(1)PARTNERSHIP FORMATION

1.1 THEORIES.
1. A partnership is a(n):
I. accounting entity.
II. taxable entity.
A. I only
B. II only
C. Neither I nor II
D. Both I and II

2. Anton and Garcia formed a partnership, each contributing assets to the business. Anton
contributed inventory with a current market value in excess of its carrying amount. Garcia
contributed real estate with a carrying amount in excess of its current market value. At what
amount should the partnership record each of the following assets?
Inventory Real Estate
a. Carrying Amount Market Value
b. Market Value Carrying Amount
c. Carrying Amount Carrying Amount
d. Market Value Market Value

3. On June 30, 2015, a partnership was formed by Mendoza and Lopez. Mendoza contributed cash.
Lopez, previously sole proprietor, contributed noncash assets including a realty subject to
mortgage which was assumed by the partnership. Lopezs capital account at June 30, 2015
should be recorded at:
a. The fair value of the property on June 30, 2015 less the mortgage payable
b. Lopezs carrying amount of the property on June 30, 2015
c. Lopezs carrying amount of the property on June 30, 2015 less the mortgage payable
d. The fair value of the property on June 30, 2015

4. 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 :
a. Proprietors book values or the fair value of the property at the date of the investment
whichever is higher.
b. Proprietors book values or the fair value of the property at the date of the investment
whichever is lower.
c. Proprietors book values of the property at the date of the investment
d. Fair value of the property at the date of investment

5. A unique feature of partnerships (compared with publicly owned corporations) is that:

a. Limited liability with respect to damages arising from professional services
b. Greater allowable tax deductions for retirement plans
c. Ease of formation
d. Book value
 1.2 PROBLEMS.
1. On May 1, 2015, Cat and Meow formed a partnership and agreed to share profits and losses in
the ratio of 3:7, respectively. Cat contributed a parcel of land that cost her P10,000. Meow
contributed P40,000 cash. The land has a fair value of P15,000. Cat insisted that the value of
land should be P18,000. The partners agreed to value the land at P18,000. What amount should
be recorded in Cats capital account on formation of the new partnership?

a. P18,000 b. P17,400 c. P15,000 d. P10,000

2. On July 1, Manny and Floyd formed a partnership, agreeing to share profits and losses in the
ratio of 4:6, respectively. Manny contributed a parcel of land that cost him P25,000. Floyd
contributed P50,000 cash. The land was sold for P50,000 on July 1, four hours after formation of
the partnership. How much should be recorded in Mannys capital account on the partnership
formation?

a. P10,000 b. P20,000 c. P25,000 d. P50,000

Use the following question for 3 & 4

On March 1, 2014, cat and Fish formed a partnership with each contributing the following
assets:

Cat Fish
Cash P30,000 P70,000
Machinery P25,000 P75,000
Building - P225,000
Furnitures and Fixtures P10,000 -

3. On March 1, 2015, the capital account of Fish would show a balance of:

a. P280,000 b. P305,000 c. 314,000 d. 370,000

4. Assuming that the partners agreed to bring their respective capital in proportion to their
respective profit and loss ratio, and using Fish capital as the base, how much cash is to be
invested by Cat?

a. P19,000 b. P30,000 c. P40,000 d. P55,000

5. On October 1, 2015, Albano and Armando formed a partnership and agreed to share profits and
losses in the ratio 3:7 respectively. Albano contributed a parcel of land that cost him P2,000,000.
Armando contributed P3,000,000 in cash. The land has a quoted price of P3,600,000 on October
1, 2015. What amount should be recorded in Albanos capital account upon formation of the
partnership?

a. P3,600,000 b. P3,000,000 c. P3,480,000 d. P2,000,000

(2)PARTNERSHIP OPERATIONS
2.1 THEORIES.
1. The partnership agreement between Moran and Reyes stipulates that Moran is to receive a
20% bonus on profits before bonus, with the residual profit and loss to be apportioned in
the ratio of 2:3 respectively. Which partner has a greater advantage when the partnership
has profits and when it incurred a loss?
a. Profit: Reyes Loss: Moran
b. Profit: Moran Loss: Reyes
c. Profit: Reyes Loss: Reyes
d. Profit: Moran Loss: Moran

