FINAL MAJOR EXAMINATION November 16, 2020

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GENERAL INSTRUCTION: All answers should be written in the answer sheet provided.
Computations for problem solving are NOT required.
TEST 1: MULTIPLE CHOICE. Select the letter of your choice. Write your answer in capital letter.

1. In partnerships form of business organization

A. no partner can bind the partnership to a contract.
B. assets contributed into the partnership are owned by the partnership.
C. limited partners are personally liable for all debts incurred by the partnership
D. a partner may not share in the profits and losses of the partnership.
2. In a partnership, AL contributed inventory with a market value more than its cost. VIN contributed
equipment with a cost more than market value. At what amount should the partnership record each of the
assets?
Inventory Equipment
A. Cost Cost
B. Cost Market value
C. Market value Cost
D. Market value Market value
3. Which of the following stipulations in the partners’ agreement is valid?
A. to exclude a capitalist partner from sharing in the profits
B. To except a capitalist partner from sharing in the losses
C. to exempt an industrial partner from losses
D. to exclude an industrial partner from profits
4. All of the following accounts have normally a debit balance in the partnership books except
A. loan to partner
B. loan from a partner
C. partner’s drawing account
D. advances to partners
5. Which of the following statements is correct?
I. Profits and losses will be distributed in accordance with the partners’ agreement.
II. Industrial partners share in the profits but not in the losses
III. In the absence of an agreement, profits and losses shall be divided equally among partners.
A. I and II only C. I and III only
B. II and III only D. III only
6. Which of the following is considered the most equitable basis of profit distribution?
A. Average capital balances
B. Ending capital balances
C. Beginning capital balances
D. Arbitrary ratio

7. Which of the following is a characteristic of most partnerships?

A. Limited liability
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B. Limited life
C. Mutual agency
D. Ease of formation
8. A partner whose liability for partnership debts is limited to his capital contribution is called
A. general partner
B. limited partner
C. industrial partner
D. secret partner
9. Which of the following partnership characteristics is a disadvantage?
A. Voluntary association
B. Participation in partnership income
C. Unlimited liability
D. Ease of dissolution
10. Which of the following partnership characteristics is an advantage?
A. Limited life
B. Unlimited liability
C. Mutual agency
D. Ease of formation
11. In a limited partnership,
A. the general partners have limited liability.
B. all partners have limited liability.
C. all but the general partners have limited liability.
D. all but the general partners have unlimited liability.
12. A partner who is liable for the payment of partnership debts to the extent of his personal property after
the partnership assets are exhausted is called
A. Managing partner
B. Capitalist partner
C. General partner
D. Limited partner
13. One who takes charge of the winding up of partnership affairs upon dissolution?
A. Silent partner
B. Liquidating partner
C. Ostensible partner
D. Dormant partner
14. The partnership agreement is contained in the articles of partnership, an express contract among the
partners. Such an agreement ordinarily does not include
A. a limitation on a partner’s liability to creditors
B. the right and duties of the partners
C. the allocation of income between the partners
D. the rights and duties of the partners in the event of partnership dissolution
15. When a partner invests assets other than cash into a partnership, these assets should be listed on the
statement of financial position at
A. their original cost
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B. the value the investing partner assigns to them
C. their fair market value
D. their carrying (book) value
16. The partner’s capital account is credited in the following cases except when it involves the recording of
the
A. original investment
B. share in profit
C. debit balance of the drawing account at the end of the period
D. additional investment
17. If the partnership agreement does not specify how profit is to be allocated, profits of losses should be
allocated
A. equally
B. in accordance with their capital contribution
C. in proportion to the average of the capital invested during the period
D. equitably so that partners are well compensated for their time and effort.
18. Which of the following is not a component of the formula used to distribute profit?
A. Salary allowances to the managing partners
B. Interest on the average capital investments
C. Interest on notes to partners
D. After all other allocation, the remainder divided according to the profit and loss sharing ratio
19. The division of partnership profits on the basis of salaries, interest and an agreed ratio is usually
necessary because
A. most investors require this method of distribution
B. this reflects the amount of time devoted to the partnership by the partners
C. partners seldom contribute time, effort, and resources equally
D. this prevents arguments among the partners
20. I. When beginning capital balances are used in allocating profits, year-end investments are discouraged.
II. When ending capital balances are used in allocating profits, additional investments during the year are
encouraged.
A. True, False C. False, True
B. True, True D. False, False
21.When a partner withdraws from a partnership taking assets that represent less than his capital balance:
A. No bonus results.
B. The remaining partners receive a bonus.
C. The withdrawing partner receives a bonus.
D.The remaining partners owe the withdrawing partner the difference.

