ARTS CPA Review

2F & 3F Crème Building, Abella St., Naga City

Tel No.: (054) 472-9104; E-mail: artscparev@yahoo.com

PRACTICAL ACCOUNTING 2 MULTIPLE CHOICE PROBLEMS 1

1. On August 1, AA and BB pooled their assets to form a partnership, with the firm to take over their business
assets and assume the liabilities. Partners capitals are to be based on net assets transferred after the
following adjustments. (profit and loss are allocated equally) BB’s inventory is to be increased by P4,000;
an allowance for doubtful of P1,000 and P1,500 are to be set up in books of AA and BB, respectively; and
accounts payable of P4,000 is to be recognized in AA’s books. The individual trial balances on August,
before adjustments, follow:
Aa Bb
Assets 75,000 113,000
Liabilities 5,000 34,500
What is the capital of AA and BB after the above adjustments?
a. AA, P68,750; BB, P77,250 c. AA, P65,000; BB, P76,000
b. AA, P75,000; BB, P81,000 d. AA, P65,000; BB, P81,000
2. On April 30, 2008, XX, YY and ZZ formed a partnership by combining their separate business proprietorship.
XX contributed cash of P75,000. YY contributed property with a P54,000 carrying amount, a P60,000,
original cost, and P120,000 fair value. The partnership accepted responsibility for the P52,500 mortgage
attached to the property. ZZ contributed equipment with a P45,000 carrying amount, a P112,500 original
cost, and P82,500 fair value. The partnership agreement specifies that profits and losses are to be shared
equally but is silent regarding capital contributions. Which partners has the largest April 30, 2008, capital
balance?
a. XX b. YY c. ZZ d. All capital account balances are equal
3. The partnership agreement of X, Y and Z provides for the year end allocation of net income in the following
order:
 First, X is to receive 10% of net income up to P200,000 and 20% over P200,000
 Second, Y and Z each are to receive 5% of the remaining income over P300,000
 The balance of income is to be allocated equally amount the three partners
The partnership’s 2008 net income was p500,000 before any allocations to partners. What amount
should be allocated to X?
a. 202,000 b. 216,000 c. 206,000 d. 220,000
4. On January 1, 2008, D and E decided to form a partnership. At the end of the year, the partnership made a
net income of P120,000. The capital accounts of the partnership show the following transactions.
D, capital E, capital
Dr Cr Dr Cr
January 1 - 40,000 - 25,000
April 1 5,000 - - -
June 1 - - - 10,000
August 1 - 10,000 - -
September 1 - - 3000 -
October 1 - 5,000 1,000 -
December 1 - 4,000 - 5,000
Assuming that an interest of 20% per annum is given on average capital and the balance of the profits is
allocated equally, the allocation of profits should be:
a. D, 60,000; E, 59,400 c. D, 67,200; E, 52,800
b. D, 61,200; E, 58,800 d. D, 68,800; E, 51,200
5. AA and BB formed a partnership in 2008 and made the following investments and capital withdrawals
during the year:
AA BB
Investment Draws Investment Draws
March 1 30,000 - 20,000 -
June 1 - 10,000 - 10,000
August 1 20,000 - - 2,000
December 1 - 5,000 - -
The partnership’s profit and loss agreement provides for a salary of which p30,000 was paid to each
partner for 2008. AA is to receive a bonus of 10% on net income after salaries and bonus. The
partners are also to receive interest of 8% on average annual capital balances affected by both
investments and drawings. Any remaining profits are to be allocated equally among the partners.
Assuming net income of P60,000 before salaries and bonus, determine how the income would be
allocated among the partners.
a. AA 31,138; BB 28,862 c. AA 30,633; BB 29,367
b. AA 33,537; BB 26,463 d. AA 30,684; BB 29,316
6. Merlin, a partner in the Camelot Partnership, has a 30% participation in partnership profits and losses.
Merlin’s capital account has a net decrease of P1,200,000 during the calendar year 2008. During 2008,
Merlin withdrew P2,600,000 (charged against his capital account) and contributed property valued at
P500,000 to the partnership. What was the net income of the Camelot Partnership for Year 2008?
a. P3,000,000 b. P4,666,667 c. P7,000,000 d. P11,000,000
7. X and Y are in partnership, sharing profits equally and preparing their accounts to 31 December each year.
On 1 July 2008, Z joined in the partnership, and from that date profits are shared X 40%, Y 40%, Z 20%.
In the year ended 31 December 2008, profits were:
6 months to 31 June 2008 200,000
6 months to 31 December 2008 300,000
It was agreed that X and Y only should bear equally the expense for a bad debt of P40,000 written off in the six
months to 31 December 2008 in arriving at the P300,000 profit. Which of the following correctly states X’s
profit share for the year? a. 216,000 b. 200,000 c. 220,000 d. 224,000
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8. On June 30, 2008, the balance sheet of Western Marketing, a partnership, is summarized as follows:
Sundry assets 150,000
West, capital 90,000
Tern, capital 60,000
West and Tern share profit and losses at a 60:40 ratio, respectively. They agreed to take in Cuba as a
new partner, who purchases 1/8 interest of West and Tern for P25,000. What is the amount of Cuba’s
capital to be taken up in the partnership books if book value method is used?
a. 12,500 b. 18,750 c. 25,000 d. 31,250
9. DJ partnership had a net income of P2,000 for the month ended September 30, 2008.
Ambo purchased an interest in the DJ partnership of Day and Jar by paying Day P8,000 for half of his
capital and half of his 50% percent profit sharing interest on October 1, 2008. At this time Day capital
balance was P6,000 and Jar capital balance was P14,000.
Ambo should receive a credit to his capital account balance of
a. 4,000 b. 3,000 c. 5,000 d. 6,667
10. OO and TT are partners with capital balances P60,000 and P20,000 respectively. Profits and losses are
divided in the ratio of 60:40. OO and TT decided to form a new partnership with GG, who invested land
valued at P15,000 for a 20% capital interest in the new partnership. GG’s cost of the land was P12,000.
The partnership elected to use the bonus method to record the admission of GG into the partnership. GG’s
capital account should be credited for :
a. 12,000 b. 15,000 c. 16,000 d. 19,000
11. When MM retired from the partnership of MM, YY and LL, the settlement or MM’s interest exceeded MM’s
capital balance. Under the bonus method, the excess:
a. Was recorded as goodwill
b. Was recorded, as an expense
c. Reduced the capital balances of YY and LL
d. Had no effect on the capital balances of YY and LL
12. W, X and Y are partners sharing profits and losses in the ratio of $:3:3, respectively. The condensed
balance sheet of Heidi Partnership as of December 31, 2008 is:
Heidi Partnership
Balance Sheet
December 31, 2008
Cash ---------------------------------------- P 50,000
Other Assets ----------------------------- 130,000
Total assets ------------------------------- P 180,000

