Saint Vincent College of Cabuyao

Brgy. Banay- Banay, City of Cabuyao, Laguna

PRELIM EXAM- PART 2

Name: _________________________________ Score:___________
Partnership Accounting Mr. D. R. Magalang
Solve the following problems and encircle the correct answer. Show all necessary computations.

1. Carson and Lamb establish a partnership to operate a used-furniture business under the name C&L
Partnership. Carson contributes furniture inventory that cost P600,000 and has fair value of P800,000.
Lamb contributes P300,000 cash and delivery equipment that cost P400,000 and has fair value of
P300,000. The partners agree to share profits and losses 60% to Carson and 40% to Lamb. What is the
capital balances of Carson and Lamb respectively, immediately after the formation of the partnership?
A. 800,000 and 700,000 C. 800,000 and 800,000
B. 800,000 and 600,000 D. 700,000 and 700,000

2. Arnold, Beverly and Carolyn are partners who share profit and losses 4:4:2, respectively, after Beverly,
who manages the partnership, receives a bonus of 10% of income net of the bonus. Partnership income
for the year is P253,000. How much is the share of Arnold in the partnership income?
A. P115,000 C. P 46,000
B. 92,000 D. 102,500

Use the following information for Questions 3 and 4:

Kathy and Eddie formed the K&E partnership many years ago. Capital account balances on January 1,
2010, were as follows:
Kathy P496,750
Eddie 268,250

The partnership agreement provides Kathy with an annual salary of P10,000 plus a bonus of 5% of
partnership net income for managing the business. Eddie is provided an annual salary of P15,000 with
no bonus. The remainder, if any, is shared evenly by the partners. Partnership net income for the year
2010 was P30,000. Eddie and Kathy each invested an additional P5,000 during the year to finance a
special purchase. Year-end drawing account balances were P15,000 for Kathy and P10,000 for Eddie.

3. What is the share of Kathy and Eddie, respectively, in the net income of the partnership?
A. P16,750 and P13,250 C. P15,000 and P15,000
B. 13,250 and 16,750 D. 14,250 and 17,250

4. What is the capital balance at year-end of Partner Kathy and Eddie respectively?
A. P280,000 and P500,000 C. P500,000 and P280,000
B. 310,000 and 480,000 D. 520,000 and 260,000

Use the following information Questions 5 through 7:

Timmy and Lassie have been operating an accounting firm as partners for a number of years, and at the
beginning of 2012, their capital balances were P60,000 and P75,000 respectively. During 2012, Timmy
invested an additional P10,000 on April 1 and withdrew P6,000 on August 30. Lassie withdrew
P12,000 on May 1 and withdrew another P6,000 on November 1. In addition, Timmy and Lassie
withdrew their salary allowances of P18,000 and P24,000, respectively. At the end of 2012, total capital
of the partnership was P182,000. Timmy and Lassie share income after salary allowances in a 60:40
ratio.

5. What is the average capital balance of Timmy and Lassie respectively for the year 2012?
A. P64,000 and P57,000 C. P60,000 and P75,000
B. 65,500 and 66,000 D. 70,000 and 63,000

6. What is the share of Timmy and Lassie in the partnership income, respectively, for the year 2012?
A. P29,400 and P31,600 C. P54,600 and P48,400
B. 60,600 and 42,400 D. None of the Above

7. What is the capital balance of Timmy and Lassie, respectively at the end of the year 2012?
A. P100,600 and P81,400 C. P 90,600 and P91,400
B. 95,600 and 86,400 D. 105,600 and 86,400

8. The capital accounts of Faxon and Bell partnership on September 30, 2011, were:

Faxon capital (75% profit percentage) 140,000

Bell capital (25% profit percentage) 60,000
 On October 1, 2011, Roberts was admitted to a 40% interest in the partnership when he purchased 40%
of each existing partner’s capital for P120,000, paid directly to Faxon and Bell. What is the capital
balances of Faxon, Bell and Roberts respectively, immediately after the admission?
A. P84,000; P36,000; P80,000 C. P140,000; P60,000; P120,000
B. 90,000; 40,000; 80,000 D. 100,000: 64,000: P90,000

