ACCOUNTING FOR PARTNERSHIP AND CORPORATION

MIDTERM EXAMINATION
April 8, 2024

1. Which of the following characterizes the bonus method, compared to the goodwill
metho d, when unrecorded intangibles are traceable to the previous partners? a. The
intangibles are actually recorded.
b. The legal significance of a change in ownership structure of the partnership is
empha sized.
c. This method generally produces more equitable results if the former partners do
not share profits and losses in the same relationship to each other as they did
before a ne w partner was admitted.
d. The market value concept rather than the historical cost concept is emphasized.

2. The fair market value of a partnership can be implied by

a. adding the incoming partner's market value of consideration to the book value of
the existing partnership.
b. the tax basis of the old partner's assets added to the incoming partner's
consideration
c. The incoming partner's market value of consideration divided by the incoming
partn er's percentage share in profit and loss.
d. The incoming partner's market value of consideration divided by the incoming
partn er's percentage ownership share in the new partnership.

3. The death of a partner means

a. liquidation of the existing partnership.
b. division of the deceased partner's assets.
c. the partnership comes to an end.
d. payment of all liabilities after assets are divided.

4. Which of the following does not result in dissolution of a partnership?

a. Death of a partner
b. Sale of partnership assets
c. Withdrawal of a partner
d. Admission of a partner

5. If goodwill is traceable to the previous partners, it is

a. allocated among the previous partners according to their interest in capital.
b. allocated among the previous partners only if there are no other assets to be
revalued.
 c. allocated among the previous partners according to their original profit-and-loss-
shar ing percentages.
d. not possible for goodwill to also be traceable to the incoming partner.
6. If goodwill is traceable only to the previous partners,
a. the book value of the previous partnership plus the investment of the incoming
partn er will be greater than the fair market value of the partnership as suggested
by the in coming partner's investment.
b. the new partner's initial capital balance is equal to his or her investment in the
partne rship.
c. c. existing assets of the previous partnership will never be revalued.
d. none of the above.

7. Which of the following statements is true?

a. When a partner withdraws from the partnership, the withdrawing partner's capital
ac count is always debited for its balance.
b. The death of a partner does not automatically end the partnership.
c. A partnership is liquidated when a new partner is admitted into the partnership.
d. All of the answers are true.

8. In the partnership of Scott and Gerald, if Scott sells his P50,000 interest to Eugene for
P6 0,000, which of the following statements is true?
a. The Scott, capital account will be debited for P60,000..
b. The Gerald, capital account will be credited for P50,000.
c. The Eugene, capital account will be credited for P50,000.
d. The Scott, capital account will be credited for P60,000.

9. If goodwill is traceable to the incoming partner, the new partner's capital balance
equals
a. the fair market value of consideration paid by the incoming partner
b. the book value of the older partnership divided by the existing partners' ownership
c. percentage in the new partnership minus the book value of the old partnership.
d. incoming partner's ownership percentage multiplied by the capital of the new
partner ship d. none of the above.

Wally, Willie, and Watson formed a partnership several years ago. Wally has decided to with
draw from the partnership. The current capital balances are: Wally, capital, P50,000; Willie,
c apital, P65,000; and Watson, capital, P100,000. Prior to the withdrawal of Wally, the
partners agree to revalue some of the partnership assets. Inventory with a cost of P120,000
has a curre nt market value of P150,000; land with a cost of P50,000 has a current market
value of P125, 000. Wally, Willie, and Watson share net income and losses in a 3:3:4 ratio.
Willie and Wats on will share net income in a 3:4 ratio.

10. What is the balance in Wally's capital account after revaluing the assets?
 a. P81,500
b. P18,500
c. P92,000
d. P8,000
11. What is total capital for the partnership after revaluing the assets?
a. P215,000
b. P320,000
c. P110,000
d. cannot be determined using the given information

12. Wally withdraws from the partnership and accepts P80,000 cash. Assuming the assets
ha ve been properly revalued, the entry to withdraw Wally from the partnership
includes a: a. debit to Wally, capital for P80,000
b. credit to Watson, capital for P857
c. debit to Watson, capital for P857
d. debit to Willie, capital for P643

13. Wally withdraws from the partnership and accepts P60,000 cash. Assuming] assets
havebeen properly revalued, the entry to withdraw Wally from the partnership would
include a debit to:
a. Wally, capital for P60,000
b. Willie, capital for P9,214
c. Wally, capital for P81,500
d. Watson, capital for P12,286

Bill, Bob, and Bo, are partners in the Trendy Company, a retailer of inexpensive kids' wear. T
hey share profits and losses in a 1:4:5 ratio and have decided to expand their business
territor y. They have agreed to admit Burt to the partnership for a cash investment. Their
capital bala nces are currently P60,000, P100,000, and P140,000, respectively.

