2nd Flr, GF Partners Bldg, 139 H.V.

dela Costa, Salcedo Village, Makati City

3rd Flr. EPCIB Bldg. 2070 Claro M. Recto, Manila

Practical Accounting 2 Prof. Cecilla Mercado

PARTNERSHIP FORMATION AND OPERATIONS

1. 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 the investment.

Abena and Buendia establish a partnership to operate a used-furniture business

under the name of A and B Furniture. Abena contributes furniture that cost P60,000 and
has a fair value of P90,000. Buendia contributes P30,000 cash and delivery equipment
that cost P40,000 and has a fair value of P30,000. The partners agree to share profits and
losses 60% to Abena and 40% to Buendia.

2. The peso amount of gain (loss) that will result if the initial noncash contributions of the
partners are recorded at cost rather than fair market value will be

a. P30,000 and (P10,000) to Abena and Buendia, respectively

b. P12,000 and P8,000 to Abena and Buendia, respectively
c. (P18,000) and P18,000 to Abena and Buendia, respectively
d. P 18,000 and (P18,000) to Abena and Buendia, respectively

On April 30, 2003, Bautista, Jimenez and Laxamana formed a partnership by

combining their separate business proprietorships. Bautista contributed cash of P100,000.
Jimenez contributed property with a carrying amount of P72,000, original cost of
P80,000, and fair value of P160,000. The partnership accepted responsibility for the
P70,000 mortgage attached to the property. Laxamana contributed equipment with a
carrying amount of P60,000, original cost of P150,000, and fair value of 110,000. The
partnership agreement specifies that profits and losses are to be shared equally but is
silent regarding capital contributions.

3. Which partner has the largest capital account balance as of April 30, 2003?

a. Bautista c. Laxamana
b. Jimenez d. All capital account balances are equal

G. Macalino and W. Nolasco form a partnership and agree to divide initial capital
equally, even though Macalino contributed P100,000 and Nolasco gave P84,000 in
identifiable assets.
4. Under the bonus approach to adjust capital accounts, Nolascos unidentifiable assets should
be debited for
a . P8,000 c. P-0-
b . P16,000 d . P46,000

L. Molina and R. Nepomuceno enter into a partnership agreement in which

Molina is to have a 60% interest in capital and profits and Nepomuceno is to have a 40%
interest in capital and profits. Molina contributes the following:

Cost Fair Value

Land P 20,000 P 40,000
Building 200,000 120,000
Equipment 40,000 30,000

There is a P60,000 mortgage on the building that the partnership agrees to assume.
Nepomuceno contributes P100,000 cash to the partnership. Molina and Nepomuceno
agree that Nepomucenos capital account should equal Nepomucenos P100,000 cash
contribution and that goodwill should be recorded.

5. Goodwill should be recorded in the amount of

a. P20,000 c. P33,333
b. P30,000 d. P40,000

On march 1, 2003, Z Roxas and B. Solomon decided to combine their business and
form a partnership. The balance sheet of Roxas and Solomon on March 1, before
adjustment is presented below.

Roxas Solomon

Cash P 9,000 P 3,750

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
P105,375 P51,500

Accounts Payable P 45,750 P 18,000

Z. Roxas, Capital 59,625
B. Solomon, Capital 33,500
P105,375 P 51,500

They agreed to provide 3% for doubtful accounts on their accounts receivable and
found Solomons furniture to be underdepreciated by P900.

6. If each partners share in equity is to be equal to the net assets invested, the capital accounts
of Roxas and Solomon would be:

a. P58,170 and P33,095 respectively

b. P58,320 and P32,945 respectively
c. P59,070 and P32,195 respectively
d. P104,820 and P50,195 respectively

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 N. Bruno and A. Carlos are combining their separate businesses to form a
partnvership. Cash and noncash assets are to be contributed for a total capital of
P300,000. The noncash assets to be contributed and the liabilities to be assumed are:

Bruno Carlos
BV FMV BV FMV
Accounts receivable P20,000 P20,000
Inventories 30,000 40,000 P 20,000 P25,000
Equipment 60,000 45,000 40,000 50,000
Accounts payable 15,000 15,000 10,000 10,000

The partners capital accounts are to be equal after all the contribution of assets and the
assumption of liabilities.

