Peer Quiz No.

1: Partnership Formation
1. It is an accounting for initial investments to the partnership.
a. Dissolution c. Formation
b. Operations d. Liquidation
2. All assets contributed to (and related liabilities assumed by) the partnership shall be
measured at
a. Fair Value c. Revaluation Cost
b. Cost d. Any of these
3. The following are the characteristic of partnership except:
a. Mutual Agency c. Unlimited Life
b. Transfer of Ownership d. Unlimited Liability
4. What kind of agreement is utilized to create a partnership?
a. Written Agreement c. Both A and B
b. Oral Agreement d. None of them
5. QQ contributed land with fair value of P2,000,000 to a partnership. The land has an
unpaid mortgage of P800,000 which the partnership agreed to assume. How much is
QQ’s net contribution?
a. P2,000,000 c. P2,800,000
b. P 800,000 d. P1,200,000
6. Steve and Llouie contributed the following in the formation of a partnership business:
Steve Llouie
Cash 200,000 -
Accounts Receivable 120,000 -
Inventory 180,000 -
Land 360,000
Total 500,000 360,000

Additional information:
 Only 70% of the accounts receivable is recoverable
 The net realizable value of the inventory is P140,000. Steve acquired the
inventory on account; the partnership will assume the unpaid balance of P70,000.
 The land has a fair value of 600,000.
How much is the adjusted capital balance of Steve?
a. P354,000 c. P453,000
 b. P600,000 d. P954,000
7. Provide the Journal Entry.
8. On July 1, 2020 Diane and June formed a partnership with each contributing the
following assets:
Diane June
Cash…………………………………… P400, 000 P 800, 000
Machinery and equipment ………. 350, 000 850, 000
Building………………………………… - 2, 350, 000
Furniture and fixtures………………… 200, 000 -

The building is subject to mortgage loan of P900, 000, which is to be assumed by the
partnership agreement provides that Diane and June share profits and losses 30% and
70%, respectively. On July 1, 2020 the balance in June’s capital account should be:

a. P3,100,000 c. P3,050,000
b. P3,150,000 d. P4,000,000

9. The same information in Number 8, except that the mortgage loan is not assumed by the
partnership. On July 1, 2020 the balance in June’s capital account should be:
a. P3,100,000 c. P3,050,000
b. P3,150,000 d. P4,000,000

10. Shanie, Sean and Sunny formed a partnership. Shanie contributed cash of P110,000.
Sean contributed equipment with historical cost of 730,000, carrying amount of
P210,000, and fair value of P120,000. Sunny contributed building with historical cost of
P2,000,000, carrying amount of 580,000, and fair value of P900,000. The partnership will
assume the unpaid mortgage of P760,000 on the building. Which partner has the largest
capital account balance on partnership formation?
a. Shanie c. Sunny
b. Sean d. All are equal

KEY ANSWER:
1. C
2. A
3. C
4. C
5. D
6. A
Solution:

  Steve Llouie Total

Cash 200,000 - 200,000
A/R (120k*70%) 84,000 - 84,000
Inventory 140,000 - 140,000
Land - 600,000 600,000
Total 424,000 600,000 1,024,000
Accounts Payable 70,000 - 70,000
Adjusted Capital
Balances 354,000 600,000 954,000

7. Entry:

Cash 200,000  
A/R 84,000  
Inventory 140,000  
Land 600,000  
A/P   70,000
S, Capital   354,000
L, Capital   600,000

8. A
9. D

Solution:

  Diane June Total

Cash 400,000 800,000 1,200,000
Machinery and
equipment 350,000 850,000 1,200,000
Building - 2,350,000 2,350,000
Furniture and fixtures 200,000 - 200,000
Total 950,000 4,000,000 4,950,000
Mortgage Loan   900,000 900,000
Adjusted Capital 950,000 3,100,000 4,050,000
 Balances

10. C
 Shanie – P110,000
 Sean – P120,000
 Sunny- (P900,000 - P760,000) = P140,000

Peer Quiz No.2: Partnership Operation

Matching Type

A 4. The partnership agreement may stipulate

that capitalist partners are entitled to an
1. The allocation of profits to a partner on annual interest on their capital
the basis of performance is frequently contributions.
referred to as a 5. Division of profit or loss.
2. Absent an agreement, the partners will 6. The one that are provided first and the
share profits and losses remaining amount is allocated based on
3. It is where a partner is entitled to a the profit-sharing ratio.
bonus only if the partnership earns
profit.
7. One who is contributes services to the
partnership rather than cash or other
non-cash assets
8. One who contributes cash or other non-
cash assets.

