UNIT 2: ACCOUNTING FOR PARTNERSHIP

TRUE

A bonus to a newly admitted partner decreases the capital balances of old partners based on the old profit and loss ratio.

TRUE

A capitalist-industrial partner receives a share in net income both as an industrial and as a capitalist partner.

TRUE

A partnership contract must be voluntary

FALSE

A partnership has a juridical personality separate but not distinct from that of the partners.

A

A partnership profit and loss ratio applies to partnership profit A.After salaries and interest are deducted B.Before salaries are deductedbut after interest is deducted C.After salaries are deducted but before interest is deducted D.Before salaries and interest are deducted

B

A partnership whose main activity is rendering services (examples include public accounting firms, law and notarial offices, and diagnostic and medical clinics) is a A.Trading partnership B.Non-trading partnership C.General partnership D.Limited partnership

FALSE

A written partnership contract is required to be prepared whenever a partnership is formed.

TRUE

All deficient partners are insolvent partners.

FALSE

Any profit or loss from operations is divided equally among the partners.

TRUE

Bonus, as a compensation for good performance, occurs only when thereis a favorable partnership operation.

TRUE

Contributions in the form of non-cash assets should be recorded at their fair market value in the absence of an agreed value.

TRUE

Dissolution does not mean actual cessation of business of the partnership.

TRUE

Dissolution relates strongly to the limited life characteristic of partnership.

TRUE

Fulfillment of the purpose for which the partnership was formed and bankruptcy of the business can give rise to liquidation.

TRUE

Higher amount of capital may be raised in establishing a partnership than a sole proprietorship.

FALSE

If a new partner purchases interest in a partnership directly from existing partner, the Cash account is debited and the new partner's capital account is credited.

FALSE

If partners did not agree as to how profits are to be divided, then such should be divided equally among them.

TRUE

In distributing profits and losses to partners, interest for use of partners' capital may be provided for regardless of whether there is net income or net loss.

TRUE

In partnership liquidation, gains or losses on realization of non-cash assets are allocated among the partners in proportion to their capital equity interests.

TRUE

In the books of the partnership, there are as many capital and drawing accounts as there are partners.

TRUE

Investments by a partner are credited to that partner's capital account.

TRUE

Liquidation cannot take place when there are solvent partners.

TRUE

Liquidation is the process of converting the assets of the partnership into cash and distributing the cash to partners and creditors, in that order of priority.

industrial partner

One who contributes his knowledge or personal service to the partnership.

capitalist partner

One who contributes money or property to the common fund of the partnership.

A

One who does not participate in the management of operations and affairs of the partnership is a A.Silent partner B.Dormant partner C.Liquidating partner D.Managing partner

TRUE

Partnership formation involving a sole proprietorship business may either use the books of the sole proprietor or open new set of books.

FALSE

Salary and interest allowances for partners are treated as expenses of the partnership and are used in the calculation of net income.

TRUE

Some partners, known as limited partners, may not be personally liable for the debts of the partnership.

TRUE

The articles of co-partnership govern the formation, operation, and dissolution of thepartnership.

D

The following transactions affect Partner's Equityaccount, EXCEPT A.Additional investment B.Payment of personal expenses from partnership funds C.Both A and B D.Neither A nor B

TRUE

The managing partner spearheads liquidation process as he/she is the one ordinarily tasked to take charge of winding up partnership operations and affairs.

FALSE

The percentage interest in a partnership is always the same as the profit-sharing ratio.

fair value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

TRUE

The weighted-average capital method of computing average capital is also known aspeso-month average capital method.

D

This compensates for the routine time and effort partners expends to the business. A.Interest on capital balance B.Bonus C.Loans D.Salary allowance

TRUE

Total assets and capital of a partnership are not affected by admission of new partner by purchase of interest.

TRUE

Two or more persons may form a partnership for the exercise of profession.

TRUE

Upon withdrawal, the withdrawing partner/s may receive less than his or her capital account balances.

FALSE

When a partner makes a cash withdrawal that is intended to be a permanent reduction in his or her investment, the withdrawal account is debited.

B

When a partnership cannot pay its debts with business assets, general partners A.Are not personally liable for the debts B.Must use their personal assets to pay the debts C.Can pay the debts only up to the extent of capital contributed D.Must convert the partnership to a joint venture

FALSE

When admission to a partnership is by purchase of interest, the incoming partner receives equity equal to the amount he/she paid.

TRUE

When payment to a retiring partner is made from the personal assets of the continuing partners, the total capital of the partnership does not change.

