PARTNERSHIP

MULTIPLE CHOICE - Theory of Accounts

TOA 1-1 (AICPA)

Which of the following is not a characteristic of most partnership?
a. Limited liability
b. Limited life
c. Mutual agency
d. Ease of formation

TOA 1-2 (AICPA)

Which of the following is not a characteristic of the proprietary theory that influences
accounting for partnerships?
a. Partners' salaries are viewed as a distribution of income rather than a component of net
income.
b. A partnership is not viewed as separate entity, distinct, taxable entity.
c. A partnership is characterized by limited liability.
d. Changes in the ownership structure of a partnership result in the dissolution of the
partnership.

TOA 1-3 (AICPA)

An advantage of the partnership as a form of business organization would be
a. Partners do not pay income taxes on their share in partnership income.
b. A partnership is bound by the act of the partners.
c. A partnership is created by mere agreements of the partners.
d. A partnership may be terminated by the death or withdrawal of a partner.

TOA 1-4 (AICPA)

Which of the following statements is correct with respect to a limited partnership?
a. A limited partner may not be an unsecured creditor of the limited partnership.
b. A general partner may not also be limited partner at the same time.
c. A general partner may be a secured creditor of the limited partnership.
d. A limited partnership can be formed with limited liability for all partners.

TOA 1-5 (Adapted)

A and B formed a partnership, each contributing non-cash assets into the partnership.
Partner A contributed inventory with a current market value in excess of its carrying amount.
Partner B contributed fixed asset with a carrying amount in excess of its current market
value. At what amount should the partnership record each of the assets contributed?
Inventory Fixed asset
a. Carrying amount Market Value
b. Market value Carrying amount
c. Carrying amount Carrying amount
d. Market value Market value

TOA 1-6 (Adapted)

Partnership capital and drawings accounts are similar to the corporate
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 a. Paid in capital, retained earnings, and dividends accounts.
b. Retained earnings account.
c. Paid in capital and retained earnings accounts.
d. Preferred and common stock accounts.

TOA 1-7 (AICPA)

When property other than cash is invested in a partnership, at what amount should the
noncash property be credited to the contributing partner's capital account?
a. Fair value at the date of contribution.
b. Contributing partner's original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner's tax basis.

TOA 1-8 (Adapted)

If the partnership agreement does not specify how income is to be allocated, profits and loss
should be allocated
a. Equally.
b. In proportion to the weighted average of capital invested during the period.
c. Equitably so that partners are compensated for the time and effort expended on behalf of
the partnership.
d. In accordance with their capital contribution.

TOA 1-9 (Adapted)

Which of the following is not a component of the formula used to distribute income?
a. Salary allocation to those partners working.
b. After all other allocation, the remainder divided according to the profit and loss sharing
ratio.
c. Interest on the average capital investments.
d. Interest on notes to partners.

TOA 1-10 (Adapted)

Which of the following is not considered a legitimate expense of a partnership?
a. Interest paid to partners based on the amount of invested capital.
b. Depreciation on assets contributed to the partnership by partners.
c. Salaries for management hired to run the business.
d. Supplies used in the partners' offices.

TOA 1-11 (AICPA)

The fact that salaries paid to partners are not a component of partnership income is
indicative of a.
a. A departure from generally accepted accounting principles.
b. Being characteristic of the entity theory.
c. Being characteristic of the proprietary theory.
d. Why partnerships are characterized by unlimited liability.

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TOA 1-12 (AICPA)
The Flat and Iron partnership agreement provides for Flat to receive a 20% bonus on profits
before bonus. Remaining profits and losses are divided between Flat and Iron in the ratio of
2:3, respectively. Which partner has a greater advantage when the partnership has a profit
or when it has a loss?
Profit Loss
a. Flat Iron
b. Flat Flat
c. Iron Flat
d. Iron Iron
TOA 1-13 (AICPA)
Which of the following results in dissolution of a partnership?
a. The contribution of additional assets to the partnership by an existing partner.
b. The receipt of a draw by an existing partner.
c. The winding up of the partnership and the distribution of remaining assets to the partners.
D.The withdrawal of a partner from a partnership.

TOA 1-14 (Adapted)

If a new partner acquires a partnership interest directly from the partners rather than from
the partnership itself,
a. No entry is required.
b The partnership assets should be revalued.
c.The existing partners' capital accounts should be reduced and the new partner's account
increased.
d. The partnership has undergone a quasi-reorganization.

TOA 1-15 (AICPA)

Which of the following best characterizes the bonus method of recording a new partner's
investment in a partnership?
a. Net assets of the previous partnership are not revalued.
b. The new partner's initial capital balance is equal to his or her investment.
c. Assuming that recorded assets are properly valued, the book value of the new partnership
is equal to the book value of the previous partnership and the investment of the new
partner.
d. The bonus always results in an increase to the previous partners' capital balances.

