ACTBFAR – Basic Financial Accounting and Reporting

TOPIC – ACCOUNTING FOR PARTNERSHIP PART 1

This review materials cover:

• Introduction to Partnership
• Partnership Formation
• Partnership Operations

ALTERNATE RESPONSE (TRUE OR FALSE)

1. Once a partnership is formed, it becomes a separate legal person, with separate and distinct

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personality from the partners owning it.
2. A partnership is involuntary formed by each partner.
3. The partner investing a particular kind of assets no longer retains any personal right to it.
4. Any partner cannot legally bind all the partners by an action that is part of the usual conduct of the
partnership.
5. An agreement to exclude one partner from profit sharing is valid if with the consent of the
concerned partner.
6. A partnership is dissolved when a partner invests made additional investments to the business.
7. General partners are personally liable for the partnership’s debts after the exhaustion of its assets.
8. A partnership is basically formed based on trust and confidence of partners to each other.
9. A partnership can be formed by agreement of two or more corporations.
10. A written partnership agreement is usually made to avoid potential problems during the
operation of a partnership.
11. A de facto partnership is established and organized in accordance with legal requirements for its
existence.
12. A secret partner is a dormant partner.
13. When the partnership capitalization is below 3,000, an oral agreement is sufficient in forming a
partnership.
14. A partnership has no power of succession.
15. One of the advantages of the partnership is freedom from government regulations.
16. In converting two or more proprietorship into a partnership, there are two or more books that
need to be adjusted and closed before the formation of a partnership.
17. When a partner contributes assets together with liabilities assumed by the partnership, the assets
are to be valued at the book value or fair market value, whichever is applicable.
18. The books of the sole proprietor are applicable to be used by the newly formed partnership
because the sole proprietorship can transfer all the assets to the partnership.
19. Bonus method is when the agreed partners’ capital shares are credited with the same value as
their contributed assets.
20. A partner’s interest in the partnership represents the partner’s interest in the equity of the
partnership at a particular time.
21. When the partner’s investment is a noncash asset, it shall be valued at fair market value.
22. When industry is contributed into the partnership, a memorandum entry is prepared.
23. In the absence of agreement, the capital contribution shall be made equally.

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24. The partner’s interest in the partnership assets is always proportionate to his share in the
partnership’s profit or losses.
25. In converting two or more proprietorship into a partnership, any agreed adjustments on the value
of assets or liabilities of the sole proprietorship should accrue to the benefit or expense of the
sole owner and not to the partnership.
26. In closing the books of sole proprietor, which is converted into a partnership, closing entries will
include the closing of real accounts.
27. M Espiritu invests the following assets in a new partnership: P 30,000 in cash, and equipment that
cost P 70,000 but has a book value of P 34,000 and fair value of P 40,000. Espiritu, Capital will be
credited for P 70,000.
28. If plant equipment is transferred from a sole proprietorship to a partnership, the related

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Accumulated depreciation accounts shall not be recognized in partnership records.
29. Two persons formed a partnership and one of them is a sole proprietor. When the books of the
sole proprietor will still be used by the partnership, the sole proprietor should close his books and
record the individual’s contribution.
30. In measuring partnership income for the period, the expenses should be scrutinized to make sure
that personal expenses of the partners are included among partnership’s business expenses.
31. If the profit sharing is based on capital contribution, the industrial partner first gets a just and
equitable share for his service before the capitalist partners divide the balance of the profits in
proportion to their capital contribution.
32. Profit sharing agreement should be the same with the loss sharing agreement.
33. Once the industrial partner becomes a capitalist too, he shall not absorb a share from the net
losses of the partnership.
34. Interest on capital contributions is a method that allocates first a portion of profit equivalent to a
certain interest rate of the partner’s capital balance.
35. Salaries allocated based on the agreement to partners are reported as expense in the Income
Statement.
36. As a rule, the prescribed allocation for salaries and interest on capital balances should still be
given in spite of the insufficiency of the partnership net income to cover them.
37. If there were partnership net loss, the partners’ salaries, bonus and interest shall still be given to
them.
38. When there is a profit or loss agreement, the capital contributions of the partners have no bearing
in the profit or loss distributions.
39. Both interest on partner's loans and interest on partner's capital are reported as expenses in the
income statement.
40. If the articles of partnership provide for annual salary allowances of P 36,000 and P 18,000 to X
and Y respectively and net income is P 30,000, X's share of net income is P 20.000.
41. In the distribution of income, the net income is less than the salary and interest allowances
granted; the remaining balance will be a negative amount that must be divided among the
partners as though it were a loss.
42. If a partnership agreement specifies that a partner is to be paid a 'salary' it is important to clearly
indicate whether the payment represents drawings or is part of the profit sharing arrangements.
43. Partners can agree on any division of profits and losses they consider appropriate.

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 44. Both interest on partner's loans and interest on partner's capital are reported as expenses in the
income statement.

