41 COPIES

COLLEGE OF MARY IMMACULATE MIDTERM EXAMINATION

POBLACION, PANDI, BULACAN
FIRST SEMESTER-AY 2018 - 2019

STUDENT NUMBER SURNAME GIVEN NAME MIDDLE NAME

COURSE YRLVL/SECTION ROOM DATE PROCTOR SCORE

PARTNERSHIP FORMATION & OPERATIONS

I. Problems
Problem 1:
S and T are in partnership and prepare their accounts to 31 December each year. On July 2015, U joined the partnership.
Profit sharing arrangements are:
6 months to June 30, 2015 6 months to December 31, 2015
Salary S 15,000 25,000
Share of balance in profit.
S 60% 40%
T 40% 40%
U 20%
The partnership profit for the year ended Dec., 31, 2015 was 350,000 accruing evenly over the year
1. What is the total profit of S for the year ended December 31, 2015?
a. 196,000 c. 155,000
b. 217,000 d. 175,000
2. What is the total profit of T for the year ended December 31, 2015?
a.124, 000 c.130, 000
b.108, 000 d.145, 000
3. What is the total profit of U for the year ended December 31, 2015?
a.30, 000 c.65, 000
b.25, 000 d.35, 000

Problem 2:
The partnership contract X, Y and Z provided for the distribution of profit or loss in the ff. manner
 Interest at 5% on beginning capital balances of the partners
 X and Z are to receive salary of 25,000 and 40,000 respectively.
 Bonus will be given to Y at 30% before salary and interest
 Any remainder will be shared based on the ratio of their beginning capital balances.

1. Prepare profit distribution table.

2. What is the share to profit for partner X?______________
3. What is the ending balance of capital of partner Y after distribution of profit?_____________
4. What is the bonus given to Y?______________

Problem 3:
A, B, C and D own a publishing company that they operate as a partnership. The partnership agreement includes the ff:
 Hunt receives a salary of 20,000 and a bonus of 3% of income after all bonuses.
 Rob receives a salary of 10,000 and a bonus of 2% of income after all the bonuses.
 All partners are to receive 10% on their average capital balances
The average capital balances are as follows
A 50,000
B 45,000
C 20,000
D 47,000
Any remaining profits and losses are to be divided equally among the partners.
Determine how a profit of 105,000 would be allocated among the partners.
A B C D
a. 41,450 29,950 15,450 18,150
b. 28,000 16,500 2,000 4,700
c. 39,700 29,200 16,700 19,400
d. Cannot be determined.

Problem 4 On March 1, 2015 II and JJ formed a partnership with each contributing the ff. assets:
II JJ____
Cash 300,000 700,000
Machinery 250,000 750,000
Building - 2,250,000
Furniture & Fixtures 100,000 -

The building is subject to mortgage loan of 800,000 which is to be assumed by the partnership agreement provides that
II and JJ share profits and losses 30% and 70% respectively. On March 1, 2015 the balance in JJ's capital account should
be:
a. 3,700,000 c.3,140,000
b.3,050,000 d.2,900,000

Problem 5:
On August 1, AA and BB pooled their assets to form a partnership, with the firm to take over their business assets and
assume the liabilities. Partners capitals are be based on net assets transferred after the following adjustments. Profits
and losses are allocated equally.
BB's inventory is to be increased by 4,000; an allowance for doubtful accounts of 1,000 and 1,500 are to be set up in the
books of AA and BB respectively; and accounts payable of 4,000 is to be recognized in AA's books. The individual trial
balances on August 1, before adjustments, follow:

AA BB___
Assets 75,000 113,000
Liabilities 5,000 34,500

What is the capital of AA and BB after the above adjustments?

AA BB
a. 68,750 77,250
b. 75,000 81,000
c. 65,000 76,000
d. 65,000 81,000

Problem 6:
HH.MM and AA formed a partnership on January 1, 2015 and contributed 150,000, 200,000 and 250,000respectively.
Their articles of co-partnership provide that the operating income to be shared among the partners as follows: as salary
24,000 for HH, 18,000 for MM, and 12,000 for AA: Interest of 12% on the average capital during 2015 of the three
partners and the remainder in the ratio of 2:4:4 respectively.
The operating income for the year ending December 31, 2015 amounted to 176,000. HH contributed additional capital
of 30,000 on July 1 and made a drawing of 10,000 on October 1; MM contributed additional capital of 20,000 on August
1 and made a drawing of 10,000 on October 1; and AA made a drawing of 30,000 on November 1.
The partners capital balances on December 31, 2015 are.
HH MM AA
a. 179680 229360 239360
b. 179760 229520 239520
c. 189680 239360 269360
d. 223180 272060 280760

