BASIC ACCOUNTING - PARTNERSHIP AND CORPORATION

Nature and Formation of Partnership

MULTIPLE CHOICE QUESTIONS. Encircle the best answer in the following questions. Show supporting computations in
good form if necessary.

1. Which of the following best describes the attributes of a partnership?

A. Limited life of the business and limited liability of partners
B. Limited life of the business and unlimited liability of partners
C. Unlimited life of the business and limited liability of partners
D. Unlimited life of the business and unlimited liability of partners

2. When a partner withdraws cash or other assets, the drawing account is

A. Debited C. Debited and Credited
B. Credited D. Not affected

3. All of the following affect a partner’s capital account except

A. Additional investment C. Partnership net income or loss
B. Payment of liability D. Withdrawal of a partner

4. Which of the following are kinds of partnerships according to liability of partners?

A. General partnership C. Industrial partnership
B. Limited partnership D. Both A and B

5. Which of the following relate to the capital share of a partner in a partnership?

A. The percentage of equity that a partner has on the net assets
B. Proportionate to a partner’s capital contribution
C. May not be proportionate to capital contribution due to bonus
D. All of those

6. On April 1, 2014, Apple and Ayme formed a partnership with each contributing the following assets:
Apple Ayme
Cash P 120,000 P 80,000
Machinery and Equipment 100,000 340,000
Building 900,000
Furniture and Fixtures 40,000

The building is subject to a mortgage loan of P 300,000, which is to be assumed by the partnership. On April 1, 2014, the
balance in Ayme’s capital account should be
A. P 980,000 B. P 1,020,000 C. P 1,280,000 D. P 1,320,000

7. Aster and Amie are forming a partnership by combining their businesses. Their books show the following:
Aster Amie
Cash P 72,000 P 30,000
Accounts Receivable 150,000 108,000
Merchandise Inventory 240,000 156,000
Furniture and Fixtures 330,000 102,000
Prepaid Expenses 63,000 21,000
Accounts Payable 366,000 144,000
Aster, Capital 489,000
Amie, Capital 273,000
 It has been agreed to recognize uncollectible accounts of P 7,500 and P 5,400 to each party, respectively, and that the
furniture and fixtures of Amie are under depreciated by P 9,000. If each partner’s share in equity is to be equal to the net
assets invested, the capital accounts of Aster and Amie would be
A. P 489,000 and P 273,000 respectively C. P 481,500 and P 258,600 respectively
B. P 481,500 and P 276,000 respectively D. P 855,000 and P 417,000 respectively

8. A business owned by Antonia was short of cash and she decided to form a partnership with Andrea, who was able to
contribute cash twice the interest of Antonia in the new partnership. The assets contributed by Antonia appeared as
follows in the
Almeda Asistio statement of
BV FMV BV FMV financial position
of Accounts Receivable P 40,000 P 30,000 her business: cash,
P Merchandise Inventory 60,000 90,000 P 40,000 P 80,000 9,000; accounts
Equipment 120,000 100,000 80,000 120,000 receivable, P
Accounts Payable 30,000 30,000 20,000 20,000 189,000 with
allowance for uncollectible accounts of P 6,000; merchandise inventory, P 420,000; and store equipment, P 150,000
with accumulated depreciation of P 15,000.

Antonia and Andrea agreed that the allowance for uncollectible accounts was inadequate and should be P 12,000. they also
agreed that the fair value for the inventory is P 460,000 and for the store equipment is P 140,000. The cash contributed by
Andrea into the partnership was
A. P 747,000 B. P 786,000 C. P 1,572,000 D. P 1,576,000

9. Almeda and Asistio are combining their separate business to form a partnership. Cash and non-cash assets are to be
contributed and the liabilities are to be assumed are as follows:

Amable Aguila
Cash P 40,000
Merchandise Inventory P 90,000
Land 130,000
Equipment 30,000
The partners’ Furniture and Fixtures 200,000 capital accounts are to be
equal after all the contribution of assets and
the assumption of liabilities. The amount of cash to be contributed by Almeda is
A. P 100,000 B. P 110,000 C. P 210,000 D. P 300,000

10. Using the information in no. 9, the total assets of the partnership is
A. P 340,000 B. P 360,000 C. P 630,000 D. P 650,000

11. Using the information in no. 9, and assuming the excess capital credit over the fair value of the net assets transferred to
the partnership is recognized as goodwiill, how much is the goodwill to be credited to Asistio?
A. P 120,000 B. P 150,000 C. P 180,000 D. P 300,000

