MULTIPLE CHOICE QUESTIONS

1. Which of the following is not a characteristic of most partnership?

a. Limited liabilityc. Mutual agency
b. Limited life d. Ease of formation

2. Which of the following is not a characteristic of the proprietary theory that influences accounting
for partnerships?
a. Partners' salaries are viewed as a distribution of income rather than a component of net income.
b. A partnership is not viewed as separate entity, distinct, taxable entity.
c. A partnership is characterized by limited liability,
d. Changes in the ownership structure of a partnership result in the dissolution of the partnership.

3. Which of the following statements is correct with respect to a limited partnership?

a. A limited partner may not be an unsecured creditor of the limited partnership.
b. A general partner may not also be limited partner at the same time.
c. A general partner may be a secured creditor of the limited partnership.
d. A limited partnership can be formed with limited liability for all partners.

4. An advantage of the partnership as a form of business organization would be

a. Partners do not pay income taxes on their share in. partnership income.
b. A partnership is bound by the act of the partners.
c. A partnership is created by mere agreements of the partners.
d. A partnership may be terminated by the death or withdrawal of a partner.

5. When property other than cash is invested in a partnership, at what amount should the noncash
property be credited to the contributing partner's capital account?
a. Fair value at the date of contribution.
b. Contributing partner's original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner's tax basis.

6. Partnership capital and drawings accounts are similar to the corporate

a. Paid in capital, retained earnings, and dividends accounts.
b. Retained earnings account.
c. Paid in capital and retained earnings accounts.
d. Preferred and common stock accounts.

7. On April 30, 2010, Al, Ben, and Ces formed a partnership by combining their separate business
proprietorships. Al contributed cash of P50,000. Ben contributed property with a P36,000 carrying
amount, a P40,000 original cost, and P80,000 fair value. The partnership accepted responsibility for the
P35,000 mortgage attached to the property. Ces contributed equipment with a P30,000 carrying amount, a
P75,000 original cost, and P55,000 fair value. The partnership agreement specifies that profits and losses
are to be shared equally but is silent regarding capital contributions.

Which partner has the largest capital account balance at April 30, 2010?
a. Ai c. Ces
b. Ben d. All capital balances are equal

8. On January 1, 2010, Atta and Boy agreed to form a partnership contributing their respective
assets and equities subject to adjustments. On that date, the following were provided;
 Atta Boy
Cash P 28,000 P 62,000
Accounts receivable 200,000600,000
Inventories 120,000200,000
Land 600,000
Building 500,000
Furniture & fixtures 50,000 35,000
Intangible assets 2,000 3,000
Accounts payable 180,000250,000
Other liabilities 200,000350,000
Capital 620,000800,000
The following adjustments were agreed upon:
a. Accounts receivable of P20.000 and P40,000 are uncollectible in A's and B's respective books.
b. Inventories of P6,000 and P7,000 are worthless in A's and B's respective books.
c. Intangible assets are to be written off in both books.

What will be the capital balances of the partners after adjustments?

Atta Boy
a. 592,000750,000
b. 600,000700,000
c. 592,000756,300
d. 600,000750,000

9. Mary admits Jane as a partner in the business. Balance sheet accounts of Mary just before the
admission of Jane show: Cash, P26,000, Accounts receivable, PI20,000, Merchandise inventory,
P180,000, and Accounts payable, P62,000. It' was agreed that for purposes of establishing Mary's interest,
the following adjustments be made: 1.) an allowance for doubtful accounts of 3% of accounts receivable
is to be established; 2.) merchandise inventory is to be adjusted upward by P25,000; and 3.) prepaid
expenses of P3,600 and accrued liabilities of P4,000 are to be recognized. If Jane is to invest sufficient
cash to obtain 2/5 interest in the partnership, how much would Jane contribute to the new partnership?
a. 176,000c. 95,000
b. 190,000d. 113,980

10. Roberts and Smith drafted a partnership agreement that lists the following assets contributed at
the partnership's formation:

Contributed by
Roberts Smith
Cash P20,000 P 30,000
Inventory 15,000
Building 40,000
Furniture & equipment 15,000

The building is subject to a mortgage of P10,000, 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
11. On May 1, 2010, Cobb and Mott formed a partnership and agreed to share profits and losses in
the ratio of 3:7, respectively. Cobb contributed a parcel of land that cost him PI0,000. Mott contributed
P40,000 cash. The land was sold for PI8,000 on May 1, 2010, immediately after formation of the
partnership. What amount should be recorded in Cobb's capital account on formation of the partnership?
a. 18,000 c. 15,000
b. 17,400 d. 10,000

12. The Grey and Redd Partnership was formed on January 2, 2010, 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 P3
0,000 with a fair value of P60,000 on January 2, 2010, and Redd contributed P20,000 cash. Drawings by
the partners during 2010 totaled P3,000 by Grey and P9,000 by Redd. The partnership net income in 2010
was P25,000.
a. Under the goodwill method, what is Redd's initial capital balance in the
partnership?
a. 20,000 c. 40,000
b. 25,000 d. 60,000

b. Under the bonus method, what is the amount of bonus?

a. 20,000 bonus to Grey c. 40,000 bonus to Grey
b. 20,000 bonus to Redd d. 40,000 bonus to Redd

13. Abel and Carr formed a partnership and agreed to divide initial capital equally, even though Abel
contributed PI00,000 and Carr contributed P84,000 in identifiable assets. Under the bonus approach to
adjust the capital accounts, Carr's unidentifiable asset should be debited for
a. 46,000 c. 8,000
b. 16,000 d. 0

