Group Members: (COA-1B)

Apolinar, Williane Faith

Baguingan, Ivy June
Mainga, Justine
UNIVERSITY OF THE CORDILLERAS Jucutan, Jasper
COLLEGE OF ACCOUNTANCY Tabamo, Pamela
QUIZ ON PARTNERSHIP FORMATION

1. R and O drafted a partnership agreement that lists the following assets contributed at
the partnership’s formation: that R should contribute cash of 100,000 and furniture
and fixtures of P75,000, whereas, O should contribute cash of P150,000, inventories of
P75,000 and building worth P200,000. The building is subject to a mortgage of P50,000,
which the partnership has assumed. The partnership agreement also specifies that
profits and losses are to be distributed evenly. What amount should be recorded as
capital for R and O, respectively, at the formation of the partnership?

a. P175,000 and P425,000 c. P175,000 and P375,000

b. P275,000 and P275,000 d. P300,000 and P300,000

Solution:
 To record the contribution of R
Cash ₱100,000
Furniture and Fixtures ₱75,000
R, Capital ₱175,000

 To record the contribution of O

Cash ₱150,000
Inventory ₱75,000
Building ₱200,000
O, Capital ₱375,000
Mortgage Payable ₱50,000

Items 2 and 3 are based on the following:

Y and C agree to divide initial partnership capital equally, even though Y contributed
P150,000 in identifiable assets and C contributed P126,000.

2. Under the bonus approach, how much would be the capital balance of Y at the date of
formation?
a. P150,000 b. P126,000 c. P162,000 d. P138,000

Solution:

Contributed Capital Inc. (Dec.) Agreed Capital (50%; 50%)

Y ₱150,000 (₱12,000) ₱138,000
C ₱126,000 ₱12,000 ₱138,000
Total ₱276,000 ₱276,000
 3. H and R formed a partnership on January 1, 2003. H and R had been operating as sole
proprietors. The book values and fair values of the contributions to be made by each
partner, as agreed upon by the partners, are as follows:

H R
Book Value Fair Value Book Value Fair Value
Cash P 25,000 P 25,000 P 50,000 P 50,000
Accounts receivable, net 60,000 70,000 20,000 25,000
Inventory 75,000 80,000 150,000 175,000
Machinery, net 50,000 50,000
Land 40,000 50,000
Building, net 150,000 150,000

The partnership is to assume accounts payable of H and R in the amounts of P50,000

and P100,000, respectively. How much amount of capital should be credited to H and
R, respectively?

a. P175,000 and P350,000 c. P225,000 and P450,000

b. P210,000 and P410,000 d. P160,000 and P310,000

Solution:
H R
Cash ₱25,000 ₱50,000
Accounts Receivable ₱70,000 ₱25,000
Inventory ₱80,000 ₱175,000
Machinery ₱50,000
Land ₱50,000
Building ₱150,000
Total ₱225,000 ₱450,000
Less: Accounts Payable ₱50,000 ₱100,000
Capital ₱175,000 ₱350,000

4. O and R are partners with capital balances of P120,000 and P40,000, respectively. Profits
and losses are divided in the ratio 60:40. O and R decided to form a new partnership
with E who invested land valued at P30,000 for a 20% capital interest in the new
partnership. E’s cost of the land was P24,000. The partnership elected to use the bonus
method to record the admission of E into the partnership. E’s capital account should be
credited for

a. P24,000 b. P38,000 c. P32,000 d. P30,000

Solution:

O, Capital ₱120,000
R, Capital ₱40,000
E, Capital ₱30,000
Total Contributed Capital ₱190,000
Multiply: Capital Interest 20%
E, Capital (AC) ₱38,000
5. S and V established a partnership to operate a computer shop. S contributes a computer
that cost P60,000 and has a fair value of P90,000. V contributes P30,000 cash and
furniture and fixtures that cost P40,000 and has a fair value of P30,000. The partners
agree to share profits and losses 60% to S and 40% to V. If the initial non-cash
contributions of the partners are recorded at cost rather than fair market value, which
of the following is true?

a. S’s capital will be understated by P30,000.

b. V’s capital will be overstated by P10,000.
c. Total partners’ capital will be understated by P20,000.
d. All of the above.