MULTIPLE CHOICE QUESTIONS - THEORIES

1. Which of the following statement is FALSE?
A. A general partner is one whose liability to third persons extends to his private property.
B. An Industrial partner is one who contributes industry, labor, skill or service.
C. A nominal partner is a partner in name only.
D. A dormant partner is one who does not participate in the management of partnership affairs.

2. A partnership in which the term or period for which the partnership is to exist is agreed upon

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A. Partnership with a Fixed Term
B. Partnership at will
C. Universal partnership of all present property
D. Limited partnership

3. Which of the following is not a characteristic of most partnership?

A. Limited liability
B. Limited life
C. Mutual agency
D. Ease of formation

4. Which of the following statements are CORRECT?

I. Silent partner participates in the management of operations and affairs of the partnership.
II. Secret partner takes an active part in the management of the partnership but is unknown to the public
as a partner.
III. Dormant partner is not really a partner and not a party to the partnership agreement but is made
liable as a partner for the protection of innocent third persons
A. Statement I
B. Statement II
C. Statements I and II
D. Statements II and III

5. A partnership is
A. Any association of two or more persons or entities
B. An association of two or more persons to carry on a business for a profit, as co-owners
C. Not a separate legal entity for legal purpose
D. An entity created by following statutory requirements

6. The advantages of the partnership do not include

A. Ease of formation
B. Unlimited liability
C. Freedom from government regulations
D. Ease of decision making

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7. Which of the following would require a partnership agreement in writing and be attached to the
public instruments
A. Contribution of personal property
B. Contribution of real property
C. Partnership capital exceeds P3,000
D. Acceptance of limited partner

8. A partnership ends its life when

A. It changes its name
B. Unlimited liability exists

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C. A new partner is admitted
D. The partnership incurred losses

9. A partner who is appointed to administer the realization and distribution of partnership assets after
dissolution
A. Industrial partner
B. Managing partner
C. Liquidating partner
D. Ostensible partner

10. The partnership agreement is an express contract among the partners (the owners of the business).
Such an agreement generally DOES NOT include
A. A limitation on a partner’s liability to creditors.
B. The rights and duties of the partners.
C. The allocation of profit among the partners.
D. The rights and duties of the partners in the event of partnership dissolution.

11. All the following statements are true for both general and limited partnerships EXCEPT
A. both are easily dissolved.
B. both must have at least one general partner.
C. all partners can be personally liable for all debts of the partnership.
D. all partners have the right to participate in the profits of the business.

12. Which of the following is not normally part of the Articles of Partnership?
A. Kind of partners
B. Contribution of partners
C. Profit and loss agreement
D. Kind of creditors

13. 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?

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A. Fair value at the date of contribution.
B. Contributing partner's original cost.
C. Assessed valuation for property tax purposes.
D. Estimated value at the date of contribution

14. This account represents the partner’s share in the net assets of the partnership
A. Partner’s capital
B. Partner’s deficit
C. Working fund
D. Drawing account

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15. Which of the following does not increase the partner’s capital account?
A. Investments to the partnership
B. Share in the partnership’s net income
C. Bonus given by a partner because of one’s partner intangible advantage
D. Share in the partnership’s loss

16. What is the basis of capital sharing if the partners do not have an agreement as to the amount of their
individual capital contribution?
A. Equal share
B. Based on profit or loss agreement
C. Actual contributions of the partner
D. Service

17. At what value will cash contributions of a partner be recorded in the partnership books?
A. Future value of cash
B. Purchasing value of cash
C. Actual amount of cash
D. Past value of cash

18. What is the entry for the acceptance of an industrial partner’s skills as his contribution?
A. General journal through a memorandum entry
B. General ledger through a debit-credit entry
C. General journal through a debit-credit entry
D. General ledger through a memorandum entry

19. The following are the procedures in converting a sole proprietorship form of business into
partnership, except:
A. Adjust the existing books of the sole proprietorship(s).
B. Close the existing books of the sole proprietorship(s)
C. Record the investment of all the partners in the new set of partnership books.
D. Revalue the partners contribution after combination of books.

20. Under the bonus method, the capital of the partner receiving the bonus is

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I

A. Credited at amount greater than the fair value of the asset contributed
B. Credited at an amount lesser than the fair value of the asset contributed
C. Credited at an amount equal to the fair value of the asset contributed
D. Credited at an amount greater or less than the fair value of the asset contributed

21. 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.

