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On January 1, 2015, Ernie and Bert both sole proprietors decided to form a partnership to expand b
of their businesses. According to their agreement, they will split profits and losses 75:25 and their in
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
Inventorie s 85,000 Notes Payable 100,000
Equipment 300,000 Bert, Capital 160,000
Accumulated Depreciation-
Depreciation - Equipment (100,000)
TOTAL ASSETS 425,000 TOTAL LIABILITIES&EQUITY
LIABILITIES&EQUI TY 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 o f Financial Pos
Both inventories of Ernie and Bert are now 90,000 and 70,000 respectively. Equipment for Bert has
assessed value of 275,000, appraised value of 250,000 and book value of 200,000. Additional accrue
expenses are to be established in the amount of 10,000 for Bert only while additional accounts pay
in the amount of 5,000 for Ernie. It is also agreed that all liabilities will be assumed by the partnersh
except for the notes payable of Bert which will be personally paid by him.
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3. How much should Ernie invest as additional cash to be in conformity with their initial capita
agreement?
A. 193,750
B. 212,000
C. 175,500
D. 205,000
Answer: ( A )
Bonnie and Clyde enters into a partnership agreement in which Bonnie is to have 55% interest in th
partnership and 35% in the profits and losses, while Clyde will have 45% interest in the partnership
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 b
assumed by the partnership.
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 )
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1 The partnership agreement is an express contract among the partners (the owners of the busine
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
partnership dissolution.
?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 noncas
property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.
5. Four individuals
individual s who were previously sole proprietors form a partnership. Each partner contribu
inventory and equipment for use by the partnership. What basis should the partnership use to reco
the contributed assets?
a. Inventory at the lower of FIFO cost or market.
b. Inventory at the lower of weighted-average
weighted-ave rage 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 ind
to a common fund with the intention of dividing the profits among themselves.
a. Voluntary Association
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5. The minimum capital in money or property except exce pt when immovable property or real rights
thereto are contributed, that will require the contract of partnership to be in a public instrume
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
assets contributed
the partnership’s formation:
Contributed by
Roberts Smith
Cash P 20,000 P 30,000
Inventory 15,000
Building 40,000
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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 = P75,0
The partner’s capital credit is based upon the net assets contributed by the particular partne
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 contribute
assets costing P30,000 with a fair value of P60,000 on January 2, 2010, and Redd contribute
P20,000 cash. Drawings by the partners during 2010 totaled P3, 000 by Grey an P9,000 by
The partnership net income in 2010 was P25,000
Under the goodwill method, what is Redd’s initial capit al 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
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The partnership agreement provides for equal initial capital. Thus under the bonus method,
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, 50 0 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 writt
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
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expertise and is to invest cash for a 15% interest in the partnership considering the transfer of c
from him of P18,000 upon his admission.
Upon admission of SG, which of the following statements is false?
2. On June 1, 2013, AZ invited MG to join him in his business. MG agreed provided that AZ will adju
accumulated depreciation of his equipment account to a certain amount, and will recognize addi
accrued expenses of P40,000. After that, MG is to invest additional pieces of equipment mak
interest equal to 45%. If the capital balances of AZ before and after adjustment were 556,00 and 48
respectively, what is the effect in the carrying value of the equipment as a result of the admissi
MG?
A. 364,000
B. (32,000)
C. 396,000
D. (324,000)
3. TM and SJ, having capital balances of P980,000 and P525,000 respectively, decided to adm
into the partnership. If TM and SJ share profit in proportion of 3;1 respectively, and SJ's capital ba
after GD's investment is P589,750, how much was invested by GD?
A. P848,750
B. P1,174,250
C. P588,000
D. P847,000
4. RD formed a partnership on February 10, 2009. R contributed cash of P150,000, while D contri
inventory with a fair value of P120,000. Due to R's expertise in selling, D agreed that R should hav
of the total capital of the partnership. R and D agreed to recognize goodwill. what is the total cap
the RD partnership after the goodwill is recognized?
