University of the Assumption (Pampanga)

ACCOUNTING 11: Advance Accounting Part 1

Prelim-Quiz No.1: Partnership Formation and Operation
1st Semester, A.Y. 2013-2014
Score:
Name: _____________ Date _________
Year &Section: _____________

1._____ 11._____ 21._____ 31. _____

2.
_____ 12. _____ 22. _____ 32. _____

3.
_____ 13. _____ 23. _____ 33. _____

4.
_____ 14. _____ 24. _____ 34. _____

5.
_____ 15. _____ 25. _____ 35. _____

6._____ 16._____ 26._____

7.
_____ 17. _____ 27. _____

8.
_____ 18. _____ 28. _____

9.
_____ 19. _____ 29. _____

10.
_____ 20. _____ 30. _____

INSTRUCTIONS: Select the correct answer for each of the following questions.
STRICTLY NO ERASURES ALLOWED. PROVIDE SOLUTIONS.
Multiple Choices:

1. The partnership of X and Y shares profits and losses in the ratio of 60 percent to X and
40 percent to Y. For the year 2012, partnership net income was double X's withdrawals.
Assume X's beginning capital balance was P80,000, and ending capital balance (after
closing) was P140,000. Partnership net income for the year was:
A. 120,000.
B. 300,000.
C. 500,000.
D. 600,000.

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 2. Shue, a partner in the Financial Brokers Partnership, has a 30 percent share in partnership
profits and losses. Shue's capital account had a net decrease of P100,000 during 2013.
During 2013, Shue withdrew P240,000 as withdrawals and contributed equipment valued
at P50,000 to the partnership. What was the net income of the Financial Brokers
Partnership for 2013?
A. 633,334
B. 466,666
C. 300,000
D. 190,000

3. Van, Matt, and Den are to form a partnership. Van is to contribute cash of P500, 000,
Matt, 50,000 and Den P500, 000. Van and Den are not to actively participate in the
management of the business, but will refer customers, while Matt will manage it. Matt
has given up his job which gives him an annual income of P600, 000. Partners agree to
share profits and losses equally. The capital balances of each partner upon .formation of
the partnership respectively are:

A. P500, 000; P50, 000; and P500, 000.

B. P500, 000 P650, 000; and P500, 000.
C. P350000; P350, 000; and P350, 000.
D. P550, 000; P550, 000; and P550, 000.

4. The partnership of Emmanuel and Chris was formed on February 28, 2011. The following
assets were contributed:

Emmanuel Chris
Cash P125, 000 P175, 000
Merchandise 275,000
Building 500,000
Furniture and Equipment 75,000

The building is subject to a mortgage loan of P150, 000 which is to be assumed by

partnership. The partnership agreement provides that Emmanuel and Chris share profits or losses
1:3, respectively. If the partnership agreement provides that the partners initially should have
equal interest in partnership capital with no contribution of intangible assets, Emmanuel's capital
account at February 28, 2011 would be

A. 500, 000
B. 575, 000
C. 1, 000,000
D. 1, 150,000

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Items 5 and 6 are based on the following information:

Seth, Van and Mitch are forming a new partnership, each contributing cash of P400,000
and their respective office equipment and supplies valued at P200,000, P400,000, and P600,000,
respectively. Seth's non- cash contribution is his own developed software valued at cost, which
he could sell for thrice the amount. Partners agree to admit his software at market value and they
would share profits equally.

5. Capital balances upon formation, respectively are:

a. P600, 000; P800, 000; and P1, 000,000

b. P1, 000,000; P800, 000; and P1, 000,000.
c. P800, 000; P800, 000; and P800, 000.
d. P933, 333; P933, 333; and P933, 334.

6. Assuming that each partner will have equal interest in the partnership, maintaining the same
total capital, the partnership should recognize:

a. Goodwill of P200, 000.

b. Bonus of P200, 000.
c. Goodwill of P600, 000.
d. Bonus of P133, 333.