7. The amount of cash to be contributed by Bruno is

a. P150,000 c. P210,000
b. P 60,000 d. P 85,000

8. The total assets of the partnership is

a . P325,000 c. P170,000
b. P180,000 d. P315,000

On September 30, 2003, G. Mallari admits H. Nebre for an interest in his business.
On this date Mallaris 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

recognized.
b. 5% of the outstanding accounts receivable of Mallari amounting to P100,000 is to
be recognized as uncollectibles.
c. Nebre 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.

9. How much cash is to be invested by Nebre?

a. P32,950 c. P82,950
b. P55,300 d. P 5,300

10. The total capital of the partnership is

a. P221,200 c. P171,200
b. P198,850 d. P248,850

I. Diaz and J. Estipona entered into a partnership on February 1, 2003 by investing

the following asset

Diaz Estipona

Cash P15,000
Merchandise inventory P45,000
Land P15,000
Building P65,000
Furniture and Fixtures P100,000

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 The agreement between Diaz and Estipona provides that profits and losses are to be
divided into 40% and 60% to Diaz and Estipona, respectively. The partnership is to
assume the P30,000 mortgage loan on the building.

11. If Estipona is to receive a capital equal to his profit and loss ratio, how much cash must he
invest?
a. P127,500 c. P 97,500
b. P172,500 d. P 77,500

12. Assuming that Estipona invests P50,000 cash and each partner is to be credited for the full
amount of the net assets invested, the total capital of the partnership is
a. P210,000 c. P290,000
b. P260,000 d. P250,000

13. Assuming the partnership agreement provides that the partners should initially have an
equal interest in the partnership, capital, what is Estiponas capital upon partnership
formation?
a. P125,000 c. P105,000
b. P95,000 d. P115,000

J. Cabrillo, a partner in the Cheery Partnership, has a 30% participation in

partnership profits and losses. Cabrillos capital account had a net decrease of P120,000
during the calendar year 2003. During 2003, Cabrillo withdrew P260,000 (charged
against his capital account) and contributed property valued at P50,000 to the partnership.

14. What was the net of the Cherry Partnership?

a. P300,000 c. P700,000
b. P466,667 d. P1,100,000

15. Partners C. Fontana and D. Guevarra share income and loss equally after each has been
credited in all circumstances with annual salary allowances of P30,000 and P24,000,
respectively. Under this arrangement, in which of the following circumstances will
Fontana benefit by P6,000 more than Guevarra?

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

16. Partners N. Lazaro and O. Mariano share an income 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 income, the
total amount allocated to each partner for salaries and net income would be

a. less for both Lazaro and Mariano

b. unchanged for both Lazaro and Mariano
c. more for Lazaro and less for Mariano
d. more for Mariano and less for Lazaro

P. Navarro and Q. Paredes formed a partnership on January 2, 2003, 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 following:

a. Capital accounts are to be credited annually with interest at 5% of beginning

capital.

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 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 , his salary, and interest on both capital accounts.
d. Bonus, interest and Paredes salary are to be considered partnership expenses.

The partnerships 2003 income statement follows:

Revenues P192,900
Expenses (including salary, interest and bonus) 99,400
Net Income P 93,500

17. Ignoring income tax, what is the amount of bonus to Paredes?

a. P23, 376 c. P30, 000
d. P24, 000 d. P31, 467

The partnership agreement between M. Moran and R. Reynoso stipulates that Moran
is to receive a 20% bonus on profit before bonus, with residual profit and loss to be
apportioned in the ratio of 2:3, respectively.

18. Which partner has a greater advantage when the partnership has a profit and when it
incurred a loss?
a. Profit: Reynoso Loss: Moran
b. Profit: Moran Loss: Reynoso
c. Profit: Reynoso Loss: Reynoso
d. Profit: Moran Loss: Moran

ABCs partnership provided for the following distribution of profit and losses:

First, Alberto is to receive 10% of the net income up to P1,000,000 and 20% on
the amount in excess thereof;
Second, Bustamante and Cancio each are to receive 5% of the remaining
income 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 income of P2,500,000 before
distribution to partners.

19. How much is the share of Alberto in the income of the partnership?
a. P1,000,000 c. P1,080,000
b. P1,300,000 d. P1,100,000

G. Rante, E. Dela Cruz and M. Ocampo are partners with average capital balances
in 2003 of P240,000, P120,000, and P80,000 respectively. Partners receive 10% interest
on their average capital balances. After deducting salaries of P60,000 to Rante and
P40,000 to Dela Cruz, the residual profit or loss is divided equally. In 2003, the
partnership sustained a P66,000 loss before interest and salaries partners.

