PREQUALI EXAMINATION

For Items 1-2

CC admits DD as a partner in business. Accounts in the ledger for CC on November 30, 2019, just before
the admission of DD, show the following balances:

Cash 6,800
Accounts Receivable 14,200
Merchandise Inventory 20,000
Accounts Payable 8,000
CC, Capital 33,000

It is agreed that for purposes of establishing CC’s interest the following adjustments shall be made:
a. An allowance for doubtful accounts of 3% of accounts receivable is to be established.
b. The merchandise inventory is to be valued at P23,000
c. Prepaid salary expenses of P600 and accrued rent expense of P800 are to be recognized.

1. DD is to invest sufficient cash to obtain a 1/3 interest in the partnership. CC’s adjusted capital before
the admission of CC is?

2. The amount of cash investment by DD is?

For Item 3

CC, PP, and AA, accountants agree to form a partnership and to share profits in the ratio of 5:3:2.
They also agreed that AA is to be allowed a salary of P28, 000 and that PP is to be guaranteed P21,
000 as his share of the profits. During the first year of operations, incomes from fees are P180, 000,
while expenses total, P 96,000.

3. What amount of net income should be credited to each partner’s capital account?

For Item 4

The capital accounts for the partnership of LL and MM at October 31, 2019 are as follows:

LL, Capital 80,000

MM, Capital 40,000
Total 120,000

The partners share profits and losses in the ratio of 3:2 respectively. The partnership is in
desperate need of cash, and the partners agree to admit NN as a partner with a 1/3 in the capital
and profits and losses upon his investment of P30, 000.

4. Immediately after NN’s admission, what should be the capital balances of LL, MM and NN
respectively, assuming bonus is to be recognized?

LL: ; MM: ; NN:

For Item 5
On June 30, 2019, the condensed balance sheet for the partnership of DD, FF and GG, together with
their respective profit and loss sharing percentages was as follows:

Assets, net of liabilities 320,000

DD, capital 160,000
FF, capital 96,000
GG, capital 64,000

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 DD decided to retire from the partnership and by mutual agreement is to be paid P180, 000 out of
partnership funds for his interest. Total goodwill or adjustment in assets implicit in the agreement is
to be recorded.

5. After DD’s retirement, what are the capital balances of the other partners?

FF: ; GG:

For Item 6

Chuvalo and Predovich formed a partnership. After 1 year of operation, the partnership had the
following partial trial balance:

Debit Credit
Chuvalo, Capital 34,000
Predovich, Capital 52,000
Chuvalo, Withdrawals 20,000
Predovich, Withdrawals 18,000
Service Revenue 250,000
Salaries Expense ( to Employees) 110,000
Rent Expense 36,000
Supplies Expense 28,000
Other Operating Expenses 15,000

Partners split profits as follows:

(1) A salary of 12,000 is paid to Predovich
(2) Remaining profits (or losses) are split 50/50

6. The ending capital balance of Chuvalo amounted to:

For Item 7

DD and EE entered into a partnership as of March 1, 2019 by investing P125, 000 and P75, 000,
respectively. They agreed that DD, as the managing partner, was to receive a salary of P30, 000 per
year and a bonus computed at 10% of the net profit after adjustment for the salary; the balance of the
profit was to be distributed in the ratio of their original capital balances. On December 31, 2019,
account balances were as follows:

Cash 70,000 Accounts payable 60,000

Accounts receivable 67,000 DD, capital 125,000
Fur. and fixtures 45,000 EE, capital 75,000
Sales returns 5,000 DD, drawing (20,000)
Purchases 196,000 EE, drawing (30,000)
Operating expenses 60,000 Sales 233,000
Inventories on December 31, 2019 were as follows: supplies, P2, 500; merchandise, P73, 000.
Prepaid insurance was P950 while accrued expenses were P1, 550. Depreciation rate was 20% per
year.

7. The partner’s capital balances on December 31, 2019, after closing the net profit and drawing
accounts, were: DD: ; EE:

For Item 8

A partnership has the following capital balances:

Allen, Capital 60,000

Burns, Capital 30,000
Costello, Capital 90,000

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 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.

8. If the partnership uses the bonus method, what is the balance of Burn’s capital account after
Costello withdraws?

For Item 9

At year-end, the Cisco Partnership has the following capital balances:

Montana, capital 130,000

Rice, capital 110,000
Craig, capital 80,000
Taylor, capital 70,000

Profits and losses are split on a 3:3:2:2, respectively. Craig decides to leave the partnership and is
paid P90, 000 from the business based on the original contractual agreement.

