COLLEGE OF ACCOUNTING EDUCATION COMPETENCY APPRAISAL COURSE

ADVANCED FINANCIAL ACCOUNTING & REPORTING JANUARY 19, 2020

1. Which of the following statements is true concerning the

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

2. Partners active in a partnership business should have their

share of partnership profits based on the following
a. A combination of salaries plus interest based on average
capital balances
b. A combination of salaries and percentage of net income
after salaries and any other allocation basis
c. Salaries only
d. Percentage of net income after salaries is paid to inactive
partners

3. Which of the following statements are true when comparing

corporations and partnerships?
a. Partnership entities provide for taxes and at the same
rates used by corporations
b. In theory, partnerships are more able to attract capital
c. Like corporations, partnerships have an infinite life
d. Unlike shareholders, general partners may have liability
beyond their capital balances

4. Partnership drawings are

a. Always maintained in a separate account from the partner’s
capital account
b. Equal to partners’ salaries
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. Which of the following characteristics of a partnership most

likely explains why a public accounting firm is organized as a
partnership from a public policy viewpoint?
a. A partnership is not a taxable entity
b. A partnership is characterized by unlimited liability
c. A partnership is characterized by a fiduciary relationship
among the partners
d. Salaries to the partners are not considered a component of
net income

Problem 1

ALEX and CARUSO capital is P 480,000 and P 520,000 respectively.

Profit Share Ratio is 4:6. BONGA invested P 500,000 for a 30%
interest in the partnership.

6. What is the capital of ALEX

after admitting BONGA?
a. P 480,000
b. P 500,000
c. P 520,000
d. P 550,000
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7. What is the capital of CARUSO

after admitting BONGA?
a. P 480,000
b. P 500,000
c. P 520,000
d. P 550,000

8. What is the capital of BONGA

after admission?
a. P 450,000
b. P 500,000
c. P 520,000
d. P 550,000

Problem 1

ALEX CARUSO BONGA TOTAL

Contributed Capital 480,000 520,000 500,000 1,500,000
Bonus 20,000 30,000 (50,000)
Agreed Capital 500,000 550,000 450,000 1,500,000

9. Which of the following is NOT a characteristic of the proprietary

theory that influences accounting for partnerships?
a. Partners’ salaries are viewed as a distribution of income
rather than a component of net income
b. A partnership is not viewed as a separate, distinct,
taxable entity
c. A partnership is characterized by limited liability
d. Changes in the ownership structure of a partnership result
in the dissolution of the partnership

10. Which of the following would be least likely to be used as a

means of allocating profits among partners who are active in
the management of the partnership?
a. Salaries
b. Bonus as a percentage of net income before the bonus
c. Bonus as a percentage of sales in excess of a targeted
amount
d. Interest on average capital balances

Problem 2

The balance sheet of AD, BRON, and CARUSO partnership on January

1, 2019 was as follows:

Cash 4,000 Liabilities 8,000

Other assets 26,000 Loan from AD 1,000
Loan to CARUSO 2,000 AD, capital (20%) 2,000
BRON, capital (40%) 9,000
CARUSO, capital (40%) 12,000
Total assets 32,000 Total liab./equity 32,000

In January, other assets with a book value of P 16,000 were sold

for P 10,000 in cash. Using a safe payments schedule, how much
will each partner receive as cash distribution after the
liabilities had been paid?

11. AD
a. P 0
b. P 1,200

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c. P 1,800
d. P 2,000

12. BRON
a. P 1,800
b. P 2,000
c. P 2,500
d. P 9,000

13. CARUSO
a. P 2,400
b. P 3,000
c. P 3,500
d. P 4,000

Problem 2

AD BRON CARUSO
2,000 9,000 12,000
1,000 - (2,000)
3,000 10,000

Cash NCA Liabilities AD BRON CARUSO

4,000 26,000 8,000 3,000 9,000 10,000
10,000 (16,000) (1,200) (2,400) (2,400)
14,000 10,000 8,000 1,800 6,600 7,600
(8,000) (8,000) ______ ______ _____
6,000 10,000 1,800 6,600 7,600
(10,000) (2,000) (4,000) (4,000)
(200) 2,600 3,600
200 (100) (100)
2,500 3,500

14. Which of the following best describes the use of interest on

invested capital as a means of allocating profits?
a. If interest on invested capital is used, it must be used
for all partners
b. Interest is allocated only if there is partnership net
profit
c. Invested capital balances are never affected by drawings
of the partnerships
d. Use of beginning or ending measures of invested capital
may be subject to manipulation that distorts the measure
of invested capital

