Fundamentals of Accounting II

Partnership Formation
1. A partner whose liability for partnership debts is limited to his capital contribution to the partnership is
called a
a. General partner
b. Secret partner
c. Limited partner
d. Dormant partner
2. A partner who contributes money or property to the capital of the partnership is called
a. Industrial partner
b. Capitalist partner
c. Nominal partner
d. Ostensible partner
3. A partner whose connection with the partnership is open and public, so that his name is included in the firm
name of the partnership, is called
a. Nominal partner
b. Ostensible partner
c. Dormant partner
d. Secret partner
4. A partner who contributes his work or labor to the common fund of the partnership
a. Industrial partner
b. Capitalist partner
c. Managing partner
d. Nominal partner
5. A partner who has no voice or participation in the management of the affairs of the partnership is called
a. Dormant partner
b. Silent partner
c. Secret partner
d. Nominal partner
6. One who takes charge of the winding up of the partnership affairs upon dissolution is called
a. Ostensible partner
b. Silent partner
c. Liquidating partner
d. Limited partner
7. The agreement of the partners embodied in a public instrument is called
a. Articles of co-partnership
b. Articles of incorporation
c. By-laws
d. None of the above
8. Which of the following would not be considered a characteristic of a partnership
a. Co-ownership of property
b. Mutual agency
c. Unlimited Liability
d. Unlimited life
9. Which of the following would not be considered an advantage of forming a partnership?
I. A partnership has unlimited liability
II. A partnership is easily formed
III. A partnership is relatively free from governmental regulations and restrictions
IV. Skills and resources can be combined
a. I, II, and III
b. II, III, and IV
c. 1, II, and IV
d. II and III
 10. A kind of partnership where all the partners are general partner is a
a. Universal partnership
b. Limited partnership
c. General partnership
d. Particular partnership

The statement of financial positions of ITV Company, a single proprietorship on December 1, 2020 is as follows:

ITV Company
Statement of Financial Position
December 1, 2020

Assets
Cash P 630,000.00
Accounts Receivable P 1,680,000.00
Less: Allowance for Uncollectible Accounts 70,000.00 1,610,000.00
Merchandise Inventory 560,000.00
Property, Plant and Equipment 420,000.00
Less: Accumulated Depreciation 35,000.00 385,000.00
Total Assets P 3,185,000.00

Liabilities and Capital

Accounts Payable P 980,000.00
ITV Co, Capital 2,205,000.00
Total Liabilities and Capital P 3,185,000.00

ITV Co admits YSL and the latter is to invest cash to give him a capital credit equal to one-fourth (1/4) of ITV Co’s
capital after giving effect to the adjustments of the items below:

 The merchandise inventory is to be valued at P 612, 500

 The accounts receivable is estimated to be 95% collectible.
 The recoverable amount of property, plant and equipment is estimated to be P 280,000.

A new set of books for the partnership is to be used in compliance with the BIR Requirements.

Required:
a. Prepare the necessary entries to adjust and close the books of ITV Company.
b. Prepare the entries to record the investments of ITV Co and YSL in the new partnership books.
c. Prepare a statement of financial position for the partnership of ITV Co and YSL on December 1, 2020
Partnership Operations
1. In the absence of an agreement, the share of each partner in the profits and losses shall be divided
a. Equally
b. In accordance with the capital balances contained in the articles of co-partnership
c. In accordance with the average capital balance
d. In accordance with the ending capital balance
2. The A and B Partnership agreement provides for A to receive a 20% bonus on profits before the bonus.
Remaining profits and losses are divided between A and B in the ratio of 1:3, respectively. Which partner
has a greater advantage when the partnership has a profit or when it has a loss?
Profit Loss
a. A B
b. A A
c. B B
d. B A

