Week 15: Quizzer 1

Total Questions: 25

1.

Effective August 1, 2019, Drei and Greco agreed to form a partnership from their two respective
proprietorships. The balance sheets presented below reflect the financial position of both
proprietorships as of July 31, 2019:
                                                                           Drei                Greco
            Cash                                                  P     24,000          P  60,000
            Accounts Receivable                                144,000             84,000
            Merchandise Inventory                             396,000           504,000
            Prepaid Rent                                                                     48,000
            Store Equipment                                     480,000            360,000
            Accumulated Depreciation                     (180,000)         (216,000)
            Building                                                 1,500,000
            Accumulated Depreciation                     (300,000)
            Land                                                       720,000                     _
                        Totals                                     P2,784,000          P840,000
 
            Accounts Payable                                 P  90,000          P 36,000
            Mortgage Payable                                   720,000
            Alex, Capital                                         1,956,000
            Bob, Capital                                                      _            804,000

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                        Totals                                     P2,784,000          P840,000

As of August 1, 2019, the fair value of Drei’s assets were: merchandise inventory, P324,000; store
equipment, P180,000; building, P3,000,000; and land, P1,200,000. For Greco, the fair value of the assets
on the same date were: merchandise inventory, P540,000; store equipment, P78,000; prepaid rent, P 0.
All other items on the two balance sheets were stated at their fair values. How much capital must be
credited to Drei upon formation of partnership?

a. P4,062,000
b. P3,582,000
c. P726,000
d. P4,788,000

2.

Andrei and Juris formed a partnership on January 2, 2019, and agreed to share income 90%, 10%,
respectively. Andrei contributed a capital of P12,500. Juris contributed no capital but has a specialized
expertise and manages the firm full-time. There were no withdrawals during the year. The
partnership agreement provides for the following:
a.     Capital accounts are to be credited annually with interest at 5% of
     beginning capital.
b.     Juris is to be paid a salary of P500 a month.
c.      Juris  is to receive a bonus of 20% of income calculated before deducting  her bonus, her salary, and interest on both
capital accounts.
d.     Bonus, interest, and Juris’s salary are to be considered partnership expenses.

The partnership’s 2019 income statement follows:

                        Revenues                                                                     P 48,225
                        Expenses (including salary, interest and bonus)             24,850
                        Net income                                                                   P 23,375

How much is the total share of Juris on the 2019 partnership net income?

a. P 15,837.50
b. P14,325
c. P16,194
d. P14,169

3.

Jackie and Jade created a partnership to own and operate a health food store. The partnership
agreement provided that Jackie receive a salary of P10,000 and Jade a salary of P5,000 to recognize
their relative time spent in operating the store. Remaining profits and losses were divided 60:40 to
Jackie and Jade, respectively. Income for 2018, the first year of operations, of P13,000 was allocated
P8,800 to Jackie and P4,200 to Jade.

On January 1, 2019 the partnership agreement was changed to reflect the fact that Jade could no
longer devote any time to the store’s operations. The new agreement allows Jackie a salary of P18,000
and the remaining profits and losses are divided equally. In 2019 an error was discovered such that
the 2018 reported income was understated by P4,000. The partnership income of P25,000 for 2019
included this P4,000 related to 2018.

By what amount should Jackie’s capital change in 2019?

a.
b.
c.
d.
P 19,500
P23,100
P21,900
P21,500
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4.

Fina, Amor, and Emil are partners with capital balances on January 1, 2019 of P600,000, P240,000, and
P120,000, respectively. They agreed to share profits and losses as follows:
a.        Salary allowances of Fina, P96,000; Amor, P120,000, and Emil, P120,000.
b.        6% interest allowed on beginning of the year’s capital balances.
c.        The managing partner, Fina to be entitled to a 20% bonus after allowing as expenses partners’ salaries  interest and
bonus; and
d.        Profits after partners’ salaries, interest, and bonus to be divided equally.

For the year 2019, the partnership reported profit before interest, salaries and bonus of P588,000. For
the year, the partners’ drawings were Fina, P204,000, Amor, P40,000 and Emil, P212,000. Each
partner’s share in the profits after salaries, interest and bonus was

a. P 54,000
b. P 64,800
c. P 196,000
d. P 51,840

5.

