ACCOUNTING 2 Flashcards by Joy Montejo

Partnerships can dissolve for various reasons, such as:
________
________
________

Retirement
Death
Withdrawal of a partner.

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__________- is the change of business relationship between partners

DISSOLUTION

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What are the major considerations in the accounting for partnership dissolution

Admission of a partner
Retirement or Withdrawal
Death or Incapacity
Incorporation of a partnership

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_________A new partner decides to join the partnership.
.

Admission of a partner

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________A partner may decide to retire or withdraw from the partnership, leading to the need for dissolution.

Retirement or Withdrawal

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The ____________of a partner can trigger the dissolution of the partnership.

Death or Incapacity

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_______The partnership decides to be a corporation

Incorporation of a partnership

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The admission of a new partner may be affected either through:
a:_________
b:_________

a. Purchase of interest in the partnership,
b. Investment in the partnership

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________- Any consideration paid or received by a partner is not recorded in the partnership’s books.

Purchase of interest

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The only entry to be made in the partnership books is a transfer within equity.

Selling partner’s capital xx
Incoming partner’s capital xx

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_______- the consideration paid by the incoming partner is recorded in partnership’s books.

Investment in the partnership

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the following scenarios may occur when a new partner invests in a partnership:

(i) Incoming partner’s investment = Incoming partner’s capital credit
Asset invested xx
Incoming partner’s capital xx
(ii) Incoming partner’s investment > Incoming partner’s capital credit
- the excess contribution is treated as bonus to the old partners
(iii) ) Incoming partner’s investment < Incoming partner’s capital credit
- the deficiency is treated as bonus to the new partners

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WITHDRAWAL , RETIREMENT, OR DEATH OF A PARTNER
WHEN A PARTNER WITHDRAWS, RETIRES OR DIES, HIS INTEREST MAY BE:

(1) PURCHASED BY ONE OR ALL OF THE REMAINING PARTNERS OR (2) SETTLED BY THE PARTNERSHIP

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______The settlement amount is not recorded in the partnership books
The only entry to be made is a transfer within equity.
Outgoing partner’s capital xx
Purchasing Partner’s capital xx

(1) PURCHASED BY ONE OR ALL OF THE REMAINING PARTNERS

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_____The settlement amount is recorded in the partnership’s books
Outgoing partner’s capital xx
Payment made

(2) SETTLED BY THE PARTNERSHIP

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TRUEORFALSE: A NEW PARTNER MAY BE ADMITTED INTO THE PARTNERSHIP WITH THE CONSENT OF THE MAJORITY OF THE OLD PARTNERS

FALSE

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TRUE/FALSE: A PARTNERSHIP DISSOLUTION WILL ALWAYS LEADS TO PARTNERSHIP LIQUIDITION

FALSE

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TRUE/FALSE: THE ADMISSION OF A NEW PARTNER IN AN EXISTING PARTNERSHIP DISSOLVED THE OLD PARTNERSHIP

TRUE

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TRUE/FALSE: BOTH ASSET REVALUATION AND BONUS AFFECT TOTAL ASSETS AND TOTAL EQUITY

FALSE

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TRUE/FALSE: UPON DEATH OF ONE OF THE PARTNERS, THE REMAINING PARTNERS MAY CONTINUE OPERATION BASED ON THE OLD ARTICLES OF CO-PARTNERSHIP

FALSE

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TRUE/FALSE: THE RETIRING PARTNER’S CAPITAL INTEREST INCLUDES HIS SHARE IN THE NET INCOME OR NET LOSS OF THE PARTNERSHIP UP TO THE DATEOF RETIREMENT.

TRUE

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TRUE/FALSE: LOANS MADE BY THE PARTNERSHIP TO THE PARTNERS, AS RECORDED ON THE PARTNERSHIP BOOKS, REDUCES THE INTEREST OF THE RETIRING PARTNER

TRUE

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TRUE/FALSE: THERE CAN BE PARTNERSHIP DISSOLUTION WITHOUT LIQUIDATION BUT NO LIQUIDATION WITHOUT FIRST HAVING THE PARTNERSHIP DISSOLVED

TRUE

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BONUS IS GIVEN TOT HE WITHDRAWING PARTNER WHEN HE IS PAID MORE THAN HIS INTEREST IN THE PARTNERSHIP

TRUE

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TRUE/FALSE: WHEN THE EXISTING PARTNERS GIVE BONUS TO NEW PARTNER, THE EXISTING CAPITAL ACCOUNTS OF THE PARTNER’S CAPITAL ARE DEBITED

TRUE

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TRUE/FALSE: THERE IS A BONUS TO OLD PARTNERS WHEN TOTAL AGREED CAPTAL IS EQUAL TOT HE TOTAL CAPITAL CONTRIBUTION OF THE PARTNERS AND THE NEW PARTNER’S AGREED CAPITAL IS NOT EQUEAL TO HIS CAPITAL CONTRIBUTION

TRUE

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TRUE/FALSE: THE AMOUNT OF MONEY THAT THE BUYING PARTNER PAYS TO SELLING PARTNER WILL GO TO THE PARTNERSHIP AND NOT TO THE PARTNERS CONCERNED

FALSE

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TRUE/FALSE: DISSOLUTION CAUSES THE TERMINTAION OF THE PARTNERSHIP

FALSE

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TRUE/FALSE: ONLY ADMISSION OF A NEW PARTNER BY PURCHASE OF INTEREST NECESSITATES ADJUSTMENTS OF NON-CURRENT ASSETS INTO ITS FAIR MARKET VALUE

FALSE

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TRUE/FALSE: OWNERSHIP MAY BE TRANSFER AT WILL BY ANYONE OF THE PARTNERS WITHOUT CONSULTING TH EOTHER PARTNERS

FALSE

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TRUE/FALSE: ADMISSION BY PURCHASE OF INTEREST IS A PERSONAL TRANSACTION BETWEEN THE SELLING PARTNER AND THE BUYING PARTNER YET THERE IS AN INCREASE IN THE CAPITALIZATION OF THE PARTNERSHIP

FALSE

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TRUE/FALSE: ADMISSION BY INVESTMENT WILL INCREASE THE CAPITALIZATION OF THE THE PARTNERSHIP

TRUE

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TRUE/FALSE: AN UPWARD ADJUSTMENT OF PARTNERSHIP ASSETS IS IMPLIED BEFORE A NEW PARTNER IS ADMITTED WHEN TOTAL CONTRIBUTION ARE LESS THAN THE AGREDD EQUITY AND THE NEW PARTNER’S CAPITAL CREDIT IS THE SAME AS HIS OR HER INVESTMENT OF ASSETS IN THE FIRM

TRUE

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TRUE/FALSE: PARTNERSHIP DISSOLVED WHEN A PARTNER DIES, RETIRES AND NEW PARTNER ADMISSION

TRUE

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Which of the following statements is true?
a. Each partner generally has the authority to enter into contracts which are binding upon the partnership.
b. General partners are personally liable for the liabilities of the partnership if the partnership is unable to pay.
c. Both A and B
d. Neither A nor B

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Which of the following is the best advantage of a partnership vs. a corporation?
a. Mutual agency
b. Ease of formation
c. Brings greater financial capability to the business
d. Combines special skills, expertise and experience of the partners

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Which of the following would least likely be stated in the articles of partnership?
a. How much each partner will invest
b. What the duties of each partner are
c. What products the company will sell
d. What will happen if a partner dies or wants to dissolve the partnership

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A partnership with the purpose of buying and selling lanterns on the streets.
a. De facto partnership
b. De jure partnership
c. Professional partnership
d. Trading partner

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Which of the following best describes the attributes of a partnership?
a. Limited life of the business and limited liability of partners
b. Limited life of the business and unlimited liability of partners.
c. Unlimited life of the business and limited liability of partners.
d. Unlimited life of the business and unlimited liability of partners

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When a partnership cannot pay its debts with business assets, the partners
a. are not personally liable for the debts.
b. have limited personal liability.
c. must convert the partnership to a joint venture.
d. must use their personal assets to meet the debts

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How should profits be divided among the partners?
a. Equally
b. In accordance with their agreement
c. In accordance with capital contribution
d. In accordance with the ending capital balance

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The partnership agreement between Christian and Tirso stipulates that Christian is to receive a 20% bonus on profits before bonus with the residual profit and loss to be apportioned in the ratio of 2:3, respectively. Which partner has greater advantage when the partnership has a profit and when it incurs a loss?

Profit Loss
Christian Christian

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Partners Kristelle and Rosalie share profit and loss equally after each has been credited with annual salary allowances of 90,000 and 72,000, respectively. Under this arrangement, Kristelle will benefit by 18,000 more than Rosalie in which of the following circumstances?
a. Only if the partnership has profit of 162,000 or more for the year.
b. Only if the partnership does not incur a loss for the year.
c. In all profit or loss situation.
d. Only if the partnership has profit of at least 18,000 for the year

A. Only if the partnership has profit of 162,000 or more for the year.

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The division of profits on the basis of salaries, interest and an agreed ratio is usually necessary because
a. this prevents arguments among the partners.
b. most investors require this method of distribution.
c. partners seldom contribute time, effort and resources equally.
d. this reflects the amount of time devoted to the partnership by the partners

c. partners seldom contribute time, effort and resources equally.

