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2ND SEM-MIDTERM > ACCOUNTING 2 > Flashcards

ACCOUNTING 2 Flashcards

1
Q

BLANK as defined in Art, 1767 of the New Civil Code of the Philippines, as a contract between two or more persons who bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves.

A

Partnership

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2
Q

It is formed by two or more persons. As an entity concept, partnership is the relations that exist between the persons (called partners) who have agreed to combine their financial resources and business skills in carrying on a business, with the common view of making a profit.

A

Partnership:

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3
Q

It is a contractual association, whereby the partners pool their financial resources, services, skills, and knowledge and as a result hope to accomplish together what any one of them could not achieve individually.

A

Based on Contract.

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4
Q

Partnership is brought into existence simply by willingness and voluntary agreement between the prospective members. No person is compelled to become a partner against his own will and disposition.

A

Association of Individuals/Voluntary Association.

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5
Q

Irrespective of the length of time agreed upon by the partners, the partnership’s continued existence will be dependent upon the continued membership of each of the original partners. The life of the partnership automatically comes to an end upon the death of any member or upon transfer by any partner of his interest. If a partner retires or dies, and the remaining partners wishes to continue the operations of the business, the original partnership is dissolved and a new one will be formed.

A

Limited Life.

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6
Q

The liability of each partner, with the business is unlimited. This means that personal assets (as distinguished from partnership assets) of the partners may be used to satisfy claims of partnership creditors if partnership assets are insufficient to pay such creditors.

A

Unlimited Liability.

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7
Q

In the accounting point of view, a partnership is treated as an entity separate and distinct from the partners who comprise the business. Personal transaction of the partners should be accounted for separately with business transactions. As such, the partnership in its own name can enter into a contract as a separate and distinct entity.

A

Separate and Distinct Personality

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8
Q

Each partner is an agent and may take part in the management and conduct of the day-to-day operations of the partnership business. Any wrongful act or poor business decisions made by a partner (for as long as it is in the ordinary course of business) will be binding to the firm. All the other partners may be held responsible and liable, unless the partner is acting beyond the scope of his authority to act in behalf of the partnership in the particular matter.

A

Mutual Agency.

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9
Q

Basically, partnership is organized for profit. Therefore, all partners are entitled to share in the partnership’s profits. Losses sustained by the firm shall be borne by all partners except by an industrial partner, unless stipulation to the contrary is made.

A

Income Participation/Participation in Profits and Losses.

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10
Q

Assets contributed by the partners into the partnership, such property is no longer separately own by that particular partner but becomes partnership property jointly own by the partners.

A

Co-Ownership of Contributed Assets.

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11
Q

Like a corporation, net income generated by an ordinary partnership (with the exception of a general professional partnership), is taxable at the rate of 30%. A general professional partnership is the one formed by a group of professionals in the practice of their profession (i.e., accountants, lawyers, doctors and engineers). These professional partners, however, individually report on their income tax returns (ITR) their respective share in the partnership profits to determine their taxable income, which is subject to graduated rates as an individual taxpayer. In contrast, the share of each partner in an ordinary partnership shall be subject to a final tax of 10%.

A

A Taxable Entity.

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12
Q

WHAT ARE THE ADVANTAGES OF A PARTNERSHIP

A

Ease of formation
Joint Resources
Tax exemption
Less Government Supervision

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13
Q

WHAT ARE THE DISADVANTAGES OF A PARTNERSHIP

A

Unlimited Liability
Mutual Agency
Consensual
Limited Life

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14
Q

WHAT ARE THE ELEMENTS OF PARTNERSHIP

A

Consensual
Bilateral
Onerous
Commutative

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15
Q

What are the Essential Requisite of a partnerships

A

There must be a valid contract
The parties must have a legal capacity to enter into the contract
There must be a mutual contribution of money, property or industry to a common fund
The object must be lawful
The purpose or primary purpose must be to obtain profits and to divide the same among parties.

