Page |1

Chapter 1
Partnership Formation
PROBLEM 1: TRUE OR FALSE
1. TRUE
2. TRUE
3. TRUE
4. FALSE - ₱300
5. FALSE – (300 – 80) = ₱220
6. TRUE
7. FALSE – the agreed capital is ₱300. Therefore, Mr. B should
make an additional contribution and Ms. C should not
withdraw part of her investment.

8. TRUE – (50 contribution – 20 bonus to D) = 30

9. TRUE
10. FALSE - ₱100

PROBLEM 2: MULTIPLE CHOICE – THEORY

1. B
2. A
3. D
4. A
5. B

PROBLEM 3: EXERCISES

1. Solution:
Partnershi
Day Night p
Page |2

Cash 280,000 - 280,000

Accounts rec. (100K x 60%) 60,000 - 60,000
Inventory 120,000 - 120,000
Building - 900,000 900,000
Total 460,000 900,000 1,360,000
(60,000
- (60,000)
Accounts payable )
400,00 900,00
1,300,000
Adjusted capital balances 0 0

Date Cash 280,000

Accounts receivable 60,000
Inventory 120,000
Building 900,000
Accounts payable 60,000
Day, Capital 400,000
Night, Capital 900,000

2. Solution:
Day’s contribution 400,000
Divide by: Day’s P/L ratio 30%
Total 1,333,333
Multiply by: Night’s P/L ratio 70%
Minimum capital required of Night 933,333
Night's contribution 900,000
Deficiency in Night's capital contribution (33,333)

Date Cash 33,333

Night, Capital 33,333

3. Solution:
Requirement (a): Compound entry
Date Cash 280,000
Accounts receivable 60,000
Inventory 120,000
Building 900,000
Accounts payable 60,000
Page |3

Day, Capital 650,000

Night, Capital 650,000

Requirement (b): Simple entries

Date Cash 280,000
Accounts receivable 60,000
Inventory 120,000
Accounts payable 60,000
Day, Capital 400,000
to record the contributions of Day
Date Building 900,000
Night, Capital 900,00
to record the contribution of Night 0

Date Night, Capital 250,000

Day, Capital 250,000
to equalize the capital balances of the
partners

4. Solution:
Day Night
Actual contributions (see #1
above) 400,000 900,000
Equal capital credits (1.3M x
50%) 650,000 650,000
(250,000
Receipt (Payment) ) 250,000

Answer: Day pays Night ₱250,000. This transaction will not be

recorded in the partnership books.

5. Solution:
Day Night
900,00
Actual contributions (see #1 above) 400,000 0
650,00
Equal capital credits (1.3M x 50%) 650,000 0
Withdrawal (Additional (250,00 250,0
investment) 0) 00
Page |4

Answer: Day invests additional ₱250,000, while Night withdraws

₱250,000.

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. A
 Triangle = 80K
 Square = 90K
 Round = 690K – 580K = 110K

2. B
Solution:
Mr. Ms.
Totals
Ann Buoy
Cash 50,000 120,000 170,000
1,060,00
Accounts receivable 300,000 760,000
0
Inventories 216,000 340,000 556,000
1,080,00 1,080,00
Land
0 0
Building 900,000 900,000
Equipment 90,000 130,000 220,000
1,736,00 3,986,00
Total assets 2,250,000
0 0

Accounts payable 436,000 450,000 886,000

Mortgage payable 180,000 180,000
1,066,00
Total liabilities 616,000 450,000
0

1,120,00 2,920,00
Adjusted capital balances 1,800,000
0 0

3. B - 18,000, the sale of the land on partnership agreement date

provides information on the land’s fair value on that date.

4. B
Page |5

Solution:
Cash 184,000
A, Capital (184,000 ÷ 2) 92,000
B, Capital (184,000 ÷ 2) 92,000

5. D
Solution:
Cash 184,000
A, Capital (184,000 ÷ 2) 92,000
B, Capital (184,000 ÷ 2) 92,000

B's contribution 84,000

B's capital credit 92,000
Excess credit – B’s payment to A (8,000)

The cash settlement among the partners is not recorded in

the partnership’s books because this is not a transaction of the
partnership but rather a transaction among the partners
themselves.

PROBLEM 5: CLASSROOM ACTIVITY

Solutions:
Requirement (a):
Partner Partner
Totals
1 2
1,800,00 2,081,25
Cash 281,250
0 0
1,230,00
Accounts receivable 430,000 800,000
0
Page |6

1,500,00 1,500,00
Land
0 0
1,400,00 1,400,00
Building
0 0
3,611,25 2,600,00 6,211,25
Total assets
0 0 0

Accounts payable 330,000 400,000 730,000

Notes payable 375,657 375,657
Provision for probable loss 300,000 300,000
Real property tax payable 40,000 40,000
1,445,65
Total assets 670,000 775,657
7

2,941,25 1,824,34 4,765,59

Adjusted capital balances
0 3 3

Requirement (b):
Cash 2,081,250
Accounts receivable 1,230,000
Land 1,500,000
Building 1,400,000
Accounts payable 730,000
Notes payable 375,657
Provision for probable loss 300,000
Real property tax payable 40,000
Partner 1, Capital 2,941,250
Partner 2, Capital 1,824,343
Page |7

Variation #1:

Solutions:

Requirement (a) and (b):

Total net asset contributions 4,765,593
Divide by: 2
2,382,7976.
Equal credits to capital accounts
5

Partner 1 Partner 2
2,382,796. 2,382,796.
Equal credits to capital accounts
5 5
Fair value of net asset contribution 2,941,250 1,824,343
(558,453.5
558,453.5
Bonus )

Answers: Partner 2 receives a bonus of ₱558,453.5.

