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1 - ACcounting formations
Accounting (Mapúa University)
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1.1.1 PARTNERSHIP FORMATION (M-7 S-24) =31
1. AMI , MELI and LEAH formed a partnership on April 30, with the following assets, measured at their
fair market values, contributed by each partner:
AMI
MELI
LEAH
Cash
P 50,000
P 60,000
P 150,000
Automobile
42,500
Delivery trucks
140,000
Computer and printer
25,500
Office furniture
17,500
12,500
Land and building
750,000
P 842,500
P 243,000
P 162,500
Although LEAH has contributed the most cash to the partnership, she did not have the full amount of
P 150,000 available and was forced to borrow P 100,000. The land and building contributed by AMI
has a mortgage of P 450,000 and the partnership is to assume responsibility of the loan. If the profit
and loss sharing agreement is 40 percent, 40 percent, and 20 percent, respectively, for AMI, MELI
and LEAH, what is the total capital investment of all the partners at the opening of business on April
30?
a. P 798,000
b. P 1,248,000
c. P 698,000
Total assets contributed:
AMi
Meli
Leah
Less: Liability assumed (Mortgage)
Total capital investment of all partners
(Application)
P 842,500
243,000
162,500
d. P 832,000
P1,248,000
450,000
P 798,000
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2. C Cola and R. Crown formed a partnership and agree to divide initial partnership capital equally, even
though C. Cola contributed P50,000 in identifiable assets and R. Crown contributed P42,000. Such an
agreement implies that R. Crown is contributing an unidentifiable assets such as individual talent,
established clientele, or banking connections to the partnership.
The unidentifiable asset is not recorded on the partnership books, the journal entry necessary to
establish equal capital interest is:
a. Cash
P92,000
C. Cola, capital
R. Crown, capital
b. Cash
P92,000
C. Cola, capital
R. Crown, capital
Equal interest
Contribution
Bonus to be recognized
Journal entry:
C. Cola, Capital
R. Crown, Capital
c. C. Cola, capital
R. Crown, capital
P50,000
42,000
d. R. Crown, capitalP4,000
C. Cola, capital
P46,000
46,000
C Cola
P46,000
P4,000
P4,000
P4,000
R Crown
Total
P46,000
P92,000
50,000
42,000
92,000
(P4,000)
P 4,000
4,000
4,000
C (Application)
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3. The balance sheet as of July 31, 2016, for the business owned by Sunshine, shows the following
assets and liabilities:
Cash
50,000
Accounts receivable
134,000
Merchandise inventory 220,000
Furniture and Fixtures
Accounts payable
P164,000
28,800
It is estimated that 5% of the receivables will prove uncollectible. The cash balance includes a 1,000
shares marketable equity securities recorded at its cost, P4,000. The stock last sold on the market at
P17.50 per share. Merchandise inventory includes obsolete items costing P18,000 that will probably
realized only P4,000. Depreciation has never been recorded; however, the furniture and fixtures are
two years old, have an estimated total life of 10 years, and would cost P240,000 if purchased new.
Prepaid items amount to P5,000. Paulo is to be admitted as a partner upon investing P200,000 cash
and P100,000 merchandise.
How much capital is to be credited to Sunshine upon formation of partnership?
a. P539,200
b. P613,000
c. P565,000
d. P606,200
Assets contributed by Sunshine:
Cash
P 50,000
Accounts receivable
134,000
Merchandise inventory
220,000
Furniture and fixtures
164,000
P568,000
Less: Accounts payable
( 28,800)
Unadjusted capital contributed
P539,200
Adjustments:
Allowance for bad debts (5% x 134,000)
( 6,700)
Marketable securities (17,500 – 4,000)
13,500
Merchandise inventory (18,000 – 4,000)
( 14,000)
Furniture and fixtures (240,000 x 80% - 164,000)
28,000
Prepaid items
5,000
Adjusted capital of Sunshine
P565,000
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4. Paul admits Timothy as a partner in business. Accounts in the ledger for Paul on November 30, 2015,
just before the admission of Timothy, show the following balances:
Cash
P 26,000
Accounts receivable
120,000
Merchandise inventory
180,000
Accounts payable
Paul, capital
P 62,000
264,000
It is agreed that for purposes of establishing Paul’s interest the following adjustments should be
made:
1. An allowance for doubtful accounts of 2% of accounts receivable is to be established.
2. The merchandise inventory is to be valued at P202,000.
3. Prepaid expenses of P6,500 and accrued liabilities of P4,000 are to be established.
Timothy is to invest sufficient funds in order to receive a 1/3 interest in the partnership. How much
must Timothy contribute?
