ADVACC ENHANCEMENT COURSE (2022)

Problem Set

PROBLEMS:

1. On September 30, 2015, Marf admits Rovelyn for an interest in his partnership. On this date, Marf’s capital account
shows a balance of P158,400. The following were agreed upon before the formation of the partnership:

a. Prepaid expenses of P17,500 and accrued expenses of P5,000 are to be recognized in the books of Marf.
b. 5% of the outstanding accounts receivable of Marf amounting to P100,000 is to be recognized as
uncollectible.
c. Rovelyn is to be credited with a one-third interest in the partnership and is to invest cash aside from the
P50,000 worth of merchandise that she has.

Compute for the (1) amount of assets to be contributed by Rovelyn and the (2) total capital of the partnership
upon formation:

A. P32,950; P215,900 C. P82,950; P215,900

B. P82,950; P248,850 D. P32,950; P248,850

2. After weeks of negotiating, Celine and Andrea formed a partnership by contributing the net assets of their separate
businesses. Immediately before the partnership is formed, Celine’s business has an equity of P245,800, while
Andrea showed a capital balance of P307,250 in her separate business. Accordingly, the assets of Celine is twice
as much as the liabilities of Andrea, while Andrea’s liabilities is 1/3 of her total assets. It was agreed that before
any contributions are made, the total assets of Celine should be increased by 10%, while the total liabilities of
Andrea should be decreased by 20%. If Andrea’s contribution to the partnership is equal to her capital credit,
what is the amount of extra/(excess) assets should Celine invest/(withdraw) from the partnership so that their
interests in the partnership are equal?

A. P(122,900) B. P122,900 C. P(61,450) D. P61,450

3. Arnie, Abdel and Freddie are forming a partnership. Cash contributions amounting to P180,000, P300,000 and
P150,000 are contributed by each partner, respectively. If the partners agree to establish equal capital account
balances when the partnership is formed, which of the following is most likely correct?

A. Freddie will receive P60,000 from Arnie and Abdel.

B. Abdel will receive P90,000 from Arnie and Freddie.
C. Arnie will pay P30,000 to Abdel and Freddie.
D. Freddie will have a capital credit of P200,000 in the partnership.

4. During 2014, Taylor and Adele created a partnership to own and operate a minimart by contributing P100,000
each. The partnership agreement provided that Taylor and Adele are to receive salaries of P100,000 and P50,000,
respectively. Remaining profits will be allocated 60:40. Partnership income for 2014 was P130,000, from which
Taylor was allocated with an amount of P88,000 and Adele with P42,000. During 2015, the partners agreed to
change their profit and loss sharing agreement. The new agreement allows Taylor a salary of P180,000. Adele will
no longer receive any salary. The remainder will be split between the partners equally. At the end of 2015, the
partnership reported an income of P250,000. However, it was discovered that a counterbalancing error was made
by the partnership’s accountant last year, resulting to the understatement of 2014’s net income by P40,000 and
the overstatement of 2015’s net income by the same amount. What should be the capital balances of Taylor and
Adele at the end of 2015 after allocating profits and after considering the error?

A. Taylor-P299,000; Adele-P81,000 C. Taylor–P407,000; Adele–P173,000

B. Taylor–P307,000; Adele–P73,000 D. Taylor-P399,000; Adele-P181,000

5. Marwell, partner to a firm, is trying to decide whether to accept a salary of P60,000 or a salary of P25,000 plus a
bonus of 20% of net income after salaries and bonus as a means of allocating profit to him. What amount of
income would Marwell be indifferent between the two alternatives?

A. P35,000 B. P115,000 C. P175,000 D. P235,000

6. Geo, Glenn and Kelvin has the following profit and loss sharing arrangement:

- Salaries of P30,000, P24,000 and P18,000 are to be allowed to the partners.

- Interest at 10% of average capital shall be given to each partner.
- The remainder shall be divided 50:30:20 among the partners, respectively.

