Advance Financial Accounting and Reporting

COVID-19 PROJECTS FOR ACCOUNTANTS

PARTNERSHIP ACCOUNTING

A. PARTNERSHIP FORMATION

1. The non-cash assets of the contributed by the partners are valued at:
a. Fair Value c. Book Value
b. Cost d. In the manner prescribed in the contract

2. A limited partner may contribute all of the following, except:

a. Service c. Non-cash assets
b. Money d. All of the above

3. Which of the following statements is incorrect:

a. Loan to partners is a liability account
b. Due to partner is a liability account
c. Due from a partner is an asset account
d. Receivable from partner is an asset account

4. Which of the following is incorrect? The capital account is:

a. Credited for additional investments
b. Debited for permanent drawings
c. Credited for debit balance of the drawing account at the end of the period
d. Credited for credit balance of the drawing account at the end of the period

5. Paul and Rod formed DF Company. Paul and Rod contributed their business in the
partnership. Paul and Rod agreed on 6:4 profit and loss ratio, respectively.
Paul Rod
Cash 350,000
Accounts Receivable 175,000
Inventory 280,000
Land 175,000
Building 420,000
Total 805,000 595,000

Notes Payable 210,000

Mortgage Payable - Land 35,000
Paul, capital 595,000
Rod, capital 560,000
805,000 595,000

Additional Information:
a. The accounts receivable amounting to P25,000 is written-off.
b. The inventory has a net realizable value of 270,000.
c. The unpaid mortgage of the land is assumed by the partnership.
d. The building is over-depreciated by P52,500
e. The building has an unpaid mortgage of P20,000, the mortgage is assumed
by the partnership.
f. Recognition of discount on note payable amounting to P10,000.

Required:
a. Compute the adjusted capital of the partners
b. Using the capital balance of partner Paul, how much is the additional cash
contribution/withdrawal of Rod to bring the partners’ capital in conformity to their
profit and loss ratio?

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c. Using bonus method and using their profit and loss ratio to bring the partners’
capital in conformity to their profit and loss ratio, how much is the capital of Paul
after formation.

6. On June 30, 2030 GH, the sole proprietor of the GH Company, expands the company
and establish a partnership with IJ and KL. The partners plan to share profits and
losses as follows: GH, 50%; IJ, 25% and KL, 25%. They also agree that the beginning
capital balances of the partnership will reflect this same relationship.

GH asked IJ to join the partnership because his many business contacts are expected
to be valuable during the expansion. IJ is also contributing P70,000 cash and a
building that has an original cost of P910,000, book value of P735,000, tax basis of
P542,500 and a fair market value of P647,500. The building is subject to a P423,500
mortgage that the partnership will assume. KL is contributing P115,500 cash and
marketable securities costing P441,000 to KL but are currently worth P603,750.

GH’s investment in the partnership is the GH Company. He plans to pay off the notes
with his personal assets. The other partners have agreed that partnership will assume
the accounts payable. The balance sheet for the GH Company follows:

GH Company
Statement of Financial Position
June 30, 2030

Assets Liabilities and Capital

Cash 105,000 Accounts payable 556,500
Accounts receivable, net 504,000 Notes payable 651,000
Inventory 756,000 GH, capital 892,500
Equipment * 735,000
Total Assets 2,100,000 Total Liabilities and Capital 1,200,000

*net of accumulated depreciation of P210,000

The partners agree that the inventory is worth P892,500, and the equipment is worth half
its original cost, and the allowance established for doubtful accounts is correct.

How much is the agreed capital of GH if the partners agree to use (1) the bonus method
to record the formation and (2) if the partners agree to use the revaluation to record the
formation?

B. OPERATION PARTNERSHIP

7. If the agreement provides for the division of losses only. Profits should be divided:
a. Equally
b. According to beginning capital ratio
c. According to original capital ratio
d. According to average capital ratio

8. A partners’ withdrawals of assets from partnership that is considered a permanent

reduction in that partners’ equity is debited to the partners’:
a. Drawing accounts c. Loan Receivable account
b. Retained earnings account d. Capital account

9. A and B form a partnership and agree to share profits in a 2:3 ratio. The partnership
net loss for the year is P100,000. The partners should share the losses:
a. Based on the ending capital balances
b. Based on the average capital balances
c. Based on 2:3 ratio
d. Based on original capital contribution