12. Amable and Aguila entered into a partnership on February 1, 2014 by investing the following assets:

The agreement between Amable and Aguila provides that profits and losses are to be divided 60% and 40% respectively, and
that the partnership is to assume the P 100,000 mortgage on the land. If Aguila is to receive capital credit equal to the full
amount of his net assets invested, how much is his capital balance upon partnership formation?
A. P 10,000 B. P 150,000 C. P 160,000 D. P 400,000

13. Using the information in no. 12, and assuming that Aguila invests P 100,000 cash and the partners are to have equal
interest in the partnership in the total capital of the partnership is
A. P 240,000 B. P 250,000 C. P 490,000 D. P 590,000

14. Using the information in no. 12, and assuming that the capital of the partners is proportionate to their profit and loss ratio,
the bonus upon partnership formation is
A. P 6,000 to Amable B. P 6,000 to Aguila
 C. P 10,000 to Amable D. P 10,000 to Aguila

15. Using the information in no. 14, the capital balances of Amable and Aguila, respectively, upon partnership formation are
A. P 245,000, P 245,000 C. P 156,000, P 234,000
B. P 234,000, P 156,000 D. P 294,000, P 196,000

16. The Agulto and Acejas Partnership was formed on October 1, 2014. At that date, the following assets were contributed:
Agulto Acejas
Cash P 600,000 P 280,000
Merchandise Inventory 440,000
Building 800,000
Furniture and Fixtures 120,000

The building is subject to a mortgage loan of P 320,000 which is to be assumed by the partnership. The partnership
agreement provides that Agulto and Acejas share on profit or loss of 25% and 75%, respectively. Agulto’s capitala ccount at
October 1, 2014 should be
A. P 400,000 B. P 720,000 C. P 1,200,000 D. P 1,520,000

17. Using the information in no. 16 and assuming the partnership agreement provides that the partners initially should have
an equal interest in partnership capital, Acejas’ capital account on October 1, 2014 should be
A. P 480,000 B. P 720,000 C. P 960,000 D. P 1,200,000

18. Using the information in no. 17, the bonus to be recognized in the transaction is
A. Zero B. P 200,000 C. P 240,000 D. P 480,000

19. Using the information in no. 17, the effect of the bonus on the capital of Agulto and Acejas, respectively, is
A. Increase, Increase C. Decrease, Increase
B. Increase, Decrease D. Decrease, Decrease

20. Using the information in no. 16, and assuming that capital shall be proportionate to the partners’ profit or loss ratio, the
required capital of Acejas is
A. P 520,000 B. P 720,000 C. P 1,200,000 D. P 1,440,000

21. The Articles of Co-Partnership should contain clear provisions on all of the following except
A. Taxes paid by the partnership C. Withdrawals allowed to partners
B. Causes of the partnership dissolution D. Profit-sharing ratio

22. The non-cash contributions of the partners to form a partnership are recorded by the partnership at their
A. Agreed value B. Book value C. Dissolution value D. Original value

23. When a partnership cannot pay its debt with business assets, the partners
A. Are not personally liable for the debts C. Must convert the partnership to a joit venture
B. Have limited personal liability D. Must use their personal assets to meet the debts

24. A partner who takes active part in the business but whose connection with the partnership is concealed to the public is
konwn as a (an)
A. Silent partner C. Nominal partner
B. Secret partner D. Ostensible partner

25. A partnership which has failed to comply with one or more of the legal requirements for its establishment is classified as
a (an)
A. Open partnership C. De facto partnership
B. De jure partnership D. Secret partnership

26. Two individuals who were previously sole proprietors formed a partnership. Property other than cash which is part of the
initial investment in the partnership would be recorded for financial accounting purposes at the
A. Proprietors’ book value or the fair value of the property at the date of the investment, whichever is higher
B. Proprietors’ book value or the fair value of the property at the date of investment, whichever is lower
C. Proprietors’ book values of the property at the date of investment
D. Fair value of the property at the date of the investment
27. Anton and Almar formed a partnership, each contributing assets to the business. Anton contributed inventory with a
current value in excess of its carrying amount. Almar contributed real estate with a carrying in excess of its current
market value. At what amount should the partnership record inventory and real estate?
A. Carrying amount, Market value C. Carrying amount, Carrying amount
B. Market value, Carriyng amount D. Market value, Market value

28. A partnership is formed by two individuals who were previously sole proprietors. Non-cash assets invested would be
recorded into the partnership at the proprietor’s
A. Carrying amount or the fair market value of the property at the date of the investment, whichever is higher
B. Fair value of the property at the date of the investment
C. Carrying amount or the fair market value of the property at the date of the investment, whichever is lower
D. Carrying amount of the property at the date of the investment

