Rizal Technological University

Midterm Exam
Partnership and Corporation

Name________________________________

Section______________________________

Instructions.

EXAM RULES
 Read, follow the instructions and answer each question carefully.
 Turn off or keep mobile phones on silent mode.
 Use black or blue pen only.
 Use the back of the test paper or a separate paper for your solution.
 No talking to seatmates. Approach the professor in front for questions or clarifications.
 Exam is good for 2 hours only.

Put all your answers here. Strictly no erasure. Please show your computation clearly

Theories Problems
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2 12 22 2 12
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4 14 24 4 14
5 15 25 5 15
6 16   6 16
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Name____________________________________

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

a. Mutual agency
b. Limited liability
c. It has limited life
d. There should at least one general partner

2. Dissolution will arise

a. Whenever a new partner is admitted through purchase of interest
b. Upon death of a partner
c. In case of civil interdiction of any partner
d. All of the above

3. Anton and Garcia formed a partnership, each contributing assets to the business. Anton contributed inventory with a current market value
in excess of its carrying amount. Garcia 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 Market value Market value
d Carrying amount Carrying amount
4. An advantage of the partnership as a form of business organization would be
a. Partners do not pay income taxes on their share in partnership income
b. A partnership is bound by the act of the partners
c. A partnership is created by mere agreements of the partners
d. A partnership may be terminated by the death or withdrawal of a partner

5. At the time of admission of a new partner the firm is

a. Dissolved
b. Continued
c. Not effected
d. RE-organized

6. A new partner may be admitted to a partnership

a. With the consent of all partners
b. With the consent of any one of the partners
c. Without consent of old partners
d. With the consent of two third of old

7. The members of partnership firm are individually called as:

a. Director
b. Investor
c. Partner
d. Manager

8. The object of partnership is to

a. Earn profit
b. Not to earn profit
c. Welfare of members
d. None of these

9. Revaluation account is operated to find out gain or loss at the time of:
a. Admission of a partner
 b. Death of a partner
c. Retirement of a partner
d. All of above

e. Amount due to outgoing partner is shown in the balance sheet as

f. Liability
g. Asset
h. Capital
i. Expense

10. Retirement or death of a partner.

a. Is dissolution of partnership agreement
b. s dissolution of a firm
c. May or may not be a dissolution of partnership agreement
d. None of above

11. If there is an agreement for the division of profits but none for losses, it concludes that
a. Losses should be distributed in the same way as profit
b. Losses should be distributed equally
c. Losses should be charged to partner with the biggest share in profit
d. Losses should be divided according to the partner’s original capital contribution

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

13. Four individuals who were previously sole proprietors form a partnership. Each partner contributes inventory and equipment for use by the
partnership. What basis should the partnership use to record the contributed assets?

a. Inventory at the lower of FIFO cost or market

b. Inventory at the lower of weighted-average cost or market
c. Equipment at each proprietor’s carrying amount
d. Equipment at fair value

14. A contract where two or more persons bind themselves to contribute money, property, or industry to a common fund with the intention of
dividing the profits among themselves.
a. Voluntary Association
b. Corporation
c. Partnership
d. Sole Proprietorship

15. A partnership formed for the exercise of a profession which is duly registered is an example of:
a. Universal partnership of profits
b. Universal partnership of all present property
c. General Professional Partnership(GPP)
d. Partnership by estoppels

16. One of the following is not a requisite of a contract of partnership. Which is it?
a. It is established for the common benefit of the partners which is to obtain profits and divide the same among themselves
b. The articles are kept secret among members
c. There must be a valid contract
d. There must be a mutual contribution of money, property, or industry to a common fund

17. Transferable interest of a partner includes all of the following except:

a. the partner's share in profits and losses
b. the right to receive distributions
c. the right to receive any liquidating distribution
d. the authority to transact any of the partnership’s business operation
 18. The maximum number of persons who are legally allowed to operate in a partnership is:
a. 2
b. 20
c. 5
d. There is no legal limit

