1_PDFsam_01 Partnership Formation & Admission of a Partnerxx (1).pdf

PRACTICAL ACCOUNTING 2 THEORY & PRACTICE ADVANCE ACCOUNTING PARTNERSHIP – FORMATION & ADMISSION QUIZZER

Partnership Formation & Admission of a Partner Partnership I.

Introduction A partnership is defined as an association of two or more persons who contributes money, property or industry to a common fund with the intention of dividing the profits among themselves. Accounting for partnerships should comply with the legal requirements as set forth by the Partnership Law as Well as complying with the partnership agreement itself.

//.

Partnership Formation and Capital Accounts All assets contributed to the partnership are recorded by the partnership at their agreed values (or fair market values, in the absence of agreed values). All liabilities that the partnership assumes are recorded at their net present values. Thus, if a partner contributes a noncash asset to the partnership (e.g., land or equipment) subject to mortgage, the contributing partner's capital account is credited for the agreed value (or fair values) of the noncash asset less the mortgage assumed by the partnership. The capital account is an equity account similar to the shareholders' equity accounts in a corporation. It is used to account for permanent withdrawals and additional contributions. Other important accounts include a drawing account and loans to or from partners. The drawing account is used to account for net income or loss and personal or normal withdrawals, i.e., share against net income. It is closed at the end of the period into the capital account. Loan accounts are set up for amounts intended as loans, rather than as additional capital investments. In liquidation proceedings, a loan to or from a partner is in essence treated as an increase or decrease in a partner's capital account.

///.

Division of Profits and Losses As a rule profits and losses are allocated based on agreement. Methods Various methods Exist for the division of partnership profits and losses including the following: 1. Equally, 2. Arbitrary ratio, 3. Capital contribution ratio: a. Original Capital or initial investment b. Beginning Capital of each year c. Average Capital d. Ending Capital of each year 4. Interest on capital balance and/or loan balances and the balance on agreed ratio, 5. Salaries to partners and the balance on agreed ratio, 6. Bonus to partners and the balance on agreed ratio,

Partnership Formation & Admission of a Partner - Lecture

Page 3

Advance Accounting a. Bonus as an "expense" in computing the bonus amount. Here, bonus is computed based on net income after bonus. b. Bonus as a distribution of profit. Here, the bonus is computed based on net income before deducting the bonus. 7. Interest on capitals and/or loan balances, salaries to partners, and bonus to partner and the balance on agreed ratio. The method of division to be used in any given situation is generally the method specified in the partnership agreement. This agreement must always be consulted first, since it is legally binding on the partners. If no profit and loss sharing arrangement is specified in the partnership agreement, the partnership requires that profits and losses be shared according to capital contribution. Capital contribution should be interpreted to be original capital/beginning capital of each year in the absence of original capital; similarly, if the agreement specifies how profits are to be shared but is silent as to losses, losses are to be shared in the same manner as profits. Notice that the profit and loss sharing ratio is totally independent of the partners' ownership interests. Thus, two partners may have ownership interests of 70% and 30% but share profits and losses equally. IV.

Dissolution A. Admission of a New Partner A new partner may be admitted to the partnership by purchasing the interest of one or more of the existing partners or by contributing cash or other assets (i.e., investment of additional capital). These two situations are discussed below. 1. Purchase of Interest - When a new partner enters the partnership by purchasing the interest of an existing partner, the price paid for that interest is irrelevant to the partnership accounting records because it is a private or personal transaction between the buyer and seller. The assets and liabilities of the partnership are not affected. The capital account of the new partner is recorded by merely reclassifying the capital account of the old partner. 2. Admission by Investment of Additional Assets - A new partner may be granted an interest in the partnership in exchange for contributed assets and/or goodwill (e.g., business expertise, an established clientele, etc.). The admission of the new partner and contribution of assets may be recorded on the basis of the bonus method. Bonus method This method is based upon the historical cost principle. Admittance of a new partner involves debiting cash or other assets for the FMV of the assets contributed and crediting the new partner's capital for the agreed (i.e., purchased) percentage of total capital. Total capital equals the book value of the net assets prior to admittance of the new partner, plus the FMV of the assets contributed by the new partner. A difference between the FMV of the assets contributed

Partnership Formation & Admission of a Partner

Page 4

Partnership Formation & Admission of a Partner and the interest granted to the new partner results in the recognition of a bonus. a. No bonus recognized - When an incoming partner's capital account (ownership interest) is to be equal to his purchase price, the partnership books merely debit cash or other assets and credit capital. b. Bonus granted to the old partners - When the FMV of the assets contributed by an incoming partner exceeds the amount of ownership interest to be credited to his capital account, the old partners recognize a bonus equal to this excess. This bonus is allocated on the basis of the same ratio used for income allocation (unless otherwise specified in the partnership agreement). Recording involves crediting the old partners' capital accounts by the allocated amounts. c. Bonus granted to new partner - An incoming partner may contribute assets having a FMV smaller than the partnership interest granted to that new partner. Similarly, the new partner may not contribute any assets at all. The incoming partner is therefore presumed to contribute an intangible asset, such as managerial expertise or personal business reputation. In this case, a bonus is granted to the new partner, and the capital accounts of the old partners are reduced on the basis of their profit and loss ratio. Goodwill method. In PFRS No. 3, goodwill represents the excess of the cost of the business combination over the fair value of the identifiable net assets obtained. Therefore, the standard provides that goodwill attaches only to a business as a whole and is recognized only when a business is acquired. This provision of PFRS No. 3 outlawed the use of the goodwill method in partnership accounting particularly admission and retirement of a partner because there is no business involved. The term "business" is defined in the Appendix A of PFRS No. 3 as: An integrated set of activities and assets conducted and managed for the purpose of providing: {a) a return to investor; or [b) Lower costs or other economic benefits directly and proportionately to policyholders or participants. A business generally consists of inputs, processes applied to those inputs, and resulting outputs that are, or will be, used to generate revenues. If goodwill is present in a transferred set of activities and assets, the transferred set shall be presumed to be a business. Refer to Appendix of this chapter for further discussion and illustration. Note to the Examinees: According to PFRS No. 3, goodwill represents the excess of the cost of the business combination over the fair value of the identifiable net assets obtained. Therefore, the standard provides that goodwill attaches only to a business as a whole and is recognized only when a business is acquired. This provision of PFRS No. 3 outlawed the use of the goodwill method in partnership particularly admission and retirement of a partner because there is no business involved.

Partnership Formation & Admission of a Partner - Lecture

Page 5

Advance Accounting MCQ - Theory 1. Which of the following is not a characteristic of most partnership? a. Limited liability c. Mutual agency b. Limited life d. Ease of formation

Punzalan 2014

2.

Which of the following is not a characteristic of the proprietary theory that influences accounting for partnerships? a. Partners' salaries are viewed as a distribution of income rather than a component of net income. b. A partnership is not viewed as separate entity, distinct, taxable entity. c. A partnership is characterized by limited liability, d. Changes in the ownership structure of a partnership result in the dissolution of the partnership. Punzalan 2014

3.

Which of the following statements is correct with respect to a limited partnership? a. A limited partner may not be an unsecured creditor of the limited partnership. b. A general partner may not also be limited partner at the same time. c. A general partner may be a secured creditor of the limited partnership. d. A limited partnership can be formed with limited liability for all partners. Punzalan 2014

4.

An advantage of the partnership as a form of business organization would be a. Partners do not pay income taxes on their share in. partnership income. b. A partnership is bound by the act of the partners. c. A partnership is created by mere agreements of the partners. Punzalan 2014 d. A partnership may be terminated by the death or withdrawal of a partner.

5.

When property other than cash is invested in a partnership, at what amount should the noncash property be credited to the contributing partner's capital account? a. Fair value at the date of contribution. b. Contributing partner's original cost. c. Assessed valuation for property tax purposes. d. Contributing partner's tax basis. Punzalan 2014

6.

Partnership capital and drawings accounts are similar to the corporate a. Paid in capital, retained earnings, and dividends accounts. b. Retained earnings account. c. Paid in capital and retained earnings accounts. d. Preferred and common stock accounts.

Partnership Formation & Admission of a Partner MCQ Theoy

Punzalan 2014

Page 6

Partnership Formation & Admission of a Partner 7.

