1.

A partnership dissolution differs from a liquidation in that

A.
B.
C.
D.

2.

A simple partnership liquidation requires

A.
B.
C.
D.

3.

payments are made to creditors before partners receive value.

periodic payments to partners are made when cash becomes available.
a partner withdraws from the business and the enterprise continues to
function.
full payment is made to all outside creditors before
remaining cash is
distributed to partners in a final lump sum payment.

periodic payments to creditors and partners determined by a safe

payments schedule.
partnership assets to be converted into cash with full payment made to
all outside creditors before remaining cash is distributed to partners
in a lump sum payment.
only creditors to be paid in an orderly manner.
periodic payments to partners as cash becomes available.

In a simple partnership liquidation, the last remaining cash distribution

should be made according to the ratio of
A.
B.
C.
D.

the individual partners profit and loss agreement.

the individual partner's capital accounts, increased
the partnership.
the individual partners capital accounts, increased
loans to the partners and decreased by partner loans
the individual partners capital accounts, decreased
loans to the partners and increased by partner loans

by partner loans to
by
to
by
to

partnership
the partnership.
partnership
the partnership.

Use the following information for questions 4, 5 and 6.

On June 30, 2016, the Warle, Xin, and Yates partnership had the following fiscal
year-end balance sheet:
Cash
Accounts receivable
Inventory
Plant assets-net
Loan to Warle
Total assets

4,000
6,000
14,000
12,000
6,000
42,000

Accounts payable
Loan from Xin
Warle, capital(20%)
Xin, capital(30%)
Yates, capital(50%)
Total liab./equity

7,000
5,000
14,000
10,000
6,000
42,000

The percentages shown are the residual profit and loss sharing ratios. The partners
dissolved the partnership on July 1, 2016,. and began the liquidation process. During
July the following events occurred:
*
*
*

4.

Receivables of P3,000 were collected.

The inventory was sold for P4,000.
All available cash was distributed on
July 31, except for P2,000 that was set aside
for contingent expenses.

The book value of the partnership equity (i.e., total equity of the partners)
on June 30, 2016 is
A.
B.
C.
D.

5.

The cash available for distribution to the partners on July 31, 2016 is
A.
B.
C.
D.

6.

P60,000.
P29,000.
P30,000.
P42,000.

P 2,000.
P 4,000.
P 7,000.
P11,000.

How much cash would Xin receive from the cash that is available for
distribution on July 31?
A.
B.
C.
D.

P
0.
P 600.
P1,000.
P2,000.

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7.

Hara, Ives, and Jack are in the process of liquidating their partnership.
Since it may take several months to convert the other assets into cash, the
partners agree to distribute all available cash immediately, except for
P10,000 that is set aside for contingent expenses. The balance sheet and
residual profit and loss sharing percentages are as follows:

Cash
Other assets

400,000
200,000

Accounts payable
Hara, capital (40%)
Ives, capital (30%)
Jack, capital (30%)

200,000
135,000
216,000
49,000

Total assets

600,000

Total liab./equity

600,000

How much cash should Ives receive in the first distribution?

A.
B.
C.
D.
8.

P146,000.
P147,000.
P153,000.
P156,000

Jade, Kahl, and Lane are in the process of liquidating their partnership.
Lane has agreed to accept the inventory, which has a fair value of P60,000,
as part of her settlement. A balance sheet and the residual profit and loss
sharing percentages are as follows:

Cash
Inventory
Plant assets

198,000
80,000
230,000

Accounts payable
Jade, capital (40%)
Kahl, capital (40%)
Lane, capital (20%)

149,000
79,000
140,000
140,000

Total assets

508,000

Total liab./equity

508,000

If the partners then distribute the available cash, Lane will receive
A.
B.
C.
D.
9.

P23,000.
P29,000
P30,000.
P34,000.

Under the rule of offset, what is the proper disposition of a partnership

loan that was made from a partner who has a debit balance?
A.
B.
C.
D.

The loan is first paid to the debtor partner before cash payments are
made to partners.
The loan is written off as a partnership loss if the partner does not
have the cash to cover the debit balance.
The loan is charged off to the capital accounts of all the partners in
their profit and loss sharing ratios.
The loan is charged off to the capital account of the debtor partner.

