School of Management

COLLEGE OF BUSINESS AND ACCOUNTANCY

PRELIM Examination in (FINACR2)
Financial Accounting and Reporting Part II

Name: _________________________ Date: ______________________

INSTRUCTIONS: Answer the following questions by writing the capital letter of your choice provided in the
answer sheet. No form of any erasure is allowed which means any altered or erased answer will
not be entitled for a point.

Multiple Choice

1. Which of the following statements is not false?

I. A dormant partner is one who does not take active part in the partnership business and is not
known as a partner.
II. When the partnership capital is P3,000 or more, the public instrument must be recorded with
the Securities and Exchange Commission.
a. II only
b. Both I and II
c. I only
d. Neither I nor II

2. Which of the following statements is correct?

I. There can never be a partnership without contribution of money, property or industry to a
common fund.
II. In a limited partnership, the general partner's liability is limited to his investment.
a. II only
b. Both I and II
c. I only
d. Neither I nor II

3. Which of the following statements is/are true?

I. When a partner invests assets in a partnership, the assets are recorded at the partner's book
value.
II. Liabilities related to assets invested in a partnership by a new partner cannot be transferred
to the partnership.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

4. Which of the following statements is/are true?

I. A partnership may be established for charity
II. A partnership contract is perfected by mere consent
a. I only
b. II only
c. Both I and II
d. Neither I nor II

5. Which of the following statements is/are true?

I. No person may be compelled against his will to be a partner
II. Each partner has an equal right to use the partnership assets, to act for the partnership, and
to enter into contracts binding upon it

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 a. I only
b. II only
c. Both I and II
d. Neither I nor II

6. A partner whose liability for partnership debts is limited to his capital contribution to the partnership
is called a
a. General partner
b. Secret partner
c. Limited partner
d. Dormant partner

7. One who is not actually a partner but who, by his acts, is made liable as a partner to third persons
for the partnership obligation is a
a. Dormant partner
b. Silent partner
c. Secret partner
d. Nominal partner

8. A partnership is perfected by mere consent, which makes it

a. Onerous
b. Nominate
c. Consensual
d. Bilateral

9. A partnership has a special designation in law, which makes it

a. Onerous
b. Nominate
c. Bilateral
d. Preparatory

10. Which is the appropriate measurement basis for a non-cash asset contributed by a partner in a
partnership?
a. Assessed valuation of the asset for property tax purposes
b. Original purchase price of the asset based on the record of the contributing partner
c. Contributing partner’s tax basis for the asset
d. Fair value of the asset at the date of contribution

11. Which of the following would not be considered a characteristic of a partnership?

a. Co-ownership of property
b. Mutual agency
c. Unlimited liability
d. Unlimited life

12. Which of the following would not be considered an advantage of forming a partnerhip?
a. A partnership has unlimited liability
b. A partnership is easily formed
c. A partnership is relatively free from governmental regulations and restrictions
d. Skills and resources can be combined

13. A partner will not bind the partnership to an outside purchase contract when the
a. partner who made the purchase withdraws from the partnership
b. partner was not authorized by the other partners to make the purchase
c. item purchased is not within the normal scope of the business
d. item purchased is considered immaterial in amount

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 14. How many of the following statements is/are false:
Statement 1: A partnership is easier to organize than a corporation.
Statement 2: A corporation is easier to dissolve than a partnership.
Statement 3: A partnership is less expensive to organize than a corporation.
Statement 4: A corporation has more legal requirements than a partnership.
a. 1
b. 2
c. 3
d. 4

15. Which of the following stipulations is valid?

a. A stipulation excluding a capitalist partner from profits
b. A stipulation exempting a capitalist partner from losses
c. A stipulation exempting an industrial partner from losses
d. A stipulation excluding an industrial partner from profits

