P2 Exam

Multiple Choice (1 point each)

1. Which of the following statements is correct?

a. An advantage of a partnership is that it is difficult to dissolve.
b. Partner A contributed cash of ₱100 and land with carrying amount of ₱500 and fair value of ₱700 to a
partnership. If no bonus is given to any partner, Partner A’s capital account should be credited for ₱600.
c. Partner C contributed inventory costing ₱500 but with a net realizable value of ₱400 to a partnership. The
related accounts payable of ₱100 will be assumed by the partnership. The net credit to Partner C’s capital
account in the partnership books is ₱300.
d. A partnership business has a legal life of 50 years.

2. A and B agreed to form a partnership. The contributions of the partners are as follows:
A B
Cash 600,000
Inventory 20,000
Land 400,000
Equipment 50,000

Additional information:
• Half of the inventory is unpaid. The partnership agreed to assume the related accounts payable.
• The land has a fair value of ₱700,000 and is subject to a mortgage of ₱100,000. However, B agreed to settle
the mortgage personally.

How much are the adjusted capital contributions of A and B, respectively?

a. 670,000; 690,000
b. 670,000; 700,000
c. 660,000; 700,000
d. 670,000; 600,000

3. Fox, Greg, and Howe are partners with average capital balances during 2002 of ₱120,000, ₱60,000, and
₱40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting
salaries of ₱30,000 to Fox and ₱20,000 to Howe, the residual profit or loss is divided equally. In 2003 the
partnership sustained a ₱33,000 loss before interest and salaries to partners. By what amount should
Greg’s capital account change?
a. 7,000 increase.
b. 11,000 decrease.
c. 29,000 decrease.
d. 35,000 increase.

Use the following information for the next four questions:

The partners’ capital accounts in AB Partnership before the admission of a new partner are as follows:

Capital accounts P/L ratio

A, Capital 200,000 60%
B, Capital 120,000 40%
 320,000

4. C purchases 20% interest in the partnership from A and B for ₱280,000. How much is the total equity of
the partnership after the admission of C?
a. 320,000 c. 440,000
b. 240,000 d. 200,000

5. C invests ₱120,000 cash for a 20% interest in the net assets and profits of the partnership. Under the
bonus method, how much is the initial capital credit of C?
a. 88,000 c. 264,000
b. 240,000 d. 0

6. Before the admission of C, B decides to retire. A acquires B’s interest for ₱180,000. How much is the capital
balance of A after the retirement of B but before the admission of C?
a. 200,000 c. 264,000
b. 280,000 d. 320,000

7. Before the admission of C, B decides to retire. The partnership pays B ₱180,000 as settlement of his
partnership interest. How much is the capital balance of A after the retirement of B but before the
admission of C?
a. 140,000 c. 260,000
b. 200,000 d. 320,000

8. A, B and C agreed to liquidate their partnership. Information before the start of the liquidation process is
as follows:
Cash……………………………………….. 25,200
Non-cash assets…………………………. 297,600
Notes payable to C..……………………. 38,400
Other liabilities…………………………… 184,800
A, capital (50%)……………………………… 72,000
B, capital deficit (30%)……………………….. (12,000)
C, capital (20%)……………………………….. 39,600

Non-cash assets with carrying amount of ₱240,000 were sold for ₱216,000. Liquidation expenses of
₱16,800 were incurred. All the partners are insolvent. How much did C receive in the cash distribution to
the partners?
a. 46, 457
b. 74,571
c. 39,600

9. Which of the following is true?

I. A corporation is not an entity which is separate and distinct from its owners.
II. A corporation can be organized for the purpose of making a profit or it may be nonprofit.

a. I only
b. II only
c. Both I and II
 d. Neither I nor II

10. Which of the following is true?

I. The Board of Directors represents the company’s management.
II. A corporation must be incorporated in each state in which it does business.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

11. Which of the following is true?

I. The par value of common stock must always be equal to its market value on the date the stock is issued.
II. When no-par value stock does not have a stated value, the entire proceeds from the issuance of the
stock becomes legal capital.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

12. Ed Stone has invested $400,000 in a privately held family corporation. The corporation does not do well
and must declare bankruptcy. What amount does Stone stand to lose?
a. Up to his total investment of $400,000.
b. Zero.
c. The $400,000 plus any personal assets the creditors demand.
d. $200,000.

