Chapter 1

Partnership Formation

NAME: Date:
Professor: Section: Score:

QUIZ:

1. Which of the following statements is correct?

a. An advantage of a partnership is that it is difficult to dissolve.
b. Partner A contributed cash of ₱100 and land with carrying amount of ₱500 and fair value of
₱700 to a partnership. If no bonus is given to any partner, Partner A’s capital account should
be credited for ₱600.
c. Partner C contributed inventory costing ₱500 but with a net realizable value of ₱400 to a
partnership. The related accounts payable of ₱100 will be assumed by the partnership. The
net credit to Partner C’s capital account in the partnership books is ₱300.
d. A partnership business has a legal life of 50 years.

2. The accounting for partnerships differs from the accounting for sole proprietorships,
corporations and cooperatives in regard to the accounting for
a. assets.
b. liabilities.
c. equity.
d. all of these.

3. 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.

4. A and B formed a partnership. Although A and B contributed equal amounts of cash, it was
agreed that the initial credit to A’s capital account should be greater than that of B. If the bonus
method is used, which of the following statements is correct?
a. A capital bonus is given to B.
b. Partner B’s account is not affected by the agreement.
c. Goodwill must be recorded.
d. The increase in A’s capital account is treated as a decrease in B’s capital account.

5. On April 30, 20x1, A, B and C formed a partnership. A contributed cash of ₱50,000. B

contributed property with ₱36,000 carrying amount, ₱40,000 original cost and ₱80,000 fair value.
The partnership accepted responsibility for the ₱35,000 mortgage attached to the property. C
contributed equipment with ₱30,000 carrying amount, ₱75,000 original cost and ₱55,000 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 smallest April 30, 20x1 capital
account balance?
a. A
b. B
c. C
d. All capital account balances are equal

Use the following information for the next two questions:

A and B formed a partnership. The following are their contributions:
  A B
Cash 200,000 -
Accounts receivable 150,000 -
Inventory 100,000 -
Land 500,000
Building 620,000
Total 450,000 1,120,000
Note payable 220,000
A, capital 230,000
B, capital 1,120,000
Total 450,000 1,120,000

Additional information:
 The accounts receivable has a recoverable amount of ₱120,000.
 The inventory has an estimated selling price of ₱110,000 and estimated costs to sell of ₱20,000.
 The land has a fair value of ₱500,000 an unpaid mortgage of ₱120,000. The partners agreed that B
shall settle the mortgage using his personal funds.
 The building is over-depreciated by ₱30,000.
 The building also has an unpaid mortgage amounting to ₱550,000. The partners agreed that the
partnership shall assume repayment of the mortgage.
 The note payable has a fair value of ₱210,000.
 A and B shall share in profits and losses 40% and 60%, respectively.

6. How much are the adjusted capital balances of A and B, respectively?

A B
a. 200,000 600,000
b. 230,000 480,000
c. 200,000 1,030,000
d. 230,000 600,000

7. Assume that a partner’s capital shall be increased accordingly by contributing additional cash to
bring the partners’ capital balances proportionate to their profit or loss ratio. Which partner
should provide additional cash and how much is the additional cash contribution?
a. Partner A should provide additional capital of ₱150,000.
b. Partner A should provide additional capital of ₱200,000.
c. Partner B should withdraw capital of ₱300,000.
d. Partner B should provide capital of ₱300,000.
8. A and B agreed to form a partnership. A shall contribute ₱60,000 cash while B shall contribute
₱120,000 cash. However due to the expertise that A will be bringing to the partnership, the
partners agreed that they should initially have an equal interest in the partnership capital.
Under the bonus method, how much is the adjusted capital balance of B immediately after the
formation of the partnership?
a. 60,000
b. 90,000
c. 120,000
d. none of these

9. A, B and C formed a partnership. Their contributions are as follows:

A B C
Cash 50,000 40,000 140,000
Equipment 150,000
Totals 50,000 190,000 140,000

Additional information:
 Although C has contributed the most cash to the partnership, he did not have the full amount of
₱140,000 available and was forced to borrow ₱40,000. The partners agreed that half of the
amount borrowed shall be assumed by the partnership.
 The equipment contributed by B has an unpaid mortgage of ₱20,000, the repayment of which is
not assumed by the partnership.
 The partners agreed to equalize their interests. Cash settlements among the partners are to be
made outside the partnership.