The Flat and Iron partnership agreement provides for Flat to receive a 20% bonus on profits before bonus. Remaining profits and losses are divided between Flat and Iron in the ratio of 2:3, respectively. Which partner has a greater advantage when the partnership has a profit or when it has a loss? Profit Loss a. Flat Iron b. Flat Flat

Profit Loss c. Iron Flat d. Iron Iron

Punzalan 2014

8.

If the partnership agreement does not specify how income is to be allocated, profits and loss should be allocated a. Equally. b. In proportion to the weighted average of capital invested during the period. c. Equitably so that partners are compensated for the time and effort expended on behalf of the partnership. d. In accordance with their capital contribution. Punzalan 2014

9.

Which of the following is not a component of the formula used to distribute income? a. Salary allocation to those partners working. b. After all other allocation, the remainder divided according to the profit and loss sharing ratio. c. Interest on the average capital investments, d. Interest on notes to partners. Punzalan 2014

10. Which of the following is not considered a legitimate expense of a partnership? a. Interest paid to partners based on the amount of invested capital. b. Depreciation on assets contributed to the partnership by partners. c. Salaries for management hired to run the business. d. Supplies used in the partners' offices. Punzalan 2014 11. The fact that salaries paid to partners are not a component of partnership income is indicative of a. A departure from generally accepted accounting principles. b. Being characteristic of the entity theory. c. Being characteristic of the proprietary theory. d. Why partnerships are characterized by unlimited liability. Punzalan 2014

Partnership Formation & Admission of a Partner MCQ Theory

Page 7

Advance Accounting 12. If a new partner acquires a partnership interest directly from the partners rather than from the partnership itself, a. No entry is required. b. The partnership assets should be revalued. c. The existing partners' capital accounts should be reduced and the new partner's account increased. d. The partnership has undergone a quasi-reorganization. Punzalan 2014 13. Which of the following results in dissolution of a partnership? a. The contribution of additional assets to the partnership by an existing partner. b. The receipt of a draw by an existing partner. c. The winding up of the partnership and the distribution of remaining assets to the partners. d. The withdrawal of a partner from a partnership. Punzalan 2014 14. When a new partner is admitted to a partnership, an original partner's capital account may be adjusted for a. A proportionate share of the incoming partner's investment. b. His or her share of previously unrecorded intangible assets traceable to the original partners. c. His or her share of previously unrecorded intangible assets traceable to the incoming partner. d. None of the above. Punzalan 2014 15. Which of the following best characterizes the bonus method of recording a new partner's investment in a partnership? a. Net assets of the previous partnership are not revalued. b. The new partner's initial capital balance is equal to his or her investment. c. Assuming that recorded assets are properly valued, the book value of the new partnership is equal to the book value of the previous partnership and the investment of the new partner. Punzalan 2014 d. The bonus always results in an increase to the previous partners capital balances. 16. If goodwill is traceable to the previous partners, it is a. Allocated among the previous partners according to their interest in capital. b. Allocated among the previous partners only if there are not other assets to be revalued. c. Allocated among the previous partners according to their original profit and loss sharing percentages. d. Not possible for goodwill to also be traceable to the incoming partner. Punzalan 2014


Page 8

Partnership Formation & Admission of a Partner 17. The goodwill and the bonus methods are two means of adjusting for differences between the net book value and the fair market value of partnership when new partners are admitted. Which of the following statements about these methods is correct? a. The bonus method does not revalue assets to market values. b. The bonus method revalues assets to market values. c. Both methods result in the same balances in the partner capital accounts. d. Both methods result in the same total value of partner capital account, but the individual capital account vary. Punzalan 2014 18. The following is the priority sequence in which liquidation proceeds will be distributed for a partnership: a. Partnership drawings, partnership liabilities, partnership loans, partnership capital balances b. Partnership liabilities, partnership loans, partnership capital balances. c. Partnership liabilities, partnership loans, partnership drawings, partnership capital balances. Punzalan 2014 d. Partnership liabilities, partnership capital balances, partnership loans. 19. The doctrine of marshaling of assets a. Is applicable only if the partnership is insolvent. b. Allows partners to first contribute personal assets to unsatisfied partnership creditors. c. Is applicable if either the partnership is insolvent or individual partners are insolvent. d. Amount owed to personal creditors and to the partnership for debit capital balances are shared proportionately from the personal assets of the partners. Punzalan 2014 20. In the liquidation of a partnership it is necessary to (1.) distribute cash to the partners; (2.) sell non-cash assets; (3.) allocate any gain or loss on realization to the partners; and (4.) pay liabilities. These steps should be performed in the following order: a. (2),(3),(4),(1) b. (2), (3), (1), (4) c. (3), (2), (1), (4) d. (3), (2), (4), (T) Punzalan 2014

Partnership Formation & Admission of a Partner MCQ Theory

Page 9

Advance Accounting 21. In the AA-BB partnership, AA and BB had a capital ratio of 3:1 and a profit and loss ratio of 2:1, respectively. The bonus method was used to record CC's admittance as a new partner. What ratio would be used to allocate, to AA and BB, the excess of CC's contribution over the amount credited to CC's capital account? a. AA and BB's new relative ratio. b. AA and BB's new relative profit and loss ratio. c. AA and BB's old capital ratio. d. AA and BB's old profit and loss ratio. Dayag 2013 22. The FF and II partnership agreement provides for FF to receive a 20% bonus on profits before the bonus. Remaining profits and losses are divided between FF and II in the ratio of 2 to 3, respectively. Which partner has a greater advantage when the partnership has a profit or when it has a loss? Profit Loss a. FF II b. FF FF c. II FF d. II II Dayag 2013


Page 10

Partnership Formation & Admission of a Partner MCQ - Problems FORMATION No Bonus, No Revaluation Cash Contributed by Partner 23. As of July 1, 2012, FF and GG decided to form a partnership. Their balance sheets on this date are: FF GG Cash P 15,000 P 37,500 Accounts receivable 540,000 225,000 Merchandise Inventory 202,500 Machinery and equipment 150,000 270,000 Total P705,000 P735,000 Accounts Payable P135,000 P240,000 FF, capital 570,000 GG, capital 495,000 Total P705,000 P735,000 The partners agreed that the machinery and equipment of FF is under depreciated by P15,000 and that of GG by P45.000. Allowance for doubtful accounts is to be set up amounting to P120,000 for FF and P45,000 for GG. The partnership agreement provides for a profit and loss ratio and capital interest of 60% to FF and 40% to GG. How much cash must FF invest to bring the partners' capital balances proportionate to their profit and loss ratio? a. 142,500 c. 172,500 b. 52,500 d. 102,500 Dayag 2013 24. Mary admits Jane as a partner in the business. Balance sheet accounts of Mary just before the admission of Jane show: Cash, P26,000, Accounts receivable, PI20,000, Merchandise inventory, PI80,000, and Accounts payable, P62,000. It' was agreed that for purposes of establishing Mary's interest, the following adjustments be made: 1.) an allowance for doubtful accounts of 3% of accounts receivable is to be established; 2.) merchandise inventory is to be adjusted upward by P25,000; and 3.) prepaid expenses of P3,600 and accrued liabilities of P4,000 are to be recognized. If Jane is to invest sufficient cash to obtain 2/5 interest in the partnership, how much would Jane contribute to the new partnership? a. 176,000 c. 95,000 b. 190,000 d. 113,980 Punzalan 2014

Partnership Formation & Admission of a Partner MCQ Problems

Page 11

Advance Accounting 25. Red, White, and Blue form a partnership on May 1,2013. 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. P 40,000 c. P60,000 b. P120,000 d. P180,000 Guerrero 2013 Noncash Contribution 26. On December 1, 2012, EE and FF formed a partnership, agreeing to share for profits and losses in the ratio of 2:3, respectively. EE invested a parcel of land that cost him P25,000. FF invested P30,000 cash. The land was sold for P50,000 on the same date, three hours after formation of the partnership. How much should be the capital balance of EE right after formation? a. 25,000 c. 60,000 b. 30,000 d. 50,000 Dayag 2013 27. On May 1, 2010, Cobb and Mott formed a partnership and agreed to share profits and losses in the ratio of 3:7, respectively. Cobb contributed a parcel of land that cost him PI0,000. Mott contributed P40,000 cash. The land was sold for PI8,000 on May 1, 2010, immediately after formation of the partnership. What amount should be recorded in Cobb's capital account on formation of the partnership? a. 18,000 c. 15,000 b. 17,400 d. 10,000 Punzalan 2014 28. On July 1,2013, 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 1,2013 four hours after formation of the partnership. How much should be recorded in Monuz capital account on formation of the partnership? a. PI0,000 c. P25,000 b. P20,000 d. P50,000 Guerrero 2013


