MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y.

20-21

THEORY:
1. Partnership capital and drawings accounts are similar to the corporate
a. Paid in capital, retained earnings, and dividends accounts
b. Retained earnings account
c. Paid in capital and retained earnings accounts
d. Preferred and common stock accounts

2. Under the bonus method, when a new partner is admitted to the partnership, the total capital of the
new partnership is equal to:
a. The book value of the previous partnership + the fair market value of the consideration paid
to the existing partnership by the incoming partner
b. The book value of the previous partnership + any necessary asset writeups from book value to
market value + the fair market value of the consideration paid to the existing partnership by
the incoming partner
c. The book value of the previous partnership – any asset write ups from book to market value +
the fair market value of the consideration paid to the existing partnership by the incoming
partner
d. The fair market value of the new partnership as implied by the value of the incoming partner’s
consideration in exchange for an ownership percentage in the new partnership

3. If a new partner acquires a partnership interest directly from the partners rather than from the
partnership itself,
a. No entry is required
b. The partnership assets should be revalued
c. The existing partners’ capital accounts should be reduced, and the new partner’s account
increased
d. The partnership has undergone a reorganization process

4. A partnership is formed by two individuals who were previously sole proprietors. Property other than
cash that is part of the initial investment in the partnership is recorded for financial accounting
purposes at the:
a. Proprietors’ book values or the fair value of the property at the date of the investment,
whichever is higher.
b. Proprietors’ book values or the fair value of the property at the date of the investment,
whichever is lower.
c. Proprietors’ book values of the property at the date of the investment.
d. Fair value of the property at the date of the investment.

5. Which of the following is not an advantage of a partnership over a corporation?

a. Ease of formation
b. Unlimited liability
c. The elimination of taxes at the entity level
d. All of the above

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

6. Which of the following forms of new partner admission will not result in a change in the partnership’s
net assets?
a. Purchase of an ownership interest directly from the partnership
b. Purchase of an ownership interest directly from an existing partner
c. Either of the above
d. Neither of the above

7. Transferable interest of a partner includes all of the following except:

a. The partner’s share of the profits and losses of the partnership
b. The right to receive distributions
c. The right to receive any liquidating distribution
d. The authority to transact any of the partnership’s business operations

8. Which of the following interest component calculation bases is least susceptible to manipulation when
allocating profits and losses to partners?
a. Beginning capital account balance
b. Average of beginning and ending capital account balances
c. Weighted average capital account balance
d. Ending capital account balance

9. Drawings
a. Are advances to a partnership
b. Are loans to a partnership
c. Are a function of interest on partnership average capital
d. Are the same nature as withdrawals

10. The partnership agreement is an express contract among the partners. Such an agreement generally
does not include
a. A limitation on a partner’s liability to creditors
b. The rights and duties of the partners
c. The allocation of income between the partners
d. The rights and duties of the partners in the event of partnership dissolution

11. The fact that salaries paid to partners are not a component of partnership income is indicative of
a. A departure from generally accepted accounting principles
b. Being characteristic of the entity theory
c. Being characteristic of the proprietary theory
d. Why partnerships are characterized by unlimited liability

12. Which of the following is not a component of the formula used to distribute income?
a. Salary allocation to those partners working
b. After all other allocation, the remainder divided according to the profit and loss sharing ratio
c. Interest on the average capital investments

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

d. Interest on notes to partners

13. Which of the following statements pertains to partnership dissolution?

a. It refers to the process of converting the non-cash assets of the partnership and distributing
the total cash to the creditors and remainder to the partners
b. It refers to the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying on of the partnership
c. It refers to the extinguishment of the juridical personality of the partnership
d. It refers to the end of the life of the partnership

14. Which of the following is not considered a legitimate expense of a partnership?

a. Interest paid to partners based on the amount of invested capital
b. Depreciation on assets contributed to the partnership by partners
c. Salaries for management hired to run the business
d. Supplies used in the partners’ offices

15. In case of admission of a new partner in an existing partnership through investment, which of the
following scenario will result to bonus to old partners?
a. When the amount credited to the new partner is more than the amount contributed
b. When the amount credited to the new partner is less than the amount contributed
c. When the total agreed capital equals the total contributed capital
d. When the total agreed capital differs from the total contributed capital