16. On December 1, 2019, Mila and Kunis formed a partnership, agreeing to share for profits and losses
in the ratio of 2:3, respectively. Mila invested a parcel of land that cost him P100,000. Kunis
invested P50,000 cash. The land was sold for P90,000 on the same date, three hours after the
formation of the partnership. How much should be the capital balance of Mila right after formation?
a. P100,000
b. P150,000
c. P90,000
d. P50,000

17. A and B formed a partnership. A contributed cash of ₱500,000 while B contributed land with carrying
amount of ₱400,000 and fair value of ₱800,000. The land has an unpaid mortgage of ₱200,000
which is assumed by the partnership. How much is the correct valuation of B’s capital immediately
after the partnership formation?
a. 400,000
b. 500,000
c. 600,000
d. 800,000

18. A and B formed a partnership. The following are their contributions:

  A B

Cash 500,000 -

Accounts receivable 100,000 -

Building 700,000

Total 600,000 700,000

A, capital 600,000

B, capital 700,000

Total 600,000 700,000

Additional information:
• The accounts receivable includes a ₱20,000 account that is deemed uncollectible.
• The building is under-depreciated by ₱50,000.

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 • The building has an unpaid mortgage ₱100,000, but this is not assumed by the partnership.
Partner B promised to pay for the mortgage himself.

How much is the correct valuation of A’s capital immediately after the partnership formation?
a. 460,000
b. 580,000
c. 650,000
d. 720,000

19. In the absence of an agreement, the share of each partner in the profits and losses shall be in
accordance with the
a. Equally
b. In accordance with the original capital contribution
c. In accordance with the average capital contribution
d. In accordance with the ending capital contribution

20. The articles of co-partnership should make clear all the following points, except
a. Procedures for admitting new partners
b. Profit sharing ratio
c. Taxes paid by the partnership
d. Withdrawals allowed to partners

21. The following are options available for determining the partners’ share of profit, except
a. Capital contributions
b. Capital contributions and service to the partnership
c. Loans to the partnership
d. Stated fraction or ration

22. Partnership financial statements are much like those of

a. Personal financial statements
b. Not-for-profit organizations
c. Proprietorships
d. Corporations

23. In order to arrive at an equitable manner of distributing profits and losses any or all of the following
factors may be taken into consideration except,
a. Amount of capital contributed by the partners
b. Number of dependent children of the partners
c. Services rendered to the partnership by the partners
d. Skills of the partners that are needed in running the partnership

24. The partnership of D, T and I was formed on January 1, 2019. The original investments were as
follows: D – P240,000; T – P360,000; I – P540,000. According to the partnership agreement, profit
and loss will be divided among the respective partners as follows:
a. Salaries of P80,000 for D, P70,000 for T, and P48,000 for I
b. Interest of 9% on the original capital balance for each partner
c. Remainder is divided equally

How much was the partnership loss if I’s share in loss was P39,600
a. P108,000
b. P129,600
c. P136,200
d. P171,000

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 25. Alvin, Simon and Theodore are partners in Chipmunks Company with contributions of P10,000,
P40,000 and P50,000, respectively. Their agreement shows that they will share in the profits in the
ratio of 2:3:4. During the year, the partnership sustained a loss of P9,000. How shall the loss be
divided among the partners?
a. Equally at P3,000 each
b. Alvin, P900; Simon, P3,600; and Theodore, P4,500
c. Alvin, P2,000; Simon, P3,000; and Theodore, P4,000
d. The partners must establish first a loss sharing agreement before the loss may be divided
because they failed to have an agreement on the division of loss.

26. The partnership agreement of Reid and Simm provides that interest at 10% per year is to be
credited to each partner on the basis of weighted-average capital balances. A summary of Simm’s
capital account for the year ended December 31, 2019, is as follows:

Balance, January 1 140,000

Additional investment, July 1 40,000
Withdrawal, August 1 (15,000)
Balance, December 31 165,000

What amount of interest should be credited to Simm’s capital account for 2019?
a. 152,500
b. 153,750
c. 165,000
d. 172,500

