2018 A QE Part 3 Partnerships Practice.docx PDF

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LA SALLE UNIVERSITYCOLLEGE OF BUSINESS AND ACCOUNTANCY1 st Semester of Academic Year 2018-Qualifying Examination PARTNERSHIPS November 20, 2018Instructions: Select the correct answer for each of the following questions. Mark only one answer for each item by shading the box corresponding to the lette...

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LA SALLE UNIVERSITY COLLEGE OF BUSINESS AND ACCOUNTANCY 1st Semester of Academic Year 2018-2019 Qualifying Examination PARTNERSHIPS November 20, 2018 Instructions: Select the correct answer for each of the following questions. Mark only one answer for each item by shading the box corresponding to the letter of your choice on the provided official answer sheet. Strictly no erasures allowed. Any erasures will render your answer invalid. You have 3 hours to complete the exam. Part 1: Nature and Formation 1. What is the minimum number of partners required to commence a partnership business? a. 20 c. 10 b. 2 d. 4 2.

3.

With regard to a partnership business which of the following statements are correct? I. Every partner has to participate in management. II. Every partner needs to contribute equal amounts as capital. III. The number of partners may be from two to any number. IV. Each partner has unlimited joint and several responsibility to meet partnership debts. a. I and IV c. II and IV b. III and IV d. I and II The partner’s drawing accounts are used: a. To record the partner’s salaries. b. To reduce the partner’s capital account balances at the end of the period. c. In the same manner as the partners’ loan accounts. d. To record the partners’ share of net income or loss for an accounting period.

4.

Which of the following accounts can be found in the MN partnerships’ general ledger? I. Receivable from M II. M drawing III. M loan a. I only. c. I and II. b. I, II, and III. d. II and III.

5.

Which of the following statements about partnership is true? a. Two accounts are generally maintained for each partner, a drawing account and a capital account. b. The drawing account is credited with the partner’s withdrawals of cash or other assets during the period. c. Both a and b are correct. d. Neither a nor b are correct.

6.

Partner’s interest in a partnership is generally equal to: a. The fair value of net assets at date of contribution. b. The sum of the fair values of the assets the partner contributes to the firm, increased by any liabilities of other partners assumed and decreased by any personal liabilities that are assumed by other partners. c. The sum of the bases of the individual assets the partner contributes to the firm, decreased by the partner’s share of partnership liabilities. d. The unamortized cost of the assets to the partner.

7.

Which of the following statements, concerning partnership is true? a. A partnership is a legal entity, separate and distinct from the individual partners. b. Individual partners are jointly liable for the debts and obligations of a partnership. c. Income tax is levied on the individual partners’ share of the net income of a partnership and is reported in their personal tax returns. d. All of the above is true.

8.

On July 1, 2016, Long and Short formed a partnership. Long contributed cash. Short, previously a sole proprietor, contributed property other than cash, including realty subject to a mortgage, which the partnership assumed. Short’s capital account of July 1, 2016, should be recorded at: a. Short’s book value of the property at July 1, 2016. b. Short’s book value of the property less mortgage payable at July 1, 2016. c. Fair value of the property less the mortgage payable at July 1, 2016. d. The fair value of the property at July 1, 2016.

9.

A partnership is formed by two individuals who were previously sole proprietors. Property other than cash that is part of the initial investment in the partnership is recorded for financial accounting purposes at the: a. Proprietor’s book values or the fair value of the property at the date of the investment, whichever is higher. b. Proprietor’s book values or the fair value of the property at the date of the investment, whichever is lower. c. Proprietor’s book values of the property at the date of investment. d. Fair value of the property at the date of the investment.

