or intellectual may also ices that may either be personal manual efforts 1, Work or services be contributed to 2 partnership. 2. Ownership is easily transferred in @ partnership. 3. Apartnership cannot be established for religious purposes. 4, Apartnership must always have at least two owners. 5. Aproprietorship has 2 limited life whereas 2 partnership may have an unlimited life. 6. Not all of the partners in a general partnership are personally liable for all debts incurred by the partnership. 7. Adormant partner is one who does not take active part in the partnership business and is not known as a partner. 8, Accounting for a partnership comes closer to accounting for a sole prop rietorship than to accounting for a corporation. 9. Partners’ drawing accounts have normal credit balances 40. The manner in which profits are to be shared should be specified in the articles of partnership. 11. Apartnership should always be constituted in writing, 12. A public instrument needs to be executed when immovable pro ts are contributed to the partnership. nea Miaad 13. Mutual agency means that e: a eee ich partner has the right to bind the partnership to 14. As long as the action is withi in the sci the partnership. ‘ope of the partnership, any partner can bind 15. When the partnershii it ip capital"is P3,000 o1 . recorded with the Securities and Exchange Comms Pirate ial sion, 16. A partnership with a capital of less than P3,000 i the Securities and Exchange Connie 's valid even if it is unregistered with 17. Two or more persons may form a partnership for t '¢ exercise of a professio persons hi he fe ay i i: @ professi 24 | Partnership and Corporation Accountinges ei, I EEIEISS'S!:: "= } 1g, There can never be a partnership without contribution of money, property or industry to a common fund. | 49, Bankruptcy of a partner will dissolve the partnership. f , | 20. A partnership involves mutual agency, unlimited liability for general partners and } limited life © 21, Apartnership and a corporation cannot form a partnership. 22 23. 24. 2s. 26. 27. 28. 29. 30. 31. 32. 33, 34, A de jure partnership is one which has complied with all the legal requirements for its establishment. Ina limited partnership, the general partner's liability is limited to his investment. The limited partners are liable only to the extent of their personal contributions. One of the partners in a proposed partnership is a multi-millionaire. The stipulation in the articles of partnership that this partner shall be excluded from sharing in the profits of the partnership is valid. Under the partnership form of business, large amounts of capital can be raised easily. All partners in a general partnership are personally liable for all debts incurred by the partnership. ‘An advantage of the partnership form of business is that each partner's potential loss is limited to that partner's investment in the partnership. A partnership is a legal entity separate and apart from its owners. A limited partnership normally has one or more general partners whose liability is unlimited. The basis of valuation for non-cash investments should be fair market value. When a partner invests assets in a partnership, the assets are recorded at the partner's book value. Liabilities related to assets invested in a partnership by a new partner cannot be transferred to the partnership. A partner who invests assets into a partnership retains control over those specific assets. Basic Considerations and Formation | 25PROFESSOR: True or False 1. 10. 11. 12. 13. 14, 15. 16. 26 persons bind themselves to contribute Ina contract of partnership, two or more aot with the intention of dividing the money, property or industry to a common profit among themselves. ‘i ‘| fn inva limited partnership, none of the partners has unlimited liability for the business i 7 ss debts. A silent partner takes active part in the business of the partnership and is.not known by outsiders to be a partner. A partner's capital account is debited to reflect assets permanently withdrawn. A limited partnership must have at least one general partner. A partnership may be established for charity. Assets invested in the partnership should be recorded at their cost to the partner. Al partnerships have a limited life and assets are co-owned by the partners. A disadvantage of partnerships over corporations is the partners’ unlimited liability. There is no income tax imposed on a partnership. A partnership has a juridical personality separate and distinct from that of each of the partners, A partnership must always have two or more owners, All partnerships are subject to tax at the rate of 30% of taxable income. When the partners invest assets other than cash in a partnershi accounts should be credited with the curr Partnershi ip, their capital ‘ent fair market values of thi le assets. A dormant partner is one who doe: s not take active Part in the i i though may be known as a partner. Sen | Partnership and Corporation Accounting 17.17. 18. 19. 20. 21. 22. 23. 24. 2s. 26. 27. 28. 29, 30." 31. 32, 33, A partner usually retains title to assets c ally ret ‘ontributed to a partnership, so that certain assets may be identified as belonging to a given partner. In a general partnership, each partner's liability for losses is limited to his investment in the firm, The basis of valuation for non-cash investments should be at values agreed upon by the partners. A partnership has a limited life because any change in the relationship of the partners dissolves the partnership. The essence of partnership is that each Partner must share in the profits or losses of the venture. A partnership with a capital of P3,000 or more is v: /alid even if it is unregistered with the Securities and Exchange Commission, The partner's capital account is debited for the debit balance of the drawing account at the end of the period. A partnership agreement should include the procedure for ending the business Each partner is personally liable for all debts of the partnership. One advantage of a partnership over a corporate form of organization is the unlimited liability of partners. A partner by estoppel is one who is actually not a partner but who represents