TRUE or FALSE

1. The bonus account is debited when there is a transfer of capital from one partner to the other.
2. Free Interest Amount to be paid to partners are first applied to loan and then to capital.
3. Entering of a partner into a memorandum agreement with another entity may cause the partnership to be
dissolved.
4. Two partners, with a capital ratio of 3:1 and profit and loss ratio of 2:1, admitted a new partner into their
business. Under the bonus method, the old partners’ old profit and loss ratio should be used to allocate the
excess of the new partner’s contribution over the amount credited to his capital account.
5. Capital deficiency of a partner after realization indicates that the partner’s capital before liquidation is not
sufficient to cover his share in the loss on realization.
6. Liquidation expenses which are incurred to facilitate the immediate realization of non-cash assets affect cash
but not capital.
7. The right of offset is applied when a deficient partner has a loan to the partnership. The amount to be offset
is the amount of the loan or the capital deficiency, whichever is lower.

MULTIPLE CHOICE QUESTIONS – Theories

8. When a partnership is liquidated, all of the following may occur, except

a. A partner erases his deficiency by contributing cash
b. A partner erases his deficiency by contributing non-cash
c. A partner erases his deficiency by declaring bankruptcy
d. The other partners absorb a partner’s deficiency

9. In the liquidation of a partnership, the gains and losses from assets sold are
a. Divided equally among the partners
b. Divided among the partners in the stated income ratio
c. Divided among the partners in proportion to their capital equity interests
d. Ignored

10. The order of the partnership liquidation process is

a. Distribute cash to partners, pay liabilities, sell assets
b. Pay liabilities, sell assets, distribute cash to partners
c. Sell assets, distribute cash to partners, pay liabilities
d. Sell assets, pay liabilities, distribute cash to partners

11. A capital deficiency in a partner’s capital, which is not made good is

a. A loss to the other partners
b. A gain to the other partners
c. The result of a loss in operations
d. The result of a sale of non-cash assets at a gain

12. Dissolution will arise

a. Whenever a new partner is admitted through purchase of interest or through investment of cash or
non-cash assets
b. Upon termination of the definite term or particular undertaking specified in the agreement
c. In the case of civil interdiction of any partner
d. All of the above

13. All of the following affects a partner’s capital account, except

 a. Additional investments
b. Payment of liabilities
c. Partnership net income or loss
d. Withdrawals made by the partner

14. If a new partner purchases his interest from an old partner, the only entry in the partnership books is a credit
to the purchaser’s capital account with a debit to the
a. Bonus account
b. Cash account
c. Capital account of the selling partner
d. Capital account of other partners

15. In partnership liquidation, how are partner salary allocations treated?

a. Salary allocations take precedence over amounts due to partners with respect to their capital
interests, but not profits.
b. Salary allocations take precedence over creditor payments.
c. Salary allocations take precedence over amounts due to partners with respect to their capital
profits, but not capital interests.
d. Salary allocations are disregarded.

16. Which of the following procedures is acceptable when accounting for a deficit balance in a partner’s capital
account during partnership liquidation?
a. If a partner with a negative capital balance is personally insolvent, the negative capital balance may
be absorbed by those partners having a positive capital balance according to the residual profit and
loss sharing ratios that apply to those partners having positive balances.
b. A partner with a negative capital balance must contribute personal assets to the partnership that
are sufficient to bring the capital account to zero.
c. If a partner with a negative capital balance is personally insolvent, the negative capital balance may
be absorbed by those partners having a positive capital balance according to the residual and loss
sharing ratios that apply to all partners.
d. All of the procedures are acceptable.

MULTIPLE CHOICE QUESTIONS – Problems

17. Crisostomo, Ibarra and Jose are partners with capital balances of PHP 80,000.00, PHP 120,000.00 and PHP
160,000.00, respectively. They share profits and losses in the ratio of 3:4:3. Ibarra decides to withdraw from
the partnership. Ibarra receives PHP 160,000.00 in settlement of his interest. If the asset revaluation method
is used, what is the capital balance of Jose immediately after the retirement of Ibarra?
a. PHP 200,000.00
b. PHP 190,000.00
c. PHP 160,000.00
d. PHP 180,000.00

18. Bryant, Parker and Wade decided to liquidate their partnership on October 31, 2014. They have been dividing
profits and losses in the ratio of 4:3:3, respectively and their capital balances as of January 1, 2014 were as
follows: Bryant, PHP 75,000.00; Parker, PHP 90,000.00; Wade, PHP 30,000.00.

