Andres Soriano Colleges of Bislig

Andres Soriano Ave., Mangagoy, Bislig City

ADVANCED FINANCIAL &REPORTING 1

Name: ____________________________________________ Date: ____________________ Score: __________________

Directions: Encircle the letter of your chosen answer USING BALLPEN. STRICTLY NO ERASURES ALLOWED. You may write anything on this test paper.

1. On May 1, 2015, Gonzaga and Balace formed a partnership and agreed to share profits and losses in the ratio of 3:7, respectively. Gonzaga
contributed a parcel of land that cost P10,000. Balace contributed P40,000 cash. The land was sold for P18,000 on May 1, 2015, immediately
after formation of partnership. What amount should be recorded in Gonzaga’s capital account on formation of the partnership?
a. P15,000 b. P17,400 c. P10,000 d. P18,000

2. On Mar. 1 2015, Sarabia and abad decided to combine to combine their businesses and form a partnership. Their statements of financial position
on Mar.1, before adjustments, showed the following:

Sarabia Abad
Cash P9,000 P3,750
Accounts Receivable 18,500 13,500
Inventories 30,000 19,500
Furniture and Fixtures (net) 30,000 19,500
Office Equipment (net) 11,500 2,750
Prepaid Expenses 6,375 3,000
Total P 105,375 P 51,500
Accounts Payable P 45, 750 P 18,000
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. Sarabia’s furniture and fixtures should be P31,000, while Abad’s office equipment is under-depreciated by P250.
3. Rent expense incurred previously by Sarabia was not yet recorded amounting to P1,000, while salary expense incurred by Abad was
not also recorded amounting to P800.
4. The fair market values of inventory amounted to:
For Sarabia P29,500
For Abad P21,000

Compute the net (debit) credit adjustment for Sarabia and Abad:
Sarabia Abad Sarabia Abad
a. P 2,870 P 2,820 c. P(870) P 180
b. P(2,870) P(2,820) d. P 870 P(180)

3. Using the same information in the previous number, what is amount of total liabilities after the formation?
a. P63, 950 b. P63, 750 c. P65, 550 d. P61, 950

4. Using the same information in #2, what is the amount of total assets after the formation?
a. P160,765 b. P157, 985 c. P152, 985 d. P156, 875

5. On Apr.3, 2015, Lacson, Yacapin, and Bernal formed a partnership by combining their separate business proprietorships. Lacson contributed
cash of P50,000. Yacapin contributed property with a P36,000 carrying amount, a P40,000 original cost, and P80,000 fair value. The partnership
accepted responsibility for the P35,000 mortgage attached to the property.

Bernal contributed equipment with a P30,000 carrying amount, a P75,000 original cost, and P55,000 fair value. The partnership agreement
specifies that profits and losses are to be shared equally but is silent regarding capital contribution. Which partner has the largest Apr. 30, 2015,
capital balance?
a. Lacson b. Bernal c. Yacapin d. All capital account balances are equal
6. A budding entrepreneur wants to start a business but is unsure of the legal form suited for her. Short of cash, she has to take the form that is
least expensive and most flexible in terms of decision making and implementation. Which would you recommend?
a. Joint Venture b. Partnership c. Sole proprietorship d. Cooperative e. Corporation

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

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

9. Dagante’s partnership agreement with two partners was done haphazardly and thus caused some limitations. One of the concerns was uneven
productivity among the partners. The agreement required each partner to contribute to every aspect of the business to receive an equal portion
of the profits. This agreement did not reflect the idea that
a. Partners need not be “equal” because each bring varied talents and knowledge into the partnership.
b. General partners are required to be active in day-to-day business operations.
c. Customers and creditors of a limited partnership need not be protected.
d. The limited partnership law requires every general partnership to have at least one limited partner.
e. Each partner may enter into contracts on behalf of all the others.
10. Alibangbang and Sol decided to go into business together. They started by listing the essential terms of their agreement along with their rights
and duties. Alibangbang and Sol created a(n)
a. Articles of Partnership b. Licensing Agreement c. Articles of Incorporation d. Partnership Agreement

11. Which of the following best describes the nature of salary and interest allowances in a partnership profit and loss agreement?
a. A means of determining reasonable monthly withdrawals by each partner.
b. The amount upon which each partner will have to pay personal income tax.
c. A means of distributing profit in relation to services rendered and capital invested.
d. Expenses of the business that should be deducted from revenue in determining profit.