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22. A partner who is given priority to get first a just and equitable share for his services rendered to the
partnership
A. Industrial partner
B. Capitalist partner
C. Managing partner
D. General partner

23. A partner who gets two kinds of share from the income of the partnership, one for the services
rendered and the other is for resources given to the partnership.
A. Industrial partner
B. Capitalist partner
C. Industrial-capitalist partner
D. General and managing partner

24. This schedule shows the variations in the partners interest in the partnership
A. Statement of Financial Position
B. Statement of Partners’ Profit and Loss Distribution
C. Statement of Changes in Partners’ Capital
D. Statement of Partner’s Variable Capital

25. Which of the following is not considered as legitimate expense of a partnership?

A. Interest paid to partners based on the average capital
B. Depreciation on assets contributed to the partnership
C. Salaries for management hired to run the business
D. Supplies used in the partners’ offices

26. If the partnership agreement does not specify how profit is to be allocated, profit 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.

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27. Which of the following best describes the nature of salary and interest allowances in a partnership
profit and loss sharing agreement?
A. A means of determining reasonable monthly withdraws by each partner.
B. The amount upon which partner will have to pay personal income tax.
C. A means of adjusting the assets of the partnership
D. A means of distributing profit in relation to services rendered and capital invested by partners.

28. Which of the following statement is TRUE about Average capital method in the computation of profit
distribution?
A. The reference for average capital should be made to the amounts originally invested by the partners.

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B. The opening partner’s capital balance of the current year shall be the basis of the profit and loss
allocation.
C. One of the disadvantage of using this is that there are no incentive for a partner to make any
investments in the earlier parts of the year.
D. This method provides the most equitable basis for allocating partnership profit because it considers
the fluctuation or movements of equity during the year.

29. When partners are credited using the bonus approach,

A. Each partner is credited equally by the amount of capital divided among them.
B. Each partner is credited by the amount of assets or net assets they have contributed.
C. Each partner will not be credited by their profit or loss ratio, when this ratio is equal division.
D. Each partner will not be credited at the extent of their contributions.

30. During the profit division of a partnership, the terms and conditions of profit division stated that the
interest in the beginning capital balances should be in priority over salary contribution. After
distributing this interest, the amount remained is still sufficient to be distributed to the partners, but
are not enough to cover the whole amount of salaries. This remaining amount should be
A. divided among the partners equally.
B. divided among the partners through their profit or loss ratio.
C. divided among the partners using the ratio in respect to their salaries.
D. divided among the partners using the ratio in respect to their beginning capital balances.

31. The partnership obtained a profit for the period. Salaries were distributed, and so are the interests on
beginning capital balances. The next step to be done is to provide bonus to one of the partners. After
calculating the bonus and had it given to the partner, the net income became insufficient. What
should be done regarding this matter?
A. Continue to provide the bonus and the insufficiency should be divided among the partners.
B. The bonus should not be given anymore, and the remaining balance to be divided among the
partners.
C. The whole amount of profit should be divided among the partners equally.
D. None of the given.

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32. Assume that partners TIK and TOKERS obtained a net income for the period. When they formed the
partnership, TOKERS has contributed more than what has TIK has contributed, but during
operations, TIK spends more time in the partnership for it to prosper. In which of the following
process statements regarding profit division would be FAVORABLE for both TIK and TOKERS?
A. Provide TIK a higher distribution of profit.
B. Provide TOKERS a higher distribution of profit.
C. Provide TIK a salary that will compensate the amount of time she has devoted, and provide TOKERS
an interest in her capital balance that is favorable for her.
D. Provide TIK a salary that will compensate the amount of time she has devoted, and provide TOKERS
an interest in her capital balance that is favorable for her. Then, divide any remainder equally.

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33. Under the bonus method, the asset contribution of the partner receiving the bonus is
A. Debited at an amount greater than the fair value of the asset contributed
B. Debited at an amount lesser than the fair value of the asset contributed.
C. Debited at an amount equal the fair value of the asset contributed.
D. Either A or B.

34. A and B agreed to form a partnership. A contributed cash of P 100,000 while B contributed cash of
P200,000. The partnership agreement stipulates that A and B will have equal interest on the initial
capital of the partnership and in subsequent partnership profits and losses. Which of the following
statements is INCORRECT?
A. The total partnership assets after the partnership formation is P 300,000.
B. The effect of the contractual stipulation is a decrease in B’s capital balance and a corresponding
increase in A’s capital balance.
C. The contractual stipulation does not affect the debit recording of the partners’ respective asset
contribution.
D. B’s asset contribution will be debited at a decreased amount of P150,000.

35. Which of the following statements are TRUE when comparing corporations and partnerships?
A. Partnership entities provide for taxes at the same rates used by corporations.
B. In theory, partnerships are more able to attract capital.
C. Like corporations, partnerships have an infinite life.
D. Unlike shareholders, general partners may have liability beyond their capital balances.

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STRAIGHT PROBLEMS

Formation of partnership of two or more individuals for the first time

PROBLEM #1 A, B, C are new Lawyers and are decided to form a partnership.
• A is to contribute cash of P50,000 and his computer originally costing P60,000 but has a fair value
of P25,000.
• B is to contribute cash of P80,000.
• C, whose family is selling computers, is to contribute cash of P25,000 and a computer with a fair
market value of P60,000 but which cost is P50,000.
Compute C’s capital account to be credited upon formation.

