PARTNERSHIP AND CORPORATION ACCOUNTING

PRELIMINARY EXAMINATION
50 items x 2 = 100 points
1. The basis on which profits and losses are to be shared between partners is
a. a matter of agreement between the partners.
b. the same as their investment ratio.
c. the same as their withdrawal ratio.
d. always equal between all partners.

2. A partnership balance sheet includes:

a. a category for assets contributed by each partner
b. a category for liabilities incurred by each partner
c. an ending capital account balance for each partner
d. an ending drawing account balance for each partner

3. The sharing of profits and losses can be based on

a. a salary allowance and a fractional share.
b. a salary allowance and a stated ratio.
c. a stated ratio.
d. any of these.
4. Which of the following best describes the use of interest on invested capital as a
means of allocating profits?
a. if interest on invested capital is used, it must be used for all partners
b, interest is allocated only if there is partnership net profit.
c, invested capital balances are never affected by drawings of partnerships.
d. Use of beginning or ending measures of invested capital may be subior, to
manipulation that distorts the measure of invested capital,

5. A partnership income statement includes:

 a. a listing of all of the partners' capital account balances
b. a listing of all of the partners' drawing account balances
c. both a and b are correct
d. a section showing the division of net income to the partners

6. In the absence of any agreement between partners, profits and losses must be shared
a. equally among all partners.
b. on the basis of the ratio of the partners' investment.
c. on the basis of the ratio of the partners' withdrawal.
d. in accordance with local custom of the place.

7. A partnership agreement calls for allocation of profits and losses by salary allocations,
a bonus allocation, interest on capital, with any remainder to be allocated by preset
ratios. If a partnership has a loss to allocate, generally which of the following
procedures would be applied?
a. Any loss would be allocated equally to all partners.
b. Any salary allocation criteria would not be used.
c. The bonus criteria would not be used.
d. The loss would be allocated using the profit and loss ratios, only.

8. Which of the following statements is true concerning the treatment of salaries in

partnership accounting?
a. Partner salaries may be used to allocate profits and losses; they are not
considered expenses of the partnership.
b. Partner salaries are equal to the annual partner draw.
c. The salary of a partner is treated in the same manner as salaries of Corporate
employees.
d. Partner salaries are directly closed to the capital account.

9. Which of the following statements is true?

 a. When a net loss is closed into the partners' Capital accounts, Income Summary
is debited.
b. The journal entry to close a partner's Drawing account involves a debit to the
partner's Drawing account.
c. The Drawing accounts are always closed into the Capital accounts, regardless
of whether the business produces a net income or a net loss.
d. When a net loss is closed into the partners' Capital accounts, the Capital
accounts are credited.

10. Partners active in a partnership business should have their share of partnership profits
based on the following
a. a combination of salaries plus interest based on average capital balances.
b. a combination of salaries and percentage of net income after salaries and any
other allocation basis.
c. salaries only.
d. percentage of net income after salaries is paid to inactive partners.
11. If partner A's capital is P40,000 and partner B's capital is P60,000, A's share of
earnings based on their investment is
a. 40%.
b. 60%.
c. 66%.
d. None of the answers listed.

12. Partnership drawings are

a. always maintained in a separate account from the partner's capital account.
b. equal to partners' salaries.
c. usually maintained in a separate draw account with any excess draws being
debited directly to the capital account.
d. not discussed in the specific contract provisions of the partnership.
13. Roscoe & Iris reported Net Income of P80,000. Roscoe's share is P60000 and Iris's
share is P20,000. The entry to record the division of net income would include a e
000.
 a, debit to Roscoe, Capital, P60,000
b. debit to Iris, Capital, P20,000.
c, credit to Iris, Capital, P80,000.
d, debit to Income Summary, P80,000.
14. The allocation of net income and its impact on partners' equity balances should be
disclosed on the
a. income statement.
b. balance sheet
c. statement of partners' equity.
d. worksheet.

15. If a net loss of P25,000 is divided equally between Harrison White and Melanie
Light, the closing entry would involve a:
a. debit to income summary for P25,000
b. credit to White's capital account for P12,500
c. debit to Light's capital account for P12,500
d. credit to the cash account for P25,000
16. Which of the following statements is true concerning closing entries for a partnership?
a. The partner's capital account should be credited for the amount of any
drawings.
b. If the partnership reported net income, income summary would be
c. The partner's capital account should be credited for the partner's share of
income
d. The partner's drawing account should be debited during the closing process.
17. K.Marasigan had a beginning capital balance of P200,000 in the Marasigan• &
K.Quimson Partnership. During the year Marasigan invested P35,000 and had
withdrawals of P60,000. His share of net income for the year was P80,000. What is
Marasigan's ending capital balance?
a. P95,000
b. P185,000
c. P305,000
 d. P255,000
18. 2.Leones and Malanum partnership has income of P110,000 and Partner Leones is to
be allocated a bonus of 10% of income after the bonus. Leones' bonus would be
a. P11,000
b. P10,000
c. P9,091
d. P9,000
19. Cabello and Dacanay are partners in a trading company. During 2020, they withdrew
their salary allowances of P250,000 and P375,000, respectively. Profits and losses are
shared in the ratio of 3:2. The income summary account before any profit allocation
has a credit balance of P750,000. The partners' capital account show the following:

