Professional Documents
Culture Documents
On January 1, 2015, Ernie and Bert both sole proprietors decided to form a
partnership to expand both of their businesses. According to their agreement, they
will split profits and losses 75:25 and their initial capital will also reflect that ratio.
The following are Ernie and Berts Statement of Financial Position:
ASSETS
Cash
Ernie Proprietor
Statement of Financial Position
December 31, 2014
LIABILITIES AND EQUITY
50,000
65,000
Accounts Receivable
100,000
55,000
Inventories
75,000
80,000
Equipment
250,000
Ernie,
90,000
Accumulated depreciation- Equipment (185,000)
TOTAL ASSETS
290,000
290,000
Accounts payable
Accrued expenses
Notes payable
capital
TOTAL LIABILITIES&EQUITY
Bert Proprietor
Statement of Financial Position
December 31, 2014
LIABILITIES AND EQUITY
30,000
Accounts Payable
ASSETS
Cash
75,000
Accounts receivable
110,000
Accrued expenses
90,000
Inventories
85,000
Notes Payable
100,000
Equipment
300,000
Bert, Capital
160,000
Accumulated Depreciation- Equipment (100,000)
TOTAL ASSETS
425,000
TOTAL LIABILITIES&EQUITY
425,000
The values reflected in the Statement of Financial Position are already at fair values
except fo the following accounts:
Ernies Accounts Receivable is now 20,000 less than what is stated in his Statement
of Financial Position. Both inventories of Ernie and Bert are now 90,000 and 70,000
respectively. Equipment for Bert has an assessed value of 275,000, appraised value
of 250,000 and book value of 200,000. Additional accrued expenses are to be
established in the amount of 10,000 for Bert only while additional accounts payable
in the amount of 5,000 for Ernie. It is also agreed that all liabilities will be assumed
by the partnership, except for the notes payable of Bert which will be personally
paid by him.
1. How much is the adjusted capital balance of Bert upon formation?
A. 91,250
B. 185,000
C. 285,000
D. 310,000
Answer: ( C )
2. How much is the capital credit to Ernie upon formation?
A. 80,000
B. 273,750
C. 292,000
D. 255,500
Answer: ( B )
3. How much should Ernie invest as additional cash to be in conformity with
their initial capital 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 the partnership and 35% in the profits and losses, while Clyde will
have 45% interest in the partnership and 65% in the profits and losses. Bonnie
contributed the following:
Building
Equipment
Land
Cost
235,000
168,000
500,000
Fair value
255,000
156,000
525,000
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 be assumed by the 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 )
2. How much is the total asset of the partnership upon formation?
A. 1,892,143
B. 1,701,818
C. 1,660,909
D. 1,632,273
Answer: ( C )
1. A contract where two or more persons bind themselves to contribute money, property, or industry
to a common fund with the intention of dividing the profits among themselves.
a. Voluntary Association
b. Corporation
c. Partnership
d. Sole Proprietorship
Answer: (c)
2. A partnership formed for the exercise of a profession which is duly registered is an example of:
a. Universal partnership of profits
b. Universal partnership of all present property
c. Particular partnership
d. Partnership by estoppel
Answer: (c)
3. One of the following is not a characteristic of contract of partnership.
a. Real, in that the partners must deliver their contributions in order for the partnership contract
to be perfected
b. Principal, because it can stand by itself
c. Preparatory, because it is a means by which other contracts will be entered into
d. Onerous, because the parties contribute money, property, or industry to the common fund
Answer: (a)
4. One of the following is not a requisite of a contract of partnership. Which is it?
a. There must be a valid contract
b. There must be a mutual contribution of money, property, or industry to a common fund
c. It is established for the common benefit of the partners which is to obtain profits and divide
the same among themselves
d. The articles are kept secret among members
Answer: (d)
5. The minimum capital in money or property except when immovable property or real rights
thereto are contributed, that will require the contract of partnership to be in a public instrument
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 contributed at
the partnerships formation:
Contributed by
Roberts
Smith
Cash
P 20,000
P 30,000
Inventory
15,000
Building
40,000
Furniture & Equipment
15,000
The building is subject to a mortgage of P 10,000, which the partnership has assumed. The
partnership agreement also specifies that profits and losses are to be distributed evenly. What
amounts should be recorded as capital for Roberts and Smith at the formation of the partnership?
Roberts
Smith
a. 35,000
85,000
b. 35,000
75,000
c. 55,000
55,000
d. 60,000
60,000
Suggested Answer: (b) 35,000 & 75,000
Roberts: 20,000 + 15,000 = P35, 000
Smith: 30,000 + 15,000 + 40,000 10,000 = P75,000.
