FINAL EXAMINATION IN PARTNERSHIP AND CORPORATION

TEST I MULTIPLE CHOICE

1.​ On December 31, 2024, E and F formed a partnership, agreeing to share for profit and
losses in the ratio of 2:3. E invested parcel of land that cost him P25,000. F 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 E right after
formation.
a. 25,000 c. 60,000
b. 30,000 d. 50,000
2.​ Om March 1, 2024, A and B formed a partnership with each contributing the following
assets:
A B
Cash 300,000 700,000
Machinery and Equipment 250,000 750,000
Building 2,250,000
Furniture and fixtures 100,000
The building is subject to mortgage loan of P800,000, which is to be assumed by the
partnership agreement provides that A and B share profits and losses 30% and 70%,
respectively. On March 1, 2024 the balance in B capital account be:
a.​ 3,700,000 c. 3,050,000
b.​ 3,140,000 d. 2,900,000
3.​ As of July 1, 2024, A and B decided to form a partnership. Their balances sheets on this
date are:
A B
Cash 15,000 37,500
Accounts receivable 540,000 225,000
Merchandise Inventory - 202,500
Machinery and Equipment 150,000 270,000
Total P705,000 P735,000
Accounts Payable 135,000 240,000
A Capital 570,000
B Capital 495,000
The partners agreed that the machinery and equipment of A is under-depreciated by
P15,000 and that of B by P45,000. Allowance for doubtful is to be set up amounting to
P120,000 for A and P45,000 for B. The partnership agreement provides for a profit and
loss ratio and the capital interest of 60% to A and 40% to B. How much cash must A
invest to bring the partners’ capital balances proportionate to their profit and loss ratio?
a.​ 142,000 c. 172,500
b.​ 52,500 d. 102,500
4.​ On April 30, 2024, X,Y and Z formed a partnership by combining their separate business
proprietorships. X contributed cash of P75,000. Y contributed property with a P54,000
carrying amount, a P60,000 original cost, and P120,000 fair value. The partnership
accepted responsibility for the P52,500 mortgage attached to the property. Z

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 contributed equipment with a P45,000 carrying amount, a P112,500 original cost, and
82,500 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 largest
April 30, capital balance?
a.​ X c. Z
b.​ Y d. all capital are equal
5.​ The Partnership has the following accounting amounts:
Sales P 70,000
Cost of sales 40,000
Operating expenses 10,000
Salary allocated to partners 13,000
Interest paid in bank 2,000
Partners’ withdrawals 8,000
How much is the partnership net income or (loss)?
a.​ 20,000 c. 5,000
b.​ 18,000 d.(3,000)
6.​ C and D form a partnership whereby profits will be allocated through the use of salaries
and bonuses. Bonuses will be 10% of net income after total salaries and bonuses. C will
receives a salary of P30,000 and a bonus. D has an option to receiving a salary of 40,000
and a 10% bonus or simply a salary of P52,000. Both partners will receive the same
amount of bonus. What level of net income that would be necessary so that D would be
indifferent to the profit sharing option selected?
a.​ 240,000 c. 94,000
b.​ 300,000 d. 334,000
7.​ W and R share profits and losses equally, receive a salary allowance of 20,000 and
30,000, respectively, and both partners receive 10% interest on their average capital
balances. Capital balance are calculated at the beginning of the month regardless of
when the capital investment and withdrawal are made and partners temporary drawing
are not used in determining the average capital. Total net income for 2024 is P120,000
W R
January 1 capital 100,000 120,000
Yearly drawing ( P1,500 monthly) 18,000 18,000
Permanent withdrawals of capital:
June 3 (12,000)
May 2 (15,000)
Additional investment of capital:
July 3 40,000
October 2 50,000
What is the weighted average capital for W and R respectively for 2024?
a.​ 110,667 and 119,583 c. 100,000 and 120,000
b.​ 105,333 and 126,667 d. 126,667 and 105,333
8.​ M, and partner of Marigold partnership, has a 30% participation in partnership profit
and losses, M’s capital account has a net decrease of P1,200,000 during the calendar
year 2024. During 2024, M withdrew P2,600,000 and contribution property value at
P500,000 to the partnership. What was the net income of the Partnership for the year
2024?
a.​ 3,000,000 c. 7,000,000
b.​ 4,666,667 d. 11,000,000
9.​ X, Y and Z formed a partnership on January 1, 2024. Each contributed P120,000. Salaries
of the partners were 30,000, 30,000 and 45,000 respectively. Drawing is equal to
salaries and be taken out evenly throughout the year. With sufficient partnership net
income, X and Y could split a bonus equal to 25% of the partnership net income after
salaries and bonus ( in no event could the bonus go below zero). The remaining profit
were to be split as follows: 30% 30% and 40% to X, Y and Z respectively. For the year, the

