Quiz 1 – Problems

1. On December 1, 2020, EE and FF formed a partnership, agreeing to share for profits and losses
in the ratio of 2:3, respectively. EE invested a parcel of land that cost him P25,000, FF invested
P30,000 cash. The land was sold for P50,000 on the same date, three hours after formation of the
partnership. How much should be the capital balance of EE right after formation?

a. P25,000
b. P30,000
c. P60,000
d. P50,000

Answer: D
Fair value of land – P50,000

2. On March 1, 2020, II and JJ formed a partnership with each contributing the following assets:
II JJ
Cash P300,000 P 700,000
Machinery and equipment 250,000 750,000
Building 2,250,000
Furniture and fixtures 100,000

The building is subject to mortgage loan of P800,000, which is to be assumed by the partnership
agreement provides that ll and JJ share profits and losses 30% and 70%, respectively. On March
1, 2020 the balance in JJ's capital account should be:

a. P3,700,000
b. P3,140,000
c. P3,050.000
d. P2,900,000

Answer: D
JJ
Cash P700,000
Machinery and equipment 750,000
Building 2,250,000
Total assets invested 3,700,000
Less: Mortgage loan 800,000
Capital balance of JJ on March 1, 2020 2,900,000
3. The same information in Number 2, except that the mortgage loan is not assumed by the
partnership. On March 1, 2020 the balance in JJ's capital account should be:

a. P3, 700,000
b. P3, 140,000
c. P3, 050,000
d. P2, 900,000
Answer: A
JJ
Cash P700,000
Machinery and equipment 750,000
Building 2,250,000
Total assets invested 3,700,000

4. As of July 1, 2020, FF and GG decided to form a partnership. Their balance sheets on this date
are:
FF GG
Cash P 15,000 P 37,500
Accounts receivable 540,000 225,000
Merchandise Inventory 202,500
Machinery and equipment 150,000 270,000
Total P705, 000 P735,000

Accounts Payable P135,000 P240,000

FF, capital 570,000
GG, capital 495,000
Total P705, 000 P735,000

The partners agreed that the machinery and equipment of FF is underdepreciated by P15,000 and
that of GG by P45,000. Allowance for doubtful accounts is to be set up amounting to P120,000
for FF and P45,000 for GG. The partnership agreement provides for a profit and loss ratio and
capital interest of 60% to FF and 40% to GG. How much cash must FF invest to bring the partners'
capital balances proportionate to their profit and loss ratio?
a. P142,500
b. P52,500
c. P172,500
d. P102,500
e.
Answer: C
Computation of adjusted contributed capital:
FF GG
Unadjusted capital P570,000 P495,000
Add (deduct) adjustments:
Accumulated depreciation (15,000) (45,000)
Allowance for doubtful accts. (120,000) (45,000)
Adjusted contributed capital P435,000 P405,000
 GG’s adjusted capital 405,000
Divided by: GG’s P&L percentage 40%
Total Agreed Capital 1,012,500
Multiplied by: FF’s P&L percentage 60%
FF’s agreed capital 607,500
Less: FF’s adjusted contributed capital 435,000
Additional cash to be invested by FF 172,500

5. On August 1, AA and BB pooled their assets to form a partnership, with the firm to take over
their business assets and assume the liabilities. Partner’s capitals are to be based on net assets
transferred after the following adjustments. (Profit and loss are allocated equally.)

BB's inventory is to be increased by P4,000; an allowance for doubtful accounts of P1,000 and
P1,500 are to be set up in the books of AA and BB, respectively; and accounts payable of P4,000
is to be recognized in AA's books. The individual trial balances on August 1, before adjustments,
follow:

AA BB
Assets P75,000 P113,000
Liabilities 5,000 34,500

What is the capital of AA and BB after the above adjustments?

