Polytechnic University of the Philippines

College of Accountancy and Finance

Mock Midterm departmental Examination

Direction: Choose your best answer and write the answer of your choice in the answer sheet provided.
Erasures are not allowed. Show all supporting computations in the worksheet provided. Always observe
the human’s best policy during the examination. You have three hours to finish this examination.

Test I. Multiple Choice (40 items, 1 point each).

1. Statement 1:A partner may be excluded in the participation in partnership profit if the same is
stipulated in the partnership contract and agreed upon by all the partners.
Statement 2: A bonus to the remaining partner will result when the cash paid to a retiring
partner is more than the retiring partner’s capital balance.
a. True, False c. Both are true
b. False, True d. Both are false

2. Statement 1: Partnership profit or loss is shared equally unless the partnership contract
specifically indicates the manner in which profit or loss is to be divided.
Statement 2: No one becomes a member of the partnership without the consent of majority of
the partners.
a. True, False c. Both are true
b. False, True d. Both are false

3. Statement 1: If the partnership agreement specifies a method for sharing profits, but not losses,
then losses are shared in the same proportion as profits.
Statement 2: The percentage interest in a partnership is always the same as the profit sharing
ratio.
a. True, False c. Both are true
b. False, True d. Both are false

4. Statement 1: A partnership that has complied with all the requirements for its establishment is
called de jure partnership.
Statement 2: The unlimited liability of the partners for partnership debts makes the partnership
more reliable from the point of view of creditors.
a. True, False c. Both are true
b. False, True d. Both are false

5. Statement 1: The determination of the capital interest of an incapacitated partner is similar to

the determination of the capital interest of a retiring partner.
Statement 2: The sale of interest of the retiring partner to a new partner will require the
recognition of a gain or loss on the partnership books.
a. True, False c. Both are true
b. False, True d. Both are false

6. Statement 1: Net income of a partnership is not taxed as a separate entity.

 Statement 2: A partnership contribution in the form of non-cash assets should be recorded at its
fair market value in the absence of agreed value.
a. True, False c. Both are true
b. False, True d. Both are false

7. Statement 1:The agreed capital can never be less than total contributed capital.
Statement 2: When a bonus is given to a new partner, the old partner’s capital accounts are
credited.
a. True, False c. Both are true
b. False, True d. Both are false

8. Statement 1: During partnership liquidation, if a partner has a capital deficiency and is

personally insolvent, the remaining partners must absorb the deficiency as additional loss in
proportion to their capital balances at the time of liquidation.
Statement 2: Liquidation expenses which are incurred to facilitate the immediate realization of
non- cash assets affect cash but not capital.
a. True, False c. Both are true
b. False, True d. Both are false

9. Statement 1: In the liquidation of a partnership, the gains or losses on realization of assets are
divided among the partners using their profit and loss ratio.
Statement 2:When a new partner purchases an interest directly from a present partner, the
assets of the partnership do not change.
a. True, False c. Both are true
b. False, True d. Both are false

10. Statement 1: A partnership contract may be made either in writing or orally and is perfected by
mere consent.
Statement 2: The right of offset is applied when a deficient partner has a loan to the
partnership. The amount to be offset is the amount of the loan or the capital deficiency,
whichever is lower.
a. True, False c. Both are true
b. False, True d. Both are false

11. Statement 1: Bonus is allowed to partners only if there is a partnership profit since bonus is
based on profit.
Statement 2: The retirement of an existing partner dissolves the partnership, but the addition of
a new partner does not.
a. True, False c. Both are true
b. False, True d. Both are false

12. Statement 1: A nominal partner is one who is not really a partner, not being a party to the
partnership agreement, but is made liable as a partner for the protection of innocent third
persons.
Statement 2: A silent partner is one who takes active part in the management of the business
but whose connection with the partnership is concealed or unknown to the public.
a. True, False c. Both are true
b. False, True d. Both are false
13. Statement 1: There is a required number of limited partners in a general professional
partnership, in the same manner that there is a required number of general partners in a limited
partnership.
Statement 2: Each partner has an equal right to use the partnership assets, to act for the
partnership and to enter into contracts binding upon it.
a. True, False c. Both are true
b. False, True d. Both are false

