Chapter 1: Partnership Formation

On January 1, 2015, Ernie and Bert both sole proprietors decided to form a partnership to expand both of their
businesses. According to their agreement, they will split profits and losses 75:25 and their initial capital will also
reflect that ratio.
The following are Ernie and Bert’s Statement of Financial Position:
Ernie Proprietor
Statement of Financial Position
December 31, 2014
ASSETS LIABILITIES AND EQUITY
Cash 50,000 Accounts payable 65,000
Accounts Receivable 100,000 Accrued expenses 55,000
Inventories 75,000 Notes payable 80,000
Equipment 250,000 Ernie, capital 90,000
Accumulated depreciation-Equipment (185,000)
TOTAL ASSETS 290,000 TOTAL LIABILITIES&EQUITY 290,000

Bert Proprietor
Statement of Financial Position
December 31, 2014
ASSETS LIABILITIES AND EQUITY
Cash 30,000 Accounts Payable 75,000
Accounts receivable 110,000 Accrued expenses 90,000
Inventories 85,000 Notes Payable 100,000
Equipment 300,000 Bert, Capital 160,000
Accumulated Depreciation- Equipment (100,000)
TOTAL ASSETS 425,000 TOTAL LIABILITIES&EQUITY 425,000

The values reflected in the Statement of Financial Position are already at fair values except for the following
accounts:
Ernie’s Accounts Receivable is now 20,000 less than what is stated in his Statement of Financial Position. Both
inventories of Ernie and Bert are now 90,000 and 70,000 respectively. Equipment for Bert has an assessed value of
275,000, appraised value of 250,000 and book value of 200,000. Additional accrued expenses are to be established in
the amount of 10,000 for Bert only while additional accounts payable in the amount of 5,000 for Ernie. It is also
agreed that all liabilities will be assumed by the partnership, except for the notes payable of Bert which will be
personally paid by him.
1. How much is the adjusted capital balance of Bert upon formation?
a. 91,250
b. 185,000
c. 285,000
d. 310,000
2. How much is the capital credit to Ernie upon formation?
a. 80,000
b. 273,750
c. 292,000
d. 255,500

3. How much should Ernie invest as additional cash to conformity with their initial capital agreement?
a. 193,750
b. 212,000
c. 175,500
d. 205,000

Bonnie and Clyde enter into a partnership agreement in which Bonnie is to have 55% interest in the partnership and
35% in the profits and losses, while Clyde will have 45% interest in the partnership and 65% in the profits and losses.
Bonnie contributed the following:
Cost Fair value
Building 235,000 255,000
Equipment 168,000 156,000
Land 500,000 525,000
The building and the equipment have a mortgage of 50,000 and 35,000 respectively. Clyde is to contribute 150,000
cash and equipment. The partners agreed that only the building mortgage will be assumed by the partnership.
4. How much is the fair market value of the equipment which Clyde contributed?
a. 615,818
b. 989,143
c. 546,273
d. 574,909

5. How much is the total asset of the partnership upon formation?

a. 1,892,143
b. 1,701,818
c. 1,660,909
d. 1,632,273

6. The partnership agreement is an express contract among the partners (the owners of the business). Such an
agreement generally does not include
a. A limitation on a partner’s liability to creditors.
b. The rights and duties of the partners.
c. The allocation of income between the partners.
d. The rights and duties of the partners in the event of partnership dissolution.

7. A partnership records a partner’s investment of assets in the business at

a. The market value of the assets invested.
b. A special value set by the partners.
c. The partner’s book value of the assets invested.
d. Any of the above, depending upon the partnership agreement.

8. 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. Fair value at the date of recognition.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

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

10. Four individuals who were previously sole proprietors form a partnership. Each partner contributes
inventory and equipment for use by the partnership. What basis should the partnership use to record the
contributed assets?
a. Inventory at the lower of FIFO cost or market.
b. Inventory at the lower of weighted-average cost or market.
c. Equipment at each proprietor’s carrying amount.
d. Equipment at fair value.

11. A contract where two or more persons bind themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among themselves.
a. Voluntary Association
b. Corporation
c. Partnership
d. Sole Proprietorship

12. A partnership formed for the existence of a profession which is duly registered is an example of:
a. Universal partnership of profits.
b. Universal partnership of all present property.
c. Particular partnership
d. Partnership by estoppel

13. One of the following is not a characteristic of contract of partnership.

a. Real, in that the partners must deliver their contributions in order for the partnership contract to be
perfected
b. Principal, because it can stand by itself
c. Preparatory, because it is a means by which other contracts will be entered into
d. Onerous, because the parties contribute money, property, or industry to the common fund

14. One of the following is not a requisite of a contract of partnership. Which is it?
a. There must be a valid contract
b. There must be a mutual contribution of money, property, or industry to a common fund
c. It is established for the common benefit of the partners which is to obtain profits and divide the same
among themselves
d. The articles are kept secret among members

15. The minimum capital in money or property except when immovable property or real rights thereto are
contributed, that will require the contract of partnership to be in a public instrument and be registered with
the Securities and Exchange Commission (SEC).
a. P5, 000.00
b. P10, 000.00
c. P3, 000.00
d. P30, 000.00
16. Roberts and Smith drafted a partnership agreement that lists the following assets contributed at the
partnership’s formation:
Contributed by
Roberts Smith
Cash P 20,000 P 30,000
Inventory 15,000
Building 40,000
Furniture & Equipment 15,000

The building is subject to a mortgage of P 10,000, which the partnership has assumed. The partnership
agreement also specifies that profits and losses are to be distributed evenly. What amounts should be
recorded as capital for Roberts and Smith at the formation of the partnership?

