MODULE

IN

Advanced Financial Accounting and

Reporting (AFAR 1)

Jesus E. Ching

University of Eastern Philippines

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University of Eastern Philippines
University Town, Catarman N. Samar

Bachelor of Science in Accountancy

Module: Advanced Financial Accounting and Reporting 1
Credit Units: 3
Instructor: Jesus E. Ching (jesusboyching@[Link].)

Module Synopsis
The module is aimed in developing student’s understanding on special problems in accounting such as
Partnership, Corporate liquidation, Installment sales, Long-term construction contracts, Franchise
accounting and Consignment sales.

Module Teaching Objectives

The teaching objectives of this module are:
1. To understand the nature, formation, operation, dissolution and liquidation of partnership.
2. To understand the accounting for financially distressed corporation.
3. To understand the nature, characteristic and accounting for installment sales.
4. To understand nature of construction business, types of construction contracts and accounting for
long-term construction contracts.
5. To understand nature and accounting for franchise.
6. To understand the nature, definition, characteristics and accounting for consignment sales.

Module Learning outcomes

Upon successful completion of this module, the students will be able to:
1. Define partnership, identify ways a partnership may be formed, prepare journal entries to record
partnership formation, prepare partnership financial statements, determine the proper distribution of
partnership profits and losses among partners, explain partnership dissolution, prepare journal entries
in relation to dissolution, identify the objectives of a partnership during liquidation process and be
able to prepare statement of liquidation.
2. Explain why corporations get into financial difficulty, corporate liquidation and be able to prepare
statement of affairs, prepare journal entries in the books of trustee/receiver and prepare statement of
realization and liquidation.
3. Identify and explain the methods of gross profit recognition on installment sales and understand the
accounting procedures and prepare journal entries under installment method on installment sales on
conventional merchandise and real state.
4. Identify and classify construction contracts, explain the following terms; contract cost, cost incurred
to date, estimated cost to complete and subcontractor cost, explain the two basic methods used to
account for long term construction.
5. Explain franchise and types of franchising arrangement, initial franchise fee and its corresponding
services attached to the franchise fee and journalizing franchise transactions.
6. Identify transaction out of consignment sales, prepare journal entries for consignment sales, classify
inventory from consignment sales and reporting consignment transactions in the financial statement
of the consignor.

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 Table of Contents
Page No.
Module 1: Partnership 5
Introduction
Objectives 5
1.0 General Knowledge Partnership
1.1 What is a Partnership? 5
1.2 Characteristics of a Partnership 5-6
1.3 Advantages and Disadvantages of a Partnership 6
1.4 Kinds of Partnership 7
1.5 Kinds of Partners 7
2.0 Accounting for Partnership 7-8
2.1 Partnership Formation 9-16
2.2 Partnership Operation / Distribution of Profit &Losses 17-24
2.3 Partnership Dissolution
2.4 Partnership Liquidation
Module 2: Corporation in Financial Difficulty
Introduction
Objectives
1.0 Corporate Reorganization and Troubled Debt Restructuring
2.0 Corporate Liquidation
2.1 Statement of Affairs
2.2 Statement of Realization and Liquidation
Module 3: Installment Sales
Introduction
Objectives
1.0 Installment sales method
Module 4: Long-Term Construction Contract
Introduction
Objectives
1.0 Gross Profit Recognition
1.1 The Zero Profit Method
1.2 The Percentage of Completion method
Module 5: Franchise Accounting
Introduction
Objectives
1.0 Franchise Fees
1.1 Revenue Recognition - Initial Franchise fees
1.2 Revenue Recognition – continuing franchise fees
1.3 Revenue Recognition – Area franchise fees
Module 6: Consignment Sales
Introduction
Objectives
1.0 Accounting for Consignment sales

Module 7: Branch Accounting

Introduction
Objectives
1.0 Home Office and Branch Accounting
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 1.1 Sales Agency and Branch Distinguish
1.2 Accounting for Sales Agency
1.3 Accounting for Branch Operations
2.0 Home Office and Branch Accounting – Special Transactions
2.1 Merchandise Shipments to Branch –
Billed at price in excess of cost
2.1.1 Working papers when billings to Branch are in
Excess of cost – First year
2.1.2 Treatment of Beginning Inventory Billed Above cost
2.1.3 Working Paper When Billings to Branch are in excess of cost –
Second year
2.1.4 Combined Financial Statement
2.1.5

