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Chapter 1 Partnership Formation Test Banksdocx PDF
Chapter 1 Partnership Formation Test Banksdocx PDF
On January 1, 2015, Ernie and Bert both sole proprietors decided to form a
partnership to expand both of their businesses. According to their agreement, they
will split profits and losses 75:25 and their initial capital will also reflect that ratio.
Ernie Proprietor
Statement of Financial Position
December 31, 2014
ASSETS LIABILITIES AND EQUITY
Bert Proprietor
Statement of Financial Position
December 31, 2014
ASSETS LIABILITIES AND EQUITY
Cash 30,000 Accounts Payable
75,000
Accounts receivable 110,000 Accrued expenses
90,000
Inventories 85,000 Notes Payable
100,000
Equipment 300,000 Bert, Capital 160,000
Accumulated Depreciation- Equipment (100,000)
TOTAL ASSETS 425,000 TOTAL LIABILITIES&EQUITY
425,000
The values reflected in the Statement of Financial Position are already at fair values
except fo the following accounts:
Ernie’s Accounts Receivable is now 20,000 less than what is stated in his Statement
of Financial Position. Both inventories of Ernie and Bert are now 90,000 and 70,000
respectively. Equipment for Bert has an assessed value of 275,000, appraised value
of 250,000 and book value of 200,000. Additional accrued expenses are to be
established in the amount of 10,000 for Bert only while additional accounts payable
in the amount of 5,000 for Ernie. It is also agreed that all liabilities will be assumed
by the partnership, except for the notes payable of Bert which will be personally
paid by him.
Bonnie and Clyde enters into a partnership agreement in which Bonnie is to have
55% interest in the partnership and 35% in the profits and losses, while Clyde will
have 45% interest in the partnership and 65% in the profits and losses. Bonnie
contributed the following:
The building and the equipment has a mortgage of 50,000 and 35,000 respectively.
Clyde is to contribute 150,000 cash and equipment. The partners agreed that only
the building mortgage will be assumed by the partnership.
1. How much is the fair market value of the equipment which Clyde contributed?
A. 615,818
B. 989,143
C. 546,273
D. 574,909
Answer: ( D )
?3. When property other than cash is invested in a partnership, at what amount
should the noncash property be credited to the contributing partner’s capital
account?
a. Fair value at the date of recognition.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.
?4. When property other than cash is invested in a partnership, at what amount
should the noncash property be credited to the contributing partner’s capital
account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.
5. Four individuals who were previously sole proprietors form a partnership. Each
partner contributes inventory and equipment for use by the partnership. What
basis should the partnership use to record the contributed assets?
a. Inventory at the lower of FIFO cost or market.
b. Inventory at the lower of weighted-average cost or market.
c. Equipment at each proprietor’s carrying amount.
d. Equipment at fair value.
1. A contract where two or more persons bind themselves to contribute money, property, or industry
to a common fund with the intention of dividing the profits among themselves.
a. Voluntary Association
b. Corporation
c. Partnership
d. Sole Proprietorship
Answer: (c)
2. A partnership formed for the exercise of a profession which is duly registered is an example of:
a. Universal partnership of profits
b. Universal partnership of all present property
c. Particular partnership
d. Partnership by estoppel
Answer: (c)
5. The minimum capital in money or property except when immovable property or real rights
thereto are contributed, that will require the contract of partnership to be in a public instrument
and be registered with the Securities and Exchange Commission (SEC).
a. P5, 000.00
b. P10, 000.00
c. P3, 000.00
d. P30, 000.00
Answer: (c)
6. Roberts and Smith drafted a partnership agreement that lists the following assets contributed at
the partnership’s formation:
Contributed by
Roberts Smith
Cash P 20,000 P 30,000
Inventory 15,000
Building 40,000
Furniture & Equipment 15,000
The building is subject to a mortgage of P 10,000, which the partnership has assumed. The
partnership agreement also specifies that profits and losses are to be distributed evenly. What
amounts should be recorded as capital for Roberts and Smith at the formation of the partnership?
Roberts Smith
a. 35,000 85,000
b. 35,000 75,000
c. 55,000 55,000
d. 60,000 60,000
Roberts: 20,000 + 15,000 = P35, 000 Smith: 30,000 + 15,000 + 40,000 – 10,000 = P75,000.
The partner’s capital credit is based upon the net assets contributed by the particular partner,
thus the liabilities assumed reduced the fair market value of the building invested.
