Name: ____________________________________

Mid Term Exam

Partnership and Corporation

1. ________________ 21. ________________

2. ________________ 22. ________________

3. ________________ 23. ________________

4. ________________ 24. ________________

5. ________________ 25. ________________

6. ________________ 26. ________________

7. ________________ 27. ________________

8. ________________ 28. ________________

9. ________________ 29. ________________

10. ________________ 30. ________________

11. ________________ 31. ________________

12. ________________ 32. ________________

13. ________________ 33. ________________

14. ________________ 34. ________________

15. ________________ 35. ________________

16. ________________ 36. ________________

17. ________________ 37. ________________

18. ________________ 38. ________________

19. ________________ 39. ________________

20. ________________ 40. ________________

1. 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. P35,000 P85,000
b. P35,000 P75,000
c. P55,000 P55,000
d. P60,000 P60,000

Solution:
1. (b) The requirement is to determine the amounts to be recorded as capital for Roberts and Smith at the formation of the
partnership. Unless otherwise agreed upon by the partners, individual capital accounts should be credited for the fair
market value (on the date of contribution) of the net assets contributed by that partner. It is necessary to assume that the
amounts listed are fair market values. The amount of net assets that Roberts contributed is P35,000 (P20,000 + P15,000).
The fair market value of the net assets Smith contributed is P75,000 (P30,000 + P15,000 + P40,000 – P10,000). The partners’
profit and loss sharing ratio does not affect the initial recording of the capital accounts.
2. On April 30, 2016, Algee, Belger, and Ceda formed a partnership by combining their separate business
proprietorships. Algee contributed cash of P50,000. Belger contributed property with a P36,000 carrying
amount, a P40,000 original cost, and P80,000 fair value. The partnership accepted responsibility for the
P35,000 mortgage attached to the property. Ceda contributed equipment with a P30,000 carrying amount, a
P75,000 original cost, and P55,000 fair value. The partnership agreement specifies that profits and losses are to
be shared equally but is silent regarding capital contributions. Which partner has the largest April 30, 2016
capital account balance?
a. Algee.
b. Belger.
c. Ceda.
d. All capital account balances are equal.

Solution:
2. (c) The requirement is to determine which partner has the largest capital account balance. Use the solutions approach to
solve the problem.

Each partner values his contribution to the partnership at its fair market value. The fair market value becomes the partner’s
balance in his capital account and is basis to the partnership under generally accepted accounting principles. Any liabilities
assumed by the partnership, reduces the partners’ capital balance by the amount assumed.

3. Abel and Carr formed a partnership and agreed to divide initial capital equally, even though Abel contributed
P100,000 and Carr contributed P84,000 in identifiable assets. Under the bonus approach to adjust the capital
accounts, Carr’s unidentifiable asset should be debited for
a. P46,000
b. P16,000
c. P 8,000
d. P0

Solution:
3. (d) Under the bonus method, unidentifiable assets (i.e., goodwill) are not recognized. The total resulting capital is the FV
of the tangible investments of the partners. Thus, there would be no unidentifiable assets recognized by the creation of this
new partnership.

4. When property other than cash is invested in a partnership, at what amount should the noncash property be
credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

Solution:
4. (a) Noncash assets contributed to an entity should be recorded at fair market value at the date of contribution. The
creation of a new entity creates a new accountability for these assets. The partner’s original cost relates to a previous
accountability. The assessed valuation and the tax basis may differ from fair market value.

5. Red and White formed a partnership in 2016. The partnership agreement provides for annual salary allowances
of P55,000 for Red and P45,000 for White. The partners share profits equally and losses in a 60/40 ratio. The
partnership had earnings of P80,000 for 2016 before any allowance to partners. What amount of these earnings
should be credited to each partner’s capital account?
Red White
a. P40,000 P40,000
b. P43,000 P37,000
c. P44,000 P36,000
d. P45,000 P35,000

Solution:
5. (b) Credits to partners’ capital accounts are based upon earnings after allowance for interest, salary and bonus. The
earnings before any allowance of $80,000 is reduced by the salary allowances of $100,000 and results in a loss of
$20,000. The $20,000 loss is then distributed to the partners in relation to their profit and loss ratios as follows:
It is important to note that the losses are distributed 60/40 while profits are shared equally.

