PARTNERSHIP &

CORPORATION
QUESTION 1
On December 1, 2015, AA and BBA formed a partnership, agreeing to share for
profits and losses in the ratio of 2:3, respectively. AA invested a parcel of land
that cost him 25,000. BB invested 30,000 cash. The land was sold for 50,000 on
the same date, three hours after formation of the partnership. How much
should be the capital balance of AA right after formation?
A.25,000
B.30,000
C.60,000
D.50,000
SOLUTION #1
D. In the formation of the partnership, one or more of the partner will contribute
noncash assets to the business such as inventory, land or equipment, etc. Retaining
the recorded cost for such assets would be inequitable to any partners investing
appreciated property. Therefore, the contribution of noncash assets to a
partnership should be recorded based on fair values. In this case, the fair value of
the land would be measured by its sales price on the date of sale, P50,000.
 QUESTION 2
On March 1, 2015, KK and LL formed a partnership with each contributing the following assets.
  KK LL
CASH 300,000 700,000
MACHINERY AND EQUIPMENT 250,000 750,000

BUILDING - 2,250,000
FURNITURE AND FIXTURES 100,000  

The building is subject to mortgage loan of 80,000, which is to be assumed by the partnership
agreement provides that KK and LL share profits and losses 30% and 70%, respectively. On March
1, 2015 the balance in LL’s capital account should be:
A. 3,700,000 C. 3,050,000

B. 3,140,000 D. 2,900,000
SOLUTION #2
D.
JJ
CASH P 700,000
MACHINERY & EQUIPMENT 750,000
BUILDING 2,250,000
TOTAL ASSETS INVESTED P3,700,000
LESS: MORTGAGE LOAN 800,000
CAPITAL BALANCE OF JJ ON 3/1/15 P2,900,000
QUESTION 3
  KK LL
CASH 300,000 700,000
MACHINERY AND EQUIPMENT 250,000 750,000
BUILDING - 2,250,000
FURNITURE AND FIXTURES 100,000  

The same information in Number 2, except that the mortgage loan is not assumed
by the partnership. On March 1, 2015 the balance in KK’s capital account should be:

A. 3,700,000
B. 3,140,000
C. 3,050,000
D. 2,900,000
SOLUTION #3
QUESTION 4
As of July 1, 2015, XX and YY decided to form a partnership. Their balance sheets
on this date are:
  XX YY
CASH 15,000 37,500
ACCOUNTS RECEIVABLE 540,000 225,000
MERCHANDISE INVENTORY - 202,500
MACHINERY AND EQUIPMENT 150,000 270,000
TOTAL 705,000 735,000

  XX YY
ACCOUNTS PAYABLE 135,000 240,000
XX, CAPITAL 570,000  
YY, CAPITAL - 495,000
TOTAL 705,000 735,000

The partners agreed that the machinery and equipment of XX is under depreciated
by 15,000 and that of YY by 45,000. Allowance for doubtful accounts is to be set up
amounting to 120,000 for XX and 45,000 for YY. The partnership agreement provides
for a profit and loss ratio and capital interest of 60% to XX and 40% YY. How much
cash must XX invest to bring the partner’s capital balances proportionate to their
profit and loss ratio?
A.142,500 C. 172,500
B. 52,500 D. 102,500
SOLUTION #4
QUESTION 5
On August 1, Carla and John pooled their assets to form a partnership, with the firm to take over
their business assets and assume the liabilities. Partners capitals are to be based on net assets
transferred after the following adjustments. (Profit and loss are allocated equally.)
  BC CD
ASSETS 75,000 113,000
LIABILITIES 5,000 34,500

What is the capital of BC and CD after the above adjustment?

A. BC, 68,750: CD, 77,250
B. BC, 75,000: CD, 81,000
C. BC, 65,000: CD, 81,000
D. BC, 65,000: CD, 81,000
SOLUTION #5
QUESTION 6
ALMA admits DANTE as a partner in business. Accounts in the ledger for ALMA on November 30,
2015, just before the admission of DANTE, show the following balances:
CASH 6,800
ACCOUNTS RECEIVABLE 14,200
MERCHANDISE INVENTORY 20,000
ACCOUNTS PAYABLE 8,000
ALMA, CAPITAL 33,000

