ACCOUNTING FOR SPECIAL TRANSACTIONS Saturday, December 4, 2021

Final Examination 1:00 p.m. to 4:00 p.m.

This examination is good for 3 hours. The set of questions and problems here are ideal to prepare you for
the Advanced Financial Accounting and Reporting subject in the CPA Licensure Examinations.
Good luck!

Multiple Choice (Theories - 40 points).

Read carefully and choose the correct answer in each of the questions below.

1. The percentage of completion method of inventory valuation of long-term construction contract

a. recognizes income upon completion of work

b. recognizes income based on collection billings
c. recognizes income based on the progress of work
d. does not recognize income at the balance sheet date

2. In accounting for a long-term construction-type using the percentage of completion method, the
gross profit recognized during the first year would be the estimated total gross profit from the
contract multiplied by the percentage of the cost incurred during the year to the

a. total cost incurred to date

b. total estimated cost
c. unbilled portion of the contract price
d. total contract price

3. The theoretical support for using the percentage of completion method of accounting for long
term construction projects is that it

a. is conservative
b. lowers a lower net income
c. closely conforms to the cost principle
d. produces a realistic matching of expenses with revenues

4. If a company uses the percentage of completion method of accounting for long term
construction contracts, then during the period of construction, financial information related to a
long term contract will

a. appear on both the income statement and statement of financial position during the
construction period
b. appear only on the income statement during the period of construction
c. appear only on the statement of financial position during the period of construction
d. not appear on the financial statements
5. What is the basis for determining the gross profit to be recognized in the second year of a three-
year contract under the percentage-of-completion method?

a. Cumulative actual costs incurred only

b. Incremental cost for the second year only
c Cumulative actual costs and estimated costs to complete
d. No gross profit would be recognized in year 2

6. When the percentage-of-completion method of accounting for long-term construction projects

is used, why is the balance of the Construction in Progress account increased by the annual
recognized gross profit on long-term construction contracts?

a. The cost of the contract has increased

b. The project’s value has increased above cost
c. The economy experiences inflation over the construction period
d. Construction in Progress is not increased by the annual recognized profit

7. A company uses the percentage-of-completion method to account for a four-year construction

contract. Progress billings sent in the second year that were collected in the third year would be

a. be included in the calculation of the income recognized in the second year

b. be included in the calculation of the income recognized in the third year
c. be included in the calculation of the income recognized in the fourth year
d. not to be included in the calculation of the income recognized in any year

8. In accounting for a long-term construction contract for which there is a projected profit, the
balance in the Construction in Progress asset account at the end of the first year of work using
the percentage-of-completion method would be

a. zero
b. equal to the actual cost incurred during the year
c. the same as the balance of Progress Billings on Construction Contracts
d. equal to the sum of the actual cost incurred and the recognized gross profit during the
year

9. How should the balances of Progress Billings and Construction in Progress be shown at reporting
dates prior to the completion of a long-tern contract?

a. Progress billings as income, Construction in Progress as inventory

b. Net, as income from construction if credit balance, and loss from construction if debit
balance
c. Progress Billings as deferred income, Construction in Progress as a current asset
d. Net, as a current asset if debit balances and current liability if credit balance
10. A construction company uses the percentage-of-completion method of recognizing revenue
from construction contracts. Then, revenues that are earned but unbilled at the reporting date
should be disclosed

a. as a long-term receivable in the noncurrent assets section of the statement of financial

position
b. only as a footnote disclosure until the customer is billed for the percentage of work
completed
c. as a construction in progress in the current assets section of the statement of financial
position
d. as construction in progress in the noncurrent assets section of the statement of financial
position

11. Victor Co. has a sales agency in Cebu. Agency revenues and expenses are recorded in separate
agency accounts and the operating results for each agency and the home office are generated at
the end of each month. For the month of April, the home office paid on behalf of the agency
advertising costs of P7,000.

