NATIONAL FEDERATION OF JUNIOR PHILIPPINE

INSTITUTE OF ACCOUNTANTS REGION IV

R4 Accounting Varsity ParCor – Level 1
Batch 2019-2020

Instructions: Identify the choice that best completes the statement

or answers the question.
You have (1) hour to answer this 40-item exam. Good luck!

____1. The par value of an ordinary share represents

a) The book value of the share

b) The amount received by the corporation when the share was
originally issued.
c) The liquidation value of the share
d) The legal nominal value assigned to the share

____2. In a partnership, interest on capital investment is accounted

for as a(n)

a) expense b) reduction of capital

c) allocation of net income d) return on investment

____3. The residual interest in a corporation belongs to the

a) Preference shareholders b) Management

c) Ordinary shareholders d) Creditors

____4. Partnership drawings are

a) equal to partners' salaries.

b) always maintained in a separate account from the partner's capital
account.
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.

____5. Under the entity theory, a partnership is

a) unable to enter into contracts in its own name

b) viewed through the eyes of the partners
c) a separate legal and tax entity
d) viewed as having its own existence apart from the partners

____6. The total cost of treasury shares shall be reported as

a) Asset b) Deduction from earnings

c) Deduction from share premium d) Deduction from shareholders'
equity

____7. Marco, a partner in the Marco and Guel partnership, is

entitled to 40% of the profits and losses. During 2013, Marco
contributes land to the partnership that cost her P50,000 but has a
current value of P60,000. Also during 2013, Marco has drawings of
P80,000. The balance in Marco's capital account was P120,000 at the
beginning of the year and is P150,000 at the end of the year. What
are the partnership's earnings for 2013?

a) (50,000) b) (75,000) c) 150,000 d) 125,000

____8. Which of the following could be used as a basis to allocate

profits among partners who are active in the management of the
partnership?

1 allocation of salaries.
2 the number of years with the partnership.
3 the amount of time each partner works.
4 the average capital invested.

a) 1 and 2.
b) 1, 2, and 3.
c) 1, 2, 3, and 4
d) 1, 3, and 4.
____9. Which of the following statements is a general requirement for
the merger of two corporations?

a) The stockholders of both corporations must be given due notice of

a special meeting, including a copy or summary of the merger plan
b) The merger plan must be approved unanimously by the stockholders
of both corporations
c) The merger plan must be approved unanimously by the boards of both
corporations
d) The absorbed corporation must amend its articles of incorporation

____10. Which of the following shareholder rights is most commonly

enhanced in an issue of preference shares?

a) The right to receive a cash dividend before dividends are paid to

other classes of share capital
b) The right to vote for the board of directors
c) The right to vote on major corporate issues.
d) The right to maintain one's proportional interest in the
corporation

____11. This is the residual interest in the economic resources of a

company that remains after deducting economic obligations
a) Equity
b) Productive resources
c) Net cash balance
d) Net income

____12. Bob and Fred form a partnership and agree to share profits in
a 2 to 1 ratio. During the first year of operation, the partnership
incurs a P20,000 loss. The partners should share the losses

a) in a 2 to 1 ratio b) based on their

ending capital balances
c) based on their average capital balances d) equally

____13. For tax purposes, assets of an individual partner that are

contributed to a partnership are recorded by the partnership at

a) fair market value b) historical cost

c) book value d) the individual partner's tax basis

____14. The disadvantages of the partnership form of business

organization, compared to corporations, include

a) the extent of governmental regulation.

b) the complexity of operations.
c) the legal requirements for formation.
d) the requirement for the partnership to pay income taxes.
e) unlimited liability for the partners.

____15. Josh and Nino form a partnership. Josh contributes into the
partnership a personal computer that he has used at home in
nonbusiness related activities. Josh had paid P10,000 for the
computer 2 years ago. The current market value of the computer is
P9,000. The partners, after reviewing BIR rules, assigned the
computer a useful life of 5 years. For financial reporting purposes,
at what amount should the computer be recorded in the partnership
ledger?

a) 7,500 b) 6,000 c) 9,000 d) 10,000

____16. Which of the following should be reported as a shareholders'

equity account?

a) Premium on convertible bonds b) Organization

cost
c) Cumulative foreign exchange translation loss d) Discount on
convertible bonds

____17. A corporate stockholder is entitled to which of the following

rights?
a) Receive annual dividends b) Approve dissolution
c) Prevent corporate borrowing d) Elect officers
____18. Any costs incurred to issue shares above par value (i.e.,
share issue costs) shall be debited to

a) Retained earnings b) Share premium

c) Expense d) Organization cost

____19. When a partner retires and withdraws assets in excess of his

book value, the remaining partners absorb the excess

a) equally b) based on their

ending capital balances
c) based on their average capital balances d) in their profit-
sharing ratio

____20. Which of the following statements is true concerning the

treatment of
salaries in partnership accounting?

a) Partner salaries are directly closed to the capital account.

