Comprehensive exam for partnership acctg PDF

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COMPREHENSIVE EXAMINATION FOR PARTNERSHIP ACCOUNTINGMULTIPLE CHOICE - ConceptualThe first twenty number should be answered using the following:A. Only the first statement is true. B. Only the second statement is true. C. Both statements are true. D. Both statements are false. A partnership has an un...

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COMPREHENSIVE EXAMINATION FOR PARTNERSHIP ACCOUNTING

MULTIPLE CHOICE - Conceptual The first twenty number should be answered using the following: A. Only the first statement is true. B. Only the second statement is true. C. Both statements are true. D. Both statements are false. 1.

A partnership has an unlimited life. F A partnership is an unincorporated association of two or more people who agree to carry on a business as co-owners for the purpose of earning profit. T

2. Mutual agency means each partner can commit/ bind the partnership to any contract within the scope of the partnership business. T Accounting procedures for all items are the same for both sole proprietorship and partnership forms of businesses. F 3. Partners in a partnership are taxed on the amounts they withdraw from the partnership, not the partnership income. F A partnership cannot use salary allowances or interest allowances as a way of determining profit share if the operation’s net income is insufficient to cover such allowances. F 4.

A partnership cannot use salary allowances or interest allowances as a way of determining profit share if the operation is a net loss. F In a limited partnership the general partner has unlimited liability. T 5.Partner’s return on equity can be used by each partner to help decide whether additional investment or withdrawal of resources is best for that partner. T When partners invest in a partnership, their capital accounts are credited for the amount invested and or permanently withdrawn.F 6.

7.

Partner’s regular cash withdrawal is credited to a separate withdrawal account. F Partners can invest both assets and liabilities into a partnership. T The withdrawal account of each partner may be closed to the capital account at the end of the accounting period if the company is using the fluctuating capital method. T

In closing the accounts at the end of a period, the partners' capital accounts are credited for their share of the partnership loss or debited for their share of the partnership net income. F 8.

In the absence of a partnership agreement, the law says that income of a partnership will be shared equally by the partners. F. If partners devote their time and services to their partnership, their salaries are expensed on the income statement. F

9.

The statement of changes in partners' equity shows the beginning balance in the capital and drawing account (if this was not closed), plus investments, less withdrawals, plus or minus allocated income or loss resulting from the period’s operation. T The equity section of the partnership’s statement of financial position may not report separately the capital account balances of each partner. F

10. When a partner leaves a partnership, the present partnership ends T. To buy a partner’s interest in an existing partnership, the new partner must contribute cash to the partnership. F 11. When the current value of a partnership is greater than the recorded amounts of equity, the current partners usually require a new partner to pay a bonus for the privilege of joining. T When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the recorded equity is understated. T 12.When a partnership is liquidated, its business is ended. T A capital deficiency can arise from liquidation losses, excessive withdrawals before liquidation, or recurring losses in prior periods. T 13. If at the time of partnership liquidation, a partner has a P5,000 capital deficiency which he pays out of personal assets, then that partner is entitled to share in the final distribution of cash. F If a partner's investment in a partnership consists of equipment that has accumulated depreciation of P8,000, it would not be appropriate for the partnership to record the accumulated depreciation. T 14. If a partner's investment in a partnership consists of Accounts Receivable of P25,000 and an Allowance for Doubtful Accounts of P7,000, it would not be appropriate for the partnership to record the Allowance for Doubtful Accounts. F If partnership agreement requires a 10% bonus to a managing partner, this should be given whether the business operation resulted in a profit or a loss. F 15. If a partnership incurs a loss for the period, the closing entry to transfer the loss to the partners will require a credit to the Income Summary account. T The income earned by a partnership will always be greater than the income earned by a proprietorship because in a partnership there is more than one owner contributing to the success of the business.F

