1328

_MULTIPLE CHOICE PROBLEMS_

Assignment of Interests:
1. Capital balances and profit and loss sharing ratios of the partners in the ABC Partnership are
as follows:
A, capital (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 168,000
B, capital (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,000
C, capital (20%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 480,000
A needs money and agrees to assign one – fourth of his interest in the partnership to D for
P45,000 cash. D pays P45,000 directly to A. Compute the (1) capital balance of D, and (2)
the total capital of the ABC Partnership immediately after the assignment of the interest to
D?
a. (1) P42,000; (2) P547,200 c. (1) P42,000; (2) P480,000
b. (1) P67,200; (2) P480,000 d. (1) P67,200; (2) P547,200
Admission By Purchase
2. A partnership has the following capital balances:
Partners Capital Balance
Elgin (40% of gains and losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . P100,000
Jethro(30%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Foy 30%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
Oscar is going to pay a total of P200,000 to these three partners to acquire a 25 percent
ownership interest from each. Goodwill (or revaluation of asset) is to be recorded. What is
Jethro’s capital balance after the transaction?
a. P150,000 c. P195,000
b. P175,000 d. P200,000
3. William desires to purchase a one-fourth capital and profit and loss interest in the partnership
of Eli, George, and Dick. The three partners agree to sell William one-fourth of their respective
capital and profit and loss interests in exchange for a total payment of P40,000. The capital
accounts and the respective percentage interests in profits and losses immediately before
the sale to William are as follows:
Eli capital ………………………………………………………….. (60%) P 80,000
George capital…………………………………………………..… (30%) 40,000
Dick capital……………………………………………………..…… (10%) __20,000
P140,000
All other assets and liabilities are fairly valued, and implied goodwill is to be recorded prior to
the acquisition by William. Immediately after William’s acquisition, what should be the capital
balances of Eli, George, and Dick, respectively?
a. P60,000, P30,000, P15,000 c. P77,000, P38,500, P19,500
b. P69,000, P34,500, P16,500 d. P92,000, P46,000, P22,000
4. LL and QQ are partners with capital balances of P50,000 and P70,000, respectively, and they
share profits and losses equally. The partners agree to take DD into the partnership for a 40%
interest in capital and profits, while LL and QQ each retain a 30% interest. DD pays P60,000
cash directly to LL and QQ for his 40% interest, and total revaluation of asset (or goodwill
implied) by DD’s payment is recognized on the partnership books. If LL and QQ transfer
equal amounts of capital to DD, the capital balances after DD’s admittance will be:
a. LL, P35,000; QQ, P55,000; DD, P60,000 c. LL, P36,000; QQ, P36,000; DD, P48,000
b. LL, P45,000; QQ, P45,000; DD, P60,000 d. LL, P26,000; QQ, P46,000; DD, P48,000
5. Sam and Ray are partners with capital accounts of P150,000 and P225,000, respectively.
They are considering allowing Richard to purchase 30 percent of Ray’s equity. At the date
of the proposed transaction, Sam and Ray want to revalue the partnership’s assets and
allocate any differences based on their 40/60 profit sharing agreement. Assume that the net

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MULTI PLE CHOICE PROBLEMS 1329

