Advacc Quiz on Partnership

University of the Assumption (Pampanga) ACCOUNTING 11: Advance Accounting Part 1 Prelim-Quiz No.1: Partnership Formation and Operation 1st Semester, A.Y. 2013-2014

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INSTRUCTIONS: Select the correct answer for each of the following questions. STRICTLY NO ERASURES ALLOWED. PROVIDE SOLUTIONS. Multiple Choices:

1. The partnership of X and Y shares profits and losses in the ratio of 60 percent to X and 40 percent to Y. For the year 2012, partnership net income was double X's withdrawals. Assume X's beginning capital balance was P80,000, and ending capital balance (after closing) was P140,000. Partnership net income for the year was: A. 120,000. B. 300,000. C. 500,000. D. 600,000.

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2. Shue, a partner in the Financial Brokers Partnership, has a 30 percent share in partnership profits and losses. Shue's capital account had a net decrease of P100,000 during 2013. During 2013, Shue withdrew P240,000 as withdrawals and contributed equipment valued at P50,000 to the partnership. What was the net income of the Financial Brokers Partnership for 2013? A. 633,334 B. 466,666 C. 300,000 D. 190,000 3. Van, Matt, and Den are to form a partnership. Van is to contribute cash of P500, 000, Matt, 50,000 and Den P500, 000. Van and Den are not to actively participate in the management of the business, but will refer customers, while Matt will manage it. Matt has given up his job which gives him an annual income of P600, 000. Partners agree to share profits and losses equally. The capital balances of each partner upon .formation of the partnership respectively are: A. P500, 000; P50, 000; and P500, 000. B. P500, 000 P650, 000; and P500, 000. C. P350000; P350, 000; and P350, 000. D. P550, 000; P550, 000; and P550, 000.

4. The partnership of Emmanuel and Chris was formed on February 28, 2011. The following assets were contributed:

Cash Merchandise Furniture and Equipment

Emmanuel P125, 000

Chris P175, 000 275,000 Building 500,000

75,000

The building is subject to a mortgage loan of P150, 000 which is to be assumed by partnership. The partnership agreement provides that Emmanuel and Chris share profits or losses 1:3, respectively. If the partnership agreement provides that the partners initially should have equal interest in partnership capital with no contribution of intangible assets, Emmanuel's capital account at February 28, 2011 would be A. B. C. D.

500, 000 575, 000 1, 000,000 1, 150,000

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Items 5 and 6 are based on the following information: Seth, Van and Mitch are forming a new partnership, each contributing cash of P400,000 and their respective office equipment and supplies valued at P200,000, P400,000, and P600,000, respectively. Seth's non- cash contribution is his own developed software valued at cost, which he could sell for thrice the amount. Partners agree to admit his software at market value and they would share profits equally. 5. Capital balances upon formation, respectively are: a. P600, 000; P800, 000; and P1, 000,000 b. P1, 000,000; P800, 000; and P1, 000,000. c. P800, 000; P800, 000; and P800, 000. d. P933, 333; P933, 333; and P933, 334. 6. Assuming that each partner will have equal interest in the partnership, maintaining the same total capital, the partnership should recognize: a. Goodwill of P200, 000. b. Bonus of P200, 000. c. Goodwill of P600, 000. d. Bonus of P133, 333.

7. Effective August 1, 2011, Kevin and Jasper agreed to form a partnership from their two respective proprietorships. The balance sheets presented below reflect the financial position of both proprietorships as of July 31, 2011:

Cash Accounts Receivable Merchandise Inventory Prepaid Rent Store Equipment Accumulated Depreciation Building Accumulated Depreciation Land Totals Accounts Payable Mortgage Payable Kevin, Capital Jasper, Capital Totals

Kevin

Jasper

12,000 72,000 198,000

30,000 42,000 252,000 24,000 180,000 (108,000)

