Partnership Formation Sample Problems and Solutions:

Problem #2
One December 1, 2019, AA and BB formed a partnership with contributing the followiing
assets at fair market values:
AA
Cash 9,000
Machinery and Equipment 13,500
Land
Building
Office Furniture 13,500

The land and building are subject to a mortgage loan of 54,000 that the partnership will assume.
The partnership agreement provides that AA and BB share profits and losses on the raito of 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 BB as the basis. The additional cash investment
mad eby AA should be:

AA
Cash 9,000
Machinery and Equipment 13,500
Land
Building
Office Furniture 13,500
TOTAL: 36,000

135,000-54,000= 81,000
81,000 is the 60%, to get the 100% just divide it to 0.6 (60%) so, 81,000/0.6=135,000
135,000=100% so 135,000(100%)-81,000(60%)=54,000 (40%) AA's supposed investment
54,000-36,000= 18,000
therefore: AA should add 18,000 more to his contribution to fulfill the 100%

Problem #3
CC and DD are joining their separate business to form a partnership. Cash and Non-Cash assets are to be
for a total capital of 150,000. The non-cash assets to be contributed and liabilities to be assumed are:
CC DD
Book Value Fair Value Book Value
Accounts Receivable 11,250 11,250
Inventories 11,250 16,875 30,000
Equipment 18,750 15,000 33,750
Accounts Payable 5,637 5,625 3,750

The partner's capital accounts are to be equal after all contributions of assets and assumptions of liabiliti

Total assets of the partnership: 159,375

 CC DD
Accounts Receivable 11,250
Inventories 16,875 33,750
Equipment 15,000 35,625
Accounts Payable 5,625 3,750 Liabilities of: 9,375
TOTAL 48,800 73,125 150,000 (Total Capital)+9,375 (Liabilities

Total Cash that must be contribute: 37,500 AND 9,375

CC DD
Cash 37,500 9,375
Accounts Receivable 11,250
Inventories 16,875 33,750
Equipment 15,000 35,625
TOTAL 80,625 78,750

CC DD
Accounts Payable 5,625 3,750

CC DD
Capital 75,000 75,000
80,625 78,750

Problem #8
A, B, and C formed the ABC Partnership on July 1, 2018, with the following assets measured at book valu
records, contributed by each partner:
A B C
Cash 200,000 150,000 150,000
Accounts Receivable 38,500 68,900
Inventory 135,000 118,000 67,000
PPE 950,000 460,000 380,000

A part of A' contribution, 25,000 comes from his personal borrowings. Also, the PPE of A and B are mortg
bank for 160,000 and 16,500 respectively. The partnership is to assume responsibility for these PPE mort
fair value of the accounts receivable contributed by C is 43,000 and her PPE at this date has a fair value o
All the other assets contributed are fairly valued. The partners have agreed to share profits and losses on
to A, B, and C, respectively.

How much is the contribution of each partner? Calculate their contribution ratio

A B C
Cash 200,000 150,000 150,000
Accounts Receivable 38,500 43,000
Invetory 135,000 118,000 67,000
PPE 790,000 443,500 365,000
1,125,000 750,000 625,000
2,500,000= 100%
A= 1,125,000/2,500,000= 0.45 or 45%
B= 750,000/2,500,000= 0.3 or 30%
C= 625,000/2,500,000= 0.25 or 25%
ributing the followiing

BB
18,000

90,000
27,000

t the partnership will assume.

and losses on the raito of 40%
lances in proportion to the
s. The additional cash investment

BB
18,000

90,000
27,000

135,000

,000/0.6=135,000
supposed investment

p. Cash and Non-Cash assets are to be contributed

d and liabilities to be assumed are:

Fair Value

33,750
35,625
3,750

ns of assets and assumptions of liabilities

abilities of: 9,375
50,000 (Total Capital)+9,375 (Liabilities)=

Total assets should be: 159,375

ollowing assets measured at book values in their respective

ngs. Also, the PPE of A and B are mortgaged with the

sume responsibility for these PPE mortgages. The
d her PPE at this date has a fair value of 365,000.
e agreed to share profits and losses on a 5:3:2 ratio,

tribution ratio

500,000
81,500
320,000
1,598,000
1. Red and White formed a partnership in 2011. The partnership agreement provides for annual salary
allowances of 55,000 for Red and 45,000 for White. The partners share profits equally and losses in a 60:40 ratio.
The partnership had earnings of 80,000 for 2011 before any allowance to partners. What amount of these earnings
should be creedited to each partner's capital account.
for annual salary
and losses in a 60:40 ratio.
hat amount of these earnings