Quiz 2 Reviewer

Question 1

A form of business organization in which they are some owners who are only liable up to the extent of the amount of capital invested in the business.

a. Sole Proprietorship
b. General Partnership
c. Limited Partnership
d. Corporation

Answer 1

c. Limited Partnership

Question 2

One of the major disadvantages of a partnership is…

a. A general partner may be subjected to a personal and unlimited liability.
b. Better management
c. Greater amount of capital
d. Easy and inexpensive to form

Answer 2

a. A general partner may be subjected to personal and unlimited liability.

Question 3

The following are the characteristics of a partnership, except:

a. Created by meeting of the minds
b. Right of succession
c. Limited life
d. Unlimited liability

Answer 3

b. Right of succession

Question 4

A partnership characteristic that states that the business may be dissolved at any time by action of the partners or by operation of law.

a. Limited life
b. Legal entry
c. Mutual Agency
d. Co-ownership of profit

Answer 4

a. Limited life

Question 5

Which of the following is not contained in the Articles of Co-Partnership?

a. The purpose and principal place of business of the partnership business.
b. The conditions under which the partners may withdraw money or other assets.
c. The name of the customers including their classes.
d. The rights and duties of each of the partners.

Answer 5

c. The name of the customers including their classes.

Question 6

ACCCOB1 Company is composed of Albert, Carlo, and Benito, in the general ledger of the company, how many capital account/s shall be maintained?

a. 1
b. 2
c. 3
d. 4

Answer 6

c. 3

Question 7

Albert and Carlo decided to form a partnership. Which of the following is INCORRECT about non-cash assets contributed to the partnership?

a. Accounts receivable should be recorded at gross amount.
b. Depreciable assets are recorded at their gross amount, including any accumulated depreciation.
c. A memorandum entry is used to record the contribution of skill or services.
d. Non-cash assets are recorded using the agreed value or fair value.

Answer 7

b. Depreciable assets are recorded at their gross amount, including any accumulated depreciation.

Question 8

What account title will be affected in the book of accounts of the partnership in case of a cash investment of a new partner when two or more individuals form a business for the first time?

a. Debit to cash account
b. Credit to cash account
c. Debit to investment account
d. Credit to investment account

Answer 8

c. Debit to investment account

Question 9

Which of the following is not a component of the formula used to divide profits among partners?

a. Salary allowances to the managing partners
b. Interest on average capital investments
c. The remainder in an agreed ratio
d. Interest on loan payable to partners

Answer 9

a. Salary allowances to the managing partners

Question 10

A third statement accompanying the statement of financial position and income statement of a partnership is the…

a. Statement of Division of Profits and Losses
b. Statement of Changes in Partners’ Equity
c. Statement of Cash Flow
d. Notes to Financial Statements

Answer 10

a. Statement of Division of Profits and Losses

Question 11

Which of the following is TRUE about an industrial partner?

a. A partner who contributes his services and non-cash assets to the partnership.
b. A partner in name only and does not participate in the management of the business.
c. A partner who contributes money, property, and industry.
d. A partner whose contribution will not require a journal entry.

Answer 11

c. A partner who contributes money, property, and industry.

Question 12

The properties invested by a partner cease to be his personal property and become the partnership’s property is the characteristic called…

a. Legal entity
b. Co-ownership of property
c. Mutual agency
d. Unlimited liability

Answer 12

b. Co-ownership of property

Question 13

Which of the following is not reflected in the Distribution of Net Income section of the Statement of Profit or Loss?

a. Salary allowance
b. Interest on capital
C. Bonus
d. Operating expenses

Answer 13

d. Operating expenses

Question 14

The partnership’s net income may be viewed as a return for all the following, except?

a. Opportunity cost
b. Services rendered
c. Capital investment
d. Entrepreneurial ability or managerial skills

Answer 14

a. Opportunity cost

Question 15

In order to arrive at an equitable manner of distributing profits and losses, any of the following factors may be take into consideration, except?

a. Amounts of capital contributed by the partners.
b. Educational attainment by the partners.
c. Services rendered to the partnership by the partners.
d. Skills of partners that are needed in running the partnership.

Answer 15

b. Educational attainment by the partners.

Question 16

TRUE OR FALSE: A partnership is formed through written or oral agreement.