240,000 (90,000) 750,000 (150,000) 360,000 1,392,000 45,000 360,000 987,000

420,000 18,000

402,000 1,392,000

420,000

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As of August 1, 2011, the fair values of Kevin’s assets were: merchandise inventory, P162, 000; store equipment, P90, 000; building, P1, 500,000; and land, P600, 000. For Jasper, the fair values of the assets on the same date were: merchandise inventory, P270, 000; store equipment, P39, 000; prepaid rent, P 0. All other items on the two balance sheets were stated at their fair values. How much is the net assets of the new partnership? a. P1,389,000 b. P2,394,000 c. P2,817,000 d. P1,812,000 Items 8 and 9 are based on the following information: The balance sheet of the proprietorship of Anthony as of June 30, 2011 showed the following assets and liabilities Cash Accounts Receivable Inventory Equipment Accounts Payable

P 40,000 53,600 88,000 65,600 63,520

The cash balance included a 200- share certificate of BW Resources common at acquisition cost of P1, 600; the current market quotation is 70 per share. Of the accounts receivable, an estimated 5% is considered to be doubtful of collection. Certain inventory items, booked at a cost of P22, 960, are currently worth P16, 000. Depreciation has not been recorded; the equipment, acquired two years ago, has a remaining useful life of about eight more years. Prepaid expense of P12, 800 and accrued expense of P6, 120 have not been properly recognized. James and Bert will join Anthony in a partnership. Anthony will invest the net assets of his business, after effecting the appropriate adjustments, and he will be allowed credit for goodwill equal to 10% of his initial capital credit. James and Bert will each contribute cash to secure the respective interests 1/3 and 1/6 respectively. 8. Anthony goodwill credit would be: a. P16, 600 b. P18, 000 c. P20, 000 d. P21, 000 9. James' cash investment would be: a. P61, 267 b. P66, 000 c. P132, 000 d. P133, 333

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10. Paolo and Gene entered into a partnership on February 1, 2012 by investing the following assets: Paolo Gene Cash P180, 000 Merchandise Inventory P540, 000 Land 180,000 Building 780,000 Furniture and Fixtures 1,200,000 The agreement between Paolo and Gene provides that profits and losses are to be divided 40% and 60%, respectively, and that the partnership is to assume the P360, 000 mortgage loans on the building. If Paolo is to receive a capital credit equal to her profit and loss ratio, how much cash must Gene invest? a. P870,000 b. P930,000 c. P780,000 d. P810,000

11. On June 1, Dennis and Roy pooled their assets to form a partnership, with the firm to take over their business assets and assume the liabilities. Partners' capitals are to be based on the assets transferred after the following adjustments: a. Roy's inventory is to be increased by P7,500. b. An allowance for bad debts of P2, 500 and P3, 750 are to be set up on the books of Dennis and Roy, respectively c. Account payable of P10, 000 is to be recognized in Dennis's books. The individual trial balances on June 1, before adjustments, follow:

Dennis Roy

Assets 187,500 282,500

Liabilities 12,500 86,250

Capital 175,000 196,250

What is the capital balance of Roy after adjustments? a. P213, 750 b. P203, 750 c. P200, 000 d. P192, 500

Items 12 through 16 are based on the following information: Z and X are partners in a business. Z's original capital was P20, 000 and X's was P30,000. They agree to share profits and losses as follow: Z X As salaries P14,000 P20,000 As interest on original capital 10% 10% Remaining profits or losses 2/5 3/5 12. If the profits for the year were P60,000, what share of the profits would Z receive? a. P16,000 b. P24,400 c. P22,400 d. P28,600

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13. If the profits for the year were P25,000, what share of the profits would X receive? a. P14,600 b. P20,000 c. P29,400 d. P16,400 14. If the losses for the year were P5, 000, what share of the loss would Z receive? a. P15,400 b. (P1, 600) c. (P2, 960) d. (P10, 400) 15 If the profit for the year were P10,000, what share of the profit would Z receive? a. P15,400 b. (P4,400) c. P4,400 d. P5,600 16. If the profits fits for the year were P10,000, what share of the profits would X receive? a.P22,000 b. P271400 c. P16,440 d. P5,600

