Mock Qualifying Examination – Level 1

PARTNERSHIP AND CORPORATION

1. It is a kind of partner who is liable only to the extent of his capital contribution. He is not
allowed to contribute industry or services only.
A. General Partner
B. Capitalist Partner
C. Limited Partner
D. Industrial Partner

2. Which of the following is correct about the loss absorption balance?

A. It represents maximum profit that the partners can absorb without reducing their
equity below zero.
B. The partner with the biggest capital exposure should be prioritized in a cash
distribution.
C. A partner with a relatively high loss absorption balance can be wiped out by a
material realization loss.
D. It indicates the amount of income that a partner has withdrawn from the partnership
over time.

3. Alquiros is investing in a partnership with Partner A. Alquiros contributes as part of his

initial investment, Accounts Receivable of $80,000; an Allowance for Doubtful Accounts of
$12,000; and $8,000 cash. The entry that the partnership makes to record Alquiros’s initial
contribution includes a:
A. credit to Alquiros, Capital for $88,000.
B. debit to Accounts Receivable for $68,000.
C. credit to Alquiros, Capital for $76,000.
D. debit to Allowance for Doubtful Accounts for $12,000.

4. A partner contributes, as part of her initial investment, accounts receivable with an

allowance for doubtful accounts. Which of the following reflects a proper treatment?
A. The balance of the accounts receivable account should be recorded on the books of
the partnership at its net realizable value.
B. The allowance account may be set up on the books of the partnership because it
relates to the existing accounts that are being contributed.
C. The allowance account should not be carried onto the books of the partnership.
D. The accounts receivable and allowance should not be recorded on the books of the
partnership because a partner must invest cash in the business.

5. Statement 1: In the absence of an agreement to govern this situation, salary allowances will
not be provided even when operations yielded losses.
Statement 2: When the partners calculate the profit of the partnership, salaries to the partners
are not deducted as expenses in the statement of comprehensive income.
 A. True, True
B. True, False
C. False, True
D. False, False

6. When preference shares are called in by the issuer for less than original issue price, proper
accounting for the redemption:
A. increases the amount of dividends available to ordinary shareholders.
B. increases the contributed capital of the ordinary shareholders.
C. increases reported income for the period.
D. increases the treasury shares held by the entity.

7. Share capital may be issued in exchange for any of the following considerations, except:
A. actual cash paid to the corporation.
B. previously incurred indebtedness by the shareholder.
C. outstanding shares exchanged for stocks in the event of reclassification or conversion.
D. amounts transferred from unrestricted retained earnings to stated capital.

8. Casimiro, Dela Cruz and Dela Pacion are in a partnership. Dela Cruz decided she wanted
to withdraw from the partnership by selling her interest to Maranan. Casimiro and Dela
Pacion agree to this. The capital balances of Casimiro and Dela Pacion
a. will be affected when Maranan is admitted.
b. most likely will decrease when Maranan is admitted.
c. most likely will increase when Maranan is admitted.
d. will not be affected when Maranan is admitted

9. In the incorporation process, which of the following statements is incorrect?

a. A term that describes the business of a corporation in its name should refer to its
primary purpose.
b. The person elected as temporary treasurer should execute an affidavit regarding the
share capital subscribed and paid up.
c. The sworn statement of assets and liabilities of the corporation is not required in the
process of drafting and executing the articles of incorporation.
d. The corporate name of a foundation shall use the word “Foundation”.

10. Which of the following statement/s is/are correct regarding partnership?

S1. Bonus cannot be allocated to partner/s if the partnership’s net income, after deducting the
salaries and interest, results to net loss.
S2. Salaries to partners must not be given if the partnership suffers net loss, although it was
agreed to be given as stated in the Articles of Partnership.
S3. Loans payable to a partner may be offset against the latter’s capital deficiency or loss
suffered from disposal of non-cash assets.
S4. If the partnership’s accumulated capital is P1,000,000, the filing fees needed to be
reimbursed should be P1,000.
 a. All statements are correct
b. Two statements are correct
c. One statement is correct
d. Three statements are correct

11. Dividend – on
a. Is the transaction of selling shares after the date of record but before the date of
payment.
b. Does not carry the buyer the right to receive dividends.
c. Both a and b.
d. Implies that the right to receive dividends will be transferred to the buyer upon selling
the owner’s shares after the date of declaration but prior to the record date.