The operations of the partnership for the period January 1, 2014 to October 31, 2014 resulted to profit after
tax of PHP 66,000.00. As of October 31, 2014, cash balance is PHP 60,000.00 and the liabilities are PHP
135,000.00. The total partnership assets as of October 31, 2014 are:
a. PHP 396,000.00
b. PHP 261,000.00
 c. PHP 330,000.00
d. PHP 456,000.00

19. Referring to the data above, for Bryant to receive PHP 60,000.00 in the final settlement of his equity, the non-
cash assets must be sold for how much?
a. PHP 282,500.00
b. PHP 232,500.00
c. PHP 336,000.00
d. PHP 396,000.00

20. Love and Rose are partners with capital balances, and profit and loss ratio as follows:
Capital P & L Ratio
Love PHP 24,500.00 60.00%
Rose 15,500.00 40.00%

The partners decided to liquidate the partnership. The firm’s liabilities amount to PHP 36,000.00, including
PHP 4,000.00 owing to Love and PHP 3,500.00 owing to Rose on loans. After realization of assets, the cash on
hand amounts to PHP 37,500.00. How much is the total loss on realization?
a. PHP 31,000.00
b. PHP 2,500.00
c. PHP 38,500.00
d. PHP 28,000.00

21. Referring to the data above, in the settlement to partners, how much did Love receive?
a. PHP 1,400.00
b. PHP 13,000.00
c. PHP 9,000.00
d. PHP 5,400.00

22. Cute desires to invest PHP 200,000.00 for a ¼ capital and profit and loss interest in the partnership of Beauty
and Handsome, who at that time had capital balances of PHP 200,000.00 and PHP 300,000.00, respectively.
Profit and loss ratio of the partners before the admission was 6:4. If a positive asset revaluation is to be
recorded, capital balances of Cute, Beauty and Handsome would be:
a. PHP 200,000.00; PHP 260,000.00; PHP 340,000.00
b. PHP 200,000.00; PHP 300,000.00; PHP 200,000.00
c. PHP 175,000.00; PHP 215,000.00; PHP 310,000.00
d. PHP 200,000.00; PHP 300,000.00; PHP300,000.00

23. Clinton and Obama are partners who share profits equally and losses in a 2:1 ratio. If they have beginning
capital balances of PHP 120,000.00 and PHP 118,000.00, respectively, made no additional investments nor
withdrawals, and suffered an unprofitable year with a loss of PHP 48,000.00, their ending capital balances will
be
Clinton Obama
a. 40,000.00 80,000.00
b. 120,000.00 118,000.00
c. 88,000.00 102,000.00
d. 152,000.00 134,000.00

24. Lakers, Celtics and Knicks are partners who share profits and losses in the ratio of 2:3:5. The partners have
decided to liquidate the partnership. Their capital accounts show the following balances: Lakers – PHP
60,000.00 credit; Celtics – PHP 90,000.00 credit; Knicks – PHP 30,000.00 debit. What is the amount of cash
available for distribution?
a. PHP 150,000.00
 b. PHP 120,000.00
c. PHP 180,000.00
d. PHP 160,000.00

25. Partners John and George who have been dividing profits and losses in the ratio of 3:2, respectively, decided
to liquidate their partnership. Capital balances before liquidation were: John – PHP 40,000.00; and George –
PHP 30,000.00. After paying in full liabilities of PHP 30,000.00, they have PHP 49,000.00 cash to divide. Loss
on realization was:
a. PHP 9,000.00
b. PHP 89,000.00
c. PHP 21,000.00
d. PHP 51,000.00

26. Wade and Curry who share profits and losses in the ratio of 3:7 are partners with capital balances of PHP
40,000.00 and PHP 60,000.00, respectively. Anthony is to be admitted into the partnership for 20.00%
interest in the capital of the firm. If assets are revalued and the capital balances of Wade and Curry after
recording the admission of Anthony are PHP 52,000.00 and PHP 88,000.00, respectively, the cash paid by
Anthony is
a. PHP 35,000.00
b. PHP 20,000.00
c. PHP 10,000.00
d. PHP 15,000.00

