Final Module Summer Review Class A.Y 2018 2019

BALIWAG POLYTECHNIC COLLEGE
College of Accountancy, Business,

Information
Technology and Engineering
SESSION 1: NATURE OF PARTNERSHIP AND PARTNERSHIP

FORMATION AND OPERATIONS
NATURE OF PARTNERSHIP BUSINESS
Definition of PARTNERSHIP:
“By the contract of the partnership, two or more persons bind themselves to
contribute money, property and industry to a common fund with the intention of
dividing the profits among themselves. Two or more persons may also form a
partnership for the exercise of a profession.
CHARACTERISTICS OF A PARTNERSHIP
1. Mutual Contribution 4. Mutual Agency
2. Division of Profit or Loss 5. Limited Life
3. Co-ownership of Contributed 6. Unlimited Liability
Assets 7. Income Taxes
ADVANTAGES and DISADVANTAGES of PARTNERSHIP
Advantages Disadvantages
Ease of Formation Unlimited Liability
Joint Resources Mutual Agency
Tax Exemption Consensual
Less Government Supervision Limited Life
Kinds of Partnerships
1. As to Purpose
 Commercial Partnership
 General Professional Partnership
2. As to Object
 Universal Partnership
o Of all present Partnership
o Of Profits
 Particular Partnership
3. As to Liability
 General Partnership
 Limited Partnership
4. As to Legality
 De jure Partnership
 De facto partnership
BACHELOR OF SCIENCE IN ACCOUNTANCY

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Kinds of Partners
As to As to As to third
As to Liability
Contribution Participation Persons
Capitalist Partner General Partner Managing Partner Secret Partner
Industrial Partner
Limited Partner Silent Partner Dormant Partner
Capitalist-Industrial Nominal or
Liquidating Partner
Partner Ostensible Partner
MULTIPLE CHOICE QUESTIONS

1. A partnership is
a. Any association of two or more persons
b. An association of two or more persons to carry on a business for a profit as
co-owners
c. Not a separate legal entity for legal purposes
d. An entity that is always created by following statutory requirements
2. Which type of partner does not have unlimited liability?

a.
b. Industrial Partners d. Limited Partners

c. General Partners e. Silent Partners
3. The primary reason why an Article of Co-Partnership should not be kept

secret among the partners is a principle of
a. Mutual trust and Fidelity c. Mutual Agency

b. Voluntary Agreement d. Lawful Agreement
4. The best evidence of relationship of the partners is the
a. Bible c. Accounting Records

b. Articles of Co-Partnership d. Official Gazette
5. It is a concept which states that the business is separate and distinct from
the owners.
a. Going Concern c. Substance over form

b. Business Entity Concept d. Materiality

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6. Which of these characteristics does not apply to a general professional
partnership like law firms?
a. Mutual Agency c. Unlimited Life

b. Unlimited Liability d. No separate income taxes
7. Which of the following is not a characteristic of partnership?
a. Mutual Agency c. Limited Life

b. Voluntary Association d. Limited Liability of partners
8. Which of the following statement is wrong?

a. Every partnership must consist of at least two partners
b. The partnership must be composed of five or more people
c. The partnership form of business is more preferred for the exercise of a
common profession.
d. A partnership cannot be formed by partners with professions different
from each other.
9. What is the entry to record the acceptance of an industrial partner to the

partnership? Where should it be reflected?
a. General journal through memo entry
b. General ledger through a debit-credit entry
c. General journal through a debit-credit entry
d. General ledger through a memo entry
10.He is a partner who only contributes his work to the common fund of the
partnership.
a. Limited partner d. Capitalist industrial
b. Capitalist partner partner
c. Industrial partner
11.All of the following are true for both general and limited partnerships except
a. Both are easily dissolved
b. Both must have at least one general partner
c. All partners are liable for all debts of the firm
d. All partners have the right to share in the profits of the business.
12.Industrial partners would share in the losses of the partnership if he is

1st statement: Included in the profit and loss agreement
2nd statement: If he is included in the profit agreement
a. Only 1st statement is correct
b. Only 2nd statement is correct
c. Both options are correct
d. Both options are incorrect
13.Which of the following partnerships was organized in compliance with all the
legal requirements of the SEC?
a. Limited Partnership c. De facto Partnership
b. General Partnership d. De jure Partnership

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14.One who takes charge of the winding up of partnership affairs upon
dissolution.
a. Nominal Partner c. Ostensible Partner
b. Silent Partner d. Liquidating Partner
15.A partner whose liability for partnership debts is limited to his capital
investment is called
a. Secret Partner c. Limited Partner
b. General Partner d. Dormant Partner
Accounting for Partnership Formation

Partnership Accounts
 Partner’s capital and drawing accounts
 Loans receivable from partners
 Loans payable to partners
Partner’s Capital Account
- It is a permanent account. Each partner has its own capital account which
has a normal credit balance. The balance in the capital account represents
the partner’s share in the net assets of the partnership.
Partner’s Drawing Account
- It is a temporary account and its periodically closed to the partner’s

capital account.
- Each partner has its own drawing account to reflect temporary
withdrawals and other minor amounts taken by the partner from the
partnership in anticipation of his share in the partnership income.
Loans Receivable from Partners
- Also called “loans to partner” or “due from partners,”

- It represents the substantial advances made by the partners from the
partnership with the intention of repaying it.
Loans Payable to Partners
- Also called “loans from partner” or “due to partner,”

- It represents the substantial amounts lent to the partnership by the
partner which the partnership is obliged to pay.
Note: Any loans between a partner and the partnership should always be
accompanied by proper loan documentation, such as a promissory note. As in any
other loan, a loan from a partner is shown as a payable on the partnership’s books.
Partnership Formation
 Execution of partners’ agreement.
 Valuation of partners’ investments.
 Adjustment of accounts.

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I. Initial Investments by partners
AMOUNT OF PARTNER’S CONTRIBUTION
Contribute and record as

Do partners agree upon YES per agreement.
their respective capital
contribution?
NO To be contributed
equally.
II. Valuation of partners’ contribution
VALUATION OF PARTNERS’ CONTRIBUTION
Is it cash
contribution?
NO YES
Is it To be recorded at ACTUAL
property? AMOUNT of cash contributed
No YES To be recorded at AGREED VALUE, otherwise at

FAIR VALUE
Industry Recorded in MEMORANDUM ENTRY form

(skill/labor)
Industrial Partner’s Contribution
Mendoza, Capital
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to share 10% in the 5
Mendoza is an industrial partner
Partnership profits.
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Note: when the net income of the partnership has been distributed to the partners,
the capital account of an industrial partner would have a journal entry equivalent to
his share in the profit.
STAGES FROM WHICH PARTNERSHIPS ARE FORMED

1. First time in business – individual persons without existing business form a
partnership
2. Conversion of single proprietorship to a partnership – this could be made
when:
 A sole proprietor admits into his business another individual who has no
business of is own.
 Two or more sole proprietorship converted into a partnership.
3. Admission of a new partner to an existing partnership – by nature, this is a
form of dissolution of an old partnership which gives rise to the formation of a
new partnership.
Actual investment method

- When the agreed partners’ capital shares are credited with the same
value as their actual net contributed tangible assets, the approach of
initial investment used is called “Actual Investment Method.”
Bonus Method
BONUS METHOD
Partnership’s Total Agreed Capital (TAC) = Partners’ Total Contributed
(TCC)
Capital
Is any of the partner’s agreed Capital Credit

GREATER THAN his ACTUAL CONTRIBUTION?
YES NO No Bonus
There is a BONUS:
The bonus is equal to the INCREASE of his actual capital
contribution.
Additional Investments and Withdrawals

The partnership agreement should include guidelines regarding additional
investments and withdrawals. The additional investment is recorded directly to the
capital account. However, the accounting treatment of withdrawals would depend
on whether the withdrawn amount is substantial or irregular.
Withdrawals in Large Amounts
- It is charge directly to the capital account of a withdrawing partner.

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Withdrawals of Allowances
- The business rewards of partners are not in the form of a salary as the
take-home pay of employees, but in the form of a share in the partnership
profits.
ACCOUNTING FOR PARTNERSHIP OPERATIONS

The accounting for partnership operation is concerned with the following activities:
1. Accounting treatment of profit and loss
- The profit and loss are subsequently distributed to the partners by closing
the income summary account to the respective partners’ capital accounts.
2. Proper distribution of profit and loss
Arbitrary agreements in Computing Profits and Losses
 Equally
 Specified ratio or percentage
 Capital ratio
o Original capital contribution
o Beginning capital balance
o Ending capital balance
o Average capital balance
 Simple average capital
 Weighted average capital
 Interest allowed on partner’s capitals, the remainder to be divided in
an agreed ratio
 Salaries or bonus allowed for partners’ services, the remainder to be
divided in an agreed ratio
 Multiple bases of allocation
3. Preparation of financial statements such as:

 Income statement (Statement of Recognized Income and Expenses)
 Statement of Financial Position
 Statement of Changes in Partners’ Equity
Salaries or Bonus Allowed for Partner’s Services

Salaries
To recognize personal contribution by the partner to the business, they may agree
to receive salary, and divide the remaining profit among themselves by the agreed
specified ratio., salary allowances are part of the net income / loss allocation to the
partners.
Bonus
A partnership agreement may provide that a managing partner be allowed a bonus
on the earnings of the business to encourage profit maximization.
Bonus = Bonus rate x Base net income
(the base net income is always assumed to be 100%)
The bonus may be based on the following net income:
 Net income before deducting salaries, interest (if any) and bonus
 Net income after deducting salaries and interest (if any) but before bonus
 Net income after deducting salaries, interest (if any) and bonus

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Note: SALARIES, INTEREST AND BONUS are not treated as EXPENSES but a
distribution of profit.
Distribution of Partnership Losses

If there were partnership net loss, the partners’ salaries and interests on capital
shall still be given to them. However, the bonus to the managing partner shall be
forfeited because bonuses are given as incentives for earnings, not for losses.
1. If the partners have not drawn up an agreement, then they must share profits
and losses
a. Equality d. According to initial capital
b. By of their age contributions
c. 1: 3
2. Which of the following statement best describes the default profit or loss
distribution agreement among the partners?
a. The profit or loss is taken only aby one partner.
b. The profit or loss is equally distributed among the partners.
c. The profit or loss is allocated based on the partner’s agreement.
d. The profit and loss is divided based on the initial capital contribution of
the partners.
3. The following can be used in determining the partner’s share of profit, except:
a. Services rendered to the c. Capital contribution ratio
partnership d. Arbitrary ratio
b. Loans to the partnership
4. The accounting method used the partnership operation is

a. Cash method c. Straight line method
b. Sum of the years digit d. Accrual method
method
5. If the personal expenses of a partner are paid by the partnership, the

payment is debited to the
a. Partner’s drawing account
b. Partnership’s expense account
c. Partner’s expense account
d. Partnership’s capital account
6. Generally, the following partners should share in the losses of the

partnership, except
a. Limited partner d. Industrialist-capitalist
b. Capital partner partner
c. Industrial partner

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7. In the absence of profit agreement, which among the following partners
would receive a profit share equal to the share of a capitalist partner having
smallest share?
a. Industrial-capitalist c. Nominal partner
partner d. Silent partner
b. Industrial partner
8. The computation of partner’s share in the profits and losses becomes more
complex because of the
a. Difference in the capital contribution of the partners
b. Abilities and talents of the partners
c. Time spent on partnership
d. All of the above
9. In the absence of any agreement, profits and losses are divided

a. Equally
b. Based on initial contributed capital
c. Based on ending capital balance
d. Profits and losses would no longer be distributed
10.In conformity with GAAP, the following are to be treated as a profit sharing
device, except
a. Salary allowance
b. Bonus for the managing partners
c. Interest allowance on capital contribution
d. Interest on loans given to partnership
11.What average capital method should be used in the absence of any

agreement to the contrary?
a. Simple average c. Weighted average
b. Complex average d. None of the above
12.This profit distribution device is granted only if there is profit for the period
a. Salary c. Bonus
b. Interest d. All of the above
13.This statement shows the variation in the partner’s interest in the partnership
a. Balance sheet
b. Income statement
c. Notes to the financial statements
d. Statement of changes in partner’s capital
14.In the absence of any agreement in the share of the industrial partner, he is
entitled to share in the partnership profit
a. Equally
b. Ten percent
c. Equal to the share of capitalist partner with the smallest share
d. None, because he did not contribute capital
15.If there is an agreement as to the distribution of profit but not stipulations to

the distribution of loss, any partnership loss shall be shared by partners
a. Equally

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b. Proportionate to his initial capital contribution
c. Based on profit ratio
d. Any of the above will do
16.If the primary consideration is the partner’s capital contribution, the most
equitable profit and loss distribution is made on the basis of
a. Equal share always
b. Beginning capital balances
c. Ending capital balances
d. Average capital balances
17.This item is not treated as operating expense of partnership

a. Salaries of employees of partnership
b. Interest on the partnership’s outstanding loan
c. Bonus to the managing partner
d. Supplies used
18.Which of the following statements about partnership’s financial statements is

true?
a. Details of distribution of net income are shown in the balance sheet
b. The distribution of net income is shown on the notes to the financial
statements
c. Only the total of all partner capital balances is shown in the balance
sheet.
d. The owner’s equity statement is called the partner’s capital statement
19.Which of the following is not considered as an expense of a partnership?

a. Interest allowance paid to partners based on the amount of their
invested capital
b. Depreciation on assets
c. Salaries for employees
d. Cost of the rent of the building
20.In computing the partner’s average capital, the partner’s temporary

withdrawal are:
a. Included in the computation of the average capital
b. Not considered in the computation of the average capital
c. Included in the computation of average capital if there is an
expectation of big profits
d. None of the above
21.Two individuals who were previously sole proprietors formed a partnership.