14. Statement 1: Net asset adjustments are made on a sole proprietor’s books when these are to be
used as partnership books, for the purpose of arriving at agreed values.
Statement 2: The partnership should measure net income or net loss for the fraction of the year
up to withdrawal date of a partner and allocate profit and loss according to the existing ratio.
a. True, False c. Both are true
b. False, True d. Both are false

15. Statement 1: Accumulated depreciation and Allowance for Doubtful accounts, both being
contra-asset accounts, are not carried in the partnership books since assets should be recorded
at net amount.
Statement 2: All partners, whether capitalist or industrial, are to share on whatever partnership
profits or losses.
a. True, False c. Both are true
b. False, True d. Both are false

16. Statement 1: Two partners, with capital ratio of 3:1 and profit and loss ratio of 2:1, admitted a
new partner into their business. Under the bonus method, the old partners’ old profit and loss
ratio should be used to allocate the excess of the new partner’s contribution over the amount
credited to his capital account.
Statement 2: When a partner purchases ¼ interest of the equity from all the partners upon his
admission, total partnership equity is increased by ¼.
a. True, False c. Both are true
b. False, True d. Both are false

17. Statement 1: A new partner was admitted to the partnership by paying P100,000 in cash. If the
net assets of the partnership are still the same after his admission, then the new partner must
have received a bonus upon admission.
Statement 2: Entering of a partner into a memorandum of agreement with another entity may
cause the partnership to be dissolved.
a. True, False c. Both are true
b. False, True d. Both are false

18. Statement 1: The other partners must absorb the deficiency in a partner’s capital account on
liquidation because of mutual agency and partnership non-taxability.
Statement 2: When a partnership is liquidated, a solvent partner may contribute cash to
eliminate his deficiency.
a. True, False c. Both are true
b. False, True d. Both are false
19. This results when there is a change in the relationship of the partners caused by any partner
ceasing to be associated in the carrying on of the business or by admission of a new partner in
the partnership.
a. Winding up c. Reorganization
b. Liquidation d. Dissolution

20. Which of the following is not closed in the closing process for a partnership?
a. Depreciation c. Mr. P., Capital
b. Income Summary d. Mr. P., Drawing

21. In a partnership, salaries to partners are considered:

a. A liability c. an allocation of profits and losses
b. An expense of the business d. Both A & C

22. The order of the partnership liquidation process is

a. Pay liabilities, sell assets, distribute cash to partners.
b. Sell assets, pay liabilities, distribute cash to partners.
c. Distribute cash to partners, pay liabilities, sell assets.
d. Sell assets, distribute cash to partners, pay liabilities.

23. A partner who withdraws his interest at book value receives

a. Assets equal to his capital interest.
b. Assets less than his capital interest.
c. Assets with an indeterminate value.
d. Assets above his capital interest.

24. Capital deficiency can be eliminated by the following except:

a. Offsetting against a partner’s loan c. Additional investment
b. Loss to the other partners d. Selling non-cash assets at a gain

25. Liquidation losses would include

a. Liquidation expenses c. Share on the deficiency of an insolvent
partner
b. Loss on realization of non-cash assets d. All of the above

26. In the final liquidation transaction, the remaining cash is distributed to the partners. The
partners’ share in the cash is according to their
a. Cash balance c. Capital balances
b. Profit sharing ratio d. Withdrawals

27. Which of the following will not be included as additions in determining the interest of the
retiring partner?
a. Loans and advances to the partnership
b. Revaluation of assets to increase to current values on the date of retirement
c. Loans and advances from the partnership
d. Share in the partnership profits to the date of retirement
28. If the total contributed capital is less than total agreed capital but the new partner’s agreed
capital is greater than his contribution, there may be:
a. Positive asset revaluation and bonus to the old partners.
b. Positive asset revaluation and bonus to the new partners.
c. Negative asset revaluation and bonus to the old partners.
d. Negative asset revaluation and bonus to the new partners.

29. Total agreed capital can be determined by either of the following procedures except:
a. Old partners’ contribution divided by their fraction of interest.
b. New partner’s contribution multiplied by his fraction of interest.
c. New partner’s contribution divided by his fraction of interest.
d. Old & new partners’ agreed capital added.

30. When a partnership purchases the interest of a retiring partner at less than book value, there
must be a:
a. Bonus to the remaining partners.
b. Bonus to retiring partner.
c. Bonus to the remaining partners/negative revaluation or both.
d. Bonus to the retiring partner/positive revaluation or both.