27. Pierce, Allen and Rondo are partners with capital balances of PHP 80,000.00, PHP 120,000.00 and PHP
160,000.00, respectively. They share profits and losses in the ratio of 30:40:30. Allen decides to withdraw
from the partnership. Allen receives PHP 160,000.00 in settlement of his interest. If the bonus method is
used, what is the capital balance of Rondo immediately after the retirement of Allen?
a. PHP 140,000.00
b. PHP 160,000.00
c. PHP 180,000.00
d. PHP 200,000.00

28. Hip and Hop entered into a partnership on July 1, 2015 by investing the following assets:
HIP HOP
Cash PHP 30,000.00 -
Merchandise Inventory - PHP 90,000.00
Equipment - 160,000.00
Fixtures 200,000.00 -

The agreement between Hip and Hop provides that profits and losses are to be divided into 40.00% to Hip
and 60.00% to Hop, and that the partnership is to assume a liability on the Equipment of PHP 60,000.00. The
partnership further agreed that Hop is to receive a capital credit equal to her profit and loss ratio. How much
cash is to be invested by Hop?
a. PHP 135,000.00
b. PHP 145,000.00
c. PHP 155,000.00
d. PHP 130,000.00

29. Mickey, Goofy and Donald decided to liquidate their partnership. Non-cash assets were sold and all the
creditors were paid. Profit and loss sharing ratios were: 20.00%, 30.00% and 50.00% respectively. Balances in
each capital account before and after the sale follow:
MICKEY GOOFY DONALD
Before the sale PHP 35,000.00 PHP 5,000.00 PHP 45,000.00
 After the sale 25,000.00 (10,000.00) 20,000.00

How much is the share of Goofy in the total loss on realization?

a. PHP 5,000.00
b. PHP 10,000.00
c. PHP 15,000.00
d. PHP 25,000.00

30. Referring to the data above, if the non-cash assets were sold for PHP 225,000.00, how much is the book value
of the non-cash assets?
a. PHP 225,000.00
b. PHP 175,000.00
c. PHP 35,000.00
d. PHP 275,000.00

31. On December 1, 2015, Onglao and Rayo formed a partnership, agreeing to share profits and losses in the ratio
of 2:3, respectively. Onglao invested a parcel of land that costs her PHP 25,000.00. Rayo invested PHP
30,000.00 cash. The land was sold for PHP 50,000.00 on the same date, three hours after formation of the
partnership. How much should be the capital balance of Onglao after formation?
a. PHP 25,000.00
b. PHP 30,000.00
c. PHP 50,000.00
d. None of the above

32. The partnership had the following accounting amounts:

Sales PHP 80,000.00
Cost of Sales 40,000.00
Operating Expenses 10,000.00
Salary Allocations to Partners 13,000.00
Interest Paid to Banks 2,000.00
Partners’ Withdrawals 8,000.00

The partnership net income (loss) is

a. PHP 20,000.00
b. PHP 18,000.00
c. PHP 5,000.00
d. PHP (3,000.00)

33. Paasa is trying to decide whether to accept a salary of PHP 40,000.00 or a salary of PHP 25,000.00 plus a
bonus of 10.00% on net income after salary and bonus as a means of allocating profit among the partners.
Salaries traceable to the other partners are estimated to be PHP 100,000.00. What amount of income would
be necessary so that Paasa would consider both choices to be equal?
a. PHP 165,000.00
b. PHP 265,000.00
c. PHP 290,000.00
d. PHP 305,000.00

34. Pafall, Umasa and Nasaktan formed a partnership on January 1, 2015, and contributed PHP 150,000.00, PHP
200,000.00 and PHP 250,000.00, respectively. Their articles of co-partnership provide that the operating
income be shared among the partners as follows: as salary, PHP 24,000.00 for Pafall, PHP 18,000.00 for
Umasa, and PHP 12,000.00 for Nasaktan; interest of 12.00% on average capital during 2015 of the three
partners, and; remainder in the ratio of 2:2:4, respectively.
 The operating income for the year ending December 31, 2015 amounted to PHP 176,000.00. Pafall
contributed additional capital of PHP 30,000.00 on July 1 and made a drawing of PHP 10,000.00 on October 1.
Umasa contributed additional capital of PHP 20,000.00 on August 1 and made a drawing of PHP 10,000.00 on
October 1. Nasaktan made a drawing of PHP 30,000.00 on November 1.