12. When will a preference shareholder be able to acquire the right to vote?
a. If preference shares will be converted into ordinary shares, even if convertibility is not
provided in the articles of incorporation.
b. If conversion of those shares into ordinary shares will be indicated in the articles of
incorporation, and the required amendment is made in it.
c. After receiving its dividend before ordinary shareholders.
d. If ordinary shareholders holding shares equal to his/her number of preference shares
will convert their stocks into preference shares.

13. Which of the following statement/s is/are incorrect regarding share splits?
S1. Total amount of ordinary shares will decrease if the corporation declared split – ups.
S2. Memorandum entry is sufficient to recognize split – ups or split – downs.
S3. If the corporation declared a share split of 1:7, the par value will decrease and the number
of ordinary shares will increase, but no changes in the total amount of ordinary shares.
S4. Split-up djusts the market price of the corporation’s shares to a level where more
individuals can afford to invest in stocks.

a. All statements are incorrect

b. Two statements are incorrect
c. One statement is incorrect
d. Three statements are incorrect

14. At what amount should retained earnings be reduced if the share dividend is 20% or
more?
a. Zero
b. Par value
c. Market value at the declaration
d. Market value at the date of issuance
15. Which of the following is the correct order of priority in eliminating a partner's capital
deficiency?
(1) If the deficient partner is solvent, he should invest cash to eliminate deficiency.
(2) If the deficient partner has a loan balance, then exercise the right of offset.
(3) If the deficient partner is insolvent, then other partners should absorb his deficiency.
a. 1-2-3
b. 2-3-1
c. 1-3-2
d. 2-1-3

16. In case of admission of a new partner in an existing partnership through investment to the
partnership, which of the following scenarios will result in a bonus to the new partner and
asset revaluation?
a. The total contributed capital of all partners is equal to the total agreed capital of the
new partnership while the agreed capital of the new partner is higher than the amount
he has contributed.
b. The total contributed capital of all partners is more than the total agreed capital of the
new partnership while the agreed capital of the new partner is lower than the amount
he has contributed.
c. The total contributed capital of all partners is less than the total agreed capital of the
new partnership while the agreed capital of the new partner is higher than the amount
he has contributed.
d. The total contributed capital of all partners is more than the total agreed capital of
new partnership while the total agreed capital of old partners is equal to the amount
they contributed.

17. Verna and Franco are partners with capitals of P200,000 and P120,000, respectively. The
partnership agreement provided the following: 10 percent interest on their capital
investments; annual salary of P36,000 to Verna; and remainder in 60:40 ratio to Verna and
Franco. What is the profit to be earned by the partnership before charges for interest, salary
and the balance, so that Franco will receive P40,000 in the remainder of the profit after salary
and interest?
A. P168,000
B. P138,000
C. P136,000
D. P132,000

SOLUTION:
Verna Franco Total
P20,000 P12,000
10% Interest on Capital P32,000
(P200,000 x 10%) (P120,000 x 10%)
Salary 36,000 36,000
Remainder – 60:40 40,000 P100,000
 (P40,000 ÷ 40%)
Total P168,000

18. Lady and Arielle are partners sharing profits equally and with capital balances,
respectively, of P750,000 and P500,000. The firm owes Arielle P200,000, as evidenced by a
promissory note. Upon liquidation, cash of P300,000 becomes available for distribution to the
partners. In the final cash distribution, the respective shares of Lady will be:
A. P150,000.
B. P175,000.
C. P200,000.
D. P275,000.

