Partnership Formation

1. H and I formed a partnership agreeing to share profits equally. H contributed P10,000

cash and P400,000 newly purchased equipment’s. I contributed P15,000 cash and a
parcel of land acquired 5 years ago for P100,000. Three hours after formation, the land
was sold for P200,000. How much is the capital balance of I?
a. P50,000 b. P215,000 c. P150,000 d. P165,000

2. The following transactions and agreements relates to the formation of the ABC
Partnership:
 Andrea contributed a delivery truck with cost her P300,000 but now has a second
hand value half of its cost.
 Brenda has P500,000 personal assets but she contributed only P80,000 cash.
 Carlene contributed P150,000 cash. P120,000 of these were borrowed money from
Brenda.
 The partners agreed to share in profit equally despite differences in capital
contribution.

What should be the correct capital balances of partners Andrea, Brenda and Carlene?
a. P150,000; P80,000; P30,000 c. P150,000; P80,000; P120,000
b. P150,000; P80,000; P150,000 d. P300,000; P500,000; P150,000

3. Partner Y and Z agreed to form ZY Partnership sharing profit 40% and 60%. The
partnership also assumed the separate liabilities of the partners: Y, P200,000 and Z,
P300,000. Cash of P150,000 and P250,000 were also contributed by Y and Z.
Immediately after formation, the partners were credited with P500,000 and P400,000
capital. How much is the agreed value of non-cash assets contributed by Z?
a. P450,000 c. P1,000,000
b. P550,000 d. P700,000

4. Goodwill or bonus?
H, I and J contributed P650,000, P550,000 and P600,000 but agreed to share equal interest while
maintaining their total capital balance. Which is incorrect?
a. H will be debited for a P50,000 bonus. c. J will be debited for P50,000 bonus.
b. I will be credited for a P50,000 bonus. d. J will not receive any bonus.

5. Bonus method
A, Q and W contributed a total of P600,000 cash to form WAQ Partnership. Only W posses the
technical expertise required by the business so A and Q agreed to provide 10% of their
contributed capital as bonus to W. A and W contributed P240,000 and P120,000, respectively.
How much is Q’s adjusted capital balance after formation?
a. P200,000 b. P240,000 c. P120,000 d. P168,000

The total bonus to W is

a. P18,000 b. P24,000 c. P36,000 d. P48,000
 6. Goodwill method
A, B and C formed a partnership and contributed P100,000, P50,000 and P80,000 cash,
respectively. A and C further contributed non-cash assets with agreed values of P50,000 and
P20,000, respectively. Owing to the business expertise of B and C, A concurred that they will be
credited with 20% goodwill based on their contributed capital. How much is the total goodwill to
be recognized upon formation?
a. P26,000 b. P60,000 c. P30,000 d. P50,000

How much is the adjusted capital of C after formation?

a. P80,000 b. P100,000 c. P96,000 d. P120,000

7. A, B and C formed a partnership whereby A shall be credited for P120,000 by

contributing P100,000. B and C shall contribute enough cash for their 20% and 30%
interest in the partnership, respectively and to cover their respective share in the bonus to
A. What is B’s cash contribution?
a. P56,000 c. P48,000
b. P52,000 d. P40,000

8. Zeus and Raymund formed a partnership agreeing to share profits 40:60, respectively.
Zeus contributed a special equipments which cost him P200,000. Raymund contributed a
parcel of land which he purchased for P300,000 three years ago. The equipment and the
land have current fair market value of P150,000 and P400,000, respectively, but the
partners agreed that the equipment and the land will booked at cost. The bonus method
shall be used for whatever fair value adjustments. What is Zeus’ adjusted capital after the
formation?
a. P200,000 c. P130,000
b. P150,000 d. P110,000

9. Benson is a proprietor with adjusted capital balance of P120,000. In need of additional

financing, he sold 40% of his capital to Candy for P60,000. Any goodwill implied by
Candy’s purchase is to be recorded prior to Candy’s admission. What is Benson’s capital
immediately after formation?
a. P120,000 c. P84,000
b. P90,000 d. P72,000

10. Personal cash settlement

Partner Alex and Becky agreed to form a partnership by contributing the assets of their separate
businesses. The partners agreed to an equal capital credit on the total contributed capital. Cash
settlements will be made among them to even out the difference. The abridged balance sheets of
Alex and Becky is are follows:
Alex Becky
Total assets P 120,000 P 80,000
Total liabilities 40,000 20,000

The partnership formation results in

 a. P10,000 bonus to Becky. c. P10,000 cash settlement to Becky.
b. P10,000 goodwill to Becky. d. P10,000 cash settlement from Becky.