7. The Grey and Redd Partnership was formed on January 2, 2010. Under the partnership
agreement, each partner has an equal initial capital balance. Partnership net income or loss is
allocated 60% to Grey and 40% to Redd. To form the partnership, Grey originally contributed
assets costing P30,000 with a fair value of P60,000 on January 2, 2010, and Redd contributed
P20,000 cash. Drawings by the partners during 2010 totaled P3, 000 by Grey an P9,000 by Redd.
The partnership net income in 2010 was P25,000
Under the goodwill method, what is Redd’s initial capital balance in the partnership?
a. 20,000
b. 25,000
c. 40,000
d. 60,000
8. Using the information in No. 2, under the bonus method, what is the amount of bonus?
a. 20,000 bonus to Grey
b. 20,000 bonus to Redd
c. 40,000 bonus to Grey
d. 40,000 bonus to Redd
The partnership agreement provides for equal initial capital. Thus under the bonus method, the
capital credit for Redd should be the same as the contribution for Grey, resulting to P20,000
bonus from Grey to Redd.
9. On May 1, 2010, the business assets of John and Paul appear below:
John Paul
Cash P 11,000 P 22,354
Accounts Receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture & Fixture 50,345 34,789
Other Assets 2,000 3,600
Total P 1, 020, 916 P 1, 317, 002
John and Paul agreed to form a partnership contributing their respective assets and equities
subject to the following adjustments:
a. Accounts receivable of P20, 000 in John’s books and P35, 000 in Paul’s are uncollectible.
b. Inventories of P5, 500 n P6, 700 are worthless in John’s and Pail’s respective books.
c. Other assets of P2, 000 and P3, 600 in John’s and Paul’s respective books are to be written
off.
The capital accounts of John and Paul, respectively, after the adjustments will be:
a. 614, 476 683, 052 c. 640, 876 712, 345
b. 615, 942 717, 894 d. 613,576 683, 350
Suggested Answer: (a) 614, 476 683, 052
John: 641, 976 – 20, 000 – 5, 500 – 2, 000 = P 614, 476
Smith: 728, 352 – 35, 000 – 6, 700 – 3, 600 = P 683, 052
10. Based on No. 4, how much assets does the partnership have?
a. 2, 317, 918
b. 2, 237, 918
c. 2, 265, 118
d. 2, 365, 218
Theories
1. ZEE acquired the assets (net of liabilities) of partner BEE in exchange for cash.
The acquisition price exceeds the fair value of the net assets acquired. How should
ZEE determines the amount to be reported for the plant and equipment, and for
long-term debt of the acquired debt of partner BEE?
A. Plant and equipment: Fair value ; Long-term debt: BEE's carrying amount
B. Plant and equipment: Fair value ; Long-term debt: Fair value
C. Plant and equipment: BEE's carrying amount; Long-term debt: Fair Value
D. Plant and equipment: BEE's carrying amount; Long-term debt: BEE's carrying
amount
1. A partnership is a(n):
I. accounting entity.
II. taxable entity.
a. I only
b. II only
c. Neither I nor II
d. Both I and II
a. I, II
b. I, III
c. II, III
d. I, II, and III
6. Anton and Bauzon formed a partnership and agreed to divide initial capital equally,
even though Anton contributed P100,000 and Bauzon contributed P84,000 in
identifiable assets. Under the bonus method, to adjust capital accounts, Bauzon's
intangible assets should be debited for:
a. 0
b. 16,000
c. 8,000
d. 46,000
7. Roy, Sam and Tim decided to engage in a real estate venture as a partnership. Roy
invested P140,000 cash and Sam provided an office and furnishings valued at
P220,000. (There is a 60,000 note payable remaining on the furnishings to be assumed
by the partnership). Although Tim has no tangible assets to invest, both Roy and Sam
believe that Tim's expert salesmanship provides an adequate investment. The partners
agree to receive an equal capital interest in the partnership. Using the bonus method,
what is the capital balance of Tim?