9. Capital balances and profit sharing percentage for the partnership of Manda, Emeril, and Fotenot on
January 1, 2011 are as follows:

Manda (36%) 140,000

Emeril (24%) 100,000
Fotenot (40%) 160,000

On January 3, 2011, the partners agree to admit Bourdeaux for a 25% interest in capital and earnings
for his investment in the partnership of P120,000. What is the capital balance of Bourdeax immediately
after the admission?
A. P120,000 C. P130,000
B. 110,000 D. 140,000

10. On December 31, 2012, Tina and Webb, who share profits and losses equally, have capital balances of
P170,000 and P200,000 respectively. They agree to admit Zen for one-third interest in capital and
profits for his investment of P200,000. Partnership assets are fairly valued and so its liabilities.
Immediately after the admission of Zen, what is the capital balance of Tina, Webb and Zen,
respectively?
A. P170,000, P200,000, and P200,000
B. P165,000, P195,000, and P200,000
C. P175,000, P205,000, and P190,000
D. P185,000, P215,000 and P200,000

11. The December 31, 2011, balance sheet of Bennet, Carter and Davis partnership is summarized as
follows:

Cash 100,000 Carter loan 100,000

Other assets, net 500,000 Bennet, capital 100,000
Carter, capital 200,000
Davis, capital 200,000
600,000 P600,000

The partners share profits and losses as follows: Bennet 20%; Carter 30%; and Davis, 50%. Carter is
retiring from the partnership, and the partners have agreed that “other assets” should be adjusted to their
fair value of P600,000 at December 31, 2011. They further agreed that Carter will receive P244,000
cash for his partnership interest exclusive of his loan, which is to be paid in full. After Carter’s
retirement, the capital balances of Bennet and Davis, respectively, will be:
A. 116,000 and 240,000 C. 100,000 and 200,000
B. 101,714 and 254,286 D. 73,143 and 182,857

12. Partners Allen, Baker, and Coe share profits and losses 50:30:20, respectively. The balance sheet at
April 30, 2011, follows:

Cash 40,000 Accounts payable 100,000

Other assets 360,000 Allen, capital 74,000
Baker, capital 130,000
Coe, capital 96,000
400,000 P400,000

The partners assets and liabilities are recorded and presented at their respective fair values. Jones is to
be admitted as a new partner with a 20% capital interest and 20% share of profits and losses in
exchange for a cash contribution. How much cash should Jones contribute?
A. 60,000 C. 75,000
B. 72,000 D. 80,000

13. Williams desires to purchase a one-fourth capital and profit and loss interest in the partnership of Eli,
George and Dick. The three partners agree to sell Williams one-fourth of their respective capital and
profit and loss interests in exchange for a total payment of P40,000. Immediately before the sale of their
interests to Williams, the capital balances of the partners were as follows:

Eli (60%) 80,000

 George (30%) 40,000
Dick (10%) 20,000

All assets, except for a depreciable asset, and liabilities of the partnership are fairly valued. It was
agreed to adjust the book of the partnership with respect to the undervalued before the acquisition of
Williams of the interest in the partnership. Immediately after William’s acquisition, what should be the
capital balances of Eli, George and Dick respectively?
A. P60,000; P30,000 and P15,000
B. P69,000; P34,500 and P16,500
C. P77,000; P38,500 and P19,500
D. P92,000; P46,000 and P22,000

Use the following information for Questions17 through 20:

Kobe Snow and Brian White formed a partnership on July 1, 2010. Kobe invested P20,000 cash,
inventory valued at P15,000, and equipment valued at P65,000. Brian invested P50,000 cash and land
valued at P120,000. The partnership assumed the P40,000 mortgage on the land.

On June 30, 2011, the partnership reported a net loss of P24,000. The partnership contract specified that
income and losses were to be allocated by allowing 10% interest on the original capital investment,
salaries of P15,000 to Kobe and P20,000 to Brian, and the remainder to be divided in the ratio of 40:60.

