PROBLEM 1

The assets and equities of the A, B and C Partnership at the end of its fiscal year on Oct 31, 2020 are as
follows:
Assets Liabilities
Cash 15,000 Accounts Payable 50,000
AR 20,000 Loan from C 10,000
Inventory 40,000 A, Capital 30% 45,000
Plant Assets 70,000 B, Capital 50% 30,000
Loan to B 5,000 C, Capital 20% 15,000
The partners decide to liquidate the partnership. They estimate that the noncash assets, other than to B
can be converted into 100,000 cash over the 2 months period ending December 31, 2020. Cash is to be
distributed to the appropriate parties as it becomes available during the liquidation process.
a. Compute for the maximum potential loss and rank each partner

Computation:
A B C
Balances before liquidation
Loan (to) from P 5,000 P 10,000
Capital Balances P 45,000 30,000 15,000
Total Interest P 45,000 P 25,000 P 25,000
Divided By: P & L ratio 30% 50% 20%
Loss Absorption Abilities/Potential P 150,000 P 50,000 P 125,000
Vulnerability ranking 3 1 2

b. Assuming 65,000 is available for first distribution, whom should it receive and at what amount

Computation:

A B C Total
Balances before liquidation
Loan (to) from P 5,000 P10,000
Capital Balances P 45,000 30,000 15,000
Total Interest P 45,000 P 25,000 P 25,000 P 95,000
Reduce in Equity (24,000) (40,000) (16,000) (80,000)
Payment to Partners 21,000 (15,000) 9,000 15,000
Additional Loss (3:2) (9,000) 15,000 (6,000) -
Payment to Partners P 12,000 0 P 3,000 P 15,000

Cash available for first distribution P 65,000

Less: Priority Creditors 50,000
Payment to Partners P 15,000
Problem 2
Irene and Mae are partners sharing profit and losses in the ration of 1:2 respectively. On July 1 2020
they decided to form the I and M Corporation by transferring the assets and liabilities from the
partnership to the corporation in exchange of its shares. The following is the post-closing trial balance of
the partnership:
Debit Credit
Cash 45,000
AR 60,000
Inventory 90,000
Fixed Assets 174,000
Liabilities 60,000
Irene, Capital 94,800
Mae, Capital 214,200
It was agreed that adjustments be made to the following assets to be transferred to the corporation:
AR 40,000
Inventory 68,000
Fixed Assets 180,600
The I and M Corporation was authorized to issue 100 par preference shares and 10 par ordinary share.
Irene and Mae agreed to receive for their equity in the partnership 720 ordinary share each, plus even
multiples of 10 shares for their remaining interest.
a. Compute for the total number of shares of preference and ordinary share issued by the
corporation in exchange of the assets and liabilities of the partnership.

Computation:
Assets
Cash P 45,000
Accounts Receivable 40,000
Inventory 68,000
Property and Equipment 180,600
Total Assets 333,600
Less: Liabilities (60,000)
Amount to be paid 273,600

Value of Equity shares to be issued to each partner = 720 x 10 = 7, 200

Total amount paid in form of equity shares = 7,200 x 2 = 14,400
Amount to be paid in form of preference shares = 273,600 – 14,400 = 259,200
Total No. of preference shares to be issued = 259,200 / 100 = 2592 shares

Problem 3
After operating for five years, the books of the partnership of Ba and Be showed the following balances:
Net assets 169,000
Ba, Capital 110,500
Be, Capital 58,500
a. If the liquidation takes places at this point and the net assets are realized at book value, the
partners are entitled to

Answer:

•Ba to receive 110,500

•Be to receive 58,500
Problem 4
The December 31, 2020, the statement of financial position of the B,C, and D partnership is summarized
as follows:
Cash 100,000 C, loan 100,000
Other assets 500,000 B, Capital 100,000
C, Capital 200,000
D, Capital 200,000
The partnership share profit and losses as follows: B 20% ; C 30% and D 50%. C is retiring from the
partnership and the partners have agreed that “other assets” should be adjusted to their FV of 600,000
at December 31, 2020. They further agree that C will receive 244,000 cash for his partnership interest
exclusive of the loan, which is to be paid in full. NO goodwill implied by C’s payment will be recorded.
a. After C’s retirement, the capital balances of B and D respectively will be

