NAME: KYLE L.

RONQUILLO

SPECIAL TRANSACTIONS – FORMATION ASSIGNMENT

Task: Provide solutions to all of the problems. No solutions, No points.
1. On December 1, 2021, E and F formed a partnership, agreeing to share for profits and losses in the ration of 2:3, respectively.
E invested a parcel of land that cost him P25,000. F invested P30,000 cash. The land was sold for P50,000 on the same date,
three hours after formation of the partnership. How much should be the capital balance of E right after formation?
a. P25,000 b. P30,000 c. P60,000 d. P50,000

Solution:
D. P50,000- assume that it is the fair value of land.

2. On March 1, 2022, II and JJ formed a partnership with each contributing the following assets:
II JJ
Cash P300,000 P700,000
Machinery and equipment 250,000 750,000
Building - 2,250,000
Furniture and Fixtures 100,000 -
The building is subject to mortgage loan of P800,000, which is to be assumed by the partnership agreement provides that II
and JJ share profits and losses 30% and 70%, respectively. On March 1, 2022 the balance in JJ’s capital account should be:
a. P3,700,000 b. P3,140,000 c. P3,050,000 d. P2,900,000

Solution:
D. Cash P700,000
Machinery and equipment 750,000
Building 2,250,000
Total assets P3,700,000
Mortgage loan (800,000)
Capital balance of JJ P2,900,000

3. The same information in Number 2, except that the mortgage loan is not assumed by the partnership. On March 1, 2022 the
balance in JJ’s capital account should be:
a. P3,700,000 b. P3,140,000 c. P3,050,000 d. P2,900,000

Solution:
A. Cash P700,000
Machinery and equipment 750,000
Building 2,250,000
Total assets P3,700,000

4. The business assets for LL and MM appear below:

LL MM
Cash P11,000 P22,354
Accounts receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000 -
Building - 428,267
Furniture and fixture 50,345 34,789
Other assets 2,000 3,600
Total P1,020,916 P1,317,002
Accounts payable P178,940 P243,650
Notes payable 200,000 345,000
LL, Capital 641,976 -
MM, Capital - 728,352
Total P1,020,916 P1,317,002

LL and MM agreed to form a partnership by contributing their respective assets and equities subject to the following
adjustments:
a. Accounts receivable of P20,000 in LL’s books and P35,000 in MM’s are uncollectible.
b. Inventories of P5,500 and P6,700 are worthless in LL’s and MM’s respective books.
c. Other assets of P2,000 and P3,600 in LL’s and MM’s respective books are to be written off.

The capital account of the partners after the adjustments will be:
a. LL, P615,942; MM, P717,894 c. LL, P640,876; MM, P683,050
b. LL, P640,876; MM, P712,345 d. LL, P614,476, MM, P683,052
Solution: D. LL, P614,476, MM, P683,052
LL MM
Cash P11,000 P22,354
Accounts receivable 214,536 532,890
Inventories 114,535 253,402
Land 603,000 -
Building - 428,267
Furniture and fixture 50,345 34,789
Other assets - -
Total P993,416 P1,271,702
Accounts payable P178,940 P243,650
Notes payable 200,000 345,000
Total P614,476 P683,052

5. The same information in Number 4, how much total assets does the partnership have after formation?
a. P2,337,918 b. P2,237,918 c. P2,265,118 d. P2,365,218

Solution:
C. 993,416 + 1,271,702 = P2,265,118

Items 6-8
On March 1, 2022, PP and QQ decide to combine their businesses and form a partnership. Their balance sheets on March 1,
before adjustments, showed the following
PP QQ
Cash P9,000 P3,750
Accounts receivable 18,500 13,500
Inventories 30,000 19,500
Furniture and fixtures (net) 30,000 9,000
Office equipment (net) 11,500 2,750
Prepaid expenses 6,375 3,000
Total P105,375 P51,500
Accounts payable P45,750 P18,000
Capital 59,625 33,500
Total P105,375 P51,500