27. A and B partnership agreement provides special compensation to the managing partner, A. Partner
A receives a bonus of 10% of profit before salary and bonus; and also receives a salary of P50,000.
Any remaining profit or loss is to be allocated equally. During 2019, the partnership had a profit of
P40,000 before the bonus and salary allowances. As a result of these distributions, Partner B’s
equity in the partnership would
a. Decrease
b. Increase
c. Not Change
d. Decrease the same as A’s

28. AA, BB and CC are partners with average capital balances during 2019 of P360,000, P180,000, and
P120,000, respectively. Partners receive 10% interest on their average capital balances. After
deducting salaries of 90,000 to AA and P60,000 to CC the residual profit or loss is divided equally. In
2019 the partnership sustained a P99,000 loss before interest and salaries to partners. By what
amount should AA’s capital account change?
a. P21,000 increase
b. P33,000 decrease
c. P105,000 decrease
d. P126,000 increase

29. Using the above information, BB capital will increase/decrease by

a. P33,000
b. P105,000
c. P3,000
d. P87,000

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 30. On January 1, 2019, DD and EE decided to form a partnership. At the end of the year, the
partnership made a net income of P120,000. The capital accounts of the partnership show the
following transactions.
DD Capital EE Capital
Debit Credit Debit Credit
January 1……………. - P40,000 - P25,000
April 1………………. P5,000 - - -
June 1……………….. - - - 10,000
August 1…………….. - 10,000 - -
September 1………… - - P3,000 -
October 1…………… - 5,000 1,000 -
December 1………… - 4,000 - 5,000

Assuming that an interest of 20% per annum is given on average capital and the balance of the
profits is allocated equally, the allocation of profits for DD should be:
a. P60,000
b. P61,200
c. P67,200
d. P68,880

Problem Solving

Answer the following items and place your answer in the space provided in your answer sheet. Write your
organize solution on the provided paper.

1. On February 14, 2019, Barbie and Ken decide to combine their businesses and form Sabi ko na
Barbie Partnership. Their balance sheets on February 14, before adjustments, showed the following:

Barbie Ken
Cash 5,254 14,344
Accounts Receivable 249,760 541,880
Inventories 116,941 243,102
Land 693,256 -
Building - 427,268
Furniture and Fixtures 47,375 34,793
Other Assets 1,430 5,680
Total 1,114,016 1,267,067

Accounts Payable 176,940 243,650

Notes Payable 200,000 330,302
Barbie, Capital 737,076 -
Ken, Capital - 693,115
Total 1,114,016 1,267,067
They agreed to have the following items recorded in their books:
a. Provide 5% allowance for Uncollectible Accounts
b. Inventories in Barbie’s books should be increased by P14,210 while that of Ken’s should be
decreased to 214,725
c. Land is overstated by P15,000 while the building is over-depreciated by P2,500
d. The fair market value of the furniture and fixtures amounted to P50,000 for Barbie and
P30,000 for Ken
e. Other assets of P1,430 and P5,680 in Barbie’s and Ken’s respective books are to be written off

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 f. Rent Expense incurred previously by Barbie was not yet recorded amounting to P3,500, while
salary expense incurred by Ken was not also recorded amounting to P4,700.

What is the net (debit) credit adjustment for Barbie?

2. Using the above information what is the capital account of Ken after the adjustments?

3. On August 1, Samson and Delilah pooled their assets to form a partnership, with the firm to take
over their business assets and assume the liabilities. Partners’ capitals are to be based on net assets
transferred after the following adjustments. (Profits and losses are allocated equally.)

Samson’s inventory is to be increased by P4,200; an allowance for doubtful accounts of P1,600 and
P2,500 are to be set up in the books of Samson and Delilah respectively; Samson’s furniture and
fixtures is over-depreciated by P5,300 while Delilah’s equipment is under-depreciated by P9,100; and
accounts payable of P3,000 is to be recognized in Samson’s books. The individual trial balances on
August 1, before adjustments, follow:
Samson Delilah
Assets 178,000 159,000
Liabilities 35,000 47,500

What is the capital of Samson after the above adjustments?