14. On April 30, 2010, Alex, Benjie, and Cesar formed a partnership by combining their separate
business proprietorships. Alex contributed cash of P500,000. Benjie contributed property with a P360,000
carrying amount, a P400,000 original cost, and P800,000 fair market value. The partnership accepted
responsibility for the P3 50,000 mortgage attached to the property. Cesar contributed equipment with a
P300,000 carrying amount, a P750,000 original cost, and P5 50,000 fair value. The partnership agreement
specifies that profits and losses are to be shared equally but is silent regarding capital contributions. What
are the capital balances of the partners at April 30, 2010?
Alex Benjie Cesar
a. 500,000800,000550,000
b. 500,000450,000550,000
c. 500,000360,000300,000
d. 500,000400,000750,000

15. On January 2, 2010, Abel, Cain, and Josuah formed a partnership. Abel contributed cash of
PI00,000 and a delivery equipment that originally costs him PI20,000, but with a second hand value of
P50,000. Cain contributed PI60,000 in cash. Josuah, whose family sells office equipment, contributed
P50,000 in cash and office equipment that cost his family's dealership PI00,000 but with a regular selling
price of PI20,000. In 2010, the partnership reported net income of P 120,000.
On December 31, 2010, what would be the capital balance of the partners?
Abel Cain Josuah
a. 257,500200,000192,500
b. 190,000200,000210,000
c. 260,000200,000190,000
d. 187,500200,000212,500

16. On May 1, 2010, the business assets of John and Paul appear below:
John Paul
Cash P 11,000 P 22,354
Accounts receivable 234,536567,890
Inventories 120,035260,102
Land 603,000
Building 428,267
Furniture & fixtures 50,345 34,789
Other assets 2,000 3,600
Total PI,020,916 PI,317,002

Accounts payable P 178,940P 243,650

Notes payable 200,000345,000
John, capital 641,976
Paul, capital 728,352
Total PI,020,916 PI,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 and P6,700 are worthless in John's and Paul'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.

a. The capital accounts of the partners after the adjustments will be:
a. John's: 614,476 Paul's: 683,052 c. John's: 640,876 Paul's: 712,345
b. John's: 615,942 Paul's: 717,894 d. John's: 613,576 Paul's:683,350

b. How much assets does the partnership have?

a. 2,337,918 c. 2,265,118
b. 2,237,918 d. 2,365,218

c. Peter offered to join for a 20% interest in the firm. How much cash should he
contribute?
a. 330,870c. 344,237
b. 337,487d. 324,382

d. After Peter's admission, the profit and loss sharing ratio was agreed to be 40:40:20, based on
capital credits. How much should the cash settlement bebetween John and Paul?
a. 33,602 c. 32,272
b. 32,930 d. 34,288

e. During the first year of their operations, the partnership earned P325,000. Profits were distributed
in the agreed manner. Drawings were made in these amounts: John, P50,000; Paul, P65,000; Peter,
P28,000.
How much are the capital balances after the first year?
a. John, capital 750,627
Paul, capital 735,177
Peter, capital 372,223
b. John, capital 728,764
Paul, capital 713,764
Peter, capital 361,382
c. John, capital 757,915
Paul, capital 742,315
Peter, capital 375,837
d. John, capital 743,121
Paul, capital 727,825
Peter, capital 368,501

17. The Flat and Iron partnership agreement provides for Flat to receive a 20% bonus on profits
before bonus. Remaining profits and losses are divided between Flat and Iron in the ratio of 2:3,
respectively. Which partner has a greater advantage when the partnership has a profit or when it has a
loss?
Profit Loss
a. Flat Iron
b. Flat Flat
c. Iron Flat
d. Iron Iron

18. Downs, Frey, and Vick formed the DFV general partnership to act as manufacturer's
representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and
Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate
for 5 years. After the fourth year, the partners agreed to terminate the partnership. At that time, the
partners capital accounts were as follows: Downs, P20,000; Frey, P15,000; and Vick P10,000. There also
were undistributed losses of P30,000.
Vick's share of the undistributed losses will be
a. 0 c. 9,000
b. 1,000 d. 10,000

19. 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, 2010, is as follows:

Balance, January 1 P 140,000

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 2010?
a. 15,250 c. 16,500
b. 15,375 d. 17,250

20. Partner Ae first contributed P50,000 of capital into existing partnership on March 1, 2010. On
June 1, 2010, said partner contributed another P20,000. On September 1, 2010, he withdrew PI5,000 from
the partnership. Withdrawal in excess of PI0,000 are charged to the partner's capital accounts. What is the
annual weighted average capital balance of Partner Ae?
a. 32,500 c. 60,000
b. 51,667 d. 48,333

21. If the partnership agreement does not specify how income is to be allocated, profits and loss
should be allocated
a. Equally.
b. In proportion to the weighted average of capital invested during the period.
c. Equitably so that partners are compensated for the time and effort expended on behalf of the
partnership.
d. In accordance with their capital contribution.

22. Which of the following is not a component of the formula used to distribute income?
a. Salary allocation to those partners working.
b. After all other allocation, the remainder divided according to the profit and loss sharing ratio.
c. Interest on the average capital investments,
d. Interest on notes to partners.

23. Which of the following is not considered a legitimate expense of a partnership?

a. Interest paid to partners based on the amount of invested capital.
b. Depreciation on assets contributed to the partnership by partners.
c. Salaries for management hired to run the business.
d. Supplies used in the partners' offices.