References: 1. Advanced financial Accounting and Reporting (theories and Problems)

2019 Edition Antonio J Dayag

2. Advanced Accounting 1 (2017 edition)

Pedro P. Guerrero and Jose F. Peralta

3. Advanced financial Accounting and Reporting (2018 edition)

Angelito P. Punzalan

4. Accounting for Business Combination (2020 edition)

Zeus Vernon B. Millan

5. Advanced Financial Accounting and Reporting (2020)

Paul Anthony de la Fuente

6. Advanced Financial Accounting and Reporting (2016)

Norma D. De Leon, Ellery D. De Leon

7. Partnership and Corporations Accounting (2017)

Win Ballada

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Week 1 Day 1

1 Partnership
Introduction

In this module, you will be introduced to the one of the three form of business organization, the partnership.
The discussion will be to base on nature and basic knowledge on partnership. My discussion will focus more on the
accounting aspect such as formation, operations, dissolution and liquidation rather than the legal aspect of
partnership on the succeeding portions of this modules.

Learning Objectives
After studying this module, you should be able to:
1. Define and explain the nature of a partnership
2. Know and understand the characteristics of a partnership
3. Learned the advantages and disadvantages of a partnership
4. Enumerate and differentiate different kinds of partnership
5. Enumerate and differentiate the different kinds of partners

Okay, Let’s start with the definition of partnership.

As defined in Article 1776 of the Civil Code of the Philippines, “By the contract of partnership, two or more person
bind themselves to contribute money, property or industry into a common fund with the intention of dividing the
profit among themselves”.

The definition state that partnership is a contract of a two or more person. The person mention here is natural
person meaning a human being. The person should also be capable to enter into a contract.

Question.
Can a corporation be a partner in the partnership? No! because a it is not natural person.
Can a minor be a partner in a partnership? No! because he is not capable to enter into a contract being a minor.
Can President Duterte be a partner in the partnership? No! Although he is natural person and capable to
enter into contract he is not allowed under the law because of conflict of interest.

The partners must also contribute money, property or industry. This means that money in the form of bills and
coins, property such land, building, equipment etc. and industry such as talent and skills be contributed to the
partnership.

The partners must have the intention to divide the profits. If the partners have no intention to the divide the profits,
then there is no partnership.

Characteristics of a Partnership
1. Mutual Agency. Every partner is an agent of the partnership. A partner can enter into a contract to third
person for the partnership provided it is within his expressed or implied authority.

2. Limited Life. The partnership can be easily dissolved due to changes in the relationship among partners. So,
death, insolvency or withdrawal of a partner even admission of a new partner in the partnership can end the
life of the partnership thereby creating a new one.

3. Unlimited Liability. All partners except limited partners are liable to third parties up to the extent of the
personal properties for the partnership unpaid obligations.

4. Separate Legal Entity. The partnership has a juridical personality separate and distinct from the owners. A
partnership having separate and distinct personality, it can sue and be sued and can acquire its own assets
and incur its own liabilities.
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 5. Co-ownership of property and profits. All assets contributed to the partnership are owned by the partnership
by virtue of its separate and distinct personality. An asset contributed by a partner to the business is jointly
owned by all other partners.

6. Division for profit. There must be an intention of the partners to divide the profits and losses. If the aim of
the association is anything other than profit, it is certainly not a partnership.

Advantages of partnership

1. Better credit standing than sole proprietorship.

2. Greater source of capital than sole proprietorship.
3. Each partner, as individual is taxed, not the partnership (general professional partnership)
4. Ease of formation. Few legal restrictions than corporation
5. The direct gain to the partner is an incentive to give close attention to the business.
6. The unlimited liability of the partner makes it reliable from point of view of the creditors.

Disadvantages of partnership

1. It is less stable because it can easily dissolve.

2. One partner action can legally bind the partnership.
3. Restricted transfer of capital
4. There is a divided authority among the partners.

Kinds of partnership
1. As to object, a partnership is either universal or particular.

a. Universal partnership of all present property. All contributions become part of the partnership fund.
b. Universal partnership of profits. All that the partners may acquire by their industry or work during the
existence of the partnership and the use of whatever the partners contributed at the time of the institution of
the contract belong to the partnership.
c. Particular Partnership. The object of the partnership is determining – Its use or fruit, specific undertaking, or
the exercise of a profession or vocation.