4. Romeo and Juliet have just formed a partnership. Romeo contributed cash of P1,470,000 and
computer equipment that cost P390,000. The fair value of the computer is P415,000. Romeo has
notes payable on the computer of P95,000 to be assumed by the partnership. Juliet is to have a
60% capital interest in the partnership. Juliet contributed only 825,000. The partners agreed to
share profit and loss equally. How much additional investment or (withdrawal) in cash should Romeo
make in order to make his capital investment proportionate with that of his interest to the company?

5. Partners Batman and Robin receive a salary allowance of P40,000 and P50,000, respectively, and
share the remainder in the ratio of 3:2. The partnership earned P50,000 during the period. Robin’s
capital will increase/(decrease) by?

6. The partnership agreement of Blossom, Bubbles and Buttercup provided for the following terms on
P/L distribution:
a. Bubbles is to receive 10% of the profit up to 200,000 and 20% on the amount of excess;
b. Blossom and Buttercup each, are to receive 5% of the remaining profit in excess of P500,000
after Bubbles’ share as per above;
c. The balance is to be divided by Blossom, Bubbles and Buttercup in 2:3:5 ratio, respectively.

For the year ended, the partnership realized a profit of P700,000 before distribution to partners.

What is the share of Bubbles on the profit?

7. The partnership agreement of James and Apollo provides that annual interest at 10% of average
capitals shall be credited to each partner; James and Apollo are provided monthly salaries of P48,000
and P72,000; respectively; bonus at 20% of profits after interest, salaries and bonus shall be
credited to James; and residual profit or loss is divided, 60% to James and 40% to Apollo. The
partnership started operations on July 1, 2019 and uses the calendar year as its reporting period.
The profit for the six months ended December 31, 2019, after interest and salaries, amounted to
P96,000. If average capital balances of James and Apollo are P240,000 and P360,000, respectively,
how much is the bonus credited to James?

8. Using the information above, if average capital balances of James and Apollo are P100,000 and
P200,000, respectively, how much is the total share of Apollo in the total profit?

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 9. Peeta Mellark invested in a partnership a parcel of land which cost his father P300,000. The land had
a market value of P400,000 when Peeta inherited it five years ago. Currently, the land is
independently appraised at P675,000 even though Peeta insisted that he wouldn’t take P800,000 for
it.

What amount should the land be recorded in the accounts of the partnership?

10. A. Bro, a partner in Brooks Partnership has a 30% participation in partnership profits and losses. A.
Bro's capital account decreased by a net amount of P240,000 during the calendar year 2019. During
2019, A. Bro withdrew P520,000 which was charged against his capital account and contributed
property to the partnership with a fair value of P 100,000 but with a carrying value of P80,000.
What was the profit of the Brooks Partnership for 2019?

-END OF EXAMINATION-

“The best preparation for tomorrow is doing your best today”

H. Jackson Brown Jr.

Prepared by:

Dr. Lalaine V. Manalo, CPA, FBE

Professor BSA1A

Marvin Gray L. Lazo, CPA, MMT

Assistant Professor BSA1B

Approved by:

Dr. Amado L. Magsino

Dean College of Business and Accountancy

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2nd semester. AY 2019-2020 Page 8
 COLLEGE OF BUSINESS & ACCOUNTANCY
PRELIM EXAMINATION
FINANCIAL ACCOUNTING & REPORTING PART 2

NAME : _________________________ RATING: ________________

ANSWER SHEET

Theories Problem Solving

1. B 21. C 1. (15,583)

2. C 22. C 2. 624,971

3. D 23. B 3. 147,900

4. B 24. A 4. (1,240,000)

5. C 25. C 5. 34,000

6. C 26. B 6. 291,600

7. D 27. A 7. 16,000

8. C 28. A 8. 474,000

9. C 29. D 9. 675,000

10. D 30. B 10. 600,000

11. D

12. A

13. C

14. A

15. C

16. C

17. C

18. B

19. B

20. C

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