C

When the owner of a sole proprietorship accepts a partner, the assets of the proprietorship A.Must be transferred to the partnership at the values reflected in the financial records of the proprietorship B.Must be converted to cash and used to pay any debts of the proprietorship, with excess cash available for investment in the new partnership C.May be adjusted to reflect current values before being transferred to the partnership D.Cannot be invested in the new partnership

D

Which of the following DOES NOT give rise to partnership dissolution? A.Admission of a new partner by purchase of interest B.Transfer of full interest from one existing partner to another existing partner C.Incapacity of a partner D.None of the above

A

Which of the following dissolution events WILL NOT change the net assets of the partnership? A.Purchase of ownership interest directly from existing partner B.Purchase of ownership interest directly from partnership C.Both A and B D.Neither A nor B

D

Which of the following is NOT a characteristic of a partnership? A.Each general partner has unlimited liability for the debts of the partnership. B.If one partner dies or leaves the partnership, the existing partnership is dissolved. C.The existing partnership agreement is dissolved and a new agreement is formed when a new partner joins the partnership. D.None of the above choices.

A

Which of the following occur/s every time a new partner is admitted to a partnership?A.Dissolution only B.Dissolution and liquidation only C.Dissolution and termination only D.Dissolution, liquidation, and termination

D

Which of the following statements is CORRECT? A.If there is no specific agreement on division of partnership profits or losses, they are divided liberally among partners. B.If partners consider their cash withdrawals to be compensation for the work they do for the partnership, the withdrawals should be charged to Salaries Expense. C.If a salary is allowed to one partner, other partners also must receive a salary allowance. D.If there is no specific agreement as to the division of partnership profits and losses, they are divided proportionate to capital contribution.

C

Which of the following statements is CORRECT? A.The general ledger of a partnership will include a single capital account, the balance of which represents the combined equity of all the partners. B.Past-due accounts receivable should not be transferred from the financial records of a sole proprietorship to a newly formed partnership. C.Contributions in the form of industry are recorded with a memorandum entry in the general journal. D.Accumulated depreciation accounts are transferred from the financial records of a sole proprietorship to a newly formed partnership.

juridical persons

a corporation, although a juridical person, may not be a partner but may engage in joint ventures

books

accounts receivable and its allowance account is transferred and recorded to __

universal partnership of profits

all that the partners may acquire by their indiustry or work during existence of prtnership. movable or immovable property shall continue to pertain exclusively to each

dissolution

change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business [ART.1828]

mutual agency, limited life, unlimited liability, co-ownership of contributed assets, mutual participation of profits, income taxation

characteristics of partnership

Articles of partnership

contract of general partnership

certificate of partnership

contract of limited partnerships

bonus approach

contribution [investment] made by partner is not equal to the capital share[book value

full investment approach

contribution made by partner is equal to capital share [book value]

unlimited liability

creditors can run after personal assets and general partners

Partnership by Estoppel

exists when non-partners are treated as if they were actually partners and are forced to share liability

de facto partnership

has not complied with some or all of the legal requirements of the partnership

limited partnership

has one or more general partners and one or more limited partners

30%

income tax of partnership, except for General professional partnerships

A

n what manner should continuing partners share in the bonus paid to withdrawing partner? A.Proportionate to their residual profit and loss ratio B.Equally C.Proportionate to capital account balances D.The partner with the least capital balance isgiven the bonus.

juridical personality legal relationship partners may be natural or juridical persons contract may be in oral, writing or implied operated under unlimited liability lawful object or purpose and for common benefit of partners

nature of partnership

limited partner

partner whose liabiity for partnership debts is limited to one's contributed capital

general partner

partner whose liability for partnership debts extends to one's personal assets

separate and distinct

partners have a juridical personality ____ and _____ from those of the partners

general partnership

partnership in which partners share equally in both responsibility and liability

partnership at will

partnership that exists indefinitely

partnership with a fixed duration

partnership that exists with a fixe term

de jure partnership

partnership that has complied with all the legal requirements for its xistence

general professional partnerships

partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any tade or business

natural persons

persons who are capable and competent

provisions from civil code

private partnerships are governed by

agreed value

recording of non-cash or properties are in`

agreed value

the accepted value of a non-cash asset at the time of its contribution by the owner

juridical persons

the state, public and private corporations

Universal partnership of all present property

when partners contribute allthe property which actually belongs to them to a commmon fund, property of partners becomes prperty of all partners

immovable property or 3,000+capital

when should partnership contracts be written

net of depreciation

when transferring ppe, it is recorded in

laws

who regulates private corporations