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16
Q

THE FOLLOWING CANNOT GIVE THEIR CONSENT TO A CONTRACT OF PARTNERSHIP

A

Unemancipated Minors
Insane or demented persons
Deaf-mutes who do not know how to write
Persons who are suffering from civil interdiction

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17
Q

EFFECTS OF UNLAWFUL PARTNERSHIP

A

The contract is void and the partnership never existed in the eyes of law
The profits shall be confiscated in favor of the government
The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government
The contributions of the partners shall not be confiscated unless they fall under letter c.

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18
Q

The extent of their liability can go beyond their capital contributions. They may contribute money, property or industry. All of them may participate in the management of the business. This is the characteristic of mutual agency.

A

General Partnership.

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19
Q

It is a partnership consists of general and limited partners.

A

Limited Partnership.

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20
Q

BLANK is only to the extent of their capital contributions.

A
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21
Q

BLANK may contribute money or property, but they cannot contribute their industry. Management of the business is in the hands of the general partners.

A

Limited partnership

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22
Q

The law states that a BLANK should have at least one general partner to assume unlimited liability for the debts of the partnership.

A

Limited partnership

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23
Q

Usually except for certain major decisions as specified in the partnership agreement, THEY do not participate in the management because it is tantamount to contributing their industry.

A

Limited partnership

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24
Q

It is a partnership formed by group of individuals that are engaged in rendering services or in the buying and selling of merchandise. Examples: Computer rental shops, restaurants, cell phone dealers, etc.

A

Commercial Partnership.

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25
Q

It is a partnership formed by a group of professionals in the practice of their profession. Examples: Group of CPA’s formed an accounting firm, or attorneys formed a law firm, engineers formed an engineering company, etc.

A

Professional Partnership.

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26
Q

Is a partner whose liability can go beyond his capital contributions. His personal property may be taken by creditors if partnership assets are not enough to pay the liabilities.

A

General Partner.

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27
Q

Is a partner whose liability is only to the extent of his capital contributions. As already mentioned, the limited partner cannot participate in the management of the partnership affairs.

A

Limited Partner.

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28
Q

Is a partner who contributes money or property into the partnership. No industry or service is contributed to the partnership.

A

Capitalist Partner.

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29
Q

Is a partner whose only contribution is his industry or service, physical or intellectual, to the partnership. He should devote his fulltime to the partnership and should not engage in any other business without the consent of the other partners. His liability is the same with that of a general partner.

A

Industrial Partner.

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30
Q

Is a partner who contributes money and/or property for being a capitalist partner, and at the same time contributes his service for being an industrial partner.

A

Capitalist/ Industrial Partner.

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31
Q

Is a partner who is designated unanimously by the other partners to manage the business affairs of the partnership.

A

Managing Partner.

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32
Q

In the event of terminating the business, this partner is the one designated to manage the liquidation of the partnership and the final distribution of the remaining assets to the partners.

A

Liquidating Partner.

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33
Q

One who does not take active part in the business of the partnership and is not known as a partner

A

Dormant Partner:

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34
Q

One who does not take active part in the business of the partnership though may be known as a partner

A

Silent Partner:

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35
Q

True or False: As to the specific partnership property. Partners become co-owners of all partnership properties including those contributed by the partners, as well as those acquired by the partnership through business operation.

A

True

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36
Q

True or False: If a partner contributes his property to the partnership, such property is no longer his personal property but becomes partnership property jointly own by the partners. The partners themselves have the right to use partnership property for partnership purpose only.

A

TRue

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37
Q

True or False: As to his interest in the partnership. A partner’s interest shall mean a partner’s investments (capital) and the return (profit) on his investments. It refers to his ownership equity in the net assets as well as his share in the profits and losses of the partnership.

A

True

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38
Q

True or False: The partner has the right to receive his share to the partnership profit, and is entitled to receive his share in the partnership assets once the partnership is dissolved and liquidated.

A

True

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39
Q

True or False: Right to participate in the management. Except when a managing partner is designated, all partners are considered agents and therefore participate in the management of the partnership.

A

True

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40
Q

True or False:The partners can enter into contracts in behalf of the partnership.

A

True

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41
Q

True or False: Right to inspect the partnership records. The partners have the right to inspect partnership books at any given time. Records of the partnership should be kept at the partnership’s principal place of business.

A

True

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42
Q

True or False: Mutual agreement is basically the essence of a partnership.

