PARTNERSHIP THEORIES d.

Only when a new partner is admitted to the

partnership
1. How does partnership accounting differ from e. When there is any change in the individuals
corporate accounting? who make up the partnership
a. The matching principle is not considered
appropriate for partnership accounting. 5. Which of the following results in dissolution
b. Revenues are recognized at a different time by of a partnership?
a partnership than is appropriate for a a. contribution of additional assets to the
corporation. partnership by an existing partner
c. Individual capital accounts replace the b. receipt of a draw by an existing partner
contributed capital and retained earnings c. winding up of the partnership and the
balances found in corporate accounting. distribution of remaining assets to the partners
d. Partnerships report all assets at fair value as of d. withdrawal of a partner from a partnership
the latest balance sheet date.
6. In a simple partnership liquidation, the last
2. Which of the following statements is correct remaining cash distribution should be made
with regard to drawing accounts that may be according to the ratio of
used by a partnership? a. the individual partner’s profit and loss
a. Drawing accounts are closed to the partners’ agreement.
capital accounts at the end of the accounting b. the individual partner's capital accounts,
period increased by partner loans to the partnership.
b. Drawing accounts establish the amount that c. the individual partner’s capital accounts,
may be taken from the partnership by a partner increased by partnership loans to the partners
in a given time period and decreased by partner loans to the
c. Drawing accounts are similar to Retained partnership.
Earnings in a corporation d. the individual partner’s capital accounts,
d. Drawing accounts appear on the balance sheet decreased by partnership loans to the partners
as a contra-equity account and increased by partner loans to the
partnership.
3. Which of the following would be least likely
to be used as a means of allocating profits 7. If a partner with a debit capital balance during
among partners who are active in the liquidation is personally solvent, the
management of the partnership? a. partner must invest additional assets in the
a. Salaries partnership.
b. Bonus as a percentage of net income before b. partner's debit balance will be allocated to the
the bonus other partners.
c. Bonus as a percentage of sales in excess of a c. other partners will give the partner enough
targeted amount cash to absorb the debit balance.
d. Interest on average capital balances d. partnership will loan the partner enough cash
to absorb the debit balance
4. The dissolution of a partnership occurs
a. Only when the partnership sells its assets and 8. How should the net profit or net loss of the
permanently closes its books partnership be divided among the partners,
b. Only when a partner leaves the partnership whether capitalist or industrial?
c. At the end of each year, when income is A. In accordance with their capital contribution
allocated to the partners ratio
B. In accordance with just and equitable sharing B. Profit sharing percentages of the new
taking into account the circumstances of the partnership
partnership C. Capital percentages of the previous partners
C. Equally D. Capital percentages of the new partnership
D. In accordance with the partnership agreement
16. If a partnership has only non-cash assets, all
9. In the absence of partnership profit agreement liabilities have been properly disbursed, and no
additional liquidation expenses are expected, the
to the contrary, how shall industrial partner
maximum potential loss to the partnership in the
share in partnership profit? liquidation process is:
A. Equal to the share of the least capitalist a) The fair market value of the noncash
partner assets
B. Equal to the share of the highest capitalist b) The book value of the noncash assets
partner c) The estimated proceeds from the sale of
C. Just and equitable share the assets less the book value of the
D. Equal to the average share capitalist partners noncash assets
d) None of the above
10. In the absence of partnership profit
agreement to the contrary, how shall the 17. If a partner who retires from a partnership
remaining partnership profit be distributed to the receives an amount of cash less than the
capitalist partners after distributing the share of partner’s capital account balance:
a) Identifiable net assets of the partnership
industrial partner?
should be written down
A. Based on capital contribution ratio b) Bonuses should be allocated to the
B. Based on loss agreement ratio continuing partners
C. Equally c) Negative goodwill should be recognized
D. Equal to share of industrial partner by the partnership
d) None of the foregoing should take place
13. AB is admitted into the partnership of DC
and EF by investing cash equivalent to ¼ of 18. The profit and loss sharing ratio of the
their capital. Which of the following is true after partner in a partnership should be:
the admission of AB? a) In the same ratio as the percentage
a) Total partners’ equity remains the same interest owned by each partner
b) Assets of the partnership will remain the b) Based on a relative effort contributed to
same the firm by the partners
c) Assets of the partnership will increase c) A weighted average of capital and effort
d) DC and EF capital decreased by ¼ contributions
d) Based on any formula that the partners
14. The non-cash contributions of the partners to choose / AGREEMENT
form a partnership are recorded by the
partnership at their: 19. In a partnership liquidation, the final cash
A. Fair Market Value or Agreed Value distribution to the partners should be made in
B. Original Cost accordance with the:
C. Dissolution Value a) Partner’s profit and loss sharing ratio
D. Book Value b) Balances of the partners’ capital
accounts
15. If a bonus is traceable to the previous c) Ratio of the capital contributions by the
partners rather than an incoming partner, it is partners
allocated among the partners according to the : d) Ratio of capital contributions less
A. Profit sharing percentages of the previous withdrawals by the partners
partnership
20. A partnership agreement calls for allocation 25. When a new partner is admitted into a
of profits and losses by salary allocations, a bonus partnership and the new partner receives a
allocation, interest on capital with any remainder capital credit greater than the fixed assets
to be allocated by present ratios. If partnership contributed, which of the following explains the
has a loss to allocate, generally which of the difference?