The partners capital credit is based upon the net assets contributed by the particular partner,
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 contributed
assets costing P30,000 with a fair value of P60,000 on January 2, 2010, and Redd contributed
P20,000 cash. Drawings by the partners during 2010 totaled P3, 000 by Grey an P9,000 by Redd.
The partnership net income in 2010 was P25,000
Under the goodwill method, what is Redds initial capital balance in the partnership?
a. 20,000
b. 25,000
c. 40,000
d. 60,000
Suggested Answer: (d) 60,000
Contributed Capital
Agreed Capital
Increase (Decrease)
Grey
60,000
60,000
Redd
20,000
60,000
40,000
Total
80,000
120,000
40,000
The partnership agreement provides for equal initial capital. Thus under the goodwill method ,
the capital credit for Redd should be the same as the contribution of Grey, thereby increasing the
total agreed capital to P120,000, which is P40,000 more than the total contributed capital
(goodwill).
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
Suggested Answer: (b) 20,000 bonus to Redd
Grey
Contributed Capital
60,000
Agreed Capital
40,000
Increase (Decrease)
(20,000)
Redd
Total
20,000
80,000
40,000
80,000
20,000
The partnership agreement provides for equal initial capital. Thus under the bonus method, the
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:
Cash
Accounts Receivable
Inventories
Land
Building
Furniture & Fixture
Other Assets
Total
Accounts Payable
Notes Payable
John, Capital
Paul, Capital\
Total
John
11,000
234,536
120,035
603,000
50,345
2,000
P 1, 020, 916
178,940
200,000
641, 976
P 1, 020, 916
Paul
22,354
567,890
260,102
428,267
34,789
3,600
P 1, 317, 002
P 243,650
345,000
728,352
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 Johns books and P35, 000 in Pauls are uncollectible.
b. Inventories of P5, 500 n P6, 700 are worthless in Johns and Pails respective books.
c. Other assets of P2, 000 and P3, 600 in Johns and Pauls respective books are to be written
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
Suggested Answer: (c) 2, 265, 118
John: 1, 020, 916 20, 000 5, 500 2, 000 = P 993, 416
Smith: 1, 317, 002 35, 000 6, 700 3, 600 = P 1, 271, 702
Total: 2, 337, 918 55, 000 12, 200 5, 600 = P 2, 265, 118
Problems
1.
LF, EZ, and GT are partners with capital balances of P67,200, P108,000 and
P38,000 respectively, sharing profits and losses in the ratio of 2:5:1. SG is admitted
as a new partner bringing with him expertise and is to invest cash for a 15% interest
in the partnership considering the transfer of capital from him of P18,000 upon his
admission.
Upon admission of SG, which of the following statements is false?
A. The capital account of GT will be credited in the amount of P2,250
B. The total agreed capital of the old partners is P18,000 greater than their
contributed capital
C. The capital balance of EZ amount to P119,250
D.Cash will be debited in the amount of P40,800.
2. On June 1, 2013, AZ invited MG to join him in his business. MG agreed provided
that AZ will adjust the accumulated depreciation of his equipment account to a
certain amount, and will recognize additional accrued expenses of P40,000. After
that, MG is to invest additional pieces of equipment make her interest equal to 45%.
If the capital balances of AZ before and after adjustment were 556,00 and 484,000
respectively, what is the effect in the carrying value of the equipment as a result of
the admission of 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 admit GD into the partnership. If TM and SJ share profit in proportion of
3;1 respectively, and SJ's capital balance 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 contributed inventory with a fair value of P120,000. Due to R's expertise in
selling, D agreed that R should have 60% of the total capital of the partnership. R
and D agreed to recognize goodwill. what is the total capital of 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 a net income ratio of 3:1 respectively. They decided to admit David in
the partnership. What amount will David invest to give him 1/5 interest in the
partnership if no bonus/goodwill is recorded?
A.P60,000
B.P36,000
C.P50,000
D.P45,000
Theories
1. ZEE acquired the assets (net of liabilities) of partner BEE in exchange for cash.
The acquisition price exceeds the fair value of the net assets acquired. How should
ZEE determines the amount to be reported 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
2. Goodwill represents the excess cost of an acquisition over the:
A. Sum of the fair values assigned to an intangible assets less liabilities assumed
B. Sum of the fair values assigned to tangible and intangible assets acquired less
liabilities assumed
C. Sum of the fair values assigned to intangibles acquired less liabilities assumed
D. Book value of an acquired company
3. When a partnership is formed, noncash assets contributed by partners should be
recorded:
I.At their respective book values for income tax purposes
II.At their respective fair values for financial accounting purposes
A. I only
B. II only
C. Both I and II
D. Neither I nor II
4. A limited liability company (LLC):
I.Is governed by the laws of the states in which it is formed
II.provides liability protection to its investors
III.does not offer pass-through taxation benefits of partnership
A. Both I and III
B. III
C. Both I and II
D. I, II, III
5. Transferable interest of a partner includes all of the following except:
A.the partner's share in profits and losses
B.the right to receive distributions
C.the right to receive any liquidating distribution
D.the authority to transact any of the partnerships business operation
Answers
Problem
1. D
2. A
3. D
4. C
5. D
Theories
1. B
2. B
3. B
4. C
5. D
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. Which of the following is NOT a feature of a general partnership?