On July 1, 2011, Sam Hansel was admitted into the partnership with a P70,000 cash investment. Sam
was given a 30% interest in the partnership because of his special skills. The partners elect to use the
bonus method to record the admission.

On June 30, 2012, the partnership reported a net income of P150,000. The new partnership agreement
stipulated that net income and losses were to be divided in a fixed ratio of 20:50:30.

On July 1, 2012, Kobe withdrew from the partnership for personal reasons. Kobe was given P40,000
cash and P60,000 note for his capital interest.

14. What is the capital credit of Kobe and Brian, respectively, immediately after the formation of
partnership?
A. P100,000 and P120,000 C. P110,000 and P130,000
B. 100,000 and 130,000 D. 100,000 and 140,000

15. How much is the capital credit of Sam Hansel upon admission?
A. P82,800 C. P70,000
B. 78,400 D. 84,000

16. How much is the share of Kobe, Brian and Sam , respectively, in the net income of partnership for the
year ending June 30, 2012?
A. P50,000; P50,000; P50,000 C. P30,000; P50,000; P70,000
B. 30,000; 75,000; 45,000 D. 45,000; 60,000; 45,000

17. How much is the bonus old partners upon the withdrawal of Kobe from the partnership?
A. P27,080 C. P40,000
B. 60,000 D. 17,080

Use the following information for Questions 1 through 3.

On March 1, 2014, AB and CD decide to combine their business and form a partnership. Their balance on
March 1, before any adjustments, showed the following:

AB CD
Cash P 9,000 P 3,750
Accounts Receivable 18,500 13,500
Inventories 30,000 19,500
Furniture and Fixtures (net) 30,000 9,000
Office equipment (net) 11,500 2,750
Prepaid Expenses 6,375 3,000
Total Assets P 105,375 P 51,500

Accounts Payable P 45,750 P 18,000

Capitals P 59,625 P 33,500
Total Liabilities and Capital P 105,375 P 51,500

They agreed to have the following items recorded in their books:

 Provide 2% allowance for doubtful accounts.
 AB’s furniture and fixtures should be P31,000, while CD’s office equipment is under-
depreciated by P250.
  Rent expenses incurred previously by AB was not yet recorded amounting to P1,000, while
salary expense incurred by CD was not also recorded amounting to P800.
 The fair value of inventory amounted to:
AB P29,500
CD 21,000

18. The net (debit) credit adjustment for AB and CD:

AB CD AB CD
A. 2,870 2,820 C. (870) 180
B. (2,870) (2,820) D. 870 (180)

19. How much is the total liabilities after the formation?

A. 62,950 C. 65,550
B. 63,750 D. 63,950

20. How much is the total assets after the formation?

A. 157,985 C. 160,765
B. 156,875 D. 152,985

21. The Partnership has a balances from the following selected accounts:
Sales P70,000
Cost of Good Sold 40,000
Operating Expenses 10,000
Salary allocations to partners 13,000
Interest paid to banks 2,000
Partners’ withdrawal 8,000

The partnership net income (loss) is:

A. 20,000 C. 5,000
B. 18,000 D. (3,000)

22. The partnership agreement of AA and BB provides that interest of 10% per year is to be credited to
each partner on the basis of weighted-average capital balances. A summary of BB capital account for
the year ended December 31, 2014, is as follows:

Balance, January 1 P420,000

Additional investment, July 1 120,000
Withdrawal, August 1, (45,000)
Balance, December 31 495,000

What amount of interest should be credited to BB’s capital account for 2014?
A. 45,750 C. 46,125
B. 49,500 D. 51,750

Questions 26 and 27 are based on the following:

CC, PP and AA are partners with average capital balances during 2015 of P472,500, P238,650, and
P162,350, respectively. The partners receive 10% interest on their average capital balances; after
deducting salaries of P122,325 to CC and P82,625 to AA, the residual profits or loss is divided equally.

In 2015, the partnership had a net loss of P125,625 before the salaries and interest to partners.

