ACCOUNTING FOR SPECIAL TRANSACTIONS

Question 1.
On July 1, 2023, Juan and Juana formed a partnership, agreeing to share for profits and losses in the ratio of
2:3, respectively. Juan invested a parcel of land that cost him P25,000, Juana 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 Juan right after formation?

A. 25,000
B. 30,000
C. 60,000
D. 50,000

Question 2.
It is the process of converting partnership assets into cash and distributing the cash to creditors and partners.
a. Partnership Formation
b. Partnership Operation
c. Partnership Dissolution
d. Partnership Liquidation

Question 3.
Rose 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 Rose would
consider the choices to be equal?

A. P165,000
B. 290,000
C. 265,000
D. 305,000

Question 4.
Shane is a managing partner in a GPP, an auditing firm. Part of her profit allocation is a bonus based on firm’s
operating income. The bonus is 8 percent of operating income in excess of P200,000 after deducting the
bonus. If operating income for the year is P250,000, what is Shane’s bonus (rounded to the nearest peso)?
A. 3,703
B. 4,347
C. 20,000
D. 50,000

Question 5.
A, B, and C are partners with average capital balances during 20x3 of P360,000, P180,000 and P120,000
respectively. Partners receive 10% interest on their average capital balances. After deducting salaries of
P90,000 to A and P60,000 to C the residual profit or loss is divided equally. In 20x3 the partnership sustain a
P99,000 loss before interest and salaries to partners. By what amount should A’s capital account change?

A. 21,000 increase
B. 33,000 decrease
C. 105,000 decrease
D. 126,000 increase

Question 6.
Which of the following is not correct with regard to creditor claims against partnerships and individual partners?
a. Partnership creditors can have claims against partnership assets and individual partner assets
b. Partnership creditors can have claims against partnership assets and individual partner assets
only to the extent that the partner has a deficit capital account balance
c. Partner creditors can have claims against individual partner assets and partnership assets to the extent
of the partner’s capital account balance
d. All of the above

Question 7.
Which of the following statements is true with regard to a withdrawing partner?
a. A bonus must be paid to retiring partner
b. A bonus may be paid to the retiring partner
 c. A bonus must be paid to the retiring partner or to the remaining partner
d. Recognizing a bonus is not appropriate when a partner retires

Question 8.
When a partner joins a partnership by investing assets into the partnership, what method may be used to
record the admission of the new partner?
a. Revaluation of existing assets
b. Recognition of goodwill
c. Application of the bonus method
d. Any of the three or a combination may be applied

Question 9.
Partner A first contributed P50,000 of capital ratio into an existing partnership on March 1, 2023. On June 1,
2023 the partner contributed another P20,000. On September 1, 2023, the partner withdrew P15,000 from the
partnership. Withdrawals in excess of P10,000 are charged to the partner’s capital account. The annual
Weighted –average capital balance is

a. 62,000 March 1 50,000 10/12 41,666.7

b. 51,667 June 1 20,000 7/12 11,666.7
c. 60,000 Sept 1 (15,000) 4/12 (5,000)
d. 48,333 = 48,333

Question 10.
Alvin, a partner in the Camelot partnership, has a 30% participation in partnership profits and losses. Alvin’s
capital account has a net decrease of P1,200,000 during the calendar year 20x4. During 20x4, Alvin withdrew
P2,600,000 (charged against his capital account) and contributed property valued at P500,000 to the
partnership. What was the net income of the Camelot Partnership?

a. 3,000,000
b. 4,666,667
c. 7,000,000
d. 11,000,000

Question 11.
On January 2, 20x5, B and P formed partnership. B contributed capital of P175,000 and P, P25,000. They
agreed to share profits and losses 80% and 20% respectively. P is the general manager and works in the
partnership full time and is given a salary of P5,000 a month; and interest of 5% of the beginning capital (of
both partner) and a bonus of 15% of net income before the salary, interest and the bonus.

The profit and loss statement of the partnership for the year ended December 31, 20x5 is as follows:

Net Sales 875,000

Cost of goods Sold 700,000
Gross profit 175,000
Expenses (including the salary, interest and the bonus) 143,000
Net Income 32,000

The amount of bonus to P in 20x5 amounted to:

a. 13,304 b. 16,456 c. 18,000 d. 20,700
Question 12.
A, B and C are partners in an accounting firm. Their capital account balances at year-end were A P90,000; B
P110,000 and C P50,000. They share profits and losses on a 4:4:2 ratio, after the following special terms:
1. Partner C is to receive a bonus of 10% of net income after the bonus
2. Interest of 10% shall be paid on that portion of a partner’s capital in excess of P100,000
3. Salaries of P10,000 and P12,000 shall be paid to partners A & C respectively

Assuming a net income of P44,000 for the year, the total profit share of Partner C was
a. 7,800 b. 16,800 c. 19,400 d. 19,800

Question 13.
Which of the following is TRUE regarding the admission of a new partner by purchase of an existing
partnership interest?
a. Using the transfer of capital interest approach, total partnership capital increases.
b. Using the transfer of capital interest approach, partnership capital of existing partners does not change
c. Using the revaluation or total adjustments in asset/implied goodwill approach, recognized
adjustment in asset/goodwill equals the new partner’s investment divided by his/her capital
percentage
d. Using the revaluation or total adjustments in asset/implied goodwill approach, the recognized
adjustment in asset/goodwill is shared among only the existing partners.

