Partnership Formation and Dissolution
1. The GM partnership agreement provides
for G to receive a 20% bonus on profits
before the bonus. Remaining profits and
losses are divided between G and M in the
ratio of 2 to 3, respectively.
Which partner has a greater advantage
when the partnership has a profit?
a. Partner G only
b. Both partners G and M
c. Neither Partner G nor Partner M
d. Partner M only
2. When admitting a new partner into an
existing partnership, any revaluation of
assets to the old partners is based on:
a. The profit and loss ratio.
b. The relative capital balances of the
partners.
c. An equal distribution among the
partners.
d. The fair values of the assets each
partner has contributed to the
partnership.
3. Statement 1: A limited partner shares in
the profits but not in the losses of the
partnership.
Statement 2: An industrial partner does
not share in the operational losses incurred
by the partnership.
a. Only 2nd statement is TRUE
b. All statements are TRUE
c. All statements are FALSE
d. Only 1st statement is TRUE
4. A is trying to decide whether to accept a
salary of P40,000 or a salary of P25,000 plus
a bonus of 10% of net income before salary
and bonus as a means of allocating profit
among the partners. Salaries traceable to
the other partners are estimated to be
P100,000. What amount of income would
be necessary so that A would consider
the choices to be equal?
a.
b.
c.
d.
P150,000
P165,000
P305,000
P290,000
5. The partnership contract provides that “net
income or losses are to be distributed in the
ratio of partners’ capital account balances”.
The appropriate interpretation of this
provision is that net income or losses
should be distributed in the ratio of:
a. Original capital account balances
b. Ending capital account balances
c. Average capital account balances
d. Beginning capital account
balances
6. Partners AAA and BBB share profits in a 2:1
ratio, respectively. Each partner receives an
annual salary allowance of P12,000. If the
salaries are recorded in the accounts of the
partnership as an expense rather than
treated as an allocation of profit, the total
amount allocated to each partner for
salaries and net profit would be:
a. Less for both AAA and BBB
b. More for AAA and less for BBB
c. Unchanged for both AAA and BBB
d. More for BBB and less for AAA
7. In the admission of Ervin to JM Partnership,
Ervin’s capital account was credited for
P800,000 despite her investment of
P600,000 in the partnership. This fact most
likely indicates:
a. An asset revaluation shared by old and
new partners
b. An error was made in the journal entry
to record Demi’s investment in the
partnership
c. Bonuses were given from the old
partners
d. Bonuses were given to the old
partners
8. Alvin and Brick partnership, Alvin and Brick
had a capital ratio of 3:1 and a profit and
loss ratio of 2:1, respectively. The bonus
method was used to record Clark’s
admittance as a new partner. What ratio
would be used to allocate, to Alvin and
Brick, the excess of Clark’s contribution
over the amount credited to Clark’s capital
account?
a. Alvin and Brick’s new relative capital
ratio.
b. Alvin and Brick’s old profit and loss
ratio.
c. Alvin and Brick’s new relative profit
and loss ratio.
d. Alvin and Brick’s old capital ratio.
9. Salaries to partners of a partnership
typically should be accounted for as:
a. An operating expense of the
partnership.
b. Drawings by the partners from the
partnership.
c. Reductions of the partner’s capital
account balances.
d. A device for sharing net income.
10. Alice, Melvyn and Lorely are partners with
capital balances of P100,800; P162,000 and
P57,000 respectively, sharing profits and
losses in the ratio of 2:5:1. Apple is
admitted as a new partner bringing with
her expertise and is to invest cash for a 15%
interest in the partnership considering the
transfer of capital from her of P27,000 upon
her
admission.
Upon admission of Apple, which of the
following statements is FALSE?
a. Cash will be debited in the amount of
P61,200
b. The capital account of Lorely will be
credited in the amount of P3,375.
c. The total agreed capital of the old
partners is P27,000 greater than the
total contributed capital of the old
partners.
d. The capital balance of Melvyn amount
to P178,875
11. Jake and Cyrus are partners in a retail
business and divide profits at 60% and 40%,
respectively. The capital balances at
December 31, 2022 are as follows: Jake,
Capital-P180,000 and Cyrus, CapitalP180,000. The partners agree to admit
Charice into the partnership. Charice
purchases a one-third interest in the
partnership by paying Jake and Cyrus
P150,000.
