ACCCOB1 Textbook Exercises_Chapter 2 - Nature and Formation of a Partnership Business

Corporation

A body formed and authorized by law to act as a single person although constituted by one/more persons and legally endowed with various rights and duties.

Capitalist Partner

A kind of partner who contributes capital in money or property.

General Partner

A kind of partner whose liability to third persons extends to their own private property.

Nominal Partner

A partner in name only and does not participate in the management of the business.

Industrial Partner

A partner who contributes his work, labor, or industry to the partnership.

General Partner

A partner who is liable for partnership debts beyond his capital investment.

Mutual Agency

A partnership characteristic that authorizes a partner to act for the partnership and to enter contracts binding upon it, provided these are within his express or implied authority.

Co-ownership of Property

A partnership characteristic which states that properties invested in a partnership by a partner cease to be their own personal property.

General Partnership

A type of partnership wherein each partner is individually liable for the obligation of the firm regardless of the amount of personal investment.

Partnership

An association of two or more persons binding themselves to contribute money, property, or industry to a common fund, with the intention of dividing profits among themselves.

Memorandum Entry

An entry that is necessary to record the investment of an industrial partner.

A kind of partner who contributes money, property, or industry.

Capitalist-industrial partner

True or False: The characteristic of unlimited liability does not apply to a limited partnership.

False - A limited partnership is one that consists of one/more general partners and one/more limited partners; it is still subject to unlimited liability, but only limited partners have limited liability.

True or False: A partner who is not known as a partner but who participates actively in the management of the partnership is called a managing partner.

False - A managing partner is known as a partner. On the other hand, a partner who is not known as a partner but participates actively in the management of the partnership is called a secret partner.

True or False: No entry is necessary to record the investment of an industrial partner.

False - A memorandum entry is required to record the investment of an industrial partner.

True or False: Accounts receivable if part of a partner's investment may be recorded at net realizable value.

False - Accounts receivable must be recorded at gross amount together with its corresponding allowance for bad debts.

True or False: An individual must contribute capital to become a partner in a firm.

False - An individual may contribute either money, property, or industry to become a partner in a firm.

Mutual Agency

It is a partnership characteristic that states that any partner may act as an agent of the partnership in conducting its affairs.

A partnership has a legal personality separate and distinct from that of each of the partners.

Legal entity

A kind of partnership consisting of one/more general partners and one/more limited partners.

Limited partnership

An association of two or more persons who bind themselves together to do business for profit. The persons owning this form of business are called partners.

Partnership

A kind of partnership for which no term is specified and is not formed for a particular undertaking or venture and which may be terminated at any time by mutual agreement of the partners or the will of one alone.

Partnership at will

Fair value at the time of investment

The amount of which partners' investments in the form of properties are recorded in the partnership books.

Articles of Co-Partnership

This is a written document that specifies the nature, terms, and details of partnership operations.

True or False: A partnership whose capital is P3,000 and above should be registered with the Securities and Exchange Commission.

True

True or False: All partners in a general partnership are general partners.

True

True or False: Oral agreement will still bind the partners forming the partnership

True

True or False: Partnership form of business is best suited for the practice of professions

True

True or False: The partnership form business does not have to comply with as many legal formalities compared to a corporation.

True

A partnership characteristic which states that no one should be forced or coerced into joining a partnership.

Voluntary association

In a limited partnership, a) the general partners have unlimited liability. b) all partners have unlimited liability. c) the general partners have limited liability. d) all partners have limited liability.

a) the general partners have unlimited liability.

The statement concerning partnerships that is CORRECT is: a) Each partner's share of profit is taxable to the partnership. b) A partnership represents an accounting entity for financial reporting purposes. c) The personal assets of a partner are included in the partnership accounting records. d) Accountants or lawyers may not form partnerships.

b) A partnership represents an accounting entity for financial reporting purposes.

A partnership characteristic which states that a partner, acting within the scope of the operations of the business, may bind the partnership and make it liable to third parties is termed as: a) Voluntary Association b) Mutual Agency c) Co-ownership of Assets d) Separate Legal Personality

b) Mutual Agency

A partner will not bind the partnership to an outside purchase contract when the: a) partner was not authorized by the other partner to make the purchase. b) item purchased is not within the normal scope of the business. c) the item purchased is considered immaterial in amount. d) partner who made the purchase withdraws from the partnership.

b) item purchased is not within the normal scope of the business.

Which statement is INCORRECT regarding partnership agreements? a) They should state procedures for settling disputes among the partners. b) They may be referred to as deeds of partnership. c) Oral agreements are preferable to written agreements. d) They should specify the rights and duties of the partners.

c) Oral agreements are preferable to written agreements.

Which of the following is not a characteristic of a partnership? a) It has unlimited liability. b) It can be easily dissolved. c) There is ease of transferring ownership. d) There is co-ownership of property.

c) There is ease of transferring ownership.

When a partnership is formed, assets contributed by the partners should be recorded: a) original costs to the partner contributing them. b) carrying values on the partners' books prior to their being contributed to the partnership. c) fair market value at the time of the contribution. d) personal assessment of the owner of the non-cash property.

c) fair market value at the time of the contribution.

A type of partnership where the company cannot pay its debts with business assets the partners must use personal assets to pay the debt. a) Particular Partnership b) Trading Partnership c) Nominal Partnership d) General Partnership

d) General Partnership

Which of the following partnership characteristics may be considered as a disadvantage to a general partner? a) Limited life b) Ease of formation c) Mutual agency d) Unlimited liability

d) Unlimited liability

The partnership form of business is: a) restricted to law and medical practices. b) restricted to firms having fewer than 10 partners. c) most often used in relatively large companies. d) not restricted to any particular type of business.

d) not restricted to any particular type of business.