Property other than cash which is part of the initial investment in the
partnership would be recorded for financial accounting purposes at the
a. proprietors’ book values or the fair value of the property at the date of
the investment, whichever is higher.
b. proprietors’ book values or the fair value of the property at the date of
the investment, whichever is lower.
c. proprietors’ book values of the property at the date of the investment.
d. fair value of the property at the date of the investment
22.Anton and Gracia formed a partnership, each contributing assets to the

business. Anton contributed inventory with a current market value in excess
of its carrying amount. Gracia contributed real estate with a carrying amount

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in excess of its current market value. At what amount should the partnership
record each of the following assets?
Inventory Real Estate
a. Carrying Amount Market Value
b. Market Value Carrying Amount
c. Carrying Amount Carrying Amount
d. Market Value Market Value
23.On June 30, 2008, a partnership was formed by Mendoza and Lopez. Mendoza
contributed cash. Lopez, previously a sole proprietor, contributed non-cash
assets including a realty subject to a mortgage which was assumed by the
partnership. Lopez’s capital account at June 30, 2008 should be recorded at
a. the fair value of the property on June 30, 2008 less the mortgage
payable
b. Lopez’s carrying amount of the property on June 30, 2008
c. Lopez’s carrying amount of the property on June 30, 2008 less the
mortgage payable
d. The fair value of the property on June 30, 2008
24.Abena and Buendia establish a partnership to operate a used-furniture

business under the name of A and B Furniture. Abena contributes furniture
that cost P60,000 and has a fair value of P90,000. Buendia contributes
P30,000 cash and delivery equipment that cost P40,000 and has a fair value
of P30,000. The partners agree to share profits and losses 60% to Abena and
40% to Buendia. The peso amount of gain (loss) that will result if the initial
non-cash contributions of the partners are recorded at cost rather than fair
market value will be
a. P30,000, and (P10,000) to Abena and Buendia, respectively
b. P12,000 and P8,000 to Abena and Buendia, respectively
c. (P18,000) and P18,000 to Abena and Buendia, respectively
d. P18,000 and (P18,000) to Abena and Buendia, respectively
25.On October 1, 2008, Albano and Armando formed a partnership and agreed
to share profits and losses in the ratio 3:7, respectively. Albano contributed a
parcel of land that cost him P2,000,000. Armando contributed P3,000,000
cash. The land has a quoted price of P3,600,000 on October 1, 2008. What
amount should be recorded in Albano’s capital account upon formation of the
partnership?
a. P3,600,000 c. P3,480,000
b. P3,000,000 d. P2,000,000
26.On April 30, 2008, Bautista, Jimenez and Laxa formed a partnership by
combining their separate business proprietorships. Bautista contributed cash
of P100,000. Jimenez contributed property with a carrying amount of
P72,000, original cost of P80,000, and fair value of P160,000. The partnership
accepted responsibility for the P70,000 mortgage attached to the property.
Laxa contributed equipment with a carrying amount of P60,000, original cost
of P150,000, and fair value of 110,000. The partnership agreement specifies
that profits and losses are to be shared equally but is silent regarding capital
contributions. Which partner has the largest capital account balance as of
April 30, 2008?
a. Bautista c. Laxa
b. Jimenez d. All capital account balances
are equal
27.Mariano and Nolasco formed a partnership and agreed to divide initial capital
equally, even though Mariano contributed P100,000 and Nolasco gave
P84,000 in identifiable assets. Under the bonus approach to adjust capital
accounts, Nolasco’s capital account should be credited for
a. P84,000 c. P100,000

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b. P92,000 d. P50,000
28.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 P 20,000 P 40,000
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 Molina and Nuevo
29. On March 1, 2008, Roxas and Bernardo decided to combine their business
and form a partnership. The Statement of Financial Position of Roxas and
Bernardo on March 1, before adjustments is presented below.
Roxas Bernardo
P P
Cash 90,000 37,500
Accounts Receivable 185,000 135,000
Inventories 300,000 195,000
Furniture and Fixtures
(net) 300,000 90,000
Office Equipment (net) 115,000 27,500
Prepaid Expenses 63,750 30,000
P1,053,75 P515,00
0 0
P P180,00
Accounts Payable 457,500 0
Roxas, Capital 596,250
Bernardo, Capital 335,000
P1,053,75 P515,00
0 0
They agreed to provide P5,550 and P4,050 respectively for uncollectible

accounts on their accounts receivables and found Bernardo’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 Roxas and
Bernardo 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
30. Using the information in No. 29 and assuming the partners agreed that
equity is to be 60% and 40% to Roxas and Bernardo respectively, the capital
accounts would be:
c. P930,090 and 620,060 respectively

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d. P558,750 and 372,500 respectively
31.Using the information in No. 30 and assuming the equities are P650,000 and
P400,000 to Roxas and Bernardo respectively and with the recognition of
goodwill for the excess equity over their fair value of the net assets
transferred to the partnership, goodwill is
c. P91,250 and P27,500 respectively
d. P68,300 and P60,050 respectively
32.Bruno and Carlos are combining their separate businesses to form

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:
Bruno Carlos
BV FMV BV FMV
Accounts P P
Receivable 20,000 20,000
P20,00 P25,00
Inventories 30,000 40,000 0 0
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 the contribution of
assets and the assumption of liabilities. The amount of cash to be
contributed by Bruno is
a. P150,000 c. P210,000
b. P 60,000 d. P 85,000
33.Using the information above, the total assets of the partnership is

a. P325,000 c. P170,000
b. P180,000 d. P315,000
34.Diaz and Esteban entered into a partnership on February 1, 2008 by investing

the following assets:
Esteba
Diaz n
P
Cash 15,000
Merchandise P
Inventory 45,000
Land 15,000
Building 65,000
Furniture and 100,00
Fixtures 0
The agreement between Diaz and Esteban provides that profits and losses
are to be divided into 40% and 60% to Diaz and Esteban, respectively. The
partnership is to assume the P30,000 mortgage loan on the building. If
Esteban is to receive a capital credit equal to his profit and loss ratio, how
much cash must he invest?
a. P127,500 c. P97,500
b. P172,500 d. P77,500

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35. Using the information in No. 34 and assuming that Esteban invests P50,000
cash and each partner is to be credited for the full amount of the net assets
invested, the total capital of the partnership is
a. P210,000 c. P290,000
b. P260,000 d. P250,000
36.Using the information in No. 34 and assuming the partnership agreement

provides that the partners should initially have an equal interest in the
partnership capital, what is Esteban’s capital upon partnership formation?
a. P125,000 c. P105,000
b. P 95,000 d. P115,000
37. Canlas, a partner in the 3C Partnership, has a 30% participation in

partnership profits and losses. Canlas’ capital account had a net decrease of
P120,000 during the calendar year 2008. During 2008, Canlas withdrew
P260,000 (charged against his capital account) and contributed property
valued at P50,000 to the partnership. What was the net profit of the 3C
Partnership?
a. P300,000 c. P700,000
b. P466,667 d. P1,100,000
38.Partners Fojas and Gomez share profits and loss equally after each has been
credited in all circumstances with annual salary allowances of P30,000 and
P24,000, respectively. Under this arrangement, in which of the following
circumstances will Fojas benefit by P6,000 more than Gomez?
a. Only if the partnership has earnings of P54,000 or more for the year
b. Only if the partnership does not incur a loss for the year
c. In all earnings or loss situation
d. Only if the partnership has earnings of at least P6,000 for the year
39.Partners Lazaro and Orlando share profits in a 2:1 ratio, respectively. Each
partner receives an annual salary allowance of P12,000. If the salaries are
recorded in the accounts of the partnership as an expense rather than
treated as an allocation of profit, the total amount allocated to each partner
for salaries and net profit would be
a. less for both Lazaro and Orlando
b. unchanged for both Lazaro and Orlando
c. more for Lazaro and less for Orlando
d. more for Orlando and less for Lazaro
40.Navarro and Paredes formed a partnership on January 2, 2008, and agreed to

share income 90% and 10% respectively. Navarro contributed a capital of
P50,000. Paredes contributed no capital but has a specialized expertise and
manages the firm full-time. There were no withdrawals during the year. The
partnership agreement provides for the following:
a. Capital accounts are to be credited annually with interest at 5% of

beginning capital.
b. Paredes is to be paid a salary of P2,000 a month.
c. Paredes is to receive a bonus of 20% of income calculated before
deducting his bonus, his salary, and interest on both capital accounts.
d. Bonus, interest and Paredes’ salary are to be considered partnership
expenses.
The partnership’s 2008 Statement of Recognized Income and Expenses

follows:
P192,9
Revenues 00
Expenses (including salary, interest and 99,400

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bonus)
P93,5
Net Profit 00
What is the amount of bonus to Paredes?

a. P23,376 c. P30,000
b. P24,000 d. P31,476
SESSION 2: PARTNERSHIP DISSOLUTION

Nature of Partnership Dissolution
“The dissolution of the partnership is the change in the relation of the partners
caused by any partner ceasing to be associated in the carrying on of the
business”
- dissolution terminates all the authority of any partner to act for the
partnership.
- It does not necessarily mean an automatic termination of the business
activities. The dissolved partnership may continue until the winding up or
liquidation of partnership affairs is completed.
Causes of Dissolution
Dissolution Formation of a New Partnership

Ends the original partnerships Remaining partners may continue the business
agreement as caused by: operation under a new partnership agreement.
 Admission or withdrawal
of a partner
 Insolvency of a partner
 Death of a partner Liquidation
 Incorporation of Partnership’s business activities are terminated and
partnership noncash assets are converted into cash to pay
partnership’s creditors and distribute remaining assets
to the partners.
Asset Revaluation
The accounting process for the partnership dissolution requires that the
existing partners’ capital accounts be updated first before dissolution.
Accordingly, assets and liabilities of the partnership should be restated at

their fair market values to determine the fair and equitable capital balances of the
existing partners.
Negative Asset Revaluation

Decreases the old partners’ capital balances as an effect of decreasing the
value of the old partnership’s existing assets.
Positive Asset Revaluation

Increases the old partners’ capital as an effect of increasing the value of the
old partnership’s existing assets.

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Accounting for Dissolution
Admission of a New Partner
 By purchase of interest of existing partner(s)
 Purchase of interest from one partner
 Purchase of interest from all partners
 By direct investment to partnership
 Investment equals capital credits
 Bonus method
ADMISSION BY INVESTMENT
Partnership’s Total Agreed Capital (TAC) = Partners’ Total Contributed Capital (TCC)
Is the New Partner’s Agreed Capital Credit equal to his Actual

Contribution?
NO YES No Bonus
There is Bonus
Bonus to the New Partner if his Capital Credit is

GREATER THAN his Actual Contribution
Bonus to the Old Partner if the New Partner’s

Capital Credit is LESSER THAN his Actual
Contribution
Under this method, the total contributed capital is equal to the total partnership
agreed capital, but some individual partners’ contribution is not equal to their
respective capital credit because there is a transfer of capital from one partner to
another.
Withdrawal or Retirement of a Partner

Whenever dissolution is made due to the withdrawal or retirement of a
partner, he may sell his interest to the:
 Outside Party
 Remaining Partner(s)
 Partnership
Insolvency of Partnership or a Partner

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It is commonly a result of excessive losses from operations, the over-
extension of credit to customers, or excessive investments in inventories or in plant
assets.
Dissolution Procedures when Partnership is Insolvent
Insolvent Partnership Dissolution

Procedures
Are all general partners solvent?
NO YES
The solvent general partner will absorb the The general partners must invest
required payment to outside creditors and additional amount to pay the outside
will have existing claim against the other creditors.
general partners.
Dissolution due to Death of a Partner

Death is involuntary termination of one’s participation in the partnership which
automatically dissolves the partnership.
The business activities of the partnership may continue with the remaining partners
and an heir to serve the lieu of a deceased partner as provided in the partnership
contract.
Incorporation of a Partnership
If the partnership is incorporated, the partners will become the stockholders of the
corporation. The corporation then takes place over the assets and assumes the
liabilities of the partnership. As a result, the partnership is dissolved.
MC 2-1 Castelo, a partner in BRC Partnership, assigns his partnership interest to

Serrano, who is not made a partner. After the assignment, Serrano asserts
the right to
I. Participate in the management of BRC.
II. Castelos’ partnership profits
Serrano is correct to which of these rights?

a. I only c. I and II
b. II only d. neither I nor II

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MC 2-2 Jose and Andres are partners with capital balances of P30,000 and P40,000
and sharing profits and losses 40% and 60%, respectively. If Alberto is
admitted as partner paying P20,000 in exchange for 50% of Jose’s equity,
the entry in the partnership books should be as follows:
15,00
a. Jose, Capital 0
15,00
Alberto, Capital 0
20,00
b. Cash 0
20,00
Alberto, Capital 0
20,00
c. Cash 0
Goodwill 5,000
25,00
Alberto, Capital 0
20,00
d. Cash 0
Jose, Capital 5,000
15,00
Alberto, Capital 0
MC 2-3 The capital accounts of the partnership of Silang, Pilar, and Agudo are
presented below with their respective profit and loss ratios:
278,00
Silang P 0 (1/2)
418,00
Pilar 0 (1/3)
192,00
Agudo 0 (1/6)
Jacinto was admitted to the partnership when he purchased directly, for

