Accounting FOR Special Transactions (p1)

Bs accountancy (BSA1)

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 ACCOUNTING FOR SPECIAL TRANSACTIONS

I. MULTIPLE CHOICE (2points each)

1. Partnership capital and drawings accounts are similar to the corporate

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.

2. 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 contributions.

3. Mike and Mario agreed to form a partnership. Mike contributed equipment with carrying
amount of ₱ 100,000 and fair value of ₱ 70,000, while Mario contributed cash of ₱200,000. The
partners agreed to have a profit sharing ratio of 2:1, respectively. The initial credits to the
partners’ capital accounts shall reflect this fact. Under the bonus method, how much is the
balance of the capital account of Mario immediately after the partnership formation?
a. 90,000 c. 200,000
b. 135,000 d. 70,000

4. On April 30, 20x1, AAA, BBB and CCC formed a partnership by combining their separate business
proprietorships. AAA contributed cash of ₱ 50,000. BBB contributed property with a ₱36,000
carrying amount, a ₱ 40,000 original cost, and ₱80,000 fair value. The partnership accepted
responsibility for the₱ 35,000 mortgage atached to the property. CCC contributed equipment
with₱a 30,000 carrying amount, ₱a 75,000 original cost, and₱55,000 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 smallest April 30, 20x1 capital account balance?
a. AAA c. CCC
b. BBB d. All capital account balances are equal

5. On January 1, 20x1, Mr. A and Ms. B agreed to form a partnership contributing their respective
assets and equities subject to adjustments. On that date, the following were provided.

Mr. A Ms. B
Cash 28,000 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

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 Accounts payable 180,000 250,000
Other liabilities 200,000 350,000
Capital 620,000 800,000

The following adjustments were agreed upon:

a. Accounts receivable of₱ 20,000 and₱40,000 are uncollectible in A’s and B’s respective books.
b. Inventories of
₱ 6,000 and₱ 7,000 are worthless in A’s and B’s respective books.
c. Intangible assets are to be writen off in both books.

How much is the adjusted capital of Mr. A?

a. 952,000 c. 750,000
b. 925,000 d. 592,000

Use the following information for the next two questions:

A, B and C formed a partnership. Their contributions are as follows:

A B C
Cash 80,000 20,000 200,000
Equipment 160,000
Totals 80,000 180,000 200,000

Additional information:
● Although C has contributed the most cash to the partnership, he did not have the full amount of
₱ 200,000 available and was forced to borrow₱80,000.
● The equipment contributed by B has an unpaid mortgage of ₱40,000, the repayment of which is
assumed by the partnership.
● The partners agreed to equalize their interest. Cash setlements among the partners are to be
made outside the partnership.

6. Which of the following statements is correct?

a. A pays C₱60,000. c. A and B pays C a total of ₱60,000.
b. A receives₱ 60,000 from C. d. A pays B₱60,000.

7. The simple journal entries to record the partners’ contributions include

a. a₱60,000 credit to A’s capital account. c. a credit to loan payable for₱80,000.
b. a debit to mortgage for₱40,000. d. a₱60,000 credit to C’s capital account.

8. Mr. Sun and Ms. Moon formed a partnership. Their contributions are as follows:

Mr. Sun Ms. Moon

Cash 400,000 -
Accounts receivable 250,000 -
Land 750,000
Equipment 180,000
Total 650,000 1,130,000

Additional information:
● Only 80% of the accounts receivable is deemed collectible.
● The land is stated at original cost. The fair value is ₱ 1,000,000. The partnership assumes a
₱ 250,000 unpaid mortgage on the land.

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● Ms. Moon acquired the equipment on a long-term financing basis. Ms. Moon promised to pay
the unpaid principal balance of ₱ 80,000 using her personal funds. The equipment is under-
depreciated by₱30,000.

How much is the initial partnership capital?

a. 1,500,000 c. 600,000
b. 900,000 d. 400,000

Use the following information for the next two questions:

A and B formed a partnership. The following are their contributions:

A B
Cash 200,000 -
Accounts receivable 150,000 -
Inventory 100,000 -
Land 500,000
Building 620,000
Total 450,000 1,120,000

Note payable 220,000

A, capital 230,000
B, capital 1,120,000
Total 450,000 1,120,000

Additional information:
● The accounts receivable has a recoverable amount of₱120,000.
● The inventory has an estimated selling price of₱ 110,000 and estimated costs to sell of₱20,000.
● The land has a fair value of₱ 500,000 an unpaid mortgage of ₱120,000. The partners agreed that
B shall setle the mortgage using his personal funds.
● The building is over-depreciated by₱30,000.
● The building also has an unpaid mortgage amounting to ₱550,000. The partners agreed that the
partnership shall assume repayment of the mortgage.
● The note payable has a fair value of₱210,000.
● A and B shall share in profits and losses 40% and 60%, respectively.

