BSA 1101 - Fundamentals of Basic Accounting 1 and 2

FINALS DEPARTMENTAL EXAM REVIEWER

TOPIC COVERAGE :
- Nature and Formation of Partnership
- Partnership Operation

THEORIES (TRUE OR FALSE)

1. In a partnership, each partner has a separate capital and withdrawal account.
2. Even though a partnership is not a separate legal entity, for accounting purposes the
partnership affairs should be kept separate from the personal activities of the owners.
3. A partnership must have more than one owner.
4. When a non-cash asset is invested, it is recorded at cost.
5. Partnership Dissolution does not include changes in ownership.
6. Limited partners typically share more risk and profits.
7. Partnership Liquidation involves selling assets of both partners and settling payment for
liabilities.
8. If the partners haven’t agreed on a value of an equipment, its book value should be
recorded unless the fair value is confirmed.
9. In a limited partnership, a general partner has unlimited liability for partnership debit.
10. An industrial partner shall be allocated his income or loss based on his capital
contribution if ever there is no agreed disposition to such.

THEORIES (MULTIPLE CHOICE QUESTIONS)

11. In what order shall the partners record assets added at the time of formation?
I. Assessed Value
II. Fair Market Value
III. Agreed Value
IV. Book Value

a. III, II, IV, I c. II, III, IV, I

b. I, II, III, IV d. III, II, I, IV
12. When a property other than cash is invested in a partnership at what amount should the
noncash property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution
b. Contributing partner’s original cost
c. Assessed valuation for property tax purposes
d. Contributing partner’s tax basis

13. Which component of the partnership profit and loss allocation is most commonly offered to
the partner who manages the business?
a. Interest on capital balance c. Salary
b. Bonus d. Residual interest

14. Which method of recording the admission of a new partner into a partnership potentially
results in the existing partner ́s capital accounts changing in value?
a. Bonus method
b. Goodwill method
c. Either bonus method or goodwill/revaluation method.
d. Existing partner ́s capital accounts never change when a partner is admitted into
a partnership.

15. Partnership capital and drawings accounts are similar to the corporate
a. Paid in capital, retained earnings, and dividends accounts.
b. Retained earnings account.
c. Paid in capital and retained earnings accounts.
d. Preferred and common stock accounts.

16. Which of the following occurs every time a new partner is admitted to a partnership or an
existing partner leaves the partnership?
a. Dissolution c. Dissolution and Termination
b. Termination d. None of the above occurs

17. When a new partner is admitted into a partnership and the capital of the old partners
decreases, which of the following explains the reason for the decrease?

I. Undervalued liabilities were written up to their fair values.

II. Undervalued assets were written up to their fair values.
a. I only c. Both I and II
b. II only d. Neither I nor II
18. If the partnership agreement provides a formula for the computation of a bonus to the
partners, the bonus would be computed
a. next to last, because the final allocation is the distribution of the profit residual.
b. before income tax allocations are made.
c. after the salary and interest allocations are made.
d. in any manner agreed to by the partners.

19. The characteristic of a partnership that gives the authority to any partner to legally bind the
partnership and all other partners to business contracts is called

a. unlimited liability c. mutual agency

b. ease of formation d. dissolution

20. Partnership net income is defined as

a. The interest allocation to the partners, based on weighted average invested
capital.
b. Partnership income after deducting partner salaries and interest.
c. Partnership income after deducting partner salaries.
d. Partnership income before deducting partner salaries and interest.

21. A partnership is a(n):

I. accounting entity. II. taxable entity.
a. I only c. Neither I nor II
b. II only d. Both I and II

22. Statement I: When a new partner is admitted to a partnership, all partnership assets should
be revised to reflect current prices.