6. Fox, Greg, and Howe are partners with average capital balances during 2016 of P120,000, P60,000, and
P40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting salaries
of P30,000 to Fox and P20,000 to Howe, the residual profit or loss is divided equally. In 2016 the partnership
sustained a P33,000 loss before interest and salaries to partners. By what amount should Fox’s capital account
change?
a. P 7,000 increase.
b. P11,000 decrease.
c. P35,000 decrease.
d. P42,000 increase.

Solution:
6. (a) When dividing the partnership loss of $33,000, first interest and salaries are allocated to the partners, increasing
their capital balances. This allocation of interest and salaries will also increase the amount of loss. This increased loss
amount would then be allocated to the partners, decreasing their capital accounts. The computations are shown
below.

Thus, Fox’s account increases by $7,000.

*The residual loss of $105,000 is the loss resulting after the interest and salary allowances are deducted [$33,000 loss –
($12,000 + $6,000 + $4,000) – ($30,000 + $20,000)].

7. The partnership agreement of Axel, Berg & Cobb provides for the year-end allocation of net income in the
following order:
First, Axel is to receive 10% of net income up to P100,000 and 20% over P100,000.
Second, Berg and Cobb each are to receive 5% of the remaining income over P150,000.
The balance of income is to be allocated equally among the three partners.
The partnership’s 2010 net income was P250,000 before any allocations to partners. What amount should be
allocated to Axel?
a. P101,000
b. P103,000
c. P108,000
d. P110,000

Solution:
7. (c) The distribution of the partnership net income of $250,000 occurs in three steps as follows:

Thus, $108,000 would be distributed to Axel.

8. 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, 2016, is as follows:
Balance, January 1 P140,000 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 2016?
a. P15,250
b. P15,375
c. P16,500
d. P17,250

Solution:
8. (b) We must first determine Simm’s weighted-average capital balance for 2010 as follows:

The problem states that interest of 10% per year is to be credited to each partner’s capital account, and 10% of Simm’s
weighted-average capital balance of $153,750 is $15,375.

9. The Flat and Iron partnership agreement provides for Flat to receive a 20% bonus on profits before the bonus.
Remaining profits and losses are divided between Flat and Iron in the ratio of 2:3, respectively. Which partner
has a greater advantage when the partnership has a profit or when it has a loss?
Profit Loss
a. Flat Iron
b. Flat Flat
c. Iron Flat
d. Iron Iron

Solution:
9. (b) In both the case of a profit or a loss, Flat will have a greater advantage. When there is a profit, Flat will obtain a
20% bonus on profits before the bonus, and also take 40% of the profit after the bonus. Iron on the other hand, will
only receive 60% of the profit after the bonus. The following example illustrates this:

In the case of a loss, it can easily be seen that since Flat has a smaller percentage share in the loss that he has a greater
advantage.

10. Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1, 2016, their
respective capital accounts were as follows:
Blau P60,000 Rubi 50,000 On that date, Lind was admitted as a partner with a one-third interest in capital and
profits for an investment of P40,000. The new partnership began with 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

Solution:
10. (b) The requirement is to calculate the balances in the capital accounts of a partnership after the admission of a new
partner. In this case, the new partner is investing $40,000 for a 1/3 interest in the new total capital of $150,000. No
goodwill is recorded because the new capital ($150,000) equals the total of the old capital ($110,000) and Carter’s
investment ($40,000). However, a bonus of $10,000 is being credited to the new partner’s capital account because his
interest (1/3 of $150,000, or $50,000) exceeds his investment ($40,000). The bonus to the new partner is charged to the
old partners in their profit and loss ratios as shown below.
Blau [60,000 – 3/5 (10,000)] $54,000 Rubi [50,000 – 2/5 (10,000)] 46,000 Lind (150,000 ÷ 3) 50,000 $150,000

11. Kern and Pate are partners with capital balances of P60,000 and P20,000, respectively. Profits and losses are
divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with Grant, who invested land
valued at P15,000 for a 20% capital interest in the new partnership. Grant’s cost of the land was P12,000. The
partnership elected to use the bonus method to record the admission of Grant into the partnership. Grant’s
capital account should be credited for
a. P12,000
b. P15,000
c. P16,000
d. P19,000

Solution:
11. (d) The requirement is to determine the balance in the new partner’s capital account after admission using the
bonus method. In this case, Grant is investing land with a FV of $15,000 for a 1/5 interest in the new total capital of
$95,000. Using the bonus method, the new capital $95,000 equals the total of the old capital plus Grant’s investment
($60,000 + $20,000 + $15,000). Thus, a bonus of $4,000 is being credited to Grant’s capital account because his interest
(1/5 of $95,000, or $19,000) exceeds his investment ($15,000). The bonus to the new partner is charged to the old
partners’ capital accounts in their profit and loss ratios.