3. Which of the following is not brought to zero balance in the closing process for a partnership?
a. Depreciation expense
b. Income Summary
c. Mr. A, Capital
d. Sales
4. Partnership financial statement are similar to the financial statements of
a. personal financial statements
b. not-for-profit organizations
c. proprietorships
d. corporations
5. In a partnership, partner’s salaries are considered as
a. A liability
b. A loss
c. An allocation of profits and losses
d. An expense of the business.
Problems
1.The partnership contract for the SDF and MGB Partnership, a general partnership, provided for annual salaries of
P 140,000 and P 175,000 to SDF and MGB, respectively, with the resulting profit or loss to be divided equally.
Profit before salaries for the year ended June 30, 2020 was P 315,000

Required: Give the entry to transfer income summary account balance to drawing accounts of the partners

2. On January 1, 2020, TQS, JNV and KPH formed a partnership with TQS as an industrial partner, JNV and
KPH contributing cash of P 700,000 and P 1,050,000, respectively. They agree to divided profits in the
ratio of 2:4:3 to TQS, JNV, and KPH, respectively.

The operations of the partnership for the year 2020 resulted in a loss of P 420,000.
Required: Give the entry to divide the net loss among the partners

3. LCX, MRD and NTJ are partners in LMN Partnership. The partnership contract stipulated that profit or
loss shall be divided as follows:

 Salaries of P 175,000 to LCX, P 262,500 to MRD and P 350,000 to NTJ;

 A bonus to NTJ of 10% of profit after deduction of partners’ salaries
 Remaining profit or loss as follows: 30% to LCX, 40% to MRd and 30% to NTJ.
Required: Prepare a schedule to divided profit or loss and give the entries to divided same among the partners under
each of the following assumptions:

a. Profit for the year is P 1,050,000

b. Net loss for the year is P 140,000
Changes in Partnership Ownership

1.This result when there is a change in the relationship of the partners caused by any partner ceasing to be associated
in the carrying on of the business or by admission of a new partner in the partnership.
a. Dissolution
b. Liquidation
c. Reorganization
d. Winding up

2. When the net assets of the partnership are fairly valued and the amount invested by the incoming partner is equal
to the interest he acquires, the it is implied that there is
a. bonus to old partners
b. bonus to new partners
c. no bonus to either new or old partners
d. bonus to both new and old partners

3.A partner may withdraw or retire from the partnership by

a. payment of his interest from partnership funds
b. selling his interest to one or more of the remaining partners
c. selling his interest to an outsider
d. any of the above

4. A new partner may be admitted into a partnership by

I. Investing assets in the partnership
II. Purchasing a partner’s interest
III. Contributing his/her services to the partnership
A. I only
B. II only
C. I and III
D. I, II and III
5. Which of the following does not change the partnership ownership?
A. Admission of a new partner
B. Death of a partner
C. Marriage of a partner
D. Withdrawal of a partner

Problems
1.Fuentes and Garcia are partners with a profit and loss ration of 80:20 and capital balances of P 3,200,00 and P
1,600,000 respectively. Hizon is to be admitted into the partnership by purchasing a 20% interest in the capital,
profits and losses for P 1,600,000. What would be the capital balances of Fuentes and Garcia after the admission of
Hizon?
2. Cindy and Candy are partners with capital balances of P 1,200,000 and P 800,000, respectively. They share
profits and losses in the ratio of 3:2, respectively. Windy wishes to be admitted as a partner in the partnership.
Required:
Prepare the entries upon the admission of Wendy under each of the following independent cases.
a. Wendy purchases ¼ of the equity of Candy for P 320,000
b. Wendy invests P 400,000 for 1/6 interest.
c. Wendy invests P 800,000 for 1/3 interest in the agreed capital of P 3,000,000.