2. According to liability:

a. General. All partners are liable to the extent of their separate properties.
b. Limited. Is one where there is at least one general partner and at least one limited partner, with the limited
partner not being liable for the partnership debts except to the extent of his capital contribution.

3. According to duration:

a. Partnership at will. Is one which no term of existence has been fixed and which may be terminated at the will of
any partner.
b. Partnership with a fixed term. I s one whose period of existence has been fixed and agreed upon by the partners;
a partnership for a particular undertaking belongs to this kind.

4. According to purpose:

a. Commercial or trading partnership. One formed for the transaction of business.

b. Professional or non- trading partnership. One formed for the exercise of profession.

5. According to legality of existence:

a. De jure partnership. One which has complied with all the legal requirements for its establishment.
b. De facto partnership. One which has failed to comply with all the legal requirements for its establishment.

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Kinds of Partners

1. General partner. One that is liable to the extent of his separate property after all the assets of the partnership is
exhausted.

2. Limited partner. One who is liable only to the extent of his capital contribution.

3. Capitalist partner. One who contributes money or property to the common fund of the partnership.

4. Industrial partner. One who contributes his knowledge or personal service to the partnership.

5. Managing partner. One whom the partners have appointed as manager of the partnership.

6. Liquidating partner. One that is designated to wind up or settle the affairs of the partnership after dissolution.

7. Dormant partner. One who does not take active part in the business of the partnership and is not known as a
partner.

8. Silent partner. One who does not take active part in the business of the partnership though may be known as a
partner.

9. Secret Partner. One who takes active part in the business but is not known to be a partner by outside parties.

10. Nominal partner or partner by estoppel. One who is actually not a partner but represents himself as one.

Articles of Partnership
1. The partnership name, nature, purpose and location;
2. The names, citizenship and residence of the partners;
3. The date of formation and duration of the partnership;
4. The capital contribution of each partner, the procedure for valuing non-cash investments, treatment of excess
contribution
(as capital or as a loan) and the penalties for a partners’ failure to invest and maintain the agreed capital;
5. The rights and duties of each partner;
6. The accounting period to be adopted, the nature of accounting record, financial statements and audits by
independent public
accountants.
7. The method of sharing net income and net loss, frequency of income measurement and distribution, including any
provisions for the recognition of differences in contributions;
8. The drawings or salaries to be allowed to partners
9. The provisions for arbitrations of disputes, dissolution, and liquidation.

Accounting for Partnership

I assumed that you have thorough knowledge in your basic accounting. You have already prepared journal
entries on your basic accounting especially on single proprietorship. Accounting for partnership is the same as those
of a single proprietorship especially in dealing with third parties. Partnership accounting deals more on the
accounting within the partnership. The difference between single proprietorship and partnership is that there are
more capital accounts as there are partners.

In Partnership, ledger account is setup such as capital account and withdrawal or drawing account.

The Capital Account is credited for:

a. Original Investment.
b. Additional investments
c. Profits added to the investments

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The Capital Account is debited for:

a. Permanent withdrawals of capital.

b. Debit balance of drawing account at the end of the period if such amount constitutes permanent
impairment or reduction of capital.
c. Losses from operations

The Withdrawal or Drawing Account is credited for:

a. Partner’s share in net income (This may also be credited directly to capital account)

The Withdrawal or Drawing Account is debited for:

a. Temporary withdrawal of assets by a partner

b. Partner’s share in net loss (this may be debited directly to the capital account)

2. Partners’ loans – partners may lend money to the partnership other than their capital contributions,
such loans are
Credited to:

a. Partner’s loan payable account, (liability of partnership to a partner) or

b. Notes payable account, if the loan is evidenced by a note duly signed in the name of the
partnership.

Whether such loans will bear interest or not depends on the agreement of the parties. If the loan was a result
of a disbursement properly made by a partner for the benefit of the partnership, in the absence of an agreement as to
interest, such advance should bear interest from the time of disbursement.

3. Partner’s Borrowing – a partnership may lend funds to the partners. Such amounts are

Debited to:

a. Loans receivable account, (asset of the Partnership) or

b. Notes receivable account if the advance is supported by note signed by the partner.

Interest on these advances will be governed by the partners’ mutual agreement.

