Share in assets write-up, P150,000, equally 50,000 50,000 50,000
Total par value of shares to be
received by each partner P150,000 P150,000 P250,000
Shares to be received by each
partner, at P10 par value/share 15,000 15,000 25,000
Capital of partnership before adjustment P260,000

Bad debts provision ( 10,000)
Increase in inventory 20,000
Depreciation ( 3,000)
Adjusted capital equal to shares’ par value P267,000
Mac Kuh Nat Total
Capital before adjustment P100,000 P100,000 P200,000 P400,000
Add adjustment for increase in net assets (P550,00-
P400,000)/3 50,000 50,000 50,000 150,000
Capital after
adjustment P150,000 P150,000 P25
0,000 P550,000
Divided by peso par value per share 10 10 10 10
Number of shares received 15,000 15,000 25,000 55,000

In the distribution of the P60,000 cash, Gardo received P26,000, computed as follows:
Total Gardo Gordo
Initial contributions P 50,000 P30,000 P20,000
Equiv. Investments (payments) 132,970 62,275 70,695
Equiv. Withdrawals (receipts) (144,345) (79,100) (65,245)
Balances before profit share P 38,625 P13,175 P25,450
Profit (P60,000-P38,625), 6:4 21,375 12,825 8,550
Distribution of P60,000 cash P 60,000 P26,000 P34,000
[66]. Letter “C is the correct answer.

If all the partners are personally solvent, deficiency/deficiencies resulting from the liquidation process, will
require additional cash from Dina in the amount of P50,000, computed as follows:
AA Bida Cita Dina

Capital balances P420,000 P215,000 P205,000 P100,000
Loan balances - 160,000 - 50,000
Total interests P420,000 P375,000 P205,000 P150,000
Less: share in realization
Loss of P1,000,000 at
3:3:2:2 300,000 300,000 200,000 200,000
Balance (deficiency) P120,000 P P 75,000 P 5,000 P(50,000)

The remaining cash is distributed as Salve, P0; Gilda, P31,000; and, Nora, P49,000, respectively,
Salve Gilda Nora
Capital balances P 80,000 P115,000 P105,000
Realization loss ( 5:3:2)
(P150,000–P100,000) (25,000) ( 15,000) ( 10,000)
Theoretical loss on other
asset(P320,000-P150,000) (85,000) ( 51,000) ( 34,000)
Balances before distribution P(30,000) P 49,000 P 61,000
Salve’s deficiency at 3:2 30,000 ( 18,000) ( 12,000)
Cash distribution P -0- P 31,000 P 49,000

The total loss to A is, P3,000, computed as follows:
Total book value of non-cash assets realized:
(P9,000 + P7,700 + P11,300) P28,000
Less: Total cash received:
(P6,000 + P3,500 + P12,500) 22,000
Total realization loss P 6,000
Total loss to A:
(3/6 of P6,000) P 3,000

Total cash received by B is P5,000, computed as follows:
B, capital P7,000
Less: Share in total realization loss:
(2/6 x P6,000) 2,000
Total cash received by B P5,000

The cash received by C in January is P0, computed as follows:
C, capital P3,000
Less: Share in:
Realization loss in January:
(P9,000 – P6,000) x 1/6 P 500
Theoretical loss on
remaining non-cash assets:
(P19,000 x 1/6) 3,167
Total P3,667
Cash received by C in January P–0–

The total amount received by all of the partners, if X received P8,000 upon liquidation of the
partnership was P52,000, computed as follows:
X, capital P40,000
Less: Amount rec’d in liquidation 8,000
X’s share in liquidation loss P32,000
Total capital of the three partners P108,000
Less: Total liquidation loss (P32,000 ¸ 4 x 7) 56,000
Total amount received by all of the partners P 52,000

Assuming the facts given in No. 17, except that X received P26,000 as a result of the liquidation,
as part of the liquidation Z received the amount of P14,500, computed as follows:
X, capital P40,000
Less: Amount rec’d in liquidation 26,000
X’s share in liquidation loss P14,000
Z, capital P18,000
Less: Share in liquidation loss (P14,000¸4 x 1) 3,500
Amount received by Z in liquidation P14,500

The respective shares of Sanchez and Tan in the final cash distribution will be P175,000 and
P125,000, respectively, computed as follows:
Total Sanchez Tan
Capital balances P1,250,000 P750,000 P500,000
Note payable to Tan 200,000 - 200,000
Total interest P1,450,000 P750,000 P700,000
Realization loss, equally:
P1,450,000 – P300,000 (P1,150,000) (575,000) (575,000)
Share in final distribution P 300,000 P175,000 P125,000

If liquidation takes place and assets are realized at book value, the partners would receive cash
distributions equal to their recorded capital balances in final liquidation.

