Partnership

1. A partnership
a. is created by agreement of the partners.
b. has a juridical personality separate and distinct from that of each of the partners.
c. may be constituted in any form, except where immovable property or real rights are contributed,
in which case, the law requires that a public instrument be executed.
d. is dissolved by death of a partner.
e. all of the above.

2. Which of the following is a characteristic of most partnerships?

a. Limited liability
b. Division of profits only
c. Unlimited life
d. Mutual contribution

3. Which of the following is not a characteristic of most partnerships?

a. Limited life
b. Limited liability
c. Mutual agency
d. Ease of formation

4. Which of these characteristics does not apply to a general professional partnership?

a. Unlimited liability
b. Unlimited life
c. Mutual agency
d. No business income tax

5. An advantage of the partnership as a form of business organization would be:

a. Partners do not pay income taxes on their share in partnership profit.
b. The death or withdrawal of a partner may terminate a partnership.
c. A partnership is created by mere agreement of the partners.
d. A partnership is bound by the acts of the partners.

6. All of the following are true for both general and limited partnerships except
a. both must have at least one general partner.
b. all partners are liable for all debts of the firm
c. all partners have the right to participate in the profits of the business.
d. both are easily dissolved.

7. A partner whose liability for partnership debts is limited to his capital contribution is
called
a. general partner.
b. limited partner.
c. industrial partner.
d. secret partner.

8. A partner who contributes his work, labor or industry to the common fund of the
partnership is called
a. capitalist partner.
b. managing partner.
c. industrial partner.
d. limited partner.

9. A partner who is liable for the payment of partnership debts to the extent of his separate
property after the partnership assets are exhausted is called
a. Managing partner.
b. Capitalist partner.
c. General partner.
d. Limited partner.

10. A partnership which comprises all the profits that the partners may acquire by their work or
industry during the existence of the partnership is called
a. universal partnership of profits.
b. universal partnership of all present property,
c. particular partnership.
d. de jure partnership.

11. One who takes charge of the winding up of partnership affairs upon dissolution:
a. Silent partner
b. Liquidating partner
c. Ostensible partner
d. Dormant partner

12. The partnership agreement is contained in the articles of partnership, an express contract
among the partners. Such an agreement ordinarily does not include
a. limitation on a partner's liability to creditors.
b. the rights and duties of the partners.
c. the allocation of income between the partners.
d. the rights and duties of the partners in the event of partnership dissolution.

13. The most appropriate lead to look for relationships among partners is in the
a. relevant professional journals.
b. voluntary association.
c. partnership agreement.
d. accounting records.

14. The ability of a partner to enter into a contract on behalf of all partners is called
a. voluntary association.
b. mutual agency.
c. the partnership agreement.
d. unlimited liability.

15. A partner will not bind the partnership to an outside purchase contract when the
a. item purchased is not within the normal scope of the business.
b. partner was not authorized by the other partners to make the purchase.
c. partner who made the purchase withdraws from the partnership.
d. the item purchased is considered immaterial in amount.
16. A partnership agreement should include
a. the purpose of the business.
b. each partner's duties.
c. the method of allocating profits and losses.
d. all of these.

17. Which of the following partnership characteristics is a disadvantage?

a. Voluntary association
b. Participation in partnership income
c. Unlimited liability
d. Ease of dissolution

18. Non-cash assets invested into a partnership are recorded at

a. zero.
b. their carrying value.
c. their fair market value.
d. their original cost.

19. When a partner invests assets other than cash into a partnership, these assets should be listed
on the statement of financial position at
a. their original cost.
b. the value the investing partner assigns to them
c. their fair market value.
d. their carrying (book) value.

20. A partner invested into a partnership a building with a P250,000 carrying value and P400,000
fair market value. The related mortgage payable of P125.000 was assumed by the partnership. As a
result of the investment, the partner's capital account will be credited for
a. P275,000
b. P125,000
c. P400,000
d. P250,000

21. Estrada and Molina formed a partnership on Mar. 1. 2020 and contributed the following assets:

Estrada Molina
Cash P80,000
Equipment P50,000

The equipment was subject to a chattel mortgage of P10,000 that was assumed by the partnership.
The partners agreed to share profits and losses equally. Molina's capital account at Mar. 1, 2020
should be
a. P40,000.
b. P45.000.
c. P50.000.
d. P60.000.
22. On Mar. 1, 2020, Kalaw and Borromeo formed a partnership with each contributing the
following assets:

Kalaw Borromeo
Cash P30,000 P70,000
Machinery and Equipment 25,000 75,000
Building − 225,000
Furniture and Fixtures 10,000 −

The building is subject to mortgage loan of P80,000, which is to be assumed by the partnership.
Agreement provides that Kalaw and Borromeo share profits and losses account should be
30% and 70%, respectively. On Mar. I, 2020 the balance in Borromeo's capital
a. P370,000.
b. P314.000.
c. P305,000.
d. P290.000.

23. The same information in the previous number except that the mortgage loan is no assumed by
the partnership. On Mar. 1. 2007 the balance in Borromeo's capital account should be
a. P370,000.
b. P314.000.
c. P305,000.
d. P290.000.

24. On Aug. 1, Isada and De Guia pooled their assets to form a partnership, with the firm to take
over their business assets and assume the liabilities. Partnership capitals are to be based on net
assets transferred after the following adjustments. Profits and losses are allocated equally.