4. Partners’ Salaries – The partners may agree to allow salaries to them. The salary allowances to the partners are
purely a method of profit division. Salaries to partners are not true business expenses.

5. Interest on Investments – Whether capital contributions are to be allowed interest is a matter of agreement among
the partners. Interest on capital investments are also a device for dividing profits. If the partners agree on
interest, the agreement should specify the basis of computation which may be any of the following:

a. Capital at the beginning

b. Average Capital
c. Capital at the end
1. Before closing of the balances of drawing accounts
2. After closing of the balances of drawing accounts.

Are you still with me? 😉

After giving you an insight on partnership accounts let us now start on

ACCOUNTING FOR PARTNERSHIP FORMATION

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Learning Objectives
After studying this lesson, you will be able to:
1. Identify and enumerate different accounting procedures for partnership formation
2. Prepare journal entries in relation to partnership formation
3. Account partners’ capital balances on partnership formation
4. Prepare partnership statement of financial position after formation

What are the accounting procedures for Partnership Formation?

A partnership may be formed in the following ways:

1. Two or more individuals may form a partnership to engage in business for the first time.

Contributions may be in the form of:

a. Cash only
b. Cash and other property
c. Skill or talent of a partner

Let us have some illustrations!

a. Cash contributions only – Anne, Billy, and Bong form the ABB Company a partnership, by investing
cash P20,000, P30,000 and P50,000 respectively.
What will be the journal entry in the books of the partnership?

The journal entry in books of the partnership would be:

Cash 100,000
Anne capital 20,000
Billy capital 30,000
Bong 50,000

b. How about if Cash and other property are contributed? – Suppose, in the above partnership the
Anne contributed cash of P200,000 and furniture P100,000 Billy contributed office equipment
P400,000 and Bong, cash P160,000 and delivery equipment of P240,000.

What would be the journal entry in the books of the partnership for the transaction above?

The entry to record the transaction would be:

Cash 360,000
Furniture 100,000
Office Equipment 400,000
Delivery Equipment 240,000
Anne capital 300,000
Billy 400,000
Bong 400,000

Take note that whenever cash are contributed it must be recorded at face value. If it is in foreign
currency, the current exchange rate at the date of contribution should be used. Property contributed
should be recorded at fair market values. If the partners have an agreement to the valuation of the
property, the agreed value should be used to record the property contributed. if none, then the fair
value will be used. Also, if property contributed is subject to a loan or mortgage, the property should
be taken up net of liability for partners’ capital credit if such liability is assumed by the partnership.

After the formation of the partnership, Statement of Financial Position would be

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 ABB Company
Statement of Financial Position
January 1, 2020
`
Cash 360,000 Anne capital 300,000
Furniture 100,000 Billy capital 400,000
Office Equipment 400,000 Bong capital 400,000
Delivery Equipment __ 240,000 __________
Total Asset P1,100,000 Total Capital P 1,100,000

c. What about If partner contributed his talent or skill in the partnership?

N. Joy and K. Jay form a partnership wherein N. Joy contribute P50,000 while K. Jay serves as an
industrial partner by contributing his skill to share 25% of the profits.

The Journal entry to record the formation would be

Cash 50,000
N. Joy capital 50,000

For K. Jay a memo entry only

K. Jay is accepted as industrial partner with 25% share in profits.

2. A Sole proprietor and another individual form a partnership

There are times when an individual with an existing business agree to form a partnership with an
individual with no existing business. Under this type of formation, the assets and liabilities of the
proprietorship will be transferred to the newly formed partnership at values agreed upon by all
the partners or at their current fair prices.

Here are some illustrations!

The statement of financial position of Jesca Nicole on July 1, 2020, before accepting Gay Lord as his partner
is shown below:
Jesca Nicole
Statement of Financial Position
July 1, 2020
Assets Liabilities and Owners’ Equity

Cash P 200,000 Notes payable P 120,000

Notes Receivable 100,000 Accounts Payable 100,000
Accounts Receivable 500,000 Total liabilities 220,000
Merchandise Inventory 200,000
Furniture and Fixtures 160,000
Less: Accumulated depreciation 20,000 140,000 J. Nicole, Capital 920,000
Total Assets P 1140,000 Total Liab. and Owner’s Equity P1140,000

Gay Lord offered to invest cash to give him a capital credit equal to one-half of Jesca Nicole’s capital after
giving effect to the following adjustments:
1. The merchandise is to be valued at P180,000
2. An allowance for uncollectible accounts should be established for P60,000.
3. The furniture and Fixtures are to be valued at P120,000.
4. Nicole’s liabilities will be assumed by the partnership.

