Exercises on Formation of Partnership

Problem 1
Two Sole Proprietors Form A Partnership

Calaguas and Dela Cruz formed a partnership and invested the following assets and liabilities:

Fair Market Value Carrying Value

Calaguas:
Cash P 300,000 P 300,000
Land 450, 000 280,000
Dela Cruz:
Cash 100,000 100,000
Building 600,000 520,000
Mortgage Payable (400,000) (400,000)

The partners will share profits and losses equally.

Required:
Prepare the opening journal entry in the books of the Partnership.

Problem 2
Partner’s Original Investment

Leopoldo Medina contributed land, inventory, and P280,000 cash to partnership. The land has a book
value of P650,000 and a market value of P1,350,000. The inventory has a book value of P600,000 and a
market value of P510,000. The partnership also assumed a P350,000 note payable owed by Medina that
was used to purchase the land. Lenore Loqueloque agreed to put up a cash equivalent to Medina’s
investment.
Required:
Prepare the journal entry to record Medina’s and Loqueloque’s investment in the partnership.

Problem 3
Formation of a Partnership

Sabio, as her original investment in the firm of Sabio and Mariano, contributed equipment that had been
recorded in the books of her own business as costing P900,000, with accumulated depreciation of
P620,000. The partners agreed on a valuation of P400,000. They also agreed to accept Sabio’s account
receivable of P360,000, realizable to the extent of 85%.
Required:
Prepare the journal entry to record Sabio’s investment in the partnership on June 13.

Problem 4
Formation of a Partnership

Gogola and Paglinawan have just formed a partnership. Gogola contributed cash of P1,260,000 and
computer equipment that cost P540,000. The fair value of the computer is P360,000. Gogola has notes
payable on the computer of P120,000 to be assumed by the partnership. Gogola is to have 60% capital
interest in the partnership. Paglinawan contributed only P900,000. The partners agreed to share profit and
loss equally.
Gogola should make an additional investment or (withdrawal) of _____.

Problem 5
A Sole Proprietor and an Individual with No business Form a Partnership

On Apr 8, 2020, Pascua who has her own retail business and Dela Cruz, decided to form a partnership
wherein they will divide profits in the ratio of 40:60, respectively. The statement of financial position of
Pascua is as follows:

Pascua Marketing
Statement of Financial Position
April 8, 2020

Assets
Cash P4,000
Accounts Receivable P 160,000
Less: Allowance for Uncollectible Accounts 16,000 144,000
Inventory 200,000
Equipment P 50,000
Less: Accumulated Depreciation 10,000 40,000
Total Assets P 388,000

Liabilities and Capital

Accounts Payable P 36,000

Pascua, Capital 352,000
Total Liabilities and Capital P388,000

Conditions agreed upon before the formation of the partnership:

a. Accounts receivable of Pascua is estimated to be 70% realizable
b. The accumulated depreciation of the equipment will be increased by P10,000
c. The accounts payable will be assumed by the partnership
d. The capital of the partnership is based on the adjusted capital balance of Pascua. Dela Cruz is to
contribute cash in order to make the partner’s capital balances proportionate to the profit and loss
ratio
Required:
1. Prepare the necessary journal entries in the books of Pascua
2. Prepare the opening journal entries in the books of the Partnership.