(i). Emil and Pearl form a new partnership. Emil invests P300,000 in cash for her 60 percent interest in the capital and profits of the business. Pearl contributes land that has an original cost of P40,000 and a fair market value of P70,000, anda building that has a tax basis of P50,000 and a fair value of P90,000. The building is subject to. a P40,000 mortgage that the partnership will assume. What amount of cash should Pearl contribute? P40,000 P80,000 ~ P110,000 d. P15,0000 cs 2 p (2). The Green and Red partnership was fermed on January 2, 2011. Under the partnership agreement, each partner has an equal initial capital balance accounted for under the goodwill methed. Partnership net income or loss is allocated 60% to Green and 40% to Red. To form the partnership, Green originally contributed assets costing P30,000 with a fair value of P60,000 on January 2, 2011, and Red contributed P20,000 in cash. Drawings by the partners during 2011 totaled P3,000 by Green and P9,000 by Red. The partnership’s 2011 net income was P25,000, Red's initial capital balance in the partnership is: a. P20,000. b. P25,000, . P40,000. . P60,C00. ao(3). Pirante and Wilson drafted a partnership agreement that lists the following assets contributed at the partnership’s formation: Contributed by Pirante Wilson Cash P40,000 P60,000 Inventory - 30,000 Building = 80,000 Furniture and equipment 30,000 - The building Is subject to a mortgage of P20,000, which the partnership assumed. The partnership agreement also specifies that profits and losses are tobe distributed evenly. What amounts should be recorded as capital for Pirante and Wilson at the formation of the partnership? a. P70,000 and P170,000, respectively. b. P70,000 and P150,000, respectively. a c. P110,000 for each partner. d. P120,000 for each partner. [4]. AA and Belen formed a partnership and they agreed to share initial capital equally, although AA contributed P150,000 and Belen contributed P126,000 in identifiable assets. Under the bonus approach to adjust the capital accounts, Belen received (gave) a bonus equal to: a. P24,000 b. P12,000 — c. (P24,000) d. (P12,000)(5). AA, BB, and CC are to form a partnership. AA is to contribute cash of P100,000; BB, P10,000; and, CC, P100,000. AA and CC are not to actively Participate in the business but will refer customers, while BB will manage the fir has to give up his present job which gives her an annual income of P120,000. 1 partners decided that profits and losses shall be shared equally. Upon formatio partners’ capital balances would be: a. P 70,000,P 70,000, and P 70,000, respectively. b. P100,000, P10,000, and P100,000, respectively. ~ c. P100,000, P130,000, and P100,000, respectively. d, 110,000, P110,000, and P110,000, respectively. (6]. Brenda and Cathy formed a partnership and agreed to divide initial ca equally, even though Brenda contributed P200,000 and Cathy contributed P16. in identifiable assets. Under the bonus approach to record the contributions of partners, Cathy’s capital account should be credited for a. P200,000. c. P184,000 ~~ b. P168,000. d. P100,000 (7). ‘On May, 31, 2011, Allen, Belen, and Cenen formed a partnership by combining their businesses. Allen give cash of P50,000. Belen gave a property carrying amount of P30,000, an original cost of P40,000, and a fair market val P80,000. Belen’s property, however, has a P35,000 mortgage for which the ne partnership accepted legal responsibility, Cenen gave a delivery equipment wit book value of P30,000, an acquisition cost of P75,000, and an appraised value P55,000. It was agreed that profits and losses are to be shared equally. The pa with the biggest capital account balance as of May 31, 2011, is a. Allen b. Belen c. Cenen / d. Allen have equal capital balance.