Partnership Formation

Problem 1

On January 1, 2020, the business assets and liabilities of John and Jones were as follows: J John Jones

Cash 35,000 90,000

Receivables 200,000 600,000

Inventories 113,000 172,000

Land, buildings, and equipment 650,000 535,000

Other assets 2,000 3,000

Accounts payable 180,000 250,000

Notes payable 200,000 350,000

John and Jones agreed to form a partnership by contributing their net assets, subject to the following adjustments:

• Receivables of P20,000 in John's books and P40,000 in Jones' books are uncollectible.
• Inventories of P6,000 and P7,000 in the respective books of John and Jones are worthless.
• Other assets in the books are to be written off.

Questions:

1. Upon the partnership's formation, the respective capital of partners John and Jones would be?

2. Under Bonus Method, if the partner agreed to have a capital ratio of 40:60 for John and Jones respectively, how much is the amount of bonus to or (from) John?

3. Under Bonus Method, if the partner agreed to have a capital ratio of 40:60 for John and Jones respectively, how much is the adjusted capital of Jones?

4. Under Bonus Method, if the partner agreed to have a capital ratio of 60:40 for John and Jones respectively and they further agreed to have a total capital of P1,500,000, how much is the amount of bonus to or (from) John?

5. Under Bonus Method, if the partner agreed to have a capital ratio of 60:40 for John and Jones respectively, and they further agreed to have a total capital of P1,500,000, how much is the adjusted capital of John?

6. If the partners agreed that John should withdraw or invest in order to have a capital ratio of 40%, how much should be the amount of additional investment or withdrawal?

7. If the partners agreed that John should withdraw or invest in order to have a capital ratio of 40%, how much is the adjusted capital of John and Jones?

8. If the partner agreed to revalue assets to maintain 40:60 capital ratio for John and Jones respectively, how much is the adjusted capital of John?

9. If the partner agreed to revalue assets to maintain 40:60 capital ratio for John and Jones respectively, how much is the adjusted capital of Jones?

10. If the partner agreed to effect revaluation down of assets to maintain 40:60 capital ratio for John and Jones respectively, how much is the adjusted capital of John?

Partnership Operations

Problem 2

Geehan partnership begins its first year of operations with Gee, capital of 160,000 and Han capital of 80,000. According to the partnership agreement, all profits will be distributed as follows:

a. Gee will be allowed a monthly salary of P10,000.

b. The partners will be allowed with interest equal to 10% of the capital balance as of the first day of the year.

c. Gee will be allowed a bonus of 10% of the net income after salaries.

d. The remainder will be divided on the basis of 60:40 for the first year and 50:50 for the second year.

Assume further, that the partnership generated Net Income of P320,000 for the first year and P200,000 for the second year.

1. What is the share of Han in the net income for the first year?

2. What is the share of Gee in the net income for the first year?

3. How much is the adjusted capital of Gee at the beginning of second year?

4. What is the share of Han in the net income for the second year?

5. What is the share of Gee in the net income for the second year?

Problem 3

Tokyo and Nairobi share profits and loss equally after salary and interest allowances. Tokyo and Nairobi receive salary allowances of P40,000 and P60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawal are made subsequently within the month. Partners' drawings of P3,000 per month are not used in determining the average capital balances. Total net income for 2020 is P240,000.

T TOKYO NAIROBI

January 1 capital balances 200,000 240,000

Yearly drawings (P3,000 a month) 36,000 36,000

Permanent withdrawals of capital:

June 3 24,000

May 2 30,000

Additional investments of capital:

July 3 80,000

October 2 100,000

6. What is the weighted-average capital for Tokyo and Nairobi in 2020?

7. What will be the total amount of profit allocated to salary and interest distributions?

8. How much is the share of Tokyo and Nairobi in 2020 profit?

9. Assuming that the partnership started operation on June 20, 2020. How much is the share of Tokyo and Nairobi in 2020 profit?

Partnership Dissolution

Problem 4

Lucio, John and Henry are partners sharing profit and loss of 40%, 40% and 20%, respectively. The December 31, 2017 balance sheet of the partnership before and profit allocation was summarized as follows:

ASSETS Liabilities & Capital

Cash 90,000 Accounts Payable 7,500

Inventories 60,000 John, Loan 5,000

Equipment 75,000 Lucio, Capital 100,000

Trademark 22,500 Henry, Capital 90,000

John, Capital 45,000

Total Assets 247,500 Total Liabilities & Capital 247,500

The income summary account has a credit balance of P25,000 for the year 2017. On January 1, 2017, a partner has decided to retire from the partnership and by mutual agreement among partners; the following have been arrived at:

• Inventories amounting to P10,000 is considered obsolete and must be written off.
• Equipment should be adjusted to their current value of P50,000
• Trademarks are to be written-off immediately before the retirement.

It was agreed that the partnership will pay the retiring partner for his interest in the partnership inclusive of loan balance.

1. If John retired and received P38,500 as a retirement price, how much will be the bonus to or (from) Henry?

2. If John retired and received P38,500 as a retirement price, how much will be the adjusted capital of Lucio under Bonus method?

3. If John retired and received P43,500, by how much will the adjusted capital of Lucio under revaluation of asset method traceable to entire entity (full revaluation)?