29. Agaton joined a partnership by contributing the following: cash, P 120,000; accounts receivable, P 4,000; land, P 240,000
at cost, P 400,000 at fair value; and accounts payable, P 16,000. What will be the initial amount recorded in Agaton’s
capital account?
A. P 408,000 B. P 424,000 C. P 508,000 D. P 524,000

30. On October 1, Alonzo Amurao 2014, Alba and Ang formed a

partnership and Cash P 300,000 P 140,000 agreed to share profits and losses
in the ratio of Merchandise Inventory 220,000 3:7, respectively. Alba
contributed cash Building 4,000,000 of P 100,000 and a parcel of land
that cost him P Furniture and Fixtures 900,000 200,000. Ang contributed P
300,000 cash. The land has a quoted price of P 360,000 on October 1, 2014. What is the amount of partnership capital
on Octiber 1, 2014?
A. P 360,000 B. P 460,000 C. P 760,000 D. P 960,000

31. On June 30, 2014, a partnership was formed by Ariston and Astoria. Ariston contributed cash,. Astoria, previously a sole
proprietor, contributed non-cash assets, including a realty subject to mortgage, which was assumed by the partnership.
Astoria’s capital account at June 30, 2014 should be recorded at
A. The fair value of the property less the mortgage payable at June 30, 2014
B. Astoria’s carrying amount of the property at June 30, 2014
C. Astoria’s carrying amount of the property less the mortgage payable at June 30, 2014
D. The fair value of the property at June 30, 2014

32. Abada and Acosta formed a partnership. Abada contributed cash of P 300,000 and an equipment costing P 600,000.
Acosta contributed land costing P 600,000. the current market value of the assets are as follows: equipment, P
450,000; land, P 750,000. The partnership will assume a P 150,000 liability on the land contributed by Acosta. The
capital accounts of the Abada and Acosta, respectively, will be credited as
A. P 900,000, P 450,000 C. P 750,000, P 600,000
B. P 300,000, P 750,000 D. P 300,000, P 600,000

33. The partnership of Alonzo and Amurao was formed on April 1, 2014. At that date, the following assets were contibuted:

The building is subject to mortgage loan of P 1,600,000 which is to be assumed by the partnership. The partnership
agreement provides that Alonzo and Amurao share on profit and loss of 25% and 75%, respectively. Amurao’s capital
account at April 1, 2014 should be
A. P 900,000 B. P 1,200,000 C. P 2,760,000 D. P 4,360,000

34. Using the information in no. 33, and assuming that the partnership agreement provides that the partners initially should
have an equal interest in partnership capital, Alonzo’s capital account should be increased by
A. P 780,000 B. P 900,000 C. P 1,200,000 D. P 1,980,000

35. Using the information in no. 33, the total partnership capital on April 1, 2014 is
A. P 1,200,000 B. P 3,960,000 C. P 4,740,000 D. P 5,560,000

36. Using the information in no. 34, bonus was given by

A. Amurao to Alonzo C. The partnership
B. Alonzo to Amurao D. Nobody
 37. Using the information in no. 33, and assuming that capital shall be proportionate to the partners’ profit and loss ratio, the
required capital of Alonzo is
A. P 900,000 B. P 990,000 C. P 1,200,000 D. P 3,960,000

38. On April 1, 2014, Aleli, Amy and Annie formed a partnership by combining their separate business proprietorships. Aleli
contributed cash of P 200,000. Amy contributed property with a carrying amount of P 144,000, original cost of P
160,000, and fair value of P 320,000. the partnership accepted responsibility for the P 140,000 mortgage attached to
the property. Annie contributed equipment with a carrying amount of P 120,000, original cost of P 300,000, and fair
value of P 220,000. The partnership agreement specifies that profits and losses are to be shared equally.

Which partner has the largest capital account balance as of April 1, 2014?
A. Aleli C. Annie
B. Amy D. All capital accounts are equal

39. Using the information in no. 38, the property contributed by Amy is to be recorded by the partnership on April 1, 2014 at
A. P 144,000 B. P 160,000 C. P 180,000 D. P 320,000

40. Using the information in no. 38 and assuming capital are in the profit and loss ratio, then there is
A. P 20,000 bonus to Amy
B. P 20,000 bonus from Aleli
C. No bonus to Aleli

Which is correct?
A. A only B. B only C. A and B only D. A, B and C only

TRUE OR FALSE. Write T if the statement is correct and F if the statement is false before each number.