12. Dunn and Grey are partners with capital account balances of P60,000 and P90,000, respectively. They agree to
admit Zorn as a partner with a one-third interest in capital and profits, for an investment of P100,000.
Revaluation to the original partners should be
a. P0
b. P33,333
c. P50,000
d. P66,667

Solution:
12. (c) The requirement is to determine the amount of goodwill implied by Zorn’s investment. Zorn is investing
$100,000 for a 1/3 interest in the partnership. Therefore, $100,000 represents 1/3 of the value of the equity of the
new partnership ($100,000 ÷ 1/3 = $300,000). The tangible portion of the equity is $250,000 ($60,000 + $90,000 +
$100,000). Thus, the total implied goodwill is $50,000 ($300,000 – $250,000).

Items 13 and 14 are based on the following:

The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share profits and
losses in the ratio of 60:40, respectively:
Cash P 45,000
Other assets 625,000
Beda, loan 30,000
Accounts payable P120,000
Alfa, capital 348,000
Beda, capital 232,000
P700,000 P700,000
13. The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit Capp as a new
partner with 20% interest. No goodwill or bonus is to be recorded. What amount should Capp contribute in cash
or other assets?
a. P110,000
b. P116,000
c. P140,000
d. P145,000

Solution:
13. (d) If no goodwill or bonus is to be recorded, the formula to determine the necessary contribution is

An alternative computation is to divide the old partner’s capital ($580,000) by their interest after the new partner’s
admission. The result is the total capital after admission ($580,000 ÷ 80% = $725,000). To compute the new partner’s
contribution, the old partners’ capital can be subtracted from total capital ($725,000 – $580,000 = $145,000), or total
capital can be multiplied by 20% (20% × $725,000 = $145,000).

14. Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the other assets are
sold for P500,000, what amount of the available cash should be distributed to Alfa?
a. P255,000
b. P273,000
c. P327,000
d. P348,000

Solution:
14. (b) To determine the amount of cash distributed during liquidation, the solutions approach is to prepare an abbreviated
statement of partnership liquidation. In a partnership liquidation, cash is distributed based on the capital balances of the
partners after adjusting them for any income (loss) to the date of liquidation and any loans or
advances between the partners and the partnership. The abbreviated statement follows:
Note that the total cash available also equals $425,000.
Beginning cash $ 45,000 Proceeds from sale 500,000 Payment of AP (120,000) $425,000 Therefore, Alfa can receive
$273,000 in cash in full liquidation of his capital balance.

15. In the Adel-Brick partnership, Adel and Brick had a capital ratio of 3:1 and a profit and loss ratio of 2:1,
respectively. The bonus method was used to record Colter’s admittance as a new partner. What ratio would be
used to allocate, to Adel and Brick, the excess of Colter’s contribution over the amount credited to Colter’s
capital account?
a. Adel and Brick’s new relative capital ratio.
b. Adel and Brick’s new relative profit and loss ratio.
c. Adel and Brick’s old capital ratio.
d. Adel and Brick’s old profit and loss ratio.

Solution:
15. (d) The bonus method implies that the old partners either received a bonus from the new partner, or they paid a
bonus to the new partner. In this case, Colter, the new partner, contributed an amount in excess of the amount
credited to Colter’s capital account. Accordingly, the excess should be treated as a bonus to Adel and Brick. This bonus
should be treated as an adjustment to the old partners’ capital accounts and should be allocated by using Adel and
Brick’s old profit and loss ratio.