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SM Co. is a partnership of Sheila and Mel. The partners share profits and losses in the ratio of 2:3. During the year, the partnership earned profit of P1,000,000. How would the profit be recorded?

Income and eXPENSE SUMMARY 1,000,000
Sheila, Capital 400,000
Mel, Capital 600,000

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All of the following will dissolve the partnership, except:
a. Admission of a new partner
b. Retirement of a partner
c. Death of a partner
d. Incurrence of loss

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Dissolution of a partnership describes which of the following characteristics of the partnership?
a. Limited life
b. Mutual Agency
c. Mutual contribution
d. Unlimited liability

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It is the sum of the capital balances of the old partners and the actual investment of the new partner.
a. Bonus
b. Capital credit
c. Total agreed capital
d. Total Contributed capital

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Withdrawal of a partner dissolves the old partnership. This type of dissolution may be accomplished by either of the following ways, except
a. One or more of the remaining partners will purchase the equity interest of the withdrawing partner
b. Selling of his interest to an outsider with the consent of all the partners
c. Selling of his equity interest to the partnership
d. Assigning of his equity interest to one of the partners

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Jonas, Johnson and Jacob are partners. They share profits and losses equally. After the books are closed, their capital balances are 90,000, 120,000 and 70,000, respectively. Jacob has decided to leave the ₱ ₱ ₱firm. Which of the following would be included in the entry to record the transaction if the partnership pays Jacob 50,000 in cash and a promissory note for 20,000 for his withdrawal from the partnership?₱ ₱
a. Jacob, Capital would be credited for 50,000₱
b. Jacob, Capital would be credited for 70,000₱
c. Jacob, Capital would be debited for 50,000₱
d. Jacob, Capital would be debited for 70,000

d. Jacob, Capital would be debited for 70,000

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Which of the following results in dissolution of a partnership?
a. Contribution of additional assets to the partnership by an existing partner.
b. Receipt of a drawing by an existing partner.
c. Winding up of the business and the distribution of remaining assets to the partners.
d. Withdrawal of a partner from a partnership

d. Withdrawal of a partner from a partnership

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The admission of a new partner under the bonus method will result in a bonus to
a. the old partners only.
b. the new partners only.
c. either the new partner or the old partners, but not both.
d. None of the above.

c. either the new partner or the old partners, but not both.

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If a bonus is traceable to the previous partners rather than an incoming partner, it is allocated among the partners according to the
a. profit-sharing percentages of the previous partnership.
b. profit-sharing percentages of the new partnership.
c. capital percentages of the previous partners.
d. capital percentages of the new partners.

a. profit-sharing percentages of the previous partnership.

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Rodina invests 160,000 in a partnership for a one-fifth interest. Prior to Rodina’s admission, the ₱partnership had two partners with capital balances of 190,000 each. If no asset revaluation is recognized ₱prior to Rodina’s admission, what amount is credited to her capital account?iv
a. 76,000₱
b. 95,000₱
c. 108,000₱
d. 160,000

c. 108,000₱

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John Harvey, Alissa Grey and John Victor are partners with capital balances of 80,000, 120,000 and 160,000, respectively. They share profits and losses in the ratio of 30:40:30. Alissa Grey decides to withdraw from the partnership. Alissa Grey receives 150,000 in settlement of her interest. If the bonus method is used, what is the capital balance of John Victor immediately after the retirement of Alissa Grey?
a. 130,000
b. 145,000
c. 160,000
d. 175,000

B. 145,000

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Allan, Bam, and Migs are partners of ABM partnership with capital balances of 80,000, 120,000 and₱ ₱160,000, respectively. They share profits and losses in the ratio of 30:40:30. Bam died and the₱partnership his beneficiary P125,000 for his capital interest in the partnership. Determine the correct compound journal entry to record his retirement under the bonus method

Bam, Capital 120,000
Allan, Capital 2,500
Migs, Capital 2,500
Cash 125,000

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The minimum issue price of the shares that is fixed in the articles of incorporation and appearing on the certificate of stock.
a. Par value
b. No-par value
c. State value
d. Book value

a. Par value

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The most powerful person in a corporation is the

cHAIRMAN OF THE BOARD

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Right of the corporation to continue as a juridical entity for the period stated in the Articles of Incorporation despite the death of any shareholder
a. Right of ascension
b. Right of succession
c. Right of pre-emption
d. Right of existence

b. Right of succession

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The maximum number of shares of stock that the government gives a corporation permission to issue is the
a. Authorized shares
b. Granted shares
c. Issued shares
d. Outstanding shares

Authorized shares

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A non-cash asset received in exchange for share capital is recorded a
a. book value
b. fair market value
c. the lower of its book value or fair market value
d. the higher of its book value or fair market value

b. fair market value

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The following are some rights of a shareholder, except
a. Right to declare dividends
b. Right to be issued certificate of stock
c. Right to adopt, amend or repeal the by-laws
d. Right to participate in the distribution of corporate assets upon dissolution.

a. right to declare dividends

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Which of the following statements is false?I – Being a director or officer of two or more corporations is prohibited by law.II – The corporate secretary must be a resident and a citizen of the Philippines.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

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The following are the some attributes of a corporation, except
a. It is an artificial being
b. It is created by operation of law
c. It enjoys the right of ascension
d. It has powers, attributes and properties expressly authorized by law or incident to its existence.

c. It enjoys the right of ascension

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These books represent the record of all business transactions.
a. Minutes books
b. Books of accounts
c. Shareholders’ ledger
d. Stock and transfer transaction books

b. books of accounts

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Which of the following statements describing a corporation is not true?
a. Shareholders are the owners of a stock corporation.
b. When ownership of a corporation changes, the corporation does not terminate.
c. Shareholders own the business and manage its day-to-day affairs.
d. A corporation is subject to a greater governmental regulation than a single proprietorship or partnership

Shareholders own the business and manage its day-to-day affairs.

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When ordinary shares are issued in exchange of services or non-cash assets, the transaction should be recorded at the
a. par value of the shares issued.
b. fair value of the ordinary shares issued.
c. fair value of the services or non-cash assets received.
d. value as determined by the shareholders and approved by the board of directors

c.fair value of the services or non-cash assets received.

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Which of the following is NOT typically a characteristic of preference shares?
a. Preference as to dividends
b. Preference as to voting rights
c. Cumulative and callable terms
d. Preference over ordinary shareholders during liquidation

Preference as to voting rights

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A company declared a cash dividend on its ordinary share capital in December 2017, payable in January 2018. Retained earnings would
a. increase on the date of declaration.
b. not be affected on the date of declaration.
c. not be affected on the date of payment.
d. decrease on the date of payment

c. not be affected on the date of payment.

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Jane, Inc. issued 8,000 shares of 20 par ordinary share capital for 24 per share. Recording this issuance₱ ₱of share capital will include a credit to
a. gain on issuance of share capital for 32,000.₱
b. ordinary share capital for 192,000.₱
c. share premium for 32,000.₱
d. shareholders’ equity for 192,000

c. share premium for 32,000.₱

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Marian Corporation was organized on January 8, 2017 with authorized capital of 2,000,000 consisting of₱100,000 shares, 20 par value. Subsequently, incorporators subscribed for 25,000 shares at 24 per₱ ₱share. How much must be paid up upon subscription to comply with the requirement of the Securities andExchange Commission (SEC)?vii
a. 600,000₱
b. 500,000₱
c. 150,000₱
d. 125,000

c. 150,000₱

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Joyce Corporation was organized on January 20, 2017 with authorized capital of 100,000 ordinary shares, 20 par value. During 2017, Joyce Corp. had the following transactions affecting the shareholders’ equity.₱January 30 Issued 25,000 shares at 22 per share.₱March 25 Issued 1,000 shares for legal service when the fair value was 24 per share.₱August 30 Issued 5,000 shares for a piece of equipment when the value was 26 per share.₱How much is the balance of the ordinary share capital account as of November 30, 2017?vii

620,000

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Celebrity Fans Corporation was established to manufacture celebrity stickers, mugs and personalizedsouvenirs. The corporation was authorized to issue 15,000 ordinary shares with par value of P5 per share.The entity applied the minimum requirements prescribed by the SEC and Corporation Code of thePhilippines at the time of incorporation. Which of the following is the correct entry to record the subscription?a. Subscription Receivable 18,750Subscribed Share Capital 18,75

Subscription Receivable 18,750.00
Subscribed Share Capital 18,750.00

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Refer to Item #84. What would be the correct entry to record the required partial payment from the subscribers?

Cash 4,687.00
Subscription Receivable 4,687.00

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OM39 Corporation is authorized to issue P20,000,000 ordinary share capital divided into 200,000 shares, with a par value of P100 per share. On December 11, 2017, OM39 issued 10,000 shares in exchange for a tract of land with fair market value of P1,200,000.Which of the following entries is correct with regards to the issuance of shares?

