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Practical Accounting II Review

PARTNERSHIP ACCOUNTING
 Definition & Characteristics of a Partnership
 Kinds of Partners and Classification of Partnerships
 Advantages and disadvantages
 Stages in the life of a Partnership
- Partnership Formation
o valuation of investments to the partnership (assets/liabilities & industry)
o Books to be used as partnership books
o realignment of capital balances (bonus method/cash settlement)
- Partnership Operation
o Profit and loss distribution (salaries, interest, bonus, guarantee)
- Partnership Dissolution
o Causes (Admission/withdrawal/death/retirement/incorporation)
o Change in capital structure and P/L
- Partnership Liquidation
o Lump sum
o Instalment (SSP/CPP)

Partnership Formation

The business assets of NANGHI and SETH appear below:

NANGHI SETH
Cash 22,000 32,000
Accounts receivable 230,000 560,000
AFUA (25,000) (55,000)
Inventories 150,000 260,000
Land 600,000 -
Building-net - 400,000
Furniture and Fixture-net 50,000 35,000
Total 1,027,000 1,232,000

Accounts payable 178,000 245,000

Notes payable 100,000 150,000
Capital 749,000 837,000
Total 1,027,000 1,232,000

NANGHI and SETH agreed to form a partnership contributing their assets and equities subject to the
following agreements:
1. 25% of the notes payable of NANGHI are personal notes. All liabilities will be assumed by the
partnership.
2. Inventories of 8,000 and 15, 000 are worthless in NANGHI’s and SETH’s respective books.
3. The accounts receivable are to be valued at 180,000 and 490,000, and the allowance for uncollectible
accounts will be eliminated in NANGHI’s and SETH’s books.
4. The depreciation of the building is overstated by 20,000.
5. The agreed value for the Furniture and Fixture are as follows: NANGHI-45,000; SETH-20,000.
6. The assessed value/ fair value/agreed value of the land account are as follows:
NANGHI’s-180,000/160,000/170,000; SETH’s-300,000/280,000/275,000.
7. Unrecorded prepaid expense for NANGHI is 5,000, and unrecorded accrued expense for SETH is
10,000.
8. The profit and loss ratio will be 45:55 to NANGHI and SETH respectively.

Required:
1. Prepare the adjusting entries and determine the asset, liabilities and capital balances of the partners
upon formation.
2. Using the bonus method, which partner will give the bonus and how much?
3. Assuming NANGHI and SETH agreed to proportionate their capital balances with their profit and loss
ratio, how much will NANGHI and SETH withdraw or invest?
4. Assuming NANGHI and SETH agreed to proportionate their capital balances with their profit and loss
ratio with the capital of the partnership is based on the adjusted capital of SETH, A) how much will
NANGHI withdraw or invest? B) Compute the total assets.

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Practice problems:

Problem 1:
Divinah, Dinah, and Dessah formed a partnership by combining their separate business proprietorships on
August 14, 2020. Divinah contributed cash of P50,000. Dinah contributed property with a P36,000 book
value, a P50,000 original cost, and P90,000 fair market value. The partnership doesn’t assume responsibility
for the P45,000 mortgage attached to the property. Dessah contributed equipment with a P50,000 book
value, an P80,000 original cost, and P55,000 fair value. The partnership specifies that the profits and losses
are to be shared equally but silent regarding contributions. Which partner has the largest August 14, 2020
capital balance?

Problem 2:
On August 14, 2020, Jovielyn, Fortunato, & Marielle form a partnership called Inimasan Ko Partnership. They
agreed that Jovielyn will contribute office equipment with a fair value of P40,000. Fortunato will contribute
delivery equipment with a fair value of P80,000; and Marielle will contribute cash. If Marielle wants a 1/5 in
the capital and profits, how much cash must he contribute?

