THEORIES (15 ITEMS)
PARTNERSHIP DEFINITION
1. The partnership form of business is a/an
a. economic entity
b. separate legal entity, just as a corporation is
a legal entity
c. taxable entity
d. fiscal entity
2. Which of the following is not an advantage of
a partnership over a corporation?
a. ease of formation
b. unlimited liability
c. the elimination of taxes in an entity level
d. all of the above
3. Choose the appropriate answer based on the two
statements below.
I. Under the partnership law, partnership must
follow the GAAP.
II. Only individuals are allowed to become
partners in a partnership.
a. Both statements are true.
a. Both statements are false.
b. Only the first statement is true.
c. Only the second statement is true.
PARTNERSHIP FORMATION
4. A partnership is formed by two individuals who
were previously sole proprietors. Property other
than cash that is part of the initial investment in the
partnership is recorded for financial accounting
purposes at the
a. fair value of the property at the date of
investment
b. proprietor’s book values or fair value at the
date of investment
c. proprietor’s book values or fair value at the
date of investment, whichever is higher
d. proprietor’s book values or fair value at the
date of investment, whichever is lower
5. Choose the appropriate answer based on the two
statements below.
I. The assumption of a liability by a partnership
with regard to a non-cash asset contributed to
the partnership by a partner will affect the
value assigned to the partner’s capital account.
II. An asset’s carrying value should not be
considered when establishing the initial capital
accounts of partners.
a. Both statements are true.
b. Both statements are false.
c. Only the first statement is true.
d. Only the second statement is true.
6. The drawing ledger account of a limited liability
partner are used:
a. to record the partner’s salaries
b. to reduce partner’s capital account balances
at the end of an accounting period
c. in the same manner as loan accounts
d. to record the partner’s share of net income or
loss for an accounting period
PARTNERSHIP OPERATION
7. Choose the appropriate answer based on the two
statements below.
I. The interest component of partnership profit and
loss allocation rewards the partner for labor and
expertise brought into the partnership.
II. Theoretically, salary allowances paid to
partners should not be reflected as salary in the
general ledger.
a. Both statements are true.
b. Both statements are false.
c. Only the first statement is true.
d. Only the second statement is true.
8. Which of the following interest component
calculation bases is least susceptible to
manipulation when allocating profits and losses to
partners
a. beginning capital balance
b. average of beginning and ending capital
balance
c. weighted average capital balance
d. ending capital balance
PARTNERSHIP DISSOLUTION
9. Choose the appropriate answer based on the two
statements below.
I. The admission of new partner into a partnership
can occur without any new assets being
invested into the partnership.
II. A partnership assets must be revalued when a
partner withdraws.
a. Both statements are true.
b. Both statements are false.
c. Only the first statement is true.
d. Only the second statement is true.
10. Cob, Inc., a partner in TLC Partnership, assigns
its partnership interest to Bean, who is not a partner.
After the assignment, Bean has the following rights
except
a. right to participate in the management of
TLC
 b. right to the share in the future profits and
losses of the partnership
c. right to receive any liquidating distribution
d. Bean is entitled to all the rights above
11. Which of the following results in the dissolution
of a partnership?
a. contribution of additional assets to the
partnership by existing partner
b. receipt of a draw by existing partner
c. winding up of the partnership and the
distribution of remaining assets to the
partners
d. withdrawal of a partner from a partnership
12. When a new partner is admitted into a partner
and the new partner receives a capital credit greater
than tangible assets contributed, which of the
following explains the difference?
I. The partner’s goodwill has been recognized.
II. The old partners received a bonus from the
new partner.
a. I only
b. II only
c. both I and II
d. none of the above
PARTNERSHIP LIQUIDATION
13. Choose the appropriate answer based on the two
statements below.
I. The accountants are not liable if the creditors
are not paid at the end of the partnership
liquidation.
II. The partner’s and partnership’s creditors are one
in the same because the partnership is an extension
of the partners.
a. Only the first statement is false.
b. Only the second statement is false.
c. Both statements are false.
d. Both statements are not false.
14. Which of the following is true regarding a
partner’s debit capital balances?
a. The partner should make contributions to
reduce the debit balance to whatever extent
as possible.
b. If contributions are not possible, the other
partners with credit capital balances will be
allocated a portion of the debit balance
