REVIEW EXERCISES ON PARTNERSHIP ACCOUNTING

1. An advantage of the partnership as a form of business organization would be

a. Partners do not pay income taxes on their share in partnership income.
b. A partnership is bound by the act of the partners.
c. A partnership is created by mere agreements of the partners.
d. A partnership may be terminated by the death or withdrawal of a partner

2. Partnership capital and drawings accounts are similar to the corporate

a. Paid in capital, retained earnings, and dividends accounts.
b. Retained earnings account.
c. Paid in capital and retained earnings accounts.
d. Preferred and common stock accounts.

3. Which of the following is not a component of the formula used to distribute income?
a. Salary allocation to those partners working.
b. After all other allocation, the remainder divided to the profit and loss sharing ratio
c. Interest on the average capital investments.
d. Interest on note to partners.

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

a. Interest paid to partners based on the amount of invested capital.
b. Depreciation on assets contributed to the partnership by partners.
c. Salaries for management hired to run the business.
d. Supplies used in the partner’s offices.

5. Which of the following results in dissolution of partnership?

a. The contribution of additional assets to the partnership by an existing partner.
b. The receipt of a draw by an existing partner.
c. The winding up of the partnership and the distribution of remaining assets to the partners.
d. The withdrawal of a partner from a partnership.

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

7. In the liquidation of a partnership it is necessary to (1.) distribute cash to the partners; (2.) sell non-
cash assets; (3.) allocate any gain or loss in realization to the partners’; and (4.) pay liabilities. These
steps should be performed in the following order:
a. (2), (3), (4), (1)
b. (2), (3), (1), (4)
c. (3), (2), (1), (4)
d. (3), (2), (4), (1)
8. The doctrine of marshalling of assets
a. Is applicable only of the partnership is insolvent.
b. Allows partners to first contribute personal assets to unsatisfied partnership creditors.
c. Is applicable if either the partnership creditors is insolvent or individual partners are insolvent
d. Amount owed to personal creditors and to the partnership for debit capital balances are shared
proportionately from the personal assets of the partners.

9. These are assets with realizable values less than the realizable values of the related liabilities for
which these assets have been pledged a security.
a. Free assets
b. Assets pledged to partially secured creditors
c. Assets pledged to fully secured creditors
d. Unfree assets

10. Entities undergoing liquidation measure their assets and liabilities in the statement of affairs at
a. Cost c. Book value
b. Realizable value d. Fair value

Items 11-15 are based on the following information:

On May 1, 2018, the business assets of John and Paul appear below:

John Paul
Cash P 11,000 P 22,354
Accounts receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture 50,345 34,789
Other assets 2,000 3,600
Total P1, 020,916 P1, 317,002

Accounts payable P 178,940 P 243,650

Notes payable 200,000 345,000
John, capital 641,976
Paul, capital 728,352
Total P 1,020,916 P 1,317,002

John and Paul agreed to form a partnership contributing their respective assets and equities subject to
the following adjustments:
a. Accounts receivable of P20, 000 in John’s books and P35, 000 in Paul’s are uncollectible.
b. Inventories of P5, 500 and P6, 700 are worthless in John’s and Paul’s respective books.
c. Other assets of P2, 000 and P3, 600 in John’s and Paul’s respective books are to be written
off.
11. The capital accounts of the partners after the adjustments will be:
a. John’s 614,476
Paul’s 683, 052
 b. John’s 615, 942
Paul’s 717, 894
c. John’s 640, 876
Paul’s 712, 345
d. John’s 613, 576
Paul’s 683, 350

12. How much assets does the partnership have?

a. P2,337,918 b. P2,237,918 c. P2,265,118 d. P2,365,218

13. Peter offered to join for a 20% interest in the firm. How much cash should be contributed?
a. P330,870 b. P337,487 c. P344,237 d. P324,382

14. After Peter’s admission, the profit and loss sharing ratio was agreed to be 40:40:20, based on
capital credits. How much should the cash settlement be between John and Paul?
a. P33,602 b. P32,930 c. P32,272 d. P34,288

15. During the first year of their operations, the partnership earned P325, 000. Profits were distributed
in the agreed manner. Drawings were made in these amounts: John, P50, 000; Paul, 65,000; Peter, P28,
000. How much are the capital balances after the first year?
a. John, capital 750,627
Paul, capital 735,177
Peter, capital 372, 223
b. John, capital 728, 764
Paul, capital 713, 764
Peter, capital 361, 382
c. John, capital 757, 915
Paul, capital 742, 315
Peter, capital 375, 837
d. John, capital 743, 121
Paul, capital 727, 825
Peter, capital 368, 501