10. When a new partner is admitted into a partnership and the new partner receives a capital
credit less than the tangible assets contributed, which of the following explains the
difference?
I. The new partner's bonus has been recognized.
II. The old partners received a bonus from the new partner.
A. I only
B. II only
C. Either I or II
D. Neither I nor II
11. When a new partner is admitted into a partnership and the new partner receives a capital
credit greater than the tangible assets contributed, which of the following explains the
difference?
I. The old partners' bonus is being recognized.
II. The new partner's bonus is being recognized.
A. I only
B. II only
C. Either I or II
D. Both I and II
12. When a new partner is admitted into a partnership and the capital of the old partners
decreases, which of the following explains the reason for the decrease?
I. Undervalued liabilities were written up to their fair values.
II. Undervalued assets were written up to their fair values.
A. I only
B. II only

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C. Both I and II
D. Neither I nor II
13. When a partner retires from a partnership and the retiring partner is paid more than the
capital balance in her account, which of the following explains the difference?
I. The retiring partner is receiving a bonus from the other partners.
II. The retiring partner's bonus is being recognized.
A. I only
B. II only
C. Either I or II
D. Neither I nor II
14. When the old partners receive a bonus upon admission of a new partner into a partnership,
the bonus is allocated to:
I. all the partners in their profit and loss sharing ratio.
II. the existing partners in their profit and loss sharing ratio.
A. I only
B. II only
C. Either I or II
D. Neither I nor II
15. When a new partner is admitted into a partnership and the old partners' bonus is
recognized, the bonus is allocated to:
I. all the partners in their profit-and-loss-sharing ratio.
II. the old partners in their profit and loss sharing ratio.
A. I only
B. II only
C. Either I or II
D. Neither I nor II
16-18. 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.
16. Refer to the above information. Tiffany is paid P60,000, and no bonus 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.
17. Refer to the above information. Tiffany is paid P60,000, and no bonus is recorded. What is
the Ron's capital balance after Tiffany withdraws from the partnership?
A. P74,000
B. P71,000
C. P75,000
D. P86,000
18. Refer to the above information. Tiffany is paid P56,000, and all implied bonus is
recorded. What is the total amount of bonus recorded?
A. P0
B. P6,000
C. P30,000
D. P36,000
19-26. 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.
19. Refer to the information provided above. What amount will David have to invest to give him
one-fifth percent interest in the capital of the partnership if no bonus or bonus is
recorded?
A. P60,000
B. P36,000
C. P50,000
D. P45,000
20. Refer to the information provided above. Assume that David invests P50,000 for a onefourth interest. Bonus is to be recorded. The journal to record David's admission into the
partnership will include:
A. a credit to cash for P50,000.
B. a debit to bonus for P7,500.
C. a credit to David, Capital for P60,000.
D. a credit to David, Capital for P50,000.
21. Refer to the information provided above. 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 inventory written down?
A. P4,000
B. P20,000

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C. P15,000
D. P10,000
22. Refer to the information provided above. 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?

A.
B.
C.
D.

Option
Option
Option
Option

A
B
C
D

23. Refer to the information provided above. 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
B. P10,000
C. P36,000
D. P20,000
24. Refer to the information provided above. 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?

A.
B.
C.
D.

Option
Option
Option
Option

A
B
C
D

25. Refer to the information provided above. 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. a credit to Cash for P40,000.
B. a debit to Allen, Capital for P3,000.
C. a credit to David, Capital for P40,000.
D. a credit to Daniel, Capital for P1,000.
26. Refer to the information provided above. 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?

A.
B.
C.
D.

Option
Option
Option
Option

A
B
C
D

27. Which of the following observations is true of an S corporation?

A. It elects to be taxed in the same manner as a corporation.
B. It does not have the burden of double taxation of corporate income.
C. Its shareholders have personal liability for the corporation's obligations.
D. Its primary income source should be passive investments.
28. If A is the total capital of a partnership before the admission of a new partner, B is the
total capital of the partnership after the admission of the new partner, C is the amount of
the new partner's investment, and D is the amount of capital credited to the new partner, then
there is:
A. bonus to the new partner if B > (A + C) and D < C.
B. bonus to the old partners if B = A + C and D > C.

4 | Page

C. a bonus to the new partner if B = A + C and D > C.

D. no bonus if B > (A + C) and D > C.
29In the liquidation process, if a capital account shows a deficiency
A. the partner with a deficiency has an obligation to pay the partnership the amount of the
deficiency.
B. it can be written off to a "Loss" account.
C. it is disregarded until after the partnership books are closed.
D. it can be written off to a "Gain" account.
30. Before distributing any remaining cash to the partners in a partnership liquidation it is
necessary to do each of the following, except
A. sell non-cash assets.
B. recognise a gain or loss on realisation of assets
C. record bonus.
D. pay partnership liabilities
31. In
A.
B.
C.
D.

the final step of the liquidation process, remaining cash is distributed to partners
on an equal basis.
on the basis of the profit/loss sharing ratios.
on the basis of the final capital balances.
regardless of capital deficiencies.