Problem 3:
Case 1:
If the amount of liabilities is P 165,000 and the percentage of owner’s claim in the total partnership’s assets is
45%, the total partnership’s assets would be

Case 2:
If the net assets of the partnership is P 250,000, and the total partnership’s liability is P 350,000, the
partnership’s total assets would be

Case 3:
A, B, and C agree to form a partnership, with A contributing P 50,000 for 2/3 interest in the partnership, and
B and C sharing equally in the remaining required capitalization. The total assets of the partnership upon
formation is

Case 4:
A is the owner of an existing single proprietorship with net assets of P 50,000. They agreed to record the
assets and liabilities of A’s business at book value. The book value of A’s business liability is P 60,000. B and
C will contribute equally in cash 60% of the total capitalization based on the capital contribution of A. The
capital contribution of B should be

Problem 4:
Pitt, Zha and Pie formed a partnership by combining their separate businesses with the following statements
of financial position:
Pitt Zha Pie
Cash P 90,000 P 5,000 P 60,000
Accounts receivable 45,000 20,000 75,000
Allow. for doubtful accts. 3,000 2,000 5,000
Land 80,000
Building 100,000
Accumulated depreciation 50,000
Mortgage payable-bank 60,000
Capital 132,000 93,000 130,000

They agreed that the mortgage payable shall be absorbed by the partnership and that the following assets
should be revalued at their respective fair market values:

Accounts receivable at 90%

Land at 120%
Building at 70%

They also agreed that their capital balances should be equal in amount and profit and losses should be
divided equally. Any partner whose capital balance is not equal to that of the partner with the highest capital
balance after adjustments shall give additional cash contribution.

1. Which of the partners has the biggest capital balance after adjustments and how much?
2. How much is the total additional cash contribution of the partners with lower capital balances?
3. How much is the total partnership asset?
4. How much is the total partnership capital?
5. How much is the total net adjustment to the partners’ capital account?

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PARTNERSHIP OPERATIONS

Profit or loss distribution:

1. Partners agreement
a. Equally or other agreed ratio
b. Capital contributions or balances
c. By allowing interest on partners’ capital, salaries and bonus and the balance in an agreed ratio
2. No profit and loss agreement

The partnership of TOTO and TITI was organized on July 1, 2014 with the following investments:
TOTO-P 500,000 and TITI - P 200,000. The summaries of the partners’ capital accounts for the year 2016 are as
follows:
TOTO TITI
    Debit   Credit     Debit   Credit

Jan. 1 P 550,000 Jan. 1 P 185,000

Feb. 14 P 30,000   Mar. 28 55,000
Jun. 16 10,000 Jun. 15 P 15,000  
Sept. 30 40,000   Sept. 1 5,000
Nov. 30       10,000 Dec. 5   30,000    

Changes in capital balances occurring on or before the 15th day of the month shall be considered effective as of
the beginning of the month. Any changes made after said period shall be considered as of the beginning of the
following month. Net income for the period is P150,000.

Required: Compute the share in net income/loss of each partner under each of the following conditions:
1. The partners agreed to share profits equally.
2. The partners failed to agree on a profit-sharing.
3. The partners agreed to share profits according to the ratio of beginning capital.
4. The partners agreed to share profits according to the ratio of ending capital.
5. The partners agreed to share profits according to the ratio of average capital.
6. The partners agreed to share profits by allowing salaries of P50,000 for TOTO and P30,000 for TITI,
interest on original contribution of 5% and the balance 60% for TOTO and 40% for TITI.
7. The partners agreed to share profits by allowing salaries of P50,000 for TOTO and P30,000 for TITI,
interest on original contribution of 5%, bonus to TOTO of 10% after salaries, interest and bonus, and
the balance 60% for TOTO and 40% for TITI.
8. The partners agreed to share profits by allowing salaries of P50,000 for TOTO and P60,000 for TITI,
interest on original contribution of 5%, bonus to TOTO of 10% after salaries but before bonus, and the
balance 60% for TOTO and 40% for TITI.