Page 12

Partnership Formation & Admission of a Partner Cash, noncash contribution 29. Jones and Smith formed a partnership with each partner contributing the following items: Jones Smith Cash P 80,000 P40,000 Building - cost to Jones 300,000 - fair value 400,000 Inventory - cost to Smith 200,000 - fair value 280,000 Mortgage payable 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 partner's capital account for financial accounting purposes? Jones Smith A. P350,000 P270,000 B. P260,O00 PI 80,000 C. P360,O00 P260,000 D. P500,000 P300,000 a. Option A c. Option C b. Option B d. Option D Dayag 2013 Questions 1 & 2 are based on the following: Dayag 2013 30. On March 1, 2012, II and JJ formed a partnership with each contributing the following assets: II JJ Cash P300,000 P700,000 Machinery and equipment 250,000 750,000 Building 2,250,000 Furniture and fixtures 100,000 The building is subject to mortgage loan of P800,000, which is to be assumed by the partnership agreement provides that II and JJ share profits and losses 30% and 70%, respectively. On March 1, 2012 the balance in JJ's capital account should be: a. 3,700,000 c. 3,050,000 b. 3,140,000 d. 2,900,000 31. The same information in Number 2, except that the mortgage loan is not assumed by the partnership. On March 1, 2012 the balance in JJ's capital account should be: a. 3,700,000 c. 3,050,000 b. 3,140,000 d. 2,900,000


Page 13

Advance Accounting 32. On January 2, 2010, Abel, Cain, and Josuah formed a partnership. Abel contributed cash of PI00,000 and a delivery equipment that originally costs him PI20,000, but with a second hand value of P50,000. Cain contributed PI60,000 in cash. Josuah, whose family sells office equipment, contributed P50,000 in cash and office equipment that cost his family's dealership PI00,000 but with a regular selling price of PI20,000. In 2010, the partnership reported net income of P 120,000. On December 31, 2010, what would be the capital balance of the partners? Abel Cain Josuah a. 257,500 200,000 192,500 b. 190,000 200,000 210,000 c. 260,000 200,000 190,000 d. 187,500 200,000 212,500 Punzalan 2014 33. Roberts and Smith drafted a partnership agreement that lists the following assets contributed at the partnership's formation:

Cash Inventory Building Furniture & equipment

Contributed by Roberts Smith P20,000 P30,000 15,000 40,000 15,000

The building is subject to a mortgage of PI0,000, 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 Punzalan 2014 34. Ben, Joe and Fortune are new CPA's and are to form a partnership. Ben is to contribute cash of P50,000 and his computer originally costing P60,000 but has a second hand value of P25,000. Joe is to contribute cash of P80,000. Fortune, whose family is selling computers, is to contribute cash of P25,000 and a brand new computer plus printer with regular price at P60,000 but which cost their family's computer dealership, P50,000. Partners agree to share profits equally.


Page 14

Partnership Formation & Admission of a Partner The capital balances upon formation are: a. Ben, P 75,000; Joe, P80,000; and Fortune, P85,000. b. Ben, P110,000; Joe, P80,000; and Fortune, P75,000. c. Ben, P 80,000; Joe, P80,000; and Fortune, P80,000. d. Ben, P 88,333; Joe, P88,333; and Fortune, P88,335.

Guerrero 2013

Cash, noncash contribution, assumption of debt 35. On April 30, 2010, Alex, Benjie, and Cesar formed a partnership by combining their separate business proprietorships. Alex contributed cash of P500,000. Benjie contributed property with a P360,000 carrying amount, a P400,000 original cost, and P800,000 fair market value. The partnership accepted responsibility for the P3 50,000 mortgage attached to the property. Cesar contributed equipment with a P300,000 carrying amount, a P750,000 original cost, and P5 50,000 fair value. The partnership agreement specifies that profits and losses are to be shared equally but is silent regarding capital contributions. What are the capital balances of the partners at April 30, 2010? Alex Benjie Cesar a. 500,000 800,000 550,000 b. 500,000 450,000 550,000 c. 500,000 360,000 300,000 d. 500,000 400,000 750,000 Punzalan 2014 36. On March 1,2013, Santos and Pablo formed a partnership with each contributing the following assets. Santos Pablo Cash P30,000 P70,000 Machinery and equipment 25,000 75,000 Building 225,000 Furniture and fixtures 10,000 The building is subject to a mortgage loan of P80,000, which is to be assumed by the partnership. The partnership agreement provides that Santos and Pablo share profits and losses 30% and 70%, respectively. On March 1, 2013 the balance in Pablo's capital account should be: a. P290,000 c. P314,000 b. P305,000 d. P370,000 Guerrero 2013 Partner with biggest capital balance 37. On April 30, 2012, XX, YY and ZZ formed a partnership by combining their separate business proprietorships. XX contributed cash of P75.000. YY contributed property with a P54.000 carrying amount, a P60,000 original cost, and PI20,000 fair value. The partnership accepted responsibility for the P52.500 mortgage attached to the property. ZZ contributed equipment with a P45.000 carrying amount, a PI 12,500 original cost, and P82.500 fair value.


Page 15

Advance Accounting 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, 2012, capital balance? a. XX c. ZZ Dayag 2013 b. YY d. All capital account balances are equal 38. On April 30, 2010, Al, Ben, and Ces formed a partnership by combining their separate business proprietorships. Al contributed cash of P50,000. Ben contributed property with a P36,000 carrying amount, a P40,000 original cost, and P80,000 fair value. The partnership accepted responsibility for the P35,000 mortgage attached to the property. Ces contributed equipment with a P3 0,000 carrying amount, a P75,000 original cost, and P55,000 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 capital account balance at April 30, 2010? a. Ai c. Ces Punzalan 2014 b. Ben d. All capital balances are equal Bonus Method Adjustment to Unidentifiable Net Assets 39. RR and XX formed a partnership and agreed to divide initial capital equally, even though RR contributed P25,000 and XX contributed P21,000 in identifiable assets. Under the bonus approach to adjust the capital accounts. XX's unidentifiable assets should be debited for: a. 11,500 c. 2,000 b. 4,000 d. 0 Dayag 2013 Cash Settlement 40. Aldo, Bert, and Chris formed a partnership on April 30, with the following assets, measured at their fair values, contributed by each partner: Aldo Bert Chris Cash PI 0,000 PI2,000 P30.000 Delivery trucks 150,000 28,000 Computers 8,500 5,100 Office furniture 3,500 2,500 Totals PI 68,500 P48,600 P32,500 Although Chris has contributed the most cash to the partnership, he did not have the full amount of P30,000 available and was forced to borrow P20,000. The delivery truck contributed by Aldo has a mortgage of P90,000 and the partnership is to assume responsibility for the loan. The partners agreed to equalize their interest.


