Review Questions on Partnership

(In preparation for Midterm Exam)

True/False
1. One of the characteristics of the contract of partnership is commutative in which it requires
each partner that aspires to enter into an agreement of partnership to contribute money,
property, or industry.

2. Industrial partners are not allowed to engage in any form of businesses or even establish his
own.

3. under article 1776 of the partnership law, two or more persons binds themselves to
contribute money, property, or industry to a common fund, with intention of dividing the
profits among themselves.

4. Accounting for partnership is basically the same as that of the sole proprietorship.

5. Under admission by investment, the money or property contributed by the new partner
becomes part of the specific partnership assets.

6. The sale of a partner’s interest in an existing partnership is a transaction between the

partnership and the new partner.

7. Industrial partners have no share in the losses incurred by the partnership.

8. Admission of a new partner dissolves an existing partnership but a new partnership may be
formed.

9. A general partner is liable only to the extent of his contribution while a limited partner is
liable beyond his contribution.

10. Asset revaluation should be done before the admission of the new partner into the
partnership.
MC Theories
1. It means that it is a contract that is perfected by mere consent because all partners had a
meeting of the minds to enter into a contract of partnership.

a. Consensual c. Preparatory

b. Principal d. Commutative

2. A type of partnership in which the birth and life of a partnership is predicted on the mutual
desire and consent of the partners.

a. Partnership at will c. Partnership with a fixed term

b. Partnership for a particular undertaking d. None of these

3. Those who contribute money or property or both money or property to a common good.

a. Industrial Partners c. Capitalist Partners

b. General Partners d. Limited Partners

4. Those that take active part in the management and are known in the public as partner in
the partnership.

a. Secret Partner c. Dormant Partner

b. Ostensible Partner d. Liquidating Partner

5. When admitting a new partner into an existing partnership, allocation of any increase or
decrease in the value of assets to the old partners is based on—

a. the fair value of asset contributed by c. equal distribution

each partner in the partnership
d. relative capital balances of the partners
b. profit or loss ratio
6. Which of the following conditions constitute a legal dissolution of a partnership?

a. Retirement of a partner c. Incapacity of a partner

b. Death of a partner d. all of these

7. When a partner retires and receives cash which is less than his capital balance or interest,
how should the difference is treated?

a. The difference should be credited to all partners in their profit and loss ratio

b. The difference should be debited to the remaining partners in their remaining profit or loss
ratio

c. the difference should be credited to the remaining partners in their remaining profit or loss
ratio

d. the difference should be debited to all the partners in their profit or loss ratio

8. Suppose instead of profit, the partnership suffered loss amounting to 120,000, the share of
the capitalist partners in the loss incurred shall be:

a. in proportion to their capital contribution

b. In accordance with their loss sharing agreement

c. equally divided among them

d. In accordance to their profit sharing agreement

9. The change in the relation of the parties caused by any partner ceasing to be associated in
the carrying on of the business.

a. Dissolution c. Termination

b. Liquidation d. Winding up
10. It is one where persons, by word spoken or written or by conduct represents themselves,
or consents to another representing them to anyone, as partners in the existing partnership.

a. Partnership by estoppels c. Particular Partnership

b. Ordinary Partnership d. Close Partnership

Problems
1. The following is the condensed statements of financial position of the partnership of A, B,
and C which shares profit and loss ratio of 4:3:3.

Cash 400,000 Accounts Payable 355,000

Other Assets 2,400,000 C, Loan 45,000
Due from A 50,000 A, Capital 1, 100,000
B, Capital 650,000
C, Capital 700,000
TOTAL 2,850,000 2,850,000

Assume that the assets and liabilities are fairly valued on the statement of financial position and
the partnership decides to admit D as a new partner, with a 20% interest. No bonus is to be
recorded. How much should D contribute in cash or in other assets?

a. 420,500 c. 652,000

b. 490,000 d. 612,500

2. Stacy and Marie are partners who share profits and losses in the ratio 7:3 respectively. Their
respective capital accounts are as follows:

Stacy------------ P35,000

Marie----------- P30,000

They agreed to admit Angela as partner with 1/3 interest in the capital and profit or losses,
upon an investment of P25,000. The new partnership will begin with a total capital of 90,000.
Immediately after Angela’s admission, what are the capital balances of Stacy, Marie, and Angela
respectively?
a. 30,000; 30,000; 30,000 c. 31,667; 28,333; 30,000

b. 31,500; 28,500; 30,000 d. 35,000; 30,000; 25,000

3. The statement of financial position as of Dec. 31, 2021 for the partnership of Jil, Prynce, and
Belle shows the following:

Total Assets (at cost) 360,000

Payable to Jil 20,000
Jil, Capital 83,000
Prynce, Capital 77,000
Belle, Capital 180,000
TOTAL 360,000

Profit and loss ratio is 25%, 25%, and 50% respectively for Jil, Prynce, and Belle. It was agreed
among the partners that Jil retires from the partnership, and the company’s asset be adjusted
to their fair value at 408,000 as of December 31, 2021. The partnership would pay Jil 121,000
for his equity in the firm. What is the capital balance of Prynce after the retirement of Jil?

a. 180,000 c. 87,000

b. 120,000 d. 89,000

4. Aila and Yma are partners who share profits and losses in the ratio of 6:4. On January 1,
2021, their capital balances are:

Aila------ P80,000

Yma-----P20,000

Edward is to be admitted for a 20% interest in the partnership by direct purchase from the
partners for P30,000. How should the 30,000 cash be distributed to Aila and Yma?

a. 18,000 and 12,000 respectively c. 22,000 and 8,000 respectively

b. 20,000 and 10,000 respectively d. 24,000 and 6,000 respectively

5. Casey and Rica established a partnership, January 5, 2021. They have initially invested
450,000 and 250,000 respectively. All profits accumulated in 2021 were distributed among
partners in accordance with the profit and loss ratio. During 2022, the income summary
showed a credit balance of 240,000. The partners’ capital accounts as of December 31, 2022
are as follows:

CASEY, CAPITAL
Date Particulars Debit Credit Balance
Jan 1 Beginning Bal. 400,000
Mar 1 Additional 40,000 440,000
Investment
Jun 1 Additional 60,000 500,000
Investment
Oct 1 Withdrawal 50,000 450,000

RICA, CAPITAL
Date Particulars Debit Credit Balance
Jan 1 Beginning Bal. 200,000
Apr 1 Withdrawal 20,000 180,000
Jun 1 Additional 70,000 250,000
Investment
Oct 1 Additional Inv. 50,000 300,000

Casey and Rica agreed to share the profit and losses considering the following additional
information:

1. 10% interest per annum is to be allowed on their average capital

2. Salaries of 10,000 to each partner

3. Bonus given to Rica-- 10% based on profit after interest and salaries but before bonus.

4. Any balance will be distributed equally

Requirement:

1. Compute each partner’s share in the profit earned by the partnership.

2. Make an appropriate entry to record the distribution of profit