Advance Financial Accounting and Reporting

Pre-board Set 1
Partnership and Corporation
1. K, L and M are new CPA’s and are to form an accounting partnership. K is to contribute cash of P 75,000 and his computer
originally bought at P80,000 but has a second hand value of P50,000. L is to contribute cash of P100,000 and tables and chairs
worth P20,000 but acquired by L for only P18,000. M , whose family is selling computers, is to contribute cash of P40,000 and a
brand new computer plus printer with regular price at P80,000 but which cost their family’s computer dealership P70,000. Partners
agree to share profits 3:2:3. The capital balances K, L and M respectively upon formation are:
a. P155,000; P118,000 and P110,000
b. P125,000; P120,000 and P120,000
c. P143,625; P 95,750 and P143,625
d. P136,875; P 91,250 and P136,875
2. A, B, and C are forming a new partnership each contributing cash of P20,000 and their respective office equipment and supplies
valued at P100,000, P200,000 and P300,000 respectively. A’s noncash contribution is his own developed audit software valued at
cost which he could sell for trice the amount. Partners agree to admit his software at market value and they will share profits equally.
The capital balances of A, B, and C, respectively are:
a. P300,000; P400,000; and P500,000
b. P400,000; P400,000; and P400,000
c. P500,000; P400,000; and P500,000
d. P466,666; P466,666; and P466,667
Question 3 and 4 are based on the following:
X and Y are partners sharing profits 60:40. A balance sheet prepared for the partnership on April 1, 2019 shows the following:
Cash P 48,000 Accounts payable P 89,000
Accounts receivable 92,000 X, capital 133,000
Inventory 165,000 Y, capital 108,000
Equipment 70,000
Accumulated depreciation 45,000
P 330,000 P 330,000
On this date, the partners agree to admit Z as a partner. The terms of the agreement is that assets and liabilities are to be restated
as follows:
a. An allowance for possible uncollectible P 4,500 is to be established
b. Inventories are to be restated at their present replacement values of P170, 000.
c. Equipment are to be restated at a value of P 35,000.
d. Accrued expenses of P 4,000 are to be recognized.
X,Y, and Z will divide profits in the ratio of 5:3:2. Capital balances for the new partners are to be in this ratio with X and Y
making cash settlement outside of the partnership for the required capital adjustment between themselves and Z investing
cash in the partnership for his interest.

3. How much cash Z should contribute?

a. P61,875
b. P49,496
c. P60,250
d. P50,625
4. What capital adjustments should be made between X and Y?
a. X must pay Y, P17,785.
b. Y must pay X, P17,785.
c. X must invest cash of P17,785.
d. Y must invest cash of P17,785.
5. G and H formed a partnership on January 2,2019, and agreed to share income 90%, 10%, respectively . G contributed a
capital of P25,000. H contributed no capital but has a specialized expertise and manages the firm full-time. There were no
withdrawals during the year. The partnership agreement provides for the following:

a. Capital accounts are to be credited annually with interest at 5% of beginning capital.

b. H is to be paid a salary of P10,000 a month.
c. H is to receive a bonus of 20% of income calculated before deducting his bonus, his salary, and interest on both
capital accounts.
d. Bonus, interest, and H’s salary are to be considered partnership expenses.
The partnership’s 2014 income statement follows:

Revenues P96,450
Expenses (including salary, interest and bonus) 49,700
Net Income P46,750
 How much is the total share of H on the 2014 partnership net income?
a. P31,675 b. P28,650 c. P32,388 d. P28,338
6. Eddy and Freddy operate The Gourmet Restaurant as a partnership. Their partnership agreement has the following
provisions for sharing profits and losses:

A. Income is distributed only as far as it is available.

B. Available income is to be distributed in following sequence:

1. Eddy, who is the chef, gets a salary of P50,000 a year; Freddy, who is still learning, gets a salary of P20,000.
2. Interest is imputed on the average capital balances at 15 percent.
3. Any remaining profits and losses are to be shared equally.

