PARTNERSHIP

Question 1

Which of the following is not an advantage of a partnership over a corporation?
a. Ease of formation c. Less governmental regulations
b. Unlimited liability d. All of the above

Question 2

For financial accounting purposes, assets of an individual partner contributed to a partnership are recorded by the partnership at
a. Historical cost c. Fair market value
b. Book value d. Lower of cost or market

Question 3

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

Question 4

Mr. A and Mr. B agreed to form a partnership. The fair values of the partner’s net contribution vary; however, the partners agreed to have equal capital credits. Cash settlement shall be made between them for the difference. Which of the following statements is correct?
a. The asset contributions of the partners shall be debited to equal amounts
b. The cash settlement between the partners will either increase or decrease the total partnership capital
c. The cash settlement between the partners will not be recorded in the partnership books
d. Mr. A shall pay Mr. B to have their capital balances equal

Question 5

How should the partners in a business partnership share in the profits or losses of the partnership?
a. Equally
b. At whatever basis of allocation that the dominating partner deems reasonable
c. In accordance with the partnership agreement
d. None of the above

Question 6

According to the Philippine Civil Code, if only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be
a. In equal amounts
b. In equal amounts, but excluding the industrial partner
c. In proportion to the partners’ contributions
d. The same as the sharing in profits

Question 7

According to the Philippine Civil Code, in the absence of a stipulation on the sharing of profits or losses, partnership profits and losses shall be shared by the partners
a. Equally
b. In accordance with the partnership agreement
c. In proportion to what the partners may have contributed
d. In proportion to what the partners may have contributed, but the industrial partner shall not be liable for the losses

Question 8

Partners active in a partnership business should have their share of partnership profits based on the following
a. A combination of salaries plus interest based on average capital balances
b. A combination of salaries and percentage of net income after salaries and any other allocation basis
c. Salaries only
d. Percentage of net income after salaries is paid to inactive partners

Question 9

Which of the following best describes the use of interest on invested capital as a means of allocating profits?
a. If interest on invested capital is used, it must be used for all partners
b. Interest is allocated only if there is partnership net profit
c. Invested capital balances are never affected by drawings of the partnerships
d. Use of beginning or ending measures of invested capital may be subject to manipulation that distorts the measure of invested capital

Question 10

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 preset ratios. If a 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

Question 11

Which of the following statements is true concerning the treatment of salaries in partnership accounting?
a. Partner salaries may be used to allocate profits and losses; they are not considered expenses of the partnership
b. Partner salaries are equal to the annual partner draw
c. The salary of a partners is treated in the same manner as salaries of corporate employees
d. Partner salaries are directly closed to the capital account

Question 12

Partnership drawings are
a. Always maintained in a separate account from the partner’s capital account
b. Equal to partners’ salaries
c. Usually maintained in a separate draw account with any excess draws being debited directly to the capital account
d. Not discussed in the specific contract provisions of the partnership

Question 13

When a new partner is admitted into a partnership and the capital of the old partners decreases, which of the following explains the reason for the decrease?
I. Undervalued liabilities were written up to their fair values.
II. Undervalued assets were written up to their fair values.
a. I only c. Both I and II
b. II only d. Neither I nor II

Question 14

Under the bonus method, any increase or decrease in the capital credit of a partner is
a. Deducted from or added to the capital credits of the other partners
b. Recognized as goodwill
c. Recognized as expense
d. Deferred and amortized to profit or loss

Question 15

The admission of a new partner effected through purchase of interest from (an) existing partner(s) is
a. Recorded in the partnership’s books as a debit to cash or other asset and credit to the incoming partner’s capital account
b. Recorded in the partnership’s books as a transfer within equity
c. Recorded in the partnership’s books as a transfer from equity to liability
d. Not recorded in its entirety

Question 16

In XY Partnership, X and Y had a capital ratio of 3:1 and a profit and loss ratio of 2:1, respectively. The bonus method was used to record Z’s admittance as a new partner. What ratio would be used to allocate, to X and Y, the excess of Z’s contributions over the amount credited to Z’s capital account?
a. X and Y’s new relative capital ratio c. X and Y’s old capital ratio
b. X and Y’s new relative capital profit and loss ratio d. X and Y’s old profit and loss ratio