market versus book value differences is P100,000. What amount would Richard pay for the
30 percent interest?
a. P67,500 c. P97,500
b. P76,500 d. Incomplete data
6. The capital accounts of the partnership of Newton, Sharman, and Jackson on June 1, 20x4,
are presented, along with their respective profit and loss ratios:
Newton……………………………………………………………… P1 39,200 1/2
Sharman…………………………………………………………….. 208,800 1/3
Jackson…………………………………………………….………… 96,000 1/6
P 444,000
On June 1, 20x4, Sidney was admitted to the partnership when he purchased, for P132,000, a
proportionate interest from Newton and Sharman in the net assets and profits of the
partnership. As a result of this transaction, Sidney acquired a one-fifth interest in the net
assets and profits of the firm. Assuming that implied goodwill is not to be recorded, what is
the combined gain realized by Newton and Sharman upon the sale of a portion of their
interests in the partnership to Sidney?
a. P -0- c. P62,400
b. P43,200 d. P82,000
Admission by Investment
7. Partners Allen, Baker, and Coe share profits and losses 50:30:20, respectively. The balance
sheet at April 30, 20x4, follows:
Assets Liabilities and Capital
Cash……………P 40,000 Accounts payable………P100,000
Other assets….. 360,000 Allen capital……………… 74,000
Baker capital…………….. 130,000
Coe capital………………. 96,000
The assets and liabilities are recorded and presented at their respective fair values. Jones is
to be admitted as a new partner with a 20% capital interest and a 20% share of profits and
losses in exchange for a cash contribution. No goodwill or bonus is to be recorded. How
much cash should Jones contribute?
a. P60,000 c. P75,000
b. P72,000 d. P80,000
8. Elton and Don are partners who share profits and losses in the ratio of 7:3, respectively. On
November 5, 20x4, their respective capital accounts were as follows:
Elton. . . . . . . . . . . . . . . . . . . . . . . P 70,000
Don . . . . . . . . . . . . . . . . . . . . . . . 60,000
On that date they agreed to admit Kravitz as a partner with a one-third interest in the capital
and profits and losses upon his investment of P50,000. The new partnership will begin with a
total capital of P180,000. Immediately after Kravitz’s admission, what are the capital
balances of Elton, Don, and Kravitz, respectively?
a. P60,000, P60,000, P60,000 c. P63,333, P56,667, P60,000
b. P63,000, P57,000, P60,000 d. P70,000, P60,000, P50,000
9. The capital balance for Bolcar is P110,000 and for Neary is P40,000. These two partners share
profits and losses 70 percent (Bolcar) and 30 percent (Neary). Kansas invests P50,000 in cash
into the partnership for a 30 percent ownership. The bonus method will be used. What is
Neary’s capital Kansas’s investment?
a. P35,000 c. P40,000
b. P37,000 d. P43,000
10. SH and DN are partners with capital balances of P60,000 and P20,000, respectively. Profits
and losses are divided in the ratio of 60:40. SH and DN decided to form a new partnership

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1330 C H A P T E R 19
with JN, who invested land valued at P15,000 for a 20 percent capital interest in the new
partnership. JN’s cost of the land was P12,000. The partnership elected to use the bonus
method to record the admission of JN into the partnership. JN’s capital account should be
credited for:
a. P12,000 c. P16,000
b. P15,000 d. P19,000
11. BR and RD are partners who share profits and losses in the ratio of 6:4. On May 1, 20x4, their
respective capital accounts were as follows:
BR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 60,000
RD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
On that date, LL was admitted as a partner with a one-third interest in capital and profits for
an investment of P40,000. The new partnership began with a total capital of P150,000.
Immediately after LL’s admission, BR’s capital should be:
a. P50,000 c. P56,667
b. P54,000 d. P60,000
12. Bruce Chapman was admitted to the Adams & Bye Limited Liability Partnership on May 31,
20x4, by an investment of P40,000 cash for a 20% interest in partnership net assets. Prior to the
admission of Chapman, the capital accounts of Adams and Bye, who shared net income
and losses equally, had balances of P70,000 and P30,000, respectively. The preferable
accounting method for the admission of Chapman includes credits of:
a. P6,000 each to the capital accounts of Adams and Bye
b. P30,000 each to the capital accounts of Adams and Bye
c. P28,000 and 12,000, respectively, to the capital accounts of Adams and Bye
d. Some other amounts to the capital accounts of Adams and Bye
13. Kris and Mark are partners who share profits and losses 70/30. They have capital account
balances of P170,000 and P260,000, respectively at the date they admit Frank into the
partnership. Frank invests P120,000 in the partnership for a 25 percent equity interest and the
bonus method is applied. What is the peso amount of bonus recognized in Frank’s capital
account at the date of admission?
a. P70,000 c. P23,333
b. P52,500 d. P17,500
14. On December 31, 20x4, AN and DE are partners with capital balances of P80,000 and
P40,000, and they share profit and losses in the ratio of 2:1, respectively. On this date ST
invests P36,000 cash for a one-fifth interest in the capital and profit of the new partnership.
The partners agree that the implied partnership (total revaluation of assets) goodwill is to be
recorded simultaneously with the admission of ST. The total implied goodwill of the firm is:
a. P4,800 c. P24,000
b. P6,000 d. P30,000
15. Bishop has a capital balance of P120,000 in a local partnership, and Cotton has a P90,000
balance. These two partners share profits and losses by a ratio of 60 percent to Bishop and
40 percent to cotton. Lovett invests P60,000 in cash in the partnership for a 20 percent
ownership. The goodwill (or revaluation of asset) method will be used. What is Cotton’s
capital balance after this new investment?
a. P 99,600 c. P112,000
b. P102,000 d. P126,000
16. RD formed a partnership on February 10, 20x4. R contributed cash of P150,000, while D
contributed inventory with a fair value of P120,000. Due to R's expertise in selling, D agreed
that R should have 60 percent of the total capital of the partnership. R and D agreed to
recognize goodwill. What is the total capital of the RD partnership and the capital balance
of R after the goodwill is recognized?
Total Capital R, Capital Total Capital R, Capital
a. P450,000 P270,000 c. P300,000 P180,000
b. P330,000 P198,000 d. P270,000 P162,000

