BSA 25C Chapter Exams - Lecture notes 1 PDF

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Chapter 17-18 Exam - Partnership Formation and OperationsPartners A & B share profits and losses equally after each has been credited in all circumstances with annual salary allowances of P30,000 and P24,000, respectively. Based on this agreement, in which of the following circumstances will Par...

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Chapter 17-18 Exam - Partnership Formation and Operations Partners A & B share profits and losses equally after each has been credited in all circumstances with annual salary allowances of P30,000 and P24,000, respectively. Based on this agreement, in which of the following circumstances will Partner A benefit by P6,000 more than Partner B? The correct answer is: In all earnings or loss situation. Partnerships are required to have interest on capital clauses in the articles of partnership. The correct answer is 'False'. The fact that salaries paid to partners are not a component of partnership income is indicative of The correct answer is: Being characteristic of the proprietary theory. Partnership residual profit and loss percentages have to be (always) the last component applied in the profit and loss allocation process. The correct answer is 'True'. The interest component of partnership profit and loss allocation rewards partners for capital contributions. The correct answer is 'True'. A stipulation that excludes one or more partners from any share in the profits or losses is valid. The correct answer is 'False'. Partnerships must revalue assets up and/or down when the profit and loss ratios are adjusted. The correct answer is 'False'. Partner Terry first contributes P200,000 of capital in an existing partnership on February 1, 2020. On June 1, 2020, the partner contributed another P200,000. On September 1, 2020, the partner withdraw P150,000 from the partnership. Withdrawals in excess of P50,000 are chargeable to the partner’s capital account. The partnership’s fiscal year end is December 31. The annual weighted-average capital balance is The correct answer is: P266,667 Interest earned on loans to partners is recognized as income of the partnership. The correct answer is 'True'. A bonus exists when the capital account of a partner is credited for an amount greater than or less than the fair value of his contributions. The correct answer is 'True'. On January 1, 2019, A, B, C, and D formed ABCD Trading Co., a partnership with capital contributions as follows: A, P500,000; B, P250,000; C, P250,000; and D, P200,000. The partnership contract provided that each partner shall receive a 5% interest on contributed capital, and that A and B shall receive salaries of P50,000 and P30,000, respectively. The contract also provided that C shall receive a minimum of P25,000 per annum, and D a minimum of P60,000 per annum, which is inclusive of amounts representing interest and share of remaining profits. The balance of the profits shall be distributed to A, B, C, and D in a 3:3:2:2 ratio. What amount must be earned by the partnership, before any charge for interest and salaries, so that A may receive an aggregate of P125,000 including interest, salary and share of profits? The correct answer is: P 323,334 A partner usually retains title to assets contributed to a partnership, so that certain assets may be identified as belonging to a given partner. The correct answer is 'False'.

Rey and Tom Partnership was organized and began operations on March 1, 2020. On that date, Rey invested P950,000 and Tom invested machinery and equipment with current fair value of P800,000. Because of shortage of cash, on November 1, 2020 Tom invested additional cash of P200,000 in the partnership. The partnership contract includes the following remuneration plan: Rey Tom Monthly Salary (recognized as expense) P20,000 P25,000 Annual interest on beginning capital 12% 12% Bonus on the net profit before salaries and interest but after bonus 4% Balance 45% 55% The salary was to be withdrawn by each partner in monthly installments. The partnership’s net profit for 2020 is P1,404,000. The correct answer is: Of the P1,404,000 net profit of the partnership, the share of Tom will be → P728,750 The bonus of Rey will be → P54,000 In the profit distribution schedule, the total salary allowance will be → P450,000 In the profit distribution schedule, the residual income (remainder) will be → P725,000 Of the P1,404,000 net profit of the partnership, the share of Rey will be → P675,250 In the profit distribution schedule, the total salary allowance will be → P175,000 The ending capital of Tom (December 31, 2020) will be → P1,478,750 The total withdrawal of Tom will be → P250,000 In the profit distribution schedule, the salary allowance of Tom will be → P80,000 The ending capital of Rey (December 31, 2020) will be → P1,425,250 In a limited partnership, The correct answer is: All but the general partners have limited liability The account used when the partnership borrowed money from the partners is advances from partners. The correct answer is 'True'. On January 2, 2019, Abel, Cain, and Joshua formed a partnership. Abel contributed cash of P100,000 and a delivery equipment that originally costs him P120,000, but with a second hand value of P50,000. Cain contributed P160,000 in cash. Joshua, whose family sells office equipment, contributed P50,000 in cash and office equipment that cost his family’s dealership P100,000 but with a regular selling price of P120,000. In 2019, the partnership reported net income of P120,000. On December 31, 2019, what would be the capital balance of partners Abel, Cain, and Joshua, respectively? The correct answer is: Abel, P187,500; Cain, P200,000; Joshua, P212,500 KK, SS and WW formed a partnership on January 1, 2019. Each contributed P144,000. Salaries were to be allowed as follows: KK, P36,000; SS, P36,000; and WW, P54,000. Drawings were equal to salaries and be taken out evenly throughout the year. With sufficient partnership net income, KK and SS could split a bonus equal to 25 percent of partnership net income after salaries and bonus (in no event could the bonus go below zero). Remaining profits were to be divided as follows: 30% for KK; 30% for SS, and 40% for WW. For the year, partnership total comprehensive income was P144,000. What are the capital balances of the partners on December 31, 2019: The correct answer is: KK, P150,120; SS, P150,120; WW, P149,760 Which of the following is not a characteristic of the proprietary theory that influences accounting for partnerships? The correct answer is: A partnership is characterized by limited liability.

