Special Qualifying Examinations (SQE)

Reviewer

Examination: Basic Accounting

Subject Covered: ACCO 20033: Financial Accounting and Reporting Part 1
ACCO 20043: Financial Accounting and Reporting Part 2

THEORIES

1. A partner’s withdrawal of assets from a partnership that is considered a permanent

reduction in the partner’s equity is debited to the partner’s:
a) Capital account
b) Drawing account
c) Loan receivable account
d) Retained earnings account

2. What is the rule of offset?

a) Receivables from partners should be offset against their debit capital balances
before they receive any cash distributions.
b) Loans to partners should be offset against their debit capital balances before they
receive any cash distributions.
c) Loans from partners should be offset against their credit capital balances before
they receive any cash distributions.
d) Loans from partners should be offset against their debit capital balances before
they receive any cash distributions.

3. A retiring partner may sell his capital interest to the continuing partners through
the partnership. The partnership has the obligation to make payment to the retiring
partner either by:
I. Payment in cash
II. Transfer of noncash assets
III. Recognition of liability for the full or the balance of the unpaid interest of
the retiring partner
a) I and II
b) I and III
c) II and III
d) I, II and III
4. A partnership is a (an):
I. Accounting Entity
II. Taxable Entity
a) I only
b) II only
c) Neither I or II
d) Both I and II

5. Among the various options available for determining the partners’ share of profits
are the following except:
a) Loans to the partnership
b) Capital contributions and service to the partnership
c) Capital contributions
d) Stated fraction or ratio

6. A capital deficiency can be eliminated by the following except:

a) Offsetting against a partner’s loan
b) Additional investment
c) Selling non-cash assets at a gain
d) Loss to the other partners

7. Under the memorandum entry method, the Share Capital account is debited upon
issuance of stock. The balance of this account represents the amount of capital
stock or share capital issued to shareholders.
a) True
b) False
c) Maybe

8. 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

9. At the end of the financial reporting period, ordinary shares issued would exceed
ordinary shares outstanding as a result of the
a) Payment in full of the subscribed shares
 b) Declaration of a share capital dividend
c) Declaration of a share split
d) Purchase of treasury shares

10. These are shares reacquired by the corporation but not retired and are subject to
reissuance.
a) Treasury shares
b) Retained Earnings
c) Capital
d) Ordinary Shares

11. In which order are partnership assets distributed to partners under the Partnership
Law?
a) Capital balances, loans, profits
b) Loans, profits, capital balances
c) Loans, capital balances, profits
d) Profits, capital balances, loans

12. This is the replacement of shares outstanding by a smaller number of shares with
an increase in the par value.
a) Recapitalization
b) Share split up
c) Conversion
d) Reverse share split

13. In our Corporation Code, a no-par share capital is to be issued for a consideration
of not less than ______.
a) Php 2.00
b) Php 3.50
c) Php 5.00
d) Php 7.00

14. A share (stock) split will

a) Have no effect on account balances
b) Increase shareholder’s equity
c) Decrease assets
d) Decrease shareholder’s equity
15. If the total contributed capital exceeds the 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 old partners
b) Bonus to new partner
c) Positive asset revaluation
d) Negative asset revaluation

16. This states that the partnership has a juridical personality separate and distinct
from that of each of the partners.
a) Mutual participation in profits
b) Legal Entity
c) Mutual agency
d) Unlimited liability

17. If the partners have not drawn up any agreement, then they must share profits and
losses
a) Equally
b) According to capital contributions
c) By any means that will save taxes
d) By any appropriate ratio

18. Statement I: Bonus to a new partner is given by the old partners.

Statement II: A bonus given to the old partners by a new partner increases the
capital account balances of the old partners.
a) Statement I and II are incorrect
b) Statement I and II are correct
c) Statement I is correct, Statement II is incorrect
d) Statement I is incorrect, Statement I is correct

19. The purchase price or amount of settlement by the partnership to the retiring
partner may be:
a) At book value
b) At less than book value
c) At more than book value
d) All of the above

20. Acer and Vivo are partners with a capital ratio of 3:2 and a profit and loss ratio of
2:1, respectively. The bonus method was used to record Oppo’s admittance as a
 new partner. What ratio should be used to allocate to Acer and Vivo the excess of
Oppo’s contribution over the amount credited to his capital account?
a) Acer and Vivo’s old capital ratio
b) Acer and Vivo’s old profit and loss ratio
c) Acer and Vivo’s new relative capital ratio
d) Acer and Vivo’s new relative profit and loss ratio

21. When Rex retired from the partnership of RV Partnership, the final settlement was
less than Valerie’s capital balance. Under the bonus method, the difference
a) Was a revenue
b) Was recorded as asset adjustment
c) Increases the capital balances of the remaining partners
d) Had no effect on the capital balances of the remaining partners

22. Under the program of cash distribution, once the loss absorption balances are
determined, allocations may now be made, starting with Allocation I wherein the
highest loss absorption balance is reduced to the next highest.
a) True
b) False
c) Maybe

23. Treasury shares are reported as

a) Contra asset
b) Asset
c) Contra shareholder’s equity
d) Liability

24. In installment liquidation, remaining unsold assets must be treated as

a) A complete loss
b) A complete gain
c) Half loss and half gain
d) None of the above

25. After the partners’ loss absorption balances are made equal,
a) Cash distributions are divided equally
b) Cash distributions are made in the profit and loss ratio
c) Cash distributions are made in the capital ratio
d) Cash distributions are made according to loan
26. Under installment liquidation, every time cash is distributed to partners, it is
considered as if it were the last so as to avoid any underpayment to any of the
partners.
a) True
b) False
c) Maybe

27. Costs incurred during incorporation, such as filing fees, cost of printing stock
certificates, promoters’ commission and legal fees, are known as organization
costs or pre-operating costs.
a) True
b) False
c) Maybe