Land 1,200,000
Ordinary share capital 1,000,000
Share Premium 200,000

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Ranga Corporation declared a cash dividend of P10,000 on November 29, 2016. This dividend waspayable to shareholders of record on December 11, 2016 and payment was made on December 25, 2016. Which of the following is the most appropriate entry to record the declaration of dividends?

Nov. 29, 2016 Retained Earnings 10,000
Dividends Payable 10,00

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Lanzada Corporation was organized on February 14, 2017 with authorized capital of 100,000 ordinaryshares, 20 par value. As of December 31, 2017, Lanzada’s ordinary share capital amounted to₱P5,000,000 equivalent to 50,000 shares. On December 31, Lanzada declared and paid cash dividends ofP5 per ordinary share to shareholders of record on the same date. Which of the following entries is correct to record the declaration of dividends?

Dividends 250,000
Cash 250,000

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It refers to the stage where a partnership settles all its obligations outside and inside of the partnership. Any remaining assets shall be distributed to the partners.
a.Termination
b.Dissolution
c.Liquidation
d.Formation

LIQUIDATION

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Statement 1: Assets of a partnership shall be reappraised when a partner leaves the partnership, that is to ascertain the updated capital balance of the partners.
Statement 2: A receipt of share in profit by an existing partner may result to the dissolution of a partnership.
a.TRUE; FALSE
b.TRUE; TRUE
c.FALSE; FALSE
d.FALSE; TRUE

a.TRUE; FALSE

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Statement 1: When a partner retires from the partnership and receives assets greater than his capital balance, it would reduce the remaining partners’ capital accounts.
Statement 2: Total partners’ equity will not change when a withdrawing partner withdraws assets equal to his capital balance.
a.TRUE; FALSE
b.TRUE; TRUE
c.FALSE; FALSE
d.FALSE; TRUE

a.TRUE; FALSE

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PEDRO would like to retire from OPQ Partnership. It was agreed by all the partners that PEDRO will receive cash less than his capital balance as some of the partnership assets were overvalued. What would be the effect of PEDRO’s retirement from the partnership?
a.The remaining partners’ capital accounts will increase
b.There is no bonus to remaining partners.
c.There is a bonus to the retiring partner, Pedro.
d.Pedro must settle the difference by giving cash to the remaining partners.

a.The remaining partners’ capital accounts will increase

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KJU Partnership has been suffering from a financial distress and the partners decided not to continue the operation anymore. a.Partners must liquidate the assets immediately.
b.Partners must go through a dissolution process where account balances are updated.
c.Partners may ask their friend, Susan, to pay for them. d.Partners do not need to do anything.

b.Partners must go through a dissolution process where account balances are updated.

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Statement 1: At the time of dissolution, non-cash properties are being sold to the outside parties to accumulate money that the partnership will use to settle all its obligations.
Statement 2: When a new partner purchases an interest directly from an existing partner, the total partnership equity will remain unchanged.
a.TRUE; FALSE
b.TRUE; TRUE
c.FALSE; FALSE
d.FALSE; TRUE

d.FALSE; TRUE

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When the net assets of the partnership are fairly valued and the amount invested by the incoming partner is greater than the interest he acquires, then it is implied that there is
a.Bonus to old partners
b.Bonus to new partner
c.No bonus to either new or old partners
d.Bonus to both new and old partners

a.Bonus to old partners

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S joins the partnership of K and J by paying P300,000 in cash. If the total amount of the net assets in the partnership remains the same amount after S has been admitted as a partner, then S.
a.must have been admitted by either an investment of assets or by a purchase of a partner’s interest.
b.must have been admitted by investment of assets.
c.must have been admitted by purchase of partner’s interest. d.must have received a bonus upon being admitted.

c.must have been admitted by purchase of partner’s interest.

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Which of the following does not change the partnership ownership?
a.Admission of a new partner
b.Death of a partner
c.Marriage of a partner
d.Withdrawal of a partner

c.Marriage of a partner

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When a partner withdraws from the business,
a.a new partner is admitted to the partnership.
b.a new partnership is automatically formed.
c.the original partnership may still continue.
d.the partnership operations cease.

b.a new partnership is automatically formed.

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If a partner withdraws in the middle of the reporting period, updating the partnership books is a.automatic.
b.optional.
c.required.
d.unnecessary

c.required.

A partner who withdraws his interest at carrying amount receives assets
a.above his capital interest.
b.equal to his capital interest.
c.less than his capital interest.
d.with an indeterminate value

b.equal to his capital interest

A partnership records the admission of a new partner through purchase of interest by crediting the purchaser’s capital and debiting
a.capital account of the selling partner.
b.capital account of other partners.
c.bonus account
d.cash account

a. capital account of the selling partner.

If a partner withdraws during a reporting period, any undistributed profit or loss up to the time of retirement is divided
a.among the partners according to the partners’ profit or loss ratio.
b.among the remaining partners’ profit and loss ratio.
c.among the remaining partners according to the new profit and loss ratio.
d.based on the agreement among the remaining partner

a.among the partners according to the partners’ profit or loss ratio.

A partner sells a portion of his interest to an incoming partner at an amount greater than the carrying amount of the interest sold. Which of the following statements is valid?
a.Gain equal to the excess or selling price over the carrying amount of the interest sold is recognized in the partnership books.
b.There may be undervaluation in the assets of the partnership that requires recognition prior to the admission of the new partner.
c.There may be overvaluation in the net assets of the partnership that requires recognition prior to the admission of the new partner.
d.No entry is required in the partnership books to record the admission of the new partner.

d.No entry is required in the partnership books to record the admission of the new partner.

If a bonus is traceable to the old partners rather than to a new partner, it is allocated among the partners according to the a.capital ratio of the old partners.
b.capital ratio of the new partnership.
c.profit and loss ratio of the old partnership.
d.profit and loss ratio of the new partnership.

c.profit and loss ratio of the old partnership.

Statement 1: The partnership must measure net income or net loss for the fraction of the year up to the withdrawal date of withdrawing partner and allocate profit or loss according to the existing ratio.
Statement 2: The withdrawal of an existing partner dissolves the partnership; but the addition of a new partner does not.
a.TRUE; FALSE
b.TRUE; TRUE
c.FALSE; FALSE
d.FALSE; TRUE

a.TRUE; FALSE

Which of the following procedures isacceptablewhen accounting a deficit balance in a partner’s capital account during for partnership liquidation?
a.A partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to zero.
b.If a partner with a negative capital balance is personally insolvent, the negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to all the partners.
c.If a partner with a negative capital balance is personally insolvent, the negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to those partners having positive balances.
d.All the above procedures are acceptable.

d.All the above procedures are acceptable.

A partnership dissolution differs from a liquidation in that a.payments are made to creditors before partners receive value. 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

c.a partner withdraws from the business and the enterprise continues to function.

In a partnership liquidation, the final cash distribution to the partners should be made in accordance with the:
a.partners’ profit and loss sharing ratio.
b.balances of the partners’ capital accounts.
c.ratio of the capital contributions by the partners.
d.ratio of capital contributions less withdrawals by the partners.

a.partners’ profit and loss sharing ratio.

In an advance plan for installment distributions of cash to partners of a liquidating partnership, each partner’s loss absorption potential is computed by
a.dividing each partner’s capital account balance by the percentage of that partner’s capital account balance to total partners’ capital.
b.multiplying each partner’s capital account balance by the percentage of that partner’s capital account balance to total partners’ capital.
c.dividing the total of each partner’s capital account less receivables from the partner plus payables to the partner by the partner’s profit and loss percentage.
d.some other method.

c.dividing the total of each partner’s capital account less receivables from the partner plus payables to the partner by the partner’s profit and loss percentage.

The first step in the liquidation process is to
a.convert noncash assets into cash.
b.pay partnership creditors
c.compute any net income (loss) up to the date of dissolution. d.allocate any gains or losses to the partners.

a.convert noncash assets into cash.

26.A schedule prepared each time cash is to be distributed is called a(n)
a.advance cash distribution schedule.
b.marshaling of assets schedule.
c.loss absorption potential schedule.
d.safe payment schedule.

d.safe payment schedule.

Which of the following statements is correct?
1.Personal creditors have first claim on partnership assets. 2.Partnership creditors have first claim on partnership assets. 3.Partnership creditors have first claim on personal assets.
a.1
b.2
c.3
d.Both 2 and 3

b. 2

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.

b.The loan is written off as a partnership loss if the partner does not have the cash to cover the debit balance.

In partnership liquidations, what are safe payments?
a.The amounts of distributions that can be made to the partners, after all creditors have been paid in full.
b.The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership.
c.The amounts of distributions that can be made to the partners, after all non-cash assets have been adjusted to fair market value.
d.All the above are examples of the safe payments concept.

d.All the above are examples of the safe payments concept.

If all partners are included in the first installment of an installment liquidation, then in future installments
a.cash will be distributed according to the residual profit and loss sharing ratio.
b.cash should not be distributed until all non-cash assets are converted into cash.
c.a safe payments schedule must be prepared before each cash distribution to avoid excessive payments to partners.
d.a cash distribution plan must be prepared so that partners will know when they will be included in cash distributions.

c.a safe payments schedule must be prepared before each cash distribution to avoid excessive payments to partners.

