Pdfcoffee.com partnership acctg 2 PDF

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PARTNERSHIP: FORMATION AND OPERATION1. The advantages of the partnership form of business organization, compared to corporations, includeA) single taxation. B) ease of raising capital. C) mutual agency. D) Limited liability. E) difficulty of formation.Answer: A3. The disadvantages of the partnership...

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PARTNERSHIP: FORMATION AND OPERATION 1. The advantages of the partnership form of business organization, compared to corporations, include A B) ease of raising capital. C) mutual agency. D) Limited liability. E) difficulty of formation. Answer: A 3. The disadvantages of the partnership form of business organization, compared to corporations, include A) the legal requirements for formation. C) the requirement for the partnership to pay income taxes. D) the extent of governmental regulation. E) the complexity of operations. Answer: B 4. The dissolution of a partnership occurs A) only when the partnership sells its assets and permanently closes its books. B) only when a partner leaves the partnership. C) at the end of each year, when income is allocated to the partners. D) only when a new partner is admitted to the partnership.

Answer: E 5. The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay P30,000 in liabilities currently due. What recourse was available to the partnership's creditors? A) they must present equal claims to the three partners as individuals. B) they must try obtain a payment from the partner with the largest capital account balance. C) they cannot seek remuneration from the partners as individuals. E) they must present their claims to the three partners in the order of the partners' capital account balances. Answer: D 6. The partners of Apple, Bere, and Carroll LLP share net income and losses in a 5:3:2 ratio, respectively. The capital account balances on January 1, 2008, were as follows: The carrying amounts of the assets

and liabilities of the partnership are the same as their current fair values. Dorr will be admitted to the partnership with a 20% capital interest and a 20% share of net income and losses in exchange for a cash investment. The amount of cash that Dorr should invest in the partnership is: Apple, Capital Bere, Capital Caroll, Capital Total Partner’s Capital A) P25,000. B) P30,000.

P25,000 75,000 50,000 P150,000

D) P75,000. E) P90,000.

Answer: C (P150,000/.8=P187,500. P187,500 – P150,000 = P37,500 to invest) Use the following information for questions 6, 7 and 8. A summary balance sheet for the McCune, Nall, and Oakley partnership appears below. McCune, Nall, and Oakley share profits and losses in a ratio of 2:3:5, respectively.

Assets Cash Inventory Marketable securities Land Building-net Total assets Equities McCune, capital Nall, capital Oakely, capital Total equities

P

P

50,000 62,500 100,000 50,000 250,000 512,500

P

212,500 200,000 100,000

P

512,500

The partners agree to admit Pavic for a one-fifth interest. The fair market value of partnership land is appraised at P100,000 and the fair market value of inventory is P87,500. The assets are to be revalued prior to the admission of Pavic and there is P15,000 of goodwill that attaches to the old partnership. 7.

By how much will the capital accounts of McCune, Nall, and Oakley increase, respectively, due to the revaluation of the assets and the recognition of goodwill? a. The capital accounts will increase by P25,000 each. b. The capital accounts will increase by P30,000 each.

d. Answer

8.

The assets will be valued upward by P90,000 which, allocated on a 2:3:5 basis, yields P18,000 to McCune, P27,000 to Nall, and P45,000 to Oakely.

c

How much cash must Pavic invest to acquire a one-fifth interest? a. P117,500. b. P120,500. c. P146,875.

Answer

9.

P20,000, P25,000, and P30,000.

d

After the revaluation, the assets will be recorded at P602,500. If Pavic is admitted for a one-fifth interest, the P602,500 represents 80% of the total implied capital. Dividing P602,500 by 80% gives a total capitalization of P753,150 for which P150,625 is required from Pavic for a 20% interest.

What will the profit and loss sharing ratios be after Pavic’s investment? a. 1:2:4:2. b. 2:3:5:2. c. 3:4:6:2.

Answer d

Each of the original partners has given up 20% of their interest to Pavic. Their profit and loss sharing ratios will therefore be 80% of what they were before the admission of Pavic. McCune 20% x 80% = 16% Nall

30% x 80% = 24%

Oakely 50% x 80% = 40% Pavic

= 20%

Expressed as: 4:6:10:5 10. He refers to a partner who contributed not only money and property but also industry to the newly formed partnership. a. Industrial Partner b. Nominal Partner d. Capitalist Partner Answer: c

11. The partnership agreement is an express contract among the partners (the owners of the business). Such an agreement generally does not include A limitation on a partner’s liability to creditors. b. The rights and duties of the partners. c. The allocation of income between the partners. d. The rights and duties of the partners in the event of partnership dissolution. Answer: a 12. Roberts and Smith drafted a partnership agreement that lists the following assets contributed at the partnership’s formation: Contributed by Roberts Smith P 20,000 P 30,000 15,000 40,000 15,000

Cash Inventory Building Furniture & Equipment

The building is subject to a mortgage of P 10,000, 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 a. 35,000

Smith 85,000

c. 55,000 d. 60,000

55,000 60,000

Answer: b 35,000 & 75,000 Roberts: 20,000 + 15,000 = P35, 000

Smith: 30,000 + 15,000 + 40,000 – 10,000 = P75,000.