28. Which of the following is/are known as the preemptive right?

I. To share in the distribution of corporate profit
II. To share in the distribution of assets upon corporate liquidation
III. To vote in shareholders’ meeting
IV. To maintain one’s ownership interest in the corporation through purchase of
additional shares when a new share capital is issued

a) I, II and III
b) II and IV
c) II only
d) IV only

29. A method of dividing profits which uses as basis the amount of capital invested and
the time during which such capital is actually used by the business.
a) Beginning capital ratio
b) Interest on capital
c) Average capital ratio
d) Original capital ratio

30. Share capital may be issued in exchange for

a) Cash
b) Non-cash assets
c) Services
d) All of the above
PROBLEMS

31. Presented below is the condensed balance sheet of the partnership of Gab, Jose
and Rom who share profits and losses in the ratio of 6:3:1, respectively:

Cash 85,000 Liabilities 80,000

Other Assets 415,000 Gab, Capital 252,000
Jose, Capital 126,000
Rom, Capital 42,000
Total 500,000 Total 500,000

The partners agree to sell Mark 20% of their respective capital and profit and loss
interests for a total payment of P90,000. The payment by Mark is to made directly to
individual partners. The capital balances of Gab, Jose and Rom, respectively after
the admission of Mark are:
a) P198,000; P99,000; P33,000
b) P201,600; P100,800; P33,600
c) P216,000; P108,000; P36,000
d) P255,600; P127,800; P42,600

32. Niall and James are partners. Their capital balances are as follows: Niall – P32,500
and James – P28,300. The profit and loss agreement of the partners is 70% for Niall
and 30% for James. They decided to liquidate the partnership. The firm’s liabilities
amounted to P 39,600, this includes the amount of P 6,000 owing to Niall and P 4,600
owing to James on loans. After the realization of assets, the cash on hand amounted
to P 43,200. How much is the total loss on realization?
a) P57,200
b) P28,200
c) P17,600
d) P0

33. On January 1, 2021, CAT Corporation issued 5,000 shares of P100 par convertible
preference shares for P110 per share. One share of preference shares can be
converted into 2 shares of CAT Corporation’s P10 par value ordinary shares at the
option of the preference shareholder. On August 31, 2021, when the market was P40
 per share, all of the preference shares were converted. What amount should be
credited to share premium preference on January 1, 2021?
a) P500,000
b) P50,000
c) P45,000
d) P40,000

34. The following statement of financial position was prepared for Lagoon Partnership
on March 31, 2020:

Cash 25000 Liabilities 52,000

Other Assets 180000 Siomai, Capital 40,000
Shanghai, Capital 65,000
Fewa, Capital 48,000
Total 205,000 Total 205,000

The profit and loss ratio for Siomai, Shanghai, and Fewa is 4:4:2 respectively. The
partners agree to liquidate the partnership by the sale of other assets in
installments. The first installment of non-cash assets having a book value of
P90,000 realizes P50,000.

The amount of cash to be receive by Fewa is:

a) P18,000
b) P40,000
c) P24,000
d) P22,000

35. Arlene, Hellena, and Abegail are partners with capital balances of P40,000, P50,000,
and P60,000, and they have a profit and loss ratio of 40:40:20 respectively. After one
year, the operation resulted in a net profit of P20,000. Withdrawals made during the
year are as follows: P10,000, P5,000, and P15,000, respectively. Abegail retired from
the partnership and was paid P80,000 for her interest. Assuming assets were
revalued upon retirement of Abegail, the share of Arlene and Hellena in the asset
revaluation is
a) P54,000 and P27,000
b) P54,000 and P54,000
c) P62,000 and P31,000
d) P62,000 and P62,000
36. San Gabriel Partnership had a net income of P24,000 for the month ended
November 30, 2020. On December 1 Marites purchased an intertest in the San
Gabriel Partnership of Enteng and Ramon by paying Enteng P72,000 for half of his
capital and half of his 50% profit sharing interest. They used to divide profit equally.
The capital balance of Enteng and Ramon before the sharing of net income was
P96,000 and P168,000 respectively. Marites should receive a credit to her capital
account of
a) P36,000
b) P48,000
c) P72,000
d) P54,000

37. Ben, Ten, and Jen are partners whose capital balances share in profits are as
follows:
Ben P250,000 50%
Ten 150,000 25%
Jen 100,000 25%

Ken is admitted into the partnership by paying P60,000 for 1/3 of the share in equity
of Ten and by contributing P200,000. The partners agree to the total capitalization
of P750,000, 1/3 of which is Ken’s capital credit. Ken’s share in net income is also
1/3 and the old partners are to divide net income in the old ratio among themselves.

The capital balance of the old partners after the admission of Ken are
a) P250,000, P150,000, P100,000, respectively.
b) P275,000, P112,500, P112,500, respectively.
c) P250,000, P100,000, P100,000, respectively.
d) P250,000, P200,000, P100,000, respectively.

38. Anna, Berna and Cory are partners in the ratio of 3:4:2. Berna wants to retire from
the firm. The profit on revaluation on that date was P36,000. The new ratio of Anna
and Cory is 5:3. Profit on revaluation will be distributed as
a) Anna – P23,625; Cory – P12,375
b) Anna – P12,000; Berna – P16,000; Cory – P8,000
c) Anna – P16,000; Berna – P12,000; Cory – P8,000
d) Anna – P22,500; Cory – P13,500

39. Retrograde Co. reported the following equity accounts:

Preference share capital, par value P15 P2,550,000

 Share Premium, Preference 150,000
Ordinary share capital, no par, P50 stated value 3,000,000

What is the number of issued and outstanding shares for ordinary and preference
shares, respectively?
a) 60,000; 170,000
b) 60,000; 180,000
c) 63,000; 170,000
d) 63,000; 180,000