7. Effective August 1, 2011, Kevin and Jasper 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, 2011:

Kevin Jasper

Cash 12,000 30,000

Accounts Receivable 72,000 42,000
Merchandise Inventory 198,000 252,000
Prepaid Rent 24,000
Store Equipment 240,000 180,000
Accumulated Depreciation (90,000) (108,000)
Building 750,000
Accumulated Depreciation (150,000)
Land 360,000
Totals 1,392,000 420,000

Accounts Payable 45,000 18,000

Mortgage Payable 360,000
Kevin, Capital 987,000
Jasper, Capital 402,000

Totals 1,392,000 420,000

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 As of August 1, 2011, the fair values of Kevin’s assets were: merchandise inventory,
P162, 000; store equipment, P90, 000; building, P1, 500,000; and land, P600, 000. For Jasper,
the fair values of the assets on the same date were: merchandise inventory, P270, 000; store
equipment, P39, 000; prepaid rent, P 0. All other items on the two balance sheets were stated at
their fair values. How much is the net assets of the new partnership?

a. P1,389,000
b. P2,394,000
c. P2,817,000
d. P1,812,000

Items 8 and 9 are based on the following information:

The balance sheet of the proprietorship of Anthony as of June 30, 2011 showed the following
assets and liabilities

Cash P 40,000
Accounts Receivable 53,600
Inventory 88,000
Equipment 65,600
Accounts Payable 63,520

The cash balance included a 200- share certificate of BW Resources common at

acquisition cost of P1, 600; the current market quotation is 70 per share. Of the accounts
receivable, an estimated 5% is considered to be doubtful of collection. Certain inventory items,
booked at a cost of P22, 960, are currently worth P16, 000. Depreciation has not been recorded;
the equipment, acquired two years ago, has a remaining useful life of about eight more years.
Prepaid expense of P12, 800 and accrued expense of P6, 120 have not been properly recognized.
James and Bert will join Anthony in a partnership. Anthony will invest the net assets of his
business, after effecting the appropriate adjustments, and he will be allowed credit for goodwill
equal to 10% of his initial capital credit. James and Bert will each contribute cash to secure the
respective interests 1/3 and 1/6 respectively.

8. Anthony goodwill credit would be:

a. P16, 600
b. P18, 000
c. P20, 000
d. P21, 000

9. James' cash investment would be:

a. P61, 267
b. P66, 000
c. P132, 000
d. P133, 333

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10. Paolo and Gene entered into a partnership on February 1, 2012 by investing the following
assets:
Paolo Gene
Cash P180, 000
Merchandise Inventory P540, 000
Land 180,000
Building 780,000
Furniture and Fixtures 1,200,000

The agreement between Paolo and Gene provides that profits and losses are to be divided
40% and 60%, respectively, and that the partnership is to assume the P360, 000 mortgage loans
on the building. If Paolo is to receive a capital credit equal to her profit and loss ratio, how much
cash must Gene invest?

a. P870,000
b. P930,000
c. P780,000
d. P810,000

11. On June 1, Dennis and Roy 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 the
assets transferred after the following adjustments:

a. Roy's inventory is to be increased by P7,500.

b. An allowance for bad debts of P2, 500 and P3, 750 are to be set up on the books of Dennis and
Roy, respectively
c. Account payable of P10, 000 is to be recognized in Dennis's books.

The individual trial balances on June 1, before adjustments, follow:

Assets Liabilities Capital

Dennis 187,500 12,500 175,000
Roy 282,500 86,250 196,250

What is the capital balance of Roy after adjustments?

a. P213, 750
b. P203, 750
c. P200, 000
d. P192, 500

Items 12 through 16 are based on the following information:

Z and X are partners in a business. Z's original capital was P20, 000 and X's was P30,000.
They agree to share profits and losses as follow:
Z X
As salaries P14,000 P20,000
As interest on original capital 10% 10%
Remaining profits or losses 2/5 3/5

12. If the profits for the year were P60,000, what share of the profits would Z receive?
a. P16,000
b. P24,400
c. P22,400
d. P28,600

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13. If the profits for the year were P25,000, what share of the profits would X receive?
a. P14,600
b. P20,000
c. P29,400
d. P16,400
14. If the losses for the year were P5, 000, what share of the loss would Z receive?
a. P15,400
b. (P1, 600)
c. (P2, 960)
d. (P10, 400)
15 If the profit for the year were P10,000, what share of the profit would Z receive?
a. P15,400
b. (P4,400)
c. P4,400
d. P5,600
16. If the profits fits for the year were P10,000, what share of the profits would X receive?
a.P22,000
b. P271400
c. P16,440
d. P5,600