1. A written partnership contract is required to be prepared whenever a partnership is formed.

2. All partnerships are subject to income tax.

3. A partner’s contribution in the form of industry or service is recorded by debiting the account ‘Industry.’

4. In the partnership books, there as many capital and drawing accounts as there are partners.

5. A partner’s contribution in the form of non-cash assets should be recorded at its fair market value in the absence of an
agreed value.

6. A partnership is much easier and less expensive to organize than a corporation.

7. A newly organized partnership should always open a new set of books.

8. All partnerships have at least one general partner.

9. Each partner generally has the authority to enter into contracts which is binding upon the partnership.

10. The property invested in a partnership by a partner becomes the property of the partnership.

11. Contra acconuts, like Allowance for Uncollectible Accounts and Accumulated Depreciation, on non-cash assets invested
by partners are always carried on the partnership books.

12. The unlimited liability of partners for partnership debts makes the partnership more reliable from the point of view of
creditors.

13. Goodwill may be recognized upon partnership formation when the capital credited to a partner exceeds the fair value of
the net assets transferred from previous sole proprietorship business.

14. Before a partnership can operate legally, it has to first comply with registration requirements of the SEC, DTI, BIR, SSS
and Mayor’s Office.

15. There is a required number of limited partners in a general co-partnership; in the same manner that, there is a required
number of general partners in a limited partnership.

16. A partnership is always owned by at least two (2) individuals.

 17. For financial reporting purposes, the personal assets and debts of a partner should be combined with the assets and debts
of the business.

18. Partners are personally liable for the liabilities of the partnership if the partnership is unable to pay.

19. In a partnership, an owner’s equity acconut exists for each partner.

20. Net asset adjustments are made on a sole proprietor’s books, when theses are to be used as partnership books, for the
purpose of arriving at agreed values.

PROBLEM SOLVING QUESTIONS.

Problem 1.

Acosta Company
Statement of Financial Position
December 1, 2014

Assets

Cash P 600,000
Notes Receivable 375,000
Accounts Receivable 2,250,000
Less: Allowance for Uncollectible Accounts 150,000 2,100,000
Merchandise Inventory 600,000
Furniture and Equipment 1,800,000
Less: Accumulated Depreciation 450,000 1,350,000
TOTAL ASSETS P 5,025,000

Liabilities and Capital

Notes Payable P 750,000

Accounts Payable 1,575,000
Acosta, Capital 2,700,000
TOTAL LIABILITIES AND CAPITAL P 5,025,000

Aguas offers to invest cash to give him an equity credit equal to one-half of the equity of Acosta after adjustments for the items
below. Acosta accepted the offer.

a. The merchandise is to be valued at P 650,000.

b. The Allowance for uncollectible accounts is P 225,000.
c. Interest is earned on notes receivable should be reflected. The note is dated September 30, 2014 and bears interest at
6%.
d. Interest accrued on notees payable for the period September 1 to December 1, 2014 should be recognized. The interest
rate on the note is 10%.
e. The furniture and equipment are one-third depreciated.
f. Office supplies on hand, which have been charged to expense, amounted to P 15,000. these supplies will be used by the
new partnership.
Instructions:
1. Prepare journal entries on the books of Acosta to give effect to the partnership formation.
2. Prepare the statement of financial position for the new partnership.

Problem 2.

On October 1, 2014, April and Arias decided to pool their assets and form a partnership. The firm is to take over business assets
and assume business liabilities; equities are to be based on net assets transferred after the following adjustments:

a. Arias’ inventory is to be valued at P 350,000.

b. An allowance for uncollectible accounts of P 9,000 and P 7,500 respectively should be set up.
c. Accrued expenses of P 21,000 are to be recognized on April’s books.
d. Arias is to conribute sufficient cash to give him a 60% interest in the new firm.

Statement of financial position for April and Arias on October 1 before adjustments are presented below:
April Arias
Cash P 187,500 P 112,500
Accounts Receivable 450,000 375,000
Merchandise Inventory 400,000 300,000
Equipment 250,000 300,000
Accumulated Depreciation (112,500) (37,500)
TOTAL ASSETS P 1,175,000 P 1,050,000

Accounts Payable P 345,000 P 250,000

Capital 830,000 800,000
Instructions: TOTAL LIABILITIES AND CAPITAL P 1,175,000 P 1,050,000
1. Give the entries to adjust and close the books of April.
2. Give the entries required on the books of Arias upon the formation of the partnership.
3. Prepare a statement of financial position for the new partnership of April and Arias.

Problem 3.