a. 0
b. 50,000
c. 100,000
d. 140,000
8. Lara and Mitra formed a partnership on July 1, 2011 and invested the following
assets: P130,00 cash by Lara, and P200,000 cash and P50000 computer equipment by
Mitra. The computer equipment has a note payable amounting to P10,000, which was
assumed by the partnership. The partnership agreement provides that Lara and Mitra
will have an equal capital credit. Using the goodwill method, the amount of goodwill to
be recorded upon formation of partnership is:
a. 100,000
b. 110,000
c. 120,000
d. 140,000
9. Ana and Elsa form a new partnership. Ana invests P300,000 in cash for her 60%
interest in the capital and profits of the business. Elsa contributes land that has an
original cost of P40,000 and a fair market value of P70,000, and a building that has a
tax basis of P50,000 and a fair market value of P90,000. The building is subject to a
P40,000 mortgage that the partnership will assume. What amount of cash should Elsa
contribute?
a. 40,000
b. 80,000
c. 110,000
d. 150,000
10. Jones and Smith formed a partnership with each partner contributing the following
items:
Assume that for tax purposes Jones and Smith agree to share equally in the
liabilities assumed by the Jones and Smith partnership.
What is each partner's tax basis in the Jones and Smith partnership?
a. Option A
b. Option B
c. Option C
d. Option D
ANSWERS & SOLUTIONS (Chapter 1)
1. a
2. c
3. c
4. d
5. d
6. a
Zero, because under the bonus method, a transfer of capital is only required.
7. c
Roy Sam Tim
Cash P140,000 – –
8. b
Lara Mitra
9. b
Total Capital (P300,000/60%)
P500,000
Elsa's interest
______40%
Elsa's capital P200,000
Less: Non-cash asset contributed at market value
Land P 70,000
Building 90,000
Mortgage Payable ( 40,000) _120,000
Cash contribution
P 80,000
10. a
Jones: (80000+300000) - 120000 + (180000/2) = 350000
Smith: (40000+200000) - 60000 + (180000/2) = 270000
1.1 THEORIES.
1. A partnership is a(n):
I. accounting entity.
II. taxable entity.
A. I only
B. II only
C. Neither I nor II
D. Both I and II
3. On June 30, 2015, a partnership was formed by Mendoza and Lopez. Mendoza
contributed cash. Lopez, previously sole proprietor, contributed noncash
assets including a realty subject to mortgage which was assumed by the
partnership. Lopez’s capital account at June 30, 2015 should be recorded at:
a. The fair value of the property on June 30, 2015 less the
mortgage payable
b. Lopez’s carrying amount of the property on June 30, 2015
c. Lopez’s carrying amount of the property on June 30, 2015 less the
mortgage payable
d. The fair value of the property on June 30, 2015
On March 1, 2014, cat and Fish formed a partnership with each contributing
the following assets:
Cat Fish
Cash P30,000 P70,000
Machinery P25,000 P75,000
Building - P225,000
Furnitures and Fixtures P10,000 -
3. On March 1, 2015, the capital account of Fish would show a balance of:
Jones Smith
Cash P 80,000 P 40,000
Building - cost to Jones 300,000
- fair value 400,000
Inventory - cost to Smith 200,000
- fair value 280,000
Mortgage Payable 120,000
Accounts Payable 60,000
Assume that for tax purposes Jones and Smith agree to share equally in the
liabilities assumed by the Jones and Smith partnership. What is the balance in
each partner’s capital account for financial accounting purposes?
LL MM
Cash P 11,000 P 22,354
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 P 1,020,916 P 1,317,002
PP QQ
Cash P 9,000 P 3,750
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 P 105,375 P51,500
8. Shamira offered to join for a 20% interest in the firm. How much cash should he
contribute?
a. 330,870
b. 337,487
c. 344,237
d. 324,382
Suggested answer (d)
New capital of the partnership [(614476+683052)/80%] P1621910
Multiply by 20%
Cash to be contributed by Shamira P324382
9. After Shamira’s admission, the profit and loss sharing ratio was agreed to be
40:40:20, based on capital credits. How much should the cash settlement be
between Jessyreen and Leilani.
a. 33,602
b. 32,930
c. 32,272
d. 34,288
10. During the first year of their operations, the partnership earned P325,000.
Profits were distributed in the agreed manner. Drawings were made in these
amounts: Jessyreen, p50,000; Leilani, 65,000; Shamira, P28,00.
