Wesleyan University Philippines

College of Business and Accountancy

Midterm Exam in Accounting 2
Name:
Course, Block and Year:

Score:
Professor:

I. Identification.
1. Two or more persons bind themselves to contribute money, property, or industry to a common
fund with the intention of dividing the profit among themselves.
2. A partner acting in behalf of the partnership binds the partnership in his activities.
3. Is the one whose liability in the partnership extends to his personal property.
4. The property comprises all that the partners may acquire by their industry or work during the
existence of the partnership. All movable or immovable properties which each of the partners
may possess at the time of the celebration of the contract will continue to pertain exclusively to
each, with only the usufruct passing to the partnership.
5. Is the one who contributes only industry or expertise.
6. Is the one who has limited participation in the daily activities of the partnership but is known to
the public as a partner.
7. Is the one who winds up the dissolution and liquidation of the partnership.
8. Is a partnership formed for the purpose of exercising the partners common profession.
9. Is the one who actively manages the daily affairs of the partnership.
10. Is the one whose liability in the partnership is only limited to his personal contribution to the
partnership.
11. Is the one who does not have active participation in the business and is not known to the public
as a partner.
12. Is the one who participates in the partnership activities but is not known to the public as a
partner.
13. Is the one who does not have active participation since he is not an actual partner but is publicly
considered as one.
14. Form of corporation that does not comply with all the legal requirements set by law.
15. A partnership created for the purpose of obtaining profit from the conduct of trade or business.
II. True or False.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

The formation of a partnership is always based on a contract or an agreement of partners.

All contracts or agreements entered into by partners are valid.
The written agreement of the partners must be registered with the Board of Investment.
Specialized skills and expertise can be contributed to the partnership.
Non registration of articles of co partnership nullifies the existence of the partnership.
The insolvency of a partner dissolves the partnership.
The admission of a new partner in an existing partnership will dissolve the partnership.
A partnership is much complex to form than a corporation.
A general partner can also be considered as an industrial partner.
The unlimited liability of the partnership is unfavorable to the creditors.

III. Problems.
1. The statement of financial position of Izzy Merchandising, a sole proprietorship, is shown as
follows: (45points)
Izzy Merchandising
Statement of Financial Position
As of March 1, 2016
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Merchandise Inventory
Prepaid Expenses
Furniture and Fixtures
Accumulated Depreciation
Total Assets

170,000
220,000
(8,800)

600,000
(120,000)

211,200
520,000
30,000
480,000
1,411,200

Accounts Payable
Notes Payable
Izzy, Capital
Total Liabilities and Capital

180,000
60,000
1,171,200
1,411,200

Hyzel will invest merchandise valued at 240,000 and cash enough to give her 40% interest in the
partnership after the following adjustments on the books of Izzy are made:
The merchandise inventory is valued at 530,000.
The fair market value of furniture and fixtures amounts to 500,000 with an estimated
remaining useful life of 8 years.
The net realizable value of the accounts receivable is 204,000.
The expire portion of the prepaid expenses amounting to 3,600 is recognized.
Requirements:
1. Prepare all necessary Journal Entries in the book of Izzy Merchandising (Adjusting and
closing)
2. Prepare the journal entry in the new book of partnership for the investment of Izzy and Hyzel.
2. AP partnership realized a net income of 165,000 for 2016. The partners A and P, with capital balances
of 100,000 and 150,000, respectively, shared the profits and losses as follows:
1. A salary of 5,000 and 3,000 for A and P, respectively.
2. 10% interest on the partners capital balances.
3. A 10% bonus is awarded to A as managing partner based on the net income after Salaries, Interest,
and bonus.
4. The balance to be divided based on the capital ratio.
Requirements:
1. Prepare the Profit and Loss distribution Table.
2. Prepare the journal entry to record the distribution of Profit.
3. On January 1, 2016, A, B and C formed a partnership. A and B contributed 550,000 and 400,000,
respectively, while C served as industrial partner. They decided to divide the profits at the ratio of
3:2:1, respectively.
By the end of 2016, the books of the partnership showed the following information:
Sales
700,000
Cost of Sales
560,000
OPEX
220,000
Requirement:
1. Prepare the journal entry to record the distribution of profits or loss to the partners.
4. Gose, Blas and Veron formed their partnership AB Normal in January 13, 2020. Gose will invest Cash
amounting to 50,000, Equipment with a FMV of 500,000 but the partners agreed that it should be
valued at 250,000, Blas will invest cash amounting to 200,000, Accounts receivable net of 50,000,
and Veron will invest Inventory amounting to 200,000.
The following were the additional investment and withdrawal of Gose, Blas and Veron in the
partnership AB Normal:
Gose:
March 27, 2020 additional cash investment of 180,000.
May 8, 2020 withdrawal of 20,000
July 1, 2020 Additional cash investment of 30,000.
October 13, 2020 Additional cash investment of 20,000.
Blas:
January 29, 2020 additional investment of 70,000
March 1, 2020 additional investment of 50,000
September 1, 2020 withdrawal of 10,000
November 5, 2020 withdrawal of 10,000

Veron:
February 1, 2020 additional investment of 80,000
February 18, 2020 withdrawal of 10,000
August 18, 2020 additional investment of 20,000
November 28, 2020 additional investment of 30,000
December 5, 2020 withdrawal of 25,000
Requirements:
Prepare the schedule of the profit and loss distribution and the corresponding entry recording the
distribution of profits and losses under the following separate independent cases:
1. A 10% interest on the original capital, and a balance distribution based on the ratio of 5:3:2. The
Income summary account has a credit balance of 85,500.
2. A salary is given to the partners amounting to 85,000, 105,000 and 155,000 respectively, Interest of
15% based on the average capital balances, a bonus to Gose of 33% of profit after Interest, Salaries,
and Bonus, and the remainder is to be divided equally. (assuming the profit of the partnership is
1,050,500)
3. An interest of 8% is given based on the ending capital balances, and a bonus of 20% to Veron based
on profit after interest and bonus. (Profit is 500,000)
5. Tuazon, Valdez and Mangibin divide profit and loss in the ratio of 2:1:1 respectively, after giving a
monthly salary of 10,000 to each partner and bonus of 20% to Tuazon. Prepare the table for the share
of each partner and record the distribution on the following independent situation.
1. Net income earned was 480,000 and bonus is based on net income before salaries and bonus.
2. Net income earned was 480,000 and bonus is based on net income after salaries and bonus.
3. Net loss for the year was 480,000 and bonus is based on net income after salaries and bonus.
6. A, B and C are partners with capital balances of 48,000, 72,000 and 30,000 and sharing profit and loss of 3:5:2
respectively. In each of the following cases prepare journal entries and give the revised partners equity:
a. D paid cash of 60,000 for of the total partnes equity, from A and B in proportion to their capital
balances.
b. D paid cash of 50,000 for of Bs interest by the partners agreed to revalue the plant assets
before admitting the new partner.
7. X, Y and Z are partners with capital balances of 50,000, 30,000 and 20,000 respectively. They admitted S as a
new partner for a 40% interest for an investment of 50,000. Compute for the partners equity balances after the
admission and prepare the necessary journal entry under the following instances:
a. bonus approach
b. asset revaluation approach
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Prepared by:
Mr. ELMIN FRANCHEZKO F. VALDEZ, CPA

Reviewed by:

Ms. KATHLEEN ROSE YALUNG, CPA, MBA

Program Head, BSA & BSAcT
Noted by:

Dean MA. VICTORIA MONES - CRUZ

College of Business and Accountancy

Mr. ANTONIO JOSE D. CELIS, MBA

Program Head, BSBA