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Untalan, Shaira Coleen DC.

BSA 3A
PROBLEMS:
PROBLEM 1: TRUE OR FALSE
1. TRUE The accounting for the assets and liabilities of a partnership business is different
from that of a sole proprietorship or a corporation.
2. TRUE A partnership is relatively easy to form but also easy to dissolve.
3. FALSE Mr. A contributed land with historical cost of P1M and fair value of P2M to a
partnership business. MR. A’s contribution shall be valued at P1M in the partnership
books.
4. FALSE A bonus given to a partner is treated as a reduction to the capital account(s) of
the partner(s).
5. FALSE Ms. B contributed equipment with carrying amount of P100 and fair value of
P200 to a partnership. No bonus is given to any partner. In the partnership’s books,
equipment is debited for P200M but B’s capital account is credited for P100.
6. FALSE Mr. C contributed land with fair value of P1M to a partnership. The land has an
unpaid mortgage of P.2M which the partnership agreed to assume. The valuation of Mr.
C’s net contribution is P1.2M.

Fact pattern:
Mr. D and Ms. E formed a partnership. D contributed P200, while E contributed P100.
The partner’s respective interests in the partnership are 60% and 40%. The initial credits
to the partners’ capital accounts are to be adjusted using the bonus method to reflect the
partners’ respective interests.

7. TRUE The balance of D’s capital account after the formation is P180. (300X60%=180)
8. FALSE (20) The bonus given to E is P40.

Piw and Pie agreed to form a partnership. Piw contributed cash of P200 while Pie will be
contributing her expertise. The partnership agreement stipulates that Piw and Pie shall
have equal interests in both the initial capital of the partnership and in subsequent
partnership profits and losses.

9. FALSE he cash contribution of Piw shall be debited for P200 but the net credit to Piw’s
capital account shall be P100.
10. TRUE Immediately after partnership formation, the balance of Pie’s capital account is
zero.

PROBLEM 2: Multiple Choice-Theory


1. The asset contributions of partners to a partnership are initially measured at

a. Fair value
b. Original cost to the partner
c. Tax basis
d. Any of these

2. Mr. I and Mr. M formed a partnership business. Mr. I contributed equipment with fair
value of P2M. However, the partners agreed that Mr. I’s capital account should be
credited for P2.2M. Which of the following statement is correct?

a. The P.2M excess credit is treated as a bonus to Mr. M.


b. Mr. M is probably bringing in expertise or special skill to the business.
c. Mr. M’s capital account will be debited for P.2M.
d. This is unacceptable. Mr. I’s capital credit should be P2M.

3. Under the bonus method, any increase or decrease in the capital credit of a partner is

a. Deducted from or added to the capital credits of the other partner’s.


b. Recognized as goodwill.
c. Recognized as expense.
d. Deferred and amortized to profit or loss.

4. Under the bonus method, the asset contributed by a partner receiving a bonus is

a. Debited at an amount greater than the asset’s fair value.


b. Debited at an amount less than the asset’s fair value.
c. Debited at an amount equal to the asset’s fair value.
d. Either a or b

5. Mr. X and Mr. Y agreed to form a partnership. The fair values of the partners’ net
contributions vary; however, the partners agreed to have equal capital credits. Cash
settlement shall be made between them for the difference. Which of the following
statements is correct?

a. The asset contributions of the partners shall be debited for equal amounts.
b. The cash settlement between the partners will either increase or decrease the total
partnership capital.
c. The cash settlement between the partners will not be recorded in the partnership
books.
d. The cash settlement between the partners will not be recorded in the partnership books.
PROBLEM 3: Exercises

1. Sunny and Gloomy contributed the following in the information of a partnership business.

Sunny Gloomy
Cash 180,000.00 -
Accounts receivable 100,000.00 -
Inventory 160,000.00 -
Land (at historical cost) - 340,000.00
Total 440,000.00 340,000.00

Additional information:

 Only 60% of the accounts receivable is recoverable.


 The net realizable value of the inventory is P120,000. Sunny acquired the inventory on
account; the partnership will assume the unpaid balance of P60,000.
 The land has a fair value of P600,000.

Requirement:
Provide the journal entry.
Sunny, Capital 140,000
Allowance for Bad debts 40,000
Inventory 40,000
Accounts Payable 60,000
To adjust the assets and liabilities of Sunny.

