Penetrante owns and operates a large hardware store in Cabanatuan City that employs about forty-five

personnel. She delegates some of the decision making to two supervisors. Penetrante business is organized as a
A. Corporation
B. Partnership
C. Sole Proprietorship
D. Limited Partnership
ANSWER: C

Jumawan loves to cook. She receives unqualified praise whenever she prepares a meal for someone. Encouraged
by these compliments and eager to put her culinary talents to good use, Jumawan decides to open a boutique
restaurant in Dumaguete City. Since she plans to maintain complete control of the business, she will most likely
organize it as a
A. Limited Partnership
B. Corporation
C. General Partnership
D. Sole Proprietorship
ANSWER: D

A budding entrepreneur wants to start a business but is unsure of the legal form suited for her. Short of cash, she
has to take the form that is least expensive and most flexible in terms of decision making and implementation.
Which would you recommend?
A. Joint Venture
B. Partnership
C. Sole Proprietorship
D. Cooperative
E. Corporation
ANSWER: C

Unlimited liability means

A. there is no limit on the amount an owner can borrow.
B. creditors will absorb any loss from non-payment of debt.
C. the business can borrow money for any type of purchase
D. the owner is responsible for all business debts.
E. Shareholders can borrow money from the business.
ANSWER: D

Cabrera inherited a large amount of money from his parents. Cabrera wishes to start his own business in
Batangas. His lawyers encourage him to make it a corporation. What disadvantage of a sole proprietorship are
the lawyers trying to avoid?
A. Unlimited liability
B. Lack of management skills
C. Retention of all profits
D. Lack of money
ANSWER: A

After Russell has maximized her standby credit limit from the CDO Bank and still cannot cope with the working
capital needs of her fast-growing business, what is her course if she wants her company to continue growing?
A. Obtain a partner or form a corporation to access more funds.
B. Hire more employees.
C. Turn away potential new customers.
D. Continue to plead with the bank for more money.
E. Hold a fundraising campaign.
ANSWER: A

Daganta partnership agreement with two partners was done haphazardly and thus caused some limitations. One
of the concerns was uneven productivity among the partners. The agreement required each partner to contribute
to every aspect of the business to receive an equal portion of the profits. This agreement did not reflect the idea
that
A. Partners need not be equal because each bring varied talents and knowledge into the partnership.
B. General partners are required to be active in day-to-day business operations.
C. Customers and creditors of a limited partnership need not be protected.
D. The Limited Partnership Law requires every general partnership to have at least one limited partner.
E. Each partner may enter into contracts on behalf of all the others.
ANSWER: A
The person who assumes full co-ownership of a partnership including unlimited liability is a
A. Sole proprietor
B. Shareholder
C. Limited partner
D. General partner
ANSWER: D

The partner who can lose only what he has invested in a business is the
A. General partner
B. Sole Proprietor
C. Manager
D. Employee
E. Limited Partner
ANSWER: E

Alibangbang and Sol decided to go into business together. They started by listing the essential terms of their
agreement along with their rights and duties. Alibangbang and Sol created a or an
A. Articles of partnership
B. Licensing agreement
C. Articles of incorporation
D. Division of partnership agreement
ANSWER: A

Which of the following would least likely be stated in the articles of partnership?
A. Who will make the final decisions
B. How much each partner will invest
C. What the duties of each partner are
D. What products the company will sell
E. What will happen if a partner dies or wants to dissolve the partnership
ANSWER: D

Burgos, Del Mundo and Gonzales are partners in an accounting firm with each partner owning an equal share of
the business. Del Mundo died suddenly of a heart attack. What will most likely become of the partnership?
A. It will immediately cease to exist. Burgos and Gonzales will have to find new jobs.
B. Del Mundos share of the business will automatically be split between Burgos and Gonzales.
C. Burgos and Gonzales will be able to purchase Del Mundos interest from his estate.
D. It will be dissolved. Burgos and Gonzales will lose personal property to pay business debts.
ANSWER: C

