POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

SIMULATED FINAL EXAMINATION
FINANCIAL ACCOUNTING AND REPORTING 1

THEORIES
1. When a partner invests non-cash assets into partnership, these assets should be listed
on the statement of financial position at
a. their original cost. c. their fair market value.
b. their carrying amount. d. partner’s agreed value

2. A partnership –
a. may be constituted in any form, except where immovable property or real rights are
contributed, in which case, the law requires that a public instrument be executed.
b. has a personality like that of each of the partner.
c. is created by agreement of the partners in writing only.
d. all of these.

3. A partner whose liability for partnership debts is limited to his capital contribution is
called
a. secret partner. c. limited partner.
b. general partner. d. industrial partner.
4. A partner invested into a partnership a building with aP250,000 carrying value and
P400,000 fair market value.The related mortgage payable of P125,000 was assumed by the
partnership. As a result of the investment, the partner’s capital account will be credited for
a. P125,000 c. P250,000
b. P275,000 d. P400,000

5. In the AA-BB partnership, AA and BB had a capital ratio of 3:1 and a profit and loss ratio
of 2:1, respectively. The bonus method was used to record CC’s admittance as a new partner.
What ratio would be used to allocate, to AA and BB, the excess of CC’s contribution over the
amount credited to CC’s capital account?
a. AA and BB’s new relative ratio.
b. AA and BB’s relative profit and loss ratio.
c. AA and BB’s old capital ratio.
d. AA and BB’s old profit and loss ratio.

6. If the partner withdraws from the partnership before the end of the accounting period,
updating of the partnership books is

a. Required
b. Optional
c. Not necessary
d. None of the above

7. The following are kinds of partners except one, choose the exception:

a. Capitalist partner
b. Capitalist-secret partner
c. Industrial-managing partner
d. Limited-industrial partner
8. This allowance for profit distribution is granted only if there is profit

a. Bonus c. Salary
b. Interest d. All of the above

9. If the amount invested by the incoming partner is equal to the interest he acquires, then
there is

a. No bonus nor asset revaluation

b. Positive asset revaluation
c. Bonus to the old partners
d. Bonus to the new partner

10. Which of the following is not characteristic of proprietary theory that influences
accounting for partnerships?
a. Partners’ salaries are viewed as a distinguishing of income rather than
component of net income.
b. Partnership is not viewed as separate entity, distinct, taxable entity.
c. A partnership is characterized by limited liability.
d. Changes in ownership structure of a partnership result in the dissolution of the
partnership.
11. Which of the following statement is correct with respect to a limited partnership?
a. A limited partner may not be an unsecured creditor of the limited partnership.
b. A general may not also be limited partner at the same time.
c. A general partner may be a secured creditor of the limited partnership.
d. A limited partnership can be formed with limited liability for all partners.
12. If the partnership agreement does not specify how income is to be allocated, profit and
loss should be allocated
a. Equally
b. In proportion to weighted average of capital invested during the period.
c. Equitability so that partners are compensated for the time and effort
expended on behalf of the partnership.
d. In accordance with their capital contribution.

13. An advantage of the partnership as a form of business organization would be:

a. A partnership is bound by the acts of the partners.
b. A partnership is created by mere agreement of the partners.
c. Partners do not pay income taxes on their share in partnership profit.
d. The death or withdrawal of a partner may terminate a partnership.

14. Partner’s investment may include which of the following?

a. Cash
b. Non-cash assets with liabilities to be assumed
c. Non-cash assets
d. All of the above
 15. A partner to a partnership that takes active participation in the running of affairs of the
partnership but is not known to the public as partner
a. Silent Partner c. Dormant Partner
b. Secret Partner d. Partner by Estoppel

Problems

1. Erica and Mica formed a partnership on January 1, 2016 by investing P 50,000 each
into EM Coffee Shop. On June 30, 2016, Mica invested an additional 50,000 into the
business If they agreed to divide profit based on initial capital investment, how will
they divide the P 120,000 profit they earned in 2016.

a. P 60,000 to Erica and P60,000 to Mica

b. P 40,000 to Erica and P80,000 to Mica
c. P 80,000 to Erica and P40,000 to Mica
d. P 100,000 to Erica and P20,000 to Mica

2. Erica and Mica formed a partnership on January 1, 2016 by investing P 50,000 each
into EM Coffee Shop. On June 30, 2016, Mica invested an additional 50,000 into the
business If they agreed to divide profit based on ending capital investment, how will
they divide the P 120,000 profit they earned in 2016.

a. P 60,000 to Erica and P60,000 to Mica

b. P 40,000 to Erica and P80,000 to Mica
c. P 80,000 to Erica and P40,000 to Mica
d. P 100,000 to Erica and P20,000 to Mica

3. JJ and KK are partners who share profits and losses in the ratio of 60%:40%,
respectively. JJ’s salary is P60,000 and P30,000 for KK. The partners are also paid
interest on their average capital balances. In 2011, JJ received P30,000 of interest and
KK P12,000. The profit and loss allocation is determined after deductions for the salary
and interest payments. If KK’s share in the residual income (income after deducting
salaries and interest) was P60,000 in 2011, what was the total partnership income?

