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Mar Sean Jan Gabiosa

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

5.) The business assets of Marvel and DC appear below:


Cash
Accounts receivable
Inventories

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 and DC agreed to form a partnership by contributing their respective


assets and equities subject to the following adjustments:
a. Accounts Receivable of 20,000 in Marvels books and 35,000 in DCs are
uncollectible.
b. Inventories of 5,500 and 6,700 are worthless in Marvels and DCs
respectively.
c. Other assets of 2,000 and 3,600 in Marvels and DCs respective books
are to be written off.
The capital account of the partners after adjustments will be:
a. 615,942; 717,894
c. 640,876; 683,050
b. 640,876; 712,345
d. 614,476; 683,052
Answer (d)
Unadjusted capital balance
Add: Uncollectible receivables
Write-off inventories
Write-off of other assets
Adjusted capital balance

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

For Problems 8-10


On March 1, 2012, Pig and Quail decide to combine their businesses and form a
partnership. Their balance sheets on March 1, before adjustments, showed the
following:
Pig
Quail
Cash
9,000
3,750
Accounts receivable
18,500
13,500
Inventories
30,000
19,500

Furniture and fixtures (net)


Office Equipment (net)
Prepaid expenses
Total

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

They agreed to have the following items recorded on their books:


1. Provide 2% allowance for doubtful accounts.
2. Pigs furniture and fixtures should be 31,000, while Quails office
equipment is under-depreciated by 250.
3. Rent expense incurred previously by Pig was not yet recorded
amounting to 1,000, while salary expense incurred by Quail was not
also recorded amounting to 800.
4. The fair market value of inventory amounted to:
For Pig
29,500
For Quail
21,000
8.) Compute the net (debit) credit adjustment for Pig and Quail:
Pig
Quail
a. 2,870 2,820
b. (2,870)
(2,820)
c. (870)
180
d.
870
(180)
Answer (d)
(Debit) credit adjustments to capital accounts:
Allowance for doubtful accounts:
Pig: 2% 18,500
Quail: 2% 13,500
Furniture and Fixtures (31,000-30,000)
Office equipment
Accrued Rent expenses
Accrued salary expense
Inventory adjustments:
Pig (29,500-30,000)
Quail (21,000-19,500
Net adjustments (debit) credit

Pig
370
(1,000)

Quail
270
250

1,000
800
500
870

(1,500)
(180)

9.) Compute the total liabilities after formation:


a. 61,950
b. 63,750

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