16. Which of the following accounts could be found in the QT partnership’s general ledger?
I. Due from Q
II. Q, Drawing
III. Loan Payable to T
a. I, II b. I, III c. II, III d. I, II, and III

17. Which of the following statements is true with regard to a withdrawing partner?
a. A bonus must be paid to the 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 partners
d. Recognizing a bonus is not appropriate when a partner retires

18. Which of the following is not a characteristic of the proprietary theory that influences accounting for
partnerships?
a. Partners’ salaries are viewed as distribution of income rather than a component of net income
b. A partnership is not viewed as separate, distinct, and taxable entity
c. A partnership is characterized by limited liability
d. Changes in the ownership structure of a partnership result in the dissolution of the partnership

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

19. What is the nature of liability of general partners as to partnership debts or obligations?
a. They are liable equally up to the extent of their separate assets after the partnership assets are
exhausted
b. They are liable pro-rata up to the extent of their separate assets after the partnership assets
are exhausted
c. They are liable pro-rata up to the extent of their capital contribution only
d. They are liable solidarily up to the extent of their separate assets after the partnership assets
are exhausted

20. At the time of her retirement, the retiring partner received an amount more than her capital balance
existing prior to her retirement. If the capital balances of the remaining partners also increase after
such retirement of a partner, what is the valid reason under current GAAP rules?
a. Capital bonus has been given by the remaining partners to the retiring partner
b. Impairment loss of existing intangible assets of the partnership has been recognized prior to
the retirement of a partner
c. Goodwill arising from retirement of a partner has been recognized prior to the retirement of a
partner
d. Revaluation surplus of existing property, plant, and equipment of the partnership has been
recognized prior to the retirement of a partner

21. An advantage of the partnership as a form of business organization would be

a. Partners do not pay income taxes on their share in partnership income
b. A partnership is bound by the act of the partners
c. A partnership is created by mere agreements of the partners
d. A partnership may be terminated by the death or withdrawal of a partner

22. A partner’s withdrawal of assets from a limited liability partnership that is considered a permanent
reduction of in that partner’s equity is debited to the partner’s:
a. Drawing account
b. Retained earnings account
c. Capital account
d. Loan receivable account

23. S1: Partnership profit and loss residual percentages must always be equal.

S2: With the exception of the residual profit and loss ratio, partners can agree to apply profit and loss
allocation components in any order.
a. True, True c. False, True
b. True, False d. False, False

24. S1: In a general partnership, only a majority of partners need to have unlimited liability to partnership
creditors.

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S2: Assigning a noncash asset the contributor’s carrying value could result in a misallocation of gain
or loss if the asset is sold.
a. True, True c. False, True
b. True, False d. False, False

25. S1: When the goodwill method is applied to recognize the admission of a new partner and the existing
partners are responsible for the goodwill, the new partner’s capital account will always be established
equal to the amount of the contribution to the partnership.

S2: If a new partner is going to acquire an ownership interest in a partnership directly from another
partner, the other partners do not need to approve the admission.
a. True, True c. False, True
b. True, False d. False, False

PROBLEM-SOLVING
1. Darkseer, Earthshaker, and Furion have the following capital balances; P40,000, P50,000, and P30,000
respectively. The partners share profits and losses 20%, 40%, and 40% respectively. Earthshaker retires
and is paid P80,000 based on the terms of the original partnership agreement. If the bonus method is
used, what is the capital of the remaining partners?
a. Darkseer, P40,000; Furion, P30,000 c. Darkseer, P50,000; Furion, P50,000
b. Darkseer, P30,000; Furion, P10,000 d. Darkseer, P80,000; Furion, P70,000

2. The following condensed balance sheet is presented for the partnership of Ogre and Magi, who share
profits and losses in the ratio of 60:40, respectively:

