Mila Casandra .

Castaneda
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.

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 cos - 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