Statement II: If a new partner is to be admitted to a partnership and a bonus is attributed

to the old partnership, the bonus should be divided between the capital accounts of the
original partners according to their capital balances.

a. True, False c. False, False

b. False, True d. True, True

23. A partnership records a partner’s investment of assets in the business at

a. The market value of the assets invested.
b. A special value set by the partners.
c. The partner’s book value of the assets invested.
d. Any of the above, depending upon the partnership agreement.
24. If the partnership agreement does not specify how income is to be allocated, profit and loss
should be allocated
a. It should be allocated equally
b. In proportion to weighted average of capital invested during the period
c. Equitably so that partners are compensated for the time and effort expended on behalf
of the partnership
d. In accordance with their capital contribution

25. An advantage of the partnership as a form of business organization would be?

a. Partners do not pay income taxes on their share in partnership
b. A partnership is bound by the act of the partners
c. A partnership is created by mere agreement of the partners
d. A partnership may be terminated by death or withdrawal of a partner.

26. Which of the following statements is correct with respect to a limited partnership?
a. A limited partner may not be an unsecured creditor of the limited partnership
b. A general partner may not also be limited partner at the same time
c. A general partner may be a secured creditor of the limited partnership
d. A limited partnership can be formed with limited liability for all partner

27. Which of the following occurs every time a partner admitted to a partnership or an existing
partner leaves the partnership?
a. Dissolution
b. Termination
c. Dissolution and termination
d. None of the above occurs

28. One of the following is not a requisite of a contract of partnership. Which is it?
a. There must be a valid contract
b. There must be a mutual contribution of money, property, or industry to a common fund
c. It is established for the common benefit of the partners which is to obtain profits
and divide the same among themselves
d. The articles are kept secret among members

29. Which of the following is not a characteristic of most partnerships?

a. Limited liability c. mutual agency
b. Limited life d. Ease of formation
30. When property other than cash is invested in a partnership, at what amount should the
noncash property be credited to the contributing partner’s capital account?
a. Fair value at the date of recognition.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

PROBLEM SOLVING

Use the following information for questions 31 to 33.

Albion and Blaze share profits and losses equally. Albion and Blaze receive salary
allowances of P20,000 and P30,000, respectively, and both partners receive 10% interest on
their average capital balances. Average capital balances are calculated at the beginning of each
month's balance regardless of when additional capital contributions or permanent withdrawals
are made subsequently within the month. Partners’ drawings are not used in determining the
average capital balances. Total net income for 2020 is P120,000

Albion Blaze
January 1 capital balances P 100,000 P 120,000
Yearly drawings (P1,500 a month) 18,000 18,000
Permanent withdrawals of capital:
June 3 (12,000)
May 2 (15,000)
Additional investments of capital:
July 3 40,000
October 2 50,000

31. What is the weighted-average capital for Albion and Blaze in 2020?
a. P100,000 and P120,000. c. P110,667 and P119,583.
b. P105,333 and P126,667. d. P126,667 and P105,333

32. If the average capital for Albion and Blaze from the above information is P112,000 and
P119,000, respectively, what will be the total amount of profit allocated after the salary and are
interest distributions completed?
a. P70,000. c. P75,000.
b. P73,100. d. P80,000
33. If the average capital balances for Albion and Blaze are P100,000 and P120,000, what will
be the final profit allocations for Albion and Blaze in 2020?
a. P50,000 and P70,000. c. P70,000 and P50,000.
b. P54,000 and P66,000. d. P75,000 and P45,000.

Use the following information for questions 35 and 36.

Bloom and Carnes share profits and losses in a ratio of 2:3, respectively. Bloom and
Carnes receive salary allowances of P10,000 and P20,000, also respectively, and both partners
receive 10% interest based upon the balance in their capital accounts on January 1. Partners’
drawings are not used in determining the average capital balances. Total net income for 2006 is
P60,000. If net income after deducting the interest and salary allocations is greater than
P20,000, Carnes receives a bonus of 5% of the original amount of net income.