Page 16

Partnership Formation & Admission of a Partner Cash settlement among the partners are to be made outside the partnership. Using the Bonus Method: a. Bert and Chris should pay Aldo, P4,600 and P20,700 respectively. b. Aldo should pay Bert and Chris, P25,300. c. Bert should pay Aldo, P2.5,300 and Chris, P20,700. d. Chris should pay Aldo, P25,300 and Bert, P4,600. Guerrero 2013 Revaluation Net adjustments to partners' capital 41. On March 1,2013, Jose and Kiko decides to combine their businesses to form a partnership. Statement of financial position on March 1 before the formation, showed the following: Jose Kiko Cash P9,000 P3,750 Accounts receivable 18,500 13,500 Inventories 30,000 19,500 Furniture and fixture (net) 30,000 9,000 Office equipment (net) 11,500 2,750 Prepaid expenses 6,375 3,000 Total PI 05,375 P51,500 Accounts payable P45/750 P18,000 Capital 59,625 33,500 Total PI 05,375 P51,500 They agreed to following adjustments before the formation: a. Provide 2% allowance for doubtful accounts. b. Jose's furniture should be valued at P31,000, while Kiko's office equipment is underdepreciated by P250. c. Rent expense incurred previously by Jose was not yet recorded amounting to P1,000, while salary expense incurred by Kiko was not also recorded amounting to P800. d. The fair value of inventories amounted to P29,500 for Jose and P21,000 for Kiko. The net (debit) credit adjustment to partner's capital accounts are: Jose Kiko a. (P2,870) (P2,820) b. P1,870 P2,820 c. P 870 (P180) d. (P870) P 180


Guerrero 2013

Page 17

Advance Accounting Withdrawal by a partner 42. Cong and Dong have just formed a partnership. Cong contributed cash of P126,000 and computer equipment that cost P54,000. The computer had been used in his sole proprietorship and had been depreciated to P24,000. The fair value of the equipment is P36,000. Cong also contributed a note payable of PI2,000 to be assumed by the partnership. Cong is to have 60% interest in the partnership. Dong contributed only P90,000 cash. Cong should make an additional investment (withdrawal) of: a. P96,000 c. (P 7 6,800) b. 84,000 d. (P15,000) Guerrero 2013 Partners’ Contribution 43. On June 1, 2013, May and Nora formed a partnership. May is to invest assets at fair value which are yet to be agreed upon. She is to transfer her liabilities and is to contribute sufficient cash to bring her total capital to P210,000 which is 70% of the total capital of the partnership. Details regarding the book values of May's business assets and liabilities and their corresponding valuations are:

Accounts receivable Allowance for doubtful accounts Merchandise inventory Store equipment Accumulated depreciation - Store equipment Office equipment Accumulated depreciation - Office equipment Accounts payable

Book values P58,000 4,200 98,400 32,000 19,000 27,000 14,200 56,000

Agreed valuations P58,000 5,000 107,000 32,000 16,400 27,000 8,600 56,000

Nora agrees to invest cash of P42,000 and merchandise valued at current market price. The value of the merchandise to be invested by Nora and the cash to be invested by May are: a. P 90,000 and P 62,000 respectively b. P 252,000 and PI38,000 respectively c. P 48,000 and PI38,000 respectively d. P 48,000 and P 62,000 respectively Guerrero 2013


Page 18

Partnership Formation & Admission of a Partner Partner's adjusted capital balances 44. On August 1, AA and BB 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.) BB's inventory is to be increased by P4,000; an allowance for doubtful accounts of P1,000 and P1,500 are to be set up in the books of AA and BB, respectively; and accounts payable of P4,000 is to be recognized in AA's books. The individual trial balances on August 1, before adjustments, follow: AA BB Assets P75.000 PI 13,000 Liabilities 5,000 34,500 What is the capital of AA and BB after the above adjustments? a. AA, P68,750; BB, P77,250 c. AA, P65,000; BB, P76,000 b. AA,P75,000;BB,P8i;000 d. AA, P65,000; BB, P81.000 Dayag 2013 45. On January 1, 2010, Atta and Boy agreed to form a partnership contributing their respective assets and equities subject to adjustments. On that date, the following were provided; Cash Accounts receivable Inventories Land Building Furniture & fixtures Intangible assets Accounts payable Other liabilities Capital

Atta P28,000 200,000 120,000 600,000 500,000 50,000 2,000 180,000 200,000 620,000

Boy P62,000 600,000 200,000 35,000 3,000 250,000 350,000 800,000

The following adjustments were agreed upon: a. Accounts receivable of P20.000 and P40,000 are uncollectible in A's and B's respective books. b. Inventories of P6,000 and P7,000 are worthless in A's and B's respective books. c. Intangible assets are to be written off in both books.


Page 19

Advance Accounting What will be the capital balances of the partners after adjustments? Atta Boy a. 592,000 750,000 b. 600,000 700,000 c. 592,000 756,300 d. 600,000 750,000

Punzalan 2014

46. The business assets and liabilities of John and Paul appear below: John Paul Cash PI 1,000 P22,354 Accounts receivable 234,536 567,890 Inventories 120,035 260,102 Land 603,000 Building 428,267 Furniture and fixtures 50,345 34,789 Other Assets 2,000 3,600 Total , PI,020,916 P 1,317,002 Accounts payable 178,940 243,6050 Notes payable 200,000 345,000 John, capital 641,976 Paul, capital 728,352 Total P 1,020,916 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 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 books. 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 683,052 b. John's P615,942 Paul's 717,894 c. John's P 649,876 Paul's 712,345 d. John's P613,576 Paul's 683,350 Guerrero 2013


Page 20

Partnership Formation & Admission of a Partner 47. On March 1,2013, Eva and Helen decides to combine their businesses and form a partnership. Statement of financial position on March 1, before adjustments, showed the following: Eva Helen Cash P9,000 P3,750 Accounts receivable 18,500 13,500 Inventories 30,000 19,500 Furniture and fixtures (net) 30,000 9,000 Office equipment (net) 11,500 2,750 Prepaid expenses 6375 3,000 Total P105375 P51,500 Accounts payable 45,750 18,000 Capital 59,625 33,500 Total P105375 P51,500 They agreed to provide 3% for doubtful accounts receivable, and also agree that Helen's furniture and fixture are underdepreciated by P900. If each partner's share in equity is to be equal to the net assets invested, the capital accounts of Eva and Helen would be: a. PI04,820 and P50,195, respectively b. P59,070 and P32,195, respectively c. P58,320 and P32,945, respectively d. P58,170 and P33,095, respectively Guerrero 2013 Goodwil 48. On September 1,2013, the business assets and liabilities of Amor and Bhea were as follows: Cash Accounts receivable Inventories Land Building Furniture and fixtures Other assets Accounts payable Notes payable

Amor P28,000 200,000 120,000 600,000 50,000 2,000 180,000 200,000


Bhea P62,000 600,000 200,000 500,000 35,000 3,000 250,000 350,000

Page 21

Advance Accounting Amor and Bhea agreed to form a partnership contributing, their respective assets and liabilities subject to the following agreements: a. Accounts receivable of P20,000 in Amor's books and P40,000 in Bhea's books are uncollectible. b. Inventories of P6,000 and P7,000 are obsolete in Amor's and Bhea's respective books. c. Other assets of P2,000 and P3,000 in Amor's and Bhea's rspective books are to be written off. d. Accrued expenses of P2,000 and P5,000 in Amor's and Bhea's books are to be recognized. e. Goodwill is to be recognized to equalize their capital accounts after the above adjustments. The amount of goodwill-to be recognized is: a. P155,000 c. P151,000 b. P158,000 d. P159,000. Guerrero 2013 Comprehensive Questions 1 thru 4 are based on the following: Dayag 2013 49. The partnership of A, B, C, and D has agreed to combine with the partnership of X and Y. The individual capital accounts and profit and loss sharing percentage of each partner follow: P &L Sharing % Capital Accounts Now Proposed A P 50,000 40 28 B 35,000 30 21 C 40,000 20 14 D 25,000 10 7 150,000 100 70 X P 60,000 50 15 Y 40,000 50 15 P100,000 100 30 A, B, C, and D's partnership has undervalued tangible assets of P20.000, and X and Y partnership has undervalued tangible assets of P8,000. All the partners agree that: (a) the partnership of A, B, C, and D possesses goodwill of P30,000 and (b) the partnership of X and Y possesses goodwill of P10,000. The combined businesses will continue to use the general ledger of A, B, C, and D. Assume that tangible assets are to be revalued and goodwill is to be recorded. Compute the amount of goodwill recognized in the partnership books: a. Zero c. 40.000 b. 30,000 d. 68,000