31. John, Ian and Benedict are partners with capital balances of P100,000; P60,000; and P40,000
respectively. The partners share income and loss equally. For an investment of P100,000 cash,
Jib is to be admitted as a partner with one-fourth interest in capital and income. Which of the
following can best justify the amount of Jib’s investment?
a. Jib will receive a bonus from the other partners upon his admission to the partnership.
b. Assets of the partnership were overvalued immediately prior to Jib’s investment.
c. The book value of the partnership’s net assets was less than their fair value immediately
prior to Jib’s investment.
d. Jib is apparently bringing goodwill into the partnership and his capital account will be
credited for the appropriate amount.

32. When Peter retired from the partnership of the Apostles – Peter, Paul & John, the final
settlement of Peter’s interest exceeded Peter’s capital balance. Under the bonus method, the
excess
a. was recorded as an expense
b. was recorded as goodwill
c. had no effect on the capital balances of Paul and John
d. reduced the capital balance of Paul and John

33. Renely joins the partnership Renee and Ely by paying P300,000 in cash. If the net assets of the
partnership are still the same amount after Renely has been admitted as a partner, then Renely
a. must have been admitted by investment of assets
b. must have been admitted by purchase of 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

34. When a partner withdraws from the business

 a. a new partner is admitted to the partnership
b. a new partnership is automatically formed
c. partnership continues
d. the partnership ceases to exist

35. The partnership agreement of Rey and Nante provides for salary allowances of P45,000 to Rey
and P35,000 to Nante, with the remaining income or loss to be divided equally. During the year,
Rey and Nante each withdraw cash equal to 80% of their salary allowances. If the partnership
net income is P100,000, Rey’s equity in the partnership would
a. Increase more than Nante’s c. Increase the same as Nante’s
b. Decrease more than Nante’s d. Decrease the same as Nante’s

36. A method used to divide profit and loss which recognizes the differences in the capital
contributions but does not take into account the time and effort that a partner may devote in
running the firm’s business operation
a. Salary allowances to partners c. Capital ratio
b. Bonus to managing partners d. Interest on capital allocation

37. Which of the following does not result in the dissolution of a partnership?
a. Admission of a new partner c. Withdrawal of a partner
b. Marriage of a partner d. Death of a partner

38. Which of the following is not allowed if the operation resulted to a net loss?
a. Salaries to partners c. Bonus to managing partners
b. Interest on capital d. Both a & b

39. A capital deficiency in a partner’s capital that is uncollectible is

a. The result of a sale of non-cash assets at a profit
b. A loss to the other partners
c. The result of a loss in operation
d. A gain to the other partners
40. Which of the following would not be considered an advantage of forming a partnership?
a. Skills and resources can be combined
b. A partnership is easily formed
c. A partnership has an unlimited liability and can be perfected only by mere consent
d. A partnership is relatively free from government regulations and restrictions

Test II. Problem Solving (30 items; 2 pts each)

41. Gal, Lee and Leo are forming a new partnership. Gal is to invest cash of P1,000,000 and factory
equipment originally costing P1,200,000 but has a second-hand value in the market at P500,000.
Lee is to invest cash of P1,600,000, while Leo is to contribute cash of P500,000, a factory
building with a book value of P1,000,000 and an appraised value of P2,000,000 and a new
factory equipment to be used by the partnership with a selling price of P1,200,000 but which
cost her business with P1,000,000. The factory building is subject to a mortgage loan of
P800,000 which the partnership did not assume. Partners agree to share profits equally. How
much is the total capital of the newly formed partnership?
 a. P6,000,000 c. P6,800,000
b. P5,000,000 d. P5,800,000

42. Red, White and Blue form a partnership on May 1, 2018. They agree that Red will contribute
office equipment with a total fair value of P40,000; White will contribute delivery equipment
with a fair value of P80,000; and Blue will contribute cash. If Blue wants a one third interest in
the capital and profits, he should contribute cash of:
a. P40,000 c. P60,000
b. P120,000 d. P180,000