Bloom Carnes

January 1 capital balances P200,000 P300,000

Yearly drawings (P1,500 a month) 18,000 18,000

34. What are the total amounts for the allocation of interest, salary, and bonus, and, how much
over-allocation is present?
a. P60,000 and P0. c. P83,000 and P0.
b. P80,000 and P20,000. d. P83,000 and P23,000

35. If the partnership experiences a net loss of P20,000 for the year, what will be the final
amount of profit or (loss) closed to each partner’s capital account?
a. (P30,000) to Bloom and P10,000 to Carnes.
b. (P10,000) to Bloom and (P10,000) to Carnes.
c. (P8,000) to Bloom and (P12,000) to Carnes.
d. P10,000 to Bloom and (P30,000) to Carnes

36. The partnership agreement of Donn, Eddy, and Farr provides for annual distribution of profit
or loss in the following sequence:
● Donn, the managing partner, receives a bonus of 10% of profit.
● Each partner receives 6% interest on average capital investment.
● Residual profit or loss is divided equally.
Average capital investments for 2021 were:
Donn P 80,000
Eddy 50,000
Farr 30,000
 What portion of the P100,000 partnership profit for 2021 should be allocated to Farr?
a. P28,600 c. P35,133
b. P29,800 d. P41,600

37. Jennifer and Robert are partners who are changing their profit and loss ratios from 60/45 to
45/55. At the date of the change, the partners choose to revalue assets with market value
different from the book value. Once asset revalued is land with a book value of P50,000 and a
market value of P120,000. Two years after the profit and loss ratio is changed, the land is sold
for P200,000. What is the amount of change to Robert’s Capital account at the date the land is
sold?
a. P32,000 c. P60,000
b. P44,000 d. P82,500

38. Anthony Company sold Madison Company merchandise on account FOB shipping point,
2/10, net 30, for P10,000. Anthony prepaid the P300 shipping charge. Which of the following
entries does Anthony make to record this sale?

a. Accounts Receivable-Madison, debit P10,000; Sales, credit P10,000

b. Accounts Receivable-Madison, debit P10,000; Sales, credit P10,000, and
Accounts Receivable-Madison, debit P300; Cash, credit P300
c. Accounts Receivable-Madison, debit P10,300; Sales, credit P10,300
d. Accounts Receivable-Madison, debit P10,000; Sales, credit P10,000, and Freight
Out, debit P300; Cash, credit P300

39. AA, BB and CC are partners with average capital balances during 2025 of P360,000,
P180,000 and P120,000 respectively. Partners receive a 10% interest on their average capital
balances. After deducting salaries of P90,000 to AA and P60,000 to CC the residual profit or
loss is divided equally. In 2025 the partnership sustained a P99,000 losses before interest and
salaries to partners. By what amount should AA ́s capital account change?
a. P21,000 increase.
b. P33,000 decrease.
c. P105,000 decrease.
d. P126,000 increase.

40. Abbey Co. sold merchandise to Gomez Co. on account, P35,000, terms 2/15, net 45. The
cost of the merchandise sold is P24,500. Abbey Co. issued a credit memo for P3,600 for
merchandise returned that originally cost P1,700. Gomez Co. paid the invoice within the
discount period. What is the amount of gross profit earned by Abbey Co. on the above
transactions?

a. 10,500 c. 7,972
b. 30,772 d. 31,400
41. If the physical count of the inventory revealed P158,000 of merchandise on hand and the
inventory records reported P163,000, what would be the necessary adjusting entry to record
inventory shortage?

a. Merchandise inventory debit P158,000; Cost of Merchandise Sold credit

P158,000.
b. Merchandise inventory debit P5,000; Cost of Merchandise Sold credit P5,000.
c. Cost of Merchandise Sold debit P163,000; Merchandise Inventory credit
P158,000.
d. Cost of Merchandise Sold debit P5,000; Merchandise Inventory credit P5,000.