Page 22

Partnership Formation & Admission of a Partner 50. Using the same information in No. 49, compute the capital balances of A and X respectively: a. A, P70,000; X, P69.000 c. A, P58,000; X, P64,000 b. A, P62,000; X, P65,000 d. A, P50,000; X, P60,000 51. Using the same information in No. 49 except that bonus method is to be used with respect to undervalued assets and goodwill. Compute the amount of goodwill recognized in the books: a. Zero c. 40,000 b. P30,000 d. 68,000 52. Using the same information in No. 49 except that bonus method is to be used with respect to undervalued assets and goodwill. Compute the capital balances of A and X, respectively: a. A, P70,000; X, P69.000 c. A, P58.000; X, P64,000 b. A, P50.000; X, P60.000 d. A, P50,960; X, P58,800 Questions 1 thru 3 are based on the following: Dayag 2013 53. On March 1, 2012, PP and QQ decide to combine their businesses and form a partnership. Their balance sheets on March 1, before adjustments, showed the following: PP QQ Cash P 9,000 P 3,750 Accounts receivable 18,500 13,500 Inventories 30,000 19,500 Furniture and fixtures (net) ' 30,000 9,000 Office equipment (net) 11,500 2,750 Prepaid expenses 6,375 3,000 Total P105,375 P51.500 Accounts payable P 45,750 P18,000 Capital 59,625 33,500 Total P105.375 P51.50 They agreed to have the following items recorded in their books: 1. Provide 2% allowance for doubtful accounts. 2. PP's furniture and fixtures should be P31,000, while QQ's office equipment is underdepreciated by P250. 3. Rent expense incurred previously by PP was not yet recorded amounting to PI,000, while salary expense incurred by QQ was not also recorded amounting to P800. 4. The fair market value of inventory amounted to: For PP P29.500 For QQ 21,000


Page 23

Advance Accounting Compute the net (debit) credit adjustment for PP and QQ: PP QQ PP a. 2,870 2,820 c. (870) b. (2,870) (2,820) d. 870

QQ 180 (180)

54. The same information in Number 11, compute the total liabilities after information: a. 61,950 c. 65,550 b. 63,750 d. 63,950 55. The same information in Number 11, compute the total assets after information: a. 157,985 c. 160,765 b. 156,875 d. 152,985 Questions 1 & 2 are based on the following: 56. The business assets of LL and MM appear below:

Dayag 2013

LL MM Cash P11,000 P22,354 Accounts receivable 234,536 567,890 Inventories 120,035 260,102 Land 603,000 Building 428,267 Furniture and fixture 50,345 34,789 Other assets 2,000 3,600 Total P1,020,916 P1.317.002 Accounts payable P178,940 P243,650 Notes payable 200,000 345,000 LL, capital 641,976 MM, capital 728,352 Total P1,020,916 P1,317.002 LL and MM agreed to form a partnership by contributing their respective assets and equities subject to the following adjustments: a. Accounts receivable of P20,000 in LL's books and P35,000 in MM's are uncollectible. b. Inventories of P5,500 and P6700 are worthless in LL's and MM's respective books. c. Other assets of P2.000 and P3.600 in LL's and MM's 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


Page 24

Partnership Formation & Admission of a Partner 57. The same information in Number 56, how much total assets does the partnership have after formation? a. 2,337,918 c. 2,265,118 b. 2,237,918 d. 2,365,218 58. 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 to take certain equipment with second-hand value of P50,000 and a note for the balance of OO's interest. The equipment are carried on the books at P65,000. Brand new equipment may cost P80,000. Compute for: (1) OO's acquisition of the secondhand equipment will result to reduction in capital; (2) the value of the note that will OO get from the partnership's liquidation. a. (1) P15,000 each for MM and NN, (2) P150,000. b. (1) P5,000eachforMM, NN and OO, (2) P145,000. c. (1) P5,000 each for MM, NN and OO, (2) P195,000. d. (1) P7,500eachforMMandNN, (2) P145,000. Dayag 2013 59. CC admits DD as a partner in business. Accounts in the ledger for CC on November 30, 2012, just before the admission of DD, show the following balances: Cash P 6,800 Accounts receivable 14,200 Merchandise inventory 20,000 Accounts payable 8,000 CC, capital 33,000 It is agreed that for purposes of establishing CC's 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. DD is to invest sufficient cash to obtain a 1 /3 interest in the partnership. Compute for: (1) CC's adjusted capital before the admission of DD; and (2) the amount of cash investment by DD: a. (1) P35,347; (2) PI 1,971 c. (1) P35,374; (2) P17,687 b. (1) 36,374; (2) 18,487 d. (1) 28,174; (2) 14,087 Dayag 2013


Page 25

Advance Accounting Questions 1 & 2 are based on the following: Punzalan 2014 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 P3 0,000 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 and P9,000 by Redd. The partnership net income in 2010 was P25,000. 60. Under the goodwill method, what is Redd's initial capital balance in the partnership? a. 20,000 c. 40,000 b. 25,000 d. 60,000 61. Under the bonus method, what is the amount of bonus? a. 20,000 bonus to Grey c. 40,000 bonus to Grey b. 20,000 bonus to Redd d. 40,000 bonus to Redd 62. The partnership of Perez and Reyes was formed on March 31,2013. On this date, Perez invested P50,000 cash and office equipment valued at P30,000. Reyes in¬ vested P70.000 cash, merchandise valued at PI 10,000, and furniture valued at P100,000, subject to a notes payable of P50,000 (which the partnership assumes). The partnership provides that Perez and Reyes share profits and losses 25:75, respectively. The agreement further provides that the partners should initially have, an equal interest in the partnership capital. Under the goodwill and the bonus method, what is the total capital of the partners after the formation? Bonus Goodwill Method a. P310,000 P4 60,000 b. P360,000 P510,000 c. P3 00,000 P410,000 d. P3 50,000 P 400,000 Guerrero 2013 ADMISSION Assignment of Interest 63. Capital balances and profit and loss sharing ratios of the partners in the BIG Entertainment Gallery are as follows: Betty, capital (50%) P140.000 Iggy, capital (30%) 160,000 Grabby, capital (20%) 100,000 Total P400,000


Page 26

Partnership Formation & Admission of a Partner Betty needs money and agrees to assign half of her interest in the partnership to Yessir for P90,000 cash. Yessir pays directly to Betty. Yessir does not become a partner. What is the total capital of the BIG Partnership immediately after the assignment of the interest to Yessir? a. 310,000 c. 490,000 b. 200,000 d. 400,000 Dayag 2013 By Purchase New partner's capital balance No Revaluation of Assets 64. Ranken purchases 50% of Lark's capital interest in the K and L partnership for P22,000. If the capital balances of Kim and Lark are P40.000 and P30,000, respectively, Ranken's capital balance following the purchase is a. 22,000 c. 20,000 b. 35,000 d. 15,000 Punzalan 2014 Bonus Method 65. On June 30, 2012, the balance sheet of Western Marketing, a partnership, is summarized as follows: Sundry assets P150,000 West, capital 90,000 Tern, capital 60,000 West and Tern share profit and losses at a 60:40 ratio, respectively. They agreed to take in Cuba as a new partner, who purchases 1/8 interest of West and Tern for P25,000. What is the amount of Cuba's capital to be taken up in the partnership books if book value method is used? a. 12,500 c. 25,000 b. 18,750 d. 31,250 Dayag 2013 66. Partners Andy, Boy and Ken sharing profit and loss based on 4:3:2 ratio have the following condensed statement of financial position: Total assets P1,880,000 Liabilities Andy, capital Boy, capital Ken, capital Total liabilities and capital


P480,000 620,000 400,000 380,000 P1,880,000

Page 27

Advance Accounting Dondon will be admitted as a new partner for 20% interest after he pays the three partners with a minimum of 10%. Thus, the old partner will have to transfer to Dondon 20% of their interest. a. P376,000 c. P350,000 b. P280,000 d. P200,000 Guerrero 2013 67. Moonbits partnership had a net income of P8,000.00 for the month ended September 30,2013. Sunshine purchased an interest in the Moonbits partnership of Liz and Dick by paying Liz P32,000 for half of her capital and half of her 50% percent profit sharing interest on October 1,2013. At this time Liz capital balance was P24,000 and Dick capital balance was P56,000. Liz should receive a debit to her capital account of: a. P12,000 c. P16,000 b. P20,000 d. P26,667 Guerrero 2013 Realized gains of old partners 68. The capital accounts of the partnership of NN, VV, and JJ on June 1, 2011 are presented below with their respective profit and loss ratios: NN P139,200 1/2 W 208,800 1/3 JJ 96,000 1/6 On June 1, 2011, LL is admitted to the partnership when LL purchased, for PI32,000, a proportionate interest from NN and JJ in the net assets and profits of the partnership. As a result of a transaction LL acquired a one fifth interest in the net assets and profits of the firm. What is the combined gain realized by NN and JJ upon the sale of a portion of their interest in the partnership to LL? a. 0 c. 62,400 b. 43,200 d. 82,000 Dayag 2013 Partner's balance after admission of new partner 69. Presented below is the condensed balance sheet of the partnership of KK, LL and MM who share profits and losses in the ratio of 6:3:1, respectively: Cash P 85,000 Liabilities P80,000 Other assets 415,000 KK, capital 252,000 LL, capital 126,000 MM, capital 42,000 Total P500,000 Total P500,000