Required: 1. Journal entries to record the partnership formation. New partnership books will be used.
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 2. Statement of financial position of the newly formed partnership

Here are the accounting procedures to record the above transactions:

Books of Jesca Nicole:

1. Adjust the assets of Jesca Nicole in accordance with the agreement. Adjustments are to be made to his
capital accounts.
2. Close the accounting books of Jesca Nicole

Books of the Partnership:

1. Record the investment of Jesca Nicole
2. Record the investment of Gay Lord.

1. Journal entries / Adjusting entries:

Jesca Nicole’s book:
Nicole capital 100,000
Merchandise inventory 20,000
Allowance for doubtful accounts 60,000
Accumulated depreciation 20,000
To adjust Nicole books according to Partnership agreement

Nicole Capital 820,000

Accounts payable 100,000
Notes payable 120,000
Allowance for doubtful accounts 60,000
Accumulated depreciation 40,000
Cash 200,000
Accounts receivable 500,000
Notes receivable 100,000
Merchandise inventory 180,000
Furniture and fixtures 160,000
To close Nicole books
Books of the partnership:

Cash 200,000
Accounts receivable 500,000
Notes receivable 100,000
Merchandise inventory 180,000
Furniture and fixtures 120,000
Accounts payable 100,000
Notes payable 120,000
Allowance for doubtful accounts 60,000
Nicole capital 820,000
To record Nicole investment

Cash 410,000
Gaylord capital 410,000
To record Gaylord investment

3. Two sole proprietorship forms a partnership.

When two individuals both with existing business form a partnership, usually they set an agreement as the
values of assets and if liabilities are to assumed or not by the newly formed partnership.

To illustrate, the account balances of Mang Donald and Jolly Bebot are given next page.

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1. The Business Assets and Liabilities of Mang Donald Store and Jolly Bebot store appears below:

Donald Bebot
Cash P 24,000 P 50,000
Accounts Receivable 256,000 306,000
Inventories 228,000 464,000
Land 480,000 -
Building 472,000
Furniture and Fixtures 174,000 116,000
Other Assets 8,000 6,000
Total P1,170,000 P1414,000

Accounts Payable P 264,000 P 410,000

Notes Payable 162,000 178,000
Donald, Capital 744,000 826,000
Total P1170,000 P1414,000

On July 1, 2020, Donald and Bebot Agreed to form a partnership by contributing their assets and equities subject to
the following adjustments:

1. All their business liabilities will be assumed by the partnership.

2. Allowance for uncollectible accounts of P16,000 in Donald’s books and P6,000 in Bebot’s
should be established.
3. Inventories of P6,000 and P22,000 are worthless in Donald’s and Bebot’s respective books
4. Other assets of P8,000 for Donald and P6,000 for Bebot are to be written off.
5. business liabilities will be assumed by the newly formed partnership

Required:
1. Prepare the journal entries for the formation of the partnership July 1, 2020.
2. Statement of financial position of the newly formed partnership

Answer on the above illustration.

Books of Donald
Donald capital 30,000
Allowance for doubtful accounts 16,000
Merchandise inventory 6,000
Other assets 8,000
To adjust Donald books

Accounts payable 264,000

Notes payable 162,000
Allowance for doubtful accounts 16,000
Donald capital 714,000
Cash 24,000
Accounts receivable 256,000
Inventories 222,000
Land 480,000
Furniture and Fixtures 174,000
To close Donald books

Books of Bebot

Bebot capital 34,000

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 Allowance for doubtful accounts 6,000
Merchandise inventory 22,000
Other assets 6,000

Accounts payable 410,000

Notes payable 178,000
Allowance for doubtful accounts 6,000
Donald capital 792,000
Cash 50,000
Accounts receivable 306,000
Inventories 442,000
Building 472,000
Furniture and Fixtures 116,000
To close Bebot books

Partnership books
Cash 74,000
Accounts receivable 562,000
Inventories 664,000
Furniture and Fixtures 290,000
Building 472,000
Land 480,000
Accounts payable 674,000
Notes payable 340,000
Allowance for doubtful accounts 22,000
Donald capital 714,000
Bebot capital 792,000
To record the investment of Donald and Bebot

ASSESSMENT

Now let us answer some exercises to test your knowledge on what we have read and studied.

