AFAR 1101- PARTNERSHIP

PARTNERSHIP FORMATION
Pan and Git have just formed a partnership. Pan contributed cash of P3,881,000 and office
equipment that cost P1,170,000. The equipment had been used in the sole proprietorship and
had been 80% depreciated. The current fair value of the equipment is P756,000. An unpaid
mortgage loan on the equipment of P252,000 will be assumed by the partnership. Pan is to
have a 70% interest in the partnership net assets.
Git is to contribute only merchandise with a fair value of P1,890,000. Both partners agreed on a
profit and loss ratio of 55% to Pan and the balance to Git.
1. To finalize the partnership agreement, Pan should make additional investment
(withdrawal) of cash in the amount of?
a. 25,000 c. 264,000
b. (540,000) d. (15,000)
In 2019, Dua and Lipa agreed to form a new partnership under the following general
agreements:
1. Partner’s contributions will be on a 5:4 ratio;
2. Profit and Loss equally and,
3. Capital credits, 6:4 ratio respectively to Dua and Lipa. Their respective contributions will
come from old proprietorships they owned.
Dua contributed the following items and amounts:
Cash 748,800
Equipment (@ Book Value) 512,000
Lipa contributed the following items at their carrying amounts in the proprietorship records:
Accounts receivable 96,000
Inventory 268,800
Furnitures and Fixtures 514,560
Intangibles 220,800
All the non-cash contributions are not properly valued. The two partners have agreed that (a)
7,680 of the accounts receivable are uncollectible; (b) the inventories are overstated by 19,200;
(c) the furniture and fixtures are understated by 11,520; and the intangibles include a patent
with a carrying value of 13,440, which must now be derecognized upon a court order. The rest
of the intangible items are fairly valued.
 2. How much is the agreed fair value assigned to Dua’s equipment?
a. 1,060,800 c. 590,400
b. 403,200 d. 1,116,480
3. What is the capital balance of Dua after the formation of the partnership?
a. 1,036,541 c. 1,374,019
b. 1,339,200 d. 1,071,360
PARTNERSHIP OPERATIONS
The partnership agreement of Gwapo, Si and Lines provides for the division of net income as
follows:

 Si, ewho manages the partnership is to receive a salary of 35,200 per year.
 Each partner is to be allowed interest at 20% on beginning capital.
 Remaining profits are to be divided equally.
During 2019, Gwapo invested an additional 12,800 in the partnership. Si and Lines had a
permanent capital withdrawals of 16,000 and 12,800 respectively. Si had a temporary drawing
of 4,500. No other investments or withdrawals were made during 2019. On January 1, 2019 the
capital balances were Gwapo, 208,000, Si, 240,000 and Lines 224,000. Total capital at year-end
was 806,400.
4. Compute the capital balance of each partner at year-end:
Gwapo Si Lines
a. 257,500 297,800 251,100
b. 258,300 297,000 251,100
c. 250,665.6 292,800 244,266.4
d. 258,300 297,000 251,100
The Relationship Partnership started operation on January 2, 2018 with the following capital
balances:
Walay 88,000
Forever 64,000
Promise 90,000
Their profit and loss agreement have the following provisions:

 Walay will be given an annual salary of 16,000 and Promise 8,000.

 All partners will be given 10% interest on beginning capital balances every year.
 The balance of the profit, or the loss, will be divided on a 5:2:3 to Walay, Forever and
Promise, respectively.
 Each partner is allowed to withdraw up to 8,000 every year.
In 2018, partnership operations resulted in a net loss of 16,000, while in 2019, it was a net
profit of 32,000. All partners withdrew the maximum amount of 8,000 each year.
5. Calculate the balance of Walay’s capital at the end of 2018.
a. 72,700 c. 49,600
b. 77,600 d. 64,900
6. Calculate the balance of Forever’s capital at the end of 2019.
a. 82,080 c. 81,760
b. 44,076 d. 77,600
PARTNERSHIP DISSOLUTION (ADMISSION OF A NEW PARTNER)
Lorren and Prince are partners sharing profits and losses in the ratio of 60% and 40%, respectively. The
partnership balance sheet at August 30, 2019 were presented below:

Cash 27,000 Accounts payable 30,000

Other Assets 266,000 Lorren, loan 13,000
Prince, loan 20,000 Lorren, capital 180,000
Prince, capital 90,000
Total 313,000 313,000

At this date, James was admitted as a partner for a consideration of 97,500 cash for a 40% interest in
capital and in profits.