TOA 1-16 (AICPA)

The following is the priority sequence in which liquidation proceeds will be distributed for a
partnership:
a. Partnership drawings, partnership liabilities, partnership loans, partnership capital
balances b. Partnership liabilities, partnership loans, partnership capital balances.
c. Partnership liabilities, partners hip loans, partnership drawings, partnership capital
balances.
d. Partnership liabilities, partnership capital balances, partnership loans.

TOA 1-17 (Adapted)

In a partnership liquidation, the final cash payment to the partners should be made in
accordance with the
a. Partner's profit and loss sharing ratio.
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 b. Balances of partners' capital accounts.
c. Ratio of the capital contributions by partners.
d. Safe payment computations.

TOA 1-18 (AICPA)

The doctrine of marshaling of assets
a. Is applicable only if the partnership is insolvent.
b. Allows partners to first contribute personal assets to unsatisfied partnership creditors.
c. Is applicable if either the partnership is insolvent or individual partners are insolvent.
d. Amount owed to personal creditors and to the partnership for debit capital balances are
shared proportionately from the personal assets of the partners.

TOA 1-19 (Adapted)

In the liquidation of a partnership it is necessary to (1.) distribute cash to the partners; (2.)
sell non-cash assets; (3.) allocate any gain or loss on realization to the partners; and (4.) pay
liabilities. These steps should be performed in the following order:
a. (2), (3), (4), (1)
b. (2), (3), (1), (4)
c. (3), (2), (1), (4)
d. (3), (2), (4), (1)

TOA 1-20 (Adapted)

In accounting for the lump-sum liquidation of a partnership, cash payments to partners after
all non-partner creditors' claims have been satisfied, but before the final cash distribution,
should be according to
a. The partners' relative profit and loss sharing ratio.
b. The final balances in partner capital accounts.
c. The partners' relative share of the gain or loss on liquidation.
d. Safe payment computations.

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PARTNERSHIP
MULTIPLE CHOICE - Problems

PROB. 1-1 (Adapted)

On April 30, 2020, Al, Ben, and Ces formed a partnership by combining their separate
business proprietorships. Al contributed cash of P50,000. Ben contributed property with a
P36,000 carrying amount, a P40,000 original cost, and P80,000 fair value. The partnership
accepted responsibility for the P35,000. mortgage attached to the property. Ces contributed
equipment with a P30,000 carrying amount, a P75,000 original cost, and P55,000 fair value.
The partnership agreement specifies that profits and losses are to be shared equally but is
silent regarding capital contributions. Which partner has the largest capital account balance
at April 30, 2020?
a. Al
b. Ben
c. Ces
d. All capital balances are equal

PROB. 1-2 (Adapted)

Al, Sharif, and Booba formed a partnership. Al will contribute cash of P50,000 and his store
equipment that originally cost P60,000 with a second-hand value of P25,000. Sharif will
contribute P80,000 in cash. Booba, whose family sells computers, will contribute P25,000
cash and a brand new computer that cost his family's computer dealership P50,000 but with
a regular selling price of P60,000. They agreed to share profits and losses equally. Upon
formation, what are the capital balances of the partners?
Al Sharif Booba
a. 75,000 80,000 85,000
b. 80,000 80,000 80,000
c. 88,333 88,333 88,334
d. 110,000 80,000 75,000

PROB. 1-3 (Adapted)

On January 1, 2020, Atta and Boy agreed to form a partnership contributing their respective
assets and equities subject to adjustments. On that date, the following were provided:
Atta Boy
Cash P 28,000 P 62,000
Accounts receivable 200,000 600,000
Inventories 120,000 200,000
Land 600,000
Building 500,000
Furniture & fixtures 50,000 35,000
Intangible assets 2,000 3,000
Accounts payable 180,000 250,000
Other liabilities 200,000 350,000
Capital 620,000 800,000

The following adjustments were agreed upon:

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 a. Accounts receivable of P20,000 and P40,000 are uncollectible in Atta's and Boy's
respective books. b. Inventories of P6,000 and P7,000 are worthless in Atta's and Boy's
respective books.
c. Intangible assets are to be written off in both books.

What will be the capital balances of the partners after adjustments?

Atta Boy
a. 592,000 750,000
b. 600,000 700,000
c. 592,000 756,300
d. 600,000 750,000

PROB. 1-4 (Adapted)

Mary admits Jane as a partner in the business. Balance sheet accounts of Mary just before
the admission of Jane show: Cash, P26,000, Accounts receivable, P120,000, Merchandise
inventory, P180,000, and Accounts payable, P62,000. It was agreed that for purposes of
establishing Mary's interest, the following adjustments be made: 1.) an allowance for
doubtful accounts of 3% of accounts receivable is to be established; 2.) merchandise
inventory is to be adjusted upward by P25,000; and 3.) prepaid expenses of P3,600 and
accrued liabilities of P4,000 are to be recognized.