What is the entry to record the payment of the advertising costs?

a. Cebu Agency 7,000

Cash 7,000

b. Advertising Expense – Cebu Agency 7,000

Cash 7,000

c. Accounts Receivable 7,000

Cash 7,000

d. Advertising Expense 7,000

Accrued Expense 7,000

12. Concord Sales Inc. opens a sales agency in Angeles City and a working fund of P20,000 is
established on an imprest basis. The first payment from the fund is P3,000 for rent.

The transaction should be recorded by the home office as follows:

a. No entry
b. Rent Expense 3,000
Cash 3,000
c. Angeles Agency 3,000
Working Fund 3,000
d. Angeles Agency 3,000
Cash 3,000
13. Which of the following set of accounts must always be kept in agreement?

a. Investment in Branch and Equity in Home Office

b. Shipments to Branch and Shipments from Home Office
c. Branch Income and Equity in Branch Income
d. None of the above

14. The Home Office account on the books of the Branch is comparable to

a. an asset account
b. an ownership equity account
c. a liability account
d. all of the above

15. The Pasig Branch receives all its inventory from the Home Office at a billing price equal to the
retail selling price of the inventory. If selling prices are correctly anticipated, then the Branch
income statement for the year will show a

a. profit or loss depending on the sales volume

b. loss equal to the amount of operating expenses
c. loss due to operating expenses being overstated
d. profit due to the cost of goods sold being correctly stated

16. The adjustments (excluding those adjustments for in-transit items and errors) appearing on the
work sheet used in preparing combined financial statements of the Home Office and Branch

a. are recorded in the accounting records of both the Home Office and the Branch
b. are recorded in the accounting records of the Home Office only
c. are not recorded in the accounting records of the Home Office nor the Branch
d. are recorded in the accounting records of the Branch only

17. In Home Office/Branch merchandise transfers, the use of a Shipment to Branch account by the
Home Office and the use of a Shipment from Home Office account by the Branch indicates that
the inventory system employed

a. is a perpetual inventory system

b. is a periodic inventory system
c. is neither perpetual nor periodic
d. cannot be determined from the information provided

18. Which of the following accounts would be shown on the combined financial statements of the
Home Office and the Branch?

a. Investment in Branch account

b. Allowance for Unrealized Gross Margin in Branch Inventory
c. Home Office account
d. None of the above
19. Corporation Z established several branches in a nearby town. Which of the following would be
possible reasons for Corporation Z establishing branches?

a. The branches may be a suitable way to expand the firm’s sales efforts into new markets.
b. The branches may provide Corporation Z certain benefits of decentralized operations
without conferring a high level of autonomy on the various components of the firm.
c. The branches may hava been a favorable alternative to establishing a traveling sales
force operated from corporate headquarters or to the acquisition of firms already
operating in the new markets.
d. All of the above.

20. At the time of partnership liquidation, which credits shall be settled first?

a. those amounts owing to third persons

b. those amounts owing to partners other than capital contribution and share in profit
c. those amounts owing to partners with respect to capital contribution
d. those amounts owing to partners with respect to share in profit

21. Which of the following unsecured liabilities with priority of a liquidating corporation shall be
settled first?

a. Liabilities for employee benefits

b. Liabilities for corporate income tax
c. Liabilities for corporate crime
d. Liabilities for quasi-delict

22. If the sale transaction provides for periodic installments over an extended period of time and
the collectability of the sales price cannot be reasonably estimated, what method of revenue
recognition is the most appropriate?

a. Cost recovery method

b. Accrual basis
c. Installment method
d. Cash basis

23. Under IFRS 15, in which of the following instances shall an entity recognize revenue through
satisfaction of performance obligation at a point in time instead of satisfaction of performance
obligation over time?

a. The customer simultaneously receives and consumes the benefits provided by the
entity’s performance as the entity performs.
b. The entity’s performance creates or enhances an asset that the customer controls as the
asset is created or enhanced.
c. The entity’s performance does not create an asset with an alternative use to the entity
and the entity has an enforceable right to payment for performance completed to date.
d. The entity has transferred the legal title, control, and physical possession of the asset at
a specific date.
24. B, T and S are partners with capital balances of P100,000, P60,000 and P40,000, respectively.
The partners share income and loss equally. For an investment of P100,000 cash, V is to be
admitted as a partner with a 25% interest in capital and income. Which of the following can best
justify the amount of V’s investment?