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10. The partnership agreement of Paul and Boy allows the former to receive a 20% bonus
on profits before bonus and any residual profits/losses shall be divided 2:3,
respectively. Which partner has an advantage when the partnership earns a profit or
when it incurs a loss?
a. Paul and Paul c. Paul and Boy
b. Boy and Boy d. Boy and Paul

11. Paul and Rod formed a partnership on April 1, 2020. Paul invested P500,000 and
Rod invested P300,000. On September 10, 2020, Paul invested additional cash of
P100,000. The partnership has the following agreements:
- Monthly salary allowance of P5,000 and P15,000 to Paul and Rod, respectively.
The salary allowance is recognized as an expense.
- 25% bonus on income before salaries and interest but after bonus to Rod.
- 10% interest on beginning capital of Paul.
- Balance equally

The partnership had net sales of P1,000,000 and cost of sales of P400,000 and
operating expense of 200,000. The partners’ salaries had been recorded as part of the
operating expense.

12. The capital accounts of Chris and Toper shows the following information for the year
2020:
Chris Toper
January 1 520,000 330,000
March 14 30,000
March (temporary) 20 (15,000)
April 30 24,000
May 25 (permanent) (22,500) (12,000)
July 1 5,000
September 10 (temporary) (15,000)
October 1 30,000

The income summary account shows a credit balance of P450,000 on December 31,
2020. The profit and loss of the partnership shall be distributed in the following manner:
- Salary allowance of P200,000 to Chris and P230,000 to Toper.
- Interest allowance of 12% on average capitals
- Bonus of 10% on net income after salary and interest but before bonus to Toper.
- Balance divided equally.

Required:
a. Compute the ending capital of the partners.

13. ABC Partnership has net income of P50,000 for the year. Partner A contributed
P90,000 and partner B contributed P60,000. The partners agree to share profits and
losses as follows:
- Salary allowance of P15,000 and P30,000 o A and B, respectively.
- Interest allowance of P 10% based on average capital.
- Bonus of 10% based on net income to be given to A.
- Balance equally.

The net income is allocated up to the extent of earning only by giving first priority to
salary, then interest and then to bonus.

Required: Compute the share of A and B in the net income

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Advance Financial Accounting and Reporting
C. DISSOLUTION
1. If the total contributed capital exceeds total agreed capital with the new partner’s
investment is the same as his capital credit, then the admission of the new partner
involved a
a. Bonus to new partner c. Bonus to old partner
b. Positive revaluation d. Negative revaluation

2. If the total contributed capital is equal to total agreed capital with the new partner’s
investment is the less than his capital credit, then the admission of the new partner
involved a
a. Bonus to new partner c. Bonus to old partner
b. Positive revaluation d. Negative revaluation

3. If a new partner purchases his interest to the existing partner, the journal entry
include
a. A debit to the capital of new partner.
b. A debit of bonus.
c. A debit of selling partner capital.
d. A debit of cash.

4. The following must exist to have a bonus to retiring partner.

a. The retiring must be paid more than the book value of his capital.
b. The retiring must be paid less than the book value of his capital.
c. There must be a positive revaluation.
d. There must be a negative revaluation.

5. Partners P and Q had capital balances of P358,500 and P300,000 respectively

before admitting R. P and Q share profit and loss in the ratio 6:4. R paid P225,000 in
exchange for 30% interest in the partnership as well as the profit and loss.

How much is the capital of partner P after admission of R?

a. 250,950 c. 279,480
b. 250,590 d. 269,580

If equipment is undervalued, how much would be the capital balance of partner Q

after admission of R?
a. 336,600 c. 335,600
b. 235,620 d. 205,620

6. X and Y have capital balances of P150,000 and P180,000, respectively. Z is to

invest P60,000 for 15% in the partnership interest and also in the profit and loss.
There is an undistributed net income in the amount of P80,000. Partners X and Y
share profit and loss 65:35.

How much is the bonus to partner X from partner Z?

a. 10,500 c. 0
b. 6,825 d. 3,675

If equipment is overvalued, how much is the share of partner Y in the

overvaluation of the equipment?
a. 24,500 c. 10,500
b. 45,500 d. 28,000

7. LF, EZ and GT are partners with capital balances of P67,200, P108,000 and P38,000
respectively, sharing profits and losses in the ratio of 2:5:1. SG is admitted as a new
partner bringing with him expertise and is to invest cash for a 15% interest in the
partnership considering the transfer of capital from him of P18,000 upon his
admission.