Land 260,000
Gloomy, Capital 260,000
To record investment of Pedro.
Cash 180,000
Accounts Receivable 100,000
Inventory 120,000
Land 600,000
Allowance for Bad debts 40,000
Accounts Payable 60,000
Sunny, Capital 300,000
Gloomy, Capital 600,000

2. Use the information in problem 1. Sunny and Gloomy agreed to share profits and losses
based on a 30:70 ratio. A partner with deficient contribution shall provide additional cash
in order for his capital balance to reflect his profit and loss sharing ratio.
S, Capital 300,000
Divided S p/l ratio: 30%
= 1,000,000
Multiply G ratio 70%
Minimum require contri = 700,000
G contri 600,000
Additional 100,000
Requirement: Provide the entry to record the additional investment of the partner with
deficient contribution.
Cash 100,000
Gloomy, capital 100,000 (TAdjC)

3. Use the information in problem 1. Sunny and Gloomy agreed to have equal credits to
their capital accounts. The bonus method shall be used.
Requirements:
a. Provide the compound journal entry.
Cash 180,000
Accounts Receivable 100,000
Inventory 120,000
Land 600,000
Allowance for Bad debts 40,000
Accounts Payable 60,000
Sunny, Capital 450,000
Gloomy, Capital 450,000
b. Provide the simple journal entry.

Gloomy Capital 150,000


Sunny, Capital 150,000

4. Use the information in problem1. Sunny and Gloomy agreed to have equal credits to
their capital accounts. Cash settlement is to be made between the partners for the
adjustment on their capital balances.

Requirement: Describe how the cash settlement should be made and how it would be
accounted for in the partnership books.
Cash 180,000
Accounts Receivable 100,000
Inventory 120,000
Land 600,000
Allowance for Bad debts 40,000
Accounts Payable 60,000
Sunny, Capital 450,000
Gloomy, Capital 450,000
5. Use the information in problem 1. Sunny and Gloomy agreed to have equal credits to
their capital accounts. Additional investment or partial withdrawal shall be made by a
partner from the partnership for any adjustment to his capital balance.

Requirement: Which partner should make an additional investment and which partner
should make a withdrawal?

Agreed Initial Capital: 900k


S: 900x30%= (270)
G: 630
S shall withdraw 270k from her investment and G should make additional investmen of 30k

PROBLEM 4: Multiple Choice-Computational

1. Twinkle, Sheep and Bus formed a partnership. Twinkle contributed cash of P80,000.
Sheep contributed equipment with historical cost of P700,000, carrying amount of
P180,000, and fair value of P90,000. Bus contributed building with historical cost of
P1,000,000, carrying amount of P480,000, and fair value of P690,000. The partnership
will assume the unpaid mortgage of P580,000 on the building. Which partner has the
largest capital account balance on partnership formation? T=80k S=90k B=690-
580=110k

a. Twinkle
b. Sheep
c. Bus
d. None, all are equal

2. Hammer and Nail formed a partnership. Hammer contributed equipment with original
cost of P370,000 and fair value of P300,000 while Nail contributed cash of P180,000.
Hammer and Nail agreed to have a 60:40 interest in the partnership and that their initial
capital credits should reflect this fact. A partner’s capital account should be increased
accordingly by way of additional cash investment. Which of the partner’s should make an
additional investment and by how much?

a. Hammer, P20,000
b. Nail, P20,000
c. Hammer, P70,000
d. Nail, P70,000
The problem implies that the contribution of Hammer is already adequate to entitle him to a
60% share in the total agreed capital of the partnership. Hence, the total agreed capitalization
shall be based on his contribution of P300,000 or P500,000 (P300,000 ÷ 60%). The agreed
capital of Pearl is 40% of P500,000 or P200,000 and her cash contribution shall be equal to the
difference between this amount (P200,000) and the initial contribution of 180,000 . Therefore,
her additional cash contribution should be equal to P20,000 (P200,000 – P180,000).
3. Mike and Mario agreed to form a partnership. Mike contributed equipment with carrying
amount of P100,000 and fair value of P70,000, while Mario contributed cash of
P200,000. The partners agreed to have a profit sharing ratio of 2:1, respectively. The
initial credits to the partner’s capital accounts shall reflect this fact. Under the bonus
method, how much is the balance of the capital account of Mario immediately after the
partnership formation?
Mike 70,000 (180)
Mario 200,000 (90)
=270,000
a. P90,000
b. P200,000
c. P135,000
d. P70,000

4. Abel and Carr formed a partnership and agreed to divide the initial capital equally, even
though Abel contributed P100,000 and Carr contributed P84,000 in identifiable assets.
Under the bonus approach to adjust the capital accounts, Carr’s unidentifiable asset
should be debited for 184/2=92

a. P46,000
b. P16,000
c. P8,000
d. 0

5. A and B agreed to form a partnership. The partnership agreement stipulates the


following:
 Initial capital of P300,000.
 A 25:75 interest in the equity of the partnership.
A contributed P100,000 cash, while B contributed P200,000 cash. Which partner should
provide additional investment (or withdraw part of his investment) in order to bring the
partners’ capital credits equal to their respective interests in the equity of the
partnership?
A: 300x25% = 75k B: 225k
a. A shall provide additional capital of P25,000
b. B shall withdraw capital of P25,000.
c. B shall make an additional investment of P25,000.
d. No additional contribution or withdrawal shall be made.

(Source: Accounting for Special Transactions, Millan


2020)

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