Answer:

Problem 5
A, B, and C are partners who share profits and losses in the ratio of 5:3:2 respectively. They agree to sell
a 25% of their respective capital and profits and losses ratio for a total payment directly to the partners
in the amount of 140,000. They agree that goodwill or revaluation of assets of 60,000 is to be recorded
prior to admission of A. The condensed balance sheet of the ABC Partnership is as follows:
Cash 60,000 Liabilities 100,000
Non-cash assets 540,000 A, Capital 250,000
B, Capital 150,000
C, Capital 100,000
a. The capital of A, B, C respectively after the payment and admission of A

Computation:
A B C
Capital Balance P 250,000 P 150,000 P 100,000
Revaluation (60k x 5:3:2) 30,000 18,000 12,000
Adjusted Capital 280,000 168,000 112,000
Multiply: (100% - 25%) 75% 75% 75%
Capital after payment
and admission of A 210,000 126,000 84,000

Problem 6
A and B entered into a partnership as of March 1 2020 by investing 125,000 and 75,000 respectively.
They agreed that A as the managing partner was to receive a salary of 30,000 per year and a bonus
computed at 10% of the net profit after adjustment for the salary; the balance of the profit was to be
distributed in the ratio of their original capital balances. On December 31 2029, accounts balance were
as follows:
Cash 70,000 Accounts Payable 60,000
AR 67,000 A, Capital 125,000
Furniture and Fix 45,000 B, Capital 75,000
Sales returns 5,000 A, Drawing (20,000)
Purchases 196,000 b, Drawing (30,000)
Operating exp 60,000 Sales 233,000
Inventories on December 31, 2020 were as follows: supplies 2,500; merchandise 73,000; prepaid
insurance 950 while accrued expenses were 1,550, Depreciation rate was 20% per year.
a. The partners’ capital balances on December 31,2021 after closing the net profit and drawing
accounts

Computation:

A B
P 25,000 -
1,440 -
8,100 P 4,680
34,540 4.680
(20,000) (30,000)
14,540 (25,140)
Add: Capital 125,000 75,000
End, Capital 139,540 48,860

Problem 7
Assume that on Jan 1 2020, A and B formed a partnership with an investment of 30,000 and 60,00. On
December 31 2020, after closing the income and expense accounts, the income summary account shows
a credit balance of 60,000, representing the profit for the year 2020. Changes in the capital accounts
during 2020 are summarized as follows:
A B
Capital balance, Jan 1 40,000 60,000
Additional Investment, March 1 20,000 50,000
Additional investment, Aug 1 20,000 40,000
Withdrawal, oct 1 20,000
Withdrawal, nov 1 50,000
The net income on December 31, 2020 is 60,000

Solve for:
- Division of Profit and Loss Equally
- Division of Profit and Loss Using unequal ratio (60:40)
- Division of Profit and Loss using the ratio of partners’ capital account balances
a. Original capital balances
b. Ratio of beginning capital balances
c. Ratio of ending capital balances
d. Ratio of average capital balances
- Assume that the partnership agreement allows interest on partners’ average capital balances
at 12%. The net income is 60,000.
- Assume that the partnership operation results at a loss of 10,000, the partnership agreement
allows interest on partners’ average capital balances at 12%.
- Assume that the partnership agreement provides for an annual salary of 30,000 to A and
20,000 to B, with the resultant net income or loss be divided equally. The net income is
60,000.
- Assume that the partnership agreement provides for an annual salary of 30,000 to A and
20,000 to B, with the resultant net income or loss be divided equally. The net loss is 20,000.
- Assume that the partnership agreement provides a net income of 190,200 before salaries,
interest, and bonus to partners. The partnership contract provides for the following:
a. Salaries to A and B is 30,000 each
b. Interest on capital balances A 7,000; B 3,200
c. Bonus to A, 20% of net income
d. Remaining P/L after salaries, interest, and bonus, equally.
Solve for the distribution of P/L under the ff instances:
a. Net income before allowances for salaries, interest, and bonus
b. Net income before allowances for salaries, interest but after bonus
c. Net income after allowances for salaries and interest but before bonus
d. Net income after allowances for salaries, interest, and bonus