1.

A contract where two or more persons bind themselves to contribute money, property, or industry
to a common fund with the intention of dividing the profits among themselves.
a. Voluntary Association
b. Corporation
c. Partnership
d. Sole Proprietorship
Answer: (c)

2. A partnership formed for the exercise of a profession which is duly registered is an example of:
a. Universal partnership of profits
b. Universal partnership of all present property
c. Particular partnership
d. Partnership by estoppel
Answer: (c)

3. One of the following is not a characteristic of contract of partnership.

a. Real, in that the partners must deliver their contributions in order for the partnership
contract to be perfected
b. Principal, because it can stand by itself
c. Preparatory, because it is a means by which other contracts will be entered into
d. Onerous, because the parties contribute money, property, or industry to the common fund
Answer: (a)

4. One of the following is not a requisite of a contract of partnership. Which is it?

a. There must be a valid contract
b. There must be a mutual contribution of money, property, or industry to a common fund
c. It is established for the common benefit of the partners which is to obtain profits and
divide the same among themselves
d. The articles are kept secret among members
Answer: (d)

5. The minimum capital in money or property except when immovable property or real rights
thereto are contributed, that will require the contract of partnership to be in a public
instrument and be registered with the Securities and Exchange Commission (SEC).
a. P5, 000.00
b. P10, 000.00
c. P3, 000.00
d. P30, 000.00
Answer: (c)

6. Roberts and Smith drafted a partnership agreement that lists the following assets contributed
at the partnership’s formation:
Contributed by
Roberts Smith
Cash P 20,000 P 30,000
Inventory 15,000
Building 40,000
Furniture & Equipment 15,000
 The building is subject to a mortgage of P 10,000, which the partnership has assumed. The
partnership agreement also specifies that profits and losses are to be distributed evenly. What
amounts should be recorded as capital for Roberts and Smith at the formation of the
partnership?
Roberts Smith
a. 35,000 85,000
b. 35,000 75,000
c. 55,000 55,000
d. 60,000 60,000

Suggested Answer: (b) 35,000 & 75,000

Roberts: 20,000 + 15,000 = P35, 000 Smith: 30,000 + 15,000 + 40,000 – 10,000 = P75,000.
The partner’s capital credit is based upon the net assets contributed by the particular
partner, thus the liabilities assumed reduced the fair market value of the building invested.

7. The Grey and Redd Partnership was formed on January 2, 2022. Under the partnership agreement,
each partner has an equal initial capital balance. Partnership net income or loss is allocated
60% to Grey and 40% to Redd. To form the partnership, Grey originally contributed assets
costing P30,000 with a fair value of P60,000 on January 2, 2022, and Redd contributed P20,000
cash. Drawings by the partners during 2010 totaled P3, 000 by Grey an P9,000 by Redd. The
partnership net income in 2022 was P25,000

Under the goodwill method, what is Redd’s initial capital balance in the
partnership?

a. 20,000
b. 25,000
c. 40,000
d. 60,000

Suggested Answer: (d) 60,000

Contributed Capital Agreed Capital Increase

(Decrease)
Grey 60,000 60,000
Redd 20,000 60,000 40,000
Total 80,000 120,000 40,000
The partnership agreement provides for equal initial capital. Thus under the goodwill method ,
the capital credit for Redd should be the same as the contribution of Grey, thereby increasing
the total agreed capital to P120,000, which is P40,000 more than the total contributed capital
(goodwill).

8. Using the information in No. 2, under the bonus method, what is the amount of bonus?
a. 20,000 bonus to Grey
b. 20,000 bonus to Redd
c. 40,000 bonus to Grey
d. 40,000 bonus to Redd

Suggested Answer: (b) 20,000 bonus to Redd

Contributed Capital Agreed Capital Increase

(Decrease)
Grey 60,000 40,000 (20,000)
Redd 20,000 40,000 20,000
Total 80,000 80,000

The partnership agreement provides for equal initial capital. Thus under the bonus method, the
capital credit for Redd should be the same as the contribution for Grey, resulting to P20,000
bonus from Grey to Redd.

9. On May 1, 2022, the business assets of John and Paul appear below:

John Paul
Cash P 11,000 P 22,354
 Accounts Receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture & Fixture 50,345 34,789
Other Assets 2,000 3,600
Total P1, 020, 916 P 1, 317,
002

Accounts Payable P 178,940 P 243,650

Notes Payable 200,000 345,000

John, Capital 641, 976
Paul, Capital\ 728,352
Total P 1, 020, 916 P1, 317, 002

John and Paul agreed to form a partnership contributing their respective assets and
equities subject to the following adjustments:
a. Accounts receivable of P20, 000 in John’s books and P35, 000 in Paul’s are uncollectible.
b. Inventories of P5, 500 n P6, 700 are worthless in John’s and Pail’s respective books.
c. Other assets of P2, 000 and P3, 600 in John’s and Paul’s respective books are to be
written off.