The partner’s capital credit is based upon the net assets contributed by the particular partner, thus the liabilities assumed reduced the fair market value of the building invested. 13. The Grey and Redd Partnership was formed on January 2, 2010. Under the partnership agreement, each partner has an equal initial capital balance. Partnership net income or loss is allocated 60% to Grey and 40% to Redd. To form the partnership, Grey originally contributed assets costing P30,000 with a fair value of P60,000 on January 2, 2010, and Redd contributed P20,000 cash. Drawings by the partners during 2010 totaled P3, 000 by Grey an P9,000 by Redd. The partnership net income in 2010 was P25,000 Under the goodwill method, what is Redd’s initial capital balance in the partnership?

a. 20,000 b. 25,000 c. 40,000 0 Answer: d 60,000

Grey Redd Total

Contributed Capital 60,000 20,000 80,000

Agreed Capital Increase (Decrease) 60,000 60,000 40,000 120,000 40,000

The partnership agreement provides for equal initial capital. Thus under the goodwill method , the capital credit for Redd should be the same as the contribution of Grey, thereby increasing the total agreed capital to P120,000, which is P40,000 more than the total contributed capital (goodwill). 14. Using the information in No. 2, under the bonus method, what is the amount of bonus? a. b. c. d.

20,000 bonus to Grey 20,000 bonus to Redd 40,000 bonus to Grey 40,000 bonus to Redd

Answer: (b) 20,000 bonus to Redd

Grey Redd Total

Contributed Capital 60,000 20,000 80,000

Agreed Capital Increase (Decrease) 40,000 (20,000) 40,000 20,000 80,000

The partnership agreement provides for equal initial capital. Thus under the bonus method, the capital credit for Redd should be the same as the contribution for Grey, resulting to P20,000 bonus from Grey to Redd. 15. On May 1, 2010, the business assets of John and Paul appear below:

Cash Accounts Receivable Inventories Land Building Furniture & Fixture Other Assets Total

P

Accounts Payable Notes Payable John, Capital

P

John 11,000 234,536 120,035 603,000

50,345 2,000 P 1, 020, 916 178,940 200,000 641, 976

P

Paul 22,354 567,890 260,102

428,267 34,789 3,600 P 1, 317, 002 P 243,650 345,000

Paul, Capital\ Total

728,352 P1, 317, 002

P 1, 020, 916

John and Paul agreed to form a partnership contributing their respective assets and equities subject to the following adjustments: a. Accounts receivable of P20, 000 in John’s books and P35, 000 in Paul’s are uncollectible. b. Inventories of P5, 500 n P6, 700 are worthless in John’s and Pail’s respective books. c. Other assets of P2, 000 and P3, 600 in John’s and Paul’s respective books are to be written off. The capital accounts of John and Paul, respectively, after the adjustments will be: a. 614, 476 b. 615, 942

683, 052 717, 894

Answer: (a) 614, 476

683, 052

c. 640, 876 d. 613,576

712, 345 683, 350

John: 641, 976 – 20, 000 – 5, 500 – 2, 000 = P 614, 476 Smith: 728, 352 – 35, 000 – 6, 700 – 3, 600 = P 683, 052 16. Based on No. 4, how much assets does the partnership have? a. b. c. d.

2, 317, 918 2, 237, 918 2, 265, 118 2, 365, 218

Answer: (c) 2, 265, 118 John: 1, 020, 916 – 20, 000 – 5, 500 – 2, 000 = P 993, 416 Smith: 1, 317, 002 – 35, 000 – 6, 700 – 3, 600 = P 1, 271, 702 Total: 2, 337, 918 – 55, 000 – 12, 200 – 5, 600 = P 2, 265, 118 17. Roy, Sam and Tim decided to engage in a real estate venture as a partnership. Roy invested P140,000 cash and Sam provided an office and furnishings valued at P220,000. (There is a 60,000 note payable remaining on the furnishings to be assumed by the partnership). Although Tim has no tangible assets to invest, both Roy and Sam believe that Tim's expert salesmanship provides an adequate investment. The partners agree to receive an equal capital interest in the partnership. Using the bonus method, what is the capital balance of Tim? a. 0 b. 50,000 Answer: c

c. 100,000 d. 140,000 Roy

Sam

Tim

Cash P140,000 Office Equipment Note payable

– – ________

– P220,000 _( 60,000)