40. Luke, a partner in an accounting firm decided to withdraw from the partnership.
Luke’s share of the partnership profits and losses was 30%. Upon withdrawing from
the partnership, he was paid P71,000 in final settlement of his interest. The total of
the partners’ capital accounts, before asset revaluation, prior to Luke’s withdrawal
was P210,000. After his withdrawal, the remaining partners’ capital accounts,
excluding their share of the asset revaluation, totaled P160,000. The total amount
of the asset revaluation recognized was
a) P80,000
b) P24,000
c) P21,000
d) P70,000

41. Perrie, Jade and Leigh decided to liquidate when their partnership capital balances
were P50,000 each. Profit and loss ratio was 30:34:36 respectively. Perrie and Jade
had loaned the business P10,000 and P35,000, respectively, while receivable from
partner Leigh amounted to P23,000. The loss absorption capacity of the partners
Perrie, Jade and Leigh, respectively are:
a) P250,000; P200,000; P75,000
b) P200,000; P250,000; P75,000
c) P220,000; P275,000; P90,000
d) P90,000; P220,000; P275,000

42. Ben, Ten, and Jen are partners whose capital balances share in profits are as
follows:

Ben P250,000 50%

Ten 150,000 25%
Jen 100,000 25%
 Ken is admitted into the partnership by paying P60,000 for 1/3 of the share in equity
of Ten and by contributing P200,000. The partners agree to the total capitalization
of P750,000, 1/3 of which is Ken’s capital credit. Ken’s share in net income is also
1/3 and the old partners are to divide net income in the old ratio among themselves.

The amount of the asset revaluation is equal to

a) P15,000
b) P50,000
c) P120,000
d) P200,000

43. The LLL Partnership is being dissolved. All liabilities have been paid and the
remaining assets are being realized gradually. The equity of the partners is as
follows:

Loans to (from) Profit and Loss

Partners' Account Partnership Ratio

Lyka P24,000 P6,000 3

Lysa P36,000 --- 3
Lia P60,000 (P10,000) 4

The second cash payment to any partner/partners under program of priorities shall
be made thus:
a) To Lysa P6,000
b) To Lia P8,000
c) To Lysa P6,000 and to Lia P8,000
d) To Lia P2,000

44. Jose, Mari and Chan are partners. On January 3, 2020, their capital balances and
profit and loss ratio are as follows:

Capital Profit & Loss Ratio

Jose P25,000 60%
Mari P50,000 25%
Chan P60,000 15%

Chan withdrew P10,000 during the year. Net loss on December 31, 2020 totaled
P20,000. Hence, the partners decided to liquidate the partnership. It is uncertain
 how much of the assets will ultimately yield but favorable realization is expected. It
is, therefore, agreed to distribute cash as it becomes available. There are unpaid
liabilities of P5,000 and cash on hand P700. The amount to be realized by the
partnership on the sale of its assets so that Jose will receive a total of P19,000 in
the final settlement of his interest is:
a) P103,300
b) P119,300
c) P6,000
d) P9,300

45. Pamela One Corporation was authorized to issues 12,000 ordinary shares at P80
par value. Upon the issuance of 3,000 shares at P100 per share and 3,150 shares at
P125 per share, how much is the ordinary share capital?
a) P600,000
b) 508,000
c) 492,000
d) 316,250

46. Brix and Nile formed a partnership and agreed to divide the initial capital in the ratio
2:3, respectively. Brix contributed P326,000 and Nile gave P358,000 in the form of
assets. How much is the capital of Brix after the formation of the partnership?
a) P238,667
b) P273,600
c) P300,000
d) P326,000

47. The following statement of financial position is for the JJJ Partnership. The partners
Jenny, Jelina and Jennifer share profits and losses in the ratio 2:3:5, respectively.

Cash P 140,000 Liabilities P 230,000

Other Assets 680,000 Jenny, Capital 300,000
Jelina, Capital 230,000
Jennifer, Capital 60,000

Assuming the original partners agreed to liquidate the partnership by selling the
other assets, what should each of the representative partners receive if the other
assets are sold for P 540,000?
a) Jenny - 272,000; Jelina - 182,000; Jennifer - 10,000
b) Jenny - 268,000; Jelina - 182,000; Jennifer - 0
c) Jenny - 268,000; Jelina - 182,000; Jennifer - 10,000
d) Jenny - 182,000; Jelina - 272,000; Jennifer - 0
48. Celine Co. was authorized to issue 200,000 no-par ordinary shares and 10,000
preference shares, P100 par value. Subscriptions for 4,000 preference shares was
received at P110 with a down payment of 25%. How much was the down payment
received by Celine Co. as a result of the subscription?
a) P110,000
b) P100,000
c) P10,000
d) P11,000

49. On August 31, 2021, Avanti admits Sterling for an interest in his business. On this
date, Avanti ‘s capital account shows a balance of P340,450. The following were
agreed upon before the formation of the partnership.

A. Prepaid expenses of P18,750 and accrued expenses of P6,500 are to be

recognized.
B. 6% of the accounts receivable of P111,000 of Avanti is to be recognized as
uncollectible.
C. Sterling is to be credited with a 35% interest in the partnership and is to
invest cash aside from the Equipment with a book value of P64,800 and a fair
value of P62,500.

The amount of cash to be invested by Sterling and the total capital of the
partnership are _______, respectively.
a) P0; P408,540
b) P110,636.92; P494,676.92
c) P120,819.23; P523,769.23
d) P123,829.23; P532,369.23