a. mutual agency
b. limited life
c. limited liability
d. none of these
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.
a. I plus II minus III
b. I plus II plus III
c. I minus II plus III
d. I minus II minus III
4. Which of the following accounts could be found in the general ledger of a
partnership?
a. Option A
b. Option B
c. Option C
d. Option D
5. Which of the following accounts could be found in the PQ partnership's general
ledger?
I. Due from P
II. P, Drawing
III. Loan Payable to Q
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 equally,
even though Anton contributed P100,000 and Bauzon contributed P84,000 in
identifiable assets. Under the bonus method, to adjust capital accounts, Bauzon's
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. Roy
invested P140,000 cash and Sam provided an office and furnishings valued at
P220,000. (There is a 60,000 note payable remaining on the furnishings to be assumed
by the partnership). Although Tim has no tangible assets to invest, both Roy and Sam
believe that Tim's expert salesmanship provides an adequate investment. The partners
agree to receive an equal capital interest in the partnership. Using the bonus method,
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 following
assets: P130,00 cash by Lara, and P200,000 cash and P50000 computer equipment by
Mitra. The computer equipment has a note payable amounting to P10,000, which was
assumed by the partnership. The partnership agreement provides that Lara and Mitra
will have an equal capital credit. Using the goodwill method, the amount of goodwill to
be recorded upon formation of partnership is:
a. 100,000
b. 110,000
c. 120,000
d. 140,000
9. Ana and Elsa form a new partnership. Ana invests P300,000 in cash for her 60%
interest in the capital and profits of the business. Elsa contributes land that has an
original cost of P40,000 and a fair market value of P70,000, and a building that has a
tax basis of P50,000 and a fair market value of P90,000. The building is subject to a
P40,000 mortgage that the partnership will assume. What amount of cash should Elsa
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 following
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
Sam
Tim
P140,000
P220,000
Office Equipment
Note payable
________
_( 60,000)
______
P140,000
P160,000
8. b
Lara
Mitra
Cash
Computer equipment
Note payable
Net asset invested
P130,000 P200,000
50,000
________ _( 10,000)
P130,000 P240,000
9. b
Total Capital (P300,000/60%)
P500,000
Elsa's interest
______40%
Elsa's capital
Less: Non-cash asset contributed at market value
Land
P 70,000
Building
90,000
P200,000
Mortgage Payable
Cash contribution
P 80,000
( 40,000)
10. a
Jones: (80000+300000) - 120000 + (180000/2) = 350000
Smith: (40000+200000) - 60000 + (180000/2) = 270000
_120,000
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 what 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 cash. Lopez, previously sole proprietor, contributed noncash
assets including a realty subject to mortgage which was assumed by the
partnership. Lopezs 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. Lopezs carrying amount of the property on June 30, 2015
c. Lopezs carrying amount of the property on June 30, 2015 less the
mortgage payable
d. The fair value of the property on June 30, 2015
4. Two individuals who were previously sole proprietors formed a partnership.
Property other than cash which is part of the initial investment in the
partnership would be recorded for financial accounting purposes at the :
a. Proprietors book values or the fair value of the property at the date of
the investment whichever is higher.
b. Proprietors book values or the fair value of the property at the date of
the investment whichever is lower.
c. Proprietors book values of the property at the date of the investment
d. Fair value of the property at the date of investment
5. A unique feature of partnerships (compared with publicly owned corporations)
is that:
a. Limited liability with respect to damages arising from
professional services
b. Greater allowable tax deductions for retirement plans
c. Ease of formation
d. Book value
1.2 PROBLEMS.
1. On May 1, 2015, Cat and Meow formed a partnership and agreed to share
profits and losses in the ratio of 3:7, respectively. Cat contributed a parcel of
land that cost her P10,000. Meow contributed P40,000 cash. The land has a
fair value of P15,000. Cat insisted that the value of land should be P18,000.
The partners agreed to value the land at P18,000. What amount should be
recorded in Cats capital account on formation of the new partnership?
a. P18,000
b. P17,400
c. P15,000
d. P10,000
b. P20,000
c. P25,000
d. P50,000
Cat
P30,000
P25,000
P10,000
Fish
P70,000
P75,000
P225,000
-
3. On March 1, 2015, the capital account of Fish would show a balance of:
a. P280,000
370,000
b. P305,000
c. 314,000
d.
b. P30,000
c. P40,000
d. P55,000
c.
