PARTNERSHIP FORMATION SAMPLE QUESTIONS WITH ANSWERS

The net contributions (assets and related liabilities assumed by the partnership) of the
partners to the partnership are measured at
a. Fair value
b. Cost
c. Discretionary amount determined by partners
d. Any of these
If a partner’s capital balance is created for an amount greater than or less than the fair
value of his net contribution, the excess or deficiency is called a
a. Bonus
b. Goodwill
c. Discount
d. Premium
Under the bonus method, any increase or decrease in the capital credit of a partner
a. Deducted from or added to the capital credits of the other partners.
b. Recognize as goodwill
c. Recognized as expense
d. Deferred and amortized to profit or loss
A and B agreed to form a partnership. A contributed cash of P100,000 while B
contributed cash of P200,000. The partnership agreement stipulates that A and B will
have equal interest on the initial capital of the partnership and in subsequent
partnership profits and losses.
Which of the following statements is correct?
a. A’s contribution will be debited for P150,000.
b. The partnership’s capital after recording the contribution of A but before
recording the contribution of B is P150,000.
c. The partnership’s capital after recording the contributions of both A and B is
greater than P300,000.
d. None of these.
A and B formed a partnership. The partnership agreement stipulates the following:
 A shall contribute noncash assets with carrying amount of P60,000 and fair value
of P100,000.
 B shall contribute cash of P200,000
 A and B shall have interests of 80% and 20%, respectively, on both the initial
partnership capital and in subsequent partnership profits and losses.
 No outside cash settlements shall be made between and among the partners.
The total partnership capital after the formation is
a. 300,000
b. 260,000
c. 360,000
d. 420,000
The adjusted capital account of B after the formation is
a. 100,000
b. 200,000
c. 60,000
d. None of these
The entry to record the contribution of B (and bonus given to A) includes
a. A debit to cash for P60,000
b. A credit to A’s capital account for P140,000
c. A credit to B’s capital account for P200,000
d. All of these
On July 1, 20X3, 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,
20X3 four hours after formation of the partnership. How much should be recorded in
Monuz capital account on formation of the partnership?
a. P10,000
b. P20,000
c. P25,000
d. P50,000

The business assets and liabilities of John and Paul appear below:
John Paul
Cash P11,000 P22,354
Accounts 234,536 567,890
receivable
Inventories 120,035 260,102
Land 603,000 -
Building - 428,267
Furniture and 50,345 34,789
fixtures
Other Assets 2,000 3,600
Total P1,020,916 P1,317,002
Accounts payable 178,940 243,605
Notes payable 200,000 345,000
John, capital 641,976 -
Paul, capital - 728,352
Total P1,020,916 P1,317,002

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 and P6,700 are worthless in John’s and Paul’s respective
book.
c. Other assets of P2,000 and P3,600 in John’s and Paul’s respective books are to
be written off.
The capital account of the partners after the adjustments will be:
a. John’s P614,476; Paul’s P683,052
b. John’s P615,942; Paul’s P717,894
c. John’s P649,876; Paul’s P712,345
d. John’s P613,576; Paul’s P683,350
Red, White and Blue form a partnership on May 1, 20X3. They agree that Red will
contribute office equipment with a total fair value of P40,000; White will contribute
delivery equipment with a fair value of P80,000; and Blue will contribute cash. If Blue
wants a one third interest in the capital and profits, he should contribute cash of:
a. P40,000
b. P120,000
c. P60,000
d. P180,000