Solution:

S V Total
Cost ₱60,000 ₱70,000 ₱130,000
Fair Value ₱90,000 ₱60,000 ₱150,000
Gain (Loss) (₱30,000) ₱10,000 (₱20,000)
₱12,000 (60%) ₱8,000 (40%) ₱20,000
Inequity (₱18,000) ₱18,000 0

6. A and L formed a partnership on January 1, 2003. To start the partnership, A

transferred cash totaling P116,000 and office equipment with a book value of P90,000
and a fair market value of P84,000. L transferred cash of P56,000, land valued at
P36,000, and a building valued at P300,000. L bought these at a lump sum price of
P250,000. In addition, the partnership assumed the mortgage of P232,000 on the
building. The amount of capital to be credited to A and L, respectively, on January 1,
2003 should be:
a. P206,000 and P160,000 c. P200,000 and P160,000
b. P200,000 and P74,000 d. P206,000 and P74,000

 To record the contribution of A

Cash ₱116,000
Office Equipment ₱84,000
A, Capital ₱200,000

 To record the contribution of L

Cash ₱56,000
Land ₱36,000
Building ₱300,000
L, Capital ₱160,000
Mortgage Payable ₱232,000
7. E admits R as a partner in the business. Balance sheet accounts of E on September 30,
just before the admission of R show:
Cash P 2,600
Accounts receivable 12,000
Merchandise inventory 18,000
Accounts payable P 6,200
E, capital 26,400

It is agreed that for purposes of establishing E’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 P20,200.
c. Prepaid expenses of P350 and accrued expenses of P400 are to be recognized.
R is to invest sufficient cash to obtain a 1/3 interest in the partnership. How much is
R’s investment to the partnership?

a. P14,155 b. P17,600 c. P14,305 d. P7,920

Solution:

Cash ₱2,600
A/R ₱12,000
Merchandise Inventory ₱18,000
A/P (₱6,200)
E, Capital ₱26,400

2% Allow. For doubtful accounts (₱240)

Merchandise Inventory ₱2,200
Prepaid Expenses ₱350
Accrued Expenses (₱400)
E, Adjusted Capital (2/3) ₱28,310
R, Capital (1/3) ₱14,155
Total ₱42,465

8. On October 1, 2003, I and C pooled their assets and formed a partnership, with the firm
to take over their business assets and assume their liabilities. The partners’ capital are
to be based on the net assets transferred after the following adjustments: C’s inventory
is to be increased by P3,000; an allowance for bad debts of P1,000 and P1,500 are to be
set up in the books of I and C, respectively; and P4,000 of accounts payable are to be
recognized in I’s books. The individual trial balances on October 1, 2003 show the
following:
I C
Assets P113,000 P75,000
Liabilities 34,500 5,000
Capital 78,500 70,000
 What are the capital balances of I and C, assuming they agree to share their capital
equally?

a. P65,000 b. P72,500 c. P74,250 d. P80,000

Solution:
I C
Assets ₱113,000 ₱75,000
Liabilities (₱34,500) (₱5,000)
Capital ₱78,500 ₱70,000
Adjustments:
Inventory ₱3,000
Allow. For bad debts (₱1,000) (₱1,500)
Accounts Payable (₱4,000)
Total Contributed Capital ₱73,500 ₱71,500

Contributed Capital Inc. (Dec.) Agreed Capital (50%:50%)

I ₱73,500 (₱1,000) ₱72,500
C ₱71,500 (₱1,000) ₱72,500
Total ₱145,000 ₱145,000

9. On July 1, 2003 S and E formed a partnership, agreeing to share profits and losses in
the ratio of 4:6, respectively. S contributed a parcel of land that cost him P25,000. E
contributed cash of P50,000. The land was sold for P50,000, a day after the formation
of the partnership. How much would be the initial capital of the partnership?
a. P50,000 b. P75,000 c. P100,000 d. P125,000

Solution:
 To record the contribution of S
Land ₱50,000
S, Capital ₱50,000

 To record the contribution of E

Cash ₱50,000
E, Capital ₱50,000

Contributed Capital
S ₱50,000
E ₱50,000
Total Initial Capital ₱100,000
10. II, JJ, and KK are forming a new partnership. II is to invest cash of P100,000 and stapling
equipment originally costing P120,000 but has a second-hand value in the market at
P50,000. JJ is to invest cash of P160,000, while KK, whose family is engaged in selling
stapling equipment, is to contribute cash of P50,000 and a brand new stapling
equipment to be used by the partnership with a regular price of P120,000 but which cost
their family’s business P100,000. Partners agree to share profits equally. The capital
balances upon formation are:

a. II, P220,000; JJ, P160,000; and KK, P150,000

b. II, P150,000; JJ, P160,000; and KK, P170,000
c. II, P160,000; JJ, P160,000; and KK, P160,000
d. II, P176,666; JJ, P176,666; and KK, P176,668

Solution:
 To record contribution of II
Cash ₱100,000
Equipment ₱50,000
II, Capital ₱150,000

 To record contribution of JJ
Cash ₱160,000
JJ, Capital ₱160,000

 To record contribution of KK
Cash ₱50,000
Equipment ₱120,000
KK, Capital ₱170,000

END!