20. By what amount should Rantes capital account change?

a. P14,000 increase c. P70,000 decrease
b. P22,000 decrease d. P84,000 decrease

M. Singson, C. Torralba and A. Verrano are partners in an accounting firm. Their

capital account balances at year-end were: Singson, P50,000; Torralba, P110,000; Verrano,
P50,000. They share profit and losses on a 4:4:2 ratio, after the following terms.

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 a. Partners Verrano is to receive a bonus of 10% pf net income after bonus.
b. Interest of 10% shall be paid on the portion of the partners capital in excess of
P100,000
c. Salaries of P10,000 and P12,000 shall be paid to partners Singson and Verrano
respectively.

21. Assuming a net income of P44,000 for the year, the total profit share of Verrano was:
a. P7,800 c. P19,400
b. P16,800 d. P19,800

Tayag, Unso, and Vidal, a partnership formed on January 1, 2003 had the
following initial investment:

R. Tayag P100,000
J. Unso 150,000
T. Vidal 225,000
The partnership agreement stated that profits and losses are to be shared equally by
the partners after the consideration is made by the following:

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

Additional information:
On June 30, 2003, Tayag, invested an additional P60,000.
Vidal withdrew P70,000 from the partnership on Sept. 30, 2001.
Share on the remaining profit was P3,000 for each partner.

22. Interest on average capital balances of the partners totaled:

a. P48,750 c. P57,625
b. P53,750 d. P60,625

23. Partnership net profit at Dec. 31, 2003 before salaries, interest and partners share on the
remainder was:
a. P199,750 c. P211,625
b. P207,750 d. P201,750

24. Total partnership capital on December 31, 2003 was:

a. P405,000 c. P465,000
b. P666,750 d. P480,000

A. Anton, C. Briones, and C. Camba are partners with average capital balances
during 2003 of P472,500, P238,650, and P162,350 respectively. The partners receive
10% interest on their average capital balances; after deducting salaries of P122,325 to
Anton and P82,625 to Camba, the residual profit or loss is divided equally.

In 2003, the partnership had a net loss of P125,624 before the interest and salaries
to partners.

25. By what amount should Antons and Cambas capital account change?

Antons capital account Cambas capital account

a. P40,844 decrease P31,237 decrease
b. P28,358 increase P32,458 increase
c. P29,476 increase P17,536 increase
d. P30,267 increase P40,448 decrease

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 A. Mariano and J. Lucas entered into partnership on March 1, 2003, investing
P125,000 and P75,000 respectively. It was agreed that Mariano, the managing partner,
was to receive a salary of P30,000 per year and also 10% bonus on the net profit after
adjustment for the salary; the balance of the profit was to be divided in the ratio of their
original capital. On December 31, 2003 account balances are as follows:

Cash P 70,000 Accounts Payable P 60,000

Accounts Receivables 67,000 Sales 233,000
Furniture and Fixtures 45,000 A. Marino, Capital 125,000
Purchases 196,000 J. Lucas, Capital 75,000
Sales Returns & Allow. 5,000 A. Marino, Drawing ( 20,000)
Operating Expenses 60,000 J. Lucas, Drawing ( 30,000)

Inventories on December 31, 2003 were: Merchandise, P73,000; Supplies,

P2,500. Prepaid Insurance were P950 and accrued liabilities totaled P1,550.
Depreciation on Furniture and Fixtures is to be computed at 20% per year. Disregard
income tax.

26. The distribution of the net profit to Mariano and Lucas is:
Mariano Lucas
a. P32,500 P5,100
b. P34,450 P5,860
c. P34,450 P4,860
d. P35,450 P6,840

27. The partners capital on December 31, 2003, after closing the net profit and drawing
accounts are:
Mariano Lucas
a. P139,540 P49,860
b. P135,940 P47,960
c. P142,540 P48,680
d. P142,350 P47,670

The BLUE Company, a partnership, was formed on January 1 , 2003 with four
partners, B. Gomez, L. Mana, U. Lapid and E. Nuguid. Capital contributions were as
follows:

B. Gomez P100,000
L. Mana 50,000
U. Lapid 50,000
E. Nuguid 40,000

The partnership agreement provides that each partner shall receive 5% interest on the
amount of his capital contribution. In addition, Gomez is to receive a salary of P10,000
and Mana a salary P6,000 per annum which are to be charged as expenses of the
business.