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 partnership net income was P120,000. What is the ending capital balance of each
partner?
a.​ X, 155,100; Y, 155,100; Z,169,800 c. X, 125,100; Y, 125,100; Z, 124,800
b.​ X, 126,000; Y, 126,000; Z, 124,500 d. X, 125,500; Y, 125,500; Z, 124,000
10.​The PQR Partnership is being dissolved. All liabilities have been paid and the remaining
assets are being realized gradually. The equity of the partners is as follows:
Loan to (from)
Partners’ account Partnership P& L ratio
P 24,000 6,000 3
Q 36,000 - 3
R 60,000 (10,000) 4
The second cash payment to any Partner(s) under cash priorities shall be made thus:
a.​ To R, P2,000 c. To R, P8,000
b.​ To Q, P6,000 d. To Q, P6,000 & R, P8,000
11.​A cash distribution plan (payment priority program) for M, N, and R partnership spears
below:
Priority Creditor M N R
First P300,000 100%
Next P80,000 70% 30%
Next P70,000 3/7 3/7
Remainder 22% 34% 44%
If P550,000 of cash is to be distributed, how much will be received by the priority
creditors, M, N, and R?
Priority Creditor M N R
a.​ 300,000 100,000 100,000 150,000
b.​ 0 121,000 187,000 242,000
c.​ 300,000 55,000 85,000 110,000
d.​ 300,000 108,000 58,000 84,000
12.​When collectability is reasonably assured, the excess of the subscription price over the
stated value of no par ordinary share subscribed shall be recorded as ________.
a.​ no par ordinary share capital
b.​ share premium when the subscription is recorded
c.​ share premium when the subscription is collected
d.​ share premium when the ordinary share is issued
13.​The purchase of treasury ordinary shares________.
a.​ decreases authorized ordinary share capital
b.​ decreases issued ordinary shares
c.​ decreases outstanding ordinary shares
d.​ has no effect on ordinary shares outstanding
14.​When treasury shares are purchased for more than par value, what account or accounts
shall be debited?
a.​ Treasury shares for the par value and share premium for the excess of purchase
price over the par value.
b.​ Share premium for the purchase price.
c.​ Treasury shares for the purchase price.
d.​ Treasury shares for the par value and retained earnings for excess of the purchase
price over the par value.
15.​Which statement BEST describes the net effect on retained earnings of the purchase and
sale of treasury shares?
a.​ Retained earnings may never be increased but sometimes decreased

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 b.​ Retained earnings may never be increased or decreased
c.​ Retained earnings may be increased but never decreased
d.​ Retained earnings account is not affected
16.​An entity issued rights to the existing shareholders to purchase unissued ordinary shares
at more than par value. Share premium would be recorded when the rights_______.
a.​ Expire c. become exercisable
b.​ are exercised d. are issued
17.​Treasury shares were acquired for cash at a price in excess of par value. The treasury
shares were subsequently sold for cash at a price in excess of acquisition cost. What is
the effect on total shareholders’ equity?
Purchase of treasury​ ​ ​ Sale of treasury
a.​ Increase​ ​ ​ ​ Decrease
b.​ Decrease​ ​ ​ ​ No effect
c.​ Decrease​ ​ ​ ​ Increase
d.​ No effect​ ​ ​ ​ No effect
18.​Treasury shares were acquired for cash at more than par value, and then subsequently
sold for cash at more than acquisition cost. What is the effect on share premium from
treasury shares?
Purchase of treasury​ ​ ​ Sale of treasury
a.​ Increase​ ​ ​ ​ Increase
b.​ Decrease​ ​ ​ ​ No effect
c.​ No effect​ ​ ​ ​ Increase
d.​ No effect​ ​ ​ ​ No effect
19.​How would a share split in which the par value per share decreases in proportion to the
number of additional shares issued affect share premium and retained earnings,
respectively?
a.​ Increase and No effect c. No effect and Decrease
b.​ No effect and No effect d. Increase and Decrease
20.​How would a share split affect assets and shareholders’ equity respectively?
a.​ Increase and Increase c. No effect and Increase
b.​ No effect and No effect d. Increase and no effect
21.​Share split is issued primarily to_________.
a.​ increase the number of outstanding shares
b.​ increase the number of authorized shares
c.​ increase legal capital
d.​ induce a decline in market value per share
22.​When shares with par value are sold, the excess of the proceeds over the par value is
credited to_______.
a.​ gain on issuance of share capital c. share capital
b.​ retained earnings d. share premium
23.​When share without par value are sold, the proceeds shall be credited to__________.
a.​ share capital
b.​ shareholders’ equity
c.​ share capital to the extent of the stated value and any excess is credited to share
premium
d.​ share premium