50. Arlene, Hellena, and Abegail are partners with capital balances of P40,000, P50,000,
and P60,000, respectively. After one year, the operation resulted in a net profit of
P20,000. Withdrawals made during the year are as follows: P10,000, P5,000, and
P15,000, respectively. Abegail retired from the partnership and was paid P80,000
for her interest. Assuming no asset revaluation was recorded, the excess payment
is a
a) Bonus of P27,000 from the remaining partners
b) Bonus of P27,000 to the retiring partner
c) Bonus of P31,000 to the remaining partners
d) Bonus of P31,000 to the retiring partner
51. The Beatles Inc. has authorized capital of 30,000 ordinary shares with a par value
of P50. For the first two years of its existence, it has issued 6,000 shares to
shareholders and distributed 500 shares as stock dividend. In addition, it has
recently contracted subscription for 250 shares. One installment payment has been
made on the subscribed shares. The Beatles is now contemplating the purchase of
600 shares to hold as treasury shares in order to increase the market price of the
share capital. If The Beatles purchased 600 shares as treasury shares, what would
be the number of authorized, issued and outstanding shares?
a) Authorized shares - 30,000; Issued shares - 6,000; Outstanding shares - 6,500
b) Authorized shares - 30,000; Issued shares - 6,000; Outstanding shares - 5,900
c) Authorized shares - 30,000; Issued shares - 6,500; Outstanding shares - 5,900
d) Authorized shares - 30,000; Issued shares - 6,500; Outstanding shares - 6500

52. Lala and Tata entered into a partnership last April 1, 2020. Both of them have
invested assets in the partnership. Lala invested: Cash – 150,000; Furniture –
750,000. While Tata invested: Inventory – 110,000 and Equipment – 500,000. Their
agreement for the profit and losses are to be divided in the ratio 3:2 respectively.
The partnership is to assume a liability of 80,000 on the equipment. The partnership
also agreed that Tata is to receive a capital credit that is equal to his profit and loss
ratio. How much cash should Tata invest?
a) P370,000
b) P70,000
c) P388,000
d) P50,000

53. On October 1, 2019, MJ and PJ formed a partnership with each contributed asset:

MJ PJ
Cash P 240,000 P 200,000
Equipment 120,000 310,000
Building 1,200,000
Furniture and Fixtures 60,000

The building is subject to a mortgage loan of P370,000, which is to be assumed by

the partnership. On October 1, 2019, the balance in PJ’s capital account should be?
a) P420,000
b) P790,000
c) P1,340,000
d) P1,710,000
54. Allison and Faith decided to combine their separated business in order to form a
partnership. Cash and non-cash assets are to be contributed for a total of P 800,000.
The non-cash assets to be contributed and the liabilities to be assumed are as
follows:

Allison Faith
BV FMV BV FMV
Accounts P 60,000 P 50,000
Receivable
Merchandise 90,000 120,000 80,000 120,000
Inventory
Equipment 150,000 130,000 120,000 160,000
Accounts 50,000 50,000 40,000 40,000
Payable

The partners agreed that the capital accounts are to be equal after making all the
contributions of assets and assumptions of liabilities. The amount of cash to be
contributed by Faith is?
a) P160,000
b) P180,000
c) P200,000
d) P240,000

55. Vaseline, Nivea and Silka formed a partnership in March 1, 2020. Silka is an
industrial partner while Vaseline and Nivea are capitalist partners. They contributed
cash with an amount of P 120,000 and P 160,000, respectively. They share profits in
the ratio of 3:5:2 to Vaseline, Nivea and Silka. Unfortunately, the operations for 2020
resulted to a loss of P 220,000. How much is the share of Nivea?
a) P66,000
b) P82,500
c) P110,000
d) P137,500

56. JVR Corp. recorded the following journal entry on May 31, 2021:

Cash 42,250
Ordinary Share Capital 32,500
Ordinary Share Premium 9,750
 The explanation reads, “Issued ordinary share capital for P130 per share.” What is
the par value for this share capital, and how many shares were issued respectively?
a) P130, 325sh
b) P125, 305sh
c) P110, 330sh
d) P100, 325sh

57. Jea is the managing partner of Brian Partnership. She is given an incentive of 5%
bonus on profit. The profit of the partnership is P 928,571 and the income tax rate
is 30%. How much is the amount of bonus if the bonus is computed based on profit
after deduction for bonus but before deduction for income tax?
a) P44,217.67
b) P46,428.55
c) P63,168.10
d) P66,326.50

58. Hannah and Kyla have capital balances at the beginning of the year of P 800,000
and P875,000, respectively. They share profit as follows:

A. Interest of 6% on beginning capital balances.

B. Salary allowances of P 250,000 to Hannah and P 200,000 to Kyla.
C. Balance in the ratio of 2:3

The partnership realized a profit of P 675,000 during the current year before interest
and salary allowances to partners. How much is the share of Kyla?
a) P327,200
b) P302,300
c) P347,800
d) P405,000

59. The following statement of financial position was prepared for Lagoon Partnership
on March 31, 2020:

Cash 25000 Liabilities 52,000

Other Assets 180000 Siomai, Capital 40,000
Shanghai, Capital 65,000
Fewa, Capital 48,000
Total 205,000 Total 205,000
 The profit and loss ratio for Siomai, Shanghai, and Fewa is 4:4:2 respectively. The
partners agree to liquidate the partnership by the sale of other assets in
installments. The first installment of non-cash assets having a book value of
P90,000 realizes P50,000.

The amount of cash to be receive by Shanghai is:

a) P9,000
b) P5,000
c) P7,000
d) P10,000

60. Nicole and Ken are partners who share profits equally and losses in 2:3 ratio. If they
have beginning capital balances of P 240,000 and P 310,000, made no withdrawals
and investments, and suffered a loss of 65,000, their capital balances will be ______.
a) P175,000; P245,000
b) P201,000; P284,000
c) P214,000; P271,000
d) P240,000; P310,000

61. Denise and Joy formed a partnership on January 1, 2019. Denise contributed: Cash
– 260,000; while Joy contributed equipment with a book value of P 164,000 and a
fair value of 124,000, and inventory items with a book value of P124,000 and a fair
value of 138,000. During 2019, Joy made additional investment of P18,000 on April
1, and P20,000 on June 1. On September 1, he withdrew P62,000. Denise had no
additional investment nor withdrawals during the year. The average capital balance
of Joy at the end of fiscal year 2019 is _________.
a) P266,500
b) P270,000
c) P204,000
d) P240,000