a. P132,000
b. P143,050
c. P95,360
Unadjusted capital of Paul
Adjustment:
Allowance for doubtful accounts (2% x 120,000)
Merchandise inventory (202,000 – 180,000)
Prepaid expenses recognized
Accrued liabilities recognized
Adjusted capital of Paul
P264,000
(
x
Cash contribution by Timothy
(application)
d. P88,000
2,400)
22,000
6,500
( 4,000)
P286,100 = 2/3
½
P143,050 = 1/3
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5. Effective August 1, 2016, Alex and Bob agreed to form a partnership from their two respective
proprietorships.
The balance sheets presented below reflect the financial position of both
proprietorships as of July 31, 2016:
ALEX
BOB
Cash
P 12,000
P 30,000
Accounts Receivable
72,000
42,000
Merchandise Inventory
198,000
252,000
Prepaid Rent
24,000
Store Equipment
240,000
180,000
Accumulated Depreciation
(90,000)
(108,000)
Building
750,000
Accumulated Depreciation
(150,000)
Land
360,000
_
Totals
P1,392,000
P420,000
Accounts Payable
Mortgage Payable
Alex, Capital
Bob, Capital
Totals
P 45,000
360,000
987,000
_
P1,392,000
P 18,000
402,000
P420,000
As of August 1, 2016, the fair value of Alex’s assets were: merchandise inventory, P162,000; store
equipment, P90,000; building, P1,500,000; and land, P600,000. For Bob, the fair value of the assets
on the same date were: merchandise inventory, P270,000; store equipment, P39,000; prepaid rent, P
0. All other items on the two balance sheets were stated at their fair values. How much capital must
be credited to Alex upon formation of partnership?
a. P2,031,000
b. P1,791,000
c. P363,000
d. P2,394,000
MI
SE
Building
Land
PR
Alex
987,000
(36,000)
(60,000)
900,000
240,000
2,031,00
0
Bob
402,000
18,000
(33,000)
(24,000)
363,000
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6. Roy admits Al as a partner in the business. Balance sheet accounts of Roy on September 30, just
before admission of Al show:
Cash
P 15,600
Accounts receivable
72,000
Merchandise inventory
108,000
Accounts payable
P 37,200
Roy, capital
158,400
It is agreed that for purposes of establishing Roy’s interest, the following adjustments shall be made:
a. An allowance for doubtful accounts of 2% is to be established.
b. Merchandise inventory is to be valued at P121,200
c. Prepaid expenses of P2,100 and accrued expenses of P2,400 are to be
recognized.
Al is to invest sufficient cash to obtain a 1/3 interest in the partnership. How much is Al’s investment
to the partnership?
a. P84,930
b. P105,600
c. P85,830
d. P47,520
A
Roy’s capital
a.
b.
c.
Roy’s capital
Cap ratio of Roy
Total capital
158,400
(1,440)
13,200
2,100
(2,400)
169,860
÷ 2/3
254,790
X 1/3
84,930
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7.
Francis, Chris, and Ivan are to form a partnership. Francis is to contribute cash of P350,000; Chris,
P35,000; and Ivan, P350,000. Francis and Ivan are not to actively participate in the business, but
will refer customers, while Chris will manage the firm. Chris has to give up his present job, which
gives him an annual income of P420,000. The partners decided that profits & losses should be
shared equally.
Upon formation, partners’ capital balances would respectively be:
a. P245,000; P245,000; and P245,000
b. P350,000; P35,000; and P350,000
c. P350,000; P455,000; and P350,000
d. P385,000; P385,000; and P385,000
Francis
Chris
350,00035,000
Ivan
Total
350,000
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A.
P, I and A are new CPA’s and are to form an accounting partnership. P is to contribute cash of
P75,000 and his computer originally bought at P80,000 but has a second hand value of P50,000. I is
to contribute cash of P100,000, and tables and chairs worth P20,000 but acquired by I for only
P18,000. A, whose family is selling computers, is to contribute cash of P40,000 and a brand new
computer plus printer with regular price at P80,000 but which cost their family’s computer dealership
P70,000. Partners agree to share profits 3:2:3.