Practice Problems:
1. Partners Nalastog, Naangas, Maangin and Matoog share profits and losses in the ratio of 4:3:3:4. If
Naangas receives P21,428.57 as his share from the partnership income, how much did Maangin
received??

2. Partners Maza, Kate, Pooh and Yan share profits and losses in the ratio of 3:3:2:1 after considering
the following special arrangements: Maza is to receive P2,000 monthly salary, Kate is to receive
interest on capital of P10,000, Pooh will receive P5,000 bonus. If Yan was guaranteed a P20,000 as
his share from the partnership income, and Maza receive an aggregate of P30,000, and the
partnership income for the year amounts to P60,000, How much is the share of Kate?

3. The partnership agreement of 6C and BIYOTIFOOL provides for salary allowances of P320,000 for 6C
and P260,000 for BIYOTIFOOL for the PATALBOGAN partnership. The share remaining profits on the
basis of three-fifths for 6C and two-fifths for BIYOTIFOOL. The 2014 profit amounted to P600,000.
How much is the share of BIYOTIFOOL from the partnership profit?

4. Partners KAYAKO and KAYA have agreed to receive an annual salary allowances of P100,000 and
P120,000 respectively. In addition, they are allowed 9% interest on their capital balances at the
beginning of the year. KAYA is to receive 5% bonus after salary allowances, interests on capital and
bonus. The remainder is to be divided equally. KAYAKO capital balance was P400,000 and KAYA
capital balance was P500,000. The net income after salary allowances is P186,000. Compute the
bonus to KAYA.

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5. Lucky Tee Yan is trying to decide whether to accept a salary of P100,000 or a salary of P60,000 plus
a bonus of 10% of net income after salary and bonus as a means of allocating profit among the
partners. Salaries traceable to the other partners are estimated to be P200,000. What amount of
income would be necessary so that Mark would consider the choices to be equal

Partnership Dissolution
1. Admission of a new partner
2. Retirement/withdrawal/death of a partner
3. Incorporation of Partnership

Problem 1:
Miller and Davis, partners in a consulting business, share profits and losses in the ratio of 3:2, respectively.
Prior to recording the admission of Shaw as a new partner, Miller has a capital balance of P80,000, and Davis
has a capital balance of P40,000.

Required:
For each of the following independent cases, prepare the journal entry that was made to record the
admission of Shaw into the partnership.

1. Shaw purchased 20 percent of the respective capital balances of Miller and Davis, paying P20,000
cash directly to each of them. (P/L after admission)/Personal gain/loss of the old partners
2. Shaw invested P30,000 cash in the partnership for a 20 percent ownership interest. Total capital after
recording his admission was P150,000. (P/L after admission)
3. Shaw invested P40,000 cash into the partnership for a 20 percent ownership interest. Total capital
after recording his admission was P160,000.
4. Shaw invested P50,000 into the partnership for a 20 percent interest. Asset revaluation method.
 
 Problem 2:
In the JAW partnership, Jane's capital is P100,000, Anne's is P80,000, and William's is P75,000. They share
income in a 3:2:1 ratio, respectively. William is retiring from the partnership at the beginning of the period.
Partnership income for the current period amounts to P300,000.
Required: Prepare journal entries to record William's withdrawal according to each of the following
independent assumptions:
1. William is paid P80,000, Bonus Method is used.
2. William is paid P80,000, Asset revaluation Method is used.
3. William is paid P65,000, Bonus Method is used.
4. William is paid P65,000, Asset revaluation Method is used. 
5. The partnership agreement provides that in the event of death of a partner, the partnership shall
continue until the end of the year. Profits/losses shall be considered to have been earned/incurred
proportionately during the period, and the deceased partner’s capital shall be adjusted by the proper
share of the profit or loss until the date of death. The remaining partners shall continue to share
profits in the old ratio. Assuming William died on November 1, compute the ending capital balances
of the partners on December 31.