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 24.​If shares are issued for noncash consideration, the proceeds shall be measured by
the______.
a.​ fair value of the shares issued
b.​ fair value of the noncash consideration received
c.​ par value of the shares issued
d.​ cost of the noncash consideration received
25.​Shares issued to extinguish a financial liability shall be measured at_________.
a.​ par value of the shares issued
b.​ fair value of the shares issued
c.​ fair value of liability extinguished
d.​ book value of the shares issued
26.​When shares are issued for services received, the least appropriate measure is equal
to________.
a.​ fair value of such services
b.​ par value of the shares issued
c.​ book value of the shares issued
d.​ fair value of the shares issued
27.​What is the meaning of net assets of a corporation?
a.​ Contributed capital
b.​ Legal capital
c.​ Retained earnings
d.​ Shareholders’ equity
28.​The two primary account classifications within shareholders’ equity are ________.
a.​ preference shares and retained earnings
b.​ par value of ordinary shares and retained earnings
c.​ contributed capital and retained earnings
d.​ preference shares and ordinary shares
29.​Details of each class of share capital should be reported__________.
a.​ on the face of the statement of financial position only.
b.​ in disclosure notes only.
c.​ on the face of the statement of financial position or in disclosure notes.
d.​ on the face of the statement of comprehensive income and in disclosure notes.
30.​Characteristics of the corporate form that have led to the growth of this form of business
ownership include all of the following, EXCEPT:
a.​ Ease of ownership transfer
b.​ Ease of raising capital
c.​ Limited liability
d.​ Low government regulation
31.​During 2022, A Company reported the following cash dividend on the P10 par value
share capital:
1st quarter 800,000
2nd quarter 900,000
3rd quarter 1,000,000
th
4 quarter 1,100,000
The 4th quarter cash dividend was declared on December 20, 2022 to shareholders of
record December 31, 2022 payable on January 31, 2022.

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 In addition, the entity declared a 10% share dividend on December 1, 2022 when there
were 300,000 shares issued and outstanding and the market value was P25 per share on
declaration date and P30 market value on the date of distribution.
What total amount should be charges to against retained earnings for the dividends?
a.​ 3,800,000 c. 4,550,000
b.​ 4,700,000 d. 4,100,000
32.​What total was credited to share capital for the share dividend?
a.​ 300,000 c. 450,000
b.​ 750,000 d. 0
33.​What amount was credited to share premium for the share dividend
a.​ 600,000 c. 450,000
b.​ 300,000 d. 0
34.​ At the beginning of the current year, BH Company, a closely held entity, issued 6%
bonds with a maturity value of P6,000,000, together with 10,000 ordinary share of P50
per value, for a combined cash of P11,000,000. If issued separately, the bonds would
have sold for P4,000,000 on an 8% yield to maturity basis.
What amount of the proceeds should be allocated to the ordinary shares?
a.​ 4,000,000 c. 7,000,000
b.​ 8,000,000 d. 5,000,000
35.​ Following the situation above, what amount should be reported as share premium on
the issuance of ordinary shares?
a.​ 7,500,000 c. 4,500,000
b.​ 6,500,000 d. 5,500,000
36.​C Company provided the following information from a comparative statement of
financial position at year-end:
2023 2022
Share capital, P5 par 7,500,000 4,500,000
Share premium 52,000,000 40,000,000
Retained earnings 19,500,000 15,500,000
Treasury shares, at cost, 600,000
In 2023 and 400,000 in 2022 7,000,000 5,000,000
What is the number of outstanding shares on December 31, 2023?
a.​ 1,500,000 c. 1,000,000
b.​ 900,000 d. 600,000
37.​What is the number of share outstanding on December 31, 2022?
a.​ 900,000 c. 500,000
b.​ 400,000 d. 700,000
38.​How many shares were issued during 2023?
a.​ 600,000 c. 300,000
b.​ 200,000 d. 500,000
39.​What was the average price of additional shares issued in 2023?
a.​ 25 c. 10
b.​ 20 d. 5
40.​D Company, provided the following information:
Dividend on 10,000 cumulative preference shares of 6% P100 par value have not been
declared or paid for 3 years.
Treasury shares were acquired at cost of P1,500,000. The treasury shares had not been
reissued as of year-end.
What amount of retained earnings should be appropriated?
a.​ 1,500,000 c. 180,000
b.​ 1,680,000 d. 0

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Prepared by:
ROLAND T. TIMBAL-CPA​ ​ ​ ​ ​ ​ ​ ​ ​
PRINTED NAME & SIGNATURE OF SUBJECT TEACHERS
Date: _____________________
Checked by:
SIGNATURE OVER PRINTED NAME
Date: ______________________

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