SOLUTION:
Lady Arielle Total
Capital Balances P750,000 P500,000 P1,250,000
Payable to Partner 200,000 200,000
Total Interest P750,000 P750,000 P1,450,000
(575,000) (575,000) 1,150,000
Loss on Realization (P1,150,000 x (P1,150,000 x (P1,450,000 –
750/1,250) 750/1,250) 300,000)
Share in Final Distribution P175,000 P175,000 P300,000

19. Cruz, Cuevo, and Enriquez are new CPA’s and are to form a partnership. Cruz is to
contribute cash of P50,000 and his computer originally costing P60,000 but has a second
hand value of P25,000. Cuevo is to contribute cash of P80,000. Enriquez, whose family is
selling computers, is to contribute cash of P25,000 and a brand new computer with a regular
selling price of P60,000 but which cost is P50,000. Partners agree to share profits equally.
The capital balances upon formation are:
A. Cruz, P75,000; Cuevo, P80,000; Enriquez, P85,000.
B. Cruz, P110,000; Cuevo, P80,000; Enriquez, P75,000.
C. Cruz, P80,000; Cuevo, P80,000; Enriquez, P80,000.
D. Cruz, P83,333; Cuevo, P88,333; Enriquez, P88,334.

Cruz Cuevo Enriquez

Cash P50,000 P80,000 P25,000
Computer 25,000 60,000
Total P75,000 P80,000 P85,000
20. On June 30, 2024, the balance sheet of Western Marketing, a partnership is summarized
as follows: Aldy Assets, P150,000; Bryan, Capital, 90,000; and Almira, Capital, 60,000.
Bryan and Almira share profit and losses at a 60:40 ratio, respectively. They agreed to take in
Henessy as a new partner, who purchases 1/8 interest of Bryan and Almira for P25,000. What
is the amount of Henessy’s capital to be taken up in the partnership books if the book value
method is used?
A. P12,500
B. P18,750
C. P25,000
D. P31,250

SOLUTION:
Book Value of Interest Acquired = (P90,000 + P60,000) x 1/8 = P18,750

21. The shareholders of Fedilino Company approved a two-for-one share split and an increase
in authorized shares from 100,000 shares with P20 par value to 200,000 shares with P10 par
value. The shareholders’ equity accounts immediately before he split shares were share
capital P1,000,000, share premium P150,000, and retained earnings P1,350,000.

What amount should be reported as retained earnings after the share split is effected?
A. P1,350,000
B. P2,700,000
C. P1,500,000
D. P2,350,000

EXPLANATION:
Share split does not affect the elements of shareholders’ equity. Only the number of
shares and par value are affected. Share split up increases the number of shares but
decreases the par value.

22. Fedilino and Gervacio have just formed a partnership. Fedilino contributed cash of
P126,000 and computer equipment that cost P54,000. The fair value of the computer is
P36,000. Fedilino has a note payable on the computer of P12,000 to be assumed by the
partnership. Fedilino is to have 60% capital interest in the partnership. Gervacio contributed
only P90,000. The profit and loss ratio of the partners as agreed is equal. Fedilino should
make an additional investment (withdrawal) of:
A. P96,000.
B. P(15,000).
C. P84,000.
D. P(76,800).

Total Agreed Capital (P90,000 ÷ 40%) P225,000

 Agreed Capital (P225,000 x 60%) P135,000
Total Contributed Capital – Candy (P126,000 + P36,000 – P12,000) 150,000
Additional Investment/(Withdrawal) P(15,000)

23. On December 31, 2021, Malto Corporation has the following selected accounts in its
shareholders’ equity:

9% Cumulative and Participating Preference Shares, P75 par, authorized 4,000

P150,000
shares, 2,000 shares issued and outstanding
Ordinary Shares, P50 par, authorized 6,000 shares, 3,000 shares issued and
150,000
outstanding
Retained Earnings 260,000

The board failed to declare dividends for the past two years. The current year’s results of
operations gave the board reasons to declare cash dividends of P250,000.

How much is the dividend per ordinary share?

A. P37.17
B. P54.92
C. P69.25
D. P72.63

Preference Ordinary Total

Outstanding Share Capital 150,000 150,000 300,000

Preference Dividends in Arrears P27,000 P27,000

Current Preference Dividends 13,500 13,500
Current Ordinary Dividends P13,500 13,500
Remainder for Participation 196,000
Preference 98,000
Ordinary 98,000 98,000
Total P138,500 P111,500 P250,000
P69.25 P37.17
Dividends per Share
(P138,500 ÷ 2,000) (P111,500 ÷ 3,000)

24. As of December 31, 2024, the books of Ton Partnership showed capital balances of: Cruz
P40,000; Cuevo, P25,000; Enriquez, P5,000. The partners' profit and loss ratio was 3:2:1,
respectively. The partners decided to liquidate and they sold all non-cash assets for P37,000.
After settlement of all liabilities amounting P12,000, they still have cash of P28,000 left for
distribution. Assuming that any capital debit balance is uncollectible, the share of Cruz in the
distribution of the P28,000 cash would be:
A. P17,800.
B. P18,000.
C. P19,000.
D. P17,000.