Problem 3:
Pha, Thay, Nha, and Shia share profits in the ratio of 4:4:2:5 respectively. Their partnership agreement
provides that in the event of death of a partner, the partnership shall continue until the end of the year.
Profits shall be considered to have been earned proportionately during the period, and the deceased
partner’s capital shall be adjusted by the proper share of the profit or loss until the date of death. The
remaining partners shall continue to share profits in the old ratio. On January 1, 2020, the capital balances
are P440,000, P344,000, P288,400, and P200,000 for Pha, Thay, Nha, and Shia, respectively. Shia died on
September 1 of the current year. The estate of Shia agreed to accept a one-year, 12% note of P150,000
and the balance in cash on December 31, 2020. The income summary account (credit) of P207,000 is
closed on December 31, 2020.

Compute:
1. How much is the ending capital balances of Pha on December 31, 2020?
2. How much is the share of Thay in the partnership profit for the year?
3. The amount paid by the partnership with the estate of Shia assuming the note was settled on
March 31, 2016 would be?

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Questions 4 through 6 are independent cases with the assumption that revaluation of assets is not to be
made.
4. Assuming Ulit was admitted, with the consent of all of the surviving partners, purchased 50% of the
interest of the dead partner and the other half was purchased by the surviving partners equally.
What is the new P/L of Nha?
5. Prepare the entry assuming the interest of Shia was purchased by the remaining partners for
P250,000.
6. Prepare the entry assuming Pha retired from the partnership and the interest was settled by the
partnership for P500,000. On January 1, 2016.

Partnership Liquidation

Problem 1:
The post-closing trial balance of AMK Partnership on January 1, 2020 after they have ceased business
operations and adjusted and closed the accounts of the ledger, shows the following balances (the partners
shares profits and losses equally):
Cash P 100,000 Accounts Payable 430,000
Accounts Receivable 400,000 Kita, Loan 20,000
Merchandise Inventory 150,000 Adi, Capital 90,000
Makit, Capital 70,000
Kita, Capital 40,000
1. AMK partnership is able to sell its non-cash assets for P604,000. How much would partner Makit will
receive as final settlement of his claim in the partnership?
2. If Kita receives P20,000 as final settlement of his claim in the partnership, how much is the loss on
realization of non-cash assets?
3. Assuming that AMK partnership is able to sell its non-cash assets for P355,000, and any deficient
partner is insolvent, Adi will receive
4. Assuming that AMK partnership is able to sell its non-cash assets for P355,000, and any deficient
partner is solvent, Kita will receive
5. Assuming that AMK partnership is able to sell its non-cash assets for P310,000, and any deficient
partner is solvent, Adi will receive

Problem 2:
Bacil, George, Conrad and Leo are partners who share profits and losses in the ratio of 3:2:1:4. As of the
current date, the partners become insolvent so they decide to liquidate their business. The capital balance of
each partner amount to P30,000, P35,000, P20,000 and P50,000 to Bacil, George, Conrad and Leo
respectively. At this time, total liabilities of the partnership amount to P150,000. From the data above,
answer the following independent questions:
1. If the partnership received P165,000 for the sale of the partnership non-cash assets, determine the
amount of cash that George is to receive.
2. If the partnership has cash of P70,000 before realization, and George and Leo received a total of
P23,000, how much did the partnership sell P215,000 of the non-cash assets?
3. If Conrad and Leo receive a total of P6,000, how will George receive if the partnership paid P4,500
liquidating expenses prior to the cash distribution?
4. If 30,000 is available on the first installment, how much Bacil, George, Conrad and Leo will receive?
5. Continuing information in no. 4, 50,000 is available for distribution in the second installment. How
much is the share of each partner?
6. If Bacil received a total of 15,000 as settlement of his capital credit, how much is the proceeds from
the sale of non-cash assets?
7. If Conrad receive 5,000 in the first installment, how much is the gain/Loss on sale of non-cash assets
with a book value of 180,000?

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