ACCO 20043 Financial Accounting and Reporting 2 Midterm Handouts

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES
College of Accountancy and Finance Student Council

CAF Review
ACCO 20043: Financial Accounting and Reporting 2
(Midterm Examinations)
I. THEORIES
1. In the cash priority program, the partner who receives the final cash distribution is the one who has
the highest
a. Loan balance
b. Loss absorption potential
c. Capital balance
d. Profit and Loss Ratio
2. It supports the installment liquidation statement which summarizes the changes in real account
balances as the liquidation progresses.
a. Cash Priority Program
b. Right of offset
c. Schedule of Safe Payments
d. Payment to Partners
3. In doing schedule of safe payments, it is assumed that
a. No liquidation expenses will be paid
b. All non-cash assets are worthless
c. Partnership liabilities have been paid
d. All of the above
4. The deficiency in a partner’s capital account in liquidation must absorb by the remaining partners
because of
a. Limited life and mutual agency
b. Limited life and co-ownership of property
c. Mutual agency and partnership's taxability
d. Mutual agency and unlimited liability
5. It is prepared before determining how much the asset or portion of asset is sold, to determine to
whom the available cash is first given to.
a. Cash Priority Program
b. Right of offset
c. Schedule of Safe Payments
d. Payment to Partners
CAF Review
6. Cash withheld for possible liquidation expenses and unrecognized liability is treated in the
preparation of schedule of safe as
a. Loss on realization
b. Possible loss
c. Liabilities
d. Operating expenses
7. Which of the following procedures is acceptable when accounting for a deficit balance in a
partner’s capital account during partnership liquidation?
a. A partner with a negative capital balance must contribute personal assets to the
partnership that are sufficient to bring the capital account to zero.
b. 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 all the partners.
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 profit and loss sharing ratios that apply to those partners having positive
balances.
d. All the above procedures are acceptable.
8. Gains and losses incurred at liquidation are distributed to the partners using the residual profit and
loss sharing ratios because
a. Using ownership percentages would permit solvent partners to not share profits with
insolvent partners.
b. The residual profit and loss ratios represent the ownership percentages.
c. These amounts represent profits and losses from prior periods that would have been shared
using the residual profit and loss ratios.
d. Using the established profit and loss sharing ratios is not permitted.
9. The order of partnership liquidation process is
a. sell assets, disburse cash to partners, pay liabilities
b. disburse cash to partners, pay liabilities, sell assets
c. pay liabilities, sell assets, disburse cash to partners
d. sell assets, pay liabilities, disburse cash to partners
CAF Review
10. In the final liquidation transaction, the remaining cash is distributed to the partners.
The partners share in the cash according to their
a. profit and loss ratio
b. capital balances
c. Withdrawals
d. cash balance
11. In a partnership liquidation, a loss from sale of non-cash assets is allocated to the
a. partner with the lowest capital balance
b. partnership liabilities
c. partners based on their capital balances
d. partners based on the profit and loss sharing ratio
12. A capital deficiency in a partner's capital that is uncollectible is
a. the result of a sale of non-cash assets at a profit
b. the result of a loss in operations
c. a loss to the other partners
d. gain to the other partners
13. Interest on capital, Salary allowances, and bonuses are treated as expenses.
a. True
b. False
c. Maybe
14. What is the law regulating the practice of accountancy in the Philippines?
a. R.A. 9298
b. R.A. 9892
c. R.A. 9928
d. R.A. 9982
15. A corporation may be a stockholder of another corporation.
a. True
b. False
c. Maybe
CAF Review
16. Spongebob, Squidward, Patrick, Sandy, Mr. Krabs, and Larry are the duly elected directors for
2021 of Bikini Bottom Corporation whose articles of incorporation provide for 6 directors. On
August 1, 2022, Directors Spongebob, Squidward, Patrick, and Sandy met to fill two vacancies in
the board brought about by the valid removal of Larry for disloyalty to the corporation and the
death of Mr. Krabs. In the said meeting, the remaining directors voted for Plankton to replace Larry,
and Pearl, the daughter of Mr. Krabs, to replace her father. Both Plankton and Pearl are owners of
at least one share of stock of the corporation. The election of Plankton and Pearl by the remaining
directors are:
a. Valid for both Plankton and Pearl.
b. Not valid for both Plankton and Pearl.
c. Valid with respect to Plankton; not valid with respect to Pearl.
d. Not valid with respect to Plankton; valid with respect to Pearl.
17. A corporation commences to exist upon the execution of the articles of incorporation by the
incorporators.
a. True
b. False
c. Maybe
18. It is the capital that represents a residual ownership equity
a. Owner’s Capital
b. Ordinary Share Capital
c. Outstanding Share Capital
d. Preference Share Capital
19. The following condition will result to partnership liquidation except:
a. Death of a Partner
b. Retirement of a Partner
c. Admission of a new partner
d. None of the above
CAF Review
20. The residual interest in a corporation belongs to

a. Ordinary Shareholders
b. Creditors
c. Management
d. Preference Shareholders
II. PROBLEMS
For numbers 21 and 22