32. The liquidation of a partnership is a process containing the following steps:

1. Pay partnership liabilities.
2. Allocate the gain or loss on realisation of assets to the partners in their profit
ratios.
3. Sell noncash assets for cash and recognise a gain or loss on realisation.
4. Distribute the remaining cash to the partners on the basis of their final capital
balances.
Identify
A. 3, 2,
B. 3, 2,
C. 1, 3,
D. 1, 4,

the proper sequencing of the steps in the liquidation process.

4, 1.
1, 4.
2, 4.
3, 2.

33. If a partner has a capital deficiency and does not have the personal resources to
eliminate it,
A. the creditors will have to absorb the capital deficiency.
B. the other partners will absorb the capital deficiency on the basis of their
respective capital balances at the start of the dissolution.
C. the other partners will absorb the capital deficiency on the basis of their
respective profit/loss sharing ratios.
D. neither the creditors nor the other partners will have to absorb the capital
deficiency.
34. In
A.
B.
C.
D.

the liquidation of a partnership, any partner who has a capital deficiency

has a personal debt to the partnership for the amount of the deficiency.
is automatically terminated as a partner.
will receive a cash distribution on the basis of his or her profit-sharing ratio.
is not obligated to make up the capital deficiency.

35. When a partner withdraws from the firm, which of the following reflects the correct
partnership effects?
Payment from
Payment from
Partners' Personal Assets
Partnership Assets
A. Total net assets
decreased
decreased
B. Total capital
decreased
decreased
C. Total net assets
unchanged
decreased
D. Total capital
unchanged
unchanged
36. If a partner with a capital deficiency is unable to pay the amount owed to the
partnership, the deficiency is allocated to the partners with credit capital balances
A. equally.
B. on the basis of their profit ratios.
C. on the basis of their capital balances prior to the liquidation.
D. on the basis of their original investments.
37. Baker joins the partnership of Kubek and Musial by paying P30,000 in cash. If the net
assets of the partnership are still the same amount after Baker has been admitted as a
partner, then Baker
A. must have been admitted by investment of assets.
B. must have been admitted by purchase of a partner's interest.
C. must have received a bonus upon being admitted.
D. could have been admitted by an investment of assets or by a purchase of a partner's
interest.

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38. Gray invests P20,000 in cash (admission by investment) in the Mi-Das partnership to
acquire a one-quarter interest. In this case
A. the accounting will be the same as a purchase of an interest.
B. the total net assets of the new partnership are unchanged from the previous
partnership.
C. the total capital of the new partnership is greater than the total capital of the
old partnership.
D. Gray's capital will be P20,000.
39. A bonus to a new partner will
A. increase the capital balances of existing partners based on their profit ratios
before the admission of the new partner.
B. increase the capital balances of existing partners based on their profit ratios
after the admission of the new partner.
C. decrease the capital balances of existing partners based on their profit ratios
before the admission of the new partner.
D. decrease the capital balances of existing partners based on their capital balances
before the admission of the new partner.
40. The disadvantages of the partnership form of business organization, compared to
corporations, include
A) the legal requirements for formation.
B) unlimited liability for the partners.
C) the requirement for the partnership to pay income taxes.
D) the extent of governmental regulation.
E) the complexity of operations.
41. The advantages of the partnership form of business organization, compared to
corporations, include
A) single taxation.
B) ease of raising capital.
C) mutual agency.
D) Limited liability.
E) difficulty of formation.
42. The
A)
B)
C)
D)
E)

dissolution of a partnership occurs

only when the partnership sells its assets and permanently closes its books.
only when a partner leaves the partnership.
at the end of each year, when income is allocated to the partners.
only when a new partner is admitted to the partnership.
when there is any change in the individuals who make up the partnership.