Roberts Smith
a. P35, 000 P85,000
b. P35,000 P75,000
c. P55, 000 P55,000
d. P60,000 P60,000

17. The Grey and Redd Partnership was formed on January 2, 2010. Under the partnership agreement, each
partner has an equal initial capital balance. Partnership net income or loss is allocated 60% to Grey and 40%
to Redd. To form the partnership, Grey originally contributed assets costing P30,000 with a fair value of
P60,000 on January 2, 2010, and Redd contributed P20,000 cash. Drawings by the partners during 2010
totaled P3, 000 by Grey an P9,000 by Redd. The partnership net income in 2010 was P25,000

Under the goodwill method, what is Redd’s initial capital balance in the partnership?
a. 20,000
b. 25,000
c. 40,000
d. 60,000

18. Using the information in No. 2, under the bonus method, what is the amount of bonus?
a. 20,000 bonus to Grey
b. 20,000 bonus to Redd
c. 40,000 bonus to Grey
d. 40,000 bonus to Redd

19. On May 1, 2010, the business assets of John and Paul appear below:
John Paul
Cash P 11,000 P 22,354
Accounts Receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture & Fixture 50,345 34,789
Other Assets 2,000 3,600
Total P 1, 020, 916 P 1, 317, 002

Accounts Payable P 178,940 P 243,650

Notes Payable 200,000 345,000
John, Capital 641, 976
Paul, Capital 728,352
Total P 1, 020, 916 P1, 317, 002
John and Paul agreed to form a partnership contributing their respective assets and equities subject to the
following adjustments:
a. Accounts receivable of P20, 000 in John’s books and P35, 000 in Paul’s are uncollectible.
b. Inventories of P5, 500 n P6, 700 are worthless in John’s and Pail’s respective books.
c. other assets of P2, 000 and P3, 600 in John’s and Paul’s respective books are to be written off.

The capital accounts of John and Paul, respectively, after the adjustments will be:
a. 614, 476 683, 052
b. 615, 942 717, 894
c. 640, 876 712, 345
d. 613,576 683, 350

20. 10. Based on No. 4, how much assets do the partnership have?
a. 2, 317, 918
b. 2, 237, 918
c. 2, 265, 118
d. 2, 365, 218

21. LF, EZ, and GT are partners with capital balances of P67,200, P108,000 and P38,000 respectively, sharing
profits and losses in the ratio of 2:5:1. SG is admitted as a new partner bringing with him expertise and is to
invest cash for a 15% interest in the partnership considering the transfer of capital from him of P18,000 upon
his admission.
Upon admission of SG, which of the following statements is false?

A. The capital account of GT will be credited in the amount of P2,250

B. The total agreed capital of the old partners is P18,000 greater than their contributed capital
C. The capital balance of EZ amount to P119,250
D. Cash will be debited in the amount of P40,800.

22. On June 1, 2013, AZ invited MG to join him in his business. MG agreed provided that AZ will adjust the
accumulated depreciation of his equipment account to a certain amount, and will recognize additional
accrued expenses of P40,000. After that, MG is to invest additional pieces of equipment make her interest
equal to 45%. If the capital balances of AZ before and after adjustment were 556,00 and 484,000
respectively, what is the effect in the carrying value of the equipment as a result of the admission of MG?
A. 364,000
B. (32,000)
C. 396,000
D. (324,000)

23. TM and SJ, having capital balances of P980,000 and P525,000 respectively, decided to admit GD into the
partnership. If TM and SJ share profit in proportion of 3;1 respectively, and SJ's capital balance after GD's
investment is P589,750, how much was invested by GD?
A. P848,750
B. P1,174,250
C. P588,000
D. P847,000

24. RD formed a partnership on February 10, 2009. R contributed cash of P150,000, while D contributed
inventory with a fair value of P120,000. Due to R's expertise in selling, D agreed that R should have 60% of
the total capital of the partnership. R and D agreed to recognize goodwill. what is the total capital of the RD
partnership after the goodwill is recognized?
A.P450,000
B.P330,000
C.P300,000
D.P270,000
25. In AD partnership, Allen's capital is P140,000 and Daniel's capital is P40,000 and they share a net income
ratio of 3:1 respectively. They decided to admit David in the partnership. What amount will David invest to
give him 1/5 interest in the partnership if no bonus/goodwill is recorded?
A.P60,000
B.P36,000
C.P50,000
D.P45,000
Chapter 2: Partnership Operation and Financial Reporting
1. Villena, a partner in the Dublay, Villena & Co., has a 30% participation in partnership profits and losses.
Villena’s capital account has a net decrease of P120,000 during the calendar year 2018. During 2018, Villena
withdrew P260,000 (charged against his capital account) and contributed property valued at P50,000 to the
partnership. What was the profit of the Dulay, Villena & Co. for year 2018?
a. P1, 100, 000
b. P466,667
c. P700,000
d. P300,000

