ACCOUNTANCY PROBLEMS IN THE PARTNERSHIP FIELD PDF

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Problem 1-8: Al, Sharif, and Booba formed a partnership. Al will contribute cash of ₱50,000 and his store equipment that originally cost ₱60,000 with a second-hand value of ₱25,000. Sharif will contribute ₱80,000 in cash. Booba, whose family sells computers, will contribute ₱25,000 cash and a brand ...

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Problem 1-8: Al, Sharif, and Booba formed a partnership. Al will contribute cash of ₱50,000 and his store equipment that originally cost ₱60,000 with a second-hand value of ₱25,000. Sharif will contribute ₱80,000 in cash. Booba, whose family sells computers, will contribute ₱25,000 cash and a brand new computer that cost his family’s computer dealership ₱50,000 but with a regular selling price of ₱60,000. They agreed to share profits and losses equally. Upon formation, what are the capital balances of the partners? a. b. c. d.

Al 75,000 80,000 88,333 110,000

Sharif 80,000 80,000 88,333 80,000

Booba 85,000 80,000 88,334 75,000

Problem 1-9: On January 1, 2014, Atta and Boy agreed to form a partnership contributing their respective assets and equities subject to adjustments. On that date, the following were provided: Atta Cash

₱ 28,000

Boy ₱ 62,000

Accounts receivable Inventories Land

200,000

600,000

120,000

200,000

600,000

Buildin g Furniture & fixtures Intangible assets Accounts Payable Other liabilities Capital The following adjustments were agreed upon:

500,000 50,000 2,000

35,000 3,000

180,000

250,000

200,000

350,000

620,000

800,000

a. Accounts receivable of ₱20,000 and ₱40,000 are uncollectible in A’s and B’s respective books. b. Inventories of ₱6,000 and ₱7,000 are worthless in A’s and B’s respective books. c. Intangible assets are to be written off in both books. What will be the capital balances of the partners after adjustments? Atta Boy a. 592,000 750,000 b. 600,000 700,000 c. 592,000 756,300 d. 600,000 750,000

Problem 1-15: On April 30, 2014, Alex, Benjie, and Cesar formed a partnership by combining their separate business proprietorships. Alex contributed cash of ₱500,000. Benjie contributed property with a ₱360,000 carrying amount, a ₱400,000 original cost, and ₱800,000 fair market value. The partnership accepted responsibility for the ₱350,000 mortgage attached to the property. Cesar contributed equipment with a ₱300,000 carrying amount, a ₱750,000 original cost, and ₱550,000 fair value. The partnership agreement specifies that profits and losses are to be shared equally but it is silent regarding capital contributions. What are the capital balances of the partners at April 30, 2014? a. b. c. d.

Alex 500,000 500,000 500,000 500,000

Benjie 800,000 450,000 360,000 400,000

Cesar 550,000 550,000 300,000 750,000

Problem 1-36: Luz, Vi, and Minda are partners when the partnership earned a profit of ₱30,000. Their agreement provides the following regarding the allocation of profits and losses: a. 8% interest on partners’ ending capital in excess of ₱75,000. b. Salaries of ₱20,000 for Luz and ₱30,000 for Vi. c. Any balance is to be distributed 2:1:1 for Luz, Vi, and Minda, respectively. Assume ending capital balances of ₱60,000, ₱80,000, and ₱100,000 for partners Luz, Vi, and Minda, respectively. What is the amount of profit allocated for Minda, if each provision of the

profit and loos agreement is satisfied to whatever extent possible using the priority order shown above? a. (3,600) b. 3,600 c. (2,000) d. 2,000

Problem 1-41: A partnership has the following accounting amounts: Sales

₱ 700,000

Cost of goods sold

400,000

Operating expenses

100,000

Salary allocations to partner

130,000 20,000 80,000

Interest paid to banks Partners' drawings What is the partnership net income (loss)? a. 200,000 b. 180,000 c. 50,000 d. (30,000)

Problem 1-49: Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1, 2014, their respective capital accounts were as follows: Blau

60,000

Rubi

50,000

On that date, Lind was admitted as a partner with one-third interest in capital, and profits for an investment of ₱40,000. The new partnership began with total capital of ₱150,000. Immediately after Lind’s admission, Blau’s capital should be

a. b. c. d.