A large cash withdrawal by Partner Ruiz from Bernal, Ruiz, Adriano and Gogola, which is viewed by all
partners as a permanent reduction of Ruiz ownership equity in the partnership, is recorded with a debit to
A. Ruiz, Capital
B. Retained Earnings
C. Loan Receivable from Ruiz
D. Ruiz, Drawing
ANSWER: A

A partnership
A. Is created by agreement of the partners.
B. Has a juridical personality separate and distinct from that of each of the partners.
C. May be constituted in any form, except where immovable property or real rights are contributed, in which
case, the law requires that a public instrument be executed.
D. Is dissolved by death of a partner.
E. All of the above
ANSWER: E

Lintao and Pido formed a partnership, each contributing assets to the business. Lintao contributed inventory
with a current market value in excess of its cost. Pido contributed real estate with a cost in excess of its current
market value. At what amount should the partnership record each of the following assets?
A. Inventory at Cost, Real Estate at Cost
B. Inventory at Market Value, Real Estate at Cost
C. Inventory at Cost, Real Estate at Market Value
D. Inventory at Market Value, Real Estate at Market Value
ANSWER: D

Partnership capital and drawing accounts are similar to the corporate

A. Retained earnings account
B. Paid in capital and retained earnings accounts
C. Preferred and common stock accounts.
D. Paid in capital, retained earnings and dividends accounts
ANSWER: D

Which of the following partnership characteristics is an advantage?

A. Mutual agency
B. Unlimited Liability
C. Limited Life
D. Ease of formation
ANSWER: B

A partner who contributes his work, labor or industry to the common fund of the partnership is called
A. Limited partner
B. Capitalist partner
C. Industrial partner
D. Managing partner
ANSWER: C

Partnership capital balances include the cumulative effect of

A. Initial investments
B. Additional investments
C. Share in profit
D. Share in loss
E. Drawings
F. All of the above
G. a, b, c and d only
ANSWER: F

When a partner invests assets other than cash into a partnership, these assets should be listed on the statement of
financial position at
A. their carrying value
B. their original cost
C. their fair market value
D. the value the investing partner assigns to them
ANSWER: C

Partners investment may include which of the following?

A. Cash
B. Non cash assets
C. Non cash assets with liabilities to be assumed
D. All of the above
E. Only a and b
ANSWER: D

A partner whose liability for partnership debts is limited to his capital contribution is called
A. Industrial partner
B. General partner
C. Limited partner
D. Secret partner
ANSWER: C

One who takes charge of the winding up of partnership affairs upon dissolution
A. Dormant partner
B. Liquidating partner
C. Silent partner
D. Ostensible partner
ANSWER: B

Which of the following is not a characteristic of partnership?

A. Voluntary association
B. Mutual agency
C. Limited liability
D. Limited life
ANSWER: C

Which of these characteristics does not apply to a general professional partnership?

A. Unlimited life
B. Mutual agency
C. Unlimited liability
D. No business income tax
ANSWER: A

The most appropriate lead to look for relationships among partners is in the
A. Accounting records
B. Voluntary association
C. Partnership agreement
D. Relevant professional journals
ANSWER: C

A partner will not bind the partnership to an outside purchase contract when the
A. The item purchased is considered immaterial in amount.
B. Item purchased is not within the normal scope of the business.
C. Partner who made the purchase withdraws from the partnership.
D. Partner was not authorized by the other partners to make the purchase.
ANSWER: B

A partner invested into a partnership a building with a P250,000 carrying value and P400,000 fair market value.
The related mortgage payable of P125,000 was assumed by the partnership. As a result of the investment, the
partners capital account will be credited for
A. P125,000
B. P275,000
C. P250,000
D. P400,000
ANSWER: B

A business would be organized as a limited liability partnership to

A. Reduce regulation of the business
B. Eliminate double taxation
C. Raise additional capital
D. Limit the liability of the owners to their investment
ANSWER: D

Which of the following is not a conflict of interest for a general partner in a limited partnership?
A. Buying personal assets and then selling them to the limited partnership
B. Taking out personal loans from the partnership
C. Accepting money for agreeing not to compete with the limited partnership
D. Acting as an agent for the partnership
ANSWER: D

Which of the following partnership characteristics is a disadvantage?