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PROBLEM #2 On September 30, 2022, A, B, and C formed a partnership by combining their separate
business proprietorships.
• A contributed cash of P500,000.
• B contributed Land with a P460,000 carrying amount, a P400,000 original cost, and P500,000 fair
market value. The partnership accepted responsibility for the P150,000 mortgage attached to the
property.
• C contributed equipment with a P300,000 carrying amount, a P750,000 original cost, and P550,000
fair value.
Compute B’s capital account to be credited upon formation.

PROBLEM #3 A and B agreed to form a partnership. A contributed P400,000 cash while B contributed
equipment with fair value of P600,000 and for tax basis 590,000. However due to the expertise that A will
be bringing to the partnership, the partners agreed that they should initially have an equal interest in the
partnership capital. Compute the amount of bonus given by B to A.

PROBLEM #4 A & B formed a partnership. A contributed cash and land with a fair value of P60,000 and a
book value of P50,000. B contributed P130,000 cash for 65% claim in the partnership’s assets. Compute
the amount of cash A should contribute.

SP Conversion (Individual and an existing business)

PROBLEM #5 Benedict and Joseph decided to form a partnership. The Statement of Financial Position
as of November 30,2022 for the business owned by Benedict shows the following assets and liabilities:
Cash and cash equivalents 15,400
Trade receivables 23,700
Inventories 28,200
Machinery and equipment 34,000
Notes payable 17,000
Additional information:
• It is estimated that 4% of the receivables may prove uncollectible.
• Merchandise inventory decreased by 6,900 due to obsolete items.
• Machinery and Equipment should be valued at P18,000.

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Joseph is to be admitted as a partner upon his investment of P27,000 cash and P21,000 worth of
merchandise. Compute the total assets of the partnership after formation.

PROBLEM #6 Mary has existing business and admits Jane as a partner in the business.
Statement of Financial Position accounts of Mary just before the admission of Jane show: Cash, P26,000,
Accounts receivable, P 120,000, 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:
a. an Allowance for Doubtful Accounts of 3% of accounts receivable is to be set up;
b. Merchandise inventory is to be adjusted upward by P25,000; and
c. Prepaid Expenses of P3,600 and Accrued Liabilities of P4,000 are to be recognized.
If Jane is to invest sufficient cash to obtain 3/5 interest in the partnership, how much would Jane

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contribute to the new partnership?

PROBLEM #7 A and B decided to form a partnership.

The Statement of Financial Position as of May 1,2022 for the business owned by A shows the following
assets and liabilities:
Current Assets 240,000
Non-current Assets 660,000
Total Liabilities 120,000
Additional information:
• Merchandise inventory should be decreased from 140,000 to P120,000.
• Machinery and Equipment was over depreciated by P12,000.
B is to be admitted as a partner upon his investment of P130,000 cash. Compute the total assets of the
partnership upon formation.

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SP Conversion (Two or More Sole Proprietorship Businesses)
PROBLEM #8 Nacho and Bimby are combining their separate businesses to form a partnership.
Presented here are the Statements of Financial Position elements in alphabetical form that they will bring
into the partnership, given at book values, and fair market values.
Nacho Bimby
Accounts Carrying Value Fair Value Carrying Value Fair Value
Cash P 345,000 P 345,000 P 249,000 P 249,000
Accounts Receivable 242,000 242,000 386,000 386,000
Office Supplies 16,500 18,000 19,000 18,600
Prepaid Insurance 14,000 14,000 18,500 18,500

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Building (net) 624,000 652,000 584,000 600,000
Equipment (net) 224,000 250,000 386,000 389,000
Notes Payable 100,000 100,000 90,000 90,000
Accounts Payable 32,400 32,400 88,000 88,000

The partners agreed that in the formation of the partnership, the total capital of the firm must be
P3,000,000 and Nacho will be credited for 40% interest in the partnership and 60% for Bimby.
a. Compute the adjusted balances of each partner.
b. Compute the Total assets of the partnership.

PROBLEM #9 On December 1, 2022, Two and Three enter into a partnership agreement contributing the
following assets at fair market values:
TWO THREE
Cash 9,000 18,000
Machinery and Equipment 13,500 -
Land - 20,000
Building - 27,000
Office Furniture 13,500 -

• The land and building are subject to a mortgage loan of P24,000 that the partnership will assume.
• The partnership agreement states that Two and Three share profits and losses, 40% and 60%,
respectively and partners agreed to bring their capital balances in proportion to the profit and loss
ratio and using the capital balance of Two as the basis.
Compute the additional cash investment that should be made by Three.