10. On April 30, 2016, Apple, Berry and Cherry formed a partnership by combining their separate business proprietorships. Apple contributed ₱50,000 cash, Berry contributed property with a ₱36,000 book value, a ₱40,000 original cost, and ₱80,000 fair value. The partnership assumed a ₱35,000 mortgage attached to the property. Cherry contributed equipment with a ₱30,000 carrying amount, a ₱75,000 original cost, and ₱55,000 fair value. The partnership agreement specifies that profits and losses are to be shared equally but is silent regarding capital contributions. Which partner has the smallest April 30, 2016, capital account balance? a. Apple c. Berry b. Cherry d. None of the above 11. On May 1, 2016, Jose and Maria formed a partnership and agreed to share profits and losses in the ratio of

3:7, respectively. Jose contributed a computer that cost Page 1 of 11

him ₱50,000. Maria contributed ₱200,000 cash. The computer was sold for ₱55,000 on May 1, 2016 immediately after the formation of the partnership. What amount should be recorded in Jose’s capital account on formation of the partnership? a. ₱55,000 c. ₱51,500 b. ₱60,000 d. ₱50,000 12. Mateo and Julio formed a partnership on April 1 and contributed the following assets:

Cash

Mateo ₱300,00 0

Julio ₱100,000

Land 300,000 The land was subject to a mortgage of ₱50,000, which was assumed by the partnership. Under the partnership contract, Mateo and Julio will share profit and loss in the ratio of one-third and two-third respectively. Julio’s capital account at April 1 should be: a. ₱350,000 c. ₱300,000 b. ₱400,000 d. ₱450,000 13. Reyes and Santos drafted a partnership agreement that lists the following assets contributed at the partnership formation: Contributed by Reyes Santos Cash ₱200,000 ₱300,000 Inventory 150,000 Building 400,000 Equipment 150,000 The building is subject to mortgage of ₱100,000, which the partnership has assumed. The partnership agreement also specifies the profits and losses are to be distributed evenly. What amount should be recorded as capital for Reyes and Santos at the formation of the partnership? a. ₱350,000 for Reyes and ₱850,000 for Santos. b. ₱350,000 for Reyes and ₱750,000 for Santos. c. ₱550,000 for Reyes and ₱550,000 for Santos. d. ₱600,000 for Reyes and ₱600,000 for Santos. 14. Maria and Nora entered into a partnership on March 1, 2016 by investing the following assets: Maria Nora Cash ₱30,000 ₱Merchandise inventory 90,000 Computer equipment - 160,000 Furniture and fixtures 200,000 The agreement between Maria and Nora provides that profits and losses are to be divided into 40% to Maria and 60% to Nora, and that the partnership is to assume a liability on the computer equipment of ₱60,000. The partners further agree that Nora is to receive a capital credit equal to her profit and loss ratio. How much cash is to be invested by Nora? a. ₱135,000 c. ₱145,000 b. ₱155,000 d. ₱130,000 15. Roy, Sam and Tim decided to engage in a real estate venture as a partnership. Roy invested ₱140,000 cash and Sam provided an office and furnishings valued at ₱220,000. (There is ₱60,000 note payable remaining on the furnishings to be assumed by the partnership). Although Tim has no tangible assets to invest, both Roy and Sam believe that Tim’s expert salesmanship provides an adequate investment. The partners agree to receive an equal capital interest in the partnership.