22.Which of the following will not result in dissolution of a partnership?

A. Incapacity of a partner.
B. Negative capital balance of a partner.
C. Bankruptcy of a partner
D. Admission of a new partner
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23.When a partner withdraws from a partnership taking assets that represent less than his capital balance:
A. No bonus results.
B. The remaining partners receive a bonus.
C. The withdrawing partner receives a bonus.
D. The remaining partners owe the withdrawing partner the difference.
24.Which of the following will not result in dissolution of a partnership?
A. Incapacity of a partner.
B. Negative capital balance of a partner.
C. Bankruptcy of a partner
D. Admission of a new partner
25.The admission of a new partner under the bonus method will result in
A. Bonus to either the new partner or the old partners.
B. Bonus to the old partners only.
C. Bonus to the new partners only
D. Bonus to both old and new partners.
26.If a bonus is traceable to the old partners rather than to a new partner, it is allocated among the partners
according to the
A. Capital ratio of the old partners.
B. Capital ratio of the new partnership.
C. Profit and loss ratio of the old partnership.
D. Profit and loss ratio of the new partnership.
27.Total partners’ equity will not change when a withdrawing partner
A. Sells his interest to a new or remaining partner.
B. Withdraws assets equal to his capital balance.
C. Withdraws assets amounting to less than his capital balance.
D. Withdraws assets amounting to greater than his capital balance.
28.If a partner is insolvent, his personal properties shall first be distributed
A. To partnership creditors.
B. To the partners by way of additional contributions when the assets of the partnership were insufficient to
settle all obligations.
C. To partnership and separate creditors in the ratio of their loan exposures.
D. To separate creditors.
29.In a liquidation, the liabilities of the partnership should be paid
A. Before any sales of assets.
B. Before the distribution of cash to partners.
C. Before the distribution of gains and losses on the disposal of assets.
D. After a revaluation of assets.

30.Which of the following is not correct with respect to an instalment liquidation of partnership?
A. All remaining liquidation expenses are anticipated.
B. All non cash assets are assumed to be worthless.
C. Distributions to partners are always made according to their profit sharing percentages.
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D. Partners with the greatest ability to absorb losses and expenses are first to receive instalment distributions.
31.They are preferred in distribution of partnership assets in the event of liquidation:
A. Inside creditors. B. Outside creditors.
C. Partners with regards to their capital balances. D. Partners with respect to their profit and loss sharing.
32.Partner A is a deficient partner and an insolvent partner at the same time.
A. He must invest additional cash to cover his deficiency.
B. Partners’ with positive capital balances will absorb the deficiency of partner A.
C. Solvent partners’ will absorb the deficiency of partner A.
D. b and c
33.Persons who compose the corporation whether as shareholders or members are called
A. Incorporators B. Corporators C. Promoters D. Subscribers
34.Which of the following should come first in the creation and organization of a corporation?
A. Promotion B. Incorporation C. Commencement of operations D. Any of the above
35.It is the supreme authority in matters of management of the regular and business affairs of a corporation.
A. Majority shareholders B. Board of Directors C. Minority shareholders D. None of the above
36.Five persons decided to organize a corporation. Which of the following situation illustrates best the
minimum requirement of the law to capital formation?

