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Answer Key
Chapter 1: Basic Considerations and Formation
1. A partnership that exists but not in law.
a. De jure partnership
b. Universal Partnership of profits
c. De facto partnership
d. Particular partnership
2. Which of the following is a characteristic of most partnerships?
a. Limited liability
b. Division of profits only
c. Mutual contribution
d. Unlimited life
3. Non-cash assets invested into a partnership are recorded at
a. Their historical cost
b. Their fair market value
c. Their carrying value
d. Zero
4. Capital account is credited except when
a. Share in profit
b. Additional investment
c. Debit balance of the drawing account at the end of the period.
5. Which of the following is not a characteristic of a partnership?
a. Limited liability
b. Limited life
c. Mutual agency
d. Ease of formation
6. A partnership records a partner’s investment of assets as
a. A value agreed by the partners
b. Book value of the asset invested
c. Market value of the invested assets
d. None of the above
7. In a limited partnership,
a. All but the general partner have unlimited liability
b. All the general partners have limited liability
c. All partners have limited liability
d. All but the general partner have limited liability
8. Partner who takes charge of the winding up of partnership affairs upon dissolution
a. Silent partner
b. Managing partner
c. Liquidating partner
d. Industrial partner
9. Which of the following characteristics does not apply to the general professional partnership ?
a. No business income tax
b. Mutual agency
c. Unlimited life
d. Unlimited liability
10. A partner will not bind a partnership to an outside purchase contract when
a. The item purchased is not within the normal scope of the business
b. The partner who made the purchase withdraws from the partnership
c. The partner was not authorized by the other partners to make a purchase
d. The item purchased is considered to be immaterial in amount
11. Partnership capital accounts include the cumulative effect of
a. Share in profit and loss
b. Inventory
c. Initial investments
d. Drawings
e. Additional investments
f. All of the above
g. a, c, d, and e only
12. A large withdrawal by Partner Kyle which is viewed as a temporary withdrawal in the partnership, is
recorded with a debit to
a. Retained Earnings
b. Kyle, Drawings
c. Kyle, Capital
d. Loan Receivable - Kyle
13. Which of the following would least likely be stated in the articles of partnership?
a. Drawings and salaries allowed to partners
b. Price list of the business goods
c. Capital contribution of each partner
d. Citizenship and residences of a partner
14. In a partnership, one of the partners died in a car accident. What will most likely happen to the
partnership?
a. The rest of the partners can casually buy the deceased partner’s interest in the company
b. His share will automatically be split between the remaining partners
c. The partnership will cease to exist. The rest of the partners will have find new sources of
income
d. It will be dissolved. The remaining partners will have to pay the remaining debts of
the business and split assets and profits among them
15. Partner who does not take active part but may be known as a partner; One who takes active part but is
not known to be a partner.
a. Nominal Partner, Dormant Partner
b. Dormant Partner, Secret Partner
c. Silent Partner, Secret Partner
d. Silent Partner, Nominal Partner
16. One who contributes money and property; One who contributes his knowledge or service.
a. General partner, Limited partner
b. Capitalist partner, Industrial partner
c. Capitalist partner, Managing partner
d. General partner, Secret partner
17. A partnership which has complied with all the legal requirements for its establishment.
a. De jure partnership
b. Universal Partnership of profits
c. De facto partnership
d. Particular partnership
18. The partnerships- Commercial and Professional - is under which classification?
a. Purpose
b. Duration
c. Legality of existence
d. Liability
19. Any partner can bind the other partners to a contract if he is acting within his implied authority.
a. Limited life
b. Co-ownership of Contributed Assets
c. Mutual Agency
d. Mutual Contribution
20. Investment of money, property, and industry into a common fund.
a. Limited life
b. Co-ownership of Contributed Assets
c. Mutual Agency
d. Mutual Contribution
21. The order of partnership formation is
a. Closing — Transfer — Adjust — Open
b. Adjust — Closing — Transfer/Open
c. Adjust — Transfer — Open
d. Close — Open
22. It is a hybrid of business because it combines the best features of a partnership and a corporation
a. Limited Liability Company
b. General Professional Partnership
c. Sole Proprietorship
d. General Partnership
23. Each partner is personally liable for the debts of the partnership. In a general partnership, each
partner’s liability is limited to his investment.