Partnership Liquidation
1. What characteristics of a partnership justify the absorption by the other partners of the deficiency that
cannot be made good by an insolvent partner?
a. Limited Life and mutual agency
b. Limited life and co-ownership of property
c. Mutual agency and partnership non-taxability
d. Mutual agency and unlimited liability
 2. In the final liquidation transaction, the remaining cash is distributed to the partners. The partners’ share in
the cash distribution is according to their
a. Capital balances
b. Cash balance
c. Profit-sharing ratios
d. Withdrawals
3. Which of the following transactions would not take place in a partnership liquidation?
a. A partner settles his deficiency by contributing cash
b. A partner settles his deficiency by contributing non-cash
c. A partner settles his deficiency by declaring bankruptcy
d. The other partners absorb a partner’s deficiency.
4. A deficiency in the capital of an insolvent partner is
a. A loss to the other partners
b. A gain to the other partners
c. The result of a loss in operations
d. The result of a sale of non-cash assets at a gain.
5. The process of liquidation of a partnership includes all the following steps, except
a. Distributing the remaining cash
b. Obtaining court approval
c. Paying the partnership liabilities
d. Selling the assets

Problem/s
1. The partnership of Mara, Teri and Rita has been suffering financial difficulty. Partners decided to liquidate.
The condensed statement of financial position of Mara, Teri and Rita on this date is as follows:

Mara, Teri and Rita Partnership

Statement of Financial Position
December 31, 2020

Assets
Cash P 80,000.00
Non-cash assets 960,000.00
1,040,000.00
Liabilities and Capital
Accounts Payable P 160,000.00
Mara, Capital 408,000.00
Teri, Capital 352,000.00
Rita, Capital 120,000.00
P 1,040,000.00

The profit and loss ratio is: Mara, 30%; Teri, 20% and Rita, 50%. Rita has no personal assets other than her interest
in the partnership. The non-cash assets were sold for P 640,000. Any deficient partner is insolvent, while the others
are solvent.
Required:
a. Prepare a Statement of liquidation
b. Prepare entries to record the liquidation of the partnership

2. The accounts of the partnership of Ace, Vergel and De Dios at the end of its fiscal year on June 30,2020 are
as follows:
Cash 75,000.00
Non-cash assets 625,000.00
Receivable from Vergel 25,000.00
Total 725,000.00

Liabilities 225,000.00
Loan Payable to De Dios 25,000.00
Ace, Capital (30%) 250,000.00
Vergel, Capital (50%) 150,000.00
De dios, Capital (20%) 75,000.00
Total 725,000.00
The partners decided to liquidate the business and the liquidation took place in several months.
During the first-month, non -cash assets with book value of P 425,000 were sold for P 375,000. The partners
withheld P 75,000 for contingencies. Payment of Liabilities during the first month amounted only to P 175,000.
How much should have Ace received in the first month of the partnership liquidation?

Corporation: Formation and Share Capital Transactions

1. Which of the following would not be considered a characteristic of a corporation?
a. Right of succession
b. Mutual agency
c. Separate legal entity
d. Limited legal liability of shareholders
2. Which of the following statements is false regarding a corporation?
a. Shareholders or stockholders are owners of a corporation
b. The corporation does not terminate even when a shareholder transfers his/her/its interest to another
c. A corporation is normally subject to income tax
d. A corporation, being an artificial being, cannot be sue and sued.
3. The shareholders or members indicated in the Articles of Incorporation, originally forming and composing
the corporation and who are signatories thereof, are called
a. Corporators
b. Incorporators
c. Promoters
d. Subscribers
4. A private corporation in which capital comes from fees paid by individuals composing it and whose owners
are called members is a
a. Domestic corporation
b. Non-stock corporation
c. Open corporation
d. Stock corporation
5. A corporation organized under the Philippine Law
a. Domestic corporation
b. Non-stock corporation
c. Open corporation
d. Stock corporation
Multiple Choice Questions

Which of the following is true?

a) A partner with a debit balance in their capital at the end of the month will no longer be eligible
to receive cash in any type of liquidation
b) partner who contributed an asset should always be credited the fair value of that asset in
their capital balance
c) Liabilities owed to partners should be settled simultaneously with liabilities owed to third party
creditors
d) The profits of the partnership may be shared by the partners in a ratio that is different from how they
share their losses

2. Which of the following statement is correct?

A. A partnership may be established for charitable purposes.
B.Bonus is provided to managing partners as long the partnership has net income.
C.Liquidation is the process of winding up the affairs of the partnership
D.The partners may only receive their share in the partnership assets after payment to all partnership
creditors.

