REVIEW MATERIAL 2023

FAR: PARTNERSHIP & CORPORATION

Theories:

1. A written arrangement embodying the nature of the partnership, the partners

and their contributions, their duties, their profit and loss sharing ratio, the
manner of withdrawing assets, the manner of dissolving or liquidating.
a. By Laws of the Partnership c. Articles of Co-Partnership
b. Contract of Partnership d. Law of Partnership

2. Partnership are taxable entities except for this type of partnership.

a. General Partnership c. General Professional Partnership
b. Limited Professional Partnership d. Limited Partnership

3. This partner cannot actively manage the partnership.

a. Limited partner c. Capitalist partner
b. Industrial partner d. Secret partner

4. This is the most equitable way of distributing profits.

a. Original capital c. Beginning capital
b. Ending capital d. Average capital

5. All, except one, may be given to a partner whether the operation is a net profit
or a net loss.
a. Interest c. Salaries
b. Bonus d. Regular drawings

6. Bonus is a special compensation usually given to this partner.

a. Limited c. Secret
b. General d. Industrial

7. If the partners have not drawn up an agreement, then they must share profits
and loses
a. By an appropriate ration c. Equally
b. By any means that will save d. Based on their capital contributions
taxes
8. A loan due to a partner is presented in the statement of financial position as a
a. Current Liability c. Partner’s Equity
b. Current Asset d. Noncurrent Asset

9. Which of the following will NOT dissolve the partnership?

a. Death of a partner c. Retirement of a partner
b. Admission of a new partner d. Incurrence of losses

10. It is the sum of capital balances of the old partners and the actual investment
of the new partner.
a. Capital credit c. Total agreed capital
b. Bonus d. Total contributed capital

11. The admission of a new partner under bonus method will result in a bonus to:
a. Old partners c. Both a or b
b. New partners d. Either a or b, but not both

12. A partner whose personal assets are less than his personal liabilities.
a. Solvent c. Deficient
b. Insolvent d. Deficient but solvent

13. If the proceeds from the sale is less than the book value of the non-cash assets
sold, this will:
a. Increase the partnership assets but decrease the partner’s equity
b. Decrease the partnership assets but increase the partner’s equity
c. Decrease the partnership assets but decrease the partner’s equity
d. Increase the partnership assets but increase the partner’s equity

14. A deficiency occurs for a partner when:

a. His share in the losses of the partnership is more than his capital balance
b. His personal assets are lesser than his capital balance
c. Loan payable by the partnership to him is greater than his capital balance
d. His personal assets are less than his personal liabilities

15. A deficient and insolvent partner will still have a chance to receive cash from
the partnership if:
a. If he makes additional investment
b. There is a loan payable to him that is higher than the deficiency and
insolvency of the partner
 c. If the other partners will absorb his deficiency
d. There is a loan payable to him which is higher than his capital deficiency

16. This account title is credited to represent shareholder’s equity for contributions
made in cash, property or service.
a. Treasury share c. Share capital
b. Subscribed share capital d. Subscription receivable

17. Shares of stock a corporation is allowed to issue

a. Subscribed Shares C. Issued Shares
b. Authorized Shares D. Share Capital

18. The amount at which the issue price exceeds the par value is credited to
a. Share Capital c. Retained Earnings
b. Subscription Receivable d. Share Premium

19. When a par value common stock is exchanged for an asset such as land, the
common stock should be credited at the
a. Appraisal value of the asset c. Original cost of the asset
b. Book value of the asset d. Par value

20. Subscription receivable callable within one year should be presented as

a. Current asset c. deduction from paid in
capital
b. Noncurrent asset d. part of paid in capital

21. Which of the following is NOT typically a characteristic of preference shares?

a. Preference as to voting rights
b. Preference as to dividends
c. Cumulative and callable terms
d. Preference over ordinary shareholders during liquidation

22. The corporation’s own stock that has been reacquired by purchasing it either in
the stock market or in a private transaction is called
a. Treasury stock c. Donated stock
b. Preferred stock d. Retired stock
23. The donation of land to the corporation by the government will
a. Increase its liabilities c. Increase retained earnings
b. Increase contributed capital d. Decrease stockholder’s equity

24. Which one is not a liability account?

a. Cash dividend payable c. Property dividend payable
b. Scrip dividend payable d. Stock dividend payable

25. A dividend declared out of the investment in stocks of other companies is a

a. Stock dividend c. Noncash dividend
b. Property dividend d. Scrip dividend

26. Which one does not affect total stockholder’s equity?

a. Scrip dividend c. Property dividend
b. Stock dividend d. Cash dividend

27. A dividend payable in merchandise is called

a. Cash dividend c. Property dividend
b. Merchandise dividend d. Inventory dividend

28. If the excess dividends are distributed to both common and preferred
stockholders, the preferred shares are presumed to be
a. Cumulative c. Participating
b. Callable d. All of the above

29. Dividends in arrears are distributed to preference stockholders

a. Only when there is a declaration
b. If it is cumulative
c. Both a and b
d. Neither a nor b

30. It represents the equity or right of a shareholder (expressed in peso share) in

the net assets of the corporation.
a. Earnings per share c. Book value per share
b. Market share d. Price-earnings ratio
Problems:

1. The Jef and Jim Partnership was formed on January 2, 2017. Under the
partnership agreement, each partner has an equal initial capital balance.
Partnership net income or loss is allocated 60% to Jef and 40% to Jim. To form
the partnership, Jef originally contributed assets costing P25,000 with a fair
value of P70,000 on January 2, 2017, and Jim contributed P30,000 cash.
Drawings by the partners during 2010 totaled P3, 000 by Jef an P9,000 by Jim.
The partnership net income in 2010 was P25,000.

Under the goodwill method, what is Jim’s initial capital balance in the
partnership?
a. 30,000
b. 70,000
c. 140,000
d. 40, 000

2. Using the information in No. 1, under the bonus method, what is the amount of
bonus?
a. 20,000 bonus to Jef
b. 20,000 bonus to Jim
c. 40,000 bonus to Jef
d. 40,000 bonus to Jim

Fact pattern for the next two independent questions:

Partners Y and Z had the following profit-sharing percentages and capital balances: A
(40%) ₱300,000 and B (60%) ₱500,000.

