I.

PARTNERSHIP FORMATION

THEORIES
1. Statement I: A partnership can be formed to engage in trading, manufacturing,
and service business activities.
Statement II: Both the amounts of accounts receivable and its related allowance for doubtful accounts
shall be recorded in the books of the new partnership.

a. Both statements are true c. Only statement I is true

b. Both statements are false d. Only statement I is false

2. Statement I: The property invested in a partnership by the partners becomes the property of the
partnership.
Statement II: A partner’s contribution in the form of industry will require a debit to the account
“Industry.”

a. Both statements are true c. Only statement II is true

b. Both statements are false d. Only statement II is false

3. A contract whereby two or more persons bind themselves to contribute money, property, or industry
to a common fund with the purpose of dividing the profits among themselves

a. Corporation c. Partnership
b. Sole Proprietorship d. Merchandising

4. A partner whose liability is limited to his capital contributions only

a. Limited Partner c. Capitalist Partner

b. General Partner d. Industrial Partner

5. Non-cash contributions of the partners to a partnership are recorded by the partnership at their:

a. Agreed Value c. Book Value

b. Original Cost d. Fair Market Value less Cost to Sell

6. “Limited life” of a partnership means that

a. The partnership may be dissolved as a result of change in ownership

b. A partnership may be dissolved by a mere change in location
c. A partnership is limited to the amount of revenue it can earn
d. A partnership is limited to the amount of revenue it can borrow
7. An advance made to the partnership payable in the future to a partner is called

a. Partner’s Capital c. Partner’s Drawing

b. Bonus d. Loan due to Partner

8. Partnership are generally taxable entities. Which of the following is an exemption?

a. Ostensible Partnership c. Eleemosynary Partnership

b. General Professional Partnership d. Ecclesiastical Partnership

9. This statement is prepared to summarize the changes in the partners’ capital for a particular time

a. By-Laws c. Statement of Partners’ Equity

b. Income Statement d. Retained Earnings

10. A decrease in the capital of one or more partners with a corresponding increase in the capital of
another partner/s, without cash involved, is a transfer of interest called

a. Appraisal c. Bonus
b. Revaluation d. Goodwill

PROBLEMS
1. Max, Alfred, and Waters shared profits and losses 20%, 40%, and 40%, respectively. Their
partnership capital balance is ₱10,000, ₱30,000, and ₱50,000, respectively. Max has decided to
withdraw from the partnership. An appraisal of the business and its property estimates the fair value
to be ₱200,000. Land with a book value of ₱30,000 has a fair value of ₱45,000. Max has agreed to
receive ₱20,000 in exchange for her partnership interest. At what amount should land be recorded
on the partnership books?

a. ₱50,000 c. ₱45,000
b. ₱20,000 d. ₱30,000

2. Alona enters into a partnership by contributing the following: Cash ₱2,000; Accounts Receivable
₱400; Land ₱24,000 cost, ₱40,000 FMV; and Accounts Payable ₱1,600. The partnership assumed
the liability. What amount will be recorded to her capital account?

a. ₱24,800 c. ₱2,000
b. ₱42,400 d. ₱40,800

3. Anna and Alma formed a partnership. Anna contributes cash of ₱15,000 and a computer that she
bought for ₱30,000. Alma contributes equipment costing ₱30,000. The current market values of the
assets were as follows: Computer ₱22,500; Equipment ₱37,500. The partnership will assume a
₱7,500 liability on the equipment. The capital accounts of the partners should be:

a. ₱45,000 for Anna and ₱22,500 for Alma c. ₱30,000 for Alma and ₱37,500 for Anna
b. ₱15,000 for Anna and ₱37,500 for Alma d. ₱15,000 for Alma and ₱30,000 for Anna
4. On October 1, 2001, Albert and Armand formed a partnership. Albert contributed
a parcel of land that cost him ₱100,000. Armand contributed ₱150,000 cash. The
land was sold for ₱180,000 on October 1, 2001 immediately after the partnership
formation. What amount should be recorded in Albert’s capital account?

a. ₱180,000 c. ₱174,000
b. ₱150,000 d. ₱100,000

5. Ken and Charles are forming a partnership. Ken will invest a truck with a book value of ₱20,000 and
a fair value of ₱50,000. Charles will invest a building with a book value of ₱200,000 and a fair value
of ₱290,000 with a mortgage of ₱140,000. At what amount will the building be recorded?

a. ₱60,000 c. ₱200,000
b. ₱150,000 d. ₱290,000

Bill and George enter into a partnership agreement in which Bill is to have a 60% interest in capital and
profits. Bill contributes the following:

Land ₱500,000
Building ₱5,000,000 Fair value of which is 60% of its cost
Equipment ₱1,000,000 Fair value of which is 75% of its cost

There is a ₱1,000,000 mortgage on the building which the partners agree to assume. George contributes
cash of ₱2,500,000 and the partners agreed that this should be his capital credit.

