1.

On October 1, 2011, Mel and Garri pooled their assets and form a partnership, with the firm to take over
their business assets and assume their liabilities. The partner’s capitals are to be based on net assets
transferred after the following adjustments: Garri’s inventory is to be increased by P3,000; an allowance for
bad debts of P1,000 and P1,500 are to be set up in the books of Mel and Garri, respectively; and P4,000 of
accounts payable are to be recognized in Mel’s books. The individual trial balances on October 1 show the
following:
                                                   Mel                  Garri
Assets                         P113,000         P75,000
Liabilities                           34,500            5,000
Capital                              78,500          70,000

What is the capital balance of Mel and Garri assuming they agree to share capital equally?

a.    P65,000
b.    P72,500
c.    P74,250
d.    P80,000
The capital balance of Mel and Garri assuming they agree to share their capital equally would be
P72,500, computed as follows:

Unadjusted capital (P78,500 + P70,000)         P148,500

   Inventory write-up                                            3,000
               Allow. for bad debts (P1,000 + P1,500)                          ( 2,500)
   Increase in accounts payable                          (4,000)
Adjusted capital                                            P145,000
   Divide by                                                           2
Capital balance of each partner                       P72,500

2. Chona and Charo formed a partnership on May 31, 2011.  Chona’s contribution consisted of her
proprietorship’s net assets with current fair value of P60,000.  Charo contributed enough cash to secure a
one-fourth interest in the partnership.  If Chona is allowed goodwill credit equal to 20% of her initial capital,
Charo’s cash contribution was:

a.    P15,000
b.    P20,000
c.  P25,000
d.    P30,000

If Chona is allowed goodwill credit equal to 20% of her initial capital, Charo’s cash contribution was P25,000,
computed as follows:

Chona’s initial capital (P60,000/80%)                                P  75,000

Divided by Chona’s capital share                                       ¾ or 75%
Total agreed capital of the partners                                   P100,000
   Multiplied by  Chona’s capital share                                ¼ or 25%
Charo’s cash contribution                                                 P   25,000

Chona’s initial capital is equal to her net assets contribution which is 80% plus her goodwill credit of 20%.
Charo’s cash contribution is equal to one-fourth (¼) of total partnership capital or 1/3 of Chona’s capital.
3. Flores, Peralta, and Jose are forming a new partnership.  Flores will invest cash of P120,000 and his
office equipment costing P144,000 but has a market value of P60,000.  Peralta is to invest cash of P192,000
 and Jose is to contribute P60,000 cash and a brand new delivery truck with a market value of P144,000
although he bought it for only P120,000.  The partners will share profits and losses in the ratio of 25:25:50 for
Flores, Peralta and Jose, respectively.

            The capital balances of the partners upon formation are:

                        Flores         Peralta        Jose
            a.       P264,000    P192,000   P180,000
            b.       P180,000    P192,000   P204,000
            c.       P192,000    P192,000   P192,000
            d.       P212,000    P212,000   P211,200

The capital balances of the partners upon formation are P180,000, P192,000, and P204,000, respectively,
computed as follows:

Investments:                  Flores           Peralta                Jose
   Cash                      P120,000         P192,000        P   60,000
   Equipment                   60,000    
   Truck                                                                      144,000
Capital balances         P180,000         P192,000         P204,000

4.  DJ and EJ, on May 31, 2011, pooled their net assets to form a partnership, with the new firm taking over
the business assets and assuming their liabilities. The partner’s capitals are to be based on net assets
transferred after the following adjustments: allowance for doubtful accounts of P1,000 and P1,500 are to be
set up on the books of DJ and EJ, respectively; EJ’s inventory is to be increased by P3,000; and, accounts
payable of P4,000 is to be recorded on DJ’s books. The individual trial balances on this date show:
                                                     DJ                   EJ
Assets                         P105,000         P113,000
Liabilities                          35,000             34,500
Capital                             70,000             78,500

What is EJ’s adjusted capital balance?

a.    P77,000
b.    P80,000
c.  P81,500
d.  P85,500
EJ’s adjusted capital balance is P80,000 computed as follows:

EJ’s capital before adjustment (given)                         P78,500

Add (deduct) adjustment for:
                  Allowance for doubtful accounts              P(1,500)
      Inventory increase                                     3,000
      Net adjustment                                                       1,500
EJ’s adjusted capital balance                                     P80,000
5.  When property other than cash is invested in a partnership, at what amount should the non-cash property
be credited to the contributing partner’s capital account?
a.    Fair value at the date of contribution.
b.    Contributing partner’s original cost.
c.    Assessed valuation for property tax purposes.
d.    Contributing partner’s tax basis.
6. Pula invites Puti to join his business as a partner.  The capital account of Pula has a credit balance of
P300,000.  Puti will invest cash of P120,000 and he will be given a capital credit of 30% of the total capital
 after making the following adjustments in the books of Pula: (a)  The accumulated depreciation of the
equipment is to be increased by P7,500; (b) Prepaid expenses are to be reduced by P2,400.