How much are the capital balances after the first year?
a. Jessyreen, capital 750,627
Leilani, capital 735,177
Shamira, capital 372,223
b. Jessyreen, capital 728,764
Leilani, capital 713,764
Shamira, capital 361,382
c. Jessyreen, capital 757,915
Leilani, capital 742,315
Shamira, capital 375, 837
d. Jessyreen, capital 743,121
Leilani, capital 727,825
Shamira, capital 368,501
Suggested answer (b)
Jessyreen Leilani Shamira
Capital balances at P648764 P648764 P324382
40:40:20 ratio
Drawings (50000) (65000) (28000)
Share in profit (40:40:20) 130000 130000 65000
Capital balances P728764 P713764 P361382
On July 1, 2015, A and B decided to form a partnership. The firm is to take over the
business assets and assume liabilities, and the capitals are to be based on net assets
transferred after the ff. adjustments:
A B
Cash ₱ 31,000 ₱ 50,000
Accounts receivable 26,000 20,000
Inventory 32,000 24,000
Office supplies 5,000
Equipment 20,000 24,000
Accum. Depreciation- Equipment (9,000) (3,000)
Total Assets ₱ 100,000 120,000
a) A salaried partner.
b) A managing partner.
c) An equity partner.
a) 2
b) 20
d) 100
c) Two.
The law allows private limited companies to exist with one shareholder who
is the same person as the director.
c) A general partnerships
In the question the attributes of the organisation are the same for LLPs as
companies except members of a company (private and public) can transfer
their interests to others.
6. Roberts and Smith drafted a partnership agreement that lists the following
assets contributed at the partnership’s formation:
Contributed by
Roberts Smith
Cash $20,000 $30,000
Inventory -- 15,000
Building -- 40,000
Furniture & equipment 15,000 --
Answer: (c) The requirement is to determine which partner has the largest
capital account balance. Use the solutions approach to solve the problem.
Algee Belger Ceda
Partner contribution 50,000 80,000 55,000
Less: Liabilities assumed
by the partnership 0 (35,000) 0
Ending capital balance $50,000 $45,000 $55,000
Each partner values his contribution to the partnership at its fair market
value. The fair market value becomes the partner’s balance in his capital
account and is basis to the partnership under
generally accepted accounting principles. Any liabilities assumed by the
partnership, reduces the partners’ capital balance by the amount assumed.
8. Abel and Carr formed a partnership and agreed to divide initial capital
equally, even though Abel contributed $100,000 and Carr contributed
$84,000 in identifiable assets. Under the bonus approach to adjust the
capital accounts, Carr’s unidentifiable asset should be debited for
a. $46,000
b. $16,000
c. $ 8,000
d. $0
Answer: (d) Under the bonus method, unidentifiable assets (i.e., goodwill) are
not recognized. The total resulting capital is the FV of the tangible
investments of the partners. Thus, there would be no unidentifiable assets
recognized by the creation of this new partnership.
9. Ellis and Nossiter are partners sharing profits in a 30:70 ratio. The
following data summarizes 2004 activity:
10. Ellis and Nossiter are partners sharing profits in a 30:70 ratio. The
following data summarizes 2004 activity:
1.On July 1,1997, Monuz and Pardo form a partnership, agreeing to share profits and
losses in the ratio of 4:6,respectively. Monuz contributed a parcel of land that cost
him P25,000. Pardo contributed P50,000 cash. The land was sold for P50,000 on July
1,1997 four hours after formation of the partnership. How much should be recorded
in Munoz capital account on formation of the partnership?
a) P10,000
b) P20,000
c) P25,000
d) P50,000
2.Moonbits partnership had a net income of P8,000.00 for the month ended
September 30,1997.
a) P 12,000.00
b) P 20,000.00
c) P 16,000.00
d) P 26,667.00
3.On March 1,1997, Santos and Pablo formed a partnership with each contributing
the following assets:
Sa Pabl
ntos o
Cash P 30,000 P 70,000
Machinery and Equipment 25,000 75,000
Building -0- 225,000
Furniture & Fixtures 10,000 -0-
a) P 290,000.00
b) P 305,000.00
c) P 314,000.00
d) P 370,000.00
John Paul
Cash P 11,000 P 22,354
Accounts Receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture & Fixtures 50,435 34,789
Other Assets 2,000 3,600
Total P 1,020,916 P 1,317,002
John and Paul agreed to form a partnership contributing their respective assets and
equities subject to the following adjustments:
The capital account of the partners after the adjustment will be:
a) John’s P 614,476
Paul’s P 683,052
b) John’s P 615,942
Paul’s P 717,894
c) John’s P 649,876
Paul’s P 712,345
d) John’s P 613,576
Paul’s P 683,350
5. The following is the condensed balance sheet of the partnership Jo, Li and Bi who
share profits and losses in the ratio of 4:3:3.