Items 16 and 17 are based on the following:

On June 30, 2016, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm, together with their
respective profit and loss sharing percentages were as follows:
Assets, net of liabilities P320,000 Eddy, capital (50%) P160,000 Fox, capital (30%) 96,000 Grimm, capital (20%)
64,000 P320,000
16. 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 Revaluation in the agreement is to be recorded. After Eddy’s retirement, what are
the capital balances of the other partners?
Fox Grimm
a. P 84,000 P56,000
b. P102,000 P68,000
c. P108,000 P72,000
d. P120,000 P80,000

Solution:
16. (c) Eddy is to be paid $180,000 for his 50% interest in the partnership. This implies that the net assets of the
partnership are worth $360,000 ($180,000 ÷ 50%). Since the net assets are currently reported at $320,000, implied
goodwill is $40,000 ($360,000 – $320,000). When goodwill is recorded, the goodwill account is debited and the
partners’ capital accounts are credited for their share of the goodwill. Therefore, the capital balances of Fox and Grimm
are $108,000 and $72,000, as computed below.
Fox Grimm Previous capital balance $96,000 $64,000 Share of goodwill Fox (30% × $40,000) 12,000 Grimm (20% ×
$40,000) − 8,000 New capital balance $108,000 $72,000

17. 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 revaluation 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

Solution:
17. (b) Hamm will pay $140,000 for a 25% interest in the partnership. This implies that the net assets of the
partnership, including the new investment, are worth $560,000 ($140,000 ÷ 25%). Net assets are currently reported at
$320,000, and Hamm’s cash payment of $140,000 brings that total up to $460,000. Therefore, implied goodwill is
$100,000 [$560,000 – ($320,000 + $140,000)]. When goodwill is recorded, the goodwill account is debited and the
partners’ capital accounts are credited for their share of goodwill. Therefore, Eddy’s capital balance ($160,000) is
increased by his share of the goodwill (50% × $100,000 = $50,000), to result in a balance of $210,000 ($160,000 +
$50,000).
18. On June 30, 2016, the balance sheet for the partnership of Coll, Maduro, and Prieto, together with their
respective profit and loss ratios, were as follows:
Assets, at cost P180,000 Coll, loan P9,000 Coll, capital (20%) 42,000 Maduro, capital (20%) 39,000 Prieto,
capital (60%) 90,000 Total P180,000 Coll has 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, 2016. It was agreed that the partnership
would pay Coll P61,200 cash for Coll’s partnership interest, including Coll’s loan which is to be repaid in full. No
goodwill is to be recorded. After Coll’s retirement, what is the balance of Maduro’s capital account?
a. P36,450
b. P39,000
c. P45,450
d. P46,200

Solution:
18. (c) The requirement is to determine the balance in Maduro’s capital account after Coll’s retirement. When a partner
withdraws from a partnership a determination of the fair value of the entity must be made. Since it is stated in the problem
that the withdrawing partner is selling his interest to the partnership and that no goodwill is to be recorded, the bonus
method must be employed after restatement of assets to FV. The capital accounts after restatement to FV would be
Coll
[$42,000 + 20%($216,000 – $180,000)] = $ 49,200
Maduro
[$39,000 + 20%($216,000 – $180,000)] = $ 46,200
Prieto
[$90,000 + 60%($216,000 – $180,000)] = $111,600
The bonus paid to Coll is the difference between the cash paid to him for his partnership interest and the balance of that
interest plus his loan balance.
Bonus = [$61,200 – ($49,200 + $9,000)] = $3,000
Maduro’s capital account would be reduced by his proportionate share of the bonus, based on the profit and loss ratio of
the remaining partners [20%/(20% + 60%) = 25%].
Maduro’s capital [$46,200 – 25% ($3,000)] = $45,450

19. Allen retired from the partnership of Allen, Beck, and Chale. Allen’s cash settlement from the partnership was
based on new goodwill determined at the date of retirement plus the carrying amount of the other net assets.
As a consequence of the settlement, the capital accounts of Beck and Chale were decreased. In accounting for
Allen’s withdrawal, the partnership could have used the
Bonus method Positive Revaluation method
a. No Yes
b. No No
c. Yes Yes
d. Yes No

Solution:
19. (d) Under both the bonus and goodwill methods, the assets of the partnership must first be restated to their fair
market value. Then, the withdrawing partner’s capital account must be adjusted to the amount that the withdrawing
partner is expected to receive. When the bonus method is used, no new goodwill is recorded. Instead, the existing
partners’ capital accounts are reduced by the amount necessary to increase the withdrawing partner’s capital to the
amount s/he is to be paid. When the goodwill method is used, new goodwill is recorded, and each partner’s capital
account is increased accordingly. Therefore, the bonus method results in a decrease of existing partners’ capital
accounts, while the Positive revaluation method results in an increase of existing partners’ capital accounts.

