Multiple Choice Problems: Partnership Formation

1. The accounting for partnerships differs from the accounting for sole proprietorships, corporations and
cooperatives with regards to the accounting for
a. assets b. liabilities c. equity d. all of the above

2. The asset contribution of the partners to the partnership, and any related liabilities assumed by the
partnerships, are recorded in the partnership books at
a. historical cost. b. carrying amount c. fair value d. any of these

3. A and B agreed to form a partnership. A contributed cash of P600,000, while B contributed a

machine costing P1,700,000 but with a current fair value of P1,900,000. The partners agreed that since A
will be bringing in his expertise and experience to the business, A and B shall have a 60:40 interest,
respectively. The initial credits to the partners' capital accounts shall reflect this agreement. What is the
balance of B's capital account immediately after formation of the partnership
a. P 600,000 b. P 1,000,000 c. P 1,500,000 d. P 1,900,000

4. Kathrene and Daniel agreed to form a partnership. Kathrene will contribute cash in the amount of
P500,000 and Daniel will contribute equipment amounting to P600,000 when originally purchase, but at
the time of the partnership formation, the carrying amount is P550,000. The existing fair market value is
P680,000. The equipment has an outstanding balance of P 25,000 which will not be assumed by the
partners.

Required:
Prepare the journal entry to record the transaction.

5. A and B agreed to form a partnership. The following are their contributions:

A B
Cash P 200,000 P 1,800,000
Inventories 1,200,000
Furniture and Fixtures 2,000,000

Additional Information:
a. The inventories are fairly valued. However, one-half is unpaid. The partnership assumes the
repayment of the unpaid balance to the suppliers.
b. The furniture and fixtures have a fair value of P1,400,000

Requirements:
1. Compute for the adjusted balances of the partners' capital accounts.
2. Prepare the journal entry to record the transaction.