3. X was admitted to the partnership when he purchased 20% of Y’s and Z’s
capital interests for ₱200,000. If the book value method was used to record C’s
admission, how much would be the capital balance of Y after C’s admission?
a. 300,000
b. 240,000
c. 200,000
d. 210,000
4. D was admitted to the partnership when he invested ₱150,000 cash for a 20%
interest in the partnership. The partnership’s net assets are fairly valued on D’s
admission date. The partners used the bonus method to record C’s admission.
How much is the capital balance of A after the admission of C?
a. 284,000
b. 476,000
c. 304,000
d. 296,000

5. Ping, Pong and Prince are partners sharing profit and loss in the ratio of 1:1:2
respectively. Their capital balances are ₱500,000 for Ping, ₱300,000 for Pong
and ₱200,000 for Prince. Liabilities amounted to ₱200,000. There is also a loan
payable to Prince, ₱50,000. The cash balance amounted to ₱300,000 and it
increased to ₱1,400,000 as a result of the sale of the non-cash assets. How
much is the available cash for distribution to the partners?
a. 1,400,000
b. 1,200,000
c. 1,100,000
d. 250,000

6. A company issued 250 shares of ₱100 par value stock for ₱30,000 cash. The
total amount for addition paid-in capital is
a. 25,000
b. 30,000
c. 10,000
d. 5,000

7. Kumu Corporation was organized on January 1, 2015, with an authorization

of 2,000,000 ordinary shares with a par value of P6 per share. During 2015,
the corporation had the following equity transactions:
Jan. 8 - Issued 200,000 shares at P7 per share.
April 12 - Issued 100,000 shares at P9 per share.
June 27 - Issued 30,000 shares at P12 per share
July 30 - Purchased 50,000 shares at P5 per share.
Dec. 26 - Sold 70,000 shares held in treasury at P10 per share.
What should be the total Share Premium as of December 31, 2015?
 a. 960,000
b. 730,000
c. 1,010,000
d. 680,000

8. A company's board of directors votes to declare a cash dividend of 75 centavos

per share. The company has 15.000 shares authorized, 10,000 issued, and
9,000 shares outstanding. The total amount of the cash dividend is:
a. 7,500
b. 6,750
c. 11,250
d. 4,500

9. San Agustin Corporation has P100,000 of 8% noncumulative, nonparticipating,

preference shares outstanding. San Agustin Corporation also has P500,000 of
ordinary shares outstanding. In the company's first year of operation, no
dividends were paid. During the second year, San Agustin Corporation paid
cash dividends of P300,000. This dividend should be distributed as follows:
a. P80,000 preference; P220,000 ordinary.
b. P160,000 preference; P140,000 ordinary.
c. P75,000 preference; P225,000 ordinary
d. P150,000 preference: P150,000 ordinary.

10. Sy-Miguel Company had net income of P300,000. On January 1, the number
of shares of ordinary shares outstanding was 8,000. The company declared a
P270,000 dividend on it noncumulative, nonparticipating 10,000 preferred
shares. There were no other stock transactions. The company's earnings per
share is:
a. 37.50
b. 3.41
c. 16.67
d. 3.76
 TRUE-FALSE STATEMENTS
1. The personal assets, liabilities, and personal transactions of partners are excluded from the accounting records of the
partnership.
2. The act of any partner is binding on all other partners if the act appears to be appropriate for the partnership.
3. A major advantage of the partnership form of organization is that the partners have unlimited liability.
4. Partnership creditors may have a claim on the personal assets of any of the partners if the partnership assets are not
sufficient to settle claims.
5. The partnership agreement between partners must be in writing.
6. If a partner invests noncash assets in a partnership, they should be recorded by the partnership at their fair market value.
7. L. Hill invests the following assets in a new partnership: $15,000 in cash, and equipment that cost $30,000 but has a book
value of $17,000 and fair market value of $20,000. Hill, Capital will be credited for $32,000.
8. Two proprietorships cannot combine and form a partnership.
9. If a partner's investment in a partnership consists of equipment that has accumulated depreciation of $8,000, it would not be
appropriate for the partnership to record the accumulated depreciation.
10. If a partner's investment in a partnership consists of Accounts Receivable of $25,000 and an Allowance for Doubtful
Accounts of $7,000, it would not be appropriate for the partnership to record the Allowance for Doubtful Accounts.
11. Unless stated otherwise in the partnership contract, profits and losses are shared among the partners in the ratio of their
capital equity balances.
12. If salary allowances and interest on capital are stipulated in the partnership profit and loss sharing agreement, they are
implemented only if income is sufficient to cover the amounts required by these features.
13. Unless the partnership agreement specifically indicates an income ratio, partnership net income or loss is not allocated to
the partners.
14. Partnership income or loss need not be closed to partners' capital accounts each period because of the unlimited life
characteristic of partnerships.
15. If a partnership has a loss for the period, the closing entry to transfer the loss to the partners will require a credit to the
Income Summary account.
16. The partners' drawing accounts are closed each period into the Income Summary account.
17. Salary allowances to partners are a major expense on most partnership income statements.
18. An interest allowance in sharing partnership net income (or net loss) is related to the amount of partners' invested capital
during the period.
19. The financial statements of a partnership are similar to those of a proprietorship.
20. The income earned by a partnership will always be greater than the income earned by a proprietorship because in a
partnership there is more than one owner contributing to the success of the business.
21. The function of the Partners' Capital Statement is to explain the changes in partners' capital account balances during a
period.
22. A detailed listing of all the assets invested by a partner in a partnership appears on the Partners' Capital Statement.
23. Total partners' equity of a partnership is equal to the sum of all partners' capital account balances.
24. The distribution of cash to partners in a partnership liquidation is always made based on the partners' income sharing ratio.
25. The liquidation of a partnership means that a new partner has been admitted to the partnership.
26. The admission of a new partner results in the legal dissolution of the existing partnership and the beginning of a new
partnership.
27. If a new partner is admitted into a partnership by investment, the total assets and total capital will change.
28. A bonus to old partners results when the new partner's capital credit on the date of admittance is greater than his or her
investment in the firm.
29. If a new partner invests in a partnership at book value and acquires a 1/4 interest in total partnership capital, it indicates that
a bonus was paid to the original partners.
30. A bonus to the remaining partners results when a retiring partner receives partnership assets which are less than his or her
capital balance on the date of withdrawal.
31.A partnership is an association of no more than two persons to carry on as co-owners of a business for profit.
32. Once assets have been invested in the partnership, they are owned jointly by all partners.
33. Each partner's initial investment in a partnership should be recorded at book value.
34. Partnership income is shared in proportion to each partner's capital equity interest unless the partnership contract
specifically indicates the manner in which net income or net loss is to be divided.
35. In a liquidation, the final distribution of cash to partners should be on the basis of their income ratios.
36. In an admission of a partner by investment of assets, the total net assets and total capital of the partnership do not change.
37. The withdrawal of a partner legally dissolves the partnership.