17. The partnership agreement of S and A allows the former to receive a 20% bonus on profits
before bonus and any residual profits/losses shall be divided 2:3, respectively. Which partner has
an advantage when the partnership earns a profit or when it incurs a loss?
a. S and S
b. A and A
c. S and A
d. A and S

Items 18 and 19 are based on the following:

B, A and D are partners sharing profits 40%, 35%, and 25%. Partners original capitals
were in this ratio, but on June 30, 2011, capital balances are as follows: B, P60,000, A, P500,000
and D, P500,000 Partners want to bring capital balances into the profit and loss ratio.

18. Assuming that the capital balances are to be brought into the profit and loss ratio by
payments outside the firm among partners, the total firm capital to remain the same, what cash
transfers are required between the partners’?
a. B should pay D P100,000 and A, P60,000
b. A should pay D P60,000 and B, P40,000
c. D will receive from B P40,000 and A P60,000
d. D will pay B P40,000 and A, P60,000

19. Assuming that the capital balances are to be brought into the profit and loss ratio by the
lowest possible cash investment in the firm by partners, what additional investments are required
from partners?
a. B, P200,000; A, P200,000; D, P0
b. B, P200,000; A, P200,000; D, P200,000
c. B, P200,000; A, P0; D, P200,000
d. No additional investment required

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20. Partners R and S share profits 3:1 after annual salary allowances of P40,000 and P60,000,
respectively; however, if profits are not adequate to meet the salary allowances, the entire profit
is to be divided in the salary ratio. Profits of P90,000 were reported for the year 2011. In 2012 it
is ascertained that in calculating net income for the year ended December 31, 2011, depreciation
was overstated by P36,000 and ending inventory was overstated by P8,000. The adjustment to
the capital of R and S amounted to
a. 29,500 and 14,500
b. 17,500 and 10,500
c. 36,000 and 54,000
d. 53,500 and 64,500

21. The partnership agreement of K and L provides that interest at 12% per year is to be credited
to each partner on the basis of weighted average capital balances. A summary of L's capital
account for the period ending December 31, 2011 is as follows:

Beginning investment, January 1 P280,000

Additional investment, July 1 80,000
Withdrawal, September, 1 (30,000)
Ending balance, December 31 330,000

The amount of interest that should be credited to L's capital account for 2011 is:
a. P37, 200
b. P27, 900
c. P28, 800
d. P29, 520

22. Molina and Nuevo entered into a partnership agreement in which Molina is to have a 60%
interest in capital and profits and Nuevo is to have a 40% interest in capital and profits. Molina
contributes the following:
Cost Fair Value
Land P 20,000 P40,000
Building 200,000 120,000
Equipment 40,000 30,000

There is a P60,000 mortgage on the building that the partnership agrees to assume. Nuevo
contributes P100,000 cash to the partnership The partnership formation provided for
a. Bonus of P8, 000 to Nuevo
b. Bonus of P8, 000 given by Nuevo .
c. Bonus of P8, 000 given by Molina.
d. Bonus of P8, 000 to Molina and Nuevo

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23. Bruno and Carlos are combining their separate businesses to form a partnership. Cash and
non-cash assets are to be contributed for a total, capital of P300,000 The non-cash assets to be
contributed and the liabilities to be assumed are:

Bruno Carlos
BV FMV BV FMV

Accounts receivable P20,000 P 20,000

Inventories 30,000 40,000 P20,000 25,000
Equipment 60,000 45,000 40,000 50,000
Accounts payable 15,000 15,000 10,000 10,000

The partners’ capital accounts are to be equal after all the contribution of assets and the
assumption of liabilities. The amount of cash to be con tribute by Bruno is

a. 60,000
b. 85,000
c. 150,000
d. 210,000

24. Using the information in Number 23, the total assets of the partnership is
a. 170,000
b. 315,000
c. 180,000
d. 325,00

25. Partners Fojas and Gomez share profits and loss equally after each has been credited in all
circumstances with annual salary allowances of P30,000 arid P24,000, respectively. Under this
arrangement, in which of the following circumstances will Fojas benefit by P6,000 more than
Gomez?

a. Only if the partnership has earnings of P54,000 or, more for the year.
b. Only if the partnership does not incur a loss for the year.
c. In all earnings or loss situation.
d. Only if the partnership has earnings of at least P6,000 for the year.

