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Multiple Choice - Partnership and Corporation

Business Management (University of Manila)

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EASY
1. He refers to partner who contributed not only money and property but also industry to the newly
formed partnership.
A. Capitalist-industrial partner
B. Industrial partner
C. Nominal partner
D. Capitalist partner

Answer: A

2. Which of the following will decrease the capital balance of a partner?

a. Receipt of share in revaluation surplus from a partnership fixed asset
b. Share in partnership profit
c. Advances made by a partner to the partnership
d. Drawing made by a partner

Answer: D

3. What is the term used when the total shareholders’ equity has debit balance?
A. Deficit
B. Default
C. Deficiency
D. Deliquency

Answer: C

4. It refers to the date on which the acquirer obtains control of the acquire.
A. Business combination date
B. Acquisition date
C. Control date
D. Consolidation date

Answer: B

5. IFRS 3 defines it as a transaction or other event in which an acquirer obtains control of one or more
businesses.
a. Consolidation
b. Merger
c. Business combination
d. Business consolidation

Answer: C

6. Under IFRS 3, what is the treatment of acquisition related costs in a business combination under IFRS
3?
A. It shall be expensed as incurred and presented as part of profit or loss.
B. It shall be capitalized as part of consideration given up in computation of goodwill or gain on bargain
purchase.

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C. It shall be debited to share premium

D. It shall be charged directly to retained earnings.

Answer: A

7. On January 1, 2020, Angela, Helena and Mariluz formed AHM & Co., a general professional
partnership for the exercise of their common profession, Angela contributed a building with cost of
P5M and accumulated depreciation of P4M. Based on the city assessor’s records, the building has an
assessed value of P2M. The building has an annotated mortgage payable amount to P500,000 to be
assumed by the partnership. On the other hand, Helena contributed 10,000 shares of stocks with par
value of P200/share and prevailing quoted price of P300/share. On January 2, 2020, the building
contributed by Angela was sold for P5.5M. If Mariluz wants to have 20% capital interest in the newly
formed partnership, how much cash shall be contributed by her?
a. P875,000
b. P1,125,000
c. P2,125,000
d. P2,000,000

Answer: D
5M+3M= 8M/80%=10MX20%= P2M

8. On July 1, 2020, Jem, Revin and Adam formed a business partnership to be operated as an
advertising agency. Jem contributed P10M cash while Revin shall have capital credit of P6M upon
receipt of bonus of P1M from Jem based on the provision in Articles of Co-Partnership. The terms of
the agreement provide that Jem and Revin shall have a combined 30% capital interest in the newly
formed partnership. What is the capital contribution made by Adam to the partnership?
A. 15,000,000
B. 35,000,000
C. 37,333,333
D. 39,666,667

Answer: B
10M-1M=9M+6M=15M/30%=50MX70%=35,000,000

9. On January 1, 2021, Angel, Bea and Colleen formed a partnership with original capital contribution
ratio of 4:5:1 for total agreed capitalization of P5M. The profit or loss ratio agreement provides that
profits shall be distributed in the ratio of 3:2:5 while losses shall be distributed in the ratio of 6:1:3.
During 2021, the partnership reported net income of P2M with Angel and Bea withdrawing P500,000
and P300,000, respectively. During 2022, the partnership reported net loss of P1,000,000 with Bea
and Colleen withdrawing P200,000 and P400,000 respectively. What is the capital balance of Bea on
December 31, 2022?
A. P2,600,000
B. P2,300,000
C. P2,500,000
D. P2,400,000

Answer: B
P2.5M+400,000-100,000-500,000=P2,300,000

10. In the liquidation of general partnership, which of the following credits shall be paid first?
A. Those owing to third persons.

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B. Those owing to partners other than capital and profits.