John received total cash distribution of P20,000, computed as follows:
Alex Jay John
Capital balances P95,000 P80,000 P70,000
Loss on realization of other
assets at 2:1:1
(P150,000 – P 70,000) (40,000) (20,000) (20,000)
Theoretical loss on
remaining other assets
(P265,000-P150,000) (57,500) (28,750) (28,750)
Adjusted capital balances P( 2,500) P31,250 P21,250
Deficiency of Alex 2,500 ( 1,250) ( 1,250)
Cash distribution basis P -0- P30,000 P20,000

Jo should absorb P40,000 of the remaining claim against the firm computed as follows:
Total Jo Lee Vi
Capital balances P 950,000 P350,000 P250,000 P350,000
Realization loss (1,000,000) (300,000) (200,000) (500,000)
P( 50,000) P 50,000 P 50,000P (150,000)
Vi’s deficiency, 3:2 - ( 90,000) (60,000) 150,000
Liability for unpaid
Claim P( 50,000) P( 40,000) P( 10,000) P –0-

If the first cash sale of assets booked at P150,000 resulted in net realization of P120,000, the
amount to be distributed to Irene would be P44,000, computed as follows:
Irene’s capital P70,000

Less: Share in:
Realization loss:
(P150,000 – P120,000) x 20% P 6,000
Possible loss on remaining other assets:
(P250,000 – P150,000) x 20% 20,000 26,000
Irene’s share in first cash distribution P 44,000
[lxxviii]. Letter “D” is the correct answer.

For Dan to receive P55,200 in full settlement of his interest in the partnership, P193,000 must be
realized from the sale of the partnership’s non-cash assets, computed as follows:
Partners’ capital P130,000

Liabilities 90,000
Cash ( 40,000)
Non-cash assets P180,000
Dan’s desired share in settlement P55,200

Less: Dan’s capital balance 50,000
Dan’s share in estimated realization gain P 5,200
Non-cash assets P180,000

Estimated realization gain (P5,200 ¸ 40%) 13,000
Estimated realization from sale of non-cash asset P193,000
[lxxix]. Letter “A” is the correct answer.

The deficient partner is Bach and his additional cash contribution to finally liquidate the partnership is
P6,000, computes as follows:
Bach Lizst Strauss
Total interest (capital and
loan balances) P55,000 P105,000 P200,000
Realization loss, at 4:4:2
P400,000 – P247,500 ( 61,000) ( 61,000) ( 30,500)
Balance (deficiency) P( 6,000) P 44,000 P169,500
[lxxx]. Letter “A” is the correct answer.
The book value of the partnership’s non-cash assets on May 31, 2011, was P180,000, computed as
follows:
Partners’ capital (assumed to be after

considering the net income) P130,000
Liabilities 90,000
Less: Cash 40,000
Book value of non-cash assets on May 31, 2011 P180,000
-end of quizzer-
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Partnership Exercises

The capital balances of the partners upon formation are:

What is EJ’s adjusted capital balance?

Questions 21 and 22 are based on the following information:

§ 3% bad debts should be provided.

[22]. How much is the total assets of the new partnership?

1. Prepaid expenses of P17,500 and accrued expenses of P5,000 are to be recognized.

§ Wilder’s inventory is to be increased by P3,000.

[28]. How much cash should Mata invest?

[29]. How much is the total cash investment of the partners?

What will be the total capital of the partnership?

Net sales P875,000

The bonus in 2011 is

Questions 37 & 38 are based on the following information:

[37]. The division of the P176,000 operating income is:

[38]. The partners’ capital balances on December 31, 2011 are:

Partnership Dissolution – Admission of Partner

The new capital of the partnership is:

Questions 45 & 46 are based on the following information:

a. Goodwill to the old partners.

Questions 49 and 50 are based on the following information:

Partnership Dissolution – Retirement of Partner

Net assets P 400,000

Tic, capital (50%) P 200,000

Ana, capital P25,000

Total assets P200,000

Cash P120,000 A/Payable P172,000

Partnership Liquidation (Lump-sum & Installment)

Cash P 100,000 Liabilities P 750,000

Assets Liabilities and Capital

Date Cash Received Book Value

Cash is distributed as assets are realized.

[68]. The total loss to A is

[69]. The total cash received by B is:

[70]. Cash received by C in January is:

Net assets P130,000

Cash P 28,000 Liabilities P 48,000

Cash P 50,000 Liabilities P 60,000

Dan P50,000 40%

Cash P100,000 Liabilities P140,000

Tom P50,000 40%

[1]. Letter “B” is the correct answer.

[2]. Letter “D” is the correct answer.

[3]. Letter “B” is the correct answer.

[4]. Letter “B” is the correct answer.

[5]. Letter “B” is the correct answer.

[6]. Letter “C” is the correct answer.

[7]. Letter “C” is the correct answer.

Allen Belen Cenen

[8]. Letter “D” is the correct answer.

[9]. Letter “C” is the correct answer.

Capital contributed by Clara:

[10]. Letter “B” is the correct answer.

Assets contributed by:

[11]. Letter “B” is the correct answer.

Unadjusted capital (P78,500 + P70,000) P148,500

[12]. Letter “C” is the correct answer.

Chona’s initial capital (P60,000/80%) P 75,000

[13]. Letter “B” is the correct answer.