12. The division of partnership profits on the basis of salaries, interest and an agreed ratio is usually necessary because
a. This prevents arguments among the partners.
b. Most investors require this method of distribution.
c. Partners seldom contribute time, effort and resources equally.
d. This reflects the amount of time devoted to the partnership by the partners.

13. Orosco is an industrial partner. Besides his services, he also contributed capital to the partnership. There is no agreement as to the distribution
of profits or losses. The agreement of Orosco in the profit is
a. To be determined by the remaining partners.
b. Combination of c and d below.
c. Pro-rata to his contribution.
d. Such share as may be just and equitable under the circumstances.

14. Which of the following is not a component of the formula used to distribute profit?
a. After all other allocations, the remainder divided according to the profit and loss sharing ratio.
b. Salary allowances to the managing partner.
c. Interest on the average capital investments.
d. Interest on notes to partners.
e. Equally.

15. Closing entries of a partnership include entries to

a. Record distribution of cash to the partners.
b. Eliminate the capital accounts and record the distribution of assets to partners to affect the partnership termination and liquidation.
c. Close income and expense accounts to the income summary account; and then close the profits or losses to the drawing accounts.
d. Close the profits or losses and dividends declared accounts to retained earnings.
16. Which of the following distributions would be made last in dividing profits to the partners when interest on capital balances and salary
allowances are involved?
a. Salary allowances b. Equally c. Specified ratio d. Interest on capital balances

17. Which of the following will not result in dissolution of a partnership?

a. In a capacity of a partner
b. Negative capital balance of a partner
c. Bankruptcy of a partner
d. Admission of a new partner

18. When a partner withdraws from a partnership taking assets that represent less than his capital balance,
a. No bonus results.
b. The remaining partners receive a bonus
c. The withdrawing partner receives a bonus
d. The remaining partners owe the withdrawing partner the difference.

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

20. Marasigan, Cabance, and Tan are in a partnership. Tan decides she wants to withdraw from the partnership by selling her interest to Blanche.
Marasigan and Cabance agree to this. Marasigan’s and Cabance’s capital accounts
a. Will not be affected when Blanche is admitted.
b. Cannot be determined from information given
c. Will increase when Blanche is admitted
d. Will decrease when Blanche is admitted

21. Which of the following best characterizes the bonus method of recording a new partner’s investment in a partnership?
a. Not assets of the old partnership are not revalued
b. The partner’s initial capital balance is equal to his investment
c. The bonus always results in an increase to the old partners’ capital balances
d. Assuming that recorded assets are properly valued, the book value of the new partnership is equal to the book value of the old partnership
and the investment of the new partner.

22. Figueroa and Aguhob are partners in a CPA Review School. They share profits in the ratio of 2:1. On July 1, 2015 they admitted Figueroa’s son
Doblas as a partner. Figueroa guaranteed that Doblas’ profit share would not be less than P25,000 for the six months to Dec. 31, 2015. The
profit sharing arrangement after Doblas’ admission is as follows: Figueroa 50%, Aguhob 30%, and Doblas 20%. The profit for the year ended
Dec. 31, 2015 was P240,000 accruing evenly over the year. What should Figueroa’s total profit share be for the year ended Dec. 31, 2105?
a. P140,000 b. P139,000 c. P114,000 d. P139,375

23. Pozon, Ventic, and Biore are partners. Pozon is an industrial partner. During the first year of operation, the firm realized a profit of P60,000.
During the second year, the firm sustained a loss of P30,000. So, the total profit for two years of operations was only P30,000. In the Articles of
Partnership, it was agreed that Pozon, the industrial partner would get one-third of the profit but would not share in the losses. How much will
Pozon, the industrial partnerget?
a. Pozon will get only P10,000 which is one-third of the profit.
b. Pozon will get only P20,000 in the first year and none in the second year.
c. Pozon will share in the loss in the second year.
d. Pozon will get only 20,000 which is 1/3 of the profit of the first year of operations.

