FAR CHAPTER 1 EXERCISES

Exercise 1-3. On January 2, 2021, Jessa and Min agreed to form a partnership
which will engage in Car Repairs Services. On the same day Jessa
invested cash amounting to P190,000 and repair equipment costing
P180,000 but with a fair market value of P110,000. Min contributed a
parcel of land with a current fair value of P250,000 and additional cash
to equal the investment of Jessa.

Required:
1. Prepare journal entry to record the investment of Jessa.
2. Compute the cash to be invested by Min.
3. Prepare journal entry to record the investment of Min.
Exercise 1 – 4.

Timtim and Markmark formed a partnership. They contributed the following:

Timtim Markmark Fair Market

Value
Equipment 100,000 80,000
Land 250,000 500,000
Cash 220,000

Land is mortgaged at the bank amounting to P200,000. The partners agreed to

assume the liability. Prepare journal entries to record their investment.
Exercise 1 – 5.

Rosie and Anna decided to form a partnership. They agreed on the following:
Rosie will invest her parcel of land with building. The current market value of the
Land is P400,000; building is P500,000. In addition to land and building Rosie will
invest cash amounting to P300,000 for operating expenses and purchasing of
washing machines. Anna gained a very good experience in running a laundry
business. Anna will contribute her expertise and industry into the partnership. They
will share profits equally.
Prepare journal entries to record their investments.
Problem 1- 1. Abriel and Sofia formed a partnership. Abriel is the owner of Abriel
Marketing. Her net assets will be transferred into the partnership as
her investment while Sofia will invest cash equal to 1/3 of the interest
of the partnership. The account balances of Abriel Marketing prior to
the formation of the partnership as of December 31, 2020 are as
follows:

DEBIT CREDIT
Cash 500,000
Accounts Receivable 400,000
Allowances for Bad Debts 15,000
Prepaid Insurance 48,000
Office Equipment 200,000
Accumulated Depreciation 25,000
Accounts Payable 100,000
Abriel, Capital 1,008,000

The partners agreed the following adjustments prior to the

formation of the partnership:

a. The allowance for bad debts should be 5% of outstanding receivables.

b. Unexpired insurance amounted to P40,000.
c. Office equipment is 20% depreciated.

REQUIRED:
1. Adjust the books of Abriel Co..
2. Close the books of Abriel Co..
3. Assuming that new set of books will be used
a. record the investment of Abriel
b. record the investment of Sofia.
4. Prepare statement of financial position for the partnership after formation.
CHAPTER 1 FAR 2 Short problems:
1. On June 1, 2021, Jude and Lor formed a partnership and agreed to share profits
and losses in the ratio of 3:7, respectively. Jude contributed a computer that
cost him P50,000. Lor contributed cash amounting to P200,000. The computer
was sold for P60,000 on June 1, 2021 immediately after the formation of the
partnership. What amount should be recorded in Jude’s capital account on the
formation of the partnership?

ANS: 60,000

2. Naden, Aira, and Kim formed a partnership on May 1, 2021. They agreed that
Naden will contribute office equipment with a total fair value of P80,000; Aira will
contribute delivery equipment with a fair value of P160,000; and Kim will
contribute cash. Kim wants a one third interest in the capital and profits. How
much cash will Kim contribute?

ANSWER:

Amount of cash to be contributed by Kim =120,000

3. Arnold and Irene formed a partnership on December 1, 2021, with the

following contributions:
Arnold Irene

Cash 130,000 70,000

Machinery and 25,000 75,000
Equipment Building - 325,000
Furniture and Fixtures 10,00 -
0

The building is subject to a mortgage loan of P80,000, which is to be assumed by

the partnership. The partners agreed to share profits and losses equally. Compute
for the capital balances of Arnold and Irene.

ANSWER:

Arnold = 130,000 + 25,000 + 10,000 = 165,000

Irene = 70,000 + 75,000 + 325,000 - 80,000 = 390,000
4. On March 1, 2021, Roy and Badet formed a partnership sharing profits and
losses in the ratio of 4:6 respectively. Roy contributed a parcel of land that cost
him P50,000. Badet contributed P100,000 cash. The land was sold for P150,000
right after the formation of the partnership. How much should be recorded as Roy
capital upon the formation of the partnership?

Answer: 150,000

5. Love and Joy formed a partnership. Love contributed cash of P126,000 and
computer equipment that cost P54,000. The computer had been used in his
business and had been depreciated for P24,000. The fair value of the equipment
is P36,000. Joy contributed cash amounting to P90,000 and also a note payable
of P12,000 to be assumed by the partnership. If Joy is entitled of 60% interest in
the partnership, how much should be made as an additional investment of Joy?

Love = 126,000+36,000 Joy = 405,000 x 60%

= 162,000 = 243,000
Total Interest
of the Partnership= 162,000/40% Additional Investment of Joy
= 405,000 = 243,000 - (90,000-12,000)
= 165,000
6. On November 1, 2021, Emee and Leh decided to combine their businesses
to form a partnership. Their Statement of Financial Position prior to the
formation showed the following:

Emee Leh
Cash P 9,000 P 3,750
Accounts Receivable 58,500 31,500
Inventories 20,000 29,500
Furniture and Fixture (net) 40,000 29,000
Office Equipment 21,500 22,750
Prepaid Expenses 8,375 3,000
Total Assets P157,375 P 119,500
======= =======
Accounts Payable P 85,750 P 38,000
Capital 71,625 81,500
Total Liabilities and Equity P157,375 P 119,500
======= =======

The following adjustments were agreed upon:

1. Provide 2% of accounts receivable as allowance for bad debts.

2. Emee’s furniture and fixture should be valued at P38,000, while

Leh’s office equipment is under depreciated by P2,250.

3. Rent expense incurred previously by Emee was not yet recorded

amounting P5,000, while salary expense incurred by Leh amounting to
P2,800 was not also recorded.

4. The fair value of inventories amounted to P22,500 for Emee and P31,000 for
Leh.

Required:
1. Compute for the capital balances of Emee and Leh after formation.
2. Compute for the total assets of the partnership.
3. Compute for the total liabilities of the partnership.