Ture or False
1. There must be at least two persons but not to exceed five persons to form a partnership.

2. General partners are liable to partnership creditors up to the extent of their personal properties for unpaid
obligations of the partnership.

3. A partnership has a juridical personality separate and distinct from that of each partner and therefore can sue
or be sued.

4. A silent partner is one who takes active part in the business but is not known to be a partner by outside parties.

5. Limited partnership is one where there is at least one general partner and at least one limited partner, with the
limited partner not being liable for the partnership debts except to the extent of his capital contribution.
6. Partner’s capital account is credited for additional investment and debited for his share in losses.

7. Partners’ loan payable account is a liability of a partner to the partnership.

8. A dormant partner is one who does not take active part in the business of the partnership but is known as a
partner by outside parties.

9. A partner may transfer his interest in the partnership to his heirs even without the consent of his partners.

10. A secret partner is one who does not take active part in the business of the partnership though may be known
as a partner.

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 11. In partnership, unlimited liability means that a partner can borrow money without limitation.

12. A partner who contributes his talent, skills and labor to the common fund of the partnership is an industrial
partner.

13. Property such as equipment contributed to the partnership must be recorded at cost less accumulated
depreciation in accordance with the cost method of accounting

14. In limited partnership all partners in the partnership is liable only up to the extent of his personal investment.

15. Title of properties or non-cash assets contributed to the partnership remain to the contributing partner so that it
can be returned to the partner in case of termination of the partnership

Exercises:
1. Individuals with no existing business form a partnership.

On January 2, 2020 Paul and Michelle agreed to form a partnership to buy and sell cellphone units. The Partners
decided that Paul will invest cash, P150,000; Computer unit for their office which has cost of P40,000 with a
fair value of P50,000. Michelle will contribute his motorcycle as a service vehicle with a fair value of P45,000.
The book value of the motorcycle is P65,000. In addition, he will invest cash of P20,000.

After partnership formation, which of the following is a correct statement?

a. Paul capital balance after formation is P190,000

b. Michelle capital balance after formation is P85,000
c. Partnership total asset is P265,000
d. None of the above statement is correct

2. Peter invest an equipment to the partnership that cost him P500,000 with an accumulate depreciation of
P200,000. The equipment had a fair value of P350,000. The related mortgage payable of P100,000 was assumed
by the partnership. In the books of the partnership, what amount would Peter capital account be credited?

a. P350,000 b. P300,000 c. P250,000 d. P200,000

3. Bong and Jong have just formed a partnership. Bong contributed cash of P126,000 and office equipment that
cost P54,000. The Equipment had been used in his sole proprietorship and been depreciated to P24,000. The
fair value of the equipment is P36,000. Bong had a P12,000 note payable to be assumed by the partnership.
Bong is to have 60% interest in the partnership. Jong contributed only P90,000 cash. If no goodwill or bonus is
to be recorded, Bong would make an additional investment (withdrawal) of?

a. Additional investment of P15,000 c. Withdrawal of P60,000

b. Withdrawal of P15,000 d. No additional investment or withdrawal

4. On January 5, 2020, Ben, Tom and Ling formed a partnership by combining their individual businesses. Ben
contributed cash of P250,000. Tom contributed an office equipment with a carrying value of P180,000 which cost
him P200,000 and P400,000 fair market value. The partnership assumed the P175,000 mortgage attached to the
equipment. Ling contributed delivery equipment with P150,000 carrying amount, with an original cost of
P375,000 with a fair value of P275,000. The partnership agreement states that profits and losses are to be divided
equally but silent on the contributions. What are the capital balances of Ben, Tom and Ling at January 5, 2020?

Ben Tom Ling

a. P250,000 P400,000 P275,000
b. P250,000 P225,000 P275,000
c. P250,000 P180,000 P150,000
d. P250,000 P400,000 P375,000

5. On July 1, 2020, Jack, Jill and John formed a partnership. Jack contributed cash of P50,000 and an office
equipment which cost him P60,000 but with a second-hand value of P25,000. Jill contributed P80,000 cash. John
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 contributed cash of P25,000 and a computer equipment that cost him P50,000 but with a regular selling price of
P60,000. What would be the capital balances of the partners on July 1, 2020?