Which of the following is not a component of the formula used to distribute income? The correct answer is: Interest on notes to partners. Partnership capital and drawings accounts are similar to the corporate The correct answer is: Paid in capital, retained earnings, and dividend accounts. The proprietary theory is based on the notion that the business entity is an aggregation of the owners. The correct answer is 'True'. MM is trying to decide whether to accept a salary of P40,000 or a salary of P25,000 plus a bonus of 10% of net income after salaries and bonus as a means of allocating profit among the partners. Salaries traceable to the other partners are estimated to be P100,000. What amount of income would be necessary so that MM would consider the choices to be equal? The correct answer is: P290,000 If the partnership agreement does not specify how income is to be allocated, profit and loss should be allocated The correct answer is: In accordance with their capital contributions. Interest on loans from partners is recognized as partnership income. The correct answer is 'False'. Arturo Perez, a partner in the AP Partnership, has a 30% participation in partnership profits and losses. Perez’s capital account has a net decrease of P60,000 during the calendar year 2019. During 2019, Perez withdrew P130,000 (charged against his capital account) and contributed property valued at P25,000 to the partnership. What was the net income of the AP Partnership for 2019? The correct answer is: P150,000 Partnerships are not required to pay any taxes. The correct answer is 'False'. Salary allowances given to partners are normally considered expenses recognized as a deduction in the statement of income/expenses. The correct answer is 'False'. When salary and interest allocations exceed profit, a loss has occurred. The correct answer is 'False'. This account is credited at the fair value of the net assets of the partnership. → partner’s capital account A basis for allocating partnership profits or losses that reflects capital actually available for use by the partnership during the year. → average capital When assets that are based on depreciation (and amortization) are brought into the new partnership business, these assets should be recorded at __________. → net amount Is a theory that deal with the question of who the entity is. → entity theory Noncash drawings are valued at _______________, at the date of the withdrawals. → market values If there is no agreement between partners as to the sharing of losses, the basis of the sharing of the loss is based on the __________? → profit-sharing ratio A statement that reports the assets, liabilities, and equity on an entity and which shows its financial position or condition at a given date. → statement of financial position A means of achieving a fair division of profit among the partners based on the time and talents devoted to the partnership business. → salary allowance When Accounts Receivables are brought into the new partnership business, it is normally recorded at ________. → gross amount