62. Omni, Dolor and Yao are partners who share profits and losses in the ratio 3:2:5.
The partners have decided to liquidate the partnership. Their capital accounts show
the following balances: Omni – P 120,000 credit; Dolor – P 160,000 credit; Yao –
90,000 debit. How much is the cash available for distribution?
a) P370,000
b) P0
c) P130,000
d) P190,000
63. Jerico was paid P25,000 from the partnership cash account for his withdrawal from
the partnership of Charles, Dave and Jerico. Their capital balances were P40,000,
P60,000 and P35,000, respectively. Income and loss are shared according to the
ratio of equity balances. The journal entry to record the withdrawal of Jerico would
include:
a) A debit to cash for P25,000
b) A credit to Jerico’s capital account for P35,000
c) A credit to Dave’s capital account for P6,000
d) A debit to Charles capital account for P2,000

64. Inomni, Grezenale and Bathallison are partners, sharing earnings in the ratio of
2:3:5. The balance of their capital accounts on December 31, 2020 are as follows:
Inomni – P25,000; Grezenale – P38,000 and Bathallison – P19,000. The partners
decided to liquidate, and they accordingly converted the non-cash assets into
P34,500 of cash. After paying the liabilities amounting to P 8,000, they have P32,600
to divide. Assume that a debit balance in any of the partner's capital is uncollectible.
The book value of the non-cash assets amounted to ________.
a) P6,900
b) P12,000
c) P14,900
d) P22,900

65. Heneral and Luna are partners. Their capital balances are as follows: Heneral –
P85,500 and Luna – P35,300. The profit and loss agreement of the partners is 60%
for Heneral and 40% for Luna. They decided to liquidate the partnership. The firm’s
liabilities amounted to P 39,600, including the amount of P 7,000 owing to Heneral
and P 2,000 owing to Luna on loans. Non-cash assets amounting to P150,000 is
realized for P50,000 during the year. How much will Heneral receive if the partners
are insolvent?
a) P92,500
b) P32,500
c) P29,800
d) P17,800

66. Shenell Corp. was organized on January 2, 2019, with authorized capital of 200,000
shares of P10 par ordinary share capital. During 2019, Shenell had the following
transactions affecting shareholders’ equity.

Jan. 7 – Issued 60,000 shares at P12 per share

Dec. 2 – Purchased 7,500 treasury shares at P13 per share
 Profit for the year amounted to P430,000. What is the amount of shareholders’
equity as of December 31, 2019?
a) P 1,052,500
b) P 2,192,500
c) P 1,192,500
d) P 932,500

67. Kate Corp. holds 20,000 ordinary shares, par value 10, as treasury shares, which
was purchased in 2018 at cost of 220,000. On December 8, 2018, Kate sold all the
20,000 shares for 340,000. The sale would result in a credit to Paid-in Capital from
Sale of Treasury Shares in the amount of ______.
a) P 140,000
b) P 160,000
c) P 120,000
d) P 100,000

68. On December 29, 2019, Five Star Company was registered at the Securities and
Exchange Commission with 200,000 authorized ordinary shares of P100 par value.
The following were Five Star’s transactions:

December 29, 2019 Issued 30,000 shares at P105 per share.

April 12, 2020 Purchased 500 of its ordinary share at P110 per share
July 14, 2020 300 treasury shares were sold at P90 per share
December 31, 2020 Profit P770,000, cash dividends paid P220,000

What is the total shareholders’ equity of Five Star Company on December 31, 2020?
a) P 3,672,000
b) P 3,728,000
c) P 3,618,000
d) P 3,782,000

69. Casio Corp. has outstanding 20,000 shares of 10% Preference Share Capital with a
par value of P100 and 38,600 shares of P10 par value Ordinary Shares Capital. The
Retained Earnings account at the end of the fiscal year 2020 is P1,930,000. If Casio
purchases 2,000 shares of its own ordinary share capital at P30 per share, what
amount of Retained Earnings is available for payment of dividends?
a) P 1,930,000
b) P 1,780,000
c) P 1,953,000
d) P 1,870,000
70. Jollibae and McDots formed a partnership and have capital balances of P100,000
and P200,000 respectively. If they agreed to admit JFC into the partnership, how
much will CJ have to invest to have a ¼ interest?
a) P75,000
b) P50,000
c) P100,000
d) P200,000

Summary of Answers
1. A 30. D 59. B
2. B 31. B 60. C
3. D 32. A 61. A
4. D 33. B 62. D
5. A 34. A 63. C
6. C 35. D 64. C
7. B 36. D 65. C
8. D 37. B 66. A
9. D 38. B 67. C
10. A 39. A 68. A
11. D 40. D 69. D
12. D 41. B 70. C
13. C 42. B
14. A 43. C
15. D 44. B
16. B 45. C
17. B 46. B
18. B 47. B
19. D 48. A
20. B 49. D
21. C 50. D
22. A 51. C
23. C 52. B
24. A 53. C
25. B 54. A
26. B 55. D
27. A 56. D
28. D 57. C
29. C 58. A
 Summary of Answers – Explained
THEORIES

1. (A) The capital account is debited for permanent withdrawal of capital, debit balance of
the drawing account at the end of the period.
2. (B) When a partner’s capital account shows a debit balance (capital deficiency) and said
partner has a loan account, the law permits the exercise of the right of offset by part or
all of his loan against the capital deficiency.
3. (D) See page 184 of the Accounting for Partnership Corporation of Baysa and Lupisan
2018 edition.
4. (D) Examples of accounting entities are corporations, partnerships, and trusts. In addition,
partnerships are subject to income tax except general professional partnerships.
5. (A) Loans to the partnership are not included for determining the partner’s share of profits.
See page 89 of the Accounting for Partnership Corporation of Baysa and Lupisan 2018
edition.
6. (C) See pages 214 - 215 of the Accounting for Partnership Corporation of Baysa and
Lupisan 2018 edition.

7. (B) Under the memorandum entry method, the Share Capital account is credited upon
issuance of stock. The balance of this account represents the amount of capital stock or
share capital issued to shareholders.