The beginning capital balances of Geo, Glenn and Kelvin are P100,000, P150,000 and P200,000, respectively. The
following changes in capital balances occurred during the year:
a. March 31 - Geo invested an additional 50,000 into the partnership.
b. July 1 - Glenn invested P30,000 into the partnership.
 c. September 30 - Kelvin withdrew 80,000 from the partnership.

At the end of the year, Glenn was allocated a total of P75,000 as his share in the partnership income. What is the
share of Kelvin in the net income?

A. P23,000 B. P55,000 C. P41,000 D. P67,000

7. The partnership of William, Jennings and Bryan have the following profit and loss ratios and capital balances on
January 1, 2015.
Capital balance
William (40% share in profits and losses) P220,000
Jennings (40%) 160,000
Bryan (20%) 110,000

On that date, Darrow was admitted into the partnership. Darrow was given a 30% ownership interest in the
partnership by paying P50,000 to each partner. All of the assets of the partnership are fairly valued.

Which of the following is correct?

A. Jennings will have a capital balance of P112,000 after Darrow’s admission.

B. William’s capital increased by P58,800 after the admission of Darrow.
C. Darrow’s capital is credited by an amount that is P14,200 lower than the capital balance of William after
Darrow’s admission.
D. The partnership’s equity after the admission of Darrow is P640,000.

8. Megan, Emma and Jennifer are partners with capital balances of P784,000, P2,730,000 and P1,190,000
respectively, sharing profits and losses in the ratio of 3:2:1. Cara is admitted as a new partner. Accordingly, she
is to invest cash for a 25% interest in the partnership. A bonus totaling P735,000 was given by the existing
partners to Cara.

How much cash was contributed by Cara?

A. P441,000 B. P1,078,000 C. P833,000 D. P588,000

9. On December 31, 2015, the adjusted trial balance of Shoe Co. has the following balances: Total assets of
P2,250,000; Nike, capital P643,750; Adidas, capital P481,250; and Vans, capital P1,125,000. The partners share
profits and losses in the ratio of 1:1:2, respectively. It was agreed among the partners that Nike retires from the
partnership. The partnership assets are to be adjusted to their fair value of P2,550,000 as of December 31, 2015
before the capital balance of Nike is closed. The partnership also suffered a net loss of P750,000 for the current
year. The partnership paid Nike the amount of P542,500 cash for his total interest in the partnership.

What is the total capital of Adidas after the retirement of Nike?

A. P372,500 B. P368,750 C. P365,000 D. P497,500

10. On December 31, 2015, the statement of financial position of the partnership of Brenda, Melanie and Lace is
summarized below:

Cash P150,000 Liabilities P150,000

Noncash assets 600,000 Brenda, capital 120,000
Melanie, capital 230,000
________ Lace, capital 250,000
TOTAL ASSETS P750,000 TOTAL LIABILITIES & EQUITY P750,000

The partners share profits and losses using a 20:30:50 ratio, respectively. Melanie is retiring from the
partnership. They further agree that Melanie will receive P244,000 cash for his partnership interest. After the
retirement of Melanie, Brenda and Lace agreed to adjust their capital balances in proportion to their remaining
profit and loss ratio. The partnership reported a profit amounting to P100,000 for the current year. What is the
capital balance of Brenda and Lace after the retirement of Melanie?

A. Brenda-P116,000; Lace-P240,000 C. Brenda-P130,286; Lace-P325,714

B. Brenda-P144,571; Lace-P311,429 D. Brenda-P101,714; Lace-P254,286

11. The balance sheet of Chocolates Partnership on January 1, 2016 when it decided to liquidate is presented below:

ASSETS LIABILITIES AND EQUITY

Cash P40,000 Liabilities P60,000

Other assets 125,000 Kitkat, capital (50%) 45,000
Receivable from Goya 2,000 Cadbury, capital (30%) 42,000
 ________ Goya, capital (20%) __20,000
TOTAL P167,000 TOTAL P167,000