If Jane is to invest sufficient cash to obtain 2/5 interest in the partnership, how much would
Jane contribute to the new partnership?
a. 176,000
b. 190,000
c. 95,000
d. 113,980

PROB. 1-5 (AICPA)

Roberts and Smith drafted a partnership agreement that lists the following assets contributed
at the partnership's formation:

Contributed by
Roberts Smith
Cash P20,000 P30,000
Inventory 15,000
Building 40,000
Furniture & equipment 15,000

The building is subject to a mortgage of P10,000, which the partnership has assumed. The
partnership agreement also specifies that profits and losses are to be distributed evenly.
What amounts should be recorded as capital for Roberts and Smith at the formation of the
partnership?
Roberts Smith
a. 35,000 85,000
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 b. 35,000 75,000
c. 55,000 55,000
d. 60,000 60,000

PROB. 1-6 (AICPA)

On May 1, 2020, Cobb and Mott formed a partnership and agreed to share profits and losses
in the ratio of 3:7, respectively. Cobb contributed a parcel of land that cost him P10,000. Mott
contributed P40,000 cash. The land was sold for P18,000 on May 1, 2020, immediately after
formation of the partnership. What amount should be recorded in Cobb's capital account on
formation of the partnership?
a.18,000
b.17,400
c. 15,000
d. 10,000

PROB. 1-7 (Adapted)

On April 30, 2020, Alex, Benjie, and Cesar formed a partnershipbycombining their separate
business proprietorships. Alex contributed cash of P500,000. Benjie contributed property
with a P360,000 carrying amount, a P400,000 original cost, and P800,000 fair market value.
The partnership accepted responsibility for the P350,000 mortgage attached to the property.
Cesar contributed equipment with a P300,000 carrying amount, a P750,000 original cost,
and P550,000 fair value. The partnership agreement specifies that profits and losses are to
be shared equally but is silent regarding capital contributions. What are the capital balances
of the partners at April 30, 2020?
Alex Benjie Cesar
a. 500,000 800,000 550,000
b. 500,000 450,000 550,000
c. 500,000 360,000 300,000
d. 500,000 400,000 750,000

PROB. 1-8 (AICPA)

Abel and Carr formed a partnership and agreed to divide initial capital equally, even though
Abel contributed P100,000 and Carr contributed P84,000 in identifiable assets. Under the
bonus approach to adjust the capital accounts, Carr's unidentifiable asset should be debited
for
a. 46,000
b. 16,000
c. 8,000
d. 0

PROB. 1-9 (AICPA)

The Grey and Redd Partnership was formed on January 2, 2020, Under the partnership
agreement, each partner has an equal initial capital balance. Partnership net income or loss
is allocated 60% to Grey and 40% to Redd. To form the partnership, Grey originally
contributed assets costing P30,000 with a fair value of P60,000 on January 2, 2020, and
Redd contributed P20,000 cash. Drawings by the partners during 2020 totaled P3,000 by
Grey and P9,000 by Redd. The partnership net income in 2020 was P25,000. What is the
amount of bonus?
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 a. 20,000 bonus to Grey
b. 20,000 bonus to Redd
c. 40,000 bonus to Grey
d. 40,000 bonus to Redd

PROB. 1-10 (ARP)

A, B and C decided to form ABC Partnership. It was agreed that A will contribute an
equipment with assessed value of P100,000 with historical cost of P800,000 and
accumulated depreciation of P600,000. B will contribute a land and building with book value
of P1,200,000 and fair market value of P1,500,000. The land and building is subject to a
mortgage payable amounting to P300,000 to be assumed by the partnership.

The partners agreed that B will have 60% capital interest in the partnership. They agreed
that C will contribute sufficient cash to the partnership. A day after the partnership formation,
the equipment was sold for P 300,000.
A. What is the total agreed capitalization of the ABC Partnership?
a. 1,500,000
b. 2,000,000
c. 2,500,000
d. 3,000,000

B. What is the capital credit of A in the ABC Partnership after the formation?
a. 100,000
b. 200,000
c. 300,000
d. 400,000

C. What is the capital credit of B in the ABC Partnership after the formation?
a. 900,000
b. 1,500,000
c. 1,400,000
d. 1,200,000

D. What is the cash to be contributed by C in the ABC Partnership?

a. 500,000
b. 600,000
c. 700,000
d. 800,000

PROB. 1-11 (AICPA)

