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Accounting for Special Transactions

Semi-Finals Examination
PRE – Adarose G. Romares
Instructions: This test is composed of 2 parts -- I. Multiple Choice and II. Computation.
Please make use of yellow paper/bond paper/notebook as your answer sheet/s. Indicate
your final answer in the space provided after the questions. Once finished with the test,
please take pictures/scan your answer sheets and email it to ccsa.emmanerves@gmail.com.

This test is good for 1 hour and 30 minutes will be given as extension for you to take
pictures/scan your answer sheets.

I. Multiple Choice (10 pts) (Note: For computation, please show your solutions in
your respective answer sheets)

1) The legal characteristic of a partnership whereby each partner is an agent of the


partnership and is able to bind the partnership to contracts within the normal scope of the
partnership business is known as:

a. unlimited liability

b. partnership accounting

c. a partnership contract

d. mutual agency

ANSWER: ___D___

2) Which of the following is not true regarding a partnership?

a. A partnership is a voluntary association.

b. Partnerships pay income taxes.

c. Partnerships have limited life.

d. Partners in general partnerships have unlimited liability.

ANSWER: __B____

3) The partnership agreement provided for a salary allowance of PHP6,000 per month to
partner X, and the balance to be divided equally between partners X and Y. X made no
additional partnership investments during the year, but withdrew PHP7,000 per month. Net
income for the year was PHP120,000. The net change in X's capital account was a:

a. PHP12,000 increase

b. PHP60,000 increase

c. PHP54,000 decrease

d. PHP12,000 decrease

ANSWER: ____A__

4) In the partnership of Maxwell and Slade, Maxwell's capital balance is PHP40,000 and
Slade's capital balance is PHP60,000. Maxwell sold 50% of his partnership interest to
Norton, who paid PHP24,000 for the 50% interest. The journal entry on the partnership
books related to this transaction would include:

a. a debit to Cash for PHP24,000

b. a debit to Cash for PHP20,000

c. a debit to Maxwell, Capital for


PHP24,000

d. a debit to Maxwell, Capital for


PHP20,000

ANSWER: ____D__

5) In what proper order, according to their priority, are stakeholders paid in settlement of
claims during a partnership’s liquidation. (lump sum liquidation)

a. Outside Creditors, Inside Creditors, Partners’ Capital


b. Inside Creditors, Partner’s Capital, Liquidation Expenses, Outside Creditors
c. Liquidation Expenses, Outside Creditors, Inside Creditors, Partner’s Capital
d. None of the above

ANSWER: ____A__
II. Computation (40 pts)

A) Marissa and Elise were the main competitors in the jewelry industry. Due to unhealthy
competition between them, on May 15, 20x1, they decided to form a new partnership entity
with the name of M&E Jewels Co by merging out their businesses. On 15th May, 20x1, their
accounts balances are as follows:

Marissa Elise
Cash 16,000 24,000
Account receivable 80,000 96,000
Inventory 64,000 40,000
Machinery – cost 120,000 96,000
Factory equipment – cost 56,000 64,000
Accumulated depreciation – machinery 64,000 32,000
Accumulated depreciation – factory equipment 24,000 40,000
Allowance for doubtful debts 5,600 3200
Accounts payable 64,000 76,000

In order to complete the formation of a new partnership, the following valuations


were agreed upon between Marissa and Elise as follows:

Marissa:

Accounts receivable:Php51,000; Inventory: Php56,000 & Machinery: Php30,000.

Elise

Accounts receivable: Php16,000, factory equipment: Php10,000

Requirements:

1. Record the journal entries to form the new partnership,


2. Make initial balance sheet of the newly established firm.

B) Adam, Brent & Charles are running a partnership business. As on 1st January, 20x9 their
capital balances in the business were PHP120,000, PHP100,000 and PHP80,000. The
partnership signed among them has the following terms and conditions for the distribution
of net income:

- Each partner will be allowed a monthly salary of PHP2,000


- Brent and Charles are allowed a commission of PHP3,000 monthly
- The partners are entitled to receive profit @ 10 % on opening balance of capital.
- The remaining profit or loss, if any, will be shared equally among them.

Profit for the period ended 31st December, 20x9 net profit of the business is PHP198,000
Requirements:

1. Prepare an income distribution summary clearly showing the distribution of net


income to each partner
2. Pass on journal entries for the distribution of net income to each partner

C) Make your own partnership scenarios, using the given facts and supplement the same
with your own set of facts/amount, involving the following partnership topics:

a) Partnership Formation - A & B agreed to form partnership with the following


agreement:
- A will cash & inventory with provision for inventory obsolescence
- B will invest depreciated equipment and with discounted note payable to be
absorbed by the partnership

b) Following your answers in Item A, supposing at the end of the year the partnership
earned PHP240,000 income, present how the profit or loss with be allocated given
the following agreements:

i) Salaries of 3,500 and 2,500 to A & B respectively, on a monthly basis


ii) Bonus to A of 10% based on the profit after salaries but before bonus
iii) Interest of 5% on the ending capital balances after distribution of salaries and
bonuses but before interest

---- Good Luck and best effort! -----