Other assets with a book value of P90,000 are sold for P50,000. Cash withheld for anticipated expenses amounts
to P10,000. On the first installment payment of cash to the partners:

A. Goya should receive P3,000

B. Cadbury should receive P16,500
C. Kitkat will invest P2,500
D. P30,000 cash will be distributed

12. On December 31, 2014, the accounting records of Universe Partnership included the following capital account
balances:

Ms. Philippines - P198,000 ; Ms. Colombia - P261,000 ; Ms. USA - P190,000

Total assets of the partnership amounted to P975,000, including 105,000 cash. Liabilities include a loan payable to
Ms. USA amounting to P8,000. The partnership was liquidated on a lump-sum basis, and Ms. USA received
P166,500 cash at the end of the liquidation. The partners shared income and losses in a 5:3:2 ratio, respectively.

How much cash was received by Ms. Colombia at the end of the liquidation?

A. P213,750 B. P225,750 C. P237,750 D. P213,000

13. James, Bryant and Jordan have capital balances of P40,000, P50,000 and P18,000 and a profit sharing ratio of
5:3:2, respectively. If James received P8,000 as settlement of his interest upon liquidation, what is the total
amount received by all the partners?

A. P64,000 B. P44,000 C. P32,000 D. P52,000

14. After a series of internal conflicts and mismanagement, Tito, Vic and Joey decided to liquidate their partnership.
Their total interests, along with their profit and loss sharing percentage, as of January 1, 2016 are as follows:

Tito (25%) P750,000 Vic (40%) P900,000 Joey (35%) P560,000

The partnership’s total assets on this date is composed of P250,000 cash and noncash assets of a certain amount.
Total liabilities amount to P640,000 which pertains to debts to outside creditors. At the end of the liquidation,
Vic received P150,000 as settlement of his interest.

What was the amount of cash received in the sale of the noncash assets?

A. P725,000 B. P625,000 C. P811,250 D. P821,250

15. Quinito, Quirino and Quixote, partners, share profits in the ratio of 4:2:1 and they have capital balances of P11,200,
P13,000 and P5,800, respectively. Prepare a cash distribution program showing how available cash will be
distributed as it becomes available. If P2,000 cash is available for distribution to the partners, which of the
following statements is CORRECT?

A. Quirino will receive P1,400 and Quixote will receive P600.

B. Quirino will receive P2,000.
C. Quirino will receive P1,800 and Quixote will receive P200.
D. The partners will receive P1,142, P571 and P287, respectively.

16. Bach, Liza and Strauss, sharing profits and losses 4:4:2, decided to liquidate their partnership. Just prior to
liquidation, the partnership’s condensed balance sheet was as follows:

ASSETS LIABILITIES AND EQUITY

Cash P100,000 Liabilities P140,000

Other assets 400,000 Bach, capital 55,000
Liza, capital 105,000
________ Strayss, capital _200,000
TOTAL P500,000 TOTAL P500,000

The other assets were sold for P247,500. The partners are personally solvent and agreed to make additional cash
contributions to answer for any capital deficiency.

Identify the deficient partner, and indicate his additional cash contribution to finally liquidate the partnership.
 A. Bach, P6,000 C. Liza, P28,750
B. Bach, P8,000 D. Strauss, 6,000

17. On October 31, 1955, Ivy, Irma and Irene who share earnings 5:3:2, respectively, decided to liquidate their
partnership. The balance sheet at that time is as follows:

ASSETS LIABILITIES AND EQUITY

Cash P50,000 Liabilities P60,000

Other assets 250,000 Ivy, capital 80,000
Irma, capital 90,000
________ Irene, capital _ 70,000
TOTAL P300,000 TOTAL P300,000

If the first cash sale of assets booked at P150,000 resulted to a loss of P30,000, the amount to be distributed to
Irene would be:

A. P15,000 B. P44,000 C. P51,000 D. P64,000

18. Dan, Ely and Fil decided to liquidate their partnership on May 31, 1977. On this date, their capital balances and
profit-sharing ratio were as follows:

Dan (40%) P50,000 Ely (30%) P60,000 Fil (30%) P20,000

The net income from January 1 to May 31 was P44,000. On May 31, the partnership’s cash and liabilities were
P40,000 and P90,000, respectively. For Dan to receive P55,200 in full settlement of his interest in the partnership,
how much must be realized from the sale of the partnership’s non cash assets?