[8]. Abel and Carr formed a partnership and agreed to divide initial capital outlay equally, even though Abel contributed P100,000 and Carr contributed P84,000 in identifiable assets. Under the bonus approach to adjust the capital accounts, Carr’s unidentifiable asset should be debited for a. P46,000 b. P8,0000 ~ c. P16,000 d. P-O- [9]. On October 1, 2011, Carla and Clara joined in a partnership. Carla contributed cash while Clara contributed merchandise worth P25,000 and a second- hand delivery truck currently valued at P50,000 but encumbered by a one-year chattel mortgage note for P15,000. If initial capital balances are to conform to the profit-sharing ratio of 2:3, respectively, the amount of cash contributed by Carla was: a. P24,000 b. P30,000 - P40,000 — d. P50,000 aANSWERS: (1). Letter Bis the correct answer. ‘Tho probiom Impiies that the contribution of Emilis already adequate to enttie him to a 60% sharo in tha total agreed capital of tha partnership. Hence, the total agreed capitalization ‘shal bo basod on his contrbution of P'300,000 or P500,000 (P300,000 + 60%). The agrood ‘eapttal of Peart is 40% cf P0O,000 oF P200,000 and her cash contribution shall be equal to the difference between this amount (P200,000) and the net fair value cf the noncash assets sho Invested. The net fair value of the other assots contributed by Peart Is equal to P120,000, {P70,000 + P90,000 ~ P40,000). Therefore, her cash contribution shoud be equal to 80,000 (P200,000 - 120,000). [2]. Letter "D*is the correct answer. Under the goodwil method, the total agreed capital should be more than the total ‘contributed capital. Total agreed capital wil be more than the total contributed capital only if the contribution of Green Is used as the basis of the total agreed capltalization. Since the fair value of the contribution of Green amounts to P60,000, then the total agreed capital must be P120,000 (P60,000 , 50%). The inital capttal of Red therefore mounted to 60,000 or 50% of P120,000 as agreed by the partners. [3]. Letter "B*Is the correct answer. ‘The amount to be recorded as czpltal of the pertners should be based on the fair value of the net asset (otal assets - total iiities) contributed by each of them. Hence, the capital balances for Piranto and Wilson should be F70,000 and P'150,000, respectively. Thoso amounts are computed as follows: Pirante ison. Assets contributed: Cash 40,000 P 60,000 Inventory - 30,000 Building - 80,000 Fumtturo.and Equipment 30,000 - Total P70,000 170,000 Loss mortgage assumed - 20,000 Net assets contributed P70,000 150,000 [4]. Letter "B*Is the correct answer. Under the bonus method, a portion of the captal of one partner is transferred to another partnor. In this caso, tho total agrood capital is assummod to bo equal to tho total contibutod ‘capital, P278,000 (P1EO,000 + P126,000), and each partner shall bo credited onc-hat {according to agreement) or P138,000. The partner who contributed more than his agreed ‘capital credit is the one who gave a bonus while the one who contributed capital less than his agreed capital credit is the one who received it. Bolen contributed P126,000 but rocoived P138,000 (0% x P276,000) capital crodit, hance, he recoived bonus equal to 12,000 (P138,000-P'125,000) trom AA who contributed P160,000 but received only 138,000 captal credit,[5]. Letter "B"is the correct answer. ‘The partners’ capital balances upon formation would be P100,000, P10,000, and 100,000, respectively. [6]. Letter C*is the correct answer. Kathy's capttal account should be credited for the 50% of the total agreed capital which Is assumed to be equal to the actual capital contributed by the partners or 184,000 [50% x (P200,000 + P188,000)] TI. Letter "is the correct answer. The partner with the biggest capital account batance as of May’31, 2011 is Cip, computed as folows: Allen = Belen Cenen Cash P50,000 P- P- Non cash asset - 80,000 55,000 Mortgage - 5000) - Copital accountbalances «50,000 P45,000—P5,000 40 Each partner values his contribution at is fair value, reduced by the amount of any liability assumed by the partnership. [8]. _Letter “D"is the correct answer. Under the bonus method, goodwill is not recognized; thus, there would be no unidentifiable asset to be recorded. [9]. Lotter “C*is the correct answer. ‘The amount of cash contributed by Carla, if inital balances are to conform to the rofit-sharing ratio of 2:3, respectively was P40,000, computed as follows: Capital contributed by Clara: Merchandise at fair value P 25,000 Delivery truck at fair value 50,000 Mortgage note payable assumed (15,000) Cara's contribution P 60,000 Divided by proftt share of Clara a5