Authorized Cap ital Subscribed Capital Paid-In Capital

A. P100, 000 P 20, 000 P 5, 000

B. 100, 000 25, 000 5, 000
C. 100, 000 25, 000 6, 250
D. 100, 000 30, 000 6, 000
37.The par value of ordinary shares is equal to
A. The mount received by the corporation when the share was originally issued.
B. The amount at which the share is currently trading in an organized market.
C. A designated peso amount per share established in the articles of incorporation.
D. The book value of the ordinary shares
38. Issued shares are the
A. number of shares that have been distributed to shareholders
B. total number of shares that can be issued by the company at any time
C. number of shares that are owned by shareholders at the balance sheet date
D. number of shares the company has repurchased

39. The difference between issued shares and outstanding shares of stock is
A. authorized shares B. ordinary shares C. preference shares D. treasury shares

40. All of the following normally are found in a shareholders’ equity section except
A. Ordinary shares B. Share premium C. Retained earnings D. Dividends in Arrears
41. The amount of the shareholders’ investment is called
A. Paid-In Capital B. Outstanding Share C. Retained Earnings D. Total Shareholders’ Equity
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42. The contributed capital of corporation does not include
A. the stated value of ordinary shares issued
B. Retained Earnings
C. Share Premium
D. Preference Share
43. An individual shareholder is entitled to receive any dividends declared on shares owned, provided in the
share is held on the
A. Date of declaration B. Date of record
C. Date of payment D. Last day of the year.
44. Outstanding shares are
A. authorized shares that have not yet been issued. B. issued shares that are still in circulation
C. shares owned by unknown individuals D. also called treasury shares
45. The number of shares issued equals
A. outstanding shares plus treasury shares B. Unissued shares minus authorized shares
C. subscribed shares plus outstanding shares D. authorized shares minus treasury shares
46. Treasury shares plus outstanding shares equal
A. authorized shares B. Unissued shares C. Subscribed shares D. Issued shares
47. Which of the following is not included in Share capital?
A. Ordinary shares B. Donated capital C. Share Distributable D. Appropriated Retained Earnings
48. A share dividend
A. decreases shareholders’ equity B. decreases assets
C. leaves total shareholders’ equity unchanged D. none of the above
49. When s small share dividends is declared Retained Earnings is debited for
A. the par value of the shares to be distributed
B. the liquidation value of the shares to distributed
C. the fair market value of the shares to be distributed
D. zero; it is not affected by the declaration of a small share dividend
50. The Income Summary account of corporation is closed to
A. Ordinary shares B. Share premium C. Retained Earnings D. Donated Capital

TEST II. PROBLEM SOLVING.

PROBLEM 1. In January 1, 2019 Jay and Dee, owners of a single proprietorship business decide to
consolidate their businesses into a partnership to which they agreed to contribute 40% and 60%, respectively

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for the total partnership capitalization. Their respective businesses’ ledger accounts at their normal balances
are:

Jay Dee

Cash P28,500 P10,000

Accounts receivable 450,000 200,000

Allowance for doubtful accounts 12,500 5,000

Equipment 320,000

Accumulated depreciation 36,000

Notes payable 550,000

Capital balances ? ?

Additional agreements of Jay and Dee:

 Their respective receivables are to be valued at 90%

 The equipment of Jay is agreed as overstated by P18,000 and the
accumulated depreciation is agreed to be adjusted.
 P2,000 accrued interest on notes payable is agreed to be recognized.
 The total agreed partnership capitalization is to be based on the
adjusted capital balance of Jay
 Dee is to invest additional cash to meet his agreed capital contribution

In the first year of operation, partnership net income amounted to P 150, 000. Salaries amounting to P50, 000
will be allocated for Jay being the managing partner. Interest on the beginning capital will be 10% and a
bonus of 10% before interest, salaries and bonus will be given to Jay. Residual profits or losses are divided
base on the ratio of beginning capital contribution.

In January 2, 2020 Lou admitted in the partnership by investing P 200, 000 cash for 20% interest in the
partnership. Bonus method will be applied.

In October 31, 2020 the partners’ decided to liquidate the partnership. Net income as of the date of
liquidation amounted to P 180, 000. Effective January 2020 after the admission of partner Lou partners’ will
divide profits and losses using the following provisions:
1. Salaries of P 50,000 and P20, 000 for partners Jay and Lou respectively.
2. Interest of 10% on the beginning capital balances.
3. Bonus of 10% after salaries and interest but before bonus to partner Jay.
4. New P/L ratio is 5:3:2 for Jay, Dee and Lou respectively.

