Professional Documents
Culture Documents
Theories
1. S1.Unlimited liability holds a sole proprietor personally responsible for all the debts of the
business.
S2. A partnership has a juridical personality separate and distinct from that of each of the partners.
Answer: C
2. S1.In a limited partnership, a limited partner’s name must be included in the partnership’s name.
S2.When the partnership capital is ₱3,000 or more, the public instrument must be recorded
with the Securities and Exchange Commission.
Answer: B
Answer: A
4. S1. A partner who invests assets into a partnership retains control over those specific assets.
S2. A partnership involves mutual agency, limited liability for general partners and limited life.
Answer: D
5. S1. A partner’s capital account is debited to reflect assets permanently withdrawn.
S2.A partnership with capital of less than ₱3,000 is void if it is unregistered with the
Securities and Exchange Commission.
. Answer: B
6. S1.Under the partnership form of business, large amounts of capital can be raised easily.
S2.All partnerships have unlimited life and assets are co-owned by the partners.
Answer: D
a. Debit, Profit and Losses and Credit, Accumulated Profits and Losses
b. Debit, Accumulated Profits and Losses and Credit Profit
c. Debit, Income and Expense Summary and Credit, Accumulated Profits and Losses
d. Debit, Accumulated Profits and Losses and Credit, Income and Expense Summary
Answer: A
Answer: D
9. When a limited partnership is formed
a. the partnership activities are limited
b. all partners have limited liability
c. some of the partners have limited liability
d. none of the partners have limited liability
Answer: C
10. When a partnership is formed, assets contributed by the partners should be recorded on the
partnership books at their?
a. book values on the partners' books prior to their being contributed to the partnership
b. fair market value at the time of the contribution
c. original costs to the partner contributing them
d. assessed values for property purposes
Answer: B
11. Details of the division of net income for a partnership should be disclosed
Answer: D
12. Bash is admitted to an existing partnership by investing cash. Bash agrees to pay a bonus for
her ownership interest because of the past success of the partnership. When bash’s investment
in the partnership is recorded
a. her capital account will be credited for more than the cash she invested
b. her capital account will be credited for the amount of cash she invested
c. a bonus will be credited for the amount of cash she invested
d. a bonus will be distributed to the old partners' capital accounts
Answer: D
13. When a partner dies, the capital account balances of the remaining partners
a. will increase
b. will decrease
c. will remain the same
d. may increase, decrease, or remain the same
Answer: D
Answer: A
15. Which of the following partnership contracts are not void?
Answer: C
16. S1.A director is required to be an owner of at least one share of stock of a corporation.
However, he continues to be a director although he has disposed all his shares provided the
term for which he was elected has not yet expired.
S2. A partner may be a limited and general partner at the same time.
Answer: B
17. One of the distinctions between a partnership and a corporation is that a partnership:
Answer: D
a. It is established for the common benefit of the partners which is to obtain profits and divide
the same among themselves.
b. The articles are kept secret among the members
c. There must be a mutual contribution of money, property or industry to a common fund.
d. There must be a valid contract
Answer: B
Answer: D
Problem 1
Emerson and Dakota had $25,000 and $140,000 respectively in their January 1 capital balances. Net
income
for the year was $220,000.
Salary
48,000
Interest (8% ´ $25,000)
2,000
Remaining income
79,400*
Total distribution to Emerson
$129,400
Copy and Paste had $25,000 and $140,000 respectively in their January 1 capital balances. Net income
for the year was $220,000.
a. $129,600
b. $130,500
c. $130,400
d. $129,400
Answer: C
Solution:
Salary 50,000
Interest (8% ´ $25,000) 2,000
Remaining income 78,400*
Total distribution to Copy $ 130,400
Problem 2
2. A invested $45,000 in the X and Y partnership for ownership equity of $45,000. Prior to the
investment land was revalued to a market value of $320,000 from a book value of $200,000. X and
Y share net income in a 1:2 ratio. The revaluation of land would result to?
