Topic 1: Partnership Formation (ParCor)

Problem 1-1

On December 1, 20x5, EE and FF formed a partnership, agreeing to share for

profits and losses in the ratio of 2::3, respectively. EE invested a parcel
of land that cost him 25,000. FF invested 30,000 cash. The land was sold for
50,000 on the same date, three hours after formation of the partnership.
How much should be the capital balance of EE right after formation??
a. 25,000
b. 30,000
c. 60,000
d. 50,000

Problem 1-2

On March 1, 20x5, II and JJ formed a partnership with each contributing the

following assets:
II JJ
Cash 300,000 700,000
Machinery and equipment 250,000 750,000
Building - 2,250,000
Furniture and fixtures 100,000 -
The building is subject to mortgage loan of 800,000, which is to be assumed by
the partnership agreement provides that II and JJ share profits and losses 30%
and 70% respectively.
1. On March 1, 20x5 the balance inn JJ’s capital account should be:
a. 3,700,000
b. 3,140,000
c. 3,050,000
d. 2,900,000
2. The same information in Problem 1-2, except that the mortgage loan is not
assumed by the partnership, on March 1,20x5 the balance in JJ’s capital
account should be:
a. 3,700,000
b. 3,140,000
c. 3,050,000
d. 2,900,000

Problem 1-3

As of July 1, 20x5, FF and GG decided to form a partnership. Their balance

sheets on this date are:
FF GG
Cash 15,000 37,500
Accounts Receivable 540,000 225,000
Merchandise Inventory - 202,500
Machinery and Equipment 150,000 270,000
Total 705,000 735,000

Accounts Payable 135,000 240,000

FF, Capital 570,000 -
GG, Capital - 495,000
Total 705,000 735,000
The partners agreed that the machinery and equipment of FF is under
depreciated by 15,000 and that GG by 45,000. Allowance for doubtful accounts
is to be set up amounting to 120,000 for FF and 45,000 for GG. The partnership
agreement provides for a profit and loss ratio and capital interest of 60%% to
FF and 40% to GG. How much cash must FF invest to bring the partner’s capital
balances proportionate to their profit and loss ratio?
a. 52,560
b. 102,500
c. 142,560
d. 172,500

Problem 1- 4

On August 1, AA and BB pooled their assets to form a partnership, with the

firm to take over their business assets and assume the liabilities. Partners’
capitals are to be based on net assets transferred after the following
adjustment. (Profit and loss is allocated equally.)

BB’’s inventory is to be increased by 4,000; an allowance for doubtful

accounts of 1,000 and 1,500 are to be set up in the books of AA and BB,
respectively; and accounts payable of 4,000 is to be recognized inn AA’s
books. The individual trial balance on August 1, before adjustments, follows:
AA BB
Assets 75,000 113,000
Liabilities 5,000 34,500
What is the capital of AA and BB after the above adjustments?
a. AA, 68,750; BB, 77,250
b. AA, 75,000; BB, 81,000
c. AA, 65,000; BB, 76,000
d. AA, 65,000; BB, 81,000

Problem 1-5

CC admits DD as a partner in business. Accounts in ledger for CC on November

30, 20x5, just before the admission of DD, show the following balances:
Cash 6,800
Accounts Receivable 14,200
Merchandise Inventory 20,000
Accounts Payable 8,000
CC, Capital 33,000
It is agreed that for purposes of establishing CC’s interest, the following
adjustments shall be made:
a. An allowance for doubtful accounts of 3% off accounts receivable is to be
established
b. The Merchandise Inventory is too be valued at 23,000
c. Prepaid salary expenses of 600 and accrued rent expense of 800 are to be
recognized.

DD is to invest sufficient cash to obtain a 1/3 interest in the partnership.