2. Partners Fojas and Gomez share profits and losses equally after each has beeen credited in
all circumstances with annual salary allowances of p30,000 and P24,000 respectively. Under
this arrangement, in which following circumstances will Fojas benefit by -6,000 more than
Gomez?

a. Only if the partnership has earnings of P54,000 or more for the year
b. Only if the partnership does not incur loss for the year
c. In all earnings or loss situations
d. Only if the partnership has earnings of at least P6,000 for the year

3. Partners Lazaro and Orlando 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 ofr both lazaro and orlando

b. Unchanged for both Lazaro and Orlando
c. More for lazaro and less for Orlando
d. More for orlando and less for Lazaro

4. Navarro and Paredes formed a partnership on January 2, 2015, and agreed to share income
90% and 10% respectively. Navarro contributed a capital of P50,000. Paredes contributed no
capital but has a specialized expertise and manages the firm full-time. There were no
withdrawals during the year. The partnership agreement provides for the the following:

a. Capital accounts are to be credited anually with the interest at 5% of he beginning

capital balance
b. Paredes is to be paid a salary of P2,000 a month.
c. Paredes is to receive a bonus of 20% of income calculated before deducting his
bonus, salary and interest on both capital accounts
d. Bonus, interest and Paredes salary are to be considered partnership expenses

5. What is the underlying purpose of the interest on capital balances component of allocating
partnership profits and losses?
a. Compensate partners who contribute economic resources to the partnership
b. Reward labor and expertise contribution
c. Reward for special responsibilities undertaken
d. None of the above
2.2. PROBLEMS.

1. ABC Partnership provided for the following distribution of profits and losses:
First, Alberto is to receive 10% of the net profit up to P1,000,0000 and 20% on the
amount in excess thereof;
Second, Bustos and Cancio each are to receive 5% of the remaining profit in excess of
P1,500,000 after Albertos share as per above; and
The balance is to be divided equally among the partners.

For the year just ended, the partnership realized a net profit of P2,500,000 before distribution to
partners. How much is the share of Alberto in the profit of the partnership?

a. P1,000,000 b. P1,300,000 c. P1,080,000 d. P1,100,000

2. Tamayo, Banson and Vidal, a partnership formed on Jan. 1, 2015 had the following initial
investments:
Tamayo P100,000
Banson 150,000
Vidal 225,000

The partnership agreement stated that the profits and losses are to be shared equally by the
partners after consideration is to be made for the following:

Salaries allowed to partners: P60,000 for Tamayo; P48,000 for Banson and P36,000 fro Vidal.
Average partners capital balances during the year shall be allowed 10%.

Additional Information:
On June 30, 2012, Tamayo invested an additional P60,000.
Vidal withdrew P70,000 from the partnership on September 30, 2012.
Share on the remaining profit was P3,000 for each partner.

Interest on average capital balances of the partners totals:

a. P48,750 b. 53,750 c. 57,625 d. 60,625

3. Using the information in #2, the partnership net profit for 2012 before salaries, interest and
partners share on the remainder was:
a. 199,750 b.207,750 c. 211,625 d.
201,750
4. Using the information in #2, the total partnership capital on December 31, 2015 was:
a. 405,000 b. 666,750 c. 465,000 d.
480,000

5. Sison, Torres and Velasco are partners in a n accounting firm. Their capital account balances
at year-end were: Sison, P50,000; Torres, P110,000; Velasco, P50,000. They share profits
and losses on a 4:4:2 ratios, after the following terms.
 a. Partner Velasco is to receive a bonus of 10% of net profit after bonus
b. Interest of 10% shall be paid on that portion of a partners capital in excess of
P100,000.
c. Salaries of P10,000 and P12,000 shall e paid to partners Sison and Velasco,
respectively.
Assuming a net profit of P44,000 for the year, the total profit share of Sison was:
a. 7,800 b. 16,800 c. 19,400 d. 19,800