26. Ramos, Campos and Ocampo are partners with average capital balances in 2011 of
P240,00, P120,000 and P80,00, respectively. Partners receive 10% interest on their average
weighted capital balances. After deducting salaries of P60,00o to Ramos and P40,000 t Campos,
the residual profit and loss is divided equally. In 2011, the partnership sustained a P66,000 loss
before interest and salaries to partners. By what amount should Ramos’s capital account change?
a. 14,000 increase
b. 22,000 decrease
c. 70,000 decrease
d. 84,000 decrease

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 27. Lancelot is trying to decide whether to accept a salary of P40,000 or a salary of P25,000
plus a bonus of 10% of net income after salary and bonus as a means of allocating profit
among the partners. Salaries traceable to the other partners are estimated to be P100,000.
What amount of income would be necessary so that Lancelot would consider the choices
equal?
a. 165,000
b. 290,000
c. 265,000
d. 305,000

28. GG admits HH for a partnership interest in his business. The balance sheet accounts of GG
on November 30, 2010 prior to the admission of HH are as follows:

Debit Credit
Cash P ?
Accounts receivable 96,000
Merchandise Inventory 144,000
Accounts Payable P 49,600
GG, Capital ?

It is agreed that for purposes of establishing GG's interest, the following adjustments should be
made:
1. An allowance for doubtful accounts of 2% of accounts receivable is to be established.
2. The merchandise inventory is to be valued at P 160,000.
3. Prepaid expenses of P 5,200 and accrued expenses of P 3,200 are to be recognized.

HH invested cash of P113,640 to give him a one-third interest in the total capital of the
firm. What is the capital balance of GG before the admission of HH?
a.P227,280
b. P 230,120
c. P211,200
d. P 250,500

Problem Solving:

Problem 1(2pts)
Darwin and Paul formed DP Partnership on January 1, 2012. Darwin and Paul had been
operating as sole proprietors. The book values and the fair values of the contributors to be made
by each of the partners, as agreed upon by the partners are as follows:

Darwin Paul
Book value Fair value Book value Fair value
Cash 5,000 5,000 10,000 10,000
Accounts receivable, net 12,000 14,000 4,000 5,000
Inventory 15,000 16,000 30,000 35,000
Machinery, net 10,000 10,000
Land 8,000 10,000

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Building 30,000 30,000

The partnership is to assume accounts payable of Darwin and Paul in the accounts of P10,
000 and P20, 000, respectively.

1. How much amount of capital should be credited to Darwin and Paul?

2. At what values should the assets contributed be recorded in the books?

Problem 2 ( 7pts)

N and F organized the Levin Partnership on January 1, 2011. The following entries were
made in their capital accounts during 2011:

Debit Credit
N, capital
January 1 P180,000
April 1 P50,000
October 1 10,000

F, capital
January 1 P60,000
March 1 P10,000
September 1 20,000
November 1 10,000

Required: if the partnership net income, computed before salaries, interest or bonus is P56,000
for 2011. Indicate its division between the partners under each of the following independent
profit sharing:
a. Interest at 4% is allowed on average capital investments, and the balance is divided
equally.
b. A salary of P24,000 is to be credited to F, 4% interest is allowed on each partner on
his ending capital balance, and the balance in the ratio of beginning capital balances.
c. Salaries allowed to N and F in the amounts of P34,000 and P38,000, respectively, and
remaining profits and losses are divided in the ratio of average capital balances.
d. A bonus of 10% of the partnership net income is credited to N, a salary of P16,000 is
allowed to F and remaining profits and losses are shared equally ( the bonus is
regarded as an expense for the purposes of calculating the bonus amounts.)

“The difference between a successful person

and others is not a lack of strength, not a lack
of knowledge, but rather a lack in will.”
― Vince Lombardi Jr.

-End of Examination-

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