1. Formation.

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. The assessed valuation for property tax purposes.
b. Contributing partner’s original cost.
c. Contributing partner’s tax basis.
d. Fair value at the date of contribution.

2. When Marlon retired from the 3M Partnership of Marlon, Marian, and Myra, the final
settlement of Marlon’s interest exceed Marlon’s capital balance. Under the bonus method,
the excess
a. Was recorded as an expense.
b. Had no effect on the capital balances of Marian and Myra.
c. Was recorded as goodwill.
d. Reduced the capital balances of Marian and Myra.

3. Basic Concepts. Which of the following business enterprises are distinct legal entities
separate from their owners?
Corporations/ Sole Proprietorships/ Partnerships
a. No/ No/ No
b. Yes/ Yes/ Yes
c. Yes/ No/ Yes
d. Yes/ Yes/ No

4. WalangForever partnership was formed by Bea Andersen and Gerald Alonzo. Bea and
Gerald had a capital ratio of 3:1 and a profit and loss ratio of 2:1 respectively. The bonus
method was used to record Julia’s admittance as a new partner. What ratio would be use to
allocate, to Bea and Gerald , the excess of Julia’s Contribution over the amount credited to
Julia’s capital account?
a. Bea and Gerald’s new relative capital ratio.
b. Bea and Gerald’s old capital ratio.
c. Bea and Gerald’s new relative profit and loss ratio.
d. Bea and Gerald’s old profit and loss ratio.

5. Formation. Jaja and Boomboom formed JaBoom partnership, each contributing assets to
the business. Jaja contributed inventory with a current fair value in excess of its carrying
amount in excess of its current fair value. At what amount should the partnership record
each of the following assets?

Inventory / Real Estate

a. Carrying amount / Fair Value

b. Carrying amount / Carrying amount
c. Fair value / Fair value
d. Fair Value / Carrying amount