8. (D) The allocation of gain or loss on realization is based on the residual profit and loss
ratios of the partners unless liquidation riots are specified on the partnership agreement.
9. (D) The reacquisition of a company’s own shares reduces the number of outstanding
shares but does not affect the number of issued shares.

10. (A) Treasury shares are capital shares issued to shareholders and subsequently
reacquired by the corporation with the intention of reissuing them

11. (D) Prior to the liquidation of a partnership, the net income or loss must be distributed first
to the partners. Followed by the distribution of loans and lastly distribution of partnership
assets according to the capital balances of the partners.

12. (D) See page 405 of the Accounting for Partnership Corporation of Baysa and Lupisan
2018 edition.

13. (C) See page 286 of the Accounting for Partnership Corporation of Baysa and Lupisan
2018 edition.
14. (A) Share split will not affect total shareholders’ equity nor total share capital. It will simply
change the number of shares outstanding and the par value per share of stock.

15. (D) An agreed capital that is less than the contributed capital indicates that there is an
overstatement in some assets of the partnership upon the admission of a new partner.
Therefore, the old partners are charged for the revaluation of assets. See pages 214 -
215 of the Accounting for Partnership Corporation of Baysa and Lupisan 2018 edition.

16. (B) Article 1768 of the Partnership Law exhibits one of the characteristics of a partnership
which is the separate legal entity.

17. (B) Based on the provisions of the New Civil Code, in the absence of an agreement,
division of profits and losses in accordance with capital contributions.

18. (B) See pages 187 – 189 of the Accounting for Partnership Corporation of Baysa and
Lupisan 2018 edition.

19. (D) See page 184 of the Accounting for Partnership Corporation of Baysa and Lupisan
2018 edition.

20. (B) See page 144 of the Accounting for Partnership Corporation of Baysa and Lupisan
2018 edition.

21. (C) See page 188 of the Accounting for Partnership Corporation of Baysa and Lupisan
2018 edition.

22. (A) Under the program of cash distribution, once the loss absorption balances are
determined, allocations may now be made, starting with Allocation I wherein the highest
loss absorption balance is reduced to the next highest. See page 257 of the Accounting
for Partnership Corporation of Baysa and Lupisan 2018 edition.

23. (C) Treasury shares are reported on the statement of financial position as a deduction
from total shareholder’s equity.

24. (A) In installment liquidation, remaining unsold assets must be treated as a complete
loss, assuming that nothing is realized on them. The total gain or loss on realization is not
yet determined, it is necessary that each cash distribution to partners be considered as if
it were the last. See page 253 of the Accounting for Partnership Corporation of Baysa and
Lupisan 2018 edition.

25. (B) See page 257 of the Accounting for Partnership Corporation of Baysa and Lupisan
2018 edition.
 26. (B) Under installment liquidation, every time cash is distributed to partners, it is considered
as if it were the last so as to avoid any overpayment to any of the partners. See page 260
of the Accounting for Partnership Corporation of Baysa and Lupisan 2018 edition.

27. (A) Under PAS 38 Intangible Assets, organization or pre-operating costs are charged to
expense in the period incurred.

28. (D) Unless otherwise stated in the contract, all shareholders have the same basic rights.
One of them is to maintain one’s ownership interest in the corporation through purchase
of additional shares when a new share capital is issued. This is known as the preemptive
right. See page 285 of the Accounting for Partnership Corporation of Baysa and Lupisan
2018 edition.

29. (C) See page 93 of the Accounting for Partnership Corporation of Baysa and Lupisan
2018 edition.

30. (D) See page 310 (number 7) of the Accounting for Partnership Corporation of Baysa and
Lupisan 2018 edition.

PROBLEMS

31. (B)

Total Interest of Old Partners ( P252,000 + P126,000 +

420000.00
P42,000)
Multiply by interest sold to Mark 0.20
Total interest of Mark 84000.00

Gab Jose Rom

Partner's capital before admission of Mark 252000.00 126000.00 42000.00
Less interest sold to Mark - P84,000 (6:3:1)
P84,000 x 6/10 50400.00
P84,000 x 3/10 25200.00
P84,000 x 1/10 8400.00
Capital balances after admission of Mark 201600.00 100800.00 33600.00

32. (A)

Cash on hand 43,200.00

Less: Liabilities (P39,600 - P6,000 - P4,600) 29,000.00
Cash available of distribution 14,200.00
Total Partners' Interest (P32,500 + P28,300 + P6,000 + P4,600) 71,400.00
Less: Cash available for distribution 14,200.00
Total loss on realization 57,200.00

33. (B)

No. of preference shares issued 5,000sh

In excess of par value (P110 - P100) 10.00
Total preference share premium 50,000.00

34. (A)

Siomai Shanghai Fewa

Capital balance before liquidation 40000.00 65000.00 48000.00
Less: Loss on Realization - P130,000 (4:4:2) 52000.00 52000.00 26000.00
Balance -12000.00 13000.00 22000.00
Less: Absorption of Capital Deficiency (4:2) 12000.00 8000.00 4000.00
Cash Settlement to Partners 5000.00 18000.00

35. (D)

Abegail's share on asset revaluation P31,000 (P80,000 -

31000.00
P49,000)
Divided by her capital ratio 0.20
Total Asset Revaluation 155000.00

Capital balances before Asset Revaluation 38000.00 53000.00 49000.00

Asset Revaluation P155,000
P155,000 x 40% - Arlene 62000.00
P155,000 x 40% - Helena 62000.00
P155,000 x 20% - Abegail 31000.00
Balances 100000.00 115000.00 80000.00
 36. (D)

Half of Enteng's capital (P96,000/2) 48000.00

Half of Enteng's profit sharing interest [(P24,000/2) / 2 ] 6000.00
Marites interest on the partnership 54000.00

37. (B)

Ben Ten Jen

Capital balances before admission of the new partner 250000.00 150000.00 100000.00
Ken's purchase of 1/3 equity of Ten -50000.00
Asset Revaluation P50,000
P50,000 x 50% 25000.00
P50,000 x 25% 12500.00
P50,000 x 25% 12500.00
New capital balances 275000.00 112500.00 112500.00

38. (B)

Anna - P36,000 x 3/9 12,000.00

Berna - P36,000 x 4/9 16,000.00
Cory - P36,000 x 2/9 8,000.00
Total 36,000.00

The profit on revaluation of P36,000 will be distributed in accordance to their original profit and
loss ratio of 3:4:2.