A. P177,000 B. P187,000 C. P190,000 D. P193,000

19. Alpha, Beta and Charlie decided to liquidate their partnership after continuous losses. The capital balances of the
partners just prior to liquidation are P90,000, P150,000 and P54,000, respectively. Their profit and loss sharing
ratio is 4:2:1. At the end of the liquidation, Beta received P78,000.

What is the total loss on realization of assets throughout the liquidation?

A. P306,000 B. P252,000 C. P198,000 D. P216,000

20. On January 1, 2015, partners Someguy and Somegirl of XH305 Patnership decided to liquidate their scandalous
business. They share profits in the ratio of 3:1. As of this date, the following information has been determined:

Cash Other assets Liabilities Someguy, Capital Somegirl, Capital

80,000 1,920,000 200,000 1,000,000 800,000

In the first month of liquidation, P720,000 was received on the sale of certain assets. Liquidation expenses of
P20,000 were paid, and additional liquidation expenses of P8,000 are anticipated before liquidation is
completed. Creditors were paid P112,000. Available cash was distributed to the partners.

How much did Somegirl receive from the partial settlement of her interest in the partnership?

A. P79,000 B. P493,000 C. P484,300 D. P510,400

21. GYARADOS Inc. acquired 60% of the voting stock of MAGIKARP Inc. for P1,560,000 cash. The shareholders’ equity
of the acquiree on the acquisition date is P2,000,000. Land and bonds payable were undervalued by P1,000,000
and P300,000, respectively. How much is the goodwill (bargain purchase gain) to be reported in the consolidated
statement of financial position?

A. (P360,000) B. (P60,000) C. P600,000 D. (P100,000)

22. On January 1, 2015, Cerezo Corporation purchased 80% of Cziarra Company’s common stock for P1,296,000.
P60,000 of the excess is attributable to goodwill and the balance to a depreciable asset with an economic life of ten
years. Non-controlling interest is measured at its fair value on the date of acquisition. On the date of acquisition,
stockholders’ equity of the two companies are as follows:

Cerezo Corporation Cziarra Company

Common stock P2,000,000 P480,000
Retained earnings 2,780,000 840,000
 On December 31, 2015, Cziarra Company reported net income of P210,000 and paid dividends of P40,000. Cerezo
Corporation reported income of P602,000 and paid dividends of P200,000. Goodwill has been impaired by
P48,000 on December 31, 2015.

What is the consolidated net income on December 31, 2015?

A. P714,000 B. P708,000 C. P676,000 D. P682,000

23. On January 1, 2016, Sheep Co. acquired 75% interest in Lamb Co. for P600,000. At this time, Lamb's net
identifiable assets have a carrying amount of P720,000 which approximates fair value. NCI was assigned a fair
value of P220,000. There were no inter-company transactions during the year. Goodwill on acquisition of Lamb has
been tested and found to be impaired by P32,000 for the current year. Sheep's separate financial statements
reported profit of P866,000 for the year ended December 31, 2016. Profit attributable to NCI was appropriately
determined to be P167,000. How much is the profit of Lamb for the year ended December 31, 2016?
A. 719,200 B. 449,500 C. 700,000 D. 631,500

24. Carballo Corporation purchased 70% of Mel Company’s outstanding stock on January 1, 2014 for P231,000 cash.
Non-controlling interest is measured at fair value. At that date, Mel Company has total shareholders’ equity of
P280,000. No goodwill or bargain purchase gain was recognized. The excess is allocated to a depreciable asset with
a remaining life of 10 years. Non-controlling interest is measured at its estimated fair value. For 2014, no dividends
were declared by both the parent and the subsidiary. NCINIS for 2014 was P21,000. At the beginning of 2015, the
companies reported the following in their separate books books:
Retained earnings, beg. 1/1/15
Carballo Corporation P520,000
Mel Company 230,000
What is the consolidated retained earnings reported on December 31, 2014?
A. P569,000 B. P550,000 C. P590,000 D. P572,500