a. AA, P68,750; BB, P77,250

b. AA, P75.000; BB, P81,000
c. AA, P65,000; BB, P76,000
d. AA, P65,000; BB, P81,000

Answer: D
AA BB
Assets 75,000 113,000
Less: Liabilities 5,000 34,5000
Unadjusted capital 70,000 78,500
Add (deduct): adjustments
Increase in inventory 4,000
Allowance for doubtful accounts (1,000) (1,500)
Accounts payable (4,000)
Adjusted capital balances 65,000 81,000
6. The partnership contract for the Jordan and Pippen Partnership provided that Jordan is to receive
and annual salary of P120,000, Pippen is to receive an annual salary of P80,000, and the remaining
profit or loss is to be divided equally between the two partners. Net income of the Jordan and
Pippen Partnership for the year ended December 31, 2020 was P180,000. The closing entry for net
income on December 31, 2020 is a debit to Income Summary for P180,000 and credits to Jordan
Capital and Pippen Capital, respectively of:

a. P108,000 and P72,000

b. P 90,000 and P90,000
c. P120,000 and P80,000
d. P110,000 and P70,000

Answer: D
Jordan Pippen Total
Salary Allowances 120,000 80,000 200,000
Remainder (180,000-200,000), equally (10,000) (10,000) (20,000)
Share of partner’s in profit 110,000 70,000 180,000

7. The partnership contract of the JJ, KK and LL Partnership provided for the division of net
income or losses in the following manner:

1. Bonus of 20% of income before the bonus to JJ.

2. Interest at 15% on average capital account balances to each partner.
3. Remaining income or loss, equally to each partner.

Net income of the JJ, KK and LL Partnership for 2020 was P90,000, and the average capital
account balances for that year were JJ, P100,000; KK, P200,000; and LL, P300,000.

How much of the P90,000 partnership profit for 2020 should be distributed to JJ?

a. P27,000
b. P 6,000
c. P33,000
d. P39,000

Answer: A
JJ KK LL Total
Bonus to JJ 18,000 18,000
Interest on average capital 15,000 30,000 45,000 90,000
Remainder (90,000-18,000), equally (6,000) (6,000) (6,000) (18,000)
Share in profits 27,000 24,000 39,000 90,000

8. The partnership agreement for the partnership of May and Jun provided for salary allowances
of P45,000 to May and P35,000 to June, and residual profit was allocated equally. During the year
2020. May and Jun each withdraw cash equal to 80 percent of their salary allowances. If during
2020 the partnership had profits in excess of P100,000 without regard to salary allowances and
withdrawals, May's capital in the partnership would:

a. Increase more than Jun's

b. Decrease more than Jun's
c. Increase the same as Jun'
d. Decrease the same as Jun's

Answer: A
Since the residual profit allocation is equally, the capital of the partner with the higher salary
allowance will increase more than the other partner. In this case, May’s salary allowance is
P15,000 higher than Jun. So May’s capital account will also increase P15,000 more than Jun
regardless of the profit.

9. Allan and Michael are partners. Their capital accounts during 2020 were as follows:

Allan, Capital Michael, Capital

8/28 P6,000 1/1 P40,000 3/5 P9,000 1/1 P60,000
4/3 8,000 7/6 7,000
10/31 18,000 10/7 12,000

Net income of the partnership is P39,500 for the year 2020. The partnership agreement provides
for the division of income as follows:

1. Each partner is to be credited 10 percent interest on his simple average capital.

2. Any remaining income or loss is to be divided equally.

What is Michael's share of profit for the year?

a. P20,500
b. P14,000
c. P16,500
d. P19,000

Answer: A
Computation of simple average capital:
Fornula; (Beginning balance + Ending balance)/2
Allan: (40,000 + 60,000)/2 = 50,000
Michael; (60,000 + 70,000)/2 = 65,000
Allan Michael Total
Interest on capital 5,000 6,500 11,500
Remainder (39,500-11,500), equally 14,000 14,000 28,000
Share in profit 19,000 20,500 39,500
10. Fred, Greg and Henry are partners with average capital balances during 2020 of P120,000, and
P60,000, and P40,000, respectively. Partners receive 10 percent interest on their average capital
balances. After deducting salaries of P30,000 to Fred and P20,000 to Henry, the remaining profit
or loss is divided equally. In 2020, the partnership sustained a P33,000 loss before interest and
salaries to partners. By what amount should Fred's capital account change?

a. P7,000 increase
b. P11,000 decrease
c. P35,000 decrease
d. P42,000 increase

Answer: A
Fred Greg Henry Total
Interest on capital 12,000 6,000 4,000 22,000
Salaries 30,000 20,000 50,000
Remainder, equally (35,000) (35,000) (35,000) (105,000)
Share in profits 7,000 (29,000) (11,000) (33,000)