14. Assuming Burt contributes P80,000 for a 20% interest, the entry to record his
investment in the partnership includes a:
a. credit to Burt, capital for P76,000
b. debit to Bill, capital for P2,000
c. debit to Bob, capital for P8,000
d. credit to Bo, capital, for P10,000

15. Burt has been offered a 25% interest in the firm for P60,000 cash investment. Assuming
Burt takes the offer, the entry to record his investment in the partnership includes a: a.
debit to cash for P75,000
b. debit to loss on sale of partnership interest for P46,000
c. credit to Bill, capital for P1,500
d. debit to Bob, capital for P12,000
16. Burt has been offered a 15% interest in the firm for P130,000. Assuming Burt takes
theoffer, the entry to record his investment in the partnership includes a a. credit to
gain on sale of partnership interest for P85,000
b. debit to Burt, capital for P45,000
c. credit to Burt, capital for P45,000
d. debit to cash for P130,000

17. Palit buys Quincy's partnership interest in the Q-R-5 partnership. Quincy thus retires,
lea ving Reale and Susien as Palit's co-partners. Prior to Palit entering the partnership,
Quinc y, Reale, and Susien split profits and losses equally. Palit paid P75,000 for
Quincy's capit al which, at the time, totaled P60,000. No revaluation of partnership
assets or liabilities o ccurs at the time. In recording this event on the partnership books
a. Goodwill is booked based on the book value/fair value difference.
b. P7,500 bonuses are added to Reale and Susien capital.
c. P5,000 bonuses are added to Quincy, Real, and Susien capital.
d. Palit capital is created in the amount of P60,000.

18. If an existing partner withdraws from a partnership,

a. his or her interest may be sold to the partnership or an individual partner.
b. the consideration received for that partner's interest may suggest the existence of
und ervalued existing assets and/or goodwill.
c. either the bonus or the goodwill method may be used to record the transaction if
the partnership acquires the withdrawing partner's interest.
d. all of the above.

19. If goodwill is suggested by the consideration paid to a withdrawing partner,

a. only the goodwill traceable to the withdrawing partner may be recorded.
b. goodwill traceable to the original partnership is allocated among the partners
accordi ng to their respective interests in capital.
c. the goodwill traceable to the withdrawing partner represents the difference
between t he partner's capital balance and the consideration he or she receives.
d. none of the above.

20. The following is the priority sequence in which liquidation proceeds will be distributed f
or a partnership:
a. partnership drawings, partnership liabilities, partnership loans, partnership capital
ba lances.
b. partnership liabilities, partnership loans, partnership capital balances.
c. partnership liabilities, partnership loans, partnership drawings, partnership capital
ba lances.
d. partnership liabilities, partnership capital balances, partnership loans.
21. Which of the following statements is correct regarding a partner's debit capital
balances?
a. The partner should make contributions to reduce the debit balance to whatever
exten t possible.
b. If contributions are not possible, the other partners with credit capital balances will
b e allocated a portion of the debit balance based on their proportionate profit-
and-los s-sharing percentages.
c. Partners who absorb another's debit capital balance have a legal claim against the
def icient partner.
d. All of these statements are correct.