Upon admission of SG, which of the following statements is false?

a. The capital account of GT will be credited in the amount of P2,250

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b. The total agreed capital of the old partners is P18,000 greater than there
contributed capital
c. The capital balance of EZ amount to P119,250
d. Cash will be debited in the amount of P40,800

8. Partners E, F, G had capital balances of P120,000, P155,000, and P115,000

respectively. The partnership generated net loss of P140,000 during the year. The
partners share profit and loss 2:5:1 respectively.

Due to disagreement, partner F wanted out of the partnership. Before retirement, the
value of inventory increased from P85,000 to P97,000. The partners decided to pay
partner F P70,000 upon retirement.

What amount should be reported as the capital balance of partner E after the
retirement of partner F?
a. 84,667 c. 91,333
b. 89,000 d. 87,000

Assume that an equipment is overvalued, what amount should be reported as the

capital balance of partner E after the retirement of partner F?
a. 91,333 c. 89,000
b. 84,667 d. 86,000

D. LIQUIDATION

1. Which partner is considered the most vulnerable as a result of a computation of

vulnerability ranking
a. The partner with the highest loss absorption capacity.
b. The partner with the lowest loss absorption capacity
c. The partner with the highest total interest.
d. The partner with the lowest total interest

2. The capital deficiency of insolvent partner shall be allocated based on

a. Profit and loss ratio of the absorbing partners
b. Profit and loss ratio of all partners
c. Capital ratio of the absorbing partners
d. None of the choices

3. In preparing the schedule of safe payments, it is assume that:

a. All non-cash assets are considered worthless
b. Unpaid liabilities will be settled by the partners own personal property.
c. All partners are solvent
d. No liquidation expenses will be settled.

4. The total realization and liquidation losses include

a. Goodwill write-off c. Liquidation expenses
b. Loss on realization d. All of the above

5. Baby, Fred and Allan decided to dissolve their partnership on November 30, 2020.
Their profit and loss ratio are as follows:

Capital P&L ratio

Baby 400,000 40%
Fred 480,000 30%
Allan 160,000 30%

The net income from January 1, 2020 to November 30 is P352,000. On November 30,
the cash balance is P320,000 and that of liabilities is P720,000. Baby is to receive
P441,600 in the settlement of his interest.

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The total loss on realization is:
a. 248,000 c. 99,200
b. 228,000 d. 220,800

The amount to be realized from the sale of non-cash assets is:

a. 1,496,000 c. 220,800
b. 2,040,000 d. 1,544,000

6. Prior to the beginning of liquidation, the liabilities and partners’ capital of ABC
Company, whose partners share profit and losses equally, consisted of Liabilities
P60,000; Loan payable to C P21,000; A, capital P30,000; B P60,000 and C P39,000.
If after realization of all non-cash assets and payment of all outside liabilities, P60,000
cash was available for distribution to partners on February 1, 2020, partner C should
receive:
a. P60,000 c. P30,000
b. P39,000 d. P21,000

7. On August 11, 2020, Anton, Moira, Kelly form a partnership investing cash of P30,000,
P27,000 and P8,400, respectively. The partners share profits and losses 30%,20%
and20%, respectively. On December 31, 2020, they have cash of P2,000 and non-
cash assets of P95,000; liabilities are P51,200. On this date they decide to go out of
business and sell all the assets for P60,000. Kelly has personal assets of P3,000 that
may, if necessary, be used to meet partnership obligations. How much should be
distributed to Moira upon liquidation of the partnership.
a. 0 c. 4,080
b. 9,720 d. 8,000

8. SCA partnership has the following account balances before liquidation:

Cash 70,000 Liabilities 225,000

Noncash assets 1,475,000 Loan from Ayi 10,000
Loan to Caloy 30,000 See, Capital (40%) 250,000
Receivable from See 4,000 Caloy, Capital (40%) 380,000
Expenses 446,000 Ayi, Capital (20%) 200,000
Revenues 960,000

During May, some noncash assets were sold that resulted to a loss of 9,225. Liquidation
expenses of 35,000 were paid and additional expenses amounting to 18,000 were
expected to be incurred through the following months of liquidation the partnership.
Liabilities to outsiders amounting to 175,000 were paid.
What is the book value of the noncash assets which were sold for Caloy to receive
111,110?
a. P465,775 c. P416,775
b. P426,000 d. P475,000

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