P264,000, a proportionate interest from Silang and Pilar in the net assets
and profits of the partnership. As a result, Jacinto acquired a one-fifth
interest in the net assets and profits of the firm.
Assuming no asset revaluation is to be recorded, what is the combined

gain realized by Silang and Pilar upon the sale of a portion of their interests
in the partnership to Jacinto?
a. P0 c. P122,800
b. P86,400 d. P164,000
MC 2-4 Lima and Mitra are partners with a profit and loss ratio of 75:25 and capital
balances of P100,000 and P50,000 respectively. Nova is to be admitted into
the partnership by purchasing a 20% interest in the capital, profits and
losses for P60,000. Assuming that no asset revaluation is to be made, the
capital balances of Lima, and Mitra after the admission of Nova are:
a. Lima, P80,000 and Mitra, P40,000
b. Lima, P120,000 and Mitra, P60,000
c. Lima, P112,000 and Mitra, P38,000
d. Lima, P100,000 and Mitra, P50,000

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MC 2-5 Using the information in MC 2-4 and assuming that asset revaluation is to
be made, the capital balances of Lima, Mitra, and Nova are:
a. P170,000; P70,000; P60,000
b. P800,000; P40,000; P30,000
c. P192,500; P77,500; P30,000
d. P100,000; P50,000; P60,000
MC 2-6 Felix contributed P24,000 and Elias contributed P48,000 to form a

partnership, and they agreed to share profits in the ratio of their original
capital contributions. During the first year of operations, they made a profit
of P16,290; Felix, withdrew P5,050 and Elias, P8,000. At the start of the
following year, they agreed to admit Desta into the partnership. He was to
receive a one-fourth interest in the capital and the profits upon payment of
P30,000 to Felix and Elias, whose capital accounts were to be reduced by
transfers to Desta’s capital account of amounts sufficient to bring them
back to their original capital ratio. How should the P30,000 paid by Desta
be divided between Felix and Elias?
a. Felix, P9,825; Elias, P20,175
b. Felix, P15,000; Elias, P15,000
c. Felix, P10,000; Elias, P20,000
d. Felix, P9,300; Elias, P20,700
MC 2-7 In the Quirino-Aquino Partnership, Quirino and Aquino had a capital ratio of
3;1 and a profit and loss ratio of 2:1, respectively. The bonus method was
used to record Martial’s admittance as a new partner. What ratio should be
used to allocate, to Quirino and Aquino, the excess of Martial’s contribution
over the amount credited to Martial’s capital account?
a. Quirino and Aquino’s new relative capital ratio.
b. Quirino and Aquino’s new relative profit and loss ratio
c. Quirino and Aquino’s old capital ratio.
d. Quirino and Aquino’s old profit and loss ratio.
MC 2-8 Palma, Antonio, and David are partners with capital balances of P100,000,
P60,000, P40,000, respectively. The partners share income and loss
equally. For an investment of P100,000 cash, Baluyot is to be admitted as a
partner with a one-fourth interest in capital and income. Which of the
following can best justify the amount of Baluyot’s investment?
a. Baluyot will receive a bonus from the other partners upon his admission
to the partnership.
b. Assets of the partnership were overvalued immediately prior to
Baluyot’s investment.
c. The book value of the partnership’s net assets was less than their fair
value immediately prior to Baluyot’s investment.
d. Baluyot is apparently bringing goodwill into the partnership, and his
capital account will be credited for the appropriate amount.
MC 2-9 The partnership of Linsao and Mison provides for equal sharing of profits
and losses. Prior to the admission of a third partner Zamora, the capital
accounts are Linsao, P75,000 and Mison, P105,000. Zamora invests
P90,000 for a P75,000 interest and partners agreed that the net assets of
the new partnership would be P270,000. This admission involves
a. Asset revaluation to old partners of P15,000
b. Bonus to new partner of P15,000
c. Bonus to old partners of P15,000
d. Asset revaluation to new partner of P15,000
MC 2-10 Using the information in MC 2-9, how much is Mison’s capital in the
new partnership?

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a. P112,500 c. P110,000
b. P105,000 d. P120,000
MC 2-11 Voltaire and Asuncion are partners having capital balances of P150,000
and P180,000, respectively, and sharing profits and losses equally. They
admit Leonor to a one-third interest in partnership capital and profits for an
investment of P195,000. If the asset revaluation method is used in
recording the admission of Leonor to the partnership
a. Leonor capital will be P175,000
b. Total capital will be P525,000
c. Asuncion capital will be P210,000
d. Asset revaluation will be recorded at P45,000
MC 2-12 Using the information in MC 2-11 and assuming that the bonus
approach is used in recording the admission of Leonor to the partnership
a. Leonor capital will be P195,000
b. Total capital will be P585,000
c. Asuncion capital will be P210,000
d. Voltaire will receive a bonus of P10,000
MC 2-13 Ordan, Quizon, and Dizon 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. Sison is admitted as a 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 P70,000 for bonus upon
his admission. How much cash should Sison contribute?
a. P130,000 c. P200,000
b. P185,000 d. P150,000
MC 2-14 Presented below is the Statement of Financial Position of the partnership,

Rivera, Sanchez and Torres, who share profits and losses in the ratio of
6:3:1, respectively.
Cash P 170,000
Other Assets 830,000
1,000,0
Total Assets 00
Liabilities P 160,000
Rivera, Capital 504,000
Sanchez, Capital 252,000
Torres, Capital 84,000
Total Liabilities and 1,000,0
Capital P 00
Assume that the partners agree to sell Vidal 20% of their respective
interest in the partnership for a total payment of P180,000. The payment
by Vidal is to be made directly to the individual partners. The partners
agree that asset revaluation is to be recorded prior to the admission of
Vidal. What are the capital balances of Rivera, Sanchez, and Torres,
respectively, immediately after the admission of Vidal?
a. P396,000; P198,000; P66,000
b. P403,200; P201,600; P67,200

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Information
c. P432,000; P216,000; P72,000
d. P511,200; P255,600; P85,200
MC 2-15 Using the information in MC 2-14 and assuming the assets and
liabilities of the partnership are fairly valued and the partnership wishes to
admit Vidal with a 25% interest without recording asset revaluation or
bonus. How much should Vidal invest in the partnership?
a. P140,000 c. P250,000
b. P210,000 d. P280,000
MC 2-16 Julian, Keno and Lapid are partners sharing profits in the ratio of 5:3:2,
respectively. As of December 31, 2007, their capital balances were P95,000
for Julian, P80,000 for Keno, P60,000 for Lapid.
On January 1, 2008, the partners admitted Manalo as a new partner and

according to their agreement, Manalo will contribute P80,000 in cash to the
partnership and also pay P10,000 for 15% of Keno’s share. Manalo will be
given a 20% share in profits, while the original partners’ share will be
proportionately the same as before. After the admission of Manalo, the
total capital will be P330,000 and Manalo’s capital will be P70,000. The
amount of asset revaluation is
a. P 7,000 c. P22,000
b. P15,000 d. P37,000
MC 2-17 Using the information in MC 2-16, the bonus in the admission of Manalo
would be:
a. P22,000 c. P11,000
b. P12,000 d. P6,600
MC 2-18 Using the information in MC 2-16, the balance of Keno’s capital, after
the admission of Manalo, would be:
a. P72,600 c. P79,100
b. P74,600 d. P81,100
MC 2-19 On April 30, 2008, the firm Juan, Cosme, and Luna presents the
following data from its Statement of Financial Position.
Cash P 21,000 Accounts Payable P 15,000

Other Current
Assets 42,000 Mortgage Payable 30,000
702,00 360,00
Fixed Assets 0 Juan, Capital 0
225,00
Cosme, Capital 0
135,00
Luna, Capital 0
765,00 765,00
P 0 P 0
At this time, Magno is admitted to the firm when he purchases a one-sixth

interest in the firm for P82,500. The old partners equalize their capital
investments. Afterwards, all the partners agree to divide profits and losses
equally.

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The new firm closes its books on June 30, 2008 reporting profit of P12,600
for the two months. The partners made the following withdrawals: Juan and
Luna, P750 per month; Cosme and Magno, P1,000 per month.
On June 30, 2008, Magno invests enough cash to increase his capital to a
one-fourth interest in the partnership. The June 30, 2008 capital balances
of Juan, Cosme, and Luna before the investment of Magno are
Juan P121,25 Cosm P201,65 Lun P200,00
a. , 0; e, 0; a, 0
Juan P201,65 Cosm P201,15 Lun P201,65
b. , 0; e, 0; a, 0
Juan P200,00 Cosm P200,00 Lun P200,00
c. , 0; e, 0; a, 0
Juan P360,00 Cosm P225,00 Lun P135,00
d. , 0; e, 0; a, 0
MC 2-20 The cash to be invested by Magno on June 30, 2008 (rounded to the
nearest peso) is:
a. P80,333 c. P60,333
b. P20,000 d. P121,150
MC 2-21 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 bonus method due to Isleta’s gain of P35,000
b. Prefer bonus method due to Isleta’s gain of P140,000
c. Prefer asset revaluation method due to Isleta’s gain of P140,000
d. Be indifferent because the asset revaluation and bonus methods are the
same
MC 2-22 On May 1, 2008, the business accounts of Campos and Centeno appear
below:
Campo Centen
s o
Assets
Cash P 11,000 P 22,354
Accounts Receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Buildings 428,267
Furniture and Fixtures 50,345 34,789
Other Assets 2,000 3,600
1,020,9 1,317,0
P 16 P 02
Equities
Accounts Payable P 178,940 P 243,650
Notes Payable 200,000 345,000

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Campos, Capital 641,976
Centeno, Capital 728,352
1,020,9 1,317,0
P 16 P 02
Campos and Centeno agreed to form a partnership contributing their

respective assets and equities subject to the following adjustments:
a. Accounts receivable of P20,000 in Campos’ books and P35,000 in
Centeno’s books are uncollectible.
b. Inventories of P5,500 and P6,700 are worthless in Campos’ and
Centeno’s respective books.
c. Other assets of P2,000 and P3,600 in Campos’ and Centeno’s respective
books are to be written off.
The capital accounts of the partners after the adjustments will be

Campos Centeno
a
P683,052
. P614,476
b
P717,894
. P615,942
c
P712,345
. P640,876
d
P683,350
. P613,576
MC 2-23 Using the information in MC 2-22, how much assets does the
partnership have?
a. P2,337,918 c. P2,265,118
b. P2,237,918 d. P2,365,218
MC 2-24 Using the information in MC 2-22 and assuming Coronel offered to join
for a 20% interest in the firm, how much cash should he contribute?
a. P330,870 c. P344,237
b. P337,487 d. P324,382
MC 2-25 Using the information in MC 2-22 and assuming after Coronel’s

admission, the profit and loss sharing ratio was agreed to be 40:40:20
based on capital credits, how much should the cash settlement be between
Camps and Centeno?
a. P33,602 c. P32,272
b. P32,930 d. P34,288
MC 2-26 Using the information in MC 2-22 and assuming that during the first
year of operations the partnership earned a profit of P325,000 and that this
was distributed in the agreed manner. Assuming further that drawings
were made in these amounts: Campos, P50,000; Centeno, P65,000; and
Coronel, P28,000, how much are the capital balances of the partners after
the first year?
a. P330,870 c. P344,237
b. P337,487 d. P324,382
MC 2-27 The partnership of Roces, Bondoc, and Mabini have capital account
balances as follows: Roces, P35,000; Bondoc, P50,000; Mabini, P40,000.