A partnership has the following accounting amounts:
Sales P 700,000
Cost of goods sold 400,000
Operating expenses 100,000
Salary allocations to partners 130,000
Interest paid to banks 20,000
Partners' drawings 80,000

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 What is the partnership net income (loss)?
a. 200,000
b. 180,000
c. 50,000
d. (30,000)

PROB. 1-12 (Adapted)

Partners A and B share profits and losses equally after each has been credited in all
circumstances with annual salary allowances of P30,000 and P24,000, respectively. Based
on this agreement, in which of the following circumstances will Partner A benefit by P6,000
more than Partner B?
a. Only if the partnership has net income of P54,000 or more for the year.
b. Only if the partnership does not incur a loss for the year.
c. In all earnings or loss situation.
d. Only if the partnership has earnings of at least P6,000 for the year.

PROB. 1-13 (AICPA)

The ABC Partnership reports net income of P60,000. If Partners A, B, and C have income
ratio of 50%, 30%, and 20%, respectively. What is the share of Partner C from the net
income of the partnership, if he was given a capital ratio of 25%?
a. 30,000
b. 12,000
c. 18,000
d. 15,000

PROB. 1-14 (Adapted)

On January 2, 2020, Abel, Cain, and Josuah formed a partnership. Abel contributed cash of
P100,000 and a delivery equipment that originally costs him P120,000, but with a second
hand value of P50,000. Cain contributed P160,000 in cash. Josuah, whose family sells office
equipment, contributed P50,000 in cash and office equipment that cost his family's
dealership P100,000 but with a regular selling price of P120,000. In 2020, the partnership
reported net income of P120,000. On December 31, 2020, what would be the capital
balance of the partners?
Abel Cain Josuah
a. 257,500 200,000 192,500
b. 190,000 200,000 210,000
c. 260,000 200,000 190,000
d. 187,500 200,000 212,500

PROB. 1-15 (AICPA)

The partnership agreement of Reid and Simm provides that interest at 10% per year is to be
credited to each partner on the basis of weighted-average capital . balances. A summary of
Simm's capital account for the year-ended December 31, 2020, is as follows:
Balance, January 1 P 140,000
Additional investment, July 1 40,000
Withdrawal, August 1 (15,000)
Balance, December 31 165,000

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 What amount of interest should be credited to Simm's capital account for 2020?
a. 15,250
b. 15,375
c. 16,500
d. 17,250

PROB. 1-16 (AICPA)

Partner Ae first contributed P50,000 of capital into existing partnership on March 1, 2020. On
June 1, 2020, said partner contributed another P20,000. On September 1, 2020, he
withdrew P15,000 from the partnership. Withdrawal in excess of P10,000 are charged to the
partner's capital accounts. What is the annual weighted average capital balance of Partner
Ae?
a. 32,500
b. 51,667
c. 60,000
d. 48,333

PROB. 1-17 (RPCPA)

In the calendar year 2020, the partnership of A and B realized a net profit of P240,000. The
capital accounts of the partners show the following postings:

A, capital B, capital
Debit Credit Debit Credit
Jan. 1 P120,000 P80,000
May 1 P20,000 P10,000
July 1 20,000
Aug.1 10,000
Oct. 1 10,000 5,000

A. If the profits are to be divided based on average capital, the share of A and B,
respectively are:
a. 129,600 110,400
b. 144,000 96,000
c. 136,800 103,200
d. 136,543 103,457

B. If 20% interest based on the capital at the end of the year is allowed and given and the
balance of the P240,000 profit is divided equally, the total share of A and B, respectively are:
a. 121,500 118,500
b. 124,000 116,000
c. 123,000 117,000
d. 122,625 117,375

PROB. 1-18 (AICPA)

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 During 2020, Young and Zinc maintained average capital balances in their partnership of
P160,000 and P100,000, respectively. The partners receive 10% interest on average capital
balances, and residual profit or loss,is divided equally. Partnership profit before interest was
P4,000. By what amount should Zinc's capital account change for the year?
a. 1,000 decrease
b. 2,000 increase
c. 11,000 decrease
d. 12,000 increase

PROB. 1-19 (AICPA)

Red and White formed a partnership in 2020. The partnership agreement provides for
annual salary allowances of P55,000 for Red and P45,000 for White. The partners share
profits equally and losses in a 60/40 ratio. The partnership had earnings of P80,000 for 2020
before any allowance to partners. What amount of these earnings should be credited to each
partner's capital account?
Red White
a. 40,000 40,000
b. 43,000 37,000
c. 44,000 36,000
d. 45,000 35,000

PROB. 1-20 (AICPA)

