Division of Profits and Losses (Ballada)
FALSE
In the absence of a specific agreement, the law requires that partnership profits be divided equally among the partners. (T/F)
TRUE
In the absence of an agreement, salary allowances will be provided even when operations yielded losses. (T/F)
TRUE
In the absence of any agreement, salary allowances shall be provided even when operations yielded losses. (T/F)
TRUE
In the absence of stipulation, the share of each partner in profits or losses shall be in proportion to what he may have contributed. (T/F)
TRUE
In the absence of stipulation, the share of each partner in profits or losses shall be in the same proportion to what he may have contributed, but the industrial partner may not be liable for the losses. (T/F)
Prior Period Errors
Known as omissions from and other misstatements of the entity's financial statements for one or more prior periods that are discovered in the current period
Allowances
Known as provisions for salaries and interest in the partnership agreement
Profit and Loss Ratio
Known as the ratio in which profits or losses from partnership operations are distributed
Allowances
May be provided for salaries to partners
Interest
May be provided on their respective capital balances
TRUE
Under the pure capital ratio plan of allocating profits, the partner who invested more capital will ultimately shoulder a bigger share of the loss. (T/F)
FALSE
Using average capital balances as a basis for profit distribution is preferable because it reflects the capital actually available for use by the partnership during the year. Temporary withdrawals should be considered (T/F)
TRUE
When a loss is closed into the partners' capital accounts, income summary is credited. (T/F)
FALSE
When a profit or loss sharing agreement provides for salary and interest allowances to the partners, these salary and interest allowances should be deducted from revenues in arriving at partnership profit. (T/F)
TRUE
When beginning capital balances are used in allocating profits, additional investments during the year are discouraged. (T/F)
TRUE
When beginning capital balances are used in allocating profits, year-end investments are discouraged. (T/F)
FALSE
When ending capital balances are used, additional investments during the year are encouraged. (T/F)
FALSE
When salary and interest allocations exceed profit, a loss has occurred. (T/F)
TRUE
Under the interest plan, the partner who invested more capital is credited for an interest on his capital and is ultimately debited with a lesser share of the loss. (T/F)
TRUE
The profits or losses shall be distributed in conformity with the agreement. (T/F)
TRUE
A bonus is given to the managing partner when the results of operations of the partnership are favorable. (T/F)
TRUE
A bonus is not considered in the computation of profit, but rather it is a mere technique to distribute profits. (T/F)
FALSE
A partnership agreement may validly stipulate that one partner shall receive no share in profits or losses. (T/F)
FALSE
A partnership contract should be drawn up at the end of each year, prior to distributing profit to the partners. (T/F)
FALSE
A stipulation that excludes one or more partners from any share in the profits or losses is valid. (T/F)
TRUE
A stipulation which excludes one or more partners from any share in the profits or losses is void. (T/F)
TRUE
Additional investments during the year, when beginning capital balances are used, are discouraged because the partners are not compensated in the division of profits until the next year. (T/F)
TRUE
Allowances are merely a means of allocating profit to the partners. (T/F)
TRUE
As to capitalist partners, the losses shall be divided according to their capital contributions. (T/F)
TRUE
As to capitalist partners, the profits shall be divided according to their capital contributions. (T/F)
TRUE
As to industrial partners, such share may be just and equitable provided that the industrial partner shall receive such share before the capitalist partners divide the profits. (T/F)
TRUE
As to purely industrial partners, they shall not be liable for any losses since he cannot withdraw the work or labor that was already done by him. (T/F)
Write-offs
Consists of uncollectible billings
TRUE
If a partnership agreement does not specify how profits or losses are to be distributed, they should be allocated based on relative capital account balances. (T/F)
TRUE
If an error resulted in an overstatement of profit, a correcting entry would be needed to decrease Capital. (T/F)
TRUE
If an error resulted in an understatement of profit, a correcting entry would be needed to increase Capital. (T/F)
TRUE
If capital contributions are not equal, interest allowances can make up for the unequal investments. (T/F)
TRUE
If ending capital balances are used, year-end investments are encouraged. (T/F)
TRUE
If service contributions are not equal, salary allowances can compensate for the differences. (T/F)
