Partnership

BASIC ACCOUNTING - PARTNERSHIP AND CORPORATION
Nature and Formation of Partnership
MULTIPLE CHOICE QUESTIONS. Encircle the best answer in the following questions. Show supporting computations in
good form if necessary.
1. Which of the following best describes the attributes of a partnership?
A. Limited life of the business and limited liability of partners
B. Limited life of the business and unlimited liability of partners
C. Unlimited life of the business and limited liability of partners
D. Unlimited life of the business and unlimited liability of partners
2. When a partner withdraws cash or other assets, the drawing account is
A. Debited C. Debited and Credited
B. Credited D. Not affected
3. All of the following affect a partner’s capital account except
A. Additional C. Partnership net income or

investment loss
Apple Ayme
B. Payment of D. Withdrawal of a partner
Cash P 120,000 P 80,000
liability
Machinery and Equipment 100,000 340,000
4. Which of the following are kinds of partnerships

according to liability of partners?
A. General C. Industrial partnership

partnership
D. Both A and B
B. Limited partnership
5. Which of the following relate to the capital share of a partner in a partnership?
A. The percentage of equity that a partner has on the net assets
B. Proportionate to a partner’s capital contribution
C. May not be proportionate to capital contribution due to bonus
D. All of those
6. On April 1, 2014, Apple and Ayme formed a partnership with each contributing the following assets:
Building 900,000
Furniture and Fixtures 40,000
The building is subject to a mortgage loan of P 300,000, which is to be assumed by the partnership. On April 1, 2014, the
balance in Ayme’s capital account should be
A. P 980,000 B. P 1,020,000 C. P 1,280,000 D. P 1,320,000
7. Aster and Amie are forming a partnership by combining their businesses. Their books show the following:
It has been agreed to recognize uncollectible accounts of P 7,500 and P 5,400 to each party, respectively, and that the
furniture and fixtures of Amie are under depreciated by P 9,000. If each partner’s share in equity is to be equal to the net
assets invested, the capital accounts of Aster and Amie would be
A. P 489,000 and C. P 481,500 and P 258,600

P 273,000 respectively Aster Amie respectively
B. P 481,500 and Cash P 72,000 P 30,000 D. P 855,000 and P 417,000

P 276,000 respectively respectively
Accounts Receivable 150,000 108,000
Merchandise Inventory 240,000 156,000