3. When can the bonus method be applied?

a) When a partnership is formed
b) When a new partner is added to the partnership
c) When an existing partner retires from the partnership
d) The bonus method can be applied in all three of the above circumstances

4. Statement I: The final distribution of cash to the partners shall be made based on their profit and loss
ratio.
Statement II: The right of offset is exercised when a partner's capital account reports a debit balance
and he has at the same time a receivable from the partnership.
A. Only statement I is correct.
B. Only statement II is correct.
C. Both statements are correct.
D. Neither of the statements is correct.

5. Which of the following partners will share on the deficiency of an insolvent partner?
I. A deficient but solvent partner
II. A deficient and insolvent partner
III. A non-deficient but solvent partner
IV. A non-deficient and insolvent partner
A. I and III B. III and IV C. I and II D. I, III and IV

6. On January 30, 2023, the partners of TRIPLE A Partnership, Allany and Anton, attended the birthday
party celebration of the other partner, Alexa. At the time that Alexa blew her birthday candles, she
intentionally put a lot of cake icing to Allany’s face. Due to Alexa’s actions, Allany felt humiliated and
decided to withdraw from the partnership the following day. The Trial balance of the partnership for the
month ended January 31, 2023 is as follows:

Dr. Cr.
Assets 265,000.00
Liabilities 125,000.00
Allany, Capital (30%) 30,000.00
Alexa, Capital (50%) 45,000.00
Anton, Capital (20%) 40,000.00
Revenues 40,000.00
Expense 15,000.00
Total 280,000.00 280,000.00

The agreement of the partners as to the allocation of net income is as follows:

a. Partners are entitled to 12% interest allowance based on their beginning capital balance.
b. Partner Anton receives P12,000 annual salary allowance.
c. Remainder divided to the partners based on their profit and loss ratio.

The partners agreed to revalue their assets pursuant to the withdrawal of Partner Allany, the balance of
Partner Anton’s capital after revaluation is P44,880. The cash settlement for Partner Allany’s capital
amounted to P36,445.

7. How much is the capital balance of Partner Alexa after the withdrawal of Partner Allany?
A. 53,950 B. 44,800 C. 54,025 D. 56,875

The following condensed balance sheet is presented for the partnership of Art and Bea, who share profits
and losses in the ratio of 60:40, respectively:
Cash P 45,000 Accounts payable P 120,000
Other assets 625,000 Art, capital 348,000
Bea, loan 30,000 Bea, capital 232,000
Total P 700,000 Total P 700,000
The assets and liabilities are fairly valued on the balance sheet. Art and Bea decide to admit Ces as a
new partner with 20% interest.

8. What amount should Ces contribute in cash or other assets?

a. P110,000 c. P140,000
b. P116,000 d. P145,000
9. Instead of admitting a new partner, Art and Bea decide to liquidate the partnership. If other assets are
sold for P500,000, what amount of the available cash should be distributed to Art?
a. P255,000 c. P327,000
b. P273,000 ` d. P348,000

10. On December 31, 1998, the partners of MNP Partnership decided to liquidate their business.
Immediately before liquidation, the following condensed balance sheet was prepared:

Cash P 50,000 Liabilities P 375,000

Noncash assets 900,000 Nieva, loan 80,000
Perez, loan 25,000
Munoz, capital (50%) 312,500
Nieva, capital (30%) 107,500
_______ Perez, capital (20%) 50,000
 Total P 950,000 Total P 950,000
The noncash assets were sold for P400,000. Assuming Perez is the only solvent partner, what amount
ofadditional cash will be invested by Perez? (rounded to the nearest peso)

a. P 37,143 b. 25,000 c. 5,250 d. 0