PARTNERSHIP FORMATION AND OPERATIONS

1. Two individuals who were previously sole proprietors formed a partnership. Property other than
cash which is part of the initial investment in the partnership would be recorded for financial
accounting purposes at the

a. Proprietors’ book values or the fair value of the property at the date of the investment,
whichever is higher.

b. Proprietors’ book values or the fair value of the property at the date of the investment,
whichever is lower.

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

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

Abena and Buendia establish a partnership to operate a used-furniture business under the name of A
and B Furniture. Abena contributes furniture that cost P60,000 and has a fair value of P90,000. Buendia
contributes P30,000 cash and delivery equipment that cost P40,000 and has a fair value of P30,000. The
partners agree to share profits and losses 60% to Abena and 40% to Buendia.
 2. The peso amount of gain (loss) that will result if the initial noncash contributions of the partners
are recorded at cost rather than fair market value will be

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

b. P12,000 and P8,000 to Abena and Buendia, respectively

c. (P18,000) and P18,000 to Abena and Buendia, respectively

d. P 18,000 and (P18,000) to Abena and Buendia, respectively

On April 30, 2003, Bautista, Jimenez and Laxamana formed a partnership by combining their separate
business proprietorships. Bautista contributed cash of P100,000. Jimenez contributed property with a
carrying amount of P72,000, original cost of P80,000, and fair value of P160,000. The partnership
accepted responsibility for the P70,000 mortgage attached to the property. Laxamana contributed
equipment with a carrying amount of P60,000, original cost of P150,000, and fair value of 110,000. The
partnership agreement specifies that profits and losses are to be shared equally but is silent regarding
capital contributions.

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

b. Jimenez d. All capital account balances are equal

G. Macalino and W. Nolasco form a partnership and agree to divide initial capital equally, even though
Macalino contributed P100,000 and Nolasco gave P84,000 in identifiable assets.

4. Under the bonus approach to adjust capital accounts, Nolasco’s unidentifiable assets should be
debited for

A . P8,000 c. P-0-

B . P16,000 d . P46,000

L. Molina and R. Nepomuceno enter into a partnership agreement in which Molina is to have a 60%
interest in capital and profits and Nepomuceno is to have a 40% interest in capital and profits. Molina
contributes the following:

Cost Fair Value

 Land P 20,000 P 40,000

Building 200,000 120,000

Equipment 40,000 30,000

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

5. Goodwill should be recorded in the amount of

a. P20,000 c. P33,333

b. P30,000 d. P40,000

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

Cash P 9,000 P 3,750

Accounts Receivable 18,500 13,500

Inventories 30,000 19,500

Furniture and fixtures (net) 30,000 9,000

Office Equipment (net) 11,500 2,750

Prepaid Expenses 6,375 3,000

P105,375 P51,500

Accounts Payable P 45,750 P 18,000

Z. Roxas, Capital 59,625

B. Solomon, Capital 33,500

 P105,375 P 51,500

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

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

a. P58,170 and P33,095 respectively

b. P58,320 and P32,945 respectively

c. P59,070 and P32,195 respectively

d. P104,820 and P50,195 respectively

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

Bruno Carlos

BV FMV BV FMV

Accounts receivable P20,000 P20,000

Inventories 30,000 40,000P 20,000 P25,000

Equipment 60,000 45,000 40,000 50,000

Accounts payable 15,000 15,000 10,000 10,000

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

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

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

8. The total assets of the partnership is

A . P325,000 c. P170,000

b. P180,000 d. P315,000

On September 30, 2003, G. Mallari admits H. Nebre for an interest in his business. On this date Mallari’s
capital account shows a balance of P158,400. The following were agreed upon before the formation of
the partnership:

a. Prepaid expenses of P17,500 and accrued expenses of P5,000 are to be recognized.

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

as uncollectibles.

c. Nebre is to be credited with a one-third interest in the partnership and is to invest cash aside
from the P50,000 worth of merchandise.
9. How much cash is to be invested by Nebre?

a. P32,950 c. P82,950

b. P55,300 d. P 5,300

10. The total capital of the partnership is

a. P221,200 c. P171,200

b. P198,850 d. P248,850

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

investing the following asset
 Diaz Estipona

Cash P15,000

Merchandise inventory P45,000

Land P15,000

Building P65,000

Furniture and Fixtures P100,000

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

11. If Estipona is to receive a capital equal to his profit and loss ratio, how much cash must he
invest?

a. P127,500 c. P 97,500

b. P172,500 d. P 77,500
 12. Assuming that Estipona invests P50,000 cash and each partner is to be credited for the full
amount of the net assets invested, the total capital of the partnership is

a. P210,000 c. P290,000

b. P260,000 d. P250,000

13. Assuming the partnership agreement provides that the partners should initially have an equal
interest in the partnership, capital, what is Estipona’s capital upon partnership formation?