If the assets are to be revalued prior to
the admission of Charice, how much is
the capital balance of Jake after the
admission of Charice?
a. P144,000
b. P180,000
c. P156,000
d. P120,000
12. How much cash should Ian Contribute?
a. P350,000
b. P400,000
c. P300,000
d. P440,000
13. How much is the partnership net
income?
a. P45,000
b. P30,000
c. P90,000
d. P50,000
14. Happy and New Year are partners in
Happy New Year Partnership sharing
profits and losses 25% and 75%,
respectively. On January 01, 2022, the
partners revised their profits and loss
sharing ratio into 40% to Happy and 60%
to New Year. On the date of change, the
partnership’s land with a carrying value of
P500,000 was appraised to have a fair
value of P1,000,000. On August 01, 2022,
the land was sold for P1,500,000.
The total increase in the capital of
Happy and New Year as a result of the
above was?
a. P200,000; P300,000
b. P250,000; P750,000
c. P400,000; P600,000
d. P325,000; P675,000
15. When property other than cash is invested
in a partnership, at what amount should the
noncash property be credited to the
contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Contributing partner’s tax basis.
d. Assessed valuation for property tax
purposes.
16. Jake and Cyrus are partners in a retail
business and divide profits at 60% and 40%,
respectively. The capital balances at
December 31, 2022 are as follows: Jake,
Capital-P180,000 and Cyrus, CapitalP180,000. The partners agree to admit
Charice into the partnership. Charice
purchases a one-third interest in the
partnership by paying Jake and Cyrus
P150,000.
If the assets are NOT to be revalued, how
much cash should be personally received
by Jake?
a. P78,000
b. P72,000
c. P150,000
d. P90,000
17. Under what circumstances can the closing
of Income Summary account results in a
debit to one partner’s capital account and
credits to the other partners’ capital
accounts?
a. The partnership agreement provided
for interest on capital and salary
allowances and net income is less than
the sum of the interest and salary
allowances.
b. The results of operations are allocated
in a profit and loss ratio and the
partnership’s net income was very low.
c. The results of operations are divided in
the average capital ratio and one
partner had a low capital balance.
d. The results of operations are divided in
a profit and loss ratio and the
partnership sustained a loss for the
period.
18. On July 01, 2022, A, B, and C formed a
business partnership to be operated as an
advertising
agency.
A
contributed
PHP100,000 cash while B shall have capital
credit of PHP60,000 upon receipt of bonus
of PHP10,000 from A based on the
provision in Articles of Co-Partnership. The
terms of the agreement provide that A and
B shall have a combined 40% capital
interest in the newly formed partnership.
What is the capital contribution made by C
to the partnership?
a. P335,000
b. P250,000
c. P100,000
d. P225,000
19. On January 1, 2021, A, B, and C formed
ABC & Co., a general professional
partnership for the exercise of their
common profession. A contributed a
building with cost of PHP500,000 and
accumulated depreciation of PHP400,000.
Based on the city assessor’s records, the
building has an assessed value of
PHP200,000. The building has an
annotated mortgage payable amount of
PHP50,000 to be assumed by the
Partnership.
On the other hand, B contributed 10,000
shares of stocks with par value of
PHP20/share and prevailing quoted price
of PHP30/share. On January 2, 2021, the
building contributed by A was sold for
PHP550,000. If C wants to have a 20%
capital interest in the newly formed
partnership, how much cash shall be
contributed by C?
a. P200,000
b. P250,000
c. P300,000
d. P100,000
20. What is the new capital of Ena after
Lina’s admission in Love Partnership?
a. P6,000,000
b. P4,000,000
c. P5,000,000
d. P3,000,000
21. On July 01, 2022, a partnership was formed
by John and Seth. John contributed
cash. Seth, previously a sole proprietor,
contributed property other than cash
including realty subject to a mortgage,
which
was
assumed
by
the
partnership. Seth’s capital account at July
01, 2022 should be recorded at:
a. Seth’s book value of the property at
July 01, 2022.
b. The fair value of the property at July
01, 2022.
c. Seth’s book value of the property less
the mortgage payable at July 01, 2022.
d. The fair value of the property less the
mortgage payable at July 01, 2022
22. A new partner is admitted in an existing
partnership through investment. If the total
contributed capital of all partners is higher
than the total agreed capitalization of new
partnership while the agreed capitalization
of new partner is lower than his contributed
capital, which of the following is correct?
a. Impairment loss shall be recognized
and shared by all the partners including
the new partner.
b. The capital balance of old partners will
always increase.
c.