A

True

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43
Q

True or False: Partnerships may exist even by oral agreement.

A

TRue

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44
Q

The partnership’s name, principal place of business, and total capitalization.

A

The articles of partnership which will serve as a governing rule in the conduct of partnership business, should at least cover the following significant information:

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45
Q

The nature of business and its purposes to which the partnership was formed.

A

The articles of partnership which will serve as a governing rule in the conduct of partnership business, should at least cover the following significant information:

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46
Q

The partners’ names, indicating the required capital contribution of each partner, their personal addresses and whether they are general or limited partners.

A

The articles of partnership which will serve as a governing rule in the conduct of partnership business, should at least cover the following significant information:

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47
Q

The date of partnership formation and its duration.

A

The articles of partnership which will serve as a governing rule in the conduct of partnership business, should at least cover the following significant information:

48
Q

The partnership’s accounting year-end and method of accounting to be used (i.e., accrual basis, cash basis, or modified cash basis).

A

The articles of partnership which will serve as a governing rule in the conduct of partnership business, should at least cover the following significant information:

49
Q

The listing of assets invested by each partner as his capital and the agreed valuation on any non-cash assets contributed.

A

The articles of partnership which will serve as a governing rule in the conduct of partnership business, should at least cover the following significant information:

50
Q

The right and specific duties of each partner. A partner may be assigned as the managing partner.

A

The articles of partnership which will serve as a governing rule in the conduct of partnership business, should at least cover the following significant information:

51
Q

The conditions pertaining to withdrawals allowed to partners in anticipation of profits.

A

The articles of partnership which will serve as a governing rule in the conduct of partnership business, should at least cover the following significant information:

52
Q

The rate of interest and any related conditions on loans extended by partners to the partnership, and vice versa.

A

The articles of partnership which will serve as a governing rule in the conduct of partnership business, should at least cover the following significant information:

53
Q

The specific procedures on how to divide profits and losses, which may include but not limited to the following provisions:
(a) The amount of partners’ salaries, if any;
(b) The rate of interest, if any, to be allowed on partners’ capital contributions;
(c) The rate of interest, if any, to be charged on partners’ drawings in excess of allowable amounts;
(d) The manner of dividing the balance or operating profit of loss after allowing for (a), (b) and (c).

A

The articles of partnership which will serve as a governing rule in the conduct of partnership business, should at least cover the following significant information:

54
Q

The provisions for settling a partner’s interest in the event of his retirement or death. Remaining partners may have the option of purchasing the share of the retiring or deceased partner. Similar provisions should be made as to the manner of partnership liquidation.

A

The articles of partnership which will serve as a governing rule in the conduct of partnership business, should at least cover the following significant information:

55
Q

Under the Uniform Partnership Act, loans made by a partner to the partnership are treated as
a.
advances to the partnership for which interest shall be paid from the date of the advance.
b.
advances to the partnership that are carried in the partners’ capital accounts.
c.
Accounts Payable of the partnership for which interest is paid.
d.
advances to the partnership for which interest does not have to be paid.

A

A

56
Q

A partner assigned his partnership interest to a third party. Which statement best describes the legal ramifications to the assignee?
a.
The assignment of the partnership interest does not entitle the assignee to partnership assets upon a liquidation.
b.
The assignment dissolves the partnership.
c.
The assignee has the right to share in the management of the partnership.
d.
The assignee does not become a partner but has the right to share in future partnership profits and to receive the proper share of partnership assets upon liquidation.

A

D

57
Q

In the Uniform Partnership Act, partners have
I. mutual agency.
II.unlimited liability.
a.
I only.
b.
II only.
c.
I and II.
d.
Neither I nor II.

A

C

58
Q

Partnerships
a.
are required to prepare annual reports.
b.
are required to file income tax returns but do not pay Federal taxes.
c.
are required to file income tax returns and pay Federal income taxes.
d.
are not required to file income tax returns or pay Federal income taxes.

A

B

59
Q

5.

Langley invests his delivery van in a computer repair partnership with McCurdy. What amount should the van be credited to Langley’s partnership capital?
a.
The tax basis.
b.
The fair value at the date of contribution.
c.
Langley’s original cost.
d.
The assessed valuation for property tax purposes.