The partners’ capital balances on December 31, 2015 are

Pafall Umasa Nasaktan
a. 179,680.00 229,360.00 239,360.00
b. 179,760.00 229,520.00 239,520.00
c. 189,180.00 239,360.00 269,360.00
d. 223,180.00 272,060.00 280,760.00

35. Ex, Way and Zi are partners who share profits and losses in the ratio 5:3:2, respectively. They agree to sell
25.00% of their respective capital and profits and losses ratio for a total payment directly received by the
partners in the amount of PHP 140,000.00. They agree that goodwill or revaluation of assets of PHP 60,000.00
is to be recorded prior to the admission of Ey. The condensed balance sheet of the ExWayZI Partnership is as
follows:
Cash 60,000.00
Non-cash Assets 540,000.00
Liabilities 100,000.00
Ex, Capital 250,000.00
Way, Capital 150,000.00
Zi, Capital 100,000.00

The capital of Ex, Way and Zi, respectively, after the payment and admission of Ey are:
Ex Way Zi
a. 187,500.00 112,500.00 75,000.00
b. 210,000.00 126,000.00 84,000.00
c. 280,000.00 168,000.00 112,000.00
d. 250,000.00 150,000.00 100,0000.00

36. Angel, Mia and Jewel are partners sharing earnings in the ratio 5:3:2, respectively. As of December 31, 2013,
their capital balances showed PHP 95,000.00 for Angel, PHP 80,000.00 for Mia and PHP 60,000.00 for Jewel.

On January 1, 2014, the partnership admitted Ral as a new partner and according to the partnership
agreement, Ral will contribute PHP 80,000.00 in cash to the partnership and will also pay PHP 10,000.00 for
15.00% of Mia’s interest. Ral will share 20.00% in the earnings while the ratio of the original partners remain
proportionately the same as before Ral’s admission. After Ral’s admission, the total capital of the partnership
will be PHP 330,000.00 while Ral’s capital account will be PHP 70,000.00.

The balance of Mia’s capital account after the admission of Ral would be:
a. PHP 81,100.00
b. PHP 79,100.00
c. PHP 74,600.00
d. PHP 72,600.00

37. HB Partnership begins its first year of operations with the following capital balances:
Baste, Capital PHP 200,000.00
Harold, Capital 100,000.00

According to the partnership agreement, all profits will be distributed as follows:

a) Baste will be allowed a monthly salary of PHP 20,000.00 while PHP 10,000.00 is assigned to Harold.
 b) The partners will be allowed with interest equal to 10.00% of the capital balance as of the first day of
the year.
c) Baste will be allowed a bonus of 10.00% of net profit after bonus.
d) The remainder will be divided on the basis of the beginning capital for the first year and equally for
the second year and succeeding years.
e) Each partner is allowed to withdraw up to PHP 10,000.00 a year.

Assume that the net loss for the first year of operations is PHP 15,000.00 and the net income of the
subsequent year. Assume further that each partner withdraws the maximum amount from the business each
period.

What is the balance of Baste’s capital account at the end of the second year?
a. PHP 264,750.00
b. PHP 284,750.00
c. PHP 180,000.00
d. PHP 184,750.00

38. Pepe and Pilar started a partnership some years ago and managed to operate profitably for several years.
Recently, however, they lost a substantial legal suit and incurred unexpected losses on accounts receivable
and inventories. As a result, they decided to liquidate. They sold all assets and only PHP 162,000.00 was
available to pay liabilities, which amounted to PHP 297,000.00. Their capital account balances before the
liquidation and their profit and loss sharing ratios are shown below:
Capital Balances P & L Ratio
Pepe PHP 207,000.00 60.00%
Pilar 121,500.00 40.00%

Pepe is personally insolvent after investing cash to pay the unpaid creditors, but Pilar has personal assets in
excess of PHP 900,000.00.