8. A business owned by Antonia was short of cash and
Furniture and Fixtures 330,000 102,000
she decided to form a partnership with Andrea, who was
able to contribute cash Prepaid Expenses 63,000 21,000 twice the interest of Antonia in the
new partnership. The assets contributed by Antonia
appeared as follows Accounts Payable 366,000 144,000 in the statement of financial
position of her business: Aster, Capital 489,000 cash, P 9,000; accounts receivable,
P 189,000 with allowance for uncollectible accounts of P
6,000; merchandise Amie, Capital 273,000 inventory, P 420,000; and store
equipment, P 150,000 with accumulated depreciation of
P 15,000.
Antonia and Andrea agreed that the allowance for uncollectible accounts was inadequate and should be P 12,000. they also
agreed that the fair value for the inventory is P 460,000 and for the store equipment is P 140,000. The cash contributed by
Andrea into the partnership was
A. P 747,000 B. P 786,000 C. P 1,572,000 D. P 1,576,000
9. Almeda and Asistio are combining their separate business to form a partnership. Cash and non-cash assets are to be
Almeda Asistio contributed
and the liabilities are to be
assumed BV FMV BV FMV are as follows:
Accounts Receivable P 40,000 P 30,000
Merchandise Inventory 60,000 90,000 P 40,000 P 80,000
Equipment 120,000 100,000 80,000 120,000
Accounts Payable 30,000 30,000 20,000 20,000
The partners’ capital accounts are to be equal after all the contribution of assets and the assumption of liabilities. The amount
of cash to be contributed by Almeda is
Amable Aguila
A. P 100,000 C. P 210,000
Cash P 40,000
B. P 110,000 D. P 300,000
Merchandise Inventory P 90,000
Land 130,000
10. Using the information in no. 9, the
Equipment 30,000
total assets of the partnership is
A. P 340,000
C. P 630,000 D. P 650,000
B. P 360,000
11. Using the information in no. 9, and assuming the excess capital credit over the fair value of the net assets transferred to the
partnership is recognized as goodwiill, how much is the goodwill to be credited to Asistio?
A. P 120,000 B. P 150,000 C. P 180,000 D. P 300,000
12. Amable and Aguila entered into a partnership on February 1, 2014 by investing the following assets:
The agreement between Amable and Aguila provides that profits and losses are to be divided 60% and 40% respectively, and
that the partnership is to assume the P 100,000 mortgage on the land. If Aguila is to receive capital credit equal to the full
amount of his net assets invested, how much is his capital balance upon partnership formation?
A. P 10,000 B. P 150,000 C. P 160,000 D. P 400,000
13. Using the information in no. 12, and assuming that Aguila invests P 100,000 cash and the partners are to have equal interest
in the partnership in the total capital of the partnership is
A. P 240,000 B. P 250,000 C. P 490,000 D. P 590,000
14. Using the information in no. 12, and assuming that the capital of the partners is proportionate to their profit and loss ratio, the
bonus upon partnership formation is
A. P 6,000 to Amable C. P 10,000 to Amable
B. P 6,000 to Aguila D. P 10,000 to Aguila
15. Using the information in no. 14, the capital balances of Amable and Aguila, respectively, upon partnership formation are
A. P 245,000, P 245,000 C. P 156,000, P 234,000
B. P 234,000, P 156,000 D. P 294,000, P 196,000
16. The Agulto and Acejas Partnership was formed on October 1, 2014. At that date, the following assets were contributed:
The building is subject to a mortgage loan of P 320,000 which is to be assumed by the partnership. The partnership
agreement provides that Agulto and Acejas share on profit or loss of 25% and 75%, respectively. Agulto’s capitala ccount at
October 1, 2014 should be
A. P 400,000 B. P 720,000 C. P 1,200,000 D. P 1,520,000
17. Using the information in no. 16 and assuming the partnership agreement provides that the partners initially should have an
equal interest in partnership capital, Acejas’ capital account on October 1, 2014 should be
A. P 480,000 B. P 720,000 C. P 960,000 D. P 1,200,000
Agulto Acejas
18. Using the information Cash P 600,000 P 280,000 in no. 17, the bonus to be
recognized in the transaction is
Merchandise Inventory 440,000
A. Zero D. P 480,000
Building 800,000
B. P 200,000
C. P 240,000
19. Using the information in no. 17, the effect of the bonus on the capital of Agulto and Acejas, respectively, is
A. Increase, Increase C. Decrease, Increase
B. Increase, Decrease D. Decrease, Decrease
20. Using the information in no. 16, and assuming that capital shall be proportionate to the partners’ profit or loss ratio, the
required capital of Acejas is
A. P 520,000 B. P 720,000 C. P 1,200,000 D. P 1,440,000
21. The Articles of Co-Partnership should contain clear provisions on all of the following except
A. Taxes paid by the partnership C. Withdrawals allowed to partners
B. Causes of the partnership dissolution D. Profit-sharing ratio
22. The non-cash contributions of the partners to form a partnership are recorded by the partnership at their
A. Agreed value B. Book value C. Dissolution value D. Original value
23. When a partnership cannot pay its debt with business assets, the partners
A. Are not personally liable for the debts C. Must convert the partnership to a joit venture
B. Have limited personal liability D. Must use their personal assets to meet the debts
24. A partner who takes active part in the business but whose connection with the partnership is concealed to the public is konwn
as a (an)
A. Silent partner C. Nominal partner
B. Secret partner D. Ostensible partner
25. A partnership which has failed to comply with one or more of the legal requirements for its establishment is classified as a
(an)
A. Open partnership C. De facto partnership
B. De jure partnership D. Secret partnership
26. 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 value or the fair value of the property at the date of the investment, whichever is higher
B. Proprietors’ book value or the fair value of the property at the date of investment, whichever is lower
C. Proprietors’ book values of the property at the date of investment
D. Fair value of the property at the date of the investment
27. Anton and Almar formed a partnership, each contributing assets to the business. Anton contributed inventory with a current
value in excess of its carrying amount. Almar contributed real estate with a carrying in excess of its current market value. At
what amount should the partnership record inventory and real estate?
A. Carrying amount, Market value B. Market value, Carriyng amount

