Partnership Formation Problems

Answer the following problems on bond papers. All answers must be supported by computations.
It must be hand-written and your name and signature must be on every page. Have it photographed
and send them to our google class. (for those modular, pass them as is, not photographed)

1. Red, White, and Blue form a partnership on May 1, 2020. They agree that Red will contribute
office equipment with a total fair value of P40,000; White will contribute delivery equipment
with a fair value of P80,000; and Blue will contribute cash. If Blue want a one-third interest in the
capital and profits, how much should he contribute?

2. Elsa and Perla form a new partnership. Elsa invests P300,000 in cash for her 60 percent interest in
the capital and profits of the business. Perla contributes land that has an original cost of P40,000
and a fair market value of P70,000, and a building that has a tax basis of P50,000 and a fair market
value of P90,000. The building is subject to a P40,000 mortgage that the partnership will assume.
What amount of cash should Perla contribute?

3. On April 30, 2020, AA, BB and CC formed a partnership by combining their separate business
proprietorships. AA contributed cash of P50,000. BB contributed property with a P36,000 book
value, a P40,000 original cost, and P80,000 fair value. The partnership accepted a responsibility
for the P35,000 mortgage attached to the property. CC contributed equipment with a P30,000 book
value, a P75,000 original cost and a P55,000 fair value. The partnership agreement specifies that
profits and losses are to be shared equally but is silent regarding capital contributions. Which
partners has the largest April 30, 2020, capital balances?

4. PP, RR, and SS are new CPA's and are to form a partnership. PP is to contribute cash of P50,000
and his computer originally costing P60,000 but has a second hand value of P25,000. RR is to
contribute cash of P80,000. SS, whose family is selling computers, is to contribute cash of
P25,000 and a brand new computer with a regular selling price of P60,000 but which cost is
P50,000. Partners agree to share profits equally. The capital balances upon formation are:

5. Roy, Sam and Tim decided to engage in a real estate venture as a partnership. Roy invested
P140,000 cash and Sam provided an office and furnishings valued at P220,000. (There is a
P60,000 note payable remaining on the furnishings to be assumed by the partnership.) Although
Tim has no tangible assets to invest, both Roy and Sam believe that Tim's expert salesmanship
provides an adequate investment. The partners agree to receive an equal capital interest in the
partnership. Using the bonus method, what is the capital balance of Tim?
6. Ruiz and Pena are combining their separate businesses to form a partnership. Cash and noncash
assets are to be contributed for a total capital of P300,000. The noncash assets to be contributed
and the liabilities to be assumed are:
Ruiz Pena
Book Fair Book Fair
Value Value Value Value
Accounts Receivable P20,000 P20,000 --- ---
Inventories P30,000 P40,000 P20,000 P25,000
Equipment P60,000 P45,000 P40,000 P50,000
Accounts Payable P15,000 P15,000 P10,000 P10,000

The partner’s capital accounts should be equal after all the contributions of assets and the
assumption of liabilities. How much cash is to be contributed by Ruiz?

7. The balance sheet as of July 31, 2020 for the business owned by C. Borja shows the following
assets and liabilities:
Cash P2,500
Accounts Receivable P10,000
Merchandise Inventory P15,000
Fixtures P18,000
Accounts Payable P6,000
It is estimated that 5% of the 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; the fixtures are two years old, have an estimated useful life of 10 years, and would cost
P20,000 if currently purchased. D. Arce is to be admitted as partner upon his investment of
P20,000 cash and P10,000 worth of merchandise. What is the total assets of the partnership?

8. Ortiz and Ponce are partners sharing profits in this proportion-60:40. A balance sheet prepared for
the partners on April 1,2020:
Cash P 48,000 Accounts Payable P89,000
Accounts Receivable 92,000 Ortiz, capital 133,000
Inventories 165,000 Ponce, capital 108,000
Equipment P70,000
Less: Accumulated
Depreciation 45,000 25,000
_______ _______ ________
Total assets: P330,000 Total Liabilities and Capital: P330,000
On this date, the partners agree to admit Roxas as a partner. The terms of the agreement are
summarized below.

Assets and liabilities are to be restated as follows:

a. An allowance for possible uncollectibles of P4,500 is to be established.
b. Inventories are to be restated at their present replacement value of P170,000.
 c. Accrued expenses of P4,000 are to be recognized.
Ortiz, Ponce and Roxas will divide profits in the ratio of 5:3:2. Capital balances of the partners
after the formation of the new partnership are to be in the aforementioned ratio, with Ortiz and
Ponce making cash settlement between themselves outside of the partnership to adjust their
capitals, and Roxas investing cash in the partnership for his interest. How much cash is to be
invested by Roxas?

9. On July 1 of the current year, Jocson and Gomez form a partnership. Jocson is to invest certain
business assets at values which are yet to be agreed upon. He is to transfer his business liabilities
and is to contribute sufficient cash to bring his total capital to P180,000, which is 60% of the total
capital as had been agreed upon.

Details regarding the book value of Jocson’s business assets and liabilities and their corresponding
valuation follow:
Book Agreed
Values Valuations
Accounts Receivable P54,000 P54,000
Allowance for doubtful accounts 3,600 6,000
Merchandise Inventory 96,600 105,000
Store Equipment 27,000 ---
Accumulated Depreciation-store equipment 18,000 13,200
Office Equipment 18,000 ---
Accumulated Depreciation-office equipment 9,600 4,800
Accounts Payable 48,000 48,000

Gomez agrees to invest cash of P30,000 and merchandise valued at current market price. The
value of the merchandise to be invested by Gomez and the amount of cash to be invested by
Jocson are:

10. Candy and Dandy have just formed a partnership. Candy contributed cash of P126,000 and
computer equipment that cost P54,000. The fair value of the computer is P36,000. Candy has a
notes payable on the computer of P12,000 to be assumed by the partnership. Candy is to have 60%
capital interest in the partnership. Dandy contributed only P90,000. The profit and loss ratio of the
partners as agreed is equally.

Dandy should make an additional investment or (withdrawal) of:

References:
Advanced Accounting 1 By: Pedro P. Guerrero and Jose F. Peralta
Advanced Financial Accounting 1 By: Antonio J. Dayag