Which partner(s) shall receive cash payment from the other partner(s)?
a. B shall receive ₱70,000 from C
b. C shall pay ₱70,000 to A
c. A shall receive ₱70,000 from B
d. A shall pay ₱70,000 to B

10. A and B agreed to form a partnership. The partnership agreement stipulates the following:
 Initial capital of ₱300,000.
 A 25:75 interest in the equity of the partnership.

A contributed ₱100,000 cash, while B contributed ₱200,000 cash. Which partner should provide
additional investment (or withdraw part of his investment) in order to bring the partners’ capital
credits equal to their respective interests in the equity of the partnership?
a. A shall provide additional capital of ₱25,000.
b. B shall withdraw capital of ₱25,000.
c. B shall make an additional investment of ₱25,000.
d. No additional contribution or withdrawal shall be made.
“A wise man will hear and increase learning, and a man of understanding will attain wise counsel.” (Proverbs 1:5)

Chapter 2
Partnership Operations

NAME: Date:
Professor: Section: Score:

QUIZ:
1. A and B formed a partnership on March 1, 20x1. The partnership agreement stipulates the
following:
 Monthly salary allowances of ₱10,000 for A and ₱6,000 for B. Salary allowances are to be
withdrawn by the partners throughout the period and are to be debited to their respective
drawings accounts.
 The partners share profits equally and losses on a 60:40 ratio.

During the period the partnership earned profit of ₱200,000 before salary allowances. How much is
the share of Partner B in the partnership profit?
a. 120,000
b. 100,000
c. 80,000
d. 76,000

2. A and B formed a partnership. The partnership agreement stipulates the following:

 Annual salary allowances of ₱100,000 for A and ₱70,000 for B.
 Bonus to A of 10% of profit after partner’s salaries and bonus.
 The partners share profits and losses on a 50:50 ratio.

During the period the partnership incurred loss of ₱500,000. How much is the share of A in the
partnership results of operations during the period?
a. (280,000)
b. (220,000)
c. (265,000)
d. (235,000)

3. Maxwell is trying to decide whether to accept a salary of ₱40,000 or a salary of ₱25,000 plus a
bonus of 10% of profit after salaries and bonus, as a means of allocating profit among partners.
Salaries traceable to the other partners are estimated to be ₱100,000. What amount of profit
would be necessary so that Maxwell would consider the choices to be equal?
a. 165,000
b. 265,000
c. 290,000
 d. 305,000

4. The partnership agreement of Axel, Berg & Cobb provides for the year-end allocation of net
income in the following order:
 First, Axel is to receive 10% of net income up to ₱100,000 and 20% over ₱100,000.
 Second, Berg and Cobb each are to receive 5% of the remaining income over ₱150,000.
 The balance of income is to be allocated equally among the three partners.

The partnership’s 2003 net income was ₱250,000 before any allocations to partners. What amount
should be allocated to Axel?
a. 101,000
b. 103,000
c. 108,000
d. 110,000

5. A and B formed a partnership. The partnership agreement stipulates the following:

 Annual salary allowance of ₱40,000 for A.
 Interest of 10% on the weighted average capital balance of B.
 The partners share profits and losses in a 80:20 ratio.

During the period the partnership earned profit of ₱100,000.

The movements in B’s capital account are as follows:

B, Capital
60,000 beg.
Aug. 1 withdrawal 30,000 20,000 Mar. 31 additional investment
40,000 Oct. 1 additional investment
10,000 Dec. 1 additional investment
100,00
end. 0

How much is the share of A in the partnership profit?

a. 82,134
b. 82,200
c. 78,667
d. 83,167

6. Garcia and Henson formed a partnership on January 2, 2005 and agreed to share profits 90% and
10%, respectively. Garcia contributed capital of ₱25,000. Henson contributed no capital but has a
specialized expertise and manages the firm full time. There were no withdrawals during the
year. The partnership agreement provides for the following:
 Capital accounts are to be credited annually with interest at 5% of beginning capital.
 Henson is to be paid a salary of ₱1,000 a month.
 Henson is to receive a bonus of 20% of income calculated before deducting his salary, bonus
and interest on capital account.
  The partnership 2005 income statement as follows:

