Republic of the Philippines

EASTERN VISAYAS STATE UNIVERSITY

COLLEGE OF BUSINESS AND ENTREPRENEURSHIP
TaclobanCity

I. True or false

1. A sound accounting system ensures accuracy in the preparation of financial statements.

2. Trade payables and accruals for employees and other operating cost are classified as
current even if these are due to be settled after more than twelve months from the end of
the reporting period.
3. Applying different accounting treatment to similar event from period to period is a
violation of verifiability.
4. The overall objective of financial reporting is to provide information for making
economic decisions.
5. Once an accounting method is adopted, it should never be changed.
6. All partnerships are subject to tax at the rate of 30% of taxable income except for general
professional partnerships.
7. A secret partner is the one who does not take an active part in the business and is not
known as a partner.
8. Each partner has a capital account and a drawing account. These accounts are used in the
same way as to those in a sole proprietorship.
9. Each partner is personally liable for all the debts of the partnership except for the limited
partners.
10. When the partners invest assets other than cash in a partnership, their capital accounts
should be credited with the current market values of the assets.
11. The basis of valuation for non-cash investments should be at values agreed upon by the
partners.
12. An advantage of partnerships over corporations is the partners’ unlimited liability.
13. A partnership may not be established for charity.
14. It is possible to allocate profit or loss to partners based solely on average capital balances.
15. Interest on loans from partners is recognized as partnership income.
16. Salary and interest allowances are reported in the statement of comprehensive income as
salaries and interest expenses.
17. When ending capital balances are used, additional investments during the year are
discouraged.
18. It is provided by law that a corporation may be formed for the practice of accountancy
profession.
19. Profit or loss may be divided equally between or among the partners as provided for in
their contract.
20. The retirement of a partner by payment of the partnership assets may cause the other
partners’ capital accounts to decrease.
21. The winding up of the partnership and the distribution of remaining assets to the partners
results in the dissolution of a partnership.
22. Tina invested P 100,000 for a 1/3 interest in a partnership in which the other partners
have capital totaling P 260,000 before admitting Tina. After distribution of the bonus the
capital of Tina would be P 120,000.
23. Tolentino invested P 400,000 for a 25% interest in a partnership that has capital totaling P
1,500,000 after admitting Tolentino. As a result, the old partners received P 100,000
bonus.
24. Garacho invested P 100,000 for a one-third interest in a partnership in which the other
partners have capital totaling P 260,000 before admitting Garacho. After distribution of
the bonus, the capital of Garacho would be P 86,670.
25. When a partner withdraws assets greater than his capital balance, the excess is treated as
a bonus to the remaining partners.

College of Business and Entrepreneurship, EVSU, Salazar Street, Tacloban City Telephone No. (053) 321-2726
 Republic of the Philippines
EASTERN VISAYAS STATE UNIVERSITY
COLLEGE OF BUSINESS AND ENTREPRENEURSHIP
TaclobanCity

II. Identification
1. Increases in assets or decreases in liabilities that result in increases in equity, other than those
relating to contributions from equity holders.
2. The ability for the financial statement users to review multiple companies’ financials side by side
with the guarantee that accounting principles have been followed to the set of standards.
3. Each business organization is separate and distinct from its owner or owners.
4. The left side of an account.
5. The written contract of a partnership.
6. Article number in the Civil Code where partnership is defined.
7. There cannot be a partnership without contribution of money, property or industry to a common
fund.
8. The object of the partnership is determinate-its use or fruit, specific undertaking, or the exercise
of a profession or vocation.
9. One who is not actually a partner but who represents himself as one.
10. Estimated amount that a willing seller would receive from a financially capable buyer for the sale
of the asset in a free market.
11. One who manages the affairs of the partnership who is hired by the partners.
12. A business organization organized for profit and whose existence depends on the agreement of
the parties.
13. A type of partner whose contribution is his or her time, expertise or skill.
14. A partnership which as complied with all the legal requirements or its establishment.
15. The ratio in which profits or losses from partnership operations are distributed.
16. The basis of distributing the profit or loss of a partnership when there is no specified ratio,
notwithstanding the presence of industrial partner.
17. The most equitable capital concept of distributing partnership profit based on capital
contributions.
18. A means of transferring capital balance from one partner to another.
19. It is the equity of a partner in the new partnership and is obtained by multiplying the total agreed
capital by the applicable percentage interest of the partner.
20. It is the sum of the capital balances of the old partners and the actual investment of the new
partner.

III. Multiple Choice

1. A partner will not bind the partnership to an outside purchase contract when the
a. item purchased is considered immaterial in amount
b. item purchased is not within the normal scope of the business
c. partner who made the purchase withdraws from the partnership
d. partner was not authorized by the other partners to make the purchase.