20. When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill’s interest exceeded
Mill’s capital balance. Under the bonus method, the excess
a. Was recorded as goodwill.
b. Was recorded as an expense.
c. Reduced the capital balances of Yale and Lear.
d. Had no effect on the capital balances of Yale and Lear.

Solution:
20. (c) Under the bonus method, adjustments are made only among partner’s capital accounts (no goodwill is recorded
on the partnership books). Since Mill’s partnership interest exceeded the amount of Mill’s capital balance, the excess
interest would reduce the capital balances of Yale and Lear. Only under the goodwill method can the excess interest be
recorded as goodwill. Under no circumstances should the excess partnership interest be recorded as an expense.

21. The following condensed balance sheet is presented for the partnership of Smith and Jones, who share profits
and losses in the ratio of 60:40, respectively:
Other assets P450,000 Smith, loan 20,000 P470,000 Accounts payable P120,000 Smith, capital 195,000 Jones,
capital 155,000 P470,000 The partners have decided to liquidate the partnership. If the other assets are sold for
P385,000, what amount of the available cash should be distributed to Smith?
a. P136,000
b. P156,000
 c. P159,000
d. P195,000

Solution:
21. (a) This situation represents a simple liquidation since all assets are distributed at one point in time rather than in
installments. In a simple liquidation all of the noncash assets are sold and the proceeds from their sale are compared to
their book value to compute the gain or loss. The gain or loss on the assets is then distributed to the partners’ accounts
before any of the cash is distributed. The partner loan should not be considered a noncash asset for the purpose of
determining gain or loss, thus, Smith is responsible to the partnership for the repayment of the entire amount of the
loan. The repayment of the loan reduces that partner’s (Smith) distribution as follows:

22. On January 1, 2016, the partners of Cobb, Davis, and Eddy, who share profits and losses in the ratio of 5:3:2,
respectively, decided to liquidate their partnership. On this date the partnership condensed balance sheet was
as follows:
Assets Cash P 50,000 Other assets 250,000 P300,000 Liabilities and Capital Liabilities P 60,000 Cobb, capital
80,000 Davis, capital 90,000 Eddy, capital 70,000 P300,000 On January 15, 2016, the first cash sale of other
assets with a carrying amount of P150,000 realized P120,000. Safe installment payments to the partners were
made the same date. How much cash should be distributed to each partner?
Cobb Davis Eddy
a. P15,000 P51,000 P44,000
b. P40,000 P45,000 P35,000
c. P55,000 P33,000 P22,000
d. P60,000 P36,000 P24,000

Solution:
22. (a) A schedule of safe payments must be prepared to determine the amount of cash to be distributed to each partner
at January 15, 2010. The first cash sale of other
assets with a total book value of $150,000 realized $120,000 in cash, resulting in a $30,000 loss. This loss is allocated
among the partners based upon their profit and loss ratios. The schedule is completed based upon the assumption that the
remaining other assets are totally worthless, and their book values are distributed to the partners as losses, based upon
the partners’ profit and loss ratios. The cash payments to each partner can be found at the bottom of the schedule.

Thus, the cash should be distributed as follows: $15,000 to Cobb, $51,000 to Davis, and $44,000 to Eddy.

Items 23 and 24 are based on the following:

CLAIRE, DAISY, and ELSIE formed the CDE Partnership on August 1, 2015, with the following assets, measured at
fair market values, contributed by each partner:
CLAIRE DAISY ELSIE
Cash P 324,000 P108,000 P129,600
Accounts receivable
73,080 - 91,800
Plant, Property, &
 Equipment (PPE) 1,620,000 340,200 -
A part of CLAIRE’s cash contribution, P216,000, comes from personal borrowings. Also, the PPE of CLAIRE and
DAISY are mortgaged with the bank for P972,000 and P72,000, respectively. The partnership is to assume
responsibility for these PPE mortgages. The partners have agreed to share profits and losses on a 5:2:3 ratio, to
CLAIRE, DAISY, and ELSIE, respectively.
23. What is the capital balance for each partner at the opening of business on August 1, 2015?
a. CLAIRE, P1,045,080; DAISY, P376,200; & ELSIE, P221,400
b. CLAIRE, P1,161,200; DAISY, P418,000; & ELSIE, P246,000
c. CLAIRE, P1,987,500; DAISY, P189,000; & ELSIE, P217,500
d. CLAIRE, P1,095,120; DAISY, P547,560; & ELSIE, P182,520

