PARTNERSHIP FORMATION

PROBLEM 1
Daniel and Kathryn decided to form Barcelona Partnership on December 15, 2019. The balance sheet of Daniel and Kathryn before the
formation is as follows:
Daniel Kathryn
Cash 700,000 900,000
Accounts Receivable 150,000 100,000
Inventories 500,000 430,000
Office Equipment 990,000 875,000
Land 1,500,000 1,200,000
Building 1,000,000 900,000
TOTAL ASSETS 4,840,000 4,405,000

Accounts Payable 500,000 500,000

Notes Payable 1,600,000 2,155,000
Daniel, Capital 2,740,000
Kathryn, Capital 1,750,000
TOTAL LIABILITIES & EQUITY 4,840,000 4,405,000

They agreed to have the following items recorded in their books:

 Provide 6% allowance for doubtful accounts to Daniel and 5% to Kathryn.
 Daniel and Kathryn’s inventory accounts should be in their fair market value of P700,000 and P350,000, respectively.
 Rent expense incurred recently by Daniel but not yet recorded is P30,000, while salary expense incurred by Kathryn but still not
recorded is P25,000.
 Office Equipment and Building accounts of Kathryn are underdepreciated by P100,000 and P250,000, respectively.
 Building and Office Equipment accounts of Daniel are overdepreciated by P150,000 and P280,000, respectively.
REQUIRED:
1. Net adjustment on Kathryn’s books:
2. Net adjustment on Daniel’s books:
3. Total assets of the partnership:
4. The capital balances of each partner if the partner’s capital is equal to their net assets invested:
5. Total agreed capitalization of the partnership if Daniel should have 40% of the ownership:

PROBLEM 2
On January 1, 2014, Anne and Vice agreed to form a partnership. The following are their assets and liabilities:
Anne Vice
Cash P 136,000 76,000
Accounts Receivable 48,000 48,000
Inventories 304,000 364,000
Machinery 480,000 440,000
Accounts Payable 216,000 144,000
Notes Payable 140,000 60,000

Anne decided to pay-off his notes payable from her personal assets. It was also agreed that Vice’s inventories were overstated by P24,000
and Anne’s machinery was overdepreciated by P20,000. Vice is to invest/withdraw cash in order to receive a capital credit that is 20% more
than Anne’s total net investment in the partnership. How much cash should be presented in the partnership’s statement of financial position?

PROBLEM 3
On December 1, 2014, Michael and Joel agreed to invest equal amounts and share profits equally to form a partnership. Michael invested
P3,120,000 cash and a piece of equipment. Joel invested some assets which are shown below:

Book Value Market Value Assessed Value

Accounts Receivable 250,000 400,000 350,000
Inventory 1,000,000 1,120,000 1,100,000
Machineries 2,200,000 2,240,000 2,000,000
Intangible Assets 1,000,000 950,000 900,000

The assets invested by Joel are not properly valued. P 32,000 of the accounts receivable is proven uncollectible. Inventories are to be written
down to P 1,040,000. Included in the machineries is an obsolete apparatus acquired for P384,000 with accumulated depreciation balance of
P336,000. Part of the intangibles is a patent with a carrying amount of P56,000 which was sued upon by a competitor. Joel unsuccessfully
defended the case and the final decision of the court was released on November 29, 2014.
REQUIRED:
1. The fair value of the equipment invested by Joel:
2. Net adjustment on Joel’s books:
3. Total assets of the partnership:

PROBLEM 4
Mica admits Marian for partnership interest in her business. The balance sheet accounts of Mica on November 30, 2014 prior to the
admission of Marian are as follows:

Cash ?
Accounts Receivable 96,000
Merchandise Inventory 144,000
Accounts Payable 49,600
Mica, Capital ?

It is agreed that for purposes of establishing Mica’s interest, the following adjustments should be made:
 An allowance for doubtful accounts of 2% of accounts receivable is to be established.
 The merchandise inventory is to be valued at P160,000.
 Prepaid expenses of P 5,200 and accrued expenses of P 3,200 are to be recognized.

Marian is to invest cash of P 113,640 to give her one-third (1/3) interest in the firm.

REQUIRED:
1. The cash balance of Mica before the adjustments:
2. The balance of Mica’s capital before any adjustments:
3. The total assets of the partnership after the formation:

PROBLEM 5
On July 1 of the current year, Regine and Ogie form a partnership. Regine is to invest certain business assets at values which are yet to be
agreed upon. She is to transfer his business liabilities and is to contribute sufficient cash to bring her total capital to P180,000, which is 60%
of the capital as had been agreed upon. Details regarding the book values of Regine’s business assets and liabilities and their corresponding
valuations below:
Book Value Agreed Valuations
Accounts Receivable 54,000 54,000
Allowance for Doubtful Accounts 3,600 6,000
Merchandise Inventory 96,600 105,000
Store Equipment 27,000 -
Accumulated Depreciation – Store Equipment 18,000 13,200
Office Equipment 18,000 -
Accumulated Depreciation – Office Equipment 9,600 4,800
Accounts Payable 48,000 48,000

Ogie agrees to invest cash of P 30,000 and merchandise valued at current market price.

REQUIRED:
1. The value of the merchandise to be invested by Ogie:
2. The cash to be invested by Regine:

PROBLEM 6
On July 1, Inigo and Piolo formed a partnership, agreeing to share profits and losses in the ratio of 4:6, respectively. Inigo contributed a
parcel of land that cost him P 25,000. Piolo contributed P 50,000 cash. The land was sold for P 50,000 on July 1, four hours after formation of
the partnership. How much should be recorded in Inigo’s capital account on the partnership formation?

PROBLEM 7
Vilma admits Nora as a partner in business. Accounts in the ledger for Vilma on November 30, 2014, just before the admission of Nora, show
the following balances:

Cash P 6,800
Accounts Receivable 14,200
Merchandise Inventory 20,000
Accounts Payable 8,000
Vilma, Capital 33,000

It is agreed that for purposes of establishing Vilma’s interest. The following adjustments shall be made:
 An allowance for doubtful accounts of 3% of accounts receivable is to be established.
  The merchandise inventory is to be valued at P 23,000.
 Prepaid salary expenses of P 600 and accrued rent expenses of P 800 are to be recognized.

