MOUNTAIN VIEW COLLEGE
College Heights Mt. Nebo
8709 Valencia City, Bukidnon, Philippines
Bachelor of Science in Accountancy
PARTNERSHIP AND CORPORATION ACCOUNTING
ACCOUNTING FOR PARTNERSHIP DISSOLUTION
INSTRUCTIONS: Select the best answer for each of the following questions. Mark only one
answer for each item on the answer sheet provided. Strictly NO ERASURES ALLOWED.
Erasures will render your examination answer sheet INVALID. Use PENCIL NO. 2 only.
1. The following instance dissolve a partnership except
a. Admission of a new partner.
b. Change in the name of the partnership.
c. Conversion of a partnership to a corporation.
d. Revaluation of partnership assets.
Answer: D
2. Before the effectivity of dissolution, assets and liabilities should be restated at their
a. fair market values.
c. liquidating values.
b. realizable values.
d. historical values.
Answer: A
3. An adjustment of the assets and liabilities of the partnership to their fair market values
before dissolution is called
a. Positive asset revaluation
c. Asset revaluation
b. Negative asset revaluation
d. Revaluation surplus
Answer: C
4. Statement 1: Mutual agency requires that an admission of a new partner is possible only
with the consent of all partners.
Statement 2: If there is a deficit capital contribution of the old partner(s), he will require a
bonus from the new partner to meet his agreed capital contribution.
a. Only statement 1 is true.
c. Both statements are true.
b. Only statement 2 is true.
d. Both statements are false.
Answer: D
5. Statement 1: The admission of new partner through purchase of interest of existing
partner will increase the partnership capital.
Statement 2: Admission of new partner through his direct investment in the partnership
will increase the partnership capital even the under bonus method.
a. Only statement 1 is true.
c. Both statements are true.
b. Only statement 2 is true.
d. Both statements are false.
Answer: B
6. When a new partner is admitted by his direct investment in the partnership and if his
agreed capital credit is more than his agreed total contributed capital, there is a
a. Bonus to new partner.
c. no bonus to all partners.
b. Bonus to old partners.
d. claim from new partner.
Answer: A
7. The following transactions will affect the balance of the total partnership capital except
a. Retirement of a partner by settlement equal to his interest.
b. The partnership generates net income for the year.
c. Admission by purchase without implied goodwill, but with bonus.
d. Permanent withdrawals by partners.
Answer: C
8. Which is the least likely valid reason for partnership dissolution?
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a. Admission of a new partner
b. Retirement of a partner
c. Declaration of partner’s insolvency
d. Losses sustained by the partnership for the year
Answer: D
9. Which of the following is not a cause of partnership dissolution?
a. Retirement of one of the partners
b. Admission of a new partner
c. Death of a partner
d. Change in the civil status of a partner
Answer: D
10. Statement 1: The deceased partner is considered to have withdrawn from the partnership
and his heirs or estate may receive his interest in the firm.
Statement 2: In order not to seriously impair the working capital and the operation of the
businesses, the partnership may insure the lives of its partners and present itself as the
beneficiary.
a. Only statement 1 is true.
c. Both statements are true.
b. Only statement 2 is true.
d. Both statements are false.
Answer: C
11. Upon dissolution, the partners may agree to adjust the partnership assets and liabilities.
The net effect of such restatement of partnership assets and liabilities must be adjusted to
the respective partners’ capital balances based on their
a. ending capital balances
b. old profit and loss ratio
c. new profit and loss ratio
d. beginning capital balances
Answer: B
12. Which of the following is not correct regarding the admission of a new partner?
a. The admission of a new partner needs the consent of each of the old partners.
b. The admission by purchase of interest of an existing partner need not have the consent
of remaining partners.
c. The admission of a new partner by direct investment in he partnership must have the
consent of all the existing partners.
d. The admission of a new partner either by purchase or by direct existing partnership.
Answer: B
13. If he new partner is admitted by purchase of interest of an old partner at an amount higher
than its book value, this will result in
a. the increase in total partnership’s capital
b. the decrease the partnership’s net assets.
c. no change in partnership’s net assets.
d. no change in old partner’s capital.