24. Partners Arias, Bobadilla and Briones share profits and losses 50:30:20, respectively. The statement of financial position at April 30,2015 follows:

Cash 40,000 Accounts Payable 100,000

Other Assets 360,000 Arias, Capital 74,000
Bobadilla, Capital 130,000
_______ Briones, Capital 96,000
TOTAL 400,000 TOTAL 400,000
 The assets and liabilities are recorded and presented at their respective fair values. Banzon is to be admitted as a new partner with a 20% capital
interest and a 20% share of profits and losses in exchange for a cash contribution. No goodwill or bonus is to be recorded. How much cash
should Banzon contribute?
a. 60,000 b. 72,000 c. 75,000 d. 80,000

The balance sheet as of June 30, 2003 for the partnership of R. Vasquez, J.Watson, and L. Ylagan shows the following information:

Total Assets P360,000

R. Vasquez, Loan P20,000

R. Vasquez, Capital 83,000
J. Watson , Capital 77,000
L. Ylagan, Capital 180,000
P360,000
It was agreed among the partners that Vasquez retires from the partnership and it was further agreed that the assets be adjusted to their
fair value of P408,000 as of June 30, 2003. The partnership would pay Vasquez, P121,000 cash for his partnership interest and includes the
payment of loan to him. No goodwill is to be recorded.

Vasquez, Watson and Ylagan share profits and losses , 25%, 25%, and 50% respectively.

25. What is Ylagan’s capital balance after the retirement of Vasquez?

a. P120,000 b. P200,000 c. P180,000 d. P560,000

26. Jinky is trying to decide whether to accept a bonus of 25% of net income after salaries and bonus or a salary of P97,500 plus a bonus of 10% of
net income after salaries and bonus as a means of allocating profit among the partners. Salaries traceable to the other partners are estimated
to be P450,000. What amount of income would be necessary so that Jinky would consider the choices to be equal?
a. P1,100,000 b. P1,197,500 c. P650,000 d. P1,262,500

27. Jamby and Minam just formed a partnership. Jamby contributed cash of P2,205,000 and office equipment that cost P945,000. The equipment
had been used in her sole proprietorship and had been 70% depreciated, the appraised value of the equipment is P630,000. Jamby also
contributed a note payable of P210,000 to be assumed by the partnership. Jamby is to have 60% interest in the partnership. Miriam contributed
only P1,575,000 merchandise inventory at fair market value. Assume the use of bonus method, the partners’ capital must be in conformity with
their profit and loss ratio upon formation.
In the formation of a partnership, which of the following is true?
a. The agreed capital of Jamby upon formation is P2,625,000
b. The total agreed capital of the partnership is P4,375,000
c. The capital of Miriam will increase by P105,000 as a result of the transfer of capital
d. There is either an investment or withdrawal of asset under the bonus method

28. Ester, Judith and Martha were partners with capital balances on January 2, 2009 of P70,000, P84,000 and P62,000, respectively. Their loss sharing
ratio is 3:5:2. On may 1, 2009, Ester retires form the partnership. On the date of retirement the partnership net profit form operations is P48,000.
The partners agreed further to pay Ester P76,560 in settlement of her interest.
Upon retirement of Ester, which of the following will result?
a. Goodwill of Ester is P7,840
b. Judith capital after retirement of Ester is P36,400 higher than Martha.
c. Bonus from Ester is P9,440
d. Bonus to Judith is P5,600

29. The partnership agreement of X, Y and Z provides for the division of net income as follows:
I. Y, who manages the partnership is to receive a salary of P16,500 monthly.
II. Each partner is to be allowed interest at 15% on ending capital.
III. Balance is to be divided 25:30:45.
During 2009, X invested an additional P96,000 in the partnership. Y made an additional investment of P60,000 and withdrew P90,000, and Z
withdrew P70,000. No other investments or withdrawals were made during 2009. On January 1, 2009, the capital balances were X, P280,000; Y,
P300,000; and Z, P170,000. Total capital at year-end was P975,000.