16. The function of the Partners' Capital Statement is to explain the changes in partners' capital account balances during a period.T A detailed listing of all the assets invested by a partner in a partnership appears on the Partners' Capital Statement.F 17. Total partners' equity of a partnership is equal to the sum of all partners' capital account balances.T The distribution of cash to partners in a partnership liquidation is always made based on the partners' income sharing ratio. F 18.If a new partner is admitted into a partnership by investment, the total assets and total capital will change.T A bonus to old partners results when the new partner's capital credit on the date of admittance is greater than his or her investment in the firm.F 19.If a new partner invests in a partnership at book value and acquires a 1/4 interest in total partnership capital, it indicates that a bonus was paid to the original partners.F A bonus to the remaining partners results when a retiring partner receives partnership assets which are less than his or her capital balance on the date of withdrawal.T 20. In admission by investment, if total contributions are higher than total agreed equity, it may be implied that assets are overstated requiring a downward adjustment.T If capital credit for a new partner is higher than actual contribution made by the new partner, the difference may be treated as a bonus or goodwill of the new partner. T 21. Which one of the following would not be considered a disadvantage of the partnership form of organization? a. Limited life b. Unlimited liability c. Mutual agency d. Ease of formation 22. The Metro Manila partnership owned by Mary and Cane is terminated when creditor claims exceed partnership assets by P40,000. Partner Cane is a millionaire and Mary has no personal assets. Mary’s' partnership interest is 75% and Cane's is 25%. Creditors a. b. c. d.

must collect their claims equally from Mary and Cane. may collect the entire P40,000 from Cane. must collect their claims 75% from Mary and 25% from Cane. may not require Cane to use his personal assets to satisfy the P40,000 in claims.

23. Which of the following statements about partnerships is incorrect? a. Partnership assets are co-owned by partners. b. If a partnership is terminated, the assets do not legally revert to the original contributor. c. Right over profits and right over assets represent claims of partners that are allocated based on partners’ capital accounts. d. The industrial partner does not share in the losses of the partnership.

24. In the absence of a partnership agreement, the law says that income (and loss) should be allocated based on: a. Interest allowances b. The ratio of capital investments. c. Salary allowances. d. Equal shares. 25.A loan due from a partner is classified in the statement of financial position as a/an a. b. c. d.

current liability current assets partners’ equity as a disclosure.

26In the liquidation of a partnership, any gain or loss on the realization of noncash assets should be allocated a. b. c. d.

first to creditors and the remainder to partners. to the partners on the basis of their capital balances. to the partners on the basis of their income-sharing ratio. only after all creditors have been paid.

27.In the liquidation of a partnership, any partner who has a capital deficiency a. b. c. d. 28.

has a personal debt to the partnership for the amount of the deficiency. is automatically terminated as a partner. will receive a cash distribution only on the basis of his or her income-sharing ratio. it may be written off to a “Loss” account Before distributing any remaining cash to partners in a partnership liquidation, it is necessary to do each of the following except

a. b. c. d.

sell noncash assets for cash. recognize a gain or loss on realization. allocate the gain or loss to the partners based on their capital balances. pay partnership liabilities in cash.

29. The admission of a new partner to an existing partnership a. b. c. d. 30 .

may be accomplished only by investing assets in the partnership. requires purchasing the interest of one or more existing partners. causes a legal dissolution of the existing partnership. is almost always accompanied by the liquidation of the business. When a partnership interest is purchased

a. every partner’s capital account is affected. b. the transaction is a personal transaction between the purchaser and the selling partner(s). c. the buyer receives equity equal to the amount of cash paid. d. all partners will receive some part of the purchase price.

31. Which of the following is correct when admitting a new partner into an existing partnership?

a. b. c. d.

Total net assets Total capital Total net assets Total capital

Purchase of an Interest unchanged increased unchanged unchanged

Admission by Investment unchanged unchanged increased unchanged

32.When admitting a new partner by investment, a bonus to old partners a. is usually unjustified because book values clearly reflect partnership net worth. b. is sometimes justified because goodwill may exist and it is not reflected in the accounts. c. results if the debit to cash is less than the new partner's capital credit. d. results if the debit to cash is equal to the new partner's capital credit. 33.When admitting a new partner by investment, a bonus to old partners is allocated on a. b. c. d. 34.

the basis of capital balances. the basis of the original investment of the old partners. the basis of income ratios before the admission of the new partner. a seniority basis.