2. Del Mundo, Ballada and Mendoza are partners sharing profit on a 7:2:1 ratio. Burgos was admitted into the
partnership with 15% share in the profit on Jan. 1, 2018. The old partners continue to share profit in their
original ratios.
For the year 2018, the partnership showed a profit of P15,000. However, it was discovered that the following
items were omitted in the firm’s book:
 Unrecorded at year end: 2017 2018
 Accrued Expense P1,050
 Accrued Income 875
 Prepaid Expense P1,400
 Unearned Income 1,225
The share of Ballada in the 2018 profit is?
a. P2,197.50
b. P2,637.00
c. P2,490.50
d. P3,149.75

3. At the beginning of 2018, the statement of financial position of EasyPage Company showed the following
balanced in the partner’s capital accounts: Rivera, P24,000 and Rosario, P26,000. Rivera and Rosario share
profits and losses in a 3:7 ratio. During 2018, EasyPage experienced a P40,000 loss. Rivera withdrew P10,000
from the partnership during the year and Rosario withdrew P18,000. What will be the balance in Rivera’s
capital on Dec. 31, 2018?
a. P3,600
b. P2,000
c. P12,000
d. P26,000

4. The partnership agreement of Zuniga, Armenta & Galang provided for the year-end allocation of profit in the
following order:
o First, Zuniga is to receive 10% profit up to P200,000 and 20% over P200,000
o Second, Armenta and Galang each are to receive 5% of the remaining profit over P300,000
o The balance of profit is to be allocated equally among the three partners.

The partnership’s 2018 profit was P500,000 before any allocations to partners. What amount should be
allocated to Zuniga?
a. P202,000
b. P216,000
c. P206,000
d. P220,000

5. On Jan 1. 2018, Antalio, Yecyec, Guzon and Calimpusan formed Butuan Trading Co., a partnership, with
contribution as follows: Anatalio, P50,000; Yecyec, P25,000; Guzon, P25,000; and Calimpusan, P20,000. The
partnership contract provided that each partner shall receive a 5% interest on contributed capital, and that
Anatalio and Yecyec shall receive salaries of P5,000 and P3,000, respectively.
The contract also provided that Guzon shall receive a minimum of P2,500 per annum, and Calimpusan a
minimum of P6,000 per annum, which is inclusive of amounts representing interest and share of remaining
profits. The balance of the profits shall be distributed to Anatalio, Yecyec, Guzon and Calimpusan in a ratio
3:3:2:2.
What amount must be earned by the partnership, before any charge for interest and salaries, so that
Anatalio may receive an aggregate of P12,500 including interest, salary and share of profits?
a. P32,333
b. P30,000
c. P30,667
d. P16,667

6. Garachico, Perez, and Burgos formed a partnership on Jan. 1, 2018, and contributed P150,000, P200,000, and
P250,000 respectively. Their article of co-partnership provided that the operating profit be shared among the
partners as follows: as salary, P24,000 for Garachico, P18,00 for Perex, and P12,000 for Burgos; interest of
12% on the average capital during 2018 of the three partners; and the balance in the ratio of 2:4:4,
respectively.
The operating profit of the year ended Dec. 31, 2018 amounted to P176,000. Garachico contributed
additional capital of P30,000 on July 1 and made a withdrawal of P10,000 on Oct. 1; Perez contributed
additional capital of P20,000 on Aug.1 and make a withdrawal of P10,000 on Oct.1; Burgos made a
withdrawal of P30,000 on Nov. 1.
The partners’ capital balanced on Dec. 31, 2018 are:
a. Garachico, P179,680; Perez, P229,360; Burgos, P239,360
b. Garachico, P223,180; Perez, P272,060; Burgos, P280,760
c. Garachico, P189,680; Perez, P239,360; Burgos, P269,360
d. Garachico, P179,760; Perez, P229,520; Burgos, P239,520

7. Castillo, Labasan, and Hollanes are partners with average capital balances during 2018 of P472,500,
P238,650, and P162,350, respectively. The partners receive 10% interest on their average capital balances;
after deducting salaries of P122,325 to Castillo and P82,625 to Hollanes, the residual profits or loss is divided
equally.
In 2018, the partnership had a loss of P125,624 before the interest and salaries to partners. By what amount
should Castillo’s and Hollanes’ capital account change increase(decrease)?

Castillo Hollanes
a. P30,267 P(40,448)
b. P29,476 P17,536
c. P(40,844) P31,235
d. P28,358 P32,458