42. On December 1, 20x5, EE and FF formed a partnership, agreeing to share for profits and
losses in the ratio of 2:3, respectively. EE invested a parcel of land that cost him P25,000. FF
invested P30,000 cash. The land was sold for P50,000 on the same date, three hours after
formation of the partnership. How much should be the capital balance of EE right after
formation?

a. P25,000 c. P60,000
b. P30,000 d. P50,000

43. Calculate the gross profit for Jonas Company based on the data given below:

Sales P764,000
Selling Expenses 52,500
Cost of Merchandise Sold 538,000
Sales Discounts 7,100
Sales Returns and Allowances 3,650

a. P753,250 c. P162,750
b. P700,750 d. P215,250

44. Bell Inc. took a physical inventory at the end of the year and determined that P780,000 of
goods were on hand. In addition, Bell, Inc. determined that P60,000 of goods that were in transit
that were shipped f.o.b. shipping point were actually received two days after the inventory count
and that the company had P90,000 of goods out on consignment. What amount should Bell
report as inventory at the end of the year?

a. P780,000. c. P870,000.
b. P840,000. d. P930,000.
45. Roberts and Smith drafted a partnership agreement that lists the following assets
contributed at the partnership’s formation:

Contributed by
Roberts Smith
Cash P20,000 P30,000
Inventory - 15,000
Building - 40,000
Furniture & Fixture 15,000 -

The building is subject to a mortgage of 10,000, which the partnership has assumed.
The partnership agreement also specifies that profits and losses are to be distributed evenly.
What amounts should be recorded as capital for Roberts and Smith at the formation of the
partnership?
Robert Smith
a. 35,000 85,000
b. 35,000 75,000
c. 55,000 55,000
d. 60,000 60,000

46. Mary admits Jane as a partner in the business. Balance sheet accounts of Mary just before
the admission of Jane show: Cash, P26,000, Accounts receivable, P120,000, Merchandise
inventory, P180,000, and Accounts payable, P62,000. It was agreed that for purposes of
establishing Mary's interest, the following adjustments be made: 1.) an allowance for doubtful
accounts of 3% of accounts receivable is to be established; 2.) merchandise inventory is to be
adjusted upward by P25,000; and 3.) prepaid expenses of P3,600 and accrued liabilities of
P4,000 are to be recognized.

If Jane is to invest sufficient cash to obtain 2/5 interest in the partnership, how much
would Jane contribute to the new partnership?

a. 176,000 c. 95,000
b. 190,000 d. 113,980

47. The partnership agreement of XX, YY, & ZZ provides for the year-end allocation of net
income in the following order:
- First, XX is to receive 10% of net income up to P200,000 and 20% over P200,000
- Second, YY and ZZ each are to receive 5% of the remaining income over P300,000
- The balance of income is to be allocated equally among the three partners.
The partnership’s 20x5 net income was P500,000 before any allocations to partners. What
amount should be allocated to XX?
a. P202,000 c. P206,000
b. P216,000 d. P220,000

48. Gardo and Gordo formed a partnership on July 1, 2025 to operate two stores to be
managed by each of them. They invested P30,000 and P20,000 and agreed to share earnings
60% and 40%, respectively. All their transactions were for cash, and all their subsequent
transactions were handled through their respective bank accounts as summarized below:

Gardo Gordo
Cash receipts ………………………………………………… P79,100 P65,245
Cash disbursements ………………………………………… 62,275 70,695
On October 31, 2025, all remaining noncash assets in the two stores were sold for cash
of P60,000. The partnership was dissolved, and cash settlement was affected. In the distribution
of the P60,000 cash, Gardo received:
a. P24,000 c. P34,000
b. P26,000 d. P36,000

49. The capital accounts of the partnership of NN, VV, and JJ on June 1, 20x5 are presented
below with their respective profit and loss ratios:
NN -------------------------------------------- P 139,200 1⁄2
VV -------------------------------------------- P 208,800 1/3
JJ ---------------------------------------------- P 96,000 1/6

On June 1, 20x5, LL was admitted to the partnership when LL purchased, for P132,000, a
proportionate interest from NN and JJ in the net assets and profits of the partnership. As a result
of a transaction, LL acquired a one-fifth interest in the net assets and profits of the firm. What is
the combined gain realized by NN and JJ upon the sale of a portion of their interest in the
partnership to LL?
a. P0 c. P62,400
b. P43,200 d. P82,000

50. On January 31, 20x5, partners of Lon, Mac & Nan, LLP, had the following loan and capital
account balances (after closing entries for January):
Loan receivable from Lon ………………………………………………… P20,000 dr

