Exercise 1 –1.

Identification

Give the accounting term(s) that best describe the following statements:

1. An association of two or more persons who bind

themselves to contribute money, property or industry to a
common fund, with the intention of dividing profits among
themselves.
2. A partner who contributes his work, labor or industry to the
partnership.
3. A type of partnership in which each partner is individually
liable for the obligations of the firm regardless of the
amount of personal investment.
4. A partner in name only and does not participate in the
management of business.
5. A partnership characteristic that authorizes a partner to act
for the partnership and to enter into contracts that bind it,
provided these are within his/her express or implied
authority.
6. This is a written document that specifies the nature, terms
and details of partnership operations.
7. A partner who is liable for partnership debts beyond his/her
capital investment.
8. A partnership characteristic which states that properties
invested in a partnership by a partner cease to be his/her
own property.
9. The amount used to record the non-cash asset investment of
a partner.
10. An entry necessary to record the investment of an industrial
partner.

Exercise 1 -2. True or False

Write True if the statement is correct or False if the statement

is incorrect.

______1. An individual must contribute capital to become a partner

in a firm.
______2. No entry is necessary to record the investment of an
industrial partner.
______3. A partnership whose capital is P3,000 and above should be
registered with the Securities and Exchange Commission.
______4. Accounts Receivable, if part of a partner’s investment, may
 be recorded at net realizable value.
______5. The characteristic of unlimited liability does not apply to a
limited partnership.

______6. A partner who is not known as a partner but who

participates actively in the management of the partnership
is called a managing partner.

______7. All partners in a general partnership are general partners.

______8. An oral agreement may still bind the partners forming the
partnership.

______9. A partnership does not have to comply with as many legal

formalities as corporation does.

_____10. A partnership as a form of business, is best suited to the

practice of professions.

Exercise 1 – 3. Partnership Formation

Record the entries of the partnership formation for the following independent cases:

Prepare the entries to record the formation of a partnership for the following independent
cases:

Case A

On July 1, Rose, Guada and Marie decided to form Argem Company, a general
partnership. Rose invested cash amounting to P500,000 and a computer that cost her P
60,000 with accumulated depreciation of P15,000. Guada invested office tables and
chairs worth P 100,000 and Marie invested her management expertise to the business.

Case B

On May 1, 2019, Romy and Vic formed a partnership, and contributed assets
with the following valuations:

Romy Vic
Building P 1,500,000
Office Equipment 30,000 P220,000
Furniture and Fixtures 50,000

The partners agreed that the partnership will assume the P300,000 mortgage loan on the
building and that Vic will contribute additional cash to make his capital balance equal to
40% of total partnership equity.
Exercise 1– 4. Conversion of Sole Proprietorship to a Partnership

Francis, the proprietor of Francis Landscaping Services invites Pio to be a partner in his
business. Accounts in the ledgers of Francis on October 1, 2012, just before the
admission of Pio show the following:
Debit Credit
Cash P 130,000
Accounts Receivable 720,000
Allowance for Bad Debts P 8,000
Landscaping Supplies 550,000
Furniture and Equipment 1,000,000
Accumulated Depreciation 100,000
Accounts Payable 565,000
Francis, Capital 1,727,000

It was agreed that for the purpose of establishing Francis’ interest, the following
adjustments shall be made:

a. The allowance for bad debts shall be increased to 1.5% of accounts receivable.
b. The Landscaping Supplies inventory shall be valued at P560,000.
c. A professional appraiser estimated that the fair value of furniture and
equipment is P800,000.

The following are the ledger balances after effecting the above adjustments and before
the investment of Pio:
Debit Credit
Cash P 130,000
Accounts Receivable 720,000
Allowance for Bad Debts P 10,800
Landscaping Supplies 560,000
Furniture and Equipment 800,000
Accounts Payable 565,000
Francis, Capital 1,634,200

Pio shall invest cash which will make him an equal partner of Francis.

Exercise 1– 5. Two Sole Proprietorships Converted to a Partnership

On January 1, 2019, Michael and Rafael agreed to combine their existing businesses to
form a partnership. The partnership will take over the assets and will assume the
liabilities of both companies. Shown below are their ledger accounts.
 Michael Rafael
Cash P 50,000 P 30,000
Accounts Receivable 20,000 18,000
Office Supplies 4,400 5,500
Office Equipment 80,000 60,000
Accumulated Depreciation-Office
Equipment
7,500 9,000
Furniture and Fixtures 40,000 28,000
Accumulated Depreciation-Furniture
& Fixture
6,000 3,000
Accounts Payable 15,000 10,000

The partners agreed on the following adjustments prior to partnership formation:

1. The Accounts Receivable accounts of both firms are only 90% collectible.
2. Both office supplies inventory are overstated by 10%.
3. The equipment of Michael’s business is under depreciated by P2,000, while that
of Rafael’s is over depreciated by P 1,500.
4. The depreciated value of the furniture and fixtures of Michael‘s business is
P35,000, while that of Rafael’s is P25,000.

The following are the ledger balances of Michael and Rafael after effecting the above
adjustments:

Michael Rafael
Cash P 50,000 P 30,000
Accounts Receivable 20,000 18,000
Allowance for doubtful accounts 2,000 1,800
Office Supplies 4,000 5,000
Office Equipment 70,500 52,500
Furniture and Fixtures 35,000 25,000
Accounts Payable 15,000 10,000
Capital 162,500 118,700

Required:

a. Give the entries on the new partnership books to records the investment of
Michael and Rafael.
b. Prepare the initial Statement of Financial Position of the newly formed
partnership of M and R Computer Services as of January 2, 2012.