Far Eastern University – Manila Quiz No.

THEORIES
1. The partnership contract of A and B provides that net income or losses are to be distributed in the ratio of partner’s
capital account balances. The appropriate interpretation of this provision is that net income or losses should be
distributed in:
a. The ratio of the beginning capital account balances
b. The ratio of the average capital account balances
c. The ratio of ending capital account balance
d. One of the foregoing methods to be specified by partners A and B

2. What is the underlying purpose of the salary component of allocating partnership and losses?
a. Compensate partners who contribute economic resources to the partnership
b. Reward for special responsibilities undertaken
c. Reward labor and expertise contributions
d. All of the above

3. The partnership contract of Ivan and Irvin provided for salaries of P90,000 to Ivan and P70,000 to Irvin, with any
remaining income or loss divided equally. During, 2020, pre salaries income of Ivan and Irvin Co. was P200,000, and
both Ivan and Irvin withdrew cash from the partnership equal to 80% of their salary allowance, During 2020, Ivan’s
equity in the partnership:
a. Increase more than Irvin’s equity
b. Decrease more than Irvin’s equity
c. Increase the same amount as Irvin’s equity
d. Decrease the same amount as Irvin’s equity

4. A retiring partner withdraws his interest at book value receives assets

a. Above his capital interest
b. Below his capital interest
c. Equal to his capital interest
d. None of the choices

5. The following statements are correct, except

a. Admission of new partner by purchase has no effect in total capital of the firm
b. Admission of new partner by investment increases the total capital of the firm
c. Admission of new partner by investment using revaluation method affects the new partner capital
d. Assignment of interest does not dissolve the business.

6. When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill's interest
exceeded Mill's capital balance. Under the bonus method, the excess
a. Was recorded as goodwill.
b. Was recorded as an expense.
c. Reduced the capital balances of Yale and Lear.
d. Had no effect on the capital balances of Yale and Lear.

7. If A is the total capital of the partnership before admission of a new partner, B is the total capital of the partnership
after the investment of a new partner, C is the amount of the new partner’s investment, and D is the amount of
capital credit to the new partner, then there is:
a. A bonus to the new partner if B = A + C and D < C.
b. A bonus to the old partner if B = A + C and D > C.
c. Both a and b are correct
d. Both a and b are incorrect.

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Far Eastern University – Manila Quiz No. 1

8. It refers to the type of partnership wherein all partners are liable to the creditors pro-rata up to the extent of personal
or separate assets after the partnership’s assets are exhausted.
a. General Partnership
b. Partnership by estoppel
c. Limited Partnership
d. Particular Partnership

9. Which of the following is not a characteristic of most partnership?

a. Limited liability
b. Limited life
c. Mutual agency
d. Ease of formation

10. 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 contribution
b. Contributing partner’s original cost
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

11. When a new partner is admitted to a partnership, an original partner’s capital account may be adjusted for
a. A proportionate share of the incoming partner’s investment
b. His or her share of previously unrecorded intangible assets traceable to the original partners.
c. His or her share of previously unrecorded intangible assets traceable to the incoming partner.
d. None of the above

12. Which of the following best characterizes the bonus method of recording a new partner’s investment in a
partnership?
a. Net assets of the previous partnership are not revalued.
b. The new partner’s initial capital balance is equal to his or her investment.
c. Assuming that recorded assets are properly valued, the book value of the new partnership is equal to the
book value of the previous partnership and the investment of the new partner.
d. The bonus always results in an increase to the previous partners capital balances.

13. Which of the following is not considered a legitimate expense of a partnership?

a. Interest paid to partners based on the amount of invested capital.
b. depreciation on assets contributed to the partnership by partners.
c. salaries for management hired to run the business
d. supplies used in partners offices.

14. Which of the following transactions shall not affect the capital balance of the partner?
a. Additional investment made by a partner to the partnership.
b. Advances made by the partnership to a partner
c. Receipt of bonus by a partner from another partner based on the agreement.
d. Share of a partner in the partnership’s net loss.

15. In the absence of partnership agreement to the contrary, what is the obligation of the partners as regards to capital
contribution?
a. Equally
b. Based on their profit agreement
c. Based on their loss agreement
d. Based on their withdrawal agreement

DNF, CPA 2
Far Eastern University – Manila Quiz No. 1

PROBLEMS

D, A and T are partners with capital balances of P392,000, P1,365,000 and P595,000 respectively, sharing profits and
losses in the ratio of 3:2:1. E is admitted as a new partner bringing with him expertise and is to invest cash for a 25%
interest in the partnership which includes a credit of P367,500 for bonus upon his admission.

1. How much cash should E contribute?

a. 661,500 b. 1,050,000 c. 294,000 d. 787,500

On December 31 ,2018 A, B and C formed a partnership wherein A contributed P4,800,000 for 20% interest in the
partnership, B Contributed P14,400,000 for a capital credit of P12,000,000. After closing of accounting books, B and C
withdrew the following amounts respectively: P1,200,000 and P1,440,000. Profit and Loss arrangement are agreed as
follows:

• Annual salary of P60,000, 48,000 and 36,000 respectively

• The remainder will be divided in the ratio of 2:3:5

On December 31 ,2019 the capital balance of A is 4,836,000.

