REGINA MONDI COLLEGE, INC.

Iriga City

BACHELOR OF SCIENCE IN ACCOUNTANCY

Final Exam Financial Accounting & Reporting

Name: Permit No.__________ Course/Year:

Instructions: Encircle the letter of the best answer. Strictly no erasures allowed. Good luck!

1. A partnership is an association of two or more persons who carry on as co-owners of a

business for profit. The persons who form the partnership may be:
I. Individuals
II. Corporations
III. Fraternal nonprofit organization
a. I only
b. I and III
c. I, II, and III
d. I and II

2. A partnership is a(n)
I. Accounting entity
II. Taxable entity
a. I only
b. II only
c. Neither I nor II
d. Both I and II

3. Which of the following statements about partnership is true?

a. Two accounts are generally maintained for each partner, a drawing account and a capital
account.
b. The drawing account is credited with the partner’s withdrawals of cash or other assets
during the period.
c. Answer (a) is correct but (b) is false.
d. Answers (a), (b), and (c) are all correct.

4. Partner’s interest in a partnership is generally equal to:

a. The fair value of net assets at date of contribution.
b. The sum of fair values of the assets the partner contributes to the firm, increased by any
liabilities of other partners assumed and decreased by any personal liabilities that are
assumed by other partners.
c. The sum of the bases of the individual assets the partner contributes to the firm,
decreased by the partner’s share of partnership liabilities.
d. The unamortized cost of the assets to the partner.

5. Which of the following statements, concerning partnership is true?

a. A partnership is a legal entity, separate and distinct from the individual partners.
b. Individual partners are jointly liable for the debts and obligations of a partnership.
c. Income tax is levied on the individual partners’ shares of the net income of a partnership
and is reported in their personal tax returns.
d. All of the above is true.

6. A partnership is formed by two individuals who were previously sole proprietors. Property
other than cash that is part of the initial investment in the partnership is recorded for
financial accounting purposes at the:
a. Proprietor’s book values or the fair value of the property at the date of the investment,
whichever is higher.
b. Proprietor’s book values or the fair value of the property at the date of the investment,
whichever is lower.
c. Proprietor’s book values of the property at the date of investment.
d. Fair value of the property at the date of investment.

7. On April 1, 2013, Anne, Bea and Cara formed a partnership by combining their separate
business proprietorships. Anne contributed P50,000 cash, Bea contributed property with a P36,000
book value, a P40,000 original cost, and P80,000 fair value. The partnership assumed the P35,000
mortgage attached to the property. Cara contributed equipment with a P30,000 carrying amount, a
P75,000 original cost, and P55,000 fair value. The partnership agreement specifies that profits
and losses are to be shared equally but is silent regarding capital contributions.

Which partner has the largest April 1, 2013 capital account balances?
a. Anne
b. Bea
c. Cara
d. All capital account balances are equal

8. The business assets of LL and MM appear below:

LL MM
Cash P11,0000 P22,354
 Accounts receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000 -
Building - 428,267
Furniture and fixture 50,345 34,789
Other assets 2,000 3,600
Total P1,020,916 P1,317,002
Accounts payable P178,940 P243,650
Notes payable 200,000 345,000
LL, capital 641,976 -
MM, capital - 728,352
Total P1,020,916 P1,317,002

LL and MM agreed to form a partnership by contributing their respective assets and equities
subject to the following adjustments:

a. Accounts receivable of P20,000 in LL’s books and P35,000 in MM’s are uncollectible.
b. Inventories of P5,500 and P6,700 are worthless in LL’s and MM’s respective books.
c. Other assets of P2,000 and P3,600 in LL’s and MM’s respective books are to be written
off.

The capital account of the partner after the adjustments will be:
a. LL, P615,942; MM, P717,894 c. LL, P640,876; MM, P683,050
b. LL, P640,876; MM, P712,345 d. LL, P614,476; MM, P683,052

9. The same information in number 8, how much total assets does the partnership have after
formation?
a. P2,337,918 c. P2,265,118
b. 2,237,918 d. 2,365,218

10. On September 30, 2011, Jodi admits Cholo for an interest in her business. On this date,
Jodi’s capital account shows a balance of P158,400. The following were agreed upon before the
formation of the partnership:
1. Prepaid expenses of P17,500 and accrued expenses of P5,000 are to be recognized.
2. 5% of the outstanding accounts receivable of Jodi amounting to P100,000 is to be
recognized as uncollectible.
3. Cholo is to be credited with a one-third interest in the partnership and is to invest cash
aside from the P50,000 worth of merchandise.