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PROBLEM #10 A and B are combining their separate businesses to form a partnership. Presented here
are the Statements of Financial Position before any adjustments:
A B
Current Assets 617,500 672,500
Non-current Assets 848,000 970,000
Total Liabilities 150,000 178,000

• They agreed to set up P5,000 each as uncollectible accounts on their accounts receivable.
• They also found out that their Non-current assets (all depreciable assets) were under depreciated

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by P80,000 each.
The partners agreed to equalize their capital balance upon formation. Compute the total capital of the
partnership.

Partnership Operations
PROBLEM #11 A partnership has the following accounting amounts:
Sales 150,000
Cost of Goods Sold 80,000
General and Administrative Expenses 17,000
Distribution costs 52,000
Interest paid to banks 23,000
Salary allowances to partners 12,000
Partners' withdrawals 18,000
Compute for the Partnership net income (loss).

PROBLEM #12 On May 1, 2022, A and B formed a partnership. A and B agreed to share the
partnership’s profit as follows:
• A to receive P5,000 salary per month and a 10% bonus before salary and bonus
• B to receive the remaining balance
The partnership’s annual fiscal year net income is P 130,000 (full year).
Compute B’s share in the partnership profit.

PROBLEM #13 A, B, and C of ABC Partnership have beginning capital balances of P500,000, P300,000,
and P200,000 respectively.
The partnership has the following information: Sales (60% credit; 40% cash) amounting to P 1,200,000,
Cost of Goods Sold, P 920,000 and Total operating expenses is P 218,000.
In their profit-sharing arrangement:
• Salaries of P15,000, P20,000, and P25,000 shall be given to each partner respectively
• Interest at 3% of the beginning capital balances would be allowed in profit distribution.
• Any remaining amount will be divided to each partner at 3:1:1.
Compute the share of C in the net profit (loss).

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PROBLEM #14 A and B are partners who share profits and losses in the ratio of 60%; 40% respectively.
• A’s salary is P300,000 and P250,000 for B.
• Bonus shall be given to A amounting to P50,000.
• The partners are also paid interest on their average capital balances. So, in 2022, A received
P300,000 of interest and B, P400,000.
If the partnership suffered loss for P500,000. Compute for A’s share in the partnership loss.

PROBLEM #15 A and B formed a partnership. A and B agreed to share the partnership’s profit as
follows:
• A to receive P10,000 salary per month and 5% bonus before salary and bonus
• Partners receive P50,000 each for the interest on their average capital.

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• Remainder is to be divided equally
If A’s share in the partnership loss was P80,000 for the year. Compute the partnership income (loss).

PROBLEM #16
A, B, and C of ABC Partnership have beginning capital balances of P300,000, P100,000, and P100,000
respectively. The partnership has the following information:
Sales 500,000
Cost of Goods sold 300,000
General and Administrative Expense 30,000
Distribution costs 50,000
In their profit-sharing arrangement,
• Salaries of P10,000 each shall be given to partners respectively.
• C shall be given a 5% bonus after salaries, interest, and bonus.
• A 5% interest shall be given based on their beginning capital balance.
Compute the bonus given to C from the partnership income. Round the decimal to the nearest whole
number.

PROBLEM #17
ABS and GMA are partners who share profits and losses in the ratio of 60%; 40% respectively.
• ABS’ salary is P120,000 and P60,000 for GMA.
• The partners are also paid interest on their average capital balances. So in 2022, ABS received
P160,000 of interest and GMA, P50,000.
• The profit and loss allocation is determined after deductions for salary and interest payments.
If ABS’ share in the residual income was P130,000 in 2022, what was the total partnership income?

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PROBLEM #18 The partnership agreement of A and B provides that interest at 10% per year is to be
credited to each partner on the basis of weighted-average capital balances. The following movements in
the capital accounts of A and B is as follows:
A, Capital
Balance, Jan. 1, 2022 110,000
Additional investment, June 1 33,000
Withdrawal, October 1 (20,000)
Balance, Dec. 31, 2022 123,000

B, Capital

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Balance, Jan. 1, 2022 160,000
Additional investment, April 1 65,000
Withdrawal, July 31 (30,000)
Balance, Dec. 31, 2022 195,000
Compute the interest allocated to B.

PROBLEM #19 On January 1, 2022, Hinata, Tsukki and Kageyama formed Haikyu Partnership with total
agreed capitalization of P1,000,000. The capital interest ratio of the Haikyu Partnership is 5:1:4 while the
profit or loss ratio is 3:2:5, respectively for A Hinata, Tsukki and Kageyama.

During 2022, Hinata and Tsukki made additional investments of P200,000 and P500,000, respectively. At
the end of 2022, Tsukki and Kageyama made drawings of P300,000 and P100,000, respectively. On
December 31, 2022, the capital balance of Tsukki is reported at P200,000.
Required:
1. What is the net income or net loss of Haikyu Partnership for the year ended December 31, 2022?
2. What is the capital balance of Hinata on December 31, 2022?