9. If total goodwill method is to be applied, what is the balance of Montana’s capital account after
Craig withdraws?

For Item 10-11

A partnership has the following capital balances:

Partners Capital Balance

William (40% of gains and losses) 220,000
Jennings (40%) 160,000
Bryan (20%) 110,000

Darrow invests P270, 000 in cash for a 30% ownership interest.

10. Assuming goodwill is to be recorded and the money goes out to the original partners, how much
goodwill should be recognized, and what is Darrow’s beginning capital balance?

11. Assuming no goodwill or other revaluation is to be recorded and the money goes out to the business,
what is Jenning’s capital balance?

For Items 12-14

OO and PP are partners sharing profits in the proportion- 60:40. A balance sheet prepared for the partners
on April 1, 2019 shows the following:
Cash 48,000 Accounts payable 89,000
Accounts receivable 92,000 OO, capital 133,000
Inventories 165,000 PP, capital 108,000
Equipment 70,000
Accumulated depreciation (45,000)
Total Assets 330,000 Total Liab. & Capital 330,000

Assets and liabilities are to be restated as follows:

 An allowance for possible uncollectible of P4,500 is to be established
 Inventories are to be restated at their present replacement value of P170,000
 Accrued expenses of P4,000 are to be recognized

OO, PP and RR will divide profits in the ratio of 5:3:2. Capital balances of the partners after the
formation of the partnership are to be in the aforementioned ratio, with OO and PP making cash

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settlement between them outside of the partnership to adjust their capitals, and RR investing cash in the
partnership for his interest.

12. The cash to be invested by RR is:

13. The total capital of the partnership after the admission of RR is:

For Item 14

Partners JJ, KK and LL have decided to liquidate their partnerships. The partnerships statement of
financial position reveals the following: Cash- P50, 000; Other Assets- P500, 000; Liabilities- P60, 000;
JJ, Capital- P180, 000; KK, Capital- P240, 000; LL, Capital- P70, 000. The partners share profits and
losses in a 4:4:2 ratio and all partners are personally solvent. LL received P98, 000 in cash in full
settlement for her share of the partnership.

14. What was the selling price for the other assets?

For Items 15-16

CC admits DD for the partnership interest in his business. The balance sheet accounts of CC on
November 30, 2019, prior to the admission of DD are as follows:

Debits Credits
Cash ?
Accounts receivable 96,000
Merchandise Inventory 144,000
Accounts Payable 49,600
CC, Capital ?

It is agreed that for purposes of establishing CC’s interest, the following adjustments should be made:
a. An allowance for doubtful accounts of 2% of accounts receivable is to be established
b. The merchandise inventory is to be valued at P160,000
c. Prepaid expenses of P5,200 and accrued expenses of P3,200 are to be recognized

DD is to invest cash of P113, 600 to give him a 1/3 interest in the firm.

15. The balance of the capital of CC before the adjustment is:

16. The total assets of the partnership after the formation is:

For Item 17

Jesse, Joseph and Leslie are partners with capital accounts of P70, 000, P120, 000, and P90, 000,
respectively. The partnership share profits and losses 45%, 30%, and 25%, respectively. They are
considering allowing Hans to join the partnership by investing directly into the partnership. The partners
intend to revalue the assets before Han’s admission. Neither bonus nor goodwill are required.

17. If the asset’s market value exceeds book value P150, 000, how much will Hans invest to acquire a
20% interest in the partnership?

For Item 18-20

The statement of financial position of the PPP partnership, just before liquidation, is as follows:

Cash 40,000 Liabilities 70,000

Noncash assets 140,000 Ping, Capital (60%) 50,000
Pang, Capital (20%) 50,000
Pong, Capital (20%) 10,000

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 Total 180,000 Total 180,000

18. If noncash assets are sold for P150, 000 and the liabilities are paid, how much should be distributed
to Ping?

19. If noncash assets are sold for P100, 000 and the liabilities are paid, how much should be distributed
to Pang?

20. If noncash assets are sold for P70, 000 and the liabilities are paid, how much should be distributed to
Pong?

21. When a partner retires and withdraws assets in excess of his book value, the remaining partners
absorb the excess:
A. Equally C. Based on their average capital balances
B. In their profit-sharing ratio D. Based on their ending capital balances