The average capital balances during the year were P40,000 for Eddy and P100,000 for Freddy. If the partnership
income for the year is P35,000, it should be distributed to the partners as follows;
a. Eddy P16,000; Freddy P19,000
b. Eddy P17,500; Freddy P17,500
c. Eddy P25,000; Freddy P10,000
d. Eddy P28,000; Freddy P7,000
7. Rubi, Gwen, and Celine have been partners throughout 2019. Their average balances and their balances at the end of the
year before closing the nominal accounts are as follows:

Partner Average Balances Balances,12/31/19

Rubi P97,500 P70,000
Gwen 7,300 11,800
Celine 4,250 1,700 (debit balance)
The income for 2019 is P103,500 before charging partners’ salary allowances and before payment of interest on average
balances at the agreed rate of 4% per annum. Annual salary allocations are P12,500 to Rubi, P8,750 to Gwen, and
P6,250 to Celine. The balance of the profits is to be allocated at the rate of 60% to Rubi, 10% to Gwen, and 30% to Celine.

It is intended to distribute cash to the partners so that, after credits and allocations have been made as indicated in the
preceding paragraph, the balances in the partners’ account will be proportionate to their residual profit- sharing ratios.
None of the partners is to invest additional cash, but they wish to distribute the lowest possible amount of cash.

How much are capital balances of Rubi, Gwen and Celine, respectively.
a. P52,422; P8,737 and P26,211
b. P129,383; P28,006 and P26,211
c. P110,160; P18,360 and P55,080
d. P168,036; P28,006 and P84,018

8. The Walter Partnership shows the following profit and loss ratios and capital balances: Terrah (60%), P252,000; Naldrin
(30%), P126,000 and Philip (10%), P42,000. The partners decide to sell to Benjie 20 percent of their respective capital and
profit and loss interests for a total payment of P90,000. Benjie will pay the money directly to the pther partners. What are the
capital balances of the partners after Benjie’s admission to the partnership?

Terrah Naldrin Philip Benjie

a. P198,000 P 99,000 P33,000 P90,000
b. P201,600 P100,800 P33,600 P84,000
c. P216,000 P108,000 P36,000 P90,000
d. P255,699 P127,800 P42,600 P84,000
9. Abraham and Jeremiah are partners who share income and loss in the ratio 2:3 respectively. The partners agree to admit
Samuel as a partner upon investing P150,000 cash for a one-fifth interest. Assets of the partnership are fairly valued except
for a parcel of land that is overvalued by P150,000. Net assets of the partnership are to be revalued, and Samuel is to be
admitted. The capital accounts of Abraham and Jeremiah are P450,000 and P300,000, respectively.
Determine the capital to be credited to Samuel.
a. P150,000
b. P180,000
c. P210,000
d. P120,000

Questions 10 and 11 are based on the following:

Riley and Smith are partners with present capital balances of P500,000 and P400,000, respectively. The partners share
profit and losses according to the following percentages: 60% for Riley and 40% for Smith. Tyler is to join the original
partnership upon contribution of P250,000 to the partnership in exchange for a 20% interest in capital and 15% interest in
profits and losses. Tyler’s contribution consists of P170,000 of cash and equipment having a fair value of P80,000. The assets
of the original partnership have a book value equal to their fair value except that the land has a book value of P15,000 and fair
value of P55,000.
 10. Calculate the capital balance of Tyler in the new partnership, assuming use of the bonus method.
a. P238,000 b. P250,000 c. P230,000 d. P178,500
11. Calculate the capital balance of Tyler in the new partnership, assuming use of the goodwill method.
a. P238,000 b. P250,000 c. P230,000 d. P178,500
Items 12 and 13 are based on the following:
The following condensed balance sheet is presented for the partnership of Nick, Pick, and Rick, who share profits and losses in the
ratio of 4:3:3, respectively:

Cash P 45,000 Accounts payable P105,000

Other assets 415,000 Rick. Loan 15,000
10,000 Nick, capital 155,000
Pick, capital 100,000
Rick, capital 95,000
P470,000 P470,000

12. Assume that the assets and liabilities are fairly valued on the balance sheet and that the partnership decides to admit Tick as
a partner, with a 20% interest. No goodwill or bonus is to be recorded. How much should Tick contribute in cash or other
assets?
a. P70,000 b. P71,000 c. P87,500 d. P88,750
13. Assume that instead of admitting a new partner, the partners decide to liquidate the partnership. If the other assets are sold
for P350,000, how much cash should be distributed to Nick?
a. P115,000 b. P119,000 c. P129,000 d. P155,000

Items 14 and 15 are based on the following:

Benny, Jenny, and Kenny are partners in a trading business. They participate in the profits and losses equally. As of December 31,
2019, the partners’ capital and drawing accounts are as follows:

Benny Jenny Kenny Total

Capital P200,0000 P160,000 P600,000 P960,000
Drawing 120,000 80,000 40,000 240,000

The partners decided to liquidate the partnership. The operating profit for the year 2019 amounted to P144,000, which was all
exhausted including partnership assets. As of December 31,2019, un paid liabilities still amounted to P168,000. Benny is personally
insolvent, but both Jenny and Kenny have substantial private resources.

14. The total loss on realization was:

a. P720,000 b. P888,000 c. P960,000 d. P1,032,000

15. The amount received by Kenny in final cash distribution was:

a. P156,000 b. P168,000 c. P216,000 d. P324,000

16. Perales Corp. is undergoing liquidation since August 1, 2019. Five months later, on December 31, 2019, its condensed
realization and liquidation statement shows the following:
Assets:
To be realized P1,375,000
Acquired 750,000
Realized 1,200,000
Not realized 1,375,000
Liabilities:
Liquidated 1,875,000
Not Liquidated 1,700,000
To be liquidated 2,250,000
Assumed 1,625,000
Supplementary:
Charges 3,125,000
Credits 2,800,000
The net gain (loss) for the five month period is:
a. P (325,000) b. P250,000 c. P425,000 d. P750,000

17. The statement of affairs of VAN KRAFT Co. shows the following:
Estimated gains on realization of assets P1,440,000
Estimated losses on realization of assets 2,000,000
Additional assets 1,280,000
Additional liabilities 960,000
 Capital stock 2,000,000
Deficit 1,000,000

The pro-rate payment on the peso, to stockholders, is:

a. P0.30 b. P0.43 c. P0.57 d. P0.70

18. REH Co. Filled a voluntary bankruptcy petition on August 15, 2018 and the statement of affairs reflect the following amounts:

BOOK CARRYING VALUE ESTIMATED CURRENT

VALUE

Assets pledge with fully secure creditors P 150,000 P 185,000

Assets pledge with partially secured creditors 90,000 60,000
Free Assess 210,000 160,000
P 450,000 P 405,000
Liabilities
Liabilities with priority P 35,000
Fully secured creditors 130,000
Partially secured creditors 100,000
Unsecured creditors 270,000
P 535,000

Assumes that the assets are converted into cash at the estimated current value and the business is liquidated.
How much cash will be available to pay the unsecured non-priority claims?
.a. P240,000 b. P180,000 c. P160,000 d. P125,000

19. Vina Co. has been forced into bankruptcy and liquidated. Unsecured claims will be paid at the rate of P 0.50 on the peso.
Jigs Co. hold a non-interest bearing note receivable from Vina Co. in the amount of P50,000 collateralized by machinery with
a liquidation value of P10,000. The total amount to be realized by Jigs on this note receivable is:
a. P35,000 b. P30,000 c. P25,000 d. P10,000