PROBLEM #20 Beginning of the year, Seo, Nam and Han formed StrtUP Partnership with agreed capital
of P1,000,000. The capital interest of the partners are 3:5:2. Seo is appointed as managing partner.
Capital/Drawings transactions during the year:
• Seo, Nam and Han made additional investments of P500,000, P200,000 and P300,000, respectively.
• At the end of year, Seo, Han and Nam made drawings of P200,000, P400,000 and P100,000,
respectively.
• At the end of year, the capital balance of Han is reported at P320,000.
In their profit-sharing arrangement,
• Annual salary of 160,000 and P40,000 for Seo and Nam, respectively.
• Remainder is to be distributed equally among the partners.
Required:
1. What is the partnership profit for the year?
2. What is Seo’s share in partnership profit for the year?
3. What is Nam’s ending capital balance at year end?

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I

MULTIPLE CHOICE QUESTIONS
1. Bretman and Rock are two individuals who decided to form a partnership. They agreed that in the
formation of the firm, they should be able to have a total capital which will amount to P1,000,000. They
have also agreed that they will be crediting it at 60:40. If Bretman will contribute cash of P250,000, and
Rock will contribute cash of P350,000, how much additional noncash assets should Bretman contribute
when Rock contributed P50,000 worth of equipment?
A. Noncash assets with the same amount of Rock’s cash.
B. Noncash assets worth P400,000.
C. Noncash assets worth 60% of Bretman’s capital.
D. Noncash assets worth P250,000.

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I | DE LA SALLE UNIVERSITY – MANILA | MJ ESPIRITU

2. Wes, Michaela and Connor decided to form a partnership on March 1, 2022. They agree that Wes will
contribute office equipment with a total fair value of P40,000; Michaela will contribute delivery
equipment with a fair value of P80,000; and Connor will contribute cash. If Connor wants a one-third
interest in the capital and profits, he should contribute the cash amounting to:
A. P40,000
B. P60,000
C. P120,000
D. P180,000

3. Hinata, Kageyama, Tsukki are new Lawyers and are decided to form a partnership.
• Hinata is to contribute cash of P50,000 and his computer originally costing P60,000 but has a fair
value of P25,000.
• Kageyama is to contribute cash of P80,000.
• Tsukki, whose family is selling computers, is to contribute cash of P25,000 and a brand new
computer with a fair market value of P60,000 but which cost is P50,000.
Partners agreed to share profits equally. How much capital balances should be credited to each
partners? Hinata Kageyama Tsukki
a. P 75,000 P 80,000 P 85,000
b. P110,000 P 80,000 P 75,000
c. P 80,000 P 80,000 P 80,000
d. P 83,333 P 88,333 P 88,334

4. Hinata and Kageyama entered into a partnership. Hinata contributed an old building that he purchased
5 years ago for P 100,000. The accumulated depreciation on the building on the date of formation of
the partnership is P 25,000 and the fair value is P110,000. For what amount will Hinata’s capital account
be credited on the books of the partnership?
A. 110,000
B. 75,000
C. 100,000
D. Undetermined since there was no agreement made as to how the building should be accounted

5. On May 1, 2022, Paul and Ephesians enter into a partnership by contributing the following assets:
Paul Ephesians

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I

 Cash 300,000 700,000
Machinery and Equipment 250,000 750,000
Building - 2,250,000
Vehicle 100,000 -
The building is subject to mortgage loan of 800,000 which is to be assumed by the partnership. The vehicle
has outstanding balance from the bank amounting to 10,000 which is also assumed by partnership. The
agreement stipulates that Paul and Ephesians share profits and losses 30% and 70% respectively. On May
1, 2022, How much is the total assets of the partnership?
A. 3,700,000
B. 4,350,000
C. 3,540,000

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I | DE LA SALLE UNIVERSITY – MANILA | MJ ESPIRITU

D. 4,340,000

6. On September 30, 2022, A, B, and C formed a partnership by combining their separate business
proprietorships.
• A contributed cash of P500,000.
• B 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.
• C 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 September 30, 2022?
A B C
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

7. The Jerome and Joshua Partnership was formed on January 2, 2022. Under the partnership
agreement, each partner has an equal initial capital balance. Partnership net income or loss is
allocated 60% to Jerome and 40% to Joshua.

To form the partnership, Jerome initially contributed assets costing P30,000 with a fair value of P60,000
on January 2, 2022, and Joshua contributed P20,000 cash.

