On January 1 , 2016, Son and Miguel agreed to form a business partnership (SM Partnership) with the

following investments:

Son Miguel
Cash P100,000 P150,000
Accounts receivable 80,000 100,000
Allowance for doubtful accounts 15,000 10,000
Merchandise inventory 200,000 245,000
Equipment 600,000
Accum. Depreciation – Equipment 80,000
Delivery Truck 800,000
Accum. Depreciation – Delivery Truck 100,000

The partners agreed to the following conditions:

1. The allowance for doubtful accounts of Miguel is increased to 15,000.
2. The merchandise of Son valued at its net realizable value of P180,000.
3. The fair market value of Miguel’s inventory amounts to P250,000.
4. The carrying amount of Equipment amounts to P500,000.
5. The carrying amount of Delivery Truck amounts to P750,000.

Required:
1. Prepare the entry at January 1, 2016 recording the formation of partnership.

SM Partnership realized a net income of P200,000 for the year 2016. The partnership agreed to share
profit and losses as follows:

1. Salary allowances: Son P30,000; Miguel P45,000.

2. Remainder: Son 40%; Miguel 60%
Required
2. Prepare the entry distributing the profit

SM Partnership
Balance Sheet Statement
January 1, 2017
ASSETS
Current Assets
Cash 530,000
Accounts receivable 380,000
Allowance for doubtful accounts (30,000) 350,000
Merchandise inventory 400,000
Total Current Assets 1,280,000

Non-current Assets
Equipment 500,000
Accum. Depreciation – Equipment (100,000) 400,000

Delivery Truck 750,000

Accum. Depreciation – Delivery Truck (150,000) 600,000
Total Non-Current Assets 1,000,000
TOTAL ASSETS 2,280,000
 PARTNERS’ CAPITAL
Son Capital 925,000
Miguel Capital 1,355,000
TOTAL PARTNERS’ CAPITAL 2,280,000

On January 1, 2017 Angel purchased 20% of the interest of Son and Miguel for P500,000 and shared the
profits and losses based on the same percentage after the following adjustments are made:
1. The net realizable value of Accounts receivable is P300,000
2. The merchandise inventory is valued at P450,000

Son and Miguel agreed to share the profits and losses based on the old percentage ratio.
Required:
3. Prepare necessary adjusting entries.
4. Determine the adjusted capital of the partners.
5. Record the Admission of Angel.
6. Compute for gain or loss of the partnership, Son and Miguel.

SMA Partnership realized a net income of P220,000 for the year 2017. The partnership agreed to share
profit and losses as follows:
1. 10% interest is provided on the ending Capital balance
2. Salary Allowances: Son 20,000; Miguel 30,000; Angel 15,000
3. Remainder: Son 32%; Miguel 48%; Angel 20%
Required
7. Prepare the entry distributing the profit

After the distribution of Net income there was an irreconcilable conflict between the partners which
makes them to decide to liquidate the partnership.

SM Partnership
Balance Sheet Statement
January 1, 2018
ASSETS
Current Assets
Cash 950,000
Accounts receivable 1080,000
Allowance for doubtful accounts (80,000) 1,000,000
Merchandise inventory 800,000
Total Current Assets 2,750,000

Non-current Assets
Equipment 500,000
Accum. Depreciation – Equipment (200,000) 300,000

Delivery Truck 750,000

Accum. Depreciation – Delivery Truck (300,000) 450,000
Total Non-Current Assets 750,000
TOTAL ASSETS 3,500,000

LIABILITIES AND PARTNERS’ CAPITAL

Liabilities
Accounts Payable 1,000,000

Partners’ Capital
Son Capital 810,640
Miguel Capital 1,187,360
Angel Capital 502,000
Total Partners’ Capital 2,500,000
TOTAL LIABILITIES AND PARTNERS’ CAPITAL 3, 500,000

Required
Use Lump-sum method
8. Prepare a statement of liquidation assuming the all the non-cash asset were sold for
P3,000,000.
9. Prepare the journal entries to record the liquidation using the assumption given in no. 8.
10. Prepare a statement of liquidation assuming the all the non-cash asset were sold for
P2,200,000.
11. Prepare the journal entries to record the liquidation using the assumption given in no. 10

Use Installment method (Do not consider Nos. 8-11)

Assumption:
 First non-cash asset sale – Selling price P1,650,000; Book Value P1,500,000
 Remaining non-cash asset was sold for P750,000.