In a schedule of assumed loss absorptions
a.the partner with lowest loss absorption is eliminated last.
b.it is necessary to have a cash distribution plan first.
c.the least vulnerable partner is eliminated first.
d.the most vulnerable partner is eliminated first

d.the most vulnerable partner is eliminated first.

Which partner is considered the most vulnerable as a result of a computation of vulnerability rankings?
a.The partner with the lowest vulnerability ranking, who also has the lowest loss absorption potential.
b.The partner with the lowest vulnerability ranking, who also has the highest loss absorption potential.
c.The partner with the highest vulnerability ratio, who also has the lowest loss absorption potential.
d.The partner with the highest vulnerability ranking, who also has the highest loss absorption potential.

c.The partner with the highest vulnerability ratio, who also has the lowest loss absorption potential.

The rank order is for claims against a bankrupt partner of I.Those owing to partners by way of contribution
II.Those owing to separate creditors
III.Those owing to partnership creditors
a.II first; I second and III third.
b.III first; II second and I third.
c.I first; III second and II third.
d.II first; III second and I third.

d.II first; III second and I third.

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.

a.the individual partner’s profit and loss agreement.

If conditions produce a debit balance in a partner’s capital account when liquidation losses are allocated
a.the partner receives further allocations of liquidation losses, but not gains.
b.the partner receives no further allocation of liquidation losses and gains.
c.the partner is no longer obligated to partnership creditors. d.the partner has an obligation of personal net assets to the other partners.

d.the partner has an obligation of personal net assets to the other partners.

The capital balances and profit/loss sharing of X, Y, and Z just before the retirement of X are:
Partner Capital Profit and Loss Ratio
X ₱150,000 30%
Y ₱160,000 30%
Z ₱200,000 40%
Upon retirement, X was paid₱135,000. If they agreed that bonus is to be recognized, the partnership’s total capital balance after X’s retirement would be:
a.₱360,000
b.₱375,000
c.₱345,000
d.₱295,000

b.₱375,000

JJ, KK and LL are partners with capital balances of₱140,000,₱150,000 and₱160,000, respectively. They share profits and losses in the ratio 4:4:2, respectively. After one year, the operation resulted in a net profit of ₱80,000. Withdrawals made during the year are as follows:₱20,000,₱10,000 and₱20,000, respectively. LL retired from the partnership and was paid₱150,000 for his interest. Assuming no asset revaluation was recorded, the difference is a
a.bonus of₱10,000 from the remaining partners
b.bonus of₱12,000 to the retiring partner
c.bonus of₱6,000 to the remaining partners
d.bonus of₱6,000 to the retiring partner

c.bonus of₱6,000 to the remaining partners

AA, BB, and CC are partners with capital balances of₱100,000,₱140,000 and₱180,000, respectively. They share profits and losses in the ratio of 20:40:40. CC decides to withdraw from the partnership receiving ₱220,000 including a loan to the partnership in the amount of₱10,000. After CC’s withdrawal, how much is the updated capital balance of BB?
a.₱100,000
b.₱90,000
c.₱120,000
d.₱140,900

c.₱120,000

The statement of financial position as of June 30, 2020 for the partnership of GG, HH and JJ shows the following information:
Total Assets ₱720,000
GG, Loan₱40,000
GG, Capital₱166,000
HH, Capital₱154,000
JJ, Capital₱360,000
Total Liabilities and Capital₱720,000

It was agreed among the partners that GG retires from the partnership and was further agreed that the assets be adjusted to their fair value of₱816,000 as of June 30, 2020. The partnership would pay GG₱242,000 cash for GG’s partnership interest and includes the payment of loan to GG. GG, HH, and LL share profits and losses 25%, 25% and 50% respectively. What is JJ’s capital balance after the retirement of GG?
a.₱240,000
b.₱400,000
c.₱408,000
d.₱720,000

b.₱400,000

The partnership of XX, YY and ZZ have capital account balance of: XX,₱70,000; YY,₱100,000; ZZ,₱80,000. Their profit and loss ratios are 30%, 50% and 20% respectively. With the consent and knowledge of the XX and YY, ZZ sold his interest to AA. ZZ was paid₱92,000 in cash. The new capital balances would be a.XX₱70,000; YY₱100,000; AA₱92,000
b.XX₱73,800; YY₱106,000; AA₱82,400
c.XX₱70,000; YY₱100,000; AA₱80,000
d.XX₱70,000; YY₱100,000; AA₱172,000

c.XX₱70,000; YY₱100,000; AA₱80,000

The partnership of B1, B2 and B3 has reached an impasse as B3 is no longer willing to contribute the amount of time and effort to the partnership that he has previously given. The partners share profits and losses in the ratio of 3:3:4, respectively. The partners have the following capital balances just prior to B3’s withdrawal from the partnership.
B1₱45,000
B2₱35,000
B3₱25,000
If B2 purchases B3’s interest from B3 for₱32,000 and no asset revaluation is recorded, the balance of B2 capital account immediately after the withdrawal of B3 is
a.₱67,000
b.₱61,000
c.₱55,000
d.₱60,000

d.₱60,000

JJ & KK partnership’s balance sheet at December 31, 2020, reported the following:
Total assets₱100,000
Total liabilities₱20,000
JJ, capital₱40,000
KK, capital₱40,000
On January 2, 2020, JJ and KK dissolved their partnership and transferred all assets and liabilities to a newly- formed corporation. At the date of incorporation, the fair value of the net assets was₱12,000 more than the carrying amount on the partnership’s books. JJ and KK were each issued 5,000 shares of the corporation’s P1 par value ordinary share. Immediately following incorporation, share premium/additional paid-in capital in excess of par should be credited for:
a.₱68,000
b.₱70,000
c.₱82,000
d.₱77,000

c.₱82,000

Hara, Ives, and Jack are in the process of liquidating their partnership. Since it may take several months to convert the other assets into cash, the partners agree to distribute all available cash immediately, except for ₱10,000 that is set aside for contingent expenses. The balance sheet and residual profit and loss sharing percentages are as follows:
Cash₱400,000 Accounts payable₱200,000
Other assets200,000 Hara, capital (40%)135,000
Ives, capital (30%)216,000
Jack, capital (30%)49,000
Total assets₱600,000 Total liab./equity₱600,000
How much cash should Ives receive in the first distribution?
a.₱146,000.
b.₱147,000.
c.₱153,000.
d.₱156,000

b.₱147,000.

Jade, Kahl, and Lane are in the process of liquidating their partnership. Lane has agreed to accept the inventory, which has a fair value of₱60,000, as part of her settlement. A balance sheet and the residual profit and loss sharing percentages are as follows:
Cash₱198,000 Accounts payable₱149,000 Inventory80,000 Jade, capital (40%)79,000
Plant assets230,000 Kahl, capital (40%)140,000
Lane, capital (20%)140,000
Total assets₱508,000 Total liab./equity₱508,000
If the partners then distribute the available cash, Lane will receive
a.₱23,000.
b.₱29,000
c.₱30,000.
d.₱34,0

a.₱23,000.

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 Account Loans to (from) Partnership
P₱24,000₱ 6,000
Q₱36,000
R₱60,000 (10,000)

Profit and Loss Ratio
3
3
4
The second cash payment to any Partner(s) under a program of priorities
a.To R,₱2,000
b.To Q, ₱6,000
c.To R, ₱8,000
d.To Q, ₱6,000 & R, ₱8,00

d.To Q, ₱6,000 & R, ₱8,00

The August, Albert and Gerry partnership became insolvent on January 1. 2015, and the partnership is being liquidated as soon as practicable. In this respect the following information for the partners has been marshaled:
Capital Balances Personal Assets Personal Liabilities August₱70,000 ₱80,000 ₱40,000
Albert(60,000) 30,000 50,000
Gerry(30,000) 70,000 30,000
Total(20,000)

Assume that residual profits and losses are shared equally among the three partners. Based on this information calculate the maximum amount that August can expect to receive from the partnership liquidation is:
a.₱20,000
b.₱40,000
c.₱70,000
d.₱110,000

a.₱20,000

The partnership of Pratt, Ellis, and Mack share profits and losses in the ratio of 4:4:2, respectively. The partners voted to dissolve the partnership when its assets, liabilities, and capital were as follows: Assets
Cash ₱250,000
Other assets1,000,000 Liabilities and Capital
Liabilities ₱200,000
Pratt, Capital 300,000
Ellis, Capital 350,000
Mack, Capital 400,000
The partnership will be liquidated over a prolonged period of time. As cash is available, it will be distributed to the partners. The first sale of noncash assets having a book value of₱600,000 realized₱475,000. How much cash should be distributed to each partner after this sale?
a.Pratt,₱90,000;Ellis,₱140,000;Mack,₱295,000
b.Pratt,₱210,000;Ellis,₱290,000;Mack,₱145,000
c.Pratt,₱290,000;Ellis,₱210,000;Mack, ₱105,000
d.Pratt,₱150,000;Ellis,₱175,000;Mack, ₱200,000

a.Pratt,₱90,000;Ellis,₱140,000;Mack,₱295,000

During the liquidation of the partnership of Karr, Rice, and Long. Karr accepts, in partial settlement of his interest, a machine with a cost to the partnership of₱150,000, accumulated depreciation of₱70,000, and a current fair value of₱110,000. The partners share net income and loss equally. The net debit to Karr’s account (including any gain or loss on disposal of the machine) is
a.₱90,000.
b.₱100,000.
c.₱110,000.
d.₱150,000.

b.₱100,000.