(3)PARTNERSHIP DISSOLUTION

3.1 THEORIES.

1. Which of the following conditions constitutes a legal dissolution of a partnership?

a. Death of a partner
b. Retirement of a partner
c. Admission of a partner
d. All of the above

2. Ben, Inc., a partner in BenTong Partnership assigns its partnership interest to Bean, who is not
made a partner. After the assignment, Bean asserts the right to:
I. Participate in the management of BenTong
II. Bens share of BenTongs profits
a. I only
b. II only
c. Both I & II
d. Neither I nor II

3. Which of the following will not result in partnership dissolution?

I. Partners are incompatible and cease operations
II. Partners realize that the profit figures have failed to reach projected levels
III. Retirement of a partner
IV. Death of a partner
a. I and II only
b. III and IV only
c. I,II, and III
d. I,II,III and IV
e. None of the above

4. Transferable interest of a partner includes all of the following except:

a. The partners share of the profits and losses of the partnership
b. The right to receive distributions
c. The right to receive any liquidating distribution
d. The authority to transact any of the partnerships operations

5. If existing partners acquires the equity of a withdrawing partner, in what manner do they divide
the equity?
 a. In any manner they choose
b. Equally
c. Proportionate to their residual profit and loss ratios
d. Existing partners are not permitted to acquire the equity of a withdrawing partner

3.2 PROBLEMS.

1. Presented below is the condensed balance sheet of the partnership of HH, AA, and MM who
share profits and losses in the ratio of 6:3:1, respectively:
Cash P 85,000 Liabilities P 80,000
Other Assets .. 415,000 HH, capital . 252,000
AA, capital .. 126,000
________ MM, capital .. 42,000
Total ..P 500,000 Total .P 500,000

The partners agree to sell NN 20% of their respective capital and profit and loss interest for a
total payment of P90,000. The payment of NN is to be made directly to the individual partners.
The capital balances of HH, AA, and MM respectively after admission of NN are:
e. P198,000; P99,000; P33,000.
f. P201,600; P100,800; P33,600.
g. P216,000; P108,000; P36,000.
h. P255,000; P127,800; P42,600.

2. Capital balances and profit or loss sharing ratios of the partners in the BIG Entertainment Gallery
are as follows:
Britney, capital (50%) . P 140,000
Iggy, capital (30%) 160,000
Grabby, capital (20%) 100,000
Total P 400,000
Betty needs money and agrees to assign half of her interest in the partnership to Yessir for
P90,000 cash. Yessir does not become a partner.

What is the total capital of the BIG partnership immediately after the assignment of the interest
to Yessir?
a. P310,000 b. P200,000 c. P490,000 d. P400,000

3. The capital accounts of the partnership of NN, VV and JJ on June 1, 2015 are presented below
with their respective profit and loss ratio:
NN . P 139,200 1/2
VV 208,800 1/3
JJ .. 96,000 1/6

On June 1, 2015, LL is admitted to the partnership when LL purchased for P132,000, a

proportionate interest from NN and JJ in the net assets and profits of the partnership. As a result
of a transaction LL acquired a one-fifth interest in the net assets and profits of the firm. What is
the combined gain realized by NN and JJ upon the sale of a portion of their partnership to LL?
 a. P 0 b. P43,200 c. 62,400 d. 82,000

4. PP contributed P24,000 and CC contributed P48,000 to form a partnership, and they agreed to
share profits in the ratio of their original capital contribution. During the first of operation, they
made a profit of P116,290; PP withdrew P5,050 and CC P8,000. At the start of the following
year, they agreed to admit GG in the partnership. He was to receive a one-fourth interest in the
capital and profits upon payment of P30,000 to PP and CC, whose capital accounts were to be
reduced by transfer to GGs capital account of amounts sufficient to bring them back to their
original capital ratio.

