PRACTICE SET 1&2:

General Instructions:
• Students can opt to answer this practice set using MS Excel; make sure to properly
number and show solutions. Once done, submit through elearn or email.
• Those who opt not to use MS Excel, answer this practice sheet in a clean sheet of
paper; make sure your handwriting and answers are comprehensible. Once done, follow
my instructions re- CAMSCANNER.
• DUE DATE: 5:00 PM, TUESDAY, JULY 21, 2020

A. PARTNERSHIP FORMATION

1. A and B decided to form a partnership on January I, 2021. Their Statements of

Financial Position on this date were (in Philippine Peso):

They agreed the following adjustments shall be made:

• Equipment of A is under depreciated by P87,500 and that B is over depreciated by
P131,250
• Allowance for doubtful accounts is to be set up amounting to P297,500 for A and
P196,875 for B
• Inventories of P21, 875 and P15,312 are worthless in the books of A and B
respectively
• The partnership agreement provides for a profit and loss ratio of 70% to A and 30%
to B

Answer the following questions based on the above:

A. Upon the formation of the partnership, how much is the capital of A and B,
respectively?

B. Assuming that the capital balances are to be equaled to their P&L Ratio, how much
is the capital of A and B, respectively?

C. Compute for the total assets of the partnership?

D. Assuming that B is to invest certain amount of cash such that his capital balance
will be 10% higher than A’s. How much should B invest?
2. On January 1, 2021, A and B, both sole proprietors, decided to form a partnership to
expand both of their businesses. According to their agreement they will split profits and
losses 75:25 and their initial capital ratio will also reflect that ratio.

The following are A and B’s Statements of Financial Position:

The values reflected in the Statement of financial Position are already at fair values,
except for the following accounts:

• A's Accounts Receivable is now 20,000 less than what is stated in his Statement of
Financial Position.
• Both Inventories of A and B are now 90,000 and 70,000 respectively.
• Equipment for B has an assessed value of 275,000, appraised value of 250,000 and
book value of 200,000.
• Additional accrued expenses are to be established in the amount of 10,000 for 3
only while additional accounts payable in the amount of 5,000 for A
• It is also agreed that all liabilities will be assumed by the partnership, except
for the notes payable of B which will be personally paid by him.

Answer the following questions based on the above:

A. How much are the adjusted capital balances of A and B upon formation?

B. How much are the capital credit to A and B upon formation?

C. How much should A invest as additional cash to be in conformity with their initial
capital agreement?
3. A and B entered into a partnership agreement in which A is to have 55% interest in the
partnership and 35% in the profits and losses, while B will have 45% interest in the
partnership and 65% in the profits and losses. A contributed the following:

Cost Fair value

Building P235,000 P255,000
Equipment 168,000 156,000
Land 500,000 525,000

The building and the equipment have a mortgage of P50,000 and P35,000 respectively. B is
to contribute P150,000 cash and an equipment. The partners agreed that only the building
mortgage will be assumed by the partnership.

Answer the following questions based on the above:

A. How much is the fair market value of the equipment which B contributed?

B. How much is the total asset of the partnership upon formation?

B: PARTNERSHIP OPERATIONS

1. The BC Partnership has the following plan for the distribution of partnership net income
(loss):

Calculate the distribution of partnership net income (loss) for each independent situation
below. For each situation, assume the average capital balance of B is P140,000 and of C is
P240,000.

Situation A: Partnership net income is P360,000

Situation B: Partnership net income is P240,000

Situation C: Partnership net loss is P40,000

2. Net income for CD partnership for 2021 was P125,000. C and D have agreed to distribute
partnership net income according to the following plan:

Additional Information for 2021 follows:

• C began the year with a capital balance of P75,000

• D began the year with a capital balance of P100,000
• On March 1, C invested an additional P25,000 into the partnership
• On October 1, D invested an additional P20,000 into the partnership
• Throughout 2021, each partner withdrew P200 per week in anticipation of partnership
net income. The partners agreed that these withdrawals are not to be included in the
computation of average capital balances for purposes of income distributions

Requirements:

A. Allocate the income to partners C and D

B. Compute for the ending capital balances of the partners.

3. DEF partnership began its first year of operations with the following capital balances:

D, Capital: P143,000
E, Capital: P104,000
F, Capital: P143,000

The Articles of Partnership stipulated that profits and losses be assigned in the
following manner:

• D was to be awarded an annual salary of P26,000 with P13,000 salary assigned to F

• Each partner was to be attributed with interest equal to 10% of the capital balance
as of the first day of the year
• The remainder was to be assigned on a basis, respectively
• Each partner was allowed to withdraw up to P13,000 per year

Assume that the net loss for the first year of operations was P26,000 with net income of
P52,000 in the second year. Assume further that each partner withdrew the maximum amount
from the business each year.

Questions:

A. What was D's share of income or loss for the first year?

B. What was E's share of income or loss for the first year?

C. What was F's share of income or loss for the first year?

D. What was the balance in D’s Capital account at the end of the 2nd year?

E. What was the balance in E’s Capital account at the end of the 2nd year?

F. What was the balance in F’s Capital account at the end of the 2nd year?
4. 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.

5. Albion and Blaze share profits and losses equally. Albion and Blaze receive salary
allowances of P20,000 and P30,000, respectively, and both partners receive 10% interest on
their average capital balances. Average capital balances are calculated at the beginning of
each month balance regardless of when additional capital contributions or permanent
withdrawals are made subsequently within the month. Partners’ drawings are not used in
determining the average capital balances. Total net income for 2016 is P120,000.

Albion Blaze
January 1 capital balances P100,000 P120,000
Yearly drawings (P1,500 a month) 18,000 18,000
Permanent withdrawals of capital:
June 3 (12,000)
May 2 (15,000)
Additional investments of capital:
July 3 40,000
October 2 50,000

Questions:

A. What is the weighted-average capital for Albion and Blaze in 2016?

B. If the average capital for Albion and Blaze from the above information is P112,000
and P119,000, respectively, what will be the total amount of profit allocated after
the salary and interest distributions are completed?

C. If the average capital balances for Albion and Blaze are P100,000 and P120,000, what
will the final profit allocations for Albion and Blaze in 2016?