Page 28

Partnership Formation & Admission of a Partner The partner agree to sell NN 20% of their respective capital and profit and loss interests for a total payment of P90,000. 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. P198,000; P 99,000: P33,000. b. P201,600; P100,800; P33.600. c. P216,000; P108,000; P36,000. d. P255,600; P127,800; P42,600. Dayag 2013 70. Presented below is the condensed statement of financial position of the partnership of Go, Lee and Mao who share profits and losses in the ratio of 6:3:1, respectively: Cash Other assets

P85,000 415,000

Total

P500,000

Liabilities Go, capital Lee, capital Mao, capital Total

P80,000 252,000 126,000 42,000 P500,000

The partner agree to sell Gaw 20% of their respective capital and profit and loss interest for a total payment of P90,000. The payment by Gaw is to be made directly to the individual partners. The partners agree that implied goodwill is to be recorded prior to-the acquisition by Gaw. The capital balance of Go, Lee, and Mao respectively after admission of Gaw are: P33,000. a. PI98.000; P 99,000 b. P201,600; PI 00,800 P33,600. P3 6,000. c. P216,000; PI08,000 P42,000. Guerrero 2013 d. P255,600; PI26,799 71. A, B and C are partners who share profits and losses in the ratio of 5:3:2, respectively. They agree to sell D 25% of their respective capital and profits and losses ratio for a total payment directly to the partners in the amount of P140,000,00. They agree that goodwill of P60,000.00 is to be recorded prior to admission of D. The condensed statement of financial position of the ABC Partnership is presented in the next page. Cash Non-cash assets

P 60,000 540,000

Total

P600,000

Liabilities A, Capital B, Capital C, Capital Total


PI00,000 250,000 150,000 100,000 P600,000

Page 29

Advance Accounting The capital of A, B and C, respectively after the payment and admission of D are: A B C a. P187,500; PU2,500; P 75,000; b. P210,000; PI26,000; P 84,000; c. P280,000; PI68,000; P112,000; d. P250,000; PI50,000; PI00,000; Guerrero 2013 Payment to Old Partners 72. PP contributed P24.000 and CC contributed P48.000 to form a partnership, and they agreed to share profits in the ratio of their original capital contributions. During the first year of operations, they made a profit of PI 6,290; PP withdrew P5,050 and CC P8,000. At the start of the following year, they agreed to admit GG into the partnership. He was to receive a onefourth interest in the capital and profits upon payment of P30.000 to PP and CC, whose capital accounts were to be reduced by transfers to GG's capital account of amounts sufficient to bring them back to their original capital ratio. How should the P30.000 paid by GG be divided between PP and CC? Dayag 2013 a. PP,P 9,825; CC, P20,175. c. PP,P10,000; CC, P20,000. b. PP.P15,000; CC, PI5,000 d. PP,P 9,300; CC, P20,700 73. The following information pertains to ABC Partnership of Amor, Bing, and Cora: Amor, capital (20%) P200,000 Bing, capital (30%) 200,000 Cora, capital (50%) 300,000 On this date, the partners agreed to admit Dolly into the partnership. Assuming Dolly purchased fifty percent of the partners capital and pays P500,000 to the old partners, how would this amount be distributed to them? a. 100,000 150,000 250,000 b. 130,000 145,000 225,000 c. 166,667 166,667 166,666 d. 150,000 150,000 200,000 Punzalan 2014


Page 30

Partnership Formation & Admission of a Partner By Investment Interest/Capital Ratio 74. Partnership A has an existing capital of P70,000. Two partners currently own the partnership and split profits 50/50. A new partner is to be admitted and will contribute net assets with a fair value of P90,000. For no goodwill or bonus (depending on whichever method is used) to be recognized, what is the interest in the partnership granted the new partner? a. 33.33% c. 56.25% b. 50.00% d. 75.00% Punzalan 2014 Cash contribution of new partner 75. The following condensed balance sheet is presented for the partnership of LL, PP, and QQ, who share profits and losses in the ratio of 4:3:3, respectively: Cash Other assets LL, loan

P 90,000 830,000 20,000 P940,000

Accounts payable QQ, loan LL, capital PP, capital QQ, capital

P210,000 30,000 310,000 200,000 190,000 P940.000

Assume that the assets and liabilities are fairly valued on the balance sheet and that the partnership decides to admit FF as a new partner, with a 20% interest. No goodwill or bonus is to be recorded. How much should FF contribute in cash or other assets? a. 140,000 c. 175,000 b. 142,000 d. 177,500 Dayag 2013


Page 31

Advance Accounting 76. Partners AA, BB, and CC divide profits and losses 5:3:2, respectively, and their balance sheet on September 30, 2012 is as follows: ABC Partnership Balance Sheet September 30,2012 Cash Other assets Total assets

P 80,000 720,000 P800,000

Accounts payable AA, capital BB, capital CC, capital Total liabilities and capital

P200,000 148,000 260,000 192,000 P800,000

The assets and liabilities are recorded at approximate current fair values. DD is to be admitted as a new partner with a 20% interest in capital and earnings in exchange for a cash investment. Goodwill or bonus will not be considered. How much cash should DD contribute? a. 120,000 c. 150,000 b. 144,000 d. 160,000 Dayag 2013 77. The following balance sheet is presented for the partnership of A, B, and C, who share profits and losses in the respectively ratio of 5:3:2. Cash Other assets Total

Assets

120,000 1,080,000 1,200,000

Liabilities and Capital Liabilities A, capital B, capital C, capital Total

280,000 560,000 320,000 40,000 1,200,000

Assume that the assets and liabilities are fairly valued on the balance sheet, and the partnership decided to admit D as a new partner with a one-fifth interest and no goodwill or bonus is to be recorded. How much should D contribute in cash or other assets? a. 147,200 c. 230,000 b. 184,000 d. 240,000 Punzalan 2014


Page 32

Partnership Formation & Admission of a Partner 78. A condensed statement of financial position for Alba, Barba, and Clara appears below. Alba, Barba, and Clara share profits and losses in a ratio of 2:3:5, respectively. Assets Cash P100,000 Inventory 125,000 Marketable Securities 200,000 Land 100,000 Building-net 500,000 Equities Alba, capital P425,000 Barba, capital 400,000 Clara, capital 200,000 The partners agreed to admit Darna. The fair market value of the land is appraised at P200,000 and the market value of the marketable securities is P250,000. The assets are to be revalued prior to the admission of Darna and there is P30,000 goodwill that attaches to the old partnership. How much cash will Darna have to invest to acquire a (1) one-fifth interest? or a (2) four-fifth interest? a. (1) P301,250; (2) P4,820,000 b. (I) P205,000; (2) PI,205,000 c. (I) P241,000; (2) P2,410,000 d. (1) P300,000; (2) Pl,506,250 Guerrero 2013 79. The following is the condensed statement of financial position 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 Accounts, payable P 420,000 1,660,000 Bi,Loan 60,000 40,000 Jo, Capital 620,000 Li, Capital 400,000 Bi, Capital 380,000 P1,880,000 Total P1,880,000

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 should contribute in cash or other assets? a. P350,000 c. 355,000 b. P280,000 d. P284,000 Guerrero 2013


Page 33

Advance Accounting 80. Partners Alba, Basco, and Castro share profits and losses 50: 30:20, respectively. The statement of financial position at April 30,2013 follows: Cash Other assets Total

P40,000 360,000

Accounts payable Alba, capital Basco, capital Castro, capital P400,000 Total

PI00,000 74,000 130,000 96,000 P400,000

The assets and liabilities arc recorded and presented at their respective fair values, Jocson is to be admitted as a new partner with a 20% capital interest and a 20% share of profits and losses in exchange for a cash contribution. No goodwill or bonus is to be recorded. How much cash should Jocson contribute? a. P60,000 c. P75,000 b. P72,000 d. P80,000 Guerrero 2013 Goodwill 81. Dunn and Grey are partners with capital account balances of P60,000 and P90,000, respectively. They agree to admit Zorn as a partner with one-third interest in capital and profits, for an investment of P100,000, after revaluing the assets of Dunn and Grey. Goodwill to the original partners should be a. 0 c. 50,000 b. 33,333 d. 66,667 Punzalan 2014 Bonus to incoming partner New Partner’s Capital Balance 82. OO and TT are partners with capital balances P60.000 and P20,000, respectively. Profits and losses are divided in the ratio of 60:40. OO and TT decided to form a new partnership with GG, who invested land valued at PI 5,000 for a 20% capital interest in the new partnership. GG's cost of the land was PI2,000. The partnership elected to use the bonus method to record the admission of GG into the partnership. GG's capital account should be credited for: a. 12,000 c. 16,000 b. 15,000 d. 19,000 Dayag 2013


Page 34

Partnership Formation & Admission of a Partner 83. On January 31, 2011, partners of Lon, Mac & Nan, LLP, had the following loan and capital account balances (after closing entries for January): Loan receivable from Lon Loan payable to Nan Lon, capital Mac, capital Nan, capital

P 20,000 dr. 60,000 cr. 30,000 dr. 120,000 cr. 70,000 cr.