Cruz Cuevo Enriquez Total

Before Liquidation P40,000 P25,000 P5,000 P70,000
P(21,000) P(14,000) P(7,000)
Loss on Realization 42,000
(P42,000 x 3/6) (P42,000 x 2/6) (P42,000 x 1/6)
Balances P19,000 P11,000 P(2,000) P28,000
P(1,200) P(800)
Insolvency 2,000
(P2,000 x 3/5) (P2,000 x 2/5)
Cash Received P17,800 P10,200 P28,000

25. Lady and Glance share profits after the provision of annual salary allowances of P14,400
and P13,200, respectively in the ratio of 6:4. However, if the partnership's net income is
insufficient to provide for said allowances in full amount, the net income shall be divided
equally between the partners. In 2011, the following errors were discovered: Depreciation for
2011 is understated by P2,100, and the inventory on December 31, 2011 is overstated by
P11,400. The partnership net income for 2011 was reported to be P19,500. The capital
account of Lady should be increased (decreased) by:
A. P(6,540).
B. P3,000.
C. P(6,960).
D. P(6,750).

Lady Glance Total

Correct Allocation of Net Income – equally P3,000 P3,000 P6,000*
Allocation of Net Income per Books – equally 9,750 9,750 19,500
Increased/(Decreased) P(6,750) P(6,750) P(13,500)

*Adjusted/Corrected Income = P19,500 – P2,100 – P11,400 = P6,000

26. Fedilino and Gervacio are partners who share profits and losses in the ratio of 7:3;
respectively. Their respective capital accounts are as follows: Fedilino, P35,000 and
Gervacio, P30,000. They agreed to admit Grospe as a partner with a one-third interest in the
capital and profits and losses, upon an investment of P25,000. The new partnership will begin
with a total capital of P90,000. Immediately after Grospe's admission, what is the capital
balance of Fedilino?
A. P30,000
B. P31,500
C. P31,667
D. P35,000

SOLUTION:
Grospe = P35,000 + P30,000 + P25,000 = P90,000 x 1/3 = P30,000
Bonus to New Partner = P30,000 – P25,000 = P5,000
Fedilino = P35,000 – (P5,000 x 70%) = P31,500

27. Malto, Nocos, and Satorre are partners with average capital balances during 2024 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 Malto and P60,000 to Satorre
the residual profit or loss is divided equally. In 2024, the partnership sustained a P99,000 loss
before interest and salaries to partners. By what amount should Malto's capital account
change?
A. P21,000 increase
B. P33,000 decrease
C. P105,000 decrease
D. P126,000 increase

Malto Nocos Satorre Total

10% Interest on P36,000 P18,000 P12,000
P66,000
Average Capital (P360,000 x 10%) (P180,000 x 10%) (P120,000 x 10%)
Salaries 90,000 60,000 150,000
Balances or Residual
(105,000) (105,000) (105,000) (315,000)
– equally
Increase/(Decrease) P21,000 P(87,000) P(33,000) (99,000)

28. Alquiros Company provided the following information at year-end: Preference Share
Capital, P100 par, P4,000,000; Share Premium – Preference Share, P500,000; Ordinary Share
Capital, P10 par, P8,000,000; Share Premium – Ordinary Share, P2,000,000; Subscribed
Ordinary Share Capital, P5,000,000; Retained Earnings, P2,500,000; and Subscription
Receivable – Ordinary Share, P1,000,000. What amount should be reported as legal capital?
A. P19,500,000
B. P17,000,000
C. P19,000,000
D. P16,000,000
 Preference Share Capital 4,000,000
Ordinary Share Capital 8,000,000
Subscribed Ordinary Share Capital 5,000,000
Total Legal Capital 17,000,000