Partners Abada and Albano agreed to combine their businesses into a partnership. The statement of financial position accounts of
Abada and Alabano are shown below:

ABADA ALABANO
Book Value Market Value Book Value Market Value
Cash P 50,000 P 50,000 P 70,000 P 70,000
Accounts Receivable 460,000 460,000 490,000 490,000
Allowance Uncollectible Accounts 30,000 40,000 40,000 50,000
Merchandise Inventory 900,000 950,000 720,000 700,000
Equipment 180,000 120,000 90,000 70,000
Accumulated Depreciation 36,000 -- 9,000 --
Furniture and Fixtures 120,000 90,000 -- --
Accumulated Depreciation 24,000 -- -- --
Accounts Payable 540,000 540,000 360,000 360,000

Instructions: Give the journal entries to record the partnership formation under each of the following assumptions
a. A new set of books are to be opened for the partnership
b. The books of Abada are to be used by the partnership

Problem 4.

On January 1, 2014, Abante, Arevalo and Almonte decided to form a partnership. Abante, a sole proprietor, will transfer to the
partnership his net assets, excluding cash. Arevalo will contribute cash in an amount equal to one and one-half times the
investment of Abante. Almonte will contribute a piece of land with an agreed value of P 1,800,000 subject to a mortgage of P
300,000 to be assumed by the partnership. The statement of financial position of Abante is as shown below.
 Abante Company
Statement of Financial Position
January 1, 2014

ASSETS

Cash P 360,000
Accounts Receivable P 840,000
Less: Allowance for Uncollebectible Accounts 90,000 750,000
Merchandise Inventory 1,200,000
Furniture and Equipment 1,050,000
Less: Accumulated Depreciation 210,000 840,000
TOTAL ASSETS P 3,150,000

LIABILITIES AND CAPITAL

Accounts Payable P 450,000

Abante, Capital 2,700,000
TOTAL LIABILITIES AND CAPITAL P 3,150,000

The Articles of Co-Partnership executed for the purpose calls for adjustments to the assets, as follows:

a. The Allowance for Uncollectible Accounts should be increased by P 150,000.

b. The inventories should be valued at P 1,000,000.
c. The furniture and equipment are underdepreciated by P 240,000.
d. The new partnership is t credit Abante with a capital of P 2,000,000. The excess capital credit over the fair value of the
net assets transeferred is to be recognized as goodwill.

Instructions: Prepare the entries to record the partnership formation assuming

1. The books of Abante are to be used by the partnership.
2. New set of books are to be opened for the partnership.

Problem 5.

The partnership of Abueva and Alano was formed on June 1, 2014, when they agreed to invest equal amount of capital into the
firm. The investment by Abueva consists of P 518,000 cash and an inventory of merchandise valued at P 1,152,000. Alano agreed
to contribute the assets of his business along with the transfer to the partnership of his business liabilities. Alano was credited for
goodwill for the excess of the capital credit over the agreed value of his net assets. The assets and liabilities are shown:

Balances
Alano’s Books Agreed Value
Accounts Receivable P 1,792,000 P 1,792,000
Allowance for Uncollectible Acconuts 76,800 150,000
Inventory 192,000 253,000
Office Equipment, net 256,000 206,000
Accounts Payable 576,000 576,000

Instructions:
1. Give the entries to record the investments of Abueva and Alano in the new partnership.
2. Prepare the beginning statement of financial position of the partnership, reflecting the above transfers to the firm.

Problem 6.

The partnership of Agana and Ayesa was formed on September 1, 2014. At that date, the following assets were invested:

Agana Ayesa
Cash P 200,000 P 80,000
Inventories --- 440,000
Land --- 200,000
Building --- 600,000
Furniture and Equipment 920,000 ---

The building is subject to a mortgage loan of P 240,000, which is to be assumed by the partnership. The partnership contract
provides that Agana and Ayesa share earnings 40% and 60% respectively.
Instructions: Compute the amount of Ayesa’s capital account on September 1, 2014 assuming that the partnership agreement
provides that:

1. Each partner is credited for the full amount of net assets invested.
2. The partners initially should have an equal interest in the partnership capital.
3. The initial partnership capital is shared proportionate to the partners’ profit and loss ratio.

Problem 7.

Sole proprietors Alvis and Ancheta established a partnership on December 31, 2014 sharing profit and losses in the ratio 60% and
40%. They agreed that each would make the following contributions:

Alvis Ancheta
Cash P 50,000 P 750,000
Land 375,000
Building 1,200,000
Furniture and Fixture 675,000

Accounts payable of Alvis totalling P 250,000 are to be assumed by the partnership.

Instructions: Prepare the entries on December 31, 2014 to record the investments in the partnership by Alvis and Ancheta under
each of the following independent assumptions:

1. Each partner is credited for the full amount of the net assets invested.
2. Each partner initially should have an equal interest in the partnership capital.
3. Each partner receive capital proportionate to his profit and loss ratio.

