Saint Louis College

City of San Fernando, La Union

College of Commerce, Secretarial and Accountancy (CCSA)
Final Examinations
Partnership & Corporation Accounting (BAC 2)
2nd Semester, S.Y. 2019 - 2020
20 May 2020 (3:00 – 5:00 PM)

I. MULTIPLE CHOICES. Select the letter corresponding to the best answer among the choices. Write
in CAPITAL letters only (30 pts)

1.) Which of the following phrases least applies to a partnership?

A.) Can easily be dissolved or terminated with the mere withdrawal, incapacity or death of a partner
B.) Payment for liabilities can extend up to everyone’s personal properties if the organization’s assets are
not enough to settle such
C.) Has unlimited life, as it can be renewed indefinitely
D.) Can be subject to income tax or not depending on its type

2.) Partner contributions are valued at

A.) Appraised values, without regard to partners’ agreement
B.) Agreed values first, then at appraised values
C.) Book value of the assets without regard to current market prices
D.) Book value, then appraised value if book value is absent

3.) When a partnership assumes a liability attached to a partners’ investment

A.) The capital credit of that partner is equal to the fair market value of the asset he invested
B.) The capital credit of that partner is decreased by the value of the liability assumed
C.) The capital credit of that partner increases as it his privilege that the partnership assumed his liability
D.) Liability assumption is not possible in a partnership; therefore, the partner cannot be admitted unless
he expressly states that he will pay off the liability using his personal assets

4.) A is admitted to BC partnership and is credited 120% of his actual investment, the excess coming from
the existing partners’ capital. Which of the following is the most likely reason for the credit?
A.) BC Partnership’s products are in demand in the market and A was interested to join as he thinks his
investment would yield a high return in BC Partnership
B.) Before admitting A, BC Partnership had a parcel of land and building which needed to be revalued after
a boom of the economy has increased the market value of lots and buildings in the place
C.) A’s skills are in demand in the market, so he was persuaded by Partners B & C to join the partnership
for a minimal investment
D.) A’s current business has been incurring net losses for the past months and B & C agreed to admit A to
save him from bankruptcy

5.) Which of the following statements is false regarding partnership operations?

A.) A bonus to managing partner shall not be made when a net loss is incurred
B.) If a partnership incurs a loss, salaries and interest are not considered when distributing such loss to
partners
C.) Credits to Drawing accounts are made when distributing net income to partners
D.) Partners can use arbitrary ratios without regard to their initial capital balances in determining profit or
loss share

6.) Dissolution (select which does not apply)

A.) Automatically terminates the business operations
B.) Happens when one of the partners die due to COVID 19
C.) May happen when one of the partners suddenly talks to the air, water or other non-living things and
claims them to be speaking back to him
D.) Includes admission of new partners

7.) When the amount paid by a new partner to an existing partner to purchase the latter’s interest is higher
compared to the latter’s capital,
A.) The gain is recorded in the partnership books
B.) The partners need to revalue their assets automatically
 C.) The gain is not recognized in the books as this is a personal transaction between the individuals
involved
D.) The new partner is credited for the amount he invested

8.) Which of these items takes top priority in settlement during partnership liquidations?
A.) Partner loans
B.) Liabilities to outside creditors
C.) Partner capital balances
D.) Social amelioration program funds not yet given to the intended recipients

9.) The right of offset

A.) Applies when a partnership has extended a loan to a partner, the said partner incurring a capital
deficiency during liquidation
B.) Applies when a partner incurs a capital deficiency during liquidation, the said partner having
previously extended a loan to the partnership
C.) Applies when a partnership creditor has a personal loan payable to one of the partners
D.) Applies when a partner both has a payable to and a receivable from the partnership, with amounts for
both strictly being equal

10.) Which of these statements regarding partnership liquidation is true?

A.) Gains or losses on liquidation are not recorded as the sale of partnership assets is a personal
transaction
B.) Liquidation expenses do not decrease capital accounts
C.) If liabilities are not to be paid in full, an equal amount of cash should be set aside for the unpaid debts
and future liquidation expenses and should not be distributed to the partners
D.) Schedule of safe payments and cash priority programs are used both for simple/lumpsum liquidation
and installment liquidation

11.) Which does not describe a corporation?

A.) Can sue and can be sued
B.) Issues shares of stock as basis of its shareholders’ ownership
C.) Exists up to 50 years maximum
D.) Personal properties of its shareholders cannot be used to pay its obligations

12.) Which of the following statements is true regarding corporators?

A.) All incorporators are corporators, but not all corporators are incorporators
B.) All corporators are incorporators, but not all incorporators are corporators
C.) The corporators select the Board of Directors, requirement to be one being not holding any share in
the firm to eliminate bias in decision making
D.) Corporators are different from a company’s shareholders

13.) When is a stock certificate issued to a shareholder?