Assuming that the balance of Cash account is P 350, 000 and the rest are noncash assets. Total Liabilities
amounted to P 550, 000. All non-cash assets were sold for P 800, 000.

Required: Compute for the following:

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 1. The unadjusted capital balance of Jay
2. The unadjusted capital balance of Dee
3. The total agreed capital of the partnership
4. The total cash balance after formation
5. The adjusted capital of Rox after the agreed adjustments
6. The adjusted capital balance of Jeff after the agreed adjustments
7. The total partnership assets right after formation
8. The total partnership liabilities right after formation
9. Bonus allocated to Jay
10. Total share of Jay in the 2019 net income
11. Total share of Dee in the 2019 net income
12. Capital balance of Jay after distribution of 2019 net income
13. Capital balance of Dee after distribution of 2019 net income
14. The amount of bonus during the admission of partner Lou
15. Capital balance of partner Jay after admission
16. Capital balance of partner Dee after admission
17. Capital balance of partner Lou after admission
18. Total partnership assets after admission of partner Lou
19. Total share of partner Jay in Oct. 31 net income
20. Total share of partner Dee in Oct. 31 net income
21. Total share of partner Lou in October net income
22. Total gain/loss on realization of assets
23. Total cash received by partner Jay during liquidation
24. Total cash received by partner Dee during liquidation
25. Total cash received by partner Lou during liquidation

PROBLEM 2. The shareholders’ equity section of Dela Pena, Inc. At Dec. 31, 2019, is shown below:
Ordinary Shares, P20 par; 500,000 shares authorized; P 4, 000, 000
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 200,000 shares issued and outstanding
Share Premium 3, 600, 000
Retained Earnings 5, 700, 000
Total Shareholders’ Equity P 13, 300, 000
During the month of Jan.2020, the following events occurred:
Jan. 12 The board of directors declared a 2-for-1 ordinary share split. At the time of the split
the market price was P120 per share.
Jan. 20 A 5% share dividend was declared and issued by the board of directors. At the time of
declaration, the market price of the stock was P55 per share.
Jan. 22 The corporation repurchased 5, 000 shares of its ordinary shares at P54 per share.
Jan. 28 The board of directors declared a cash dividend of P0.45 per share, payable on Feb. 28
Jan. 30 A 20% share dividend was declared and issued. At the time of the declaration, the
market price of the stock was P52 per share.
Jan. 31 The profit for the month amounted to P360, 000.

Required: Provide the answers to each of the following questions:

1. After the share split on Jan.12, what was the amount of total shareholders’ equity?
2. After the share split on Jan.12, what was the balance in the ordinary shares account?
3. After the share dividend on Jan.20, what’s the balance in the retained earnings account?
4. After the share dividend on Jan.20, what’s the amount of the firm’s total shareholders’ equity?
5. After the treasury stock purchase, by how much did the firm’s assets increase of decrease, if any?
6. What was the balance in the retained earnings account at the end of January?

-end of the examination-

ANSWER SHEET

NAME: Chenia Angeillu C. Jungoy SCORE:________

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TEST I. MULTIPLE CHOICES (1 POINT EACH)
1C 11C 21D 31C 41D
2D 12C 22B 32D 42A
3D 13B 23D 33B 43A
4A 14A 24B 34C 44A
5A 15C 25B 35B 45A
6D 16C 26C 36C 46C
7C 17A 27B 37C 47B
8B 18A 28A 38B 48A
9C 19B 29C 39A 49C
10D 20B 30A 40D 50C

TEST II. PROBLEM SOLVING

PROBLEM 1 (2 POINTS EACH) PROBLEM 2 (5 POINTS EACH)

1 200,000 11 43,740 2147,733.6 1. P13,300,000
2 205,000 12 277,260 22 510,000 2 P4,000,000
3 427,500 13 228,740 23 155,000 3 P4600000
4 110,000 14 58,800 24 93,000 4 P13,300,000
5- 15 211,800 25 62,000 5 P270000.
6- 16 353,000 6187,250
7 997,000 17 141,200
8 587,500 18 1,593,000
9- 19 88, 516
10 106,760 20 47,750.4

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