1. The capital balance of partner P upon formation is:
a. P 125,000
b. P155,000
c. P 143,625
d. P136,875
2. The capital balance of partner I upon formation is:
a. P120,000
b. P118,000
c. P 95,750
d. P91,250
3. The capital balance of partner A upon formation is:
a. P120.000
b. P 110.000
c. P 143,625
d. P136,875
4. Assuming that except for the partners’ capital contribution and their agreed profit and loss
sharing, all other factors in relation to service and compensation of partners are equal, if the
partnership will make a profit, the agreement is:
a.
b.
c.
d.
Inherently advantageous to partner A.
Equally fair for all the partners
Inherently advantageous to partner P
Inherently advantageous to partner I
Cash contributed
Fair value of:
Computer
Tables & Chairs
Computer & Printer
Total capital credit
P
P 75,000
I
P100,000
A
P 40,000
50,000
20,000
P125,000
P120,000
80,000
P120,000
B. A, M, and I are forming a new partnership each contributing cash of P500,000 and their respective
office equipment and supplies valued at P200,000, P400,000, and P500,000, respectively. A’s noncash
contribution is his own developed audit software valued at cost which he could sell for a mark-up
twice the cost. Partners agree to admit his software at market value and they will share profits
equally.
1. The capital balance of partner A upon formation is:
a. P 1,100,000
b. P 900,000
c. P1,000,000
2. The capital balance of partners M and I, respectively are:
a. P900,000 and P1,000,000
b. P1,000,000 and P1,000,000
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d. P1,300,000
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c. P900,000 and P900,000
d. P1,000,000 and P900,000
3. Assuming that except for the partners’ capital contribution and their agreed profit and loss
sharing, all other factors in relation to service and compensation of partners are equal, if the
partnership will make a profit, the agreement is:
a.
b.
c.
d.
Inherently advantageous to partner M.
Equally fair for all the partners
Inherently advantageous to partner A
Inherently advantageous to partner I
4. After the formation of the partnership, which of the following statement is incorrect:
a. The partners will be liable for the personal liabilities of the other partner
b. The partnership may be dissolved at any time by action of the partners or operation of law.
c. The partnership has a legal personality separate and distinct from that of each of the
partners
d. Any partner may act as an agent for the partnership in conducting its affairs.
Cash contributed
Office equipment & supplies
Capital balances
(Application)
A
M
I
P500,000
P500,000
P500,000
600,000
400,000
500,000
P1,100,000
P900,000
P1,000,000
C. Andy and Don are joining their separate businesses to form a partnership. Property and cash are to
be contributed for a total capital of P400,000. The property to be contributed and liabilities to be
assumed are:
Andy
Don
Book value Fair value Book value Fair value
Accounts receivable 30,000
P 30,000
Inventories
30,000
45,000
P80,000
P 90,000
Equipment
50,000
40,000
90,000
95,000
Total Assets
P 110,000
P 115,000
P 170,000
P 185,000
Accounts payable
15,000
15,000
10,000
10,000
Net Assets
P 95,000
P 100,000
P 160,000
P 175,000
The partners’ capital accounts are to be equal after all contributions and assumptions of liabilities.
Profit and loss ratio is 45% Andy and 55% Don.
1. The amount of cash Andy must contribute:
a. P100,000
b. P80,000
2. The amount of cash Don must contribute:\
c. P5,000
d. P25,000,
a. P25,000
b. P45,000;
c. P70,000
d. P40,000
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3. Assuming that except for the partners’ capital contribution and their agreed profit and loss
sharing, all other factors in relation to service and compensation of partners are equal, if the
partnership will make a profit, the agreement is:
a.
b.
c.
d.
Inherently advantageous to partner Don.
Equally fair for both partners
Inherently advantageous to partner Andy
Inherently disadvantageous to partner Don
4. The partners may have entered into the partnership because of the following reasons except:
a. The partnership as a separate entity will protect the personal assets of the partner against
the creditors of the partnership.
b. The combined personal credit of the partners offers better opportunity for obtaining
additional capital than does a sole proprietorship,
c. The participation in the business by more than one person makes possible for a closer
supervision of its activities;
d. It is easier and inexpensive to organize compared with a corporation
Andy
Equal capital
P200,000
Total fair value of net assets contributed
Assets – Liabilities
100,000
Cash contribution
P100,000
Don
P200,000
Total
P400,000
175,000
P 25,000
275,000
P125,000
D. Kong, Pat, and Soy are new CPAs and are to form an auditing firm. Kong is to contribute cash of
P30,000 and his computer originally bought at P60,000 but has a second hand value of P50,000. Pat
is to contribute cash of P80,000 and tables and chairs worth P20,000 but acquired by Pat for only
P5,000. Soy, whose family is selling computers, is to contribute cash of P40,000 and a brand new
computer plus printer with regular price at P80,000 but which cost their family’s computer dealership
P70,000. Partners agree to share profits 4:5:6.