a. True, False
b. False, True
c. Both True
d. Both False
24. A limited partnership must have at least one general partner. A partner by estoppel is one who is not
actually a partner but represents himself as one.
a. True, False
b. False, True
c. Both True
d. Both False
25. There is no income tax imposed on a partnership. All partnerships are subject to tax at the rate of 30%
of taxable income.
a. True, False
b. False, True
c. Both True
d. Both False
26. A partnership with a capital of ₱3,000 or more is valid even if it is unregistered with the SEC. A
partner usually retains the title to assets contributed to the partnership.
a. True, False
b. False, True
c. Both True
d. Both False
27. The partners’ capital account is debited for the debit balance of the drawing account at the end of the
period. A permanent withdrawal of a partner requires a debit to its capital account.
a. True, False
b. False, True
c. Both True
d. Both False
28. 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. De facto partnership
d. Particular partnership
29. A partnership agreement should include
a. Each partner’s duties
b. Purpose of the partnership
c. Method of allocating profits and losses
d. All of the above
30. Advantage of a partnership
a. Unlimited liability
b. Mutual agency
c. Ease of formation
d. Limited life.
Chapter 2: Partnership Operations and Financial Reporting
1. If no allocation agreement exists, profits and losses are divided equally among the partners. It is
possible for a partner’s capital to increase after allocation of loss.
a. True, False
b. False, True
c. Both True
d. Both False
2. The most equitable allocation of partnership profit based on capital contribution uses which of the
following capital concept?
a. Beginning capital
b. Average capital
c. Equally
d. Ending capital
3. Which of the following is not considered a legitimate expense of the partnership?
a. Salaries for management hired to run the business
b. Interest paid to partners based on the amount of their invested capital
c. Supplies used in the partners office
d. Depreciation of assets contributed to the partnership by the partners.
4. Periodic withdrawals by partners are best viewed as
a. Payment for partner’s personal services to the partnerships
b. Taxable income to the partners
c. Distribution of partnership assets to partners
d. Expense of doing business
5. A 1:2:3 ratio is the same as
a. 10%:30%:20%
b. ⅙:2/6:3/6
c. ⅙:⅔:3/6
d. 1%:3%:2%
6. Which of the following distributions would be made last in dividing profits to the partners when
interest on capital balances and salary allowances are involved?
a. Interest on capital balances
b. Equally
c. Salary allowances
d. Specified ratio
7. It is possible to allocate profits and losses based solely on the average capital balances. A partnership
agreement may include that one partner shall not receive any share in profits and losses.
a. True, False
b. False, True
c. Both True
d. Both False
8. The income summary is credited to record distribution of profit. The equity of a partner in the net
assets is not the same as the partners share in profits or losses.
a. True, False
b. False, True
c. Both True
d. Both False
9. This is used to discourage partners from drawing cash from the business.
a. Interest on drawings
b. Interest payable
c. Withdrawals
d. None of the above
10. Serves as a basis for evaluating the entity’s ability to generate cash and cash equivalents.
a. Income Statement
b. Statement of Cash Flows
c. Statement of Owner’s Equity
d. All of the above
Problem Solving
1. Alice and Bob decide to start a business together. Alice invests 15,000, and Bob invests 25,000. What is
the ratio of Alice's investment to Bob's investment?
a. 3:4
b. 3:5 15,000/3= 5,000
25,000/5= 5,000
c. 2:3
d. 3:6
2. Charlie, Dana, and Evan form a partnership. They invest 10,000, 20,000, and 30,000 respectively. What is
the total investment?
a. 50,000
b. 60,000 add all the investments
c. 70,000
d. 80,000
3. Frank and George form a partnership, agreeing to share profits in the ratio of their investments. Frank
invests 40,000 and George invests 60,000. If the total profit for the year is 20,000, how much does Frank
receive?
