Week1 Partnership Formation & Operation Flashcards
(17 cards)
In the absence of partners’ agreed valuation, what is the proper initial measurement of the building contributed by a partner to the partnership?
A. The assessed value of the building on the date of formation
B. The fair value of the building on the date of formation
C. Book value of the building on the date of formation
D. Cost of building on the date of acquisition
B. The fair value of the building on the date of formation
Which of the following statements regarding Partnership Formation is FALSE?
A. Upon formation of a partnership, the partners may agree to make their capital ratio conform to their profit and loss ratio using the bonus method.
B. The non-cash contributions of the partners to form a partnership are recorded by the partnership at their agreed value.
C. The amount of capital credited to a partner may be equal to the total assets contributed at agreed or fair value, less liabilities assumed by the partnership.
D. The capital to be credited to each partner upon formation is always the actual amount contributed by each partner.
D. The capital to be credited to each partner upon formation is always the actual amount contributed by each partner.
When the incoming partners contribute an asset, upon recording the asset in the new partnership books, it involves a
A. Debit to the capital account of the partner equal to the fair value of the asset
B. Credit to the capital account of the partner equal to the agreed value of the asset
C. Credit to the capital account of the partner equal to the fair value of the asset
D. Debit to the asset account equal to the carrying amount of the asset
B. Credit to the capital account of the partner equal to the agreed value of the asset
When the contributed asset has an attached liability, and it is assumed by the partnership upon recording the said liability in the new partnership books, it involves a
A. Debit to the asset account
B. Credit to the capital account
C. Debit to the capital account
D. Memo entry
C. Debit to the capital account
The following are considered expenses of the partnership, except
A. Salaries of managers employed in the company
B. Bonus to the managing partner
C. Supplies used
D. Interest on the partnership’s outstanding loan
B. Bonus to the managing partner
How do the partners distribute the profit or loss?
A. Equally
B. Based on the partnership contribution
C. Based on agreement
D. None of the choices
C. Based on agreement
When computing the weighted average capital balance of the partner, the following are included: except
A. Regular or temporary withdrawals
B. Additional investment
C. Permanent withdrawals
D. None of the choices
A. Regular or temporary withdrawals
The following decreases the capital balance of a partner, except
A. Permanent withdrawals
B. Regular withdrawals
C. Share in the debit balance of the income summary account
D. Share in the credit balance of the income summary account
D. Share in the credit balance of the income summary account
When initial recording of the regular or temporary withdrawal it involves a
A. Debit to the capital account of the partner
B. Debit to the drawing account of the partner
C. Credit to the loan account of the partner
D. Credit to the capital account of the partner
B. Debit to the drawing account of the partner
- it consists of 2 or more persons
- bind themselves to contribute money, property, or service to a common fund
- intention is to divide the profits
Partnership
Formula Contributed Capital
Contributed Asset (@Agreed/FMV/Appraised) xxx
Less
Liabilities assumed by the partnership (xxx)
Formula Capital Credit
Total agreed capital xx
times
Capital interest ratio agreement * xx
A and B are combining their separate business to form a partnership. Cash and non-cash assets are to be contributed for a total capital of P600,000. The respective liabilities are to be assumed by the partnership. They further agreed that their capital balances after formation must be equal.
The following are the assets and liabilities to be contributed by each entity:
A BV FV
Accounts receivable 40,000 40,000
Inventories 60,000 80,000
Equipment 120,000 90,000
Accounts payable 30,000 30,000
B BV FV
Accounts receivable - -
Inventories 40,000 50,000
Equipment 80,000 100,000
Accounts payable 20,000 20,000
- Compute the amount of the additional cash to be contributed by A in accordance with their agreement.
A. 300,000
B. 120,000
C. 420,000
D. 170,000
- Compute the amount of the capital credit to B after formation.
A. 130,000
B. 100,000
C. 300,000
D. 150,000
- B. 120,000
- C. 300,000
E and F formed a partnership. E is to invest certain business assets, and his liabilities will be assumed by the partnership. He will also contribute sufficient cash to bring his total capital to an agreed P360,000, which is 60% of the total agreed capital of the partnership. F, on the other hand, will invest cash in the amount of P60,000 and a certain merchandise valued at the current market price.