The partnership's income sharing ratio was Lon, 50%; Mac, 20%, and Nan, 30%. On January 31, 2011, Ole was admitted to the partnership for a 20% interest in total capital of the partnership in exchange for an investment of P40,000 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 P60,000 increase. The capital account to be credited to Ole: a. P60,000 c. P52,000 b. P40,000 d. P46.000 Dayag 2013 Original partner's capital balances 84. Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1, 2010, their respective capital accounts were as follows: Blau Rubi

P60,000 50,000

On that date, Lind was admitted as a partner with one-third interest in capital, and profits for an investment of P40,000. The new partnership began with total capital of PI 50,000. Immediately after Lind's admission, Blau's capital should be a. 50,000 c. 56,667 b. 54,000 d. 60,000 Punzalan 2014 85. The partnership of Cat and Dog provides for 3:2 sharing in profits and losses. Prior to the admission of a third partner Elf, the capital accounts are Cat, PI 20,000 and Dog, P80,000. Elf invests P50,000 for a P75,000 interest and partners agreed that the net assets of the new partnership would be P300,000. How much is Dog's capital in the new partnership? a. P105,000 c. P110,000 b. P90,000 d. P136,000


Guerrero 2013

Page 35

Advance Accounting

86. Partners Chito and Ditas share profits in the ratio of 6:4 respectively. On December 31, 2013 their respective capital balances were Chito, P120,000 and Ditas, P100,000. On that date Meng was admitted as partner with a one-third interest in capital and profits for an investment of P80,000. The new partnership began in 2011 with total capital of P300,000. Immediately after Meng's admission, Chito's capital should be: a. P120,000 c. P100,000 b. P108,000 d. P160,000 Guerrero 2013 87. Ell and Emm are partners sharing profits 60% and 40%, respectively. On January 1, Ell and Emm decided to admit Enn as a new partner upon his investment of P8,000. On this date, their interests in the partnership are as follows: Ell, P11,500; Emm,P9,300. Assuming that the new partner is given a 1/3 interest in the firm, with bonus being allowed the new partner, the new capital balances of Ell, Emm and Enn, respectively, would be: a. P11,500, P9,300, and P8,000 b. P12,480, P8,320, and P8,000 c. P11,520, P7,680, and P9,600 d. P 10,540, P8,660, and P9,600. Guerrero 2013 88. The capital account for the partnership of Lucas and Mateo at October 31, 2013 are as follows: Lucas, capital Mateo, capital

P 80,000 40,000

The partners share profits and losses in the ratio of 6:4 respectively. The partnership is in desperate need of cash, and the partners agree to admit Naron as a partner with one-third in the capital and profits and losses upon his investment of P3 0,000. Immediately after Naron's admission, what should be the capital balance of Lucas, Mateo and Naron respectively, assuming goodwill is not to be recognized? a. P50,000; P50,000 P50,000. b. P60,000; P60,000; P50,000. c. P66,667; P33,333; P50,000. d. P68,000; P32,000; P50,000. Guerrero 2013


Page 36

Partnership Formation & Admission of a Partner 89. Carlos and Deo are partners who share profits and losses in the ratio of 7:3, respectively. On October 5, 2013, their respective capital accounts were as follows: Carlos P35,000 Deo 30,000 On that date they agreed to admit Sotto as a partner with a one-third interest in the capital and profits and losses, and upon his investment of P25,000. The new partnership will begin with a total capital of P90,000. Immediately after Sotto's admission, what are the capital balances of Carlos, Deo, and Sotto, respectively? a. P30,000 P30,000; P30,000 b. P31,500 P28,500; P30,000 c. P31,667, P28,333; P3 0,000 d. P35,000 P3 0,000 P25,000 Guerrero 2013 Capital balance of all partners 90. The capital accounts for the partnership of LL and MM at October 31,2012 are as follows: LL, capital MM, capital

P 80,000 40,000 P120,000

The partners share profits and losses in the ratio of 3:2 respectively. The partnership is in desperate need of cash, and the partners agree to admit NN as a partner with one-third in the capital and profits and losses upon his investment of P30.000. Immediately after NN's admission, what should be the capital balances of LL, MM and NN respectively, assuming bonus is to be recognized? Dayag 2013 a. P50.000; P50.000; P50,000. c. P66.667; P33,333; P50,000. b. P60.000; P60,000; P60,000. d. P68.000; P3Z000; P50,000. 91. CC and DD are partners who share profits and losses in the ratio of 7:3, respectively. On October 21,2012, their respective capital accounts were as follows: CC DD

P35,000 30,000 P65,000 On that date they agreed to admit EE as a partner with a one-third interest in the capital and profits and losses, and upon his investment of P25,000. The new partnership will begin with a total capital of P90.000. Immediately after EE's admission, what are the capital balance of CC, DD, and EE, respectively? Dayag 2013 a. P30,000; P30,000; P30,000; c. P31.667; P28.333; P30.000; b. P31,500; P28,500; P30,000; d. P35,000; P30,000; P25,000;


Page 37

Advance Accounting 92. Pal and Mall are partners with capitals of P200,000 and P100,000 and sharing profits and losses 3:1 respectively. They agree to admit Kent as partner, Kent invests P150,000 for a 50% interest in the firm. Pal and Mall transfer part of their capitals to Kent as a bonus. The capital balances of the partners after Kent's admission are: a. b. c. d.

Pal, P168,750; Mall, P56,250; and Kent, P225,000. Pal, P112,500; Mall, P 37,500; and Kent, P150,000. Pal, P200,000; Mall, P100,000; and Kent, P150,000. Pal, P143,750; Mall, P 81,250; and Kent, P225,000

Guerrero 2013

Bonus to Original Partners Capital balance of original partner 93. Mitz, Marc and Mart are partners sharing earnings in the ratio of 5:3:2 respectively. As of December 31, 2010, their capital balance showed P95,000 for Mitz, P80,000 for Marc, and P60,000 for Mart. On January 1,2013 the partnership admitted Vince as a new partner and according to the partnership agreement, Vince will contribute P80,000 in cash to the partnership and will also pay PI 0,000.00 for 15% of Marc's share. Vince will share 20% in the earnings while the ratio of the original partners will remain proportionately the same as before Vince admission. After Vince' admission, the total capital of the partnership will be P330,000 while Vince' capital account will be P70,000. The balance of Marc's capital account after the admission of Vince would be: a. P81,100 c. P74,600 b. P79,100 d. P72,600 Guerrero 2013 Bonus given to original 94. The capital balances in DEA Partnership are: D, capital P60,000; E, capital P50,000; and A, capital P40,000 and income ratios are: 5:3:2, respectively. The DEAR Partnership is formed by admitting R to the firm with cash investment of P60,000 for a 25% interest in capital. What is the amount of bonus to be credited to A capital in admitting R? a. 10,000 c. 3,750 b. 7,500 d. 1,500 Punzalan 2014 Capital balance of all partners 95. Pol and Loc are partners with capitals of P200,000 and PI00,000 and sharing profits and losses 3:1 respectively. They agree to admit Chic as partner. Chic invests P125,000 for a 25% interest in the firm. Parties agree that the total firm capital after Chic's admission is to be P425,000.