Revaluation surplus shall be recognized
and shared by all the partners including
the new partner.
d. Impairment loss shall be shared only by
old partners with bonus coming from
new partner.
23. A partnership dissolution differs from
liquidation is that:
a. Payments are made to creditors before
partners receive value.
b. Full payment is made to all outside
creditors before remaining cash is
distributed to partners in a final lump
sum payment.
c. A partner withdraws from the business
and the enterprise continues to
function.
d. Periodic payments to partners are
made when cash becomes available.
24. Partners CCC and DDD share profits and
losses equally after each has been credited
in all circumstances with annual salary
allowances of P30,000 and P24,000
respectively. Under this agreement, in
which of the following circumstances will
CCC benefit by P6,000 more than DDD?
a. Only if the partnership does not incur
a loss for the year.
b. In all income or loss situation.
c. Only if the partnership has net income
of P54,000 or more for the year.
d. Only if the partnership has earnings of
at least P6,000 for the year.
Answer Key:
1. A 7. C
2. A 8. B
3. A 9. D
4. A 10. A
5. A 11. C
6. B 12. D
13. A
14. D
15. A
16. A
17. A
18. D
19. A
20. B
21. D
22. D
23. A
24. B
PARTNERSHIP AND CORPORATE
LIQUIDATION
1. The following balance sheet accounts were
taken from the partnership of MDL Co. on
March 31, 2019:
Cash-P500,000;
Other Assets- P3,600,000;
Liabilities-P1,040,000;
Maria, Capital (40%)-P800,000;
Demi, Capital (40%)-P1,300,000
Liza, Capital (20%)-P960,000.
The partnership was liquidated by
installment. The proceeds from the first
sale of non-cash assets with a book
value of P1,800,000 amounted to
P1,000,000. In the first month, P640,000
of the liabilities and P50,000 of
unrecorded liabilities were paid. The
partners also set aside P100,000 for
future expenses.
How much was received by partner
Liza in the first distribution of cash?
a. -0b. 200,000
c. 410,000
d. 310,000
2. Using the same information in No. 1, how
much is the cash balance after the first
installment payment?
a. 710,000
b. -0c. 100,000
d. 500,000
3. The partnership of Matcha, Mocha and
Latte named BREAKEVEN decided to
liquidate their partnership on May 31, 2019.
Before liquidating and sharing of net
income, their capital balances are as
follows: Matcha (30%) 250,000; Mocha
(30%) 180,000; and Latte (40%) 220,000.
Net income from January 1 to May 31 is
120,000. Liabilities of the partnership
amounted to 210,000 and its total assets
include
cash
of
P70,000.
6. How much did Roy receive in final
settlement?
a. P72,750
b. P75,000
c. P59,625
d. P50,000
Unsettled liabilities are 110,000. Matcha
invested additional cash enough to settle
their partnership’s indebtedness. Mocha is
personally solvent, Latte is personally
insolvent, and Matcha becomes insolvent
after investing the cash needed by the
partnership.
How much were the partnership's noncash sold for?
a. 30,000
b. 880,000
c. 150,000
d. 45,000
7. Which of the following best describes
Statement of Realization and Liquidation?
a. It provides ongoing reporting of the
trustee’s activities and is updated
throughout the liquidation process.
b. It shows the gains or losses on
realization of assets and a list of
additional costs associated with the
liquidation.
c. It is a statement of a financial
condition of an insolvent corporation
as of a given date presenting the
assets and liabilities from a liquidation
viewpoint.
d. It is the summary of estimated results
of a completed liquidation.
4. Using the same information in NO.5,
how much cash will Mocha invest in the
partnership?
a. 48,000
b. 20,000
c. 84,000
d. 90,000
8. The beginning balance of cash is:
a. 35,000
b. 47,000
c. 20,000
d. 32,000
5. How much is the cash realized from NCA?
a. P374,000
b. P347,750
c. P300,000
d. P450,000
9. Which statement is false concerning the
statement of affairs?
a. Unsecured liabilities consist of debts
for which no assets are pledged as
security, as well as debts in excess of
the liquidation value of the assets
pledged.
b. Total unsecured liabilities do not
include unsecured debts with priority.
c.