MULTIPLE CHOICE QUESTIONS

38. A hybrid form of business organization with certain features like a corporation is a(n)
a. limited liability partnership.
b. limited liability company.
c. "S" corporation.
d. sub-chapter "S" corporation.
39. A partnership
a. has only one owner.
b. pays taxes on partnership income.
c. must file an information tax return.
d. is not an accounting entity for financial reporting purposes.
40. A general partner in a partnership
a. has unlimited liability for all partnership debts.
b. is always the general manager of the firm.
c. is the partner who lacks a specialization.
d. is liable for partnership liabilities only to the extent of that partner's capital equity.
41. The individual assets invested by a partner in a partnership
a. revert back to that partner if the partnership liquidates.
b. determine that partner's share of net income or loss for the year.
c. are jointly owned by all partners.
d. determine the scope of authority of that partner.
42. Which one of the following would not be considered a disadvantage of the partnership
form of organization?
a. Limited life
b. Unlimited liability
c. Mutual agency
d. Ease of formation
43. The partnership form of business is
a. restricted to law and medical practices.
b. restricted to firms having fewer than 10 partners.
c. not restricted to any particular type of business.
d. most often used in relatively large companies.
44. Which of the following is not a principal characteristic of the partnership form of business
organization?
a. Mutual agency
b. Association of individuals
c. Limited liability
d. Limited life
45. The partnership agreement should include each of the following except the
a. date of the partnership inception.
b. principal location of the firm.
c. surviving family members in the event of a partner's death.
d. Each of these should be included.
46. Which of the following statements is true regarding the form of a legally binding
partnership contract?
a. The partnership contract must be in writing.
b. The partnership contract may be based on a handshake.
c. The partnership contract may be implied.
d. The partnership contract cannot be oral.
47. Which of the following statements about a partnership is correct?
a. The personal assets of a partner are included in the partnership accounting records.
b. A partnership is not required to file an information tax return.
c. Each partner's share of income is taxable to the partnership.
d. A partnership represents an accounting entity for financial reporting purposes.
48. In a partnership, mutual agency means
a. each partner acts on his own behalf when engaging in partnership business.
b. the act of any partner is binding on all other partners, only if partners act within their
cope of authority.
c. an act by a partner is judged as binding on other partners depending on whether the
act appears to be appropriate for the partnership.
d. that partners must pay taxes on a mutual or combined basis.
49. A partnership
a. is dissolved only by the withdrawal of a partner.
b. is dissolved upon the acceptance of a new partner.
c. dissolution means the business must liquidate.
d. has unlimited life.
50. The partner in a limited partnership that has unlimited liability is referred to as the
a. lead partner.
b. head partner.
c. general partner.
d. unlimited partner.
51. Limited partnerships
a. must have at least one general partner.
b. guarantee that a partner will receive a return.
c. guarantee that a partner will get back his original investment.
d. are limited to only three partners.
52. The Maris-Crane partnership is terminated when creditor claims exceed partnership assets by $40,000. Crane is a millionaire
and Maris has no personal assets. Maris' partnership interest is 75% and Crane's is 25%. Creditors
a. must collect their claims equally from Maris and Crane.
b. may collect the entire $40,000 from Crane.
c. must collect their claims 75% from Maris and 25% from Crane.
d. may not require Crane to use his personal assets to satisfy the $40,000 in claims.
53. Which of the following statements about partnerships is incorrect?
a. Partnership assets are co-owned by partners.
b. If a partnership is terminated, the assets do not legally revert to the original contributor.
c. If the partnership agreement does not specify the manner in which net income is to be shared, it is distributed according
to capital contributions.
d. Each partner has a claim on assets equal to the balance in the partner's capital account.
54. Which of the following is not an advantage of the partnership form of business?
a. Mutual agency
b. Ease of formation
c. Ease of decision making
d. Freedom from governmental regulations and restrictions
55. The largest companies in the United States are primarily organized as
a. limited partnerships.
b. partnerships.
c. corporations.
d. proprietorships.
56. The basis for dividing partnership net income or net loss is referred to as any of the following except the
a. income ratio.
b. income and loss ratio.
c. profit and loss ratio.
d. income sharing ratio.
57. Which of the following statements is incorrect regarding partnership agreements?
a. It may be referred to as the “articles of co-partnership.”
b. Oral agreements are preferable to written articles.
c. It should specify the different relationships that are to exist among the partners.
d. It should state procedures for submitting disputes to arbitration.
58. Norton invests personally owned equipment, which originally cost $110,000 and has accumulated depreciation of $30,000 in
the Norton and Kennett partnership. Both partners agree that the fair market value of the equipment was $60,000. The entry made
by the partnership to record Norton's investment should be
a. Equipment ............................................................................ 110,000
Accumulated Depreciation—Equipment...................... 30,000
Norton, Capital............................................................. 80,000
b. Equipment ............................................................................ 80,000
Norton, Capital............................................................. 80,000
c. Equipment ............................................................................ 60,000
Loss on Purchase of Equipment .......................................... 20,000
Accumulated Depreciation—Equipment............................... 30,000
Norton, Capital............................................................. 110,000
d. Equipment ............................................................................ 60,000
Norton, Capital............................................................. 60,000
