Partnership quiz - Quiz PDF

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For financial accounting purposes, assets of an individual partner contributed to a partnership are recorded by the partnership at a) Fair market value b) Book Value c) Lower of cost or market vale d) Historical cost Which of the following statements concerning the formation of partnership business ...

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

2. Which of the following statements concerning the formation of partnership business is correct? a) Philippine Financial Reporting Standards (PFRS) allows recognition of goodwill arising from the formation of partnership. b) The capital to be credited to each partner upon formation may not be the amount actually contributed by each partner. c) The juridical personality of the partnership arises from the issuance of certification of registration. d) The parties may become partners only upon contribution of money or property but not of industry or service.

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

4. It refers to a type of partnership whereir{ all partners are liable to the creditors pro-rata up to the extent of personal or separate assets after the partnership's assets are exhausted. a) General partnership b) Partnership by estoppel c) Limited partnership d) Particular partnership

5. He refers to a partner who contributed not only money and property but also industry to the newly formed partnership.

a) Industrial partner b) Nominal partner c) Capitalist-industrial partner d) Capitalist partner

6. Under the generally accepted accounting principles in the Philippines, what is the acceptable reason when the amount credited to a partner is greater than the amount actually contributed by such partner during partnership formation?

a) Recognition of goodwill by virtue of special skills or reputation of said partner. b) Recognition of impairment loss on the property contributed by said partner. c) When there is bonus given by said partner to the other partners. d) Receipt or transfer of capital from other partner by virtue of partner’s agreement resulting to bonus to the said partner.

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

8. Which of the following shall not affect the capital balance? a) Receipt of bonus by a partner from another partner based on the agreement. b) Additonal investment by a partner tot the partnership c) Share of the partner in the partnership’s net profit. d) Advances made by the partner to the partnership

9. In the absence of agreement as to distribution of loss, how shall the partnership loss be distributed to the partners? a) The loss shall be distributed equally to all partners including industrial partner.

b) The industrial partner shall be exempted from partnership loss because it shall be distributed to the capitalist partners only in accordance with profit agreement ratio. c) The industrial partner shall be exempted from partnership loss while the capitalist partners shall be distributed on the basis of the capital contribution. d) The industrial partner shall be exempted from partnership loss while the capitalist partners shall share equally.

10. Which of the following will decrease the capital balance of a partner? a) Advances made by a partner to the partnership. b) Share in partnership profit. c) Drawings made by a partner. d) Receipt of share in revaluation surplus from a partnership property, plant and equipment.

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

12. It refers to the process of converting the non cash assets of the partnership and distributing the total cash to the creditors and the remainder to the partners. a)

Liquidation

b) Dissolution c)

Operation

d) Termination

13. The following is the priority sequence in which liquidation proceeds will be distributed for a partnership: a) Partnership liabilities, partnership capital balances, partnership loans.

b) Partnership liabilities, partnership loans, partnership capital balance c) Partnership liabilities, partnership loans, partnership drawings, partnership capital balance. d) Partnership liabilities, partnership drawings, partnership loans, partnership capital balance.

14. In the liquidation of the partnership, which of the following shall be paid last? a) Those owing to limited partners b) Those owing to general partners for their share in profits c) Those owing to general partners for their capital contribution d) Those owing to limited partners

15. The basic procedures in lump-sum liquidation includes all except, a) Realization and Distribution of gain or loss to all partners on the basis of their profit or loss ratio. b) Payment of liquidation expense, if any c) Assume total loss on all remaining non-cash assets. Provided all possible losses, including liquidation cost and unrecorded liabilities. d) Payment of liabilities to third parties.

16. Which of the following statements pertains to partnership dissolution? a) It refers to the process of converting the non-cash assets of the partnership and distributing the total cash to the creditors and the remainder to the partners. b) It refers to the extinguishment of the juridical personality of the partnership. b. c) It refers to the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the partnership. d) It refers to the end of the life of the partnership.