Cabello Dacanay

Beginning Balances P750,000 P500,000

Additional Investments 125,000 250,000

WIthdrawals other than salary (250,000) (125,000)

allowances

What are the capital balances of the partners for the year 2020 after closing come
summary and withdrawals accounts?
Cabello Dacana
a. P700,000 P675,000
b. P450,000 P300,000
c. P575,000 P425,000
d. P950,000 P1,050,000

20. Partner Manamtam had a capital balance on January 1, 2020 of P45,000 and made
additional capital contributions during 2020 totaling P50,000. During the year 2020,
Manamtam withdrew P8,000 per month. Manamtam's post-closing capital balance on
December 31, 2020 is P30,000. Manamtam's share of 2020 partnership income is
a. P96,000
 b. P50,000
c. P31,000
d. P8,000

21. When two proprietors decide to combine their businesses, generally accepted
accounting principles usually require that non-cash assets be taken over at their.

a. historical cost value as of the date of formation

b. fair market value as of the date of formation
c. book value as of the date of formation
d. residual value as of the date of formation

22. How does the partnership differ from corporate accounting?

a. The matching principle is not considered appropriate for partnership accounting

b. Revenues are recognized at a different time by a partnership than is appropriate for
a corporation.
c. Individual capital accounts replace the contributed capital and retained earnings
balances found in corporate accounting.
d. Partnership report all assets at fair value as of the latest balance sheet date.

23. On july 1,2020 Times and Calibre formed a partnership. Times contributed cash.
Calibre, previously a sole proprietor, contributed property other than cash, including
realty subject to mortgage, which the partnership assumed. Calibre’s capital account at
july 1, 2020 should be recorded at.

a. Calibre’s book value of the property at july 1, 2020

b. Calibre’s book value of the property less the mortgage payable at july 1,2020.
c. The fair value of the property less the mortgage payable at july 1, 2020.
d. The fair value of the property at July 1, 2020

24. A partner’s withdrawal of assets from a partnership that is considered permanent

reduction in that partner’s equity is debited to the partner’s

a. Drawing Account
b. Retained earnings account
c. Capital account
d. Loans receivable account

25. Alburo invests office equipment with a fair value of P560,000 , delivery equipment
with a fair value of P712,000, and cash of P432,000. She owes P544,000, represented
by a note on the delivery equipment. If Alburo’s office equipment cost P640,000 and
 accumulated depreciation of P240,000 , the amount at which the asset should be
entered on the books of the new partnership would be
a. P400,000
b. P560,000
c. P640,000
d. P712,000

26. Equipment with a cost of P800,000 and accumulated depreciation of P240,000 is

contributed to a new partnership by C. Alejo . The current market value of the
equipment is P760,000. The replacement value of equipment is P1,080,000.

The equipment would be recorded on the partnership books at:

a P560,000
b. P520,000
c. P1,080,000
d. P760,000
27. Ablao invest office equipment with a fair market of P496,000 , delivery equipment
with a fair value of P600,000, and cash of P240,000. He owes P216,000, represented
by a note on the delivery equipment which the partnership assumes. The amount of
Ablao’s capital would be:

a. P240,000
b. P1,336,000
c. P1,120,000
d. P1,096,000
28. W. Alejo invests cash of P160,000 and inventort with a cost of P160,000 and a current
value of P200,000 in the W. Alejo and P. Buenavidez Partnership. In addition, W.
Alejo invests land with a cost of P600,000 and a current market value of P960,000.
The partnership agrees to assume a P320,000 mortgage on the property. P. Buenavidez
invest equipment with a cost of P800,000 and accumulated depreciation of P320,000.
P. Buenavidez’s equipment has a current market value of P720,000. How much cash
must be invested by P. Buenavidez so that the two partners have equal balances in
their capital accounts?
a. P440,000
b. P600,000
c. P120,000
d. P280,000
The next questions are based on the following:
Castillo contributes P360,000 cash, land which she bought for P440,000 and a building that cost
him P1,120,000 and has been depreciated P320,000, to newly formed partnership of C&C
Company. The building is valued at P1,520,000 and has an outstanding mortgage of P800,000.
The land is valued at P760,000.