24. The fact that salaries paid to partners are not a component of partnership income is indicative of
a. A departure from generally accepted accounting principles.
b. Being characteristic of the entity theory.
c. Being characteristic of the proprietary theory.
d. Why partnerships are characterized by unlimited liability.

25. The ABC Partnership reports net income of P60,000. If partners A, B, and C have income ratio of
50%, 30%, and 20%, respectively. What is the share of Partner C from the net income of the partnership,
if he was given a capital ratio of 25%?
a. 30,000 c. 18,000
b. 12,000 d. 15,000

26. In the calendar year 2010, the partnership of A and B realized a net profit of P240,000. The
capital accounts of the partners show the following postings:

A, capital B, capital
Debit Credit Debit Credit
Jan. 1 120,000P80,000
May 1 P20,000 P10,000
July 1 20,000
Aug. 1 10,000
Oct. 1 10,000 5,000

a. If the profits are to be divided based on average capital, the share of A and B, respectively are:
a. 129,600110,400 c. 136,800103,200
b. 144,00096,000 d. 136,543103,457

b. If 20% interest based on the capital at the end of the year is allowed and given and the balance of
the P240,000 profit is divided equally, the total share of A and B, respectively are:
a. 121,500118,500c. 123,000117,000
b. 124,000116,000d. 122,625117,375
27. During 2010, Young and Zinc maintained average capital balances in their partnership of
P160,000 and P100,000, respectively. The partners receive 10% interest on average capital balances, and
residual profit or loss is divided equally. Partnership profit before interest was P4,000. By what amount
should Zinc's capital account change for the year?
a. 1,000 decrease c. 11,000 decrease
b. 2,000 increase d. 12,000 increase

28. Red and White formed a partnership in 2010. The partnership agreement provides for annual
salary allowances of P55,000 for Red and P45,000 for White. The partners share profits equally and
losses in a 60/40 ratio. The partnership had earnings of P80,000 for 2006 before any allowance to
partners. What amount of these earnings should be credited to each partner's capital account?
Red White Red White
a. 40,000 40,000 c. 44,000 36,000
b. 43,000 37,000 d. 45,000 35,000

29. Fox, Greg, and Howe are partners with average capital balances during 2010 of PI20,000,
P60,000, and P40,000, respectively. Partners receive 10% interest on their average capital balances. After
deducting salaries of P30,000 to Fox and P20,000 to Howe, the residual profit and loss is divided equally.
In 2010, the partnership sustained a P33,000 loss before interest and salaries to partners. By what amount
should Fox's capital account change?
a. 7,000 increase c. 35,000 decrease
b. 11,000 decrease d. 42,000 increase

30. If a partnership has net income of P44,000 and Partner X is to be allocated bonus of 10% of
income after the bonus. What is the amount of bonus Partner X will receive?
a. 3,000 c. 4,000
b. 3,300 d. 4,400

31. The partnership agreement of Donn, Eddy, and Fair provides for annual distribution of profit and
loss in the following sequence:
• Donn, the managing partner, receives a bonus of 10% of profit.
• Each partner receives 6% interest on average capital investment.
• Residual profit or loss is divided equally.
Average capital investments for 2010 were:
Donn P80,000
Eddy 50,000
Fair 30,000
What portion of the P100,000 partnership profit for 2010 should be allocated to Fair?
a. 28,600 c. 35,133
b. 29,800 d. 41,600

32. The Articles of Partnership of Adam and Eve the following provisions were stipulated:
a. Annual salary of P60,000 each.
b. Bonus to Adam of 20% of the net income after partners' salaries, the bonus being treated as an
expense.
c. Balance to be divided equally.
The partnership reported a net income of P360,000 after partners' salaries but before bonus. How much is
the share of Eve in the profit?
a. 60,000 c. 150,000
b. 90,000 d. 210,000

33. Partners AA and BB have profit and loss agreement with the following provisions: salaries of
P30,000 and P45,000 for AA and BB, respectively; a bonus to AA of 10% of net income after salaries
and bonus; and interest of 10% on average capital balances of P20,000 and P35,000 for AA and BB,
respectively. One-third of any remaining profits will be allocated to AA and the balance to BB. If the
partnership had net income of PI02,500, how much should be allocated to Partner AA?
a. 44,250 c. 41,000
b. 47,500 d. 41,167

34. Partners AA and BB have profit and loss agreement with the following provisions: salaries of
P30,000 and P45,000 for AA and BB, respectively; a bonus to AA of 10% of net income after salaries
and bonus; and interest of 10% on average capital balances of P20,000 and P35,000 for AA and BB,
respectively. One-third of any remaining profits will be allocated to AA and the balance to BB. If the
partnership had net income of P22,000, how much should be allocated to Partner AA, assuming that the
provisions of the profit and loss,, agreement are ranked by order of priority starting with salaries?
a. 13,200 c. 12,000
b. 12,500 d. 8,800

35. Luz, Vi, and Minda are partners when the partnership earned a profit of P30,000. Their agreement
provides the following regarding the allocation of profits and losses:
a. 8% interest on partners' ending capital in excess of P75,000.
b. Salaries of P20,000 for Luz and P30.000 for Vi.
c. Any balance is to be distributed 2:1:1 for Luz, Vi, and Minda, respectively.
Assume ending capital balances of P60,000, P80,000, and PI00,000 for partners Luz, Vi, and Minda,
respectively. What is the amount of profit allocated for Minda, if each provision of the profit and loss
agreement is satisfied to whatever extent possible using the priority order shown above?
a. (3,600) c. (2,000)
b. 3,600 d. 2,000