In settlement to partners, how much cash should Pepe receive?

a. PHP 63,900.00
b. PHP – 0 –
c. PHP 15,300.00
d. PHP 63,000.00

39. The PQR Partnership is being dissolved. All liabilities have been paid and the remaining assets are being
realized gradually. The equity of the partners are as follows:
Partners’ Loans to (from) Profit & Loss
Accounts partnership Ratio
P 24,000 6,000 3
Q 36,000 - 3
R 60,000 (10,000) 4

The second cash payment to any partners under a program of priorities shall be made thus:
a. To R, PHP 8,000.00
b. To Q, PHP 6,000.00
c. To R, PHP 2,000.00
d. To Q, PHP 6,000.00 and to R, PHP 8,000.00

40. On June 30, 2019, the Garry, Michi and George Partnership had the following fiscal year-end balance sheet:
Cash 4,000 Accounts Payable 7,000
Accounts Receivable 6,000 Loan from Michi 5,000
 Inventory 14,000 Garry, Capital(20%) 14,000
Plant assets – net 12,000 Michi, Capital(30%) 10,000
Loan to Garry 6,000 George, Capital(50%) 6,000
Total Assets 42,000 Total Liabilities/Equity 42,000

The percentages shown are the residual profit and loss sharing ratios. The partners dissolved the partnership
on July 1, 2019 and began the liquidation process. During July, the following events occurred:
a) Receivables of PHP 3,000.00 were collected.
b) The inventory was sold for PHP 4,000.00.
c) All available cash was distributed on July 31, except for PHP 2,000.00 that was set aside for
contingent expenses.

How much cash would Garry receive from the cash that is available for distribution on July 31?
a. PHP – 0 –
b. PHP 2,000.00
c. PHP 600.00
d. PHP 1,000.00

IDENTIFICATION

41. As of April 2015, NN and MM decided to form a partnership with their financial position presented below:

NN MM
Cash 15,000.00 37,500.00
Accounts Receivable 540,000.00 225,000.00
Merchandise Inventory - 202,500.00
PPE 150,000.00 270,000.00
TOTAL 705,000.00 735,000.00
Accounts Payable 135,000.00 240,000.00
MM, Capital 495,000.00
NN, Capital 570,000.00
TOTAL 705,000.00 735,000.00

The partners agreed that the PPE of NN is under depreciated by PHP 15,000.00 and that of MM by PHP
45,000.00. Allowance for doubtful accounts is to be set up amounting to PHP 45,000.00 and PHP 120,000.00
for MM and NN respectively. MM’s inventory was revalued to PHP 250,000.00 but disregarded by both
partners after many disagreements. As per agreement, the 60.00% and 40.00% for NN and MM will be used
as their P and L and capital interest. In order to bring the capital balances to their P and L ratio, what amount
of cash must be invested by NN?

42. The capital accounts for the partnership of LL and MM at December 31, 2015 are as follows:
LL, Capital PHP 80,000.00
MM, Capital 40,000.00

The partners share profits and losses in the ratio of 3:2 respectively. The partnership is in desperate need of
cash and the partners agree to admit NN as a partner with one-third interest in the capital and profits and
losses upon his investment of PHP 30,000.00. Immediately after NN’s admission, what should be the capital
balances of LL, MM, and NN respectively if bonus will be considered?
43. Manny and Jinky are partners with capital balances of PHP 30,000.00 and PHP 40,000.00 and sharing profits
and losses of 40.00% and 60.00%, respectively. If Krista is admitted as partner by paying PHP 20,000.00 in
exchange for 50.00% of Manny’s equity, how much is the total interest of Manny and Jinky after the
admission of Krista, respectively?