How should the P30,000 paid be GG be divided between PP and CC?

a. PP, P9,825; CC, P20,175 c. PP, P10,000; CC, P20,000
b. PP, P15,000; CC, P15,000 d. PP, P9,300; CC, P20,700

5. CC and DD are the partners who share profits and losses in the ratio of 7:3 respectively. On
October 21, 2015, their respective capital accounts were as follows:
CC PHP 35,000.00
DD 30,000.00
Total Capital PHP 65,000.00

On that date they agreed to admit EE as a partner with one-third interest in the capital and
profits and losses, and upon his investment of P25,000. The new partnership will begin with a
total capital of P90,000. Immediately after EEs admission, what are the capital balances of CC,
DD and EE, respectively.

a. P30,000; P30,000; P30,000 c. P31,667; P28,333; P30,000

b. P31,500; P28,500; P30,000 d. P35,000; P30,000; P25,000

(4)LUMP-SUM LIQUIDATION

4.1THEORIES.

1. The first step in the liquidation process is to

a. Convert noncash assets into cash
b. Pay partnership creditors
c. Compute any net income (loss)
d. Allocate any gains or losses to the partners

2. 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 loans, partnership drawings, partnership capital
balances
d. partnership liabilities, partnership capital balances, partnership loans
3. Offsetting a partners loan balance against his debit capital balance is referred to as the:
 a. Marshalling of assets
b. Right of offset
c. Allocation of assets
d. Liquidation of assets
4. Which item is not shown on the schedule of partnership liquidation?
a. Current cash balances
b. Property owned by the partnership
c. Liabilities still to be paid
d. Considered to be a liability of a partnership
5. Which of the following statements is correct?
I. Personal creditors have first claim on partnership assets
II. Partnership creditors have first claim on partnership assets
III. Partnership creditors have first claim on personal assets
a. I
b. II
c. III
d. Both II and III

4.2 PROBLEMS.
1. The statement of financial position of the Golf Partnership, just before liquidation, is as follows:

Cash P20,000 Liabilities P24,000

Non-cash Assets 50,000 Par, capital (50%) 20,000
Boogie, capital (30%) 16,000
_______ Birdie, capital (20%) 10,000
Total P70,000 Total P70,000

The noncash assets are sold for P10,000 net of liquidation expenses and the liabilities are paid. The
remaining cash should be distributed to the partners as follows:

Par Boogie Birdie

a. P 0 P4,000 P2,000
b. P2,000 P2,000 P2,000
c. P3,000 P1,800 P1,200
d. P15,000 P9,000 P6,000

2. The statement of financial position for the partnership of Jonas, Carlos, Tomas, whose sharesof
profits and losses are 40, 50, and 10 percent is as follows:

Cash P50,000 Liabilities P150,000

Inventory 360,000 Jonas, capital 160,000
Carlos, capital 45,000
________ Tomas, capital 55,000
Total P410,000 Total Liabilities and Equity P410,000

If the inventory is sold for P300,000, how much should Jonas receive upon the liquidation of the
partnership?
a. P48,000
 b. P100,000
c. P136,000
d. P160,000

3. The following condensed Statement of Financial Position is presented for the partnership of
Ariel, Bert, and Cesar, who share profits and losses in the ratio of 4:3:3, respectively:

Cash P100,000 Liabilities P150,000

Other Assets 300,000 Jonas, capital 40,000
Carlos, capital 180,000
________ Tomas, capital 30,000
Total P400,000 Total Liabilities and Equity P400,000

The partners agree to liquidate the partnership after selling the other assets for P200,000. Upon
liquidation of the partnership, Ariel should have received:

a. P0
b. P40,000
c. P60,000
d. P70,000

4. Nory and Oscar started a partnership some years ago and managed to operate profitability for
several years. Recently, however, they lost a substantial legal suit and incurred unexpected
losses on accounts receivable and inventories. As a result, they decided to liquidate. They sold
all the assets and only P18,000 was available to pay liabilities, which amounted to P33,000. Their
capital account balances before the state of liquidation and their profit-sharing ratios are shown
below:
Capital Account Balances Profit-sharing Ratio
Nory P23,000 60%
Oscar P13,500 40%