P3,480,000
1. Jones and Smith formed a partnership with each partner contributing the
following items:
Jones
Cash
Building cost to Jones
- fair value
Inventory - cost to Smith
fair value
Mortgage Payable
Smith
P 80,000
300,000
400,000
P 40,000
200,000
280,000
120,000
Accounts Payable
60,000
Assume that for tax purposes Jones and Smith agree to share equally in the
liabilities assumed by the Jones and Smith partnership. What is the balance in
each partners capital account for financial accounting purposes?
A. Jones: P 360,000,
B. Jones: P 350,000,
C. Jones: P 260,000,
D. Jones: P 500,000,
Smith: P 260,000
Smith: P 270,000
Smith: P 180,000
Smith: P 300,000
LL
P 11,000
234,536
120,035
603,000
50,345
2,000
P 1,020,916
MM
P 22,354
567,890
260,102
428,267
34,789
3,600
P 1,317,002
Accounts Payable
Notes Payable
LL, capital
MM, capital
Total
P 178,940
200,000
641,976
P 1,020,916
P 243,650
345,000
728,352
P 1,317,002
c. Other assets of P2,000 and P3,600 in LLs and MMs respective books are
to be written off.
The capital account of the partners after the adjustments will be:
a. LL: P615,942, MM: P717,894
b. LL: P614,476, MM: 683,052
c. LL: P640,876, MM: P712,345
d. LL: P640,876, MM: 683,050
3. The same information in number 2, how much total assets does the
partnership have after formation?
a. P2,265,118
b. P2,337,918
c. P2,237,918
d. P2,365,218
4. On March 1, 2015, PP and QQ decide to combine their businesses and form a
partnership. Their balance sheets on March1, before adjustments, showed the
following:
PP
Cash
Accounts Receivable
Inventories
Furniture and Fixtures (net)
Office Equipment (net)
Prepaid Expenses
Total
Accounts Payable
Capital
Total
P 9,000
18,500
30,000
30,000
11,500
6,375
P 105,375
P 3,750
13,500
19,500
9,000
2,750
3,000
P51,500
P45,750
59,625
P105,375
P18,000
33,500
P51,500
Cash
Accounts receivable
Jessyreen
Leilani
P 11, 000
P 22, 354
234, 536
Inventories
120, 035
Land
603, 000
Building
Furniture and fixtures
567, 890
260, 102
428, 267
50, 345
34,789
Other assets
_ _2, 000__
__ 3,600_
Total
P 1,020,916
P 1,317,002
Accounts payable
P 178,940
Notes payable
P 243,650
200,000
John, capital
345,000
641,976
Paul, capital
________
Total
P 1,020,916
728, 352
P1,317,002
614,476
683, 052
b. Jessyreens
Leilanis
615, 942
717, 894
b. Jessyreens
Leilanis
640, 876
712, 345
b. Jessyreens
Leilanis
613, 576
683, 350
Leilani
p641,976
P728,352
Uncollectible accounts
(20,000)
(35,000)
Worthless inventories
(5,500)
Adjustments:
(2,000)
(6,700)
(3,600)
P683,052
Leilani
Total
1020916
1317002
Uncollectible accounts
(20000)
(35000)
Worthless inventories
(5500)
2337918
Adjustments:
(2000)
993416
(55000)
(6700)
(3600)
(12200)
(5600)
1271702
2265118
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
Suggested answer (d)
New capital of the partnership [(614476+683052)/80%]
Multiply by
Cash to be contributed by Shamira
P1621910
20%
P324382
9. After Shamiras 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
c. 32,272
d. 34,288
Leilani
683052
40:40:20 ratio
New capital ratio:
@ 40% each (1621910)
648764
648764
P34288
(P34288)
10. During the first year of their operations, the partnership earned P325,000.
Profits were distributed in 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?
a. Jessyreen, capital
750,627
Leilani, capital
735,177
Shamira, capital
372,223
b. Jessyreen, capital
728,764
Leilani, capital
713,764
Shamira, capital
361,382
c. Jessyreen, capital
757,915
Leilani, capital
742,315
Shamira, capital
375, 837
d. Jessyreen, capital
743,121
Leilani, capital
727,825
Shamira, capital
368,501
Capital balances at
Jessyreen
Leilani
Shamira
P648764
P648764
P324382
(50000)
(65000)
(28000)
40:40:20 ratio
Drawings
P728764
130000
P713764
65000
P361382
A
31,000
26,000
32,000
20,000
(9,000)
100,000
B
50,000
20,000
24,000
5,000
24,000
(3,000)
120,000
28,000
72,000
100,000
20,000
100,000
120,000
a. 235,333
b. 230,000
c. 220,333
d. 212,000
b) Five.
c) Two.
d) One which can be the same person as the director.
