FAR 1 Reviewer

1. Assets are resources belonging to a company that have future benefit to the
company.
2. Merchandise purchase on account on June 11, 2021 with terms 2/10/eom, n/60 may
have a discount until July 10, 2021.

3. Under periodic system, the purchase of merchandise on account and subsequent

sale of merchandise on account will involve accounts like Sales, Purchases,
Accounts Payable and Accounts Receivable.

4. Going concern states that a business is presumed to go in perpetuity so long as

there is no threat to their ability to continue operation.

5. When property other than cash is invested in a partnership, the amount of a non-
cash property should be credited to the contributing partner’s capital account at fair
value at the date of contribution

6. Debit and credit cannot be interpreted to mean increase and decrease, respectively.

7. A trial balance does not prove that all transactions have been recorded or that the
ledger is correct.

8. The double-entry system is a logical method for recording transactions and results in
equal debits and credits.

9. Flexibility of operation, ease of formation, and wider source of capital are

advantages of a partnership.

10. Each partner’s initial investment in a partner should not always be recorded at book
value.

11. If a partner’s investment in a partnership consists of equipment that has

accumulated depreciation, it would not be appropriate for the partnership to record
the accumulated depreciation.

12. A partnership must file an information tax return.

13. Trial balance doesn’t prove that the company has recorded all transactions.

14. Dennis Company purchased merchandise from Ann Company with freight terms of
FOB shipping point. The freight costs will be paid by the buyer.
15. If a customer agrees to retain merchandise that is defective because the seller is
willing to reduce the selling price, this transaction is known as a sales allowance.

16. Reversing entries are entries made to correct errors in the recording phase.

17. A perpetual inventory system would likely be used by an automobile dealership.

18. Monetary Unit Assumption is an assumption that the unit of measure remains
sufficiently constant over time.

19. Adjusting entries normally involve real and nominal accounts.

20. Purchase Returns and Allowance is an account that would appear on a worksheet
for a merchandising company that uses the periodic inventory system.

21. A debit column total is greater than the credit column total in the income statement
section of the worksheet means net loss.

22. The following affect a capital account: partnership profit and loss, withdrawal of a
partner, and additional investment.

23. Adjusting entries are entries prepared at the end of the accounting period to properly
measure net income or net loss.

24. A business would be organized as a limited liability partnership to limit the liability
of the owners to their investment.

25. The closing entry for Sales Discount is: Dr. Income Summary, Cr. Sales Discount

26. Transportation cost paid on goods shipped to customers (Freight Out) is not
considered in computing net cost of Purchases.

Net Purchases = Purchases + Freight In – Discount – Returns & Allowances

27. Non-cash contributions of the partners to form a partnership are recorded by the
partnership at their (1) agreed capital, (2) fair market value. (3) book value

28. The drawing account of a partner is used to record: regular withdrawals, share in
profits and losses, and closing entry to the capital account.
29. De facto is a partnership which has failed to comply with one or more of the legal
requirements for its establishment.

30. The bookkeeper of Benetton Company recorded the payment of credit customer as
a debit to cash and credit to accounts payable. The erroneous recording of
transaction would result to overstatement of accounts receivable and accounts
payable.

Part II

1. A written partnership contract is not required to be prepared whenever a

partnership is formed. [Partnership may be in oral or writing]

2. A partner's contribution in the form of industry or service is recorded by debiting the

account "Industry". [False, it is recorded by memorandum entry.]

3. In the partnership books, there are as many capital and drawing accounts as there
are partners.

4. Contra accounts, like Accumulated Depreciation and Allowance for Bad Debts, on
non-cash assets invested by partners are always carried on the partnership books,
this is [False, Accumulated depreciation is not carried over on the new partnership
books.]

5. A partner's contribution in the form of non-cash assets should be recorded at its

fair market at the date it was invested in the absence of an agreed value.

6. A partnership is much easier and less expensive to organize than a corporation.

7. Net asset adjustments are made on a sole proprietor's books, when these are to be
used as partnership books, for the purpose of arriving at agreed values.

8. For financial reporting purposes, the personal assets and debts of a partner should
be combined with the assets and debts of the business [False]

9. Not all partnerships are subject to income tax (30%)

10. The property invested in a partnership by a partner becomes the property of the
partnership.

11. Each partner generally has the authority to enter into contracts which are
binding upon the partnership.
12. Partnership contract is called the Article of Co-Partnership, not Article of
Partnership.

13. Let us assume that partners Lebron and Davis are to contribute P 20,000 and
P 30,000 respectively, but both have agreed that they would have equal capital in
the partnership, using the Bonus approach, the difference will be debited to the
Bonus account. [False.]

14. Mr. Caruso is chosen as the managing partner of the partnership. He is an

ostensible partner. [Ostensible partner is an active part of the business and is known
to the public.]

15. A dormant partner is both a secret and a silent partner.

16. There is a required number of limited partners in a general co-partnership; in

the same manner that, there is a required number of general partners in a limited
partnership. [False, there is no require number of limited partners]

17. The partner's share in partnership profit may be credited to the partner's
drawing account.

18. Each partner has an equal right to use partnership assets, to act for the
partnership and to enter contracts binding upon it.

19. When the personal assets of a general partner exceed his total liabilities, the
unpaid creditors of the partnership can only go after the excess assets.

20. A partner who has no participation in the management of the partnership affairs
is a nominal partner.

21. A partnership is both a contract and a business organization.

22. Taxes to be paid by the partnership is not contained in the Articles of Co-
Partnership.

23. Limited life of business and unlimited liability of partners best describes the
attributes of a partnership.

24. A partner who takes active part in the business but whose connection with the
partnership is concealed to the public is known as a secret partner.
25. The disadvantages of a partnership are unlimited liability, lack of harmony,
instability, and transfer of ownership.

26. Liquidating partner is one that takes charge of winding up of partnership affairs
upon dissolution

27. Nominal partner not really a partner, but is made liable as a partner for
protection of 3rd persons. (Exists in name only)

28. Ostensible partner (appearing to be true, but not necessarily so) is one who
takes active part in management and is known to the public as partner.

29. Secret partner is one who takes active part but whose connection is concealed
to the public.

30. Dormant partner inactive partner and not know, both a silent and secret partner.

31. Partner by holding out is also known as PARTNER BY ESTOPPEL.

32. the new partner acquires his share in profit from all the old partners in their old profit-
sharing ratio

In case of Fixed Capital method, two accounts are opened for recording the
transactions:
 salary,
 commission,
 interest on capital,
 drawings etc.
33. Partner's current account is opened when fluctuating capital method is adopted.
34. Partner’s current accounts are fixed.
35. The essential elements of a partnership must co - exist before a partnership can come
into existence
36. The profits of the business will be shared is a disadvantage of partnership as
compared to sole trader.
37. The share of loss appear in the partnership accounts in the Debit side of Partner’s
Current Accounts
38.