This means a partner is an agent and has the authority to act for the partnership and to enter into contracts on its behalf. → mutual agency In the loss sharing, the loss of the partnership should be divided among the partners in accordance with the _____________? → loss-sharing ratio This is given to partners that give recognition to differences on capital contributions by partners. → interest allowance Which of the following is not a characteristic of a partnership? The correct answer is: A partnership requires written Articles of Partnership. Which of the following is not considered a legitimate expense of a company? The correct answer is: Interest paid to partners based on the amount of invested capital. Acer and Dell formed a partnership and agreed to divide initial capital equally, even though Acer contributed P100,000 and Dell contributed P84,000 in identifiable assets. Under the bonus approach to adjust the capital accounts, Dell’s unidentifiable asset should be debited for The correct answer is: P0 When an agreement provides for salaries to partner/partners, salary allocations must not be made especially when profit is inadequate to cover salaries or there is a loss. The correct answer is 'False'. Mary admits Jane as partner in the business. Balance sheet accounts of Mary just before the admission of Jane show: Cash, P26,000; Accounts Receivable, P120,000; Merchandise Inventory, P180,000; and Accounts Payable, P62,000. It was agreed that for purposes of establishing Mary’s interest, the following adjustments be made: 1) an allowance for doubtful accounts of 3% of accounts receivable is to be established; (2) merchandise inventory is to be adjusted upward by P25,000, and (3) prepaid expenses of P3,600 and accrued liabilities of P4,000 are to be recognized. If Jane is to invest sufficient cash to obtain 2/5 interest in the partnership, how much would Jane contribute to the new partnership? The correct answer is: P190,000 It is possible for a partner’s capital account to increase as a result of the allocation of a loss. The correct answer is 'True'. RR, a partner in the RD partnership, is entitled to 40% of the profits and losses. During 2019, RR contributed land to the partnership that cost her P50,000, but had a fair value of P60,000. Also, during 2019, RR had drawings of P80,000. The balance of RR’s capital accounts was P120,000 at the beginning of the year and P150,000 at the end of the year. What is the partnership’s comprehensive income (loss) for 2019? The correct answer is: P125,000 In normal circumstances, bonus to the managing partner shall be given even when the results of operations of the partnership are unfavorable. The correct answer is 'False'. The form and content of the statement of comprehensive income of a partnership resemble those of a sole proprietorship with no exceptions. The correct answer is 'False'. If a partner is a capitalist/industrialist partner, he gets just and equitable share as an industrial partner and another share as a capitalist partner according to his capital contribution. The correct answer is 'True'.

Net income should always be a component in the bonus calculation. The correct answer is 'False'. The partnership form of business is The correct answer is: An economic entity Not all of the partners in a general partnership are personally liable for all debts incurred by the partnership. The correct answer is 'False'. On June 1, 2021, Ramirez and Martinez formed a partnership with each contributing the following assets: Ramirez Martinez Cash P540,000 P468,000 Machinery and Equipment 960,000 1,320,000 Building 1,250,000 Furniture and fixtures 828,000 The building is subject to a mortgage loan of P650,000, which is to be assumed by the partnership. The partnership agreement provides that Ramirez and Martinez share profits and losses 30% and 70%, respectively. The correct answer is: In the balance sheet of the partnership, machinery and equipment will be → P2,280,000 The journal entry recognizing the investment of Martinez include a credit to Martinez, Capital of → P2,388,000 In the balance sheet of the partnership, building will be → P1,250,000 The journal entry recognizing the investment of Ramirez include a credit to Ramirez, Capital of → P2,328,000 In the balance sheet of the partnership, cash will be → P1,008,000 Individuals, partnerships, and corporations are allowed to be partners in a partnership. The correct answer is 'True'. In the absence of any agreement, salary allowances shall not be given when partnership operations yielded losses. The correct answer is 'False'. Partnerships are not required to prepare financial statements in accordance with Generally Accepted Accounting Principles unless they have publicly traded debt or are required to follow GAAP by a creditor. The correct answer is 'True'.