Cash 45,000
Other assets 625,000
Magi, loan 30,000
700,000

Accounts payable 120,000

Ogre, capital 348,000
Magi, capital 232,000
700,000

The assets and liabilities are fairly valued on the balance sheet. Ogre and Magi decide to admit Omni
as a new partner with a 20% interest. No goodwill or bonus is to be recorded. What amount should
Omni contribute in cash or other assets?
a. 110,000 b. 116,000 c. 140,000 d. 145,000

3. When Goblin Shredder withdrew from Huskar, Shredder, Jakiro, and Kunkka Partnership on January
31, 2020, he was paid P80,000, although his capital account balance was only P60,000. The four

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

partners shared net income and losses equally. The journal entry of the partnership to record
Shredder’s withdrawal on January 31, 2020, should include a debit of:
a. P6,667 to Huskar, Capital c. P80,000 to Goodwill
b. P20,000 to Goodwill d. P80,000 to Shredder, Drawing

For items 4-5:

On September 30, 2020, Knight admits Abaddon for an interest in his business. On this date, Knight’s
capital account shows a balance of P158,400. The following were agreed upon before the formation of the
partnership:
• Prepaid expenses of P17,500 and accrued expenses of P5,000 are to be recognized in Knight’s
books
• 5% of the outstanding accounts receivable of Knight amounting to P100,000 is to be recognized
as uncollectible
• Abaddon is to be credited with a one-third interest in the partnership and is to invest cash aside
from the P50,000 worth of merchandise.

4. How much cash is to be invested by Abaddon?

a. 32,950 b. 55,300 c. 82,950 d. 5,300

5. The total capital of the partnership is:

a. 221,200 b. 198,850 c. 171,200 d. 248,850

6. Invoker, Ling, and Magnus were partners with capital balances on January 2, 2021 of P300,000,
P200,000, and P100,000, respectively. On July 1, 2021 Invoker retires from the partnership. On the date
of retirement the partnership net loss is P60,000 and the partners agreed that certain asset is to be
revalued at P80,000 from its original cost of P50,000. The partners agreed further to pay Invoker
P225,000 in settlement of her interest. The remaining partners continue to operate under a new
partnership, MaLing Partnership.

What is the total capital of MaLing Partnership?

a. 345,000 b. 285,000 c. 340,000 d. 280,000

For items 7-9:

A partnership began its first year of operations on January 1 with the following capital balances:
Bane, Capital: P143,000
Centaur, Capital: P104,000
Warchief, Capital: P143,000

The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
• Bane was to be awarded an annual salary of P26,000 with P13,000 salary assigned to Warchief.
• 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.

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

• Each partner was allowed to withdraw up to P13,000 per year.

• Assume that the net loss for the 1st 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.

7. What was Centaur’s share of income or loss for the second year?
a. P17,160 income c. P19,760 income
b. P4,160 income d. P28,080 income

8. What was the balance in Bane’s Capital account at the end of the second year?
a. P133,380 b. P84,760 c. P105,690 d. P132,860

9. What was the balance in Warchief’s Capital account at the end of second year?
a. P133,380 b. P84,760 c. P105,690 d. P132,860

10. Phoenix, Razor, and Sandking are partners with average capital balances during 2020 of P472,500;
P238,650; and P162,350, respectively. The partners receive 10% on their average capital balances; after
deducting salaries of P122,325 to Phoenix and P82,625 to Sandking, the residual profit or loss is divided
equally. In 2020, the partnership had net loss of P125,624 before the interest and salaries to partners.
What amount should Phoenix and Sandking capital account change?
a. Phoenix, 40,844 decrease; Sandking, 31,237 decrease
b. Phoenix, 28,358 increase; Sandking, 32,458 decrease
c. Phoenix, 29,476 increase; Sandking, 17,536 decrease
d. Phoenix, 30,267 increase; Sandking, 40,448 decrease

11. Storm contributed P48,000 and Spirit contributed P96,000 to form a partnership, and they agreed to
share profits in the ratio of their original capital contributions. During the first year of operations, they
made a profit of P32,580; Storm withdrew P10,100 and Spirit P16,000. At the start of the following year,
they agreed to admit Sven into the partnership. He was to receive a ¼ interest in the capital and profits
upon payment of P60,000 to Storm and Spirit, whose capital accounts were to be reduced by transfers
of Sven’s capital account of amount sufficient to bring the capitals back to their original capital ratio.