Using the bonus method, what is the capital balance of Tim? a. ₱50,000 c. Zero b. ₱140,000 d, ₱100,000 16. The partnership of Perez and Reyes was formed on March 31, 2016. At that date, Perez invested ₱50,000 cash and office equipment valued at ₱30,000. Reyes invested ₱70,000 cash, merchandise valued at ₱110,000, and furniture valued at ₱100,000, subject to a note payable of ₱50,000 (which the partnership assumes). The partnership provides that Perez and Reyes share profits and losses 25:75, respectively. The agreement further provides that the partners should initially have, an equal interest in the partnership capital. Under the bonus method, what is the total capital of the partners after the formation? a. ₱310,000 c. ₱360,000 b. ₱300,000 d. ₱350,000 17. Ruiz and Pena are combining their separate businesses to form a partnership. Cash and noncash assets are to be contributed for a total capital of ₱300,000. The noncash assets to be contributed and the liabilities to be assumed are: Ruiz Pena Book Fair Book Fair value value value value ₱20,00 ₱20,00 Accounts receivable 0 0 Inventories 30,000 40,000 ₱20,00 ₱25,00 0 0 Equipment 60,000 45,000 40,000 50,000 Accounts 15,000 15,000 10,000 10,000 payable The partner’s capital accounts should be equal after all the contribution of assets and the assumption of liabilities. How much cash is to be contributed by Ruiz? a. ₱150,000 c. ₱60,000 b. ₱210,000 d. ₱85,000 18. On March 1, 2016, Cruz and Ferrer formed a partnership with each contributing the following assets: Cruz Ferrer Cash ₱30,000 ₱70,000 Machinery and 25,000 75,000 equipment Building - 225,000 Furniture and fixture 10,000 The building is subject to a mortgage loan of ₱90,000, which is to be assumed by the partnership. The partnership agreement provides that Cruz and Ferrer share profits and losses 30 percent and 70 percent, respectively. Assuming that the partners agreed to bring their respective capital in proportion to their respective profit and loss ratio and using Ferrer’s capital as the base. How much is to be invested by Cruz? a. ₱19,000 c. ₱30,000 b. ₱40,000 d. ₱55,000 19. The statement of financial position as of July 31, 2016 for the businesses owned by C. Boora shows the following assets and liabilities: Cash ₱2,500 Accounts receivable 10,000 Merchandise inventory 15,000 Fixtures 18,000 Accounts payable 6,000

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It is estimated that 5% of the receivables may prove uncollectible. Merchandise inventory includes obsolete items costing ₱5,000 of which ₱2,000 might still be realized. Depreciation has never been recorded: the fixtures are two years old, have an estimated useful life of 10 years, and would cost ₱20,000 if currently purchased. D. Arce is to be admitted as a partner upon his investment of ₱20,000 cash and ₱10,000 worth of merchandise. What is the total assets of the partnership? a. ₱70,500 c. ₱48,000 b. ₱67,500 d. ₱74,000 20. On September 30, 2016, Lopez admits Mendez for an interest on his business. On this date, Lopez’s capital account shows a balance of ₱158,400. The following were agreed upon before the formulation of the partnership. 1) Prepaid expenses of ₱17,500 and accrued expenses of ₱5,000 are to be recognized. 2) 5% of the outstanding accounts receivable of Lopez amounting to ₱100,000 is to be recognized as uncollectible. 3) Mendez is to be credited with a one-third interest in the partnership and is to invest cash aside from the ₱50,000 worth of merchandise. The amount of cash to be invested by Mendez and the total capital of the partnership are: a. ₱32,950 and ₱248,850 respectively. b. ₱55,300 and ₱221,200 respectively. c. ₱82,950 and ₱248,850 respectively. d. ₱32,950 and ₱171,200 respectively. 21. Moran and Near entered into a partnership on February 1, 2016 by investing the following assets: Moran Near Cash ₱15,000 - ₱45,000 Merchandise inventory Land 15,000 Building 65,000 Furniture and fixture 100,000 The agreement between Moran and Near provides that profits and losses are to be divided into 40% (to Moran) and 60% (to Near), and that the partnership is to assume the ₱30,000 mortgage loan on the building. If Near is to receive a capital credit equal to his profit and loss ratio, how much cash must he invest? a. ₱127,500 c. ₱172,500 b. ₱97,500 d. ₱77,500 22. As of July 1, 2016, Flores and Garcia decided to form a partnership. Their statement of financial position on this date are: Flores Garcia Cash ₱1,500 ₱3,750 Accounts receivable 54,000 22,500 Merchandise inventory 20,250 Machinery and equipment 15,00 27,000 0 Total ₱70,50 ₱73,50 0 0 Accounts payable ₱13,500 ₱24,000 Flores, capital 57,000 Garcia, capital 49,500 Total ₱70,50 ₱73,50 0 0 The partners agreed that the machinery and equipment of Flores is underdepreciated by ₱1,500 and that of Garcia by ₱4,500. Allowance for doubtful accounts is to be set-up amounting to ₱12,000 for