– ______

Net asset invested

P140,000

P160,000

P

–

Agreed capitals, equally (P300,000/3) =

P100,000

18. 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 b. 16,000

c. 8,000 d. 46,000

Answer: a Zero, because under the bonus method, a transfer of capital is only required. 19. 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 b. 110,000

c. 120,000 d. 140,000

Answer: b Lara

Mitra

Cash P130,000 Computer equipment Note payable

P200,000 – ________

50,000 _( 10,000)

Net asset invested

P130,000

P240,000

Goodwill (P240,000 - P130,000) =

P110,000

20. 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%) Elsa's interest Elsa's capital Less: Non-cash asset contributed at market value

P500,000 ______40% P200,000

Land Building Mortgage Payable Cash contribution

P 70,000 90,000 ( 40,000)

_120,000 P 80,000

21. 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 b. Option B

c. Option C d. Option D

Answer: a Jones: (80000+300000) - 120000 + (180000/2) = 350000 Smith: (40000+200000) - 60000 + (180000/2) = 270000 22. Which of the following accounts could be found in the general ledger of a partnership?

a. Option A b. Option B

c. Option C d. Option D

Answer: d 23. 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. b. Belger.

c. Ceda. 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. 24. 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. 25. Papa and Mama are partners sharing profits in a 30:70 ratio. The following data summarizes 2018 activity: Partnership net income, 2018 Ellis capital, 1/1/2018 Ellis additional investment in 20018 Ellis drawings in 2018 Nossiter capital, 1/1/2018 Nossiter drawings in 2018

P68,000 90,000 10,000 12,000 80,000 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)

26. 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)) 27. 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 b. P 20,000.00

c. P 16,000.00 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.

28. On March 1,1997, Santos and Pablo formed a partnership with each contributing the following assets: Cash Machinery and Equipment Building Furniture & Fixtures

Santos P 30,000 25,000 -010,000

Pablo P 70,000 75,000 225,000 -0-

The building is subject to a mortgage loan of P80,000, which is to be assumed by the partnership. The partnership agreement provides that Santos and Pablo share profits and losses 30% and 70%, respectively. On March 1,1997 the balance in Pablo’s capital account should be: a. P 290,000.00

c. P 314,000.00

b. P 305,000.00

d. P 370,000.00

Answer: a. P 290,000.00 Assets contributed by Pablo Less: Mortgage assumed by partnership Capital balance of Pablo

P 370,000 (80,000) P 290,000

Note that the profit and loss sharing ratio is irrelevant to the solution of this problem. 29. The following is the condensed balance sheet of the partnership Jo, Li and Bi who share profits and losses in the ratio of 4:3:3. Cash Other Assets Jo, receivable

Total

P

180,000 1,660,000 40,000

P1,880,000

Accounts Payable Bi, Loan Jo, Capital Li, Capital Bi, Capital

P 420,000 60,000 620,000 400,000 380,000

Total

P1,880,000

Assume that the assets and liabilities are fairly valued on the balance sheet and the partnership decides to admit Mac as a new partner, with a 20% interest. No goodwill or bonus is to be recorded. How much Mac contributes to cash or other assets? a. P 350,000 c. P 355,000 b. P 280,000 d. P 284,000 Answer: A. P 350,000 Total agreed capital of the new partnership ( 1,400,000 ÷ 80% ) Total contributed capital of the old partners Mac’s contribution

P 1,750,000 ( 1,400,000) P 350,000

30. JJ and KK are joining their separate business to form a partnership. Cash and noncash asset are to be contributed for a total capital of 300,000. The noncash assets to be contributed and liabilities to be assumed are: JJ KK Book Value Fair Value Book ValueFair Value Accounts Receivable 22,500 22,500 Inventories 22,500 33,750 60,000 67,500 Equipment 37,500 30,000 67,500 71,250 Accounts Payable 11,250 11,250 7,500 7,500

The partner’s capital are to be equal after all contributions of assets and assumptions of liabilities. The total assets of the partnership.

a. 318,750 b. 300,000

c. 281,250 d. 225,000

Answer: a. ASSETS = LIABILITIES+ CAPITAL = (11,250+7,500)+300,000 ASSETS= 318,750 31. Refer to number 8, the amount of cash that each partner must contribute. a. b. c. d.

JJ=75,000; KK=18750 JJ=75,000; KK=11,250 JJ=161,250; KK= 157,500 JJ= 127,500; KK= 11,250

Answer: a For JJ; 150,000=Cash to be contrubuted+22,500+33,750+30,000+(-11250) Cash to be contributed=75,000 For KK; 150,000=Cash to be contributed+67,500+71,250+(-7500) Cash to be contributed= 18,750 32. Cat and Dog formed a partnership, each contributing assets to the business. Cat contributed inventory with a current market value in excess of its carrying amount. Dog contributed real es...