13. Which of the following statements reflects the transferability of ownership rights in a corporation?
a. If a shareholder decides to transfer ownership, he must transfer all of his shares.
b. A shareholder may dispose of part or all of his shares.
c. A shareholder must obtain permission from the board of directors before selling shares.
d. A shareholder must obtain permission from at least three other stockholders before selling shares.

14. Simon Company issued 4,000 shares of its $5 par value common stock in payment of its attorney's bill of
$30,000. The bill was for services performed in helping the company incorporate. Simon should record
this transaction by debiting
a. Legal Expense for $20,000.
b. Legal Expense for $30,000.
c. Organization Expense for $20,000.
d. Organization Expense for $30,000.

15. Two thousand shares of treasury stock of Meyer, Inc., previously acquired at $12 per share, are sold at
$18 per share. The entry to record this transaction will include a
a. credit to Treasury Stock for $36,000.
b. debit to Paid-In Capital from Treasury Stock for $12,000.
c. debit to Treasury Stock for $24,000.
d. credit to Paid-In Capital from Treasury Stock for $12,000.
16. Dividends are reported on the
a. income statement.
b. retained earnings statement.
c. balance sheet.
d. income statement and balance sheet.

17. Two classifications of shares appearing in the section of the balance sheet are
a. preference and ordinary.
b. share capital and retained earnings.
c. ordinary share and share premium.
d. treasury shares and share premium.

18. A disadvantage of the corporate form of organization is

a. professional management.
b. tax treatment.
c. ease of transfer of ownership.
d. lack of mutual agency.

19. Alt Corp. issues 5,000 shares of $10 par value common stock at $14 per share. When the transaction is
recorded, credits are made to:
a. Common Stock $50,000 and Paid-in Capital in Excess of Stated Value $20,000.
b. Common Stock $70,000.
c. Common Stock $50,000 and Paid-in Capital in Excess of Par Value $20,000.
d. Common Stock $50,000 and Retained Earnings $20,000

20. Which one of the following events would not require a journal entry on a corporation’s books?
a. 2-for-1 stock split.
b. 100% stock dividend.
c. 2% stock dividend.
d. $1 per share cash dividend.

21. The board of directors of Yancey Company declared a cash dividend of $1.50 per share on 42,000 shares
of common stock on July 15, 20X1. The dividend is to be paid on August 15, 20X1, to stockholders of record
on July 31, 20X1. The correct entry to be recorded on August 15, 20X1, would be

a. Dividends Payable 63,000

Cash 63,000

b. Cash Dividends 63,000

Cash 63,000

c. Cash 63,000
Paid-in Capital 63,000

d. Dividends Payable 63,000

Paid-in Capital 63,000
22. On January 1, Ripken Corporation had 80,000 shares of $10 par value common stock outstanding. On May
11 the company declared a 10% stock dividend to stockholders of record on May 25. Market value of the
stock was $13 on May 11. The entry to record the transaction of May 11 would include a
a. debit to Retained Earnings for $104,000.
b. credit to Cash for $104,000.
c. credit to Common Stock Dividends Distributable for $104,000.
d. credit to Common Stock Dividends Distributable for $24,000.

23. The amount of stock that may be issued according to the corporation’s charter is referred to as the
a. authorized stock.
b. issued stock.
c. unissued stock.
d. outstanding stock.

24. Which of the following is not true of a corporation?

a. It may buy, own, and sell property.
b. It may sue and be sued.
c. The acts of its owners bind the corporation.
d. It may enter into binding legal contracts in its own name.

25. Tomlinson Packaging Corporation began business in 2017 by issuing 50,000 shares of $5 par common
stock for $8 per share and 5,000 shares of 6%, $10 par preferred stock for par. At year end, the common
stock had a market value of $10. On its December 31, 2017 balance sheet, Tomlinson Packaging would
report
a. Common Stock of $500,000.
b. Common Stock of $250,000.
c. Common Stock of $400,000.
d. Additional Paid-in Capital of $330,000.