Answer 16

True

Question 17

TRUE OR FALSE: In a general partnership, all the partners are general partners. On the other hand, in a limited partnership, all partners are limited partners.

Answer 17

False

Question 18

TRUE OR FALSE: Accounting for a partnership form of business is identical to that of a corporation.

Answer 18

False

Question 19

TRUE OR FALSE: A partnership with a Fixed Term is one in which the term or period for which the partnership is to exist is agreed upon.

Answer 19

True

Question 20

TRUE OR FALSE: A nominal partner is a partner who is not really a partner, not being a party to the partnership agreement, but is made liable as a partner to safeguard and protect the rights of innocent third parties.

Answer 20

True

Question 21

TRUE OR FALSE: The total assets in the initial statement of financial position of the partnership is higher than its total liabilities and equity since there would be more than one owner of the business.

Answer 21

True

Question 22

TRUE OR FALSE: In a partnership formation, two types of entries may be recorded in journalizing partners’ initial investments, namely, a simple journal entry and a compound journal entry.

Answer 22

True

Question 23

TRUE OR FALSE: If the sole proprietor decided to form a partnership business with individuals with no existing business, assets and liabilities of the sole proprietorship business should be analyzed and revalued in order to arrive at a capital balance which is fairly valued.

Answer 23

True

Question 24

TRUE OR FALSE: The allocation of partnership income among the partners will appear in the Statement of Financial Position.

Answer 24

False

Question 25

TRUE OR FALSE: If an individual forms a partnership with another individual with existing sole proprietorship business, the asset Cash in Bank originally owned in the sole proprietorship business of the latter must be revalued.

Answer 25

False

Question 26

TRUE OR FALSE: To avoid conflict, the partners should divide the partnership profits and losses equally. In no case shall arbitrary rations be allowed.

Answer 26

False

Question 27

TRUE OR FALSE: Salaries paid to partners are recorded as an operating expense of the partnership.

Answer 27

True

Question 28

TRUE OR FALSE: It is necessary to maintain different capital and drawing account of each partner in the books of the partnership.

Answer 28

True

Question 29

TRUE OR FALSE: Partners' capital balances, beginning of the period + Additional investments during the period + Net income for the period - Drawings for the period = Partners' capital balances, end of the period.

Answer 29

True

Question 30

TRUE OR FALSE: The partnership cannot change their original profit and loss ratio if it is stipulated in the original partnership agreement.

Answer 30

False

Question 31

TRUE OR FALSE: The partnership cannot change their original profit and loss ratio if it is stipulated in the original partnership agreement.

Answer 31

False

Question 32

ACCOUNTING PROBLEM SOLVING (Excel Solutions, Double Ruled Answers): On September 1, 2022, Albert and Benito decided to form a partnership venture and agreed on the following: I. Albert will invest Land amounting to P2,040,000 and cash amounting to P460,000. Il. Benito will invest cash of P1,040,000 and computers with a fair market value amounting to P120,000. III. The two partners also agree that the partnership business will assume the P460,000 mortgage loan payable on the Land invested by Albert. Compute the capital to be reported for Albert.

Answer 32

Albert's Investment: Land: P2,040,000 Cash: P460,000 Share of Mortgage Loan Payable: P460,000 (since the mortgage loan is assumed by the partnership business) Total Investment by Albert = Land + Cash + Share of Mortgage Loan Payable = P2,040,000 + P460,000 + P460,000 = P2,960,000 So, the capital to be reported for Albert in the partnership would be P2,960,000.

Question 33

ACCOUNTING PROBLEM SOLVING (Excel Solutions, Double Ruled Answers): On April 13, 2023, the business assets and liabilities of Albert and Benito are as follows: P920,850 - Total Assets of Albert P 875,120 -Total Liability of Albert P 450,000 - Total Assets of Benito P 325,000 - Total Liability of Benito Albert and Benito agreed to form a partnership by contributing their respective assets and equities subject to following adjustments: * Accounts receivable of P 10,000 on both books are considered uncollectible. * Inventories of P 2,500 and P 4,600, are regarded as obsolete items in Albert's and Benito's books respectively. * Other assets of P 4,000 and P 7,600 in Albert's and Benito's respective books are to be written off. Compute for the adjusted capital of Albert.