An upward adjustment of partnership assets is implied before a new partner is admitted a. this is prohibited by GAAP. b. when the new partner's capital credit is greater than his or her investment of assets in the firm. c. when recorded book values are greater than market values. d. when total contributions is lesser than total agreed equity and the new partner's capital credit is the same as his or her investment of assets in the firm.

35.

A bonus to a new partner will a. increase the capital balances of existing partners based on their income ratios before the admission of the new partner. b. increase the capital balances of existing partners based on their income ratios after the admission of the new partner. c. decrease the capital balances of existing partners based on their income ratios before the admission of the new partner.

d. decrease the capital balances of existing partners based on their capital balances before the admission of the new partner.

36.

Which of the following is not a necessary action that the partnership must take upon the death of a partner? a. b. c. d.

37.

Determine the net income or net loss for the year to date. Discontinue business operations. Close the books. Prepare financial statements.

An entry is not required in the liquidation of a partnership to record the a. b. c. d.

payment of cash to creditors. distribution of cash to the partners. sale of noncash assets. allocation of a capital deficiency to partners with credit balances when the deficient partner is expected to pay the deficiency.

38. A partnership recorded the following journal entry:

This entry reflects: a. Admission of a new partner who invests P70,000 and receives a P20,000 bonus. b. Withdrawal of a partner who pays a P10,000 bonus to each of the other partners. c. Admission of a partner who pays a bonus to each of the other partners. d. Additional investment into the partnership by Tanner and Jackson. 39.

Baker joins the partnership of LutongKusina by paying P300,000 in cash. If the net assets of the partnership are still the same amount after Baker has been admitted as a partner, then Baker a. b. c. d.

40.

must have been admitted by investment of assets. must have been admitted by purchase of a partner's interest. must have received a bonus upon being admitted. could have been admitted by an investment of assets or by a purchase of a partner's interest.

The partnership agreement of De Rosi and Pietro provides for salary allowances of P45,000 to De Rosi and P35,000 to Pietro, with the remaining income or loss to be

divided equally. During the year, each one withdraw cash equal to 80% of their salary allowances. If partnership net income is P100,000, De Rosi's equity in the partnership would a. b. c. d.

increase more than Pietro’s. decrease more than Pietro's. increase the same as Pietro's. decrease the same as Pietro's.

MULTIPLE CHOICE –Problem Solving 1. Chua and Wong are forming a partnership. Chua will invest a building that currently is being used by another business owned by Chua. The building has a market value of P900,000. Also, the partnership will assume responsibility for a P300,000 note secured by a mortgage on that building. Wong will invest P500,000 cash. For the partnership, the amounts to be recorded for the building and for Chua's Capital account are: a.Building, P900,000 and Chua, Capital, P900,000. b Building, P600,000 and Chua, Capital, P600,000. c. Building, P600,000 and Chua, Capital, P500,000. d. Building, P900,000 and Chua, Capital, P600,000. 2. Bob is investing in a partnership with Jerry. Bob contributes equipment that originally cost P63,000, has a book value of P30,000, and a fair market value of P39,000. The entry that the partnership makes to record Bob's initial contribution includes a a. debit to Equipment for P33,000. b. debit to Equipment for P63,000. c. debit to Equipment for P39,000. d.credit to Accumulated Depreciation for P33,000

Use the following information for questions 3– 5. Jameson and Larryare forming a partnership. Jameson will invest a truck with a book value of P100,000 and a fair market value of P140,000. Larry will invest a building with a book value of P300,000 and a fair market value of P420,000 with a mortgage of P150,000. 3.

At what amount should the building be recorded? a. b. c. d.

4.

P300,000 P270,000 P420,000 P450,000

What amount should be recorded in Larry’s capital account?

a. b. c. d.