Nory is personally insolvent after paying the unpaid creditors, but Oscar has personal assets in
excess of P100,000. In the settlement of partners, how cash should Nory receive.

a. P0
b. P7,100
c. P1,700
d. P7,000

5. Mona and Lisa are partners with capital balances, loan balances, and profit and loss ratio as
follows:

Capital Balances Loan Balances Profit and Loss Ratio

Mona P24,500 P4,000 60%
Lisa P15,500 P3,500 40%
 The partners decide to liquidate the partnership. The firms liabilities amounted to P36,000
including partners loan. After realization of assets, cash on hand amounts to P37,500. In the
settlement of partners, Mona and Lisa should receive:

Mona Lisa
a. P22,500 P15,000
b. P1,500 P1,000
c. P5,400 P3,600
d. P28,500 P19,000

(5)LIQUIDATION BY INSTALLMENT

5.1 THEORIES
1. The rank order is for claims against a bankrupt partner of
IV. Those owing to partners by way of contribution
V. Those owing to separate creditors
VI. Those owing to partnership creditors
a. II first; I second and III third
b. III first, II second and I third
c. I first; III second and II third
d. II first; III second and I third

2. In a partnership liquidation, the final cash distribution to the partners should be made in
accordance with the:
a. Partners profit and loss sharing ratio
b. Balances of the partners capital accounts
c. Ratio of the capital contributions by the partners
d. Ratio of capital contributions less withdrawals by the partners.

3. An advance cash distribution plan is prepared

a. Each time cash is distributed to partners in an instalment liquidation
b. Each time a partnership asset is sold in an instalment liquidation
c. To determine the order and amount of cash each partner will receive as it becomes
available for distribution
d. None of these

4. If a partner with a debt capital balance during liquidation is personally solvent, the
a. Partner must invest additional assets in the partnership
b. Partners debit balance will be allocated to the other partners
c. Other partners will give the partner enough cash to absorb the debit balance
d. Partnership will loan the partner enough cash to absorb the debit balance.

5. Which of the following is not a part of the partnership liquidation process

a. Allocation of any remaining profit or loss to partners capital accounts
b. Liquidation of noncash assets
c. Closing the accounting records
 d. Recognition of market value adjustments of assets and liabilities

5.2 PROBLEMS.
1. The Statement of Financial position of the firm of RJ, SJ, and TJ just before liquidation shows the
following:
Assets P120,00

Liabilities 50,000
RJ, loan 10,000
RJ, capital 22,000
SJ, capital 30,000
TJ, capital 8,000

Total P120,000

RJ, SJ, and TJ share profits 5:3:2 respectively. Certain assets are sold for P80,000. Creditors are
paid in full, partners are paid P20,000, and cash of P10,000 is withheld pending future
developments. How much cash is to be distributed to partners?
RJ SJ TJ
a. P7,000 P13,000 -
b. P5,750 P14,250 -
c. P5,250 P14,750 -
d. P7,550 P12,450 -

2. The statement of financial position of the firm of AR, BR, CR, and DR, just prior to liquidation
shows:
AR, loan P1,000
AR, capital 5,500
BR, capital 5,150
CR, capital 6,850
DR, capital 4,500

AR, BR, CR, and DR share profits 4:3:2:1 respectively. Certain assets are sold for P6,000 and this
is distributed to partners. How much cash should CR receive?
a. P3,283
b. P0
c. P2,717
d. P6,000

*The following statement of financial position was prepared for the Tan, Lim and Wan
Partnership on March 31, 2014 and relates to items 3-5.

Assets Liabilities and Equity

Cash P 25,000 Liabilities P52,000

Other Assets 180,000 Tan, capital (40%) 40,000
Lim, capital (40%) 65,000
 Wan, capital (20%) 48,000
Total Assets P205,000 Total Liabilities and Equity P205,000
3. The partnership is being liquidated by the sale of assets in instalments. The first sale of noncash
assets having a book value of P90,000 realizes P50,000.