C, M, and B are partners with average capital balances during 2021 of P 945,000, P 477,300 and
P 324,700, respectively. The partners receive 10% interest on their average capital balances,
salaries of P 200,000 to M and P 199,800 to C, any residual profit (loss) is divided in the ratio of
5:3:2 M, C, and B respectively. The partnership had a net loss of P 300,000.
Determine the following:

21. Share of B in the loss
a. (174,900)
b. (189,520)
c. (31,950)
d. (142,430)
22. Share of C in the loss
a. 31,950
b. (189,520)
c. (31,950)
d. 189,520
CAF Review
23. Bry, Migs, Pat, and Tin are partners with capital balances of P105,000, P175,000, P182,000, and
P238,000, respectively. Migs decided to withdraw from the partnership. Upon his withdrawal,
assets were revaluated, and Migs’ share was debited for P50,000. How much is the total asset
revaluation of the partnership?
a. P200,000
b. P12,500
c. P192,000
d. P147,058
24. Bryan, Stephen, and Kristel have a capital balances of 92,000, 84,000, and 75,000 and they share
profits and losses in the ratio of 4:4:2 respectively. They decided to liquidate their partnership. All
liabilities have been paid and some of the assets has been realized. Other assets with a book value
of 98,000 still must be realized and assuming 5,000 cash is withheld for possible liquidation
expenses. Cash of 148,000 is available for distribution to partners. How much cash should Bryan
receive?
a. 44,800
b. 51,800
c. 53,400
d. 50,800
25. Using the same information, how much cash should Stephen receive?
a. 42,880
b. 50,800
c. 42,800
d. 51,800
26. Using the same information, how much cash should Kristel receive?
a. 53,400
b. 54,400
c. 55,400
d. 51,800
CAF Review
27. Partners Patricia, Christine and Miguel decided to liquidate their partnership and share profits and
losses in the ratio of 3:3:4 respectively. Prior to the liquidation, the balances are as follows:
Cash – 15,000
Non-Cash Assets – 175,000
Liabilities – 46,000
Notes Payable to Miguel – 10,000
Patricia, Capital – 39,000
Christine, Capital – 59,000
Miguel, Capital – 28,000
Assets are sold, paid liquidation expenses, and cash is distributed to partners in monthly
installments during the course of liquidation as follows:
Sale of Assets – Book Value Liquidation Expenses
January 73,000 – 85,000 13,000
February 55,000 – 90,000
How much cash must be paid to Patricia after all the allocations?
a. 10,500
b. 20,500
c. 30,500
d. 40,500
28. Using the same information, how much cash must be paid to Christine after all the allocations?
a. 30,501
b. 20,500
c. 0
d. 30,500
CAF Review
29. Using the same information, how much cash must be paid to Miguel after all the allocations?
a. 0
b. 10,500
c. 35,500
d. 20,500
30. The partnership of MB, NC, and OP was dissolved on May 31, 2013, and the account balances
after all noncash assets are converted to cash on July 1, 2013, along with residual P/L sharing
ratios, are:
Cash 262,500 Accounts Payable 630,000
NC, Capital (30%) (315,000) MB, Capital (30%) 472,500
OP, Capital (40%) (525,000)
Personal assets and liabilities of the partners at July 1, 2013 are:

Personal Assets Personal Liabilities
MB 420,000 472,500
NC 525,000 320,250
OP 997,500 420,000
If OP contributed 367,500 to the partnership to provide cash to pay the creditors, what
amount of MB’s 472,500 partnership equity would appear to be recoverable?
a. 414,750
b. 425,250
c. 472,500
d. 0
CAF Review
31. Bry, Tine, and Migs, partners have capital balances of 9,800, 12,000, and 5,200 respectively and
share profits in the ratio of 4:2:1. Prepare a schedule showing how available cash will be given to
the partners as it becomes available. Who among the partners shall be paid first with an available
cash of 1,200?
a. Bry
b. Tine
c. Migs
d. Bry and Migs
32. On October 31, 2007, A, B, and C decided to dissolve the partnership. Their capital balances and
profit and losses ratio on this date are as follows:
Capital Balance P/L Ratio