Flores and ₱4,500 for Garcia. The partnership agreement provides for a profit and loss ratio and capital interest of 60% to Flores and 40% to Garcia. How much cash must Flores invest to bring the partner’s capital balances proportionate to their profit and loss ratio? a. ₱14,250 c. ₱5,250 b. ₱17,250 d. ₱10,250 23. Ortiz and Ponce are partners sharing profits in this proportion – 60:40. A statement of financial position prepared for the partners on April 1, 2016: Cash ₱48,000 Accounts receivable 92,000 Inventories 165,000 Equipment ₱70,000 Less: Accumulated 45,000 25,000 depreciation Total assets ₱330,00 0 ₱89,000 133,000 108,00 0 Total liabilities and capital ₱330,00 0 On this date, the partners agree to admit Rexes as a partner. The terms of the agreement summarized below. Assets and liabilities are to be restated as follows: a) An allowance for possible uncollectibles of ₱4,500 is to be established. b) Inventories are to be restated at their present replacement value of ₱170,000. c) Accrued expenses of ₱4,000 are to be recognized. Accounts payable Ortiz, capital Ponce, capital

Ortiz, Ponce, and Rexes will divide profits in the ratio of 5:3:2. Capital balances of the partners after the formation of the new partnership are to be in the aforementioned ratio, with Ortiz and Ponce making cash settlement between themselves outside of the partnership to adjust their capitals, and Rexes investing cash in the partnership for his interest. How much cash is to be invested by Rexes? a. ₱60,250 c. ₱47,500 b. ₱50,000 d. ₱59,375 24. Rey, Sam, and Tim formed a partnership on May 31, 2016, with the following assets, measured at their fair market values, contributed by each partner: Rey Sam Tim Cash ₱60,00 ₱72,00 ₱180,00 0 0 0 Delivery 900,00 equipment 0 Computer 51,000 219,00 15,000 equipment 0 Although Tim has contributed the most cash to the partnership, Tim did not have the full amount of ₱180,000 available and was force to borrow personally ₱120,000. The delivery equipment contributed by Rey has a mortgage of ₱540,000 and the partnership is to assume the responsibility for the loan. The partners agree to divide profits and losses 40% to Rey; 40% to Sam; and 20% to Tim. The partners further agreed to bring their respective capital interest in proportion to their profit and loss ratio. Using the bonus method, capital transfer among partners should be made as follows:

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a. b. c. d.

From Rey and Tim, ₱87,960, and ₱3,480 respectively to Sam. From Sam to Rey, ₱87,960 and to Tim, ₱3,480. From Sam to Tim, ₱3,600 and from Sam to Rey, ₱88,200. From Rey to Tim, ₱3,480, and from Rey to Sam, ₱91,440.