Liabilities ------------------------------------ P 40,000

W, capital ------------------------------------ 60,000
X, capital -------------------------------------- 40,000
Y, capital -------------------------------------- 40,000
Total liabilities and capital --------------- P 180,000
Assume instead that Heidi Partnership is dissolved and liquidated by the installments, and the first realization
of P40,000 cash is on the sale of other assets with book value of P80,000. After the payment of liabilities, the
available cash shall be distributed to W, X and Y respectively, as follows:
a. P36,000; P27,000 and, P27,000 c. P16,000; P12,000 and, P12,000
b. P44,000; P28,000 and, P28,000 d. P24,000; P13,000 and, P13,000
13. Silverio, Domingo, Reyes and Pastor are partners, sharing earnings in the ratio of 3/21, 4/21, 6/21 and
8/21 respectively. The balances of their capital accounts on December 31, 2008 are as follows:
Silverio 1,000
Domingo 25,000
Reyes 25,000
Pastor 9,000
60,000
The partners decide to liquidate, and they accordingly convert the non-cash assets into P23,200 of cash.
After paying the liabilities amounting to P3,000, they have P22,200 to divide. Assume that a debit
balance of any partner’s capital is uncollectible.
After the P22,200 was divided, the capital balance of Domingo was:
a. 3,200 b. 3,920 c. 4,500 d. 17,800
14. A balance sheet for the partnership of KK, LL and MM who share profits 2:1:1 respectively, shows
the following balances just before liquidation:
Cash Other Assets Liab. KK, Cap. LL, Cap. MM, Cap.
P48,000 P238,000 P80,000 P88,000 P62,000 P56,000
In the first month of liquidation, P128,000 was received on sale of certain assets. Liquidation expenses
of P4,000 were paid, and additional liquidation expenses of P3,200 are anticipated before liquidation is
completed. Creditors were paid P22,400. Available cash distributed to the partners.
KK LL MM KK LL MM
a. P56,600 P28300 P28300 c. P29,400 P32,700 P26,700
b. 86,000 61,000 55,000 d. 88,000 62,000 56,000
15. PP, QQ and RR partners to a firm, have capital balances of P11,200, P13,000, and P5,800, 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
P1,400?
a. QQ b. no one c. RR d. PP
Answers:
1. D 2. C 3. B 4. B 5. D 6. A 7. A 8. B 9. B 10. D
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11. C 12. D 13. B 14. C 15. A

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