25. On January 1, 2014, Alejandro Inc. acquired 70% of the voting common stock of Marko Comp. at underlying book
value. No goodwill or bargain purchase gain was recognized. Intercompany sales for 2014 and 2015 are
summarized as follows:
Cost__ Sales Price Sold to unrelated parties
Intercompany sales – 2014 P125,000 P195,000 60%
Intercompany sales – 2015 87,500 137,500 50%

During 2015, the two companies reported the following amounts in their separate books:
Alejandro Inc. Marko Comp.
Sales P350,000 P200,000
Cost of goods sold 200,000 100,000
Operating expenses 60,000 50,000
Separate income 90,000 50,000

The consolidated income statement for 2015 will show cost of goods sold of:
A. P159,500 B. P145,500 C. P165,500 D. P297,000

26. Using the same information in item 5 and assuming that the intercompany sales for 2014 and 2015 are
downstream sales, what would be the consolidated net income attributable to parent shareholders for 2015?
A. P125,000 B. P128,000 C. P122,000 D. P127,100

27. On January 1, 2014, Zabala Company purchased 70% of the stocks of Jillian Inc. at book value. On May 1, 2014,
Zabala Co. acquired a used machinery for P337,500 from Jillian Inc. that was carried in the latter’s books at
P270,000. The machinery has a remaining life of 6 years. On October 1, 2015, Jillian Inc. purchased an equipment
that was already 30% depreciated from Zabala Company for P570,000. The original cost of this equipment was
P900,000 and had a remaining life of 5 years. Results of operations for the year 2015 are:
Zabala Co. Jillian Inc.
Net income P945,000 P165,000
Dividends paid 345,000 -
On the consolidated income statement in 2015, what is the consolidated net income attributable to parent
stockholders?
A. P1,075,500 B. P1,131,375 C. P1,178,250 D. P1,125,375

28. Galaxy Corporation acquired 80% of the outstanding shares of United Company on June 1, 2016 for P3,517,500.
The shareholders’ equity of the two companies as of that date is as follows:

Galaxy United___
Ordinary shares (P100 par) P4,500,000 P1,500,000
Share premium 1,050,000 675,000
 Retained earnings 3,150,000 1,335,000
The fair value of the non-controlling interest on that date is P705,000. The assets of United Company were fairly
valued, except for inventories which are overvalued by P66,000 and equipment which was undervalued by
P90,000. The remaining useful life of the equipment is 4 years from the date control was obtained. Goodwill if any
should be written down by P85,350 at year end. During the year, there was no issuance of new ordinary sahres.
Net income amounts and dividends declared at paid at the end of 2016 are as follows:

Galaxy United__
Net income P450,000 P255,000
Dividends 120,000 90,000

Consolidated shareholders’ equity at the end of 2016 is:

A. P9,869,325 B. P9,853,575 C. P8,773,575 D. P9,867,525

29. Techno Corporation owns 75% of the voting shares of Duo Inc since 2010. Last January 1, 2014, Duo Inc. sold an
equipment with a book value of P720,000 for P1,170,000 to Techno Corporation. At the time of the intercompany
sale, the equipment had a remaining life of five years. Techno Corporation used the equipment until December 31,
2016, at which time it was sold to an unrelated party for P648,000. During 2016, Techno Corporation and Duo Inc.
reported net incomes of P3,240,000 and P1,800,000, respectively. The income figure for Techno Corporation
included the gain on sale from its sale to the unrelated party. What is the amount of net income attributable to non-
controlling interests for 2016?
A. P517,500 B. P472,500 C. P450,000 D. P562,500