Claveria Contributes P164,000 cash, equipment valued at P400,000 with an outstanding note
payable of P120,000, and an automobile valued at P160,000. Claveria originally paid P480,000
for the equipment which has been depreciated P160,000. The partners have agreed to share
profits and losses equally.
All obligations attached to contributed assets are assumed by the new partnership.
29. The entry to record the investment by Castillo includes a debit to:

a. Building for P800,000

b. various asset accounts for a total of P2,160,000
c. building for P1,120,000
d. various asset accounts for a total of P2,640,000
30. The entry to record the investment by Castillo includes a credit to his capital account
for:
a. P1,840,000
b. P2,640,000
c. P1,480,000
d. P1,600,00
31. The entry to record the investment by Castillo includes a debit to:
a.various asset accounts for a total of P604,000
b. various asset accounts for a total of P724,000
c. various asset accounts for a total of P444,000
d. various asset accounts for a total of P644,000
32. The entry to record the investment by Claveria includes a credit to her capital account
for:
a. P764,000
b. P444,000
c. P644,000
d. P604,000
33. Immediately after the investments by Castillo and Claveria, the balance sheet of C&C
company shows total assets of :

a. P2,564,000
 b. P2,444,000
c. P3,364,000
d. none of the above

34. Immediately after the investments by Castillo and claveria , the balance sheet of C&C
Company shows total liabilities of :
a. P800,000
b. P120,000
c. P920,000
d. P2,444,000

35. If two or more sole proprietors combine their businesses to form a partnership, the
basis for the opening entries for the investments of such partners is based upon their
respective.

a. Statement of financial position

b. Income statement
c. Statement of owner’s equity
d. cash flow statement
36. Doctolero and Eslava formed a new partnership. Doctolero invested P525,000 in cash
for her 60% interest in the capital and profits of the business. Eslava contributes land
that has an orginal cost of P70,000 and a fair market of P122,500, and a building that
has a tax basis of P87,500 and fair market market value of P157,500. The building is
subject to a P70,000 mortgage that the partnership will assume. What amount of cash
should Eslava contribute?

a. P70,000
b. P140,000
c. P192,500
d. P262,000
37. On August 1, Castillo and Dagarag pooled their assets to form a partnership, with the
firm to take over their business assets and assume the liabilities. Partners’ capitals are
to be based on net assets transferred after the following adjustments. (Profits and
losses are allocated equally).
Dagarag’s inventory is to be increased by P14,600; an allowance for doubtful accounts of
P3,650 and P5,475 are to be set up in books of Castillo and dagarag, respectively; and
accounts payable of P14,600 is to be recognized in Castillo's books. The individual trial
balances on August , before adjustments, follow:
 CASTILLO DAGARAG

Assets 273,750 412,450

Liabilities 18,250 125,925

What is the capital of Castillo and Dagarag after the above adjustments?

a. Castilli, P 250,937; Dagarag, P281,962.50

b. Castillo, P273,750; Dagarag,P295,650
c. Castillo, P237,250; Dagarag, P277,400
d. Castillo, P237,250; DAgarag, P295,650

38. Espanola and Ferrer formed a partnership and agreed to divide initial capital equally,
even though Espanola contributed P125,500 and ferrer contributed P105,420 in
identifiable assets. Under the bonus method, to adjust the capital accounts, Ferrer’s
intangible assets should be debited for?

a. P57,730
b. P20,080
c. P10,040
d. P0
39. Gamboa and lamsen drafted partnership agreement that lists the following assets
contributed at the partnership formation:

Contributed by

Gamboa Lamsen

CASH P310,000 P465,000

Inventory - 232,500

Building - 620,000

Equipment 232,500

The building is subject to a mortgage of P155,000, which the partnership has assumed.
The partnership agreement also specifies the profits and losses are to be distributed
evenly. What amounts should be recorded as capital for Gamboa and Lamsen at the
formation of the partnership?
GAMBOA LAMSEN
a. P543,500 P1,317,500
b. P542,500 P 1,162,500
c. P852,500 P852,500
d. P930,000 P930,000
40. Garcia, Lopez and Matas are new CPA’s and are to form a partnership. Garcia is to
contribute cash of P87,500 and his computer originally costing P105,000 but has a
second-hand value of P43,750. Lopez is to contribute cash of P140,000. Matas, whose
family is selling computers, is to contribute cash of P43,750 and a brand new
computer with a regular selling price of P105,000 but which cost P87,500. Partners
agree to share profits equally. The capital balances upon formation are?
Garcia Lopez Matas
a. P131,250, P140,000 P148,750
b.P192,500 P140,000 P131,250
c. P140,000 P140,000 P140,000
d. P145,833 P145,833 P154,583