6. Roberts and Smith drafted a partnership agreement that lists the following
assets contributed at the partnerships 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. The partnership agreement also specifies that profits and losses
are to be distributed evenly. What
amounts should be recorded as capital for Roberts and Smith at the
formation of the 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 Roberts and Smith at the formation of the partnership. Unless
otherwise agreed upon by the partners, individual capital accounts should be
credited for the fair market value (on the date of contribution) of the net
assets contributed by that partner. It is necessary to assume that the
amounts listed are fair market values. The amount of net assets that Roberts
contributed is $35,000 ($20,000 + $15,000). The fair market value of the net
assets Smith contributed is $75,000 ($30,000 + $15,000 + $40,000
$10,000). The partners profit and loss sharing ratio does not affect the initial
recording of the capital accounts.
9. Ellis and Nossiter are partners sharing profits in a 30:70 ratio. The
following data summarizes 2004 activity:
Partnership net income, 2004 $68,000
Ellis capital, 1/1/2004
90,000
Ellis additional investment in 2004 10,000
Ellis drawings in 2004
12,000
Nossiter capital, 1/1/2004
80,000
Nossiter drawings in 2004
20,000
What amount of net income is allocated to Nossiters capital account for
2004?
a. $26,600
b. $27,600
c. $34,000
d. $47,600
Answer: (d) (68,000.7)
10. Ellis and Nossiter are partners sharing profits in a 30:70 ratio. The
following data summarizes 2004 activity:
Partnership net income, 2004 $68,000
Ellis capital, 1/1/2004
90,000
Ellis additional investment in 2004 10,000
Ellis drawings in 2004
12,000
Nossiter capital, 1/1/2004
80,000
Nossiter drawings in 2004
20,000
What is the value of Elliss capital account at 12/31/2004?
a. $20,400
b. $108,400
c. $111,400
d. $120,400
Answer: (b) (90,000+10,000-12,000+(68,000.3))
Chapter 1 Partnership Formation
1.On July 1,1997, 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
1,1997 four hours after formation of the partnership. How much should be recorded
in Munoz capital account on formation of the partnership?
a)
b)
c)
d)
P10,000
P20,000
P25,000
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 32,000.00 for half of her capital and half of her 50 percent profit
sharing interest on October 1,1997. At this time Liz capital balance was P24,000.00
and Dick capital balance was P56,000.00. Liz should receive a debit to her capital
account of:
a)
b)
c)
d)
P
P
P
P
12,000.00
20,000.00
16,000.00
26,667.00
3.On March 1,1997, Santos and Pablo formed a partnership with each contributing
the following assets:
Cash
Machinery and Equipment
Building
Furniture & Fixtures
Sa
ntos
P 30,000
25,000
-010,000
Pabl
o
P 70,000
75,000
225,000
-0-
P
P
P
P
290,000.00
305,000.00
314,000.00
370,000.00
Cash
John
P 11,000
Paul
P 22,354
Accounts Receivable
Inventories
Land
Building
Furniture & Fixtures
Other Assets
Total
234,536
120,035
603,000
50,435
2,000
P 1,020,916
Accounts Payable
Notes Payable
John, Capital
Paul, Capital
Total
178,940
200,000
641,976
P 1,020,916
567,890
260,102
428,267
34,789
3,600
P 1,317,002
243,650
345,000
728,352
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 P 20,000 in Johns books and P 35,000 in Pauls are
uncollectible.
b. Inventories of P 5,500 and P 6,700 are worthless in Johns and Pauls
respective books.
c. Other assets of P 2,000 and P 3,600 in Johns and Pauls respective books are
to be written off.
The capital account of the partners after the adjustment will be:
a) Johns
Pauls
b) Johns
Pauls
c) Johns
Pauls
d) Johns
Pauls
P
P
P
P
P
P
P
P
614,476
683,052
615,942
717,894
649,876
712,345
613,576
683,350
5. The following is the condensed balance sheet of the partnership Jo, Li and Bi who
share profits and losses in the ratio of 4:3:3.
Cash
Other Assets
Jo, receivable
Total
P
180,000
1,660,000
40,000
P1,880,000
Accounts
Payable
Bi, Loan
Jo, Capital
Li, Capital
Bi, Capital
P
420,000
60,000
620,000
400,000
380,000
Total
P1,880,0
00
Assume that the assets and liabilities are fairly valued on the balance sheet and the
partnership decides to admit Mac as a new partner, with a 20% interest. No goodwill
or bonus is to be recorded. How much Mac contributes to cash or other assets?
a)
b)
c)
d)
P
P
P
P
350,000
280,000
355,000
284,000
P 370,000
(80,000)
P 290,000
Note that the profit and loss sharing ratio is irrelevant to the solution of this
problem.