based on their proportionate P&L
percentages.
c. Partners who absorb another partner’s debit
capital balances have a legal claim against
the deficient partner.
d. All of these statements are correct.
7. In a simple partnership liquidation, the last
remaining cash distribution should be made
according to the ratio of
a. the individual partner’s profit and loss
agreement.
b. the individual partner’ s capital accounts,
increased by partner loans to the partnership.
c. the individual partner’s capital accounts,
increased by partnership loans to the partners and
decreased by partner loans to the partnership.
d. the individual partner’s capital accounts,
decreased by partnership loans to the partners and
increased by partner loans to the partnership
COMPUTATIONAL (15 items)
PARTNERSHIP FORMATION
Use the following information for question 16-17
CC admits DD for partneship interest in his
business. The balance sheet accounts of CC on
November 30, 2014, prior to the admission of DD
are as follows:
Cash- ?
Accounts Receivable (net)- P96,000
Inventory- P144,000
Accounts Payable- P49,600
CC, capital- ?
It is agreed that for the purpose of establishing
CC’s inerest, the following adjustments should be
made:
1. An allowance for doubtful accounts of 2% of
accounts receivable is to be established.
2. The merchandise inventory is to be va,ued at
P160,000.
3. Prepaid expenses of P5,200 and accrued
expenses of P3,200 are to be recognized.
DD is to invest cash of P113,640 to give him a
one-third interest in the firm.
15. The balance of the capital of CC before the
adjustments is
a. P227,280
b. P230,120
c. P211,200
d. P250,500
16. The total assets of the partnership after
formation is
a. P393,720
b. P340,920
c. P291,320
d. P309,520
17. On July 1, ML and PP formed a partnership,
agreeing to share profits and losses in the ration of
4:6 respectively, ML contributed a parcel of land a. P 21,900 P 3,900
that cost her P25,000. PP contributed P50,000 cash. b. 21,900 3,100
The land was sold for P50,000 on July 1, four hours c. 17,100 17,100
after formation of the partnership. How much d. 12,500 12,900
should be recorder in ML’s capital account on the
partnership formation? 21. On January 1, 2012 Terry and Lito decided
a. P10,000 to form a partnership. At the end of the year,
b. P20,000 the partnership made an income of
c. P25,000 P120,000. The capital accounts of the
d. P50,000 partnership show the following transactions:
Lito, Capital
18. The partnership of Adams and Baker was Dr Cr
formed on February 28, 2011. At that date the January 1 - 40 000
following assets were invested: (in dollars) April 1 5 000 -
June 1 - -
Adams Baker August 1 - 10 000
Cash 120 000 200 000 September 1 - -
Mechandise - 320 000 October 1 - 5 000
Building - 840 000 December 1 - 4 000
Equipment 200,000 -
Terry, Capital
The building is subject to a mortgage loan of Dr Cr
$280,000, which is to be assumed by the January 1 - 25 000
partnership. April 1 - -
The partnership agreement provides that Adams and June 1 - 10 000
Baker share profits or losses 30% and 70%, August 1 - -
respectively. Baker’s capital account at February September 1 3 000 -
28, 2011, should be October 1 1 000 -
a. $1,080,000.
December 1 - 5 000
b. $1,360,000.
c. $1,176,000.
Assuming that an interest of 20% per annum is
d. $952,000.
given on average capital and the balance of the
profits is allocated equally, the allocation of profits
PARTNERSHIP OPERATION
should be:
20. M and J created a partnership agreement
a. Terry P60,000; Lito P 50,400
provided that M receive a salary of P10,000 and J a
b. Terry P67,200; Lito P 52,800
salary of P5,000 to recognize their relative time
c. Terry P61,200; Lito P 58,800
spent in operating the store. Remaining profits and
d. Terry P68,800; Lito P 51,200
losses were divided 60;40 to M and J, respectively.
Income for 2017, the first year of operations, of
22. On January 2, 2016 BB and PP formed a
P13,000 was allocated P8,000 to M and P4,200 to J.
partnership. BB contributed a capital of P175,000
and PP, P25,000. They agreed to share profits and
On January 1, 2018, the partnership agreement
losses 80% and 20% respectively. PP is the general
was changed to reflect the fact that J could no
manager and works in the partnership fulltime and
longer devote any time to the store’s operations.
is given a salary of P5,000 a month; an interest of
The new agreement allows M a salary of P18,000,
5% of the beginning capital (of both partner) and a
and the remaining profits and losses are divided
bonus of 15% of net income before the salary,
equally. In 2018 an error was discovered such that
interest and bonus.
the 2017 reported income was understated by
P4,000. The partnership income of P 25,000 for
The profit and loss statement of the partnership
2018 included the P4,000 related to year 2017.
for the year ended Dec 31, 2016 is as follows:
Sales (net)………………… P875,000
In the reported net income of P25,000 for the
COGS……………………. 700,000
year 2018 M and J would have:
Gross Profit…………………. 175,000
M J
 Operating Expense (including the salary,
interest and bonus)………… 143,000
Net income…………….… P32,000