Total investment = 40,000 + 60,000 = 100,000
a. 6,000
b. 8,000 Frank's share = 40,000 / 100,000 = 0.4
George's share = 60,000 / 100,000 = 0.6
c. 10,000
d. 12,000 Total profit = 20,000
Frank’s share = 0.4 × 20,000 = 8,000
4. Helen invests 12,000 in a partnership, and Irene invests 18,000. If they decide to share the profits
equally, how much will each receive from a profit of 9,000?
a. 4,500 9,000/2= 4,500
b. 3,000
c. 4,000
d. 4,250
5. Jack, Kevin, and Laura form a partnership. Jack invests 35,000, Kevin invests 45,000, and Laura invests
20,000. What percentage of the total investment does Kevin contribute?
a. 35%
b. 45% convert 45,000 to 45%
c. 40%
d. 50%
6. In a partnership, Mark and Nancy invest 22,000 and 33,000 respectively. If they make a profit of 11,000,
how much more does Nancy receive compared to Mark?
a. 3,400
b. 4,400 Total investment = 22,000 + 33,000 = 55,000
c. 5,400 Mark's share = 22,000 / 55,000 = 0.4
d. 6,400 Nancy's share = 33,000 / 55,000 = 0.6
Allocate the profit of 11,000
Mark's profit = 0.4 × 11,000 = 4,400
Nancy's profit = 0.6 × 11,000 = 6,600
Difference = 6,600 − 4,400 = 2,200
7. Olivia, Paul, and Quinn form a partnership with investments of 24,000, 36,000, and 60,000 respectively.
If the partnership makes a profit of 15,000, how much does Paul receive if profits are distributed based on
investment?
a. 3,000 Total investment = 24,000 + 36,000 + 60,000 = 120,000
b. 4,500
Paul's share = 36,000 / 120,000 = 0.3
c. 5,000
Paul's profit = 0.3 × 15,000 = 4,500
d. 6,000 Paul receives 4,500.
8. Rachel and Steve start a business together. Rachel invests 10,000 and Steve invests 15,000. If they agree
to share profits in the ratio of their investments, what fraction of the profit does Rachel get?
a. 1/2
b. 2/5 10,000/15,000 or 2/5
c. 1/4
d. 1/3
9. Tim and Uma form a partnership, investing 50,000 and 30,000 respectively. If they decide to share
profits in the ratio of their investments and the total profit is 16,000, how much does Uma receive?
a. 5,000 Total investment = 50,000 + 30,000 = 80,000
b. 5,600 Uma's share = 30,000 / 80,000 = 0.375
c. 6,000
Total profit = 16,000
d. 6,400 Uma's share = 0.375 × 16,000 = 6,000
10. Victor and Wendy start a business. Victor invests 28,000 and Wendy invests 42,000. If the business
earns a profit of 14,000, how is it divided based on their investments?
Total investment = 28,000 + 42,000 = 70,000
a. 5,600 for Victor and 8,400 for Wendy
b. 6,000 for Victor and 8,000 for Wendy Victor's share = 28,000 / 70,000 = 0.4
Wendy's share = 42,000 / 70,000 = 0.6
c. 5,200 for Victor and 8,800 for Wendy
Total profit = 14,000
d. 6,400 for Victor and 7,600 for Wendy Victor's share = 0.4 × 14,000 = 5,600
Wendy's share = 0.6 × 14,000 = 8,400
11. Alice, Bob, and Carol start a business. Alice invests 20,000, Bob invests 30,000, and Carol invests
50,000. They agree to share profits in the ratio of their investments. After one year, the business makes a
profit of 40,000. If Carol reinvests her share of the profit into the business, what is her new total
investment?