4. A.
Johns
P 614,476
Pauls
P 683,052
John
P641,976
Paul
P 728,352
(20,000)
(5,500)
(2,000)
P 614,476
(35,000)
6,700
(3,600)
P 683,052
5. A. P 350,000
Total agreed capital of the new partnership ( 1,400,000 80% )
P 1,750,000
Total contributed capital of the old partners
( 1,400,000)
Macs contribution
350,000
MM
Cash
P11,000
P22,354
Accounts Receivable
234,536
567,890
Inventories
120,035
260,102
Land
603,000
----------
Building
----------
428,267
50,345
34,789
2,000
3,600
Accounts Payable
P1,020,916
P1,317,002
P178,940
P 243,650
Notes Payable
200,000
345,000
LL,Capital
641,976
-------------
MM, Capital
----------
728,352
P1,020,916 P1,317,002
LL and MM agreed to form a partnership contributing their respective assets and equities
subject to the following adjustments:
a. Accounts receivable of P20,000 in LLs books and P35,000 in MMs are
uncollectible.
b. Inventories of P5,500 and P6,700 are worthless in LLs and MMs respective books.
c. Other assets of P2,000 and P3,600 in LLs and MMs respective books are to be
written off.
The capital account of the partners after the adjustments will be:
a. LL, P615,942; MM, P717,894 c. LL, P640,876; MM, P683,050
b. LL, P640,876; MM, P712,345 d. LL, P614,476; MM, P683,052
6. Langley invests his delivery van in a computer repair partnership with McCurdy. What
amount should the van be credited to Langleys partnership capital?
A. The tax basis.
B. The fair value at the date of contribution.
C. Langleys original cost.
D. The assessed valuation for property tax purposes.
7. On April 30, 1993, Algee, Belger, and Ceda formed a partnership by combining their
separate business proprietorships. Algee contributed cash of $50,000, Belger contributed
property with a $36,000 carrying amount, a $40,000 original cost, and $80,000 fair value.
The partnership accepted responsibility for the $35,000 mortgage attached to the
property. Ceda contributed equipment with a $30,000 carrying amount, a $75,000
original cost, and $55,000 fair value. The partnership agreement specifies that profits and
losses are to be shared equally but is silent regarding capital contributions. Which partner
has the largest April 30, 1993, capital account balance?
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 P2,205,000 and
office equipment that cost P945,000. The equipment had been used in her sole
proprietorship and had been 70% depreciated, the appraised value of the equipment is
P630,000. Jamby also contributed a note payable of P210,000 to be assumed by the
partnership. Jamby is to have 60% interest in the partnership. Miriam contributed only
P1,575,000 merchandise inventory at fair market value. Assume the use of bonus method,
the partners capital must be in conformity with their profit and loss ratio upon formation.
In the formation of a partnership, which of the following is true?
A.
B.
C.
D.
9. Alley and Barvey established a partnership on December 1, 20x4. They agreed that Alley
will contribute cash of P20,000; Land of P15,000 and Building of P50,000. Alleys
accounts payable of P10,000 is to be assumed by the partnership. Barvey will contribute
cash of P30,000 and furniture and fixtures of P25,000.
Assume that each partner initially should have an equal interest in partnership capital
with no contribution of intangible asset (bonus method). How much are the capital
balances of each partner?
a. P85,000 for Alley and P55,000 for Barvey
b. P65,000 for Alley and P65,000 for Barvey.
c. P75,000 for Alley and P55,000 for Barvey
d. P75,000 for Alley and P75,000 for Barvey.
10. The partnership agreement is an express contract among the partners (the owners of the
business). Such an agreement generally does not include
a. A limitation on a partners 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.
1. The partnership form of business is:
a. An economic entity.
b. A separate legal entity, just as a corporation is a legal entity.
c. A taxable entity.
d. A fiscal entity.
2. A distinct and major advantage of the professional corporation form of
organization in comparison with the partnership form of organization
is:
a. Limited liability with respect to damages arising from
professional services.
b. Greater allowable tax deductions for retirement plans.
c. Ease of formation
d. Book value
e. Historical cost
3. Which of the following is not a characteristic of a partnership?
a. The partnership itself pays no income taxes.
b. It is easy to form a partnership.
c. Any partner can be held personally liable for all debts of the
business.
d. A partnership requires written Articles of Partnership.
e. Each partner has the power to obligate the partnership for
liabilities.