22. Gor and Ubers form a FAR Partnership and agree to share profits in a 2 to 1 ratio. During the first
year of operation, the partnership incurs a P5, 000 loss. The partners should share the losses:
A. Based on their average capital balances
B. In a 2 to 1 ratio
C. Equally
D. Based on their ending capital balances

23. The profit and loss sharing ratio of the partner in a partnership should be:
A. In the same ratio as the percentage interest owned by each partner
B. Based on a relative effort contributed to the firm by the partners
C. A weighted average of capital and effort contributions
D. Based on any formula that the partners choose

24. In a partnership liquidation, the final cash distribution to the partners should be made in accordance
with the:
A. Partner’s profit and loss sharing ratio
B. Balances of the partners’ capital accounts
C. Ratio of the capital contributions by the partners
D. Ratio of capital contributions less withdrawals by the partners

25. A partnership agreement calls for allocation of profits and losses by salary allocations, a bonus
allocation, interest on capital with any remainder to be allocated by present ratios. If partnership has a
loss to allocate, generally which of the following procedures would be applied?
A. Any loss would be allocated equally to all partners
B. Any salary allocation criteria would not be used
C. The bonus criteria would not be used
D. The loss would be allocated using the profit and loss ratios, only

26. When A retired from the partnership of A, B and C, the final settlement of A’s interest is less than his
capital balance. Under the bonus method, the excess would:
A. Reduce the capital balance of B and C
B. Increase the capital balances of B and C
C. Be recorded as an expense
D. Had no effect on the capital of B and C

27. If a partnership has only non-cash assets, all liabilities have been properly disbursed, and no
additional liquidation expenses are expected, the maximum potential loss to the partnership in the
liquidation process is:
A. The fair market value of the noncash assets
B. The book value of the noncash assets
C. The estimated proceeds from the sale of the assets less the book value of the noncash
assets

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 D. None of the above

28. If a partner who retires from a partnership receives an amount of cash less than the partner’s capital
account balance:
A. Identifiable net assets of the partnership should be written down
B. Bonuses should be allocated to the continuing partners
C. Negative goodwill should be recognized by the partnership
D. None of the foregoing should take place

29. On July 1, a partnership was formed by A and B. A contributed cash. B previously a sole proprietor,
contributed property other than cash including realty subject to a mortgage which was assumed by the
partnership. B’s capital account at July 1, should be recorded at:
A. B’s book value of the property less the mortgage payable at July 1
B. The fair value of the property less the mortgage payable at July 1
C. The fair value of property at July 1
D. B’s book value at property at July 1

30. The non-cash contributions of the partners to form a partnership are recorded by the partnership at
their:
A. Agreed Value
B. Original Cost
C. Dissolution Value
D. Book Value

31. If a bonus is traceable to the previous partners rather than an incoming partner, it is allocated among
the partners according to the :
A. Profit sharing percentages of the previous partnership
B. Profit sharing percentages of the new partnership
C. Capital percentages of the previous partners
D. Capital percentages of the new partnership

32. If Mr. Jolly retires from the partnership Jollibee and he is paid an amount in excess of his capital
account balance at the time of his retirement. The excess payment to Jolly (assume assets are fairly
valued) will be:
A. Charged against the capital accounts of the remaining partners
B. Credited to the capital accounts of the remaining partners
C. Charged to bonus account
D. Charged to asset account

33. Mr. Mac is admitted into the partnership of Do and Nald by investing cash equivalent to ¼ of their
capital. Which of the following is true after the admission of Mr. Mac?
A. Assets of the partnership will increase
B. Total partners’ equity remains the same
C. Do and Nald capital decreased by ¼
D. Assets of the partnership will remain the same

34. If a partnership requires the adjustment of assets when a partner retires from the partnership, the
appropriate journal entry for the partner’s retirement is:
A. Debit assets for the entire amount computed
B. Debit assets for the retiring partners’ share only
C. Debit retirement expense for the retiring partners’ share of computed adjustment
D. Debit the capital accounts of the remaining partners for a bonus to the retiring partner

35. Michelle and Steve are partners in a local business. They currently share profits and losses 60/40 and
have capital account balances of P150, 000 and P200, 000, respectively. They are considering
admitting Jacob to the partnership. He will receive a 20 percent equity interest in the partnership for a
P120, 000 investment. Assuming the goodwill is to be recognized, which partners (s) are contributing
the goodwill?
A. Both new and existing partners are contributing goodwill
B. New partner is contributing goodwill
C. Existing partners are contributing goodwill
D. There is not enough information to answer this question

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