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Their profit and loss ratios are 30%, 50%, and 20% respectively. With the
consent and knowledge of Roces and Bondoc, Mabini sold his full interest
to Roxas. Mabini was paid P46,000 in cash. The new capital balances would
be:
Roces Bondoc Roxas
a P35,00 P46,00
P50,000
. 0 0
b P36,80 P41,20
P53,000
. 0 0
c P35,00 P40,00
P50,000
. 0 0
d P35,00
P50,000
. 0 P6,000
MC 2-28 When Martin retired from the partnership of Martin, Lopez and Hilario,
the final settlement of Martin’s interest exceeded his capital balance.
Under the bonus method, the excess
a. was recorded as Other Assets
b. was recorded as an expense
c. reduced the capital balances of Lopez and Hilario
d. had no effect on the capital balances of Lopez and Hilario
MC 2-29 Prieto, Norberto and Montes are partners and share profits and losses
equally. Each has a capital balance of P1,800,000. Norberto retires from the
partnership and receives P1,500,000. The partnership assets are fairly
stated. What is the entry to record Norberto’s retirement?
Norberto, 1,800,0 (dr
a. Capital P 00 )
(cr
Goodwill 300,000 )
1,500,0 (cr
Cash 00 )

b. Capital P 00 )
(cr
Other Assets 300,000 )
1,500,0 (cr
Cash 00 )

c. Capital P 00 )
1,500,0 (cr
Cash 00 )

d. Capital P 00 )
(cr
Montes, Capital 150,000 )
(cr
Prieto, Capital 150,000 )
1,500,0 (cr
Cash 00 )
MC 2-30 Dangal, Evita and Flores share partnership profits in the ratio of 2:3:5.
On September 30, Flores opted to retire from the partnership. The capital
balances on this date follow:

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Dangal, P25,00
Capital 0
P40,00
Evita, Capital 0
P35,00
Flores, Capital 0
How much is to be debited from Dangal, assuming Flores is paid P39,000 in
full settlement of his partnership interest?
a. P2,400 c. P3,000
b. P4,000 d. P1,600
MC 2-31 Salgado, Tiangco and Umali are partners. Umali is permitted to

withdraw from the partnership on December 31. It was agreed that the
settlement is to be made by payments from the personal funds of the
remaining partners to Umali. Capital balances on December 31 show:
Capital Profit
Balances Ratio
Salgad
o P 30,000 30%
Tiangc
o 25,000 30%
Umali 45,000 40%
If Salgado and Tiangco paid Umali P48,000, how much is the

undervaluation of assets if the transaction will be recorded using the
revaluation of assets method?
a. P 500 c. P5,000
b. P3,000 d. P7,500
MC 2-32 Vicente, Ilaw and Joson are partners with capital balances on
December 31, 2008 of P300,000, P300,000, and P200,000 respectively.
Profits are shared equally. Joson wishes to withdraw and it is agreed that he
is to take certain furniture and fixtures at their second-hand value of
P12,000 and note for the balance of his interest. The furniture and fixtures
are carried on the books as fully depreciated. Brand new, furniture and
fixtures may cost P20,000. Joson’s acquisition of the second-hand furniture
will result to:
a. Increase in the capital of P4,000 each for Vicente, Ilaw, and Joson
b. Increase in the capital of P6,000 each for Vicente and Ilaw
c. Increase in the capital ofP10,000 each for Vicente and Ilaw
d. Increase in the capital of P8,000 for Joson
MC 2-33 The Statement of Financial Position as of June 30, 2008 for the
partnership of Yumul, Yason and Ylagan shows the following information:
360,00
Total Assets P 0
Yumul, Loan P 20,000

Yumul, Capital 83,000
Yason, Capital 77,000
180,00
Ylagan, Capital 0
360,00
P 0

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It was agreed among the partners that Yumul retires from the partnership
and it was further agreed that the assets be adjusted to their fair value of
P408,000 as of June 30, 2008. The partnership would pay Yumul, P121,000
cash for his partnership interest and includes the payment of loan to him.
Yumul, Yason and Ylagan share profits and losses, 25%, 25% and 50%,
respectively. What is Ylagan’s capital balance after the retirement of
Yumul?
a. P120,000 c. P200,000
b. P180,000 d. P360,000
MC 2-34 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 final settlement for his interest. The remaining
partners’ capital accounts, excluding their share of the asset revaluation,
totaled P90,000 after his withdrawal. The total asset revaluation of the firm
agreed upon was:
a. P40,000 c. P20,000
b. P28,000 d. P 8,000
Use the choices below for the following questions.

A. MAHAL KITA – if both statements are correct.
B. MAHAK KO SYA – if both statements are incorrect.
C. MISS KITA – if the first statement is correct.
D. MISS KO SYA – if the second statement is correct.
1. First statement: A partnership is dissolved when a new partner is admitted to

the partnership.
Second statement: person admitted as a partner is liable for all obligations of
the partnership contracted before his admission.
2. First statement: It is possible that a partner will not invest any tangible assets
into a partnership yet be given a positive opening capital balance.
Second statement: When a partner withdraws, and the amount paid to the
partner is greater than the balance of his capital account, the partnership is
in effect giving him a bonus.
3. First statement: A partnership is dissolved when a new partner is admitted to

the partnership.
Second statement: The dissolution of the partnership will extinguish the
existing liability of any partner.
4. First statement: When a new partner enters a partnership through purchase

of interest, the cash paid to the selling partner is always equal to the new
partner’s capital balance.

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Second statement: When new partners invest more than the equity interest
of the partnership that they are to receive, part of the entry to record the new
partners’ investment is a credit to the capital accounts of the old partners.
5. First statement: A new partner must get the consent of all the old partners
before being admitted into the partnership.
Second statement: There is no impact on the balance sheet of a partnership
when a partner withdraws from the business.
6. First statement: A new partner may be admitted with the consent of the
majority of the old partners.
Second statement: N directly purchased F’s P62,500 partnership interest for
P75,000. The amount to be used to record the transaction is P75,000.
7. First statement: Partner Carrie purchases partner Delio’s P9,000 interest for
P11,000. The amount that will be used to record the transaction is P9,000.
Second statement: A partnership may be dissolved without having to go
through liquidation.
8. First statement: The sale of a partner’s interest in an existing partnership is a

personal transaction between the selling partner and the new partner.
Second statement: A partnership may be dissolved by the partners anytime.
9. First statement: A bonus given to the old partners by a new partner increases
the capital account balances of the old partners.
Second statement: It is not possible to invest assets into a partnership and be
given a zero-capital balance.
10.First statement: The agreed capitalization can never be lower than the total
contributed capital.
Second statement: When the existing partners pay a bonus to a newly
admitted partner, the existing partners’ accounts are debited.
11.First statement: Jojo purchased directly from jenny her P35,000 partnership
interest for P55,000. The entry to record the transaction would be to credit
Jojo’s Capital for P35,000.
Second statement: When Gorio purchased Macky’s P80,000 capital interest
for P80,000, the resulting entry would contain a debit to Macky’s Capital for
P80,000.
12.First statement: The total assets of the partnership will increase upon
admission of a new partner by purchase of interest.

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Second statement: When a new partner is given a 30 percent ownership
interest in a partnership, he will not necessarily receive 30 percent of all
future profits.
13.First statement: Partnership dissolution is not synonymous with partnership

liquidation.
Second statement: Admission of a new partner bay purchase of interest is a
personal transaction between the old and new partners. Any gain in the
transaction should not be recognized in the books of the partnership.
14.First statement: The dissolution of a partnership is the same as its liquidation.

Second statement: Asset revaluation and bonus are one and the same.
15.First statement: When a partner leaves a partnership, it is possible that the

total assets of the partnership will be not affected.
Second statement: Goodwill is the amount of capital transferred by one
partner to another Partner during dissolution.
16.First statement: When a partner withdraws assets greater than his capital
balance, the excess is treated as a bonus to the remaining partners.
Second statement: When a new partner is admitted, the partnership may
continue operations based on a new contract among the partners.
17.First statement: A partner who retires from a partnership is always entitled to

the exact remaining balance of his capital account.
Second statement: A new partner must have the consent of at least 5 of the
partners before being admitted into the partnership.
18. First statement: When a new partner invests more than the capital credit he
receives in the partnership, a bonus is recorded in his favor.
Second statement: In the admission of a new partner by investment, agreed
capital is not always equal to contributed capital.
19.First statement: In the admission of a new partner by purchase, the new

partner may pay more, less or equal to the carrying value of the interest sold
by any of the old partners.
Second statement: The death of a partnership creditor dissolves the
partnership.
20.First statement: A limited partner does not need the consent of the other
partners before he will be admitted.
Second statement: The retirement of a partner by payment from partnership
assets may cause the remaining partners’ capital balances to decrease.

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21.First statement: When a bonus is given to a new partner, part of the entry to
record his admission will reduce the capital accounts of the old partners.
Second statement: When a partner leaves, it is possible that partnership
assets will be unaffected.
22.First statement: A new partner may be admitted without an actual cash

investment.
Second statement: The withdrawal of a partner from a partnership is a source
of dissolution.
23.First statement: A new partner can be admitted into a partnership by getting

the consent of 6 out of 10 partners.
Second statement: If a partner withdraws by selling his equity interest for an
amount greater than the balance in his capital account, the excess payment
will be treated as a bonus to the continuing partners.
24.First statement: Asset revaluation may be recorded upon the admission of a

new partner whether by purchase of interest or by investment of assets.
Second statement: A partner who withdraws from a partnership is not always
entitled to the remaining balance of his capital account.
25.First statement: Admission of a new partner by investment will always

change total partnership assets and total partnership capital.
Second statement: Bonus is the term given to describe the excess of agreed
capital over total contributed capital.
26.First statement: The total implied capital can be determined by dividing the
new partner’s contribution by his percentage of interest.
Second statement: Purchase of interest is the direct transfer of capital from
one partner to another.
27.First statement: Agreed capitalization is used to describe the total

contribution of both the new and the old partners.
Second statement: Liquidation is the change in the relationship of the
partners caused by any one of them disassociation from the partnership.
28.First statement: Agreed capitalization is the amount of new capital set by the
partners and is not necessarily equal to the contributed capital.
Second statement: Admission by investment in a type of admission wherein
the new partner admitted by purchasing the whole interest or partial interest
of one or more old partners.

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29.First statement: Purchase of interest is a type of admission which always

increases total assets and total capital of the partnership.
Second statement: Revaluation is the increase in the capital credit of a new
partner, other than his capital contribution, but which reduces the capital of
the old partners.
30.First statement: Bonus is the increase in the capital balances of the old
partners. This is due to some partnership assets which are not properly
valued.
Second statement: There can be an upward revaluation of assets and bonus
to the new partners at the same time.
SESSION 3: ACCOUNTING FOR PARTNERSHIP LIQUIDATION
 LIQUIDATION – refers to the winding up of its business activities.
 REALIZATION – the conversion of non-cash assets into cash.
 CAPITAL DEFICIENCY – the excess of the partner’s share in losses over the
partners’ capital credit balance.
 PARTNER’S INTEREST – the sum of the CAPITAL and LOAN accounts in the
partnership.
The assets of the partnership shall be applied in the following ORDER:

1. Outside Creditors
2. Inside Creditors (Loans to Partner)
3. Capital Contributions
4. Share in Profits
RIGHT OF OFFSET- is legal right of a partner to apply part or all of his loan account
balance against his capital deficiency resulting from losses in the realization of the
partnership assets.
Order of preference – separate assets of an insolvent partner

1. Separate Creditors
2. Partnership Creditors
3. Obligation to the co-partners (by way of additional contribution made by the
co-partners)
Methods of partnership liquidation

1. Lumpsum Method
2. Installment Method
a. Schedule of Safe Payments
b. Cash Priority Program
Entries related to Partnership Liquidation

1. Selling of Non-cash assets
2. Distribution of Gain or Loss on realization
3. Payment of liabilities
4. Exercise of right of offset
5. Additional investment by deficient partner

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6. Deficiency absorbed by Solvent Partner
7. Distribution of cash to partners
Method 1: Lump sum liquidation

1. Realization of non-cash assets
2. Payment for liquidation expense or unrecorded liability
4. Elimination of partner’s capital deficiency
A. Right of offset
B. Investment
C. Absorb by the other partners
5. Payment to partners, based on order of priority;
A. Loan Accounts
B. Capital Accounts
C.
Method 2: Instalment liquidation
1. Realization of non-cash assets
2. Payment for liquidation expense or unrecorded liability
4. Distribution of available cash based on SSP and CPP.
SCHEDULE OF SAFE PAYMENTS

Prepare every time if there is an available cash to distribute.
RESTRICTED INTEREST – all the possible loss that the partnership my incur.
A. Unsold non cash assets
B. Partner’s capital deficiency
C. Cash withheld for future liquidation expense
FREE INTEREST – amounts to be paid to the partner.
CASH PRIORITY PROGRAM

- it is prepared at the start of the liquidation process.
- It will help the partners project when they can expect to be included in the
cash distribution.
LOSS ABSORPTION BALANCE - the maximum loss that the partners can
absorb without reducing their equity below zero.
MULTIPLE CHOICE
MC 3-1 Cacho, Aspiras, Yumul, and Lim are partners sharing profits and losses
equally. The partnership is insolvent and is to be liquidated. The status of
the partnership and each partner is presented below.
Cacho Aspiras Yumul Lim

Partnership capital P P100,0 P(200,00 P(300,00
balance 150,000 00 0) 0)
Personal assets
(exclusive of 1,000,0 300,00
800,000 10,000
00 0
partnership interest)
Personal liabilities
(exclusive 600,00
400,000 50,000 280,000
0
of partnership interest

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The partnership creditors
a. must first seek recovery against Yumul because he is personally solvent
and he has a negative capital balance.
b. will not be paid in full regardless of how they agreed legally because the
partnership assets are less than partnership liabilities.
c. will have to share Aspiras’ interest in the partnership on a pro rata basis
with Aspiras’ personal creditors
d. have first claim to partnership assets before any partner’s personal
creditors have rights to the partnership assets.
MC 3-2 Using the information in MC 3-1, the partnership creditors may obtain
recovery of their claims
a. In the amount of P62,500 from each partner
b. From the personal assets of either Cacho or Aspiras
c. From the personal asset of Either Yumul or Lim
d. From the personal assets of either Cacho or Yumul for some or all of
their claims
MC 3-3 After all non-cash assets have been converted into cash in the liquidation
of the Gamboa and Horacio Partnership, the ledger contains the following
balances:
Debit Credit
Cash P 141,000
P
Accounts Payable 96,000
Loan Payable to
Gamboa 45,000
Gamboa, Capital 21,000
Horacio, Capital 21,000
Available cash should be distributed with P96,000 going to accounts

payable and
a. P45,000 to the Loan Payable to Gamboa
b. P22,500 each to Gamboa and Horacio
c. P24,000 to Gamboa and P21,000 to Horacio
d. P21,000 to Gamboa and P24,000 to Horacio
MC 3-4 On December 31, the partnership accounts of Carbon, Hipolito and Imperial
who share profits and losses in the ratio of 5:3:2 follows:
P
Carbon, Drawing - debit 12,000
Imperial, Drawing - credit 4,800
Accounts Receivable -
Carbon 7,200
Loans Payable - Hipolito 14,400
Carbon, Capital 59,400
Hipolito, Capital 44,400
Imperial, Capital 39,000
Total partnership assets on this day stands at P211,200, including cash of

P64,200. The partnership is liquidated and Imperial ultimately receives
P33,000 in final liquidation. How much is the total loss on realization of the
partnership?