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MULTI PLE CHOICE PROBLEMS 1331

17. Riley and Smith are partners with present capital balances (book values) of P500,000 and
P400,000, respectively. The partners share profits and losses according to the following
percentages: 60% for Riley and 40% for Smith. Tyler is to join the original partnership upon
contribution of P250,000 to the partnership in exchange for a 20% interest capital and a 15%
interest in profits and losses. Tyler’s contribution consists of P170,000 of cash and equipment
having a fair value of P80,000 (the tax basis of equipment is P42,000). The assets of the
original partnership have a book value equal to their fair value except that the land has a
book value of P15,000 and a fair value of P55,000. The tax bases for Riley and Smith’s capital
balances before Tyler’s entry are P425,000 and P330,000, respectively. The capital balance of
Riley after the admission of Tyler’s if goodwill (revaluation of asset) method is used:
a. P500,000 c. P560,000
b. P524,000 d. P572,000
18. On January 31, 20x4, partners of Lon, Mac & Nan Partnership, had the following loan and
capital account balances (after closing entries for January):
Loan receivable from Lon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 20,000 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, 20x4, 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
Admission by Purchase and Investment
Use the following information for questions 19 and 20:
A partnership has the following capital balances:
Partners Capital Balance
William (40% of gains and losses) . . . . . . . . . . . . . . . . . P 220,000
Jennings (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000
Bryan (20%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000
19. Darrow invests P270,000 in cash for a 30 percent ownership interest. The money goes to the
original partners. Goodwill is to be recorded. How much goodwill should be recognized, and
what is Darrow’s beginning capital balance?
a. P410,000 and P270,000 c. P140,000 and P189,000
b. P140,000 and P270,000 d. P410,000 and P189,000
20. Darrow invests P250,000 in cash for a 30 percent ownership interest. The money goes to the
business. No goodwill or other revaluation is to be recorded. After the transaction, what is
Jennings’s capital balance?
a. P160,000 c. P170,200
b. P168,000 d. P171,200
Use the following information for questions 21 and 22:
A partnership has the following capital balances:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 20,000
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
AA, Capital (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,000
BB, Capital (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,000
CC, Capital (20%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000