himself as one. The partner's capital account is debited for additional investments and credited for his share in profit. A secret partner is orie who does not take active part in the partnership business and is not known as a partner. A partnership is created by mere agreement of the partners. A partnership with a capital of less than P3,000 is void if it is unregistered with the Securities and Exchange Commission. Each partner has a capital account and a drawing account. These accounts are used ina slightly different way compared to those in a sole proprietorship. Adjustments prior to formation may be omitted since these will not affect the Partners’ capital credits. Basic Considerations and Formation | 27PROFESSOR: Multiple Choice 1, Penetrante owns and operates a large hardware store in Cabanatuan City that employs about forty-five personnel. She delegates some of the decision making to two supervisors. Penetrante's business is organized as @ a. corporation. b. partnership, sole proprietorship. d. limited partnership. 2, Jumawan loves to cook, She receives unqualified praise whenever she prepares a meal for someone. Encouraged by these compliments and eager to put her culinary talents to good use, Jumawan_ decides to open a boutique restaurant in Dumaguete City. Since she plans to maintain complete control of the business, she will most likely organize it as a limited partnership. corporation. general partnership. sole proprietorship. ano 3. A budding entrepreneur wants to start a business but is unsure of the legal form suited for her. Short of cash, she has to take the form that is least expensive and most flexible in terms of decision making, and implementation. Which would you recommend? a. Joint venture b. Partnership c. Sole proprietorship d. Cooperative e. Corporation 4. Unlimited liability means a, there is no limit on the amount an owner can borrow. b. creditors will absorb any loss from nonpayment of debt. c. the business can borrow money for any type of purchase. d. the owner is responsible for all business debts. e. shareholders can borrow money from the business. 28 | Partnership and Corporation Accounting5. Cabrera inherited a large amount of money from his parents. Cabrera wishes to start his own business in Batangas. His lawyers encourage him to make it a corporation. What disadvantage of a sole proprietorship are the lawyers trying to avoid? Unlimited liability Lack of management skills Retention of all profits Lack of money aoce 6. After Russell has maximized her standby credit limit from the CDO Bank and still cannot cope with the working capital needs of her fast-growing business, what is her recourse if she wants her company to continue growing? Obtain a partner or form a corporation to access more funds. Hire more employees. Turn away potential new customers. Continue to plead with the bank for more money. Hold a fundraising campaign. pao 7. Daganta's partnership agreement with two partners was done haphazardly and thus caused some limitations. One of the concerns was uneven productivity among the partners. The agreement required each partner to contribute to every aspect of the business to receive an equal portion of the profits. This agreement did not reflect the idea that a. partners need not be “equal” because each bring varied talents and knowledge into the partnership. b. general partners are required to be active in day-to-day business operations. c. customers and creditors of a limited partnership need not be protected. d. the Limited Partnership Law requires every general partnership to have at least one limited partner. e. each partner may enter into contracts on behalf of all the others. 8. The person who assumes full co-ownership of a partnership including unlimited liability is a sole proprietor. shareholder. limited partner. general partner. Basic Considerations and Formation | 299, The partner who can lose only what he has invested in a business is the general partner. a b. sole proprietor. c. manager. d. employee. e limited partner. 0 business together. They started by listing 10. Alibangbang and Sol decided to go int t along with their rights and_ duties. the essential terms of their agreement ‘Alibangbang and Sol created a(n) a. articles of partnership. b. licensing agreement. c. articles of incorporation. d. division of partnership agreement. 11, Which of the following would least likely be stated in the articles of partnership? a. Who will make the final decisions b. How much each partner will invest c. What the duties of each partner are d. What products the company will sell fe. What will happen if a partner dies or wants to dissolve the partnership lo and Gonzales are partners in an accounting firm with each 12. Burgos, Del Mund of a heart partner owning an equal share of the business. Del Mundo died suddenly attack. What will most likely become of the partnership? a. It will immediately cease to exist. Burgos and Gonzales will have to find new jobs. b. Dél Mundo's share of the business will automatically be split between Burgos and Gonzales. Burgos and Gonzales will be able to purchase Del Mundo's interest from his estate. d. It will be dissolved. Burgos and Gonzales will lose personal property to pay business debts. 30 | Partnership and Corporation Accounting+ [iwame: SCORE: ] SECTION: PROFESSOR: | Multiple Choice 1. A large cash withdrawal by Partner Ruiz from Bernal, Ruiz, Adriano and Gogola, which is viewed by all partners as a permanent reduction of Ruiz’s ownership equity in the partnership, is recorded with a debit to a. Ruiz, Capital. b, Retained Earnings. c. Loan Receivable from Ruiz. d. Ruiz, Drawing. 2. partnership a. is created by agreement of the partners. b. has a juridical personality separate and distinct from that of each of the partners. ¢. 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. 3. Lintao and Pido formed a partnership, each.contributing assets to the business. Lintao contributed inventory with a current market value in excess of its cost. Pido contributed real estate with a cost in excess of its current market value. At what amcunt should the partnership record each of the following assets? Inventory Real Estate a Cost Cost b. Market Value Cost © Cost + Market Value d. Market Value Market Value 4. Partnership capital and drawing accounts are similar to the corporate a. Retained earnings account. b. Paid-in capital and retained earnings accounts. ©. Preferred and common stock accounts. d. Paid-in capital, retained earnings and dividends accounts. 