Partnership Operations & Dissolution

NAME: Date:
Professor: Section: Score:

QUIZ:

1. AAA, BBB and CCC are partners with average capital balances during 2008 of P120,000,
P60,000 and P40,000, respectively. Partners receive 10% interest on their average capital
balances. After deducting salaries or P30,000 to AAA and P20,000 to CCC, the residual
profit or loss is divided equally. In 2009 the partnership sustained a P33,000 loss before
interest and salaries to partners. By what amount should AAA’s account change?
a. P7,000 increase c. P35,000 decrease
b. P11,000 decrease d. P42,000 increase

2. The partnership agreement of AAA, BBB and CCC provides for the year-end allocation of
net income in the following order:
 First, AAA is to receive 10% of net income up to P100,000 and 20% over P100,000
 Second, BBB and CCC each are to receive 5% of the remaining income over P150,000
 The balance of income is to be allocated equally among the three partners

The partnership’s 2009 net income was P250,000 before any allocations to partners. What
amount should be allocated to AAA?
a. P101,000 c. P108,000
b. P103,000 d. P110,000

3. The Articles of Partnership of Adam and Eve the following provisions were stipulated:
 Annual salary of P60,000 each
 Bonus to Adam of 20% of the net income after partner’s salaries and bonus, the bonus being
treated as an expense.
 Balance to be divided equally.

The partnership reported a net income of P360,000 after partners’ salaries but before bonus. How
much is the share of Eve in the profit?
a. P 60,000
b. 90,000
c. 150,000
d. 210,000

4. Maxwell is trying to decide whether to accept a salary of P40,000 or salary of P25,000 plus a
bonus of 10% of net income. After salaries and bonus as a means of allocating profit among
partners. Salaries traceable to the other partners estimated to be P100,000. What amount of
income would be necessary so that Maxwell would consider choices to be equal?
a. P165,000
b. 290,000
 c. 265,000
d. 305,000

5. Partner A first contributed P50,000 of capital into existing partnership on March 1, 2002. On
June 1, 2002, said partner contributed another P20,000. On September 1, 2002, he withdrew
P15,000 from the partnership. Withdrawal in excess of P10,000 are charged to the partner’s
capital accounts. What is the annual weighted average capital balance of Partner A?
a. P 32,500
b. 51,667
c. 60,000
d. 48,333

6. Garcia and Henson formed a partnership on January 2, 2005 and agreed to share profits 90%
and 10%, respectively. Garcia contributed capital of P 25,000. Henson 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:

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

Henson is to be paid a salary of P1,000 a month.
Henson is to receive a bonus of 20% of income calculated before deducting his salary and
interest on both capital accounts.
Bonus, interest, and Henson’s salary are to be considered partnership expenses.
The partnership 2005 income statement as follows:

Revenues P 96,450
Expenses (including salary, interest, and bonus) 49,700
Net income P 46,750

What is Henson’s 2005 bonus?

a. P 11,688
b. P 12,000
c. P 15,000
d. P 15,738

7. A, a partner in the ABC Partnership, has a 30% participation in partnership profits and losses.
A’s capital account has a net decrease of P 60,000 during the calendar year 20x1. During
20x1, A withdrew P130,000 (charged against his capital account) and contributed property
valued at P 25,000 to the partnership. What was the net income of the ABC Partnership for
20x1?
a. P 150,000
b. P 233,333
c. P 350,000
d. P 550,000
8. Abe, Bert, and Carl are partners sharing profit on a 7:2:1 ratio. On January 1, 2005, Dave was
admitted into the partnership with 15% share in profits. The old partners continue to
participate in profits in their original ratios.

For the year 2005, the partnership showed a profits of P 15,000. However, it was discovered that
the following items were omitted in the firm’s book:
2004 2005
Accrued expense P 1,050
Accrued income 875
Prepaid expenses P 1,400
Unearned income P 1,225

The share of partner Bert in the 2005 net profit is?

a. P 2,197.50
b. P 2,490.50
c. P 2,637.00
d. P 3,149.75

9. FF, GG and HH form a partnership and agree to maintain average investments of P2,500,000,
P1,250,000, and P1,250,000, respectively. Interest on the excess or deficiency in a capital
contribution is to be computed at 6% per annum. After the interest allowances, FF,GG, and
HH are to share any balance in the ratio of 5:3:2. Average amounts invested during the first
six months were as follows: FF, P3,000,000. GG, P1,375,000; and HH, P1,000,000. A loss
from operations of P62,500 was incurred for the first six months. How is this loss distributed
among the partners?

