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Chapter 11
Partnership Formation

PROBLEM 1: TRUE OR FALSE

1. FALSE - ₱2
2. FALSE – fair value
3. TRUE
4. TRUE
5. TRUE
6. FALSE - ₱40
7. TRUE
8. FALSE – I should pay you ₱50
9. TRUE
10. TRUE

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. Solution:

Mr. A Ms. B
20, 30,
Cash
000 000
20,
Inventory
000
60,
Building 000
40,
Furniture & fixture
000

Mortgage payable (10,000)

Adjusted capital balances
60,000 100,000

Date Cash 50,00

Inventory 0
Building 20,00
Furniture & fixture 0
Mortgage payable 60,00 10,00
A, Capital 0 0
B, Capital (800K – 200K) 40,00 60,00
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0 0
100,0
00

2. Solution:

Actual Bonus
contributions method
(1,100,000 x
A 600,000 40%) 440,000
(1,100,000 x
B 500,000 60%) 660,000
1,100,00
Total 1,100,000 0

Date Cash 600,0

Equipment 00
A, Capital (600,000 - 160,000 500,0 440,
bonus) 00 000
B, Capital (500,000 + 660,
160,000 bonus) 000

3. Solutions:

Partners
A B C hip
500,00 200,00 100,00
Cash 0 0 0 800,000
Accounts 700,00
receivable 0 700,000
900,00
Inventories 0 900,000
2,000,0 2,000,0
Equipment 00 00
(800,0 (800,00
Mortgage payable 00) 0)
1,200,0 1,400,0 1,000,0 3,600,0
Net contribution 00 00 00 00
Equal interest 1,200,0 1,200,0 1,200, 3,600,0
(3.6 ÷ 3) 00 00 000 00
Cash receipt 200,00 (200,0
(payment) - 0 00) -
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Requirement (a): C pays B ₱200,000.

Requirement (b):
Date Cash 800,00
Accounts receivable 0
Inventory 700,00
Equipment 0
Mortgage payable 900,00 800,00
A, Capital 0 0
B, Capital 2,000,0 1,200,0
C, Capital 00 00
1,200,0
00
1,200,0
00

4. Solution:

Partners
A B C hip
500,00 200,00 100,00
Cash 0 0 0 800,000
Accounts 700,00
receivable 0 700,000
900,00
Inventories 0 900,000
2,000,0 2,000,0
Equipment 00 00
(800,0 (800,00
Mortgage payable 00) 0)
1,200,0 1,400,0 1,000,0 3,600,0
Net contribution 00 00 00 00
Equal interest 1,200,0 1,200,0 1,200, 3,600,0
(3.6 ÷ 3) 00 00 000 00
200,00 (200,0
Add’tl. (W/drawal) - 0 00) -

Answer: B withdraws ₱200,000, while C provides

additional ₱200,000.

PROBLEM 3: JOURNAL ENTRIES

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1. Solution:

A B
500 30,0
Cash
,000 00
10,0
Inventory
00
600,
Land 000
50,
Equipment
000

Mortgage payable (100,000)

Adjusted capital balances
550,000 540,000

Date Cash 530,0

Inventory 00
Land 10,00
Equipment 0
Mortgage payable 600,0 100,00
A, Capital 00 0
B, Capital 600,0 1,100,
00 000
540,00
0

2. Solution:

Actual Bonus
contributions method
(1,000,000 x
A 600,000 30%) 300,000
(1,000,000 x
B 400,000 70%) 700,000

Total 1,000,000 1,000,000

Date Cash 600,0

Machinery or Equipment 00
A, Capital (600,000 - 300,000 400,0 300,0
bonus)
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B, Capital (400,000 + 00 00
300,000 bonus) 700,0
00

3. Solutions:
Partners
A B C hip
600,00 800,00 400,00 1,800,0
Cash 0 0 0 00
Accounts 700,00
receivable 0 700,000
900,00
Inventories 0 900,000
1,400,0 1,400,0
Building 00 00
(300,00 (300,00
Accounts payable 0) 0)
1,300,0 2,200,0 1,000,0 4,500,0
Net contribution 00 00 00 00
Equal interest 1,500,0 1,500,0 1,500, 4,500,0
(4.5 ÷ 3) 00 00 000 00
Cash receipt (200,0 700,00 (500,0
(payment) 00) 0 00) -

Requirement (a): A pays B ₱200,000; C pays B

₱500,000.

Requirement (b):
Date Cash 1,800,0
Accounts receivable 00
Inventory 700,00
Building 0
Accounts payable 900,00 300,00
A, Capital 0 0
B, Capital 1,400,0 1,500,0
C, Capital 00 00
1,500,0
00
1,500,0
00

4. Solution:
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Partners
A B C hip
600,00 800,00 400,00 1,800,0
Cash 0 0 0 00
Accounts 700,00
receivable 0 700,000
900,00
Inventories 0 900,000
1,400,0 1,400,0
Building 00 00
(300,00 (300,00
Accounts payable 0) 0)
1,300,0 2,200,0 1,000,0 4,500,0
Net contribution 00 00 00 00
Equal interest 1,500,0 1,500,0 1,500, 4,500,0
(4.5 ÷ 3) 00 00 000 00
(200,0 700,00 (500,0
Add’tl. (W/drawal) 00) 0 00) -

Answer: A invests additional ₱200,000; B withdraws

₱700,000; C invests additional ₱500,000.

