AFAR: Learning Assessment 2 UL Refresher Course in Accountancy

UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
CPA REVIEW CENTER

AFAR – Learning Assessment 2

PARTNERSHIP ACCOUNTING

Use the G-form as your answer sheet.

1. Bill and Ken enter into the partnership agreement in which Bill is to have a 60% interest in capital and profits
and Ken is to have 40% interest in capital and profits:
Cost Fair value
Land P 10,000 P20,000
Building 100,000 60,000
Equipment 20,000 15,000

There is a P30,000 mortgage on the building that the partnership agrees to assume. Ken contributes P50,000
cash to the partnership. Bill and Ken agree that Ken’s capital account should equal Ken’s P50,000 cash
contribution and that goodwill should be recorded in the amount of:
a. P10,000 b. P15,000 c. P16,667 d. P20,000

2. Ice and Berg form a new partnership. Ice invests P300,000 in cash for his 60 percent interest in capital and
profits of the business. Berg contributes land that has an original cost of P40,000 and a fair market value of
P70,000, and a building that has a tax basis of P50,000 and a fair market value of P90,000,. The building is subject
to a P40,000 mortgage that the partnership will assume. What amount of cash should Berg contribute?
a. P40,000 b. P80,000 c. P110,000 d. P150,000

3. On May 1, 2022, Tom and Jerry formed a partnership and agreed to share profits and losses in the ratio of 3:7
respectively. Tom contributed a computer that cost him P50,000. Jerry contributed P200,000 cash. The
computer was sold for P55,000 on May 1, 2022, immediately after the formation of the partnership. If the
partnership is liquidated immediately after formation, what amount of inequity would result from recording the
computer at P50,000?
a. P1,500 b. P3,500 c. P5,000 d. P50,000

4. The partnership agreement of Jones, King, and Lane provides for annual distribution of profit or loss in the
following order of priority:
1) Jones, the managing partner, receives a bonus of 20% of profits.
2) Each partner receives 15% interest on average capital investment.
3) Residual profit or loss is divided equally.
The average capital investments for 2022 were:
Jones P100,000
King 200,000
Lane 300,000
How much of the P90,000 partnership profit for 2022 should be allocated to Jones?
a. P15,000 b. P27,000 c. P30,000 d. P33,000

5. Partners A and B have a profit and loss agreement with the following provisions: salaries of P20,000 and P25,000
for A and B, respectively; a bonus to A of 10% of net income after bonus; and interest of 20% on average capital
balances of P40,000 and P50,000 for A and B, respectively. Any remainder is split equally. If the partnership had
net income of P88,000, how much should be allocated to Partner A?
a. P36,000 b. P44,500 c. P50,000 d. P43,500

6. Partners A and B have a profit and loss agreement with the following provisions: salaries of P30,000 and P45,000
for A and B, respectively; a bonus to A of 12% of net income after salaries and bonus; and interest of 10% on
average capital balances of P50,000 and P65,000 for A and B, respectively. One-fourth of any remaining profits
are allocated to A and the balance to B. If the partnership had net income of P108,600, how much should be
allocated to Partner A?
a. P43,225 b. P43,816 c. P47,850 d. P65,375

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AFAR: Learning Assessment 2 UL Refresher Course in Accountancy

7. Partners A and B have a profit and loss agreement with the following provisions: salaries of P40,000 and P45,000
for A and B, respectively; a bonus to A of 10% of net income after salaries and bonus; and interest of 15% on
average capital balances of P40,000 and P60,000 for A and B, respectively. One-third of any remaining profits or
losses are allocated to B and the balance to A. If the partnership had net income of P52,000, how much should be
allocated to Partner A?
a. P14,000 b. P30,000 c. P38,000 d. P40,000

8. Partners Acker, Becker & Checker have the following profit and loss agreement:
1) Acker & Becker receive salaries of P40,000 each
2) Checker gets a bonus of 10 percent of net income after salaries and bonus (the bonus is zero if salaries
exhaust net income)
3) Remaining profits are shared by Acker, Becker & Checker in the following ratios respectively: 3:4:3.
The partnership had a net income of P91,000. How much should be allocated to Checker?
a. P3,300 b. P10,300 c. P1,000 d. P4,000

9. The partnership agreement of Reid and Simm provides that interest at 10% per year is to be credited to each
partner on the basis of weighted-average capital balances. A summary of Simm’s capital account for the year
ended December 31, 2014, is as follows:

Balance, January 1 P140,000

Additional investment, July 1 40,000
Withdrawal, August 1 (15,000)
Balance, December 31 165,000

What amount of interest should be credited to Simm’s capital account for 2014?
a. P15,250 b. P15,375 c. P16,500 d. P17,250

10. Partners A and B have a profit and loss agreement with the following provisions: salaries of P41,600 and P38,400
for A and B, respectively; a bonus to A of 10% of net income after salaries and bonus; and interest of 10% on
average capital balances of P20,000 and P35,000 for A and B, respectively. One-third of any remaining profits
are allocated to A and the balance to B. If the partnership had a net income of P36,000, how much should be
allocated to Partner A, assuming that the provisions of the profit and loss agreement are ranked by order of
priority starting with salaries?
a. P12,000 b. P18,000 c. P18,720 d. P41,600

11. Lucy, Vince, and Mince are partners with capital balances, as of December 31, 2021, of P300,000, P300,000 and
P200,000 respectively, and who share profits and losses equally. Mince wishes to withdraw, and it is agreed that
she is to take certain furniture items, with a second-hand value of P50,000, and a note for the balance of her
interest. The furniture items are carried in the books at P65,000; brand new, however, they would cost P80,000.
The value of the note that Mince would get is:
a. P120,000. b. P135,000. c. P145,000. d. P150,000.