How should the P60,000 paid by Sven be divided between Storm and Spirit, respectively?
a. 19,650; 40,350 c. 20,000; 40,000
b. 30,000; 30,000 d. 18,600; 41,400

12. Naga Siren, a partner in the NS Partnership, has a 30% participation in partnership profits and losses,
Siren’s capital account has a net decrease of P60,000 during the calendar year 2020. During 2020, Siren
withdrew P130,000 (charged against his capital account) and contributed property valued at P25,000
to the partnership. What is the net income of the NS Partnership for 2020?
a. 150,000 b. 233,333 c. 350,000 d. 550,000

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

13. The partnership of Weygandt and Ricchiute provides for equal sharing of profits and losses. Prior to
the admission of a third partner Elderhouse, the capital account of Weygandt, P75,000 and Ricchiute,
P105,000. Elderhouse invest P90,000 for a P75,000 interest and partners agreed that the net assets of
the new partnership would be P270,000. Which of the following statement is true?
a. Asset revaluation to old partners of P15,000
b. Bonus to new partner of P15,000
c. Bonus to old partners of P15,000
d. Asset revaluation to new partner of P15,000

14. In the calendar year 2021, the partnership of Por and Que realized a net profit of P240,000. The capital
accounts of the partners show the following postings:
Por, Capital Que, Capital
Debit Credit Debit Credit
Jan 1 120,000 80,000
May 1 20,000 10,000
July 1 20,000
Aug 1 10,000
Oct 1 10,000 5,000
If the profits are to be divided based on average capital, the share of Por and Que, respectively are:
a. 129,600 110,400 c. 136,800 103,200
b. 144,000 96,000 d. 136,543 103,457

15. Par and Cor created a partnership to own and operate a health-food store. The partnership agreement
provided that Par receive a salary of P100,000 and Cor a salary of P50,000 to recognize their relative
time spent in operating the store. Remaining profits and losses were divided 60:40 to Par and Cor,
respectively. Income for 2020, the first year of operations, P130,000 was allocated P88,000 to Par and
P42,000 to Cor. On January 1, 2021, the partnership agreement was changed to reflect the fact that
Cor could no longer devote any time to the store’s operations. The new agreement allows Par a salary
of P180,000, and the remaining profits and losses are allocated equally. In 2021, an error was
discovered such that the 2020 reported income was understated by P40,000. The partnership income
of P250,000 for 2021 includes the P40,000 related to 2020. The P250,000 should be allocated between
Par and Cor as follows:
a. Par, P219,000; Cor, P31,000 c. Par, P215,000; Cor, P35,000
b. Par, P171,000; Cor, P171,000 d. Par, P125,000; Cor, P125,000

For items 16-17:

On January 1, 2022, Gerald, Bea, and Julia formed GBJ Partnership with original capital contribution of
P300,000, P500,000, and P200,000. Gerald is appointed as managing partner. During 2022, Gerald, Bea,
and Julia made additional investments of P500,000, P200,000, and P300,000, respectively. At the end
of 2022, they made drawings of P200,000, P100,000, and P400,000, respectively. At the end of 2022,
the capital balance of Julia is reported at P320,000. The profit or loss agreement of the partners is as
follows:
• 10% interest on original capital contribution of the partners

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

• Quarterly salary of P40,000 and P10,000 for Gerald and Bea, respectively
• Bonus to Gerald equivalent to 20% of Net Income after deducting the interest and salary to all
partners
• Remainder is to be distributed equally among the partners

16. What is the partnership profit for the year ended December 31, 2022?
a. 900,000 b. 1,020,000 c. 1,050,000 d. 960,000

17. What is Gerald’s share in partnership profit for 2022?

a. 190,000 b. 340,000 c. 540,000 d. 200,000

18. Effective August 1, 2020, Wise and OhMyVeenus agreed to form a partnership from their two
respective proprietorships. The balance sheets presented below reflect the financial position of both
proprietorships as of July 31, 2020:
Wise OhMyVeenus
Cash P 24,000 P 60,000
Accounts Receivable 144,000 84,000
Merchandise Inventory 396,000 504,000
Prepaid Rent 48,000
Store Equipment 480,000 360,000
Accumulated Depreciation (180,000) (216,000)
Building 1,500,000
Accumulated Depreciation (300,000)
Land 720,000 ____________
Totals P 2,784,000 P 840,000