50,000 54,000 56,667 60,000

Problem 1-52: Mitz, Marc, and Mart are partners sharing profits in the ratio of 5:3:2, respectively. As of December 31, 2013. Their capital balances were ₱95,000 for Mitz, ₱80,000 for Marc, and ₱60,000 for mart. On January 1, 2014, the partners admitted Vince as a new partner and according to their agreement, Vince will contribute ₱80,000 in cash to the partnership and also pay ₱10,000 for 15% of Marc’s share. Vince will be given a 20% share in profits, while the original partners’ share will be proportionately the same as before. After the admission of Vince, the total capital will be ₱330,000 and Vince’s capital will be ₱70,000. a. The total amount of goodwill to the old partners, upon the admission of Vince would be: a. 7,000 b. 15,000 c. 22,000 d. 37,000 b. The balance of Marc’s capital, after the admission of Vince would be: a. 72,600 b. 74,600 c. 79,100 d. 81,100

Problem 1-53: Ranken purchases 50% of Lark’s capital interest in the K and L partnership for ₱22,000. If the capital balances of Kim and Lark are ₱40,000 and ₱30,000, respectively. Ranken’s capital balance following the purchase is a. b. c. d.

22,000 35,000 20,000 15,000

Problem 1-58: The capital balances in DEA Partnership are: D, capital ₱60,000; E, capital ₱50,000; and A, capital ₱40,000 and income ratios are: 5:3:2, respectively. The DEAR Partnership is formed by admitting R to the firm with cash investment of ₱60,000 for a 25% interest in capital. What is the amount of bonus to be credited to A capital in admitting R? a. 10,000 b. 7,500 c. 3,750 d. 1,500

Problem 1-71: The following condensed balance sheet is presented for the partnership of Axel, Barr, and Cain, who share profits and losses in the ratio of 4:3:3, respectively: Cash Other assets Total Liabilities Axel, Capital Barr, Capital Cain, Capital Total

₱ ₱ ₱

₱

100,000 300,000 400,000 150,000 40,000 180,000 30,000 400,000

The partners agreed to dissolve the partnership after selling the other asset for ₱200,000. Upon dissolution of the partnership, Axel should have received a. 0 b. 40,000 c. 60,000 d. 70,000

Problem 1-85:

Partners Almond, Barney, and Colors have capital balances of ₱20,000, ₱50,000, and ₱90,000, respectively. They split profits in the ratio of 2:4:4, respectively. Under a safe cash distribution plan, one of the partners will get the following total amount in liquidation before any other partners get anything: a. 0

b. 15,000 c. 40,000 d. 180,000

Problem 1-8: Suggested answer: (a) 75,000, 80,000, 85,000

Cash contribution Store equipment Computer Capital balances

Al

Sharif

Booba

50,000

80,000

85,000

80,000

60,000 85,000

25,000 75,000

Noncash assets contributed by the partners into the partnership should be recorded at its fair market value. In this case, the fair market value is the cash selling price of the computer and the second hand value of the store equipment. Problem 1-9: Suggested answer: (a) 592,000, 750,000

Capital balances before adjustments a. Uncollectible accounts receivable b. Worthless inventories c. Intangible assets written off Adjusted capital balances

Atta 620,000 (20,000) (6,000) (2,000) 592,000

Boy 800,000 (40,000) (7,000) (3000) 750,000

When assets other than cash are invested into the partnership, it is necessary for the partners to agree upon the value of such assets. The assets are recorded in accordance with the agreement and the partners’ capital accounts are credited for the amounts of the respective investments. The effects of the adjustments to the capital accounts should be in accordance with the accounting equation (Asset = Liabilities + Capital).

Problem 1-15: Suggested answer: (b) 500,000, 450,000, 550,000

Contributions @ fair value Less liabilities assumed Capital balance, 4/30/06

Alex ₱500,000 ₱500,000

Benjie ₱800,000 350,000 ₱450,000

Cesar ₱550,000 ₱550,000

Again, any noncash asset contributed into the partnership should be valued at the fair value of the noncash asset contributed, any liabilities assumed by the partnership, reduces the partners’ capital balance. As a general guideline, what is to be recorded as a credit to partners’ capital is the fair value of the net assets contributed.

Problem 1-36: Suggested answer: (d) 2,000 Luz Interest 8% x 80,000-75,000 8% x 100,000-75,000 Salary (20:30) Total

Vi

Minda

Total

400 2,000 11,040 11,040

16,560 16,960

2,000

2,400 27,600 30,000

Again, where income is not sufficient or an operating loss exists, two alternatives may be employed: 1.) all provisions of the profit and loss agreement may be satisfied and any deficiency will be absorbed using the profit and loss ratio; and 2.) each of the provision may be satisfied to whatever extent possible. The second alternative, as applied above, requires that provisions of the profit and loss agreement be ranked by order of priority.

Problem 1-41: Suggested answer: (b) 180,000 700,00 0 400,00

Sales Less Cost of goods sold

0 300,00

Gross profit

0 100,00

Less Operating expenses

0 200,00

Operating Profit

0 Less interest paid to banks

20,000 180,00

Net income

0 Salaries, like interest on capital investments, are viewed as a means of allocating income rather than as an expense. The drawing account is a temporary account and is periodically closed to the partner’s capital account, and has nothing to do with the computation of net income.