Solution:
Claire Daisy Elsie
Cash 324,000 108,000 129,600
Accounts Receivable 73,080 91,800
PPE 1,620,000 340,200
Mortgage (972,000) (72,000)
1,045,080 376,200 221,400
24. What is the capital balance for each partner at August 1, 2014, instead, if the interest ratio is given at 5:3:2 to
CLAIRE, DAISY, and ELSIE, respectively?
a. CLAIRE, P730,080; DAISY, P730,080; & ELSIE, P365,040
b. CLAIRE,P985,608; DAISY, P492,804; & ELSIE, P164,268
c. CLAIRE,P1,987,500;DAISY,P189,000;& ELSIE, P217,500
d. CLAIRE,P821,340; DAISY,P492,804; & ELSIE, P328,536

Solution:
Accounts Receivable 73,080 91,800 164,880
PPE 1,620,000 340,200 1,960,200
Mortgage (972,000) (72,000) (1,044,000)
Based on Contributed Capital 1,045,080 376,200 221,400 1,642,680
Based on profit and loss Ratio 821,340 492,804 328,536 1,642,680

Items 25 and 26 are based on the following:

On January 1, 2015, FRIDA and GLACE formed a partnership by contributing cash of P405,000 and P270,000,
respectively. On February 1 2015, Partner FRIDA contributed an additional P135,000 cash to the partnership and on
August 1, 2014 Partner FRIDA made a permanent withdrawal of P67,500. On May 1, 2015, Partner GLACE
contributed machinery with a fair market value of P90,000 and a net book value of P75,000 when contributed. On
November 1, 2015 Partner GLACE contributed an additional P45,000 cash to the partnership. Both partners
withdrew one-fourth of their salary allowances in 2015.
The partnership reported a net income of P257,400 in 2014 and the profit and loss agreement are as follows:
a. Interest at 6% is allowed on average capital balances;
b. Salaries of P2,700 per month to each partner;
c. Bonus to FRIDA of 10% of net income after interest, salaries, and bonus; and
d. Balance to be divided in the ratio of 6:4 to FRIDA and GLACE, respectively.
25. Determine how the net income will be allocated to the partners:
a. FRIDA, P160,000 and GLACE, P126,000
b. FRIDA, P 180,000 and GLACE, P106,000
c. FRIDA, P170,000 and GLACE, P116,000
d. FRIDA, P153,000 and GLACE, P104,400

Frida Glace Total Frida Average Glace Average

Interest 30,038 20,250 50,288 Beg 405000 405000 270000 270000
Salaries 32,400 32,400 64,800 1-Feb 135000 123750
Bonus 12,938 12,938 1-May 90000 60000
Balance 77,625 51,750 129,375 1-Aug -67500 -28125
Net income 153,000 104,400 257,400 1-Nov 45000 7500
Capital 472500 405000 472500 500625 405000 337500
Withdrawal -8100 -8100
617,400 501,300

26. Determine the capital balances of the partners at December 31, 2015:
a. FRIDA, P617,400 and GLACE, P501,300
b. FRIDA, P551,000 and GLACE, P686,000
c. FRIDA, P688,000 and GLACE, P449,000
d. FRIDA, P683,000 and GLACE, P554,000

Items 27 and 28 are based on the following:

HAIDEE and ISABEL are partners sharing profits and losses in the ratio of 60% and 40%, respectively. The
partnership balance sheet at August 30, 2014 follows:

Cash P 12,150Accounts payable P 13,500

Other assets 119,700Haidee, Loan 5,850
Isabel, Loan 9,000Haidee, capital 81,000
Isabel, capital 40,500
Total P 140,850 Total P140,850
At this date, JOSIE was admitted as a partner for a consideration of P43,875 cash for a 40% interest in capital and
in profits.
27. Assume JOSIE is admitted by purchase of 40% each of the original partners’ interest, determine how the
P43,875 will be apportioned to HAIDEE and ISABEL
a. HAIDEE, P32,850 and ISABEL, P15,900
b. HAIDEE, P32,450 and ISABEL, P16,300
c. HAIDEE, P29,565 and ISABEL, P14,310
d. HAIDEE, P32,950 and ISABEL, P15,800

