Part I: Formation of a Partnership -10%

1. J and C decide to form a partnership by combining the assets of their separate businesses. J
contributes the following assets to the partnership: cash, $6,000; accounts receivable with a
face amount of $96,000 and an allowance for doubtful accounts of $6,600; merchandise
inventory with a cost of $85,000; and equipment with a cost of $140,000 and accumulated
depreciation of $90,000.
The partners agree that $5,000 of the accounts receivable are completely worthless and are
not to be accepted by the partnership, that $8,000 is a reasonable allowance for the un-
collectability of the remaining accounts, that the merchandise inventory is to be recorded at
the current market price of $76,500, and that the equipment is to be valued at $90,000.
Required: Journalize the partnership’s entry to record J’s investment.
2. H contributed equipment, inventory, and $34,000 cash to a partnership. The equipment had
a book value of $23,000 and a market value of $29,000. The inventory had a book value of
$60,000, but only had a market value of $15,000, due to obsolescence. The partnership also
assumed a $12,000 note payable owed by H that was used originally to purchase the
equipment.
Required: Provide the journal entry for H’s contribution to the partnership.
3. S contributed land, inventory, and $58,000 cash to a partnership. The land had a book value
of $40,000 and a market value of $68,000. The inventory had a book value of $50,000 and a
market value of $45,000. The partnership also assumed a $20,000 note payable owed by S
that was used originally to purchase the land.
Required: Provide the journal entry for S’s contribution to the partnership.
4. As a part of the initial investment, a partner contributes delivery equipment that had
originally cost $50,000 and on which accumulated depreciation of $37,500 had been
recorded. The partners agree on a valuation of $15,000.
Required: How should the delivery equipment be recorded in the accounts of the
partnership?
5. All partners agree that $200,000 of accounts receivable invested by a partner will be
collectible to the extent of 90%.

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 Required: How should the accounts receivable be recorded in the general ledger of the
partnership?
6. As part of the initial investment, a partner contributes office equipment that had cost
$20,000 and on which accumulated depreciation of $12,500 had been recorded. If the
partners agree on a valuation of $9,000 for the equipment, what amount should be debited
to the office equipment account?
A. $7,500 C. $9,000
B. $12,500 D. $20,000
Part II: Division of Net income or Net loss -10%
7. H and M formed a partnership, investing $180,000 and $60,000 respectively. Determine
their participation in the year’s net income of $150,000 under each of the following
independent assumptions:
(a) No agreement concerning division of net income
(b) Divided in the ratio of original capital investment
(c) Interest at the rate of 10% allowed on original investments and the remainder
divided in the ratio of 2:3;
(d) Salary allowances of $45,000 and $60,000 respectively, and the balance divided
equally
(e) Allowance of interest at the rate of 10% on original investments, salary allowances of
$45,000 and $60,000 respectively, and the remainder divided equally.
8. M and K formed a partnership, investing $240,000 and $120,000 respectively. Determine
their participation in the year’s net income of $120,000 under each of the following
independent assumptions:
(a) No agreement concerning division of net income
(b) Divided in the ratio of original capital investment
(c) Interest at the rate of 10% allowed on original investments and the remainder divided
in the ratio of 2:3
(d) Salary allowances of $40,000 and $50,000 respectively, and the balance divided
equally
(e) Allowance of interest at the rate of 10% on original investments, salary allowances of
$40,000 and $50,000 respectively, and the remainder divided equally.

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9. P and B formed a partnership, dividing income as follows:
A. Annual salary allowance to P of $42,000.
B. Interest of 9% on each partner’s capital balance on January 1.
C. Any remaining net income divided equally.
P and B had $20,000 and $150,000 in their January 1 capital balances, respectively. Net income
for the year was $240,000.
Required: How much net income should be distributed to P?
10. L and M formed a partnership, dividing income as follows:
A. Annual salary allowance to L of $54,000.
B. Interest of 10% on each partner’s capital balance on January 1.
C. Any remaining net income divided to L and M, 2:1.
L and M had $100,000 and $200,000, respectively, in their January 1 capital balances.
Net income for the year was $60,000.
Required: How much net income should be distributed to L?
11. K and L formed a partnership in which the partnership agreement provided for salary
allowances of $45,000 and $30,000, respectively.
Required: Determine the division of a $25,000 net loss for the current year.
12. W and O formed a partnership in which the partnership agreement provided for salary
allowances of $40,000 and $60,000, respectively.
Required: Determine the division of a $80,000 net loss for the current year.
13. T and H invest $100,000 and $50,000 respectively in a partnership and agree to a division of
net income that provides for an allowance of interest at 10% on original investments, salary
allowances of $12,000 and $24,000 respectively, with the remainder divided equally. What
would be T’s share of a net income of $45,000?
A. $22,500 C. $22,000
B. $19,000 D. $10,000
14. C and D agree to form a partnership. C is to contribute $50,000 in assets and to devote
one half times to the partnership. D is to contribute $20,000 and to devote full time to the
partnership. How will C and D share in the division of net income or net loss?
A. 5:2 B. 1:1 C. 1:2 D. 2.5:1

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Part III: Liquidation of a partnership -10%

15. P and A share gains and losses in the ratio of 2:1. After selling all assets for cash, dividing the
losses on realization, and paying liabilities, the balances in the capital accounts were as
follows: P $10,000 Cr.; A $2,000 Cr. How much of the cash of $12,000 would be
distributed to P?
A. $2,000 B. $10,000 C. $8,000 D. $12,000
16. G and L, with capital balances of $57,000 and $40,000 respectively, decide to liquidate their
partnership. After selling the noncash assets and paying the liabilities, there is $67,000 of
cash remaining. If the partners share income and losses equally, how should the cash be
distributed?
17. B, T, and N share equally in net income and net losses. After the partnership sells all assets
for cash, divides the losses on realization, and pays the liabilities, the balances in the capital
accounts are as follows: B, $20,000 Cr.; T, $57,500 Cr.; N, $17,500 Dr.
A. What term is applied to the debit balance in N’s capital account?
B. What is the amount of cash on hand?
C. Journalize the transaction that must take place for B and T to receive cash in the
liquidation process equal to their capital account balances.
18. D, T, and H are partners sharing income 3:2:1. After the firm’s loss from liquidation is
distributed, the capital account balances were: D, $15,000 Dr.; T, $50,000 Cr.; and H,
$40,000 Cr. If D is personally bankrupt and unable to pay any of the $15,000, what will be
the amount of cash received by T and H upon liquidation?
19. E, R, and C are partners who share income and losses in the ratio of 2:2:1, respectively. The
partners decide to liquidate the organization. Prior to liquidation and asset realization on
March 1, 2006, their equity are; E $28,000, R $45,000, and C $12,000 and cash balance of
$4,000. In winding up operations during the month of March, noncash assets with a book
value of $125,000 are sold for $96,000, and liabilities of $44,000 are satisfied.
B. Provide the journal entry for realization of non-cash assets, sharing of gain or
loss on realization, if any, payment of liability and the final cash distribution to
partners.
C. Prepare a statement of the partnership liquidation.