Answer: C
14. The admission of a new partner by direct investment in the partnership will result in the
increase
a. in partnership’s assets
b. in total partnership’s capital
c. the old partners’ capital
d. the partnership’s assets and total capital
Answer: D
15. If ever bonus is agreed to be recognized in he admission of new partner by direct
investment I the partnership,
a. bonus is recorded as debit in the partnership’s books
b. bonus is recorded as credit in the partnership’s books
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c. bonus to new partner will make the capital credit to admitted partner more than his
capital contributed
d. bonus to old partner will make the capital credit of the admitted partner more than his
capital contributed
Answer: C
16. When Dj retired from the Partnership Dj, Zig and Jowa, the final settlement of Dj’s
partnership interest exceeded his capital balance. Under the bonus method, the excess
a. reduced the capital balance of Zig and Jowa
b. had no effect to the capital balance of Zig and Jowa
c. was recorded as debit to bonus
d. was recorded as expense
Answer: A
17. Statement 1: As a rule, the personal assets of the partners shall first be applied to their
respective personal assets of the partners shall first be applied to their respective personal
creditors.
Statement 2: In general, insolvency arises when a business (or individual) cannot pay
outstanding obligation as they mature.
a. Only statement 1 is true.
c. Both statements are true.
b. Only statement 2 is true.
d. Both statements are false.
Answer: C
18. If bonus is trace is traceable to the existing partners, it is allocated among them according
to the
a. profit or loss agreement of the existing partnership
b. profit or loss agreement of the new partnership
c. capital ratio of existing partners
d. goodwill to incoming partner
Answer: A
19. Which of the following best describes the admission of new partner by investing an
amount more than his capital credit under the bonus method?
Net assets
Total capital
a.
No effect
Increase
b.
Increase
Increase
c.
Decrease
Decrease
d.
No effect
No effect
Answer: B
20. Which of the following best describes the admission of a new partner by investing an
amount lesser than his capital credit under the bonus method?
Net assets
Total capital
a.
No effect
Increase
b.
Increase
Increase
c.
Decrease
Decrease
d.
No effect
No effect
Answer: B
21. Ro and Que are partners who share profits and losses equally. Each has a capital balance
of P40,000 and P50,000, respectively. They agreed to admit Lix as a new partner upon
investment of land costing P50,000, but which is appraised at P60,000. Profits and losses
are to be shared equally after the admission of Lix. What is the percentage of Lix’s
interest in the firm?
a. 40,00%
c. 33.33%
b. 33.71%
d. 35.71%
Answer: A
22. Based on the above case, what is the capital balance of Ro, Que and Lix in the
partnership?
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a. P50,000 each
b. P40,000, P50,000 and P60,000, respectively
c. P40,000, P50,000 and P50,000, respectively
d. P46,667 each
Answer: B
23. If the original partnership capital is P100,000 and the new partner is admitted by
investing P10,000 for 20% interest in the partnership under bonus method, the new
partnership’s accounting elements would be
Net assets
a.
P125,000
b.
P125,000
c.
P110,000
d.
P100,000
Answer: C
Total capital
P125,000
P110,000
P110,000
P100,000
24. If the total assets of the existing partnership is P500,000 and the new partner is admitted
by investing P100,000 for 20% interest in the partnership, under bonus method the new
basic accounting elements of the partnership is described as
Net assets
Total capital
a.
P500,000
P600,000
b.
P600,000
P600,000
c.
P625,000
P625,000
d.
P625,000
P600,000
Answer: B
25. Suppose that the old partnership of A & B reported the following:
Partners
Capital
Profit and loss ratio
A
P200,000
40%
B
P 300,000
60%
If C is to be admitted for 20% interest in the partnership’s asset and profit by investing
P125,000, then new profit and loss ratio of the new partnership without specific
agreement between A and B would be:
A
B
a.
40%
60%
b.
40%
60%
c.
32%
48%
d.