De Guia's inventory is to be increased by P4,000; an allowance for doubtful accounts of P1,000 and
P1,500 are to be set up in the books of Isada and De Guia, respectively; and accounts payable of
P4,000 is to be recognized in Isada's books. The individual trial balances on August, before
adjustments, follow:

Isada De Guia
Assets P75,000 P113,000
Liabilities 5,000 34,500

What is the capital of Isada and De Guia after the above adjustments?
a. Isada, P68,750; De Guia, P77,250
b. Isada, P75,000; De Guia, P81,000
c. Isada, P65,000; De Guia, P76,000
d. Isada, P65,000; De Guia, P81,000
25. Pedernal, Pating, and Liggayu are forming a new partnership. Pedernal is to invest cash of
P100,000 and stapling equipment originally costing P120,000 but has a second-hand market value
of P50,000. Pating is to invest cash of P160,000. Liggayu, whose family is engaged in selling stapling
equipment, is to contribute cash of P50,000 and a brand-new stapling equipment to be used by the
partnership with a regular price of 120,000 but which cost their family's business P100,000.
Partners agreed to share profits equally. The capital balances upon formation are
a. Pedernal, P220,000; Pating, P160,000; and Liggayu, P150,000.
b. Pedernal, P150,000; Pating, P160,000; and Liggayu, P170,000.
c. Pedernal, P160,000; Pating, P|60,000; and Liggayu, P160,000.
d. Pedernal, P176,666; Pating, P176,666; and Liggayu, P176,668.
 CA5101: FINANCIAL ACCOUNTING AND REPORTING
QUIZ ON PARTNERSHIP FORMATION AND OPERATIONS

Name: Section: Date:

PART I. TRUE OR FALSE

Required: On your answer sheets, write "TRUE" if the statements are correct, and "FALSE" if
otherwise. Erasures are not allowed. Failure to follow the directions will invalidate your answer.

1. A partnership at will is one in which no time or period is specified for its existence and is
formed, for a particular undertaking or venture. False

2. In the formation of a partnership, in cases when the fair value of the property and equipment
exceeds its original cost, it would be necessary to credit the existing accumulated depreciation
account to the extent of its balance. False

3. A managing-industrial partner can also be liable for the losses of the partnership arising from
the carrying out of its operations. False

4. In the absence of the element of mutual contribution, there can be no partnership. True

5. The characteristic of mutual agency can be both an advantage and disadvantage for a
partnership. True

6. In partnership formation, the old set of books of one partner may also be used as the new set
books of the partnership. False, it is not allowed by BIR

7. A universal partnership of profits comprises all that the partners may acquire by their industry
or work during the existence of the partnership. True

8. In a partnership, there should only be one managing partner to avoid conflicts in decision
making. False

9. The dissolution of a partnership terminates the partnership as a reporting entity. False

10. In the absence of any stipulation, profits and losses shall be divided equally among the partners. False

11. A worksheet is required in the preparation of the financial statements of a partnership. False

12. In the formation of a partnership from two separate enterprises, the adjusted allowance for
doubtful accounts is carried in the new set of books of the partnership. True

13. A partnership at will may be terminated by the will of any one single partner. True

14. A silent partner is one who does not take active partner in the business and is known by third
parties to be a partner in the business. False
 15. In the hierarchy, the most appropriate measurement basis for a non-cash asset contributed by
a partner in a partnership is the fair value of the asset at the date of contribution. True

16. In a general partnership, all the partners should be general partners. True

17. In the formation of a partnership from two separate enterprises, the combined accumulated
depreciation accounts is carried in the new set of books of the partnership. False

18. A partnership contract is perfected by mere consent which makes it a consensus among the
partners. True

Problem A

On September 1, 2019, Calvin admits Klein for an interest in his business. On this date, Calvin's
capital account shows a balance of P612,500. The partners agreed on the following terms before
formation:

a. Calvin's outstanding Accounts Receivable were P250,000, with allowance for doubtful
accounts of P12,500. An assessment of collectability of the receivables indicates that 80% of
the balance is collectible.

b. The credit balance of P15,000 in the Unearned Interest account in the books of Calvin
represents interest collected in advance for six months starting on July 1, 2019. Of this amount,
P5,000 has already been earned as of September 1, 2019.

c. A count of supplies revealed unused Supplies approximating P20,000, which were not
recognized in the books of Calvin, since the entire amount of supplies purchased during the
year was charged to Supplies Expense.

d. Inventory valuation of Calvin should be increased by P37,500.

e. Equipment account of Calvin should be depreciated by an additional P25,000.

f. Klein is to invest cash equal to one-third of the total partnership capital. The new capital is
based on the adjusted capital of Calvin, which means that Calvin's adjusted capital represents
two-thirds of the total partnership capital.

1. What is the adjusted balance of unearned interest income in the books of Calvin, prior
to the formation of the partnership? 10,000

2. What is the amortized cost of accounts receivable invested by Calvin? 200,000

3. What is Calvin's adjusted capital balance? 612,500

4. What is the total partners' equity immediately after the formation of the partnership? 918,750

5. How much cash did Klein invest in the partnership? 306,250

Problem B

Dan and Brad agreed that the following assets are to be contributed in the new partnership:

Dan Brad
Cash P 3,600,000 P 5,400,000
Inventory 2,700,000
Land 1,800,000
Building 5,400,000
Furniture and fixtures 2,700,000

The building is subject to a mortgage loan, already past due, in the amount of P1,800,000. Dan
settled the mortgage from his personal funds. The partners agreed that Dan should be credited for
this. The partnership agreement calls for division of profit and loss of 1:2 between Dan and Brad.

6. How much capital should be credited to Dan? 8,100,000

7. How much capital should be credited to Brad? 13,500,000