X, Y, and Z have capital balances of₱90,000,₱60,000, and₱30,000, respectively. Profits are allocated 35% to X, 35% to Y, and 30% to Z. The partners have decided to dissolve and liquidate the partnership. After paying all creditors, the amount available for distribution is₱60,000. X, Y, and Z are all personally solvent. Under the circumstances, Z will
a.receive₱18,000.
b.receive₱30,000.
c.personally have to contribute an additional ₱6,000.
d.personally have to contribute an additional ₱36,000.

a.receive₱18,000.

The partnership of AA. BB, and CC was dissolved on June 30, 2015 and account balances after non-cash assets were converted into cash on September 1, 2015 are:
Assets Liabilities and Equity
Cash₱50,000 Accounts payable₱120,000
AA, capital (30%)90,000
BB, capital (30%)(60,000)
CC, capital (40%) (100,000) Personal assets and liabilities of the partners at September 1, 2015 are:
Personal Assets Personal Liabilities AA₱80,000 ₱90,000
BB100,000 61,000
CC192,000 80,000
If CC contributes P70.000 to the partnership to provide cash to pay the creditors, what amount of AA’s P90,000 partnership equity would appear to be recoverable?
a.₱90,000
b.₱81,000
c.₱79,000
d.None

b.₱81,000

When Mikki and Mylene, partners who share earnings equally, were incapacitated in an airplane accident, a liquidator was appointed to ₱110,000: Liabilities, ₱20,000: Mikki, capital, ₱71,000; and Mylene, capital, ₱54,000. Because of highly specialized nature of the noncash assets, the liquidator anticipated that considerable time would be required to dispose them. The expenses of liquidating the business (advertising, rent, travel. etc.) are estimated at ₱10,000.
How much cash can be distributed safely to each partner at this point?
a.₱5,000 to Mikki; and ₱0 to Mylene
b.₱5,000 to Mikki; and ₱500 to Mylene
c.₱3,000 to Mikki; and ₱0 to Mylene
d.₱5,000 to Mikki; and ₱1,000 to Mylene

a.₱5,000 to Mikki; and ₱0 to Mylene

In partnership liquidations, what are safe payments?
a. The amounts of distributions that can be made to the partners, after all creditors have been paid in full.
b. The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership.
c. The amounts of distributions that can be made to the partners, after all non-cash assets have been adjusted to fair market value.
d. All the above are examples of the safe payments concept

b. The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership.

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.

b. The loan is written off as a partnership loss if the partner does not have the cash to cover the debit balance.

If conditions produce a debit balance in a partner’s capital account when liquidation losses are allocated
a. the partner receives further allocations of liquidation losses, but not gains.
b. the partner receives no further allocation of liquidation losses and gains.
c. the partner is no longer obligated to partnership creditors.
d. the partner has an obligation of personal net assets to the other partners.

d. the partner has an obligation of personal net assets to the other partners

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.

b. The loan is written off as a partnership loss if the partner does not have the cash to cover the debit balance.

In partnership liquidations, what are safe payments?
a. The amounts of distributions that can be made to the partners, after all creditors havebeen paid in full.
b. The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership.
c. The amounts of distributions that can be made to the partners, after all non-cash assets have been adjusted to fair market value.
d. All the above are examples of the safe payments concept

b. The amounts of distributions that can be made to the partners with assurance thatsuch amounts will not have to be returned to the partnership.

A decree by the court is necessary to dissolve a general partnership based on three of the following grounds. Which one will not require such decree but will cause the automatic dissolution of the partnership?
A. The business of the partnership can only be carried on at a loss
B. A partner is shown to be of unsound mind
C. A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business
D. A partner is civilly interdicted

D. A partner is civilly interdicted

Which of the following will not cause the automatic dissolution of a general partnership?
A. Death of a partner
B. Insolvency of a partner
C. When the partnership business becomes unlawful
D. Insanity of a partner

D. Insanity of a partner

The change in the relation of the partners caused by any ceasing to be associated in the carrying on the business is known as
A. Termination of the partnership
B. Dissolution of the partnership
C. Winding up of partnership affairs
D. Liquidation of the partnership business

B. Dissolution of the partnership

A partner’s interest in the partnership is his share of the profits and surplus which he may assign to a third person. Which of the following statements concerning such right is correct?
A. The conveyance of a partner’s interest will cause the dissolution of the partnership
B. The assignee has a right to interfere in the management of the partnership business
C. The assignee has the right to receive the profits which the assigning partner would otherwise be entitled to
D. The assignee has a right to interfere in the management of the partnership business

C. The assignee has the right to receive the profits which the assigning partner would otherwise be entitled to

Which of the following will not cause the automatic dissolution of a limited partnership?
A. Death of a general partner
B. Death of a limited partner
C. Insolvency of a general partner
D. Insanity of a general partner

B. Death of a limited partner

If the total contributed capital exceeds the agreed capital with the new partner’s investment is the same as his capital credit, then the admission of the new partner involved a(n)
A. Upward asset revaluation
B. Downward asset revaluation
C. Bonus to the old partners
D. Bonus to the new partner

B. Downward asset revaluation

A person may become a partner in a partnership by all of the following methods except
A. Investing in the partnership with a bonus to the new partner
B. Making a loan to the partnership
C. Investing in the partnership with a bonus to the old partners
D. Purchasing a partner’s interest

B. Making a loan to the partnership

If a new partner purchases his interest from an old partner, the only entry on the partnership books is a credit to the purchaser’s capital account with a debit to the
A. Bonus account
B. Cash account
C. Capital account of the selling partner
D. Capital accounts of other partners

C. Capital account of the selling partner

Which of the following does not result in the dissolution of a partnership?
A. Marriage of a partner
B. Withdrawal of a partner
C. Addition of a new partner
D. Death of a partner

A. Marriage of a partner

A new partner may be admitted into a partnership by any of the following except
A. Investing in the partnership
B. Purchasing preferred stock of the partnership
C. Purchasing a partner’s interest
D. Both A and C

B. Purchasing preferred stock of the partnership

The accounting treatment for the sale of the interest of a retiring partner to an outsider or to the remaining partners is the same as
A. Admission of a partner by purchase
B. Admission of a partner by investment
C. Sale of interest to the partnership
D. Both A and B

A. Admission of a partner by purchase

When the partnership purchases a retiring partner’s interest, the settlement to the retiring partner includes the following except
A. Notes payable
B. Depreciation expense
C. Cash
D. Equipment

B. Depreciation expense

The following should be considered in determining the interest of a retiring partner except
A. Share in asset adjustment
B. Receivable from the partnership
C. Payable to a co-partner
D. Share in profits and losses

C. Payable to a co-partner

When a partnership purchases the interest of a retiring partner at less than book value, there must be a
A. Bonus to remaining partners
B. Bonus to retiring partner
C. Bonus to remaining partners/ negative asset revaluation or both
D. Bonus to retiring partner/ positive asset revaluation or both

A. Bonus to remaining partners

A partner may withdraw his interest at an amount equal to all of the following, except at
A. Less than book value
B. Future expected value
C. More than book value
D. Book value

B. Future expected value

When Jay retired from the partnership with Kay and Boris, the final interest is less than Jay’s capital balance. Under the bonus method, the difference
A. Had no effect on the capital of Kay and Boris
B. Was recorded as asset adjustment
C. Increases the capital balances of Kay and Boris
D. Was a revenue

C. Increases the capital balances of Kay and Boris

The withdrawal of a partner of his interest at more than book value results in a
A. Bonus from remaining partners
B. Gain to remaining partners
C. Loss to remaining partners
D. Gain or loss depending on the tax basis

A. Bonus from remaining partners

If the agreed capital is equal to the total contributed capital with the capital credit and contribution of the old and new partners being the same, there exists a
A. Positive asset revaluation
B. Negative asset revaluation
C. No asset revaluation and bonus
D. Asset revaluation and bonus

C. No asset revaluation and bonus

If the capital credit of the new partner is less than his contribution with no adjustment in asset values, then the admission resulted in a
A. Bonus to the old partners
B. Bonus to the new partner
C. No bonus
D. Both A and B

A. Bonus to the old partners

A partner who withdraws his interest at carrying value receives assets
A. With indeterminate value
B. Less than his capital interest
C. Above his capital interest
D. Equal to his capital interest