C. Carrying amount, Carrying amount D. Market value, Market value
28. A partnership is formed by two individuals who were previously sole proprietors. Non-cash assets invested would be
recorded into the partnership at the proprietor’s
A. Carrying amount or the fair market value of the property at the date of the investment, whichever is higher
B. Fair value of the property at the date of the investment
C. Carrying amount or the fair market value of the property at the date of the investment, whichever is lower
D. Carrying amount of the property at the date of the investment
29. Agaton joined a partnership by contributing the following: cash, P 120,000; accounts receivable, P 4,000; land, P 240,000 at
cost, P 400,000 at fair value; and accounts payable, P 16,000. What will be the initial amount recorded in Agaton’s capital
account?
Alonzo Amurao
A. P 408,000 C. P 508,000
Cash P 300,000 P 140,000
B. P 424,000 D. P 524,000
Building 4,000,000
30. On October 1, 2014, Alba and Ang formed a
partnership and agreed to share profits and losses in the
ratio of 3:7, respectively. Alba
contributed cash of P 100,000 and a parcel of land that cost him P 200,000. Ang contributed P 300,000 cash. The land has a
quoted price of P 360,000 on October 1, 2014. What is the amount of partnership capital on Octiber 1, 2014?
A. P 360,000 B. P 460,000 C. P 760,000 D. P 960,000
31. On June 30, 2014, a partnership was formed by Ariston and Astoria. Ariston contributed cash,. Astoria, previously a sole
proprietor, contributed non-cash assets, including a realty subject to mortgage, which was assumed by the partnership.
Astoria’s capital account at June 30, 2014 should be recorded at
A. The fair value of the property less the mortgage payable at June 30, 2014
B. Astoria’s carrying amount of the property at June 30, 2014
C. Astoria’s carrying amount of the property less the mortgage payable at June 30, 2014
D. The fair value of the property at June 30, 2014
32. Abada and Acosta formed a partnership. Abada contributed cash of P 300,000 and an equipment costing P 600,000. Acosta
contributed land costing P 600,000. the current market value of the assets are as follows: equipment, P 450,000; land, P
750,000. The partnership will assume a P 150,000 liability on the land contributed by Acosta. The capital accounts of the
Abada and Acosta, respectively, will be credited as
A. P 900,000, P 450,000 C. P 750,000, P 600,000
B. P 300,000, P 750,000 D. P 300,000, P 600,000
33. The partnership of Alonzo and Amurao was formed on April 1, 2014. At that date, the following assets were contibuted:
The building is subject to mortgage loan of P 1,600,000 which is to be assumed by the partnership. The partnership
agreement provides that Alonzo and Amurao share on profit and loss of 25% and 75%, respectively. Amurao’s capital
account at April 1, 2014 should be
A. P 900,000 B. P 1,200,000 C. P 2,760,000 D. P 4,360,000
34. Using the information in no. 33, and assuming that the partnership agreement provides that the partners initially should have
an equal interest in partnership capital, Alonzo’s capital account should be increased by
A. P 780,000 B. P 900,000 C. P 1,200,000 D. P 1,980,000
35. Using the information in no. 33, the total partnership capital on April 1, 2014 is
A. P 1,200,000 B. P 3,960,000 C. P 4,740,000 D. P 5,560,000
36. Using the information in no. 34, bonus was given by
A. Amurao to Alonzo C. The partnership
B. Alonzo to Amurao D. Nobody
37. Using the information in no. 33, and assuming that capital shall be proportionate to the partners’ profit and loss ratio, the
required capital of Alonzo is
A. P 900,000 B. P 990,000 C. P 1,200,000 D. P 3,960,000
38. On April 1, 2014, Aleli, Amy and Annie formed a partnership by combining their separate business proprietorships. Aleli
contributed cash of P 200,000. Amy contributed property with a carrying amount of P 144,000, original cost of P 160,000,
and fair value of P 320,000. the partnership accepted responsibility for the P 140,000 mortgage attached to the property.
Annie contributed equipment with a carrying amount of P 120,000, original cost of P 300,000, and fair value of P 220,000.
The partnership agreement specifies that profits and losses are to be shared equally.
Which partner has the largest capital account balance as of April 1, 2014?
A. Aleli C. Annie
B. Amy D. All capital accounts are equal
39. Using the information in no. 38, the property contributed by Amy is to be recorded by the partnership on April 1, 2014 at
A. P 144,000 B. P 160,000 C. P 180,000 D. P 320,000
40. Using the information in no. 38 and assuming capital are in the profit and loss ratio, then there is
A. P 20,000 bonus to Amy

B. P 20,000 bonus from Aleli
C. No bonus to Aleli
Which is correct?
A. A only B. B only C. A and B only D. A, B and C only
TRUE OR FALSE. Write T if the statement is correct and F if the statement is false before each number.
1. A written partnership contract is required to be prepared whenever a partnership is formed.
2. All partnerships are subject to income tax.
3. A partner’s contribution in the form of industry or service is recorded by debiting the account ‘Industry.’
4. In the partnership books, there as many capital and drawing accounts as there are partners.
5. A partner’s contribution in the form of non-cash assets should be recorded at its fair market value in the absence of an agreed
value.
6. A partnership is much easier and less expensive to organize than a corporation.
7. A newly organized partnership should always open a new set of books.
8. All partnerships have at least one general partner.
9. Each partner generally has the authority to enter into contracts which is binding upon the partnership.
10. The property invested in a partnership by a partner becomes the property of the partnership.
11. Contra acconuts, like Allowance for Uncollectible Accounts and Accumulated Depreciation, on non-cash assets invested by
partners are always carried on the partnership books.
12. The unlimited liability of partners for partnership debts makes the partnership more reliable from the point of view of
creditors.
13. Goodwill may be recognized upon partnership formation when the capital credited to a partner exceeds the fair value of the
net assets transferred from previous sole proprietorship business.
14. Before a partnership can operate legally, it has to first comply with registration requirements of the SEC, DTI, BIR, SSS and
Mayor’s Office.
15. There is a required number of limited partners in a general co-partnership; in the same manner that, there is a required
number of general partners in a limited partnership.
16. A partnership is always owned by at least two (2) individuals.
17. For financial reporting purposes, the personal assets and debts of a partner should be combined with the assets and debts of
the business.
18. Partners are personally liable for the liabilities of the partnership if the partnership is unable to pay.
19. In a partnership, an owner’s equity acconut exists for each partner.
20. Net asset adjustments are made on a sole proprietor’s books, when theses are to be used as partnership books, for the purpose
of arriving at agreed values.
PROBLEM SOLVING QUESTIONS.
Problem 1.
Acosta Company
Statement of Financial Position
December 1, 2014
Assets
Cash P 600,000
Notes Receivable 375,000
Accounts Receivable 2,250,000
Less: Allowance for Uncollectible Accounts 150,000 2,100,000
Furniture and Equipment 1,800,000
Less: Accumulated Depreciation 450,000 1,350,000
TOTAL ASSETS P 5,025,000
Liabilities and Capital
Notes Payable P 750,000
Accounts Payable 1,575,000
Acosta, Capital 2,700,000
TOTAL LIABILITIES AND CAPITAL P 5,025,000
Aguas offers to invest cash to give him an equity credit equal to one-half of the equity of Acosta after adjustments for the items
below. Acosta accepted the offer.
a. The merchandise is to be valued at P 650,000.
b. The Allowance for uncollectible accounts is P 225,000.
c. Interest is earned on notes receivable should be reflected. The note is dated September 30, 2014 and bears interest at
6%.
d. Interest accrued on notees payable for the period September 1 to December 1, 2014 should be recognized. The interest
rate on the note is 10%.
e. The furniture and equipment are one-third depreciated.
f. Office supplies on hand, which have been charged to expense, amounted to P 15,000. these supplies will be used by the
new partnership.
Instructions:
1. Prepare journal entries on the books of Acosta to give effect to the partnership formation.
2. Prepare the statement of financial position for the new partnership.