Requirement (c): The bonus is treated as an increase in Partner 2’s

capital and as a decrease in Partner 1’s capital.

Requirement (d):
Cash 2,081,250
Accounts receivable 1,230,000
Land 1,500,000
Building 1,400,000
Accounts payable 730,000
Notes payable 375,657
Provision for probable loss 300,000
Real property tax payable 40,000
Partner 1, Capital 2,382,796.5
Partner 2, Capital 2,382,796.5
Page |8

Variation #2:

Solutions:
Requirement (a):
Total net asset contributions 4,765,593

Divide by: 2
Equal credits to capital accounts 2,382,796

Partner 1 Partner 2
2,382,796. 2,382,796.
Equal credits to capital accounts
5 5
Fair value of net asset contribution 2,941,250 1,824,343
(558,453.5
558,453.5
(Receipt) Payment )

Answer: Partner 1 shall receive cash of ₱558,453.5 from Partner 2.

Requirement (b):
The cash receipt and cash payment are not recorded in the
partnership books.

Requirement (c):
Cash 2,081,250
Accounts receivable 1,230,000
Land 1,500,000
Building 1,400,000
Accounts payable 730,000
Notes payable 375,657
Provision for probable loss 300,000
Real property tax payable 40,000
Partner 1, Capital 2,382,796.5
Partner 2, Capital 2,382,796.5
Page |9

Variation #3:
Partner 1, Capital 2,941,250
Divide by: Partner 1’s equity interest 50%
Total 5,882,500
Multiply by: Partner 2's interest 50%
Minimum capital required of Partner 2 2,941,250
Partner 2's capital contribution 1,824,343
Deficiency on Partner 2's capital contribution 1,116,907

Answer: Partner 2 should provide additional cash contribution of

₱1,116,907 to make his contribution proportionate to his/her interest.

Variation #4:

Solution:
Total net asset contributions 4,765,593

Divide by: 2
2,382,796.
Equal credits to capital accounts
6

Partner 1 Partner 2
2,382,796. 2,382,796.
Equal credits to capital accounts
5 5
Fair value of net asset contribution 2,941,250 1,824,343
(558,453.5
558,453.5
(Withdrawal) Additional investment )

Answer:
Partner 1 shall withdraw ₱558,453.5, while Partner 2 shall make an
additional investment of ₱558,453.5.
P a g e | 10

PROBLEM 6: FOR CLASSROOM DISCUSSION

1. Solution:
Ms. Partnershi
Mr. Sun Moon p
Cash 400,000 - 400,000
Accounts rec. (250K x 80%) 200,000 - 200,000
Land (at fair value) 1,000,000 1,000,000
Equipment (180K – 30K) 150,000 150,000
Total 600,000 1,150,000 1,750,000
Mortgage payable – land (250,000) (250,000)
Adjusted capital balances 600,000 900,000 1,500,000

Date Cash 400,000

Accounts receivable 200,000
Land 1,000,00
Equipment 0
Mortgage payable 150,000 250,000
Sun, Capital 600,000
Moon, Capital 900,000

2. Solution:
 Using Mr. Sun’s capital: 600K ÷ 50% = 1.2M x 50% interest of
Ms. Moon = 600K vs. 900K Ms. Moon’s actual contribution;
Conclusion: Ms. Moon’s actual contribution is not deficient.
 Using Ms. Moon’s capital: 900K ÷ 50% = 1.8M x 50% interest of
Mr. Sun = 900K vs. 600K Mr. Sun’s actual contribution;
Conclusion: Mr. Sun’s actual contribution is deficient by 300K.
 Answer: Mr. Sun should make an additional contribution of
₱300,000.

3. Solution:
Date Cash 400,000
Accounts receivable 200,000
P a g e | 11

Land 1,000,00
Equipment 0
Mortgage payable 150,000 250,000
Sun, Capital (1.5M x 50%) 750,00
Moon, Capital (1.5M x 50%) 0
750,00
0

4. Solutions:
Requirement (a): Compound
Date Cash 400,000
Accounts receivable 200,000
Land 1,000,00
Equipment 0
Mortgage payable 150,000 250,000
Sun, Capital (1.5M x 50%) 750,00
Moon, Capital (1.5M x 50%) 0
750,00
0

Ms.
Mr. Sun Moon
Actual contributions (see #1
above) 600,000 900,000
Equal capital credits (1.5M x
50%) 750,000 750,000
(150,00
Receipt (Payment) 0) 150,000

Mr. Sun pays Ms. Moon ₱150,000. This transaction is not recorded
in the partnership books.

Requirement (b): Simple entries

Date Cash 400,000
Accounts receivable 200,000
Sun, Capital 600,000
to record the contributions of Sun
Date Land 1,000,00
Equipment 0
Mortgage payable 150,000 250,000
Moon, Capital 900,000
to record the contributions of Moon
P a g e | 12

Date Moon, Capital 150,000

Sun, Capital 150,000
to equalize the capital balances of the
partners

5. Solution:
Mr. Ms.
Sun Moon
600,00
Actual contributions (see #1 above) 0 900,000
750,00
Equal capital credits (1.5M x 50%) 0 750,000
(Additional investment)/ (150,00
Withdrawal 0) 150,000

 Mr. Sun shall invest an additional ₱150,000, while Ms.

Moon shall withdraw ₱150,000.