43. JP, a partner in JP-Morgan Partnership, has a 30% participation in partnership profits and losses.
JP’s capital account had a net decrease of P60,000 during the calendar year 2018. During 2018,
JP withdrew P130,000 (charged against his capital account) and contributed property valued at
P25,000 to the partnership. The net income of the partnership for 2018 is:
a. P150,000 c. P120,000
b. P95,000 d. P45,000

44. Partners Ash and Misty who have been dividing profits and losses in the ratio of 3:2 respectively,
decided to liquidate their partnership. Capital balances before liquidation were Ash, P40,000
and Misty, P30,000. After paying in full liabilities of P30,000, they have P49,000 cash to divide. In
full settlement of their equities, Ash and Misty must receive cash of
a. P40,000 and P30,000 respectively.
b. P29,400 and P19,600 respectively.
c. P27,400 and P21,600 respectively.
d. P9,400 and P9,600 respectively.

45. Capital balances and profits sharing percentages for the partnership of Charlene, April and
Raven on January 1, 2018 are as follows:
Charlene (36%) P280,000
April (24%) 200,000
Raven (40%) 320,000

On January 5, 2018 the partners agreed to admit Angel into the partnership for a 25% interest in
capital and earnings for her investment of P240,000. The partnership assets are not to be
revalued. The capital balance and new profit and loss sharing ratio of Charlene after the
admission of Angel is _________ and _____________, respectively.
a. P260,000; 27% c. P251,200; 27%
b. P251,200, 36% d. P272,800; 27%

46. The capital accounts of the partnership of Nakpil, Ortiz and Perez on June 1, 2018 are presented
below with their respective profit and loss ratios:
Nakpil P139,200 1/2
Ortiz 208,800 1/3
Perez 96,000 1/6

On June 1, 2018, Quizon is admitted to the partnership when he purchased, for P132,000, a
proportionate interest from Nakpil and Ortiz in the net assets and profits of the partnership. As
a result of a transaction, Quizon acquired a one-fifth interest in the net assets and profits of the
 firm. Assuming that implied goodwill is not to be recorded, what is the combined gain realized
by Nakpil and Ortiz upon the sale of a portion of their interest in the partnership to Quizon?
a. P 0 c. P62,400
b. P43,200 d. P82,000

47. On April 16, 2018, the Statement of Financial Position for the partnership of Jayson, Kiel and
Lance together with their respective profit and loss ratio were as follows:
Assets at cost P180,000
Jayson, Loan 9,000
Jayson, Capital (20%) 42,000
Kiel, Capital (20%) 39,000
Lance, Capital (60%) 90,000
P180,000

Jayson withdrew and his interest in the partnership is to be settled. By mutual agreement, the
assets are to be adjusted to their fair market value of P216,000 at April 16, 2018. It was agreed
that the partnership would pay Jayson P61,200 cash for his interest plus his loan to the
partnership, which is to be paid in full. After settlement to Jayson, what would be the respective
balance of Kiel and Lance?
a. P46,200 and P111,600 respectively
b. P40,950 and P104,850 respectively
c. P36,000 and P81,000 respectively
d. P43,200 and P102,600 respectively

48. Bulba, Chari and Squirt decided to liquidate their partnership. Non-cash assets were sold for
P128,000 and all the creditors were paid. Profit sharing ratios were: 20%; 30%; and 50%
respectively. Balances in capital accounts before and after the sale follow:
Bulba Chari Squirt
Before the sale P48,000 P12,000 P62,000
After the sale P32,800 P10,800 P24,000
The book value of the assets sold is
a. P60,400 b. P182,400 c. P250,000 d. 195,600

49. The partnership accounts of Manzano, Montano and Montalvo who share earnings in a 4:3:3
ratio are as follows on December 31, 2018.
Manzano, Drawing (debit balance) P30,000
Montalvo, Drawing (credit balance) 10,000
Montano, Loan 50,000
Manzano, Capital 160,000
Montano, Capital 130,000
Montalvo, Capital 140,000
Total assets amounted to P700,000, including P80,000 cash and liabilities total P240,000. The
partnership was liquidated in January 2019 and Montalvo received P120,000 cash payment to
the liquidation. The loss on realization will be:
a. P75,000 c. P95,000
b. P80,000 d. P100,000

50. Using the same data in No.49, the final settlement to Manzano and Montano will be
 a. P90,000 and P150,000 c. P160,000 and P100,000
b. P150,000 and P90,000 d. P100,000 and P160,000