22. Partner T is personally insolvent, owing P400,000. Personal assets will only bring
P150,0 00 when liquidated. At the same time, T has a credit capital balance in the
partnership of P85,000. The capital amounts of the other partners total a (credit)
balance of P200,000. U nder the doctrine of marshalling of assets, the personal
creditors of T can collect up to
a. P150,000
b. P235,000
c. P400,000
d. P435,000

23. Partners Thomas, Adams and Jones have capital balances of P24,000 P45,000, and
P90,0 00 respectively. They split profits in the ratio of 3:3.4 respectively. Under a
predistributio n plan, one of the partners will get the following total amount in
liquidation before any ot her partners get anything:
a. P22,500
b. P30,000
c. P40,000
d. P75,000

24. Assume that a partnership had assets with a book value of P240,000 and a market
value o f P195,000, outside liabilities of P70,000, loans payable to partner Able of
P20,000, and capital balances for partners Able, Baker, and Chapman of P70,000,
P30,000, and P50,00
0.
How much would Able receive upon liquidation of the partnership assuming profits and
losse s are allocated equally?
a. P70,000
b. P90,000
c. P75,000
d. P55,000
25. How would the first P100,000 of available assets be distributed assuming profits and
loss es are allocated equally?
a. P70,000 to outside liabilities, P20,000 to Able, and the balance equal'', among the
pa rtners
b. P70,000 to outside liabilities and P30,000 to Able
c. P70,000 to outside liabilities, P25,000 to Able, and P5,000 to Chapman
d. P40,000 to Able, P20,000 to Chapman, and the balance equally among the partners

26. If all outside creditors and loans to partners had been paid, how would the balance of
the assets be distributed assuming that Chapman had already received assets with a
value of P30,000 assuming profits and losses are allocated equally?
a. Each of the partners would receive P25,000.
b. Each of the partners would receive P40,000.
c. Able: P70,000, Baker: P30,000, Chapman: P20,000
d. Able: P55,000, Baker: P15,000, Chapman: P5,000

27. When a partnership is liquidated, the assets are sold and the cash realized is applied
first t o the
a. partners' equity accounts.
b. claims of creditors.
c. partner with the largest investment in the partnership.
d. partners according to their ownership interest as indicated by their capital
account.

28. M, N, and 0 are partners in the Drain Company and share profits in a 3:3:2 ratio,
respecti vely. They have decided to liquidate their business. At the start of the
liquidation, their ca pital account balances were P50,000, P25,000, and P25,000,
respectively. After the dispo sal of all noncash assets and the payment of all debts, cash
of P90,000 remains to be distr ibuted to the partners. The amount of cash 0 should
receive in the liquidation of the Drai n Company is: a) P21,250
b) P46,250
c) P22,500
d) cannot be determined using the given information

29. If a partner with a debit capital balance during liquidation is personally solvent, the
a. Partner must invest additional assets in the partnership.
b. Partner's 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.

30. The first step in the liquidation process is to

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

31. In partnership liquidation, how are partner salary allocations treated?

a. Salary allocations take precedence over creditor payments.
b. Salary allocations take precedence over amounts due to partners with respect to
their capital interests, but not profits.
c. Salary allocations take precedence over amounts due to partners with respect to
their capital profits but not capital interests.
d. Salary allocations are disregarded. partnership liquidation?

32. 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. Personal assets of the partners.

33. If a partnership has only noncash assets, all liabilities have been prop. disbursed, and
no additional liquidation expenses are expected, total, possible loss to the partnership
in the liquidation process is:
a. The fair market value of the noncash assets.
b. The book value of the noncash assets.
c. The estimated proceeds from the sale of the assets less the booK of the noncash
asset s.
d. d. None of the above.

34. A partnership dissolution differs from liquidation in that

a. Payments are made to creditors before partners receive value.
b. Periodic payments to partners are made when cash becomes available.
c. a partner withdraws from the business and the enterprise continues:. function.
d. Full payment is made to outside creditors before remaining cash distributed to partners in
a fi nal lump sum payment.

35. Offsetting a partner's loan balance against his debit capital balance is referred to as
a. Marshalling of assets
b. Right of offset
c. Allocation of assets
d. Liquidation of assets

36. Dissolution of a partnership

a. implies that the business operations will halt.
b. occurs when there is any change in the members of the partnership.
 c. implies that the business cannot continue with a new group of partners.
d. implies that the business cannot form a different ownership structure.

37. Which of the following results in dissolution of a partnership?

a. contribution of additional assets to the partnership by an existing partner
b. receipt of a draw by an existing partner
c. winding up of the partnership and the distribution of remaining assets to the
partners
d. withdrawal of a partner from a partnership

38. When a new partner is admitted.

a. The old partnership continues to exist and the name of the new partner is added.
b. The old partnership is dissolved and a new one is created.
c. the old partnership is dissolved and a new form of ownership must be chosen.
d. the old partnership continues to exist and the new partner invests in the existing
busi ness.