Answer 33

Original Total Assets of Albert = P920,850 Less: Uncollectible Accounts Receivable = P10,000 Less: Write-off of Other Assets = P4,000 Adjusted Total Assets of Albert = Original Total Assets of Albert - Uncollectible Accounts Receivable - Write-off of Other Assets = P920,850 - P10,000 - P4,000 = P906,850 Original Total Liabilities of Albert = P875,120 Adjusted Total Liabilities of Albert = Original Total Liabilities of Albert = P875,120 Equity of Albert = Adjusted Total Assets of Albert - Adjusted Total Liabilities of Albert = P906,850 - P875,120 = P31,730 So, the adjusted capital of Albert in the partnership would be P31,730.

Question 34

ACCOUNTING PROBLEM SOLVING (Excel Solutions, Double Ruled Answers): Albert and Benito formed a partnership and agreed to contribute as follows: Cash P 100,000 - Albert Equipment P350,000 - Benito Land 1.000.000 - Albert Loans Payable 300,000 - Albert The loans payable is related to the mortgage on the land. The partners agreed that the partnership will assume the loan. Benito will contribute additional cash to make his capital balance equal to 40% of the total partnership equity. Compute the total assets of the partnership.

Answer 34

Contributions of Albert: Cash: P100,000 Land: P1,000,000 Loans Payable: P300,000 Total Contributions of Albert = Cash + Land + Loans Payable = P100,000 + P1,000,000 + P300,000 = P1,400,000 Contributions of Benito: Equipment: P350,000 Total Contributions of Benito = Equipment = P350,000 Total Partnership Equity = Total Contributions of Albert + Total Contributions of Benito = P1,400,000 + P350,000 = P1,750,000 Benito's Additional Cash Contribution to Equalize Capital Balance = (40% of Total Partnership Equity) - Benito's Current Capital Balance = (40/100) * P1,750,000 - 0 (since Benito's current capital balance is not given) = P700,000 Total Assets of the Partnership = Total Contributions of Albert + Total Contributions of Benito + Benito's Additional Cash Contribution = P1,400,000 + P350,000 + P700,000 = P2,450,000 So, the total assets of the partnership would be P2,450,000.

Question 35

ACCOUNTING PROBLEM SOLVING (Excel Solutions, Double Ruled Answers): Albert, Benito and Carlo are classmates who took BS Entrepreneurship in college. Six months after graduation, they formed ABC, a partnership distributing Vitamin C supplements nationwide. * Albert invested a fleet of delivery vehicles with an aggregate acquisition cost of P5,000,000 and a fair market value of P3,750,000. *Benito invested cash of P2,000,000 and a printing machine which is fairly valued at P1,000,000. * Lastly, Carlo invested cash which would make his capital contribution equal to that of Albert's actual contribution. The partners agreed to equalize their capital interest at P3,500,000 each. Under the bonus approach in forming the partnership, compute the amount of bonus given to partner Benito.

Answer 35

Albert's Contribution: Fleet of delivery vehicles (fair market value): P3,750,000 Benito's Contribution: Cash: P2,000,000 Printing machine (fair market value): P1,000,000 Carlo's Contribution: Cash: Amount to make capital contribution equal to Albert's contribution Albert's capital contribution = P3,500,000 Carlo's capital contribution = Albert's capital contribution = P3,500,000 Carlo's Contribution = Carlo's capital contribution - Existing contribution = P3,500,000 - Carlo's existing contribution Since Carlo's capital contribution needs to be equal to Albert's actual contribution, we can set up an equation: Carlo's capital contribution = Albert's actual contribution P3,500,000 = Albert's actual contribution Solving for Albert's actual contribution: Albert's actual contribution = P3,500,000 Now, let's calculate the total capital interest of the partnership after equalization: Total capital interest after equalization = Capital contribution of each partner * Number of partners = P3,500,000 * 3 = P10,500,000 Now, let's calculate the total fair market value of all contributions: Total fair market value of all contributions = Fair market value of Albert's contribution + Fair market value of Benito's contribution = P3,750,000 + P1,000,000 = P4,750,000 Difference between total capital interest and total fair market value of all contributions = Total capital interest after equalization - Total fair market value of all contributions = P10,500,000 - P4,750,000 = P5,750,000 Now, let's calculate the bonus for Benito, which is half of the difference between his contribution and the total capital interest after equalization: Bonus for Benito = (Benito's capital contribution - Total capital interest after equalization) / 2 = (P2,000,000 - P10,500,000) / 2 = -P4,750,000 / 2 = -P2,375,000 Since the calculated bonus is negative, it means Benito will receive no bonus. Therefore, the amount of bonus given to partner Benito is zero.