Marga, Cassie, and Romina have been partners throughout 2019. Their average balances and their
balances at the end of the year before closing the nominal accounts are as follows:
            Partner                       Average Balances       Balances, 12/31/19
            Marga                                P48,750                          P 35,000
            Cassie                                   3,650                                5,900
            Romina                                  2,125                                   850  (debit balance)

The income for 2019 is P51,750 before charging partners’ salary allowances and before payment of
interest on average balances at the agreed rate of 4% per annum. Annual salary allocations are P6,250
to Marga, P4,375 to Cassie, and P3,125 to Romina. The balance of the profits is to be allocated at the
rate of 60% to Marga, 10% to Cassie, and 30% to Romina.

It is intended to distribute cash to the partners so that, after credits and allocations have been made as
indicated in the preceding paragraph, the balances in the partners’ accounts will be proportionate to
their residual profit-sharing ratios. None of the partners is to invest additional cash, but they wish to
distribute the lowest possible amount of cash.

How much are capital balances of Marga, Cassie and Romina, respectively.

a. P26,211; P4,368.5 and P13,105.50

b. P64,691.50; P14,003 and P13,105.50
c. P55,080; P9,180 and P27,540
d. P55,080; P14,003 and P42,009

6.

Tony, Kit and Ketchup have been partners throughout the year 2019. Their average balances for the

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year and their balances at the end of the year before closing the nominal accounts are as follows:
                                                                                       Balances
                                              Average Balances          Dec. 31, 2019
                        Tony                 (Cr.) P450,000              (Cr.) P300,000
                        Kit                    (Cr.)     15,000              (Dr.)       5,000
                        Ketchup            (Cr.)     35,000              (Cr.)     50,000

The profit for 2019 is P375,000 before charging partners’ drawing allowances and before interest on average balances at the agreed
rate of 4% per annum. Tony is entitled to a
drawing account credit of P50,000, Kit of P35,000, and Sandino of P25,000 per annum. The balance of the profit is to be distributed
at the rate of 60% to Tony, 30% to Kit, and 10%
to Ketchup.

The partners agreed that, after credits and distribution as indicated in the preceding paragraph, it is intended to adjust the capital
accounts of partners by investing the highest
amount of cash, so that, the balances in the partners’ accounts will be proportionate to their profit-sharing ratios. None of the
partners will withdrew cash from the partnership.

What amount of investment must be made by each partners.

a. Tony, none; Kit, P289,000 and Ketchup, none

b. Tony, P90,400, Kit, P198,600; Ketchup, none
c. Tony, none; Kit, P148,400 and Ketchup, none
d. Tony, none; Kit, P149,400 and Ketchup, (P15,066.50)

7. JR, Marvin, and Alfredo are partners sharing profits in the ratio of 3:2;1, respectively. Capital
accounts are P250,000, P150,000 and P100,000 on December 31, 2019, when Alfredo decides to
withdraw. It is agreed to pay P150,000 for Alfredo’s interest. Profits after the withdrawal of Alfredo are
to be shared equally. What entry is required to record the withdrawal of Alfredo under the bonus
method?
 Alfredo, Capital 100,000

a.      Cash                           100,000

Alfredo, Capital 100,000

     JR, Capital                     25,000

     Marvin, Capital               25,000

b.      Cash                             150,000

Alfredo, Capital 100,000

     Goodwill                          50,000

c.      Cash                              150,000

Alfredo, Capital 100,000

     JR, Capital                       30,000

     Marvin, Capital                 20,000

8.
d.      Cash                               150,000

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JR, Marvin, and Alfredo are partners sharing profits in the ratio of 3:2;1, respectively. Capital accounts
are P250,000, P150,000 and P100,000 on December 31, 2019, when Alfredo decides to withdraw. It is
agreed to pay P150,000 for Alfredo’s interest. Profits after the withdrawal of Alfredo are to be shared
equally. What entry is required to record the withdrawal of Alfredo under the bonus method?

What entry is required to record the withdrawal of Alfredo under the goodwill method?

Alfredo, Capital 100,000

Goodwill              50,000

a.       Cash                          150,000

Alfredo, Capital 100,000

Goodwill            300,000

     JR, Capital                    125,000

     Marvin, Capital             125,000

b.      Cash                             150,000
 Alfredo, Capital 100,000

Goodwill              50,000

Cash                  150,000

R, Capital           150,000

c. S, Capital           100,000

Alfredo, Capital 100,000

     JR, Capital                    30,000

     Marvin, Capital              20,000

d.      Cash                            150,000

9.

