Partnership Formation:

1. On December 1, 20x5, 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 (AICPA)

2. On March 1, 20x5, II and JJ formed a partnership with each contributing the

following assets:

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JJ II

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Cash , P300,000 P 700,000

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Machinery and equipment 250,000 750,000

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Building - 2,250,000

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Furniture and fixtures
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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, 20x5 the balance in JJ's capital
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account should be:

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a. 3,700,000 c. 3,050,000
b. 3,140,000 d. 2,900,000 (AICPA)
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3. The same information in Number 2, except that the mortgage loan is not
assumed by the partnership. On March 1, 20x5 the balance in JJ's capital
account should be:
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a. P3,700,000 c. 3,050,000
b. 3,140,000 d. 2,900,000 (Adapted)
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4. As of July 1, 20x5, 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

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 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 P 120,000 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?

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a. 52,560 c. 142,560

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b. 102,500 d. 172,500 (Adapted)

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5. On August 1, AA and BB pooled their assets to form a partnership, with the
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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.)
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BB's inventory is to be increased by P4,000; an allowance for doubtful

accounts of P1,000 and P 1,500 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:
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AA BB
Assets P 75,000 P 113,000
Liabilities 5,000 34,500
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What is the capital of AA and BB after the above adjustments?

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a. AA, P68,750; BB, P77,250 c. AA, P65,000; BB, P76,000

b. AA, P75,000; BB, P81,000 d. AA, P65,000; BB, P81,000
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(Adapted)

6. CC admits DD as a partner in business. Accounts in the ledger for CC on

November 30, 20x5, just before the admission of DD, show the following
balances:
Cash..................................................................................... P 6,800

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 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.

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Compute for: (1) CC's adjusted capital before the admission of DD; and (2)

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the amount of cash investment by DD:

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a. (1) 35,347; (2) 11,971
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b. (1) 36,374; (2) 18,487 d. (1) 28,174; (2)14,087
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(Adapted)
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7. MM, NN, and 00 are partners with capital balances on December 31, 20x5 of
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P300,000, P300,000 and P200,000, respectively. Profits are shared equally.

00 wishes to withdraw and it is agreed that 00 is to take certain equipment
with second-hand value of P50,000 and a note for the balance of 00's interest.
The equipment are carried on the books at P65,000. Brand new equipment
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may cost P80,000. Compute for: (1) 00's acquisition of the second-hand
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equipment will result to reduction in capital; (2) the value of the note that will
00 get from the partnership's liquidation.
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a. (1) P15,000 each for MM and NN, (2) P150,000.

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b. (1) P5,000 each for MM, NN and 00, (2) P145,000.

c. (1) P5,000 each for MM, NN and 00, (2) P195,000.
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d. (1) P7,500 each for MM and NN, (2) P145,000. (Adapted)

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 8. Jones and Smith formed a partnership with each partner contributing the
following items:
Jones Smith
Cash................................................................. P 80,000 P 40,000
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

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a. P350,000 P270,000
b. P260,000 P180,000

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c. P360,000 P260,000
d. P500,000 P300,000

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9. The business assets of LL and MM appear below:
LL MM
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Cash…………………………………………………… P 11,000 P 22,354

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Accounts Receivable………………………………… 234,536 567,890

Inventories……………………………………………. 120,035 260,102
Land…………………………………………………… 603,000 -
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Building……………………………………………….. - 428,267
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Furniture and fixture…………………………………. 50,345 34,789

Other assets………………………………………….. 2,000 3,600
Total………………………………………… 1,020,916 1,317,002
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Accounts payable…………………………………….. P 178,940 P 243,650

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Notes payable…………………………………………. 200,000 345,000

LL, capital………………………………………………. 641,976 -
MM, capital……………………………………………… - 728,352
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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.

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 b.Inventories of P5,500 and P6,700 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

10. The same information in Number 9, how much total assets does the
partnership have after formation?

a. P2,337,918 c. P2,265,118

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b. 2,237,918 d. 2,365,218 (PhiICPA)

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11. On March 1, 20x5, PP and QQ decide to combine their businesses and

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form a partnership. Their balance sheets on March 1, before adjustments,
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showed the following:
PP QQ
Cash . ................................................................P 9,000 P 3,750
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Accounts receivable ............................................18,500 13,500

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Inventories ..........................................................30,000 19,500

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Furniture and fixtures (net) ...................................30,000 9,000

Office equipment (net) .......................................11,500 2,750
Prepaid expenses .................................................6,375 3,000
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Total ………………………………………………P105,375 P51,500