Answer: C
Problem 3
E, F, and G operate a partnership with a complex profit and loss sharing agreement. The average
capital balance for each partner on December 31, 2006 is $300,000 for E, $250,000 for F, and $325,000
for G. An 8% interest allocation is provided to each partner. E and F receive salary allocations of
$10,000 and $15,000, respectively. If partnership net income is above $25,000, after the salary
allocations are considered (but before the interest allocations are considered), G will receive a bonus of
10% of the original amount of net income. All residual income is allocated in the ratio of 2:3:5 to E, F,
and G, respectively.
3. Assuming that partnership net income is $250,000. The final allocation to G should be?
a. $60,000
b. $116,000
c. $120,000
d. $74,000
Answer: B
4. Assuming that partnership net income is $250,000. The final allocation to F should be?
a. $60,000
b. $116,000
c. $120,000
d. $74,000
Answer: D
Solution:
Income E F G
Net Income 250,000
Bonus to G (25,000) 25,000
Salary Allocation (25,000) 10,000 15,000
Interest Allocation (70,000) 24,000 20,000 26,000
Residual (130,000) 26,000 39,000 65,000
Final Allocation 0 60,000 74,000 116,000
Problem 4
A summary balance sheet for the Ariana, Beyonce, and Celine partnership on December 31, 2019 is
shown below. Partners Ariana, Beyonce, and Celine allocate profit and loss in their respective ratios of
2:1:1. The partnership agreed to pay partner Beyonce $135,000 for her partnership interest
upon his retirement from the partnership on January 1, 2020. The partnership financials on
January 1, 2020 are:
Assets
Cash $ 75,000
Inventory 85,000
Marketable securities 60,000
Land 90,000
Building-net 150,000
Total assets $ 420,000
Equities
Almond, capital $ 210,000
Brandt, capital 105,000
Clack, capital 105,000
Total equities $ 420,000
5. The journal entry to reflect Beyonce retirement from the partnership assuming a bonus to
Beyonce would result to?
a. Debit Ariana, Capital 10,000
b. Debit Celine, Capital 20,000
c. Credit Beyonce, Capital 135,000
d. Credit Cash 135,000
Answer: D
Solution:
Ariana and Celine give a bonus to Beyonce which reduces their capital in a 2 to 1 ratio.
Beyonce, capital 105,000
Ariana, capital 20,000
Celine, capital 10,000
Cash 135,000
6. The journal entry to reflect Beyonce retirement from the partnership assuming a revaluation of
total partnership capital based on excess payment would result to?
a. Credit goodwill 60,000
b. Debit Beyonce, Capital ,00030
c. Credit cash 135,000
d. Debit Celine, capital 10,000
Answer: C
Solution:
Revalue the total partnership capital to reflect the value at
Brandt’s retirement’s excess payment of $30,000.
Goodwill 60,000
Almond, capital 20,000
Clack, capital 10,000
Brandt, capital 30,000
Brandt, capital 135,000
Cash 135,000
Revalue the total partnership capital to reflect the value at Beyonce’s retirement’s
excess payment of $30,000.
Goodwill 60,000
Ariana, capital 20,000
Celine, capital 10,000
Beyonce, capital 30,000
7. The journal entry to reflect Beyonce retirement from the partnership assuming goodwill to
excess payment is recorded would result to?
a. Debit to Beyonce, Capital 135,000
b. Debit to Goodwill 30,000
c. Credit Cash 105,000
d. Credit to Goodwill 30,000
Answer: B
Solution:
Requirement 1
Almond and Clack give a bonus to Brand which reduces their capital in
a 2 to 1 ratio.
Brandt, capital 105,000
Almond, capital 20,000
Clack, capital 10,000
Cash 135,00
Requirement 1
Almond and Clack give a bonus to Brand which reduces their capital in
a 2 to 1 ratio.
Brandt, capital 105,000
Almond, capital 20,000
Clack, capital 10,000
Cash 135,00
Add goodwill equal to the excess payment
Brandt, capital 105,000
Goodwill 30,000
Cash 135,000
Add goodwill equal to the excess payment
Beyonce, capital 105,000
Goodwill 30,000
Cash 135,000
Problem 5
Davis has decided to retire from the partnership of D, E, and F. The partnership will pay D $200,000.
Goodwill is to be recorded in the transaction as implied by the excess payment to D. A summary balance
sheet for the D, E and F partnership appears below. D, E and F share profits and losses in a ratio of
1:1:3, respectively.