Nora is to invest sufficient cash to obtain a 1/3 interest in the partnership.

REQUIRED:
1. Vilma’s adjusted capital before admission of Nora:
2. The amount of cash investment by Nora:

PROBLEM 8
As of July 1, 2012, Amor Powers and Claudia Buenavista decided to form a partnership. Their balance sheets on this date are:
Amor Powers Claudia Buenavista
Cash P 15,000 P 37,500
Accounts Receivable 540,000 225,000
Merchandise Inventory 202,500
Machinery and Equipment 150,000 270,000
TOTAL ASSETS P 705,000 P 705,000

Accounts Payable P 135,000 P 240,000

Amor, Capital P 570,000
Claudia, Capital P 495,000
TOTAL LIABILITIES & EQUITY P 705,000 P 705,000

The partners agreed that the machinery and equipment of Amor Powers is underdepreciated by P 15,000 and that of Claudia Buenavista by
P45,000. Allowance for doubtful accounts is to be set up amounting to P 120,000 for Amor and P45,000 for Claudia. The partnership
agreement provides for a profit and loss ratio and capital interest of 60% to Amor and 40% to Claudia.

How much cash must Amor invest to bring the partners’ capital balances proportionate to their P&L ratio?
What is the balance of the Amor Powers’ capital after the investment?

PROBLEM 9
Savvy and Dani decided to form a partnership on October 1, 2014. Their Statement of Financial Position on this date were:
Savvy Dani
Cash P 65,625 P 164,062.50
Accounts Receivable 1,487,500 896,875
Merchandise Inventory 875,000 885,937.50
Office Equipment 656,250 1,268,750
TOTAL ASSETS P 3,084,375 P 3,084,375

Accounts Payable 459,375 1,159,375

Savvy, Capital 2,625,000
Dani, Capital 2,056,250
TOTAL LIABILITIES & EQUITY P 3,084,375 P 3,084,375

They agreed the following adjustments shall be made:

• Office equipment of Savvy is underdepreciated by P 87,500 and that Dani is overdepreciated by P 131,250.
• Allowance for doubtful accounts is to be set up amounting to P 297,500 for Savvy and P 196,875 for Dani.
• Inventories of P 21,875 and P 15,312.50 are worthless in the books of Savvy and Dani, respectively.
• The partnership provides for a profit and loss ratio of 70% of Savvy and 30% of Dani.

REQUIRED:
1. Adjusting entries for Savvy and Dani’s books
2. Savvy’s adjusted capital
3. Dani’s adjusted capital
4. Agreed capital of Savvy to bring the capital balance proportionate to their profit and loss ratio
5. Agreed capital of Dani to bring the capital balance proportionate to their profit and loss ratio
6. Net adjustments of Dani

PROBLEM 10
The business assets of Lala and Papa appear below:
Lala Papa
Cash 11,000 22,000
Accounts Receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000 -
Building - 428,267
Furnitures and Fixtures 50,345 34,789
Other Assets 2,000 3,600
Total 1,020,916 1,317,002

Accounts Payable 178,940 243,650

Notes Payable 200,000 345,000
Lala, Capital 641,976
Papa, Capital 728,352
Total 1,020,916 1,317,002

Lala and Papa agreed to form a partnership by contributing their respective assets and equities subject to the following adjustments:
a. Accounts receivable of P20,000 in Lala’s books and P35,000 in Papa’s books are uncollectible.
b. Inventories of P5,500 and P6,700 are worthless in Lala’s and Papa’s respective books.
c. Other assets of P2,000 and P3,600 in Lala and Papa’s respective books are to be written off.

REQUIRED:
1. Entries to reflect the adjustments stated above to each partner.
2. Entries to close the individual’s books.
3. Entries to record the formation of the partnership.
4. Capital account of the partners after the adjustments will be:
5. Total assets of the partnership:
6. Entry if the partners agreed to have capital ratio.

PROBLEM 11
Harley, Harvey and Harshey decided to form HARHARHAR Partnership. It was agreed that Harley will contribute equipment with assessed
value of P 100,000 with historical cost of P 600,000. A day after the partnership formation, the equipment was sold for P 300,000.

Harvey will contribute land and building with a carrying amount of P1,200,000 and fair value of P1,500,000. The land and building are subject
to a mortgage payable amounting to P300,000 to be assumed by the partnership. The partners agreed that Harvey will have 60% capital
interest in the partnership. The partners also agreed that Harshey will contribute sufficient cash to the partnership.

REQUIRED:
1. Agreed capitalization of HARHARHAR Partnership
2. Cash to be contributed by Harshey in the HARHARHAR Partnership

PROBLEM 12
On March 1, 2012, Alex and Toni decide to combine their businesses and form a partnership. Their balance sheets on March 1, before
adjustments, showed the following:
Alex Toni
Cash 9,000 3,750
Accounts Receivable 18,500 13,500
Inventories 30,000 19,500
Furnitures and Fixtures (net) 30,000 9,000
Office Equipment (net) 11,500 2,750
Prepaid Expenses 6,375 3,000
Total Assets 105,375 51,500

Accounts Payable 45,750 18,000

Capital 59,625 33,500
Total Liabilities and Equity 105,375 51,500

They agreed to have the following items recorded in their books:

 Provided 2% allowance for doubtful accounts.
 Alex’s furnitures and fixtures should be P31,000, while Toni’s office equipment is under-depreciated by P250.
 Rent expenses incurred previously by Alex was not yet recorded amounting to P1,000, while salary expense incurred by Toni was
not also recorded amounting to P800.
 The fair market value of inventory amounted to: P29,500 for Alex and P21,000 for Toni.