41. De Guzman, De Sola, and De Vera formed a partnership on April 1, 2020. They
agreed that De Guzman will contribute office equipment with a total fair value of
P320,000; De Sola will contribute delivery equipment with a fair value of P640,000;
and De Vera will contribute cash. If De Vera wants a one-third interest in the capital
and profits, he should contribute cash in the amount of?
a. P320,000
b. P1,440,000
c. P480,000
d. P960,000
42. Which of the following is (are) a disadvantage(s) of a partnership?
a. A partnership has limited life.
b. The raising of investment capital depends entirely on the partners themselves.
c. The actions of one partner are binding on the other partners.
d. All of these are disadvantages.
43. Jimenez, Mendoza, and Navidad decided to engage in a real estate venture as a
partnership. Jimenez invested P490,000 cash and Mendoza provided an office and
furnishings valued at P770,000. (There is a P210,000 note payable remaining on the
furnishings to be assumed by the partnership) Although Navidad has no tangible
assets to invest, both Jimenez and Sam believe that Navidad's expert salesmanship
provides an adequate investment. The partners agree to receive an equal capital
interest in the partnership. Using the bonus method, what is the capital balance of
Navidad?
a. P175,000
b. P0
c. P490,000
d. P350,000
44. Deciles, Eustaquio, and Gamalong are forming a new partnership. Deciles is to invest
cash of P536,500 and stapling equipment originally costing P643,800 but has a
second-hand value in the market at P268,250. Eustaquio is to invest cash of P858,400,
while Gamalong, whose family is engaged in selling stapling equipment, is to
contribute cash of P268,250 and a brand new stapling equipment to be used by the
partnership with a regular price of P643,800 but which cost their family's business
P536,500. Partners agree to share profits equally. The capital balances upon formation
are:
a.Deciles,P1,180,300; Eustaquio,P858,400; and Gamalong,P804,750
b. Deciles, P804,750; Eustaquio, P858,400; and Gamalong, P912,050
c. Deciles, P858,400; Eustaquio, P858,400; and Gamalong, P858,400
d. Deciles, P947,817; Eustaquio, P947,817; and Gamalong, P947,823.82

45. Gonzales and Palisoc formed a partnership on July 1, 2020 and invested the following
assets:

Gonzales Palisoc

Cash P175,500 P270,000

Computer - 67,500
Equipment
 The computer equipment has a note payable amounting to P13,500, which was assumed
by the partnership. The partnership agreement provides that Gonzales and Palisoc
will have an equal capital credit. Using the goodwill method the amount of goodwill to
be recorded upon formation of the partnership is?
a. P148,500
b. P162,000
c. P135,000
d. P175,500
46. The partnership of Pedralbes and Quirionez was formed on March 31, 2020. At that
date, Pedralbes invested P225,000 cash and office equipment valued at P135,000.
Quilionez invested P315,000 cash, merchandise valued at P495,000, and furniture
valued at P450,000, subject to a note payable of P225,000 (which the partnership
assumes). The partnership provides that Pedralbes and Quifionez share profits and
losses 25:75, respectively. The agreement further provides that the partners should
initially have an equal interest in the partnership capital. Under the goodwill and the
bonus method, what is the total capital of the partners after the formation?
Bonus Method Goodwill Method
a. P1,395,000 P2,070,000
b. P1,620,000 P2,295,000
c. P1,350,000 P1,845,000
d .P1,575,000 P1,800,000

47. A partner's drawing account, in substance is

a. A capital account
b. A contra-capital account
c. A salary expense account
d. a loan account

48. On March 1, 2020, Apalla and Cabariero formed a partnership with each contributing
the following assets:
 Apalla Cabanero

Cash P502,500 P1,172,500

Machinery and 418,750 1,256,250

Equipment

building - 3,768,750

Furniture and 167,500 -

Fixtures

The building is subject to mortgage loan of P1,340,000, which is to be assumed by the

partnership. Agreement provides that Apalla and Caballero share profits and losses 30%
and 70%, respectively. On March 1, 2020 the balance in Cabariero's capital account
should be:
a. P6,197,500
b. P5,259,500
c. P5,108,750
d. P4,857,500
49. The same information in the previous number, except that the mortgage loan is not
assumed by the partnership. On March 1, 2020 the balance in Cabafiero's capital
account should be:
a. P6,197,500
b. P5,259,500
c. P5,108,750
d. P4,857,500

50. Which of the following would be least likely to be used as a means of allocating
profits among partners who are active in the management of the partnership?
a. Salaries
b. Bonus as a percentage of net income before the bonus
c. Bonus as a percentage of sales in excess of a targeted amount
d. Interest on average capital balances