a. P125,000 c. P105,000

b. P95,000 d. P115,000

J. Cabrillo, a partner in the Cheery Partnership, has a 30% participation in partnership profits and
losses. Cabrillo’s capital account had a net decrease of P120,000 during the calendar year 2003. During
2003, Cabrillo withdrew P260,000 (charged against his capital account) and contributed property valued
at P50,000 to the partnership.
14. What was the net of the Cherry Partnership?

a. P300,000 c. P700,000

b. P466,667 d. P1,100,000

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

a. Only if the partnership has earnings of P54,000 or more for the year

b. Only if the partnership does not incur a loss for the year

c. In all earnings or loss situation

d. Only if the partnership has earnings of at least P6,000 for the year

16. Partners N. Lazaro and O. Mariano share an income in a 2:1 ratio, respectively. Each partner
receives an annual salary allowance of P12,000. If the salaries are recorded in the accounts of
the partnership as an expense rather than treated as an allocation of income, the total amount
allocated to each partner for salaries and net income would be
 a. Less for both Lazaro and Mariano

b. Unchanged for both Lazaro and Mariano

c. More for Lazaro and less for Mariano

d. More for Mariano and less for Lazaro

P. Navarro and Q. Paredes formed a partnership on January 2, 2003, and agreed to share income 90%
and 10% respectively. Navarro contributed a capital of P50,000. Paredes contributed no capital but has a
specialized expertise and manages the firm full-time. There were no withdrawals during the year. The
partnership agreement provides for the following:

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

Capital.

b. Paredes is to be paid a salary of P2,000 a month.

c. Paredes is to receive a bonus of 20% of income calculated before deducting his bonus , his
salary, and interest on both capital accounts.
 d. Bonus, interest and Paredes’ salary are to be considered partnership expenses.

The partnership’s 2003 income statement follows:

Revenues P192,900

Expenses (including salary, interest and bonus) 99,400

Net Income P 93,500

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

a. P23, 376 c. P30, 000

e. P24, 000 d. P31, 467

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

18. Which partner has a greater advantage when the partnership has a profit and when it incurred a
loss?

a. Profit: Reynoso Loss: Moran

b. Profit: Moran Loss: Reynoso

c. Profit: Reynoso Loss: Reynoso

d. Profit: Moran Loss: Moran

ABC’s partnership provided for the following distribution of profit and losses:

• First, Alberto is to receive 10% of the net income up to P1,000,000 and

20% on the amount in excess thereof;
 • Second, Bustamante and Cancio each are to receive 5% of the remaining
income in excess of P1, 500,000 after Alberto’s share as per above; and

• The balance is to be divided equally among the partners.

For the year just ended, the partnership realized a net income of P2,500,000 before distribution to
partners.

19. How much is the share of Alberto in the income of the partnership?

a. P1,000,000 c. P1,080,000

b. P1,300,000 d. P1,100,000

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

a. P14,000 increase c. P70,000 decrease

b. P22,000 decrease d. P84,000 decrease

M. Singson, C. Torralba and A. Verrano are partners in an accounting firm. Their capital account balances
at year-end were: Singson, P50,000; Torralba, P110,000; Verrano, P50,000. They share profit and losses
on a 4:4:2 ratio, after the following terms.

a. Partners Verrano is to receive a bonus of 10% pf net income after bonus.

b. Interest of 10% shall be paid on the portion of the partner’s capital in excess of P100,000

c. Salaries of P10,000 and P12,000 shall be paid to partners Singson and Verrano respectively.

21. Assuming a net income of P44,000 for the year, the total profit share of Verrano was:

a. P7,800 c. P19,400

b. P16,800 d. P19,800
Tayag, Unso, and Vidal, a partnership formed on January 1, 2003 had the following initial investment:

R. Tayag P100,000

J. Unso 150,000

T. Vidal 225,000

The partnership agreement stated that profits and losses are to be shared equally by the partners after
the consideration is made by the following:

• Salaries allowed to partners: P60,000 for Tayag; P48,000 for Unso and P36,000 for Vidal.

• Average partner’s capital balances during the year shall be allowed 10%.

Additional information:

• On June 30, 2003, Tayag, invested an additional P60,000.

 • Vidal withdrew P70,000 from the partnership on Sept. 30, 2001.

• Share on the remaining profit was P3,000 for each partner.

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

a. P48,750 c. P57,625

b. P53,750 d. P60,625

23. Partnership net profit at Dec. 31, 2003 before salaries, interest and partners’ share on the
remainder was:

a. P199,750 c. P211,625

b. P207,750 d. P201,750

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

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

A. Anton, C. Briones, and C. Camba are partners with average

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

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

25. By what amount should Anton’s and Camba’s capital account change?

Anton’s capital account Camba’s capital account

a. P40,844 decrease P31,237 decrease

b. P28,358 increase P32,458 increase

 c. P29,476 increase P17,536 increase

d. P30,267 increase P40,448 decrease

A. Mariano and J. Lucas entered into partnership on March 1,

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

Cash P 70,000 Accounts Payable P 60,000

Accounts Receivables 67,000 Sales 233,000

Furniture and Fixtures 45,000 A. Marino, Capital 125,000

Purchases 196,000 J. Lucas, Capital 75,000

Sales Returns & Allow. 5,000 A. Marino, Drawing ( 20,000)

Operating Expenses 60,000 J. Lucas, Drawing ( 30,000)

Inventories on December 31, 2003 were: Merchandise, P73,000; Supplies, P2,500. Prepaid Insurance
were P950 and accrued liabilities totaled P1,550. Depreciation on Furniture and Fixtures is to be
computed at 20% per year. Disregard income tax.