REQUIRED:
1. Net debit (credit) adjustment for Alex and Toni
2. Total liabilities after the formation
3. Total assets after the formation

PROBLEM 13
On July 1, 2018, Tristan and Paul decided to pool their assets and form a partnership. The firm is to take over business assets and assume
business liabilities, and capitals are to be based on net assets transferred after the following adjustments:
  Paul’s inventory is to be valued at P140,000.
 An allowance of doubtful accounts of 5% is to be established on the accounts receivable of each party.
 Accrued liabilities of P8,000 are to be recognized on Tristan’s books.
 Paul is to invest additional cash necessary to have 60% interest in the new firm.
Tristan Paul
Cash 75,000 45,000
Accounts Receivable 180,000 150,000
Inventory 160,000 120,000
Equipment 100,000 120,000
Accumulated Depreciation (45,000) (15,000)
Total 470,000 420,000

Accounts Payable 138,000 100,000

Capital 332,000 320,000
Total 470,000 420,000

REQUIRED:
1. Agreed capitalization:
2. How much Paul must still contribute for a 60% ownership?

PROBLEM 14
Rosallie is an owner of sole proprietorship with net assets at book value at P100,000. Babylyn is also a sole proprietor with net assets at book
value at P200,000. The net assets of Rosallie and Babylyn are to be taken by the partnership at their respective book value. Butchik is to
contribute cash equal to ½ of the total agreed capitalization based on the contribution of Rosallie and Babylyn.

REQUIRED:
1. Agreed capitalization:
2. The amount of Butchik’s cash contribution should be:

PROBLEM 15
A partner invested into a partnership a building with a P250,000 carrying value and P400,000 fair market value. The related mortgage payable
of P125,000 was assumed by the partnership. As a result of the investment, the partner’s capital account will be credited for:

PROBLEM 16
On January 1, 2015, Ernie and Bert both sole proprietors decided to form a partnership to expand both of their businesses. According to their
agreement, they will split profits and losses 75:25 and their initial capital will also reflect that ratio.

The following are Ernie and Bert’s Statement of Financial Position:

Ernie Proprietor
Statement of Financial Position
December 31, 2014
ASSETS LIABILITIES AND EQUITY
Cash 50,000 Accounts payable 65,000
Accounts Receivable 100,000 Accrued expenses 55,000
Inventories 75,000 Notes payable 80,000
Equipment 250,000 Ernie, capital 90,000
Accumulated depreciation- Equipment (185,000)
TOTAL ASSETS 290,000 TOTAL LIABILITIES&EQUITY 290,000

Bert Proprietor
Statement of Financial Position
December 31, 2014
ASSETS LIABILITIES AND EQUITY
Cash 30,000 Accounts Payable 75,000
Accounts receivable 110,000 Accrued expenses 90,000
Inventories 85,000 Notes Payable 100,000
Equipment 300,000 Bert, Capital 160,000
Accumulated Depreciation- Equipment (100,000)
TOTAL ASSETS 425,000 TOTAL LIABILITIES&EQUITY 425,000

The values reflected in the Statement of Financial Position are already at fair values except for the following accounts:
Ernie’s Accounts Receivable is now 20,000 less than what is stated in his Statement of Financial Position. Both inventories of Ernie and Bert
are now 90,000 and 70,000 respectively. Equipment for Bert has an assessed value of 275,000, appraised value of 250,000 and book value
of 200,000. Additional accrued expenses are to be established in the amount of 10,000 for Bert only while additional accounts payable in the
amount of 5,000 for Ernie. It is also agreed that all liabilities will be assumed by the partnership, except for the notes payable of Bert which will
be personally paid by him.

REQUIRED:
1. Adjusted capital of Bert after formation:
2. Capital credit for Ernie upon formation:
3. How much should Ernie invest as additional cash to be in conformity with their initial capital agreement?

PROBLEM 17
Bonnie and Clyde enters into a partnership agreement in which Bonnie is to have 55% interest in the partnership and 35% in the profits and
losses, while Clyde will have 45% interest in the partnership and 65% in the profits and losses. Bonnie contributed the following:

Cost Fair value

Building 235,000 255,000
Equipment 168,000 156,000
Land 500,000 525,000

The building and the equipment has a mortgage of 50,000 and 35,000 respectively. Clyde is to contribute 150,000 cash and equipment. The
partners agreed that only the building mortgage will be assumed by the partnership.

REQUIRED:
1. How much is the fair market value of the equipment which Clyde contributed?
2. How much is the total asset of the partnership upon formation?

PROBLEM 18
On July 1, 2011, Liza and Enrique decided to form a partnership. The firm is to take over business assets and assume liabilities, and capitals
are to be based on net assets transferred after the following adjustments:
a. Liza and Enrique’s inventory is to be valued at P31,000 and P22,000, respectively.
b. Accounts receivable of P2,000 in Liza’s books and P1,000 in Enrique’s books are uncollectible.
c. Accrued salaries of P4,000 for Liza and P5,000 for Enrique are still to be recognized in the books.
d. Unused office supplies of Liza amounted to P5,000 while that of Enrique amounted to P1,500.
e. Prepaid rent of P7,000 and P4,500 are to be recognized in the books of Liza and Enrique, respectively.
f. Liza is to invest or withdraw cash necessary to have 40% interest in the firm.

Balance sheets for Liza and Enrique on July 1 before adjustments are given below:
Liza Enrique
Cash 31,000 50,000
Accounts Receivable 26,000 20,000
Inventory 32,000 24,000
Office Supplies - 5,000
Equipment 20,000 24,000
Accumulated Depreciation ( 9,000 ) ( 3,000 )
Total Assets 100,000 120,000

Accounts Payable 28,000 20,000

Capital 72,000 80,000
Total Liabilities & Equity 100,000 120,000

REQUIRED:
1. The net adjustments in the books of Liza and Enrique
2. Adjusted capital of Liza and Enrique in their respective books
3. Additional investment or withdrawal by Liza
4. Total liabilities of the partnership after formation
5. The total capital of the partnership after formation
6. Capital balances of Liza and Enrique in the combined balance sheet

PROBLEM 19
On December 1, 2011, Nikki and Jayline formed a partnership with each contributing the following assets at fair market value:

Nikki Jayline
Cash 9,000 18,000
Machinery and Equipment 13,500 -
Land - 90,000
Building - 27,000
Office Furniture 13,500

The land and building is subject to a mortgage loan of P54,000 that the partnership will assume. The partnership agreement provides that
Nikki and Jayline share profits and losses, 40% and 60%, respectively and partners agreed to bring their capital balances in proportion to the
profit and loss ratio and using the capital balance of Jayline as basis.

