ATENEO DE ZAMBOANGA UNIVERSITY

School of Management and Accountancy

ADVACC1
(Advanced Accounting 1)

Name: BAIDIANGO, Cezlene Marie S. Section: D Score___________

TEST I- True or False (1 point each)

False1. An individual must contribute capital to become a partner.

True2. The characteristic of unlimited liability does not apply to a limited partnership.

False3. A partner who is not known as a partner but who participates actively in the
management of the partnership is called a managing partner.

False4. A partnership as a form of business, is best suited to the practice of

professions.

False5. Any number can form a partnership.

False6. Arbitrary ratio gives recognition on the disparity of capital contribution.

True7. An industrial partner shares in the profits of the partnership but not in partnership
losses.

False8. If Partner A invested twice as much as Partner B, and there are only two
partners, the income must be divided in a ratio of 2:1, respectively.

True 9. If partners agree to a method of sharing net income, but say nothing about net
losses, losses are shared in the same way as net income.

False10. When a partnership agreement provides for the division of earnings based on
time spent and investment balances, the resulting amounts may be treated by the
partners as deducting salary expenses and interest expenses in determining the net
income of the partnership.

False11. The capital of an existing partnership is P160,000 after Keith invested P40,000
in the partnership. Keith is entitled to 25% of the income or loss of partnership.

False12. Partner A contributed cash of P100,000 and land with carrying amount of
P500,000 and a fair value of P700,000 to a partnership. The credit to Partner A’s capital
account in the partnership books is P600,000.

True13. Partner C contributed inventory costing P50,000 and with a net realizable value
of P40,000 to a partnership. The related accounts of payable P10,000 will be assumed
by the partnership. The net credit to Partner C’s capital account in the partnership books
is P30,000.

False14. According to the Civil code of the Phil., the designation of losses and profit can
be entrusted to one of the partners if the other partners are silent.

True15. Salaries are nevertheless provided to the partners, if stipulated in the

partnership agreement, even if the partnership incurs loss.
TEST II- Matching Type (1 point each)

A. Silent Partner K. Limited Partner

B. Capitalist-Industrial Partner L. Drawing Account
C. Partnership M. Recoverable amount
D. Articles of Partnership N. Fair value
E. Secret Partner O. Operations
F. Dormant Partner P. Formation
G. Industrial Partner Q. Dissolution
H. Capitalist Partner R. Liquidation
I. Separate and Legal Personality S. Dissociation
J. Mutual Agency T. General Partner

C 1. Defined as the contract entered into between two or more persons who binds
themselves to contribute money, property or industry to a common fund, with the
intention of diving the profits among themselves.

D 2. It is contract that forms an agreement among business partners to pool labor

and capital and share in profit, loss and liability.

I 3. A partnership has a juridical personality separate and distinct from that of each of
the partners.

J 4. Each partner can act as agent of the partnership in matters which are within the
nature of its business.

K 5. A kind of partner whose liability for the debts of partnership is limited to the
amount of his capital contribution in the firm.

T 6. One who’s liability for the partnership debts is unlimited and therefore may
extent up to his personal assets.

H 7. One whose contributions to the partnership consist of money and property.

G 8. A partner whose contributions to the partnerships in the form of services, skills

and talent and expertise.

F 9. One who is not known to be a partner and does not participate in running the
affairs of the business.

E 10. One who participates actively in managing the business but he is not known as
a partner.

A 11. One who is known publicly as a partner but does not participate in running the
affairs of the firm.

B 12. A partner whose contribution to the partnership consists of money, property

and services.

L 13. It is a temporary account and is periodically closed to a partner’s capital

account.

N 14. The price that would be received to sell an asset or paid to transfer liability in
an orderly transaction bet market participants at the measurement date.

P 15. It is the accounting for initial investments to the partnership.

Q 16. The admission of new partner in the partnership and withdrawal, retirement
or death of a partner

R 17. It is the winding-up of affairs of the partnership.

S 18. A partner leaves the partnership.

O 19. The division of profits and losses

M 20. The higher between an asset’s fair value less cost to sell and value in use.

TEST III-Problem Solving

1. Assume that on June 30, 2018, Gerry and Henry, competitors in business,
decided to consolidate their business to form a partnership to be called GH
Partnership. Their balance sheets on this date are shown below.