A.P450,000
B.P330,000
C.P300,000
D.P270,000
5. In AD partnership, Allen's capital is P140,000 and Daniel's capital is P40,000 and they share
income ratio of 3:1 respectively. They decided to admit David in the partnership. What amount will
invest to give him 1/5 interest in the partnership if no bonus/goodwill is recorded?
A.P60,000
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Theories
1. ZEE acquired the assets (net of liabilities) of partner BEE in exchange for cash. The acquisition
exceeds the fair value of the net assets acquired. How should ZEE determines the amount to be rep
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
Answers
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1. B
2. B
3. B
4. C
5. D
a. I only
b. II only
c. Neither I nor II
d. Both I and II
3. A partner's tax basis in a partnership is comprised of which of the following items?
I. The partner's tax basis of assets contributed to the partnership.
II. The amount of the partner's liabilities assumed by the other partners
III. The partner's share of other partners' liabilities assumed by the
partnership.
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c. Option C
d. Option D
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 equ
even though Anton contributed P100,000 and Bauzon contributed P84,000
identifiable assets. Under the bonus method, to adjust capital accounts, Bauz
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.
invested P140,000 cash and Sam provided an office and furnishings valued
P220,000. (There is a 60,000 note payable remaining on the furnishings to be assum
by the partnership). Although Tim has no tangible assets to invest, both Roy and S
believe that Tim's expert salesmanship provides an adequate investment. The partn
agree to receive an equal capital interest in the partnership. Using the bonus met
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 follow
assets: P130,00 cash by Lara, and P200,000 cash and P50000 computer equipmen
Mitra. The computer equipment has a note payable amounting to P10,000, which
assumed by the partnership. The partnership agreement provides that Lara and M
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9. Ana and Elsa form a new partnership. Ana invests P300,000 in cash for her
interest in the capital and profits of the business. Elsa contributes land that has
original cost of P40,000 and a fair market value of P70,000, and a building that ha
tax basis of P50,000 and a fair market value of P90,000. The building is subject
P40,000 mortgage that the partnership will assume. What amount of cash should
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 followi
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
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Zero, because under the bonus method, a transfer of capital is only required
7. c
Cash P140,000 – –
8. b
Lara Mitra
9. b
10. a
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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
2. Anton and Garcia formed a partnership, each contributing assets to the business. Anton
contributed inventory with a current market value in excess of its carrying amount. Garcia
contributed real estate with a carrying amount in excess of its current market value. At wha
amount should the partnership record each of the following assets?
Inventory Real Estate
a. Carrying Amount Market Value
b. Market Value Carrying Amount
c. Carrying Amount Carrying Amount
d. Market Value Market Value
3. On June 30, 2015, a partnership was formed by Mendoza and Lopez. Mendoza contributed
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 payab
d. The fair value of the property on June 30, 2015
4. Two individuals who were previously sole proprietors formed a partnership. Property other
cash which is part of the initial investment in the partnership would be recorded for financi
accounting purposes at the :
a. Proprietors’ book values or the fair value of t he property at the date of the investm
whichever is higher.
b. Proprietors’ book values or the fair value of t he property at the date of the investm
whichever is lower.
c. Proprietors’ book values of the property at t he date of the investment
d. Fair value of the property at the date of investment
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1. On May 1, 2015, Cat and Meow formed a partnership and agreed to share profits and los
the ratio of 3:7, respectively. Cat contributed a parcel of land that cost her P10,000. M
contributed P40,000 cash. The land has a fair value of P15,000. Cat insisted that the val
land should be P18,000. The partners agreed to value the land at P18,000. What amount s
be recorded in Cat’s capital account on formation of the new partnership?
2. On July 1, Manny and Floyd formed a partnership, agreeing to share profits and losses
ratio of 4:6, respectively. Manny contributed a parcel of land that cost him P25,000.
contributed P50,000 cash. The land was sold for P50,000 on July 1, four hours after formati
the partnership. How much should be recorded in Manny’s capital account on the partne
formation?