P Accounts P
Cash 180,000 Payable 420,000
Other Assets 1,660,000 Bi, Loan 60,000
Jo, receivable 40,000 Jo, Capital 620,000
Li, Capital 400,000
Bi, Capital 380,000
P1,880,0
Total P1,880,000 Total 00
Assume that the assets and liabilities are fairly valued on the balance sheet and the
partnership decides to admit Mac as a new partner, with a 20% interest. No goodwill
or bonus is to be recorded. How much Mac contributes to cash or other assets?
a) P 350,000
b) P 280,000
c) P 355,000
d) P 284,000
2. A. Under the admission by purchase only the transfer of the capital purchase by
the selling partner (Liz) to the buying partner (Sunshine) is recorded. Therefore 50%
of the capital of Liz (P24,000) or P 12,000 is to be debited to her capital account.
3. A. P 290,000.00
Note that the profit and loss sharing ratio is irrelevant to the solution of this
problem.
4. A. John’s P 614,476
Paul’s P 683,052
John Paul
Capital balance before adjustments P641,976 P 728,352
Adjustments:
Uncollectible accounts (20,000) (35,000)
Inventories Written Off (5,500) 6,700
Other Assets written off (2,000) (3,600)
Capital balances after adjustments P 614,476 P 683,052
5. A. P 350,000
8. Jamby and Minam just formed a partnership. Jamby contributed cash of P2,205,000 and
office equipment that cost P945,000. The equipment had been used in her sole
proprietorship and had been 70% depreciated, the appraised value of the equipment is
P630,000. Jamby also contributed a note payable of P210,000 to be assumed by the
partnership. Jamby is to have 60% interest in the partnership. Miriam contributed only
P1,575,000 merchandise inventory at fair market value. Assume the use of bonus method,
the partners’ capital must be in conformity with their profit and loss ratio upon formation.
In the formation of a partnership, which of the following is true?
A. The agreed capital of Jamby upon formation is P2,625,000
B. The total agreed capital of the partnership is P4,375,000
C. The capital of Miriam will increase by P105,000 as a result of the transfer of capital
D. There is either an investment or withdrawal of asset under the bonus method
9. Alley and Barvey established a partnership on December 1, 20x4. They agreed that Alley
will contribute cash of P20,000; Land of P15,000 and Building of P50,000. Alley’s
accounts payable of P10,000 is to be assumed by the partnership. Barvey will contribute
cash of P30,000 and furniture and fixtures of P25,000.
Assume that each partner initially should have an equal interest in partnership capital
with no contribution of intangible asset (bonus method). How much are the capital
balances of each partner?
a. P85,000 for Alley and P55,000 for Barvey
b. P65,000 for Alley and P65,000 for Barvey.
c. P75,000 for Alley and P55,000 for Barvey
d. P75,000 for Alley and P75,000 for Barvey.
10. The partnership agreement is an express contract among the partners (the owners of the
business). Such an agreement generally does not include
a. A limitation on a partner’s liability to creditors.
b. The rights and duties of the partners.
c. The allocation of income between the partners.
d. The rights and duties of the partners in the event of partnership dissolution.
PROBLEMS
6. Albert, Claude, and Jamie form a partnership by contributing P25,000,
P70,000, and P80,000, respectively. In addition, the partners agree that
Albert should receive P20,000 of goodwill because of his special skills
relevant to this business. What amount of capital will exist for Claude
when the partnership is formed?
a. P60,000
b. P65,000
c. P70,000
d. Some other amount
7. Bill and Ken enter into a partnership agreement in which Bill is to have
a 60% interest in capital and profits and Ken is to have a 40% interest
in capital and profits. Bill contributes the following:
Jones Smith
Cash P80,000 P40,000
Building-Cost to 300,000
Jones
-Fair Value 400,000
Inventory- Cost 200,000
Smith
-Fair Value 280,000
Mortgage 120,000
Payable
Account Payable 60,000
Assume that for tax purposes Jones and Smith agree to share equally
in the liabilities assumed by the Jones and Smith partnership. What is
the balance in each partner’s capital account for financial accounting
purposes?