Problem 2.
On October 1, 2014, April and Arias decided to pool their assets and form a partnership. The firm is to take over business assets
and assume business liabilities; equities are to be based on net assets transferred after the following adjustments:
a. Arias’ inventory is to be valued at P 350,000.
b. An allowance for uncollectible accounts of P 9,000 and P 7,500 respectively should be set up.
c. Accrued expenses of P 21,000 are to be recognized on April’s books.
d. Arias is to conribute sufficient cash to give him a 60% interest in the new firm.
Statement of financial position for

April and April Arias Arias on October 1
before adjustments are
presented Cash P 187,500 P 112,500 below:
Merchandise Inventory 400,000 300,000
Equipment 250,000 300,000
Accumulated Depreciation (112,500) (37,500)
TOTAL ASSETS P 1,175,000 P 1,050,000
Accounts Payable P 345,000 P 250,000
Capital 830,000 800,000
TOTAL LIABILITIES AND CAPITAL P 1,175,000 P 1,050,000
Instructions:
1. Give the entries to adjust and close the books of April.
2. Give the entries required on the books of Arias upon the formation of the partnership.
3. Prepare a statement of financial position for the new partnership of April and Arias.
Problem 3.
Partners Abada and Albano agreed to combine their businesses into a partnership. The statement of financial position accounts of
Abada and Alabano are shown below:
ABADA ALABANO
Book Value Market Value Book Value Market Value
Cash P 50,000 P 50,000 P 70,000 P 70,000
Accounts Receivable 460,000 460,000 490,000 490,000

Allowance Uncollectible Accounts 30,000 40,000 40,000 50,000
Merchandise Inventory 900,000 950,000 720,000 700,000
Equipment 180,000 120,000 90,000 70,000
Accumulated Depreciation 36,000 -- 9,000 --
Furniture and Fixtures 120,000 90,000 -- --
Accumulated Depreciation 24,000 -- -- --
Accounts Payable 540,000 540,000 360,000 360,000
Instructions: Give the journal entries to record the partnership formation under each of the following assumptions
a. A new set of books are to be opened for the partnership
b. The books of Abada are to be used by the partnership
Problem 4.
On January 1, 2014, Abante, Arevalo and Almonte decided to form a partnership. Abante, a sole proprietor, will transfer to the
partnership his net assets, excluding cash. Arevalo will contribute cash in an amount equal to one and one-half times the
investment of Abante. Almonte will contribute a piece of land with an agreed value of P 1,800,000 subject to a mortgage of P
300,000 to be assumed by the partnership. The statement of financial position of Abante is as shown below.
Abante Company
Statement of Financial Position
January 1, 2014
ASSETS
Cash P 360,000
Accounts Receivable P 840,000
Less: Allowance for Uncollebectible Accounts 90,000 750,000
Merchandise Inventory 1,200,000
Furniture and Equipment 1,050,000
Less: Accumulated Depreciation 210,000 840,000
TOTAL ASSETS P 3,150,000
LIABILITIES AND CAPITAL

Accounts Payable P 450,000
Abante, Capital 2,700,000
TOTAL LIABILITIES AND CAPITAL P 3,150,000
The Articles of Co-Partnership executed for the purpose calls for adjustments to the assets, as follows:
a. The Allowance for Uncollectible Accounts should be increased by P 150,000.
b. The inventories should be valued at P 1,000,000.
c. The furniture and equipment are underdepreciated by P 240,000.
d. The new partnership is t credit Abante with a capital of P 2,000,000. The excess capital credit over the fair value of the
net assets transeferred is to be recognized as goodwill.
Instructions: Prepare the entries to record the partnership formation assuming
1. The books of Abante are to be used by the partnership.
2. New set of books are to be opened for the partnership.
Problem 5.
The partnership of Abueva and Alano was formed on June 1, 2014, when they agreed to invest equal amount of capital into the
firm. The investment by Abueva consists of P 518,000 cash and an inventory of merchandise valued at P 1,152,000. Alano agreed
to contribute the assets of his business along with the transfer to the partnership of his business liabilities. Alano was credited for
goodwill for the excess of the capital credit over the agreed value of his net assets. The assets and liabilities are shown:
Balances
Alano’s Books Agreed Value
Accounts Receivable P 1,792,000 P 1,792,000
Allowance for Uncollectible Acconuts 76,800 150,000
Inventory 192,000 253,000
Office Equipment, net 256,000 206,000
Accounts Payable 576,000 576,000
Instructions:
1. Give the entries to record the investments of Abueva and Alano in the new partnership.
2. Prepare the beginning statement of financial position of the partnership, reflecting the above transfers to the firm.
Problem 6.
The partnership of Agana and Ayesa was formed on September 1, 2014. At that date, the following assets were invested:
Agana Ayesa
Cash P 200,000 P 80,000
Inventories --- 440,000
Land --- 200,000
Building --- 600,000
Furniture and Equipment 920,000 ---
The building is subject to a mortgage loan of P 240,000, which is to be assumed by the partnership. The partnership contract
provides that Agana and Ayesa share earnings 40% and 60% respectively.
Instructions: Compute the amount of Ayesa’s capital account on September 1, 2014 assuming that the partnership agreement
provides that:
1. Each partner is credited for the full amount of net assets invested.
2. The partners initially should have an equal interest in the partnership capital.
3. The initial partnership capital is shared proportionate to the partners’ profit and loss ratio.
Problem 7.
Sole proprietors Alvis and Ancheta established a partnership on December 31, 2014 sharing profit and losses in the ratio 60% and
40%. They agreed that each would make the following contributions:
Alvis Ancheta
Cash P 50,000 P 750,000
Land 375,000
Building 1,200,000
Furniture and Fixture 675,000
Accounts payable of Alvis totalling P 250,000 are to be assumed by the partnership.
Instructions: Prepare the entries on December 31, 2014 to record the investments in the partnership by Alvis and Ancheta under
each of the following independent assumptions:
1. Each partner is credited for the full amount of the net assets invested.
2. Each partner initially should have an equal interest in the partnership capital.
3. Each partner receive capital proportionate to his profit and loss ratio.
Problem 8.
On May 1, 2014, the business accounts of Ablan and Amias appear below:
Ablan Amias
Cash P 55,000 P 111,770
Accounts Receivable 1,172,680 2,839,450
Merchandise Inventory 600,175 1,300,510
Land 3,015,000 ---
Building --- 2,141,335
Furniture and Fixture 251,725 173,945
Other Assets 10,000 18,000
Acconuts Payable 894,700 1,218,250
Notes Payable 1,000,000 1,725,000