Net free assets are the excess of
liquidation value of assets pledged to
fully secured creditors over the
amount of fully secured liabilities plus
free assets less unsecured liabilities
with priority.
d. The estimated deficiency to unsecured
creditors is total unsecured liabilities
less total free assets.
10. In partnership liquidations, what are safe
payments?
a. The amounts of distributions that can
be made to the partners, after all
noncash assets have been adjusted to
fair market value.
b. The amounts of distributions that can
be made to the partners with
assurance that such amounts will not
have to be returned to the partnership.
c. All of the above are examples of the
same payments concept.
d. The amounts of distributions that can
be made to the partners, after all
creditors have been paid in full.
11. The following data were taken from the
statement of affairs of PAPASA CORP:
Shareholder Equity: P441,000
Salaries Payable – P50,000
Bonds Payable (Unsecured) – P735,000
Loss on Realization – P551,250
Accounts Payable- P367,500
Taxes Payable – P72,500
Trustee’s Expense – P55,125
How much is the Total Free Assets?
a.
b.
c.
d.
1,059,625
1,114,750
992,250
953,37
12. The Pollen 4U Corporation is undergoing
liquidation and has the following
condensed Statement of Financial Position
as of June 1, 2019 (see screenshot below):
The bonds payable is secured by the
building having book value of P1,207,500
and a realizable value of P1,260,000. Of the
accounts payable, P210,000 is secured by
25% of the receivable which is estimated to
be 80% collectible. The remainder in the
book value of the receivables which has a
realizable value of P822,500 is used to
secure the bank loan. The merchandise has
a realizable value of P185,500. In addition
to the recorded liabilities are accrued
interest on bonds payable amounting to
P14,000 and trustees expenses amounting
to P8,750 and taxes P10,500.
Compute for the settlement to partially
secured creditors.
a. 1,380,398
b. 1,105,464
c. 1,260,000
d. 1,373,098
13. Which of the following items are likely to
be reported in the supplementary items
section of a statement of realization and
liquidation?
a. Trustee's administration fees.
b. New obligations incurred by the
trustee.
c. Creditors' claims settled during the
period.
d. Assets subsequently acquired by the
trustee.
14. Liabilities of 250,000 were settled in full for
Php180,000. The 70,000 difference would
be reported on the statement of
realization and liquidation as:
a. Loss
b. Liabilities to be liquidated
c. Liabilities not liquidated
d. Gain
15. If cash payments to partners of a
partnership in liquidation are delayed until
all non cash assets have been realized, any
cash remaining after all partnership
creditors have been paid is distributed
a. According to liquidator’s best
judgments.
b. In some other manner.
c. In amounts equal to the partners’ loan
and capital account balances.
d. In the ratio of sharing net income and
losses.
16. The following information are related to
JVCD Corporation which is undergoing
liquidation:
•
A bank loan amounting to P455,000 is
secured by inventories with book value
of P525,000 and net realizable value of
P350,000.
•
Of the P1,120,000 accounts payable,
P343,000 is secured by accounts
receivable amounting to P413,000
which is 10% uncollectible.
•
Property and equipment costing
P875,000 and which is depreciated by
20% has a net realizable value of
P588,000
•
Other unrecorded liabilities are accrued
interest payable on bank loan, P45,500;
salaries payable, P112,000; taxes
payable, P63,000; and trustee's fee,
P52,500
•
Cash available before
amounts to P87,500
liquidation
Compute for the estimated deficiency to
unsecured creditors:
a.
b.
c.
d.
980,000
882,000
450,800
927,500
17. Under the rule of offset, what is the proper
disposition of a partnership loan that was
made from a partner who has a debit
balance?
a. None of the above
b. The loan is first paid to the debtor
partner before cash payments are
made to partners.
c. The loan is charged off to the capital
account of the debtor partner
d. The loan is written off as a partnership
loss if the partner does not have the
cash to cover the debit balance.