a. Jones- P350,000 and Smith- P270,000
b. Jones- P260,000 and Smith- P180,000
c. Jones- P360,000 and Smith- P260,000
d. Jones- P500,000 and Smith- P300,000
10. On July 1, ML and PP formed a partnership, agreeing to share
profits and losses in the ratio of 4:6, respectively. ML contributed a
parcel of land that cost her P25,000. PP contributed P50,000 cash. The
land was sold for P50,000 on July 1, four hours after formation of the
partnership. How much should be recorded in ML’s capital account on
the partnership formation?
a. P10,000
b. P20,000
c. P25,000
Chapter 1
1. B.
2. A.
3. D.
4. A.
5. C.
6. C.
7. A.
8. B.
9. C.
10. D.
d. P50,000
1.1 A partnership is formed by two individuals who were previously sole proprietors.
Property other than cash which is part of the initial investment in the partnership would
be recorded for financial accounting purposes at the:
a. Proprietors’ book values or the fair value of the property at the date of the investment,
whichever is higher
b. Proprietors’ book values or the fair value of the property at the date of the investment,
whichever is lower.
1.2. When property other than cash is invested in a partnership, at what amount should
the non-cash property be credited to the contributing partner’s capital account?
1.4. When property other than cash i invested in a partnership, at what amount should
the noncash property be credited to the contributing partner’s capital account?
PROBLEMS
The peso amount of gain (loss) that will result if the initial noncash contributions of the
partners are recorded at cost rather than fair market value will be
1.7. On April 30, 2003, Bautista, Jimenez and Laxamana formed a partnership by
combining their separate business proprietorships. Bautista contributed cash of
P100,000. Jimenez contributed property with a carrying amount of P72,000, original
cost of P80,000, and fair value of P160,000. The partnership accepted responsibility
for the P70,000 mortgage attached to the property. Laxamana contributed equipment
with a carrying amount of P60,000, original cost of P150,000, and fair value of 110,000.
The partnership agreement specifies that profits and losses are to be shared equally but
is silent regarding capital contributions.
Which partner has the largest capital account balance as of April 30, 2003?
a. Bautista c. Laxamana
b. Jimenez d. All capital account balances are equal
1.8. G. Macalino and W. Nolasco form a partnership and agree to divide initial capital
equally, even though Macalino contributed P100,000 and Nolasco gave P84,000 in
identifiable assets.
Under the bonus approach to adjust capital accounts, Nolasco’s unidentifiable assets
should be debited for
a . P8,000 c. P-0-
b . P16,000 d . P46,000
1.9. L. Molina and R. Nepomuceno enter into a partnership agreement in which Molina
is to have a 60% interest in capital and profits and Nepomuceno is to have a 40%
interest in capital and profits. Molina contributes the following:
There is a P60,000 mortgage on the building that the partnership agrees to assume.
Nepomuceno contributes P100,000 cash to the partnership. Molina and Nepomuceno
agree that Nepomuceno’s capital account should equal Nepomuceno’s P100,000 cash
contribution and that goodwill should be recorded.
a. P20,000 c. P33,333
b. P30,000 d. P40,000
1.10. On March 1, 2003, Z Roxas and B. Poe decided to combine their business and
form a partnership. The balance sheet of Roxas and Poe on March 1, before adjustment
is presented below.
Roxas Poe
P105,375 P51,500
P105,375 P 51,500
They agreed to provide 3% for doubtful accounts on their accounts receivable and
found Poe’s furniture to be under depreciated by P900.
If each partner’s share in equity is to be equal to the net assets invested, the capital
accounts of Roxas and Poe would be:
The land and building are subject to a mortgage loan of P54,000 that the
partnership will assume. The partnership agreement provides that DD and EE
share profits and losses, 40% and 60%, respectively and partners agreed to
bring their capital balances in proportion to the profit and loss ratio and using
the capital balance of EE as the basis. The additional cash investment made
by DD should be:
a. 18,000
b. 85,500
c. 134,100
d. 166, 250
DD, Capital= 9+13.5+13.5=36
EE, Capital= 18+90+27-54=81
81/.60=135
135*.40=56-36=18 A
7. JJ and KK are joining their separate business to form a partnership. Cash and
noncash asset are to be contributed for a total capital of 300,000. The
noncash assets to be contributed and liabilities to be assumed are:
The partner’s capital are to be equal after all contributions of assets and
assumptions of liabilities. The total assets of the partnership.