Ablan and Amias agreed to form a partnership
contributing their respective Ablan, Capital 3,209,880 assets and liabilities subject
to the following adjustments:
Amias, Capital 3,614,760
a. Accounts receivable of P 50,000 in
Ablan’s books and P 75,000 in Amias’ books are uncollectible
b. Inventories of P 27,000 and P 35,000 are worthless in Ablan’s and Amias’ respective books.
c. Other assets of P 10,000 and P 18,000 in Ablan’s and Amias’ books are to be written off.
Instructions:
1. Prepare journal entries to adjust the books of both partners.
2. Prepare journal entries to close the books of both partners.
3. Prepare journal entries on the new partnership books.
4. Prepare a statement of financial position for the new partnership.
Problem 9.
The post-closing trial balance of Joel Palencia and Tommy Peñaflor Partnership as of December 31, 2014 are presented below:
Post-closing Trial Balance
December 31, 2014
J. Palencia T. Peñaflor
Debit Credit Debit Credit
Cash P 125,000 P 186,000
Allowance for Doubtful Accounts P10,000 P 12,000
Notes Receivable 50,000
Interest Receivable 1,000
Merchandise 75,000 150,000
Equipment 40,000 60,000
Accumulated Depreciation 15,000 40,000
Accounts Payable 50,000 75,000
Notes Payable 20,000
Interest Payable 500
Palencia, J. 275,500
Peñaflor, T. 389,000
P 371,000 P 371,000 P 516,000 P 516,000
Instructions:
1. J. Palencia, and T. Peñaflor agreed to combine their business to form a partnership. All of the assets and liabilities are to
be taken over by the partnership.
a. Give the entries in the books of the respective single proprietorship to finally close their book.
b. Give the journal entries to record the investments of each of the partners in the books of the partnership.
2. J. Palencia and T. Peñaflor have agreed to combine their business to form a partnership. All of the assets and liabilities
are to be taken over by the partnership, after the following adjustments are taken in the books of the respective single
proprietorship.
 Allowance for Doubtful Accounts should be increased to 20% of the Accounts Receivable.
 Merchandise should be reduced by 5%.
 Equipment are 80% depreciated.
a. Give the necessary journal entries in the books of the single proprietorship to adjust and close its books.
b. Journal entries in the books of the partnership recording the investments of J. Palencia and T. Peñaflor.
MULTIPLE CHOICE - THEORY AND PROBLEM. Encircle the letter of the best answer. Show supporting computations in
good form if necessary.
1. The Articles of Co-Partnership should contain clear provisions on all of the following except
a. Taxes paid by the partnership c. Withdrawals allowed to partnership
b. Causes of partnership dissolution d. Profit-sharing ratio
2. The non-cash contributions of the partners to form a partnership are recorded by the partnership at their
a. Agreed value b. Book value c. Dissolution value d. Original cost
3. When a partnership cannot pay its debts with business assets, the partners
a. Are not personally liable for the debts c. Must convert the partnership to a joint venture
b. Have limited personally liabity d. Must use their personal assets to meet to the debts
4. A partner who takes active part in the business but whose connection with the partnership is concealed to the public is known
as a (an)
a. Silent partner c. Nominal partner
b. Secret partner d. Ostensible partner
5. A partnership which has failed to comply with one or more of the legal requirements for its establishment is classified as a
(an)
a. Open partnership c. De facto partnership
b. De jure partnership d. Secret partnership
6. 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
7. Anton and Almar formed a partnership, each contributing assets to the business. Anton contributed inventory with a current
market value in excess of its carrying amount. Almar 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
8. A partnership is formed by two individuals who were previously sole proprietors. Non-cash assets invested would be
recorded into the partnership at the proprietor’s
a. Carrying amount or the fair value of the property at the date of the investment, whichever os higher
b. Fair value of the property at the date of the investment
c. Carrying amount or the fair value of the property at the date of the investment, whichever is lower
d. Carrying amount of the property at the date of the investment
9. Agaton joined a partnership by contributing the following: cash. P 120,000; accounts receivable, P 4,000; land , P240,000
cost, P 400,000 fair value; and accounts payable, P 16,000.what will be the initial amount recorded in Agaton’s capital
account?
a. P 408,000 b. P 424,000 c. P 508,000 d. P 524,000
10. On October 1, 2014, Alba and Ang formed a partnership and agreed to share profits and losses in the ratio of 3:7,
respectively. Alba contributed cash of P 100,000 and a parcel of land that cost him P 360,000. Ang contributed P 300,000
cash. The land has a quoted price of P 360,000 on October 1, 2014. What is the amount of partnership capital on October 1,
2014?
a. P 360,000 b. P 460,000 c. P 760,000 d. P 960,000
11. On June 30, 2014, a partnership was formed by Ariston and Astoria.Ariston contributed cash. Astoria, previously a sole
proprietor, contributed non-cash assets, including a realty subject to a mortgage, which was assumed by the partnership.
Astoria’s capital account at June 30, 2014 should be recorded at.
a. The fair value of the property less the mortgage payable at June 30, 2014
b. Astoria’s carrying amount of the property at June 30, 2014
c. Astoria’s carrying amount of the property at June 30, 2014 less the mortgage payable at June 30, 2014
d. The fair value of the property at June 30, 2014
12. Abada and Acosta formed a partnership. Abada contributed cash of P 300,000 and an equipment costing P 600,000. Acosta
contributed land costing P 600,000. The current market value of the assets are as follows: equipment, P 450,000; land, P
750,000. The partnership will assume a P 150,000 liability on the land contributed by Acosta. The capital acconuts of the
partners will be credited as follows:
Abada Acosta
a. P 900,000 P 450,000
b. P 300,000 P 750,000
c. P 750,000 P 600,000
d. P 300,000 P 600,000
13. The partnership of Alonzo and Amurao was formed on April 1, 2014. At that date, the following assets were contributed:
Alonzo Amurao
Cash P 300,000 P 140,000
Building 4,000,000
Furniture and Equipment 900,000
The building is subject to a mortgage loan of P 1,600,000 which is to be assumed by the partnership. The partnership
agreement provides that Alonzo and Amurao share on profit and loss of 25% and 75%, respectively. Amurao’s capital
account at April 1, 2014 should be
a. P 900,000 b. P 1,200,000 c. P 2,760,000 d. P 4,360,000
14. Using the information in no. 13, and assuming that the partnership agreement provides that the partners initially should have
an equal interest in partnership capital, Alonzo’s capital acconut should be increased by
a. P 780,000 b. P 900,000 c. P 1,200,000 d. P 1,980,000
15. Using the information in no. 13, the total partnership capital on April 1, 2014 is
a. P 1,200,000 b. P 3,960,000 c. P 4,740,000 d. P 5,560,000
16. Using the information in no. 14, bonus was given by
a. Amurao to Alonzo c. The partnership
b. Alonzo to Amurao d. Nobody
17. Using the information in no. 13, and assuming that capital shall be proportionate to the partners’ profit and loss ratio, the
required capital of Alonzo is
a. P 900,000 b. P 990,000 c. P 1,200,000 d. P 3,600,000
18. On April 1, 2014, Aleli, Amy and Annie formed a partnership by combining their separate business proprietorships. Aleli
contributed cash of P 200,000. Amy contributed property with a carrying amount P 144,000, original cost of P 160,000, and
fair value of P 320,000. The partnership accepted responsibility for the P 140,000 mortgage attached to the property. Annie
contributed equipment with a carrying amount of P 120,000, original cost of P 300,000, and fair value of P 220,000. The
partnership agreement specifies that profits and losses are to be shared equally.
Which partner has the largest capital account balance as of April 1, 2014?
a. Aleli c. Annie
b. Amy d. All capital accounts are equal

