Partnership - Operation, Liquidation

ACCOUNTANCY DEPARTMENT
ADFINA 2 PARTNERSHIP
Problem A. On February 1, 2015, Flores, Gilroy, and Hansen began a
partnership in which Flores and Hansen contributed cash of P25,000;
Gilroy contribute property with a fair value of P50,000 and a tax
basis P40,000. Gilroy receives a 5% bonus of partnership income.
Flores and Hansen receive salaries of P10,000 each. The partnership
agreement of Flores, Gilroy, and Hansen provides all partners to
receive a 5% interest on capital and that profits and losses be
divided of the remaining income be distributed to Flores, Gilroy, and
Hansen by a 1:3:1 ratio.
Required:
Prepare a schedule to distribute P25,000 of partnership net income to

the partners.
Problem B. The profit and loss sharing agreement for the Quade, Reid,
and Scott partnership provides for a P15,000 salary allowance to
Reid. Residual profits and losses are allocated 5:3:2 to Quade, Reid,
and Scott, respectively. In 2016, the partnership recorded P120,000
of net income that was properly allocated to the partner's capital
accounts. On January 25, 2017, after the books were closed for 2016,
Quade discovered that office equipment, purchased for P12,000 on
December 29, 2016, was recorded as office expense by the company
bookkeeper.
Required:
Prepare the necessary correcting entry(s) for the partnership.
Problem C. Evans, Fitch, and Gault operate a partnership with a

complex profit and loss sharing agreement. The average capital
balance for each partner on December 31, 2016 is P300,000 for Evans,
P250,000 for Fitch, and P325,000 for Gault. An 8% interest allocation
is provided to each partner. Evans and Fitch receive salary
allocations of P10,000 and P15,000, respectively. If partnership net
income is above P25,000, after the salary allocations are considered
(but before the interest allocations are considered), Gault will
receive a bonus of 10% of the original amount of net income. All
residual income is allocated in the ratios of 2:3:5 to Evans, Fitch,
and Gault, respectively.
Required:
1. Prepare a schedule to allocate income to the partners assuming

that partnership net income is P250,000.
2. Prepare a journal entry to distribute the partnership's income to

the partners (assume that an Income Summary account is used by
the partnership).
3. Prepare a schedule to allocate income or loss to the partners
assuming that the partnership incurs a net loss of P36,000.
4. Prepare a journal entry to distribute the partnership's loss to

the partners (assume that an Income Summary account is used by
the partnership).
2nd Semester A.Y. 2017–2018 Page 1 of 4 K.T. Tegio

Problem D. Grech, Harris, and Ivers have a retail partnership
business selling personal computers. The partners are allowed an
interest allocation of 8% on their average capital. Capital account
balances on the first day of each month are used in determining
weighted average capital, regardless of additional partner investment
or withdrawal transactions during any given month. Drawings are
disregarded in computing average capital, but temporary withdrawals
of capital that are debited to the capital account are used in the
average calculation. Partner capital activity for the year was:
Capital accounts Grech Harris Ivers

Jan 1 balance P 200,000 P 300,000 P 250,000
Feb 2 investment 50,000
Mar 6 investment 10,000 20,000
Apr 20 withdrawal ( 10,000 )
Jul 3 withdrawal
and investment ( 7,000 ) 10,000
Sep 29 investment 5,000 4,000 5,000
Nov 5 investment 5,000
Required:
Calculate weighted average capital for each partner, and determine the
amount of interest that each partner will be allocated.
Problem E. The profit and loss sharing agreement for the Sealy,
Teske, and Ubank partnership provides that each partner receive a
bonus of 5% on the original amount of partnership net income if net
income is above P25,000. Sealy and Teske receive a salary allowance
of P7,500 and P10,500, respectively. Ubank has an average capital
balance of P260,000, and receives a 10% interest allocation on the
amount by which his average capital account balance exceeds P200,000.
Residual profits and losses are allocated to Sealy, Teske, and Ubank
in their respective ratios of 7:5:8.
Required:
Prepare a schedule to allocate P88,000 of partnership net income to

