Partnership Formation - A1
1. The accounting for the assets and liabilities of a partnership business is different from
that of a sole proprietorship or a corporation FALSE
2. A partnership is relatively easy to form but also easy to dissolve. * TRUE
3. Mr. A contributed land with historical cost of P1M and fair value of P 2M to a
partnership business. Mr. A's contribution shall be valued at P 1M in the partnership
books FALSE
4. A bonus given to a partner is treated as a reduction to the capital account(s) of the
other partners (s) TRUE
5. Ms. B contributed equipment with carrying amount of P 100 and fair value of P 200 to a
partnership. No bonus is given to any partner. In the partnership's books, equipment is
debited for P 200 but B's capital account is credited for P 100. FALSE
6. Mr. C contributed land with fair value of P 1,000,000 to a partnership. The land has
unpaid mortgage of P 200,000 which the partnership agreed to assume. The valuation
of Mr. C's net contribution is P 1,200,000. FALSE
7. Mr. D and Ms. E formed a partnership. D contributed P 200, while E contributed P 100.
The partner's respective interests in the partnership are 60% and 40%. The initial
credits to the partners' capital accounts are to be adjusted using the bonus method to
reflect the partners' respective interests. The balance of D's capital account after the
formation is P 180. FALSE
8. Mr. D and Ms. E formed a partnership. D contributed P 200, while E contributed P 100.
The partner's respective interests in the partnership are 60% and 40%. The initial
credits to the partners' capital accounts are to be adjusted using the bonus method to
reflect the partners' respective interests. The bonus given to E is P 40. FALSE
9. Piw and Pie agreed to form a partnership. Piw and Pie will be contributing her
expertise. The partnership agreement stipulates that Piw and Pie shall have equal
interests in both the initial capital of the partnership and in subsequent partnership
profit and losses. The cash contribution of Piw shall be debited for P 200 but the net
credit to Piw's capital account shall be P 100. TRUE
10. Piw and Pie agreed to form a partnership. Piw and Pie will be contributing her
expertise. The partnership agreement stipulates that Piw and Pie shall have equal
interests in both the initial capital of the partnership and in subsequent partnership
profit and losses. Immediately after the partnership formation, the balance of Pie's
capital account is zero. FALSE
11. The aaset contributions of partners to a partnership are initially measured at
a. Fair value
b. Original cost to the partner
c. Tax basis
d. Any of these
12. Mr I and Mr M forms a partnership business. Mr I contributed equipment with fair value
of 2M. However, the partners agreed that Mr. I capital account should be credited for 2.2
M.
Mr. M’s capital account will be debited for 2M
13. Under the bonus method, any increase or decrease in the capital credit of a partner is
Deducted from or added to a capital credits of the partners
14. Under the bonus method, the asset contributed by a partner receiving a bonus is
Debited at an amount equal to a assets fair value
15. Mr. X and Mr Y agreed to form a partnership. The fair values of the partners net
contributions vary; Cash settlements shall be made between them for the difference
The cash settlement between the partners will not be recorded in the partnership books
16. Twinkle, Sheep and Bus formed a partnership. Twinkle contributed cash of P80,000.
Sheep contributed equipment with historical cost of P700,000, carrying amount of
P180,000, and fair value of P90,000. Bus contributed building with historical cost 0f
P1,000,000, carrying amount of P480,000, and fair value of P690,000. The partnership
will assume the unpaid mortgage of P580,000 on the building. Which partner has the
largest capital account balance on partnership formation? (Problem 4, p.19) BUS
Solution: Step I. List all the partner’s name and identify their total contribution at fair value.
Twinkle
Cash
Sheep
Bus
80,000
Equipment
90,000
Building
690,000
Unpaid mortgage
(580,000)
Total:
80,000
90,000
110,000
Step II: Identify the partner who has the largest capital account balance. Bus- with a contribution of
P110, 000.