Question 36

In its first year of operations ACCCOB1 Trading, a partnership, made a net income of P300,000, before providing for salaries of P80,000 and P60,000 per annum to partners Albert and Benito, respectively. Capital contributions are as follows: Albert, Capital P 300.000 Benito, Capital 400,000 Carlo, Capital 300,000 Assume that no profit and loss ratio is provided in the agreement and that there was no change in the capital contributions during the year, Compute the share of Albert in the year-end profit.

Answer 36

Albert's capital ratio = Albert's capital contribution / Total capital contributions = P300,000 / (P300,000 + P400,000 + P300,000) = P300,000 / P1,000,000 = 0.3 or 30% Benito's capital ratio = Benito's capital contribution / Total capital contributions = P400,000 / (P300,000 + P400,000 + P300,000) = P400,000 / P1,000,000 = 0.4 or 40% Carlo's capital ratio = Carlo's capital contribution / Total capital contributions = P300,000 / (P300,000 + P400,000 + P300,000) = P300,000 / P1,000,000 = 0.3 or 30% Now, let's calculate the share of Albert in the year-end profit using the capital ratio method: Albert's share in year-end profit = Albert's capital ratio * Net income = 0.3 * P300,000 = P90,000 Therefore, the share of Albert in the year-end profit is P90,000.

Question 37

Mort. Benlo, and Carlo stared a parmerstipand egreed to divide profis and losses as Salaries: Monthly salary of PS0,000 and P80,000 will be paid to Benito and Carlo, respectively Interest: Interest of 10% will be paid to Albert based on his beginning capital balance. Albert's initial capital balance was P1,500,000. Remainder: Albert - 60%, Benito - 20%, Carlo - 20% The profit for the first twelve months of operation was P3,000,000. Compute the share of Carlo in partnership profit.

Answer 37

Salaries: Monthly salary to Benito = P80,000 Monthly salary to Carlo = P80,000 Interest: Albert's interest on beginning capital balance = 10% of P1,500,000 = P150,000 Remainder: Albert's share in profit = 60% Benito's share in profit = 20% Carlo's share in profit = 20% Now, let's calculate the total salary and interest expense for the partnership: Total salary expense = Monthly salary to Benito * 12 months + Monthly salary to Carlo * 12 months = P80,000 * 12 + P80,000 * 12 = P1,920,000 Total interest expense = Albert's interest on beginning capital balance = P150,000 Net profit before distribution = Profit for the first twelve months - Total salary expense - Total interest expense = P3,000,000 - P1,920,000 - P150,000 = P930,000 Now, let's calculate Carlo's share in partnership profit: Carlo's share in profit = Carlo's share in profit ratio * Net profit before distribution = 20% * P930,000 = P186,000 Therefore, the share of Carlo in the partnership profit is P186,000.

Question 38

Albert and Benito founded a partnership and agreed to divide profits and losses based on average capital balances. Net income for the year was P420,000. During the year, Albert and Benito made the following transactions:' Albert: Jan 1, initial investment of P1,500,000 Apr 1, additional investment of P 800,000 Sept 1, withdrawal of P 400,000 Benito: Jan 1, initial investment of P800,000 May 1, withdrawal of P300,000 Aug 1, additional investment of P1,000,000 Compute the average capital of Albert.

Answer 38

Albert's transactions during the year are as follows: Jan 1: Initial investment = P1,500,000 Apr 1: Additional investment = P800,000 Sept 1: Withdrawal = P400,000 To calculate the average capital of Albert, we need to determine the capital balance for each period and then calculate the total capital balance. Jan 1: Initial investment = P1,500,000 Apr 1: Additional investment = P800,000 Sept 1: Withdrawal = P400,000 Capital balance on Jan 1 = P1,500,000 Capital balance on Apr 1 = Capital balance on Jan 1 + Additional investment = P1,500,000 + P800,000 = P2,300,000 Capital balance on Sept 1 = Capital balance on Apr 1 - Withdrawal = P2,300,000 - P400,000 = P1,900,000 Total capital balance of Albert during the year = Capital balance on Jan 1 + Capital balance on Apr 1 + Capital balance on Sept 1 = P1,500,000 + P2,300,000 + P1,900,000 = P5,700,000 Now, let's calculate the average capital of Albert: Average capital of Albert = Total capital balance of Albert during the year / Number of periods for which capital balance is calculated = P5,700,000 / 3 = P1,900,000 Therefore, the average capital of Albert during the year is P1,900,000.

