THEORETICAL QUESTIONS

1. Statement I – Partnerships are separate legal entities, like corporations.

Statement II – Partnership is a taxable entity.
A. Only the first statement is true. C. Both statements are incorrect.
B. Only the second statement is true. D. Both statements are correct.

2. Statement I – Under the partnership law, partnership must follow GAAP.

Statement II – Sole proprietorships and partnerships are similar in that they are both easily formed.
A. Only the first statement is true. C. Both statements are incorrect.
B. Only the second statement is true. D. Both statements are correct.

3. The partnership form of business is:

A. An economic entity C. A taxable entity
B. A separate legal entity, just like corporations. D. A fiscal entity

4. A distinct and major advantage of the professional corporation form of organization in comparison with the partnership form of organization:
A. Limited liability with respect to damages arising from professional services
B. Greater allowable tax deductions for retirement plans
C. Ease of formation
D. Historical cost

5. A unique feature of partnerships (compared with publicly owned corporations) is that:

A. They do not have to allow GAAP. C. Books have to be maintained on the tax basis.
B. They are not governed by laws. D. They do not file income tax returns.

6. Which of the following is not a reason for popularity of partnerships as a legal form of business?
A. Partnerships may be formed merely by an oral agreement.
B. Partnerships can more easily generate significant amounts of capital.
C. Partnerships avoid the double taxation of income that is found in corporations.
D. In some cases, losses may be used to offset gains for tax purposes.

7. How does partnership accounting differ from corporate accounting?

A. The matching principle is not considered appropriate for partnership accounting.
B. Revenues are recognized at a different time by a partnership than is appropriate for a corporation.
C. Individual capital accounts replace the contributed capital and retained earnings balances found in corporate accounting.
D. Partnerships report all assets at fair value as of the latest balance sheet date.

8. One which has failed to comply with all the legal requirements for its establishment.
A. Partnership at Will B. De Jure Partnership C. Partnership by Estoppel D. De Facto Partnership

9. One who does not take any active part in the business although he may be known to be a partner.
A. Secret Partner B. Dormant Partner C. Ostensible Partner D. Silent Partner

10. The fair market value of a partnership can be implied by:

A. Adding the incoming partner’s market value of consideration to the book value of the existing partnership
B. The tax basis of the old partner’s assets added to the incoming partner’s consideration
C. The incoming partner’s market value of consideration divided by the incoming partner’s percentage share in profit and loss
D. The incoming partner’s market value of consideration divided by the incoming partner’s percentage ownership share in the new
partnership

11. Under the entity theory, a partnership is:

A. Viewed through the eyes of the partners C. A separate legal and tax entity
B. Viewed as having its own existence apart from the partners D. Unable to enter into contracts its own name

12. The drawing ledger accounts of limited liability partners are used:
A. To record partners’ salaries
B. To reduce the partners’ capital account balances at the end of the accounting period
C. In the same manner as the partners’ loan accounts
D. To record partners’ share of net income or loss for an accounting period

13. Which of the following is not a withdrawal that may be found in a partnership’s drawing accounts?
A. Removal of cash by a partner C. Removal of inventory by a partner
 B. Payment of a partner’s speeding ticket by the partnership D. All of the above may be found.

14. Withdrawals from the partnership accounts are typically not used:
A. To record compensation for work performed in the business
B. To reduce the partner’s capital account balances at the end of the accounting period
C. To record interest earned on a partners’ capital balances
D. To reduce the basic investment that has been made in the business to record a reward

15. Which of the following would be least likely to be used as a means of allocating profit among partners who are active in the management
of the partnership?
A. Salaries
B. Bonus as a percentage of net income before bonus
C. Bonus as a percentage of sales in excess of targeted amount
D. Interest on average capital balances

16. Which of the following best describes the use of interest on invested capital as a means of allocating profits?
A. If interest on invested capital is used, it must be used for all partners.
B. Interest is allocated only if there is partnership net profit.
C. Invested capital balances are never affected by drawings of the partnerships.
D. Use of beginning or ending measures of invested capital may be subject to manipulation that distorts measure of invested capital.

17. In a limited partnership, a general partner:

A. is excluded from management C. has limited liability for partnership debit
B. is not entitled to a bonus at the end of the year D. has unlimited liability for partnership debit

18. An accrued expense can be best described as an amount:

A. paid and matched with earnings for the current period C. not paid and matched with earnings for the current period
B. paid and not matched with earnings for the current period D. not paid and not matched with earnings for the current period

19. On August 2, 2014, Janjan and Justine formed a partnership. Janjan contributed cash. Justine, previously a sole proprietor, contributed
property, including realty subject to a mortgage, which the partnership assumed. Justine’s capital account at August 2, 2014, should be
recorded at:
A. Justine’s book value of the property at August 2, 2014.
B. Justine’s book value of the property less the mortgage payable at August 2, 2014.
C. The fair value of the property less the mortgage payable at August 2, 2014.
D. The fair value of the property at August 2, 2014.