The additional cash investment made by Nikki should be:

PROBLEM 20
Justin and Dane are joining their separate business to form a partnership. Cash and non-cash assets are to be contributed for a total capital
of P300,000. The non-cash assets to be contributed and liabilities to be assumed are:

JUSTIN DANE
Book Value Fair Value Book Value Fair Value
Accounts Receivable 22,500 22,500 - -
Inventories 22,500 33,750 60,000 67,500
Equipment 37,500 30,000 67,500 71,250
Accounts Payable 11,250 11,250 7,500 7,500

The partner’s capital accounts are to be equal after all contributions of assets and assumptions of liabilities.

REQUIRED:
1. Total assets of the partnership
2. The amount of cash that each partner must contribute:

PROBLEM 21
Sheryn and Rachelle formed a partnership with each partner contributing the following items:
SHERYN RACHELLE
Cash 80,000 40,000
Building (at cost) 300,000
(at market value) 400,000
Inventory (at cost) 200,000
(at market value) 280,000
Mortgage Payable 120,000
Accounts Payable 60,000

Assume that for tax purposes, Sheryn and Rachelle agree to share equally in the liabilities assumed by the Sheryn and Rachelle’s
partnership. What is the balance in each partner’s capital account for financial reporting purposes?

PROBLEM 22
Chacha and Cheche are partners sharing profits in this proportion – 6:4. A balance sheet prepared for the partners on April 1, 2014 shows the
following:

Cash 48,000 Accounts Payable 89,000

Accounts Receivable 92,000 Chacha, Capital 133,000
Inventories 165,000 Cheche, Capital 108,000
Equipment 70,000
Accumulated Depreciation (45,000) 25,000
Total Assets 330,000 Total Liabilities and Capital 330,000

On this date, the partners agree to admit Chuchay as a partner. The terms of the agreement are summarized below:
Assets and liabilities are to be restated as follows:
 An allowance for possible uncollectible of P4,500 is to be established.
 Inventories are to be restated at their present replacement value of P170,000.
 Accrued expenses of P4,000 are to be recognized.

Chacha, Cheche and Chuchay will divide profits in the ratio of 5:3:2. Capital balances of the partners after the formation of the new
partnership are to be in the aforementioned ratio, with Chacha and Cheche making cash settlement between them outside of the partnership
to adjust their capitals, and Chuchay investing cash in the partnership for his interest. The cash to be invested by Chuchay is:
.
PARTNERSHIP OPERATIONS

PROBLEM 1
Panchito and Dolphy are partners operating a chain of retail stores. The partnership agreement provides for the following:
Panchito Dolphy
Salaries P 10,000 P 5,000
Interest on average capital balances 10% 10%
Bonus 20% of net income before None
interest but after bonus and salaries
The income summary account for the year 2011 shows a credit balance of P 51,000 before any deductions. Average capital balances for
Panchito and Dolphy are P 50,000 and P 75,000, respectively. The partners agreed to share the remainder in the ratio of 3:7.

The share of Panchito and Dolphy in the P 51,000 net income would be:

PROBLEM 2
Partners Alma, Bernadette and Charito had a beginning capital balances on January 1: P 200,000, P 300,000 and P 400,000, respectively.
On December 31, they divided profits of P 98,000 as follows:
 Paid salaries of P 10,000 each.
 Paid interest of 5% of beginning capital balances to each one.
 Paid bonus of 15% of income after salaries, interest and bonus to Bernadette.
 Divided the remainder based on the agreed profit and loss ratio.
 Alma received an aggregate of P 24,000 and Bernadette shared in the remainder on the profits after salaries, interest and bonus
equal to twice that of Alma.

REQUIRED:
1. The profit and loss ratio of partners Alma, Bernadette and Charito is:
2. Amount received by Charito:

PROBLEM 3
Hannah is trying to decide whether to accept the salary of P 80,000 or a salary of P 25,000 plus a bonus of 20% of net income after salaries
and bonus as a means of allocating profit among the partners. Salaries traceable to the other partners are estimated to be P 75,000. What
amount of net income would be necessary so that Hannah would consider the choices to be equal?

PROBLEM 4
Sarah Geronimo and Julie Anne San Jose formed a partnership named SJ Partnership on January 2, 2014 and agreed to share profit 90%
and 10%, respectively. Sarah invested cash of P200,000. Julie Anne invested no assets but has a specialized expertise and manages the
firm full time. There were no withdrawals during the year. The partnership contract provides for the following:
 Capital accounts are to be credited annually with interest of 10% of beginning capital.
 Julie Anne is to be paid a salary of P 8,000 a month.
 Julie Anne is to receive a bonus of 25% of profit calculated before deduction of salary and interest on capital accounts.
 Bonus, interest and Julie Anne’s salary are to be considered as expenses.

The fiscal year 2014 income statement for the partnership includes the following:

Revenue P 701,600
Expenses (including salary, interest and bonus) (379,600)
Profit P 322,000
The amount of bonus to be credited to Julie Anne:

PROBLEM 5
Rhian Bonifacio and Monica de Villa share profits and losses equally. Rhian and Monica receive salary allowances of P20,000 and P30,000,
respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the
beginning of each month balance regardless of when additional capital contributions or permanent withdrawals are made subsequently within
the month. Partners’ drawings are not used in determining the average capital balances. Total net income for 2006 is P 120,000.
Rhian Bonifacio Monica de Villa
January 1 capital balances P 100,000 P 120,000
Yearly drawings (P 1,500 a month) 18,000 18,000
Permanent withdrawals of capital:
June 3 ( 12,000 )
May 2 ( 15,000 )
Additional investments of capital:
July 3 40,000
October 2 50,000

 What is the weighted average capital of Monica in 2006?