29. Villaroman, Henessy, and Almira were partners with capital balances on January 2, 2024
of P100,000, P150,000, and P200,000, respectively. Their profit and loss ratio is 5:3:2. On
July 1, 2024, Villaroman retired from the partnership. On the date of retirement, the
partnership net income is P140,000 and the partners agreed that inventories are to be revalued
at P70,000 from its original cost of P50,000. The partners agreed further to pay Villaroman
P195,000 in settlement of his interest. What are the capital balances of Henessy after the
retirement of Villaroman?
A. P189,000
B. P198,000
C. P207,000
D. P220,000

Villaroman Henessy Almira

Before Retirement P100,000 P150,000 P200,000
70,000 42,000 28,000
Net Income – P140,000
(P140,000 x 50%) (P140,000 x 30%) (P140,000 x 20%)
Undervaluation of Inventory – 10,000 6,000 4,000
P20,000 (P20,000 x 50%) (P20,000 x 30%) (P20,000 x 20%)
Total P180,000 P198,000 P232,000
Settlement to Villaroman (195,000)
(9,000) (6,000)
Bonus to Villaroman 15,000
(P15,000 x 3/5) (P15,000 x 2/5)
After Retirement – P189,000 P226,000

30. Bhluwayne has a capital balance of P400,000 for five months, P500,000 for four months,
and P600,000 for three months. The average capital balance is:
a. P483,333.
b. P485,000.
c. P491,680.
d. P500,000.

SOLUTION:
Average Capital Balance = [(P400,000 x 5/12) + (P500,000 x 4/12) + (P600,000 x 3/12)] =
483,333
31. Jiezelyn, Bhluwayne, and Franco are partners sharing profits and losses in the ratio of
5:3:2. During the year their investments and withdrawals are as follows: Investment –
Jiezelyn, P40,000; Bhluwayne, P35,000; and Franco, 75,000. Withdrawals – Jiezelyn,
P25,000; Bhluwayne, P12,500; and Franco, 12,500. On December 31, 2024, the partners
decided to liquidate the business. After exhausting partnership assets, liabilities of P25,000
remain unpaid. Jiezelyn is personally insolvent. The gain (loss) on realization of Franco will
be:
A. P(25,000).
B. P(25,000).
C. P(125,000).
D. P(125,000).

Jiezelyn Bhluwayne Franco Total

Before P15,000 P22,500 P62,500
P100,000
Realization (P40,000 – P25,000) (P35,000 – P12,500) (P75,000 – P12,500)
Loss on P(62,500) P(37,500) P(25,000)
P(125,000)
Realization (P125,000 x 50%) (P125,000 x 30%) (P125,000 x 20%)
After
P(47,500) P(15,000) P37,500 P(25,000)
Realization

32. At the beginning of current year, Cuevo Company reported the following shareholders’
equity: Share Capital, P10 par, outstanding 225,000 shares, P2,250,000; Share Premium,
P1,500,000; Retained Earnings, 2,000,000.

During the current year, the entity had the following transactions:
● Acquired 10,000 treasury shares for P50 per share or P500,000.
● Sold 5,000 treasury shares at P60 a share.
● Sold 2,000 treasury shares at P45 a share.
● Net income for the year was P2,500,000.

What is the total amount of share premium at year-end?

A. P1,500,000
B. P1,560,000
C. P1,540,000
D. P2,550,000

Treasury Shares 500,000

Cash 500,000

Cash (5,000 x P60) 300,000

 Treasury Shares (5,000 x P50) 250,000
Share Premium – Treasury 50,000

Cash (2,000 x P45) 90,000

Share Premium – Treasury 10,000
Treasury Shares (2,000 x P50) 100,000

Share Premium – Issuance, January 1 P1,500,000

Share Premium – Treasury (P50,000 – 10,000) 40,000
Total Share Premium P1,540,000

33. What is the total shareholders’ equity at year-end?

A. P8,140,000
B. P8,300,000
C. P8,250,000
D. P8,290,000

Share Capital P2,250,000

Share Premium 1,540,000
Retained Earnings (P2,000,000 + P2,500,000) 4,500,000
Treasury Shares (3,000 shs. remaining x P50) (150,000)
Total Shareholders’ Equity P8,140,000