The agreement further provides that Lapid shall receive a minimum of P5,000 per
annum from the partnership and Nuguid a minimum of P12,000 per annum, both
including amounts allowed as interest on capital and their respective share of profits. The
balance of the profits is to be distributed in the following proportions: Gomez, 30%;
Mana, 30%; Lapid, 20%; and Nuguid, 20%.

28. The amount that must be earned by the partnership during 2003, before any charge for
interest on capital or partners salaries in order that Gomez may receive an aggregate of
P25,000, including, interest, salary and share of profits would be: (Disregard income tax)

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 a. P75,000.00 c. P64,468.92
b. P74,666.67 d. P64,666.67

29. The total earnings of Partner Mana would be:

a. P18,500 c. P16,900
b. P16,400 d. P20,000

30. The total earnings of Partner Lapid would be:

a. P9,166.67 c. P7,666.67
b. P10,468.92 d. P12,000.00

Puno, B. Quirino, and C. Romero are partners in a lumber company. Their

partnership agreement provides for the following profit and loss distributions:

Puno, Quirino and Romero are to receive salaries of P40,000, P36,000, and
P13,650, respectively. Puno is to receive a bonus equal to 10% of income
before the bonus.
Each partner is to receive 10% interest on the weighted average capital
balance.
Withdrawals are considered to be reduction of capital for purposes of interest
calculations.
Any remaining profits or losses are to be divided equally among the partners.

Capital balance information for 2003 is as follows:

A. Puno B. Quirino C.Romero

Beginning capital balance, Jan.1, 2003 P10,000 P6,000 P40,000
Withdrawal of capital, April 1, 2003 ( 1,000) ---
( 2,000)
Capital investment, July 1, 2003 2,000 4,000 15,000
Withdrawal of capital, Oct. 1, 2003 ( 1,000) ( 2,000)

Assume Punos share of the allocated profits is to be withdrawn.

31. How much profit must the partnership earn to allow Puno to withdraw exactly P61,000
excluding previous withdrawals?
a. P61,000 c. P89,650
b. P130,000 d. P96,000

J. Jimeno, C. Madrid and A. Soriano are partners sharing profits on a 5:3:2 ratio.
On January 1, 2003, N. Matias was admitted into the partnership with a 20% share in the
profits. The old partners continue to participate in the profits in their original ratios.

For the year 2003, the partnership books showed a net income of P25,000. It was
disclosed, however, that the errors stated on the next page were made.

2004 2003
Accrued expenses not recorded at year end P1,200
Inventory overstated P3,100
Purchases not recorded, for which goods have
been received and inventoried 2,000
Income received in advance not adjusted 1,500
Unused supplies not taken up at year end 900

32. The new profit and loss ratio of Jimeno, Madrid , Soriano and Matias, respectively, for
2003 is
a. 40%, 25%, 15%, and 20%

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 b. 50%, 20%, 10%, and 20%
c. 45%, 30%, 15%, and 20%
d. 40%, 24%, 16%, and 20%

33. Disregarding income tax, the share of partner Jimeno in the 2003 corrected net income is
a. P9,400 c. P11,750
b. P10,000 d. P12,500

M. Serrano and N. Toledo organized a partnership to own and operate a health- food
store. The partnership agreement provided that M. Serrano receive a salary of P20,000
and N. Toledo a salary of P10,000 to recognize their relative time spent in operating the
store . Remaining profits and losses were divided 60:40 to M. Serrrano and N. Toledo,
respectively. Income for 2002, the first year of operations, of P26,000 was allocated
P17,600 to M. Serrano and P8,400 to N. Toledo

On January 1, 2003 the partnership agreement was changed to reflect the fact that
N. Toledo could no longer devote any time to the stores operations. The new agreement
allows M. Serrano a salary of P36,000, and the remaining profits and losses are divided
equally. In 2003, an error was discovered such that the 2002 reported income was
understated by P8,000. The partnership income of P50,000 for 2003 included this P8,000
related to 2002.

34. How should the 2003 partnership income of P50,000 be allocated to Serrano and Toledo
a. P43,000 and P7,000 to Serrano and Toledo, respectively
b. P25,000 and P25,000 to Serrano and Toledo, respectively
c. P43,800 andP6,200 to Serrano and Toledo, respectively
d. P36,000 and P14,000 to Serrano and Toledo, respectively