A

B

60
Q

When property other than cash is invested in a partnership, at what amount shouldthe noncash property be credited to the contributing partner’s capital account?
a. Fair value at the date of recognition. b. Contributing partner’s original cost. c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

A

A

61
Q
  1. A contract where 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. a. Voluntary Association
    b. Corporation
    c. Partnership
    d. Sole Proprietorship
A

C

62
Q
  1. When a partnership is formed, noncash assets contributed by partners should berecorded: I. At their respective book values for income tax purposes II. At their respective fair values for financial accounting purposes
    A. I only
    B. II only
    C. Both I and II
    D. Neither I nor II
A

B

63
Q
  1. Which of the following accounts could be found in the LOVE NI DONDIpartnership’s general ledger? I. Due from SEDON II. SEDON, Drawing III. Loan Payable to HANA
    a. I, II b. I, III c. II, III d. I, II, and III
A

D

64
Q

TRUE OR FALSE: The partnership form of organization is more popular among professional service enterprises than among merchandise enterprises.

A

TRUE

65
Q

True or False: Mutual agency in a partnership means that partnership decisions may be made by any one of the partners.

A

True

66
Q

True or False: A partnership agreement may be oral.

A

True

67
Q

True or False: It is desirable that a partnership agreement be evidenced by a written contract.

A

true

68
Q

True or False: When two sole proprietors decide to combine their businesses, assets should be recorded at their fair market value as of the date of formation of the partnership.

A

true

69
Q

True or False: A partnership has a life limited by the length of time that all partners continue to own the business.

A

TRue

70
Q

A written agreement containing the various provisions under which a partnership s to operate known as partnership agreement.

A

True

71
Q

True or false: Contributions to a partnership are entered in the books in the same way that a proprietor’s assets and liabilities are recorded.

A

True

72
Q

True or False: If one partner contributes an assets to the business, the asset is jointly owned by all partners.

A

true

73
Q

True or False: A partner cannot invest an asset with an outstanding obligation into a partnership.

A

False

74
Q

When two proprietors decide to combine their businesses, generally accepted accounting principles usually requires that noncash assets be taken over at their:
a. Historical cost value as of the date of formation.
b.Fair market value as of the date of formation
c. Book value as of the date of formation
d. Residual value as of the date of formation

A

B

75
Q

How does partnership differ from corporate accounting?
a. The matching principle is not considered appropriate for partnership accounting b. Revenues are recognized at a different time by a partnership than is appropriate for a corporation
c.Individual capital accounts replace the contributed capital and retained earnings balances found in corporate accounting
d. Partnership report all assets at fair value as of the latest balance sheet date

A

C

76
Q

On July 1, 2020 Times and Calibre formed a partnership. Times contributed cash. Calibre, previously a sole proprietor, contributed property other than cash, including realty subject to mortgage, which the partnership assumed. Calibre’s capital account at July 1, 2020 should recorded at
a. Calibre’s book value of the property at July 1, 2020
b. Calibre’s book value of the property less the mortgage payable at July 1, 2020
c. The fair value of the property less the mortgage payable at July 1, 2020 d.The fair value of the property at July 1, 2020

A

D

77
Q

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

A

A

78
Q

If two or more sole proprietors combine their businesses to form a partnership, the basis for the opening entries for the investments of such partners is based upon their respective a.Statement of financial position
b. Income statement
c. Statement of owner’s equity
d. Cash flow statement

A

A

79
Q

TRUE OR FALSE: At times, and for convenience, agreed values are used in lieu of fair market values.

A

TRUE

80
Q

TRUE OR FALSE: Only one partner can be individually liable for al of the debts of the partnership.

A

TRUE

81
Q

TRUE OR false: The interest of a partner in the partnership can be transferred freely without the consent of the other partners.

A

false

82
Q

true or false: A partnership agreement is not legal unless it is in writing.

A

false

83
Q

True or False: A partnership agreement should include a procedure for ending the business.

A

false

84
Q

True or False: Partners may invest cash as well as other property in the partnership, but only cash increases their capital account balances.

A

False

85
Q

True or False: The basis on which profits and losses are to be shared is a matter of agreement between the partners and not necessarily the same as their investment ratio.