  What will be the final profit allocations for Rhian and Monica in 2006?
PROBLEM 6
Lolita Carbon Partnership has the following accounting amounts:
Sales 70,000
Cost of goods sold 40,000
Operating expenses 10,000
Salary allocations to partners 13,000
Interest paid to banks 2,000
Partners’ withdrawals 8,000

Partnership net income (loss) is:

PROBLEM 7
Jelly and Renren formed a partnership on January 2, 2014, and agreed to share profits 90%, 10% respectively. Jelly contributed capital of
P25,000. Renren contributed no capital but has a specialized expertise and manages the firm full time. There were no withdrawals during the
year, The partnership agreement provides for the following:
 Capital accounts are to be credited annually with interest of 5% of beginning capital.
 Renren is to be paid salary of P 1,000 a month.
 Renren is to receive a bonus of 20% of income calculated before deducting his salary and interest on both capital accounts.

The partnership 2014 income statement follows:

Revenues P 96,450
Expenses (including salary, interest and bonus) 49,700
Net income P 46,750
Renren’s 2014 bonus would be:

PROBLEM 8
Master Snowman is a partner and has an annual salary of P 30,000 per year, but he actually draws P 3,000 per month. The other partner,
Master Snowgirl, has an annual salary of P 40,000 and draws P 4,000 per month. What is the total annual salary that should be used to
allocate annual net income among the partners?

PROBLEM 9
Nadi Monio and Brenda Mage entered into a partnership as of March 1, 2011 by investing P 125,000 and P 75,000, respectively. They agreed
that Nadi, as the managing partner, was to receive a salary of P30,000 per year and a bonus computed of 10% of the net profit after
adjustment for the salary; the balance of the profit was to be distributed in the ratio of their original capital balances. On December 31, 2011,
account balances were as follows:

Cash P 70,000 Accounts Payable P 60,000

Accounts Receivable 67,000 Nadi, Capital 125,000
Furnitures and Fixtures 45,000 Brenda, Capital 75,000
Sales Returns 5,000 Nadi, Drawing (20,000)
Purchases 196,000 Brenda, Drawing (30,000)
Operating Expenses 60,000 Sales 233,000

Inventories on December 31, 2011 were as follows: supplies, P2,500. merchandise, P73,000. Prepaid insurance was P950 while accrued
expenses were P1,550. Depreciation rate was 20% per year.

REQUIRED:
1. Adjusted net income to be allocated to the partners for 2011:
2. Bonus to Nadi Monio would be:
3. Nadi Monio’s capital balance on December 31, 2011 after closing net profit and drawing accounts:
4. Brenda Mage’s capital balance on December 31, 2011 after closing net profit:

PROBLEM 10
On January 1, 2014, Kyla-pot, Bruha Zsa-Zsa, Kuh-Lani and Beauty Contis formed the GGSS Trading, a partnership with capital contributions
as follows: Kyla-pot – P 150,000; Bruha Zsa-Zsa – P 75,000; Kuh-Lani – P 75,000 and Beauty Contis – P 60,000. The partnership agreement
stipulates that each partner shall receive a 5% interest on capital contributed and that Kyla-pot and Bruha Zsa-Zsa shall receive salaries of
P15,000 and P9,000, respectively. The agreement further provides that Kuh-Lani shall receive a minimum of P7,500 per annum and Beauty
Contis a minimum of P18,000, which is inclusive of amounts representing interest and their respective share in partnership profits. The
balance of the profits shall be distributed among the partners in the ratio of 3:3:2:2.

REQUIRED:
1. Amount must be earned by the partnership in fiscal year 2014, before any charge for interest and partners’ salaries, in order that
Kyla-pot may receive an aggregate of P37,500 including interest, salary and share of profits:
2. Total profit share of Kuh-Lani:
 3. Total profit share of Beauty Contis:

PROBLEM 11
Ariana, Jessie and Nicki are partners sharing profit on a 7:2:1 ratio. On January 1, 2015, Selena was admitted into the partnership with 15%
share in profits. The old partners continue to participate in profits in their original ratios. For the 2015, the partnership showed a profits of
P15,000. However, it was discovered that the following items were omitted in the firm’s books.

Unrecorded at year end 2014 2015

Accrued expense 1,050
Accrued income 875
Prepaid expenses 1,400
Unearned income 1,225

REQUIRED
1. Adjusted net income
2. The new profit and loss ratio of the partners for 2015 is:
3. The share of partner Jessie in the 2015 net profit is:

PROBLEM 12
Luka, Jenalyn and Ken are partners sharing profits on a 4:5:1 ratio. On January 1, 2014, FC was admitted into the partnership with a 30%
share in profits. The old partners shall continue to participate in profits in proportion to their original ratios.

For the year 2014, the partnership books showed a profit of P 1,500,000, and the income tax rate is 25%. It was ascertained, however, the
following errors were made:

• Accrued expenses not recorded at the end of 2013 P 15,000

• Overstatement of 2014 ending inventory 30,000
• Goods received and inventoried in 2014 but the related purchases
not recorded 18,000
• Income received in advance, not recorded at the end of 2013 60,000
• Prepaid expenses not recorded at the end of 2013 10,000

REQUIRED:
1. How much is the corrected profit to be allocated to the partners?
2. What will be the new profit and loss ratios after the admission of FC?
3. How much profit should be allocated to Jenalyn?

PROBLEM 13
Margaret Mondragon Bartolome and Cassandra Andrada Mondragon created a partnership to own and operate a health-food store named
Mondragon Enterprises. The partnership agreement provided that Margaret receive a salary of P10,000 and Cassandra a salary of P5,000 to
recognize their relative time spent in operating the store. Remaining profits and losses were divided 60:40 to Margaret and Cassandra,
respectively. Income for 2012, the first year of operations, of P13,000 was allocated P8,800 to Margaret and P4,200 to Cassandra.