Loan payable to Nan ………………………………………………………... 60,000 cr

Lon, capital .………………………………………………………………….. 30,000 dr

 Mac, capital …………………………………………………………………. 120,000 cr

Nan, capital ………………………………………………………………....... 70,000 cr

The partnership’s income sharing ratio was Lon, 50%; Mac, 20%, and Nan, 30%. On January
31, 20x5, Ole was admitted to the partnership for a 20% interest in total capital of the
partnership in exchange for an investment of P40,000 cash. Prior to Ole’s admission, the
existing partners agreed to increase the carrying amount of the partnership’s inventories to
current fair value, a P60,000 increase. The capital account to be credited to Ole:
a. P60,000 c. P52,000
b. P40,000 d. P46,000

PROBLEM SOLVING

ANSWER KEY (Separate Page)

True or False

1. True 6. False
2. True 7. True
3. True 8. True
4. False 9. True
5. False 10. False

Multiple Choice

11. D 21. D
12. A 22. A
13. B 23. D
14. C 24. D
15. A 25. C
16. A 26. C
17. A 27. D
18. D 28. D
19. C 29. A
20. D 30. A

PROBLEM SOLVING

31. C. P110,667 and P119,583

 Albion: [(P100,000 x 6) + (P88,000 x 1) + (P128,000 x 5)]/12 = P110,667

Blaze: [(P120,000 x 5) + (P105,000 x 5) + (P155,000 x 2)]/12 = P119,583

32. B. P73,100

Capital: (P112,000 + P119,000)x(10%) = P23,100

Salary: (P20,000 + P30,000) = P50,000

Total: P23,100 + P50,000 = P73,100

33. B. P54,000 and P66,000.

Albion: (P100,000 x 10%) + P20,000 + P24,000 = P54,000

Blaze: (P120,000 x 10%) + P30,000 + P24,000 = P66,000

34. B. P80,000 and P20,000.

Interest: (P500,000 x 10%) = P50,000

Salary: (P10,000 + P20,000) = P30,000

Bonus: Condition not met = P0

Total allocations = P80,000 and over-allocations =

P80,000 - P60,000 = P20,000

35. B. (P10,000) to Bloom and (P10,000) to Carnes.

Bloom:

Interest allocation: P20,000

Salary allocation: P10,000

Carnes:

Interest allocation: P30,000

Salary allocation: P20,000

 There is a total of P80,000 for positive allocations. To bring them down to a P20,000
loss, a residual adjustment of (P100,000) is needed which is allocated (P40,000) to
Bloom and (P60,000) to Carnes. After these amounts are assigned to the partners, each
partner’s capital account will be reduced by a net P10,000.

36. A. P28,600

Donn Eddy Farr Total

Bonus (10% × P100,000) P 10,000 P— P— P 10,000
Interest (6% Avg. Cap.) 4,800 3,000 1,800 9,600
P 14,800 P 3,000 P 1,800 P 19,600
Excess in P/L ratio 26,800 26,800 26,800 26,800
Profit distribution P 41,600 P 29,800 P 28,600 P 100,000

37. B (200,000 – 120,000) (.55) = 44,000

38. B. Accounts Receivable-Madison, debit P10,000; Sales, credit P10,000, and Accounts
Receivable-Madison, debit P300; Cash, credit P300

39. A. P21,000 increase

- Solution:

AA BB CC
TOTAL

Interest on average capital:

AA: P360,000 * 10% P 36,000

BB: P180,000 * 10% P 18,000

CC: P120,000 * 10% P 12,000 P 66,000

Salaries 90,000 60,000

150,000

Balance or Residual: Equally (105,000) (105,000) (105,000)

(315,000)

Increase (decrease) P 21,000 P (87,000) P (3,000)

P(99,000)

40. C. P 7,972
 7,972 = (Net Sales P35,000 - P3,600 - P628) - (Cost of Merchandise Sold P24,500 -
P1,700)

41. 46. D. Cost of Merchandise Sold debit P5,000; Merchandise Inventory credit
P5,000.