39. (A)

Ordinary share capital 3000000.00

Divided by Par Value 50.00
Issued and Outstanding Ordinary Shares 60000.00

Preference share capital 2550000.00

Divided by Par Value 15.00
Issued and Outstanding Preference Shares 170000.00
 40. (D)

Total partners' capital before asset revaluation and withdrawal 210,000.00

Remaining partner's capital (excluding share in asset revaluation) 160,000.00
Luke's capital before asset revaluation and withdrawal 50,000.00
Less: Luke's final cash settlement 71,000.00
Luke's share in asset revaluation 21,000.00
Divided by Luke's capital ratio 0.30
Total asset revaluation 70,000.00

41. (B)

Perrie, Jade and Leigh Partnership

Cash Priority Program

Perrie Jade Leigh

Capital balances before liquidation 50,000.00 50,000.00 50,000.00
Add loans 10,000.00 35,000.00
Less receivables 23,000.00
Total partners' interest 60,000.00 85,000.00 27,000.00
Divided by the profit & loss ratio 30/100 34/100 36/100
Loss absorption capacity 200,000.00 250,000.00 75,000.00

42. (B)

Old partners' total capital (P250,000 + P150,000 + P100,000) 500000.00

New partner contributed capital 200000.00
Total contributed capital 700000.00

Total agreed capital 750000.00

Less: Total contributed capital 700000.00
Asset Revaluation 50000.00
 43. (C)

LLL Partnership
Cash Priority Program

Payments to
Lyka Lysa Lia Lyka Lysa Lia
Capital balances before liquidation 24,000.00 36,000.00 60,000.00
Loans to (from) partnership 6,000.00 -10,000.00
Total partners' interest 30,000.00 36,000.00 50,000.00
Divided by the profit & loss ratio 3/10 3/10 4/10
Loss absorption capacity 100,000.00 120,000.00 125,000.00
Allocation I - Cash to Lia reducing
her loss absorption balance to an
amount reported for Lysa; -5,000.00 2,000.00
reduction of P5,000 requires
payment of 4/10 x P5,000
100,000.00 120,000.00 120,000.00
Allocation II - Cash to Lia and Lysa
to reduce their loss absorption
balances to amount reported for
Lyka; reduction of P20,000
requires payments as follows:
To Lia, 4/10 x P20,000 -20,000.00 8,000.00
To Lysa, 3/10 x P20,000 -20,000.00 6,000.00
100,000.00 100,000.00 100,000.00 6,000.00 10,000.00

44. (B)

Jose, beginning capital 25,000.00

Less: Jose's share in net loss (P20,000 x 60%) 12,000.00
Jose, ending capital 13,000.00
Less: Jose's final cash settlement 19,000.00
Jose's share on gain in realization 6,000.00
Divided by Jose's profit and loss ratio 0.60
Total gain in realization 10,000.00
Add: Non-cash assets (25,000 + 50,000 + 60,000 - 10,000 - 20,000 + 5,000 - 700) 109,300.00
Total proceeds on sale of non-cash assets 119,300.00
 45. (C)

No. of ordinary shares issued (3,000sh + 3,150sh) 6,150sh

Par value 80.00
Ordinary share capital 492,000.00

46. (B)

Brix' cash contribution 326,000.00

Nile's asset contribution 358,000.00
Total partnership capital 684,000.00
Multiplied by 2/5
Brix' capital after formation of partnership 273,600.00

47. (B)

Jenny Jelina Jennifer

Capital balances before liquidation 300,000.00 230,000.00 60,000.00
Loss on realization (28,000.00) (42,000.00) (70,000.00)
Balances 272,000.00 188,000.00 (10,000.00)
Additional loss for the defiency of Jennifer - 2:3 (4,000.00) (6,000.00) 10,000.00
Free Interest - payment to partners 268,000.00 182,000.00 0

48. (A)

No. of subscribed preference shares 4,000sh

Value per share 110.00
Total preference share capital subscription receivables 440000.00
Down payment percentage 25%
Received down payment 110,000.00

49. (D)

Avanti, Capital 340,450.00

Prepaid expenses 18,750.00
Accrued expenses (6,500.00)
Bad debts expense (P111,000 x 0.06) (6,660.00)
Total interest of Avanti 346,040.00
Divided by 65%
Total capital of the partnership 532,369.23

Total capital of the partnership 532,369.23

Multiplied by 35%
Sterling's interest 186,329.23
Less: Equipment 62,500.00
Cash to be invested by Sterling 123,829.23

50. (D)

Arlene Hellena Abegail

Capital balances before retirement 40000.00 50000.00 60000.00
Net Profit - P20,000
P20,000 x 40% 8000.00
P20,000 x 40% 8000.00
P20,000 x 20% 4000.00
Balances 48000.00 58000.00 64000.00
Withdrawal 10000.00 5000.00 15000.00
Capital balances 38000.00 53000.00 49000.00

Bonus of P31,000 (P80,000 - P49,000) to the retiring partner since the payment for the
retirement of Abegail is greater than her capital balance before retirement.

