ADVANCED FINANCIAL ACCOUNTING AND REPORTING

ACCOUNTING FOR PARTNERSHIP

1. Lino and Nilo formed a new partnership. L i n o invests P600,000 in cash for 60%
interest in the partnership. N i l o contributes land that has an original cost of P80,000,
and a fair market value of Pl 40,000, and a building that has a tax basis of P 1 00,000,
and a fair market value of P180,000.
The building is subject to a mortgage of P80,000 which the partnership assumes. Nilo
is required to contribute additional cash in case her noncash contributions would be
insufficient for her equity in the new firm.
How much cash should Nilo still contributes?
a. P80,000
b. P160,000
c. P220,000
d. P300,000

2. The partnership of Ellen and Farida was formed on March 31, 2020. At that date,
Ellen invested Pl00,000 cash and office equipment valued at P60,000. Farida
invested Pl 40,000 cash, merchandise costing P220,000 and furniture valued at
P200,000, but subject to a note payable of P100,000 which the partnership will
assume. Their agreement provides for sharing ratio of 75:25, respectively. The
agreement further provides that the partners should initially have an equal interest in
/
the partnership.
Under the bonus method, what is the total capital of the partners upon its formation?
a. P600,000
b. P620,000
c. P720,000
d. P700,000

3. On October 1, 2020, Ingrid admits Jackie for an interest in her business. On this date,
Ingrid's capital account shows a balance of P316,800. The following were agreed upon
before partnership formation:

* Prepaid expenses of P35,000 and accrued expenses of P10,000 are to be recognized.

* 5% of the outstanding P200,000 accounts receivable of Ingrid is to be
recognized as uncollectible. ·
* Jackie is to be credited with a one-third interest in the partnership and is to invest
additional cash aside from her investment of P100,000.

The amount of cash to be contributed by Jackie, and the total capital of partnership,
respectively?
a. 65,900 & 497,700
b. 65,900 & 342,400
c. 110,500 & 442,400
d. 165,900 & 497,700

4. A & B have just formed a partnership. A contributed cash of P882,000 and office
equipment that cost P378,000. The equipment had been used in his sole proprietorship
business and had been 70% depreciated. The current value of the equipment is P252,000.
A also contributed a note payable of P84,000 to be assumed by the partnership. A is to
have a 60% interest in the partnership. B contributed P630,000 worth of merchandise
with fair value. Assume the use of the bonus method, the partners' capital must be in
conformity with ..their profit and loss ratio upon formation

In the formation of the partnership, which of the following is not true?

a. The agreed capital of A upon formation is P1,008,000.
b. The capital of B will decrease by P42,000 as a result of the transfer of capital.
c. The total contributed capital of the partnership is Pl,680,000.
d. There is no investment or withdrawal of asset under the bonus method.
For questions 5 & 6
The following balance sheet for the partnership of Anton, Bernard, &
Carlos were taken from the books on September 30, 2020:

Cash 80,000 Liabilities 200,000

Other Assets 720,000 Anton, Capital 148,000
Bernard, Capital 260,000

Carlos, Capital 192,000

The partners agreed to distribute the profits as follows:

• Annual salaries to Anton and Bernard of P6,000 each
• 6% interest on beginning capital
• 10% bonus to Bernard (the bonus to be treated as an expense after salaries and
interest)
• Remaining profit - 4:4:2, respectively

5. If the net income of the partnership was P122,000 during the three-month
period ending December 31, 2020, the total share of Bernard in the net
income is
a. 22,880
b. 43,720
c. 45,400
d. 55,400

6. If Carlos receives as his share of net income of P6,880 for the three-month period
ending December 31, 2020, the total income realized by the partnership for the same
period before salaries, interest, and bonus was
a. 34,000
b. 40,000
c. 50,000
d. 100,000

7. The partnership agreement of X, Y, & Z provides for the division of net income, as
follows:
* Y, who manages the partnership is to receive an annual salary of P120,000.
* Each partner is to be allowed interest of 10% on ending capital.
* Balance is to be divided 40:25:35, respectively.

During 2020, X invested an additional P90,000 in the partnership. Y made an additional

investment of P75,000 and withdrew P110 ,000. Z withdrew P60,000. No other
investments or withdrawals were made during 2020. On January 2, 2020, the capital
balances of X, Y, & Z are P300,000, P410,000, & P220,000, respectively. Total capital at
year end was P600,000.
The capital balances of X, Y, & Z, respectively, at year-end are
a. (176,000); 948,125; (172,125)
b. 214,000 ; 410,250; 24,250
c. 214,000; 398,125; (12,125)
d. 390,000 ; 375,000; (165,000)

8. The following balance sheet for the partnership of C, I, & G were taken from the
books on October 1, 2020:

Cash P 100,000 Liabilities P200,000

Other assets 400,000 C, Capital 120,000
I, Capital 95,000
G, Capital 85,000
Total 500,000 Total 500,000

The partners agreed to distribute profits as follows:

• Annual salaries to C & I of P5,000 each.
• Annual interest of 5% on beginning capital.
• Bonus of 15% to C based on income after salaries, interest, & bonus.
• Remaining profits, 25% to C, 35% to I, & 40% to G.
 The partnership began its operations on October 1 , 2020 and net income
for the year ended December 31, 2020 is P69,500.