51. Molina and Nuevo entered into a partnership agreement in which Molina is to have a 60%
interest in capital and profits and Nuevo is to have a 40% interest in capital and profits. Molina
contributes the following:
Cost Fair Value
Land P20,000 P40,000
Building 200,000 120,000
Equipment 40,000 30,000
There is a P60,000 mortgage on the building that the partnership agrees to assume. Nuevo
contributes P100,000 cash to the partnership. The partnership formation provided for
a. Bonus of P8,000 to Nuevo
b. Bonus of P8,000 given by Nuevo
c. Bonus of P8,000 given by Molina
d. Bonus of P8,000 to Nuevo and Molina

52. Anna, Karen and Nina are partners sharing profits in the ratio of 3:3:2. On June 30, their capital
balances are: Anna – P600,000; Karen – P400,000; Nina – P300,000.
The partners agree to admit Philomena on the following agreement:
1. Philomena is to pay Anna P400,000 for a ½ interest of Anna’s interest.
2. Philomena is also to invest P300,000 in the partnership.
3. The total capital of the partnership is to be P2,000,000, of which Philomena’s interest is
to be 25%.
What are the capital balances of Anna, Karen and Nina after the admission of Philomena?
a. P487,500; P587,500; P425,000
b. P400,000; P300,000; P300,000
c. P300,000; P400,000; P300,000
d. P187,500; P187,500; P125,000

Questions for nos.53 to 55

The following data as of May 1, 2018 were taken from the records of Cedric and Therdy.

Cedric Therdy
Cash P11,000 P22,354
Accounts receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture and fixture 50,345 34,789
Other assets 2,000 3,600
Total Assets P1,020,916 P1,317,002
Accounts payable P178,940 P243,650
Notes payable 200,000 345,000
Cedric, Capital 641,976
Therdy, Capital 728,352
P1,020,916 P1,317,002
 Cedric and Therdy agreed to form a partnership contributing their respective assets and equities
subject to the following adjustments:
 Inventories of P5,500 and P6,700 are worthless in Cedric’s and Therdy’s respective
books.
 Accounts receivable of P20,000 in Cedric’s book and P35,000 in Therdy’s are
uncollectible.
 Other assets of P2,000 and P3,600 in Cedric’s and Therdy’s respective books are to be
written off.

53. The capital account of Partner Cedric and Therdy after the adjustments will be:
a. P615,942 and 683,052 respectively
b. P613,576 and 683,350 respectively
c. P614,476 and 683,052 respectively
d. P640,876 and 683,350 respectively

54. How much assets does the partnership have?

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

55. Assuming Regie offered to join for a 20% interest in the firm, how much cash should he
contribute?
a. P330,870 c. P324,382
b. P337,487 d. P344,237

56. The PBA Partnership provided for the following distribution of profits and losses:
 First, Percy is to receive 10% of net profit up to P2,000,000 and 20% on the amount in
excess thereof;
 Second, Bagnum and Annabeth each are to receive 5% of the remaining profit in excess
of P3,000,000 after Percy’s share as per above; and
 The balance of income is to be allocated equally among three partners.

For the year ended, the partnership realized a net profit of P5,000,000 before distribution to
partner. How much is the share of Percy in the profit of the partnership.
a. P2,160,000 c. P3,180,000
b. P3,320,000 d. P1,666,667

57. The partnership of Gary, Jerome and Paul was formed on January 1, 2018. The original
investment were as follows:
Gary P80,000
Jerome P120,000
Paul P180,000

According to the partnership agreement, net income or loss will be divided among the
respective partners as follows:
Salaries of P12,000 for Gary, P10,000 for Jerome and P8,000 for Paul.
Interest of 8% on the average capital balance during the year for Gary, Jerome and Paul.
Remainder divided equally.
 Additional information is as follows:
Net income of the partnership for the year ended December 31, 2018 was P70,000.
Gary invested an additional P20,000 in the partnership on July 1, 2018.
Paul withdrew P30,000 from the partnership on October 1, 2018.
Gary, Jerome and Paul made regular drawings against their shares of net income during
2018 of P10,000 each.