Accounts Payable P 90,000 P 36,000

Mortgage Payable 720,000
Wise, Capital 1,956,000
OhMyVeenus, Capital _____________ 804,000
Totals P 2,784,000 P 840,000

As of August 1, 2020, the fair value of Wise’s assets were merchandise inventory, P324,000; store
equipment, P180,000; building, P3,000,000; and land, P1,200,000. For OhMyVeenus, the fair value of
the assets on the same date were merchandise inventory, P540,000; store equipment, P78,000; prepaid
rent, P0. All other items on the two balance sheets were stated at their fair values. How much capital
must be credited to Wise upon formation of partnership?
a. 4,062,000 b. 3,582,000 c. 726,000 d. 4,788,000

19. The trial balance of Harry, Meghan, and Elizabeth on December 31, 2019 is as follows;
Cash P 27,495
Other assets 12,500
Receivable from Harry 1,250
Merchandise inventory, 1/1/2019 5,250

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

Purchases 16,750
Expenses 6,755
6% Note payable to Harry, dated June 1, 2019 P 3,000
Sales 33,000
Rental payable 550
Harry, Capital 11,610
Meghan, Capital 13,390
Elizabeth, Capital __________ 8,450
P 70,000 P 70,000

Merchandise inventory on December 31, 2019 amounts to P4,550, accrued interest on the note payable
to Harry is to be recognized as of December 31. Nominal accounts are closed and P15,750 is paid for
Harry’s net interest in the firm (capital, receivable, and payable balances). A few days later, Meghan
accepts a personal check for P16,000 from Elizabeth to quit the business and allow Elizabeth to
continue operations as a sole proprietor. The partners share profit and losses equally. Compute the
ending capital balance of Elizabeth immediately after Meghan’s withdrawal.
a. 12,690 b. 12,795 c. 28,245 d. 12,397.50

20. Barfield and Skousen entered into a partnership on February 1, 2020 by investing the following:
Barfield Skousen
Cash 15,000
Inventory 45,000
Land 15,000
Building 65,000
Furniture and Fixtures 100,000
The agreement between Barfield and Skousen provides that profits and losses are to be divided into
40% and 60% to Barfield and Skousen, respectively. The partnership is to assume the P30,000 mortgage
loan on the building. Assuming that Skousen invests P50,000 cash and each partner is to be credited
for the full amount of the net assts invested. What is the total capital of the partnership?
a. 210,000 b. 250,000 c. 260,000 d. 290,000

For items 21-22:

Gloria and Noynoy are partners with capital balances of P32,000 and P68,000, respectively, as of July
1, 2020. Gloria has a 30% interest in profits and losses. All assets of the partnership are at fair market
value except as follows (which they agreed to revaluate before admitting the new partners):
Book Value Market Value Book Value Market Value
Equipment P 150,000 P 142,000 Building P 274,000 P 250,000
Inventory 43,000 50,000 Land 60,000 105,000

The partnership has decided to admit Rody and Leni as new partners. Rody contributes cash of P55,000
for a 20% interest in capital and a 30% interest in profits and losses. Leni contributes cash of P10,000
and equipment with a market value of P50,000 for a 25% interest in capital and a 35% interest in profits
and losses. Leni is also bringing special expertise and client contacts to the new partnership.