Revenues ₱ 96,450
Expenses (including salary, interest, and bonus) 49,700
Net income ₱ 46,750

What is Henson’s 2005 bonus?

a. 11,688
b. 12,000
c. 15,000
d. 15,738

7. Partner A first contributed ₱50,000 of capital into an existing partnership on March 1, 2002. On
June 1, 2002, said partner contributed another ₱20,000. On September 1, 2002, he withdrew
₱15,000 from the partnership. Withdrawal in excess of ₱10,000 is charged to the partner’s capital
account. What is the annual weighted average capital balance of Partner A?
a. 32,500 c. 60,000
b. 51,667 d. 48,333

8. A and B formed a partnership. The partnership agreement stipulates the following:

 A and B shall maintain average investments of ₱400,000 and ₱600,000, respectively. Interest on
the excess or deficiency in a capital contribution is to be computed at 10% per annum.
 After interest allowances, the partners share profits and losses on a 60:40 ratio.

During the first six months of operations, the partnership incurred loss amounting to ₱240,000. The
average capital balances of the partners during this period were ₱480,000 and ₱440,000, respectively.

How much is the share of A in the partnership loss?

a. 137,600 c. 142,300
b. 102,400 d. 107,400

9. A and B formed a partnership and began operations on March 1, 20x1. A invested ₱400,000 cash
while B invested equipment with a book value of ₱1,200,000 and a fair value of ₱720,000. On
August 31, 20x1, A invested additional cash of ₱80,000. The partnership agreement stipulates the
following:
 Monthly salary allowances of ₱8,000 and ₱40,000 to A and B, respectively, recognized as
expenses.
 20% bonus on profit before salaries and interest but after bonus to B.
 12% annual interest on the beginning capital of A.
 Balance equally.

The monthly salaries are withdrawn by the partners at each month-end. The partnership earned
profit of ₱840,000 during the period before deductions for bonus and interest.

How much is the ending balance of B’s capital account?

 a. 1,230,000 c. 910,000
b. 1,710,000 d. 1,630,000

10. A, a partner in the ABC Partnership, has a 30% participation in partnership profits and losses.
A’s capital account has a net decrease of ₱60,000 during the calendar year 20x1. During 20x1, A
withdrew ₱130,000 (charged against his capital account) and contributed property valued at
₱25,000 to the partnership. How much was the profit of ABC Partnership in 20x1?
a. 150,000 c. 350,000
b. 233,333 d. 550,000

“Do not be anxious about anything, but in everything by prayer and supplication with thanksgiving let your requests be made
known to God. And the peace of God, which surpasses all understanding, will guard your hearts and your minds in Christ Jesus.”
(Philippians 4:6-7)
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Chapter 3
Partnership Dissolution

NAME: Date:
Professor: Section: Score:

QUIZ:

1. The following are the capital account balances and profit and loss ratios of the partners in AB
Partnership as of July 1, 20x1:
Capital accounts Profit & loss ratios
A, Capital 250,000 40%
B, Capital 350,000 60%
600,000

On July 1, 20x1, C was admitted to the partnership when he purchased half of A’s capital interest for
₱100,000. How much is A’s capital balance after the admission of C?
a. 100,000 c. 200,000
b. 125,000 d. 120,000

2. A and B are partners with the following capital balances and profit-sharing percentages: A (40%)
₱750,000 and B (60%) ₱1,050,000. A and B admitted C into the partnership when C purchased
20% of the capital interests of A and B for ₱400,000. The partnership’s net assets on C’s
admission date were fairly valued. How much is the total equity of the partnership immediately
after the admission of C?
a. 1,800,000 c. 2,250,000
b. 2,200,000 d. 2,380,000
3. C was admitted to the partnership when he invested ₱60,000 cash for a 20% interest in the
partnership. Immediately prior to C’s admission, the carrying amounts and fair values of the
assets and liabilities of the partnership are as follows:
Carrying Fair
 
amount value
Cash 20,000 20,000
Equipment 340,000 320,000
Accounts payable 10,000 10,000
Provision for warranty obligation - 5,000
A, Capital (40%) 130,000 N/A
B, Capital (60%) 220,000 N/A