2. The partner who can lose only what he has invested in a business is the
a. general partner
b. sole proprietor
c. employee
d. limited partner

3. A partner who contributes his skill or time or industry to the partnership is called
a. Industrial partner
b. Capitalist partner
c. Managing partner
d. Capitalist-industrial partner

4. A 1:3:2 ratio is the same as

a. 10%:30%:20%.
b. 1/10:3/10:2/10.
c. 1/6:1/2:1/3.
d. 20%:50%:30%.
e. None of the above

College of Business and Entrepreneurship, EVSU, Salazar Street, Tacloban City Telephone No. (053) 321-2726
 Republic of the Philippines
EASTERN VISAYAS STATE UNIVERSITY
COLLEGE OF BUSINESS AND ENTREPRENEURSHIP
TaclobanCity

5. The admission of a new partner under the bonus method will result in
a. bonus to the old partners only.
b. bonus to the new partner only.
c. bonus to either the new partner or the old partners, but not both.
d. none of the above.

6. Which of the following distribution s would be made last in dividing profits to the
partners when interest on capital balances and salary allowances are involved?
a. Equally
b. Specified ratio
c. Salary allowance
d. Interest on capital balances.

7. When a partner withdraws from a partnership taking assets that represent less than his
capital balance
a. No bonus results
b. The remaining partners receive bonus
c. The withdrawing partner receives bonus
d. The remaining partners owe the withdrawing partner the difference

8. Partners Lusterio and Advincula receive a salary of P200,000 and P300,000 respectively,
and share profit and losses equally. If the partnership suffered a P150,000 loss in 2019,
by how much would Lusterio account decrease?
a. P400,000
b. P250,000
c. P200,000
d. P100,000
e. None of the above

9. A partner may withdraw or retire from a partnership for various reasons. Which of the
following is least likely the reason why?
a. Disputes with other partners
b. Old age
c. Pursuit for better opportunities
d. Lack of knowledge for the business

10. A partnership agreement least likely will stipulate that assets be revalued when
a. The partnership is liquidated.
b. A partner leaves the partnership.
c. Profits and losses are being distributed.
d. New partner is admitted to the partnership.

IV: Enumeration.
1. What are the line items for current assets? (5)
2. Essential provisions in the articles of partnership (7)
3. Essential requisites in forming a partnership (5)
4. Ingredients for a contract to be valid (3)
5. Rules for the distribution of profits or losses (5)
6. Causes of dissolution (5)

V: Essay. Answer the following items below briefly and concisely. (5 points each)
1. What is the principle of “Delectus Personae”?
2. Differentiate the accounting treatment of interest on partners’ capital from interest on
loans from partners.
3. Ana and Blanca are partners in a catering services operation. Ana purchased tables and
chairs for the operations of the business. Is this purchase binding on Blanca even though
she was not involved in it.? Explain.

College of Business and Entrepreneurship, EVSU, Salazar Street, Tacloban City Telephone No. (053) 321-2726
 Republic of the Philippines
EASTERN VISAYAS STATE UNIVERSITY
COLLEGE OF BUSINESS AND ENTREPRENEURSHIP
TaclobanCity

VI: Problem Solving

A. Journal entries

1. On March 1, 2017 Hanzo and Claude formed a partnership with each contributing the
following:
Hanzo Claude
Cash P 300,000 P 250,000
Accounts Receivable 120,000 80,000
Inventory 820,000 500,000
Building, net 600,000 300,000
Accounts Payable 200,000 150,000

It was agreed to revalue the assets and liabilities of the partners as follows:

a. 3% of Accounts receivable of each partner is estimated to be doubtful of

collection
b. Inventory in the books of Hanzo was valued using the FIFO method while Claude
had used the LIFO method. PAS # 2 recommends to use either the FIFO or the
weighted average cost method. It was agreed that the weighted average method
was to be used. The weighted average cost was three times greater than the FIFO
and 20% less than the LIFO
c. Building had the following assessment:
Hanzo Claude
Local Assessor’s assessment P 520,000 P 310,000
d. Accounts payable from each partner’s books was assumed except for a P 12,000
obligation where Hanzo and Claude used their personal money. Hanzo
shouldered 30% from the 80% of the P 12,000 accounts payable, while Claude
paid the remaining balance.

It was also agreed that the profit or loss shall be divided as follows:

a. Monthly salaries of P 2,000 and 1,500 to Hanzo and Claude respectively.

b. 1% interest each month based on the original capital balance of each partner.
c. 30% bonus based on Net Income after salaries, interest and bonus shall be given
to Hanzo.
d. Any remainder shall be distributed in a 3:2 ratio.

At the end of December 2017, the income amounted to P 350,000.

After two years the capital balances of Hanzo and Claude were:
Hanzo P 2,400,000
Claude 3,000,000

On January 1, 2020 Wanwan joined the partnership by investing P 1,500,000 for a 20% interest
in the profit and loss and partnership’s net assets. Inventory was overstated and was revalued.