Which of the following is true?

a. The bonus to C is P5,804.
b. Net income after salaries, interest, and bonus is P38,696.
c. I's total share in the net income is P21,688.
d. G's share on the profit after salaries, interest, and bonus is P13,543.

9. The partnership agreement of DD, EE, and FF provides for the division of net income as
follows:
• FF, who manages the partnership is to receive a salary of P15,000 per month.
• Each partner is to be allowed interest of 6% on average capital. ·
• Remaining profit or loss is to be divided equally.

During 2020, DD invested an additional P170,000 in the partnership while EE and .FF
an additional of P80,000 and P90,000, respectively. DD withdrew P60,000, EE
withdrew P150,000, and FF withdrew P90,000. No other investments or withdrawals
were made during 2020. On January 1, 2020, the capital balances of DD, EE, & FF.
were P450,000, P520,000, & P300,000, respectively. Total capital at year end was
P1,520,000.

Which of the following is not true in the statement of partners' capital?

a. DD's capital will increase by P14,500 share in net income.
b. FF's capital at the end of 2020 after share in net income is P482,200.
c. EE's capital account will have a net increase of P56,700 from beginning
d. DD's capital account is P92,300 higher than FF's at year-end .

10. Partners Holy, Noble, and Saint are in the process of finalizing their profit
and loss sharing agreement. They have agreed that Noble and Saint are to
receive annual salaries of P90,000 each. Holy, the managing partner, has
two options:

Option 1 - He will receive an annual salary of P220,000, or ·

Option 2 - He will receive an annual salary of P 180,000 plus a bonus of
20% of net profit after subtracting their salaries and his bonus

What amount of net income would Holy get the same share irrespective of his choice?
a. 500,000
b. 600,000
c. 800,000
d. 900,000

11. The following is the condensed balance sheet of partners Ursula, Vanessa, & Winnie:

Cash P 360,000 Accounts Payable P 840,000

Other assets 3,320,000 Winnie, Loan 120,000
Ursula, 80,000 Ursula, Capital 1,240,000
Receivable Vanessa, Capital 800,000
Winnie, Capital 760,000
Assume that the assets and liabilities are fairly valued, and that the partnership
decided to admit Zeny as a partner with 20% interest. No goodwill or bonus is
to be recorded. The original partners P/L ratio to 4:3:3, respectively.

How much should Zeny contribute in cash or other assets?

a. 310,000
b. 560,000
c. 568,000
d. 700,000

12. X, Y, & Z formed a partnership on January 2, 2020, with the following

investments: X, P100,000; Y, P150,000; Z, P225,000. The partnership
agreement states that profits and losses are to be shared equally by the partners
after considering the following:

* Salaries allowed to partners : X, P60,000; Y, P48,000, Z, P36,000.

* Average partners' capital balances during the year shall be allowed 10%.
 Additional Information:
* On June 30, 2020, X invested an additional P60,000 .
* Z withdrew P70,000 from the partnership on September 30, 2020.
* Share on the remaining profit partnership was P5,000 for each partner.

The total partnership capital on December 31, 2020 is

a. 405,000
b. 407,000
c. 465,000
d. 672,750

13. The partnership of X and Y provides for 3:2 sharing ratio. Prior to the admission
of the third partner ( Z ), their capital accounts are X, P84,000; and Y, P56,000.
Z invests P35,000 for a P28,000 interest and partners agreed that the net assets
of the new partnership. would be P210,000 after revaluation of assets._

Upon admission of Z, which of the following is not correct?

a. The bonus from the new partner to X is P4,200.
b. The capital of Y will increase by Pl 6,800 after admission of Z
c. The capital of Z is to be credited at P28,000
d. The capital of X will increase by P21,000 after admission of Z

14. Imee, Jackie, & Lucy are partners with capital balances as of January 1, 2020 of Pl
00,000, P150,000, P200,000, respectively. They share profits and losses on a 5:3:2
ratio, respectively.

On July 1, 2020, Imee withdrew from the partnership. Partners agreed that at the
time of lmee's withdrawal , certain inventories had to be revalued at P70,000
from its cost of P50,000 . For the six- month period ending June 30, 2020, the
partnership generated a net income of P150,000. Further, partners agreed to pay
Imee P225,000 for her interest and that the remaining partners' capital accounts
would be in proportion to their capital balance before withdrawal.

The payment to Imee included a bonus from Jackie of

a. 40,000
b. 36,000
c. 24,000
d. 50,000
15. The condensed balance sheet of t he partnership of Monique , Nancy, &
Olivia with corresponding P/L percentages as of June 30, 2020 is shown
below:

Net Assets P400,000 Monique, Capital (50%) P200,000

Nancy, Capital (30%) 120,000
Olivia, Capital 80,000

As of said date, Monique retired from the partnership. By mutual agreement,

assets will be revalued, and she will be paid P225,000 for her interest in the
partnership.