D. Equal to his capital interest

The maximum number of shares of stock that the government gives a corporation permission to issue is the
a. Granted shares
b. Authorized shares
c. Issued shares
d. Outstanding share

b. Authorized shares

A preference share capital that may be exchanged for ordinary share capital is known as
a. Cumulative
b. Participating
c. Noncumulative
d. Convertible

d. Convertible

A noncash asset received in exchange for share capital is recorded at
a. its book value
b. its fair market value
c. the lower of its book value or fair market value
d. the higher of its book value or fair market value

b. its fair market value

On June 1, authorized ordinary share capital was sold on a subscription basis at a price in excess of par value, and 40% of the subscription price was collected. On October 1, the remaining 60% of the subscription price was collected. Ordinary share premium will be credited on:
a. June 1 only
b. October 1 only
c. June 1 and October 1
d. Neither June 1 nor October 1

a. June 1 only

When shares without par value are sold, the proceeds shall be credited to
a. Share capital
b. Shareholder’s Equity
c. Share capital to the extent of the stated value and any excess is credited to share premium
d. Share premium

c. Share capital to the extent of the stated value and any excess is credited to share premium

If shares are issued for noncash consideration, the proceeds shall be measured by the:
a. Fair value of the shares issued
b. Fair value of the noncash consideration received
c. Par value of the shares issued
d. Cost of the noncash consideration received

b. Fair value of the noncash consideration received

When collectability is reasonably assured, the excess of subscription price over the stated value of no par ordinary share subscribed shall be recorded as:
a. No par ordinary share capital
b. Share premium when the subscription is recorded
c. Share premium when the subscription is collected
d. Share premium when the subscription is issued

b. Share premium when the subscription is recorded

When treasury shares are purchased for more than par value, what account or accounts shall be debited?
a. Treasury shares for the par value and share premium for the excess of purchase price over the par value
b. Share premium for the purchase price
c. Treasury shares for the purchase price
d. Treasury shares for the par value and retained earnings for excess of the purchase price over the par value

c. Treasury shares for the purchase price

If treasury shares are reissued for noncash consideration, the proceeds shall be measured by
a. Fair value of the treasury share
b. Fair value of noncash consideration received
c. Carrying amount of the noncash consideration received
d. Carrying amount of the treasury shares

b. Fair value of noncash consideration received

Loss from sale of treasury shares is charged to
a. Loss on sale of treasury shares
b. Retained earnings and then share premium from treasury shares
c. Share premium from treasury shares, and then retained earnings
d. Share premium from original issuance, and then retained earnings

c. Share premium from treasury shares, and then retained earnings

Pinkie Corp. was organized on January 1, 2019 with authorized capital of 100,000 ordinary shares, P20 par value. During 2019, Pinkie Corp. had the following transactions affecting the shareholders’ equity.
Jan. 10 Issued 25,000 shares at P22 per share.
Mar. 25 Issued 1,000 shares for legal service when the fair value was P24 per share.
Sept. 30 Issued 5,000 shares for a piece of equipment when the value was P26 per share. How much is the balance of the ordinary share capital account as of September 30?
a. P620,000
b. P674,000
C. P 700,000
d. P704,000

A (25,000 + 1,000 + 5,000) x P20 = P620,000

Using the information above, what amount should be reported as ordinary share premium?
a. P50,000
b. P54,000
C. P64,000
d. P84,000

D (25,000 x P2) + (1,000 x P4) + (5,000 x P6) = P84,000

Marine Corp. was incorporated on June 1, 2019 with an authorized 250,000 share of no-par ordinary share capital, stated value P15 and 10,000 shares of 10% preference share capital, par value P50. Transactions affecting company’s share capital as of June 30, 2019 were as follows:
June 1 Issued 50,000 ordinary shares for cash at P15 per share.
5 Issued 50,000 ordinary shares in exchange for assets with total market value of P900,000.
June 15 Received subscriptions for 100,000 ordinary shares at P30 and for 5,000 preference shares at P55.
25 Received full payment for subscriptions received on June 15 and the corresponding stock were issued. What is the share premium for both ordinary and preference shares?
a. P 25,000
b. P300,000
C. P1,650,000
d. P1,675,000

D (P900,000 – P750,000) + (P100,000 x P15) + (5,000 x P5) = P1,675,000

Using the information above, how much is the total shareholders’ equity?
a P3,250,000.
b. P4,500,000
c. P4,675,000
d. P4,925,000

D [(50,000 + 50,000 +100,000) x P15] + (5,000 x P50) + P1,675,000 = P4,925,000

The shareholders’ equity of Cecille Corp. revealed the following on June 30, 2020:
Preference share, P100 par value P230,000
Preference share premium 80,500
Ordinary share, P15 par value 525,000
Ordinary share premium 275,000
Ordinary share subscribed 5,000
Retained earnings 190,000
Notes payable 400,000
Subscription receivable - ordinary 40,000
How much is the legal capital of the corporation? –
a. P760,000
b. P775,000
c. P1,115,000
d. P1,305,500

A. P760,000

On April 1, 2020, Friends Corp., a newly formed company had the following shares issued and outstanding:
Preference share, P50 par, 6,000 shares originally issued at P100 Ordinary share, P20 par, 20,000 shares originally issued at P60

Friends shareholders’ equity should report preference share capital, ordinary share capital and share premium, respectively at
a. P600,000, P1,200,000, 0
b. P600,000, P400,000, P800,000
C. P300,000,P 1,200,000, P300,000
d. P300,000, P400,000,P 1,100,000

d. P300,000, P400,000,P 1,100,000

On December 10, Jerald Co. split its share capital on a 5-for-2 when the market value was P60 per share. Prior to the split, Jerald had 200,000 shares of P15 par value share capital. What is the par value of the share capital after the split?
a. P3.00
b. P6.00
c. P15.00
d. P26.00

B P15 par x 2 = P30/5 P6.00

During the fiscal year 2019, Julius Corp. issued for P110 per share 15.000 shares of P100 par value convertible preference share capital. One preference share is convertible into three ordinary shares with a par value of P25. On November 15, 2019, all of the preference shares were converted into ordinary shares. The market value of the ordinary shares on the conversion date was P40 per share. What amount should be credited to the ordinary share capital account as a result of conversion of preference shares into ordinary shares?
a. P1,125,000
b. P1,500,000
c. P1,650,000
d. P1,800,000

A. 15,000 shares x 3 x 25 = P1,125,000

Joros Corp. was organized on January 1, 2018, at which date it issued 100,000 shares of P10 par ordinary share capital at P15 per share. For the period 2018 to 2020, the company reported profit of P450,000 and paid cash dividends of P230,000. On January 10, 2020, the company purchased 6,000 of its own shares at P12 per share. On November 20, 2020, Joros sold 4,000 treasury shares at P8 per share. What is the total shareholders’ equity on December 31, 2020?
a. P1,680,000
b. P1,688,000
c. P1,704,000
d. P1,720,000

A 1/1/12 - 100,000 sh x P15 P1,500,000 2012– 2014 - Profit 450,000 - Cash dividends ( 230,000) 1/10/14 - Treasury Shares (6,000 sh x P12) ( 72,000) 11/20/12 - Reissue of Treasury Shares (4,000 sh x P8) 32,000 Total shareholders’ equity P1,680,000

Jabar Corp. holds 10,000 ordinary shares, par value P10, as treasury shares, which was purchased in year 2019 at a cost of P120,000. On December 8, 2020, Jabar sold all the 10,000 shares for P210,000. The sale would result in a credit to Share Premium from Sale of Treasury Shares in the amount of
a. P90,000
b. P110,000
c. P120,000
d. P210,000

A Proceeds from sale of treasury Share Capital P 210,000
Cost of treasury Share Capital 120,000
Paid-in capital from sale of treasury Share Capital P 90,000

Tiana Corp reported the following in its statement of shareholders’ equity on January 1, 2019:
Ordinary share, P5 par value, 200,000 shares authorized, 100,000 shares issued P500,000
Share Premium 1,500,000
Retained Earnings 516,000
Total contributed capital and retained earnings P2,516,000 Less: Treasury shares, 5,000 shares at cost 40,000
Total stockholders equity P2,476,000
The following events occurred in 2019: May 1 1,000 treasury shares were sold for P10,000 July 9 10,000 shares previously unissued shares were sold for P12 per share Oct 15 There was a 2-for-1 share split How many shares were issued and outstanding at December 31, 2019?
a. 220,000 and 216,000
b. 220,000 and 212,000
c. 110,000 and 106,000
d. 100,000 and 95,000

B (100,000 +10,000) x 2 = 220,000 – [(5,000 – 1,000) x 2] = 212,000

On December 29, 2019, Martija Company was registered at SEC with 100,000 authorized ordinary shares of P100 par value. The following were Martija’s transactions:
Dec 29, 2019 Issued 40,000 shares at P105 per share May 14,2020 Purchased 600 of its ordinary shares at P110 per share Aug. 9, 2020 400 treasury shares were sold at P95 per share Dec 31, 2020 Profit P830,000, cash dividends paid P200,000 What is the total shareholders’ equity of Martija company on December 31, 2020?
a. P4,352,000
b. P4,802,000
c. P4,820,000
d. P10,602,000

B (40,000 x P105) – (600 x P110) + (400 x P95) + P830,000 – P200,000 = P4,802,000