4. The advantages of the partnership form of business organization,
compared to corporations, include
a.
b.
c.
d.
e.
Single taxation
Ease of raising capital
Mutual Agency
Limited Liability
Difficulty of formation
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 P20,000 of goodwill because of his special skills
relevant to this business. What amount of capital will exist for Claude
when the partnership is formed?
a. P60,000
b. P65,000
c. P70,000
d. Some other amount
7. Bill and Ken enter into a partnership agreement in which Bill is to have
a 60% interest in capital and profits and Ken is to have a 40% interest
in capital and profits. Bill contributes the following:
Land
Building
Equipment
Cost
P10,000
P100,000
P20,000
Fair value
P20,000
P60,000
P15,000
b. P15,000
c. P16,667
d. P20,000
8. Paul, Jeremy, and Juan are forming a partnership. Juan contributes a
building having an historical cost, accumulated depreciation, and
market value of P290,000, P100,000, and P400,000, respectively. The
building is initially recorded on the partnerships books at Juans book
value (P190,000). Two years later the building is sold for a P270,000
gain. 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:
Cash
Building-Cost to
Jones
-Fair Value
Inventory- Cost
Smith
-Fair Value
Mortgage
Payable
Account Payable
Jones
P80,000
300,000
Smith
P40,000
400,000
200,000
280,000
120,000
60,000
Assume that for tax purposes Jones and Smith agree to share equally
in the liabilities assumed by the Jones and Smith partnership. What is
the balance in each partners 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 the ratio of 4:6, respectively. ML contributed a
parcel of land that cost her P25,000. PP contributed P50,000 cash. The
land was sold for P50,000 on July 1, four hours after formation of the
1. B.
2. A.
3. D.
4. A.
5. C.
6. C.
7. A.
8. B.
9. C.
10. D.
d. P50,000
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 would
be recorded for financial accounting purposes at the:
a. Proprietors book values or the fair value of the property at the date of the investment,
whichever is higher
b. Proprietors book values or the fair value of the property at the date of the investment,
whichever is lower.
c. Proprietors book values of the property at the date of the investment.
d. Fair value of the property at the date of the investment.
1.2. When property other than cash is invested in a partnership, at what amount should
the non-cash property be credited to the contributing partners capital account?
a. Contributing partners tax basis.
b. Contributing partners original cost.
c. Assessed valuation for property tax purposes.
d. Fair value at the date of contribution.
1.4. When property other than cash i invested in a partnership, at what amount should
the noncash property be credited to the contributing partners capital account?
a.
b.
c.
d.
PROBLEMS
1.6. Abena and Buendia establish a partnership to operate a used-furniture business
under the name of A and B Furniture. Abena contributes furniture that cost P60,000 and
has a fair value of P90,000. Buendia contributes P30,000 cash and delivery equipment
that cost P40,000 and has a fair value of P30,000. The partners agree to share profits
and losses 60% to Abena and 40% to Buendia.
The peso amount of gain (loss) that will result if the initial noncash contributions of the
partners are recorded at cost rather than fair market value will be
a.
b.
c.
d.
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 responsibility
for the P70,000 mortgage attached to the property. Laxamana contributed equipment
with a carrying amount of P60,000, original cost of P150,000, and fair value of 110,000.
The partnership agreement specifies that profits and losses are to be shared equally but
is silent regarding capital contributions.
Which partner has the largest capital account balance as of April 30, 2003?
a. Bautista
b. Jimenez
c. Laxamana
d. All capital account balances are equal
1.8. G. Macalino and W. Nolasco form a partnership and agree to divide initial capital
equally, even though Macalino contributed P100,000 and Nolasco gave P84,000 in
identifiable assets.
Under the bonus approach to adjust capital accounts, Nolascos unidentifiable assets
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 Molina
is to have a 60% interest in capital and profits and Nepomuceno is to have a 40%
interest in capital and profits. Molina contributes the following:
Cost
Fair Value
Land
P 20,000
P 40,000
Building
200,000
120,000
Equipment
40,000
30,000
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 Nepomuceno
agree that Nepomucenos capital account should equal Nepomucenos P100,000 cash
contribution and that goodwill should be recorded.
Goodwill should be recorded in the amount of
a. P20,000
c. P33,333
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 adjustment
is presented below.
Roxas
Poe
Cash
P 9,000
P 3,750
Accounts Receivable
18,500
13,500
Inventories
30,000
19,500
30,000
9,000
11,500
2,750
6,375
3,000
P105,375
P51,500
P 45,750
P 18,000
Prepaid Expenses
Accounts Payable
Z. Roxas, Capital
59,625
B. Poe, Capital
33,500
P105,375
P 51,500
They agreed to provide 3% for doubtful accounts on their accounts receivable and
found Poes furniture to be under depreciated by P900.