The trial balance of Joaquin, Malou, and Mylene, on December 31, 2019, is as follows:
                  Cash                                                                      P   27,495
                   Other assets                                                                12,500
                   Receivable from Joaquin                                               1,250

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                   Merchandise inventory, January 1, 2019                       5,250
                   Purchases                                                                   16,750
                   Expenses                                                                      6,755
                   6% Note payable to Joaquin, dated June 1, 2019                          P     3,000
                   Sales                                                                                                    33,000
                   7Rental payable                                                                                        550
                   Joaquin, capital                                                                                     11,610
                   Malou, capital                                                                                       13,390
                   Mylene, capital                                                                                       8,450
                                                                                                   P   70,000        P  70,000

Merchandise inventory on December 31, 2019, amounts to P4,550; accrued interest on the note
payable to Joaquin is to be recognized as of December 31. Nominal accounts are closed and P15,750 is
paid for Joaquin’s net interest in the firm (capital, receivable, and payable balances). A few days later,
Malou accepts a personal check for P16,000 from Mylene to quit the business and allow Mylene to
continue operations as a sole proprietor. The partners share profit and losses equally. Compute the
ending capital balance of Mylene immediately after Malou’s withdrawal?

a. P 12,690
b. P 12,795
c. P 28,245
d. P12,397.50

10.

The following balances as of the end of 2019 for the partnership of P, Q, and R, together with their
respective profit and loss percentages, were as follows:
            Assets                          P180,000          P, loan                          P    9,000
                                                                        P, capital (20%)                  42,000
                                                                        Q, capital (20%)                  39,000
                                                                         R, capital (60%)                 90,000
                                                P360,000                                              P  180,000

P decided to retire from the partnership. Parties agreed to adjust the assets to their fair market value
of P216,000 as of December 31, 2019. P will be paid P61,200 for P’s partnership interest inclusive of P
loan which is to be repaid in full. No goodwill is to be recorded. After P’s retirement. 

What will be the balance of Q’s capital account?

a. P39,000
b. P36,450
c. P46,200
d. P45,450

11.

The partners in the Gaylord, Lucio, and Santino partnership have capital balances as follows:
                        Gaylord, capital        P17,500;      
                        Lucio, capital            P17,500;      
                        Santino, capital        P20,000

Profits and losses are shared 30%, 30%, and 40%, respectively. On this date, Santino withdraws and the
partners agree to pay him P22,500 out of partnership cash. (Tangible assets are already stated at
values approximating their fair market values.)

Using bonus method, how much must be the ending capital of Gaylord immediately after Santino’s

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withdrawal?

a. P17,500
b. P16,250
c. P16,750
d. P19,375

12.

The partners in the Gaylord, Lucio, and Santino partnership have capital balances as follows:
                        Gaylord, capital        P17,500;      
                        Lucio, capital            P17,500;      
                        Santino, capital        P20,000

Profits and losses are shared 30%, 30%, and 40%, respectively. On this date, Santino withdraws and the
partners agree to pay him P22,500 out of partnership cash. (Tangible assets are already stated at
values approximating their fair market values.)

Using the partial goodwill method, how much must be the ending capital of Gaylord immediately after
Santino’s withdrawal?

a. P17,500
b. P16,250
c. P16,250
d. P19,375

13.
The partners in the Gaylord, Lucio, and Santino partnership have capital balances as follows:
                        Gaylord, capital        P17,500;      
                        Lucio, capital            P17,500;      
                        Santino, capital        P20,000

Profits and losses are shared 30%, 30%, and 40%, respectively. On this date, Santino withdraws and the
partners agree to pay him P22,500 out of partnership cash. (Tangible assets are already stated at
values approximating their fair market values.)

Using the full goodwill method, how much must be the ending capital of Gaylord immediately after
Santino’s withdrawal?

a. P17,500
b. P16,250
c. P16,750
d. P19,375

14.

The condensed balance sheet and profit and loss ratios of the partnership of Paul, Luke, and John are
as follows:
Cash                            P 112,500         Liabilities                         P     262,500
             Rec. from Paul                  37,500         Payable to Jean                       50,000
             Other assets                 1,025,000         Paul, capital (40%)                375,000

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                                                                           Luke, capital (30%)                250,000
                                                                           John, capital (30%)                237,500

Partners agree to liquidate and all non- cash assets were sold for P750,000.

