FORMATION

No Bonus, No Revaluation
Cash Contributed by Partner
1. As of July 1, 2020, 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
Total P 705,000 P 735,000

Accounts Payable P 135,000 P 240,000

FF, capital 570,000
GG, capital - 495,000
Total P 705,000 P 735,000
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
P120,000 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?
a. 142,500 c. 172,500
b. 52,500 d. 102,500

2. Mary admits Jane as a partner in the business. Balance sheet accounts of Mary just before the
admission of Jane show: Cash, P26,000, Accounts receivable, PI20,000, Merchandise
inventory, PI80,000, and Accounts payable, P62,000. It' was agreed that for purposes of
establishing Mary's interest, the following adjustments be made: 1.) an allowance for
doubtful accounts of 3% of accounts receivable is to be established; 2.) merchandise
inventory is to be adjusted upward by P25,000; and 3.) prepaid expenses of P3,600 and
accrued liabilities of P4,000 are to be recognized.

If Jane is to invest sufficient cash to obtain 2/5 interest in the partnership, how much would
Jane contribute to the new partnership?
a. 176,000 c. 95,000
b. 190,000 d. 113,980
 
3. Red, White, and Blue form a partnership on May 1,2020. They agree that Red will contribute
office equipment with a total fair value of P40,000; White will contribute delivery equipment
with a fair value of P80,000; and Blue will contribute cash. If Blue wants a one third interest
in the capital and profits, he should contribute cash of:
a. P 40,000 c. P60,000
b. P120,000 d. P180,000

Noncash Contribution
4. On December 1, 2020, 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

5. On May 1, 2020, Cobb and Mott formed a partnership and agreed to share profits and losses
in the ratio of 3:7, respectively. Cobb contributed a parcel of land that cost him PI0,000. Mott
contributed P40,000 cash. The land was sold for PI8,000 on May 1, 2020, immediately after
formation of the partnership. What amount should be recorded in Cobb's capital account on
formation of the partnership?
a. 18,000 c. 15,000
b. 17,400 d. 10,000

6. On July 1,2020, Monuz and Pardo form a partnership, agreeing to share profits and losses in
the ratio of 4:6, respectively. Monuz contributed a parcel of land that cost him P25,000.
Pardo contributed P50,000 cash. The land was sold for P50,000 on July 1,2020 four hours
after formation of the partnership. How much should be recorded in Monuz capital account
on formation of the partnership?
a. PI0,000 c. P25,000
b. P20,000 d. P50,000

Cash, noncash contribution

7. Jones and Smith formed a partnership with each partner contributing the following items:
Jones Smith
Cash P 80,000 P40,000
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
A. P350,000 P270,000
B. P260,O00 PI 80,000
C. P360,O00 P260,000
D. P500,000 P300,000
a. Option A c. Option C
b. Option B d. Option D
Questions 1 & 2 are based on the following:
8. On March 1, 2020, II and JJ formed a partnership with each contributing the following assets:
II JJ
Cash P300,000 P 700,000
Machinery and equipment 250,000 750,000
Building - 2,250,000
Furniture and fixtures 100,000
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, 2020 the balance in JJ's capital account should be:
a. 3,700,000 c. 3,050,000
b. 3,140,000 d. 2,900,000

9. The same information in Number 2, except that the mortgage loan is not assumed by the
partnership. On March 1, 2020 the balance in JJ's capital account should be:
a. 3,700,000 c. 3,050,000
b. 3,140,000 d. 2,900,000

10. On January 2, 2020, Abel, Cain, and Josuah formed a partnership. Abel contributed cash
of PI00,000 and a delivery equipment that originally costs him PI20,000, but with a second
hand value of P50,000. Cain contributed PI60,000 in cash. Josuah, whose family sells office
equipment, contributed P50,000 in cash and office equipment that cost his family's dealership
PI00,000 but with a regular selling price of PI20,000. In 2010, the partnership reported net
income of P 120,000. On December 31, 2020, what would be the capital balance of the
partners?
Abel Cain Josuah
a. 257,500 200,000 192,500
b. 190,000 200,000 210,000
c. 260,000 200,000 190,000
d. 187,500 200,000 212,500

11. Roberts and Smith drafted a partnership agreement that lists the following assets
contributed at the partnership's formation:

Contributed by
Roberts Smith
Cash P20,000 P30,000
Inventory 15,000
Building 40,000
Furniture & equipment 15,000

The building is subject to a mortgage of PI0,000, 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. 35,000 85,000
b. 35,000 75,000
c. 55,000 55,000
d. 60,000 60,000

12. Ben, Joe and Fortune are new CPA's and are to form a partnership. Ben is to contribute
cash of P50,000 and his computer originally costing P60,000 but has a second hand value of
P25,000. Joe is to contribute cash of P80,000. Fortune, whose family is selling computers, is
to contribute cash of P25,000 and a brand new computer plus printer with regular price at
P60,000 but which cost their family's computer dealership, P50,000. Partners agree to share
profits equally.

The capital balances upon formation are:

a. Ben, P 75,000; Joe, P80,000; and Fortune, P85,000.
b. Ben, P110,000; Joe, P80,000; and Fortune, P75,000.
c. Ben, P 80,000; Joe, P80,000; and Fortune, P80,000.
d. Ben, P 88,333; Joe, P88,333; and Fortune, P88,335.