Compute the capital balance of each partner at year-end:

X Y Z
a. P 36,750 P214,920 P(20,670)
b. 412,750 484,920 77,330
c. 316,750 514,920 149,330
d. 398,750 412,500 87,250
30. The balance sheet as of September 30, 2009, for the partnership of D, E and F shows the following information: Assets, P360,000; D, loan,
P20,000; D, capital, P83,000; E, capital, P77,000; F, capital, P180,000. It was agreed among the partners that D retires from the partnership, and
it was also further agreed that the assets should be adjusted to their fair value of P345,000 as of September 30, 2009. Net loss prior to the
retirement of D amount to P70,000. The partnership is to pay D P62,000 cash for D’s partnership interest, which would include the payment of
his loan. No goodwill is to be recorded. D, E and F share profit 40%, 15% and 45% respectively. After D’s retirement, how much would F’s capital
balance be?
a. P66,000 b. P147,000 c. P136,500 d. P182,250

31. On January 1, AwAw and BeBe pooled their assets to form a partnership, with the firm to take over their business assets and assume the
liabilities. Partners capitals are to be based on net assets transferred after the following adjustments. (Profit and loss are allocated equally.)

BeBe's inventory is to be increased by P4,000; an allowance for doubtful of P 1,000 and Pl.500 are to be set up in books of AwAw and BeBe,
respectively; and accounts payable of P4,000 is to be recognized in AwAw's books. The individual trial balances on August, before adjustments,
follow:
AwAw BeBe
Assets P75.000 P113,000
Liabilities 5,000 34,500
What is the capital of AwAw and BeBe after the above adjustments?

a. AwAw, P65,000; BeBe, P76.000

b. AwAw, P65,000; BeBe, P81.000
c. AwAw, P68,750: BeBe, P77,250
d. AwAw, P75.000; BeBe, P81.000

32. The Partnership has the following balances in their trial balance:
(1) Sales = P70,000
(2) Cost of Goods Sold = P40,000
(3) Operating Expenses = P10,000
(4) Salary allocations to partners = P13,000
(5) Interest paid to banks = P2,000
(6) Partners' withdrawals = P8,000

The partnership net income (loss) is:

a. (3,000) b. 18,000 c. 20.000 d. 5,000

33. Mimi, Jojo, and Kaka are forming a new partnership. Mimi is to invest cash of P100,000 and stamping equipment originally costing P120.000 but
has a second-hand value in the market at P50,000. Jojo is to invest cash of P160,000, while Kaka, whose family is engaged in selling stamping
equipment, is to contribute cash of P50,000 and a brand new stamping equipment to be used by the partnership with a regular price of P 120.000
but which cost their family's business P100,000. Partners agree to share profits equally. The capital balances upon formation are:
a. Mimi, P220,000; Jojo, P160,000; and Kaka, P150,000
b. Mimi, P176,666; Jojo, P176,666; and Kaka, P176,668
c. Mimi, P160,000; Jojo, P160,000; and Kaka, P160,000
d. Mimi, P150,000; Jojo, P160,000; and Kaka, P170,000

34. Perez, Reyes and Suarez were partners with capital balances as of January 1, 2009 of P100,000, P150,000 and P200,000 respectively. They share
profits on a 5:3:2 ratio.
On July 1, 2009, Perez withdraw from the partnership. For the six month period ending June 30, 2009, the partnership generated a net income
P140,000. Partners agreed that at the time of withdrawal, certain inventory had to be revalued at P70,000 from its cost of P50,000. Further,
partners agreed to pay Perez P195,000 for his interest. What are the capital balances of Reyes and Suarez after Perez’s retirement?
Reyes Suarez
a. P217,000 P238,000
b. P189,000 P226,000
c. P177,000 P218,000
d. P187,500 P226,000