A. Unlimited liability
B. Ease of dissolution
C. Voluntary association
D. Participation in partnership income
ANSWER: A

All of the following are true for both general and limited partnership except
A. Both are easily dissolved
B. Both must have at least one general partner
C. All partners are liable for all debts of the firm
D. All partners have the right to participate in the profits of the business
ANSWER: C
A partnership agreement should include
A. Each partners duties
B. The purpose of the business
C. The method of allocating profits and losses
D. All of these
ANSWER: D

A partnership records a partners investment of assets in the business at

A. A value set by the partners
B. The market value of the assets invested
C. The partners book value of the assets invested
D. Any of the above
ANSWER: B

Which of the following is not a characteristic of most partnerships?

A. Ease of formation
B. Limited liability
C. Mutual agency
D. Limited life
ANSWER: B

In a limited partnership
A. The general partners have limited liability
B. All partners have limited liability
C. All but the general partners have limited liability
D. All but the general partners have unlimited liability
ANSWER: C

The partners capital account is credited in the following cases except when it involves the recording of the
A. Additional investment
B. Original investment
C. Share in profit
D. Debit balance of the drawing account at the end of the period
ANSWER: D

An advantage of the partnership as a form of business organization would be

A. A partnership is bound by the acts of the partners
B. A partnership is created by mere agreements of the partners
C. Partners do not pay income taxes on their share in partnership profit
D. The death or withdrawal of a partner may terminate a partnership
ANSWER: B

The partnership agreement is contained in the articles of partnership, an express contract among the partners.
Such an agreement ordinarily does not include
A. The rights and duties of the partners
B. A limitation of a partners liability to creditors
C. The allocation of income between the partners
D. The rights and duties of the partners in the event of partnership dissolution
ANSWER: B

Which of the following is a characteristic of most partnerships?

A. Unlimited life
B. Limited liability
C. Mutual contribution
D. Division of profits only
ANSWER: C

Non cash assets invested into a partnership are recorded at

A. Zero
B. Their original cost
C. Their carrying value
D. Their fair market value
ANSWER: D
A partnership which comprises all the profits that the partners may acquire by their work or industry during the
existence of the partnership is called
A. De jure partnership
B. Universal partnership of profits
C. Particular partnership
D. Universal partnership of all present property
ANSWER: B

Problem Solving:
1.
Froilan Labausa contributed land, inventory, and P560,000 cash to a partnership. The land has a book value of
P1,300,000 and a market value of P2,700,000. The inventory has a book value of P1,200,000 and a market value
P1,020,000. The partnership also assumed a P700,000 note payable owed by Labausa that was used to purchase
the land. Rosalie Balhag agreed to put up cash equivalent to Labaus’s net investment.

Required: Amount of cash to be put up by Rosalie Balhag in the partnership ___________

Answer: 3,580,000

2.
Note: The following data is used for three (3) requirements.

Saboi, as her original investment in the firm of Sabio and Mariano, contributed equipment that had been
recorded in the books of her own business as costing P1,800,000, with accumulated depreciation of P1,240,000.
The partners agreed on a valuation of P800,000. They also agreed to accept Sabio’s accounts receivable of
P720,000, realizable to the extent of 85%.

Required: Compute the following to record Sabio’s investment in the partnership.