The amount of cash to be invested by Cholo and the total capital of the partnership are:
a. P82,950 and P248,850 respectively.
b. P32,950 and P171,200 respectively.
c. P32,950 and P248,850 respectively.
d. P55,300 and P221,200 respectively.

11. If there is a provision for division of profits but not losses in the partnership
agreements, it is concluded that:
a. Losses should not be divided to the capital accounts, but matched against future earnings.
b. Losses should be divided using the same approach as division of profits.
c. Losses should be divided equally.
d. Losses should be allocated according to the ratio of capital account balances.

12. If the partnership agreement provides for the division of losses only. Profits should be
divided:
a. Equally.
b. According to beginning capital ratio.
c. According to ending capital ratio.
d. According to average capital ratio.

For items 13-15. Paolo, Erika, and Ryan, a partnership formed on January 1, 2015 had the
following initial investments:

Paolo P100,000
Erika 150,000
Ryan 225,000

The partnership agreement stated that the profits and losses are to be shared equally by the
partners after considerations is made to the following:
 Salaries allowed to partners: P60,000 for Paolo; P48,000 for Erika and P36,000 for Ryan.
 Average partner’s capital balances during the year shall be allowed 10%.

Additional information:
 On June 30, 2015, Paolo invested an additional P60,000.
 Ryan withdrew P70,000 from the partnership on September 30, 2015.
 Share on the remaining profit was P3,000 for each partner.
13. Interest on average capital balances of the partners totaled:
a. P48,750 c. P57,625
b. 53,750 d. 60,625
14. Partnership net profit at December 31, 2015 before salaries, interest and partner’s share on
the remainder was:
a. P199,750 c. P211,625
b. 207,750 d. 201,750

15. Total partnership capital on December 31, 2015 was:

a. P405,000 c. P465,000
b. 666,750 d. 480,000

16. The partnership has the following accounting amounts:

1. Sales = P70,000
2. Cost of Goods Sold = P40,000
3. Operating expenses = P10,000
4. Salary allocations to partners = P13,000
5. Interest paid to banks = P2,000
6. Partner’s withdrawals = P8,000

The partnership income (loss)is:

a. P20,000 c. P5,000
b. 18,000 d. 3,000

17. AA, BB, and CC are partners with average capital balances during 2012 of P360,000, P180,000,
and P120,000, respectively. Partners receive 10% interest on their average capital balances.
After deducting salaries of P90,000 to AA and P60,000 to CC the residual profit or loss is
divided equally. in 2012, the partnership sustained a P99,000 loss before interest and salaries
to partners. By what amount should AA’s capital account change?
a. P21,000 increase c. P105,000 decrease
b. 33,000 decrease d. 126,000 increase

18. Salaries to partners of a partnership typically should be accounted for as:

a. A device for sharing net income.
b. An operating expense of the partnership.
c. Drawings by the partners from the partnership.
d. Reductions of the partners’ capital account balances.

19. On January 1, 2012, DD and EE decided to form a partnership. At the end of the year, the
partnership made a net income of P120,000. The capital accounts of the partnership show the
following transactions:
DD, Capital EE, Capial
Dr. Cr. Dr. Cr.
January 1 - P40,000 - P25,000
April 1 P5,000 - - -
June 1 - - - 10,000
August 1 - 10,000 - -
September 1 - - P3,000 -
October 1 - 5,000 1,000 -
December 1 - 4,000 - 5,000

Assuming that an interest of 20% per annum is given on average capital and the balance of the
profits is allocated equally, the allocation of profits should be:
a. DD, P60,000; EE, P59,400 c. DD, P67,200; EE, P52,800
b. DD, P61,200; EE, P58,800 d. DD, P68,800; EE, P51,200

20. HH, MM, and AA formed a partnership on January 1, 2015, and contributed P150,000, P200,000,
and P250,000, respectively. Their articles of co-partnership provide that the operating income
be shared among the partners as follows: as salary. P24,000 for HH, P18,000 for MM, and P12,000
for AA; interest of 12% on the average capital during 2015 of the three partners; and the
remainder in the ratio of 2:4:4, respectively.