A

True

86
Q

True or False: A single partner can commit the entire firm to a legal liability.

A

True

87
Q

True or False: When an encumbered assets is contributed to the partnership, such is still recorded at fair market value.

A

True

88
Q

True or False: One of the primary characteristics of the partnership form of organization is its limited liability.

A

False

89
Q

True or False: When Two single proprietors decide to combine their businesses, generally accepted accounting principles usually require that noncash assets be recorded at their book value as of the date of formation of the partnership.

A

False

90
Q

TRUE OR FALSE: Each partner has a separate Drawing account and a separate Capital account.

A

True

91
Q

TRUE OR FALSE: Under the bonus method, one must be assume that there is no goodwill.

A

True

92
Q

True or FALSE Under the good will method one must assume that goodwill and bonus can arise at the same time.

A

True

93
Q

True or False: If the good will method is used, capital transfer usually occurs to the advantage of one partner and to the disadvantage of another.

A

False

94
Q

A partner’s drawing account, in substance is
a.A capital account
b. A contra-capital account
c. A salary expense account
d. A loan account

A

A

95
Q

Which of the following is (are) a disadvantage(s) of a partnership?
a. A partnership has limited life
b. The raising of investment capital depends entirely on the partners themselves
c. The actions of one partner are binding on the other partners
d.All of these are disadvantages

A

D

96
Q

TURE OR FALSE: Mutual agency in a partnership means that partnership decisions may be made by any one of the partners.

A

TRUE

97
Q

TRUE OR FALSE: It is desirable that a partnership agreement be evidenced by a written contract.

A

TRUE

98
Q

TRUE OR FALSE: A partnership has a life limited by the length of time that all partners continue to own the business.

A

TRUE

99
Q

TRUE OR FALSE: Contributions to a partnership are entered in the books in the same way that a proprietor’s assets and liabilities are recorded.

A

TRUE

100
Q

TRUE OR FALSE: A partner cannot invest an asset with an outstanding obligation into a partnership.

A

False

101
Q

True or False: The compensation of partners (other than their share of profits) may be in the form of salaries, royalties, commissions, or bonuses.

A

true

102
Q

True or False: If the partnership agreement specifies a method for allocating profits but not losses, then losses are shared in the same proportion as profits.

A

true

103
Q

True or False: Partnership profits and losses may be allocated based on capital contributions and on service.

A

true

104
Q

True or False: Partners may agree that the most equitable method of allocating profits and losses is to base salaries on the services rendered by each partner.

A

True

105
Q

True or False: If partners A and B share net income on a 2:1 ratio, partner A gets 2/3 and partner B gets 1/3.

A

true

106
Q

True or False: If partner A’s capital is P30,000 and partner B’s capital is P20,000, A’s share of earnings based on their investment is 0.6, or 60 percent.

A

true

107
Q

True or False: The allocation of net income and its impact on the partners’ equity balances should be disclosed in the financial statements.

A

true

108
Q

True or False: When the total of salary and interest allowances exceed partnership net income, the firm has a net loss.

A

False

109
Q

True or False: When a net loss is closed into the partners’ capital accounts, Income and Expense Summary is debited.

A

False

110
Q

True or False: Only the income statement (statement of profit or loss) is affected by the allocation of net income in a partnership.

A

False

111
Q

True or False: When the basis of profit or loss distribution is capital balance and the problem is silent regarding which, the ending capital is the most equitable basis.

A

False

112
Q

True or False: Salaries and interest must be paid even if the partnership has incurred a loss for the period.

A

True

113
Q

True or false:The closing entries of a partnership is very similar to that of a sole proprietorship, exception being the number of capital and withdrawal accounts that has to be closed and the need to divide income among the partners.

A

TRUE

114
Q

TRUE OR FALSE: Simple average capital balances are computed by adding beginning and ending capital balances and multiplying the resulting figure by two.

A

TRUE

115
Q

True or False: A Statement of Partners’ capital shows beginning capital balances, additional investments, and withdrawals but not share in the net income or loss for the period.

A

False

116
Q
A

2ND SEM-MIDTERM (9 decks)

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