33%
33%
Answer: C
26. If an existing partnership admits a new partner for a 1/5 interest in the partnership’s total
agreed capital of P40,000 for an investment of P10,000, the admission of new partner will
result in the recognition of
a. bonus to the old partners if the total net assets contributed amounted P40,000
b. bonus to the new partner if the total net assets contributed were value at P40,000.
c. bonus to the new partner if the total net assets contributed by old partners
amounted to P30,000.\
d. no bunos if the total net assets contributed by the old partners were appraised at
P30,000.
Answer: A
27. Before the admission of C, the partnership of A and B reported a net asset of P180,000
which A and B partners contributed equally. C is admitted by investingP60,000 for
capital credit of P80,000. Which of the following is the effect under bonus method?
The above transaction will effect a
a. decrease on he capital balances of the old partner amounting to P10,000 each.
b. bonus of P20,000 to the new partner.
c. balance of P80,000 capital to all of the partners.
d. All of the above
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Answer: D
28. The capital balances and profit/loss sharing of X, Y, and Z just before the retirement of X
are
Partners
Capital
Profit and loss ratio
X
P150,000
30%
Y
160,000
30%
Z
200,000
40%
Upon retirement of X he is paid P165,000. If they agreed that bonus is to be recognized,
the partnership’s total capital balance after retirement of X would be
a. P360,000
c. P295,000
b. P345,000
d. P290,000
Answer: B
29. The existing capital balances of Abnoy, Bitoy and Caloy prior to retirement of Abnoy
were as follows:
Partners
Capital
Profit and loss ratio
Abnoy
P150,000
20%
Bitoy
200,000
30%
Caloy
250,000
50%
Abnoy retired from the partnership by selling his whole interest in he partnership to Doy
for P120,000. This retirement of Abnoy will result in the total partnership’s assets and
capital as:
Net assets
Total capital
a.
P450,000
P450,000
b.
P480,000
P480,000
c.
P600,000
P600,000
d.
P720,000
P720,000
Answer: C
30. The existing capital balances of Ali, Billy and Clay prior to retirement of Ali were as
follows:
Partner
Capital
Profit and loss ratio
Ali
P100,000
25%
Billy
200,000
35%
Clay
300,000
40%
Ali retired from the partnership by selling his whole interest in the partnership to Billy
and Clay for P120,000. This retirement of Ali will result in the total partnership’s assets
and capital as:
Net assets
Total capital
a.
P480,000
P480,000
b.
P500,000
P500,000
c.
P600,000
P600,000
d.
P720,000
P720,000
Answer: C
31. Gerry and Narda are partners who have a capital of P90,000 each and share profits and
losses equally. They offer to admit Art for a one third interest in the firm upon his
investment of P60,000. Under the bonus method, what is the total agreed capital of the
partnership?
a. P180,000
c. P270,000
b. P240,000
d. P150,000
Answer: B
32. Ba and Ka are partners who share profit and losses in the ratio of 7:3, respectively. On
December 31, 200C, their respective capital accounts were as follows:
Ba
P350,000
Ka
300,000
Total
P650,000
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On the date, they agreed to admit Daw as a partner with a one-third interest in he capital
and profits and losses, and upon his investment of P250,000. Under the bonus method,
what are the capital balances of Ba, Ka and Daw immediately after the admission of
Daw?
Ba, Capital
Ka, Capital
Daw, Capital
a.
P350,000
P300,000
P325,000
b.
P315,000
P285,000
P300,000
c.
P316,000
P283,333
P300,000
d.