6. How much should be the total agreed equity?

a. ₱6,250,000 b. ₱6,750,000 c. ₱7,083,333 d. ₱5.416.667

7. Land should be recorded in the amount of

a. ₱500,000 b. ₱750,000 c. ₱1,000,000 d. Zero

8. Bill, Capital should be credited for

a. ₱3,250,000 b. ₱4,250,000 c. ₱3,750,000 d. ₱4,050,000

Amy and Cinia agreed to form a partnership. Amy’s business which amounted to ₱500,000 was audited
and appraised at 75% of its book value.

9. If they agreed that Cinia should invest cash equal to half of Amy’s investment, she should invest

a. ₱250,000 b. ₱500,000 c. ₱375,000 d. ₱187,500

10. If they agreed, instead, that Cinia should invest 325,000 cash and that each
partner should be credited for an equal share based on total actual contributions,
the bookkeeper should recognize

a. Goodwill for Amy c. Bonus for Amy

b. Bonus from Amy d. Goodwill for Cinia

Leo is a sole proprietor who invested his grocery when he formed a partnership with Ninoy. The following
are the assets and liabilities of the grocery:

Cash ₱50,000
₱30,000 Book value
Merchandise
₱20,000 Market value
₱90,000 Book value
Fixed assets (₱100,000 less accumulated depreciation of ₱10,000)
50% of cost Market value
Accrued payable ₱20,000
Accrued expenses ₱7,000

11. His capital account should be credited for

a. ₱86,000 b. ₱83,000 c. ₱93,000 d. ₱120,000

Ninoy invested cash of ₱60,000; land of ₱200,000 with an appraised value of ₱500,000; store furniture
costing ₱40,000 less accumulated depreciation of ₱10,000; mortgage note has a balance of ₱15,000
plus accrued interest for six months at 18%.

12. If the mortgage note plus interest is to be assumed by the partnership, Ninoy, Capital should be
credited for

a. ₱573,650 b. ₱575,000 c. ₱572,300 d. ₱590,000

Mar invested the following in the partnership:

Cash ₱10,000
Accounts receivable ₱50,000
Allowance for Bad Debts ₱5,000
Merchandise Inventory ₱120,000
Furniture and Fixtures ₱75,000
Accumulated Depreciation ₱7,500
13. If the current fair value of the furniture and fixtures is ₱60,000 and that of the
merchandise inventory is ₱100,000, Mar, Capital should be credited for

a. ₱232,500 b. ₱220,000 c. ₱207,500 d. ₱215,000

14. Ignore number 13. If accounts receivable has a net realizable value of ₱40,000 and there is a
balance in accounts payable amounting to ₱60,000. How much should be credited to Mar, Capital?

a. ₱177,500 b. ₱172,500 c. ₱282,500 d. ₱232,500

15. Damon and D’Caprio formed a partnership with Damon investing cash of ₱150,000. How much
should D’Caprio invest for a 40% ownership in assets and profits?

a. ₱100,000 b. ₱60,000 c. ₱225,000 d. ₱90,500

II. PARTNERSHIP OPERATIONS

THEORIES
1. The basis on which the profits and losses are to be shared between partners is

a. The same as their investment ratio

b. That it must be equally divided
c. Agreed upon by the partners
d. According to government regulations

2. The allocation of net income and its impact on partners’ equity must be disclosed in

a. Income statement c. Cash Flow Statement

b. Balance Sheet d. Statement of Partners’ Equity

3. What is the underlying purpose of the salary component of allocating partnership profits and losses?

a. To compensate partners contributing cash

b. To reward partners for contributing industry or expertise
c. To reward partners for undertaking special responsibilities
d. To compensate for contributing property

4. Which of the following would be least likely to be used as a means of allocating profits among
partners who are active in the management of the business?

a. Interest on capital invested c. Bonus

b. Salaries d. None of the above
5. Which of the following is the most equitable way of distributing profit?

a. Average capital c. Ending capital

b. Beginning capital d. Original capital

PROBLEMS
James, John, and Jane formed a partnership on January 1, 2013 with investments of ₱100,000,
₱150,000, and ₱200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of ₱10,000 to John, and (3) sharing the
remainder of the income or loss in a ratio of 20% for James, and 40% each for John and Jane. Net
income was ₱150,000 in 2013 and ₱180,000 in 2014. Each partner withdrew ₱1,000 for personal use
every month during 2013 and 2014.