12. The December 31, 2021 balance sheet of the Bennett, Carter and Davis partnership is summarized as follows:
Cash P100,000 Carter loan P100,000
Other assets at cost 500,000 Bennett, capital 100,000
Carter, capital 200,000
_______ Davis capital 200,000
P600,000 P600,000

The partners share profit and losses as follows; Bennett, 20% Carter, 30%; and Davis, 50%. Carter is retiring
from the partnership and the partners have agreed that “other assets” should be adjusted to fair value of
P600,000 at December 31, 2021. They further agree that Carter will receive P244,000 for his partnership interest
exclusive of his loan, which is to be paid in full, and that no goodwill implied by Carter’s payment will be recorded.
After Carter’s retirement, the capital balances of Bennett and Davis, respectively will be:
a. P116,000 and P240,000. c. P100,000 and P200,000.
b. P101,714 and P254,286. d. P73,143 and P182,857.

13. Panny buys Queeny's partnership interest in the Q-R-S partnership. Queeny thus retires, leaving Rianne and
Susien as Panny's co-partners. Prior to Panny entering the partnership, Queeny, Rianne, and Susien split profits
and losses equally. Panny pays P75,000 for Queeny's capital which, at that time, totaled P60,000. No revaluation
of partnership assets or liabilities occurs. In recording this event on the partnership books
a. Goodwill is booked based on the book value/fair value difference.

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AFAR: Learning Assessment 2 UL Refresher Course in Accountancy

b. P7,500 bonuses are added to Rianne and Susien capital.

c. P5,000 bonuses are added to Queeny, Rianne, and Susien capital.
d. Panny capital is created in the amount of P60,000.

14. Shiny purchased an interest in the Tanny and Olive partnership by paying Tanny P10,000 half of his capital and
half of his 50% profit sharing interest. At that time, Tanny’s capital balance was P30,000 and Olive’s capital
balance was P70,000. Shiny should receive a credit to her capital account of:
a. P15,000 b. P20,000 c. P25,000 d. P33,333

15. Andy and Benny are partners who share profits and losses in the ratio of 3:2, respectively. On August 31, 2021,
their capital accounts were as follows:
Andy P 70,000
Benny 60,000
P130,000
On that date, they agreed to admit Candy as a partner with a one-third interest in the capital and profits and
losses, for an investment of P50,000. The new partnership will begin with a total capital of P180,000. The
partners’ capital balances immediately after Candy’s admission are:
Andy Benny Candy
a. P60,000 P60,000 P60,000
b. P63,333 P56,667 P60,000
c. P64,000 P56,000 P60,000
d. P70,000 P60,000 P50,000

16. At December 31, 2021, Reen and Quinn are partners with capital balances of P40,000 and P20,000, and they
share profits and losses in the ratio of 2:1, respectively. On this date, Poe is admitted into the partnership. Poe
invests P17,000 cash for a one-fifth interest in the capital and profit of the new partnership. Assume that
goodwill is not to be recorded. The credit to be made to Poe’s capital account at December 31, 2021 is:
a. P12,000 b. P15,000 c. P15,400 d. P17,000

17. Cherry is admitted to the Adam & Bean Partnership under the bonus method. Cherry contributes cash of P20,000
and non-cash assets with a market value of P30,000 and book value of P15,000 in exchange for a 20% ownership
interest in the new partnership. Prior to the admission of Cherry, the capital of the existing partnership was
P130,000 and an appraisal showed the partnership net assets were fairly stated. Adam & Bean shared profits
and losses at a ratio of 80/20, respectively.
Which of the following bonus amounts would be recorded?
a. P14,000 to Cherry capital c. P2,800 decrease to Bean capital
b. P2,800 increase to Bean capital d. P7,000 increase to Adam capital

18. The following condensed balance sheet is presented for the partnership of AJ, BJ, and CJ, who share profits and
losses in the ratio 6:3:1, respectively:
Cash P 10,000
Other assets 290,000
Total Assets P300,000

Liabilities P130,000
Note payable to AJ 15,000
Note payable to BJ 5,000
AJ, Capital 43,000
BJ, Capital 43,000
CJ, Capital 64,000
Total Liabilities and Equity P300,000
BJ paid P30,000 to creditors out of her own personal funds—this has not been reflected in the above balance
sheet. AJ is personally solvent but temporarily not liquid. The partners decided to liquidate the partnership.
The first sale of noncash assets having a book value of P140,000 realized P120,000. How should the available
cash be distributed?
a. AJ, P –0–; BJ, P –0–; CJ, P –0–.
b. AJ, P10,000; BJ, P10,000; CJ, P10,000.
c. AJ, P –0–; BJ, P –0–; CJ, P30,000.
d. AJ, P21,000; BJ, P8,000; CJ, P1,000.
e. AJ, P18,333; BJ, P8,333; CJ, P3,334.