On March 1, 2014, cat and Fish formed a partnership with each contributing the follo
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:
4. Assuming that the partners agreed to bring their respective capital in proportion to
respective profit and loss ratio, and using Fish capital as the base, how much cash is
invested by Cat?
5. On October 1, 2015, Albano and Armando formed a partnership and agreed to share profit
losses in the ratio 3:7 respectively. Albano contributed a parcel of land that cost him P2,000
Armando contributed P3,000,000 in cash. The land has a quoted price of P3,600,000 on Oc
1, 2015. What amo unt should be recorded in Albano’s capital account upon formation o
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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 assum
by the Jones and Smith partnership. What is the balance in each partner’s capital account f
financial accounting purposes?
LL and MM agreed to form a partnership by contributing their respective assets and equitie
subject to the following adjustments:
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PP QQ
Cash P 9,000
Accounts Receivable 18,500
Inventories 30,000
Furniture and Fixtures (net) 30,000
Office Equipment (net) 11,500
Prepaid Expenses 6,375
Total P 105,375
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c. 63,750
d. 63,950
a. Limited liability
b. Limited life
c. Mutual agency
d. Ease of formation
2. Which of the following is not a characteristic of the proprietary theory that influences accounting
partnerships?
a. Partner’s salaries are viewed as a distribution of income rather than a component of net
income.
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Partnership capital accounts are similar to corporate paid in capital and retained earnings; while
partnership drawing accounts are similar to corporate dividends accounts
On May 1, 2015, the business assets of Jessyreen and Leilani appear below:
Jessyreen Leilani
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Jessyreen and Leilani agreed to form a partnership contributing their respective assets and equities
subject to the following adjustments:
a. Accounts receivable of P20,000 in Jessyreen’s books and P35,000 in Leilani’s are uncollec
b. Investors of P5,500 and P6,700 are worthless in Jessyreen’s and Leilani’s respective book
c. Other assets of P2,00 and P3 ,600 in Jessyreen’s and Leilani’s respective books are to be
written off
a. Jessyreen’s 614,476
Jessyreen Leilani
Adjustments:
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b. 2,237,918
c. 2,265,118
d. 2,365,218
Adjustments:
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
Multiply by 20%
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
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Jessyreen Leilani
40:40:20 ratio
10. During the first year of their operations, the partnership earned P325,000. Profits were distribut
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?
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40:40:20 ratio
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b. ₱48,000 d. ₱51,000
10. A partner’s withdrawal of assets from a limited liability partnership that is conside
permanent reduction in that partner’s equity is debited to the partner’s:
a. Drawing account c. Capital account
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2. The maximum number of persons who are legally allowed to operate in a partnership is:
a) 2
b) 20
c) There is no legal limit
d) 100
3. Sparkle Ltd is a private limited company limited by shares. It has one director. How m
shareholders does the law require it to maintain?
a) One provided it is a different person from the director.
b) Five.
c) Two.
d) One which can be the same person as the director.
4. Which one of the following statements about limited liability partnerships (LLPs) is incorr
a) An LLP has a legal personality separate from that of its members.
b) The liability of each partner in an LLP is limited.
c) Members of an LLP are taxed as partners.
d) A limited company can convert to an LLP.
5. An organisation running a business has the following attributes: the assets belong to
organisation, it can create a floating charge over its assets, change in membership does
alter its existence, and members cannot transfer their interests to others. What typ
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6. Roberts and Smith drafted a partnership agreement that lists the following a
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 --
The building is subject to a mortgage of $10,000, which the partnership has assumed.
partnership agreement also specifies that profits and losses are to be distributed evenly.
amounts should be recorded as capital for Roberts and Smith at the formation of
partnership?