The amount of bonus to PP in 2016 amounted
to:
a. P13,304
b. P18,000
c. P16,456
d. P20,700
23. The partnership agreement of Carlos, Niza and
Usop provided for the following terms on the
distribution of profits and losses:
 Carlos is to receive 10% of the profit up to
P1,000,000 and 20% on the amount in
excess
 Niza and Usop each, are to receive 5% of
the remaining profit in excess of P1,500,000
after Carlo’s share as per above
 The balance is to be divided equally
For just the year ended, the partnership realize a
profit of P2,500,000 before distribution to partners.
The share of Carlos is
a. P1,080,000
b. P1,300,000
c. P1,000,000
d. P1,100,000
PARTNERSHIP DISSOLUTION
24. AA, BB and CC are partners sharing profits in a
5:3:2 ratio, and with a capital balances of P95,000,
P80,000 and P60,000, respectively on December
31, 2017. The partners decided to admit DD as a
new partner on Jan 1, 2018. DD will contribute cash
of P80,000 to the partnership and also pay P10,000
for 15% of BB’s share. DD is to have a 20% share
in profits. After the admission of DD, the total
capital will be P330,000 and DD’s capital will be
P70,000.
After the admission of DD, BB’s capital balance
would be:
a. .P72,000
b. P74,600
c. P79,100
d. P81,100
25. The capital accounts of the partnership of NN,
VV,and JJ on June 1,2017 are presented below with
their respective profit and loss ratio:
NN……………………… P139,200 (1/2)
VV……………………… 208,800 (1/3)
JJ……………………….. 96,000 (1/6)
On June 1, 2017, LL is admitted to the
partnership when LL purchased, for P132,000, a
proportionate interest from NN and JJ in the net
assets and profits of the partnership. As a result of a
transaction LL acquired a one-fifth interest in the
net assets and profits of the firm. What is the
combined gain realized by NN and JJ upon the sale
of a portion of their interest in the partnership to
LL?
a. P0
b. P43,200
c. P62,400
d. P82,000
26. On June 30, 2016, the statement of financial
position for the partnership Villon, Obrero and
Bernal, together with their respective profit or loss
ratio, were as follows: (in Peso)
Assets, at cost- 180,0000
Villon, Loan- 9,000
Villon, Capital- 42,000
Obrero, Capital- 39,000
Bernal, Capital- 90,000
Villon had decided to retire from the partnership.
By mutual agreement, the assets are to be adjested
to their fair value of P216,000 at June 30, 2016. It
was agreed that the partnership would pay Villon
P61,200 cash for Villon’s partnership interest,
including Villon’s loan whihc is to be repaid in full.
No goodwill is to be recorded. After Villon’s
retirement, what is the balance of Obrero’s capital
account?
a. P36, 450
b. P39,000
c. P45,450
d. P46,200
PARTNERSHIP LIQUIDATION
27. Mactal, Macadang and Pangan are partners with
capital balance of P350,000 , P250,000 , and
P350,000 and sharing profits of 30%, 20% and
50%, respectively. Partners agreed to dissolve the
business upon liquidation, all of the partnership
assets are sold and sufficient cash is realized to pay
all the claims except for. P50,000 . Pangan is
personally insolvent, but the other two partners are
able to meet any indebtedness of the firm. On the
remaining claim against partnership, Mactal is to
absorb:
a. P35,000
b. P30,000
c. P 25,000
d. P15,000
28. The assets and equities of the Queen, Reed, and
Stac Partnership at the end of its fiscal year on
October 31, 2017 are as follows:
 29. The total cash payment to partners in the first
Assets installment is
Cash………………….. P15,000 a. P25,000
Receivables (net)……. 25,000 b. P20,000
Inventory……………… 40,000 c. P12,500
Plant assets-net……… 70,000 d. P10,000
Loan to Reed……………. 5,000
TOTAL ASSETS………… P155,00 30. The amount of cash withheld for anticipated
liqidation expenses and unpaid liabilities are
Liabilities and Equity a. P2,000
Liabilities………………. P50,000 b. P14,600
Loan from Stac………… 10,000 c. P16,600
Queen,Capital (30%)....... 45,000 d. P17,600
Reed,Capital (50%)........... 35,000
Stac,Capital (20%)............ 15,000
TOTAL LIABILITIES AND EQUITY
………………. P155,000

The partners decided to liquidate the

partnership. They estimate that the noncash assets,
other than the loan to Reed, can be converted into
Cash over two-months period ending December 31,
2017. Cash is to be distributed to the appropriate
parties as it becomes available during liquidation
process.

The partner most vulnerable to partnership losses

on liquidation is:
a. Queen
b. Reed
c. Reed and Queen equally
d. Stac

Use the following information for 29 and 30

A balance sheet for the partnership of Tree,
Nee and Dad who share profits and losses in
the ratio of 2:1:1, shows the following
balances before liquidation:
Cash……………. P12,000
Other assets……… 59,500
Liabilities……….. 20,000
Tree, Capital…….. 22,000
Nee, Capital……. 15,500
Dad, Capital…….. 14,000
On the first statement of liquidation, certain
assets are sold for P32,000. Liquidation
expenses of P1,000 are paid, and additional
liquidation expenses are anticipated.
Liabilities are paid amounting to P5,400,
and sufficient cash is retained to insure the
payment to creditors before making
payment to partners. On the first payment to
partners, Tree receives P6,250.