19. The advantages of the partnership form of business organization, compared to corporations, include
a. Single taxation
b. Limited Liability
c. Mutual Agency
d. Difficulty of formation

20. A partner’s withdrawal of assets from a limited liability partnership that is considered a permanent reduction of in that partner’s equity is
debited to the partner’s:
a. Drawing account
b. Retained earnings account
c. Loan receivable account
d. Capital account

21. For financial accounting purposes, assets of an individual partner contributed to partnership are recorded by the partnership at:
a. Historical cost
b. Fair market value
c. Book value
d. Lower of cost or market

22. A simple partnership liquidation requires

a. periodic payments to creditors and partners determined by a safe payments schedule.
b. partnership assets to be converted into cash with full payment made to all outside creditors before remaining cash is
distributed to partners in a lump sum payment.
c. only creditors to be paid in an orderly manner.
d. periodic payments to partners as cash becomes available

23. The loss or gain an account of revaluation at the time of retirement of a partner is shared by
a. Remaining partners
b. Retiring partner
c. All partners
d. None of above

24. Incentive given to managing partner usually percentage of net income

a. Salary
b. Interest on Capital
c. Interest on drawings
d. Bonus

Part 2 Computation:

1. D, S, and T have capital balances of P30,000, P20,000, and P40,000, respectively. Their P/L ratio is 10% interest on capital balances; S is entitled
to a salary of P12,000; and remainder is divided 30:30:40. The minimum profit to give an aggregate of P20,000 to S is:
a. 60,000
b. 53,000
c. 41,000
d. 49,000

2. RD formed a partnership on February 10, 2019. R contributed cash of P150,000, while D contributed inventory with a fair value of P120,000.
Due to R's expertise in selling, D agreed that R should have 60% of the total capital of the partnership. R and D agreed to recognize goodwill.
How much good will should be recognized on the partnership books?
a. 20,000
b. 30,000
c. 50,000
d. No goodwill

Use the following information for the succeeding questions

On July 1, 2019, A and B decided to form a partnership. The firm is to take over the business assets and assume liabilities, and the capitals are to be
based on net assets transferred after the ff. adjustments:

 A and B’s inventory is to be valued at 31,000 and 22,000 respectively.

 Accounts receivable of 2,000 in A’s book and 1,000 in B’s books are uncollectible.
 Accrued salaries of 4,000 for A and 5,000 for B are still to be recognized in the
books.
 Unused office supplies of A and B amounted to 5,000 and 1,500.
 Prepaid rent of 7,000 and 4,500 are to be recognized in the books A and B,
respectively.
 A is to invest or withdraw cash necessary to have a 40% interest in the firm.

Balance sheet for A and B before adjustments

Cash 31,000.00 50,000.00

Accounts receivable 26,000.00 20,000.00
Inventory 32,000.00 24,000.00
Office supplies   5,000.00
Equipment 20,000.00 24,000.00
Accum. Depreciation- Equipment (9,000.00) (3,000.00)
Total Assets 100,000.00 120,000.00
Accounts Payable 28,000.00 20,000.00
Capital 72,000.00 100,000.00
Total Liabilities and Equity 100,000.00 120,000.00

3. The additional investment (withdrawal) made by A:

a. (15000 )
b. 15,000
c. 3,000
d. (6,667)

4. The total assets of the partnership after formation:

a. 235,333
b. 230,000
c. 220,333
d. 212,000

5. The total liabilities of the partnership after formation:

a. 57,000
b. 48,000
c. 54,000
d. 51,000

6. The total capital of the partnership after formation:

a. 180,000
b. 178,000
c. 163,333
d. 155,000

7. The total capital balances of A and B in the combined balanced sheet

a. A, ₱81,250; B, ₱72,000
b. A, ₱81,250; B, ₱75,000
c. A, ₱62,000; B, ₱93,000
d. A, ₱100,000; B, ₱75,000