17. Which of the following will not result to the dissolution of a partnership? a) Insolvency of the partnership b) Assignment of an existing partner’s interest to a third person c) Admission of a new partner in an existing partnership d) Retirement of a partner

18. Which of the following statements is correct when a new partner is admitted to an existing partnership by purchasing a portion of a capital interest of an existing partner? a) It will result to revaluation or impairment of existing assets of the partnership. b) The partnership will recognize gain or loss in the transfer of capital from one partner to another partner. c) The partnership is not dissolved by the admission of a new partner by purchase. d) It will just result to credit to capital of newly admitted partner with corresponding debit to capital of the selling partner.

19. In case of admission of a new partner in an existing partnership through investment to the partnership, which of the following scenario will result to bonus to new partner and asset revaluation upward?

a) The total contributed capital of all partners is equal to the total agreed capital of new partnership while the agreed capital of new partner is higher than the amount he has contributed. b) The total contributed capital of all partners is more than the total agreed capital of new partnership while the agreed capital of new partner is lower than the amount he has contributed. c) The total contributed capital of all partners is less than the total agreed capital of new partnership while the agreed capital of new partner is higher than the amount he has contributed. d) The total contributed capital of all partners is more than the total agreed capital of new partnership while the total agreed capital of old partners is equal to the amount they contributed.

20. If a partner who retired from the partnership receives less than the capital balance before retirement which also resulted to decrease in the capital balance of remaining partners, which is correct?

a) An impairment loss is recognized before the retirement. b) The retiring partner receives bonus from remaining partner. c) Revaluation surplus is recognized before the retirement.

d) The retiring partner gives bonus to the remaining partner.

Answer Key: 1.

A

2.

B

3.

C

4.

A

5.

C

6.

D

7.

D

8.

D

9.

B

10. C 11. D 12. A 13. B 14. C 15. C 16. C 17. B 18. D 19. C 20. A

I. On January 31, 2021, On January 1, 2021, Nicah and Carlo, both sole proprietors, decided to form a partnership to expand both of their businesses. According to their agreement they will split profits and losses 60:40 and their initial capital will also reflect that ratio. The following are the statement of financial position of Nicah and Carlo: Nicah

Carlo

Cash

12,400.00

20,000.00

Accounts Receivable

10,400.00

8,000.00

Merchandise Inventory

12,800.00

9,600.00

Office Supplies Equipment Accumulated Depreciation Total Assets

-

2,000.00

8,000.00

9,600.00

(3,600.00)

(1,200.00)

40,000.00

48,000.00

8,000.00

9,000.00

10,000.00

11,700.00

6,200.00

7,800.00

Capitals

15,800.00

19,500.00

Total Liabilities and Capital

40,000.00

48,000.00

Accounts Payable Notes Payable Accrued Expenses

The values reflected in the Statement of Financial Position are already at fair values, except for the following accounts:  Accounts Receivable of 800 in Nicah’s book and 400 in Carlo’s book are uncollectible.

 Both Inventories of Nicah and Carlo are now 50,000 and 60,000 respectively.  Equipment for Carlo has an assessed value of 10,000, appraised value of 9,000 and book value of 7,000.  Unrecognized patent of 15,000 and Prepaid rent of 9,000 are to be recognized in the books of Carlo and Nicah, respectively.  Additional accrued expenses are to be established in the amount of 10,000 for Carlo only while additional accounts payable in the amount of 5,000 for Nicah.  Unused office supplies of Nicah amounted to 2,000 while that of Carlo amounted to 1500.  It is also agreed that all liabilities will be assumed by the partnership, except for the notes payable of Carlo which will be personally paid by him.