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I

Drawings by the partners during 2022 totaled P3,000 by Grey and P9,000 by Redd. The partnership net
income in 2022 was P25,000. Under the bonus method, what is the amount of bonus assuming that no
cash settlement should be made outside the partnership?
A. 20,000 bonus to Jerome
B. 20,000 bonus to Joshua
C. 40,000 bonus to Jerome
D. 40,000 bonus to Joshua

8. On November 1, Marck and Joseph are combining their separate businesses to form a partnership.
Cash and noncash assets are to be contributed. Profits and losses are allocated equally.
• The inventory of Joseph is to be increased by P4,000;

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I | DE LA SALLE UNIVERSITY – MANILA | MJ ESPIRITU

• An Allowance for Doubtful Accounts of P1,000 and P1,500 are to be set up in the books of Marck
and Joseph, respectively; and
• Accounts payable of P4,000 is to be recognized in Marck’s books.
The individual trial balances on November, before adjustments, follow:
Marck: Assets, P75,000; Liabilities, P5,000:
Joseph: Assets, P113,000; Liabilities, P34,500.
What is the capital of Marck and Joseph after the adjustments?
A. Marck, P68,750; Joseph, P76,000
B. Marck, P65,000; Joseph, P76,000
C. Marck, P65,000; Joseph, P81,000
D. Marck, P75,000; Joseph, P81,000

9. On January 1, 2022, FDNACT and ACTBFAR decided to form a partnership by contributing their
respective assets and equities subject to adjustments.

The Statement of Financial shows the following balances:

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

The following adjustments were agreed upon:

• Accounts receivable of P20,000 and P40,000 are uncollectible in FDNACT's and ACTBFAR's
respective books.
• Inventories of P6,000 and P7,000 are worthless in FDNACT’s and ACTBFAR’s respective books.
What will be the capital balances of the partners after adjustments?

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I

 FNDACT ACTBFAR
a. 592,000 750,000
b. 594,000 753,000
c. 594,000 750,000
d. 592,000 753,000

10. X, Y and Z decided to form XYZ Partnership.

• It was agreed that X will contribute an equipment with assessed value of P100,000 with historical
cost of P800,000 and accumulated depreciation of P600,000. On the date of formation, the fair
value of equipment was P 200,000.
• Y will contribute a land and building with carrying amount of P1,200,000 and fair value of

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I | DE LA SALLE UNIVERSITY – MANILA | MJ ESPIRITU

P1,500,000. The land and building are subject to a mortgage payable amounting to P300,000 to
be assumed by the partnership.
• The partners agreed that Y will have 40% capital interest in the partnership. The partners also
agreed that Z will contribute sufficient cash to the partnership.
I. What is the total agreed capitalization of the XYZ Partnership?
A. 1,500,000
B. 2,000,000
C. 2,500,000
D. 3,000,000
II. What is the cash to be contributed by Z in the XYZ Partnership?
A. 1,500,000
B. 1,600,000
C. 1,700,000
D. 1,800,000

11. Grace and Christine are combining their separate businesses to form a partnership. Cash and noncash
assets are to be contributed. The noncash assets to be contributed and the liabilities to be assumed
are:
Grace Christine
Book Value Fair Value Book Value Fair Value
Accounts receivable P20,000 P20,000 - -
Inventories 30,000 20,000 P20,000 P15,000
Equipment 60,000 45,000 40,000 50,000
Accounts payable 15,000 15,000 10,000 10,000

Additional Cash is to be contributed by Grace. Assuming that the total agreed capital is P300,000. How
much additional cash should be made by Grace?
A. 125,000
B. 175,000
C. 195,000
D. 150,000

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I

12. A partnership has the following accounting amounts:
(1) Sales = P80,000
(2) Cost of Goods Sold = P50,000
(3) Operating Expenses (General and Selling) = P15,000
(4) Salary allocations to partners = P13,000
(5) Interest paid to banks = P3,000
(6) Partners' withdrawals = P8,000
Partnership net income (loss) is ______________.
A. P 15,000
B. P 2,000
C. P 12,000

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I | DE LA SALLE UNIVERSITY – MANILA | MJ ESPIRITU

D. P (1,000)

12. The partnership agreement of A and B provides that interest at 12% per year is to be credited to each
partner on the basis of weighted-average capital balances. A summary of B’s capital account for the
year ended December 31, 2022 is as follows:

Balance, Jan. 1, 2022 252,000

Additional investment, July 31 72,000
Withdrawal, August 31 (27,000)
Balance, Dec. 31, 2022 297,000
Compute for the weighted average capital.
A. P 276,750
B. P 282,750
C. P 273,000
D. P 233,220

13. Kang and Kong formed a partnership. Kang and Kong agreed to share the partnership’s profit as
follows:
• Kang to receive P15,000 salary per month, 6% bonus after salary and bonus
• Kong to receive the remaining balance
What is the amount of Kong’s share from the partnership’s income of P592,000?
A. P385,000
B. P220,000
C. P219,000
D. P200,000

14. HillsongUnited Partnership started its operations on January 1, 2021. The partnership began with the
following capital balances:
Luke, Capital: P143,000
Matthew, Capital: P104,000
Mark, Capital: P143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
• Luke to receive an annual salary of P26,000 with P13,000 salary assigned to Mark.

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I

 • Each partner receives interest equal to 10% of the capital balance as of the first day of the year.
• The remainder was to be assigned on a 50%to Luke ; 20% to Matthew ;30% to Mark, respectively.
• Each partner is allowed to withdraw up to P13,000 per year.

