Saint Paul's Business School Campetic Road, Palo, Leyte
Review Problems on Partnership Formation 1.
Lacso Lacson n and Bern Bernal al star started ted a part partner nershi ship. p. Lacs Lacson on contr contribu ibuted ted a buildi building ng that that she she purch purchase ased d 10 year yearss ago for for P 100, 100,000 000.. The accumulated depreciation on the building on the date of formation of the partnership is P 25,000 and the fair value is P110,000. For what amount will Lacson’s capital account be credited on the books of the partnership? A. P 100,000 C. P 25,000 B. P 75,000 D. P 110,000
2.
Red, Red, White White,, and and Blue Blue form form a partne partnersh rship ip on May 1, 2005 2005.. They They agre agreee that that Red Red will will contri contribut butee offic officee equip equipmen mentt with with a total fair value of P 40,000; White will contribute delivery equipment with a fair value of P 80,000; and Blue will contribute cash. If Blue want a one third interest in the capital and profits, he should contribute cash of: A. P 40,000 C. P 120,000 B. P 60,000 D. P 180,000
3.
Mate Mateo o and and Juli Julio o form formed ed a par partn tner ersh ship ip on on Apri Aprill 1 and and cont contri ribu bute ted d the the foll follow owin ing g asse assets ts:: Mateo Julio Cash P 300,000 P 100,000 Land P 300,000 The land was subject to a mortgage of P 50,000, which was assumed by the partnership. Under the partnership contract, Mateo and Julio will share profit and loss in the ratio of one-third and two-thirds respectively. Julio’s capital account at April 1 should be: A. P 350,000 C. P 400,000 B. P 300,000 D. P 450,000
4.
On Apri Aprill 30, 30, 2005, 2005, AA, AA, BB and CC CC forme formed d a partn partner ershi ship p by comb combini ining ng thei theirr separ separate ate busine business ss propr propriet ietors orship hips. s. AA AA contributed cash of P 50,000. BB contributed property with a P 36,000 book value, a P 40,000 original cost, and P80,000 fair value. The partnership accepted responsibility for the P 35,000 mortgage attached to the property. CC contributed equipment with a P 30,000 book value, a P 75,000 original cost and P 55,000 fair value. The partnership agreement specifies that profits and losses are to be shared equally but is silent regarding capital contributions. Which partner has the largest April 30, 2005, capital balance? A. AA C. CC B. BB D. All capital account balances are equal
5.
PP, PP, RR, RR, and SS SS are are new CPA CPA’s ’s and and are are to form form par partn tner ersh ship ip.. PP is to to contr contrib ibut utee cash cash of P 50, 50,00 000 0 and and his com compu pute ter r originally costing P 60,000 but has a second hand value of P 25,000. RR is to contribute cash of P 80,000. SS, whose family is selling computers, is to contribute cash of P 25,000 and a brand new computer with a regular selling price of P 60,000 but which cost is P 50,000. Partners agree to share profits equally. The capital balances upon formation are: PP RR SS A. P 75,000 P 80,000 P 85,000 B. P110,000 P 80,000 P 75,000 C. P 80,000 P 80,000 P 80,000 D. P 83,333 P 88,333 P 88,334
6.
Elsa Elsa and and Pearl Pearl form form a new part partne ners rshi hip. p. Elsa Elsa inve invest stss P 300,00 300,000 0 in cash cash for her her 60 perce percent nt inte intere rest st in the the capit capital al and and profits of the business. Pearl contributes contributes land that has an original cost of P 40,000 and a fair market value of P70,000, and a building that has a tax basis of P 50,000 and a fair market value of P 90,000. The building is subject to a P 40,000 mortgage that the partnership will assume. What amount of cash should Pearl contribute? A. P 40,000 C. P 110,000 B. P 80,000 D. P 150,000
7.
On Apri Aprill 1, 2006 2006,, Ell Ell and and Emmy Emmy pool pooled ed thei theirr assets assets to form form a partne partnersh rship, ip, with with the the firm firm to take take over over their their busi busines nesss assets and assume the liabilities. Partners capitals are to be based on net assets transferred after the following adjustments: a) Emmy inventory is to be increased by P 3,000; b) An allowance for doubtful accounts of P 1,000 and P 1,500 are to be set up in books of Ell and Emmy, respectively; and
c) Accounts payable of P 4,000 is to be recognized on Ell’s books. The individual trial balances on April 1, 2006, before adjustments follow: Ell Emmy Assets P75,000 P113,000 Liabilities 5,000 34,500 Capital 70,000 78,500 How much is the capital of Ell after the above adjustments to his book? A. P 70,000 C. P 68,500 B. P 65,000 D. P 66,000 8.
On September 30, 2005, Lopez admits Mendez for an interest in his business. On this date, Lopez’s capital account shows a balance of P 158,400. The following were agreed upon before the formation of the partnership: a) Prepaid expenses of P 17,500 and accrued expenses of P 5,000 are to be recognized. b) 5% of the outstanding accounts receivable of Lopez amounting to P 100,000 is to be recognized as uncollectible. c) Mendez is to be credited with a one-third interest in the partnership and is to invest cash aside from the P50,000 worth of merchandise. The amount of cash to be invested by Mendez and the total capital of the partnership are: A. P 32,950 and P 248,850 respectively B. P 82,950 and P 248,850 respectively C. P 55,300 and P 221,200 respectively D. P 32,950 and P 171,200 respectively
9.
Ruiz and Pena are combining their separate businesses to form a partnership. Cash and noncash assets are to be contributed for a total capital of P 300,000. The noncash assets to be contributed and the liabilities to be assumed are: Ruiz Pena Book Value Fair Value Book Value Fair Value Accounts receivable P20,000 P20,000 Inventories 30,000 40,000 P20,000 P25,000 Equipment 60,000 45,000 40,000 50,000 Accounts payable 15,000 15,000 10,000 10,000 The partner’s capital accounts should be equal after all the contribution of assets and the assumptions of liabilities. How much cash is to be contributed by Ruiz? A. P 150,000 C. P 210,000 B. P 60,000 D. P 85,000
10.
On July 1 of the current year, Jobson and Gomez form a partnership. Jobson is to invest certain business assets at values which are yet to be agreed upon. He is to transfer his business liabilities and is to contribute sufficient cash to bring his total capital to P 180,000, which is 60% of the total capital as had been agreed upon. Details regarding the book values of Jobson’s business assets and liabilities and their corresponding valuation follow: Book Value Agreed Valuations Accounts Receivable P 54,000 P 54,000 Allowance for doubtful accounts 3,600 6,000 Merchandise inventory 96,600 105,000 Store equipment 27,000 Accumulated depreciation-Store equipment 18,000 13,200 Office equipment 18,000 Accumulated depreciation-Office equipment 9,600 4,800 Accounts payable 48,000 48,000 Gomez agrees to invest cash of P 30,000 and merchandise valued at current market price. The value of the merchandise to be invested by Gomez and the amount of cash to be invested by Jobson are: A. P 120,000 and P 48,000 respectively B. P 210,000 and P 49,200 respectively C. P 105,000 and P 50,000 respectively D. P 90,000 and P 48,000 respectively