a. P 192,000
b. P 345,000
c. P 282,000
d. P 387,000

4. Capital balances and profit and loss sharing ratios of the partners in the BIG
Entertainment Gallery are as follows:

Betty,capital (50%)…………………………………………………………….P140,000
Iggy,capital(30%)……………………………………………………………… 160,000
Grabby,capital (20%)………………………………………………………… 100,000
Total…………………………………..………………………………………..P400,000
 Betty needs money and agrees to assign half of her interest in the partnership to Yasser
for P90,000 cash. Yasser pays directly to Betty. Yasser does not become a partner.
What is the total capital of the BIG Partnership immediately after the assignment of the
interest to Yasser?
a. P310,000
b. P200,000
c. P490,000
d. P400,000

5. Blossom, Bubbles and Buttercup formed a partnership to which Blossom contributed a

parcel of land with an acquisition cost of P 25,000. Bubbles contributed P 50,000 cash
and Buttercup P 75,000 cash. The land has a fair value of P 50,000 at the formation
date. The total capital credit of the partnership should be

a. P 150,000 c. P 175,000
b. P 125,000 d. P 145,000

6. Gumball and Darwin agreed to form a partnership from which Gumball will contribute
P 300,000. If Darwin’s contributions is 1/3 of the total agreed capitalization, how much
is the partnerships net assets after the formation using the bonus method?

a. P 500,000 c. P 450,000
b. P 350,000 d. P 900,00

Use the following information for questions 7 and 8:

At December 31, Haha and Hehe are partners with capital balances of P 40,000 and P20,000,
and they share profits and losses in the ratio of 2:1, respectively. On this date Hihi invests P
17,000 in cash for a one-fifth interest in the capital and profit of the new partnership.

7. Assuming asset revaluation will be recorded, how much is the balance of Hehe’s capital
after Hihi is admitted into the partnership?

a. P 45,333
b. P 22,667
c. P 17,000
d. P 8,000

8. Assuming bonus method is used and there is no increase in net assets is recognized,
what would be the total capital of the partnership after the admission by investment of
Hihi?

a. P 85,000 b. P 60,000
c. P 61,600 d. P 77,000

9. On January 1, 2006, Atta and Boy agreed to form a partnership contributing their
respective assets and equities subject to adjustments. On that date, the following
 were provided:
Atta Boy

Cash P 28,000 62,000

Accounts receivable 200,000 600,000
Inventories 120,000 200,000
Land 600,000
Building 500,000
Furniture and fixtures 50,000 35,000
Intangible assets 2,000 3,000
Accounts payable 180,000 250,000
Other liabilities 200,000 350,000
Capital 620,000 800,000

The following adjustments

were agreed upon:
a. Accounts receivable of 20,000 and 40,000 are uncollectible in A’s and B’s respective
books.
b. Inventories of 6,000 and 7,000 are worthless in A’s and B’s respective books.
c. Intangible assets are to be written off in both books.

What will be the capital balances of the partners after adjustments?

Atta Boy
a. P 592,000 P 750,000
b. 600,000 700,000
c. 592,000 756,300
d. 600,000 750,000

10. Mary admits Jane as a partner in the business. Balance sheet accounts of Mary just
before the admission of Jane show: Cash, 26,000. Accounts receivable, 120,000,
Merchandise inventory, 180,000 and accounts payable, 62,000. It was agreed that for
purposes of establishing Mary’s interest, the following adjustments be made: 1. an
allowance for doubtful accounts of 3% of accounts receivable is to be established. 2.
Merchandise inventory is to be adjusted upward by 25,000 and 3 prepaid expenses
of 3,600 and accrued liabilities of 4,000 are to be recognized.
If Jane is to invest sufficient cost to obtain 2/5 interest in the partnership, how much
would Jane contribute to the new partnership?
a. 176,000
b. 190,000
c. 95,000
d. 113,980

Use the following information for questions11-15:

XYZ Enterprises is a partnership owned by X, Y and Z. Y decided to retire from the partnership.
The partners’ capitals are: X – P720,000; Y – P180,000; and Z – P360,000. The partnership
profits and loss is distributed in the ratio of 5:1:4.
11. If Y is paid P198,000 by the partnership, how much was the bonus to partners?
a. P18,000 to Y c. P8,000 to X
b. P18,000 to X & Z d. P10,000 to Z
12. Using the same information, what is the capital balance of partner X after the
withdrawal of Y.
a. P720,000 c. P738,000
b. P730,000 d. P710,000
13. Using the same information, what is the capital balance of partner Z after the
withdrawal of Y.
a. P360,000 c. P352,000
b. P378,000 d. P370,000
14. Using the same information, what is the effect of Y’s withdrawal to the total equity of the
partnership?
a. P198,000 increase c. P180,000 increase
b. P198,000 decrease d. P180,000 decrease
15. If Y is paid P162,000 by the partnership, how much was the bonus?
a. P18,000 to Y c. P8,000 to X
b. P18,000 to X & Z d. P10,000 to Z