C. Those owing to partners for their capital contribution.
D. Those owing to partners for their share in profits.

Answer: A

AVERAGE

11. Under IFRS 15, how shall revenue from contracts with customers such as revenue from initial
franchise fee be recognized by the franchisor?
A. Upon receipt of the initial franchise fee by the franchisor.
B. Upon signing of the franchise agreement.
C. When the franchisor satisfies the performance obligation under the franchise agreement.
D. Applying the legality over the substance of the transaction.
Answer: C

12. If the branch receives credit memo from the home office, the branch shall record it in its separate
statement of financial position by
A. Increasing the home office account
B. Crediting the home office account
C. Debiting the home office account
D. Disclosure

Answer: C

13. It is a product costing system generally used in just-in-time inventory environment. This costing
system delays the costing process until the production of goods is completed by eliminating the
detailed tracking of cost throughout the production system and preparing journal entries only at
trigger points.
A. Backflush costing
B. Standard costing
C. Normal costing
D. Traditional costing

Answer: A

14. Milk Inc. is employing a sophisticated JIT manufacturing system. The company uses backflush costing
for recording its production. The following transactions occurred for the year ended December 31,
2020:
 Purchased P170,000 of raw materials on account.
 All materials purchased were requisitioned for production.
 Incurred direct labor costs of P80,000.
 Actual factory overhead costs amounted to P122,000.
 Applied conversion costs totaled P202,000 including direct labor cost of P80,000.
 All telephones were completed and sold.
What is the cost of goods sold for the year ended December 31, 2020?

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A. P372,000
B. P202,000
C. P250,000
D. P292,000
Answer: A
170,000+80,000+122,000=372,000
15. On January 1, 2020, Jem, Revin and Adam formed a business partnership to be operated as an
advertising agency. Jem contributed P10M cash while Revin shall have capital credit of P6M before
receipt of bonus of P1M from Jem based on the provision in Articles of Co-Partnership. The terms of
the agreement provide that Jem and Revin shall have a combined 40% capital interest in the newly
formed partnership. What is the capital contribution made by Adam to the partnership?
A. 24,000,000
B. 15,000,000
C. 40,000,000
D. 20,000,000
Answer: A
(10M-1M)9M+(6M+1M)7M=16M/40%=40MX60%=24M
16. Louie Corporation is a company involved in manufacturing mining equipment. At the beginning of
the year, the board of directors of the said company has decided to enter into a business
combination with Anna Corporation and Aira Corporation, top suppliers of materials in the mining
industry which they use in production. The said acquisition is expected to result in producing higher
quality mining equipment with lower total cost. The deal was closed on February 28, 2020 and the
following information was gathered from the books of the entities:

Louie Anna Aira

Current assets P8,250,000 P2,340,000 P1,560,000
Non-Current assets 18,750,000 15,300,000 10,200,000
Total assets P27,000,000 P17,640,000 11,760,000
Liabilities P1,950,000 P1,260,000 P840,000
Ordinary shares, P100 par 16,491,000 10,681,200 7,120,800
Share premium 1,059,000 1,018,800 679,200
Retained earnings 7,500,000 4,680,000 3,120,000
Total equities P27,000,000 P17,640,000 P11,760,000

Louie, who has the legal and economic entity, will issue 135,000 of its ordinary shares in exchange for the
acquisition of Anna and 67,200 of its ordinary shares in exchange for the acquisition of Aira. The fair value
of Louie’s shares is P150. In addition, the following adjustments should be made to the current assets of
Anna and Aira which has a fair value of P2,700,000 and P1,380,000, respectively. The noncurrent assets
have a fair value of P12,900,000 and P11,850,000 for Anna and Aira, respectively.

Compute for the Stockholders’ equity balance in the books of the surviving company on the date of
acquisition

A. 61,740,000
B. 55,440,000
C. 53,070,000
D. 57,690,000

Answer: D
25,050,000 – Louie’s net assets
30,330,000 – Total shares issued by Louie in relation to the acquisition at FV

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2,310,000 – Bargain Purchase Option

57,690,000 – Total Stockholders’ equity balance (Louie Corporation)
17. Louie Corporation is a company involved in manufacturing mining equipment. At the beginning of
the year, the board of directors of the said company has decided to enter into a business
combination with Anna Corporation and Aira Corporation, top suppliers of materials in the mining
industry which they use in production. The said acquisition is expected to result in producing higher
quality mining equipment with lower total cost. The deal was closed on February 28, 2020 and the
following information was gathered from the books of the entities:

Louie Anna Aira

Current assets P8,250,000 P2,340,000 P1,560,000
Non-Current assets 18,750,000 15,300,000 10,200,000
Total assets P27,000,000 P17,640,000 11,760,000
Liabilities P1,950,000 P1,260,000 P840,000
Ordinary shares, P100 par 16,491,000 10,681,200 7,120,800
Share premium 1,059,000 1,018,800 679,200
Retained earnings 7,500,000 4,680,000 3,120,000
Total equities P27,000,000 P17,640,000 P11,760,000

Louie, who has the legal and economic entity, will issue 135,000 of its ordinary shares in exchange for the
acquisition of Anna and 67,200 of its ordinary shares in exchange for the acquisition of Aira. The fair value
of Louie’s shares is P150. In addition, the following adjustments should be made to the current assets of
Anna and Aira which has a fair value of P2,700,000 and P1,380,000, respectively. The noncurrent assets
have a fair value of P12,900,000 and P11,850,000 for Anna and Aira, respectively.

Compute for the Total Assets in the books of the surviving company on the date of acquisition

A. 61,740,000
B. 55,440,000
C. 55,830,000
D. 57,690,000

Answer: A
27,000,000 – Louie’s Total Assets
15,600,000 – Anna’s Total Assets after considering the adjustments
13,230,000 – Aira’s Total Assets after considering the adjustments
5,910,000 – Goodwill
61,740,000 – Total Assets of Louie Corporation on the date of acquisition
18. On January 2, 2020, the Statement of Financial Position of Clarize Company and Paula Company
immediately before the combination are:

Clarize Co. Paula Co.

Cash P2,700,000 P90,000
Inventories 1,800,000 180,000
Property and equipment (net) 4,500,000 630,000
Total Assets P9,000,000 P900,000
Current Liabilities P540,000 P90,000
Ordinary Shares, P100 par 900,000 90,000

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Share premium 2,700,000 180,000

Retained Earnings 4,860,000 540,000
Total Liabilities and Stockholder’s Equity P9,000,000 P900,000

The fair value of Paula Company’s equipment is P918,000.

Assuming Clarize Company acquired 80% of the outstanding shares of Paula Company for P820,800 and
non-controlling interest is measured at the proportionate share of Paula Company’s Identifiable net
assets, how much is the consolidated stockholder’s equity on the date of acquisition?

A. 8,460,000
B. 8,517,600
C. 8,679,600
D. 8,737,200

Answer: D
8,460,000 – Clarize’s Net Assets Before combination
57,600 – Gain on Bargain Purchase Option
219,600 – Non-Controlling Interest Equity
8,737,200 – Consolidated Stockholder’s Equity
19. On January 2, 2020, the Statement of Financial Position of Clarize Company and Paula Company
immediately before the combination are:

Clarize Co. Paula Co.

Cash P2,700,000 P90,000
Inventories 1,800,000 180,000
Property and equipment (net) 4,500,000 630,000
Total Assets P9,000,000 P900,000
Current Liabilities P540,000 P90,000
Ordinary Shares, P100 par 900,000 90,000
Share premium 2,700,000 180,000
Retained Earnings 4,860,000 540,000
Total Liabilities and Stockholder’s Equity P9,000,000 P900,000

The fair value of Paula Company’s equipment is P918,000.

Assuming Clarize Company acquired 90% of the outstanding shares of Paula Company for P1,458,000 and
non-controlling interest is measured at fair value, how much is the total consolidated assets on the date of
acquisition?
A. 9,252,000
B. 10,710,000
C. 10,422,000
D. 8,964,000

Answer: A
9,000,000 – Clarize’s Total Assets before combination
1,188,000 – Paula’s Total Assets at Fair Value
(1,458,000) – Amount paid as a consideration related to business combination
522,000 – Goodwill

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9,252,000 – Consolidated Total Assets on the date of acquisition

20. Irrah Corporation paid P55,000 cash for the net assets of Angela Company, which consisted of the
following:
Book Value Fair Value
Current Assets P10,000 P14,000
Plant and Equipment 40,000 55,000
Liabilities 10,000 9,000
P40,000 P60,000