34. Jiezelyn, Rho-ann, and Stephanie, accountants, agree to form a partnership and to share
profits in the ratio of 5:3:2. They also agreed that Stephanie is to be allowed a salary of
P28,000, and that Rho-ann is to be guaranteed P21,000 as her share of the profits. During the
first year of operation, income from fees are P180,000, while expenses total P96,000. What
amount of net income should be credited to Jiezelyn's capital account?
A. P28,000
B. P25,000
C. P24,000
D. P25,000

Jiezelyn Rho-ann Stephanie Total

Salary P28,000 P28,000
P28,000 P16,800 11,200
Remainder – 5:3:2
(P56,000 x 50%) (P56,000 x 30%) (P56,000 x 20%)
 Additional Profit to (3,000) (1,200)
4,200
Rho-ann (P4,200 x 5/7) (P4,200 x 2/7)
Total P25,000 P21,000 P38,000 P84,000

35. On January 1, 2024, John, Ronalyn, Ivo, and Arielle formed Bakya Trading Co., a
partnership with capital contributions as follows: John, P50,000; Ronalyn, P25,000; Ivo,
P25,000; and Arielle, P20,000. The partnership contract provided that each partner shall
receive a 5% interest on contributed capital, and that John and Ronalyn shall receive salaries
of P5,000 and P3,000, respectively. The contract also provided that Ivo shall receive a
minimum of P2,500 per annum, and Arielle a minimum of P6,000 per annum, which is
inclusive of amounts representing interest and share of remaining profits. The balance of the
profits shall be distributed to John, Ronalyn, Ivo, and Arielle in a 3:3:2:2 ratio. What amount
must be earned by the partnership, before any charge for interest and salaries, so that John
may receive an aggregate of P12,500 including interest, salary and share of profits?
A. P16,667
B. P30,000
C. P30,667
D. P32,333

John Ronalyn Ivo Arielle Total

P2,500 P1,250 P1,250 P1,000
5% Interest on
(P50,000 x (P25,000 x (P25,000 x (P20,000 x P6,000
Capital
5%) 5%) 5%) 5%)
Salaries 5,000 3,000 8,000
16,666
Balance – 3:3:2:2 5,000 5,000 3,333 3,333 (P5,000 ÷
30%)
Total P12,500 P9,250 P4,583 P4,333 P30,666
Additional Profit 1,667 1,667
Total P12,500 P9,250 P4,583 P6,000 P32,333

36. Henessy, Franco and Lady agreed to allow 10% interest on partners' investments at the
beginning of the year P300,000; P250,000; and P450,000, respectively, 20% bonus before
interest and bonus to Lady, and any remaining profit is divided equally. What is the effect on
Lady's capital on the P240,000 profit during 2020?
a. 123,667 increase
b. 110,333 increase
c. 107,222 increase
d. 118,333 increase
 Henessy Franco Lady Total
Initial 300,000 250,000 450,000
Interest 30,000 25,000 45,000 100,000
Bonus 48,000 48,000
Share in P/L 30,667 30,667 30,667 92,000
Increase/(Decrease
) 60,667 55,667 123,667 240,000

37. Partners, A & B, share profits 3:2. However, A is to receive a yearly bonus of 20% of the
profits, in addition to his profit share. The partnership made a net income for the year of P
24,000 before bonus. Assuming A's bonus is computed on profit after deducting said bonus,
how much profit share will B receive?
a. 15,200
b. 9,600
c. 8,000
d. 9,000

B = BR (NI – B)
B = .2 (24,000 – B)
B = 4,800 - .2B
B = 4,800 / 1.2
B = 4,000 (BONUS OF A)

24,000 – 4,000 = 20,000 (NI after Bonus) x 2/5 = 8,000 share of B

38. As contribution to the partnership, in the books of Jiezelyn the accounts receivables has a
balance of P500,000 with allowance for uncollectible accounts at P15,000. The partners
agreed to value the accounts receivable at 95% collectible. What is the effect on Jiezelyn's
equity in the partnership, at time of contribution, is
a. No effect
b. Decrease by P10,000 to P475,000.
c. Decrease by P25,000 to P475,000.
d. Increase by P10,000 to P475,000.