5. Which of the following partnership characteristics is an advantage? a. Mutual agency b. Unlimited liability Basic Considerations and Formation | 316. 10, 1. s Cc. Limited life d. Ease of formation A partner who contributes his work, labor or industry to the common fund of the partnership is called n a. limited partner. b. capitalist partner. c. industrial partner. d. managing partner. Partnership capital balances include the cumulative effect of Initial investments. Additional investments. Share in profit. Share in loss. Drawings. All of the above. a,b, cand d only. mampansD 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 carrying (book) value. b. their original cost. c d. their fair market value. the value the investing partner assigns to them. Partner's investments may include which of the following? a. Cash b. Non-cash assets c. Non-cash assets with liabilities to be assumed d. All of the above. e. Onlyaandb. A partner whose liability for partnership debts is limited to his capital contribution is called a. industrial partner. b. general partner. c. limited partner. d. secret partner. ‘One who takes charge of the winding up of partnership affairs upon dissolution: a, Dormant partner b. Liquidating partner 32 | Partnership and Corporation Accounting12. 13 14. 15. 16. 17. c._ Silent partner d. Ostensible partner Which of the following is not a characteristic of partnerships? a. Voluntary association b, Mutual agency c. Limited liability d. Limited life Which of these characteristics does not apply to a general professional partnership? Unlimited life Mutual agency Unlimited liability No business income tax aoce ‘The most appropriate lead to look for relationships among partners is in the accounting records. voluntary association. partnership agreement. relevant professional journals. pose A partner will not bind the partnership to an outside purchase contract when the a, the item purchased is considered immaterial in amount. b._ item purchased is not within the normal scope of the business. c._partner who made the purchase withdraws from the partnership. 4. partner was not authorized by the other partners to make the purchase. A partner invested into a partnership 2 building with a P250,000 carrying value and 400,000 fair market value. The related mortgage payable of P125,000 was assumed by the partnership. As 2 result of the investment, the partner's capital account will be credited for a. P125,000. b. P275,000. cc. P250,000. d. P400,000. A business would be organized as 2 limited liability partnership to reduce regulation of the business. eliminate double taxation. raise additional capital. limit the liability of the owners to their investment. acoso Basic Considerations and Formation | 3318. 19. 20. 21. 22. 23. 24. a Which of the following is not a conflict of interest for a general partner ina limit partnership? a. b. «, d Buying personal assets and then selling them to the limited partnership 2 Taking out personal loans from the partnership ‘Accepting money for agreeing not to compete with the limited partnership ‘Acting as an agent for the partnership Which of the following partnership characteristics is a disadvantage? a. Unlimited liability 21 b. Ease of dissolution c. Voluntary association d. “Participation in partnership income All of the following are true for both general and limited partnerships except a. both are easily dissolved. : b. both must have at least one general partner. c. all partners are liable for all debts of the firm. 4. all partners have the right to participate in the profits of the business. A partnership agreement should include a. each partner's duties, 2 b. the purpose of the business c. the method of allocating profits and losses. d. all of these. A partnership records a partner's investment of assets in the business at a, a value set by the partners. 7 b. the market value of the assets invested. c. the partner's book value of the assets invested. d. any of the above. Which of the following is not a characteristic of most partnerships? a. Ease of formation b. Limited liability c. Mutual agency d. Limited life Ina limited partnership, aoe the general partners have limited liability. all partners have limited liability. all but the general partners have limited liability. all but the general partners have unlimited liability. 34 | Partnership ond Corporation Accounting25. 26. 27. 28. 29. 30. The partner’s capital account is credited in the following cases except when it involves the recording of the a. additional investment. b. original investment. c._ share in profit. d. debit balance of the drawing account at the end of the period, An advantage of the partnership as a form of business organization would be: a. Apartnership is bound by the acts of the partners. b. Apartnership is created by mere agreement of the partners. c. Partners do not pay income taxes on their share in partnership profit. d. The death or withdrawal of a partner may terminate a partnership. The partnership agreement is contained in the articles of partnership, an express contract among the partners. Such an agreement ordinarily does not include the rights and duties of the partners. a limitation on a partner's liability to creditors. the allocation of income between the partners. the rights and duties of the partners in the event of partnership dissolution. aooe Which of the following is a characteristic of most partnerships? a. Unlimited life b. Limited liability ¢. Mutual contribution d. Division of profits only Non-cash assets invested into a partnership are recorded at zero. their original cost. their carrying value. their fair market value. aooe 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. de jure partnership. b. universal partnership of profits. c. particular partnership. d. universal partnership of all present property. Basic Considerations and Formation | 35