Assume that the net loss for the first year of operations was P26,000 with net income of P52,000 in the
second year. Assume further that each partner withdrew the maximum amount from the business each
year.

What was Matthew’s share of income or loss for the first year?
A. P3,900 loss.
B. P11,700 loss.

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I | DE LA SALLE UNIVERSITY – MANILA | MJ ESPIRITU

C. P10,400 loss.
D. P24,700 loss.

15. A and B decided to share profits and losses equally. A and B receive salary allowances of P20,000 and
P30,000, respectively, and both partners receive 10% interest on their average capital balances.
Partners’ yearly drawings are not used in determining the average capital balances.

Total net income for 2022 is P120,000.

Capital and Drawing activities

A B
January 1 capital balances 100,000 120,000
Yearly drawings (P1,500 a month) 18,000 18,000
Permanent withdrawals of capital:
June 3 (12,000)
May 2 (15,000)
Additional investments of capital:
July 3 40,000
October 2 50,000

I. If the average capital for Albion and Blaze from the above information is P112,000 and P119,000,
respectively, How much is the remaining amount after salary and interest that should be allocated
equally to partners?
A. P46,900
B. P73,100
C. P48,000
D. P72,000

III. If the beginning capital is used to determine the interest on capital contributions, what will the
final profit allocations for Albion and Blaze in 2022?
A. P50,000 and P70,000.
B. P54,000 and P66,000.
C. P70,000 and P50,000.

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I

 D. P75,000 and P45,000.

16. J&J Partnership was formed on January 2, 2022. Under the partnership agreement, each partner has
an equal initial capital balance. Partnership net income or loss is allocated 60% to Jerome and 40% to
Joshua. Jerome initially contributed assets costing P30,000 with a fair value of P60,000 on January 2,
2022, and Joshua contributed P20,000 cash. Drawings by the partners during 2022 totaled P3,000
by Jerome and P9,000 by Joshua. The partnership net income in 2022 was P125,000. What is the
ending capital of Joshua?

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I | DE LA SALLE UNIVERSITY – MANILA | MJ ESPIRITU

A. 81,000
B. 61,000
C. 79,000
D. 99,000

17. HillsongUnited Partnership started its operations on January 1, 2022. The partnership began with the
following capital balances:
Luke, Capital: P143,000
Matthew, Capital: P104,000
Mark, Capital: P143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
• Luke to receive an annual salary of P26,000 with P13,000 salary assigned to Mark.
• Each partner receives interest equal to 10% of the capital balance as of the first day of the year.
• The remainder was to be assigned on a 50%to Luke ; 20% to Matthew ;30% to Mark, respectively.
• Each partner is allowed to withdraw up to P13,000 per year.

Assume that the net loss for the first year of operations was P26,000 with net income of P52,000 in the
second year. Assume further that each partner withdrew the maximum amount from the business each
year.
What was the balance in Mark’s Capital account at the end of the first year?
A. P120,900
B. P118,300
C. P126,100
D. P80,600

18. X, Y and Z decided to form XYZ Partnership.

• It was agreed that X will contribute an equipment with assessed value of P100,000 with historical
cost of P800,000 and accumulated depreciation of P600,000. On the date of formation, the fair
value of equipment was P 200,000.
• Y will contribute a land and building with carrying amount of P1,200,000 and fair value of
P1,500,000. The land and building are subject to a mortgage payable amounting to P300,000 to
be assumed by the partnership.

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I

 • The partners agreed that Y will have 40% capital interest in the partnership. The partners also
agreed that Z will contribute sufficient cash to the partnership.
Net income for the year is P500,000. Assuming that there was no profit or loss agreement. How much
profit should be allocated to Z?
A. 266,667
B. 200,000
C. 216,667
D. 234,375
19. On April 1, 2022, Hinata, Kageyama, Tsukki are new Lawyers and are agreed to form a partnership.
• Hinata is to contribute cash of P50,000 and his computer originally costing P60,000 but has a fair
value of P25,000.

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I | DE LA SALLE UNIVERSITY – MANILA | MJ ESPIRITU

• Kageyama is to contribute cash of P80,000.
• Tsukki, whose family is selling computers, is to contribute cash of P25,000 and a brand new
computer with a fair market value of P60,000 but which cost is P50,000.
Partners agreed to share profits equally. Each partner is allowed to withdraw up to P6,000 per year.
Assume further that each partner withdrew the maximum amount from the business each year.
On November 1,2022, Kageyama and Tsukki both invested additional cash of P30,000 each. During the
year, Partnership incurs loss of P60,000. What is the ending capital of Tsukki?
A. 84,000
B. 89,000
C. 87,750
D. 95,000

__END_

REVIEWER – ACCOUNTING FOR PARTNERSHIP PART I