Jack __Jill _John_

a. P 75,000 P 80,000 P85,000
b. P 75,000 P 80,000 P75,000
c. P 85,000 P105,000 P85,000
d. P 75,000 P105,000 P85,000

6. Chito and Tonio form a partnership in which Chito contributed cash of P30,000 and a furniture that cost him
P25,000 and a fair value of P30,000. Tonio contributed also cash of P50,000 and office equipment of P20,000
with an attached mortgage payable of P5,000 which the partnership will assumed. The partners agree that Chito
will make additional cash investment or withdrawal so that Tonio’s contribution will give him a capital interest of
fifty percent in the partnership. What are the total assets of the partnership after formation?

a. P125,000 b. P130,000 c. P135,000 d. P140,000

7. Jane and Joe formed a partnership whereby Jane contributed cash of P20,000, office equipment P30,000 and
Furniture P25,000. if Joe will contribute cash that will give him forty percent capital interest in the partnership
based on Jane contributions, what amount of cash would Joe contribute?

a. P30,000 b. P40,000 c. P50,000 d. P60,000

8. Bill and Boy decided to consolidate their business into partnership wherein they will participate in the profits in
the ratio of 60% and 40% respectively. Their account balances as of June 30, 2017 are:
Books of Bill Books of Boy
Cash 600 1,500
Accounts receivable 24,000 9,000
Less: Allowance for doubtful accounts 2,400 21,600 _ 900 8,100
Furniture and Fixtures 7,500
Less: Accumulated depreciation 1,500_ 6,000
Merchandise Inventory 9,000
Delivery truck 13,500
Less: Accumulated depreciation ______ _2,700 10,800
Total assets 28,200 29,400

Accounts Payable 5,400 9,600

Bill Capital 22,800
Boy Capital ______ 19,800
Total liabilities and capital 28,200 29,400

Conditions agreed upon before the formation of the partnership:

a. The accounts receivable of both are estimated to be realizable at 70%
b. The furniture and fixtures of Bill is under depreciated by P600
c. All payables are to be assumed by the partnership
d. The delivery truck of Boy should be depreciated by P1,800 more
e. The new capital of the partnership is based on the adjusted capital balance of Boy so that Bill may
withdrew or contribute cash in order to make the partners’ capital balance proportionate to the profit
and loss ratio.
f. New set of books will be used by the partnership.

What amount of cash would Bill contribute or (withdraw) upon formation of the partnership?
___________
What is the total asset of the partnership after formation? ____________

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 9. Individuals with no existing business from a partnership.

Tita and Tito agreed to form a partnership on June 5, 2020, for the purpose of selling imported shoes. Tita has
decided to contribute his building worth 160,000 for their store space while Tito contributed store furniture
worth P100,000. They also decided to invest sufficient cash such that each partner will have a beginning balance
of P400,000.

Required: Prepare the journal entries to record the partners’ investment

10. Individuals with existing business formed a partnership.

To eliminate competition, King and Kong on July 1, consolidate their business to form a partnership called
KINGKONG partnership. their balance sheet before formation is as follows:

King Store Kong Store

ASSETS ASSETS
Cash 130,000 Cash 15,000
Accounts Receivable 100,000 Accounts Receivable 40,000
Merchandise inventory 200,000 Less: Allowance for Bad Debts 4,000 36,000
Furniture and Equipment 50,000 Merchandise inventory 50,000
Furniture and Equipment 15,000
Less: Accumulated Depreciation 1,500 13,500
Total 480,000 Total 114,500

LIABILITIES AND CAPITAL LIABILITIES AND CAPITAL

Accounts Payable 125,000 Accounts Payable 15,000
King Capital 355,000 Notes Payable 20,000
kong Capital 79,500
Total 480,000 Total 114,500

King will invest his store subject to the following conditions:

1. That P20,000 of the accounts receivable be written off.
2. That the fair market value of the equipment is P40,000
3. That accrued expenses of 25,000 be recognized.

Kong's condition should be adjusted as follows:

1. Estimated uncollectible accounts should be 5% of the accounts receivable.
2,The fair market value of the furniture & equipment is P12,000.
3. His books will be used by the partnership.

Required: Prepare journal entries to record the formation of the partnership.

.

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