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

21. The capital balance of Gloria after Rody and Leni’s admission under the bonus method is:
a. 40,775 b. 34,775 c. 38,000 d. 70,500

22. The method (bonus or goodwill) advantageous to Rody and Leni and the total amount of advantage
is
a. Bonus method for an advantage of P2,055
b. Bonus method for an advantage of P5,944
c. Bonus method for an advantage of P12,750
d. Bonus method for an advantage of P4,111

23. Ariana and Lady Gaga entered into a partnership as of March 1, 2018 by investing P125,000 and
P75,000, respectively. They agreed that Ariana, 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, 2018, account balances were as follows:

Cash P 70,000 Accounts payable P 60,000
Accounts receivable 67,000 Ariana, Capital 125,000
Fur. and fixtures 45,000 Lady Gaga, Capital 75,000
Sales returns 5,000 Ariana, Drawing (20,000)
Purchases 196,000 Lady Gaga, Drawing (30,000)
Operating expenses 60,000 Sales 233,000

Inventories on December 31, 2018 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. The
partner’s capital balances on December 31, 2018, after closing the net profit and drawing accounts,
were:
Ariana Lady Gaga Ariana Lady Gaga
a. 135,940 47,960 c. 139,680 48,680
b. 139,540 49,860 d. 142,350 47,670

24. Mel and Mike each operating a separate business agreed to form a partnership on July 1, 2020. The
assets and liabilities of the two sole proprietorships on the date of formation are as follows:
Mel Mike
Cash P 19,200 P 72,000
Accounts receivable 192,000 144,000
Merchandise inventory 240,000 216,000
Equipment 60,000 72,000
Accounts payable 60,000 96,000
Notes payable 12,000 -

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

The partners agreed on the following adjustments:

Mel’s accounts receivable are to be taken over at book value less 10% and Mike’s accounts receivable
at book value less 15%. Mike’s equipment is new and considered adequate for the new business. Mel’s
equipment is disposed for at a 10% loss from its book value. It is agreed that Mike bear one-third of
the loss resulting from the sale.

Assuming Mel invest sufficient cash to give her a 60% interest in the partnership after charging to Mike
his share of the loss on the sale of equipment, how much must Mel invest?
a. 160,600 b. 200,400 c. 120,400 d. 180,200

25. Xerxes and Yurnero operate The XY Restaurant as a partnership. Their partnership agreement has the
following provisions for sharing profits and losses:
A. Income is distributed only as far as it is available
B. Available income is to be distributed in the following sequence:
a. Xerxes, who is the chef, gets a salary of P50,000 a year; Yurnero, who is still learning,
gets a salary of P20,000
b. Interest is imputed on the average capital balances at 15 percent
c. Any remaining profits and losses are to be shared equally

The average capital balances during the year were P40,000 for Xerxes and P100,000 for Yurnero. If the
partnership income for the year is P35,000, it should be distributed to the partners as follows:
a. Xerxes, P16,000 ; Yurnero, P19,000 c. Xerxes, P25,000 ; Yurnero, P10,000
b. Xerxes, P17,500 ; Yurnero, P17,500 d. Xerxes, P28,000 ; Yurnero, P7,000

For items 26-29:

On July 1, 2020, Biden and Harris decided to form a partnership. The firm is to take over business assets
and assume liabilities, the capitals are to be based on net assets transferred after the following
adjustments:
• Biden and Harris’ inventory is to be valued at P62,000 and P44,000, respectively
• Accounts receivable of P4,000 in Biden’s books and P2,000 in Harris’ books are uncollectible
• Accrued salaries of P8,000 for Biden and P10,000 for Harris are still to be recognized in the
books
• Unused office supplies of Biden amounted to P10,000, while that of Harris amounted to P3,000
• Unrecorded patent of P14,000 and prepaid rent of P9,000 are to be recognized in the books
of Biden and Harris, respectively
• Biden is to invest or withdrew cash necessary to have a 40% interest in the firm

Balance sheets for Biden and Harris on July before adjustments are given below:
Biden Harris
Cash P 62,000 P 100,000
Accounts Receivable 52,000 40,000
Inventory 64,000 48,000
Office Supplies - 10,000

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

Equipment 40,000 48,000

Accumulated depreciation – equipment (18,000) (6,000)
Total Assets P 200,000 P 240,000

Accounts payable P 56,000 P 40,000

Capitals 144,000 200,000
Total Liabilities and Capital P 200,000 P 240,000

Determine the following:

26. The net adjustments – capital in the books of Biden and Harris
a. Biden, P14,000 net debit ; Harris, P4,000 net credit
b. Biden, P10,000 net debit ; Harris, P14,000 net credit
c. Biden, P14,000 net credit ; Harris, P4,000 net debit
d. Biden, P10,000 net credit ; Harris, P14,000 net debit

27. The adjusted capital of Biden and Harris in their respective books
a. Biden – P130,000 ; Harris – P204,000
b. Biden – P154,000 ; Harris – P196,000
c. Biden – P126,000 ; Harris – P214,000
d. Biden – P154,000 ; Harris – P186,000

28. The additional investment (withdrawal) made by Biden

a. P(30,000) b. P6,000 c. P13,334 d. P16,667

29. The capital balances of Biden and Harris in the combined balance sheet
a. Biden – P162,500 ; Harris – P144,000
b. Biden – P200,000 ; Harris – P150,000
c. Biden – P162,500 ; Harris – P150,000
d. Biden – P124,000 ; Harris – P186,000

30. On April 30, 2020, the capital accounts of Fire, Air, and Water shows the following balances:
Fire – P360,000 Air – P225,000 Water – P135,000

At this time, Earth is admitted to the firm when he purchased a one-fifth interest directly with the
partners for P150,000. Thereafter, all the partners agree to divide profits and losses equally. The new
partnership closes its books on June 30, 2020 reporting a profit of P12,600 for two months. The
partners made the following withdrawals: Fire and Water, P1,500 each per month; Air and Earth, P2,000
each per month. On June 30, 2016, Earth invest enough cash to increase his capital to 50% interest in
the partnership. How much cash is to be invested by Earth?
a. 603,333 b. 181,075 c. 200,000 d. 432,300

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

For items 31-33:

Michelle, Kelly, and Beyonce are partners sharing profits and losses of 50%, 30%, and 20%, respectively.
The December 31, 2021 balance sheet of the partnership before any profit allocation was summarized
as follows:
ASSETS LIABILITIES AND CAPITAL
Cash P 120,000 Accounts payable P 8,000
Inventories 80,000 Beyonce, loan 6,000
Furn. & Fixt. (net) 100,000 Michelle, capital 140,000
Patent 30,000 Kelly, capital 120,000
Beyonce, capital 60,000
____________ Beyonce, drawings _____(4,000)
Total assets P 330,000 Total liab and capital P 330,000

The partnership net income for the year amounted to P60,000. On January 1, 2022, Beyonce has
decided to retire from the partnership and by mutual agreement among partners, the following have
been arrived at:
a. Inventories amounting to P10,000 is considered obsolete and must be written-off
b. Furnitures and fixtures should be adjusted to their current value of P130,000
c. Patents are considered worthless and must be written-off immediately before the retirement
of Beyonce

It was agreed that the partnership will pay Beyonce for her interest in the partnership inclusive of loan
balance.

31. The interest of Beyonce immediately before her retirement amounted to:
a. 74,000 b. 72,000 c. 70,000 d. 48,000

32. Beyonce retires by receiving P76,000 cash, using bonus method, the capital balances of Michelle and
Kelly after the retirement of Beyonce:
a. Michelle, P162,500 and Kelly, P133,500 c. Michelle, P163,750 and Kelly, P134,250
b. Michelle, P167,500 and Kelly, P136,500 d. Michelle, P165,000 and Kelly, P135,000

33. Beyonce retires by receiving P69,000 cash, using bonus method, the capital balances of Michelle and
Kelly after the retirement of Beyonce:
a. Michelle, P165,625 and Kelly, P135,375 c. Michelle, P166,875 and Kelly, P136,125
b. Michelle, P168,125 and Kelly, P136,875 d. Michelle, P165,000 and Kelly, P135,000

34. Partners Pi, XV, and La19 have capital balances of P120,000, P70,000, and P80,000 respectively on
December 31, 2019. The partners share profits and losses in the ratio of 3:2:5, respectively. During the
calendar year 2020, the partnership suffered net loss of P32,000 and each partner withdraw P24,000 in
cash from the partnership. XV is unhappy with the operations of the partnership and has decided to
withdraw as of December 31, 2020.