Fox, Greg, and Howe are partners with average capital balances during 2020 of P120,000,
P60,000, and P40,000, respectively. Partners receive 10% interest on their average capital
balances. After deducting salaries of P30,000 to Fox and P20,000 to Howe, the residual
profit and loss is divided equally. In 2020, the partnership sustained a P33,000 loss before
interest and salaries to partners. By what amount should Fox's capital account change?
a. 7,000 increase
b. 11,000 decrease
c.35,000 decrease
d. 42,000 increase

PROB. 1-21 (Adapted)

If a partnership has net income of P44,000 and Partner X is to be allocated bonus of 10% of
income after the bonus. What is the amount of bonus Partner X will receive?.
a. 3,000
b. 3,300
c. 4,000
d. 4,400

PROB. 1-22 (AICPA)

The partnership agreement of Donn, Eddy, and Farr provides for annual distribution of profit
and loss in the following sequence:
● Donn, the managing partner, receives a bonus of 10% of profit.
● Each partner receives 6% interest on average capital investment.
● Residual profit or loss is divided equally.

Average capital investments for 2020 were:

Donn P80,000
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 Eddy 50,000
Farr 30,000

What portion of the P100,000 partnership profit for 2020 should be allocated to Farr?
a. 28,600
b. 29,800
c. 35,133
d. 41,600

PROB. 1-23 (Adapted)

The Articles of Partnership of Adam and Eve the following provisions were stipulated:
A. Annual salary of P60,000 each.
B. Bonus to Adam of 20% of the net income after partners' salaries, the bonus being
treated as
an expense.
C. Balance to be divided equally.

The partnership reported a net income of P360,000 after partners' salaries but before
bonus. How much is the share of Eve in the profit?
a. 60,000
b. 90,000
c. 150,000
d. 210,000

PROB. 1-24 (Adapted)

Partners AA and BB have profit and loss agreement with the following provisions: salaries of
P30,000 and P45,000 for AA and BB, respectively; a bonus to AA of 10% of net income after
salaries and bonus; and interest of 10% on average capital balances of P20,000 and
P35,000 for AA and BB, respectively. One-third of any remaining profits will be allocated to
AA and the balance to BB. If the partnership had net income of P102,500, how much should
be allocated to Partner AA?
a. 44,250
b. 47,500
c. 41,000
d. 41,167

PROB. 1-25 (Adapted)

Partners AA and BB have profit and loss agreement with the following provisions: salaries of
P30,000 and P45,000 for AA and BB, respectively; a bonus to AA of 10% of net income
after salaries and bonus; and interest of 10% on average capital balances of P20,000 and
P35,000 for AA and BB, respectively. One-third of any remaining profits will be allocated to
AA and the balance to BB. If the partnership had net income of P22,000, how much
shouldbe allocated to Partner AA, assuming that the provisions of the profit and loss
agreement are ranked by order of priority starting with salaries?
a. 13,200
b. 12.500
c. 12,000
d. 8,800

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PROB. 1-26 (Adapted)
Luz, Vi, and Minda are partners when the partnership earned a profit of P30,000. Their
agreement provides the following regarding the allocation of profits and losses:

A. 8% interest on partners' ending capital in excess of P75,000.

B. Salaries of P20,000 for Luz and P30,000 for Vi.
C. Any balance is to be distributed 2:1:1 for Luz, Vi, and Minda, respectively.

Assume ending capital balances of P60,000, P80,000, and P100,000 for partners Luz, Vi,
and Minda, respectively. What is the amount of profit allocated for Minda, if each provision of
the profit and loss agreement is satisfied to whatever extent possible using the priority order
shown above?
a . (3,600)
b. 3,600
c . (2,000)
d. 2,000

PROB. 1-27 (Adapted)

XYZ Partnership provided for the following in their distribution of profits and losses:

First: X to receive 10% of net income up to P100,000 and 20% of the amount in excess
thereof.
Then: Y and Z are each to receive 5% of the remaining income in excess of P150,000 after
X's share. Finally: The balance is to be distributed equally to the three partners.

If the partnership earned a net income of P250,000, what is the total share of Partner X?
a. 100,000
b. 108,000
c. 110,000
d. 130,000

PROB. 1-28 (Adapted)

On October 31, 2020, Zita and Jones formed a partnership by investing cash of P300,000
and P200,000, respectively. The partners agreed to receive an annual salary allowance of
P360,000, and to give Zita a bonus of 20% of the net income after partners' salaries, the
bonus being treated as an expense.