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a. P64,200 c. P54,000
b. P31,200 d. P10,800
MC 3-5 As of December 31, 2008, the books of GTB Partnership showed capital
balances of Gueco – P40,000; Tiangco – P25,000; Barcelon, - P5,000. The
partners’ profit and loss ratio was 3:2:1, respectively. The partners decided
to dissolve and liquidate. They sold all the non-cash assets for P37,000
cash. After settlement of all liabilities amounting to P12,000, they still have
P28,000 cash left for distribution. The loss on realization of the non-cash
assets was:
a. P42,000 c. P45,000
b. P40,000 d. P28,000
MC 3-6 Using the information in MC 3-5 and assuming that any debit balance of
partners’ capital is uncollectible, the share of Gueco on the P28,000 cash
for distribution was
a. P19,000 c. P18,000
b. P17,800 d. P28,000
MC 3-7 Alarcon, Baretto and Coronel, partners, are in textile distribution business
sharing profits and losses equally. On December 31, 2008, the partnership
capital and partners’ drawings are as follows:
Alarco Coron
n Baretto el Total
P P480,00
Capital P100,000 80,000 P300,000 0
Drawin 60,00
g 0 40,000 20,000 120,000
The partnership was unable to collect on trade receivables and was forced
liquidate. Operating profit in the year 2008 amounted to P72,000 which
was all exhausted including the partnership assets. Unsettled creditors’
claim at December 31, 2008 total P84,000. Baretto and Coronel have
substantial private resources but Alarcon has no personal assets. The loss
on realization was:
a. P360,000 c. P480,000
b. P432,000 d. P516,000
MC 3-8 Using the information in MC 3-7, the final cash distribution to Coronel was
a. P78,000 c. P108,000
b. P84,000 d. P162,000
MC 3-9 Doria and Elma are partners with capital balances and profit and loss ratio
as follows:
Capital Profit and Loss Ratio
P24,50
Doria 0 60%
Elma 15,500 40%
P40,00 100
0 %

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The partners decided to liquidate the partnership. The firm’s liabilities
amount to P36,000, including P4,000 owing to Doria and P3,500 owing to
Elma on loans. After realization of assets, the cash on hand amounts to
P37,500. The loss on realization amounts to
a. P2,500 c. P38,500
b. P4,000 d. P37,500
MC 3-10 Using the information in MC 3-9, the settlement to partners Doria and
Elma would be cash of
a. P22,500 and P15,000, respectively
b. P1,500 and P1,000, respectively
c. P5,400 and P3,600, respectively
d. P4,000 and P3,500, respectively
MC 3-11 Jurado, Katindig, Lazaro, and Marcelo are partners, sharing earnings in
the ratio of 3:4:6:8. The balance of their capital accounts on December 31,
2008 are as follows:
Jurado P 1,000
Katindi
g 25,000
Lazaro 25,000
Marcelo 9,000
P 60,000
The partners decided to liquidate, and they accordingly convert the non-
cash assets into P23,200 of cash. After paying the liabilities amounting to
P3,000, they have P22,200 to divide. Assume that a debit balance in any of
partner’s capital is uncollectible. The book value of the non-cash assets
amounted to:
a. P25,200 c. P61,000
b. P45,400 d. P63,000
MC 3-12 Using the information in MC 3-11, the share of Jurado in the loss upon
conversion of the non-cash assets into cash was:
a. P4,792 c. P5,400
b. P5,257 d. P1,000
MC 3-13 Using the information in MC 3-11 and when P22,200 was divided,
Lazaro got
a. P6,342 c. P10,800
b. P8,320 d. P14,200
MC 3-14 Rubio, Simon and Tangco decided to dissolve the partnership on

November 30, 2008. Their capital balances and profit ratio on this date,
follow:
Profit and Loss
Capital
Ratio
P50,00
Rubio 0 40%
Simon 60,000 30%

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Tangc
o 20,000 30%
The net profit from January 1 to November 30, 2008 is P44,000. Also, on
this date, cash and liabilities are P40,000 and P90,000, respectively. For
Rubio to receive P55,200 in full settlement of his interest in the firm, how
much must be realized from the sale of the firm’s non-cash assets?
a. P196,000 c. P193,000
b. P177,000 d. P187,000
MC 3-15 Esper, Ester, Ethel and Elmer share profits in the ration of 2:1:1:1. The
partnership cannot meet its obligations to creditors and dissolution is
authorized on September 30, 2008. A Statement of Financial Position for
the partnership on this date shows balances as follows:
Assets Liabilities and Capital
P265,00
Cash P90,000 Liabilities 0
25,00
Other Assets 400,000 Elmer, Loan 0
50,00
Esper, Capital 0
50,00
Ester, Capital 0
50,00
Ethel, Capital 0
50,00
Elmer, Capital 0
P490,00 P490,00
Total Assets 0 Total Liabilities & Capital 0
The personal status of partners on this date is determined to be as follows:

Cash and cash
Partner Personal
value of personal
s liabilities
assets
P
Esper P250,000 150,000
Ester 100,000 150,000
Ethel 150,000 125,000
Elmer 200,000 250,000
The Other Assets of the partnership are sold and realized P120,000.
Additional contributions by appropriate parties in meeting the claims of
firm creditors were made. The amount that will be paid to the personal
creditors of Esper would be
a. P150,000 c. P165,000
b. P250,000 d. P222,500
MC 3-16 Using the information in MC 3-15, the amount that will be paid to the
personal creditors of Ester would be
a. P100,000 c. P142,000
b. P150,000 d. P180,000

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MC 3-17 Using the information in MC 3-15, the amount that will be paid to the
personal creditors of Elmer would be:
P250,00 P200,00
a. 0 c. 0
P217,50 P235,00
b. 0 d. 0
MC 3-18 Capitalizing on alleged inside information, Urbe and Viray formed a

partnership to purchase, sell or otherwise trade in Bre-X mining shares.
Bre-X recently made a significant finding of gold deposits in its property in
Busang, Indonesia. They started cautiously by making an initial but modes
cash contribution of P137,500,000 each. They agree to divide earnings
equally and further agreed to settle and close the partnership after six
months of furious but ferocious (insider) trading. Below is a synopsis of the
transactions for six months:
By Urbe By Viray
P1,237,500,0 P
Purchase of shares 00 495,000,000
1,339,250,00
Sales of shares 0 462,000,000
Interest charges paid 2,200,000 1,375,000
Dividend income received 1,100,000 2,750,000
How much will Viray receive (or pay) in final settlement of the partnership?
(P34,512,50
a. 0) c. (P 31,625,000)
b. P2,887,500 d. P 66,137,500
MC 3-19 The Statement of Financial Position for the partnership of Delia, Erma,
and Flora, whose share of profits and losses are 40%, 50%, and 10%, is as
follows:
Cash P 150,000 Accounts Payable P 450,000

1,080,0
Inventory 00 Delia, Capital 480,000
Erma, Capital 135,000
Flora, Capital 165,000
Total 1,230,0 Total Liabilities & 1,230,0
Assets P 00 Capital P 00
If the inventory is sold for P900,000, how much should Delia receive upon
liquidation of the partnership?
P104,00 P408,00
a. 0 c. 0
P300,00 P480,00
b. 0 d. 0
MC 3-20 Using the information in MC 3-19 and assuming the inventory is sold
for P540,000, how much should Flora receive upon liquidation of the
partnership?
P111,00
a. P84,000 c. 0
P165,00
b. P97,500 d. 0

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MC 3-21 Using the information in MC 3-19 and assuming that the partnership
will be liquidated in installments. Assume further that as cash becomes
available, it will be distributed to the partners; and inventory costing
P600,000 is sold for P420,000, how much cash should be distributed to
each partner at this time?
Delia Erma Flora
a P168,00 P42,00
P210,000
. 0 0
b P P12,00
P60,000
. 48,000 0
c P P24,00
-
. 96,000 0
d P P60,00
-
. 60,000 0
MC 3-22 In accounting for the lump-sum liquidation of a partnership, cash

payments to partners after all non-partner creditors’ claim have been
satisfied, but before the final cash distribution, should be according to
a. the partners’ relative profit and loss sharing ratio
b. the final balances in partner capital accounts
c. the partners’ relative share of the gain or loss on liquidations
d. safe payments computations
MC 3-23 In a partnership liquidation, the final cash distribution to the partners

should be made in accordance with the
a. partner profit and loss sharing ratios
b. balances of partners’ capital accounts
c. ratio of the capital contributions by partners
d. safe payment computations
MC 3-24 The following Statement of Financial Position was prepared for the
Estrada, Fortuna and Gener Partnership on March 31, 2008:
Cash P 25,000 Liabilities P 52,000

180,00
Other Assets 0 Estrada, Capital (40%) 40,000
Fortuna, Capital (40%) 65,000
Gener, Capital (20%) 48,000
205,00 Total Liabilities & 205,00
Total Assets 0 Capital P 0
The partnership is being liquidated by the sale of assets in installments.

The first sale of non-cash assets having a book value of P90,000 realizes
P50,000. The amount of cash each partner should receive in the first
installment is:
Estrada Fortuna Gener

a
5,000
. P 0 P P 18,000
b 12,00
13,000
. P 0 P P 22,000
c 27,00
5,000
. P 0 P P 18,000
d 40,00
65,000
. P 0 P P 60,000

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MC 3-25 Using the information in MC 3-24 and assuming P3,000 cash is
withheld for possible liquidation expenses, how much cash should Gener
receive?
a. P21,000 c. P3,000
b. P17,000 d. P18,000
MC 3-26 Using the information in MC 3-24 and assuming as a separate case,

that each partner properly received the same amount of cash in the
distribution after the second sale of assets. Assume further that the cash to
be distributed amounts to P14,000 from the third sale of assets, and unsold
assets with a P6,000 book value remain, how should the P14,000 be
distributed to Estrada, Fortuna and Gener, respectively?
a. P5,600;P6,500;P2,800 c. P-0-;P11,200;P2,800
b. P5,000;P5,000;P4,000 d. P5,600;P5,600;P2,800
MC 3-27 Aguila, Balweg and Corpuz are partners. On January 3, 2008, their
capital balances and profit and loss ratio are as follows:
Profit and Loss

Capital
Ratio
25,00
Aguila P 0 60%
Balwe 50,00
g 0 25%
Corpu 60,00
z 0 15%
Corpuz withdrew P10,000 during the year. Net loss on December 31, 2008
totaled P20,000. Hence, the partners decided to liquidate the partnership.
It is uncertain how much of the assets will ultimately yield but favorable
realization is expected. It is therefore, agreed to distribute cash as it
becomes available. There are unpaid liabilities of P5,000 and cash on hand
of P700.
The amount of non-cash assets before liquidation is:

a. P110,000 c. P109,300
b. P104,300 d. P105,000
MC 3-28 Using the information in MC 3-27, the amount to be realized by the

partnership on the sale of its assets so that Aguila will receive a total of
P19,000 in the final settlement of his interest is
103,30 119,30
a. P 0 c. P 0
b. P 9,300 d. P 6,000
MC 3-29 Using the information in MC 3-27 and assuming Corpuz received a total
of P33,000, the amount that Balweg would have received at this point is:
a. None c. P 5,000
b. P2,000 d. P21,667
MC 3-30 The assets and equities of the NOP Partnership at the end of its fiscal
year on October 31, 2008 are as follows:

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Receivables -
net 200,000 Loan from Perez 100,000
Inventory 400,000 Nera, Capital (30%) 450,000
Plant assets -
net 700,000 Ochoa, Capital (50%) 300,000
Loan to Ochoa 50,000 Perez, Capital (20%) 150,000
1,500,00 1,500,00
P 0 P 0
The partners decide to liquidate the partnership. They estimate that the
non-cash assets other than the loan to Ochoa can be converted into
P1,000,000 cash over the two-month period ending December 31, 2008.
Cash is to be distributed to the appropriate parties as it becomes available
during the liquidation process. The partner most vulnerable to partnership
losses on liquidation is
a. Nera c. Nera and Ochoa equally
b. Ochoa d. Perez
MC 3-31 Using the information in MC 3-30 and assuming that P650,000 is

available for the first distribution, it should be paid to
Priority
creditors Nera Ochoa Perez
P50,00 P 0
a. P600,000 0 P 0
P15,00 P25,00
b. P600,000 0 0 P 10,000
P50,00
c. P500,000 0 P 0 P 100,000
d. P500,000 P120,000 P 0 P 30,000
MC 3-32 If a total amount of P75,000 is available for distribution to partners

after all non-partner liabilities are paid, it should be paid as follows
Nera Ochoa Perez
P75,00
a. 0 P 0 P 0
P37,50 P37,50
b. P 0 0 0
P22,50 P37,50 P15,00
c. 0 0 0
P25,00 P25,00 P25,00
d. 0 0 0
MC 3-33 The following Statement of Financial Position summary, together with

residual profit sharing ratios, was developed on April 1, 2008, when the
RST Partnership began its liquidation:
Accounts
Receivable 120,000 Loan from Santos 40,000
Inventories 170,000 Reyes, Capital (20%) 150,000
Plant assets - net 400,000 Santos, Capital (40%) 400,000
Loan to Reyes 50,000 Torres, Capital (40%) 310,000
1,020,00 1,020,00
P 0 P 0