20. The statement affair for Vzell Corp. shows that approximately P 0.78 on the peso probably will be paid to unsecured creditors
without priority. The Corp. owes Boy Co. P23,000 on a promissory note, plus accrued interest of P940. Inventories with a
current fair value of P19,200 collateral the note payable. Compute the amount that the Boy should receive from Vzell
assuming that the actual payments to unsecured creditors without priority consist of 78% of total claims. Round all amounts
to the nearest peso.
a. P19,200 b. P22,897 c. P33,987 d. P52,200

** Items 21 to 24 are based in the following:

The following data were taken from the statement of affairs of RG Corp:
Assets pledged for fully secured liabilities (current fair value, P75,000) P 90.000
Assets pledged for partially secured liabilities 9current fair value, P75,000) 74,000
Free assets (current fair value, P40,000) 70,000
Unsecured liabilities with priority 7,000
Full secured liabilities 30,000
Partially secured liabilities 60,000
Unsecured liabilities without priority 112,000

21. The amount that will be paid to creditors with priority is:
a. P7,000 b. P6,000 c. P7,500 d. P6,200
22. The amount to be paid fully secured creditors is:
a. P30,000 b. P32,000 c. P20,000 d. P35,000
23. The amount to be paid to partially secured creditors is:
a. P52,700 b. P57,200 c. P56,200 d. P57,000
24. The amount to be paid to unsecured creditors:
a. P78,200 b. P70,800 c. P72,000 d. P72,800

25. The following information is available concerning Taal Inc. on the date the Co. entered bankruptcy proceeding:
Account Balance per Books
Cash P 2,860
Accounts receivable 52,260
Inventory 28,000
Prepaid expenses 430
Buildings, net 59,000
Equipment, net 5,600
Goodwill 5,650
Wages payable (2,500)
 Taxes Payable (1,810)
Accounts payable (79,000)
Notes payable (15,150)
Common stock (72,000)
Retained earnings, Deficit 16,660

Inventory with a book value of P20,000 is security for notes of P10,000. The other notes are secured by the equipment.
Expected realizable values of the assets are:
Accounts receivable P44,100
Inventory 18,500
Buildings 22,000
Equipment 2,000
What is the estimated deficiency to unsecured creditors?
a. P79,000 b. P66,500 c. 72,500 d. none of these

Items 26 to 14 are based on the following:

Because of inability to pay its debts, the John Manufacturing Co. has been forced into bankruptcy as of April 30, 2003. The
balances sheet on that date shows:

ASSETS
Cash P 2,700
Accounting Receivable 39,350
Notes Receivable 18,500
Inventories 87,850
Prepaid expenses 950
Land and building 61,250
Equipment 48,800
259,400

LIABILITIES
Accounts payable P 52,500
Notes payable – PNB 15,000
Notes payable – suppliers 51,250
Accrued wages 1,850
Accrued taxes 4,650
Mortgage bond payable 90,000
Common stock – P10 par 75,000
Retained earning (30,850)
Retained earnings P259,400

Additional information:
a. Accounts receivable of P16,110 and notes receivable of P12,500 are expected to be collectible. The good notes are
pledge to Phil. National Bank.
b. Inventories are expected to bring in P45,100 when sold under bankruptcy condition.
c. Land and buildings have an appraised value of P95,000. They serve as security on the bonds.
d. The current value of the equipment net of disposal cost is P9,000

26. The estimated loss on asset disposition is:

a. P82,550 b. P29,240 c. P11,700 d. none of these
27. What is the estimated gain on asset disposition?
a. P45,100 b. P33,750 c. P0 d. none of these
28. What is estimated payment to creditors?
a. P102,500 b. 215,250 c, P118,750 d. none of these
29. The expected recovery percentage is:
a. 47% b. 50% c. 48% d. none of these

30. Morgana Co. signed a note payable to its bank for P10,000. Accrued interest on the note on April 1, 2003 amount to P250.
The note is secured by inventory with a book value of P12,000. The inventory is sold for P80,000 and unsecured creditors
receive 30% of their claims. The bank should receive the following amount in settlement of the note and interest.
a. P10,250 b. P10,000 c. P8,675 d. P8,000