Partnership Operations

1. At the end of the year of operation, the profit or loss summary has a debit balance of
P60,000. Partners A, B and C contributed P100,000, P200,000 and P300,000 and shares
profit 20:30:50, respectively. In closing the profit or loss summary, which statement is
correct?
a. A’s capital, P10,000 debit c. B’s capital, P18,000 debit
b. A’s capital, P10,000 credit d. C’s capital, P30,000 credit

2. As of December 31, 2008, D, E and F has adjusted capital balances of P100,000, P250,000
and P150,000, respectively, and shares profit equally. At the start of 2009, the partners
admitted G for a 10% interest in profit and capital by contributing P100,000. The partnership
earned P120,000 net income in 2009. How much is E’s share in the partnership profit?
a. P24,000 b. P36,000 c. P54,000 d. P40,000

3. D and E agreed to share profits and losses 40:60, respectively after providing E 17% bonuses
on partnership net income after tax and after bonus. D received P36,000 as final profit
distribution. The share of the partners on partnership profit is subject to 10% withholding tax.
The partnership is also subject to 35% income tax. Compute the partnership operating
income assuming that it equals taxable income.
a. P117,000 b. P150,000 c. P180,000 d. P160,000

4. Darrel, Rhad and Bal are partners. The partners agreed to share profit 40:30:20. Darrel sold
½ o his interest to Rhad for P100,000. Subsequently, the partnership admitted Andrix for a
10% interest. What is Rhad’s profit sharing after Andrix’ admission?
a. 27% c. 50%
b. 45% d. 54%

5. The partnership reports profits of P80,000, net of P20,000 salaries and P30,000 interest and a
bonus. The bonus is computed as 20% of profits after salaries and interest. Compute the
amount of the bonus.
a. P16,000 c. P26,000
b. P20,000 d. P32,500

6. The partnership of Alec and Boy reported profits of P120,000 in 2009 and divided the same
to their profit sharing ratio of 40:60, respectively. An examination conducted on the books
revealed the following:
 An equipment costing P30,000 which should have depreciated for 4 years was expensed
on January 2, 2009.
 Supplies of P5,000 was omitted on the records.
 An inventory costing P15,000 was omitted from the records. The purchase was not
recorded because the invoice was in transit as of the balance sheet date.
What is the net adjustment to the Capital account of Alec?
a. P11,000 increase c. P17,000 increase
b. P11,000 decrease d. P17,000 decrease

7. Katrina and Horace formed a partnership. They agreed to divide profits 40:30, respectively,
after providing for salaries of P10,000 to Katrina and P20,000, to Horace and an interest on
beginning capital. Interest traceable to Katrina and Horace were P4,000 and P2,000,
respectively. If Horace received total profit sharing of P28,000, compute the partnership
profit during the year.
a. P46,200 c. P56,000
b. P48,000 d. P50,000

8. Elvie and Lito are partners sharing profits as follows:

 P10,000 and P20,000 salaries to Elvie and Lito, respectively. The salary provision shall
be increased by 50% each when profit exceeds P50,000.
 Residual profit is shared equally.
If Elvie received P25,000 profit sharing, what is the partnership profit?
a. P75,000 b. P65,000 c. P60,000 d. P50,000
9. Cabrera, Mateo and Ampil agreed to the following profit sharing:
 Salary of P20,000 and P30,000 to Mateo and Ampil, respectively.
 Residual profit sharing of 50:30:20 to Cabrera, Mateo and Ampil, respectively.
 Guaranteed minimum profit sharing of P40,000 to Cabrera and P30,000 to Mateo,
respectively.

Compute the partnership profits if Ampil received P40,000 profit sharing.

a. P115,000 b. P120,000 c. P135,000 d. P150,000

10. As of February 1, 2010, A, B and C have beginning capital balances of P100,000, P200,000
and P200,000, respectively. They agreed to share any losses in the ratio of 30:30:40,
respectively. The partnership profit was reported as P50,000. Ending capital balances of A, B
and C was properly determined as P120,000, P220,000 and P180,000, respectively, based on
the reported profit.
An evaluation of the books as of December 31, 2010 disclosed that the correct partnership
income was only P30,000. Based on the above facts, compute the net drawings or additional
investments made by partners A, B and C during the year, respectively.
a. P5,000, P5,000; (P40,000) c. P10,000; P0; (40,000)
b. P5,000, P5,000; (P20,000) d. P14,000; P8,000; (P32,000)