a. Industrial Partner

b. Salaries

c. Partnership Operation

d. Capitalist Partner

e. Bonus

f. Interest on capital contribution

g. General Partner

h. Equally

i. In proportion to what he may

have contributed, but the

industrial partner shall not be

liable for the losses.

j. In the same proportion

Problem Solving

9. Kian and Sarah are partners with capital balances of P70,000 and P30,000, respectively. Profits
and losses are divided in the ratio of 60:40. Kian and Sarah decided to form a new partnership
with Shawn, who invested land valued at P17,000 for a 25% capital interest in the new
partnership. Shawn’s cost of the land was P15,000. The partnership elected to use the bonus
method to record the admission of Shawn into the partnership. Shawn’s capital account should be
credited for:
a. 29,250 c. 27,250
b. 28,000 d. 29,000
10. Jerome, Rodolf and Darlene are partners in an accounting firm. Their capital account balances at
year-end were Jerome P95,000; Rodolf P115,000 and Darlene P55,000. They share profit and
losses on a [Link] ratio, after the following special terms:
 Partner Darlene is to receive a bonus of 15% of net income after the bonus.
 Interest of 15% shall be paid on that portion of a partner’s capital in excess of P100,000.
 Salaries of P15,000 and P17,000 shall be paid to partners Jerome and Darlene
respectively.

Assuming a net income of P49,000 for the year, the total profit share of Partner Darlene was:

a. P24,072 c. P25,063
b. P26,000 d. P27,084

KEY ANSWER:
1. E

2. I

3. B

4. F

5. C

6. B

7. A

8. D

9. A

Solution:

P70,000 + 30,000 + 17,0000 = 117,000* 25% = P29,250

10.C

Solution:
   Jerome Rodolf Darlene Total
Bonus* 6,391 6,391
Interest 15% (115,000-
100,000) 2,250 - 2,250
Salaries 15,000 17,000 32,000
Balance: [Link]     1672 8,359
      25,063 49,000

*Bonus = 15% (NI - Bonus)

B = .15 (P49,000 - B)

B = P7,350 - .15B

1.15B = P7,350
1.15 1.15

B = P6,391

Peer Quiz No. 3: Partnership Dissolution

Choose the best answer that fits the given question.

1. Which of the following procedures is not necessary steps affecting a dissolution of
partnership?
a) Revaluing partnership assets
b) Recognizing undistributed profit or loss share of partner at dissolution date.
 c) Closing of partnership books
d) Revising partners’ equity

2. Which of the following transactions will not affect the total equity of a partnership?
a) Recognition of impairment loss is case of admission of a new partner by
investment
b) Withdrawal by a partner
c) Admission of a new partner by purchase of existing partner’s interest below its
book value
d) Retirement of an existing partner with payment of above the book value of such
interest

3. Joche was admitted in an existing partnership through investment of cash equivalent to ¼

of the new capitalization. If the capital balance of the old partners increases, what is the
most valid reason under Philippine GAAP?
a) Asset revaluation of existing partnership’s assets
b) Impairment loss of existing partnership’s assets
c) Recognition of goodwill of existing partnership
d) Receipt of bonus from the new partner

4. If Joche retires from the partnership and he is paid an amount excess of his capital
account balance at the time of his retirement. The excess payment will be…
a) Charged against the capital accounts of the remaining partners
b) Credited to the capital accounts of the remaining partners
c) Charged to the bonus account
d) Charged to the asset account
5. Joche Jr. is admitted into the partnership by investing cash equivalent to ¼ of the capital.
Which of the following is true after the admission of Joche Jr.?
a) Assets of the partnership will increase
b) Total partner’s equity remains the same
c) The capital of original partners decreased by ¼
d) Assets of the partnership will remain the same

6. When A retires from the partnership of A, B, and C, the final settlement of A’s interest is
less that his capital balance. Under the bonus method, the excess would
a) Reduce the capital balances of B and C
b) Increase the capital balances of B and C
c) Be recorded as an expense
d) Had no effect on capital of B and C
7. Annah and Lanca, having the capital balances of P140,000 and P75,000 respectively,
decided to admit Jetlag into their partnership. Jetlag is to invest sufficient amount in order
to have a 25% interest in the partnership. If Annah and Lanca share profit in a proportion
of 3:1, respectively, and Lanca’s capital balance after Jetlag’s investment is P84,250, how
much was invested by Jetlag?
a) 137,000
b) 121,000
c) 120,500
d) 121,250

8. The capital balances of partners X and Y before admission of Z are P50,000 and P55,000,
respectively. Z invested a certain amount for 25% interest in the partnership. As a result
of his admission, he received a bonus of P3,750.