A.) As soon as the stock is subscribed for
B.) When the transaction involves an upfront cash payment
C.) When the stocks are fully paid, regardless of whether the stocks were previously subscribed for or
immediately paid in full
D.) When SEC calls for an exhibit of the shareholders’ stock certificates

14.) Under the memorandum entry method, which of the following transactions will only require a
memorandum entry?
A.) Authorization of shares
B.) Issuance of stock certificate
C.) Subscription to ordinary shares
D.) Meeting of Board of Directors

15.) In accounting for shares, which of the following is false?

A.) Share premium is recognized only when the stocks have been fully paid for
B.) Share capital is always credited at par
C.) The fair market value of the property given in exchange for shares of stock shall be used when
recording such property
D.) The excess over the par value of the shares given in exchange for cash or property is recognized as
share premium
 II. PROBLEM SOLVING. Provide what is required from the problems below. Write in CAPITAL
LETTERS only. Show your solutions (20 pts)

1. Helen and Pearl are forming a partnership. Helen will invest a building that currently is being used by another
business owned by Helen. The building has a market value of P900,000. Also, the partnership will assume
responsibility for a P300,000 note secured by a mortgage on that building. Pearl will invest P500,000 cash.
For the partnership, the amounts to be recorded for the building and for Helen's Capital account are:
a. Building, P900,000 and Helen, Capital, P900,000.
b Building, P600,000 and Helen, Capital, P600,000.
c. Building, P600,000 and Helen, Capital, P500,000.
d. Building, P900,000 and Helen, Capital, P600,000.

2. Bhan is investing in a partnership with Enoch. Bhan contributes equipment that originally cost P63,000, has a
book value of P30,000, and a fair market value of P39,000. The entry that the partnership makes to record
Bhan's initial contribution includes a
a. debit to Equipment for P33,000.
b. debit to Equipment for P63,000.
c. debit to Equipment for P39,000.
d. credit to Accumulated Depreciation for P33,000

Use the following information for questions 3– 5.

Denver and Jap are forming a partnership. Denver will invest a truck with a book value of P100,000 and a fair
market value of P140,000. Jap will invest a building with a book value of P300,000 and a fair market value of
P420,000 with a mortgage of P150,000.

3. At what amount should the building be recorded?

a. P300,000
b. P270,000
c. P420,000
d. P450,000

4. What amount should be recorded in Jap’s capital account?

a. P300,000
b. P270,000
c. P420,000
d. P140,000

5. If it was further agreed that both partners will have equal share in the assets, using the cash method, how much
should be the additional cash investment of Denver?
a. P200,000
b. P170,000
c. P160,000
d. P130,000

Use the following information for questions 6–8.

Partners Carol and Iza have capital balances in a partnership of P400,000 and P600,000, respectively. They
agree to share profits and losses as follows:
Carol Iza
As salaries P100,000 P120,000
As interest on capital at the beginning of the year 10% 10%
Remaining profits or losses 50% 50%

6. If income for the year was P500,000, what will be the distribution of income to Iza?
a. P230,000
b. P270,000
c. P200,000
d. P100,000

7. If income for the year was P300,000, what will be the distribution of income to Carol?
a. P130,000
b. P170,000
c. P100,000
 d. P140,000

8. If net loss for the year was P20,000, what will be the distribution to Iza?
a. P120,000 income
b. P10,000 income
c. P10,000 loss
d. P20,000 loss

Use the following information for questions 9–10.

Yvonne and Gemma are partners who share income and losses in the ratio of 3:2, respectively. On August
31, their capital balances were: Yvonne, P175,000 and Gemma, P150,000. On that date, they agree to admit
Lester as a partner with a one-third capital interest.

9. If Lester invests P125,000 in the partnership, what is Yvonne’s capital balance after Lester’s admission?
a. P150,000
b. P158,333
c. P160,000
d. P175,000

10. If Lester invests 200,000 in the partnership, what is Gemma’s capital balance after Lester’s admission?
a. P175,000
b. P160,000
c. P157,500
d. P150,000

III. ESSAY. Answer the following questions in not more than three (3) sentences each (10 pts)

1. If you were to enter into a partnership, which will be more beneficial to you, a written or an oral agreement?
Justify your answer.

2. Unlimited liability is a characteristic present in both a sole proprietorship and a partnership. Explain why
this may be a disadvantage from the viewpoint of the owner but an advantage from the viewpoint of a
creditor.

“This too shall pass.”

-Old Persian saying

Prepared by:

Bhandamme R. Paragas, CPA Denver C. Bungay, CPA Jaspher S. Gapuz, CPA

Instructors, BAC 2

Approved by:

Perlita E. De Guzman, CPA, PhD

Program Head, Accountancy Department

Noted by:

Helen R. Tugade, CPA, MDA

Academic Dean, CCSA