ACCT 2A&B: Accounting for Partnership & Corporation

BCSV

ACCT 2A&B: Accounting for Partnership & Corporation I

Accounting for Partnership Formation
I. CONCEPTUAL SKILLS
A. MULTIPLE CHOICES.
Choose the letter of the best answer.

1. When a partner withdraws cash or other assets, the drawing account is

A. Not affected
B. Debited and credited
C. Debited
D. Credited

2. The following relate to the capital share of a partner in a partnership

A. The percentage % of equity that a partner has on the net assets
B. Proportionate to a partners capital contribution
C. May not be proportionate to capital contribution due to bonus
D. All of the foregoing

3. The articles of co-partnership should contain clear provisions on all of the following
except
A. Taxes paid by the partnership
B. Causes of partnership dissolution
C. Withdrawals allowed to partners
D. Profit-sharing ratio

4. The non-cash contributions of the partners to form a partnership are recorded by the
partnership at their
A. Book value
B. Agreed value
C. Dissolution value
D. Original cost

5. When a partnership cannot pay its debts with business assets, the partners
A. Are not personally liable for the debts
B. Have limited personal liability
C. Must convert the partnership to a joint venture
D. Must use their personal assets to meet the debts

6. A partnership formed for the exercise of a profession which is duly registered is an

example of
A. Partnership by estoppel
B. Particular partnership
C. Universal partnership of profits
D. Universal partnership of all present property

7. A partnership which has failed to comply with one or more of the legal requirements for
its establishment is classified as a(n)
A. Open partnership

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B. De jure partnership
C. De facto partnership
D. Secret partnership

8. Two individuals who were previously sole proprietors formed a partnership. Property
other than cash which is part of the initial investment in the partnership would be
recorded for financial accounting purposes at the
A. Proprietors book values or the fair value of the property at the date of the
investment, whichever is higher
B. Proprietors book values or the fair value of the property at the date of the
investment, whichever is lower
C. Proprietors book value of the property at the date of the investment
D. Fair value of the property at the date of the investment

9. 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 SEC
A. P 3,000
B. P 5,000
C. P 7,000
D. P 30,000

10. The following are kinds of partnerships according to liability of partners

A. General co-partnership
B. Limited partnership
C. Industrial partnership
D. A & B only

11. Allen, Thea, Julia, & Abbie are partners in Loo Company. Not having established yet
their credit standing, the four partners requested Leddah, a well-known businesswoman,
to help them negotiate a loan from Grace, a money lender. With the consent of Allen,
Thea, Julia, & Abbie, Leddah represented herself as a partner of Loo Company.
Thereafter, Grace granted a loan of P 1,200,000 to Loo Company. What kind of partner
is Leddah?
A. Managing partner
B. Liquidating partner
C. Ostensible partner
D. Partner by estoppel

12. Which of the following stipulations is valid?

A. A stipulation excluding a capitalist partner from profits
B. A stipulation exempting a capitalist partner from losses
C. A stipulation exempting an industrial partner from losses
D. A stipulation excluding an industrial partner from profits

13. 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

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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 the members

14. 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

15. A partnership whose existence may be terminated at any time by the partners
A. Limited partnership
B. Partnership for a fixed term
C. Partnership at will
D. Industrial partnership

B. TRUE OR FALSE.
Write A if the statement is not false otherwise, write B.

16. All partnerships are subject to income tax.

17. In the partnership books, there are as many capital and drawing accounts as there are
partners.
18. A newly organized partnership should always open a new set of books.
19. A partnership is always owned by two individuals.
20. A partners contribution in the form of industry is recorded by debiting the account
Industry.
21. For financial reporting purposes, the personal assets and debts of a partner should be
combined with the assets and debts of the business.
22. A partners contribution in the form if non-cash assets should be recorded at its fair
market value in the absence of an agreed value.
23. The property invested in a partnership by a partner becomes the property of the
partnership.
24. Partners are personally liable for the liabilities of the partnership if the partnership is
unable to pay.
25. There is a required number of limited partners in a general co-partnership, in the same
manner that, there is a required number of general partners in a limited partnership.
26. A partnership intended to be formed as a limited partnership but without the word
Limited or Ltd. appended to its name shall be considered as a general partnership.
27. A partnership begins from the moment of the execution of the contract, unless a different
date is stipulated.
28. A partnership for a fixed term or a particular undertaking which is continued after the
expiration of the term or the attainment of the undertaking becomes a partnership at will.
29. A stipulation exempting a capitalist partner from losses is valid.
30. When a partner has been appointed manager in the articles of partnership, he may be
removed without just cause by the vote of the partner owning the controlling interest.

II. COMPUTATIONAL & ANALYTICAL SKILLS

Supply the answer.

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Problem 1:
Hansel and Abby formed a partnership. Hansel contributed cash of P 93,500 and a computer
costing P 70,000. Abby contributed equipment costing P130,000. The current market value of
the assets are as follows:

Equipment P 145,000
Computer P 85,500

The partnership will assume a P 33,000 liability on the equipment.

Compute for the:

1. Capital balance of Abby.
2. Capital balance of Hansel.

Problem 2:
On February 28, 2013, Ralph, Jason, and ER formed a partnership by combining their separate
business proprietorships. Ralph contributed cash of P 330,000. ER contributed property with a
carrying value of P211,000, original cost of P 345,000, and appraised value of P 288,000. The
partnership accepted the responsibility for the P 136,000 mortgage attached to the property.
Jason contributed machine with an assessed value for tax purposes, original cost, and agreed
value of P 130,000, P146,700, P136,000, respectively. The partnership agreement specifies
that profits and losses are to be shared equally and partners interests should be equal. Bonus
method will be used for this problem.