a. 318,750
b. 300,000
c. 281,250
d. 225,000
Equity=Assets-Liabilities
300,000=X-(11,250+7,500)
Assets=X=318,750 A
8. Refer to number 8, the amount of cash that each partner must contribute.
a. JJ=75,000; KK=18750
b. JJ=75,000; KK=11,250
c. JJ=161,250; KK= 157,500
d. JJ= 127,500; KK= 11,250
For JJ; 150,000=Cash to be contrubuted+22,500+33,750+30,000+(-11250)
Cash to be contributed=75,000
For KK; 150,000=Cash to be contributed+67,500+71,250+(-7500)
Cash to be contributed=18,750 A
9. Jones and Smith formed a partnership with each partner contributing the
following items:
Assume that for tax purposes Jones and Smith agree to share equally in the
liabilities assumed by the Jones and Smith partnership. Refer to the above
information. What is the balance in each partner’s capital account for
financial accounting purposes?
C
10.MM, NN, and OO are partners with capital balances on December 31, 2012 of
P300,000, P300,000 and P200,000, respectively. Profits are shared equally.
OO wishes to withdraw and it is agreed that OO is taken certain equipment
with second-hand value of P50,000 and a note for the balance of OO’s
interest. The equipment are carried on the books at P65,000. Brand new
equipment may cost P80,000. Compute for: (1) OO’s acquisition of the
second-hand equipment will result to reduction in capital; (2) the value of the
note that will OO get from the partnership’s liquidation,
a. (1) 15,000 each for MM and NN (2) 150,000
b. (1) 5,000 each for MM, NN, and OO (2) 145,000
c. (1) 5,000 each for MM, NN, and OO (2) 195,000
d. (1) 7,500 each for MM and NN (2) 145,000
1. Cat and Dog formed a partnership, each contributing assets to the business. Cat
contributed inventory with a current market value in excess of its carrying
amount. Dog contributed real estate with a carrying amount in excess of its
current market value. At what amount should the partnership record each of the
following assets?
5. Which of the following statements are true when comparing corporations and
partnerships?
a. Partnership entities provide for taxes at the same rates used by corporations
b. In theory, partnerships are more able to attract capital
c. Like corporations, partnerships have an infinite life
d. Unlike shareholders, general partners may have liability beyond their capital
balances
Problems
1. On May 1, 2015, Cat and Meow formed a partnership and agreed to share
profits and losses in the ratio of 3:7, respectively. Cat contributed a parcel of
land that cost her P10,000. Meow contributed P40,000 cash. The land has a
fair value of P15,000. Cat insisted that the value of the land should be
P18,000. The partners agreed to value the land at P18,000. What amount
should be recorded in Cat’s capital account on formation of the new
partnership?
a. P18,000 b. P17,400 c. P15,000 d. P10,000
2. On July 1, Manny and Floyd formed a partnership, agreeing to the profit and
loss in the ratio of 4:6, respectively. Manny contributed a parcel of land that
cost him P25,000. Floyd contributed P50,000 cash. The land was sold for
P50,000 on July 1, for hours after formation of the partnership. How much
should be recorded in Manny’s capital account on the partnership formation?
a. P10,000 b. P20,000 c. P25,000 d. P50,000
3. Bill and Ken enter into a partnership agreement in which Bill is to have a 60%
interest in capital and profits and Ken is to have a 40% interest in capital and
profits. Bill contributes the ff:
Cost Fair Value
Solution:
Cash contribution of Ken P50,000
Divided by Ken capital interest ÷ 40%
Total agreed capital P125,000
Less: Bill’s Contribution 65,000
Ken’s agreed capital P 60,000
Less: Ken’s contribution 50,000
Goodwill P 10,000
For 4 and 5
Cat admits Dog as partner in business. Accounts in the ledger for Cat on November
30, 2015, just before the admission of Dog, show the following balances:
Cash P6,800
Accounts Receivable P14,200
Merchandise Inventory P20,000
Accounts Payable P8,000
Cat, capital P33,000
Solution:
Cat, capital P33,000 Cat’s capital contribution P35,347
Less: Allowance for Divided by Cat’s capital interest ÷ 2/3
doubtful accounts 426 Total agreed capital
P53,061
Accrued rent Multiply by Dog’s capital interest x
1/3
expense 800 Dog’s cash contribution
P17,687
Total P 31,774
Add: Inventory 3,000
Prepaid rent 600
Cat’s adjusted capital P 35,374