After Monique's retirement, the total net assets of the partnership was
a. 175,000
b. 200,000
c. 225,000
d. 250,000

For questions 16 & 17

The balance sheet of Sandy, Telly, & Umen at April 30, 2020 shows the following:
· Assets Liabilities & Capital
Other Assets P100,000 Sandy, Loan P 9,000

Sandy, Capital 15,000

Telly, Capital 31,000
Umen, Capital 45,000
 Sandy is retiring from the partnership. By mutual agreement, the assets are to
be adjusted to their fair value of P130,000. Telly & Umen agreed that the
partnership will pay Sandy P37,000 cash_for her interest, exclusive of her loan
which is to be paid in full separately. The partners' P/L ratio is 2:2:6,
respectively.

16. What is the balance of Umen's capital account after Sandy's

retirement?

a. 50,000
b.
A. 51,000
c.
B. 53,400
d. 60,000

17. What is the balance of assets after Sandy’s retirement ?

a. 130,000
b. 63,000
c. 93,000
d. 84,000

18. The partnership of Y, E, & S provides for 3:3:4 sharing in profits and losses,
respectively. S is retiring from the partnership and by mutual agreement the assets are
to be adjusted to their fair values which is P30,000 higher than their carrying amount.
Y and E agree that the partnership will pay P87,000 to S for his partnership interest,
exclusive of his loan which is to be repaid in full separately. Before the retirement of S,
the following data are available:

Total assets P200,000 S, Loan

Y, Capital
E, Capital
S, Capital

Which of the following is not correct?

a. Capital balance of Y after retirement of S is 56,500
b. Total assets after retirement of S is P123,000
c. Bonus received by S from Y is P2,500
d. Capital balance of E after retirement of S is P65,600

Item Nos.19 and 20 are based on the following information:

The following are the capital balances and profit and loss ratios of the partners Mona,
Nona, and Ona:
Capital Profit & Loss Ratio
Mona P 20,000 20%
Nona 10,000 30%
Ona 5,000 50%
Total P 35,000 100%

After realization of the assets and payment of liabilities, the cash available for
distribution was P 18,000. Any capital deficiency is uncollectible.
19. What was the loss on realization?

a. P 15,000.
b. P 16,000.
c. P 17,000.
d. P 18,000.

20. How should the cash be distributed?

a. Mona, P 3,600; Nona, P 5,400; and Ona, P 4,000.
b. Mona, P 6,000; Nona, P 6,000; and Ona, P 6,000.
c. Mona, P 15,200; Nona, P 2,800; and Ona, P 0.
d. Mona, P 18,000; Nona, P 0; and Ona, P 0.
Item Nos. 21 and 22 are based on the following information:
The following are the assets and liabilities of Tee, Pak, and Long partnership prior to
liquidation:
Cash P 25,000 Liabilities P 52,000
Other Assets 180,000 Tee Capital (40%) 40,000
Pak Capital (40%) 65,000
Long Capital (20%) 48,000
P 205,000 P 205,000

The first sale of noncash assets having a carrying amount of P90,000 realized
P50,000.
21. The amount of cash each partner should receive in the first installment is:
a. Tee, P 0; Pak, P 0; Long, P 23,000.
b. Tee, P 0; Pak, P 5,000; Long, P 18,000.
c. Tee, P 12,000; Pak, P 13,000; Long, P 18,000.
d. Tee, P 27,000; Pak, P 5,000; Long, P 18,000.

22. If P 3,000 cash is withheld for future liquidation expenses, how much cash
should Long receive?

a. P 21,000.
b. P 20,000.
c. P 17,000.
d. P 3,000.

Item Nos. 23 to 25 are based on the following information:

Partners Bruce, Charlie, and Demi share profits and losses in the ratio of 5:3:2,
respectively. At the end of a very unprofitable year, they decided to liquidate the
firm. The partners’ capital account balances at this time were as follows:

Bruce P 22,000
Charlie 24,900
Demi , 15,000

The liabilities accumulated to P 30,000, including a loan of P 10,000 from Bruce. The
cash balance was P 6,000. All the partners are personally solvent. The partnership
plans to sell the assets on installment basis.

23. If Charlie received P 2,000 from the first distribution of cash, how much did
Bruce and Demi receive at that time?
a. Bruce, P 0; Demi, P 0.
b. Bruce, P 0; Demi, P 2,200.
c. Bruce, P 0; Demi, P 3,300.
d. Bruce, P 3,300; Demi, P 2,200.

24. If Bruce received a total of P 20,000 as a result of the liquidation, what was the
total amount realized from the sale of noncash assets?

a. P 85,900.
b. P 73,900.
c. P 61,900.
d. P 24,000.

25. If Demi received P 6,200 on the first distribution of cash, how much did Charlie
receive at that time?

a. P 11,700.
b. P 10,000.
c. P 6,200.
d. P 5,000.