Problem 7:
JJ and KK are partners who share profits and losses in the ratio of 60% and 40% , respectively. JJ’s salary is 60,000 and
30,000 for KK. The partners are also paid interest on their average capital balances. In 2015, JJ received 30,000 of
interest and KK, 12,000. The profit and loss allocation is determined after deductions for the salary and interest
payments. If KK’s share in the residual income (income after deducting salaries and interest) was 60,000 in 2015. What
was the total partnership income?
a. 192,000 b. 345,000 c. 282,000 d. 387,000

Problem 8:
Langbay, Villota and Hernandez are partners in an accounting firm. Their ending capital balance were: Langbay, P90,
000; Villota, P110, 000; and Hernandez, P50,000. They share profits and losses in a 4:4:2 ratio, after the following
special terms :
* Partner Hernandez is to receive a bonus of 10% of profit after bonus.
*Interest of 10% shall be paid on that proportion of the partner’s capital in excess of P100,000
* Salaries of P10, 000 and P12, 000 shall be paid to partners Langbay and Hernandez respectively.
a. P 7,800
b. P19, 800
c. P16, 800
d. P19, 400

Problem 9:
Lotlot is trying to decide whether to accept a salary of P40, 000 or a salary of P25, 000 plus a bonus of 10% of net incone
after salary and bonus as a means of allocating profit among the partners. Salaries traceable to other partners are
estimated to be P100, 000.What amount of income would be necessary so that Lotlot would consider the choices to be
equal?
a. P165, 000
b. P290,000
c. P265, 000
d. P305, 000

Problem 10:
The partnership has the following accounting amounts :
*Sales = P70, 000
*Cost of Goods Sold = P40, 000
*Operating Expenses = P10, 000
*Salary allocation to partners= P13, 000
*Interest paid to banks = P2,000
*Partner's withdrawals= P8, 000
The partnership net income(loss) is
a. P 20, 000 c. P 5, 000
b. P 18, 000 d. P (3,000)
Problem 11:
The partnership agreement of RR and SS 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 the capital account of SS for the year ended December
31,2015 is as follows. :
Balance 1/1 P420, 000
Additional investment P120, 000
Withdrawal, 8/1 P(45,000)
Balance 12/31 P 495,000
What amount of interest should be credited to SS's capital account for 2015?
a. P45, 750
b. P49, 500
c. P46, 125
d. P51,750

Problem 12:
Albion and Blaze share profits and losses equally. Albion and Blaze receive salary allowances of $20,000 and $30,000,
respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are
calculated at the beginning of each month balance regardless of when additional capital contributions or permanent
withdrawals are made subsequently within the month. Partners’ drawings are not used in determining the average
capital balances. Total net income for 2006 is $120,000.

Albion Blaze
January 1 capital balances $ 100,000 120,000

Yearly drawings ($1,500 a month) 18,000 18,000

Permanent withdrawals of capital:

June 3 (12,000)
May 2 (15,000)

Additional investments of capital:

July 3 40,000

October 2 50,000

1.What are the total amounts for the allocation of interest, salary, and bonus, and, how much over-allocation is present?
a. P60,000 and P0
b. P80,000 and P20,000
c. P83, 000 and P0
d. P83, 000 and P23, 000

2. If If the average capital for Albion and Blaze from the above information is $112,000 and $119,000, respectively, what
will be the total amount of profit allocated after the salary and interest distributions are completed?
To Albion:______________
To Blaze:_______________

3. If the average capital balances for Albion and Blaze are $100,000 and $120,000, what will the final profit allocations
for Albion and Blaze in 2006
Albion: __________________
Blaze: __________________

Problem 13:
The XYZ partnership provides a 10% bonus to Partner Y that is based upon partnership income, after deduction of the
bonus. If the partnership's income is $121,000, how much is Partner Y's bonus allocation? ______________

Problem 14:
Bloom and Carnes share profits and losses in a ratio of 2:3, respectively. Bloom and Carnes receive salary allowances of
$10,000 and $20,000, also respectively, and both partners receive 10% interest based upon the balance in their capital
accounts on January 1. Partners’ drawings are not used in determining the average capital balances. Total net income for
2006 is $60,000. If net income after deducting the interest and salary allocations is greater than $20,000, Carnes receives
a bonus of 5% of the original amount of net income. If the partnership experiences a net loss of $20,000 for the year,
what will be the final amount of profit or (loss) closed to Bloom and Carnes?
Bloom:__________________ Carnes:____________________

