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16.

Anton and Bauzon formed a partnership and agreed to divide initial capital equally, even though
Anton contributed P100,000 and Bauzon contributed P84,000 in identifiable assets. Under the
bonus method, to adjust capital accounts, Bauzon's intangible assets should be debited for:

a. 0 c. 8,000
b. 16,000 d. 46,000

Answer: a

Zero, because under the bonus method, a transfer of capital is only required.

17. Lara and Mitra formed a partnership on July 1, 2011 and invested the following assets: P130,00 cash
by Lara, and P200,000 cash and P50000 computer equipment by Mitra. The computer equipment
has a note payable amounting to P10,000, which was assumed by the partnership. The partnership
agreement provides that Lara and Mitra will have an equal capital credit. Using the goodwill
method, the amount of goodwill to be recorded upon formation of partnership is:

a. 100,000 c. 120,000
b. 110,000 d. 140,000

Answer: b

Lara Mitra
Cash P130,000 P200,000
Computer equipment – 50,000
Note payable ________ _( 10,000)
Net asset invested P130,000 P240,000

Goodwill (P240,000 - P130,000) = P110,000

18. Ana and Elsa form a new partnership. Ana invests P300,000 in cash for her 60% interest in the
capital and profits of the business. Elsa contributes land that has an original cost of P40,000 and a
fair market value of P70,000, and a building that has a tax basis of P50,000 and a fair market value of
P90,000. The building is subject to a P40,000 mortgage that the partnership will assume. What
amount of cash should Elsa contribute?
a. 40,000 c. 110,000
b. 80,000 d. 150,000

Answer: b

Total Capital (P300,000/60%) P500,000


Elsa's interest ______40%
Elsa's capital P200,000
Less: Non-cash asset contributed at market value
Land P 70,000
Building 90,000
Mortgage Payable ( 40,000) _120,000
Cash contribution P 80,000

19. Jones and Smith formed a partnership with each partner contributing the following items:

Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed
by the Jones and Smith partnership.

What is each partner's tax basis in the Jones and Smith partnership?

a. Option A c. Option C
b. Option B d. Option D

Answer: a

Jones: (80000+300000) - 120000 + (180000/2) = 350000

Smith: (40000+200000) - 60000 + (180000/2) = 270000

20. Which of the following accounts could be found in the general ledger of a partnership?

a. Option A c. Option C
b. Option B d. Option D

Answer: d

21. On April 30, year 1, Algee, Belger, and Ceda formed a partnership by combining their separate
business proprietorships. Algee contributed cash of P50,000. Belger contributed property with a
P36,000 carrying amount, a P40,000 original cost, and P80,000 fair value. The partnership accepted
responsibility for the P35,000 mortgage attached to the property. Ceda contributed equipment with
a P30,000 carrying amount, a P75,000 original cost, and P55,000 fair value. The partnership
agreement specifies that profits and losses are to be shared equally but is silent regarding capital
contributions. Which partner has the largest April 30, year 1 capital account balance?

a. Algee. c. Ceda.
b. Belger. d. All capital account balances are equal.

Answer: c The requirement is to determine which partner has the largest capital account balance. Use
the solutions approach to solve the problem.

Algee Belger Ceda


Partner contribution 50,000 80,000 55,000
Less: Liabilities assumed
by the partnership 0 (35,000) 0
Ending capital balance P50,000 P45,000 P55,000

Each partner values his contribution to the partnership at its fair market value. The fair market
value becomes the partner’s balance in his capital account and is basis to the partnership under
generally accepted accounting principles. Any liabilities assumed by the partnership, reduces the
partners’ capital balance by the amount assumed.

22. Abel and Carr formed a partnership and agreed to divide initial capital equally, even though Abel
contributed P100,000 and Carr contributed P84,000 in identifiable assets. Under the bonus
approach to adjust the capital accounts, Carr’s unidentifiable asset should be debited for
a. P 46,000 c. P 8,000
b. P 16,000 d. P 0

Answer: (d)

Under the bonus method, unidentifiable assets (i.e., goodwill) are not recognized. The total
resulting capital is the FV of the tangible investments of the partners. Thus, there would be no
unidentifiable assets recognized by the creation of this new partnership.
23. Papa and Mama are partners sharing profits in a 30:70 ratio. The following data summarizes 2018
activity:

Partnership net income, 2018 P68,000


Ellis capital, 1/1/2018 90,000
Ellis additional investment in 20018 10,000
Ellis drawings in 2018 12,000
Nossiter capital, 1/1/2018 80,000
Nossiter drawings in 2018 20,000

What amount of net income is allocated to Nossiter’s capital account for 2018?
a. P 26,600 c. P 34,000
b. P 27,600 d. P 47,600
Answer: (d) (68,000×.7)

24. Ellis and Nossiter are partners sharing profits in a 30:70 ratio. The following data summarizes 2018
activity:

Partnership net income, 2018 P 68,000


Ellis capital, 1/1/2018 90,000
Ellis additional investment in 2018 10,000
Ellis drawings in 2018 12,000
Nossiter capital, 1/1/2018 80,000
Nossiter drawings in 2018 20,000

What is the value of Ellis’s capital account at 12/31/2004?


a. P20,400 c. P111,400
b. P108,400 d. P111,400

Answer: (b) (90,000+10,000-12,000+(68,000×.3))

25. Moonbits partnership had a net income of P8,000.00 for the month ended September 30,1997.

Sunshine purchased an interest in the Moonbits partnership of Liz and Dick by paying Liz P 32,000.00
for half of her capital and half of her 50 percent profit sharing interest on October 1,1997. At this time
Liz capital balance was P24,000.00 and Dick capital balance was P56,000.00. Liz should receive a debit to
her capital account of:

a. P 12,000.00 c. P 16,000.00
b. P 20,000.00 d. P 26,667.00

Answer: a. Under the admission by purchase only the transfer of the capital purchase by the selling
partner (Liz) to the buying partner (Sunshine) is recorded. Therefore 50% of the capital of Liz (P24,000)
or P 12,000 is to be debited to her capital account.