Problem 1-49: Suggested answer: (b) 54,000 Contribute d Capital

Agreed Capital

Increase (Decrease )

Old partners

₱

New partner Total

110,000 ₱ 40,000

₱

150,000

100,000 (1/3 ) ₱

Blau's capital before admission of Lind Less share in bonus to Lind (10,000 x 60%) Blau's capital after admission of Lind

(₱10,000)

50,000

10,000

150,000

₱ ₱

-

60,000 6,000 54,000

When a partnership is in urgent need of additional funds or the partners may desire the services of a certain individual, a new partner may be admitted with the provision that (a) part of the capital of the old partners shall be allowed as a bonus to the new partner, or (b) goodwill shall be established and credited to the new partner. When the total contributed capital is equal to the agreed capital, there is bonus. In this case, the amount by which the interest allowed to the new partner exceeds his investment may be considered as bonus contributed by the old partners. The bonus is deducted from the capitals of the old partners based in their original profit and loss ratio.

Problem 1-52: a. Suggested answer: (b) 15,000 Contributed Capital Old partners [235,000-(15% x 80,000) New partner [80,000+(15% x 80,000) Total

Agreed Capital

Increase (Decrease)

223,000

260,000

37,000

92,000 315,000

70,000 330,000

(22,000) 15,000

Again, when the total agreed capital is more than the contributed capital, there is goodwill and this amount of ₱15,000 will be distributed to the old partners using their original profit and loss ratio. However, in the above computations, it should be pointed out that aside from goodwill, the new partner provides bonus to old partners in the amount of ₱22,000 (decrease in the new partner’s capital). b. Suggested answer: (c) 79,100 Marc’s capital before Vince’s admission Interest purchased by Vince (15% x 80,000) Share in goodwill (30% x 15,000) Share in bonus (30% x 22,000)

80,000 (12,000) 4,500 6,600

Marc’s capital after Vince’s admission

79,100

When an incoming partner purchases a portion or all of the interest of one or more of the original partners, the partnership assets remains unchanged and the related amount paid for the purchase should not be recorded in the books of the partnership for this is regarded as a personal transaction between the selling partner/s and the buyer. Bonus to old partners is recorded by making transfer from the contributed capital of the new partner to the old partners’ capital accounts, which gives the new partners a capital credit less than his actual investment. While, Goodwill to old partners should be recognized by a debit to Goodwill account, and the resulting credit should be to old partners’ capital accounts allocated based on their profit and loss ratio. Problem 1-53: Suggested answer: (d) 15,000 Ranken's capital (50% x 30,000)

15,000

When a new partner deals directly with an existing partner or partners rather than with the partnership entity, the acquisition price is paid to the selling partner/s and not to the partnership itself. The partnership records the redistribution of capital interests by transferring all or a portion of the seller’s capital to the new partner’s capital account but does not record the transfer of any asset or consideration.

Problem 1-58: Suggested answer: (d) 1,500 Conributed Capital Old partners New partner

150,000 60,000

Agreed Capital 157,500 52,500

Increase (Decrease) 25

7,500 (7,500)

% Total

Bonus to A (7,500 x 20%)

210,000

210,000

-

1,500

Under the bonus method of admitting a new partner into the partnership, the total contributed capital (including that of the new partner) is equal to the new partnership capital. Accordingly, any bonus to the old partners shall be allocated using their old profit and loss ratio.

Problem 1-71: Suggested answer: (a) 0 Axel Capital balances Before liquidation Loss on realization 4:3:3 (200,000-300,000) Capital balances After liquidation

Barr

Cain

₱40,000

₱180,000

₱30,000

40,000

30,000

30,000

0

₱150,000

₱

₱

0

Since all assets are distributed at one point in time rather than installments, this represents simple liquidation. As assets are converted into cash, any differences between the book values and the amounts realized represent gains or losses to be divided among partners in the profit and loss ratio. Such gains and losses are carried to the capital accounts. The capital balances then becomes the basis for settlement.

Problem 1-85: Suggested answer: (c) 40,000 Almond Total Interest Divide by P&L Loss absorption balance Priority 1 - Colors Balances Priority 2 - Colors & Barney Balances (P&L)

Barney

20,000

50,000

20% 100,000

40% 125,000

100,000

125,000 (25,000) 100,000

100,000

Colors 90,000 40% 225,000 (100,000) 125,000 (25,000) 100,000

Since the question being asked is “one of the partners will get … before any other partners get anything”, therefore, it is the partner under priority no. 1 (Colors). Colors shall received, under priority no. 1, ₱40,000 (100,000 x 40%)....