1. The capital balance of partner Kong upon formation is:
b. P 80,000
b. P155,000
c. P 143,625
d. P136,875
2. The capital balance of partner Pat upon formation is:
b. P100,000
b. P118,000
c. P 95,750
d. P91,250
3. Assuming that all other factors in relation to service and compensation of partners are equal, the
agreement is:
a.
b.
c.
d.
Equally fair for all the partners
Inherently advantageous to partner Pat
Inherently advantageous to partner Kong
Inherently advantageous to partner Soy
4. The partners may have entered into the partnership because of the following reasons except:
a. It is easier and inexpensive to organize compared with a corporation.
b. The direct gain to the partners is an incentive to give close attention to the business.
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c.
The combined personal credit of the partners offers better opportunity for obtaining
additional capital than does a sole proprietorship,
d. The participation in the business by more than one person makes possible for a closer
supervision of its activities;
Kong
30,000
50,000
80,000
Pat
80,000
20,000
Soy
40,000
80,000
120,000
100,000
E.
X and Y are partners sharing profits 60:40. A balance sheet prepared for the partnership on April 1,
2016 shows the following:
Cash
P 48,000 Accounts payable
Accounts receivable
92,000 X, capital
Inventory
165,000 Y, capital
Equipment
70,000
Accumulated depreciation ( 45,000)
P 330,000
P 89,000
133,000
108,000
P330,000
On this date, the partners agree to admit Z as a partner. The terms of the agreement is that assets
and liabilities are to be restated as follows:
b.
c.
d.
e.
An allowance for possible uncollectibles of P 4,500 is to be established.
Inventories are to be restated at their present replacement values of P 170,000.
Equipment are to be restated at a value of P 35,000.
Accrued expenses of P 4,000 are to be recognized.
X, Y, and Z will divide profits in the ratio of 5:3:2. Capital balances for the new partners are to be in
this ratio with X and Y making cash settlement outside of the partnership for the required capital
adjustment between themselves and Z investing cash in the partnership for his interest.
1. How much cash Z should contribute?
a. P 61,875
b. P 49,496
c. P 60,250
Unadjusted capital of X & Y (133,000 + 108,000)
Adjustments:
a. Allowance for uncollectibles
b. Inventories (170,000 – 165,000)
c. Equipment (35,000 – 25,000)
d. Accrued expenses recognized
Adjusted capital of X & Y
Cash contribution of Z
d. P 50,625
P 241,000
( 4,500)
5,000
10,000
( 4,000)
P 247,500 = 8
x
¼
P 61,875 = 2 A
2. What capital adjustments should be made between X and Y?
a. X must pay Y, P17,785.
b. Y must pay X, P17,785.
c. X must invest cash of P17,785.
d. Y must invest cash of P17,785.
X
Y
Total
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Unadjusted capital
P 133,000
P 108,000
P 241,000
Adjustment:
6,500 x 60%
3,900
6,500 x 40%
2,600
6,500
Adjusted capital
P 136,900
P 110,600
P 247,500
Agreed capital
247,500 x 5/8
154,687.50
247,500 x 3/8
92,812.50 247,500
Settlement
(P 17,787.50) P 17,787.50
Answer: X must pay Y, P 17,785 A
3. Upon admission of Partner Z to the partnership, the following statements are true except;
a.
Each of the partners will be liable for the personal liabilities of any of the partners
b. Partner Z becomes a co-owner of all of the assets of the partnership together with partners
X and Y
c.
Partner Z becomes a co- obligor of all of the liabilities of the partnership together with
partners X and Y
d. The partnership may be dissolved upon the withdrawal of any of the partners X, Y or Z.
4. Assuming that all other factors in relation to service and compensation of partners are equal, the
agreement is:
e.
f.
g.
h.
Equally fair for all the partners
Inherently advantageous to partner x
Inherently advantageous to partner Y
Inherently advantageous to partner Z
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