QUIZ 1 - Accounting for Special
Transactions
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Points: 26/30
1
SECTION *
BSA 2-12
BSA 2-13
BSA 2-15
BSA 2-17
BSMA 2-9
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2
Statement I. A partnership is a taxable entity.
Statement II. Non-cash assets contributions are recorded at fair market value. *
(0/1 Point)
Both statements are true.
Both statements are false.
Statement I is true; Statement II is false.

Statement I is false; Statement II is true.
3
A large cash withdrawal of Partner AAA from the ABC Partnership is viewed by all partners
as a permanent reduction of Partner AAA’s equity in the partnership. It should be recorded
in the books with a debit to: *
(1/1 Point)
Loan Receivable from AAA
AAA, Capital

AAA, Drawing
Retained Earnings
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4
Statement I. Any partner can be held personally liable for all debts of the partnership.
Statement II. Advances made by the partnership to a partner affect the capital balance of
that partner. *
(0/1 Point)
Both statements are true.
Both statements are false.
Statement I is true; Statement II is false.
Statement I is false; Statement II is true.

5
Which of the following statement concerning the formation of partnership business is
correct? *
(1/1 Point)
Philippine financial Reporting Standard (PFRS) allows recognition of goodwill arising from
the formation of partnership.
The juridical personality of the partnership arises from the issuance of certification of
registration.
The parties may become partners only upon contribution of money or property but not of
industry or service.
The capital to be credited to each partner upon formation may not be the amount
actually contributed by each partner.

6
Which of the following is not a condition of a limited partnership? *
(1/1 Point)
Limited partners are expected to have an active role in the management of the
partnership.

A limited partner’s liability will be limited to his investment in the partnership.
One partner of the limited partnership must be a general partner.
Limited partnership will have more than one class of a partner.
7
Statement I. It is easy and inexpensive to organize compared with a corporation.
Statement II. A partner may be subject to a personal liability for the wrongful acts or
omissions of his co-partners. *
(1/1 Point)
Both statements are true.
Both statements are false.
Statement I is true; Statement II is false.
Statement I is false; Statement II is true.


8
When a partnership is formed, equity dictates that assets contributed to the partnership be
recorded in the books at their: *
(0/1 Point)
Adjusted Value

Historical Value
Book Value
Fair Value
9
The disadvantages of the partnership form of business organization, compared to
corporations, include: *
(1/1 Point)
the legal requirements for formation.
unlimited liability for the partners.

the requirement for the partnership to pay income taxes.
the extent of governmental regulation.
10
Two individuals who were previously sole proprietors formed a partnership. Property other
than cash which is part of the initial investment in the partnership would be recorded for
financial accounting purposes at the: *
(1/1 Point)
Fair value of the property at the date of the investment.
Book value of the property at the date of the investment.
Agreed value of the property at the date of the investment.
Original value of the property at the date of the investment.


11
The partnership agreement is an express contract among the partners (the owners of the
business). Such an agreement generally does not include: *
(0/1 Point)
A limitation on a partner’s liability to creditors.

The rights and duties of the partners.
The allocation of income between the partners.
The rights and duties of the partners in the event of partnership dissolution.
12
On July 1, 2020, AAA and BBB pooled their resources in a partnership with the firm taking
over their business assets and assuming their business liabilities. They agreed to make the
following adjustments and to make settlement among themselves to conform to the 60:40
capital and profit and loss ratio.
- BBB’s inventory be reduced by P5,000.
- Allowance for doubtful accounts be recognized in the amount of P1,500 each.
- P4,000 of unrecorded accounts payable to supplier be recorded in the books of AAA.
- Accrued utilities of P1,200 be recognized in the books of BBB.
- Store equipment in the books of BBB is under depreciated by P5,000.
The individual trial balance before adjustments shows the following (see below image).
How much is the capital of AAA after formation? *
(2/2 Points)
76,080.00
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13
On January 2, 2020, the business assets and liabilities of CCC and DDD were as follows
(see image below).
CCC and DDD agreed to form a partnership by contributing their net assets subject to the
following adjustments:
- Receivables of P30,000 in CCC’s books and P20,000 in DDD’s books are uncollectible.
- Inventories of P16,000 and P25,000 in the respective books of CCC and DDD are
worthless.
- Other assets in both books are to be written off.
- Accrued interest on notes payable equal to 10% is to be established. The note payable of
CCC was dated October 1, 2019 while that of DDD, was dated July 1, 2019.
How much is the total assets after the formation? *
(2/2 Points)
2,304,000.00