17. The partnership agreement of S and A allows the former to receive a 20% bonus on profits before bonus and any residual profits/losses shall be divided 2:3, respectively. Which partner has an advantage when the partnership earns a profit or when it incurs a loss? a. S and S b. A and A c. S and A d. A and S

Items 18 and 19 are based on the following: B, A and D are partners sharing profits 40%, 35%, and 25%. Partners original capitals were in this ratio, but on June 30, 2011, capital balances are as follows: B, P60,000, A, P500,000 and D, P500,000 Partners want to bring capital balances into the profit and loss ratio. 18. Assuming that the capital balances are to be brought into the profit and loss ratio by payments outside the firm among partners, the total firm capital to remain the same, what cash transfers are required between the partners’? a. B should pay D P100,000 and A, P60,000 b. A should pay D P60,000 and B, P40,000 c. D will receive from B P40,000 and A P60,000 d. D will pay B P40,000 and A, P60,000 19. Assuming that the capital balances are to be brought into the profit and loss ratio by the lowest possible cash investment in the firm by partners, what additional investments are required from partners? a. B, P200,000; A, P200,000; D, P0 b. B, P200,000; A, P200,000; D, P200,000 c. B, P200,000; A, P0; D, P200,000 d. No additional investment required

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20. Partners R and S share profits 3:1 after annual salary allowances of P40,000 and P60,000, respectively; however, if profits are not adequate to meet the salary allowances, the entire profit is to be divided in the salary ratio. Profits of P90,000 were reported for the year 2011. In 2012 it is ascertained that in calculating net income for the year ended December 31, 2011, depreciation was overstated by P36,000 and ending inventory was overstated by P8,000. The adjustment to the capital of R and S amounted to a. 29,500 and 14,500 b. 17,500 and 10,500 c. 36,000 and 54,000 d. 53,500 and 64,500

21. The partnership agreement of K and L provides that interest at 12% per year is to be credited to each partner on the basis of weighted average capital balances. A summary of L's capital account for the period ending December 31, 2011 is as follows: Beginning investment, January 1 Additional investment, July 1 Withdrawal, September, 1 Ending balance, December 31

P280,000 80,000 (30,000) 330,000

The amount of interest that should be credited to L's capital account for 2011 is: a. P37, 200 b. P27, 900 c. P28, 800 d. P29, 520 22. Molina and Nuevo entered into a partnership agreement in which Molina is to have a 60% interest in capital and profits and Nuevo is to have a 40% interest in capital and profits. Molina contributes the following: Cost Fair Value Land P 20,000 P40,000 Building 200,000 120,000 Equipment 40,000 30,000 There is a P60,000 mortgage on the building that the partnership agrees to assume. Nuevo contributes P100,000 cash to the partnership The partnership formation provided for a. Bonus of P8, 000 to Nuevo b. Bonus of P8, 000 given by Nuevo . c. Bonus of P8, 000 given by Molina. d. Bonus of P8, 000 to Molina and Nuevo

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23. Bruno and Carlos are combining their separate businesses to form a partnership. Cash and non-cash assets are to be contributed for a total, capital of P300,000 The non-cash assets to be contributed and the liabilities to be assumed are:

BV Accounts receivable Inventories Equipment Accounts payable

Bruno FMV

P20,000 P 20,000 30,000 40,000 60,000 45,000 15,000 15,000

Carlos BV FMV

P20,000 25,000 40,000 50,000 10,000 10,000

The partners’ capital accounts are to be equal after all the contribution of assets and the assumption of liabilities. The amount of cash to be con tribute by Bruno is a. 60,000 b. 85,000 c. 150,000 d. 210,000

24. Using the information in Number 23, the total assets of the partnership is a. 170,000 b. 315,000 c. 180,000 d. 325,00

25. Partners Fojas and Gomez share profits and loss equally after each has been credited in all circumstances with annual salary allowances of P30,000 arid P24,000, respectively. Under this arrangement, in which of the following circumstances will Fojas benefit by P6,000 more than Gomez? a. b. c. d.