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If available cash except for a P100,000 contingency fund is distributed
immediately, Reyes and Santos and Torres, respectively, should receive
P0, P140,000; and
a. P0;P160,000; and P30,000 c. P10,000
P32,000;P64,000 and P0, P145,000; and
b. P64,000 d. P15,000
MC 3-34 Three partners who share profits and losses equally are to incorporate
their business. The capital accounts show the following: Jacinto, P400,000;
Mapa, P600,000 and Magno, P1,000,000.
It is agreed that the three will incorporate their business. Combined, the
net assets amount to P2 million which will be revalued at P2.3 million
based on current market value. The Ordinary Share Capital of the
corporation will have a par value of P100. Upon incorporation, the partners
are to receive shares of stock as follows:
a. Jacinto, 8,667; Mapa, 8,666; Magno, 8,666
b. Jacinto, 4,000; Mapa, 6,000; Magno, 10,000
c. Jacinto, 5,200; Mapa, 7,800; Magno, 13,000
d. Jacinto, 6,000; Mapa, 8,000; Magno, 12,000
MC 3-35 Partners Ramon and Carlos who share equally on the profits and losses
had the following Statement of Financial Position as of December 31, 2008:
Assets Liabilities and Capital
120,00 172,00
Cash P 0 Accounts Payable P 0
100,00 140,00
Accounts Receivable 0 Ramon, Capital 0
140,00 120,00
Merchandise Inventory 0 Carlos, Capital 0
Equipment 80,000
( 8,000
Accumulated Depreciation )
432,00 432,00
Total Assets P 0 Total Liabilities & Capital P 0
Partners agreed to incorporate and have the new corporation absorb all the
assets and assume the liabilities of the partnership after effecting the
following adjustments:
 Provision of allowance for uncollectible accounts of P10,000.
 Recording the merchandise inventory at fair market value of
P160,000
 Further depreciation of the equipment by P3,000
The corporation’s Ordinary Share Capital has a par value of P100 and
partners were issued the corresponding shares of stock equivalent to their
adjusted capital accounts in the amount of
a. P273,000 c. P267,000
b. P280,000 d. P277,000
MC 3-36 Roldan and Moises are partners sharing profits and losses in the ratio
of 1:2, respectively. On July 1, 2008, they decided to form the R and M
Corporation by transferring the assets and liabilities from the partnership

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to the corporation in exchange of its stock. The post-closing trial balance of
the partnership is on the next page.
Debit Credit
Cash 45,000
Accounts Receivable
(net) 60,000
Inventory 90,000
174,00
Plant Assets (net) 0
Liabilities 60,000
Roldan, Capital 94,800
214,20
Moises, Capital 0
369,00 369,00
0 0
It was agreed that adjustments be made to the following assets to be

transferred to the corporation: Accounts Receivable, P40,000; Inventory,
P68,000; Plant Assets, P180,600. The R and M Corporation was authorized
to issue P100 par Preference Share Capital and P10 par Ordinary Share
Capital. Roldan and Moises agreed to receive for their equity in the
partnership, 720 shares of the ordinary share each, plus preference share
for their remaining interest.
The total number of preference and ordinary shares issued by the

corporation in exchange of the assets and liabilities of the partnership are
Preference Ordinary
2,54 share 1,50 share
a. 0 s 0 s
b. 2 s 0 s
c. 2 s 0 s
d. 2 s 0 s
MC 3-37 The distribution of stock to Roldan and Moises are

Roldan Moises
Preference Ordinary Preference Ordinary
share share share 72
a. 785 s 720 s 1,384 s 0 shares
b. 773 s 750 s 1,843 s 0 shares
c. 758 s 720 s 1,834 s 0 shares
d. 738 s 720 s 1,758 s 0 shares
MULTIPLE CHOICE QUESTIONS. Choose the best answer and write it in the answer
sheet.
1. A partnership dissolution differs from a liquidation in that
a. payments are made to creditors before partners receive value.

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b. periodic payments to partners are made when cash becomes available.
c. a partner withdraws from the business and the enterprise continues to
function.
d. full payment is made to all outside creditors before remaining cash is
distributed to partners in a final lump sum payment
2. A simple partnership liquidation requires

a. periodic payments to creditors and partners determined by a safe
payments schedule.
b. partnership assets to be converted into cash with full payment made
to all outside creditors before remaining cash is distributed to partners
in a lump sum payment.
c. only creditors to be paid in an orderly manner.
d. periodic payments to partners as cash becomes available.
3. In a simple partnership liquidation, the last remaining cash distribution

should be made according to the ratio of
a. the individual partner’s profit and loss agreement.
b. the individual partner's capital accounts, increased by partner loans to
the partnership.
c. the individual partner’s capital accounts, increased by partnership
loans to the partners and decreased by partner loans to the
partnership.
d. The individual partner’s capital accounts, decreased by partnership
loans to the partners and increased by partner loans to the
partnership.
4. Under the rule of offset, what is the proper disposition of a partnership loan
that was made from a partner who has a debit balance?
a. The loan is first paid to the debtor partner before cash payments are
made to partners.
b. The loan is written off as a partnership loss if the partner does not
have the cash to cover the debit balance.
c. The loan is charged off to the capital accounts of all the partners in
their profit and loss sharing ratios.
d. The loan is charged off to the capital account of the debtor partner.
5. In the liquidation process, if a capital account shows a deficiency

a. the partner with a deficiency has an obligation to pay the partnership
the amount of the deficiency.
b. it can be written off to a "Loss" account.
c. it is disregarded until after the partnership books are closed.
d. it can be written off to a "Gain" account.
6. In the final step of the liquidation process, remaining cash is distributed to

partners
a. on an equal basis.
b. on the basis of the profit/loss sharing ratios.
c. on the basis of the final capital balances.
d. regardless of capital deficiencies.
7. The liquidation of a partnership is a process containing the following steps:
1. Pay partnership liabilities.

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2. Allocate the gain or loss on realisation of assets to the partners in their
profit ratios.
3. Sell noncash assets for cash and recognise a gain or loss on
realisation.
4. Distribute the remaining cash to the partners on the basis of their final
capital balances.
Identify the proper sequencing of the steps in the liquidation process.

a. 3, 2, 4, 1.
b. 3, 2, 1, 4.
c. 1, 3, 2, 4.
d. 1, 4, 3, 2.
8. If a partner has a capital deficiency and does not have the personal
resources to eliminate it,
a. the creditors will have to absorb the capital deficiency.
b. the other partners will absorb the capital deficiency on the basis of
their respective capital balances at the start of the dissolution.
c. the other partners will absorb the capital deficiency on the basis of
their respective profit/loss sharing ratios.
d. neither the creditors nor the other partners will have to absorb the
capital deficiency.
9. In the liquidation of a partnership, any partner who has a capital deficiency

a. has a personal debt to the partnership for the amount of the deficiency.
b. is automatically terminated as a partner.
c. will receive a cash distribution on the basis of his or her profit-sharing
ratio.
d. is not obligated to make up the capital deficiency.
10.What is the preferred method of resolving a partner’s deficit balance?

a. The partnership must sell assets in order to cover the deficit balance
b. The other partners must contribute personal assets to cover the deficit
balance
c. The partner with a deficit balance must contribute personal assets to
cover the deficit, regardless of personal condition
d. The partner with a deficit balance must contribute personal assets to
cover the deficit only if the partner’s personal assets exceed personal
liabilities
SESSION 4 TO 6: INTRODUCTION TO CORPORATION ACCOUNTING

Corporation – an artificial being created by operation of law having the rights of
succession and the power, attributes and properties expressly authorized by law or
incident to its existence.

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Characteristics of a Corporation
1. Separate legal entity
2. Created by operation of law
3. Rights of succession
4. Powers, attributes, properties expressly authorized by law
5. Ownership divided into shares
6. Board of Directors (BOD)
Types of Corporation
o Public – a corporation formed to render government service
o Private – a corporation formed for a private purpose, aim or benefit.
o Domestic – a corporation that is organized under Philippine laws.
o Foreign - a corporation that is organized under the laws of other countries.
o Stock – a corporation in which the capital is divided into shares of stock and is
authorized to distribute dividends to the holders of such shares. A stock
certificate is a physical evidence of the shares of stock. Stock corporations
are generally profit- oriented.
o Non-stock - a corporation in which capital comes from fees or contributions
given by individuals. No part of its income is distributed as dividends and any
profit shall be used to further the purpose(s) of the corporation. Non-stock
corporations are generally non-profit in nature.
o Open – a corporation whose ownership is widely held by many investors.
o Closely held or family – a corporation in which 50% or more of its stock is
owned by five persons or less.
Components of a Corporation
 Incorporators – persons who originally formed the corporation and whose
names appear in the Articles of Incorporation. They must be 5 but not more
than 15 natural persons. They should not artificial persons.
 Stockholders or shareholders – owners of a stock corporation.
 Members – persons who gave fees or contributions
 to a non-stock corporation.
 Corporators – persons who compose the corporation whether as stockholders
or members.
 Promoters – persons who undertake the necessary steps and procedures to
organize the corporation.
 Subscribers – persons who agreed to buy shares of stock but will pay at a
later date.
 Underwriters – persons who undertake to sell the shares of stocks to the
general public.

The following are the pre-incorporation requirements:

a. At least 25% of the authorized share capital must be subscribed.
b. At least 25% of total subscriptions must be paid.
VALUE OF SHARES
 Par value –a share of stock that is given a definite or fixed value in the
articles of incorporation.

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 No par value – a share of stock that has no fixed value; it may not be issued
for less than p5.
KINDS OF SHARES
a. Common or Ordinary shares –the basic issue of shares. The common or
ordinary share entitles the holder to the following basic rights:
i. Right to vote in shareholders’ meeting;
ii. Right to share in corporate profits (dividends);
iii. Right to share in corporate assets upon liquidation;
iv. Right to purchase additional shares of stocks in the event that the
corporation increases its share capital (pre- emptive right).
b. Preferred or Preference share - entitles the holder to some specific
preferences over the common or ordinary share such as
i. Preference as to payment of dividends;
ii. Preference as to distribution of assets upon liquidation.
TERMS PECULIAR TO A CORPORATION

A. Authorized shares – refers to the maximum number of shares which a
corporation may issue (as set forth in the Articles of Incorporation).
B. Issued shares – shares which are issued to shareholders which at present may
or may not be in the hands of the shareholder.
C. Unissued shares – shares which have never been issued and are available for
issuance.
D. Outstanding shares – shares of stocks issued to shareholders or subscribers
whether fully or partially paid except for treasury shares.
E. Treasury shares - shares which have been issued and fully paid for but
subsequently reacquired by the issuing corporation.
F. Subscribed shares – shares which investors have contracted to acquire.
ACCOUNTING FOR TREASURY SHARES

Treasury Shares. - Treasury shares are shares of stock which have been issued and
fully paid for, but subsequently reacquired by the issuing corporation by purchase,
redemption, donation or through some other lawful means. Such shares may again
be disposed of for a reasonable price fixed by the board of directors. (Sec. 9
Corporate Code of the Philippines)
Pre-Requisites in order to qualify the share as a treasury share
1. share must be a corporation’s own share.
2. share has been issued originally.
3. share is reacquired but not cancelled.
Cost Method. - Treasury shares should be recorded at cost, regardless of whether

the share is acquired below or above the par or stated value (original issue price). If
the treasury share is acquired for cash, the cost is equal to the cash payment.
Purchase of Treasury Shares XX

Treasury Shares Cash XX
At Cost Above Cost Below Cost

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Reissuance of
Treasury Shares
Retirement of
Treasury Shares
ACCOUNTING FOR DIVIDENDS AND RETAINED EARNINGS

 Three dates to remember
1. Date of Declaration
2. Date of Record
3. Date of Payment
 Kinds of Dividends
Declaration Record Payment
Cash Dividend Retained Earnings No entry Cash Dividend Payable

Cash Dividend Payable Cash
Property Retained Earnings No entry Property Dividend Payable
Dividend Property Dividend Investment / Asset
Payable
Share Dividends Retained Earnings No entry Share Distributable
(SMALL) Share Distributable Ordinary Shares
Share Premium
Share Dividends Retained Earnings No entry Share Distributable
(LARGE) Share Premium Ordinary Shares
 DIVIDENDS ON PREFERENCE AND ORDINARY SHARES

1. Non-cumulative and non-participating
2. Non-cumulative and participating
3. Cumulative and non-participating
4. Cumulative and participating
5. Cumulative and participating (Fixed rate)
 Retained Earnings
 Appropriated Retained Earnings
 Unappropriated Retained Earnings

1. A corporation where vacancies in the Board of Directors, are filled only
by the remaining members of the Board, is:
a. Open corporation;
b. Corporation sole;
c. Eleemosynary corporation;

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d. Close corporation
2. The following, except one, are qualifications of corporate directors:

a. Must continuously own at least one share during their term as directors.
b. Must own at least one share of stock.
c. Ownership of shares must be recorded in the books of the corporation.
d. Majority are citizens of the Philippines.
3. In a corporation, two or more positions may be held concurrently by

the same person, except that no one person shall act as:
a. President and Chairman of the Board
b. Secretary and Treasurer
c. Treasurer and Director
d. President and Secretary
4. Which of the following is a disadvantage of forming a corporation?