36. Hanz, Ivy, Jasper, and Kelly own a publishing company that they operate as a partnership. Their
agreement includes the following:
• Hanz will receive a salary of P20,000 and a bonus of 3% of income after all the bonuses.
• Ivy will receive a salary of PI 0,000 and a bonus of 2% of income after all the bonuses.
• All partners are to receive the following: Hanz - P5,000; Ivy - P4,500; Jasper - P2,000 and Kelly -
P4,700, representing 10% interest on their average capital balances.
• Any remaining profits are to be divided equally among the partners.

a. How would a net loss of P40,000 would be allocated among the partners?
Hanz Ivy Jasper Kelly
a. 3,261.75 (7,169.25) (18,181.25) (17,911.25)
b. 3,450.00 (7,050.00) (19,550.00) (16,850.00)
c. 4,116.75 (6,764.25) (20,026.25) (17,326.25)
d. 45,000.00 4,500.00 (8,000.00) (5,300.00)

b. Assuming a profit of P40,000, how would this amount be distributed to them

given the following order of priority: Interest on invested capital, then
bonuses, then salary, and then according to profit and loss percentage?
Hanz Ivy Jasper Kelly
a. 23,261.75 12,830.75 1,818.75 2,088.75
b. 20,867.00 12,433.00 2,000.00 4,700.00
c. 20,740.00 12,560.00 2,000.00 4,700.00
d. 18,038.00 15,262.00 2,000.00 4,700.00

37. On October 31, 2010, Zita and Jones formed a partnership by investing cash of P300,000 and
P200,000, respectively. The partners agreed to receive an annual salary allowance of P360,000, and to
give Zita a bonus of 20% of the net income after partners' salaries, the bonus being treated as an expense.
If the profits after salaries and bonus are to be divided equally, and the profits on December 31, 2010 after
partners' salaries but before bonus of Zita is P360,000, how much is the share of Zita in the profit?
a. 100,000c. 210,000
b. 120,000d. 270,000

38. Maxwell is trying to decide whether to accept a salary of P40,000 or salary of P25,000 plus a
bonus of 10% of net income after salaries and bonus as a means of allocating profit among partners.
Salaries traceable to the other partners are estimated to be PI00,000. What amount of income would be
necessary so that Maxwell would consider choices to be equal?
a. 165,000c. 265,000
b. 290,000d. 305,000

39. A partnership has the following accounting amounts:

Sales P 700,000
Cost of goods sold 400,000
Operating expenses 100,000
Salary allocations to partners 130,000
Interest paid to banks 20,000
Partners' drawings 80,000
What is the partnership net income (loss)?
a. 200,000c. 50,000
b. 180,000d. (30,000)

40. Alder, Benson, and Carl are capitalist partners and Denver, an industrial partner. The partnership
reported a net loss of PI00,000. How much is the share of Denver in the reported net loss?
a. 0 c. 25,000
b. 10,000 d. 100,000

41. If a new partner acquires a partnership interest directly from the partners rather than from the
partnership itself, f
a. No entry is required.
b. The partnership assets should be revalued.
c. The existing partners' capital accounts should be reduced and the new partner's account increased.
d. The partnership has undergone a quasi-reorganization.

42. Which of the following results in dissolution of a partnership?

a. The contribution of additional assets to the partnership by an existing partner.
b. The receipt of a draw by an existing partner.
c. The winding up of the partnership and the distribution of remaining assets to the partners.
d. The withdrawal of a partner from a partnership.

43. When a new partner is admitted to a partnership, an original partner's capital account may be
adjusted for
a. A proportionate share of the incoming partner's investment.
b. His or her share of previously unrecorded intangible assets traceable to the original partners.
c. His or her share of previously unrecorded intangible assets traceable to the incoming partner.
d. None of the above.

44. Which of the following best characterizes the bonus method of recording a new partner's
investment in a partnership?
a. Net assets of the previous partnership are not revalued.
b. The new partner's initial capital balance is equal to his or herinvestment.
c. Assuming that recorded assets are properly valued, the book value of the new partnership is equal
to the book value of the previous partnership and the investment of the new partner.
d. The bonus always results in an increase to the previous partners'capital balances.

45. If goodwill is traceable to the previous partners, it is

a. Allocated among the previous partners according to their interest in capital.
b. Allocated among the previous partners only if there are not other assets to be revalued.
c. Allocated among the previous partners according to their original profit and loss sharing
percentages.
d. Not possible for goodwill to also be traceable to the incoming partner.

46. The goodwill and the bonus methods are two means of adjusting for differences between the net
book value and the fair market value of partnership when new partners are admitted. Which of the
following statements about these methods is correct?
a. The bonus method does not revalue assets to market values.
b. The bonus method revalues assets to market values.
c. Both methods result in the same balances in the partner capital accounts.
d. Both methods result in the same total value of partner capital account, but the individual capital
account vary.

47. Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May
1, 2010, their respective capital accounts were as follows:

Blau P60,000
Rubi 50,000
On that date, Lind was admitted as a partner with one-third interest in capital, and profits for an
investment of P40,000. The new partnership began with total capital of PI 50,000.
Immediately after Lind's admission, Blau's capital should be
a. 50,000 c. 56,667
b. 54,000 d. 60,000

48. Partnership A has an existing capital of P70,000. Two partners currently own the partnership and
split profits 50/50. A new partner is to be admitted and will contribute net assets with a fair value of
P90,000. For no goodwill or bonus (depending on whichever method is used) to be recognized, what is
the interest in the partnership granted the new partner?
a. 33.33% c. 56.25%
b. 50.00% d. 75.00%

49. Dunn and Grey are partners with capital account balances of P60,000 and P90,000, respectively.
They agree to admit Zorn as a partner with one-third interest in capital and profits, for an investment of
PI00,000, after revaluing the assets of Dunn and Grey. Goodwill to the original partners should be
a. 0 c. 50,000
b. 33,333 d. 66,667

50. Mitz, Marc, and Mart are partners sharing profits in the ratio of 5:3:2, respectively. As of
December 31, 2009, their capital balances were P95,000 for Mitz, P80,000 for Marc, and P60,000 for
Mart. On January 1, 2010, the partners admitted Vince as a new partner and according to their agreement,
Vince will contribute P80,000 in cash to the partnership and also pay P10,000 for 15% of

Marc's share. Vince will be given a 20% share in profits, while the original partners' share will be
proportionately the same as before. After the admission of Vince, the total capital will be P330,000 and
Vince's capital will be P70,000.
a. The total amount of goodwill to the old partners, upon the admission of Vince would be:
a. 7,000 c. 22,000
b. 15,000 d. 37,000

b. The balance of Marc's capital, after the admission of Vince would be:
a. 72,600 c. 79,100
b. 74,600 d. 81,100

51. Ranken purchases 50% of Lark's capital interest in the K and L partnership for P22,000. If the
capital balances of Kim and Lark are P40.000 and P30,000, respectively, Ranken's capital balance
following the purchase is
a. 22,000 c. 20,000
b. 35,000 d. 15,000

52. The following information pertains to ABC Partnership of Amor, Bing, and Cora:
Amor, capital (20%) P 200,000
Bing, capital (30%) 200,000
Cora, capital (50%) 300,000
On this date, the partners agreed to admit Dolly into the partnership.
Assuming Dolly purchased fifty percent of the partners capital and pays P500,000 to the old partners,
how would this amount be distributed to them?
a. 100,000150,000250,000
b. 130,000145,000225,000
c. 166,667166,667166,666
d. 150,000150,000200,000

53. The following balance sheet is presented for the partnership of A, B, and C, who share profits and
losses in the respectively ratio of 5:3:2.
Assets Liabilities and Capital
Cash 120,000Liabilities 280,000
Other assets 1,080,000 A, capital 560,000
B, capital 320,000
C, capital 40,000
Total 1,200,000 Total 1,200,000
Assume that the assets and liabilities are fairly valued on the balance sheet, and the partnership decided to
admit D as a new partner with a one-fifth interest and no goodwill or bonus is to be recorded. How much
should D contribute in cash or other assets?
a. 147,200c. 230,000
b. 184,000d. 240,000
54. A, B, and C are partners, who share profits and losses in the ratio of 5:3:2, respectively/They
agree to sell D 25% of their respective capital and profits and losses ratio for a total payment directly to
the partners in the amount of PI 40,000. They agree that goodwill of P60,000 is to be recorded prior to the
admission of D. The condensed balance sheet of the ABC Partnership is as follows:

Cash P 60,000 Liabilities PI00,000

Noncash assets 540,000A, capital 250,000
B, capital 150,000
C, capital 100,000
Total P600,000 Total P600,000
The capitals of A, B, and C, respectively after payment and admission of D are:
a. 187,500112,50075,000
b. 210,000126,00084,000
c. 280,000168,000112,000
d. 250,000150,000100,000

55. Fernando and Jose are partners with capital balances of P30,000 and P70,000, respectively.
Fernando has a 30% interest in profits and losses. All assets of the partnership are at fair market value
except equipment with book value of P300,000 and fair market value of P320,000. At this time, the
partnership has decided to admit Rosa and Linda as new partners. Rosa contributes cash of P55,000 for a
20% interest in capital and a 30% interest in profits and losses. Linda contributes cash of P10,000 and an
equipment with a fair market value of P50,000 for a 25% interest in capital and a 35% interest in profits
and losses. Linda is also bringing special expertise and clients contact into the new partnership.

a. Using the bonus method, what is the amount of bonus?

a. 24,750 c. 14,000
b. 18,250 d. 7,500

b. Using the goodwill method, what is the amount of goodwill traceable to the
original partners?
a. 60,000 c. 31,250
b. 40,000 d. 28,750

56. The capital balances in DEA Partnership are: D, capital P60,000; E, capital P50,000; and A,
capital P40,000 and income ratios are: 5:3:2, respectively. The DEAR Partnership is formed by admitting
R to the firm with cash investment of P60,000 for a 25% interest in capital. What is the amount of bonus
to be credited to A capital in admitting R?
a. 10,000 c. 3,750
b. 7,500 d. 1,500

57. On June 30, 2010, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm
together with their respective profit and loss sharing percentage, was as follows:

Assets, net of liabilities P320,000

Eddy, capital (50%) P160,000

Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
P320,000
a. Eddy decided to retire from the partnership and by mutual agreement is to be paid PI80,000 out
of partnership funds for his interest. Total goodwill implicit in the agreement is to be recorded. After
Eddy's retirement, what are the capital balances of the other partners?
Fox Grimm
a. 84,000 56,000
b. 102,00068,000
c. 108,00072,000
d. 120,00080,000

b. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new partner
with a 25% interest in the capital of the new partnership for a cash payment of P 140,000. total goodwill
implicit in the transaction is to be recorded.