59. Partner B is investing in a partnership with Partner A. B contributes as part of his initial investment, Accounts Receivable of
$80,000; an Allowance for Doubtful Accounts of $12,000; and $8,000 cash. The entry that the partnership makes to record B's
initial contribution includes a
a. credit to B, Capital for $88,000.
b. debit to Accounts Receivable for $68,000.
c. credit to B, Capital for $76,000.
d. debit to Allowance for Doubtful Accounts for $12,000.
60. Which of the following would not be recorded in the entry for the formation of a partnership?
a. Accumulated depreciation
b. Allowance for doubtful accounts
c. Accounts receivable
d. All of these would be recorded.
61. Bob is investing in a partnership with Jerry. Bob contributes equipment that originally cost $63,000, has a book value of
$30,000, and a fair market value of $39,000. The entry that the partnership makes to record Bob's initial contribution includes a
a. debit to Equipment for $33,000.
b. debit to Equipment for $63,000.
c. debit to Equipment for $39,000.
d. credit to Accumulated Depreciation for $33,000.
62. A partner contributes, as part of her initial investment, accounts receivable with an allowance for doubtful accounts. Which of
the following reflects a proper treatment?
a. The balance of the accounts receivable account should be recorded on the books of
the partnership at its net realizable value.
b. The allowance account may be set up on the books of the partnership because it
relates to the existing accounts that are being contributed.
c. The allowance account should not be carried onto the books of the partnership.
d. The accounts receivable and allowance should not be recorded on the books of the
partnership because a partner must invest cash in the business.
63. Which one of the following would not be considered an expense of a partnership in determining income for the period?
a. Expired insurance
b. Salary allowance to partners
c. Supplies used
d. Freight-out
78. An income ratio based on capital balances might be appropriate when
a. service is a primary consideration.
b. some, but not all, partners plan to work in the business.
c. funds invested in the partnership are considered the critical factor.
d. little net income is expected.
79. If the partnership agreement specifies salaries to partners, interest on partners' capital, and the remainder on a fixed ratio, and
partnership net income is not sufficient to cover both salaries and interest,
a. only salaries are allocated to the partners.
b. only interest is allocated to the partners.
c. the entire net income is shared on a fixed ratio.
d. both salaries and interest are allocated to the partners.
80. Which of the following would not be considered an expense of a partnership in determining income for the period?
a. Expired insurance
b. Income tax expense
c. Rent expense
d. Utilities expense
84. A partners' capital statement explains
a. the amount of legal liability of each of the partners.
b. the types of assets invested in the business by each partner.
c. how the partnership will be capitalized if a new partner is admitted to the partnership.
d. the changes in each partner's capital account and in total partnership capital during a period.
85. Each of the following is used in preparing the partners’ capital statement except the
a. balance sheet.
b. income statement.
c. partners’ capital accounts.
d. partners’ drawing accounts.
86. The owners' equity statement for a partnership is called the
a. partners' proportional statement.
b. partners' capital statement.
c. statement of shareholders' equity.
d. capital and drawing statement.
87. Which of the following would not cause an increase in partnership capital?
a. Drawings
b. Net income
c. Additional capital investment by the partners
d. Initial capital investment by the partners
92. The partners' drawing accounts are
a. reported on the income statement.
b. reported on the balance sheet.
c. closed to Income Summary.
d. closed to the partners' capital accounts.
93. The Uniform Partnership Act provides that
a. a purchaser of a partnership interest is not a partner until he or she is accepted into the firm by the continuing partners.
b. a partner must obtain the approval of other partners before selling his or her interest.
c. the price paid in a purchase of partner's interest must be equal to the capital equity acquired.
d. the price paid in a purchase of partner's interest must be greater than the capital equity acquired.
94. The balance sheet of a partnership will
a. report retained earnings below the partnership capital accounts.
b. show a separate capital account for each partner.
c. show a separate drawing account for each partner.
d. show the amount of income that was distributed to each partner.
95. The liquidation of a partnership may result from each of the following except the
a. bankruptcy of the partnership.
b. death of a partner.
c. retirement of a partner.
d. sale of the business by the partners.
96. In the liquidation of a partnership, any gain or loss on the realization of noncash assets should be allocated
a. first to creditors and the remainder to partners.
b. to the partners on the basis of their capital balances.
c. to the partners on the basis of their income-sharing ratio.
d. only after all creditors have been paid.
97. In the liquidation of a partnership, any partner who has a capital deficiency
a. has a personal debt to the partnership for the amount of the deficiency.
b. is automatically terminated as a partner.
c. will receive a cash distribution only on the basis of his or her income-sharing ratio.
d. is not obligated to make up the capital deficiency
102. If a partner has a capital deficiency and does not have the personal resources to eliminate it,
a. the creditors will have to absorb the capital deficiency.
b. the other partners will absorb the capital deficiency on the basis of their respective capital balances.
c. the other partners will have to absorb the capital deficiency on the basis of their respective income sharing ratios.
d. neither the creditors nor the other partners will have to absorb the capital deficiency.
103. When a partnership terminates business, the sale of noncash assets is called
a. liquidation.
b. realization.
c. recognition.
d. disposition.
104. The liquidation of a partnership
a. cannot be a voluntary act of the partners.
b. terminates the business.
c. eliminates those partners with a capital deficiency.
d. cannot occur unless all partners approve.
105. The liquidation of a partnership is a process containing the following steps:
1. Pay partnership liabilities in cash.