39. Red, White, and Blue have capital balances immediately after closing entries of
P80,000, P100,000, and P120,000, respectively. They have agreed to share all profits
equally. Blue is selling his interest to Black for P135,000 cash. The entry on the books of
the partnershi p to record this event includes.
a. debit to cash for P135,000
b. debit to Black, capital for P120,000
c. credit to Black, capital for P135,000
d. credit to Black, capital for P120,000

40. Changes in partnership ownership are presumed to be arm's length transactions that
may require which of the following actions?
a. recognitions of goodwill to existing partners
b. revaluation of existing partnership assets
c. recognition of goodwill or other intangible assets attributable to the incoming
partner
d. all of the above are possible

41. Black and Blue formed a partnership, agreeing to share profits equally. After closing
entr ies, the balances in their capital accounts are P36,000 and P45,000, respectively.
Blue sel ls her interest in the partnership to White for P52,000. The entry on the
partnership books to record this event includes a: a) debit to cash for P52,000
b) credit to White, capital for P45,000
c) credit to White, capital for P52,000
d) debit to Blue, capital for P3,500
Jim and Joe are partners agreeing to share profits and losses in a 2:6 ratio, respectively.
Busin ess has been profitable and they have decided to admit Jewel to the partnership for a
cash inv estment. The balances in Jim and Joe's capital accounts are presently P240,000 and
P260,000, respectively.

42. If Jewel is given a 20% interest in the partnership in exchange for P90,000 cash, the
entry to record her investment includes a: a. credit to Jim, capital for P7,000
b. credit to cash for P90,000
c. credit to Jewel, capital for P90,000
d. credit to Jewel, capital for P118,000

43. If Jewel is given a 25% interest in the partnership in exchange for P200,000. the entry
to record her investment includes a:
a. credit to Jim, capital for P6,250
b. debit to Joe, capital for P18,750
c. c, credit to Jewel, capital for P200,000
d. debit to Jewel, capital for P175,000

44. If Jewel is given a 15% interest in the partnership in exchange for P100,000, • the entry
t o record her investment includes a:
a. credit to Jewel, capital for P100,000
b. debit to Jim, capital for P6,250
c. credit to Jim, capital for P6,250
d. credit to Joe, capital for P7,500

45. The admission of a new partner under the bonus method will result in a bonus to
a. the old partners only.
b. the new partner only.
c. either the new partner or the old partners, but not both.
d. none of the above.

46. When a new partner is admitted to a partnership under the goodwill method, an
original p artner's capital account may be adjusted for
a. a proportionate share of the incoming partner's investment.
b. his or her share of previously unrecorded intangible assets traceable to the original
p artners.
c. his or her share of previously unrecorded intangible assets traceable to the
incoming partner.
d. none of the above.

Donna, Rick, and Daisy are partners sharing profits in a 3:3:4 ratio, respectively. They have b
een overwhelmed by the amount of work recently and have agreed to admit Bud to the
partne rship for a cash investment. The current balances in their capital accounts are
P60,000, P80,0 00, and P120,000, respectively.

47. Assuming Bud is given a 12.5% interest in the partnership for a P60,000 cash
investment, the entry to record his investment includes a: a. credit to Bud, capital for
P40,000
b. debit to Donna, capital for P6,000
c. credit to Rick, capital for P8,000
d. credit to Bud, capital for P60,000

48. Assuming Bud is given a 20% interest in the partnership for an P80,000 cash
investment, the entry to record his investment includes a: a. credit to Bud, capital for
P80,000
b. debit to loss on sale of partnership interest for P12,000
c. debit to Daisy, capital for P4,800
d. credit to Donna, capital for P3,600
49. Assuming Bud is given a 15% interest in the partnership for a P70,000 cash investment,
t he entry to record his investment includes a: a. credit to Donna, capital for
P6,150
b. credit to Bud, capital for P70,000
c. debit to Rick, capital for P6,150
d. credit to gain on sale of partnership interest for P20,500

50. If a bonus is traceable to the previous partners rather than an incoming partner, - it is
allo cated among the partners according to the

a. profit-sharing percentages of the previous partnership.

b. profit-sharing percentages of the new partnership.
c. capital percentages of the previous partners.
d. capital percentages of the new partnership.