Quiz 1

(Partnership Formation and Operation)

General Instruction: ANSWER AS IT IS. If you have question/s about the Quiz, we deal it later
after the Quiz.

MCQs
Instruction: Choose the best answer for each question.

1. Which of the following statements is correct?

a. An advantage of a partnership is that it is difficult to dissolve.
b. Partner A contributed cash of ₱100 and land with carrying amount of ₱500 and fair value of
₱700 to a partnership. If no bonus is given to any partner, Partner A’s capital account should
be credited for ₱600.
c. Partner C contributed inventory costing ₱500 but with a net realizable value of ₱400 to a
partnership. The related accounts payable of ₱100 will be assumed by the partnership. The
net credit to Partner C’s capital account in the partnership books is ₱300.
d. A partnership business has a legal life of 50 years.

2. The accounting for partnerships differs from the accounting for sole proprietorships, corporations
and cooperatives in regard to the accounting for
a. assets.
b. liabilities.
c. equity.
d. all of these.

3. A and B formed a partnership. Although A and B contributed equal amounts of cash, it was agreed
that the initial credit to A’s capital account should be greater than that of B. If the bonus method is
used, which of the following statements is correct?
a. A capital bonus is given to B.
b. Partner B’s account is not affected by the agreement.
c. Goodwill must be recorded.
d. The increase in A’s capital account is treated as a decrease in B’s capital account.

4. On April 30, 20x1, A, B and C formed a partnership. A contributed cash of ₱50,000. B contributed
property with ₱36,000 carrying amount, ₱40,000 original cost and ₱80,000 fair value. The
partnership accepted responsibility for the ₱35,000 mortgage attached to the property. C
contributed equipment with ₱30,000 carrying amount, ₱75,000 original cost and ₱55,000 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 smallest April 30, 20x1 capital
account balance?
a. A
b. B
c. C
d. All capital account balances are equal

5. A and B agreed to form a partnership. A shall contribute ₱60,000 cash while B shall contribute
₱120,000 cash. However due to the expertise that A will be bringing to the partnership, the
partners agreed that they should initially have an equal interest in the partnership capital. Under
the bonus method, how much is the adjusted capital balance of B immediately after the formation
of the partnership?
a. 60,000
b. 90,000
c. 120,000
d. none of these
TRUE/FALSE
Instruction: Write “TRUE” if the statement is false, otherwise write “FALSE”.

1. Mr. A contributed land with historical cost of P1M and fair value of P2M to a partnership
business. Mr. A's contribution shall be valued at P1M in the partnership books.

2. Ms. B contributed equipment with carrying amount of P100 and fair value of P200 to a
partnership. No bonus is given to any partner. In the partnership's books, equipment is
debited for P200 but B's capital account is credited for P100.
Fact pattern:
Mr. D and Ms. E formed a partnership. D contributed P200, while E contributed P100. The
partners’ respective interests in the partnership are 60% and 40%. The initial credits to the
partners' capital accounts are to be adjusted using the bonus method to reflect the partners'
respective interests.

3. The balance of D's capital account after the formation is P180.

4. The bonus given to E is P40.

Fact pattern:
Piw and Pie agreed to form a partnership. Piw contributed cash of P200 while Pie will be
contributing her expertise. The partnership agreement stipulates that Piw and Pie shall have
equal interests in both the initial capital of the partnership and in subsequent partnership profits
and losses.

5. The cash contribution of Piw shall be debited for P200 but the net credit to Piw's capital
account shall be P100.
6. Immediately after partnership formation, the balance of Pie's capital account is zero.

7. According to the law, if no profit or loss sharing ratio has been agreed upon, the partners
shall share equally.

Fact pattern:
You and I are partners. We share in profits equally. Because I am the managing partner, I am
entitled to a 20% bonus computed on profit before deducting the bonus.

8. If our partnership earns profit of P1M (before deducting my bonus), your share would be
P500,000.
9. If our partnership incurs loss of P1M, your share would be negative P400,000.

10. Normally, partners are entitled to salaries tor the services they have rendered to the
partnership business only if the business earns profit.

Fact pattern:
He and She are partners, with 60% and 40% interests in partnership profit, respectively. He is
entitled to P2M annual salary.

11. If the partnership earns P12M profit before deducting He's salary, She's share would be
P4M.
12. If the partnership incurs P8M loss before deducting He’s salary, She's share would be
negative P4M.

Fact pattern:
A and B formed a partnership. The partnership agreement stipulates the following:
 Annual salary allowances of P50 for A and P30 for B.
 Any remaining amount of profit or loss shall be divided equally.

13. During the period the partnership earned profit of P100 before salary allowances, A's share
in the partnership profit is P10.
 14. During the period the partnership incurred loss of P100 before salary allowances. A's share
in the partnership loss is P40.

15. Mr. C, the managing partner in ABC Co. is entitled to a 20% bonus on profit after partners'
salaries and bonus. ABC Co. reported profit of P360 after deducting the partners' salaries
but before deducting Mr. C's bonus. Mr. C's bonus is P80.

Instructions: Solve and answer the following problems in a separate sheet of paper. Make your solution
neat as you are. So, I suggest to make a separate summary of answers for every problem.