The operating income for the year ending December 31, 2015 amounted to P176,000. HH contributed
additional capital of P30,000 on July 1 and made a drawing of P10,000 on October 1; MM
contributed additional capital of P20,000 on August 1 and made a drawing of P10,000 on October
1; and, AA made a drawing of P30,000 on November 1.

The partners’ capital balances on December 31, 2015 are:

a. HH, P179,680; MM, P229,360; and AA, P239,360
b. HH, P179,760; MM, P229,520; and AA, P239,520
c. HH, P189,680; MM, P239,360; and AA, P269,360
d. HH, P223,180; MM, P272,060; and AA, P280,760

21. On January 2, 2015, BB and PP formed a partnership. BB contributed capital of P175,000 and
PP 25,000. They agreed to share profits and losses 80% and 20%, respectively. PP is the general
manager and works in the partnership full time and is given salary of P5,000 a month; an
interest of 5% of the beginning capital (of both partner) and a bonus of 15% of net income
before the salary, interest and the bonus.
The profit and losses statement of the partnership for the year ended December 31, 2015 is as
follows:
Net sales P875,000
Cost of goods sold 700,000
Gross profit P175,000
Expenses (including the salary, interest and the bonus) 143,000
Net income P32,000

The amount of bonus to PP in 2015 amounted to:

a. P13,304 c. P18,000
b. 16,456 d. 20,700

22. A, B, and C are partners in an accounting firm. Their capital account balances at year-end
were AP90,000; B P110,000 and C P50,000. They share profits and losses on a 4:4:2 ratio, after
the following special terms:

1. Partner C is to receive a bonus of 10% net income after the bonus.

2. Interests of 10% shall be paid on that portion of a partner’s capital in excess of
P100,000.
3. Salaries of P10,000 and P12,000 shall be paid to partners A & C respectively.

Assuming a net income of P44,000 for the year, the total profit share of Partner C was:

a. P7,800 c. P19,400
b. 16,800 d. 19,800

23. The partnership contract for the Leni and Digong Partnership provided that Leni is to
receive an annual salary of P120,000, Digong is to receive an annual salary of P80,000, and the
remaining profit or loss is to be divided equally between two partners. Net income of the Leni
and Digong Partnership for the year ended December 31, 2015 was P180,000. The closing entry for
net income on December 31, 2015 is a debit to Income Summary for P180,000 and credits to Leni
Capital and Digong Capital, respectively of:
a. P108,000 and P72,000
b. P90,000 and P90,000
c. P120,000 and P80,000
d. P110,000 and P70,000

24. The partners of Retzie and Arjay, share profits 3:2. However, Retzie is to receive a yearly
bonus of 20 percent of the net profits after deducting said bonus, in addition to his profit
share. The partnership made a net income for the year of P24,000 before the bonus. How much
profit share will Retzie receive?
a. P16,000 c. P15,200
b. 10,000 d. 14,400

25. Carla, Diane, and Elise, agree to form partnership and to share profits in the ratio 5:3:2.
They also agreed that Elise is to be allowed a salary of P14,000, and that DD is to be
guaranteed P10,500 as his share of the profits. During the first year of operation, income from
partnership are P90,000 while expenses total P48,000. what amount of net income should be
credited to each partners’ capital account?
a. Carla, P14,000; Diane, P8,400; Elise, P5,600
b. Carla, P12,500; Diane, P10,500; Elise, P19,000
c. Carla, P12,000; Diane, P11,000; Elise, P19,000
d. Carla, P12,500; Diane, P10,500; Elise, P19,500

26. When the investment of a new partner exceeds the new partners’ initial capital balance and
goodwill is not recorded, who will receive the bonus?
a. The new partner.
b. The old partner in their old profit and loss ratio.
c. The old partners in their new profit and loss ratio.
d. The old and new partners in their new profit and loss ratio.