a. 58,000 Total investment = 20,000 + 30,000 + 50,000 = 100,000
b. 60,000
Carol's share = 50,000 / 100,000= 0.5
c. 66,000
d. 70,000 Total profit = 40,000
Carol's share = 0.5 × 40,000 = 20,000
Original investment = 50,000
Reinvested profit = 20,000
New total investment = 50,000 + 20,000 = 70,000
12. James invested in a partnership, a building which cost his father 500,000. The building had a market
value of 600,000 when James inherited it five years ago. Currently, the building is appraised at 750,000
even though James insisted that the building should be appraised at 900,000. The building should be
recorded in the amount of the partnership at?
a. 500,000
500,000 Not relevant for recording in the partnership books.
b. 600,000 600,000 Also not relevant; it's a historical value.
c. 750,000 750,000 This is the fair market value now.
900,000 Personal estimate, not supported by appraisal.
d. 900,000
13. Jungkook and Jimin formed a partnership on March 1, 2024 and contributed the following assets:
Jungkook Jimin
Cash 80,000
Equipment 50,000
The equipment was subjected to a chattel mortgage of 10,000 that was assumed by the partnership. The
partners agreed to share profits and losses equally, Jimin’s capital account at March 1, 2024 should be
a. 50,000
b. 45,000
c. 40,000 Jimin capital= 50,000 − 10,000 = 40,000
d. 60,000
14. On July 1, Taehyung and Jhope formed a partnership, agreeing to share profits and losses in the ratio
of 4:6 respectively. Taehyung contributed a parcel of land that cost 25,000. Jhope contributed 50,000 cash.
The land was sold for 50,000 on July 1, three hours after formation of the partnership. How much should
be recorded in Taehyung’s capital account on formation of the partnership?
a. 50,000 50,000 (fair value of land)
b. 25,000
c. 10,000
d. 20,000
15. A, B, and C are partners sharing residual profits in the ratio of 3:2:1. The partnership agreement
provides for 8% interest on capital and a salary for B of 80,000 per annum. Profit for 2023 was 840,000 and
the year end balances on partner’s capital accounts are 200,000, 150,000, and 120,000 respectively. What
was C’s share of residual profits for 2023?
a. 120,400
b. 125,000
c. 120,000
d. 125,400
16. On January 1, 2023, Alice, Bob, and Carol formed a partnership. The partnership agreement states that
Alice, Bob, and Carol will share residual profits in the ratio of 4:3:2 respectively. The agreement also
provides for 6% interest on capital and a salary for Bob of 5,000 per month. The year-end balances on
partners' capital accounts are 300,000 for Alice, 250,000 for Bob, and 200,000 for Carol. The partnership
earned a profit of 900,000 for 2023. Calculate Carol’s share of residual profits for 2023.
a. 12,000
b. 176,667
c. 188,667
D. 795,000
17. Cat and Dog have respective partnership capital balances of 68,000 and 44,000 on Jan 1. Cat withdrew
6,000 on May 1 and 6,000 on July 1. Dog invested an additional 12,000 on April 1 and withdrew 8,000 on
Oct 1. The average capital balances for Cat and Dog for the year are
a. Cat, 68,000; Dog, 44,000
b. Cat, 62,000; Dog, 46,000
c. Cat, 61,000; Dog, 51,000
D. Cat, 56,000; Dog, 48,000
18. The partnership agreement of Carlos, Niza and Usop provided for the following terms on distribution
of profits and losses:
Carlos is to receive 10% of the profit up to 1,000,000 and 20% on the amount of excess;
NIza and Usop each, are to receive 5% of the remaining profit in excess of 1,500,000 after
Carlos’ share as per above;
The balance to be divided equally.
For the year just ended, the partnership realized a profit of 2,500,000 before distribution to partners. The
share of Carlos is
a. 1,300,000
b. 1,000,000
c. 1,080,000
D. 1,100,000