Question 39

Albert and Benito are general partners of AB and Co. with beginning capital balances on January 1, 2023, amounting to P780,000 and P640,000, respectively. The profit and loss agreement provides salaries of P360,000 to Albert and P180,000 to Benito, 8% interest on beginning capital, and the remaining balance to be divided equally. For the year ended 2023, the partnership generated a net loss of P750,000. Compute the amount of loss allocated to Benito.

Answer 39

The profit and loss agreement provides the following terms: Salaries: P360,000 to Albert and P180,000 to Benito Interest: 8% on beginning capital Remaining balance to be divided equally Let's calculate the allocation of the net loss to Albert and Benito step by step: Calculate the total salaries: Total Salaries = Salary to Albert + Salary to Benito Total Salaries = P360,000 + P180,000 Total Salaries = P540,000 Calculate the total interest on beginning capital: Interest on Beginning Capital = 8% of (Beginning Capital of Albert + Beginning Capital of Benito) Interest on Beginning Capital = 8% of (P780,000 + P640,000) Interest on Beginning Capital = 8% of P1,420,000 Interest on Beginning Capital = P113,600 Calculate the remaining balance after deducting salaries and interest: Remaining Balance = Net Loss - Total Salaries - Interest on Beginning Capital Remaining Balance = P750,000 - P540,000 - P113,600 Remaining Balance = P96,400 Divide the remaining balance equally between Albert and Benito: Loss allocated to each partner = Remaining Balance / Number of partners Loss allocated to each partner = P96,400 / 2 Loss allocated to each partner = P48,200 Since the loss is allocated equally, Benito's share of the loss is P48,200.

Question 40

On January 1, 2022, Albert, Benito, and Carlo formed ABC Partnership with total agreed capitalization of P1,000,000. The capital interest ratio of the ABC Partnership is 5:1:4 while the profit or loss ratio is 3:2:5, respectively. During 2022, Albert and Benito made additional investments of P200,000 and P500,000, respectively. At the end of 2022, Benito and Carlo made drawings of P300,000 and P100,000, respectively. On December 31, 2022, the capital balance of Carlo is reported at P200,000 Compute the capital balance of Benito at the end of the year.

Answer 40

Given data: Initial agreed capitalization of ABC Partnership: P1,000,000 Capital interest ratio: 5:1:4 (Albert:Benito:Carlo) Profit or loss ratio: 3:2:5 (Albert:Benito:Carlo) Additional investment by Albert during 2022: P200,000 Additional investment by Benito during 2022: P500,000 Drawings by Benito during 2022: P300,000 Drawings by Carlo during 2022: P100,000 Capital balance of Carlo on December 31, 2022: P200,000 Let's calculate the capital balance of Benito at the end of the year: Calculate the total capital investments of Benito: Total Capital Investments of Benito = Initial Capital Investment + Additional Investment - Drawings Total Capital Investments of Benito = P1,000,000 + P500,000 - P300,000 Total Capital Investments of Benito = P1,200,000 Calculate the profit or loss allocated to Benito: Profit or Loss Allocated to Benito = Profit or Loss Ratio * Total Capital Investments of Benito Profit or Loss Allocated to Benito = 2/(3+2+5) * P1,200,000 Profit or Loss Allocated to Benito = 2/10 * P1,200,000 Profit or Loss Allocated to Benito = P240,000 Calculate the ending capital balance of Benito: Ending Capital Balance of Benito = Capital balance on January 1 + Additional Investment + Profit or Loss Allocated - Drawings Ending Capital Balance of Benito = P1,000,000 + P500,000 + P240,000 - P300,000 Ending Capital Balance of Benito = P1,440,000 Therefore, the capital balance of Benito at the end of the year (December 31, 2022) is P1,440,000.