Problem 15:
Evans, Fitch, and Gault operate a partnership with a complex profit and loss sharing agreement. The average capital
balance for each partner on December 31, 2006 is $300,000 for Evans, $250,000 for Fitch, and $325,000 for Gault. An 8%
interest allocation is provided to each partner. Evans and Fitch receive salary allocations of $10,000 and $15,000,
respectively. If partnership net income is above $25,000, after the salary allocations are considered (but before the
interest allocations are considered), Gault will receive a bonus of 10% of the original amount of net income. All residual
income is allocated in the ratios of 2:3:5 to Evans, Fitch, and Gault, respectively.
Required:
Prepare a schedule to distribute $300,000 of partnership net income to the partner.
(Show your answer on a separate sheet of paper)

Problem 16:
On February 1, 2005, Flores, Gilroy, and Hansen began a partnership in which Flores and Hansen contributed cash of
$25,000; Gilroy contribute property with a fair value of $50,000 and a tax basis $40,000. Gilroy receives a 5% bonus of
partnership income. Flores and Hansen receive salaries of $10,000 each. The partnership agreement of Flores, Gilroy,
and Hansen provides all partners to receive a 5% interest on capital and that profits and losses be divided of the
remaining income be distributed to Flores, Gilroy, and Hansen by a 1:3:1 ratio.
Required:
Prepare a schedule to distribute $25,000 of partnership net income to the partner.
(Show your answer on a separate sheet of paper)

II. True or False (1 pt.)

_____1. Accounting for partnership is essentially the same as accounting for sole proprietorship.

___ __2. If the profit allocation has been agreed upon, the share of each partner in the losses shall be in the same proportion with the net
income allocation.

___ __3. Partnership is a form of business where 2 or more person bind themselves to contribute money and property only with the intention of
dividing profits among themselves.

_____4. General Partner are liable only to the extent of his capital contribution.
_____5 . Limited partner are allowed to contribute money, property and industry.
 III. Preparation of journal entries:
Problem 1:
Ryan and Smith were the main competitors in the shoe industry. Due to unhealthy competition between them, On May
15, 2014, they decided to form a new partnership entity with the name of RS & Co by merging out their businesses. On
15th May, 2014, their accounts balances are as follows:
  Mr Ryan Mr Smith
Cash 16,000 24,000
Account receivable 80,000 96,000
Inventory 64,000 40,000
Machinery – cost 120,000 96,000
Factory equipment – cost 56,000 64,000
Accumulated depreciation – machinery 64,000 32,000
Accumulated depreciation – factory equipment 24,000 40,000
Allowance for doubtful debts 5,600 3200
Accounts payable 64,000 76,000
In order to complete the formation of a new partnership, the following valuations were agreed upon between Ryan and
Smith as follows:
Ryan:
Accounts receivable: $ 51,000, inventory at: $ 56,000 & machinery at: 30,000.
Smith:
Accounts receivable: $16,000, factory equipment: $10,000
1. Prepare the necessary journal entries in the books of Ryan and Smith. Also, record the formation of the partnership in
a new set of books.
(Show your answer on a separate sheet of paper)

Problem 2: The profit and loss sharing agreement for the Quade, Reid, and Scott partnership provides for a $15,000
salary allowance to Reid. Residual profits and losses are allocated 5:3:2 to Quade, Reid, and Scott, respectively. In 2006,
the partnership recorded $120,000 of net income that was properly allocated to the partner's capital accounts. On
January 25, 2007, after the books were closed for 2006, Quade discovered that office equipment, purchased for $12,000
on December 29, 2006, was recorded as office expense by the company bookkeeper.
Required:
Prepare the necessary correcting entry(s) for the partnership. Write your answer on the space below.l
Theories:
1. The partnership agreement is an express contract among the partners (the owners of the business). Such an
agreement generally does not include
a. A limitation on a partner’s liability to creditors.
b. The rights and duties of the partners.
c. The allocation of income between the partners.
d. The rights and duties of the partners in the event of partnership dissolution.

2. A partnership records a partner’s investment of assets in the business at

a. The market value of the assets invested.
b. A special value set by the partners.
c. The partner’s book value of the assets invested.
d. Any of the above, depending upon the partnership agreement.

3. 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 recognition.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

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.

5. Four individuals who were previously sole proprietors form a partnership. Each partner contributes inventory and
equipment for use by the partnership. What basis should the partnership use to record the contributed assets?
a. Inventory at the lower of FIFO cost or market.
b. Inventory at the lower of weighted-average cost or market.
c. Equipment at each proprietor’s carrying amount.
d. Equipment at fair value.