a. The shareholders are not liable for the debts of the business.
b. The subservience of minority stockholders to the wishes of the majority subject
only to equitable restraints.
c. Because of the power of succession, the existence of the entity is not affected by
the personal vicissitudes of the individual shareholders.
d. The free and ready transferability of ownership.
5. How many numbers of votes of the Board of Directors are required to

change the name of the corporation?
a. 2/3 vote of all the members of the Board
b. 2/3 vote of all present
c. Majority vote of all present constituting a quorum
d. Majority vote of the Board
6. A private corporation commences to have corporate existence and

juridical personality from the date:
a. The officers of the corporation are elected by the stockholders.
b. The incorporators sign the Articles of Incorporation.
c. The Articles of Incorporation and By-laws are presented to the SEC.
d. The SEC issues it certificates of incorporation under its seal.
7. The interest or right of the owner in the corporation's profits or in the

net assets of the corporation on dissolution is:
a. Dividend
b. Share of Stock
c. Certificate of Stock
d. Capital
8. The right of a corporation to exist as a juridical person during its term

as stated in its Articles of Incorporation despite the death of any of its
stockholders is:
a. Right of Existence
b. Right of Redemption
c. Right of Succession
d. Pre-emptive Right
9. Which of the following is not a characteristic of a corporation?

a. Perpetual life
b. Transferability of ownership interests
c. Unlimited liability on the part of the stockholders
d. Ability to attract large amount of capital
10. The following person cannot be an incorporator of a corporation:

a. A resident alien

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b. A married woman without the consent of the husband even if the payment of her
shares is her paraphernal property
c. A subscriber on the shares of the corporation who pays less than 25% of his
subscription
d. A corporation organized under the laws of the Philippines
11. Which of the following documents may be submitted before or after

incorporation?
a. Verification certificate as to the name of the corporation
b. By-laws
c. Certificate of bank deposit as to the paid-up capital
d. Articles of Incorporation
12. A stock corporation, in general, is taxed in the same manner as

a. General professional partnership
b. Non-general professional partnership
c. Sole proprietorship
d. Cooperative
13. Which shares may be issued with or without par value?

a. Common shares
b. Preferred shares
c. Both common and preferred shares
d. Neither common nor preferred shares
14. Under this theory, the nationality of a corporation is that of the

country under whose laws it was formed
a. Control test
b. Incorporation test
c. Domiciliary test
d. Grandfather rule
15. The subscriber of unpaid shares which are not delinquent shall be
entitled to the following rights, except the right to:
a. Vote
b. Inspect corporate books
c. A stock certificate
d. Dividends
16. Immediately after their election, the directors must formally organize
by election the following officers, except:
a. President
b. Vice-President
c. Treasurer
d. Corporate Secretary
17. This is the effect of the issuance of no-par value shares to the stockholders:
a) The holder of such shares shall continue to be liable to the corporation or its
creditors in respect thereto
b) The holder of such shares shall not be liable to the corporation or its creditors in
respect thereto
c) The holder of such shares shall not be entitled to stock or cash dividends
d) The issuance affords greater protection to creditors
A subscribed to 100 shares of Corporation X with par value of P100.00

each, paying P4,000.00 on his subscription. The subscription contract
provides that the balance shall be payable to the corporation in two equal
annual installments, the first to be paid not later than December 31, 2010.
(Items 2 -4)
18. If A will fail to pay the required amount on December 31, 2010, then:

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a) 60 of the shares subscribed by him shall become delinquent
b) He has thirty days from December 31, 2010 to pay P3,000 plus interest
c) All the 100 shares subscribed by him shall become delinquent
d) He has thirty days from December 31, 2010 to pay P6,000.00 plus interest
19. If the shares shall be declared delinquent, which of the following may be done
by the corporation to collect the balance payable by A?
a) The corporation may sell 60 shares at public auction
b) The corporation may sell 100 shares at public auction
c) He may be sued by the corporation to pay the balance plus interest
d) The corporation may exercise either option b) or c)
20. The amount due to the corporation is P6,750.00 and the delinquent shares are
offered for sale at the public auction. M offered P6,700.00 for 95 shares; N offered
P6,750.00 for 94 shares; O offered P6,500.00 for 80 shares; and P offered P6,750.00
for 90 shares. Who is considered the highest bidder?
a) M b) N c) O d) P
21. Rights which the existing stockholders of a corporation cannot be deprived

without their consent to subscribe or to purchase new stock issued by the
corporation; or unissued original stock, in proportion to their holdings before it can
be offered to the others.
a) Right of redemption c) Right to purchase
b) Pre-emptive right d) Appraisal right
22. A corporation created in strict or substantial conformity with the statutory

requirements for incorporation and whose right to exist as a corporation cannot be
successfully attacked even in a direct proceeding for that purpose by the State is
known as:
a) De jure corporation c) Corporation by estoppel
b) De facto corporation d) Answer not given
23. One of the characteristics of treasury shares is that:

a) They have the status of outstanding shares
b) They may not be re-issued or sold again
c) They have neither voting rights or rights to dividends
d) They can be issued as stock dividends
24. Choose the minimum requirement of the Corporation Law to corporate

formation:
Authorized capital Subscribed capital Paid-up capital
a) P100,000.00 P20,000.00 P5,000.00
b) 100,000.00 20,000.00 4,000.00
c) 100,000.00 25,000.00 5,000.00
d) 100,000.00 25,000.00 6,250.00
25. One of the following is a ground for the suspension or revocation of the
certificate of incorporation by the SEC:
a) If the corporation has commenced its business transactions and afterwards
ceased operation continuously for a period of at least five years
b) If the corporation fails to commence and start to operate and the failure is due to
causes beyond the control of the corporation
c) If the corporation does not formally commence its business transactions within a
period of two years
d) If the corporation does not formally commence its business transactions within a
period of five years
26. 1st Statement: The declaration of cash dividends is a power vested only on the
Board of Directors and it requires no consent from the stockholders.

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2nd Statement: The declaration of stock dividends is a power vested only on the
Board of Directors and it requires no consent from the stockholders.
a) 1st statement is false but 2nd statement is true
b) Both statements are true
c) Both statements are false
d) 1st statement true but 2nd statement is false
27. The authorized capital stock of a proposed corporation is P100,000.00 divided

into 1,000 shares with a par value of P100.00 each. The minimum amount of
subscription that must be paid up is:
a) P8,750 or 87.5 shares c) P5,000 or 50 shares
b) P6,250 or 62.5 shares d) P7,500 or 75 shares
28. The following are some of the requisites of a de facto corporation. Choose the
exception.
a) Valid law under which it is incorporated c) Assumption of
corporate power
b) Attempt to incorporate d) None of the above
Rensing, Inc., has $800,000 of 6% preferred stock and $1,200,000 of common stock
outstanding, each having a par value of $10 per share. No dividends have been paid
or declared during 2011 and 2012. As of December 31, 2013, it is desired to
distribute $396,000 in dividends
29.. How much will the preferred and common stockholders receive if preferred is
noncumulative and nonparticipating.
A. 48,000 and 348,000 C. 8,000 and 388,000
respectively respectively
B. 356,000 and 40,000 D. 0 and 396,000 respectively
respectively
30. How much will the preferred and common stockholders receive if preferred is
cumulative and nonparticipating.
A. 0 and 396,000 respectively D. 252,000 and 144,000
B. 396,000 and 0 respectively respectively
C. 144,000 and 252,000
respectively
cumulative and fully participating.
A. 0 and 396,000 respectively D. 216,000 and 180,000
B. 396,000 and 0 respectively respectively
C. 180,000 and 216,000
respectively
cumulative and participating to 12% total.
A. 176,000 and 220,000 C. 396,000 and 0 respectively
respectively D. 0 and 396,000 respectively
B. 220,000 and 176,000
respectively
33.Stock that has a fixed per-share amount printed on each stock certificate is
called
a. stated value stock. c. uniform value stock.
b. fixed value stock. d. par value stock.
34. Which of the following is not a legal restriction related to profit distributions by a
corporation?
a. The amount distributed to owners must be in compliance with the state
laws governing corporations.

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b. The amount distributed in any one year can never exceed the net
income reported for that year.
c. Profit distributions must be formally approved by the board of
directors.
d. Dividends must be in full agreement with the capital stock contracts as
to preferences and participation.
35. In January 2012, Finley Corporation, a newly formed company, issued 10,000
shares of its Php10 par common stock for Php15 per share. On July 1, 2012, Finley
Corporation reacquired 1,000 shares of its outstanding stock for Php12 per share.
The acquisition of these treasury shares
a. decreased total stockholders' equity.
b. increased total stockholders' equity.
c. did not change total stockholders' equity.
d. decreased the number of issued shares.
36. Treasury shares are
a. shares held as an investment by the treasurer of the corporation.
b. shares held as an investment of the corporation.
c. issued and outstanding shares.
d. issued but not outstanding shares.
37. When treasury stock is purchased for more than the par value of the stock and
the cost method is used to account for treasury stock, what account(s) should be
debited?
a. Treasury stock for the par value and paid-in capital in excess of par for
the excess of the purchase price over the par value.
b. Paid-in capital in excess of par for the purchase price.
c. Treasury stock for the purchase price.
d. Treasury stock for the par value and retained earnings for the excess of
the purchase price over the par value.
38. “Gains" on sales of treasury stock (using the cost method) should be credited to
a. paid-in capital from treasury c. retained earnings.
stock. d. other income.
b. capital stock.
39. Porter Corp. purchased its own par value stock on January 1, 2012 for Php20,000
and debited the treasury stock account for the purchase price. The stock was
subsequently sold for Php12,000. The Php8,000 difference between the cost and
sales price should be recorded as a deduction from
a. additional paid-in capital to the extent that previous net "gains" from
sales of the same class of stock are included therein; otherwise, from
retained earnings.
b. additional paid-in capital without regard as to whether or not there
have been previous net "gains" from sales of the same class of stock
included therein.
c. retained earnings.
d. net income.
40. How should a "gain" from the sale of treasury stock be reflected when using the
cost method of recording treasury stock transactions?
a. As ordinary earnings shown on the income statement.
b. As paid-in capital from treasury stock transactions.
c. As an increase in the amount shown for common stock.
d. As an extraordinary item shown on the income statement.
41. Which of the following best describes a possible result of treasury stock
transactions by a corporation?
a. May increase but not decrease retained earnings.
b. May increase net income if the cost method is used.
c. May decrease but not increase retained earnings.

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d. May decrease but not increase net income.
42. Which of the following features of preferred stock makes the security more like
debt than an equity instrument?
a. Participating c. Redeemable
b. Voting d. Noncumulative
43. The cumulative feature of preferred stock
a. limits the amount of cumulative dividends to the par value of the
preferred stock.
b. requires that dividends not paid in any year must be made up in a later
year before dividends are distributed to common shareholders.
c. means that the shareholder can accumulate preferred stock until it is
equal to the par value of common stock at which time it can be
converted into common stock.
d. enables a preferred stockholder to accumulate dividends until they
equal the par value of the stock and receive the stock in place of the
cash dividends.
44. At the date of the financial statements, common stock shares issued would
exceed common stock shares outstanding as a result of the
a. declaration of a stock split.
b. declaration of a stock dividend.
c. purchase of treasury stock.
d. payment in full of subscribed stock.
45. An entry is not made on the
a. date of declaration.
b. date of record.
c. date of payment.
d. An entry is made on all of these dates.
46. Cash dividends are paid on the basis of the number of shares
a. authorized.
b. issued.
c. outstanding.
d. outstanding less the number of treasury shares.
47. Which of the following statements about property dividends is not true?
a. A property dividend is usually in the form of securities of other
companies.
b. A property dividend is also called a dividend in kind.
c. The accounting for a property dividend should be based on the
carrying value (book value) of the nonmonetary assets transferred.
d. All of these statements are true.
48. Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On
December 31, 2012, Houser distributed these shares of stock as a dividend to its
stockholders. This is an example of a
a. property dividend. c. liquidating dividend.
b. stock dividend. d. cash dividend.
49. A dividend which is a return to stockholders of a portion of their original
investments is a
a. liquidating dividend. c. liability dividend.
b. property dividend. d. participating dividend.
50. If management wishes to "capitalize" part of the earnings, it may issue a
a. cash dividend. c. property dividend.
b. stock dividend. d. liquidating dividend.
51. Which dividends do not reduce stockholders' equity?
a. Cash dividends c. Property dividends
b. Stock dividends d. Liquidating dividends

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52. The declaration and issuance of a stock dividend larger than 25% of the shares
previously outstanding
a. increases common stock outstanding and increases total stockholders'
equity.
b. decreases retained earnings but does not change total stockholders'
equity.
c. may increase or decrease paid-in capital in excess of par but does not
change total stockholders' equity.
d. increases retained earnings and increases total stockholders' equity
53.Quirk Corporation issued a 100% stock dividend of its common stock which had a
par value of Php10 before and after the dividend. At what amount should retained
earnings be capitalized for the additional shares issued?
a. There should be no capitalization of retained earnings.
b. Par value
c. Fair value on the declaration date
d. Fair value on the payment date
54. The issuer of a 5% common stock dividend to common stockholders preferably
should transfer from retained earnings to contributed capital an amount equal to
the
a. fair value of the shares issued.
b. book value of the shares issued.
c. minimum legal requirements.
d. par or stated value of the shares issued
55. At the date of declaration of a small common stock dividend, the entry should
not include
a. a credit to Common Stock Dividend Payable.
b. a credit to Paid-in Capital in Excess of Par.
c. a debit to Retained Earnings.
d. All of these are acceptable.
56. The balance in Common Stock Dividend Distributable should be reported as a(n)
a. deduction from common stock issued.
b. addition to capital stock.
c. current liability.
d. contra current asset.
57. The rate of return on common stock equity is calculated by dividing
a. net income less preferred dividends by average common stockholders’
equity.
b. net income by average common stockholders’ equity.
c. net income less preferred dividends by ending common stockholders’
equity.
d. net income by ending common stockholders’ equity.
58. The payout ratio can be calculated by dividing
a. dividends per share by earnings per share.
b. cash dividends by net income less preferred dividends.
c. cash dividends by market price per share.
d. dividends per share by earnings per share and dividing cash dividends
by net income less preferred dividends.
59. Younger Company has outstanding both common stock and nonparticipating,
non-cumulative preferred stock. The liquidation value of the preferred is equal to its
par value. The book value per share of the common stock is unaffected by
a. the declaration of a stock dividend on preferred payable in preferred
stock when the market price of the preferred is equal to its par value.
b. the declaration of a stock dividend on common stock payable in
common stock when the market price of the common is equal to its par
value.