a. V will receive a bonus from the other partners upon his admission to the partnership.
b. Assets of the partnership were overvalued immediately prior to V’s investment.
c. V is apparently bringing goodwill into the partnership, and his capital account will be
credited for the appropriate amount.
d. The book value of the partnership’s net assets was less than their fair value immediately
prior to V’s investment.

25. When LUCK retired from the partnership of LUCK, VANESSA and FINRAL, the final settlement of
LUCK’s interest exceeded his capital balance. Under the bonus method, the excess

a. was recorded as Other assets

b. increased the capital balances of Vanessa and Finral
c. reduced the capital balances of Vanessa and Finral proportionate to their new profit and
loss sharing ratio
d. reduced the capital balances of Vanessa and Finral proportionate to their old profit and
loss sharing ratio

26. On June 30, 2020, a partnership was formed by RIZZA and ROSE-ANN. RIZZA contributed cash.
ROSE-ANN, previously a sole proprietor, contributed non cash assets including a realty subject to
a mortgage which was assumed by the partnership. ROSE-ANN’s capital account at June 30,
2020 should be recorded at

a. The fair value of the property on June 30, 2020 less the mortgage payable
b. The fair value of the property
c. Rose-Ann’s carrying amount of the property at June 30, 2020
d. Rose-Ann’s carrying amount of the property at June 30, 2020 less the mortgage payable

27. NIKKA and ANESSA formed a partnership, each contributing assets to the business. NIKKA
contributed inventory with a current market value in excess of its carrying amount. ANESSA
contributed real property with its carrying amount in excess of its market value. At what amount
should the partnership record each of the following assets?

Inventory Real property

a. Market value Market value
b. Carrying amount Carrying amount
c. Market value Carrying amount
d. Carrying amount Market value
28. The partnership agreement between LEE and RYAN stipulates that LEE is to receive a 20% bonus
on profits before bonus, with the residual profit and loss to be apportioned in the ratio of 2:3,
respectively. Which partner has a greater advantage when the partnership has a profit and
when it incurs a loss?

a. Profit: Ryan Loss: Lee

b. Profit: Lee Loss: Ryan
c. Profit: Lee Loss: Lee
d. Profit: Ryan Loss: Ryan

29. GREY argues with her classmates saying that a partnership has a juridical personality separate
and distinct from each of the partners. Is GREY’s argument correct?

a. Yes
b. No

30. Statement 1: Generally, salaries shall be provided whether there is profit or loss, and in case of
profit, whether sufficient or not.
Statement 2: Generally, salaries shall be provided whether there is profit or loss, and in case of
profit, whether sufficient or not.
Statement 3: Bonus shall only be allowed when there is profit

a. All of the statements are true

b. Only Statements 1 and 2 are true
c. Only Statements 2 and 3 are true
d. All of the statements are false

31. When it is probable that total contract costs will exceed tota contract revenue, how shall the
long-term contract account for the difference?

a. The expected loss shall be recognized as an expense immediately.

b. The expected profit shall be recognized as a profit immediately.
c. The expected loss shall be recognized as an expense taking into account the percentage
of completion as of the end of the period.
d. The expected loss shall be recognized as a profit taking into account the percentage of
completion as of the end of the period.

32. When the outcome of a construction contract cannot be estimated reliably, what accounting
method shall be used by the long-term constructor for the recognition of construction revenue
and construction cost?

a. Percentage of completion method

b. Cost recovery method
c. Installment method
d. Accrual basis
33. A new partner is admitted to an existing partnership. As a result of admission, the capital
balances of incumbent partners increase while the contributed capital of the new partner is less
than his capital credit. Which of the following is the best explanation for this?

a. Bonus has been given by the incumbent partners to the new partner.
b. Revaluation of existing assets of old partnership has been recognized.
c. Bonus has been given by the new partner to incumbent partners and impairment loss of
existing assets of old partnership has been recognized.
d. Bonus has been given by the incumbent partners to the new partner and revaluation of
existing assets of old partnership has been recognized.