26. Entity A received a subscription for 2,000 shares at 18 per₱ share on March 31, 20x1. Entity A’s shares
have a par value 5 ₱ per share. Entity A collected the subscription receivable on May 15, 20x1. Which of
the following statements is correct?
a. Entity A should credit share premium for 13,000 on March 31, 20x1.
b. Entity A should credit share premium for 26,000 on March 31, 20x1. .
c. Entity A should credit share premium for 13,000 on May 15, 20x1.
d. Entity A should credit share premium for 26,000 on May 15, 20x1.

27. Two years ago, Entity A reacquired 2,000 of its own shares with par value of 100 per share for 240,000.
Today, Entity A reissues half of the treasury shares at 160 per share. The journal entry to record the
reissuance includes which of the following?
a. Credit to Retained earnings – unrestricted account for 240,000
b. Debit to Treasury shares account for 120,000
c. Credit to Share premium – treasury shares for 80,000
d. Credit to Share premium – treasury shares for 40,00

28. Entity A reacquires 10,000 of its own shares for 50. The shares₱ have par value of 10 and were originally
issued at 15 per share. Subsequently, Entity A reissues the 10,000 shares at 48 per share. The journal entry
to record the reissuance involves which of the following?
 a. Debit to Retained earnings for 20,000
b. Credit to Cash for 480,000
c. Debit to Share premium for 50,000
d. Debit to Treasury shares for 500,000

29. Entity A reacquires 10,000 of its own shares for 50. The shares₱ have par value of 10 and were originally
issued at 15 per share. Subsequently, Entity A reissues half of the reacquired shares at 58 per₱ share and
retires the other half. The journal entry to record the retirement of the shares includes which of the
following?
a. Debit to Retained earnings for 175,000
b. Credit to Share premium - retirement for 40,000
c. Debit to Share premium for 50,000
d. Debit to Retained earnings for 135,000

30. Which of the following is an appropriate presentation of treasury stock?

a. As a marketable security
b. As a deduction at cost from total stockholders' equity
c. As a deduction at cost from total contingent liabilities
d. As a deduction at par from total stockholders' equity

Problem Solving (2 points each)

1. On January 1, 20x1, A, B and C formed a partnership by combining their separate business proprietorships. A
contributed cash of ₱500,000. B contributed land with a ₱360,000 carrying amount, a ₱400,000 original cost,
and ₱800,000 fair value. The partnership accepted responsibility for the ₱350,000 mortgage attached to the
property. C contributed equipment with a ₱300,000 carrying amount, a ₱750,000 original cost, and ₱550,000
fair value. The partnership specifies that profits and losses are to be shared equally but is silent regarding
capital contributions. How much is the initial capital of the partnership?

2. The partnership agreement of Reid and Simm provides that interest at 10% per year is to be credited to each
partner on the basis of weighted-average capital balances. A summary of Simm’s capital account for the year
ended December 31, 2003, is as follows:

Balance, January 1 140,000

Additional investment, July 1 40,000
Withdrawal, August 1 (15,000)
Balance, December 31 165,000

What amount of interest should be credited to Simm’s capital account for 2003?

15,350
3. Trailhead Inc.’s December 31, 2005 trial balance includes the following balances: Common stock, $14,000;
Paid in Capital in Excess of Par, $36,000, Retained Earnings, $32,000; and Treasury stock, $3,200. Total
stockholders’ equity at December 31 2005 is

78,800

4. Roberson Corporation was organized on January 1, 2005, with authorized capital of 500,000 shares of $10 par
value common stock. During 2005, Roberson issued 20,000 shares at $12 per share, purchased 2,000 shares
of treasury stock at $13 per share, and sold 2,000 shares of treasury stock at $14 per share. What is the amount
of total additional paid-in capital at December 31, 2005?
20k×(12-10)=40K
2K×14-2k×13=2K 42,000
40K+2K=42K
5. As of January 1, 20XX, Elena’s Store had a balance in its retained earnings account of $100,000. During the
year Elena’s Store had revenues of $80,000 and expenses of $45,000. In addition, the business paid cash
dividends of $20,000. What is the balance in Retained Earnings at December 31, 20XX for Elena’s Store?

100K+80K-45K-20K=115K