the partners.
Problem F. A summary balance sheet for the partnership of Ivory,

Jacoby and Kato on December 31, 2016 is shown below. Partners Ivory,
Jacoby and Kato allocate profit and loss in their respective ratios
of 9:6:10.
Assets
Cash P 50,000
Inventory 75,000
Marketable securities 120,000
Land 80,000
Building-net 400,000
Total assets P 725,000
Equities
Ivory, capital P 425,000
Jacoby, capital 225,000
Kato, capital 75,000
Total equities P 725,000

The partners agree to admit Lange for a one-tenth interest. The fair
market value for partnership land is P180,000, and the fair market
value of the inventory is P150,000.
Required:
1. Record the entry to revalue the partnership assets prior to the

admission of Lange.
2. Calculate how much Lange will have to invest to acquire a 10%

interest.
3. If Lange paid P200,000 to the partnership in exchange for a 10%

interest, what would be the bonus that is allocated to each
partner's capital account?
Problem G. A summary balance sheet for the Vail, Wacker Yang

partnership on December 31, 2016 is shown below. Partners Vail,
Wacker, and Yang allocate profit and loss in their respective ratios
of 4:5:7. The partnership agreed to pay partner Yang P227,500 for his
partnership interest upon his retirement from the partnership on
January 1, 2017. Any payments exceeding Yang’s capital balance are
treated as a bonus from partners Vail and Wacker.
Assets
Cash P 75,000
Inventory 87,500
Land 90,000
Equities
Vail, capital P 212,500
Wacker, capital 112,500
Yang, capital 137,500
Required:
Prepare the journal entry to reflect Yang’s retirement from the

partnership.

Problem H. A summary balance sheet for the Almond, Brandt, and Clack
partnership on December 31, 2016 is shown below. Partners Almond,
Brandt, and Clack allocate profit and loss in their respective ratios
of 2:1:1. The partnership agreed to pay partner Brandt P135,000 for
his partnership interest upon his retirement from the partnership on
January 1, 2017. The partnership financials on January 1, 2017 are:
Assets
Cash P 75,000
Inventory 85,000
Land 90,000
Equities
Almond, capital P 210,000
Brandt, capital 105,000
Clack, capital 105,000
Required:
Prepare the journal entry to reflect Brandt’s retirement from the

partnership:
1. Assuming a bonus to Brandt.
2. Assuming a revaluation of total partnership capital based on
excess payment.

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ACCOUNTANCY DEPARTMENT

Prepare a schedule to distribute P25,000 of partnership net income to

Prepare the necessary correcting entry(s) for the partnership.

Problem C. Evans, Fitch, and Gault operate a partnership with a

1. Prepare a schedule to allocate income to the partners assuming

2. Prepare a journal entry to distribute the partnership's income to

4. Prepare a journal entry to distribute the partnership's loss to

2nd Semester A.Y. 2017–2018 Page 1 of 4 K.T. Tegio

Capital accounts Grech Harris Ivers

Prepare a schedule to allocate P88,000 of partnership net income to

Problem F. A summary balance sheet for the partnership of Ivory,

2nd Semester A.Y. 2017–2018 Page 2 of 4 K.T. Tegio

1. Record the entry to revalue the partnership assets prior to the

2. Calculate how much Lange will have to invest to acquire a 10%

3. If Lange paid P200,000 to the partnership in exchange for a 10%

Problem G. A summary balance sheet for the Vail, Wacker Yang

Prepare the journal entry to reflect Yang’s retirement from the

2nd Semester A.Y. 2017–2018 Page 3 of 4 K.T. Tegio

Prepare the journal entry to reflect Brandt’s retirement from the

2nd Semester A.Y. 2017–2018 Page 4 of 4 K.T. Tegio

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