TRUE
If there is no agreement as to the distribution of losses but there is an agreement as to profits, then the losses shall be distributed according to the profit sharing ratio. (T/F)
TRUE
In certain cases when distribution of profits or losses involves salary and interest allowances, some partners may receive an increase in equity and others may suffer a decrease. (T/F)
TRUE
Interest earned on loans to partners is recognized as partnership income. (T/F)
TRUE
Interest on loans from partners is recognized as expense. (T/F)
FALSE
Interest on those loans from partners is recognized as partnership income. (T/F)
TRUE
It is possible for a partner's capital account to increase as a result of the allocation of a loss. (T/F)
TRUE
It is possible to allocate profit or loss to partners based solely on average capital balances. (T/F)
FALSE
It is possible to allocate profit or loss to partners based solely on interest. (T/F)
FALSE
It is possible to allocate profit or loss to partners based solely on salaries. (T/F)
TRUE
It is possible to allocate profit or loss to partners based solely on the stated ratio. (T/F)
FALSE
Partnership profits and losses are divided among partners according to their sharing agreement. If no sharing agreement exists, profits or losses are divided equally. (T/F)
FALSE
Profits or losses are divided equally among the partners unless the partnership agreement specifies otherwise. (T/F)
Bonus
Refers to the allocation of profits to a partner on the basis of performance
Promotional and Civic Activities
Refers to the time devoted to developing future business and enhancing the partnership name in the community
Total Billings
Refers to the total amount billed to clients for work performed and supervised by a partner
Chargeable Hours
Refers to the total number of hours that a partner incurred on client-related assignments
Profits in Excess of Specified Levels
Refers to when designated partners commonly receive a certain percentage of profits in excess of a specified level of earnings
TRUE
Salaries to partners are not deducted as expenses in the statement of comprehensive income. (T/F)
FALSE
Salary and interest allowances are reported in the statement of comprehensive income as salaries and interest expenses. (T/F)
TRUE
The basis for distribution of profits or losses is a matter of agreement among the partners. It may be based on their capital contribution ratio. (T/F)
TRUE
The basis on which profits or losses are shared is a matter of agreement among the partners and may not necessarily be the same as their capital contribution ratio. (T/F)
TRUE
The cash withdrawals will in no way affect the division of profits; the division of profits is governed by the sharing agreement. (T/F)
TRUE
The correction of a prior period error is excluded from profit or loss for the period in which the error is discovered. (T/F)
TRUE
The equity of a partner in the net assets of the partnership is not the same as the partner's share in profits or losses. (T/F)
FALSE
The form and content of the statement of comprehensive income of a partnership resemble those of a sole proprietorship with no exceptions. (T/F)
FALSE
The income summary account is credited in the entry to record distribution of profits. (T/F)
FALSE
The increase in equity of the partner due to distribution of profits can be attributed to a particular asset. (T/F)
TRUE
The industrial partner is not liable for losses because he cannot withdraw the work or labor already done by him. (T/F)
TRUE
The industrial partner is not liable for the losses. (T/F)
FALSE
The interest on partner's capital can be considered as expenses depending on the partner's agreement. (T/F)
TRUE
The interest on partners' capital are to be considered as mere techniques to share partnership profits or losses equitably, and not as expenses of the partnership. (T/F)
TRUE
The profits or losses shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. (T/F)
FALSE
The provision for interest on partners' capital will not be honored because the operations resulted to a loss even if the agreement provided for such interest. (T/F)
FALSE
The salary allocation to partners also appears as salaries expense on the partnership's statement of comprehensive income. (T/F)
FALSE
The salary, interest and stated ratio method of allocation cannot be applied when a loss has occurred. (T/F)
TRUE
The use of salaries in the allocation of profit or loss allows for the differences in the services that partners provide the business. (T/F)
TRUE
There is no incentive for a partner to make any investments before year-end when they are using ending capital balances. (T/F)
Partnership Profits
They are realized as a result of putting together the contributions (money, property, or industry) of the partners.
TRUE
Under the capital ratio plan, the partner who invested more capital will ultimately shoulder a bigger share of the loss. (T/F)