PROBLEM 4: MULTIPLE CHOICE

1. C
2. C
3. B
Solution:
A B
600,
Cash
000
Inventory 20,000
700
Land ,000
50,0
Equipment
00
Accounts payable (20,000 x
½) (10,000)
Adjusted capital balances
660,000 700,000
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4. B
Solution:
Partners
A B hip
Cash 400,000 - 400,000
Accounts
receivable
(100K – 30K) 70,000 - 70,000
Equipment
(700K+ 50K) 750,000 750,000
Loan payable (250,000) (250,000)
Net
contributions 470,000 500,000 970,000

5. A - The asset contributions and related liabilities are

recorded at fair values. Only the corresponding
capital credits will increase or decrease under the
bonus method.

6. B
Solution:
Actual Bonus
contributions method
(2,500,000 x
A 600,000 60%) 1,500,000
(2,500,000 x
B 1,900,000 40%) 1,000,000

Total 2,500,000 2,500,000

7. A
Solutions:
Partners
A B C hip
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750,00 1,000,0 500,00 2,250,0

Cash 0 00 0 00
Accounts 875,00
receivable 0 875,000
1,125,0 1,125,0
Inventories 00 00
1,750,0 1,750,0
Building 00 00
(375,00 (375,00
Accounts payable 0) 0)
1,625,0 2,750,0 1,250,0 5,625,0
Net contribution 00 00 00 00
1,875,0 1, 1,875, 5,625,0
Equal interest 00 875,000 000 00
Cash receipt (250,0 875,00 (625,0
(payment) 00) 0 00) -

8. A – equal credits of ₱1,875,000 (see table above)

9. B
10. D
Solution:
Partners
A B C hip
750,00 1,000,0 500,00 2,250,0
Cash 0 00 0 00
Accounts 875,00
receivable 0 875,000
1,125,0 1,125,0
Inventories 00 00
1,750,0 1,750,0
Building 00 00
(375,00 (375,00
Accounts payable 0) 0)
1,625,0 2,750,0 1,250,0 5,625,0
Net contribution 00 00 00 00
1,875,0 1, 1,875, 5,625,0
Equal interest 00 875,000 000 00
Additional (250,0 875,00 (625,0
(W/drawal) 00) 0 00) -

Answer: A should provide additional ₱250,000; B

should withdraw ₱875,000; C should provide
additional ₱625,000.
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PROBLEM 5: CLASSROOM ACTIVITY

1. Solution:
Part Part
ner 1 ner 2
200,0 1,800
Cash
00 ,000
Inventories 1,200,000
Furniture and fixture 1,400,000
Accounts payable (600,000)
Adjusted capital
balances 2,200,000 1,800,000

Date Cash 2,000,0

Inventories 00
Furniture and fixture 1,200,0
Accounts payable 00 600,00
Partner 1, Capital 1,400,0 0
Partner 2, Capital 00 2,200,
000
1,800,
000

Variation #1:
Solutions:

Requirement (a) and (b):

4,000,
Total net asset contributions
000

Divide by: 2
2,000,0
Equal credits to capital accounts
00

Partne Partne
r1 r2
2,000,0 2,000,0
Equal credits to capital accounts
00 00
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2,200,0 1,800,0
Fair value of net asset contribution
00 00
(200,00 200,00
Bonus 0) 0

Answers: Partner 2 receives a bonus of ₱200,000.

Requirement (c): The bonus is treated as an adjustment

to the equity accounts of the partners. Partner 1’s capital
shall be decreased while Partner 2’s capital shall be
increased by the ₱200,000 bonus.

Requirement (d):
Date Cash 2,000,0
Inventories 00
Furniture and fixture 1,200,0
Accounts payable 00 600,00
Partner 1, Capital 1,400,0 0
Partner 2, Capital 00 2,000,
000
2,000,
000

Variation #2:
Solutions:

4,000,
Total net asset contributions
000

Divide by: 2
2,000,0
Equal credits to capital accounts
00

Partne Partne
r1 r2
2,000,0 2,000,0
Equal credits to capital accounts
00 00
2,200,0 1,800,0
Fair value of net asset contribution
00 00
(Receipt) Payment (200,0 200,000
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00)

Answer: Partner 1 receives cash of ₱200,000 from

Partner 2.

Requirement (b):
The cash settlement is not recorded in the partnership
books.

Requirement (c):

Date Cash 2,000,0

Inventories 00
Furniture and fixture 1,200,0
Accounts payable 00 600,00
Partner 1, Capital 1,400,0 0
Partner 2, Capital 00 2,000,
000
2,000,
000

Variation #3:
Solution:

Partne Partne
r1 r2
2,000,0 2,000,0
Equal credits to capital accounts
00 00
2,200,0 1,800,0
Fair value of net asset contribution
00 00
(Withdrawal) Additional (200,0
200,000
investment 00)

Answer: Partner 1 withdraws ₱200,000, while

Partner 2 makes an additional investment of
₱200,000.

PROBLEM 6: CLASSROOM ACTIVITY

The students grade themselves and then submit the
results to the teacher for recording.
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