20. Which of the following is not an advantage of a partnership over a corporation?

A. Ease of formation C. Double taxation
B. Unlimited liability D. The elimination of taxes at the entity level

21. What is the underlying purpose of the interest in capital balances component of allocating partnership profits and
losses?
A. Compensate partners who contribute economic resources to the partnership
B. Reward labor and expertise contributions
C. Reward for special responsibilities undertaken
D. Reward for exemplary performance in conducting partnership affair

22. What is the underlying purpose of the salary component of allocating partnership profits and losses?
A. Compensate partners who contribute economic resources to the partnership
B. Reward labor and expertise contributions
C. Reward for special responsibilities undertaken
D. Reward for exemplary performance in conducting partnership affair

23. Drawings
A. are advances to a partnership C. are a function of interest on partnership average capital
B. are loans to the partnership D. are the same nature as withdrawals

24. Which of the following interest component calculation bases is least susceptible to manupulation when allocating
profits and losses to partners?
A. Beginning capital balance
B. Average of beginning and ending capital account balances
C. Weighted average capital balances
D. Ending capital account balance
Which of the following statements is correct with regard to drawing accounts that may be used in the partnership?
A. Drawing accounts are closed to the partners’ capital accounts at the end of the accounting period.
B. Drawing accounts establish the amount that may be taken from the partnership by a partner in a given time.
C. Drawing accounts are similar to Retained Earnings in a corporation.
D. Drawing accounts appear on the balance sheet as a contra-equity account.

APPLICATION

PROBLEM 1 (PARTNERSHIP FORMATION)

Daniel and Kathryn decided to form Barcelona Partnership on December 15, 2019. The balance sheet of Rain and Mike 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 75% of the ownership:

PROBLEM 2 (PARTNERSHIP FORMATION)

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 ( PARTNERSHIP FORMATION )

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 (PARTNERSHIP FORMATION )

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 ( PARTNERSHIP FORMATION )

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 (PARTNERSHIP FORMATION)

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 (FORMATION)
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.

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

PROBLEM 8- PARTNERSHIP OPERATIONS

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 9 – PARTNERSHIP OPERATIONS

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 10- PARTNERSHIP OPERATIONS

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 Myla would consider the choices to be equal?

PROBLEM 11- PARTNERSHIP OPERATIONS

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 12- PARTNERSHIP OPERATIONS

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 13- OPERATIONS

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 14- OPERATIONS

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 15- OPERATIONS

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 16- OPERATIONS

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 230,000

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 17- OPERATIONS

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 18- OPERATIONS (CORRECTION OF PROFIT)

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 19- CORRECTION OF PROFITS

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 19- PARTNERSHIP FORMATION

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 P
45,000. 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 20- PARTNERSHIP OPERATIONS
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 21- PARTNERSHIP OPERATIONS

Romina, Daniela, Carlos and Robert owned a publishing company that they operate as a partnership. The partnership agreement includes the
following:
• Romina receives a salary of P50,000 and a bonus of 5% of income after all bonuses.
• Daniela receives a salary of P44,000 and a bonus of 7% of income after all bonuses.
• All partners are to receive 20% interest on their average capital balances.

The average capital balances are as follows:

Romina – P 180,000
Daniela – P 160,000
Carlos – P 130,000
Robert – P 220,000

Any remaining profits and loss are to be divided equally among the partners.

Determine how a profit of P 400,000 would be allocated to partner Daniela.

Determine how a profit of P 520,000 would be allocated to partner Romina.

PROBLEM 22- PARTNERSHIP OPERATIONS

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.

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

PROBLEM 23- PARTNERSHIP FORMATION

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:
 Adjusting entries for Savvy and Dani’s books
 Savvy’s adjusted capital
 Dani’s adjusted capital
 Agreed capital of Savvy to bring the capital balance proportionate to their profit and loss ratio
 Agreed capital of Dani to bring the capital balance proportionate to their profit and loss ratio
 Net adjustments of Dani

PROBLEM 24- OPERATIONS

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

PROBLEM 25- OPERATIONS

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:
 Income distribution of Vic Sotto and Vice Ganda
 The share of partner Vic Sotto in the net income is:
 The share of partner Vice Ganda in the net income is:
 The capital balance of Vic Sotto on March 1, 2012 should be:
 The capital balance of Vice Ganda on March 1, 2012 should be:
 Interest on average capital of Vice Ganda as part of the allocation of net income:

PROBLEM
The business assets