1. How much are the adjusted capital balances of Nicah and Carlo upon formation? a) 75200 and 92,700 b) 58,200 and 86,300 c) 68,200 and 106,500 d) 75,200 and 107,600

2. The net adjustments - capital in the books of Nicah and Carlo a) Nicah, Net Credit; 42,400 and Carlo, Net Credit 66,800 b) Nicah, Net Debit; 70,400 and Carlo, Net Credit 56,800 c) Nicah, Net debit; 40,400 and Carlo, Net Credit 76,800 d) Nicah, Net Credit; 56,400 and Carlo, Net Credit 97,800

3. How much are the capital credit to A and B upon formation? (If based on agreement) a)

90,450 and 65,750

b) 114,785 and 56,725 c) 86,700 and 61,800 d) 115,875 and 38,625 4. How much should Nicah invest as additional cash to be in conformity with their initial capital agreement?

a)

0

b) 51,250 c)

71,250

d) 57,350

5. What is the total capital after formation? a)

215,750

b) 143,833 c)

516,850

d) 157,867 6. The capital balances of Nicah and Carlo in the combined balance sheet: a) 129,450 and 86300 b) 156,750 and 75,650 c) 80,650 and 57,800 d) 167,890 and 45,670

1. B 2. A 3. C 4. C 5. A 6. A Solution: 1.

Nicah

Carlo

Unadjusted Capital Balances:

15,800.00

19,500.00

Account's receivable uncollectible Inventory adjustment

(800.00) 37,200.00

(400.00) 50,400.00

Accumulated Depreciation Unrecognized patent and prepaid rent

600.00 9,000.00

Additional accrued expenses Additional accounts payable Unused office supplies Notes Payable Adjusted Capital Balances

15,000.00 (10,000.00)

(5,000.00) 2,000.00

(500.00) 11,700.00

58,200.00

86,300.00

2. Account's receivable uncollectible Inventory adjustment Accumulated Depreciation Unrecognized patent and prepaid rent Additional accrued expenses Additional accounts payable Unused office supplies Notes Payable Net credit

Nicah

Carlo (800.00) 37,200.00 9,000.00 (5,000.00) 2,000.00 42,400.00

(400.00) 50,400.00 600.00 15,000.00 (10,000.00) (500.00) 11,700.00 66,800.00

3. Nicah's Capital Carlo's Capital Combined Capital

58,200.00 86,300.00 144,500.00

Combined Capital Capital ratio Nicah's Capital

144,500.00 x 60% 86,700.00

Combined Capital Capital ratio Carlo's Capital

154500 X40% 61,800.00

4 and 5 Carlo's Capital over the percentage Total Capital amount mulitply by percentage Initial Capital of Nicah Deduct Adjusted Capital Balances Additional Investment

86300/.40 215750 x .6 129,450.00 (58,200.00) 71,250.00

6. Total Capital after formation Total amount mulitply by Carlo’s Capital Ratio Initial Capital of Carlo

215,750 215,750 x .6 129,450

Total Capital after formation Total amount mulitply by Carlo’s Capital Ratio Initial Capital of Carlo

215750 215,750 x .4 86,300

II. Aquila partnership began its first year of operations with the following capital balances: N, Capital: P143,000 A, Capital: P104, 000 C, Capital: P143,000

The Articles of Partnership stipulated that profits and losses be assigned in the following manner:  N was to be awarded an annual salary of P26,000 with P13,000 salary assigned to C.  Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.  The remainder was to be assigned on a 4:3:3 basis, respectively.  Each partner was allowed to withdraw up to P13,000 per year. Assume that the net loss for the first year of operations was P36,000 with net income of P42,000 in the second year. Assume further that each partner withdrew the maximum amount from the business each year.