15. A partnership agreement calls for allocation of profits and

losses by salary allocations, a bonus allocation, interest on
capital, with any remainder to be allocated by preset ratios.
If a partnership has a loss to allocate, generally which of the
following procedures would be applied?
a. Any loss would be allocated equally to all partners
b. Any salary allocation criteria would not be used
c. The bonus criteria would not be used
d. The loss would be allocated using the profit and loss
ratios, only

Problem 3

KAPA partnership begins its first year of operations with KA,

capital of P 160,000 and PA, capital of P 80,000. According to the
partnership agreement, all profits will be distributed as follows:
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• KA will be allowed a monthly salary of P 10,000

• The partners will be allowed with interest equal to 10% of
the capital balance as of the first day of the year
• KA will be allowed a bonus of 10% of the net income after
salaries
• The remainder will be divided on the basis of 60:40 for the
first year and 50:50 for the second year
• Assume further that the partnership generated Net Income of
P 320,000 for the first year, and P 200,000 for the second
year.

16. What is the share of PA in the

net income for the first year?
a. P 70,400
b. P 150,400
c. P 249,600
d. P 409,600

17. What is the share of KA in the

net income for the first year?
a. P 70,400
b. P 150,400
c. P 249,600
d. P 409,600

18. How much is the adjusted capital

of KA at the beginning of second year?
a. P 150,400
b. P 249,600
c. P 409,600
d. P 586,560

19. What is the share of PA in the

net income for the second year?
a. P 23,040
b. P 173,440
c. P 176,960
d. P 586,560

20. What is the share of KA in the

net income for the second year?
a. P 23,040
b. P 173,440
c. P 179,960
d. P 586,560

Problem 3

First Year
KA PA B = 10% (NI – S)
Salaries 120,000 B = 10% (320,000 – 120,000)
Interest 16,000 8,000 B = 10% (200,000)
Bonus *20,000 B = 20,000
Remainder **93,600 **62,400
Total 249,600 70,400 R = 320,000 – 120,000 – 24,000 – 20,000
R = 156,000
KA PA
Beg. Capital 160,000 80,000
Profit 249,600 70,400
End. Capital 409,600 150,400

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COLLEGE OF ACCOUNTING EDUCATION COMPETENCY APPRAISAL COURSE

Second Year
KA PA B = 10% (NI – S)
Salaries 120,000 B = 10% (200,000 – 120,000)
Interest 40,960 15,040 B = 10% (80,000)
Bonus 8,000 B = 8,000
Remainder 8,000 8,000
Total 176,960 23,040 R = 200,000 – 120,000 – 56,000 – 8,000
R = 16,000

Problem 4

MAR, PILO, and BAM formed a joint operation where they agreed to
share profit or loss equally. The following were taken from the
joint operation’s book:
DEBIT CREDIT
JO – Cash 40,000
Joint Operation 10,000
PILO, Capital 30,000
BAM, Capital 20,000

It was agreed by the operators to charge the unsold merchandise as

of year-end to MAR. Moreover, the share of MAR in the profit of
joint operation amounted to P 8,000

21. How much is the total profit

of the joint operation?
a. P 8,000
b. P 16,000
c. P 24,000
d. P 34,000

22. How much is the unsold merchandise

charged to MAR?
a. P 8,000
b. P 16,000
c. P 24,000
d. P 34,000

Problem 4

Profit = Share of Mar x 3

Profit = 8,000 x 3
Profit = 24,000

Unsold Merchandise = JO Balance – Profit

Unsold Merchandise = (10,000) – 24,000
Unsold Merchandise = (34,000)

23. A joint arrangement that is structured without a separate

vehicle is a
a. Joint operation
b. Joint venture
c. Joint asset
d. Joint entity

24. When two or more parties combine their operations, resources

and expertise to manufacture, market and distribute jointly a
particular product, such as an aircraft is an example of
a. Joint venture
b. Joint operation
c. Joint asset
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d. Joint entity

25. When two or more oil entities control and operate an oil
pipeline and each party uses the pipeline to transport its own
product in return for which it bears an agreed proportion of
the expenses of operating the pipeline is an example of
a. Joint operation
b. Joint entity
c. Joint asset
d. Partnership

Problem 5

On January 2, GOKU Company purchased a 30 percent interest in GOHAN

Company for P 250,000 such interest gives GOKU Company the joint
control over GOHAN Company.

On this date, the book value of GOHAN’s stockholders’ equity was

P 500,000. The carrying amounts of GOHAN’s identifiable net assets
approximated fair values, except for land, whose fair value
exceeded its carrying amount by P 200,000.

GOHAN’s reported net income of P 100,000 and paid no dividends.

GOKU accounts for this investment using the equity method.