2. Allocate the gain or loss on realization to the partners on their income ratios.
3. Sell noncash assets for cash and recognize a gain or loss on realization.
4. Distribute remaining cash to partners on the basis of their remaining capital balances.
Identify the proper sequencing of the steps in the liquidation process.
a. 3, 2, 4, 1.
b. 3, 2, 1, 4.
c. 1, 3, 2, 4.
d. 1, 4, 3, 2.
106. In the final step of the liquidation process, remaining cash is distributed to partners
a. on an equal basis.
b. on the basis of the income ratios.
c. on the basis of the remaining capital balances.
d. regardless of capital deficiencies.
107. In the liquidation process, if a capital account shows a deficiency
a. the partner with a deficiency has an obligation to the partnership for the amount of the deficiency.
b. it may be written off to a "Loss" account.
c. it is disregarded until after the partnership books are closed.
d. it can be written off to a "Gain" account.
108. Before distributing any remaining cash to partners in a partnership liquidation, it is necessary to do each of the following
except
a. sell noncash assets for cash.
b. recognize a gain or loss on realization.
c. allocate the gain or loss to the partners based on their capital balances.
d. pay partnership liabilities in cash.
121. The admission of a new partner to an existing partnership
a. may be accomplished only by investing assets in the partnership.
b. requires purchasing the interest of one or more existing partners.
c. causes a legal dissolution of the existing partnership.
d. is almost always accompanied by the liquidation of the business.
122. When a partnership interest is purchased
a. every partner’s capital account is affected.
b. the transaction is a personal transaction between the purchaser and the selling partner(s).
c. the buyer receives equity equal to the amount of cash paid.
d. all partners will receive some part of the purchase price.
127. Which of the following is correct when admitting a new partner into an existing partnership?
Purchase of an Interest Admission by Investment
a. Total net assets unchanged unchanged
b. Total capital increased unchanged
c. Total net assets unchanged increased
d. Total capital unchanged unchanged
134. When a partner withdraws from the firm, which of the following reflects the correct partnership effects?
Payment from Payment from
Partners' Personal Assets Partnership Assets
a. Total net assets decreased decreased
b. Total capital decreased decreased
c. Total net assets unchanged decreased
d. Total capital unchanged unchanged
135. Which of the following is not a necessary action that the partnership must take upon the death of a partner?
a. Determine the net income or net loss for the year to date.
b. Discontinue business operations.
c. Close the books.
d. Prepare financial statements.
128. When admitting a new partner by investment, a bonus to old partners
a. is usually unjustified because book values clearly reflect partnership net worth.
b. is sometimes justified because goodwill may exist and it is not reflected in the accounts.
c. results if the debit to cash is less than the new partner's capital credit.
d. results if the debit to cash is equal to the new partner's capital credit.
129. When admitting a new partner by investment, a bonus to old partners is allocated on
a. the basis of capital balances.
b. the basis of the original investment of the old partners.
c. the basis of income ratios before the admission of the new partner.
d. a seniority basis.
130. A bonus to a new partner
a. is prohibited by GAAP.
b. results when the new partner's capital credit is less than his or her investment of assets in the firm.
c. may occur when recorded book values are lower than market values.
d. results when the new partner's capital credit is greater than his or her investment of assets in the firm.
131. A bonus to a new partner will
a. increase the capital balances of existing partners based on their income ratios before the admission of the new partner.
b. increase the capital balances of existing partners based on their income ratios after the admission of the new partner.
c. decrease the capital balances of existing partners based on their income ratios before the admission of the new partner.
d. decrease the capital balances of existing partners based on their capital balances before the admission of the new partner.
139. All of the following are characteristics of partnerships except
a. co-ownership of property.
b. mutual agency.
c. unlimited life.
d. association of individuals
141. When a partner invests noncash assets in a partnership, the assets should be recorded at their
a. book value.
b. carrying value.
c. fair market value.
d. original cost.
143. Which of the following statements is correct?
a. Salaries to partners and interest on partners' capital are expenses of the partnership.
b. Salaries to partners are expenses of the partnership but not interest on partners' capital.
c. Interest on partners' capital is an expense of the partnership but not salaries to partners.
d. Neither salaries to partners nor interest on partners' capital are expenses of the partnership.
144. In the liquidation of a partnership, the gains and losses from assets sold are
a. divided equally among the partners.
b. divided among the partners in the stated income ratio.
c. divided among the partners in proportion to their capital equity interests.
d. ignored.
145. If a partner with a capital deficiency is unable to pay the amount owed to the partnership, the deficiency is allocated to the
partners with credit balances
a. equally.
b. on the basis of their income ratios.
c. on the basis of their capital balances.
d. on the basis of their original investments.
146. An entry is not required in the liquidation of a partnership to record the
a. payment of cash to creditors.
b. distribution of cash to the partners.
c. sale of noncash assets.
d. allocation of a capital deficiency to partners with credit balances when the deficient partner is expected to pay the
deficiency.
147. The first step in the liquidation of a partnership is to
a. allocate a gain or loss on realization to the partners.
b. distribute remaining cash to the partners.
c. pay partnership liabilities.
d. sell noncash assets and recognize a gain or loss on realization.
88. Jill Grier's capital statement reveals that her drawings during the year were $50,000. She
made an additional capital investment of $25,000 and her share of the net loss for the
year was $10,000. Her ending capital balance was $200,000. What was Jill Grier's
beginning capital balance?
a. $225,000
b. $185,000
c. $235,000
d. $260,000