Question 17

When partner X retired, the partnership paid X an amount that was lower than the balance of his capital account. Which of the following statements is incorrect?
a. The partnership assets decreased as a result of the retirement
b. The other partner’s capital balances increased
c. The partnership assets were not affected
d. The number of capital accounts in the partnership chart of accounts decreased

Question 18

A bonus is recognized by existing partners at the date a new partner joins a partnership when which of the following relationships occur?
a. The new partner’s contribution exceeds his/her percentage of total partnership capital after the investment is made
b. The new partner’s contribution is less than his/her percentage of total partnership capital after the investment is made
c. The new partner’s contribution is equal to his/her percentage of total partnership capital after the investment is made
d. It is not possible to determine the answer to this question

Question 19

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

Question 20

A simple partnership liquidation requires
a. Periodic payments to creditors and partners determined by a safe payments schedule
b. Partnership assets to be converted into cash with full payment made to all outside creditors before remaining cash is distributed to partners in a lump sum payment
c. Only creditors to be paid in an orderly manner
d. Periodic payments to partners as cash becomes available

Question 21

The following is the priority sequence in which liquidation proceeds will be distributed for a partnership
a. Partnership drawings, partnership liabilities, partnership loans, partnership capital balances
b. Partnership liabilities, partnership loans, partnership capital balances
c. Partnership liabilities, partnership loans, partnership drawings, partnership capital balances
d. Partnership liabilities, partnership capital balances, partnership loans

Question 22

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

Question 23

X and Y are partners of XY Partnership which is undergoing liquidation. After XY Partnership’s assets were realized and its liabilities settled, X’s capital account has a negative balance. Which of the following statements is correct?
a. Y shall absorb X’s capital deficiency if X is solvent
b. X shall make an additional contribution if X is insolvent
c. X and Y shall make pro rata contributions to eliminate X’s capital deficiency
d. Y shall absorb X’s capital deficiency if X is insolvent

Question 24

If a partner with a debit capital balance during liquidation is personally solvent, the
a. Partner must invest additional assets in the partnership
b. Partner’s debit balance will be allocated to the other partners
c. Other partners will give the partner enough cash to absorb the debit balance
d. Partnership will loan the partner enough cash to absorb the debit balance

Question 25

In accounting for liquidation of partnership, cash payments to partners after all non-partner creditors’ claims have been satisfied, but before the final cash distribution, should be according to
a. The partners’ relative profit and loss sharing ratios
b. The final balances in partner capital accounts
c. The partners’ relative share of the gain or loss on liquidations
d. Safe payments computations

Question 26

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 non-cash assets
b. The book value of the non-cash assets
c. The estimated proceeds from the sale of the assets less the book value of the non-cash assets
d. None of the above

Question 27

In partnership liquidation, the last remaining cash distribution should be made according to the ratio of
a. The individual partner’s profit and loss agreement
b. The individual partner’s capital accounts, increased by partner loans to the partnership
c. The individual partner’s capital accounts, increased by partnership loans to the partners and decreased by partner loans to the partnership
d. The individual partner’s capital accounts, decreased by partnership loans to the partners and increased by partner loans to the partnership

Question 28

If all partners are included in the first installment of an installment liquidation, then in future installments
a. Cash will be distribution according to the residual profit and loss sharing ratio
b. Cash should not be distributed until all non-cash assets are converted into cash
c. A safe payments schedule must be prepared before each cash distribution to avoid excessive payments to partners
d. A cash distribution plan must be prepared so that partners will know when they will be included in cash distributions

Question 29

Which partner is considered the most vulnerable as a result of a computation of vulnerability rankings?
a. The partner with the lowest vulnerability ranking, who also has the lowest loss absorption potential
b. The partner with the lowest vulnerability ranking, who also has the highest loss absorption potential
c. The partner with the highest vulnerability ratio, who also has the lowest loss absorption potential
d. The partner with the highest vulnerability ranking, who also has the highest loss absorption potential

Question 30

A partner’s maximum loss absorbable is calculated by
a. Dividing the partner’s capital balance by his or her profit-and-loss-sharing percentage
b. Multiplying the partner’s capital balance by his or her profit-and-loss-sharing percentage
c. Multiplying distributable assets by the partner’s profit-sharing percentage
d. Dividing the partner’s capital balance by his or her percentage interest in capital