Immediately after admission of Hamm, Eddy's capital account balance should be

a. 280,000 c. 160,000
b. 210,000d. 140,000

58. In May 2010, Imclda, a partner of an accounting firm, decided to withdraw when the partners'
capital balances were: Mikee, P600,000; Raul, P600,000; and Imelda, P400,000. It was agreed that
Imclda is to take the partnership's fully depreciated computer with a second hand value of P24,000 that
cost the partnership P36,000. If profits and losses are shared equally, what would be the capital balances
of the remaining partners after the retirement of Imelda?
Mikee Raul
a. 600,000600,000
b. 592,000592,000
c. 608,000608,000
d. 612,000612,000

59. The following condensed balance sheet is presented for the partnership of Alfa and Beda, who
share profits and losses in the ratio of 60:40, respectively:

Cash 45,000
Other assets 625,000
Beda, loan 30,000
700,000

Accounts payable 120,000

Alfa, capital 348,000
Beda, capital 232,000
700,000
a. The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit Capp as
a new partner with a 20% interest. No goodwill or bonus is to be recorded. What amount should Capp
contribute in cash or other assets?
a. 110,000c. 140,000
b. 116,000d. 145,000

b. Instead of admitting a new partner, Alfa and Beda decide to liquidate the
partnership. If the other assets are sold for P500,000, what amount of the
available cash should be distributed to Alfa?
a. 255,000c. 327,000
b. 273,000d. 348,000
60. On June 30, 2010, the balance sheet for the partnership of Coll, Maduro, and Prieto, together with
their respective profit and loss ratios, were as follows:
Assets, at cost 180,000

Coll, loan 9,000

Coll, capital (20%) 42,000
Maduro, capital (20%) 39,000
Prieto, capital (60%) 90,000
Total 180,000
Coll decided to retire from the partnership. By mutual agreement, the assets are to be adjusted to
their fair value of P216,000 at June 30, 2010. It was agreed that the partnership would pay Coll P61,200
cash for Coil's partnership interest, including Coil's loan which is to be repaid in full. No goodwill is to be
recorded. After Coil's retirement, what is the balance of Maduro's capital account?
a. 36,450 c. 45,450
b. 39,000 d. 46,200

61. On October 31, 2010, Morris retired from the partnership of Morris, Philip, and Marl. Morris
received P55,000 representing final settlement of his interest in the amount of P50,000. Under the bonus
method,
a. P5,000 was recorded as goodwill.
b. P5,000 was recorded as expense.
c. Charged P5,000 against the capital balances of Philip and Marl.
d. P55,000 was recorded as bonus.

62. Peter, Queen, and Roy are partners with capital balances of P300,000, P300,000, and P200,000,
respectively; and sharing profits and losses equally. Roy is to retire and it is agreed that he is to take
certain office equipment with second hand value of P50,000 and a note for his interest. The office
equipment carried in the books at P65,000 but brand new would cost P80,000. Roy's acquisition of the
office equipment would result in
a. Reduction in capital of P5,000 each for Peter, Queen, and Roy.
b. Reduction in capital of P7,5000 each for Peter, Queen, and Roy.
c. Reduction in capital of PI5,000 for Roy.
d. Reduction in capital of P55,000 for Roy.

. N, X, and Y are partners sharing profits and losses in the ratio of 4:3:3, respectively. The
condensed balance sheet of NXY Partnership as of December 31, 2006 is:

Cash P 50,000
Other assets 130,000

Total P 180,000

Liabilities P 40,000
N, capital 60,000
X, capital 40,000
Y, capital 40,000
Total P 180,000

a. AH the partners agree to admit Z as a 1/5 partner in the partnership without any goodwill or bonus. Z
shall contribute assets amounting to
a. 28,000 c. 35,000
b. 10,000 d. 60,000

63. The NXY Partnership is dissolved and liquidated by installments. The first realization of P40,000
cash is on the sale of other assets with book value of P80,000. After payment of the liabilities, the cash
available is distributed to N, X, and Y, respectively as follows:
a. 36,000 27,000 27,000
b. 44,000 28,000 28,000
c. 16,000 12,000 12,000
d. 24,000 13,000 13,000

64. Gerber, Williams, and George are partners with present capital balances of P50,000, P60,000, and
P20,000, respectively. The partners share profit and losses according to the following percentages: 60%
for Gerber, 20% for Williams, and 20% for George. Larsen is to joint the partnership upon contributing
P60,000 to the partnership in exchange for a 25% interest in capital and a 20% interest in profits and
losses. The existing assets of the original partnership are undervalued by P22,000. The original partners
will share the balance of profits and losses in proportion to their original percentages. What would be the
capital balances of the old partners in the new partnership using the goodwill method?
Gerber Williams George
a. 63,200 64,400 24,400
b. 93,200 74,400 34,400
c. 76,800 65,600 25,600
d. 80,000 70,000 30,000

65. The following is the priority sequence in which liquidation proceeds will be distributed for a
partnership:
a. Partnership drawings, partnershi liabilities, partnership loans, partnership capital balances
b. Partnership liabilities, partnership loans, partnership capital balances.
c. Partnership liabilities, partnership loans, partnership drawings, partnership capital balances.
d. Partnership liabilities, partnership capital balances, partnership loans.

66. The doctrine of marshaling of assets

a. Is applicable only if the partnership is insolvent.
b. Allows partners to first contribute personal assets to unsatisfied partnership creditors.
c. Is applicable if either the partnership is insolvent or individual partners are insolvent.
d. Amount owed to personal creditors and to the partnership for debit capital balances are shared
proportionately from the personal assets of the partners.