The plant and equipment acquired by Irrah should be recorded at

A. 55,000
B. 50,000
C. 45,833
D. 45,000

Answer: A
21. Two entities structured a joint arrangement in an incorporated entity. The two entities each have a
50% ownership interest. The purpose of the arrangement is for the incorporated entity to
manufacture parts for the two parties. The arrangement ensures that the two parties operate the
facility that produces the parts to their specifications. The parties agreed to purchase all the output
produced by the two parties in the ratio of their ownership percentage. The incorporated entity may
not sell its output to third parties unless this is approved by the two parties. The arrangement is
intended to operate at a break even level because the selling price is set by both parties and
designed to cover the costs of production and administrative expenses incurred by the incorporated
entity. How should the two parties account for their investment?
A. Financial asset at fair value other comprehensive income
B. Joint venture
C. Joint operation
D. Financial asset at fair value profit or loss
Answer: C

22. Nerie Corporation is a 70% owned subsidiary of Jun Corporation. On January 1, 2020, Nerie
purchased P600,000 of Jun’s P900,000 outstanding 8% bonds for P602,000 in the bond market. The
bonds pay interest on January 1 and July 1 and matures on January 1, 2024. There was P48,000
unamortized premium.
What is the gain or loss on the constructive retirement that should appear in the consolidated income
statement on December 31, 2020?
A. 30,000
B. 46,000
C. (2,000)
D. (30,000)
Answer: D
Carrying Value (948x6/9) = 632,000 – Market Value 602,000 = (30,000) Gain
23. As of the acquisition date, the acquirer shall recognize, separately from goodwill, the identifiable
assets acquired. The liabilities assumed and any non-controlling interest in the acquire. As a general
rule, the acquirer shall measure the identifiable assets acquired and the liabilities assumed at their
A. Acquisition date-fair value
B. Acquisition date-book value
C. Acquisition date-face value
D. Acquisition date-carrying value
Answer: A

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24. Nerie Corporation is a 70% owned subsidiary of Jun Corporation. On January 1, 2020, Nerie
purchased P600,000 of Jun’s P900,000 outstanding 8% bonds for P602,000 in the bond market. The
bonds pay interest on January 1 and July 1 and matures on January 1, 2024. There was P48,000
unamortized premium.

How much interest expense should appear in the 2020 consolidated income statement?
A. 28,000
B. 24,000
C. 20,800
D. 20,000
Answer: D
Total interest incurred 72,000
Less amortization 12,000
Effective interest 60,000
Eliminate share of N 40,000
For consolidation 20,000
25. A parent leases an office building to a subsidiary. In which financial statements will the property
appear as investment property?
A. Parent Company
B. Subsidiary
C. Consolidated financial statements
D. None of these
Answer: A

DIFFICULT

26. Which of the following is not another term for BOT Arrangements?
A. Public-to-private service concession
B. Private-public partnership
C. Operate-transfer agreement
D. Service concession arrangement
Answer: C
27. Under IFRS 10, it refers to the term used to describe the ownership of the largest block of voting
rights in a situation where the remaining rights are widely dispersed even if it is less than the
majority interest thereby requiring the holder of such interest to prepare consolidated financial
statements?
A. De jure control
B. De facto control
C. Legal control
D. Nominal control
Answer: B
28. When the parent corporation elects to account its investments in subsidiaries, associates or jointly
controlled entities in its separate financial statements using cost model or fair value model, how shall
it recognize its dividends from a subsidiary, joint venture or associate?
A. The dividends from a subsidiary, joint venture or associate shall be recognized as dividend income as
part of profit or loss of separate statement of comprehensive income when its right to receive
dividend is established.
B. The dividends from subsidiary, joint venture or associate shall be recognized as deduction from
investment account when its right to receive dividend is established.
C. The dividends from subsidiary, joint venture or associate shall be recognized as dividend income as
part of other comprehensive income of separate statement of comprehensive income when its right
to receive dividend is established.
D. The dividends from subsidiary, joint venture or associate shall be eliminated through proportionate
consolidation in the separate statement of comprehensive income.