The capital accounts of John and Paul, respectively, after the adjustments will be:
a. 614, 476 683, 052 c. 640, 876 712, 345
b. 615, 942 717, 894 d. 613,576 683, 350
Suggested Answer: (a) 614, 476 683, 052
John: 641, 976 – 20, 000 – 5, 500 – 2, 000 = P 614, 476
Smith: 728, 352 – 35, 000 – 6, 700 – 3, 600 = P 683, 052

10. Based on No. 4, how much assets does the partnership have? a.
2, 317, 918
b. 2, 237, 918
c. 2, 265, 118
d. 2, 365, 218

Suggested Answer: (c) 2, 265, 118

John: 1, 020, 916 – 20, 000 – 5, 500– 2, 000 = P 993, 416
Smith: 1, 317, 002 – 35, 000 – 6, 700 – 3, 600 = P 1, 271, 702
Total: 2, 337, 918 – 55, 000 – 12, 200 – 5, 600 = P 2, 265, 118
Bloom and Carnes share profits and losses in a ratio of 2:3, respectively. Bloom and Carnes receive
salary allowances of $10,000 and 20,000, also respectively, and both partners receive 10% Interest
based upon the balance in their capital accounts on January 1. Partners’ drawings are not used in
determining the average capital balances. Total net income for 2006 is 60,000. If net income after deducting
the interest and salary allocations is greater than 20,000, Carnes receives a bonus of 5% of the original
amount of net income.
Bloom
Carnes
January 1 capital balances 200,000 300,000
Yearly drawings (1,500 a month) 18,000 18,000

11. What are the total amounts for the allocation of interest, salary, and bonus? and, how much over-
allocation is present?
a. 60,000 and 0.
b. 80,000 and 20,000.
c. 83,000 and $0.
d. 83,000 and 23,000.

12. If the partnership experiences a net loss of 20,000 for the Year, what will be the final amount of profit
or (loss) closed To each partner’s capital account?
a. (30,000) to Bloom and 10,000 to Carnes.
b. (10,000) to Bloom and (10,000) to Carnes.
c. (8,000) to Bloom and (12,000) to Carnes.
d. 10,000 to Bloom and (30,000) to Carnes.

ANSWER:
12. b Interest: ($500,000 x 10%) = $50,000
Salary: ($10,000 + $20,000) = $30,000
Bonus: Condition not met = $0
Total allocations = $80,000 and over-allocations =
$80,000 - $60,000 = $20,000
13. b Bloom:
Interest allocation: $20,000
Salary allocation: $10,000
Carnes:
Interest allocation: $30,000
Salary allocation: $20,000
There is a total of $80,000 for positive allocations.
To bring them down to a $20,000 loss, a residual
adjustment of ($100,000) is needed which is allocated
($40,000) to Bloom and ($60,000) to Carnes. After these
amounts are assigned to the partners, each partner’s
capital account will be reduced by a net $10,000.

13. The XYZ partnership provides a 10% bonus to Partner Y that is based upon partnership income, after
deduction of the bonus. If the partnership's income is $121,000, how much is Partner Y's bonus allocation?
A. 11,000.
B. 11,450.
C. 11,650.
D. 12,100.

ANSWER:
B = .1x($121,000 - B)
B = $12,100 - .1B
1.1B = $12,100
B = $11,000

14. A summary balance sheet for the Almond, Brandt, and Clack partnership on December 31, 2021 is shown below.
Partners Almond, Brandt, and Clack allocate profit and loss in their respective ratios of 2:1:1. The
partnership agreed to pay partner Brandt $135,000 for his partnership interest upon his retirement from
the partnership on
January 1, 2022. The partnership financials on January 1, 2022 are:

Assets
Cash $ 75,000
Inventory 85,000
Marketable securities 60,000
Land 90,000
Building-net 150,000
Total assets $ 420,000
Equities
Almond, capital $ 210,000
Brandt, capital 105,000
Clack, capital 105,000
Total equities $ 420,000

Required :
Prepare the journal entry to reflect Brandt’s retirement from the
partnership:
A. Assuming a bonus to Brandt.
B. Assuming a revaluation of total partnership capital based on
Excess payment.
C. . Assuming goodwill to excess payment is recorded.