        The capital account of Pula and Puti immediately after the formation of the partnership are:
a.    P300,000 and P120,000, respectively;
b.    P290,100 and P120,000, respectively;
c.    P287,070 and P123,030, respectively;
d.    P287,070 and P  40,000, respectively

The capital account of Pula and Puti immediately after the formation of the partnership would have balances
equal to P287,070 and P123,030, respectively. These amounts were computed as follows:

Capital of  Pula before adjustments                               P300,000

Add (deduct) adjustments:
Increase in depreciation                                              (7,500)
Reduction in prepaid expenses                                     (2,400)
Adjusted capital of Pula                                                P290,100
Add cash contributed by Puti                                           120,000
Total agreed capital                                                     P410,100  

Share of Pula (70% x P410,100)                                    P287,070

Share of Puti (30% x P410,100)                                    P123,030

7. On March 1, 2011, Jhan and Feb formed a partnership with each contributing the following assets:
Jhan Feb
Cash P30,000 P70,000
Machinery and Equipment   25,000    75,000
Building - The building is subject to a mortgage loan
 225,000
Furniture and Fixtures   10,000 of P90,000, which is to be assumed by the
-
partnership.  The partnership agreement
provides that Jhan and Feb share profits and losses 30 percent and 70 percent, respectively.

Assuming that the partners agreed to bring their respective capital in proportion to their respective profit
and loss ratio, and using Feb’s capital as the base, how much cash is to be invested by Jhan?

a.   P19,000
b.   P30,000
c.   P40,000
d.   P55,000
8. Bel, Joy, and Franco, new CPAs, are to form a partnership. Bel will contribute cash of P50,000 and his
computer that originally cost P60,000 but with a second-hand value of P25,000. Joy will contribute P80,000 in
cash. Franco, whose family sells computers, will contribute P25,000 in cash and a brand new computer with
printer that cost his family’s computer dealership P50,000 but with a regular selling price of P60,000. The
three agree to share profits and losses equally. Upon formation, capital balances are:
a.    Bel, P  75,000; Joy, P80,000; and, Franco, P85,000
b.    Bel, P  80,000; Joy, P80,000; and, Franco, P80,000
c.    Bel, P  88,333; Joy, P88,333; and, Franco, P88,334
d.    Bel, P110,000; Joy, P80,000; and, Franco, P75,000
 Partners’ capital balances upon formation are Bel, P75,000; Joy, P80,000, and Franco, P85,000, respectively,
computed as follows:
Bel Joy Franco
Cash P50,000 P80,000 P25,000
Non-cash assets 25,000 - - - - - -- 60,000
Initial capital balances P75,000 P80,000 P85,000
9. Mark admits Jimenez as a partner in the business.  Balance sheet accounts of Mark just before the
admission of Jimenez show:  Cash, P26,000, accounts receivable, P120,000, merchandise inventory,
P180,000, and accounts payable P62,000.  It was agreed that for purposes of establishing Mark’s interest,
the following adjustments be made: 
A.    An allowance for doubtful accounts of 3% of accounts receivable is to be established;
B.    Merchandise inventory is to be adjusted upward by P25,000; and
C.   Prepaid expenses of P3,600 and accrued liabilities of P4,000 are to be recognized. 

If Jimenez is to invest sufficient cash to obtain 2/5 equity in the partnership, how much would Jimenez
contribute to the new partnership?

a.   P176,000
b.   P190,000
c.   P  95,000
d.   P113,980

If Jimenez is to invest cash for a 2/5 interest in the partnership, it means that the adjusted capital of Mark is
3/5 of the total agreed capital.  The adjusted capital of Mark is computed as follows:

Capital before adjustments (Sub-computation a)                  P264,000

Add net adjustments (Sub-computation b)                               21,000
Adjusted Capital of Mark                                                    P285,000
Sub-computation a:
Cash                                                     P 26,000
Accounts receivable                                  120,000
Inventory                                                 180,000
Accounts payable                                       (62,000)
Unadjusted Capital of Mark                      P264,000

Sub-computation b:
Allowance for doubtful accounts [3% x P120,000]              (P 3,600)
Increase in merchandise inventory                                       25,000
Recognition of Prepaid expenses                                           3,600
Recording of accrued expenses                                           (4,000)
            Net adjustment to capital of Mark                                     P21,000

Total agreed capital is therefore equal to P475,000 (P285,000 ÷ 3/5), 2/5 of this or P190,000 (P475,000 x
2/5)  belongs to Jimenez which he agreed to provide for in cash.

10. The balance sheet as of July 31, 2011 for the business owned by Gloriants shows the following assets
and liabilities:

Cash P   2,500

Accounts Receivable 10,000
 Merchandise Inventory 15,000
Fixtures 18,000
Accounts Payable 6,000

It is estimated that 5% of the accounts receivables may prove uncollectible.  Merchandise inventory
includes obsolete items costing P5,000 of which P2,000 might still be realized.  Depreciation has never
been recorded for the fixtures which are already two years old.  They have an estimated useful life of 10
years, and have a current fair value of P20,000.  Cruzants is to be admitted as a partner upon his
investment of P20,000 cash and P10,000 worth of merchandise.  What is the total assets of the
partnership?

a.  70,500
b.  48,000
c.  67,500
d.  74,000

The total assets of the partnership is equal to P74,000, computed as follows:

Cash (P2,500 + P20,000)                                                   P22,500
Accounts receivable (P10,000 – P500)                                      9,500
Merchandise Inventory:
      (P15,000 – P3,000 + P10,000)                                        22,000
Fixtures (fair market value)                                                   20,000
Total assets                                                                      P74,000