Multiple Choice Problems

1. c – P45,000
2. d – the prevailing selling price which is also the fair market value.
3. b - (P400,000 - P190,000) + [P270,000 - (P400,000 - P190,000)]/3 = P230,000
4. c
5. b - P60,000 + P80,000 + P100,000 = P240,000
6. c - P30,000 + P50,000 + P25,000 = P105,000/3 = P35,000 - P30,000 = P5,000

7. a
Total Agreed Capital (P50,000/40%)…………………………............... P125,000
Less: Total Contributed Capital (P65,000 + P50,000)…….................. 115,000
Goodwill (revaluation of assets upward)………………….................. P 10,000

Assets, fair value (P20,000 + P60,000 + P15,000)…………………………P 95,000

Less: Liabilities assumed…………………………………………………..… 30,000
Bill, capital..…………………………………………………………………… P 65,000

8. b The capital balances of William (WW) and Martha (MM) at the date of
partnership formation are determined as follows:
William Martha
Cash P20,000 P 30,000
Inventory - 15,000
Building - 40,000
Furniture and equipment 15,000 -
Total P35,000 P 85,000
Less mortgage assumed
by partnership (10,000)
Amounts credited to capital P35,000 P 75,000

9. c
Evan Helen
Unadjusted capital 59,625 33,500
Add (deduct) adjustments:
Allowance ( 555) ( 405)
Depreciation ______ ( 900)
Adjusted capital 59,070 32,195

10. c: Jones – P80,000 + P400,000 – P120,00 = P360,000

Smith – P40,000 + P280,000 – P60,000 = P260,000

11. c – P35,374 – refer to No. 12

12. c – P17,687
Unadjusted capital of CC………………………………………………………………….P 33,000
Add (deduct): adjustments-
Allowance for doubtful accounts (3% x P14,200)………………………………...( 426)
Increase in merchandise inventory (P23,000 – P20,000)………………………… 3,000
Prepaid salary………………………………………………………………………….... 600
Accrued rent expense…………………………………………………………………( 800)
Adjusted capital balance of CC…………………………………………………………P 35,374
 Divided by: Capital interest of CC…………………………………………………….... 2/3
Total capital of the partnership……………………………………………………………P 53,061
Less: Adjusted capital balance of CC………………………………………………….. 35,374
Capital balance of DD…………………………………………………………………….. P 17,687

13. a
Total assets:
Cash P 70,000
Machinery 75,000
Building 225,000 P 370,000
Less Liabilities (Mortgage payable) 90,000
Net assets (equal to FF’s capital account) P 280,000

14. d
FF, capital (see no.13) P 280,000
Divide by FF’s P & L share percentage 70%
Total partnership capital P 400,000
Required capital of CC (P400,000 x 30%) P 120,000
Less: Assets already contributed:
Cash P 30,000
Machinery and equipment 25,000
Furniture and fixtures 10,000 65,000
Cash to be invested by CC P 55,000

15. a
Agreed Fair Values Invested Invested Invested
by John by Jeff by Jane
Cash 100,000 --- ---
Equipment 110,000 ---
Total assets 100,000 110,000 0
Note payable assumed by partnership --- 30,000 ---
Net assets invested 100,000 80,000 0

Bonus Method Goodwill Method

Cash 100,00
0
Cash 100,000 Equipment 110,00
0
Equipment 110,000 Goodwill 90,000
Note Payable 30,00 Note Payable 30,000
0
John, Capital 60,00 John, Capital 90,000
0
Jeff, Capital 60,00 Jeff, Capital 90,000
0
Jane, Capital 60,00 Jane, Capital 90,000
0

Note:
The bonus method is used when John and Jeff recognize that Jane is bringing something of value
to the firm other than a tangible asset, but they do not want to recognize an intangible asset. To
equalize the capital accounts, P40,000 is transferred from John's capital account and P20,000 is
transferred from Jeff's capital account.
 The goodwill method is used when the partners recognize the intangible nature of the skills Jane is
bringing to the partnership. However, the capital accounts are equalized by recognizing an
intangible asset and a corresponding increase in the capital accounts of the partners. Unless the
intangible asset can be specifically identified, such as a patent being invested, it should not be
recognized, because of a lack of justification for goodwill in a new business.

16. c – refer to No. 15 for computation.

17. a
FF, capital:
Unadjusted balance P 57,000
Adjustments:
Accumulated depreciation ( 1,500)
Allowance for doubtful account (12,000)
Adjusted balance P 43,500

GG, capital:
Unadjusted balance P 49,500
Adjustments:
Accumulated depreciation ( 4,500)
Allowance for doubtful account ( 4,500)
Adjusted balance P 40,500

18. c
GG’s adjusted capital (see no. 17) P 40,500
Divide by GG’s P & L share percentage 40%
Total partnership capital P 101,250
Multiply by FF’s P & L share percentage 60%
FF’s capital credit 60,750
FF’s contributed capital (see no. 1) 43,500
Additional cash to be invested by FF P 17,250

19. d
Total capital of the new partnership (see no. 20) P 296,875
Multiply by RR’s interest 20%
Cash to be invested by RR P 59,375

20. (a)
OO PP Total
(60%) (40%)
Unadjusted capital balances P133,000 P108,000 P241,000
Adjustments:
Allowance for bad debts ( 2,700) ( 1,800) ( 4,500)
Inventories 3,000 2,000 5,000
Accrued expenses ( 2,400) ( 1,600) ( 4,000)
Adjusted capital balances P130,900 P106,600 P237,500

Total capital before the formation of the new partnership (see above) P 237,500
Divide by the total percentage share of OO and PP (50% + 30%) 80%
Total capital of the partnership after the admission of RR P 296,875
21. a
Agreed Capital Contributed Capital Settlement
OO P148,437.50 (50% x P296,875) P 130,900 P 17,537.50
PP 89,062.50 (30% x P296,875) 106,600 (17,537.50)

Therefore, OO will pay PP P17,537.50

22. c
Total partnership capital (P113,640/1/3) P 340,920
Less DD’s capital 113,640
CC’s capital after adjustments P 227,280
Adjustments made:
Allowance for doubtful account (2% x P96,000) 1,920
Merchandise inventory ( 16,000)
Prepaid expenses ( 5,200)
Accrued expenses 3,200
CC’s capital before adjustments P 211,200

23. a
Assets invested by CC:
Cash:
Capital P211,200
Add Accounts payable 49,600
Total assets (excluding cash) 260,800
Less Noncash assets (96,000 + P144,000) 240,000 P20,800
Accounts receivable (96,000 – P1,920) 94,080
Merchandise inventory 160,000
Prepaid expenses 5,200 P 280,080
Cash invested by DD 113,640
Total assets of the partnership P 393,720

24. d
Total partnership capital (P180,000/60%) P 300,000

GG’s Capital (P300,000 x 40%) P 120,000

Less Cash investment 30,000
Merchandise to be invested by GG P 90,000

25. a
Adjusted capital of JJ:
Total assets (at agreed valuations) P 180,000
Less Accounts payable 48,000 P 132,000
Required capital of JJ 180,000
Cash to be invested by JJ P 48,000