Roberts Smith
a. $35,000 $85,000
b. $35,000 $75,000
c. $55,000 $55,000
d. $60,000 $60,000
Answer: (b) The requirement is to determine the amounts to be recorded as capital for Ro
and Smith at the formation of the partnership. Unless otherwise agreed upon by the part
individual capital accounts should be credited for the fair market value (on the da
contribution) of the net assets contributed by that partner. It is necessary to assume tha
amounts listed are fair market values. The amount of net assets that Roberts contribut
$35,000 ($20,000 + $15,000). The fair market value of the net assets Smith contribut
$75,000 ($30,000 + $15,000 + $40,000 – $10,000). The partners’ profit and loss sharing
does not affect the initial recording of the capital accounts.
7. On April 30, year 1, Algee, Belger, and Ceda formed a partnership by combining
separate business proprietorships. Algee contributed cash of $50,000. Belger contrib
property with a $36,000 carrying amount, a $40,000 original cost, and $80,000 fair value
partnership accepted responsibility for the $35,000 mortgage attached to the property.
contributed equipment with a $30,000 carrying amount, a $75,000 original cost, and $55
fair value. The partnership agreement specifies that profits and losses are to be shared eq
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Answer: (c) The requirement is to determine which partner has the largest capital acc
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 m
value becomes the partner’s balance in his capital account and is basis to the partnership u
generally accepted accounting principles. Any liabilities assumed by the partnership, red
the partners’ capital balance by the amount assumed.
8. Abel and Carr formed a partnership and agreed to divide initial capital equally, even th
Abel contributed $100,000 and Carr contributed $84,000 in identifiable assets. Under the b
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 recogn
The total resulting capital is the FV of the tangible investments of the partners. Thus, t
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 summa
2004 activity:
What amount of net income is allocated to Nossiter’s capital account for 2004?
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10. Ellis and Nossiter are partners sharing profits in a 30:70 ratio. The following
summarizes 2004 activity:
1.On July 1,1997, Monuz and Pardo form a partnership, agreeing to share profits and losses in the
of 4:6,respectively. Monuz contributed a parcel of land that cost him P25,000. Pardo contrib
P50,000 cash. The land was sold for P50,000 on July 1,1997 four hours after formation o
partnership. How much should be recorded in Munoz capital account on formation of the partnersh
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.
Sunshine purchased an interest in the Moonbits partnership of Liz and Dick by paying Liz P 32,000.
half of her capital and half of her 50 percent profit sharing interest on October 1,1997. At this tim
capital balance was P24,000.00 and Dick capital balance was P56,000.00. Liz should receive a deb
her capital account of:
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Santos Pablo
Cash P 30,000 P 70,000
Machinery and Equipment 25,000 75,000
Building -0- 225,000
Furniture & Fixtures 10,000 -0-
The building is subject to a mortgage loan of P80,000, which is to be assumed by the partnership
partnership agreement provides that Santos and Pablo share profits and losses 30% and
respectively. On March 1,1997 the balance in Pablo’s capital account should be:
a) P 290,000.00
b) P 305,000.00
c) P 314,000.00
d) P 370,000.00
John
Cash P 11,000 P
Accounts Receivable 234,536 567
Inventories 120,035 260
Land 603,000
Building 428
Furniture & Fixtures 50,435
Other Assets 2,000
Total P 1,020,916 P 1,317
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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 an
losses in the ratio of 4:3:3.
Assume that the assets and liabilities are fairly valued on the balance sheet and the partnership dec
to admit Mac as a new partner, with a 20% interest. No goodwill or bonus is to be recorded. How m
Mac contributes to cash or other assets?
a) P 350,000
b) P 280,000
c) P 355,000
d) P 284,000
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1. D. The requirement is Munoz’ capital account balance upon formulation of the partnership. As
case with all entities, investment in the capital of a partnership should be measured at the fair m
value of the assets contributed. In this case, the FMV of the land would be measured at the fair m
value by its sales price on the date of sale (P50,000) which is also the date of the partnership form
Recording the land of Munoz’ cost would result in the partners sharing the gain from the sa
accordance with their profit and loss ratio. This is not equitable since the gain accrued while the
was held by Monuz.