89. Bill Wren started the year with a capital balance of $180,000. During the year, his share of
partnership net income was $160,000 and he withdrew $30,000 from the partnership for
personal use. He made an additional capital contribution of $50,000 during the year. The
amount of Bill Wren's capital balance that will be reported on the year-end balance sheet
will be
a. $160,000.
b. $390,000.
c. $300,000.
d. $360,000.

90. The Partners' Capital Statement for the United Center reported the following information in
total:
Capital, January 1.................................................. $120,000
Additional investment............................................. 40,000
Drawings................................................................ 80,000
Net income............................................................. 100,000

91. The partnership has three partners: Moon, Garr, and Rice with ending capital balances in
a ratio 40:20:40. What are the respective ending balances of the three partners?
a. Moon, $80,000; Garr, $40,000; Rice, $80,000.
b. Moon, $72,000: Garr, $36,000; Rice, $72,000.
c. Moon, $136,000; Garr, $68,000; Rice, $136,000.
d. Moon, $90,000; Garr, $48,000; Rice, $90,000.

148. Baker joins the partnership of Kubek and Musial by paying $30,000 in cash. If the net
assets of the partnership are still the same amount after Baker has been admitted as a
partner, then Baker
a. must have been admitted by investment of assets.
b. must have been admitted by purchase of a partner's interest.
c. must have received a bonus upon being admitted.
d. could have been admitted by an investment of assets or by a purchase of a partner's
interest.

149. Lowe is admitted to a partnership with a 25% capital interest by a cash investment of
$120,000. If total capital of the partnership is $520,000 before admitting Lowe, the bonus
to Lowe is
a. $40,000.
b. $20,000.
c. $60,000.
d. $80,000.
Partnership Accounting (1st File)

LESSON 1: Partnership

Formation of a Business

3 Types of a Business:

- Sole Proprietorship
- Partnership
- Corporation (includes 1 – 15 people, according to R.A 11232 Revised Corporation
Code of the Philippines)
- (Additional: Cooperatives) (More than 15 members)

Definition of Partnership

A Partnership involves 2 or more persons who agree to contribute money, property and
industry (service) to a common fund; and divide profits and losses among partners.

Partnerships According to Contribution:

- Capitalist Industrial Partner (offers money, property, and industry to Partnership)

- Capitalist Partner (offers capital aspects to Partnership, IE money and property)
- Industrial Partner (offers industry/service to Partnership)

Partnerships According to Classification/Kind:

- Ostensible Partner (names are disclosed to public as actual partners)

- Dormant/Nominal Partner (disclosed as a partner to public or not, entitled to
shares of profits and losses, yet inactive in business activity)
- Silent Partner (contributes to business but has no say in the business' daily
operations)
- Secret Partner (contributes to business and participates in business activity,
operates anonymously, due to reputation from previous business or prefers not to
be disclosed to public)
Partnerships According to Liability:

- General Partners (Creditors can use personal assets of Partners to unpaid liabilities
in the business)
- Limited Partners (partners whose limited investments given are proportioned to
shares received, and creditors may not utilize their personal assets)

Partners According to Activity:

- Trading Partnership
o Merchandising (Buy and Sell)
o Manufacturing (Producing and Sell)
- Non-Trading Partnership
o Professional Services (Accounting, legal, etc.)
o Non-professional Services (Gardening, make-up, etc.)

Characteristics of Partnership:

- Association of individuals
o Collective agreement among people regarding Partnership
- Mutual Agency
o Agents of Partnership/Common representative
o Partners have equal authority to represent the Partnership and business
- Limited Life
o Partnership dissolves, depending on the Partner’s status (death, voluntary
leave, etc.)
- Profit and Loss Distribution
o Profits and losses are distributed, depending on the stipulation of
agreement, or value of contribution.
- Unlimited Liability
o Creditors can run after Partner’s personal assets to repay liabilities
- Co-ownership Property
o Partners contribute to Common fund
o All assets, liabilities, profits, and losses are shared mutually by all partners
- Plurality of Capital and Drawing Accounts
o Each Partner has different equity and withdrawing accounts

Advantages of Partnership

- Combined Share of Skills, Assets and Liabilities

- Ease of Formation (Partnership, through SEC, has limited legal requirements)
- Freedom from Governmental Regulations and Requirements
- Ease of Decision Making (Common Goal)
Disadvantages of Partnership

- Ease of Decision Making (vulnerable to wrong/unprofitable business choices)

- Mutual Agency (Mistake of 1 partner, mistake of all)
- Unlimited Liability

Legal Partnership Contract Requirements

- Oral Contract
o If contribution is at maximum Php 3000
- Written Contract
o if contribution is worth more than Php 3000
o if contribution contains Immovable Property (land, building, etc.)
o Profit and Loss is Outlined (Written in agreement)

Articles of Co-partnership (These items are made as a contract to officially dictate the business):

1. Name of Partnership
2. Partners Involved
3. Nature of Business
4. Place of Business
5. Classification of General/Limited Partnership
6. Contributions
7. Effective Date and Duration of Partnership
8. Profit and Loss Sharing
9. Rights, Powers and Duties of Partners
10. Accounting Period (Calendar or Fiscal)
11. Treatment of Partners’ Additional Investments and Withdrawals
12. Provision Pertinent to Dissolution and Liquidation

Republic Acts Regarding Partnership

- Republic Act No. 9184 (for the procurement of goods, supplies and services)
- Republic Act No. 6957 (allows LGUs to enter into contractual arrangements with the
private sector to implement infrastructure projects)
o Build-Operate-and-Transfer (BOT
o Build-Transfer-and-Operate (BTO)
Partnership Accounting (2nd File)

LESSON 1: Partnership Journal Entries

(Written Contract = Article of Co-partnership)

1. Cash Contribution of Partner

Cash xx
Partner, Capital xx

2. A. Receivable Contribution of Partner

Accounts Receivable (Gross Amount) xx

Allowance for Doubtful Accounts xx
Partner, Capital xx
OR
Accounts Receivable (Net Amount) xx
Partner, Capital xx

*Gross Amount if collectability is doubtful

*Net Amount if collectability is ensured

B. Inventory Contribution of Partner

Merchandise Inventory / Finished Goods /

Raw Materials xx
Partner, Capital xx

C. Property, Plant, and Equipment Contribution of Partner

Property and Equipment xx

Partner, Capital xx
(At FAIR MARKET VALUE *present value*)
 D. Service Industry Contribution of Partner

*Memorandum Entry*
Signed By: Partner A
Partner B
Partner C

SAMPLE:
METHOD 2: (Try to form the Partnership of Both businesses, making 1 Statement of Financial
Position)
Partnership Accounting (3rd File)

LESSON 1: After-Quiz Discussions

3. Always use Fair Market Value

-To record the value of acquisition, equal to the price to be sold after (or Market Value)

4. Partner Agreements of Accounts when merging businesses

- Partner’s agreement of adjusting books to owner is considered final

- Unsure Collectability of accounts = minus to Accounts Receivable

- Agreement by owners = Fair Market Value

LESSON 2: Division of Profits and Losses

RULES OF DIVISION/DISTRIBUTION

PROFITS

1. Divide according to Partner’s Agreements

2. If no Agreement
a. Capitalist Partners – use ratio of capital
 b. Industrial Partners – just and equitable share before Capitalist divide according to
ratio