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21. If the assets are fairly valued on this balance sheet and the partnership wishes to admit DD
as a new one-sixth-interest partner without recording goodwill or bonus. DD should
contribute cash or other assets of:
a. P40,000 c. P33,333
b. P36,000 d. P30,000
22. If assets on the initial balance sheet are fairly valued, AA and BB give their consent, and DD
pays CC P51,000 for her interest, the revised capital balances of the partners would be:
a. AA, P38,000; BB, P66,500; DD, P51,000
b. AA, P38,500; BB, P66,500; DD, P48,000
c. AA, P37,000: BB, P65,000; DD, P51,000
d. AA, P37,000; BB, P65.000; DD, P48,000
Use the following information for questions 23 to 31:
In the AD partnership, Allen's capital is P140,000 and Daniel's is P40,000 and they share income in
a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following
questions is independent of the others.
23. What amount will David have to invest to give him one-fifth percent interest in the capital of
the partnership if no goodwill or bonus is recorded?
a. P60,000 c. P50,000
b. P36,000 d. P45,000
24. Assume that David invests P50,000 for a one-fourth interest. Goodwill is to be recorded. The
journal to record David's admission into the partnership will include:
a. a credit to cash for P50,000 c. a credit to David, Capital for P60,000
b. a debit to goodwill for P7,500 d. a credit to David, Capital for P50,000
25. Allen and Daniel agree that some of the inventory is obsolete. The inventory account is
decreased before David is admitted. David invests P40,000 for a one-fifth interest. What is the
amount of inventor? What amount will David have to invest to give him one-fifth percent
interest in the y written down?
a. P 4,000 c. P15,000
b. P20,000 d. P10,000
26. Allen and Daniel agree that some of the inventory is obsolete. The inventory account is
decreased before David is admitted. David invests P40,000 for a one-fifth interest. What are
the capital balances of Allen and Daniel after David is admitted into the partnership?
Allen Daniel Allen Daniel
a. P140,000 P40,000 c. P120,000 P36,000
b. P125,000 P35,000 d. P137,000 P39,000
27. David directly purchases a one-fifth interest by paying Allen P34,000 and Daniel P10,000. The
land account is increased before David is admitted. By what amount is the land account
increased?
a. P40,000 c. P36,000
b. P10,000 d. P20,000
28. David directly purchases a one-fifth interest by paying Allen P34,000 and Daniel P10,000. The
land account is increased before David is admitted. What are the capital balances of Allen
and Daniel after David is admitted into the partnership?
Allen Daniel Allen Daniel
a. P136,000 P40,000 c. P170,000 P50,000
b. P160,000 P40,000 d. P136,000 P50,000
29. David invests P40,000 for a one-fifth interest in the total capital of P220,000. The journal to
record David's admission into the partnership will include:
a. credit to Cash for P40,000 c. credit to David, Capital for P40,000
b. debit to Allen, Capital for P3,000 d. credit to Daniel, Capital for P1,000

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MULTI PLE CHOICE PROBLEMS 1333

30. David invests P40,000 for a one-fifth interest in the total capital of P220,000. What are the
capital balances of Allen and Daniel after David is admitted into the partnership?
Allen Daniel Allen Daniel
a. P160,000 P60,000 c. P140,000 P40,000
b. P136,000 P36,000 d. P137,00 P39,000
31. David invests P50,000 for a one-fifth interest. What amount of goodwill will be recorded?
a. P20,000 c. P40,000
b. P4,000 d. P15,000
Retirement or Withdrawal of Partner
32. A partnership has the following capital balances:
Partners Capital Balance
Allen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 60,000
Burns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Castello . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Profits and losses are split as follows: Allen (20%), Burns (30%), and Costello (50%). Costello
wants to leave the partnership and is paid P100,000 from the business based on provisions in
the articles of partnership. If the partnership uses the bonus method, what is the balance of
Burns’s capital account after Costello withdraws?
a. P24,000 c. P33,000
b. P27,000 d. P36,000
33. On January 31, 2006, Amy Reid withdrew from Reid, Sayle & Todd Partnership, whose
partners had an income-sharing ratio of 40%, 35%, and 25%, respectively, for a cash payment
of P121,000, despite Reid's having a capital account balance of P100,000 on that date. The
preferable method of accounting for Reid's withdrawal includes a:
a. P12,250 debit to Sayle, Capital c. P52,500 debit to Goodwill
b. P21,000 debit to Goodwill d. P5,250 debit to Todd, Capital

34. On June 30, 20x4, the balance sheet for Coll, Maduro & Prieto (together with the income-
sharing ratio) was as follows:
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 180,000
Loan payable to Coll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 9,000
Coll, capital (20%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000
Maduro, capital (20%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,000
Prieto, capital (60%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 180,000

Coll decided to retire from the partnership. By mutual agreement, the partnership assets
were to be adjusted to their current fair value of P216,000 on June 30, 20x4. It was agreed
that the partnership would pay Coll P61,200 cash for Coll's partnership interest, including
Coll's loan that was to be repaid in full. No goodwill was to be recognized. After Coll's
retirement, the balance of Maduro's capital account is:
a. P36,450 c. P45,450
b. P39,000 d. P46,000