How much of the available cash will go to Paul?

a. P375,000
b. P227,500
c. P265,000
d. P212,500

15.

Samuel, David, and Gideon are partners sharing profits equally. The partnership and also certain
partners are insolvent and the partnership is liquidated. Upon distribution of the partnership loss
from liquidation, a statement is drawn up summarizing the status of each partner as follows:
                                    Personal Status                                      Firm Status
                        (Exclusive of Firm Interest)                        Interest              Amount Owed      
                  Partner                    Assets               Liabilities        in Firm         to Firm
                  Samuel                   P30,000            P 10,000           P 5,000
                  David                        5,000                10,000                            P    5,000
                  Gideon                    15,000                10,000                                15,000

Against whom can firm creditors proceed for the recovery of their unpaid claims?

a. Against Samuel for P15,000.

b. Against Samuel for P10,000
c. Against Gideon for P5,000
 d. Against Gideon for P5,000, Samuel, P10,000

16.

DREW Construction Company began operations in 2019. Construction activity for the first year is
shown below. All contracts are with different customers, and any work remaining at December 31,
2019, is expected to be completed in 2020.
                                                Cash                                       Contract          Estimated
                           Total              Billings            Collections   Costs Incurred   Additional
                           Contract       through           through          through          Costs to
Project          Price             12/31/2019       12/31/2019       12/31/2019       Complete
 
1                P   280,000       P   180,000       P170,000          P225,000          P   70,000
2                     335,000            110,000         105,000              63,000             252,000
3                     250,000            250,000         220,000             165,000                     -0-   
                        P   865,000       P    540,000      P 495,000         P 453,000         P322,000

Determine the income from construction to be reported in the income statement for the year 2019.

a. P45,000
b. P30,000
c. P43,000
d. P74,000

17.

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Crown Construction Company started a project with a contract price of P40 million. The cost incurred
to date is P6 million and the estimated cost to complete is still P24 million.

Under the cost to cost basis, how much is the income from construction?

a. P2 million
b. P4 million
c. P5 million
d. P8 million

18.

The Jackson Construction had two projects for which it reported the following as of the end of 2019.
                                                            Quezon City     Mandaluyong
            Contract Price                           P 2,400,000      P  480,000
            2018: Costs incurred                    1,750,000           -
                     Percent completed                       75%            -
2019: Costs incurred                       620,000           70,000
            Percent completed                             100%                  15%

The company used the percentage of completion method of accounting revenue.

How much is income from construction for 2019?

a. P25,500 loss
b. P20,000 loss
c. P18,000 loss
d. P50,000 income
19.

On July 1, 2015, DIAZ Construction Company Inc. contracted to build an office building for RH
Corporation for a total contract price of P9.75 million. On July 1, Mean estimated that it would take
between 2 to 3 years to complete the building. On December 31, 2019, the building was deemed
substantially completed. Following are accumulated contract costs incurred, total estimated costs, and
accumulated billings to RH for 2015, 2018, and 2019.
                                                            At 12/31/2015               At 12/31/2018   At 12/31/2019
Contract costs incurred to date   P    750,000                  P  6,000,000     P 10,500,000
Total estimated costs                    7,500,000                  10,000,000              -0-
Billings to RH                                1,500,000                   5,500,000           9,250,000

Using the percentage of completion method, determine the correct income (loss) from construction to
be presented in the income statement of the company for the years 2015, 2018, and 2019, respectively.

a. P225,000; (P250,000); (P500,000)

b. P225,000; (P225,000); (P750,000)
c. P225,000; (P475,000); (P500,000)
d. P225,000; P250,000; (P750,000)

20. On December 31, 2018, Pancake House authorized Claudine to operate as a franchisee for an initial
franchise fee of P15,000. Of this amount, P6,000 was received upon signing the agreement and the
balance represented by a note due in three annual payments of P3,000 each beginning December 31,
2019. The present value on December 31, 2018, for three annual payment appropriately discounted is
P7,200. According to the agreement, the non- refundable down payment represents a fair measure of

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the services already performed by Intel and substantial future services are still to be rendered.
However, the collectibility of the note is not reasonably assured. Intel’s December 31, 2018, balance
sheet unearned franchise fee from Claudine’s franchise should report as:

a. P 13,200
b. P 10,000
c. zero
d. P 7,200

21.