Chapter 19 Partnership Dissolution Exam When a new partner is admitted to a partnership, an original partner’s capital account may be adjusted for The correct answer is: His or her share of previously unrecorded intangible assets traceable to the original partners. When a partner retires from a partnership and the retiring partner is paid more than the capital balance in her account, which of the following explains the difference? I: The retiring partner is receiving a bonus from the other partners. II: The retiring partner’s goodwill is being recognized. The correct answer is: Either I or II A bonus can be recorded for a retiring partner only if the partnership acquires the equity of the partner. The correct answer is 'True'. At the date a partner withdraws from a partnership, the partners must choose to either recognize the goodwill with respect to the withdrawing partner or they can choose to recognize all of the partnership’s goodwill. The correct answer is 'False'. Only the bonus method (not the goodwill method) of recording the admission of a new partner into a partnership potentially results in the existing partners’ capital accounts changing in value. The correct answer is 'False'. 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. The correct answer is 'True'. A bonus is recognized by existing partners at the date a new partner joins a partnership when which of the following relationships occur? The correct answer is: The new partner’s contribution is greater than his/her percentage of total partnership capital after the investment is made The dissolution of a partnership occurs when there is any change in the management of the partnership business. The correct answer is 'False'. On August 31, 2020, Amy Reid withdrew from Reid, Sayle & Todd Partnership, whose partners had an incomesharing ratio of 40%, 35%, and 25%, respectively, for a cash payment of P121,000, despite Reid’s having a capital account balance of P100,000 on that date. The preferable method of accounting for Reid’s withdrawal includes a The correct answer is: P12,250 debit to Sayle, Capital In the incorporation of a partnership, the goodwill developed by the partnership is excluded among the assets that should be transferred to the corporation. The correct answer is 'False'. Jeon, Kim, and Min are partners with present capital balances of P500,000, P600,000, and P200,000, respectively. The partners share profit and losses according to the following percentages: 60% for Jeon, 20% for Kim, and 20% for Min. Park is to join the partnership upon contributing P600,000 to the partnership in exchange for a 25% interest in capital and a 20% interest in profits and losses. The existing assets of the original partnership are undervalued by P220,000. The original partners will share the balance of profits and losses in proportion to their original percentages. Using the total/full goodwill method, answer the following (answers can be repeated):

The correct answer is: The revaluation of assets will increase/decrease the assets by → increased by P220,000 The total contributed capital is → P2,120,000 The total agreed capital is → P2,400,000 Asset (Goodwill) will be debited/credited by → debited by P280,000 After the admission of Park, the total capital of Jeon is → P800,000 After the admission of Park, the total capital of Kim is → P700,000 After the admission of Park, the total capital of Min is → P300,000 Park's capital credit is → P600,000 If a new partner acquires 30 percent of an existing partner’s equity in the partnership, the new partner is also entitled to 30% of the existing partner’s profit and loss allocation. The correct answer is 'False'. If the assets of a partnership are revalued at the date of a partner’s withdrawal, there can be no bonus recorded. The correct answer is 'False'. The partners in the SGV Partnership have capital balances as follows: S, capital – P910,000; G, capital – P910,000, V, capital – P1,365,000. Profits and losses are shared 3:2:5, respectively. On this date, V withdraws and the partners agree to pay him P1,820,000 out of partnership cash. Tangible assets are already stated at values approximating their fair market values. Hint: Journal entries. The correct answer is: Under the bonus approach, S, Capital will be debited/credited by → debited by P273,000 Under the bonus approach, G, Capital will be debited/credited by → debited by P182,000 Under the bonus approach, Asset (Goodwill) is debited/credited by → P0 Under the partial goodwill approach, Asset (Goodwill) is debited/credited by → debited by P455,000 Under the total/full goodwill approach, Asset (Goodwill) is debited/credited by → debited by P910,000 Under the total/full goodwill approach, S, Capital will be debited/credited by → credited by P273,000 Under the total/full goodwill approach, G, Capital will be debited/credited by → credited by P182,000 In either bonus, partial goodwill or full goodwill approach, V, Capital will be debited/credited by → debited by P1,365,000 In either bonus, partial goodwill or full goodwill approach, Cash will be debited/credited by → credited by P1,820,000 Tan desires to purchase a one-fourth capital and profit and loss interest in the partnership of Simon, Torres, and Ramos. The three partners agree to sell Jules one-fourth of their respective capital and profit and loss interests in exchange for a total payment of P480,000. The capital accounts and the respective percentage interests in profits and losses immediately before the sale to Jules are as follows: Simon, capital (60%) P960,000 Torres, capital (30%) P480,000 Ramos, capital (10%) P240,000 All other assets and liabilities are fairly valued, and implied goodwill is to be recorded prior to the acquisition by Tan. Answer the following (answers can be repeated): The correct answer is: Total capital prior to the admission of Tan (including goodwill) → P1,920,000 Revaluation (goodwill) → P240,000 Amount of capital sold by Simon to Tan → P276,000 Amount of capi...