Gerry Company
Balance Sheet
June 30, 2018

Assets Liabilities and Capital

Cash P 5,000 Accounts payable 3,000
Accounts receivable 10,000 Gerry Capital 26,000
Merchandise inventory 8,000
Furniture and fixtures 6,000
Total assets P29,000 Total liabilities and capital P29,000

Henry Company
Balance Sheet
June 30, 2018

Assets Liabilities and Capital

Cash P4,000 Accounts payable P6,000
Accounts receivable 8,000 Henry capital 25,000
Merchandise inventory 10,000
Furniture and fixtures 9,000
Total assets P31,000 Total liabilities and capital P31,000

The conditions agreed by the partners for purposes of determining their interests
in the partnership are presented below:

a. 10% of accounts receivables is to be set up uncollectible in each book.

b. Merchandise inventory of Henry is to be increased by P1,000.
c. The furniture and fixtures of Gerry and Henry are to be depreciated by P600
and P900 respectively.

Required: (15 points)

1. Prepare the necessary adjusting entries.

2. Prepare the opening journal entries in the books of the partnership.
3. Prepare the balance sheet of the partnership after the formation

Adjusting Entries

1.) Gerry, Capital P1,600

Allowance for Doubtful Accounts P1,000
Accu. Dept – F&F 600
To Adjust the entry of Gerry
2.) Merchandise Inventory P1,000
Henry, Capital 700
Allowance for Doubtful Accounts P800
Accu. Dept – F&F 900
To Adjust the entry of Henry

Journal Entries – New Book for Partnership

1.) Cash P5,000

A/R 10,000
Merchandise Inventory 8,000
Furniture and Fixture 5,400
A/P P3,000
Allowance for Doubtful Acounts 1,000
Gerry Capital 24,400
To record the investment of Gerry

2.) Cash P4,000

A/R 8,000
Merchandise Inventory 11,000
Furniture and Fixture 8,100
A/P P6,000
Allowance for Doubtful Acounts 800
Gerry Capital 24,300
To record the investment of Gerry

Balance of the New Partenrship

GH Partnership

Statement of Financial Position

June 30, 2016

Assets

Cash 9,000

Accounts receivable 18,000

Less: Allow for doubtful account 1,800 16,200

Mdse. Inv. 19,000

Furn. and fixt. 13,500

Total assets 57,700

Liabilities and Equity

A/P 9,000

Gerry, capital 24,400

Henry, capital 24,300

Total liabilities and equity 57,700

2. Assume that on January 1, 2018, Allan and Boom formed a partnership with an
investment of P30,000 by Allan and P60,000 by Boom. On December 31,2018,
after closing all income and expenses accounts, the Income Summary account
shows a credit balance of P60,000, representing the profit for the year 2018.
Changes in the capital during 2018 are summarized as follows:

Changes in Partners’ Capital Accounts

Allan Boom
Capital balances, January 1, 2018 P40,000 P60,000
Additional investments, March 1 20,000 50,000
Additional investments, August 1 20,000 40,000
Withdrawal, October 1 (20,000) -
Withdrawal November 1 ______ (50,000)
Capital balances, December 31,2018 P60,000 P100,000

Required: Prepare a schedule of profit distribution under the following independent

agreements on the division of profits: (20 points)

a. In the ratio of beginning capital balances.

ALLAN BOOM TOTAL

Amount to be Allocated 60,000
Allocation 40,000 60,000
Beg. Capital Balance
60,000x40% 24,000 24,000
60,000x60% 36,000 36,000
TOTAL 64,000 96,000 60,000

b. In the ratio of weighted average capitals.

ALLAN BOOM TOTAL

Amount to be Allocated 60,000
Allocation
Weighted Average Capital
(60,000x60,000)/170,000 21,177 21,177
(60,000x110,000)/170,00 38,823 38,823
0
TOTAL 21,177 38,823 60,000

c. Interest of 12% on weighted average capitals with any net income or loss to be
divided equally.