34. At the date of partnership formation of RMB partnership, the amount credited to R’s capital is
less than the fair market value of the property he contributed. Which of the following is the
most valid reason?

a. The property contributed by R is impaired.

b. The property contributed by R has been subjected to positive asset revaluation.
c. Bonus has been given by partner R to the other partners.
d. Goodwill arising from partnership formation has been recognized.

35. At the time of retirement, a retiring partner receives more than the amount of his capital
contribution while the remaining partners’ capital balances increase after the retirement. Which
of the following is the most valid reason?

a. Goodwill during retirement is recognized.

b. Asset revaluation is recognized.
c. Bonus is given by retiring partners to remaining partners.
d. Bonus is given by the remaining partners to retiring partner.

36. Which of the following statements about partnership is incorrect?

a. The assets contributed by each partner in a partnership become the common property
of all partners.
b. Each partner acts as agent of the other partners.
c. The partner is not held personally liable for all debts of the firm.
d. The articles of co-partnership include, among others, the provision for arbitration in
settling disputes.

37. When a new partner is admitted into the partnership by investment of cash and other assets,
there is said to be a bonus to the incoming partner if

a. the capital credit to the incoming partner is more than his contribution to the
partnership.
b. the capital credit to the incoming partner is less than his contribution to the partnership.
c. the capital credit to the incoming partner is equal to his contribution to the partnership.
d. the capital contribution of the incoming is greater than his capital credit.
38. Which of the following events would not result to a partnership dissolution?

a. termination of definite partnership terms

b. achievement of specified undertaking
c. death of a partner
d. marriage of a partner

39. A partner whose connection with the partnership is open and public, such as by including his
name in the firm name of the partnership, is called

a. ostensible partner
b. secret partner
c. nominal partner
d. dormant partner

40. YUJI and MEGUMI are partners with capital balances of P40,000 and P50,000 and sharing profits
and losses 45% and 55%, respectively. If NABARA is admitted as a partner paying P25,000 in
exchange for 45% of YUJI’s equity. The entry in the books should be as follows:

a. Cash P40,000
Nabara, Capital P40,000
b. Yuji, Capital P18,000
Nabara, Capital P18,000
c. Yuji, Capital P25,000
Nabara, Capital P25,000
d. Cash P18,000
Nabara, Capital P18,000
Multiple Choice (Problems - 30 points).
Read carefully and choose the correct answer in each of the questions below. Show your solutions.

41. Oslo was admitted to a partnership. She contributed P25,000 cash plus equipment she
purchased for P50,000 and which had accumulated depreciation for tax purposes of P20,000.
The fair value of the equipment was P35,000. She also assumed 1/3 of partnership debt of
P15,000. Her beginning capital balance was P48,000.

For tax purposes, her partnership interest should be initially valued at

a. 50,000
b. 60,000
c. 55,000
d. 45,000

42. Rae-Ann is trying to decide whether to accept a bonus of 25% of net income after salaries and
bonus or a salary of P97,500 plus a bonus of 10% of net income after salaries and bonus as a
means of allocating profit among the partners. Salaries traceable to the other partners are
estimated to be P450,000.