19. Using the information in no. 18, the property contributed by Amy is to be recorded by the partnership on April 1, 2014 at
a. P 144,000 b. P 160,000 c. P 180,000 d. P 320,000
20. Using the information in no. 18, and assuming capital are in the profit and loss ratio, then there is
A. P 20,000 bonus to Amy
B. P 20,000 bonus to Annie
C. No bonus to Aleli
FF GG
Which is(are) correct?
a. A only
b. B only
d. A, B and C
c. A and B only
21. On December 1, 2014, EE and FF formed a partnership, agreeing to share for profit and losses in the ratio of 2:3,
respectively. EE invested a parcel of land that cost him P 25,000. FF invested P 30,000 cash. The land was sold for P 50,000
on the same date, three hours after formation of the partnership. How much should be the capital balance of EE right after the
formation?
a. P 25,000 b. P 30,000 c. P 60,000 d. P 50,000
II JJ
22. On March 1, 2014, II and JJ formed a
partnership with each Cash P 300,000 P 700,000 contributing the following
assets:
Building --- 2,250,000
Furniture and Fixtures 100,000 ---
The building is subject to mortgage loan of P 800,000, which is to be assumed by the partnership agreement provides that II
and JJ share profits and losses 30% and 70% respectively. On March 1, 2014 the balance in JJ’s capital account should be:
a. P 3,700,000 b. P 3,140,000 c. P 3,050,000 d. P 2,900,000
23. The same information in no.22, except that the mortgage loan is not assumed by the partnership. On March 1, 2014 the
balance in JJ’s capital account should be
a. P 3,700,000 b. P 3,140,000 c. P 3,050,000 d. P 2,900,000
24. As of July 1, 2014, FF and GG decided to form a partnership. Their balance sheets on this date are:
Cash P 15,000 P 37,500
Merchandise Inventory --- 202,500
TOTAL P 705,000 P 735,000
FF, Capital 570,000 ---
GG, Capital --- 495,000
TOTAL P 705,000 P 735,000
The partners agreed that the machinery and equipment of FF is underdepreciated by P 15,000 and that of GG by P 45,000.
Allowance for Uncolletible Accounts is to be set up amounting to P 120,000 for FF and P 45,000 for GG. The partnership
agreement provides for ap rofit and loss ratio and capital interest of 60% to FF and 40% to GG. How much cash must FF
invest to bring the partners’ capital balance proportionate to their profit and loss ratio?
a. P 142,500 b. P 52,500 c. P 172,500 d. P 102,500
25. On August 1, AA and BB pooled their assets to form a partnership, with the fir totake over their business assets and assume
the liabilities. Partners’ capital are to be based on net assets transferred after the following adjustments. (Profit and loss are
allocated equally)
BB’s inventory is to be increased by P 4,000; an allowance for doubtful accounts of P 1,000 and P 1,500 are to be set up in
the books of AA and BB, respectively; and accounts payable of P 4,000 is to be recognized in AA’s books. The individual
trial balances on August 1, before adjustments, follow:
AA BB
Assets P 75,000 P 113,000
Liabilities 5,000 34,500
What is the capital of AA and BB after the above adjustments?
a. AA, P 68,750; BB, P 77,250 c. AA, P 65,000; BB, P 76,000
b. AA, P 75,000; BB, P d. AA, P 65,000; BB, P 81,000