Haidee Isabel
Capital 81000 40500
Interest Purchase 32400 16200 48600
Total payment 43875
Personal loss 2835 945 4725
29565 15255

28. Assume JOSIE is admitted by investing the P43,875 to the partnership, determine the effects of any bonus
over the capital balances of the original partners:
a. HAIDEE, P( 9,900) and ISABEL, P(14,850)
b. HAIDEE, P 9,000 and ISABEL, p 14,850
c. HAIDEE, P (14,850) and ISABEL, P( 9,900)
d. HAIDEE, P (13,365) and ISABEL P ( 8,910)

AC CC Total
Old 99,225 121,500 (22,275)
New 66,150 43,875 22,275
165,375 165,375 -

Haidee Issabel
(13,365) (8,910) (22,275)

29. The following balances as at October 31, 2014 for the Partnership of KARLO, LORNA, and MYRNA were as
follows:
Cash P 50,000 Liabilities P 15,000
Lorna, 15,000 Karlo, loan 22,500
Loan
Non-cash 400,000 Karlo, 105,000
assets capital
Lorna, 97,500
capital
Myrna, 225,000
capital
Totals P465,000 Totals P465,000

KARLO has decided to retire from the partnership on October 31. Partners agreed to adjust the non-cash assets to
their fair market value of P490,000. The estimated profit to October 31 is P100,000. KARLO will be paid P173,000
for his partnership interest inclusive of his loan which is repaid in full. Their profit and loss ratio is 3:3:4 to KARLO,
LORNA, and MYRNA, respectively.
What will be the balance of LORNA’s capital account after the retirement of KARLO.
a. P 129,444 c. P 124,449
b. P 144,429 d. P 149,424

Items 30 and 31 are based on the following:

The accounts of the partnership of NOP at December 31, 2014 are as follows:
Cash P 74,250 Liabilities P
56,250
Non-cash assets Loan from O 18,000
655,875
Loan to N 13,500 N, capital 185,625
O, capital 329,625
P, capital 154,125
Total P743,625 Total P743,625
They divide profits and losses 3:5:2 to N, O, and P respectively. They have decided to liquidate the partnership at
this date.
30. Determine the amount payable to Partner P if cash is paid just before the start of liquidation on December 31,
2014.
a. P 16,750 c. P 17,679
b. P 15,911 d. P 17,560

31. Determine the amount Partner N and Partner O would have received by the time Partner P would have received
a cumulative amount of P40,500.
a. N, P1,785 and O, P72,650
b. N, P1,578 and O, P70,265
c. N, P1,875 and O, P70,625
d. N, P1,688 and O, P63,562

32. The following condensed balance sheet is prepared for QUIEL and ROGER, who share profits and losses in the
ratio of 60:40, respectively:
Other P 405,000 Accounts P108,000
assets payable
Quiel, loan 18,000 Quiel, capital 175,500
Roger, capital 139,500
Total P 423,000 Total P 423,000
The partners have decided to liquidate the partnership. If the other assets are sold for P346,500, what amount of
the available cash should be distributed to QUIEL?
a. P136,000 c. P122,400
b. P156,000 d. P195,000

Solution:
Quiel Roger
Capital 175,500 139,500
loan (18,000)
Total Interest 157,500 139,500
Loss on realization (35,100) (23,400) -58500
122,400 116,100

33. On January 1, 2014, the partners SELYA, TESSA, and URSULA, who share profits and losses in the ratio of
5:3:2, respectively, decided to liquidate their partnership. On this date the partnership condensed balance sheet
was as follows:
Cash P 45,000 Liabilities P 54,000
Other assets 225,000 Selya, capital 72,000
Tess, capital 81,000
Ursula, capital 63,000
Total P 270,000 Total P270,000
On January 15, 2014, the first cash sale of other assets with a carrying amount of P135,000 realized P108,000.
Safe installment payments were made on the same date.
How much cash should be distributed to each partner?
SELYA TESSA URSULA
a. P15,000 P51,000 P44,000
b. P40,000 P45,000 P35,000
c. P55,000 P33,000 P22,000
d. P13,500 P45,900 P39,600

Solution:
Selya Tess Usula Total
Capital 72,000 81,000 63,000 216,000
Loss on realization (13,500) (8,100) (5,400) (27,000)
Possible Loss (45,000) (27,000) (18,000) (90,000)
13,500 45,900 39,600 99,000