9. How much are the adjusted capital balances of A and B, respectively?

A B
a. 200,000 600,000
b. 230,000 480,000
c. 200,000 1,030,000
d. 230,000 600,000

10. Assume that a partner’s capital shall be increased accordingly by contributing additional cash to
bring the partners’ capital balances proportionate to their profit or loss ratio. Which partner
should provide additional cash and how much is the additional cash contribution?
a. Partner A should provide additional capital of ₱150,000.
b. Partner A should provide additional capital of₱200,000.
c. Partner B should withdraw capital of₱300,000.
d. Partner B should provide capital of₱300,000.

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11. Partners A and B share in profits and losses on a 70:30 ratio after salary allowances of ₱80,000
for A and ₱ 40,000 for B. The business earned profit of ₱320,000 before deduction for the
salaries. The year-end closing entries would include
a. a₱100,000 credit to A’s capital account.
b. an₱80,000 debit to A’s capital account.
c. a₱220,000 credit to B’s capital account.
d. a₱ 320,000 credit to the income summary account.

12. A and B’s partnership agreement provides the following:

● Annual salaries of
₱ 96,000 for A and₱60,000 for B.
● 10% bonus to A, based on profit after salaries and bonus.
● P/L ratio of 60:40.

The partnership earned profit of₱ 200,000 before salaries and bonus. How much was A’s share?
a. 124,000 c. 96,000
b. 112,000 d. 76,000

13. The AAA and BBB partnership agreement provides for AAA to receive a 20% bonus on profits
before the bonus. Remaining profits and losses are divided between AAA and BBB 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. AAA BBB
b. AAA AAA
c. BBB AAA
d. BBB BBB

14. A, B and C are partners, sharing in partnership profits in the ratio of 2:3:4. A, the managing
partner, is entitled to an annual salary of ₱80,000 and a 10% bonus on profit after deducting the
salary but before deducting the bonus. The partnership earned profit of ₱560,000 before salary
and bonus. How much is the share of A?
a. 214,400 c. 224,000
b. 196,000 d. 189,667

15. The partnership agreement of A, B and C stipulates the following:

● A, the managing partner, shall receive a bonus of 10% of profit.
● Each partner shall receive a 6% interest on average capital investments.
● Any remaining profit or loss shall be shared equally.

The average capital investments of the partners during the year were ₱ 80,000 for A, ₱50,000 for B,
and₱ 30,000 for C. The partnership earned profit of ₱ 100,000 during the period. How much was A’s
share?
a. 23,800 c. 29,800
b. 28,600 d. 41,600

16. A and B’s partnership agreement stipulates the following:

o Annual salary allowance of₱ 100,000 for A.
o Bonus to A of 10% of the profit after partner’s salaries and bonus.
o The partners share in profits and losses on a 60:40 ratio.

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The partnership incurred loss of ₱ 40,000 before deduction for salaries. How much is the change in
A’s capital account?
a. 56,000 decrease c. 15,000 decrease

b. 16,000 increase d. 9,000 increase

17. A&B Partnership earns profit of₱240,000 in 20x1. The movements in the capital accounts of the
partners are shown below:

A, capital B, capital
Dr. Cr. Dr. Cr.
Jan. 1 120,000 80,000
May 1 20,000 10,000
July 1 20,000
Aug. 1 10,000
Oct. 1 10,000 5,000

How much is the share of B if profits are to be divided based on average capital?
a. 103,457 c. 121,500
b. 108,333 d. 136,543

18. A and B share in partnership profits and losses on a 40:60 ratio. During the year, A’s capital
account had a net increase of ₱ 50,000. Partner A made contributions of ₱10,000 and capital
withdrawals of ₱ 60,000 during the year. How much was the share of B in the partnership profit
for the year?
a. 100,000 c. 200,000

b. 150,000 d. 180,000

19. A and B formed a partnership in 20x1. The partnership contract stipulates the following:
● ₱ 30,000 annual salary to each partner due at each year-end.
● Bonus of 10% of profit after salaries and bonus for A
● 8% interest on the partners’ weighted average capital balances.
● Any remaining profit or loss is to be divided equally.