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

XV will accept P30,000 for his interest from the partnership and assuming the reason for the withdrawal
of XV is that the inventory of the partnership is overvalued.

Which of the following statements is true?

a. The total overvaluation of inventory is P9,600
b. Pi’s capital will be reduced by P24,000 because of the overvaluation
c. The total share of La19 in the overvaluation of the inventory is P14,400
d. The total interest of XV before withdrawal is P39,600

35. The income statement of Mimiyuuuh Partnership for the year ended December 31, 2020 appear below:
Mimiyuuuh Partnership
Income Statement
For the year ended December 31, 2020
Sales P 300,000
Less: Cost of Goods Sold 190,000
Gross Profit P 110,000
Less: Operating Expenses 30,000
Net Income P 80,000
Additional information:
• Mimi and Yuuuh began the year with capital balances of P40,800 and P112,000, respectively
• On April 1, Mimi invested an additional P15,000 into the partnership and on August 1, Yuuuh
invested an additional P20,000 into the partnership
• Throughout 2020, each partner withdrew P400 per week in anticipation of partnership net
income. The partners agreed that these withdrawals are not to be included in the
computation of average capital balances for purposes of income distribution

A and B have agreed to distribute partnership net income according to the following plan:
1. Interest on average capital balances – 6% each partner
2. Bonus of net income before the bonus but after interest on average capital balances – 10%
to Mimi only
3. Salaries – P25,000 to Mimi and P30,000 to Yuuuh
4. Residual (if positive) – 70:30
5. Residual (if negative) – 50:50

The ending capital balance of Mimi is

a. 75,473 b. 96,273 c. 46,273 d. 60,473

36. Refer to Mimiyuuuh Partnership. The ending capital balance of Yuuuh is

a. 152,328 b. 150,727 c. 150,918 d. 150,858

37. C, P, and A formed a partnership on January 1, 2018 and had the following initial investment:
C – P170,000 P – P255,000 A – P382,500

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MOCK EXAM (1ST) FOR BA 118.1 – ADVANCED FINANCIAL ACCOUNTING & REPORTING A.Y. 20-21

The partnership agreement states that the profits and losses are to be shared equally by the partners
after consideration is made for the following:
- Salaries allowed to partners: P102,000 for C, P81,600 for P, and P61,200 for A.
- Average partner’s capital balances during the year shall be allowed 10%.

Additional information:
- On June 30, 2018, C invested an additional P102,000.
- A withdrew P119,000 from the partnership on September 30, 2018.
- Share in the remaining partnership profit was P8,500 for each partner.

What is the total partnership capital on December 31, 2018?

a. 688,500 b. 816,000 c. 1,141,550 d. 1,143,675

For items 38-39:

Cherry and Dewberry are partners with capital balances of P200,000 and P100,000 sharing profits and
losses 3:1 respectively. In the statement of financial position of the partnership, presented is a loan
from Cherry in the amount of P10,000 and a loan to Dewberry in the amount of 15,000. They agree to
admit Emery and she is to invest P125,000 for 25% interest in the capital and 20% interest in the profits.
The partners also agreed that upon admission of Emery, the total capital will be P425,000.

38. How much is the capital balance of Emery upon her admission?
a. 106,250 b. 85,000 c. 125,000 d. 191,250

39. How much is the capital balance of Cherry and Dewberry respectively after admission of Emery?
a. 227,812.50 ; 90,937.50 c. 213,750 ; 86,250
b. 214,062.50 ; 104,687.50 d. 185,937.50 ; 95,312.50

40. Ursa and Warrior are partners agreeing to allow an interest of 6% on the capital investment at the
beginning of the year, 300,000 and 230,000, respectively. Also, a monthly salary of P6,000 to Ursa and
Warrior would be given an appropriate salary so that Ursa will receive P58,100 at the end of the year.
Any remaining balance will be shared by the partners equally. The first year of operation yielded a net
income of P100,000.

What is the total salary allowance given for the year?

a. 60,000 b. 132,000 c. 31,800 d. 63,800

God bless on your first Long Exam in AFAR! Aja!

(Sources: RPCPA/AICPA/Various test banks/Various review centers’ materials)

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