2. A. Under the admission by purchase only the transfer of the capital purchase by the selling pa
(Liz) to the buying partner (Sunshine) is recorded. Therefore 50% of the capital of Liz (P24,000)
12,000 is to be debited to her capital account.
3. A. P 290,000.00
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5. A. P 350,000
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A. Algee. c. Ceda.
B. Belger. d. All capital account balance are equal.
8. Jamby and Minam just formed a partnership. Jamby contributed cash of P2,205,00
office equipment that cost P945,000. The equipment had been used in her
proprietorship and had been 70% depreciated, the appraised value of the equipm
P630,000. Jamby also contributed a note payable of P210,000 to be assumed b
partnership. Jamby is to have 60% interest in the partnership. Miriam contributed
P1,575,000 merchandise inventory at fair market value. Assume the use of bonus me
the partners’ capital must be in conformity with their profit and loss ratio upon form
In the formation of a partnership, which of the following is true?
10. The partnership agreement is an express contract among the partners (the owners o
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.
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5. Which of the following is NOT a characteristic of the proprietary theory that influen
accounting for partnerships?
a. Partners’ salaries are viewed as a distribution of income rather than a
component of net income.
b. A partnership is not viewed as a separate, distinct, taxable entity.
c. A partnership is characterized by limited liability.
d. Changes in the ownership structure of a partnership result in the dissolution
the partnership.
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
of goodwill because of his special skills relevant to this business. What amount of ca
will exist for Claude when the partnership is formed?
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7. Bill and Ken enter into a partnership agreement in which Bill is to have a 60% intere
capital and profits and Ken is to have a 40% interest in capital and profits. Bill
contributes the following:
Cost Fair value
Land P10,000 P20,000
Building P100,000 P60,000
Equipment P20,000 P15,000
There is a P30,000 mortgage on the building that the partnership agrees to assume.
contributes P50,000 cash to the partnership. Bill and Ken agree that Ken’s capital
account should equal Ken’s P50,000 cash contribution and that goodwill (revaluatio
asset) should be recorded. Goodwill (revaluation of asset) should be recorded in the
amount of:
a. P10,000
b. P15,000
c. P16,667
d. P20,000
8. Paul, Jeremy, and Juan are forming a partnership. Juan contributes a building having
historical cost, accumulated depreciation, and market value of P290,000, P100,000,
P400,000, respectively. The building is initially recorded on the partnership’s books
Juan’s book value (P190,000). Two years later the building is sold for a P270,000 gai
What portion of the profit or loss should be allocated to Juan?
a. P20,000
b. P90,000
c. P210,000
d. P230,000
9. Jones and Smith formed a partnership with each partner contributing the following
items:
Jones Smith
Cash P80,000 P40,000
Building-Cost to 300,000
Jones
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Assume that for tax purposes Jones and Smith agree to share equally in the liabilitie
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 th
ratio of 4:6, respectively. ML contributed a parcel of land that cost her P25,000. PP
Chapter 1
1. B.
2. A.
3. D.
4. A.
5. C.
6. C.
7. A.
8. B.
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 accoun
the partnership formation?
a. P10,000
b. P20,000
c. P25,000
d. P50,000
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9. C.
10. D.
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 wou
be recorded for financial accounting purposes at the:
a. Proprietors’ book values or the fair value of the property at the date of the in
whichever is higher
b. Proprietors’ book values or the fair value of the property at the date of the in
whichever is lower.