What amount of income would be necessary so that Glenda would consider the choices equal?

a. P1,100,000
b. P1,197,500
c. P650,000
d. P1,262,500

43. ACE, SAM and JEAN formed a partnership on June 1, 2021 with the following assets measured at
their fair market values contributed by each partner:

ACE SAM JEAN

Cash P180,000 P60,000 P72,000
Furniture 51,000
Equipment 168,000
Machinery 30,600
Fixtures 10,000 21,000
Land and Building 900,000

Although ACE has contributed the most cash to the partnership, she did not have the full
amount of P180,000 available and was forced to borrow personally P120,000. The land and the
building have a mortgage of P540,000 and the ACE will personally assume the responsibility for
the loan.
 If the profit and loss sharing agreement is 2:2:1 respectively for ACE, SAM and JEAN, what are
the capital balances of the partners at June 1, 2021?
ACE SAM JEAN
a. P381,040 P381,040 P190,520
b. 588,750 364,500 243,750
c. 1,120,600 249,000 123,000
d. 580,600 249,000 123,000

44. SHIELA and DIANE formed a partnership on January 1, 2020 and made the following investments
and withdrawals during the year:

SHIELA DIANE
Investments Withdrawals Investments Withdrawals
1/1 P36,000 P24,000
6/1 P14,400 P14,400
8/1 24,000 2,400
12/1 6,000

The partnership’s profits and losses agreement provides for annual salary of P36,000 for each
partner. SHIELA is to receive an annual bonus of 10% on net income after salaries and bonus.
The partners are also to receive interest of 8% on average capital balances affected by both
investments and withdrawals. Any remaining profits are to be allocated equally between the
partners. Net income for the year ended December 31, 2021 is P60,000.

How much is the average capital balance of DIANE as of December 31, 2020?

a. P39,600
b. P80,400
c. P16,600
d. P37,100

45. Using the same information in Item 44, what are the capital balances of the partners as at
December 31, 2020?

a. Shiela, P30,820; Diane, P41,180

b. Shiela, P70,420; Diane, P31,500
c. Shiela, P36,820; Diane, P35,180
d. Shiela, P35,179; Diane, P34,500
46. The following Statement of Financial Position for the partnership of SANDRA, FRANCE and AIRA
were taken from the books on January 1, 2020.

Cash P80,000 Liabilities P160,000

Other assets 320,000 Sandra, capital 96,000
France, capital 76,000
Aira, capital 68,000
Total assets P400,000 Total liabilities and capital P400,000

The partners agreed to distribute profits as follows:

 Annual salaries to SANDRA and FRANCE of P4,000 each.
 Annual interest of 5% on beginning capital balances.
 Bonus of 15% to SANDRA based on income after salaries, interest and bonus.
 Remaining profits: 25% to SANDRA, 35% to FRANCE and 40% to AIRA.

The partnership began operations on January 1, 2020 and net income for the period ended
December 31, 2020 is P55,600.

How much is the interest credited to FRANCE?

a. P1,250
b. P5,804
c. P950
d. P3,800

47. Using the same information in Item 46, how much is the bonus to SANDRA?

a. P5,804
b. P14,400
c. P6,600
d. P4,643

48. Using the same information in Item 46, which of the following statements is true?

a. The bonus to SANDRA is P4,643.

b. Net income after salaries, interest, and bonus is P38,696.
c. Total share of FRANCE in the net income is P17,350.
d. Share of AIRA in the profit after salaries, interest, and bonus is P13,543.

49. The partnership of GABELO, MERCADO and PALLESCO provides for the division of net income as
follows:
 MERCADO, who manages the partnership, is to receive a salary of P20,000 per year.
 Each partner is to be allowed interest at 10% on beginning capital.
 Remaining profits are to be divided equally.
 During 2020, GABELO invested an additional P8,000 in the partnership. MERCADO withdrew
P10,000, and PALLESCO withdrew P8,000. No other investments or withdrawals were made
during the year. On January 1, 2020, the capital balances were GABELO, P130,000; MERCADO,
P150,000; and PALLESCO, P140,000. Total capital at year-end was P504,000.

Compute the capital balance of each partner at year-end:

GABELO MERCADO PALLESCO

a. P161,667 P185,667 P156,667
b. 130,000 150,000 140,000
c. 156,666 183,000 152,666
d. 160,500 187,500 156,000

50. Using the same information in Item 49, how much is the share of MERCADO in the net income?

a. P10,500
b. P16,666
c. P45,667
d. P47,500

51. The MADELENE and DIANA Partnership was organized and began operations on March 1, 2012.
On that date, MADELENE invested P600,000 and DIANA invested land and building with current
fair value of P320,000 and P400,000, respectively. DIANA also invested P240,000 in the
partnership on November 2, 2012 because of shortage of working capital.