12. Prepare Statement of liquidation supported by a Safe payment schedule

13. Journal entries on liquidation
14. Cash priority program
15. Journal entries on liquidation
Use the following information for the next three cases:

Carrots joins the partnership of Apple and Banana. Before the admission of Carrots, the partnership
statement of financial position shows the following information:
Cash 30,000

Accounts receivable 140,000

Inventory 200,000

Equipment 500,000

Total assets 870,000

Accounts payable 80,000

Apple, Capital (60%) 515,000

Banana, Capital (40%) 275,000

Total liabilities and equity 870,000

The following adjustments are determined:

a. The recoverable amount of the accounts receivable is ₱120,000.

b. The inventory has a net realizable value of ₱160,000.
c. The equipment has a fair value of ₱450,000.
d. Unrecorded liabilities amount to ₱20,000.
Case #1: Carrots acquires half of Banana’s interest for ₱800,000.

Requirements:

a. Provide the entry to record the admission of Carrots.

b. Determine the balances of the partners’ capital accounts after the admission of Carrots.
c. Determine the profit or loss sharing ratio of the partners after the admission of Carrots.

Case #2: Carrots invests ₱165,000 cash to the partnership in exchange for a 20% interest. Carrots’
capital account is credited for the fair value of the 20% interest he acquired.

Requirements:

a. Provide the journal entry to record the admission of Carrots.

b. Compute for the capital balances of the partners following the admission of Carrots.
c. Determine the profit or loss sharing ratio of the partners after the admission of Carrots.

Case #3: If Carrots is to invest sufficient cash to obtain 2/5 interest in the partnership, how much should
Carrots contribute to the new partnership?
Use the following information for the next two cases:

A and B decided to liquidate their partnership. The partnership’s records show the following
information:

Cash -

Non-cash assets 80,000

Total assets 80,000

Liabilities 15,000

Loan payable to Partner A 10,000

Loan payable to Partner B 17,000

A, capital (80%) 20,000

B, capital (20%) 18,000

Total liabilities and equity 80,000

Case #1: Lump-sum liquidation

All the non-cash assets are sold for ₱50,000.

Requirement: Determine the amount distributable to A and B in liquidation.

Case #2: Installment liquidation

The non-cash assets are sold in installments. Settlement of partners’ claims shall be made in
installments as cash becomes available. In the first sale, three-fourths (3/4) of the non-cash assets are
sold for ₱45,000.

Requirement: Determine the amount distributable to A and B after the first installment sale.
Use the following information for the next two questions:

Farewell Partnership is undergoing liquidation. Information on Farewell follows:

Cash 40,000

Accounts receivable 180,000

Receivable from B 10,000

Inventory 160,000

Equipment 310,000

Total 700,000

Accrued liabilities 250,000

Payable to A 20,000

A, Capital (60%) 240,000

B, Capital (40%) 190,000

Total 700,000

Case #1: Lump-sum liquidation

Information on the conversion of non-cash assets is as follows:

a. Only 60% of the accounts receivable was collected; the balance is uncollectible.
b. ₱50,000 was received for the entire inventory.
c. The equipment was sold at its carrying amount.
d. ₱10,000 Liquidation expenses were paid.
Requirement: Determine the amounts of cash distributed to the partners in the final settlement of their
capital accounts.

Case #2: Lump-sum liquidation

Information on the first conversion of non-cash assets is as follows:

a. Half of the accounts receivable was collected.

b. Inventory costing ₱60,000 was sold for ₱20,000.
c. Equipment with carrying amount of ₱200,000 was sold for ₱120,000.
d. ₱10,000 liquidation expenses were paid.
e. The partners estimate additional liquidation costs of ₱5,000.
f. Both partners are personally insolvent.
Requirement: Determine the amounts of cash distributed to the partners from the partial realization of
partnership assets.