51. (C)

Number of Authorized shares 30,000

Issuance of shares 6,000

Shares distributed as stock dividend 500
Number of Issued shares 6,500

Number of issued shares 6,500

Less: Treasury shares 600
Number of outstanding shares 5,900
 52. (B)

Cash 150,000.00
Furniture 750,000.00
Lala's interest 900,000.00
Divided by 3/5
Total capital of partnership 1,500,000.00
Multiplied by 2/5
Tala's interest 600,000.00
Less: Inventory 110,000.00
Equipment 500,000.00 610,000.00
Add: Liability on equipment 80,000.00
Cash investment of Tata 70,000.00

53. (C)

Cash 200,000.00
Equipment 310,000.00
Building 1,200,000.00
Mortgage Loan (370,000.00)
Capital balance of PJ 1,340,000.00

54. (A)

Total partnership capital 800,000.00

Multiply by 1/2
Faith's interest in the partnership 400,000.00
Less: Merchandise Inventory 120,000.00
Equipment 160,000.00 280,000.00
Add: Accounts Payable 40,000.00
Cash to be invested by Faith 160,000.00
 55. (D)

Loss on operation 220,000.00

Multiplied by 5/8
Nieva's share on loss 137,500.00

56. (D)

Ordinary share capital 32500.00

Add: Ordinary share premium 9750.00
Total 42250.00
Divided by value per share 130.00
Ordinary shares issued 325sh

Ordinary share capital 32500.00

Divided by no. of ordinary shares issued 325sh
Par value per share 100.00

57. (C)

Income after tax 928,571.00

Divided by (100% - 30%) 0.70
Income before income tax 1,326,530.00

Computation for bonus:

B = 0.05 (1,326,530 - B)
B = 66,326.50 - 0.05B
B + 0.05B = 66,326.50
1.05B = 66,326.50
B = 66,326.50 / 1.05
B = 63,168.09524 or 63,168.10

58. (A)

Hannah Kyla Total

Interest in beginning capital
P 800,000 x 0.06 48,000.00
P 875,000 x 0.06 52,500.00 100,500.00
Salary allowances 250,000.00 200,000.00 450,000.00
Balance - P 124,500
P 124,500 x 2/5 49,800.00
P 124,500 x 3/5 74,700.00 124,500.00
Total 347,800.00 327,200.00 675,000.00

59. (B)

Siomai Shanghai Fewa

Capital balance before liquidation 40000.00 65000.00 48000.00
Less: Loss on Realization - P130,000 (4:4:2) 52000.00 52000.00 26000.00
Balance -12000.00 13000.00 22000.00
Less: Absorption of Capital Deficiency (4:2) 12000.00 8000.00 4000.00
Cash Settlement to Partners 5000.00 18000.00

60. (C)

Nicole
Beginning Capital 240,000.00
Less: Share in net loss (P65,000 x 2/5) 26,000.00
Capital balance 214,000.00

Ken
Beginning Capital 310,000.00
Less: Share in net loss (P65,000 x 3/5) 39,000.00
Capital balance 271,000.00

61. (A)

Capital Number of Months Average

Date Peso Months
Balance Unchanged Capital
Jan 1- Mar 31 262,500.00 3.00 786,000.00
Apr 1 - May 31 280,000.00 2.00 560,000.00
June 1 - Aug
31 300,000.00 3.00 900,000.00
Sep 1 - Dec 31 238,000.00 4.00 952,000.00
12.00 3,198,000.00 266,500.00

62. (D)

Omni, Capital 120,000.00

Dolor, Capital 160,000.00
yao, Capital (90,000.00)
Cash available for distribution 190,000.00

63. (C)

Charles Dave Jerico

Partner's capital before withdrawal of Jerico 40,000.00 60,000.00 35,000.00
Bonus to remaining partners - P10,000 (40:60) 4,000.00 6,000.00 -10,000.00
Capital balances after withdrawal 44,000.00 66,000.00 25,000.00

Choice A is incorrect because cash of P25,000 should be credited.

Choice B is incorrect because Jerico's capital should be debited for P35,000.
Choice C is correct because Dave received a bonus of P6,000. Hence Dave's capital will
be credited.
Choice D is incorrect because Charles' capital should be credited for P4,000.

64. (C)

Inomni, Capital 25,000.00

Grezenale, Capital 38,000.00
Bathallison, Capital 19,000.00
Total Capital 82,000.00
Liabilities 8,000.00
Total Assets 90,000.00
Less: Cash from realization of non-cash assets 34,500.00
Cash paid for liabilities 8,000.00
Cash to be distributed to partners 32,600.00 75,100.00
Book value of non-cash assets 14,900.00
 65. (C)

Heneral, Capital 85,500.00

Heneral, Loan 7,000.00
Total interest of Heneral 92,500.00
Less: Share in loss on realization (100,000 x 60%) 60,000.00
Additional loss from Luna's deficiency
(100,000 x 40%) - (35,300 + 2,000) 2,700.00 62,700.00
Free interest of Heneral 29,800.00

66. (A)

Issuance of shares (60,000 sh x P12) 720,000.00

Purchase of treasury shares (7,500 sh x P13) (97,500.00)
Profit for the year 430,000.00
Total Shareholders' Equity 1,052,500.00

67. (C)

Proceed from sale of treasury Share Capital 340,000.00

Less: Cost of treasury Share Capital 220,000.00
Paid-in Capital from sale of treasury Share Capital 120,000.00

68. (A)

Issuance of shares (30,000 sh x P105) 3,150,000.00

Purchased of ordinary shares (500 sh x P110) (55,000.00)
Sale of treasury shares (300 sh x P90) 27,000.00
Profit for the year 770,000.00
Cash dividends paid (220,000.00)
Total Shareholders' Equity 3,672,000.00

69. (D)

Retained Earnings 1,930,000.00

Less: Purchased of ordinary shares (2,000 sh x P30) 60,000.00
Retained Earnings available for dividends 1,870,000.00
 70. (C)

Total of old partners' capital (P100,000 + P200,000) 300000.00

Divided by 3/4
New partners' total capital 400000.00
Less: Old partners' total capital 300000.00
New partner's investment 100000.00

This represents the 1/4 of the new total capital of the partnership