Page 38

Partnership Formation & Admission of a Partner The capital balance of the partners after Chic's admission are: a. Pol, P214,062.50; Loc, P104,687.50; and Chic, P106,250.00 b. Pol, P200,000.00; Loc, P100,000.00; and Chic, P125,000.00 c. Pol, P239,062.50; Loc, P 79,687.50; and Chic, P125,000.00 d. Pol, P250,000.00; Loc, P125,000.00; and Chic, P100,000.00

Guerrero 2013

Revaluation Original partner's capital balance 96. Gerber, Williams, and George are partners with present capital balances of P50,000, P60,000, and P20,000, respectively. The partners share profit and losses according to the following percentages: 60% for Gerber, 20% for Williams, and 20% for George. Larsen is to join the partnership upon contributing P60,000 to the partnership in exchange for a 25% interest in capital and a 20% interest in profits and losses. The existing assets of the original partnership are undervalued by P22,000. The original partners will share the balance of profits and losses in proportion to their original percentages. What would be the capital balances of the old partners in the new partnership using the goodwill method? Gerber Williams George a. 63,200 64,400 24,400 b. 93,200 74,400 34,400 c. 76,800 65,600 25,600 d. 80,000 70,000 30,000 Punzalan 2014 97. Rio, Sol, and Tom have a partnership. Their capital balances are P96,000, P72,000, and P54,000, respectively. They split profits equally. They are considering on what basis to admit Vic, a prospective new partner. Based on appraisal analysis, the net assets of the partnership are worth P240,000. Vic is willing to put up cash of P24,000, plus a computer with a fair value of P42,000. Calculate the capital balances if the existing partners recognize the difference between the fair value and book value of the partnership's net assets as goodwill. a. Rio, P102,000; Sol, P78,000; Tom, P60,000; Vic, P66,000 b. Rio, 96,000; Sol, 72,000; Tom, 54,000; Vic, 66,000 c. Rio, 102,000; Sol, 78,000; Tom, 54,000; Vic, 66,000 d. Rio, 96,000; Sol, 78,000; Tom, 60,000; Vic, 66,000 Guerrero 2013


Page 39

Advance Accounting Capital balance of all partners 98. NN, OO, and PP are partners with present capital balances of P50,000, P60,000, and P20,000, respectively. The partners share profits and losses according to the following percentages; 60% for NN, 20% for OO, and 20% for PP, QQ is to join the partnership upon contributing P20,000 cash, plus a machine with a fair market value of P40,000 to the partnership in exchange for a 25% interest in the capital and a 20% interest in the profits and losses. The existing assets of the original partnership are undervalued by P22,000. The original partners will share the balance of profits and losses in their original ratios. Calculate the capital balances of each partner in the new partnership using goodwill method. NN OO PP QQ a. P67,400; P65,800; P25,800; P53,000 b. P50,000; P60,000; P20,000; P60,000 c. P80,000; P70,000; P20,000; P20,000 d. P80,000; P70,000; P30,000; P60,000 Guerrero 2013 Comprehensive Questions 1 thru 3 are based on the following: Dayag 2013 99. In the AD partnership, Allen's capital is P140,000 and Daniel's is P40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others. Allen and Daniel agree that some of the inventory is obsolete. The inventory account is decreased before David is admitted. David invests P40.000 for a one-fifth interest. What is the amount of inventory written down? a. P 4,000 c. P15,000 b. P10,000 d. P20,000 100. Using the same information in No. 99, David directly purchases a one-fifth interest by paying Allen P34,000 and Daniel P10,000. The land account is increased before David is admitted. By what amount is the land account increased? a. P40.000 c. P20.000 b. P36.000 d. PI 0,000 101. Using the same information in No. 99, David invests P40.000 for a one-fifth interest in the total capital of P220,000. The journal to record David's admission into the partnership will include: a. A credit to Cash for P40.000. b. A debit to Allen, Capital for P3,000. c. A credit to David, Capital for P40.000. d. A credit to Daniel, Capital for P1,000


Page 40

Partnership Formation & Admission of a Partner Questions 1 & 2 are based on the following: Punzalan 2014 Fernando and Jose are partners with capital balances of P30,000 and P70,000, respectively. Fernando has a 30% interest in profits and losses. All assets of the partnership are at fair market value except equipment with book value of P300,000 and fair market value of P320,000. At this time, the partnership has decided to admit Rosa and Linda as new partners. Rosa contributes cash of P55,000 for a 20% interest in capital and a 30% interest in profits and losses. Linda contributes cash of P10,000 and an equipment with a fair market value of P50,000 for a 25% interest in capital and a 35% interest in profits and losses. Linda is also bringing special expertise and clients contact into the new partnership. 102. Using the bonus method, what is the amount of bonus? a. 24,750 c. 14,000 b. 18,250 d. 7,500 103 Using the goodwill method, what is the amount of goodwill traceable to the original partners? a. 60,000 c. 31,250 b. 40,000 d. 28,750 Questions 1 & 2 are based on the following: Punzalan 2014 Mitz, Marc, and Mart are partners sharing profits in the ratio of 5:3:2, respectively. As of December 31, 2009, their capital balances were P95,000 for Mitz, P80,000 for Marc, and P60,000 for Mart. On January 1, 2010, the partners admitted Vince as a new partner and according to their agreement, Vince will contribute P80,000 in cash to the partnership and also pay P10,000 for 15% of Marc's share. Vince will be given a 20% share in profits, while the original partners' share will be proportionately the same as before. After the admission of Vince, the total capital will be P330,000 and Vince's capital will be P70,000. 104. The total amount of goodwill to the old partners, upon the admission of Vince would be: a. 7,000 c. 22,000 b. 15,000 d. 37,000 105 The balance of Marc's capital, after the admission of Vince would be: a. 72,600 . c. 79,100 b. 74,600 d. 81,100


Page 41

Advance Accounting 106. Ace, Boy and Cid are partners sharing profits in the ratio of 3:3:2. On July 31, their capital balances are as follows: Ace P700,000 Boy 500,000 Cid 400,000 The partners agree to admit Deo on the following agreement: 1. Deo is to pay Ace P500,000 for 1/2 interest of Ace's interest. 2. Deo is also to invest P400,000 in the partnership. 3. The total capital of the partnership is to be P2,400,000, of which Dco's interest is to be 25% What are the capital balances of the partners after the admission of Deo? Ace Boy Cid a. P206,250 P206,250 PI 3 7,500 b. 350,000 500,000 400,000 c. 556,250 706,250 537,500 d. 500,000 400,000 350,000 Guerrero 2013 107. Partners Jay and Kay share profits in the ratio of 6:4, respectively. On December 31, 2010, their respective accounts were Jay, P120,000 and Kay, P100,000. On that date, Loi was admitted as partner with 1/3 interest in capital and profits for an investment of P80,000. The new partnership began in 2013 with a total capital of P360,000. Immediately after Loi's admission:

a. b. c. d.

Amount of goodwill to be credited to Loi P 40,000 20,000 40,000 60,000

Jay's capital account would be PI 08,000 120,000 132,000 132,000


Guerrero 2013

Page 42

Partnership Formation & Admission of a Partner ANSWER SHEET 1.A

26.D

51.A

76.C

101.B

2.C

27.A

52.D

77.C

102.B

3.C

28.D

53.C

78.A

103.C

4.C

29.C

54.C

79.A

104.B

5.A

30.D

55.A

80.C

105.C

6.A

31.A

56.D

81.C

106.C

7.B

32.D

57.C

82.D

107.C

8.D

33.B

58.B

83.C

9.D

34.A

59.C

84.B

10.A

35.B

60.B

85.B

11.C

36.A

61.D

86.B

12.C

37.C

62.A

87.D

13.D

38.C

63.D

88.D

14.C

39.D

64.D

89.B

15.C

40.A

65.B

90.D

16.C

41.D

66.B

91.B

17.A

42.D

67.A

92.D

18.B

43.D

68.B

93.B

19.C

44.D

69.B

94.D

20.A

45.A

70.C

95.A

21.D

46.A

71.B

96.D

22.B

47.B

72.D

97.A

23.C

48.A

73.B

98.D

24.B

49.C

74.B

99.D

25.C

50.A

75.C

100.A

ANSWER KEY

Page 43

1_PDFsam_01 Partnership Formation & Admission of a Partnerxx (1).pdf

Recommend Documents