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AFAR: Learning Assessment 2 UL Refresher Course in Accountancy

19. The following condensed balance sheet is presented for the partnership of Smith and Jones, who share profits
and losses in the ratio of 60:40, respectively:
Other assets P 450,000
Smith, loan 20,000
P 470,000

Accounts payable P 120,000

Smith, capital 195,000
Jones, capital 155,000
P 470,000

The partners have decided to liquidate the partnership. If the other assets are sold for P385,000, what amount
of the available cash should be distributed to Smith?
a. P 136,000 b. P 156,000 c. P 159,000 d. P 195,000

20. If Sallie and Callie have equities of P75,000 and P60,000 respectively and share profits and losses in the ratio 6:4,
their respective loss-absorption potentials are:
a. P105,000 and P125,000 c. P450,000 and P240,000
b. P125,000 and P150,000 d. P81,000 and P54,000

21. After all non-cash assets have been converted into cash in the liquidation of the Mickey and Dickey Partnership,
the ledger contains the following account balances:
Debit Credit
Cash P34,000
Accounts payable P25, 000
Loan payable to Mickey 9,000
Mickey, capital 8,000
Dickey, capital 8,000
Available cash should be distributed: P25, 000 to accounts payable and
a. P9,000 for loan payable to Mickey. c. P1,000 to Mickey and P8,000 to Dickey.
b. P4,500 each to Mickey and Dickey. d. P8,000 to Mickey and P1,000 to Dickey.

22. The partnership of Bryan, Angelo and Frank is liquidating and the ledger shows the following:
Cash P 80,000
Inventories 100,000
Accounts payable 60,000
Bryan, capital (50%) 40,000
Angelo, capital (25%) 45,000
Frank, capital (25%) 35,000

If all available cash is distributed immediately:

a. Bryan, Angelo, and Frank should get P26,667 each.
b. Bryan, Angelo, and Frank should get P6,667 each.
c. Bryan should get P10,000, and Angelo and Frank should get P5,000 each.
d. Bryan should get P15,000, and Frank P5,000.

23. The following balance sheet summary, together with residual profit sharing ratios, was developed on April 1,
2014 when Dina, Farah, and Henah Partnership began its liquidation:
Cash P140,000 Liabilities P 60,000
Accounts receivable 60,000 Loan from Farah 20,000
Inventories 85,000 Dina, capital (20%) 75,000
Plant assets-net 200,000 Farah, capital (40%) 200,000
Loan to Dina 25,000 Henah, capital (40%) 155,000
P510,000 P510,000

If available cash except for a P5,000 contingency fund is distributed immediately, Dina, Farah, and Henah,
respectively, should receive:
a. P0, P80,000, and P15,000. c. P0, P70,000, and P5,000.
b. P16,000, P32,000, and P32,000. d. P0, P72,500,and P7,500.

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AFAR: Learning Assessment 2 UL Refresher Course in Accountancy

24. Anny, Benny, and Kenny are in the process of liquidating their partnership. Kenny has agreed to accept the
inventories as part of her settlement. The inventories have a fair value of P60,000 and a book value of P80,000.
Account balances and profit and loss sharing ratios are summarized as follows:
Cash P198,000 Accounts Payable P149,000
Inventories 80,000 Anny, capital (40%) 79,000
Plant Assets 230,000 Benny, capital (40%) 140,000
_______ Kenny, capital (20%) 140,000
Total Assets P508,000 Total Equities P508,000

If the partners agree to distribute the available cash:

a. Kenny will receive P 23,000 of the cash distribution.
b. Benny will receive P40,667 of the cash distribution.
c. Immediately after the distribution of cash and inventory items, Kenny’s capital account balance will be
P59,000.
d. Immediately after the distribution of cash and inventory items, Kenny’s capital account balance will be
P30,000.

25. When Mandy and Moore, partners who share earnings equally, were incapacitated in an airplane accident, a
liquidator was appointed to wind up their business. The accounts showed cash, P35,000; other assets, P110,000;
liabilities, P20,000, Mandy, capital, P71,000; Moore, capital P54,000. Because of highly specialized nature of the
non-cash assets, the liquidator anticipated that considerable time would be required to dispose them. The
expenses of liquidating the business are estimated at 10,000. How much cash can be distributed safely to each
partner at this point?
a. P5,000 to Mandy and 0 to Moore. c. P3,000 to Mandy and 0 to Moore.
b. P5,000 to Mandy and P500 to Moore. d. P5,000 to Mandy and P1,000 to Moore.

END OF EXAMINATION.