500,000*5% = 25,000
15,000 -25,000 = -10,000

39. Partners A, B and C showed equity balances of P100,000; P200,000 and P200,000,
respectively, on June 1, 2021. They share profit and losses in the ratio of 2:2:1. They agreed
to admit D who will invest P200,000 for 1/4 interest in the new partnership.What is the
Capital Balance of B after the admission of D?
 a. 110,000
b. 175,000
c. 205,000
d. 210,000

A B C D Total
Balances before admission 100,000 200,000 200,000 500,000
Investment of new partner 200,000 200,000
Bonus 10,000 10,000 5,000 -25,000 0
Total balances 110,000 210,000 205,000 175,000 700,000

40. Santos invested P400,000 for 20% interest in a partnership in which the other partners
have capital totaling P1,200,000 before admitting Santos. After distributing the bonus,
Santos capital is
a. P400,000
b. P320,000
c. P240.000
d. P160,000

1,200,000 + 400,000 = 1,600,000

1,600,000 * 20% = 320,000

41. Partners A, B and C showed equity balances of P100,000; P200,000 and P200,000,
respectively, on June 1, 2021. They share profit and losses in the ratio of 2:2:1. B died. The
remaining partners agreed to pay the heirs of B for P250,000. What is the balance of C after
set-up of payable estate to B?
a. 66,667
b. 183,333
c. 250,000
d. 0

B, Capital 200,000
A, Capital (2) 33,333
C, Capital (1) 16,667
Payable to Estate of B 250,000

200,000 - 16,667 = 183,333

(For Questions 42-43) On January 1, 2022, the partners of Ampersand Co. decided to
liquidate their partnership. The partnership’s statement of financial position is provided
below:
Cash 20,000 Accounts payable 30,000
Non-cash assets 480,000 Loan payable - Fabrigaras 20,000
Bautista, Capital (20%) 100,000
Magdagraog, Capital (30%) 150,000
Saclot, Capital (50%) 200,000
Total assets 500,000 Total liabilities and equity 500,000

The partnership will be liquidated on an instalment basis. Distribution to owners will be made
as cash becomes available:

As of January 31, 2022, the following transactions occurred:

a. P305,000 worth of non-cash assets were sold for P190,000.
b. P2,000 liquidation expenses were paid. Estimated future liquidation expenses totalled
P1,000.

As of February 28, 2022, the following transactions occurred:

a. The remaining non-cash assets were sold for P60,000.
b. P10,000 liquidation expenses were paid.
c. The liquidation process ended on February 28, 2022.

42. How much cash was received by Saclot on January 31, 2022?
a. P44,100
b. P82,100
c. P41,400
d. P53,500

43. What is the share of Bautista in the maximum possible loss on January 31, 2022?
a. P35,200
b. P52,800
c. P44,100
d. P88,000

Bautista Magdaraog Saclot Total

20% 30% 50%

Capital Balance before 100,000 150,000 200,000 450,000

liquidation

Loan-payable, 20,000
Magdaraog

Total 100,000 170,000 200,000 470,000

Actual loss on (23,400) (35,100) (58,500) (117,000)

 realization,
allocated based on their
P&L ratio (190k
proceeds on sale of NCA
– 2k liquidation
expenses) – 305k
carrying amount of
NCA

Balance 76,600 134,900 141,500 353,000

Allocation of maximum (35,200) (52,800) (88,000) (176,000)

loss possible, (175k
carrying amt. of
remaining
NCA + 1k estimated liq.
expenses)

First instalment payment 41,400 82,100 53,500 177,000

– 1/31/2022

44. Ebenezer Company issued 10,000 shares of its P5 par value common stock having a
market value of P25 per share and 15,000 shares of its P15 par value preferred stock having a
market value of P20 per share for a lump sum of P480,000. How much of the proceeds would
be allocated to the common stock?
a. P50,000
b. P218,182
c. P250,000
d. P255,000

Solution: (10,000 x P25) + (6,000 x P20) = P550,000

(P250,000 / P550,000) x P480,000 = P218,182

45. The shareholders’ equity section of Cuevo Corporation as of December

31, 2021 contained the following accounts:
Ordinary Share Capital, 300,000
shares authorized, 70,000
shares issued and outstanding P700,000
Ordinary Share Premium 200,000
Retained Earnings 250,000
Total SHE P1,150,000

Cuevo’s board of directors declared a 10% stock dividend on April 1, 2022 when the
market value of the share capital was P12 per share. The date of record is on April 29, 2022
when the market value was P14 and the date of payment will be on May 15, 2022 when the
market value was P15. Cuevo incurred a loss of P37,500 for the first three months.