67. Cohen, Butler, and Davis are partners in a partnership and share profits and losses 50%, 30%, and
20%, respectively. The partners have agreed to liquidate the partnership and anticipate that liquidation
expenses will total P14,000. Prior to the liquidation, the partnership balance sheet reflects the following
book values:

Cash 21,000
Non-cash assets 248,000
Notes payable to Davis 32,000
Other liabilities 154,000
Cohen, capital 60,000
Butler, capital (deficit) (10,000)
Davis, capital 33,000
Assuming that the actual liquidation expenses are P14.000 and that non-cash assets are sold for P218,000,
how would the assets be distributed to partners if Butler has net personal assets of P8,500?
Cohen Butler Davis
a. 15,500
b. 21,429 - 49,571
c. 30,650 - 53,260
d. 27,500 - 52,000

68. The following condensed balance sheet is presented for the partnership of Axel, Barr, and Cain,
who share profits and losses in the ratio of 4:3:3, respectively:
Cash P100,000
Other assets 300,000
Total P400,000
Liabilities P150,000
Axel, capital 40,000
Barr, capital 180,000
Cain, capital 30,000
Total P400,0Q0

The partners agreed to dissolve the partnership after selling the other asset for P200,000. Upon dissolution
of the partnership, Axel should have received
a. 0 c. 60,000
b. 40,000 d. 70,000

69. Because of very unprofitable operations, partners Nal, Lou, and Gee decided to dissolve the
partnership when their capital balances and profit and loss ratio were:
Nal, capital (30%) PI75,000
Lou, capital (20%) 125,000
Gee, capital (50%) 175,000
Total P475,000

Upon liquidation, all of the partnership's assets are sold and sufficient cash is realized to pay all liabilities
except one for P25,000. Gee is personally insolvent, but the others are capable of meeting any
indebtedness of the firm. By what amount would the capital of Nal change?
a. 7,500 decrease c. 195,000 decrease
b. 150,000 decrease d. No change

70. Peter and John, who share profits and losses equally, decided to liquidate their partnership when
their net assets amounted to P260,000, and capital balances of P170,000 and P90,000, respectively.

If the noncash assets were sold for amount equal to its book value, what amount of cash should Peter and
John received?
Peter John
a. 130,000130,000
b. 170,00090,000
c. 180,00080,000
d. 195,00065,000

71. 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 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. 136,000 c. 159,000
b. 156,000 d. 195,000

72. The condensed balance sheet of Alex, Jay, and John as of March 31,2010 follows:
Cash P 28,000 Liabilities P 48,000
Other assets 265,000Alex, capital 95,000
Jay, capital 80,000
John, capital 70,000
Total P 293,000Total P 293,000

The income and loss ratio is 50:25:25, respectively. The partners voted to dissolve their partnership and
liquidate by selling other assets in installments. P70,000 was realized on the first cash sale of other assets
with a book value of P150,000. After settlement with creditors, all cash available was distributed to the
partners. How much cash was received by John?
a. 10,500 c. 21,250
b. 20,000 d. 32,500

73. On December 31, 2010, the partners of MNP Partnership decided to liquidate their business.
Immediately before liquidation, the following condensed balance sheet was prepared:
Cash P 50,000
Noncash assets 900,000

Total P950,000
Liabilities P375,000
Nieva, loan 80,000
Perez, loan 25,000
Munoz, capital (50%) 312,500
Nieva, capital (30%) 107,500
Perez, capital (20%) 50,000
Total P950,000

The noncash assets were sold for P400,000. Assuming Perez is the only solvent partners, what amount of
additional cash will be invested by Perez? (rounded to the nearest peso)
a. 37,143 c. 5,000
b. 25,000 d. 0

74. After incurring losses resulting from very unprofitable operations, the Goh Kong Wei Partnership
decided to liquidate when the partners' capital balances were:

Goh, capital (40%) P80,000

Kong, capital (40%) 130,000
Wei, capital (20%) 96,000
The non-cash assets were sold in installment. Available cash were distributed to partners in every sale of
non-cash assets. After the second sale of non-cash assets, the partners received the same amount of cash
in the distribution. And from the third sale of non-cash assets, cash available for distribution amounts to
P28,000, and unsold non-cash assets has a book value of PI2,500. Using cash priority program, what
amount did Wei received in the third installment of cash?
a. 11,600 c. 5,600
b. 8,000 d. 0

75. Partners Able, Baker, and Chapman, who share profit and loss equally, have the following
personal assets, personal liabilities, and partnership capital balances:
Able Baker Chapman
Personal assets P 30,000 P 80,000 P 60,000
Personal liabilities 25,000 50,000 72,000
Capital balances 50,000 (32,000) 70,000

After applying the doctrine of marshalling of assets, the capital balances of Able, Baker, and Chapman,
respectively, would be
a. P50,000 P(2,000) P58,000
b. 48,000 0 58,000
c. 49,000 0 57,000
d. 34,000 0 54,000

76. Partner Morgan is personally insolvent, owing P600,000. Personal assets will only bring
P200,000 when liquidated. At the same time, Morgan has a credit capital balance in the partnership of
PI20,000. The capital amounts of the other partners total a credit balance of P250,000. Under the doctrine
of marshalling of assets, how much the personal creditors of Morgan can collect?
a. 120,000c. 320,000
b. 200,000d. 570,000

77. As of December 31, the books of AME Partnership showed capital balances of: A - P40,000; M -
P25,000; and E - P5,000. The partners' profit and loss ratio was 3:2:1, respectively. The partners decided
to dissolve and liquidate. They sold all the non-cash assets for P37,000 cash. After settlement of all
liabilities amounting to P12,000, they still have P28,000 cash left for distribution.
a. The loss on the realization of the non-cash assets was
a. 40,000 c. 44,000
b. 42,000 d. 45,000

b. Assuming that any partner's capital debit balance is uncollectible, the share of A in the P28,000 cash
for distribution would be
a. 19,000 c. 17,800
b. 18,000 d. 40,000