Questions to answer:
3. How much is the total partnership capital on Feb. 28, 2013?
4. How much is the bonus to Jason?
5. How much is the bonus to ER from Jason?
6. How much was deducted from Ralphs capital for the capital balances of the three
partners to be equal?

Problem 3:
The partnership of Earl and Xai was formed on Nov. 30, 2012. At that date, the following assets
were contributed:

Xai Earl
Cash P 250,000 P 90,000
Inventory - 230,000
Building - 333,000
Automobile 104,440

The building is subject to a mortgage loan of P93,000 which is not to be assumed by the
partnership. Profit sharing ratio is 36:24 for Xai and Earl, respectively.
Compute for:
7. Earls capital account at Nov. 30, 2012.
8. Earls capital account on Nov. 30, 2012 assuming that the partnership agreement
is that partners should have an equal interest in partnership capital
9. The total partnership capital on Nov. 30, 2012 using the information in # 8.
10. The bonus given to Xai using the information in # 8.

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11. The required capital of Xai using the original information and assuming that
capital shall be proportionate to the partners profit and loss ratio.

Problem 4:
On June 1, 2013, the business assets of Jo, Anna, and Reyes appear below:

Jo Anna Reyes
Cash P 151,200 P 203,800 P 199,100
Accounts Receivables 340,150 90,700 123,400
Allowance for Bad debts (20,550) (5,600) (12,500)
Land - - 550,500
Building 332,660 - 300,000
Accum. Depn Bldg (102,000) - (113,000)
Machine - 250,400 -
Accum. Depn - Machine (100,400)
Equipment - 340,500 -
Accum. Depn Eq. (67,250)
Accounts payable 154,000 177,000 169,500
Notes payable - 250,000 40,000
Mortgage payable 111,000 - 34,220

Jo, Anna, & Reyes agreed to form a partnership contributing their respective assets and
liabilities subject to the following adjustments:
The partnership will not assume the mortgage on Jos building.
Allowance for bad debts of each individual will be increased by 10% of their respective
accounts receivable balances.
Reyes building should be written down to its recoverable amount of P 131,500.
Jos building has an appraised value of P 320,440.
The value of the machine will be written down by P 30,000.

Profit sharing ratio is 3:3:6 to Anna, Reyes, & Jo, respectively.

Questions to answer:
12. Assuming that the partnership agreement is that the capital is equal to the net
assets invested, How much is the capital balance of Anna?
13. Using the information in # 12, How much is the capital balance of Jo?
14. Using the information in # 12, Who has the highest capital balance?
15. Assuming that the partnership agreement is that partners should have an equal
interest in partnership capital, How much was the bonus to Jo?
16. Using the information in # 14, How much was deducted from the capital balance of
Reyes?
17. Assuming that the partnership agreement is that the capital accounts should be in
proportion to the profit sharing ratio and that the capital of Jo is already in
proportion to her profit share ratio, How much is the required capital of Anna?
18. Using the information in # 17, How much will Reyes invest/withdraw cash in order
that her capital will be in proportion to her profit ratio? Indicate if INVEST or
WITHDRAW.
19. Using the information in # 17, How much is the total capital of the partnership?
20. Using the information in # 17, How much is the total asset of the partnership?

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Problem 5:
Bry admits Pattie as a partner in business. Accounts in the ledger for Bry on March 28,
2013, prior to the admission of Pattie, show the following balances:
Cash P 678,200 ; Accounts receivables P126,775 ; M. Inventory P140,900 ; Accounts
payable - P 216,565 ; Loan payable Metrobank P 291,520.

It is agreed that for purposes of establishing Patties interest, the following adjustments shall
be made:
(a) An allowance for doubtful accounts at 20% of accounts receivable is to be established.
(b) The merchandise inventory is to be valued at P 165,780.
(c) Prepaid interest expense of P 56,430 and accrued salary expense of P 23,400 are to be
recognized

Pattie is to invest sufficient cash to obtain a 3/7 interest in the partnership.

Compute for:
21. Brys adjusted capital before the admission of Pattie.
22. The amount of cash investment by Pattie.
~~~~
You can never cross the Ocean unless you have the courage to lose sight
of the shore.
*Suggested Key*
I. THEORIES.
A. MULTIPLE CHOICES. B. TRUE OR FALSE
1. C 16. B
2. D 17. A
3. A 18. B
4. B 19. B
5. D 20. B
6. B 21. B
7. C 22. A
8. D 23. A
9. A 24. A
10. D 25. B
11. D 26. A
12. C 27. A
13. D 28. A
14. A 29. B
15. C 30. B
II. COMPUTATIONAL & ANALYTICAL SKILLS.
1. P 112,000 11. P 979,500
2. P 179,000 12. P 246,080
3. P 618,000 13. P 603,225
4. P 70,000 14. REYES
5. P -0- 15. P -0-
6. P 124,000 16. P 207,525
7. P 653,000 17. P 301,612.50
8. P 503,720 18. P 434,327.50
9. P 1,007,440 19. P 1,206,450

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10. P 149,280 20. P 2,031,170

----- 21. P 470,345
22. P 352,758.75

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