1. Value of Equipment ________________.
2. Accounts Receivable ________________
3. Sabio’s, Capital ___________________
Answer:
1. 800,000
2. 720,000
3. 1,412,000

3.
Gogola and Paglinawan have just formed a partnership. Gogola contributed cash of P1,260,000 and computer
equipment that cost P540,000. The fair value of the computer is P360,000. Gogola has notes payable on the
computer of P120,000 to be assumed by the partnership. Gogola is to have 60% capital interest in the
partnership. Paglinawan contributed only P900,000. The partners agreed to share profit and loss equally.

Required: Gogola should make an additional investment or (withdrawal) of ________________(use parenthesis

for withdrawal).
Answer: (150,000)

4.
Note: The following data is used for two (2) requirements.
Calaguas and Dela Cruz formed a partnership and invested the following assets and liabilities:
Fair Market Value Carrying Value
Calaguas:
Cash P300,000 P300,000
Land 450,000 280,000
Dela Cruz:
Cash 100,000 100,000
Building 600,000 520,000
Mortgage Payable (400,000) (400,000)

The partners will share profits and losses equally.

Required: The amount that will be recorded in the books of the partnership.
1. Calaguas, Capital _________________
2. Dela Cruz, Capital _________________
5.
On May 1, 2018, Gonzaga and Balace formed a partnership and agreed to share profits and losses in the ratio of
3:7, respectively. Gonzaga contributed a parcel of land that cost P10,000. Balace contributed P40,000 cash. The
land was sold for P18,000 on May 1, 2018, immediately after formation of the partnership.
Required: What amount should be recorded in Gonzaga’s capital account on formation of the partnership?
_____________
Answer: P18,000

6.
Note: The following data is used for four (4) requirements.

On Mar. 1, 2018, Sarabia and Abad decided to combine their businesses and form a partnership. Their
statements of financial position on Mar. 1, before adjustments, showed the following:
Sarabia Abad
Cash P9,000 P3,750
Accounts Receivable 18,500 13,500
Inventories 30,000 19,500
Furniture and Fixtures (net) 30,000 9,000
Office Equipment (net) 11,500 2,750
Prepaid Expenses 6,375 3,000
Total P105,375 P51,500

Accounts Payable P45,750 P18,000

Capital 59,625 33,500
Total P105,375 P51,500

They agreed to have the following items recorded in their books:

1. Provide 2% allowance for doubtful accounts.
2. Sarabia’s furniture and fixtures should be P31,000, while Abad’s office equipment is under-depreciated
by P250.
3. Rent expense incurred previously by Sarabia was not yet recorded amounting to P1,000, while salary
expense incurred by Abad was not also recorded amounting to P800.
4. The fair market values of inventory amounted to:
For Sarabia P29,500
For Abad 21,000

Required: Compute the net (debit) credit adjustment for Sarabia and Abad. Use parenthesis for debit.
1. Sarabia ______________
2. Abad _______________
3. What is the amount of total liabilities after the formation? _____________
4. What is the amount of total assets after the formation? ________________
Answer: 1. (870)
2. 180
3. 65,550
4. 157,985

7.
Ables and Galang executed a partnership agreement that lists the following assets contributed at the
partnership’s formation:
Contributed by:
Ables Galang
Cash P20,000 P30,000
Inventory 15,000
Building 40,000
Furniture and Equipment 15,000

The building is subject to a mortgage of P10,000, which the partnership has assumed. The partnership
agreement also specified that profits and losses are to be distributed equally.

Required: What amounts should be recorded as capital for Ables and Galang at the formation of the partnership?
1. Ables _________________
2. Galang ________________
Answer:
1. 35,000
 2. 75,000

8.
Orcajada invested in a partnership a parcel of land which cost his father P200,000. The land had a market value
of P300,000 when Orcajada inherited it three years ago. Currently, the land is independently appraised at
P500,000 even though Orcajada insisted that he “wouldn’t take P900,000 for it.”