ALLAN BOOM TOTAL

Amount to be Allocated 60,000
Allocation
Interest on Ave Capital
Acc Bal
60,000 x 12% 7,200 7,200
110,000 x 12% 13,200 13,200 20,400
Remainder 19,800 19,800 39,600
TOTAL 27,000 33,000 60,000

d. Assume that partnership of Allan and Boom has a net income of P190,200 before
salaries and bonus to partners. The partnership contract provides for the
following:

1. Salaries to Allan and Boom, P30,000 each.

2. Interest on capital balances:
Allan P7,000
Boom 3,200
3. Bonus to Allan, 20% of net income after bonus.
4. Remaining profit or loss to be divided equally.

Net income before allowances for salaries interest and bonus P190,200 = 120%

Net income after bonus (190,200/120%) 158,500 = 100%

Bonus P31,700 = 20%

ALLAN BOOM TOTAL

Amount to be Allocated 190,200
Allocation
Salary Allowances 30,000 30,000 60,000
Interest Allowances 7,000 3,200 10,200
Bonus to Allan 31,700 31,700
Remainder 44,150 44,150 88,300
TOTAL 112,850 77,350 190,200

Test IV - ESSAY / CASE C

Bob Smith and Frank Smith, who are brothers, pooled their money and bought a red
1972 Mustang. They titled the car under the name "Frank Smith Classic American
Cars," and spent long hours restoring it. The brothers found that many people loved the
Mustang and often asked to borrow it for special occasions. Bob and Frank decided
they could take advantage of this and decided to lease the Mustang. Leasing the
Mustang became such a lucrative enterprise that Bob and Frank borrowed money from
a bank and bought and restored a second car, a Corvette, for the same purpose. They
titled the Corvette under the name "Bob Smith Classic American Cars."

Because things were going so well, Bob and Frank agreed to operate their business
together for the next five years. They called the business "Classic American Cars." They
also agreed that they would pay for all costs associated with the operation of the
business and divide what was left equally. Three months after they made this
agreement, Bob was killed in a traffic accident while driving the Corvette. The Corvette
was completely destroyed in the accident.

Frank made a claim with the business's insurance company for the value of the
Corvette. Shortly thereafter, a check for the loss of the car was sent to Frank. Bob's
widow, however, believes that the insurance funds belong to her since the Corvette was
titled in Bob's name.

QUESTIONS: (20 points)

1. Describe and define what kind of business relationship Bob and Frank established.

The kind of business relationship of Bob and Frank established is partnership

considering that both of them contributed money to buy the 1972 Mustang and they
began leasing it. Furthermore, they shared the debt to buy the Corvette and
subsequently, they named the business as Classic American Cars and agreed to share
all the liabilities in the business. Whereas, they also have met the elements of
partnership based on article 1767. By the contract of partnership two or more persons
bind themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
2. As a result of Bob's death, what should happen to the Mustang, the debt to the
bank, the insurance proceeds, and any cash from the operation of Classic American
Cars?

Considering that the partnership has been dissolved due to the death of Bob, in
accordance to Article 1836, the surviving partner which is Frank will be in charged in
the manner of winding up. Furthermore, on article 1837, the partner has the right to
have the partnership property applied to discharge the liabilities of the partnership
and to have the surplus the net amount owing to the respective partners or legal
representative. Lastly, since there is still remaining liabilities based on article 1835,
the dissolution of the partnership does not of itself discharge the existing liability of
any partner. Thus, both partners should settle the account and since Bob died his
individual property shall be liable for all obligations of the partnership incurred while
he was a partner, but subject to the prior payment of his separate debt.

3. What becomes of the business as a result of Bob's death? May Frank continue to
operate the business if Bob's widow objects?

As stated in Article 1830, one of the causes of dissolution is the death of any
partners. Thus, the partnership of Bob and Frank will be dissolved. In addition to
that, Frank can continue the operation of the business provided that if the widow will
have the rights as the legal representative of Bob which are (1) to have the value of
the interest of the deceased partner in the partnership ascertained as of the date of
dissolution, (2) to receive thereafter, as an ordinary creditor, an amount equal to the
value of hish share in the dissolved partnership with interest and she will not incur
any risk from the estate based on the Article 1841 of the Civil Code.

Email your answers to: robertorafaelamendoza @gmail.com

Deadline for submission Saturday September 5, 2020 @ 10:00 pm