The partner’s capital balances as of December 31, 2018 are:

Gary Jerome Paul
a. P112,333 P132,733 P164,934
b. P102,333 P122,733 P154,934
c. P92,000 P102,000 P134,934
d. P122,333 P132,733 P164,934

58. The total of the partners’ capital accounts was P110,000 before the recognition of partnership
asset revaluation in preparation for the withdrawal of a partner whose profit and loss sharing
ratio is 2/10. He was paid P28,000 by the firm in the final settlement for his interest. The
remaining partners’ capital accounts, excluding their share of the asset revaluation totaled
P90,000 after his withdrawal. How much was the agreed total asset revaluation of the firm?
a. P8,000 c. P20,000
b. P140,000 d. P40,000

59. A, B, C are partners in the accounting firm. Their capital account balances at year-end were: A,
P90,000; B, P110,000; C, P50,000. They share profits and losses in a 4:4:2 ratio, after the
following special terms:
 Partner C is to receive a bonus of 10% of the net income after bonus.
 Interest of 10% shall be paid on that portion of a partner’s capital in excess of P100,000.
 Salaries of P10,000 and P12,000 shall be paid to partners A and C, respectively.

Assuming a net income of P44,000 for the year, the total profit share of partner C would be:
a. P7,800 c. P19,400
b. P16,800 d. P19,800

60. TM Partnership begins its first year of operations with the following capital balances:
Tan Capital P200,000
May Capital P100,000

According to the partnership agreement, all profits will be distributed as follows:

 Tan will be allowed a monthly salary of P20,000 with P10,000 assigned to May.
 The partners will be allowed with interest equal to 10 percent of the capital balance as
of the first day of the year.
 Tan will be allowed a bonus of 10% of the net profit after the bonus.
 The remainder will be divided on the basis of the beginning capital balance for the first
year and equally for the second year.
 Each partner is allowed to withdraw up to P10,000 a year.
 Assume that the net loss for the first year of operations is P15,000 with net income of P55,000
in the subsequent year. Assume further that each partner withdraws the maximum amount
from the business each period.

What is the balance of Tan’s capital account at the end of the second year?
a. P264,750 c. P180,000
b. P284,750 d. P184,750

61. Galang and Hizon are partners who have capitals of P600,000 and P480,000 sharing profits in
the ratio of 3:2. Isleta is admitted as a partner upon investing P500,000 for a 25% interest in the
firm, profits to be shared equally. Given the choice between asset revaluation and bonus
methods, Isleta will:
a. Prefer asset revaluation method due to Isleta’s gain of P140,000.
b. Prefer bonus method due to Isleta’s gain of P140,000.
c. Prefer bonus method due to Isleta’s gain of P35,000.
d. Be indifferent because the asset revaluation and bonus methods are the same.

62. Bianca, Mariel and Toni are partners with capital balances of P100,000; P140,000 and P180,000
respectively. They share profits and losses in the ratio of 20:40:40. Toni decides to withdraw
from the partnership receiving P200,000 including a loan to the partnership in the amount of
P30,000. Assuming no asset revaluation, the capital balances of Bianca and Mariel will be
a. P133,333; P176,667
b. P123,333; P166,667
c. P113,333; P156,667
d. P103,333; P146,667

63. A, B and C are partners with capital balances of P224,000, P260,000 and P116,000 respectively,
sharing profits and losses in the ratio of 3:2:1. D is admitted as new partner bringing with him
expertise and reputation. He is to invest cash for a 25% interest in the assets of the partnership
which includes a credit of P37,500 for bonus upon his admission. How much cash should D
contribute?
a. P150,000 c. P850,000
b. P750,000 d. P250,000

64. Kurt decides to invest P200,000 for a ¼ capital and profit and loss interest in the partnership of
Art and Bert, who at that time had capital balances of P200,000 and P300,000 respectively.
Profit and loss ratio of the partners before the admission was 6:4. If a positive asset revaluation
is to be recorded, capital balances of Art, Bert and Kurt would be:
a. 260,000; 340,000; 200,000 c. 215,000; 310,000; 175,000
b. 200,000; 300,000; 200,000 d. 20,000; 30,000; 300,000