ANSWER:

Requirement 3
Add goodwill equal to the excess payment
Brandt, Capital 105,000
Goodwill 30,000
Cash 135,000
Requirement 1
Almond and Clack give a bonus to Brand which reduces their capital in
a 2 to 1 ratio.
Brandt, capital 105,000
Almond, capital 20,000
Clack, capital 10,000
Cash 135,000
Revalue the total partnership capital to reflect the value at
Brandt’s retirement’s excess payment of $30,000.
Goodwill 60,000
Almond, capital 20,000
Clack, capital 10,000
Brandt, capital 30,000
15.The profit and loss sharing agreement for the Sealy, Teske, and Ubank partnership
provides that each partner receive a bonus of 5% on the original amount of partnership
net income if net income is above $25,000. Sealy and Teske receive a salary allowance
of $7,500 and $10,500, respectively. Ubank has an average capital balance of
$260,000, and receives a 10% interest allocation on the amount by which his average
capital account balance exceeds $200,000. Residual
profits and losses are allocated to Sealy, Teske, and Ubank in their respective ratios of
7:5:8.

Required :
Prepare a schedule to allocate $88,000 of partnership net income to the partners.

Answer:

Income Sealy Teske

Ubank
Net income $ 88,000
Bonus (13,200 ) $ 4,400 $ 4,400
$ 4,400
Salary ( 18,000 ) 7,500 10,500
Interest ( 6,000 )
6,000
Subtotal 50,800 11,900 14,900
10,400
Balance ( 50,800 ) 17,780 12,700
20,320
Totals $ 0 $ 29,680 27,600
30,720 \

AA, BB and CC are partners in ABC

16.

Partnership and share profits and

losses 50%, 30% and
20%, respectively. The partners have
agreed to liquidate the partnership
and some liquidation
expenses to be incurred. Prior to the
liquidation, the partnership
statement of financial position
reflects the following book values:
Cash
P 25,200)
Non-cash assets
297,600)
Payable to CC
38,400)
Other liabilities
184,800)
AA, capital
72,000)
BB, capital
( 12,000)
CC, capital
39,600)

Actual liquidation expenses are

P16,800 and that the non-cash assets
with a book value of
P240,000 were sold for P216,000.
Requirements:
1. How much cash should each partner
receive?
AA: 5
BB: 3
CC: 2
Total
Capital/Interest
72,000
(12,000)
39,600
99,600
Payable to CC

38,400
38,400
Total Interest/
Capital
72,000
(12,000)
78,000
138,000
+/- Gains or
Losses
240,000-216,000
Liquidation
expense

(20,400)

(12,240)

(8,160)
(24,000)

(16,800)
Remaining bal.
51,600
24,240
69,840
97,200
AA, BB and CC are partners in ABC
Partnership and share profits and
losses 50%, 30% and
20%, respectively. The partners have
agreed to liquidate the partnership
and some liquidation
expenses to be incurred. Prior to the
liquidation, the partnership
statement of financial position
reflects the following book values:
Cash
P 25,200)
Non-cash assets
297,600)
Payable to CC
38,400)
Other liabilities
184,800)
AA, capital
72,000)
BB, capital
( 12,000)
CC, capital
39,600)

Actual liquidation expenses are

P16,800 and that the non-cash assets
with a book value of
P240,000 were sold for P216,000.
Requirements:
1. How much cash should each partner
receive?
AA: 5
BB: 3
CC: 2
Total
Capital/Interest
72,000
(12,000)
39,600
99,600
Payable to CC

38,400
38,400
Total Interest/
Capital
72,000
(12,000)
78,000
138,000
+/- Gains or
Losses
240,000-216,000
Liquidation
expense

(20,400)

(12,240)

(8,160)
(24,000)

(16,800)
Remaining bal.
51,600
24,240
69,840
97,200
AA, BB and CC are partners in ABC
Partnership and share profits and
losses 50%, 30% and
20%, respectively. The partners have
agreed to liquidate the partnership
and some liquidation
expenses to be incurred. Prior to the
liquidation, the partnership
statement of financial position
reflects the following book values:
Cash
P 25,200)
Non-cash assets
297,600)
Payable to CC
38,400)
Other liabilities
184,800)
AA, capital
72,000)
BB, capital
( 12,000)
CC, capital
39,600)

Actual liquidation expenses are

P16,800 and that the non-cash assets
with a book value of
P240,000 were sold for P216,000.
Requirements:
1. How much cash should each partner
receive?
AA: 5
BB: 3
CC: 2
Total
Capital/Interest
72,000
(12,000)
39,600
99,600
Payable to CC

38,400
38,400
Total Interest/
Capital
72,000
(12,000)
78,000
138,000
+/- Gains or
Losses
240,000-216,000
Liquidation
expense

(20,400)

(12,240)

(8,160)
(24,000)