On December 31, 2018, Burger King signed an agreement authorizing JL Company to operate as a
franchise for an initial franchise fee of P500,000. Of this amount, P200,000 was received upon signing
of the agreement and the balance is due in three annual payment of P100,000 each, beginning
December 31, 2019.
No future services are required to be performed. Burge Company’s credit rating is
such that collection of the note is reasonably assured. The present value at December 31, 2018 of the
three annual payments discounted at 14% (the implicit rate for a loan of this type) is P232,200.

On December 31, 2019, Burger King should record earned franchise fees of:

a. P232,200
b. P432,200
c. P300,000
d. zero

22. Mel’s Pizza Hot, Inc. grants a franchise to Mr. Dog for an initial franchise fee of P10,000,000. The
agreement provides that Mel’s Pizza Hot, Inc. has the option within the one year to acquire
franchisee’s business and its seems certain that Pizza Hot, Inc. will exercise the option. On Pizza Hot,
Inc. books, how should the initial franchise fee be recognized?

a. Deferred revenue and to be amortized.

b. Realized revenue.
c. Extraordinary revenue.
Deferred revenue and treated as a reduction from Pizza’s investment when the option is
d. exercise.

23. The franchise agreement between Minute’s Burger and Ms. Beauty which was signed at the
beginning of the year required a P5,000,000 franchise fee payable P1,000,000 upon signing of the
franchise and the balance in four annual installments starting the end of the current year. At the time
of the granting of the franchise, the present value using 12% as discount rate of the four installments
would approximate P1,996,500. The fees once paid are not refundable. The franchise may be cancelled
subject to the provisions of the agreement. Should there be unpaid franchise fee attributed to the
balance of main fee (P5,000,000), same would become due and demandable upon cancellation.
Further, the franchisor is entitled to a 5% fee on gross sale payable monthly within the first ten days of
the following month. The Credit Investigation Bureau rated Ms. Beauty as AA credit rating. Further the
balance of the franchise fee was guaranteed by a commercial bank. The first year of operations
yielded gross sales of P90 million. As of the signing of the franchise agreement, Minute’s Burger
unearned franchise fee amounted to

a. P6,496,500
b. P4,000,000
c. P1,996,500

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d. zero

24. Imperial Inc. awarded its franchise to Asahi Co. in Tagum for a total fee of P1,000,000. Of said
amount, P500,000 was payable upon the signing of the franchise agreement and the balance, payable
in two annual payments of P250,000 each. Imperial had been very successful in Metro Davao with 100
franchisees but Tagum was the first outside Metro Davao. Imperial agreement with Asahi provided
that in the event the first year of operations would result to an operating loss, the franchising
agreement may be cancelled without need of returning any portion of paid franchise fee and there
would be no need to pay any balance of the unpaid franchise fee. The entry to record the granting of
the franchise to Asahi was

Cash                                       P500,000

Notes receivable                       500,000

a.      Unearned franchise fee                         P1,000,000

Cash                                           500,000

Notes receivable                         500,000

     Revenue from franchise fee                       500,000

b.      Unearned franchise fee                              500,000

c. No entry
 Cash                                            500,000

Notes receivable                          500,000

d.      Revenue from franchise fee                   1,000,000

25.

At the beginning of the year, Frenz Haus got the franchise of KFCC, a known steak house of upscale
patronage. The franchise agreement required a P5,000,000 franchise fee payable P1,000,000 upon
signing of the franchise and the balance in four annual installments starting the end of the current
year. At present value using 12% as discount rate, the four installments would approximate
P3,037,350. The fees once paid are not refundable. The franchise may be canceled subject to the
provisions of the agreement. Should there be unpaid franchise fee attributed to the balance of main
fee (P5,000,000), the same would become due and demandable upon cancellation. Further, the
franchiser is entitled to a 5% fee on gross sales payable monthly within the first ten days of the
following month. The Credit Investigation Bureau rated Frenz as 1 + credit rating. The balance of the
franchise fee was guaranteed by a commercial bank. The first year of operations yielded gross sales of
P90 million.

KFCC’s earned franchise fees from Frenz for the first year of operation, amounted:

a. P9,500,000
b. P8,537,350

MNL-21-1238
c. P5,000,000
d. P4,037,350