8. Ellis and Nossiter are partners sharing profits in a 30:70 ratio. The following data summarizes 2019 activity

Partnership net income, 2019 68,000

Ellis capital, 1/1/2019 90,000
Ellis additional investment in 2019 10,000
Ellis drawings in 2019 12,000
Nossiter capital, 1/1/2019 80,000
 Nossiter drawings in 2019 20,000

What is the value of Ellis’s partners equity 12/31/2019?

a. 20,400
b. 108,400
c. 111,400
d. 120,400

Use the following information for the succeeding questions

A, B and C have capital balances of P112,00, P130,000 and P58,000, respectively, and share profits in the ratio 3:2:1. D invest cash in the
partnership for a one-fourth interest.

9. Assume D receives a one-fourth interest in the assets of the partnership, which includes credit for P25,000 of goodwill that is recognized upon
admission. How much cash D invest?
a. 100,000
b. 75,000
c. 125,000
d. 50,000

10. Assume D receives a one-fourth interest in the assets of the partnership and D is credited with P20,000 of the bonus from the old partners
that is recognized upon D’s admission. How much cash D invest?
a. 73,333
b. 100,000
c. 93,000
d. 80,000

11. Assume D receives a one-fourth interest in the assets of the partnership and B is credited with P15,000 of the bonus from D, how much cash D
invest?
a. 115,000
b. 105,000
c. 160,000
d. 120,000

12. Dolly, Folly and Golly have capital balances of P800,000; P1,000,000; and P360,000, respectively and profit sharing ratios of 4:2:1, respectively.
If dolly received P160,000 upon liquidation of the partnership, the total amount received by all the partners was:
a. 2,160,000
b. 1,120,000
c. 1,040,000
d. 480,000

Use the following information for the succeeding questions

The balance sheet for Coney, Honey, and Money partnership shows the following information as of December 31, 2019;

Cash 40,000 Liabilities 100,000

Other assets 560,000 Coney, loan 50,000
600,000 Coney, capital 250,000
Honey, capital 140,000
Money, capital 60,000
600,000
Profit and loss ratio is 3:2:1 for Coney, Honey, and Money, respectively. Other assets
were realized as follows:

Date Cash Received Book Value

January 120,000.00 180,000.00
February 70,000.00 154,000.00
March 250,000.00 226,000.00

Cash is distributed as assets are realized.

13. The total loss to Coney is:

a. 60,000
 b. 40,000
c. 20,000
d. None of the above

14. The total cash received by Honey is:

a. 40,000
b. Zero
c. 100,000
d. 30,000

15. Cash received by Money in January 2019 is:

a. 4,000
b. 20,00
c. 10,000
d. Zero

16. Jayden and Aria formed the J & A partnership several years ago. Capital account balances on January 1, 2016 were: Jayden, P993,500; and
Aria, P536,500.

The partnership agreement provides Jayden with an annual salary of P20,000 plus a bonus of 5% of partnership net income for managing
the business. Aria is provided an annual salary of P30,000 with no bonus. The remainder is shared evenly. Partnership net income for
2019 was P60,000, Aria and Jayden each invested an additional P10,000 during the year to finance a special purchase. Year-end drawing
account balances were P30,000 for Jayden and P20,000 for Aria. Aria’s capital balances of December 31, 2019 should be:
a. 560,000
b. 1,000,000
c. 998,750
d. 561,250

Use the following information for the succeeding questions

Partners E, F and G have capital balances in a partnership of P70,000, P30,000, and P900,000,
Respectively. The losses for the year are P120,000.

17. What will be the capital balance of F it the three partners share profits and losses at 2:2:6 ratio?
a. P6,000 credit balance
b. P10,000 debit balance
c. P24,000 debit balance
d. P40,000 debit balance

18. What will F’s capital be if E gets a P140,000 salary, F gets a P50,000 salary, and G gets a 10% interest on her beginning capital balance, with the
remaining being divided at a 1:1:2 ratio?
a. Zero
b. P20,000 debit balance
c. P10,000 debit balance
d. P80,000 debit balance