How much did Z invest for his 25% interest in the partnership?
a) 30,000
b) 34,000
c) 30,250
d) 31,250
9. The admission of a new partner effected through purchase of interest from an existing
partner is
a) Recorded in the partnership’s books as a debit to cash or other asset and credit to
the incoming partner’s capital account
b) Recorded in the partnership’s books as a transfer within equity
c) Recorded in the partnership’s books as a transfer from equity to liability
d) Not recorded in its entirety

10. TD decided to withdraw from his partnership with SM and MR. before his withdrawal,
TD’s capital balance was P58,000 while SM’s was P64,000 and MR’s was P77,000.
Also, the partnership’s total assets amounted to P450,000 but the partners agreed that
fixed asset was under depreciated by P15,000. TD, SM, and MR share profit and losses in
the ratio of [Link], respectively. If TD was paid P53,200 upon his retirement, how much is
the remaining partnership net assets after TD’s withdrawal?

KEY ANSWER:
1. D
2. C
3. A
4. A
 5. A
6. B
7. B
Solution:
75
Lanca's capital before Jetlag ,000
increase (squeeze) 9,250
ending balance after Jetlag 84,250

Increase of Lanca 9,250

divide 25%
Bonus of old partners 37,000

Capital adjsutment 252,000

-
Jetlag's capital Credit 84,000 (252k*25%)/75%
Bonus -37,000
Cash invested By Jetlag 121,000

8. A
Solution:

Capital before admission 105,000

3,
bonus received by Z 750
capital of old partners 101,250

Capital Adjustment 135,000 101,250/.75

multiply 25%
Capital credit of Z 33,750
-
bonus 3,750
investment of Z 30,000
 9. D
10. 130,800

Net assets before withdrawal 199,000 58K+64K+77K

Under depreciated -15,000
adjusted 184,000
Payment -53,200
Remaining 130,800

Peer Quiz No. 4: Partnership Liquidation

Choose the correct answer carefully.

1. In case of general partnership liquidation, which of the following credits shall be settled
first by the liquidating partner?
a) Those owing for partner’s capital contribution
b) Those owing to third persons
c) Those owing for the share in partnership profits
d) Those owing to partners for their advances to partnership

2. If a partnership has only non-cash assets, all liabilities have been properly disbursed, and
no additional liquidation expenses are expected, the maximum potential loss to the
partnership in the liquidation process is
a) The fair market value of the non-cash assets
b) The book value of the non-cash assets
c) The estimated proceeds from the sale of the assets less the book value of the non-
cash assets
d) None of the statements are correct

3. Which of the following is not considered a legitimate expense of the partnership?

a) Depreciation on assets contributed to the partnership by the partners
b) Salaries for managers hired by firm
c) Supplies used in the partners office
d) Interest to partners on the amount of their invested capital
4. In the computation of a partner’s maximum loss absorption, the individual partner’s
capital balance and profit-and-loss percentage are used in which of the following ways?
Partner’s Net Capital balance P/L percentage
a) Denominator Numerator
b) Numerator not used
c) Numerator Denominator
d) Not used denominator

5. Which of the following items are important in the determination of safe installment
payments to partners?
I. Deficits created in capital accounts are distributed to the remaining partners
II. All unsold non-cash assets are assumed to be worthless
a) I only
b) II only
c) Both I and II
d) Neither I and II

6. The DOG partnership has decided to liquidate their partnership. The capital and loan
balances are provided below:

Partners Capital Balances Loan Balances P/L percentage

D P 210,000 P 40,000 50%

O 240,000 100,000 20%

G 40,000 80,000 30%

a) D, O, G
b) G, D, O
c) O, D, G
d) G, O, D

7. Partner A has a smaller capital balance than Partner B. Partner A, however, has higher
profit-and-loss percentage than Partner B. The AB partnership has decided o liquidate. As
a result of the information given,
a) Partner L will have a smaller loss absorption capacity than A
b) Partner L will receive cash only after A has received cash
c) Partner A will have a smaller loss absorption capacity than L
d) Partner A will never receive any cash from partnership liquidation
 8. On a partner’s personal statement of financial condition, assets and liabilities are
presented:
a) Current and non-current
b) In any order
c) From highest to lowest
d) In order of liquidity and maturity
9. On a partner’s personal changes in net worth, what type/s of income is/are recognized?
a) Earned
b) Realized
c) Incurred
d) Unrealized
e) Realized and unrealized
f) Earned and incurred

10. When is a partnership considered to be insolvent?

I. When the total of all partners’ capital accounts results in a debit balance
II. When at least one of the partners is personally insolvent
a) Both I and II
b) I only
c) II only
d) Neither I and II

KEY ANSWER:
1. B
2. B
3. D
4. C
5. C
6. C
7. C
8. D
9. E
10. B