7. Assume that James is admitted by purchase of 40% each of the original partner’s interest,
determine how the 97,500 will be apportioned to Lorren and Prince.
a. Lorren, 67,500 and Prince 31,800
b. Lorren, 64,800 and Prince 32,700
c. Lorren, 65,500 and Prince 32,000
d. Lorren, 65,900 and Prince 31,600
8. Assume James is admitted by investing the 97,500 into the partnership, determine the effects of
any bonus over the capital balances of the original partners:
a. Lorren, (19,800) and Prince (29,700)
b. Lorren, 18,000 and Prince 29,700
c. Lorren, (29,700) and Prince (19,800)
d. Lorren, (18,675) and Prince, (12,450)

The Equity account of the partnership of King and Queen at March 31, 2019 are as follows:

King, Capital 512,000

Queen, Capital 256,000
King, loan (credit) 48,000
Queen, loan (debit) 24,000

The partners share profits and losses in the ratio of 3:2, respectively. The partnership is in desperate
need of cash, and the partners agree to admit Jack as a partner with a 1/3 interest in the capital and
profits and losses upon his investment of 192,000.
 9. Immediately after Jack’s admission, what should be the capital balances of King, Queen and Jack
respectively:
a. 598,000; 222,000; 410,000
b. 480,000; 480,000; 480,000
c. 544,000; 256,000; 400,000
d. 435,200; 204,800; 320,000

The following are the capital balances of ABC partnerships at August 1, 2019:

A (40% P&L) 220,000

B (40% P&L) 160,000

C (20% P&L) 110,000

D invest 270,000 in cash for a 30% ownership interest. The payment goes to the original partners.
Revaluation/adjustment in asset is to be recognized upon D’s admission.

10. How much adjustment in asset should be recorded and what is D’s beginning capital balance?
a. 410,000 and 270,000 c. 140,000 and 189,000
b. 140,000 and 270,000 d. 410,000 and 189,000

The following are the condensed balance sheets of J&O Partnership at August 30,2019, at which date
Charles is to be admitted with a 30% interest in capital for an investment of P55,000.

Book Value Fair Value

Cash 20,000 20,000
Other Asset 503,000 417,000
Total Assets 523,000 437,000
Current Liabilities 54,000 54,000
Non-Current Liabilities 269,000 275,000
Jason, Capital 120,000
Obed, Capital 80,000
Total 523,000

Jason and Obed share profits at 60% and 40%, respectively.

11. What will be the respective capital balances of Jason, Obed and Charles after the new partners
admission.
a. 68,460, 45,640 and 48,900
b. 48,900, 45,640 and 68,460
c. 45,640, 68,460 and 48,900
d. 64,860, 49,240 and 48,900

RETIREMENT OF A PARTNER

The following balances as at October 31, 2019 for the Partnership of Shayanna, Jill and Xave in the name
of CRUSHES Partnership were as follows:
Cash 80,000 Liabilities 24,000
Jill, loan 24,000 Shayanna, loan 36,000
Non-cash assets 640,000 Shayanna, capital 168,000
Jill, capital 156,000
Xave, capital 360,000
Totals 744,000 744,000

Shayanna has decided to retire from the partnership on October 31. Partners agreed to adjust the non-
cash assets to their fair market value of 784,000. The estimated profit to October 31 is 160,000.
Shayanna will be paid 276,800 for her partnership interest inclusive of her loan which is to be paid in
full. Their profit and loss ratio is 3:4:3 respectively.

12. What will be the balance of Jill’s capital account after the retirement of Shayanna?
a. 258,888 c. 288,114
b. 231,086 d. 298,848

On June 30, 2015, the balance sheet for the partnership of Bai, Pre and Mego and their profit and loss
ratios were as follows:

Assets 1,200,000

Bai, loan 60,000

Bai, capital 280,000
Pre, capital 260,000
Mego, capital 600,000
Total 1,200,000

Bai has decided to retire from the partnership and by mutual agreement, the assets were adjusted to
their current fair value of 1,440,000. The partnership paid 408,000 cash for Bai’s equity in the
partnership, exclusive of loan which was repaid in full.

13. The capital balances of Pre and Mego, respectively, after Bai’s retirement from the partnership
was:
a. 360,000; 855,000 c. 300,000; 675,000
b. 288,000; 684,000 d. 308,000; 664,000

The BORICATA Partnership has the following capital balances and P&L ratio at August 4, 2019.