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Accounts payable……………………………… P 45,750 P18,000

Capital………………………………………… 59,625 33,500
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Total ................................................................P105,375 P51,500

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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
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under-depreciated by P250.
3.Rent expense incurred previously by PP was not yet recorded amounting to
P1,000, 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

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 Compute the net (debit) credit adjustment for PP and QQ:
PP QQ PP QQ
a. 2,870 2,820 c. (870) 180
b. (2,870) (2,820) d. 870 (180) (Adapted)

12. The same information in Number 11, compute the total liabilities after formation:

a. P61,950 c. P65,550
b. 63,750 d. 63,950

13. The same information in Number 11, compute the total assets after formation:

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a. P157,985 c. P160,765

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b. 156,875 d. 152,985

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14. On April 30, 20x5, XX, YY and ZZ formed a partnership by combining their
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separate business proprietorships. XX contributed cash of P75,Q00. YY
contributed property with a P54,000 carrying amount, a P60,000 original
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cost, and P120,000 fair value. The partnership accepted responsibility

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for the P52,500 mortgage attached to the property. ZZ contributed

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equipment with a P45,000 carrying amount, a P112,500 original cost, and

P82,500 fair value. The partnership agreement specifies that profits and
losses are to be shared equally but is silent regarding capital
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contributions. Which partner has the largest April 30, 2015, capital
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balance?

a. XX c. ZZ
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b. YY d. All capital account balances are equal (AICPA)

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Items 15 to 17 are based on the following data:

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 On January 1, 20x4, Jackson and Kendall formed a partnership. Jackson,
who has many years of experience in this line of business, contributed
P100,000 in cash. Kendall contributed assets having the following book
values and fair market values:
Book value Market value
Merchandise P 15,000 P 25,000
Building 40,000 150,000
Equipment 60,000 85,000

The partnership assumed a mortgage of P40,000 on the building. Capital

accounts are set equal to net assets invested.

15. The increase in capital of Kendall:

a. None c. by P160,000
b. by P100,000 d. by P220,000

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16. The partners have an equal interest in the initial total partnership capital,

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and the bonus method is used, the increase in capital of Jackson:

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a. None c. by P160,000
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b. by P100,000 d. by P220,000

17. The partners have an equal interest in the initial total partnership capital,
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and the goodwill method is used, the increase in capital of Jackson:

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a. None c. by P160,000
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b. by P100,000 d. by P220,000
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Partnership Operations:

18. JJ and KK are partners who share profits and losses in the ratio of 60%: 40%,
respectively. JJ's salary is P60,000 and P30,000 for KK. The partners are
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also paid interest on their average capital balances. In 20x5, JJ received

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P30,000 of interest and KK, P12,000. The profit and loss allocation is
determined after deductions for the salary and interest payments. If KK's
share in the residual income (income after deducting salaries and
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interest) was P60,000 in 20x5, what was the total partnership income?

a. P192,000 c. P282,000
b . 3 4 5 , 0 0 0 d. 387,000(Adapted)

19. The Partnership has the following accounting amounts:

(1) Sales = P70,000

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 (2) Cost of Goods Sold = P40,000
(3) Operating Expenses = P10,000
(4) Salary allocations to partners = P13,000
(5) Interest paid to banks = P2,000
(6) Partners' withdrawals = P8,000

The partnership net income (loss) is:

a . P2 0 ,0 00 c. P 5,000
b. 18,000 d. (3,000) (Adapted)

20. Lancelot is trying to decide whether to accept a salary of P40,000 or a

salary of P25,000 plus a bonus of 10% of net income after salary and bonus as
a means of allocating profit among the partners. Salaries traceable to the

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other partners are estimated to be P100,000. What amount of income would
be necessary so that Lancelot would consider the choices to be equal?

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a. P165,000 c. P265,000
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b 290,000 d. 305,000 (Adapted)

21. Peter and Ronald are partners. They have shared profits and losses 65/35 for
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a number of years. Peter has indicated that he is going to reduce his

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involvement in the partnership, so the profit and loss ratio is being modified to
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45/55. At the date of the change in the profit and loss ratio, the
partnership own vacant land with a market value of P300,000 and a book
value of P 100,000. Peter and Ronald compile a list of assets with market and
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book value differences. Two years after the change in the profit and loss
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ratios, the land is sold for P450,000. How much of the gain is allocated to
Peter?
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a. P157,500 c. P227,500
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b. P197,500 d. P287,500
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