True or False 5.
What is defined a s a condition in which a company is unable
1. The accounting for the assets and liabilities of a partnership
business is different from that of a sole proprietorship or a
corporation. True
2. Mr. A contributed land with book value of P1M and fair value
of P2M to a partnership business. MR. A’s contribution shall be
valued at P1M in the partnership books. False
3. According to the law, if no profit or loss sharing ratio has been
agreed upon, the partners shall share equally. False
4. The total capital of a partnership increases when an incoming
partner purchases interest from an existing partner. False
5. According to the law, a partnership is dissolved when a new
partner is admitted or when an existing partner withdraws. True
6. Dissolution and Liquidation are the same. False
7. In fully secured creditors, the estimated realizable value is less
than its liability. False
8. In corporate liquidation, the corporation is given 3 years from
the date of approval within which to wind up its affairs. True
9. Joint control distinguishes an interest in a joint arrangement
from other types of investment. True
10. A joint arrangement exists only if decisions on relevant
activities require the unanimous consent of all the participants to
the arrangement. False
Multiple Choices
1. Mr. I and Mr. M formed a partnership business. Mr. I
contributed equipment with fair value of P2M. However, the
partners agreed that Mr. I’s capital account should be credited
for P2.2M. Which of the following statement is correct?
a. The P.2M excess credit is treated as a bonus to Mr. M.
b. Mr. M is probably bringing in expertise or special skill to the
business.
c. Mr. M’s capital account will be debited for P.2M.
d. This is unacceptable. Mr. I’s capital credit should be P2M.
2. Which of the following is not a component of the formula
used to distribute partnership profits to the partners?
a. Salary allocation to those partner’s working
b. After all other allocation, the remainder divided according to
the profit or loss sharing ratio
c. Interest on the average capital investment
d. Interest to notes to partner
3. It is the change in the relation of the partners caused by any
partner being disassociated from the business
a. Formation b. Operation c. Dissolution d. Liquidation
4. A and B are partners of AB Co., which is undergoing
liquidation. After AB Co.'s assets were realized and its liabilities
settled, A's capital account has a negative balance. Which of the
following statements is correct?
a. B shall absorb A's capital deficiency if A is solvent.
b. A shall make an additional contribution if A is insolvent.
c. A and B shall make pro rata contributions to eliminate A's
capital deficiency.
d. B shall absorb A's capital deficiency if A is insolvent.
to meet debts as their debts.
A. Deficit
B. Liability
C. Insolvency
D. Credit Squeeze
6. The estimated recovery of unsecured creditors without priority
is equal
a. to the realizable value of the assets pledged plus the excess
amount multiplied by the estimated recovery percentage.
b. to the realizable value of the assets pledged minus the excess
amount multiplied by the estimated recovery percentage.
c. to their claims multiplied by the estimated recovery
percentage.
d. any of these
7. A joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the
arrangements.
a. joint operation
b. joint venture
c. joint arrangement
d. control
8. Which of the following is an essential element of a joint
control?
a. significant influence
b. control
c. joint control
d. joint venture
9. When there are no separate books maintained for a joint
operation, the joint operation’s transactions may be summarized
in a management account called “Joint Operation”. Unsold
inventory is placed in which side of the Joint Operation T-
accounts?
a. credit side
b. debit side
c. a or b
d. not placed
10. On settlement, Brown Co., a joint operator, has a credit
balance in its Joint Operation account, representing only its own
transactions with the joint operation as well as those it has made
on behalf of the joixnt operation. Which of the following
statements is most likely to be correct?
a. Brown Co. may need to make cash payments to the other
joint operators
b. Brown Co. will receive cash from the other joint operators
c. The joint operation has earned profit.
d. The joint operation has incurred loss.
Problem Solving
1. Bada and Kirsten agreed to form a partnership. Bada
contributed equipment with carrying amount of P100, 000 and
fair value of P70,000, while Kirsten contributed cash of
P200,000. The partners agreed to have a profit sharing ratio of
2:1, respectively. The initial credits to the partner’s capital
accounts shall reflect this fact. Under the bonus method, how
much is the balance of the capital account Kirsten immediately
after the partnership formation?
a. P90,000
b. P200,000
c. P135,000
d. P70,000
2. Cooky, Tata and Koya formed a partnership. Cooky
contributed cash of P80, 000. Tata contributed equipment with
historical cost of P700, 000, carrying amount of P180, 000, and
fair value of P90,000. Koya contributed building with historical
cost of P1,000,000, carrying amount of P480,000, and fair value
of P690,000. The partnership will assume the unpaid mortgage
of P580,000 on the building. Which partner has the largest
capital account balance on partnership formation?
a. Cooky What is the estimated recovery percentage for partially secured
b. Tata creditors.
c. Koya a. 56.92% b. 63.79% c. 70.81% d. 65.13%
d. None, all are equal
10. How much will be paid to unsecured creditors?
3. A, B and C are partners, sharing in partnership profits in the a. 50,000 b. 55,000 c. 60,000 d. 65,000
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 11. The following information pertains to the transfer of real
thesalary but before deducting the bonus. The partnership earned estate pursuant to a debt restructuring by Jam Company to
profit of ₱560,000 before salaryand bonus. How much is the Republic Company in full liquidation of Jam Company's liability
share of A? to Republic Company.
a. 214,400
b. 196,000 Carrying amount of liability liquidated - 150,00
c. 224,000 Carrying amount of real estate transferred - 100,000
d. 189,667 Fair value of real estate transferred - 90,000