1.2. When property other than cash is invested in a partnership, at what amount sho
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 shou
the noncash property be cred ited 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
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PROBLEMS
The peso amount of gain (loss) that will result if the initial noncash contributions of th
partners are recorded at cost rather than fair market value will be
a. P30,000 and (P10,000) to Abena and Buendia, respectively
b. P12,000 and P8,000 to Abena and Buendia, respectively
c. (P18,000) and P18,000 to Abena and Buendia, respectively
d. P 18,000 and (P18,000) to Abena and Buendia, respectively
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 responsibilit
for the P70,000 mortgage attached to the property. Laxamana contributed equipmen
with a carrying amount of P60,000, original cost of P150,000, and fair value of 110,0
The partnership agreement specifies that profits and losses are to be shared equally
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 capita
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 unid entifiable asse
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 Moli
is to have a 60% interest in capital and profits and Nepomuceno is to have a 40%
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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 Nepomucen
agree that Nepomuceno’s capital account should equal Nepomuceno’s P100,000 ca
contribution and that goodwill should be recorded.
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 adjustm
is presented below.
Roxas Poe
P105,375 P51,500
P105,375 P 51,500
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6. On December 1, 2009, DD and EE formed a partnership with each contributing the following
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DD EE
Cash 9,000 18,000
Machinery and Equipment 13,500
Land 90,000
Building 27,000
Office Furniture 13,500
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% a
60%, respectively and partners agreed to bring their capital balances in proportion to the p
and loss ratio and using the capital balance of EE as the basis. The additional cash investme
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
to be contributed for a total capital of 300,000. The noncash assets to be contributed and
liabilities to be assumed are:
JJ KK
Book Value Fair Value Book Value Fair Value
Accounts Receivable 22,500 22,500
Inventories 22,500 33,750 60,000 67,500
Equipment 37,500 30,000 67,500 71,250
Accounts Payable 11,250 11,250 7,500 7,500
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)
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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 assum
by the Jones and Smith partnership. Refer to the above information. What is the balance in
partner’s capital account for financial accounting purposes?
C
Jones Smith
Assets at fair value
Jones: 80,000+400,000 480,000
Smith: 40,000+280,000 320,000
Less: Liabilities assumed 120,000 60,000
Capital 360,000 260,000
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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
agreed that OO is taken certain equipment with second-hand value of P50,000 and a note f
the balance of OO’s interest. The equ ipment are carried on the books at P65,000. Brand ne
equipment may cost P80,000. Compute for: (1) OO’s acquisition of the second-hand equipm
will result to reduction in capital; (2) the value of the note that will OO get from the
partnership’s liquidat ion,
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. Reduction i n Capital:
Equipment at carrying value 65,000
Equipment at secondhand value (fair value) 50,000
2. Notes Payable to OO
Unadjusted Capital of OO 200,000
Less: Share in the decrease of equipment 5,000
Adjusted capital of OO 195,000
Le ss: Equi pme nt re cei ve at se condhand val ue 50,000
Value of notes payable 145,000
1. Cat and Dog formed a partnership, each contributing assets to the business. Cat contri
inventory with a current market value in excess of its carrying amount. Dog contributed real e
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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 los
the ratio of 3:7, respectively. Cat contributed a parcel of land that cost her P10,000. M
contributed P40,000 cash. The land has a fair value of P15,000. Cat insisted that the value o
land should be P18,000. The partners agreed to value the land at P18,000. What amount s
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partnership. How much should be recorded in Manny’s capital account on the partne
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 c
and profits and Ken is to have a 40% interest in capital and profits. Bill contributes the ff:
Cost Fair Value
Land P10,000 P20,000
Building P100,000 P60,000
Equipment P20,000 P15,000
There is a P30,000 mortgage on the building that the partnership agrees to assume
contributes P50,000 cash to the partnership. Bill and Ken agree that Ke n’s capital account s
equal Ken’s P50,000 cash contribution and that goodwill should be recorded. Goodwill sho
recorded in the amount of:
For 4 and 5
Cat admits Dog as partner in business. Accounts in the ledger for Cat on November 30, 2015, just be
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
It is agreed that or the purposes of establishing Cat’s interest the following adjustments shall be ma