If the profits after salaries and bonus are to be divided equally, and the profits on December
31, 2020 after partners' salaries but before bonus of Zita is P360,000, how much is the share
of Zita in the profit?
a. 100,000
b. 120,000
c. 210,000
d. 270,000

PROB. 1-29 (AICPA)

Maxwell is trying to decide whether to accept a salary of P40,000 or salary of P25,000 plus a
bonus of 10% of net income after salaries and bonus as a means of allocating profit among

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 partners. Salaries traceable to the other partners are estimated to be P100,000. What
amount of income would be necessary so that Maxwell would consider choices to be equal?
a. 165,000
b. 290,000
c. 265,000
d. 305,000

PROB. 1-30 (AICPA)

Partnership A has an existing capital of P70,000. Two partners currently own the partnership
and split profits 50/50. A new partner is to be admitted and will contribute net assets with a
fair value of P90,000. For no bonus to be recognized, what is the interest in the partnership
granted the new partner?
a. 33.33%
b . 50.00%
c. 56.25%
d. 75.00%

PROB. 1-31 (AICPA)

Ranken purchases 50% of Lark's capital interest in the K and L partnership for P22,000. If
the capital balances of Kim and Lark are P40,000 and P30,000, respectively, Ranken's
capital balance following the purchase is
a. 22,000
b. 35.000
c. 20,000
d. 15,000

PROB. 1-32 (Adapted)

The following information pertains to ABC Partnership of Amor, Bing, and Cora:
Amor, capital (20%) P 200,000
Bing, capital (30%) 200,000
Cora, capital (50%) 300,000
On this date, the partners agreed to admit Dolly into the partnership. Assuming Dolly
purchased fifty percent of the partners' capital and pays P500,000 to the old partners, how
would this amount be distributed to them?
a. 100,000 150,000 250,000
b. 130,000 145,000 225,000
c. 166,667 166,667 166,666
d. 150,000 150,000 200,000

PROB. 1-33 (Adapted)

The capital balances in DEA Partnership are: D, capital P60,000; E, capital P50,000; and A,
capital P40,000 and income ratios are: 5:3:2, respectively. The DEAR Partnership is formed
by admitting R to the firm with cash investment of. P60,000 for a 25% interest in capital.
What is the amount of bonus to be credited to A capital in admitting R?
a.10,000
b.7,500
c. 3,750
d. 1,500

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PROB. 1-34 (Adapted)
On October 31, 2020, Morris retired from the partnership of Morris, Philip, and Marl. Morris
received P55,000 representing final settlement of his interest in the amount of P50,000.
Under the bonus method,
a.P5,000 was recorded as goodwill.
b. P5,000 was recorded as expense.
c. Charged P5,000 against the capital balances of Philip and Marl.
d. P55,000 was recorded as bonus.

PROB. 1-35 (Adapted)

In May 2020, Imelda, a partner of an accounting firm, decided to withdraw when the partners'
capital balances were: Mikee, P600,000; Raul, P600,000; and Imelda, P400,000. It was
agreed that Imelda is to take the partnership's fully depreciated computer with a
second-hand value of P24,000 that cost the
partnership P36,000. If profits and losses are shared equally, what would be the capital
balances of the remaining partners after the retirement of Imelda?
Mikee Raul
a. 600,000 600,000
b. 592,000 592,000
c. 608,000 608,000
d. 612,000 612,000

PROB. 1-36 (Adapted)

Penny, Naty, and Mary are partners and share profits and losses equally. Each has a capital
balancer of P1,800,000. Naty retires from the partnership and receives P1,500,000. Taking
the partnership assets to be fairly stated, the entry to record Naty's retirement is
Debit Credit
a. Naty, capital 1,800,000
Goodwill 300,000
Cash 1,500,000
b. Naty, capital 1,800,000
Partnership assets 300,000
Cash 1,500,000
c. Naty, capital 1,500,000
Cash 1,500,000
d. Naty, capital 1,800,000
Mary, capital 150,000
Penny, capital 150,000
Cash 1,500,000

PROB. 1-37 (AICPA)

On June 30, 2020, the balance sheet for the partnership of Coll, Maduro, and Prieto,
together with their respective profit and loss ratios, were as follows:

Assets, at cost 180,000

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 Coll, loan 9,000
Coll, capital (20%) 42,000
Maduro, capital (20%) 39,000
Prieto, capital (60%) 90,000
Total 180,000 180,000

Coll decided to retire from the partnership. By mutual agreement, the assets are to be
adjusted to their fair value of P216,000 at June 30, 2020. It was agreed that the partnership
would pay Coll P61,200 cash for Coll's partnership interest, including Coll's loan which is to
be repaid in full. After Coll's retirement, what is the balance of Maduro'scapital account?
a. 36,450
b. 39,000
c. 45,450
d. 46,200

PROB. 1-38 (Adapted)

Peter, Queen, and Roy are partners with capital balances of P300,000, P300,000, and
P200,000, respectively; and sharing profits and losses equally. Roy is to retire and it is
agreed that he is to take certain office equipment with second hand value ofP50,000
andanote for his interest. The office equipment carried in the books at P65,000 but brand
new would cost P80,000. Roy's acquisition of the office equipment would result in
a. Reduction in capital of P5,000 each for Peter, Queen, and Roy.
b. Reduction in capital of P7,5000 each for Peter, Queen, and Roy.
c. Reduction in capital of P15,000 for Roy.
d. Reduction in capital of P55,000 for Roy.