43. The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay
P30,000 in liabilities currently due. What recourse was available to the partnership's
creditors?
A) they must present equal claims to the three partners as individuals.
B) they must try obtain a payment from the partner with the largest capital account
balance.
C) they cannot seek remuneration from the partners as individuals.
D) they may seek remuneration from any partner they choose.
E) they must present their claims to the three partners in the order of the partners'
capital account balances.
For Question 45-46. Cleary, Wasser, and Nolan formed a partnership on January 1, 2007, with
investments of P100,000, P150,000, and P200,000, respectively. For division of income, they
agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual
compensation of P10,000 to Wasser, and (3) sharing the remainder of the income or loss in a
ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was P150,000 in 2007
and P180,000 in 2008. Each partner withdrew P1,000 for personal use every month during 2007
and 2008.
44. What was Wasser's share of income for 2007?
A) P63,000.
B) P53,000.
C) P58,000.
D) P29,000.
E) P51,000.
45. What was Nolan's share of income for 2007?
A) P63,000.
B) P53,000.
C) P58,000.
D) P29,000.
E) P51,000.
46. Which of the following statements is correct regarding the admission of a new partner?
A) A new partner must purchase a partnership interest directly from the business.
B) The right of co-ownership in the business property can be transferred to a new
partner without the consent of other existing partners.
C) The right to participate in management of the business can be conveyed without the

6 | Page

consent of other existing partners.

D) The right to share in profits and losses can be sold to a new partner without the
consent of other existing partners.
E) A new partner always pays book value.
47. Withdrawals from the partnership accounts are typically not used
A) to record compensation for work performed in the business.
B) to reduce the partners' capital account balances at the end of an accounting period.
C) to record interest earned on a partners capital balance.
D)
to reduce the basic investment that has been made in the business.to record a
reward for ownership in the partnership.
48. The partnership contract for Hanes and Jones LLP provides that Hanes is to receive a
bonus of 20% of net income (after the bonus) and that the remaining net income is to be
divided equally. If the partnership income before the bonus for the year is P57,600,
Hanes share of this pre-bonus income is:
A) P28,800.
B) P33,600.
C) P34,560.
D) P43,200.
E) P57,600.
49. Jell and Dell were partners with capital balances of P600 and P800 and an income
sharing ratio of 2:3. They admitted Zell to a 30% interest in the partnership, and the
total amount of goodwill credited to the original partners was P700. What amount did
Zell contribute to the business?
A) P560.
B) P570.
C) P600.
D) P590.
E) P630.
For Questions 51-62. A partnership began its first year of operations with the following
capital balances:
Young, Capital:
P143,000
Eaton, Capital:
P104,000
Thurman, Capital:
P143,000
The Articles of Partnership stipulated that profits and losses be assigned in the
following manner:
Young was to be awarded an annual salary of P26,000 with P13,000 salary assigned to
Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as
of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis, respectively.
Each partner was allowed to withdraw up to P13,000 per year.
Assume that the net loss for the first year of operations was P26,000 with net income of
P52,000 in the second year. Assume further that each partner withdrew the maximum
amount from the business each year.
50. What was Young's share of income or loss for the first year?
A) P3,900 loss.
B) P11,700 loss.
C) P10,400 loss.
D) P24,700 loss.
E) P9,100 loss.
51. What was Eaton's share of income or loss for the first year?
A) P3,900 loss.
B) P11,700 loss.
C) P10,400 loss.
D) P24,700 loss.
E) P9,100 loss.
52. What was Thurman's share of income or loss for the first year?
A) P3,900 loss.
B) P11,700 loss.
C) P10,400 loss.
D) P24,700 loss.
E) P9,100 loss.
53. What was the balance in Young's Capital account at the end of the first year?
A) P120,900.
B) P118,300.
C) P126,100.
D) P80,600.
E) P111,500.
54. What was the balance in Eaton's Capital account at the end of the first year?

7 | Page

A)
B)
C)
D)
E)

P120,900.
P118,300.
P126,100.
P80,600.
P111,500.

55. What was the balance in Thurman's Capital account at the end of the first year?
A) P120,900.
B) P118,300.
C) P126,100.
D) P80,600.
E) P111,500.
56. What was Young's share of income or loss for the second year?
A) P17,160 income.
B) P4,160 income.
C) P19,760 income.
D) P17,290 income.
E) P28,080 income.
57. What was Eaton's share of income or loss for the second year?
A) P17,160 income.
B) P4,160 income.
C) P19,760 income.
D) P17,290 income.
E) P28,080 income.
58. What was Thurman's share of income or loss for the second year?
A) P17,160 income.
B) P4,160 income.
C) P19,760 income.
D) P17,290 income.
E) P28,080 income.
59. What was the balance in Young's Capital account at the end of the second year?
A) P133,380.
B) P84,760.
C) P105,690.
D) P132,860.
E) P71,760.
60. What was the balance in Eaton's Capital account at the end of the second year?
A) P133,380.
B) P84,760.
C) P105,690.
D) P132,860.
E) P71,760.
61. What was the balance in Thurman's Capital account at the end of the second year?
A) P133,380.
B) P84,760.
C) P105,690.
D) P132,860.
E) P71,760.

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