81,000 Cash P 6,800
Accounts Receivable 14,200

26. CC admits DD as a partner in Merchandise Inventory 20,000 business. Accounts in the ledger for CC
on November 30, 2014, just before the admission of DD, show the following
balances:
Accounts Payable 8,000
CC, Capital 33,000
Jones Smith
Cash P 80,000 P 40,000
Building - cost to Jones 300,000
It is agreed that for - fair value 400,000 purposes of establishing

CC’s interest, the following adjustments shall be
Inventories - cost to Smith 200,000
made:
- fair value 280,000
A. An allowance for doubtful accounts of
3% of accounts receivable Mortgage Payable 120,000 is to be established.
B. The Accounts Payable 60,000 merchandise inventory

is to be valued at P 23,000.
C. Prepaid salary expenses of P 600 and accrued rent expense of P 800 are to be recognized.
DD is to invest sufficient cash to obtain a 1/3 interest in the partnership.
Compute for: (1) CC’s adjusted capital before the admission of DD; and (2) the amount of cash investment by DD.
a. (1) P 35,347; (2) P 11,971 c. (1) P 35,374; (2) P 17,687
b. (1) P 36,374; (2) P 18,487 d. (1) P 28,174; (2) P 14,087
27. Jones and Smith formed a partnenrship with each partner contributing the following items:
Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith
partnership. What is the balance in each of the partner’s capital account for financial accounting purposes?
Jones Smith
a. P 350,000 P 270,000
b. P 260,000 P 180,000
c. P 360,000 P 260,000
d. P 500,000 P 300,000
28. The business assets of LL and MM appear below:

LL MM
Cash P 11,000 P 22,354

LL and MM agreed to Accounts Receivable 234,536 567,890 form a partnership by
contributing their respective assets and equities
subject to the following Inventories 120,035 260,102 adjustments:
A. Accounts Land 603,000 --- receivable of P 200,000

in LL’s books and P Building --- 428,267 35,000 in MM’s are
uncollectible.
Furniture and Fixtures 50,345 34,789
B. Inventories of P 3,500 and P 6,700 are
worthless in LL’s and Other Assets 2,000 3,600 MM’s respective books.
C. Other assets of TOTAL P 1,020,916 P 1,317,002 P 2,000 and P 3,600 in