16. Roberts and Smith drafted a partnership agreement that lists the following assets contributed at the
partnership’s formation:
Contributed by
Roberts Smith
Cash P20, 000 P30, 000
Inventory 15,000
Building 40,000
Furniture & equipment 15,000

The building is subject to a mortgage of P10, 000, which the partnership has assumed. The partnership
agreement also specifies that profits and losses are to be distributed evenly. What amounts should be
recorded as capital for Roberts and Smith at the formation of the partnership?
Roberts Smith
a. 35,000 85,000
b. 35,000 75,000
c. 55,000 55,000
d. 60,000 60,000

Items 17 – 18 are based on the following information:

On June 30,2018 Eden and Flora formed a partnership with each contributing the following assets:

Eden Flora
Book Value Fair Value Book Value Fair Value
Cash ₱375,000 ₱375,000 ₱875,000 ₱875,000
Office Equipment 350,000 312,000 872,500 937,500
Building – Net --- --- 3,262,500 2,812,500
Furniture and Fixtures 95,000 125,000 --- ---
The building is subject to a mortgage loan of ₱1,125,000 which is to be assumed by the partnership. The
partnership agreement provides that Eden and Flora share profits and losses in the ratio of 30% and 70%
respectively. Assuming that the partners agreed to bring their respective capital in proportion to their
profit and loss ratio, and using Flora capital as the base:

17. What is the capital account balance of Flora on June 30,2018?

a. ₱3,500,000 b. ₱4,000,000 c. ₱3,937,500 d. ₱3,837,500

18. How much is the additional cash to be invested by Eden?

a. ₱2,687,500 b. ₱2,587,000 c. ₱688,000 d. ₱687,000

19. XYZ Partnership provided for the following in their distribution of profits and losses:
First: X to receive 10% of net income up to P100, 000 and 20% of the amount in excess thereof.
Then: Y and Z are each to receive 5% of the remaining income on excess of P150, 000 after X’s
share.
Finally: The balance is to be distributed equally to the three partners.
If the partnership earned a net income of P250, 000, what is the total share of Partner X?
a. P100,000 b. P108,000 c. P110,000 d. P130,000

Items 20-21 are based on the following information:

Hans Ivy, Jasper, and Kelly own a publishing company that they operate as a partnership. Their agreement.
Their agreement includes the following:
● Hanz will receive a salary of P20, 000 and a bonus of 3% of income after all the bonuses.
● Ivy will receive a salary of P10, 000 and a bonus of 2% o income after all the bonuses
● All partners are to receive the following: Hand—P5, 000; Ivy—P4, 500; Jasper—P2, 000; and
Kelly—P4, 700, representing 10% interest on their average capital balances.
● Any remaining profits are to be divided equally among the partners.

20. How would a net loss of P40, 000 would be allocated among the partners?
Hans Ivy Jasper Kelly
a. 3,261.75 (7,169.25) (18,181.25) (17,911.25)
b. 3,450.00 (7,050.00) (19,550.00) (16,850.00)
c. 4,116.75 (6,764.25) (20,026.25) (17,326.25)
d. 45,000.00 4,500.00 (8,000.00) (5,300.00)

21. Assuming a profit of P40, 000, how would this amount be distributed to them given the following
order of priority: Interest on invested capital, then bonuses, then salary, and then according to profit and
loss percentage?
Hanz Ivy Jasper Kelly
a. 23,261.75 12,830.75 1,818.75 2,088.75
b. 20,867.00 12,433.00 2,000.00 4,700.00
c. 20,740.00 12,560.00 2,000.00 4,700.00
d. 12,038.00 15,262.00 2,000.00 4,700.00

22. On October 31, 2018, Zita and Jones formed a partnership by investing cash of P300, 000 and P200,
000, respectively. The partners agreed to receive an annual salary allowance of P360, 000, and to give Zita
a bonus of 20% of the net income after partners’ salaries, the bonus being treated as an expense. If the
profits after salaries and bonus are to be divided equally, and the profits on December 31, 2018 after
partners’ salaries but before bonus of Zita are P360, 000, how much is the share of Zita in the profit?
a. P100,000 b. P120,000 c. P210,000 d. P270,000

23. Maxwell is trying to decide whether to accept a salary of P40, 000 or salary of P25, 000 plus a bonus
of 10% net income after salaries and bonus as a means of allocating profit among partners. Salaries
traceable to the other partners are estimated to be P100, 000. What amount of income would be
necessary so that Maxwell would consider choices to be equal?
a. P165, 000 b. P290,000 c. P265,000 d. P305,000