It is agreed that for purposes of establishing ALMA’s interest, the following adjustments shall be
made:
An allowance for doubtful accounts of 3% of accounts receivable is to be established.
The merchandise inventory is to be valued of 23,000
Prepaid salary expenses of 600 and accrued rent expense of 800 are to be recognized.
DANTE is to invest sufficient cash to obtain a 1/3 interest in the partnership.
Compute for:
ALMA’S adjusted capital before the admission of DANTE; and
The amount of cash investment by DANTE.
A. (1) 35,347; (2) 11,971
B. (1) 36,374; (2) 18,487
C. (1) 35,374; (2) 17,687
D. (1) 28,174; (2) 14,087
SOLUTION #6
QUESTION 7
MM, NN, and OO are partners with capital balances on December 31, 2015 0f 300,000,
300,000, and 200,000 0, respectively. Profits are shared equally. OO wishes to withdraw and
it’s agreed that OO is to take certain equipment with second-hand value 50,000 and note for
the balance of OO’s interest. The equipment are carried on the books at 65,000. Brand new
equipment may coat 80,000.
Compute for:
OO’s acquisition of the second-hand equipment will result to reduction in capital
The value of the note that will OO get from the partnership’s liquidation.
 
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
SOLUTION #7
QUESTION 8
Lanz is trying to decide whether to accept a salary of 40,000 or a salary
of 25,000 plus a bonus of 10% of net income after salary and bonus as a
means of allocating profit among the partners. Salaries traceable to the
other partners are estimated to be 100,000. What amount of income
would be necessary so that Lanz would consider the choices to be equal?
A. 165,000
B. 290,000
C. 265,000
D. 305,000
SOLUTION #8
QUESTION 9
Carl and Jacob are considering forming a partnership whereby profits will be
allocated through the use of salaries and bonuses. Carl will receive a salary of
30,000 and a bonus. Jacob has the option of receiving of 40,000 and a 10% bonus
or simply receiving a salary of 52,000. Both partners will receive the same amount
of bonus.
Determine the level of net income that would be necessary so that Jacob would be
indifferent to the profit sharing option selected.
A. 240,000
B. 300,000
C. 94,000
D. 334,000
SOLUTION #9
 QUESTION 10
Presented below is the condensed balance sheet of the partnership of KK, LL, and MM who share
profit and losses in the ratio of 6:3:1, respectively:
CASH -------------- 85,000 KK, CAPITAL -------- 252,000
OTHER ASSETS --------- 415,000 LL, CAPITAL ------- 126,000
TOTAL ------------------ 500,000 MM, CAPITAL -------- 42,000
LIABILITIES --------- 80,0000 TOTAL --------------- 500,000
The partner agree to sell NN 20% of their respective capital and profit and loss interest for a total
payment of 90,000. The payment by NN is to be made directly to the individual partners. The capital
balances of KK, LL, and MM, respectively after admission of NN are:
A.198,000, 99,000, 33,000
B. 201,600, 100,800, 33,600
C. 216,000, 108,000, 36,000
D.255,600, 127,800, 42,600
SOLUTION #10
QUESTION 11
Presented below is the condensed balance sheet of the partnership of KK, LL, and MM who share
profit and losses in the ratio of 6:3:1, respectively:
CASH -------------- 85,000 KK, CAPITAL -------- 252,000
OTHER ASSETS --------- 415,000 LL, CAPITAL ------- 126,000
TOTAL ------------------ 500,000 MM, CAPITAL -------- 42,000
LIABILITIES --------- 80,0000 TOTAL --------------- 500,000
Using the same information in NO. 10, assuming that implied goodwill (or revaluation of asset) is to
be recorded prior to the acquisition by NN. The capitals of KK, LL, and MM, respectively after
admission of NN are:
A. 198,000, 99,000, 33,000
B. 201,600, 100,800, 33,600
C. 216,000, 108,000, 36,000
D. 255,600, 127,800, 42,600
SOLUTION #11
 QUESTION 12
XX, YY, and ZZ are partners who share profits and losses in the ratio of 5:3:2 respectively. They agree
to sell a 25% of their respective capital and profits and losses ratio for a total payment directly to the
partners in the amount of P140,000. They agree that goodwill or revaluation of assets of P60,000 is to
be recorded prior to admission of AA. The condensed balance sheet of the XYZ partnership is as
follows:
Cash 60,000 Liabilities 100,000
Non-cash assets 540,000 XX, Capital 250,000
YY, Capital 150,000
ZZ, Capital 100,000
Total 600,000 Total 600,000
The capital of XX, YY and ZZ respectively after the payment and admission of AA are:
A. 187,500; 112,500; and 75,000 C. 280,000; 168,000 and 112,000
B. 210,000; 126,000 and 84,000 D. 250,000; 150,000 and 100,000
 