BORA, capital (30%) 129,750

RICA, capital (30%) 108,750
CARA, capital (20%) 80,000
TATS, capital (20%) 71,500
390,000

Cara has decided to withdraw from the partnership and by agreement of all the partners, will be paid
90,000 from the partnership cash.

14. Immediately after Cara’s retirement, the capital ratio of Bora, Rica and Tats, respectively will be?
a. 33-1/3%, 33-1/3% and 33-1/3%
 b. 40%, 34% and 26%
c. 37-1/2%, 37-1/2% and 25%
d. 42%, 35% and 23%

A, B and C formed a partnership on January 2, 2018 with the following contributions:

A 100,000
B 200,000
C 300,000

The partners agreed on a capital ratio of 1:2:3 upon formation and P&L ratio of 3:3:4, respectively. The
partnership reported a net loss of 20,000 for 2018. Also, at the end of 2018, C has decided to withdraw
from the firm and was paid 250,000 from partnership cash.

On April 1, 2019, D was admitted as a partner with an investment of 160,000. He is given a share in
capital of 40% and in the profits 30%, the old partners have agreed to retain their old ratio over the
remaining profit and loss share of 70%. The partnership reported a net profit of 21,000 for 2019, one-
third of which is deemed earned as of the end of the year’s first quarter operation.

15. Determine the capital balances of A and B, respectively, as of December 31, 2018?
a. 94,000 and 194,000 c. 194,000 and 115,000
b. 115,000 and 215,000 d. 165,000 and 215,000
16. Determine the capital balances of A, B and C, respectively, on December 31, 2019?
a. 98,540, 75,720 and 113,840
b. 93,640, 70,820 and 109,640
c. 100,990, 78,170 and 120,140
d. 104,000, 204,000 and 203,000

INCORPORATION

Partners Jojo and Mar, who share profits and losses equally have decided to incorporate the partnership
at December 31, 2019. The partnership net assets after the following adjustments will be contributed in
exchange for shares of stocks from the corporation.

i. Provision of allowance for doubtful accounts, 6,000.

ii. Adjustment of understated inventory by 10,000, and
iii. Recognition of additional depreciation of 2,000.

The Corporation’s ordinary shares is to have a par value of 200 each and the partners are to be issued
corresponding shares equivalent to 80% of their adjusted capital balances.

The Partnership balance sheet at December 31, 2019 are as follows:

Cash 60,000 Liabilities 86,000

Accounts receivable 50,000 Acc. Depreciation 4,000
Inventory 70,000 Jojo, capital 70,000
Equipment 40,000 Mar, capital 60,000
Total 220,000 220,000

17. Determine the total credit to APIC upon incorporation of the partnership:
 a. 13, 500 c. 12,000
b. 26,400 d. 132,000
18. The number of ordinary shares issued to partner Mar is:
a. 568 c. 244
b. 600 d. 660

On January 2, 2019. Ayves and Harry dissolved their partnership and transferred all assets and liabilities
to a newly formed corporation. At the date of incorporation, the fair value of the net assets was 12,000
more than the carrying amount on the partnership’s books. Of which 7,000 was assigned to tangible
assets and 5,000 was assigned to patent. Ayves and Harry were each issued 15,000 shares of the
corporation’s 2.50 par common stock.

19. Immediately following incorporation, additional paid in capital in excess of par should be
credited for:
a. 68,000 c. 17,000
b. 70,000 d. 82,000

PARTNERSHIP LIQUIDATION (LUMP-SUM)

Ba, Ku, and Kang decided to liquidate their partnership on November 30, 2019. Their capital balances
and profit and loss ratio are as follows:

Capitals P&L Ratio

Ba 800,000 40%
Ku 960,000 30%
Kang 320,000 30%

The net income from January 1, 2019 to November 30, 2019 is 704,000. On November 30, 2019, the
cash balance is 640,000, and that of liabilities is 1,440,000. Ba is to receive 883,200 in the settlement of
her interest.

20. Calculate: (1) the loss on realization, and (2) the amount realized from the sale of non-cash
assets?
a. (1) 496,000; (2) 3,088,000 c. (1) 620,000; (2) 3,860,000
b. (1) 248,000; (2) 5,100,000 d. (1) 552,000; (2) 3,860,000

The partnership of ABC is currently liquidating and on February 15, 2019, their balances in capital and
their profit and loss ratios are shown below:

Ariston, capital (P&L 50%) 19,000

Bernardo, capital (P&L 30%) 18,000
Conrado, capital (P&L 20%) (12,000)

Assume non-cash assets have been all disposed and Conrado has promised to pay his deficiency in a
week’s time.