following procedures would be applied? I. The old partners' goodwill is being
a) Any loss would be allocated equally to
recognized.
all partners
b) Any salary allocation criteria would not II. The new partner's goodwill is being
be used recognized.
c) The bonus criteria would not be used A. I only C. Either I or II
d) The loss would be allocated using the B. only D. Both I and II
profit and loss ratios, only
26. In bonus method, the total invested capital is
21.The following must exist to have a bonus to equal to the total agreed capital but there is a
retiring partner (an)
A. The retiring must be paid less than the book A. decrease in the individual capital of the
value of his capital partner
B. The retiring must be paid more than the book B. increase in the individual capital of the
value of his capital partner
C. There must be a appositive revaluation C. increase or decrease in the individual capital
D. There must be a negative revaluation of the partner
D. increase or decrease in the total capital of the
22. When there is no partnership agreement partnership
regarding the distribution of profits, profits will
be distributed based on
27. The order of partnership liquidation process
A. Beginning capital C. Average capital
is
B. Ending Capital D. Original Capital
A. Sell assets, disburse cash to partners, pay
liabilities
23. In determining the partner's average capital,
B. Disburse cash to partners, pay liabilities, sell
the partner's permanent withdrawals are:
assets
A. Included in the computation of average
C. Pay liabilities, sell assets, disburse cash to
capital
partners
B. Not considered in the computation of average
D. Sell assets, pay liabilities, disburse cash to
capital (temporary)
partner
C. Both A and B
D. Neither A nor B
28. A capital deficiency can be eliminated by the
following except
24. MIMI and BIBI form a partnership and agree
A. Offsetting against a partner's loan
to share profits in a 4:6 ratio. The partnership net
B. Additional investment
loss for the year is P 100,000. The partners
C. Selling non cash assets at a gain
should share the losses based on:
D. Loss to the other partners
A. The ending capital balances
29. The capital deficiency of insolvent partner
B. The average capital balances shall be allocated based on:
C. 4:6 ratio A. Capital ratio of the absorbing partners
B. Profit and loss ratio of all partners
D. Original capital contribution
C. P/L ratio of the absorbing partners 34. The partnership agreement is an express
D. Equal ratio contract among the partners (the owners of the
business). Such an agreement generally does
30. If a new partner purchases his interest from not include
the existing partner, the journal entry includes: a. A limitation on a partner’s liability to
A. A debit to the capital of a new partner creditors.
B. A debit of cash b. The rights and duties of the partners.
C. A debit of bonus c. The allocation of income between the
D. A debit of selling partner capital partners.
d. The rights and duties of the partners in the
31. When a partner retires and receives in cash event of partnership dissolution
more than his capital balance, how should the
difference 35. A partnership records a partner’s investment
be treated? of assets in the business at
A. The difference should be credited to the a. The market value of the assets invested.
remaining partners in their remaining profit and b. A special value set by the partners.
loss ratio. (less than) c. The partner’s book value of the assets
B. The difference should be debited to the invested.
remaining partners in their remaining profit and d. Any of the above, depending upon the
loss ratio. partnership agreement
C. The difference should be credited to all the
partners in their profit and loss ratio. 36. On April 30, 2023, Algee, Belger, and Ceda
D. The difference should be debited to all the formed a partnership by combining their
partners in their profit and loss ratio separate business proprietorships. Algee
contributed cash of $50,000, Belger contributed
property with a $36,000 carrying amount, a
32. If there is no agreement as to distribution of
$40,000 original cost, and $80,000 fair value.
profit, but there is an agreement as to
The partnership accepted responsibility for the
distribution of
$35,000 mortgage attached to the property.