SOLUTION #12
QUESTION 13
On January 31, 2015, partners of Lon, Mac & Nan, LLP had the following loan and capital account balances
(after closing entries for January);
Loan receivable from Lon 20,000 dr
Loan payable to Nan 60,000 cr
Lon, capital 30,000 dr
Mac, capital 120,000 cr
Nan, capital 70,000 cr
The partnership’s income sharing ratio was Lon, 50%; Mac, 20% and Nan, 30%. On January 31,2015, Ole
was admitted to the partnership for a 20% interest in total capital of the partnership in exchange for an
investment of 40,000 cash. Prior to Ole’s admission, the existing partners agreed to increase the carrying
amount of the partnership’s inventories to current fair value, a 60,000 increase. The capital account to be
credited to Ole:
A. 60,000
B. 40,000
C. 52,000
D. 46,000
SOLUTION #13
QUESTION 14
MM and OO are the partners with capital balances of 50,000 and 70,000,
respectively, and they share profits and losses equally. The partners agree to
take PP into the partnership for a 40% interest in capital and profits, while MM
and OO each retain a 30% interest. PP pays 60,000 cash directly to MM and OO
for his 40% interest, and goodwill implied by PP’s payment is recognized on the
partnership books. If MM and OO transfer equal amounts of capital to PP, the
capital balances after PP’s admittance will be:
A. MM, 35,000: OO, 55,000: PP, 60,000
B. MM, 45,000: OO, 45,000: PP, 60,000
C. MM, 36,000: OO, 36,000: PP, 48,000
D. MM, 26,000: OO, 46,000: PP, 48,000
SOLUTION #14
 QUESTION 15
MM and OO are the partners with capital balances of 50,000 and 70,000,
respectively, and they share profits and losses equally. The partners agree to take
PP into the partnership for a 40% interest in capital and profits, while MM and OO
each retain a 30% interest. PP pays 60,000 cash directly to MM and OO for his
40% interest, and goodwill implied by PP’s payment is recognized on the
partnership books. If the partner’s decided to have a cash settlement among
themselves; right after the admission of PP, ie., the capital balances should be
made in accordance with the new profit and loss ratio, what would be the capital
balances after such transaction?
A. MM, 35,000: OO, 55,000: PP, 60,000
B. MM, 45,000: OO, 45,000: PP, 60,000
C. MM, 36,000: OO, 36,000: PP, 48,000
D. MM, 26,000: OO, 46,000: PP, 48,000
SOLUTION #15
QUESTION 16
MM and NN are partners who have capitals of 6,000 and 4,800 and share
profits in the ratio of 3:2. OO is admitted as a partner upon investing cash of
5,000, with profits to be shared equally.
Assume that OO is allowed a 25% interest in the firm, (1) the capital balance
of MM after the admission of OO using goodwill method, and (2) how much
will NN gain or lose by the use of bonus method over goodwill method.
A. (1) 7,120; (2) NN will lose 140
B. (1) 7,120; (2) NN will gain 1,260
C. (1) 8,520; (2) NN will lose 1,260
D. (1) 8,520; (2) NN will gain (2) 140
SOLUTION #16
QUESTION 17
AA and BB are partners who have capital of 600,000 and 480,000
sharing profits in the ratio of 3:2. CC admitted as a partner upon
investing 500,000 for 25% interest in the firm, profits to be shared
equally. Given the choice between goodwill and bonus method, CC will
A. Prefer bonus method due to CC’s of 35,000
B. Prefer bonus method due to CC’s of 140,000
C. Prefer goodwill method due to CC’s of 140,000
D. Be indifferent for the goodwill and bonus methods are the same
SOLUTION #17
QUESTION 18
The December 31, 2015, statement of financial position of the BB, CC, and DD partnership is summarized as
follows:
CASH----------------------------------------100,000 CC, LOAN ------------- 100,000
OTHER ASSETS, AT COST -------- 500,000BB, CAPITAL -------- 100,000
600,000 CC, CAPITAL--------- 200,000
DD, CAPITAL--------- 200,000
600,000
The partner’s share profits and losses as follows: BB, 20%; CC, 30%; DD, 50%, CC is retiring from the partnership
and the partners have agreed that “other assets” should be adjusted to their fair value of 600,000 at December
31, 2015. They further agree that CC will receive 244,000 cash for his partnership interest exclusive of the loan,
which is to be paid in full. No goodwill implied by CC’s payment will be recorded.
After CC’s retirement, the capital balances of BB and DD, respectively, will be:
A. 116,000 and 240,000
B. 101,714 and 254,286
C. 100,000 and 200,000
D. 73,143 and 182,857
SOLUTION #18