26. In its December 31 balance sheet, what amount should GOKU

report for this investment?
a. P 210,000
b. P 220,000
c. P 270,000
d. P 280,000

Problem 5

Investment in Joint Venture, January 2 250,000

Share in the Net Income (P 100,000 x 30%) 30,000
Investment in Joint Venture, December 31 280,000

27. A joint arrangement that is structured through a separate

vehicle should be accounted for as
a. Joint operation
b. Joint venture
c. Either joint operation or joint venture depending on the
legal form of the separate vehicle
d. Neither joint operation nor joint venture

28. It is the joint arrangement that involves the establishment

of a corporation in which each party has an equity interest in
the net assets of the corporation
a. Joint venture
b. Joint operation
c. Either joint venture or joint operation
d. Neither joint venture nor joint operation

Problem 6

VEGETA Company purchases 40% of BULMA Company on January 1 for P

500,000 that carry voting rights at a general meeting of
shareholders of BULMA Company.

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COLLEGE OF ACCOUNTING EDUCATION COMPETENCY APPRAISAL COURSE

VEGETA Company and TRUNKS Company immediately agreed to share

control (wherein unanimous consent is needed to all the parties
involved) over BULMA Company.

BULMA reports assets on that date of P 1,400,000 with liabilities

of P 500,000. One building with a seven-year life is undervalued
on BULMA’s books by P 140,000.

Also BULMA’s book value for its trademark (10-year life) is

undervalued by P 210,000. During the year, BULMA reports net income
of P 90,000, while paying dividends of P 30,000.

29. What is the Investment in BULMA Company balance (equity

method) in VEGETA’s financial records as of December 31?
a. P 504,000
b. P 507,600
c. P 513,900
d. P 516,000

Problem 6

Investment in Joint Venture, January 1 500,000

Share in the Net Income (90,000 x 40%) 36,000
Share in the Adjustment of Building (140,000/7 x 40%) (8,000)
Share in the Adjustment of Trademark (210,000/10 x 40%) (8,400)
Share in the dividends (30,000 x 40%) (12,000)
Investment in Joint Venture, December 31 507,600

30. What is the method of accounting for investment in joint

venture?
a. Cost method
b. Equity method
c. Consolidation method
d. Fair value method

31. When an investment in joint venture is held by a venture

capital organization, mutual trust fund, unit trust and
insurance-linked fund
a. The entity must apply the equity method of accounting
b. The entity must apply the fair value method of accounting
c. The entity may elect to measure the investment in joint
venture at fair value through profit or loss
d. The entity may elect to measure the investment in joint
venture at fair value through other comprehensive income

Problem 7

OO, PP, and QQ formed a joint venture to bankroll a series of

cultural shows for the Philippine Centennial celebration.

OO and PP agreed to contribute cash and QQ was to manage the

affairs of the joint venture.

QQ was to receive a bonus of 25% of the net income after bonus, OO

and PP were to be allowed interest on their capital contributions
at 6% per annum, and any remainder was to be divided equally among
the three partners.

After a year, the joint venture was terminated and the following
information was provided: original capital contributions used to
purchase tickets, were P 1,815,000 and P 2,475,000, respectively,
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from OO and PP; QQ sold tickets worth a total of P 6,600,000; and

QQ paid expenses of P 1,899,150 out of joint venture funds.

32. How much was the joint venture’s net income after the bonus
to QQ?
a. P 257,400
b. P 328,680
c. P 410,850
d. P 4,700,850

Problem 7

Ticket Revenue 6,600,000

Less: Cost of Tickets (1,815,000 + 2,475,000) 4,290,000
Less: Expenses 1,899,150
Net Income 410,850

B = 25% (NI – B)
B = 25% (410,850 – B)
B = 102,712.50 – 0.25B
1.25B = 102,712.50
B = 82,170

Net Income after Bonus (410,850 – 82,170) 328,680

33. Joint control is defined as

a. The power to govern the financial and operating policies
of another entity so as to obtain benefits from its
activities
b. The power to participate in the financial and operating
policy decisions of another entity
c. The contractually agreed sharing of control of an
arrangement which exists only when decisions about relevant
activities require majority consent of the parties sharing
control
d. The contractually agreed sharing of control of an
arrangement which exists only when decisions about relevant
activities require unanimous consent of the parties sharing
control

34. It is a joint arrangement whereby the parties that have joint

control of the arrangement have rights to the assets and
obligations for the liabilities relating to the arrangement
a. Joint operation
b. Joint venture
c. Joint asset
d. Joint entity

35. It is a joint arrangement whereby the parties that have joint

control of the arrangement have rights to the net assets of the
arrangement
a. Joint operation
b. Joint venture
c. Joint undertaking
d. Joint entity

END OF ASSESSMENT

NOTHING FOLLOWS

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