Problem 1

A and B formed a partnership. The following are their contributions:

A B
Cash 200,000 -
Accounts receivable 150,000 -
Inventory 100,000 -
Land 500,000
Building 620,000
Total 450,000 1,120,000
Note payable 220,000
A, capital 230,000
B, capital 1,120,000
Total 450,000 1,120,000

Additional information:
 The accounts receivable has a recoverable amount of ₱120,000.
 The inventory has an estimated selling price of ₱110,000 and estimated costs to sell of ₱20,000.
 The land has a fair value of ₱500,000 and unpaid mortgage of ₱120,000. The partners agreed
that B shall settle the mortgage using his personal funds.
 The building is over-depreciated by ₱30,000.
 The building also has an unpaid mortgage amounting to ₱550,000. The partners agreed that the
partnership shall assume repayment of the mortgage.
 The note payable has a fair value of ₱210,000.
 A and B shall share in profits and losses 40% and 60%, respectively.

Requirements:
1. How much are the adjusted capital balances of A and B, respectively?
2. Assume that a partner’s capital shall be increased accordingly by contributing additional
cash to bring the partners’ capital balances proportionate to their profit or loss ratio. Which
partner should provide additional cash and how much is the additional cash contribution?

Problem 2

A and B formed a partnership. The partnership agreement stipulates the following:

 Annual salary allowances of ₱100,000 for A and ₱70,000 for B.
 Bonus to A of 10% of profit after partner’s salaries and bonus.
 The partners share profits and losses on a 50:50 ratio.
During the period the partnership incurred loss of ₱500,000.

3. How much is the share of A in the partnership results of operations during the period?

Problem 3

Maxwell is trying to decide whether to accept a salary of ₱40,000 or a salary of ₱25,000 plus a
bonus of 10% of profit after salaries and bonus, as a means of allocating profit among partners.
Salaries traceable to the other partners are estimated to be ₱100,000.
 4. What amount of profit would be necessary so that Maxwell would consider the choices to be
equal?

Problem 4
The partnership agreement of Axel, Berg & Cobb provides for the year-end allocation of net income
in the following order:
 First, Axel is to receive 10% of net income up to ₱100,000 and 20% over ₱100,000.
 Second, Berg and Cobb each are to receive 5% of the remaining income over ₱150,000.
 The balance of income is to be allocated equally among the three partners.

5. The partnership’s 2003 net income was ₱250,000 before any allocations to partners. What
amount should be allocated to Axel?

Problem 5
A and B formed a partnership. The partnership agreement stipulates the following:
 Annual salary allowance of ₱40,000 for A.
 Interest of 10% on the weighted average capital balance of B.
 The partners share profits and losses in a 80:20 ratio.

During the period the partnership earned profit of ₱100,000.

The movements in B’s capital account are as follows:

B, Capital
60,000 Beg.
Aug. 1 withdrawal 30,000 20,000 Mar. 31 additional investment
40,000 Oct. 1 additional investment
10,000 Dec. 1 additional investment
End. 100,000

6. How much is the share of A in the partnership profit?

Problem 6
A and B formed a partnership and began operations on March 1, 20x1. A invested ₱400,000 cash
while B invested equipment with a book value of ₱1,200,000 and a fair value of ₱720,000. On
August 31, 20x1, A invested additional cash of ₱80,000. The partnership agreement stipulates the
following:
 Monthly salary allowances of ₱8,000 and ₱40,000 to A and B, respectively, recognized as
expenses.
 20% bonus on profit before salaries and interest but after bonus to B.
 12% annual interest on the beginning capital of A.
 Balance equally.

The monthly salaries are withdrawn by the partners at each month-end. The partnership earned profit
of ₱840,000 during the period before deductions for bonus and interest.

7. How much is the ending balance of B’s capital account?

Problem 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 ₱60,000 during the calendar year 20x1. During 20x1, A
withdrew ₱130,000 (charged against his capital account) and contributed property valued at
₱25,000 to the partnership.

8. How much was the profit of ABC Partnership in 20x1?

Problem 8

A and B formed a partnership and began operations on March 1, 20x1. A invested ₱400,000 cash
while B invested equipment with a book value of ₱1,200,000 and a fair value of ₱720,000. On
August 31, 20x1, A invested additional cash of ₱80,000. The partnership agreement stipulates the
following:
  Monthly salary allowances of ₱8,000 and ₱40,000 to A and B, respectively, recognized as
expenses.
 20% bonus on profit before salaries and interest but after bonus to B.
 12% annual interest on the beginning capital of A.
 Balance equally.

The monthly salaries are withdrawn by the partners at each month-end. The partnership earned profit
of ₱840,000 during the period before deductions for bonus and interest.

9. How much is the ending balance of B’s capital account?

Problem 9

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 ₱60,000 during the calendar year 20x1. During 20x1, A
withdrew ₱130,000 (charged against his capital account) and contributed property valued at
₱25,000 to the partnership.

10. How much was the profit of ABC Partnership in 20x1?

Mahirap? Or Madami lang? Well, that’s how the board exam is. 70 items, mostly problems and 1
problem is to 1 question for only 3 hours. Try to imagine it, so what matters for me is that you will
become well equipped and trained.
#HATE ME NOW, THANK ME LATER.

“Push yourself, because no one else is going to do it for you”

GODBLESS CPAs!!!