Division of Profits and Losses (Ballada)

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

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)


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