FF GG HH
a. P 21,875 P 18,375 P22,250
b. 12,500 10,000 49,500
c. 31,250 18,750 12,500
d. 18,375 21,875 22,250

10. Roy and Sam were organized and began operations on March 1, 20x1. On that date, Roy
invested P 150,000 and Sam invested computer equipment with current fair value of
P180,000. Because of shortage of cash on November 1, 20x1 Sam invested additional cash of
P60,000 in the partnership. The partnership contract includes the following remuneration
plan:

Roy Sam
Monthly salary (recognized as expense) P10,000 P20,000
Annual interest on beginning capital 12% 12%
Bonus on the net profit before salaries and
interest but after bonus 20% -
Balance equally
The salary was to be withdrawn by each partner in monthly installments. The partnership’s net
profit for 2005 is P120,000.

What are the capital balances of the partners on December 31, 20x1?

Roy Sam
a. P243,500 P266,500
b. P243,500 P266,500
c. P243,500 P266,500
d. P243,500 P266,500

11. The following is the condensed balance sheet of the partnership Jo, Li and Bi who share
profits and losses in the ratio of 4:3:3.

Cash P 180,000 Accounts, payable P 420,000

Other assets 1,660,000 Bi, Loan 60,000
Jo, receivable 40,000 Jo, Capital 620,000
Li, Capital 400,000
__ Bi, Capital 380,000
Total P 1,880,000 Total P1,880,000

Assume that the assets and liabilities are fairly valued on the balance Sheet and the partnership
decides to admit Mac as a new partner, with a 20% interest. No goodwill or bonus is to be
recorded. How much Mac should contribute in cash or other assets?
a. P 350,000
b. P 280,000
c. P 355,000
d. P 284,000

12. Fernando and Jose are partners with capital balances of P30,000 and P70,000, respectively.
Fernando has a 30% interest in profits and losses. All assets of the partnership are at fair
market value except equipment with book value of P300,000 and fair market value of
P320,000.

At this time, the partnership has decided to admit Rosa and Linda as new partners. Rosa
contributes cash of P55,000 for a 20% interest in capital and a 30% interest in profits and losses.
Linda contributes cash of P10,000 and an equipment with a fair market value of P50,000 for a
25% interest in capital and a 35% interest in profits and losses. Linda is also bringing special
expertise and clients contact into the new partnership. Using the bonus method, what is the
amount of bonus?
a. P24,750
b. 18,250
c. 14,000
d. 7,500
13. The capital accounts of the partnership of Nakpil, Ortiz, and Perez on June 1, 2005 are
presented below with their respective profit and loss ratios:

Nakpil P 139,200 1/2

Ortiz 208,800 1/3
Perez 96,000 1/6
P 444,000

On June 1, 2005, Quizon is admitted to the partnership when he purchased, for P 132,000, a
proportionate interest from Nakpil and Ortiz in the net assets and profits of the partnership. As a
result of a transaction, Quizon acquired a one-fifth interest in the net assets and profits of the
firm. Assuming that implied goodwill is not to be recorded, what is the combined gain realized
by Nakpil and Ortiz upon the sale of a portion of their interest in the partnership to Quizon?
a. P 0
b. P 43,200
c. P 62,400
d. P 82,000

14. In the AAA-BBB partnership, AAA and BBB had a capital ratio of 3:1 and a profit and loss
ratio of 2:1, respectively. The bonus method was used to record CCC’s admittance as a new
partner. What ratio would be used to allocate, to AAA and BBB, the excess of Colter’s
contribution over the amount credited to Colter’s capital account?
a. AAA and BBB’s new relative capital ratio
b. AAA and BBB’s new relative capital profit and loss ratio
c. AAA and BBB’s old capital ratio
d. AAA and BBB’s old profit and loss ratio

15. When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill's
interest exceeded Mill's capital balance. Under the bonus method, the excess
a. Was recorded as goodwill.
b. Was recorded as an expense.
c. Reduced the capital balances of Yale and Lear.
d. Had no effect on the capital balances of Yale and Lear.