18. Impatient
Corporation
has
been
undergoing liquidation since January 1. As
of June 30, the condensed statement of
realization and liquidation is presented
below:
The net gain(loss) on realization and
liquidation is:
a.
b.
c.
d.
306,250
126,000
(126,000)
(306,250)
19. The following information was gathered
from the books of Begiff Corporation which
is currently undergoing bankruptcy
proceedings.
•
Note payable of P97,500 is secured by
furniture and equipment with a
carrying amount of P120,000 that is
estimated to be 75% realizable.
•
A mortgage payable of P192,500 is
secured by building valued at P35,000
less than carrying amount of P230,000
•
Assets not mentioned above have an
estimated value of P62,500, an amount
that is P15,000 above carrying amount.
•
Total liabilities not mentioned above
total P96,000, including claims with
priority of P18,500
How much is the estimated loss on asset
realization?
a.
b.
c.
d.
65,000
80,000
50,000
60,000
20. If all partners are included in the first
installment of an installment liquidation,
then in future installments
a. A cash distribution plan must be
prepared so that partners will know
when they will be included in cash
distributions.
b. A safe payments schedule must be
prepared before each cash distribution
to avoid excessive payments to
partners.
c. Cash will be distributed according to
the residual profit and loss sharing
ratio.
d. 2Cash should not be distributed until
all non-cash assets are converted into
cash.
21. Baymax Inc is insolvent and its statement of
affairs show: Estimated gain on realization
of assets, P2,000,000; Estimated loss on
realization of assets, P2,560,000; Additional
assets, P1,200,000; Additional liabilities,
P960,000; Ordinary shares, P12,000,000;
Deficit,
P11,200,000.
The pro-rata payment to stockholders on
the peso is:
a. 0.04
b. 0.06
c. 0.03
d. 0.07
22. In corporate liquidation, creditors having
priority are what type of creditors?
a. Unsecured Creditors
b. Both Secured and Unsecured
c. Neither Secured nor Unsecured
d. Secured Creditors
23. In installment liquidation of a partnership,
each installment of cash is distributed?
a. As agreed to by the partners
b. As if no cash would be forthcoming
c. In the partners’ profit and loss ratio
d. In the ratio of partner’s capital
accounts
24. The following is the priority sequence in
which liquidation proceeds will be
distributed for a partnership:
a. Partnership drawings, partnership
liabilities,
partnership
loans,
partnership capital balances.
b. Partnership liabilities, partnership
loans, partnership capital balances.
c. Partnership liabilities, partnership
capital balances, partnership loans.
d. Partnership liabilities, partnership
loans, partnership drawings,
partnership capital balances.
25. What is the ending balance of cash
account assuming that Ordinary Share,
beginning is P 1,500,000 and deficit,
ending is P 400,000?
a. 1,800,000
b. 1,400,000
c. 1,600,000
d. 1,300,000
26. Which of the following observations
covering claims by general unsecured
creditors is NOT true?
a. They are paid only after secured
creditors and unsecured creditors with
priority are satisfied to the extent of any
legal limits.
b. The amounts to be paid to them are
usually stated as a percentage of the
total claim.
c. They are entitled to preference
payments at the discretion of debtor's
management.
d. They often receive less than the full
amount of their claim.
27. The total unsecured liabilities without
priority can be computed as
a. Total liabilities less priority claims
b. Unsecured creditors without priority
less estimated realizable value of
assets pledged to partially secured
creditors.
c.
Sum of administrative expenses,
unpaid employee salaries and benefits,
and taxes and assessments
d. Unsecured creditors without priority
plus deficiency of assets pledged to
partially secured creditor.
28. Statement 1: Upon the liquidation of a
partnership, the gain or loss on realization
is distributed to the partners in accordance
with
their
capital
contribution.
Statement 2: Partner with the lowest loss
absorption capacity is normally entitled to
receive the first peso available for payment
to partners in the cash distribution plan.
a. All statements are TRUE
b. All statements are FALSE
c. Only statement 2 is TRUE
d. Only statement 1 is TRUE
Answer Key:
1. D
7. A
2. D
8. B
3. A
9. D
4. D
10.B
5. B
11.B
6. C
12.A
13. A
14. C
15. C
16. C
17. D
18. C
19. A
20. C
21. A
22. A
23. B
24. B
25. A
26. C
27. D
28. B