2. What is the net income / (net loss) of the partnership for the year ended December 31, 2019?

a. 24,000 b. (239,856) c. 1,704,000 d. 1,488,000

3. What is the capital balance of C on December 31, 2019?

a. 4,836,000 b. 10,728,000 c. 2,424,000 d. 5,736,000

Lily contributed P24,000 and Robin contributed P48,000 to form a partnership, and they agreed to share profits in the
ratio of their original capital contributions. During the first year of operations, they made a profit of P16,290; Lily
withdrew P5,050 and Robin P8,000. At the start of the following year, they agreed to admit Tracey into the partnership.
She was to receive one-fourth interest in the capital and profits upon payments of P30,000 to Lily and Robin, whose
capital accounts were to be reduced by transfers to Tracey’s capital account of amounts sufficient to bring them bank to
their original capital ratio.

4. How should the P30,000 paid by Tracey be divided between Lily and Robin?

Lily Robin
a. 9,835 20,175
b. 10,000 20,000
c. 9,300 20,700
d. 15,000 15,000

DNF, CPA 3
Far Eastern University – Manila Quiz No. 1

On May 1, 2019 the business assets of Gerwin and Alvin appear below:

Gerwin Alvin
Cash 11,000 22,354
Accounts Receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture & Fixture 50,345 34,789
Other Assets 2,000 3,600
Total 1,020,916 1,317,002

Accounts Payable 178,940 243,650

Notes Payable 200,000 345,000
Gerwin, Capital 641,976
Alvin, Capital 728,352
Total 1,020,916 1,317,002

Gerwin and Alvin agreed to form a partnership contributing their respective assets and equities subject to the following
adjustments:

• Accounts receivables of P20,000 in Gerwin’s book and P35,000 in Alvin’s book are uncollectible.
• Inventories of P5,500 and P6,700 are worthless in Gerwin and Alvin’s respective book.
• Other assets of P2,000 and P3,600 in Gerwin and Alvin’s respective books are to be written off.

5. The capital accounts of the partners after the adjustments will be:

Gerwin Alvin
a. 613,576 683,350
b. 640,876 712,345
c. 615,942 717,894
d. 614,476 683,052

6. How much assets does the partnership have?

a. 2,337,918 b. 2,237,918 c. 2,265,118 d. 2,365,218

7. Dave offered to join for a 20% interest in the firm. How much cash should be contributed?

a. 324,382 b. 330,870 c. 344,237 d. 337,487

8. After Dave’s admission, the profit and loss sharing ratio was agreed to be 4:4:2, based on capital credits. How much
should cash settlement be between Gerwin and Alvin?

a. 33,602 b. 32,930 c. 32,272 d. 34,288

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Far Eastern University – Manila Quiz No. 1

During the first year of their operation, the partnership earned P325,000. Profits were distributed in the agreed manner.
Drawings were made in these amounts: Gerwin, P50,000; Alvin, P65,000; Dave, P28,000.

9. How much are the capital balances after the first year?

Gerwin Alvin Dave

a. 750,627 735,177 372,223
b. 728,764 713,764 361,382
c. 757,915 742,315 375,837
d. 743,121 727,825 368,501

On December 31, 2020, the Statement of Financial Position of ABC partnership with profit or loss ratio of 4:1:5 is
presented below:

Cash 2,100,000 Liability to third person 5,600,000

Noncash asset 11,200,000 Alucard, capital 4,900,000
Baxia, capital 2,100,000
Claude, capital 700,000

On January 1, 2021, ABC partnership has been subjected to installment liquidation. As of January 31, 2021, the following
data concerning liquidation are provided:

o Noncash asset with book value of P8,700,000 has been sold at a loss of P2,800,000.
o Liquidation expense amounting to P560,000 has been incurred for the month of January.
o P840,000 cash has been withheld for future liquidation expense.
o P4,200,000 liability has been paid.

10. What is C’s share in the maximum possible loss on January 31, 2021?
a. P1,050,000
b. P1,680,000
c. P1,820,000
d. P2,100,000

11. What is the amount received by B on January 31, 2021?

a. P700,000
b. P840,000
c. P1,540,000
d. P2,240,000

12. What is the cash balance on January 31, 2021?

a. P700,000
b. P840,000
c. P1,540,000
d. P2,240,000

DNF, CPA 5
Far Eastern University – Manila Quiz No. 1

Xerath, Yu Zhong and Zac who divided profits and losses 50%, 30% and 20% respectively, have the following October
31, 2019 account balances:

Xerath, drawing (dr) P 18,000

Zac, drawing (Cr) 7,200
Accounts Payable – Xerath 10,800
Loans Payable – Yu Zhong 21,600
Xerath, Capital 89,100
Yu Zhong, Capital 66,600
Zac, Capital 58,500

The partnership’s asset are P316,800 including cash of P96,300. The partnership is liquidated and Zac receives P49,500
in final settlement.
14. How much is the total loss on realization?
a. P81,000
b. P9,000
c. P45,000
d. P108,000

15. How much was received by Xerath upon liquidation?

a. P71,100
b. P66,600
c. P30,600
d. P48,600

End of Quiz
“Success is not the key to happiness. Happiness is the key to success.
If you love what you are doing, you will be successful.”
Herman Cain

DNF, CPA 6