Question 14.
When making a distribution to partners during a partnership liquidation, the partner who should receive the first
allocation of the distribution is the one who has which of the following?
a. The largest capital account balance
b. The largest loss absorption power
c. The smallest capital account balance
d. The smallest loss absorption power

Question 15.
Capital balances and profit and loss sharing ratios of the partners in the BGC Galery are as follows:
Boy, capital (50%) 140,000
Gabby, capital (30%) 160,000
Candy, capital (20%) 100,000
Total 400,000

Boy needs money and agrees to assign half of her interest in the partnership to Girly for P90,000 cash. Girly
pays directly to Boy. Girly does not become a partner.
What is the total capital of the BGC Partnership immediately after the assignment of the interest to Girly?
a. 310,000 b. 200,000 c. 490,000 d. 400,000

Question 16.
When an individual partner uses personal assets to pay partnership creditors, this payment is recorded as

a. An investment of capital in the partnership

b. A liability to the partnership
c. A receivable owing to the partnership
d. A reduction in a partnership asset

Question 17.
As of December 31, 20x5, the books of Tin Partnership showed capital balances of: T P40,000; I, P25,000;
N, P5,000. the partners’ profit and loss ratio was 3:2:1, respectively. The partners decided to liquidate and they
sold all non-cash assets for P37,000. After settlement of all liabilities amounting P12,000, they still have cash
of P28,000 left for distribution. Assuming that any capital debit balance is uncollectible, the share of T in the
distribution of the P28,000 cash would be:

a. 17,800
b. 18,000
c. 19,000
d. 17,000
Question 18.
A local partnership was considering the possibility of liquidation since one of the partners is solvent (Willy) and
the others are insolvent. Capital balances at that time were as follows. Profits and losses were divided on a
4:2:2:2 basis, respectively
Dong, capital 60,000
Lorry, capital 67,000
Eman, capital 17,000
Willy, capital 96,000
Dong’s creditors filed a P25,000 claim against the partnership’s assets. At the time, the partnership held assets
reported at P360,000 and liabilities of P120,000. if the assets could be sold for P228,000, what is the minimum
amount of Dong creditors would have received?

a. P 0 b. 2,500 c. 36,000 d. 38,720

Question 19.
A, B, and C are partners in textile distribution business, sharing profits and losses equally. On December 31,
20x5 the partnership capital and partners drawing were as follows:
A B C Total
Capital 100,000 80,000 300,000 480,000
Drawing 60,000 40,000 20,000 120,000

The partnership was unable to collect on trade receivables and was forced to liquidate. Operating profit in 20x5
amounted to P72,000 which was all exhausted, including the partnership assets. Unsettled creditor’s claims at
December 31, 20x5 totaled P84,000. B and C have substantial private resources, but A has no personal
assets. The final cash distribution to C was

a. 78,000 b. 84,000 c. 108,000 d. 162,000

Question 20.
S, D, R and P are partners, sharing earnings in the ratio of 3/21, 4/21, 6/21 and 8/21, respectively. The
balances of their capital accounts on December 31, 20x5 are as follows:
S 1,000
D 25,000
R 25,000
P 9,000

The partners decide to liquidate, and they accordingly convert the non-cash assets into P23,200 of cash. After
paying the liabilities amounting to P3,000, they have P22,200 to divide. Assume that a debit balance in any
partner’s capital is uncollectible. After the P22,200 was divided, the capital balance of D

a. 3,200 b. 3,920 c. 4,500 d. 17,800

Question 21.
R and X formed a partnership and agreed to divide initial capital equally even though R contributed P25,000
and X contributed P21,000 in identifiable assets. Under the bonus approach to adjust the capital accounts. X
unidentifiable assets should be debited for

a. 11,500
b. 4,000
c. 2,000
d. 0

EXPLANATION:
Under the bonus method, unidentifiable assets are not recognized. The total resulting capital is the FMV of the
tangible investments of the partners. Thus, there would be no unidentifiable assets recognized by the creation
of this new partnership.

Question 22.
Jess, Joe and Lizel are partners with capital accounts of P 70,000, P120,000 and P90,000 respectively. The
partnership share profits and losses 45%, 30% and 25% respectively. They are considering allowing Harold to
join the partnership by investing directly into the partnership. The partners intend to revalue the assets before
Harold’s admission. Neither bonus nor goodwill are required. If the asset’s market value exceeds book value
P150,000, how much will Harold invest to acquire a 20% equity interest in the partnership?

a. 107,500
b. 100,000
c. 86,000
d. 70,000

SOLUTION:

Jess, Capital 70,000

Joe, Capital 120,000
Lizel, Capital 90,000
Asset-book value 150,000
Total 430,000
Divide by 0.80
Multiply by 0.20
Total Amount Harold needs to invest P107,500

CONSTRUCTION CONTRACTS

SOLUTION:
a. P – 0 -
SOLUTION:

SOLUTION:
SOLUTION:

SOLUTION:

a. 200,000; 675,000; 950,000

SOLUTION:

c. 1,050,000
d. 1,100,000