23. By what amount should CC’s and AA’s capital account change – increase (decrease)?
CC AA CC AA
A. 30,267 (40,448) C. (40,448) 31,325
B. 29,467 17,536 D. 28,358 32,458

24. If the loss of P125,624 was after the interest and salaries to partners, by what amount should PP’s
capital account change – increase (decrease)?
A. (115,443) C. (41,875)
B. 23,865 D. (18,010)

25. Marlona, a partner in the Charrot Partnership, has a 30% participation in the partnership profits and
losses. Marlona’s capital account has a net decrease of P1,200,000 during the calendar year 2015.
During 2015, Marlona withdrew P2,600,000 (charged against his capital account) and contributed
property valued at P500,000 to the partnership. What was the net income of the partnership for the year
2015?
A. 3,000,000 C. 7,000,000
 B. 4,666,667 D. 11,000,000

26. and EE were organized and began operations on March 1, 2014. On that date, DD invested P150,000
and EE invested land and building with current fair value of P80,000 and P100,000 respectively. EE
also invested P60,000 in the partnership on November 1, 2014 because of its shortage of cash. The
partnership contract includes the following remuneration plan:
DD EE
Annual salary P18,000 P24,000
Annual interest on average capital account balances 10% 10%
Remainder 60% 40%

The annual salary was to be withdrawn by each partner in 12 monthly installments. During the fiscal
year ended, February 12, 2015, DD and EE had net sales of P500,000, cost of good sold of P280,000,
and total operating expenses of P100,000 (excluding partners’ salaries and interest on average capital
account balances). Each partner made monthly cash drawings in accordance with partnership contract.
The capital balance of each partner on March 1, 2015 should be:
A. DD, P190,800; EE, P277,200 C. DD, P216,000; EE, P294,000
B. DD, P132,000; EE, P164,000 D. DD, P198,000; EE, P270,000

27. Assume the same information in the preceding problem, except that the annual salary are to be
recognized as operating expenses and the total operating expenses of P100,000 includes the partners’
salaries expense but excluding interest on partners’ average capital account balances.

Compute the capital balance of each partner on March 1, 2007

A. DD, P190,800; EE, P277,200 C. DD, P216,000; EE, P294,000
B. DD, P132,000; EE, P164,000 D. DD, P198,000; EE, P270,000

28. Partner Z first contributed P50,000 of capital into an existing partnership on March 1, 2014. On June 1,
2014, the partner contributed another P20,000. On September 1, 2014, the partner withdrew P15,000
from the partnership. Withdrawal in excess of P10,000 are charged to capital account. The annual
weighted average capital balance is
A. 62,000 C. 60,000
B. 51,667 D. 48,333

29. AA and CC are partners who shares profits and losses in the ratio of 60:40, respectively. AA’s salary is
P60,000 and P30,000 for CC. The partners are also paid interest on their average capital balances. In
2014, AA received P30,000 interest and CC received P12,000. The profit and loss allocation is
determined after deductions for salary and interest payments. If CC’s share in the residual income
(income after deducting salaries and interest) was P60,000 in 2014, what was the total partnership net
income?
A. 192,000 C. 282,000
B. 345,000 D. 387,000

30. XX and YY are partners with capital balances of P600,000 and P200,000, respectively. Profits and
losses are divided in the ratio of 60:40. XX and YY decided to for partnership with ZZ, who invested
land valued at P150,000 for a 20% capital interest in the partnership. ZZ’s cost of the land was
P120,000. The partnership elected to use the bonus method to record the admission of ZZ in the
partnership. ZZ’s capital account should be credited for:
A. 120,000 C. 160,000
B. 150,000 D. 190,000

31. A, B and C are partners with average capital balances during 2014 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 A and P60,000 to C, the residual profit or loss is divided equally. In 2014, the
partnership sustained a P99,000 loss before interest and salaries to partners, by what amount should A’s
capital change?
A. 21,000 increase C. 105,000 decrease
B. 33,000 decrease D. 126,000 increase

--- END ---