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Answer: A
29. It refers to the degree to which changes in the fair value or cash flows of the hedged item that are
attributable to a hedged risk are offset by changes in the fair value or cash flows of the hedging
instrument.
A. Hedge effectiveness
B. Hedge ineffectiveness
C. Hedge imperfectness
D. Hedge inappropriateness
Answer: A

30. Jemiah Company purchased merchandise for 300,000 pounds from a vendor in London on November
30, 2022. Payment in British pounds was due on January 30, 2023. The exchange rates for the British
pound were as follows:

November 30 2022 December 31, 2022

Spot rate $1.65 $1.62
30-day rate 1.64 1.59
60-day rate 1.63 1.56

In its December 31, 2022 income statement, what is the amount to be reported by Jemiah Company as
foreign exchange difference?
A. 9,000 gain
B. 3,367 loss
C. 3,367 gain
D. 9,000 loss
Answer: B
31. Under PAS 21, monetary items are cash or elements of financial statements which are receivable or
payable in a fixed amount of cash. Which of the following is a monetary item?
A. Sales
B. Income tax payable
C. Unearned revenue
D. Inventory
Answer: B
32. Which of the following is a nonmonetary item?
A. Prepaid asset
B. Loan receivable
C. Accounts payable
D. Interest payable
Answer: A
33. Under PAS 21, what is the subsequent measurement of nonmonetary items subsequently measured
at fair value?
A. Closing rate
B. Transaction rate
C. Average rate
D. Exchange rate at the date when the fair value was determined
Answer: D
34. What is the proper treatment of measurement period adjustment?
A. Adjusted to profit or loss
B. Adjusted to other comprehensive income
C. Retroactively adjusted to goodwill or gain on bargain purchase
D. Retroactively adjusted to retained earnings
Answer: C
35. What is the period after the acquisition date during which the acquirer may adjust the provisional
amounts recognized for a business combination?

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A. Retroactive period
B. Prospective period
C. Retrospective period
D. Measurement period
Answer: D
36. Ronald Inc. is engaged in the business of manufacturing basket balls. The company employs actual
costing system. The company uses a single account for direct and indirect materials. The company
provided the following data for the year ended December 31, 2020:

Gross sales 9,500,000

Sales returns 500,000
Gross purchases 1,000,000
Purchase returns, allowance and discount 200,000
Freight in 400,000
Total costs of factory labor 1,000,000
Depreciation of factory assets 300,000
Expired insurance on factory assets 100,000
Utilities expense on factory 500,000
Total administrative expenses 2,000,000
Total marketing expenses 3,000,000

Inventories are as follows:

January December 31
1
Raw materials 100,000 300,000
Work in process ? 200,000
Finished goods 500,000 600,000

The following additional data are provided:

 The net profit ratio of the company before income tax for the year ended December 31, 2020 was
10% of net sales.
 The direct labor cost for the year was four times the cost of indirect labor
 The cost of indirect materials used was P100,000.

What is the cost of goods manufactured?

A. 3,000,000
B. 3,100,000
C. 3,300,000
D. 3,200,000
Answer: D
3,100,000 – Cost of Goods Sold
600,000 – Finished Goods, End
(500,000) – Finished Goods, Beg.
3,200,000 – Cost of Goods Manufactured
37. Noel Inc. is employing normal costing for its job orders. The overhead is applied using predetermined
overhead rate. The following information related to the Noel Inc. for the year ended December 31,
2020.
Job No. 101 Job No. 102 Job No. 103
Job in Process, January 1, 2020:
Direct Materials 40,000 30,000 0
Labor 60,000 40,000 0

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Factory Overhead 30,000 20,000 0

Costs added during 2020:
Materials 20,000 10,000 100,000
Labor 100,000 200,000 400,000
Factory Overhead ? ? ?

Additional information:
 Actual overhead for the year 2020 amounted to P350,000.
 Jobs No. 101 and 102 were completed and transferred to finished goods during year 2020.
 Job No. 101 was sold during year 2020.
 The gross profit rate is 20% based on cost.

What is the Gross Profit for 2020?