If each partners share in equity is to be equal to the net assets invested, the capital
accounts of Roxas and Poe would be:
a. P58,170 and P33,095 respectively
b. P58,320 and P32,945 respectively
c. P59,070 and P32,195 respectively
d. P104,820 and P50,195 respectively
1.
Which of the following is not a characteristic of a partnership?
a. The partnership itself pays no income taxes
b. It is easy to form a partnership
c. Any partner can be held personally liable for all debts of the business
d. A partnership requires written Article of Partnership
2.
The partnership form of business is:
a. An economic entity
b. A taxable entity
c. A fiscal entity
d. A separate legal entity, just as a corporation is a legal entity
3.
Which of the following is not an advantage of partnership over a
corporation?
a. Ease of formation
b. Unlimited liability
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% 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 EE as the basis. The additional cash investment 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 are to be contributed for a total capital of 300,000. The
noncash assets to be contributed and liabilities to be assumed are:
The partners 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)
Assets=X=318,750 A
8. Refer to number 8, the amount of cash that each partner must contribute.
a. JJ=75,000; KK=18750
b. JJ=75,000; KK=11,250
c. JJ=161,250; KK= 157,500
d. JJ= 127,500; KK= 11,250
For JJ; 150,000=Cash to be contrubuted+22,500+33,750+30,000+(-11250)
Cash to be contributed=75,000
For KK; 150,000=Cash to be contributed+67,500+71,250+(-7500)
Cash to be contributed=18,750
A
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 assumed by the Jones and Smith partnership. Refer to the above
information. What is the balance in each partners capital account for
financial accounting purposes?
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 it is agreed that OO is taken certain equipment
with second-hand value of P50,000 and a note for the balance of OOs
interest. The equipment are carried on the books at P65,000. Brand new
equipment may cost P80,000. Compute for: (1) OOs acquisition of the
second-hand equipment will result to reduction in capital; (2) the value of the
note that will OO get from the partnerships 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
1. Cat and Dog formed a partnership, each contributing assets to the business. Cat
contributed inventory with a current market value in excess of its carrying
amount. Dog contributed real estate with a carrying amount in excess of its
current market value. At what amount should the partnership record each of the
following assets?
a.
Inventory
Market value
Real estate
Market value
b.
c.
d.
Market value
Carrying amount
Carrying amount
Carrying amount
Market value
Carrying amount
4.
b. Agreed value
b. Agreed value
b. Agreed value
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 losses in the ratio of 3:7, respectively. Cat contributed a parcel of
land that cost her P10,000. Meow contributed P40,000 cash. The land has a
fair value of P15,000. Cat insisted that the value of the land should be
P18,000. The partners agreed to value the land at P18,000. What amount
should be recorded in Cats capital account on formation of the new
partnership?
a. P18,000 b. P17,400 c. P15,000 d. P10,000
2. On July 1, Manny and Floyd formed a partnership, agreeing to the profit and
loss in the ratio of 4:6, respectively. Manny contributed a parcel of land that
cost him P25,000. Floyd contributed P50,000 cash. The land was sold for
P50,000 on July 1, for hours after formation of the partnership. How much
should be recorded in Mannys capital account on the partnership 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 capital and profits and Ken is to have a 40% interest in capital and
profits. Bill contributes the ff:
Cost
Fair Value
Land
Building
Equipment
P10,000
P100,000
P20,000
P20,000
P60,000
P15,000
P20,000
Solution:
Cash contribution of Ken P50,000
Divided by Ken capital interest
40%
Total agreed capital
P125,000
Less: Bills Contribution
65,000
Kens agreed capital
P 60,000
Less: Kens contribution
50,000
Goodwill
P 10,000
For 4 and 5
Cat admits Dog as partner in business. Accounts in the ledger for Cat on November
30, 2015, just before 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 Cats interest the following
adjustments shall be made:
a. An allowance for doubtful accounts of 3% of accounts receivable is to be
established
b. The merchandise inventory is to be valued at P23,000
c. Prepaid salary expenses of P600 and accrued rent expense of P800 are to be
recognized.
4. Dog is to invest sufficient cash to obtain a 1/3 interest in the partnership.
Cats adjusted capital before the admission of Dog
a. P28,174 b. P35,347 c. P35,374 d. P36,374
5. The amount of cash investment by Dog
a. P11,971 b. P35,347 c. P17,687 d. P18,790
Solution:
Cat, capital
P33,000
Less: Allowance for
doubtful accounts
426
P53,061
Accrued rent
1/3
expense
800
P17,687
Total
P 31,774
Add: Inventory
3,000
Prepaid rent
600
Cats adjusted capital
P 35,374
2/3