Only if the partnership has earnings of P54,000 or, more for the year. Only if the partnership does not incur a loss for the year. In all earnings or loss situation. Only if the partnership has earnings of at least P6,000 for the year.

26. Ramos, Campos and Ocampo are partners with average capital balances in 2011 of P240,00, P120,000 and P80,00, respectively. Partners receive 10% interest on their average weighted capital balances. After deducting salaries of P60,00o to Ramos and P40,000 t Campos, the residual profit and loss is divided equally. In 2011, the partnership sustained a P66,000 loss before interest and salaries to partners. By what amount should Ramos’s capital account change? a. 14,000 increase b. 22,000 decrease c. 70,000 decrease d. 84,000 decrease 8

27. Lancelot is trying to decide whether to accept a salary of P40,000 or a salary of P25,000 plus a bonus of 10% of net income after salary and bonus as a means of allocating profit among the partners. Salaries traceable to the other partners are estimated to be P100,000. What amount of income would be necessary so that Lancelot would consider the choices equal? a. 165,000 b. 290,000 c. 265,000 d. 305,000

28. GG admits HH for a partnership interest in his business. The balance sheet accounts of GG on November 30, 2010 prior to the admission of HH are as follows:

Cash Accounts receivable Merchandise Inventory Accounts Payable GG, Capital

Debit P ? 96,000 144,000

Credit

P 49,600 ?

It is agreed that for purposes of establishing GG's interest, the following adjustments should be made: 1. An allowance for doubtful accounts of 2% of accounts receivable is to be established. 2. The merchandise inventory is to be valued at P 160,000. 3. Prepaid expenses of P 5,200 and accrued expenses of P 3,200 are to be recognized. HH invested cash of P113,640 to give him a one-third interest in the total capital of the firm. What is the capital balance of GG before the admission of HH? a.P227,280 b. P 230,120 c. P211,200 d. P 250,500

Problem Solving: Problem 1(2pts) Darwin and Paul formed DP Partnership on January 1, 2012. Darwin and Paul had been operating as sole proprietors. The book values and the fair values of the contributors to be made by each of the partners, as agreed upon by the partners are as follows:

Cash Accounts receivable, net Inventory Machinery, net Land

Darwin Book value Fair value 5,000 5,000 12,000 14,000 15,000 16,000 10,000 10,000

Paul Book value 10,000 4,000 30,000 8,000

Fair value 10,000 5,000 35,000 10,000 9

Building

30,000

30,000

The partnership is to assume accounts payable of Darwin and Paul in the accounts of P10, 000 and P20, 000, respectively. 1. How much amount of capital should be credited to Darwin and Paul? 2. At what values should the assets contributed be recorded in the books?

Problem 2 ( 7pts) N and F organized the Levin Partnership on January 1, 2011. The following entries were made in their capital accounts during 2011: Debit N, capital January 1 April 1 October 1 F, capital January 1 March 1 September 1 November 1

Credit P180,000

P50,000 10,000

P60,000 P10,000 20,000 10,000

Required: if the partnership net income, computed before salaries, interest or bonus is P56,000 for 2011. Indicate its division between the partners under each of the following independent profit sharing: a. Interest at 4% is allowed on average capital investments, and the balance is divided equally. b. A salary of P24,000 is to be credited to F, 4% interest is allowed on each partner on his ending capital balance, and the balance in the ratio of beginning capital balances. c. Salaries allowed to N and F in the amounts of P34,000 and P38,000, respectively, and remaining profits and losses are divided in the ratio of average capital balances. d. A bonus of 10% of the partnership net income is credited to N, a salary of P16,000 is allowed to F and remaining profits and losses are shared equally ( the bonus is regarded as an expense for the purposes of calculating the bonus amounts.)

“The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack in will.” ― Vince Lombardi Jr.

-End of Examination-

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