35. On June 30, 20x4, the balance sheet for the partnership of Williams, Brown, and Lowe,
together with their respective profit and loss ratios, is summarized as follows:
Assets, at cost . . . . . . P300,000 Williams loan. . . . . . . . . . . P 15,000
Williams capital (20%). . . 70,000
Brown capital (20%). . . . 65,000
Lowe capital (60%). . . . . . 150,000
Williams has decided to retire from the partnership, and by mutual agreement the assets are
to be adjusted to their fair value of P360,000 at June 30, 20x4. It is agreed that the partnership
will pay Williams P102,000 cash for his partnership interest exclusive of his loan, which is to be

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1334 C H A P T E R 19
repaid in full. Goodwill is to be recorded in this transaction, as implied (total) by the excess
payment to Williams. After Williams’ retirement, what are the capital account balances of
Brown and Lowe, respectively?
a. P65,000 and P150,000 c. P73,000 and P174,000
b. P97,000 and P246,000 d. P77,000 and P186,000
36. James Dixon, a partner in an accounting firm, decided to withdraw from the partnership.
Dixon’s share of the partnership profits and losses was 20%. Upon withdrawing from the
partnership, he was paid P74,000 in final settlement for his partnership interest. The total of the
partners’ capital accounts before recognition of partnership goodwill prior to Dixon’s
withdrawal was P210,000. After his withdrawal, the remaining partners’ capital accounts,
excluding their share of goodwill, totaled P160,000. The total agreed-upon goodwill
(revaluation of asset) of the firm was:
a. P120,000 c. P160,000
b. P140,000 d. P250,000
37. After serious consideration, Bolger decided to sell her interest in a partnership. Prior to the
sale, the partnership had the following capital balances and profit and loss percentages:
Capital Balances P&L%
Bolger . . . . . . . . . . . . . . . . . . . . . . . . P 60,000 35
Grossman . . . . . . . . . . . . . . . . . . . . . 55,000 45
Swenson . . . . . . . . . . . . . . . . . . . . . . 35,000 20
The book values of partnership assets and liabilities reflect current values with the following
exceptions:
Book Value Current Value
Inventory . . . . . . . . . . . . . . . . . . . . . P 180,000 P 170,000
Equipment . . . . . . . . . . . . . . . . . . . . 200,000 210,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . 75,000 100,000
Assuming Bolger sold her interest to the partnership for P80,000, using partial goodwill
(revaluation of asset) method, what would Grossman’s capital balance after the
transaction?
a. P 80,714 c. P 60,000
b. P 66,250 d. P 68,750
Use the following information for questions 38 to 40:
In the RST partnership, Ron's capital is P80,000, Stella's is P75,000, and Tiffany's is P50,000. They
share income in a 3:2:1 ratio, respectively. Tiffany is retiring from the partnership. Each of the
following questions is independent of the others.
38. Tiffany is paid P60,000, and no goodwill is recorded. In the journal entry to record Tiffany's
withdrawal:
a. Tiffany, Capital will be credited for P60,000.
b. Ron, Capital will be debited for P5,000.
c. Stella, Capital will be debited for P4,000.
d. Cash will be debited for P60,000.
39. Tiffany is paid P60,000, and no goodwill is recorded. What is the Ron's capital balance after
Tiffany withdraws from the partnership?
a. P74,000 c. P75,000
b. P71,000 d. P86,000
40. Tiffany is paid P56,000, and all implied goodwill is recorded. What is the total amount of
goodwill recorded?
a. P -0- c. P30,000
b. P6,000 d. P36,000
Use the following information for questions 41 to 44:
Peter, Roberts and Dana have the following capital balances; P80,000, P100,000 and P60,000
respectively. The partners share profits and losses 20%, 40% and 40% respectively.

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MULTI PLE CHOICE PROBLEMS 1335