26. The distribution of the net profit to Mariano and Lucas is:

Mariano Lucas

a. P32,500 P5,100

b. P34,450 P5,860

c. P34,450 P4,860

d. P35,450 P6,840

27. The partners’ capital on December 31, 2003, after closing the net profit and drawing accounts
are:

Mariano Lucas

a. P139,540 P49,860

b. P135,940 P47,960
 c. P142,540 P48,680

d. P142,350 P47,670

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

B. Gomez P100,000

L. Mana 50,000

U. Lapid 50,000

E. Nuguid 40,000

The partnership agreement provides that each partner shall receive 5% interest on the amount of his
capital contribution. In addition, Gomez is to receive a salary of P10,000 and Mana a salary P6,000 per
annum which are to be charged as expenses of the business.
The agreement further provides that Lapid shall receive a minimum of P5,000 per annum from the
partnership and Nuguid a minimum of P12,000 per annum, both including amounts allowed as interest
on capital and their respective share of profits. The balance of the profits is to be distributed in the
following proportions: Gomez, 30%; Mana, 30%; Lapid, 20%; and Nuguid, 20%.

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

a. P75,000.00 c. P64,468.92

b. P74,666.67 d. P64,666.67

29. The total earnings of Partner Mana would be:

a. P18,500 c. P16,900

b. P16,400 d. P20,000

30. The total earnings of Partner Lapid would be:

 a. P9,166.67 c. P7,666.67

b. P10,468.92 d. P12,000.00

Puno, B. Quirino, and C. Romero are partners in a lumber company. Their partnership agreement
provides for the following profit and loss distributions:

• Puno, Quirino and Romero are to receive salaries of P40,000, P36,000,

and P13,650, respectively. Puno is to receive a bonus equal to 10% of
income before the bonus.

• Each partner is to receive 10% interest on the weighted average capital

balance.

• Withdrawals are considered to be reduction of capital for purposes of

interest calculations.

• Any remaining profits or losses are to be divided equally among the

partners.

Capital balance information for 2003 is as follows:

 A. Puno B. Quirino C.Romero

Beginning capital balance, Jan.1, 2003 P10,000 P6,000 P40,000

Withdrawal of capital, April 1, 2003 ( 1,000) --- ( 2,000)

Capital investment, July 1, 2003 2,000 4,000 15,000

Withdrawal of capital, Oct. 1, 2003 ( 1,000) ( 2,000)

Assume Puno’s share of the allocated profits is to be withdrawn.

31. How much profit must the partnership earn to allow Puno to withdraw exactly P61,000
excluding previous withdrawals?

a. P61,000 c. P89,650

b. P130,000 d. P96,000
 J. Jimeno, C. Madrid and A. Soriano are partners sharing profits on a 5:3:2 ratio. On January 1,
2003, N. Matias was admitted into the partnership with a 20% share in the profits. The old partners
continue to participate in the profits in their original ratios.

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

2004 2003

Accrued expenses not recorded at year – end P1,200

Inventory overstated P3,100

Purchases not recorded, for which goods have

Been received and inventoried 2,000

Income received in advance not adjusted 1,500

Unused supplies not taken up at year –end 900

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

b. 50%, 20%, 10%, and 20%

c. 45%, 30%, 15%, and 20%

d. 40%, 24%, 16%, and 20%

33. Disregarding income tax, the share of partner Jimeno in the 2003 corrected net income is

a. P9,400 c. P11,750

b. P10,000 d. P12,500

M. Serrano and N. Toledo organized a partnership to own and operate a health- food store. The
partnership agreement provided that M. Serrano receive a salary of P20,000 and N. Toledo a salary of
P10,000 to recognize their relative time spent in operating the store . Remaining profits and losses were
divided 60:40 to M. Serrrano and N. Toledo, respectively. Income for 2002, the first year of operations,
of P26,000 was allocated P17,600 to M. Serrano and P8,400 to N. Toledo
On January 1, 2003 the partnership agreement was changed to reflect the fact that N. Toledo could no
longer devote any time to the store’s operations. The new agreement allows M. Serrano a salary of
P36,000, and the remaining profits and losses are divided equally. In 2003, an error was discovered such
that the 2002 reported income was understated by P8,000. The partnership income of P50,000 for 2003
included this P8,000 related to 2002.

34. How should the 2003 partnership income of P50,000 be allocated to Serrano and Toledo

a. P43,000 and P7,000 to Serrano and Toledo, respectively

b. P25,000 and P25,000 to Serrano and Toledo, respectively

c. P43,800 andP6,200 to Serrano and Toledo, respectively

d. P36,000 and P14,000 to Serrano and Toledo, respectively