35. Perez, Que and Ramos are partners sharing earnings in the ratio of 5:3:2, respectively. As of December 31, 2008, their capital balance showed
P95,000 for Perez, P80,000 for Que, and P60,000 for Ramos.
On January 1,2009 the partnership admitted Santos as a new partner and according to the agreement, Santos will invest P80,000 in cash to the
partnership and will also purchase 15% of Que’s interest for P10,000. Santos will share 20% in the earnings while the ratio of the original partners
will remain proportionately the as before Santos’ admission. After Santos’ admission, the total capital of the partnership will be P330,000 while
Santos’ capital account will be P70,000.
 What is the balance of Que’s capital account after the admission of Santos?

a. P81,100 b. P79,100 c. P74,600 d. P72,600

36. On March 1, 2008, Alma and Betty formed a partnership with cash investments of Alma, P480,000 and Betty, P240,000.
The partners agree to allocate profits and losses as follows:
1. Alma and Betty will be allowed a monthly salary of P48,000 and P24,000, respectively.
2. The partners will be allowed with interest of 10% of their capital balances at the beginning of each year.
3. The remainder will be divided on the basis of their beginning capital for the year of operation and equally for the subsequent years.
4. Each partner is allowed to withdraw up to P24,000 a year. Any withdrawal in excess of the figure will be treated as a direct reduction from
their capital balances.
In 2008 the partnership suffered a net loss of P36,000. But in 2009 they earned a profit of P132,000. The partners withdraw the maximum
amount each year. On January 2, 2010 a new partner, Cora was admitted in the partnership for an investment of P400,000 for a 40% interest.
No revaluation of assets is to be recorded. After the admission of Cora, the partners agreed to divide profits and losses, 4:2:4, to Alma, Betty
and Cora, respectively.On January 2, 2010, what is the entry to record the admission of Cora?
a. Cash P400,000
Alma, Capital 33,000
Betty, Capital 37,000
Cora, Capital P467,000

b. Cash P400,000
Cora, Capital P400,000

c. Cash P400,000
Alma, Capital 32,000
Betty, Capital 16,000
Cora, Capital P448,000
d. Cash P448,000
Cora, Capital P448,000

37. KA and LA are partners who share profits and losses equally. The capital accounts of KA and LA have tripled in five years and at present have the
following balances.
Ka, P90,000 LA, P60,000
MO desires to join the firm and offered to invest P50,000 for one-third interest. KA and LA declined his offer but they extended a counter-offer
to MO of P70,000 for a one-fourth interest in the capital and profits and losses of the firm. If MO accepted their offer and bonus is recorded,
what should be the balances in the capital accounts of KA and LA after MO’s admission?
KA LA KA LA
a. P100,000 P70,000 c. P97,500 P67,500
b. P120,000 P90,000 d. P90,000 P60,000

38. Ron Sam and Tim decided to engage in a real estate venture as a partnership. Roy invested P140,000 cash and Sam provided an office and
furnishing value at P220,000. (There is a P60,000 note payable remaining on furnishings to be assumed by the partnership). Although Tim has
no tangible assets to invest, both Roy and Sam believe that Tim’s salesmanship provides an adequate investment. The partners agree to receive
an equal capital interest in the partnership. Using the bonus method, what is the capital balance of Tim?
a. P50,000 b. Zero c. P140,000 d. P100,000

39. Hannah and Ricardo are partners with capital of P100,000 and P140,000 respectively. They share profits equally. Marlou invests P120,000 for
a 25% interest in the partnership. Hannah, Ricardo and Marlou agree that the combined capital is P360,000. The agreement on the entry of
Marlou brings about
a. Bonus of P60,000 c. Goodwill of P40,000
b. Goodwill of P60,000 d. Bonus of P30,000

AJ, BJ, and CJ are partners in an accounting firm. Their capital account balances at December 31, 2005 were: AJ, P90,000; BJ, P110,000; CJ,
P50,000. They share profits and losses in a 4:4;2 ratio, after the following special terms:
a. Partner CJ is to receive a bonus of 10% of the net income after the bonus.
b. Interest of 10% shall be paid on that portion of partners’ capital in excess of
P100,000.
c. Salaries of P10,000 and P12,000 shall be paid to partners AJ and CJ respectively.
The income summary account for the year 2005 shows a credit balance of P44,000.
40. What is the profit share of partner CJ?
a. P19,400 b. P16,800 c. P17,800 d. P19,800