A 40,000 20%
B 70,000 50%
C 40,000 30%
Cash and liabilities are 20,000 and 45,000 respectively. Net income from January to October
is 28,000. How much loss must be realized from sale of non-cash assets for B to receive
32,500?
a. 103,000
b. 100,000
c. 110,000
d. 113,000
CAF Review
33. The following statement of financial position is for the BBL Partnership. The partners Baby,
Babe, and Lodi share profits and losses in the ratio of 5:3:2, respectively.
Cash 60,000 Liabilities 140,000

Other Assets 540,000 Baby, Capital 280,000
Babe, Capital 160.000
Lodi, capital 20,000
P 600,000 600,000
Assuming the original partners agreed to liquidate the partnership by selling the other assets,
what should each of the respective partners receive if the other assets are sold for 400,000?
a. Baby -205,000; And Babe -115,000; Lodi 0
b. Baby -206,000; And Babe -114,000; Lodi 0
c. Baby -210,000; And Babe -111,800; Lodi 8,000
d. Baby -280,000; And Babe -160,000; Lodi 20,000
34. Esper, Elor, and Este, partners are in textile distribution business sharing profits and losses equally.
On December 31, 2014, the partnership capital and partners; drawing are as follows:
Esper Elor Este Total

Capital 100,000 80,000 300,000 480,000
Drawings 60,000 40,000 20,000 120,000
The partnership was unable to collect on trade receivables and was forced to liquidate.
Operating profit in the year 2014 amounted to P72 000 which was all exhausted including the
partnership assets. Unsettled creditors’ claim at December 31, 2014 totaled P 84 000. Elor and
Este have substantial private resources but Esper has no personal assets. Loss on liquidation
was
a. 360 000
b. 432 000
c. 480 000
d. 516 000
CAF Review
35. After all non-cash assets have been converted into cash, in the liquidation of the Estacio and
Estioco Partnership, the ledger contains the following account balances:
Debit Credit
Cash 141,000
Accounts Payable 96,000
Loan Payable to Estacio 45,000
Estacio, Capital 21,000
Estioco, Capital 21,000
Available cash should be distributed with 96,000 going to Accounts Payable and
a. 45,000 to the Loan Payable to Estacio
b. 22,500 each to Estacio and Estioco
c. 24,000 to Estacio and 21,000 to Estioco
d. 21,000 to Estacio and 24,000 to Estioco
For numbers 36-37

Husband Corp. was organized on January 1, 2021 with authorized capital of 100,000 ordinary shares, P20
par value. During 2021, Husband Corp. had the following transactions relevant to the shareholders’ equity.
Jan. 10 Issued 30,000 shares at P23 per share
Mar. 25 Issued 1,500 shares for a piece of equipment when the value was P26 per
share
Sep. 30 Issued 8,000 shares for a piece of equipment when the value was P25 per
share
36. How much is the balance of the ordinary share capital account as of September 30?
a. 729,000
b. 630,000
c. 790,000
d. 929,000
CAF Review
37. What amount should be reported as ordinary share premium?

a. 39,500
b. 139,500
c. 130,500
d. 139,000
38. ABC Partnership began operations in July with office supplies of P86,000. During the month, the
company purchased P116,000. At July 31, supplies on hand total P96,000. The adjusting entry at
July 31 will result in supplies expense of
a. 106,000
b. 180,000
c. 96,000
d. 84,000
For items 39-40, the partners has a profit and loss ratio of 5:3:2
Cash 100,000 Accounts Payable 70,000
Inventory 60,000 Shai, Capital 60,000
Office Equipment 40,000 Me, Capital 40,000
Not, Capital 30,000
39. If the partners agree to liquidate their partnership under the lumpsum method, how much will
Shai receive if the non-cash assets were sold at P150,000?
a. 75,000
b. 85,000
c. 95,000
d. 105,000
40. How much will Me receive?
a. 55,000
b. 45,000
c. 35,000
d. 65,000
CAF Review
ANSWER KEY
1. B
2. C
3. B
4. D
5. A
6. B
7. C
8. C
9. D
10. B
11. D
12. C
13. B
14. A
15. A
16. D
17. B
18. B
19. D
20. A
21. D
22. C
23. A
24. D
25. C
26. B
27. A
28. D
CAF Review
29. A
30. A
31. B
32. A
33. A
34. D
35. C
36. C
37. D
38. A
39. B
40. A
SOLUTION
21-22.
C M B Total
Interest Allowance P 94,500 P 47,730 P 32,470 P 174,700
Salary Allowance 199,800 200,000 399,800
Remainder divided at 5:3:2 (262,350) (437,250) (174,900) (874,500)
874,500 x 30% = 262,350
874,500 x 50% = 437,250
874,500 x 20% = 174,900
TOTAL (P 31,950) (P 189,520) (P 142,430) (300,000)
CAF Review
23.
Bry, Profit and Loss Ratio 105,000/700,000 = 15%
Migs, Profit and Loss Ratio 175,000/700,000 = 25%
Pat, Profit and Loss Ratio 182,000/700,000 = 26%