PROB. 1-39 (AUTHOR)

On December 31, 2020, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of 1:6:3:

Cash P 1,000,000 Total Liabilities P 600,000

Non-current asset 2,000,000 A, capital 900,000
B, capital 800,000
C, capital 700,000

On January 1, 2021, D is admitted to the partnership by purchasing 40% of the capital

interest of B at a price of P500,000.

What is the capital balance of B after the admission of D on January 1, 2021?

a. 540,000
b. 480,000
c. 420,000
d. 300,000

PROB. 1-40 (ARP)

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 On December 31, 2020, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of 1:6:3:

Cash P 1,300,000 Total Liabilities P 300,000

Non-current asset 2,000,000 A, capital 1,400,000
B, capital 700,000
C, capital 900,000

On January 1, 2021, D is admitted to the partnership by investing P1,000,000 to the

partnership for 20% capital interest.

A. If the all the assets of the existing partnership are properly valued, what is the capital
balance of C after the admission of D?
a. 960,000
b. 900,000
c. 840,000
d.1,200,000

If an existing asset of ABC partnership is not properly valued, what is the capital balance of
B after the admission of D?
a. 820,000
b. 1,300,000
c. 960,000
d . 780,000

PROB. 1-41 (ARP)

On December 31, 2020, ABC Partnership's Statement of Financial Positions shows that A, B
and C have capital balances of P500,000, P300,000 and P200,000 with profit or loss ratio of
1:3:6. On January 1, 2019, C retired from the partnership and received P350,000. At the
time of C's retirement, an asset of the partnership is undervalued. What is the capital
balance of A after the retirement of C?
a. 462,500
b. 537,500
c. 562,500
d. 525,000

ROB. 1-42 (AICPA)

The following condensed balance sheet is presented for the partnership of Alfa and Beda,
who share profits and losses in the ratio of 60:40, respectively:

Cash 45,000
Other assets 625,000
Beda, loan 30,000
700,000

Accounts payable 120,000

Alfa, capital 348,000
Beda, capital 232,000
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 700,000

A. The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to
admit
Capp as a new partner with a 20% interest. No bonus is to be recorded. What amount
should Capp
contribute in cash or other assets?
a. 110,000
b. 116,000
c. 140,000
d. 145,000

B. Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If
the other
assets are sold for P500,000, what amount of the available cash should be distributed to
Alfa?
a. 255,000
b. 273,000
c. 327,000
d. 348,000

PROB. 1-43 (AICPA)

Cohen, Butler, and Davis are partners in a partnership and share profits and losses 50%,
30%, and 20%, respectively. The partners have agreed to liquidate the partnership and
anticipate that liquidation expenses will total P14,000. Prior to the liquidation, the partnership
balance sheet reflects the following book values:

Cash 21,000
Non-cash assets 248,000
Notes payable to Davis 32,000
Other liabilities 154,000
Cohen, capital 60,000
Butler, capital (deficit) (10,000)
Davis, capital 33,000

Assuming that the actual liquidation expenses are P14,000 and that non-cash assets are
sold for P218,000, how would the assets be distributed to partners if Butler has net personal
assets of P8,500?
Cohen Butler Davis
a. 15,500 - -
b. 21,429 - 49,571
c. 30,650 - 53,260
d. 27,500 - 52,000

PROB. 1-44 (AICPA)

The following condensed balance sheet is presented for the partnership of Axel, Barr, and
Cain, who share profits and losses in the ratio of 4:3:3, respectively:
Cash P100,000
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 Other assets 300,000
Total P400,000

Liabilities P150,000
Axel, capital 40,000
Barr, capital 180,000
Cain, capital 30,000
Total P400,000

The partners agreed to dissolve the partnership after selling the other asset for P200,000.
Upon dissolution of the partnership, Axel should have received
a. 0
b. 40,000
c. 60,000
d. 70,000

PROB. 1-45 (Adapted)

Because of very unprofitable operations, partners Nal, Lou, and Gee decided to dissolve the
partnership when their capital balances and profit and loss ratio were:

Nal, capital (30%) P175,000

Lou, capital (20%) 125,000
Gee, capital (50%) 175,000
Total P475,000
Upon liquidation, all of the partnership's assets are sold and sufficient cash is realized to
pay all liabilities except one for P25,000. Gee is personally insolvent, but the others are
capable of meeting any indebtedness of the firm. By what amount would the capital of Nal
change?
a. 7,500 decrease
b. 150,000 decrease
c. 195,000 decrease
d. No change