Problem 8.

On May 1, 2014, the business accounts of Ablan and Amias appear below:

Ablan Amias
Cash P 55,000 P 111,770
Accounts Receivable 1,172,680 2,839,450
Merchandise Inventory 600,175 1,300,510
Land 3,015,000 ---
Building --- 2,141,335
Furniture and Fixture 251,725 173,945
Other Assets 10,000 18,000
Acconuts Payable 894,700 1,218,250
Ablan and Amias agreed to Notes Payable 1,000,000 1,725,000 form a partnership
contributing their respective Ablan, Capital 3,209,880 assets and liabilities subject
to the following Amias, Capital 3,614,760 adjustments:
a. Accounts receivable of P 50,000 in Ablan’s books and P 75,000 in Amias’ books are uncollectible
b. Inventories of P 27,000 and P 35,000 are worthless in Ablan’s and Amias’ respective books.
c. Other assets of P 10,000 and P 18,000 in Ablan’s and Amias’ books are to be written off.

Instructions:

1. Prepare journal entries to adjust the books of both partners.

2. Prepare journal entries to close the books of both partners.
3. Prepare journal entries on the new partnership books.
4. Prepare a statement of financial position for the new partnership.

Problem 9.

The post-closing trial balance of Joel Palencia and Tommy Peñaflor Partnership as of December 31, 2014 are presented below:
 Post-closing Trial Balance
December 31, 2014
J. Palencia T. Peñaflor
Debit Credit Debit Credit
Cash P 125,000 P 186,000
Accounts Receivable 80,000 120,000
Allowance for Doubtful Accounts P10,000 P 12,000
Notes Receivable 50,000
Interest Receivable 1,000
Merchandise 75,000 150,000
Equipment 40,000 60,000
Accumulated Depreciation 15,000 40,000
Accounts Payable 50,000 75,000
Notes Payable 20,000
Interest Payable 500
Palencia, J. 275,500
Peñaflor, T. 389,000
P 371,000 P 371,000 P 516,000 P 516,000

Instructions:

1. J. Palencia, and T. Peñaflor agreed to combine their business to form a partnership. All of the assets and liabilities are to
be taken over by the partnership.
a. Give the entries in the books of the respective single proprietorship to finally close their book.
b. Give the journal entries to record the investments of each of the partners in the books of the partnership.

2. J. Palencia and T. Peñaflor have agreed to combine their business to form a partnership. All of the assets and liabilities
are to be taken over by the partnership, after the following adjustments are taken in the books of the respective single
proprietorship.
 Allowance for Doubtful Accounts should be increased to 20% of the Accounts Receivable.
 Merchandise should be reduced by 5%.
 Equipment are 80% depreciated.

a. Give the necessary journal entries in the books of the single proprietorship to adjust and close its books.
b. Journal entries in the books of the partnership recording the investments of J. Palencia and T. Peñaflor.

MULTIPLE CHOICE - THEORY AND PROBLEM. Encircle the letter of the best answer. Show supporting computations in
good form if necessary.

1. The Articles of Co-Partnership should contain clear provisions on all of the following except
a. Taxes paid by the partnership c. Withdrawals allowed to partnership
b. Causes of partnership dissolution d. Profit-sharing ratio

2. The non-cash contributions of the partners to form a partnership are recorded by the partnership at their
a. Agreed value b. Book value c. Dissolution value d. Original cost

3. When a partnership cannot pay its debts with business assets, the partners
a. Are not personally liable for the debts c. Must convert the partnership to a joint venture
b. Have limited personally liabity d. Must use their personal assets to meet to the debts

4. A partner who takes active part in the business but whose connection with the partnership is concealed to the public is
known as a (an)
a. Silent partner c. Nominal partner
b. Secret partner d. Ostensible partner

5. A partnership which has failed to comply with one or more of the legal requirements for its establishment is classified as
a (an)
a. Open partnership c. De facto partnership
b. De jure partnership d. Secret partnership

6. Two individuals who were previously sole proprietors formed a partnership. Property other than cash which is part of the
initial investment in the partnership would be recorded for financial accounting purposes at the
a. Proprietors’ book values or the fair value of the property at the date of the investment, whichever is higher
b. Proprietors’ book values or the fair value of the property at the date of the investment, whichever is lower
c. Proprietors’ book values of the property at the date of the investment
d. Fair value of the property at the date of the investment