Required: The land should be recorded in the accounts of the partnership at _________________
Answer: 500,000

9.
Note: The following data is used for two (2) requirements.

On Aug. 1, Isada and Ureta-Reyes pooled their assets to form a partnership, with the firm to take over their
business assets and assume the liabilities. Partnership capitals are to be based on net assets transferred after the
following adjustments. Profits and losses are allocated equally.

The inventory of Ureta-Reyes is to be increased by P4,000; an allowance for doubtful accounts of P1,000 and
P1,500 are to be set up in the books of Isada and Ureta-Reyes, resprectively; and accounts payable of P4,000 is
to be recognized in Isada’s books. The individual trial balance on August, before adjustment, follow:
Isada Ureta-Reyes
Assets P75,000 P113,000
Liabilities 5,000 34,500

Required: What is the capital of Isada and Ureta-Reyes after the above adjustment?
1. Isada _____________
2. Ureta-Reyes _______________
Answer:
1. 65,000
2. 81,000

10.
Calma and Abello formed a partnership on April 1 and contributed the following assets:
Calma Abello
Cash P150,000 P50,000
Land 310,000
The land was subject to a mortgage of P30,000, which was assumed by the partnership. Under the partnership
agreement, Calma and Abello will share profit and loss in the ratio of one-third and two-thirds, respectively.

Required: Abello’s capital account at April 1 should be ___________

Answer: 330,000

11.
Note: The following data is used for three (3) requirements.

Pedernal, Pating, and Liggayu are forming a new partnership. Pedernal is to invest cash of P100,000 and
stapling equipment originally costing P120,000 but has a second-hand market value of P50,000. Pating is to
invest cash of P160,000. Liggayu, whose family is engage in selling stapling equipment, is to contribute cash of
P50,000 and a brand new stapling equipment to be used by the partnership with a regular price of P120,000 but
which cost their family’s business P100,000. Partners agreed to share profits equally.

Required: The capital balances upon formation are:

1. Pedernal _______________
2. Pating _________________
3. Liggayu _______________
Answers:
1. 150,000
2. 160,000
3. 170,000

12.
Estrada and Molina formed a partnership on Mar. 1, 2018 and contributed the following assets:
Estrada Molina
Cash P80,000
 Equipment P50,000
The equipment was subject to a chattel mortgage of P10,000 that was assumed by the partnership. The partners
agreed to share profits and losses equally.
Required: Molina’s capital account at Mar. 1, 2018 should be ____________
Answer: 40,000

13.
Note: The following data is used for two (2) requirements.

On Mar. 1, 2018, Kalaw and Borromeo formed a partnership with each contributing the following assets:
Kalaw Borromeo
Cash P30,000 P70,000
Machinery and Equipment 25,000 75,000
Building - 225,000
Furniture and Fixtures 10,000 -
The building is subject to mortgage loan of P80,000, which is to be assumed by the partnership. Agreement
provides that Kalaw and Borromeo share profits and losses 30% and 70%, respectively.

Required: Compute the following.

1. On Mar. 1, 2018 the balance in Borromeo’s capital account should be _____________
2. The same information in above except that the mortgage loan is not assumed by the partnership. On
Mar. 1, 2018 the balance in Borromeo’s capital account should be ____________
Answers:
1. 290,000
2. 370,000

14.
On July 1, Faminial and Fetalvero formed a partnership, agreeing to share profits and losses in the ratio of 4:6
respectively. Faminial contributed a parcel of land that cost P25,000. Fetalvero contributed P50,000 cash. The
land was sold for P50,000 on July 1, three hours after formation of the partnership.

Required: How much should be recorded in Faminial’s capital account on formation of the partnership?
_____________
Answer: 50,000

15.
Lacson and Solis started a partnership. Lacson contributed a building that she purchased 10 years ago for
P100,000. The accumulated depreciation on the building on the date of formation of the partnership is P25,000
and the fair value is P110,000.

Required: For what amount will Lacson’s capital account be credited on the books of the partnership?
_____________
Answer: 110,000