On January 1, 2013, the partnership agreement was changed to reflect the fact that Cassandra could no longer devote any time to the store’s
operations. The new agreement allows Margaret a salary of P18,000, and the remaining profits and losses are divided equally. In 2013, an
error was discovered such that the 2012 reported income was understated by P4,000. The partnership income of P25,000 for 2013 included
the P4,000 related to year 2012.

In the reported net income of P25,000 for the year 2013,

Margaret would have an amount of?

Cassandra would have an amount of?

PROBLEM 14
Mowie, Klang and Angge formed a partnership on January 1, 2017. They had the following initial investments: Mowie – P200,000; Klang –
P300,000; Angge – P 450,000. The partnership agreement states that profits and losses are to be shared equally by the partners after
consideration is made for the following:
A. Salary allowance of P 120,000 for Mowie, P 96,000 for Klang and P 72,000 for Angge.
B. Average partners’ capital balances during the year shall be allowed 10% interest.

Additional Information:
A. On June 30, 2017, Mowie invested an additional P 120,000 worth of furniture and equipment.
B. Angge withdrew P 140,000 from the partnership on September 30, 2017.
C. Share on the remaining partnership profit was P 10,000 for each partner.

REQUIRED:
 1. How much is the total interest on average capital balances of the partners?
2. How much is the partnership profit at December 31, 2017 before salaries, interest and profit share on the remainder?
3. How much is the total partnership capital on December 31, 2017?

PROBLEM 15
The Pamilya Ko Partnership was formed on January 2, 2011. The original cash investments were as follows:
Pa, Capital……………………………….. P 96,000
Milya, Capital…………………………… 144,000
Ko, Capital……………………………… 216,000
According to the general partnership contract, the partners were to be remunerated as follows:
• Salaries of P 14,400 for Pa, P 12,000 for Milya and P 13,600 for Ko.
• Interest of 12% on the average capital account balances during the year.
• Remainder divided 40% to Pa, 30% to Milya and 30% to Ko.

Income before partners’ salaries for the year ended December 31, 2011, was P 92,080. Pa invested an additional P 24,000 in the partnership
on July 1; Ko withdrew P 36,000 from the partnership on October 1; and as authorized by the partnership contract, Pa, Milya and Ko each
withdrew P 750 monthly against their shares of net income for the year.

REQUIRED:
1. Income distribution of Pa, Milya and Ko
2. The share of partner Pa in the net income is:
3. The share of partner Ko in the net income is:
4. The capital balance of partner Ko on December 31, 2011
5. If the salaries to partners’ are to be recognized as operating expenses by the partnership, the share of Milya in the net income is:
6. Income distribution of Pa, Milya and Ko using the information in No. 10
7. Using the same information in No. 10, the capital balance of Ko on December 31, 2011 is:

PROBLEM 16
Vic Sotto and Vice Ganda’s partnership named “Eat’s Showtime Partnership” was organized and began operations on March 1, 2011. On that
date, Vic Sotto invested P 150,000 and Vice Ganda invested land and building with current fair value of P 80,000 and P 100,000,
respectively. Vice also invested P 60,000 in the partnership on November 1, 2011 because of its shortage of cash. The partnership contract
includes the following remuneration plan:
Vic Sotto Vice Ganda
Annual salary………………………….. P 18,000 24,000
Annual interest on average capital
account balances……………………. 10% 10%
Remainder…………………………… 60% 40%
The annual salary was to be withdrawn by each partner in 12 monthly installments. During the fiscal year ended, February 28, 2012, Vic and
Vice had net sales of P 500,000, cost of goods sold of P 280,000 and total operating expenses of P 100,000 (excluding partners’ salaries and
interest on average capital balances). Each partner made monthly cash drawings in accordance with partnership contract.

REQUIRED:
1. Income distribution of Vic Sotto and Vice Ganda
2. The share of partner Vic Sotto in the net income is:
3. The share of partner Vice Ganda in the net income is:
4. The capital balance of Vic Sotto on March 1, 2012 should be:
5. The capital balance of Vice Ganda on March 1, 2012 should be:
6. Interest on average capital of Vice Ganda as part of the allocation of net income:

PROBLEM 17
Nini Company, a partnership, was formed on January 1, 2011, with four partners, Nadine, Iza, Nena and Imari. Capital contributions were as
follows: Nadine, P50,000; Iza, P25,000; Nena, P25,000 and Imari, P20,000. The partnership agreement provides that partners shall receive
5% interest in the amounts of their capital contributions. In addition, Nadine is to receive a salary of P5,000 and Iza a salary of P3,000. The
agreement further provides that Nena shall receive a minimum of P2,500 per annum from the partnership and Imari a minimum of P6,000 per
annum, both shares of profits, The balance of the profit is to be shared in the following proportions: Nadine, 30%; Iza, 30%; Nena, 20% and
Imari, 20%.

Calculate the amount that must be earned by the partnership during 2011, before any charges for interest on capital or partners’ salaries, in
order that Nadine may receive an aggregate of P12,500 including interest, salary and share of profits.

PROBLEM 18
Joshua and Janella are partners in merchandising business. During 2011, they withdrew their salary allowances of P80,000 and P120,000,
respectively. Profits and losses are shared in the ratio of 3:2. The Income Summary account has a credit balance of P240,000 before any
income allocation. Their capital accounts reflect the following:
JOSHUA JANELLA
Beginning balance P 100,000 P 60,000
 Additional investments 60,000 80,000
Withdrawals (other than salary) ( 20,000 ) ( 30,000 )
Ending capital 140,000 110,000

REQUIRED:
1. Share of partner Joshua in the net income
2. Capital balance of each partner on December 31, 2011 after closing the Income Summary and withdrawals account

PROBLEM 19
Nidora Partnership began operations on June 1, 2014. On this date, Dora and Boots have capital credits of P175,000 and P240,000,
respectively. The partnership has the following profit-sharing ratio:

 10% interest on partners’ capital balances at the end of the year.

 P60,000 and P75,000 annual salaries for Dora and Boots, respectively.
 Remaining profit will be divided to Dora and Boots on a 3:2 ratio, respectively.