The partnership’s ledger shows the following:

A, Capital
Date Ref. Debit Credit Balance
March 1, 20x1 001 30,000.00 30,000.00
June 1, 20x1 098 10,000.00 20,000.00
August 1, 20x1 146 20,000.00 40,000.00
December 1, 20x1 211 5,000.00 35,000.00

B, Capital
Date Ref. Debit Credit Balance
March 1, 20x1 001 20,000.00 20,000.00
June 1, 20x1 098 10,000.00 10,000.00
August 1, 20x1 146 2,000.00 8,000.00

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The partnership’s profit before salaries and bonus in 20x1 is ₱60,000. The partners agreed to receive
full annual salaries in 20x1. How much is the share of A?
a. 30,684 c. 32,772
b. 29,316 d. 28,257

20. Billy and Sheehan are partners in Bass Co. Their partnership agreement states that Billy is
entitled to an annual salary of ₱ 100,000 and a bonus of 10% of profit after salary but before
bonus. The remainder is shared in the ratio of 7:2. Sheehan’s share in partnership profit for the
year was₱ 296,000. How much was the partnership profit before Billy’s salary and bonus?
a. 1,580,000 c. 1,751,348
b. 1,672,342 d. 1,420,000

21. The partnership agreement of Axel, Berg & Cobb provides for the year-end allocation of net
income in the following order:
● First, Axel is to receive 10% of net income up to₱ 100,000 and 20% over ₱100,000.
● Second, Berg and Cobb each are to receive 5% of the remaining income over₱150,000.
● The balance of income is to be allocated equally among the three partners.

The partnership’s 2003 net income was ₱ 250,000 before any allocations to partners. What amount
should be allocated to Axel?
a. 101,000 c. 108,000
b. 103,000 d. 110,000

22. Weenchee is trying to decide whether to accept a salary of ₱ 40,000 or salary of ₱25,000 plus a
bonus of 10% of net income after salaries and bonus as a means of allocating profit among
partners. Salaries traceable to the other partners are estimated to be₱100,000. What amount of
income would be necessary so that Weenchee would consider choices to be equal?
a. 165,000 c. 265,000
b. 290,000 d. 305,000

23. Garcia and Henson formed a partnership on January 2, 2005 and agreed to share profits 90% and
10%, respectively. Garcia contributed capital of₱25,000. Henson contributed no capital but has a
specialized expertise and manages the firm full time. There were no withdrawals during the year.
The partnership agreement provides for the following:
● Capital accounts are to be credited annually with interest at 5% of beginning capital.
● Henson is to be paid a salary of₱1,000 a month.
● Henson is to receive a bonus of 20% of income calculated before deducting his salary and
interest on both capital accounts.
● Bonus, interest, and Henson’s salary are to be considered partnership expenses.

The partnership 2005 income statement as follows:

Revenues 96,450
Expenses (including salary, interest, and bonus) 49,700
Net income 46,750

What is Henson’s 2005 bonus?

a. 11,688 c. 15,000
b. 12,000 d. 15,738

24. A and B formed a partnership and began operations on March 1, 20x1. A invested ₱400,000 cash

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 while B invested equipment with a book value of ₱ 1,200,000 and a fair value of ₱720,000. On
August 31, 20x1, A invested additional cash of ₱ 80,000. The partnership agreement stipulates
the following:
● Monthly salary allowances of ₱ 8,000 and ₱40,000 to A and B, respectively, recognized as
expenses.
● 20% bonus on profit before salaries and interest but after bonus to B.
● 12% annual interest on the beginning capital of A.
● Balance equally.

The monthly salaries are withdrawn by the partners at each month-end. The partnership earned
profit of₱ 840,000 during the period before deductions for bonus and interest.

How much is the ending balance of B’s capital account?

a. 1,230,000 c. 910,000
b. 1,710,000 d. 1,630,000

25. A and B formed a partnership on March 1, 20x1. The partnership agreement stipulates the
following:
o Monthly salary allowances of₱ 10,000 for A and₱ 6,000 for B. Salary allowances are to be
withdrawn by the partners throughout the period and are to be debited to their
respective drawings accounts.
o The partners share profits equally and losses on a 60:40 ratio.

During the period the partnership earned profit of ₱ 100,000 before salary allowances. How much is
the share of Partner B in the partnership profit?

a. 64,000 b. 60,000 c. 36,000 d. 0

26. The partnership agreement of A and B states the following:

o Monthly salary of₱ 10,000 for A.
o 20% bonus to A, before deductions for salary, interest, and bonus.
o 10% interest on the weighted average capital of B.
o Balance is shared equally.