A. 236,000
B. 60,000
C. 140,000
D. 240,000
Answer: B
50% - Predetermined Rate (Factory Overhead/Labor)
130,000 – Beg. – Job No. 101
170,000 – Costs during the year related to Job No. 101
300,000 – Total Costs (Job No. 101)
20% - Gross Profit rate
60,000 – Gross Profit for 2020
38. Tabalina Corporation acquired 80% of the outstanding shares of Manzana Company on June 1, 2020
for P3,517,500. Manzana’s stockholder’s equity components at the end of this year are as follows:
Ordinary shares, P100 par, P1,500,000, Share premium P675,000 and Retained Earnings P1,335,000.
Non-controlling interest is measured at fair value and the fair value is P705,000. The assets of
Manzana were fairly valued, except for inventories, which are overstated by P66,000 and equipment,
which was understated by P90,000. Remaining useful life of equipment is 4 years. Stockholder’s
equity of Tabalina on January 1, 2020 is composed of Ordinary P4,500,000, Share premium
P1,050,000, Retained Earnings P3,150,000. Goodwill, if any, should be written down by P85,350 at
year-end. Net Income for the first year of parent is P450,000 and the net income of subsidiary from
the date of acquisition is P255,000. Dividends declared at the end of the year amounted to P120,000
and P90,000. During the year, there was no issuance of new shares.

How much is the non-controlling interest in net assets on December 31, 2020?
A. 871,005
B. 763,455
C. 745,455
D. 731,505
Answer: C
See separate file for the solution of this item
39. A summary of the separate income statement of Natali Corporation and its 75% owned subsidiary,
Elizabeth Company, for 2021 were as follows:
Natali Elizabeth
Sales P9,000,000 P5,400,000
Gain on sale of equipment 180,000 -----------------------
Cost of goods sold 3,600,000 2,340,000
Depreciation expense 900,000 540,000
Other expenses 1,440,000 720,000
Income from operations P3,240,000 1,800,000

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There was an upstream sale of equipment with a book value of P720,000 for P1,170,000 on January 2,
2019. At the time of the intercompany sale, the equipment had a remaining useful life of five years. Natali
uses straight-line depreciation. The buying affiliate used the equipment until December 31, 2021, at which
time it was sold to Jeremy for P648,000

What is the amount of net profit attributable to non-controlling interests for 2021?
A. 517,500
B. 472,500
C. 450,000
D. 562,500
Answer: A
450,000 – 25% of the income from operations
22,500 – 25% of the realized gain on a piecemeal basis
45,000 – 25% of the gain on sale (external)
517,500 – Net profit attributable to non-controlling interests
40. Under IFRS 11, how shall the joint venture account for its Investment in Joint Venture?
A. Equity method
B. Cost method
C. Fair value method under IFRS 9
D. Proportionate consolidation
Answer: A

CLINCHER

41. It encompasses the processes of analyzing, recording, classifying, summarizing and communicating
all transactions involving the receipt and disposition of government funds and property, and
interpreting the results thereof.
A. Government Auditing
B. Government Reporting
C. Government Accounting
D. Government Analyzing
Answer: C
42. It refers to the step in the government budgetary process wherein the President, through the
assistance of the Department of Budget and Management, shall prepare and submit to the Congress
a budget of expenditures and sources of financing, including receipts from existing and proposed
revenue measures.
A. Budget Preparation
B. Budget Legislation or Authorization
C. Budget Execution
D. Budget Accountability
Answer: A
43. Which of the following will not result to dissolution of a general partnership?
A. Death of a partner
B. Retirement of a partner
C. Insolvency of a partner
D. Assignment of a partner’s interest to a third person
Answer: D
44. The milestone method of revenue recognition provides that if a substantive milestone is achieved,
what amount of revenue is recognized?
A. Revenue is recognized up to the amount collected.
B. A prorate share of revenue based on the percentage delivered to date.
C. Contingent revenue is recognized in its entirety.
D. A percentage of total revenue based on separate units delivered.

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Answer: C
45. Dred Company owns 100% of Alex Company. At the beginning of current year, Dred sold Alex delivery
equipment at a gain. Dred had owned the equipment for two years and used a five-year straight-line
depreciation rate with no residual value. Alex is using a three-year straight-line depreciation rate with
no residual value for the equipment. In the consolidated income statement, Alex’s recorded
depreciation expense on the equipment for the current year should be decreased by
A. 20% of the gain on sale
B. 33 1/3% of the gain on sale
C. 50% of the gain on sale
D. 100% of the gain on sale
Answer: B

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