16. C, D and E are partners with capital balances on December 31, 20x1 of P300,000 and
P200,000 respectively. Profit are shared equally. E wishes to withdraw and it is agreed that
she is to take certain furniture and fixtures with second hand value of P50,000 and note for
the balance of her interest. The furniture and fixtures are carried in the books at P65,000.
Brand new, the furniture and fixtures may cost P80,000. E’s acquisition of the second-hand
furniture will result to:
a. Reduction in capital of P15,000 each for C and D.
b. Reduction in capital of P10,000 for E.
c. Reduction in capital of P5,000 each for C and D and E.
d. Reduction in capital of P7,500 each for C and D.
17. In May 1998, Imelda, a partner of an accounting firm decided to withdraw when the partners’
capital balances were: Mikee, P600,000; Raul, P600,000; Imelda, P400,000. It was agreed
that Imelda is to take the partnership’s fully depreciated computer with a second hand value
of P24,000 that cost the partnership P36,000.

If profits and losses are shared equally, what would be the capital balances of the remaining
partners after the retirement of Imelda?
Mikee Raul__
a. P600,000 P600,000
b. 592,000 592,000
c. 608,000 608,000
d. 612,000 612,000

18. On June 30, 1998, the balance sheet for the partnership of Coll, Maduro, and Prieto, together
with their respective profit and loss ratios, was as follows:

Assets, at cost P 180,000

Coll, loan P 9,000

Coll, capital (20%) 42,000
Maduro, capital (20%) 39,000
Prieto, capital (60%) 90,000
Total P 180,000

Coll decided to retire from the partnership. By mutual agreement, the assets are to be adjusted to
their fair value of P 216,000 at June 30, 1998. It was agreed that the partnership would pay Coll
P 61,200 cash for Coll’s partnership interest, including Coll’s loan which is to be repaid in full.
No goodwill is to be recorded. After Coll’s retirement, what is the balance of Maduro’s capital
account?
a. P 36,450
b. 39,000
c. 45,450
d. 46,200

19. On June 30, 2009, the balance sheets of the partnership of AAA, BBB and CCC, together
with their respective profit and loss ratios, were as follows:
Assets, at cost P 180,000

AAA, loan P 9,000

AAA, capital (20%) 42,000
BBB. Capital (20%) 39,000
CCC , capital (60%) 90,000
Total P 180,000

AAA has decided to retire from the partnership. By mutual agreement, the assets are to be
adjusted to their fair value of P216,000 at June 30, 2009. It was agreed that the partnership
 would pay AAA P61,200 cash for AAA’s partnership interest, including AAA’s loan which
is to be repaid in full. No goodwill is to be recorded. After AAA’s retirement, what is the
balance of BBB’s capital account?
a. P36,450 c. P45,450
b. P39,000 d. P46,200

20. On June 30, the balance sheet for the partnership of Williams, Brown and Lowe together
with their respective profit and loss ratios was as follows:

Assets, at cost P300,000

Williams, loan P 15,000

Williams, capital (20%) 70,000
Brown, capital (20%) 65,000
Lowe, capital (60%) 150,000
Total P300,000

Williams has decided to retire from the partnership and by mutual agreement the assets are to be
adjusted to their fair value of P360,000 at June 30. It was agreed that the partnership would pay
Williams P102,000 cash for his partnership interest exclusive of his loan which is to be repaid in
full. No goodwill is to be recorded in this transaction. After William's retirement what are the
capital account balances of Brown and Lowe, respectively?
a. P65,000 and P150,000.
b. P72,000 and P171,000.
c. P73,000 and P174,000.
d. P77,000 and P186,000.

“Do not be anxious about anything, but in everything by prayer and supplication
with thanksgiving let your requests be made known to God. And the peace of God,
which surpasses all understanding, will guard your hearts and your minds in
Christ Jesus.” (Philippians 4:6-7)

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