How much is the capital balance of B after the admission of C?

a. 94,800 c. 148,400
b. 128,400 d. 194,800

4. The following are the capital account balances and profit and loss ratios of the partners in AB
Partnership as of July 1, 20x1:
Capital accounts Profit & loss ratios
A, Capital 200,000 40%
B, Capital 400,000 60%
600,000

On July 1, 20x1, C was admitted to the partnership when he acquired 20% interest in the net assets
and profits of the firm for a ₱120,000 investment. The net assets of the firm as of this date
approximate their fair values. How much is the capital balance of A after the admission of C if C’s
admission was accounted for using the bonus method?
a. 190,400 c. 194,800
b. 192,800 d. 206,667

5. The statement of financial position of AB Partnership shows the following information as of July
1, 20x1:
Cash 48,000
Receivable from A 32,000
Equipment 1,560,000
Totals 1,640,000
Payable to B 40,000
A, Capital (40%) 600,000
B, Capital (60%) 1,000,000
Totals 1,640,000

On July 1, 20x1, the partners decide to admit C as a new partner with a 20% interest. The net assets
of the firm as of this date approximate their fair values. If no bonus shall be allowed, how much
should C invest in the partnership?
a. 400,000 c. 420,000
b. 410,000 d. 392,000
6. The following are the capital account balances and profit and loss ratios of the partners in AB
Partnership as of Jan. 1, 20x1:
Capital accounts Profit & loss ratios
600,00
A, Capital 0 40%
1,000,00
B, Capital 0 60%
1,600,000

On Jan. 1, 20x1, C was admitted into the partnership when he invested equipment with a historical
cost of ₱400,000 and fair value of ₱320,000 for a 20% interest. The net assets of the partnership as of
this date approximate their fair values. If the bonus method is used to record the admission of C,
how much would be credited to C’s capital account?
a. 434,000 c. 384,000
b. 420,000 d. 360,000

Use the following information for items 7 to 9:

The capital account balances of the partners in ABC Partnership on June 30, 20x1 before any
necessary adjustments are as follows:

Capital accounts
A, Capital (20%) 600,000
B, Capital (30%) 1,000,000
C, Capital (50%) 400,000
Total 2,000,000

The partnership reported profit of ₱3,600,000 for the six months ended June 30, 20x1.

7. On July 1, 20x1, C withdraws from the partnership when he was bought-out by his co-partners
for ₱2,480,000 cash. How much is the capital balance of A immediately after the withdrawal of
C?
a. 1,480,000 c. 1,880,000
b. 1,320,000 d. 2,200,000

8. C retires on July 1, 20x1. It was agreed that C shall receive ₱2,480,000 cash from the partnership
in settlement of his interest. How much is the capital balance of B right after the withdrawal of
C?
a. 2,080,000 c. 1,912,000
b. 1,642,000 d. 2,120,000

9. C retires on July 1, 20x1. It was agreed that C shall receive cash of ₱2,000,000 and equipment
with carrying amount of ₱400,000 and fair value of ₱1,200,000 as settlement of his interest in the
partnership. The entry in the partnership’s books to record the retirement of C includes
a. a debit to C’s capital for ₱400,000.
 b. a debit to C’s capital for ₱2,200,000.
c. a debit to A’s capital for ₱240,000.
d. The transaction is not recorded in partnership’s books.

10. On January 1, 20x1, the partners of ABC Partnership decided to admit other investors. As a
result, the partnership was converted to a corporation. Relevant information follows:
Carrying Fair
  amounts values
Cash 20,000 20,000
Receivables 60,000 40,000
Inventory 80,000 70,000
Equipment 540,000 670,000
Payables 50,000 50,000
A, Capital
150,000
(20%) N/A
B, Capital (30%) 200,000 N/A
C, Capital (50%) 300,000 N/A

The corporation has an authorized capitalization of ₱2,000,000 divided into 200,000 ordinary shares
with par value of ₱10 per share. Shares were issued to the former partners based on their respective
adjusted capital balances. How many shares did A receive?
a. 17,000 c. 35,000
b. 23,000 d. 75,000

“So do not fear, for I am with you; do not be dismayed, for I am your God. I will strengthen you and help you; I will
uphold you with my righteous right hand.” (Isaiah 41:10)

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