Compute for: (1) CC’s adjusted capital before the admission of DD; and (2)
the amount of cash investment by DD:
a. (1) 35,347; (2) 11,971
b. (1) 36,374; (2) 18,487
c. (1) 35,374; (2) 17,687
d. (1) 28,174; (2) 14,087

Problem 1-6

MM, NN, and OO are partners with capital balances on December 31, 20x5 of
300,000, 300,000 and 200,000, respectively. Profits are shared equally. OO
wishes to withdraw and it is agreed that OO is to take certain equipment with
second-hand value of 50,000 and a note for the balance of OO’s interest. The
equipment is carried on the books at 65,000. Brand new equipment may cost
80,000. 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

Problem 1-7

Jones and Smith formed a partnership with each partner contributing the
following items:
Jones Smith
Cash 80,000 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?
Jones Smith
A. 350,000 270,000
B. 260,000 180,000
C. 360,000 260,000
D. 500,000 300,000
a. Option A
b. Option B
c. Option C
d. Option D

Problems 1-8

The business assets of LL and MM appear below::

LL MM
Cash 11,000 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 1,020,916 1,317,002

Accounts Payable 178,940 243,650

Notes Payable 200,000 345,000
LL, Capital 641,976 -
MM, Capital - 728,352
Total 1,020,916 1,317,002
LL and MM agreed to form a partnership by contributing their respective assets
and equities subject to the following adjustments:
a. Accounts receivable of 20,000 inn LL’s books and 35,000 in MM’s are
uncollectible.
b. Inventories of 5,500 and 6,700 are worthless in LL’s and MM’s respective
books.
c. Other assets of 2,000 and 3,600 in LL’s and MM’s respective books are to
be written off.

1. The capital of the partners after the adjustments will be:

a. LL, 615,942; MM, 717,894
b. LL, 640,876; MM, 712,345
c. LL, 640,876; MM, 683,050
d. LL, 614,476; MM, 683,052
2. The same information in Problem 1-8, how much total assets does the
partnership have after formation?
a. 2,337,918
b. 2,237,918
c. 2,265,118
d. 2,365,218

Problem 1-9
On March 1, 20x5, 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 9,000 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 105,375 51,500

Accounts Payable 45,750 18,000

Capital 59,625 33,500
Total 105,375 51,500
They agreed to have the following items recorded inn their books:
1. Provide 2% allowance for doubtful accounts.
2. PP’s furniture and fixtures should be 31,000, while QQ’s office equipment
is under-depreciated by 250.
3. Rent expense incurred previously by PP was not yet recorded amounting to
1,000, while salary expense incurred by QQ was not also recorded amounting to
800
4. The fair value of inventory amounted to:
For PP 29,500
For QQ 21,000
1. Compute the net (debit) credit adjustment for PP and QQ:
a. PP, 2,870; QQ, 2,820
b. PP, (2,870); QQ, (2,820)
c. PP, (870); QQ, 180
d. PP, 870; QQ. (180)
2. The same information in Problem 1-9, compute the total liabilities after
formation:
a. 61,950 c. 65,550
b. 63,750 d. 63,950
3. The same information in Problem 1-9, compute the total assets after
formation:
a. 157,985 c. 160,765
b. 156,875 d. 152,985
Problem 1-10
On January 1, 20xx4, Jackson and Kendall formed a partnership. Jackson, who
has many years of experience in this line of business, contributed 100,000 in
cash. Kendall contributed assets having the following books values and fair
market values:
Book Value Market Value
Merchandise 15,000 25,000
Building 40,000 150,000
Equipment 60,000 85,000
The Partnership assumed a mortgage of 40,000 on the building. Capital accounts
are set equal to net assets invested.
1. The increase in Capital of Kendall:
a. none
b. by 100,000
c. by 160,000
d. by 220,000
2. The partners have an equal interest in the initial total partnership
capital, and the bonus method is used, the increase in capital of Jackson:
a. none
b. by 100,000
c. by 160,000
d. by 220,000
3. The partners have an equal interest in the initial total partnership
capital, and the goodwill method is used, the increase in capital of Jackson:
a. none
b. by 100,000
c. by 160,000
d. by 220,000

Isa pang problem please hehe

On April 30, 20x5, XX, YY and ZZ formed a partnership by combining their
separate business proprietorships. XX contributed cash of 75,000. YY
contributed property with a 54,000 carrying amount, a 60,000 original cost,
and 120,000 fair value. The partnership accepted responsibility for the 52,500
mortgage attached to the property. ZZ contributed equipment with a 45,000
carrying amount, a 112,500 original cost, and 82,500 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, 2015, capital balance?
a. XX c. ZZ
b. YY d. All capital account balances are equal