24. Partners AA and BB have profit and loss agreement with the following provisions: salaries of P30,000
and P45,000 for AA and BB, respectively; a bonus to AA of 10% of net income after salaries and bonus;
and interest of 10% on average capital balances of P20,000 and P35,000 for AA and BB, respectively.
One-third of any remaining profits will be allocated to AA and the balance to BB. If the partnership had
net income of P102, 500, how much should be allocated to Partner AA?

a. P44,250 b. P47,250 c. P41,000 d. P41,167

25. Partners AA and BB have profit and loss agreement with the following provisions: salaries of P30,000
and P45,000 for AA and BB, respectively; a bonus to AA of 10% of net income after salaries and bonus;
and interest of 10% on average capital balances of P20,000 and P35,000 for AA and BB, respectively. One
third of any remaining profits will be allocated to AA and balance to BB. If the partnership had net income
of P22, 000, how much should be allocated to Partner AA, assuming that the provisions of the profit and
loss agreement are ranked by order of priority starting with salaries?
a. P13,200 b. P12,500 c. P12,000 d. P8,800

26. Luz, Vi and Minda are partners when the partnership earned a profit of P30,000. Their agreement
provides the following regarding the allocation of profits and losses:
a. 8% interest in partner’s ending capital in excess of P75, 000.
b. Salaries of P20, 000 for Luz and P30, 000 for Vi.
c. Any balance is to be distributed 2:1:1 for Luz, Vi and Minda, respectively.
Assume ending capital balances of P60, 000, P80, 000, and P100, 000 for partners Luz, Vi, and Minsa,
respectively. What is the amount of profit allocated for Minda, if each provision of the profit and loss
agreement is satisfied to whatever extent possible using the priority order shown above?
a. P (3,600) b. P3,600 c. P(2,000) d. P2,000

27. Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1,
2018, their respective capital accounts were as follows:
Blau 60,000
Rubi 50,000
On that date Lind was admitted as a partner with one-third interest in capital, and profits for an
investment of P40, 000. The new partnership began with a total capital of P150, 000. Immediately after
Lind’s admission, Blau’s capital should be
a. P50,000 b. P54,000 c. P56,667 d. P60,000

28. Partnership A has an existing capital of P70, 000. Two partners currently own the partnership and
split profits of 50/50. A new partner is to be admitted and will contribute net assets with a fair value of
P90, 000. For no goodwill or bonus (depending in whichever method is used) to be recognized, what is
the interest in the partnership granted the new partner?
a. 33.33% b. 50.00% c. 56.25% d. 75.00%

Items 29-30 are based on the following information:

On June 30, 2018, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm together
with their respective with their respective profit and loss sharing percentage was as follows:
Assets, net of liabilities P 320,000
Eddy, capital (50%) P160, 000
Fox, capital (30%) 96,000
Grimm, capital (20%) 64,000
P 320,000

29. Eddy decided to retire from the partnership and by mutual agreement is to be paid P180, 000 out of
partnership funds for his interest. Total goodwill implicit in the agreement is to be recorded. After Eddy’s
retirement, what are the capital balances of the other partners?
Fox Grimm
a. 84,000 56,000
b. 102,000 68,000
c. 108,000 72,000
d. 120,000 80,000

30. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new partner
with a 25% interest in the capital of the new partnership for a cash payment of P140, 000. Total goodwill
implicit in the transaction is to be recorded. Immediately after admission of Hamm, Eddy’s capital account
balance should be
a. P280,000 b. P210,000 c. P160,000 d. P140,000
31. Peter, Queen, and Roy are partners with capital balances of P300, 000, P300, 000, and P200, 000,
respectively; and sharing profits and losses equally. Roy is to retire and it is agreed that he is take certain
office equipment with second hand value of P50, 000 and a note for his interest. The office equipment
carried in the books at P65, 000 but brand new would cost P80, 000. Roy’s acquisition of the office
equipment would result in
a. Reduction in capital of P5, 000 each for Peter, Queen, and Roy.
b. Reduction in capital of P7, 500 each for Peter, Queen and Roy.
c. Reduction in capital of P15, 000 for Roy.
d. Reduction in capital of P55, 000 for Roy.