LOSSES

1. Divide according to Partner’s Agreements

2. If no Agreement
a. Capitalist Partners – use ratio of capital
b. Industrial Partners – no reduction of capital, since their services are rendered and
are not paid back

Sample of Profit Distribution Schedule: (Also known as Bottom Portion of Comprehensive Income)

LESSON 3: Correction of Prior Period Errors

Ex:
 - Estimation of Depreciation
- Inventory Valuation
- Omission of accruals of Revenue and Expenses
1. Adjustments are to be done on the Opening Balances of Partner’s Equity and affected
Assets and Liabilities
2. Correction of prior period error is excluded from Profit/loss for the period in which error is
discovered
3. Effect of error correction will be divided based on an applicable profit and loss ratio

If Partners have no Agreed Ratio to divide Profit/Loss:

𝑃𝑎𝑟𝑡𝑛𝑒𝑟 𝐴 𝑜𝑟 𝐵 𝑜𝑟𝐶
𝑃𝑎𝑟𝑡𝑛𝑒𝑟𝑠 𝐴+𝐵+𝐶
×𝑃𝑟𝑜𝑓𝑖𝑡∕𝐿𝑜𝑠𝑠

NO capital given, NO loss received

Header of Schedule: “Schedule of Profit/Loss Distribution” (No more company name/ date)

Common Methods of Distribution/Profit Sharing

- Arbitrary Ratio (Agreed amount by partners)

- Ratio of Capital Contribution

* Original Investment

* Beginning Capital Balance

* Ending Capital Ratio

* Detailed Average Capital Ratio

* Simple Average Capital Ratio

- In accordance to ratio of time devoted to Partnership

- Allowing Interest, Salaries, or Bonus to partners and dividing any ratio agreed to Remainder

Before Bonus: Percentage of Profit

After Bonus: Profit – x% = Bonus

Original Investment Ratio:

First investment of Partner A/B/C

 Total first investment of Partners ABC

Beginning Capital Balance Ratio:

Beginning balance of the Year of Partner A/B/C

Total Beginning balance of the Year of Partners ABC

Ending Capital Balance Ratio:

Ending balance of the Year of Partner A/B/C

Total Ending balance of the Year of Partners ABC

Simple Average Ratio:

Beginning + Final balance of the Year of Partner A/B/C

Total Beginning + Final balance of the Year of Partners ABC

Weighted Average Ratio:

Indivdual investments of Partner x (months before next change/12)

Total investments of Partners x (months before next change/12)

Sample Statement of Changes in Partner’s Equity:

DISSOLUTION AND LIQUIDATION

Dissolution – Partnership ends, Business continues

Liquidation – Partnership ends, Business Ends

Net Assets = Total Assets – Total Liabilities = Capital Net of Drawing

Problem Solving Dissolution:

Amy and Ben has a Partnership. Amy’s Capital is worth Php 20,000 and Ben’s Capital is Php
10,000. Chad wants to join the partnership by buying 1/4th of Amy’s interest by Php 7,400.

1) What is the journal entry if Chad pursues?

Answer: Amy, Capital = Php 5000 (Dr); Chad, Capital = Php 5000 (Cr)

1/4th of Amy’s Interest/Capital is Php 5000 only, the bonus of Chad’s investment (Php 2400) is a personal
transaction to Amy to acquire her Php 5000 share of business Assets, creating a new partnership by
admission of partner purchasing assets of another partner.

2) Chad invests Php 10,000 for 1/3 of the business. What journal entry is present?

Answer: 1/3 of Amy + Ben + Chad (Investment) = Chad’s Capital = Php 13,333. Chad only invested Php
10,000 (journal entry increase to cash), so the extra amount is a bonus to Chad, but a credit to both Amy
and Ben. To divide the transfer of Capital between the two of them, they are divided according to the
ratio of their investment: 20,000:10,000 x 3,333, so:

Amy, Capital = Php 2,222 (Dr); Ben, Capital = 1,111 (Dr); Cash = 10,000 (Dr); Chad, Capital = Php 13,333
(Cr) (similar if Chad invests 15,000 to business)

3) Chad wants to withdraw from business, taking Php 10,000, Amy offers to pay.

Answer: Chad, Capital = Php 10000 (Dr); Amy, Capital = Php 10000 (Cr)

By offering Chad his withdrawal of business of 10K, Amy gets to keep Chad’s share of assets worth 10K,
increasing her capital amount. (Similar if Partnership pays, the partnership will offer cash instead of
either of capital amounts)

4) Chad withdraws from business, taking Php 10000, the Partnership only offers Php 9000.

Chad, Capital = Php 10000 (Dr) ); Cash = 9,000 (Cr); Amy, Capital = Php 667 (Cr); Ben, Capital = 333 (Dr)

LIQUIDATION

Liquidation happens if the Partnership cannot fulfil to pay back creditors with their cash assets.

Steps of Completing Liquidation:

1. Sell Non-cash Assets for Cash

2. Allocate Gain or Loss on realization to the partners based on realization

3. Pay Partnership Liabilities in Cash

4. Distribute Remaining Cash to Partners based on their remaining Capital Balances

CORPORATE ACCOUNTING INTRODUCTION

Corporation:

- Artificial Being (Separate from shareholders)

- Created by Operation of Law (Cannot be created by mere agreement of parties, must be lawful)
- Right of Succession (Continues to exist regardless of shareholders)
- Powers, attributes & properties expressly authorized by law (Can only exercise certain actions
under law)

Advantages of Corporations:

1. Limited Liability (Creditors cannot acquire assets of shareholders)

2. Unlimited life (Old constitution state Corporations can only exist until 50 years, now infinite)4
3. Minimum Capital for Corpoations:
- Minimum Paid-up Capital must be Php 5,000
- Subscribed Capital must be 25% of Authorized Share Capital
- Paid-up Share capital must be 25% of Subscribed Capital

Corporation Owner Requirements:

- 1 Person Corporation – Minimum investment of Php 1,000,000

- More than 1 Person Corp – Minimum Php 1,000,000 capital Php 62,500 paid share capital

Corporate Accounting Terms:

1. Shares and Stocks are the same:
- Ordinary Share/Preference Share (International Accounting Standards (IAS) terminology)
- Common Stock/Preference Stock (Corporate Law terminology)

2. Stock Corporations
- Corporations for profit, sharing stocks to increase Share Capital

3. Share Capital
- Part of the Corporation’s Capital to be shared to Shareholders through Stocks/Shares

4. Share
- A proportioned, equal part of a Company’s capital, entitling the holder to a proportion of profits

5. Dividends
- Capital compensations to Shareholders, since they have invested money into the business (by
buying shares), dividends are treated as “rewards” to shareholders.
6. Cash Dividend
- Capital Compensation of Cash to Shareholders

7. Share Dividend
- A payment of share, instead of cash, a proportion of share to add into the shareholder’s number
of shares
- Does not create an outflow of cash, but decreases value of share

8. Retained Earnings
- Amount of Net Income left over for the business after paying dividends to shareholders
- RE = Beginning RE + Net Income (or – Net Loss if loss incurs)

9. Preferred and Common Shares/Stocks

- Preferred Shareholders are considered Creditors, they buy preferred shares to receive a fixed
amount of dividends, but are not liable to have a part in Corporate Decisions/Voting
- Common Shareholders are considered part of the Company, they buy Common Shares to receive
dividends, and have the right to be a part of Corporate Decisions and Voting.
- Preferred = First Paid dividends, Common = Last paid Dividends
- Fixed amount of dividends vs. Fluctuating amount of dividends respectively

10. Authorized Shares

- Maximum number of Shares corporations can legally issue, through the Securities and Exchange
Commission (SEC)

11. Issued Shares

- Number of released shares to be publicly sold in the Market

12. Subscribed Shares

- Shares an Investor agrees to purchase, but may or may not have been paid
 13. Outstanding Shares
- All shares being held by Shareholders/Capital Stock

14. Treasury Shares

- Shares that were released to the market, but bought back by the Company
- Can also be shares donated from shareholders, under the title “Donated Shares”

15. Share Premium

- An excess/gain of cash from selling/buying of shares more than its Par/Cost value

16. Share/Stock Certificate

- Receipt/Evidence of buying shares

17. Delinquent Shares

- Portion of Unpaid Shares subscribed by investors
- Unpaid Portion of Shares are bidden/auctioned to other investors (Action known as Delinquency
Sale)

18. Accounting Share Capital

- Par/Stated Value: Value of the stated amount of the Share
- Cost Value: Value being sold in the market

RETAINED EARNINGS AND SHARES:

Retained Earnings are used to:

- Buy Assets for business

- Divide to shareholders as dividends
- Repay Liabilities
- Buy back shares to reduce shares sold in markets (Allocation for Treasury Shares)

Dividend impact to Retained Earnings

1. Cash Dividends
- Reduces value of RE, as well as cash, so there is a cash outflow
- (Paying shareholders Cash for investing in the company through purchasing of shares)

2. Stock Dividends
- No outflow of cash, decreases RE
- Decreases value of share

REVENUE is NOT equal to Retained Earnings

- Revenue is total income of the company

- Retained Earnings is an allocated portion of Revenues, related to net income
TREASURY STOCKS

- When a company releases stocks/shares to the market, they are bought by anyone who is willing
to buy these shares so that they can returns from a company’s potion of profits. Considering that
maybe there are too many shares not bought by other investors or an opposing company wishes
to buy the remaining shares, they can “buyback” shares to reduce the amount of shares in the
market (increasing the value of shares limited in the market), and avoiding too many people or
entities entitlement to acquire shares of their profits
- Since these shares are owned originally by the company, the company cannot give itself profits,
so these shares are void of profit and are deducted to retained earnings.

Buying Treasury Stocks

- Cost Method (Most used): Buying Shares back at its Market Value
- Par/Stated Value Method: Buying Shares back at its stated value

Problem Solving:

Sea Wind Resort releases shares after having a profitable year, to increase their business’ value.
To avoid corporate Takeover by outsiders, they bought back 1,500 shares with a par value of Php 1,000 ,
for Php 2,000

Answer: Treasury Stock (1500 x Php 2000 at cost) Php 3,000,000

Cash Php 3,000,000

If Treasury shares are re-issued (sold again to market) at:

Cost:

Cash Php 3,000,000

Treasury Shares (1500 x Php 2000 at cost) Php 3,000,000

Above Cost (Php 2500 per share):

Cash Php 3,750,000

Treasury Shares (1500 x Php 2000 at cost) Php 3,000,000

Share Premium – Treasury 750,000

Below Cost (Php 1500 per share):

Cash Php 2,250,000

Retained Earnings 750,000

Treasury Shares (1500 x Php 2000 at cost) Php 3,000,000

If Treasury shares are bought at Php 750 (Instead of Php 2000), but retired after (Removed from being
sold, void share):

Ordinary Shares (1,500 shares x Php 1000 par) Php 1,500,000

Share Premium Php 375,000

Treasury Shares (1500 x Php 750 at cost) 1,125,000

If the Php 1,000 share was revalued at Php 1,500, but purchased at Php 2,000 , then retired:

Ordinary Shares (1,500 shares x Php 1000 par) Php 1,500,000

Share Premium (1,500 shares x (1500 – 1000 par) 750,000

Retained Earnings 750,000

Treasury Shares (1500 x Php 2000 at cost) Php 3,000,000

DONATED CAPITAL

-Shareholders giving capital assets or any contribution as gifts to the company

If Shareholder gives Service vehicle worth Php 350,000:

Service Vehicle Php 350,000

Donated Capital Php 350,000

If Shareholder gives shares (recorded at memorandum entry since no cash or cash value is involved):

“Received 500 ordinary shares as donation”

Donated shares are essentially treasury shares. If these were sold at Php 50 each:

Cash Php 40,000

Donated Capital Php 40,000