78. The balance sheet of the partnership of Salve, Galo, and Norma, who share in the profits and
losses in the ratio of 5:3:2, respectively is as follows:

Assets Liabilities and Capital

Cash 30,000 Liabilities 50,000
Other assets 320,000Salve, capital 80,000
Galo, capital 115,000
______ Norma, capital 105,000
Total 350,000Total 350,000

The partnership is liquidated by installment. The first sale of non-cash assets with a book value of
P150,000 realizes P100,000. How should the remaining cash be distributed?
Salve Galo Norma
a. 50,000 30,000 20,000
b. 40,000 24,000 16,000
c. 0 31,000 49,000
d. 0 48,000 32,000

79. The following balance sheet is presented for the partnership of A, B, and C, who share profits and
losses in the respectively ratio of 5:3:2.
Assets Liabilities and Capital
Cash 120,000Liabilities 280,000
Other assets 1,080,000 A, capital 560,000
B, capital 320,000
C, capital 40,000
Total 1,200,000 Total 1,200,000
Assume that the three partners decided to liquidate the partnership. If the other assets are sold for
P800,000, how should the available cash be distributed to each partner?
A B C
a. 280,000320,00040,000
b. 324,000236,00016,000
c. 410,000230,0000
d. 412,000228,0000

80. In the liquidation of a partnership it is necessary to (1.) distribute cash to the partners; (2.) sell
non-cash assets; (3.) allocate any gain or loss on realization to the partners; and (4.) pay liabilities. These
steps should be performed in the following order:
a. (2),(3),(4),(1) c. (3), (2), (1), (4)
b. (2), (3), (1), (4) d. (3), (2), (4), (T)

81. Partners Almond, Barney, and Colors have capital balances of P20,000, P50,000, and P90,000,
respectively. They split profits in the ratio of 2:4:4, respectively. Under a safe cash distribution plan, one
of the partners will get the following total amount in liquidation before any other partners get anything:
a. 0 c. 40,000
b. 15,000 d. 180,000

82. The ABC Partnership has assets with book value of P240,000 and a market value of P195,000,
outside liabilities of P70,000, loans payable to Partner Able of P20,000, and capital balances for Partners
Able, Baker, and Chapman of P70,000, P30,000, and P50,000, respectively. The partners share profits
and losses equally. How would the first P100,000 of available assets be distributed?
a. P70,000 to outside liabilities, P20,000 to Able, and the balance equally among partners.
b. P70,000 to outside liabilities, and P30,000 to Able.
c. P70,000 to outside liabilities, P25,000 to Able, and P5,000 to Chapman.
d. P40,000 to Able, P20,000 to Chapman, and the balance equally among partners.

If all outside creditors and loans to partners had been paid. How would the balance of the assets be
distributed assuming Chapman had already received assets with a value of P30,000?
a. Each of the partners would received P25,000.
b. Each of the partners would received P40,000.
c. Able: P70,000, Baker: P30,000, Chapman: P20,000
d. Able: P55,000, Baker: P15,000, Chapman: P5,000.

83. Roy and Gil are partners sharing profits and losses in the ratio of 1:2, respectively. On July 1,
2010, they decided to form the R&G Corporation by transferring the assets and liabilities of the
partnership to the corporation in exchange for the latter's stock. The following is the post-closing trial
balance of the partnership.

Debit Credit
Cash P 45,000
Accounts receivable (net) 60,000
Inventory 90,000
Fixed assets (net) 174,000
Liabilities P 60,000
Roy, capital 94,800
Gil, capital 214,200
P369,000 P369,000

It was agreed that adjustments be made to the following assets to be transferred to the corporation:

Accounts receivable P40,000

Inventory 68,000
Fixed assets 180,600
The R&G Corporation was authorized to issue PI00 par preferred stock and P10 par common stock. Roy
and Gil agreed to receive for their equity in the partnership 720 shares of the common stock each, plus
even multiples of 10 shares of preferred stock for their remaining interests.

a. The total number of shares of preferred and common stocks issued by the corporation in exchange for
the assets and liabilities of the partnership are:

Preferred Common
a. 2,540 shares 1,500 shares
b. 2,592 shares 1,440 shares
c. 2,642 shares 1,440 shares
d. 2.642 shares 1,550 shares

b. The distribution of the stocks to Roy and Gil would be:

Roy Gil
Preferred Common Preferred Common
a. 785 shares 720 shares 1,384 shares 720 shares
b. 773 shares 750 shares 1,843 shares 750 shares
c. 758 shares 720 shares 1,834 shares 720 shares
d. 738 shares 720 shares 1,758 shares 720 shares

84. The condensed balance sheet of Adams & Gray, a partnership, at December 31, 2010, follows:

Current assets P 250,000

Equipment (net)30,000
Total assets P 280,000
Liabilities P 20,000
Adams, capital 160,000
Gray, capital 100,000
Total liabilities and capital P 280,000

On December 31, 2010, the fair values of the assets and liabilities were appraised at P240,000 and
P20,000, respectively, by an independent appraiser. On January 2, 2011, the partnership was
incorporated and1,000 shares of P5 par value common stock were issued. Immediately after the
incorporation, what amount should the new corporation report as additional paid in capital?
a. 275,000c. 215,000
b. 260,000d. 0