Required: Prepare the journal entries to record the

a. Adjusting journal entries upon formation (8 points)

b. Distribution of profit between Hanzo and Claude as December 31, 2017.
(4 points)
c. Admission of Wanwan on Janaury 1, 2020. (4 points)

College of Business and Entrepreneurship, EVSU, Salazar Street, Tacloban City Telephone No. (053) 321-2726
 Republic of the Philippines
EASTERN VISAYAS STATE UNIVERSITY
COLLEGE OF BUSINESS AND ENTREPRENEURSHIP
TaclobanCity

B. Short Problems. Solve each item with solutions. No solution, no credit. (3 points each).

1. The partnership of Fairy Tail Associates began operations on January 1, 2019, with contributions
from two partners as follows:
Natsu P 120,000
Gray 80,000

The following additional transactions took place during the year:

a. In early January Lucy is admitted to the partnership by paying cash amounting to P

60,000 directly to the existing partners for a 20% interest.
b. Net income of P 250,000 was earned in 2019. In addition Natsu received a salary of
P 40,000 for the year. The three partners agree to an income-sharing ratio equal to
their capital balances after admitting Lucy.

Required: Compute the amount of capital balance of each partner for year ended December 31, 2019.

2. Rubio and Bisana established a trading partnership. They share profits equally after allowing
salaries of P40,000 per year for Rubio and interest on partner’s capital at 5% per year. On Jan. 1,
2020, their capital balances are as follows: Rubio, P200,000 and Bisana, P100,000.
On July 1, 2020, Bisana invested an additional P100,000 and Rubio’s salary was discontinued.
The partnership profit for the year ended Dec. 31, 2020 was P337,500.

Required: What was Rubio’s total profit share for the year ended Dec. 31, 2019?

3. Esmeralda and Guinevere formed a partnership and agreed to use the calendar basis of
accounting. They share profits in the ratio of 2:1. On July 1, 2020 they admitted Aurora for 30%
interest in the partnership and profit sharing. The partners agreed to guarantee Aurora to receive
profit share of an amount of not less than P 40,000 from the date of her admission to the end of
the year. The profit sharing of the partners after admission of Aurora was: Esmeralda 50%;
Guinevere 20% and Aurora 30%. The profit of the partnership for the year ended December 31,
2020 was P 250,000 accruing evenly over the year.

Required: What amount of profit will be received by Esmeralda?

4. The partners’ capital (income-sharing ratio in parentheses) of Baldo, Donato, Oland and Bhanc
on March 10, 2020 was as follows:

Baldo (25%) P 120,000

Donato (25%) 300,000
Oland (20) 280,000
Bhanc (30%) 100,000

On this date, the partnership was dissolved and its net assets were transferred to a newly-formed
corporation. The fair value of the assets was P 60,000 more than the carrying value on firm’s books.
Each partner was issued 12,000 shares of the corporation’s P 15 par ordinary share.

Required: Prepare the journal entries in the books of the corporation

5. Partners Chung, Detoya, and Digao share profits and losses in a 3:2:1 ratio, respectively. Detoya
wishes to leave the partnership, so the assets are revaluated and found to be undervalued by
P300,000. If each partner had a capital balance of P500,000 prior to Detoya’s notification
withdrawal, what amount should Detoya be allowed to withdraw from the partnership?

Required: What amount should Detoya be allowed to withdraw from the partnership

6. The partners’ capital (income-sharing ratio in parentheses) of Baldo, Donato, Oland and Bhanc
on March 10, 2020 was as follows:
Baldo (25%) P 120,000
Donato (25%) 300,000
Oland (20) 280,000

College of Business and Entrepreneurship, EVSU, Salazar Street, Tacloban City Telephone No. (053) 321-2726
 Republic of the Philippines
EASTERN VISAYAS STATE UNIVERSITY
COLLEGE OF BUSINESS AND ENTREPRENEURSHIP
TaclobanCity

Bhanc (30%) 100,000

Bhanc withdrew from the partnership. Prior to his withdrawal, the inventory of the partnership was
revalued. As a result of the revaluation, the capital of Baldo was increased by P 20,000.

Required: Compute the amount of cash Bhanc will receive upon his withdrawal, assuming the
partnership paid an amount equal to Bhanc’s capital balance.

7. The partners’ capital (income-sharing ratio in parentheses) of Baldo, Donato, Oland and Bhanc
on March 10, 2020 was as follows:
Baldo (25%) P 120,000
Donato (25%) 300,000
Oland (20) 280,000
Bhanc (30%) 100,000
Kho was admitted to the partnership for a 20% interest. Land was revalued amounting to P 400,000 prior
to the admission of Kho.

Required: Compute the amount of cash to be invested by Kho.

8. The partners’ capital (income-sharing ratio in parentheses) of Baldo, Donato, Oland and Bhanc
on March 10, 2020 was as follows:
Baldo (25%) P 120,000
Donato (25%) 300,000
Oland (20) 280,000
Bhanc (30%) 100,000
Kho joined the partnership by investing 20% in the profit and loss and net assets of the partnership.

Required: Assuming the old partners will retain their profit and loss ratio compute the new P/L of
Donato.

-END-

College of Business and Entrepreneurship, EVSU, Salazar Street, Tacloban City Telephone No. (053) 321-2726