7. Anton and Almar formed a partnership, each contributing assets to the business. Anton contributed inventory with a
current market value in excess of its carrying amount. Almar contributed real estate with a carrying amount in excess
of its current market value. At what amount should the partnership record each of the following assets?
Inventory Real Estate
a. Carrying amount Market value
b. Market value Carrying amount
c. Carrying amount Carrying amount
d. Market value Market value

8. A partnership is formed by two individuals who were previously sole proprietors. Non-cash assets invested would be
recorded into the partnership at the proprietor’s
a. Carrying amount or the fair value of the property at the date of the investment, whichever os higher
b. Fair value of the property at the date of the investment
c. Carrying amount or the fair value of the property at the date of the investment, whichever is lower
d. Carrying amount of the property at the date of the investment

9. Agaton joined a partnership by contributing the following: cash. P 120,000; accounts receivable, P 4,000; land , P240,000
cost, P 400,000 fair value; and accounts payable, P 16,000.what will be the initial amount recorded in Agaton’s capital
account?
a. P 408,000 b. P 424,000 c. P 508,000 d. P 524,000

10. On October 1, 2014, Alba and Ang formed a partnership and agreed to share profits and losses in the ratio of 3:7,
respectively. Alba contributed cash of P 100,000 and a parcel of land that cost him P 360,000. Ang contributed P
300,000 cash. The land has a quoted price of P 360,000 on October 1, 2014. What is the amount of partnership capital
on October 1, 2014?
a. P 360,000 b. P 460,000 c. P 760,000 d. P 960,000

11. On June 30, 2014, a partnership was formed by Ariston and Astoria.Ariston contributed cash. Astoria, previously a sole
proprietor, contributed non-cash assets, including a realty subject to a mortgage, which was assumed by the partnership.
Astoria’s capital account at June 30, 2014 should be recorded at.
a. The fair value of the property less the mortgage payable at June 30, 2014
b. Astoria’s carrying amount of the property at June 30, 2014
c. Astoria’s carrying amount of the property at June 30, 2014 less the mortgage payable at June 30, 2014
d. The fair value of the property at June 30, 2014

12. Abada and Acosta formed a partnership. Abada contributed cash of P 300,000 and an equipment costing P 600,000.
Acosta contributed land costing P 600,000. The current market value of the assets are as follows: equipment, P
450,000; land, P 750,000. The partnership will assume a P 150,000 liability on the land contributed by Acosta. The
capital acconuts of the partners will be credited as follows:
Abada Acosta
a. P 900,000 P 450,000
b. P 300,000 P 750,000
c. P 750,000 P 600,000
d. P 300,000 P 600,000

13. The partnership of Alonzo and Amurao was formed on April 1, 2014. At that date, the following assets were contributed:

Alonzo Amurao
Cash P 300,000 P 140,000
Merchandise Inventory 220,000
Building 4,000,000
Furniture and Equipment 900,000

The building is subject to a mortgage loan of P 1,600,000 which is to be assumed by the partnership. The partnership
agreement provides that Alonzo and Amurao share on profit and loss of 25% and 75%, respectively. Amurao’s capital
account at April 1, 2014 should be
a. P 900,000 b. P 1,200,000 c. P 2,760,000 d. P 4,360,000

14. Using the information in no. 13, and assuming that the partnership agreement provides that the partners initially should
have an equal interest in partnership capital, Alonzo’s capital acconut should be increased by
a. P 780,000 b. P 900,000 c. P 1,200,000 d. P 1,980,000
15. Using the information in no. 13, the total partnership capital on April 1, 2014 is
a. P 1,200,000 b. P 3,960,000 c. P 4,740,000 d. P 5,560,000

16. Using the information in no. 14, bonus was given by

a. Amurao to Alonzo c. The partnership
b. Alonzo to Amurao d. Nobody

17. Using the information in no. 13, and assuming that capital shall be proportionate to the partners’ profit and loss ratio, the
required capital of Alonzo is
a. P 900,000 b. P 990,000 c. P 1,200,000 d. P 3,600,000

18. On April 1, 2014, Aleli, Amy and Annie formed a partnership by combining their separate business proprietorships. Aleli
contributed cash of P 200,000. Amy contributed property with a carrying amount P 144,000, original cost of P 160,000,
and fair value of P 320,000. The partnership accepted responsibility for the P 140,000 mortgage attached to the
property. Annie contributed equipment with a carrying amount of P 120,000, original cost of P 300,000, and fair value
of P 220,000. The partnership agreement specifies that profits and losses are to be shared equally.