Tin, Profit and Loss Ratio 238,000/700,000 = 34%
Asset Revaluation, Migs P 50,000
Divided by P&L, Migs 25%
Total Asset Revaluation P 200,000
24-26.
Bryan Stephen Kristel
Profit Ratio 4/10 4/10 4/10
Capital balance before cash distribution 92,000.00 84,000.00 75,000.00
Add loans - - -
Total Partners' Interest 92,000.00 84,000.00 75,000.00
Restricted Interest - possible loss of 98,000.00 if nothing is

realized on remaining unsold assets and loss of 5,000.00 for
possible liquidation expenses (41,200.00) (41,200.00) (20,600.00)
Free interest - payment to partners 50,800.00 42,800.00 54,400.00
Payment to apply on:
Loan - - -
Capital 50,800.00 42,800.00 54,400.00
Total Cash Distribution 50,800.00 42,800.00 54,400.00

CAF Review
27-29.
Payments to
Patricia Christine Miguel Patricia Christine Miguel
Profit Ratio 3/10 3/10 4/10 3/10 3/10 4/10
Capital balance before liquidation 39,000.00 59,000.00 28,000.00
Add loans - - 10,000.00
Total Partner’s Interest 39,000.00 59,000.00 38,000.00
Divide by the profit and loss ration ÷ 3/10 ÷ 3/10 ÷ 4/10
Loss Absorption Capacity 130,000.00 196,667.00 95,000.00
Allocation I: Cash to Christine

reducing his loss absorption balance
to an amount reported for Patricia;
reduction of 66,667.00 requires
payment of 3/10 × 66,667 (66,667.00) 20,000.00
Balance 130,000.00 130,000.00 95,000.00
Allocation II: Cash to Patricia and

Christine reducing their loss
absorption balance to an amount
reported for Miguel; reduction of
35,000.00 requires payment as
follows:
To Patricia, 3/10 × 35,000.00 (35,000.00) 10,500.00
To Christine, 3/10 × 35,000.00 (35,000.00) 10,500.00
Balance 95,000.00 95,000.00 95,000.00 10,500.00 30,500.00 -

CAF Review
Allocation III: Further cash
distribution are to be made in the
profit and loss ratio
30.
Assets Liabilities NC-30% OP-40% MB-30%

Beginning balances 262,500.00 630,000.00 (315,000.00) (525,000.00) 472,500.00
Additional investment by OP, used
(367,500.00) 367,500.00
to pay liabilities
Balances 262,500.00 262,500.00 (315,000.00) (157,500.00) 472,500.00
Pay liabilities using available cash (262,500.00) (262,500.00)
Balances - - (315,000.00) (157,500.00) 472,500.00
Additional investment of solvent
362,250.00 204,750.00 157,500.00
partners
Balances 362,250.00 (110,250.00) - 472,500.00
Insolvent partner's deficit to be
absorbed by solvent partners, 110,250.00 (52,500.00) (57,750.00)
according to P/L
Balances - (52,500.00) 414,750.00
Additional investment by OP, still
52,500.00 52,500.00
solvent
Payment to partners 414,750.00 - 414,750.00
CAF Review
31.
Bry Tine Migs

Capital before liquidation 9,800.00 12,000.00 5,200.00
Add: loan interest - - -
Total partner's interest 9,800.00 12,000.00 5,200.00
Restricted interest- possible loss of 25,800
(14,742.86) (7,371.43) (3,685.71)
to partners
Balances (4,942.86) 4,628.57 1,514.29
Restricted interest- possible loss to Tine and
4,942.86 (3,295.24) (1,647.62)
Migs if Bry fails to pay his deficiency
Balances - 1,333.33 (133.33)
Restricted interest- possible loss to Tine if
(133.33) 133.33
Migs fails to pay his deficiency
Free interest- amounts to be paid to partners 1,200.00 -
32.
B Capital before liquidation 70,000.00