The partnership contract includes the following income-sharing plan:

MADELENE DIANA
Annual salary P72,000 P96,000
Annual interest on average capital 15% 10%
Remainder 50% 50%

The annual salary may be withdrawn by each partner in 12 monthly installments. During the
year ended February 28, 2013, the partnership had a net income of P480,000. Each partner had
monthly cash drawings in accordance with the partnership contract.

How much is the average capital of MADELENE?

a. P561,000
b. P641,000
c. P748,000
d. P668,000
52. Using the same information in Item 51, how much is the total salaries for both MADELENE and
DIANA as part of the distribution of profits?

a. Nil
b. P168,000
c. P72,000
d. P130,900

53. Using the same information in Item 51, how much is the share of DIANA in the partnership
profits?

a. P247,358
b. P261,000
c. P480,000
d. P130,900

54. The capital balances of MADELENE and DIANA, respectively, on February 28, 2013 are:

a. P746,000 and P1,126,000

b. P20,000 and P1,000,000
c. P818,000 and P1,222,000
d. P760,642 and P1,111,358

55. On January 2, 2012, QUIELA and RUFFO formed a partnership. Quiel contributed capital of
P437,500 and Ruffo, P62,500. They agreed to share profits and losses 60% and 40%,
respectively. Ruffo is the general manager and works in the partnership full time and is given a
salary of P120,500 a year; an interest of 5% of the beginning capital is given to both partners
and a bonus of 15% of net income before the salary, interests and bonus is given to Ruffo. The
income statement of the partnership for the year ended December 31, 2012 is as follows:

Net sales P2,187,500

Cost of goods sold 1,750,000
Gross profit P 437,500
Expenses (including the salary, interest,
and the bonus) 357,500
Net income P 80,000

The capital account balance of Ruffo at December 31, 2012 is:

a. P523,375
b. P276,625
c. P501,500
d. P271,801
56. Using the same information in Item 55, how much is the capital balance of Quiela at December
31, 2012?

a. P523,375
b. P276,625
c. P501,500
d. P528,199

57. Using the same information in Item 55, how much is the bonus credited to Ruffo?

a. P39,794
b. P45,000
c. P21,875
d. P3,125

58. Using the same information in Item 55, how much is the net income before the salary, interests
and bonus?

a. P80,000
b. P265,294
c. P300,000
d. P437,500

59. On October 1, 2021, SUPER and MARIO formed a partnership and agreed to share profits and
losses in the ratio 3:7, respectively. SUPER contributed a parcel of land that cost him P2,000,000.
MARIO contributed P3,000,000 cash. The land has a tax value of P3,600,000 on October 1, 2021
and has a fair market value of P3,480,000. What amount should be recorded in MARIO’s capital
account upon formation of the partnership?

a. P2,000,000
b. P3,000,000
c. P3,480,000
d. P3,600,000

60. GENSHIN and IMPACT formed a partnership and agreed to divide initial capital equally, even
though GENSHIN contributed P100,000 and IMPACT gave P120,000 in identifiable assets. Under
the bonus approach to adjust capital accounts, IMPACT’s capital account should be credited for

a. P50,000
b. P84,000
c. P92,000
d. P110,000
61. On March 1, 2016, Roxas and Bernardo decided to combine their business and form a
partnership. The statement of financial position of Roxas and Bernardo on March 1, before
adjustments is presented below:
Roxas Bernardo
Cash P 90,000 P 37,500
Accounts Receivable 185,000 135,000
Inventories 300,000 195,000
Furniture and Fixture (net) 300,000 90,000
Office Equipment (net) 115,000 27,500
Prepaid Expenses 63,750 30,000
P 1,053,750 P 515,000

Accounts Payable P 457,500 P 180,000

Roxas, Capital 596,250
Bernardo, Capital 335,000
P1,053,750 P 515,000

They agreed to provide P5,550 and P4,050 respectively for uncollectible accounts on their
accounts receivable and found Bernardo’s furniture to be under depreciated by P9,000.