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c. the payment of a previously declared cash dividend on the common
stock.
d. a 2-for-1 split of the common stock.
Presented below is information related to Hale Corporation:

Common Stock, Php1 par Php4,800,000
Paid-in Capital in Excess of Par—Common Stock 550,000
Preferred 8 1/2% Stock, Php50 par 2,000,000
Paid-in Capital in Excess of Par—Preferred Stock 400,000
Retained Earnings 1,500,000
Treasury Common Stock (at cost) 150,000
60. The total stockholders' equity of Hale Corporation is

a. Php9,100,000. c. Php7,600,000.
b. Php9,250,000. d. Php7,750,000.
61. The total paid-in capital (cash collected) related to the common stock is
a. Php4,800,000. c. Php5,750,000.
b. Php5,350,000. d. Php5,200,000.
62. Manning Company issued 10,000 shares of its Php5 par value common stock
having a fair value of Php25 per share and 15,000 shares of its Php15 par value
preferred stock having a fair value of Php20 per share for a lump sum of
Php520,000. How much of the proceeds would be allocated to the common stock?
a. Php54,167 c. Php270,833
b. Php236,364 d. Php276,250
63. Norton Company issues 4,000 shares of its Php5 par value common stock
Php204,000. What amount of the proceeds should be allocated to the preferred
stock?
a. Php182,750 c. Php111,273
b. Php127,500 d. Php95,625
64. Berry Corporation has 50,000 shares of Php10 par common stock authorized.
The following transactions took place during 2012, the first year of the corporation’s
existence:
Sold 10,000 shares of common stock for Php18 per share.
Issued 10,000 shares of common stock in exchange for a patent valued at
Php200,000.
At the end of the Berry’s first year, total paid-in capital amounted to
a. Php80,000. c. Php200,000.
b. Php180,000. d. Php380,000.
65. Glavine Company issues 6,000 shares of its Php5 par value common stock
Php312,000. The proceeds allocated to the common stock is
a. Php32,500 c. Php162,500
b. Php141,818 d. Php170,182
66. Wheeler Company issued 5,000 shares of its Php5 par value common stock
Php260,000. The proceeds allocated to the preferred stock is
a. Php232,917 c. Php141,818
b. Php162,500 d. Php118,182
67. Pember Corporation started business in 2007 by issuing 200,000 shares of
Php20 par common stock for Php36 each. In 2012, 30,000 of these shares were
purchased for Php52 per share by Pember Corporation and held as treasury stock.

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On Junea. 15, 2013, these 30,000 shares were exchanged
Php1,200,000. c. for a piece of property that
Php585,000.
had anb.assessed value of Php810,000. Perber’s stock
Php720,000. d. is actively traded and had a
Php240,000.
market
68. On price of Php60
September on June
1, 2012, 15, Company
Valdez 2013. Thereacquired
cost method is used
16,000 to of
shares account for
its Php10
treasury
par valuestock.
commonThe stock
amountfor of paid-in
Php15 per capital
share. from
Valdeztreasury
uses thestock
costtransactions
method to
resultingfor
account from the above
treasury events
stock. would be
The journal entry to record the reacquisition of the stock
should debit
a. Treasury Stock for Php160,000.
b. Common Stock for Php160,000.
c. Common Stock for Php160,000 and Paid-in Capital in Excess of Par for
Php60,000.
d. Treasury Stock for Php240,000.
69. Gannon Company acquired 8,000 shares of its own common stock at Php20 per
share on February 5, 2012, and sold 4,000 of these shares at Php27 per share on
August 9, 2013. The fair value of Gannon's common stock was Php24 per share at
December 31, 2012, and Php25 per share at December 31, 2013. The cost method
is used to record treasury stock transactions. What account(s) should Gannon credit
in 2013 to record the sale of 4,000 shares?
b. Treasury Stock for Php80,000 and Paid-in Capital from Treasury Stock
for Php28,000.
c. Treasury Stock for Php80,000 and Retained Earnings for Php28,000.
d. Treasury Stock for Php96,000 and Retained Earnings for Php12,000.
70. Long Co. issued 100,000 shares of Php10 par common stock for Php1,200,000.
Long acquired 10,000 shares of its own common stock at Php15 per share. Three
months later Long sold 5,000 of these shares at Php19 per share. If the cost method
is used to record treasury stock transactions, to record the sale of the 5,000
treasury shares, Long should credit
b. Treasury Stock for Php50,000 and Paid-in Capital from Treasury Stock
for Php45,000.
c. Treasury Stock for Php75,000 and Paid-in Capital from Treasury Stock
for Php20,000.
d. Treasury Stock for Php75,000 and Paid-in Capital in Excess of Par for
Php20,000.
71. An analysis of stockholders' equity of Hahn Corporation as of January 1, 2012, is
as follows:
Common stock, par value Php20; authorized 100,000 shares;
issued and outstanding 90,000 shares Php1,800,000
Paid-in capital in excess of par 700,000
Retained earnings 760,000
Total Php3,260,000
Hahn uses the cost method of accounting for treasury stock and during 2012
entered into the following transactions:
 Acquired 2,500 shares of its stock for Php75,000.
 Sold 2,000 treasury shares at Php35 per share.
 Sold the remaining treasury shares at Php20 per share.
Assuming no other equity transactions occurred during 2012, what should Hahn
report at December 31, 2012, as total additional paid-in capital?
a. Php695,000 c. Php705,000
b. Php700,000 d. Php715,000
72. Percy Corporation was organized on January 1, 2012, with an authorization of
1,200,000 shares of common stock with a par value of Php6 per share. During 2012,
the corporation had the following capital transactions:
January 5 Issued 900,000 shares @ Php10 per share
July 28 Purchased 120,000 shares @ Php11 per share

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55
Information
December 31 Sold the 120,000 shares held in treasury @ Php18 per
share
Percy used the cost method to record the purchase and reissuance of the treasury
shares. What is the total amount of additional paid-in capital as of December 31,
2012?
a. Php-0-. c. Php3,600,000.
b. Php2,760,000. d. Php4,440,000.
73. Sosa Co.'s stockholders' equity at January 1, 2012 is as follows:

Common stock, Php10 par value; authorized 300,000 shares;
Outstanding 225,000 shares Php2,250,000
Paid-in capital in excess of par 700,000
Retained earnings 2,190,000
Total Php5,140,000
During 2012, Sosa had the following stock transactions:
 Acquired 6,000 shares of its stock for Php270,000.
 Sold 3,600 treasury shares at Php50 a share.
 Sold the remaining treasury shares at Php41 per share.
No other stock transactions occurred during 2012. Assuming Sosa uses the cost
method to record treasury stock transactions, the total amount of all additional
paid-in capital accounts at December 31, 2012 is
a. Php691,600. c. Php708,400.
b. Php670,000. d. Php727,600.
74. Presented below is the stockholders' equity section of Oaks Corporation at
December 31, 2012:
Common stock, par value Php20; authorized 75,000 shares;
issued and outstanding 45,000 shares Php 900,000
Paid-in capital in excess of par value 250,000
Retained earnings 300,000
Php1,450,000
During 2013, the following transactions occurred relating to stockholders' equity:
 3,000 shares were reacquired at Php28 per share.
 3,000 shares were reacquired at Php35 per share.
 1,800 shares of treasury stock were sold at Php30 per share.
For the year ended December 31, 2013, Oaks reported net income of Php450,000.
Assuming Oaks accounts for treasury stock under the cost method, what should it
report as total stockholders' equity on its December 31, 2013, balance sheet?
a. Php1,765,000. c. Php1,757,800.
b. Php1,761,400. d. Php1,315,000.
75. On December 1, 2012, Abel Corporation exchanged 30,000 shares of its Php10
par value common stock held in treasury for a used machine. The treasury shares
were acquired by Abel at a cost of Php40 per share, and are accounted for under
the cost method. On the date of the exchange, the common stock had a fair value
of Php55 per share (the shares were originally issued at Php30 per share). As a
result of this exchange, Abel's total stockholders' equity will increase by
a. Php300,000. c. Php1,650,000.
b. Php1,200,000. d. Php1,350,000.
76. Luther Inc., has 3,000 shares of 6%, Php50 par value, cumulative preferred
stock and 100,000 shares of Php1 par value common stock outstanding at
December 31, 2013, and December 31, 2012. The board of directors declared and
paid a Php7,500 dividend in 2012. In 2013, Php36,000 of dividends are declared and
paid. What are the dividends received by the preferred stockholders in 2013?
a. Php25,500 c. Php 10,500
b. Php18,000 d. Php 9,000

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56
Information
77. Anders,
a. Inc., has 10,000 shares of 5%, Php100 c.
Php30,000 par value, cumulative preferred
Php90,000
stock and
b. 40,000 shares of Php1 par value commond.stock Php0
Php50,000 outstanding at December
31, Treasury
78. 2013. There were
stock no dividends declared in 2011. The board of directors declares
is a/an
and pays
a. a Current
Php90,000 dividend in 2012 and in c.2013. Equity
Assets What is the amount of
dividends
b. received
Current byLiabilities
the common stockholders in 2013?
d. Contra Equity
79. Subscription receivable is treated as
a. Current assets if collected more than 1 year
b. Equity account if collected within a year
c. Both statements are related to subscription receivable
d. Contra equity if the problem is silent
80. Which is an advantage of a shareholder over a partner?
a. Owner cannot directly control business operation
b. Owner can easily transfer his interest
c. Owner’s liability is limited
d. b and c
**NOTHING FOLLOWS**

SUMMER REVIEW CLASS
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BALIWAG POLYTECHNIC COLLEGE

College of Accountancy, Business,

SESSION 1: NATURE OF PARTNERSHIP AND PARTNERSHIP

ADVANTAGES and DISADVANTAGES of PARTNERSHIP

BACHELOR OF SCIENCE IN ACCOUNTANCY

Capitalist Partner General Partner Managing Partner Secret Partner

MULTIPLE CHOICE QUESTIONS

2. Which type of partner does not have unlimited liability?

b. Industrial Partners d. Limited Partners

3. The primary reason why an Article of Co-Partnership should not be kept

a. Mutual trust and Fidelity c. Mutual Agency

4. The best evidence of relationship of the partners is the

a. Bible c. Accounting Records

a. Going Concern c. Substance over form

BACHELOR OF SCIENCE IN ACCOUNTANCY

a. Mutual Agency c. Unlimited Life

7. Which of the following is not a characteristic of partnership?

a. Mutual Agency c. Limited Life

8. Which of the following statement is wrong?

9. What is the entry to record the acceptance of an industrial partner to the

12.Industrial partners would share in the losses of the partnership if he is

BACHELOR OF SCIENCE IN ACCOUNTANCY

Accounting for Partnership Formation

Partner’s Capital Account

Partner’s Drawing Account

- It is a temporary account and its periodically closed to the partner’s

Loans Receivable from Partners

- Also called “loans to partner” or “due from partners,”

Loans Payable to Partners

- Also called “loans from partner” or “due to partner,”

BACHELOR OF SCIENCE IN ACCOUNTANCY

AMOUNT OF PARTNER’S CONTRIBUTION

Contribute and record as

II. Valuation of partners’ contribution

VALUATION OF PARTNERS’ CONTRIBUTION

No YES To be recorded at AGREED VALUE, otherwise at

Industry Recorded in MEMORANDUM ENTRY form

Industrial Partner’s Contribution

STAGES FROM WHICH PARTNERSHIPS ARE FORMED

Actual investment method

Is any of the partner’s agreed Capital Credit

Additional Investments and Withdrawals

- It is charge directly to the capital account of a withdrawing partner.

BACHELOR OF SCIENCE IN ACCOUNTANCY

ACCOUNTING FOR PARTNERSHIP OPERATIONS

3. Preparation of financial statements such as:

Salaries or Bonus Allowed for Partner’s Services

BACHELOR OF SCIENCE IN ACCOUNTANCY

Distribution of Partnership Losses

MULTIPLE CHOICE QUESTIONS

4. The accounting method used the partnership operation is

5. If the personal expenses of a partner are paid by the partnership, the

6. Generally, the following partners should share in the losses of the

BACHELOR OF SCIENCE IN ACCOUNTANCY

9. In the absence of any agreement, profits and losses are divided

11.What average capital method should be used in the absence of any

15.If there is an agreement as to the distribution of profit but not stipulations to

BACHELOR OF SCIENCE IN ACCOUNTANCY