losses, how shall the partners divide the profits
Ceda contributed equipment with a $30,000
and losses?
carrying amount, a $75,000 original cost, and
A. Losses will be divided using the agreed loss
$55,000 fair value. The partnership agreement
ratio while Profits will be divided using the
specifies that profits and losses are to be shared
original capital contribution.
equally but is silent regarding capital
B. Profits and losses shall be divided equally
contributions. Which partner has the largest
C. Profits and losses shall be divided using the
April 30, 2023, capital account balance?
agreed loss ratio
a. Algee. c. Ceda
D. No distribution of profits, only the loss shall
b. Belger. d. All capital account balance
be divided using the agreed loss ratio
are equal
33. Partnership capital and drawing accounts are
37. The goodwill and bonus methods are two
similar to the corporate
means of adjusting for differences between the
a. Paid-in capital, retained earnings, and
net book value and the fair value of partnerships
dividend accounts.
when new partners are admitted. Which of the
b. Retained earnings account.
following statement about these methods is
c. Paid-in capital and retained earnings accounts.
correct?
d. Preferred and common stock accounts
a. The bonus method does not revalue assets to b. In proportion to the weighted-average of
market values. capital invested during the period.
b. The bonus method revalues assets to market c. Equitably so that partners are compensated for
values. the time and effort expended on behalf of the
c. Both methods result in the same balances in partnership
partner capital accounts. d. In accordance with an established ratio
d. Both methods result in the same total value of
partner capital accounts, but the individual 41. When Mill retired from the partnership of
capital accounts vary. Mill, Yale, and Lear, the final settlement of
Mill’s interest exceeded Mill’s capital balance.
Purchase Method Under the bonus method, the excess
38. Assume that C has a P50,000 equity in the a. Was recorded as goodwill.
partnership of “A, B, and C.” Partner C b. Was recorded as an expense.
arranges to sell his entire interest to D for c. Reduced the capital balances of Yale and
P80,000 Cash. Partners A and B agree to the Lear.
admission of D. At what amount will the equity d. Had no effect on the capital balances of Yale
of the incoming partner, D, be shown in the and Lear.
balance sheet?
a. at P50,000. 42. Partnership was formed by Vice and Ganda.
b. at P50,000 and the P30,000 will be Vice contributed cash. Ganda, previously sole
divided equally among the original partners. proprietor, contributed noncash assets including
c. at P80,000 a realty subject to mortgage
d. at P80,000 and the P30,000 will which was assumed by the partnership. Ganda's
represent Goodwill which will be apportioned capital account should be recorded at:
between the existing equities of A and B. A. The fair value of the property less the
mortgage payable
Bonus Method B. Lopez's carrying amount of the property
39. In the Adel-Brick partnership, Adel and C. Lopez's carrying amount of the property less
Brick had a capital ratio of 3:1 and a profit and the mortgage payable
loss ratio of 2:1, respectively. The bonus D. The fair value of the property (if the liability
method was used to record Colter’s admittance was not assume by the partnership)
as a new partner. What ratio would be used to
allocate, to Adel and Brick, the excess of 43. BA retired from the partnership of BA, BI,
Colter’s contribution over the amount credited to and BO.
Colter’s capital account? BA received P100,000 representing final
a. Adel and Brick’s new relative capital ratio. settlement of his interest in the amount of
b. Adel and Brick’s new relative profit and loss P90,000.Under the bonus method,
ratio. A. P10,000 was recorded as goodwill.
c. Adel and Brick’s old capital ratio. B. P10,000 was recorded as expense.
d. Adel and Brick’s old profit and loss ratio. C. Charged P10,000 against the capital balances
of BI and BO.
Goodwill Method D. P90,000 was recorded as bonus
Distribution of Income
40. If the partnership agreement does not specify
how income is to be allocated, profits should be
allocated
a. Equally.