The following are the assets and liabilities of E to be contributed to the partnership:
Book Value Agreed Value Accounts receivable 108,000 108,000 Allowance for DA 7,200 12,000 Inventories 193,200 210,000 Store eqpmt 54,000 54,000 A/D – store eqpmt 36,000 26,400 Office eqpmt 36,000 36,000 A/D – office eqpmt 19,200 9,600 Accounts payable 96,000 96,000
- Compute the amount of additional cash to be invested by E in accordance with their agreement.
A. 96,000
B. 98,400
C. 100,000
D. 0 - Compute the current market value of the merchandise to be contributed by F.
A. 240,000
B. 410,000
C. 210,000
D. 180,000
- A. 96,000
- D. 180,000
G and H decided to form a partnership in 2025. The following are their statement of financial position on the date of formation:
G H Cash 525,000 1,312,500 AR 11,900,000 7,175,000 Inventories 7,000,000 7,087,500 Equipment 5,250,000 10,150,0000 Total 24,675,000 25,725,000
A/P 3,675,000 9,275,000
G, Capital 21,000,000
H, Capital 16,450,000
Total 24,675,000 25,725,000
The following are based on their agreement:
● Equipment of G is under-depreciated by P700,000, and the equipment of H is over-depreciated by P1,050,000
● Allowance for doubtful accounts is to be set up amounting to P2,380,000 for G and P1,575,000 for H
● Inventories in the amount of P175,000 and P122,500 are worthless in the books of G and H, respectively
● The partnership agreement also provides a profit and loss ratio and capital interest ratio of 70% and 30% for G and H, respectively
● G will invest or withdraw a sufficient amount of cash to be in accordance with their capital interest ratio
Compute the amount of cash to be invested or withdrawn by G in accordance with their agreement.
A. 19,127,500 invest
B. 14,227,500 invest
C. 19,127,500 withdraw
D. 14,227,500 withdraw
A. 19,127,500 invest
A, B, and C are partners, and they have the following changes in their capital balances:
A B C Jan 1 337,500 450,000 187,500 Mar 1 (90,000) Apr 1 (25,000) 75,000 May 1 180,000 (40,000) Jun 1 67,500 Aug 1 (22,500) Sept 1 (60,000) Oct 1 (135,000) Dec 1 45,000
The following withdrawals on April 1, May 1, and September 1 were considered regular.
Assume the following INDEPENDENT cases:
CASE 1:
Monthly salaries were P75,000, P125,000, and P112,500 for the partners, respectively. Partner A will have a bonus of 5% of net income after the bonus. Interest is 12% of ending capital balances. The remainder will be divided 25:40:35 for the partners, respectively. The income summary account had a credit balance of P7,087,500.
Compute the capital balance of Partner B at the end of the year.
A. 3,116,640
B. 3,176,640
C. 3,115,600
D. 3,175,600
CASE 2:
Interest is 10% of the weighted average capital balances. Annual salaries of P1,200,000, P1,575,000,
and P1,275,000 for the partners, respectively. Partner B will have a bonus of 25% of their net income
after the bonus and his salary. The remainder will be divided 2:3:4 for the partners, respectively. The partnership generated a net income of P2,625,000.
Compute the capital balance of Partner C at the end of the year.
A. 724,400
B. 764,400
C. 763,937.50
D. 723,937.50
CASE 3:
Partner C will have a bonus of 20% of net income after the bonus and the salaries. Quarterly salaries of P375,000, P337,500, and P468,750 for the partners, respectively. The interest of 15% of the ending capital in excess of P350,000. The remainder will be divided based on their beginning capital balances. The income summary account had a credit balance of P4,350,000.
Compute the capital balance of Partner A at the end of the year.
A. 1,725,186
B. 1,750,186
C. 1,724,519
D. 1,749,519
Note lang
wai labot temporary/regular sa end bal when computing sa INTEREST. But for end cap bal, sa question, apil temp
CASE 1
A. 3,116,640
CASE 2
D. 723,937.50
CASE 3
C. 1,724,519
Partners A and B have the following net income distribution agreement: Salaries of P180,000 and P540,000, respectively; a bonus to A of 10% of net income after salaries; and 10% interest on their average capital balances of P600,000 and P1,000,000, respectively. Any remainder will be distributed equally among the partners.
If the partnership generated a net income of P800,000, and salary, bonus, and interest are distributed to the extent of earnings only, compute the share in the net income of Partner A.
A. 204,000
B. 596,000
C. 215,000
D. 585,000
C. 215,000