They agreed to have the following items recorded in their books:

1. Provide 2% allowance for doubtful accounts.
2. PP’s furniture and fixtures should be P31,000, while QQ’s office equipment is under-depreciated by P250.
3. Rent expense incurred previously by PP was not yet recorded amounting to P1,000, while salary expense incurred by QQ
was not also recorded amounting to P800.
4. The fair market value of inventory amounted to:
For PP P29,500
For QQ 21,000

6. Compute the net (debit) credit adjustment for PP and QQ: 105,505 + 52,480
PP QQ
a. P2,870 P2,820
b. (2,870) (2,820)
c. P(870) P180
d. 870 (180)

Solution: PP QQ
Allowance for doubtful account ( 370) (270)
Furniture & Fixtures (1,000) -
Office equipment - (250)
Rent expense (1,000)
Salary expense - (800)
Inventories (500) 1,500
Net (debit) credit for PP & QQ (870) 180

7. Compute the total liabilities after formation: v

a. P61,950 b. 63,750 c. P65,550 d. 63,950
Solution:
C.45,750 + 18,000 + 1,000 + 800 = 65,550

8. Compute the total assets after formation:

a. P157,985 b. 156,875 c. P160,765 d. P152,985
Solution:
A. 105,505 + 52,480 = P157,985
9. On April 30, 2022, XX, YY and ZZ formed a partnership by combining their separate business proprietorships. XX contributed
cash of P75,000. YY contributed property with a P54,000 carrying amount, a P60,000 original cost, and P120,000 fair value.
The partnership accepted responsibility for the P52,500 mortgage attached to the property. ZZ contributed equipment with a
P45,000 carrying amount, a P112,500 original cost, and P82,500 fair value. The partnership agreement specifies that profits
and losses are to be shared equally but is silent regarding capital contributions. Which partner has the largest April 30,2022,
capital balance?
A. XX b. YY c. ZZ d. All capital account balances are equal

Solution:
XX=75,000
YY= 120,000- 52,500=67,500
ZZ= 82,500 (ZZ has the largest capital balance as of April 30,2022)

Questions 10 & 11
Early in 2021, Teph and Batz agreed to form a new partnership under the following general agreements:
Partner’s CONTRIBUTIONS will be on a 5:4; (2) PROFIT & LOSS, 5:5, and (3) CAPITAL CREDITS, 6:4 ratio, respectively to
Teph and Batz. Their respective contributions will come from old proprietorships they owned.
Teph contributed the following items and amounts:
Cash P359,424
Equipment (at book value per proprietorship records) 245,760

Batz contributed the following items at their carrying amounts In the proprietorship records:
Accounts receivable 46,080
Inventory 129,024
Furniture and fixtures 246,989
Intangibles 105,984

All the non-cash contributions are not properly valued. The two partners have agreed that (a) P3,687 of the accounts receivable
are uncollectible; (b) the inventories are overstated by P9,216; (c) the furniture and fixtures are understated by P5,530 and the
intangibles include a patent with a carrying value of P6,451 which must now be derecognized upon a court order. The rest of the
intangible items are fairly valued.
10. How much is the total depreciable fixed asset recorded by the partnership?
a. P535,911 b. P153,536 c. P509,156 d. P499,910

Solution:
Batz
Accounts receivable 46,080 - 3,687 = 42,393
Inventory 129,024 - 9,216 = 119,808
Furniture and fixtures 246,989 + 5,530= 252,519
Intangibles 105,984 - 6,451 = 99,533
514,253/4x5=642,816.25 (teph contribution after adjustment)

Teph
Cash P359,424
Equipment (642,816.25-359,424) 283,392.25

Depreciable fixed asset= 283,392.25 + 252,519 =P535,911-a

11. What is the capital balance of Batz after the formation of the partnership?
a. P430,762 b. P462,828 c. P442,307 d. P426,860

Solution:
Capital balance of Batz = 642,816.25 + 514,253 x 4 / 10 = P462,828-b