65. Miami, Dallas and Chicago were partners with capital balances on January 2, 2018 of P100,000,
P150,000 and P200,000, respectively. Their profit and loss ratio is 5:3:2. On July 1, 2018, Miami
retires from the partnership. On the date of retirement, the partnership profit is P140,000 and
the partners agreed that inventories are to be revalued at P70,000 from its original cost of
P50,000. The partners agreed further to pay Miami, P195,000 in settlement of his interest. What
are the capital balances of the remaining partners after the retirement of Miami?
a. 189,000; 226,000 c. 207,000; 238,000
 b. 198,000; 232,000 d. 220,000; 226,000

66. GD and CL decided to form a partnership on October 1, 2018. Their Statement of Financial
Position on that date was :
GD CL
Cash 65,625 164,062.50
Accounts Receivable 1,487,500 896,875
Merchandise Inventory 875,000 885,937.5
Equipment 656,250 1,268,750
Total 3,084,375 3,215,625
Accounts Payable 459,375 1,159,375
Capital 2,625,000 2,056,250
Total 3,084,375 3,215,625

They agreed to the following adjustments:

 Equipment of GD is overvalued by P87,500 and that CL’s is undervalued by P131,250.
 Allowance for Doubtful Accounts is to be set-up to P297,500 for GD and P196,875 for CL.
 Inventories of P21,875 and P15,312.50 are worthless in the books of GD and CL, respectively.
 The partnership agreement provides for a profit and loss ratio of 7:3 for GD and CL, respectively.

How much is the agreed capital of GD to bring the capital balances proportionate to their profit and
loss ratio?

a. 2,935,406.25
b. 2,390,937.50
c. 2,218,125
d. 1,024,687.50

67. Evie and Leo are partners who agreed to share profits and losses in the following manner:
Evie Leo
Annual Salaries P261,000 P259,000
Interest on Average Capital 5% 10%
Bonus(based on net income 10%
after salaries and interest)
Remainder 50% 50%
During the current year, the partnership’s result of operation was P575,000 profit before any
deduction. Evie and Leo’s average capital balances for the year are P600,000 and P300,000,
respectively. How much is the total share of Leo in the net income for the current year?
a. P287,500
b. P286,500
c. P288,500
d. P295,665
68. On March 1, 2016, Boruto and Mitsuki decided to combine their business and form a
partnership. The statement of financial position of Boruto and Mitsuki on March 1, before
adjustments is presented below.

Boruto Mitsuki
Cash P90,000 P37,500
Accounts Receivable 185,000 135,000
Inventories 300,000 195,000
Furnitures and Fixtures (Net) 300,000 90,000
Office Equipment (Net) 115,000 27,500
Prepaid Expenses 63,750 30,000
P1,053,750 P515,000
Accounts Payable P457,500 P180,000
Boruto, Capital 596,250 
Mitsuki, Capital  335,000
P1,053,750 P515,000

They agreed to provide P5,550 and P4,050 respectively for uncollectible accounts on their
present accounts receivable and found Mitsuki’s furniture to be underdepreciated by P9,000.
If each partner’s share in equity is to be equal to the net assets invested, the capital accounts of
Boruto and Mitsuki would be:
a. P581,700 and P330,950 respectively
b. P583,200 and P329,450 respectively
c. P590,700 and P321,950 respectively
d. P1,048,200 and P501,950 respectively

69. Using the information in no. 5, and assuming the partners agreed that equity is to be 60% and
40% to Boruto and Mitsuki respectively, the capital accounts would be:
a. P547,590 and P365,060 respectively
b. P590,700 and P321,950 respectively
c. P930,900 and P620,060 respectively
d. P558,750 and P372,500 respectively

70. Norman and Emma are combining their separate businesses to form a partnership. Cash and
non-cash assets are to be contributed for a total capital of P300,000. The non-cash assets to be
contributed and the liabilities to be assumed are:
Norman Emma
Book Value Fair Value Book Value Fair Value
Account Receivable 20,000 20,000
Inventories 30,000 40,000 20,000 25,000
Equipment 60,000 45,000 40,000 50,000
Accounts Payable 15,000 15,000 10,000 10,000
 The partners’ capital accounts are to be equal after all contribution of assets and assumption of
liabilities. The amount of cash to be contributed by Norman is
a. P60,000
b. P85,000
c. P150,000
d. P210,000
71. Using the information in no. 7, the total assets of the partnership is
a. P170,000
b. P180,000
c. P315,000
d. P325,000