(16,800)
Remaining bal.
51,600
24,240
69,840
97,200

AA, BB and CC are partners in ABC

Partnership and share profits and
losses 50%, 30% and
20%, respectively. The partners have
agreed to liquidate the partnership
and some liquidation
expenses to be incurred. Prior to the
liquidation, the partnership
statement of financial position
reflects the following book values:
Cash
P 25,200)
Non-cash assets
297,600)
Payable to CC
38,400)
Other liabilities
184,800)
AA, capital
72,000)
BB, capital
( 12,000)
CC, capital
39,600)

Actual liquidation expenses are

P16,800 and that the non-cash assets
with a book value of
P240,000 were sold for P216,000.
Requirements:
1. How much cash should each partner
receive?
AA: 5
BB: 3
CC: 2
Total
Capital/Interest
72,000
(12,000)
39,600
99,600
Payable to CC

38,400
38,400
Total Interest/
Capital
72,000
(12,000)
78,000
138,000
+/- Gains or
Losses
240,000-216,000
Liquidation
expense

(20,400)
(12,240)

(8,160)
(24,000)

(16,800)
Remaining bal.
51,600
24,240
69,840
97,200
AA, BB and CC are partners in ABC
Partnership and share profits and
losses 50%, 30% and
20%, respectively. The partners have
agreed to liquidate the partnership
and some liquidation
expenses to be incurred. Prior to the
liquidation, the partnership
statement of financial position
reflects the following book values:
Cash
P 25,200)
Non-cash assets
297,600)
Payable to CC
38,400)
Other liabilities
184,800)
AA, capital
72,000)
BB, capital
( 12,000)
CC, capital
39,600)

Actual liquidation expenses are

P16,800 and that the non-cash assets
with a book value of
P240,000 were sold for P216,000.
Requirements:
1. How much cash should each partner
receive?
AA: 5
BB: 3
CC: 2
Total
Capital/Interest
72,000
(12,000)
39,600
99,600
Payable to CC

38,400
38,400
Total Interest/
Capital
72,000
(12,000)
78,000
138,000
+/- Gains or
Losses
240,000-216,000
Liquidation
expense

(20,400)

(12,240)

(8,160)
(24,000)
(16,800)
Remaining bal.
51,600
24,240
69,840
97,200
16. AA, BB and CC are partners in ABC Partnership and share profits and losses 50%, 30% and 20%, respectively.
The partners have agreed to liquidate the partnership and some liquidation expenses to be incurred. Prior to the
liquidation, the partnership statement of financial position reflects the following book values:
Cash P 25,200)
Non-cash assets 297,600)
Payable to CC 38,400)
Other liabilities 184,800)
AA, capital 72,000)
BB, capital ( 12,000)
CC, capital 39,600)
Actual liquidation expenses are P16,800 and that the non-cash assets with a book value of P240,000 were sold for
P216,000. Requirements:
a. How much cash should each partner receive? (Prepare Schedule)

Loss on possible
unrealization of
noncash assets:
(P297,600-
P240,000)
(28,800)
(17,280)
(11,520)
(57,600)
Remaining
balance.
22,800
(41,520)
58,320
39,600
Absorption Loss
(29,657)
41,520
(11,863)
-
Remaining Bal.
(6,857)
0
46,457
39,600
Absorption cost
(6,875)
0
(6,875)
-
Distribution to
partners
0
0
39,600
39,600
Loss on possible
unrealization of
noncash assets:
(P297,600-
P240,000)
(28,800)
(17,280)
(11,520)
(57,600)
Remaining
balance.
22,800
(41,520)
58,320
39,600
Absorption Loss
(29,657)
41,520
(11,863)
-
Remaining Bal.
(6,857)
0
46,457
39,600
Absorption cost
(6,875)
0
(6,875)
-
Distribution to
partners
0
0
39,600
39,600

Loss on possible
unrealization of
noncash assets:
(P297,600-
P240,000)
(28,800)
(17,280)
(11,520)
(57,600)
Remaining
balance.
22,800
(41,520)
58,320
39,600
Absorption Loss
(29,657)
41,520
(11,863)
-
Remaining Bal.
(6,857)
0
46,457
39,600
Absorption cost
(6,875)
0
(6,875)
-
Distribution to
partners
0
0
39,600
39,600

Loss on possible
unrealization of
noncash assets:
(P297,600-
P240,000)
(28,800)
(17,280)
(11,520)
(57,600)
Remaining
balance.
22,800
(41,520)
58,320
39,600
Absorption Loss
(29,657)
41,520
(11,863)
-
Remaining Bal.
(6,857)
0
46,457
39,600
Absorption cost
(6,875)
0
(6,875)
-
Distribution to
partners
0
0
39,600
39,6