B’s weighted average capital balance is ₱ 200,000. The partnership reported profit of ₱60,000 for the
year, net of salaries, bonus and interest. How much is the share of B in the profit?
a. 50,000
b. 151,300
c. 48,700
d. 200,000

27. Mr. A, a partner in ABC Co., is deciding on whether to accept a salary of ₱8,000 or a salary of
₱ 5,000 plus a bonus of 10% of profit. The bonus shall be computed on profit before salaries and
bonus. Salaries of the other partners amount to₱ 20,000. What amount of profit would be necessary
so that Mr. A would be indifferent between the choices?

a. 30,000 d. 58,000 c. 48,000 b. 33,000

28. A and B formed a partnership. The partnership agreement stipulates the following:
o Monthly salaries of₱ 6,000 for A and₱2,000 for B.

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 o 20% bonus to A, after deductions for salary, interest, and bonus.
o 10% interest on the weighted average capital of B.
o Any remaining amount is shared equally.

The partnership’s records show the following:

Revenues 150,000
Expenses (including salary, interest, and bonus) (120,000)
Profit 30,000

The movements in B’s capital account are as follows:

B, Capital
60,000 beg.
Aug. 1 withdrawal 30,000 20,000 Mar. 31 additional investment
40,000 Oct. 1 additional investment
10,000 Dec. 31 additional investment
end. 100,000

How much is the share of B in the partnership profit?

a. 93,000
b. 52,250
c. 46,250
d. 45,000

29. The partnership agreement of partners A, B and C stipulates the following:

● A shall receive a salary of₱40,000.
● Interest of 10% shall be computed on the partners’ capital contributions of ₱40,000,
₱ 100,000 and₱ 200,000.
● Balance is divided among the partners on a 2:3:5 ratio. However, C is guaranteed a minimum
share of₱ 40,000, inclusive of interest, if the partnership earns profit.

How much is the minimum level of profit necessary so that A shall receive a total of ₱50,000,
inclusive of salary, interest and share in remaining profit, and C shall also receive his guaranteed
minimum share?
a. 109,000
b. 110,000
c. 112,000
d. 120,000

30. The partnership agreement of AAA, BBB and CCC provides for the year-end allocation of net
income in the following order:
● First, AAA is to receive 10% of net income up to
₱ 100,000 and 20% over₱100,000
● Second, BBB and CCC each are to receive 5% of the remaining income over₱150,000
● The balance of income is to be allocated equally among the three partners

The partnership’s 2009 net income was ₱ 250,000 before any allocations to partners. What amount
should be allocated to BBB?

a. 71,000
b. 68,000
c. 108,000

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 d. 110,000

31. A, B, and C’s partnership agreement requires the partners to maintain average investments
₱ 2,500,000, ₱ 1,250,000, and ₱ 1,250,000, respectively. Six percent (6%) interest per annum is to be
computed on any excess or deficiency in the contributions. After the interest allowances, any
remaining profit or loss is shared in the ratio of 5:3:2. Average amounts invested during the first six
months were as follows: A, ₱ 3,000,000; B, ₱ 1,375,000; and C, ₱ 1,000,000. Loss of ₱62,500 was
incurred for the first six months. How is the loss distributed among the partners?
A B C
a. 12,500 10,000 49,500
b. 18,375 21,875 22,250
c. 21,875 18,375 22,250
d. 31,250 18,750 12,500

32. A has a 25% participation in the profits of a partnership. During the year, A’s capital account has
a net decrease of ₱ 40,000. A made contributions of ₱ 160,000 and capital withdrawals of ₱240,000
during the year. How much profit did the partnership earned during the year?
a. 120,000
b. 560,000
c. 480,000
d. 160,000

33. The ABC Co., on which A, B and C are partners, reported profit of ₱360,000 during the year. If
partners A, B and C have a profit sharing agreement of 2:3:4, respectively, how much is the share of
A in the profit?
a. 60,000
b. 72,000
c. 80,000
d. 84,000

34 AB Partnership was formed on February 28, 20x1. Partner A invested ₱150,000 cash while
Partner B invested land that he originally bought for ₱70,000 but has a current fair value of
₱ 180,000. Because of cash shortage, B invested additional cash of ₱ 60,000 on November 1, 20x1.
The partnership contract states the following:

A B
● Monthly salary (recognized as 10,000 20,000
expenses and withdrawn
periodically)
● Interest on beginning capital 12% p.a. 12% p.a.
● Bonus on profit before salaries 20%
and interest but after bonus
● Remaining profit or loss 50% 50%

AB Partnership earned profit of₱ 120,000 in 20x1 before deducting the bonus and interests. What is
the capital balance of A on December 31, 20x1?
a. 243,500
b. 226,500
c. 193,500
d. 266,500

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