41. Roberts retires and is paid P160,000 based on the terms of the original partnership
agreement. If the goodwill (total revaluation of asset) method is used, what is the capital
balance of Peter?
a. P 20,000 d. P110,000 e. P230,000
b. P 60,000 e. P120,000
42. Roberts retires and is paid P160,000 based on the terms of the original partnership
agreement. If the goodwill (total revaluation of asset method is used, what is the capital
balance of Dana?
a. P 20,000 d. P110,000 e. P230,000
b. P 60,000 e. P120,000
43. What is the total partnership capital after Roberts retires receiving P160,000 and using the
goodwill (total revaluation of asset) method?
a. P 20,000 d. P 80,000 e. P230,000
b. P 60,000 e. P120,000
44. What is the total partnership capital after Roberts retires receiving P160,000 and using the
bonus method?
a. P 20,000 d. P 80,000 c. P230,000
b. P 60,000 e. P120,000
45. Two sole proprietors, L and M, agreed to form a partnership on January 1, 20x4. The trial
balance for each proprietorship is shown below as of January 1, 20x4:
L M
Book Value Fair Value Book Value Fair Value
Cash . . . . . . . . . . . . . . . . . . . . . . . P 40,000 P 40,000 P 30,000 P 30,000
Accounts receivable (net) . . . . . 60,000 52,000 70,000 56,000
Merchandise Inventory . . . . . . . . 100,000 94,000 100,000 114,000
Building (net) . . . . . . . . . . . . . . . . 280,000 320,000 250,000 280,000
Furniture and Fixtures (net) . . . . . 60,000 64,000 40,000 44,000
Accounts payable . . . . . . . . . . . 110,000 110,000 80,000 80,000
Mortgage payable . . . . . . . . . . . 200,000 200,000 150,000 150,000
L, Capital . . . . . . . . . . . . . . . . . . . 230,000
M, Capital . . . . . . . . . . . . . . . . . . 260,000
The LM partnership will take over the assets and assume the liabilities of the proprietors as of
January 1, 20x4. In addition, assume that M agreed to recognize the goodwill generated by
L's business. Accordingly, M agreed to recognize an amount for L's goodwill such that L's
capital equaled M's capital on January 1, 20x4. The amount of goodwill arising from the
formation of LM Partnership:
a. P 20,000 c. P 34,000
b. P 30,000 d. P 64,000
46. Using the same information in No. 45, the total assets after the formation amounted to:
a. P1,094,000 c. P1,128,000
b. P1,114,000 d. P 1,158,000
Comparison of Bonus and Goodwill:
47. Assuming that a partnership currently consists of two partners, Adams and Brown, with
respective capital interests of P60,000 and P40,000. Adams and Brown share income and
losses in the ratio of 6:4. Both partners agree to the admission of a new partner. Assume that
Call was admitted as a new partner by acquiring 30% capital interest and profit and loss
ratio also at 30% in the partnership by paying the partners P36,000. Given the choice
between book value approach (or bonus method) and revaluation of assets (or goodwill
method), Call will:

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1336 C H A P T E R 19
a. Prefer book value (or bonus) method due to Call’s gain of P6,000.
b. Prefer book value (or bonus) method due to Call’s gain of P12,000.
c. Prefer revaluation (or goodwill) method due to Call’s gain of P6,000.
d. Be indifferent for the revaluation (goodwill) and book value (or bonus) methods are
the same.
48. MM and NN are partners who have capitals of P6,000 and P4,800 and share profits in the
ratio of 3:2 is admitted as a partner upon investing cash of P5,000 with profits be shared
equally. Assume that OO is allowed a 25% interest in the firm, (1) the capital balance of MM
after the admission of OO using goodwill method, and (2) how much will NN gain or lose by
the use of bonus method over goodwill method.
a. (1) P7,120; (2) NN will lose P140 d. (1) P8,250: (2) NN will lose P1,260
b. (1) P7,120; (2) NN will gain P1,260 e. (1) P8,520; (2) NN will gain P140
49. AA and BB are partners who have capital of P600,000 and P480,000 sharing profits in the ratio
of 3:2. CC admitted as a partner upon investing P500,000 for 25% interest in the firm, profits to
be shared equally. Given the choice between goodwill and bonus method, CC will
a. Prefer bonus method due to CC’s gain of P35,000.
b. Prefer bonus method due to CC’s gain of P140,000.
c. Prefer goodwill method due to CC’s gain of P140,000.
d. Be indifferent for the goodwill and bonus methods are the same.
Incorporation of Partnership
50. Roy and Gil are partners sharing profits and losses in the ratio of 1:2, respectively. On July
1,20x4, they decided to form the R & G Corporation by transferring assets and liabilities from
the partnership to the Corporation in exchange of its stocks. The following is the post-closing
trial balance of the partnership to the Corporation in exchange of its stocks. The following is
the post-closing trial balance of the partnership:
Debit Credit
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 45,000
Accounts Receivable (net) . . . . . . . . . . . . . . . . . . 60,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Fixed Assets (net) . . . . . . . . . . . . . . . . . . . . . . . . 174,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 60,000
Roy, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,800
Gil, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___________ 214,200
P 369,000 P 369,000
It was agreed that adjustments be made to the following assets to be transferred to the
corporation:
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 40,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,000
Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,600
The R and G Corporation were authorized to issue P100 par preferred stock and P10 par
common stock. Roy and Gil agreed to receive for their equity in the partnership 720 shares of
the common stock each, plus even multiples of 10 shares of preferred stock for their
remaining interest. The total number of shares of preferred and common stock issued by the
Corporation in exchange of the assets and liabilities of the partnership are:
Preferred Stock Common stock Preferred Stock Common stock
a. 2,540 shares 1,500 shares c. 2, 642 shares 1,440 shares
b. 2,592 shares 1,440 shares d. 2,642 shares 1,550 shares
51. The condensed balance sheet of the partnership of China and Japan as of December 31,
20x4 showed the following:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 200,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
China, capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Japan, capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000