During the year, Dora invested P150,000 worth of merchandise and withdrew P40,000 cash, while Boots invested P120,000 cash. The
partnership earned a profit of P266,375 during the year.

REQUIRED:
1. Income distribution of Dora and Boots
2. Dora’s ending capital
3. Boots’ ending capital

PROBLEM 20
Nicolai, Lynette and Pauline have average capital balances of P96,000, P48,000 and P32,000, respectively during 2014. Each partner
receives 10% interest on their capital balances. After deducting salaries of P24,000 for Nicolai and P16,000 for Pauline, the residual profit or
loss is divided equally. In 2014, the partnership sustained a P26,400 net loss before partners’ interests and salaries.

By how much would Pauline’s capital account change?

PROBLEM 21
Partner Ganda had a capital balance on January 1, 2014 of P45,000 and made additional capital contributions during 2014 totaling P50,000.
During the year 2014, Ganda withdrew P8,000 per month. Ganda’s post-closing capital balance on December 31, 2014 is P30,000.

Ganda’s share of 2014 partnership income:

PROBLEM 22
Partners Orange and Lemon have a profit and loss agreement with the following provisions: salaries of P20,000 and P25,000 for Orange and
Lemon, respectively; a bonus to Orange of 10% of net income after bonus; and interest of 20% on average capital balances of P40,000 and
P50,000 for Orange and Lemon, respectively. Any remainder is split equally. If the partnership had net income of P88,000, how much should
be allocated to Partner Orange?

PROBLEM 23
Vivian and Lilian have a profit and loss agreement with the following provisions: salaries of P30,000 and P45,000 for Vivian and Lilian,
respectively; a bonus to Vivian of 12% of net income after salaries and bonus; and interest of 10% on average capital balances of P50,000
and P65,000 for Vivian and Lilian, respectively. One-third of any remaining profits or losses are allocated to Lilian and the balance to Vivian.
If the partnership had net income of P52,000. How much should be allocated to partner Vivian?

PROBLEM 24
Jennylyn, Chenelyn and Marilyn have the following profit and loss agreement:
 Jennylyn and Chenelyn receive salaries of P40,000 each.
 Marilyn gets a bonus of 10 percent of net income after salaries and bonus (the bonus is zero if salaries exhaust net income)
 Remaining profits are shared by Jennylyn, Chenelyn and Marilyn in the following ratios respectively, 3:4:3.

The partnership had a net income of P91,000. How much should be allocated to Marilyn?

PROBLEM 25
A partnership begins its first year with the following capital balances:
Daisy, Capital P 60,000
Patricia, Capital 80,000
Kimverlie, Capital 100,000

The articles of partnership stipulate that profits and losses be assigned in the following manner:
  Each partner is allocated interest equal to 10 percent of the beginning capital balance.
 Patricia is allocated compensation of P20,000 per year.
 Any remaining profits and losses are allocated on a 3:3:4 basis, respectively.
 Each partner is allowed to withdraw up to P5,000 cash per year.

Assuming that the net income is P50,000 and that each partner withdraws the maximum amount allowed.

REQUIRED:
1. Income distribution of Daisy, Patricia and Kimverlie
2. Capital balances of Daisy, Patricia and Kimverlie at the end of that year

PROBLEM 26
A partnership begins its first year of operations with the following capital balances
Raffy, Capital 110,000
Erwin, Capital 80,000
Ben, Capital 110,000

According to the articles of partnership, all profits will be assigned as follows:

 Raffy will be awarded an annual salary of P20,000 with P10,000 assigned to Ben.
 The partners will be attributed interest equal to 10 percent of the capital balance as of the first day of the year.
 The remainder will be assigned on a 5:2:3 basis, respectively.
 Each partner is allowed to withdraw up to P10,000 per year.

Assume that the net loss for the first year of operations is P20,000 and that net income for the subsequent year is P40,000. Assume also that
each partner withdraws the maximum amount from the business each period.

REQUIRED:
1. Income distribution of Raffy, Erwin and Ben for the first year and subsequent year of operations
2. Balance of Ben’s capital at the end of first year
3. Balance of Raffy’s capital at the end of second year

PROBLEM 27
Francis, a partner in the Scotch Bright Partnership, has a 30% participation in partnership profits and losses. Francis’ capital account had a
net decrease of P60,000 during the calendar year 2014. During 2014, Francis withdrew P130,000 (charged against his capital account) and
contributed property valued at P25,000 to the partnership. What was the net income of the Scotch Bright Partnership for 2014?

PROBLEM 28
Precious, Cheska and Tracy formed a partnership on January 1, 2014, with investments of P100,000, P150,000 and P200,000, respectively.
For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of P10,000 to
Cheska and (3) sharing the remainder of the income or loss in the ratio of 20% for Precious, and 40% each for Cheska and Tracy. Net income
was P150,000 in 2014 and P180,000 in 2015. Each partner withdrew P1,000 for personal use every month during 2014 and 2015.

REQUIRED:
1. Cheska’s share on net income for 2014
2. Tracy’s capital balance at the end of 2014
3. Precious’ share on net income for 2015
4. Cheska’s capital balance at the end of 2015

PROBLEM 29
A partnership began its first year of operations with the following capital balances:
Michaellen, Capital 143,000
Justinianne, Capital 104,000
Jeromeen, Capital 143,000

The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
 Michaellen was to be awarded an annual salary of P26,000 with P13,000 salary assigned to Jeromeen.
 Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
 The remainder was to be assigned on a 5:2:3 basis, respectively.
 Each partner was allowed to withdraw up to P13,000 per year.

Assume that the net loss for the first year of operations was P26,000 with net income of P52,000 in the second year. Assume further that
each partner withdrew the maximum amount from the business each year.

REQUIRED:
1. Michaellen’s share of loss for the first year
 2. Justinianne’s capital account at the end of the first year
3. Jeromeen’s share on net income or loss for the second year
4. Michaellen’s capital account balance at the end of the second year

PROBLEM 30
Lucas and Lance are considering forming a partnership whereby profits will be allocated through the use of salaries and bonuses. Bonuses
will be 10% of net income after total salaries and bonuses. Lucas will receive a salary of P30,000 and a bonus. Lance has the option of
receiving a salary of P40,000 and a 10% bonus or simply receiving a salary of P52,000. Both partners will receive the same amount of bonus.