PROB. 1-46 (Adapted)

Sammy and Michael are partners of SM Partnership sharing profits and losses equally. They
decided to terminate the partnership when their capital balances are: Sammy, P750,000;
Michael, P500,000. At this time, the partnership owes Michael P200,000, as evidenced by a
promissory note. Upon liquidation, cash of P300,000 becomes available for distribution to
the partners. In the final cash distribution, what would be the respective share of Sammy and
Michael?
Sammy Michael
a. 150,000 150,000
b. 175,000 125,000
c. 200,000 100,000
d. 275,000 25,000

PROB. 1-47 (ARP)

On December 31, 2019, the Statement of Financial Position of ABC Partnership with profit or
loss ratio of 6:1:3 is presented as follows:
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 Cash P 1,000,000 Total Liabilities P 2,000,000
Receivable from A 500,000 Payable to B 1,000,000
Other non-cash asset 2,000,000 Payable to C 100,000
A, capital 700,000
B, capital (650,000)
C, capital 350,000

On January 1, 2020, the partners decided to liquidate the partnership. All partners are legally
declared to be personally insolvent. The other noncash assets were sold for P1,500,000.
Liquidation expenses amounting to P100,000 were incurred.

A. How much cash was received by B at the end of partnership liquidation?

a. 250,000
b. 150,000
c. 290,000
d. 270,000

B. How much cash was received by C at the end of partnership liquidation?

a. 270,000
b. 150,000
c. 350,000
d. 220,000

PROB. 1-48 (AICPA)

Partners Able, Baker, and Chapman, who share profit and loss equally, have the following
personal assets, personal liabilities, and partnership capital balances:

Able Baker Chapman

Personal Assets P 30,000 P 80,000 P
60,000
Personal Liabilities 25,000 50,000 72,000
Capital Balances 50,000 (32,000) 70,000

After applying the doctrine of marshalling of assets, the capital balances of Able, Baker, and
Chapman, respectively, would be
a. 50,000 (2,000) 58,000
b. 48,000 0 58,000
c. 49,000 0 57,000
d. 34,000 0 54,000

PROB. 1-49 (RPCPA)

The balance sheet of the partnership of Salve, Galo, and Norma, who share in the profits
and losses in the ratio of 5:3:2, respectively is as follows:

Assets Liabilities and Capital

Cash P30,000 Liabilities P50,000

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 Other assets 320,000 Salve, capital 80,000
Galo, capital 115,000
Norma, capital
105,000
Total P350,000 Total P350,000

The partnership is liquidated by installment. The first sale of non-cash assets with a book
value of P150,000 realizes P100,000. How should the remaining cash be distributed?
Salve Galo Norma
a. 50,000 30,000 20,000
b. 40,000 24,000 16,000
c. 0 31,000 49,000
d. 0 48,000 32,000

PROB. 1-50 (RPCPA)

Roy and Gil are partners sharing profits and losses in the ratio of 1:2, respectively. On July
1, they decided to form the R&G Corporation by transferring the assets and liabilities of the
partnership to the corporation in exchange for the latter's stock. The following is the
post-closing trial balance of the partnership.

Debit Credit
Cash P 45,000
Accounts receivable (net) 60,000
Inventory 90,000
Fixed Assets (net) 174,000
Liabilities P 60,000
Roy, capital 94,800
Gil, capital 214,200
P 369,000 P 369,000

It was agreed that adjustments be made to the following assets to be transferred to the
corporation:

Accounts receivable P 40,000

Inventory 68,000
Fixed assets 180,600
The R&G Corporation was authorized to issue P100 par preferred stock and P10 par
common stock. Ray and Gil agreed to receive for their equity in the partnership 720 shares
of the common stock each, plus even multiples of 10 shares of preferred stock for their
remaining interests.
A. The total number of shares of preferred and common stocks issued by the corporation in
exchange for the assets and liabilities of the partnership are:
Preferred Common
a. 2,540 shares 1,500 shares
b. 2,592 shares 1,440 shares
c. 2,642 shares 1.440 shares
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 d. 2,642 shares 1,550 shares

B. The distribution of the stocks to Roy and Gil would be:

Roy Gil
Preferred Common Preferred Common
a. 785 shares 720 shares 1,384 shares 720 shares
b. 773 shares 750 shares 1,843 shares 750 shares
c. 758 shares 720 shares 1,834 shares 720 shares
d. 738 shares 720 shares 1,758 shares 720 shares

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 “'For I know the plans I have for you,' declares the Lord, 'plans to prosper you and not to
harm you, plans to give you a hope and a future. '” — Jeremiah 29:11.

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