Altamerano, Inc. has 10,000 shares of 7% P50 par preference shares, and 100,000 shares of P4 par ordinary shares outstanding. Two years’ preference dividends are in arrears. Altamerano declared a cash dividend large enough to pay the preference dividends in arrears, the preference dividends for the current period, and
a P1.50 dividend to ordinary. What is the total amount of the dividend?
a. P105,000
b. P150,000
c. P220,000
d. P255,000

D. P255,000

Jinggoy Corporation has 5,000 shares of 6% cumulative, P100 par value, preference shares outstanding and 175,000 ordinary shares outstanding. The corporation has paid no dividends since May 31, 2017. For the year ended May 31, 2019, Estrada had profit of P1,450,000 and wishes pay ordinary shareholders a dividend equivalent to 25% of profit. The total amount of dividends to be paid by Jinggoy Corporation at May 31, 2019 is a. P422,500
b. P407,500
c. P392,500
d. P362,500

A. P422,500

Pauline Corp. had 100,000 ordinary shares issued and outstanding on Jan 1, 2018, Pauline took the following actions: Mar. 15 Declared a 2-for-1 share split, when the fair value of the share was P80 per share. Dec. 15 Declared a P0.50 per share cash dividend. In Pauline’s statement of changes in shareholders’ equity for 2018, what amount should Pauline report as dividends?
a. P950,000
b. P850,000
c. P100,000
d. P 50,000

C. P100,000

Derek Corp’s outstanding shares at December 31, 2019, consisted of the following: 30,000 shares of 5% cumulative preference shares, P10 par value, fully participating as to dividends. No dividends were in arrears. 200,000 ordinary shares, P1 par value On December 15, 2019 Derek declared dividends of P100,000. What was the amount of dividends payable to Derek’s ordinary shares?
a. P10,000
b. P34,000
c. P40,000
d. P47,500

C. P40,000

Shareholders equity section of Luke Corporation’s statement of financial position follows:
Share Capital
Preference shares P100 par, 8% cumulative, 10,000 shares
authorized, 500 shares issued and outstanding* P50,000 Ordinary shares P10 par, 100,000 shares authorized,
40,000 shares issued and outstanding P400,000
Share premium ordinary 516,000 916,000
Total share capital P966,000
Retained Earnings 275,000
Total Shareholder’s equity P1,241,000
The preference shares has a liquidation value of P104 per share, and current year’s
Dividends are in arrears What is the book value per share for preference?
a. P112.00
b. P104.00
c. P100.00
d. P8.00

A. Liquidation value (500x104) + (8%x50,000) / 500 shares

Given above, compute book value per share for ordinary share.
a. P29.625
b. P29.725
c. P29.00
d. P30.925

A. P1,241,000 – 56,000 = 1,185,000/40,000

Periodic withdrawals by partners are best viewed as
a.Expense of doing business.
b.Taxable income to the partners.
c.Distribution of partnership assets to the partners.
d.Payment for partners’ personal services to the partnership.

b.Taxable income to the partners.

A statement of changes in partners’ equity should include all of the following except
a.Beginning capital balances.
b.Investments during the period.
c.Partner’s payments of loans.
d.Withdrawals during the period.

c.Partner’s payments of loans.

Which of the following best describes the nature of salary and interest allowances in a partnership profit and loss sharing agreement?
a.A means of determining reasonable monthly withdrawals by each partner.
b.The amount upon which each partner will have to pay personal income tax.
c.A means of distributing profit in relation to services rendered and capital invested by partners.
d.Expenses of the business that should be deducted from revenue in determining profit.

c.A means of distributing profit in relation to services rendered and capital invested by partners.

A 1:3:2 ratio is the same as
a.10%:30%:20%.
b.1/10:3/10:2/10.
c.1/6:1/2:1/3.
d.20%:50%:30%

c.1/6:1/2:1/3.

Statement 1 -The salary, interest and stated ratio method of allocation cannot be applied when a loss has occurred. Statement 2 -The income summary account is credited in the entry to record distribution of profits.
a.Only statement 1 is correct.
b.Only statement 2 is correct.
c.Both statements 1 and 2 are correct.
d.Neither statement 1 nor statement 2 is correct.

d.Neither statement 1 nor statement 2 is correct.

Cynthia and Nemar are partners. They shared profits and losses in the ratio of 3:2. On January 1, 2023, Marjun was admitted in to the partnership with a 30% share in the profits and losses and old partners will continue to participate in profits and losses in their original ratio. For the year 2023, the partnership realized a profit of ₱450,000. It was disclosed, however that the following errors were committed in 2023: ●Inventory at the end was understated by ₱15,000. ●Accrued expenses in the amount of ₱5,000 was not recorded. ●Prepaid expenses in the amount of ₱4,000 was not taken up.
66.What is the new profit and loss ratio of the partners?
a.20%, 50%, 30% b.42%, 28%, 30% c.40%, 30%, 30% d.None of these
67.By what amount should the reported profit be increased or decreased?
a.To be increased by ₱16,000 b.To be increased by ₱14,000 c.To be decreased by ₱9,000 d.To be decreased by ₱24,000
68.How much is the partners’ respective share in profit?
a.₱85,200; ₱213,000; ₱127,800 b.₱92,800; ₱232,000; ₱139,200 c.₱194,800; ₱129,920; ₱139,200

b.42%, 28%, 30%
b.To be increased by ₱14,000
c.₱194,800; ₱129,920; ₱139,200

Claire Buhisan, an active member of COA partnership receive an annual bonus of 25% of the partnership income after deducting the bonus. For the year ended, December 31, 2023, partnership’s profit before the bonus amounted to ₱240,000. The bonus of Buhisan for the year 2023 is:
a.₱45,000 b.₱48,000 c.₱60,000 d.₱80,000

b.₱48,000

Green, White and Blue are partners with average capital balance in 2023 of ₱240,000, ₱120,000 and ₱80,000 respectively. Partners receive 10% interests on their average capital balances. After deducting salaries of ₱60,000 to Green and ₱40,000 to Blue, the residual profit or loss is divided equally. In 2023 the partnership sustained a ₱66,000 loss before interest and salaries to partners. By what amount should the partners’ capital balances changed?Green White Blue
a. Increase by ₱14,000decrease by ₱58,000decrease by ₱22,000
b. Decrease by ₱60,000increase by ₱18,000decrease by ₱24,000
c. Increase by ₱17,000decrease by ₱45,000decrease by ₱38,000
d. Decrease by ₱20,000increase by ₱4,000decrease by ₱50,000

a. Increase by ₱14,000decrease by ₱58,000decrease by ₱22,000

When a partner retires, the book of the partnership should be adjusted as of:
a.The date of retirement
b.The balance sheet date
c.Interim report
d.None of these

a.The date of retirement

Which of the following adjustments in the partnership books are needed in an event the partner dies?
a.Fair value of the non-cash asset at the time of death
b.Accrued items for both receivable and payable
c.Prepayment of expenses
d.Collection of income

d.Collection of income

Which of the following will cause the partnership to be dissolved but will continue to operate?
a.When a partner dies
b.When a partner made an additional investments
c.When a partner retires
d.When a partner withdraws

b.When a partner made an additional investments

The heir of the partner who dies can automatically take his place upon his death and this does not give way to a dissolution of the partnership. A and B are partners in AB partnership. When B retires in the partnership, it tantamount to dissolution with liquidation.
a.True, true
b.False, false
c.True, false
d.False, true

b.False, false

When a partner buys interest of the partnership, the transaction is between the buying partner and the partnership. When a partner retires from the partnership, he has no option other than to sell his share to the partnership.
a.False, true
b.True, true
c.False, false
d.True, false

c.False, false

Which of the following will not result in dissolution of a partnership?
a.Incapacity of a partner
b.Negative capital balance of a partner
c.Bankruptcy of a partner
d.Admission of a new partner

b.Negative capital balance of a partner

Frostbite invested ₱400,000 for a 20% interest in a partnership that has capital totaling ₱1,500,000 after admitting Tolentino. Which of the following is true?
a.Frostbite’s capital is ₱400,000.
b.Frostbite receive a bonus of ₱100,000.
c.All partners receive a bonus of ₱100,000.
d.The original partners’ capital in the business was ₱1,100,000 before admitting Frostbite.

d.The original partners’ capital in the business was ₱1,100,000 before admitting Frostbite.

A partnership agreement most likely will stipulate that assets be reappraised when
a.The partnership is liquidated
b.A partner leaves the partnership
c.Profits and losses are being distributed
d.New partner is admitted to the partnership

d.New partner is admitted to the partnership

Total partners’ equity will not change when a withdrawing partner
a.Withdraws assets equal to his capital balance
b.Sells his interest to a new or remaining partner
c.Withdraws assets amounting to less than his capital balance d.Withdraws assets amounting to greater than his capital balance

b.Sells his interest to a new or remaining partner

When a partner withdraws from a partnership taking assets that represent more than his capital balance,
a.No bonus results.
b.The remaining partners receive a bonus.
c.The withdrawing partner receives a bonus.
d.The remaining partners owe the withdrawing partner the difference.

c.The withdrawing partner receives a bonus.