14
Using the same information in Number 13, how much is the total liabilities after the
formation? *
(2/2 Points)
1,022,750.00

15
Using the same information in Number 13, how much is the total capital after the
formation? *
(2/2 Points)
1,281,250.00

16
EEE has been very successful in operating his business for the last five years. His financial
statements showed total assets of P380,000 and liabilities of P30,000. He invited FFF to
join him by investing an amount enough to give him a 30% interest in the firm. Profit and
loss agreement provides 70:30 to EEE and FFF, respectively. Before the formation, the
parties agreed to make the following adjustments in the books of EEE:
- Allowance for doubtful accounts amounting to P5,000 be established.
- The merchandise should be adjusted to include goods out on consignment amounting to
P25,000.
- Accrued utilities of P2,500 be recognized.
How much is the amount to be invested by FFF? *
(2/2 Points)
157,500.00
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17
On June 1, 2020, GGG and HHH decided to form a partnership with GGG transferring its net
assets excluding cash and HHH contributing cash in an amount equal to one-half of the
investment of GGG after the adjustments agreed by the parties. The parties also agreed to
divide profits and losses equally. The statement of financial position of GGG is as follows
(see image below).
Data for adjustments:
- Provision for uncollectible accounts equal to 10% of the accounts receivable is to be
established.
- 20% of the inventories is worthless.
- The fair value of the fixed assets on the date of formation is 80% of the carrying value.
- Accrued interest on notes payable equal to 10% is to be established. The note payable is
dated March 15, 2020.
How much is the total assets immediately after the formation? *
(2/2 Points)
1,658,833.33
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18
On August 1, 2020, III and JJJ decided to combine their businesses and form AyJay
Partnership. Their balance sheets on this date before adjustments follow (see image
below).
They agreed to make the following adjustments and to make settlement among themselves
to conform to the 60:40 capital and profit and loss ratio.
- Provide 5% allowance for doubtful accounts on each accounts receivable.
- The inventories of III include goods out on consignment amounting to P25,000 while the
inventories of JJJ include goods held on consignment amounting to P10,000.
- Furniture and fixture of III is overdepreciated by P5,000 while the office equipment of JJJ
is undervalued by P10,000.
- Accrued expenses of P3,000 and P1,000 for III and JJJ are to be recorded.
What capital adjustments/cash settlement should be made between III and JJJ? *
(2/2 Points)
29,250.00

19
Using the same information in Number 18, how much is partnership capital immediately
after the formation? *
(2/2 Points)
965,000.00

20
KKK, LLL and MMM decided to form KLM Partnership on January 1, 2020. KKK contributed
investment property with assessed value of P1,700,000 subject to mortgage payable of
P500,000 to be assumed by the partnership. LLL contributed computer equipment with
cost of P600,000 with accumulated depreciation of P200,000. The fair market value of the
computer equipment is P300,000. On January 2, 2020, the partnership was able to sell the
investment property for P2,000,000.
How much cash should be contributed by MMM if the partnership provides that KKK will
have 60% in the partnership? *
(2/2 Points)
700,000.00

21
The partnership of NNN and OOO was formed on May 1, 2020. On this date, NNN invested
P50,000 cash and office equipment valued at P30,000. OOO invested P70,000 cash,
merchandise valued at P100,000, and furniture valued at P100,000 subject to a notes
payable of P50,000, which the partnership assumes. The partnership provides that NNN
and OOO shares profits and losses 25:75 respectively. The agreement further provides that
the partners should initially have an equal interest in the partnership capital.
How much is the total capital of the partnership after formation? *
(2/2 Points)
300,000.00
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END OF QUIZ
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