What is the balance of the retained earnings account as of April 1, 2022?

a. 212,500
b. P198,500
c. P128,500
d. P142,500

Retained earnings, beginning 250,000

Loss (37,500)

Share dividends declared (70,000 x 10% x P12 market value at (84,000)

date of declaration)

Retained earnings, April 1, 2022 128,500

46. Grospe Company paid cash dividends of P600,000 and reported net income of
P1,550,000. The ordinary shareholders equity at year ended was P5,000,000. The ordinary
shares outstanding. What is the book value per ordinary share ?
a. 25.00
b. 22.00
c. 3.00
d. 7.75

Solution :
Book value per ordinary share (5,000,000/200,000 shares) 25

47. On December 31, 2022 and 2023, Nocos Company had outstanding 40,000 6 %
cumulative preference shares of P100 par value and 200,000 ordinary shares of P10 par
value. On December 31, 2022 preference dividends in arrears amounted to P120,00. Cash
dividends declared in 2023 totaled P440,000. What amount should be reported as dividend
payable to preference in 2023 ?
a. 440,000
b. 360,000
c. 320,000
d. 240,000

Total dividend declared 440,000

Preference Dividends In arrears on December 31, 2022 120,000
2023 dividend (6% x 4,000,000) 240,000 360,000
Balance to ordinary share 80,000
48. Cruz Company provided the following information at year-end:

Preference share capital, P100 par P3,000,000

Share premium- preference share 500,000
Ordinary share capital, P10 par 6,000,000
Share premium- ordinary share 2,000,000
Retained earnings 2,500,000
Subscription receivable- ordinary share 1,000,000

What is the amount of legal capital?

a. 15,500,000
b. 13,000,000
c. 15,000,000
d. 12,000,000

Preference share capital 3,000,000

Ordinary share capital 6,000,000
Subscribed ordinary share capital 4,000,000
Total legal capital 13,000,000

● in case of par value share capital, legal capital is the aggregate par value of all
shares issued and subscribed
● in the case of no-par value share capital, legal capita is the aggregate stated value of
shares issued and subscribed plus any excess over stated value
● this is an accordance with the provision of Corporation Code of the Republic of the
Philippines

49. At the beginning of current year, Charles Company reported the following shareholders’
equity:
Share capital, P10 par, outstanding 225,000 shares 2,250,000
Share premium 1,500,000
Retained earnings 2,000,000

During the current year, the entity had the following transactions:
● Acquired 100,000 treasury shares for P50 per share or P500,000
● Sold 5,000 treasury shares at P60 a share
● Sold 2,000 treasury shares at P45 a share
● Net income for the year was P2,500,000.

What is the share capital at the year-end?

a. 2,250,000
b. 2,150,000
c. 2,320,000
d. 2,300,000
 Share capital 2,250,000
● the share capital issued is not affected by the acquisition and sale of the treasury
shares.

50. At the beginning of the current year, Rudd Company had 700,000 ordinary shares
authorized and 300,000 shares outstanding.
Jan 31 Declared 10% share dividend
June 30 Purchased 100,000 shares
August 1 Reissued 50,000
Nov 30 Declared for 2-for-1 share split

How many ordinary shares are outstanding at year-end?

a. 560,000
b. 600,000
c. 630,000
d. 660,000

Original shares 300,000

Share dividend (10%x300,000) 30,000
Total shares issued before share split 330,000
Remaining treasury shares (50,000)
Outstanding shares before split 280,000

Shares issued after split (330,000x2) 660,000

Treasury shares after split (50,000x2) (100,000)
Outstanding shares after split 560,000