44. Rhovil and Mark are partners with profit and loss ratio of 75:25 and capital balances of PHP 100,000.00 and
PHP 50,000.00. Gem is to be admitted into the partnership by purchasing a 20.00% interest in the capital,
profits and losses for PHP 60,000.00. Assuming that no asset revaluation is to be made, the capital balance of
Rhovil and Mark, respectively, after admission of Gem are:

45. Using the above information, assuming that the equipment of the partnership is undervalued, the capital
balances of Rhovil, Mark and Gem, respectively, after the admission are:

46. Baka and Kalabaw are partners having capital balances of PHP 75,000.00 and PHP 90,000.00 respectively and
sharing profits and losses equally. They admit Kambing to a 1/3 interest in the partnership capital and profits
for an investment of PHP 97,500.00. If asset revaluation (goodwill) method is used in recording the admission
of Kambing, how much is the capital of Kalabaw after the admission of Kambing?

47. Using the above information, assuming the bonus method is used in recording the admission of Kambing in
the partnership, how much will be the capital of Baka and Kalabaw?

48. Siya, Ako and Tayo are partners with capital balances of PHP 224,000.00, PHP 780,000.00 and PHP 340,000.00
respectively, and share profits and losses in the ratio 3:2:1. Kami is admitted as a new partner bringing with
him expertise and is to invest cash for a 25.00% interest in the partnership which includes a credit of PHP
210,000.00 for bonus upon his admission. How much should Kami contribute?

49. P1, P2 and MAS are partners sharing profits and losses of 5:3:2, respectively. As of December 31, 2015, their
capital balances were PHP 285,000.00, PHP 240,000.00 and PHP 180,000.00 respectively.

On January 1, 2016, the partners admitted AP as a new partner and according to their agreement, AP will
contribute PHP 240,000.00 in cash to the partnership and also pay PHP 30,000.00 for 15.00% of P2’s share.
AP will be given a 20.00% share in profits, while the original partners’ share will be proportionately the same
as before. After admission of AP, the total capital will be PHP 990,000.00 and AP’s capital will be PHP
210,000.00. The amount of asset revaluation is:

50. The amount of bonus in the admission of AP would be (use the information above):

51. Popo, Basha and Trisha were partners with capital balances on January 2, 2015 of PHP 100,000.00, PHP
150,000.00 and PHP 200,000.00, respectively. Their profit ratio is 5:3:2 while their capital interest ratio is
4:4:2. On July 1, 2015, Juan Moore Chance was admitted by the partnership for 20.00% interest in capital and
25.00% in profits by contributing PHP 25,000.00 cash and the old partners agree to bring their interest to
their old capital and profit interest sharing ratio. The partnership had net income of PHP 60,000.00 before
admission of Juan and the partners agree to revalue its overvalued equipment by PHP 10,000.00. The capital
balance of Popoy after admission of Juan is:

52. Wade, a sole-proprietor, agreed to form a partnership with James in a business. Accounts in the ledger for
Wade on November 30, 2015, just before formation show the following balances:

Cash 26,000.00 Accounts Payable 62,000.00

Accounts Receivable 120,000.00 Wade, Capital 264,000.00
Merchandise Inventory 180,000.00
TOTAL 326,000.00 TOTAL 326,000.00
 It is agreed that for purposes of establishing Wade’s interest, the following adjustments should be made:
a) An allowance for doubtful accounts of 2.00% of accounts receivable is to be established.
b) The merchandise inventory is to be valued at PHP 202,000.00.
c) Prepaid expenses of PHP 6,500.00 and accrued liabilities of PHP 4,000.00 are to be established.

James is to invest sufficient funds in order to receive a 1/3 interest in the partnership. How much must James
contribute?

53. SS and TT decided to form a partnership on May 1, 2015. Assets contributed by the partners are:
SS TT
ASSETS
Book Value Fair Value Book Value Fair Value
Cash 375,000.00 375,000.00 875,000.00 875,000.00
Merchandise Inventory 95,000.00 125,000.00
Furniture and Fixtures 350,000.00 312,500.00 872,500.00 937,500.00
Transportation Equipment 3,262,500.00 2,812,500.00

The transportation equipment is subject to a mortgage loan of PHP 1,125,000.00, which is to be assumed by
the partnership. The partnership agreement provides that SS and TT share profits and losses of 30.00% and
70.00% respectively.

Assuming that the partners agreed to bring their respective capital in proportion to their profit and loss ratio,
using TT capital as base, how much additional cash is to be invested (withdrawn) by SS?