Which partner has the largest capital account balance as of April 1, 2014?
a. Aleli
b. Amy
c. Annie
d. All capital accounts are equal
 19. Using the information in no. 18, the property contributed by Amy is to be recorded by the partnership on April 1, 2014 at
a. P 144,000 b. P 160,000 c. P 180,000 d. P 320,000

20. Using the information in no. 18, and assuming capital are in the profit and loss ratio, then there is
A. P 20,000 bonus to Amy
B. P 20,000 bonus to Annie
C. No bonus to Aleli

Which is(are) correct?

a. A only b. B only c. A and B only d. A, B and C

21. On December 1, 2014, EE and FF formed a partnership, agreeing to share for profit and losses in the ratio of 2:3,
respectively. EE invested a parcel of land that cost him P 25,000. FF invested P 30,000 cash. The land was sold for P 50,000
on the same date, three hours after formation of the partnership. How much should be the capital balance of EE right after the
formation?
a. P 25,000 FF GG
b. P 30,000 Cash P 15,000 P 37,500
c. P 60,000 Accounts Receivable 540,000 225,000
d. P 50,000 Merchandise Inventory --- 202,500
Machinery and Equipment 150,000 270,000
TOTAL P 705,000 P 735,000
Accounts Payable P 135,000 P 240,000
FF, Capital 570,000 ---
GG, Capital --- 495,000
TOTAL P 705,000 P 735,000
22. On March 1, 2014, II and JJ formed a partnership with each contributing the following assets:
II JJ
Cash P 300,000 P 700,000
Machinery and Equipment 250,000 750,000
Building --- 2,250,000
Furniture and Fixtures 100,000 ---

The building is subject to mortgage loan of P 800,000, which is to be assumed by the partnership agreement provides that II
and JJ share profits and losses 30% and 70% respectively. On March 1, 2014 the balance in JJ’s capital account should be:
a. P 3,700,000 b. P 3,140,000 c. P 3,050,000 d. P 2,900,000

23. The same information in no.22, except that the mortgage loan is not assumed by the partnership. On March 1, 2014 the
balance in JJ’s capital account should be
a. P 3,700,000 b. P 3,140,000 c. P 3,050,000 d. P 2,900,000
 Accounts Receivable 18,500 13,500
Invnetories 30,000 19,500
Furniture and Fixtures (net) 30,000 9,000
Office Equipment 11,500 2,750
Prepaid Expenses 6,375 3,000
TOTAL P 105,375 P 51,500 Jones Smith
Accounts Payable P 45,750
Cash P 18,000 P 80,000 P 40,000
Capital 59,625
Building - cost to33,500
Jones 300,000
TOTAL P 105,375
- fair value P 51,500 400,000
Inventories - cost to Smith 200,000
- fair value 280,000
Mortgage Payable 120,000
Accounts Payable 60,000

They agreed to have the following items

recorded in their books: LL MM
1. Provide 2% Cash P 11,000 P 22,354 allowance for doubtful
accounts. Accounts Receivable 234,536 567,890
2. PP’s furniture Inventories 120,035 260,102 and fixtures should be P
31,000, while QQ’s office Land 603,000 --- equipment is
underdepreciated by P Building --- 428,267 250.
3. Rent expense Furniture and Fixtures 50,345 34,789 incurred previously by
PP was not yet recorded Other Assets 2,000 3,600 amounting to P 1,000,
while salary expense TOTAL P 1,020,916 P 1,317,002 incurred by QQ
was not also recorded Accounts Payable P 178,940 P 243,650 amounting to P 800.
4. The fair market Notes Payable 200,000 345,000 value of inventory
amounting to: PP - P LL, Capital 641,976 --- 29,500; QQ - P 21,000.
MM, Capital --- 728,352
Compute the net (debit) TOTAL P 1,020,916 P 1,317,002 credit adjustment for PP
and QQ
a. PP, P 2,870; QQ, P 2,820 c. PP, (P870); QQ, P 180
b. PP, (P 2,870); QQ, (P2,820) d. PP, P 870; QQ, (P 180)

31. The same information in no. 30, compute the total liabilities after the formation:
a. P 61,950 b. P 63,750 c. P 65,550 d. P 63,950

32. The same information in no.30, comute the total assets after the formation:
a. P 157,985 b. P 156,875 c. P 160,765 d. P 152,985

33. On April 30, 2014, XX, YY and ZZ formed a partnership by combining their separate business proprietorships. XX
contributed of P 75,000. YY contributed property with a P 54,000 carrying amount, a P 60,000 original cost, and P 120,000
fair value. The partnership accepted responsibility for the P 52,500 mortgage attached to the property. ZZ contributed
equipment with a P 45,000 carrying amount, a P 112,500 original cost , and P 82,500 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 April 30, 2014 capital balance?
a. XX c. ZZ
b. YY d. All capital accounts balances are equal