25. On July 1, 2016, Jobson and Gomez form a partnership. Jobson is to invest certain business assets at values which are yet to be agreed upon. He is to transfer his business liabilities and is to contribute sufficient cash to bring his total capital to ₱180,000, which is 60% of the total capital as had been agreed upon. Details regarding the book values of Jobson’s business assets and liabilities and their corresponding valuation follow: Book Agreed values valuation s Accounts receivable ₱54,00 ₱54,000 0 Allowance for doubtful accounts 3,600 6,000 Merchandise inventory 96,600 105,000 Store equipment 27,000 Accumulated depreciation – store equipment 18,000 13,200 Office equipment 18,000 Accumulated depreciation – office equipment 9,600 4,800 Accounts payable 48,000 48,000 Gomez agrees to invest cash of ₱30,000 and merchandise valued at current market price. The value of the merchandise to be invested by Gomez and the amount of cash to be invested by Jobson are: a. ₱120,000 and ₱48,000 respectively. b. ₱110,000 and ₱49,200 respectively. c. ₱105,000 and ₱50,000 respectively. d. ₱90,000 and ₱57,000 respectively. 26. On April 1, 2016, Elli and Emmy 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 net assets transferred after the following adjustments: Emmy inventory is to be increased by ₱3,000; an allowance for doubtful accounts of ₱1,000 and ₱1,500 are to be set up in books of Elli and Emmy, respectively; and accounts payable of ₱4,000 is to be recognized on Elli’s books. The individual trial balances on April 1, 2016, before adjustments follow: Elli Emmy Assets ₱75,000 ₱113,000 Liabilities 5,000 34,500 Capital 70,000 78,500 How much is the capital of Elli after the above adjustments to his books? a. ₱70,000 b. ₱65,000 c. ₱68,500 d. ₱66,000 27. Cortez admits Davion for a partnership interest in his business. The statement of financial position of Cortez on November 30, 2016 prior to the admission of Davion shows the following: Debit Credit Cash ₱? Accounts receivable 96,000 Merchandise 144,000

inventory Accounts payable ₱49,600 Cortez, capital ? It is agreed that for purposes of establishing Cortez’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 ₱160,000. 3) Prepaid expenses of ₱5,200 and accrued expenses of ₱3,200 are to be recognized. Davion invested cash of ₱113,640 to give him a onethird interest in the total capital of the firm. What is the capital balance of Cortez before the admission of Davion? a. ₱227,280 c. ₱230,120 b. ₱211,200 d. ₱250,500 Use the following information to answer the next two questions: On June 30, 2016 Eden and Flora formed a partnership with each contributing the following assets:

Cash Office equipment Furniture and fixtures

Eden Book value Fair value ₱375,000 ₱375,000 350,000 312,000 95,000 125,000

Cash Office equipment Building – net

Flora Book value Fair value ₱875,000 ₱875,000 872,500 937,500 3,262,500 2,812,500

The building is subject to a mortgage loan of ₱1,125,000 which is to be assumed by the partnership. The partnership agreement provides that Eden and Flora share profits and losses in the ratio of 30% and 70% respectively. Assuming that the partners agreed to bring their respective capital in proportion to their profit and loss ratio, and using Flora capital as the base: 28. What is the capital account balance of Flora on June 30, 2016? a. ₱3,500,000 c. ₱4,000,000 b. ₱3,937,500 d. ₱3,837,500 29. How much is the additional cash to be invested by Eden? a. ₱2,687,500 c. ₱2,587,000 b. ₱688,000 d. ₱687,000 30. Candy and Dandy have just formed a partnership. Candy contributed cash of ₱126,000 and computer equipment that cost ₱54,000. The fair value of the computer is ₱36,000. Candy has a notes payable on the computer of ₱12,000 to be assumed by the partnership. Candy is to have 60% capital interest in the partnership. Dandy contributed only ₱90,000. The profit and loss ratio of the partnership agreement is equally. Candy should make an additional investment (withdrawal) of: a. ₱96,000 c. ₱84,000 b. (₱76,800) d. (₱15,000) Use the following information to answer the next two questions: On June 1, 2016, May and Nora formed a partnership. May is to invest assets at fair values. She is to transfer

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her liabilities and is to contribute sufficient cash to bring her total capital to ₱210,000 which is 70% of the total capital of the partnership. Details regarding the book values of May’s business assets and liabilities and their corresponding fair values are: Book values Fair values Accounts receivable ₱53,800 ₱53,000 Inventory 98,400 107,000 Equipment 25,800 34,000 Notes payable 56,000 56,000 Nora agrees to invest cash of ₱42,000 and merchandise valued at current market price. 31. What is the value of the merchandise to be invested by Nora? a. ₱48,000 c. ₱84,000 b. ₱42,000 d. ₱38,000 32. What is the amount of cash to be invested by May? a. ₱72,000 c. ₱62,000 b. ₱26,000 d. ₱65,000 33. Loren a...