17. Hammer and Nail formed a partnership. Hammer contributed equipment with original cost of
P370, 000 and a fair value of P300,000 while Nail contributed cash of P180,000. Hammer and
Nail agreed to have a 60:40 interest in the partnership and that their initial capital credits should
reflect this fact. A partner’s capital account should be increased accordingly by way of additional
cash investment. Which of the partners should make an additional investment and by how much?
(Problem 4, p.19) b. Nail, P20, 000
18.Mike and Mario agreed to form a partnership. Mike contributed equipment with carrying amount of
P100,000 and fair value of P70,000, while Mario contributed cash of P200,000. The partners agreed to
have profit sharing ratio of 2:1, respectively. The initial credits to the partner’ capital account shall
reflect this fact. Under the bonus method, how much is the balance of the capital account of Mario
immediately after the partnership formation? 90,000
18. Abel and Carr formed a partnership and agreed to divide initial capital equally, even
though Abel contributed P100,000 and Carr contributed P84,000 in identifiable assets.
Under the bonus approach to adjust the capital accounts, Carr’s unidentifiable asset
should be debited (Problem 4, p.19-20) 0 NO GOODWILL
19.A and B agreed to form a partnership. The partnership agreement stipulates the following: o
Initial capital of P300,000 o A 25:75 interest in the equity of the partnership. A contributed P100,
000 cash, while B contributed P200,000 cash. Which partner should provide additional
investment (or withdraw part of his investment) in order to bring the partners’ capital credits
equal to their respective interest in the equity if the partnership?
B SHALL MAKE AN ADDITIONAL INVESTMENT 0F 25,000
20. A and B formed a partnership. The partnership agreement stipulated the following:  
Annual salary allowances of P80, 000 for A and P40, 000 for B. The partners share profit
equally
and
losses
on
a
60:40
ratio.
During the period, the partnership earned profit of P100, 000. How much was the share of A?
(Problem 4, p.49) 68,000
21. A, B and C are partners, sharing in partnership profits in the ratio of 2:3:4. A, the managing
partner, is entitled to an annual salary of P80, 000 and a 10% bonus on profit after deducting
the salary but before deducting the bonus. The partnership earned profit of P560, 000. How
much is the share of A? 224,000
22. The partnership agreement of A, B and C stipulates the following:  A, the managing
partner, shall receive a bonus of 10% of profit.  Each partner shall receive a 6% interest on
average capital investments.  Any remaining profit or loss shall be shared equally. The average
capital investments of the partners during the year were P80, 000 for A, P50, 000 for B, and P30,
000 for C. The partnership earned profit of P100, 000 during the period. How much was A’s
share? 41,600
23. A and B’s partnership agreement stipulates the following:  Annual salary allowance of P100,
000 for A.  Bonus to A of 10% of profit after partner’s salaries and bonus.  The partners share
in profit and losses on a 60:40 ratio The partnership incurred loss of P40, 000 before deduction
for salaries. How much is the change in A’s capital account? 16,000
24. In its first year of operations. A and B’s Partnership business earned profit of P2, 500, 00. It
was agreed that A is to have an annual salary allowance of P100, 000 and a 20% bonus based
on profit after deducting the salary and the bonus. However, there has been no stipulation on
how the remaining profit is to be shared between A and B. A contributed P300, 000, while B
contributed P500, 000. How much is the share of B? 1,250,000
25. Partner A first contributed P50, 000 of capital into an existing partnership on March 1, 20x1.
On June 1, 20x1, Partner A contributed another P20, 000. On September 1, 20x1, Partner A
withdrew P15, 000 from the partnership. Withdrawal in excess of P10, 000 is charged to the
partner’s capital account. The annual interest rate applicable to capital contributions is 12%.
How much is the interest on the weighted average capital balance of Partner A in 20x1? 6,200
26. A and B Partnership earns profit of P240, 000 in 20x1. The movements in the capital
accounts of the partners are shown below: A, Capital Dr. Jan.1 May 1 July 1 Aug. 1 Oct. 1
136,543