Share in the net income (28,000 x 50%) 14,000.00
Balances 84,000.00
Cash received by B (32,500.00)
B's share in the loss on realization 51,500.00
B's profit share 50%
Total loss on realization 103,000.00
CAF Review
33.
Baby Babe Lodi

Capital balances before liquidation 280,000 160,000 20,000
Distribution of loss on realization (70,000) (42,000) (28,000)
Balances 210,000 118,000 (P 8,000)
Additional loss for
the deficiency of Evy (5,000) ( 3,000) 8,000
Balances 205,000 115,000
Cash payments to partners (205,000) (115,000)
34.
Total capital (360,000.00 + 72,000.00) 432,000.00

Total liabilities 84,000.00
Total loss on liquidation 516,000.00
35.
Estacio Estioco
Capital balances (21,000) 21,000
Loan 45,000
Cash payment to partners 24,0000 21,000
36-37.
(30,000 + 1,500 + 8,000) x 20 = 790,000

(30,000 x 3) + (1,500 x 6) + (8,000 x 5) = 139,000
CAF Review
38.
Supplies on hand (beginning) 86,000

Supplies purchased 116,000
Less: Supplies on hand (ending) 96,000
Supplies Expense 106,000
39-40.
Cash Non-cash Accounts Shai Not Me

Asset Payable
Balances 100,000 100,000 70,000 60,000 40,000 30,000
Realization and 150,000 (100,000) 25,000 15,000 10,000
Distribution of Gain
Payment of Liabilities (70,000) (70,000)
Payment to Partners (180,000) (85,000) (65,000) 40,000

ACCO 20043 Financial Accounting and Reporting 2 Midterm Handouts

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ACCO 20043 Financial Accounting and Reporting 2 Midterm Handouts

Uploaded by

Copyright:

Available Formats

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

College of Accountancy and Finance Student Council

20. The residual interest in a corporation belongs to

For numbers 21 and 22

Determine the following:

Sale of Assets – Book Value Liquidation Expenses

January 73,000 – 85,000 13,000

February 55,000 – 90,000

Personal assets and liabilities of the partners at July 1, 2013 are:

Capital Balance P/L Ratio

Cash 60,000 Liabilities 140,000

Esper Elor Este Total

For numbers 36-37

37. What amount should be reported as ordinary share premium?

Bry, Profit and Loss Ratio 105,000/700,000 = 15%

Migs, Profit and Loss Ratio 175,000/700,000 = 25%

Pat, Profit and Loss Ratio 182,000/700,000 = 26%

Bryan Stephen Kristel

Profit Ratio 4/10 4/10 4/10

Capital balance before cash distribution 92,000.00 84,000.00 75,000.00

Total Partners' Interest 92,000.00 84,000.00 75,000.00

Restricted Interest - possible loss of 98,000.00 if nothing is

Free interest - payment to partners 50,800.00 42,800.00 54,400.00

Payment to apply on:

Capital 50,800.00 42,800.00 54,400.00

Total Cash Distribution 50,800.00 42,800.00 54,400.00

Patricia Christine Miguel Patricia Christine Miguel

Profit Ratio 3/10 3/10 4/10 3/10 3/10 4/10

Capital balance before liquidation 39,000.00 59,000.00 28,000.00

Add loans - - 10,000.00

Total Partner’s Interest 39,000.00 59,000.00 38,000.00

Divide by the profit and loss ration ÷ 3/10 ÷ 3/10 ÷ 4/10

Loss Absorption Capacity 130,000.00 196,667.00 95,000.00

Allocation I: Cash to Christine

Balance 130,000.00 130,000.00 95,000.00

Allocation II: Cash to Patricia and

To Patricia, 3/10 × 35,000.00 (35,000.00) 10,500.00

To Christine, 3/10 × 35,000.00 (35,000.00) 10,500.00

Balance 95,000.00 95,000.00 95,000.00 10,500.00 30,500.00 -

Assets Liabilities NC-30% OP-40% MB-30%

Bry Tine Migs

B Capital before liquidation 70,000.00

Baby Babe Lodi

Total capital (360,000.00 + 72,000.00) 432,000.00

(30,000 + 1,500 + 8,000) x 20 = 790,000

Supplies on hand (beginning) 86,000

Cash Non-cash Accounts Shai Not Me

You might also like