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

____21. Alfred & Cris partnership has income of P110,000 and Partner
Alfred is to be allocated a bonus of 10% of income after the bonus,
Partner Alfred's bonus would be ______________.

a) 9,091 b) 11,000 c) 9,000 d) 10,000

____22. Which of the following results in dissolution of a

partnership?

a) winding up of the partnership and the distribution of remaining

assets to the partners
b) withdrawal of a partner from a partnership
c) receipt of a draw by an existing partner
d) contribution of additional assets to the partnership by an
existing partner

____23. When shares are sold at an amount higher than par value, the
excess over par shall be credited to

a) Share options b) Retained earnings c) Share premium d)

Share warrants
____24. Which of the following is not among the basic rights of a
shareholder?

a) To vote in the election of directors

b) To represent himself in the name of the corporation
c) To share in corporate earnings
d) To subscribe for additional share issues

____25. The disadvantages of double taxation for an entity with two

owners may not be avoided if the entity is

a) None of the above b) organized as a Subchapter S

corporation
c) organized as a partnership d) distributing all of its income in
the form of dividends

____26. Which of the following affects the total shareholders'

equity?

a) Issue of bonds with nondetachable share warrants

b) Issue of warrants as evidence of preemptive rights
c) Declarations of share dividends
d) Issue of additional shares as a result of share split

____27. The partnership agreement for Owen Associates, a general

partnership, provided that profits be paid to the partners in the
ratio of their financial contribution to the partnership. Moore
contributed P10,000, Noon contributed P30,000, and Kale contributed
P50,000. For the year ended December 31, 1993, Owen had losses of
P180,000. What amount of the losses should be allocated to Kale?

a) 90,000 b) 40,000 c) 100,000 d) 60,000

____28. Shareholders of an entity are said to be the residual owners.

The term residual owner means that shareholders

a) Can negotiate individual contracts on behalf of the entity

b) Are entitled to a dividend every year in which the business earns
a profit
c) Have the rights to specific assets of the business
d) Bear the ultimate risks and uncertainties and receive the benefits
of ownership

____29. The partnership of Adams and Baker was formed on February 28,
2014. At that date the following assets were invested:

Adams
Baker
Cash 120,000
200,000
Merchandise inventory -
320,000
Building -
840,000
Furniture and equipment 200,000
-

The building is subject to a mortgage loan of P280,000, which is to

be assumed by the partnership. The partnership agreement provides
that Adams and Baker share profits or losses 30% and 70%,
respectively. Baker’s capital account at February 28, 2014, should be

a) 952,000 b) 1,176,000 c) 1,080,000 d) 1,360,000

____30. Partners active in a partnership business should have their

share of partnership profits based on the following

a) salaries only.
b) a combination of salaries plus interest based on average capital
balances.
c) percentage of net income after salaries is paid to inactive
partners.
d) a combination of salaries and percentage of net income after
salaries and any other allocation basis.

____31. A primary source of shareholders equity is

a) Income retained by the corporation

b) Appropriated retained earnings
c) Contributions by shareholders
d) Both income retained by the corporation and contributions by
holders

____32. In a general partnership, which of the following acts must be

approved by all the partners?

a) Dissolution of the partnership

b) Admission of a partner
c) Authorization of a partnership capital expenditure
d) Conveyance of real property owned by the partnership

____33. An advance cash distribution plan is prepared

a) none of these
b) each time cash is distributed to partners in an installment
liquidation
c) to determine the order and amount of cash each partner will
receive as it becomes available for distribution
d) each time a partnership asset is sold in an installment
liquidation

____34. Which of the following is not an advantage of a partnership

over a corporation?

a) Ease of formation
b) All of the above
c) The elimination of taxes at the entity level
d) Unlimited liability

____35. Which of the following statements best describes an advantage

of the corporate form of doing business?

a) Ownership is contractually restricted and is not transferable

b) The operation of the business may continue indefinitely
c) The business is free from state regulation
d) Day to day management is strictly the responsibility of the
directors

____36. Steve and Robby are partners operating an electronics repair

shop. For 2014, net income was P50,000. Steve and Robby have salary
allowances of P90,000 and P60,000, respectively, and remaining
profits and losses are shared 4:6. How much would Robby get from the
division of profits?

a) 25,000
b) 0
c) 30,000
d) 20,000

____37. Characteristics of the corporate form of organization include

all of the following, except

a) Formality of profit distribution b) Share capital

c) Unlimited liability of owners d) Variety of ownership
interests

____38. Offsetting a partner's loan balance against his debit capital

balance is referred to as the

a) marshaling of assets
b) right of offset
c) liquidation of assets
d) allocation of assets
____39. A partnership begins its first year with the following
capital balances:

Diane, capital 60,000

Dada, capital 80,000
Debbie, capital 100,000

The articles of partnership stipulate that profits and losses be

assigned in the following manner:

1 Each partner is allocated interest equal to 10% of the beginning

capital balance.
2 Dada is allocated compensation of P20,000 per year.
3 Any remaining profits and losses are allocated on a 3:3:4 basis,
respectively.
4 Each partner is allowed to withdraw up to P5,000 cash per year.

Assuming that the net income is P50,000 and that each partner
withdraws the maximum amount allowed, what is the balance in Debbies
capital account at the end of that year?

a) 106,200
b) 106,900
c) 107,400
d) 105,800

____40. For financial accounting purposes, assets of an individual

partner contributed to a partnership are recorded by the partnership
at

a) lower of cost or market

b) book value
c) fair market value
d) historical cost

---- Thank you for taking the exam. We will be informing you about
the results. ----

Answer Key:
1. d EASY
2. c EASY
3. c EASY
4. c EASY
5. d EASY
6. d EASY
7. d EASY
8. c EASY
9. a AVERAGE
10. a EASY
11. a EASY
12. a EASY
13. d EASY
14. e EASY
15. c AVERAGE
16. c EASY
17. b EASY
18. b EASY
19. d EASY
20. b EASY
21. d AVERAGE
22. b EASY
23. c EASY
24. b EASY
25. d EASY
26. a EASY
27. c AVERAGE
28. d EASY
29. c AVERAGE
30. d EASY
31. d EASY
32. b AVERAGE
33. c AVERAGE
34. d EASY
35. b AVERAGE
36. b AVERAGE
37. c EASY
38. b EASY
39. c AVERAGE
40. c EASY