Assets
Cash $ 75,000
Inventory 82,000
Marketable securities 38,000
Land 150,000
Building-net 255,000
Total assets $ 600,000
Equities
D, capital 160,000
E, capital 140,000
F, capital 300,000
Total equities $ 600,000
Answer: D
Answer: C
10.. What partnership capital will F have after D retires?
a. $240,000.
b. $300,000.
c. $360,000.
d. $420,000.
Answer: C
Problem 6
Blossom and Carmella share profits and losses in a ratio of 2:3, respectively. Blossom and Carmella
receive salary allowances of $10,000 and $20,000, also respectively, and both partners receive 10%
interest based upon the balance in their capital accounts on January 1. Partners’ drawings are not used in
determining the average capital balances. Total net income for 2006 is $60,000. If net income after
deducting the interest and salary allocations is greater than $20,000, Carmella receives a bonus
of 5% of the original amount of net income.
Blossom Carmella
January 1 capital balances $ 200,000 $ 300,000
Yearly drawings ($1,500 a month) 18,000 18,000
12. What are the total amounts for the allocation of interest,
salary, and bonus, and, how much over-allocation is present?
a. $60,000 and $0.
b. $80,000 and $20,000.
c. $83,000 and $0.
d. $83,000 and $23,000.
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13. If the partnership experiences a net loss of $20,000 for the
year, what will be the final amount of profit or (loss) closed
to each partner’s capital account?
a. ($30,000) to Bloom and $10,000 to Carnes.
b. ($10,000) to Bloom and ($10,000) to Carnes.
c. ($8,000) to Bloom and ($12,000) to Carnes.
d. $10,000 to Bloom and ($30,000) to Carnes.
11. What are the total amounts for the allocation of interest, salary, and bonus, and, how
much over-allocation is present?
a. $60,000 and $0.
b. $80,000 and $20,000.
c. $83,000 and $0.
d. $83,000 and $23,000.
Answer: B
Solution:
Interest: ($500,000 x 10%) = $50,000
Salary: ($10,000 + $20,000) = $30,000
Bonus: Condition not met = $0
12. If the partnership experiences a net loss of $20,000 for the year, what will be the final amount
of profit or (loss) closed to each partner’s capital account?
Answer: B
Solution:
Blossom: Carmella:
Interest allocation: $20,000 Interest allocation: $30,000
Salary allocation: $10,000 Salary allocation: $20,000
There is a total of $80,000 for positive allocations. To bring them down to a $20,000 loss, a
residual adjustment of ($100,000) is needed which is allocated ($40,000) to Blossom and ($60,000)
to Carmella. After these amounts are assigned to the partners, each partner’s capital
account will be reduced by a net $10,000.
Problem 7
A summary balance sheet for the Mark, Nick, and Olive partnership appears below. Mark, Nick, and
Olive share profits and losses in a ratio of 2:3:5, respectively.
Assets
Cash $ 50,000 Equities
Inventory 62,500
Marketable securities 100,000 Mark, capital $ 212,500
Land 50,000 Nick, capital 200,000
Building-net 250,000 Olive, capital 100,000
Total assets $ 512,500 Total equities $ 512,500
The partners agree to admit Peperoni for a one-fifth interest. The fair market value of partnership land is
appraised at $100,000 and the fair market value of inventory is $87,500. The assets are to be revalued
prior to the admission of Peperoni and there is $15,000 of goodwill that attaches to the old partnership.
13. By how much will the capital accounts of Mark, Nick, and Olive increase, respectively,
due to the revaluation of the assets and the recognition of goodwill?
a. The capital accounts will increase by $25,000 each.
b. The capital accounts will increase by $30,000 each.
c. $18,000, $27,000, and $45,000.
d. $20,000, $25,000, and $30,000.
Answer: C
The assets will be valued upward by $90,000 which, allocated on a 2:3:5 basis, yields $18,000 to
Mark, $27,000 to Nick, and $45,000 to Olive.
14. How much cash must Peperoni invest to acquire a one-fifth interest?
a. $117,500.
b. $120,500.
c. $146,875.
d. $150,625.