Pure and Godin are partners of South expressway Merchandising. They shared profit and loss on an arbitrary of 3:2. Juan, has joined the partnership by buying ½ of Pure’s interest in the partnership for ₱220,000. The partners’ respective capital balances on December 31, 2023 before the admission are as follows: Pure, ₱450,000; Godin, ₱300,000. Towards the end of 2023, the partnership realized profit of ₱90,000.
81.How much was Pure’s personal loss in selling her interest to Juan?
a.₱3,000 b.₱4,000 c.₱5,000 d.₱6,000
At what amount that Juan be credited as new partner? a.₱200,000 b.₱225,000 c.₱250,000 d.₱275,000

c.5,000
b.₱225,000

Rey and Richard are partners of Fastfood who shared profit and loss in the ratio of 2:3. Their capital balances are ₱30,000 and ₱45,000. Argil is admitted in the partnership by investing cash of ₱20,000 for a 1/5 interest in the new firm.
83.How much was the total contributed capital of the partners? a.₱75,000 b.₱95,000 c.₱100,000 d.₱110,000
84.How much was the bonus and to whom shall it be given? a.₱1,000 to the new partner b.₱1,000 to the old partner c.₱5,000 to the new partner d.₱5,000 to the old partner
85.How much is the share of Rey and Richard on the bonus, respectively? a.₱400; ₱600b.₱600; ₱400c.₱3,000; ₱2,000d.₱2,000; ₱3,000

83.b.₱95,000
84. b.₱1,000 to the old partner
85.a.₱400; ₱600

When the partnership’s non-cash assets are realized at less than book value during the liquidation process, it results to a -
a.Gain on realization
b.Loss on realization
c.Deficiency transactions
d.None of these

b.Loss on realization

The following are the causes of partnership’s dissolution with liquidation, except -
a.Bankruptcy of the firm
b.When a partner dies
c.Mutual agreement among partners to close the business
d.The purpose of which it is organized is accomplished already

b.When a partner dies

When a partner develops a debit balance in his capital, but such partner has a loan to the partnership, he may exercise the doctrine of -
a.Right to offset
b.Right to seizure
c.Partners’ right
d.None of these

a.Right to offset

The first priority to be paid when there is cash available in the liquidation process, be it lump sum or installment type -a.Outside creditors
b.Partner’s loan
c.Partner’s capital
d.None of these

a.Outside creditors

One of the characteristics of liquidation by lump sum is -
a.The non-cash assets are usually sold at less than the book value
b.Liabilities will be given the first priority for payment
c.Non-cash assets are sold in one setting only
d.None of these

c.Non-cash assets are sold in one setting only

The partners Stone, Ember, and Storm who shared profit and losses in the ratio of 4:2:2 has decided to dissolve and liquidate their partnership. In the process of liquidation, their non-cash assets of ₱490,000 was realized at a loss of ₱340,000. However, they were able to pay their obligations to outside creditors of ₱105,000. The partners’ equity balance before the start of the liquidation has totaled to ₱450,000, broken down as follows: Stone, ₱150,000; Ember, ₱150,000; and Storm, ₱120,000. How much was the cash balance at the beginning of the liquidation process?
a.₱60,000
b.₱65,000
c.₱70,000
d.₱75,000

b.₱65,000

The partnership Black and Yellow before the liquidation process showed their capital balances and profit and loss as follows: Black Yellow Partners’ capital₱240,000 ₱150,000 P/L ratio 40% 60% The total liabilities of the partnership amounted to ₱120,000. All assets available are non-cash assets which were realized for ₱450,000. The cash distribution to partners, Black and Yellow, respectively upon liquidation would be -
a.₱132,000; ₱198,000
b.₱216,000; ₱114,000
c.₱219,000; ₱111,000
d.₱230,000; ₱100,000

b.₱216,000; ₱114,000

FF, GG, and HH decided to liquidate their partnership on July 31, 2023. Their capital balances and profit and loss ratio are as follows: Capital balances Profit and loss ratio FF ₱100,000 40% GG 120,000 30% HH 40,000 30% From January 1, 2023 to July 31, 2023 the partnership’s net loss is ₱10,000. On July 31, 2023 before realization the balance of cash is ₱50,000 and that of liabilities is ₱100,000. For FF to receive ₱80,000 in the settlement of his interest upon liquidation, the non-cash asset must be sold for: a.₱260,000 b.₱250,000 c.₱270,000 d.₱200,000

b.₱250,000

CC, DD, and EE are partners sharing profits and losses in the ratio of 5:3:2. During the year their investments and withdrawals are as follows: Investment Withdrawals CC ₱40,000 ₱25,000 DD 35,000 12,500 EE 75,000 12,500 On December 31, 2023, the partners decided to liquidate the business. After exhausting partnership assets, liabilities of ₱25,000 remain unpaid. CC is personally insolvent. The gain (loss) on realization and the amount of cash EE will receive upon liquidation are:
a.(₱25,000), and ₱37,500, respectively.
b.(₱25,000), and ₱18,500, respectively.
c.(₱125,000), and ₱37,500, respectively.
d.(₱125,000), and ₱18,500, respectively.

d.(₱125,000), and ₱18,500, respectively.

AA, BB, CC, and DD are partners sharing profits in the ratio of 3/21, 4/21, 6/21, and 8/21. Their capital balances on December 31, 2023 are as follows: AA, ₱500; BB, ₱12,500; CC, ₱12,500; and DD, ₱4,500. The partners decide to liquidate their firm and they accordingly convert the noncash assets into ₱11,600 cash. After paying liabilities of ₱1,500, they have ₱11,100 to divide. What is thegain (loss) on realization?
a.(₱11,250)
b.₱18,900
c.(₱18,400)
d.(₱18,900)

d.(₱18,900)

Which of the following statements is correct?
I. Personal creditors have first claim on partnership assets.
II. Partnership creditors have first claim on partnership assets.
III. Partnership creditors have first claim on personal assets.
a. I b. II c. III d. Both II and III

b. II

The first step in the liquidation process is to
a. convert noncash assets into cash.
b. pay partnership creditors
c. assess the value of the assets and compute any net income (loss) up to the date of dissolution.
d. allocate any gains or losses to the partners.

c. assess the value of the assets and compute any net income (loss) up to the date of dissolution.

A schedule prepared each time cash is to be distributed is called a(n)
a. advance cash distribution schedule.
c. loss absorption potential schedule.
b. marshaling of assets schedule.
d. safe payment schedule.

d. safe payment schedule.

An advance cash distribution plan is prepared
a. each time cash is distributed to partners in an installment liquidation.
b. each time a partnership asset is sold in an installment liquidation.
c. to determine the order and amount of cash each partner will receive as it becomes available for distribution.
d. none of these.

c. to determine the order and amount of cash each partner will receive as it becomes available for distribution.

The first step in preparing an advance cash distribution plan is to
a. determine the order in which partners are to participate in cash distributions.
b. compute the amount of cash each partner is to receive as it becomes available for distribution.
c. allocate any gains (losses) to the partners in their profit-sharing ratio.
d. determine the net capital interest of each partner.

d. determine the net capital interest of each partner.

Offsetting a partner’s loan balance against his debit capital balance is referred to as the
a. marshaling of assets
b. right of offset
c. allocation of assets
d. liquidation of assets

b. right of offset

If a partner with a debit capital balance during liquidation is personally solvent, the
a. partner must invest additional assets in the partnership
b. partner’s debit balance will be allocated to the other partners
c. other partners will give the partner enough cash to absorb the debit balance
d. partnership will loan the partner enough cash to absorb the debit balance

a. partner must invest additional assets in the partnership

In a partnership liquidation, the final cash distribution to the partners should be made in accordance
with the:
a. partners’ profit and loss sharing ratio.
b. balances of the partners’ capital accounts.
c. ratio of the capital contributions by the partners.
d. ratio of capital contributions less withdrawals by the partners.

b. balances of the partners’ capital accounts.

In an advance plan for installment distributions of cash to partners of a liquidating partnership, each
partner’s loss absorption potential is computed by
a. dividing each partner’s capital account balance by the percentage of that partner’s capital
account balance to total partners’ capital.
b. multiplying each partner’s capital account balance by the percentage of that partner’s capital
account balance to total partners’ capital.
c. dividing the total of each partner’s capital account less receivables from the partner plus
payables to the partner by the partner’s profit and loss percentage.
d. some other method.

c. dividing the total of each partner’s capital account less receivables from the partner plus
payables to the partner by the partner’s profit and loss percentage.

Under the Uniform Partnership Act
a. partnership creditors have first claim (Rank I) against the assets of an insolvent partnership.
b. personal creditors of an individual partner have first claim (Rank I) against the personal assets
of all partners.
c. partners with credit capital balances share (Rank I) the personal assets of an insolvent partner
that has a debit capital balance with personal creditors of that partner.
d. personal creditors of the partners of an insolvent partnership share partnership assets on a pro
rata basis (Rank I) with partnership creditors.

a. partnership creditors have first claim (Rank I) against the assets of an insolvent partnership.

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