Partnership Formation

PARTNERSHIP FORMATION
True/False
Indicate whether the statement is true or false.
1. The chart of accounts for a partnership, with the exception of drawing and capital accounts, does not differ from
the chart of accounts for a sole proprietorship.
2. A disadvantage of partnerships is the mutual agency of all partners.
3. Each partner may withdraw the assets he or she contributed to the partnership at any time.
4. When a partner invests noncash assets in a partnership, the assets are recorded at the partner's book value.
5. In a general partnership, each partner is individually liable to creditors for debts incurred by the partnership, to the
extent of the partner's capital balance.
7. When compared to a corporation, one of the major disadvantages of the partnership is its limited life.
8. Each partner has a separate capital and withdrawal account.
9. When compared to a corporation, one of the major advantages of a partnerships is its relative ease of formation.
10. An advantage of the partnership form of business is that each partner’s potential loss is limited to that partner’s
investment in the partnership.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
11. As part of the initial investment, a partner contributes equipment that had originally cost 100,000 and on which
accumulated depreciation of 75,000 has been recorded. If similar equipment would cost 150,000 to replace and the
partners agree on a valuation of 40,000 for the contributed equipment, what amount should be debited to the
equipment account?
a. 40,000
b. 150,000
c. 100,000
d. 75,000
12. When a partnership is formed, assets contributed by the partners should be recorded on the partnership books at
their
a. book values on the partners' books prior to their being contributed to the partnership
b. fair market value at the time of the contribution
c. original costs to the partner contributing them
d. assessed values for property purposes
13. As part of the initial investment, Oswald contributes accounts receivable that had a balance of 25,000 in the
accounts of a sole proprietorship. Of this amount, 1,250 is completely worthless. For the remaining accounts, the
partnership will establish a provision for possible future uncollectible accounts of 750. The amount debited to
Accounts Receivable for the new partnership is
a. 23,000
b. 25,000
c. 24,250
d. 23,750
14. Bel, Joy, and Franco, new CPAs, are to form a partnership. Bel will contribute cash of P50,000 and his
computer that originally cost P60,000 but with a second-hand value of P25,000. Joy will contribute
P80,000 in cash. Franco, whose family sells computers, will contribute P25,000 in cash and a brand new
computer with printer that cost his family’s computer dealership P50,000 but with a regular selling price
of P60,000. The three agree to share profits and losses equally. Upon formation, capital balances are:
a. Bel, P 75,000; Joy, P80,000; and, Franco, P85,000
b. Bel, P 80,000; Joy, P80,000; and, Franco, P80,000
c. Bel, P 88,333; Joy, P88,333; and, Franco, P88,334
d. Bel, P110,000; Joy, P80,000; and, Franco, P75,000
15. Alma, Bona, and Cora are to form a partnership. Alma is to contribute cash of P100,000; Bona, P10,000;
and, Cora, P100,000. Alma and Cora are not to actively participate in the business but will refer
customers, while Bona will manage the firm. Bona has to give up his present job which gives her an
annual income of P120,000. The partners decided that profits and losses shall be shared equally. Upon
formation, partners’ capital balances would be:
a. P 70,000, P 70,000, and P 70,000, respectively.
b. P100,000, P10,000, and P100,000, respectively.
c. P100,000, P130,000, and P100,000, respectively.
d. P110,000, P110,000, and P110,000, respectively.
16. On May, 31, 2021, Al, Ben, and Cip formed a partnership by combining their businesses. Al give cash of P50,000.
Ben gave a property with a carrying amount of P30,000, an original cost of P40,000, and a fair market value of
P80,000. Ben’s property, however, has a P35,000 mortgage for which the new partnership accepted legal
responsibility. Cip gave a delivery equipment with a book value of P30,000, an acquisition cost of P75,000, and an
appraised value of P55,000. It was agreed that profits and losses are to be shared equally. The partner with the
biggest capital account balance as of May 31, 2021, is
a. Al
b. Ben
c. Cip
d. All have equal capital balance
17.
On October 1, 2021, Carla and Clara joined in a partnership. Carla contributed cash while Clara contributed
merchandise worth P25,000 and a second-hand delivery truck currently valued at P50,000 but encumbered by a
one-year chattel mortgage note for P15,000. If initial capital balances are to conform to the profit-sharing ratio of
2:3, respectively, the amount of cash contributed by Carla was:
a. P24,000
b. P30,000
c. P40,000
d. P50,000
18. CHONA and CHARO formed a partnership on May 31, 2021. CHONA’s contribution consisted of her
proprietorship’s net assets with current fair value of P60,000. CHARO contributed enough cash to
secure a one-fourth interest in the partnership. CHARO’s cash contribution was:
a. P15,000
b. P20,000
c. P25,000
d. P30,000
19. Pirante and Wilson drafted a partnership agreement that lists the following assets contributed at the
partnership’s formation:
Contributed by
Pirante Wilson
Cash P40,000 P60,000
Inventory - 30,000
Building - 80,000
Furniture and equipment 30,000 -
The building is subject to a mortgage of P20,000, which the partnership assumed. The partnership
agreement also specifies that profits and losses are to be distributed evenly. What amounts should be
recorded as capital for Pirante and Wilson at the formation of the partnership?
a. P70,000 and P170,000, respectively.
b. P70,000 and P150,000, respectively.
c. P110,000 for each partner.
d. P120,000 for each partner.
20. Alma, Bona, and Cora are to form a partnership. Alma is to contribute cash of P100,000; Bona,
P10,000, and Cora, an equipment valued at P100,000. Alma and Cora are not to actively participate in
the business but will refer customers, while Bona will manage the firm. Bona has to give up her present
job which gives her an annual income of P120,000. The partners decided that profits and losses shall
be shared equally. Upon formation, assuming a chattel mortgage of P10,000 on the equipment is
assumed by the partnership, the net assets of the partnership is equal to:
a. P210,000
b. P200,000
c. P220,000
d. P330,000

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PARTNERSHIP FORMATION

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