Answer: D
After the revaluation, the assets will be recorded at $602,500. If Peperoni is admitted for a one-
fifth interest, the $602,500 represents 80% of the total implied capital. Dividing $602,500 by 80%
gives a total capitalization of $753,150 for which $150,625 is required from Peperoni for a 20%
interest.
8. What will the profit and loss sharing ratios be after Pavic’s
investment?
a. 1:2:4:2.
b. 2:3:5:2.
c. 3:4:6:2.
d. 4:6:10:5
15. What will the profit and loss sharing ratios be after Peperoni’s investment?
a. 1:2:4:2.
b. 2:3:5:2.
c. 3:4:6:2.
d. 4:6:10:5
Answer: D
Each of the original partners has given up 20% of their interest to Peperoni. Their profit and loss
sharing ratios will therefore be 80% of what they were before the admission of Peperoni.
Mark 20% x 80% = 16%
Nick 30% x 80% = 24%
Olive 50% x 80% = 40%
Peperoni = 20%
Expressed as: 4:6:10:5
Problem 8
14. The XYZ partnership provides a 10% bonus to Partner Y that is
based upon partnership income, after deduction of the bonus.
If the partnership's income is $121,000, how much is Partner
Y's bonus allocation?
a. $11,000.
b. $11,450.
c. $11,650.
d. $12,100.
16. The XYZ partnership provides a 10% bonus to Partner Y that is based upon partnership income,
after deduction of the bonus. If the partnership's income is $121,000, how much is Partner
Y's bonus allocation?
a. $11,000.
b. $11,450.
c. $11,650.
d. $12,100.
Answer: A
a B = .1x($121,000 - B)
B = $12,100 - .1B
1.1B = $12,100
B = $11,000
B = .1x ($121,000 - B)
B = $12,100 - .1B
1.1B = $12,100
B = $11,000
Problem 9
Albion and Blaze share profits and losses equally. Albion and Blaze receive salary allowance of
$20,000 and $30,000, respectively, and both partners receive 10% interest on their average capital
balances. Average capital balances are calculated at the beginning of each month balance regardless of
when additional capital contributions or permanent withdrawals are made subsequently within the
month. Partners’ drawings are not used in determining the average capital balances. Total net income for
2006 is $120,000.
Albion Blaze
January 1 capital balances $ 100,000 $ 120,000
Yearly drawings ($1,500 a month) 18,000 18,000
Permanent withdrawals of capital:
June 3 ( 12,000 )
May 2 ( 15,000 )
Additional investments of capital:
July 3 40,000
October 2 50,000
17. What is the weighted-average capital for Albion and Blaze in 2006?
Answer: C
Albion: [($100,000 x 6) + ($88,000 x 1) + ($128,000 x 5)]/12 = $110,667
Blaze: [($120,000 x 5) + ($105,000 x 5) + ($155,000 x 2)]/12 = $119,583
18. If the average capital for Albion and Blaze from the above information is $112,000 and
$119,000, respectively, what will be the total amount of profit allocated after the salary and Interest
distributions are completed?
a. $70,000.
b. $73,100.
c. $75,000.
d. $80,000.
Answer: B
Capital: ($112,000 + $119,000)x(10%) = $23,100
Salary: ($20,000 + $30,000) = $50,000
Total: $23,100 + $50,000 = $73,100
19. If the average capital balances for Albion and Blaze are $100,000 and $120,000, what
will the final profit allocations for Albion and Blaze in 2006?
a. $50,000 and $70,000.
b. $54,000 and $66,000.
c. $70,000 and $50,000.
d. $75,000 and $45,000.
Answer: B
Albion: ($100,000 x 10%) + $20,000 + $24,000 = $54,000
Blaze: ($120,000 x 10%) + $30,000 + $24,000 = $66,000
Problem 10
Cesar and Damon share partnership profits and losses at 60% and 40%, respectively. The partners agree
to admit Egan into the partnership for a 50% interest in capital and earnings. Capital accounts
immediately before the admission of Egan are:
20. Assuming Egan invested $400,000 for the ownership interest. Egan paid the money directly
to Cesar and to Damon for 50% of each of their respective capital interests. The partnership
records goodwill of what amount?
a. 120,000
b. 210,000
c. 80,000
d. 200,000
Answer: D
Goodwill 200,000
Cesar, capital 120,000
Damon, capital 80,000