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Advance Accounting 1
Questions with Solutions in Chapter 1 Partnership Formation
1.) On December 1, 2014, Widows and Ample formed a partnership, agreeing to share
for profits and losses in the ratio of 2:3, respectively. Widows invested a parcel of land
that cost him 25,000. Ample invested 30,000 cash. The land was sold for 50,000 on
the same date, three hours after formation of the partnership. How much should be the
capital balance of Widows right after formation?
a. 25,000
b. 30,000
c. 60,000
d. 50,000
Answer (d)
The fair value of land would be measured by its sales price on the date of sale,
50,000
2.) Estrada and Molina formed a partnership on March 1, 2015 and contributed the
following assets:
Esrada
80,000
Cash
Equipment
Molina
50,000
The equipment was subject to a chattel mortgage of 10,000 that was assumed
by the partnership. The partners agrees to share profits and losses equally, Molinas
capital account at March 1, 2015 should be
a. 50,000
c. 40,000
b. 45,000
d. 60,000
Answer (c)
Equipment
Mortgage payable
Molinas, capital
50,000
(10,000)
40,000
3.) Lacson and Solis started a partnership. Lacson contributed a building that she
purchased 10 years ago for 100,000. The accumulated depreciation on the building
on the date of formation of the partnership is 25,000 and the fair value is 110,000.
For what amount will Lacsons capital account be credited on the books of the
partnership?
a. 100,000
c. 110,000
b. 75,000
d. 25,000
Answer (c)
Fair value
100,000
4.) Brad and Pit formed a partnership with each partner contributing the following items:
Cash
Building- cost
fair value
Inventory cost
fair value
Mortgage Payable
Accounts Payable
Brad
80,000
300,000
400,000
Pit
40,000
200,000
280,000
120,000
60,000
Assume that for tax purpose Brad and Pit agree to share equally in the liabilities
assumed by Brad and Pit partnership. What is the balance in each partners capital
account for financial accounting purpose?
a. 350,000
270,000
c. 360,000
260,000
b. 260,000
180,000
d. 500,000
300,000
Answer (c)
Brad
Assets at fair value
Brad: 80,000+400,000
Pit: 40,000+280,000
Less: Liabilities assumed
Capital
480,000
Pit
120,000
360,000
320,000
60,000
260,000
Marvel
11,000
234,536
120,000
DC
22,354
567,890
260,102
Land
Building
Furniture and Fixture
Other assets
Total
Accounts payable
Notes Payable
Marvel, capital
DC, capital
Total
603,000
--428,267
50,345
34,789
2,000
3,600
1,020,916 1,317,002
178,940 243,650
200,000
345,000
641,976
--728,352
1,020,916 1,317,002
Marvel
641,976
(20,000)
(5,500)
(2,000)
614,476
DC
728,352
(35,000)
(6,700)
(3,600)
683,052
6.) On Aug.1, Isada and Ureta polled their assets to form a partnership, with the firm to
take over their business assets and assume liabilities. Partnership capitals are to be
based on net assets transferred after the following adjustments. Profits and losses are
allocated equally.
The inventory of Ureta is to be increases by 40,000; an allowance for doubtful
accounts of 1,000 and 1,500 are to be set-up in the book of Isada and Ureta,
respectively; and accounts payable of 4,000 is to be recognized in Isadaa books. The
individual trial balances on August, before adjustments, follow:
Isada
Ureta
Assets
75,000
113,000
Liabilities
5,000
34,500
What is the capital of Isada and Ureta after the above adjustments?
a. 68,750; 77,200
c. 65,000; 76,000
c. 65,000; 81,000
d. 75,000; 81,000
Answer (b)
Isada
Net assets
70,000
Increase in inventory
Allowance for doubtful account (1,000)
Increase in accounts payable
(4,000)
Capital
65,000
Ureta
78,500
4,000
(1,500)
81,000
7.) Pedernal, Pating, ang Liggayu are forming a partnership. Pedernal is to invest cash
of 100,000 and stapling equipment originally costing 120,000 but has a secondhand market value of 50,000. Pating is to invest cash of 160,000. Liggayu, whose
family is engages in selling stapling equipment, is to contribute cash of 50,000 and a
brand new stapling equipment to be used by the partnership with a regular price of
120,000 but which cost the familys business 100,000. Partners agreed to share profit
equally. The capital balances upon formation are?
Pedernal
Pating
Liggayu
a. 220,000
160,000
150,000
b. 150,000
160,000
170,000
c. 160,000
160,000
160,000
d. 176,666
176,666
176,668
Answer (b)
Pedernal
Cash
100,000
Stapling equipment
50,000
Capital balances
150,000
Pating
160,000
160,000
Liggayu
50,000
120,000
170,000
30,000
9,000
11,500
2,750
6,375
3,000
105,375
51,500
Accounts payable
Capital
Total
45,750
59,625
105,375
18,000
33,500
51,500
Pig
370
(1,000)
Quail
270
250
1,000
800
500
870
(1,500)
(180)
c. 65,550
d. 63,950
Answer (c)
Unadjusted total liabilities (45,750+18,000)
Add (deduct): adjustments:
Accrued rent expenses
Accrued salary expenses
Adjusted total liabilities
10.) Compute the total assets after formation:
a. 157,985
b. 156,875
63,750
1,000
800
65,550
c. 160,765
d. 152,985
Answer (a)
Unadjusted total assets (105,375+51,500)
156,875
Add (deduct): adjustments:
Allowance for doubtful accounts (370+270)
(640)
Furniture and fixtures
1,000
Office equipment
(250)
Inventory (1,500-500)
1,000
Adjusted total assets after formation
157,985