32. On June 30, 2018, the balance sheet for the partnership of Coll, Maduro, and Prieto, together with
their respective profit and loss ratios, was as follows:

Assets, at cost 180,000

Coll, loan 9,000

Coll, capital (20%) 42,000
Maduro, capital (20%) 39,000
Prieto, capital (60%) 90,000
Total 180,000

Coll decided to retire from the partnership. By mutual agreement, the assets are to be adjusted to their
fair value of P216, 000 at June 30, 2018. It was agreed that the partnership would pay Coll P61, 200 cash
for Coll’s partnership interest, including Coll loan which is to be repaid in full. No goodwill is to be
recorded. After Cull’s retirement, what is the balance of Maduro’s capital account?
a. P36, 450 b. P39,000 c. P45,450 d. P46,200

Items 33-34 are based on the following information:

Roy and Gil are partners sharing profits and losses in the ratio of 1:2, respectively. On July 1, 2018, they
decided to form the R&G Corporation by transferring the assets and liabilities of the partnership to the
corporation in exchange for the latter are stock. The following is the post-closing trial balance of the
partnership:
Debit Credit
Cash P 45,000
Accounts receivable (net) 60,000
Inventory 90,000
Fixed assets (net) 174,000
Liabilities P 60,000
Roy, capital 94,800
Gil, capital 214,200
P 369,000 P 369, 000

It was agreed that adjustments be made to the following assets to be transferred to the corporation:
Accounts receivable P 40,000
Inventory 68,000
Fixed assets 180,600
The R&G Corporation was authorized to issue P100 par preferred stock and P10 par common stock. Roy
and Gil agreed to receive for their equity in the partnership 720 shared of the common stock each, plus
even multiples of 10 shares of preferred stock for their remaining interests.

33. The total number of shares of preferred and common stocks issued by the corporation in exchange
for the assets and liabilities of the partnership are:
Preferred Common
a. 2,549 shares 1,500 shares
b. 2,592 shares 1,440 shares
c. 2,642 shares 1,440 shares
d. 2,642 shares 1,550 shares

34. The distribution of the stocks to Roy and Gild would be:
Roy Gil
Preferred Common Preferred Common
a. 785 shares 720 shares 1,384 shares 720 shares
b. 773 shares 750 shares 1,843 shares 750 shares
c. 758 shares 720 shares 1,834 shares 720 shares
d. 738 shares 720 shares 1, 758 shares 720 shares

35. On December 31, 2018, the partners on MNP Partnership decided to liquidate their business.
Immediately before liquidation, the following condensed balance sheet was prepared:
Cash P 50,000 Liabilities P375, 000
Noncash sheets 900,000 Nieva, loan 80,000
Perez, loan 25,000
Munoz, capital (50%) 312,500
Nieva, capital (30%) 107,500
Perez, capital (20%) 50,000
Total P 950,000 Total P950, 000

The noncash assets were sold for P400, 000. Assuming Perez is the only solvent partners, what amount
of additional cash will be invested by Perez? (rounded to the nearest peso)
a. P37, 143 b, P25,000 c. P5,000 d. 0

36. After Incurring losses resulting from very unprofitable operations, the Goh Kong Wei Partnership
decided to liquidate when the partner’s capital balances were:
Goh, capital (40%) P 80,000
Kong, capital (40%) 130,000
Wei, capital (20%) 96,000
The non-cash assets were sold in installment. Available cash were distributed to partners in every sale of
non-cash assets. After the second sale of non-cash assets, the partners received the same amount of cash
in the distribution. And from the third sale of non-cash assets, cash available for distribution amounts to
P28, 000, and unsold non-cash assets has a book value of P12, 500. Using cash priority program, what
amount did Wei received in the third installment of cash.
a. P11,600 b. P8,000 c. P5,600 c. 0
37. Partners Able, Baker, and Chapman, who share profit and loss equally, have the following personal
asset, personal liabilities, and partner capital balances:
Able Baker Chapman
Personal assets P 30,000 P 80,000 P 60,000
Personal liabilities 25,000 50,000 72,000
Capital balances 50,000 (32,000) 70,000

38. After applying the doctrine of marshalling of assets, the capital balances of Able, Baker, and
Chapman, respectively, would be
a. 50,000 (2,000) 58,000
b. 48,000 0 58,000
c. 49,000 0 57,000
d. 34,000 0 54,000

Items 39-40 are based on the following information:

As of December 31, the books of AME Partnership showed capital balances of: A – P40, 000; M – P25, 000;
E – P5, 000. The partners’ profit and loss ratio was 3:2:1, respectively. The partners decided to dissolve
and liquidate. They sold all the non-cash assets for P37, 000 cash. After settlement of all liabilities
amounting to P12, 000, they still have P28, 000 cash left for distribution.