4. Mina and Lia share in partnership profits and losses on a What amound should Jam report as a gain (loss) on restructuring
40:60 ratio. During the year, Mina’s capital account has a net debt?
increase of ₱50,000. Partner Mina made contributions of a. 60,000 b. 90,000 c. 100,000 d. none of these
₱10,000 and capital withdrawals of ₱60,000 during the year.
How much was the share of Lia in the partnership profit for the 12. What amount should Jam report as a gain (loss) on the
year? transfers of assets.
a. 100,000 a. (10,000) b. 10,000 c. 20,000 d. (20,000)
b. 150,000
c. 200,000
d. 180,000

5. On December 31, 2018, ABC Partnership’s Statement of

Financial Position shows that A, B, and C have capital balances
of P400,000, P300,000 and P100,000 with profit or loss ratio of
1:4:5. On January 1, 2019, C retired from the partnership and
received P80,000. At the time of C’s retirement, the assets and
liabilities of the partnership are properly valued. What is the
capital balance of B after the retirement of C?
a. 284,000 b. 308,000 c. 320,000 d. 316,000

6. On December 31, 2018, the Statement of Financial

Position of ABC Partnership provided the following data with
profit or loss ratio of 5:1:4: Current Assets 1,500,000 Total
Liabilities 500,000 Non-current Assets 2,000,000 A, Capital
1,100,000 B, Capital 1,200,000 C, Capital 700,000 On
January 1, 2019, D is admitted to the partnership by investing
P500,000 to the partnership for 10% capital interest. The total
agreed capitalization of the new partnership is P3,000,000.

What is the capital balance of C after the admission of D to the

partnership?
a. 580,000 b. 820,000 c. 500,000 d. 780,000

7. Jake and Jay, who share profits and losses in the ratio 3:7,
decided to liquidate their Hyphen Partnership. The partner’s
capital balances are P300,000 and P190,000, respectively.

If all partnership assets and all liabilities are realized and settled
at their carrying amounts, how much will Jay receive from the
liquidation?
a. 300,000 b. 190,000 c. 120,000 d. 110,000

8. The partnership has total liabilities of P200,000. If all

partnership assets are realized at P500,000, how much will Jake
receive from the liquidation?
a. 243,000 b. 57,000 c. 133,000 d. 300,000

9. Hybe Company has had severe financial difficulties and is

considering the possibility of liquidation. At this time, the
company has the following assets (stated at net realizable value)
and liabilities.
Assets (pledge against debts of P 70,000) - 116,000
Assets (pledge against debts of P 130,000) - 50,000
Other assets - 80,000
Liabilities with priority - 42,000
Unsecured creditors - 200,000