P300,000 P270,000 P420,000 P140,000

5. If it was further agreed that both partners will have equal share in the assets, using the cash method, how much should be the additional cash investment of Jameson?

d.

a. P200,000 b. P170,000 c. P160,000 P130,000 6. Ric, Henry, and Dem formed a partnership with Ric contributing P60,000, Henry contributing P50,000 and Dem contributing P40,000. If the partnership had income of P75,000 for its first year of operation, what amount of income would be credited to Dem's capital account? a. P20,000. b. P25,000. c. P30,000. d. P40,000. 7. Web Services is organized as a limited partnership, with David as one of its partners. David's capital account began the year with a balance of P450,000. During the year, David's share of the partnership income was P75.000, and David received P40,000 in distributions from the partnership. What is David's return on equity? a. b. c. d.

7.8% 15.4% 16.0% 8.9%

8. Partner Fe is investing in a partnership with Partner Ann. Fe contributes as part of her initial investment, Accounts Receivable of P80,000; an Allowance for Doubtful Accounts of P12,000. Accounts of P8,000 should be written off. The entry that the partnership makes to record Fe's initial contribution includes a a. b. c. d.

credit to Fe, Capital for P88,000. debit to Accounts Receivable for P80,000. credit to Fe, Capital for P68,000. credit to Allowance for Doubtful Accounts for P12,000.

Use the following information for questions 9–11. Partners Adan and Eba have capital balances in a partnership of P400,000 and P600,000, respectively. They agree to share profits and losses as follows:

As salaries As interest on capital at the beginning of the year Remaining profits or losses 9.

P130,000 P170,000 P100,000 P140,000

If net loss for the year was P20,000, what will be the distribution to Eba? a. b. c. d.

12.

P230,000 P270,000 P200,000 P100,000

If income for the year was P300,000, what will be the distribution of income to Adan? a. b. c. d.

11.

Eba P120,000 10% 50%

If income for the year was P500,000, what will be the distribution of income to Eba? a. b. c. d.

10.

Adan P100,000 10% 50%

P120,000 income P10,000 income P10,000 loss P20,000 loss

Jill's capital statement reveals that her drawings during the year were P50,000. She made an additional capital investment of P25,000 thereby increasing her beginning capital of P245,000. Her ending capital balance becameP200,000. What was Jill's share in the net profit or net loss? a. b. c. d.

P20,000 share in net loss P40,000 share in net income P35,000 share in net loss P10,000 share in net loss

Use the following information for questions 13–15. The partners' income and loss sharing ratio is 2:3:5, respectively.

Assets Cash

A, B, AND C PARTNERSHIP Statement of Financial Position December 31, 2013 Liabilities and Partners' Equity P 90,000

Liabilities

P300,000

Noncash assets

570,000

Total

P660,000

13.

The personal assets of Partner C. The personal assets of Partners A and C. The personal assets of all the partners. The personal assets of the partners are not available for partnership debts.

A, B and C are partners, sharing income 2:1:2. After selling all of the assets for cash, dividing gains and losses on realization, and paying liabilities, the balances in the capital accounts are as follows: A, P10,000 Cr; B, P10,000 Cr; and C, P20,000 Dr. How much cash should be distributed to A if C is only solvent by P14,000? a. b. c. d.

17.

P36,000 P234,000 P156,000 P150,000

If the partnership is liquidated and the noncash assets are worthless, the creditors will look to whose partner's personal assets for settlement of the creditors' claims? a. b. c. d.

16.

P108,000. P126,000 P111,000. P114,000

If the partnership is liquidated by selling the noncash assets for P750,000, and creditors are paid in full, what is the total amount of cash that Partner A will receive in the distribution of cash to partners? a. b. c. d.

15.

120,000 180,000 60,000 P660,000

If the partnership is liquidated by selling the noncash assets for P390,000 and creditors are paid in full, what is the amount of cash that can be safely distributed to B? a. b. c. d.

14.

A, Capital B, Capital C, Capital Total

P5,600 P14,000 P10,000 P6,000

In liquidation, balances prior to the distribution of cash to the partners are: Cash P255,000; Moore, Capital P140,000; Simon, Capital P130,000, and Kelly, Capital P30,000. The income ratio is 6:2:2, respectively.. How much cash should be distributed to Simon if Kelly does not pay his deficiency? a. P122,500 b. P126,250

c. P118,750 d. P130,000...