LL’s and MM’s respective books are to
be written off. Accounts Payable P 178,940 P 243,650
Notes Payable 200,000 345,000
The capital account of LL, Capital 641,976 --- the partners after the
adjustment will be MM, Capital --- 728,352
a. LL, P 615,942; MM, TOTAL P 1,020,916 P 1,317,002 d. LL, P
P 717,894 614,476; MM, P
683,052
b. LL, P 640,876; MM, P 712,345
c. LL, P 640,876; MM, P 683,050
PP QQ
29. The same information in no 28, how much total
assets does the partnership have after formation?
a. P 2,337,918 c. P 2,265,118
b. P 2,237,918 d. P 2,365,218
30. On March 1, 2014, PP and QQ decide to combine their businesses and form a partnership. Their balance sheets on March 1,
before adjustments, showed the following:
Cash P 9,000 P 3,750
Invnetories 30,000 19,500
Furniture and Fixtures (net) 30,000 9,000
Office Equipment 11,500 2,750
Prepaid Expenses 6,375 3,000
TOTAL P 105,375 P 51,500
Capital 59,625 33,500
TOTAL P 105,375 P 51,500
They agreed to have the following items recorded in their books:
1. Provide 2% allowance for doubtful accounts.
2. PP’s furniture and fixtures should be P 31,000, while QQ’s office equipment is underdepreciated by P 250.
3. Rent expense incurred previously by PP was not yet recorded amounting to P 1,000, while salary expense incurred
by QQ was not also recorded amounting to P 800.
4. The fair market value of inventory amounting to: PP - P 29,500; QQ - P 21,000.
Compute the net (debit) credit adjustment for PP and QQ
a. PP, P 2,870; QQ, P 2,820 c. PP, (P870); QQ, P 180
b. PP, (P 2,870); QQ, (P2,820) d. PP, P 870; QQ, (P 180)
31. The same information in no. 30, compute the total liabilities after the formation:
a. P 61,950 b. P 63,750 c. P 65,550 d. P 63,950
32. The same information in no.30, comute the total assets after the formation:
a. P 157,985 b. P 156,875 c. P 160,765 d. P 152,985
33. On April 30, 2014, XX, YY and ZZ formed a partnership by combining their separate business proprietorships. XX
contributed of P 75,000. YY contributed property with a P 54,000 carrying amount, a P 60,000 original cost, and P 120,000
fair value. The partnership accepted responsibility for the P 52,500 mortgage attached to the property. ZZ contributed
equipment with a P 45,000 carrying amount, a P 112,500 original cost , and P 82,500 fair value. The partnership agreement
specifies that profits and losses are to be shared equally but is silent regarding capital contributions. Which partner has the
largest April 30, 2014 capital balance?
a. XX c. ZZ
b. YY d. All capital accounts balances are equal

Partnership

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BASIC ACCOUNTING - PARTNERSHIP AND CORPORATION

Nature and Formation of Partnership

1. Which of the following best describes the attributes of a partnership?

A. Limited life of the business and limited liability of partners

B. Limited life of the business and unlimited liability of partners

C. Unlimited life of the business and limited liability of partners

D. Unlimited life of the business and unlimited liability of partners

2. When a partner withdraws cash or other assets, the drawing account is

A. Debited C. Debited and Credited

B. Credited D. Not affected

3. All of the following affect a partner’s capital account except

A. Additional C. Partnership net income or

4. Which of the following are kinds of partnerships

A. General C. Industrial partnership

5. Which of the following relate to the capital share of a partner in a partnership?

A. The percentage of equity that a partner has on the net assets

B. Proportionate to a partner’s capital contribution

C. May not be proportionate to capital contribution due to bonus

Furniture and Fixtures 40,000

A. P 980,000 B. P 1,020,000 C. P 1,280,000 D. P 1,320,000

A. P 489,000 and C. P 481,500 and P 258,600

B. P 481,500 and Cash P 72,000 P 30,000 D. P 855,000 and P 417,000

Merchandise Inventory 240,000 156,000

A. P 747,000 B. P 786,000 C. P 1,572,000 D. P 1,576,000

Merchandise Inventory 60,000 90,000 P 40,000 P 80,000

Equipment 120,000 100,000 80,000 120,000

Accounts Payable 30,000 30,000 20,000 20,000

A. P 120,000 B. P 150,000 C. P 180,000 D. P 300,000

A. P 10,000 B. P 150,000 C. P 160,000 D. P 400,000

A. P 240,000 B. P 250,000 C. P 490,000 D. P 590,000

A. P 6,000 to Amable C. P 10,000 to Amable

B. P 6,000 to Aguila D. P 10,000 to Aguila

A. P 245,000, P 245,000 C. P 156,000, P 234,000

B. P 234,000, P 156,000 D. P 294,000, P 196,000

A. P 400,000 B. P 720,000 C. P 1,200,000 D. P 1,520,000

A. P 480,000 B. P 720,000 C. P 960,000 D. P 1,200,000

A. Increase, Increase C. Decrease, Increase

B. Increase, Decrease D. Decrease, Decrease

A. P 520,000 B. P 720,000 C. P 1,200,000 D. P 1,440,000

A. Taxes paid by the partnership C. Withdrawals allowed to partners

B. Causes of the partnership dissolution D. Profit-sharing ratio

A. Agreed value B. Book value C. Dissolution value D. Original value

A. Silent partner C. Nominal partner

B. Secret partner D. Ostensible partner

A. Open partnership C. De facto partnership

B. De jure partnership D. Secret partnership

C. Proprietors’ book values of the property at the date of investment

D. Fair value of the property at the date of the investment

A. Carrying amount, Market value B. Market value, Carriyng amount

B. Fair value of the property at the date of the investment

D. Carrying amount of the property at the date of the investment

A. P 360,000 B. P 460,000 C. P 760,000 D. P 960,000

B. Astoria’s carrying amount of the property at June 30, 2014

D. The fair value of the property at June 30, 2014

A. P 900,000, P 450,000 C. P 750,000, P 600,000

B. P 300,000, P 750,000 D. P 300,000, P 600,000

A. P 900,000 B. P 1,200,000 C. P 2,760,000 D. P 4,360,000

A. P 780,000 B. P 900,000 C. P 1,200,000 D. P 1,980,000

A. P 1,200,000 B. P 3,960,000 C. P 4,740,000 D. P 5,560,000

36. Using the information in no. 34, bonus was given by

A. Amurao to Alonzo C. The partnership

B. Alonzo to Amurao D. Nobody

A. P 900,000 B. P 990,000 C. P 1,200,000 D. P 3,960,000