Determine the level of net income that would be necessary so that Lance would be indifferent to the profit-sharing option selected:

PROBLEM 31
The partnership agreement of Jaya, Jiyi and Joyo provides for the year-end allocation of net income in the following order:
 First, Jaya is to receive 10% of net income up to P200,000 and 20% over P200,000.
 Second, Jiyi and Joyo 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 2011 net income was P500,000 before any allocations to partners. What amount should be allocated to Jaya?

PROBLEM 32
The partnership agreement of Rey and Louie provides that interest at 10% per year is to be credited to each partner on the basis of weighted-
average capital balances. A summary of the capital account of Louie for the year ended December 31, 2012, is as follows:

Balance, January 1 P 420,000

Additional investment, July 1 120,000
Withdrawal, August 1 ( 45,000 )
Balance, December 31 P 495,000

What amount of interest should be credited to Louie’s capital account for 2012?

PROBLEM 33
On January 1, 2012, Maika and Val decided to form a partnership. At the end of the year, the partnership made a net income of P120,000.
The capital accounts of the partnership show the following transactions:

MAIKA, CAPITAL VAL, CAPITAL

Dr. Cr. Dr. Cr.
January 1 - 40,000 - 25,000
April 1 5,000 - - -
June 1 - - - 10,000
August 1 - 10,000 - -
September 1 - - 3,000 -
October 1 - 5,000 1,000 -
December 1 - 4,000 - 5,000

Assuming that an interest of 20% per annum is given on average capital and the balance of the profits is allocated equally, the allocation of
profits should be:

PROBLEM 34
The partnership of Hynna and Seann was formed and commenced operations on March 1, 2011, with Hynna contributing P30,000 cash and
Seann investing cash of P10,000 and equipment with an agreed upon valuation of P20,000. On July 1, 2011, Seann invested an additional
P10,000 in the partnership. Hynna made a capital withdrawal of P4,000 on May 2, 2011 but reinvested the P4,000 on October 1, 2011. During
2011, Hynna withdrew P800 per month and Seann, the managing partner, withdrew P1,000 per month. These drawings were charged to
salary expense. A pre-closing trial balance taken at December 31, 2011 is as follows:
Debit Credit
Cash 9,000
Receivable-net 15,000
Equipment-net 50,000
Other assets 19,000
Liabilities 17,000
Hynna, Capital 30,000
Seann, Capital 40,000
Service income 50,000
Supplies expense 17,000
Utilities expense 4,000
Salaries to partners 18,000
Other miscellaneous exp. 5,000
 TOTAL 137,000 137,000

Compute for the share of Hynna and Seann in the partnership net income assuming monthly salary allowances of P800 and P1,000 for
Hynna and Seann, respectively; interest allowance at a 12% annual rate on average capital balances; and remaining profits allocated equally.

PROBLEM 35
Partner Irish first contributed P50,000 of capital into an existing partnership on March 1, 2012. On June 1, 2012, the partner contributed
another P20,000. On September 1, 2012, the partner withdrew P15,000 from the partnership. Withdrawals in excess of P10,000 are charged
to the partner’s capital account. The annual weighted-average capital balance is:

PROBLEM 36
Mimiyuuuh, Bibiyuuuh, Sisiyuuuh and Kikiyuuuh own a publishing company that they operate as a partnership. The partnership agreement
includes the following:
 Mimiyuuuh receives a salary of P20,000 and a bonus of 3% of income after all bonuses.
 Bibiyuuuh receives a salary of P10,000 and a bonus of 2% of income after all bonuses.
 All partners are to receive 10% interest on their average capital balances.
 Any remaining profits and loss are to be divided equally among the partners.

The average capital balances are as follows:

Mimiyuuuh P 50,000
Bibiyuuuh 45,000
Sisiyuuuh 20,000
Kikiyuuuh 47,000

Determine how a profit a P105,000 would be allocated among the partners.

PROBLEM 37
Kervin, Carl and Bryan are partners in an accounting firm. Their capital account balances at year-end were Kervin, P90,000; Carl, P110,000
and Bryan, P50,000. They share profits and losses on 4:4:2 ratio, after the following special terms:
 Partner Bryan is to receive a bonus of 10% of net income after the bonus.
 Interests of 10% shall be paid on that portion of a partner’s capital in excess of P100,000.
 Salaries of P10,000 and P12,000 shall be paid to partners Kervin, Carl and Bryan, respectively.

Assuming a net income of P44,000 for the year, the total profit share of Bryan was:

PROBLEM 38
Finn and Jake are in partnership, sharing profits equally and preparing their accounts to December 31 each year. On July 1, 2011, Castor
joined in the partnership, and from that date, profits are shared: Finn, 40%; Jake, 40% and Castor, 20%.

In the year ended December 31, 2011, profits were:

6 months (January 1-June 30, 2011 profit) P 200,000
6 months (July 1-December 31, 2011 profit) 300,000

It was agreed that Finn and Jake only should bear equally the expense for a bad debt of P40,000 written-off in the six months to December
31, 2011 in arriving at the P300,000 profit.

Which of the following correctly states Finn’s profit share for the year?

PROBLEM 39
Mara, Clara and Teresa formed a partnership on January 1, 2012. Each contributed P120,000. Salaries were to be allocated as follows:
Mara – P30,000 ; Clara – P30,000 and Teresa – P45,000. Drawings were equal to salaries and be taken out evenly throughout the year.

With sufficient partnership net income, Mara and Clara could split a bonus equal to 25 percent of partnership net income after salaries and
bonus (in no event could the bonus go below zero).
Remaining profits were to be split as follows: 30% for Mara, 30% for Clara and 40% for Teresa. For the year, partnership net income was
P120,000.

Compute the ending capital for each partner.

GOOD LUCK AND GOD BLESS! 