44. When NANA retired from the partnership of If the bonus method is used to record Jay's
NANA, NINA, and NONA, the final settlement admission to the partnership:
of NANA’s interest exceeded her capital A. Ja's capital will be P120,000
balance. Under the bonus method, the excess is B. Ma's capital will be P160,000
a. Recorded as goodwill. C. Pa’s capital will be P46,667
b. Recorded as an expense. D. Total capital will be P 260,000
c. Of no effect to the capital accounts of Nina
and Nona. 49. The main characteristic of a liquidation done
d. Deducted from the capital account balances of in one transaction is that all the
Nina and Nona. A. assets are sold in one transaction
B. liabilities are paid in one transaction
45. How does a newly formed partnership C. cash available to partners is distributed to
handle the contribution of previously them in one transaction
depreciated assets? D. assets are sold in one transaction and all the
A. continues the depreciation life as if the owner available cash is distributed to creditors and
had not changed partners in one transaction
B. starts over, using the contributed value as the
new cost basis 50. In a partnership agreement, what does the
C. shortens the useful life of the asset per the capital contribution' clause typically include?
partnership agreement A. Profit sharing ratios
D. does not depreciate the contributed asset B. Management duties
C. Type and amount of Investment
46. When a partnership is liquidated, the second D. Conflict resolution methods
step in the liquidation process is to
A. allocate the gain or loss on sale based on 51. Vhong is retiring from a partnership with a
income sharing ratio capital account balance of $250,000. The
B. pay off liabilities partnership agreement states that retiring
C. sell noncash assets partners are entitled to their capital account
D. divide the remaining cash among the partners balance plus a 25% retirement bonus. How is the
25% retirement bonus treated in the partnership
Retirement of Partners accounting?
Revaluation of Assets A. As an increase in Vhong’s capital account
47. Before the withdrawal of Alice from their and a corresponding decrease in the remaining
partnership, the partners agreed to adjust assets partners' capital accounts proportionally.
to their fair values. Accordingly, the appraisal B. As a withdrawal from Vhong’s capital
increase was credited to (M) account, leaving the remaining partners' capital
a. Income Summary. c. Appraisal Capital. accounts unaffected.
b. Deferred Credit. d. Partners’ Capital C. As an expense to the partnership, affecting
Accounts. the overall equity but not directly reducing the
remaining partners' capital accounts.
48. Pa and Ma are partners having capital D. As a liability of the partnership, payable to
balances of P110,000 and P160,000, Vhong, with no immediate effect on the
respectively, and share profits and losses remaining partners' capital accounts
equally. Ja is going to invest P90,000 into the
business to acquire a one/third ownership
interest.
52. When a new partner is admitted to a 57. A and B formed a partnership. The
partnership, which of the following is affected? partnership agreement stipulates the following:
A. The partnership's existing liabilities A shall contribute noncash assets with
B. The partnership's capital structure and profit- carrying amount of P60,000 and fair value of
sharing ratio P100,000.
C. The partnership's name and location B shall contribute cash of P200,000.
D. Only the profit-sharing ratio A and B shall have interests of 80% and 20%,
respectively, on both the initial partnership
53. In bonus method, the total invested capital is capital and in subsequent partnership profits and
equal to the total agreed capital but there is a(an) losses.
A. decrease in the individual capital of the No outside cash settlements shall be made
partner between and among the partners.
B. increase in the individual capital of the The adjusted capital account of B after the
partner formation is
C. increase or decrease in the individual capital A. 100,000 B. 200,000
of the partner C. 60,000 D. None of these
D. increase or decrease in the total capital of the
partnership 58. Which of the following transactions will
decrease the capital balance of a partner?
54. What happens to the assets of a partnership a. Additional investment by said partner
during a lump-sum liquidation? b. Share in partnership’s profit
A. They are divided equally among partners c. Drawings by said partner
B. They are sold, and the proceeds are used to d. Receipt of bonus from other partners
pay off the partnership's obligations
C. They are transferred to a trustee 59. At the time of retirement of a partner, he
D. They are held in reserve for one year receives more than his capital balance before
retirement but the capital balances of the
55. The capital deficiency of insolvent partner remaining partners also increase. Which of the
shall be allocated based on: following is the most valid reason under
A. Profit and loss ratio of the absorbing partners Philippine GAAP?
B. Profit and loss ratio of all partners a. There has been asset revaluation before
C. Capital ratio of the absorbing partners retirement.
D. Equal ratio b. Goodwill arising from partner’s retirement
has been recognized.
56. If the partnership agreement does not specify c. There has been asset impairment before
how income is to be allocated, profits and loss retirement.
should be allocated d. Bonus has been given to retiring partner.
A. Equally
B. In proportion to the weighted average of 60. Which scenario best describes the following
capital invested during the period journal entry: Debit Income Summary, Credit
C. Equitably so that partners are compensated Capital Accounts of the partners?
for the tine and effort expended on behalf of the a. Permanent withdrawal by partners
partnership b. Initial investment by partners
D. In accordance with their capital contributions. c. Closing of partnership profit to the partners’
capital accounts
d. Closing of partnership loss to the partners’
capital accounts