1. What was John’s share of income for 2013?

a. ₱58,000 d. ₱51,000
b. ₱63,000 e. ₱29,000
c. ₱53,000

2. What was James’s capital balance at the end of 2014?

a. ₱139,420 c. ₱100,000
b. ₱163,420 d. ₱151,420

3. What was Jane’s capital balance at the end of 2013?

a. ₱200,000 c. ₱224,000
b. ₱246,000 d. ₱238,000

4. Romeo is trying to decide whether to accept a salary of ₱40,000 or a salary of ₱25,000 plus a bonus
of 10% of net income after salary and bonus as a means of allocating profit among the partners.
Salaries traceable to the other partners are estimated to be ₱100,000. What amount of income
would be necessary so that Romeo would consider the choices equal?

a. ₱290,000 c. ₱305,000
b. ₱165,000 d. ₱265,000

5. Partners J and C divide profits and losses in the ratio 3:2 and their capital balances were ₱120,000
and ₱80,000, respectively. They decided to admit D for a 1/3 interest in the new capital of ₱350,000.
D capital will be credited for

a. ₱80,000 c. ₱166,667
b. ₱120,000 d. ₱116,667
6. The partnership ABC realized a profit before bonus and income tax of ₱690,000
in 2009. The partners agreed to allow 25% bonus to B, managing partner.
Assuming an income tax rate of 35%, what will be the bonus based on profit after
bonus and after tax?

a. ₱80,700 c. ₱89,700
b. ₱70,900 d. ₱79,900

7. Lancelot is trying to decide whether to accept a salary of ₱40,000 or a salary of ₱25,000 plus a bonus
of 10% of net income after salary and bonus as a means of allocating profit among the partners.
Salaries traceable to other partners are estimated to be ₱100,000. What amount of income would be
necessary so that Lancelot would consider the choices equal?

a. ₱165,000 c. ₱300,000
b. ₱290,000 d. ₱305,000

8. Jasmine and Rob are partners who shares profits and losses in the ratio of 60% and 40&
respectively. Jasmine’s salary is ₱60,000 while Rob’s salary is ₱30,000. The partners are also paid
interest on their average capital balances. In 2018, Jasmine received ₱30,000 of interest and Rob
received ₱12,000. The profit and loss allocation is determined after deductions for the salary and
interest payments. If Rob’s share in residual income was ₱60,000 in 2018, what was the income of
the partnership?

a. ₱282,000 c. ₱200,000
b. ₱175,000 d. ₱225,000

9. Jimin, Taehyung, and Jungkook are partners with average capital balances in 2018 of ₱240,000,
₱120,000, and ₱80,000 respectively. The partners receive 10% interest on their average capital
balances. After deducting salaries of ₱60,000 to Jimin and ₱40,000 to Jungkook, their residual profit
or loss is divided equally. In 2018, the partnership sustained a ₱66,000 loss before interest and
salaries to partners. By what amount should Jungkook’s capital account change?

a. ₱22,000 decrease c. ₱30,000 decrease

b. ₱26,000 increase d. No change in capital

10. Partners RJ and AG share profits in the ratio 3:2. However, RJ is to receive a
yearly bonus of 20% of net profits after deducting bonus, in addition to his profit
share. The partners made a net income of ₱24,000. How much profit will RJ receive?

a. ₱10,000 c. ₱14,200
b. ₱12,200 d. ₱16,000
ANSWER KEY

PARTNERSHIP FORMATION: THEORIES

1. A 6. A
2. D 7. D
3. C 8. B
4. A 9. C
5. A 10. C

PARTNERSHIP FORMATION: PROBLEMS

1. C 9. D
2. D 10. B
3. C 11. C
4. A 12. A
5. D 13. D
6. A 14. A
7. C 15. A
8. C

PARTNERSHIP OPERATIONS: THEORIES

1. C
2. D
3. C
4. A
5. A

PARTNERSHIP OPERATIONS: PROBLEMS

1. B
2. A
3. B
4. A
5. D
6. C
7. B
8. A
9. A
10. D