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MULTI PLE CHOICE PROBLEMS 1337

On this date, the partnership was dissolved and its net assets were transferred to a newly-
formed corporation. The fair value of the assets was P24,000 more than the carrying value on
the firm’s book. Each of the partners was issued P10,000 shares of the corporation’s P1 par
common stock. Immediately after effecting the transfer of the net assets, and the issuance
of stock, the corporation’s additional paid-in capital account would be credited for:
a. P136,000 c. P154,000
b. P140,000 d. P164,000
52. Partner’s Art and Tony, who share equally in profits and losses, have the following balance
sheet as of December 31, 20x4:
Cash . . . . . . . . . . . . . . P 120,000 Accounts Payable . . . . . . . . . . P 172,000
Receivable . . . . . . . . . . 100,000 Accumulated Depreciation. . . 8,000
Inventory . . . . . . . . . . . 140,000 Art, capital . . . . . . . . . . . . . . . . 140,000
Equipment . . . . . . . . . . 80,000 Tony, capital . . . . . . . . . . . . . . . . 120,000
Total . . . . . . . . . . . . . . . P440,000 Total . . . . . . . . . . . . . . . . . . . . . . P 440,000
They agreed to incorporate their partnership, with the new corporation absorbing the net
assets after the following adjustments: provision of allowances for bad debts of P10,000;
statement of the inventory as its current fair value of P160,000; and, recognition of further
depreciation on the equipment of P3,000. The corporation’s capital stock is to have a par
value of P100, and the partners are to be issued corresponding total shares equivalent to
their adjusted capital balances. The total par value of the shares of capital stock that were
issued to partners Art and Tony was:
a. P260,000 c. P273,000
b. P267,000 d. P280,000
Use the following information for question 53 and 54:
The balance sheet of Venner and Wigstaff Partnership immediately before the partnership was
incorporated as Venwig Corporation follows:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 10,500
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,400
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,900
Venner, capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000
Wigstaff, capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,000
Equipment (net of P18,000 Depreciation) . . . . . . . . . . . . . . . . . . . . . . __60,000
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P128,400
The following adjustments to the balance sheet of the partnership were recommended by a
CPA before accounting records for Venwig Corporation were to be established:
• An allowance for doubtful accounts was to be established in the amount of P1,200.
• Short-term prepayments of P800 were to be recognized.
• The current fair value of inventories, P48,000, and the current fair value of equipment ,
P72,000, were to be recognized.
• Accrued liabilities of P750 were to be recognized.
53. Assuming that 10,000 shares of P5 par common stock were to be issued to the partners (5,000
shares for each partner) in exchange for their equities in the partnership. Fifty thousand
shares of common stock were authorized to be issued. Determine the total assets after all
adjustments were considered:
a. P145,250 c. P146,000
b. P129,600 d. P110,800
54. Immediately following incorporation, the additional paid-in capital in excess of par should be
credited for:
a. P128,850 c. P78,850
b. P96,000 d. No additional paid-in capital

Advanced Financial Accounting – A Comprehensive & Procedural Approach