30. Dumpit Company purchased 100% of Keith Company on October 1, 2015. On that date, the subsidiary had
inventory with a book value (BV) of P42,000 and a fair market value (FMV) of P52,000. The subsidiary also had a
building with a BV of P200,000 and a FMV of P290,000. The subsidiary also had equipment with a BV of P350,000
and a FMV of P280,000. The building had a 10-year remaining useful life and the equipment had a 5-year
remaining useful life. What is the net adjustment to depreciation expense related to differences in acquisition-
date fair values and book values that will be reflected in the consolidated net income for the year ended December
31, 2016?
A. P1,250 B. P8,750 C. P5,000 D. P58,750

THEORIES

1. IFRS 3 (Business Combinations) does not apply to the following items, except:
A. The combination of entities or businesses under common control.
B. The accounting for the formation of a joint arrangement in the financial statements of the joint arrangement.
C. The acquisition of an asset or a group of assets that does not constitute a business.
D. None of the above.

2. According to IFRS 3, an entity shall account for each business combination by applying the acquisition method.
Applying the acquisition method requires:
A. Identifying the acquirer, which is usually the combining entity whose relative size is significantly lesser than
that of the other combining entity or entities.
B. Determining the acquisition date, which is the date control is obtained over the acquirer.
C. Recognizing and measuring the identifiable assets acquired, liabilities assumed, and any non-controlling
interest in the acquiree.
D. Recognizing and measuring goodwill or gain from bargain purchase in the books of the acquiree or the
acquirer, as the case may be.

3. A business combination may be structured in a variety of ways, which includes the following, except:
A. One or more businesses become associates of an acquirer or the net assets of one or more businesses are
legally merged into the acquirer.
B. A group of former owners of one of the combining entities obtains control of the combined entity
C. One combining entity transfers its net assets, or its owners transfer their equity interests, to another
combining entity or its owners;
D. All of the combining entities transfer their net assets, or the owners of those entities transfer their equity
interests, to a newly formed entity.

4. In measuring the goodwill or gain from bargain purchase arising from the business combination, the difference
between the cost of investment and fair value of the identifiable net assets of the acquiree is computed. The cost of
investment is the aggregate of:
I. Any consideration transferred, measured at acquisition date fair value.
II. The amount of any non-controlling interest in the acquiree measured in accordance with IFRS 3.
 III. The acquisition-date fair value of the acquirer’s previously held interest in the acquiree.
IV. Any directly attributable costs incurred during the acquisition up to the point control is obtained.
A, I and III only B. I and II only C. I, II and III only D. I, II, III and IV

5. The identifiable assets and liabilities of the acquiree may most likely include the following, except:
A. Receivables that are no longer collectible due to the bankruptcy of the customer.
B. In-process research and development costs in the books of the acquiree.
C. Fully depreciated machinery in the books of the acquiree. 4
D. A franchise acquired by the acquiree that is already nearing the end of its legal life.

6. According to IFRS 3, a business combination may be effected (I) without any consideration; (II) without a newly
formed entity.
A. I only B. II only C. Both I and II D. Neither I nor II.

7. Before recognizing a gain on bargain purchase, IFRS 3 explicitly states that:

A. The acquirer shall reassess whether it correctly identified all of the assets acquired and liabilities assumed to
ensure that the measurements appropriately reflect all available information as of the acquisition date.
B. The acquirer shall consult with the acquiree regarding the consideration being transferred to ensure that it is
equitable in the circumstances and it reflects the underlying nature of the transaction.
C. The acquirer shall defer the gain for a period of one year from the date of the acquisition by recognizing a
liability account to ensure that all fair value adjustments are accounted for.
D. IFRS 3 did not state anything about this matter.

8. Which of the following is not in accordance with IFRS 3 regarding the measurement period?
A. The measurement period shall not exceed one year from the date control is obtained.
B. The measurement period ends as soon as the acquirer receives information it was seeking about facts and
circumstances that existed as of the acquisition date or learns that more information is not obtainable, subject
to the provision stated in letter A.
C. During the measurement period, the acquirer shall prospectively adjust the provisional amounts recognized
at the acquisition date to reflect new information obtained about facts and circumstances that existed as of
the acquisition date and, if known, would have affected the measurement of the amounts as of that date.
D. All of the above are in accordance with IFRS 3.