P350,000
P300,000
P250,000
Answer: B
33. The existing capital balances of old partners prior to admission of Dare as follows:
Partners
A
B
C
Capital balances
P100,000
P200,000
P300,000
Profit and loss ratio
20%
30%
50%
D is to be admitted to the partnership by direct purchase of 20% each of the existing
partners’ capital for P100,000. The net assets of the partnership right after the admission
of D would be
a. P340,000
c. P600,000
b. P300,000
d. P480,000
Answer: C
34. The existing capital balances of old partners prior to admission of D re as follows:
Partners
A
B
C
Capital balances
P200,000
P280,000
P320,000
D is to be admitted into the partnership by investing P200,000 for 18% interest in capitall
and profits of the partnership for this investment. The assets of the partnership are not to
be revalued. Under the bonus method the total partnership’s capital after admission of D
is
a. P800,000
c. P1,000,000
b. P975,610
d. P 650,000
Answer: C
35. The capital balances in the FSH are Farrah’s capital P600,000, Sarrah’s capital P500,000,
and Hannah capital P400,000, and income ratios are 5:3:2, respectively. The FISH
Partnersip is formed by admitting Irish into the firm with a cash investment of P600,000
for a 25% capital in admitting Irish is
a. P100,000
c. P 37,500
b. P 75,000
d. P 15,000
Answer: D
36. Dunn and Grey are partners with capital account balances of P60,000 and P90,000
respectively. They agree to admit Zorn as a partner with a one-third interest in capital and
profits, after agreed revaluation of partnership’s assets, for his investment of P100,000.
The increase in Grey’s capital as a result of the revaluation of partnership’s assets for the
admission of Zorn is
a. P20,000
c. P50,000
b. P30,000
d. P66,667
Answer: B
37. On June 30,200A, the partnership statement of financial position of Coll, Maduro, and
Prieto is as follows:
Assets, at cost
P180,000
P&L Ratio
Coll, Loan
9,000
Coll, Capital
20%
42,000
Maduro, Capital
20%
39,000
Prieto, Capital
60%
90,000
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Coll has decided to retire from the partnership. By mutual agreement, the assets are to be
adjusted to their fair value of P216,000 at June 30, 200A. It was agreed that the
partnership would pay Coll P61,200 cash for Coll’s interest, including Colls’s loan which
is to be repaid in full. Bonus to Coll is to be recognized. After Coll’s retirement, what is
the balance of Maduro’s Capital account?
a. P36,450
c. P45,450
b. P39,000
d. P46,200
Answer: C
Items 38 to 40 are based on the following:
Beginning capital
S (50%)
P540,000
G (50%)
P460,000
S and G partners would like to accept Vas a new partner to contribute cash amounting to
P250,000 for a capital credit of P300,000 representing 20% of the new partnership total
capitalization.
38. The total amount of the new partnership total capitalization is
a. P1,500,000
c. P1,200,000
b. P1,250,000
d. P1,000,000
Answer: A
39. The amount of bonus to V is
a. P250,000
b. P200,000
Answer: D
c. P150,000
d. P 50,000
40. The amount of positive (negative) asset revaluation is
a. P300,000
c. P200,000
b. P250,000
d. P150,000
Answer: B
Items 41 to are based on the following:
PSO Partnership is engaged in trading business with the following partners’ capital balances and
P&L ratio.
Capital
P&L ratio
Pitt, managing partner
P400,000
50%
Stone
P300,000
30%
Oprah
P200,000
20%
The quarterly business operation of PRO Partnership is as follows:
1st Qtr.
2nd Qtr.
3rd Qtr.
Gross income
P500,000
P300,000
P400,000
Operating expenses
300,000
250,000
300,000
4th Qtr.
P800,000
500,000
Oprah died on October 1 during the year. He was insured by the partnership for financial
security purposes. The partnership is the irrevocable beneficiary. The life insurance policy has
the following data:
Policy
P1,000,000
Annual premium paid
40,000
Cash surrender value
100,000
It was determined that the partnership land is undervalued by P200,000.
41. The share of Oprah in the operating net income of the Partnership is
a. P130,000
c. P150,000
b. P200,000
d. P 70,000
Answer: (Note: The share of Oprah is only until the time of her death because
partnership is dissolved on such date.
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42. The gain on life insurance settlement is
a. P890,000
c. P870,000
b. P880,000
d. P860,000
Answer: A
43. The cash settlement of Oprah would be
a. P270,000
c. P448,000
b. P330,000
d. P460,000
Answer: C
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