39. The loss on the realization of the non-cash assets was

a. P40,000 b. P42,000 c. P44,000 d. P45,000

40. Assuming that any partner’s capital debit balance is uncollectible, the share of A in the P28, 000 cash
for distribution would be
a. P19,000 b. P18,000 c. P 17,800 d. P40,000

41. The balance of sheet of the partnership of Salve, Galo, and Norma, who share in the profits and
losses in the ration of 5:3:2 respectively is as follows:
Assets Liabilities and Capital
Cash 30,000 Liabilities 50,000
Other assets 320,000 Salve, capital 80,000
Galo, capital 115,000
Norma, capital 105,000
Total 350,000 Total 350,000

The partnership is liquidated by installment. The first sale of non-cash assets with a book value of P150,
000 realizes P100, 000. How should the remaining cash be distributed?

Salve Galo Norma

a. 50,000 30,000 20,000
b. 40,000 24,000 16,000
c. 0 31,000 49,000
d. 0 48,000 32,000
42. The following balance sheet is presented for the partnership of A, B, and C, who share profits and
losses in the respectively ratio of 5:3:2.

Assets Liabilities and Capital

Cash 120,000 Liabilities 280,000
Other assets 1,080,000 A, capital 560,000
B, capital 320,000
C, capital 40,000
Total 1,200,000 Total 1,200,000

Assume that the three partners decided to liquidate the partnership. If the other assets are sold for
P800, 000, how should the available cash be distributed to each partner?
A B C
a. 280,000 320,000 40,000
b. 324,000 236,000 16,000
c. 410,000 230,000 0
d. 412,000 228,000 0

Items 43-46 are based on the following information:

Partners R, S, and T, who share profit and loss in the ratio of 3:5:2, respectively have decided to
liquidate their partnership. The Statement of Financial Position of the partnership at the time of
liquidation is shown below:
Assets Liabilities and Capital
Cash P 120,000 Accounts Payable P 93,000
Other Assets 360,000 Loan from S 30,000
R, Capital 108,000
S, Capital 120,000
T, Capital 130,000
________ ________
P 480,000 P480,000
The partners desire to prepare an installment distribution schedule showing how cash would be
distributed to partners as assets are realized.

43. In the schedule of maximum absorbable loss, the maximum absorbable loss of T would be
a. P360,000 b. P300,000 c. P525,000 d. P650,000

44. The schedule of possible losses on capital balances would indicate that the first cash
distributed, after the payment of outside creditors, would be distributed to (and in the amount of)
a. R in the amount of P48,000 c. T in the amount of P57,000
b. S in the amount of P60,000 d. T in the amount of P30,000

45. Assuming that the first sale of other assets having book value of P150,000 realized P45,000
and all available cash is distributed, R would receive
a. P 0 b. P9,000 c. P24,000 d. P63,000
46. Assuming that the second sale of other assets (assume previous sale facts) having book value
of P90,000 realized P120,000 and all available cash is distributed, S would receive
a. P52,500 b. P 0 c. P15,000 d. P18,000

Questions 47-49 are based on the following data:

The following Statement of Financial Position was prepared for the E, F and G Partnership on
March 31,2019:

Cash P 25,000 Liabilities P 52,000

Other Assets 180,000 E, Capital (40%) 40,000
F, Capital (40%) 65,000
G, Capital (20%) 48,000
_______ _______
P205,000 P205,000

The partnership is being liquidated by the sale of assets in installments. The first sale of non-cash
assets having a book value of P90,000 realizes P50,000.

47. The amount of cash F should receive in the first installment is

a. P5,000 b. P13,000 c. P0 d. P65,000

48. Assuming P3,000 cash is withheld for possible liquidation expenses, how much cash should
G receive?
a. P21,000 b. P17,000 c. P3,000 d. P18,0004

49. Assuming as a separate case that each partner properly received the same amount of cash in
the distribution after the second sale of assets. Assume further that the cash to be distributed
amounts to P14,000 from the third sale of assets, and unsold assets with a book value of P6,000
remain, how should the P14,000 be distributed to E, F and G, respectively?
a. P5,600; P6,500; P2,800 c. P 0; P11,200; P2,800
b. P5,000; P5,000; P4,000 d. P5,600; P5,600; P2,800

50. On December 31,2019, the accounting records of Uy, Vi and Wi Partnership included the
following ledger account balances:

Receivable from Uy ₱132,000 Uy, Capital ₱553,500

Loan to Wi ₱40,500 Vi, Capital ₱452,500
Salary payable to Vi ₱135,000 Wi, Capital ₱486,000

Total assets include cash amounting to ₱234,500. The partnership was liquidated on December
31,2014, and Uy received ₱351,500 cash pursuant to the liquidation. Uy, Vi, and Wi shared net
income and losses in a 5:3:2 ratio, respectively.

In the settlement to partners, how much cash is paid to Vi?

a. ₱545,500 b. ₱587,500 c. ₱ 0 d. ₱542,000