21. Calculate the amount to be received by one of the partners if cash is paid immediately on
February 15, 2019:
a. Ariston, 13,000 c. Bernardo, 14,000
 b. Bernardo, 12,000 d. Ariston, 11,500

The following condensed balance sheet is prepared for Gerald and Joshua, who share profits and losses
in the ratio of 6:4, respectively.

Other assets 720,000 Accounts payable 192,000

Gerald, loan 32,000 Gerald, capital 312,000
Joshua, capital 248,000
Total 752,000 752,000

22. The partners have decided to liquidate the partnership. If the other assets are sold for 770,000,
what amount of the available cash should be distributed to Gerald
a. 310,000 c. 342,000
b. 312,000 d. 390,000

PARTNERSHIP LIQUIDATION (BY INSTALLMENTS)

The accounts of the partnership of PBA at December 31, 2019 are as follows:

Cash 132,000 Liabilities 100,000

Non-cash assets 1,166,000 Loan from B 32,000
Loan to P 24,000 P, capital 330,000
B, capital 586,000
A, capital 274,000
Total 1,322,000 1,322,000

They divide profits and losses 3:5:2 to P, B and A respectively. They have decided to liquidate the
partnership at this date.

23. Determine the amount payable to Partner if cash is paid just before the start of liquidation on
December 31, 2019.
a. 28,286 c. 35,357
b. 35,300 d. 35,120
24. Determine the amount Partner P and B would have received by the time Partner A would have
received a cumulative amount of 72,000.
a. 3,000 and 113,000 c. 3,750 and 141,250
b. 3,516 and 140,530 d. 3,516 and 145,200

On January 1, 2019, the partners Ka, Bu and Ang, who share profits and losses in the ratio of 5:3:2,
respectively, decided to liquidate their partnership. On this date the partnership condensed balance
sheet was as follows:

Cash 80,000 Liabilities 96,000

Other Assets 400,000 Ka, capital 128,000
Bu, capital 144,000
Ang, capital 112,000
Total 480,000 480,000
On January 15, 2019, the first cash sale of other assets with a carrying amount of 240,000 realized
192,000. Safe installment payments were made the same date.

25. How much cash should be distributed to each partner?

KA BU ANG

a. 30,000 102,000 88,000

b. 80,000 90,000 70,000
c. 24,000 81,600 70,400
d. 120,000 72,000 48,000

The accounts of the partnership of N, B and A at the end of its fiscal year on November 30, 2019 are as
follows:

Cash 166,000 Loan from B 32,000

Other non-cash assets 1,132,000 N, capital (30%) 426,000
Loan to N 24,000 B, capital (50%) 218,000
Liabilities 420,000 A, capital (20%) 226,000

26. If in the first cash distribution, B received 80,000, which of the following statements in
incorrect?
a. Total amount distributed to partners is 538,000
b. Total amount paid to creditors is 420,000
c. Total amount realized from the non-cash assets is 958,000
d. N received an amount equal to 300,000

Girl, Boy, Bakla and Tomboy are partners who share profits and losses at 4:3:2:1, respectively. Since two
of them have given intention to withdraw, they have decided to liquidate the partnership instead. At
this point, the capital balances of the partners are as follows:

Girl 48,000
Boy 21,600
Bakla 34,400
Tomboy 16,000

27. Which of the following statement is true?

a. The first available 1,600 will go to Tomboy
b. Girl will be the last to receive cash
c. The first available 2,400 will go to Bakla
d. Girl will collect a portion of any available cash before Tomboy receives anything

P, G and T are in the process of liquidating their partnership. They have the following capital balances
and profit and loss percentages:

Capital Balance Profit and Loss %

P 8,000 debit 20%
G 28,800 credit 50%
T 9,600 credit 30%
The partnership balance sheet shows cash of 8,000, non-cash assets of 22,400, and no liabilities.

28. Assuming no liquidation expenses, what safe payments could be made?

a. 8,000 split between G and T by a ratio of 5:3 respectively
b. 8,000 to G only
c. 1,600 to P, 4,000 G and 2,400 to T
d. 28,800 to G only