27. If a partnership contract requires the computation of goodwill when a partner retires from
the partnership, the appropriate journal entry for the partners’ retirement is:
a. Debits Goodwill for the entire amount computed.
b. Debits Goodwill for retiring partners’ share only.
c. Debits Retirement Expense for the retiring partners’ share of the computed goodwill.
d. Debits the continuing partners’ capital accounts for a bonus to the retiring partner.

For item 28-30. The ANM Partnership shows the following profit and loss ratios and capital
balances:

Arroyo 60% P252,000

Nacario 30% P126,000
Mendoza 10% P42,000

The partners decide to sell Cruz 20 percent of their respective capital and profit and loss
interests for a total payment of P90,000. Cruz will pay the money directly to the other
partners.
28. If the partners agree that unrecognized goodwill is to be recorded prior to the sale of
Cruz, what are the capital balances of the partners after his admission?
a. Arroyo, P198,000; Nacario, P99,000; Mendoza, P33,000; Cruz, P90,000
b. Arroyo, P201,600; Nacario, P100,800; Mendoza, P33,600; Cruz, P90,000
c. Arroyo, P216,000; Nacario, P108,000; Mendoza, P36,000; Cruz, P90,000
d. Arroyo, P255,600; Nacario, P127,800; Mendoza, P42,000; Cruz, P90,000

29. If the partners agree that the bonus method is used, what are the capital balances of the
partners after Cruz’ admission to the partnership?
a. Arroyo, P198,000; Nacario, P99,000; Mendoza, P33,000; Cruz, P90,000
b. Arroyo, P201,600; Nacario, P100,800; Mendoza, P33,600; Cruz, P90,000
c. Arroyo, P216,000; Nacario, P108,000; Mendoza, P36,000; Cruz, P90,000
d. Arroyo, P255,600; Nacario, P127,800; Mendoza, P42,000; Cruz, P90,000

30. How much cash should Arroyo, Nacario, and Mendoza receive, respectively from Cruz?
a. P50,400, P25,200, and P8,400, if and only if no goodwill is recorded.
b. P50,400, P25,200, and P8,400, whether or not goodwill is recorded.
c. P54,000, P27,000, and P9,000, if and only if no goodwill is recorded.
d. P54,000, P27,000, and P9,000, whether or not goodwill is recorded.

31. W, X, and Y are partners sharing profits and losses in the ratio of 4:3:3, respectively. The
condensed balance sheet of Heidi Partnership as of December 31, 2012 is:

Heidi Partnership
Balance Sheet
December 31, 2012

Cash P50,000
Other assets 130,000
Total assets P180,000

Liabilities P40,000
W, Capital 60,000
X, Capital 40,000
Y, Capital 40,000
Total liabilities and capital P180,000

Assume instead that the Heidi Partnership is dissolved and liquidated by installments, and the
first realization of P40,000 cash is on the sale of other assets with book value of P80,000.
After the payment of liabilities, the available cash should be distributed to W, X ,and Y,
respectively as follows:
a. P36,000; P27,000; and, P27,000
b. P44,000; P28,000; and, P28,000
c. P16,000; P12,000; and, P12,000
d. P24,000; P13,000; and, P13,000

32. After operating for five years, the books of the partnership of Bo and by showed the
following balances:

Net assets P169,000

Bo, Capital 110,500
By, Capital 58,500

If liquidation takes place at this point and the net assets are realized at book value, the
partners are entitled to:
a. Bo to receive P117,000 & By to receive P52,000
b. Bo to receive P126,750 & By to receive P42,250
c. Bo to receive P84,500 & By to receive P84,500
d. Bo to receive P110,500 and By to receive P58,500

33.As of December 31, 2012, the books of Ton Partnership shoed capital balances of : T, P40,000;
O, P25,000; N, P5,000. The partners’ profit and loss ratio was 3:2:1, respectively. The partners
decided to liquidate and they sold all non-cash assets for P37,000. After settlement of all
liabilities amounting P12,000, they still have cash of P28,000 left for distribution. Assuming
that any capital debit balance is uncollectible, the share of T in the distribution of the
P28,000 cash would be:
a. P17,800 c. P19,000
b. 18,000 d. 17,000

