ST.

THOMAS MORE COLLEGE- CLARK

College of Business
AFAR: First Quiz

Name: Date:
Year & Section: Score:

Quiz 1

1. MT and JF formed a partnership on April 1 and contributed the following assets:

MT JF
Cash . . . . . . . . . . . . . . . . . . . . . . . . P 150,000 P 50,000
Land . . . . . . . . . . . . . . . . . . . . . . . . 310,000
The land was subject to a P30,000 mortgage, which the partnership assumed. Under the partnership
agreement, MT and JF will share profit and loss in the ratio of one-third and respectively. JFs capital
account at April 1 should be:

2. On April 30, 20x4, AA, BB, and CC formed a partnership by combining their separate business
proprietorships. AA contributed P50,000 cash. BB contributed property with a P36,000 carrying
amount, a P40,000 original cost, and P80,000 fair value. The partnership accepted responsibility for
the P35,000 mortgage attached to the property. CC contributed equipment with a P30,000 carrying
amount, a P75,000 original cost, and P55,000 fair value. The partnership agreement specifies that
profits and Iosses are to be shared equally but is silent regarding capital contributions. Which partner
has the largest April 30, 20x4, capital account balance?
a. AA c. CC
b. BB d. All capital account balances are equal

3. Albert, Claude, and Jamie form a partnership by contributing P25,000, P70,000, and P80,000,
respectively. In addition, the partners agree that Albert should receive P20,000 of goodwill because
of his special skills relevant to this business. What amount of capital will exist for Albert when the
partnership is formed?
4. Chris and David are forming a partnership with contributions of P75,000 and P125,000, respectively.
In addition, they agree that they will recognize P25,000 goodwill with regard to Davids contacts in
the area. What is the total amount of capital that will exist for the partnership immediately after it is
formed?
5. Luca and Mira formed a partnership on 7/1/20x4 and contributed the following assets:
Luca Mira
Cash P65,000 P100,000
Land 300,000
The realty was subject to a mortgage of P25,000, which was assumed by the partnership. The
partnership agreement provides that Luca and Mira will share profits and losses in the ratio of one-
third and two-thirds, respectively. Miras capital account at 7/1/20x4 should be
On 7/1/20x4, Burr and Lapp formed a partnership, agreeing to share profits and losses in the
ratio of 4:6, respectively. Burr contributed a parcel of land that cost him P25,000. Lapp
contributed P50,000 cash. The land was sold for P50,000 on 7/2/20x4-one day after the
partnerships formation. How much should be recorded in Burrs capital account upon
partnerships formation?
6. On 7/1/20x4, Pane and Sills formed a partnership, and each contributed assets with agreed-upon
values as follows:
Pane Sill
Cash P 40,000 P 30,000
Machinery and equipment 100,000
Land 350,000
The building is subject to a mortgage loan of P100,000, which is to be assumed by the
partnership. The agreed-upon value of the building is P50,000 more than the tax basis of
P300,000. The partnership agreement provides that Pane and Sills share profits and losses 60%
and 40%, respectively. Using this information, on 7/1/20x4, the balance in Sillss capital account
should be:
Use the following information for question 8 and 9:
On September 30,20x4, LL admits MM for an interest in his business. On this date, LLs capital account
shows a balance of P158,400. The following were agreed upon before the formation of the partnership:
a. Prepaid expenses of P17,500 and accrued expenses of P5,000 are to be recognize
b. 5% of the outstanding accounts receivable of Lopez amounting to P100,000 is to be recognized
as uncollectible.
c. MM is to be credited with a one-third interest in the partnership and is to invest cash aside from
the P50,000 worth of merchandise.
7. How much cash is to be invested by MM?
a. P32,950 c. P82,950
b. P55,300 d. P 5,300
8. The total capital of the partnership is:
a. P221,200 c. P171,200
b. P198,850 d. P248,850

9. Chris is a partner in a local partnership. The profit and loss sharing agreement includes an interest
allocation of 7 percent on the invested capital. The capital account of Chris reveals that he had a
beginning capital account balance of P50,000. He withdrew P10,000 on May 1 and invested
P25,000 on October 31. Rounded to the nearest peso, what is Chris weighted average capital
balance?

10. Richard is a partner in a local partnership. The profit and loss sharing agreement includes an interest
allocation of 8 percent on the invested capital. Richard had a beginning capital balance of
P60,000. He invested P30,000 on March 1, withdrew P20,000 on August 1, and invested P40,000 on
December 1. Rounded to the nearest dollar, what dollar amount is allocated to Richard as interest
on capital balance if the weighted average capital balance is used as the basis of the
computation?

11. Shawn is a managing partner in a local business. Part of his profit allocation is a bonus based on the
stores operating income. The bonus is 8 percent of operating income in excess of P200,000 after
deducting the bonus. If operating income for the year is P250,000, what is Shawns bonus (rounded
to the nearest dollar)?

12. Norman, Sarah, and Taylor are partners. The partnership income for the period is P130,000. The
partnership agreement assigns salaries to the partners of P10,000, P15,000, and P18,000, respectively.
In addition, the partners have profit and loss residual ratios of 30%, 45%, and 25%. What is the
amount of profit and loss allocated to Sarah as a result of applying the residual ratios?
13. Nick, Joe, and Mike are partners. The company has P150,000 net income for the period. How is this
income divided to the partners if the following profit and loss allocation process is followed?
Nick Joe Mike
Weighted average capital P200,000 P350,000 P180,000
Salary 25,000 15,000 35,000
Bonus .1 (NI - P100,000)
Residual profit/loss ratios .25 .45 .30
Return on invested capital 9%

14. Harriet, Bob, and Tim are partners. Income for the current year is P500,000. The profit and loss
agreement states that salaries are P35,000, P50,000, and P40,000, respectively. In addition, the
residual profit and loss ratios are 40%, 30%, and 30%, respectively. How much of the profit is
allocated to Harriet?