The amount of cash each partner should receive in the first instalment is:

a. Tan, P0; Lim,P5000; Wan, P18,000

b. Tan,P12,000; Lim, P13,000; Wan, P22,000
c. Tan,P27,000; Lim, P5,000; Wan, P18,000
d. Tan, P0; Lim, P5,000; Wan, P22,000

4. If P3,000 cash is withheld for possible liquidation expenses, how much cash should Wan
receive?
a. P21,000
b. P17,000
c. P 3,000
d. P15,000

5. As a separate case, assume that each partner properly received some cash after the second sale
of assets. The cash to be distributed amount to P14,000 from the third sale of assets, and unsold
assets with P6,000 book value remain. How should the P14,000 be distributed to Tan, Lim and
Wan, respectively?
a. P5,600; P6,500; P2,800.
b. P5,000; P5,000; P4,000.
c. P - ; P11,200; P2,800.
d. P5,600; P5,600; P2,800.

(6)CORPORATE LIQUIDATION

6.1. THEORIES.

1. In a Statement of Affairs, assets pledged for partially secured creditors are:

a. Included with assets pledges for fully secured creditors
b. Offset against partially-secured liabilities
c. Included with free assets
d. Disregarded

2. The preferred sequence of listing (1) fully-secured liabilities, (2) partially-secured liabilities, (3)
unsecured liabilities with priority, and (4) unsecured liabilities without priority in the liabilities
and stockholders equity section of a Statement of Affairs is:
a. (1), (2), (3), and (4) c. (1), (3), (2), and (4)
b. (3), (1), (2), and (4) d. (1), (3), (4), and (2)

3. The estimated amount available for Free Assets in the Statement of Affairs for a business
enterprise undergoing bankruptcy liquidation is equal to the assets:
a. Carrying amounts less current fair values
 b. Carrying amounts plus gain or less loss on realization
c. Carrying amounts plus loss or less gain on realization
d. Current fair values less carrying amounts

4. In corporate liquidation, creditors having priority are what type of creditors?

Secured Creditors? Unsecured Creditors?
a. Yes Yes
b. Yes No
c. No Yes
d. No No

5. In reporting a company that is to be liquidated, assets are shown at:

a. Present value calculated using an appropriate effective rate
b. Net realizable value
c. Historical cost
d. Book value

6.2. PROBLEMS.

1. When Philex Company filed for liquidation with the Securities and exchange Commission, it
prepared the following balance sheet:
Current assets, net realizable value, P50,000 P 80,000
Land and Buildings, fair value, P240,000 200,000
Goodwill, fair value, P0 40,000
Total assets P 320,000

Accounts payable P 160,000

Mortgage payable, secured by land and building 200,000
Common stock 100,000
Retained earnings, deficit (140,000)
Total Eqquities P 320,000

What is the estimated deficiency to unsecured creditors?

e. P70,000 b. P90,000 c. P120,000 d. P140,000

2. What percentage of their claims are the unsecured creditors likely to get?
a. 43.75& b. 50% c. 56.25% d. 100%

*Items 3-5 are based in the following:

The following data were taken from the statement of affairs of RG Corp.:

Assets pledged for fully secured liabilities (current fair value, P75,000) P90,000
Assets pledged for partially secured liabilities (current fair value, P52,000) 74,000
Free Assets (current fair value, P40,000) 70,000
Unsecured Liabilities with priority 7,000
Fully secured liabilities 30,000
Partially secured liabilities 60,000
 Unsecured liabilities without priority 112,000

3. The amount that will be paid to creditors with priority is:

a. P7,000 b. P6,000 c. P7,500 d. P6,200
4. The amount to be paid to fully secured creditors is:
a. P30,000 b. P32,000 c.P20,000 d. P35,000
5. The amount to be paid to partially secured creditors is:
a. P52,700 b. 57,200 c. 56,200 d. 57,000