34. Arthur, Baker and Carter are partners in textile distribution business, sharing profits and
losses equally. On December 31, 2012 the partnership capital and partners drawings were as
follows:

Arthur Baker Carter Total

Capital P100,000 P80,000 P300,000 P480,000
Drawing 60,000 40,000 20,000 120,000

The partnership was unable to collect on trade receivables and was forced to liquidate.
Operating profit in 2012 amounted to P72,000 which was all exhausted, including the partnership
assets. Unsettled creditors’ claims at December 321, 2012 totaled P84,000. Baker and Carter have
substantial private resources, but Arthur has no personal assets.

The final cash distribution to Carter was:

a. P78,000 c. P108,000
b. 84,000 d. 162,000
35. Gardo and Gordo formed a partnership on July 1, 2011 to operate two stores to be managed by
each of them. They invested P30,000 and P20,000 and agreed to share earnings 60% and 40%,
respectively. All their transactions were for cash, and all their subsequent transactions were
handled through their respective bank accounts as summarized below:

Gardo Gordo
Cash receipts P79,100 P65,245
Cash disbursements 62,275 70,695

On October 31, 2008, all remaining noncash assets in the two stores were sold for cash of
P60,000. The partnership was dissolved, and cash settlement was affected. In the distribution of
the P60,000 cash, Gardo received:
a. P24,000 c. P34,000
b. 26,000 d. 36,000

36. The PQR Partnership is being dissolved. All liabilities have been paid and the remaining
assets are being realized gradually. The equity of the partners is as follows:

Partners’ Loans to (from) Profit and

Accounts Partnership Loss Ratio
P P24,000 6,000 3
Q 36,000 - 3
R 60,000 (10,000) 4

The second cash payment to any partner(s) under a program of priorities shall be made thus:
a. To R, P2,000 c. To R, P8,000 & To P, 6,000
b. To Q, P6,000 7 To P, 6,000 d. To Q, P6,000 & R, P8,000

37. The assets and equities of the Queen, Reed, and Stac Partnership at the end of its fiscal
year on October 31, 2011 are as follows:

Assets Liabilities and Equity

Cash P15,000 Liabilities P50,000
Receivables – net 20,000 Loan from Stac 10,000
Inventory 40,000 Queen, Capital – 30% 45,000
Plant assets – net 70,000 Reed, Capital – 50% 30,000
Loan to Reed 5,000 Stac, Capital – 20% 15,000
Total Assets P150,000 Total Liabilities and Equity P150,000

The partners decide to liquidate the partnership. They estimate that the noncash assets, other
than the loan to Reed, can be converted into P100,000 cash over the two-months period ending
December 31, 2011. 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. Queen c. Reed and Queen equally
b. Reed d. Stac

38. Using the data in No. 37, and P65,000 is available for first distribution, it should be paid
to:
Priority Creditors Queen Reed Stac
a. P60,000 P5,000 P0 P0
b. 60,000 1,500 2,500 1,000
c. 50,000 5,000 0 10,000
d. 50,000 12,000 0 3,000

39. A statement of financial position for the partnership of Dy, Sy and Lee, who share profits
in the ratio of 2:1:1, shows the following balances just before liquidation:

Cash P12,000
Other assets 59,500
Liabilities 20,000
Dy, Capital 22,000
Sy, Capital 15,500
Lee, Capital 14,000

On the first month of the liquidation, certain assets are sold for P32,000. Liquidation expenses
of P1,000 are paid, and additional liquidation expenses are anticipated. Liabilities are paid
amounting to P5,400, and sufficient cash is retained to insure the payment to creditors before
making payment to partners. On the first payment to partners, Dy receives P6,250.

The total cash distributed to the partners in the first installment is:
a. P20,000 c. P25,000
b. 12,500 d. 10,000

40. Using the data in No. 39, the amount of cash withheld for anticipated liquidation expenses
and unpaid liabilities is:
a. P14,600 c. P16,600
b. 2,000 d. 17,600

Prepared by:

ARNEL N. MORAN
Instructor