If each partner’s share in equity is to be equal to the net assets invested, the capital accounts
Roxas and Bernardo, would be:

a. P581,700 and P330,950 respectively

b. P583,200 and P329,450 respectively
c. P590,700 and P321,950 respectively
d. P1,048,200 and P501,950 respectively

62. Using the same information in Item 61 and assuming the partners agreed that equity is to be
60% and 40% to Roxas and Bernardo, respectively, the capital accounts would be

a. P547,590 and P365,060 respectively

b. P930,090 and P620,060 respectively
c. P590,700 and P321,950 respectively
d. P558,750 and P373,500 respectively

63. Using the same information in Item 61 and assuming the equities are P650,000 and P400,000 to
Roxas and Bernardo respectively and with the recognition of goodwill for the excess equity over
the fair value of the net assets transferred to the partnership, goodwill is

a. P59,300 and P78,050

b. P68,300 and P60,050
c. P61,250 and P27,500
d. P102,410 and P34,940
64. On September 30, 2021, Mallari admits Nebre for an interest in his business. On this date,
Mallari’s capital account shows a balance of P158,400. The following were agreed upon before
the formation of the partnership:

a. Prepaid expenses of P17,500 and accrued expenses of P5,000 are to be recognized.

b. P5,000 of the outstanding accounts receivable of Mallari is to be recognized as
uncollectibles.
c. Nebre is to be credited with a one-third interest in the partnership and is to invest cash
aside from the P30,000 worth of merchandise.

How much cash is to be invested by Nebre?

a. P5,300
b. P32,950
c. P52,950
d. P82,950

65. Using the same information in Item 64, the total capital of the partnership is

a. P171,200
b. P198,950
c. P248,850
d. None of the above

66. Sison, Torres and Velasco are partners in an accounting firm. Their capital account balances at
year-end were: Sison, P50,000; Torres, P110,000; Velasco, P50,000. They share profits and
losses on a 4:4:2 ratio, after the following terms.

a. Partner Velasco is to receive a bonus of 10% of net profit after bonus.

b. Interest of 10% shall be paid on that portion of a partner’s capital in excess of P100,000.
c. Salaries of P10,000 and P12,000 shall be paid to partners Sison and Velasco,
respectively.

Assuming a net profit of P44,000 for the year, the total profit share of Torres was:

a. P7,800
b. P16,800
c. P19,400
d. P19,800

67. Using the same information in Item 66 and assuming a net profit of P22,000 for the year and
that the partners agreed on the above order of profit sharing provisions, the total profit share of
Sison was:

a. P8,800
b. P13,400
c. P15,000
d P18,400
68. Using the same information in Item 66 and assuming a net profit of P22,000 for the year and
that the partners agreed on the above order of priority provision, the total profit share of Torres
was:

a. P1,000
b. P12,364
c. P15,000
d. P24,600

69. Alarcon, Baretto and Coronel, partners, are in textile distribution business sharing profits and
losses equally. On December 31, 2015, the partnership capital and partners’ drawings are as
follows:

Alarcon Baretto Coronel Total

Capital 100,000 80,000 300,000 480,000
Drawing 60,000 40,000 20,000 120,000

The partnership was unable to collect on trade receivables and was forced to liquidate.
Operating profit in the year 2015 amounted to P72,000 which was all exhausted including the
partnership assets. Unsettled creditors’ claim at December 31, 2015 total P84,000. Baretto and
Coronel have substantial private resources but Alarcon has no personal assets. The loss on
realization was:

a. P360,000
b. P432,000
c. P480,000
d. P516,000

70. Using the same information in Item 69, the final cash distribution to Coronel was

a. P78,000
b. P84,000
c. P108,000
d. P162,000

End of Examination