7. What was A's share of income or loss for the first year? a) P3,900 loss b) P23,800 loss c) P10,400 loss d) P24,700 loss

8. What was C's share of income or loss for the first year? a) P6,900 loss b) P13,700 loss c) P10,400 loss d) P24,700 loss

9. What was the balance in N's Capital account at the end of the first year? a)

120,900

b) 118,300 c)

126,100

d) 124,700

10. What was N's share of income or loss for the second year? a) 1830 income b) 4,160 income c) 16,760 income d) 27,070 income

11. What was A's share of income or loss for the second year?

a) (1830) income b) 4,160 income c) 16,760 income d) 27,070 income

12. What was the balance in C's Capital account at the end of the second year? a)

126,860

b) 138,770 c)

67,200

d) 58,200

7. B 8. A 9. D 10. D 11. A 12. A

Solution: Year 1 Salaries Interest Remainder Share in net loss Unadjusted Capital Share in net income/loss Withdrawals Adjusted Capital Balances

Solution: Year 2 Salaries Interest Remainder Share in net income

N, Capital 26,000 14,300 (45,600) (5,300) 143,000 (5,300) (13,000) 124,700

N, Capital 26,000 12,470 (11,400) 27,070

A, Capital C,Capital Total 0 13,000 39,000 10,400 14,300 39,000 (34,200) (34,200) (114,000) (23,800) (6,900) (36,000) 104,000 (23,800) (13,000) 67,200

143,000 (6,900) (13,000) 123,100

A, Capital C,Capital 0 13,000 6,720 12,310 (8,550) (8,550) (1830) 16,760

Unadjusted Capital Share in net income/loss Withdrawals

124,700 27,070 (13,000)

67,200 (1,830) (13,000)

123,100 16,760 (13,000)

Adjusted Capital Balances

138,770

52,370

126,860

Total 39,000 31,500 (28,500) 42,000

III J, H, and N are partners with present capital balances of P40,000 , P50,000 and P20,000 respectively. The partners share profits and losses according to the following percentages: 50% for A, 20% for B, and 30% for C. D is to join the partnership upon contributing P55,OOO to the partnership in exchange for a 35% interest in capital and a 20% interest in profits and losses. An appraisal of the existing partnerships' assets reveals the following:

Accounts Receivable 20,000 overvalued Inventory Land

10,000 overvalued 10,000 undervalued

Building

15,000 undervalued

13. What is the total adjustments to the assets for the partnership? (Assuming use of the bonus method) a) (12,000) b) 12,000 c) 5,000 d) (5,000)

14. What is the bonus of N in the new partnership? (Assuming use of the bonus method) a)

2,100

b)

1,400

c)

3,500

d)

7,000

15. What is the capital balance H of in the new partnership? (Assuming use of the bonus method)

a)

41,000

b)

48,000

c)

50,400

d)

20,600

16. What is the capital balance of C in the new partnership? (Assuming use of the bonus method) a)

41,000

b) 48,000 c)

50,400

d) 20,600

Solution: 13. D Accounts Receivable 20,000 overvalued Inventory

10,000

overvalued Land

10,000

undervalued Building

15,000

undervalued Adjustments to assets

-20,000.00 -10,000.00 10,000.00 15,000.00 -5,000.00

14. A 15. C 16. B Unadjusted Balances J,Capital (50%) H, Capital (20%) N, Capital (30%) C, Capital Total

Adjusted Adjustments

Capital

Bonus

Agreed Capital

Balances

40,000.00

-2,500.00

37,500.00 3,500.00

41,000.00

50,000.00

-1,000.00

49,000.00 1,400.00

50,400.00

20,000.00

-1,500.00

18,500.00 2,100.00

20,600.00

55,000.00

55,000.00 -7,000.00

48,000.00

110,000.00

50,000.00

160,000.00

-

160,000.00

IV On December 31, 2020, the Statement of Financial Position of ABC Partnership with profit or loss ratio of 6:1:3 of partners A, B and C respectively, revealed the following data: Cash 1,000,000

Other Liabilities 2,000,000

Receivable from A 500,000

Payable to B 1,000,000

Other non cash assets 2,000,000 Payable to C 100,000 A, Capital 700,000 B, Capital (650,000)

C, Capital 350,000 On January 1, 2021, the partners decided to liquidate the partnership. All partners are legally declared to be personally insolvent. The other non cash assets were sold for P1,500,000. Liquidation expenses amounting to P100,000 were incurred.

17. How much cash was received by A ...