9. The value of non-controlling interest at the date of acquisition to be included in the statement of financial position
of the parent may be valued using:
A. The explicit fair value of the non-controlling interest as determined by appraisers
B. The assumed fair value, computed by grossing up the consideration and multiplying the percentage of NCI
C. Both A and B may be correct, depending on the circumstances.
D. Neither A nor B may be correct, regardless of the circumstances.

10. When the business combination is achieved in stages (i.e. step acquisition), any previously-held interest is:
A. Included in the computation of goodwill or gain from bargain purchase.
B. Remeasured at its acquisition-date fair value; any remeasurement gain/loss is closed to the APIC account.
C. Both A and B are correct.
D. Neither A nor B is correct.

11. Which of the following decreases the total interest of a partner?

A. Loan to partner C. Share in the net income
B. Loan from partner D. Loan payable to partner

12. Which of the following has the least priority in cash settlement during liquidation?
A. Loan payable to partner C. Liabilities to liquidator
B. Capital balances D. Liabilities to suppliers

13. Which of the following is correct about the rule of offset?

A. A partner may offset a loan payable to him against capital with a credit balance.
B. A partner may offset a loan payable to him against his personal liabilities.
C. A partner may offset a receivable from him against his capital with a debit balance.
D. A partner may offset a loan payable to him against his capital with a debit balance.

14. Which of the following is NOT an assumption used when preparing the schedule of safe payment?
A. Anticipated expenses are incurred.
B. Partners are insolvent.
C. Unsold noncash assets are realized at a loss.
D. Sufficient cash is available to pay the liabilities to external creditors.
15. Which of the following is INCORRECT at the end of the liquidation process after all external liabilities are paid and
all noncash assets are sold?
A. The schedule of safe payment is prepared to facilitate the distribution of cash to the partners.
B. Cash available, if any, is equal to the total capital of the partnership.
C. Partners with debit capital balances should invest additional cash to the partnership if they are personally
solvent.
D. Cash settlement is made using the ratio of the partners’ final capital balance, assuming that no partner has a
debit capital balance.
16. Which of the following best describes the purpose of the cash priority program?
A. To compute the maximum loss absorption capacity of each partner.
B. To identify the amount of minimum proceeds from the sale of assets for all the partners to receive cash at the
end of the liquidation.
C. To know the manner of distributing cash to the partners as it is made available.
D. To eliminate any possible insolvency of a partner due to heavy losses.

17. STATEMENT I: During liquidation, gains and losses arising from the realization of assets are reported directly as
changes in the capital accounts
STATEMENT II: Loans payable to partners have higher priority than loans payable to external creditors in terms
of cash settlement during liquidation

A. Both statements are correct. C. Only Statement I is correct.

B. Both statements are false. D. Only Statement II is correct.

18. STATEMENT I: Generally, a partnership may be liquidated anytime by the partners.

STATEMENT II: Dissolution may lead to liquidation.

A. Both statements are correct. C. Only Statement I is correct.

B. Both statements are false. D. Only Statement II is correct.

19. STATEMENT I: Undistributed profits (and losses) are allocated to the partners before a partnership is liquidated
using their existing P/L ratio.
STATEMENT II: At the end of the liquidation process, all of the accounts in the partnership books have zero
balances.

A. Both statements are correct. C. Only Statement I is correct.

B. Both statements are false. D. Only Statement II is correct.

20. STATEMENT I: Partnership creditors have higher priority than personal creditors when it comes to the personal
assets of the partners.
STATEMENT II: A partnership whereby all the partners have debit capital balances is automatically liquidated.

A. Both statements are correct. C. Only Statement I is correct.

B. Both statements are false. D. Only Statement II is correct