42. D

In the formation of a partnership, one or more of the partner will contribute noncash
assets to the business such as inventory, land or equipment, etc.. Retaining the recorded
cost for such asset would be inequitable to any partners investing appreciated property.
Therefore, the contribution of noncash asset to a partnership should be recorded based
on fair values. In this case, the fair value of the land would be measured by its sales
price on the date of sale, P50,000.

43. D. P 215,250

Sales P764,000 - Sales Discounts P7,100 - Sales Returns and Allowances P3,650 -
Cost of Merchandise Sold P538,000 = Gross Profit P215,250

44. D. P 930,000

780,000 + P60,000 + P90,000 = P930,000.

45. B. 35,000, 75,000

For financial accounting purposes, non-cash contributions are recorded at the fair market
value of the net assets contributed, as of the date of contribution. The mortgage balance
attributable to the building reduces Smith’s capital by the amount of the mortgage
assumed by the partnership. Even though profits and losses will be split evenly, the
capital balances do not need to be in that ratio.

46. B. 190,000

Mary capital before adjustments 264,000

Allowance for doubtful accounts (3% x 120,000) (3,600)

Merchandise inventory 25,000

Prepaid expenses 3,600

Accrued liabilities (4,000)

Mary capital after adjustment 285,000

Total partnership capital (285,000/ 3/5) 475,000

Multiply by Jane interest 2/5

Cash to be invested by Jane 190,000

Again, when assets other than each are invested into the partnership. it is necessary for
the partners to agree upon the value of such assets. The assets are recorded in
accordance with the agreement, and the partner ́s capital accounts are credited for the
amounts of the respective investments. The effects of the adjustments to the capital
accounts should be in accordance with the accounting equation (Asset= Liabilities +
Саpital) In this case where Jane will have an interest of 2/5, Mary should have an
interest of 3/5. Since no goodwill or bonus was mentioned in the problem, the adjusted
capital of Mary represents her 3/5 interest, which will be used as basis to determine the
total partnership capital.

47. B

XX YY ZZ Total
XX First P200,000 x 10% P20,000 P20,000
Over P200,000:(500,000 – 20,000) x 20% P60,000 P60,000
YY and ZZ: 5% of remaining income
Over P300,000: (500K-20K-60K-300K) x 5% P6,000 P6,000 P12,000
Balance: Allocate equity P136,000 P136,000 P136,000 P408,000
P216,000 P142,000 P142,000 P500,000

48. B. P26,000

GARDO (60%) GORDO (40%) TOTAL

Initial Investments P 30,000 P 20,000 P 50,000
Investments (personal disbursements*) 62,275 70,695 132,970
Withdrawals (Personal receipts) (79,100) (65,245) (144,345)

Balance before liquidation P 13,175 P 25,450 P 38,625

Gain on realization 12,825 8,550 21,375
Balances before payment to partners P 26,000 P 34,000 P 60,000
Payment to partner (26,000) (34,000) (60,000)
 *Since personal disbursements were made by partners on behalf of the partnership,
such transactions were treated as an “investment”. To analyze further, the following
partnership entry would be as follows:
Purchase /Expenses (or any appropriate acct.) xxx
Capital (personal cash) xxx

For personal receipts (as if “withdrawals”), the entry would be:

Capital/Drawings (personal cash) xxx
Sales (or any appropriate act.) xxx

49. B
Amount paid --------------------------------------------------------------------------- P132,000
Less: Book value of interest acquired:
(P139,200 + P208,800 + P96,000) x 1/5 -------------------------------- 88,000
Gain ------------------------------------------------------------------------------------- P 43,200

50. C

Total agreed capital of the new partnership (equal to

total contributed capital*) ..…………………………………………………………………. P 260,000
Multiplied by: interest acquired ………………………………………………………………… 20%
Capital account to be credited to Ole ………………………………………………………… P52,000

*Total contributed capital (P120,000 + P40,000 cash investment + P30,000 adjustment to fair
value) = P260,000